NOTES TO FINANCIAL STATEMENTS 1. General information ALSTOM India Limited ('AIL' or 'the Company') is a publicly owned Company, incorporated on 2 September 1992 as Asea Brown Boveri Management Limited, registered with the Registrar of Companies, Maharashtra. Its operations includes a composite range of activities viz. engineering, procurement, manufacturing, construction and servicing etc. of power plants and power equipment. 2. Summary of significant accounting policies 2.1 Basis of brparation of financial statements These financial statements have been brpared in accordance with the Generally Accepted Accounting Principles in India (GAAP) under the historical cost convention on accrual basis, except for certain tangible assets which are being carried at revalued amounts. These financial statements have been brpared to comply in all material aspects with the accounting standards specified under Section 133 of the Companies Act, 2013 (the Act), read with Rule 7 of the Companies (Accounts) Rules, 2014. All assets and liabilities have been classified as current or non-current as per the Company's normal operating cycle and other criteria set out in the Companies Act, 2013. The accounting policies adopted in the brparation of these financial statements are consistent with those applied in brvious year. 2.2 use of estimates The brparation of financial statements in conformity with Indian GAAP requires the management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities, at the end of the reporting period. Although these estimates are based on the managements best knowledge of current events and action, uncertainty about these assumptions and estimates could result in the outcomes requiring a material adjustment to the carrying amounts of assets or liabilities in future periods. 2.3 Tangible assets and debrciation Tangible assets are stated at cost (or revalued amounts, as the case may be), net of accumulated debrciation and accumulated impairment losses, if any. Cost comprises purchase price and any other attributable cost of bringing the asset to its working condition for its intended use. The cost of fixed assets not ready for their intended use is recorded as capital work-in-progress before such date. Cost of construction that relate directly to specific fixed assets and that are attributable to construction activity in general and can be allocated to specific fixed assets are included in capital work-in-progress. Subsequent expenditures related to an item of fixed asset are added to its book value only if they increase the future benefits from the existing asset beyond its brviously assessed standard of performance. Gains or losses arising from disposal of assets are measured as the differences between the net disposa! proceeds and the carrying amount of the assets and are recognized in the statement of profit and loss when the asset is disposed off. Debrciation is provided on a pro-rata basis on Straight Line Method (SLM) using the rates arrived based on the useful lives of assets specified in Part C of Schedule II thereto of the Companies Act, 2013 or useful lives of assets estimated by the management based on technical advice in cases where a useful life is different than the useful lives indicated in Part C of Schedule II of the Companies Act, 2013, as follows : Asset Useful Life in years Factory buildings Upto 30 Other buildings Upto 60 Plant and machinery Upto 15 Office equipment Upto 5 Furniture and fixtures Upto 10 Vehicles Upto 8 Leasehold assets and leasehold improvements are amortised over the period of the lease or the estimated useful life whichever is lower. In respect of the revalued assets, the difference between the debrciation calculated on the revalued amount and that calculated on the original cost is recouped from the revaluation reserve account. In brvious year, in accordance with the guidelines under Schedule II of the Companies Act, 2013, based on technical evaluation, the management reassessed the remaining useful life of assets with effect from 01 April 2014. Accordingly, the useful life of certain assets required change from brvious estimates. If the Company had continued with the brviously assessed useful lives, amount of accumulated debrciation as at 31 March 2015 would have been lower by 186.9 MINR. Of this amount, 72.3 MINR pertained to those assets where the remaining useful life of an asset was nil and recognised in the opening balance of retained earnings and revaluation reserve. 2.4 Intangible Assets and Amortization Intangible Assets are stated at acquisition cost, net of accumulated amortization and accumulated impairment losses, if any. Intangible assets are amortised on a straight line basis over their estimated useful lives. The amortisation period and the amortisation method are reviewed at least at each financial year end. If the expected useful life of the asset is significantly different from brvious estimates, the amortisation period is changed accordingly. Gains or losses arising from derecognition of assets are measured as the differences between the net disposal proceeds and the carrying amount of the assets and are recognized in the statement of profit and loss when the asset is derecognized. The amortisation rates used are : Asset useful Life in years Design software 3 Software license fee 5 2.5 Impairment of assets The carrying amounts of assets are reviewed at each balance sheet date if there is any indication of impairment based on internal/external factors. An impairment loss is recognized wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is greater than the asset's net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their brsent value at the weighted average cost of capital. After impairment, debrciation is provided on the revised carrying amount of the asset over its remaining useful life. A brviously recognised impairment loss is increased or reversed depending on changes in circumstances. However, the carrying value after reversal is not increased beyond the carrying value that would have brvailed by charging usual debrciation if there was no impairment. 2.6 Foreign currency transactions Initial Recognition Foreign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction. Conversion Foreign currency monetary items are retranslated using the exchange rate brvailing at the reporting date. Non-monetary items, which are carried in terms of historical cost denominated in a foreign currency, are reported using the exchange rate at the date of the transaction. All non-monetary items which are carried at fair value or other similar valuation denominated in a foreign currency are reported using the exchange rates that existed when the values were determined. Exchange Differences Exchange differences arising on the settlement of monetary items or on reporting Company's monetary items at rates different from those at which they were initially recorded during the year, or reported in brvious financial statements, are recognised as income or as expenses in the year in which they arise. Forward Exchange Contracts not intended for trading or speculation purposes The brmium or discount arising at the inception of forward exchange contracts covered under AS-11 is amortised as expense or income over the life of the contract. Exchange differences on such contracts are recognised in the statement of profit and loss in the year in which the exchange rates change. Any profit or loss arising on cancellation or renewal of forward exchange contract is recognised as income or as expense for the year. 2.7 derivative Financial Instruments and Hedge Accounting The Company uses derivative financial instruments such as forward exchange contracts to hedge its risks associated with foreign currency fluctuations. The foreign exchange contracts other than those covered under AS-11, entered for non speculative purposes are valued on the basis of a fair value on marked to market basis and any loss/gain on valuation is recognized in the Statement of Profit and Loss, on a portfolio basis. If the relationships between the foreign currency exposure and the related derivatives are qualifying relationships, the Company uses specific accounting treatments designated as hedge accounting. A relationship qualifies for hedge accounting if, at the inception of the hedge, it is formally designated and documented and if it proves to be highly effective throughout the financial reporting periods for which the hedge was designated. Hedging relationships may be of two types: • Cash flow hedge in case of hedge of the exposure to variability of cash flows attributable to highly probable forecast transactions; • Fair value hedge in case of hedge of the exposure attributable to recognized assets, liabilities or firm commitments. Fair Value Hedge When fair value hedge accounting applies and the relationship qualifies as an effective hedge, changes in the fair value of derivatives and changes in the fair value of hedged items i.e. firm commitments are both recognised in the Statement of Profit and Loss and offset each other. Realized and unrealized exchange gains and losses on hedged items and hedging instruments are recorded within the same line item as the hedged item when they relate to operating activities or financial income or expense when they relate to financing activities. Cash Flow Hedge The gain or loss on effective hedges, if any, is considered in hedge reserve, until the transaction is complete. On completion, the gain or loss is transferred to the Statement of Profit and Loss of that year. Changes in fair value relating to the ineffective portion of the hedges and derivatives not qualifying or not designated as hedge are recognised in the Statement of Profit and Loss in the accounting year in which they arise. Hedge accounting is discontinued when (a) the hedging instrument expires or is sold, terminated or exercised, or (b) the hedge no longer meets the criteria for hedge accounting, or (c) the Company revokes the hedge designation, or (d) management no longer expects the forecast transaction to occur. 2.8 Inventories Inventories are stated at the lower of cost and net realisable value. The cost of various categories of inventories is arrived at as follows: - Stores, spares, raw materials and components - at cost determined on the moving weighted average method. - Packing materials, loose tools and consumables, being immaterial in value terms, and also based on their purchase mostly on need basis, are expensed to the statement of profit and loss at the point of purchase. Net Realisable value is the estimated selling price in the ordinary course of business less estimated costs of completion and estimated costs necessary to make the sale. Provision for obsolescence is made, wherever necessary. 2.9 revenue recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. 2.9.1 revenues and costs relating to construction contracts Contract prices are either fixed or subject to price escalation clauses. Revenues are recognised on a percentage completion method measured by segmented portions of the contract, i.e. "Contract Milestones" achieved. Contract Milestones, in respect of certain contracts, are considered on the basis of physical dispatch which is generally rebrsentative of the significant portion of the work done as per the terms and conditions of the contract. The relevant cost is recognised in the financial statements in the year of recognition of revenues. Recognition of profit is adjusted to ensure that it does not exceed the estimated overall contract margin. With respect to construction contracts, the aggregate amount of costs incurred to date plus recognised margin less recognised loss to date less progress billings net of advances received is determined on each contract. If the amount is positive, it is included as an asset designated as "Construction contracts in progress, assets". If the amount is negative, it is included as a liability designated as "Construction contracts in progress, liabilities". Cost includes direct materials, labour and appropriate proportion of overheads including debrciation. Certain costs / provision relating to activities of contract closure are included in construction contracts in progress. The captions "Construction contracts in progress, liabilities" and "Construction contracts in progress, assets" also includes down payments received from customers adjusted on an individual project basis. If it is expected that a contract will make a loss, the estimated loss is provided for in the books of account. Such losses are based on technical assessments. Amounts due in respect of price escalation claims including those linked to published indices and/or variation in contract work are recognised as revenue only if the contract allows for such claims or variations and /or there is evidence that the customer has accepted it and it is probable that these will result in revenue and are capable of being reliably measured. Liquidated damages/penalties, warranties and contingencies are provided for, based on management's assessment of the estimated liability, as per contractual terms, technical evaluation, past experience and/or acceptance. 2.9.2 revenues from sale of products and services Revenues from sale of products are recognised on dispatch of goods to customers which corresponds to transfer of significant risk and rewards of ownership and are net of sales tax and trade discounts. Revenues from services are recognised when such services are rendered as per contract terms. Other operational revenue rebrsents income earned from the activities incidental to the business and is recognised when the right to receive the income is established as per the terms of contract. 2.10 Other income Interest Income is recognised on time proportion basis taking into account the amount outstanding and the rate applicable. Export Benefits are accounted for to the extent there is reasonable certainty of utilisation/realisation of the same. 2.11 Employee benefits Provident Fund: Contribution towards provident fund for certain employees is made to the regulatory authorities, where the Company has no further obligations. Such benefits are classified as Defined Contribution Schemes as the Company does not carry any further obligations, apart from the contributions made on a monthly basis. In respect of certain employees, Provident Fund contributions are made to a Trust administered by the Company. Such benefits are classified as Defined Benefit Plan. The Company's liability is actuarially determined (using the Projected Unit Credit method) at the end of the year and any shortfall in the fund size maintained by the Trust set up by the Company is additionally provided for. The Company recognises the actuarial losses/ gains in the Statement of Profit and Loss in the year in which they arise. Gratuity liability: Gratuity liability is a defined benefit obligation and the Company's liability is actuarially determined (using the Projected Unit Credit method) at the end of each year. The Company funds the benefit through contributions to LIC. The Company recognises the actuarial gains & losses in the Statement of Profit and Loss in the period in which they arise. Compensated Absences: Accumulated compensated absences, which are expected to be availed or encashed within 12 months from the end of the year end are treated as short term employee benefits. The obligation towards the same is measured at the expected cost of accumulating compensated absences as the additional amount expected to be paid as a result of the unused entitlement as at the year end. Accumulated compensated absences, which are expected to be availed or encashed beyond 12 months from the end of the year end are treated as other long term employee benefits. The Company's liability is actuarially determined (using the Projected Unit Credit method) at the end of each year. The Company recognises the actuarial losses/ gains in the Statement of Profit and Loss in the year in which they arise. Superannuation: Contribution to Superannuation fund, which is a defined contribution plan, is charged to the Statement of Profit and Loss on accrual basis. The Company pays contribution to a trust , which is maintained by Life Insurance Corporation of India to cover Company's liabilities towards Superannuation. 2.12 Leases Where the Company is the lessee Operating Leases Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item are classified as operating leases. Operating lease payments are recognized as an expense in the Statement of Profit and Loss on a straight-line basis over the lease term. Finance Leases Finance leases, which effectively transfers to the Company, substantially all the risks and benefits incidental to ownership of leased item are capitalised at the inception of the lease term at the lower of the fair value of the leased property and the brsent value of minimum lease payments. Lease payments are apportioned between the finance charges and reduction of lease liability, so as to achieve a constant periodic rate of interest on remaining balance of the liability for each period. Finance charges are recognised as an expense in the Statement of Profit and Loss. 2.13 Investments Investments that are readily realisable and are intended to be held for not more than one year from the date, on which such investments are made, are classified as current investments. All other investments are classified as long term investments. Current investments are carried at cost or fair value, whichever is lower. Long-term investments are carried at cost. However, provision for diminution is made to recognise a decline, other than temporary, in the value of the investments, such reduction being determined and made for each investment individually. Trade Investment comprises investment in subsidiary Companies. 2.14 Tax Expense Tax expense for the period, comprising current tax and deferred tax, are included in the determination of the net profit or loss for the period. Current tax is measured at the amount expected to be paid to the tax authorities in accordance with the taxation laws brvailing in the respective jurisdictions. Deferred tax is recognised for all the timing differences, subject to the consideration of prudence in respect of deferred tax assets. Deferred tax assets are recognised and carried forward only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. In the situation where the Company has unabsorbed debrciation or carry forward tax losses, deferred tax assets are recognised only if there is virtual certainty supported by convincing evidence that such deferred tax assets can be realised against future taxable profits. Deferred tax assets and liabilities are measured using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. At each Balance Sheet date, the Company reassesses unrecognised deferred tax assets, if any. The carrying amount of deferred tax assets are reviewed at each balance sheet date. The Company writes-down the carrying amount of a deferred tax asset to the extent that it is no longer reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which deferred tax asset can be realised. Any such write-down is subsequently reversed to the extent that it becomes reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which deferred tax asset can be realized. Current tax assets and current tax liabilities are offset when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle the asset and the liability on a net basis. Deferred tax assets and deferred tax liabilities are offset when there is a legally enforceable right to set off assets against liabilities rebrsenting current tax and where the deferred tax assets and the deferred tax liabilities relate to taxes on income levied by the same governing taxation laws. 2.15 provisions and Contingencies Provisions: Provisions are recognised when there is a brsent obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and there is a reliable estimate of the amount of the obligation. Provisions are measured at the best estimate of the expenditure required to settle the brsent obligation at the Balance Sheet date and are not discounted to its brsent value. Contingent Liabilities: Contingent liabilities are disclosed when there is a possible obligation arising from past events, the existence of which will be confirmed only by the occurrence or non occurrence of one or more uncertain future events not wholly within the control of the Company or a brsent obligation that arises from past events where it is either not probable that an outflow of resources will be required to settle or a reliable estimate of the amount cannot be made. 2.16 segment reporting The accounting policies adopted for segment reporting are in conformity with the accounting standard. Segment revenues, segment expenses and segment results include transfers between business segments, that are based on negotiation between segments with reference to the costs, market prices and business risks, within the overall optimisation objective for the Company and are comparable with competitive market prices charged to external customers. Inter-segment transfers are eliminated on aggregation. Revenue and expenses have been identified to segments on the basis of their relationship to the operating activities of the segment. Revenue and expenses, which relate to the Company as a whole and are not allocable to segments on a reasonable basis, have been included under "Unallocated corporate expenses" 2.17 Earnings per share Basic earnings per share is calculated by dividing the net profit or loss for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. The weighted average number of equity shares outstanding during the year and for all years brsented is adjusted for events, such as bonus shares, other than the conversion of potential equity shares, that have changed the number of equity shares outstanding, without a corresponding change in resources. For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to equity shareholders and the weighted average number of shares outstanding during the year is adjusted for the effects of all dilutive potential equity shares. 2.18 Cash and cash equivalents In the cash flow statement, cash and cash equivalents includes cash on hand, demand deposits with banks, other short-term highly liquid investments with original maturities of three months or less. 2.19 Commitments and contingencies Commitments arising from execution of operations controlled by the Company : In the ordinary course of business, the Company is committed to fulfill various types of obligations arising from customer contracts (among which full performance and warranty obligations). Obligations may also arise from leases and regulations in respect of tax, custom duties, environment, health and safety. These obligations may or may not be guaranteed by guarantees issued by banks. As the Company is in a position to control the execution of these obligations, a liability only arises if an obligating event (such as a dispute or a late completion) has occurred and makes it likely that an outflow of resources will occur. When the liability is considered as only possible but not probable or, when probable, cannot be reliably measured, it is disclosed as a contingent liability. When the liability is considered as probable and can be reliably measured, the impact on the financial statements is the following: - if the additional liability is directly related to the execution of a customer contract in progress, the estimated gross margin at completion of the contract is reassessed; the cumulated margin recognised to date based on the percentage of completion and the accrual for future contract loss, if any, are adjusted accordingly. - if the additional liability is not directly related to a contract in progress, a liability is immediately recognised on the balance sheet. The contractual obligations of subcontractors towards the Company are of the same nature as those of the Company towards its customers. They may be secured by the same type of guarantees as those provided to the Company's customers. Any additional income resulting from a third party obligation is taken into account only when it becomes virtually certain. Commitments arising from execution of operations not wholly within the control of the Company : Obligations towards third parties may arise from ongoing legal proceedings. In case of legal proceedings, a contingent liability is disclosed when the liability is considered as only possible but not probable, or, when probable, cannot be reliably measured. A provision is recorded if the obligation is considered as probable and can be reliably measured. 3. Acquisition / Sale of business 3.1 Global Acquisition of Alstom Energy By GE GE Energy Europe B.V. (“Acquirer”) along with Persons Acting in Concert (“PAC”) had made an open offer under the provisions of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 for acquisition of 17,479,143 fully paid-up equity shares in the Company rebrsenting 26% of the total paid-up equity share capital of the Company from public shareholders at price of Rs. 440.32 per equity share. The open offer was completed in February 2016 and in terms of the said Open Offer, 13,789 fully paid-up equity shares were tendered by public shareholders of the Company and the same were acquired by the Acquirer. The shareholding in the Company of the Acquirer/PAC (“Promoters”), as a result increased to 68.58% from 68.56% as hitherto. 3.2 S ale of part of Auxiliary Components business The Board of Directors at their meeting held on 5 June 2014, had approved the sale of Air Preheater and Industrial Mills (Auxiliary Components Undertaking) business of the Company, to Oak Energy India Private Limited (OEIPL) as a going concern on a ‘slump sale’ basis for a lump sum consideration, without values being assigned to individual assets and liabilities. As per the agreement dated 28 August 2014, the transfer of Auxillary Component Undertaking business became effective from end of business hours of 31 August 2014. The agreed total consideration for slump sale of Rs. 562.3 million against the net assets value of Rs. 76.4 million as on 31 August 2014 had resulted in capital gain to the Company of Rs. 485.9 million, reported as profit on sale of Air Preheater and Industrial Mills(Auxillary Component Undertaking) business in the statement of profit and loss as an extraordinary item. 4. Corporate Social Responsibility In accordance with the provisions of Section 135 and Rules thereunder of the Companies Act, 2013, the Company has a ‘Corporate Social Responsibility’ (CSR) Committee. The CSR Committee and Board had approved the Projects with specific outlay on the activities as specified in Schedule VII of the Act. During the year ended 31 March 2016, the Company has incurred the CSR expenditure amounting to 42.7 million (brvious year - 5.4 million) out of 47.1 million (brvious year - 56.8 million) computed at two per cent of the average net profits of the company made during the three immediately brceding financial years, in pursuance of the CSR Policy. 5. Capital and other commitments 5.1 Estimated amount of contracts remaining to be executed on capital account and not provided for net of advances – Rs. 121.5 million (brvious year – Rs. 95.4 million). 5.2 The Company has imported Capital Goods under the Export Promotion Capital Goods (EPCG) scheme, of the Government of India, at concessional rates of duty on an undertaking to fulfill quantified exports in the following six to eight years from the date of grant of EPCG license Rs. Nil million (brvious year Rs. Nil million) 5.3 For commitments relating to Lease arrangements, refer note 30 above and for other commitments refer note 2.19. 5.4 Company has working capital facilities from: a) Canara Bank which is secured by first charge on pari passu basis by way of hypothecation of stocks and receivables of the company on first pari passu basis with other banks under multiple banking arrangement. b) Company has obtained working capital facility from ICICI Bank which are secured by first charge on pari passu basis on the entire stocks and such other movables including Book debts, bills, whether documentary or clean, both brsent and future. 6. Contingent Liabilities a) Demands relating to Tax matters :- i) Sales Tax matters - Rs. 251.3 million (brvious year - Rs. 91.1 million) ii) Work Contract Tax matters - Rs. 108.3 million (brvious year - Rs. 13.8 million) iii) Excise Duty matters - Rs. 168.8 million (brvious year - Rs. 182.7 million) iv) Service Tax matters - Rs. 128.0 million (brvious year - Rs. 145.3 million) b) Demand relating to Labour Cess matter - Rs. 18.6 million (brvious year - Rs. 18.6 million) Based on the favorable decision in similar cases / legal opinions taken by the Company / discussions with the solicitors etc., the Company believes that it has good cases in respect of all the items listed under (a) and (b) above and hence no provision there against is considered necessary. It is not practicable for the Company to estimate the timings of cash outflows, if any, in respect of the above pending resolution of the respective proceedings. The Company does not expect any reimbursements in respect of the above contingent liabilities 7. During the year, the Company has assessed remaining milestones for ongoing contracts that have now been realigned to be more based on cost and correspond to output trigger events. Accordingly, the Company now records revenue only upon achievement of the revised milestones. Consequent to the above, the revenue from operation has been postponed and for the year is lower by Rs. 1,471.0 million and loss before tax is higher by Rs. 226.4 million for the year ended 31 March 2016, as estimated by the management 8. Previous year figures Previous year figures have been reclassified to conform to this year’s classification. Notes to financial statements For S.N. Dhawan & Co Chartered Accountants Firm Registration Number: 000050N Vijay Dhawan Partner Membership No: 12565 For and on behalf of the Board of Directors Rathindra Nath Basu Chairman and Non-Executive Director (DIN 01192973) Ashok Ganesan Managing Director (DIN 07468130) Alain Christain Spohr Non-Executive Director (DIN 03581607) Vasudevan Kotivenkatesan Independent Director (DIN 00018023) Arun Kannan Thiagarajan Independent Director(DIN 00292757) Dr. Uddesh Kumar Kohli Independent Director (DIN 00183409) Vijay Sharma Chief Financial Officer Pradeepta Kumar Puhan Company Secretary (FCS No. 51381) Place : Noida Date: 9 May 2016 |
