30 September 2024

Mercantile Ports & Logistics Limited

("MPL", the "Group" or the "Company")

Interim Results

Mercantile Ports & Logistics (AIM: MPL), which is operating and continuing to develop a port and logistics facility in Navi Mumbai, Maharashtra, India, announces its interim results for the period ended 30 June 2024.

Financial Summary:

·      Group revenue of £1.05 million (H1 2023: £2.69 million)

·      Operating loss of £1.02 million (H1 2023: EBITDA of £0.22 million)

·      Loss Before Tax of £6.02 million (H1 2023: £5.38 million)

·      Net asset value at 30 June 2024 of £68.32 million (H1 2023: £90.99 million)

·      Total assets of £124.67 million (H1 2023: £144.47 million)

·      A debt-to-equity ratio of 0.77 (H1 2023: 0.47)

·      Cash as at 30 June 2024 of £0.94 million (H1 2023: £6.40 million)

·      Facility of £15 million remains undrawn

For further information, please visit www.mercpl.com or contact:

Operational Review - Jay Mehta, CEO

The Company's operations continued to build momentum, although this progress was not reflected in revenue growth. As the period progressed, the timing of the handling of significant volumes of container cargo was delayed beyond the contingency built in by Board. Despite the Facility having the necessary permits to handle containers, unexpected levels of government processes have been encountered and the expected volumes have not, therefore, taken place. Whilst this has been disappointing, this issue has been taken to the highest level of Government and is expected to be resolved shortly.

In addition, a number of contracts have not commenced on their expected timeframe. It has become apparent that the elections in Maharashtra, which are predicted to be very close, have impacted levels of activity on some of the infrastructure projects in the region. In particular, the Company had expected to handle the cement for the largest ever residential rebuild project in Mumbai. However, with major contractors electing to wait for the outcome of the elections and certainty of contract terms, the revenue expected to be generated by the Facility in servicing these contracts has been delayed.

Another example has been seen where the Company identified a replacement for Tata/Daewoo as a tenant but now does not expect that contract to be signed until after the election, which is expected to take place in November 2024. Although the signing of new material contracts has been delayed, the Company remains pleased with the levels of new enquiries and the volumes of coal handling have remained robust and are expected to continue. With a clear view on when the reason behind these delays will pass, and with a strong pipeline, the Board is satisfied that the issues encountered are temporary in nature and that the improvement in volumes that has been seen since the period end will continue.

On 27 June 2024, the Group announced that it had entered into an unsecured loan and credit facility agreement for £15 million with KJS Concrete Private Limited (a subsidiary of the Group's strategic investor, Hunch Ventures) to provide additional working capital headroom to the Company. As a result, the Group remains confident in its working capital position for its current requirements.

Trading Update & Outlook

The Company does maintain a degree of contingency when monitoring itself against market forecasts and, as referred to above, it is pleasing to report that trading levels have improved since the period end. However, whilst the Board is confident that the Company will exceed the performance achieved and reported for FY 2023, the Board has concluded that the improved trading levels will not be sufficient to enable the Company to meet current market forecasts for FY24.

The Company remains grateful for the ongoing support of its major shareholder, Hunch Ventures, which has reconfirmed its continued backing of the Company and endorsed its strategy. With this support, with the election induced slowdown due to ease imminently and with record levels of customer enquiries, the Board is confident of a strong finish to the year and beyond.

Chairman's Statement

Whilst MPL remains well placed to be a beneficiary of what continues to be a vibrant domestic economy. Real GDP growth in the Indian economy was still 6.7% in Q1 of Financial Year 24 (8.2% in the comparative period), with lower levels of growth mainly due to poor performance of the agriculture and services sectors.

The International Monetary Fund ("IMF") raised India's growth forecast for FY24-25 to 7% in July 2024, up from 6.8%, following improving private consumption, particularly in rural India. The IMF left its estimate for the FY25-26 unchanged at 6.5%.

Against this backdrop, the Group's Facility at the Port of Karanja, located in Mumbai is uniquely positioned in the most important State in the country which acts as a gateway to multiple landlocked States.

A significant amount of management's resources have been directed at renegotiating terms with the Group's consortium of lenders. The Company is continuing to work with the lending consortium of state-owned banks in restructuring its debt facility. While this process has taken longer than originally envisaged, the Company continues to have an excellent relationship with its banks and remains confident of a facility with much more attractive terms being put in place. Management continues to engage positively with all three Indian banks at both the Head Office and Branch level and expects a definitive announcement to be made on this shortly. Hunch Ventures is working alongside the Company towards concluding negotiations around the debt facility.

While the Group's existing customers are pleased with the service levels and the overall ease of undertaking business at the facility, the pipeline of new customers looking to use our facility is robust as the Group aspires to increase utilisation levels at the facility. Potential customers with whom we are in discussions include one of India's major Oil & Gas exploration companies, in addition to entities in the industrial users from the private sector. Furthermore, in respect of a variety of bulk commodities, the Company intends to increase the handling of liquids, containers and Oil & Gas cargoes at the Facility. The Company is confident in signing major contracts before the end of the year, which will have a positive impact on the trajectory of the Company.

Notwithstanding the short term challenges in trading conditions the Group has experienced, the Facility is expected to be busier in H2 2024, and the Board remains confident for the remainder of the current financial year.

Jeremy Warner Allan, Chairman

Mercantile Ports & Logistics Limited

30 September 2024

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE PERIOD ENDED 30 JUNE 2024

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2024

CONDENSED STATEMENT OF CASH FLOWS

FOR THE PERIOD ENDED 30 JUNE 2024

Note:

1.      The adjustments and working capital movements have been combined in the above Statement of Cash Flows.

Consolidated Statement of Changes in Equity

for the PERIOD ended 30 JUNE 2024

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1.  Reporting entity

Mercantile Ports & Logistics Limited (the "Company") was incorporated in Guernsey under the Companies (Guernsey) Law 2008 on 24 August 2010. The condensed interim consolidated financial statements of the Company for the period ended 30 June 2024 comprises the financial statement of the Company and its subsidiaries (together referred to as the "Group"). The Company has been established to develop, own and operate port and logistics facility.

2.  General information and basis of preparation

The condensed interim consolidated financial statements are for 6 months' period ended 30 June 2024 and are not the full year accounts. The condensed interim consolidated financial statements are prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union (EU) and under AIM 18 guidelines. They have been prepared on a historical cost basis. They do not include all of the information required in annual financial statements in accordance with International Financial Reporting Standards ("IFRS") as issued by the EU. The condensed interim consolidated financial statements are not audited in accordance with International Standard on Review Engagements (ISRE) 2410.

The condensed interim consolidated financial statements are presented in Great British Pounds Sterling (£), which is the functional currency of the parent company. The preparation of the condensed interim consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

In preparing these, condensed interim consolidated financial statements, the significant judgements made by management applying the Group's accounting policies and the key sources of estimation uncertainty are the same as those applied in the annual IFRS financial statements. The condensed interim consolidated financial statements have been prepared on a going concern basis.

The condensed interim consolidated financial statements have been approved for issue by the Board of Directors on 27 September, 2024.

Operating (loss) / profit before depreciation

The above information is presented separately in the statement of comprehensive income as a supplementary information. This information is a primary measure used by the executive management and the Board to assess the financial performance of the Group, as it provides a more comparable assessment of the Group's year on year performance. It may also be a key metric used by the investor community to assess the performance of our year-on-year operations.  

3.  Significant accounting policies

The interim financial statements have been prepared in accordance with the accounting policies adopted in the Group's last annual financial statements for the year ended 31 December 2023. The accounting policies have been applied consistently throughout the Group for the purposes of preparation of these interim financial statements.

New standards, amendments and interpretations to existing standards are effective from January 1, 2024

Lease accounting - When measuring a lease liability from a sale-and-leaseback transaction, variable lease payments must be included on initial recognition.

Supplier finance arrangements - New disclosures are required to improve transparency of supplier finance arrangements and their effects on an entity's liabilities, cash flows, and exposure to liquidity risk.

Accounting estimates - The definition of accounting estimates is replaced with a definition that clarifies that accounting estimates are monetary amounts in financial statements that are subject to measurement uncertainty.

Non-current liabilities with covenants - Amendments improve the information an entity provides when its right to defer settlement of a liability is subject to compliance with covenants.

4.  Going Concern

The Directors have considered the application of the going concern basis of accounting.

In making this assessment, the Directors have considered the current and projected cash balance, borrowing facilities available, ongoing debt renegotiations with consortium banks, anticipated future utilisation of available funds, the Company's ability to control the variable costs, Group's capital investment plans and the projected operating performance of the business for the 15 months post the signing of these financial statements.

The group had a cash balance in excess of  £900K as at 30 June 2024, and an additional line of unsecured credit from Hunch Ventures amounting to £15 million to mitigate funding risk as well as ensuring continuity in business. The company will continue to use the cash generated from operations as well as the balance subscription money receivable from Hunch Ventures of £2.95 million, to manage the projected costs until December 2025.

The Indian subsidiary and the board is in direct touch with the consortium of lenders to expedite the proposal of restructuring of the term loan facility, which has got abnormally delayed due to extended negotiations over certain terms of the restructuring. The Management expects to achieve a break through with the lenders over the coming weeks and will keep the shareholders informed on the progress to that extent.

The fund raise in 2023 has placed the Directors in a position to believe that it remains appropriate to continue to adopt the going concern in preparing the forecasts.

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

5.  Comprehensive income

The comprehensive loss for the period is calculated after crediting a gain of £ 0.71 million, which arises on the translation of foreign operations to Great British Pounds Sterling (£), which is the functional currency of the Company. (INR/GBP exchange rate at 30 June 2024 of 105.46, 31 December 2023: 106.11 and 30 June 2023: 103.51 are used).

6.  Cash flow adjustments and changes in working capital

    The following non-cash flow adjustments and adjustments for changes in working capital made to profit before tax to arrive at operating cash flow:

7.  Loan facility

The Indian subsidiary has an ongoing term loan facility which was sanctioned a term loan of INR 480 crores (£46.63 million) by a consortium of lenders, the loan agreement for which was executed on 28th February, 2014.

MPL is currently in negotiation with its lenders to restructure the loan, particularly seeking an extension of repayment tenor from 7 years to 14 years amongst other things.

Outstanding balance as at 30 June 2024 are as follows:

The Indian subsidiary, had approached the consortium of lenders to reconsider the term loan facility repayment period from 7 years to 14 years, including the moratorium of 2 years on Principal term loan as well as Interest. The proposal is still pending for disposal at the respective HO's of the lenders for consideration. However, the management has prepared a plan B to mitigate the risk of abnormal delay in sanctioning of the facility.

Repayment of schedule of above outstanding loan based on OTR sanction are as follow:

* Loan repayment is stated at gross amount, excluding gain on debt modification £2.68 million (INR 28.26 crore).

The rate of interest is a floating rate linked to the Canara bank base rate (7.40%) with an additional spread of 215 basis points. The present composite rate of interest is 9.55%. Above borrowings are secured by the hypothecation of the port facility and pledge of its shares as well as a personal guarantee by the Nikhil Gandhi. The carrying amount of the above bank borrowing considered as a reasonable approximation of the fair value.

8.  Property, plant and equipment

As at 30 June 2024, the carrying amount of facility yet to be capitalized was £16.31 million (30 June 2023: £24.22 million).

During the 6 months ended 30 June 2024, additions to property plant and equipment are £0.61 million and positive impact of £0.88 million was on account of exchange fluctuation as GBP became stronger against INR (INR/GBP exchange rate at 30 June 2024 of 105.46, 31 December 2023: 106.11)

Depreciation on the property plant and equipment is included in the administrative expenses.

9.  Trade and other receivables

Trade and other receivable consist of following:

10.  Event Subsequent to the reporting period

The Indian subsidiary has successfully obtained a short-term contract with Freight Wings India Private Limited for the storage of steel composite spans for a coastal road project for Government of Maharashtra.