OPG Power Ventures Plc
Annual Report 2019

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 9 POWERING INDIA OPG Power Ventures Plc IOMA House Hope Street Douglas Isle of Man IM1 1AP T: +44 (0)1624 681200 www.opgpower.com OPG Power Ventures Plc Annual Report & Accounts 2019   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 Auditor’s 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 43 Notes to the Consolidated Financial Statements 74 Corporate Directory 75 Definitions and Glossary Printed sustainably in the UK by Pureprint, a CarbonNeutral® company with FSC ® chain of custody and an ISO 14001-certified environmental management system recycling over 99% of all dry waste. Designed and produced by fourthquarter Strategic Report Corporate Governance Financial Statements HIGHLIGHTS REVENUES (£m) ADJUSTED EBITDA (£m) PROFIT BEFORE TAX (£m) before impairments and tax FY15 FY16 FY17 FY18 FY19 100.0 128.4 136.2 140.1 140.6 FY15 FY16 FY17 33.4 50.7 52.1 FY15 FY16 FY17 21.7 28.6 31.8 FY18 24.7 FY18 6.2 FY19 35.3 FY19 16.8 EPS (£ pence) NET DEBT / ADJUSTED EBITDA (£m) FY15 4.91 FY16 FY17 5.29 8.43 (24.68) FY18 FY15 FY16 FY17 FY18 7.6 5.0 5.9 3.8 FY19 3.81 FY19 2.2 Profit after tax was £14.0m compared with a loss of £100.9m in FY18 Total generation (including deemed) of 2.7 billion units, down 2% from FY18 Revenue up 0.4% to £140.6m from £140.1m in FY18 Adjusted EBITDA of £35.3m (25.1% margin) compared with £24.7m (17.6% margin) in FY18** Full year scrip dividend of 0.6p per share (FY18: scrip dividend of 1p per share) Term loans principal debt repayment £20.6m (5.3 pence per share) Borrowings reduced with gross debt of £80.4m*, compared with £93.5m at 31 March 2018 * Gross Debt of £80.4m consists of long-term loan of £69.9m and working capital of £10.5m ** Excluding one-off impairment provision of £7.3m in FY18 Power Ventures Plc Annual Report & Accounts 2019 01 Strategic Report Corporate Governance Financial Statements EXECUTIVE CHAIRMAN’S STATEMENT “The outlook for the Indian economy in general and the power sector in particular continues to be buoyant. OPG’s business in FY19 performed well both operationally and financially. We are maintaining our strategy to build value for shareholders by repaying borrowings. In the year under review we added 5.3p per share to equity holders from deleveraging and are recommending a full year scrip dividend of 0.6p per share. By maintaining our focus on the profitable operation of our high quality assets, we expect to continue to reduce debt and pay dividends in order to maximise shareholder value.” Strong operational performance and robust profitability Profit from continuing operations was £15.0m (FY18: loss of £0.9m) and net profit after tax was £14.0m, in comparison with a loss of £100.9m incurred in FY18 as a result of the deconsolidation of the Gujarat plant last year. This is the first year we are presenting full year results based on the performance of the Chennai plant following the deconsolidation of the Gujarat SPV last year. Our strong operational performance and robust profitability in FY19 is in line with expectations and demonstrates that focusing on the existing operations and deleveraging remains the right strategy. We will continue to use the strong cash generation of our existing operations to repay our debt and we aim to be debt free by the end of calendar 2023. The Chennai plants’ generation, including ‘deemed’ generation, during FY19 was 2.7 billion units, 2% lower than during FY18, with average Plant Load Factor (‘PLF’) at 75% (FY18: 77%). This slight decrease in generation was primarily due to Unit IV (180 MW) being shut down from early December 2018 to early March 2019 whilst turbine repairs were undertaken, following an unplanned shutdown. During FY19 we achieved a 10% increase in sales tariffs and the average realised tariff for our industrial and commercial customers was Rs5.41 (FY18: Rs4.92). Since the year end, most of our users in Chennai have renewed their contracts. After the period end, in May 2019, the Company secured a hedge against the volatility of coal price movements and has entered into a fixed price coal purchase agreement for one million tonnes (representing approximately 60% of the Group’s annual coal requirements). The delivery of coal under the purchase agreement started in June 2019 and will end in March 2020. This means that OPG expects greater visibility of FY20 financial performance. This was the first year of operations of the Group’s Karnataka solar projects (62 MW) situated north of Bengaluru. All plants are operational and have met all critical operating metrics. A Capacity Utilisation Factor of 17% was achieved in FY19 for these solar projects which is well within industry standard. However, given the long-term returns from solar projects and the level of capital investment required, the Board has decided to focus on the core thermal power plants business and announces its intention to dispose of the Karnataka solar projects. Continued deleveraging In FY19, the Group’s revenue was £140.6m (FY18: £140.1m) and adjusted EBITDA was £35.3m (FY18: £24.7m). Average adjusted EBITDA for the last five years was £39.2m. Total borrowings during FY19 were reduced from £93.5m to £80.4m, comprising term loans of £69.9m and working capital loans of £10.5m. 02 Power Ventures Plc Annual Report & Accounts 2019 Strategic Report Corporate Governance Financial Statements The Company achieved a major milestone with respect to Unit 1 of the Chennai plant (77 MW out of 414 MW) when its term loans were fully repaid in December 2018. Based on the term loans’ repayments schedule, all Chennai plants are expected to be debt free in calendar 2023. Interest on term loans and principal repayments paid at Chennai in FY19 amounted in aggregate to £29.6m, including £20.6m of principal repayments, representing 5.3 pence per share added in value to shareholders’ equity. This trend will continue over the next three years. In FY20 we expect to repay £17.3m of term loans thereby increasing shareholders equity value by another 4.5 pence per share. Indian economy India has achieved steady and robust macroeconomic growth in past few years and continues to ascend in the rankings of the world’s economies. India’s gross domestic product is expected to reach US$6 trillion by 2027 and India is forecast to be the third largest consumer economy in the world, with consumption predicted to triple to US$4 trillion by 2025, reflecting accelerating shifts in consumer behaviour and expenditure patterns. thermal power plants across the country to be effective in a phased manner up to 2022. The Company is well placed to comply with the new standards by incurring required capital expenditures in a staged manner over the next three years. Implementation of the emission reduction programme will also require shutdowns for each of the four units over FY20 and FY21 and therefore the Company expects plant load factors at Chennai to be around 70-75%. The Company is evaluating various technologies with a view to be fully compliant with the revised emission norms by the stipulated timeline. Dividend The shutdown of Unit 4 for three months impacted FY19 cash flows and considering the additional capital expenditure and lower expected PLF with respect to implementation of the emission reduction programme, the Board has decided to conserve cash for these proposed obligations and has declared a full year scrip dividend of 0.6p per share (FY18: scrip dividend of 1p per share), subject to approval by shareholders at the Company’s Annual General Meeting. India’s GDP grew by 6.8% in FY19 and is projected to grow at an average of 7% per year over the 2019-2023 period. Outlook The Company will remain focused in FY20 on delivering robust operational performance. We will continue to repay term loans in accordance with the repayment schedule. With the Group paying up to 13% interest on its bank debt, the Board believes that maintaining focus on improvement in operations and deleveraging will provide the best returns to shareholders. On behalf of the Board, I thank the shareholders, lenders, customers, our loyal and hardworking employees, vendors, Government and regulatory authorities for their continuous support. We are confident that the Group is now well positioned to deliver value to shareholders and take advantage of market opportunities as they arise. Arvind Gupta Executive Chairman 31 July 2019 Power sector Rapid infrastructure development in key sectors such as power remain an important priority for the newly elected Government of India. With electricity production of 1,249.3 billion units in FY19, India is the third largest producer and consumer of power in the world and the Government’s goal is to meet the anticipated growth in demand by doubling the current capacity to provide 24x7 electricity to all users. India is planning to derive 40% of its energy output from non-fossil fuel sources by 2030, which will mean raising renewable energy installed capacity from 57 GW to 175 GW by 2022. Under the Paris Agreement, India has made three commitments. India’s greenhouse gas emission intensity of GDP will be reduced by 33-35% below 2005 levels by 2030. 60% of India’s power capacity at that time would be still based on fossil fuel sources and India will create an additional ‘carbon sink’ of 2.5 to 3 billion tonnes of CO2 equivalent through additional forest and tree cover by 2030. We fully endorse this initiative and will procure best in class equipment to comply with emissions standards applied to our power plants. Emission norms The Indian Government has notified revised compliance standards for emission norms of Power Ventures Plc Annual Report & Accounts 2019 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 AREAS OF OPERATION KARNATAKA 62 MW TAMIL NADU 414 MW 03 Strategic Report Corporate Governance Financial Statements FINANCIAL REVIEW “The Company achieved a major milestone with respect to Unit 1 of Chennai plant (77 MW out of 414 MW) as the term loans were fully repaid in December 2018. Based on the term loans repayments schedule the Chennai plant is expected to be debt free in calendar 2023.” Revenue The Group’s revenue has increased by £0.5m, reflecting a 0.4% growth year-on-year as a result of an increase in tariff during FY19, partly offset by a decrease in generation. Average tariff realised during FY19 increased to Rs5.56 per kWh, as a result of tariff increases during the year for captive customers. Generation exported to customers and billed for revenue, including ‘deemed’ generation, decreased by 2% to 2.7 billion units during FY19 in comparison with FY18 generation. This slight decrease in generation was primarily due to Unit IV (180 MW) being shut down from early December 2018 to early March 2019 whilst turbine repairs were undertaken. Production and output levels from the Group’s operating power plant in Chennai compared to the prior year were as follows: Particulars FY19 FY18 Total generation, incl. ‘deemed’ generation (million units) 2,705 2,770 PLF (%)1 75 77 Average tariff (INR/unit)2 5.56 5.21 1 Chennai Unit 3: ‘Deemed’ PLF (%) has been included 2 Average tariff includes effect of ‘deemed’ offtake tariff for Chennai Unit 3. Average FY19 tariff excluding effect of ‘deemed’ offtake was Rs5.41 (FY18: Rs4.92). Gross profit Gross profit (‘GP’) in FY19 was 34.8% of revenue (FY18: 28.5%). The increase in GP is primarily on account of an increase in tariff during FY19 in comparison with FY18. The cost of revenue represents fuel costs. The table below shows the price and blend of Indian and Indonesian coal consumed in FY19 and FY18. 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 FY19 3,634 4,598 1,024 1,130 8:92 FY18 3,467 4,593 963 1,114 6:94 Change % 4.8 0.11 04 Power Ventures Plc Annual Report & Accounts 2019 Strategic Report Corporate Governance Financial Statements The following is a commentary on the Group’s financial performance for the year. Income statement Restated*/** 2019 % OF 2018 % OF YEAR ENDED 31 MARCH £m REVENUE £m REVENUE Revenue 140.6 140.1 Cost of revenue (excluding depreciation) (91.7) (100.2) Gross profit 48.9 34.8 39.9 28.5 Other income 2.6 2.0 Distribution, general and administrative expenses (excluding depreciation) (16.2) (17.2) Adjusted EBITDA*** 35.3 25.1 24.7 17.6 Depreciation and amortisation (6.1) (6.5) Net finance costs* (12.4) (12.0) Profit from continuing operations before tax and impairments 16.8 11.9 6.2 4.4 Impairment provision for loss on assets under construction – (4.0) Profit before tax from continuing operations 16.8 11.9 2.2 1.6 Taxation (1.8) (3.1) Profit/(loss) after tax from continuing operations 15.0 10.7 (0.9) (0.7) Loss from discontinued operations, incl. non-controlling interest** (1.0) (100.0) Profit/(loss) for the year 14.0 (100.9) * Net foreign exchange loss was reclassified from General and Administrative expenses to finance costs in FY18 ** Impairment provision for loss of investment in Padma Shipping JV and Group’s share in losses of Padma’s operations losses were reclassified to Loss from discontinued operations in FY18 *** Excluding one-off impairment provision of £4.0m in FY18 Adjusted EBITDA Adjusted earnings before interest, taxation, depreciation and amortisation (‘Adjusted EBITDA’) is a measure of a business’ cash generation from operations before depreciation, interest and exceptional and non-standard or non-operational changes. Adjusted EBITDA is useful to analyse and compare profitability among periods and companies, as it eliminates the effects of financing and capital expenditures. Adjusted EBITDA was £35.3m in FY19 an increase from £24.7m in FY18 and Adjusted EBITDA margin was higher at 25.1% in FY19 against 17.7% in FY18 on account of an increase in GP margin. Profit from continuing operations before tax was £16.8m compared with a profit from continuing operations before tax and impairment of £6.2m in FY18 (after impairment in FY18 it was a profit before tax of £2.2m). Profit before tax reconciliation (‘PBT’) (£m) FY19 PBT 2018-19 16.8 PBT 2017-18 2.2 Increase in PBT 14.6 Increase in GP 9.0 Increase in other income 0.6 Decrease in distribution, general and administrative expenses, expected credit loss 0.9 Increase in net finance costs (0.4) Decrease in depreciation and amortisation 0.5 Impairment provision for loss on asset under construction* 4.0 Increase in PBT 14.6 *£4m being impairment of obsolete assets under construction, as a one-off transaction in FY18. Power Ventures Plc Annual Report & Accounts 2019 Taxation The Company’s operating subsidiaries are under a tax holiday period but are subject to Minimum Alternate Tax (‘MAT’) on their 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 £1.8m comprised of current tax expense of £0.9m and deferred tax expense of £0.9m. Profit after tax from continuing operations Profit after tax from continuing operations has increased by £15.9m from loss of £0.9m in FY18 to profit of £15.0m in FY19. Assets held for sale and loss from discontinued operations 62 MW Karnataka solar project In FY18 four Karnataka solar projects (62 MW) were commissioned. The Group has a 31% equity interest in these projects. During FY19, the Company obtained a right to buy additional 30% equity interest in solar companies following achievement of the conditions precedent under the terms of the agreement. This right, in combination with other rights, provided substantive potential voting rights 05 Strategic Report Corporate Governance Financial Statements FINANCIAL REVIEW CONTINUED and investments in the underlying solar companies were reclassified from associates to subsidiaries. Given the long-term returns from solar projects and the level of capital investment required, the Board has decided to focus on the core thermal power plants business and announces its intention to dispose of the Karnataka solar projects. The Company initiated the process of disposal of the solar companies in the year, which met all conditions of IFRS 5 for classification of solar business as Assets held for sale at 31 March 2019. Accordingly, Assets of £49,579,232 and Liabilities of £35,267,786 were classified as Assets and Liabilities held for sale in the Consolidated Statement of Financial Position as at 31 March 2019 and their profit from operations of £20,708 was included in loss from discontinued operations in the Consolidated Statement of Comprehensive Income. Impairment provision of investments in Joint Venture (‘JV’) Padma Shipping In 2014 the Company entered into a JV 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 JV company Padma Shipping Ltd, Hong Kong (Padma). During FY18, the JV partner due to a change in their group strategy requested for the JV to be terminated and as the vessels were still under construction OPG agreed with this proposal. During FY19 one of the vessels was sold by the shipping yard and during FY20 the second vessel has been sold. The Padma JV will be terminated and dissolved following the sale of the second vessel which is expected to finalise during 2019. OPG has invested approximately £3,484,178 in equity and £1,727,418 to date as an advance to Padma and the J V has been reported using the equity method as per the requirements of IFRS 11. The Company recognised an impairment provision in FY19 financial statements of £1,000,000 (FY18: £3,247,668) against its investment to date, including its advance to Padma, on account of the impending dissolution of the JV. The carrying value of OPG’s investment in the Padma JV of £918,432 was classified as Assets held for sale in the Consolidated Statement of Financial Position as at 31 March 2019. Earning per share (EPS) The Company’s total reported EPS increased to 3.81 pence from a loss of (24.68) pence earnings on account of an increase in PAT due to a higher loss from discontinued operations in FY18 and higher profitability in FY19. Dividend The Board declared FY19 full year scrip dividend of 0.6p per share (FY18: scrip dividend at 1 pence per share). The Company has issued 31,601,503 (2018: 4,799,742) shares during FY19 with respect to scrip dividend at par value of £0.000147 (2018: £0.000147) per share amounting to £4,646 (2018: £706). The difference between fair value of shares issued above par value of £3,558,442 (2018: £1,248,331) with respect to scrip dividend was credited to share premium. Foreign exchange gain on translation The British Pound-to-Indian Rupee exchange rate has moved lower to a closing rate on 31 March 2019 of £1= INR 90.28 as against £1= INR 90.81 on 31 March 2018 thereby resulting in exchange gain of £1.2m on translating foreign operations. Statement of financial position Property, plant and equipment The decrease in net book value of our property, plant and equipment of £3.2m principally relates to depreciation offset by additions and foreign exchange impact on account of translation during the year. Other non-current assets Other non-current assets (excluding property, plant and equipment and intangible assets) have decreased by £18.2m primarily due to reclassification of investments in solar companies and Padma Shipping to assets held for sale in current assets and a decrease in the non-current portion of restricted cash. Current assets Current assets have increased by £61.5m from £78.2m to £139.7m year-on-year primarily as a result of the following: • Increase in assets held for sale by £50.5m • Increase in trade receivables by £15.5m • Increase in cash and bank balances (including restricted cash) by £2.6m • Decrease in other short-term assets by £3.1m • Decrease in inventory holdings by £2.6m • Decrease in net current tax assets by £1.6m Liabilities Current liabilities have increased by £32.7m from £77.0m to £109.7m year-on-year primarily due to the classification of liabilities of the solar subsidiaries of £35.3m as liabilities held for sale. Non-current liabilities have decreased by £7.9m from £88.6m to £80.7m year-on-year primarily on account of repayment of borrowings offset by an increase in trade and other payables. Gross debt, gearing and finance costs As of 31 March 2019, total borrowings were £80.4m (31 March 2018: £93.5m). The gearing ratio, net borrowings (i.e. total borrowings minus cash)/(equity plus borrowings), was 34% (31 March 2018: 40%). Gearing ratio is a useful measure of financial risk of the Company. Total borrowings (current and non-current portions) decreased by £13.1m due to the repayment of term loans of £20.6m offset by the increase in working capital loans and the foreign exchange impact of appreciation of INR against GBP. The Company achieved a major milestone with respect to Unit 1 of the Chennai plant (77 MW out of 414 MW) as the term loans were fully repaid in December 2018. Based on the term loans repayments schedule the Chennai plant is expected to be debt free in calendar 2023. Finance costs have increased by £1.0m from £13.6m in FY18 to £14.6m in FY19 primarily due to the impact of the increase in foreign exchange losses offset by the reduction in interest expense following scheduled repayments of term loans. 06 Power Ventures Plc Annual Report & Accounts 2019 KEY PERFORMANCE INDICATORS FINANCIAL ADJUSTED EBITDA (£m) FY15 FY16 FY17 33.4 50.7 52.1 FY18 24.7 FY19 35.3 EPS (£ pence) FY15 4.91 FY16 FY17 5.29 8.43 (24.68) FY18 FY19 3.81 NON-FINANCIAL PLANT LOAD FACTOR (%) (Group) FY15 FY16 FY17 FY18 FY19 91 70 76 77 75 GEARING (%) FY15 FY16 FY17 FY18 FY19 40 34 59 57 57 TOTAL RECORDABLE INJURY RATE (Chennai) 0.40 0.28 FY15 FY16 FY17 0.00 FY18 0.09 FY19 0.00 Strategic Report Corporate Governance Financial Statements Finance income increased from £1.6m in FY18 to £2.2m in FY19 and therefore net finance costs in FY19 amounted to £12.4m (FY18: £12m). The restricted cash balance totalling £23.5m at 31 March 2019 (31 March 2018: £25.3m) is comprised of financial deposits that have been pledged as security against borrowings and Letters of Credit. Cash flow Cash flow from continuing operations before and after changes in working capital was £35.7m (FY18: £24.8) and £28.1m (FY18: £57m) respectively. Net cash flow from operating activities has decreased from £57.0m in FY18 to £28.1m in FY19, a decrease of £28.9m, primarily due to changes in working capital exceeding the impact of the increase in gross profit. Movements (£m) FY19 FY18 Operating cash flows from continuing operations before changes in working capital 35.7 24.8 Tax paid (0.6) (0.8) Change in working capital assets and liabilities (7.0) 33.0 Net cash generated by operating activities from continuing operations 28.1 57.0 Purchase of property, plant and equipment (net of disposals) (1.5) (1.1) Investments sold/(purchased), incl. in solar projects, shipping JV, market securities, and interest received 1.2 (28.8) Net cash from/(used in) continuing investing activities (0.3) (29.9) Finance costs paid, incl. foreign exchange losses (14.8) (13.6) Dividend paid – (1.6) Total cash change from continuing operations before net borrowings 13.0 11.9 Dmitri Tsvetkov Chief Financial Officer 31 July 2019 Power Ventures Plc Annual Report & Accounts 2019 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. 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 that 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 location and we haven’t faced any interruptions on account of coal since commissioning each unit. 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 around 99% less water than a typical water cooled thermal power plant that is commonly installed around India and globally. This is a key feature as our units operate in a region that is naturally water scarce. As a result of these features, our station availability has remained consistently around 75-80%. 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), enforced system back downs and one-off disruptions to demand such as due to adverse weather conditions. Total generation at our 414 MW Chennai plant in FY19, including ‘deemed’ offtake, was 2.7 billion units which is 2% lower than last year primarily due to Unit IV (180MW) being shutdown from early December 2018 to early March 2019 whilst turbine repairs were undertaken. The Chennai Plant Load Factor (‘PLF’), including ‘deemed’ offtake, in FY19 was 75% versus a national average for thermal plants of 61%. In FY 20, the Company expects load factors at Chennai to be around 70-75% which is lower than in FY19 primarily as a result of planned shutdowns to implement an emission reduction programme. Auxiliary consumption levels are also a key measure of plant efficiency, and are typically between 7.5-8.5% for our Chennai units. Sales contracts During FY19, the Company continued supplying 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 was 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. 74 MW of Chennai capacity has remained available for supply on the LTV T to the Tamil Nadu state government. A 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 FY20, the Chennai plant expects to continue with its diversified sales mix, contracting the majority of its generation from 334 MW to captive customers and the balance of 74 MW (net) to TANGEDCO under the 15 year Power Purchase Agreement (‘PPA’). The Chennai plant realised an average tariff of Rs5.41 in FY19 (FY18: Rs4.92) and a ‘deemed’ offtake charge of Rs1.50 per unit for ‘deemed’ generation. The difference between tariff and cost of coal on a per unit basis (‘the Clean Dark Spread’) was Rs1.82 at Chennai for FY19 (FY18: Rs1.47) which we believe continues to be amongst the best in the sector, notwithstanding the highly elevated prices of coal in the first half of FY19 (as reported earlier) as well as measures taken by management to mitigate high coal price volatility. 08 Power Ventures Plc Annual Report & Accounts 2019 Strategic Report Corporate Governance Financial Statements For FY20, at Chennai, the Company expects the average tariff to be around Rs5.60 as opposed to Rs5.41 in FY19, largely due to full year benefit from the increase in tariff negotiated with all the captive customers in October 2018, which is expected to continue to be realised in FY20. Further, average realised tariffs on multi-year contracts would benefit from any increase in regulated tariffs by the State Government. 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 in FY19 and as such the Company benefited as prices started falling during the end of the year. The average coal price was Rs4,517 per tonne in FY19 which is slightly lower than the average price for FY18 of Rs4,527 per tonne, despite the international coal prices being at their all time high for the first half of FY19. Following the coal price spike in the first nine months of calendar 2018, coal prices have since weakened, predominantly as a result of policy actions undertaken in China. Independent forecasts predict for international coal prices to reduce further in FY20 and beyond. In FY20, the Company contracted a fixed price coal purchase contract for procurement of 1m tonnes of coal in FY20, which represents approximately 60% of our annual requirement. The delivery of coal under this contract will take place from June 2019 to March 2020. This creates a hedge against further volatility in the coal price due to seasonal fluctuations and any major policy decisions of China. The Company also executed a small quantity of financial swaps in FY19 in order to hedge our coal cost. The impact of this remains nominal as these trades reflect a very small percentage of our annual consumption. The liquidity in the swaps market had remained low in FY19, but has increased in FY20 and this trend is expected to continue. With this trend the Company expects to be able to continue to further hedge our cost by undertaking larger positions on the financial coal markets. However, the impact of this on our coal cost is expected to remain nominal in FY20, till the market develops to a robust size. Consensus expectations continue to be for international coal prices to recede in 2019 (as they have done so consistently for the last two months) and in 2020 with longer-term consensus expectations for that trend to continue whilst coal supply is expected to stay robust. Power Ventures Plc Annual Report & Accounts 2019 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 a industry standard Total Recordable Incident Report (‘TRIR’) in FY19 for Chennai. The Company continues to minimise its consumption of water through air cooling and we operate with a philosophy of continual improvement with regard to any effluent. India is a signatory to the Paris Climate Agreement and to comply with that, all thermal power plants across the country have to meet revised stack emission standards in a staged manner by 2022. However, since 226 GW thermal capacity in the country has to undergo the changes, it is likely that standards will be re-notified. The Company is evaluating various technologies with a view to be fully compliant to the revised emission norms by the stipulated timeline. Solar projects 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 Rs5.00 across the four sites. In FY18, the entire 62 MW of solar plant has been commissioned. The plants got fully ramped up in the course of FY19 and achieved an annual average PLF of 17%. All the four plants are now operating at their maximum optimal PLFs and are expected to achieve an annual average PLF of around 20% in FY20. Currently the projects are being paid a tariff of Rs4.36 per kWh but following favourable interim court orders we expect that Karnataka Discoms will be paying us the tariffs specified in the PPA, i.e. average tariff of Rs5.00 across the four sites. Avantika Gupta Chief Operating Officer 31 July 2019 AVERAGE TARIFF REALISATION (INR/kWh) FY15 FY16 FY17 FY18 FY19 5.71 5.58 5.46 5.21 5.41 COST OF GENERATION PER UNIT (INR/kWh) FY15 FY16 FY17 FY18 FY19 3.09 267 2.52 3.43 3.59 GENERATION (million kWh)* FY15 FY16 FY17 FY18 FY19 1,816 3,163 2,346 2,493 2,471 PLANT LOAD FACTOR (%) (Group) FY15 FY16 FY17 FY18 FY19 91 70 76 77 75 PLANT LOAD FACTOR (%)(1) All India (Coal & Lignite based Plants) FY15 FY16 FY17 FY18 FY19 64 62 60 61 61 * Note: FY17 to FY19 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 2019 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 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. Maximising performance of existing power plants Reducing cost of capital and paying dividends 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. As of 31 March 2019, total borrowings were £80.4m. The gearing ratio (total borrowings minus cash)/(equity plus borrowings) was 34% (31 March 2018: 40%). Total borrowings (current and non-current portions) decreased by £13.1m due to repayment of term loans, partially offset by an increase in working capital loans through operations of the Chennai plant. The Company achieved a major milestone this year as the term loans with respect to Unit 1 of the Chennai plant (77 MW out of 414 MW) were fully repaid in December 2018. Based on term loans repayments schedule the Chennai plant will be debt free by the end of 2023. Power Ventures Plc Annual Report & Accounts 2019 1 1 Strategic Report Corporate Governance Financial Statements MARKET REVIEW Overview of the Indian Economy: Power is one of the most essential components of infrastructure crucial for economic growth and welfare of a nation like India. To sustain the rapid economic growth that India has seen over the last few years, power sector will continue to play a pivotal role. India is the third largest producer and consumer of electricity in the world behind China and US with a production of 1,249 billion units during FY 2018-19. Key macroeconomic indicators Gross Domestic Product (‘GDP’) India’s GDP increased from around Rs92 trillion in fiscal 2013 to about Rs141 trillion in fiscal 2019, which represented a compound annual growth rate (‘CAGR’) of approximately 7.3%. India’s GDP growth rate of 6.8% in fiscal 2019 was significantly in excess of the world average of 3.0% in 2018. The Indian economy was negatively impacted during the last two fiscal years. As per a Finance Ministry report declining growth of private consumption, weak increase in fixed investment and muted exports are some reasons for the slowdown. Also feebler agricultural and manufacturing growth, have resulted in a lower estimated real GDP growth rate of 6.8% in fiscal 2019. Current Account Deficit (‘CAD’) After reaching 4.8% of the GDP during fiscal 2013, India’s CAD has declined progressively, reaching 0.6% 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. During the last two fiscal years, CAD is widening mainly due to net terms of trade erosion caused by firming international commodity prices especially of crude oil, gold and coal. Inflation FICCI’s economic outlook survey says that Inflation is expected to remain moderate and the Wholesale Price Index (‘WPI’) based inflation rate is projected at 3.1% in 2019-20, with a minimum and maximum range of 2.1% and 4%, respectively. While, the Consumer Price Index (‘CPI’) based inflation has a median forecast of 4% for 2019-20, with a minimum and maximum range of 3.5% and 4.1%, respectively. India’s GDP increased from around Rs92 trillion in fiscal 2013 to about Rs141 trillion in fiscal 2019, which represented a compound annual growth rate (‘CAGR’) of approximately 7.3%. 12 Power Ventures Plc Annual Report & Accounts 2019 Strategic Report Corporate Governance Financial Statements Gross Domestic Product (GDP) (tn) 160 140 120 100 80 60 40 20 0 114 8.0% 123 8.2% 105 7.4% 141 132 7.2% 6.8% 98 6.4% 92 5.5% 2.5% 2.7% 2.8% 2.9% 2.6% 3.2% 3.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% FY 13/ CY 12 FY 14/ CY 13 FY 15/ CY 14 FY 16/ CY 15 FY 17/ CY 16 FY 18/ CY 17 FY 19E/ CY 18 India’s GDP growth (in tn) India’s GDP growth (%) World GDP growth (%) Source: Central Statistics Office (‘CSO’), World Bank Data Indicators CAD as a % of GDP (kWh) 4.8 4.3 6 5 4 3 2 1 0 1.7 1.3 1.1 0.6 2.1 1.8 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E Source: RBI Power Ventures Plc Annual Report & Accounts 2019 13 Strategic Report Corporate Governance Financial Statements MARKET REVIEW CONTINUED Outlook for the Indian economy India has emerged as the fastest growing major economy in the world and is expected to be one of the top three economic powers of the world over the next 10-15 years, backed by its strong democracy and partnerships. As per the International Monetary Fund (‘IMF’) the Indian economy is now expected to expand 7% in the year ending 31 March 2020. Economic growth is expected to accelerate to 7.2% in the following year, which is 30 basis point (bps) lower than the previous estimate for both the years due to a weaker than expected outlook for domestic demand. CRISIL Research report comments that, with a weak global environment, India will have to lean on domestic factors for growth and consequent to the government pursuing a fiscal consolidation path, the pickup in growth is expected to be gradual. In May 2019, RBI cut policy rates for the third consecutive time by 25 bps and changed its stance to accommodative from neutral, signalling that more rate cuts were in store to revive growth and support faltering consumer demand. Government of India’s recent initiatives The Government of India (‘GoI’) has undertaken a number of initiatives aimed at reviving private consumption, lowering the quantity of non-performing assets (‘NPAs’) of banks, and improving the investment climate to support domestic economic growth. Some of the key initiatives include: and Other Subsidies, Benefits and Services) Act, 2016 to distribute subsidies, rural wages and pensions through an electronic platform, and the Central Goods and Services Tax Act, 2017 to reduce the cascading effect of taxes; same period. Growth of energy produced from fiscal 2010 to 2019 is 5.5%. While India continues to remain a power deficit country, the deficit is reducing and in fiscal 2019, the energy deficit declined to 0.6%. • preparation of significant capacity augmentation plans in the power transmission and distribution infrastructure in order to improve electricity access; • improvement of the labour market through various programmes such as “Skilling India” and “Make in India”; and • development of the financial markets through initiatives such as the Jan Dhan Yojana, encouragement of higher FDI in insurance and a better monetary policy framework. Overview of the Indian power sector India is the third largest producer and third largest consumer of electricity in the world after China and the United States, with the installed power capacity reaching 358.9 GW as of June 2019. The country also has the fifth largest installed capacity in the world. Despite being among the top three power producers and consumers in the world, the per-capita electricity consumption in India was only 1,112 kWh in 2017. This was significantly lower than the world average and the lowest among the BRICS (‘Brazil, Russia, India, China and South Africa’) nations. This indicates the strong growth potential of the Indian power sector. Historically, power demand growth has largely followed GDP growth (see the chart below). Indian GDP is expected to be among the top three economies in the world and year-on-year growth estimated to be at c.7%. 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. • passage of key laws including the Insolvency and Bankruptcy Code, 2016 which aims to support expeditious resolution of bankruptcies, the Aadhaar (Targeted Delivery of Financial Demand for energy grew at a CAGR of approximately 4.87% over the period from fiscal 2010 to 2019, while energy availability grew even faster at a CAGR of 6.06% over the Factors influencing power d demand GDP growth Gradual improvement in discom financials, strengthening of distribution network & 100% intensive rural electrification nsformation Tran c capacity xpansion ex Large-scale infrastructure development – Smart cities, Dedicated Freight D Corridor etc. Electric vehicles, railway electrification and metro expansion Government push to industries / manufacturing under ‘Make in India’ campaign Energy effici iency T&D loss reduc ction Captive and o RES genera ff-grid ation Length of the arrow denotes the extent of impact D r i v e r s R R e s t r a n t s i Power Ventures Plc Annual Report & Accounts 2019 s r e v i r D i s s t n a r t s e R Source: CRISIL Research 14 Strategic Report Corporate Governance Financial Statements India’s per-capita power consumption was less than half of the world’s average in 2017: World Average Electricity Consumption for 2017 is 3,126 per capita (tn) 12,994 6,603 7,035 5,130 3,924 2,620 1,112 2,016 India 9,771 China 8,921 1 1 ,298 42,491 48,196 62,461 Brazil Russian Federation United Kingdom Germany USA GDP Per Capita in $ in 2018 Per capita power consumption (kWh) Source: World Bank Growth in per capita power consumption in India against per capita GDP (kWh) 1,400 1,200 1,000 800 600 400 200 0 129,901 140,000 118,263 107,341 89,716 98,405 80,518 71,609 64,732 819 884 914 957 1,010 1,075 1,122 1,149 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 120,000 100,000 80,000 60,000 40,000 20,000 0 Per capita power consumption (kWh) GDP per capita (Rs) Source: CEA & Ministry of Statistics Power Ventures Plc Annual Report & Accounts 2019 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 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 create 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 the financial year FY19. 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. The plant has a dedicated Steering Committee which report to the HSE Committee and is entrusted with the day to day responsibility on Health, Safety and Environment at the site. The responsibilities of the Steering Committee include adhering to the HSE compliance, planning training 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 Our continued and concerted efforts towards health and safety 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 the highest commitment from OPG’s 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. The responsibility of safety lies with OPG for all OPG employees and contractors. Annual health check-ups have revealed no occupational health issues amongst the workforce which is checked by a certified doctor from the Indian Government’s Inspectorate of Factories. Health and systems Our approach is to implement systematic change. The Chennai plant is certified with ISO 14000 and OHSAS 18001 (‘Occupational Health and Safety Management System’). This system helps in identifying hazard 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. Carbon monoxide in the coal handling plant is measured and monitored twice per month; lux 0.0TRIR In FY19 for the Chennai Plant, we had a Total Recordable Incident Report (‘TRIR’) of 0.0 and zero fatalities. 16 Power Ventures Plc Annual Report & Accounts 2019 Strategic Report Corporate Governance Financial Statements (‘SI unit of illuminance’) monitoring during day and night and Suspended Particulate Matter and Noise monitoring are carried out regularly. We have two dedicated air quality monitoring stations at the plant to continuously monitor the quality of the ambient air, particularly the Sox, Nox and particulate matter levels. Periodic health check-ups are carried out for the employees and contractors including CBS, Urine Routine, Pulmonary Function Test, Audiogram, Eye Check-up and Chest X-Ray. Training and supervision 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 Promoting a safety culture In an Indian context, creating a safety culture is essential to ensure personnel don’t underestimate the safety issues. Apart from the governance on safety, setting up systems, providing training, it is important to promote a safety culture through a mix of educating, disciplining and incentivising practices. 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 equipment. There is no consumption of POPs (‘Persistent Organic Pollutants’) in any of our operations. For example: Incentivising reporting of near misses National Safety Week celebrations Visitor safety guidelines on visitor passes Emergency response and reporting An onsite well equipped medical facility with a doctor and two nurses is available in case of any emergency Incident reporting format is specified and it is presented in the 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 an excellent safety record in certain areas in plants such as boiler ESP, Turbine and Generator, Transformer, ACC, Switch Yard and DM Plant II. Emissions Technology used at OPG plants is compliant to meet the present national emission standards. India is a signatory to the Paris Climate Agreement and to comply with that, all thermal power plants across the country have to meet revised stack emission standards in a staged manner by 2022. However, since 226 GW thermal capacity in the country has to undergo the changes, it is likely that standards will be renotified. The Company is evaluating various technologies with a view to be fully compliant to the revised emission norms by the stipulated timeline. Our stack emission monitoring analyser is continuous and has been linked to the State Pollution Control Board servers to relay real-time emissions data. A LED display board has been fixed at our main gate to displays the real-time emission levels. We also have 2 dedicated stations within our site to do continuous monitoring of ambient air quality parameters including Sox, Nox and SPM. This monitors that the air in the area surrounding the plant is within norms and there is no negative impact of the stack emissions in the ambient air. 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. 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. To control dust emissions, we have installed Electrostatic Precipitators before the stack that work at 99.9% efficiency. The efficient Electrostatic Precipitators help in controlling emissions well within the prescribed limits. Even in coal unloading areas, various dust suppression systems are in place. In coal crushing area, dust filters are installed to avoid 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 OPG’s management. Power Ventures Plc Annual Report & Accounts 2019 17 Strategic Report Corporate Governance Financial Statements SUSTAINABILITY REPORT CONTINUED dust generation. During the year to further control dust emission from coal movement and unloading, we have erected wind screens and 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. In line with this Paris Climate Agreement, the Indian Government charges a coal cess of INR 400 a tonne which is contributing towards decarbonizing India’s economy through this taxation as the corpus funds green ideas and green projects. The total cess paid during FY19 was approximately Rs 0.7 bn. III. Measuring and improving environmental performance Some of the important indicators that we measure are auxiliary power consumption, water quality and quantity, waste generated and recycled and emissions (Sox, Nox, SPM, GHG, CO), ambient air quality parameters (Sox, Nox, SPM). 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. IV. Energy OPG generates power for other consumers that 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 FY19 is 7.78%. We continuously strive to optimise the energy consumption of our internal facilities through energy management systems. V. Energy efficiency and conservation OPG recognises the significance of Energy Conservation for a better tomorrow. Some of the important energy saving steps we have taken at our plant are optimising the Flyash system, Conveyor running hours and ACC fans running performance. In-house, we developed an online monitoring system and optimised HP Heater performance. Terminal parameters are continuously monitored for heat rate improvement. During the year we undertook a compressor system audit and reduced the compressor utilisation by half. As part of energy saving measures, we are doing BFP stage reduction and switching to a LED lighting system which has both environmental and economic benefits. VI. 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. 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 Sewage Treatment Plant (‘STP’) and the treated water from STP is used for nurturing the green belt. There is no effluent that is released from the premises and OPG plants qualify as zero discharge plants. Quality of water at various entry and exit points in the system show that the pH is well within the prescribed limit. The plant processes were set up in a way that water could be recovered and sent back to the source. One of the major uses of water at any thermal plant is for cooling through water cooled condensers which is the norm for most power stations. However, at OPG, we save huge quantities of water due to the air cooled condensers which are employed to reduce water usage. These effectively reduce the water footprint per unit generated by 99% in comparison to conventional water cooled condensers. Air cooled condensers having 99.5% recovery of condensate along with air cooled heat exchange equipment effectively deliver huge water savings. To reduce the discharge of water from the system some other initiatives are the reverse osmosis unit for effluent treatment plant and sedimentation tank for backwashed water. VII. 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 This year we will be constructing a further rain water storage pit in order to further recharge the water table VIII. Disposal of waste Irresponsible disposal of hazardous waste is one of the most potentially dangerous acts that 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., that we generated have been disposed safely to the government authorised vendors. 99.9% To control dust emissions, we have installed Electrostatic Precipitators that work at 99.9% efficiency. 7,000 This year alone as part of a plantation drive we have planted 7,000 saplings both within the plant premises and in neighbouring villages. 18 Power Ventures Plc Annual Report & Accounts 2019 Strategic Report Corporate Governance Financial Statements IX. 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 areas. We annually plant 2,000 trees at each of the sites. And we have a three year plan to continue such annual plantations. This year alone as part of a plantation drive we have planted 7,000 saplings both within the plant premises and in neighbouring villages. Community support – OPG outreach As a corporate with a motto of ‘responsible operations’, we engage with communities around our area of operations. Our goal is 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 carried out the exercise of need assessment in 2012-13, we are continuing our interaction with them and all the support is continued as per the needs of the communities. 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 with the communities are transparency, accountability and gender inclusiveness. I. Education Through our long lasting association with the schools near our plant, we distributed school uniforms, shoes, bags and stationery to 1,080 children. We are continuing to fund salaries of 11 teachers in Government Schools adjacent to our plant, three girl child sponsorships, and 86 college/school fee funding has been provided to needy students. We have also additionally sponsored school and college fees of children of our contract employees who have shown academic excellence. we are establishing one new bore well in each of the five nearest villages to increase the availability of water in these communities. Additionally, we intend in the next three to five years to maintain and develop surrounding forest land in order to enhance the ecosystem, limit deforestation and consequently replenish the ground water levels. 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 centre and we continue to assist the centre by providing monthly maintenance charges such as rent, electricity, repair work etc. We have conducted local recruitment drives in the nearby villages and have employed educated graduates for technical positions in the plant. 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. Contribution for community places Many of the community relationships get strengthened around places of worship. Based on the needs of the communities, we have supported construction of a church in the neighbouring villages. Similarly, we have supported many temple initiatives in the villages around our operations based on the needs of the locals. II. Health We are continuing our health initiative in nearby villages, where we already renovated and upgraded the dispensaries. The number of patients treated every day in these dispensaries is around 50. We continued to provide the doctor’s salary, medicines, staff salary, supply of materials and nursing staff salary along with petrol reimbursement of the staff. We have improved sanitation facilities by constructing toilets in the nearby villages. During FY20 we have adopted a goal of making our campus and the surrounding five villages hepatitis free and as such we will be conducting health camps in a staged manner in all the villages to do detection and treatment of all people infected with hepatitis B and C. Additionally, at the camps we will inoculate all the people to ensure that they do not contract hepatitis in the future. Our aim is that in FY20 we will test, inoculate and treat 4,500 people. III. Local environment Some of the initiatives that were taken in the current year are: 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 During FY20, due to the acute water shortage in and around Chennai we are supplying drinking water tankers for one month in one of the neighbouring villages as a short-term relief measure. In order to provide a more long-term sustainable solution to the water shortage, 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 2019 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 2019 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 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. The 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. The Group monitors and reviews changes in the regulatory environment and its commitments under licences previously granted It continually ensures compliance with the conditions contained within individual licences and is mindful of the importance of complying with national and local legislation and standards The Group maintains an open and proactive relationship with the Indian government and its various agencies The Group is consulting with industry and legal experts as required and, if necessary, is prepared to defend its position in the courts 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. 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 2019 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 Dmitri 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 2019 Strategic Report Corporate Governance Financial Statements Ms. Avantika Gupta Chief Operating Officer P Michael (Mike) Grasby Independent Non-executive Director Jeremy Beeton Independent Non-executive Director Background and experience Background and experience Background and experience Ms. Avantika Gupta completed her LLB, Bachelor of Law from University College London in 2008. After completing her degree she was admitted as a Barrister- at-law, Gray’s Inn, England & Wales in 2009. She joined the Company in 2010 and served in the capacity of a legal manager, coordinating the litigation cases and commercial arbitration of OPG. She was also responsible for the development and commissioning of the 300 MW power project in Gujarat. She has been serving as the Legal Advisor to the Board and at present is the Chief Operating Officer of OPG Power Generation Pvt Ltd, Chennai. Mr P Michael Grasby is a Chartered Engineer, Fellow of the Institution of Engineering and Technology and Fellow of the Institution of Mechanical Engineers 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 Nomination Committees; he retired from the Drax Board in April 2011. He was also formerly a Director of Strategic Dimension Technical, a London-based executive recruitment company. Mr. J Beeton 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 John Laing and an independent Non-executive Director of WYG plc. Additionally, Mr. Beeton 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 2012 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 2019 23 Strategic Report Corporate Governance Financial Statements CORPORATE GOVERNANCE REPORT FINANCIAL YEAR ENDED 31 MARCH 2019 Introduction The Board is committed to good corporate governance practices. From 28 September 2018, AIM quoted companies are required to adopt and comply or explain non-compliance with a recognised corporate governance code. Although it is not mandatory to adopt the governance framework contained in the UK Corporate Governance Code published by the Financial Reporting Council (the ‘Code’), the Company remains committed to adopting the 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 years ended 31 March 2017 and 2018 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. It is the Board’s view that the Group is complying with the Corporate Governance Code apart from 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. In connection with Code provision A.4.2 above, in 2019 the Board introduced a process of annual self-evaluation of its performance and completed its first self-evaluation. It is still to institute a process of periodic evaluation of its principal committees and the individual Directors. 1. Division of responsibilities (A.2.1) Operation of the Board Mr Arvind Gupta, Company’s Executive Chairman is responsible for the overall business, strategic decisions and heads the Executive Committee. On 27 November 2018, Ms Avantika Gupta, Chief Operating Officer, was appointed to the Board. She is responsible for the day-to-day running of the operations. Jeremy Warner Allen joined the Board as Deputy Chairman on 8 November 2017. 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. Board of Directors The Board comprises the following individuals: Executive 1. Arvind Gupta (Executive Chairman); 2. Dmitri Tsvetkov (Chief Financial Officer); and 3. Avantika Gupta (Chief Operating Officer) (joined on 27 November 2018). Non-executive 1. Jeremy Warner Allen (Deputy Chairman); 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. 2. Michael Grasby; 3. Jeremy Beeton; and 4. Ravi Gupta (resigned on 29 May 2018). 24 Power Ventures Plc Annual Report & Accounts 2019 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 Mr Grasby to be independent in both character and judgement notwithstanding his length of service. Mr Allen and Mr Beeton are 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 four times during the year under review. In addition to that the Board had a strategy meeting of the Board and seven monthly conference calls. The Executive Committee (‘ExCo’) comprises the three 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 are 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. 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. 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. However, this year all Directors are up 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 Adviser. 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, in 2019 the Board performed self-evaluation of its performance and is to institute regular evaluation of its principal Committees and the individual Directors. Power Ventures Plc Annual Report & Accounts 2019 25 Strategic Report Corporate Governance Financial Statements CORPORATE GOVERNANCE REPORT CONTINUED 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 4 2 2 NA NA NA NA Avantika Gupta 4 2 2 1 NA NA NA NA Jeremy Warner Allen 4 4 2 2 NA NA NA NA Michael Grasby 4 4 2 2 2 2 1 1 Jeremy Beeton 4 4 2 2 2 2 1 1 Number of meetings held during the year 4 2 2 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 (Ravi Gupta was a member of the Audit Committee until his resignation in May 2018). Jeremy Warner Allen is considered to have continuing, relevant financial experience. The Executive Chairman, Chief Financial Officer and Chief Operating 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 2018; and • the unaudited results for the half-year FY19 to 30 September 2018. The Audit Committee considered relevant significant issues in relation to the financial statements taking into account business developments during the year and risks and matters raised in the external auditors’ FY18 final and FY19 planning reports to the Audit Committee. These issues were addressed as part of preparation of the FY19 financial statements. Remuneration Committee The Remuneration Committee currently consists of Jeremy Beeton, Jeremy Warner Allen and Michael Grasby (Ravi Gupta was a member of the Remuneration Committee until his resignation in May 2018). 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. The Nomination Committee regularly reviews the composition of the Board to ensure that the Board has an appropriate and diverse mix of skills experience, independence and knowledge of the Group. We recognise the benefits of gender diversity and in the current year we have appointed our first female Executive Director, Ms Avantika Gupta, COO, to the Board. 26 Power Ventures Plc Annual Report & Accounts 2019 Strategic Report Corporate Governance Financial Statements Accountability and audit Risk management and internal control The Board has overall responsibility for the Group’s system of internal control, which includes risk management. The Board has delegated the responsibility for reviewing the effectiveness of its internal control systems to the Audit Committee. The Audit Committee reviews these systems, policies and processes for tendering, authorisation of expenditure, fraud and the internal audit plan. The system of internal control is designed to manage, rather than eliminate, the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. The Board has instructed 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. The Board has carried out a robust assessment of the principal risks faced by the Group, including those that would threaten its business model, future performance, solvency and liquidity. A summary of the key risks facing the Group and mitigating actions is described on pages 20 and 21. Assurance BDO LLP was appointed as auditor for the Group for the financial year ended 31 March 2018 following a tender process. The Audit Committee reviewed the effectiveness of the external auditor and BDO LLP was reappointed in for the financial year ended 31 March 2019. The Audit Committee’s assessment was based on inputs obtained in the course of monitoring the integrity of the financial statements and the significant financial reporting issues and judgements underlying the financial statements, and on its direct interactions with the external auditors. The Audit Committee’s principal interactions with the auditors were its discussions of the audit work performed on areas of higher audit risk and the basis for the auditors’ conclusions on those areas. These interactions were supplemented by others that enabled them, for example, to gauge the depth of the auditors’ understanding of the company’s business. The Audit Committee’s review focused on the level of experience and expertise of the audit team, their objectivity and professional scepticism, and their preparedness to challenge management in a knowledgeable, informed and constructive manner. The Committee’s review also took account of feedback from management on the effectiveness of the audit process. 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. Having considered the effectiveness and independence of the external auditor as described above, the Audit Committee agreed to recommend to the Board that a resolution to reappoint BDO LLP as the Group’s external auditor should be put to shareholders at the AGM in November 2019. Visibility statement A statement on the Directors’ position regarding the Company as going concern is contained in the Directors’ Report on page 28. As part of annual strategy session, the directors have assessed the prospects of the Group over a period significantly longer than the 12 months required by the going concern. In this assessment, the Board has considered the principal risks faced by the Group, relevant financial forecasts and the availability of adequate funding. The Board conducted this assessment over a period to the end of calendar year 2023, primarily because this is a remaining period of repayment of term loans. Based on its review, the Board is satisfied the viability of the Group would be preserved and have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the four-year period of their assessment. Shareholder relations and the Annual General Meeting The Board is committed to maintaining an ongoing dialogue with its shareholders. The Directors are keen to build a mutual understanding of objectives with its principal shareholders. To this end, the 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 encourage 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 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. Power Ventures Plc Annual Report & Accounts 2019 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 2019. Principal activity OPG Power Ventures Plc (‘the Company’ or ‘OPGPV’ or ‘OPG’) 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 2019 are set out in the Consolidated Statement of Comprehensive Income. The Group profit for the year after tax was £14.8m (2018 loss after tax: £100.9m). A review of the Group’s activities is set out in the Executive Chairman’s statement. Directors’ liability insurance and indemnities The Company maintains liability insurance for the Directors and officers of OPG. 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. Neither the Group’s liability insurance nor indemnities provide 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 2019 was £57,024 comprising 387,910,200 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. Going concern The Board will be recommending a scrip dividend for the year ended 31 March 2019 in amount of 0.6 pence per share. A scrip dividend for the year ended 31 March 2018 in amount of 1 pence per share was paid for the year ended 31 March 2019. 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 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. Dmitri Tsvetkov Chief Financial Officer, Executive Director Avantika Gupta Chief Operating Officer, Executive Director (joined on 27 November 2018) Jeremy Warner Allen Deputy Chairman, Non-executive Director and Audit Committee Chairman Michael Grasby Non-executive Director Jeremy Beeton Non-executive Director, Remuneration and Nomination Committee Chairman Ravi Gupta Non-executive Director (resigned on 29 May 2018) 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 over a period of at least 12 months form the date of approval of the financial statements. Accordingly, the Board considers it appropriate to adopt the going concern basis of accounting in preparing the financial statements. 28 Power Ventures Plc Annual Report & Accounts 2019 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 31 July 2019 and signed on its behalf by: Philip Scales Company Secretary OPG Power Ventures Plc IOMA House Hope Street Douglas Isle of Man IM1 1AP 31 July 2019 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 31 March 2019: Percentage of voting rights and issued Number of share capital ordinary shares Gita Investments Limited and related parties1 52.1% 202,124,978 M&G Investment Management Limited 13.0% 50,385,996 River and Mercantile Asset Management LLP 4.8% 18,778,970 Premier Asset Management Limited 3.8% 14,917,798 British Steel Pension Scheme 3.6% 13,771,951 1 Beneficial interest in these shareholdings vests with Arvind Gupta and his family. Registered agent The registered agent of the Company at 31 March 2019 was FIM Capital Limited which 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 has expressed its willingness to continue in office as auditors and a resolution proposing its re-appointment will be proposed at the forthcoming AGM. Power Ventures Plc Annual Report & Accounts 2019 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 2019. 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) Regulations (2008) (the ‘Regulations’). Remuneration Committee The members of the Remuneration Committee are Jeremy Beeton, Jeremy Warner Allen and Michael Grasby (Ravi Gupta was a member of the Remuneration Committee until May 2018) 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 principal responsibilities of the Committee include: • assessing and setting compensation levels for Directors and senior managers; • reviewing the ongoing appropriateness and relevance of the remuneration policy 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 retention of key management and the alignment of management incentives with the creation of shareholder value are key objectives of this policy. The Group therefore sets out to provide competitive remuneration for all its management and employees appropriate to the business environment in the market in which it operates and in recognition of their contribution to Group performance. To achieve this, the remuneration package is based upon the following principles: • total rewards should be set to provide a fair and attractive remuneration package; • appropriate elements of the remuneration package should be designed to reinforce the link between performance and contribution to the Group’s success and reward; and • Executive Directors’ incentives should be aligned with the interests of shareholders. The remuneration strategy is designed to be in line with the Group’s fundamental values of fairness, competitiveness and equity, and also to support the Group’s corporate strategy. The Group seeks 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 Arvind Gupta and Michael Grasby 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. Long Term Incentive Plan (‘LTIP’) In April 2019, the Remuneration Committee of the Board of Directors has approved the introduction of an LTIP, which was subsequently revised in July 2019, for a performance-related award of 14 million new ordinary shares (representing approximately 3.6% of the Company’s issued share capital) in order to incentivise further the executives and senior management to deliver its planned strategy. The LTIP Shares will be awarded as Nominal Cost Share and will vest in three tranches subject to continued service with OPG until vesting and meeting the following share price performance targets, plant load factor and term loan repayments of the Chennai thermal plant. • 20% of the LTIP Shares shall vest upon meeting the target share price of 25.16p before the first anniversary for the first tranche, i.e. 24 April 2020, achievement of PLF during the period April 2019 to March 2020 of at least 70% at the Chennai thermal plant and repayment of all scheduled term loans; 30 Power Ventures Plc Annual Report & Accounts 2019 Strategic Report Corporate Governance Financial Statements • 40% of the LTIP Shares shall vest upon meeting the target share price of 30.07p before the second anniversary for the second tranche, i.e. 24 April 2021, achievement of PLF during the period April 2020 to March 2021 of at least 70% at the Chennai thermal plant and repayment of all scheduled term loans; • 40% of the LTIP Shares shall vest upon meeting the target share price of 35.00p before the third anniversary for the third tranche, i.e. 24 April 2022, achievement of PLF of at least 70% at the Chennai thermal plant during the period April 2021 to March 2022 and repayment of all scheduled term loans. The share price performance metric will be deemed achieved if the average share price over a fifteen day period exceeds the applicable target price. In the event that the share price or other performance targets do not meet the applicable target, the number of vesting shares would be reduced pro-rata, for that particular year. However, no LTIP Shares will vest if actual performance is less than 80 per cent of any of the performance targets in any particular year. The terms of the LTIP provide that the Company may elect to pay a cash award of an equivalent value of the vesting LTIP Shares. None of the LTIP Shares, once vested, can be sold until the third anniversary of the award, unless required to meet personal taxation obligations in relation to the LTIP award. FY19. In light of the lower FY19 cash dividend, Arvind Gupta, Executive Chairman, voluntarily waived his FY19 bonus £250,000 (50% of base salary) (FY18: waived bonus) and Dmitri Tsvetkov, CFO, and Avantika Gupta, COO, voluntarily agreed to reduce the bonus from 30% to 20% of base salary. Therefore Dmitri Tsvetkov was awarded a bonus of £48,000 (FY18: £50,000) and Avantika Gupta was awarded a bonus of £24,000 (FY18: n/a). These bonuses have been provided in the accounts for FY19. 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 Dmitri Tsvetkov and Ms Avantika Gupta (from 27 Nov 2018) are entitled to medical, insurance and other allowances and received £57,938 (FY18: £4,702), £19,095 (FY18: £9,200) and £521 (FY18: Nil) respectively. Annual bonus The Remuneration Committee considered bonuses for Executive Directors who were entitled to performance bonuses with respect to 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 500,000 Dmitri Tsvetkov Chief Financial Officer 26 June 2017 3 months’ prior written notice on either side 240,000 Avantika Gupta Chief Operating Officer 27 November 2018 12 months’ prior written notice on either side 120,000 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 3 months’ prior written notice on either side 50,000 Michael Grasby 6 May 2008 3 months’ prior written notice on either side 45,000 Martin Gatto (resigned in November 2017) 6 May 2008 3 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 3 months’ prior written notice on either side 45,000 Power Ventures Plc Annual Report & Accounts 2019 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 2019 31 March 2018 Gita Investments Limited1 199,884,417 183,600,557 Michael Grasby 11,233 10,318 Jeremy Warner Allen 1,088,691 303,729 Dmitri Tsvetkov 1,090,637 100,000 Jeremy Beeton 50,000 – Avantika Gupta (joined on 27 November 2018) – n/a Total 202,124,978 184,014,604 1 Beneficial interest in these shareholdings vests with Arvind Gupta and family. There were no changes to Directors’ interests between 31 March 2019 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 2019 other than their service contracts, details of which are given on page 31. Directors’ remuneration for the period 31 March 2018 to 31 March 2019 Salary, annual bonus and benefits Salary/fees Annual bonus Total FY19 Total FY18 £ £ £ £ Executive Chairman Arvind Gupta (paid in INR equivalent) 500,000* –* 500,000 750,000 Executive Director Dmitri Tsvetkov 240,000 48,000*** 288,000 290,000 Avantika Gupta (paid in INR equivalent) (joined on 27 November 2018) 40,691**** 24,000**** 64,691 n/a V Narayan Swami (paid in INR equivalent) (until 8 November 2017) n/a n/a n/a 224,824 Non-executive Directors Jeremy Warner Allen 50,000 – 50,000 22,500 Martin Gatto (until 8 November 2017) n/a n/a n/a 33,750 Michael Grasby 45,000 – 45,000 45,000 Ravi Gupta (until 29 May 2018) n/a n/a n/a **22,500 Jeremy Beeton 45,000 – 45,000 45,000 Total 920,691 72,000 992,691 1,433,574 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 FY19 salary: INR45.8m (FY18: INR64.1m). In FY19 Arvind Gupta voluntarily agreed to reduce his base salary to £500,000 and to waive his FY19 bonus (FY18: waived bonus). ** Ravi Gupta waived half of his FY18 annual remuneration. *** FY19 bonus provisions made, not paid. **** Avantika Gupta’s INR equivalent of FY19 salary: INR11m prorated from 27 November 2019 which is the date of her Board appointment. FY19 bonus provisions made, not paid. 32 Power Ventures Plc Annual Report & Accounts 2019 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 2018 Granted Cancelled Exercised 31 March 2019 exercise date Gita Investments Limited (Arvind Gupta) 16 July 2009 0.60 21,524,234 Nil Nil Nil 21,524,234 15 Jul 2019 Ravi Gupta 16 July 2009 0.60 250,000 Nil 250,000 Nil Nil 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 2019, the closing mid-market price of the Company’s shares was 21.75 pence. During the year under review, the Company’s closing mid-market share price ranged between a low of 10.3 pence and a high of 27.25 pence. This report has been approved by the Board of Directors of the Company. Jeremy Beeton Chairman, Remuneration Committee 31 July 2019 Power Ventures Plc Annual Report & Accounts 2019 33 Strategic Report Corporate Governance Financial Statements STATEMENT OF DIRECTORS’ RESPONSIBILITIES Directors’ responsibilities The Directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the Group financial statements. The Directors are required to prepare financial statements for the Group in accordance with International Financial Reporting Standards (‘IFRS’) as adopted for use in the European Union and have also elected to prepare financial statements for the Company in accordance with IFRS as adopted for use in the European Union. Company law requires the Directors to prepare such financial statements in accordance with IFRS and the Companies Act 2006. International Accounting Standard 1 requires that financial statements present fairly for each financial year the Group’s and Company’s financial position, financial performance and cash flows. This requires the fair presentation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board’s ‘Framework for the Preparation and Presentation of Financial Statements’. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable International Financial Reporting Standards. In preparing these financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Responsibility statement of the Directors in respect of the annual financial report We confirm that to the best of our knowledge: • the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and • the strategic report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy. Website publication The Directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the company's website in accordance with legislation in the Isle of Man governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein. On behalf of the Board by: Philip Scales Company Secretary OPG Power Ventures Plc IOMA House Hope Street Douglas Isle of Man IM1 1AP 31 July 2019 34 Power Ventures Plc Annual Report & Accounts 2019 Strategic Report Corporate Governance Financial Statements INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF OPG POWER VENTURES PLC Opinion We have audited the financial statements of OPG Power Ventures Plc (‘the Parent Company’) and its subsidiaries (‘the Group’) for the year ended 31 March 2019, 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 (‘IFRSs’) 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 2019 and of its profit for the year then ended; and • have been properly prepared in accordance with IFRS as adopted by the European Union. 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 principal risks, going concern and viability statement We have nothing to report in respect of the following information in the annual report, in relation to which the ISAs (UK) require us to report to you whether we have anything material to add or draw attention to: • the disclosures in the annual report that describe the principal risks and explain how they are being managed or mitigated; • the Directors’ confirmation in the annual report that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity; • the Directors’ statement in the financial statements about whether the Directors considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements and the Directors’ identification of any material uncertainties to the Group’s ability to continue to do so over a period of at least 12 months from the date of approval of the financial statements; • whether the Directors’ statement relating to going concern made in accordance with the UK Corporate Governance Code is materially inconsistent with our knowledge obtained in the audit; or • the Directors’ explanation in the annual report as to how they have assessed the prospects of the Group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. Key audit matters Key audit matters are those matters that, in our professional judgement, 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) that 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 Carrying value of thermal power station and solar assets The Group’s thermal power station and solar assets represent its most significant assets and total £250m as at 31 March 2019, including Held for Sale (‘HFS’) solar assets of £46m. Management is required to assess whether they consider there are any indications that the Group’s assets may be impaired as at 31 March 2019. In addition they are also required to carry out an impairment assessment of the £46m solar assets before these are classified as held for sale in line with IFRS 5 Non-current Assets Held For Sale and Discontinued Operations. These assessments are undertaken in line with IAS 36 Impairment of Assets. The future viability and recoverability of the power and solar assets are underpinned by the results achieved to date and the prediction of future value based on the future cash inflows generated from the assets. Management determined that the low market capitalisation is an indicator of impairment. Management therefore performed impairment assessments on each cash-generating unit comprising the thermal power station and the solar power plants. As detailed in Note 6, the assessment of the recoverable amount of the thermal power and solar assets required significant judgement and estimates by management. The carrying value of the thermal power and solar assets represented a significant risk for our audit given the significant judgement and estimates required regarding future operating results, coal prices and discount rates. Power Ventures Plc Annual Report & Accounts 2019 35 Strategic Report Corporate Governance Financial Statements INDEPENDENT AUDITOR’S REPORT CONTINUED How we addressed the key audit matter in the audit We reviewed management’s assessment of indicators of impairment and evaluated management’s impairment models for the thermal power assets and HFS solar assets against historical performance and our understanding of the operations. We critically challenged the key estimates and assumptions used by management. Our testing included comparison of the tariffs used in the models to underlying contracts, recalculation of discount rates and critical review of the forecast production and cost profiles against empirical performance and forward coal price data. We used our valuations expert to assist us in evaluating the appropriateness of the discount rates. We undertook a tour of the power plant and held discussions with the operational management over the operational performance of the plant to ensure the plant was performing as expected and that no operational issues are expected. We sensitised the models for reasonable movements in key judgement areas to ascertain whether there remained a reasonable expectation that there would remain adequate headroom in excess of the carrying values. Based on the procedures above, we found the Group’s assessment that its impairment models support the carrying value of the thermal power and solar assets to be appropriate. Our application of 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. FY2019 FY2018 Group materiality £850,000 £1,400,000 Basis for determining materiality 5% of the 1% of revenue Group’s profit from continuing before tax operations Group performance materiality £640,000 £600,000 Basis for performance materiality 75% of Group 50% of Group materiality materiality We have determined a profit-based measure is appropriate as the Group is generating stable profits. The use of profit before tax is also in line with other similar companies in the market and falls in line with FRC guidance. The three significant components were audited to a level of materiality ranging from £0.85m to £0.35m (2018: £1.3m to £1.0m). Such materialities were used to determine the financial statement areas that are included within the scope of our audit and the extent of sample sizes tested during the audit. The non-significant components were audited using a materiality of £0.68m (2018: £1.0m). We determined the Group performance materiality to be 75% of the Group materiality due to the low value of brought forward adjustments from the prior year, only one primary operating location and low value of historical adjustments. 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 £17,000 (2018: £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. In approaching the audit, we considered how the Group is organised and managed. We completed a full scope audit on the Group’s financial information and the three components we deemed significant. BDO India completed the component audits for the two significant components located in India with BDO UK reviewing all audit work. BDO UK completed the audit of the Group’s parent company. The Group audit team also visited the finance operations in India to undertake review procedures and discuss the key audit issues. The five non-significant components were subject to analytical review procedures undertaken by BDO India and reviewed by the Group audit team. 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 2019 Strategic Report Corporate Governance Financial Statements 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 on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities This description forms part of our auditor’s report. Use of our report This report is made solely to the Parent Company’s members, as a body, in accordance with our engagement letter dated 20 May 2019. Our audit work has been undertaken so that we might state to the Parent Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Parent Company and the Parent Company’s members as a body for our audit work, for this report, or for the opinions we have formed. BDO LLP London 31 July 2019 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). 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. In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other information and to report as uncorrected material misstatements of the other information where we conclude that those items meet the following conditions: • fair, balanced and understandable – the statement given by the Directors that they consider the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategies, is materially inconsistent with our knowledge obtained in the audit; or • Audit Committee reporting – the section describing the work of the audit committee does not appropriately address matters communicated by us to the Audit Committee; and • Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the Directors’ statement relating to the Group’s compliance with the UK Corporate Governance Code containing provisions that would for a company subject to the Listing Rules of the Financial Conduct Authority, be specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code. Responsibilities of Directors As explained more fully in the statement of Directors’ responsibilities 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 to cease operations, or have no realistic alternative but to do so. Power Ventures Plc Annual Report & Accounts 2019 37 Strategic Report Corporate Governance Financial Statements CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2019 As at As at (All amounts in £, unless otherwise stated) Notes 31 March 2019 31 March 2018 Assets Non-current assets Intangible assets 14 23,603 64,170 Property, plant and equipment 15 204,102,891 207,271,135 Investments accounted for using the equity method 16 – 11,219,378 Other long-term assets 17 518,553 3,000,333 Restricted cash 20 517,271 4,966,140 205,162,318 226,521,156 Current assets Inventories 19 7,151,366 9,716,280 Trade and other receivables 18 49,198,105 33,695,545 Other short-term assets 17 6,329,354 9,414,971 Current tax assets (net) 1,337,316 2,890,933 Restricted cash 20 23,030,599 20,318,985 Cash and cash equivalents 20 2,118,960 2,185,570 Assets held for sale 7(a)(b) 50,497,664 – 139,663,364 78,222,284 Total assets 344,825,682 304,743,440 Equity and liabilities Equity Share capital 21 57,024 52,378 Share premium 21 129,125,915 125,567,473 Other components of equity 2,401,287 1,193,995 Retained earnings 21,916,422 11,461,826 Equity attributable to owners of the Company 153,500,648 138,275,672 Non-controlling interests 882,759 854,752 Total equity 154,383,407 139,130,424 Liabilities Non-current liabilities Borrowings 23 51,495,208 69,636,532 Trade and other payables 24 14,235,485 4,994,049 Provision for pledged deposits 20(b) 12,627,381 12,553,684 Deferred tax liabilities (net) 13 2,380,115 1,457,209 80,738,189 88,641,474 Current liabilities Borrowings 23 28,869,722 23,829,415 Trade and other payables 24 45,474,814 52,331,422 Other liabilities 91,764 810,705 Liabilities classified as held for sale 7(b) 35,267,786 – 109,704,086 76,971,542 Total liabilities 190,442,275 165,613,016 Total equity and liabilities 344,825,682 304,743,440 The Notes are an integral part of these consolidated financial statements. The financial statements were authorised for issue by the Board of Directors on 31 July 2019 and were signed on its behalf by: Arvind Gupta, Executive Chairman Dmitri Tsvetkov, Chief Financial Officer 38 Power Ventures Plc Annual Report & Accounts 2019 Strategic Report Corporate Governance Financial Statements CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 MARCH 2019 Year ended 31 March 2018 Year ended “Restated” (Refer (All amount in £, unless otherwise stated) Notes 31 March 2019 Notes 5(a), 9(d)) Revenue 8 140,632,328 140,115,336 Cost of revenue 9 (91,753,763) (100,195,277) Gross profit 48,878,565 39,920,059 Other income 10 2,645,332 1,979,024 Distribution cost (8,476,933) (10,293,699) General and administrative expenses (6,955,960) (6,599,652) Expected credit loss on trade receivables 29 (790,437) (271,116) Depreciation and amortisation (6,064,374) (6,526,177) Operating profit before impairments 29,236,193 18,208,439 Impairment provision for loss on assets under construction 7(d) – (4,033,125) Operating profit 29,236,193 14,175,314 Finance costs 11 (14,586,917) (13,620,915) Finance income 12 2,207,480 1,623,500 Profit before tax 16,856,756 2,177,899 Tax expense 13 (1,819,387) (3,072,731) Profit/(loss) for the year from continued operations 15,037,369 (894,832) Loss from discontinued operations, including non-controlling interest 7(a)(b)(c) (989,493) (99,983,431) Profit/(loss) for the year 14,047,876 (100,878,263) Profit/(loss) for the year attributable to: Owners of the Company 14,020,364 (87,141,023) Non-controlling interests 27,512 (13,737,240) 14,047,876 (100,878,263) Earnings/(loss) per share from continued operations Basic earnings per share (in pence) 26 4.09 (0.25) Diluted earnings per share (in pence) 4.09 (0.25) Loss per share from discontinued operations Basic loss per share (in pence) 26 (0.23) (25.06) Diluted loss per share (in pence) (0.23) (25.06) Earnings/(loss) per share – Basic (in pence) 26 3.81 (24.68) – Diluted (in pence) 3.81 (24.68) Other comprehensive income/(loss) Items that will be reclassified subsequently to profit or loss Financial assets measured at FVPL – Reclassification to profit or loss – (73,351) Exchange differences on translating foreign operations 1,207,292 (20,871,345) Items that will not be reclassified subsequently to profit or loss Exchange differences on translating foreign operations 961 (555,331) Total other comprehensive income/(loss) 1,208,253 (21,500,027) Total comprehensive income/(loss) 15,256,129 (122,378,290) Total comprehensive income/(loss) attributable to: Owners of the Company 15,227,656 (108,085,719) Non-controlling interests 28,473 (14,292,571) 15,256,129 (122,378,290) The Notes are an integral part of these consolidated financial statements. The financial statements were authorised for issue by the Board of Directors on 31 July 2019 and were signed on its behalf by: Arvind Gupta, Executive Chairman Dmitri Tsvetkov, Chief Financial Officer Power Ventures Plc Annual Report & Accounts 2019 39 Strategic Report Corporate Governance Financial Statements CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2019 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 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) (15,778) (34,090) 34,090 – Dividends 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 (2,888,355) (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 At 1 April 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 Additions on consolidation of new subsidiary – – – – – (2,680) (2,680) (466) (3,146) Dividends (Note 21) 31,601,503 4,646 3,558,442 – – (3,563,088) – – – Transaction with owners 31,601,503 4,646 3,558,442 – – (3,565,768) (2,680) (466) (3,146) Profit for the year – – – – – 14,020,364 14,020,364 27,512 14,047,876 Other comprehensive income – – – – 1,207,292 – 1,207,292 961 1,208,253 Total comprehensive income – – – – 1,207,292 14,020,364 15,227,656 28,473 15,256,129 At 31 March 2019 387,910,200 57,024 129,125,915 6,650,305 (4,249,018) 21,916,422 153,500,648 882,759 154,383,407 During the year, in addition to the cash dividend the Company has paid a scrip dividend of 31,601,503 shares (2017: 4,799,742 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 31 July 2019 and were signed on its behalf by: Arvind Gupta, Executive Chairman Dmitri Tsvetkov, Chief Financial Officer 40 Power Ventures Plc Annual Report & Accounts 2019 Strategic Report Corporate Governance Financial Statements CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 MARCH 2019 Year ended 31 March 2018 Year ended “Restated” (Refer (All amounts in £, unless otherwise stated) Notes 31 March 2019 Notes 5(a), 9(d)) Cash flows from operating activities Profit/(loss) before income tax 15,867,263 (97,805,532) Adjustments for: Loss from discontinued operations, net 7(a) 989,493 99,983,431 Unrealised foreign exchange gain (416,338) (64,747) Financial costs 14,586,917 13,620,915 Financial income (2,207,480) (1,623,500) Depreciation and amortisation 6,064,374 6,526,177 Impairment provision for loss on assets under construction 7(d) – 4,033,125 Expected credit loss on Trade receivables 790,437 271,116 (Gain) on sale of shares in AFS investments – (159,998) Changes in working capital Trade and other receivables (16,021,881) 4,657,219 Inventories 2,564,914 1,943,460 Other assets 4,752,087 (668,761) Trade and other payables 2,384,828 26,316,454 Other liabilities (669,762) 807,855 Cash generated from continuing operations 28,684,851 57,837,214 Taxes paid (584,390) (823,728) Cash provided by (used for) operating activities of continuing operations 28,100,461 57,013,486 Cash provided by (used for) operating activities of discontinued operations (8,256,479) 24,239,702 Net cash provided by (used for) operating activities 19,843,983 81,253,188 Cash flows from investing activities Purchase of property, plant and equipment (including capital advances) (1,515,742) (1,090,689) Interest received 2,207,480 1,547,138 Movement in restricted cash (1,737,255) (16,103,811) Sale of investments 785,222 2,676,801 Purchase of investments – (14,972,747) Advances to associates – (1,985,863) Cash from/(used in) investing activities of continuing operations (260,295) (29,929,171) Cash from/(used in) investing activities of discontinued operations (4,346,681) 442,963 Net cash from/(used in) investing activities (4,606,976) (29,486,208) Cash flows from financing activities Proceeds from borrowings (net of costs) 7,535,858 4,099,459 Repayment of borrowings (20,636,875) (25,070,007) Dividend paid – (1,623,539) Finance costs paid (Notes 9 and 11) (14,835,536) (13,556,168) Cash used in financing activities of continuing operations (27,936,553) (36,150,255) Cash used in financing activities of discontinued operations 12,717,446 (25,127,046) Net cash used in financing activities (15,219,107) (61,277,301) Net decrease in cash and cash equivalents from continuing operations (96,387) (9,065,940) Net decrease in cash and cash equivalents from discontinued operations 114,286 (444,381) Net decrease in cash and cash equivalents 17,899 (9,510,321) Cash and cash equivalents at the beginning of the year 2,185,570 13,086,123 Cash and cash equivalents – solar business 231,953 – Exchange differences on cash and cash equivalents 29,769 (843,405) Cash and cash equivalents of the discontinued operations (346,231) (546,827) Cash and cash equivalents at the end of the year 2,118,960 2,185,570 Power Ventures Plc Annual Report & Accounts 2019 41 Strategic Report Corporate Governance Financial Statements CONSOLIDATED STATEMENT OF CASH FLOWS CONTINUED Disclosure of changes in financing liabilities: Analysis of changes in net debt (All amounts in £, unless otherwise stated) 1 April 2018 Cash flows Other changes 31 March 2019 Working capital loan 3,426,622 7,535,858 (528,587) 10,433,893 Secured loan due within one year 20,402,793 (1,966,964) – 18,435,829 Borrowings grouped under current liabilities 23,829,415 5,568,894 (528,587) 28,869,722 Secured loan due after one year 69,636,532 (18,669,911) 528,587 51,495,208 Borrowings grouped under non-current liabilities 69,636,532 (18,669,911) 528,587 51,495,208 42 Power Ventures Plc Annual Report & Accounts 2019 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 (‘IFRSs’) 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 2019 were approved and authorised for issue by the Board of Directors on 31 July 2019. 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 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. Management does not expect any significant impact of IFRS 16 on Group’s consolidated financial statements. b) Changes in accounting standards i) IFRS 15 “Revenue from Contracts with Customers” This standard replaces IAS 11 “Construction contracts”, IAS 18 “Revenue”, IFRIC 18 “Transfers of Assets from Customers” and several other revenue related interpretations previously adopted by the Group. The core principle of IFRS 15 is that an entity recognises revenue that reflects the expected consideration for goods or services provided to a customer under contract, over the performance obligations they are being provided. The standard has introduced a five-step model as the framework for applying that core principle. The Group has applied the “Modified Retrospective” transition approach. Under this method, the standard can be applied either to all contracts at the date of initial application or only to contracts that are not completed at this date. The Company elected to apply the standard to all contracts as at 1 April 2018. However, the application of IFRS 15 does not have any impact on the recognition and measurement of revenue and related items. Power Ventures Plc Annual Report & Accounts 2019 43 Strategic Report Corporate Governance Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 4. Recent accounting pronouncements continued ii) IFRS 9 “Financial Instruments” IFRS 9 “Financial Instruments” (2014) replaces the previous regulations of IAS 39 on financial instruments. The standard contains amended regulations on measurement categories for financial assets and includes some smaller changes in relation to the measurement of financial liabilities. It also contains regulations on impairments, which are based on expected losses for the first time. The new regulations on hedge accounting should improve the presentation of risk management activities in the consolidated financial statements. In line with the transitional regulations of IFRS 9, the prior-year carrying amounts are not adjusted. IFRS 9 includes new rules for classifying financial instruments, which basically envisage four valuation categories: • debt instruments measured at amortised cost; • debt instruments measured at fair value through other comprehensive income, the changes in value of which are recognised with an effect on income (recycling) upon disposal; • equity instruments measured at fair value through other comprehensive income, the changes in value of which remain in equity and are not recognised in profit or loss (no recycling) upon disposal; and • financial instruments measured at fair value through profit or loss. In addition to the new regulations regarding the statement of financial assets, IFRS 9 includes minor amendments to the statement of financial liabilities. These amendments have no impact on the Group’s consolidated financial statements. Furthermore, IFRS 9 introduces new regulations for hedge accounting, which aim to improve the presentation of risk management activities in consolidated financial statements. For this purpose, IFRS 9 extends the scope of underlying transactions qualifying for hedge accounting and introduces a new approach for assessing effectiveness, among other things. Overall, the new regulations regarding hedge accounting do not have any material effects on the Group’s consolidated financial statements. 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 financial assets measured at FVPL. 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. Net foreign exchange loss is attributable to foreign currency variations on import of coal financed under letter of credit for power plant operation and was reclassified from General and Administrative expenses to finance costs in the Consolidated Statement of Comprehensive Income (Note 9(d)), as all letter of credit related charges and interest are included in finance cost. During FY19, results of operations of joint venture Padma Shipping Limited were reclassified to discontinued operations and accordingly the comparatives for FY18 were restated to discontinued operations (£3,282,306) from Impairment provision for loss on investments and assets under construction (£3,247,668) and from share of loss from equity accounted investments (£34,638) (Note 7(a)). During FY2018, 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(c)). During FY19, the Company obtained a right to exercise an option to buy additional 30% equity interest in solar companies. This right, in combination with other rights, provided substantive potential voting rights and investments in solar companies were reclassified from associates to subsidiaries. During FY19, results of operations of associates Avanti Solar Energy Private Limited, Mayfair Renewable Energy Private Limited, Avanti Renewable Energy Private Limited and Brics Renewable Energy Private Limited were reclassified to discontinued operations. After evaluation of all options, the Company decided that the most efficient way to maximise shareholders’ value from solar operations is to dispose of solar companies and it initiated a process of disposition of solar companies which met all conditions of IFRS 5 for classification of solar business as Assets held for sale at 31 March 2019 (Note 7(b)). Going Concern As at 31 March 2019 the Group had £2.1m in cash and net current assets of £30.0m. The Directors and management have prepared a cash flow forecast to July 2020, 12 months from the date this report has been approved. The Group experiences sensitivity in its cash flow forecasts due to the exposure to potential increase in USD denominated coal prices and a decrease in the value of the Indian Rupee. 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. 44 Power Ventures Plc Annual Report & Accounts 2019 Strategic Report Corporate Governance Financial Statements 5. Summary of significant accounting policies continued 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 2019. 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. 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 to or received from and the book value of the share of the net assets is recognised in ‘other reserves’ 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 2019 March 2018 March 2019 March 2018 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 73.49 72.72 99.91 99.91 Bhadreshwar Vidyut Private Limited (‘BVP’) * GPIPL India (*) (*) (*) (*) Samriddhi Solar Power Private Limited OPGPG India 73.49 72.72 99.90 99.90 Samriddhi Surya Vidyut Private Limited OPGPG India 73.49 72.72 99.90 99.90 OPG Surya Vidyut Private Limited OPGPG India 73.49 72.72 99.90 99.90 Powergen Resources Pte Ltd OPGPV Singapore 98.67 98.64 100.00 100.00 Avanti Solar Energy Private Limited ** OPGPG India 31 Associate 31% 31 Associate 31% Mayfair Renewable Energy Private Limited ** OPGPG India 31 Associate 31% 31 Associate 31% Avanti Renewable Energy Private Limited ** OPGPG India 31 Associate 31% 31 Associate 31% Brics Renewable Energy Private Limited ** OPGPG India 31 Associate 31% 31 Associate 31% * During the previous 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(c) Loss from discontinued operations and impairment provision), therefore the investment in BVP was classified as financial instruments measured at fair value through profit or loss and BVP financial statements were consequently deconsolidated as on 31 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 the consolidated income statement. ** During FY19, the Group obtained a right to exercise an option to buy additional equity interest in solar companies. This right, in combination with other rights, provided substantive potential voting rights and investments in solar companies were reclassified from associates to subsidiaries. Power Ventures Plc Annual Report & Accounts 2019 45 Strategic Report Corporate Governance Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 5. Summary of significant accounting policies continued ii) Financial assets measured at FVPL (Assets held for sale) – Joint ventures (Note 7(a)) Joint venture Venturer incorporation March 2019 March 2018 March 2019 March 2018 Country of % Voting right % Economic interest Padma Shipping Limited (‘PSL’) OPGPV/OPGPG Hong Kong 50 50 50 50 e) Foreign currency translation The functional currency of the Company is the Great Britain Pound Sterling (‘GBP’). 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 GBP. 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 GBP 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 GBP are the closing rate as at 31 March 2019: 90.28 (2018: 90.81) and the average rate for the year ended 31 March 2019: 91.60 (2018: 85.40). f) Revenue recognition The Group’s accounting policies for Revenue have changed during the year, following adoption of IFRS 15 (Note 4(b)(i)), however, the application of IFRS 15 does not have any impact on the recognition and measurement of revenue and related items. Revenue from contracts with customers is recognised to the extent that it reflects the expected consideration for goods or services provided to the customer under contract, over the performance obligations they are being provided. For each separable performance obligation identified, the Group determines whether it is satisfied at a “point in time” or “over time” based upon an evaluation of the receipt and consumption of benefits, control of assets and enforceable payment rights associated with that obligation. If the criteria required for “over time” recognition are not met, the performance obligation is deemed to be satisfied at a “point in time”. Revenue principally arises as a result of the Group’s activities in electricity generation and distribution. Supply of power and billing satisfies performance obligations. The supply of power is invoiced in arrears on a monthly basis and generally the payment terms within the Group are 30 days. 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 and reflecting the applicable customer tariff after deductions or discounts. 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. 46 Power Ventures Plc Annual Report & Accounts 2019 Strategic Report Corporate Governance Financial Statements 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 IFRS 9 “Financial Instruments” (2014) replaces the previous regulations of IAS 39 on financial instruments. The standard contains amended regulations on measurement categories for financial assets and includes some smaller changes in relation to the measurement of financial liabilities. It also contains regulations on impairments, which are based on expected losses for the first time. The new regulations on hedge accounting should improve the presentation of risk management activities in the consolidated financial statements. In line with the transitional regulations of IFRS 9, the prior-year carrying amounts are not adjusted. The application of the new classification and valuation regulations and the recognition of the associated effects of the changeover occur through the adjustment of the carrying amounts of the financial assets and liabilities as well as retained earnings as of 1 April 2018. IFRS 9 includes new rules for classifying financial instruments, which basically envisage four valuation categories: • debt instruments measured at amortised cost; • debt instruments measured at fair value through other comprehensive income, the changes in value of which are recognised with an effect on income (recycling) upon disposal; • equity instruments measured at fair value through other comprehensive income, the changes in value of which remain in equity and are not recognised in profit or loss (no recycling) upon disposal; and • financial instruments measured at fair value through profit or loss. IFRS 9 also contains new regulations on the impairment of financial assets, which stipulate that such be based on expected losses. 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’. 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 costs, 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. Power Ventures Plc Annual Report & Accounts 2019 47 Strategic Report Corporate Governance Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 5. Summary of significant accounting policies continued Land is not depreciated. Depreciation on all other assets is computed on a 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 four 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. 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. 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. 48 Power Ventures Plc Annual Report & Accounts 2019 Strategic Report Corporate Governance Financial Statements 5. Summary of significant accounting policies continued 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) Non-current 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 an 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 shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity share. Power Ventures Plc Annual Report & Accounts 2019 49 Strategic Report Corporate Governance Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 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 value 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. 50 Power Ventures Plc Annual Report & Accounts 2019 Strategic Report Corporate Governance Financial Statements 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 the 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. y) Segment reporting The Group is primarily involved in the business of power generation. Considering the nature of the Group’s business, as well as based on reviews by the chief operating decision maker to make decisions about resource allocation and performance measurement, there are only two reportable segments in accordance with the requirements of IFRS 8. 6. Significant accounting judgements, estimates and assumptions The preparation of financial statements in conformity with IFRS requires management to make certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The principal accounting policies adopted by the Group in the consolidated financial statements are as set out above. The application of a number of these policies requires the Group to use a variety of estimation techniques and apply judgement to best reflect the substance of underlying transactions. The Group has determined that a number of its accounting policies can be considered significant, in terms of management judgement that has been required to determine the various assumptions underpinning their application in the consolidated financial statements presented which, under different conditions, could lead to material differences in these statements. The actual results may differ from the judgements, estimates and assumptions made by management and will seldom equal the estimated results. a) Judgements The following are significant management judgements 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 FY19, the Company obtained a right to exercise an option to buy additional 30% equity interest in the solar companies. This right, in combination with other rights, provided substantive potential voting rights and the investments in the solar companies were reclassified from associates to subsidiaries. Subsequently, the results of operations of associates Avanti Solar Energy Private Limited, Mayfair Renewable Energy Private Limited, Avanti Renewable Energy Private Limited and Brics Renewable Energy Private Limited were reclassified to discontinued operations. Non-current assets held for sale and discontinued operations The Group exercises judgement in whether assets are held for sale. After evaluation of all options, the Company decided that the most efficient way to maximise shareholders’ value from solar operations is to dispose of the solar companies and it initiated the process of disposition of the solar companies. Under IFRS 5, such a transaction meets the ‘Asset held for sale’ when the transaction is considered sufficiently probable and other relevant criteria are met. Management considers that all the conditions under IFRS 5 for classification of the solar business as held for sale have been met as at 31 March 2019 and expects the interest in the solar companies to be sold within the next 12 months. The investment in the joint venture Padma Shipping Limited and associated advance has been presented as an asset held for sale following the process of sale of the second vessel as mentioned in Note 7(a). During FY18 the Group has sold a 5% 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 India in accordance with the directions of Bee Electric. Sale of the 5% stake and execution of the 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. Recoverability of deferred tax assets: The recognition of deferred tax assets requires assessment of future taxable profit (see Note 5(h)). Power Ventures Plc Annual Report & Accounts 2019 51 Strategic Report Corporate Governance Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 6. Significant accounting judgements, estimates and assumptions continued 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. 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. At the end of each reporting period a review of the allowance for impairment of trade receivables is performed. Trade receivables do not contain a significant financing element, and therefore expected credit losses are measured using the simplified approach permitted by IFRS 9, which requires lifetime expected credit losses to be recognised on initial recognition. A provision matrix is utilised to estimate the lifetime expected credit losses based on the age, status and risk of each class of receivable, which is periodically updated to include changes to both forward-looking and historical inputs. Assets held for sale – Financial assets measured at FVPL Valuation of investment in joint venture Padma Shipping is based on estimates and subject to uncertainties (Note 7(a)). Financial assets measured at FVPL Management applies valuation techniques to determine the fair value of financial assets measured at FVPL where active market quotes are not available. This requires management to develop estimates and assumptions based on market inputs, using observable data that market participants would use in pricing the asset. Where such data is not observable, management uses its best estimate. Estimated fair values of the asset may vary from the actual prices that would be achieved in an arm’s length transaction at the reporting date. Other financial liabilities Borrowings held by the Group are measured at amortised cost (Note 5(j) and Note 29). ii. 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; and iii. 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. Non-current assets held for sale and discontinued operation Non-current assets held for sale and discontinued operation consists of: Assets held for sale Liabilities classified as held for sale Loss from discontinued operations At 31 At 31 At 31 At 31 March 2019 March 2018 March 2019 March 2018 For FY 19 For FY 18 i Investments in Joint Venture (7(a)) 918,432 – – – 1,010,200 3,282,306 ii Solar subsidiaries (7(b)) 49,579,232 – 35,267,786 – (20,708) 658 iii BVP (7(c)) – – – – – 96,700,467 Total 50,497,664 – 35,267,786 – 989,493 99,983,431 a) Investment in Joint Venture Padma Shipping Limited – classified as held for sale 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 agreement, 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 FY18, the Joint Venture partner due to a change in their group strategy requested for the Joint Venture to be terminated and as the vessels were still under construction OPG agreed with this proposal. During FY19 one of the vessels was sold by the shipping yard and during FY19 the second vessel was in the process of being sold. The Padma Joint Venture will be terminated and dissolved following the sale of the second vessel. As at 31 March 2019, the investment was therefore reclassified to assets held for sale. The second vessel was sold post year end. 52 Power Ventures Plc Annual Report & Accounts 2019 Strategic Report Corporate Governance Financial Statements 7. Non-current assets held for sale and discontinued operation continued OPG has invested approximately £3,484,178 in equity and £1,727,418 to date as advance (Note 17) and accordingly the Joint Venture has been reported using the equity method as per the requirements of IFRS 11. The Company provided a corporate guarantee for 50% of the equity portion of the cost of construction of the vessels remaining balance in the amount of £2,006,035 (equivalent of $2,800,000) which was recognised in these financial statements as part of the prior year provision of £3,247,668 as the shipping yard requested payment. Following the sale of the first vessel the corporate guarantee of $2,800,000 was effectively released. During the year the Company recognised an impairment provision of £1,000,000 against its advance of £1,727,418 (Note 17) on account of the impending dissolution of the Joint Venture and £10,200 share of loss. The carrying value of OPG’s investment in the Padma Joint Venture including the advance provided of £918,432 was classified as Assets held for sale in the Consolidated Statement of Financial Position as at 31 March 2019 and the results of Padma’s operations were included in Loss from discontinued operations in the Consolidated Statement of Comprehensive Income. b) Assets held for sale and discontinued operations of solar subsidiaries During FY19, the Company obtained a right to exercise an option to buy an additional 30% equity interest in the solar companies following the achievement of the conditions precedent. This right, in combination with other rights, provided substantive potential voting rights and the investments in the solar companies were reclassified from associates to subsidiaries in the year. During FY19, the results of the operations of Avanti Solar Energy Private Limited, Mayfair Renewable Energy Private Limited, Avanti Renewable Energy Private Limited and Brics Renewable Energy Private Limited were therefore consolidated. After evaluation of all the options, the Company decided that the most efficient way to maximise shareholders’ value from the solar operations is to dispose of the solar companies and the process of disposition of the solar companies was initiated. Management expects the interest in the solar companies to be sold within the next 12 months. Accordingly, the assets and liabilities relating to Avanti Solar Energy Private Limited, Mayfair Renewable Energy Private Limited, Avanti Renewable Energy Private Limited and Brics Renewable Energy Private Limited have been presented as held for sale. There was no gain or loss associated with the reclassification. Non-current assets held for sale and discontinued operations As at As at (a) Assets of disposal group classified as held for sale 31 March 2019 31 March 2018 Property, plant and equipment 46,442,294 – Trade and other receivables 578,721 – Other short-term assets 499,527 – Restricted cash 1,712,450 – Cash and cash equivalents 346,240 – Investment in Joint Venture classified as held for sale 918,432 – Total 50,497,664 – As at As at (b) Liabilities of disposal group classified as held for sale 31 March 2019 31 March 2018 Non-current liabilities Borrowings 17,194,745 – Trade and other payables 7,710,956 – Deferred tax liability 1,666,495 – Current liabilities Trade and other payables 3,958,192 – Other liabilities 4,737,398 Total 35,267,786 – (c) Analysis of the results of discontinued operations is as follows: For FY 19 For FY 18 Revenue 5,007,509 – Operating profit before impairments 4,321,229 – Finance cost (2,294,669) – Current tax (363,372) – Deferred tax (1,642,480) – Share of loss from associates – (658) Gain/(loss) after tax of discontinued operations attributable to owners of the Company 20,708 (658) Power Ventures Plc Annual Report & Accounts 2019 53 Strategic Report Corporate Governance Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 7. Non-current assets held for sale and discontinued operation continued c) Loss from discontinued operations of BVP During the previous year, the Group sold a 5% equity stake in its special purpose vehicle BVP to a local firm, Bee Electric Power Private Limited (‘Bee Electric’), that 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 buy back 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 the 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 and 31 March 2019. Fair valuation of retained investments in BVP of £40,453 is on the basis of the recent transaction. Starting from FY18-19, the results of operations of BVP are not consolidated in OPG Group’s consolidated financial statements. The FY18 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) Income statement of BVP Year ended 31 March 2018 Revenue 91,536,946 Cost of revenue (69,294,346) Gross profit 22,242,600 Other income 393,243 Distribution cost (14,805,606) General and administrative expenses (1,848,316) Depreciation (6,143,974) Operating profit (162,053) Finance costs (28,343,101) Finance income 514,727 Loss before tax (27,990,427) Tax income/(expense) – Loss after tax (27,990,427) 54 Power Ventures Plc Annual Report & Accounts 2019 Strategic Report Corporate Governance Financial Statements 7. Non-current assets held for sale and discontinued operation continued d) FY18 impairment of assets under construction of £4,033,125 During the previous 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 did not expect any economic benefits out of same. The plant and machinery were purchased along with the land and is of no use, hence was 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 are two operating segments, thermal power and solar power, following the reclassification of the interest in the solar companies as subsidiaries as detailed in Note 7(b). The solar power business was classified as held for sale subsequently. There are no geographical segments as all revenues arise from India. Revenue on account of sale of power to one customer exceeding 10% of total sales revenue amounts to £24,117,088 (2018: £18,894,360). Segmental information disclosure Continuing operations Discontinued operations Thermal Solar Segment revenue FY19 FY18 FY19 FY18 Sales 140,632,328 140,115,336 5,007,509 – Total 140,632,328 140,115,336 5,007,509 – Depreciation (6,064,374) (6,526,177) – – Impairment – (4,033,125) – – Profit/(loss) from operation 29,323,147 14,175,314 4,009,485 (658) Finance income 2,207,480 1,623,500 311,744 – Finance cost (14,419,198) (13,620,915) (2,294,669) – Tax expenses (1,819,387) (3,072,731) (2,005,852) – Profit/(loss) for the year 15,292,042 (894,832) 20,708 (658) Assets 294,328,018 304,743,440 49,579,232 – Liabilities 155,174,489 165,613,016 35,267,786 – 9. Costs of inventories and employee benefit expenses included in the consolidated statements of comprehensive income a) Cost of revenue 31 March 2019 31 March 2018 Included in cost of revenue: Cost of fuel consumed 88,754,095 95,465,961 Other direct costs 2,999,668 4,729,316 Total 91,753,763 100,195,277 Power Ventures Plc Annual Report & Accounts 2019 55 Strategic Report Corporate Governance Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 9. Costs of inventories and employee benefit expenses included in the consolidated statements of comprehensive income continued b) Employee benefit expenses forming part of general and administrative expenses are as follows: 31 March 2019 31 March 2018 Salaries and wages 3,302,162 3,221,663 Employee benefit costs* 251,520 702,020 Employee stock option – – Total 3,553,682 3,923,683 * Includes £Nil (2018: 23,994) being expenses towards gratuity which is a defined benefit plan (Note 5(w)). c) Auditor’s remuneration for audit services amounting to £80,000 (2018: £90,000) is included in general and administrative expenses. d) Foreign exchange movements (realised and unrealised) included in the finance costs are as follows: 31 March 2019 31 March 2018 Foreign exchange realised – loss 3,543,163 624,196 Foreign exchange unrealised – (gain)/loss (416,338) 64,747 Total 3,126,825 688,943 Net foreign exchange loss is attributable to foreign currency variations on import of coal financed under letters of credit for power plant operation and was reclassified from general and administrative expenses to finance costs in the Consolidated Statement of Comprehensive Income (Note 5(a)), as all letters of credit related charges and interest are included in finance cost. 10. Other income and expenses Other income 31 March 2019 31 March 2018 Sale of coal 887,815 162,394 Sale of fly ash 48,910 53,198 Power trading commission and other services 1,217,369 558,657 Sale of solar power plant system to associates (net of cost) (Note 25) – 44,505 Others 491,238 1,160,270 Total 2,645,332 1,979,024 11. Finance costs Finance costs are comprised of: 31 March 2019 31 March 2018 Interest expenses on borrowings 10,210,464 12,237,962 Net foreign exchange loss (Note 9) 3,126,825 688,943 Other finance costs 1,249,628 694,010 Total 14,586,917 13,620,915 Other finance costs include charges and costs related to LCs for import of coal and other charges levied by bank on transactions. 56 Power Ventures Plc Annual Report & Accounts 2019 Strategic Report Corporate Governance Financial Statements 12. Finance income Finance income is comprised of: 31 March 2019 31 March 2018 Interest income on bank deposits and advances 2,192,555 1,519,407 Profit on disposal of financial instruments* 14,925 104,093 Total 2,207,480 1,623,500 * Financial instruments represent the mutual funds held during the year. 13. Tax expense Tax reconciliation Reconciliation between tax expense and the product of accounting profit multiplied by India’s domestic tax rate for the years ended 31 March 2019 and 2018 is as follows: 31 March 2019 31 March 2018 Accounting profit/(loss) before taxes 16,856,756 (1,105,065) Enacted tax rates 34.94% 34.61% Tax expense/(benefit) on profit/(loss) at enacted tax rate 5,890,425 (382,441) Exempt income due to tax holiday (685,895) (4,921,430) Foreign tax rate differential 303,096 (616,602) Unused tax losses brought forward and carried forward (1,216,052) 7,709,658 Non-taxable items (2,281,621) (1,447,546) MAT credit entitlement (190,567) 2,731,117 Others – (25) Actual tax for the period 1,819,387 3,072,731 31 March 2019 31 March 2018 Current tax 1,281,584 341,614 Deferred tax 2,543,655 2,731,117 Less: reclassified to loss from discontinuing operations (2,005,852) – Tax reported in the statement of comprehensive income 1,819,387 3,072,731 The Company is subject to Isle of Man corporate tax at the standard rate of 0%. 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. There has been revision in rate of cess applicable on corporate income tax in India as applicable for the year. Further, a substantial portion of the profits of the Group’s India operations are exempt from Indian income taxes being profits attributable to generation of power in India. Under the tax holiday the taxpayer can utilise an exemption from income taxes for a period of any 10 consecutive years out of a total of 15 consecutive years from the date of commencement of the operations. However, the entities in India are still liable for Minimum Alternate Tax (‘MAT’) which is calculated on the book profits of the respective entities currently at a rate of 21.55% (31 March 2018: 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. Power Ventures Plc Annual Report & Accounts 2019 57 Strategic Report Corporate Governance Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 13. Tax expense continued Deferred income tax for the Group at 31 March 2019 and 2018 relates to the following: 31 March 2019 31 March 2018 Deferred income tax assets Unused tax losses brought forward and carried forward 1,216,052 – MAT credit entitlement 11,565,427 11,396,590 12,781,479 11,396,590 Deferred income tax liabilities Property, plant and equipment 15,161,594 12,853,798 15,161,594 12,853,798 Deferred income tax liabilities, net 2,380,115 1,457,209 Movement in temporary differences during the year Deferred tax Classified as As at asset/(liability) (asset)/liability Translation As at Particulars 1 April 2018 for the year held for sale adjustment 31 March 2019 Property, plant and equipment (12,853,799) (4,754,829) 2,447,034 – (15,161,594) Unused tax losses brought forward and carried forward – 2,020,606 (804,554) – 1,216,052 MAT credit entitlement 11,396,590 190,567 – (21,730) 11,565,427 Mark to market gain/(loss) on financial assets measured at FVPL – – – – – Deferred income tax (liabilities)/assets, net (1,457,209) (2,543,656) 1,642,480 (21,730) (2,380,115) Deferred tax Classified as As at asset/(liability) (asset)/liability Translation As at Particulars 1 April 2017 for the year held for sale adjustment 31 March 2018 Property, plant and equipment (16,684,770) (1,844) – 3,832,816 (12,853,799) MAT credit entitlement 15,691,186 (2,731,117) – (1,563,479) 11,396,590 Mark to market (loss)/gain on financial instruments measured at FVPL (14,267) 14267 – – – Deferred income tax (liabilities)/assets, net (1,007,851) (2,718,694) – 2,269,337 (1,457,209) 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% to be grossed up (plus applicable surcharge and education cess) on the total amount distributed as dividend. There is no unrecognised deferred tax assets and liabilities. As at 31 March 2019 and 2018, 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. 58 Power Ventures Plc Annual Report & Accounts 2019 Strategic Report Corporate Governance Financial Statements 14. Intangible assets Acquired software licences Cost At 1 April 2017 938,002 Additions 26,304 Exchange adjustments (103,190) Adjustments on account of deconsolidation of a subsidiary (13,468) At 31 March 2018 847,648 Additions – Exchange adjustments 4,976 At 31 March 2019 852,624 Accumulated depreciation and impairment At 1 April 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 Charge for the year 40,354 Exchange adjustments 5,190 At 31 March 2019 829,021 Net book value At 31 March 2019 23,603 At 31 March 2018 64,170 Power Ventures Plc Annual Report & Accounts 2019 59 Strategic Report Corporate Governance Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 15. Property, plant and equipment The property, plant and equipment comprises of: Land & Power Other plant Solar Assets under buildings stations & equipment Vehicles assets construction Total Cost At 1 April 2017 15,615,379 482,207,682 970,897 2,814,116 – 8,480,876 510,088,950 Additions – 9,725,079 53,476 3,813 – – 9,782,368 Deletions (495,514) – – (4,610) – – (500,124) Impairment of assets under construction – – – – – (4,033,125) (4,033,125) Exchange adjustments (1,633,612) (53,062,680) (106,946) (303,001) – 83,009 (55,023,230) Adjustments on account of deconsolidation of a subsidiary (8,742,160) (217,803,207) (302,502) (115,679) – – (226,963,548) At 31 March 2018 4,744,093 221,066,874 614,925 2,394,639 – 4,530,760 233,351,291 At 1 April 2018 4,744,093 221,066,874 614,925 2,394,639 – 4,530,760 233,351,291 Additions 236,830 316,648 1,154,749 8,751 – 18,803 1,735,781 Additions – Solar assets (Note 7(b)) – – – – 46,635,849 – 46,635,849 Deletions – (11,054) – – – – (11,054) Solar assets classified as Asset held for sale (Note 7(b)) – – – – (46,635,849) – (46,635,849) Transfers on capitalisation – 290,658 – – – (290,658) – Exchange adjustments 26,978 1,297,928 3,595 14,023 – 26,959 1,369,483 At 31 March 2019 5,007,901 222,961,054 1,773,269 2,417,413 – 4,285,864 236,445,501 Accumulated depreciation and impairment At 1 April 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 At 1 April 2018 32,174 24,456,188 526,100 1,065,694 – – 26,080,156 Charge for the year * 12,363 5,494,384 103,316 413,957 6,024,020 Additions – Solar assets (Note 7(b)) – – – – 4,417 – 4,417 Exchange adjustments 493 221,076 4,595 12,270 – – 238,434 Solar assets classified as Asset held for sale (Note 7(b)) – – – – (4,417) – (4,417) At 31 March 2019 45,030 30,171,648 634,011 1,491,921 – – 32,342,610 Net book value At 31 March 2019 4,962,871 192,789,406 1,139,258 925,492 – 4,285,864 204,102,891 At 31 March 2018 4,711,919 196,610,686 88,825 1,328,945 – 4,530,760 207,271,135 * Depreciation charge for the year includes Nil (2018: £6,143,974) pertaining to deconsolidated subsidiary BVP (Note 7 (c)). The net book value of land and buildings block comprises of: 31 March 2019 31 March 2018 Freehold land 4,514,642 4,292,608 Buildings 448,229 419,311 4,962,871 4,711,919 Property, plant and equipment with a carrying amount of £197,184,156 (2018: £198,699,226) is subject to security restrictions (refer Note 23). 60 Power Ventures Plc Annual Report & Accounts 2019 Strategic Report Corporate Governance Financial Statements 16. Investments accounted for using the equity method The carrying amount of investments accounted for using the equity method is as follows: 31 March 2019 31 March 2018 Investments in joint venture 3,448,882 3,484,178 Investments in associates (Note 7(b)) – 11,037,659 Share of (loss) from equity accounted investments – (35,296) Impairment provision for investments in joint venture (Note 7(a)) (3,247,668) (3,247,668) Elimination of intra-group margin – (19,495) Balance value of Investments in joint venture classified as Assets held for sale (201,214) – Investments accounted for using the equity method – 11,219,378 The Group’s share of loss from equity accounted investments is as follows: 31 March 2019 31 March 2018 Investment in joint venture – (34,638) Investments in associates – (658) – (35,296) a) Investment in joint venture (Note 5(d) and Note 7(a)) The investment in Padma Shipping Limited (‘PSL’) is accounted for using the equity method in accordance with IAS 28. The financial statements of PSL are as of 31 December 2018 which is the financial year followed by PSL. As no additional information was available as such the 31 December 2018 figures have been used below. At the end of the year the investment in PSL net of impairment provision is classified as Asset held for sale. Summarised financial information for PSL is set out below: 31 March 2019 31 March 2018 Non-current assets 11,631,930 11,344,541 Current assets (a) 29,970 55,502 Total assets 11,661,900 11,400,043 Current liabilities (b) 4,784,535 4,500,962 Total liabilities 4,784,535 4,500,962 Net assets 6,877,365 6,899,081 (a) Includes cash and cash equivalents (b) Includes financial liabilities 31 March 2019 31 March 2018 Total net assets of PSL 6,877,365 6,899,081 Proportion of ownership interests held by the Group 50% 50% Group’s share of the investment in PSL 3,438,683 3,449,540 b) Investment in associates (Note 5(d) Note 7(b)) Summarised aggregated financial information of the Group’s share in the associates 31 March 2019 31 March 2018 (Loss) from continuing operations – (658) Other comprehensive income – – Total comprehensive loss – (658) Aggregate carrying amount of the Group’s interests in these associates – 11,017,506 Power Ventures Plc Annual Report & Accounts 2019 61 Strategic Report Corporate Governance Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 17. Other assets 31 March 2019 31 March 2018 A. Short-term Capital advances 280,494 278,857 Equity instruments measured at fair value through P&L 40,453 65,706 Advances and other receivables 6,008,407 9,070,408 Total 6,329,354 9,414,971 B. Long-term Advances to related parties 727,418 1,727,418 Classified as asset held for sale (Note 7(a)) (727,418) – Investment in debentures – 785,222 Lease deposits 502,869 477,959 Bank deposits – – Other advances 15,684 9,734 Total 518,553 3,000,333 Equity instruments measured at fair value through P&L are comprised of: Fair value of retained investment in former subsidiary BVP £40,453 (Note 7(c)). Fair valuation of retained investments in BVP is on the basis of the last transaction. Quoted short-term mutual fund units The fair value of the mutual fund instruments is 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 vendors for supply of goods and services. During FY18, impairment provision was made for trade advances to BVP aggregating to £20,660,649. 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 year. 18. Trade and other receivables 31 March 2019 31 March 2018 Current Trade receivables 49,079,582 33,644,282 Other receivables 118,523 51,263 49,198,105 33,695,545 The Group’s trade receivables are classified at amortised cost unless stated otherwise and are measured after allowances for future expected credit losses, see “Credit risk analysis” in Note 29 “Financial risk management objectives and policies” for more information on credit risk. The carrying amounts of trade and other receivables, which are measured at amortised cost, approximate their fair value and are predominantly non-interest bearing. 19. Inventories 31 March 2019 31 March 2018 Coal and fuel 6,038,267 8,382,022 Stores and spares 1,113,099 1,334,258 Total 7,151,366 9,716,280 The entire amount of the above inventories has been pledged as security for borrowings (refer to Note 23) 62 Power Ventures Plc Annual Report & Accounts 2019 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 2019 31 March 2018 Cash at banks and on hand 2,118,960 2,185,570 Total 2,118,960 2,185,570 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 3 and 12 months amounting to £23,030,599 (2018: £20,318,985) and maturing after 12 months amounting to £517,271 (2018: £4,966,140) which have been pledged by the Group in order to secure borrowing limits with banks. Restricted cash of £23,030,599 includes banks deposits of £12,627,381 (2018: £12,553,684), translated at closing FX rate, pledged during the previous year in favour of lenders of BVP (Note 7(c) and Note 24). In FY18, the Group has made full provision for fair valuation of deposits pledged to lenders of BVP. 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 31,601,503 (2018: 4,799,742) shares during the year with respect to scrip dividend at par value of £0.000147 (2018: £0.000147) per share amounting to £4,646 (2018: £706). The difference between the fair value of shares issued above par value of £3,558,442 (2018: £1,248,331) with respect to scrip dividend was credited to share premium. As at 31 March 2019, the Company has an authorised and issued share capital of 387,910,200 (2018: 356,308,697) equity shares at par value of £0.000147 (2018: £0.000147) per share amounting to £57,024 (2018: £52,378) in total. Reserves Share premium represents the amount received by the Group over and above the par value of shares issued. Any transaction costs associated with the issuing of shares are deducted from share 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 reserves represents the difference between the consideration paid and the adjustment to net assets on change of controlling interest, without change in control, other reserves also includes any costs related with share options granted and gain/losses on remeasurement of financial assets measured at fair value through other comprehensive income. Retained earnings include all current and prior period results as disclosed in the consolidated statement of comprehensive income less dividend distribution. Power Ventures Plc Annual Report & Accounts 2019 63 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% of the Group’s share capital. Once granted, the share options must be exercised within 10 years of the date of grant otherwise the options would lapse. The vesting conditions are as follows: • the 300 MW power plant of Kutch in the state of Gujarat must have been in commercial operation for three months; and • 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 (2018: £Nil) was recognised in the profit or loss with a corresponding credit to other reserves. Movements in the number of share options outstanding are as follows: 31 March 2019 31 March 2018 At 1 April 22,024,234 23,274,234 Forfeited/cancelled (250,000) (1,250,000) At 31 March 21,774,234 22,024,234 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 comprises the following: Interest rate (range %) Final maturity 31 March 2019 31 March 2018 Borrowings at amortised cost 10.35-11.40 September 2023 80,364,930 93,465,947 Total 80,364,930 93,465,947 The term loans of £69.9m and working capital loans of £10.5m taken by the Group are fully secured by the property, plant and assets under construction and other current assets of subsidiaries which have availed such loans. All loans are personally guaranteed by Executive Chairman, Mr Arvind Gupta. 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. As of 31 March 2019, the Group has met all the relevant covenants. The fair value of borrowings at 31 March 2019 was £80,364,930 (2018: £93,465,947). The fair values have been calculated by discounting cash flows at prevailing interest rates. The borrowings are reconciled to the statement of financial position as follows: 31 March 2019 31 March 2018 Current liabilities Amounts falling due within one year 28,869,722 23,829,415 Non-current liabilities Amounts falling due after 1 year but not more than 5 years 51,495,208 69,636,532 Total 80,364,930 93,465,947 64 Power Ventures Plc Annual Report & Accounts 2019 Strategic Report Corporate Governance Financial Statements 24. Trade and other payables 31 March 2019 31 March 2018 Current Trade payables 45,300,370 52,015,069 Creditors for capital goods 174,444 162,261 Other payables – 154,092 Total 45,474,814 52,331,422 Non-current Security deposit from customers 14,085,854 4,813,303 Other payables 149,631 180,746 Total 14,235,485 4,994,049 Trade payables include credit availed from banks under letters of credit for payments in USD to suppliers for coal purchased by the Group. Other trade payables are normally settled on 45 days terms credit. The arrangements are interest bearing and are payable within one year. With the exception of security deposits from customers and certain other trade payables, all amounts are short term. 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 Key management personnel Name of the party Nature of relationship Arvind Gupta Executive Chairman Avantika Gupta (from November 2018) Chief Operating Officer & Director Dmitri Tsvetkov Chief Financial Officer & Director Jeremy Warner Allen Deputy Chairman Mike Grasby Director Ravi Gupta (resigned in May 2018) Director Jeremy Beeton Director Related parties with whom the Group had transactions during the period Name of the party Nature of relationship Padma Shipping Limited The company has joint control of the entity Avanti Solar Energy Private Limited Entity in which Key Management personnel has Control/Significant Influence (subsidiary from FY 19 Note 7(b)) Mayfair Renewable Energy Private Limited Entity in which Key Management personnel has Control/Significant Influence (subsidiary from FY 19 Note 7(b)) Avanti Renewable Energy Private Limited Entity in which Key Management personnel has Control/Significant Influence (subsidiary from FY 19 Note 7(b)) Brics Renewable Energy Private Limited Entity in which Key Management personnel has Control/Significant Influence (subsidiary from FY 19 Note 7(b)) Avantika Gupta Relative of Key Management Personnel (became Director on 27 November 2018) Power Ventures Plc Annual Report & Accounts 2019 65 Strategic Report Corporate Governance Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 25. Related party transactions continued Summary of transactions with related parties Name of the party 31 March 2019 31 March 2018 Padma Shipping Limited (Note 7 (a)) a) Investment – 2,077,588 b) Advances – 627,205 Avanti Solar Energy Private Limited (Note 7 (b)) a) Investment – 3,336,637 b) Sale of Solar power plant system – 4,586,802 c) Advance – 56,225 d) Interest income – – Mayfair Renewable Energy Private Limited (Note 7 (b)) a) Investment – 3,595,419 b) Sale of Solar power plant system – 4,024,349 c) Advance – 87,154 d) Interest income – – Avanti Renewable Energy Private Limited (Note 7 (b)) a) Investment – 3,369,673 b) Sale of Solar power plant system – 4,822,458 c) Advance – 56,284 d) Interest income – – Brics Renewable Energy Private Limited (Note 7 (b)) a) Investment – 324,854 b) Sale of Solar power plant system – 1,188,788 c) Advance – 5,628 d) Interest income – – Avantika Gupta a) Remuneration (up to 27 November 2018) 79,084 112,412 Summary of balance with related parties Name of the party Nature of balance 31 March 2019 31 March 2018 Padma Shipping Limited Investment 3,438,682 3,485,837 Padma Shipping Limited Advances 1,727,418 1,727,418 Padma Shipping Limited Impairment provision (4,247,668) (3,247,668) Avanti Solar Energy Private Limited Investment – 3,461,059 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 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 Avanti Renewable Energy Private Limited Trade payable – 185,569 Avanti Renewable Energy Private Limited Advance – 56,284 Brics Renewable Energy Private Limited Investment – 362,664 Brics Renewable Energy Private Limited Trade payable – 1,238,446 Brics Renewable Energy Private Limited Advance – 5,628 Arvind Gupta Land Lease Deposit 502,869 477,959 Outstanding balances at the year-end are unsecured. Related party transactions are on an arms length basis. There have been no guarantees provided or received for any related party receivables or payables except for corporate guarantees issued to lenders of its subsidiaries classified as Assets held for sale of £32,132,255 (2018: £31,944,720). For the year ended 31 March 2019, the Group has not recorded any impairment of receivables relating to amounts owed by related parties £Nil (2018: £Nil). However, the Group has made impairment provision for investments in joint venture of £1,000,000 (2018: £3,247,668) (Note 7(a)). 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. All loans are personally guaranteed by Executive Chairman, Mr Arvind Gupta. In addition to this, Executive Chairman Mr Arvind Gupta personally guaranteed £10,360,066 (2018: £10,885,365) of loans of a subsidiary which is classified as Assets held for sale. 66 Power Ventures Plc Annual Report & Accounts 2019 Strategic Report Corporate Governance Financial Statements 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 2019 or 2018). The company has issued options over ordinary shares which could potentially dilute basic earnings per share in the future. There is no difference between basic earnings per share and diluted earnings 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 2019 31 March 2018 Weighted average number of shares used in basic earnings per share 367,650,606 353,108,869 Shares deemed to be issued for no consideration in respect of share based payments – – Weighted average number of shares used in diluted earnings per share 367,650,606 353,108,869 27. Directors’ remuneration 31 March 2019 31 March 2018 Arvind Gupta 500,000 750,000 Avantika Gupta (became Director on 27 November 2018) 64,691 – Dmitri Tsvetkov 288,000 290,000 Jeremy Warner Allen 50,000 22,500 V Narayan Swami – 224,824 Martin Gatto – 33,750 Mike Grasby 45,000 45,000 Ravi Gupta – 22,500 Jeremy Beeton 45,000 45,000 Total 992,691 1,433,574 The above remuneration is in the nature of short-term employee benefits. As the future liability for gratuity and compensated absences is provided on an 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 five 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 2019 31 March 2018 Not later than 1 year 46,095 44,771 Later than 1 year and not later than 5 years 64,254 117,898 Total 110,349 162,669 During the year ended 31 March 2019, £41,301 (2018: £43,226) 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 $Nil (2018: $2,800,000) i.e. approximately £Nil (2018: £2,000,000) of its share of interest (Note 5(d)(ii)). Power Ventures Plc Annual Report & Accounts 2019 67 Strategic Report Corporate Governance Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 28. Commitments and contingencies Contingent liabilities Disputed income tax demand £1,056,154 (2018: £549,789). Future cash flows in respect of the above matters are determinable only on receipt of judgements/decisions pending at various forums/authorities. Guarantees and letter of credit The Group has provided bank guarantees (‘BGs’) and letter of credits (‘LCs’) to customers and vendors in the normal course of business. The LCs provided as at 31 March 2019: £32,373,664 (2018: £44,901,443) and BGs as at 31 March 2019: £6,457,430 (2018: £10,168,184). LCs are supporting accounts payables already recognised in the statement of financial position. There have been no guarantees provided or received for any related party receivables or payables except for corporate guarantees issued to lenders of its subsidiaries classified as Assets held for sale of £32,132,255 (2018: £31,944,720). BGs are treated as contingent liabilities until such time it becomes probable that the Company will be required to make a payment under the guarantee. 29. Financial risk management objectives and policies The Group’s principal financial liabilities comprise 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 holds investments designated financial assets measured at FVPL 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, and financial assets measured at FVPL. The sensitivity analyses in the following sections relate to the position as at 31 March 2019 and 31 March 2018. 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 2019, 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 2019 and 31 March 2018, 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 2019 would decrease or increase by £803,649 (2018: £934,659). 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 GBP. 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. 68 Power Ventures Plc Annual Report & Accounts 2019 Strategic Report Corporate Governance Financial Statements 29. Financial risk management objectives and policies continued 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 2019 As at 31 March 2018 Currency Financial assets Financial liabilities Financial assets Financial liabilities United States Dollar (‘USD’) 8,242,631 39,040,874 3,711,568 62,663,286 Set out below is the impact of a 10% change in the US Dollar on profit arising as a result of the revaluation of the Group’s foreign currency financial instruments: As at 31 March 2019 As at 31 March 2018 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’) 69.32 2,681,169 65.07 3,840,174 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 £49,388,558 (2018: £33,761,251) and corporate guarantees issued to lenders of its subsidiaries classified as Assets held for sale of £32,132,255 (2018: £31,944,720). 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 reputable 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. To measure expected credit losses, trade and other receivables have been grouped together based on shared credit risk characteristics and the days past due. The Group determined that some trade receivables were credit impaired as these were long past their due date and there was an uncertainty about the recovery of such receivables. The expected loss rates are based on an ageing analysis performed on the receivables as well as historical loss rates. The historical loss rates are adjusted to reflect current and forward looking information that would impact the ability of the customer to pay. Trade and other receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include amongst others, the failure of the debtor to engage in a repayment plan, the debtor is not operating any more and a failure to make contractual payments for a period of greater than 180 days. Power Ventures Plc Annual Report & Accounts 2019 69 Strategic Report Corporate Governance Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 29. Financial risk management objectives and policies continued Days past due Within More than More than More than 31 March 2019 credit period 30 days 60 days 180 days Total Expected loss rate 0% 0% 0% 19.07% Gross carrying amount – trade receivables – TANGEDCO 4,616,792 2,120,998 6,657,543 2,633,639 16,028,972 Gross carrying amount – trade receivables – Others 22,093,386 2,169,134 7,034,955 2,933,211 34,230,686 Loss allowance – – – 1,061,553 1,061,553 Days past due Within More than More than More than 31 March 2018 credit period 30 days 60 days 180 days Total Expected loss rate 0% 0% 0% 2.89% Gross carrying amount – trade receivables – TANGEDCO 2,198,815 2,779,985 1,576,236 4,667,336 11,222,372 Gross carrying amount – trade receivables – Others 11,373,774 944,101 5,703,860 4,722,554 22,744,289 Loss allowance – – – 271,116 271,116 The closing loss allowances for trade receivables as at 31 March 2019 reconcile to the opening loss allowances as follows: 31 March 2019 31 March 2018 Opening loss allowance as at 1 April (271,116) (1,177,967) Increase in loss allowance recognised in profit or (loss) during the year for new receivables recognised (790,437) (271,116) Receivables written off during the year as uncollectable – – Adjustment on account of deconsolidation – 1,177,967 Total (1,061,553) (271,116) The Group’s management believes that all the financial assets, except as mentioned above, 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 on-going 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. 70 Power Ventures Plc Annual Report & Accounts 2019 Strategic Report Corporate Governance Financial Statements 29. Financial risk management objectives and policies continued The following is an analysis of the Group contractual undiscounted cash flows payable under financial liabilities at 31 March 2019 and 31 March 2018: Current Non-current As at 31 March 2019 within 12 months 1-5 years later than 5 years Total Borrowings 28,869,722 51,495,208 – 80,364,930 Interest on borrowings 8,507,484 17,059,422 – 25,566,906 Trade and other payables 45,474,814 14,235,485 – 59,710,299 Provision for pledged deposits – 12,627,381 – 12,627,381 Liabilities held for sale 33,601,291 – – 33,601,291 Other current liabilities 91,764 – – 91,764 Total 116,545,075 95,417,496 – 211,962,571 Current Non-current As at 31 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 87,503,800 112,556,422 – 200,060,222 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: • to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value; • to 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 ended 31 March 2019 and 31 March 2018. 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 the Group or entities, whether statutory or otherwise. The capital for the reporting periods under review is summarised as follows: 31 March 2019 31 March 2018 Total equity 154,383,407 139,130,424 Less: Cash and cash equivalents (2,118,960) (2,185,570) Capital 152,264,447 136,944,854 Total equity 154,383,407 139,130,424 Add: Borrowings (including buyer’s credit) 80,364,930 93,465,947 Overall financing 234,748,337 232,596,371 Capital to overall financing ratio 0.65 0.59 Power Ventures Plc Annual Report & Accounts 2019 71 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 2019 March 2018 March 2019 March 2018 Financial assets Debt instruments measured at amortised cost – Cash and cash equivalents 1 2,118,960 2,185,570 2,118,960 2,185,570 – Restricted cash 1 23,547,870 25,285,125 23,547,870 25,285,125 – Current trade receivables 1 49,198,105 33,695,545 49,198,105 33,695,545 – Other long-term assets 518,553 3,000,333 518,553 3,000,333 – Other short-term assets 6,288,901 9,349,265 6,288,901 9,349,265 – Assets held for sale 3,136,938 – 3,136,938 – Financial instruments measured at fair value through profit or loss – Other short-term assets – (Note 7(c)) 40,453 65,706 40,453 65,706 Investments in associates measured at cost (Note 7(b)) – 11,219,378 – 11,219,378 84,849,780 84,800,922 84,849,780 84,800,922 Financial liabilities Term loans 80,364,930 93,465,947 80,364,930 93,465,947 Current trade and other payables 1 45,474,814 52,331,422 45,474,814 52,331,422 Provision for pledged deposits 12,627,381 12,553,684 12,627,381 12,553,684 Liabilities held for sale 35,267,786 – 35,267,786 – Non-current trade and other payables 2 14,235,485 4,994,049 14,235,485 4,994,049 187,970,396 163,345,102 187,970,396 163,345,102 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 financial assets measured at FVPL held for trading purposes are derived from quoted market prices in active markets. Fair value of financial assets measured at FVPL of unquoted equity instruments are derived from valuation performed at the year end. Fair valuation of retained investments in PS and BVP is on the basis of the last 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 Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). • Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). 72 Power Ventures Plc Annual Report & Accounts 2019 Strategic Report Corporate Governance Financial Statements 30. Summary of financial assets and liabilities by category and their fair values continued Financial instruments measured at fair value through profit or loss 2019 Level 1 Level 2 Level 3 Total Unquoted securities – – 40,453 40,453 Quoted securities – – – – Total – – 40,453 40,453 2018 Level 1 Level 2 Level 3 Total Unquoted securities – – 40,453 40,453 Quoted securities 25,253 – – 25,253 Total 25,253 – 40,453 65,706 There were no transfers between Levels 1 and 2 in the period. 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. 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 2019 73 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 74 Power Ventures Plc Annual Report & Accounts 2019 Strategic Report Corporate Governance Financial Statements DEFINITIONS AND GLOSSARY ACC: Air-Cooled Condenser FVPL: Fair Value through Profit or Loss Act: Isle of Man Companies Act 2006 FY: Financial year commencing from 1 April to 31 March Adjusted EBITDA: a measure of business cash generation from operations before depreciation, interest and exceptional and non-standard or non-operational charges. GCPP: Group Captive Power Plant GDP: Gross Domestic Product AGM: Annual General Meeting Board: Board of Directors of OPG Power Ventures Plc bps: Basis points BRICS: Brazil, Russia, India, China and South Africa CAD: Current Account Deficit CAGR: Compound Average Growth Rate CEA: Central Electricity Authority CO: Carbon Monoxide Company or OPG or parent: OPG Power Ventures Plc CPI: Consumer Price Index CRISL: Credit Rating Information and Services Limited Discom: Distribution Company (of the State Electricity Utility) DM Plant: Demineralization Plant EBITDA: Earnings before interest, tax, depreciation and amortisation ECL: Expected Credit Loss EHS: Environment, Health and Safety Electricity Act: Indian Electricity Act 2003 as amended EPS: Earnings per share ESOP: Employee Stock Options ESP: Electrostatic Precipitator EVs: Electric Vehicles ExCo: Executive Committee FDI: Foreign Direct Investment FICCI: Federation of Indian Chambers of Commerce and Industry Gearing ratio: Net borrowings (i.e. total borrowings minus cash)/ (equity plus borrowings) GHG: Green House Gas Government or GoI: Government of India Great Britain Pound Sterling or £/pence: Pounds sterling or pence, the lawful currency of the UK Group Captive: Group Captive power plant as defined under Electricity Act 2003, India Group or OPG: the Company and its subsidiaries GW: Gigawatt is 1,000 megawatts HSE: Health, Safety and Environment IAS: International Accounting Standards IEA: International Energy Agency IFRS: International Financial Reporting Standards IMF: International Monetary Fund Indian Companies Act: the Companies Act, 1956 and amendments thereto JV: Joint Venture kWh: Kilowatt hour is one unit of electricity LOI: Letter of Intent LSE: London Stock Exchange plc LTIP: Long Term Incentive Plan LTOA: Long Term Open Access LTVT: Long Term Variable Tariff MoU: Memorandum of Understanding mt: Million tonnes Power Ventures Plc Annual Report & Accounts 2019 75 Strategic Report Corporate Governance Financial Statements DEFINITIONS AND GLOSSARY CONTINUED MW: Megawatt is 1,000 kilowatts MWh: Megawatt hour Net borrowings: Total borrowings minus unrestricted cash TANGEDCO: Tamil Nadu Generation and Distribution Corporation Limited The Code: the UK Corporate Governance code, issued by the Financial Reporting Council NITI Aayog: National Institution for Transforming India TRIR: Total Recordable Incident Report UDAY: Ujwal DISCOM Assurance Yojana, the financial turnaround and revival package for DISCOMs initiated by the Government of India. UK/United Kingdom: United Kingdom of Great Britain and Northern Ireland US$/USD or $: US Dollars, the lawful currency of the US WPI: Wholesale Price Index Nox: Nitrogen Oxides NPAs: Non-Performing Assets O&M: Operating and Management OHS: Occupational Health and Safety PAT: Profit After Tax PLF: Plant Load Factor POPs: Persistent Organic Pollutants PPA: Power Purchase Agreement PSA: Power Supply Agreement RBI: Reserve Bank of India 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 Particulate Matter SPV: Special Purpose Vehicle State: State of India STP: Sewage Treatment Plant 76 Power Ventures Plc Annual Report & Accounts 2019 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 Auditor’s 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 43 Notes to the Consolidated Financial Statements 74 Corporate Directory 75 Definitions and Glossary Printed sustainably in the UK by Pureprint, a CarbonNeutral® company with FSC ® chain of custody and an ISO 14001-certified environmental management system recycling over 99% of all dry waste. 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 9 POWERING INDIA OPG Power Ventures Plc IOMA House Hope Street Douglas Isle of Man IM1 1AP T: +44 (0)1624 681200 www.opgpower.com OPG Power Ventures Plc Annual Report & Accounts 2019   

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