O P G P o w e r V e n t u r e s P c A n n u a l l R e p o r t & A c c o u n t s 2 0 1 5 O P G P o w e r V e n t u r e s P l c A n n u a l R e p o r t & A c c o u n t s 2 0 1 5 SCALE ROBUSTNESS GROWTH Annual Report & Accounts 2015 5 YEAR REVIEW PROVEN TRACK RECORD OF DELIVERY OPG was listed on AIM (LSE) in May 2008 with 20 MW of operating capacity. Today the Group has 750 MW of assets with 600 MW in operation across two of India’s most industrialised states – Tamil Nadu and Gujarat. Management has remained focused on delivery and operations. Operations at the Chennai plant have consistently performed ahead of industry average, at average Plant Load Factors of over 90%. The Company’s strategy has been to focus on profitable and sustainable growth. The business model focuses on providing reliable power to industrial customers in India’s power thirsty market. 40 MW Coal shed under construction Air cooled condenser unit Plant control panel 2010 77 MW Chennai I commissioned in August 2010. Total installed capacity of 113 MW. 2012 77 MW Chennai II delivered in September 2012, a replica of Chennai I doubling installed capacity to 190 MW. 2013 80 MW Chennai III commissioned in June 2013. Chennai IV converted from two units of 80 MW to a single unit of 160 MW. PROVEN TRACK RECORD OF DELIVERY The Company’s 400 strong in-house team are responsible from conception to delivery of projects and operations of its plants. The Chennai plant has been awarded the OHSAS 18001 and ISO 14001 for occupational standards of health and safety and environmental management systems which is an integral part of the business. Financial performance has mirrored operational performance with a CAGR of 46% and 23% in revenues and earnings respectively over the last five years. In addition, management have also adopted a measured approach in managing its debt. 750 MW Plant control panel Chennai plant Control room 2013 80 MW Chennai III commissioned in June 2013. Chennai IV converted from two units of 80 MW to a single unit of 160 MW. 2014 Chennai IV upgraded from 160 MW to 180 MW increasing the total capacity at Tamil Nadu to 450 MW. 2015 300 MW Gujarat and 180 MW Chennai IV construction completed and commenced commercial operations in 2015. OPG Power Ventures Plc is a developer and operator of power plants in India HIGHLIGHTS Financial highlights Revenue (£m) 98.81 99.97 56.19 21.58 38.48 FY11 FY12 FY13 FY14 FY15 Revenue of £99.97m up 1.2% (FY14: £98.81m); underlying Rupee revenue up 4.0% EBITDA (£m) 33.39 30.97 17.74 10.08 11.30 FY11 FY12 FY13 FY14 FY15 EBITDA of £33.39m up 7.8% (FY14: £30.97m); EBITDA margin of 33.4% up from 31.3% PBT (pre-exceptional items) (£m) 21.65 19.95 13.32 8.84 6.34 FY11 FY12 FY13 FY14 FY15 Pre-tax profits of £21.65m up 20.6% (FY14: £17.95m) Earnings per share (pence) 4.91 4.14 2.13 1.71 2.48 FY11 FY12 FY13 FY14 FY15 EPS of 4.91 pence up 18.6% (FY14: 4.14 pence) Gearing (%) 59 52 30 37 FY12 FY13 FY14 FY15 (24) FY11 Gearing at 59% 01 • Gujarat: remaining 150 MW available and expected to be in operation following completion of transmission system by Gujarat state • Long-term freight arrangement for imported coal entered into with Noble Chartering through a joint venture Operational highlights (including post year end events) • 750 MW construction completed; 600 MW now operational • 180 MW Chennai IV operational • 300 MW Gujarat plant commenced commercial sales in April 2015 Strategic • Focus to secure continued profitable growth • Renewables and thermal growth projects being evaluated • Proposed long-term management incentive scheme that is aligned with value to shareholders Strategic Report 01 Highlights 02 Business model and Company overview 08 Our ‘Differentiated Story’ 10 Chairman’s statement 12 Macro overview 16 Chief Executive’s review 20 Operational review 22 Principal risks 24 Financial review 30 Sustainability report Corporate Governance 34 Board of Directors 36 Corporate governance report 39 Directors’ remuneration report 42 Directors’ report 44 Statement of Directors’ responsibilities Financial Statements Independent Auditors’ report 45 46 Consolidated Statement of Profit or Loss and Consolidated Statement of Comprehensive Income 47 Consolidated Statement of Financial Position 48 Consolidated Statement of Changes in Equity 50 Consolidated Statement of Cash Flow 51 Notes to the Consolidated Financial Statements 74 Corporate Directory 75 Definitions and Glossary EARNINGS AND GROWTH THROUGH... OPG Power Ventures Plc Annual Report & Accounts 2015 04 Strategic Report Corporate Governance Financial Statements PERFORMANCE ROBUSTNESS Annual Report & Accounts 2015 OPG Power Ventures Plc Strategic Report Corporate Governance Financial Statements 05 MW 180 MW Chennai IV The Company has consistently delivered strong operating and financial performance. The robustness of our business model has been proved with its ability to weather difficult trading conditions faced by the Indian power sector. Our plants have been performing at over 90% PLFs, significantly above industry average. Our ability to achieve such high PLFs can be attributed not only to our equipment but also our ability to procure a constant supply of coal. We also continue to realise above average tariff with our flexible sales model. The result is clearly visible in our year on year growth in profits and earnings. Plant load factor (%) 94 92 96 81 75 73 70 66 91 66 FY11 FY12 FY13 FY14 FY15 Chennai – all units All India – thermal plants Source: CEA April 2015 see pages 04–05 OPG Power Ventures Plc Annual Report & Accounts 2015 06 Strategic Report Corporate Governance Financial Statements DIVERSIFICATION & GROWTH SCALE Annual Report & Accounts 2015 OPG Power Ventures Plc Strategic Report Corporate Governance Financial Statements 07 Chimney 300 MW Gujarat Electrostatic precipitator Boiler Turbine generator Air cooled condenser Coal shed 600 MW of operational capacity (MW) 750 600 270 190 20 30 107 113 IPO May 2008 31 March 2010 31 March 2011 31 March 2012 31 March 2013 31 March 2014 Current 31 March 2016E The Company has grown from 20 MW to 750 MW since its listing in May 2008. With 750 MW fully constructed and 600 MW in operations, its operating base has trebled from 270 MW and is also diversified in two locations creating a strong operating platform for future growth. The management team has demonstrated its capability of delivering large projects on budget and schedule in India. In addition, it has gained significant expertise such as its ability to build plants in two locations at the same time and broadening its in-house capability in transmission line construction. see pages 06–07 OPG Power Ventures PlcAnnual Report & Accounts 2015 Strategic ReportCorporate GovernanceFinancial Statements 02 BUSINESS MODEL AND COMPANY OVERVIEW The Company aims to deliver shareholder value by being the first choice provider of reliable and uninterrupted power at competitive rates to its customers. Our strategy is to maximise performance of existing generation assets and to continually de-risk our project portfolio. mpetitive p ri c i n g o C Demand R e s ponsible Supplier of choice to our customers for uninterrupted power Mod ula r e x p a n s i o n Shareholder returns In-house cap a b iliti e s F u e l fl e xibility xi m ity to ports o P r Supply Our business model is currently driven by the demand for continuous power in industrialised states of India. OPG’s revenue model is to focus power sales on industrial and commercial customers either directly or through state utilities. OPG, a source of continuous and uninterrupted power supply, provides an opportunity to meet the regular and peak power demands of its customers. OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 03 750 MW The Company has 750 MW of fully constructed assets across two locations in Tamil Nadu and Gujarat. 600 MW in operation 450 MW Tamil Nadu 150 MW Gujarat Gujarat 300 MW Tamil Nadu Chennai I, II, III, IV, Waste heat Mayavaram 450 MW OPG Power Ventures PlcAnnual Report & Accounts 2015 Strategic ReportCorporate GovernanceFinancial Statements 04 PERFORMANCE ROBUSTNESS 180 MW CHENNAI IV PLANT OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements ROBUSTNESS 05 MW The Company has consistently delivered strong operating and financial performance. The robustness of our business model has been proved with its ability to weather difficult trading conditions faced by the Indian power sector. Our plants have been performing at over 90% PLFs, significantly above industry average. Our ability to achieve such high PLFs can be attributed not only to our equipment but also our ability to procure a constant supply of coal. We also continue to realise above average tariff with our flexible sales model. The result is clearly visible in our year-on-year growth in profits and earnings. Plant load factor (%) 92 94 96 81 75 73 70 66 91 66 FY11 FY12 FY13 FY14 FY15 All India – thermal plants Source: CEA April 2015 Chennai – all units All India – thermal plants OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 06 DIVERSIFICATION AND GROWTH SCALE Chimney Electrostatic precipitator 300 MW GUJARAT PLANT OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 07 Boiler Turbine generator Air cooled condenser Coal shed 600 MW of operational capacity (MW) 750 600 270 190 20 30 107 113 IPO May 2008 31 March 2010 31 March 2011 31 March 2012 31 March 2013 31 March 2014 Current 31 March 2016E The Company has grown from 20 MW to 750 MW since its listing in May 2008. With 750 MW fully constructed and 600 MW in operations, its operating base has trebled from 270 MW and is also diversified in two locations creating a strong operating platform for future growth. The management team has demonstrated its capability of delivering large projects on budget and schedule in India. In addition, it has gained significant expertise such as its ability to build plants in two locations at the same time and broadening its in-house capability in transmission line construction. OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 08 OUR ‘DIFFERENTIATED STORY’ Performance delivery versus planned MW • Strong track record of project delivery • Long-standing management has built internal expertise in development and operations • Supported by a 51% shareholder and top UK institutions Established reliable fuel supply • Boilers designed with flexibility to use domestic/imported coal • Proven coal linkages, logistical advantages and storage facilities for coal • High PLFs achieved consistently; no previous stoppages due to lack of fuel availability Sensible leverage • Strong operating portfolio with positive cash flow to date • Ahead of schedule on debt repayments • Continued deleveraging through repayments • Local credit rating ‘A’, following two upgrades in the last six months • Strong project management minimising scope for overruns Flexible revenue model • Positioned to maximise tariffs through flexible sales model • Better positioned to respond to coal costs through short/medium- term sale contracts Diversification and growth • 270 MW to 750 MW of capacity • Diversified – in two locations • Focus continues to be to secure profitable growth • Evaluation of brownfield thermal and renewable projects OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 09 KEY PERFORMANCE INDICATORS Average tariff realisation (Rs/kWh) Cost of generation (Rs/kWh) EBITDA (£m) 5.58 5.55 5.71 3.10 3.25 3.19 3.17 3.27 33.39 30.97 4.95 4.93 FY11 FY12 FY13 FY14 FY15 FY11 FY12 FY13 FY14 FY15 FY11 FY12 FY13 FY14 FY15 17.74 10.08 11.30 This is the average price realised per unit of power sold. The average tariff achieved for FY15 was Rs 5.71/kWh, an increase of 3% from FY14 due to higher realisation from Group captive customers and the LTVT contract. The cost of fuel is the primary cost input in power plants. Cost of generation per kWh increased to Rs 3.27 FY15 from Rs 3.17 in FY14 due to increase in local duties and transportation costs. Plant load factor (%) 92 94 81 75 73 70 96 66 91 66 FY11 FY12 FY13 FY14 FY15 All India – thermal plants Source: CEA April 2015. Plant load factor measures the output of a power plant compared to the maximum output it could produce. Our Chennai plant (units I, II and III) achieved an average PLF of 91%, significantly ahead of industry average. Gearing (%) 59 52 37 19 FY12 FY13 FY14 FY15 (24) FY11 Gearing is a measure of net debt to shareholders’ equity plus net debt. As at 31 March 2015 the Group has net debt of £250.6m and gearing of 59%. The Company is near peak debt with all projects under construction complete. Earnings Before Interest, Taxes, Depreciation and Amortisation is a factor of volumes, prices and cost of production. This EBITDA measure is calculated by adjusting non-operational and exceptional items, depreciation and net finance cost. It is a measure of the Company’s operating cash flows. EBITDA for FY15 was higher by 8% at £33.39m. (FY14: £30.97m). Earnings per share (pence) 4.9 4.1 2.4 2.1 1.7 FY11 FY12 FY13 FY14 FY15 This represents net profit after tax attributable to equity shareholders. In FY15, earnings per share were 4.9 pence, an increase of 18.6%. OPG Power Ventures PlcAnnual Report & Accounts 2015 Strategic ReportCorporate GovernanceFinancial Statements 10 CHAIRMAN’S STATEMENT I’m delighted to be addressing shareholders following another very successful year. momentum, and industry becomes a more thirsty consumer group. I’m therefore truly excited by the Company’s prospects as it now represents scale, robustness and growth. Upon the completion of construction of our 750 MW portfolio I would like to take the opportunity to thank the management team and our employees and contractors for all their efforts in building this Company from the ground up and my sincere thanks to my Board colleagues. In addition, on this special occasion of having delivered on all its promises, on behalf of the Company, I want to extend a very special thanks to all of our shareholders and lenders who have supported us over the last seven years since our admission to AIM. M C Gupta Chairman 1 June 2015 For the fifth year in succession, management demonstrated the effectiveness and sustainability of their adopted group captive business model as a result of which your Company recorded consistently healthy margins. Maintaining our record for achieving unbroken fuel supplies and strong tariffs, we also benefited from reduced exchange rate volatility. As well as delivering industry leading operational performance, management have built the Group from 20 MW to a fully developed 750 MW generator. Securing a reputation for building all of their controllables to time and within budget, the Group has delivered on its IPO commitments. We are now a fast growth power generator with an attractive multi-locational asset base. And we still have important work to do to continue to satisfy the expectations of our customers. To this end management are looking ahead and wanting to provide customers with a one stop shop for all energy needs, both from thermal or renewable sources. The Company thus has the opportunity to closely replicate the diversity of the nation’s energy generation. I expect the generation of cash from its full portfolio of assets to put the Company on the path to dividends. In addition through management’s pursuit of a growth strategy the Company is targeting enhanced returns at a time when India’s economic revival appears to be gathering OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 11 DELIVERING EARNINGS AND GROWTH ‘ The team at OPG have achieved much over the last five years and have delivered compound earnings growth of over 40% per annum over the last three years. OPG is now set to achieve a new dimension as we start to generate cash flows from a significantly expanded, multi-locational asset base.’ OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 12 MACRO OVERVIEW A year of reforms Focus on the power sector The NDA Government came into power with a majority just over a year ago with the promise to improve the economy and kick start growth through introducing business and investor friendly policies and cutting down red tape. Since coming into power, the key programmes that the Government has initiated are ‘Make in India’ and ‘Power for All’ to achieve its target of 8% economic growth. Select reforms being undertaken by the Government are outlined opposite. ‘Make in India’ • The ‘Make in India’ programme includes new initiatives designed to facilitate investment, foster innovation, protect intellectual property, and build best-in-class manufacturing infrastructure in India • New delicensing and deregulation measures are reducing complexity, and significantly increasing speed and transparency of doing business in India • 100% Foreign Direct Investment in certain areas of defence and railways • Boost across all sectors ranging from automobile, aviation to pharma, power and textiles Tax reforms • The much awaited Goods and Services Tax (‘GST’) bill is in final stages of parliamentary adoption • Pledge to not initiate any new retrospective tax claims • Simplification of corporation tax regime Single Ministry for Power, Coal, New and Renewable Energy • For the first time power and coal have been put under one ministry providing a ‘one stop shop’ for permitting • Expedite and streamline the approval process for new projects and improving coal availability for thermal power • Tapping the potential for hydro and renewable energy Improving coal availability – Mines and Mineral/ Coal Mines Bill • Allotment of mines by a transparent and comprehensive auction process • Allowing private sector companies to mine coal for merchant use, previously only for captive purposes • Extension of mining lease period from 30 to 50 years • Transparent auction process for allocation of 204 mines cancelled by the Supreme Court during September 2014 Per capita consumption (kWh) 13,394 All India installed capacity 268 GW (fuel wise breakdown) 6,431 2,384 2,944 774 914 957 India (Mar 12) India (Mar 13) India1 (Mar 14) Brazil China Russia US 1 Provisional. Source: World Bank, 2012. CEA, February 2015. 69% Thermal 16% Hydro 12% Renewable 2% Nuclear 1% Diesel Source: CEA, April 2015. OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 13 ‘ Fruits of development will not reach the common man until energy connectivity reaches every last household of the country. In this age of globalisation, we have no option but to make a quantum leap in energy production and connectivity.’ Narendra Modi Prime Minister of India 24x7 ‘Power for All’ by 2020 Renewables boost • Earmarked investments and budgetary measures and other incentives Transmission • Government targets 175 GW of renewable capacity (includes 100 GW solar and 65 GW of wind) addition by 2022 • Setting up of Green Energy Corridor (US$8bn project) to improve grid connectivity of seven leading renewable energy states • Total investment of c.US$100bn estimated • Restructured-Accelerated Power Development and Reforms Programme: Revamping and modernising transmission and distribution infrastructure and implementing IT enabled systems across the nationwide T&D networks • Dean Dayal Grameen Jyoti Yojana (‘DDGJY’) – focused feeder • separation for domestic and agriculture, and strengthening the sub transmission and distribution in rural areas Integrated Power Development Scheme (‘IPDS’) – improve distribution in semi-urban and rural areas including underground cabling with an estimated investment of US$5bn Distribution • 11 High Capacity Power Transmission Corridors (‘HCPTCs’) from resource rich and coastal states – e.g 2,500km-long high capacity power evacuation link between Chhattisgarh and Tamil Nadu • National Smart Grid Mission initiative to make power transmission and distribution cost effective, reliable and responsive – Pilot launched in 14 states Electricity Act reforms proposed • Planning reforms to unbundle ‘carriage’ and ‘content’ • Make Renewable Purchase Obligations (‘RPO’) mandatory Projected energy mix 2017 (%) 64% Thermal 17% Renewable 16% Hydro 3% Nuclear Source: CEA Renewable includes SHP, BP, U&I, solar and wind energy. Coal India Limited targets 1 billion tonnes by 2020 e d (Mt) e q u i r 5 % r r C A G R o f 1 a 5 Y e 1,000 452 462 550 494 FY13A FY14A FY15A FY16F FY20F Source: CEA, Ministry of Power. OPG Power Ventures PlcAnnual Report & Accounts 2015 Strategic ReportCorporate GovernanceFinancial Statements 14 MACRO OVERVIEW CONTINUED Positive economic environment In the last 12 months, the macro environment in India has witnessed an improvement in key economic indicators such as GDP, inflation, exchange rates and interest rates. There was also euphoria following the election of a majority government reflected in the outperformance of the Indian stock markets versus global markets. Indian GDP forecasted to grow at 8% GDP growth for FY15 was 7.2% as compared to 5.1% and 6.9% in FY13 and FY14, respectively. Growth was broad-based, with investment, private consumption and Government consumption contributing. The economy is forecasted to grow at 7.5–8.5% per annum in coming years. GDP outlook for India affected by: • Lower inflation and interest rates • Stable currency due to improved current account deficit • Public expenditure increased and the Government to take lead in infrastructure sector • Reforms and other Government initiatives set to drive up manufacturing growth • Robust monetary policy framework with a strong central bank Monetary landscape Lower inflation driven by lower oil and softer food prices – RBI target between 4–6% • India formally adopted inflation targeting in March 2015 under its monetary policy RBI believes that managing price volatility is key for long-term growth and has set a target of 2–6% with below 6% for FY16 and a 2% reduction over the following years • Inflation rates came down significantly in FY15 with CPI and WPI inflation recorded at 5.2% and 2.3%, respectively versus 8.2% and 6% in March 2014 • Softer food, commodity and oil prices have resulted in lower inflation in FY15 • Government to pursue food market reforms to ease supply and volatility in food prices RBI cuts interest rates by 75 basis points • RBI reduced interest rates by 75 basis points with three cuts of 25 basis points each since the start of 2015 • Rate cuts driven by lower inflation and renewed growth Less volatile foreign exchange rates in FY15 following a sharp depreciation in FY14 • In FY15, USD/INR hovered in the range of 58 to 63 • A change in political make-up followed • by policy action by the Government and RBI resulted in a steady Rupee In the first nine months of FY15, there was a surge in FIIs inflow which supported the Rupee against the US Dollar Real GDP growth rate (%) % 12 Interest rate and inflation trend (%) Rate % 8.2 Inflation % 12 10 8 6 4 2 0 2 0 Y F 3 0 Y F 4 0 Y F 5 0 Y F 6 0 Y F 7 0 Y F 8 0 Y F 9 0 Y F 0 1 Y F 1 1 Y F 2 1 Y F 3 1 Y F 4 1 Y F 5 1 Y F e 6 1 Y F Figures for FY13 and FY14 are based on the new GDP methodology with 2011–12 as base year. FY16 numbers are estimates. Source: RBI. 8.0 7.8 7.6 7.4 7.2 7.0 6.8 10 8 6 4 2 0 2 1 n u J 2 1 g u A 2 1 t c O 2 1 c e D 3 1 b e F 3 1 r p A 3 1 n u J 3 1 g u A 3 1 t c O 3 1 c e D 4 1 b e F 4 1 r p A 4 1 n u J 4 1 g u A 4 1 t c O 4 1 c e D 5 1 b e F 5 1 r p A 5 1 n u J 5 1 g u A n Repo Rate n Inflation (RHS) Source: RBI & Gol OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 15 International coal markets – coal production unaffected due to lower local production costs • International coal producers’ shielded as costs have come down due to lower oil and a strong US Dollar • Consequently, no major change in • • international coal supply India imported c.215Mt coal in FY15 and is expected to reach 260Mt in FY16 International coal prices have declined over the last two years • Price of Indonesian HBA coal (4,200 GAR) has declined by 12% in FY15 India expected to become the biggest importer of coal. • ‘ Our goal is to secure availability of coal to meet the demand of various sectors of the economy in an eco-friendly, sustainable and cost effective manner.’’ Piyush Goyal Power, Coal and New, and Renewable Energy Minister Coal overview Domestic coal in short supply production expected to be ramped up to 1 billion tonnes by 2020 India has over 300 billion tonnes of coal reserves and therefore coal remains India’s predominant primary energy source, accounting for approximately two-thirds of total power generation capacity and expected to remain the major contributor for the foreseeable future. However: • Domestic coal supply has been lower • than the demand Inadequate rail capacity hampers timely availability of coal • Low generation due to non-availability of coal Measures introduced to improve coal supply: • Coal India Limited India plans to increase annual coal production to 1 billion tonnes by 2020 from c. 500Mt Increased allocation to power sector Improvement in mining processes to increase production Increase efficiency by building plants with improved technologies • • • • Mining Bill Amendment – allowing private sector companies to mine coal for merchant use • Expand railway lines at coal sites and add 250 additional rakes to evacuate higher coal quantities USD INR exchange rate (daily prices) 70 Global coal prices vs Indian Rupee USD/tonnes 120 65 60 55 50 45 1 1 v o N 2 1 n a J 2 1 r a M 2 1 y a M 2 1 l u J 2 1 p e S 2 1 v o N 3 1 n a J 3 1 r a M 3 1 y a M 3 1 l u J 3 1 p e S 3 1 v o N 4 1 n a J 4 1 r a M 4 1 y a M 4 1 l u J 4 1 p e S 4 1 v o N 5 1 n a J 5 1 r a M 5 1 l u J 5 1 y a M Source: Bloomberg. 100 80 60 40 20 0 2 1 r p A 2 1 n u J 2 1 g u A 2 1 t c O 2 1 c e D 3 1 b e F 3 1 r p A 3 1 n u J 3 1 g u A 3 1 t c O 3 1 c e D 4 1 b e F 4 1 r p A 4 1 n u J 4 1 g u A 4 1 t c O 4 1 c e D 4 1 b e F 5 1 r p A 5 1 n u J 5 1 g u A Indonesian Eco Coal (USD/MT) RB (USD/MT) NEWC (USD/MT) USD/INR (RHS) Source: RBI and Bloomberg. INR/USD 69 64 59 54 49 44 OPG Power Ventures PlcAnnual Report & Accounts 2015 Strategic ReportCorporate GovernanceFinancial Statements 16 CHIEF EXECUTIVE’S REVIEW This has been a period of tremendous progress for the Company. We have run our operations at over 90% load factor and nearly trebled our available capacity from 270 MW to 750 MW. In so doing, we have also established a multi-location business, widened our core skills in areas such as transmission line construction, delivered an increase of over 20% in profitability and continued to actively manage our gearing and operational risk profile. Over the last three years, as we increased from 110 MW to 270 MW operating capacity, our local currency earnings have grown by over 350%. With a full 750 MW constructed and further low risk projects being evaluated, we intend to create further value for shareholders. A quantum leap forward to 750 MW constructed assets In the last few weeks, the Group has completed the construction of its biggest projects – the 180 MW Chennai IV and the 2x150 MW Gujarat, bringing our total constructed assets to 750 MW. With one of the 150 MW units in Gujarat awaiting transmission lines from the state, we currently have 600 MW of operational assets across two states. The 180 MW Chennai unit, constructed on time and within budget, was built using key equipment from Europe, a first for the Group, and increases the Chennai plant’s capacity to 414 MW. The new units at Chennai and Gujarat boast the same flexible fuel design features as our existing Chennai plant. At the 300 MW Gujarat site, our development work has been completed. We continue to work with the state transmission company on constructing the multi-circuit evacuation line which is now approximately two-thirds complete. In the meantime, one 150 MW unit has already been operating at an average load factor of approximately 47% since commissioning in April, ahead of our expectations. This unit uses the newly constructed interim transmission line and we continue to expect both units of the plant to achieve normal commercial operations in around September 2015. I am extremely proud of the team’s achievement in building two sizeable projects concurrently in different locations to such a high standard. Operations continue to endorse our business model In addition to the substantial growth in capacity, we achieved continued strong operational performance that saw load factors averaging 91% across our portfolio of three units that were commercially active for the full financial year at Chennai. This is well ahead of the national average and is reflective of our flexible procurement policy that once again helped to ensure we experienced no lack of fuel (coal). We continued to perform consistently well against regulated tariff levels for industrial users – our average tariff for the year rising slightly to Rs 5.71 per kWh. These factors combined to deliver Rupee revenues that were higher than last year in spite of a major planned maintenance shutdown of our flagship unit, Chennai I. Our robust top line thus continued to benefit from the successful implementation of our business model. Revenue (£m) CAGR: 46% 99 100 EBITDA (£m) CAGR: 34% 30.97 33.39 56 17.74 38 22 10.08 11.30 FY11 FY12 FY13 FY14 FY15 FY11 FY12 FY13 FY14 FY15 OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 17 Tamil Nadu 450 MW Gujarat 300 MW Our joint venture with Noble, entered into in August 2014 for a Long Term Freight Arrangement, is expected to provide security over our cost and availability of international freight for around half of our existing operations from 2017, deploying the right management skills to deliver those savings. Under the arrangement, the Company has joint ownership of two new 64,000 tonnes cargo vessels and gives OPG the ability to use 1.5 Mt of freight capacity per annum. I believe our being able to take such opportunities as they arise helps us to establish a continually more robust business. Maintaining our focus on balance sheet management During the year we invested £102m on completing our capital projects and our borrowings were £261m at 31 March 2015. This represents gearing of 59% which remains in line with expectations. Our repayments remain on schedule and our borrowing facilities have an average outstanding duration of approximately nine years versus our enlarged asset portfolio that is being depreciated over 35–40 years. During the year, our domestic credit rating was raised to ‘A-’ and in the last few weeks it has been raised again to ‘A’. In addition, as a result of base rate reductions, we have already seen 0.5% cut from our local borrowing cost which equate to annualised pre-tax savings of over £1m. ‘ With a full 750 MW constructed and further low risk projects being evaluated, we intend to create further value for shareholders.’ Rupee costs have held steady As much of our coal purchases are imported, unit costs of generation are affected by currency fluctuation between the US Dollar and the Indian Rupee. Whilst we have continued to enter into a mix of fixed and variable price coal contracts of varying durations, the Rupee has been far less volatile against the US Dollar than in previous years. Any savings generated as a result of coal prices were largely offset by a rise in logistics costs and coal cess. Around 68% of our coal purchases were imported. Opportunities taken to manage risk One of the advantages of our model is that we retain the flexibility to take opportunities that benefit our risk-reward profile. For instance, in October 2014 the Group secured power sales contracts until September 2015 with TANGEDCO for around two-thirds of the output from the Chennai plant at attractive fixed rates. Similarly, the Long Term Variable Tariff arrangement entered into in January 2014 for 74 MW continues until 2029 and delivered an average tariff this year of Rs 5.79 per kWh. This is in addition to the 55 MW reserved by us at Chennai for sales direct to Group captive customers at an average tariff of over Rs 6 per kWh since December 2014. PBT (pre-exceptional items) (£m) Earnings per share (pence) CAGR: 38% 21.65 19.95 CAGR: 23% 4.9 4.1 13.32 8.84 6.34 2.1 1.7 2.4 FY11 FY12 FY13 FY14 FY15 FY11 FY12 FY13 FY14 FY15 OPG Power Ventures PlcAnnual Report & Accounts 2015 Strategic ReportCorporate GovernanceFinancial Statements 18 CHIEF EXECUTIVE’S REVIEW CONTINUED ‘ We are evaluating in detail new projects, including modular wind and solar projects across four states in India.’ Earnings per share 4.91 pence We are evaluating in detail new projects, including modular wind and solar projects across four states in India. I believe that the development of renewables capacity will make our business even more robust with a yet wider combination of technologies, locations and potential customers. The evaluation of these future projects will include analysis of the optimum funding structure, given the forecast internal cash generation of the Company alongside the Board’s intention to initiate a dividend which remains unchanged and is to be embedded within our proposed long- term management incentive scheme. Our current view is that projects to be pursued are those that can be funded from internally generated capital and debt. At this time of positioning the Company for the next stage of its development, the Board recognises that the Group currently has no long-term incentive plan in place. As such, the Group’s Remuneration Committee believes that the introduction of an incentive scheme is appropriate as the Board targets future growth. The scheme’s currently proposed metrics, described in more detail after the financial review, are to be designed to sit alongside the Group’s strategy with vesting occurring upon value creation for shareholders. India’s economic revival continues and we will continue to build a robust business for the long term Some developments are being prioritised by the new Government in pushing ahead with business-focused legislation, such as that relating to land acquisition for infrastructure projects, mining and minerals, and to the transparency of administrative processes. The Government is starting to lead the way on investment in certain crucial sectors including the power sector. Delivering ‘Power for All by 2020’ and anticipated amendments to the Electricity Act 2003 should assist in making investment more attractive but I believe that the sheer enormity of the task to balance electricity supply and demand makes it one of the country’s greatest challenges. We expect to play our part by continuing to build and grow a profitable and robust business that meets the demands of our customers. Meeting demand, maintaining momentum With customers seeking to source their energy needs through a mixture of thermal and renewable power, the Board will endeavour to ensure that OPG’s growth in the future reflects that dynamic. We have kept an active watch on the renewable power space and are being measured about the timing of our entry into renewables as the aforementioned demand trend in India coupled with improving wind and solar technologies and falling equipment prices make it increasingly attractive to us. OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 19 To achieve our targets we need to maintain leadership in health and safety and responsible corporate citizenship We are a growing team of around 400 and I’m pleased to report that at both Chennai and Gujarat, continuous training programmes in safety management are established for both OPG and contractor staff. Targets have been introduced to enable year-on-year improvements and these are monitored by the Company’s Health, Safety and Environment Committee. To drive the improvement programmes, the Company has adopted a Policy of Zero Harm at both sites. We continue to invest in our community initiatives in both Gujarat and Tamil Nadu building sanitation facilities and providing medical outreach and educational assistance to over 2,500 friends of OPG. Summary First and foremost, a big thank you to our team, whose unrelenting efforts have created our business. Similarly my gratitude goes to all of our partners and stakeholders over the last several years and of course to the Board for their support and guidance. I’m delighted by our exceptional progress. As our story starts to reveal itself more fully in the form of significant cash flows from our new plants, I’m more confident than ever of the Group’s ability to deliver further and increasing long-term value. Our Company continues to progress towards a new level of robustness defined by its increasing scale, diversity and ability to secure profitable growth. Arvind Gupta Chief Executive Officer 1 June 2015 OPG Power Ventures PlcAnnual Report & Accounts 2015 Strategic ReportCorporate GovernanceFinancial Statements 20 OPERATIONAL REVIEW Chennai performed ahead of expectations at an average of 91% Plant Load Factor (‘PLF’) for the year. Million kWh generated 1,861 Average tariff (INR) 5.71/kWh The Company’s joint venture with Noble Shipping to secure freight for part of our operations is expected to further strengthen our procurement operations. Indonesian and Indian coal costs went up during the year due to higher logistics costs and coal cess. Average cost of generation per unit was Rs 3.27, 3.2% higher from FY14. Achieving new scale with addition of 480 MW 180 MW Chennai IV 180 MW Chennai IV plant was originally planned as a 160 MW comprising 2x80 MW. The unit was upgraded to one unit of 160 MW and again in May 2014 to 180 MW. The move provided the Company with additional space to construct its 80 MW Chennai III, the equity for this funded by internal cash flows. Key highlights of the plant: • Expanded from 160 MW to 180 MW in May 2014 • European equipment supplier • Shared facilities • Sales agreed at Rs 5.50 until September 2015 to TANGEDCO (state utility) 300 MW Gujarat Construction at Gujarat plant, comprising two units of 150 MW, was completed in February 2015. It has been the Group’s largest greenfield project to date and in a second location. Key highlights of the plant: • Adapted from water cooled to air cooled • Second greenfield site developed at the same time as Chennai IV • New skills developed e.g. transmission lines • Similar flexible boiler design as in Chennai • Commenced commercial sales in mid April 2015 Interim transmission line in use • Consistent and strong operational performance Chennai plants performed ahead of expectations at an average of 91% Plant Load Factor (‘PLF’) for the year. At 77 MW Chennai I, a planned shutdown was taken for three weeks, for the first time since commissioning and the plant operated at 90% for the remainder of the year. Power generation from the Chennai plant (Chennai I, II, III) for the year was 1,861 million kWh, slightly ahead of last year (FY14: 1,840 million kWh) as the full year generation from Chennai III (FY14: 10 months) offset the Chennai I shutdown. Other performance parameters such as auxiliary power consumption and heat rate efficiency remained in line with management expectations. Flexible and diversified sales mix We continued to sell our output under our flexible sales model adopting a diversified sales mix of both customers and tenure. In October 2014, the Company entered into its sales arrangement with Tamil Nadu Generation and Distribution Company (‘TANGEDCO’) to supply 255 MW of output until September 2015 at Rs 5.50/kWh (including output from Chennai IV on commercial commissioning). This was in addition to our existing 15 year Power Purchase Agreement (‘PPA’) for 74 MW under the Long Term Variable Tariff Agreement (‘LTVT’) entered into in January 2014 which provides foreign exchange protection for imported coal. Approximately 55 MW output was sold directly to industrial customers. Our average tariff realised across all our sales in Chennai for FY15 was Rs 5.71/kWh representing a 3% increase from FY14. This increase was on account of higher realisation on our LTVT and a 10% increase in tariffs from December for 55 MW sales to industrial customers. Coal supplies The Company received its anticipated coal supplies from Coal India Limited (‘CIL’) during the year and remained unaffected by the deallocation of coal blocks by the Supreme Court and the subsequent auctioning of these blocks. The Company also had contracts in place in FY15 to procure imported coal from its established suppliers and received its agreed quantities of coal allowing for planned running of operations. All India average PLFs were 66% during the year primarily due to non-availability of coal, as compared to 91% achieved by our plants. Our flexible boilers, coastal location and covered coal sheds supplemented by our established procurement policy ensured we continued to receive our coal regularly. OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 21 Average tariff realisation (Rs/kWh) 5.58 5.55 5.71 4.95 4.93 FY11 FY12 FY13 FY14 FY15 Cost of generation (Rs/kWh) 3.10 3.25 3.19 3.17 3.27 FY11 FY12 FY13 FY14 FY15 Generation (kWh) 1,841 1,861 932 648 329 FY11 FY12 FY13 FY14 FY15 Plant load factor (%) 92 94 81 75 73 70 96 66 91 66 FY11 FY12 FY13 FY14 FY15 All India – thermal plants Source: CEA April 2015. OPG Power Ventures PlcAnnual Report & Accounts 2015 Strategic ReportCorporate GovernanceFinancial Statements 22 PRINCIPAL RISKS The Group faces a number of risks to its business and strategy. Management of these risks is an integral part of the management of the Group. The Group has in place a process for identifying and managing risks. The list of principal risks and uncertainties facing the Group’s business set out below cannot be exhaustive because of the very nature of risk. New risks emerge and the severity and probability associated with these will change over time. Sector-related risks POWER SALE Description The Company’s power plants derive their revenue from the Group captive model selling power Company’s on short-term, medium-term, or long-term sale basis and would, for this purpose, enter into Power Purchase Agreements with counterparties such as industrial captive consumers, power trading companies and state utilities. Contracts with customers may impose restrictions on the Company’s ability to, amongst other things, increase prices at short notice and undertake expansion initiatives with other customers. This could affect the revenue in the short- to medium-term. In addition, recovery of revenues could be effected by credit risk of a customer or their ability to draw power at any given time. AVAILABILITY OF FUEL SUPPLY AND COSTS Description The Group has coal linkages with domestic companies and agreements for imported coal. The dependence on third parties for coal exposes the Group’s power plants to vulnerabilities such as non-supply, price increases in the international market, foreign exchange fluctuations and increases in shipping costs and any changes in applicable taxes and duties. This could impact the operations and profitability of the Group. TIMELY EXECUTION OF PROJECTS Description The length of the construction period and the cost to complete any given project is dependent on third-party suppliers and EPC contractors. Factors such as disputes with contractors, price increases, shortages of construction materials, delays in supply from various contractors, accidents, unforeseen difficulties, changes in Government policies, delays in receipt of necessary approvals and non-availability of external infrastructure such as transmission lines, can lead to cost overruns and delays impacting the timely completion and ultimately the profitability of projects. PROJECT FINANCE Description The development of power plants is a capital intensive business and the Group’s projects require access to both equity and debt markets. The availability of capital as well as terms of debt funding/interest rates may change including the need for personal guarantees. Monitoring and mitigation • Review contracts periodically to obtain best possible tariffs • Flexibility to sell to captive consumers or in the open market • Benchmarking captive consumer prices to state utility prices to benefit from any price increases • Monitor ongoing customer performance, maintaining a group of counterparties Monitoring and mitigation • Seeking long-term supplies • Maintaining adequate storage facility to keep appropriate levels of surplus stocks • Maintaining relationship with suppliers and mitigating any potential disruption • Developing different sources for fuel supply especially in the imports market Monitoring and mitigation • Close monitoring of projects by the project team and addressing issues causing delays • Ordering key equipment and long lead items ahead of schedule • Including liquidated damages clauses in its contracts in relation to such matters as delays and inferior workmanship • Developed strong and well experienced in-house EPC team to deliver the projects on time Monitoring and mitigation • Assessing financial viability of projects • Financing projects with an optimum mix of debt and equity including internal accruals • Obtaining in-principle project finance from banks before commencement of projects • Monitoring cash flows to ensure repayment of debt and interest in line with schedule • Exploring new relationships in debt markets to ensure optimum debt funding terms OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 23 India-specific risks GOVERNMENT POLICY AND REGULATIONS Description The power industry is heavily regulated with permits and licences issued by the Indian Government and other regulators. Further, the regulatory environment is continuously changing. Obtaining these licences is critical to the Group’s development plans. Failure or delays in receiving permits or approvals could have an adverse impact on projects and affect the profitability of the Group. ABILITY TO RETAIN FISCAL AND TAX INCENTIVES Description The Group’s existing and planned power plants are based on the various fiscal and tax benefits that will be available to the Company by the federal and state Government. A change in policy or the adoption of tax policies and incentives can have an adverse impact on the profitability of the Group. EXCHANGE RATE FLUCTUATIONS Description As a consequence of the international nature of its business, the Company is exposed to risks associated with changes in foreign currency exchange rates. The Group’s operations are based in India and its functional currency is the Indian Rupee although the presentational currency is Great Britain Pound Sterling. The raw material is purchased in US Dollars. The Group’s financial results may be affected by appreciation or depreciation of the value of the foreign exchange rates relative to the Indian Rupee. GLOBAL FINANCIAL INSTABILITY Description The Indian market and Indian economy are influenced by global economic and market conditions, particularly emerging market countries in Asia. Financial instability in recent years has inevitably affected the Indian economy. Continuing uncertainty and concerns about contagion in the wake of the financial crises could have a negative impact on the availability of funding. Monitoring and mitigation • The Group monitors and reviews changes in the regulatory environment and its commitments under licences previously granted • It continually ensures compliance with the conditions contained within individual licences and is mindful of the importance of complying with national and local legislation and standards • The Group maintains an open and proactive relationship with the Indian Government and its various agencies Monitoring and mitigation • The Group continues to monitor changes and developments in respect of incentives provided by the Indian federal and state authorities • Project investment returns are evaluated based on the expected incentives available to the Company and are revised based on the most up-to-date guidance available Monitoring and mitigation • Putting in place, where appropriate, forward contracts or hedging mechanisms • Monitoring our risk on a regular basis where no hedging mechanism is in place and taking steps to minimise potential losses Monitoring and mitigation • The Group continues to monitor changes and developments in the global markets to assess the impact on its financing plans OPG Power Ventures PlcAnnual Report & Accounts 2015 Strategic ReportCorporate GovernanceFinancial Statements 24 FINANCIAL REVIEW The following is a commentary on the Group’s financial performance in the year. Revenue £99.97m Income Statement (£m) Year ended 31 March Revenue Cost of revenue (excluding depreciation) Gross profit Other income Distribution, general and administrative expenses (excluding depreciation, employee stock option charge, expenditure during the period on expansion project) Earnings Before Interest, Taxation, Depreciation and Amortisation (‘EBITDA’) Depreciation Net finance costs Income from continuing operations (before tax, non-operational and/or exceptional items) Expenditure during the period on expansion projects Employee stock option charge Charge on deconsolidated investments Profit before taxation Taxation Profit after taxation % of revenue 41.5 2015 99.97 (58.46) 41.51 0.13 2014 98.81 (59.52) 39.29 0.26 % of revenue 39.8 (8.25) (8.58) 33.39 (3.15) (7.97) 33.4 30.97 (2.90) (8.53) 31.3 22.27 22.2 19.54 19.8 (0.38) (0.24) – 21.65 (4.36) 17.29 (0.34) (0.97) (0.27) 17.95 (3.39) 14.56 21.6 17.2 18.2 14.7 Revenue Whilst translated revenues were similar to last year, the Company’s underlying Rupee revenues increased by 3.8%. This was due to a 1% increase in output as a net result of a full year of operation at the 80 MW Chennai III which was brought into commercial service in June 2013 and offset by a planned long maintenance shutdown taken at 77 MW Chennai I. The Group’s average tariff was up by 2.9% following a 10% increase in December 2014 in the tariff charged to industrial customers served directly (currently around 55 MW) plus an average realisation of Rs 5.79 on the Long Term Variable Tariff (‘LTVT’) arrangement that relates to 74 MW of the output of the Chennai plant. There were no revenues from the new 180 MW Chennai IV or 300 MW Gujarat plants during the period under review. Production and output levels from the Group’s three operating power units in Chennai compared to the prior year were as follows: Particulars Generation (million kWh) Auxiliary consumption (million kWh) Sales (million kWh) PLF % Average tariff (INR/kWh) FY15 FY14 1,8611 139 1,722 91 5.71 1,8402 130 1,710 96 5.55 1 Planned maintenance shutdown – 25 days for the Chennai I unit and 15 days for the Chennai II unit during the year. 2 Chennai III commissioned on 5 June 2013. OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 25 ‘ EBITDA was £33.39m in FY15 up from £30.97m in FY14.’ EBITDA (£m) CAGR: 34% 30.97 33.39 17.74 10.08 11.30 FY11 FY12 FY13 FY14 FY15 Cost of revenue About 90% of cost of revenue is represented by fuel costs. The average factory gate costs for Indian coal increased by 4.5% and for Indonesian coal by 3.2% due to increase in inland transportation and duties. Cost of generation per unit increased by 3.2% to Rs 3.27 from Rs 3.17. Cost of revenue in Pound Sterling terms was 58.5% of revenue in FY15, lower than the 60.2% recorded in FY14 due to the effect of foreign currency translation. The table below shows the average factory gate price per tonne and per unit of energy, and blend of Indian and Indonesian coal consumed in FY15 and FY14. Coal blend and cost per energy unit in FY15 Financial year FY15 FY14 Change % Average factory gate cost (INR/Mt) Average factory gate price (INR per million kCal) Indian coal Indonesian coal 3,062 2,931 4,056 3,930 Indian coal 988 945 Indonesian coal 966 936 Blend % Indian v: Indonesian 32:68 17:83 +4.5% +3.2% +4.5% +3.2% Gross profit Gross profit (‘GP’), excluding depreciation in 2015 was £41.51m (FY14: £39.29m), an increase of 5.6% principally as a result of the increase in average tariffs described above and lower costs of revenue on translation. Underlying gross profit margins remained steady at 38%. EBITDA EBITDA is a measure of a business’s cash generation from operations before interest, taxation, depreciation and exceptional and non-standard or non-operational changes which are non-cash item or expenses relating to projects under construction. EBITDA was £33.39m in FY15 up from £30.97m in FY14 and the EBITDA margins were higher at 33.4% in 2015 against 31.3% in 2014 reflecting the higher GP in FY15. Profit before tax (‘PBT’) (£m) Profit before tax 2014–15 Profit before tax 2013–14 Increase in PBT Reconciliation Increase in gross profit Reduction in other income Increase in distribution expenses Decrease in general and administrative expenses Increase in depreciation Decrease in net finance cost1 Reduction in expenses on expansion of projects Reduction in ESOP expense Reduction in charge on deconsolidated investments Increase in PBT 1 This excludes charge on deconsolidated investments. Total 21.65 17.95 3.70 2.23 (0.13) (0.66) 0.99 (0.25) 0.56 (0.04) 0.73 0.27 3.70 OPG Power Ventures PlcAnnual Report & Accounts 2015 Strategic ReportCorporate GovernanceFinancial Statements 26 FINANCIAL REVIEW CONTINUED PBT (pre-exceptional items) (£m) CAGR: 38% 21.65 19.95 Distribution, general and administrative Distribution costs include transmission costs to Group captive customers and discount for early payment by customers. Distribution costs were higher by £0.6m due to increased sales to Group captive customers. 13.32 8.84 6.34 FY11 FY12 FY13 FY14 FY15 General and administrative costs (excluding charge on deconsolidated investments) were lower by £0.99m principally due to lower foreign exchange losses during the year as the Rupee and US Dollar exchange rates were relatively steady. Management remuneration costs increased during the year which included provisions of £0.5m for bonuses. Finance costs Net finance costs were lower by £0.56m due to decrease in finance costs relating to operations by £0.7m and higher finance income of £0.45m which was generated by profit on sale of short-term financial investments. Finance costs on borrowings increased £0.6m due to increase in borrowings. Expenditure on projects This relates to expenses incidental to projects under construction charged to period expense not being of a capital nature and therefore not capitalised to project costs. These expenses in FY15 were £0.38m in FY15 as compared to £0.34m in FY14. Employee Stock Option (‘ESOP’) charge This relates to the amortisation of the value of stock options granted to certain Directors and is non-cash in nature. £0.23m reflected the balance ESOP costs relating to 22 million options which were amortised during the year. Taxation The Company’s operating subsidiaries are under a tax holiday period but are subject to Minimum Alternate Tax (‘MAT’) on its accounting profits. Any tax paid under MAT can be offset against future taxable profits once the tax holiday period is over. The tax charged during the year was £4.36m (FY14: £3.39m) which includes current tax of £2.85m (FY14: £2.68m) and deferred tax of £1.51m (FY14: £0.71m). As a result effective tax rate for the year was 20.14% up from 18.86% in FY14. Consolidated Income Statement Particulars Revenue Cost of revenue Gross profit Gross profit % on sales Other income Distribution cost General and administrative expenses Operating profit Financial costs Financial income Profit before tax Profit before tax % on sales Tax expense Profit for the year (Amount in INR million) 31 March 2015 31 March 2014 % of change 9,838.30 9,474.50 (6,082.98) (5,830.98) 3,755.32 3,643.52 38% 25.00 (115.29) (858.53) 38% 12.52 (183.37) (727.08) 2,857.39 2,694.70 (938.95) 94.47 (926.02) 141.49 2,072.86 1,850.22 20% (324.60) 21% (429.13) 1,643.73 1,525.62 4 4 3 (50) 59 (15) 6 (1) 50 12 32 8 OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 27 31 March 2015 31 March 2014 0.67 414.55 2.75 2.78 0.47 279.62 0.73 0.19 420.75 281.01 28.63 7.89 6.81 5.30 0.57 23.91 73.11 21.01 12.90 6.64 7.46 0.15 64.13 112.29 493.86 393.30 0.05 124.32 (11.14) 51.13 164.36 0.25 0.05 124.32 (21.82) 33.85 136.40 0.23 164.61 136.63 237.94 16.79 3.21 186.58 24.99 1.51 257.94 213.08 22.85 47.84 0.62 71.31 329.25 8.19 35.17 0.23 43.59 256.67 493.86 393.30 Earnings per share (pence) CAGR: 23% 4.9 4.1 2.1 1.7 2.4 FY11 FY12 FY13 FY14 FY15 Summary Financial Position (£m) Assets Non-current assets Intangible assets Property, plant and equipment Investment and other assets Restricted cash Current assets Trade and other receivables Inventories Cash and cash equivalents Restricted cash Current tax assets Investment and other assets Total assets Equity and liabilities Equity Share capital Share premium Other components of equity Retained earnings Equity attributable to owners of the Company Non-controlling interests Total equity Liabilities Non-current liabilities Borrowings Trade and other payables Deferred tax liability Current liabilities Borrowings Trade and other payables Other liabilities Total liabilities Total equity and liabilities OPG Power Ventures PlcAnnual Report & Accounts 2015 Strategic ReportCorporate GovernanceFinancial Statements 28 FINANCIAL REVIEW CONTINUED Property, plant and equipment The net book value of our property, plant and equipment has increased by £135m, almost all of which relates to investments made during the year in the construction of our new plants at Chennai and Gujarat. Other non-current assets Other non-current assets increased by £4.61m year on year primarily as a result of investments made in a shipping joint venture with Noble Chartering Limited and increase in the restricted cash (deposits) holding for more than 12 months. Trade receivables (£m) Receivables from sales of power Other receivables Total FY15 28.28 0.35 28.63 FY14 20.59 0.41 21.00 The age analysis of trade receivables is as follows: Trade receivables (£m) FY15 FY14 Neither past due nor impaired 7.06 8.61 Total 28.63 21.00 Past due but not impaired Within 90 days 13.70 11.95 90 to 180 days Over 180 days 7.87 0.04 – – Subsequent to the reporting date, the Company has received £9.4m from Tamil Nadu Generation and Distribution Corporation (‘TANGEDCO’) towards the sale made during the period October 2014 and November 2014 under short-term sale agreement and for February 2015 and March 2015 under 15 year variable tariff LTBT contract. Net amounts written off trade receivables during the year total £Nil (FY14: £0.5m). Current assets Current assets decreased by £39.18m to £73.11m year on year primarily as a result of the following movements: • An increase in trade receivables of £7.63m • A reduction in investment and other assets of £40.2m of which £27.0m was on account of capital advances to suppliers on new projects being capitalised to assets under construction in property, plant and equipment. A further £14.9m represented sales of holding in financial assets for deployment in projects as scheduled • A reduction in inventory holding of £5.01m as shipments were received just after year end for existing operations and coal for newly commissioned projects is accounted under project costs until commissioning Gearing Net borrowings (borrowings net of cash and cash equivalents and available-for-sale investments) were £250.66m as at 31 March 2015. The gearing ratio was 59%. Restricted cash balances totalling £8.1m (FY14: £7.6m) comprise deposits that have been pledged as security against the Company’s borrowings. Other non-current liabilities The reduction in other non-current liabilities of £6.5m is on account of £15.0m reduction in other payables comprising capital goods payables relating to Chennai IV and Gujarat plant offset by increases of £1.6m in deferred tax provisions and £7.2m increase in project retention monies as projects approach their completion. OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 29 Current liabilities Current liabilities comprising borrowings due within 12 months, trade and other payables have increased by £27.7m on account of: • £14.7m the increase in the current portion of long-term debt which is due within 12 months • £4.0m increase in trade payables related to coal purchases for projects under commissioning • £5.0m increase in general trade payables and salaries accruals • £4.0m increase in creditors for capital goods Cash flows Operating cash flow has increased from £30.22m in FY14 to £32.88m in FY15, an increase of £2.66m, or 9%. The increase is primarily due to the increased gross profit. Movements (£m) Operating cash Tax paid Change in working capital assets and liabilities Net cash generated by operating activities Purchase of property, plant and equipment (net of disposals) Other investments Net cash used in investing activities Net interest paid FY15 FY14 32.88 (3.22) (9.74) 19.92 (77.11) 10.57 (66.54) (9.41) 30.22 (2.82) (2.25) 25.15 (128.64) (10.64) (139.28) (9.52) Total cash change before net borrowings (56.03) (123.65) Proposed Long Term Incentive Plan (‘LTIP’) The Group’s Remuneration Committee are seeking to introduce a new incentive scheme for senior management to run from FY15–16 to FY17–18 with the following shareholder value based performance targets: a). the achievement of a share price of 130 pence; b). the achievement of a further 250 MW growth in installed capacity from a base of 750 MW; and c). a cumulative total of 3 pence in ordinary dividends made, paid or declared between now and the end of/publication of the Report and Accounts in respect of FY18. Under the proposed 2015 LTIP, up to 16 million new Ordinary Shares in the Company are expected to be awarded at their nominal value of 0.0147 pence to certain members of the senior management team, the majority of which would be to Gita Investments Limited, a company linked to the CEO. The awards, which would be made in due course, would vest over a three-year period equally upon achieving the three targets. The Remuneration Committee has discretion to declare vesting of awards on a linear scale of performance but cannot raise maximum award levels. Vested shares cannot be sold for a period of one year following the end of the performance period, the exception to this rule being sales to meet tax liabilities, if any. All vested shares will be entitled to accrued dividends paid over the three-year performance period, such that the interests of the management are aligned with those of the shareholders. Further announcements will be made upon any awards of shares to Directors of the Company. OPG Power Ventures PlcAnnual Report & Accounts 2015 Strategic ReportCorporate GovernanceFinancial Statements 30 SUSTAINABILITY REPORT Corporate Social Responsibility (‘CSR’) is at the core of our operations. Maintaining our social responsibility to operate is vital to successfully delivering on our growth plans and creating value. We aim to achieve international best practices with our CSR efforts and continually evaluate our health, safety, environment, and community practices to ensure we are delivering to all our stakeholders. We are committed to improving the lives of the societies in which we operate through the integration of economic prosperity, social development and environmental protection. Health and safety Health and safety is the matter of greatest importance at OPG The Board had formally established a Health, Safety and Environment Committee (‘HSE Committee’) in FY13 to develop, implement and oversee a health and safety culture in the Company and to assist the management in its drive towards achieving and maintaining industry-leading performance in these areas. This is crucial to ensure, through management, that the Company’s employees, its customers, suppliers and its contractors enjoy a safe and healthy workplace. Across the Company, we continually monitor and review health and safety procedures, acting promptly if any improvements are required. Our motto of SAFETY FIRST is inculcated in all our personnel and in all our operations and projects under development. And of course we ensure that our plant locations are compliant with all national health and safety regulations. The OPG Chennai site is OHSAS 18001:2007 certified. OHSAS 18001 is a standard used for an occupational health and safety management system, which enables an organisation to control its risks and improve its performance in this area. The standard provides a systematic approach to identifying hazards, and then either eliminates or reduces the risks of the hazards. At both Chennai and Gujarat sites, continuous training programmes in safety management are established for both OPG and contractor staff. Targets have been introduced to enable year on year improvements and these are monitored by the Company’s HSE Committee. To drive the improvement programmes the Company has adopted the Policy of Zero Harm at both sites. Following were key initiatives/improvements that we have introduced at our power plants: Safety initiatives • Safety induction for all new employees and contract workmen as per standard programme • Manual call point checking (monthly) • Monthly EHS training programme for contract employees • Weekly EHS training programme for OPG employees (every Friday) • Extinguisher and fire hydrant training for new contract workmen and employees (monthly) • Carrying out the IMS (Integrated Management Systems) internal audit. • Fire hydrants and extinguishers healthiness and availability inspections (monthly) • Safety Committee meetings (monthly) • Training of 15 employees in first aid by a certified body • Eight employees attended five days’ training on occupational health safety, conducted by RLI (Regional Labour Institute, Government of India) • • Two emergency preparedness and response mock drills conducted (internal and external) Increased number of safety signage boards placed inside the plant Increased number of fire hydrants and monitors included in revamping activities • • Visitor’s safety guidelines introduced • Safety Committee agenda modified as per Factories Rules 1950 • EHS external audit was carried out by a third-party safety consultant • EMS 14001 and OHSAS 18001 second surveillance audit carried out • Alcohol detector procured to monitor coal truck drivers As part of their monthly and yearly reporting, plant managers are required to submit details of training activities and other initiatives. Most often these activities tend to focus on: • Fire handling • Mock emergency drills • Occupational ill health awareness The above activities typically take place at monthly intervals with a compulsory annual safety awareness day being held at both plants. In addition to processes for reporting specific incidents, plant management are required to submit a monthly safety report setting out: • Injuries by number, nature, seriousness and cause Information on near miss incidents • • Safety concerns arising and improvement actions to be taken • Safety promotion activities along with details of attendees This information, which covers around 300 employees and 350 contractors at Chennai, revealed six lost time injuries at the plant and a total reportable incident rate of 0.40, down from 0.49 in the previous year. Our target for FY16 is 0.35. For the Gujarat plant, FY16 being the first year of operations, data will be reported in the next report There were no fatalities at the Company’s operations during the year. OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 31 We ensure that our plant locations are compliant with all national health and safety regulations. Such safeguards are maintained either through management programmes or operational control procedures to minimise impact as well as mitigate risks. Main image: Safety worker monitoring noise level OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 32 SUSTAINABILITY REPORT CONTINUED Health initiatives: • CO (carbon monoxide) measurement monitoring in coal handling plant (twice monthly) • Lux monitoring day and night (weekly) lighting improvement measures taken • AAQ (‘Ambient Air Quality’) monitoring with 12 parameters (yearly) • Source noise monitoring day and night (weekly) • Annual health check-up for all employees • Occupational ill-health awareness classes • Surprise visit to observe PPE (‘Personal Protective Equipment’) compliance OPG believes that safety is everyone’s responsibility. The main objective is to motivate the employees and associates to put safety first in the workplace and contribute towards making OPG a healthier and safer place to work. Environment OPG is committed to achieve continuous improvements in environmental performance and seek to prevent, mitigate, reduce or offset the environmental impact of our operations. In May 2013, the OPG Chennai site successfully obtained the ISO 14001:2004 certification. This specifies requirements for an environmental management system to enable an organisation to develop and implement policies and objectives with respect to the environment. Environmental and green initiatives Our dedication to environmentally sustainable operations goes beyond our plants and offices. Following are a few initiatives of the Company: • 2,000 saplings planted throughout the site • E-Waste collection and disposal agreement signed with TNWMS • Colour coded waste segregation bins were introduced • Rain water collection pond volume increased by 10,000 m3 • Monthly water sprinkling programmes surrounding the Chennai plant and in other areas e.g. roads and yards through water tankers to arrest any possible dust pollution • Sweeping tractor usage for floor cleaning all over the plant At our Gujarat site we did mangrove plantation with the assistance and knowledge of the Government authorities. Our people Employee consultation The Group places considerable value on keeping employees informed on matters affecting them and on the various factors affecting the performance of the Group. This is achieved through informal meetings and presentations on new developments both within the Company and the wider industry. The Group is committed to providing equal opportunities and opposes all forms of unfair or unlawful discrimination. Employees will not be discriminated against because of race, colour, nationality, ethnic origin, disability, sex or sexual orientation, marital status or age. All employees are encouraged to raise genuine concerns about possible improprieties in the conduct of our business, whether in matters of financial reporting or other malpractices, at the earliest opportunity and in an appropriate way. Disabled persons Applications for employment by disabled persons are always fully considered, bearing in mind the aptitudes of the applicant concerned. In the event of members of staff becoming disabled, every effort is made to ensure that their employment with the Group continues and that appropriate training is arranged. Training and development Employing the right people and encouraging the continuous development of the skills of our employees is critical to developing a successful business. The Company recruits graduate engineering trainees and provides them with a comprehensive six-month on-site training programme. This will ensure that, in keeping with the growth of the Company’s assets, adequate well trained and competent personnel are available for in-house operations and project development. Supply chain The Group works with a team of industry- leading suppliers and contractors in order to mitigate the risk in the event of there being a product delay or a supplier failing. The Board recognises the particular risks posed to its supply chain by the prevailing global economic conditions and the potential impact should key suppliers fail. To mitigate these impacts, the Group monitors suppliers’ business continuity issues, providing such practical support and advice as may be appropriate. The Company’s power generation plants are fuelled by coal sourced from India but also from imported coal from Indonesia. Availability of supplies is therefore less of an issue than prices, which can fluctuate Fire safety day at Chennai site Safety worker at Chennai site Sapling plantations at Chennai site 2,000 OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 33 On-site medical facilities in line with world market forces of supply and demand. Community OPG respects the rights and acknowledge the aspirations and concerns of the communities in which it works. We recognise the importance of engaging with the local communities in which we operate. Promoting and respecting fundamental needs is at the heart of our values and business principles, and crucial to maintaining positive relations with local communities where we operate OPG Outreach OPG Outreach, launched in July 2011 near our Kutch site, has now completed four successful years and has been expanded to the Chennai site as well during 2013. The first free primary healthcare centre that we built in 2013 at Sitha Raja Kandigai (the nearest village to our Chennai site), is running successfully, handling 40 patients on an average per day. The centre is serving the medical requirements of the residents of five nearby villages. The second healthcare centre is under development at the Periya Obulapuram village, also near the Chennai site. OPG is confident that both these centres and their associated facilities will provide much needed basic care and medical aid to the communities around the OPG power plant. In collaboration with Rotary Club of Chennai (an NGO), we have organised distribution of tricycles and hearing aids. annual school/college fees to ensure that lack of funds does not preclude their advancement. As part of OPG Outreach, a strong awareness programme has been developed to promote girl child education. To support this, the Company started a sponsorship programme last year in higher secondary education at a reputed private school. Under this scheme, three girls will be selected every year based on academic background and economic needs, and their entire education will be funded by OPG Outreach. OPG has also sponsored monthly salaries to PTA teachers in four Government schools situated in the vicinity of the plant. This programme is intended to provide support to Government owned schools in imparting quality education to children. Rural infrastructure development In continuation to our community development efforts, our Gujarat team has distributed cattle feed and provided assistance in building Gowshalas (cow shelters), water storage tanks in nearby villages of Kutch district, Gujarat. On request of the people of Kayalar Medu village, Gummidipoondi, we have assisted in patchwork repair of the pothole-ridden roads in the village. The construction of a prayer hall/church, which we started last year is steel roofed and is expected to be completed shortly. Educational aid OPG believes that education and employment will provide opportunities for people and communities to develop and prosper, thus increasing their standard of living. We continue to sponsor education of children from local communities studying in various Government schools. As a yearly concern, 850 school children belonging to the villages Periya Obulapuram, Chinna Obulapuram, Kayalarmedu, SR Kandigai received full school supplies (uniforms, shoes, books, bags, etc.) for the entire year before the commencement of the school year. About 56 students from below poverty line families are also granted OPG Power Ventures PlcAnnual Report & Accounts 2015 Strategic ReportCorporate GovernanceFinancial Statements 34 BOARD OF DIRECTORS 1 4 2 5 3 6 OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 35 1. Mr M C Gupta Non-executive Chairman 2. Mr Arvind Gupta Managing Director and Chief Executive Officer 3. Mr V Narayan Swami Finance Director Background and experience Mr M C Gupta is a retired senior civil servant of 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 Government of Haryana State. As Secretary to the Ministry of Industry, Mr Gupta was one of the civil service officers responsible for initiating and implementing the process of economic reforms which began in the 1990s in India and which continue to this day. Mr Gupta serves on the Boards of a number of public companies in India including Bhansali Engineering Polymers Ltd and Lumax Industries Ltd as an independent Director. Mr M C Gupta is not related to either Mr Arvind Gupta or Mr Ravi Gupta. Background and experience Mr Arvind Gupta gained experience in various divisions of the business including flour milling, steel production and logistics, becoming President of Kanishk Steel, listed on the Bombay Stock Exchange. Having identified the opportunities in power generation, Mr Gupta developed this division within Kanishk Steel with initial projects in wind power generation in 1994. He was the pioneer of the Group Captive Power Producer concept in Tamil Nadu State. Since then, Mr Gupta has been responsible for the construction and developments of the power plants of the OPG Group as well as its overall strategy, growth and direction. He has also developed profitable wind and solar power projects within the family portfolio. Member Audit, Remuneration Committee Background and experience Mr V Narayan Swami has over 30 years’ experience in finance and management. Mr Swami started his career with the State Bank of India before moving to Ashok Leyland Limited in 1976. For 12 years until 1993, he held a variety of positions within Standard Chartered Bank including as Senior Manager – Corporate Division for Southern India. Later Mr Swami joined Essar Global Ltd, Dubai, as Executive Director, subsequently becoming CFO of Essar Telecom Group where he played a key role in the entry and planned exit of Swisscom from the venture along with the simultaneous induction of Hutchinson Whampoa in the business. Mr Swami was Group Finance Director (and CFO) of Best & Crompton Engineering Limited, listed on the Bombay Stock Exchange, before joining OPG in 2007 as Finance Director. 4. Mr Martin Gatto Senior Independent Non-executive Director 5. Mr P Michael (Mike) Grasby Independent Non-executive Director 6. Mr Ravi Gupta Non-executive Director Background and experience Mr Ravi Gupta is the brother of Mr Arvind Gupta and throughout his career has been involved with family businesses. He is one of the founders of Kanishk Steel and is its Chairman. Mr Gupta has also been associated with the flour mill industry, setting up a new flour mill in 1988 in Tamil Nadu State, Salem Food Products Limited, where he is Managing Director. Member Audit, Remuneration Committee Background and experience Mr Martin Gatto has considerable experience as a senior financial professional and has worked at a number of large UK quoted public companies. He is a graduate of Brunel University and is a Fellow of the Chartered Institute of Management Accountants. During his career, Mr Gatto gained international experience at Hilton International Company where he was responsible for business development and property. Later, as Chief Financial Officer of British Energy Plc, Midlands Electricity Plc and Somerfield Plc, he was responsible for the successful execution of turnaround strategies. He is also the Chairman of Medico – Dental Holdings Ltd. Member Audit, Remuneration Committee Background and experience Mr P Michael Grasby is a Chartered Engineer and has been associated with the UK and international power industry for many years. He was manager of the Drax Power Station between 1991 and 1995 and Director of Operations for National Power, with responsibilities for over 16,000 MW of generating capacity, until 1998. Following the demerger of National Power in 1999, he joined International Power as Senior Vice-President for Global Operations and retired in 2002. Mr Grasby has experience of power company directorships in the Czech Republic, Portugal, Turkey and Pakistan. Mr Grasby was formerly a Non-executive Director of Drax Plc where he chaired the Health and Safety Committee and sat on the Audit, Remuneration and Nominations Committees; he retired from the Drax Board in April 2011. He was also formally a Director of Strategic Dimension Technical, a London based executive recruitment company. Member Audit, Remuneration Committee OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 36 CORPORATE GOVERNANCE REPORT FINANCIAL YEAR ENDED 31 MARCH 2015 3. Non-executive Directors (A.4.2) The Code requires the Non-executive Directors, led by the Senior Independent Director, to meet without the Chairman to appraise the Chairman’s performance. The Board will consider the issue of formal evaluation, including evaluating the performance of the Chairman, in due course. The Board considers that, as at the date of this report, it complies with Code provision B.1.2, which requires that, in the case of smaller companies, there should be a minimum of two independent Non-executive Directors. In addition to the Chairman, Mike Grasby and Martin Gatto are considered to be independent under the Code. 4. Nominations Committee (B.2.1) The Board will at an appropriate time establish a Nominations Committee. Its primary function being to provide a formal and transparent procedure for the appointment of new Directors to the Board. As and when a Nominations Committee is appointed, compliance with those provisions of the Code relating to this committee will be considered further. 5. Evaluation (B.6) The Board will continue to evaluate informally the balance of skills, experience, independence and knowledge required to ensure that its composition is appropriate to the Group’s size and complexity. At the appropriate time, the Board will give further consideration to the issue of formally evaluating its performance and that of its principal committees and the individual Directors. Operation of the Board Board of Directors The Board comprises the following individuals: Executive 1. Arvind Gupta (Managing Director and Chief Executive Officer); and 2. V Narayan Swami (Finance Director). Non-executive 1. M C Gupta (Non-executive Chairman); 2. Martin Gatto (Senior Independent Director); 3. Mike Grasby; and 4. Ravi Gupta. Biographical details of all the Directors at the date of this report are set out on page 35 together with details of their membership, as appropriate, of the Board Committees. The Board is responsible for setting the Company’s objectives and policies, and providing effective leadership and the controls required for a publicly listed company. Directors receive papers for their consideration in advance of each Board meeting, including reports on the Group’s operations to ensure that they remain briefed on the latest developments and are able to make fully informed decisions. The Board met four times during the year under review. The Executive Committee supports the Board in implementing strategy and reports relevant matters to the Board for its consideration and approval. The Executive Committee (‘ExCo’) is composed of the two Executive Directors and four members of senior management. It met eight times during the year. Directors have the right to request that any concerns they have are recorded in the appropriate committee or Board minutes. Informal procedures are in place for Directors to take independent professional advice at the Company’s expense. The Company maintains Directors’ and officers’ liability insurance and indemnity cover, the level of which is reviewed annually. Introduction The Board is committed to good corporate governance practices. The Company was admitted to trading on AIM in May 2008. Accordingly, compliance with the governance framework contained in the UK Corporate Governance Code published by the Financial Reporting Council (‘the Code’) is not mandatory. Nevertheless, the Company remains committed to high standards of corporate governance and endeavours to comply with the Code to the extent practicable for a public company of its size. This report describes how the Company has applied, or how it intends to apply, the principles set out in the Code. Compliance with the Code Since admission to AIM, the Group has grown substantially against a background of difficult trading conditions within the electricity generation sector. As reported in the Strategic Report, the year has seen the Group complete its two major projects of 480 MW and a total of 750 MW now fully constructed, trebling the scale and achieving diversification and with the 270 MW operations delivering a robust performance. The primary focus of the Board is to ensure sustainability of existing operations and to pursue its profitability focused growth strategy and the Board has therefore adopted an approach to governance that is proportionate and commensurate with the current size and complexity of the Group. The Board notes the following areas of non-compliance with the Code with comments on each as appropriate: 1. Schedule of matters reserved (A.1.1) At present, the Board reviews and adopts the Group’s strategy, plan and key risks, policies and procedures. The Board will at the appropriate time adopt a schedule of matters specifically reserved to it for decision. 2. Division of responsibilities (A.2.1) As explained in greater detail on page 37, there is a clear separation between the roles and responsibilities of the Chairman and Chief Executive Officer. The Code further requires that this be set out in writing and agreed by the Board and this is to be done in due course. OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 37 Chairman, Chief Executive Officer, and Senior Independent Director The roles of the Chairman and Chief Executive Officer are held by different individuals and there is a clear separation of roles. The Chairman’s key responsibilities are the effective running of the Board, ensuring that the Board plays a full and constructive part in the development and determination of the Group’s strategy and overseeing the Board’s decision-making process. The key responsibilities of the Chief Executive Officer are managing the Group’s business, proposing and developing the Group’s strategy and overall commercial objectives in consultation with the Board and, as leader of the executive team, implementing the decisions of the Board and its Committees. Martin Gatto, the Senior Independent Director, is available to shareholders who have concerns that cannot be resolved through discussion with the Chief Executive Officer or Chairman. Re-election of Directors At every AGM, one-third of the Directors for the time being (excluding any Director appointed since the previous AGM) or, if their number is not three or a multiple of three, the number nearest to one-third, shall retire from office by rotation. On this basis, Martin Gatto and Mike Grasby will offer themselves for re-election at the AGM. Information and professional development Prior to the Company’s admission to AIM in May 2008, all Directors received a briefing from the Company’s nominated adviser of their duties, responsibilities and liabilities as a Director of an AIM company. Directors are encouraged to keep abreast of developments to assist them with their duties. In addition to the formal meetings of the Board, the Chairman is available to the other Non-executive Directors to discuss any issues of concern they may have relating to the Group or as regards their area of responsibility and to keep them fully briefed on ongoing matters relating to the Group’s operations. The Chairman is responsible for ensuring that new Directors each receive a full, formal and tailored induction on joining the Board as required by provision B.4.1 of the Code. Board performance As noted above, the Board will in due course consider the most appropriate methodology for evaluating its performance and that of its principal Committees and the individual Directors. Meetings of the Board and its Committees The following table sets out the number of meetings of the Board and its Committees during the year under review and individual attendance by the relevant members at these meetings: Arvind Gupta V Narayan Swami M C Gupta Martin Gatto Mike Grasby Ravi Gupta Number of meetings held during the year Board meetings Audit Remuneration Number Attended Number Attended Number Attended Board Committee meetings 4 4 4 4 4 4 4 4 4 4 4 4 4 N/A N/A 2 2 2 2 2 N/A N/A 2 2 2 2 N/A N/A 2 2 2 2 2 N/A N/A 2 2 2 2 OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 38 CORPORATE GOVERNANCE REPORT CONTINUED Board Committees Audit Committee The members of the Audit Committee are M C Gupta, Martin Gatto, Mike Grasby and Ravi Gupta. Martin Gatto is considered to have recent, relevant financial experience. The Chief Executive and Finance Director and a representative of the auditor are normally invited to attend meetings of the Committee. The primary duty of the Audit Committee is to oversee the accounting and financial reporting process of the Group, the external audit arrangements, the internal accounting standards and practice, the independence of the external auditor, the integrity of the Group’s external financial reports and the effectiveness of the Group’s risk management and internal control system. The Audit Committee considered the following matters during the year under review: • The Annual Report and Accounts for the year ended 31 March 2014; and • The unaudited results for the half-year FY15 to 30 September 2014. Remuneration Committee The Remuneration Committee currently consists of M C Gupta, Martin Gatto, Mike Grasby and Ravi Gupta. Ravi Gupta is not present when any remuneration matter relating to the Chief Executive, Arvind Gupta (his brother) is discussed. The primary duty of the Remuneration Committee is to determine and agree with the Board the framework or broad policy for the remuneration of the Executive Directors and such other members of the executive management team of the Group as is deemed appropriate. The remuneration of the Non-executive Directors is a matter for the executive members of the Board. No Director may be involved in any decisions as to his own remuneration. Full details of the role and composition of the Remuneration Committee, the remuneration policy of the Company and its compliance with the Code provisions relating to remuneration are set out in the Directors’ Remuneration Report on pages 39 to 41. Accountability and audit Risk management and internal control The Board has overall responsibility for the Group’s system of internal control, which includes risk management. The Board has delegated the responsibility for reviewing the effectiveness of its internal control systems to the Audit Committee. The Audit Committee reviews these systems, policies and processes for tendering, authorisation of expenditure, fraud and the internal audit plan. The system of internal control is designed to manage, rather than eliminate, the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. The Board has instructed ExCo to be a leading part of its process to identify, evaluate and manage the significant risks the Group faces and which is in accordance with the current guidance on internal control. The Audit Committee will assist the Board in discharging its review responsibilities. A summary of the key risks facing the Group and mitigating actions is described on pages 22 and 23. Assurance Grant Thornton has been auditor for the Group for the last five years. The Committee considers that, at this early stage in the Group’s development, it is more efficient to use a single audit firm to provide certain non-audit services for transactions and tax matters. However, to regulate the position, the Committee will at the appropriate time establish a policy on the provision of non-audit services by the external auditor. That policy will set out the external auditor’s permitted and prohibited non-audit services and a fee threshold requiring prior approval by the Audit Committee for any new engagement. Going concern A statement on the Directors’ position regarding the Company as going concern is contained in the Directors’ Report on page 42. Shareholder relations and the Annual General Meeting The Board is committed to maintaining an ongoing dialogue with its shareholders. The Directors are keen to build a mutual understanding of objectives with its principal shareholders. To this end, the Chief Executive, Senior Independent Director and Finance Director together met with a number of institutional shareholders during the year. The Directors also encourage communications with private shareholders and encourages their participation in the Annual General Meeting. The Chairman is primarily responsible for ensuring the effective communication of shareholders’ views to the Board as a whole and updates the Board accordingly. Board members keep abreast of shareholder opinion. Notice of the Annual General Meeting will be sent to shareholders at least 21 clear days before the meeting. The voting results will be made available on the Company’s website following the meeting. The Company uses its corporate website (www.opgpower.com) to communicate with its institutional shareholders and private investors, and posts the latest announcements, press releases and published financial information together with updates on current projects and other information about the Group. OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 39 DIRECTORS’ REMUNERATION REPORT Introduction This report sets out information about the remuneration of the Directors of the Company for the year ended 31 March 2015. As a Company admitted to AIM, OPG is not required to prepare a Directors’ remuneration report. However, the Board supports the principles of transparency and has prepared this report in order to provide information to shareholders on executive remuneration arrangements. The report has been substantially prepared in accordance with Schedule 8 of the Large and Medium-sized Companies and Group Accounts and Reports 2008 (‘the Regulations’). Remuneration Committee The members of the Remuneration Committee are M C Gupta (Chairman), Martin Gatto, Ravi Gupta and Mike Grasby who, with the exception of Ravi Gupta, are all independent Non-executive Directors. Terms of Reference have been approved for the Remuneration Committee and its primary duty is to determine and agree with the Board the framework or broad policy for the remuneration of the Executive Directors, senior managers and such other members of the executive management team of the Group as is deemed appropriate. The remuneration of the Non-executive Directors is a matter for the Chairman and the Committee to be considered on the basis of the recommendations of the executive members of the Board. The principal responsibilities of the Committee include: • Assessing and setting compensation levels for Directors and senior managers; • Reviewing the ongoing appropriateness and relevance of the remuneration policy to ensure that members of the executive team are provided with incentives that encourage enhanced performance; • Reviewing the design of share incentive plans for the approval of the Board; and • Ensuring that contractual terms on termination are such that failure is not rewarded and that the duty to mitigate losses is fully recognised in the drafting of Directors’ service agreements and letters of appointment. In fulfilling these duties, the Committee shall be cognisant of remuneration trends across the Group and within the sector in which the Group operates. The Executive Directors and external advisers may be invited to attend meetings of the Remuneration Committee but do not take part in the decision making. Attendance at meetings of the Remuneration Committee by individual members is detailed in the Corporate Governance Report on page 37. Advisers During the year, the Board received externally commissioned advice in connection with implementing a long term incentive plan for executives to meet the Group’s objective of providing an incentive plan in the context of the Group’s overall approach to rewards and incentives. Remuneration policy The Remuneration Committee seeks to maintain a remuneration policy to ensure that the Company is able to attract, retain and motivate its Executive Directors and senior management. The retention of key management and the alignment of management incentives with the creation of shareholder value are key objectives of this policy. The Group therefore sets out to provide competitive remuneration for all its management and employees appropriate to the business environment in the market in which it operates and in recognition of their contribution to Group performance. To achieve this, the remuneration package is based upon the following principles: • Total rewards should be set to provide a fair and attractive remuneration package; • Appropriate elements of the remuneration package should be designed to reinforce the link between performance and contribution to the Group’s success and reward; and • Executive Directors’ incentives should be aligned with the interests of shareholders. The remuneration strategy is designed to be in line with the Group’s fundamental values of fairness, competitiveness and equity and also to support the Group’s corporate strategy. The Group seeks to increasingly align the interests of shareholders with those of Directors and senior employees by giving the latter opportunities and encouragement to build up a shareholding interest in the Company. Stock Option Plan – 2009 During the year, under the Stock Option Plan approved by the Board on 16 July 2009. Awards of 250,000 options were approved for each of M C Gupta, Mike Grasby, Ravi Gupta and V Narayan Swami in addition to the awards granted previously to the remaining two Directors. These awards are in terms of the commitments made in the IPO Admission Document. The Option contracts approved during the year for the four Directors named above will be executed in the current (2015–16) financial year. Options granted must be exercised within 10 years of the date of grant and vesting depends on achievement of the following performance conditions: 1. The power plant at Kutch in the state of Gujarat must have been in commercial operation for three months; and 2. The closing share price must be at least £1 for three consecutive business days. Long Term Incentive Plan – 2015 In June 2015, the Company announced its plan to introduce its first Long Term Incentive Plan (‘LTIP’). Vesting of awards under the LTIP will be subject to the following shareholder value based performance targets: 1. Achievement of a share price of 130 pence; 2. Achievement of a further 250 MW growth in installed capacity from a base of 750 MW; and 3. A cumulative total of 3 pence in ordinary dividends paid or declared between now and publication of the FY18 Annual Report. Up to 16 million shares in the Company will be awarded at their nominal value to certain members of the senior management team, including about 14 million shares to Gita Investments Limited, a company linked to the CEO. Subject to certain covenants, the awards, once made, will vest over the period to FY18 with a third of the maximum award vesting upon achievement of a share price of 130 pence and then equally on achieving each of the other targets. With certain exceptions, vested shares will not be allowed to be sold for one year. All vested shares are to be entitled to dividends. The Remuneration Committee has discretion to declare vesting of awards on a linear scale of performance but cannot raise maximum award levels. The metrics of the scheme have been established to support the Group’s strategy to deliver responsible and sustainable returns over the long term. OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 40 DIRECTORS’ REMUNERATION REPORT CONTINUED Service agreements, notice periods and termination payments The service agreements for the Executive Directors are for no fixed term and may in normal circumstances be terminated on the notice periods set out in the table below. The Company reserves the right and discretion to pay the Executive Directors in lieu of notice. If the Company terminates the employment of an Executive Director by exercising its right to pay in lieu of notice, the Company is required to make a payment equal to the aggregate of basic salary and the cost to the Company of providing other contractual benefits for the unexpired portion of the duration of any entitlement to notice. The key terms of the Executive Directors’ service agreements are as follows: Name Position Date of contract Notice period Arvind Gupta Managing Director and Chief Executive Officer 23 May 2008 V Narayan Swami Finance Director and Chief Financial Officer 23 May 2008 Twelve months’ prior written notice on either side Three months’ prior written notice on either side Current salary (p.a.) £ 406,463 73,163 Salaries Mr Arvind Gupta’s salary was increased from approximately £250,000 to approximately £400,000 with effect from 1 April 2014. From the same effective date, Mr V Narayan Swami’s salary was increased from £52,143 to £73,163. These increases, which were the first since 2012 and the second since admission to AIM in 2008, take into account median levels of salary in comparable UK listed companies based on external advice commissioned by the Company in the context of the scaling up of its activities. Bonus No bonuses have previously been paid to the Executive Directors in connection with the period between AIM admission in May 2008 and March 2013. Since this, as an interim measure pending the adoption and full implementation of an annual bonus plan during the current year with detailed performance metrics, the Remuneration Committee has decided that Mr Arvind Gupta should be entitled to a maximum annual bonus of twice annual salary, based on the performance and the growth of the Company from 20 MW to 270 MW by 31 March 2014 and a further scale up to 600 MW by 31 March 2015. Accordingly, on account of the consistently profitable performance and transformational growth, outlined in the Strategic Report on pages 1 to 33, of the Company, the Remuneration Committee approved and paid a bonus of £500,000 to Mr Arvind Gupta in respect of the year ended 31 March 2014 and a bonus of £793,537 has been awarded in respect of the year ended 31 March 2015. In the case of Mr V Narayan Swami, the Remuneration Committee has approved an annual bonus of 33.33% of annual salary for the year ended 31 March 2015. Benefits-in-kind Under their service agreements, Mr Arvind Gupta and Mr V Narayan Swami are entitled to applicable medical, travel, insurance, accommodation and other allowances. Chairman and Non-executive Directors The remuneration of the Chairman of the Company and the Non-executive Directors consists of fees that are paid quarterly in arrears. The Chairman does not currently participate in any long-term incentive or annual bonus schemes, nor does any pension entitlement accrue. Neither the Chairman nor any of the Non-executive Directors has a contract of employment with the Company. Each has instead entered into a contract for services with the Company. Non-executive Directors’ contracts for services Non-executive Directors were appointed for an initial term of 12 months. M C Gupta, Martin Gatto, Mike Grasby and Ravi Gupta have each signed a contract for services with the Company. They were each appointed for an initial period of twelve months and, under the terms of their contracts for services, their appointments were renewable for a further period by mutual agreement, subject to re-election, when appropriate, by the Company in general meeting. A formal process for evaluating the performance of the Board, its Committees and the individual Directors will be introduced in due course. The key terms of the Non-executive Directors’ letters of appointment are as follows: Director M C Gupta Martin Gatto Mike Grasby Ravi Gupta Appointment 6 May 2008 6 May 2008 6 May 2008 Notice period Twelve months’ prior written notice on either side Three months’ prior written notice on either side Three months’ prior written notice on either side 12 May 2008 Twelve months’ prior written notice on either side Current salary (p.a.) £ 45,000 45,000 45,000 45,000 OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 41 External appointments It is the Board’s policy to allow the Executive Directors to accept directorships of other companies provided that they have obtained the consent of the Board. Any such directorships must be formally notified to the Board. Directors’ interests in Ordinary Shares The interests of Directors in the ordinary share capital of the Company were as follows: Arvind Gupta1 Mike Grasby Martin Gatto M C Gupta V Narayan Swami Total 1 Arvind Gupta and related entities. 31 March 2015 31 March 2014 178,886,428 178,886,428 10,000 60,000 9,800 10,300 10,000 60,000 9,800 10,300 178,976,528 178,976,528 There were no changes to Directors’ interests between 31 March 2015 and the date of this report. No Director had any interest in any contract of significance with the Group during the year ended 31 March 2015 other than their service contracts, details of which are given on page 40. Directors’ remuneration for the period to 31 March 2015. £ Non-executive Chairman M C Gupta Executive Directors Arvind Gupta V Narayan Swami Non-executive Directors Martin Gatto Mike Grasby Ravi Gupta Total Salary/fees Benefits-in-kind Annual bonus Total 31 March 2015 Total 31 March 2014 45,000 406,463 73,163 45,000 45,000 45,000 659,626 – – – – – – – – – 45,000 35,000 – 793,5371 24,391 1,200,000 97,554 758,1082 52,143 – – – 45,000 45,000 45,000 35,000 35,000 35,000 817,928 1,477,554 950,251 1 Out of the total bonus for FY15 of £793,537, £406,463 has been paid and balance £387,074 will be paid in the current financial year (2015–16). A provision has been made in these accounts. 2 As mentioned on page 40, during the year the Remuneration Committee paid a bonus of £500,000 to Mr Arvind Gupta in respect of FY14. Note: No consideration was paid or received by third parties for making available the services of any Executive or Non-Executive Director. This report has been approved by the Board of Directors of the Company. M C Gupta Chairman, Remuneration Committee 1 June 2015 OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 42 DIRECTORS’ REPORT The Directors present their report, together with the audited financial statements of the Group, for the year ended 31 March 2015. Particulars of important events effecting the Group, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report on pages 1 to 33 which is incorporated into this report by reference together with the Corporate Governance Report on pages 36 to 38. These together contain certain forward looking statements and forecasts with respect to the financial condition, results, operations and business of OPG Power Ventures Plc which may involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements and forecasts. Nothing in this Annual Report to shareholders should be construed as a profit forecast. Results and dividends The audited financial statements for the year ended 31 March 2015 are set out on pages 45 to 73. The Group profit for the year after taxation was £17.29m (2014: £14.56m). As stated in the results release on 2 June 2015, the Board intends to announce its dividend policy following sustainable ramp up of the 750 MW. No dividend was paid for the year ended 31 March 2015. Directors There were no changes to the Board during the period and of the Directors offering themselves for re-election at the forthcoming Annual General Meeting (‘AGM’) are set out in the Corporate Governance Report on pages 36 to 38. Details of Directors’ service agreements are set out in the Directors’ Remuneration Report on page 40. The interests of the Directors in the shares of the Company are shown in the Directors’ Remuneration Report on page 41. Biographies of all the Directors at the date of this report are set out on page 35. Related parties Details of related party transactions are set out in note 21 to the financial statements. Directors’ liability insurance and indemnities The Company maintains liability insurance for the Directors and Officers of all Group companies. Indemnities are in force under which the Company has agreed to indemnify the Directors to the extent permitted by applicable law and the Company’s Articles of Association in respect of all losses arising out of, or in connection with, the execution of their powers, duties and responsibilities as Directors of the Company or any of its subsidiaries. Neither the Group’s liability insurance nor indemnities provides cover in the event that a Director or Officer is proved to have acted fraudulently or dishonestly. Share capital The issued share capital of the Company at 31 March 2014 was £51,671, comprising of 351,504,795 Ordinary Shares at par value of £0.000147 per share, of which there are no designated treasury shares. The Directors will be seeking authority at the forthcoming Annual General Meeting to renew their authority to purchase its own shares. Full details of resolution, together with explanatory notes, are contained in the Notice of Annual General Meeting. Political donations The Group has made political donations of £0.10m during the year under review (2014: £nil). Going concern As highlighted in note 19 to the financial statements, the Group meets its day to day working capital requirements through a bank facility which is renewed annually in June. Further information on the Group’s business activities, together with the factors likely to affect its future development, performance and position is set out in the Strategic Report on pages 1 to 33. Further information on the financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Financial Review on pages 24 to 29. In addition, note 26 to the financial statements details the Group’s objectives, policies and processes for managing its capital and its exposures to credit risk and liquidity risk. The Group’s forecasts and projections, taking account of possible changes in trading performance, show that the Group should be able to operate within the level of its current facility. After making enquiries, the Board has a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Accounts. Substantial shareholdings Details of substantial shareholdings are set out on the Company’s website at www.opgpower.com. The Company has been notified, in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority, of the following interests (whether directly or indirectly held) in 3% or more of the Company’s total voting rights as at 1 July 2015: Gita Investments Limited and related1 M&G Investment Management Limited Audley Capital Management Ltd British Steel Pension Scheme Sanlam Four Investments UK Limited Legal & General Investment Management Limited 1 Beneficial interest in these shareholdings vests with Arvind Gupta. Percentage of voting rights and issued share capital Number of ordinary shares 50.89% 178,886,428 12.50% 43,947,803 5.59% 19,659,544 3.41% 12,000,000 3.31% 11,641,540 3.29% 11,567,171 OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 43 Words and phrases used in this confirmation should be interpreted in accordance with the provisions of the Companies Act 2006. This report was approved by the Board of Directors on 1 June 2015 and signed on its behalf by Philip Scales Company Secretary OPG Power Ventures Plc Ioma House Hope Street Douglas Isle of Man IM1 1AP 1 June 2015 Annual General Meeting The notice convening the meeting, together with details of the special business to be considered and explanatory notes for each resolution, is contained in a separate document sent to shareholders. It is also available on the Company’s website, www.opgpower.com, where a copy can be viewed and downloaded in PDF format which may be printed or saved by following the link to the Investor Centre/ Shareholder Circulars. Registered agent The registered agent of the Company at 31 March 2015 was FIM Capital Limited (formerly IOMA Fund and Investment Management Limited) who served throughout the year and has continued to date. Financial instruments Information on the Group’s financial risk management objectives and policies and its exposure to credit risk, liquidity risk, interest rate risk and foreign currency risk can be found in note 26 to the financial statements. Auditor Grant Thornton have expressed their willingness to continue in office as auditor and a resolution proposing their reappointment will be proposed at the forthcoming AGM. Disclosure of information to the auditor As required by Section 418 of the Companies Act 2006, each Director serving at the date of approval of the financial statements confirms that: 1. To the best of their knowledge and belief, there is no information relevant to the preparation of their report of which the Company’s auditor is unaware; and 2. Each Director has taken all the steps a Director might reasonably be expected to have taken to be aware of relevant audit information and to establish that the Company’s auditors are aware of that information. OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 44 STATEMENT OF DIRECTORS’ RESPONSIBILITIES The Directors are responsible for keeping adequate accounting records which disclose with reasonable accuracy at any time the financial position of the Group and of the Company, for safeguarding the assets, for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the Group website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions. The Directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the Group and the Parent Company financial statements. The Directors are required to prepare financial statements for the Group in accordance with International Financial Reporting Standards (‘IFRS’) as adopted for use in the European Union and have also elected to prepare financial statements for the Company in accordance with IFRS as adopted for use in the European Union. Company law requires the Directors to prepare such financial statements in accordance with IFRS and the Companies Act 2006. International Accounting Standard 1 requires that financial statements present fairly for each financial year the Group’s and Company’s financial position, financial performance and cash flows. This requires the fair presentation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board’s ‘Framework for the Preparation and Presentation of Financial Statements’. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable International Financial Reporting Standards. Directors are also required to: • Select suitable accounting policies and apply them consistently; • Make judgements and estimates that are reasonable and prudent; • State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; • Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; and • Provide additional disclosures when compliance with specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance. OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 45 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF OPG POWER VENTURES PLC We have audited the accompanying consolidated financial statements of OPG Power Ventures Plc for the year ended 31 March 2015 which comprise the Consolidated Statement of Profit or Loss and Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flow and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. This report is made solely to the Company’s members, as a body. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditor As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial statements which give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements give a true and fair view of the state of the Group’s affairs as at 31 March 2015 and of its profit for the year then ended in accordance with IFRSs as adopted by the European Union. Grant Thornton Limited Chartered Accountants Douglas, Isle of Man 4 September 2015 OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 46 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 MARCH 2015 (ALL AMOUNTS IN £, UNLESS OTHERWISE STATED) Revenue Cost of revenue Gross profit Other income Distribution cost General and administrative expenses Operating profit Finance costs Finance income Profit before tax Tax expense Profit for the year Attributable to: – Owners of the Company – Non-controlling interests Earnings per share for profit attributable to the equity holders of the Company during the year – Basic (in pence) – Diluted (in pence) Profit for the year Other comprehensive income Items that will be reclassified subsequently to profit or loss Available-for-sale financial assets – Reclassification to profit or loss – Current year gains/(losses) Exchange differences on translating foreign operations Items that will be not be reclassified subsequently to profit or loss Exchange differences on translating foreign operations Total other comprehensive income/(loss) Total comprehensive income/(loss) Attributable to: – Owners of the Company – Non-controlling interest Notes 31 March 2015 31 March 2014 99,974,648 (61,228,358) 98,805,940 (62,155,041) 6(a) 38,746,290 127,268 (1,863,441) (7,388,392) 29,621,725 (9,410,037) 1,437,763 36,650,899 260,738 (1,202,301) (8,953,321) 26,756,015 (9,791,910) 985,156 7 8 9 21,649,451 (4,360,769) 17,949,261 (3,385,087) 10 17,288,682 14,564,174 17,270,192 18,490 14,545,956 18,218 17,288,682 14,564,174 22 4.913 4.799 4.138 4.117 17,288,682 14,564,174 (32,633) (5,133) 10,481,124 (22,394) 32,633 (21,677,794) 9,875 (20,056) 10,453,233 (21,687,611) 27,741,915 (7,123,437) 27,713,554 28,361 (7,121,568) (1,869) 27,741,915 (7,123,437) The notes are an integral part of these consolidated financial statements. The financial statements were authorised for issue by the Board of Directors on 1 June 2015 and were signed on its behalf by: Arvind Gupta Chief Executive Officer V Narayan Swami Chief Financial Officer OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 47 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2015 (ALL AMOUNTS IN £, UNLESS OTHERWISE STATED) Notes 31 March 2015 31 March 2014 Assets Non-current assets Intangible assets Property, plant and equipment Investment and other assets Restricted cash Current assets Trade and other receivables Inventories Cash and cash equivalents Restricted cash Current tax assets Investment and other assets Total assets Equity and liabilities Equity Share capital Share premium Other components of equity Retained earnings Equity attributable to owners of the Company Non-controlling interests Total equity Liabilities Non-current liabilities Borrowings Trade and other payables (refer note 4) Deferred tax liability Current liabilities Borrowings Trade and other payables (refer note 4) Other liabilities Total liabilities Total equity and liabilities 665,673 474,660 11 414,552,876 279,621,282 729,361 12 190,860 13 2,754,393 2,784,990 420,757,932 281,016,163 14 15 16 13 28,628,701 7,889,661 6,805,449 5,303,217 574,834 23,907,952 21,008,401 12,899,204 6,636,577 7,456,090 155,061 64,135,542 73,109,814 112,290,875 493,867,746 393,307,038 51,671 51,671 124,316,524 124,316,524 (21,821,894) (11,135,645) 33,856,249 51,126,441 164,358,991 136,402,550 225,717 254,079 164,613,070 136,628,267 19 237,936,689 186,578,491 24,997,526 20 1,509,853 10 16,795,079 3,205,851 257,937,619 213,085,870 19 20 22,851,498 47,839,604 625,955 8,191,455 35,174,303 227,143 71,317,057 43,592,901 329,254,676 256,678,771 493,867,746 393,307,038 The notes are an integral part of these consolidated financial statements. The financial statements were authorised for issue by the Board of Directors on 1 June 2015 and were signed on its behalf by: Arvind Gupta Chief Executive Officer V Narayan Swami Chief Financial Officer OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 48 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2015 (ALL AMOUNTS IN £, UNLESS OTHERWISE STATED) At 1 April 2013 Transfer during the year Employee share-based payments Transaction with owners Profit for the year Currency translation differences Gain on sale/remeasurement of available-for-sale financial assets Total comprehensive income At 31 March 2014 Employee share-based payments Transaction with owners Profit for the year Other comprehensive income Currency translation differences Gain on sale/remeasurement of available-for-sale financial assets Total comprehensive income Issued capital (No of shares) Ordinary shares Share premium 351,504,795 51,671 124,316,524 51,671 124,316,524 351,504,795 51,671 124,316,524 51,671 124,316,524 Other reserves translation reserve Retained earnings owners of parent interests Total equity Foreign currency Total attributable to Non-controlling 5,977,855 (7,104,661) 19,311,138 142,552,527 186,012 142,738,538 46 974,222 (1,834) (845) 41,574 (2,633) 974,222 38,941 974,222 6,952,123 (7,106,495) 19,310,293 143,524,116 227,586 143,751,701 (21,677,794) 10,272 14,545,956 14,545,956 (21,677,794) 10,272 18,218 14,564,174 (20,056) (21,697,850) (31) 10,239 10,272 (21,677,794) 14,545,956 (7,121,566) (1,869) (7,123,435) 6,962,395 (28,784,289) 33,856,249 136,402,550 225,717 136,628,266 242,888 242,888 242,888 7,205,283 (28,784,289) 33,856,249 136,645,438 225,717 136,871,154 17,270,192 17,270,192 18,490 17,288,682 10,481,124 (37,763) 10,481,124 (37,763) 9,875 10,490,999 (3) (37,766) (37,763) 10,481,124 17,270,192 27,713,553 28,362 27,741,915 At 31 March 2015 351,504,795 51,671 124,316,524 7,167,520 (18,303,165) 51,126,441 164,358,991 254,079 164,613,070 The notes are an integral part of these consolidated financial statements. The financial statements were authorised for issue by the Board of Directors on 1 June 2015 and were signed on its behalf by: Arvind Gupta Chief Executive Officer V Narayan Swami Chief Financial Officer OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 49 Foreign currency translation reserve (7,104,661) (1,834) Other reserves 5,977,855 46 974,222 Retained earnings Total attributable to owners of parent Non-controlling interests Total equity 19,311,138 142,552,527 (2,633) 974,222 (845) 186,012 142,738,538 38,941 974,222 41,574 6,952,123 (7,106,495) 19,310,293 143,524,116 227,586 143,751,701 (21,677,794) 10,272 14,545,956 14,545,956 (21,677,794) 10,272 18,218 (20,056) (31) 14,564,174 (21,697,850) 10,239 10,272 (21,677,794) 14,545,956 (7,121,566) (1,869) (7,123,435) 6,962,395 242,888 (28,784,289) 33,856,249 136,402,550 242,888 225,717 136,628,266 242,888 7,205,283 (28,784,289) 33,856,249 136,645,438 225,717 136,871,154 17,270,192 17,270,192 18,490 17,288,682 10,481,124 (37,763) 10,481,124 (37,763) 9,875 (3) 10,490,999 (37,766) (37,763) 10,481,124 17,270,192 27,713,553 28,362 27,741,915 At 31 March 2015 351,504,795 51,671 124,316,524 7,167,520 (18,303,165) 51,126,441 164,358,991 254,079 164,613,070 Gain on sale/remeasurement of available-for-sale financial assets At 1 April 2013 Transfer during the year Employee share-based payments Transaction with owners Profit for the year Currency translation differences Total comprehensive income At 31 March 2014 Employee share-based payments Transaction with owners Profit for the year Other comprehensive income Currency translation differences Total comprehensive income Gain on sale/remeasurement of available-for-sale financial assets Issued capital (No of shares) Ordinary shares Share premium 351,504,795 51,671 124,316,524 51,671 124,316,524 351,504,795 51,671 124,316,524 51,671 124,316,524 The notes are an integral part of these consolidated financial statements. The financial statements were authorised for issue by the Board of Directors on 1 June 2015 and were signed on its behalf by: Arvind Gupta Chief Executive Officer V Narayan Swami Chief Financial Officer OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 50 CONSOLIDATED STATEMENT OF CASH FLOW FOR THE YEAR ENDED 31 MARCH 2015 (ALL AMOUNTS IN £, UNLESS OTHERWISE STATED) Cash flows from operating activities Profit before income tax Adjustments for Unrealised foreign exchange loss Provision for doubtful debts Financial costs Financial income Share-based compensation costs Depreciation and amortisation Changes in working capital Trade and other receivables Inventories Other current assets Trade and other payables Other liabilities Cash generated from operations Taxes paid Net cash from operating activities Cash flows from investing activities Purchase of property, plant and equipment Interest received Dividend received Movement in restricted cash Sale of investments1 Purchase of investments1 Net cash used in investing activities Cash flows from financing activities Proceeds from borrowings (net of costs) Repayment of borrowings Interest paid Net cash from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Exchange differences on cash and cash equivalents Cash and cash equivalents at the end of the year 31 March 2015 31 March 2014 21,649,451 17,949,261 (131,219) – 9,410,037 (1,437,763) 242,888 3,145,119 (384,906) (28,421) 9,791,910 (985,156) 974,222 2,898,985 (5,835,530) 5,595,078 (1,025,573) (6,002,207) (2,474,534) 8,092,104 (8,086,436) (7,430,911) 9,226,055 (4,048,037) 23,135,747 (3,218,221) 27,968,670 (2,820,669) 19,917,526 25,148,001 1,375,174 53,543 101,759 (77,111,796) (128,641,831) 945,830 30,980 (3,536,878) 128,973,581 110,229,247 (119,935,336) (118,306,984) (66,543,075) (139,279,636) 59,998,942 114,548,210 (6,349,335) (5,026,019) (9,517,729) (9,410,037) 45,562,886 98,681,146 (1,062,663) 6,636,577 1,231,535 (15,450,489) 22,906,776 (819,710) 6,805,449 6,636,577 1 Investments maturing during the year have been reinvested upon maturity in similar instruments of short tenor. The figures reported under ‘Purchase of investments’ and ‘Sale of investments’ in the above consolidated cash flow statement are aggregate of such maturities and reinvestments made during the period reported. OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 51 NOTES TO THE CONSOLIDATED AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2015 (ALL AMOUNTS IN £, UNLESS OTHERWISE STATED) 1. Corporate information 1.1. Nature of operations OPG Power Ventures Plc (‘the Company’ or ‘OPGPV’), and its subsidiaries (collectively referred to as ‘the Group’) are primarily engaged in the development, owning, operation and maintenance of private sector power projects in India. The electricity generated from the Group’s plants is sold principally to public sector undertakings and heavy industrial companies in India or in the short-term market. The business objective of the Group is to focus on the power generation business within India and thereby provide reliable, cost effective power to the industrial consumers and other users under the ‘open access’ provisions mandated by the Government of India. 1.2. Statement of compliance The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) and their interpretations as adopted by the European Union (‘EU’) and the provisions of the Isle of Man, Companies Act 2006 applicable to companies reporting under IFRS. 1.3. General information OPG Power Ventures Plc, a limited liability corporation, is the Group’s ultimate parent Company and is incorporated and domiciled in the Isle of Man. The address of the Company’s registered office, which is also the principal place of business, is IOMA House, Hope Street, Douglas, Isle of Man IM1 1AP. The Company’s equity shares are listed on the Alternative Investment Market (‘AIM’) of the London Stock Exchange. The consolidated financial statements for the year ended 31 March 2015 were approved and authorised for issue by the Board of Directors on 1 June 2015. 2. New and revised standards that are effective for annual periods beginning on or after 1 January 2014 IFRS 10 ‘Consolidated Financial Statements’ (‘IFRS 10’) IFRS 10 supersedes IAS 27 ‘Consolidated and Separate Financial Statements’ (IAS 27) and SIC 12 ‘Consolidation-Special Purpose Entities’. IFRS 10 revises the definition of control and provide extensive new guidance on its application. These new requirements have the potential to affect which of the Group’s investees are considered to be subsidiaries and therefore to change the scope of consolidation. The requirements on consolidation procedures, accounting for changes in non-controlling interests and accounting for loss of control of a subsidiary are unchanged. Management has reviewed its control assessments in accordance with IFRS 10 and has concluded that there is no effect on the classification (as subsidiaries or otherwise) of any of the Group’s investees held during the period or comparative periods covered by these financial statements. IFRS 11 ‘Joint Arrangements’ (‘IFRS 11’) IFRS 11 supersedes IAS 31 ‘Interests in Joint Ventures’ (IAS 31) and SIC 13 ‘Jointly Controlled Entities – Non-Monetary-Contributions by Venturers’. IFRS 11 revises the categories of joint arrangement, and the criteria for classification into the categories, with the objective of more closely aligning the accounting with the investor’s rights and obligations relating to the arrangement. In addition, IAS 31’s option of using proportionate consolidation for arrangements classified as jointly controlled entities under that Standard has been eliminated. IFRS 11 now requires the use of the equity method for arrangements classified as joint ventures. Management has reviewed its control assessments in accordance with IFRS 11 and has concluded that there is no effect on the classification of any of the Group’s investees held during the period or comparative periods covered by these financial statements. The new joint venture arrangement entered into in the year has been classified as a joint venture under IFRS 11 and accounted for accordingly. IFRS 12 ‘Disclosure of Interests in Other Entities’ (‘IFRS 12’) IFRS 12 integrates and makes consistent the disclosure requirements for various types of investments, including unconsolidated structured entities. It introduces new disclosure requirements about the risks to which an entity is exposed from its involvement with structured entities. Management has reviewed the impact of IFRS 12 and has concluded that there is no effect on any of the Group’s investees held during the period or comparative periods covered by these financial statements. IFRS 13 ‘Fair Value Measurement’ (‘IFRS 13’) IFRS 13 clarifies the definition of fair value and provides related guidance and enhanced disclosures about fair value measurements. It does not affect which items are required to be fair-valued. The scope of IFRS 13 is broad and it applies for both financial and non-financial items for which other IFRSs require or permit fair value measurements or disclosures about fair value measurements except in certain circumstances. IFRS 13 applies prospectively for annual periods beginning on or after 1 January 2013. Its disclosure requirements need not be applied to comparative information in the first year of application. The Group has however included as comparative information the IFRS 13 disclosures that were required previously by IFRS 7 ‘Financial Instruments: Disclosures’. The Group has applied IFRS 13 for the first time in the current year, see note 27. OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 52 NOTES TO THE CONSOLIDATED AND FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 MARCH 2015 (ALL AMOUNTS IN £, UNLESS OTHERWISE STATED) 2. New and revised standards that are effective for annual periods beginning on or after 1 January 2014 continued IFRIC 21 ‘Levies’ The Group has applied IFRIC 21 Levies for the first time in the current period. IFRIC 21 addresses the issue as to when to recognise a liability to pay a levy imposed by a government. The interpretation defines a levy, and specifies that the obligating event that gives rise to the liability is the activity that triggers the payment of the levy, as identified by legislation. The interpretation provides guidance on how different levy arrangements should be accounted for in particular, it clarifies that neither economic compulsion nor the going concern basis of financial statements preparations implies that an entity has present obligation to pay a levy that will be triggered by operating in a future period. IFRIC 21 has been applied retrospectively. The application of this interpretation has had no material impact on disclosures or on the amounts recognised in the Group’s consolidated financial statements. 2.1. Standards, amendments and interpretations to existing standards that are not effective and have not been early adopted by the Group At the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing standards have been published but are not yet effective, and have not been adopted early by the Group. Management anticipates that all of the relevant pronouncements will be adopted in the Group’s accounting policies for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the Group’s financial statements is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Group’s financial statements. Standard or interpretation Revenue from contracts with customers IFRS 9 Financial Instruments Effective for in reporting periods starting on or after 1 January 2017 1 January 2018 The management does not expect to implement IFRS 9 until all of its chapters have been published and it can comprehensively assess the impact of all changes. The management does not expect the application of the other standards to have any material impact on its financial statements when those Standards become effective. The Group does not intend to apply any of these pronouncements early. 3. Summary of significant accounting policies 3.1. Basis of preparation The consolidated financial statements of the Group have been prepared on a historical cost basis, except for financial assets and liabilities at fair value through profit or loss and available-for-sale financial assets measured at fair value. The financial statements have been prepared on going concern basis which assumes the Group will have sufficient funds to continue its operational existence for the foreseeable future covering at least 12 months. As the Group has forecast it will be able to meet its debt facility interest and repayment obligations, and that sufficient funds will be available to continue with the projects development, the assumption that these financial statements are prepared on a going concern basis is appropriate. The consolidated financial statements are presented in accordance with IAS 1 Presentation of Financial Statements and have been presented in Pound Sterling (‘£’), the functional and presentation currency of the Company. 3.2. Basis of consolidation The consolidated financial statements include the assets liabilities and results of the operation of the Company, subsidiaries and joint venture for the year ended 31 March 2015. A subsidiary is defined as an entity controlled by the Company. The parent controls a subsidiary if it is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. Subsidiaries are fully consolidated from the date of acquisition, being the date on which effective control is acquired by the Group, and continue to be consolidated until the date that such control ceases. All subsidiaries have a reporting date of 31 March and use consistent accounting policies adopted by the Group. All intra-Group balances pertaining to subsidiaries, income and expenses and any resulting unrealised gains arising from intra-Group transactions are eliminated in full on consolidation. Non-controlling interest represents the portion of profit or loss and net assets that is not held by the Group and is presented separately in the consolidated statement of comprehensive income and within equity in the consolidated statement of financial position, separately from parent shareholders’ equity. Acquisitions of additional stake or dilution of stake from/to non-controlling interests/other venturer in the Group where there is no loss of control are accounted for as an equity transaction, whereby, the difference between the consideration paid or received and the book value of the share of the net assets is recognised in ‘other reserve’ within statement of changes in equity. OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 53 3. Summary of significant accounting policies continued 3.3. List of subsidiaries Details of the Group’s subsidiaries and joint ventures, which are consolidated into the Group’s consolidated financial statements, are as follows: a) Subsidiaries Subsidiaries Caromia Holdings limited (‘CHL’) Gita Power and Infrastructure Private Limited (‘GPIPL’) OPG Power Generation Private Limited (‘OPGPG’) OPGS Power Gujarat Private Limited (‘OPGG’) OPGS Industrial Infrastructure Developers Private Ltd (‘OPIID’) OPGS Infrastructure Private Limited (‘OPGIPL’) Immediate parent Country of incorporation OPGPV Cyprus CHL GPIPL GPIPL OPGG OPGG India India India India India % voting right % economic interest March 2015 March 2014 March 2015 March 2014 100 100 93.94 62.07 100 100 100 100 82.66 51 100 100 100 100 99 99 100 100 100 100 99 99 100 100 b) Joint ventures Joint ventures Venturer Country of incorporation % voting right % economic interest March 2015 March 2014 March 2015 March 2014 Padma Shipping Ltd (‘PSL’) OPGPV Hong Kong 50 – 50 – 1 The Company has entered into a joint venture agreement with Noble Chartering Ltd (‘Noble’), to secure competitive long-term rates for international freight for its imported coal requirements. Under the Long Term Freight Arrangement (‘LTFA’), the Company and Noble are to purchase and own, jointly and equally, two 64,000 Mt cargo vessels through a joint venture company Padma Shipping Ltd, Hong Kong (‘Padma’). The Company will commit to provide 1.5 Mt of coal per annum for carriage by the two vessels for a minimum period of 10 years at competitive long-term rates. Pursuant to this agreement, Padma Shipping Ltd has been incorporated in order to execute the joint arrangement for procuring two cargo ships of 64,000 Mt capacity from Cosco Shipyard, Hong Kong which are expected to be delivered by 2017. The Company and Noble are to invest approximately US$9m over the period of delivery of the vessels as their equity contribution thereby and during the current period, the Company has paid an advance of US$2,801,700. Accordingly the joint venture has been reported using equity method as per the requirements of IFRS 11. 3.4. Foreign currency translation The functional currency of the Company is the Pound Sterling (‘£’). The Cyprus entity is an extension of the parent and pass through investment entity. Accordingly the functional currency of the subsidiary in Cyprus is the Pound Sterling. The functional currency of the Company’s subsidiaries operating in India, determined based on evaluation of the individual and collective economic factors is Indian Rupees (‘INR’). The presentation currency of the Group is the Pound Sterling (‘£’) as submitted to the AIM counter of the London Stock Exchange where the shares of the Company are listed. At the reporting date the assets and liabilities of the Group are translated into the presentation currency at the rate of exchange prevailing at the reporting date, and the income and expense for each statement of profit or loss are translated at the average exchange rate (unless this average rate is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expense are translated at the rate on the date of the transactions). Exchange differences are charged/credited to other comprehensive income and recognised in the currency translation reserve in equity. Transactions in foreign currencies are translated at the foreign exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the Statement of financial position date are translated into functional currency at the foreign exchange rate ruling at that date. Aggregate gains and losses resulting from foreign currencies are included in finance income or costs within the profit or loss. Indian Rupee (‘INR’) exchange rates used to translate the INR financial information into the presentation currency of Pound Sterling (‘£’) are the closing rate as at 31 March 2015: 92.76 (2014: 99.42) and the average rate for the year ended 31 March 2015: 98.41 (2014: 95.89). 3.5. 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 electricity 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 the reporting date. OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 54 NOTES TO THE CONSOLIDATED AND FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 MARCH 2015 (ALL AMOUNTS IN £, UNLESS OTHERWISE STATED) 3. Summary of significant accounting policies continued Interest and dividend Revenue from interest is recognised as interest accrued (using the effective interest rate method). Revenue from dividends is recognised when the right to receive the payment is established. 3.6. Operating expenses Operating expenses are recognised in the statement of profit or loss upon utilisation of the service or as incurred. Expenditure for warranties is recognised when the Group incurs an obligation in that regard. 3.7. Taxes Tax expense recognised in profit or loss comprises the sum of deferred tax and current tax not recognised in other comprehensive income or directly in equity. Current income tax assets and/or liabilities comprise those obligations to, or claims from, taxation authorities relating to the current or prior reporting periods, that are unpaid at the reporting date. Current tax is payable on taxable profit, which differs from profit or loss in the financial statements. Calculation of current tax is based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. Deferred income taxes are calculated using the liability method on temporary differences between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with investments in subsidiaries is not provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted by the end of the reporting period. Deferred tax liabilities are always provided for in full. Deferred tax assets are recognised to the extent that it is probable that they will be able to be utilised against future taxable income. Deferred tax assets and liabilities are offset only when the Group has a right and the intention to set off current tax assets and liabilities from the same taxation authority. Changes in deferred tax assets or liabilities are recognised as a component of tax income or expense in profit or loss, except where they relate to items that are recognised in other comprehensive income or directly in equity, in which case the related deferred tax is also recognised in other comprehensive income or equity, respectively. 3.8. Financial assets Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of any financial instrument and are measured initially at fair value adjusted by transactions costs, except for those carried at fair value through profit or loss which are measured initially at fair value. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires. Financial assets are classified into the following categories upon initial recognition: • Loans and receivables • Available-for-sale financial assets. The category determines subsequent measurement and whether any resulting income and expense is recognised in profit or loss or in other comprehensive income. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets except for assets having maturities greater than 12 months after the reporting date. These are classified as non-current assets. After initial recognition these are measured at amortised cost using the effective interest method, less provision for impairment. Discounting is omitted where the effect of discounting is immaterial. The Group’s cash and cash equivalents, trade and most other receivables fall into this category of financial instruments. Individually significant receivables are considered for impairment when they are past due or when other objective evidence is received that a specific counterparty will default. Receivables that are not considered to be individually impaired are reviewed for impairment in groups, which are determined by reference to the industry and region of a counterparty and other shared credit risk characteristics. The impairment loss estimate is then based on recent historical counterparty default rates for each identified group. OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 55 3. Summary of significant accounting policies continued Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are either designated to this category or do not qualify for inclusion in any of the other categories of financial assets. The Group’s available-for-sale financial assets include mutual funds and equity instruments. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the reporting date. Available-for-sale financial assets are measured at fair value. Gains and losses are recognised in other comprehensive income and reported within the available-for-sale reserve in equity, except for impairment losses and foreign exchange differences on monetary assets, which are recognised in profit or loss. When the asset is disposed of or is determined to be impaired the cumulative gain or loss recognised in other comprehensive income is reclassified from the equity reserve to profit or loss and presented as a reclassification adjustment within other comprehensive income. The fair value of the mutual fund units is based on the net asset value publicly made available by the respective mutual fund manager. Reversals of impairment losses are recognised in other comprehensive income, except for financial assets that are debt securities which are recognised in profit or loss only if the reversal can be objectively related to an event occurring after the impairment loss was recognised. 3.9. Financial liabilities The Group’s financial liabilities include borrowings and trade and other payables. Financial liabilities are measured subsequently at amortised cost using the effective interest method. All interest-related charges and, if applicable, changes in an instrument’s fair value that are reported in profit or loss are included within ‘finance costs’ or ‘finance income’. 3.10. Fair value of financial instruments The fair value of financial instruments that are actively traded in organised financial markets is determined by reference to quoted market prices at the close of business on the Statement of Financial Position date. For financial instruments where there is no active market, fair value is determined using valuation techniques. Such techniques may include using recent arm’s length market transactions; reference to the current fair value of another instrument that is substantially the same; discounted cash flow analysis or other valuation models. 3.11. Property, plant and equipment Property, plant and equipment are stated at historical cost, less accumulated depreciation and any impairment in value. Historical cost includes expenditure that is directly attributable to property plant and equipment such as employee cost, borrowing costs for long-term construction projects etc, if recognition criteria are met. Likewise, when a major inspection is performed, its costs are recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repairs and maintenance costs are recognised in the profit or loss as incurred. Land is not depreciated. Depreciation on all other assets is computed on straight-line basis over the useful life of the asset based on management’s estimate as follows: Nature of asset Buildings Power stations Other plant and equipment Vehicles Useful life (years) 40 40 3–10 5–11 Assets in the course of construction are stated at cost and not depreciated until commissioned. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the profit or loss in the year the asset is derecognised. The assets residual values, useful lives and methods of depreciation of the assets are reviewed at each financial year end, and adjusted prospectively if appropriate. 3.12. Intangible assets Acquired software Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and install the specific software. Subsequent measurement All intangible assets, including software are accounted for using the cost model whereby capitalised costs are amortised on a straight-line basis over their estimated useful lives, as these assets are considered finite. Residual values and useful lives are reviewed at each reporting date. The useful life of software is estimated as four years. OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 56 NOTES TO THE CONSOLIDATED AND FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 MARCH 2015 (ALL AMOUNTS IN £, UNLESS OTHERWISE STATED) 3. Summary of significant accounting policies continued 3.13. Leases The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date and whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset. Group as a lessee Contracts to lease assets are classified as finance leases if they transfer substantially all the risks and rewards of ownership of the asset to the Group. Leases where the Group does not acquire substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an expense in the profit or loss on a straight-line basis over the lease term. Lease of land is classified separately and is amortised over the period of the lease. 3.14. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying 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. Interest income earned on the temporary investment of specific borrowing pending its expenditure on qualifying assets is deducted from the costs of these assets. Gains and losses on extinguishment of liability, including those arising from substantial modification from terms of loans are not treated as borrowing costs and are charged to profit or loss. All other borrowing costs including transaction costs are recognised in the statement of profit or loss in the period in which they are incurred, the amount being determined using the effective interest rate method. 3.15. Impairment of non-financial assets The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (‘CGU’) fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or Groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators. For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the profit or loss. 3.16. Cash and cash equivalents Cash and cash equivalents in the Statement of Financial Position includes cash in hand and at bank and short-term deposits with original maturity period of three months or less. For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash and short-term deposits. Restricted cash represents deposits which are subject to a fixed charge and held as security for specific borrowings and are not included in cash and cash equivalents. 3.17. Inventories Inventories are stated at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and condition is accounted based on weighted average price. Net realisable value is the estimated selling price in the ordinary course of business, less estimated selling expenses. 3.18. Earnings per share The earnings considered in ascertaining the Group’s earnings per share (‘EPS’) comprise the net profit for the year attributable to ordinary equity holders of the parent. The number of shares used for computing the basic EPS is the weighted average number of shares outstanding during the year. For the purpose of calculating diluted EPS the net profit or loss for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity share. OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 57 3. Summary of significant accounting policies continued 3.19. Other provisions and contingent liabilities Provisions are recognised when present obligations as a result of a past event will probably lead to an outflow of economic resources from the Group and amounts can be estimated reliably. Timing or amount of the outflow may still be uncertain. A present obligation arises from the presence of a legal or constructive obligation that has resulted from past events. Restructuring provisions are recognised only if a detailed formal plan for the restructuring has been developed and implemented, or management has at least announced the plan’s main features to those affected by it. Provisions are not recognised for future operating losses. Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the reporting date, including the risks and uncertainties associated with the present obligation. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Provisions are discounted to their present values, where the time value of money is material. Any reimbursement that the Group can be virtually certain to collect from a third party with respect to the obligation is recognised as a separate asset. However, this asset may not exceed the amount of the related provision. All provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. In those cases where the possible outflow of economic resources as a result of present obligations is considered improbable or remote, no liability is recognised, unless it was assumed in the course of a business combination. In a business combination, contingent liabilities are recognised on the acquisition date when there is a present obligation that arises from past events and the fair value can be measured reliably, even if the outflow of economic resources is not probable. They are subsequently measured at the higher amount of a comparable provision as described above and the amount recognised on the acquisition date, less any amortisation. 3.20. Share-based payments The Group operates equity-settled share-based remuneration plans for its employees. None of the Group’s plans feature any options for a cash settlement. All goods and services received in exchange for the grant of any share-based payment are measured at their fair values. Where employees are rewarded using share-based payments, the fair values of employees’ services is determined indirectly by reference to the fair value of the equity instruments granted. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions (for example profitability and sales growth targets and performance conditions). All share-based remuneration is ultimately recognised as an expense in profit or loss with a corresponding credit to ‘other reserves’. If vesting periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting. Upon exercise of share options, the proceeds received net of any directly attributable transaction costs up to the nominal value of the shares issued are allocated to share capital with any excess being recorded as share premium. 3.21. Employee benefits Gratuity 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 a lump-sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employee’s salary and the tenure of employment. Liabilities with regard to the gratuity plan are determined by actuarial valuation, performed by an independent actuary, at each Statement of Financial Position date using the projected unit credit method. The Group recognises the net obligation of a defined benefit plan in its Statement of Financial Position as an asset or liability, respectively in accordance with IAS 19, Employee benefits. The discount rate is based on the Government securities yield. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to profit or loss in the statement of comprehensive income in the period in which they arise. Employees Benefit Trust Effective during the previous year, the Group has established an Employees Benefit Trust (hereinafter ‘the EBT’) for investments in the Company’s shares for employee benefit schemes. IOMA Fiduciary in the Isle of Man have been appointed as Trustees of the EBT with full discretion invested in the Trustee, independent of the Company, in the matter of share purchases. As at present, no investments have been made by the Trustee nor any funds advanced by the Company to the EBT. The Company is yet to formulate any employee benefit schemes or to make awards thereunder. OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 58 NOTES TO THE CONSOLIDATED AND FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 MARCH 2015 (ALL AMOUNTS IN £, UNLESS OTHERWISE STATED) 3. Summary of significant accounting policies continued 3.22. Business combinations Business combinations arising from transfers of interests in entities that are under the control of the shareholder that controls the Group are accounted for as if the acquisition had occurred at the beginning of the earliest comparative period presented or, if later, at the date that common control was established using pooling of interest method. The assets and liabilities acquired are recognised at the carrying amounts recognised previously in the Group controlling shareholder’s consolidated financial statements. The components of equity of the acquired entities are added to the same components within Group equity. Any excess consideration paid is directly recognised in equity. 4. Significant accounting judgements, estimates and assumptions 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 requires 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 actual results may differ from the judgements, estimates and assumptions made by the management and will seldom equal the estimated results. The following are significant management judgements in applying the accounting policies of the Group that have the most significant effect on the financial statements. • Deferred tax assets The assessment of the probability of future taxable income in which deferred tax assets can be utilised is based on the Group’s latest approved budget forecast, which is adjusted for significant non-taxable income and expenses and specific limits to the use of any unused tax loss or credit. The tax rules in India in which the Group operates are also carefully taken into consideration. If a positive forecast of taxable income indicates the probable use of a deferred tax asset, especially when it can be utilised without a time limit, that deferred tax asset is usually recognised in full. The recognition of deferred tax assets that are subject to certain legal or economic limits or uncertainties is assessed individually by management based on the specific facts and circumstances (refer note 10). • Application of lease accounting Significant judgement is required to apply lease accounting rules under IFRIC 4 Determining whether an arrangement contains a lease and IAS 17 Leases. In assessing the applicability to arrangements entered into by the Group, management has exercised judgement to evaluate customer’s right to use the underlying assets, substance of the transaction including legally enforced arrangements and other significant terms and conditions of the arrangement to conclude whether the arrangements meet the criteria under IFRIC 4. Estimates and uncertainties The key assumptions concerning the future and other key sources of estimation uncertainty at the Statement of Financial Position date, that have a significant risk of causing material adjustments to the carrying amounts of assets and liabilities within the next financial year are discussed below: • Recoverability of deferred tax assets: The recognition of deferred tax assets requires assessment of future taxable profit (see note 3.7). • Estimation of fair value of financial assets and financial liabilities: While preparing the financial statements the Group makes estimates and assumptions that affect the reported amount of financial assets and financial liabilities. − Available-for-sale financial assets: Management apply valuation techniques to determine the fair value of available-for-sale financial assets where active market quotes are not available. This requires management to develop estimates and assumptions based on market inputs, using observable data that market participants would use in pricing the asset. Where such data is not observable, management uses its best estimate. Estimated fair values of the asset may vary from the actual prices that would be achieved in an arm’s length transaction at the reporting date; − Other financial liabilities: Borrowings held by the Group are measured at amortised cost. Further, liabilities associated with financial guarantee contracts in the Company financial statements are initially measured at fair value and remeasured at each Statement of Financial Position date (see note 3.9 and note 26); and − Impairment tests: In assessing impairment, management estimates the recoverable amount of each asset or CGUs based on expected future cash flows and use an interest rate for discounting them. Estimation uncertainty relates to assumptions about future operating results and the determination of a suitable discount rate; and • Useful life of depreciable assets: Management reviews its estimate of the useful lives of depreciable assets at each reporting date, based on the expected utility of the assets. OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 59 5. Segment reporting The Group has adopted the ‘management approach’ in identifying the operating segments as outlined in IFRS 8 – Operating segments. Segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker evaluates the Group’s performance and allocates resources based on an analysis of various performance indicators at operating segment level. Accordingly, there is only a single operating segment ‘generation and sale of electricity’. The accounting policies used by the Group for segment reporting are the same as those used for consolidated financial statements. There are no geographical segments as all revenues arise from India. Revenue on account of sale of power to one party amounts to £82,182,445 (2014: £94,016,799). 6. Depreciation, costs of inventories and employee benefit expenses included in the consolidated statements of comprehensive income a) Depreciation and costs of fuel 31 March 2015 31 March 2014 Included in cost of revenue: Cost of fuel consumed Depreciation Other direct costs Total Depreciation included in general and administrative expenses amount to £372,590 (2014: £263,885). b) Employee benefit expenses forming part of general and administrative expenses are as follows: Salaries and wages Employee benefit costs Employee stock option Total 55,187,812 2,772,529 3,268,017 56,096,388 2,635,100 3,423,554 61,228,358 62,155,041 31 March 2015 31 March 2014 2,970,704 855,207 242,888 2,126,803 682,864 974,222 4,068,799 3,783,889 c) Auditor’s remuneration for audit services amounting to £45,000 (2014: £40,000) is included in general and administrative expenses. d) Foreign exchange movements (realised and unrealised) included in the general and administrative expenses is as follows: Foreign exchange realised – (loss) Foreign exchange unrealised – gain Total gain/(loss) net 7. Other income Other income is comprised of: Sale of fly ash Others Total 31 March 2015 31 March 2014 (444,409) 131,219 (3,218,913) 384,906 (313,190) (2,834,007) 31 March 2015 31 March 2014 40,583 86,685 127,268 140,429 120,309 260,738 OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 60 NOTES TO THE CONSOLIDATED AND FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 MARCH 2015 (ALL AMOUNTS IN £, UNLESS OTHERWISE STATED) 8. Finance costs Finance costs are comprised of: Interest expenses on borrowings Impairment of available-for-sale financial assets (also refer note 13) Other finance costs Total 9. Finance income Finance income is comprised of: Interest income – Bank deposits – Loans and receivables Dividend income Profit on disposal of financial instruments1 Total 1 Financial instruments represent the mutual funds held during the year. 31 March 2015 31 March 2014 8,735,529 – 674,508 8,155,215 274,181 1,362,514 9,410,037 9,791,910 31 March 2015 31 March 2014 634,619 – 53,544 749,600 1,437,763 652,088 5,513 30,980 296,575 985,156 10. Tax expense Tax reconciliation Reconciliation between tax expense and the product of accounting profit multiplied by India’s domestic tax rate for the years ended 31 March 2015 and 2014 is as follows: 31 March 2015 31 March 2014 Accounting profit before taxes Enacted tax rates Tax on profit at enacted tax rate Differences on account MAT rate Items taxed at zero rate Others Actual tax expense Current tax Deferred tax Tax expense reported in the statement of comprehensive income 21,649,451 33.99% 7,358,648 (3,210,347) (1,572,734) 1,785,202 17,949,261 32.45% 6,100,954 (3,085,269) (780,037) 1,149,439 4,360,769 3,385,087 31 March 2015 31 March 2014 2,848,045 1,512,742 2,676,307 708,780 4,360,769 3,385,087 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, the Isle of Man does not levy tax on capital gains. However, considering that the Group’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 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 utilise an exemption from income taxes for a period of any 10 consecutive years out of a total of 15 consecutive years from the date 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 2015 and 2014. Accordingly, the Group calculated the tax liability for current taxes in India after considering MAT. OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 61 10. Tax expense continued The Group has carried forward credit in respect of MAT tax liability paid to the extent it is probable that future taxable profit will be available against which such tax credit can be utilised. Deferred income tax for the Group at 31 March 2015 and 2014 relates to the following: Deferred income tax assets Lease transactions and others Provisions Deferred income tax liabilities Property, plant and equipment Mark-to-market on available-for-sale financial assets Deferred income tax liabilities, net Movement in temporary differences during the year Particulars As at 1 April 2014 Property, plant and equipment and others Lease transactions Provisions Mark-to-market gain/(loss) on available-for-sale financial assets (2,251,032) 56,728 699,442 (14,991) Recognised in income statement (1,518,906) 6,182 – – (1,509,853) (1,512,742) Particulars As at 1 April 2013 Property, plant and equipment and others Lease transactions Provisions Mark-to-market gain/(loss) on available-for-sale financial assets (1,813,272) 59,906 775,936 (12,886) Recognised in income statement (774,708) 7,237 58,691 – (990,316) (708,780) 31 March 2015 31 March 2014 67,360 749,677 818,306 56,728 699,442 756,170 4,024,156 1,267 2,251,032 14,991 4,024,156 2,266,023 3,205,851 1,509,853 Translation adjustment (254,218) 4,450 50,235 – As at 31 March 2015 (4,024,156) 67,360 749,677 1,267 (199,533) (3,205,851) Translation adjustment 336,948 (10,415) (135,185) (2,105) As at 31 March 2014 (2,251,032) 56,728 699,442 (14,991) 189,243 (1,509,853) Recognised in other comprehensive income – – – 16,258 16,258 Recognised in other comprehensive income – – – – – In assessing the recoverability of deferred income tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will be realised. The ultimate realisation of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. The amount of the deferred income tax assets considered realisable, however, could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced. Shareholders resident outside the Isle of Man will not suffer any income tax in the Isle of Man on any income distributions to them. Further, dividends are not taxable in India in the hands of the recipient. However, the Group will be subject to a ‘dividend distribution tax’ currently at the rate of 15% (plus applicable surcharge and education cess) on the total amount distributed as dividend. As at 31 March 2015 and 31 March 2014, there was no recognised deferred tax liability for taxes that would be payable on the unremitted earnings of certain of the Group’s subsidiaries, as the Group has determined that undistributed profits of its subsidiaries will not be distributed in the foreseeable future. OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 62 NOTES TO THE CONSOLIDATED AND FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 MARCH 2015 (ALL AMOUNTS IN £, UNLESS OTHERWISE STATED) 11. Intangible assets Cost At 1 April 2013 Additions Exchange adjustments At 31 March 2014 Additions Exchange adjustments At 31 March 2015 Accumulated depreciation and impairment At 1 April 2013 Charge for the year Exchange adjustments At 31 March 2014 Charge for the year Exchange adjustments At 31 March 2015 Net book value At 31 March 2015 At 31 March 2014 12. Property, plant and equipment The property, plant and equipment comprises of: Acquired software licenses – 548,893 (19,478) 529,415 171,860 48,493 749,769 – 56,769 (2,014) 54,756 23,949 5,391 84,096 665,673 474,660 Land and buildings Power stations Other plant and equipment Vehicles Assets under construction Total Cost At 1 April 2013 Additions Transfer on capitalisation Exchange adjustments At 31 March 2014 Additions Exchange adjustments At 31 March 2015 Accumulated depreciation and impairment At 1 April 2013 Charge for the year Exchange adjustments At 31 March 2014 Charge for the year Exchange adjustments At 31 March 2015 Net book value At 31 March 2015 At 31 March 2014 10,001,465 3,411,870 564,112 (1,836,696) 80,357,096 43,988,116 (15,234,307) 12,140,751 109,110,905 304,404 8,102,195 283,011 561,251 12,985,013 117,517,504 36,903 26,336 (7,289) 55,950 34,644 5,582 96,176 2,896,537 2,635,100 (582,616) 4,949,021 2,772,529 426,874 8,148,424 456,895 198,690 – (67,520) 588,065 124,166 (716) 711,515 144,495 114,198 (30,151) 228,542 192,985 25,124 446,651 642,786 94,314,130 185,772,372 99,527 131,905,058 135,615,145 – (36,314,090) (44,552,228) (19,093,953) – (81,614) 660,699 162,573,007 285,073,427 45,759 122,319,301 123,076,641 15,454,865 (5,140) 6,797,275 701,318 291,689,583 423,604,933 185,641 66,582 (33,592) 218,631 121,012 21,164 360,807 – – – – – – – 3,263,576 2,842,216 (653,648) 5,452,144 3,145,118 484,135 9,052,057 12,888,837 109,369,080 12,084,801 104,161,884 264,865 359,523 340,511 291,689,583 414,552,876 442,068 162,573,007 279,621,283 OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 63 12. Property, plant and equipment continued The net book value of land and buildings block comprises of: Freehold land Buildings Total 31 March 2015 31 March 2014 12,699,397 189,440 11,848,425 236,376 12,888,837 12,084,801 Property, plant and equipment with a carrying amount of £413,947,500 (2014: £278,819,692) is subject to security restrictions (refer note 19). An amount of £19,129,734 (previous year £8,169,522) pertaining to interest on borrowings made specifically for the qualifying assets was capitalised as the funds were deployed for the construction of qualifying assets. 13. Investments and other assets a) Current Available-for-sale financial assets Capital advances Loans and receivables – Advance to suppliers – Others Total b) Non-current Investment in joint venture1 Prepayments Loans and receivables – Lease deposits – Other advances Total 31 March 2015 31 March 2014 1,233,620 11,747,387 16,157,890 38,781,285 8,991,147 1,935,798 7,599,466 1,596,901 23,907,952 64,135,542 1,681,058 637,848 94,908 340,579 – 622,876 79,594 26,891 2,754,393 729,361 1 Represents investment made in Padma Shipping Limited. The venturers are entitled for a share in the net assets of Padma Shipping Limited which is a separate legal entity. Accordingly the Company has used equity method of accounting for the same. Available-for-sale investments are comprised of: Quoted short-term mutual fund units The fair value of the mutual fund instruments are determined by reference to published data. These mutual fund investments are redeemable on demand. Investments in other assets The investments in OPGE and OPGRE, (fair value of retained non-controlling Investments) have been fairly valued and the share of the Group has been determined and disclosed as available-for-sale classified as non-current. There is no change in the valuation technique to those adopted in the previous year. The fair value of OPGE and OPGRE is determined using discounted cash flow approach. Significant inputs into the model are based on management’s assumption of the expected cash flows up to 31 March 2024 and a discount rate of 17%. These investments are fully impaired as at 31 March 2015. The carrying amount of investments, its fair value and the resultant impact on the statement of comprehensive income is as follows: Particulars Investment value – available-for-sale as on 31 March 2014 Fair value of available-for-sale as on 31 March 2015 Current year charge on remeasurement through statement of comprehensive income Particulars Investment value – available-for-sale as on 31 March 2013 Fair value of available-for-sale as on 31 March 2014 Charge on remeasurement through statement of comprehensive income OPGE OPGRE Total – – – – – – – – – OPGE OPGRE Total 274,181 – (274,181) – – – 274,181 – (274,181) OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 64 NOTES TO THE CONSOLIDATED AND FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 MARCH 2015 (ALL AMOUNTS IN £, UNLESS OTHERWISE STATED) 13. Investments and other assets continued Loans and receivables (current) Advances to suppliers include the amounts paid as advance for supply of fuel. Capital advances comprise of payments made to contractors for construction of assets and advances paid for purchase of capital equipment. The management expects to realise these in the next one year. 14. Trade and other receivables Current Trade receivables Unbilled revenues Other receivables Total 31 March 2015 31 March 2014 27,964,156 314,803 349,742 20,594,850 57,451 356,100 28,628,701 21,008,401 Trade receivables are generally due within 30 days terms and are therefore short-term and the carrying values are considered a reasonable approximation of fair value. An amount of £28,628,701 (2014: £21,008,401) has been pledged as security for borrowings. As at 31 March 2015, trade receivables of £563,827 (2014: £527,883) were collectively impaired and provided for. Trade receivables that are neither past due nor impaired represents billings for the month of March. The age analysis of the (overdue) trade receivables is as follows: Total Neither past due nor impaired Past due but not impaired Within 90 days 90 to 180 days Over 180 days 2015 2014 27,964,156 20,594,850 6,394,665 8,606,114 13,700,217 11,948,883 7,869,274 39,853 – – Subsequent to the reporting date, the Company has received £9,409,114 from Tamil Nadu Generation and Distribution Corporation (‘TANGEDCO’) towards the sale made during the period October 2014 and November 2014 under short-term sale agreement and for February 2015 and March 2015 under 15-year variable tariff LTOA contract. The movement in the provision for trade receivables is as follows: 2015 2014 Opening balance 527,883 978,893 Provision for the year – 93,316 Write off/reversal Closing balance 35,944 (544,326) 563,827 527,883 The creation of provision for impaired receivables has been included in general and administrative expenses in the consolidated statement of comprehensive income. Amounts charged to the allowance account are generally written off, when there is no expectation of recovering additional cash. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The Group does not hold any collateral as security. 15. Inventories Coal and fuel Stores and spares Total 31 March 2015 31 March 2014 6,860,904 1,028,757 11,750,681 1,148,523 7,889,661 12,899,204 The entire amount of £7,889,661 (2014: £12,899,204) has been pledged as security for borrowings (refer note 19). 16. Cash and cash equivalents Cash and short-term deposits comprise of the following: Cash at banks and on hand Short-term deposits Total 31 March 2015 31 March 2014 6,200,830 604,619 6,283,204 353,373 6,805,449 6,636,577 Short-term deposits are placed for varying periods, depending on the immediate cash requirements of the Group. They are recoverable on demand. Restricted cash represents deposits maturing between three to 12 months amounting to £5,303,217 (previous year £7,456,090) and maturing after 12 months amounting to £2,784,990 (previous year £190,860) which have been pledged by the Group in order to secure borrowing limits with banks (refer note 19). OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 65 17. Issued share capital Share capital The Company presently has only one class of ordinary shares. For all matters submitted to vote in the shareholders meeting, every holder of Ordinary Shares, as reflected in the records of the Group on the date of the shareholders’ meeting, has one vote in respect of each share held. All shares are equally eligible to receive dividends and the repayment of capital in the event of liquidation of the Group. The Company has an authorised and issued share capital of 351,504,795 equity shares (2014: 351,504,795) at par value of £0.000147 (2014: £0.000147) per share amounting to £51,671 (2014: £51,671) in total. The Company has issued share capital at par value of £51,671 (£0.000147 per share). Reserves Share premium represents the amount received by the Group over and above the par value of shares issued and the excess of the fair value of share issued in business combination over the par value of such shares. Any transaction costs associated with the issuing of shares are deducted from securities premium, net of any related income tax benefits. Foreign currency translation reserve is used to record the exchange differences arising from the translation of the financial statements of the foreign subsidiaries. Other reserve represents the difference between the consideration paid and the adjustment to net assets on change of controlling interest, without change in control, other reserves also includes any costs related with share options granted and gain/losses on remeasurement of available-for-sale financial assets. Retained earnings include all current and prior period results as disclosed in the statement of comprehensive income less dividend distribution. 18. Share-based payments The Board has granted share options to Directors and nominees of Directors which are limited to 10% of the Group’s share capital. Once granted, the share must be exercised within 10 years of the date of grant otherwise the options would lapse. The vesting conditions are as follows: • The 300 MW power plant of Kutch in the state of Gujarat must have been in commercial operation for three months. • The closing share price being at least £1.00 for consecutive three business days. The related expense has been amortised over the estimated vesting period of 4.96 years (expected completion of the Kutch plant) and an expense amounting to £242,888 (2014: £974,222) was recognised in the profit or loss with a corresponding credit to other reserves. Movement in the number of share options outstanding and their related weighted average exercise price are relating to an Executive Director and a Non-executive Director are as follows: Particulars At 1 April Granted/Forfeited/Exercised/Expired At 31 March 31 March 2015 31 March 2014 22,524,234 – 22,524,234 – 22,524,234 22,524,234 The weighted average price fair value of options granted in 2010–11 was determined using the Black-Scholes valuation model was £0.28 per option. The significant inputs into the model were weighted average share price of £0.66 (2011) at the grant date, exercise price of £0.60, volatility of 31.34% dividend yield of nil, an expected option life of 4.96 years and annual risk free rate of 3%. The volatility measured at the standard deviation of continuously compounded share returns is based on daily share prices of the last three years. During the reporting period the Board has agreed to grant 1,000,000 share options to the remaining three Non-executive Directors and one Executive Director. Option contracts in respect of these were executed following the close of the reporting period. 19. Borrowings The borrowings comprise of the following: Term loans at amortised cost Short-term loans Other borrowings Total Interest rate (range %) Final maturity 31 March 2015 31 March 2014 12.67–15.17 March – 2025 258,694,310 192,426,677 March – 2015 March – 2015 2,093,877 2,343,269 260,788,187 194,769,946 OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 66 NOTES TO THE CONSOLIDATED AND FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 MARCH 2015 (ALL AMOUNTS IN £, UNLESS OTHERWISE STATED) 19. Borrowings continued Total debt of £260,788,187 (2014: £194,769,946) is secured as follows: • The term loans taken by the Group are fully secured by the property, plant, assets under construction and other current assets of subsidiaries which have availed such loans. All the loans are personally guaranteed by a Director. • The cash credits and working capital arrangements availed by the Group are secured against hypothecation of current assets and in certain cases by deposits and margin money is provided as collateral. • Other borrowings are fully secured by hypothecation of current assets and in certain cases by margin money deposits and other fixed deposits of the respective entities availing the facility. Term loans contain certain covenants stipulated by the facility providers and primarily require the Group to maintain specified levels of certain financial metrics and operating results. The terms of the other borrowings arrangements also contain certain covenants primarily requiring the Group to maintain certain financial metrics. As of 31 March 2015, the Group has met all the relevant covenants. During the year instalment of loan £1,543,830 relating to Unit I and Unit II was prepaid up to June 2015. The fair value of borrowings at 31 March 2015 was £260,788,187 (2014: £194,769,946). The fair values have been calculated by discounting cash flows at prevailing interest rates. The borrowings are reconciled to the statement of financial position as follows: Current liabilities Amounts falling due within one year Non-current liabilities Amounts falling due after one year but not more than five years Amounts falling due in more than five years Total non-current Total 20. Trade and other payables Current Trade payables Creditors for capital goods Other payables Total Non-current Retention money Other payables Total 31 March 2015 31 March 2014 22,851,498 8,191,455 220,969,216 16,967,473 94,459,543 92,118,948 237,936,689 186,578,491 260,788,187 194,769,946 31 March 2015 31 March 2014 21,161,525 11,080,339 15,597,740 17,176,528 7,475,692 10,522,083 47,839,604 35,174,303 16,670,794 124,285 9,486,097 15,511,429 16,795,079 24,997,526 With the exception of retention money and certain other trade payables, all amounts are short-term. Trade payables are non-interest bearing and are normally settled on 45 days terms. Creditors for capital goods are non-interest bearing and are usually settled within a year. Other payables include accruals for gratuity and other accruals for expenses. OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 67 21. Related party transactions Where control exists Name of the party Gita Investments Limited Caromia Holdings limited OPG Power Generation Private Limited OPGS Power Gujarat Private Limited Gita Power and Infrastructure Private Limited OPGS Industrial Infrastructure Developers Private Ltd OPGS Infrastructure Private Limited Nature of relationship Ultimate parent Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Key management personnel Name of the party Arvind Gupta V Narayan Swami M C Gupta Martin Gatto Ravi Gupta Patrick Michael Grasby Nature of relationship Chief Executive Officer Chief Financial Officer Chairman Director Director Director Related parties with whom the Group had transactions during the period Name of the related party Nature of relationship Chennai Ferrous Limited Kanishk Steel Industries Limited Gita Energy & Generation Private Limited OPG Energy Private Limited (OPG E) OPG Renewable Energy Private Limited (OPG RE) Powerserve Support Limited Padma Shipping Limited Ravi Gupta Avantika Gupta Name of the Party Summary of transactions with related parties Kanishk Steel Industries Limited a) Sharing of power b) Class A shares allotted c) Share application money received Padma Shipping Limited a) Investment Chennai Ferrous Industries Ltd a) Purchase of coal b) Sale of coal Avantika Gupta a) Remuneration Powerserve Support Limited a) Consultancy fees OPG Renewable Energy Private Limited a) Purchase of coal Gita Energy & Generation Private Limited a) Reimbursement of expenses 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 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 Entity in which Key Management personnel has significant influence Relative of Key Management personnel Relative of Key Management personnel 31 March 2015 31 March 2014 – – 7,526 32,662 7,281 – 1,681,058 – – 399,470 300,475 60,971 52,143 – – – 19,445 149,391 46,006 OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 68 NOTES TO THE CONSOLIDATED AND FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 MARCH 2015 (ALL AMOUNTS IN £, UNLESS OTHERWISE STATED) 21. Related party transactions continued Name of the party Summary of balances with related parties Gita Energy & Generation Private Limited a) Trade payables Padma Shipping a) Investments 31 March 2015 31 March 2014 – 46,006 1,681,058 – Outstanding balances at the year end are unsecured. There have been no guarantees provided or received for any related party receivables or payables. For the year ended 31 March 2015, the Group has not recorded any impairment of receivables relating to amounts owed by related parties (2014: £nil). This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates. 22. Earnings per share Both the basic and diluted earnings per share have been calculated using the profit attributable to shareholders of the Parent Company as the numerator (no adjustments to profit were necessary for the year ended March 2015 or 2014). The weighted average number of shares for the purposes of diluted earnings per share can be reconciled to the weighted average number of ordinary shares used in the calculation of basic earnings per share (for the Group and the Company) as follows: Particulars Weighted average number of shares used in basic earnings per share Shares deemed to be issued for no consideration in respect of share-based payments Weighted average number of shares used in diluted earnings per share 23. Directors’ remuneration Name of Directors Arvind Gupta V Narayan Swami Martin Gatto Mike Grasby M C Gupta Ravi Gupta Total 31 March 2015 31 March 2014 351,504,795 351,504,795 1,802,768 359,905,776 353,307,563 8,400,981 31 March 2015 31 March 2014 1,200,000 97,554 45,000 45,000 45,000 45,000 1,477,554 758,108 52,143 35,000 35,000 35,000 35,000 950,251 The above remuneration is in the nature of short-term employee benefits. As the future liability for gratuity and compensated absences is provided on actuarial basis for the companies in the Group, the amount pertaining to the Directors is not individually ascertainable and therefore not included above. 24. Business combination within the Group without loss of control As per the original structure of the Group, two Cypriot subsidiaries of OPGPV, namely GEPL and GHPL, held the investments in the equity of the Group’s Special Purpose Vehicles (‘SPV’) in India. During the year ended 31 March 2013, the management decided to interpose an Indian holding Company, GPIPL in the structure and warehouse the SPV investments in GPIPL. Accordingly, the shareholders of GEPL, GHPL and GPIPL had entered into a scheme of arrangement to effect the above restructuring of the Group. As part of the regulatory requirements in India, the Group had applied and obtained approval from the High Court of Madras on 28 October 2011 subject to fulfilment of certain conditions including approval of relevant regulatory authorities, allotment of shares etc. The scheme had been consummated with effect from 25 January 2013 upon issue of shares to the shareholders of GEPL and GHPL, namely CHL and the assets and liabilities of GEPL and GHPL have been taken over by GPIPL. Consequent to the scheme of arrangement, the Group also has gained 100% economic interest over GPIPL by virtue of an agreement entered into with the minority shareholders of GPIPL dated 1 April 2012. The liquidation process of GEPL and GHPL is in progress as at year end and the management expects the same to be complete by the end of 2015. The above arrangement has been considered as a business combination involving companies under the Group and has been accounted at the date that common control was established using pooling of interest method. The assets and liabilities transferred are recognised at the carrying amounts recognised previously in the Group controlling shareholder’s consolidated financial statements. The components of equity of the acquired entities are added to the same components within Group equity. There was no excess consideration paid in this transaction. OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 69 25. Commitments and contingencies Operating lease commitments The Group leases land under operating leases. The leases typically run for a period of 15 to 30 years, with an option to renew the lease after that date. None of the leases includes contingent rentals. Non-cancellable operating lease rentals are payable as follows: Not later than one year Later than one year and not later than five years Later than five years Total 31 March 2015 31 March 2014 29,764 119,056 474,105 622,925 27,770 111,079 470,106 608,955 During the year ended 31 March 2015, £28,054 (2014: £28,791) was recognised as an expense in the statement of comprehensive income in respect of operating leases. Capital commitments During the year ended 31 March 2015, the Group entered into a contract to purchase property, plant and equipment for £3,256,530 (2014: £17,821,218) for its power generation projects under development. In respect of its interest in joint ventures the Group is committed to incur capital expenditure of £16,232,097 (March 14: nil) of their share of interest. Guarantees and Letter of credit The Group has provided bank guarantees and letter of credits (‘LC’) to customers and vendors in the normal course of business. The LC provided as at 31 March 2015: £40,347,660 (2014: £66,289,044) and Bank Guarantee as at 31 March 2015: £10,248,750 (2014: £4,348,072) are treated as contingent liabilities until such time it becomes probable that the Company will be required to make a payment under the guarantee. 26. Financial risk management objectives and policies The Group’s principal financial liabilities, comprises of loans and borrowings, trade and other payables, and other current liabilities. The main purpose of these financial liabilities is to raise finance for the Group’s operations. The Group has loans and receivables, trade and other receivables, and cash and short-term deposits that arise directly from its operations. The Group also hold investments designated at available-for-sale categories. The Group is exposed to market risk, credit risk and liquidity risk. The Group’s senior management oversees the management of these risks. The Group’s senior management advises on financial risks and the appropriate financial risk governance framework for the Group. The Board of Directors reviews and agrees policies for managing each of these risks which are summarised below: Market risk Market risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise three types of risk: interest rate risk, currency risk and other price risk, such as equity risk. Financial instruments affected by market risk include loans and borrowings, deposits, available-for-sale investments. The sensitivity analyses in the following sections relate to the position as at 31 March 2015 and 31 March 2014. The following assumptions have been made in calculating the sensitivity analyses: i) The sensitivity of the statement of comprehensive income is the effect of the assumed changes in interest rates on the net interest income for one year, based on the average rate of borrowings held during the year ended 31 March 2014, all other variables being held constant. These changes are considered to be reasonably possible based on observation of current market conditions. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long-term debt obligations with average interest rates. At 31 March 2015 and 31 March 2014, the Group had no interest rate derivatives. The calculations are based on a change in the average market interest rate for each period, and the financial instruments held at each reporting date that are sensitive to changes in interest rates. All other variables are held constant. If interest rates increase or decrease by 100 basis points with all other variables being constant, the Group’s profit after tax for the year ended 31 March 2015 would increase or decrease by £2,047,577 (2014: £627,770). OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 70 NOTES TO THE CONSOLIDATED AND FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 MARCH 2015 (ALL AMOUNTS IN £, UNLESS OTHERWISE STATED) 26. Financial risk management objectives and policies continued Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rate. The Group’s presentation currency is the Pound Sterling £. A majority of our assets are located in India where the Indian Rupee is the functional currency for our subsidiaries. Currency exposures also exist in the nature of capital expenditure and services denominated in currencies other than the Indian Rupee. The Group’s exposure to foreign currency arises where a Group company holds monetary assets and liabilities denominated in a currency different to the functional currency of that entity: As at 31 March 2015 As at 31 March 2014 Currency US Dollar Financial assets Financial liabilities Financial assets Financial liabilities – 15,590,116 – 18,557,553 Set out below is the impact of a 10% change in the US Dollar on profit arising as a result of the revaluation of the Group’s foreign currency financial instruments: As at 31 March 2015 As at 31 March 2014 Currency US Dollar Effect of 10% strengthening of GBP on net earnings Closing rate Effect of 10% strengthening of GBP on net earnings Closing rate 62.53 1,546,417 59.75 (1,115,318) The impact on total equity is the same as the impact on net earnings as disclosed above. Credit risk analysis Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily for trade and other receivables) and from its financing activities, including short-term deposits with banks and financial institutions, and other financial assets. The maximum exposure for credit risk at the reporting date is the carrying value of each class of financial assets amounting to £37,889,350 (2014: £44,805,445). The Group has exposure to credit risk from accounts receivable balances on sale of electricity. The operating entities of the Group has entered into short-term agreements with transmission companies incorporated by the Indian state Government (TANGEDCO) to sell the electricity generated. Therefore the Group is committed, in the short term, to sell power to these customers and the potential risk of default is considered low. For other customers, the Group ensures concentration of credit does not significantly impair the financial assets since the customers to whom the exposure of credit is taken are well established and reputed industries engaged in their respective field of business. The credit worthiness of customers to which the Group grants credit in the normal course of the business is monitored regularly. The credit risk for liquid funds is considered negligible, since the counterparties are reputable banks with high quality external credit ratings. The Group’s management believes that all the above financial assets, except as mentioned in note 13 and 14, are not impaired for each of the reporting dates under review and are of good credit quality. Liquidity risk analysis The Group’s main source of liquidity is its operating businesses. The treasury department uses regular forecasts of operational cash flow, investment and trading collateral requirements to ensure that sufficient liquid cash balances are available to service ongoing business requirements. The Group manages its liquidity needs by carefully monitoring scheduled debt servicing payments for long-term financial liabilities as well as cash outflows due in day-to-day business. Liquidity needs are monitored in various time bands, on a day-to-day and week-to-week basis, as well as on the basis of a rolling 90 day projection. Long-term liquidity needs for a 90 day and a 30 day lookout period are identified monthly. The Group maintains cash and marketable securities to meet its liquidity requirements for up to 60 day periods. Funding for long-term liquidity needs is additionally secured by an adequate amount of committed credit facilities and the ability to sell long-term financial assets. OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 71 26. Financial risk management objectives and policies continued The following is an analysis of the Group contractual undiscounted cash flows (including future interest) payable under financial liabilities at 31 March 2015 and 31 March 2014: As at 31 March 2015 Borrowings Trade and other payables Other current liabilities Total As at 31 March 2014 Borrowings Trade and other payables Other current liabilities Total Current within 12 months Non-current 1–5 years Later than 5 years Total 49,981,971 198,541,687 104,228,299 352,751,957 64,947,626 48,152,547 625,957 625,957 16,795,079 – – – 98,760,475 215,336,766 104,228,299 418,325,540 Current within 12 months Non-current 1–5 years Later than 5 years Total 26,168,359 193,853,235 24,997,526 35,174,303 – 227,143 14,248,051 234,269,645 60,171,829 227,143 – – 61,569,805 218,850,761 14,248,051 294,668,617 Capital management Capital includes equity attributable to the equity holders of the parent and debt less cash and cash equivalents. The Group’s capital management objectives include, among others: • ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value; • ensure Group’s ability to meet both its long-term and short-term capital needs as a going concern; and • to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the year ends 31 March 2015 and 2014. The Group maintains a mixture of cash and cash equivalents, long-term debt and short-term committed facilities that are designed to ensure the Group has sufficient available funds for business requirements. There are no imposed capital requirements on Group or entities, whether statutory or otherwise. The capital for the reporting periods under review is summarised as follows: Total equity Less: Cash and cash equivalents Capital Total equity Add: Borrowings (including buyer’s credit) Overall financing Capital to overall financing ratio 31 March 2015 31 March 2014 165,000,125 136,628,267 (6,636,577) (6,805,449) 158,194,675 129,991,690 165,000,125 136,628,267 260,788,187 194,769,946 425,788,311 331,398,213 0.48 0.37 The disbursements of term loans received during the year have resulted in a decrease in capital to overall financing ratio. OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 72 NOTES TO THE CONSOLIDATED AND FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 MARCH 2015 (ALL AMOUNTS IN £, UNLESS OTHERWISE STATED) 27. Summary of financial assets and liabilities by category and their fair values Set out below is a comparison by class of the carrying amounts and fair value of the Group’s financial instruments that are carried in the financial statements: Carrying amount Fair value Financial assets Loans and receivables Cash and cash equivalents1 Restricted cash1 Current trade receivables1 Available-for-sale instruments3 Financial liabilities Term loans LC Bill discounting and buyers’ credit facility1 Current trade and other payables1 Non-current trade and other payables2 31 March 2015 31 March 2014 31 March 2015 31 March 2014 6,805,449 8,088,207 28,628,701 1,233,620 6,636,577 7,646,950 21,008,401 16,157,890 6,805,449 8,088,207 28,628,701 1,233,620 6,636,577 7,646,950 21,008,401 16,157,890 44,755,977 51,449,818 44,755,977 51,449,818 258,694,310 192,426,677 258,694,310 192,426,677 2,343,269 35,174,303 24,997,526 2,343,269 35,174,303 24,997,526 2,093,877 48,152,547 16,795,079 2,093,877 48,152,547 16,795,079 325,735,813 254,941,775 325,735,813 254,941,775 The fair value of the financial assets and liabilities are included at the price that would be received to sell an asset or paid to transfer a liability (i.e. a exit price) in an ordinary transaction between market participants at the measurement date. The following methods and assumptions were used to estimate the fair values. 1 Cash and short-term deposits, trade receivables, trade payables, and other borrowings like short-term loans, current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments. 2 The fair value of loans from banks and other financial indebtedness, obligations under finance leases, financial liabilities at fair value through profit or loss as well as other non-current financial liabilities is estimated by discounting future cash flows using rates currently available for debt or similar terms and remaining maturities. 3 Fair value of available-for-sale instruments held for trading purposes are derived from quoted market prices in active markets. Fair value of available-for-sale unquoted equity instruments are derived from valuation performed at the year end. Fair value measurements recognised in the statement of financial position The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable. • Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). • Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). Available-for-sale financial assets Unquoted securities Quoted securities Total There were no transfers between Level 1 and 2 in the period. Level 1 Level 2 Level 3 Total – 1,233,620 1,233,620 – – – – – – – 1,233,620 1,233,620 The Group’s finance team performs valuations of financial items for financial reporting purposes, including Level 3 fair values. Valuation techniques are selected based on the characteristics of each instrument, with the overall objective of maximising the use of market-based information. The finance team reports directly to the chief financial officer (‘CFO’). Valuation processes and fair value changes are discussed by the Board of Directors at least every year, in line with the Group’s reporting dates. The fair value of contingent consideration related to the Level 3 investments is estimated using a present value technique. The £nil (2014: £274,181) fair value is estimated by discounting the estimated future cash outflows, adjusting for risk at 17%. OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 73 27. Summary of financial assets and liabilities by category and their fair values continued The valuation techniques used for instruments categorised in Level 3 are described below: Opening balance Losses through profit or loss Balance Total amount included in profit or loss for unrealised losses on Level 3 instruments under finance costs 31 March 2015 31 March 2014 – – – 274,181 274,181 – 274,181 28. Post-reporting date events No adjusting or significant non-adjusting events have occurred between the reporting date and the date of authorisation. The financial statements were authorised for issue by the Board of Directors on 1 June 2015 and were signed on its behalf by: Arvind Gupta Chief Executive Officer V Narayan Swami Chief Financial Officer OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 74 CORPORATE DIRECTORY Nominated Adviser and Broker Cenkos Securities Plc 6–7–8 Tokenhouse Yard London EC2R 7AS Financial PR Tavistock Communications 131 Finsbury Pavement London EC2A 7AS Administrators and Company Secretary FIM Capital Limited (Formerly IOMA Fund and Investment Management Limited) IOMA House Hope Street Douglas Isle of Man IM1 1AP Auditors Grant Thornton Third Floor Exchange House 54/62 Athol Street Douglas Isle of Man IM1 1JD Legal advisers Dougherty Quinn The Chambers 5 Mount Pleasant Douglas Isle of Man IM1 2PU Registrars Capita Registrars (Isle of Man) Limited 3rd Floor Exchange House 54–58 Athol Street Douglas Isle of Man IM1 1JD OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 75 SEB: State Electricity Board SPV: Special Purpose Vehicle State: State of India TANGEDGO: Tamil Nadu Generation and Distribution Corporation Limited The Code: the UK Corporate Governance code, issued by the Financial Reporting Council TNWMS: Tamil Nadu Waste Management Services UK/United Kingdom: United Kingdom of Great Britain and Northern Ireland UMPPS: Ultra Mega Power Projects US$/USD or $: US Dollars, the lawful currency of the US DEFINITIONS AND GLOSSARY Act: Isle of Man Companies Act 2006 AGM: Annual General Meeting Board: Board of Directors of OPG Power Ventures Plc BHEL: Bharat Heavy Electricals Limited BOP: Balance of Plant bps: Basis points CAGR: Compound Average Growth Rate CEA: Central Electricity Authority CIL: Coal India Limited and its subsidiaries Company or OPG or parent: OPG Power Ventures Plc EBITDA: Earnings before interest, tax, depreciation and amortisation EHS: Environment, Health and Safety Electricity Act: Indian Electricity Act 2003 as amended EPC: Engineering, Procurement and Construction EPS: Earnings per share FDI: Foreign Direct Investment FII: Foreign Institutional Investor FY: Financial year commencing from 1 April to 31 March GAR: Gross as Received (coal) GCP: Group Captive Plant GDP: Gross Domestic Product Government or GOI: Government of India Great Britain Pound Sterling or £/pence: Pounds sterling or pence, the lawful currency of the UK Group Captive: Group Captive power plant as defined under Electricity Act 2003, India Group or OPG: the Company and its subsidiaries GW: Gigawatt is 1,000 megawatts IAS: International Accounting Standards IEA: International Energy Association IFRS: International Financial Reporting Standards Indian Companies Act: the Companies Act, 1956 and amendments thereto kWh: Kilowatt hour is one unit of electricity LOI: Letter of Intent LSE: London Stock Exchange plc LTOA: Long Term Open Access LTVT: Long Term Variable Tariff MoU: Memorandum of Understanding Mt: Million tonnes MW: Megawatt is 1,000 kilowatts MWh: Megawatt hour O&M: Operating and Management OPG E: OPG Energy Private Limited OPG RE: OPG Renewable Energy Limited PLF: Plant Load Factor PPA: Power Purchase Agreement PSA: Power Supply Agreement ROE: Return on Equity Rupees/INR or Rs: Indian Rupee, the lawful currency of India OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements 76 NOTES OPG Power Ventures PlcAnnual Report & Accounts 2015Strategic ReportCorporate GovernanceFinancial Statements O P G P o w e r V e n t u r e s P l c A n n u a l R e p o r t & A c c o u n t s 2 0 1 5 www.opgpower.com Isle of Man: OPG Power Ventures Plc IOMA House, Hope Street Douglas, Isle of Man IM1 1AP T: +44 (0) 1624 681200