REG - abrdn New India IT. - Annual Financial Report
14/06/2024 07:00
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RNS Number : 4032S abrdn New India Investment Trust 14 June 2024
abrdn New India Investment Trust plc
LEI - 549300D2AW66WYEVKF02
Annual Report 31 March 2024
Seeking world-class, well governed companies at the heart of India's growth
abrdnnewindia.co.uk
"India's prospects are bright. The economy is the fastest-growing among its
peers."
Michael Hughes, Chairman
"The key to taking advantage of this market's promise is picking quality
stocks, backed by fundamental research, which aligns well with how we invest."
Kristy Fong and James Thom
Investment Manager
Why invest in India?
Aspiration
India's population is the largest in the world with an expanding middle class
which will drive consumption growth
Building India
Urbanisation and infrastructure development have multiplier effects for job
creation and the wider economy
Renewables
India has committed to meeting half of its energy needs from renewable sources
by 2030, thereby reducing its dependence on imported fuels
Domestic opportunities
Global businesses are investing in and shifting production to, India, drawn by
a wealth of incentives and opportunities
Exporting talent
India's giant tech service sector, built on a highly educated and diligent
workforce, drives the export of services by helping global companies keep pace
with the fast-changing tech innovation landscape
Digitalisation
India has made immense progress in digital investments, which will underpin
its rise to be one of the largest global economies by the middle of this
century
Why invest in abrdn New India Investment Trust plc?
Robust financial strength and sustainable competitive advantage
Indian companies meeting a 'quality' threshold are included in the portfolio,
displaying both strong financial characteristics and a consistent competitive
advantage in attractive industries or sectors
Quality Management
The management of the best companies in India is world-class and understands
the importance of good governance to drive the best outcomes for investors and
other stakeholders. Quality of management is a key attribute sought in
portfolio companies
Return of growth stocks
As interest rates peak globally over the medium term, investors will seek out
growth stocks which are set to benefit from this. The portfolio's focus on
those Indian companies with the desire and capacity to expand will drive
performance
Financial Highlights and Performance
Financial Highlights
31 March 2024 31 March 2023 % change
Equity shareholders' funds (net assets) £427,054,000 £357,919,000 +19.3
Market capitalisation £339,744,000 £285,747,000 +18.9
Share price (mid market) 652.00p 512.00p +27.3
Net asset value per Ordinary share(A) 819.56p 641.32p +27.8
Discount to net asset value(A) 20.4% 20.2%
Net gearing(A) 4.1% 5.8%
Total return per share 168.85p (60.00p)
Operating costs
Ongoing charges ratio(A) 1.00% 1.09%
(A) Considered to be an Alternative Performance Measure. Further information
on the one year percentage return may be found in Alternative Performance
Measures.
Performance (total return, in Sterling terms)
1 year 3 year 5 year 10 year
% return % return % return % return
Share price(A) +27.3 +20.3 +41.8 +190.4
Net asset value per Ordinary share(A) +27.8 +30.7 +54.4 +211.6
Adjusted net asset value per Ordinary share(A) +31.9 N/A N/A N/A
MSCI India Index (sterling adjusted) +34.4 +56.6 +81.0 +238.2
(A) Considered to be an Alternative Performance Measure.
Source: abrdn plc, Morningstar & Lipper.
STRATEGIC REPORT
Chairman's Statement
Dear Shareholder
In the Half-Yearly Report, I highlighted how India's impressive performance
continued to defy a global environment rife with volatility. Since then, the
country's upward trajectory has persisted - its stock market continues to be
one of the best performing markets while the economy is the fastest-growing
among its peers.
In order for the Company to take best advantage of these positive markets, the
Board has embarked on a number of initiatives over the year ended 31 March
2024:
· encouraging the Manager to more proactively consider mid-cap stocks
representing a greater proportion of the portfolio, while still preserving its
investment philosophy with its focus on quality and growth characteristics.
In response, the Board has noted that the Manager has extended its analyst
coverage, with deeper knowledge of the mid-cap sector;
· supporting the Manager in taking more active positions in stocks in which
it has the most conviction; and
· at the AGM in September 2023, putting forward a resolution to permit the
Company to invest up to 10% of net assets into pre-IPO investments, which was
overwhelmingly supported and, as a result, the Manager will pursue
opportunities where feasible.
Alongside these developments, the Board initiated a higher level of share
buy-backs when necessary, and sought the more regular update of the Company's
website (www.abrdnnewindia.co.uk), featuring additional webcasts and articles
on India as the nation holds a general election involving over 1 billion
voters.
The Board expects shareholders to benefit from these developments in due
course, against a background also of a lower management fee implemented from
April 2023 onwards.
Overview
India's prospects are bright and the current buoyant mood on the ground is in
sharp contrast to the prevailing global sentiment of caution and uncertainty.
The economy is expanding at an annual rate above 7%, playing catch-up after a
period of sub-par growth before the pandemic. This accelerating growth story
is backed by encouraging macroeconomic trends, including a real estate boom, a
robust infrastructure capex cycle and manageable levels of inflation. Interest
rates appear to have peaked for now, barring any unexpected shocks to the
economy, as the Reserve Bank of India has not announced any policy moves since
February 2023.
The rise in public spending to fund critical infrastructure projects - such as
building more roads, railways and ports - has been a crucial spur to economic
development in recent years, providing a solid foundation for sustainable
growth. These projects have been designed to both create new jobs and
encourage the revival of a private capex cycle which is now in its early
stages and will help to sustain growth in the economy and in corporate
earnings. As outlined in the Government's Interim Budget, India plans to spend
another US$134 billion (£107 billion) on infrastructure alongside a renewed
focus on long-term reforms. This is welcome news for India's capex-sensitive
sectors such as capital goods and building materials where your Manager has
re-positioned the portfolio by introducing new, high-quality names and adding
to existing holdings.
The recent election result was a surprise and is discussed in more detail in
the Investment Manager's Report.
Performance
Over the year ended 31 March 2024, the Company's net asset value ("NAV") rose
27.8% in sterling terms (total return), marking a sharp turnaround from the
previous 12 months. The Company's share price was up 27.3% while the discount
to NAV of 20.4% was almost unchanged from that at March 2023. I am pleased
that the Company has delivered strong absolute returns, albeit the riskier
MSCI India Index (the "Benchmark") outperformed, rising 34.4% in total return
terms.
The Manager is working hard to improve performance both in absolute and
relative terms and is confident that the underlying fundamentals of the
portfolio remain sound, and our holdings continue to report healthy earnings
progression.
Looking at your Company's performance during the year in more detail, the
largest positive contribution to relative performance came from property. The
portfolio has a large exposure to this sector, compared to the Benchmark, as
India is undergoing a long overdue recovery in residential property sales, and
the long-term prospects remain bright. It is pleasing to note that your
Manager's decision to proactively pivot the portfolio towards industrial names
and likely beneficiaries of large-scale public spending is starting to pay
off.
Two other key developments influenced portfolio returns. Firstly, a liquidity
deficit in the Indian banking system at the start of 2024 prompted concerns
among investors over near-term loan growth and margin pressure for lenders.
This affected the share price performance of HDFC Bank, which remained weak.
The other issue has been the uneven recovery in consumption where urban demand
has returned strongly while rural consumption remains relatively soft. This
development weighed on the Company's core consumer staples holding - Hindustan
Unilever. Our expectation is that there is room for both fiscal and monetary
policy support by the Government to resolve these issues, noting the overall
health of the banking sector remains strong. While HDFC Bank and Hindustan
Unilever disappointed due to these challenges, they both remain high-quality
businesses that are intrinsically linked to India's future prosperity.
The Board and I continue to have faith in the Company's long-term growth
potential. Your Manager is adapting the portfolio to market conditions while
considering new ideas that will benefit from positive structural trends.
Further detail on the drivers of performance and changes made to the portfolio
during the year may be found in the Investment Manager's Report.
Manager Change
After involvement with the Company for nearly 20 years, Kristy Fong is
stepping down as Co-Investment Manager in September 2024. James Thom becomes
the lead Investment Manager, assisted by Rita Tahilramani. The Board thanks
Kristy for her stewardship of the Company's investment portfolio and wishes
her well.
Conditional tender offer
In March 2022 the Board announced the introduction of a five-yearly
performance-related conditional tender offer. The Board was concerned about
the relative underperformance of the Company's NAV, as compared to its
Benchmark. Following discussions with the Investment Manager, the Board
decided that, should the Company's NAV total return underperform the Company's
Benchmark over the five-year period from 1 April 2022, then shareholders
should be offered the opportunity to realise up to 25 per cent of their
investment for cash at a level close to NAV. For these purposes, the Company's
NAV per share is adjusted for Indian capital gains tax (the "Adjusted NAV") to
enable a like-for-like comparison with the Benchmark.
The Board keeps the Company's performance under review and, over the first two
years of the measurement period from 1 April 2022 to 31 March 2024, the
Adjusted NAV total return was 20.7% versus the Benchmark's total return of
26.4% (please see the Alternative Performance Measures for further
information).
Discount and Share Buybacks
The Board continues to monitor actively the discount of the Ordinary share
price to the NAV per Ordinary share and pursues a policy of selective buybacks
of shares where to do so, in the opinion of the Board, is in the best
interests of shareholders, while also having regard to the overall size of the
Company.
Over the year ended 31 March 2024, the Company bought back into treasury
3,702,011 (2023 - 2,127,206) Ordinary shares, representing 6.6% (2023 - 3.7%)
of the issued share capital (excluding treasury shares) at the start of the
year, a considerable step up in buyback activity. At 31 March 2024, there were
52,107,910 (2023 - 55,809,921) shares in issue with voting rights and an
additional 6,962,230 (2023 - 3,260,219) shares held in treasury. Between the
year end and 13 June 2024, the latest practicable date prior to approval of
this Report, a further 564,198 shares were bought back into treasury resulting
in 51,543,712 shares in issue with voting shares and 7,526,428 shares held in
treasury.
The Board believes that a combination of stronger long-term investment
performance and effective marketing should increase demand for the Company's
shares and reduce the discount to NAV at which they trade, over time.
Gearing
As at 31 March 2024, £26 million (2023 - £30m) had been drawn from the £30m
bank loan provided by Royal Bank of Scotland International, which resulted in
net gearing of 4.1% (2023 - 5.8%). During the year, this gearing had a
positive impact on returns, though the Board and Manager are conscious of the
increased interest cost of gearing, so keep the level of gearing under regular
review. The ability to gear is one of the advantages of the closed ended
company structure and your Manager continues to seek opportunities to deploy
this facility for the benefit of shareholders.
Impact of Indian Capital Gains Tax
The Company, along with other investment vehicles, is subject to both short
and long term capital gains taxes in India on the growth in value of its
investment portfolio, which become payable when underlying investments are
sold and profits crystallised. Where investments are valued at a profit, but
not yet sold, the Company must accrue for the potential capital gains tax
payable, which amounted to £19.4 million (2023 - £11.1 million) at 31 March
2024, equivalent to a reduction in the NAV per share of 37.2p or 4.5% at 31
March 2024 (2023 - 20.0p or 3.1%).
Shareholder Engagement
The Board encourages shareholders to visit the Company's website
(www.abrdnnewindia.co.uk) for the latest information and monthly factsheets as
well as accessing podcasts and thought-leadership and macro research articles
published by the Manager.
Annual General Meeting
The Company's AGM will be held at 18 Bishops Square, London E1 6EG at 12.30pm
on Friday 20 September 2024. The AGM provides shareholders with an opportunity
to ask any questions that they may have of either the Board or the Investment
Manager. Voting on the resolutions to be put to shareholders will be conducted
by way of a poll and those attending are encouraged to bring with them a
letter of corporate representation in respect of their ownership of shares in
the Company.
I look forward to meeting as many of you as possible over refreshments which
will follow the AGM. Shareholders, whether attending the AGM or not, are
encouraged to submit questions for the Board and/or Investment Manager, in
advance, by email to new.india@abrdn.com.
Online Shareholder Presentation
In order to encourage and promote interaction and engagement with the
Company's shareholders, the Company is holding an interactive Online
Shareholder Presentation (the "Presentation") at 11.00am on Thursday 12
September 2024, to cater for those shareholders who may be unable to attend
the AGM. During the Presentation, shareholders will receive a short
introduction from the Chairman and portfolio update from the Investment
Manager, followed by an interactive question and answer session. The
Presentation is being held ahead of the AGM in order to allow shareholders to
submit their proxy votes prior to the meeting. Further information on how to
register for the Presentation may be found on the Company's website.
Update
I am pleased to report that your Company has performed extremely well since
the year end with total returns for the NAV of 14.7% compared to 6.0% for the
Benchmark from 31 March 2024 to 10 June 2024 (the latest practicable date
prior to approval of this Report).
Outlook
India's economy is the fastest-growing among its peers and the country offers
favourable demographics: a large, relatively young population and a growing
middle class. Indian corporations are becoming more sophisticated, with many
competing at an international level. Economic conditions remain buoyant with
supportive policymaking from the Government and Reserve Bank of India, while
the capex cycle and infrastructure spending should help to sustain momentum.
Indian companies are also benefitting as multinational corporations diversify
their supply chains to reduce their reliance on China. From a global
perspective, India enjoys more geopolitical stability compared to other
emerging market countries with tensions between the United States and China
remaining high.
Investing in India, however, means accepting market volatility, particularly
as high growth rates in corporate earnings come with high valuations. This is
particularly true in small and mid-cap stocks; these do not form the core of
our portfolio although they are included in it to ensure that shareholders
benefit over the medium-to-longer term.
Your Board is confident that your Manager has assembled a portfolio of
high-quality, resilient companies that possess strong balance sheets and can
profit from pricing power at each stage of the economic cycle.
Michael Hughes
Chairman
13 June 2024
Investment Manager's Report
In the year ended 31 March 2024, the Company's net asset value ("NAV") total
return rose 27.8%, compared to an 8% decline in the previous year. A
substantial part of that negative return was clawed back by sticking to our
long-term quality investment philosophy and by repositioning the portfolio
towards structurally attractive segments that are now paying off. However, the
Company was not able to keep pace with the MSCI India Index, which rose 34.4%.
We explain the reasons below.
Market review
As the Chairman describes in his Statement, the Indian market had a strong run
throughout most of the year, underpinned by a robust domestic economy and an
enviable growth trajectory. Retail inflation has remained steady at just over
5%, while the Reserve Bank of India has not increased interest rates since
February 2023. The estimated GDP growth rate for the full financial year was
projected at 7.6%, surpassing the previous year's figure of 7%, leading to
India holding to its position as the world's fastest-growing major economy. We
did see some pullback in the market this year, particularly in the
small-and-mid ("SMID") cap space. After outperforming Indian large-caps last
year, SMID companies corrected in March 2024 when the Indian securities
regulator increased scrutiny towards domestic mutual funds due to rising
valuations. We had been very selective in adding SMID names to the portfolio,
preferring companies with good earnings visibility and a track record of
delivering on growth.
At the time of writing, India's 2024 general election has just concluded, and
the outcome came as a big surprise to the market. Polls had predicted that
Prime Minister Narendra Modi and his party would comfortably win enough seats
in the lower house of parliament to form a government on their own. Instead,
Modi's Bharatiya Janata Party (BJP) failed to secure a majority. This has
forced Modi and the BJP into a coalition government for the first time in his
career. Modi's bargaining power within this alliance is likely to be reduced,
with a possibility of ministries reshuffling and some of them being given to
the non-BJP leaders. As a result, we will need to keep a close watch on
Cabinet formation and capital allocation in the FY25 budget.
Thinking about the implications for policymaking, we view BJP's broad agenda
around infrastructure, manufacturing, and technology is likely to continue,
and would create structural tailwinds for the economy. New big bang reforms,
however, are unlikely to come from a coalition government. Instead, we could
see measures favouring populist agendas take precedence whilst there could be
some moderation in capital expenditure. Job creation and tackling the rural
economy could also take the spotlight.
The Company's quality focus and positioning in several defensive sectors such
as IT Services, Consumer Staples, and, to some extent, Banking and Insurance,
should provide resilience to the portfolio through the current market
turbulence. Our conviction in our India holdings remains strong, re-enforced
by recent trips and meetings with company management teams. Valuation dips
could present buying opportunities.
Performance review
The strongest returns came from the holdings in property as well as from
infrastructure and capital expenditure (capex) beneficiaries in utilities and
industrials sectors. Our consumer, financials, and energy stocks, however,
lagged the market's rally. Real estate was the biggest performance driver,
with our exposures benefitting from structural trends as well as the SMID
rally seen throughout most of 2023. Property developers Godrej Properties (see
the case study below) and Prestige Estates were the top stock contributors,
reporting strong pre-sales numbers for their new housing projects. India is
undergoing a long overdue recovery in residential property sales and the
future prospects for the overall sector remain bright.
We were pleased to see that our repositioning towards industrial names and
capex proxies has paid off. India has ramped up public capex by building more
roads, railways, ports and similar projects to create additional jobs and
revive private capex. Our holdings that benefited from this step-up in capital
spending include ABB India as well as Power Grid Corporation of India. Power
Grid has raised its capex guidance as its development pipeline and earnings
visibility remain robust. Meanwhile, our telco exposure in Bharti Airtel (see
the case study below) did well amid ongoing industry consolidation, and on
expectations of a new tariff hike after the elections.
Some of our IPO names that were depressed in the previous year, due to the
growth-to-value rotation in the market, have started to demonstrate positive
performance. This includes affordable housing company Aptus Value Housing
Finance and online insurance platform, PB Fintech.
Looking at where the Company has fallen short, HDFC Bank and Hindustan
Unilever have both disappointed in growth and, therefore, in relative share
price performance. HDFC Bank will now take longer to deliver integration cost
savings following its merger with mortgage lender HDFC, in a tighter liquidity
environment. A sluggish rural economy has acted as a brake on Hindustan
Unilever's growth. While we continue to believe in the medium-term investment
theses for both stocks, we have partially cut these holdings to release funds
for several of our new ideas discussed below.
In the energy sector, our holding in Aegis Logistics did well but trailed its
peers - mostly public sector companies - which we tend to avoid owning in the
portfolio. Index heavyweight Reliance Industries lagged in 2023 but saw a
recovery in its share price in 2024. We do not hold the company due to
reservations around capital allocation and governance standards.
Finally, within consumer discretionary, our auto holdings performed well but
underperformed some of their peers. Not holding online delivery company Zomato
also affected relative performance. While we are aware that we are lightly
exposed here, this sector is seeing increasingly stretched valuations, and we
believe it is necessary to tread with caution.
Overall, the underlying fundamentals of our portfolio remain sound, and our
companies continue to report healthy earnings growth, mostly in line with
expectations.
Portfolio Activity
During the year, we actively repositioned the portfolio to maximise potential
returns. Key changes included scaling up the exposure to investment themes
that we found attractive, provided we could find stocks that met our quality
criteria from a bottom-up perspective in these sectors. These structurally
attractive themes include: premiumisation, property upcycle, and
infrastructure and capex beneficiaries. We also added some high-quality names
based on stock-specific factors that were largely independent of more top-down
themes.
Within consumer, we introduced a new SMID-cap addition in the automotive
sector, Uno Minda, which provides auto components to four-wheeler and
two-wheeler OEMs. In real estate, we added Phoenix Mills, which operates high
quality shopping malls in top-tier and state capital cities with a good
pipeline of new assets expected over the next few years. It is also a premium
consumption play as India's disposable income slowly tracks higher alongside
growth.
In Industrials, we introduced Siemens India, the Indian arm of the German
multi-national, as well as a SMID-cap name, Apar Industries. We also added
Havells India, a proxy to the electrical and consumer durable sector, and
building material company Pidilite, an indirect beneficiary of the housing
cycle and home improvement trend. In Software & Services, we scaled back
our position given the sector's vulnerability to a slow-down in the core US
market and a subsequent contraction in IT spend. However, we have also taken
advantage of the price falls across the sector and added a new mid-cap name,
Coforge, which provides niche IT services with deep domain expertise.
While financials remains our largest portfolio weight by sector, we broadened
our mix of stock holdings. We added to NBFCs (non-bank finance companies) by
initiating Cholamandalam Investment and Finance that has a long growth runway
and has operating levers to mitigate against rate headwinds. We also
introduced KFin Technologies, a fast-growing player in the Mutual fund
Registrar and Transfer Agency duopoly, benefitting from structural growth
trends such as wealth accumulation in India. These were funded by reducing our
banking exposure, primarily with the exit of Kotak Mahindra Bank.
Lastly, we also exited lower conviction holdings Asian Paints and Renew Energy
Global to fund some of the new ideas.
Outlook
India is the world's fastest-growing major economy, backed by a resilient
macro backdrop that includes a real estate boom, strong consumer sentiment in
urban areas, and a robust infrastructure capex cycle.
The growth story is underpinned largely by supportive policies from the
central government as well as a decade of painful, but necessary economic
reforms. The groundwork laid by these sweeping reforms has put India on a
positive economic trajectory. We are also seeing early signs of a private
capex revival. This can potentially continue to sustain both economic momentum
and corporate earnings growth.
India still faces some near-term risks, most of which are external, including
potentially higher global energy prices and a slowdown in the world economy.
As a net oil importer, recent developments in the Middle East remain a
potential source of concern as any escalation will push oil prices higher. As
the Chairman noted earlier, valuation is also a perpetual risk - given its
recent outperformance, India has become a consensus trade, with valuations
becoming stretched, especially in small and mid-caps. The key to taking
advantage of this market's promise is bottom-up stock picking that is backed
by fundamental research, which aligns well with how we invest.
The Company's downside is well-protected given our quality focus, and our
defensive holdings are in a good position in case of profit taking.
Furthermore, any correction in the market would be an opportunity to add to
the holdings. The consistency of earnings growth of the portfolio remains
healthy and individual company fundamentals, such as pricing power, strong
balance sheets and the ability to sustain margins, remain solid.
Kristy Fong and James Thom
Investment Manager
13 June 2024
Investment Case Studies
Bharti Airtel - the most financially disciplined player in a consolidating
telecom market
Bharti Airtel offers mobile, voice, data and cloud-based solutions to over 500
million customers in 17 countries across Asia and Africa. It is India's
largest integrated telecom solutions provider to the retail and enterprise
markets, and also the No.2 mobile operator in Africa, after South Africa's
MTN Group.
We believe that Airtel is the most commercial and financially disciplined
service provider in an Indian telecom landscape that has undergone significant
market repair. The market has consolidated down from close to 12 companies
just five to six years ago to less than a handful of players today, in what is
now effectively a duopoly between Jio and Airtel.
Thanks to the market repair, Airtel turned free cash flow (FCF) positive for
the first time in 2022. The company has also demonstrated its ability to raise
capital, with a rights issue of up to 210 billion rupees (£2 billion) in
September 2021 and most of the proceeds yet to be used. Airtel's capex will
also start to taper off as its rural expansion slows, easing the funding needs
and potentially improving the FCF outlook, which could lead the company to
consider paying down debt or even paying dividends. Most recently, the company
also listed its Bharti Hexacom subsidiary, the group's first IPO in over a
decade.
While Airtel continues to deliver consistent growth across all its businesses
with an industry leading average revenue per user (ARPU), its return on
capital employed (ROCE), however, remains low at 9.4% 1 . The management
indicated that tariff repair was critical to ensure the industry's health, and
it was confident that tariffs would rise over the next two years. This would
also help raise
its ROCE.
The market's structural dynamics are in Airtel's favour. The market remains
underpenetrated, with mobile penetration standing at 69% as of FY22,
indicating room for organic growth. Mobile spend as a percentage of GDP is low
at 0.95% in FY22, which is much lower compared to other ASEAN markets at
1.2-1.8% 2 .
As smartphones become more affordable and subscribers migrate to 5G, the
uptake of data services is increasing; for Airtel, data services are growing
rapidly and the group expects this trend to be sustainable 3 . The other key
growth area is in home broadband services, which is doing well with healthy
subscriber additions and improving ARPU, supported by the rollout of its
high-speed Xstream AirFiber network across the country.
On the sustainability front, the group continues to make progress on its ESG
agenda. Airtel has committed to reduce absolute Scope 1 and 2 greenhouse gas
emissions by 50.2% by FY 2030-31 from the base year of FY 2020-21. It has also
committed to reducing absolute Scope 3 GHG emissions by 42% over the same time
frame.
1 Bharti Airtel Limited - Media Release February 05, 2024
2 abrdn research
3 Bharti Airtel Limited - Integrated Report and Annual Financial Statements
2022-23
Godrej Properties - reputable high-quality real estate developer in India
Set up in 1897, the Godrej Group has its roots in India's independence and
Swadeshi movement 1 . Its founder, Ardeshir Godrej, a lawyer-turned-serial
entrepreneur, failed with a few ventures before he found success with a locks
business 2 . The group has since grown into one with annual revenue of about
US$6 billion earned from consumer goods, real estate, appliances, agriculture
and other areas, and it is still controlled by the Godrej family - one of the
most eminent industrial families in India with admirable track record of
treating minority shareholders fairly over the decades. That is why we have
felt comfortable investing in several of their listed entities over the years,
including its primary property vehicle Godrej Properties Limited ("GPL"),
which was established in 1990 and listed in 2010. The group considers real
estate as a key growth area among its businesses. GPL is the country's largest
developer by number of homes sold in FY23. It has delivered close to 41
million sq ft of real estate since FY18, and it is developing landmark
projects in 12 cities across India covering over 18.58 million sq m 3 .
GPL's solid execution has led to the developer being ranked as the most
trusted real estate brand in the 2019 Brand Trust report. This also reflects
its reputation and how it stands out from its peers in overall quality. Its
other advantages include an asset-light and capital efficient development
model, and good access to capital with the lowest bank funding rates across
the sector. The company appears to be at an inflection point with improving
fundamentals, and we expect steadily improving presales, profitability and
cash flows over the next few years.
More broadly, we view GPL as well positioned to benefit from the domestic real
estate industry's up-cycle. The industry's longer-term outlook remains bright,
supported by an aspirational population, rising urbanisation and incomes, and
favourable regulatory changes. Aside from the reform of the Real Estate
(Regulation and Development) Act in India, that has led to a more regulated
industry and greater protection for home buyers, schemes like the Pradhan
Mantri Awas Yojana and Rajiv Awas Yojana have incentivised developers to
venture into the affordable housing segment, fostering accessibility and
affordability for the population.
The developer is also a leader on the sustainability front. It has been
included among the global sustainability leaders in the Dow Jones
Sustainability Indices list and has been ranked no.1 globally for three
consecutive years in 2020, 2021 and 2022 by the Global Real Estate
Sustainability benchmark (GRESB). MSCI has also given an ESG rating of BB to
GPL, citing its green building efforts. As of the third quarter of FY23-24,
96% of GPL's portfolio is certified under credible external green building
rating systems like IGBC and GRIHA 3 . In addition, the company is water
positive and carbon neutral for Scope 1 and Scope 2 greenhouse gas emissions,
and it is strengthening its efforts to include Scope 3 emissions through its
supplier engagement programme.
1 Swadeshi movement - Wikipedia
2 About Godrej Properties | Best Real Estate Companies in India
3 Godrej Properties 3QFY2024 Results Presentation
Overview of Strategy
Business Model
The business of the Company is that of an investment company which continues
to qualify as an investment trust for UK capital gains tax purposes. The
Directors do not envisage any change either to this model or to the Company's
activities in the foreseeable future.
Investment Objective
The Company aims 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 invests primarily in Indian equity securities.
Delivering the Investment Policy
At the AGM on 27 September 2023, shareholders approved a new investment
policy, involving amendments to Risk Diversification; the sections under
Gearing; Currency, Hedging Policy and Derivatives; and Investment Restrictions
are unchanged. The former investment policy, in place until 27 September 2023,
may be found on page 12 of the Annual Report for the year ended 31 March 2023.
The Company's current investment policy is as follows:
Risk Diversification
The 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. The Company may, where appropriate, invest in open-ended collective
investment schemes and closed-end funds which invest in India and are listed
on the Indian stock exchanges. The Company is free to invest in any particular
market segment or geographical region of India or in small, mid or large
capitalisation companies. The Company may invest up to 10% of its NAV in
unquoted companies in aggregate, measured at the time of each investment.
The Company's portfolio will typically comprise in the region of 25 to 50
holdings, but with due consideration given to spreading investment risk. No
individual issuer is expected normally to represent a greater weight in the
portfolio than the higher of (i) 10% of the Company's net assets or (ii) the
individual issuer's weight in the MSCI India Index (in sterling terms) plus
2%, both as measured at the time of each investment, although there is a
maximum permitted exposure to a single issuer of 20% of the Company's net
assets at all times.
Gearing
The Company is permitted to borrow up to 25% of its net assets (measured when
new borrowings are incurred). It is intended that this power should be used to
leverage the Company's portfolio in order to enhance returns when and to the
extent that it is considered appropriate to do so. Under normal circumstances,
over the longer term and in tandem with the rising value of the Company's
investments, gearing is expected to improve returns.
The Company's gearing is essentially structural in nature but, in addition,
may be used for specific opportunities or circumstances. The Directors take
care to ensure that borrowing covenants permit flexibility of investment
policy.
Currency, Hedging Policy and Derivatives
The Company's financial statements are maintained in Sterling while, because
of its investment focus, nearly all of its portfolio investments are
denominated and quoted in the Indian Rupee. Although it is not the Company's
present intention to do so, the Company 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 appropriate, although it is expected that this would
primarily be Sterling.
Although the Company does not employ derivatives presently, it may do so, if
appropriate, to enhance portfolio returns (of a capital or income nature) and
for efficient portfolio management, that is, to reduce, transfer or eliminate
risk in its investments, including protection against currency risks, or to
gain exposure to a
specific market.
Investment Restrictions
It is the investment policy of the Company to invest no more than 15% of its
gross assets in other listed investment companies (including listed investment
trusts). The Company held no investments in other listed investment companies
during the year ended 31 March 2024.
Benchmark
The Company's Benchmark is the MSCI India Index (Sterling-adjusted). The Board
also considers the Adjusted NAV in relation to the conditional tender offer
announced in March 2022.
Key Performance Indicators
At each Board meeting, the Directors consider a number of performance measures
to assess the Company's success in achieving its objective. The main Key
Performance Indicators ("KPIs") identified by the Board in relation to the
Company, which are considered at each Board meeting, are as follows:
KPI Description
Performance of NAV and share price compared to the Benchmark The Board considers the Company's NAV return, the Adjusted NAV return and
share price return, all relative to the Benchmark, to be the best indicator of
performance over time. The figures for this year and for the past three, five
and ten years are set out on page 3 of the Annual Report for the NAV return
and share price total return while a graph showing NAV and share price total
return performance against the Benchmark over the past five years is shown on
page 21 of the Annual Report.
Discount to NAV The discount at which the Company's share price trades relative to the NAV per
share is monitored by the Board. A graph showing the discount over the last
five years is shown on page 21 of the Annual Report.
Ongoing charges The Board regularly monitors the operating costs of the Company and the
ongoing charges for this year and the previous year are disclosed in Financial
Highlights and Performance above.
Principal Risks and Uncertainties
There are a number of risks which, if realised, could have a material adverse
effect on the Company and its financial position, performance and prospects.
The Board has carried out a robust assessment of these risks, including
emerging risks, which include those that would threaten its business model,
future performance and solvency. The principal risks associated with an
investment in the Company's shares are published monthly in the Company's
factsheet which is available from the Company's website: abrdnnewindia.co.uk.
The principal risks and uncertainties, and emerging risks, faced by the
Company are reviewed annually by the Audit Committee in the form of a detailed
risk matrix and heat map and they are described in the table below, together
with any mitigating actions. In addition, the Board has identified, as an
emerging risk, the general escalation of geo-political risk globally. This may
have implications for investors in India (see "Single Country Risk"). In
addition, the Audit Committee considers the implications for the Company's
investment portfolio of a changing climate. The Board assesses this emerging
risk as it develops, including how investor sentiment is evolving towards
climate risk within investment portfolios, and will consider how the Company
may mitigate this risk, and other emerging risks, if and when they become
material. The Board is also conscious of the development of Artificial
Intelligence ("AI"), which may have a potentially positive or negative impact
at Company, sector and country level.
In all other respects, the Company's principal risks and uncertainties have
not changed materially since the date of the previous Annual Report and are
not expected to change materially for the current financial year.
An explanation of other risks relating to the Company's investment activities,
specifically market price, interest rate, liquidity and credit risk, and a
note of how these risks are managed, is contained in Note 17 to the financial
statements.
Description Mitigating Action
Strategic risk - inappropriate business strategy leads to lack of demand for The Board reviews its strategy and investment mandate annually in the context
the Company's shares, leading to its shares trading at a persistent and of developments in markets and taking account of investor feedback.
anomalous discount to its Net Asset Value
Market risk - falls in the prices of securities issued by Indian companies, The Investment Manager seeks to reduce market risk by investing in a wide
which may be caused by company-specific issues or may be determined by local variety of companies with strong balance sheets and the ability to generate
and international economic, political, social, and financial factors, increased earnings. In addition, investments are made in diversified sectors
including pandemics, natural disasters (arising from climate change or in order to reduce the risk of a single large exposure. The Investment Manager
otherwise) or geo-political conflicts. believes that diversification should be looked at in absolute terms rather
than relative to the Benchmark. The performance of the portfolio relative to
the Benchmark and the underlying stock and sector weightings in the portfolio
against their Benchmark weightings are monitored closely by the Board.
Poor investment performance - poor investment performance leads to loss of The investment performance of the Manager is reviewed at each Board meeting
asset value in comparison to the benchmark and/or the peer group, and, over and compared to the benchmark and the peer group. Exposure to a range of risk
time, can lead to a widening of the discount to NAV at which the Company's factors is also reviewed.
shares trade.
Discount - factors which affect the discount to NAV at which the Ordinary The Board keeps under review the discount and undertakes selective buyback of
shares of the Company trade. These may include the popularity of the shares where to do so would be in the best interests of shareholders, balanced
investment objective of the Company, the popularity of investment trust shares against reducing the overall size of the Company. Any shares bought back are
in general, the investment performance of the Company, and the ease with which held in treasury.
the Company's Ordinary shares can be traded on the London Stock Exchange.
Single country risk - the Company invests in companies which are incorporated The Company's exposure to India is an integral part of its investment
in, or derive significant revenue or profit from, a single country - India. strategy. Risk can be mitigated, to a degree, by the monitoring of emerging
Investing in a single country, which is also an emerging market, is generally risks, and by appropriate actions in relation to portfolio construction,
a higher risk strategy than investing more widely, or in developed markets. liquidity and gearing.
There is likely to be greater political and regulatory risk, and the standards
of disclosures and corporate governance may be less developed than in The Board is kept informed of political, regulatory and tax issues affecting
developed markets. In addition, there may be specific internal political and the portfolio.
social issues, or wider geo-political issues, which could lead to social
upheaval, unrest, or conflict.
The Board monitors the Rupee/Sterling exchange rate and reviews the currency
impacts on both capital and income regularly, although the Company did not
These events may lead to falls in equity markets, and also adverse foreign hedge its foreign currency exposure during the year.
currency movements.
Supplier risk - The Company is dependent on the services provided by third The Board reviews the overall performance of the Manager and all other key
parties, and in particular the Manager and Depositary. Failure by third service providers on a regular basis. In particular, the Depositary, BNP
parties to carry out their obligations to the Company, or reputational issues Paribas Trust Corporation UK Limited, presents to the Board at least annually
or inadequate succession arrangements, could disrupt the level of service on the Company's compliance with the Alternative Investment Fund Managers
provided. In particular, the insolvency of the depositary or custodian or Directive ("AIFMD"). The Manager separately monitors the activities of the
sub-custodian, or a shortfall in the assets held by that depositary, custodian depositary and reports to the Board on any exceptions arising.
or sub-custodian arising from fraud, operational errors or settlement
difficulties resulting in a loss of assets owned by the Company.
Financial and regulatory - the financial risks associated with the portfolio The financial risks associated with the Company include market risk, liquidity
could result in losses to the Company. In addition, failure to comply with risk and credit risk, all of which are mitigated by the Manager. Further
relevant regulation (including the Companies Act, the Financial Services and details of the steps taken to mitigate the financial risks associated with the
Markets Act, the Alternative Investment Fund Managers Directive, accounting portfolio are set out in Note 17 to the financial statements.
standards, investment trust regulations and the Listing Rules, Disclosure
Guidance and Transparency Rules and Prospectus Rules) may have an adverse The Board is responsible for ensuring the Company's compliance with applicable
impact on the Company. regulations. Monitoring of this compliance, and regular reporting to the Board
thereon, has been delegated to the Manager. The Board receives updates from
the Manager and AIC briefings concerning industry changes. From time to time,
the Company also employs external advisers covering specific areas of
Any change in the Company's tax status or in taxation legislation either in compliance.
India or in the UK (including the tax treatment of dividends, capital gains or
other investment income received by the Company) could affect the value of the In particular, the Board receives reports from the Manager covering investment
investments held by the Company and the Company's ability to provide returns movements, the level and type of forecast income and expenditure and the
to shareholders or alter the post-tax returns to shareholders. amount of proposed dividends with a view to ensuring that the Company
continues to qualify as an investment trust under Chapter 4 of Part 24 of the
Corporation Tax Act 2010. A breach of these regulations would mean that the
Company is no longer exempt from UK capital gains tax on profits realised from
In particular, the calculation of Indian capital gains tax which may be due the sale of its investments.
can be complex and is dependent on the interpretation of the legislation,
which may result in an under- or over-provision being made. The Indian capital gains tax provision is calculated by an independent third
party and reviewed at least half-yearly by the Audit Committee.
Gearing - while the use of gearing should enhance the total return on the The Board is responsible for determining the gearing strategy for the Company,
Ordinary shares where the return on the Company's underlying assets is rising with day-to-day gearing decisions being made by the Investment Manager.
and exceeds the cost of borrowing, it will have the opposite effect where the Borrowings are short term in nature and particular care is taken to ensure
underlying return is less than the cost of borrowing, further reducing the that any bank covenants permit maximum flexibility of investment policy. The
total return on the Ordinary shares. A significant fall in the value of the Board has agreed certain gearing restrictions with the Manager and reviews
Company's investment portfolio could result in a breach of bank covenants and compliance with these guidelines at each Board meeting.
trigger demands for early repayment.
Loan agreements are entered into following review by the Company's lawyers.
Unlisted securities - the Company may invest in unlisted securities, which may At 31 March 2024, there were no unlisted investments in the portfolio. The
not be readily realisable, and may be more difficult to value in the absence Manager is currently seeking the necessary regulatory permissions to make
of a quoted price. There may be less available information and less regulation unlisted investments in India. Once obtained, the Manager will conduct
in respect of disclosures and corporate governance. appropriate due diligence in respect of any unlisted investments. Valuation
will be assessed by an independent third party and reviewed at least
half-yearly by the Audit Committee.
Promoting the Company
The Board recognises the importance of updating existing investors as well as
promoting the Company to prospective investors, with the aim of improving
liquidity in the Company's shares and reducing the discount at which they
trade, thereby enhancing value. Communicating the long-term attractions of the
Company is key.
The Board seeks to achieve this through subscription to, and participation in,
the promotional programme run by abrdn on behalf of the investment companies
under its management.
The Company's financial contribution to the programme is matched by abrdn.
abrdn's promotional activities team reports quarterly to the Board giving
analysis of the promotional activities as well as updates on the shareholder
register and any changes in the composition of that register.
The Company further supports the Manager's investor relations programme which
involves regional roadshows as well as promotional and public relations
campaigns.
Board Diversity and Succession
The Board recognises the importance of having a range of skilled, experienced
individuals with the right knowledge represented on the Board in order to
allow the Board to fulfil its obligations. The Board also recognises the
benefits, and is committed to, the principle of diversity in its recruitment
of new Board members. The Board will continue to ensure that all appointments
are made on the basis of merit against the specification prepared for each
appointment and will search widely when recruiting any new Director with a
view to maximising diversity. Consequently, the Company does not consider it
appropriate to set specific diversity targets. At 31 March 2024, there were
three male Directors and one female Director on the Board.
The Board has agreed a policy whereby no Director, including the Chairman,
shall serve for longer than the ninth AGM after the date of their initial date
of appointment as a Director unless in relation to exceptional circumstances.
Environmental, Social and Human Rights Issues
The Company has no employees as it is managed by abrdn Fund Managers Limited
and there are therefore no disclosures to be made in respect of employees. The
Company's responsible investment policy is outlined above.
Due to the nature of the Company's business, being a company that does not
offer goods and services to customers, the Board considers that it is not
within the scope of the Modern Slavery Act 2015 because it has no turnover.
The Company is therefore not required to make a slavery and human trafficking
statement.
Notwithstanding this, the Board considers the Company's supply chains, dealing
predominantly with professional advisers and service providers in the
financial services industry, to be low risk in relation to this matter.
Global Greenhouse Gas Emissions and Streamlined Energy and Carbon Reporting
("SECR")
All of the Company's activities are outsourced to third parties. The Company
therefore has no greenhouse gas emissions to report from the operations of its
business, nor does it have responsibility for any other emissions producing
sources under the Companies Act 2006 (Strategic Report and Directors' Reports)
Regulations 2013. For the same reason as set out above, the Company
considers itself to be a low energy user under the SECR regulations and
therefore is not required to disclose energy and carbon information.
Task Force for Climate-Related financial Disclosures ("TCFD")
Under Listing Rule 15.4.29(R), the Company, as a closed ended investment
company, is exempt from complying with the Task Force on Climate-related
Financial Disclosures ("TCFD").
Whilst TCFD is currently not applicable to the Company, the Manager has
produced a product level report on the Company in accordance with the FCA's
rules and guidance regarding the disclosure of climate-related financial
information consistent with TCFD Recommendations and Recommended Disclosures.
These disclosures are intended to help meet the information needs of market
participants, including institutional clients and consumers of financial
products, in relation to the climate-related impact and risks of the Manager's
TCFD in-scope business. The product level report on the Company is available
on the Manager's website at: invtrusts.co.uk.
Viability Statement
The Company does not have a fixed period strategic plan, but the Board does
formally consider risks and strategy on at least an annual basis. The Board
regards the Company, with no fixed life, as a long-term investment vehicle,
but for the purposes of this viability statement has decided that a period of
three years is an appropriate period over which to report. The Board considers
that this period reflects a balance between looking out over a medium-term
horizon and the inherent uncertainties of looking out further than three
years.
Taking into account the Company's current position and the potential impact of
its principal risks and uncertainties, the Directors have a reasonable
expectation that the Company will be able to continue in operation and meet
its liabilities as they fall due for a period of three years from the date of
this Report.
In forming this expectation, the Directors looked to the following:
· the Company's assets consist, substantially, of a portfolio of readily
realisable quoted securities, where the Directors monitor the liquidity of
each holding as well as reviewing the outcome of testing undertaken by the
Manager in which the portfolio is subject to adverse market scenarios;
· the principal risks and uncertainties outlined above and the steps taken
to mitigate these, and noting the strategic and performance risks are
considered to be the most significant for the Company;
· a significant proportion of the expenses are proportional to the
Company's NAV and will reduce if the NAV falls;
· the Directors regularly review the Company's level of gearing, including
the financial modelling undertaken by the Manager to establish what level of
reduction in the Company's NAV would require to occur in order to cause a
breach in the covenants attached to the Company's £30m loan facility;
· the Company's third-party suppliers continuing to deliver services to the
Company in accordance with the underlying agreements and not experiencing
significant operational difficulties in respect of the services provided to
the Company, although, if required, alternative suppliers could be engaged to
provide these services at limited notice; and
· in advance of expiry in August 2025 of the Company's £30m loan the
Company will enter into negotiations with its bankers. If acceptable terms are
available from the existing bankers, or any alternative, the Company would
expect to continue to access borrowings. However, should these terms not be
forthcoming, any outstanding borrowing would be repaid through the proceeds of
equity sales.
Accordingly, taking into account the Company's current position and the
potential impact of its principal risks and uncertainties, the Board has a
reasonable expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due for a period of three years from the
date of this report. In making this assessment, the Board undertook stress
testing of the Company's forecast revenue account as well as scenario analysis
in relation to a significant reduction in the liquidity of the underlying
investment portfolio.
Duration
The Company does not have a fixed life but, further to a change in the
Articles of Association approved by shareholders at the AGM on 28 September
2022, an ordinary resolution to continue the Company is put to shareholders at
every fifth AGM. The next continuation resolution will be put to shareholders
at the AGM in 2027.
Likely Future Developments
The Board expects the Company to continue to pursue its investment objective
and accepts that this may involve divergence from the Benchmark. The companies
which make up the investment portfolio are considered by the Investment
Manager to demonstrate resilience and to offer opportunities for investors to
benefit from the development of the broader Indian economy. Further
information on the outlook and future developments of the Company may be found
in the Chairman's Statement and in the Investment Manager's Report.
Michael Hughes
Chairman
13 June 2024
Promoting the Success of the Company
The Purpose of the Company and Role of the Board
The Board is required to report on how it has discharged its duties and
responsibilities under section 172 of the Companies Act 2006. Under this
legislation, the Directors have a duty to promote the success of the Company
for the benefit of its members as a whole, taking into account the likely
long-term consequences of decisions, the need to foster relationships with the
Company's stakeholders and the impact of the Company's operations on the
environment.
The purpose of the Company is to act as a vehicle to provide, over time,
attractive financial returns to its shareholders. Investment trusts, such as
the Company, are long-term investment vehicles and are typically externally
managed, have no employees, and are overseen by an independent non-executive
board of directors.
During the year, the Board comprised four independent non-executive Directors
with a broad range of skills and experience across all major functions that
affect the Company. The Board retains responsibility for taking all decisions
relating to the Company's investment objective and policy, gearing, corporate
governance and strategy, and for monitoring the performance of the Company's
service providers.
The Board's philosophy is that the Company should operate in a transparent
culture where all parties are provided with respect as well as the opportunity
to offer practical challenge and participate in positive debate which is
focused on the aim of achieving the expectations of shareholders and other
stakeholders alike. The Board expects the Manager to act as a responsible
steward of the Company's investments. Further information on the Manager's
responsible investing may be found at:
www.abrdn.com/en-gb/seeing-things-differently
How the Board Engages with Stakeholders
The Company's main stakeholders are its Shareholders, the Manager, Investee
Companies, Service Providers, Debt Providers and the Environment and
Community. The Board considers its stakeholders at Board meetings
and receives feedback on the Manager's interactions
with them.
Stakeholder How the Board Engages
Shareholders The Company's shareholders are key stakeholders and the Board places great
importance on communication with them. The Board welcomes all shareholders'
views and aims to act fairly between all shareholders. The Chairman, Manager
and Company's broker regularly meet with current and prospective shareholders
to discuss performance and shareholder feedback is discussed by the Directors
at Board meetings. In addition, the Chairman meets with major shareholders in
the absence of representatives of the Manager, as necessary.
Regular updates are provided to shareholders through the Annual Report, Half
Yearly Report, Manager's monthly factsheets, Company announcements, including
daily net asset value announcements, and the Company's website. In normal
years, the Company's Annual General Meeting provides a forum, both formal and
informal, for shareholders to meet and discuss issues with the Directors and
Manager.
Manager The Investment Manager's Report details the key investment decisions taken
during the year. The Investment Manager has continued to manage the Company's
assets in accordance with the mandate provided by shareholders, with the
oversight of the Board.
The Board regularly reviews the Company's performance against its investment
objective and the Board undertakes an annual strategy review to ensure that
the Company is positioned well for the future delivery of its objective for
its stakeholders. The Board receives presentations from the Investment Manager
at every Board meeting to help it to exercise effective oversight of the
Investment Manager and the Company's strategy. The Board, through the
Management Engagement Committee, formally reviews the performance of the
Manager at least annually.
Investee Companies Responsibility for actively monitoring the activities of portfolio companies
has been delegated by the Board to the Manager which has sub-delegated that
authority to the Investment Manager.
The Board has also given discretionary powers to the Investment Manager to
exercise voting rights on resolutions proposed by the investee companies
within the Company's portfolio. The Investment Manager reports to the Board
on a quarterly basis on stewardship (including voting) issues.
Through engagement and exercising voting rights, the Investment Manager
actively works with portfolio companies to improve corporate standards,
transparency and accountability, and report thereon to the Board.
Service Providers The Board seeks to maintain constructive relationships with the Company's
suppliers either directly or through the Manager with regular communications
and meetings.
The Audit Committee conducts an annual review of the performance, terms and
conditions of the Company's key service providers to ensure they are
performing in line with Board expectations and providing value for money.
Debt Providers On behalf of the Board, the Manager maintains a constructive working
relationship with Royal Bank of Scotland International Limited (London
Branch), part of NatWest Group plc, the provider of the Company's £30m
multi-currency loan facility, ensuring compliance with its loan covenants and
arranging for regular updates for the lender on the Company's business
activities, where requested.
Environment and Community The Board and Manager are committed to investing in a responsible manner and
the Investment Manager integrates Environmental, Social and Governance ("ESG")
considerations into its research and analysis as part of the investment
decision-making process.
Specific Examples of Stakeholder Consideration During the Year
While the importance of giving due consideration to the Company's stakeholders
is not new, and is considered as part of every Board decision, the Directors
were particularly mindful of stakeholder considerations during the following
decisions undertaken during the year ended 31 March 2024.
Share buybacks
During the year the Company bought back into treasury 3.7 million shares,
providing a small accretion to the NAV per share and a degree of liquidity to
the market. The discount at which the Company's share price sits as compared
to its NAV per share was wider than the historic average and the Board has
instructed a step-up in share buyback activity. It is the view of the Board
that this policy is in the interest of all shareholders.
Online shareholder presentation
The Company held an online shareholder presentation on 14 September 2023 to
encourage and promote interaction and engagement with the Company's
shareholders,
During the presentation, shareholders received updates from the Chairman and
Investment Manager and were then able to participate in an interactive
question and answer session.
As explained in the Chairman's Statement, the Board is holding another Online
Shareholder Presentation at 11am on 12 September 2024. The event is being held
ahead of the AGM in order to allow shareholders to submit their proxy votes
prior to the AGM.
Performance
Ten Year Financial Record
Year to 31 March 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Total income (£'000) 341 374 3,104 3,318 3,602 5,185 4,517 5,059 6,123 4,903
Per share (p)
Net revenue (loss)/return (0.39) (1.06) (0.28) (0.71) (0.35) 2.08 0.19 (0.28) (0.59) (3.77)
Dividends(A) n/a n/a n/a n/a n/a 1.00 n/a n/a n/a n/a
Total return/(loss) 121.94 (23.42) 125.81 2.12 41.90 (120.34) 216.25 69.64 (60.00) 168.85
Net asset value per share (p)
Basic 385.49 362.07 487.88 490.00 531.90 411.41 627.05 697.30 641.32 819.56
Shareholders' funds (£'000) 227,708 213,874 288,190 289,444 314,196 241,583 366,106 403,995 357,919 427,054
(A) 2020 dividend represents 0.22p per share paid from revenue reserves and
0.78p per share paid from capital reserves.
Top Ten Investments
As at 31 March 2024
8.1% ICICI Bank 5.6% HDFC Bank
ICICI Bank has been delivering superior growth and returns improvement without HDFC Bank is India's leading private sector bank that now has a complete suite
compromising on asset quality. It has leveraged on its scale as well as retail of retail banking products after the merger with HDFC, India's leading
and digital franchise to grow in mortgages and also growing off a low base in provider of mortgage finance. The bank has solid underwriting standards and a
business banking and SMEs. progressive digital stance, further strengthening its competitive edge.
5.6% Bharti Airtel 4.9% Infosys
Bharti Airtel remains the leading telecom service provider with a pan-India One of India's best software developers, it continues to impress with its
reach and sophisticated customer base with higher average mobile spending. strong management, solid balance sheet and sustainable business model.
4.7% Power Grid Corporation of India 4.6% Ultratech Cement
Power Grid Corporation of India forms the backbone of India's electricity A clear industry leader in India's cement industry, backed by strong brand
infrastructure. It is poised to play a key role in the growth of renewable recognition, a good distribution and sales network and solid product quality.
energy delivery to the grid over the next few decades as the government plans Its focus on cost efficiency and an improving energy mix have given UltraTech
ambitious renewable targets for the electricity sector. a cost advantage.
4.1% SBI Life Insurance 3.8% Aegis Logistics
Among the leading domestic life insurers, SBI Life's competitive edge comes A strong and conservative player in India's gas and liquids logistics sector,
from a wide reach of SBI branches, highly productive agents, a low cost ratio with a first mover advantage in key ports and a fair amount of capacity
and a reputable SBI brand. expansion to come. Its storage and logistics segment is benefitting from the
burgeoning flow of chemicals and fuels across the country. In addition, the
government's push for the adoption of cleaner energy has boosted its liquefied
natural gas business.
3.8% Tata Consultancy Services 3.8% Hindustan Unilever
A top-class Indian IT services provider with the most consistent execution and The largest fast-moving consumer goods company (FMCG) in India, with an
lowest attrition rates. It is a long-term compounder with a decent outlook for unrivalled portfolio of brands, an extensive nationwide distribution network,
revenue growth and order wins over the medium term. and a long and successful operational track record in the country.
Portfolio
As at 31 March 2024
Valuation Total assets
2024 2024
Company Industry £'000 %
ICICI Bank Financials 36,682 8.1
HDFC Bank Financials 25,250 5.6
Bharti Airtel Communication Services 25,234 5.6
Infosys Information Technology 22,465 4.9
Power Grid Corporation of India Utilities 21,141 4.7
Ultratech Cement Materials 20,845 4.6
SBI Life Insurance Financials 18,720 4.1
Aegis Logistics Energy 17,484 3.8
Tata Consultancy Services Information Technology 17,202 3.8
Hindustan Unilever Consumer Staples 17,098 3.8
Ten largest investments 222,121 49.0
Prestige Estates Projects Real Estate 16,710 3.7
Godrej Properties Real Estate 14,415 3.2
Axis Bank Financials 13,997 3.1
Mahindra & Mahindra Consumer Discretionary 13,737 3.1
Maruti Suzuki India Consumer Discretionary 11,445 2.5
Titan Consumer Discretionary 11,076 2.5
KEI Industries Industrials 10,789 2.4
ABB India Industrials 10,566 2.3
PB Fintech Financials 10,514 2.3
Cholamandalam Investment and Finance Financials 9,633 2.1
Top twenty investments 345,003 76.2
Nestlé India Consumer Staples 9,425 2.1
J.B. Chemicals & Pharmaceuticals Healthcare 9,290 2.0
Vijaya Diagnostic Centre Healthcare 8,960 2.0
KFIN Technologies Financials 7,889 1.7
Tata Consumer Products Consumer Staples 7,755 1.7
Siemens Industrials 7,473 1.6
Pidilite Industries Materials 7,265 1.6
Havells India Industrials 7,118 1.6
Fortis Healthcare Healthcare 6,899 1.5
Hindalco Industries Materials 6,693 1.5
Top thirty investments 423,770 93.5
Aptus Value Housing Finance Financials 6,547 1.5
Info Edge Communication Services 5,528 1.2
APAR Industries Industrials 5,436 1.2
Container Corporation of India Industrials 5,431 1.2
Affle India Communication Services 4,427 1.0
Syngene International Healthcare 4,404 1.0
Coromandel International Materials 3,008 0.7
Phoenix Mills Real Estate 2,485 0.5
UNO Minda Consumer Discretionary 2,476 0.5
Coforge Information Technology 2,110 0.5
Top forty investments 465,622 102.8
Global Health India Healthcare 167 -
Total investments 465,789 102.8
Net liabilities (before deducting prior charges)(A) (12,782) (2.8)
Total assets(A)(,B) 453,007 100.0
(A) Excluding loan balances
(B) Including net liabilities.
Unless otherwise stated, investments are in common stock.
Sector Analysis
Sector Breakdown Percentage
As at 31 March 2024
Financials 27.7
Industrials 10.1
Information Technology 9.0
Consumer Discretionary 8.3
Materials 8.1
Communication Services 7.5
Consumer Staples 7.4
Real Estate 7.2
Healthcare 6.4
Utilities 4.5
Energy 3.8
100.0
Directors' Report
The Directors present their Report and the audited Financial Statements of the
Company for the year ended 31 March 2024, taking account of any events between
the year end and the date of approval of this Report.
Results
The Company's results, including its performance for the year against its Key
Performance Indicators ("KPIs"), may be found above.
Investment Trust Status and ISA Compliance
The Company is registered as a public limited company in England & Wales
under registration number 02902424 and has been accepted by HM Revenue &
Customs as an investment trust for accounting periods beginning on or after 1
April 2012, subject to the Company continuing to meet the eligibility
conditions of s1158 of the Corporation Tax Act 2010 (as amended) and S.I.
2011/2099. In the opinion of the Directors, the Company's affairs have been
conducted in a manner to satisfy these conditions to enable it to continue to
qualify as an investment trust for the year ended 31 March 2024. The Company
intends to manage its affairs so that its shares will be qualifying
investments for the stocks and shares component of an Individual Savings
Account ("ISA").
Capital Structure
During the year ended 31 March 2024 the Company bought back into treasury
3,702,011 (2023 - 2,127,206) Ordinary shares. This was equivalent to 6.6% of
the Company's issued share capital (excluding treasury shares) at 1 April 2023
(2022 - 3.7%). As at 31 March 2024, the Company's issued share capital
consisted of 52,107,910 Ordinary shares (2023 - 55,809,921 Ordinary shares)
with voting rights, each share holding one voting right in the event of a
poll, and an additional 6,962,230 (2023 - 3,260,219) Ordinary shares in
treasury, with no voting rights or entitlement to receive dividends. Between
1 April 2024 and 13 June 2024 as the latest practicable date prior to approval
of this Report, an additional 564,198 Ordinary shares were bought back
resulting in the Company's issued share capital consisting of 51,543,712
Ordinary shares and an additional 7,526,428 shares in treasury.
Ordinary shareholders are entitled to vote on all resolutions which are
proposed at general meetings of the Company. The Ordinary shares carry a right
to receive dividends. On a winding up, after meeting the liabilities of the
Company, the surplus assets will be paid to Ordinary shareholders in
proportion to their shareholdings. There are no restrictions on the transfer
of Ordinary shares in the Company other than certain restrictions which may
from time to time be imposed by law and regulation.
Manager and Company Secretaries
The Company has appointed the Manager as its alternative investment fund
manager, to provide investment management, risk management, promotional
activities and administration and company secretarial services to the Company.
The Company's portfolio is managed by the Investment Manager by way of a group
delegation agreement in place between the Manager and Investment Manager. In
addition, the Manager has sub-delegated administrative and secretarial
services to abrdn Holdings Limited and promotional activities to abrdn
Investments Limited.
Under the terms of the management agreement ("MA"), with effect from 1 April
2023, annual investment management fees are calculated as 0.8% of the
Company's net assets up to £300m and 0.6% of net assets above £300m.
Until 31 March 2023, annual investment management fees were calculated and
charged on the same basis as above, other than the rate was 0.85% of the
Company's net assets up to £350m and 0.70% of net assets above £350m.
There is a rebate for any fees received in respect of any investments by the
Company in investment vehicles managed by abrdn. The MA is terminable by
either party on not less than six months' notice. In the event of termination
on less than the agreed notice period, compensation is payable to the Manager
in lieu of the unexpired notice period.
The fees, and other expenses, payable to abrdn during the year ended 31 March
2024 are disclosed in Notes 4 and 5 to the Financial Statements. The
investment management fees are chargeable 100% to revenue.
Corporate Governance
The Company is committed to high standards of corporate governance and its
Statement of Corporate Governance is set out below.
Directors
The Board consisted of a non-executive Chairman and three non-executive
Directors, all of whom served throughout the year under review. The Senior
Independent Director was David Simpson, the Chairman of the Audit Committee
was Andrew Robson and the Chairman of the Management Engagement Committee was
Rebecca Donaldson.
Board Diversity
The Board recognises the importance of having a range of skilled, experienced
individuals with the right knowledge represented on the Board in order to
allow it to fulfil its obligations. The Board also recognises the benefits and
is supportive of the principle of diversity in its recruitment of new Board
members. The Board will not display any bias for age, gender, race, sexual
orientation, religion, ethnic or national origins, socio-economic background
or disability in considering the appointment of its Directors.
The Board will continue to ensure that all appointments are made on the basis
of merit against the specification prepared for each appointment. In doing so,
the Board will take account of the three targets set out in the FCA's Listing
Rules, which are set out in the tables below.
The Board has resolved that the Company's year end date is the most
appropriate date for disclosure purposes. The following information has been
provided by each Director through the completion of questionnaires. There have
been no changes since the year end as at the date of approval of this Report.
Table for reporting on gender as at 31 March 2024
Number of Board members Percentage of the Board Number of senior positions on the Board Number in executive management Percentage of executive management
(CEO, CFO, Chair and SID
Men 3 75% 2
n/a n/a
(note 3) (note 3)
Women 1 25% (note 1) -
Not specified/prefer not to say - - -
Table for reporting on ethnic background as at 31 March 2024
Number of Board members Percentage of the Board Number of senior positions on the Board Number in executive management Percentage of executive management
(CEO, CFO, Chair and SID
White British or other White 4 100% 100%
(including minority-white groups)
n/a n/a
(note 3) (note 3)
Minority ethnic - 0% (note 2)
Not specified/prefer not to say - 0% -
1. Does not meet the target that at least 40% of
Directors are women as set out in FCA Lising Rule R 9.8.6R (9)(a)(i)
2. Does not meet the target that at least one Director
is from a minority ethnic background as set out in FCA Listing Rule 9.8.6R
(9)(a)(iii)
3. This column is not applicable as the Company is
externally managed and does not have any executive staff, specifically it has
neither a CEO nor CFO. The Company considers that the roles of Chairman of the
Board, Senior Independent Director and Chairs of the Board Committees are
senior board positions. Rebecca Donaldson chairs the Management Engagement
Committee and therefore the Board considers that, accordingly, the Company
effectively meets the requirement that at least one of the senior board
positions is held by a woman.
As shown in the above tables, the Company has not as yet met the targets set
out in the FCA's Listing Rules 9.8.6R (9)(a)(i) and LR 9.8.6R (9)(a)(iii). The
Board considers its normal size of four Directors to be appropriate for an
investment trust, and retirement of each Director at the AGM following the
ninth anniversary of their appointment to be an appropriate individual tenure.
While the targets for diversity are inevitably more challenging to achieve for
a smaller board with infrequent appointment opportunities, the Board is fully
supportive of the principles behind the targets and these will be carefully
considered in all future appointments. The biographical details of the
Directors are included on the Company's website and the most recent Board
appointment was in August 2022.
Chairman and Senior Independent Directors
The Chairman is responsible for providing effective leadership to the Board,
by setting the tone of the Company, demonstrating objective judgement and
promoting a culture of openness and debate. The Chairman facilitates the
effective contribution and encourages active engagement by each Director. In
conjunction with the Company Secretary, the Chairman ensures that Directors
receive accurate, timely and clear information to assist them with effective
decision-making. The Chairman acts upon the results of the Board evaluation
process by recognising strengths and addressing any weaknesses and also
ensures that the Board engages with major shareholders and that all Directors
understand shareholder views.
The Senior Independent Director acts as a sounding board for the Chairman and
acts as an intermediary for other directors, when necessary. Working closely
with the Nomination Committee, the Senior Independent Director takes
responsibility for an orderly succession process for the Chairman and leads
the annual appraisal of the Chairman's performance. The Senior Independent
Director is also available to shareholders to discuss any concerns they may
have.
The names, biographies and contribution of each of the Directors are shown on
the Company's website and indicate their range of experience as well as length
of service. Each Director has the requisite high level and range of business
and financial experience which enables the Board to provide clear and
effective leadership and proper stewardship of the Company.
Michael Hughes, Rebecca Donaldson, David Simpson and Andrew Robson, each being
eligible, retire and offer themselves for individual re-election as Directors
of the Company.
The Board as a whole believes that each Director remains independent of the
Manager and free of any relationship which could materially interfere with the
exercise of his or her independent judgement on issues of strategy,
performance, resources and standards of conduct and confirms that, following
formal performance evaluations, the individuals' performance continues to be
effective and demonstrates commitment to the role.
The Directors attended scheduled Board and Committee meetings during the year
ended 31 March 2024 as follows (with their eligibility to attend the relevant
meeting in brackets):
Director Board and Committee Meetings Audit Committee Meetings Management Engagement Committee Meetings Nomination
Committee Meetings
Michael Hughes 7 (7) 3 (3) 1 (1) 2 (2)
David Simpson 7 (7) 3 (3) 1 (1) 2 (2)
Andrew Robson 7 (7) 3 (3) 1 (1) 2 (2)
Rebecca Donaldson 7 (7) 3 (3) 1 (1) 2 (2)
The Board has adopted a policy that all Directors, including the Chairman,
shall not serve for more than nine years from the date of their initial date
of appointment as a Director of the Company unless in relation to exceptional
circumstances.
The Board therefore has no hesitation in recommending, at the next AGM, the
individual re-elections of Michael Hughes, Rebecca Donaldson, David Simpson
and Andrew Robson as Directors of the Company.
Directors' Insurances and Indemnities
The Company maintains insurance in respect of Directors' and Officers'
liabilities in relation to their acts on behalf of the Company. Furthermore,
each Director of the Company is entitled to be indemnified out of the assets
of the Company to the extent permitted by law against all costs, charges,
losses, expenses and liabilities incurred by them in the actual or purported
execution and/or discharge of their duties and/or the exercise or purported
exercise of their powers and/or otherwise in relation to or in connection with
their duties, powers or office. These rights are included in the Articles of
Association of the Company and the Company has granted deeds of indemnities to
each Director on this basis.
Management of Conflicts of Interest and Anti-Bribery Policy
The Board has a procedure in place to deal with a situation where a Director
has a conflict of interest. As part of this process, the Directors prepare a
list of other positions held and all other conflict situations that may need
to be authorised either in relation to the Director concerned or his/her
connected persons. The Board considers each Director's situation and decides
whether to approve any conflict, taking into consideration what is in the best
interests of the Company and whether the Director's ability to act in
accordance with his/her wider duties is affected. Each Director is required to
notify the Company Secretaries of any potential, or actual, conflict
situations which will need authorising by the Board. Authorisations given by
the Board are reviewed at each Board meeting.
No Director has a service contract with the Company although Directors are
issued with letters of appointment upon taking up office. Other than the deeds
of indemnity referred to above, there were no contracts with the Company
during, or at the end of the year, in which any Director was interested.
The Board takes a zero-tolerance approach to bribery and has adopted
appropriate procedures designed to prevent bribery. abrdn also takes a
zero-tolerance approach and has its own detailed policy and procedures in
place to prevent bribery and corruption.
In relation to the corporate offence of failing to prevent tax evasion, it is
the Company's policy to conduct all business in an honest and ethical manner.
The Company takes a zero-tolerance approach to facilitation of tax evasion
whether under UK law or under the law of any foreign country and is committed
to acting professionally, fairly and with integrity in all its business
dealings and relationships.
Board Committees
The Directors have appointed a number of Committees as set out below. Copies
of each Committee's terms of reference, which define its responsibilities and
duties, are available on the Company's website or from the Company
Secretaries, on request.
Audit Committee
The Audit Committee's Report may be found below.
Management Engagement Committee
The Board has established a Management Engagement Committee comprising all of
the Directors, which was chaired throughout the year by Rebecca Donaldson.
The Committee is responsible for reviewing matters concerning the management
agreement which exists between the Company and the Manager together with the
promotional activities programme operated by the Manager to which the Company
contributes. The terms and conditions of the Manager's appointment, including
an evaluation of performance and fees, are reviewed annually and were last
considered at the meeting of the Committee in November 2023.
In monitoring the performance of the Manager, the Committee considers the
investment approach and investment record of the Manager over shorter and
longer-term periods, taking into account the Company's performance against the
Benchmark and peer group funds. The Committee also reviews the management
processes, risk control mechanisms and promotional activities of the Manager.
The Committee considers the continuing appointment of the Manager, on the
terms agreed, to be in the interests of the shareholders because it believes
that the abrdn has the investment management, promotional and associated
secretarial and administrative skills required for the effective and
successful operation of the Company.
Nomination Committee
The Board has established a Nomination Committee, comprising all of the
Directors, which was chaired by Michael Hughes during the year. The Committee
is responsible for undertaking an annual evaluation of the Board as well as
longer term succession planning and, when appropriate, oversight of
appointments to the Board.
The Company engaged Lintstock Ltd, an independent external service provider
which has no other connection to the Company, to undertake a board evaluation
in March 2024. Assisted by Lintstock Ltd, the Board assessed that it had in
place the appropriate balance of skills, experience, length of service and
knowledge of the Company, while also recognising the advantages of diversity.
David Simpson, as the Senior Independent Director, provided feedback to the
Chairman.
As the Company has no employees and the Board is comprised wholly of
non-executive directors and, given the size and nature of the Company, the
Board has not established a separate remuneration committee and Directors'
fees are determined by the Nomination Committee.
Accountability and Audit
The responsibilities of the Directors and the Auditor, in connection with the
financial statements, appear below and in the report of the Auditor in the
Annual Report.
The Directors who held office at the date of approval of this Directors'
Report confirm that, so far as they are each aware, there is no relevant audit
information of which the Company's Auditor is unaware, and each Director has
taken all the steps that he or she could reasonably be expected to have taken
as a Director in order to make himself or herself aware of any relevant audit
information and to establish that the Company's Auditor is aware of that
information. Additionally, there have been no important events since the year
end which warrant disclosure.
The Directors review, as applicable, the level of non-audit services provided
by the Auditor, together with the Auditor's procedures in connection with the
provision of such services. No non-audit services were provided by the auditor
during the year or to the date of this Report. The Directors remain satisfied
that the Auditor is objective and independent.
Going Concern
In accordance with the Financial Reporting Council's guidance on Going Concern
and Liquidity Risk, the Directors have reviewed the Company's ability to
continue as a going concern. The Company's assets consist substantially of a
portfolio of quoted securities which in most circumstances are realisable
within a short timescale. The Directors are mindful of the principal risks and
uncertainties disclosed above and the financial risks in Note 17 to the
financial statements and have reviewed income forecasts detailing revenue and
expenses for at least 12 months from the date of this Report. Accordingly, the
Directors believe that, the Company has adequate financial resources to
continue in operational existence for the foreseeable future and for at least
12 months from the date of this Report.
In August 2022, the Company entered into a three-year, £30 million revolving
credit facility (the "Facility") with Royal Bank of Scotland International
Limited (London Branch), part of NatWest Group plc, of which £26 million was
drawn down at 31 March 2024 (2023 - £30 million). The Board has set limits
for borrowing and regularly reviews the level of any gearing and compliance
with banking covenants. In advance of expiry of the Facility in 2025, the
Company will enter negotiations with its bankers. If acceptable terms are
available from the existing bankers, or any alternative, the Company would
expect to continue to access a facility. However, should these terms not be
forthcoming, any outstanding borrowing would be repaid through the proceeds of
equity sales.
The results of stress testing prepared by the Manager, which models a sharp
decline in market levels and income, demonstrated that the Company had the
ability to raise sufficient funds so as to both pay expenses and remain within
its debt covenants, and to continue to meet its liabilities as they fall due
for at least 12 months from the date of this Report.
Responsible Investment
The Board is aware of its duty to act in the interests of the Company. The
Board acknowledges that there are risks associated with investment in
companies which fail to conduct business in a socially responsible manner.
Responsibility for actively monitoring the sustainability investing activities
of portfolio companies has been delegated by the Board to the Manager which
has sub-delegated that authority to the Investment Manager. Further
information may be found at: www.abrdn.com/en-gb/seeing-things-differently
Relations with Shareholders
The Directors place great importance on communication with shareholders. The
Annual Report is widely distributed to other parties who have an interest in
the Company's performance. Shareholders and investors may obtain up-to-date
information on the Company through its website, abrdnnewindia.co.uk, or via
the abrdn's Customer Services Department. The Company responds to letters from
shareholders on a wide range of issues.
The Board's policy is to communicate directly with shareholders and their
representative bodies without the involvement of the management group (either
the Company Secretaries or abrdn) in situations where direct communication is
required and representatives from the Board offer to meet with major
shareholders on an annual basis in order to gauge their views.
In addition, members of the Board may accompany the Manager when undertaking
meetings with institutional shareholders.
The Company Secretaries only act on behalf of the Board, not the Manager, and
there is no filtering of communication. At each Board meeting the Board
receives full details of any communication from shareholders to which the
Chairman responds, as appropriate, on behalf of the Board.
The Notice of AGM included within the Annual Report is normally sent out at
least 20 working days in advance of the meeting. All shareholders have the
opportunity to put questions to the Board and Manager prior to the Company's
AGM.
Substantial Interests
The Company had been notified of the following share interests above 3% in the
Company as at 31 March 2024:
Shareholder Number of shares held % held
City of London Investment Management 7,188,048 13.8
Lazard Asset Management 6,999,713 13.4
Clients of Interactive Investor (execution only) 5,554,376 10.7
Clients of abrdn 5,157,120 9.9
Clients of Hargreaves Lansdown (execution only) 4,215,017 8.1
Allspring Global Investments 3,139,451 6.0
1607 Capital Partners 2,137,877 4.1
The above interests at 31 March 2024 were unchanged at the date of approval of
this Report other than in relation to clients of abrdn, which advised the
Company on 19 April 2024 of a holding of 5,188,120 shares, equivalent to 10.0%
of the Company's shares in issue (excluding treasury shares) and City of
London Investment Management, which advised the Company on 28 May 2024 of a
holding of 7,232,938 shares, equivalent to 14.0% of the Company's shares in
issue (excluding treasury shares).
Annual General Meeting
The AGM will be held on 20 September 2024 and the Notice of AGM and related
notes may be found in the Annual Report. Resolutions relating to the following
items will be proposed at the AGM as special business.
Share Repurchases (Resolution 8)
At the AGM held on 27 September 2023, shareholders approved the renewal of the
authority for the Company to repurchase its Ordinary shares.
The principal aim of a share buy back facility is to reduce the volatility in
the discount. In addition, the purchase of shares, when they are trading at a
discount, should result in an increase in the NAV per share for the remaining
shareholders. This authority, if conferred, will only be exercised if to do so
would result in an increase in the NAV per share for the remaining
shareholders, and if it is in the best interests of shareholders generally.
Any purchase of shares will be made within guidelines established from time to
time by the Board. It is proposed to seek shareholder authority to renew this
facility for another year at the AGM. Under the Listing Rules, the maximum
price that may be paid on the exercise of this authority must not exceed the
higher of: (i) 105% of the average of the middle market quotations for the
shares over the five business days immediately preceding the date of purchase;
and (ii) the higher of the last independent trade and the highest current
independent bid on the trading venue where the purchase is carried out. The
minimum price which may be paid is 25p per share. Shares which are purchased
under this authority will either be cancelled or held as treasury shares.
Renewal of the authority to buy back shares is sought at the AGM as the Board
considers that this mechanism has assisted in lowering the volatility of the
discount reflected in the Company's share price and is also accretive, in NAV
terms, for continuing shareholders. Special resolution 8 in the Notice of AGM
will, if passed, renew the authority to purchase in the market a maximum of
14.99% of shares in issue as at 13 June 2024, being the nearest practicable
date to the approval of this Report (equivalent to approximately 7.7 million
Ordinary shares). Such authority will expire on the date of the AGM in 2025 or
on 30 September 2025, whichever is earlier. This means in effect that the
authority will have to be renewed at the next AGM, or earlier, if the
authority has been exhausted.
Issue of Shares (Resolutions 9 and 10)
Ordinary resolution 9 in the Notice of AGM will, if passed, renew the
authority to allot unissued share capital up to an aggregate of 10%,
equivalent to approximately 5.1 million Ordinary shares, of the Company's
existing issued share capital, excluding treasury shares, as at 13 June 2024,
being the nearest practicable date to the approval of this Report). Such
authority will expire on the date of the AGM in 2025 or on 30 September 2025,
whichever is earlier, which means that the authority will have to be renewed
at the next AGM or, earlier, if the authority has
been exhausted.
When shares are to be allotted for cash, the Companies Act 2006 (the "Act")
provides that existing shareholders have pre-emption rights and that the new
shares must be offered first to such shareholders in proportion to their
existing holding of shares. However, shareholders can, by Special resolution,
authorise the Directors to allot shares otherwise than by a pro rata issue to
existing shareholders. Special resolution 10 will, if passed, give the
Directors power to allot for cash equity securities up to 10% (equivalent to
approximately 5.1 million Ordinary shares), of the Company's existing issued
share capital as at the date of 13 June 2024, being the latest practicable
date prior to the approval of this Report), as if Section 561(1) of the Act
did not apply. This is the same nominal amount of share capital which the
Directors are seeking the authority to allot pursuant to resolution 9.
This authority will expire on the date of the AGM in 2025 or on 30 September
2025, whichever is earlier, which means that the authority will have to be
renewed at the next AGM or, earlier, if the authority has been exhausted. This
authority will not be used in connection with a rights issue by the Company.
The Directors intend to use the authorities given by resolutions 9 and 10 to
allot shares, or sell shares from treasury, and disapply pre-emption rights
only in circumstances where this will be clearly beneficial to shareholders as
a whole. The issue proceeds would be available for investment in line with the
Company's investment policy.
The Company is permitted to buy back and hold shares in treasury and then sell
them at a later date for cash, rather than cancelling them. The Treasury Share
Regulations require such sale to be on a pre-emptive, pro rata, basis to
existing shareholders unless shareholders agree by Special resolution to
disapply such pre-emption rights. Accordingly, in addition to giving the
Directors power to allot unissued Ordinary share capital on a non pre-emptive
basis, resolution 10, if passed, will give the Directors authority to sell
Ordinary shares from treasury on a non pre-emptive basis. No dividends may be
paid on any shares held in treasury and no voting rights will attach to such
shares. The benefit of the ability to hold treasury shares is that such shares
may be resold.
This should give the Company greater flexibility in managing its share capital
and improve liquidity in its shares. The Board would only expect to issue new
Ordinary shares or sell Ordinary shares from treasury at a price per Ordinary
share which represented a premium to the NAV per share. It is also the
intention of the Board that sales from treasury would only take place when the
Board believes that to do so would assist in the provision of liquidity to the
market.
Recommendation
The Board considers all of the Resolutions to be put to shareholders at the
AGM to be in the best interests of the Company and its members as a whole and
are likely to promote the success of the Company for the benefit of its
members as a whole. Accordingly, the Board unanimously recommends that
shareholders should vote in favour of the resolutions to be proposed at the
Annual General Meeting, as they intend to do in respect of their own
shareholdings, amounting to 20,446 Ordinary shares.
Additional Information
Where not provided elsewhere in the Directors' Report, the following provides
the additional information required to be disclosed by The Large and
Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008.
The Company is not aware of any significant agreements to which it is a party,
apart from the management agreement, that take effect, alter or terminate upon
a change of control of the Company following a takeover. Other than the
management agreement with the Manager, the Company is not aware of any
contractual or other agreements which are essential to its business which
might reasonably be expected to have to been disclosed in the Directors'
Report.
The financial risk management objectives and policies arising from its
financial instruments and the exposure of the Company to risk are disclosed in
Note 17 to the Financial Statements.
Michael Hughes,
Chairman
13 June 2024
Statement of Corporate Governance
abrdn New India Investment Trust plc (the "Company") is committed to high
standards of corporate governance. The Board is accountable to the Company's
shareholders for good governance and this statement describes how the Company
has applied the principles identified in the UK Corporate Governance Code as
published in July 2018 (the "UK Code"), which is available on the Financial
Reporting Council's (the "FRC") website: frc.org.uk and is applicable for the
Company's Year.
The Board has also considered the principles and provisions of the AIC Code of
Corporate Governance as published in February 2019 (the "AIC Code"). The AIC
Code addresses the principles and provisions set out in the UK Code, as well
as setting out additional provisions on issues that are of specific relevance
to the Company. The AIC Code is available on the AIC's website: theaic.co.uk.
The Board considers that reporting against the principles and provisions of
the AIC Code, which has been endorsed by the FRC, provides more relevant
information to shareholders.
The Board confirms that, during the year ended 31 March 2024, the Company has
complied with the provisions of the AIC Code, and the relevant provisions of
the UK Code, except for those provisions relating to:
· the composition of the Audit Committee (AIC Code provision 29): the other
Directors consider that it is appropriate for the Chairman of the Board to be
a member of, but not chair, the Audit Committee, due to the Board's small
size, the lack of any perceived conflict of interest, and because the other
Directors believe that Michael Hughes was independent on appointment and
continues to be independent; and
· the establishment of a remuneration committee (AIC Code provisions 37):
for the reasons set out in the AIC Code the Board considers that this
provision is not relevant to the position of the Company, being an externally
managed investment company. In particular, all of the Company's day-to-day
management and administrative functions are outsourced to third parties. As a
result, the Company has no executive directors, employees or internal
operations. The Company has therefore not reported further in respect of this
provision.
Further information on how the Company has applied the AIC Code, the UK Code,
the Companies Act 2006 and
the FCA's DTR 7.2.6 can be found in the Annual Report as follows:
· the composition and operation of the Board and its Committees are
detailed in the Directors' Report and in the Audit Committee's report;
· the Board's policy on diversity and information on Board diversity is in
the Directors' Report;
· the Company's approach to internal control and risk management is
included in the Audit Committee's Report;
· the contractual arrangements with the Manager and details of the annual
assessment of the Manager may be found in the Directors' Report
· the Company's capital structure and voting rights are summarised in the
Directors' Report;
· the substantial interests disclosed in the Company's shares are listed in
the Directors' Report;
· the rules concerning the appointment and replacement of Directors are
contained in the Company's Articles of Association and are summarised in the
Directors' Report. There are no agreements between the Company and its
Directors concerning compensation for loss of office; and
· the powers to issue or buy back the Company's ordinary shares, which are
sought annually, and any amendments to the Company's Articles of Association
require a special resolution (75% majority) to be passed by shareholders and
information on these resolutions may be found in the Directors' Report.
Michael Hughes,
Chairman
13 June 2024
Audit Committee's Report
The Audit Committee presents its Report for the year ended 31 March 2024.
Committee Composition
The Directors have appointed an Audit Committee (the "Committee") consisting
of the whole Board, which was chaired by Andrew Robson throughout the year.
The other members of the Committee consider that it is appropriate for the
Chairman of the Board to be a member of, but not chair, the Committee. The
Chairman of the Board possesses significant financial experience which the
other Committee members consider to be valuable. The Board is small and, if
the Chairman of the Board were to be excluded, the Committee would comprise
only three Directors which may lead to quorum issues if decisions are required
at short notice. In addition, the other Committee members are satisfied that
there is no conflict of interest arising and value the input of the Chairman
of the Board to the Committee's deliberations.
The Directors have satisfied themselves both that at least one of the
Committee's members has recent and relevant financial experience (Andrew
Robson is a member of the Institute of Chartered Accountants in England and
Wales), and that the Committee as a whole possesses competence relevant to the
investment trust sector.
Role of the Audit Committee
The principal function of the Committee is to assist the Board in relation to
the reporting of financial information, the review of financial controls and
the management
of risk.
The Committee meets not less than twice each year, in line with the cycle of
annual and half-yearly reports, which is considered by the Directors to be a
frequency appropriate to the size and complexity of the Company. The Committee
has defined terms of reference which are reviewed and re-assessed for their
adequacy on an annual basis. Copies of the terms of reference are available
from the Company's website or from the Company Secretaries, on request.
In summary, the Committee's main functions are:
· to review and monitor the internal control systems and risk management
systems (including review of non-financial risks) on which the Company is
reliant;
· to consider annually whether there is a need for the Company to have its
own internal audit function;
· to review and monitor the integrity of the half-yearly report and annual
financial statements of the Company;
· to review, and report to the Board on, the significant financial
reporting issues and judgements made in connection with the preparation of the
Company's financial statements, half-yearly reports, announcements and related
formal statements;
· to review the content of the Annual Report and advise the Board on
whether, taken as a whole, it is fair, balanced and understandable and
provides the information necessary for shareholders to assess the Company's
position and performance, business model and strategy;
· to meet with the Auditor to review their proposed audit programme of work
and the findings of the Auditor. The Committee shall also use this as an
opportunity to assess the effectiveness of the audit process;
· to develop and implement policy on the engagement of the Auditor to
supply non-audit services. During the year under review, no non-audit services
were provided to the Company by KPMG LLP. All non-audit services must be
approved in advance by the Committee and will be reviewed in light of
statutory requirements to maintain the Auditor's independence;
· to review a statement from the Manager detailing the arrangements in
place within abrdn whereby its staff may, in confidence, escalate concerns
about possible improprieties in matters of financial reporting or other
matters (whistleblowing);
· to review and approve the remuneration and terms of engagement of the
Auditor;
· to monitor and review annually the Auditor's independence, objectivity,
effectiveness, resources and qualification;
· to monitor the requirement for rotation of the Auditor and to oversee any
tender for the external audit of the Company;
· to keep under review the appointment of the Auditor and to recommend to
the Board and shareholders the reappointment of the existing auditor or, if
appropriate, the appointment of a new Auditor; and
· to evaluate its own performance each year, in relation to discharging its
main functions, by means of a section devoted to the Committee within the
Directors' annual self-evaluation.
Activities during the Year
The Committee met on three occasions during the year to consider the Annual
Report, the Half-Yearly Report and the Company's system of risk management and
internal control. Reports from abrdn's internal audit, business risk and
compliance departments were considered by the Committee at these meetings.
Review of Internal Controls Systems and Risk Management
The Board is ultimately responsible for the Company's system of internal
control and risk management and for reviewing its effectiveness. The Committee
confirms that there is a robust process for identifying, evaluating and
managing the Company's significant business and operational risks, that it was
in place for the year ended 31 March 2024 and up to the date of approval of
this Annual Report, that it is regularly reviewed by the Board and accords
with the FRC guidance on internal controls.
The principal risks and uncertainties facing the Company are identified in the
Strategic Report.
The design, implementation and maintenance of controls and procedures to
safeguard the assets of the Company and, to manage its affairs properly,
extends to operational and compliance controls and risk management. This
includes controls over financial reporting risks related to the preparation of
the Annual Report, which are delegated to the Manager as part of the
Management Agreement ("MA") and the Committee receives regular reports from
the Manager as to how these controls
are operating.
Internal control and risk management systems are monitored and supported by
the Manager's business risk and compliance functions which undertake periodic
examination of business processes, including compliance with the terms of the
MA, and ensures that any recommendations to improve controls are implemented.
Risk is considered in the context of the FRC and the UK Code guidance and
includes financial, regulatory, market, operational and reputational risk.
Risks are identified and documented through a risk heat-map, which is a
pictorial representation of the risks faced by the Company, after taking
account of any mitigating controls to minimise
the risk, ranked in order of likelihood and impact on the Company.
The key components designed to provide effective risk management and internal
control are outlined below:
· the Manager prepares forecasts and management accounts which allow the
Board to assess the Company's activities and review its performance; the
emphasis is on obtaining the relevant degree of assurance and not merely
reporting by exception;
· the Board and Manager have agreed clearly-defined investment criteria,
specified levels of authority and exposure limits. Reports on these issues,
including performance statistics and investment valuations, are regularly
submitted to the Board, and there are meetings with the Manger and Investment
Manager as appropriate;
· as a matter of course, the Manager's compliance department continually
reviews the Manager's operations; and
· written agreements are in place which specifically define the roles and
responsibilities of the Manager and other third-party service providers.
The Committee has considered the need for an internal audit function but, due
to the delegation of certain business functions to the Manager, has decided to
place reliance on abrdn's systems and internal audit procedures, including the
ISAE3402 Report, a global assurance standard for reporting on internal
controls for service organisations, commissioned by the Manager's immediate
parent company, abrdn. At its May 2024 meeting, the Committee carried out an
annual assessment of risk management and internal controls for the year ended
31 March 2024 by considering documentation from the Manager, including the
internal audit and compliance functions, and taking account of events since 31
March 2024.
The system of internal control and risk management is designed to meet the
Company's particular needs and the risks to which it is exposed. Accordingly,
this system is designed to manage, rather than eliminate, the risk of failure
to achieve business objectives and, by its nature, can only provide
reasonable, and not absolute, assurance against misstatement and loss.
External Agencies
The Board has contractually delegated to external agencies, including the
Manager and other service providers, certain services: the management of the
investment portfolio, the depositary services (which include the custody and
safeguarding of the assets), the share registration services and the
day-to-day accounting and company secretarial requirements. Each of these
contracts was entered into after full and proper consideration by the Board of
the quality and cost of services offered in so far as they relate to the
affairs of the Company. The Committee receives and considers reports from each
service provider, including the Manager, on a regular basis. In addition, ad
hoc reports and information are supplied to the Board as requested.
Significant Financial Reporting Issues addressed
During its review of the Company's financial statements for the year ended 31
March 2024, the Committee identified one potentially significant financial
reporting risk facing the Company which is unchanged from the prior year,
namely valuation and existence of investments, as well as several additional
risks, which also reflected the Auditor's assessment of the principal
financial statement risks affecting the Company as part of the Auditor's
planning and reporting of the year end audit.
Valuation and Existence of Investments
The valuation of investments is undertaken in accordance with the accounting
policies, disclosed in Notes 2(a) and 2(g) to the financial statements. With
reference to the IFRS 13 fair value hierarchy, all of the Company's
investments at 31 March 2024 were categorised as Level 1 as they are
considered liquid and quoted in active markets. The portfolio is reviewed and
verified by the Manager on a regular basis and management accounts including a
full portfolio listing are prepared each month and circulated to the Board.
BNP Paribas Trust Corporation UK Limited (the "Depositary") has been appointed
as depositary to safeguard the assets of the Company. The Depositary checks
the consistency and accuracy of its records on a monthly basis and reports its
findings to the Manager. Separately, the investment portfolio is reconciled
regularly by the Manager.
Other issues addressed
As well as fraud risk and corporate governance and disclosures, the other
accounting area of financial reporting particularly considered by the
Committee was compliance with Sections 1158 and 1159 of the Corporation Tax
Act 2010. Approval of the Company as an investment trust under those
sections for financial years commencing on or after 1 April 2012 has been
obtained and ongoing compliance with the eligibility criteria is monitored on
a regular basis by the Manager and reported to the Directors.
In addition the Committee conducted its annual review of the Auditor (see
below) and oversaw the transition to a new senior statutory auditor. The
Committee also reviewed and discussed with the Manager and Auditor, certain
issues in relation to the calculation of Indian capital gains tax.
Review of Auditor
The Committee has reviewed, and considered appropriate, the effectiveness of
the Auditor including:
· Independence - the Auditor discusses with the Committee, at least
annually, the steps it takes to ensure its independence and objectivity and
makes the Committee aware of any potential issues, explaining all relevant
safeguards;
· Quality of audit work - including the ability to resolve issues in a
timely manner (identified issues are satisfactorily and promptly resolved),
its communications/presentation of outputs (the explanation of the audit plan,
any deviations from it and the subsequent audit findings are comprehensive and
comprehensible), and working relationship with management (the Auditor has an
effective working relationship with the Manager). The Committee was satisfied
that the Independent Auditor demonstrated an appropriate level of scepticism
of the Manager's judgement - an example was the interpretation of Indian
capital gains tax legislation, where the Manager had pursed a prudent
approach; and
· Quality of people and service - including continuity and succession plans
(the audit team is made up of sufficient, suitably experienced staff with
provision made for knowledge of the investment trust sector and retention on
rotation of the senior statutory auditor).
Tenure and Reappointment of KPMG LLP as Auditor
KPMG has expressed its willingness to be reappointed auditor to the Company.
Resolution 7, which is to be put to shareholders at the forthcoming AGM,
proposes the reappointment of KPMG as Independent Auditor of the Company, and
also seeks authorisation for the Directors to fix KPMG's remuneration for the
year to 31 March 2025.
Listed companies are required to tender the external audit at least every ten
years and change audit firm at least every twenty years. The Committee last
undertook an audit tender process in 2016 when KPMG LLP was appointed as
auditor in respect of financial years ended on or after 31 March 2017. The
Company is required to tender the external audit no later than for the year
ending 31 March 2027. In accordance with professional and regulatory
standards, the audit director responsible for the audit is rotated at least
every five years in order to protect independence and objectivity and to
provide fresh challenge to the business. The year ended 31 March 2024 is the
first year for which Carla Cassidy has served as the senior statutory auditor.
Andrew Robson
Chairman of the Audit Committee
13 June 2024
Directors' Remuneration Report
This Directors' Remuneration Report comprises three parts:
1. a Remuneration Policy, which is subject to a binding shareholder vote
every three years - was most recently approved by shareholders at the AGM on
27 September 2023 where the votes for the relevant resolution, on a poll,
were: For - 32,556,121 votes (99.8%); Against - 55,148 votes (0.2%); and
Withheld - 28,130 votes. The Remuneration Policy will be put to shareholders
again at the AGM in 2026;
2. an annual Implementation Report, which is subject to an advisory
vote; and
3. an Annual Statement.
The law requires the Company's Auditor to audit certain of the disclosures
provided. Where disclosures have been audited, they are indicated as such. The
Auditor's opinion is included in their report.
The Directors' Remuneration Policy and level of Directors' remuneration are
determined by the Nomination Committee, which was chaired by Michael Hughes
throughout the year, and comprises all of the Directors. The Remuneration
Policy is reviewed by the Nomination Committee on an annual basis.
Remuneration Policy
The Board's policy is that the remuneration of non-executive Directors should
be sufficient to attract Directors of the quality required to run the Company
successfully. The remuneration should also reflect the nature of the
Directors' duties, responsibilities and the value of their time spent and be
fair and comparable to that of other investment trusts that are similar in
size and have a similar capital structures and investment objectives.
Appointment
· The Company only intends to appoint non-executive Directors.
· All the Directors are non-executive appointed under the terms of Letters
of Appointment.
· Directors must retire and be subject to election, at the first AGM after
their appointment, and re-election at least every three years thereafter,
although the Board has approved a policy of annual re-election.
· New appointments to the Board will be placed on the fee applicable to all
Directors at the time of appointment.
· No incentive or introductory fees will be paid to encourage a
Directorship.
· The Directors are not eligible for bonuses, pension benefits, share
options, long term incentive schemes or other benefits.
· Directors are entitled to reimbursement of out-of-pocket expenses
incurred in connection with the performance of their duties, including travel
expenses.
· The Company indemnifies its Directors for all costs, charges, losses,
expenses and liabilities which may be incurred in the discharge of their
duties.
Performance, Service Contracts, Compensation and Loss of Office
· The Directors' remuneration is not subject to any performance-related
fee.
· No Director has a service contract.
· No Director was interested in contracts with the Company during the
period or subsequently.
· The terms of appointment provide that a Director may be removed without
notice.
· Compensation will not be due upon leaving office.
· No Director is entitled to any other monetary payment or to any assets of
the Company.
Statement of Voting at General Meeting
At the Company's last AGM, held on 27 September 2023, shareholders approved
the Directors' Remuneration Report (other than the Directors' Remuneration
Policy) in respect of the year ended 31 March 2023 and the following proxy
votes were received on the Resolution: For - 32,556,143 votes (99.8%); Against
- 55,146 votes (0.2%); and Withheld - 28,109 votes.
The fact that the Remuneration Policy is subject to a binding vote at every
third AGM does not imply any change on the part of the Company. The principles
remain the same as for previous years. There have been no changes to the
Directors' Remuneration Policy during the period of this Report nor are there
any proposals for the foreseeable future.
This part of the Remuneration Report provides details of the Company's
Remuneration Policy for Directors of the Company. This policy takes into
consideration the principles of the UK Corporate Governance Code. No
shareholder views were sought in setting the Remuneration Policy although any
comments received from shareholders would be considered on an ongoing basis.
As the Company has no employees and the Board is comprised wholly of
non-executive Directors and, given the size and nature of the Company, the
Board has not established a separate Remuneration Committee during the year
under review. The Nomination Committee is responsible for determining
Directors' remuneration.
The Directors' Remuneration Policy was approved by shareholders at the AGM on
27 September 2023.
Implementation Report
The Directors are non-executive and the limit on their aggregate annual fees
is set at £200,000 within the Company's Articles of Association. This limit
may only be amended by shareholder resolution and a resolution to increase the
limit from £150,000 was last approved by shareholders at the AGM in 2018.
Review of Directors' Fees
The levels of fees for the year and the preceding year are set out in the
table below.
Year ended 31 March 2024 31 March 2023
£
£
Chairman 40,000 38,000
Chairman of Audit Committee 34,500 33,000
Director 30,000 29,000
The Nomination Committee carried out a review of Directors' annual fees during
the year and concluded that there should be no change for the year to 31 March
2025. There are no further fees to disclose as the Company has no employees,
chief executive or executive directors.
Spend on Pay
As the Company has no employees, the Directors do not consider it appropriate
to present a table comparing remuneration paid to employees with distributions
to shareholders. The fees paid to Directors are shown in the table below.
Company Performance
During the year the Board carried out a review of investment performance. The
graph shows the share price total return (assuming all dividends are
reinvested) to Ordinary shareholders compared to the total return from the
Benchmark for the ten-year period to 31 March 2024 (rebased to 100 at 31 March
2014). This Benchmark was selected for comparison purposes as it is used by
the Board for investment performance measurement.
Fees Payable (Audited)
The Directors who served in the year received the fees, as set out in the
table below, which excluded employers' National Insurance contributions.
Year ended Year ended
31 March 2024 31 March 2023
Director £ £
Michael Hughes (A) 40,000 33,803
David Simpson 30,000 29,000
Andrew Robson (B) 34,500 21,355
Rebecca Donaldson 30,000 29,000
Hasan Askari (C) n/a 19,036
Stephen White (C) n/a 16,317
Total 134,500 148,511
(A) Appointed as Chairman on 28 September 2022.
(B) Appointed as a Director on 1 August 2022 and Chairman of the Audit
Committee on September 2022.
(C) Retired as a Director on 28 September 2022.
Fees are pro-rated where a change takes place during a financial year. There
were no payments to third parties from the fees referred to in the table
above.
Directors' Interests in the Company (Audited)
The Directors are not required to have a shareholding in the Company. The
Directors (including their connected persons) at 31 March 2024 and 31 March
2023 had no interest in the share capital of the Company other than those
interests, all of which are beneficial, in the table below, which were also
unchanged as at the date of this Report:
31 March 2024 31 March 2023
Ord. 25p Ord. 25p
Michael Hughes 8,115 8,115
David Simpson 3,860 3,860
Andrew Robson 4,000 4,000
Rebecca Donaldson 4,471 4,471
Annual Percentage Change in Directors 'Remuneration (Audited)
The table below sets out the annual percentage change in Directors' fees for
the past year.
Year ended Year ended Year ended Year ended 31 March
31 March 31 March 31 March 2021
%
2024 2023 2022
%
%
%
Michael Hughes (A) 18.3 22.9 1.9 1.9
David Simpson (B) 3.4 153.1 n/a n/a
Andrew Robson (C) 61.6 n/a n/a n/a
Rebecca Donaldson (D) 3.5 5.5 74.6 n/a
Hasan Askari (E) n/a -47.8 1.4 1.4
Stephen White (E) n/a -46.5 1.7 1.7
Rachel Beagles (F) n/a n/a n/a -51.0
(A) Appointed as a Director on 7 September 2026 and Chairman on 28 September
2022.
(B) Appointed as a Director on 1 November 2021 and Senior Independent Director
on 28 September 2022.
(C) Appointed as a Director on 1 August 2022 and Chairman of the Audit
Committee on 28 September 2022.
(D) Appointed as a Director on 1 September 2020.
(E) Retired as a Director on 28 September 2022.
(F) Retired as a Director on 23 September 2020.
Annual Statement
On behalf of the Board and in accordance with Part 2 of Schedule 8 of the
Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment)
Regulations 2013, the Board confirms that the above Report on Remuneration
Policy and Remuneration Implementation summarises, as applicable, for the year
ended 31 March 2024:
· the major decisions on Directors' remuneration;
· any substantial changes relating to Directors' remuneration made during
the year; and
· the context in which the changes occurred and in which decisions have
been taken.
Michael Hughes,
Chairman
13 June 2024
Statement of Directors' responsibilities in respect of the Annual Report and financial statements
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law they have elected to prepare the financial
statements in accordance with UK-adopted international accounting standards
and applicable law.
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of its profit or loss for that period. In
preparing these financial statements, the Directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and estimates that are reasonable, relevant and
reliable;
· state whether they have been prepared in accordance with UK adopted
international accounting standards;
· assess the Company's ability to continue as a going concern, disclosing,
as applicable, matters related to going concern; and
· use the going concern basis of accounting unless they either intend to
liquidate the Company or to cease operations or have no realistic alternative
but to do so.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that its financial statements comply with the Companies
Act 2006. They are responsible for such internal control as they determine
is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error, and 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.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, Directors' Report, Directors' Remuneration
Report and Corporate Governance Statement that complies 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 but not
for the content of any information included on the website that has been
prepared or issued by third parties. Legislation in the UK governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
In accordance with Disclosure Guidance and Transparency Rule 4.1.14R, the
financial statements will form part of the annual financial report prepared
using the single electronic reporting format under the TD ESEF Regulation. The
auditor's report on these financial statements provides no assurance over the
ESEF format.
Responsibility Statement of the Directors in respect of the Annual Financial
Report
We confirm that to the best of our knowledge:
· the financial statements, prepared in accordance with the applicable set
of accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company; and
· the strategic 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.
We consider the annual report and accounts, taken as a whole, is fair,
balanced and understandable and provides the information necessary for
shareholders to assess the Company's position and performance, business model
and strategy.
For and on behalf of the Board
Michael Hughes,
Chairman
13 June 2024
Statement of Comprehensive Income
Year ended Year ended
31 March 2024 31 March 2023
Revenue Capital Revenue Capital
return return Total return return Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Income
Income from investments 3 4,722 - 4,722 5,725 302 6,027
Interest 3 181 - 181 96 - 96
Gains/(losses) on investments held at fair value through profit or loss 10(a) - 106,805 106,805 - (35,669) (35,669)
Currency losses - (403) (403) - (432) (432)
4,903 106,402 111,305 5,821 (35,799) (29,978)
Expenses
Investment management fees 4 (2,964) - (2,964) (3,284) - (3,284)
Administrative expenses 5 (957) - (957) (1,028) - (1,028)
(3,921) - (3,921) (4,312) - (4,312)
Profit/(loss) before finance costs and taxation 982 106,402 107,384 1,509 (35,799) (34,290)
Finance costs 6 (2,544) - (2,544) (1,309) - (1,309)
(Loss)/profit before taxation (1,562) 106,402 104,840 200 (35,799) (35,599)
Taxation 7 (472) (13,346) (13,818) (537) 1,870 1,333
(Loss)/profit for the year (2,034) 93,056 91,022 (337) (33,929) (34,266)
(Loss)/return per Ordinary share (pence) 9 (3.77) 172.62 168.85 (0.59) (59.41) (60.00)
The Company does not have any income or expense that is not included in
"(Loss)/profit for the year", and therefore this represents the "Total
comprehensive income for the year", as defined in IAS 1 (revised).
All of the (loss)/profit and total comprehensive income is attributable to the
equity holders of the Company. There are no non-controlling interests.
The total column of this statement represents the Statement of Comprehensive
Income of the Company, prepared in accordance with UK-adopted International
Accounting Standards. The revenue and capital columns are supplementary to
this and are prepared under guidance published by the Association of
Investment Companies (see Note 2 to the Financial Statements).
All items in the above statement derive from continuing operations.
The accompanying notes are an integral part of these financial statements.
Statement of Financial Position
As at As at
31 March 2024 31 March 2023
Notes £'000 £'000
Non-current assets
Investments held at fair value through profit or loss 10 465,789 391,371
Current assets
Cash at bank 6,452 7,178
Other receivables 11 2,403 3,715
8,855 10,893
Current liabilities
Bank loan 12(a) (25,953) (29,918)
Other payables 12(b) (2,231) (3,279)
(28,184) (33,197)
Net current liabilities (19,329) (22,304)
Non-current liabilities
Deferred tax liability on Indian capital gains 13 (19,406) (11,148)
Net assets 427,054 357,919
Share capital and reserves
Ordinary share capital 14 14,768 14,768
Share premium account 25,406 25,406
Capital redemption reserve 4,484 4,484
Capital reserve 384,824 313,655
Revenue reserve (2,428) (394)
Equity shareholders' funds 427,054 357,919
Net asset value per Ordinary share (pence) 16 819.56 641.32
The financial statements were approved by the Board of Directors and
authorised for issue on 13 June 2024 and were signed on its behalf by:
Michael Hughes
Chairman
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Equity
Year ended 31 March 2024
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 April 2023 14,768 25,406 4,484 313,655 (394) 357,919
Net gain/(loss) after taxation - - - 93,056 (2,034) 91,022
Buyback of share capital to treasury - - - (21,887) - (21,887)
Balance at 31 March 2024 14,768 25,406 4,484 384,824 (2,428) 427,054
Year ended 31 March 2023
Share Capital
Share premium Special redemption Capital Revenue
capital account reserve reserve reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 April 2022 14,768 25,406 9,932 4,484 349,462 (57) 403,995
Net loss after taxation - - - - (33,929) (337) (34,266)
Buyback of share capital to treasury - - (9,932) - (1,878) - (11,810)
Balance at 31 March 2023 14,768 25,406 - 4,484 313,655 (394) 357,919
The accompanying notes are an integral part of these financial statements.
Statement of Cash Flows
Year ended Year ended
31 March 2024 31 March 2023
Notes £'000 £'000
Cash flows from operating activities
Dividend income received 4,722 4,817
Interest income received (4) (16)
Investment management fee paid (3,203) (3,057)
Other cash (expenses)/receipts (970) 692
Cash inflow from operations 545 2,436
Interest paid (2,248) (1,189)
Net cash (outflow)/inflow from operating activities (1,703) 1,247
Cash flows from investing activities
Purchases of investments (96,207) (100,451)
Sales of investments 128,508 109,314
Indian capital gains tax paid on sales (5,088) (678)
Net cash inflow from investing activities 27,213 8,185
Cash flows from financing activities
Buyback of shares (21,792) (11,489)
Repayment of loan (4,000) -
Costs associated with loan (41) (105)
Net cash outflow from financing activities (25,833) (11,594)
Net decrease in cash and cash equivalents (323) (2,162)
Cash and cash equivalents at the start of the year 7,178 9,772
Effect of foreign exchange rate changes (403) (432)
Cash and cash equivalents at the end of the year 17 6,452 7,178
The accompanying notes are an integral part of these financial statements.
Notes to the Financial Statements
For the year ended 31 March 2024
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").
2. Accounting policies
(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 2024.
The financial statements have been prepared in accordance with UK-adopted
international accounting standards ("IFRS"). The Company adopted all of the
IFRS which took effect during the year.
The financial statements have also been prepared in accordance with the
Companies Act 2006 and the Statement of Recommended Practice (SORP),
"Financial Statements of Investment Trust Companies and Venture Capital
Trusts," issued in July 2022.
The Directors have reviewed the Company's ability to continue as a going
concern. The Company's assets consist substantially of a portfolio of quoted
securities which in most circumstances are realisable within a short
timescale. The Directors are mindful of the principal risks and uncertainties
disclosed in the Strategic Report and the financial risks disclosed in Note 17
to the financial statements and have reviewed cashflow forecasts detailing
revenue and expenses for at least 12 months from the date of this Report.
Accordingly, the Directors believe that the Company has adequate financial
resources to continue in operational existence for at least 12 months from the
date of this Report.
In August 2022, the Company entered into a three-year, £30 million revolving
credit facility (the "Facility") with Royal Bank of Scotland International
Limited (London Branch), part of NatWest Group plc, of which £26m was drawn
down at 31 March 2024 (2023 - £30m). The Board has set limits for borrowing
and regularly reviews the level of any gearing and compliance with banking
covenants.
The results of stress testing prepared by the Manager, which models a sharp
decline in market levels and income, demonstrated that the Company has the
ability to raise sufficient funds so as to both pay expenses and remain within
its debt covenants.
Having taken these factors into account, the Directors believe that the
Company has adequate resources to continue in operational existence and has
the ability to meet its financial obligations as they fall due for a period of
at least twelve months from the date of approval of this Report. For these
reasons, the Company continues to adopt the going concern basis of accounting
in preparing the financial statements.
Significant estimates and judgements. The preparation of financial statements
in conformity with IFRS requires the use of certain critical accounting
estimates which requires management to exercise its judgement in the process
of applying the accounting policies. The Directors do not believe that any
accounting judgements or estimates have been applied to these financial
statements that have a significant risk of causing material adjustment to the
carrying amount of assets and liabilities within the next financial year. The
Company considers the selection of Sterling as its functional currency to be a
key judgement.
Functional currency. The Company's investments are made in Indian Rupee and US
Dollar, however the Board considers the Company's functional currency to be
Sterling. In arriving at this conclusion, the Board considered that the shares
of the Company are listed on the London Stock Exchange, it is regulated in the
United Kingdom, principally having its shareholder base in the United Kingdom
and also pays expenses in Sterling, as it would dividends, where declared by
the Company.
New and amended accounting standards and interpretations. The Company applied
certain Standards and Amendments, which are effective for annual periods
beginning on or after 1 January 2023. The adoption of these Standards and
Amendments did not have a material impact on the financial results of the
Company. The nature is described below:
- IAS 1 Amendments (Disclosure of Accounting Policies)
- IAS 8 Amendments (Definition of Accounting Estimates)
- IAS 12 Amendments (Deferred Tax related to Assets and Liabilities arising
from a Single Transaction)
- IAS 12 Amendments (Deferred Tax and OECD Pillar 2 Taxes)
At the date of authorisation of these financial statements, the following
amendments to Standards and Interpretations were assessed to be relevant and
are all effective for annual periods beginning on or after 1 January 2024 and
thereafter;
- IAS 1 Amendments (Classification of Liabilities as Current or Non-Current)
- IAS 1 Amendments (Disclosure of Non-current Liabilities with Covenants)
The Company intends to adopt the Standards and Interpretations in the
reporting period when they become effective and the Board does 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 may be revised presentations to the
Financial Statements and additional disclosures.
(b) Presentation of 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 Statement of
Comprehensive Income between items of a revenue and capital nature has been
presented in the Statement of Comprehensive Income.
(c) Segmental reporting. The Board has considered the requirements of IFRS 8
'Operating Segments' and is of the view that the Company is engaged in a
single segment business, which is one of investing in Indian quoted equities
and that therefore the Company has only a single operating segment. The Board
of Directors, as a whole, has been identified as constituting the chief
operating decision maker of the Company. The key measure of performance used
by the Board to assess the Company's performance is the total return on the
Company's net asset value, as calculated under IFRS, and therefore no
reconciliation is required between the measure of profit or loss used by the
Board and that contained in the financial statements.
(d) Income. Dividends receivable on equity shares are recognised in the Statement
of Comprehensive Income on the ex-dividend date, and gross of any applicable
withholding tax. Dividends receivable on equity shares where no ex-dividend
date is quoted are brought into account when the Company's right to receive
payment is established. Special dividends are credited to capital or revenue,
according to their circumstances. Where a 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 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.
(e) Expenses and interest payable. All expenses, with the exception of interest
expenses, which are recognised using the effective interest method, are
accounted for on an accruals basis. Expenses are charged to the revenue column
of the 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 Statement of Comprehensive
Income and separately identified and disclosed in note 10 (b); and
- expenses are charged to the capital column of the Statement of Comprehensive
Income where a connection with the maintenance or enhancement of the value of
the investments can be demonstrated.
(f) Taxation. The tax expense represents the sum of the tax currently payable and
deferred tax. Tax payable is based on the taxable profit for the year. Taxable
profit differs from profit before tax as reported in the Statement of
Comprehensive Income because it excludes items of income or expense that are
taxable or deductible in other years and it further excludes items that are
never taxable or deductible. The Company's liability for current tax is
calculated using tax rates that have been enacted or substantively enacted by
the Statement of Financial Position date.
Deferred tax. Deferred tax 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 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, using enacted tax rates that are
expected to apply at the date the deferred tax position is unwound.
(g) Investments. Investments have been designated upon initial recognition as fair
value through profit or loss. Investments are recognised and de-recognised at
trade date where a purchase or sale is under a contract whose terms require
delivery within the timeframe established by the market concerned, and are
measured initially at fair value. Subsequent to initial recognition,
investments are recognised at fair value through profit or loss.
The Company classifies its investments based on their contractual cash flow
characteristics and the Company's business model for managing the assets. The
business model, which is the determining feature, is such that the portfolio
of investments is managed, and performance and risk is evaluated, on a fair
value basis. The Manager is also compensated based on the fair value of the
Company's assets. Consequently, all investments are measured at fair value
through profit or loss.
Investments are recognised and de-recognised at trade date where a purchase or
sale is under a contract whose terms require delivery within the timeframe
established by the market concerned, and are measured at fair value. For
listed investments, this is deemed to be bid market prices or closing prices
on a recognised stock exchange.
Gains and losses arising from the changes in fair value are included in net
profit or loss for the period as a capital item. Transaction costs are treated
as a capital cost.
(h) 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.
(i) Other receivables. The Company has adopted the classification and measurement
provisions of IFRS 9 'Financial Instruments' as other receivables are held to
collect contractual cash flows and give rise to cash flows representing solely
payments of principal and interest. As such they are measured at amortised
cost. Other receivables held by the Company do not carry any interest, they
have been assessed as not having any expected credit losses over their
lifetime due to their short-term nature and low credit risk.
(j) Other payables. The Company has adopted the classification and measurement
provisions of IFRS 9 'Financial Instruments'. Other payables are non-interest
bearing and are stated at amortised cost.
(k) Borrowings. Bank loans are initially recognised at cost, being the fair value
of the consideration received, net of any issue expenses. Subsequently, they
are measured at amortised cost using the effective interest method. Finance
charges are accounted for on an accruals basis using the effective interest
rate method and are charged 100% to revenue.
(l) Nature and purpose of reserves
Called-up share capital. The Ordinary share capital on the Statement of
Financial Position relates to the number of shares in issue and in treasury.
Only when the shares are cancelled, either from treasury or directly, is a
transfer made to the capital redemption reserve. This reserve is not
distributable.
Share premium account. The balance classified as share premium includes the
premium above nominal value from the proceeds on issue of any equity share
capital comprising Ordinary shares of 25p. This reserve is not distributable.
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.
This reserve is not distributable.
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. The part of this reserve represented by realised capital
gains is available for distribution by way of dividend. Subsequent to the
special reserve being extinguished, the capital reserve has been used to fund
the share buy-backs by the Company.
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 is 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 Statement of Financial Position
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
Statement of Comprehensive Income.
3. Income
2024 2023
£'000 £'000
Income from investments
Overseas dividends 4,722 6,027
Overseas dividends 4,722 6,027
Other income
Deposit interest 172 93
Other interest 9 3
181 96
Total income 4,903 6,123
4. Investment management fees
2024 2023
£'000 £'000
Investment management fees 2,964 3,284
The Company has an agreement with the Manager for the provision of management
and secretarial services.
During the year, the management fee was payable monthly in arrears and was
based on an annual amount of 0.8% up to £300 million and 0.6% thereafter of
the Company's net assets (2023 - based on an amount of 0.85% up to £350
million and 0.7% thereafter of the Company's net assets), valued monthly. The
management agreement is terminable by either the Company or the Manager on six
months' notice. The amount payable in respect of the Company for the year was
£2,964,000 (2023 - £3,284,000) and the balance due to the Manager at the
year end was £520,000 (2023 - £759,000). All investment management fees are
charged 100% to the revenue column of the Statement of Comprehensive Income.
5. Administrative expenses
2024 2023
£'000 £'000
Directors' fees 135 148
Promotional activities 190 176
Auditor's remuneration:
- fees payable for the audit of the Company's annual financial statements 70 60
Legal and advisory fees 59 68
Custodian and overseas agents' charges 319 311
Depositary fees 39 40
Other 145 225
957 1,028
The Manager supports the Company with promotional activities through its
participation in the abrdn Investment Trust Share Plan and ISA. The total fees
paid and payable under the agreement during the year were £190,000 (2023 -
£176,000) and £98,000 (2023 - £46,000) was due to the Manager at the year
end.
The only fees paid to KPMG LLP by the Company are the audit fees of £70,000
(2023 - £60,000). The amounts disclosed above for Auditor's remuneration are
all shown net of VAT.
6. Finance costs
2024 2023
£'000 £'000
In relation to bank loans 2,544 1,309
Finance costs are charged 100% to revenue as disclosed in the accounting
policies.
7. Taxation
2024 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
(a) Analysis of charge for the year
Indian capital gains tax charge on sales - 5,088 5,088 - 936 936
Under provision of Indian capital gains tax charged on sales for prior year - - - - 577 577
Overseas taxation 472 - 472 537 - 537
Total current tax charge for the year 472 5,088 5,560 537 1,513 2,050
Movement in deferred tax liability on Indian capital gains - 8,258 8,258 - (3,383) (3,383)
Total tax charge/(credit) for the year 472 13,346 13,818 537 (1,870) (1,333)
The Company is liable to Indian capital gains tax under Section 115 AD of the
Indian Income Tax Act 1961. The Company has recognised a deferred tax
liability of £19,406,000 (2023 - £11,148,000) on capital gains which may
arise if Indian investments are sold.
On 1 April 2020, the Indian Government withdrew an exemption from withholding
tax on dividend income. Dividends are received net of 20% withholding tax and
an excess charge of 4%. A further surcharge of either 2% or 5% is applied if
the receipt exceeds a certain threshold. Of this total charge, 10% of the
withholding tax is irrecoverable with the remainder being offset against the
deferred tax liability on Indian capital gains in the first instance where
there are capital gains during the year or if not then it is shown in the
Statement of Financial Position as an asset due for reclaim.
(b) Factors affecting the tax charge for the year. The tax charged for the year
can be reconciled to the profit/(loss) per the Statement of Comprehensive
Income as follows:
2024 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
(Loss)/profit before tax (1,562) 106,402 104,840 200 (35,799) (35,599)
UK corporation tax on profit at the standard rate of 25% (2023 - 19%) (391) 26,601 26,210 38 (6,802) (6,764)
Effects of:
(Gains)/losses on investments held at fair value through profit or loss not - (26,702) (26,702) - 6,720 6,720
taxable not subject to UK corporation tax
Currency losses not taxable - 101 101 - 82 82
Deferred tax not recognised in respect of tax losses 1,474 - 1,474 1,047 - 1,047
Corporate interest restriction 93 - 93 - - -
Expenses not deductible for tax purposes 4 - 4 3 - 3
Indian capital gains tax charged on sales - 5,088 5,088 - 936 936
Under provision of Indian capital gains tax charged on sales for prior year - - - - 577 577
Movement in deferred tax liability on Indian capital gains - 8,258 8,258 - (3,383) (3,383)
Irrecoverable overseas withholding tax 472 - 472 537 - 537
Non-taxable dividend income (1,180) - (1,180) (1,088) - (1,088)
Total tax charge/(credit) 472 13,346 13,818 537 (1,870) (1,333)
-
(c) At 31 March 2024, the Company had surplus management expenses and loan
relationship debits of £39,202,000 (2023 - £33,305,000) with a tax value of
£9,801,000 (2023 - £8,326,000) based on enacted tax rates, in respect of
which a deferred tax asset has not been recognised. No deferred tax asset has
been recognised because the Company is not expected to generate taxable income
in the future in excess of the deductible expenses of those future periods.
Therefore, it is unlikely that the Company will generate future taxable
revenue that would enable the existing tax losses to be utilised.
8. Ordinary dividends on equity shares
After the payment of operational expenses, there was no revenue available for
distribution by way of dividend for the year ended 31 March 2024 (2023 -
£nil).
9. (Loss)/return per Ordinary share
2024 2023
Revenue Capital Total Revenue Capital Total
Net (loss)/profit for the year (£'000) (2,034) 93,056 91,022 (337) (33,929) (34,266)
Weighted average number of Ordinary shares in issue 53,907,480 57,105,465
(Loss)/return per Ordinary share (pence) (3.77) 172.62 168.85 (0.59) (59.41) (60.00)
10. Investments held at fair value through profit or loss
2024 2023
(a) Valuation £'000 £'000
Opening book cost 296,380 293,858
Opening investment holdings fair value gains 94,991 146,023
Opening valuation 391,371 439,881
Movements in the year:
Purchases 95,183 99,528
Sales - proceeds (127,570) (112,369)
Gains/(losses) on investments 106,805 (35,669)
Closing valuation 465,789 391,371
2024 2023
£'000 £'000
Closing book cost 302,906 296,380
Closing investment holdings fair value gains 162,883 94,991
Closing valuation 465,789 391,371
The Company generated £127,570,000 (2023 - £112,369,000) from investments
sold in the period. The book cost of these investments when they were
purchased was £88,658,000 (2023 - £97,005,000). These investments have been
revalued over time and until they were sold any unrealised gains/losses were
included in the fair value of the investments.
(b) Transaction costs. During the year, expenses were incurred in acquiring or
disposing of investments classified as fair value through profit or loss.
These have been expensed through the capital column of the Statement of
Comprehensive Income, and are included within gains/(losses) on investments at
fair value through profit or loss in the Statement of Comprehensive Income.
The total costs were as follows:
2024 2023
£'000 £'000
Purchases 165 166
Sales 178 173
343 339
The above transaction costs are calculated in line with the AIC SORP. The
transaction costs in the Company's Key Information Document provided by the
Manager are calculated on a different basis and in line with the PRIIPs
regulations.
11. Other receivables
2024 2023
£'000 £'000
Amounts due from brokers 2,328 3,266
Recoverable tax on Indian dividends - 393
Prepayments and accrued income 75 56
2,403 3,715
None of the above amounts are past their due date or impaired (2023 - nil).
16. Net asset value per Ordinary share
The net asset value per Ordinary share is based on a net asset value of
£427,054,000 (2023 - £357,919,000) and on 52,107,910 (2023 - 55,809,921)
Ordinary shares, being the number of Ordinary shares in issue at the year end,
excluding shares held in treasury.
17. Financial instruments
Risk management. The Company's investment activities expose it to various
types of financial risk associated with the financial instruments and markets
in which it invests. The Company's financial instruments comprise securities
and other investments, cash balances and debtors and creditors that arise
directly from its operations; for example, in respect of sales and purchases
awaiting settlement, and debtors for accrued income.
The Board has delegated the risk management function to the Manager under the
terms of its management agreement with the Manager (further details of which
are included under note 4). The Board regularly reviews and agrees policies
for managing each of the key financial risks identified with the Manager. The
types of risk and the Manager's approach to the management of each type of
risk, are summarised below. Such approach has been applied throughout the year
and has not changed since the previous accounting period. The numerical
disclosures exclude short-term debtors and creditors on the grounds of their
materiality.
Risk management framework. The directors of the Manager collectively assume
responsibility for the Manager's obligations under the AIFMD including
reviewing investment performance and monitoring the Company's risk profile
during the year.
The Manager is a fully integrated member of abrdn, which provides a variety of
services and support to the Manager in the conduct of its business activities,
including in the oversight of the risk management framework for the Company.
The Manager has delegated the day to day administration of the investment
policy to the Investment manager, which is responsible for ensuring that the
Company is managed within the terms of its investment guidelines and the
limits set out in its pre-investment disclosures to investors (details of
which can be found on the Company's website). The Manager has retained
responsibility for monitoring and oversight of investment performance, product
risk and regulatory and operational risk for the Company.
The Manager conducts its risk oversight function through the operation of the
abrdn's risk management processes and systems which are embedded within the
abrdn's operations. abrdn's Risk Division supports management in the
identification and mitigation of risks and provides independent monitoring of
the business. The Division includes Compliance, Business Risk, Market Risk and
Risk Management. The team is headed up by abrdn's Chief Risk Officer, who
reports to the CEO of the Group. The Risk Division achieves its objective
through embedding the Risk Management Framework throughout the organisation
using abrdn's operational risk management system ("SHIELD").
abrdn's Internal Audit Department is independent of the Risk Division and
reports directly to the abrdn's CEO and to the Audit Committee of abrdn's
Board of Directors. The Internal Audit Department is responsible for providing
an independent assessment of the abrdn's control environment.
abrdn's corporate governance structure is supported by several committees to
assist the board of directors of abrdn, its subsidiaries and the Company to
fulfil their roles and responsibilities. abrdn's Risk Division is represented
on all committees, with the exception of those committees that deal with
investment recommendations. The specific goals and guidelines on the
functioning of those committees are described on the committees' terms of
reference.
Market risk. The fair value or future cash flows of a financial instrument
held by the Company may fluctuate because of changes in market prices. This
market risk comprises three elements - interest rate risk, foreign currency
risk and other price risk.
Interest rate risk. The interest rate risk profile of the portfolio of the
Company's financial assets and liabilities, excluding equity holdings which
are all non-interest bearing, at the Statement of Financial Position date was
as follows:
Weighted average Weighted
period for which average Fixed Floating
rate is fixed interest rate rate rate
At 31 March 2024 Years % £'000 £'000
Assets
Sterling - 3.69 - 6,032
US Dollars - - - 8
Indian Rupee - - - 412
- 6,452
Weighted average Weighted
period for which average Fixed Floating
rate is fixed interest rate rate rate
Years % £'000 £'000
Liabilities
Bank loan - £26,000,000 0.17 8.79 25,953 -
Weighted average Weighted
period for which average Fixed Floating
rate is fixed interest rate rate rate
At 31 March 2023 Years % £'000 £'000
Assets
Sterling - 3.18 - 7,139
US Dollars - - - 8
Indian Rupee - - - 31
- 7,178
Weighted average Weighted
period for which average Fixed Floating
rate is fixed interest rate rate rate
Years % £'000 £'000
Liabilities
Bank loan - £30,000,000 0.16 3.43 29,918 -
The weighted average interest rate is based on the current yield of each
asset, weighted by its market value. The weighted average interest rate on
bank loans is based on the interest rate payable, weighted by the total value
of the loans. The maturity date of the Company's loans is shown in note 12.
The floating rate assets consist of cash deposits on call earning interest at
prevailing market rates.
The Company's equity portfolio and short-term debtors and creditors (excluding
bank loans) have been excluded from the above tables.
Management of the risk. 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.
Interest rate sensitivity. The sensitivity analyses below have been determined
based on the exposure to interest rates for both derivative and non-derivative
instruments at the Statement of Financial Position date and the stipulated
change taking place at the beginning of the financial year and held constant
throughout the reporting period in the case of instruments that have floating
rates.
The rate of interest on the loan is the percentage rate per annum which is the
aggregate of the applicable margin, adjusted SONIA rate and mandatory cost if
any.
If interest rates had been 100 basis points higher or lower (based on current
parameter used by Manager's Investment Risk Department on risk assessment) and
all other variables were held constant, the Company's revenue return for the
year ended 31 March 2024 would have decreased/increased by £182,000 (2023 -
decrease/increase £199,000). This is mainly attributable to the Company's
exposure to interest rates on its floating rate cash balances and bank loans.
These figures have been calculated based on cash positions and bank loans at
each year end.
In the opinion of the Directors, the above sensitivity analyses are not
representative of the year as a whole, since the level of exposure changes
frequently as part of the interest rate risk management process used to meet
the Company's objectives. The risk parameters used will also fluctuate
depending on the current market perception.
Foreign currency risk. The Company's total return and net assets can be
significantly affected by currency translation movements as the majority of
the Company's assets and income are denominated in currencies other than
Sterling, which is the Company's functional currency.
Management of the risk. It is not the Company's policy to hedge this risk but
it reserves the right to do so, to the extent possible.
The revenue account is subject to currency fluctuation arising on dividends
paid in foreign currencies. The Company does not hedge this currency risk.
Foreign currency exposure by currency of denomination:
2024 2023
Net Total Net Total
Overseas monetary currency Overseas monetary currency
investments assets exposure investments assets exposure
£'000 £'000 £'000 £'000 £'000 £'000
US Dollar - 8 8 5,474 8 5,482
Indian Rupee 465,789 2,711 468,500 385,897 31 385,928
465,789 2,719 468,508 391,371 39 391,410
Foreign currency sensitivity. The following tables show the impact to a 10%
increase and a 10% decrease in Sterling against the foreign currency in which
the Company has exposure.
If Sterling were to strengthen by 10%, there would be following impact;
2024 2023
Equity(A) Equity(A)
£'000 £'000
US Dollar (1) (498)
Indian Rupee (42,591) (35,287)
(42,592) (35,785)
If Sterling were to weaken by 10%, there would be following impact;
2024 2023
EquityA Equity(A)
£'000 £'000
US Dollar 1 609
Indian Rupee 52,056 43,129
52,057 43,738
(A) Represents equity exposure to relevant currencies.
The prior year comparatives have been updated to reflect the current year
presentation.
Price risk. 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.
Management of the risk. 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
Company are all listed on the Bombay (Mumbai) Stock Exchange and/or The Indian
National Stock Exchange.
Price risk sensitivity. If market prices at the Statement of Financial
Position date had been 15% higher or lower (which the Directors consider to be
a reasonable potential change in market prices) while all other variables
remained constant, the return attributable to Ordinary shareholders for the
year ended 31 March 2024 would have increased /(decreased) by £69,868,000
(2023 - increased/(decreased) by £58,706,000) and capital reserves would have
increased /(decreased) by the same amount.
Liquidity risk. This is the risk that the Company will encounter difficulty in
meeting obligations associated with financial liabilities.
Management of the risk. The Board imposes borrowing limits to ensure gearing
levels are appropriate to market conditions and reviews these on a regular
basis. Borrowings comprise a £30 million revolving multi-currency credit
facility, which expires on 5 August 2025. Other payables are settled within
one year. Details of borrowings and other payables at 31 March 2024 are shown
in note 12.
Liquidity risk is not considered to be significant as the Company's assets
comprise mainly readily realisable securities, which can be sold to meet
funding commitments if necessary. Short-term flexibility is achieved through
the use of the loan facility, details of which can be found in note 12.
Details of the Board's policy on gearing are shown in the interest rate risk
section of this note.
Liquidity risk exposure. The Company has a £30 million uncommitted
multicurrency revolving loan facility, of which £26,000,000 (2023 -
£30,000,000) was drawn down at the year end. Other payables amounted to
£2,231,000 (2023 - £3,279,000).
Credit risk. This is failure of the counterparty to a transaction to discharge
its obligations under that transaction, which could result in the Company
suffering a loss.
Management of the risk. The risk is actively managed as follows:
- investment transactions are carried out with a 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
Company is mitigated by the review of failed trade reports by the Manager on a
daily basis. In addition, both stock and cash reconciliations to custodians'
records are performed on a daily basis by the Manager to ensure discrepancies
are investigated on a timely basis. The Manager's Compliance department
carries out periodic reviews of the Custodian's operations and reports its
findings to the Manager's Risk Management Committee and to the Board of the
Company. This review will also include checks on the maintenance and security
of investments held; and
- cash is held only with reputable banks whose credit ratings are monitored on a
regular basis.
None of the Company's financial assets are secured by collateral or other
credit enhancements (2023 - none).
Credit risk exposure. In summary, compared to the amounts included in the
Statement of Financial Position, the maximum exposure to credit risk at 31
March was as follows:
2024 2023
Statement of Statement of
Financial Maximum Financial Maximum
Position Exposure Position Exposure
£'000 £'000 £'000 £'000
Current assets
Loans and receivables 2,403 2,403 3,715 3,715
Cash at bank and in hand 6,452 6,452 7,178 7,178
8,855 8,855 10,893 10,893
The exposure noted in the above table is not representative of the exposure
across the year as a whole.
None of the Company's financial assets are past due or impaired (2023 - none).
Fair values of financial assets and financial liabilities. The fair value of
bank loans are represented in the table below;
2024 2023
£'000 £'000
Bank loan 25,953 29,918
Investments held at fair value through profit or loss are valued at their
quoted bid prices which equate to their fair values.
The fair value and the carrying value of the bank loan in the Statement of
Financial Position are the same at £25,953,000 as at 31 March 2024 (2023 -
£29,918,000) due to its short-term nature.
The Directors are of the opinion that the other financial assets and
liabilities carried at amortised cost equates to their fair value.
18. 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.
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 includes taking account of the Manager's
views on the market;
- the opportunity to buy back equity shares for cancellation or holding in
treasury, 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 opportunity for new issues of equity shares; and
- the extent to which any 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.
19. Fair value hierarchy
IFRS 13 'Fair Value Measurement' requires an entity to classify fair value
measurements using a fair value hierarchy that reflects the subjectivity of
the inputs used in making measurements. The fair value hierarchy has the
following levels:
Level 1: quoted (unadjusted) market prices in active markets for identical
assets or liabilities;
Level 2: valuation techniques for which the lowest level input that is
significant to the fair value measurement is directly or indirectly
observable; and
Level 3: valuation techniques for which the lowest level input that is
significant to the fair value measurement is unobservable.
The financial assets and liabilities measured at fair value in the Statement
of Financial Position are grouped into the fair value hierarchy at the
Statement of Financial Position date are as follows:
Level 1 Level 2 Level 3 Total
As at 31 March 2024 Note £'000 £'000 £'000 £'000
Financial assets at fair value through profit or loss
Quoted equities a) 465,789 - - 465,789
Net fair value 465,789 - - 465,789
Level 1 Level 2 Level 3 Total
As at 31 March 2023 Note £'000 £'000 £'000 £'000
Financial assets at fair value through profit or loss
Quoted equities a) 391,371 - - 391,371
Net fair value 391,371 - - 391,371
a) Quoted equities. The fair value of the Company's investments in quoted
equities has been determined by reference to their quoted bid prices at the
reporting date. Quoted equities included in Fair Value Level 1 are actively
traded on recognised stock exchanges.
20. Controlling party
In the opinion of the Directors on the basis of shareholdings advised to them,
the Company has no immediate or ultimate controlling party.
21. Related party transactions
Directors' fees and interests. Fees payable during the year to the Directors
and their interests in shares of the Company are disclosed within the
Directors' Remuneration Report.
22. Transactions with the Manager
The Company has an agreement with abrdn Fund Managers Limited for the
provision of management, secretarial, accounting and administration services
and for the carrying out of promotional activities in relation to the Company.
Details of transactions during the year and balances outstanding at the year
end are disclosed in notes 4 and 5.
23. Subsequent events
Subsequent to the year end, the Company's NAV has increased as a result of an
increase in stockmarket values of the portfolio investments. At the date of
this Report the latest unaudited NAV per share was 935.74p as at the close of
business on 12 June 2024, an increase of 14.2% compared the NAV per share of
819.56p at the year end.
Alternative Performance Measures
Alternative performance measures are numerical measures of the Company's
current, historical or future performance, financial position or cash flows,
other than financial measures defined or specified in the applicable financial
framework. The Company's applicable financial framework includes IFRS and the
AIC SORP. The Directors assess the Company's performance against a range of
criteria which are viewed as particularly relevant for closed-end investment
companies.
Adjusted net asset value per Ordinary share(A)
This performance measure is used to provide a like for like comparison with
the Company's Benchmark for the purposes of the potential five-yearly
performance-related conditional tender offer announced on 24 March 2022, which
was first in effect from 1 April 2022 and is therefore not applicable to
earlier reporting periods. Further details on the conditional tender may be
found in the Chairman's Statement.
2024 2023
Net assets attributable (£'000) 427,054 357,919
Accumulated Indian CGT charge since 1 April 2022 (£'000) 11,476 (1,870)
Net assets attributable excluding Indian CGT charge (£'000) 438,530 356,049
Number of Ordinary shares in issue 52,107,910 55,809,921
Adjusted net asset value per Ordinary share(A) 841.58p 637.97p
(A) Adjusted NAV is the Company's NAV after adding back all Indian capital
gains tax paid or accrued since 1 April 2022 in respect of realised and
unrealised gains made on investments.
Discount to net asset value per Ordinary share
The discount is the amount by which the share price is lower than the net
asset value per share with debt at par value, expressed as a percentage of the
net asset value.
2024 2023
NAV per Ordinary share a 819.56p 641.32p
Share price b 652.00p 512.00p
Discount (a-b)/a 20.4% 20.2%
Net gearing
Net gearing measures the total borrowings less cash and cash equivalents
divided by shareholders' funds, expressed as a percentage. Under AIC reporting
guidance cash and cash equivalents includes amounts due to and from brokers at
the year end.
2024 2023
Borrowings (£'000) a 25,953 29,918
Cash (£'000) b 6,452 7,178
Amounts due to brokers (£'000) c 482 1,418
Amounts due from brokers (£'000) d 2,328 3,266
Shareholders' funds (£'000) e 427,054 357,919
Net gearing (a-b+c-d)/e 4.1% 5.8%
Ongoing charges ratio
The ongoing charges ratio has been calculated in accordance with guidance
issued by the AIC as the total of investment management fees and
administrative expenses are expressed as a percentage of the average net asset
values with debt at par value throughout the year.
2024 2023
Investment management fees (£'000) 2,964 3,284
Administrative expenses (£'000) 957 1,028
Less: non-recurring charges(A) (£'000) - (27)
Ongoing charges (£'000) 3,921 4,285
Average net assets (£'000) 391,393 394,420
Ongoing charges ratio 1.00% 1.09%
(A) Professional fees unlikely to recur.
The ongoing charges ratio provided in the Company's Key Information Document
is calculated in line with the PRIIPs regulations which includes amongst other
things, the cost of borrowings and transaction costs.
Total return
NAV and share price total returns show how the NAV and share price has
performed over a period of time in percentage terms, taking into account both
capital returns and dividends paid to shareholders. Share price and NAV total
returns are monitored against open-ended and closed-ended competitors, and the
Benchmark, respectively. Adjusted NAV is the Company's NAV after adding back
all Indian capital gains tax paid or accrued since 1 April 2022 in respect of
realised or unrealised gains made on investments.
Share
Year ended 31 March 2024 NAV Adjusted NAV Price
Opening at 1 April 2023 a 641.32p 637.97p 512.00p
Closing at 31 March 2024 b 819.56p 841.58p 652.00p
Price movements c=(b/a)-1 27.8% 31.9% 27.3%
Dividend reinvestment(A) d N/A N/A N/A
Total return c+d +27.8% +31.9% +27.3%
Share
Year ended 31 March 2023 NAV Adjusted NAV Price
Opening at 1 April 2022 a 697.30p 697.30p 562.00p
Closing at 31 March 2023 b 641.32p 637.97p 512.00p
Price movements c=(b/a)-1 -8.0% -8.5% -8.9%
Dividend reinvestment(A) d N/A N/A N/A
Total return c+d -8.0% -8.5% -8.9%
Share
Two years ended 31 March 2024 NAV Adjusted NAV Price
Opening at 1 April 2022 a 697.30p 697.30p 562.00p
Closing at 31 March 2024 b 819.56p 841.58p 652.00p
Price movements c=(b/a)-1 +17.5% +20.7% +16.0%
Dividend reinvestment(A) d N/A N/A N/A
Total return c+d +17.5% +20.7% +16.0%
(A) NAV total return involves investing the net dividend in the NAV of the
Company with debt at par value on the date on which that dividend goes
ex-dividend. Share price total return involves reinvesting the net dividend in
the share price of the Company on the date on which that dividend goes
ex-dividend.
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 March 2024 or 2023 but is derived
from those accounts. Statutory accounts for 2023 have been delivered to the
registrar of companies. The auditor has reported on those accounts; their
reports were (i) unqualified, (ii) did not include a reference to any matters
to which the auditor drew attention by way of emphasis without qualifying
their report and (iii) did not contain a statement under section 498 (2) or
(3) of the Companies Act 2006.
The statutory accounts for the financial year ended 31 March 2024 have been
approved by the Board and audited and will be filed with the Registrar of
Companies in due course.
The Company's AGM will be held at 18 Bishops Square, London E1 6EG at 12.30pm
on Friday 20 September 2024.
The Annual Report will be posted to shareholders in July 2024. Further copies
may be ordered from the Manager's website: www.invtrusts.co.uk
(http://www.invtrusts.co.uk) .
On behalf of the Board
abrdn Holdings Limited
Secretaries
13 June 2024
END
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