Final Results

KSK Power Ventur PLC 30 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 with interests in multiple power plants across India, today announces its maiden preliminary results for the period ended 31 March 2007, being from the date of the holding company's incorporation on 16 July 2006 prior to KSK's admission to AIM. For comparative purposes the Company also announces the following unaudited consolidated 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 London Stock Exchange in November 2006, the Company has remained firmly focused on the growth opportunities open to us through the development and construction initiatives of a range of power projects across India. The Company's progress both in thermal and hydroelectric power areas is encouraging and further development work will continue to hold the Company's focus into 2008. With the continued strong demand for consistent energy supply in the Indian market, 2008 promises to be another important year in the development of KSK, as the Company continues its development initiatives and consolidation of existing activities.' For further information, please contact: www.ksk.co.in KSK Power Ventur plc +44 (0)20 7357 9477 S. Kishore, Executive Director K.A. Sastry, Executive Director Arden Partners plc +44 (0)20 7398 1632 Richard Day/Steve Pearce Hogarth Partnership +44 (0)20 7357 9477 Barnaby Fry/Sarah Richardson CHAIRMAN'S STATEMENT I am extremely pleased to report a year of substantial progress for KSK, marked by the further development of a range of new opportunities, a strong financial performance and our admission to trading on AIM. The results for the year comprise the consolidated results of the Company for the eight and a half months since incorporation, for the flotation process, on 16 July 2006 to 31st March 2007, together with unaudited consolidated results for the year to 31st March 2007. The overall financial performance for the year was strong, due to continued development 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 varied development activities, associated revenue realisation for project development fees and interest earned on risk capital. The Company's anticipation of revenue uplift in the current year on account of actualisation of the share appreciation on the placement of shares in its underlying power plant SPV's, as well as specific revenue generated on commercial operations, will, in accordance with prudent accounting practice, be recognised in the financial year 2008. During the year KSK has acquired a strategic 5.2% interest in Gujarat Mineral Development Corporation (BSE: GMDC) for approx $28m and the Company will continue to seek opportunities to build this and other strategic investments in the future. The Company continues to work with Gujarat Mineral development Corporation (GMDC) and other SMDC's with respect to various thermal plant opportunities as well as various local governments for the award of hydroelectric power plant concessions. Power Plants Commencement of Operations During the year under review and to date, the Company has successfully completed construction 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 Electricity Financing India Private Limited ('KEFIPL') - has increased its equity holding in the above three power plants. In the case of the Arasmeta and Sai Regency plants this has been through the acquisition of stakes on divestment of equity interest by the 'small is beautiful fund'. The cumulative investment by KEFIPL in the three plants now stands at $20m. With KEFIPL now holding all of the equity not subscribed by the power plant consumers in these projects, it becomes entitled to 100% of the economic returns. Construction In addition to the projects that have come on stream, two power plant initiatives, VS Lignite and Wardha Warora, have experienced significant progress in plant construction activity, while a further project, Wardha Chattisgarh, has moved towards the advanced development phase having received full fuel and off take 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 seen significant 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 (compared with $9.8m at the time of the IPO) in five power plant SPV's, and the Company anticipates additional capital investments, alongside other investors, in these SPV's and in further SPV's in the current financial year. This significant increase reflects continued confidence and support from Lehman, KSK's JV partner. Development The Company continues to work on further power plant opportunities in its development pipeline. These include the Dibbin and Kamang dam projects in Arunachal Pradesh. Progress on the smaller Avantika & Maithili projects has been slower than anticipated. While progress on the Avantika project site has been satisfactory, KSK's current movement towards significantly larger projects and higher equity holding positions by KEFIPL in SPV's, has led management to defer plans for additional equity investments and we are currently in discussion with co-promoters to re-evaluate our participation in these projects. The coal based power plant initiative based on its MOU with the Madhya Pradesh State Mining Corporation is expected to take a definitive shape within the next 6 months. Strategic Acquisition During the period KSK has acquired a strategic 5.2% interest in Gujarat Mineral Development Corporation (BSE: GMDC) for approx $28m and will continue to look for other opportunities to build this and other strategic investments. This stake is in line with KSK's fuel strategy and integrated power plant model and further cements the valuable association with GMDC for the Morga-II collaboration for coal supplies to the Wardha Power plant. The benefits that KSK envisages from this equity position with GMDC include oversight and influence to leverage the intrinsic strength of GMDC's current activities in mining & power for various new initiatives and KSK's mining efforts, as well as accruing significant investment returns. GMDC is the second largest lignite mining company in India with production of 7.2 m tonnes during 2005/06. GMDC has also commissioned the 250 MW lignite based Akrimota power plant. GMDC is a Government of Gujarat enterprise with over 2800 employees. GMDC is currently owned by the Government of Gujarat (74%) and other institutional and public shareholders (26%). Current Trading & Outlook In the coming year, KSK will remain focused on the development and construction of its various power plant projects and increasing its total MW under development. in India. As announced in January 2007, the Company is making a concerted drive into hydroelectric power, which complements its successful thermal credentials, so as to provide a balanced portfolio of power generation assets. Securing the entire capital requirement needs for the Wardha Power Plant, together with ensuring the full project execution, will require significant management time and attention throughout the current year. In addition the management will oversee the completion of ground works on the Dibbin and Kamang dam projects in Arunachal Pradesh. We are looking forward to an exciting year ahead and appreciate the support of all our shareholders. T.L. Sankar Chairman, 30 July 2007 OPERATIONAL REVIEW KSK concentrates its power plant activities in India. The Company's growth strategy 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 power generation assets. The following are the Company's six operating power plants, along with its respective equity interests: Site Capacity % Holding RVK 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 as well as associated profitability. There has been an increase across all key performance 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 from sales of energy has doubled to $9.77m compared with $4.34m, reflecting the new plants commissioned during the year and the increased plant load factor at Coromandel. Revenue from project development fees has increased from $0.98m to $3.29m reflecting an earlier realisation of fees than anticipated. The management fee revenue from the 'small is beautiful fund' was $0.36m for the period. KSK's gross profit for the year was $8.49m as against $2.83m during the previous year. Cost of sales increased from $2.48m to $4.92m, predominantly due to the fuel and production costs associated with additional generation units. Administrative expenses for the year were at $5.54m compared to $2.34m in the previous year and broadly in line with revenue growth. Finance cost for the year was at $2.18m compared to $1.11m in the previous year, reflecting the effect of additional power plant interest costs for the group. This cost is effectively offset by the investment income of $3.2m derived by 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 IPO proceeds. Profit for the year stands at $4.34m as against $362,000 during the previous year. 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 towards fixed assets and $10.75m towards additional investments. Net Funds The Company raised $58.42m in November 2006 by way of a placing of 28.878m ordinary 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 net funds of $63.2m. Consolidated Balance Sheet (All amounts in thousands of US Dollars, unless otherwise stated) Notes March 31, 2007 --------- ------------ ASSETS Non current assets Property, plant and equipment, net 15 92,490 Goodwill 16 2,703 Long term financial assets 17 10,793 ------------ Total non current assets 105,986 ------------ Current assets Cash and cash equivalents 18 3,341 Restricted cash 19 59,862 Available for Sale investments 17 28 Accounts receivable, net 20 3,689 Inventories 21 1,129 Other current assets 22 46,294 ------------ Total current assets 114,343 ------------ Total Assets 220,329 ============ LIABILITIES AND STOCKHOLDERS' EQUITY Non current liabilities Long-term debt (net of current portion) 23 73,749 Employee obligations 24 17 Deferred tax liabilities 25 122 Other liabilities 26 11,952 ------------ Total non current liabilities 85,840 ------------ Current liabilities Provisions 153 Trade and other payables 27 6,990 Current tax liabilities, net of advances 2,292 Short-term loans and borrowings 23 180 Current portion of long term debt 23 56,661 Other liabilities 26 3,021 ------------ Total current liabilities 69,297 ------------ Total liabilities 155,137 ------------ Stockholders' equity Share capital 29 216 Additional paid up capital 52,697 Other reserves 1,942 Translation reserve 2,521 Retained earnings 7,816 ------------ Total stockholders' equity 65,192 Total 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 12,049 Cost of Sales (6,125) -------------- Gross Profit 5,924 -------------- Distribution Expenses 6 General and administrative expenses 2,476 -------------- Operating income 3,442 -------------- Other income 8 384 Excess of share of assets acquired over acquisition cost 1,420 (refer note 30) Investment income 9 2,636 Interest cost 11 (1,885) -------------- Net income before tax 5,997 -------------- Taxes 13 Current tax expenses 1,151 Deferred tax expenses 89 -------------- Net income 4,757 -------------- -------------- Net Income attributable to equity shareholders 4,757 -------------- Earnings per share 14 0.057 Continuing 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 69 Changes in operating assets and liabilities Accounts 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 activities Increase 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 87,369 Redemption of Preference Shares in consolidated entities (853) Decrease in borrowings on account of acquisition (13,631) Dividends from equity investments 202 Interest on loans 2,397 Repayment of secured loans (23,188) Proceeds from issue of share capital 52,913 Dividend 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 2,569 Cash and cash equivalents at the beginning of the period - Cash taken over from KSK India as at 17 July 2006* 7,246 Cash and cash equivalents at the end of the period 3,341 Cash and cash equivalents comprise Cash in hand 152 Balances 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 the development, operation and maintenance of private sector power projects, predominantly through joint ventures with heavy industrial companies in the India. The Group strategy for growth is to work with major international and Indian businesses and electricity distribution companies to ensure that they have access to dependable and cost effective source of electrical power through the development construction operation of optimal sized power plants with appropriate fuel sources. The Group, through one of its subsidiaries also acts as investment manager of the Small is Beautiful Fund ('SIB') and is empowered to invest the contributions received by SIB in public limited companies engaged in the business of power generation and allied projects, 2. General Information The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards ('IFRS') as issued by the International Accounting Standards Board (IASB). KSK Power Ventur Plc, a limited liability corporation, is the Group's ultimate parent company and is incorporated and domiciled in the Isle of Man. The address of KSK Power Ventur Plc registered Office, which is also principal place of business is 15-19 Althol Street, Douglas, Isle of Man 1M 1 1 LB. KSK Power Ventur 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 were approved by the board of directors on July 28, 2007. As at March 31, 2007, the Group comprised of the following subsidiaries and joint ventures. Subsidiaries Immediate Country of % shareholding Parent Incorporation ----------------------- ---------- ---------- ---------- KSK Energy Company Limited ('KECL') Mauritius 100 KSK Energy Ventures Private 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 50.00 Kasargood Power Corporation Limited Co - Venturer India 50.00 Coramandel Electric Company Limited Co - Venturer India 71.86 Sai Regency Power Corporation Private Limited Co - Venturer India 50.14 Arasmeta Captive Power Company Private Limited Co - Venturer India 34.26 Sitapuram Power Limited Co - Venturer India 17.15 VS Lignite Power Private Limited Co - Venturer India 58.26 Wardha Power Company Private Limited Co - Venturer India 74.00 KSK Electricity Financing India Private Limited Co - Venturer India 35.00 Marudhar Mining Private Limited Co - Venturer India 74.00 ----------------------- ---------- ---------- ---------- 3. Standards and Interpretations not yet applied by the Group The following new standards, amendments and interpretations, as applicable to the Group, which are yet to become mandatory, have not been applied in the Group'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's consolidated financial statements when these Standards and Interpretations become effective. KSK Power Ventur Plc does not intend to apply any of these pronouncements early. 4. Summary of Accounting Policies 4.1. Overall considerations The significant accounting policies that have been used in the consolidated financial statements are summarised below. The financial statements have been prepared using the measurement bases specified by IFRS for each type of asset, liability, income and expense. The measurement bases are more fully described in the accounting policies below. The consolidated financial information comprises the Company, its subsidiaries and 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 concern assumption and in the opinion of the directors the group will be able to meet its 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 is required to make certain estimates, judgements and assumptions that it believes are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. On an ongoing basis, the Group evaluates its estimates using historical experience, consultation with experts and other methods considered reasonable in the particular circumstances. Actual results may differ significantly from the estimates, the effect of which is recognised in the period in which the facts that give rise to the revision become known. 4.4. Basis of consolidation The consolidated financial information incorporates the financial information of KSK Power Ventur Plc , its subsidiaries, and jointly controlled entities of the subsidiaries made up to 31 March 2007. Subsidiaries are those entities controlled by the Company. Control exists when the company has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. Subsidiaries are consolidated from the date on which control is acquired by the group and are no longer consolidated from the date such control ceases. Intra-group balances and transactions and any resulting unrealized gains arising from intra-group transactions are eliminated on consolidation. Unrealized losses resulting from intra-group transactions are also eliminated unless cost cannot be recovered. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. 4.5. Investments in Joint Ventures Entities whose economic activities are controlled jointly by the Group and by other ventures independent of the Group ('Joint Ventures') are accounted for using proportionate consolidation to the extent of the Group's economic interest in the entity. Where a group company undertakes its activities under joint venture arrangements directly, the group's share of jointly controlled assets and any liabilities incurred jointly with the other ventures are recognised in the financial statements of the relevant company and classified according to their nature. Liabilities and expenses incurred directly in respect of interest in jointly controlled assets are accounted for on an accrual basis. Income from the sale or the use of the group's share of the output if jointly controlled assets, and its share of the joint venture expenses, are recognised when it is probable that the economic benefits associated with the transactions will flow to/from the group and their amount can be measured reliably. Amounts reported in the financial statements of joint ventures have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. 4.6. Business Combinations The acquisition of subsidiaries is accounted for using the purchase method. The cost of acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognized at their fair value at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for resale in accordance with IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations, which are recognized and measured at fair value less costs to sell. Goodwill represents the excess of the acquisition cost in a business combination over the fair value of the group's share of the identifiable net assets acquired. Goodwill is carried at cost less accumulated impairment losses. Any excess of the group's share of the identifiable net assets acquired over the acquisition cost is recognised immediately in profit and loss after reassessing the identification and measurement of the identifiable assets, liabilities, contingent liabilities and recording necessary adjustments. Refer to note 4.8 for a description of impairment testing procedures On disposal of a subsidiary, associate or jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. 4.7. Property, plant and equipment Property, plant and equipment are stated at historical cost less accumulated depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the development or acquisition of the items. Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. Borrowing costs associated with the Property, plant and equipment are capitalized upto the date the said property, plant and equipment are ready to be put to use. Repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Assets in the course of construction are not depreciated. Other assets are depreciated by writing off their cost less estimated residual value evenly over their estimated useful lives, based on management's judgement and experience, which are principally as follows: Nature of asset Useful life (years) Buildings 30 years Infrastructure assets Gas engine based installation 15 years Thermal power plants 25 years Hydel power plants 35 years Office equipment and motor vehicles 7 years Furniture and fittings 7 years Vehicles 5 years Computer software 5 years Land held for use in production is stated at cost and the related carrying amounts 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 date to determine whether there is any indication that those assets may have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which management monitors goodwill. Cash-generating units to which goodwill has been allocated are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's or cash-generating unit's carrying amount exceeds its recoverable amount. To determine the recoverable amount, KSK Power Ventur Plc's management estimates expected future cash flows from each cash generating unit and determines a suitable interest rate in order to calculate the present value of those cash flows. Discount factors are determined individually for each cash-generating unit and reflect their respective risk profiles as assessed by KSK Power Ventur Plc's management. Impairment losses for cash-generating units reduce first the carrying amount of any goodwill allocated to that cash-generating unit. Any remaining impairment loss is charged pro rata to the other assets in the cash-generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. An impairment charge that has been recognised is reversed if the cash-generating unit's recoverable amount exceeds its carrying amount. 4.9 Financial instruments Financial assets and liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument. Trade receivables Trade receivables are initially recorded at fair value and thereafter at amortised cost using the effective interest method. Financial investments Investments (other than interests in joint ventures and fixed deposits) are recognised and derecognised on a trade date and are initially measured at fair value, including transaction costs. Investments are classified as either held-to-maturity, held-for-trading, loans and receivables or available for sale. Held-to-maturity investments and loans and receivables are measured at amortised cost. Held-for-trading and available-for-sale investments are measured at subsequent reporting dates at fair value. Where securities are held for trading purposes, gains and losses arising from changes in fair value are included in net profit or loss for the period. For available-for-sale investments, gains and losses 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 time the cumulative gain or loss previously recognized in equity is included in the net profit or loss for the period. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits and other short term highly liquid investments that are readily convertible to a known amount 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 the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities. Compound financial instruments are broken down into their equity and liability components and classified accordingly in the balance sheet. The initial carrying amount of a compound financial instrument is allocated to its equity and liability components, and the equity component is assigned the residual amount after deducting from the fair value of the instrument as a whole the amount separately determined for the liability component. The carrying amount of the liability component is determined by measuring the fair value of a similar liability that does not have an associated equity component. Such measurement takes into account management's estimates of the Group's contractual obligation to make future payments and the market interest rate for a similar liability. Bank borrowings Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an amortised cost basis to the income statement using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Trade payables Trade payables are initially measured at fair value, and are subsequently measured 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 share premium received. 4.9. Inventories Inventories are stated at the lower of cost and net realisable value. Cost includes all expenses directly attributable to the manufacturing process as well as suitable portions of related production overheads, based on normal operating capacity. Financing costs are not taken into consideration. Costs of ordinarily interchangeable items are assigned using the first in, first out cost formula. Net realisable value is the estimated selling price in the ordinary course of business less any applicable selling expenses. 4.10. Foreign Currency Transactions The functional currency of the Company is the British Pound ('GBP') and its subsidiary in Mauritius and the Indian Rupee for all the entities operating in India. The reporting currency of the Group is the US dollar as submitted to the AIM exchange where the shares of KSK Power Ventur Plc are listed. Transactions and balances Foreign currency transactions are translated into the functional currency of the respective group entity, using the exchange rates prevailing at the dates of the transactions (spot exchange rate). At each balance sheet date, monetary assets and liabilities denominated in foreign currencies are translated into US dollars at the relevant rates of exchange ruling on the balance sheet date. Gains and losses arising on translation are included in net profit or loss for the period, except for exchange differences arising on non-monetary assets and liabilities where the changes in fair value are recognised directly in equity. Translation On consolidation, the balance sheets of the subsidiaries and joint ventures are translated into US dollars at exchange rates applicable at the balance sheet date. The income statements are translated into US dollars using the average rate unless exchange rates fluctuate significantly in which case the exchange rate at the date the transaction occurred is used. Exchange differences resulting from the translation of such balance sheets at rates ruling at the beginning and end of the period, together with the differences between income statements translated at average rates and rates ruling at the period end, are charged/credited to the foreign currency translation reserve in equity. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of. 4.11. Segment reporting In identifying its operating segments, management generally follows the Group's service lines, which represent the generation of the power and other related services provided by the Group. The activities undertaken by the Power generation segment includes sale of Power and other related services. The project management of these power plants is undertaken by the service segment. The accounting policies used by the Group for segment reporting are the same as those used for the financial statements. Further, income, expenses and assets which are not directly attributable to the business 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 an outflow of economic resources from the Group and they can be estimated reliably. Timing or amount of the outflow may still be uncertain. A present obligation arises from the presence of a legal or constructive commitment that has resulted from past events, for example, product warranties granted, legal disputes or onerous contracts. Restructuring provisions are recognised only if a detailed formal plan for the restructuring has been developed and implemented, or management has at least announced the plan's main features to those affected by it. Provisions are not recognised for future operating losses. Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the balance sheet date, including the risks and uncertainties associated with the present obligation. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Long term provisions are discounted to their present values, where the time value of money is material. All provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate of Group management. In those cases where the possible outflow of economic resource as a result of present obligations is considered improbable or remote, no liability is recognised, unless it was assumed in the course of a business combination These contingent liabilities are recognised in the course of the allocation of purchase price to the assets and liabilities acquired in the business combination. They are subsequently measured at the higher amount of a comparable provision as described above and the amount initially recognised, less any amortisation. 4.13. Employees' benefits Defined benefit plans A defined benefit plan is a pension plan that defines an amount of benefit that an employee will receive on retirement/separation. The legal obligation for any benefits remains with the Group, even if plan assets for funding the defined benefit plan have been set aside. Plan assets may include assets specifically designated to a long term benefit fund as well as qualifying insurance policies. The liability recognised in the balance sheet for defined benefit pension plans is the present value of the defined benefit obligation (DBO) at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognised actuarial gains or losses and past service costs. The management estimates the DBO annually with the assistance of independent actuaries. The estimate of its post-retirement benefit obligations is based on standard rates of inflation, medical cost trends and mortality. It also takes into account the Group's specific anticipation of future salary increases. Discount factors are determined close to each year-end by reference to high quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating to the terms of the related pension liability. The liabilities recognised for defined benefit plans sponsored by the Company, however, are subject to change as these factors may vary over the passage of time. Current service costs for defined benefit plans are accrued in the period to which they relate with the difference between the expected return on scheme assets and interest on scheme liabilities are included within the income statement within employee costs. Defined contribution plan In addition, the group operates a defined contribution scheme where payments are charged as employee costs as they fall due. The group has no further payment or obligations once the contributions have been paid. 4.14. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable in accordance with the relevant agreements, net of discounts, VAT and other applicable taxes. Sale of power Revenue from the sale of power is recognised when all the following conditions have 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 the development activity with respect to the relevant power generating company and its stage of development. Interest income and expenses are reported on an accrual basis. Dividends received, other than those from investments in associates, are recognised at the time of their distribution. 4.15. Income Taxes The tax expenses represent the sum of the tax currently payable and deferred tax. Current taxation Current tax is based on the taxable profit for the period and is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantially enacted at the balance sheet date. Taxable profit differs from the net profit or loss as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and further excludes items that are never taxable or deductible. Deferred taxation Deferred taxation is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are provided, using the liability method, on all taxable temporary differences at the balance sheet date. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets an liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and interests in joint ventures, except where the group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is measured, without discounting, at the average tax rates that are expected to apply in the periods in which the temporary timing differences are expected to reverse based on tax rates and laws that have been enacted or substantially enacted at the balance sheet date. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer more likely than not that sufficient taxable profit will be available to allow all or part of the asset to be recovered. Deferred tax is not recognised on temporary differences arising from the initial recognition of goodwill. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited to equity, in which case the deferred tax is also dealt with in equity. 4.16. Financing costs and interest income Borrowing costs, excluding borrowing cost directly attributable to acquisition or construction of qualifying assets, are recognized in the income statement in the period in which they are incurred, the amount being determined using the effective interest rate. Interest income and expenses is recognised using the effective interest rate method. Finance income is recognised in the income statement 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 been issued. Additional paid-in capital includes any premiums received on the initial issuing of the share capital. Any transaction costs associated with the issuing of shares are deducted from additional paid-in capital, net of any related income tax benefits. Other reserves comprise gains and losses due to the revaluation of certain financial assets and property, plant and equipment. Foreign currency translation differences are included in the translation reserve. Retained earnings include all current and prior period results as disclosed in the income statement. Dividend distributions payable to equity shareholders are included in 'other short term financial liabilities' when the dividends are approved in the general meeting prior to the balance sheet date. 4.18. Cash and Cash Equivalents Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes 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 dividend distribution tax) on preference shares. The number of shares used for computing the basic EPS is the weighted average number of shares outstanding during the year. 5. Group Reorganization As a part of the re-organisation of the KSK Group, the Company was incorporated on July 17, 2006, as the new holding company of the Group. Simultaneously, the Company acquired the outstanding equity shares of KSK Energy Limited, Mauritius ('KSK Mauritius') for a nominal price of US$1, making it a wholly owned subsidiary of the Company. On November 7, 2006, KSK Energy Ventures Private Limited ('KEVPL'), the operating entity and holding company of the power generating companies in India, bought back 29,773,850 its equity shares of INR 10 each at par, representing 100% percent of its outstanding share capital from K&S Consulting, an entity controlled by the promoters of the Company. Simultaneously, KEVPL issued these repurchased equity shares and 60,226,150 fresh equity shares to KSK Mauritius thereby making KEVPL a wholly owned subsidiary of KSK Mauritius. As a result of this transaction, the Company has become the ultimate holding company of KEVPL. As both the Company and KEVPL were under the common control of K&S Consulting and the Company has no other operations, this transaction has been treated as a capital transaction between entities under common control and therefore the assets and liabilities of KEVPL have been recorded at book values and as if this transaction had occurred at the earliest period presented i.e. the date of incorporation of the Company, July 17, 2006. Consequently, the income statement represents the results of operations of KEVPL and its subsidiaries and interest in joint ventures from the date of incorporation of the Company to March 31, 2007. Following are the details of the book value of assets and liabilities assumed as at 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 85,328 Goodwill 129 Investments 3,283 Inventories 507 Trade receivables 809 Other receivable 8384 Other assets 64 Cash 7,246 Loans 68,790 Trade and other payables 12,703 Critical accounting estimates and judgements Critical judgements in applying the group's accounting policies The following paragraphs detail the policies the group believes to have the most significant impact on the results. (a) Accounting for provision and contingencies The group is subject to a number of claims incidental to the normal conduct of its business, relating to and including commercial, contractual and employment matters, which are handled and defended in the ordinary course of business. The group routinely assesses the likelihood of any adverse judgements or outcomes to these matters as well as ranges of probable and reasonably estimated losses. Reasonable estimates involve judgements made by management after considering information including notifications, settlements, estimates performed by independent parties and legal counsel, available facts, identification of other potentially responsible parties and their ability to contribute, and prior experience. A provision is recognised when it is probable that an obligation exists for which a reliable estimate can be made of the obligation after careful analysis of the individual matter. The required provision may change in the future due to new developments and as additional information becomes available. Matters that either are possible obligations or do not meet the recognition criteria for a provision are disclosed, unless the probability of transferring economic benefits 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 value with movements in those fair values reflected through the income statement. This has the potential to introduce volatility to both the income statement and the balance sheet. Key sources of estimation uncertainty The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below. (c) Deferred taxes The group created a provision for current taxes and in consideration of the temporary differences also for deferred tax. There are many transactions and calculations for which the ultimate tax determination is uncertain during the course of business and the measurement of deferred tax assets and liabilities reflects the tax consequences that would follow from the manner in which the group expects to recover or settle the carrying amount of assets and liabilities. Where the final tax-deductible expenses are different from the amounts that were calculated, such differences will impact the current income and deferred tax provisions in the period in which such determination is made. 6. Operating Revenue (US $'000) ---------- Period ended 31 March, 2007 ---------- Revenue from sale of energy (Net of Rebates and discounts) 8,455 Income from Project development activities 3,594 Total 12,049 ---------- 7. Employee costs (US$'000) ---------- Period ended 31 March, 2007 ---------- Salaries and wages 796 Employee benefit 27 Other 118 Total 941 ---------- 8. Other Income (net) (US$'000) ---------- Period ended 31 March, 2007 ---------- Other Income Interest on deposits and overdue bills 353 Miscellaneous income 103 ---------- Total Other income 456 ---------- Other expenses Loss on disposal of property, plant and equipment 3 Miscellaneous expenses 69 ---------- Total other expenses 72 ---------- Total other income (net) 384 ---------- 9. Investment income (US$'000) ---------- Period ended 31 March, 2007 ---------- Interest on loans 2,397 Profit on sale of investment 37 Dividends from equity investments 202 Total 2,636 ---------- 10. Segmental information For management purposes, the strategic group is currently organised into two operating divisions - project development activities and power generating activities. These operating segments are monitored and strategic decisions are taken basis on segments operating results. There is only one geographical segment as all business and operations are carried out in India. Segmental information about these operating divisions is presented below: (US$'000) Project Power Unallocable Eliminations Total development generating Segment Activities Activities ---------- --------- --------- ---------- --------- Revenue External Sales 3,594 8,455 - 12,049 Inter-segment sales 25 - (25) - Total Revenue 3619 8,455 (25) 12,049 Result Segment Result 2,319 1,170 (25) 3,442 Other Income (net) 1,550 254 1,804 Investment income 2,636 2,636 Finance Costs (1,333) (552) (1,885) Profit before tax 2,319 1387 2,338 (25) 5,997 Taxation charge (491) (280) (491) (1,240) Net Profit for the period 1,828 1,107 1,847 (25) 4,757 Balance sheet as at March 31, 2007 Segment assets 184,335 82,380 (45,808) 220,907 Total consolidated assets 220,907 Segment liabilities 52,579 111,933 (8,797) 155,715 Total Consolidated liabilities 155,715 Additional disclosures Depreciation 1,309 Assets acquired 37,069 The Company derives its entire revenues from India and all its assets and liabilities are located in India. 11. Finance costs (US$'000) ---------- Period ended 31 March, 2007 ---------- Interest on bank loans 1,493 Interest on preference shares 272 Exchange (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$'000) ---------- Period ended 31 March, 2007 ---------- Depreciation 1,309 Cost of inventories recognized as expense 3,614 Auditors' remuneration for audit services 46 Total 4,696 ---------- 13. Taxation charge (US$'000) ---------- Period ended Recognised in the income statement 31 March, 2007 ------------------------------------ ---------- Total current tax expense 1,151 Deferred tax charge 89 Total 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 tax rates prevailing in India The relationship between the expected expense based on the effective tax rate of the group at 33.36 % and the tax expense actually recognised in the income statement may be reconciled as follows: (US$'000) ---------- Reconciliation of the effective rate Period ended ------------------------------------ 31 March, 2007 ---------- Profit before tax 5,977 Income tax at standard rate 2,012 Non-deductible expenses (303) Differences on account of items taxed at lower rates (469) Tax (charge)/credit and effective tax rate for the period 1,240 ------------------------------------ ---------- 14 Earnings per share Basic and diluted earnings per share The calculations of basic earnings per share for the years ended 31 March 2007 has been determined as the net profit/(loss) after tax divided by the weighted average number of equity share outstanding during the year. Period ended 31 March, 2007 ---------- Net profit/(loss) attributable to ordinary shareholders (US$'000) 4757 Weighted average number of ordinary shares during the period (no's) 83,577,441 Basic earnings per share (US $) 0.057 ------------------------------------ ---------- There is therefore no difference between the basic earning/(loss) per shares and diluted earnings/(loss) per shares for each of the period. There are no outstanding potential dilutive equity shares as at the balance sheet date. 15. Property, plant and equipment (US$'000) Land and Infra- Office equip. Assets in Total buildings structure and motor construction assets vehicles -------- ------- --------- --------- ------ Cost: Assets taken over from KSK India as at 17 July 2006 4,384 25,910 557 60,815 91,666 Disposals of assets (136) (9) (145) Additions 3,274 27,170 409 30,853 Capitalisation of assets in construction (22,250) -------- ------- --------- --------- ------ As at 31 March 2007 7,658 52,944 957 38,565 100,124 -------- ------- --------- --------- ------ Accumulated depreciation As at 17 July 2006 301 5,847 190 6,338 Disposals of assets (5) (8) (13) Depreciation charges 71 1,169 69 1,309 -------- ------- --------- --------- ------ As at 31 March 2007 372 7,011 251 - 7,634 -------- ------- --------- --------- ------ Net Book value -------- ------- --------- --------- ------ As at 31 March 2007 7,286 45,933 706 38,565 92,490 ---------------- -------- ------- --------- --------- ------ 16. Goodwill (US$'000) ---------- Cost Period ended 31 March, 2007 ---------- Balance as at 17 July 2006 taken over from KSK India 129 Currency translation adjustment 3 Business combinations made during the period 2,571 At 31 March 2007 2,703 Net book value as at 31 March 2007 2,703 ------------------------------------ ---------- Subsequent to the annual impairment test, the carrying amount of goodwill is allocated to the power generating units of the group. The recoverable amounts for the cash-generating units given above were determined based on value-in-use calculations, covering a detailed three-year forecast, followed by an extrapolation of expected cash flows at the growth rates stated below. The growth rates reflect the long-term average growth rates for the power generation activity of the cash-generating units. Growth rate 20% Discount rate 25% The management's key assumptions for the power generating unit include stable profit margins, which have been determined based on past experience in this market. The management believes that this is the best available input for forecasting this mature market. 17. Investments (US$'000) 31 March 2007 ------------- Non-Current Held-to-maturity investments 9,863 Available-for-sale investments 930 10,793 Current Available-for-sale investments 28 ---------------------------------- ------------- The investments included above represent investments that present the group with the opportunity for return through dividend income and trading gains and also investments in private companies in India. They have no fixed maturity or coupon rate. Non-current available for sale investments comprise minority shareholdings in Small is Beautiful Fund which is unquoted. For investments made in private companies, there is no quoted fair value available and these investments are carried at cost based on management's best estimate and net of impairment losses, if any. The current available for sale investments comprise minority shareholdings in the equity shares of Andhra Bank being quoted on the Indian stock market. 18. Cash and cash equivalents (US $'000) 31 March, 2007 --------------- Short term deposits 3,189 Cash and cash equivalents 152 Total cash and cash equivalents 3,341 -------------------------------- --------------- 19. Restricted Cash Restricted cash represents deposits with bank against which the Company has taken loan or created a collateral . These guarantees expire within one year from the date of the balance sheet. 20. Trade and other receivables, net (US$'000) 31 March, 2007 --------------- Current trade receivables 3,689 --------------- Credit risk management The group's customer concentration is such that no single customer has a significant relative weight. Management performs ongoing credit evaluation of its customers and it is involved in the day to day credit collection activity. An allowance for the bad debts is determined with respect to those amounts that the group has determined to be doubtful from collection. The allowance for bad debts is estimated by the group's management based on prior experience and their assessment of the current economic environment. There is no significant concentration of credit risk due to exposure being spread over a number of customers. As the trade receivables are short term, their carrying value approximates their fair value. There are no bad debts written off during the period. 21. Inventories (US $'000) 31 March, 2007 --------------- Raw materials 581 Stores, spares and consumables 548 Total --------------- 1,129 --------------- There are no write down or reversal of write-down inventories to net realisable value during the current period. The entire amount of inventories is pledged as security for liabilities, refer note 23 for details. 22. Other current assets (US $'000) 31 March, 2007 --------------- Loans given to JV partners 21,867 Advance tax and Withholding taxes 1,948 Advance for purchase of shares 7,182 Deposits 1,567 Other receivables 12,322 Total --------------- 46,294 --------------- 23. Interest-bearing loans and borrowings (US $'000) 31 March, 2007 ------------ Non-current liabilities Secured bank loans and loans taken from financial institutions 61,102 Debt component of Class B and Class C shares held by LB Holdings Mauritius II Limited (Also refer note 30) 815 Preference shares of the jointly controlled entities 11,832 ------------ 73,749 ------------ Current liabilities Secured bank loans 2,648 Unsecured bank loans 20,835 Other Unsecured Loans 33,358 ------------ 56,841 ------------ (US $'000) At 31 March 2007 1 year or 1-2 2-5 More than Total Terms and debt repayment schedule Less Years Years 5 years Secured bank loans 2,648 7,055 23,947 30,100 63,750 ----------------- ------- ------ ------ -------- ------ Preference shares of jointly controlled entities 11,832 11,832 ----------------- ------- ------ ------- -------- ------ Dent component of class B and class C shares 815 815 Unsecured bank facilities 20,835 20,835 Other Unsecured Loans 33,358 33,358 Total 56,841 7,055 23,947 42,747 130,590 ------- ------ ------- -------- ------- Debt has been raised in currencies other than the functional currency of the entity. The analysis of borrowings below details the currency in which items were raised: The group borrowings were denominated in the following currencies: (US $'000) 31 March, 2007 ----------- Indian Rupees 117,061 GB 12,776 USD 753 Total 130,590 ----------- The weighted average effective interest rates at the balance sheet date were as follows: 31 March, 2007 (in %) ----------- Total borrowings 9.5% ----------------------------------- ----------- The fair value of long-term debt is estimated by the management to be approximate to their carrying value, since the average interest rate on such debt 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 2007 Sl.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 23 Charge for the period 13 Payments (27) Currency translation adjustment (8) --------- Balance as at 31 March 2007 17 ------------------------------------- --------- Pension Scheme The Group effectively operates one defined benefit pension scheme, as the employees of the group, in accordance with Indian law, are eligible for benefits in the form of gratuity payable on retirement from employment subject to completion of minimum of 5 years of continuous employment with the Group which is covered under a Group Gratuity Policy operated by Life Insurance Corporation of India Limited. The above reflects the latest actuarial assessment of the liability of the scheme. Particulars March 31, 2007 --------------------------------- ---------- Change in Benefit Obligation Present Benefit Obligation ('PBO') at the beginning of the year 23 Interest Cost 1 Service Cost 3 Benefits 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 recognized Present Value of Obligation 2 Fair value of plan assets - Liability Recognised in Balance Sheet 25 --------------------------------- ---------- Net gratuity cost for the year ended June 30, 2006 included the following components: Particulars March 31, 2007 --------------------------------- ---------- Current Service Cost 3 Interest Cost 1 Net 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 recognized Opening net liability 23 Expense as above 12 Contribution paid (27) Closing net Liability 25 --------------------------------- ---------- For determination of the liability, the following actuarial assumptions were used: 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 assets Retirement benefit obligations Nil Deferred tax liability Accelerated tax depreciation 122 ------------------------------------ ---------- No temporary differences resulting from investing activities in subsidiaries and interest in first ventures qualifies for recognition on deferred tax liabilities. 26. Other Liabilities 31 March, 2007 ---------- Non-Current liabilities Unsecured other loans 5,297 Liability for purchase of shares of Joint Venture Companies 6,018 Liability for purchase of Class B and Class C Shares held by LB Holdings India II Limited in jointly controlled entity 637 Total 11,952 Current liabilities Share application money received from others in jointly controlled entities 3,014 Others 7 Total 3021 27. Trade and other payables 31 March, 2007 ---------- Trade payables 6,499 Other creditors 491 ---------- Total 6,990 ---------- The directors consider that the carrying amount of trade payables approximates to their fair value. 28. Equity Share Capital Share capital comprises of 500,000,000 equity shares which has a par value of 0.1 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 following jointly controlled entities into these consolidated financial statements using the proportionate consolidation method. The following table shows the consolidated proportional results and position of the jointly controlled entities: (US $'000) ------------- Period ended 31 March, 2007 ------------- Non-Current assets 94,795 Current assets 28,178 ------------- Total assets 122,973 ------------- Non-current liabilities 73,802 Current liabilities 14,868 ------------- Total liabilities 88,670 ------------- Income 8,269 Expenses 7,511 Net 758 ---------------------------------- ------------- 31. Commitments and guarantees (US $'000) 31 March, 2007 ---------- Estimated value of contracts remaining to be executed on capital account, not provided for 39,493 Investments in equity shares of subsidiary company 81,550 ------------------------------------ ---------- 32. Business Combinations On November 30, 2006 KSK energy ventures Private Limited, a wholly owned subsidiary of KSK Energy Limited acquired an additional 24.1% of the equity instruments of Kasargod power Corporation Limited ('KPCL'), a joint power generating Company. Consequent to this acquisition the Company holds 50% of the equity 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% of the equity instruments of Coromondel Electric Company Limited ('CECL'), a joint power generating Company. Consequent to this acquisition the Company holds 71.86%% of the equity of KPCL. As on March 28, 2007 KSK Energy Limited (a wholly owned subsidiary of KSK Power Ventur Plc acquired stakes in Sai regency power corporation private limited (SRPCL) and Arasmeta captive power company private limited (ACPCPL) to the extent 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 and equipment 7,574 2,274 18,192 9,029 Inventories 116 97 169 97 Trade receivables 456 519 214 180 Other receivable 209 293 138 86 Cash 401 726 317 41 Loans (5270) (1743) (14,717) (4,620) Trade payables (327) (546) (1,131) (421) Redeemable preference shares (2112) - - Net identifiable assets and liabilities 1,047 1,585 3,182 4,392 Excess of net assets acquired over the purchase price 995 425 Goodwill 1,260 1,311 Consideration 52 1,160 1,922 3,081 Satisfied by: Cash 52 1,160 1,922 3,081 Net cash outflow 52 1,160 1,922 3,081 ---------------------- -------- --------- -------- -------- Impact on revenue and profit before tax if the acquisition date for all business combinations effected during the period had been beginning of that period. (US $'000) CECL KPCL SRPCL ACPCPL Revenue 2,155 371 25 2,054 Profit before tax 429 33 30 119 Net assets acquired are based on the fair valuation carried out by the management. No major line of business will be disposed of due as a result of the combination. Arrangement with LB Holdings Mauritius I Limited KEVPL entered into a Joint Venture agreement with LB Holdings Mauritius I Limited ('LB') for the formation of a company - KSK Energy Finance India Private Limited ('KEFIPL' or 'the JV Company') to be the holding company for various operating power companies in India. As a part of this agreement, the JV Company was to be capitalized through various classes of equity shares to be subscribed through by the JV partners. While KSK has a majority of the outstanding voting equity, it owns only 10 percent of the total outstanding equity share capital in the JV Company. Further, the joint venture agreement requires KEVPL to use its share of profits to acquire shares currently held by LB at par over a period of time, till it reaches the target ownership of 35 per cent of the total outstanding equity share capital. Further, the equity shares held by LB provide them with a cumulative 12 percent return on their investment, prior to the payment of any dividend or surpluses to the equity shareholders, in addition to residual rights in the assets of the JV company in accordance with their equity holding. As per the terms of the agreement, the profits after servicing the preferential return and providing for any reserves and operating expenses of the JV company is to be shared equally by both the parties. As the JV agreement provides for joint control by both KEVPL and LB, the Group has accounted for this investment as a joint venture. Further, considering the current equity structure, the locked in purchase price for the acquisition of additional shares and the equal sharing of residual profits, the Group has accounted for its economic interest in the joint venture at 35 per cent so as to reflect the substance and economic reality of the arrangement, rather than the joint 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 to deliver cash or another financial asset to LB as preferential return on LB's equity interest as a liability. Accordingly, LB's equity shares in the JV Company amounting to USD 1452 thousand have been accounted as a compounded financial instrument. Management has determined the fair value of the contractual obligation and recorded the same as the debt component of the instrument with the balance being recognized as equity. At March 31, 2007, the Company's share of the debt and equity components of this instrument was USD 815 thousand and USD 637 thousand respectively. 33. Cash flow and interest rate risk The various projects under development require regular and substantial cash flows. For those power plants that are in operation, the primary source of liquidity and cash flow is cash generated from power plant operations, which are predictable and stable sources of finance which are derived from the underlying Power Purchase Agreements. Where additional finance is required, term loans are established by the individual Special Purpose Vehicle ('SPV'). Under the terms of these arrangements the risks of each loan are ring fenced in the related SPV and so there is no exposure for the group as a whole. The group manages interest rate exposure by seeking to match interest costs on the 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 10,821 Corporate guarantees 495 Letter of credit outstanding 1,062 Claims against the company not acknowledged as debt 6,705 Fuel related Minimum Guaranteed Obligation Liability 6,233 Total 25,316 ---------- The Group is the subject of litigation with fuel supplier of the Kasargod Power Station over the minimum obligation the group under the terms of the fuel supply agreement. Based on the current information available with the management; they do not believe that there is an exposure as the minimum guaranteed off take obligation does not apply in view of the state utility curtailing the Company from 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 140 Private Limited supplies Kasargod Power Minimum Guaranteed off take Obligation 5,959 Corporation Limited ------------- ------------------------ ----------- 37. Operating leases The Group has entered into various cancellable and non - cancellable lease agreements for land , for periods between 1 to 99 years. The lease agreements do not include any contingent rent clauses and include escalations between 5% to 10% between a period every five years. The total of future minimum lease payments under non-cancellable operating leases is as follows. (US $'000) 31 March, 2007 ----------- Not later than one year 4 Later than one year and not later then five years 20 Later than five years 32 ----------- 38. Related party transactions KSK's related parties include its holding company and its ultimate parent Company and their management personal, below. The following are the related parties - 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 174,000 174,000 Remuneration paid to KMP 219 219 39. Subsequent events The Group has acquired 5.189% interest in Gujarat Mineral Development Corporation (BSE: GMDC) at a consideration of USD 28 Million subsequent to 31st March 2007. A Coal Supply Agreement has been entered into with Gujarat Mineral Development Corporation on 21 April 2007 with GMDC to cover the enhanced requirement of coal of the Wardha Power Company Private Limited, a down stream joint control entity and this would ensure the coal requirement of both Warora and Chhattisgarh units of the said joint venture company. The amendments to the Coal Supply Agreement inter alia envisage financial commitment by the Group in the nature of Bank Guarantee, Commitment towards letters of credit and security deposits or the like in favour of the fuel supplier. Certain commitment by way of issue of bank guarantee has since been made for which necessary disclosure would be made in the relevant financial statements for the relevant year/period. The amendments to the Coal Supply Agreement envisage favourable terms for sale of power besides enhanced margins on mining in favour of Gujarat Mineral Development Corporation. KSK Electricity Financing India Private Limited ('KEFIPL') , the Joint Venture Company between KSK and Lehman Brothers witnessed substantial capitalization after March 2007. The Total Capitalisation of the company as on date is approx USD 142 Million which has been invested in several power plant special purpose vehicles (SPV's) The Ho'ble High Court of Andhra Pradesh has recently allowed the petition of RVK Energy Private Limited, a joint controlled entity in the matter relating to the levy and collection of the cross subsidy surcharge by Transmission Corporation of Andhra Pradesh Limited which is disclosed as a contingent liability in the financial statements. In view of the judgement, the contingent liability would stand extinguished. The Assistant Commissioner -Customs, Tuticorin has passed an order disallowing a claim for concessional rate of customs duty on the import of 2 Nos. Gas Engines by Coromandel Electric Company Limited, a down stream joint controlled entity and a demand for USD 1.23 Million has been made. Necessary consequential steps for filing an appeal against the order, a conferred statutory right, has been initiated. The final determination of the demand made does not impact the financial position of the Group or the joint controlled entity, since the customs duty differential, if any is required to be considered for determining tariff payable by the consumer on the off take of power. India Cements Limited (the JV Partner and consumer of power in the Coromandel Electric Company Limited, a down stream joint controlled entity has informed the company 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 current quarter and the transaction could be consummated thereafter. In the Arasmeta special purpose vehicle, KSK Electricity Financing India Private Limited ('KEFIPL') has consolidated its interest in the company in June 2007 and the entire Groups equity interest in 25,500,000 equity shares in the SPV is held only by KEFIPL In the Sai Regency special purpose vehicle, KSK Electricity Financing India Private Limited ('KEFIPL') has consolidated its interest in the company in June 2007 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 capital infusion and allotment, KSK Electricity Financing India Private Limited ('KEFIPL') has consolidated its interest in the company in June 2007 and the entire Groups equity interest of 37,000,000 equity shares & Preference shares in the SPV is held only by KEFIPL In July 2007, KEFIPL, a joint controlled entity of the indirect subsidiary of the Company has infused substantial share capital of USD 77 Million in Wardha Power Company Private Limited, a joint controlled entity of the indirect subsidiary of the Company. - ENDS - This information is provided by RNS The company news service from the London Stock Exchange

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