29 June 2023
Mercantile Ports & Logistics Limited
("MPL" or the "Company")
Full Year Results
Mercantile Ports & Logistics Limited (AIM: MPL) which is operating and continuing to develop a port and logistics facility in Navi Mumbai, Maharashtra, India, is pleased to announce its preliminary results for the year ended 31 December 2022.
Chairman's Statement
2022 was the first full year of uninterrupted operation for Karanja Port. The coal jetty handled almost 1.0 Mn MT of coal, Memorandum of Undertakings ("MOUs") with JM Baxi and new contracts were also signed.
Revenue achieved during the year 2022 was £4.8 Mn. That momentum has continued with Q1 CY2023 revenue being £1.6 Mn, a more than double the £0.77 Mn for Q1 of 2022.
Dry bulk traffic is a fundamental foundation for facilitating infrastructure development in the region. Karanja Port is well positioned to attract this bulk cargo.
We were proud of our performance for our first customer, Tata Daewoo, throughout the year. Tata Daewoo will shortly deliver the last few blocks of the Mumbai Trans Harbour Link, which has been constructed at the Facility. We were proud to have played our part in this achievement, but can also, look forward to using the concrete paved land being vacated by them in the next few months, which will be utilised for our container business operations. This 25 acre reinforced concreted land parcel can handle a throughput of almost 0.4 Mn TEUs per annum. We expect to achieve this throughput within 7 years, with there being a significant shift in the revenue mix from bulk cargo to container cargo.
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 2023.
The Company is pleased to report that it is in early stage discussions with a number of large shipping lines to handle containers at the Facility. 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 2023.
One of the Board's principal priorities for 2022 was to further enhance the terms of its debt Facility, to match the principal repayment with the cash flows that the business will generate in the next 2-3 years. Whilst that was not concluded during the year, as announced in the Company's recent fundraising, the Board is confident that this will be achieved.
The Company's original plan of making Karanja Port a hub for container handling is expected to take a major step in becoming a reality in 2023. The management worked in 2022 to get all approvals in place for getting this done including allotment of JNPA code.
The pick-up in Container handling business coupled with the growing Bulk Cargo handling businesses will drive further operational activity at the Port. The resulting increase in revenues coupled with the submission of proposal to the current lenders for restructuring of existing term debt to further 7 years (including 2 years moratorium on principal repayment) as well as moratorium on interest servicing for 12 months, will position the company to move ahead on its path to deliver the shareholder value.
On behalf of the Board, I should like to thank our investors for their continued support, as MPL builds towards its goal of being a key part of the logistics infrastructure in the region and a successful profitable company.
Finally, I should like to thank all our employees for their continued hard work during 2022.
Jeremy Warner Allen
Chairman
Mercantile Ports & Logistics Limited
29 June, 2023
Operational Review
Indian Economy
On 6 December, 2022, the World Bank revised its GDP growth outlook for India for 2022-23 from 6.5% to 6.9%, (Source: India is better positioned to navigate global headwinds than other major emerging economies: New World Bank report https://www.worldbank.org/en/news/press-release/2022/12/05/india-better-positioned-to-navigate-global-headwinds-than-other-major-emerging-economies-new-world-bank-report) on the back of the economy's strong performance in Q2. The World Bank went on to say that the nation was "well placed" to steer through any potential global headwinds in 2023. The International Monetary Fund (IMF) expects India to grow by 5.9% in FY 2023-24 and by an average rate of 6.1% over the next five years.
Despite the global turmoil as a result of the dual shocks emerging from COVID and the Ukraine-Russia war, the long-term growth story of the Indian economy remains intact.
India emerged as the world's fifth-largest economy, overtaking the United Kingdom (UK) in 2022. It is set to surpass Japan and Germany to become the world's third-largest economy by 2029. (Source: India to emerge third-largest economy of world by 2029; Likely to surpass Germany by 2027, and Japan by 2029 (Source :newsonair.gov.in)
However, capital investment, especially in the private sector, has lagged so far. India is an attractive investment destination is a point well emphasized.
Operations Update
From an operations perspective, 2022 was the first full year of uninterrupted operations for the Port, with Karanja Port able to handle over c1.0 Mn MT of Cargo. The Facility was able to demonstrate its ability to be a 24X7 facility with the commencement of night navigation enabling 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, the Facility successfully handled over multiple types of cargo including coal, cement, olivine flux, metal scrap during the period. The volume of coal handled during this period, was in line with expectation and achieved the volume expectation set with the customer.
The Facility 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 2023. Karanja Port is being positioned as an evacuation alternative for containers coming to Jawaharlal Nehru Port Authority ("JNPA"), where currently, 6.0 Mn TEUs flow into JNPA. With the fourth terminal of JNPA becoming active this year, the number of TEUs flowing into JNPA is expected to increase to 9.0 - 10.0 mn TEUs in the next 3-4 years. (Source: https://jnPort.gov.in/projects_ongoing (10 million).
It is important to note that Karanja Port and JNPA have the same customs jurisdiction, the Jawaharlal Nehru Customs House (JNCH).
Further, the Facility has all other approvals in place (including allotment of code by JNPA & its terminals) to make the evacuation of TEUs, flowing into JNPA, from Karanja Port a reality. This will include both (1) containers that need only evacuation, storage and transportation - DPD containers the are Full Container Load (FCL); (2) containers that are yet to undergo Customs examination; and (3) containers that need to undergo de-stuffing operations that are not FCL.
Karanja Port Container Terminal aspires to be one of the largest container handling facilities in the state of Maharashtra and one of the few with a waterfront.
Going Concern
Fiscal year 2022 was the first full year of uninterrupted operations at the Facility. During the period from January 2022 to December 2022 alone, the port handled bulk cargo volumes to the tune of 1.2 Mn. MT. The Board has assessed the Group's ability to operate as a going concern for the next 18 months from the date of signing the financial statements, based on the financial model which was prepared as part of approving the 2023 budget.
The Directors considered the cash forecasts prepared for twenty-four months beginning from 1 January 2023 up to 31st December 2024, together with certain assumptions for revenue and costs, to satisfy themselves of the appropriateness of the going concern used in preparing the financial statements.
The Group had considered the following inflows in the budget model prepared to mitigate funding risk as well as ensuring continuity in business:
a) £0.56 million cash balance as at 31 December 2022;
b) Additional line of unsecured credit from Hunch Ventures amounting to £4.5Mn;
c) Share subscription (balance) amount due from Hunch £1.1Mn;
d) The recent fund-raise of £8.2Mn (net of cost) which has just been concluded and closed
e) Expected cash flows from operations through to December, 2024.
The Directors took into account the risks and uncertainties, facing the business as set out on page 20, and a sensitivity analysis on the key revenue growth assumption and the effectiveness of available mitigating actions was carried out in the model.
The Indian subsidiary has been in discussion with its consortium of banks for restructuring the existing debt facility. The Directors are confident that a restructured debt facility will be afforded to the company, that will include an increase in the term of the loan by an additional 7 years as well as moratorium on principal repayments for a period of 2 years and a moratorium on interest payable for 12 months.
The existing consortium banks had previously restructured the debt facility in 2021 as a relief owing to the Covid-19 pandemic.
Based on the above indicators, after taking into account the recent fundraising and the renegotiation on the debt restructuring, the Directors believe that it remains appropriate to continue to adopt the going concern in preparing the forecasts.
However, the fact that the debt restructure has not been completed to date represents the existence of a material uncertainty which may cast significant doubt on the Group's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.
Conclusion
The Port is ramping up bulk cargo operations and is all set to commence container cargo operations in 2023. It 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 and liquids.
The Indian economy is expected to remain buoyant. 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 Port continues to stay robust.
Through the course of 2023, MPL will look to deepen its engagement with existing lenders on the one side and new and existing customers for incremental volumes on the other side. The focus will be to diversify its product / commodity mix towards container and liquid business, delivering enhanced and growing revenues through its container business.
Consolidated Statement of Comprehensive Income for the Year ended 31 December 2022
| |||
| Notes | Year ended 31 Dec 22 £000 | Year ended 31 Dec 21 £000 |
CONTINUING OPERATIONS | | | |
Revenue | 5 | 4,872 | 1,801 |
Cost of sales | 6 | (1,449) | (307) |
Gross margin | | 3,423 | 1,494 |
Administrative expenses | 7 | (9,978) | (8,373) |
OPERATING LOSS | | (6,555) | (6,879) |
Finance income | 8(a) | 38 | 40 |
Gains from extinguishment of debt | 8(a) | -- | 5,408 |
Finance cost | 8(b) | (5,543) | (4,576) |
NET FINANCING COST | | (5,505) | 872 |
LOSS BEFORE TAX | | (12,060) | (6,007) |
Tax income /(expense) for the year | 9 | 2,421 | (14) |
Loss FOR THE YEAR | | (9,639) | (6,021) |
| | | |
Loss for the year attributable to: | | | |
Non-controlling interest | | (18) | (5) |
Owners of the parent | | (9,621) | (6,016) |
LOSS FOR THE YEAR | | (9,639) | (6,021) |
| | | |
Other Comprehensive (Loss)/income: | | | |
Items that will not be reclassified subsequently to profit or (loss) | | | |
Re-measurement of net defined benefit liability | 24 | 1 | 8 |
Items that will be reclassified subsequently to profit or (loss) | | | |
Exchange differences on translating foreign operations | | 808 | (673) |
Other comprehensive expense for the year | | 809 | (665) |
Total comprehensive expense for the year | | (8,830) | (6,686) |
Total comprehensive expense for the year attributable to: | | | |
Non-controlling interest | | (18) | (5) |
Owners of the parent | | (8,812) | (6,681) |
| | (8,830) | (6,686) |
Earnings per share (consolidated): | | | |
Basic & Diluted, for the year attributable to ordinary equity holders | 11 | *(0.232p) | *(0.231p) |
*1. On 13 September 2021 group has consolidated its share by way of issuing one new share for every hundred shares held.
2. The accompanying notes on page 56 to 90 form part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31 December 2022
| Notes | Year ended 31 Dec 22 £000 | Year ended 31 Dec 21 £000 | ||
Assets | | | | ||
Property, plant and equipment | 12(a) | 127,382 | 131,344 | ||
Intangible asset | 12(b) | 14 | 4 | ||
Non-current tax assets | 19 (a) | 2,108 | -- | ||
Total non-current assets | | 129,504 | 131,348 | ||
| | | | ||
Inventory of traded goods | | 96 | -- | ||
Trade and other receivables | 13 | 14,110 | 18,484 | ||
Cash and cash equivalents | 14 | 558 | 4,783 | ||
Total current assets | | 14,764 | 23,267 | ||
Total assets | | 144,268 | 154,615 | ||
| | | | ||
Liabilities | | | | ||
Non-current | | | | ||
Employee benefit obligations | 17 | 53 | 43 | ||
Borrowings | 18 | 39,165 | 39,932 | ||
Lease liabilities payable | 20 | 1,611 | 1,562 | ||
Non-current liabilities | | 40,829 | 41,537 | ||
Current | | | | ||
Employee benefit obligations | 17 | 529 | 449 | ||
Borrowings | 18 | 2,307 | 1,037 | ||
Current tax liabilities | 19 (b) | 17 | 415 | ||
Lease liabilities payable | 20 | 817 | 795 | ||
Trade and other payable | 20 | 8,388 | 10,171 | ||
Current liabilities | | 12,058 | 12,867 | ||
Total liabilities | | 52,887 | 54,404 | ||
| |
|
| ||
Net assets | | 91,381 | 100,211 | ||
| |
|
| ||
Equity | |
|
| ||
Stated Capital | 16 | 143,851 | 143,851 | ||
Retained earnings | 16 | (26,022) | (16,402) | ||
Translation Reserve | 16 | (26,429) | (27,237) | ||
Equity attributable to owners of parent | | 91,400 | 100,212 | ||
Non-controlling Interest | | (19) | (1) | ||
Total equity | | 91,381 | 100,211 | ||
| | | | ||
1. The accompanying notes on page 56 to 90 form part of these consolidated financial statements.
2. The consolidated financial statements have been approved and authorized for issue by the Board on 29 June, 2023.
Jay Mehta
Director
CONSOLIDATED STATEMENT OF CASH FLOWS | |||
for the Year ended 31 December 2022
| |||
| Notes | Year ended 31 Dec 22 £000 | Year ended 31 Dec 21 £000 |
CASH FLOW FROM OPERATING ACTIVITIES | | | |
Loss before tax | | (12,060) | (6,007) |
Non cash flow adjustments | 22 | 11,748 | 5,149 |
Operating (loss) before working capital changes | | (312) | (858) |
Net changes in working capital | 22 | 305 | (4,669) |
Taxes paid | | (85) | -- |
Net cash used in operating activities | | (92) | (5,527) |
| | | |
| | | |
CASH FLOW FROM INVESTING ACTIVITIES | | | |
Used in purchase of property, plant and equipment | | (1,425) | (2,107) |
Finance Income | 8 | 38 | 27 |
Net cash used in investing activities | | (1,387) | (2,080) |
| | | |
CASH FLOW FROM FINANCING ACTIVITIES | | | |
From issue of additional shares | 16 | -- | 9,224 |
From borrowing | | -- | 984 |
Subscription money received | | 2,452 | -- |
Repayment of bank borrowing principal | | (881) | (641) |
Interest paid on borrowings | | (4,217) | (810) |
Principal repayment of lease liabilities | | (138) | (96) |
Interest payment on leasing liabilities principal | | -- | (131) |
Net cash from financing activities | | (2,784) | 8,530 |
Net change in cash and cash equivalents | | (4,262) | 923 |
| | | |
Cash and cash equivalents, beginning of the year | | 4,783 | 3,895 |
Exchange difference on cash and cash equivalents | | 37 | (35) |
Cash and cash equivalents, end of the year | | 558 | 4,783 |
The accompanying notes on page 56 to 90 form part of these consolidated financial statements.
Consolidated Statement of Changes in Equity
for the Year ended 31 December 2022
| 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 2022 | 143,851 | (27,237) | (16,402) | -- | (1) | 100,211 |
Transaction with owners in their capacity as owners | -- | -- | -- | -- | -- | -- |
Loss for the year | -- | -- | (9,621) | -- | (18) | (9,639) |
Foreign currency translation difference for foreign operations | -- | 808 | -- | -- | -- | 808 |
Re-measurement of net defined benefit liability | -- | -- | -- | 1 | -- | 1 |
Re-measurement of net defined benefit liability transfer to retained earning | -- | -- | 1 | (1) | -- | -- |
Total comprehensive income for the year | -- | 808 | (9,620) | -- | (18) | (8,830) |
Balance at 31 December 2022 | 143,851 | (26,429) | (26,022) | -- | (19) | 91,381 |
|
|
|
| | |
|
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 |
The accompanying notes on page 56 to 90 form part of these consolidated financial statements.
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 2022, 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 2022, the Group had 44 (Forty-four) (2021: 47 (Forty-seven)) 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
Fiscal year 2022 was the first full year of operations at the facility. During the period from January 2022 to December 2022 alone, the port handled bulk cargo volumes to the tune of 1.2 Mn MT. The Board has assessed the Group's ability to operate as a going concern for the next 18 months from the date of signing the financial statements, based on the financial model which was prepared as part of approving the 2023 budget.
The Directors considered the cash forecasts prepared for Twenty-four months effective from 1 January 2023 up to 31st December 2024, together with certain assumptions for revenue and costs, to satisfy themselves of the appropriateness of the going concern used in preparing the financial statements.
The group had considered the following inflows in the budget model prepared to mitigate funding risk as well as ensuring continuity in business:
a) £0.56 million cash balance as at 31 December 2022;
b) Additional line of unsecured credit from Hunch Ventures amounting to £4.5Mn;
c) Share subscription (balance) amount due from Hunch £1.1Mn;
d) The recent fund-raise of £8.2Mn (net of cost) which has just been concluded and closed
e) Expected cash flows from operations through to December, 2024.
The Directors took into account the risks and uncertainties facing the business referred to below, and a sensitivity analysis on the key revenue growth assumption and the effectiveness of available mitigating actions was carried out in the model.
The Indian subsidiary has been in discussion with its consortium of banks for restructuring the existing debt facility. The Directors are confident that a restructured debt facility will be afforded to the company, that will include an increase in the term of the loan by an additional 7 years as well as moratorium on principal repayments for a period of 2 years and a moratorium on interest payable for 12 months.
The existing consortium banks had previously restructured the debt facility in 2021 as a relief owing to the Covid-19 pandemic.
Based on the above indicators, after taking into account the recent fundraising and the renegotiation on the debt restructuring, the Directors believe that it remains appropriate to continue to adopt the going concern in preparing the forecasts.
However, the fact that the debt restructure has not been completed to date represents the existence of a material uncertainty which may cast significant doubt on the Group's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.
(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 2022. 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 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 | India | 7.08 | 7.08 |
Karanja Terminal & Logistics Private Limited* | Karanja Terminal & Logistics (Cyprus) Ltd. | India | 92.70 | 92.70 |
* Financial year end for Karanja Terminal & Logistics Private Limited ("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 mainly consists of services relating to use of the port by customers and includes services such as hiring of land, wharf-age, hiring of equipment, loading/unloading, stevedoring, storage and from value added activities viz. trading which is incidental to providing port services.
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. Recognizing revenue as and 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 including the end to end value added services with respect to coal supply and delivery 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.
Revenue from sale of traded goods
Revenue from sale of traded goods is recognized on transfer of control to the customers, which is generally on dispatch of goods and no significant uncertainty exists regarding the amount of the consideration that will be derived from the sale of goods. Sales are stated exclusive of Goods and Service Tax ("GST").
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 plan (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 plan (Gratuity)
In accordance with applicable Indian Law, the Group provides for gratuity, a defined benefit 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 a lessee
The Company mainly has lease arrangements for converting the waterfront into reclamation of land for construction of Port for terminal and logistics operations. The land thus reclaimed consist of the open space and also offices, warehouse spaces and equipment.
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.
As a lessor
Lease income from operating leases where the Company is a lessor is recognized in income on a straight-line basis over the lease term unless a systematic basis more representative of the pattern in which benefit from the use of the underlying asset is diminished is suitable. The respective leased assets are included in the balance sheet based on their nature.
Initial direct costs incurred in negotiating and managing an operating lease are added to the cost of the leased asset and recognized as an expense over the term on the same basis as the lease income.
(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 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 Statement of Comprehensive Income.
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 2023 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)
· Effective date of amendments on disclosure of accounting policies
· Amendments to IAS 8 on accounting estimates
· Amendments to IAS 12 on deferred tax related to Assets and Liabilities from a single transaction.
· Classification of Liabilities as Current or Non-current (Amendments to IAS 1)
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
MPL group's Indian subsidiary had filed a writ petition in Hon'ble High court for seeking relief against the order passed by the Income Tax Appellate Tribunal (ITAT) for the two assessment years 2011-12 and 2012-13, which was decided in favour of the group's Indian subsidiary. As per these orders, the matter was sent back to the files of Principal Commissioner of Income Tax (Appeals) for re-adjudication following the ITAT orders for assessment years 2013-14 to 2015-16.
The Principal Commissioner of Income Tax (Appeals) vide its order dated 20th March, 2023, issued an order in favour of the Group's subsidiary for the assessment years 2011-12 and 2012-13.
By virtue of this order, the demand made by the Income tax department at present is not recoverable. As such the order of the Principal Commissioner of Income Tax (Appeals) is of a protective nature, hence the management has decided to prudently reverse the provisions and the interest accrued on the same for the subject years.
However, since the Income tax department has preferred an appeal in Supreme Court. In light of the uncertainty of the final outcome, the Group has disclosed the same under the head of contingent liability in note no 25.
Impairment Review
The Audit Committee considered the significant judgements, assumptions and estimates made by management in preparing the impairment review to ensure that they were appropriate. In particular, the cash flow projections, port capacity, tariffs used, margins, discount rates, inflation and sensitivity analysis were reviewed. The Audit Committee also considered external market factors to assess reasonableness of management assumptions.
The Committee also considered the valuation done by an independent external expert valuer.
As per the valuation report, the value of the cash generating unit (CGU) group (considering the discounting rate of 13.40%) was determined to be £131.53 Mn.
The review did not result in any impairment during the year, however there was minimal headroom in the calculation.
The group carried out sensitivity analysis on the following:
a) reduction in Revenue by 10%, the assets would be impaired by £ 16.17 Mn.
b) reduction in EBIDTA by 10%, the assets would be impaired by £ 11.70 Mn.
c) increase in the discounting rate by 1%, the assets would be impaired by £ 11.20 Mn.
Considering the above sensitivity analysis, the group's asset would be impaired.
Taking the above into account, together with the documentation presented and the explanations given by management, the committee is satisfied with the thoroughness of the approach and judgements taken.
4. SEGMENTAL REPORTING
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The Board of Directors of are identified as the Chief operating decision maker. 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 22 | Year ended 31 Dec 21 |
| £000 | £000 |
| | |
Sale of goods | 561 | -- |
Cargo handling income | 1,968 | 710 |
Lease income | 1,728 | 1,091 |
Other operating income | 615 | -- |
| 4,872 | 1,801 |
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 22 INR in million | As on 31 Dec 22 £ million |
2023 | 46.92 | 0.48 |
2024 | 9.60 | 0.10 |
2025 | 9.60 | 0.10 |
2026 | 9.60 | 0.10 |
Fifth year and above | 48.00 | 0.49 |
Total | 123.72 | 1.27 |
6. COST OF SALES
| Year ended 31 Dec 22 | Year ended 31 Dec 21 |
| £000 | £000 |
| | |
Wharf-age expense | 411 | 72 |
Other operating expense | 1,134 | 235 |
Changes in inventory | (96) | -- |
| 1,449 | 307 |
7. ADMINISTRATIVE EXPENSES
| Year ended 31 Dec 22 | Year ended 31 Dec 21 |
|
£000 |
£000 |
Employee costs | 635 | 577 |
Directors' remuneration and fees | 476 | 423 |
Operating lease rentals | 9 | 13 |
Foreign exchange loss | 68 | 84 |
Depreciation | 6,231 | 3,132 |
Other administration costs | 2,559 | 4,144 |
| 9,978 | 8,373 |
| Year ended 31 Dec 22 | Year ended 31 Dec 21 |
|
£000 |
£000 |
| | |
Interest on bank deposits | 38 | 40 |
| | |
Gain from extinguishment of debt* | -- | 5,408 |
8. (a) FINANCE INCOME
* During the previous year, Group had received sanction from lenders for one-time restructuring (OTR) of loan. The Management has tested the OTR 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 and was effected accordingly in 2021. The corresponding effect of debt modification has been considered in 2022 financials.
8. (b) FINANCE EXPENSES
| Year ended 31 Dec 22 | Year ended 31 Dec 21 |
|
£000 |
£000 |
| | |
Interest on term loan | 4,726 | 1,977* |
Interest others | 817 | 2,599 |
| 5,543 | 4,576 |
* 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.
The lenders have reset the interest rate from 9.5% pa to 9.55% p.a. on Term Loan and from 10.50% pa to 10.55% pa on FITL with effect from June 2022.
9. INCOME TAX
| Year ended 31 Dec 22 | Year ended 31 Dec 21 |
|
£000 |
£000 |
| | |
Loss Before Tax | (12,060) | (6,007) |
Applicable tax rate in India* | 26.00% | 26.00% |
Expected tax credit | (3,136) | (1,562) |
Reconciling items Non-deductible losses of MPL and Cyprus entities | 320 | 994 |
Un-recognised deferred tax asset | 2,025 | -- |
Non-deductible expenses | 791 | 568 |
Reversal of outstanding tax liability and interest thereon pertaining to earlier years | 2,421 | (14) |
| 2,421 | (14) |
* Considering that the Group's operations are presently based in India, the effective tax rate of the Group of 26% (prior year 26%) 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.
MPL group's subsidiary had filed a writ petition in Hon'ble High court for seeking relief against the order passed by the Income Tax Appellate Tribunal (ITAT) for the two assessment years 2011-12 and 2012-13, which was decided in favour of the Group. As per these orders, the matter was sent back to the files of Principal Commissioner of Income Tax (Appeals) for re-adjudication following the ITAT orders for assessment years 2013-14 to 2015-16.
The Principal Commissioner of Income Tax (Appeals) vide its order dated 20th March, 2023, issued an order in favour of the Group's subsidiary for the assessment years 2011-12 and 2012-13.
By virtue of this order, the demand made by the Income tax department at present is not recoverable. As such the order of the Principal Commissioner of Income Tax (Appeals) is of a protective nature, hence the management has decided to prudently reverse the provisions and the interest accrued on the same for the subject years.
However, since the Income tax department has preferred an appeal in Supreme Court, in light of the uncertainty of the final outcome, the Group has disclosed the same under the head of contingent liability in note no 25.
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 not recognised the Deferred Tax Asset amounting to INR: 67.46 crore (£6.76 Mn.) (2021- INR: 47.88 crore (£4.77 Mn.).
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 22 | Year ended 31 Dec 21 |
| £000 | £000 |
Audit Fees | | |
Fees payable to the auditor for the audit of the Group's financial statements * | 171 | 130 |
Non-audit service: | | |
Interim Financial Statement Review | 10 | 9 |
Non -audit services | 110 | 80 |
| 291 | 219 |
* This includes prior year overruns charged during the year aggregating to £ 12,500 (2021: £ 7,210).
11. EARNINGS PER SHARE
Both basic and diluted earnings per share for the year ended 31 December 2022 have been calculated using the loss attributable to equity holders of the Group of £9.621 million (prior year loss of £6.02 million).
| Year ended 31 Dec 22 | Year ended 31 Dec 21 |
Loss attributable to equity holders of the parent |
£ (9,621,000) |
£ (6,016,000) |
Weighted average number of shares used in basic and diluted earnings per share | 41,499,699 | 26,000,334 |
|
|
|
EARNINGS PER SHARE |
|
|
Basic and Diluted earnings per share | (0. 232p) | (0. 231p) |
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.
12 (a). PROPERTY, PLANT AND EQUIPMENT
Details of the Group's property, plant and equipment and their carrying amounts are as follows:
| Computers | Office Equipment | Furniture | Vehicles | Plant & Machinery | Port Asset | Right of use
| Capital Work in Progress | Total |
| Asset | ||||||||
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 |
Gross carrying amount | | | | | | | | | |
Balance 1 Jan 2022 | 42 | 535 | 345 | 586 | 47 | 109,523 | 1,721 | 24,149 | 136,948 |
Net Exchange Difference | 0 | 4 | 2 | 3 | 0 | 777 | 10 | 140 | 936 |
Additions | 7 | 31 | 125 | 36 | 16 | 233 | 304 | 605 | 1,357 |
Transfers from CWIP ^ | -- | -- | -- | -- | -- | -- | -- | -- | -- |
Disposals | -- | -- | -- | -- | -- | -- | -- | -- | -- |
Balance 31 Dec 2022 | 49 | 570 | 472 | 625 | 63 | 110,533 | 2,035 | 24,894 | 139,241 |
| | | | | | | | | |
Depreciation | | | | | | | | | |
Balance 1 Jan 2022 | (36) | (115) | (91) | (362) | (4) | (4,668) | (328) | -- | (5,604) |
Net Exchange Difference | (1) | (1) | (0) | (2) | (0) | (26) | (3) | -- | (33) |
Charge for the year | (4) | (111) | (23) | (48) | (4) | (5,774) | (258) | -- | (6,222) |
Disposals | -- | -- | -- | -- | -- | -- | -- | -- | -- |
Balance 31 Dec 2022 | (41) | (227) | (114) | (412) | (8) | (10,468) | (589) | -- | (11,859) |
Carrying amount 31 Dec 2022 | 8 | 343 | 358 | 213 | 55 | 1,00,065 | 1,446 | 24,894 | 127,382 |
The Group has leased various assets including land and buildings. As at 31 December 2022, the net book value of recognised right-of use assets relating to land and buildings was £ 1.45 million (2021: £ 1.39 million). The depreciation charge for the period relating to those assets was £ 0.26 million (2021: £ 0.09 million).
Borrowing costs capitalised during 2022 - Nil (2021: £ 1,051).
Amounts recognised in the statement of income are detailed below:
Particular | £000 31 Dec 2022 | £000 31 Dec 2021 |
Depreciation on right-of-use assets | 258 | 95 |
Interest expense on lease liabilities | 181 | 175 |
Expense relating to short-term leases | 9 | 13 |
Expense relating to low-value leases | 0 | 1 |
| 448 | 284 |
| Computers | Office Equipment | Furniture | Vehicles | Plant & Machinery | Port Asset | Right of use
| Capital Work in Progress | Total |
| Asset | ||||||||
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 |
Gross carrying amount | | | | | | | | | |
Balance 1 Jan 2021 | 41 | 136 | 262 | 577 | 25 | 50,214 | 1,733 | 80,801 | 133,789 |
Net Exchange Difference | (1) | (1) | (2) | (3) | (1) | (352) | (12) | (566) | (938) |
Additions | 2 | 13 | 19 | 12 | -- | -- | -- | 4,051 | 4,051 |
Transfers from CWIP ^ | -- | 387 | 66 | -- | 23 | 59,661 | -- | (60,137) | -- |
Disposals | -- | -- | -- | -- | -- | -- | -- | -- | -- |
Balance 31 Dec 2021 | 42 | 535 | 345 | 586 | 47 | 109,523 | 1,721 | 24,149 | 136,948 |
| | | | | | | | | |
Depreciation | | | | | | | | | |
Balance 1 Jan 2021 | (30) | (69) | (64) | (320) | (3) | (1,725) | (235) | -- | (2,446) |
Net Exchange Difference | (2) | 1 | -- | 2 | 1 | (29) | 2 | -- | (27) |
Charge for the year | (4) | (45) | (27) | (44) | (2) | (2,914) | (95) | -- | (3,131) |
Disposals | -- | -- | -- | -- | -- | -- | -- | -- | -- |
Transfer from computer to software | -- | -- | -- | -- | -- | -- | -- | -- | -- |
Balance 31 Dec 2021 | (36) | (115) | (91) | (362) | (4) | (4,668) | (328) | -- | (5,604) |
Carrying amount 31 Dec 2021 | 6 | 420 | 254 | 224 | 43 | 104,855 | 1,393 | 24,149 | 131,344 |
^ During 2021, Company has capitalized an additional 22 acres of land, 340 meter of jetty and various support infrastructure cost and accordingly £ 60,137 thousand has been transferred from CWIP to under various head i.e. Port Asset £ 59,661 thousand, plant and machinery £ 23 thousand, Furniture £ 66 thousand and office equipment £ 387 thousand.
The Group has leased various assets including land and buildings. As at 31 December 2021, the net book value of recognised right-of use assets relating to land and buildings was £ 1.39 million (2020: £ 1.49 million). The depreciation charge for the period relating to those assets was £ 0.09 million (2020: £ 0.15 million).
Assets provided as security
· The following asset are provided as security for lease liability payable as described in Note 20:
| Year ended 31 Dec 22 £000 | Year ended 31 Dec 21 £000 |
Vehicles | 214 | 224 |
| 214 | 224 |
The vehicles, which are free from encumbrances, will also form as a subservient charge of hypothecation towards securitisation of debt.
All other immovable and movable property with a carrying value of £ 127,172,000 (2021: £131,124,000) is under hypothecation in favour of the "Term lenders".
The Port facility being developed in India has been hypothecated by the Indian subsidiary as security for the bank borrowings (revised outstanding as against the borrowing limit sanctioned in 2021 as per OTR is INR 462 crore [£46.32 million]. (2021: INR 475.57 crore (£47.41 million)) for part financing the build out of the facility.
The Indian subsidiary has estimated the total project cost of INR 1,404 crore (£138.10 million) towards construction of the port facility. Out of the aforesaid project cost, the contract signed with the major contractor is INR 1,049 crores (£105.21 million). As of 31 December 2022, the contractual amount (net of advances) of INR 48.03 crores (£4.82 million) work is unexecuted. There were no other material contractual commitments.
12 (b). Intangible Asset
| Intangible Asset - Asset Software |
Software | |
| £000 |
Gross carrying amount | |
Balance 1 Jan 2022 | 14 |
Exchange Difference | 0 |
Additions | 19 |
Disposals | -- |
Balance 31 Dec 2022 | 33 |
| |
Depreciation | |
Balance 1 Jan 2022 | (10) |
Exchange Difference | (0) |
Charge for the year | (9) |
Disposals | -- |
Balance 31 Dec 2022 | (19) |
Carrying amount 31 Dec 2022 | 14 |
| Intangible Asset - Asset Software |
Software | |
| £000 |
Gross carrying amount | |
Balance 1 Jan 2021 | 13 |
Exchange Difference | (1) |
Additions | 2 |
Disposals | -- |
Balance 31 Dec 2021 | 14 |
| |
Depreciation | |
Balance 1 Jan 2021 | (9) |
Exchange Difference | -- |
Charge for the year | (1) |
Disposals | -- |
Balance 31 Dec 2021 | (10) |
Carrying amount 31 Dec 2021 | 4 |
13. TRADE AND OTHER RECEIVABLES
| Year ended 31 Dec 22 | Year ended 31 Dec 21 |
| £000 | £000 |
Deposits | 1,442 | 2,493 |
Advances | | |
- Related Party | 1,160 | 3,612 |
- Others | 10,483 | 12,077 |
| | |
Accrued Interest of fixed deposits | 3 | 2 |
Accrued Income | 126 | 16 |
Debtors | | |
- Related Party | 107 | 107 |
- Prepayment | 102 | 134 |
- Others | 687 | 43 |
| 14,110 | 18,484 |
Advances include payment to EPC contractor of £ 7.29 million (2021: £ 7.09 million) towards mobilisation advances and quarry development. These advances will either be recovered as a deduction from the invoices being raised by the contractor over the contract period or refunded.
The debtors - other include trade receivable other £ 0.00 million (2021: £ Nil million) which is past due for 30 days' management estimate that amount is fully realisable hence no provision for expected credit loss is made for the same amount.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision for trade and other receivable. To measure expected credit losses on a collective basis, trade and other receivables are grouped based on similar credit risk and aging. The assets have similar risk characteristics to the trade receivables for similar types of contracts.
The expected loss rates are based on the Group's historical credit losses experienced. The historical loss rates are then adjusted to reflect current and forward-looking information, any known legal and specific economic factors, including the credit worthiness and ability of the customer to settle the receivables.
The Group renegotiations or modifications of contractual cash flows of a financial asset, which results in de-recognition, the revised instruments are treated as a new or else the group recalculates the gross carrying amount of the financial asset.
14. CASH AND CASH EQUIVALENTS
| Year ended 31 Dec 22 | Year ended 31 Dec 21 |
| £000 | £000 |
Cash at bank and in hand | 389 | 4,571 |
Deposits* | 169 | 212 |
| 558 | 4,783 |
Cash at bank earns interest at floating rates based on bank deposit rates. The fair value of cash and short-term deposits is £0.56 million (2021: £4.78 million).
Included in cash and cash equivalents is £0.00 million (2021: £0.74 million) that is within a bank account in the name of Hunch Ventures (Karanja), as a result of the 2018 and 2021 share sale. The Company is the beneficiary of the account. During the year, we have been able to draw money out of this account to cover working capital throughout the year.
*Deposits are placed under lien against Bank Guarantees issued by bank on behalf of the group to various Government Authorities and the Debt Service Reserve (DSR) as per the loan agreement with lenders.
15. RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
Risk Management
The Group's activities expose it to a variety of financial risks: market risk (including currency risk and interest rate risk), credit risk and liquidity risk. The Board of Directors carries out risk management.
(a)Market Risk
(i)Translation risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market foreign exchange rates. The Company's functional and presentation currency is the UK Sterling (£). The functional currency of its subsidiary Karanja Terminal & Logistics Private Limited (KTLPL) is INR and functional currency of Karanja Terminal & Logistics (Cyprus) Ltd.
The exchange difference arising due to variances on translating a foreign operation into the presentation currency results in a translation risk. These exchange differences are recognised in other comprehensive income. As a result, the profit, assets and liabilities of this entity must be converted to GBP in order to bring the results into the consolidated financial statements. The exchange differences resulting from converting the profit and loss account at average rate and the assets and liabilities at closing rate are transferred to the translation reserve.
While consolidating the Indian subsidiary accounts the group has taken closing rate of GBP 1: INR 99.7436 for SOFP items and for profit and loss item GBP 1: INR 97.0625.
This balance is cumulatively a £26.43m loss to equity (2021: £27.31m loss). This is primarily due to a movement from approximately 1:70 to 1:100 between 2010 to 2013 and the translation reserve reaching a loss of £21.6m at 31 December 2013 and further increase in translation reserve from £21.6m to £26.43m due to appreciation of GBP against INR during the period 2018 to 2022. The closing rate at 31 December 2022 was GBP1: INR 99.7436, hence as compared to the translation loss reported between 2018-19, the same is insignificant in 2022. With the majority of funding now in India this risk is further mitigated. During 2022, the average and year-end spot rate used for INR to GBP were 97.0625 and 99.7436 respectively (2021: 100.30 and 101.67).
Translation risk sensitivity
The Group's exposure to the risk of changes in foreign exchange rates relates primarily to the cash and cash equivalents available with the Indian entity and INR denominated balance of MPL in India amounting to INR 39.99 million (£0.40 million) as on reporting date (prior year INR 106.12 million (£1.06 million)). In computing the below sensitivity analysis, the management has assumed the following % movement between foreign currency (INR) and the underlying functional currency GBP:
Functional Currency (£) | 31 Dec 2022 | 31 Dec 2021 |
INR | +- 10% | +- 10% |
The following table details the Group's sensitivity to appreciation or depreciation in functional currency vis-à-vis the currency in which the foreign currency cash and cash equivalents and borrowing are denominated:
Functional currency | £ (depreciation by 10%) | £ (appreciation by 10%) |
| £000 | £000 |
Cash and cash equivalent | | |
31 December 2022 | 44.44 | (36.36) |
31 December 2021 | 117.56 | (96.19) |
| | |
Borrowing | | |
31 December 2022 | (5,135.92) | 4,202.12 |
31 December 2021 | (5,144.55) | 4,209.18 |
| | |
If the functional currency GBP had weakened with respect to foreign currency (INR) by the percentages mentioned above, for year ended 31 December 2022 then the effect will be change in profit and equity for the year by £4.17 million (2021: £4.11 million). If the functional currency had strengthened with respect to the various currencies, there would be an equal and opposite impact on profit and equity for each year. This exchange difference arising due to foreign currency exchange rate variances on translating a foreign operation into the presentation currency results in a translation risk.
(ii) Interest rate risk
Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group's exposure to the risk of changes in market interest rates relates primarily to the Group's long-term debt obligations with floating interest rates.
The base rate set by the bank may be changed periodically as per the discretion of the bank in line with Reserve Bank of India (RBI) guidelines. Based on the current economic outlook and RBI Guidance, management expects the Indian economy to enter a lower interest rate regime as moderating inflation will enable RBI and the banks to lower the base rate in the near future.
Interest rate sensitivity
At 31 December 2022, the Group is exposed to changes in market interest rates through bank borrowings at variable interest rates. The exposure to interest rates for the Group's money market funds is considered immaterial.
The following table illustrates the sensitivity of profit to a reasonably possible change in interest rates of +/- 1% (2021: +/- 1%). These changes are considered to be reasonably possible based on observation of current market conditions. The calculations are based on a change in the average market interest rate for each period, and the financial instruments held at each reporting date that are sensitive to changes in interest rates. All other variables are held constant.
Year | Profit for the Year £000 | Equity, net of tax £000 | ||
| +1% | -1% | +1% | -1% |
31 December 2023 | (454) | 454 | (336) | 336 |
31 December 2024 | (424) | 424 | (314) | 314 |
31 December 2025 | (373) | 373 | (276) | 276 |
31 December 2026 | (305) | 305 | (226) | 226 |
31 December 2027 | (224) | 224 | (166) | 166 |
31 December 2028 | (135) | 135 | (100) | 100 |
31 December 2029 | (42) | 42 | (31) | 31 |
31 December 2030 | - | - | - | - |
31 December 2031 | - | - | - | - |
31 December 2032 | - | - | - | - |
(b) Credit risk
Credit risk is the risk that a counterparty fails to discharge an obligation to the Group. The Group's maximum exposure (£ 2.81 Mn (2021: £ 9.05 Mn)) to credit risk is limited to the carrying amount of financial assets recognised at the reporting date.
The Group determines credit risk by checking a company's creditworthiness and financial strength both before commencing trade and during the business relationship at initial recognition and subsequently. Customer credit risk is managed by the Company's established policy, procedures and control relating to customer credit risk management. Credit quality of a customer is assessed based on an extensive evaluation and individual credit limits are defined in accordance with this assessment.
The Group's policy is to deal only with creditworthy counterparties. The Group has no significant concentrations of credit risk.
The Group considers default to be when there is a breach of any of the terms of agreement.
The Group writes off a financial asset when there is no realistic prospect of recovery and all attempts to recover the balance have been exhausted. An indication that all credit control activities have been exhausted and where the asset due is greater than 365 days old or where there are insolvency issues relating to the trade and other receivables.
The Group does not concentrate any of its deposits in one bank. This is seen as being prudent and credit risk is managed by the management having conducted its own due diligence. The balances held with banks are on a short-term basis. Management reviews quarterly bank counter-party risk on an on-going basis.
(c) Liquidity risk
Liquidity risk is the risk that the Group might be unable to meet its financial obligations. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities.
The Indian subsidiary which is currently availing the term loan facility has again approached the current consortium of lenders for a re-phasement of current Term Loan, Funded Interest Term Loan (FITL) and Guaranteed Emergency Credit Line (GECL) for 14 years including 2 years moratorium on the consolidated term debt due to the cascading impact on the business of the Indian subsidiary due to the relapse of Covid 19 pandemic.
The Group is in an advanced stage of negotiation with the current consortium of lenders and is confident of obtaining a favourable response from the lenders shortly.
The Group's objective is to maintain cash and demand deposits to meet its liquidity requirements for 30-day periods at a minimum. This objective was met for the reporting periods. Funding for build out of the port facility is secured by sufficient equity, sanctioned credit facilities from lenders and the ability to raise additional funds due to headroom in the capital structure.
The Group manages its liquidity needs by monitoring scheduled contractual payments for build out of the port facility as well as forecast cash inflows and outflows due in day-to-day business. Liquidity needs are monitored and reviewed by the management on a regular basis. Net cash requirements are compared to available borrowing facilities in order to determine headroom or any shortfalls. This analysis shows that available borrowing facilities are expected to be sufficient over the lookout period.
Comparative working of the Group's non-derivative financial liabilities have contractual maturities (and interest payments) as summarized below:
As at 31st December 2022
Payment falling due | Principal payments | Interest payments | ||
INR in Crore | £000 | INR in Crore | £000 | |
Within 1 year | 23.01 | 2,307 | 43.27 | 4,339 |
1 to 5 years | 316.00 | 31,681 | 131.78 | 13,212 |
After 5 years | 74.65 | 7,484 | 1.82 | 182 |
Total | 413.65 | 41,472 | 176.87 | 17,733 |
The present composite rate of interest ranges from 7.95% to 10.55% and closing exchange rate has been considered for the above analysis.
In addition, the Group's liquidity management policy involves considering the level of liquid assets necessary to meet the funding requirement; monitoring SOFP liquidity ratio against internal requirements and maintaining debt financing plans. The current debt equity ratio with the lenders is 0.45 : 1.
As a part of monitoring SOFP liquidity ratio, management monitors the debt to equity ratio and has specified optimal level for debt to equity ratio of 1:1.
As at 31st December 2021
Payment falling due | Principal payments | Interest payments | ||
INR in Crore | £000 | INR in Crore | £000 | |
Within 1 year | 10.40 | 1,037 | 44.36 | 4,423 |
1 to 5 years | 202.04 | 20,144 | 145.95 | 14,551 |
After 5 years | 251.97 | 25,122 | 36.94 | 3,683 |
Total | 464.41 | 46,303 | 227.25 | 22,657 |
The present composite rate of interest ranges from 7.95% to 10.55% and closing exchange rate has been considered for the above analysis.
In addition, the Group's liquidity management policy involves considering the level of liquid assets necessary to meet the funding requirement; monitoring SOFP liquidity ratio against internal requirements and maintaining debt financing plans. The current debt equity ratio with the lenders is 0.45 : 1.
As a part of monitoring SOFP liquidity ratio, management monitors the debt to equity ratio and has specified optimal level for debt to equity ratio of 1:1.
Financial Instruments
Fair Values
Set out below is a comparison by category of carrying amounts and fair values of the entire Group's financial instruments that are carried in the financial statements.
(Carried at amortised cost) |
| |||
| Note | Year ended 31 Dec 22 | Year ended 31 Dec 21 | |
|
| £000 | £000 | |
Financial Assets |
2 | | | |
Cash and Cash Equivalents | 14 | 558 | 4,783 | |
Trade and other receivables | 13 | 2,252 | 4,263 | |
| | 2,810 | 9,046 | |
Financial Liability | | | | |
Borrowings | 18 | 41,472 | 40,969 | |
Trade and other payables | 20 | 8,388 | 10,171 | |
Employee benefit obligations | 17 | 582 | 492 | |
| | 50,442 | 51,632 | |
The fair value of the Group's financial assets and financial liabilities significantly approximate their carrying amount as at the reporting date.
The carrying amount of financial assets and financial liabilities are measured at amortised cost in the financial statements are a reasonable approximation of their fair values since the Group does not anticipate that the carrying amounts would be significantly different from the values that would eventually be received or settled.
16. EQUITY
16.1 Issued Capital
The share capital of MPL consists only of fully paid ordinary shares of no par value. The total number of issued and fully paid up shares of the Company as on each reporting date is summarised as follows:
Particulars | Year ended 31 December 22 | Year ended 31 December 21 | ||
No of shares | No of shares | No of shares | £000 | |
Shares issues and fully paid: | | | | |
Beginning of the year | 41,499,699 | 143,851 | 1,905,022,123 | 134,627 |
Addition in the year# | ---- | -- | 2,244,947,810 | 10,102 |
Share issue cost | -- | -- | -- | (878) |
Reduction of old shares due to consolidation of shares# | -- | -- | (4,149,969,933) | -- |
1 New shares issued for every 100 shares # | -- | -- | 41,499,699 | -- |
Closing number of shares | 41,499,699 | 143,851 | 41,499,699 | 143,851 |
The stated capital amounts to £143.85 million (2021: £143.85 million) after reduction of share issue costs. Holders of the ordinary shares are entitled to receive dividends and other distributions and to attend and vote at any general meeting. During the year the Company has allotted Nil (2021: 2,244.95 million) equity shares to various institutional and private investors, by way of a rights issue.
16.2 Other Components of Equity
Retained Earnings
| Year ended 31 Dec 22 £000 | Year ended 31 Dec 21 £000 |
Opening Balance | (16,402) | (10,394) |
Addition during the year | (9,621) | (6,016) |
Re-measurement of net defined benefit liability | 1 | 8 |
Closing balance | (26,022) | (16,402) |
Accumulated losses of £ 28.41 million (2021: £16.40 million) include all current year retained profits.
Translation Reserve
| Year ended 31 Dec 22 £000 | Year ended 31 Dec 21 £000 |
Opening Balance | (27,237) | (26,564) |
Addition during the year | 808 | (673) |
Closing balance | (26,429) | (27,237) |
The translation reserve of £ 26.43 million (2021: £27.24 million) is on account of exchange differences relating to the translation of the net assets of the Group's foreign operations which relate to subsidiaries, from their functional currency into the Group's presentational currency being Sterling.
17. EMPLOYEE BENEFIT OBLIGATIONS
| Year ended 31 Dec 22 | Year ended 31 Dec 21 |
| £000 | £000 |
Non- Current | | |
Pensions - defined benefit plans | 53 | 43 |
| 53 | 43 |
Current | | |
Wages, salaries | 523 | 446 |
Pensions - defined benefit plans | 6 | 3 |
| 529 | 449 |
18. BORROWINGS
Borrowings consist of the following:
| Year ended 31 Dec 22 | Year ended 31 Dec 21 |
| £000 | £000 |
Non-Current | | |
Bank loan (refer note 26) | 39,165 | 39,932 |
| 39,165 | 39,932 |
Current | | |
Bank loan (refer note 26) | 2,307 | 1,037 |
| 2,307 | 1,037 |
Borrowing
The Indian subsidiary which is currently availing the term loan facility has again approached the current consortium of lenders for a re-phasement of current term loan, Funded Interest Term Loan (FITL) and Guaranteed Emergency Credit Line (GECL) for additional seven years including two year moratorium on the consolidated term debt due to the cascading impact on the business of the Indian subsidiary due to the relapse of Covid 19 pandemic
The impact of favourable response from the lenders on the proposal for re-phasement, will enable the group to manage its cash flow and focus more on operational stability and growth.
19 (a). NON-CURRENT tax ASSETS
| Year ended 31 Dec 22 £000 | Year ended 31 Dec 21 £000 |
Income tax * | 2,108 | -- |
Non-current tax assets | 2,108 | -- |
* The income tax pertains to self -assessment tax as well as withholding taxes paid during various assessment years.
The major portion of the tax pertains to the amounts paid under protest for the Assessment Year (AY) 2011-2012 (£0.45 Mn) and AY 2012-13 (£1.47 Mn). These amounts were deposited as a precondition for filing appeals with the Income-tax authorities for these years. The Company is contesting the demands and the management believes that its position is likely to be upheld in the appellate process.
(Refer Note 25 for disclosure of Contingent liabilities in respect of these matters)
19 (b). current tax liabilities
Current tax liabilities consist of the following:
| Year ended 31 Dec 22 £000 | Year ended 31 Dec 21 £000 |
Duties & taxes | 17 | 59 |
Provision for Income Tax | -- | 356 |
Current tax liabilities | 17 | 415 |
The carrying amounts and the movements in the Provision for Income Tax account are as follows:
| Year ended 31 Dec 22 £000 | Year ended 31 Dec 21 £000 |
Carrying amount 1 January | 2,342 | 2,344 |
Interest provision on outstanding tax liability | -- | 14 |
Less: Reversal of tax liability and interest provision | (2,354) | -- |
Exchange difference | 12 | (16) |
Carrying amount 31 December | -- | 2,342 |
Income tax paid (net of provision) | -- | (1,986) |
| -- | 356 |
The Group recognises liabilities for anticipated tax issues based on estimates of whether additional taxes will be due. Where the outcome of assessment by the Income Tax department on these matters is different from the amounts that were initially recorded, such differences will impact the income tax provisions in the period in which such determination is made. The Group discharges the tax liability based on income tax assessment.
Based on the judgements passed by Income Tax Tribunal in favour of the Indian Subsidiary for the assessment years 2013-14 to 2015-16, the Commissioner of Income Tax - CIT-(A) has relied upon the ITAT judgement and issued order in favour of the Indian subsidiary for the assessment years 2011-12 and 2012-13 as well.
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: 67.46 crore (£6.76 million).
20. TRADE AND OTHER PAYABLES
Trade and other payables consist of the following:
| Year ended 31 Dec 22 | Year ended 31 Dec 21 |
| £000 | £000 |
Non-Current | | |
Lease liability (refer note 26) | 1,611 | 1,562 |
| | |
Current | | |
| | |
Lease Liability - (refer note 26) | 817 | 795 |
| | |
Sundry creditors | 8,400 | 10,174 |
Interest (prepaid) | (12) | (3) |
| 8,388 | 10,171 |
Future minimum lease payments at 31 December 2022 were as follows -
| Minimum lease payments due | ||||||
| Within 1 year | 1 - 2 Year | 2 - 3 Year | 3 - 4 Year | 4 - 5 Year | After 5 Year | Total |
Lease payments | 1,006 | 245 | 247 | 202 | 188 | 5,593 | 7,441 |
Finance charges | (189) | (183) | (175) | (171) | (167) | (4,127) | (5,013) |
Net present values | 817 | 62 | 72 | 31 | 20 | 1,426 | 2,428 |
Future minimum lease payments at 31 December 2021 were as follows -
| Minimum lease payments due | ||||||
| Within 1 year | 1 - 2 Year | 2 - 3 Year | 3 - 4 Year | 4 - 5 Year | After 5 Year | Total |
Lease payments | 980 | 219 | 210 | 211 | 170 | 5,578 | 7,368 |
Finance charges | (185) | (176) | (173) | (168) | (167) | (4,142) | (5,011) |
Net present values | 795 | 43 | 37 | 43 | 3 | 1,436 | 2,357 |
21. RELATED PARTY TRANSACTIONS
The consolidated financial statements include the financial statements of the Company and the subsidiaries listed in the following table:
Name | Country of Incorporation | Field Activity | Ownership Interest | Type of share Held | ||||
HELD BY The Company (MPL): Karanja Terminal & Logistics (Cyprus) Ltd Karanja Terminal & Logistics Private Ltd
| Cyprus India |
Holding Company Operating company -Terminal Project |
100% 7.08% |
Ordinary Ordinary |
| |||
HELD BY Karanja Terminal & Logistics (Cyprus) Ltd: | | | | |
| |||
Karanja Terminal & Logistics Private Ltd | India | Operating company -Terminal Project | 92.70% | Ordinary |
| |||
The Group has the following related parties with whom it has entered into transactions with during the year.
a) Shareholders having significant influence
The following shareholders of the Group have had a significant influence during the year under review:
• SKIL Global Ports & Logistics Limited, which is 100% owned by Mr. Nikhil Gandhi, holds 2.37% of issued share capital as at 31 December 2022 (as at 31 December 2021 - 2.37%) of Mercantile Ports & Logistics Limited.
• Lord Howard Flight holds 0.56% of issued share capital as on 31 December 2022 (as on 31 December 2021 - 0.56%) of Mercantile Ports & Logistics Limited at the year end.
• Jay Mehta holds 0.50% of issued share capital as on 31 December 2022 (as on 31 December 2021 - 0.50%) of Mercantile Ports & Logistics Limited at the year end.
• John Fitzgerald holds 0.14% of issued share capital as on 31 December 2022 (as on 31 December 2021 - 0.14%) of Mercantile Ports & Logistics Limited at the year end.
• Jeremy Warner Allen holds 1.19% of issued share capital as on 31 December 2022 (as on 31 December 2021 - 1.19 %) of Mercantile Ports & Logistics Limited at the year end.
• Karanpal Singh via Hunch Ventures and Investments Private Limited holds 28.48% of issued share capital as on 31 December 2022 (as on 31 December 2021 - 28.48%) of Mercantile Ports & Logistics Limited at the year end.
b) Key Managerial Personnel of the parent
Non-executive Directors
- Lord Howard Flight
- Mr. John Fitzgerald
- Jeremy Warner Allen
- Karanpal Singh
- Peter Mills - Resigned with effect from 31 January 2022
- Amit Dutta - With effect from 11 January 2022
- Dmitri Tsvetkov - With effect from 1 February 2022
- Nikhil Gandhi
Executive Directors
- Mr. Jay Mehta (Managing Director)
c) Key Managerial Personnel of the subsidiaries
Directors of KTLPL (India)
- Mr. Jay Mehta
- Mr. Rakesh Bajaj
Directors of Karanja Terminal & Logistics (Cyprus) Ltd - KTLCL (Cyprus)
- Ms. Andria Andreou
- Ms. Chrystalla Stavrou
d) Other related party disclosure
Entities that are controlled, jointly controlled or significantly influenced by, or for which significant voting power in such entity resides with, directly or indirectly, any individual or close family member of such individual referred above.
- SKIL Infrastructure Limited
- Grevek Investment & Finance Private Limited
- Athos Hq Group Bus. Ser. Cy Ltd
- John Fitzgerald Limited
- KJS Concrete Private Limited
- Himangini Singh
e) Transaction with related parties
The following transactions took place between the Group and related parties during the year ended 31 December 2022:
| Nature of transaction | Year ended 31 Dec 22 £000 | Year ended 31 Dec 21 £000 |
| | | |
Athos Hq Group Bus. Ser. Cy Ltd | Administrative fees | 13 | 14 |
| | 13 | 14 |
The following table provides the total amount outstanding with related parties as at year ended 31 December 2022:
Transactions with shareholder having significant influence
| Nature of transaction | Year ended 31 Dec 22 £000 | Year ended 31 Dec 21 £000 |
SKIL Global Ports & Logistics Limited | |||
Debtors | Advances | 107 | 107 |
Hunch Ventures and Investment Limited* | | | |
Advances recoverable in cash or in kind | Advances | 1,110 | 3,562 |
Jay Mehta
| | | |
Advances recoverable in cash or in kind | Share Subscription | -- | 50 |
| | 1,217 | 3,719 |
* At the time of the placing and subscription in August 2021, the Company intended for the proceeds of the fundraising to be held in the Company's bank account in Guernsey. The subscription monies from Hunch Ventures required Reserve Bank of India ("RBI") approval in order to be remitted to Guernsey. However, at the time of the Company's General Meeting on 9th September 2021, the Company confirmed that it had directed Hunch Ventures to transfer the subscription monies to one of the Company's Indian bank accounts and that was done.
Subsequently, the Board resolved that it did wish the funds to be transferred to Guernsey and, as a result, requested that Hunch Ventures pursue the "RBI approval" route once more. In pursuing this, Hunch Venture's bank required the subscription monies to be transferred to Hunch Venture's account so that application could be made for the funds to be moved to Guernsey.
The Company is able to rely on the support documentation to the RBI process, put in place at the time of Hunch Ventures' original investment in 2018. It should be noted that the Company continues to have access to the Subscription monies and, since the period end, has accessed these funds.
Given the time being taken to receive RBI approval, the Company and Hunch Ventures have received advice on an alternative structure to achieve the Company's desired treasury requirements, without the requirement to receive RBI approval.
Transactions with Key Managerial Personnel of the subsidiaries
See Key Managerial Personnel Compensation details as provided below
Advisory services fee
None
Compensation to Key Managerial Personnel of the parent
Fees paid to persons or entities considered Key Managerial Personnel of the Group include:
| Year ended 31 Dec 22 £000 | Year ended 31 Dec 21 £000 |
Non-Executive Directors fees | | |
- Jeremy Warner Allen | 40 | 40 |
- Lord Flight | 40 | 40 |
- John Fitzgerald | 45 | 45 |
- Peter Mills | 3 | 29 |
- Karanpal Singh -
| -- | -- |
- Amit Dutta
| 34 | -- |
- Dmitri Tsvetkov
| 42 | -- |
| 204 | 154 |
Executive Directors Fees |
| |
- Jay Mehta | 93 | 89 |
- Nikhil Gandhi | 188 | 180 |
| 281 | 269 |
Total compensation paid to Key Managerial Personnel | 485 | 423 |
Compensation to Key Managerial Personnel of the subsidiaries
| Year ended 31 Dec 22 £000 | Year ended 31 Dec 21 £000 |
Directors' fees | | |
KTLCL - Cyprus | 3 | 3 |
| 3 | 3 |
Sundry Creditors
As at 31 December 2022, the Group had £3.29 million (2021: £3.25 million) as sundry creditors with related parties.
| Year ended 31 Dec 22 £000 | Year ended 31 Dec 21 £000 |
Grevek Investment & Finance Private Ltd | 3,292 | 3,254 |
| 3,292 | 3,254 |
Ultimate controlling party
The Directors do not consider there to be an ultimate controlling party.
22. CASH FLOW ADJUSTMENTS AND CHANGES IN WORKING CAPITAL
The following non-cash flow adjustments and adjustments for changes in working capital have been made to profit before tax to arrive at operating cash flow:
| Year ended 31 Dec 22 | Year ended 31 Dec 21 |
| £000 | £000 |
Non-cash flow adjustments | | |
Depreciation | 6,231 | 3,132 |
Finance Income | (38) | (40) |
Finance cost | 5,543 | 4,459 |
Re-measurement of net defined benefit liability | (1) | (8) |
Advance written off* | -- | 3,000 |
Gain from extinguishment of debt (refer note 8(a)) | -- | (5,408) |
Provision for Gratuity | 13 | 14 |
| 11,748 | 5,149 |
Increase/(Decrease) in trade and other payables | 247 | (668) |
Decrease/(Increase) in trade and other receivables | 154 | (4,001) |
Increase in inventory | (96) | -- |
| 305 | (4,669) |
*Amount paid to contractor by way of shares, which was valued £3 million were written off due to non-acceptance/confirmation by contractor due to substantial fall in price of shares.
23. CAPITAL MANAGEMENT POLICIES AND PROCEDURE
The Group's capital management objectives are:
• To ensure the Group's ability to continue as a going concern
• To provide an adequate return to shareholders
Capital
The Company's capital includes share premium (reduced by share issue costs), retained earnings and translation reserve which are reflected on the face of the Statement of Financial Position and in Note 16.
24. EMPLOYEE BENEFIT OBLIGATIONS
a. Defined Contribution Plan:
The following amount recognized as an expense in statement of profit and loss on account of provident fund and other funds. There are no other obligations other than the contribution payable to the respective authorities.
| Year ended 31 Dec 22 £000 | Year ended 31 Dec 21 £000 |
Contribution to Provident Fund | 12 | 8 |
Contribution to ESIC | 2 | 1 |
| 14 | 9 |
b. Defined Benefit Plan:
The Company has an unfunded defined benefit gratuity plan. The gratuity plan is governed by the Payment of Gratuity Act, 1972. Under the Act, employee who has completed five years of service is entitled to specific benefit. The level of benefits provided depends on the member's tenure of service and salary at retirement age. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days' salary (last drawn salary) for each completed year of service as per the provision of the Payment of Gratuity Act, 1972 with total ceiling on gratuity of INR 2 Mn. With effect from 20 Feb 2020 (2021: INR 2 Mn.).
The following tables summaries the components of net benefit expense recognised in the Consolidated Statement of Comprehensive Income and the funded status and amounts recognised in the Consolidated Statement of Financial Position for the gratuity plan:
Particulars | As at | As at |
Statement of Comprehensive Income |
|
|
Net employee benefit expense recognised in the employee cost | |
|
Current service cost | 11 | 12 |
Interest cost on defined benefit obligation | 3 | 2 |
Total expense charged to loss for the period | 14 | 14 |
Amount recorded in Other Comprehensive Income (OCI) | | |
Opening amount recognised in OCI | | |
Re-measurement during the period due to : | | |
Actuarial (gain) arising from change in financial assumptions | (4) | (3) |
Actuarial (gain) / loss arising on account of experience changes | 3 | (5) |
Amount recognised in OCI | (1) | (8) |
| | |
Closing amount recognised in OCI | (1) | (8) |
| | |
Reconciliation of net liability / asset | | |
Opening defined benefit liability | 46 | 40 |
Expense charged to profit or loss account | 14 | 14 |
Amount recognised in Other Comprehensive (Income) | (1) | (8) |
Closing net defined benefit liability | 59 | 46 |
Movement in benefit obligation and Consolidated Statement of Financial Position
A reconciliation of the benefit obligation during the inter-valuation period:
Particulars | As at | As at |
Opening defined benefit obligation | 46 | 40 |
Current service cost | 11 | 11 |
Interest on defined benefit obligation | 3 | 3 |
| | |
Re-measurement during the period due to : | | |
Actuarial (gain) arising on account of experience changes | (4) | (5) |
Actuarial loss / (gain) arising from change in financial assumptions | 3 | (3) |
Closing defined benefit obligation liability recognised in Consolidated Statement of Financial Position | 59 | 46 |
Particulars | As at | As at |
Net liability is bifurcated as follows : | | |
Current | 6 | 3 |
Non-current | 53 | 43 |
Net liability | 59 | 46 |
25. CONTINGENT LIABILITIES AND COMMITMENTS
Particulars | As at | As at |
Bank guarantee issued to Maharashtra Pollution Control Board towards issuing the consent to operate the Port | 30 | 30 |
The Commissioner Of Customs - Jawaharlal Nehru Custom House towards the collateral for acting as a custodian of the Cargo handled at the Port | 100 | 100 |
There is an ongoing arbitration proceeding initiated by the Indian subsidiary with the dredging sub-contractor for claiming damages for non-performance under dredging contract to the tune of ₹214 crores (£21.5 Mn) and a counter claim made by the sub-contractor for ₹76.75 crores (£7.69 Mn).
The matter is under arbitration act in the jurisdiction of Mumbai. Based on the legal opinion obtained, management is confident that the outcome will be in favour of the Company.
The counter claim made by the sub-contractor on the Company is considered as a contingent liability. | 7,695 | -- |
The Income tax liability to the tune of ₹44.29 crores (£4.44 Mn) (exclusive of any interest or penalties) for the Assessment years 2013-14, 2014-15 and 2015-16 has been reversed in 2019 based on the Income Tax Appellate Tribunal (ITAT) judgement.
For the Assessment years 2011-12 and 2012-13, based on the decision awarded in favour of the Indian subsidiary issued by the Principal Commissioner of Income Tax (Appeals) vide the order dated 20th March, 2023, the provisions for these years has been reversed.
Cash outflows, if any, is determinable on receipt of judgments pending at respective authorities. | 6,822 | 4,416 |
Estimated value of contracts in capital account in relation to property, plant and equipment remaining to be executed and not provided for (net of advances) | 4,815 | 126 |
26. RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES
The changes in the Group's liabilities arising from financing activities can be classified as follows:
Particulars | Long-term borrowing £000 | Current maturity of long term borrowing £000 | Interest on long term borrowing £000 | Leased liabilities £000 | Total
£000 |
1 January 2022 | 39,932 | 1,037 | (3) | 2,357 | 43,323 |
| | | | | |
Cash-flows: | | | | | |
- Repayment | -- | (881) | -- | (138) | (1,019) |
- Accrued during period | -- | -- | 5,372 | 171 | 5,543 |
- Paid during the year | -- | -- | (4,217) | -- | (4,217) |
Non-cash: | | | | | |
- Exchange difference | 239 | -- | (19) | 38 | 258 |
- Interest on term loan converted to FITL - Interest on term loan EIR adjustment | 517
628 | --
-- | (517)
(628) | --
-- | --
-- |
- Reclassification* | (2,151) | 2,151 | -- | -- | -- |
31 December 2022 | 39,165 | 2,307 | (12) | 2,428 | 43,888 |
*refer note 18 (borrowings)
Particulars | Long-term borrowing £000 | Current maturity of long term borrowing £000 | Interest on long term borrowing £000 | Leased liabilities £000 | Total
£000 |
1 January 2021 | 34,729 | 4,074 | 3,201 | 2,410 | 44,414 |
| | | | | |
Cash-flows: | | | | | |
- Repayment | (641) | -- | (810) | (203) | (1,654) |
- Proceeds | 984 | -- | -- | -- | 984 |
- Accrued during period | -- | -- | 4,980 | 168 | 5,148 |
Non-cash: | | | | | |
- Exchange difference | (226) | -- | (51) | (18) | (295) |
- Interest on term loan converted in to term loan | 4,441 | -- | (4,441) | -- | -- |
- Interest on term loan converted to FITL | 2,882 | -- | (2,882) | -- | -- |
- Gain on debt modification# | (5,408) | -- | -- | -- | (5,408) |
- Interest on term loan EIR adjustment# | 134 | -- | -- | -- | 134 |
- Reclassification* | 3,037 | (3,037) | - | -- | -- |
31 December 2021 | 39,932 | 1,037 | (3) | 2,357 | 43,323 |
27. EVENTS OCCURRING AFTER REPORTING PERIOD
The Covid-19 pandemic coupled with the Russia-Ukraine war spiked inflationary pressure, forcing the central banks across the world to hike their key lending rates. In FY23, the Reserve Bank of India has hiked the repo rate several times. It has increased by 2.5 per cent between May 2022 and February 2023.
The interest rate hikes in India were more of a response to the rate hike by U.S. Fed increasing the Fed fund rate from 0.25% to expected 5.25% by June of 2023. This coupled with the collapse of Silicon Valley Bank in the U.S. heightened the fragile recovery in the investor sentiment globally.
The Indian subsidiary has signed a contract with Customers for handling container business.
The Group has also successfully closed the fund raise of £ 8.2 Mn. (net of costs), comprising of 101,949,999 - placement shares, 195,000,000 - subscription shares and 4,529,661 retail shares resulting in a total of 301,479,660 new ordinary shares.
28. AUTHORISATION OF FINANCIAL STATEMENTS
The consolidated financial statements for the year ended 31 December 2022 were approved and authorised for issue by the Board of Directors on 29 June 2023.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.