07 October 2021

 

Mercantile Ports & Logistics Limited

("MPL", the "Group" or the "Company")

 

Final Results

 

Mercantile Ports & Logistics Limited (AIM: MPL), which is operating and developing out its port and logistics facility in Navi Mumbai, Maharashtra, India, is pleased to announce its preliminary results for the year ended 31 December 2020.

 

Highlights

 

·  Significant increase in revenues generated in FY 2020 to £0.75m (FY 2019: £0.03m) following recommencement of operations of the port in a very challenging environment

·    Tata-Daewoo JV, which is constructing the longest sea bridge in India and is the first customer of the port, took over the contracted land parcel in April 2020 to commence fabrication activities for the bridge.

·    Advanced negotiations with numerous customers during the period, culminating in the delivery of three new long-term contracts post period end

 

Post Period End Highlights

 

·    Successfully raised £10.1 million in August 2021 to enable the Company to secure further contracts, construct further storage facilities, service debt and for general working capital purposes

·    Completed debt restructuring with existing lenders on favourable terms including a c400 bps reduction in interest rate from 13.45% to 9.5%

·    Healthy pipeline of future potential business interacting with some of the largest global companies as well as some of the largest known companies in our region

 

 

While the audit was intended to be released on September 30th, the auditors brought to the attention of management a tax provision that had been stated in the previous years and queried whether that provision continued to be required in light of a judgement in favour of the Group given by the Income Tax Appellate Tribunal. Upon challenge, management determined that evidence supporting the release of the provisions was available at the time of filing the 2019 financial statements. The release of the audited financials had to be delayed as the Group processed the financials to release the provision, which represents a further strengthening of the company's capital structure.

 

 

 

Jeremy Warner Allen, Chairman of MPL, commented:

 

"In 2020 we re-commenced operations of the port in a very challenging environment caused due to the impact of Covid-19 pandemic, with the firm support of our stakeholders.

 

"At the same time, we continued to make progress with our strategic objectives and continue to strive to sign long term contracts with niche clients which will add value to our facility as well as market standing. Our team has continued to make progress with contract negotiations and other areas despite the lockdown and, given the current capability of the facility and its location, I believe that we are well positioned in every way to perform strongly as restrictions are lifted and trading conditions improve."

 

 

 

Enquiries:

 

Mercantile Ports & Logistics Ltd	Jay Mehta
	C/O SEC Newgate
	+44 (0)203 757 6880
Cenkos Securities plc	Stephen Keys
(Nomad and Joint Broker)	+44 (0)207 397 8900
SEC Newgate	Elisabeth Cowell/ Isabelle Smurfit
(Financial PR)	+44 (0)203 757 6880
	mpl@secnewgate.co.uk

 

 

Chairman's Statement

 

2020 saw the coronavirus COVID-19 pandemic as a defining global health crisis of our time and perhaps the greatest challenge the world has faced since World War II. Despite this, progress at our Karanja facility continued as the management team strived to support the existing clients, including the Tata Projects and Daewoo Engineering Joint Venture (the "JV").

As well as being a health crisis, the pandemic also caused a socio-economic crisis and the Company's facility at Karanja was not immune as the global economy witnessed an unprecedented slowdown. I, however, remain optimistic on Indian Government's efforts to revive the economy and Karanja port remains strategically important to the region's growing cargo traffic demand from the hinterland.

Revenue from the JV project started to flow from Q2 of 2020, as scheduled and we are proud to be associated with the JV, which is building a high profile connectivity infrastructure project in Mumbai, India. Under this project, the JV is using our facility as its port, logistics and engineering base to execute its work streams for the construction of India's longest sea bridge - the Mumbai Trans Harbour Link, which is one of the largest and most complex engineering projects in India. The Company handed over the dedicated berth and land portion on time and as contracted and, despite majority of FY 2020 being impacted by lock-downs and restrictions, the Company completed ground improvement works for the JV.

The Company continued negotiations with potential customers, although concluding these negotiations was, inevitably, delayed due to travel restrictions preventing customers visiting the Facility for much of the period. Negotiations took place with well-established traders based in our region to handle products such as sand, coal, steel coils and bars, cement, fly ash, fertiliser, bentonite, edible oils, base oils and bitumen amongst others. With 2020 firmly behind us, the Group has made a further progress during 2021. We have announced the signing of three new business contracts and have built a very healthy pipeline of future potential business interacting with some of the largest global companies as well as some of the largest known companies in our region. We are also pleased that our debt facility has been restructured with the decrease in interest on the debt facility, which reflects the banks own confidence in the viability of our business and we concluded an equity fundraising, raising £10.1million (before expenses) to enable the Company to secure further contracts, construct further storage facilities, service debt and for general working capital purposes.

In conclusion, in 2020 we re-commenced operations of the port in a very challenging environment caused due to the impact of Covid-19 pandemic, with the firm support of our stakeholders.

At the same time, we continued to make progress with our strategic objectives and continue to strive to sign long term contracts with niche clients which will add value to our facility as well as market standing. Our team has continued to make progress with contract negotiations and other areas despite the lockdown and, given the current capability of the facility and its location, I believe that we are well positioned in every way to perform strongly as restrictions are lifted and trading conditions improve.

Jeremy Warner Allen

Chairman

Mercantile Ports & Logistics Limited 

06 October 2021

 

 

 

Operational Review

 

Indian Economy and Port Sector

COVID-19 spread globally, impacting billions of people around the world with a severe negative bearing on the global economy.

With the rapid outbreak of the disease, the World Health Organisation declared it a Global Pandemic in March 2020 and the Government of India announced an unprecedented nation-wide lockdown from 25th March, 2020.

The lockdown severely impacted India's manufacturing sector and the overall GDP resulting into job losses and reduction in salaries across various sectors. Companies across various sectors took cost control measures to conserve cash and to ensure survival in the Year 2020. Whilst the position has improved, there remains uncertainty in the global growth forecast in view of several unknown factors, including the trajectory of the pandemic in the coming months, the spending pattern of the population, the restoration of demand and the global supply chain.

Most countries have experienced a recession in their respective economies, with a corresponding impact on global shipping. Whilst there was insufficient cargo to carry, and to save on their operating costs, many shipping lines have been skipping the port calls to India.

Perhaps one of the most material long-term impacts of this outbreak will be the move to diversify supply chains and the avoidance of having the manufacturing concentrated in one country. Though smaller countries like Vietnam and Indonesia have had initial success in attracting a number of companies from China, India too has a huge opportunity to attract companies to set up their manufacturing facility. India's large captive market and its geographical location for catering to global demand can be an attractive proposition.

While the Central Government has announced several measures to attract these companies, the State Governments also have an important role in providing easy availability of land, improved labour laws and transparent and efficient administration at the ground level, if these companies are to set up their manufacturing facility in the country.

A major portion of the all-important Western Dedicated Freight Corridor (DFC) is likely to become operational by end of this calendar year or early next year, depending upon how soon the authorities are able to resume the work post the lifting of COVID-19 related restrictions.

The Ports in Maharashtra will be connected on the corridor and it should help in the major reduction of the inland logistics cost for manufacturers located in western and central India, making them competitive and helping them regain their lost market share in exports. The DFC can also be a showcase project to the international manufacturing companies exploring to locate to India. During the lockdown, the rail evacuation was extremely efficient, reliable and cost competitive. It should hopefully help the railways to gain some market share from the road evacuation and after commencement of DFC it could further strengthen the position of railways in freight movement. With Karanja's proximity to rail links, the Facility is well placed to benefit from these dynamics.

Much of the dry bulk cargo on the west coast of India mainly comprises coal and fertiliser imports.  With India being amongst the fastest growing economies, the demand for power supply will continue to rise and is likely to create a gap between the rising demand and supply of the domestic coal. Currently, the Company continues to have a logistical disadvantage for coal transportation by rail into northern hinterland. However, post commencement of DFC, depending upon the freight rates, the Company expects to have the ability to participate in some opportunities. In the case of fertiliser cargo, whilst the country is focusing on becoming self-sufficient by increasing its domestic production, in the short to medium term, imports are likely to continue. The future growth in import of fertiliser cargo would depend upon the government policies and the price of cargo in international markets but the Company is well situation to be a beneficiary of increased volumes of dry bulk cargo in the region. 

Going Concern

The Board initially, post the outbreak of Covid-19, assessed the Group's ability to operate as a going concern for the next 12 months from the date of signing the financial statements, based on a financial model which was prepared as part of approving the 2021 budget.

The Directors considered the cash forecasts prepared for the two-years ending 31 December 2022 (which includes the potential impact of COVID-19), together with certain assumptions for revenue and costs, to satisfy themselves of the appropriateness of the going concern basis used in preparing the financial statements.

In June 2021 (Post year-end), MPL successfully managed to have its debt facility re-structured with the existing lenders on favourable terms including a c400 bps reduction in interest rate from 13.45% to 9.5%, deferment of principal repayment by 24 months and a moratorium on interest payment up to March 2022. The total size of the restructured facility is c.GBP 47.6 million repayable over 7 years in 28 quarterly installments starting October 2022.

The company further raised £10.1 million (£9 million after costs)  in August 2021 via subscription, share placing and Primary Bid. Proceeds of the fund raise are expected to be utilized for business development, servicing new and existing contracts, debt servicing and general working capital requirements.

The Directors also took account of the principal risks and uncertainties facing the business referred to above, a sensitivity analysis on the key revenue growth assumption and the effectiveness of available mitigating actions.

The uncertainty as to the future impact on the Group of the recent Covid-19 outbreak has subsequently been considered as part of the Group's adoption of the going concern basis. In the downside scenario analysis performed, the Directors have considered the impact of the Covid-19 outbreak on the Group's trading and cash flow forecasts. In preparing this analysis, the Directors assumed that the lockdown effects of the Covid-19 virus would peak in India around the end of June 2021 and trading will normalize over the subsequent few months, albeit attaining substantially lower levels of revenue than budgeted, for at least the rest of the current financial year.

A range of mitigating actions within the control of management were assumed, including deferment in the Directors and all staff salary by 35% from April 2020 onwards, a reduction in all non-essential services and delay in building out the facility which is not needed for the current three signed contracts until significant revenue is being generated. The Directors have also availed financial support by way of relief measures introduced by RBI in India. The Group has successfully renegotiated its debt facility with the lenders, resulting in a c.400 bps reduction in the rate of interest, a moratorium on interest payment and deferment of principal repayment by 24 months.

The Group continues to closely monitor and manage its liquidity risk. In assessing the Group's going concern status, the Directors have taken account of the financial position of the Group, anticipated future availment of bank facilities and other funding options, its capital investment plans and forecast of gross operating margins as and when the operations commence.

Based on the above indications, after taking into account the impact of Covid-19 on the Group's future operations, the Board is confident that they have implemented appropriate measures to adequately mitigate the above risks and that the group is a going concern for the foreseeable future.

Conclusion

Our Facility is well on its way to ramping up capacity utilization and to achieve its targeted revenues. In the TATA-Daewoo JV, we have a high profile partner and for which we are delivering and intend to leverage off the experience and the track record that has been gained through this relationship.

The impact of COVID-19 on India is well documented. However, swift Government action and an aggressive vaccination program has led to a faster economic recovery compared to the first wave of the pandemic and we remain confident that the trajectory of this recovery remains positive. Karanja lies at the heart of India's trading gateway and, with India's macro fundamentals continuing to remain robust, the Board continues to see enormous opportunities available to the Group.
 

Consolidated Statement of Comprehensive Income for the Year ended 31 December 2020
	Notes	Year ended  31 Dec 20 £000	Year ended 31 Dec 19 (restated*) £000
CONTINUING OPERATIONS
Revenue	5	745	30
Cost of sales	6	(48)	(47)
		697	(17)
Administrative Expenses	7	(4,944)	(4,351)
OPERATING LOSS		(4,247)	(4,368)
Finance Income	8	104	19
Finance Cost	8	(1,976)	(632)
NET FINANCING COST		(1,872)	(613)
LOSS BEFORE TAX		(6,119)	(4,981)
Tax (expense)/Income for the  year	9	(456)	4,927
Loss FOR THE YEAR		(6,575)	(54)
Loss for the year attributable to:
Non-controlling interest		(11)	4
Owners of the parent		(6,564)	(58)
LOSS FOR THE YEAR		(6,575)	(54)
Other Comprehensive (Loss)/income:
Items that will not be reclassified subsequently to profit or (loss)
Re-measurement of net defined benefit liability	24	(4)	4
Items that will be reclassified subsequently to profit or (loss)
Exchange differences on translating foreign operations		(6,161)	(5,445)
Other comprehensive expense for the year		(6,165)	(5,441)
Total comprehensive expense for the year		(12,740)	(5,495)
Total comprehensive expense for the year attributable to:
Non-controlling interest		(11)	4
Owners of the parent		(12,729)	(5,499)
		(12,740)	(5,495)
Earnings per share (consolidated):
Basic &  Diluted, for the year attributable to ordinary equity holders	11	(0.003p)	(0.000p)

The accompanying notes on page 50 to 81 form part of these consolidated financial statements.

(*) Refer to note 27 for full details of the restatement of position at 31 December 2019

 

Consolidated Statement of Financial Position as at 31 December 2020
	Notes	Year ended  31 Dec 20               £000	As at 31 Dec 19 (restated*)               £000
Assets
Property, plant and equipment	12(a)	131,343	133,108
Intangible asset	12(b)	4	5
Total non-current assets		131,347	133,113
Trade and other receivables	13	18,771	16,658
Cash and cash equivalents	14	3,895	14,823
Total current assets		22,666	31,481
Total assets		154,013	164,594
Equity
Stated Capital	16	134,627	134,627
Retained earnings	16	(10,394)	(3,826)
Translation Reserve	16	(26,564)	(20,403)
Equity attributable to owners of parent		97,669	110,398
Non-controlling Interest		4	15
Total equity		97,673	110,413
Liabilities
Non-current
Employee benefit obligations	17	7	4
Borrowings	18	34,729	35,989
Lease liabilities payables	20	1,716	2,460
Non-current liabilities		36,452	38,453
Current
Employee benefit obligations	17	224	130
Borrowings	18	4,074	2,605
Current tax liabilities	19	384	140
Lease liabilities payable	20	694	930
Trade and other payable	20	14,512	11,923
Current liabilities		19,888	15,728
Total liabilities		56,340	54,181
Total equity and liabilities		154,013	164,594

 

 The accompanying notes on page 50 to 81 form part of these consolidated financial statements.

 

 (*) Refer to note 27 for full details of the restatement of position as at 31 December 2019               

 

 The consolidated financial statements have been approved and authorized for issue by the Board on 06 October 2021

 

 

Jay Mehta

Director

 

CONSOLIDATED STATEMENT OF CASH FLOWS
for the Year ended 31 December 2020
	Notes	Year ended 31 Dec 20 £000	Year ended  31 Dec 19 £000
CASH FLOW FROM OPERATING ACTIVITIES
Loss before tax		(6119)	(4,981)
Non cash flow adjustments	22	2,020	1,204
Operating (loss)/profit before working capital changes		(4,099)	(3,777)
Net changes in working capital	22	1,661	1,811
Net cash from operating activities		(2,438)	(1,966)
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment		(8,390)	(4,221)
Finance Income	8	73	15
Net cash used in investing activities		(8,317)	(4,206)
CASH FLOW FROM FINANCING ACTIVITIES
Issue of Share Capital	16	--	8,287
Proceeds from borrowing		2,678	6,906
Interest paid on borrowing		(1,520)	(6,737)
Repayment of leasing liabilities principal		(845)	(313)
Interest payment on leasing liabilities		(188)	(62)
Net cash from financing activities		125	8,081
Net change in cash and cash equivalents		(10,630)	1,909
Cash and cash equivalents, beginning of the year		14,823	13,113
Exchange difference on cash and cash equivalents		(298)	(199)
Cash and cash equivalents, end of the year		3,895	14,823

 

 

The accompanying notes on page 50 to 81 form part of these consolidated financial statements.

 

 

 

 

Consolidated Statement of Changes in Equity

 

for the Year ended 31 December 2020

 

	Stated Capital	Translation Reserve	Retained Earnings	Other Components of equity	Non- controlling Interest	Total Equity
	£000	£000	£000	£000	£000	£000
Balance at 1 January 2020 (restated*)	134,627	(20,403)	(3,826)	--	15	110,413
Issue of share capital	--	--	--	--	-	--
Share Issue cost	--	--	--	--	-	--
Transaction with owners	134,627	(20,403)	(3,826)	--	15	110,413
Loss for the year	--	--	(6,564)	--	(11)	(6,575)
Foreign currency translation difference for foreign operations	--	(6,161)	--	--	--	(6,161)
Re-measurement of net defined benefit liability	--	--	--	(4)	--	(4)
Re-measurement of net defined benefit liability transfer to retained earning	--	--	(4)	4	--	--
Total comprehensive income for the year	--	(6,161)	(6,568)	--	(11)	(12,740)
Balance at 31 December 2020	134,627	(26,564)	(10,394)	--	4	97,673
Balance at 1 January 2019	134,627	(14,958)	(3,772)	--	11	115,908
Issue of share capital	--	--	-	--	-	--
Share Issue cost	--	--	-	--	-	--
Transaction with owners	134,627	(14,958)	(3,772)	--	11	115,908
Loss for the year (restated*)	--	--	(58)	--	4	(54)
Foreign currency translation difference for foreign operations (restated*)	--	(5,445)	--	--	--	(5,445)
Re-measurement of net defined benefit liability	--	--	-	4	--	4
Re-measurement of net defined benefit liability transfer to retained earning	--	--	4	(4)	--	--
Total comprehensive income for the year(restated*)	--	(5,445)	(54)	--	4	(5,495)
Balance at 31 December 2019(restated*)	134,627	(20,403)	(3,826)	--	15	110,413

 

 

The accompanying notes on page 50 to 81 form part of these consolidated financial statements.

 

(*) Refer to note 27 for full details of the restatement of position as at 31 December 2019

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

1.   CORPORATE INFORMATION

 

Mercantile Ports & Logistics Limited (the "Company") was incorporated in Guernsey under The Companies (Guernsey) Law, 2008 with registered number 52321 on 24 August 2010. Its registered office and principal place of business is Martello Court, Admiral Park, St. Peter Port, Guernsey GY1 3HB. It was listed on the Alternative Investment Market ('AIM') of the London Stock Exchange on 7 October 2010.

 

The consolidated financial statements of the Company comprise of the financial statements of the Company and its subsidiaries (together referred to as the "Group"). The consolidated financial statements have been prepared for the year ended 31 December 2020, and are presented in UK Sterling (£).

 

The principal activities of the Group are to develop, own and operate a port and logistics facilities. As of 31 December 2020, the Group had 59 (Fifty-Nine) (2019: 56 (Fifty-six) employees).

 

2.  SIGNIFICANT ACCOUNTING POLICIES 

 

a)  BASIS OF PREPARATION

The consolidated financial statements have been prepared on a historical cost basis except where otherwise stated. The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards ("IFRS") and interpretations as adopted by the European Union and also to comply with The Companies (Guernsey) Law, 2008.

 

Going Concern

 

The financial statements have been prepared on a going concern basis as the Group has adequate funds to enable it to exist as a going concern for the foreseeable future. The Group has almost completed the construction work at site and the Directors believe that they will have sufficient equity, sanctioned credit facilities from lenders and headroom in the capital structure for managing the balance work as well as Port operations at the Facility.

 

The Directors considered the cash forecasts prepared for the nineteen months ending 31^st December,2022, together with certain assumptions for revenue and costs, to satisfy themselves of the appropriateness of the going concern basis used in preparing the financial statements.

 

Regarding financing, the group has £3.9 million cash balance as at 31 December 2020 and £9.36 million still to drawdown on its the Rupee term loan facility of INR 480. Under the original terms of the loan facility the company was to start repayment of the principal amount from June 2020, which was revised to September, 2020 due to Covid 19 Lockdown and subsequently one more revision with the RBI circular dated 6th August, 2020 the same has been deferred for a period of 24 months and now to commence from Oct. 2022 quarter onwards. The directors believe that the debt providers will continue to support the Group thereafter.

 

A range of mitigating actions within the control of management were assumed, including reductions in the Directors and all staff salary by 35% from May 2020 until Mid- April 2021, a reduction in all non-essential services and delay in building out the facility which isn't needed for the current 4 signed customer contracts, until significant revenue is again being generated. The Directors have also considered the financial support commitment made by the RBI in India. The Directors had productive discussions with its lenders on the subject.

 

In line with relief measures provided by the RBI to borrowers impacted by Covid-19 related distress, KTPL pursued with the lenders in OTR (One Time Restructuring) which was sanctioned and implemented in Jun'21. Salient features of the OTR are as below:

 

1.     Deferment of commencement of principal repayment by 24 months (Oct'20 to Oct'22)

2.     Reduction in interest rate by c.400 bps (from 13.45% to 9.5%)

3.     Moratorium on interest payments up to Feb'22

▪          in August 2021 the company raised £ 10.1 million (gross) and the proceeds net of fundraise expense are £8.97 million, via subscription, share placing and Primary Bid. Proceeds of the fund raise are expected to be utilized for business development, servicing new and existing contracts, debt servicing and general working capital requirements.  There is additional line of credit of £4.5 million from Hunch Ventures, to provide additional headroom for the Company's operations.

▪          Based on the above, the Board of Directors believe that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.

(b) BASIS OF CONSOLIDATION

The consolidated financial statements incorporate the results of the Company and entities controlled by the Company (its subsidiaries) up to 31 December 2020. Subsidiaries are all entities over which the Company has the power to control the financial and operating policies. The Company obtains and exercises control through holding more than half of the voting rights. The financial statements of the subsidiaries are prepared for the same period as the Company using consistent accounting policies. The fiscal year of (Karanja Terminal & Logistics Private Limited) KTPL ends on March 31 and its accounts are adjusted for the same period as a Company for consolidation.

 

Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.

 

Non-controlling interest

 

Non-controlling interest, presented as part of equity, represent the portion of a subsidiary's profit or loss and net assets that is not held by the Group. The Group attributes total comprehensive income or loss of subsidiaries between the owners of the parent and the non-controlling interests based on their respective ownership interest.

 

(c)  LIST OF SUBSIDIARIES

 

Details of the Group's subsidiaries which are consolidated into the Company's financial statements are as follows:

 

Subsidiary	Immediate Parent	Country of Incorporation	% Voting Rights	% Economic Interest
Karanja Terminal & Logistics (Cyprus) Ltd	Mercantile Ports & Logistics Limited	Cyprus	100.00	100.00
Karanja Terminal & Logistics Private Limited*	Karanja Terminal & Logistics (Cyprus) Ltd	India	95.88	95.88

 

* Financial year end for KTLPL is April to March, as same is governed by Companies Act 2013, but for preparing group financials we have considered January to December period.  

 

(d) FOREIGN CURRENCY TRANSLATION

 

The consolidated financial statements are presented in UK Sterling (£), which is the Company's functional currency. The functional currency for all of the subsidiaries within the Group is as detailed below:  

Karanja Terminal & Logistics (Cyprus) Ltd (KTLCL) - Euro

Karanja Terminal & Logistics Private Limited (KTLPL) - Indian Rupees

Foreign currency transactions are translated into the functional currency of the respective Group entity, using the exchange rates prevailing at the date of the transactions (spot exchange rate). Foreign exchange gains and losses resulting from the settlement of such transactions and from the retranslation of monetary items denominated in foreign currency at the year-end exchange rates are recognised in the Consolidated Statement of Comprehensive Income.

 

Non-monetary items are not retranslated at year-end and are measured at historical cost (translated using the exchange rates at the transaction date).

 

In the Group's financial statements, all assets, liabilities and transactions of Group entities with a functional currency other than GBP are translated into GBP upon consolidation.

 

On consolidation, the assets and liabilities of foreign operations are translated into GBP at the closing rate at the reporting date. The income and expenses of foreign operations are translated into GBP at the average exchange rates over the reporting period. Foreign currency differences are recognised in other comprehensive income in the translation reserve. When a foreign operation is disposed of, in part or in full, the relevant amount in the translation reserves shall be transferred to the profit or loss in the Consolidated Statement of Comprehensive Income.

 

(e) REVENUE RECOGNITION

 

Revenue arises mainly from the provision of services relating to use of the port by customers, including use of the port, loading/unloading services, storage and land rental.

 

To determine whether to recognise revenue, the Group follows a 5-step process:

 

1. Identifying the contract with a customer

 

2. Identifying the performance obligations

 

3. Determining the transaction price

 

4. Allocating the transaction price to the performance obligations

 

5. Recognising revenue when/as performance obligation(s) are satisfied.

 

The total transaction price for a contract is allocated amongst the various performance obligations based on their relative standalone selling prices. The transaction price for a contract excludes any amounts collected on behalf of third parties.

 

Revenue is recognised either at a point in time or over time, when (or as) the Group satisfies performance obligations by transferring the promised goods or services to its customers.

 

The Group recognises contract liabilities for consideration received in respect of unsatisfied performance obligations and reports these amounts as other liabilities in the statement of financial position. Similarly, if the Group satisfies a performance obligation before it receives the consideration, the Group recognises either a contract asset or a receivable in its statement of financial position, depending on whether something other than the passage of time is required before the consideration is due. Invoicing for services is set out in the contract.

 

The group does not believe there are elements of financing in the contracts. There are no warranties or guarantees included in the contract.

 

The specific recognition criteria described below must also be met before revenue is recognised.

 

Port operation and logistics services

 

Revenue from port operation services including cargo handling, storage, other ancillary port and logistics services are measured based upon cargo handled at rates specified under the contract and charged on per metric tonne basis.

 

The performance obligation is satisfied using the output method; this method recognises revenue based, on the value of services transferred to the customer, for example, quantity of cargo loaded and unloaded and/or transported. 

 

Revenue is recognized in the accounting period in which the services are rendered and completed till reporting date.

 

Management determined if there are separate performance obligations from which customer are being able to benefit from, for example, barging, stevedoring or transportation.

 

Each of these services are distinct from each other. Customer may choose one or more of these distinct services and revenue recognition would be based on per metric tonne basis on satisfaction of each service obligation.

 

 

Income from long term leases

 

As a part of its business activity, the Group sub-leases land on long term basis to its customers. Leases are classified as finance lease whenever the terms of lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating lease. In some cases, the Group enters into cancellable lease / sub-lease transaction agreement, while in other cases, it enters into non-cancellable lease / sub-lease agreement. The Group recognises the income based on the principles of leases as set out in IFRS 16 "Leases" and accordingly in cases where the land lease / sub-lease agreement are cancellable in nature, the income in the nature of upfront premium received / receivable is recognised on operating lease basis i.e. on a straight line basis over the period of lease / sub-lease agreement / date of memorandum of understanding takes effect over lease period and annual lease rentals are recognised on an accrual basis.

 

Interest income

 

Interest income is reported on an accrual basis using the effective interest method.

 

(f) Borrowing cost

 

Borrowing costs directly attributable to the construction of a qualifying asset are capitalised during the period of time that is necessary to complete and prepare the asset for its intended use. Other borrowing costs are expensed in the period in which they are incurred and reported under finance costs.

 

(g) EMPLOYEE BENEFITS

 

i)   Defined contribution plans (Provident Fund)

In accordance with Indian Law, eligible employees receive benefits from Provident Fund, which is a defined contribution plan. Both the employee and employer make monthly contributions to the plan, which is administrated by the government authorities, each equal to the specific percentage of employee's basic salary. The Group has no further obligation under the plan beyond its monthly contributions. Obligation for contributions to the plan is recognised as an employee benefit expense in the Consolidated Statement of Comprehensive Income when incurred.

 

ii)  Defined benefit plans (Gratuity)

In accordance with applicable Indian Law, the Group provides for gratuity, a defined benefit retirement plan (the Gratuity Plan) covering eligible employees. The Gratuity Plan provides a lump sum payment to vested employees, at retirement or termination of employment, and amount based on respective last drawn salary and the years of employment with the Group. The Group's net obligation in respect of the Gratuity Plan is calculated by estimating the amount of future benefits that the employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. Any unrecognised past service cost and the fair value of plan assets are deducted. The discount rate is a yield at reporting date on risk free government bonds that have maturity dates approximating the term of the Group's obligation. The calculation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Group, the recognised asset is limited to the total of any unrecognised past service cost and the present value of the economic benefits available in the form of any future refunds from the plan or reduction in future contribution to the plan.

 

The Group recognises all re-measurements of net defined benefit liability/asset directly in other comprehensive income and presents them within equity.

 

iii) Short term benefits

Short term employee benefit obligations are measured on an undiscounted basis and are expensed as a related service provided. A liability is recognised for the amount expected to be paid under short term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

 

(h)  Leases

 

As lessee, the Group assesses whether a contract contains a lease at inception of the contract. The Group recognises a right-of-use asset and corresponding lease liability in the statement of financial position for all lease arrangements where it is the lessee, except for short-term leases with a term of twelve months or less and leases of low value assets. For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease.

 

The lease liability is initially measured at the present value of the future lease payments from the commencement date of the lease. The lease payments are discounted using the interest rate implicit in the lease or, if not readily determinable, the asset and company specific incremental borrowing rates. Lease liabilities are recognised within borrowings on the statement of financial position. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made. The Group re-measures the lease liability, with a corresponding adjustment to the related right-of-use assets, whenever:

 

• The lease term changes or there is a significant event or change in circumstances resulting in a change in the assessment of exercise of a purchase option, in which case the lease liability is re-measured by discounting the revised lease payments using a revised discount rate;

 

• The lease payments change due to the changes in an index or rate or a change in expected payment under a guaranteed residual value, in which case the lease liability is re-measured by discounting the revised lease payments using an unchanged discount rate;

 

• A lease contract is modified, and the lease modification is not accounted for as a separate lease, in which case the lease liability is re-measured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of modification.

 

The right-of-use assets are initially recognised on the SOFP at cost, which comprises the amount of the initial measurement of the corresponding lease liability, adjusted for any lease payments made at or prior to the commencement date of the lease, any lease incentive received and any initial direct costs incurred, and expected costs for obligations to dismantle and remove right-of use assets when they are no longer used. Right-of-use assets are recognised within property, plant and equipment on the statement of financial position. Right-of-use assets are depreciated on a straight-line basis from the commencement date of the lease over the shorter of the useful life of the right-of-use asset or the end of the lease term.

 

The Group enters into lease arrangements as a lessor with respect to some of its time charter vessels. Leases for which the Group is an intermediate lessor are classified as finance or operating leases by reference to the right-of-use asset arising from the head lease. Income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Amounts due from lessee under finance leases are recognised as receivables at the amount of the Group's net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group's net investment outstanding in respect of these leases.

 

(i) INCOME TAX

 

Tax expense recognised in profit or loss comprises the sum of deferred tax and current tax not recognised in other comprehensive income or directly in equity. Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting periods, that are unpaid at the reporting date. Current tax is payable on taxable profit, which differs from profit or loss in the financial statements. Calculation of current tax is based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period.

 

Deferred tax

 

The accounting for income tax are accounted under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

 

Deferred tax assets are recognized to the extent that Management believes that these assets are more probable than not to be realized. In making such a determination, it considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If it is determined that it would be able to realize the deferred tax assets in the future in excess of the net recorded amount, the necessary adjustment would be made to the deferred tax asset valuation allowance, which would reduce the provision for income tax.

 

(j) FINANCIAL ASSETS

 

The Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument.

 

Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires.

 

Classification and Classification and initial measurement of financial assets

 

Except for those trade receivables that do not contain a significant financing component and are measured at the transaction price in accordance with IFRS 15, all financial assets are initially measured at fair value adjusted for transaction costs (where applicable).

 

Financial assets, other than those designated and effective as hedging instruments, are classified into the following categories:

 

•  amortised cost

•  fair value through profit or loss (FVTPL)

•  fair value through other comprehensive income (FVOCI).

 

In the periods presented the corporation does not have any financial assets categorised as FVOCI.

 

The classification is determined by both:

• the entity's business model for managing the financial asset

• the contractual cash flow characteristics of the financial asset.

 

All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables which is presented within other expenses.

 

Subsequent measurement of financial assets

 

Financial assets at amortised cost

Financial assets are measured at amortised cost if the assets meet the following conditions (and are not designated as FVTPL):

 

•    they are held within a business model whose objective is to hold the financial assets and collect its contractual cash flows

•    the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding

 

After initial recognition, these are measured at amortised cost using the effective interest method. Discounting is omitted where the effect of discounting is immaterial. The Group's cash and cash equivalents, trade and most other receivables fall into this category of financial instruments as well as listed bonds that were previously classified as held-to-maturity under IAS 39.

 

Impairment of financial assets

 

IFRS 9's impairment requirements use more forward-looking information to recognise expected credit losses - the 'expected credit loss (ECL) model'. This replaces IAS 39's 'incurred loss model'. Instruments within the scope of the new requirements included loans and other debt-type financial assets measured at amortised cost and FVOCI, trade receivables, contract assets recognised and measured under IFRS 15 and loan commitments and some financial guarantee contracts (for the issuer) that are not measured at fair value through profit or loss.

 

 

 

(k) FINANCIAL LIABILITIES

 

Classification and measurement of financial liabilities

 

As the accounting for financial liabilities remains largely the same under IFRS 9 compared to IAS 39, the Group's financial liabilities were not impacted by the adoption of IFRS 9. However, for completeness, the accounting policy is disclosed below.

 

 

The Group's financial liabilities include borrowings, trade and other payables and derivative financial instruments.

 

Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless the Group designated a financial liability at fair value through profit or loss.

 

Subsequently, financial liabilities are measured at amortised cost using the effective interest method except for derivatives and financial liabilities designated at FVTPL, which are carried subsequently at fair value with gains or losses recognised in profit or loss (other than derivative financial instruments that are designated and effective as hedging instruments).

 

All interest-related charges and, if applicable, changes in an instrument's fair value that are reported in profit or loss are included within finance costs or finance income.

 

(l)  PROPERTY, PLANT AND EQUIPMENT

 

Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses.

 

The Group is in the process of constructing its initial project; the creation of a modern and efficient port and logistics facility in India. All the expenditures directly attributable in respect of the port and logistics facility under development are carried at historical cost under Capital Work in Progress as the Board believes that these expenses will generate probable future economic benefits. These costs include borrowing cost, professional fees, construction costs and other direct expenditure. After capitalisation, management monitors whether the recognition requirements continue to be met and whether there are any indicators that capitalised costs may be impaired.

 

Cost includes expenditures that are directly attributable to the acquisition of the asset and income directly related to testing the facility is offset against the corresponding expenditure. The cost of constructed asset includes the cost of materials, sub-contractors and any other costs directly attributable to bringing the asset to a working condition for its intended use. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.

 

Parts of the property, plant and equipment are accounted for as separate items (major components) on the basis of nature of the assets.

 

Depreciation is recognised in the Consolidated Statement of Comprehensive Income over the estimated useful lives of each part of an item of property, plant and equipment. For items of property, plant and equipment under construction, depreciation begins when the asset is available for use, i.e. when it is in the condition necessary for it to be capable of operating in the manner intended by management. Thus, as long as an item of property, plant and equipment is under construction, it is not depreciated. Leasehold improvements are amortised over the shorter of the lease term or their useful lives.

 

Depreciation is calculated on a straight-line basis.

 

The estimated useful lives for the current year are as

Assets	Estimated Life of assets
Lease hold Land Development	Over 40 year's period of Concession Agreement by Maharashtra Maritime board.
Marine Structure, Dredged Channel	40 Years as per concession agreement
Non Carpeted road other than RCC	3 Years
Office equipment	3-5 Years
Computers	2-3 Years
Computer software	5  Years
Plant & machinery	15  Years
Furniture	5-10 Years
Vehicles	5-8 Years

 

Depreciation methods, useful lives and residual value are reassessed at each reporting date.

 

Gains or losses arising on the disposal of property, plant and equipment are determined as the difference between the disposal proceeds and the carrying amount of the assets are recognised in profit or loss within other income or other expenses.

 

Impairment of Property, Plant and Equipment

Internal and external sources of information are reviewed at the end of the reporting period to identify indications that the property, plant and equipment may be impaired.

 

Property, plant and equipment is stated at cost, net of accumulated depreciation and/or impairment losses, if any. There is currently no impairment of property, plant and equipment.

 

(m)  Trade receivables and payables

 

Trade receivables are financial assets at amortised costs,  initially measured at the transaction price, which reflects fair value, and subsequently at amortised cost less impairment. In measuring the impairment, the Group has applied the simplified approach to expected credit losses as permitted by IFRS9. Expected credit losses are assessed by considering the Group's historical credit loss experience, factors specific for each receivable, the current economic climate and expected changes in forecasts of future events. Changes if any in expected credit losses are recognised in the Group income statement.

 

Trade payables are financial liabilities at amortised cost, measured initially at fair value and subsequently at amortised cost using an effective interest rate method.

 

(n)  Advances

 

Advances paid to the EPC contractor and suppliers for construction of the facility are categorised as advances and will be offset against future work performed by the contractor.

 

(o) Cash and cash equivalents

 

Cash and cash equivalents comprise cash on hand and bank deposits that can easily be liquidated into known amounts of cash and which are subject to an insignificant risk of changes in value.

 

(p) Stated capital and reserves

 

Shares have 'no par value'. Stated capital includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from stated capital, net of any related income tax benefits.

 

Foreign currency translation differences are included in the translation reserve. Retained earnings include all current and prior year retained profits.

 

(q) New standard and interpretation applicable from 1^st January 2020

 

The new standards, interpretations or amendments whose application was mandatory for the Group effective for the fiscal year beginning January 1, 2020 had no material impact on the consolidated financial statements:

 

Amendments to References to Conceptual Framework in IFRS Standards;

 

• Amendments to IAS 1 and IAS 8 - Definition of Material;

 

• Amendments to IFRS 3 - Definition of a business;

 

• Amendment to IFRS 9, IAS 39 and IFRS 7 - Interest Rate Benchmark Reform (Phase 1);

 

• Amendments to IFRS 16 - COVID-19-related rent concessions.

 

The 2019 IFRIC decision regarding the definition of the enforceable contractual period of a lease under IFRS 16 had no material impact on the Group

 

(q) Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by the group

 

A number of new standards, amendments to standards and interpretations are not effective for annual periods beginning 1 January 2020, and have not been applied in preparing these consolidated financial statements. Those which may be relevant to the Group are set out below. The Group does not plan to adopt these standards early.

 

3.   SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS

 

The following are significant management judgements in applying the accounting policies of the Group that have the most significant effect on the financial statements.

 

Recognition of income tax liabilities

 

The group continues to retain the provision of tax liability for the assessment year 2011-12 & 2012-13 in as the matter is sub judice with the court in India. This includes interest on the provision up through December 2020.

 

In light of a recent ITAT judgement pronounced in favour of the Group for AY 2013-14, 2014-15 & 2015-16, the Group has accordingly estimated that the tax liability for those years is not likely to be paid to income tax department. The pronouncement applies to identical matters for all subsequent years. Hence the Group has reversed Income tax provision for AY 2013-14 onwards in December 2019 (see note 27).  The Income tax department has preferred an appeal in higher court. In light of uncertainty of the outcome, the Group has disclosed this under the head of contingent liability in note no 25.

 

Impairment Review

 

At the end of each reporting period, the board is required to assess whether there is any indication that an asset may be impaired (i.e., it's carrying amount may be higher than its recoverable amount). As at 31 December, 2020, the carrying value of the port under construction is £132 Million. The Value in use has been calculated using the present value of the future cash flows expected to be derived from the port. As the port is still under construction this has included the costs to completion plus the anticipated revenues and expenses once the port becomes operational.

 

The key assumptions as at 31 December 2020 behind the discounted cash flow are:

·      Construction outflow of £10.06 Million, shall be utilized if requirement arises for additional reclamation basis demand for the same.

·      Cash-flow projections have been run until 2059, the length of the lease of the land.

·      The revenue capacity comprises of only bulk and project which depends on the volume in Metric Ton.

·      Inflation 5%.

·      Utilization rate at 8% in 2021, 22% in 2022, 30% in 2023.

·      Revenue for each activity/service provided by Karanja Port (to its customers) is calculated by multiplying Throughput per annum with Tariff rates for each activity/service).

·      Assumptions on costs are what we will incur to provide each activity/service. These Direct costs have been apportioned on the basis total costs expected to be incurred divided by Cargo throughput for that Commodity.

·      The costs are set based on margins of 40-45%, based on margin of similar ports.

·      Pre-tax rate derived from weighted average cost of capital (WACC)  13.5%

The group has carried out sensitivity analysis on our discounted cash flow analysis.  If revenues in our model were to decrease by 10.3%, there would be an impairment.  If the discount rate used in the model were 2% higher, than there would also be an impairment.

While the company has obtained the approval to build out a further 200 Acres of Land and develop a further 1,000 meters of waterfront, the costs and future income flow associated with this second phase of construction project have not been considered in the current review. The impairment review is based on the current project, being the completion and operation of the multi-purpose site being developed over 150 acres of land with a sea frontage of 1,000 meters.

 

4. SEGMENTAL REPORTING

 

The Group has only one operating and geographic segment, being the project on hand in India and hence no separate segmental report has been presented.

 

 

5. REVENUE FROM OPERATION

	Year ended 31 Dec 20	Year ended 31 Dec 19
	£000	£000
Cargo handling income	322	30
Lease income	423	--
	745	30

 

The Company has given certain land portions on operating lease. These lease arrangement is for a period 40 months. Leases is renewable for further period on mutually agreeable terms.

 

The total future minimum lease rentals receivable at the SOFP date is as under:

Payments falling due	As on 31 Dec 20 INR in 000	As on 31 Dec 20 £000
2021	120,189	1,207
2022	123,163	1,237
2023	108,874	1,093
2024	6,344	63
2025	--	--
Total	358,570	3,600

 

 

6. COST OF SALES

	Year ended 31 Dec 20	Year ended 31 Dec 19
	£000	£000
Wharf-age expense	11	8
Other operation expense	37	39
	48	47

 

 

 

 

 

 

 

7. ADMINISTRATIVE EXPENSES

	Year ended 31 Dec 20	Year ended 31 Dec 19
	£000	£000
Employee costs	571	456
Directors' fees	489	402
Operating lease rentals	10	11
Foreign exchange gains/loss	464	39
Depreciation	1,777	608
Other administration costs	1,633	2,835
	4,944	4,351

 

	Year ended 31 Dec 20	Year ended 31 Dec 19
	£000	£000
Interest on bank deposits	104	19
	104	19

8. (a) FINANCE INCOME

 

8. (b) FINANCE EXPENSES

	Year ended 31 Dec 20	Year ended 31 Dec 19
	£000	£000
Interest on term loan*	1,636	366
Interest others	340	266
	1,976	632

 

*Interest on the term loan is capitalized against assets under construction.  As assets under construction are transferred into service, the capitalization of interest is ceased on that part and that element of interest expense is then charged to the profit and loss account.  The capitalization rate used to determine the amount of borrowing costs to be capitalized is the weighted average interest rate applicable to the entity's general borrowings during the year, in this case 13.54% (2019 - 13.31%).  

 

 

	Year ended 31 Dec 20	Year ended 31 Dec 19 (restated)
	£000	£000
Loss Before Tax	(6,119)	(4,981)
Applicable tax rate in India*	22.88%	22.88%
Expected tax credit	(1,400)	(1,140)
Adjustment for non-deductible losses of MPL & Cyprus entity against income from India	402	391
Adjustment for non-deductible expenses	998	749
Interest provision on outstanding tax liability	(456)	--
Reversal of prior year tax provision	--	4,927
	(456)	4,927

9. INCOME TAX

 

*Considering that the Group's operations are presently based in India, the effective tax rate of the Group of 22.88% (prior year 22.88%) has been computed based on the current tax rates prevailing in India. In India, income earned from all sources (including interest income) are taxable at the prevailing tax rate unless exempted. However, administrative expenses are treated as non-deductible expenses until commencement of operations.

 

Based on recent judgement from the Income Tax tribunal in favour of the company the provision for the period from 2013 to 2017 has been reversed in previous year statement of comprehensive income and has made interest provision in current year for outstanding tax liability of 2011 & 2012. 

 

The Company is incorporated in Guernsey under The Companies (Guernsey) Law 2008, as amended. The Guernsey tax rate for companies is 0%. The rate of withholding tax on dividend payments to non-residents by companies within the 0% corporate income tax regime is also 0%. Accordingly, the Company will have no liability to Guernsey income tax on its income and there will be no requirement to deduct withholding tax from payments of dividends to non-resident shareholders.

 

In Cyprus, the tax rate for companies is 12.5% with effect from 1 January 2014. There is no tax expense in Cyprus.

 

 

10. AUDITORS' REMUNERATION

 

The following are the details of fees paid to the auditors, Grant Thornton UK LLP and Indian auditors, in various capacities for the year:

 

	Year ended 31 Dec 20	Year ended 31 Dec 19
	£000	£000
Audit Fees
Fees payable to the auditor for the audit of the Group's financial statements	107	87
Other fees payable to the auditor in respect of:
Interim Financial Statement Review	9	9
Auditing of accounts of subsidiary undertakings	-	3
Tax fees	-	1
	116	100

 

Audit fees related to prior year overruns during the year amount to £ 23,278 (2019: £22,087).

 

11.   EARNINGS PER SHARE

 

Both basic and diluted earnings per share for the year ended 31 December 2020 have been calculated using the loss attributable to equity holders of the Group of £6.56 million (prior year loss of £0.05 million).

 

	Year ended 31 Dec 20	Year ended 31 Dec 19 (restated)
Loss attributable to equity holders of the parent	£(6,564,000)	£(58,000)
Weighted average number of shares used in basic and diluted earnings per share	1,905,022,123	1,905,022,123
EARNINGS PER SHARE
Basic and Diluted earnings per share	(0.003p)	(0.000p)

 

 

On 9th September 2021 The group has successfully completed fund raise by placing 2,244,947,810 new Ordinary Shares at a price of 0.45 pence per share. Also on 13 September 2021 group has consolidated its share capital by way of issuing 1 share for every 100 shares held.