30 June 2022

 

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 2021.

 

Chairman's Statement

 

2021 was another year of progress for MPL but one which, inevitably, was hampered by COVID-19. The coal jetty handled volume cargo for the first time and a number of new contracts were signed. However, the second wave of the pandemic that hit India in the early part of 2021 was much harsher than the first one. The resulting restrictions imposed in the country and around the world had a cascading effect on our business, setting our customer acquisition strategy behind schedule and impacting cargo volumes.

Despite the challenges that were faced, much was achieved during the year, with construction starting on a new warehousing facilities, which continued into early 2022. Our cornerstone customer, Tata Daewoo, delivered the first blocks of the Mumbai Trans Harbour Link, which had been constructed at the Facility. We were proud to have played our part in this achievement and we look forward to continuing to perform under this contract.

With COVID-19 restrictions currently behind us, India's economic and business environment has rebounded with vigour. India does seem to be a bright spot in the global economy, with growth outpacing most of Western Europe, the US and China. Our facility in Karanja will undoubtedly benefit from this, both in terms of handling cargo for the development of the region as well as increased handling of raw materials such as cement, steel, sand, fertilizer and coal.

The Company enhanced its business development team during the period and this additional resource is delivering results, with momentum expected to continue during the course of 2022.

The Company is pleased to report that it is in early stage discussions with a number of large shipping lines to handle containers at its port. This development is welcomed and will ensure over time both stable and predictable revenue streams. The facility's location is well placed to handle containers both from a road logistics perspective as well as by barge transportation. Contracts for container cargo provide predictable and long term revenue and the Company is hopeful of being able to announce progress in this regard during FY 2022.

The Board was extremely pleased to announce the culmination of months of negotiations with its consortium of banks to restructure the Company's outstanding debt in June 21. The highlight of the restructuring was the c.400 basis point reduction in the interest rate of the debt, in addition to a defined moratorium of the payment of the interest and principal amounts. This was a significant achievement by the Company and demonstrated that the Company's existing lenders recognise the lower risk nature of the business and the significant opportunities available for the Company to pursue. However, one of the Board's principal priorities for 2022 is to further enhance the terms of its debt facility further, to better reflect progress that the business has made. The Company is working with a number of international brokers to facilitate this.

To further strengthen the capital structure of the Company, MPL embarked on a fund raise in the second half of 2021amounting to £9.5 mn (net of cost). The Board was extremely pleased that the majority of its existing institutional investors participated in the placing, with Hunch Ventures, our largest investor, demonstrating its support for the Company by increasing its shareholding in the offering to 29%.

I was delighted to welcome Dmitri Tsvetkov to the board of MPL. Dmitri joined as a non-executive director and Chairman of the Audit Committee bringing public company experience to MPL and his position of as CFO of another Indian listed Company on AIM will further strengthen MPL's reporting and finance functions.

Jeremy Warner Allen

Chairman

Mercantile Ports & Logistics Limited 

29 June, 2022

 

Operational Review

 

Indian Economy

After a dramatic second wave in 2021, the pandemic is steadily receding.

The momentum that the Company had demonstrated came to a halt in early 2021 as the Delta variant caused a sharp increase in COVID-19 cases and fatalities. Restrictions were imposed and India endured one of the most comprehensive lockdowns in the world. However, with the vaccine rollout starting in January, India demonstrated enormous resilience and, by end-September 2021, more than half of the eligible population had been given at least one vaccination and at mid-November, more than one of four of the population was fully vaccinated.

Synopsis of current status

With COVID-19 receding, the recovery began gaining momentum and GDP is projected to grow at 9.4% in fiscal year (FY) 2021-22 before reverting to 6.9% in FY 2022-23 and 6.2% in FY 2023-24.  (Source: https://www.oecd.org/economy/india-economic-snapshot/)

As is being seen across the globe, inflation is increasing, but is expected to ebb as supply chain disruptions are overcome.

Operations Update

From an operations perspective, 2021 marked an inflection point for MPL. In September 2021, with the waning of the second wave of the COVID-19 pandemic, MPL commenced the handling of significant and regular volumes of cargo under new contracts that were signed during the course of 2021. The Karanja facility was able to demonstrate its ability to be a 24X7 facility with the commencement of night navigation (berthing / de-berthing of vessels at night). With all key aspects of port and logistics operation, including vessel navigation, yard operations and transportation, being carried out in a seamless manner, successfully handled over 295,000 MT of coal in the September 2021 - March 2022 period. Whilst volume of coal handled during this period, was somewhat lower than expected on account of the third wave of the pandemic in December 2021 / January 2022, it is pleasing that this part of the Facility is operating well and we expect to increase volumes during FY 2022.

 

The port received positive feedback from its customers regarding the overall efficiency of operations and appreciation for the fact that no demurrage was incurred by any customer over this period. MPL continues to strengthen its business development and operations team, including on the container side of the business as it prepares to start handling containers during the course of 2022. New contracts are in discussion with a number of customers in a variety of cargo, including, with a large fertilizer company, a large French multinational for handling of construction material, a steel manufacturer, regional traders for multiple commodities and container handlers. In addition, the Company is in discussions with an international Logistics company interested in establishing a warehousing zone at Karanja Port.

Going Concern

Post the COVID-19 Pandemic outbreak in CY 2020 & 2021, the Board has 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 the financial model which was prepared as part of approving the 2022 budget.

The Directors considered the cash forecasts prepared for Eighteen months from  1 January 2022 up to 30 June 2023, together with certain assumptions for revenue and costs, to satisfy themselves of the appropriateness of the going concern used in preparing the financial statements.

Regarding financing, the group had capital £4.78 million cash balance as at 31 December 2021, additional line of unsecured credit from Hunch Ventures amounting to £4.5 million to mitigate funding risk as well as ensuring continuity in business. The company will use the cash generated  from operations to manage the projected costs until June, 2023 of £ 3.33 million.

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.

A range of mitigating actions within the control of management has been assumed, including a reduction in all non-essential services.

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 utilization of available fund, 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 past impact of COVID-19 on the Group's future trading, the Directors believe that it remains appropriate to continue to adopt the going concern in preparing the financial statements.

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.

Conclusion

The port is well on its way to ramp up capacity utilization to achieve its targeted revenues and diversify its commodity mix towards handling a wider variety of bulk cargo as well as containers.

The Indian economy remains on a steady path to recovery, with businesses reverting to pre-COVID-19 levels of trade. With the level of containerization in India remaining far below the global average, and overall port capacity in the country remaining short of demand, the business case for a port & logistics facility like Karanja continues to stay robust.

Through the course of 2022, MPL will look to deepen its engagement with existing and new customers for incremental volumes as well as diversify its product / commodity mix towards revenue and margin accretive business of containers.

 

 

Consolidated Statement of Comprehensive Income for the Year ended 31 December 2021
	Notes	Year ended  31 Dec 21 £000	Year ended  31 Dec 20 £000
CONTINUING OPERATIONS
Revenue	5	1,801	745
Cost of sales	6	(307)	(48)
		1,494	697
Administrative Expenses	7	(8,373)	(4,944)
OPERATING LOSS		(6,879)	(4,247)
Finance Income	8(a)	40	104
Gains from extinguishment of debt	8(a)	5,408	--
Finance Cost	8(b)	(4,576)	(1,976)
NET FINANCING COST		872	(1,872)
LOSS BEFORE TAX		(6,007)	(6,119)
Tax (expense)/Income for the  year	9	(14)	(456)
Loss FOR THE YEAR		(6,021)	(6,575)
Loss for the year attributable to:
Non-controlling interest		(5)	(11)
Owners of the parent		(6,016)	(6,564)
LOSS FOR THE YEAR		(6,021)	(6,575)
Other Comprehensive (Loss)/income:
Items that will not be reclassified subsequently to profit or (loss)
Re-measurement of net defined benefit liability	24	8	(4)
Items that will be reclassified subsequently to profit or (loss)
Exchange differences on translating foreign operations		(673)	(6,161)
Other comprehensive expense for the year		(665)	(6,165)
Total comprehensive expense for the year		(6,686)	(12,740)
Total comprehensive expense for the year attributable to:
Non-controlling interest		(5)	(11)
Owners of the parent		(6,681)	(12,729)
		(6,686)	(12,740)
Earnings per share (consolidated):
Basic &  Diluted, for the year attributable to ordinary equity holders	11	*(0.231p)	*(0.345p)

 

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as at 31 December 2021

 

	Notes	Year ended  31 Dec 21               £000	Year ended  31 Dec 20               £000
Assets
Property, plant and equipment	12(a)	131,344	131,343
Intangible asset	12(b)	4	4
Total non-current assets		131,348	131,347
Trade and other receivables	13	18,484	18,771
Cash and cash equivalents	14	4,783	3,895
Total current assets		23,267	22,666
Total assets		154,615	154,013
Liabilities
Non-current
Employee benefit obligations	17	43	33
Borrowings	18	39,932	34,729
Lease liabilities payable	20	1,562	1,716
Non-current liabilities		41,537	36,478
Current
Employee benefit obligations	17	449	198
Borrowings	18	1,037	4,074
Current tax liabilities	19	415	384
Lease liabilities payable	20	795	694
Trade and other payable	20	10,171	14,512
Current liabilities		12,867	19,862
Total liabilities		54,404	56,340
Net assets		100,211	97,673
Equity
Stated Capital	16	143,851	134,627
Retained earnings	16	(16,402)	(10,394)
Translation Reserve	16	(27,237)	(26,564)
Equity attributable to owners of parent		100,212	97,669
Non-controlling Interest		(1)	4
Total equity		100,211	97,673

 

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

for the Year ended 31 December 2021

   

	Notes	Year ended 31 Dec 21 £000	Year ended 31 Dec 20 £000
CASH FLOW FROM OPERATING ACTIVITIES
Loss before tax		(6,007)	(6119)
Non cash flow adjustments	22	5,174	2,020
Operating (loss)/profit before working capital changes		(833)	(4,099)
Net changes in working capital	22	(4,686)	1,661
Net cash used in operating activities		(5,519)	(2,438)
CASH FLOW FROM INVESTING ACTIVITIES
Used in purchase of property, plant and equipment		(2,107)	(8,390)
Finance Income	8	19	73
Net cash used in investing activities		(2,088)	(8,317)
CASH FLOW FROM FINANCING ACTIVITIES
From issue of additional shares	16	9,224	--
From borrowing		984	2,678
Repayment of bank borrowing Principal		(641)	--
Interest paid on borrowing		(810)	(1,520)
Repayment of leasing liabilities principal		(96)	(845)
Interest payment on leasing liabilities		(131)	(188)
Net cash from financing activities		8,530	125
Net change in cash and cash equivalents		923	(10,630)
Cash and cash equivalents, beginning of the year		3,895	14,823
Exchange difference on cash and cash equivalents		(35)	(298)
Cash and cash equivalents, end of the year		4,783	3,895

 

 

Consolidated Statement of Changes in Equity

 

for the Year ended 31 December 2021

 

 

	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 2021	134,627	(26,564)	(10,394)	--	4	97,673
Issue of share capital	10,102	--	--	--	--	10,102
Share Issue cost	(878)	--	--	--	--	(878)
Transaction with owners	143,851	(26,564)	(10,394)	--	4	106,897
Loss for the year	--	--	(6,016)	--	(5)	(6,021)
Foreign currency translation difference for foreign operations	--	(673)	--	--	--	(673)
Re-measurement of net defined benefit liability	--	--	--	8	--	8
Re-measurement of net defined benefit liability transfer to retained earning	--	--	8	(8)	--	--
Total comprehensive income for the year	--	(673)	(6,008)	--	(5)	(6,686)
Balance at 31 December 2021	143,851	(27,237)	(16,402)	--	(1)	100,211
Balance at 1 January 2020	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

 

 

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 1st Floor, Tudor House, Le Bordage Rd, Guernsey GY1 1DB. 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 2021, and 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 2021, the Group had 63 (Sixty-three) (2020: 59 (Fifty-Nine)) 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 near future. The Group has nearly finished 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 eighteen months ending 30^th June, 2023, 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 £4.78 million cash balance as at 31 December 2021 and £0.70 million of FITL drawdown on its revised Rupee term loan facility of INR 475.57 crore. 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 subsequently due to Covid 19 Lockdown vide RBI circular dated 6th August, 2020 the principal repayment 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 July 2021, as necessary reduction in all non-essential services.

 

In line with relief measures provided by the RBI to borrowers impacted by Covid-19 related distress, the lenders on 11 June 2021 sanctioned OTR (One Time Restructuring) scheme and implemented the same effective from Jun'21. Salient features of the OTR are as below:

 

1.     Interest on term loan for a period March 2020 to August 2020 was converted in to Term Loan

2.     Deferment of commencement of principal repayment by 24 months (October'2020 to October'2022)

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

4.     Moratorium on interest payments from Jan 2021 to Feb'2022

There is additional line of credit of £4.5 million from Hunch Ventures, to provide additional headroom for the Company's operations, the draw down is available from July 2022 to 31 December 2023, and repayment will start within 24 month from the draw down date and repayment can be extended mutually by both the parties.

Based on the above, the Board of Directors believe that the Group has adequate resources to continue in operational existence for the near 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 2021. Subsidiaries are 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*	Mercantile Ports & Logistics Limited	Cyprus	5.53	5.53
Karanja Terminal & Logistics Private Limited*	Karanja Terminal & Logistics (Cyprus) Ltd	India	94.25	94.25

 

* 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 as an when 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 determines 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 the 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 benefit 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 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 the period of Concession Agreement by Maharashtra Maritime board (MMB).
Marine Structure, Dredged Channel	Over the period of Concession Agreement by Maharashtra Maritime board (MMB).
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. When impairment indicators exist the management compares the carrying value of the property, plant and equipment with the fair value determined as the higher of fair value less cost of disposal or value in use, also refer note 3.

 

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

 

There are no accounting pronouncements, which have become effective from 1 January 2021 that have a significant impact on the Group's consolidated financial statements.

 

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

 

Following new standards or amendments that are not yet effective and have been issued by the IASB which are  not applicable or have material impact on the Group.

 

·   IFRS 17 Insurance Contracts

·   Amendments to IFRS 17 Insurance Contracts (Amendments to IFRS 17 and IFRS 4)

·   References to the Conceptual Framework

·   Proceeds before Intended Use (Amendments to IAS 16)

·   Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)

·   Annual Improvements to IFRS Standards 2018-2020 Cycle (Amendments to IFRS 1, IFRS 9,IFRS 16, IAS 41)

·   Classification of Liabilities as Current or Non-current (Amendments to IAS 1)

·   Deferred Tax related to Assets and Liabilities from a Single Transaction

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 2021.

 

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.  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 heading of contingent liability in note 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., its carrying amount may be higher than its recoverable amount). As at 31 December, 2021, the carrying value of the port under construction is £131.35 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 2021 behind the discounted cash flow are:

·      Construction outflow of £2.96 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 lease rentals, bulk and project cargo, which depends on the volume in Metric Ton.

·      The company expect to commence its CFS container business with initial 16,000 container in year 1 which gradually increase 27,500 and 35,000 in year 2 & 3 and peaks out at year 7 to 74,000. 

·      Inflation 5%.

·      Utilization rate at 10% in 2022, 20% in 2023, 30% in 2024.

·      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 50-55%, based on margin of similar ports.

·      Pre-tax rate derived from weighted average cost of capital (WACC) 17%

The group has carried out sensitivity analysis on our discounted cash flow analysis.  If revenues in our model were to decrease by 20 %, there would be an impairment of £4.3 million.  If the discount rate used in the model were 3% higher, than there would also be an impairment of £2.4 million.

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 100 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 presented.

 

5. REVENUE FROM OPERATION

	Year ended 31 Dec 21	Year ended 31 Dec 20
	£000	£000
Cargo handling income	710	322
Lease income	1,091	423
	1,801	745

 

The Company has given certain land portions on operating lease. These lease arrangement is for a period 40 months. Lease 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 21 INR in million	As on 31 Dec 21 £ million
2022	148.95	1.49
2023	102.81	1.02
2024	26.66	0.27
2025	9.6	0.10
Fifth year and above	57.60	0.58
Total	345.62	3.46

 

 

 

6. COST OF SALES

	Year ended 31 Dec 21	Year ended 31 Dec 20
	£000	£000
Wharf-age expense	72	11
Other operation expense	235	37
	307	48

 

7. ADMINISTRATIVE EXPENSES

	Year ended 31 Dec 21	Year ended 31 Dec 20
	£000	£000
Employee costs	577	571
Directors' remuneration and fees	423	489
Operating lease rentals	13	10
Foreign exchange gains/loss	84	464
Depreciation	3,132	1,777
Other administration costs	4,144	1,633
	8,373	4,944

 

	Year ended 31 Dec 21	Year ended 31 Dec 20
	£000	£000
Interest on bank deposits	40	104
Gain from extinguishment of debt*	5,408	--

8. (a) FINANCE INCOME

 

* During the financial year, group has received sanction from lenders for one-time restructuring (OTR) of loan. The Management has OTR has been tested for debt Modification under IFRS 9. The revised cash out flow discounted at original EIR 13.45% resulted in net gain of £ 5.41 million.

 

8. (b) FINANCE EXPENSES

	Year ended 31 Dec 21	Year ended 31 Dec 20
	£000	£000
Interest on term loan*	1,977	1,636
Interest others	2,599	340
	4,576	1,976

 

*Interest on the term loan is capitalized against assets under construction up to March 2021.  As major construction work is completed and assets under construction transferred into service, the capitalization of interest ceased on that part and interest expensed out to the profit and loss account from April 2021 onwards. 

 

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 13.45% up to 10 June 2021 and 9.5% effective from 11 June 2021 (2020 - 13.54%).

 

9. INCOME TAX   

 

 

	Year ended 31 Dec 21	Year ended 31 Dec 20
	£000	£000
Loss Before Tax	(6,007)	(6,119)
Applicable tax rate in India*	26.00%	22.88%
Expected tax credit	(1,562)	(1,400)
Adjustment for non-deductible losses of MPL & Cyprus entity against income from India	994	402
Adjustment for non-deductible expenses	568	998
Interest provision on outstanding tax liability	(14)	(456)
	(14)	(456)

 

*Considering that the Group's operations are presently based in India, the effective tax rate of the Group of 26.00% (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 the recent judgement from the Income Tax tribunal in favour of the company the provision for the period from 2013 to 2017 have been reversed and interest provision for outstanding tax liability for year 2011 & 2012 are made. 

 

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.

 

Due to uncertainty, that Indian entity will generate sufficient future taxable income to offset business losses incurred to realise deferred tax assets, the management has therefore not recognised the Deferred Tax Asset amounting to INR: 47.88 crore (£4.77 million)

 

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 21	Year ended 31 Dec 20
	£000	£000
Audit Fees
Fees payable to the auditor for the audit of the Group's financial statements	130	107
Non-audit service:
Interim Financial Statement Review	9	9
Non -audit services	80	-
	219	116

 

Audit fees related to prior year overruns during the year amount to £ 7,210 (2020: £23,278).

     

 

11.   EARNINGS PER SHARE

 

Both basic and diluted earnings per share for the year ended 31 December 2021 have been calculated using the loss attributable to equity holders of the Group of £6.02 million (prior year loss of £6.56 million).

 

	Year ended 31 Dec 21	Year ended 31 Dec 20
Loss attributable to equity holders of the parent	£(6,016,000)	£(6,564,000)
Weighted average number of shares used in basic and diluted earnings per share	26,000,334	19,050,221
EARNINGS PER SHARE
Basic and Diluted earnings per share	(0. 231p)	(0.345p)

 

 

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 hence earning per share of comparative period is adjusted accordingly.