OPG Power Ventures Plc Annual Report 2018

Plain-text annual report

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 2 0 1 8 FOCUSING ON ASSET MAXIMISATION PREPARING FOR THE FUTURE & DELEVERAGING OPG Power Ventures Plc Annual Report & Accounts 2018 OPG Power Ventures Plc IOMA House Hope Street Douglas Isle of Man IM1 1AP T: +44 (0)1624 681200 www.opgpower.com OPG is a developer and operator of power plants in India with a track of record of delivery and an experienced management team. Our goal is to be a leader in the Indian energy sector. STAY IN TOUCH WITH US ONLINE Corporate website opgpower.com Online annual report www.opgpower.com/investors CONTENTS Strategic Report 01 Highlights Corporate Governance Financial Statements 22 Board of Directors 35 Independent Auditors’ report 02 Executive Chairman’s statement 24 Corporate Governance Report 04 Financial review 28 Directors’ Report 07 Key Performance Indicators 30 Directors’ Remuneration Report 08 COO Operational review 34 Statement of Directors’ 10 Business model 11 Group objectives and strategies responsibilities 12 Market review 16 Sustainability report 20 Principal risks 38 Consolidated Statement of Financial Position 39 Consolidated Statement of Comprehensive Income 40 Consolidated Statement of Changes in Equity 41 Consolidated Statement of Cash Flows 42 Notes to the Consolidated Financial Statements 72 Corporate Directory 73 Deﬁnitions and Glossary The paper used in this document contains materials sourced from responsibly managed and sustainable commercial forests, certified in accordance with the FSC® (Forest Stewardship Council). Designed and produced by fourthquarter Strategic Report Corporate Governance Financial Statements HIGHLIGHTS REVENUES (£m) FY14 FY15 FY16** FY17* FY18* 98.8 100.0 128.4 136.2 140.1 EBITDA(3) (£m) FY14 FY15 FY16** FY17* 30.9 33.4 50.7 52.1 PROFIT BEFORE TAX(4) (£m) before impairments and tax 17.9 21.7 FY14 FY15 FY16** FY17* 28.6 31.8 FY18* 24.0 FY18* 6.2 EPS (£ pence) NET DEBT / EBITDA (£m) FY14 4.14 FY15 4.91 FY15 7.6 FY16 5.29 FY16** 5.0 FY17 8.43 FY17* 5.9 (24.7) FY18 FY18* 3.8 * Note : FY 17 & FY 18 Includes only Chennai Operations ** Includes Gujarat Operations Proﬁt from continuing operations before impairments and tax was £6.2m compared with a proﬁt of £31.7m in FY17 Full year scrip dividend of 1p per share (FY17: 0.98p per share) Chennai plant generation up 2% to 2.8(1) billion units from 2.7 billion units in FY17 Revenue up 3% to £140m from £136m in FY17 EBITDA margin of 17% compared with 38% in FY17 due to higher coal costs in FY18 Gross debt of £93.5m(2); gearing lower at 40% from 57% in FY17 62 MW solar project commissioned in FY18 Following the deconsolidation of the Gujarat plant, loss from discontinued operations, incl. Non-Controlling Interest was £(96.7) million (FY17: £(13.4) million) and the total loss was £(100.9) million (FY17 proﬁt: £23.1m) (1) 2.8 billion units includes 0.3 billion deemed generation for Chennai Unit 3 (FY17: 0.4 billion) (2) Gross Debt of Chennai Operations, Gujarat Debt is excluded on account of deconsolidation (3) Excluding one-off impairment provision of £7.3m in FY18 (4) Proﬁt from continuing operations before impairments and tax in FY17 and FY18 Power Ventures Plc Annual Report & Accounts 2018 01 Strategic Report Corporate Governance Financial Statements EXECUTIVE CHAIRMAN’S STATEMENT “This was a year of signiﬁcant transition for OPG. We have decided to focus on the proﬁtable Chennai SPV and have drawn a line under the Gujarat SPV which continued to experience liquidity stress due to the cascading impact of historic external issues, coupled with high seaborne coal prices. We will utilise the strong cash generation of the Chennai operation to repay remaining debt over the Chennai plants within ﬁve years and no further cash will go to Gujarat.” This year we have decided to focus on the proﬁtable Chennai SPV and drawn a line under the Gujarat SPV. We will utilise the strong cash generation of the Chennai operation to repay remaining debt within ﬁve years. 20% by March 2020. The Chennai plant is not affected by the distress of distribution companies affecting parts of the Indian power sector. We are therefore optimistic that the lower coal prices will beneﬁt FY19 and FY20 proﬁtability. Operations – a Focus on Maximising Asset Performance and Deleveraging The Chennai plants’ generation during FY18 was 6 per cent higher than in FY17 at 2,492 million kWh, with average PLF at 77 per cent (FY17: 76 per cent). Post FY18 year-end we have negotiated a 5 per cent increase in sales tariffs for FY19 and, since the year end, most of our group captive customers in Chennai have renewed their three year contracts. We expect to achieve at least 4 per cent increase in sales tariffs for FY20. All scheduled interest and principal repayments at Chennai, amounting in aggregate to Rs2.9 billion (£33.8 million, including £22.3 million principal repayments) were made during the twelve months ended 31 March 2018. The average landed cost of coal was approximately 32 per cent higher in FY18 than FY17, which clearly had a signiﬁcant impact on proﬁtability. It is pleasing to report that, following the coal price spike in 2017 and ﬁrst half of 2018, coal prices have reduced by some 18 per cent in the two months preceding this statement and consensus forecast for Australian steaming coal prices indicates further expected reduction by approximately As at 31 March 2018, total borrowings were at £93.5 million. The Company looks forward to achieving a major milestone later this year as the term loans with respect to Unit 1 of Chennai plant (77 MW out of 414 MW) will be fully repaid in December 2018. The remainder of Chennai plant term loans are scheduled to be fully repaid in ﬁve years, i.e. in FY24. The Company has invested in four solar projects at Karnataka, which will deliver 62MW, and are being ramped up to full capacity. The Group continues to evaluate both organic and acquisitive growth opportunities in the renewables sector, with return on investment as the primary evaluation criteria. Gujarat plant strategic review and deconsolidation As previously announced, the trading difﬁculties experienced by our Gujarat plant, almost entirely outside the direct control of our operational management, triggered a comprehensive review by the Board of the Group’s strategy going forward. The key conclusion was to concentrate on OPG’s high quality, proﬁtable plant in Chennai which, by contrast with Gujarat, delivered a robust performance in FY18. The Board considers that much has been achieved at Gujarat, including building the 300 MW plant from scratch within a disciplined timeframe, increasing production of the plant to reach the target of 80% load factor and securing an attractive tariff from a diverse range of group captive customers. However, it is clear that the cascading effect of the dispute with Gujarat authorities regarding the captive status together with distribution companies (“DISCOMs”) withholding Cross Subsidy Surcharges have meant that the outcome has been very disappointing for our Gujarat SPV. As previously reported the ﬁnancial stress put on the Gujarat SPV led to deferral of scheduled principal and interest loan repayments, resulting in the requirement to implement a lender-assisted Resolution Plan (“RP”). Whilst it had been hoped that this process would be concluded in August 2018, it continues. Management will seek to minimise the time spent on this and no further cash of the Group will be spent on Gujarat SPV. As previously announced, the Group sold a ﬁve per cent equity stake in Gujarat SPV. Whilst the RP may have a number of outcomes, including potential conversion of part of the debt into equity, the Board does not expect any of these outcomes to produce any value for the Group. Due to all the above factors the Group no longer has control or signiﬁcant inﬂuence in the Gujarat SPV and the Gujarat subsidiary was, therefore, deconsolidated as of 31 March 2018. The Group’s equity interest in Gujarat plant was accounted for as an investment at fair value as at 31 March 2018. The Company has no obligations with respect to Gujarat plant’s borrowings apart from the parent company guarantee of £5.8 million with respect to a short-term loan, which will 02 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements potentially be repaid by the Gujarat SPV from customer refunds. To account for the uncertainty implicit in the RP, a full provision, amounting to £46.3 million, has been made against the Group's receivable balances from the Gujarat SPV and ﬁnancial securities pledged with lenders of Gujarat SPV. The board remains conﬁdent that the structural differences between the Gujarat and Chennai markets mean that these issues are restricted to Gujarat. Overview of the Indian power sector & factors inﬂuencing power demand Despite current stress in parts of the power sector, India remains an attractive area for power generation business with GDP growth at 8.2 per cent for Q1 of 2018-19. The IMF’s World Economic Update in July 2018 estimated GDP annual growth rate of 7.5 per cent for 2019. With such strong GDP growth, India is the fastest growing economy in the world and historically, growth in power demand has largely followed GDP growth. We expect power demand to grow at a rate of 6.7 per cent CAGR during the period between 2017 and 2022 and, as Indian power consumption per capita was only 1,075 kWh in 2016, it will catch up with developed economies / countries with similar social economic conditions. The key drivers for increasing demand are initiatives such as ‘24x7 Power for All’, development of ‘smart cities’, the ‘Housing for All’ scheme, the industrial push through ‘Make in India’ initiative, increasing urbanisation, infrastructure requirements, electric mobility, and overall strong economic growth. Ujwal DISCOM Assurance Yojana (“UDAY) performance & tariff increase The UDAY, ﬁnancial turnaround and revival package for electricity distribution companies of India, has a clear impact on improving operational efﬁciency and reducing the overall losses of the DISCOMs. A total of 19 States increased their tariffs either in FY16 or FY17. According to the Ministry of Power, tariff hikes have resulted in additional revenue of Rs.100 billion (£1.1 billion) in FY16 and Rs.204.3 billion (£2.3 billion) in FY17. Tariff increases in Tamil Nadu and other UDAY States where tariff rises did not take place are expected to happen in FY20. Financial results In FY18, the Group’s revenue increased by £4 million to £140 million, 3 per cent higher than FY17. Proﬁt from continuing operations before impairments and tax was £6.2 million (FY17: £31.7 million). Following the deconsolidation of the Gujarat plant and inclusion of the provision, the loss from discontinued operations, incl. Non-Controlling Interest was £(96.7) million (FY17: £(13.4) million) and the total loss was £(100.9) million (FY17 proﬁt: £23.1m). Cash ﬂow from continuing operations was £56.4 million (FY17: £52.1 million). As at 31 March 2018, total borrowings were £93.5 million (31 March 2017: £321 million, including the Gujarat plant’s borrowings). All scheduled interest and principal repayments at Chennai, amounting in aggregate to Rs2.9 billion (£33.8 million, including £22.3 million principal repayments) were made during FY18. The Company will continue to provide trading updates as appropriate but intends to adopt the more traditional half yearly (rather than quarterly) reporting. Board In November 2017, we announced the appointment of Dmitri Tsvetkov as Chief Financial Ofﬁcer of OPG Power Ventures PLC, replacing V. Narayan Swami. Two of our long serving Non-executive directors, Martin Gatto and Ravi Gupta, also stepped down from the Board. All three had been on the Board since our IPO and admission to AIM. We appointed a new Non-executive director, Jeremy Warner Allen, as Independent Non-executive Deputy Chairman. On behalf of the Board, I would like to thank Mr Narayan Swami, Mr Gatto and Mr Gupta for their service and contributions over the years and welcome Mr Tsvetkov and Mr Warner Allen to the Board. Dividend In order to conserve cash for the business, the Board has decided to pay a scrip dividend of 1 pence per share to shareholders in respect of FY18 and expect dividends to return to a cash payment (with a scrip alternative) for FY19. The proposed scrip dividend, if approved by shareholders at the AGM, will result in an issuance of new shares which will be credited to shareholders’ accounts in December 2018. Outlook OPG has established a strong investment case: Robust platform of operating assets Experienced management Proven ability to execute Attractive sector fundamentals Demonstrated focus on cash ﬂow generation KA KARNATAK 62MW Solar TAMIL NADU 414MW Thermal remain on repaying the long-term debt on the Chennai plants and look forward to Unit 1 being debt free later this year with the remaining units following within ﬁve years. The Board and I thank the loyal and hardworking team at OPG and believe that the OPG Group is well positioned to take advantage of market opportunities as they arise. As mentioned above, the Gujarat subsidiary was deconsolidated as of 31 March 2018 and this deconsolidation is reﬂected in the separation of the results from Gujarat and Chennai in FY18 and FY17 income statements. Future results of operations of Gujarat plant will not be consolidated in OPG Group’s consolidated ﬁnancial statements. We believe that our skills and experience in the power sector will enable us to maintain long term proﬁtable and sustainable business model. We are already beneﬁtting from reduced coal prices following the FY18 spike and expect to be able to demonstrate a clear path to proﬁtability in FY19. Or focus will Arvind Gupta Executive Chairman 22 September 2018 Power Ventures Plc Annual Report & Accounts 2018 03 Strategic Report Corporate Governance Financial Statements FINANCIAL REVIEW “The Company looks forward to achieving a major milestone later this year as the term loans with respect to Unit 1 of Chennai plant (77 MW out of 414 MW) will be fully repaid in December 2018. Based on term loans repayments schedule Chennai plant will be debt free in ﬁve years.” Revenue The Group’s revenue has increased by £4.0m, reﬂecting a 3% growth year on year. Generation exported to customers and billed for revenue increased by 5% to 2,296 million units in FY18 from 2,182 in FY17. Production and output levels from the Group’s operating power plants in Chennai and Gujarat compared to the prior year were as follows: Particulars FY18 FY17 Generation (million units) 2,493 2,346 PLF (%) 772 762 Average tariff (INR/unit) 5.213 5.463 1 The above ﬁgures are only for Chennai power plants as Gujarat power plants are reclassiﬁed to discontinued operations 2 Chennai Unit 3: Deemed PLF (%) has been included 3 Average tariff includes effect of deemed offtake tariff for Chennai Unit 3 Gross proﬁt Gross proﬁt (‘GP’) in FY18 was 28.5% of revenue (FY17: 50.3%). The reduction in GP is primarily on account of signiﬁcant increase in fuel cost during FY18 in comparison with FY17. Price and blend of Indian and Indonesian coal consumed: Average factory gate price Average factory gate price Blend (INR/mt) (INR/mKCal) % Financial year Indian coal Imported coal Indian coal Imported coal Indian: Imported FY18 3,467 4,593 963 1,114 6:94 FY17 3,301 3,438 904 799 9:91 Change % 5.0 33.6 increased by 5.0% and those for imported coal by 33.6%. The table above shows the price and blend of Indian and Indonesian coal consumed in FY18 and FY17. EBITDA Earnings before interest, taxation, depreciation and amortisation (‘EBITDA’) is a measure of a business’s cash generation from operations before depreciation, interest and exceptional and non-standard or non-operational changes such as the annual charge for stock options which is a non-cash item or expenses relating to projects under construction. EBITDA was £24.0m in FY18 down from £52.2m in FY17 and EBITDA margin was lower at 17.2% in FY18 against 38.3% in FY17 on account of decrease in GP margin. while after impairments it became loss before tax of £1.1m (FY17: proﬁt before tax £31.7m). (Loss)/ Proﬁt before tax reconciliation (‘PBT’) (£m) FY18 PBT 2017-18 (1.1) PBT 2016-17 31.7 Decrease in PBT (32.8) Increase in GP (28.5) Increase in other income 1.8 Increase in distribution, general and administrative expenses (1.5) Decrease in net ﬁnance cost 2.5 Impairment provision for loss on investments and asset under construction* (7.3) Others 0.1 Decrease in PBT (32.8) * £4m being impairment of obsolete assets under construction, as a one off transaction. £3.3m being impairment provision of investments in joint venture Padma Shipping Power Ventures Plc Annual Report & Accounts 2018 The cost of revenue represents fuel costs. The average factory gate costs for Indian coal Proﬁt from continuing Chennai operations before tax and impairments was £6.2m compared with a proﬁt of £31.7m in FY17 04 Strategic Report Corporate Governance Financial Statements The following is a commentary on the Group’s ﬁnancial performance for the year. INCOME STATEMENT Restated*/** 2018 % OF 2017 % OF YEAR ENDED 31 MARCH £m REVENUE £m REVENUE Revenue 140.1 136.2 Cost of revenue (excluding depreciation) (100.2) (67.7) Gross proﬁt 39.9 28.5 68.4 50.3 Other income 2.0 0.1 Distribution, general and administrative expenses (excluding depreciation) (17.9) (16.4) EBITDA*** 24.0 17.2 52.2 38.3 Depreciation (6.5) (6.6) Net ﬁnance costs (11.3) (13.8) Proﬁt from continuing operations before tax and impairments 6.2 4.4 31.8 23.4 Impairment provision for loss on investments and assets under construction (7.3) 0.0 (Loss)/Proﬁt before tax from continuing operations (1.1) (0.8) 31.7 23.3 Taxation (3.1) 4.8 (Loss)/Proﬁt after tax from continuing operations (4.2) (3.0) 36.5 26.8 Loss from discontinued operations, incl. Non-Controlling Interest (96.7) (13.4) (Loss)/Proﬁt for the year (100.9) 23.1 * Following deconsolidation of Gujarat SPV (described below) the operating performance of Gujarat power plant has been reclassiﬁed to loss from discontinued operations. ** Depreciation was reclassiﬁed from cost of revenue and general and administrative to a separate line *** Excluding one-off impairment provision of £7.3m in FY18 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 tax liabilities arising after the tax holiday period. The tax expense during the year was £3.0m which includes current tax expense of £0.4m and tax credit reversal of £2.7m. Details of tax credit during the year (£m) FY18 Current tax FY2017-18 0.4 Credit for MAT reversal 2.7 Tax expense/(income) 3.0 Proﬁts after tax from continuing operations Proﬁts after tax have decreased by £40.7m from £36.5m in FY17 to loss of £4.2m in FY18. Deconsolidation of Gujarat SPV and Loss from discontinued operations As previously reported, the captive consumers of BVP (formerly known as OPGS Power Gujarat Private Limited) have withheld from the sales invoices an amount of approximately £40m towards Cross Subsidy Surcharge (CSS) levied by the DISCOMs for the ﬁnancial years 2015-2016, 2016-2017 and 2017-2018 challenging the grounds of fulﬁlment of required shareholding criteria by BVP to qualify as a captive power generating unit as per Rule 3 of the Electricity Rules, 2005. Although BVP received conﬁrmation of Group Captive status from the relevant Gujarat authorities and approximately £9m out of £40m of dues were already recovered, the ﬁnancial stress put on the Gujarat SPV, coupled with high seaborne coal prices led to deferral of scheduled principal and interest loan repayments, resulting in the requirement to implement a lender-assisted Resolution Plan (“RP”). The RP plan was developed and presented to the banks and we had hoped that this process would be concluded in August 2018 but it still continues. No further cash of the Group will be spent on Gujarat SPV. As previously announced, the Group sold a ﬁve per cent equity stake in Gujarat SPV (see note 7 (a) to the FY18 consolidated ﬁnancial statements). Whilst the RP may have a number of outcomes, including potential conversion of part of the debt into equity, the Board does not expect any of these outcomes to produce any value for the Group. Due to all above factors the Group no longer has control or signiﬁcant inﬂuence in the Gujarat SPV and the Gujarat subsidiary was, therefore, deconsolidated as of 31 March 2018. The Group’s equity interest in Gujarat plant was accounted for as an investment at fair value as at 31 March 2018. Future results of operations of Gujarat plant will not be consolidated in OPG Group’s consolidated ﬁnancial statements. Accordingly, results of operations of BVP were reclassiﬁed to Loss from discontinued operations. Operating loss of BVP increased to £28.0m for FY18 from £13.4m primarily on account of increase in fuel cost. Further, loss on deconsolidation of BVP is £22.3m and the Group has made impairment provision aggregating to £46.3m for investments in debentures, trade receivables and advances and ﬁnancial securities pledged with lenders of BVP. Below is a summary of loss from discontinued operation recognized upon Gujarat SPV deconsolidation: Power Ventures Plc Annual Report & Accounts 2018 05 Strategic Report Corporate Governance Financial Statements FINANCIAL REVIEW CONTINUED Particulars FY18 - £m FY17 - £m Operating loss of BVP 28.0 13.4 Loss on deconsolidation of BVP 22.3 – Impairment provision for investments in debentures of BVP 11.0 – Impairment provision for trade receivables and advances of BVP 22.0 – Impairment provision for ﬁnancial securities pledged with lenders of BVP 13.3 Total Loss from discontinued operations 96.7 13.4 Impairment provision of investments in joint venture Padma Shipping In 2014 the Company 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 Arrangement, the Company and Noble agreed to jointly purchase and operate two 64,000 MT cargo vessels through a Joint venture company Padma Shipping Ltd, Hong Kong (‘Padma’). During the year, the Joint Venture partner due to a change in their group strategy requested for the Joint Venture to be terminated. As the vessels were still under construction and yet to be delivered during 2018, we agreed and the process for the same will be initiated in FY19. OPG has invested approximately £3.5m in equity and £1.7m to date as advance and accordingly the joint venture has been reported using equity method as per the requirements of IFRS 11. The Company provided corporate guarantee for 50% of equity portion of the cost of construction of the vessels remaining balance in amount of £2m (equivalent of $2.8m) which was recognised in the FY18 ﬁnancial statements as part of £3.2m provision as the shipping yard requested payment subsequent to the year end. The Company recognised an impairment provision in the FY18 ﬁnancial statements of £3.2m against its investment to date on account of the impending dissolution of the JV. Impairment of Assets under construction During the year the Company impaired an amount of £4m relating to obsolete assets under construction, as a one off transaction. The plant and machinery under construction of proposed 12 MW power project to be set up on a 120 acre brownﬁeld site in the industrial heartland of Karnataka state at Bellary, has been impaired as the group does not expect any economic beneﬁts out of same. The plant and machinery were purchased along with the land and is of no use hence needs to be scrapped. Earning per Share (EPS) The Company’s reported EPS from continuing operations decreased to loss of (1.2) pence from 9.5 pence on account of decrease in PAT. The Company’s total reported EPS decreased to loss of (24.7) pence from 8.4 pence earnings on account of decrease in PAT due to loss from discontinued operations. Dividend The Board approved FY18 full year scrip dividend at 1 pence per share. For FY17 full year dividend paid at 0.98 pence per share, including interim dividend of 0.26 pence per share. Some shareholders elected to receive ﬁnal FY17 dividend in form of scrip dividend and as a result of this election the Company has issued 4,799,742 shares during the year at par value of £0.000147 (2017: £0.000147) per share amounting to £706. The difference between fair value of shares issued above par value of £1.2m with respect to scrip dividend was credited to share premium. Foreign exchange loss on translation The British Pound-to-Indian Rupee exchange rate has moved higher to closing rate on 31 March 2018 of 1£= INR 90.81 as against 1£= INR 80.82 on 31 March 2017 thereby resulting in signiﬁcant exchange loss of £21.4m on translating foreign operations. Given Gujarat plant balances were removed from the statement of ﬁnancial position as at 31 March 2018 as a result of deconsolidation, the comparative balances as at 31 March 2017 were also adjusted for BVP balances for the purposes of variance analysis below. Also comparative balances of assets and liabilities on 31 March 2017 were recalculated based on exchange rate effective on 31 March 2018 to eliminate foreign exchange impact. Property, plant and equipment The decrease in net book value of our property, plant and equipment principally relates to depreciation and forex loss on account of translation during the year. Other non-current assets Other non-current assets (excluding Property, plant and equipment & Intangible assets) have increased primarily due to £9.9m investments in associates (solar power projects and Padma Shipping joint venture). Current assets Current assets have decreased by £2.4m from £80.6m to £78.2m year on year primarily as a result of the following: • Decrease in trade receivables by £4.8m. • Increase in cash and bank balances (including restricted cash) by £3.0m. • Decrease in inventory holdings by £1.8m. • Increase in Net current tax asset by £2.2m. • Decrease in other current assets by £0.9m Current liabilities Current liabilities have increased by £21.4m from £55.6m to £77.0m year on year primarily due to increase in trade payables for coal and creditors for supplies to solar power project. Other non-current liabilities Other non-current liabilities have increased by £9.4m from £79.2m to £88.6m year on year primarily on account of increase in trade and other payables of £17.3m and decrease due to repayment of borrowings for balance amount. Gross debt, gearing and ﬁnance costs As of 31 March 2018, total borrowings were £93.5m. The gearing ratio (borrowings/ (equity plus borrowings) was 40% (31 March 2017: 57%). Total borrowings (current and non-current portions) decreased by £228m due to repayment of term loans of £22.6m by Chennai plant, deconsolidation of Gujarat (£206m) and foreign exchange impact of depreciation of INR against GBP. The Company looks forward to achieving a major milestone later this year as the term loans with respect to Unit 1 of Chennai plant (77 MW out of 414 MW) will be fully repaid in December 2018. Based on term loans repayments schedule Chennai plant will be debt free in ﬁve years. 06 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements KEY PERFORMANCE INDICATORS Finance costs have decreased by £2.1m from £15m in FY17 to £12.9m in FY18 primarily due to scheduled repayments of term of loans by Chennai plant and respective reduction in interest expense. Finance income increased from £1.1m in FY17 to £1.6m in FY18 and therefore net ﬁnance costs in FY18 amounted to £11.3m (FY17: £13.8m). The restricted cash balances totalling £25.3m at 31 March 2018 (31 March 2017: £17.8m) is comprised of ﬁnancial deposits that have been pledged as security against borrowings and Letters of Credit. Cash ﬂow Net cash ﬂow from operating activities has increased from £52.2m in FY17 to £56.4m in FY18, an increase of £3.8m, primarily due to changes in working capital exceeding impact of the decrease in gross proﬁt. FINANCIAL AVERAGE TARIFF REALISATION (INR/kWh) FY14 FY15 FY16** FY17* FY18* EBITDA (£m) FY14 FY15 FY16** FY17* 30.9 33.4 5.55 5.71 5.58 5.46 5.21 50.7 52.1 Movements (£m) FY18 FY17 FY18* 24.0 COST OF GENERATION PER UNIT (INR/kWh) FY14 FY15 FY16** FY17* FY18* GEARING (%) FY14 FY15 FY16** FY17* FY18* 3.10 3.09 2.67 2.52 3.43 52 59 57 57 40 Operating cash ﬂows from continuing operations before changes in working capital 23.8 52.3 Tax paid (0.8) (3.9) Change in working capital assets and liabilities 33.3 3.7 Net cash generated by operating activities from continuing Operations 56.4 52.1 Purchase of property, plant and equipment (net of disposals) (1.1) (3.1) Investments, incl. in solar projects, shipping JV, market securities (28.8) (8.6) Net cash used in continuing investing activities (29.9) (11.7) Net interest paid (12.9) (15.0 Dividend paid (1.6) (0.9) Total cash change before net borrowings 11.9 24.5 Dmitri Tsvetkov Chief Financial Ofﬁcer 22 September 2018 FY14 4.14 FY15 4.91 FY16 5.29 FY17 8.4 EPS (£ pence) (24.7) FY18 NON-FINANCIAL PLANT LOAD FACTOR (%) (Group) TOTAL RECORDABLE INJURY RATE (Chennai) FY14 FY15 FY16** FY17* FY18* 96 91 FY14 FY15 0.49 0.40 70 76 77 FY16** 0.28 FY17* 0.00 FY18* 0.09 * Note : FY17 & FY18 Includes only Chennai Operations ** Includes Gujarat Operations Power Ventures Plc Annual Report & Accounts 2018 07 Strategic Report Corporate Governance Financial Statements COO OPERATIONAL REVIEW “Both coal availability and water consumption are two factors, which have disrupted the availability and load factors of other thermal power plants in India in recent years. OPG’s plants are designed to be able to use a wide range of fuels, both domestic and international, and the Company further has the capability to maintain reserves of coal. This has been integral to coal availability at its locations and we haven’t faced any interruptions on account of coal since commissioning of any of the units.” The following is a review of operations for the year. enforced system back downs and one-off disruptions to demand such as due to weather. available for supply on the LTVT to the state of Tamil Nadu. Plant availability and generation Our operational performance is affected by our revenue generation model, plant availability and load factors and auxiliary power consumption. Both coal availability and water consumption are two factors, which have disrupted the availability and load factors of other thermal power plants in India in recent years. OPG’s plants are designed to be able to use a wide range of fuels, both domestic and international, and the Company further has the capability to maintain reserves of coal. This has been integral to coal availability at its locations and we haven’t faced any interruptions on account of coal since commissioning of any of the units. In addition, the plants are designed to limit the consumption of water as they are built with air cooled condenser technology rather than being water cooled with the result that OPG’s plants use 99% less water than most thermal power plants in the world. As a result, our station availability has remained consistently over 90%. This is important as availability is the basis of our reward on the 74 MW Long-Term Variable Tariff (‘LTVT’) which is discussed further below. Our load factors take account of plant availability as reduced by external factors like normal seasonal demand adjustments to their offtake under the LTVT (though the customer still pays us as discussed further below), Total generation at the 414 MW Chennai plant in FY18, including ‘deemed’ offtake, was 2.8 bn units which is 2% higher than last year despite seasonal events. The Chennai plant load factor (‘PLF’) including ‘deemed’ offtake, in FY18 was 77% versus 76% in FY17 and a national average for thermal plants of approximately 61% and is expected to be at the same level in FY19. The 300 MW Gujarat plant’s generation was up by 23% from FY17 to 2.04 bn units. The Gujarat plant continued to ramp up achieving a PLF of 78% in FY18, up from 63% in FY17. For FY19, the Company expects load factors to be at around 85% in Chennai. Auxiliary consumption levels, also a key measure of plant efﬁciency, is typically between 7.5-8% for our plants. Sales contracts During FY18, the Company continued supplies directly to industrial customers under short-term and multi-year contracts in Chennai. The tenure of sales contracts entered into with industrial customers at Chennai were between one year and three years. This has accelerated cash collections and improved visibility of earnings. The capacity allocated to industrial customers under such contracts was 334 MW, or 81% of the plant’s installed capacity and nearly half of Group capacity. The remaining 74 MW of Chennai capacity has remained Signiﬁcant portion of supply of electricity to industrial customers provides an element of protection from grid-related issues. During the year the state of Tamil Nadu was forced to restrict grid access by reducing its purchases of electricity from many generators of conventional power during an especially strong wind season due to grid constraints. Industrial customers are less affected by such restrictions as the state seeks to ensure continuity of supply to business. For FY19, the Chennai plant expects to continue with its diversiﬁed sales mix, contracting the majority of its generation from 414 MW to captive customers and the balance of 74 MW to the state of Tamil Nadu under the 15 year LTVT Agreement. Power sales from the 300 MW Gujarat plant have been mainly to industrial customers on short and medium-term contracts and to the power exchange. The industrial customers are also supplied by the state government utilities, which operate a power surplus and is able to determine how grid access is allocated. Grid access is being made available gradually, with the result that the plant has ramped up gradually as we had previously reported, achieving a load factor of 78% in FY18, compared with 63% in FY 17. The Chennai plant realised an average tariff of Rs 4.92 per unit (*The plant realised an average tariff of Rs5.02 which equates to Rs4.92 net of self-generation tax of Rs 0.1 08 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements per unit which is paid directly to the state by group captive customers and will not be included in Company’s tariffs and expenses in FY19 which was the case in FY18) in FY18 and a ‘deemed’ offtake charge of Rs 1.50 per unit for ‘deemed’ generation. The difference between tariff and cost of coal on a per unit basis (‘the Clean Dark Spread’), was Rs 1.47 at Chennai for FY18, which we believe continues to be amongst the best in the sector, notwithstanding the sharp spike in coal prices we reported earlier during the year as well as measures taken by management to mitigate high coal price volatility. The Gujarat plant realised an average tariff of Rs 4.19 per unit for FY18 and the Clean Dark Spread was Rs 1.03 per unit. The Gujarat Electricity Authorities had been levying Cross Subsidy Surcharge (CSS) and associated charges since FY16 on our captive users. However, ﬁnally during FY 18, the Gujarat Authorities have conﬁrmed the captive status of Gujarat plant for FY18 and subsequent to year end for F16 and FY17 and have accordingly initiated the process of refund of CSS withheld by them. The amounts withheld aggregated to £40m as at the end of FY18 and we have received approximately £9m of this outstanding dues to date. For FY19, at Chennai, the Company expects the average tariff to be around Rs 5.18 per unit as against Rs.4.92 in FY18, due to an increase in tariff negotiated with all the captive customers. At Gujarat, the Company expects the average tariff to be around Rs.4.39 as against Rs.4.19 in FY18. We expect to achieve at least 4 per cent increase in sales tariffs for Chennai plant in 2020. Further, average realised tariffs on multi-year contracts would beneﬁt from any increase in regulated tariff. In Tamil Nadu, under a MoU with the central government, the state has resolved to raise tariffs by an average of 6% from FY19 across the board. Coal supply and prices The Company has consistently been able to import low sulphur coal from a small number of high class Indonesian coal producers and traders with whom we have developed long-standing relationships. The Company has purchased coal primarily on short and medium-term contracts during FY 18. The average coal price for Chennai plant was Rs 4,527 per tonne in FY18 (FY17: Rs 3,427 per tonne) which is approximately 32 per cent higher than in FY17. Following the coal price spike in 2017 and ﬁrst half of 2018, predominantly as a result of policy actions undertaken in China, coal prices have been weakening recently and have reduced by some 18 per cent in the two months preceding this statement. Consensus expectations continue Power Ventures Plc Annual Report & Accounts 2018 to be for international coal prices to recede in 2019 and 2020 with longer-term consensus expectations for that trend to continue whilst coal supply is expected to stay robust. AVERAGE TARIFF REALISATION (INR/kWh) The Company will continue to actively review its procurement and hedging practices to establish ways in which to mitigate the volatility of the coal price and will report any material developments in this regard. Safety and environmental compliance The Company made good progress with its safety programme, recording no fatalities and 0.08 Total Recordable Incident Report (TRIR) in FY18 at the Chennai plant. For the Gujarat plant, the TRIR was targeted at 0.25 for FY18 and we have been able to bring it down from 0.23 in FY17 to 0.13 in FY18. The Company continues to minimise its consumption of water through air cooling and we operate with a philosophy of continual improvement with regards to any efﬂuent. The Indian Government has notiﬁed revised compliance standards for emission norms for all thermal power plants across the country with effect from Dec 2022. The Company is well placed to comply with the new standards applicable from 2022 for Sox, Nox and SPM by doing some minor capital expenditure. The Company is evaluating various technologies with a view to be fully compliant by Dec 2022. 62 MW Karnataka In FY17, the Company had signed long-term 25 year PPAs for 62 MW with Karnataka Discoms at an average tariff of Rs.5.00 across 4 sites. In FY18, the entire 62 MW of solar plant has been commissioned. The Company expects that these 4 sites will get fully ramped this year and will reach their optimal PLF by end of FY19. 124 MW Jharkhand In FY17, the Company had secured a Letter of Intent for the award of 25 year PPAs for 124 MW. During the course of FY18, the Jharkhand Government did not enter into these PPAs and subsequently in FY 19 have returned all the security deposits and guarantees that were provided by the Company. As such, the Company does not expect to go ahead with this Project. Avantika Gupta Chief Operating Ofﬁcer 22 September 2018 FY14 FY15 FY16** FY17* 5.55 5.71 5.58 5.46 FY18*,*** 5.21 COST OF GENERATION PER UNIT (INR/kWh) FY14 FY15 FY16** FY17* FY18* 3.10 3.09 2.67 2.52 3.43 GENERATION (million kWh)* FY14 FY15 FY16 FY17 1,841 1,816 3,163 2,346 FY18 2,493 PLANT LOAD FACTOR (%)* FY14 FY15 FY16 FY17 FY18 96 91 70 76 77 PLANT LOAD FACTOR (%)(1) All India (Coal & Lignite based Plants) FY14 FY15 FY16 FY17 FY18 66 64 62 60 61 * Note: FY17 & FY18 Includes only Chennai Operations. ** Note: FY16 Includes 704m units from Gujarat that were capitalised, exlcuding deemed generation for Chennai Unit 3 of 0.4 billion (0.2 billion in FY16). *** Average tariff includes effect of deemed offtake tariffs for Chennai Unit 3. (1) Source: powermin.nic.in 09 Strategic Report Corporate Governance Financial Statements BUSINESS MODEL Our model is driven by economic growth and the demand for power in India. Industry and commerce needs sustainable, reliable power WHERE OPG ADDS VALUE Selective approach to customers and contract terms ROBUST PLATFORM Thermal Renewables Best price and assured volumes OUTCOMES Responsible operations First choice for customers Manage gearing Visibility of earnings and cash ﬂow Robust, low cost operations Sustainable returns to investors Adopt a responsible culture Take opportunities to grow the business and manage risk 10 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements GROUP OBJECTIVES AND STRATEGIES The Group’s objective is to build shareholder value through proﬁtable growth by becoming the ﬁrst choice provider of reliable and uninterrupted power at competitive rates to its customers. In addition, the Group’s aim is to be a sector leader by reference to the quality of its earnings, the proﬁtable growth it delivers and its performance against its own stringent safety and environment management standards. To meet these objectives, the Group’s strategy includes: (i) maximising the performance of its existing power generation assets; (ii) reducing its cost of capital and paying dividends; (iii) pursuing responsible growth; and (iv) delivering accretive growth projects within its areas of expertise. STRATEGIES DESCRIPTION Maximising performance of existing power plants Reducing cost of capital and paying dividends Pursuing responsible growth Deleveraging Customers The Group is committed to maximising the performance of its existing power generation assets through plant availability and providing a reliable and uninterrupted supply of electricity directly to its customers. The ﬂexible design of our plants allows us to procure a variety of international and domestic coal and maintain an uninterrupted supply of coal. Further, the Group seeks to achieve competitive prices that are negotiated directly with customers. The Group’s use of the group captive model means that it is well positioned to respond to ﬂuctuations in fuel costs through short- and medium-term sales contracts. The Group aims to maximise cash generation at its existing power plants in order to provide liquidity support for its operations and to repay debt, pay dividends and generate equity for use in potential projects. The Group continues to prioritise projects that can be funded through a combination of debt ﬁnancing and internal resources, and that can be expected to generate revenues which meet its target return levels without any direct subsidies being made available. Furthermore, the Group seeks to maintain manageable gearing levels and regular open dialogue with its shareholders and ﬁnancing partners. Proﬁtability The Group’s strategy involves developing and operating its power plants under the group captive model enabling it to set its own tariffs with captive users and thereby providing the Group with the ﬂexibility to optimise tariffs and proﬁtability. The Group continuously seeks to improve its operational performance and so implements strategies for the optimisation of its power generation assets. Dividends The Group seeks returns for shareholders and has adopted a dividend policy that will, initially, seek to pay out 15% of full year net earnings, subject to the level of free cash ﬂow generated, (calculated after scheduled debt repayments and expected capital expenditure) and progress to a long-term dividend strategy that pays out a third of the Company’s net earnings in any year. The Group works with long-term, top-tier ﬁnancing, technical and consulting partners to pursue responsible growth, and targets international environmental standards while ensuring that domestic standards are met or exceeded. The Group also seeks to respect the rights and acknowledge the aspirations and concerns of the local communities in which it operates. The Group has developed, and intends to continue to develop, small- and medium-sized power projects and, alongside potential ﬁnancing arrangements, considers a number of factors when assessing the viability and development of potential power projects, including that land acquisition, water supply, availability of equipment, logistics, transmission infrastructure or other local and socio-political issues, are not material constraints, and that environmental and safety standards are capable of being met. Energy mix The Group evaluates projects consistent with its strategy of accretive growth that better replicate India’s energy mix, and where it can expect to meet its debt commitments and enhance earnings. These projects currently include a range of potential power generation and related projects, including opportunities for inorganic growth through the acquisition of existing distressed or operational assets. As of 31 March 2018, total borrowings were £93.5m. The gearing ratio (borrowings/(equity plus borrowings) was 40% (31 March 2017: 57%). Total borrowings (current and non-current portions) decreased by £228m due to repayment of term loans of £22.6m by Chennai plant, deconsolidation of Gujarat (£206m) and foreign exchange impact of depreciation of INR against GBP. The Company looks forward to achieving a major milestone later this year as the term loans with respect to Unit 1 of Chennai plant (77 MW out of 414 MW) will be fully repaid in December 2018. Based on term loans repayments schedule Chennai plant will be debt free in ﬁve years. Power Ventures Plc Annual Report & Accounts 2018 11 Strategic Report Corporate Governance Financial Statements MARKET REVIEW Overview of the Indian power sector: Primary energy consumption in India in 2015 was the third highest in the world after China and the USA, with India accounting for 5.3% of global consumption. India was also the third largest producer of electricity in 2015, after China and the United States, with a more than 5% share of global electricity generation. Despite being among the top three power consumers in the world, per-capita electricity consumption in India was only 1,075 kWh in 2017 which is signiﬁcantly lower than the world average and the lowest among the BRICS nations (Brazil, Russia, India, China and South Africa). For us, this indicates the strong growth potential of the Indian power sector. India still has an energy deﬁcit Demand for energy grew at a CAGR of approximately 4.0% over the period from 2013 to 2018, while energy supply grew even faster at a CAGR of 5.8% over the same period. While India continues to remain a power deﬁcit country, the deﬁcit is reducing and in ﬁscal 2018, the energy deﬁcit declined to 0.7%. Key drivers for power demand As identiﬁed in the Chairman’s statement, there are a number of factors which will drive power demand in India in the short to medium term, including a number of Government initiatives. These are illustrated in the chart opposite. Historically, power demand growth has largely followed GDP growth. CRISIL expects the co-relation between GDP and power demand growth to remain high and power demand to grow at 6.7% CAGR during the period between 2017 and 2022. The key drivers for the demand increase would be initiatives such as ‘24x7 Power for All’, development of ‘smart cities’, the ‘Housing for All’ scheme, industrial push through The key drivers for the demand increase would be initiatives such as ‘24x7 Power for All’, development of ‘smart cities’, the ‘Housing for All’ scheme, industrial push through ‘Make in India’, increasing urbanisation, infrastructure requirements, electric mobility, and overall strong economic growth. The GoI has announced its goal to produce only electric vehicles (“EVs”) from year 2030. With the right policies in place and the GoI’s focus on promoting EVs, these are expected to further increase demand. The demand for energy is expected to rise with a gradual improvement in the ﬁnancial health of DISCOMs, primarily due to the implementation of the UDAY scheme which aims at improving the ﬁnancial health of DISCOMs through initiatives such as reduction in interest cost, reduction of cost of power and improvement in operational efﬁciencies. Demand for power is also expected to be supported by the increasing availability and supply of power and improving infrastructure, as well as an improvement in economic activity led by higher demand from key infrastructure and manufacturing sectors such as metals, mining, chemicals, cement and automobiles. India’s GDP increased from Rs 87 trillion in ﬁscal 2012 to approximately Rs 131 trillion in ﬁscal 2018, which represented a compound annual growth rate (“CAGR”) of approximately 7%. 12 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 India’s per-capita power consumption was almost half of the world’s average in 2015: World Average Electricity Consumption for 2015 is 2,869 per capita KwH( ) 60,000 24,692 14,450 15,617 7 ,8117,4 6,127 469,45 50,000 40,000 30,000 20,000 10,000 0 2,001 12 6,182 6,460 6 3,738 2,435 2,435 1,010 India China Brazil Russian Federation Germany USA GDP per capita PPP ($) Per capita power consumption (KwH) Source: World Bank, CEA, EIA, CRISIL Research Key drivers for power demand Power demand is expected to grow at 6.7% CAGR through to 2022 24x7 Power for All Development of ‘smart cities’ ‘Housing for All’ scheme Industrial push through ‘Make in India’ Increasing urbanization Infrastructure requirements Electric mobility, , and overall strong economic growth 3rd highest Primary energy consumption in India in 2015 was the third highest in the world after China and the United States, with India accounting for 5.3% of the global consumption. Power Ventures Plc Annual Report & Accounts 2018 13 Strategic Report Corporate Governance Financial Statements MARKET REVIEW CONTINUED Coal Coal Imports increased in FY18 as a result of logistical bottlenecks. Coal imports were widely anticipated to fall during FY18. The Government has been pushing steam coal consumers, especially power producers, to replace imported coal with Indian domestic coal. However, domestic logistical bottlenecks such as inadequate coal transportation infrastructure – particularly the availability of rakes – has been hampering supply to power producers. Regulatory changes targeting pollution decreases have also fuelled the higher imports, which are expected to stay ﬁrm through the rest of calendar 2018. On a more positive note, in the recent bidding guidelines for commercial private coal mining, the absence of an end-use condition in the guidelines is very helpful for commercial mining, representing a potential market opportunity for private commercial miners. The price of coal is forecast to reduce materially over the next 18 months. Overview of the Indian economy Key macroeconomic indicators Gross domestic product (GDP) India’s GDP increased from Rs 87 trillion in ﬁscal 2012 to approximately Rs 131 trillion in ﬁscal 2018, which represented a compound annual growth rate (“CAGR”) of approximately 7%. India’s GDP growth rate of 6.6% in ﬁscal 2018 was signiﬁcantly in excess of the world average of 3.0% in 2017 (estimated) and 3.1% in 2018 (estimated). The Indian economy was negatively impacted in ﬁscal 2018 by two major policy events, namely, the demonetisation of currency and the introduction of the Goods and Services Tax (“GST”) in late 2016 and early 2017, respectively. These initiatives, coupled with weaker agricultural growth, have resulted in a lower estimated real GDP growth rate of 6.6% in ﬁscal 2018. Current account deﬁcit After reaching 4.8% of the GDP during ﬁscal 2013, India’s CAD has declined progressively, reaching 0.7% of GDP in ﬁscal 2017. This decline was primarily due to lower oil prices since oil imports constitute the largest share of India’s import costs. Inﬂation Fiscal consolidation has helped keep inﬂation under check and brought down the cost of borrowing for both the government and the private sectors. The government, together with the Reserve Bank of India (RBI), has adopted an explicit inﬂation targeting framework, which is expected to help engender a low and stable inﬂation regime. Outlook for the Indian economy The International Monetary Fund (IMF) and the World Bank have both forecasted higher growth in the Indian economy for 2018. While growth in advanced economies is expected to be moderate as central banks reverse their previously accommodative stance, growth in emerging and developing markets is expected to strengthen. According to the World Bank, growth in China may be moderate in 2018 but other Asian economies are poised for higher growth. Global growth recovery will further help growth in the Indian economy. India’s Real GDP growth is expected to be 7.6% in ﬁscal 2019. According to the IMF’s forecasts, India is likely to overtake China as the fastest-growing economy in the world during the period between 2017 and 2022. Based on its estimates, India will continue to be among the fastest growing major economies with a growth rate of 7.4% to 8.9% during the period between 2017 and 2022. The CAGR over the period is expected to be approximately 8.5%. Moreover India’s growth rate is expected to be signiﬁcantly higher than the global CAGR of approximately 4% and the CAGR for other developing economies, such as Brazil, Russia and sub-Saharan African nations. The ongoing liberalisation of India’s FDI regime has also led to a signiﬁcant increase in investments, particularly following the launch of the ‘Make in India’ campaign in October 2014. Cumulative FDI inﬂows in India rose almost 40% to reach US$ 114.1 billion between ﬁscal 2016 and ﬁscal 2017, compared to US$ 81.1 billion between ﬁscal 2012 and ﬁscal 2014 (Source: India Brand Equity Foundation (IBEF)). Coal consensus forecast for Newscastle coal to come down 22% (US$/t) Coal Imports increased in FY18 as a result of logistical bottlenecks 100 90 80 70 60 168 161 155 149 22% 136 105 71 Sep18 Dec 18 Mar 19 Jun 18 Sep 19 Dec 19 Mar 20 Jun 20 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Source: Consensus Economics Analysis, Aug 2017 Source: ICRA 14 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements Gross Domestic Pro )tn( duct (GDP) 1 14 7.9% 105 7.2% 123 7.1% 98 6.5% 131 1 2.0% 0.0%1 8.0% 6.6% 6.0% 2.8% 2.8% 2.5% 3.0% 3.1% 4.0% 2.0% 0.0% 87 92 5.5% 5 5% 2.6% FY 12 3 1CY3/1FY 41CY4/1FY 51CY5/1FY 6 1CY6/1FY 71CY7/1FY 18CY8/1FY ) India’s GDP growth (in tn) Source: Central Statistics Ofﬁce (C Wo CSO), World Bank Data Indicators, CRISIL Resear India’s GDP growth (%) orld GDP growth (%) rch Growth in per capita KwH( ) a power consumption in Ind dia against per capita GDP 1,200 1,000 800 600 400 200 0 819 884 8 914 957 1,010 1,075 FY 12 31FY 41FY 51FY 61FY 17FY 140,000 120,000 100,000 80,000 60,000 40,000 40 000 20,000 0 Per capita power consum Source: International Monetary Fun mption (KwH) GDP per capita (Rs) nd (IMF), CEA, CRISIL Research Factors inﬂuencing power demand GDP growth p Gradual improvement in discom ﬁnancials, strengthening of distribution network & 100% intensive rural electriﬁcation Tra ansformation capacity expansion rge-scale infra Lar evelopment – de S Smart cities, dicated Freight Ded C Corridor etc. Electric vehicles, railway electriﬁcation & metro expansion vernment push Gov to o industries / ufacturing under manu Make in India’ ‘M campaign 1 40 201 001 80 60 60 40 20 0 s r e v i r D i s t n a r t s e R Energy efﬁc ciency n T&D loss reduction Captive and off-grid Captive and off grid RES generation Source: CRISIL Research Length of the arrow denotes the e extent of impact Power Ventures Plc Annual Report & Accounts 2018 D r i v e r s R e s t r a n t s i 15 Strategic Report Corporate Governance Financial Statements SUSTAINABILITY REPORT At OPG, we believe in efficient, sustainable, responsible and inclusive growth. We ensure that the health and safety of all our employees and workers remain a top priority for us; environmental compliance and conserving resource remains an integral part of our organisational culture and we continue to proactively engage with communities near our operations; we are working on intensifying our engagement with them in the coming years to have a measurable positive impact on them. Sustainability and Responsibility is at the core of our operations. Maintaining our social responsibility is vital to successfully delivering on our growth plans and creating value from our operations. We aim to achieve international best practices with our 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. Our approach We take our social and environmental responsibility as seriously as our business and economic goals. We recognise that providing safe, efﬁcient and responsible operations are key to long term sustainability of the organisation. We have identiﬁed three areas of priority where we continued our work in a focused way in FY18. Health and Safety Community Support Environmental Performance HSE Governance The Board’s Health, Safety and Environment Committee (‘HSE Committee’) was instituted 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. It keeps track of strategic and operational issues. All the Plants have dedicated Steering Committees, which report to the HSE Committee and are entrusted with the day to day responsibility on Health, Safety and Environment at the individual sites. The responsibilities of the Steering Committees include adhering to HSE compliance, planning trainings and managing incidents. At the plant level these Committees monitor all the necessary action on the ground such as incident and accident data, corrective measures for previous incidents and ensure protocols are implemented to avoid repeats of any incident. They further also review the annual health data and ensure medical check-ups are done for all plant employees. Health and Safety At both Chennai and Gujarat, our continued and concerted efforts towards safety and health of our employees have been rewarding and motivating for us and our employees. Zero Harm is our vision for safety at OPG and pursuing a goal of Zero Harm and incident free operations gets highest commitment from OPGs management. We have structured our Health and Safety programme in a way that we have stringent procedures around safety and zero tolerance for unsafe behaviour and practices around safety. In FY18 for the Chennai Plant, we had a Total Recordable Incident Report (‘TRIR’) of 0.08 and zero fatalities. For the Gujarat Plant, TRIR was targeted at 0.25 for FY18 and we have been able to bring it down from 0.23 in FY17 to 0.13 in FY18. The responsibility of safety lies with OPG for all OPG employees and contractors. Annual health check-ups have revealed no occupational 0.08 TRIR In FY18 for the Chennai Plant, we had a Total Recordable Incident Report (‘TRIR’) of 0.08 and zero fatalities. 0.13TRIR For the Gujarat Plant, TRIR was targeted at 0.25 for FY18 and we have been able to bring it down from 0.23 in FY17 to 0.13 in FY18. 16 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements health issue amongst the workforce which is checked by a certiﬁed doctor from the Inspectorate of Factories. Health and Systems Our approach is to implement systematic change. Chennai plant is certiﬁed with ISO 14000 and OHSAS 18001 (Occupational Health and Safety Management System). This System helps in identifying any hazard or risk and minimising or eliminating that risk. We adhere to national laws on Occupational Health and Safety related legislations. We have implemented policies strictly in accordance with the legislation in letter and spirit and there has been no violation of any part of the legislation. Carbon monoxide in the coal handling plant is measured and monitored twice per month; lux (SI unit of illuminance) monitoring is done during the day and night and Suspended Particulate Matter and Noise monitoring is carried out regularly. Periodic health check-up is carried out for the employees and contractors and that includes CBS, Urine Routine Pulmonary Function Test, Audiogram, Eye Check-up and Chest X Ray. Training and Supervision At both Chennai and Gujarat sites, continuous training programmes in safety management are established. All employees and contractors at our sites are provided with the necessary training. The following are the key areas of training carried out at both plants: Safety Induction training (mandatory for every new entrant in the system) Tool box talks (daily) Safety training for all employees (weekly) Safety training for contractors (monthly) First Aid Training Area speciﬁc training OHS training (5 day) Hazard Identiﬁcation and risk assessment training Fire extinguishing drill Arc Flash Supervision Following safety practices such as wearing safety gear – goggles, reﬂective jackets, headgear and other necessary equipment is mandatory for every worker, employee or visitor at OPG. Promoting Safety Culture In an Indian context, creating a safety culture is essential to ensure personnel don’t underestimate safety issues. Apart from governance on safety, setting up systems and providing training, it is equally important to promote a safety culture through a mix of educating, disciplining and incentivising practices. For example: Incentivising reporting of near miss. National Safety Week Celebrations Visitor Safety guidelines on visitor passes. Incident Reporting Format is speciﬁed and it is presented in monthly safety report and safety committee meetings. Any condition that is unsafe is brought to the notice of the head, a responsibility is ﬁxed for mitigating the risk in a time bound manner and the list is monitored. For each incident, reporting is done with incident type and root cause is analysed. It also speciﬁes how the accident risk can be mitigated. We have had excellent safety record in certain areas in plants such as boiler ESP, Turbine and Generator, Transformer, ACC, Switch Yard and DM Plant. Environmental performance Continual improvement in environmental performance through responsible operations is one of the key pillars of our corporate strategy. Operational efﬁciency and environmental stewardship are two key drivers for our environmental management programme. I. Environmental Compliance It is our resolve to remain compliant and strive to stay ahead of compliance by monitoring and measuring our impact. We are compliant on all relevant environmental local acts and rules. Our plant has all the necessary waste-water treatment as well as air pollution control equipment. There is no consumption of POPs (Persistent Organic Pollutants) in any of our operations. Emergency Response and Reporting An onsite well equipped medical facility with a doctor and two nurses is available in case of any emergency. II. Measuring and Improving Environmental Performance Some of the important indicators that we measure are auxiliary power consumption, water quality and quantity, waste generated Continual improvement in environmental performance through responsible operations is one of the key pillars of our corporate strategy. Power Ventures Plc Annual Report & Accounts 2018 17 Strategic Report Corporate Governance Financial Statements SUSTAINABILITY REPORT CONTINUED and recycled and emissions (Sox, Nox, SPM, GHG, CO). Whether it is material use or energy or water, we believe in reducing, reusing and recycling and disposing of the hazardous materials in compliance with guidelines. III. Energy OPG generates power for other consumers which are industrial and commercial establishments. The energy that is consumed within the plant is to maintain facilities, air conditioning, systems etc. Auxiliary Power Consumption for OPG for FY18 was 7.55% for the Chennai plant and 8.63% for the Gujarat plant. We continuously strive to optimize the energy consumption of our internal facilities through energy management systems. IV. Water The primary source of water for our plants is ground water. Ground water level is measured regularly at various points through piezometric wells and level of water is as desired since we have taken measures in improving the ground water level through recharge pits across the plants. The water cycle is a closed loop system at OPG, and water recovered during the process is diverted to an efﬂuent treatment plant. Treated water enters the water cycle again and the reject goes to the solar pond for evaporation. The water used for domestic consumption at the plant is treated in a Sewage Treatment Plant and the treated water from STP is used for nurturing the green belt. There is no efﬂuent that is released from the premises and the OPG plants qualify as zero discharge plants. The plant processes were set up in a way that water could be recovered and sent back to the source. To further reduce the discharge of water from the system some other initiatives are reverse osmosis unit for efﬂuent treatment plant and sedimentation tank for backwashed water. Quality of water at various entry and exit points in the system show that the pH is well within the prescribed limit. One of the major reasons for consumption of water at any thermal plant is for cooling through water-cooled condensers, which is the norm for most power stations. However, at OPG, huge water savings result owing to installation air-cooled condensers instead of water-cooled condensers, which effectively reduce the water footprint per unit generated by 99% in comparison to conventional water cooled condensers. Air-cooled condensers with 99.5% recovery of condensate along with air-cooled heat exchange equipment effectively deliver huge water savings. Rainwater Harvesting Initiatives Rainwater harvesting systems at the plants are designed to collect 90% of runout. Storm water drains with inﬁltration wells have been made in the plants to enrich ground water table. Inﬁltration pits were dug along storm water drains to increase inﬁltration of water during rains. Input recharging pits were cleared and cleaned at regular intervals to ensure water recharge. To strengthen the system further gravel was cleared of silt, protective fencing was put around the pits. Water from the rainwater gutter pipes are connected to the water storage tank. can impact ecology and mankind immensely. We are very proud to say that we have absolutely no waste that is hazardous and is disposed of against Basel Convention. All hazardous waste, which in a thermal power plant is only small quantities of oil soaked cotton waster, batteries etc., have been disposed to authorised vendors. VI. Green Initiative and Afforestation: We have dedicated 30% of the area at our premises as green belt to promote local biodiversity in the area and we continued our afforestation initiative within and outside the premises of our plant including nearby schools, road sides and community areas. We annually plant 2,000 trees at each of the sites and we have a 3-year plan to continue such annual plantations. VII. Emissions OPG makes use of good quality coal and technology to reduce its emissions. Our stack emission monitoring analyser is continuous and has been linked to the respective Pollution Control Board servers to get real-time emissions data. An LED display board has been ﬁxed at the main gates of the plants to display the real-time emission levels. The Indian Government has notiﬁed revised compliance standards for emission norms for all thermal power plants across the country with effect from Dec 2022. The Company is well placed to comply with the new standards applicable from 2022 for Sox, Nox and SPM by doing some minor capital expenditure. The Company is evaluating various technologies with a view to be fully compliant by Dec 2022. V. Disposal of Waste Irresponsible disposal of hazardous waste is one of the most potentially dangerous acts that To control dust emissions, we have installed Electrostatic Precipitators before the stack, 90% Rain water harvesting systems at the plants are designed to collect 90% of runout. 2,000 We annually plant 2,000 trees at each of the sites and we have a 3-year plan to continue such annual plantations. 18 Power Ventures Plc Annual Report & Accounts 2018 with the communities are transparency, accountability and gender inclusiveness. I. Education We have tied up with an NGO, Isha Vidya and adopted 10 Government schools near the plant to improve their English language and math skills. Through this initiative, we have impacted 1,057 children. Through our long lasting association with the schools near our plants, we distributed school uniforms, shoes, bags and stationery to 1,080 underprivileged children. We are continuing to fund salaries of 11 teachers in Government Schools adjacent to our plant, 3 school sponsorships for girls, and 86 college/ school fee funding have been provided to needy students. Green Initiative within our premises where we planted more saplings to increase the green cover in the area. Mechanical road sweeping of the coal transportation route Sprinkling water for dust suppression Digging of wells in the nearby villages Cleaning and maintenance of community water tanks and ponds IV. Livelihood Generation To help those who have no means to create a livelihood for themselves, we have donated sewing machines to a group of women who now run a successful stitching center near our Gujarat plant and we continue to assist the center by providing monthly maintenance charges such rent, electricity, repair work etc. We also continuously sponsor school and college fees of children of our contract employees who have shown academic excellence. We have conducted local recruitment drives in the nearby villages and have employed educated graduates for technical positions in the plant. Strategic Report Corporate Governance Financial Statements which works at 99.9% efﬁciency. The Electrostatic Precipitator helps in controlling the emissions well within the current prescribed limits. Even in coal unloading areas, various dust suppression systems are in place such as, in the coal crushing area, dust ﬁlters are installed to avoid dust generation. During the year to further control dust emission from coal movement and unloading, we have erected wind screens and additional water sprinklers in various areas around the coal handling plant and we have procured an automatic heavy duty sweeping machine to clean the roads used for coal movement. India is a signatory to the Paris Climate Agreement, which has already come into effect. Accordingly, the Indian Government charges a coal cess of INR 400 a tonne of coal which is contributing towards decarbonizing India’s economy. This taxation goes to a national corpus that funds green ideas and green projects. The total cess paid by Chennai plant during FY18 was approximately Rs 0.7 bn. Community Support As a corporate with a motto of ‘responsible operations’, we engage with communities around our area of operations. We would like to impact the lives of the people around our operations in a positive way. The basis of the engagement with the communities is understanding their needs. As we carry out a need based assessment study periodically, we are continuing our interaction with them and all the support is continued as per the needs of the communities. II. Health We have continued our support to health initiatives in nearby villages, where we already renovated and upgraded the dispensaries and the number of patients treated every day is around 50. We continued to provide the doctor’s salary, medicines, staff salary, supply of materials and nursing staff salary. We also have an ambulance at the ready in the event of any local emergencies. A systematic engagement plan was evolved in collaboration with the communities where it emerged that the local communities needed assistance in health, education, community spaces, environment and recreation. Some of the basic principles that guide our engagement We have improved sanitation facilities by constructing toilets in the nearby villages. III. Local Environment Some of the initiatives that were taken in the current year are: We have indirectly generated job opportunities for 500 families by engaging the villagers across various services in the plants such as gardening, housekeeping etc., V. Building Community Spaces: Many community relationships get strengthened around places of worship. Based on the needs of the communities, we have supported construction of a Church in Chennai and a Community Center in Gujarat. Similarly, we have supported many temple initiatives in the villages around our operations based on the needs of the locals. As a corporate with a motto of ‘responsible operations’, we engage with communities around our area of operations. We would like to impact the lives of the people around our operations in a positive way. Power Ventures Plc Annual Report & Accounts 2018 19 Strategic Report Corporate Governance Financial Statements 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. SECTOR- RELATED RISK DESCRIPTION MONITORING AND MITIGATION Power sale The Company’s power plants derive their revenue from the group captive model selling power 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. The Group’s power plants may not qualify or continue to be recognised as captive power producers which may damage the Group’s business model or increase the costs to the Group’s customers. This could adversely affect the revenues in the short-to medium-term and results of operations. 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 Availability of fuel supply and costs 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. Reliable transmission infrastructure The Group is dependent upon a reliable transmission and distribution infrastructure so that the power generated at the Group’s power plants can be evacuated and transmitted to consumers. The Group pays an open access fee to access the transmission and distribution structure. If the transmission infrastructure is inadequate or subject to approvals and unexpected fees then this will adversely affect the Group’s ability to deliver electricity to its customers and impact revenues and proﬁtability. Seeking long-term supplies Maintaining adequate storage facilities to keep appropriate levels of surplus stocks Maintaining relationships with suppliers and mitigating any potential disruption Developing different sources for fuel supply especially in the imports market Assessing adequate availability of transmission capacity and related fees during project evaluation stage Construction and/or upgrade of transmission facilities near the Group’s existing or future power plants Maintaining a proactive relationship with local Distribution Companies (‘Discoms’) and monitor any changes 20 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements 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. INDIA- SPECIFIC RISKS DESCRIPTION MONITORING AND MITIGATION Government policy and regulations The Group’s operations are subject to complex national and state laws and regulations with respect to numerous matters, including the following: environmental factors (emissions, waste disposal, storage and handling); health and safety; and planning and development. The Group is required to obtain approvals, licences and permits issued by the Indian government and other regulators and failure to obtain, comply with the terms of or renew such approvals, licences and permits may restrict the Group’s operations or development plans, or require their amendment, and may adversely affect the Group’s proﬁtability, or result in it being subject to ﬁnes, sanctions, revocation of licences or other limitations. Group’s business model of GCPPs is subject to rules and regulations, which can be potentially interpreted by the authorities in a way different from Group’s interpretations. The proﬁtability of the Group will be in part dependent upon the continuation of a favourable regulatory regime with respect to its projects. Ability to retain ﬁscal and tax incentives The Group’s existing and planned power plants beneﬁt from various ﬁscal and tax incentives that are available to the Company from the federal and state governments. A change in policy or the adoption of tax policies and incentives can have an adverse impact on the proﬁtability of the Group. 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 The Group is consulting with industry and legal experts as required and, if necessary, is prepared to defend its position in the courts. 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 Exchange rate ﬂuctuations 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. Imported coal 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. 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 Global ﬁnancial instability 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. The Group continues to monitor changes and developments in the global markets to assess the impact on its ﬁnancing plans Continuing uncertainty and concerns about contagion in the wake of the ﬁnancial crises could have a negative impact on the availability of funding. Power Ventures Plc Annual Report & Accounts 2018 21 Strategic Report Corporate Governance Financial Statements BOARD OF DIRECTORS Arvind Gupta Executive Chairman Jeremy Warner Allen Non-executive Deputy Chairman Dmitri Tsvetkov Chief Financial Ofﬁcer Background and experience Background and experience 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, founder of OPG Group, has been responsible for the construction and development of the power plants of the Group as well as its overall strategy, growth and direction. He has also developed proﬁtable wind and solar power projects within the family portfolio. Mr Warner Allen has over 25 years’ experience in capital markets. He is currently a Non-Executive Director of TP Group plc. Prior to that he was an Executive Director, Board Member and Head of the Growth Companies Team at Cenkos Securities plc, where he advised a number of AIM companies over a period of 11 years. Prior to joining Cenkos, he was a founding member of Beeson Gregory Limited and responsible for the UK sales desk, a role he retained when Beeson Gregory merged with Evolution Securities in 2002. Mr Tsvetkov has over 23 years of ﬁnancial, accounting and operational experience, including signiﬁcant experience of working with promoter/founder-led energy sector listed companies in London, Africa, Asia and Canada. Mr Tsvetkov was Chief Financial Ofﬁcer of OPG Power Generation Pvt Ltd, the Chennai subsidiary of OPG from July 2017 to October 2017. Prior to that he was Chief Financial Ofﬁcer of Advance International Exploration, Inc., Interim Chief Executive Ofﬁcer and Chief Financial Ofﬁcer of Mart Resources, Inc., a TSX listed oil and gas company, and Chief Financial Controller of Heritage Oil Plc, a FTSE 250 oil and gas company. Mr Tsvetkov was with Pricewaterhouse Coopers in Calgary, Canada and Moscow, Russia from 1994 to 2006. He has a Chartered Accountant (CA) designation from the Canadian Institute of Chartered Accountants, an FCCA designation from the Association of Chartered and Certiﬁed Accountants in the UK and Chartered Financial Analyst (CFA) designation from the CFA Institute in the US. Member Nomination Committee Member Audit, Remuneration Committee 22 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements P Michael (Mike) Grasby Independent Non-executive Director Jeremy Beeton Independent Non-executive Director Background and experience 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. Jeremy was appointed to the OPG Board in November 2016 as a Non-executive Director. He is a Fellow of the Institution of Civil Engineers with 40 years of international experience in project and programme management over very large multi-site, multiple project operations portfolios for and within government, public companies and private companies. He is also currently an independent Non-executive Director of SSE plc, John Laing and an independent Non-executive Director of WYG plc, an Advisory Board member of PricewaterhouseCoopers LLP and Chairman of Merseylink Ltd. Additionally, Jeremy sits on the governing Court of Strathclyde University. He was Director General of the London 2012 Olympic and Paralympic Games from 2007 until the Olympic Baton was passed on to Rio de Janeiro in 2012. For eight years prior to this, he was a Principal Vice President with Bechtel, responsible for their worldwide civil operations and has lived and worked extensively in the Middle East and Asia Paciﬁc. He was awarded CB in the 2013 New Year Honours and holds an honorary Doctorate of Engineering from Napier University. Member Audit, Nomination, Remuneration Committee Member Audit, Nomination, Remuneration Committee Power Ventures Plc Annual Report & Accounts 2018 23 Strategic Report Corporate Governance Financial Statements CORPORATE GOVERNANCE REPORT FINANCIAL YEAR ENDED 31 MARCH 2018 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 currently mandatory. Nevertheless, the Company remains committed to adopting high standards of corporate governance and endeavours to comply with the Code to the extent practicable for a public company of its size. Compliance with the Code 3. Evaluation (B.6) Since admission to AIM, the Group has grown substantially against a background of difﬁcult trading conditions within the Indian electricity generation sector. The Company completed its development programme, paid dividend with respect to year ended 31 March 2017 and is poised for the next phase of its development. The key objective is to build on these achievements and the Board has therefore adopted an approach to governance that is proportionate with and appropriate to 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: The Executive Chairman, as part of his responsibilities, informally assesses the performance of the Board and its Directors on an ongoing basis and brings to the Board’s attention any areas for improvement. For the time being, the Board will continue to evaluate in this way the balance of skills, experience, independence and knowledge required to ensure that its composition is appropriate to the Group’s size and complexity. As noted in connection with Code provision A.4.2 above, the Board is to institute a process of periodic evaluation of its performance and that of its principal committees and the individual Directors annually. 1. Division of Responsibilities (A.2.1) Operation of the Board At the Annual General Meeting (‘AGM’) on 14 November 2016, Mr M C Gupta retired from the position of Chairman and the Chief Executive, Arvind Gupta, accepted the Board’s proposal to assume the role of Executive Chairman effective from that date. As Executive Chairman, Mr Arvind Gupta is responsible for the overall business, strategic decision and heads the Executive Committee. Mr Dmitri Tsvetkov, the Company’s Chief Financial Ofﬁcer is responsible for the ﬁnance function, including ﬁnancial controls and funding (V Narayan Swami, the Company’s former Finance Director had these responsibilities before his resignation). Simultaneously with the appointment of Mr Arvind Gupta as Executive Chairman, the Company announced the appointment of Mr T Chandramoulee to a newly created post of Chief Operating Ofﬁcer. This was a non-Board appointment. Mr T Chandramoulee resigned from the Company and Ms Avantika Gupta, daughter of Mr Arvind Gupta, was appointed as Chief Operating Ofﬁcer on 1 March 2018. As Chief Operating Ofﬁcer, Ms Gupta is responsible for the day-to-day running of the operations. In the Board’s view, these changes together ensure an appropriately clear division of responsibilities between the running of the Board and the executive responsibility for the running of the Company’s business. 2. Non-executive Directors (A.4.2) The Code requires the Non-executive Directors, led by the Senior Independent Director, to meet at least annually without the Executive Chairman to appraise the Executive Chairman’s performance. The Board is to institute a periodic evaluation process, including evaluating the performance of the Executive Chairman in due course. Board of Directors The Board comprises the following individuals: Executive 1. Arvind Gupta (Executive Chairman since 14 November 2016 (Chief Executive Ofﬁcer before 14 November 2016)); and 2. Dmitri Tsvetkov (Chief Financial Ofﬁcer) (joined on 8 November 2017). 3. V Narayan Swami (Finance Director) (resigned on 8 November 2017). Non-executive 1. Jeremy Warner Allen (Deputy Chairman) (joined on 8 November 2017); 2. Martin Gatto (Senior Independent Director) (resigned on 8 November 2017); 3. Michael Grasby; 4. Jeremy Beeton; and 5. Ravi Gupta (resigned on 29 May 2018). 24 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements 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. The Board considers both Mr Grasby and Mr Beeton to be independent in character and judgement notwithstanding their length of service. Mr Allen was appointed in November 2017 and is considered to be independent under the Code. Biographical details of all the Directors at the date of this report are set out on pages 22 and 23 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 4 times during the year under review. The Executive Committee (‘ExCo’) comprises of the two Executive Directors and four members of senior management. All Directors have access to the advice and services of the Company Secretary, who is responsible for ensuring that Board procedures are followed and that applicable rules and regulations are complied with. 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 although these are not currently set down in writing. The Company maintains Directors’ and ofﬁcers’ liability insurance and indemnity cover, the level of which is reviewed annually. Executive Chairman and Deputy Chairman The Executive Chairman’s key responsibilities were the effective running of the Board, proposing and developing the Group’s strategy and 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. In addition to that, the Executive Chairman, as leader of the executive team, is responsible for implementing the decisions of the Board and its Committees. At the AGM of the Company on the 14 November 2016, the previous Chief Executive, Arvind Gupta, assumed the role of Executive Chairman and previous Chairman retired on the same date. Jeremy Warner Allen, the Deputy Chairman, is available to shareholders who have concerns that cannot be resolved through discussion with the Executive Chairman. The role of the Deputy Chairman is to support and tender advice to the Executive Chairman on all governance matters. Martin Gatto, former Senior Independent Director, played this role before his resignation in November 2017. 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 divisible by three, the number nearest to one-third, shall retire from ofﬁce by rotation. Pursuant to the Company’s Articles, the Board shall have power at any time to appoint Directors to ﬁll a vacancy and any Directors so appointed shall hold ofﬁce only until the annual general meeting of the Company and shall be eligible for re-election. On this basis, Messrs Jeremy Warner Allen, Dmitri Tsvetkov (both appointed on 8 November 2017) and Michael Grasby, will offer themselves for re-election at the forthcoming 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. Also all Directors received a brieﬁng on the Market Abuse Regime (MAR) regulation from the Company’s Nominated Advisor. Directors are encouraged to keep abreast of developments and attend training courses to assist them with their duties. In addition to the formal meetings of the Board, the Executive 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 to their area of responsibility and to keep them fully briefed on ongoing matters relating to the Group’s operations. The Executive 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. Power Ventures Plc Annual Report & Accounts 2018 25 Strategic Report Corporate Governance Financial Statements CORPORATE GOVERNANCE REPORT FINANCIAL YEAR ENDED 31 MARCH 2018 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: Board Committee meetings Board meetings Audit Remuneration Nomination Number Attended Number Attended Number Attended Number Attended Arvind Gupta 4 3 2 2 NA NA 1 1 Dmitri Tsvetkov 4 2 2 1 NA NA NA NA V Narayan Swami 4 2 2 1 NA NA NA NA Jeremy Warner Allen 4 2 2 1 NA NA NA NA Martin Gatto 4 2 2 2 1 1 NA NA Michael Grasby 4 4 2 2 1 1 1 1 Ravi Gupta 4 1 2 1 1 1 NA NA Jeremy Beeton 4 1 2 1 1 1 1 1 Number of meetings held during the year 4 2 1 1 In the event that Directors are unable to attend a meeting, their comments on the business to be considered at the meeting are discussed in advance with the Executive Chairman so that their contribution can be included in the wider Board discussions. Board Committees Audit Committee The members of the Audit Committee are Jeremy Warner Allen, Michael Grasby and Jeremy Beeton (Martin Gatto and Ravi Gupta were members of the Audit Committee until their resignations in November 2017 and May 2018 respectively). Jeremy Warner Allen is considered to have continuing, relevant ﬁnancial experience (Martin Gatto was considered to have continuing, relevant ﬁnancial experience before his resignation). The Executive Chairman and Chief Financial Ofﬁcer and also, as necessary, a representative of the auditors 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 practices, 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 met twice during the year and considered the following matters during the year under review: • the Annual Report and Accounts for the year ended 31 March 2017; and • the unaudited results for the half-year FY18 to 30 September 2017. Remuneration Committee The Remuneration Committee currently consists of Jeremy Beeton, Jeremy Warner Allen and Michael Grasby (Martin Gatto and Ravi Gupta were members of the Audit Committee until their resignations in November 2017 and May 2018 respectively). Ravi Gupta was not present when any remuneration matter relating to the Executive, Arvind Gupta (his brother) were 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 30 to 33. Nomination Committee The members of the Nomination Committee are Arvind Gupta, Jeremy Beeton and Michael Grasby. The primary duty of the Nomination Committee is to lead the process for Board appointments and make recommendations to the Board. 26 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements Accountability and Audit Shareholder Relations and the Annual General Meeting 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 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 Executive Chairman and Chief Financial Ofﬁcer together with the Deputy Chairman met with a number of institutional shareholders during the year. The Directors also encourage communications with private shareholders and encourages their participation in the AGM. Arvind Gupta 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 and to discuss strategy and governance issues with them as appropriate. Notice of the AGM 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. 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 the ExCo to be a leading part of its process to identify, evaluate and manage the signiﬁcant risks the Group faces, 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 20 and 21. Assurance BDO LLP was appointed as auditor for the Group for the ﬁnancial year ended 31 March 2018. The Audit Committee considers that, at this 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. The external auditor did not provide any non-audit services during the year. Going concern A statement on the Directors’ position regarding the Company as going concern is contained in the Directors’ Report on page 28. Power Ventures Plc Annual Report & Accounts 2018 27 Strategic Report Corporate Governance Financial Statements DIRECTORS’ REPORT The Directors present their report, together with the audited ﬁnancial statements of the Group, for the year ended 31 March 2018. Principal activity OPG Power Ventures Plc (‘the Company’ or ‘OPGPV’) is a public limited company incorporated in the Isle of Man, registered number 002198V, which is listed on the Alternative Investment Market (‘AIM’) of the London Stock Exchange. The Company 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 ‘Group Captive’ provisions mandated by the Government of India. Results and dividends The Group’s results for the year ended 31 March 2018 are set out in the Consolidated Statement of Comprehensive Income. The Group loss for the year after tax was £(100.9)m (2017 proﬁt after tax: £23.1m). 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 2018 was £52,378 comprising 356,308,697 ordinary shares of £0.000147 pence each, of which there are no designated treasury shares. Political donations The Group has made no political donations during the year under review. A review of the Group’s activities is set out in the Executive Chairman’s statement. Going concern The Board will be recommending a scrip dividend for the year ended 31 March 2018 in amount of 1 pence per share. 0.98 pence per share dividend was paid for the year ended 31 March 2017. As highlighted in the Consolidated Statement of Cash Flows and notes 5 (a) and 23 to the ﬁnancial statements, the Group meets its day-to-day working capital requirements through cash from operations and bank facilities. Directors The Directors of the Company during the year and up to the date of this report were as follows: Arvind Gupta Executive Chairman Dmitri Tsvetkov Chief Financial Ofﬁcer, Executive Director (joined on 8 November 2017) V Narayan Swami Finance Director, Executive Director (resigned on 8 November 2017) Jeremy Warner Allen Deputy Chairman, Non-Executive Director and Audit Committee Chairman (joined on 8 November 2017) Michael Grasby Non-Executive Director Jeremy Beeton Non-Executive Director, Remuneration and Nomination Committee Chairman Martin Gatto Non-Executive Director (resigned on 8 November 2017) Ravi Gupta Non-Executive Director (resigned on 29 May 2018) Further information on the ﬁnancial position of the Group, its cash ﬂows, liquidity position and borrowing facilities are described in the Financial Review. In addition, note 29 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 management’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 Accounts. 28 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements Substantial shareholdings Disclosure of information to the auditor The Directors serving at the date of approval of the ﬁnancial statements conﬁrm 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 auditors are 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. This report was approved by the Board of Directors on 22 September 2018 and signed on its behalf by: Philip Scales Company Secretary OPG Power Ventures Plc IOMA House Hope Street Douglas Isle of Man IM1 1AP 22 September 2018 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 at 29 June 2018: Percentage of voting rights and issued Number of share capital ordinary shares Gita Investments Limited and related parties1 51.5% 183,600,557 M&G Investment Management Limited 13.0% 46,281,231 River and Mercantile Asset Management LLP 5.3% 18,908,384 British Steel Pension Scheme 3.6% 12,650,000 1 Beneﬁcial interest in these shareholdings vests with Arvind Gupta and his family. Registered agent The registered agent of the Company at 31 March 2018 was FIM Capital 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 29. Auditor BDO LLP have expressed their willingness to continue in ofﬁce as auditors and a resolution proposing their re-appointment will be proposed at the forthcoming AGM. Power Ventures Plc Annual Report & Accounts 2018 29 Strategic Report Corporate Governance Financial Statements DIRECTORS’ REMUNERATION REPORT Introduction This report sets out information about the remuneration of the Directors of the Company for the year ended 31 March 2018. As a company admitted to AIM, OPG is not required to prepare a directors’ remuneration report. However, the Board follows the principle of transparency and has prepared this report in order to provide information to shareholders on executive remuneration arrangements. This report has been substantially prepared in accordance with the Schedule 8 of the Large and Medium Sized Companies and Groups (Accounts and Reports) (2008) (the ‘Regulations’). Remuneration Committee The members of the Remuneration Committee are Jeremy Beeton, Jeremy Warner Allen (from November 2017) and Michael Grasby (Martin Gatto and Ravi Gupta were members of the Remuneration Committee until November 2017and May 2018 respectively) who, with the exception of Ravi Gupta, are all independent Non-Executive Directors. Terms of reference have been approved for the Remuneration Committee the primary duty of which 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 executive members of the Board. 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 The principal responsibilities of the Committee include: • Executive Directors’ incentives should be aligned with the interests • assessing and setting compensation levels for Directors and of shareholders. senior managers; • reviewing the ongoing appropriateness and relevance of the remuneration policy at regular intervals 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 or shareholders, as appropriate; 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 26. 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 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 increasingly to 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. Long-term incentives The Remuneration Committee believes that it is appropriate to operate share incentive schemes to encourage Executive Directors and senior employees to meet the Group’s long-term strategic and ﬁnancial objectives set by the Board. Stock option plan All of the Directors, with the exception for of Jeremy Beeton who joined the Board in November 2016, Jeremy Warner Allen and Dmitri Tsvetkov, both joined the Board in November 2017, have received awards under the stock option plan approved by the Board on 16 July 2009 (see table below). 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. 30 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements Long Term Incentive Plan (‘LTIP’) In June 2015, the Company announced the introduction of a new Long Term Incentive Plan (‘LTIP’). The Remuneration Committee approved the introduction of the LTIP in order to incentivise further the executives to continue its planned growth strategy. 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; and 3. a cumulative total of 3 pence in ordinary dividends paid or declared up to FY18. Up to 16m shares in the Company will be awarded at their nominal value to certain members of the senior management team, including about 14m shares to Gita Investments Limited, a company controlled by Arvind Gupta and his family. 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 equally on achieving the other targets. With certain exceptions, vested shares will not be allowed to be sold for one year. All vested shares are 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. No awards have been made under this Plan and in FY18 this Plan expired. Annual bonus The Remuneration Committee considered bonuses for Executive Directors and in subsequent discussions Arvind Gupta volunteered to waive his bonus for FY18. Therefore only the bonus for Dmitri Tsvetkov of £50,000 has been provided in the accounts for FY18. 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. Under their service agreements, Mr Arvind Gupta, Mr V Narayan Swami (until 8 Nov 2017) and Mr. Dmitri Tsvetkov (from 8 Nov 2017) are entitled to medical, insurance and other allowances and received £4,702 (FY17: £52,959), £nil (FY17: £1,984) and £9,200 (FY17: nil) respectively. The key terms of the Executive Directors’ service agreements are as follows: Name Position Date of contract Notice period Current salary (p.a.) £ Arvind Gupta Executive Chairman 23 May 2008 12 months’ prior written notice on either side 750,000 Dmitri Tsvetkov Chief Financial Ofﬁcer 26 June 2017 Three months’ prior written notice on either side 240,000 Non-Executive Directors The remuneration of the Non-Executive Directors consists of fees that are paid quarterly in arrears. The Non-Executive Directors do not have 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. Jeremy Warner Allen, Martin Gatto, Michael Grasby, Ravi Gupta and Jeremy Beeton have each signed a contract for services with the Company. They were each appointed for an initial period of 12 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. The key terms of the Non-Executive Directors’ letters of appointment are as follows: Director Date of appointment Notice period Fees p.a. £ Jeremy Warner Allen 8 November 2017 Three months’ prior written notice on either side 45,000 Michael Grasby 6 May 2008 Three months’ prior written notice on either side 45,000 Martin Gatto (resigned in November 2017) 6 May 2008 Three months’ prior written notice on either side 45,000 Ravi Gupta (resigned in May 2018) 12 May 2008 12 months’ prior written notice on either side 45,000 Jeremy Beeton 14 November 2016 Three months’ prior written notice on either side 45,000 Power Ventures Plc Annual Report & Accounts 2018 31 Strategic Report Corporate Governance Financial Statements DIRECTORS’ REMUNERATION REPORT CONTINUED 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 during the year were as follows: 31 March 2018 31 March 2017 Gita Investments Limited1 183,600,557 178,886,428 Michael Grasby 10,318 10,041 Jeremy Warner Allen (joined on 8 November 2017) 303,729 n/a Dmitri Tsvetkov (joined on 8 November 2017) 100,000 n/a Martin Gatto (resigned on 8 November 2017) n/a 60,000 Ravi Gupta (resigned on 29 May 2018) – – Jeremy Beeton – – V Narayan Swami (resigned on 8 November 2017) n/a 10,300 Total 184,014,604 178,966,769 1 Beneﬁcial interest in these shareholdings vests with Arvind Gupta and family. There were no changes to Directors’ interests between 31 March 2018 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 2018 other than their service contracts, details of which are given on page 31. Directors’ remuneration for the period 31 March 2017 to 31 March 2018. Salary, annual bonus and beneﬁts Salary/fees Annual bonus Total FY18 Total FY17 £ £ £ £ Executive Chairman Arvind Gupta (paid in INR equivalent) 750,000* –* 750,000 1,110,000 Executive Director Dmitri Tsvetkov 240,000 50,000*** 290,000 V Narayan Swami (paid in INR equivalent) (until 8 November 2017) 224,824**** – 224,824 109,689 Non-executive Directors Jeremy Warner Allen 22,500 – 22,500 – Martin Gatto (until 8 November 2017) 33,750 – 33,750 45,000 Michael Grasby 45,000 – 45,000 45,000 Ravi Gupta (until 29 May 2018) 22,500** – 45,000 45,000 Jeremy Beeton 45,000 – 45,000 22,500 Total 1,383,574 50,000 1,433,574 1,405,069 No consideration was paid or received by third parties for making available the services of any Executive or Non-Executive Director. * Arvind Gupta's INR equivalent of FY18 salary: INR 64.1m (FY17: INR 64.1m). Arvind Gupta waived his FY18 bonus therefore INR equivalent of FY18 bonus: nil (FY17: INR 31.5m) ** Ravi Gupta forgave half of his annual remuneration *** Dmitri Tsvetkov’s bonus provision made, not paid. **** Salary, bonus and ﬁnal settlement: INR equivalent of FY18 salary INR 4.8m (FY17 salary: INR 7.2m), FY18 bonus: nil (FY17: INR 2.4m paid in FY18) and ﬁnal settlement of INR 14.4m, incl. FY16 bonus (FY17: nil) 32 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements Directors’ share options Movements during the period Options outstanding Option Options as at Forfeited/ Latest Option granted price £ 1 April 2017 Granted Cancelled Exercised 31 March 2018 exercise date Gita Investments Limited (Arvind Gupta) 16 July 2009 0.60 21,524,234 Nil Nil Nil 21,524,234 15 Jul 2019 Martin Gatto 16 July 2009 0.60 1,000,000 Nil 1,000,000 Nil Nil 15 Jul 2019 Ravi Gupta 22 December 2015 0.60 250,000 Nil Nil Nil 250,000 21 Dec 2025 V Narayan Swami 22 December 2015 0.60 250,000 Nil 250,000 Nil Nil 21 Dec 2025 Michael Grasby 22 December 2015 0.60 250,000 Nil Nil Nil 250,000 21 Dec 2025 All share options have vested. At 31 March 2018, the closing mid-market price of the Company’s shares was 18.12 pence. During the year under review, the Company’s closing mid-market share price ranged between a low of 16.5 pence and a high of 49.75 pence. This report has been approved by the Board of Directors of the Company. Jeremy Beeton Chairman, Remuneration Committee 22 September 2018 Power Ventures Plc Annual Report & Accounts 2018 33 Strategic Report Corporate Governance Financial Statements STATEMENT OF DIRECTORS’ RESPONSIBILITIES 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. 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 Isle of Man governing the preparation and dissemination of the ﬁnancial statements may differ from legislation in other jurisdictions. On behalf of the Board by: Philip Scales Company Secretary OPG Power Ventures Plc IOMA House Hope Street Douglas Isle of Man IM1 1AP 22 September 2018 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. 34 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF OPG POWER VENTURES PLC Opinion We have audited the Consolidated Financial Statements of OPG Power Venture plc (“the Company”) and its subsidiaries (“the Group”) for the year ended 31 March 2018, which comprise the consolidated statement of comprehensive income, the consolidated statement of ﬁnancial position, the consolidated statement of changes in equity, the consolidated statement of cash ﬂows and notes to the Consolidated Financial Statements, including a summary of signiﬁcant accounting policies. The ﬁnancial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards as adopted by the European Union. In our opinion, the ﬁnancial statements: • give a true and fair view of the state of the Group’s affairs as at 31 March 2018 and of its loss for the year then ended; and • have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union; and • have been prepared in accordance with the Isle of Man Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the ﬁnancial statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the ﬁnancial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities and we have fulﬁlled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufﬁcient and appropriate to provide a basis for our opinion. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where: • the Directors’ use of the going concern basis of accounting in the preparation of the ﬁnancial statements is not appropriate; or • the Directors have not disclosed in the ﬁnancial statements any identiﬁed material uncertainties that may cast signiﬁcant doubt about the Company’s or the Group’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the ﬁnancial statements are authorised for issue. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most signiﬁcance in our audit of the ﬁnancial statements of the current period and include the most signiﬁcant assessed risks of material misstatement (whether or not due to fraud) we identiﬁed, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the ﬁnancial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter How we addressed the key audit matter in the audit Accounting for the sale of a subsidiary The Group had disposed of a 5% shareholding in Bhadreshwar Vidyut Private Limited (“BVP”, formerly known as Gujarat Private Limited) to BEE Electric Limited with an effective date of 31 March 2018 and has deconsolidated its share of the net assets and liabilities in BVP (refer to note 7 of the ﬁnancial statements). IFRSs require an investor to determine if he controls an investee or exercises signiﬁcant inﬂuence and this assessment requires judgement. Management determined that whilst the Group retains a 46% shareholding it has lost control and signiﬁcant inﬂuence as of 31 March 2018 and has deconsolidated the subsidiary. Management has determined that the fair value of the remaining 46% shareholding in BVP at the year end date was £40,000. We reviewed the legal documentation to ascertain that the conditions precedent under the share sale agreement had been met and that through the sale of the 5% shareholding control was lost. We consulted legal experts to establish that voting rights related to the remaining 46% shareholding had been transferred to BEE Electric with legal effect of 31 March 2018 and that hence the power to participate in the ﬁnancial and operating decision of BVP had been lost. We assessed whether BEE Electric is a related party of the Group and have not identiﬁed any common shareholders or Directors between the entities. We reviewed the key assumptions and inputs to the valuation, in particular the expected future cash ﬂows and the applied discount rate. We consulted with our internal valuation experts and challenged management’s assumptions in determining a value of £40,000 for the remaining interest in BVP. Power Ventures Plc Annual Report & Accounts 2018 35 Strategic Report Corporate Governance Financial Statements INDEPENDENT AUDITORS’ REPORT CONTINUED Key audit matter Going concern As at 31 March 2018 the Group had £2.2m in cash and net current assets of £1.3m. The Directors and management have prepared a cash ﬂow forecast to September 2019, 12 months from the date this report has been approved (refer to note 5a of the ﬁnancial statements). The Group experiences sensitivity in its cash ﬂow forecasts due to the exposure to settle guarantees provided to the lenders of BVP and the potential increase in USD denominated coal prices and a decrease in the value of the Indian Rupee. Management and the Directors believe that the Group will trade in line with the forecasts which have taken into consideration the sensitivities described above. Given the key judgements applied by the Directors and management in preparing the cash ﬂow forecast and the inherent sensitivities, we assessed going concern as a signiﬁcant risk. How we addressed the key audit matter We agreed the opening cash position used in the cash ﬂow forecast to the position as at 31 August 2018. We challenged the key estimates applied to EBITDA forecasts through to historical past performance, actual results to date for the 2019 ﬁnancial year and commodity price forecasts. We assessed management’s judgement with regards to key sensitivities and reviewed documentation which supports management’s conclusion that it is unlikely that a guarantee provided to the lenders of BVP will be called upon. We sensitised the cash ﬂows to evaluate the minimum funding requirements. We reviewed the disclosures regarding going concern in the notes to the ﬁnancial statements to ensure these are reasonable based on the work performed above. Our application of materiality FY2018 Group materiality £1,400,000 Basis for determining materiality 1% of revenue from continuing operations Group performance materiality £700,000 Basis for performance materiality 50% of Group materiality We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could inﬂuence the economic decisions of reasonable users that are taken on the basis of the ﬁnancial statements. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identiﬁed misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the ﬁnancial statements as a whole. We have determined a revenue based measure is appropriate as the Group’s proﬁts have been ﬂuctuating and the result of the year has been heavily impacted by the disposal of BVP. We agreed with the Audit Committee that we would report to the Committee all individual audit differences identiﬁed during the course of our audit in excess of £20,000. An overview of the scope of our audit Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s system of internal control, and assessing the risks of material misstatement in the ﬁnancial statements at the Group level. BDO UK audited all the material components of the Group, which consist of OPG Power Ventures Plc, OPG Power Generation Limited, Bhadreshwar Vidyut Private Limited (formerly known as OPG Power Gujarat Private Limited) and GITA Power and Infrastructure Private Limited, with the assistance of local staff from the BDO network member ﬁrm in India, working under the direction and supervision of the Group audit team. The material components were audited to a component performance materiality of £0.5m. Other information The Directors are responsible for the other information. The other information comprises the information included in the annual report, other than the ﬁnancial statements and our auditor’s report thereon. Our opinion on the ﬁnancial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. 36 Power Ventures Plc Annual Report & Accounts 2018 Use of our report This report is made solely to the Company’s Directors, as a body, in accordance with our engagement letter dated 30 April 2018 Our audit work has been undertaken so that we might state to the Company’s Directors 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 Directors as a body, for our audit work, for this report, or for the opinions we have formed. BDO LLP London 23 September 2018 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). Strategic Report Corporate Governance Financial Statements In connection with our audit of the ﬁnancial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the ﬁnancial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the ﬁnancial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of Directors As explained more fully in the Directors’ responsibilities statement, the Directors are responsible for the preparation of the ﬁnancial statements and for being satisﬁed that they give a true and fair view and for such internal control as the Directors determine is necessary to enable the preparation of ﬁnancial statements that are free from material misstatement, whether due to fraud or error. In preparing the ﬁnancial statements, the Directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the ﬁnancial statements Our objectives are to obtain reasonable assurance about whether the ﬁnancial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to inﬂuence the economic decisions of users taken on the basis of these ﬁnancial statements. A further description of our responsibilities for the audit of the ﬁnancial statements is located at the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities This description forms part of our auditor’s report. Power Ventures Plc Annual Report & Accounts 2018 37 Strategic Report Corporate Governance Financial Statements CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2018 As at As at (All amounts in £, unless otherwise stated) Notes 31 March 2018 31 March 2017 Assets Non-current assets Intangible assets 14 64,170 223,224 Property, plant and equipment 15 207,271,135 479,904,726 Investments accounted for using the equity method 16 11,219,378 1,342,395 Other long-term assets 17 3,000,333 2,665,892 Restricted cash 20 4,966,140 3,825,733 226,521,156 487,961,970 Current assets Inventories 19 9,716,280 16,853,761 Trade and other receivables 18 33,695,545 84,271,986 Other short-term assets 17 9,414,971 12,686,018 Current tax assets (net) 2,890,933 826,398 Restricted cash 20 20,318,985 14,009,027 Cash and cash equivalents 20 2,185,570 13,086,123 78,222,284 141,733,313 Total assets 304,743,440 629,695,283 Equity and liabilities Equity Share capital 21 52,378 51,672 Share premium 21 125,567,473 124,319,142 Other components of equity 1,193,995 22,065,498 Retained earnings 11,461,826 101,491,205 Equity attributable to owners of the Company 138,275,672 247,927,517 Non-controlling interests 854,752 (11,239,914) Total equity 139,130,424 236,687,603 Liabilities Non-current liabilities Borrowings 23 69,636,532 284,415,451 Trade and other payables 24 17,547,733 283,754 Deferred tax liabilities (net) 13 1,457,209 1,007,851 88,641,474 285,707,056 Current liabilities Borrowings 23 23,829,415 36,576,466 Trade and other payables 24 52,331,422 70,706,795 Other liabilities 810,705 17,363 76,971,542 107,300,624 Total liabilities 165,613,016 393,007,680 Total equity and liabilities 304,743,440 629,695,283 The notes are an integral part of these Consolidated Financial Statements. The ﬁnancial statements were authorised for issue by the Board of Directors on 22 September 2018 and were signed on its behalf by Arvind Gupta Executive Chairman Dmitri Tsvetkov Chief Financial Ofﬁcer 38 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 MARCH 2018 Year ended 31 March 2017 Year ended “Restated” (Refer (All amounts in £, unless otherwise stated) Notes 31 March 2018 Notes 5(a), 9(a)) Revenue 140,115,336 136,164,683 Cost of revenue 9 (100,195,277) (67,738,591) Gross proﬁt 39,920,059 68,426,092 Other income 10 1,979,024 148,429 Distribution cost (10,293,699) (9,088,937) General and administrative expenses (7,559,711) (7,377,218) Depreciation (6,526,177) (6,556,582) Operating proﬁt before impairments 17,519,496 45,551,784 Impairment provision for loss on investments and assets under construction 7(b) (7,280,793) – Operating proﬁt 10,238,703 45,551,784 Share of loss from equity accounted investments 16 (35,296) (352) Finance costs 11 (12,931,972) (14,987,980) Finance income 12 1,623,500 1,138,565 (Loss)/proﬁt before tax (1,105,065) 31,702,017 Tax (expense)/income 13 (3,072,731) 4,794,779 (Loss)/proﬁt for the year from continued operations (4,177,796) 36,496,796 Loss from discontinued operations, including Non-Controlling Interest 7(a) (96,700,467) (13,420,892) (Loss)/proﬁt for the year (100,878,263) 23,075,904 (Loss)/proﬁt for the year attributable to: Owners of the Company (87,141,023) 29,614,506 Non-controlling interests (13,737,240) (6,538,602) (100,878,263) 23,075,904 (Loss)/earnings per share from continued operations Basic earnings per share (in Pence) 26 (1.18) 9.45 Diluted earnings per share (in Pence) (1.18) 9.41 Loss per share from discontinued operations Basic earnings per share (in Pence) 26 (24.13) (1.95) Diluted earnings per share (in Pence) (24.13) (1.94) (Loss)/earnings per share – Basic (in pence) 26 (24.68) 8.43 – Diluted (in pence) (24.68) 8.39 Other comprehensive (loss)/income Items that will be reclassiﬁed subsequently to proﬁt or loss Available for sale ﬁnancial assets – Reclassiﬁcation to proﬁt or loss (73,351) (38,557) – Current year gains – 73,351 Exchange differences on translating foreign operations (20,871,345) 34,890,638 Items that will be not reclassiﬁed subsequently to proﬁt or loss Exchange differences on translating foreign operations (555,331) (1,166,597) Total other comprehensive (loss)/income (21,500,027) 33,758,835 Total comprehensive (loss)/income (122,378,290) 56,834,739 Total comprehensive (loss)/income attributable to: Owners of the Company (108,085,719) 64,539,938 Non-controlling interest (14,292,571) (7,705,199) (122,378,290) 56,834,739 The notes are an integral part of these Consolidated Financial Statements. The ﬁnancial statements were authorised for issue by the Board of Directors on 22 September 2018 and were signed on its behalf by Arvind Gupta Executive Chairman Dmitri Tsvetkov Chief Financial Ofﬁcer Power Ventures Plc Annual Report & Accounts 2018 39 Strategic Report Corporate Governance Financial Statements CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2018 Foreign Total currency attributable Non- (All amounts in £, Issued capital Ordinary Share Other translation Retained to owners controlling Total unless otherwise stated) (No. of shares) shares premium reserves reserve earnings of parent interests equity At 1 April 2016 351,504,795 51,671 124,316,524 7,494,781 (21,147,506) 69,684,455 180,399,925 276,325 180,676,250 Employee share based payments – – – 87,907 – – 87,907 – 87,907 Change in non-controlling interests without change in control (Refer note 5(d)) – – – (893,826) 1,598,710 3,106,158 3,811,042 (3,811,040) 2 Dividends # 4,160 1 2,618 – – (913,910) (911,291) – (911,291) Transaction with owners 4,160 1 2,618 (805,919) 1,598,710 2,192,244 2,987,654 (3,811,040) (823,386) Proﬁt for the year – – – – – 29,614,506 29,614,506 (6,538,602) 23,075,904 Other comprehensive income – – – 34,794 34,890,638 – 34,925,432 (1,166,597) 33,758,835 Total comprehensive income – – – 34,794 34,890,638 29,614,506 64,539,938 (7,705,199) 56,834,739 At 31 March 2017 351,508,955 51,672 124,319,142 6,723,656 15,341,842 101,491,205 247,927,517 (11,239,914) 236,687,603 Adjustments on account of deconsolidation subsidiary (Note 7(a)) – – – – – – – 26,353,147 26,353,147 Impact of change in shareholding structure during the year – – – – (18,312) (15,779) (34,090) 34,090 – Dividends # (Note 21) 4,799,742 706 1,248,331 – 91,505 (2,872,577) (1,532,036) – (1,532,036) Transaction with owners 4,799,742 706 1,248,331 – 73,193 (2,888,356) (1,566,126) 26,387,237 24,821,111 Loss for the year – – – – – (87,141,023) (87,141,023) (13,737,240) (100,878,263) Other comprehensive income – – – (73,351) (20,871,345) – (20,944,696) (555,331) (21,500,027) Total comprehensive income – – – (73,351) (20,871,345) (87,141,023) (108,085,719) (14,292,571) (122,378,290) At 31 March 2018 356,308,697 52,378 125,567,473 6,650,305 (5,456,310) 11,461,826 138,275,672 854,752 139,130,424 # During the year, in addition to the cash dividend the Company has paid a scrip dividend of 4,799,742 shares (2017: 4,160 shares) The notes are an integral part of these Consolidated Financial Statements. The ﬁnancial statements were authorised for issue by the Board of Directors on 22 September 2018 and were signed on its behalf by Arvind Gupta Executive Chairman Dmitri Tsvetkov Chief Financial Ofﬁcer 40 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 MARCH 2018 Year ended 31 March 2017 Year ended “Restated” (Refer (All amounts in £, unless otherwise stated) Notes 31 March 2018 Notes 5(a), 9(a)) Cash ﬂows from operating activities (Loss)/proﬁt before income tax (97,805,532) 18,281,125 Adjustments for: – Loss from discontinued operations, net 7(a) 96,700,467 13,420,892 – Unrealised foreign exchange loss (64,747) 54,616 – Financial costs 12,931,972 14,987,980 – Financial income (1,623,500) (1,138,565) – Share based compensation costs – 87,907 – Depreciation and amortisation 6,526,177 6,556,582 – Impairment provision for loss on investments and assets under construction 7(b) 7,280,793 – – Loss/(gain) on sale of shares in AFS investments (159,998) – – Share of net loss from associates 35,296 352 Changes in working capital Trade and other receivables 4,928,335 21,784,640 Inventories 1,943,460 (5,311,412) Other assets (668,761) (4,734,018) Trade and other payables 26,381,201 (7,835,609) Other liabilities 807,855 (164,463) Cash generated from continuing operations 57,213,018 55,990,027 Taxes paid (823,728) (3,910,745) Cash provided by (used for) operating activities of continuing operations 56,389,290 52,079,282 Cash provided by (used for) operating activities of discontinued operations 24,239,702 4,008,164 Net cash from operating activities 80,628,992 56,087,446 Cash ﬂows from investing activities Purchase of property, plant and equipment (including capital advances) (1,090,689) (3,094,608) Interest received 1,547,138 974,644 Dividend received – 163,920 Movement in restricted cash (16,103,811) (4,482,838) Sale of investments 2,676,801 88,415,450 Purchase of investments (14,972,747) (93,646,865) Advances in associates (1,985,863) – Cash provided by (used for) investing activities of continuing operations (29,929,171) (11,670,297) Cash provided by (used for) investing activities of discontinued operations 442,963 (3,495,149) Net cash used in investing activities (29,486,208) (15,165,446) Cash ﬂows from ﬁnancing activities Proceeds from borrowings (net of costs) 4,099,459 5,575,721 Repayment of borrowings (25,070,007) (27,080,680) Dividend paid (1,623,539) (911,293) Interest paid (12,931,972) (14,987,980) Cash provided by (used for) ﬁnancing activities of continuing operations (35,526,059) (37,404,232) Cash provided by (used for) ﬁnancing activities of discontinued operations (25,127,046) (140,741) Net cash from ﬁnancing activities (60,653,105) (37,544,973) Net (decrease)/increase in cash and cash equivalents from continuing operations (9,065,940) 3,004,753 Net (decrease)/increase in cash and cash equivalents from discontinued operations (444,381) 372,274 Net (decrease)/increase in cash and cash equivalents (9,510,321) 3,377,027 Cash and cash equivalents at the beginning of the year 13,086,123 7,153,455 Exchange differences on cash and cash equivalents (843,405) 3,303,636 Cash and cash equivalents from the deconsolidation of discontinued operations (546,827) (747,995) Cash and cash equivalents at the end of the year 2,185,570 13,086,123 The notes are an integral part of these Consolidated Financial Statements. Power Ventures Plc Annual Report & Accounts 2018 41 Strategic Report Corporate Governance Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (ALL AMOUNTS ARE IN £, UNLESS OTHERWISE STATED) 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. 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. 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 1JA. 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 2018 were approved and authorised for issue by the Board of Directors on 22 September 2018. 4. Recent accounting pronouncements a) Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by the Group At the date of authorisation of these ﬁnancial statements, certain new standards, and amendments to existing standards have been published by the IASB that are not yet effective, and have not been adopted early by the Group. Information on those expected to be relevant to the Group’s ﬁnancial statements is provided below. Management anticipates that all relevant pronouncements will be adopted in the Group’s accounting policies for the ﬁrst period beginning after the effective date of the pronouncement. New standards, interpretations and amendments not either adopted or listed below are not expected to have a material impact on the Group’s ﬁnancial statements. IFRS 9 ‘Financial Instruments’ The IASB recently released IFRS 9 ‘Financial Instruments’ representing the completion of its project to replace IAS 39 ‘Financial Instruments: Recognition and Measurement’. The new standard introduces extensive changes to IAS 39’s guidance on the classiﬁcation and measurement of ﬁnancial assets and introduces a new ‘expected credit loss’ model for the impairment of ﬁnancial assets. IFRS 9 also provides new guidance on the application of hedge accounting. At this stage the main areas of expected impact are as follows: i. ii. iii. the classiﬁcation and measurement of the Group’s ﬁnancial assets will need to be reviewed based on the new criteria that considers the assets’ contractual cash ﬂows and the business model in which they are managed; an expected credit loss-based impairment will need to be recognised on the Group’s trade receivables (see note 18) and investments in debt-type assets currently classiﬁed as AFS and HTM (see note 16), unless classiﬁed as at fair value through proﬁt or loss in accordance with the new criteria; and it will no longer be possible to measure equity investments at cost less impairment and all such investments will instead be measured at fair value. Changes in fair value will be presented in proﬁt or loss unless the Group makes an irrevocable designation to present them in other comprehensive income. We have assessed the potential impact of adopting the new expected credit loss model and don’t believe this to be material. IFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018. IFRS 15 ‘Revenue from Contracts with Customers’ IFRS 15 presents new requirements for the recognition of revenue, replacing IAS 18 ‘Revenue’, IAS 11 ‘Construction Contracts’, and several revenue-related Interpretations. The new standard establishes a control-based revenue recognition model and provides additional guidance in many areas not covered in detail under existing IFRSs, including how to account for arrangements with multiple performance obligations, variable pricing, customer refund rights, supplier repurchase options, and other common complexities. 42 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements 4. Recent accounting pronouncements continued IFRS 15 is effective for annual reporting periods beginning on or after 1 January 2018. Management does not expect any signiﬁcant impact of IFRS 15. IFRS 16 ‘Leases’ On 13 January 2016, the IASB issued the ﬁnal version of IFRS 16 ‘Leases’. IFRS 16 will replace the existing leases standard, IAS 17 ‘Leases’, and related interpretations. The standard sets out the principles for recognition, measurement, presentation and disclosure of leases for both parties to a contract. IFRS 16 introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. Currently, operating lease expenses are charged to the statement of comprehensive income. The standard also contains enhanced disclosure requirements for lessees. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. The effective date for adoption of IFRS 16 is annual periods beginning on or after 1 January 2019, though early adoption is permitted for companies applying IFRS 15 ‘Revenue from Contracts with Customers’. Management does not expect any signiﬁcant impact of IFRS 16. 5. Summary of signiﬁcant accounting policies a) 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 Consolidated Financial Statements are presented in accordance with IAS 1 Presentation of Financial Statements and have been presented in Great Britain Pounds (‘£’), the functional and presentation currency of the Company. Results of operations of Bhadreshwar Vidyut Private Limited (herein referred to as BVP and formerly known as OPGS Power Gujarat Private Limited) were reclassiﬁed to discontinued operations (note 7(a)). Depreciation was reclassiﬁed from Cost of Revenue and General and Administrative expenses to a separate line in the Consolidated Statement of Comprehensive Income. As at 31 March 2018 the Group had £2.2m in cash and net current assets of £1.3m. The Directors and management have prepared a cash ﬂow forecast to September 2019, 12 months from the date this report has been approved. The Group experiences sensitivity in its cash ﬂow forecasts due to the exposure to settle a guarantee provided to the lenders of BVP and the potential increase in USD denominated coal prices and a decrease in the value of the Indian Rupee. During these periods the Group is exposed to the risk that a guarantee provided to the lenders of BVP of £7.2m is called upon. Based on recent loan repayments made by BVP the exposure risk has reduced to £5.8m. As BVP has been awarded captive status for the years FY16, FY17 and FY18 the DISCOMS will be refunding the Cross Subsidy Charges to the Captive customers of BVP and in return these customers will be settling their debts with BVP and hence it is unlikely that the guarantee will be called upon. If against our expectation the guarantee is called upon then the Directors and management are conﬁdent that the Group can raise additional funds. The Directors and management are conﬁdent that the Group will be trading in line with its forecast and that any exposure to a ﬂuctuation in coal prices or the exchange rate INR/USD has been taken into consideration and therefore prepared the ﬁnancial statements on a going concern basis. b) Basis of consolidation The Consolidated Financial Statements include the assets, liabilities, and results of the operation of the Company and all of its subsidiaries as of 31 March 2018. All subsidiaries have a reporting date of 31 March. 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 transactions and balances between Group companies are eliminated on consolidation, including unrealised gains and losses on transactions between Group companies. Where unrealised losses on intra-Group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a Group perspective. Amounts reported in the ﬁnancial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. Power Ventures Plc Annual Report & Accounts 2018 43 Strategic Report Corporate Governance Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 5. Summary of signiﬁcant accounting policies continued 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. c) Investments in associates and joint ventures Investments in associates and joint ventures are accounted for using the equity method. The carrying amount of the investment in associates and joint ventures is increased or decreased to recognise the Group’s share of the proﬁt or loss and other comprehensive income of the associate and joint venture, adjusted where necessary to ensure consistency with the accounting policies of the Group. Unrealised gains and losses on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s interest in those entities. Where unrealised losses are eliminated, the underlying asset is also tested for impairment. d) List of subsidiaries, joint ventures, and associates Details of the Group’s subsidiaries and joint ventures, which are consolidated into the Group’s Consolidated Financial Statements, are as follows: i) Subsidiaries Subsidiaries parent incorporation March 2018 March 2017 March 2018 March 2017 Immediate Country of % Voting Right % Economic interest Caromia Holdings Limited (‘CHL’) OPGPV Cyprus 100 100 100 100 Gita Power and Infrastructure Private Limited, (‘GPIPL’) CHL India 100 100 100 100 OPG Power Generation Private Limited (‘OPGPG’) GPIPL India 72.72 77.07 99.91 99.90 Bhadreshwar Vidyut Private Limited (‘BVP’) (*) GPIPL India (*) 51.00 (*) 51 Samriddhi Solar Power Private Limited OPGPG India 72.72 77.07 99.90 99.90 Samriddhi Surya Vidyut Private Limited OPGPG India 72.72 77.07 99.90 99.90 OPG Surya Vidyut Private Limited OPGPG India 72.72 77.07 99.90 99.90 Powergen Resources Pte Ltd OPGPV Singapore 98.64 98.85 100.00 99.90 (*) During the current ﬁnancial year end, GPIL sold 5% of its shareholding in BVP (formerly known as OPGS Power Gujarat Private Limited), and thereby reducing its stake to 46% as a result of which the Group lost control over BVP. In addition, the Group also does not have any signiﬁcant inﬂuence in BVP (note 7(a) Loss from discontinued operations and impairment provision), therefore, the investment in BVP was classiﬁed as available for sale and BVP ﬁnancial statements were consequently deconsolidated as on 31st March 2018. During the previous ﬁnancial year, BVP had amendments to the share capital rights with retrospective effect from 1 April 2015. By means of the amendment, the voting rights and economic rights of all shareholders, irrespective of the class of shares held, were aligned. The aforesaid transaction was accounted as an equity transaction, and accordingly no gain or loss was recognised in consolidated income statement. ii) Joint ventures (note 7 (b)) Joint venture Venturer incorporation March 2018 March 2017 March 2018 March 2017 Country of % Voting Right % Economic interest Padma Shipping Limited (“PSL”) OPGPV/OPGPG Hong Kong 50 50 50 50 44 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements 5. Summary of signiﬁcant accounting policies continued iii) Associates The Group has invested in the following entities which are in the business of solar projects in India. Associates Investor incorporation March 2018 March 2017 March 2018 March 2017 Country of % Voting Right % Economic interest Avanti Solar Energy Private Limited OPGPG India 31 31 31 31 Mayfair Renewable Energy Private Limited OPGPG India 31 31 31 31 Avanti Renewable Energy Private Limited OPGPG India 31 31 31 31 Brics Renewable Energy Private Limited OPGPG India 31 31 31 31 e) Foreign currency translation The functional currency of the Company is the Great Britain 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 Great Britain 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 (‘₹’or ‘INR’). The presentation currency of the Group is the Great Britain Pound (£) 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. INR exchange rates used to translate the INR ﬁnancial information into the presentation currency of Great Britain Pound (£) are the closing rate as at 31 March 2018: 90.81 (2017: 80.82) and the average rate for the year ended 31 March 2018: 85.40 (2017: 87.52) f) 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. 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. g) Operating expenses Operating expenses are recognised in the statement of proﬁt or loss upon utilisation of the service or as incurred. h) 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. Power Ventures Plc Annual Report & Accounts 2018 45 Strategic Report Corporate Governance Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 5. Summary of signiﬁcant accounting policies continued 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. i) 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 de-recognised 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 de-recognised when it is extinguished, discharged, cancelled or expires. Financial assets are classiﬁed into the following categories upon initial recognition: i. ii. 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. 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 other reserves 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. j) 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’. 46 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements 5. Summary of signiﬁcant accounting policies continued k) 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. l) 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 Useful life (years) Buildings 40 Power stations 40 Other plant and equipment 3-10 Vehicles 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. m) 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 4 years. n) 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. o) 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. Power Ventures Plc Annual Report & Accounts 2018 47 Strategic Report Corporate Governance Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 5. Summary of signiﬁcant accounting policies continued 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. p) 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 cash-generating unit’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. q) Assets held for sale and discontinued operations Non-current assets and any corresponding liabilities held for sale and any directly attributable liabilities are recognised separately from other assets and liabilities in the balance sheet in the line items “Assets held for sale” and “Liabilities associated with assets held for sale” if they can be disposed of in their current condition and if there is sufﬁcient probability of their disposal actually taking place. Discontinued operations are components of an entity that are either held for sale or have already been sold and can be clearly distinguished from other corporate operations, both operationally and for ﬁnancial reporting purposes. Additionally, the component classiﬁed as a discontinued operation must represent a major business line or a speciﬁc geographic business segment of the Group. Non-current assets that are held for sale either individually or collectively as part of a disposal group, or that belong to a discontinued operation, are no longer depreciated. They are instead accounted for at the lower of the carrying amount and the fair value less any remaining costs to sell. If this value is less than the carrying amount, an impairment loss is recognised. The income and losses resulting from the measurement of components held for sale as well as the gains and losses arising from the disposal of discontinued operations, are reported separately on the face of the income statement under income/loss from discontinued operations, net, as is the income from the ordinary operating activities of these divisions. Prior-year income statement ﬁgures are adjusted accordingly. However, there is no reclassiﬁcation of prior-year balance sheet line items attributable to discontinued operations. r) 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 3 months or less. For the purpose of the consolidated cash ﬂow statement, cash and cash equivalents consist of cash in hand and at bank 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. s) 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. t) 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 earnings per share the net proﬁt or loss for the period attributable to equity share holders and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity share. 48 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements 5. Summary of signiﬁcant accounting policies continued u) 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. v) 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. w) 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. Power Ventures Plc Annual Report & Accounts 2018 49 Strategic Report Corporate Governance Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 5. Summary of signiﬁcant accounting policies continued x) 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. 6. Signiﬁcant accounting judgments, 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 judgment 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 judgment 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 judgments, estimates and assumptions made by the management and will seldom equal the estimated results. a) Judgments The following are signiﬁcant management judgments in applying the accounting policies of the Group that have the most signiﬁcant effect on the ﬁnancial statements. Assessing control of subsidiaries, associates, joint ventures During the year the Group has sold a 5% per cent equity stake in its special purpose vehicle BVP to Bee Electric, an Indian company. This transaction reduced the Group’s equity interest in BVP to 46%. A voting agreement was signed with Bee Electric whereby OPG shall exercise all its rights of voting at the general meetings of BVP in accordance with the directions of Bee Electric. Sale of the 5% stake and execution of voting agreement resulted in the Company losing control and signiﬁcant inﬂuence over BVP and in accordance with International Financial Reporting Standards BVP was deconsolidated as of 31 March 2018 and the Group’s remaining 46% in BVP was accounted for as an investment at fair value as at 31 March 2018. Recognition of revenue and receivables The operating entities of the Group has entered into power purchase agreements with transmission companies incorporated by the Indian state government (TANGEDCO) to sell the electricity generated. The Group has exposure to credit risk from accounts receivable balances on sale of electricity. 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. Consequent to delay in payments by TANGEDCO the Group has in accordance with power purchase agreements invoiced for surcharge on delayed payments. b) 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: i. Recoverability of deferred tax assets: The recognition of deferred tax assets requires assessment of future taxable proﬁt. (see note 5(h)). ii. 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. Trade receivables The Group ascertains the expected credit losses (ECL) for all receivables and adequate impairment provision are made. Available for sale ﬁnancial assets Management applies 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. 50 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements 6. Signiﬁcant accounting judgments, estimates and assumptions continued 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 re-measured at each Statement of ﬁnancial position date. (see note 5(j) and note 29). iii. Impairment tests: In assessing impairment, management estimates the recoverable amount of each asset or cash-generating units based on expected future cash ﬂows and use an interest rate for discounting them. Estimation uncertainty relates to assumptions about future operating results including fuel prices, foreign currency exchange rates etc. and the determination of a suitable discount rate; iv. 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. 7. Loss from discontinued operations and impairment provisions a) Loss from discontinued operations of BVP During the year the Group has sold a 5% per cent equity stake in its special purpose vehicle BVP to a local ﬁrm, Bee Electric Power Private Limited (“Bee Electric”), that has already assisted BVP in resolving several issues raised by the DISCOMS and will continue to assist BVP in its dealings with DISCOMS, captive consumers and regulators. The 5% equity interest in BVP will provide long-term incentives for Bee Electric and will better align its interests with those of BVP. The Group retains the ability to buyback the 5% shareholding at fair value in the future. This transaction reduced the Group’s equity interest in BVP to 46%. The Group does not expect any cash ﬂow or dividends from BVP. Sales proceeds from selling a 5% equity interest in BVP is approximately GBP 4,535 which represents tax book value. Also a voting agreement was signed with Bee Electric whereby OPG shall exercise all its rights of voting at the general meetings of BVP in accordance with the directions of Bee Electric. Sale of the 5% stake and execution of voting agreement resulted in the Company losing control and signiﬁcant inﬂuence over BVP and in accordance with International Financial Reporting Standards BVP was deconsolidated as of 31 March 2018 and the Group’s remaining 46% in BVP was accounted for as an investment at fair value as at 31 March 2018. Fair Valuation of retained investments in BVP is on basis of recent transaction. Starting from 2018-19, the results of operations of BVP will not be consolidated in OPG Group’s Consolidated Financial Statements. The Board has decided to conduct a review of strategic options at Gujarat. The Board’s strategic review will occur alongside but separately to the development of a lender-assisted Resolution Plan (“RP”) as per the Reserve Bank of India (“RBI”) circular dated 12 February 2018 setting out a revised framework to reschedule the terms of BVP’s term loans. These were described in the Company’s statement of 13th March 2018. The circumstances leading to the requirement to develop an RP were due to the accumulated impact of delayed recognition of captive power status and the withholding of the CSS. The RP plan was developed and presented to the banks but it has not been approved and implemented at the date of signing of these ﬁnancial statements. The loss from discontinued operations of BVP consists of: £ i Operating loss of BVP for current year 27,990,427 ii Loss on deconsolidation of BVP 22,330,728 iii Impairment provision for investments in debentures of BVP 11,060,890 iv Impairment provision for trade receivables and trade advances to BVP 21,969,479 v Impairment provision for ﬁnancial securities pledged with lenders of BVP 13,348,943 Total loss from discontinued operations of BVP 96,700,467 Loss on deconsolidation of BVP: £ Consideration received 4,535 Fair value of retained non-controlling investment in BVP 40,453 Total (A) 44,988 Total assets 256,056,615 Total liabilities 260,034,046 Net liabilities at date of loss of control (B) (3,977,431) Non-controlling interest on date of loss of control (C) 26,353,147 Net loss on disposal affecting the Group (A-B-C) (22,330,728) Power Ventures Plc Annual Report & Accounts 2018 51 Strategic Report Corporate Governance Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 7. Loss from discontinued operations and impairment provisions continued Income statement of BVP Year ended Year ended 31 March 2018 31 March 2017 Revenue 91,536,946 68,833,732 Cost of revenue (69,294,346) (47,361,949) Gross proﬁt 22,242,600 21,471,783 Other income 393,243 749,122 Distribution cost (14,805,606) (4,604,207) General and administrative expenses (1,848,316) (3,064,388) Depreciation (6,143,974) (5,379,781) Operating proﬁt (162,053) 9,172,529 Finance costs (28,343,101) (23,829,929) Finance income 514,727 439,137 Loss before tax (27,990,427) (14,218,263) Tax income/(expense) – 797,371 Loss after tax (27,990,427) (13,420,892) b) Impairment provision for loss on investments and assets under construction – £7,280,793: (i) Impairment provision of investments in joint venture Padma Shipping Limited – £3,247,668 In 2014 the Company 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 Arrangement, the Company and Noble agreed to jointly purchase and operate two 64,000 MT cargo vessels through a Joint venture company Padma Shipping Ltd, Hong Kong (‘Padma’). During the year, the Joint Venture partner due to a change in their Group strategy requested for the Joint Venture to be terminated. As the vessels were still under construction and yet to be delivered during 2018, we agreed and the process for the same will be initiated in FY19. OPG has invested approximately £3,484,178 in equity and £1,727,418 to date as advance and accordingly the joint venture has been reported using equity method as per the requirements of IFRS 11. The Company provided corporate guarantee for 50% of equity portion of the cost of construction of the vessels remaining balance in amount of £2,006,035 (equivalent of $2,800,000) which was recognised in these ﬁnancial statements as part of GBP 3,247,668 million provision as the shipping yard requested payment subsequent to the year end. The Company recognised an impairment provision in these ﬁnancial statements of £3,247,668 against its investment to date on account of the impending dissolution of the JV. (ii) Impairment of assets under construction – £4,033,125 During the year the Company impaired an amount of £4,033,125 relating to obsolete assets under construction, as a one off transaction. The plant and machinery under construction of proposed 12 MW power project to be set up on a 120 acre brownﬁeld site in the industrial heartland of Karnataka state at Bellary, has been impaired as the Group does not expect any economic beneﬁts out of same. The plant and machinery were purchased along with the land and is of no use hence needs to be scrapped. 8. 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 £18,894,360 (2017: £18,489,011). 52 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements 9. Costs of inventories and employee beneﬁt expenses included in the consolidated statements of comprehensive income a) Cost of fuel Restated (1) 31 March 2018 31 March 2017 Included in cost of revenue: Cost of fuel consumed 95,465,961 64,455,177 Other direct costs 4,729,316 3,283,414 Total 100,195,277 67,738,591 (1) Till previous year 2017 depreciation of £6,556,582 was included in cost of revenue £6,063,132 and General and Administrative expenses £493,450. From current year total depreciation £6,526,177 is reclassiﬁed to a separate line in the Consolidated Statement of Comprehensive Income. b) Employee beneﬁt expenses forming part of general and administrative expenses are as follows: 31 March 2018 31 March 2017 Salaries and wages 3,221,663 2,792,417 Employee beneﬁt costs * 702,020 373,725 Employee stock option – 87,907 Total 3,923,683 3,254,049 * includes £23,994 (2017: 34,590) being expenses towards gratuity which is a deﬁned beneﬁt plan (note 5(w)). c) Auditor’s remuneration for audit services amounting to £90,000 (2017: £90,000) is included in general and administrative expenses. d) Foreign exchange movements (realised and unrealised) included in the general and administrative expenses is as follows: 31 March 2018 31 March 2017 Foreign exchange realised – gain/(loss) 624,196 (115,033) Foreign exchange unrealised – gain/(loss) 64,747 (54,616) Total 688,943 (169,649) 10. Other income and expenses Other income 31 March 2018 31 March 2017 Sale of coal 162,394 65,968 Sale of ﬂy ash 53,198 18,160 Power trading commission and other services 558,657 – Sale of Solar power plant system to associates (Net of cost) (note 25) 44,505 – Others 1,160,270 64,301 Total 1,979,024 148,429 Power Ventures Plc Annual Report & Accounts 2018 53 Strategic Report Corporate Governance Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 11. Finance costs Finance costs are comprised of: 31 March 2018 31 March 2017 Interest expenses on borrowings 12,237,962 12,482,371 Other ﬁnance costs 694,010 2,505,609 Total 12,931,972 14,987,980 12. Finance income Finance income is comprised of: 31 March 2018 31 March 2017 Interest income on bank deposits 1,519,407 689,782 Proﬁt on disposal of ﬁnancial instruments* 104,093 448,783 Total 1,623,500 1,138,565 * Financial instruments represent the mutual funds held during the year. 13. Tax expenses 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 2018 and 2017 is as follows: 31 March 2018 31 March 2017 Accounting (loss)/proﬁt before taxes (1,105,065) 31,702,017 Enacted tax rates 34.61% 34.61% Tax (beneﬁt)/expense on (loss)/proﬁt at enacted tax rate (382,441) 10,971,434 Exempt Income due to tax holiday (4,921,430) (2,843,959) Foreign tax rate differential (616,602) – Deferred tax assets on losses not recognised 7,709,658 – Non-taxable items (1,447,546) – MAT credit entitlement 2,731,117 (12,919,177) Others (25) (3,077) Actual tax for the period 3,072,731 (4,794,779) 31 March 2018 31 March 2017 Current tax 341,614 (3,321,205) Deferred tax 2,731,117 (5,576,609) Less: reclassiﬁed to loss from discontinuing operations – 4,103,035 Tax reported in the statement of comprehensive income 3,072,731 (4,794,779) The Company is subject to Isle of Man corporate tax at the standard rate of zero percent. As such, the Company’s tax liability is zero. Additionally, Isle of Man does not levy tax on capital gains. However, considering that the 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 ten consecutive years out of a total of ﬁfteen consecutive years from the date of commencement of the operations. However, the entities in India are still liable for Minimum Alternate Tax which is calculated on the book proﬁts of the respective entities currently at a rate of 21.34% (31 March 2017: 21.34%). 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. 54 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements 13. Tax expenses continued Deferred income tax for the Group at 31 March 2018 and 2017 relates to the following: 31 March 2018 31 March 2017 Deferred income tax assets MAT credit entitlement 11,396,590 15,691,186 11,396,590 15,691,186 Deferred income tax liabilities Property, plant and equipment 12,853,798 16,684,770 Mark to market on available-for-sale ﬁnancial assets – 14,267 12,853,798 16,699,037 Deferred income tax liabilities, net 1,457,209 1,007,851 Movement in temporary differences during the year Recognised Recognised in other As at in income comprehensive Translation Impact of As at Particulars 1 April 2017 statement income adjustment deconsolidation 31 March 2018 Property, plant and equipment (16,684,770) (1,844) – 3,832,816 – (12,853,798) MAT credit entitlement 15,691,186 (2,731,117) – (1,563,479) – 11,396,590 Mark to market gain/(loss) on available for sale ﬁnancial assets (14,267) – 14,267 – – – Deferred income tax asset/(liabilities), net (1,007,851) (2,732,961) 14,267 2,269,337 – (1,457,209) Recognised Recognised in other As at in income comprehensive Translation Impact of As at Particulars 1 April 2016 statement income adjustment deconsolidation 31 March 2017 Property, plant and equipment (9,287,307) (5,576,609) – (1,820,854) – (16,684,770) Lease transactions – – – – – – MAT credit entitlement – 14,489,964 – 1,201,222 – 15,691,186 Mark to market gain/(loss) on available for sale ﬁnancial assets (23,122) – 8,855 – – (14,267) Deferred income tax asset/(liabilities), net (9,310,429) 8,913,355 8,855 (619,632) – (1,007,851) 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 2018 and 2017, 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. Power Ventures Plc Annual Report & Accounts 2018 55 Strategic Report Corporate Governance Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 14. Intangible assets Acquired software licences £ Cost At 1 April 2016 772,127 Additions 27,298 Exchange adjustments 138,577 At 31 March 2017 938,002 Additions 26,304 Exchange adjustments (103,189) Adjustments on account of deconsolidation of a subsidiary (13,468) At 31 March 2018 847,648 Accumulated depreciation and impairment At 1 April 2016 407,623 Charge for the year 215,462 Exchange adjustments 91,693 At 31 March 2017 714,778 Charge for the year 162,653 Exchange adjustments (88,322) Adjustments on account of deconsolidation of a subsidiary (5,631) At 31 March 2018 783,478 Net book value At 31 March 2018 64,170 At 31 March 2017 223,224 56 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements 15. Property, plant and equipment The property, plant and equipment comprises of: Land Power Other plant Asset under & Buildings stations & equipment Vehicles construction Total Cost At 1 April 2016 12,784,814 407,807,852 765,659 745,383 7,476,585 429,580,293 Additions 153,123 2,143,268 64,318 1,818,377 71,418 4,250,504 Deletions – – – (29,531) – (29,531) Transfers on capitalisation – – – – – – Exchange adjustments 2,677,442 72,256,562 140,920 279,887 932,873 76,287,684 At 31 March 2017 15,615,379 482,207,682 970,897 2,814,116 8,480,876 510,088,950 Additions (495,514) 9,725,079 53,476 3,813 – 9,286,854 Deletions – – (4,610) – – (4,610) Transfers on capitalisation 58,937 – – – (2,998,381) (2,939,444) Exchange adjustments (1,692,549) (53,062,680) (106,946) (303,001) (951,735) (56,116,911) Adjustments on account of deconsolidation of a subsidiary (8,742,160) (217,803,207) (302,502) (115,679.00) – (226,963,548) At 31 March 2018 4,744,093 221,066,874 614,925 2,394,639 4,530,760 233,351,291 Accumulated depreciation and impairment At 1 April 2016 108,913 13,446,429 665,185 453,600 – 14,674,127 Charge for the year 14,142 11,296,791 131,980 277,988 – 11,720,901 Exchange adjustments 20,342 3,629,865 35,232 103,757 – 3,789,196 At 31 March 2017 143,397 28,373,085 832,397 835,345 – 30,184,224 Charge for the year* 21,566 11,953,076 69,209 463,647 – 12,507,498 Exchange adjustments (17,066) (3,802,766) (95,031) (119,348) – (4,034,211) Adjustments on account of deconsolidation of a subsidiary (115,723) (12,067,207) (280,475) (113,950) – (12,577,355) At 31 March 2018 32,174 24,456,188 526,100 1,065,694 – 26,080,156 Net book value At 31 March 2018 4,711,919 196,610,686 88,825 1,328,945 4,530,760 207,271,135 At 31 March 2017 15,471,982 453,834,597 138,500 1,978,771 8,480,876 479,904,726 * Depreciation charge for the year above includes £6,143,974 (2017: £5,379,781) pertaining to deconsolidated subsidiary BVP (note 7 (a)) The net book value of land and buildings block comprises of: 31 March 2018 31 March 2017 Freehold land 4,292,608 15,341,763 Buildings 419,311 130,219 4,711,919 15,471,982 Property, plant and equipment with a carrying amount of £198,699,226 (2017: £477,787,455) is subject to security restrictions (refer note 23). Power Ventures Plc Annual Report & Accounts 2018 57 Strategic Report Corporate Governance Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 16. Investments accounted for using the equity method The carrying amount of investments accounted for using the equity method is as follows: 31 March 2018 31 March 2017 Investments in joint venture 3,484,178 1,339,635 Investments in associates 11,037,659 3,112 Share of loss from equity accounted investments (35,296) (352) Impairment provision for investments in joint venture (note 7(b)) (3,247,668) – Elimination of intra-group margin (19,495) – Investments accounted for using the equity method 11,219,378 1,342,395 The Group’s share of proﬁt/(loss) from equity accounted investments is as follows: 31 March 2018 31 March 2017 Investment in joint venture (34,638) – Investments in associates (658) (352) (35,296) (352) a) Investment in joint venture (note 5(d) and note 7(b)) The investment in Padma Shipping Limited (“PSL”) is accounted for using the equity method in accordance with IAS 28. Summarised ﬁnancial information for Padma Shipping Limited (“PSL”) is set out below: 31 March 2018 31 March 2017 Non-current assets 11,344,541 5,802,605 Current assets (a) 55,502 317,646 Total assets 11,400,043 6,120,251 Current liabilities (b) 4,500,962 3,440,982 Total liabilities 4,500,962 3,440,982 Net assets 6,899,081 2,679,269 (a) Includes cash and cash equivalents 60,301 10,540 (b) Includes ﬁnancial liabilities (excluding trade and other payables and provisions) 4,495,297 3,440,982 A reconciliation of the above summarised ﬁnancial information to the carrying amount of the investment in PSL is set out below: 31 March 2018 31 March 2017 Total net assets of PSL 6,899,081 2,679,269 Proportion of ownership interests held by the Group 50% 50% Carrying amount of the investment in PSL 3,449,540 1,339,635 b) Investment in associates (note 5(d)) Summarised aggregated ﬁnancial information of the Group’s share in the associates: 31 March 2018 31 March 2017 Loss from continuing operations (658) (352) Other comprehensive income – – Total comprehensive income (658) (352) Aggregate carrying amount of the Group’s interests in these associates 11,017,506 2,760 58 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements 17. Other assets 31 March 2018 31 March 2017 A. Short-term Capital advances 278,857 1,724,432 Available for sale ﬁnancial assets 65,706 2,757,272 Bank deposits – 2,903,273 Advances and other receivables 9,070,408 5,301,041 Total 9,414,971 12,686,018 B. Long-term Advances to related parties (Refer note 25 and note 7(b)) 1,727,418 1,575,484 Investment in Debentures 785,222 – Lease deposits 477,959 – Bank deposits – 681,746 Other advances 9,734 408,662 Total 3,000,333 2,665,892 Available-for-sale ﬁnancial assets are comprised of: Fair value of retained investment in former subsidiary BVP (note 7 (a)). Fair Valuation of retained investments in BVP is on basis of the recent transaction. 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. Advances and other receivables (current) Advances to suppliers include trade advance paid to BVP, amounts paid as advance to vendors for supply of fuel. Impairment provision is made for trade advances to BVP aggregating to £20,660,649 translated at closing FX exchange rate. 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. 18. Trade and other receivables 31 March 2018 31 March 2017 Current Trade receivables 33,644,282 80,546,225 Unbilled revenues – 3,716,051 Other receivables 51,263 9,710 33,695,545 84,271,986 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 £24,594,934 (2017: £38,571,535) has been pledged as security for borrowings. As at 31 March 2018, trade receivables of £271,116 (2017: £1,177,967) were collectively impaired and provided for. Trade receivables that are neither past due nor impaired represents billings for the month of March. The Group has been supplying power to Tamilnadu Generation and Distribution Corporation Limited (TANGEDCO) as per terms of relevant power purchase agreements. The Group are due a sum of £12,926,948 from TANGEDCO for the surcharge on delayed payments made by TANGEDCO towards power supplies. A receivable has not been recognised at this point due to the uncertainty of its collectability. Power Ventures Plc Annual Report & Accounts 2018 59 Strategic Report Corporate Governance Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 18. Trade and other receivables The age analysis of the (overdue) trade receivables is as follows: Year Total nor impaired Within 90 days 90 to 180 days Over 180 days Neither past due Past due but not impaired 2018 33,644,282 25,619,510 5,048,431 696,534 7,279,807 2017 80,546,225 19,867,879 11,203,698 7,499,958 41,974,690 The movement in the provision for trade receivables is as follows: Adjustment on Provision for account of Year Opening balance the year deconsolidation Closing balance 2018 1,177,967 271,116 (1,177,967) 271,116 2017 – 1,177,967 – 1,177,967 The creation of provision for impaired receivables of £271,116 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. Recognition of revenue and collectability of receivables The captive consumers of BVP (a subsidiary until 31 March 2018) have withheld from the sales invoices an amount of approximately £40,577,928 towards Cross Subsidy Surcharge (CSS) levied by GUVNL through their DISCOMs for the ﬁnancial years 2015-2016, 2016-2017 and 2017-2018 challenging the grounds of fulﬁlment of required shareholding criteria by BVP to qualify as a captive power generating unit as per Rule 3 of the Electricity Rules, 2005. In December 2017 BVP received conﬁrmation from the relevant Gujarat authorities as to the plant’s Group Captive status for 2017-2018 and in February 2018 the Gujarat DISCOMs stopped withholding CSS from BVP’s sales invoices to its customers. In June 2018 BVP received conﬁrmation from the relevant Gujarat authorities as to the plant’s Group Captive status for 2016-2017 and for 2015-2016 in July 2018. DISCOMs have stopped levying cross-subsidies and have now released approximately £13,977,563 of 2017-18 CSS receivables to the captive consumers and approximately £9,009,207 of dues were already recovered from the captive consumers by BVP. The Group has considered the criteria for recognition of revenue as set out in IAS 18 and the relevant regulatory requirements and is of the opinion that recognition of revenue is appropriate. 19. Inventories 31 March 2018 31 March 2017 Coal and fuel 8,382,022 14,947,860 Stores and spares 1,334,258 1,905,901 Total 9,716,280 16,853,761 The entire amount of above inventories has been pledged as security for borrowings (refer to note 23) 60 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements 20. Cash and cash equivalents and Restricted cash a) Cash and short term deposits comprise of the following: 31 March 2018 31 March 2017 Cash at banks and on hand 2,185,570 13,049,622 Short-term deposits – 36,501 Total 2,185,570 13,086,123 Short-term deposits are placed for varying periods, depending on the immediate cash requirements of the Group. They are recoverable on demand. b) Restricted cash Restricted cash represents deposits maturing between three to twelve months amounting to £20,318,985 (2017: £14,009,027) and maturing after twelve months amounting to £4,966,140 (2017: £3,825,733) which have been pledged by the Group in order to secure borrowing limits with banks. The Group has made impairment provision for £12,553,684 translated at closing FX exchange rate for bank deposits pledged in favour of lenders of BVP (note 7(a) and note 24). 21. 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 issued 4,799,742 shares during the year with respect to scrip dividend at par value of £0.000147 (2017: £0.000147) per share amounting to £706. The difference between fair value of shares issued above par value of £1,248,331 with respect to scrip dividend was credited to share premium. As at 31 March 2018, the Company has an authorised and issued share capital of 356,308,697 equity shares (2017: 351,508,955) at par value of £0.000147 (2017: £0.000147) per share amounting to £52,378 (2017: £51,672) in total. 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 re-measurement 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. Power Ventures Plc Annual Report & Accounts 2018 61 Strategic Report Corporate Governance Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 22. Share based payments The Board has granted share options to Directors and nominees of Directors which are limited to 10 percent of the Group’s share capital. Once granted, the share must be exercised within ten 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 remaining estimated vesting period and an expense amounting to £nil (2017: £87,907) was recognised in the proﬁt or loss with a corresponding credit to other reserves. Movement in the number of share options outstanding are as follows: 31 March 2018 31 March 2017 At 1 April 23,274,234 23,524,234 Forfeited (1,250,000) (250,000) At 31 March 22,024,234 23,274,234 The fair value of options granted and the assumptions used under the Black-Scholes option pricing model are as follows: Granted in 2015 2011 Weighted average fair value of options granted 0.37 0.28 Exercise price 0.60 0.60 Weighted average share price 0.78 0.66 Volatility (%) 40.95% 31.34% Annual risk free rate (%) 1.26% 3.00% Expected option life (years) 5.36 4.96 23. Borrowings The borrowings comprise of the following: Interest rate (range %) Final maturity 31 March 2018 31 March 2017 Borrowings at amortised cost 10.35-10.99 September 2023 93,465,947 320,991,917 Total 93,465,947 320,991,917 Total debt of £93,465,947 (2017: £320,991,917) is secured as follows: • The term loans of £90,039,325 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. • 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. All the loans are personally guaranteed by a Director. In addition a Director personally guaranteed £28,470,433 of BVP’s loan and £10,885,365 of loans of an associate. • 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 2018, the Group has met all the relevant covenants. The fair value of borrowings at 31 March 2018 was £93,465,947 (2017: £320,991,917). The fair values have been calculated by discounting cash ﬂows at prevailing interest rates. 62 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements 23. Borrowings continued The borrowings are reconciled to the statement of ﬁnancial position as follows: 31 March 2018 31 March 2017 Current liabilities Amounts falling due within one year 23,829,415 36,576,466 Non-current liabilities Amounts falling due after 1 year but not more than 5 years 69,636,532 104,970,101 Amounts falling due in more than ﬁve years – 179,445,350 Total non-current 69,636,532 284,415,451 Total 93,465,947 320,991,917 24. Trade and other payables 31 March 2018 31 March 2017 Current Trade payables 52,015,069 52,526,424 Creditors for capital goods 162,261 8,547,998 Bank overdraft – 5,609,229 Other payables 154,092 4,023,144 Total 52,331,422 70,706,795 Non-current Provision for fair valuation of securities provided to lenders of BVP (note 7(a) and 20) (1) 12,553,684 – Security deposit from customers 4,813,303 54,321 Other payables 180,746 229,433 Total 17,547,733 283,754 (1) translated at closing FX exchange rate. With the exception of security deposits from customers 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. 25. Related party transactions of key management personnel Name of the party Nature of relationship Arvind Gupta Executive Chairman Dmitri Tsvetkov (from November 2017) Chief Financial Ofﬁcer Jeremy Warner Allen (from November 2017) Deputy Chairman V Narayan Swami (until November 2017) Finance Director Martin Gatto (until November 2017) Director Mike Grasby Director Ravi Gupta (resigned in May 2018) Director Jeremy Beeton (from November 2016) Director Power Ventures Plc Annual Report & Accounts 2018 63 Strategic Report Corporate Governance Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 25. Related party transactions of key management personnel continued Related parties with whom the Group had transactions during the period Name of the party Nature of relationship Chennai Ferrous Industries Ltd Entity in which Key Management personnel has Control/Signiﬁcant Inﬂuence Padma Shipping Limited Entity in which Key Management personnel has Control/Signiﬁcant Inﬂuence Avanti Solar Energy Private Limited Entity in which Key Management personnel has Control/Signiﬁcant Inﬂuence Mayfair Renewable Energy Private Limited Entity in which Key Management personnel has Control/Signiﬁcant Inﬂuence Avanti Renewable Energy Private Limited Entity in which Key Management personnel has Control/Signiﬁcant Inﬂuence Brics Renewable Energy Private Limited Entity in which Key Management personnel has Control/Signiﬁcant Inﬂuence Avantika Gupta Relative of Key Management Personnel Summary of transactions with related parties Name of the party 31 March 2018 31 March 2017 Padma Shipping Limited a) Investment 2,077,588 746,268 b) Advances 627,205 – Chennai Ferrous Industries Ltd a) Purchase of coal – 10,322 Avanti Solar Energy Private Limited a) Investment 3,336,637 124,422 b) Sale of Solar power plant system 4,586,802 – c) Advance 56,225 – Mayfair Renewable Energy Private Limited a) Investment 3,595,419 124,422 b) Sale of Solar power plant system 4,024,349 – c) Advance 87,154 – Avanti Renewable Energy Private Limited a) Investment 3,369,673 124,422 b) Sale of Solar power plant system 4,822,458 – c) Advance 56,284 – Brics Renewable Energy Private Limited a) Investment 324,854 37,810 b) Sale of Solar power plant system 1,188,788 – c) Advance 5,628 – Avantika Gupta a) Remuneration 112,412 68,556 64 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements 25. Related party transactions of key management personnel continued Summary of balance with related parties Name of the party Nature of balance 31 March 2018 31 March 2017 Padma Shipping Limited Investment 3,484,178 1,339,635 Padma Shipping Limited Advances 1,727,418 1,167,169 Chennai Ferrous Industries Ltd Trade Payable – 10,322 Avanti Solar Energy Private Limited Investment 3,461,059 124,422 Avanti Solar Energy Private Limited Trade receivable 583,750 – Avanti Solar Energy Private Limited Advance 56,225 – Mayfair Renewable Energy Private Limited Investment 3,719,841 124,422 Mayfair Renewable Energy Private Limited Trade payable (236,467) – Mayfair Renewable Energy Private Limited Advance 87,154 – Avanti Renewable Energy Private Limited Investment 3,494,095 124,422 Avanti Renewable Energy Private Limited Trade receivable 185,569 – Avanti Renewable Energy Private Limited Advance 56,284 – Brics Renewable Energy Private Limited Investment 362,664 37,810 Brics Renewable Energy Private Limited Trade receivable 1,238,446 – Brics Renewable Energy Private Limited Advance 5,628 – Arvind Gupta Land Lease Deposit 477,959 537,039 Outstanding balances at the year-end are unsecured. There have been no guarantees provided or received for any related party receivables or payables, except for £2,006,035 (equivalent of $2,800,000) corporate guarantee for 50% of equity portion of the cost of construction of the vessels being built by Padma Shipping Limited. For the year ended 31 March 2018, the Group has not recorded any impairment of receivables relating to amounts owed by related parties £nil (2017: £nil). However, the Group has made impairment provision for investments in joint venture £3,247,668 (2017: £nil) (note 7(b)). 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. Executive Chairman Mr. Arvind Gupta personally guaranteed £10,885,365 of loans of an associate. 26. 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 2018 or 2017). The Company has issued options over ordinary shares which could potentially dilute basic loss per share in the future. There is no difference between basic loss per share and diluted loss per share as the potential ordinary shares are anti-dilutive. 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 31 March 2018 31 March 2017 Weighted average number of shares used in basic earnings per share 353,108,869 351,505,142 Shares deemed to be issued for no consideration in respect of share based payments – 1,264,567 Weighted average number of shares used in diluted earnings per share 353,108,869 352,769,708 Power Ventures Plc Annual Report & Accounts 2018 65 Strategic Report Corporate Governance Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 27. Directors remuneration Name of Directors 31 March 2018 31 March 2017 Arvind Gupta 750,000 1,110,000 Dmitri Tsvetkov 290,000 – Jeremy Warner Allen 22,500 – V Narayan Swami 224,824 109,689 Martin Gatto 33,750 45,000 Mike Grasby 45,000 45,000 MC Gupta – 27,880 Ravi Gupta 22,500 45,000 Jeremy Beeton 45,000 22,500 Total 1,433,574 1,405,069 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. 28. Commitments and contingencies Operating lease commitments The Group leases ofﬁce premises under operating leases. The leases typically run for a period up to 5 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: 31 March 2018 31 March 2017 Not later than one year 44,771 43,226 Later than one year and not later than ﬁve years 117,898 157,056 Later than ﬁve years – – Total 162,669 200,282 During the year ended 31 March 2018, £43,226 (2017: £41,204) was recognised as an expense in the statement of comprehensive income in respect of operating leases. Capital commitments During the year ended 31 March 2019, in respect of its interest in joint ventures the Group is committed to incur capital expenditure of $2,800,000 i.e. approximately £2,000,000 (2017: £18,630,157) of their share of interest (note 5(d)(ii)). Contingent liabilities Disputed income tax demand £549,789. Guarantees and letter of credit The Group has provided bank guarantees and letters of credit (LC) to customers and vendors in the normal course of business. The LC provided as at 31 March 2018: £44,901,443 (2017: £40,497,741) and Bank Guarantee (BG) as at 31 March 2018: £10,168,184 (2017: £23,425,291). LC are supporting accounts payables already recognised in statement of ﬁnancial position. BG are treated as contingent liabilities until such time it becomes probable that the Company will be required to make a payment under the guarantee. 66 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements 29. 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 2018 and 31 March 2017. 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 2018, 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 2018 and 31 March 2017, 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 2018 would decrease or increase by £934,659 (2017: £2,865,102). 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 Great Britain £. 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 2018 As at 31 March 2017 Currency Financial assets Financial liabilities Financial assets Financial liabilities United States Dollar (USD) 3,711,568 62,663,286 3,000,000 19,852,758 Power Ventures Plc Annual Report & Accounts 2018 67 Strategic Report Corporate Governance Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 29. Financial risk management objectives and policies continued Set out below is the impact of a 10% change in the US dollar on proﬁt arising as a result of revaluation of the Group’s foreign currency ﬁnancial instruments: As at 31 March 2018 As at 31 March 2017 Effect of 10% Effect of 10% strengthening in strengthening in Closing rate USD against INR – Closing Rate USD against INR – Currency (INR/USD) Translated to GBP (INR/USD) Translated to GBP United States Dollar (USD) 65.07 3,840,174 64.75 1,226,728 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 £33,761,251 (2017: £87,029,258). The Group has exposure to credit risk from accounts receivable balances on sale of electricity. The operating entities of the Group have entered into power purchase agreements with transmission companies incorporated by the Indian state government (TANGEDCO) to sell the electricity generated therefore the Group is committed 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 18 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. The following is an analysis of the Group contractual undiscounted cash ﬂows payable under ﬁnancial liabilities at 31 March 2018 and 31 March 2017: Current Non-Current As at March 2018 Within 12 months 1-5 years Later than 5 years Total Borrowings 23,829,415 69,636,532 – 93,465,947 Interest on borrowings 10,532,258 25,372,157 – 35,904,415 Trade and other payables 52,331,422 17,547,733 – 69,879,155 Other current liabilities 810,705 – – 810,705 Total 87,503,800 112,556,442 – 200,060,222 68 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements 29. Financial risk management objectives and policies continued Current Non-current As at 31 March 2017 Within 12 Months 1-5 Years Later than 5 years Total Borrowings 36,576,466 104,970,101 179,445,350 320,991,917 Interest on borrowings 33,903,890 45,442,677 123,948,503 203,295,070 Trade and other payables 70,706,795 283,754 – 70,990,549 Other current liabilities 17,363 – – 17,363 Total 141,204,514 150,696,532 303,393,853 595,294,899 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 years end 31 March 2018 and 2017. 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: 31 March 2018 31 March 2017 Total equity 139,130,424 236,687,603 Less: Cash and cash equivalents (2,185,570) (13,086,123) Capital 136,944,854 223,601,480 Total equity 139,130,424 236,687,603 Add: Borrowings (including buyer’s credit) 93,465,947 320,991,917 Overall ﬁnancing 232,596,371 557,679,520 Capital to overall ﬁnancing ratio 0.59 0.40 Power Ventures Plc Annual Report & Accounts 2018 69 Strategic Report Corporate Governance Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 30. Summary of ﬁnancial assets and liabilities by category and their fair values Carrying amount Fair value March 2018 March 2017 March 2018 March 2017 Financial assets Loans and receivables – Cash and cash equivalents 1 2,185,570 13,086,123 2,185,570 13,086,123 – Restricted cash 1 25,285,125 17,834,760 25,285,125 17,834,760 – Current trade receivables 1 33,695,545 84,271,986 33,695,545 84,271,986 Available-for-sale instruments 3 65,706 2,757,272 65,706 2,757,272 61,231,946 117,950,141 61,231,946 117,950,141 Financial liabilities Term loans 93,465,947 320,991,917 93,465,947 320,991,917 Current trade and other payables 1 52,331,422 70,706,795 52,331,422 70,706,795 Non-current trade and other payables 2 17,547,733 283,754 17,547,733 283,754 163,345,102 391,982,466 163,345,102 391,982,466 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 Valuation of retained investments in BVP is on basis of recent transaction. 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 Level1 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). 70 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements 30. Summary of ﬁnancial assets and liabilities by category and their fair values continued 2018 Level 1 Level 2 Level 3 Total Available-for-sale ﬁnancial assets Unquoted securities – – 40,453 40,453 Quoted securities 25,253 – – 25,253 Total 25,253 – 40,453 65,706 2017 Level 1 Level 2 Level 3 Total Available-for-sale ﬁnancial assets Unquoted securities – – – – Quoted securities 2,757,272 – – 2,757,272 Total 2,757,272 – – 2,757,272 There were no transfers between Level 1 and 2 in the periods. 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. 31. Post – reporting date events No adjusting or signiﬁcant non-adjusting events have occurred between the reporting date and the date of authorisation. Power Ventures Plc Annual Report & Accounts 2018 71 Strategic Report Corporate Governance Financial Statements CORPORATE DIRECTORY Legal advisers Dougherty Quinn The Chambers 5 Mount Pleasant Douglas Isle of Man IM1 2PU Registrars Link Market Services (Isle of Man) Limited Clinch’s House Lord Street Douglas Isle of Man IM99 1RZ Nominated Adviser and Broker Cenkos Securities Plc 6–7– 8 Tokenhouse Yard London EC2R 7AS Financial PR Tavistock Communications 1 Cornhill London EC3V 3ND 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 BDO LLP 55 Baker Street London W1U 7EU 72 Power Ventures Plc Annual Report & Accounts 2018 Strategic Report Corporate Governance Financial Statements DEFINITIONS AND GLOSSARY Act: Isle of Man Companies Act 2006 AGM: Annual General Meeting Board: Board of Directors of OPG Power Ventures Plc 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 bps: Basis points Group or OPG: the Company and its subsidiaries BRICS: Brazil, Russia, India, China and South Africa GW: Gigawatt is 1,000 megawatts CAGR: Compound Average Growth Rate IAS: International Accounting Standards CEA: Central Electricity Authority CO: Carbon Monoxide Company or OPG or parent: OPG Power Ventures Plc Discom: Distribution Company (of the State Electricity Utility) IEA: International Energy Agency IFRS: International Financial Reporting Standards Indian Companies Act: the Companies Act, 1956 and amendments thereto kWh: Kilowatt hour is one unit of electricity EBITDA: Earnings before interest, tax, depreciation and amortisation LOI: Letter of Intent EHS: Environment, Health and Safety LSE: London Stock Exchange plc Electricity Act: Indian Electricity Act 2003 as amended LTOA: Long Term Open Access EPS: Earnings per share ESOP: Employee Stock Options FDI: Foreign Direct Investment LTVT: Long Term Variable Tariff MoU: Memorandum of Understanding mt: Million tonnes FY: Financial year commencing from 1 April to 31 March MW: Megawatt is 1,000 kilowatts GCPP: Group Captive Power Plant MWh: Megawatt hour GDP: Gross Domestic Product GHG: Green House Gas NITI Aayog: National Institution for Transforming India Nox: Nitrogen Oxides Government or GOI: Government of India O&M: Operating and Management PLF: Plant Load Factor PPA: Power Purchase Agreement PSA: Power Supply Agreement Power Ventures Plc Annual Report & Accounts 2018 73 Strategic Report Corporate Governance Financial Statements DEFINITIONS AND GLOSSARY CONTINUED ROE: Return on Equity Rupees/INR or Rs: Indian Rupee, the lawful currency of India SEB: State Electricity Board SEBI: Securities Exchange Board of India Sox: Sulphur Oxides SPM: Suspended Particular Matter SPV: Special Purpose Vehicle State: State of India TANGEDCO: Tamil Nadu Generation and Distribution Corporation Limited The Code: the UK Corporate Governance code, issued by the Financial Reporting Council UK/United Kingdom: United Kingdom of Great Britain and Northern Ireland US$/USD or $: US Dollars, the lawful currency of the US 74 Power Ventures Plc Annual Report & Accounts 2018 OPG is a developer and operator of power plants in India with a track of record of delivery and an experienced management team. Our goal is to be a leader in the Indian energy sector. STAY IN TOUCH WITH US ONLINE Corporate website opgpower.com Online annual report www.opgpower.com/investors CONTENTS Strategic Report 01 Highlights Corporate Governance Financial Statements 22 Board of Directors 35 Independent Auditors’ report 02 Executive Chairman’s statement 24 Corporate Governance Report 04 Financial review 28 Directors’ Report 07 Key Performance Indicators 30 Directors’ Remuneration Report 08 COO Operational review 34 Statement of Directors’ 10 Business model 11 Group objectives and strategies responsibilities 12 Market review 16 Sustainability report 20 Principal risks 38 Consolidated Statement of Financial Position 39 Consolidated Statement of Comprehensive Income 40 Consolidated Statement of Changes in Equity 41 Consolidated Statement of Cash Flows 42 Notes to the Consolidated Financial Statements 72 Corporate Directory 73 Deﬁnitions and Glossary The paper used in this document contains materials sourced from responsibly managed and sustainable commercial forests, certified in accordance with the FSC® (Forest Stewardship Council). Designed and produced by fourthquarter 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 2 0 1 8 FOCUSING ON ASSET MAXIMISATION PREPARING FOR THE FUTURE & DELEVERAGING OPG Power Ventures Plc Annual Report & Accounts 2018 OPG Power Ventures Plc IOMA House Hope Street Douglas Isle of Man IM1 1AP T: +44 (0)1624 681200 www.opgpower.com

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