Last checked at 30 Jul 2007 07:01
KSK Power Ventur PLC30 July 2007 For immediate release 30 July 2007 KSK Power Ventur plc ("KSK" or the "Company") Preliminary results for the period ended 31 March 2007 KSK Power Ventur plc (AIM : KSK.L), the power project development company withinterests in multiple power plants across India, today announces its maidenpreliminary results for the period ended 31 March 2007, being from the date ofthe holding company's incorporation on 16 July 2006 prior to KSK's admission toAIM. For comparative purposes the Company also announces the following unauditedconsolidated financial results for the year ended 31 March 2007. Financial Highlights •Turnover up 152% to $13.42 m (£7.27m) (2006 : $5.32m (£2.87m)) •Gross Profit up 200% to $8.49m (£4.6m) (2006 : $2.83m (£1.53m)) •Profit from Operations up 892% to $4.76m (£2.57m) (2006 : $0.48m (£0.26m)) •Profit before tax up 556% to $5.77m (£3.13m) (2006 : $0.88m (£0.48m)) •Net Profits $4.34m (£2.35m) (2006 : $0.36m (£0.20m)) *All financial figures represented in US dollars unless otherwise stated. ** Conversion at $1 = £0.542 Operational Highlights •Two new plants commenced operations in the period : €58 MW Sai Regency captive power plant (March 2007) €43 MW Sitapuram power plant (June 2007) •Six plants now in operation in total • New power projects under construction : • 135 MW VS lignite power plant in the State of Rajastan (formerly for Marudhar Power) due for completion and commissioning in 2008; • 540 MW power plant in Warora due for completion and commissioning in 2009. •Continued progress on development of the Wardha Power 1210 MW pithead based power plant; •Further identification and development of a number of hydroelectric power plant opportunities; •Strategic acquisition of 5% stake in Gujarat Mineral Development Corporation (GMDC) to further secure fuel supply. Commenting on the results, T L Sankar, Chairman of KSK said: "2007 was another successful year for KSK. Since our admission to the LondonStock Exchange in November 2006, the Company has remained firmly focused on thegrowth opportunities open to us through the development and constructioninitiatives of a range of power projects across India. The Company's progress both in thermal and hydroelectric power areas isencouraging and further development work will continue to hold the Company'sfocus into 2008. With the continued strong demand for consistent energy supplyin the Indian market, 2008 promises to be another important year in thedevelopment of KSK, as the Company continues its development initiatives andconsolidation of existing activities." For further information, please contact: www.ksk.co.in KSK Power Ventur plc +44 (0)20 7357 9477S. Kishore, Executive DirectorK.A. Sastry, Executive Director Arden Partners plc +44 (0)20 7398 1632Richard Day/Steve Pearce Hogarth Partnership +44 (0)20 7357 9477Barnaby Fry/Sarah Richardson CHAIRMAN'S STATEMENT I am extremely pleased to report a year of substantial progress for KSK, markedby the further development of a range of new opportunities, a strong financialperformance and our admission to trading on AIM. The results for the year comprise the consolidated results of the Company forthe eight and a half months since incorporation, for the flotation process, on16 July 2006 to 31st March 2007, together with unaudited consolidated resultsfor the year to 31st March 2007. The overall financial performance for the year was strong, due to continueddevelopment activities and profitable underlying power plant operations. The years gross revenue increased 152% from $5.32m (£2.87m) to $13.42m (£6.53m). During th year the Company has been successful in increasing its varieddevelopment activities, associated revenue realisation for project developmentfees and interest earned on risk capital. The Company's anticipation of revenueuplift in the current year on account of actualisation of the share appreciationon the placement of shares in its underlying power plant SPV's, as well asspecific revenue generated on commercial operations, will, in accordance withprudent accounting practice, be recognised in the financial year 2008. During the year KSK has acquired a strategic 5.2% interest in Gujarat MineralDevelopment Corporation (BSE: GMDC) for approx $28m and the Company willcontinue to seek opportunities to build this and other strategic investments inthe future. The Company continues to work with Gujarat Mineral development Corporation(GMDC) and other SMDC's with respect to various thermal plant opportunities aswell as various local governments for the award of hydroelectric power plantconcessions. Power Plants Commencement of Operations During the year under review and to date, the Company has successfully completedconstruction and commenced operations at three power plants, namely: • Arasmeta Captive Power Company Private Limited, a 43 MW coal based captive power plant for Lafarge India. • Sai Regency Power Corporation Private Limited, 58 MW natural gas based captive power plant for multiple Industrial customers. • Sitapuram Power Limited, 43 MW coal based captive power plant for Cement France units in India. The Group, through its joint venture company with Lehman - KSK ElectricityFinancing India Private Limited ("KEFIPL") - has increased its equity holding inthe above three power plants. In the case of the Arasmeta and Sai Regency plantsthis has been through the acquisition of stakes on divestment of equity interestby the 'small is beautiful fund'. The cumulative investment by KEFIPL in the three plants now stands at $20m. WithKEFIPL now holding all of the equity not subscribed by the power plant consumersin these projects, it becomes entitled to 100% of the economic returns. Construction In addition to the projects that have come on stream, two power plantinitiatives, VS Lignite and Wardha Warora, have experienced significant progressin plant construction activity, while a further project, Wardha Chattisgarh, hasmoved towards the advanced development phase having received full fuel and offtake commitments. • VS Lignite Power Private Limited (Formerly "Marudhar Power Private Limited"), a 135 MW Lignite based captive power plant for multiple industrial customers. • Wardha Power Company Private Limited, Warora plant, Maharashtra, a 540 MW coal based captive power plant for multiple industrial customers. • Wardha Power Company Private Limited, pithead plant, Chattisgarh, a 1210 MW coal based power plant initiative near Morga block mine mouth area. During the year under review and to date, the above SPV's have also seensignificant capital investment for further development of the power plants: • VS Lignite Power Private Limited - with KEFIPL investing $37m it has subscribed to the entire equity (other than that subscribed by consumers) and has therefore become entitled to 100% of the economic returns of the power plant. • Wardha Power Company Private Limited - Total KEFIPL equity of $83m invested to date. The cumulative equity investments by KEFIPL currently stand at $142m (comparedwith $9.8m at the time of the IPO) in five power plant SPV's, and the Companyanticipates additional capital investments, alongside other investors, in theseSPV's and in further SPV's in the current financial year. This significantincrease reflects continued confidence and support from Lehman, KSK's JVpartner. Development The Company continues to work on further power plant opportunities in itsdevelopment pipeline. These include the Dibbin and Kamang dam projects inArunachal Pradesh. Progress on the smaller Avantika & Maithili projects has been slower thananticipated. While progress on the Avantika project site has been satisfactory,KSK's current movement towards significantly larger projects and higher equityholding positions by KEFIPL in SPV's, has led management to defer plans foradditional equity investments and we are currently in discussion withco-promoters to re-evaluate our participation in these projects. The coal based power plant initiative based on its MOU with the Madhya PradeshState Mining Corporation is expected to take a definitive shape within the next6 months. Strategic Acquisition During the period KSK has acquired a strategic 5.2% interest in Gujarat MineralDevelopment Corporation (BSE: GMDC) for approx $28m and will continue to lookfor other opportunities to build this and other strategic investments. Thisstake is in line with KSK's fuel strategy and integrated power plant model andfurther cements the valuable association with GMDC for the Morga-IIcollaboration for coal supplies to the Wardha Power plant. The benefits that KSK envisages from this equity position with GMDC includeoversight and influence to leverage the intrinsic strength of GMDC's currentactivities in mining & power for various new initiatives and KSK's miningefforts, as well as accruing significant investment returns. GMDC is the second largest lignite mining company in India with production of7.2 m tonnes during 2005/06. GMDC has also commissioned the 250 MW lignite basedAkrimota power plant. GMDC is a Government of Gujarat enterprise with over 2800employees. GMDC is currently owned by the Government of Gujarat (74%) and otherinstitutional and public shareholders (26%). Current Trading & Outlook In the coming year, KSK will remain focused on the development and constructionof its various power plant projects and increasing its total MW underdevelopment. in India. As announced in January 2007, the Company is making aconcerted drive into hydroelectric power, which complements its successfulthermal credentials, so as to provide a balanced portfolio of power generationassets. Securing the entire capital requirement needs for the Wardha Power Plant,together with ensuring the full project execution, will require significantmanagement time and attention throughout the current year. In addition themanagement will oversee the completion of ground works on the Dibbin and Kamangdam projects in Arunachal Pradesh. We are looking forward to an exciting year ahead and appreciate the support ofall our shareholders. T.L. Sankar Chairman, 30 July 2007 OPERATIONAL REVIEW KSK concentrates its power plant activities in India. The Company's growthstrategy is to focus on optimising production and returns in existing assets,timely execution and operation of its power plant assets under construction,continuing development of its project pipeline for a balanced portfolio of powergeneration assets. The following are the Company's six operating power plants, along with itsrespective equity interests: Site Capacity % HoldingRVK 19.2 MW 50%Kasargod 20.4 MW 50%Coromandel 26.2 MW 72%Arasmeta 43 MW 51%Sai Regency 58 MW 74%Sitapuram 43 MW 49%Total 209.8 MW FINANCIAL REVIEW KSK has had a successful year achieving many new milestones in development aswell as associated profitability. There has been an increase across all keyperformance metrics during the year. Profit and loss KSK Group ( Unaudited year to 31st March 2007 ) Turnover for the year increased by 152% from $5.3m to $13.42m . Revenue fromsales of energy has doubled to $9.77m compared with $4.34m, reflecting the newplants commissioned during the year and the increased plant load factor atCoromandel. Revenue from project development fees has increased from $0.98m to$3.29m reflecting an earlier realisation of fees than anticipated. Themanagement fee revenue from the 'small is beautiful fund' was $0.36m for theperiod. KSK's gross profit for the year was $8.49m as against $2.83m during theprevious year. Cost of sales increased from $2.48m to $4.92m, predominantly dueto the fuel and production costs associated with additional generation units. Administrative expenses for the year were at $5.54m compared to $2.34m in theprevious year and broadly in line with revenue growth. Finance cost for the year was at $2.18m compared to $1.11m in the previousyear, reflecting the effect of additional power plant interest costs for thegroup. This cost is effectively offset by the investment income of $3.2m derivedby the Group in the current period as against $1.51m in the previous year,mainly the result of additional treasury returns from temporary deposits of IPOproceeds. Profit for the year stands at $4.34m as against $362,000 during the previousyear. Such profit is after providing for taxation charge of $1.43m. Cashflow Operating cashflow from the Company was $ 6.59m for the year to 31 March 2007. Cash outflow for capital expenditure was $26.15m which includes $18.73m towardsfixed assets and $10.75m towards additional investments. Net Funds The Company raised $58.42m in November 2006 by way of a placing of 28.878mordinary shares as part of the IPO in London. In addition it had borrowings of$58.42m to meet its ongoing business plan. At the end of the year KSK had netfunds of $63.2m. Consolidated Balance Sheet (All amounts in thousands of US Dollars, unless otherwise stated) Notes March 31, 2007 --------- ------------ASSETSNon current assetsProperty, plant and equipment, net 15 92,490Goodwill 16 2,703Long term financial assets 17 10,793 ------------Total non current assets 105,986 ------------Current assetsCash and cash equivalents 18 3,341Restricted cash 19 59,862Available for Sale investments 17 28Accounts receivable, net 20 3,689Inventories 21 1,129Other current assets 22 46,294 ------------Total current assets 114,343 ------------Total Assets 220,329 ============ LIABILITIES AND STOCKHOLDERS' EQUITYNon current liabilitiesLong-term debt (net of current portion) 23 73,749Employee obligations 24 17Deferred tax liabilities 25 122Other liabilities 26 11,952 ------------Total non current liabilities 85,840 ------------ Current liabilitiesProvisions 153Trade and other payables 27 6,990Current tax liabilities, net of advances 2,292Short-term loans and borrowings 23 180Current portion of long term debt 23 56,661Other liabilities 26 3,021 ------------Total current liabilities 69,297 ------------Total liabilities 155,137 ------------ Stockholders' equityShare capital 29 216Additional paid up capital 52,697Other reserves 1,942Translation reserve 2,521Retained earnings 7,816 ------------Total stockholders' equity 65,192Total liabilities and stockholders' equity 220,329 Consolidated Statement of Income (All amounts in thousands of US Dollars, unless otherwise stated) Notes For the period July 17, 2006 to March 31, 2007 ----------- -------------- Operating Revenue 6 12,049Cost of Sales (6,125) --------------Gross Profit 5,924 -------------- Distribution Expenses 6General and administrative expenses 2,476 --------------Operating income 3,442 -------------- Other income 8 384Excess of share of assets acquired over acquisitioncost 1,420(refer note 30)Investment income 9 2,636Interest cost 11 (1,885) --------------Net income before tax 5,997 -------------- Taxes 13Current tax expenses 1,151Deferred tax expenses 89 --------------Net income 4,757 -------------- --------------Net Income attributable to equity shareholders 4,757 -------------- Earnings per share 14 0.057Continuing operations ----------- -------------- Consolidated Statement of Cash Flows (All amounts in thousands of US Dollars, unless otherwise stated) Particulars Period ended March 31, 2007 ------------- (A) Cash inflow/ (outflow) from operating activities Net income before tax 5,997 Adjustments to reconcile net income before tax to net cash provided by operating activities: Depreciation and amortization 1,309(Profit) on sale of investments (37)Pre operative expenses written off 69Changes in operating assets and liabilitiesAccounts receivable and other assets (2,827)Inventory (589)Excess of assets acquired over payments made on acquisition (1,420)Loans and Advances (26,301)Current Liabilities and Provisions 1,724 -------------Net changes in operating assets and liabilities (22,075) -------------Direct Tax paid (1,240) -------------Net cash provided by operating activities (23,315) ============= (B) Cash inflow/ (outflow) from investing activitiesIncrease in restricted cash (59,862)Dividends paid to equity shareholders (202)Interest paid on loans (2,397)Payments for purchase of property plant and equipment (18,737)Investment in joint ventures (10,759)Sale of available for sale investments 326 -------------Net cash used in investing activities (91,631) ------------- Consolidated Statement of Cash Flows (All amounts in thousands of US dollars, unless otherwise stated) Particulars Period ended March 31, 2007 ------------- (C ) Cash inflow/ (outflow) from financing activities Proceeds from Secured Loan 87,369Redemption of Preference Shares in consolidated entities (853)Decrease in borrowings on account of acquisition (13,631)Dividends from equity investments 202Interest on loans 2,397Repayment of secured loans (23,188)Proceeds from issue of share capital 52,913Dividend Paid (Including Tax on Dividend) (775)Increase in reserves on account of acquisition 1280 -------------Net cash provided by / (used in) financing activities 105,714 =============Movement in net assets on account of acquisitions (11,202)Net increase/ (decrease) in cash and cash equivalents (6,663)Effect of exchange rate changes on cash 2,569Cash and cash equivalents at the beginning of the period -Cash taken over from KSK India as at 17 July 2006* 7,246Cash and cash equivalents at the end of the period 3,341 Cash and cash equivalents compriseCash in hand 152Balances with banks 3,189 ------------- 3,341 ============= *Refer note 5 on Group reorganisation Notes to the Consolidated Financial Statements 1. Nature of Operations KSK Power Ventur Plc ('the Company'), its subsidiaries and joint ventures(collectively referred to as 'the Group') are primarily engaged in thedevelopment, operation and maintenance of private sector power projects,predominantly through joint ventures with heavy industrial companies in theIndia. The Group strategy for growth is to work with major international and Indianbusinesses and electricity distribution companies to ensure that they haveaccess to dependable and cost effective source of electrical power through thedevelopment construction operation of optimal sized power plants withappropriate fuel sources. The Group, through one of its subsidiaries also acts as investment manager ofthe Small is Beautiful Fund ('SIB') and is empowered to invest the contributionsreceived by SIB in public limited companies engaged in the business of powergeneration and allied projects, 2. General Information The consolidated financial statements of the Group have been prepared inaccordance with International Financial Reporting Standards ('IFRS') as issuedby the International Accounting Standards Board (IASB). KSK Power Ventur Plc, a limited liability corporation, is the Group's ultimateparent company and is incorporated and domiciled in the Isle of Man. The addressof KSK Power Ventur Plc registered Office, which is also principal place ofbusiness is 15-19 Althol Street, Douglas, Isle of Man 1M 1 1 LB. KSK PowerVentur Plc's equity shares are listed on the Alternate Investment Market ('AIM')operated by the London Stock Exchange. The Financial statements for the period July 17, 2006 to March 31, 2007 wereapproved by the board of directors on July 28, 2007. As at March 31, 2007, the Group comprised of the following subsidiaries andjoint ventures. Subsidiaries Immediate Country of % shareholding Parent Incorporation ----------------------- ---------- ---------- ----------KSK EnergyCompany Limited('KECL') Mauritius 100KSK EnergyVenturesPrivate Limited('KEVPL' or'KSK India') KECL India 100----------------------- ---------- ---------- ---------- Joint Ventures Investor Country of % economic----------------------- (co-venturer) Incorporation interest company ---------- ---------- ----------RVK Energy Private Limited Co - Venturer India 50.00Kasargood PowerCorporation Limited Co - Venturer India 50.00Coramandel ElectricCompany Limited Co - Venturer India 71.86Sai Regency PowerCorporation PrivateLimited Co - Venturer India 50.14Arasmeta Captive PowerCompany Private Limited Co - Venturer India 34.26Sitapuram Power Limited Co - Venturer India 17.15VS Lignite Power PrivateLimited Co - Venturer India 58.26Wardha Power CompanyPrivate Limited Co - Venturer India 74.00KSK Electricity FinancingIndia Private Limited Co - Venturer India 35.00Marudhar Mining PrivateLimited Co - Venturer India 74.00----------------------- ---------- ---------- ---------- 3. Standards and Interpretations not yet applied by the Group The following new standards, amendments and interpretations, as applicable tothe Group, which are yet to become mandatory, have not been applied in theGroup's consolidated financial statements. Standard or interpretation Effective for in reporting periods starting on or after IAS 1 Presentation of Financial Statements - Reports on Capital January 1, 2007 management objectives, policies and procedures IFRS 7 Financial Instruments - Disclosures (Replaces and amends January 1, 2007 disclosure requirements previously set out in IAS 32) IFRS 8 Operating segments - Replaces IAS 14 segment reporting January 1, 2007 IAS 19 IAS 19 - The limit on a Defined Benefit Asset, Minimum January 1, 2008 Funding Requirements and their Interaction IFRIC 13 Customer Loyalty Programmes July 1, 2008 IFRIC 12 Service Concession Arrangements January 1, 2008 IFRIC 11 IFRS 2 Group and Treasury Share Transactions March 1, 2007 IAS 23 Borrowing Costs (revised 2007) January 1, 2009 Based on KSK Power Ventur Plc's current business model and accounting policies,management does not expect material impacts on KSK Power Ventur Plc'sconsolidated financial statements when these Standards and Interpretationsbecome effective. KSK Power Ventur Plc does not intend to apply any of thesepronouncements early. 4. Summary of Accounting Policies 4.1. Overall considerations The significant accounting policies that have been used in the consolidatedfinancial statements are summarised below. The financial statements have beenprepared using the measurement bases specified by IFRS for each type of asset,liability, income and expense. The measurement bases are more fully described inthe accounting policies below. The consolidated financial information comprises the Company, its subsidiariesand share of jointly controlled entities (together referred to as "the group")for the period from July 17, 2006 to March 31, 2007. 4.2. Basis of preparation The consolidated financial information has been prepared on the going concernassumption and in the opinion of the directors the group will be able to meetits obligations as they fall due in the foreseeable future. The financial information comprises the consolidated income statement,consolidated balance sheet, consolidated statement of changes in shareholders'equity, consolidated statement of cash flows and related notes. 4.3. Use of estimates In the process of applying the Group's accounting policies, , the Group isrequired to make certain estimates, judgements and assumptions that it believesare reasonable based upon the information available. These estimates andassumptions affect the reported amounts of assets and liabilities at the date ofthe financial statements and the reported amounts of revenue and expenses duringthe periods presented. On an ongoing basis, the Group evaluates its estimates using historicalexperience, consultation with experts and other methods considered reasonable inthe particular circumstances. Actual results may differ significantly from theestimates, the effect of which is recognised in the period in which the factsthat give rise to the revision become known. 4.4. Basis of consolidation The consolidated financial information incorporates the financial information ofKSK Power Ventur Plc , its subsidiaries, and jointly controlled entities of thesubsidiaries made up to 31 March 2007. Subsidiaries are those entities controlled by the Company. Control exists whenthe company has the power, directly or indirectly, to govern the financial andoperating policies of an enterprise so as to obtain benefits from itsactivities. Subsidiaries are consolidated from the date on which control isacquired by the group and are no longer consolidated from the date such controlceases. Intra-group balances and transactions and any resulting unrealized gains arisingfrom intra-group transactions are eliminated on consolidation. Unrealized lossesresulting from intra-group transactions are also eliminated unless cost cannotbe recovered. Amounts reported in the financial statements of subsidiaries havebeen adjusted where necessary to ensure consistency with the accounting policiesadopted by the Group. 4.5. Investments in Joint Ventures Entities whose economic activities are controlled jointly by the Group and byother ventures independent of the Group ('Joint Ventures') are accounted forusing proportionate consolidation to the extent of the Group's economic interestin the entity. Where a group company undertakes its activities under joint venture arrangementsdirectly, the group's share of jointly controlled assets and any liabilitiesincurred jointly with the other ventures are recognised in the financialstatements of the relevant company and classified according to their nature.Liabilities and expenses incurred directly in respect of interest in jointlycontrolled assets are accounted for on an accrual basis. Income from the sale orthe use of the group's share of the output if jointly controlled assets, and itsshare of the joint venture expenses, are recognised when it is probable that theeconomic benefits associated with the transactions will flow to/from the groupand their amount can be measured reliably. Amounts reported in the financial statements of joint ventures have beenadjusted where necessary to ensure consistency with the accounting policiesadopted by the Group. 4.6. Business Combinations The acquisition of subsidiaries is accounted for using the purchase method. Thecost of acquisition is measured at the aggregate of the fair values, at the dateof exchange, of assets given, liabilities incurred or assumed, and equityinstruments issued by the Group in exchange for control of the acquiree, plusany costs directly attributable to the business combination. The acquiree'sidentifiable assets, liabilities and contingent liabilities that meet theconditions for recognition under IFRS 3 are recognized at their fair value atthe acquisition date, except for non-current assets (or disposal groups) thatare classified as held for resale in accordance with IFRS 5 Non-Current AssetsHeld for Sale and Discontinued Operations, which are recognized and measured atfair value less costs to sell. Goodwill represents the excess of the acquisition cost in a business combinationover the fair value of the group's share of the identifiable net assetsacquired. Goodwill is carried at cost less accumulated impairment losses. Anyexcess of the group's share of the identifiable net assets acquired over theacquisition cost is recognised immediately in profit and loss after reassessingthe identification and measurement of the identifiable assets, liabilities,contingent liabilities and recording necessary adjustments. Refer to note 4.8for a description of impairment testing procedures On disposal of a subsidiary, associate or jointly controlled entity, theattributable amount of goodwill is included in the determination of the profitor loss on disposal. 4.7. Property, plant and equipment Property, plant and equipment are stated at historical cost less accumulateddepreciation and impairment losses. Historical cost includes expenditure that isdirectly attributable to the development or acquisition of the items. Subsequentcosts are included in the asset's carrying amount or recognized as a separateasset, as appropriate, only when it is probable that future economic benefitsassociated with the item will flow to the group and the cost of the item can bemeasured reliably. Borrowing costs associated with the Property, plant andequipment are capitalized upto the date the said property, plant and equipmentare ready to be put to use. Repairs and maintenance are charged to the incomestatement during the financial period in which they are incurred. Assets in the course of construction are not depreciated. Other assets aredepreciated by writing off their cost less estimated residual value evenly overtheir estimated useful lives, based on management's judgement and experience,which are principally as follows: Nature of asset Useful life (years) Buildings 30 yearsInfrastructure assetsGas engine based installation 15 yearsThermal power plants 25 yearsHydel power plants 35 yearsOffice equipment and motor vehicles 7 yearsFurniture and fittings 7 yearsVehicles 5 yearsComputer software 5 years Land held for use in production is stated at cost and the related carryingamounts are not depreciated. 4.8. Impairment testing of goodwill and property plant and equipment Property, plant and equipment are reviewed for impairment at each reporting dateto determine whether there is any indication that those assets may have sufferedan impairment loss. If any such indication exists, the recoverable amount of theasset is estimated in order to determine the extent of the impairment loss, ifany. For the purposes of assessing impairment, assets are grouped at the lowestlevels for which there are largely independent cash inflows (cash-generatingunits). As a result, some assets are tested individually for impairment and someare tested at cash-generating unit level. Goodwill is allocated to thosecash-generating units that are expected to benefit from synergies of the relatedbusiness combination and represent the lowest level within the Group at whichmanagement monitors goodwill. Cash-generating units to which goodwill has been allocated are tested forimpairment at least annually. All other individual assets or cash-generatingunits are tested for impairment whenever events or changes in circumstancesindicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's orcash-generating unit's carrying amount exceeds its recoverable amount. Todetermine the recoverable amount, KSK Power Ventur Plc's management estimatesexpected future cash flows from each cash generating unit and determines asuitable interest rate in order to calculate the present value of those cashflows. Discount factors are determined individually for each cash-generatingunit and reflect their respective risk profiles as assessed by KSK Power VenturPlc's management. Impairment losses for cash-generating units reduce first the carrying amount ofany goodwill allocated to that cash-generating unit. Any remaining impairmentloss is charged pro rata to the other assets in the cash-generating unit. Withthe exception of goodwill, all assets are subsequently reassessed forindications that an impairment loss previously recognised may no longer exist.An impairment charge that has been recognised is reversed if the cash-generatingunit's recoverable amount exceeds its carrying amount. 4.9 Financial instruments Financial assets and liabilities are recognised on the Group's balance sheetwhen the Group becomes a party to the contractual provisions of the instrument. Trade receivables Trade receivables are initially recorded at fair value and thereafter atamortised cost using the effective interest method. Financial investments Investments (other than interests in joint ventures and fixed deposits) arerecognised and derecognised on a trade date and are initially measured at fairvalue, including transaction costs. Investments are classified as eitherheld-to-maturity, held-for-trading, loans and receivables or available for sale.Held-to-maturity investments and loans and receivables are measured at amortisedcost. Held-for-trading and available-for-sale investments are measured atsubsequent reporting dates at fair value. Where securities are held for tradingpurposes, gains and losses arising from changes in fair value are included innet profit or loss for the period. For available-for-sale investments, gains andlosses arising from changes in fair value are recognized directly in equity,until the security is disposed of or is determined to be impaired, at which timethe cumulative gain or loss previously recognized in equity is included in thenet profit or loss for the period. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits and othershort term highly liquid investments that are readily convertible to a knownamount of cash and are subject to an insignificant risk of change in value. Financial liabilities and equity Financial liabilities and equity instruments are classified according to thesubstance of the contractual arrangements entered into. An equity instrument isany contract that evidences a residual interest in the assets of the group afterdeducting all of its liabilities. Compound financial instruments are broken down into their equity and liabilitycomponents and classified accordingly in the balance sheet. The initial carryingamount of a compound financial instrument is allocated to its equity andliability components, and the equity component is assigned the residual amountafter deducting from the fair value of the instrument as a whole the amountseparately determined for the liability component. The carrying amount of theliability component is determined by measuring the fair value of a similarliability that does not have an associated equity component. Such measurementtakes into account management's estimates of the Group's contractual obligationto make future payments and the market interest rate for a similar liability. Bank borrowings Interest-bearing bank loans and overdrafts are recorded at the proceedsreceived, net of direct issue costs. Finance charges, including premiums payableon settlement or redemption and direct issue costs, are accounted for on anamortised cost basis to the income statement using the effective interest methodand are added to the carrying amount of the instrument to the extent that theyare not settled in the period in which they arise. Trade payables Trade payables are initially measured at fair value, and are subsequentlymeasured at amortised cost, using effective interest rate method. Equity instruments Equity instruments issued by the Company are recorded at the proceeds received,including premium, if any, and the issue expenses are deducted from the sharepremium received. 4.9. Inventories Inventories are stated at the lower of cost and net realisable value. Costincludes all expenses directly attributable to the manufacturing process as wellas suitable portions of related production overheads, based on normal operatingcapacity. Financing costs are not taken into consideration. Costs of ordinarilyinterchangeable items are assigned using the first in, first out cost formula.Net realisable value is the estimated selling price in the ordinary course ofbusiness less any applicable selling expenses. 4.10. Foreign Currency Transactions The functional currency of the Company is the British Pound ('GBP') and itssubsidiary in Mauritius and the Indian Rupee for all the entities operating inIndia. The reporting currency of the Group is the US dollar as submitted to theAIM exchange where the shares of KSK Power Ventur Plc are listed. Transactions and balances Foreign currency transactions are translated into the functional currency of therespective group entity, using the exchange rates prevailing at the dates of thetransactions (spot exchange rate). At each balance sheet date, monetary assetsand liabilities denominated in foreign currencies are translated into US dollarsat the relevant rates of exchange ruling on the balance sheet date. Gains andlosses arising on translation are included in net profit or loss for the period,except for exchange differences arising on non-monetary assets and liabilitieswhere the changes in fair value are recognised directly in equity. Translation On consolidation, the balance sheets of the subsidiaries and joint ventures aretranslated into US dollars at exchange rates applicable at the balance sheetdate. The income statements are translated into US dollars using the averagerate unless exchange rates fluctuate significantly in which case the exchangerate at the date the transaction occurred is used. Exchange differencesresulting from the translation of such balance sheets at rates ruling at thebeginning and end of the period, together with the differences between incomestatements translated at average rates and rates ruling at the period end, arecharged/credited to the foreign currency translation reserve in equity. Suchtranslation differences are recognised as income or as expenses in the period inwhich the operation is disposed of. 4.11. Segment reporting In identifying its operating segments, management generally follows the Group'sservice lines, which represent the generation of the power and other relatedservices provided by the Group. The activities undertaken by the Power generation segment includes sale of Powerand other related services. The project management of these power plants isundertaken by the service segment. The accounting policies used by the Group forsegment reporting are the same as those used for the financial statements.Further, income, expenses and assets which are not directly attributable to thebusiness activities of any operating segment are not allocated. 4.12. Provisions for liabilities and charges Provisions are recognised when present obligations will probably lead to anoutflow of economic resources from the Group and they can be estimated reliably.Timing or amount of the outflow may still be uncertain. A present obligationarises from the presence of a legal or constructive commitment that has resultedfrom past events, for example, product warranties granted, legal disputes oronerous contracts. Restructuring provisions are recognised only if a detailedformal plan for the restructuring has been developed and implemented, ormanagement has at least announced the plan's main features to those affected byit. Provisions are not recognised for future operating losses. Provisions are measured at the estimated expenditure required to settle thepresent obligation, based on the most reliable evidence available at the balancesheet date, including the risks and uncertainties associated with the presentobligation. Where there are a number of similar obligations, the likelihood thatan outflow will be required in settlement is determined by considering the classof obligations as a whole. Long term provisions are discounted to their presentvalues, where the time value of money is material. All provisions are reviewed at each balance sheet date and adjusted to reflectthe current best estimate of Group management. In those cases where the possible outflow of economic resource as a result ofpresent obligations is considered improbable or remote, no liability isrecognised, unless it was assumed in the course of a business combination These contingent liabilities are recognised in the course of the allocation ofpurchase price to the assets and liabilities acquired in the businesscombination. They are subsequently measured at the higher amount of a comparableprovision as described above and the amount initially recognised, less anyamortisation. 4.13. Employees' benefits Defined benefit plans A defined benefit plan is a pension plan that defines an amount of benefit thatan employee will receive on retirement/separation. The legal obligation for anybenefits remains with the Group, even if plan assets for funding the definedbenefit plan have been set aside. Plan assets may include assets specificallydesignated to a long term benefit fund as well as qualifying insurance policies.The liability recognised in the balance sheet for defined benefit pension plansis the present value of the defined benefit obligation (DBO) at the balancesheet date less the fair value of plan assets, together with adjustments forunrecognised actuarial gains or losses and past service costs. The management estimates the DBO annually with the assistance of independentactuaries. The estimate of its post-retirement benefit obligations is based onstandard rates of inflation, medical cost trends and mortality. It also takesinto account the Group's specific anticipation of future salary increases.Discount factors are determined close to each year-end by reference to highquality corporate bonds that are denominated in the currency in which thebenefits will be paid and that have terms to maturity approximating to the termsof the related pension liability. The liabilities recognised for defined benefitplans sponsored by the Company, however, are subject to change as these factorsmay vary over the passage of time. Current service costs for defined benefitplans are accrued in the period to which they relate with the difference betweenthe expected return on scheme assets and interest on scheme liabilities areincluded within the income statement within employee costs. Defined contribution plan In addition, the group operates a defined contribution scheme where payments arecharged as employee costs as they fall due. The group has no further payment orobligations once the contributions have been paid. 4.14. Revenue recognition Revenue is measured at the fair value of the consideration received orreceivable in accordance with the relevant agreements, net of discounts, VAT andother applicable taxes. Sale of power Revenue from the sale of power is recognised when all the following conditionshave been satisfied: - The group has transferred to the buyer the significant risks and rewards of ownership of the power supplied or the services provided. This is generally when the customer has approved the services that have been provided or has taken undisputed delivery of power. - The amount of revenue can be measured reliably - It is probable that the economic benefits associated with the transaction will flow to the group, and - The costs incurred or to be incurred in respect of the transaction can be measured reliably. Income from services Income from services is recognised as per the terms and conditions of thedevelopment activity with respect to the relevant power generating company andits stage of development. Interest income and expenses are reported on an accrual basis. Dividendsreceived, other than those from investments in associates, are recognised at thetime of their distribution. 4.15. Income Taxes The tax expenses represent the sum of the tax currently payable and deferredtax. Current taxation Current tax is based on the taxable profit for the period and is provided atamounts expected to be paid (or recovered) using the tax rates and laws thathave been enacted or substantially enacted at the balance sheet date. Taxable profit differs from the net profit or loss as reported in the incomestatement because it excludes items of income or expense that are taxable ordeductible in other years and further excludes items that are never taxable ordeductible. Deferred taxation Deferred taxation is the tax expected to be payable or recoverable ondifferences between the carrying amounts of assets and liabilities in thefinancial statements and the corresponding tax bases used in the computation oftaxable profit. Deferred tax liabilities are provided, using the liabilitymethod, on all taxable temporary differences at the balance sheet date. Suchassets and liabilities are not recognised if the temporary difference arisesfrom goodwill or from the initial recognition (other than in a businesscombination) of other assets an liabilities in a transaction that affectsneither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differencesarising on investments in subsidiaries and interests in joint ventures, exceptwhere the group is able to control the reversal of the temporary difference andit is probable that the temporary difference will not reverse in the foreseeablefuture. Deferred tax is measured, without discounting, at the average tax rates that areexpected to apply in the periods in which the temporary timing differences areexpected to reverse based on tax rates and laws that have been enacted orsubstantially enacted at the balance sheet date. The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer more likely than not thatsufficient taxable profit will be available to allow all or part of the asset tobe recovered. Deferred tax is not recognised on temporary differences arising from the initialrecognition of goodwill. Deferred tax is charged or credited in the income statement, except when itrelates to items charged or credited to equity, in which case the deferred taxis also dealt with in equity. 4.16. Financing costs and interest income Borrowing costs, excluding borrowing cost directly attributable to acquisitionor construction of qualifying assets, are recognized in the income statement inthe period in which they are incurred, the amount being determined using theeffective interest rate. Interest income and expenses is recognised using theeffective interest rate method. Finance income is recognised in the incomestatement in the period in which they are accrued. 4.17. Equity and Dividend Payments Share capital is determined using the nominal value of shares that have beenissued. Additional paid-in capital includes any premiums received on the initial issuingof the share capital. Any transaction costs associated with the issuing ofshares are deducted from additional paid-in capital, net of any related incometax benefits. Other reserves comprise gains and losses due to the revaluation of certainfinancial assets and property, plant and equipment. Foreign currency translationdifferences are included in the translation reserve. Retained earnings include all current and prior period results as disclosed inthe income statement. Dividend distributions payable to equity shareholders are included in "othershort term financial liabilities" when the dividends are approved in the generalmeeting prior to the balance sheet date. 4.18. Cash and Cash Equivalents Cash and cash equivalents comprise cash on hand and demand deposits, togetherwith other short-term, highly liquid investments that are readily convertibleinto known amounts of cash and which are subject to an insignificant risk ofchanges in value. 4.19. Earnings per share The earnings considered in ascertaining the company's earning per share (EPS)comprise of the net profit after tax less dividend (including dividenddistribution tax) on preference shares. The number of shares used for computingthe basic EPS is the weighted average number of shares outstanding during theyear. 5. Group Reorganization As a part of the re-organisation of the KSK Group, the Company was incorporatedon July 17, 2006, as the new holding company of the Group. Simultaneously, theCompany acquired the outstanding equity shares of KSK Energy Limited, Mauritius('KSK Mauritius') for a nominal price of US$1, making it a wholly ownedsubsidiary of the Company. On November 7, 2006, KSK Energy Ventures PrivateLimited ('KEVPL'), the operating entity and holding company of the powergenerating companies in India, bought back 29,773,850 its equity shares of INR10 each at par, representing 100% percent of its outstanding share capital fromK&S Consulting, an entity controlled by the promoters of the Company.Simultaneously, KEVPL issued these repurchased equity shares and 60,226,150fresh equity shares to KSK Mauritius thereby making KEVPL a wholly ownedsubsidiary of KSK Mauritius. As a result of this transaction, the Company hasbecome the ultimate holding company of KEVPL. As both the Company and KEVPL were under the common control of K&S Consultingand the Company has no other operations, this transaction has been treated as acapital transaction between entities under common control and therefore theassets and liabilities of KEVPL have been recorded at book values and as if thistransaction had occurred at the earliest period presented i.e. the date ofincorporation of the Company, July 17, 2006. Consequently, the income statementrepresents the results of operations of KEVPL and its subsidiaries and interestin joint ventures from the date of incorporation of the Company toMarch 31, 2007. Following are the details of the book value of assets and liabilities assumed asat July 17, 2006 (USD '000)Net assets at the date of acquisition (based on economic As at July 17,interest) 2006------------------------------- -----------Property, plant and equipment 85,328Goodwill 129Investments 3,283Inventories 507Trade receivables 809Other receivable 8384Other assets 64Cash 7,246Loans 68,790Trade and other payables 12,703 Critical accounting estimates and judgements Critical judgements in applying the group's accounting policies The followingparagraphs detail the policies the group believes to have the most significantimpact on the results. (a) Accounting for provision and contingencies The group is subject to a number of claims incidental to the normal conduct ofits business, relating to and including commercial, contractual and employmentmatters, which are handled and defended in the ordinary course of business. Thegroup routinely assesses the likelihood of any adverse judgements or outcomes tothese matters as well as ranges of probable and reasonably estimated losses.Reasonable estimates involve judgements made by management after consideringinformation including notifications, settlements, estimates performed byindependent parties and legal counsel, available facts, identification of otherpotentially responsible parties and their ability to contribute, and priorexperience. A provision is recognised when it is probable that an obligation exists forwhich a reliable estimate can be made of the obligation after careful analysisof the individual matter. The required provision may change in the future due tonew developments and as additional information becomes available. Matters thateither are possible obligations or do not meet the recognition criteria for aprovision are disclosed, unless the probability of transferring economicbenefits is remote. (b) Derivatives and borrowings The group's default treatment is for borrowings to be carried at amortised cost,whilst derivatives are recognised separately on the balance sheet at fair valuewith movements in those fair values reflected through the income statement. Thishas the potential to introduce volatility to both the income statement and thebalance sheet. Key sources of estimation uncertainty The key assumptions concerning the future, and other key sources of estimationuncertainty at the balance sheet date, that have a significant risk of causing amaterial adjustment to the carrying amounts of assets and liabilities within thenext financial year, are discussed below. (c) Deferred taxes The group created a provision for current taxes and in consideration of thetemporary differences also for deferred tax. There are many transactions andcalculations for which the ultimate tax determination is uncertain during thecourse of business and the measurement of deferred tax assets and liabilitiesreflects the tax consequences that would follow from the manner in which thegroup expects to recover or settle the carrying amount of assets andliabilities. Where the final tax-deductible expenses are different from theamounts that were calculated, such differences will impact the current incomeand deferred tax provisions in the period in which such determination is made. 6. Operating Revenue (US $'000) ---------- Period ended 31 March, 2007 ----------Revenue from sale of energy (Net of Rebates and discounts) 8,455Income from Project development activities 3,594Total 12,049 ---------- 7. Employee costs (US$'000) ---------- Period ended 31 March, 2007 ----------Salaries and wages 796Employee benefit 27Other 118Total 941 ---------- 8. Other Income (net) (US$'000) ---------- Period ended 31 March, 2007 ----------Other IncomeInterest on deposits and overdue bills 353Miscellaneous income 103 ----------Total Other income 456 ----------Other expensesLoss on disposal of property, plant and equipment 3Miscellaneous expenses 69 ----------Total other expenses 72 ----------Total other income (net) 384 ---------- 9. Investment income (US$'000) ---------- Period ended 31 March, 2007 ----------Interest on loans 2,397Profit on sale of investment 37Dividends from equity investments 202Total 2,636 ---------- 10. Segmental information For management purposes, the strategic group is currently organised into twooperating divisions - project development activities and power generatingactivities. These operating segments are monitored and strategic decisions aretaken basis on segments operating results. There is only one geographicalsegment as all business and operations are carried out in India. Segmental information about these operating divisions is presented below: (US$'000) Project Power Unallocable Eliminations Total development generating Segment Activities Activities ---------- --------- --------- ---------- ---------RevenueExternal Sales 3,594 8,455 - 12,049Inter-segment sales 25 - (25) -Total Revenue 3619 8,455 (25) 12,049ResultSegment Result 2,319 1,170 (25) 3,442Other Income (net) 1,550 254 1,804Investment income 2,636 2,636Finance Costs (1,333) (552) (1,885)Profit before tax 2,319 1387 2,338 (25) 5,997Taxation charge (491) (280) (491) (1,240)Net Profit for theperiod 1,828 1,107 1,847 (25) 4,757Balance sheet as at March 31, 2007Segment assets 184,335 82,380 (45,808) 220,907Total consolidatedassets 220,907Segment liabilities 52,579 111,933 (8,797) 155,715Total Consolidatedliabilities 155,715 Additional disclosuresDepreciation 1,309Assets acquired 37,069 The Company derives its entire revenues from India and all its assets andliabilities are located in India. 11. Finance costs (US$'000) ---------- Period ended 31 March, 2007 ----------Interest on bank loans 1,493Interest on preference shares 272Exchange (gains)/Loss (net) -Other financial expenses 120 ----------Total 1,885 ---------- 12. Profit/(loss) before tax Profit/(loss) before tax has been arrived at after charging: (US$'000) ---------- Period ended 31 March, 2007 ----------Depreciation 1,309Cost of inventories recognized as expense 3,614Auditors' remuneration for audit services 46Total 4,696 ---------- 13. Taxation charge (US$'000) ---------- Period endedRecognised in the income statement 31 March, 2007------------------------------------ ----------Total current tax expense 1,151Deferred tax charge 89Total 1240 ---------- The Company is based in the Isle of Man, which is a tax free jurisdiction.However, considering that the Company's operations are entirely based in India,the effective tax rate of the Group has been computed based on the current taxrates prevailing in India The relationship between the expected expense based onthe effective tax rate of the group at 33.36 % and the tax expense actuallyrecognised in the income statement may be reconciled as follows: (US$'000) ----------Reconciliation of the effective rate Period ended------------------------------------ 31 March, 2007 ----------Profit before tax 5,977Income tax at standard rate 2,012Non-deductible expenses (303)Differences on account of items taxed at lower rates (469)Tax (charge)/credit and effective tax rate for the period 1,240------------------------------------ ---------- 14 Earnings per share Basic and diluted earnings per share The calculations of basic earnings per share for the years ended 31 March 2007has been determined as the net profit/(loss) after tax divided by the weightedaverage number of equity share outstanding during the year. Period ended 31 March, 2007 ----------Net profit/(loss) attributable to ordinary shareholders (US$'000) 4757Weighted average number of ordinary shares during the period(no's) 83,577,441Basic earnings per share (US $) 0.057------------------------------------ ---------- There is therefore no difference between the basic earning/(loss) per shares anddiluted earnings/(loss) per shares for each of the period. There are no outstanding potential dilutive equity shares as at the balancesheet date. 15. Property, plant and equipment (US$'000) Land and Infra- Office equip. Assets in Total buildings structure and motor construction assets vehicles -------- ------- --------- --------- ------Cost:Assets takenover from KSKIndia as at 17July 2006 4,384 25,910 557 60,815 91,666Disposals ofassets (136) (9) (145)Additions 3,274 27,170 409 30,853Capitalisationof assets inconstruction (22,250) -------- ------- --------- --------- ------As at 31 March2007 7,658 52,944 957 38,565 100,124 -------- ------- --------- --------- ------ Accumulated depreciationAs at 17 July2006 301 5,847 190 6,338Disposals ofassets (5) (8) (13)Depreciationcharges 71 1,169 69 1,309 -------- ------- --------- --------- ------As at 31 March2007 372 7,011 251 - 7,634 -------- ------- --------- --------- ------ Net Book value -------- ------- --------- --------- ------As at 31 March2007 7,286 45,933 706 38,565 92,490---------------- -------- ------- --------- --------- ------ 16. Goodwill (US$'000) ----------Cost Period ended 31 March, 2007 ----------Balance as at 17 July 2006 taken over from KSK India 129Currency translation adjustment 3Business combinations made during the period 2,571At 31 March 2007 2,703Net book value as at 31 March 2007 2,703------------------------------------ ---------- Subsequent to the annual impairment test, the carrying amount of goodwill isallocated to the power generating units of the group. The recoverable amounts for the cash-generating units given above weredetermined based on value-in-use calculations, covering a detailed three-yearforecast, followed by an extrapolation of expected cash flows at the growthrates stated below. The growth rates reflect the long-term average growth ratesfor the power generation activity of the cash-generating units. Growth rate 20% Discount rate 25% The management's key assumptions for the power generating unit include stableprofit margins, which have been determined based on past experience in thismarket. The management believes that this is the best available input forforecasting this mature market. 17. Investments (US$'000) 31 March 2007 -------------Non-CurrentHeld-to-maturity investments 9,863Available-for-sale investments 930 10,793CurrentAvailable-for-sale investments 28---------------------------------- ------------- The investments included above represent investments that present the group withthe opportunity for return through dividend income and trading gains and alsoinvestments in private companies in India. They have no fixed maturity or couponrate. Non-current available for sale investments comprise minority shareholdingsin Small is Beautiful Fund which is unquoted. For investments made in privatecompanies, there is no quoted fair value available and these investments arecarried at cost based on management's best estimate and net of impairmentlosses, if any. The current available for sale investments comprise minority shareholdings inthe equity shares of Andhra Bank being quoted on the Indian stock market. 18. Cash and cash equivalents (US $'000) 31 March, 2007 ---------------Short term deposits 3,189Cash and cash equivalents 152Total cash and cash equivalents 3,341-------------------------------- --------------- 19. Restricted Cash Restricted cash represents deposits with bank against which the Company hastaken loan or created a collateral . These guarantees expire within one yearfrom the date of the balance sheet. 20. Trade and other receivables, net (US$'000) 31 March, 2007 ---------------Current trade receivables 3,689 --------------- Credit risk management The group's customer concentration is such that no single customer has asignificant relative weight. Management performs ongoing credit evaluation of its customers and it isinvolved in the day to day credit collection activity. An allowance for the bad debts is determined with respect to those amounts thatthe group has determined to be doubtful from collection. The allowance for baddebts is estimated by the group's management based on prior experience and theirassessment of the current economic environment. There is no significant concentration of credit risk due to exposure beingspread over a number of customers. As the trade receivables are short term, their carrying value approximates theirfair value. There are no bad debts written off during the period. 21. Inventories (US $'000) 31 March, 2007 ---------------Raw materials 581Stores, spares and consumables 548Total --------------- 1,129 --------------- There are no write down or reversal of write-down inventories to net realisablevalue during the current period. The entire amount of inventories is pledged assecurity for liabilities, refer note 23 for details. 22. Other current assets (US $'000) 31 March, 2007 ---------------Loans given to JV partners 21,867Advance tax and Withholding taxes 1,948Advance for purchase of shares 7,182Deposits 1,567Other receivables 12,322Total --------------- 46,294 --------------- 23. Interest-bearing loans and borrowings (US $'000) 31 March, 2007 ------------Non-current liabilitiesSecured bank loans and loans taken from financialinstitutions 61,102Debt component of Class B and Class C shares held by LBHoldings Mauritius II Limited (Also refer note 30) 815Preference shares of the jointly controlled entities 11,832 ------------ 73,749 ------------Current liabilitiesSecured bank loans 2,648Unsecured bank loans 20,835Other Unsecured Loans 33,358 ------------ 56,841 ------------ (US $'000) At 31 March 2007 1 year or 1-2 2-5 More than TotalTerms and debt repayment schedule Less Years Years 5 yearsSecured bank loans 2,648 7,055 23,947 30,100 63,750----------------- ------- ------ ------ -------- ------Preference shares of jointlycontrolled entities 11,832 11,832----------------- ------- ------ ------- -------- ------Dent component of class B andclass C shares 815 815Unsecured bank facilities 20,835 20,835Other Unsecured Loans 33,358 33,358Total 56,841 7,055 23,947 42,747 130,590 ------- ------ ------- -------- ------- Debt has been raised in currencies other than the functional currency of theentity. The analysis of borrowings below details the currency in which itemswere raised: The group borrowings were denominated in the following currencies: (US $'000) 31 March, 2007 -----------Indian Rupees 117,061GB 12,776USD 753Total 130,590 ----------- The weighted average effective interest rates at the balance sheet date were asfollows: 31 March, 2007 (in %) -----------Total borrowings 9.5%----------------------------------- ----------- The fair value of long-term debt is estimated by the management to beapproximate to their carrying value, since the average interest rate on suchdebt is within the range of current interest rates prevailing in the market. The following security has been offered on the group's borrowings. Period ended 31 March 2007Sl.No Entity Name of Bank Security----- ---------------- --------------- ----------------- 1 KSK Energy Sundaram Finance Motor Vehicles Ventures Private Limited Limited 2 KSK Energy ICICI Bank Motor Vehicles Ventures Private Limited Limited 3 Coromandel i) State Bank of Property, Plant and Machinery Electric Limited India ii) Indian Pledge of CRPPS & Equity Shares held Overseas Bank by KSKEVPL as collateral security and iii) Industrial personal guarantee of the directors Development Bank of India iv) Industrial Development Finance Corporation 4 Wardha Power Indian Overseas Secured by Equitable Mortgage by way Company Private Bank of Deposit of title deeds, Limited Hypothecation of Book Debts, Project Advances 5 Sitapuram Power i) Indian Fixed Assets Limited Overseas Bank ii) Industrial Fixed Assets & Current Assets both Development Bank present & future of India iv) Industrial Fixed Assets & Current Assets both Development present & future Finance Corporation 6 Sitapuram Power Sundaram Finance Motor Vehicle Limited Limited 7 V S Lignite Power Industrial Property, Plant and Equipment Private Limited Development Finance Corporation 8 V S Lignite Power Sundaram Finance Motor Vehicle Private Limited Limited 9 Sai Regency Power i) State Bank of Property, Plant and Equipment & Corporation India Current Assets both Present & Future Private Limited ii) State Bank of Tranvancore iii) State Bank of Hyderabad iv) State Bank of Bikaner and Jaipur v) State Bank of Madurai vi) State Bank of Saurashtra vii) State Bank of Patiala viii) Andhra Bank ix) Indian Overseas Bank 10 Arasmeta Captive i) State Bank of Title Deeds of all Property, Plant Power Company India and Equipment & Current Assets. Private Limited ii) Industrial Development Finance Corporation 11 R V K Energy Industrial Property, Plant and Equipment Private Limited Development Bank of India Title Deeds of Land Documents Pledge of Shares of Indian Promoters Personal Guarantees of Indian Promoter Directors 12 R V K Energy State Bank of Current Assets including inventory & Private Limited India - Cash Debtors Credit Second Charge on the fixed assets of the company 13 Kasargod Power i)State Bank of Equitable mortgage on the land Corporation India Limited ii) Andhra Bank Fixed assets including spares and stores, tools and accessories. iii) UCO Bank Pledge of shares and third party guarantees of the Indian promoters. 14 Kasargod Power UCO Bank - Cash First Charge on Book Debts, Stocks of ----- Corporation Credit raw material, consumables, spares Limited --------------- etc. ---------------- ----------------- 24. Employee benefits Balance at 17 July 2006 23Charge for the period 13Payments (27)Currency translation adjustment (8) ---------Balance as at 31 March 2007 17------------------------------------- --------- Pension Scheme The Group effectively operates one defined benefit pension scheme, as theemployees of the group, in accordance with Indian law, are eligible for benefitsin the form of gratuity payable on retirement from employment subject tocompletion of minimum of 5 years of continuous employment with the Group whichis covered under a Group Gratuity Policy operated by Life Insurance Corporationof India Limited. The above reflects the latest actuarial assessment of the liability of thescheme. Particulars March 31, 2007--------------------------------- ----------Change in Benefit ObligationPresent Benefit Obligation ('PBO') at the beginning of theyear 23Interest Cost 1Service Cost 3Benefits paid -Actuarial (gain) loss on obligations (15)PBO at the end of the year 12 Fair value of Plan Assets -Fair Value of plan Assets at the beginning of the year -Expected Return on Plan Assets -Contributions -Benefits Paid -Gain / (loss) on Plan Assets -Fair Value of Plan Assets at the end of the year -Actuarial (gain) loss recognised (15) Liability recognizedPresent Value of Obligation 2Fair value of plan assets -Liability Recognised in Balance Sheet 25--------------------------------- ---------- Net gratuity cost for the year ended June 30, 2006 included the followingcomponents: Particulars March 31, 2007--------------------------------- ----------Current Service Cost 3Interest Cost 1Net actuarial (gain) loss recognised in the year (15)Past service cost 23--------------------------------- ----------Expenses Recognised in the income statement 12--------------------------------- ---------- The movement of the net liability can be reconciled as follows: Particulars March 31, 2007--------------------------------- ---------- Movements in the liability recognizedOpening net liability 23Expense as above 12Contribution paid (27)Closing net Liability 25--------------------------------- ---------- For determination of the liability, the following actuarial assumptions wereused: Particulars March 31,2007--------------------------------- ----------Discount Rate 7.50%Rate of increase in Compensation levels 10.00%Rate of Return on Plan Assets 7.50% 25. Deferred tax assets and liabilities Deferred tax assets and liabilities are attributable as follows: 31 March, 2007 ----------Deferred tax assetsRetirement benefit obligations NilDeferred tax liabilityAccelerated tax depreciation 122------------------------------------ ---------- No temporary differences resulting from investing activities in subsidiaries andinterest in first ventures qualifies for recognition on deferred taxliabilities. 26. Other Liabilities 31 March, 2007 ----------Non-Current liabilitiesUnsecured other loans 5,297Liability for purchase of shares of Joint Venture Companies 6,018Liability for purchase of Class B and Class C Shares held byLB Holdings India II Limited in jointly controlled entity 637Total 11,952Current liabilitiesShare application money received from others in jointlycontrolled entities 3,014Others 7Total 3021 27. Trade and other payables 31 March, 2007 ----------Trade payables 6,499Other creditors 491 ----------Total 6,990 ---------- The directors consider that the carrying amount of trade payables approximatesto their fair value. 28. Equity Share Capital Share capital comprises of 500,000,000 equity shares which has a par value of0.1 pence aggregating to GBP 869,900. 29. Investments in subsidiary undertakings As at 31 March 2007, the Company had the following subsidiaries. Subsidiary Principal Proportion of Activity Ordinary shares held by the company (%) KSK Energy Company Limited, Mauritius Investments in 100 Power Generation KSK Energy Ventures Private Ltd, India(Indirect subsidiary) Project 100 development 30. Jointly Controlled Entities Proportionate consolidation of interests The Company has incorporated its share of economic interests in the followingjointly controlled entities into these consolidated financial statements usingthe proportionate consolidation method. The following table shows the consolidated proportional results and position ofthe jointly controlled entities: (US $'000) ------------- Period ended 31 March, 2007 -------------Non-Current assets 94,795Current assets 28,178 -------------Total assets 122,973 ------------- Non-current liabilities 73,802Current liabilities 14,868 -------------Total liabilities 88,670 ------------- Income 8,269Expenses 7,511Net 758---------------------------------- ------------- 31. Commitments and guarantees (US $'000) 31 March, 2007 ----------Estimated value of contracts remaining to be executed oncapital account, not provided for 39,493Investments in equity shares of subsidiary company 81,550------------------------------------ ---------- 32. Business Combinations On November 30, 2006 KSK energy ventures Private Limited, a wholly ownedsubsidiary of KSK Energy Limited acquired an additional 24.1% of the equityinstruments of Kasargod power Corporation Limited ('KPCL'), a joint powergenerating Company. Consequent to this acquisition the Company holds 50% of theequity of KPCL. Similarly the Company on December 31, 2006 KSK energy ventures Private Limited,a wholly owned subsidiary of KSK Energy Limited acquired an additional 45.86% ofthe equity instruments of Coromondel Electric Company Limited ('CECL'), a jointpower generating Company. Consequent to this acquisition the Company holds71.86%% of the equity of KPCL. As on March 28, 2007 KSK Energy Limited (a wholly owned subsidiary of KSK PowerVentur Plc acquired stakes in Sai regency power corporation private limited(SRPCL) and Arasmeta captive power company private limited (ACPCPL) to theextent of 36.96% and 23.5% respectively. (US $'000)Net assets at the date As at 30 As at As at As at of acquisition (based November December March March 28,on economic interest) 2006 31, 2006 28,2007 2007 -------- --------- -------- -------- Property, plant andequipment 7,574 2,274 18,192 9,029Inventories 116 97 169 97Trade receivables 456 519 214 180Other receivable 209 293 138 86Cash 401 726 317 41Loans (5270) (1743) (14,717) (4,620)Trade payables (327) (546) (1,131) (421)Redeemable preferenceshares (2112) - -Net identifiable assets and liabilities 1,047 1,585 3,182 4,392Excess of net assetsacquired over the purchase price 995 425Goodwill 1,260 1,311Consideration 52 1,160 1,922 3,081Satisfied by:Cash 52 1,160 1,922 3,081Net cash outflow 52 1,160 1,922 3,081---------------------- -------- --------- -------- -------- Impact on revenue and profit before tax if the acquisition date for all businesscombinations effected during the period had been beginning of that period. (US $'000) CECL KPCL SRPCL ACPCPLRevenue 2,155 371 25 2,054Profit before tax 429 33 30 119 Net assets acquired are based on the fair valuation carried out by themanagement. No major line of business will be disposed of due as a result of thecombination. Arrangement with LB Holdings Mauritius I Limited KEVPL entered into a Joint Venture agreement with LB Holdings Mauritius ILimited ('LB') for the formation of a company - KSK Energy Finance India PrivateLimited ('KEFIPL' or 'the JV Company') to be the holding company for variousoperating power companies in India. As a part of this agreement, the JV Companywas to be capitalized through various classes of equity shares to be subscribedthrough by the JV partners. While KSK has a majority of the outstanding votingequity, it owns only 10 percent of the total outstanding equity share capital inthe JV Company. Further, the joint venture agreement requires KEVPL to use itsshare of profits to acquire shares currently held by LB at par over a period oftime, till it reaches the target ownership of 35 per cent of the totaloutstanding equity share capital. Further, the equity shares held by LB provide them with a cumulative 12 percentreturn on their investment, prior to the payment of any dividend or surpluses tothe equity shareholders, in addition to residual rights in the assets of the JVcompany in accordance with their equity holding. As per the terms of theagreement, the profits after servicing the preferential return and providing forany reserves and operating expenses of the JV company is to be shared equally byboth the parties. As the JV agreement provides for joint control by both KEVPL and LB, the Grouphas accounted for this investment as a joint venture. Further, considering thecurrent equity structure, the locked in purchase price for the acquisition ofadditional shares and the equal sharing of residual profits, the Group hasaccounted for its economic interest in the joint venture at 35 per cent so as toreflect the substance and economic reality of the arrangement, rather than thejoint venture's particular structure or form. In accordance with the guidance provided in IAS 32 - Financial Instruments:Presentation the JV Company has accounted for its contractual obligation todeliver cash or another financial asset to LB as preferential return on LB'sequity interest as a liability. Accordingly, LB's equity shares in the JVCompany amounting to USD 1452 thousand have been accounted as a compoundedfinancial instrument. Management has determined the fair value of thecontractual obligation and recorded the same as the debt component of theinstrument with the balance being recognized as equity. At March 31, 2007, theCompany's share of the debt and equity components of this instrument was USD 815thousand and USD 637 thousand respectively. 33. Cash flow and interest rate risk The various projects under development require regular and substantial cashflows. For those power plants that are in operation, the primary source ofliquidity and cash flow is cash generated from power plant operations, which arepredictable and stable sources of finance which are derived from the underlyingPower Purchase Agreements. Where additional finance is required, term loans are established by theindividual Special Purpose Vehicle ("SPV"). Under the terms of thesearrangements the risks of each loan are ring fenced in the related SPV and sothere is no exposure for the group as a whole. The group manages interest rate exposure by seeking to match interest costs onthe term loans with the revenues generated by the applicable power plant assets,through the fixed cost element in the per kwh tariff to the consumers. Interest rate management and funding policies are set by the board. 34. Contingent liabilities (US $'000) 31 March, 2007 ----------Bank guarantees outstanding 10,821Corporate guarantees 495Letter of credit outstanding 1,062Claims against the company not acknowledged as debt 6,705Fuel related Minimum Guaranteed Obligation Liability 6,233Total 25,316 ---------- The Group is the subject of litigation with fuel supplier of the Kasargod PowerStation over the minimum obligation the group under the terms of the fuel supplyagreement. Based on the current information available with the management; theydo not believe that there is an exposure as the minimum guaranteed off takeobligation does not apply in view of the state utility curtailing the Companyfrom generation of power. Details of potential tax exposures are provided below: (US $'000)Particulars 31 March, 2007------------- ----------- RVK Energy Sales Tax claim on differential rate on fuel 140Private Limited supplies Kasargod Power Minimum Guaranteed off take Obligation 5,959CorporationLimited ------------- ------------------------ ----------- 37. Operating leases The Group has entered into various cancellable and non - cancellable leaseagreements for land , for periods between 1 to 99 years. The lease agreements donot include any contingent rent clauses and include escalations between 5% to10% between a period every five years. The total of future minimum leasepayments under non-cancellable operating leases is as follows. (US $'000) 31 March, 2007 -----------Not later than one year 4Later than one year and not later then five years 20Later than five years 32 ----------- 38. Related party transactions KSK's related parties include its holding company and its ultimate parentCompany and their management personal, below. The following are the relatedparties - K&S Consulting Group Private Limited- (Ultimate holding Company) - Sayi Power Energy Limited- (holding Company) - Mr S. Kishore - Mr K.A Sastry - Mr V. Hariharan The following related party transactions occurred in the year 31 March 2007 (US $'000) -------------- -------- --------- ------------ --------- Holding JV/ Key Management Balance Personnel Outstanding Company Associates -------------- -------- --------- ------------ ---------Shares issued 174,000 174,000Remunerationpaid to KMP 219 219 39. Subsequent events The Group has acquired 5.189% interest in Gujarat Mineral DevelopmentCorporation (BSE: GMDC) at a consideration of USD 28 Million subsequent to 31stMarch 2007. A Coal Supply Agreement has been entered into with Gujarat Mineral DevelopmentCorporation on 21 April 2007 with GMDC to cover the enhanced requirement of coalof the Wardha Power Company Private Limited, a down stream joint control entityand this would ensure the coal requirement of both Warora and Chhattisgarh unitsof the said joint venture company. The amendments to the Coal Supply Agreementinter alia envisage financial commitment by the Group in the nature of BankGuarantee, Commitment towards letters of credit and security deposits or thelike in favour of the fuel supplier. Certain commitment by way of issue of bankguarantee has since been made for which necessary disclosure would be made inthe relevant financial statements for the relevant year/period. The amendmentsto the Coal Supply Agreement envisage favourable terms for sale of power besidesenhanced margins on mining in favour of Gujarat Mineral Development Corporation. KSK Electricity Financing India Private Limited ("KEFIPL") , the Joint VentureCompany between KSK and Lehman Brothers witnessed substantial capitalizationafter March 2007. The Total Capitalisation of the company as on date is approxUSD 142 Million which has been invested in several power plant special purposevehicles (SPV's) The Ho'ble High Court of Andhra Pradesh has recently allowed the petition of RVKEnergy Private Limited, a joint controlled entity in the matter relating to thelevy and collection of the cross subsidy surcharge by Transmission Corporationof Andhra Pradesh Limited which is disclosed as a contingent liability in thefinancial statements. In view of the judgement, the contingent liability wouldstand extinguished. The Assistant Commissioner -Customs, Tuticorin has passed an order disallowing aclaim for concessional rate of customs duty on the import of 2 Nos. Gas Enginesby Coromandel Electric Company Limited, a down stream joint controlled entityand a demand for USD 1.23 Million has been made. Necessary consequential stepsfor filing an appeal against the order, a conferred statutory right, has beeninitiated. The final determination of the demand made does not impact thefinancial position of the Group or the joint controlled entity, since thecustoms duty differential, if any is required to be considered for determiningtariff payable by the consumer on the off take of power. India Cements Limited (the JV Partner and consumer of power in the CoromandelElectric Company Limited, a down stream joint controlled entity has informed thecompany of its intention to exercise its option to buyout KSK shares in the SPV.The necessary valuation exercise is expected to be completed in the currentquarter and the transaction could be consummated thereafter. In the Arasmeta special purpose vehicle, KSK Electricity Financing India PrivateLimited ("KEFIPL") has consolidated its interest in the company in June 2007 andthe entire Groups equity interest in 25,500,000 equity shares in the SPV is heldonly by KEFIPL In the Sai Regency special purpose vehicle, KSK Electricity Financing IndiaPrivate Limited ("KEFIPL") has consolidated its interest in the company in June2007 and the entire Groups equity interest in 6,180,000 equity shares &subordinated Debt in the SPV is held only by KEFIPL In the VS Lignite special purpose vehicle, with additional share capitalinfusion and allotment, KSK Electricity Financing India Private Limited("KEFIPL") has consolidated its interest in the company in June 2007 and theentire Groups equity interest of 37,000,000 equity shares & Preference shares inthe SPV is held only by KEFIPL In July 2007, KEFIPL, a joint controlled entity of the indirect subsidiary ofthe Company has infused substantial share capital of USD 77 Million in WardhaPower Company Private Limited, a joint controlled entity of the indirectsubsidiary of the Company. - ENDS - This information is provided by RNS The company news service from the London Stock Exchange
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