OPG Power Ventures Plc
Annual Report 2010

Plain-text annual report

COVER:Layout 1 7/9/10 12:00 Page 1 COVER:Layout 1 7/9/10 12:00 Page 2 1619_TEXT:Layout 1 7/9/10 10:25 Page 1 Chairman’s Statement I have pleasure in presenting the results for the financial year ended 31st March 2010 which is the second set of full year results since the listing of the Company on AIM in May 2008. Financial Results Group revenue of GBP 12.87 Million (2009: GBP 7.31 Million) includes a full year contribution from the 10 MW waste heat plant commissioned in September 2008. The revenue for the year includes sale of power in the short term market at attractive prices. Income from continuing operations before tax, period expenses relating to projects under construction and non-recurring items was GBP 6.62 Million (2009: GBP 5.75 Million). Progress The principal milestone attained by your Company since the previous year’s report has been the commissioning, in April 2010, of the 77 MW coal fired power plant near Chennai. The Company has thus delivered the first of the two major projects for which resources were raised in the AIM listing. Following this development, the operating capacity of your Company’s plants now stands at 107 MW, an increase of over 250 % from the previous level of about 30 MW. The commissioning of the 77 MW plant represents the first step in the transformation of your company to a power producer, whose stated aim is to achieve a critical mass of 400 MW and beyond over the next few years. The Environmental Clearance for the Gujarat project has now been obtained and construction on site will commence shortly. The Indian Economy & the Power Sector In my previous report to shareholders, I referred to a growth rate of 6.7 % attained by the Indian Economy in 2008 – 09, a significant result given the overall global economic conditions prevailing during that period. Early indications are that the growth rate is likely to be 7.5 % if not higher for the year 2009 - 10, a significant level of performance in the context of the slow growth in major world economies and second only to that of China among the BRIC countries. The growth rate announced for the most recent quarter (January – March 2010) is still higher at 8.6 % and, within this overall growth rate, growth in the manufacturing sector has been higher at 10.3 %, indicating strong consumer spending on cars and other manufactured goods. The corollary to this rate of industrial growth is, of course, increased demand for power with a multiplier effect, usually thought to be about 1.2 times the growth in other sectors. 1 1619_TEXT:Layout 1 7/9/10 10:25 Page 2 Per capita electricity consumption has risen from 566 Kwh in 2003 to 704 Kwh in 2008. However, the creation of new generating capacity of some 27 GW (2007 – 10) suggests the 5 year target of 78 GW (2007 -12) will not be met. This is underscored by an all-India peak power deficit of 13.3 % as at March 2010 (2009: 11.1 %). As a result, investment in power generation continues to be a highly promising proposition. The Current Year With the increased throughput of power available from the 77 MW facility and, given buoyant conditions in the power market, the current year promises increased growth and scale of operations for the Group. OPG looks to the year ahead with confidence and enthusiasm. M. C. Gupta Chairman 4th July 2010 2 1619_TEXT:Layout 1 7/9/10 10:25 Page 3 Chief Executive’s Review of Operations The commissioning of the 77 MW power plant in April 2010, immediately following the financial year end, rounded off another year of progress for your Company. With an operating capacity today of 107 MW, we look ahead to the completion of the 2 x 150 MW development under way in Kutch, Gujarat. Significant Developments during the Period The newly commissioned 77 MW facility is undergoing a period of stabilization. We expect to stabilize the output at high levels. As previously announced, the Environmental clearance in respect of the 2 x 150 Mw Kutch project has now been received. Site work will commence in August 2010. Tata Power Ltd are taking steps to expedite the implementation of the project. An assured supply of coal from the public sector coal mines for the life of the plant has been obtained from the Government of India for 70 % of the fuel requirements of the Kutch plant. This linkage spells enhanced fuel security and diversity for this unit when it goes on stream. Following the Carbon Credit registration in respect of the 19.4 MW gas fired plant at Mayavaram received last year, a process of validation and verification is expected to be completed in about three months. Certified Emission Reductions will become available for trading thereafter. For the 10 MW waste heat fired facility near Chennai, a similar process of validation of the emission levels is also under way on completion of which, Verified Emission Reductions will become available. Financial Review The Group’s revenue during the year ended March 31, 2010 was GBP 12.87 Million (2009: GBP 7.3 Million). Profit from Continuing Operations before Tax, period expenses relating to projects under construction and extraordinary items at GBP 6.62 Million (2009: GBP 5.75 Million) was after provision of GBP 1.20 Million towards amortization for the period of fair value cost of stock options awarded, a non cash item (2009: Nil). The Net Income after Taxes amounted to GBP 4.02 Million (2009: GBP 5.33 Million inclusive of a one time release of negative goodwill of GBP 1.49 Million) with EBITDA for the period (prior to deduction of pre-operative expenses on new projects in the course of construction) being GBP 5.43 Million. Cash as at 31 March 2010 was GBP 14.17 Million. Operational Review The 19.4 MW gas-cum-waste heat fired plant at Mayavaram operated satisfactorily for the seventh year running. On account of a reduction in gas flow from the on shore fields, the plant output levels for the 3 1619_TEXT:Layout 1 7/9/10 10:25 Page 4 year were 71 % as against 83 % in the previous year. During the year ahead the gas flow position has improved and a higher output level for the plant is forecast. The 10 MW waste heat fired facility operated satisfactorily during its second year of continuous operation. Output levels averaged a stable 78 % of capacity. A sizeable proportion of the total generation from these two plants was sold on the short term markets at higher realizations. The average price earned during the year was Rs. 5.54 per Kwh (2009: Rs 4.11). Projects in the Pipeline We reported last year that further expansion of the facilities at the Chennai 77 MW plant and at the Kutch 2 x 150 MW development was under active consideration. In Chennai, it will be possible to add three further units of 77 / 80 MW at the existing site. Aside from the availability of land, we hold final Environmental clearance in respect of an additional unit. Firm offers of debt have been obtained in respect of all three additional units as well as coal linkages from the Government of India. Outlook With the enhanced generation capacity and the buoyant power markets, we anticipate an increase in operating and financial performance in 2010 – 11. The key next step for us is to commence ground works on our site at Kutch in August. Our focus will continue to remain the development and operation of power generation assets and the achievement of higher sale realizations. Arvind Gupta Chief Executive 4th July 2010 4 1619_TEXT:Layout 1 7/9/10 10:25 Page 5 Directors’ Report The Directors are pleased to submit their report and audited consolidated financial statements for the year ended 31 March 2010. Principal activities and review of business The principal activities of the Group are developing, owning and operating power stations in India. The electricity generated from its plants is sold principally to captive consumers or in the short term market in India. Results and Dividends The Group’s Net Income after tax for the reporting period amounted to GBP 4.02 Million. The Group is conscious of the need to retain capital to expand the business while bearing in mind the shareholders focus on cash flow returns. For the year ended 31 March 2010 the Directors do not recommend a dividend considering the need to conserve cash flows for the continuing expansion of the business. Directors The Directors during the year were as follows Mr M.C.Gupta Mr Martin Gatto Mr Mike Grasby Mr Ravi Gupta Mr Arvind Gupta Mr V.Narayan Swami Non Executive Chairman Non Executive Non Executive Non Executive Managing Director & CEO Finance Director Directors’ Biographical Information Mr M.C.Gupta (age 71) is a retired civil servant belonging to the Indian Administrative Service, the premier civil service of India. During his service, Mr Gupta held a number of senior appointments, notably those of Secretary, Ministry of Industry, Government of India and Chief Secretary to the State Government of Haryana. As Secretary to the Ministry of Industry, he was one of the functionaries responsible for initiating and implementing the process of economic reforms which commenced in the 1990’s. He also served as Secretary Power, in the State of Haryana. He is also a Director of a number of leading companies in India. Mr M.C. Gupta is not related to Mr Arvind Gupta and Mr Ravi Gupta. 5 1619_TEXT:Layout 1 7/9/10 10:25 Page 6 Mr Martin Gatto (age 60) is a senior finance professional who has held the position of Chief Financial Officer with a number of leading UK companies such as Somerfield Plc, Hilton International, Midlands Electricity Plc and British Energy Plc. He was until recently Chairman of Neutrahealth Plc, an AIM listed company. Mr. Gatto is the Senior Independent Director. Mr Patrick Michael Grasby (age 66) has been associated with the UK and international power industry for a number of years. In the course of his career he has held a number of senior positions both in the UK and internationally. He was Manager of the Drax power station, a 4000 MW thermal power plant, between 1991 and 1995 and afterward Senior Vice President for global operations at International Power. His international experience includes service in Portugal, Pakistan and Turkey. He is currently a Non- Executive Director of Drax Power PIc. He is a Member of the Remuneration and Nomination Committees and chairs the Company’s Health and Safety Committee. Mr Ravi Gupta (age 53) is one of the founders and the Chairman of Kanishk Steel (listed on the Bombay Stock Exchange since 1991). Mr Gupta has been associated with the Family flour milling industry for many years. In 1988 he set up a new flour mill, Salem Food Products Limited, which he continues to manage. Ravi Gupta is the brother of Arvind Gupta. Mr Arvind Gupta (age 49) has a degree in Commerce from the University of Madras and has been associated with the OPG family businesses since 1979. He gained experience in various divisions of the business including flour milling, steel production and logistics, becoming President of Kanishk Steel. Mr Gupta managed OPG Enterprise’s real estate division, completing residential, commercial and logistics projects. Having identified the opportunities in power generation, Mr Gupta took responsibility for developing this division of Kanishk Steel with initial projects in wind power generation in 1994. He was a pioneer in the development of the Group Captive Power Producer concept in Tamil Nadu and oversaw the development of the 18MW gas fired Plant of OPG Energy, a Group entity. He has been responsible for the construction and development of the power plants of the Group. Mr V.Narayan Swami (age 59) has over 30 year’s experience in a variety of finance and management positions. He has worked alternate in banking and in industry over the years including positions with Ashok Leyland Ltd, Standard Chartered Bank and then in investment banking in the Middle East. Mr Swami later worked as CFO of Essar Telecom Group. He last spent a year as group CFO of Bombay listed Best & Crompton Engineering before joining the Group in 2007. Significant Shareholdings in the Company The share register shows that the following shareholders held 3 % or more of the issued capital as at the 31st of March, 2010. Gita Investments Limited Gita Power Inc Audley Capital Advisors LLP Artemis Investment Management Ltd M & G Investment Management Ltd 53.33 % 5.93 % 6.48 % 3.58 % 3.17 % 6 1619_TEXT:Layout 1 7/9/10 10:25 Page 7 Directors’ Interests in the Shares of the Company As at the date of this report the Directors had the following beneficial interests in the shares of the Company. Name of the Shareholder Gita Investments Limited * Gita Power lnc Sri Hari Vallabha Enterprises & Investments Private Limited * Dhanvarsha Enterprises & Investments Private Limited * Goodfaith Vinimay Private Limited * Mr. Patrick Michael Grasby Mr.Martin Gatto Total Directors' Interest No of Shares % 153,061,225 17,006,802 3,401,361 2,551,020 2,551,020 5,000 50,000 178,626,428 53.33 5.93 1.19 0.89 0.89 0.001 0.02 62.25 * Beneficial Interest in these holdings vest with Mr.Arvind Gupta, Director. As at the date of this report the following Share Option have been granted: Name Number of Share Options Granted Exercise Price Gita Investments Limited Mr Martin Gatto 21524234 1000000 0.60p 0.60p The above awards were made under a stock option scheme which was approved by the directors at the meeting held on the 16th July 2009. It is the intent of the company to make further award under this scheme to other directors and senior employees. Principal risks and uncertainties The management of the business and the implementation of the Group’s plans are potentially exposed to a variety of risks. A fuller listing of the risks factors that could potentially affect the Group is laid out in the Group’s AIM Admission Document. The principal risks affecting the Group are discussed below. Financial risk The Group deals with a variety of financial instruments and bank loans as well as trade debtors and trade creditors resulting from its operations. These financial instruments are used in the normal course of business to support and conduct the Group’s ongoing operations and business plans. The principal risks associated with such financial instruments are interest rate and credit risk as the Group conducts its business operations exclusively within the Indian domain. The Directors review these risks on an ongoing basis. 7 1619_TEXT:Layout 1 7/9/10 10:25 Page 8 The Regulatory Environment The power industry in India is subject to regulation. Both pricing and access are, in general, regulated by government agencies. Although the power sector in the country is increasingly being liberalized, specific policies and regulatory pronouncements could result in potential changes likely to affect the Group’s business operations. Whilst the Group operates in segments of the industry, namely the Group Captive producer and short term market, which are relatively less regulated, the regulatory environment and changes thereto are closely monitored so as to manage the Group’s operations in a pro-active and efficient manner. Fuel security Fuel sourcing which is the basis of all power generation initiatives has a number of risks associated with it such as sourcing, quality, freight and pricing risks. The Group seeks to counteract the effects of these risks by spreading its sourcing among different suppliers to supply feedstock and to reduce third country dependence by obtaining firm commitments for coal under the Government of India’s policy from the public sector mines. Other risk mitigation measures such as flexibly designing the plant and equipment to accept a wide range of coal, location of the plants near major ports or gas fields and so on are also resorted to. Completion Risk The Group has one project under development and intends to build additional power generation assets in the future. Any delays in construction could result in an adverse impact on the Group’s financial results. The Group regularly reviews its pipeline and Projects under construction to mitigate any such risks. Competition The Group faces competition from both state utilities as well as from other private producers of power. Existing and potential competitors may have access to greater resources than the Group. This could potentially give such players a competitive edge as compared to the Group’s market position and capabilities. The Group regularly reviews the business environment to develop appropriate strategic responses to present and emerging competition and to consolidate and position itself as a power producer with sufficient capacity and critical mass. Auditors At the annual general meeting held on the 16th July, 2009, Deloitte & Touche, Douglas, Isle of Man were appointed as auditors to the Company. Upon their resignation the Board appointed Deloitte, Haskins & Sells, Chennai, another constituent member of the Deloitte partnership worldwide, as auditor to the Company. A resolution to ratify the appointment of Deloitte Haskins & Sells as auditors, in place of Deloitte & Touche, and to ratify the auditor’s remuneration agreed by the Board will be placed before the shareholders at the forthcoming Annual General Meeting of the Company. By Order of the Board Philip Scales Company Secretary July 5, 2010 8 1619_TEXT:Layout 1 7/9/10 10:25 Page 9 Report on Corporate Governance Policy Statement In accordance with the statements made in the Admission Document at the time of the IPO in May 2008 the Board is creating a Corporate Governance framework commensurate with the emerging scale of the Group. While full compliance with the Combined Code is not a formal obligation, the Board has taken and will take steps to implement a growing framework that takes account of the Scale of operations. Board and Committees The Board The Board comprises two Executive Directors and four Non-executive Directors. The roles of the Chairman and Chief Executive are separated. Of the four Non-executive Directors three are independent. They are the Chairman who is based in Delhi and there are two UK based Non-executive Directors. The Board meets at least four times a year, The Board papers include matters relating to strategy, investments including both new and expansionary capital items, operating budgets and monthly management accounts (including cash flows). Non-executive Directors have access to all information and, if required, external advice at the expense of the Company. Remuneration Committee The Remuneration Committee comprises Mr M.C. Gupta, Mr Ravi Gupta, Mr Mike Grasby and Mr Martin Gatto. Mr Ravi Gupta has not been present when any remuneration matter relating to the Chief Executive has been discussed as he is related to Mr Arvind Gupta. The Committee operates under Terms of Reference approved by the Board. The principal matters discussed in the period have been the creation of the Share Option Scheme Rules and a recommendation on the issue of share options which subsequently were approved by the Board. Nominations Committee A Nominations Committee has not been needed in the period. Audit Committee The Audit Committee comprises Mr MC Gupta, Mr Ravi Gupta, Mr Mike Grasby and Mr Martin Gatto. The Chief Executive and Finance Director attend by invitation. The Committee operates under Terms of Reference approved by the Board and there is provision for the Committee to meet with the Auditors without management being present. The half-year and full-year financial announcements were scrutinised by the Committee prior to their approval by the Board. 9 1619_TEXT:Layout 1 7/9/10 10:25 Page 10 Internal control and risk management The Board is responsible for maintaining an appropriate system of internal control to provide reasonable (but not absolute) assurance of the quality and reliability of financial and operating information used to assess the business, safeguard assets and recognize liabilities in accordance with the relevant company law and International Financial Reporting Standards (IFRS). The Group faces financial risks such as currency risk, interest rate risk, credit risk, and liquidity risk. The Group’s risk management programme aims to minimize potential adverse performance on the Group’s financial performance. The Finance Director and Managing Director monitor and manage financial risks. The Group does not enter into or trade in financial instruments or derivatives for speculative purposes. The Group is evaluating the new operating risks associated with the coal based power plants that has been commissioned in order to develop of frame work for managing operating risks. Going concern The Directors have reviewed the financial position of the Group having regard to its cash needs in completing the major projects which are in progress. Each project and operation is incorporated within its specific special purpose vehicle, (SPV), and borrowings are specific to each SPV without cross guarantees. The loan funds needed to complete projects in progress are committed and being drawn under binding contracts. The IPO raised the equity portions needed for the various committed projects. The Directors are satisfied that, having taken all these factors into account and given that trading subsidiaries are cash generative, it is appropriate to prepare accounts on a going concern basis. Investor relations Management endeavours to maintain regular dialogue with institutions and the financial community, particularly in relation to the half-year and full-year results. In the period, meetings with investors were offered on at least three occasions and the UK based directors took an active part in those meetings. The Group website has an investor section and all regulatory announcements, including these Accounts, are posted therein, www.opgpower.com. An electronic version of these Accounts is available from the Company Secretary on request. 10 1619_TEXT:Layout 1 7/9/10 10:25 Page 11 Report on Directors’ Remuneration Introduction As an AIM listed company the preparation of a Report on Directors’ Remuneration is not a requirement. However, the Company provides below information appropriate to its size and organisation. Remuneration policy A Remuneration Committee has been established to make recommendations to the Board on Executive and senior management remuneration including where appropriate the grant of Share Options. Matters considered by the Committee include: (cid:79) (cid:79) (cid:43)(cid:49)(cid:60)(cid:49)(cid:66)(cid:73) (cid:60)(cid:53)(cid:70)(cid:53)(cid:60)(cid:67) (cid:49)(cid:62)(cid:52) (cid:57)(cid:62)(cid:51)(cid:66)(cid:53)(cid:61)(cid:53)(cid:62)(cid:68)(cid:67) (cid:50)(cid:53)(cid:57)(cid:62)(cid:55) (cid:57)(cid:62) (cid:60)(cid:57)(cid:62)(cid:53) (cid:71)(cid:57)(cid:68)(cid:56) (cid:60)(cid:63)(cid:51)(cid:49)(cid:60) (cid:61)(cid:49)(cid:66)(cid:59)(cid:53)(cid:68) (cid:64)(cid:66)(cid:49)(cid:51)(cid:68)(cid:57)(cid:51)(cid:53)(cid:12) (cid:44)(cid:56)(cid:53) (cid:51)(cid:63)(cid:62)(cid:67)(cid:57)(cid:52)(cid:53)(cid:66)(cid:49)(cid:68)(cid:57)(cid:63)(cid:62) (cid:63)(cid:54) (cid:49)(cid:62) (cid:45)(cid:62)(cid:49)(cid:64)(cid:64)(cid:66)(cid:63)(cid:70)(cid:53)(cid:52) (cid:43)(cid:56)(cid:49)(cid:66)(cid:53) (cid:40)(cid:64)(cid:68)(cid:57)(cid:63)(cid:62) (cid:43)(cid:51)(cid:56)(cid:53)(cid:61)(cid:53)(cid:10) (cid:77)(cid:68)(cid:56)(cid:53) (cid:43)(cid:51)(cid:56)(cid:53)(cid:61)(cid:53)(cid:78)(cid:10) (cid:68)(cid:56)(cid:53) (cid:42)(cid:69)(cid:60)(cid:53)(cid:67) (cid:63)(cid:54) which have been approved by the Board Executive Directors’ remuneration comprises the following elements: (cid:79) (cid:26)(cid:62)(cid:62)(cid:69)(cid:49)(cid:60) (cid:67)(cid:49)(cid:60)(cid:49)(cid:66)(cid:73) (cid:64)(cid:49)(cid:73)(cid:49)(cid:50)(cid:60)(cid:53) (cid:57)(cid:62) (cid:68)(cid:56)(cid:53) (cid:51)(cid:63)(cid:69)(cid:62)(cid:68)(cid:66)(cid:73) (cid:63)(cid:54) (cid:53)(cid:61)(cid:64)(cid:60)(cid:63)(cid:73)(cid:61)(cid:53)(cid:62)(cid:68) (cid:57)(cid:62) (cid:34)(cid:62)(cid:52)(cid:57)(cid:49)(cid:62) (cid:42)(cid:69)(cid:64)(cid:53)(cid:53)(cid:67) (cid:49)(cid:62)(cid:52) (cid:67)(cid:69)(cid:50)(cid:58)(cid:53)(cid:51)(cid:68) (cid:68)(cid:63) (cid:49)(cid:62)(cid:73) local taxes (cid:79) (cid:26)(cid:62)(cid:62)(cid:69)(cid:49)(cid:60) (cid:50)(cid:63)(cid:62)(cid:69)(cid:67)(cid:12) (cid:39)(cid:63) (cid:50)(cid:63)(cid:62)(cid:69)(cid:67)(cid:53)(cid:67) (cid:71)(cid:53)(cid:66)(cid:53) (cid:52)(cid:53)(cid:51)(cid:60)(cid:49)(cid:66)(cid:53)(cid:52) (cid:54)(cid:63)(cid:66) (cid:68)(cid:56)(cid:53) (cid:64)(cid:53)(cid:66)(cid:57)(cid:63)(cid:52)(cid:12) (cid:79) (cid:27)(cid:53)(cid:62)(cid:53)(cid:54)(cid:57)(cid:68)(cid:67) (cid:57)(cid:62) (cid:59)(cid:57)(cid:62)(cid:52)(cid:12) (cid:30)(cid:72)(cid:53)(cid:51)(cid:69)(cid:68)(cid:57)(cid:70)(cid:53) (cid:29)(cid:57)(cid:66)(cid:53)(cid:51)(cid:68)(cid:63)(cid:66)(cid:67) (cid:49)(cid:66)(cid:53) (cid:64)(cid:66)(cid:63)(cid:70)(cid:57)(cid:52)(cid:53)(cid:52) (cid:71)(cid:57)(cid:68)(cid:56) (cid:51)(cid:69)(cid:67)(cid:68)(cid:63)(cid:61)(cid:49)(cid:66)(cid:73) (cid:50)(cid:53)(cid:62)(cid:53)(cid:54)(cid:57)(cid:68)(cid:67)(cid:12) Non-executive Directors’ remuneration is determined by the Board and was set at the time of the IPO to independent directors with relevant experience. Their Remuneration has not been amended since the IPO. Aggregate Directors’ Remuneration Details of Directors’ remuneration for the period ended 31 March 2010 are as follows: Name Remuneration Paid For the year ended 31 March 2010 For the period ended 31 March 2009 Mr.Arvind Gupta Mr.V Narayan Swami Mr. M C Gupta Mr. R Gupta Mr.M Grasby Mr. Martin Gatto Total 155,136 46,353 22,517 22,517 20,833 45,833 313,189 157,484 47,245 25,000 25,000 25,000 25,000 304,729 11 1619_TEXT:Layout 1 7/9/10 10:25 Page 12 Mr Gatto received a one-off payment of £25,000, in the prior year ended 31 March 2009, for extra work required during the IPO. Stock Options Issued On 16th July 2009, the Board granted share options. Once granted, the options must be exercised within ten years of the date of grant otherwise they lapse. Name Number of Share Options Granted Exercise Price Gita Investments Limited (a Company in which Mr Arvind Gupta has Beneficial interest) Mr Martin Gatto 21524234 1000000 0.60p 0.60p The Vesting of these options is based on following conditions: 1) The power plant at Kutch (2x150MW) in the State of Gujarat must have been in commercial operation for three months. 2) The closing share price being at least £1.00 for 3 consecutive business days. These awards were made under a Stock Option Scheme approved by the Board at its meeting held on the 16th July, 2009. The total of such options to be granted under the scheme is limited to 10% of the Company’s Share Capital (28,698,979) and it remains the intent of the Board to make awards of options to other Directors and senior employees in due course. This report was approved by the Board of Directors on 1 July 2010 and signed on its behalf by: Mr M C Gupta Remuneration Committee Chairman 4th July, 2010 12 1619_TEXT:Layout 1 7/9/10 10:25 Page 13 13 1619_TEXT:Layout 1 7/9/10 10:25 Page 14 14 1619_TEXT:Layout 1 7/9/10 10:25 Page 15 STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 March 2010 Notes Year ended 31 March 2010 Period ended 31 March 2009 (As restated*) Group £ Company £ Group £ Company £ REVENUES Operating Revenue Cost of power generation Gross Profit EXPENSES Other gains and losses Employee costs Distribution Cost Other expenses Depreciation Financial income Financial Expenses Release of negative goodwill Pre Operative Expenses (Relating to proj- ects under construction) 3.2 3.3 3.20 3.8 3.5 3.6 3.4 12,872,597 (5,358,089) 7,514,508 - - - 7,310,559 (2,534,696) 4,775,863 1,028,559 (102,531) 1,298,249 (1,373,055) (1,329,683) (113,792) (172,582) - - - - 694,240 (86,701) - (501,021) (495,104) (195,461) 1,297,504 (654,461) - (1,171,626) (259,443) (496,602) (326,127) - 145,399 (1,230) - - (54,951) 2,718,568 (2,206,738) 1,493,760 (911,559) - 989,110 - - - Pre-tax Income / (Loss) 5,449,843 (1,547,488) 6,330,216 1,270,522 Income Tax Expense 3.7 (1,432,338) - Net Income / (Loss) after taxes 4,017,505 (1,547,488) (997,407) 5,332,809 - 1,270,522 Other Comprehensive Income Exchange differences on translating foreign operations Net value gain on available for sale finan- cial assets, net of taxes Other comprehensive income / (loss) for the year / period, net of tax Total comprehensive income / (loss) for the year / period Profit / (loss) attributable to Equity holders of parent Non controlling interest Total comprehensive income / (loss) at- tributable to Equity holders of parent Non controlling interest 6,497,808 (2,594,435) 3,010,783 (3,192,552) 56,041 - (231,685) - 6,553,849 (2,594,435) 2,779,098 (3,192,552) 10,571,354 (4,141,923) 8,111,907 (1,922,030) 926,473 (1,54,7488) 3,091,032 - 4,017,505 (1,547,488) 6,750,867 (4,141,923) 3,820,487 - 10,571,354 (4,141,923) 3,309,434 2,023,375 5,332,809 5,825,573 2,286,334 8,111,907 1,270,522 - 1,270,522 (1,922,030) - (1,922,030) Basic and diluted earnings per share for profit attributable to the equity holders of the company during the year (expressed as Pence per share) Basic earnings per share Diluted earnings per share 3.17 3.17 0.32 0.32 (0.54) (0.54) 1.24 1.24 0.47 0.47 * Certain items in the previous year (2009) financial statements have been restated as detailed in Note 3.24 15 1619_TEXT:Layout 1 7/9/10 10:25 Page 16 STATEMENT OF FINANCIAL POSITION As at 31 March 2010 Notes As at 31 March 2010 As at 31 March 2009 (As restated*) Group £ Company £ Group £ Company £ ASSETS Non current assets Property, plant and equipment Capital Work in Progress Capital advances Other Assets Deferred Tax Asset Investment in subsidiaries Total non current assets Current Assets Inventories Trade and other receivables Current tax assets Financial Assets Other Assets Cash and Cash Equivalents Restricted Cash Total current assets Total assets EQUITY AND LIABILITIES Capital and Reserves Issued Capital Reserves Retained earnings Equity attributable to owners of the Com- pany Non-Controlling Interest Total Equity Non current liabilities Interest-bearing loans and borrowings Other Liabilities Deferred tax liabilities Total non current liabilities Current liabilities Trade and other payables 3.8 3.9 3.10 3.11 3.7.1 3.13 3.12 3.14 3.12 3.15 3.18 3.7.1 Interest-bearing loans and borrowings 3.18 Provision for Taxation Other liabilities Total current liabilities Total liabilities Total equity and liabilities 15,169,634 49,847,157 21,160,152 5,470,257 51,505 - 91,698,705 1,867,915 3,089,084 2,003,214 12,977,604 - - - 7,8 87 2,410 10,297 13,556,906 29,174,655 6,705,770 4,316,518 60,909 - 53,814,758 - 41,711 274,265 1,400,329 - - 751,308 8,478,766 5,230,748 7,113,514 61,145,096 14,168,453 7,072,048 32,319,842 1,481,894 - 1,403,126 42,701,678 68,491,409 49,625,830 134,400,383 68,501,706 103,440,588 - - - 5,000 2,410 7,410 - 13,213 - - 67,386,189 4,039,991 - 71,439,393 71,446,803 3.16 42,187 42,187 42,187 42,187 76,490,815 68,691,738 69,459,462 70,079,213 4,235,907 (276,966) 3,309,434 80,768,909 68,456,959 72,811,083 1,270,522 71,391,922 7,816,771 - 3,996,285 - 88,585,680 68,456,959 76,807,368 71,391,922 30,800,245 2,261,141 514,235 33,575,621 6,567,099 3,882,815 1,599,168 190,000 12,239,082 45,814,703 - - - - 44,747 - - - 44,747 44,747 19,967,353 1,935,743 446,451 22,349,547 799,498 2,481,114 942,826 60,235 4,283,673 26,633,220 - - - - 54,881 - - - 54,881 54,881 134,400,383 68,501,706 103,440,588 71,446,803 * Certain items in the previous year (2009) financial statements have been restated as detailed in Note 3.24 16 1619_TEXT:Layout 1 7/9/10 10:25 Page 17 , 9 5 9 6 0 2 , 1 - , 9 5 9 6 0 2 , 1 - , 9 5 9 6 0 2 , 1 - - 0 8 6 , 5 8 5 , 8 8 1 7 7 , 6 1 8 , 7 9 0 9 , 8 6 7 , 0 8 7 0 9 , 5 3 2 , 4 , 9 5 9 6 0 2 , 1 1 2 7 , 3 4 4 , 8 ) 8 8 1 , 3 0 1 ( 3 2 3 , 3 4 9 6 6 , 7 8 1 , 2 4 5 9 7 , 9 8 9 6 8 2 , £ l a t o T y t i u q E £ - n o N t s e r e t n I g n i l l o r t n o C 2 5 8 , 8 3 5 , 1 2 5 8 , 8 3 5 , 1 £ - 1 6 1 , 9 4 3 , 0 7 9 9 0 , 1 7 1 2 6 0 , 8 7 1 , 0 7 ) 2 5 5 , 2 9 1 , 3 ( - ) 2 5 5 , 2 9 1 , 3 ( £ - - - , 8 9 0 9 7 7 , 2 9 5 9 , 2 6 2 9 3 1 , 6 1 5 , 2 - 9 0 8 , 2 3 3 , 5 5 7 3 , 3 2 0 , 2 , 4 3 4 9 0 3 , 3 , 4 3 4 9 0 3 , 3 7 0 9 , 1 1 1 , 8 4 3 3 , 6 8 2 , 2 3 7 5 , 5 2 8 , 5 , 4 3 4 9 0 3 , 3 8 6 3 , 7 0 8 , 6 7 5 8 2 , 6 9 9 , 3 3 8 0 , 1 1 8 , 2 7 , 4 3 4 9 0 3 , 3 8 4 8 , 3 5 5 , 6 , 4 5 4 9 2 7 5 9 3 , 4 2 8 , 5 - 5 0 5 , 7 1 0 4 , 2 3 0 , 1 9 0 , 3 , 3 7 4 6 2 9 , 3 7 4 6 2 9 8 6 3 , 7 0 8 , 6 7 5 8 2 , 6 9 9 , 3 3 8 0 , 1 1 8 , 2 7 , 4 3 4 9 0 3 , 3 3 5 3 , 1 7 5 , 0 1 , 6 8 4 0 2 8 , 3 7 6 8 , 0 5 7 , 6 , 3 7 4 6 2 9 - - - - - - - - - - - y t i u q e t n e r a P f o l a t o T d e n i a t e R i s g n n r a e e v r e s e r s t fi e n e b e v r e s e r e e y o p m e l d e l t t e s y t i u q E n o i t a l s n a r T n o ) s s o l ( n g i e r o F y c n e r r u C / n i a g M T M £ - - - - - - - - £ S V A 5 5 8 , 7 6 6 , 2 ) 6 1 7 , 1 5 1 ( 5 5 8 , 7 6 6 , 2 ) 6 1 7 , 1 5 1 ( - - - ) 2 5 5 , 2 9 1 , 3 ( - - - - - - - - 5 7 8 , 5 3 1 , 0 7 7 8 1 , 2 4 8 6 7 , 1 2 9 6 1 1 , Y T I U Q E N I S E G N A H C F O T N E M E T A T S D E T A D I L O S N O C 0 1 0 2 h c r a M 1 3 o t r a e y e h t r o F £ - e r a h S i m u m e r P l a t i p a c e r a h S l a t i p a C e r a h S P U O R G £ - . o N 7 2 0 , 8 6 0 0 7 1 , e c n a l a B g n n e p O i - - 6 6 8 , 5 7 7 , 5 8 2 5 , 8 4 6 6 8 , 5 7 7 , 5 8 2 5 , 8 4 - - - - - - - - - - - - 5 5 8 , 7 6 6 , 2 ) 6 1 7 , 1 5 1 ( 3 2 3 , 3 4 9 6 6 , 7 8 1 , 2 4 5 9 7 , 9 8 9 6 8 2 , 5 5 8 , 7 6 6 , 2 ) 6 1 7 , 1 5 1 ( 3 2 3 , 3 4 9 6 6 , 7 8 1 , 2 4 5 9 7 , 9 8 9 6 8 2 , e c n a l a B g n n e p O i f o e u s s i m o r f s d e e c o r P s e r a h s y r a n d r o i s e s n e p x e e u s s i e r a h S d e t a t s e R s A d e t s u d a j e v i s n e h e r p m o c r e h t O d o i r e p e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T d o i r e p e h t r o f e m o c n i d o i r e p e h t r o f t i f o r P , h c r a M 1 3 t a e c n a l a B 9 0 0 2 17 e v i s n e h e r p m o c r e h t O r a e y e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T r a e y e h t r o f e m o c n i r a e y e h t r o f t i f o r P s t s o c n o i t a s n e p m o c ) 1 . 7 1 . 3 e t o N r e f e R ( d e s a b e r a h S , h c r a M 1 3 t a e c n a l a B 0 1 0 2 1619_TEXT:Layout 1 7/9/10 10:26 Page 18 £ 0 l a t o T y t i u q e l s r e d o h e r a h s 2 6 0 , 8 7 1 , 0 7 ) 2 5 5 , 2 9 1 , 3 ( 1 9 8 , 5 3 1 , 3 2 2 5 , 0 7 2 , 1 2 2 9 , 1 9 3 , 1 7 2 2 9 , 1 9 3 , 1 7 , ) 5 3 4 4 9 5 , 2 ( ) 8 8 4 , 7 4 5 , 1 ( , 9 5 9 6 0 2 , 1 f o s s e c x E r e v o d e r i u q c a s t e s s a f o e r a h s t s o c n o i t i s i u q c a d e n i a t e R i s g n n r a E e v r e s e r s t fi e n e b e v r e s e r e e y o p m e l d e l t t e s y t i u q E n g i r o F y c n e r r u C n o i t a l s n a r T / n i a g M T M S V A n o ) s s o l ( e r a h S i m u m e r P l a t i p a C e r a h S l a t i p a C e r a h S Y N A P M O C £ - - - - - - - - - - £ - - - - 2 2 5 , 0 7 2 , 1 2 2 5 , 0 7 2 , 1 - 2 2 5 , 0 7 2 , 1 ) 8 8 4 , 7 4 5 , 1 ( - - - - - 0 - - - - , 9 5 9 6 0 2 , 1 1 9 8 , 5 3 1 , 3 0 3 2 3 , 3 4 9 6 6 , 7 8 1 , 2 4 5 9 7 , 9 8 9 6 8 2 , 9 0 0 2 h c r a M 1 3 t a s a e c n a l a B - - 1 9 8 , 5 3 1 , 3 , ) 5 3 4 4 9 5 , 2 ( - - - - 3 2 3 , 3 4 9 6 6 , 7 8 1 , 2 4 5 9 7 , 9 8 9 6 8 2 , 9 0 0 2 l i r p A 1 t a s a e c n a l a B - - - - - - - - - e m o c n i e v i s n e h e r p m o c r e h t O r a e y e h t r o f t i f o r P r a e y e h t r o f n o i t a n s e p m o c d e s a b e r a h S ) 1 . 7 1 . 3 e t o N r e f e R ( s t s o c £ - - - - 1 9 8 , 5 3 1 , 3 £ - - - - - - - ) 2 5 5 , 2 9 1 , 3 ( - - - - - - £ - £ - . o N 7 2 0 , 8 6 0 0 7 1 , 5 7 8 , 5 3 1 , 0 7 7 8 1 , 2 4 8 6 7 , 1 2 9 6 1 1 , j d e t s u d A s e s n e p x E e u s s I e r a h S e m o c n i e v i s n e h e r p m o c r e h t O f o e u s s i m o r f s d e e c o r P s e r a h s y r a n d r o i e c n a l a B g n n e p O i d o i r e p e h t r o f t i f o r P r a e y e h t r o f 18 , 9 5 9 6 5 4 , 8 6 ) 6 6 9 6 7 2 ( , , 9 5 9 6 0 2 , 1 6 5 4 , 1 4 5 0 3 2 3 , 3 4 9 6 6 , 7 8 1 , 2 4 5 9 7 , 9 8 9 6 8 2 , 0 1 0 2 h c r a M 1 3 t a s a e c n a l a B Y T I U Q E N I S E G N A H C F O T N E M E T A T S D E T A D I L O S N O C 0 1 0 2 h c r a M 1 3 o t r a e y e h t r o F 1619_TEXT:Layout 1 7/9/10 10:26 Page 19 STATEMENT OF CASH FLOWS For the year ended 31 March 2010 Cash fl ows from operating activities Profit / Loss for the year / period Income tax expense Financial Expenses Financial Income Other gains and losses Release of negative goodwill Share based compensation costs Depreciation Movements in Working Capital Year to 31 March 2010 Period to 31 March 2009 (As restated*) Notes Group Company Group Company £ £ £ £ 4,017,505 (1,547,488) 4,638,569 1,270,522 1,432,338 373,359 - - 997,407 2,206,738 - - (1,251,252) (145,399) (2,718,568) (989,110) (730,329) - - - (604,009) (1,493,760) 1,206,959 1,206,959 - 625,324 - 398,830 - - - - 5,673,904 (485,928) 3,425,207 281,412 (Increase) / Decrease in trade and other receivables (1,418,191) (261,052) (805,564) (13,212) (Increase) / Decrease in inventories (Increase) / Decrease in other current assets Increase / (Decrease) in trade and other payables Increase / (Decrease) in Other liabilities Cash (used in) / generated from operations Interest paid Income Taxes paid, net of refunds Net Cash Generated by / (used in) Operating activities Cash fl ow from investing activities Acquisition of property, plant and equipment Sale of property, plant and equipment Advances Net Finance Income Dividend income Movement in restricted cash Net cash outflow on acquisition of subsidiaries Purchase of Investments (Net of sales) Increase / Decrease in land lease Deposits (1,636,191) 988,313 5,139,417 - 18,319 (4,346) (2,070,063) (10,135) 23,741 (10,087,192) - (620,314) - (5,000) 54,881 - (1,339,940) (761,461) (28,674) 318,081 (372,025) (1,913,470) (3,625,434) (29,017,680) 2,493 - - (2,206,738) (418,584) - - (761,461) (2,653,996) 318,081 - - (32,452,626) - - - 17,759,978 6,242,553 (6,225,204) (67,386,189) 1,165,040 145,399 2,614,831 986,700 944,839 385,765 (10,582,408) (3,222,067) 1,260 - - - - - 604,009 (970,388) (8,052,207) - (2,866,112) - - - - - Net cash (used) / generated by investing activities (22,562,780) 6,387,952 (47,347,697) (66,399,489) Cash fl ows from financing activities Proceeds from issue of Ordinary Shares Proceeds from borrowings Repayment of borrowings Payment for share issue costs Net cash provided by financing activities - 14,249,387 5,205,136 - 9,044,251 - - - - - 70,348,035 70,178,060 14,330,099 (3,290,759) - - (3,192,552) (3,192,552) 78,194,823 66,985,508 Net increase / (decrease) in cash and cash equivalents (17,143,963) 5,626,491 28,193,130 904,100 Cash and cash equivalents at the beginning of the year / period 32,319,842 4,039,991 1,358,882 - Effect of Exchange rate changes on the balance of cash held in foreign currencies (1,007,425) (2,594,434) 2,767,830 3,135,891 Cash and cash equivalents at the end of the year / period 3.15 14,168,454 7,072,048 32,319,842 4,039,991 19 1619_TEXT:Layout 1 7/9/10 10:26 Page 20 * Certain items in the previous year (2009) financial statements have been restated as detailed in Note 3.24 Notes to the Accounts Note 1 : Basis of Preparation 1.1 General Information OPG Power Ventures Plc. (the “Company” or “OPGPV”) is a company domiciled and incorporated in the Isle of Man on 17 January 2008 and was admitted to the Alternative Investment Market (AIM) of London Stock Exchange on 30 May 2008. The Company had raised approximately £ 65.10 Million (before admission costs) through a public offering in the previous period. The Consolidated financial statements for OPG Power Ventures Plc (the “Group”) and financial statements for the Company have been prepared for the year ended 31 March 2010 As on 31 March 2010 the following entities forms part of the Group: Company * Immediate Parent Country of Incorporation Voting Rights (%) Economic Interest (%) Gita Energy Private Lim- ited (“GE Cyprus”) OPG Power Ventures Plc Gita Holdings Private Limited (“GH Cyprus”) OPG Power Ventures Plc OPG Power Generation Private Limited (“OP- GPG”) Gita Energy Private Lim- ited and Gita Holdings Private Limited OPG Power Gujarat Pri- vate Limited (“OPGG”) Gita Energy Private Lim- ited and Gita Holdings Private Limited *OPG Renewable Energy Private Limited (“OPGRE”) Gita Energy Private Lim- ited and Gita Holdings Private Limited *OPG Energy Private Limited (“OPGE”) OPG Power Generation Private Limited Gita Power & Infrastruc- ture Private Limited (“GPIL”) Gita Holdings Private Limited Note: Cyprus Cyprus India India India India India 100 100 35.86 35.90 29.19 36.71 11 11 29.78 100 100 100 49.5 49.5 43.85 55.15 16.5 16.5 43.78 100 * The ownership structure results in a “Non Controlling” voting and economic stake in OPGE and OPGRE, with captive customers holding the majority of shares. However, voting agreements have been entered into with key shareholders - Tamil Nadu Property Developers and Salem Food Products by which there is a commitment that these shareholders will exercise all voting rights in accordance with the directions of OPGPG (in the case of OPGE) and G E Cyprus (in the case of OPGRE). This gives the Group effective voting control about 66% of OPGRE shares and 67% of OPGE shares. As such, the results of OPGE and OPGRE will be consolidated in producing group accounts for OPGPV. The activities of the various entities listed above are as detailed below: 20 1619_TEXT:Layout 1 7/9/10 10:26 Page 21 Company OPGPV GE Cyprus GH Cyprus OPGE OPGRE OPGPG OPGG GPIL Activity “The Company”. Invests in and controls the develop- ment and operation of power generation businesses in India. Subsidiary Of The Company Subsidiary Of The Company 19.4 MW Power Plant 10MW Power Plant 77MW Power Plant(in construction) 2*150 MW Power Plant(in construction) 80MW Power Plant( in construction) Investments into one of the entities GPIL, was made during the year. The consideration paid was £ 3.13 million, being the net worth of the Company as on the date of acquisition and there was no goodwill arising on this investment. The Company’s registered office is at IOMA House, Hope Street, Douglas, Isle of Man. The Group is primarily engaged in the business of development, construction and operation of Power generation plants for the supply of power directly to the State Electricity Boards, Public Sector Undertakings and Industrial consumers. The business objective of the Group is to focus on the power generation business within India and thereby to provide reliable, cost effective power to industrial consumers and other users under the ‘Open Access’ provisions mandated by the Government of India and applicable to all producers of power. Note 2 : Significant accounting policies 2.1 2.1.1 Adoption of New and Revised Standards Standards and Interpretations effective in the Reporting Period The following new and revised Standards and interpretations have been adopted in these consolidated financial statements. Their adoption has not had any significant impact on the amounts reported in these consolidated financial statements but may affect the accounting for future transactions or arrangements. IFRS 8: Operating Results Amendments to IFRS 2: Share-based Pay- ment – the Vesting Conditions and Can- cellations IFRS 8 is a disclosure Standard that requires re- designation of the Group’s reportable segments based on the segments. The Managing Director of the Group is the Chief Operating Decision Maker (CODM) to allocate resources and assess perfor- mance. The amendments clarify the definition of vesting conditions for the purposes of IFRS 2, introduce concept of ‘non- vesting’ conditions, and clarify the accounting treatment for cancellations. 21 1619_TEXT:Layout 1 7/9/10 10:26 Page 22 IAS 23 (as revised in 2007) - Borrowing Costs Amendments to IAS 32: Financial Instruments: Presentation and IAS 1 Presentation of Financial State- instruments ments - Puttable Financial and Obligations Arising on Liquidation IFRIC 13: Customer Loyalty Programmes IFRIC 16: Hedges of Net Investment in a Foreign operation. IFRIC 9 IFRS 1 The principal change to the Standard was to elimi- nate the option to expense all borrowing costs when incurred. This change has had no impact on these consolidated financial statements because it has always been the Group’s accounting policy to capitalize borrowing costs incurred on qualifying assets The revisions to IAS 32 amend the criteria for debt/ equity classification by permitting certain puttable financial instruments and instruments (or compo- nents of instruments) that impose on an entity an obligation to deliver to another party a pro-rata share of the net assets of the entity only on liquida- tion, to be classified as equity, subject to specified criteria being met. The Interpretation provides guidance on how en- tities should account for customer loyalty pro- grammes by allocating revenue on sale to possible future award attached to the sale. The Interpretation provides guidance on the de- tailed requirements for net investment hedging for certain hedge accounting designations Amendment to IFRIC 9 (revised): Reassessment of Embedded Derivatives relating to assessment of embedded derivatives in case of reclassification of financial assets out of the FVTPL category; (Revised) First time Adoption of IFRS - Amend- ment relating to cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associ- ate; 2.1.2 Standards and Interpretations in issue but not yet eff ective At the date of authorization of these consolidated financial statements, the following Standards and Interpretations were in issue but not yet effective: IFRS 1 IFRS 1 IFRS 2 IFRS 9 (Revised) First time Adoption of IFRS - Amendment on additional exemp- tions for first-time adopter (effective for annual periods beginning on or after January 1,2010); (Revised) Limited exemption from comparatives IFRS 7 disclosure for first time adopters – effective for annual periods beginning on or after July 1, 2010 (Revised) Share-based Payment- Amendment relating to Group cash- set- tled share based payment (effective for annual periods beginning on or after January 1, 2010); Financial Instruments: Classification and Measurement (intended as complete replacement for IAS 39 and IFRS 7) (effective for annual periods beginning on or after January 1, 2013); 22 1619_TEXT:Layout 1 7/9/10 10:26 Page 23 IAS 24 IAS 27 IAS 32 IAS 39 Others IFRIC 14 IFRIC 17 IFRIC 19 (Revised) Related Party Disclosures - Amendment on disclosure require- ments for entities that are controlled, jointly controlled or significantly in- fluenced by a Government (effective for annual periods beginning on or after January 1,2011) (Revised) Consolidated and Separate Financial Statements - Amendment relating to Cost of an Investment in a Subsidiary (effective for annual peri- ods beginning on or after July 1, 2009); (Revised) Financial Instruments: Presentation - Amendments relating to classification of Rights Issue (effective for annual periods beginning on or after February 1,2010); (Revised) Financial Instruments: Recognition and Measurement - Amend- ments relating to Eligible Hedged Items (such as hedging inflation risk and Hedging with options) (effective for annual periods beginning on or after July 1, 2009); Amendments to IFRS 2, IFRS 5, IFRS 8, IAS I, IAS 7, IAS 17, IAS 36, IAS 38 and IAS 39 resulting from April 2009 Annual Improvements to IFRSs (Ma- jority effective for annual periods beginning on or after January 1,2010); Amendment to IFRIC 14: IAS 19 The limit on a defined Benefit Asset - Minimum Funding Requirement and their interaction (effective for annual periods beginning on or after January 1, 2011); Distributions of Non-cash Assets to Owners (effective for annual periods beginning on or after July 1, 2009); and Extinguishing Financial Liabilities with Equity Instruments (effective for annual periods beginning on or after July 1, 2010). The management anticipates that the adoption of these Standards and Interpretations will have no material financial impact on the consolidated financial statements of the Group. 2.2 Basis of Preparation and Statement of Compliance with International Financial Reporting standards The consolidated and separate financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and its interpretations issued by the International Accounting Standard Board. The Group and Company financial statements cover the financial year from 1 April 2009 to 31 March 2010.The comparatives represents the period 17 January 2008, being the date of incorporation of OPG Power Ventures Plc., to 31 March 2009 and incorporate the financial year from 1 April 2008 to 31 March 2009 in respect of the Indian subsidiaries. 2.3 The Basis of Presentation and Accounting Policies used in preparing the historical financial information These accounting policies have been consistently applied to the results, gains and losses, assets, liabilities and cash flows of all entities included in the consolidated financial statements for all the periods presented unless otherwise stated. The financial statements are presented in Great Britain Pounds (GBP/£) 23 1619_TEXT:Layout 1 7/9/10 10:26 Page 24 The financial information has been prepared on an historical cost basis. In the process of applying the Group’s accounting policies, management is required to make judgments, estimates and assumptions that may affect the financial statements. Management believes that the judgments made in the preparation of the historical financial information are reasonable. Actual results could materially differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Judgments made by management in the application of IFRS that have significant effect on the historical financial information and estimates with a significant risk of material adjustment in the next year are discussed in note 3.20. Also refer Policy 2.2. 2.4 Basis of Consolidation The consolidated financial statements incorporate the financial statements of the company and entities controlled by the Company made up to 31st March each year. Intra-group balances and transactions and any resulting unrealised gains arising from intra-group transactions are eliminated on consolidation. Unrealised losses resulting from intra-group transactions are also eliminated unless cost cannot be recovered. Amounts reported in the financial statements of the subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 March each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Controlled entities are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The excess of cost of acquisition over the group’s interest in the net value of the identifiable assets, liabilities and contingent liabilities of the subsidiaries on the date of acquisition is accounted as Goodwill arising on consolidation. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit. Goodwill is initially recognized as an asset at Cost and subsequently measured at cost less any accumulated impairment losses. Non-controlling interests in subsidiaries are identified separately from the Group’s equity therein. The interests of non controlling shareholders may be initially measured either at fair value or at the non- controlling interests’ proportionate share of the fair value of the acquiree’s identifiable net assets. The choice of measurement basis is made on an acquisition by-acquisition basis. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests’ share of subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance. Changes in the Group’s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests 24 1619_TEXT:Layout 1 7/9/10 10:26 Page 25 are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company. When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. Amounts previously recognised in other comprehensive income in relation to the subsidiary are accounted for (i.e. reclassified to profit or loss or transferred directly to retained earnings) in the same manner as would be required if the relevant assets or liabilities were disposed of. The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39 Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or jointly controlled entity. 2.5 Foreign Currency 2.5.1 Translation to Presentation Currency The functional currency of the Indian subsidiaries in Indian Rupee (INR) and Cyprus and IOM Company is Great British Pound (GBP). Functional and presentation currency: Items included in the financial statements in each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Great Britain Pound (£), which is the Company’s functional and presentation currency. At the reporting date the assets and liabilities of the Indian entities are translated into the presentation currency, which is the Great Britain Pound (£) at the rate of exchange ruling at the balance sheet date and the income statement is translated at the average exchange rate for that year. Exchange differences arising, if any, are classified as equity and recognised in the Group’s foreign currency translation reserve. Such exchange differences are recognized in profit or loss in the period in which the foreign operation is disposed of. 2.5.2 Foreign currency transactions Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into functional currency at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognized in the Income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Goodwill and fair value adjustments, arising on consolidation of financial statements and presentation of financial instruments acquired other than by subscription of subsidiaries, are treated as assets of the purchasing entity. Goodwill is measured at cost less any accumulated impairment losses. Impairment review is performed at least annually. Any impairment is recognized immediately in the income statement and is not subsequently reversed. 25 1619_TEXT:Layout 1 7/9/10 10:26 Page 26 On the disposal of a foreign operation (i.e. a disposal of the Group’s entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, loss of joint control over a jointly controlled entity that includes a foreign operation, or loss of significant influence over an associate that includes a foreign operation),all of the accumulated exchange differences in respect of that operation attributable to the Group are reclassified to profit or loss. Any exchange differences that have previously been attributed to non-controlling interests are derecognised, but they are not reclassified to profit or loss. In the case of a partial disposal (i.e. no loss of control) of a subsidiary that includes a foreign operation, the proportionate share of accumulated exchange differences are re-attributed to non-controlling interests and are not recognised in profit or loss. For all other partial disposals (i.e. of associates or jointly controlled entities not involving a change of accounting basis), the proportionate share of the accumulated exchange differences is reclassified to profit or loss. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. 2.6 Property, Plant and Equipment 2.6.1 Owned assets Property, Plant and Equipment are stated at cost of acquisition less accumulated depreciation. Direct cost is capitalized until the asset is ready for use and includes inward freight, duties and expenses incidental to acquisition and installation. The cost of self constructed assets includes the cost of material and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the cost of dismantling and removing any items on and restoring the site on which they are located. Parts of some items of property, plant and equipment require replacement at regular intervals. OPG recognizes in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred and correspondingly, any carrying amount of those parts that are replaced is derecognized. Certain items of plant and equipment require the performance of regular major inspections for faults regardless of whether parts of the item are replaced. When each major inspection is performed, its cost is recognized in the carrying amount of the item of property, plant and equipment as a replacement and any remaining carrying amount of the previous inspection is derecognized. This occurs regardless of whether the cost of previous inspection was identified in the transaction in which the item was acquired or constructed. Where necessary, the estimated cost of a future similar inspection is be used as an indication of what the cost of the existing inspection component was when the item was acquired or constructed. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognized within “other gains and losses” for gains and “other operating expenses” for losses in the statement of income. 26 1619_TEXT:Layout 1 7/9/10 10:26 Page 27 2.6.2 Depreciation Depreciation on property, plant and equipment is provided based on the straight line method over the economic useful life of assets as estimated by the management, on a pro-rata basis. The economic useful lives estimated by the management for depreciation of the assets are as under: Asset Building Plant and Machinery Furniture and Fixtures Office Equipments Vehicles Computers Estimated useful life (years) 30 4-30 5-15 3-10 5-11 3 The useful life of property, plant and equipment is reviewed annually and, wherever a change is made to the estimates of useful life of an asset, the depreciation charge is adjusted. Leasehold improvements are depreciated over the primary period of the lease or estimated useful lives of the assets whichever is less. Assets under construction are not depreciated, as they are not ready for use. 2.6.3 Borrowing cost Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Transaction cost incurred on raising long term borrowings are deferred in the year of payment and are capitalized as part of costs of the qualifying asset and depreciated over the useful life on straight line method. Borrowing cost, including amortization of transaction cost directly attributable to the acquisition or construction of qualifying property, plant and equipment are capitalized as part of the cost of asset when it is probable they will result in future economic benefit and the cost can be measured reliably. 2.6.4 Impairment of Property, Plant and Equipment The Group’s property, plant and equipment are subject to impairment testing. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. All individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. 27 1619_TEXT:Layout 1 7/9/10 10:26 Page 28 An impairment loss is recognized for the amount by which the assets or cash-generating unit’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell and value in use, based on an internal discounted cash flow evaluation. The impairment loss is charged pro rata to the assets in the cash-generating unit. All assets are subsequently reassessed for indications that an impairment loss previously recognized may no longer exist. Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimate used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. 2.7 Financial Assets Investments are recognized and derecognized on the date of trade where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value. Financial assets are classified into the following specified categories: financial assets ‘at fair value through profit or loss’ (FVTPL), ‘held-to-maturity’ investments, ‘available-for-sale’ (AFS) financial assets and ‘loans and receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. 2.7.1 Held to Maturity Investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity. Investments are classified as held-to-maturity if it is the intention of Group’s management to hold them until maturity. Held-to-maturity investments are subsequently measured at amortized cost using the effective interest method. In addition, if there is objective evidence that the investment has been impaired, the financial asset is measured at the present value of estimated cash flows. Any changes to the carrying amount of the investment are recognized in income statement. 2.7.2 Available for Sale Financial Assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date. Regular purchases and sales of financial assets are recognized on the trade-date – the date on which the Group commits to purchase or sell the asset. Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through income statement. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Available for sale financial assets are subsequently carried at fair value. Loans and receivables are carried at amortized cost using the effective interest method. 28 1619_TEXT:Layout 1 7/9/10 10:26 Page 29 Changes in the fair value of monetary and non-monetary securities classified as available-for-sale are recognized in equity. When securities classified as available for sale are sold or impaired, the accumulated fair value adjustments recognized in equity are included in the income statement as ‘financial expenses (gains and losses from investment securities)’. Dividends on available-for-sale mutual fund units are recognized in the income statement as part of other income. 2.7.3 Impairment of Financial Assets A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. In case of equity investments classified as available-for-sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. An impairment loss in respect of an available-for sale financial asset is calculated by reference to its fair value. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in Groups that share similar credit risk characteristics. All impairment losses are recognised in profit or loss. Any cumulative loss in respect of an available for- sale financial asset recognised previously in equity is transferred to profit or loss. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For available-for-sale financial assets that are equity securities, the reversal is recognised directly in equity. 2.8 Trade and other Receivables Trade receivables are initially measured at fair value and subsequently measured at amortized cost using the effective interest rate method. They are as reduced by appropriate allowances for estimated irrecoverable amounts. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original term of the receivable. The amount of the provision is the difference between the carrying amount and the recoverable amount and this difference is recognized in the income statement. Interest income is recognized by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. 2.9 Inventories Inventories are stated at lower of cost and net realizable value. The cost is based on the first-in-first- out principle and includes duties and taxes (other than those subsequently recoverable from taxing authorities), freight inward, handling and other costs directly attributable to the acquisition. 29 1619_TEXT:Layout 1 7/9/10 10:26 Page 30 2.10 Cash and Cash Equivalents Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. 2.11 Share Capital Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Equity instruments, convertible into fixed number of ordinary shares at a fixed pre-determined price, and which are exercisable after a specific period, are accounted for as and when such instruments are exercised. The transaction costs pertaining to such instruments are adjusted against equity. 2.12 Employee Benefits Short term employee benefits obligations, including salary, are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid under short term cash bonus or profit sharing plans if the company has a present legal or constructive obligation to pay this amount as a result of the past service of the employee and the obligation can be estimated reliably. The Group’s net obligation in respect of gratuity includes amounts payable to employees on termination, resignation or retirement on completion of a minimum service period with the Group. The discount rate is the yield at the balance sheet date on government bonds that have maturity dates approximating to the terms of the Group’s obligations. The calculation is performed by a qualified actuary using the projected unit credit method. When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognised as an expense in the income statement on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in the income statement. 2.12.1 Share based payments Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note No. 3.17.1. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest. At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity- settled employee benefits reserve. . 2.13 Provisions Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. 30 1619_TEXT:Layout 1 7/9/10 10:26 Page 31 The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. 2.14 Trade Payables Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method. 2.15 Revenue Recognition Revenue is recognised to the extent that it is probable that the economic benefits associated with the transaction will flow to the Group, and revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable in accordance with the relevant agreements, net of discounts, rebates and other applicable taxes and duties. Sale of power Revenue from the sale of electricity is recognised when earned on the basis of contractual arrangement with the customers and reflects the value of units supplied including an estimated value of units supplied to the customers between the date of their last meter reading and period end. Financial Income Interest income is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable. Dividend income from investments is recognized when the shareholders’ / units holders’ rights to receive payment have been established. Foreign currency gains and losses are reported on a net basis 2.16 Operating lease payments Payments made under non-cancellable operating leases are recognized in the income statement on a straight-line basis over the term of the lease. Payments made under cancellable operating leases are recognized as expense in the period in which they are incurred. 2.17 Pre Operative Expenses Adminsitration expenses, salaries, travels rents, rates, taxes and other professional fees incurred in respect in the plants under construction and not directly attributable to cost of assets constructed are expensed in the period in which they were incurred and has been included as Pre Operative expenses in the income statement. 2.18 Income Tax Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognized in the income statement except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. 31 1619_TEXT:Layout 1 7/9/10 10:26 Page 32 Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, on temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and their tax base. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously. A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized. 2.19 Earnings per Share The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares. Refer Note 3.17 for the calculation of EPS. 2.20 Significant Estimates in the financial statements The preparation of financial statements in conformity with IFRS requires management to make certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The principal accounting policies adopted by the Group in the consolidated financial statements are as set out above. The application of a number of these policies required the Group to use a variety of estimation techniques and apply judgement to best reflect the substance of underlying transactions. The Group has determined that a number of its accounting policies can be considered significant, in terms of the management judgement that has been required to determine the various assumptions underpinning their application in the consolidated financial statements presented which, under different conditions, could lead to material differences in these statements. The policies where significant estimates have been made are as follows: Estimates and assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustments to the carrying amounts of assets and liabilities within the next financial year are discussed below: 32 1619_TEXT:Layout 1 7/9/10 10:26 Page 33 (cid:75) (cid:40)(cid:51)(cid:49)(cid:61)(cid:68)(cid:51)(cid:64)(cid:47)(cid:48)(cid:55)(cid:58)(cid:55)(cid:66)(cid:71) (cid:61)(cid:52) (cid:50)(cid:51)(cid:52)(cid:51)(cid:64)(cid:64)(cid:51)(cid:50) (cid:66)(cid:47)(cid:70) (cid:47)(cid:65)(cid:65)(cid:51)(cid:66)(cid:65)(cid:22) The recognition of deferred tax assets requires assessment of sufficient future taxable profit and consequent tax payments to realize the values stated (cid:75) (cid:37)(cid:66)(cid:54)(cid:51)(cid:64) (cid:73)(cid:60)(cid:47)(cid:60)(cid:49)(cid:55)(cid:47)(cid:58) (cid:58)(cid:55)(cid:47)(cid:48)(cid:55)(cid:58)(cid:55)(cid:66)(cid:55)(cid:51)(cid:65)(cid:22) Interest-bearing loans and borrowings held by the Group are measured at amortised cost except where designated at fair value through profit and loss account. (cid:75) (cid:43)(cid:60)(cid:49)(cid:61)(cid:58)(cid:58)(cid:51)(cid:49)(cid:66)(cid:47)(cid:48)(cid:55)(cid:58)(cid:55)(cid:66)(cid:71) (cid:61)(cid:52) (cid:66)(cid:64)(cid:47)(cid:50)(cid:51) (cid:64)(cid:51)(cid:49)(cid:51)(cid:55)(cid:68)(cid:47)(cid:48)(cid:58)(cid:51)(cid:65)(cid:22) Analysis of historical payment patterns, customer concentrations, customer credit-worthiness and current economic trends. If the financial condition of a customer deteriorates, additional allowances may be required. (cid:75) (cid:31)(cid:59)(cid:62)(cid:47)(cid:55)(cid:64)(cid:59)(cid:51)(cid:60)(cid:66) (cid:66)(cid:51)(cid:65)(cid:66)(cid:65)(cid:22) The determination of recoverable amounts of the CGUs assessed in the annual impairment test requires the Group to estimate of their fair value net of disposal costs as well as their value in use. The assessment of value in use requires assumptions to be made with respect to the operating cash flows of the CGUs as well as the discount rates. Share based payments – In determining the fair value of the share based payments and the related charge to the statement of comprehensive income, certain assumptions have to be made about future events and market conditions. In particular, judgments were made about the likely number of options that would vest, and the fair value of the option granted, which si again dependent on other assumptions like market volatility, dividend policy, prevailing interest rates etc. (cid:36)(cid:61)(cid:66)(cid:51) (cid:15)(cid:22) (cid:36)(cid:61)(cid:66)(cid:51)(cid:65) (cid:61)(cid:60) (cid:23)(cid:49)(cid:49)(cid:61)(cid:67)(cid:60)(cid:66)(cid:65) (cid:52)(cid:61)(cid:64)(cid:59)(cid:55)(cid:60)(cid:53) (cid:62)(cid:47)(cid:64)(cid:66) (cid:61)(cid:52) (cid:66)(cid:54)(cid:51) (cid:49)(cid:61)(cid:60)(cid:65)(cid:61)(cid:58)(cid:55)(cid:50)(cid:47)(cid:66)(cid:51)(cid:50) (cid:73)(cid:60)(cid:47)(cid:60)(cid:49)(cid:55)(cid:47)(cid:58) (cid:65)(cid:66)(cid:47)(cid:66)(cid:51)(cid:59)(cid:51)(cid:60)(cid:66)(cid:65) (cid:15)(cid:10)(cid:13) (cid:41)(cid:51)(cid:53)(cid:59)(cid:51)(cid:60)(cid:66) (cid:40)(cid:51)(cid:62)(cid:61)(cid:64)(cid:66)(cid:55)(cid:60)(cid:53) The Group has adopted IFRS 8 Operating Segments with effect from 1 April 2009. IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segments and to assess their performance. In contrast, the predecessor Standard (IAS 14 Segment Reporting) required an entity to identify two sets of segments (business and geographical), using a risks and returns approach, with the entity’s ‘system of internal financial reporting to key management personnel’ serving only as the starting point for the identification of such segments. Based upon the risks and returns of the Group and reviews done regularly by the chief operating decision maker, the Group has concluded that there is only one business segment, this being the generation and sale of electricity to customers. There are no segments classified based on other risks and rewards and the power plants are all only in India. (cid:15)(cid:10)(cid:14) (cid:40)(cid:51)(cid:68)(cid:51)(cid:60)(cid:67)(cid:51) Sale of Power Sale of Service Trading and Other Sales (cid:42)(cid:61)(cid:66)(cid:47)(cid:58) (cid:46)(cid:51)(cid:47)(cid:64) (cid:51)(cid:60)(cid:50)(cid:51)(cid:50) (cid:15)(cid:13) (cid:35)(cid:47)(cid:64)(cid:49)(cid:54) (cid:14)(cid:12)(cid:13)(cid:12) (cid:38)(cid:51)(cid:64)(cid:55)(cid:61)(cid:50) (cid:51)(cid:60)(cid:50)(cid:51)(cid:50) (cid:15)(cid:13) (cid:35)(cid:47)(cid:64)(cid:49)(cid:54) (cid:14)(cid:12)(cid:12)(cid:21) (cid:25)(cid:61)(cid:59)(cid:62)(cid:47)(cid:60)(cid:71) (cid:72) (cid:29)(cid:64)(cid:61)(cid:67)(cid:62) (cid:72) 7,072,984 237,575 - (cid:19)(cid:8)(cid:15)(cid:13)(cid:12)(cid:8)(cid:17)(cid:17)(cid:21) - - - (cid:9) (cid:25)(cid:61)(cid:59)(cid:62)(cid:47)(cid:60)(cid:71) (cid:72) - - - (cid:9) (cid:29)(cid:64)(cid:61)(cid:67)(cid:62) (cid:72) 11,279,182 236,226 1,357,189 (cid:13)(cid:14)(cid:8)(cid:20)(cid:19)(cid:14)(cid:8)(cid:17)(cid:21)(cid:19) 33 1619_TEXT:Layout 1 7/9/10 10:26 Page 34 The revenue from sale of power is derived from government undertakings (65.61%) (Previous year 14.37%) and private sector customers (34.39%) (Previous year 85.63%). There is no individual customer who accounts for 10% or more of the total revenue except for two government undertakings which are considered sovereign risk free from default. 3.3 Other Gains and Losses Year ended 31 March 2010 Period ended 31 March 2009 Group £ 944,524 - 99,668 -114,430 98,797 1,028,559 Company £ Group £ Company £ - - - (200,657) 98,126 (102,531) 208,723 394,492 - 694,240 794 1,298,249 - - - 694,240 - 694,240 Dividend Income Provision for Tax no longer required, writ- ten back Unclaimed amount written back Unrealised Forex (loss) / Gain (Net) Others 3.4 Release of negative goodwill During 2009, the Group acquired controlling interests in the Indian subsidiaries. On consolidation of the financial statements of the said subsidiaries with the parent company, the amounts of the identifiable net assets of the latter attributable to the group exceeded the consideration transferred by the way of equity and resulted in a surplus which was been recognized as release of negative goodwill in the Income statement. 3.5 Financial Income Bank Interest Interest on Bank Deposits Interest on loan Interest on Lease Deposits Profit on sale of Mutual Funds Other income Financial Income Year ended 31 March 2010 Period ended 31 March 2009 Company £ Group £ 1,840 8,820 - - 134,739 145,399 1,031,518 1,593,356 83,688 10,006 - - Company £ 989,110 - - - - - 2,718,568 989,110 Group £ 3,361 1,017,756 8,820 86,576 46,252 134,739 1,297,504 34 1619_TEXT:Layout 1 7/9/10 10:26 Page 35 3.6 Financial Expenses Interest on short term borrowings and Other financing costs Interest on bank borrowings Loss on sale of Mutual Funds Financial Expenses 3.7 Tax Expense Year ended 31 March 2010 Period ended 31 March 2009 Group £ (186,753) (362,302) (105,406) (654,461) Company £ Group £ Company £ (1,230) (1,355,020 ) - - (851,718) - (1,230) (2,206,738) Year ended 31 March 2010 Period ended 31 March 2009 Group £ Company £ Group £ Company £ Current tax expense Current tax Deferred tax expense Origination and reversal of temporary dif- ferences (1,416,412) (15,926) Total tax expense of the year / period (1,432,338) Reconciliation of Tax rates: - - - (870,849) (126,558) (997,407) - - - - - - - Profit before tax Indian corporate income tax rate Income tax at standard rate Differences on account of items taxed at zero/lower rates Tax charge Year ended 31 March 2010 Group £ Period ended 31 March 2009 Group £ 5,449,843 33.99% (1,852,402) 420,064 1,432,338 6,330,216 33.99% (2,151,640) 1,154,233 997,407 The item “Differences on account of items taxed at zero/lower rates” in the above table represents the difference between notional Indian income tax at standard rate (not applicable to the Company and the Cyprus subsidiaries) on the consolidated profits before tax and the actual tax liability of the Indian subsidiaries. The Company is subject to Isle of Man corporate tax at the standard rate of zero percent. As such, the Company’s tax liability is zero. Additionally, Isle of Man does not levy tax on capital gains. However, considering that the Company’s operations are entirely based in India, the effective tax rate of the Group has been computed based on the current tax rates prevailing in India. Further, a substantial 35 1619_TEXT:Layout 1 7/9/10 10:26 Page 36 portion of the profits of the Group’s India operations are exempt from Indian income taxes being profits attributable to generation of power in India. Under the tax holiday the taxpayer can utilize an exemption from income taxes for a period of any ten consecutive years out of the fifteen years of commencement of the operations. The Group is subject to the provisions of Minimum Alternate Tax (‘MAT’) under the Indian Income taxes for the year ended 31 March 2010 and 2009. Accordingly, the Group calculated the tax liability for current taxes in India after considering MAT. The MAT Credit as at March 31, 2010 is £ 1.67 million and a 100% valuation allowance has been considered on a prudent basis. However, the Indian entities can avail credit of the MAT paid against future tax liabilities and can carry forward and set off within ten years from the end of the financial year in which MAT is paid. 3.7.1 Deferred Tax Assets and Liabilities Recognized deferred tax assets and liabilities of the Group Deferred tax assets and liabilities of the Group are attributable to the following: Assets Liabilities As at 31 March 2010 (£) As at 31 March 2009 (£) As at 31 March 2010 (£) As at 31 March 2009 (£) Property, plant and equipment Fair valuation of AVS securities Net tax assets/(liabilities) - 51,505 51,505 - 60,909 60,909 (514,235) - (514,235) (446,451) - (446,451) Movement in temporary differences during the year As at 1 April 2009 Recognised in Income Statement Recognised in equity Translation adjustment As at 31 March 2010 Property, plant and equipment (446,451) (15,927) - MTM gain / (loss) on AVS 60,909 - (7,482) (51,857) (1,922) (514,235) 51,505 Deferred tax assets/(liabilities) (385,542) (15,927) (7,482) (53,779) (462,730) As at 1 April 2008 Recognised in income statement Recognised in equity Translation adjustment As at 31 March 2009 Property, plant and equipment (290,095) (126,558) - (29,798) (446,451) MTM gain / (loss) on AVS - - (5,702) 66,611 60,909 Deferred tax assets/(liabilities) (290,095) (126,558) (5,702) 36,813 (385,542) 36 1619_TEXT:Layout 1 7/9/10 10:26 Page 37 l a t o T r e t u p m o C s e l c i h e V i - p u q E e c ffi O e r u t i n r u F s t n e m s e r u t x fi d n a d n a t n a l P i y r e n h c a m g n d i l i u B d n a L 2 0 7 , 1 9 5 , 5 1 0 1 8 , 7 3 6 0 4 2 1 , 2 4 3 , 6 2 0 3 1 , 3 1 8 1 7 , 5 7 6 , 7 3 9 9 , 5 8 9 6 4 6 , 8 5 7 , 6 9 0 0 2 l i r p A 1 f o s A 8 2 5 , 3 7 0 , 1 2 3 9 , 5 1 ) 3 5 8 , 3 6 1 ( , 7 4 4 6 3 4 , 1 4 2 8 , 7 3 9 , 7 1 - 2 7 9 , 1 4 1 7 , 5 2 4 1 4 , 5 2 ) 3 8 9 , 7 1 ( 7 9 4 , 1 1 1 9 9 , 2 4 1 3 4 6 6 1 , 6 5 6 0 1 , 4 6 6 0 3 , - - ) 0 7 8 , 5 4 1 ( - - - 9 1 2 , 4 7 9 r a e y e h t g n i r u d s n o i t i d d A r a e y e h t g n i r u d s l a s o p s i D 2 9 1 , 1 7 7 1 , 4 4 7 1 2 , 1 3 0 0 , 5 2 2 9 6 0 1 7 , 4 0 2 , 1 7 2 , 8 0 5 5 , 3 8 7 2 3 , 6 2 6 3 4 5 , 9 6 0 , 1 2 9 1 , 9 5 3 , 8 j t n e m t s u d A e g n a h c x E 0 1 0 2 h c r a M 1 3 t a s A l k c o B s s o r G i t n e m p u q E d n a t n a l P , y t r e p o r P 8 . 3 5 9 7 , 4 3 0 , 2 4 3 5 , 3 1 9 3 , 2 2 7 6 5 , 2 1 6 3 4 , 3 0 0 0 , 3 3 8 , 1 7 6 8 , 9 5 1 * 4 2 3 , 5 2 6 0 6 6 4 , ) 7 8 7 , 8 1 ( 8 5 8 , 6 2 1 0 9 1 , 8 6 7 , 2 - 0 7 0 , 1 4 6 2 , 9 0 0 2 , 6 2 ) 7 8 1 , 3 1 ( 4 7 6 , 3 8 7 0 9 3 , 8 4 7 , 0 1 - 3 1 3 , 2 8 2 6 , 5 2 - 8 2 3 , 3 7 2 7 1 9 4 , 7 0 4 4 , 5 5 5 ) 0 0 6 , 5 ( 6 8 0 6 9 , 6 2 9 , 8 7 4 , 2 - 8 4 9 4 2 , 8 8 9 , 2 2 3 0 8 , 7 0 2 - - - - - t n e m r i a p m i / n o i t a i c e r p e D r a e y e h t g n i r u d r a e y e h t g n i r u d s l a s o p s i D 9 0 0 2 l i r p A 1 f o s A j t n e m t s u d A e g n a h c x E 0 1 0 2 h c r a M 1 3 t a s A e u l a v k o o b t e N d e t a l u m u c c A n o i t a i c e r p e d , 4 3 6 9 6 1 , 5 1 0 5 4 6 1 , 3 1 9 , 3 0 1 9 4 5 , 8 1 2 1 5 , 7 1 8 7 2 , 2 9 7 , 5 0 4 7 , 1 6 8 2 9 1 , 9 5 3 , 8 0 1 0 2 h c r a M 1 3 f o s A r e w o p f o t s o C i n h t i w d e d u l c n i n e e b s a h d e t i m L i e t a v i r P y g r e n E G P O o t g n i t a l e r i y r e n h c a M & t n a l P n o r a e y e h t r o f 3 6 8 , 9 2 4 £ f o n o i t a i c e r p e D * 37 1619_TEXT:Layout 1 7/9/10 10:26 Page 38 l a t o T r e t u p m o C s e l c i h e V i - p u q E e c ffi O e r u t i n r u F s t n e m s e r u t x fi d n a d n a t n a l P i y r e n h c a m g n d i l i u B d n a L 3 5 3 , 4 0 9 , 7 2 3 0 , 8 9 2 , 7 ) 2 7 8 , 9 8 ( 9 8 1 , 9 7 4 - - - 0 1 8 , 7 2 0 7 , 1 9 5 , 5 1 0 1 8 , 7 2 7 5 , 8 9 4 , 1 # 0 3 8 , 8 9 3 4 9 3 , 7 3 1 - - 4 3 5 , 3 6 9 7 , 4 3 0 , 2 4 3 5 , 3 2 3 3 , 5 1 8 8 9 , 2 1 1 3 8 3 , 5 6 2 1 , 1 3 6 0 4 2 1 , 4 3 8 , 5 3 2 9 , 5 1 5 3 6 2 9 3 , 2 2 3 3 4 , 1 0 4 6 , 3 2 - 9 6 2 , 1 2 4 3 , 6 2 8 1 9 4 , 9 9 8 , 6 0 5 7 7 6 5 , 2 1 - 7 4 3 , 4 1 2 5 , 8 2 6 2 0 3 1 , 3 1 7 0 9 4 1 4 , 2 5 1 1 6 3 4 , 3 9 2 6 , 3 8 6 6 , 7 7 7 , 1 6 9 8 2 6 , 5 1 2 - 2 5 2 , 1 0 5 7 3 8 , 0 9 4 8 1 7 , 5 7 6 , 7 2 1 1 , 4 6 3 , 1 , 1 7 0 4 4 3 7 1 8 , 4 2 1 0 0 0 , 3 3 8 , 1 - - 6 1 2 , 4 2 3 9 9 , 5 8 9 1 0 8 , 2 2 1 9 8 9 , 5 2 7 7 0 , 1 1 7 6 8 , 9 5 1 , 8 2 0 6 6 6 6 , - - - - ) 9 8 4 4 8 ( , ) 1 2 5 , 8 3 ( 6 4 6 , 8 5 7 , 6 r a e y e h t g n i r u d s n o i t i d d A r a e y e h t g n i r u d s l a s o p s i D n o i t a i c e r p e d d e t a l u m u c c A j t n e m t s u d A e g n a h c x E 9 0 0 2 h c r a M 1 3 t a s A 8 0 0 2 l i r p A 1 f o s A l k c o B s s o r G j t n e m t s u d A e g n a h c x E 9 0 0 2 h c r a M 1 3 t a s A e u l a v k o o b t e N 8 0 0 2 l i r p A 1 f o s A r a e y e h t g n i r u d n o i t a i c e r p e D 38 , 6 0 9 6 5 5 , 3 1 6 7 2 , 4 1 7 6 , 1 0 1 5 7 7 , 3 1 4 9 6 9 , 8 1 7 , 2 4 8 , 5 6 2 1 , 6 2 8 6 4 6 , 8 5 7 , 6 9 0 0 2 h c r a M 1 3 f o s A r e w o p f o t s o C i n h t i w d e d u l c n i n e e b s a h d e t i m L i e t a v i r P y g r e n E G P O o t g n i t a l e r i y r e n h c a M & t n a l P n o r a e y e h t r o f 9 7 8 , 3 4 3 £ f o n o i t a i c e r p e D # . n o i t a r e n e G 1619_TEXT:Layout 1 7/9/10 10:26 Page 39 3.8.2 Assets pledged as Security At 31 March 2010, properties with a carrying amount of £ 15.16 Million are secured against the Group’s immoveable assets, present and future, including the property, plant and equipment. These loans are further secured by a floating charge on the movable assets and by the personal guarantee of a Director. In addition OPG Energy has availed a bank facility against its receivables which is secured by a first floating charge on its receivables and current assets and by a second charge on the immovable assets of the Company. In addition, this facility is guaranteed by two Directors of OPG Energy and by Mr. Ravi Gupta, relative of a Key Managerial Person. 3.9 Capital Work In Progress As at 31 March 2010 As at 31 March 2009 Group £ Company £ Group £ Company £ Plant & Machinery Civil & Foundation Interest Paid on bank bor- rowings Electrical Installation Others TOTAL 3.10 Capital Advances 31,045,394 10,078,070 4,189,400 4,059,549 474,744 49,847,157 - - - - - - 17,111,103 7,519,000 1,016,905 2,967,444 560,203 29,174,655 - - - - - - 3.10. Capital advances of £21,160,152 (£6,705,770) include advance for capital goods amounting to £20,486,837 (£6,632,416) and other advances. 3.11 Other Non-Current Assets Prepaid Expenses Lease Deposit Others TOTAL As at 31 March 2010 As at 31 March 2009 Group £ Company £ Group £ Company £ 3,618,405 961,213 890,639 5,470,257 7,887 - - 7,887 3,525,784 790,734 - 4,316,518 5,000 - - 5,000 3.12 Trade and Other Receivables / Other Current Assets Other Current Assets includes prepaid expenses, staff advances, advance to suppliers etc. The carrying amounts detailed above are the maximum potential credit exposure in relation to these assets. 39 1619_TEXT:Layout 1 7/9/10 10:26 Page 40 As at 31 March 2010 As at 31 March 2009 Group £ Company £ Group £ Company £ 3,089,084 274,265 1,400,329 13,213 3,452,529 3,002,282 151,052 209,237 298,414 7,113,514 61,143,636 882,938 67,386,189 - - - 1,459 61,145,095 - 835,151 2,551,888 960,771 5,230,748 - - - - 67,386,189 Trade receivables Other Current Assets Short term loans Mutual Funds redemption receivable Dividend & Interest receiv- able Other receivables Other Current Assets TOTAL 3.13 Inventories As at 31 March 2010 As at 31 March 2009 Group £ Company £ Group £ Company £ Stock of Coal Stock of Stores and Spares TOTAL 3.14 Financial Assets 1,726,409 414,506 1,867,915 As at 31 March 2010 Group £ Company £ Available for Sale Financial Assets TOTAL 12,977,604 12,977,604 Available for Sale Financial Assets - - - - - - 41,711 41,711 As at 31 March 2009 Group £ Company £ 8,478,766 8,478,766 - - - - - Available for Sale financial assets, represents investments that present the Group with the opportunity for return through dividend income and gains. Funds raised in the Initial Public Offer and contributed as equity in three of the subsidiaries - OPG Power Generation Pvt Ltd and OPG Power Gujarat Pvt Ltd and Gita Power and Infrastructure Pvt Ltd were, to the extent not immediately required for the project, deployed in deposits with banks and (in) units of (Regulated, supervised) mutual funds. 40 1619_TEXT:Layout 1 7/9/10 10:26 Page 41 3.15 Cash and Cash Equivalents As at 31 March 2010 As at 31 March 2009 Group £ Company £ Group £ Company £ Cash Cash at Bank Cheques on hand Fixed Deposits Cash and cash equivalents Restricted Cash 3,786 7,355,871 - 6,808,796 14,168,453 7,072,048 1,481,894 - 44,669 - 7,072,048 10,290,078 4,039,991 - - - 157,891 21,827,204 32,319,842 1,403,126 - - 4,039,991 - Restricted cash of £ 1,481,894 (£1,403,126) represents bank deposits, including accrued interest, of varying maturities extending beyond two years, all of which are under lien to the Group’s bankers. 3.16 Share Capital The Company is incorporated under the Isle of Man Companies Act 2006 (CA 2006) which does not prescribe that a company shall have an authorized share capital. Rather, subject to CA 2006 and to the Memorandum and Articles of Association, shares in a company may be issued at such times and to such persons, for such consideration and on such terms as its directors may determine. Certain companies had invested in the Company prior to Admission at the Placing Price (the “Pre IPO Monies”). The issue price at listing was Pence 60 per Ordinary share for the issue of 108,418,367 new Ordinary Shares raising £ 65.10 Million before issue expenses. 286,989,795 shares are outstanding as at March 31, 2010 and 2009 which includes 170,068,027 shares to Promoters, 8,503,401 for cash pre IPO and 108,418,367 shares for cash as initial public offering. Issued capital as at March 31, 2010 and 2009 amounts to £42,187. 3.17 Earnings per share Weighted average number of ordinary shares Shares deemed to be issued for no con- sideration in respect of stock options Weighted average number of ordinary shares(diluted) Year ended 31 March 2010 Year ended 31 March 2010 Period ended 31 March 2009 Period ended 31 March 2009 286,989,795 286,989,795 267,502,834 267,502,834 4,383,911 4,383,911 - - 291,373,706 291,373,706 267,502,834 267,502,834 Diluted EPS ( In Pence) Diluted EPS ( In Pence) 0.323 0.318 (0.539) (0.539)* 1.237 1.237 0.475 0.475 * Anti dilutive, hence Basic EPS to be considered as Diluted EPS. 41 1619_TEXT:Layout 1 7/9/10 10:26 Page 42 3.17.1 Employee Stock Option Issued to Directors - On 16 July 2009, Board has granted share options which are limited to 10% of the Group’s Share Capital(Presently 28,698,979 shares). Once granted, options must be exercised within ten years of the date of grant otherwise the options lapse. The Vesting of these options is based on following conditions: 1) The power plant at Kutch (2x150MW) in the State of Gujarat must have been in commercial operation for three months. 2) The closing share price being at least £1.00 for 3 consecutive business days. Under IFRS 2 – Share Based Payments, these outstanding options being in the nature of share based payment, are amortized over the estimated vesting period of 3.71 years (expected completion of Kutch Plant - Gujarat by April 2013). Accordingly, the attributable expense for the period was GBP 1,206,959. 3.17.2 Fair value of share options granted in the year The weighted average fair value of the share options granted during the financial year is £0.28. Options were priced using a Black Scholes Model – European Option. Where relevant, the expected life used in the model has been adjusted based on management’s best estimate for the effects of non-transferability, exercise restrictions (including the probability of meeting market conditions attached to the option), and behavioral considerations. Expected volatility is based on the historical share price volatility. Assumptions Grant date share price Exercise price Expected volatility Option life Dividend yield Risk-free interest rate Option Fair Value £0.66 £0.60 31.34% 6.86years 0% 3.04% £0.28 3.17.3 Movements in shares options during the year The following reconciles the share options outstanding at the beginning and end of the year Balance at beginning of year Number of Options - Granted during the year(at an exercise price of £0.60) 22,524,234 Forfeited during the year Exercised during the year Expired during the year Balance at end of year - - - 22,524,234 42 1619_TEXT:Layout 1 7/9/10 10:26 Page 43 3.18 Interest Bearing Loans and Bank Borrowings As at 31 March 2010 Group £ As at 31 March 2010 Company £ As at March 2009 Group £ As at March 2009 Company £ Non -Current liabilities Bank borrowings Current liabilities Current portion of bank borrowings Total Borrowings The borrowings are repayable as follows: On demand or within one year In the second year In the third to fifth years inclusive After five years 3.19 Financial Instruments 3.19.1 Financial risk factors 30,800,245 30,800,245 3,882,815 3,882,815 34,683,060 3,882,815 10,677,786 19,058,181 1,064,278 34,683,060 - - - - - - - - - - 19,967,353 19,967,353 2,481,114 2,481,114 22,448,467 2,481,114 5,798,783 14,168,570 - 22,448,467 - - - - - - - - - - (a) The Group’s activities expose it to a variety of financial risks; market risk (for example, currency risk) interest rate risk and liquidity risk. The Group’s overall risk management programme places stress on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. The financial instruments of the Group, other than derivatives, comprise loans from banks and financial institutions, nonconvertible bonds, demand deposits and short-term bank deposits. (b) Financial risk management objectives The Finance Director and Managing Director of the Group, co-ordinate access to domestic and international financial markets, monitor and manage the financial risks relating to the operations of the Company through internal risk reports which analyse exposures by degree and magnitude of risks. These risks include fair value interest rate risk component of market risk, credit risk, liquidity risk and cash flow interest rate risk. The Company does not seek to manage fair value interest rate risk and cash flow interest rate risk on its fixed and floating borrowings, as these risks are managed at the Group level. The company does not enter into any financial derivative contracts. The Company follows Group’s policies approved by the board of directors, which provide written principles on, interest rate risk, credit risk, the use of non-derivative financial instruments, and the investment of excess liquidity. Compliance with policies and exposure limits is reviewed by the internal auditors on a continuous basis. The Company does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. 43 1619_TEXT:Layout 1 7/9/10 10:26 Page 44 3.19.2 Market risk (a) Foreign Exchange Risk The Group prepares consolidated financial statements in UK Pounds and conducts substantially all its business in Indian rupees (‘INR’). As a result, it is subject to foreign currency exchange risk arising from exchange rate movements which will affect the Group’s translation of the results and underlying net assets of its foreign Subsidiaries. (b) Cash fl ow and fair value interest rate risk As the Group has no significant interest-bearing assets other than investment in bank deposits, the Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Company considers that the impact of fair value interest rate risk on investment in bank deposits is not material. The Group’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. During the period, the Group’s borrowings at variable or fixed rates were entirely denominated in the functional currency of its Indian entities, being INR. Financial assets Cash and bank balances Trade and other receivables Financial Liabilities Rupee floating rate loan Trade and other payables Financial assets Cash and bank balances Trade and other receivables Financial Liabilities Bank Borrowings: As at 31 March 2010 (£) On demand Less than 1 year 1 -5 years More than 5 years Effective interest rate Total 14,168,453 10,202,598 24,371,051 - - - - - - - - - 14,168,453 10,202,598 24,371,051 3,882,815 14,639,829 16,160,416 12.00% 34,683,060 6,757,099 - - 10,639,914 14,639,829 16,160,416 6,757,099 41,440,159 As at 31 March 2009 (£) On demand Less than 1 year 1 -5 years More than 5 years Effective interest rate Total 33,722,968 6,631,077 40,354,045 - - - - - - - - 33,722,968 6,631,077 - 40,354,045 44 1619_TEXT:Layout 1 7/9/10 10:26 Page 45 Rupee floating rate loan Trade and other payables 2,481,114 10,741,938 9,225,415 12.04% 22,448,467 859,733 - - 3,340,847 10,741,938 9,225,415 859,733 23,308,200 The carrying amount reflected above represents the Company’s maximum exposure to credit risk for such loans and receivables. (c) Credit risk The Group’s credit risk arises from accounts receivable balances on sale of electricity. The Indian entities have entered into exclusive Power Purchase Agreements (PPA’s) with industrial buyers to export the entire electricity generated. The Group is therefore committed to sell power to these customers and regards any potential risk of default as being a commercial one. The Group is paid monthly by the buyers for the electricity it supplies. Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Company. For cash and cash equivalents the Company only transacts with entities that are rated the equivalent to investment grade and above. Other financial assets consist of amounts receivable from related parties. The company’s exposure to significant concentration of credit risk on receivables from related parties is detailed in note 3.24. The group has not entered into any derivative financial instruments during the year and hence there is no credit risk exposure on derivatives The table below shows the credit limit set by the group for and outstanding deposits there against in respect of 2 major bank counterparties at the balance sheet date using the Standard and Poor’s credit rating symbols. Counterparty Location Rating Punjab National Bank India Not As at 31 March 2010 As at 31 March 2009 Maximum amount that can be deposited Deposits as at year end £ £ Maximum amount that can be deposited £ Deposits as at year end £ Indian Overseas Bank Indian Bank (d) Liquidity risk Available 6,000,000 5,334,814 4,500,000 2,836,435 India India Not Available Not Available - - 3,500,000 2,148,289 3,500,000 1,473,982 - - Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents and maintaining adequate credit facilities. In respect of its existing operations the Group funds itself primarily through bank borrowings secured against each power plant. The Group’s objective in relation to its existing operating business is to maintain sufficient funding to allow the plants to operate at an optimal level and in particular purchase the necessary raw materials required. In respect of each plant under development, the Group prepares a model to evaluate the necessary 45 1619_TEXT:Layout 1 7/9/10 10:26 Page 46 funding required. The Group’s strategy is to primarily fund such acquisitions by assuming debt in the development companies secured on the power plant to be built. In relation to the payment towards equity component of companies to be developed, the Group ordinarily seeks to fund this by the injection of external funds by debt or equity. The Group has identified a large range of development opportunities which it is continually evaluating and which are subject to constant change. In respect of its overall business the Group therefore does not, at the current time, maintain any overall liquidity forecasts. The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet to the contractual maturity date. (e) Capital risk management The Group’s objective when managing capital is to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for stakeholders. The Group also proposes to maintain an optimal capital structure to reduce the cost of capital. Hence, the Group may adjust any dividend payments, return capital to shareholders or issue new shares. Total capital is the equity as shown in the consolidated balance sheet. Currently, the Group primarily monitors its capital structure in terms of evaluating the funding of potential developments. It plans to strike a balance between risks and returns. Management is continuously evolving strategies to optimize the returns and reduce the risks. It includes plans to optimize the financial leverage of the Group. The Group’s debt of £ 19,032,713 (net of Cash & Cash Equivalents of £ 14,168,453 and restricted cash of £ 1,481,894) represents a gearing of 23.56% on a net debt basis. (f ) Interest rate risk management The Company is exposed to interest rate risk as it borrows funds at both fixed and floating interest rates. The risk is managed by the Company by maintaining an appropriate mix between fixed and floating rate borrowings. The Company’s exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note. Interest rate sensitivity analysis The sensitivity analyses below have been determined based on the exposure to interest rates for non- derivative instruments at the balance sheet date. For floating rate liabilities, the analysis is prepared assuming the amount of liability outstanding at balance sheet date was outstanding for the whole year. A 0.5 per cent increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates. Year ended 31 March 2010 Period ended 31 March 2009 As Reported +0.5% -0.5% As Reported +0.50% -0.50% Net result for the year 4,017,505 3,874,141 4,160,870 5,332,809 5,302,525 5,363,095 Shareholder's Equity 80,768,909 80,625,545 80,912,273 72,811,083 72,798,479 72,825,129 46 1619_TEXT:Layout 1 7/9/10 10:26 Page 47 (g) Fair value of fi nancial instruments Details of the methods of the determination of the fair values of the Company’s financial assets and financial liabilities are discussed in the note 2.7. The carrying amount of financial assets and financial liabilities are recorded in these financial statements at amortised cost which approximate their fair values. 3.20 Employee Benefits 3.20. In accordance with applicable Indian laws, the Group provides for gratuity, a defined benefit retirement plan (“the Gratuity Plan”) covering eligible employees. The Gratuity Plan provides for a lump sum payment to vested employees on retirement (subject to completion of five years of continuous employment), death, incapacitation or termination of employment of amounts that are based on salary and tenure of employment Liabilities with regard to the Gratuity Plan are determined by actuarial valuation on the reporting date. The following tables summarises the components of net benefit expense recognised in the income statement and the funded status and amounts recognised in the balance sheet for the plan: As at 31 March 2010 As at 31 March 2009 Group £ Group £ Present value of unfunded obligations Recognised liability for defined benefit obligations Total employee benefi t liability 15,338 15,338 15,338 1,443 1,443 1,443 3.20.2 Movements in the net liability for defined benefit obligations recognised in the balance sheet As at 31 March 2010 As at 31 March 2009 Group £ Group £ Net liability for defined benefit obligations at 1 April Expense recognised in the income statement (see below) Actuarial gains Translation adjustment Net liability for defined benefit obligations 1,443 16,142 (3,885) 1,638 15,338 1,570 746 (973) 100 1,443 3.20.3 Employee benefits recognised in the balance sheet are as follows: Non-current employee benefits As at 31 March 2010 As at 31 March 2009 Group Group 15,338 15,338 1,443 1,443 47 1619_TEXT:Layout 1 7/9/10 10:26 Page 48 3.20.4 Employee benefits recognised in the income statement Current service costs Interest on obligation Actuarial gains Year ended 31 March 2010 Group £ Period ended 31 March 2009 Group £ 15,643 499 (3,885) 12,257 645 101 (973) (227) 3.20.5 The above expense is recognised in the following line items in the income statement: Employee Cost Pre-operative expenses(Relating to projects under construc- tion) 3.20.6 Liability for defined benefit obligations Principal actuarial assumptions at the balance sheet date: Discount rate at 31 March Future salary increases Withdrawal rate 3.20.7 Personnel costs Wages and salaries Increase in liability for defined benefit plans Share based compensation Costs Year ended 31 March 2010 Group Period ended 31 March 2009 Group 486 11,771 12,257 (227) - (227) As at 31 March 2010 As at 31 March 2009 Group £ Group £ 8% 15% 10% 8% 15% 10% Year ended 31 March 2010 Group £ Year ended 31 March 2010 Company £ Period ended 31 March 2009 Group £ Period ended 31 March 2009 Company £ 165,610 122,724 114,019 86,701 486 1,206,959 1,373,055 - (227) 1,206,959 1,329,683 - 113,792 - - 86,701 48 1619_TEXT:Layout 1 7/9/10 10:26 Page 49 3.21 Leases and Licences One of the subsidiaries has taken land on lease for 30 years from 4 September 2006. Plant and equipment of the 10 MW waste heat plant operated by OPG Renewable Energy has been taken on a license agreement dated 26 April 2008, with effect from 23 September 2008, for fifteen years (with an option to renew it for 15 more years), from Kanishk Steels, a related party. As a compensation for this arrangement, the entity has committed to supply 9 Million units of power per annum to Kanishk and only the power generated in excess of this commitment is available for sale to external customers. The quantum of rental has been reduced to 4.5 Million units per annum from 1 April 2009. An interest free refundable lease deposit of INR 200 Million (equivalent to £ 2.7 Million) has been paid at the end of March 2009 by the entity to Kanishk as security deposit to compensate for this reduction in rental. An amount of £ 236,537 has been charged to the Income statement being the rent for the period. For further details, please refer to Note 2.17. The total of future minimum lease payments under these non cancelable operating leases for each of the following periods: Not later than one year One to five years Greater than five years As at 31 March 2010 (Group) As at 31 March 2009 (Group) Amount (£) Amount (£) 236,537 946,149 2,427,833 79,053 818,105 2,623,626 3.22 Capital Commitments and Contingent liabilities 3.22.1 Bank Guarantees and Letters of credit PARTICULARS Towards outstanding Letter of Credit Towards Counter guarantees furnished to the bank out- standing Bank Guarantees Company – Nil for both years As at 31 March 2010 Group £ As at 31 March 2009 Group £ 5,674,858 7,814,483 190,134 812,891 3.22.2 Estimated amount of contracts remaining to be executed on capital contracts : (net of advances) PARTICULARS As at 31 March 2010 Group £ As at 31 March 2009 Group £ Estimated amount of contracts remaining to be executed on capital contracts 142,629,414 127,332,911 Company – Nil for both years 49 1619_TEXT:Layout 1 7/9/10 10:26 Page 50 3.22.3 Claims against the group not acknowledged as debts a. Towards additional demand of income tax for the assessment year 2007-08 £ 428,514 against which appeal has been filed before appellate authorities. No provision is considered necessary for these disputed demands, as the Company has been legally advised of success in the appeal. Costs expected to be incurred is also not material. 3.23 Related Parties 3.23.1 Key Management Personnel (KMP) Arvind Gupta – Managing Director V. Narayan Swami –Finance Director 3.23.2 List of Related Parties Name of the Related Party Nature of Relationship Gita Investments Limited Holding Company of the entity Arvind Gupta V. Narayan Swami Gita Energy Pvt Ltd Gita Holdings Pvt Ltd OPG Energy private Limited OPG Power Generation Private Limited OPG Renewable Energy Private Limited OPG Power Gujarat Private Limited Key Management Personnel of the entity Key Management Personnel of the entity Controlled entity Controlled entity Step down Controlled entity Step down Controlled entity Step down Controlled entity Step down Controlled entity Gita Power and Infrastructure Private Limited Step down Controlled entity Other Related Parties with whom there were transactions during the period: Sri Hari Vallabhaa Enterprises & Investments (P) Limited Entity in which Key management personnel has Control / Significant Influence Dhanvarsha Enterprises & Investments Private Limited Entity in which Key management personnel has Control / Significant Influence Goodfaith Vinimay (P) Ltd Salem Food Products Limited Kanishk Steel Industries Limited Gita Energy and Generation Private Limited Gita Devi Rajesh Gupta Ravi Gupta Entity over which KMP exercises Control / Significant Influence through relatives Entity in which Key management personnel has Control / Significant Influence Entity in which Key management personnel has Control / Significant Influence Entity in which Key management personnel has Control / Significant Influence Relative of Key Management Personnel Relative of Key Management Personnel Relative of Key Management Personnel 50 1619_TEXT:Layout 1 7/9/10 10:26 Page 51 3.23.3 Transactions with related parties Transactions / Names of Party Relationship 2010 2009 Entity over which relative of KMP exercises Control / Significant Influence Entity over which KMP exercises Control / Significant Influence through relatives Amount(£) Amount(£) 790,753 381,128 - 790,753 16,400 397,528 Sharing of Power Kanishk Steel Industries Limited Salem Food Products Limited Cost of Power Generated Kanishk Steel Industries Limited Loan Outstanding Salem Food Products Limited Interest Received Salem Food Products Limited Loans Repaid Salem Food Products Limited Receivables Salem Food Products Limited Kanishk Steel Industries Limited Entity over which relative of KMP exercises Control / Significant Influence Entity over which KMP exercises Control / Significant Influence through relatives Entity over which KMP exercises Control / Significant Influence through relatives Entity over which KMP exercises Control / Significant Influence through relatives Entity over which KMP exercises Control / Significant Influence through relatives Entity over which relative of KMP exercises Control / Significant Influence 8,946 283,515 890,639 844,669 89,660 89,300 - 67,422 970 887 632,955 633,925 - - - - 13,409 14,296 22,500 2,040,817 1,530,612 1,530,612 5,124,541 Investments in share capital Gita Investments Limited Holding Company Sri Hari Vallabhaa Enterprises & Investments (P) Ltd Entity in which KMP is a Director Dhanvarsha Enterprises & Investments (P) Ltd Entity in which KMP is a Director Goodfaith Vinimay (P) Ltd Entity over which KMP exercises Control / Significant Influence through relatives 51 1619_TEXT:Layout 1 7/9/10 10:26 Page 52 Rent paid Gita Devi Remuneration Paid Rajesh Gupta Ravi Gupta Further lease deposit made Kanishk Steel Industries Limited Lease Rent paid Kanishk Steel Industries Limited Lease Deposit outstanding Kanishk Steel Industries Limited (difference is only due to change in exchange rates) Reimbursement of Expenses Kanishk Steel Industries Limited Close relative of KMP 2,100 3,033 Close relative of KMP Remuneration as director of OPG Energy Pvt Ltd Close relative of KMP Remuneration as director of the company Entity over which relative of KMP exercises Control / Significant Influence Entity over which relative of KMP exercises Control / Significant Influence Entity over which relative of KMP exercises Control / Significant Influence Entity over which relative of KMP exercises Control / Significant Influence - 5,308 25,000 22517 - 3,233,145 236,226 237,584 3,532,783 3,233,144 16,015 23,948 1,719,051 3,394,260 - - Advance Paid Gita Energy and Generation Private Limited Entity over which relative of KMP exercises Control / Significant Influence Gita Power and Infrastructure Private Limited Entity over which relative of KMP exercises Control / Significant Influence 3.23.4 Director’s Remuneration The remuneration of Directors for the period was as follows: Salaries, Allowances and Perquisites Share based payments TOTAL 3.24 Restatement relating to 2008-09 2010 2009 Amount(£) Amount(£) 304,729 1,206,959 1,511,688 313,189 - 313,189 Foreign currency translation movements (a net gain of GBP 694,240) on US Dollar bank deposits outstanding as at March 31 2009 were carried in reserves instead of being recognised in income for 52 1619_TEXT:Layout 1 7/9/10 10:26 Page 53 the period ended March 31, 2009 as required by IAS 21. Consequently profits of the previous period was understated to this extent. This item has been restated by release to the Income Statement for the relative reporting period under Other gains & losses (Note 3.3). The basic and diluted Earnings per Share for the relative period have also been correspondingly restated. (Refer Note 3.17) 3.25 Reclassification of the consolidated financial statements for the prior years Prior year’s figures in the consolidated financial statements have been regrouped and reclassified wherever necessary to conform to the current year’s figures. The Group has reclassified following items which does not have any impact upon the income statement, cash flows, equity and financial position and performance of the Group. Depreciation relating to plant and machinery (GBP 343,879) which was included as part of Depreciation costs has now been reclassified to Cost of power Generation. Current Tax Assets (GBP 751,308) and Provision for Taxation (GBP 942,826) which were shown on a net basis have been restated in their respective carrying amounts. Deferred Tax Asset (GBP 60,909) and Deferred Tax Liability (GBP 446,451) which were shown on a net basis have been restated in their respective carrying amounts (Note 3.7.1). The above reclassifications have no impact on the separate financial statements. These reclassifications also have no impact on the profits and earnings per share of the periods presented. 3.26 Events After Balance Sheet Date The 80 MW power plant (OPG Power Generation Private Limited) has been commissioned on 14th April’ 2010 near Chennai (India). There are no other material events after the reporting period, which have a bearing on the understanding of the financial statements. 53 COVER:Layout 1 7/9/10 12:00 Page 2 COVER:Layout 1 7/9/10 12:00 Page 1 

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