29 June 2023

Mercantile Ports & Logistics Limited

("MPL" or the "Company")

Full Year Results

Mercantile Ports & Logistics Limited (AIM: MPL) which is operating and continuing to develop a port and logistics facility in Navi Mumbai, Maharashtra, India, is pleased to announce its preliminary results for the year ended 31 December 2022.

Chairman's Statement

2022 was the first full year of uninterrupted operation for Karanja Port. The coal jetty handled almost 1.0 Mn MT of coal, Memorandum of Undertakings ("MOUs") with JM Baxi and new contracts were also signed.

Revenue achieved during the year 2022 was £4.8 Mn. That momentum has continued with Q1 CY2023 revenue being £1.6 Mn, a more than double the £0.77 Mn for Q1 of 2022.

Dry bulk traffic is a fundamental foundation for facilitating infrastructure development in the region. Karanja Port is well positioned to attract this bulk cargo.

We were proud of our performance for our first customer, Tata Daewoo, throughout the year. Tata Daewoo will shortly deliver the last few blocks of the Mumbai Trans Harbour Link, which has been constructed at the Facility. We were proud to have played our part in this achievement, but can also, look forward to using the concrete paved land being vacated by them in the next few months, which will be utilised for our container business operations. This 25 acre reinforced concreted land parcel can handle a throughput of almost 0.4 Mn TEUs per annum. We expect to achieve this throughput within 7 years, with there being a significant shift in the revenue mix from bulk cargo to container cargo.

The Company enhanced its business development team during the period and this additional resource is delivering results, with momentum expected to continue during the course of 2023.

The Company is pleased to report that it is in early stage discussions with a number of large shipping lines to handle containers at the Facility. This development is welcomed and will ensure over time both stable and predictable revenue streams. The Facility's location is well placed to handle containers both from a road logistics perspective as well as by barge transportation. Contracts for container cargo provide predictable and long term revenue and the Company is hopeful of being able to announce progress in this regard during 2023.

One of the Board's principal priorities for 2022 was to further enhance the terms of its debt Facility, to match the principal repayment with the cash flows that the business will generate in the next 2-3 years. Whilst that was not concluded during the year, as announced in the Company's recent fundraising, the Board is confident that this will be achieved.

The Company's original plan of making Karanja Port a hub for container handling is expected to take a major step in becoming a reality in 2023. The management worked in 2022 to get all approvals in place for getting this done including allotment of JNPA code.

The pick-up in Container handling business coupled with the growing Bulk Cargo handling businesses will drive further operational activity at the Port. The resulting increase in revenues coupled with the submission of proposal to the current lenders for restructuring of existing term debt to further 7 years (including 2 years moratorium on principal repayment) as well as moratorium on interest servicing for 12 months, will position the company to move ahead on its path to deliver the shareholder value.

On behalf of the Board, I should like to thank our investors for their continued support, as MPL builds towards its goal of being a key part of the logistics infrastructure in the region and a successful profitable company.

Finally, I should like to thank all our employees for their continued hard work during 2022.

 

Jeremy Warner Allen

Chairman

Mercantile Ports & Logistics Limited 

29 June, 2023

 

Operational Review

Indian Economy

On 6 December, 2022, the World Bank revised its GDP growth outlook for India for 2022-23 from 6.5% to 6.9%, (Source: India is better positioned to navigate global headwinds than other major emerging economies: New World Bank report https://www.worldbank.org/en/news/press-release/2022/12/05/india-better-positioned-to-navigate-global-headwinds-than-other-major-emerging-economies-new-world-bank-report) on the back of the economy's strong performance in Q2. The World Bank went on to say that the nation was "well placed" to steer through any potential global headwinds in 2023. The International Monetary Fund (IMF) expects India to grow by 5.9% in FY 2023-24 and by an average rate of 6.1% over the next five years.

Despite the global turmoil as a result of the dual shocks emerging from COVID and the Ukraine-Russia war, the long-term growth story of the Indian economy remains intact.

India emerged as the world's fifth-largest economy, overtaking the United Kingdom (UK) in 2022. It is set to surpass Japan and Germany to become the world's third-largest economy by 2029. (Source: India to emerge third-largest economy of world by 2029; Likely to surpass Germany by 2027, and Japan by 2029 (Source :newsonair.gov.in)

However, capital investment, especially in the private sector, has lagged so far. India is an attractive investment destination is a point well emphasized.

Operations Update

From an operations perspective, 2022 was the first full year of uninterrupted operations for the Port, with Karanja Port able to handle over c1.0 Mn MT of Cargo. The Facility was able to demonstrate its ability to be a 24X7 facility with the commencement of night navigation enabling berthing / de-berthing of vessels at night. With all key aspects of port and logistics operation, including vessel navigation, yard operations and transportation, being carried out in a seamless manner, the Facility successfully handled over multiple types of cargo including coal, cement, olivine flux, metal scrap during the period. The volume of coal handled during this period, was in line with expectation and achieved the volume expectation set with the customer.

The Facility received positive feedback from its customers regarding the overall efficiency of operations and appreciation for the fact that no demurrage was incurred by any customer over this period.

MPL continues to strengthen its business development and operations team, including on the container side of the business as it prepares to start handling containers during the course of 2023. Karanja Port is being positioned as an evacuation alternative for containers coming to Jawaharlal Nehru Port Authority ("JNPA"), where currently, 6.0 Mn TEUs flow into JNPA. With the fourth terminal of JNPA becoming active this year, the number of TEUs flowing into JNPA is expected to increase to 9.0 - 10.0 mn TEUs in the next 3-4 years. (Source: https://jnPort.gov.in/projects_ongoing (10 million).

It is important to note that Karanja Port and JNPA have the same customs jurisdiction, the Jawaharlal Nehru Customs House (JNCH).

Further, the Facility has all other approvals in place (including allotment of code by JNPA & its terminals) to make the evacuation of TEUs, flowing into JNPA, from Karanja Port a reality. This will include both (1) containers that need only evacuation, storage and transportation - DPD containers the are Full Container Load (FCL); (2) containers that are yet to undergo Customs examination; and (3) containers that need to undergo de-stuffing operations that are not FCL.

Karanja Port Container Terminal aspires to be one of the largest container handling facilities in the state of Maharashtra and one of the few with a waterfront.

Going Concern

Fiscal year 2022 was the first full year of uninterrupted operations at the Facility. During the period from January 2022 to December 2022 alone, the port handled bulk cargo volumes to the tune of 1.2 Mn. MT. The Board has assessed the Group's ability to operate as a going concern for the next 18 months from the date of signing the financial statements, based on the financial model which was prepared as part of approving the 2023 budget.

 

The Directors considered the cash forecasts prepared for twenty-four months beginning from 1 January 2023 up to 31st December 2024, together with certain assumptions for revenue and costs, to satisfy themselves of the appropriateness of the going concern used in preparing the financial statements.

 

The Group had considered the following inflows in the budget model prepared to mitigate funding risk as well as ensuring continuity in business:

a)            £0.56 million cash balance as at 31 December 2022;

b)            Additional line of unsecured credit from Hunch Ventures amounting to £4.5Mn;

c)            Share subscription (balance) amount due from Hunch £1.1Mn;

d)            The recent fund-raise of £8.2Mn (net of cost) which has just been concluded and closed

e)            Expected cash flows from operations through to December, 2024.

The Directors took into account the risks and uncertainties, facing the business as set out on page 20, and a sensitivity analysis on the key revenue growth assumption and the effectiveness of available mitigating actions was carried out in the model.

The Indian subsidiary has been in discussion with its consortium of banks for restructuring the existing debt facility. The Directors are confident that a restructured debt facility will be afforded to the company, that will include an increase in the term of the loan by an additional 7 years as well as moratorium on principal repayments for a period of 2 years and a moratorium on interest payable for 12 months.

The existing consortium banks had previously restructured the debt facility in 2021 as a relief owing to the Covid-19 pandemic.

 

Based on the above indicators, after taking into account the recent fundraising and the renegotiation on the debt restructuring, the Directors believe that it remains appropriate to continue to adopt the going concern in preparing the forecasts.

However, the fact that the debt restructure has not been completed to date represents the existence of a material uncertainty which may cast significant doubt on the Group's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.

Conclusion

The Port is ramping up bulk cargo operations and is all set to commence container cargo operations in 2023. It is well on its way to ramp up capacity utilization to achieve its targeted revenues and diversify its commodity mix towards handling a wider variety of bulk cargo as well as containers and liquids.

The Indian economy is expected to remain buoyant. With the level of containerization in India remaining far below the global average, and overall Port capacity in the country remaining short of demand, the business case for a Port & logistics facility like Karanja Port continues to stay robust.

Through the course of 2023, MPL will look to deepen its engagement with existing lenders on the one side and new and existing customers for incremental volumes on the other side. The focus will be to diversify its product / commodity mix towards container and liquid business, delivering enhanced and growing revenues through its container business.

Consolidated Statement of Comprehensive Income for the Year ended 31 December 2022
	Notes	Year ended  31 Dec 22 £000	Year ended  31 Dec 21 £000
CONTINUING OPERATIONS
Revenue	5	4,872	1,801
Cost of sales	6	(1,449)	(307)
Gross margin		3,423	1,494
Administrative expenses	7	(9,978)	(8,373)
OPERATING LOSS		(6,555)	(6,879)
Finance income	8(a)	38	40
Gains from extinguishment of debt	8(a)	--	5,408
Finance cost	8(b)	(5,543)	(4,576)
NET FINANCING COST		(5,505)	872
LOSS BEFORE TAX		(12,060)	(6,007)
Tax income /(expense) for the  year	9	2,421	(14)
Loss FOR THE YEAR		(9,639)	(6,021)
Loss for the year attributable to:
Non-controlling interest		(18)	(5)
Owners of the parent		(9,621)	(6,016)
LOSS FOR THE YEAR		(9,639)	(6,021)
Other Comprehensive (Loss)/income:
Items that will not be reclassified subsequently to profit or (loss)
Re-measurement of net defined benefit liability	24	1	8
Items that will be reclassified subsequently to profit or (loss)
Exchange differences on translating foreign operations		808	(673)
Other comprehensive expense for the year		809	(665)
Total comprehensive expense for the year		(8,830)	(6,686)
Total comprehensive expense for the year attributable to:
Non-controlling interest		(18)	(5)
Owners of the parent		(8,812)	(6,681)
		(8,830)	(6,686)
Earnings per share (consolidated):
Basic &  Diluted, for the year attributable to ordinary equity holders	11	*(0.232p)	*(0.231p)

 

 

*1. On 13 September 2021 group has consolidated its share by way of issuing one new share for every hundred shares held.

 

  2. The accompanying notes on page 56 to 90 form part of these consolidated financial statements.

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as at 31 December 2022

		Notes		Year ended  31 Dec 22               £000	Year ended  31 Dec 21               £000
Assets
Property, plant and equipment	12(a)		127,382		131,344
Intangible asset	12(b)		14		4
Non-current tax assets	19 (a)		2,108		--
Total non-current assets			129,504		131,348
Inventory of traded goods			96		--
Trade and other receivables	13		14,110		18,484
Cash and cash equivalents	14		558		4,783
Total current assets			14,764		23,267
Total assets			144,268		154,615
Liabilities
Non-current
Employee benefit obligations	17		53		43
Borrowings	18		39,165		39,932
Lease liabilities payable	20		1,611		1,562
Non-current liabilities			40,829		41,537
Current
Employee benefit obligations	17		529		449
Borrowings	18		2,307		1,037
Current tax liabilities	19 (b)		17		415
Lease liabilities payable	20		817		795
Trade and other payable	20		8,388		10,171
Current liabilities			12,058		12,867
Total liabilities			52,887		54,404
Net assets			91,381		100,211
Equity
Stated Capital	16		143,851		143,851
Retained earnings	16		(26,022)		(16,402)
Translation Reserve	16		(26,429)		(27,237)
Equity attributable to owners of parent			91,400		100,212
Non-controlling Interest			(19)		(1)
Total equity			91,381		100,211

1. The accompanying notes on page 56 to 90 form part of these consolidated financial statements.

2. The consolidated financial statements have been approved and authorized for issue by the Board on  29  June, 2023.

 

Jay Mehta

Director

CONSOLIDATED STATEMENT OF CASH FLOWS
for the Year ended 31 December 2022
	Notes	Year ended 31 Dec 22 £000	Year ended 31 Dec 21 £000
CASH FLOW FROM OPERATING ACTIVITIES
Loss before tax		(12,060)	(6,007)
Non cash flow adjustments	22	11,748	5,149
Operating (loss)  before working capital changes		(312)	(858)
Net changes in working capital	22	305	(4,669)
Taxes paid		(85)	--
Net cash used in operating activities		(92)	(5,527)
CASH FLOW FROM INVESTING ACTIVITIES
Used in purchase of property, plant and equipment		(1,425)	(2,107)
Finance Income	8	38	27
Net cash used in investing activities		(1,387)	(2,080)
CASH FLOW FROM FINANCING ACTIVITIES
From issue of additional shares	16	--	9,224
From borrowing		--	984
Subscription money received		2,452	--
Repayment of bank borrowing principal		(881)	(641)
Interest paid on borrowings		(4,217)	(810)
Principal repayment of lease liabilities		(138)	(96)
Interest payment on leasing liabilities principal		--	(131)
Net cash from financing activities		(2,784)	8,530
Net change in cash and cash equivalents		(4,262)	923
Cash and cash equivalents, beginning of the year		4,783	3,895
Exchange difference on cash and cash equivalents		37	(35)
Cash and cash equivalents, end of the year		558	4,783

 

The accompanying notes on page 56 to 90 form part of these consolidated financial statements.

 

 

 

Consolidated Statement of Changes in Equity

 

for the Year ended 31 December 2022

 

	Stated Capital	Translation Reserve	Retained Earnings	Other Components of equity	Non- controlling Interest	Total Equity
	£000	£000	£000	£000	£000	£000
Balance at 1 January 2022	143,851	(27,237)	(16,402)	--	(1)	100,211
Transaction with owners in their capacity as owners	--	--	--	--	--	--
Loss for the year	--	--	(9,621)	--	(18)	(9,639)
Foreign currency translation difference for foreign operations	--	808	--	--	--	808
Re-measurement of net defined benefit liability	--	--	--	1	--	1
Re-measurement of net defined benefit liability transfer to retained earning	--	--	1	(1)	--	--
Total comprehensive income for the year	--	808	(9,620)	--	(18)	(8,830)
Balance at 31 December 2022	143,851	(26,429)	(26,022)	--	(19)	91,381
Balance at 1 January 2021	134,627	(26,564)	(10,394)	--	4	97,673
Issue of share capital	10,102	--	--	--	--	10,102
Share Issue cost	(878)	--	--	--	--	(878)
Transaction with owners	143,851	(26,564)	(10,394)	--	4	106,897
Loss for the year	--	--	(6,016)	--	(5)	(6,021)
Foreign currency translation difference for foreign operations	--	(673)	--	--	--	(673)
Re-measurement of net defined benefit liability	--	--	--	8	--	8
Re-measurement of net defined benefit liability transfer to retained earning	--	--	8	(8)	--	--
Total comprehensive income for the year	--	(673)	(6,008)	--	(5)	(6,686)
Balance at 31 December 2021	143,851	(27,237)	(16,402)	--	(1)	100,211

 

The accompanying notes on page 56 to 90 form part of these consolidated financial statements.

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

1.   CORPORATE INFORMATION

 

Mercantile Ports & Logistics Limited (the "Company") was incorporated in Guernsey under The Companies (Guernsey) Law, 2008 with registered number 52321 on 24 August 2010. Its registered office and principal place of business is 1st Floor, Tudor House, Le Bordage Rd, Guernsey GY1 1DB. It was listed on the Alternative Investment Market ('AIM') of the London Stock Exchange on 7 October 2010.

 

The consolidated financial statements of the Company comprise of the financial statements of the Company and its subsidiaries (together referred to as the "Group"). The consolidated financial statements have been prepared for the year ended 31 December 2022, and presented in UK Sterling (£).

 

The principal activities of the Group are to develop, own and operate a port and logistics facilities. As of 31 December 2022, the Group had 44 (Forty-four) (2021: 47 (Forty-seven)) employees.

 

2.  SIGNIFICANT ACCOUNTING POLICIES                                  

 

a)   BASIS OF PREPARATION

The consolidated financial statements have been prepared on a historical cost basis except where otherwise stated. The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards ("IFRS") and interpretations as adopted by the European Union and also to comply with The Companies (Guernsey) Law, 2008.

 

Going Concern

 

Fiscal year 2022 was the first full year of operations at the facility. During the period from January 2022 to December 2022 alone, the port handled bulk cargo volumes to the tune of 1.2 Mn MT. The Board has assessed the Group's ability to operate as a going concern for the next 18 months from the date of signing the financial statements, based on the financial model which was prepared as part of approving the 2023 budget.

 

The Directors considered the cash forecasts prepared for Twenty-four months effective from 1 January 2023 up to 31st December 2024, together with certain assumptions for revenue and costs, to satisfy themselves of the appropriateness of the going concern used in preparing the financial statements.

The group had considered the following inflows in the budget model prepared to mitigate funding risk as well as ensuring continuity in business:

 

a)     £0.56 million cash balance as at 31 December 2022;

b)    Additional line of unsecured credit from Hunch Ventures amounting to £4.5Mn;

c)     Share subscription (balance) amount due from Hunch £1.1Mn;

d)    The recent fund-raise of £8.2Mn (net of cost) which has just been concluded and closed

e)    Expected cash flows from operations through to December, 2024.

 

The Directors took into account the risks and uncertainties facing the business referred to below, and a sensitivity analysis on the key revenue growth assumption and the effectiveness of available mitigating actions was carried out in the model.

 

The Indian subsidiary has been in discussion with its consortium of banks for restructuring the existing debt facility. The Directors are confident that a restructured debt facility will be afforded to the company, that will include an increase in the term of the loan by an additional 7 years as well as moratorium on principal repayments for a period of 2 years and a moratorium on interest payable for 12 months.

 

The existing consortium banks had previously restructured the debt facility in 2021 as a relief owing to the Covid-19 pandemic.

 

Based on the above indicators, after taking into account the recent fundraising and the renegotiation on the debt restructuring, the Directors believe that it remains appropriate to continue to adopt the going concern in preparing the forecasts.

However, the fact that the debt restructure has not been completed to date represents the existence of a material uncertainty which may cast significant doubt on the Group's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.

 

(b) BASIS OF CONSOLIDATION

The consolidated financial statements incorporate the results of the Company and entities controlled by the Company (its subsidiaries) up to 31 December 2022. Subsidiaries are entities over which the Company has the power to control the financial and operating policies. The Company obtains and exercises control through holding more than half of the voting rights. The financial statements of the subsidiaries are prepared for the same period as the Company using consistent accounting policies. The fiscal year of Karanja Terminal & Logistics Private Limited (KTPL) ends on March 31 and its accounts are adjusted for the same period for consolidation.

 

Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.

 

Non-controlling interest

 

Non-controlling interest, presented as part of equity, represent the portion of a subsidiary's profit or loss and net assets that is not held by the Group. The Group attributes total comprehensive income or loss of subsidiaries between the owners of the parent and the non-controlling interests based on their respective ownership interest.

 

(c)  LIST OF SUBSIDIARIES

 

Details of the Group's subsidiaries which are consolidated into the Company's financial statements are as follows:

 

Subsidiary	Immediate Parent	Country of Incorporation	% Voting Rights	% Economic Interest
Karanja Terminal & Logistics (Cyprus) Ltd	Mercantile Ports & Logistics Limited	Cyprus	100.00	100.00
Karanja Terminal & Logistics Private Limited*	Mercantile Ports & Logistics Limited	India	7.08	7.08
Karanja Terminal & Logistics Private Limited*	Karanja Terminal & Logistics (Cyprus) Ltd.	India	92.70	92.70

* Financial year end for Karanja Terminal & Logistics Private Limited ("KTLPL") is April to March, as same is governed by Companies Act 2013, but for preparing group financials we have considered January to December period.  

 

(d) FOREIGN CURRENCY TRANSLATION

 

The consolidated financial statements are presented in UK Sterling (£), which is the Company's functional currency. The functional currency for all of the subsidiaries within the Group is as detailed below:  

 

·      Karanja Terminal & Logistics (Cyprus) Ltd ("KTLCL") - Euro

·      Karanja Terminal & Logistics Private Limited ("KTLPL") - Indian Rupees

Foreign currency transactions are translated into the functional currency of the respective Group entity, using the exchange rates prevailing at the date of the transactions (spot exchange rate). Foreign exchange gains and losses resulting from the settlement of such transactions and from the retranslation of monetary items denominated in foreign currency at the year-end exchange rates are recognised in the Consolidated Statement of Comprehensive Income.

 

Non-monetary items are not retranslated at year-end and are measured at historical cost (translated using the exchange rates at the transaction date).

In the Group's financial statements, all assets, liabilities and transactions of Group entities with a functional currency other than GBP are translated into GBP upon consolidation.

 

On consolidation, the assets and liabilities of foreign operations are translated into GBP at the closing rate at the reporting date. The income and expenses of foreign operations are translated into GBP at the average exchange rates over the reporting period. Foreign currency differences are recognised in other comprehensive income in the translation reserve. When a foreign operation is disposed of, in part or in full, the relevant amount in the translation reserves shall be transferred to the profit or loss in the Consolidated Statement of Comprehensive Income.

 

(e) REVENUE RECOGNITION

 

Revenue mainly consists of services relating to use of the port by customers and includes services such as hiring of land, wharf-age, hiring of equipment, loading/unloading, stevedoring, storage and from value added activities viz. trading which is incidental to providing port services.

 

To determine whether to recognise revenue, the Group follows a 5-step process:

 

1.     Identifying the contract with a customer

 

2.     Identifying the performance obligations

 

3.     Determining the transaction price

 

4.     Allocating the transaction price to the performance obligations

 

5.     Recognizing revenue as and when performance obligation(s) are satisfied.

 

The total transaction price for a contract is allocated amongst the various performance obligations based on their relative standalone selling prices. The transaction price for a contract excludes any amounts collected on behalf of third parties.

 

Revenue is recognised either at a point in time or over time, when (or as) the Group satisfies performance obligations by transferring the promised goods or services to its customers.

 

The Group recognises contract liabilities for consideration received in respect of unsatisfied performance obligations and reports these amounts as other liabilities in the statement of financial position. Similarly, if the Group satisfies a performance obligation before it receives the consideration, the Group recognises either a contract asset or a receivable in its statement of financial position, depending on whether something other than the passage of time is required before the consideration is due. Invoicing for services is set out in the contract.

 

The group does not believe there are elements of financing in the contracts. There are no warranties or guarantees included in the contract.

 

The specific recognition criteria described below must also be met before revenue is recognised.

 

Port operation and logistics services

 

Revenue from port operation services including cargo handling, storage, other ancillary port and logistics services including the end to end value added services with respect to coal supply and delivery are measured based upon cargo handled at rates specified under the contract and charged on per metric tonne basis.

 

The performance obligation is satisfied using the output method; this method recognises revenue based on the value of services transferred to the customer, for example, quantity of cargo loaded and unloaded and/or transported. 

 

Revenue is recognized in the accounting period in which the services are rendered and completed till reporting date.

 

Management determines if there are separate performance obligations from which customer are being able to benefit from, for example, barging, stevedoring or transportation.

 

Each of these services are distinct from the other. Customer may choose one or more of these distinct services and revenue recognition would be based on per metric tonne basis on satisfaction of each service obligation.

 

Revenue from sale of traded goods

 

Revenue from sale of traded goods is recognized on transfer of control to the customers, which is generally on dispatch of goods and no significant uncertainty exists regarding the amount of the consideration that will be derived from the sale of goods. Sales are stated exclusive of Goods and Service Tax ("GST").

 

Income from long term leases

 

As a part of its business activity, the Group sub-leases land on long term basis to its customers. Leases are classified as finance lease whenever the terms of lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating lease. In some cases, the Group enters into cancellable lease / sub-lease transaction agreement, while in other cases, it enters into non-cancellable lease / sub-lease agreement. The Group recognises the income based on the principles of leases as set out in IFRS 16 "Leases" and accordingly in cases where the land lease / sub-lease agreement are cancellable in nature, the income in the nature of upfront premium received / receivable is recognised on operating lease basis i.e. on a straight line basis over the period of lease / sub-lease agreement / date of memorandum of understanding takes effect over lease period and annual lease rentals are recognised on an accrual basis.

Interest income

Interest income is reported on an accrual basis using the effective interest method.

 

(f) Borrowing cost

Borrowing costs directly attributable to the construction of a qualifying asset are capitalised during the period of time that is necessary to complete and prepare the asset for its intended use. Other borrowing costs are expensed in the period in which they are incurred and reported under finance costs.

(g) EMPLOYEE BENEFITS

i)       Defined contribution plan (Provident Fund)

In accordance with Indian Law, eligible employees receive benefit from Provident Fund, which is a defined contribution plan. Both the employee and employer make monthly contributions to the plan, which is administrated by the government authorities, each equal to the specific percentage of employee's basic salary. The Group has no further obligation under the plan beyond its monthly contributions. Obligation for contributions to the plan is recognised as an employee benefit expense in the Consolidated Statement of Comprehensive Income when incurred.

 

ii)      Defined benefit plan (Gratuity)

In accordance with applicable Indian Law, the Group provides for gratuity, a defined benefit plan (the Gratuity Plan) covering eligible employees. The Gratuity Plan provides a lump sum payment to vested employees, at retirement or termination of employment, and amount based on respective last drawn salary and the years of employment with the Group. The Group's net obligation in respect of the Gratuity Plan is calculated by estimating the amount of future benefits that the employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. Any unrecognised past service cost and the fair value of plan assets are deducted. The discount rate is a yield at reporting date on risk free government bonds that have maturity dates approximating the term of the Group's obligation. The calculation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Group, the recognised asset is limited to the total of any unrecognised past service cost and the present value of the economic benefits available in the form of any future refunds from the plan or reduction in future contribution to the plan.

 

The Group recognises all re-measurements of net defined benefit liability/asset directly in other comprehensive income and presents them within equity.

 

 

iii)     Short term benefits

Short term employee benefit obligations are measured on an undiscounted basis and are expensed as a related service provided. A liability is recognised for the amount expected to be paid under short term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

 

(h)  Leases

 

As a lessee

The Company mainly has lease arrangements for converting the waterfront into reclamation of land for construction of Port for terminal and logistics operations. The land thus reclaimed consist of the open space and also offices, warehouse spaces and equipment.

 

The Group assesses whether a contract contains a lease at inception of the contract. The Group recognises a right-of-use asset and corresponding lease liability in the statement of financial position for all lease arrangements where it is the lessee, except for short-term leases with a term of twelve months or less and leases of low value assets. For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease.

 

The lease liability is initially measured at the present value of the future lease payments from the commencement date of the lease. The lease payments are discounted using the interest rate implicit in the lease or, if not readily determinable, the asset and company specific incremental borrowing rates. Lease liabilities are recognised within borrowings on the statement of financial position. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made. The Group re-measures the lease liability, with a corresponding adjustment to the related right-of-use assets, whenever:

 

•           The lease term changes or there is a significant event or change in circumstances resulting in a change in the assessment of exercise of a purchase option, in which case the lease liability is re-measured by discounting the revised lease payments using a revised discount rate;

•           The lease payments change due to the changes in an index or rate or a change in expected payment under a guaranteed residual value, in which case the lease liability is re-measured by discounting the revised lease payments using an unchanged discount rate;

•           A lease contract is modified, and the lease modification is not accounted for as a separate lease, in which case the lease liability is re-measured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of modification.

The right-of-use assets are initially recognised on the SOFP at cost, which comprises the amount of the initial measurement of the corresponding lease liability, adjusted for any lease payments made at or prior to the commencement date of the lease, any lease incentive received and any initial direct costs incurred, and expected costs for obligations to dismantle and remove right-of use assets when they are no longer used. Right-of-use assets are recognised within property, plant and equipment on the statement of financial position. Right-of-use assets are depreciated on a straight-line basis from the commencement date of the lease over the shorter of the useful life of the right-of-use asset or the end of the lease term.

 

The Group enters into lease arrangements as a lessor with respect to some of its time charter vessels. Leases for which the Group is an intermediate lessor are classified as finance or operating leases by reference to the right-of-use asset arising from the head lease. Income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Amounts due from lessee under finance leases are recognised as receivables at the amount of the Group's net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group's net investment outstanding in respect of these leases.

As a lessor

Lease income from operating leases where the Company is a lessor is recognized in income on a straight-line basis over the lease term unless a systematic basis more representative of the pattern in which benefit from the use of the underlying asset is diminished is suitable. The respective leased assets are included in the balance sheet based on their nature.

Initial direct costs incurred in negotiating and managing an operating lease are added to the cost of the leased asset and recognized as an expense over the term on the same basis as the lease income.

 

(i) INCOME TAX

 

Tax expense recognised in profit or loss comprises the sum of deferred tax and current tax not recognised in other comprehensive income or directly in equity. Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting periods, that are unpaid at the reporting date. Current tax is payable on taxable profit, which differs from profit or loss in the financial statements. Calculation of current tax is based on tax rates and tax laws that have been substantively enacted by the end of the reporting period.

 

Deferred tax

 

The accounting for income tax are accounted under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

 

Deferred tax assets are recognized to the extent that management believes that these assets are more probable than not to be realized. In making such a determination, it considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If it is determined that it would be able to realize the deferred tax assets in the future in excess of the net recorded amount, the necessary adjustment would be made to the deferred tax asset valuation allowance, which would reduce the provision for income tax.

 

(j) FINANCIAL ASSETS

 

The Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument.

 

Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires.

 

Classification and initial measurement of financial assets

 

Except for those trade receivables that do not contain a significant financing component and are measured at the transaction price in accordance with IFRS 15, all financial assets are initially measured at fair value adjusted for transaction costs (where applicable).

 

Financial assets, other than those designated and effective as hedging instruments, are classified into the following categories:

 

•      amortised cost

•      fair value through profit or loss ("FVTPL")

•      fair value through other comprehensive income ("FVOCI").

 

In the periods presented, the corporation does not have any financial assets categorised as FVOCI.

 

 

 

The classification is determined by both:

 

•      the entity's business model for managing the financial asset

•      the contractual cash flow characteristics of the financial asset.

 

All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables which is presented within other expenses.

 

Subsequent measurement of financial assets

 

Financial assets at amortised cost

Financial assets are measured at amortised cost if the assets meet the following conditions (and are not designated as FVTPL):

 

•      they are held within a business model whose objective is to hold the financial assets and collect its contractual cash flows

•      the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding

 

After initial recognition, these are measured at amortised cost using the effective interest method. Discounting is omitted where the effect of discounting is immaterial. The Group's cash and cash equivalents, trade and most other receivables fall into this category of financial instruments as well as listed bonds that were previously classified as held-to-maturity under IAS 39.

 

Impairment of financial assets

 

IFRS 9's impairment requirements use more forward-looking information to recognise expected credit losses - the 'expected credit loss (ECL) model'. This replaces IAS 39's 'incurred loss model'. Instruments within the scope of the new requirements included loans and other debt-type financial assets measured at amortised cost and FVOCI, trade receivables, contract assets recognised and measured under IFRS 15 and loan commitments and some financial guarantee contracts (for the issuer) that are not measured at fair value through profit or loss.

 

(k) FINANCIAL LIABILITIES

 

Classification and measurement of financial liabilities

 

As the accounting for financial liabilities remains largely the same under IFRS 9 compared to IAS 39, the Group's financial liabilities were not impacted by the adoption of IFRS 9. However, for completeness, the accounting policy is disclosed below.

 

The Group's financial liabilities include borrowings, trade and other payables and derivative financial instruments.

 

Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless the Group designated a financial liability at fair value through profit or loss.

 

Subsequently, financial liabilities are measured at amortised cost using the effective interest method except for derivatives and financial liabilities designated at FVTPL, which are carried subsequently at fair value with gains or losses recognised in profit or loss (other than derivative financial instruments that are designated and effective as hedging instruments).

 

All interest-related charges and, if applicable, changes in an instrument's fair value that are reported in profit or loss are included within finance costs or finance income.

(l)  PROPERTY, PLANT AND EQUIPMENT

 

Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses.

 

The Group is in the process of constructing its initial project; the creation of a modern and efficient port and logistics facility in India. All the expenditures directly attributable in respect of the port and logistics facility under development are carried at historical cost under Capital Work in Progress as the Board believes that these expenses will generate probable future economic benefits. These costs include borrowing cost, professional fees, construction costs and other direct expenditure. After capitalisation, management monitors whether the recognition requirements continue to be met and whether there are any indicators that capitalised costs may be impaired.

 

Cost includes expenditures that are directly attributable to the acquisition of the asset and income directly related to testing the facility is offset against the corresponding expenditure. The cost of constructed asset includes the cost of materials, sub-contractors and any other costs directly attributable to bringing the asset to a working condition for its intended use. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.

 

Parts of the property, plant and equipment are accounted for as separate items (major components) on the basis of nature of the assets.

 

Depreciation is recognised in the Consolidated Statement of Comprehensive Income over the estimated useful lives of each part of an item of property, plant and equipment. For items of property, plant and equipment under construction, depreciation begins when the asset is available for use, i.e. when it is in the condition necessary for it to be capable of operating in the manner intended by management. Thus, as long as an item of property, plant and equipment is under construction, it is not depreciated. Leasehold improvements are amortised over the shorter of the lease term or their useful lives.

Depreciation is calculated on a straight-line basis.

The estimated useful lives for the current year are as -

 

Assets	Estimated Life of assets
Lease hold Land Development	Over the period of Concession Agreement by Maharashtra Maritime board (MMB).
Marine Structure, Dredged Channel	Over the period of Concession Agreement by Maharashtra Maritime board (MMB).
Non Carpeted road other than RCC	3 Years
Office equipment	3-5 Years
Computers	2-3 Years
Computer software	5  Years
Plant & machinery	15  Years
Furniture	5-10 Years
Vehicles	5-8 Years

 

Depreciation methods, useful lives and residual value are reassessed at each reporting date.

 

Gains or losses arising on the disposal of property, plant and equipment are determined as the difference between the disposal proceeds and the carrying amount of the assets are recognised in profit or loss within other income or other expenses.

Impairment of Property, Plant and Equipment

 

Internal and external sources of information are reviewed at the end of the reporting period to identify indications that the property, plant and equipment may be impaired. When impairment indicators exist the management compares the carrying value of the property, plant and equipment with the fair value determined as the higher of fair value less cost of disposal or value in use, also refer note 3.

 

Property, plant and equipment is stated at cost, net of accumulated depreciation and/or impairment losses, if any. There is currently no impairment of property, plant and equipment.

 

(m)  Trade receivables and payables

 

Trade receivables are financial assets at amortised costs, initially measured at the transaction price, which reflects fair value, and subsequently at amortised cost less impairment. In measuring the impairment, the Group has applied the simplified approach to expected credit losses as permitted by IFRS9. Expected credit losses are assessed by considering the Group's historical credit loss experience, factors specific for each receivable, the current economic climate and expected changes in forecasts of future events. Changes if any in expected credit losses are recognised in the Statement of Comprehensive Income.

 

Trade payables are financial liabilities at amortised cost, measured initially at fair value and subsequently at amortised cost using an effective interest rate method.

 

(n)  Advances

 

Advances paid to the EPC contractor and suppliers for construction of the facility are categorised as advances and will be offset against future work performed by the contractor.

 

(o) Cash and cash equivalents

 

Cash and cash equivalents comprise cash on hand and bank deposits that can easily be liquidated into known amounts of cash and which are subject to an insignificant risk of changes in value.

 

(p) Stated capital and reserves

 

Shares have 'no par value'. Stated capital includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from stated capital, net of any related income tax benefits.

 

Foreign currency translation differences are included in the translation reserve. Retained earnings include all current and prior year retained profits.

 

(q) New standard and interpretation

 

There are no accounting pronouncements, which have become effective from 1 January 2023 that have a significant impact on the Group's consolidated financial statements.

 

(r) Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by the group

 

Following new standards or amendments that are not yet effective and have been issued by the IASB which are not applicable or have material impact on the Group.

 

·   IFRS 17 Insurance Contracts

·   Amendments to IFRS 17 Insurance Contracts (Amendments to IFRS 17 and IFRS 4)

·   Effective date of amendments on disclosure of accounting policies

·   Amendments to IAS 8 on accounting estimates

·   Amendments to IAS 12 on deferred tax related to Assets and Liabilities from a single transaction.

·   Classification of Liabilities as Current or Non-current (Amendments to IAS 1)

 

3.   SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS

 

The following are significant management judgements in applying the accounting policies of the Group that have the most significant effect on the financial statements.

 

Recognition of income tax liabilities

 

MPL group's Indian subsidiary had filed a writ petition in Hon'ble High court for seeking relief against the order passed by the Income Tax Appellate Tribunal (ITAT) for the two assessment years 2011-12 and 2012-13, which was decided in favour of the group's Indian subsidiary. As per these orders, the matter was sent back to the files of Principal Commissioner of Income Tax (Appeals) for re-adjudication following the ITAT orders for assessment years 2013-14 to 2015-16.

 

The Principal Commissioner of Income Tax (Appeals) vide its order dated 20^th March, 2023, issued an order in favour of the Group's subsidiary for the assessment years 2011-12 and 2012-13.

 

By virtue of this order, the demand made by the Income tax department at present is not recoverable. As such the order of the Principal Commissioner of Income Tax (Appeals) is of a protective nature, hence the management has decided to prudently reverse the provisions and the interest accrued on the same for the subject years.

 

However, since the Income tax department has preferred an appeal in Supreme Court. In light of the uncertainty of the final outcome, the Group has disclosed the same under the head of contingent liability in note no 25.

 

Impairment Review

 

The Audit Committee considered the significant judgements, assumptions and estimates made by management in preparing the impairment review to ensure that they were appropriate. In particular, the cash flow projections, port capacity, tariffs used, margins, discount rates, inflation and sensitivity analysis were reviewed. The Audit Committee also considered external market factors to assess reasonableness of management assumptions.

 

The Committee also considered the valuation done by an independent external expert valuer.

As per the valuation report, the value of the cash generating unit (CGU) group (considering the discounting rate of 13.40%) was determined to be £131.53 Mn.

 

The review did not result in any impairment during the year, however there was minimal headroom in the calculation.

 

The group carried out sensitivity analysis on the following:

a)     reduction in Revenue by 10%, the assets would be impaired by £ 16.17 Mn.

b)    reduction in EBIDTA by 10%, the assets would be impaired by £ 11.70 Mn.

c)     increase in the discounting rate by 1%, the assets would be impaired by £ 11.20 Mn.

 

Considering the above sensitivity analysis, the group's asset would be impaired.

 

Taking the above into account, together with the documentation presented and the explanations given by management, the committee is satisfied with the thoroughness of the approach and judgements taken.

 

4. SEGMENTAL REPORTING

 

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The Board of Directors of are identified as the Chief operating decision maker. The Group has only one operating and geographic segment, being the project on hand in India and hence no separate segmental report presented.

 

5. REVENUE FROM OPERATION

	Year ended 31 Dec 22	Year ended 31 Dec 21
	£000	£000
Sale of goods	561	--
Cargo handling income	1,968	710
Lease income	1,728	1,091
Other operating income	615	--
	4,872	1,801

 

The Company has given certain land portions on operating lease. These lease arrangement is for a period 40 months. Lease is renewable for further period on mutually agreeable terms.

 

The total future minimum lease rentals receivable at the SOFP date is as under:

Payments falling due	As on 31 Dec 22 INR in million	As on 31 Dec 22 £ million
2023	46.92	0.48
2024	9.60	0.10
2025	9.60	0.10
2026	9.60	0.10
Fifth year and above	48.00	0.49
Total	123.72	1.27

 

 

6. COST OF SALES

	Year ended 31 Dec 22	Year ended 31 Dec 21
	£000	£000
Wharf-age expense	411	72
Other operating expense	1,134	235
Changes in inventory	(96)	--
	1,449	307

               

 

7. ADMINISTRATIVE EXPENSES

	Year ended 31 Dec 22	Year ended 31 Dec 21
	£000	£000
Employee costs	635	577
Directors' remuneration and fees	476	423
Operating lease rentals	9	13
Foreign exchange loss	68	84
Depreciation	6,231	3,132
Other administration costs	2,559	4,144
	9,978	8,373

 

 

	Year ended 31 Dec 22	Year ended 31 Dec 21
	£000	£000
Interest on bank deposits	38	40
Gain from extinguishment of debt*	--	5,408

8. (a) FINANCE INCOME

 

* During the previous year, Group had received sanction from lenders for one-time restructuring (OTR) of loan. The Management has tested the OTR for debt modification under IFRS 9. The revised cash out flow discounted at original EIR 13.45% resulted in net gain of £ 5.41 million and was effected accordingly in 2021. The corresponding effect of debt modification has been considered in 2022 financials.

 

8. (b) FINANCE EXPENSES

	Year ended 31 Dec 22	Year ended 31 Dec 21
	£000	£000
Interest on term loan	4,726	1,977*
Interest others	817	2,599
	5,543	4,576

 

* Interest on the term loan is capitalized against assets under construction up to March 2021.  As major construction work is completed and assets under construction transferred into service, the capitalization of interest ceased on that part and interest expensed out to the profit and loss account from April 2021 onwards. 

 

The capitalization rate used to determine the amount of borrowing costs to be capitalized is the weighted average interest rate applicable to the entity's general borrowings during the year, in this case 13.45% up to 10 June 2021 and 9.5% effective from 11 June 2021.

 

The lenders have reset the interest rate from 9.5% pa to 9.55% p.a. on Term Loan and from 10.50% pa to 10.55% pa on FITL with effect from June 2022.

 

9. INCOME TAX

	Year ended 31 Dec 22	Year ended 31 Dec 21
	£000	£000
Loss Before Tax	(12,060)	(6,007)
Applicable tax rate in India*	26.00%	26.00%
Expected tax credit	(3,136)	(1,562)
Reconciling items Non-deductible losses of MPL and Cyprus entities	320	994
Un-recognised deferred tax asset	2,025	--
Non-deductible expenses	791	568
Reversal of outstanding tax liability and interest thereon pertaining to earlier years	2,421	(14)
	2,421	(14)

                                         

 

 

* Considering that the Group's operations are presently based in India, the effective tax rate of the Group of 26% (prior year 26%) has been computed based on the current tax rates prevailing in India. In India, income earned from all sources (including interest income) are taxable at the prevailing tax rate unless exempted. However, administrative expenses are treated as non-deductible expenses until commencement of operations.

MPL group's subsidiary had filed a writ petition in Hon'ble High court for seeking relief against the order passed by the Income Tax Appellate Tribunal (ITAT) for the two assessment years 2011-12 and 2012-13, which was decided in favour of the Group. As per these orders, the matter was sent back to the files of Principal Commissioner of Income Tax (Appeals) for re-adjudication following the ITAT orders for assessment years 2013-14 to 2015-16.

 

The Principal Commissioner of Income Tax (Appeals) vide its order dated 20^th March, 2023, issued an order in favour of the Group's subsidiary for the assessment years 2011-12 and 2012-13.

 

By virtue of this order, the demand made by the Income tax department at present is not recoverable. As such the order of the Principal Commissioner of Income Tax (Appeals) is of a protective nature, hence the management has decided to prudently reverse the provisions and the interest accrued on the same for the subject years.

 

However, since the Income tax department has preferred an appeal in Supreme Court, in light of the uncertainty of the final outcome, the Group has disclosed the same under the head of contingent liability in note no 25.

 

The Company is incorporated in Guernsey under The Companies (Guernsey) Law 2008, as amended. The Guernsey tax rate for companies is 0%. The rate of withholding tax on dividend payments to non-residents by companies within the 0% corporate income tax regime is also 0%. Accordingly, the Company will have no liability to Guernsey income tax on its income and there will be no requirement to deduct withholding tax from payments of dividends to non-resident shareholders.

 

In Cyprus, the tax rate for companies is 12.5% with effect from 1 January 2014. There is no tax expense in Cyprus.

 

Due to uncertainty that Indian entity will generate sufficient future taxable income to offset business losses incurred to realise deferred tax assets, the management has not recognised the Deferred Tax Asset amounting to INR: 67.46 crore (£6.76 Mn.) (2021- INR: 47.88 crore (£4.77 Mn.).

 

10. AUDITORS' REMUNERATION

 

The following are the details of fees paid to the auditors, Grant Thornton UK LLP and Indian auditors, in various capacities for the year:

 

	Year ended 31 Dec 22	Year ended 31 Dec 21
	£000	£000
Audit Fees
Fees payable to the auditor for the audit of the Group's financial statements *	171	130
Non-audit service:
Interim Financial Statement Review	10	9
Non -audit services	110	80
	291	219

 

* This includes prior year overruns charged during the year aggregating to £ 12,500 (2021: £ 7,210).

 

11.   EARNINGS PER SHARE

 

Both basic and diluted earnings per share for the year ended 31 December 2022 have been calculated using the loss attributable to equity holders of the Group of £9.621 million (prior year loss of £6.02 million).

 

	Year ended 31 Dec 22	Year ended 31 Dec 21
Loss attributable to equity holders of the parent	£ (9,621,000)	£ (6,016,000)
Weighted average number of shares used in basic and diluted earnings per share	41,499,699	26,000,334
EARNINGS PER SHARE
Basic and Diluted earnings per share	(0. 232p)	(0. 231p)

 

On 9th September 2021 The group has successfully completed fund raise by placing 2,244,947,810 new Ordinary Shares at a price of 0.45 pence per share. Also on 13 September 2021 group has consolidated its share capital by way of issuing 1 share for every 100 shares.