Opg Power Regulatory News (OPG)

1 December 2015

OPG Power Ventures plc

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

Unaudited results for the six months ended 30th September 2015

Powering Forward With Momentum

EPS up 52%

Run-rate revenues building strongly

OPG (AIM: OPG), the developer and operator of power generation assets in India, announces its unaudited results for the six months ended 30 September 2015 ("H1 FY16").

Operating capacity increased by 122% from 270 MW to 600 MW

· First 150 MW Gujarat unit started operation in Apr 2015 and ramped up to 85% in Oct 15

· 180 MW Chennai unit commenced operation and continuing to ramp up

Operating capacity to increase to 750 MW imminently

· Second 150 MW Gujarat unit - transmission line connected and synchronised; on track for commercial operation to commence in Jan 2016

Additional Highlights for the period

· EBITDA margin of 41% up from 36% compared with H1 FY15

· Profit before tax of £15.0 million up by 46% compared with H1 FY15

· EPS of 3.41 pence up by 52% compared with H1 FY15

· Gearing of 56% down from 59% at year-end; loan repayments of over £13 million made in the period

· Run-rate revenues growing: Oct 2015 billings approximately £11 million for Chennai plant (Oct. PLF 70%)

· Gujarat revenues and expenses being capitalised until Jan 2016 (as previously reported)

· New 257 MW of three year captive sales agreements at Chennai plant, transforms our sales mix

· Non-binding MoUs for pipeline projects

Summary financial information (including historic financial data)

As the functional currency of our operating businesses is INR, we have presented below our underlying INR financial performance for the same period.

*includes 338m units from Gujarat for which results are being capitalised

Net Debt (Million)

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

About OPG

OPG operates and develops power generation related assets in India, principally under the group captive model, and currently has 600 MW of assets in operation. In the six months ended 30th September 2015, according to its unaudited results for the period, the Company generated revenues of approximately £56 million, EBITDA of £23.25 million and earnings per share of 3.41 pence. OPG expects to commission an additional 150 MW of capacity shortly and is in the process of evaluating projects within a potential pipeline of 4,200 MW.

Chief Executive's Review

I am pleased to report on a period that was characterised by a doubling of our operating capacity and the first revenues from this growth that translated into strong increases in our earnings during the half year.

Illustrating the journey that we have been on, our earnings to 30th September 2015 were around seven times higher than the equivalent period just three years ago, in 2012. In addition new revenues from the capacity that we have now fully built have only just started to come through. We are dedicating our efforts to realise the full potential of 600 MW in operation together with the further 150 MW that is now being stabilised and expected to commence commercial operations in Gujarat next month. We can then progress on our commitment to introduce a dividend policy as well as pursue new projects. Our strategy remains focused on sustainable returns.

Sales mix has changed, underlying revenues are higher and run-rates building strongly

In Chennai, as we've previously reported, average load factors were affected by the gradual and continuing ramp up of the new 180 MW unit since commissioning and from temporary limitations in the availability of transmission grid capacity in Tamil Nadu. Whilst we estimate that the grid related issues affected our revenues by cINR 700 million (£7 million) underlying rupee revenues at INR5.6 billion were 20% higher than the same period in 2014. The grid capacity constraint, referred to above, affected both thermal and renewable generators in Tamil Nadu during the recent wind season but is not expected to be a feature of our operations where we supply industrial customers directly (now around 62% of our Chennai customer base).

From October 2015 the sales mix at the Chennai plant is as follows:

This sales mix enhances the visibility of OPG's revenues at Chennai. Whilst our receivables from TANGEDCO increased during the period on account of higher supplies, our history of full recovery from TANGEDCO remains intact.

In October 2015 our total billings, for the Chennai plant, were INR 1,122 million (£ 11.4 million) based on an average plant load factor of 70% for the month. Average tariff was INR 5.56.

In relation to the 300 MW Gujarat plant, as previously reported, the construction of the multi-circuit transmission line established by GETCO for evacuation of the plant was completed during the period and is now connected to the plant and synchronised. As a result the second 150 MW unit of the plant is expected to commence commercial operations next month. As previously stated, until then, the results of the Gujarat plant are being capitalised in pre-operative project costs. This accounting treatment resulted in a net cost of approximately £1 million being capitalised in the period under review since commissioning of the first unit.

Margins improved

We have continued to keep operating costs under control. Although the Indian Rupee has moved in the range of 62 to 66 to the USD during the same period, the delivered unit cost of imported coal during H1 FY16 fell more or less in line with the relevant coal index. Distribution and administrative costs rose by £2 million versus the comparable period of the prior year principally on account of foreign exchange and standard transmission and distribution costs incurred on sales to captive industrial consumers. 

Effective management of gearing aided by translation effect

During the period we invested £13.6 million in completing our asset build out in Gujarat in addition to c.£13 million in working capital in a period that witnessed the start-up of a new 180 MW unit at Chennai. Notwithstanding these investments we made debt servicing payments (principal + interest) of just under £20 million. At INR 24.3 billion, our net debt was just INR 0.8 billion higher than at 31st March 2015. Our gearing at 30th September was 56% versus 59% at 31st March 2015. 

Increasing our focus on the pipeline

In June 2015, we outlined to shareholders a long term goal of replicating the power generation mix of the nation as the direction of our growth strategy. Consistent with this direction-setting, we've recently signed two separate non-binding Memoranda of Understanding (MoUs) to develop 1,500 MW of renewable projects along-with two specific high efficiency thermal projects with an aggregate capacity of 2,700 MW. 

These could be potentially exciting developments. The Company will evaluate these potential projects and will update the market should any of the projects proceed. Part of the analysis of any project will include ensuring that the optimum funding structure for OPG is implemented, given the Company's forecast cash generation alongside the Board's intention to initiate a dividend. Shareholders will be kept abreast of our plans as they develop but in the meantime further details of each MoU are set out below.

Co-development of solar projects

An MoU has been signed with IBC Germany ("IBC"), to set up 1,000 MW of solar power projects in India over 7 years. IBC Germany is a leading company in Engineering, Procurement and Construction ("EPC") for solar photovoltaic projects with over 30 years' experience and 2,500 MW capacity installed worldwide, including India. IBC would potentially contribute to EPC, operations and towards approximately a third of the equity capital of co-developed projects. 

New thermal and renewables projects in Tamil Nadu

An MoU has also been signed with the Government of Tamil Nadu ("GoTN"), to establish 2,700 MW of specific thermal energy projects and 500 MW of renewables projects in the state. One project of 720 MW would be a brownfield expansion at our Chennai site and projects are being evaluated for the potential to deploy supercritical or other high efficiency technologies. Under the MoU the state is to provide its assistance with approvals and clearances required for these projects.

Outlook

Newly added capacity is transforming our performance. We are at 600 MW and we should be operating 750 MW very shortly and despite the more gradual growth in contribution that we will see from the Gujarat plant, we continue to expect earnings for the current year to be in line with expectations. And so I believe we remain on track to introduce a dividend policy in the next few months when we expect the Gujarat plant to be fully operational. We remain committed to being a preferred developer and operator in the exciting Indian energy sector.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the period ended 30 September 2015

(All amount in £, unless otherwise stated)

The financial statements were authorised for issue by the Board of Directors on 30 November 2015 and were signed by:

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 September 2015

(All amount in £, unless otherwise stated)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(All amount in £, unless otherwise stated)

CONSOLIDATED STATEMENT OF CASH FLOWS

For the period ended 30 September 2015

(All amount in £, unless otherwise stated)

NOTES TO THE CONSOLIDATED AND FINANCIAL STATEMENTS

For the period ended 30September 2015

(All amount in ₤, unless otherwise stated)

1. Corporate information

1.1. Nature of operations

OPG Power Ventures plc ('the Company' or 'OPGPV'), and its subsidiaries (collectively referred to as 'the Group') are primarily engaged in the development, owning, operation and maintenance of private sector power projects In India. The electricity generated from the Group's plants is sold principally to public sector undertakings and heavy industrial companies in India or in the short term market. The business objective of the group is to focus on the power generation business within India and thereby provide reliable, cost effective power to the industrial consumers and other users under the 'open access' provisions mandated by the Government of India.

1.2. Statement of compliance

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) and its interpretations as adopted by the European Union (EU) and the provisions of the Isle of Man, Companies Act 2006 applicable to companies reporting under IFRS.

1.3. General information

OPG Power Ventures 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 the Company's registered Office, which is also the principal place of business, is IOMA House, Hope Street, Douglas, Isle of Man 1M1 1JA. The Company's equity shares are listed on the Alternative Investment Market (AIM) of the London Stock Exchange.

The Consolidated Financial statement for the period ended 30 September 2015 were approved and authorised for issue by Board of Directors on 30th November 2015

2. New and revised standards that are effective for annual periods beginning on or after 1 January 2013

IFRS 10 'Consolidated Financial Statements' (IFRS 10)

IFRS 10 supersedes IAS 27 'Consolidated and Separate Financial Statements' (IAS 27) and SIC 12 'Consolidation-Special Purpose Entities'. IFRS 10 revises the definition of control and provides extensive new guidance on its application. These new requirements have the potential to affect which of the Group's investees are considered to be subsidiaries and therefore to change the scope of consolidation. The requirements on consolidation procedures, accounting for changes in non-controlling interests and accounting for loss of control of a subsidiary are unchanged.

Management has reviewed its control assessments in accordance with IFRS 10 and has concluded that there is no effect on the classification (as subsidiaries or otherwise) of any of the Group's investees held during the period or comparative periods covered by these financial statements.

IFRS 11 'Joint Arrangements' (IFRS 11)

IFRS 11 supersedes IAS 31 'Interests in Joint Ventures' (IAS 31) and SIC 13 'Jointly Controlled Entities- Non-Monetary-Contributions by Venturers'. IFRS 11 revises the categories of joint arrangement, and the criteria for classification into the categories, with the objective of more closely aligning the accounting with the investor's rights and obligations relating to the arrangement. In addition, IAS 31's option of using proportionate consolidation for arrangements classified as jointly controlled entities under that Standard has been eliminated. IFRS 11 now requires the use of the equity method for arrangements classified as joint ventures.

Management has reviewed its control assessments in accordance with IFRS 11 and has concluded that there is no effect on the classification of any of the Group's investees held during the period or comparative periods covered by these financial statements.

IFRS 12 'Disclosure of Interests in Other Entities' (IFRS 12)

IFRS 12 integrates and makes consistent the disclosure requirements for various types of investments, including unconsolidated structured entities. It introduces new disclosure requirements about the risks to which an entity is exposed from its involvement with structured entities.

Management has reviewed the impact of IFRS 12 and has concluded that there is no effect on any of the Group's investees held during the period or comparative periods covered by these financial statements.

IFRS 13 'Fair Value Measurement' (IFRS 13)

IFRS 13 clarifies the definition of fair value and provides related guidance and enhanced disclosures about fair value measurements. It does not affect which items are required to be fair-valued. The scope of IFRS 13 is broad and it applies for both financial and non-financial items for which other IFRSs require or permit fair value measurements or disclosures about fair value measurements except in certain circumstances. IFRS 13 applies prospectively for annual periods beginning on or after 1 January 2013. Its disclosure requirements need not be applied to comparative information in the first year of application. The Group has however included as comparative information the IFRS 13 disclosures that were required previously by IFRS 7 'Financial Instruments: Disclosures'.

2.2 Standards, amendments and Interpretations to existing standards that are not effective and have not been early adopted by the group. 

At the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing standards have been published but are not yet effective, and have not been adopted early by the Group.

Management anticipates that all of the relevant pronouncements will be adopted in the Group's accounting policies for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the Group's financial statements is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Group's financial statements.

Standards and Interpretations adopted by the European Union as at 30 September 2015

The management is yet to assess the impact of IFRS 9 on the group's consolidated financial statements. However they do not expect to implement IFRS 9 until all of its chapters have been published and they can comprehensively assess the impact of all changes.

The management does not expect the application of the other standards to have any material impact on its financial statements when those Standards become effective. The Group does not intend to apply any of these pronouncements early.

3. Summary of significant accounting policies

3.1 Basis of preparation

The consolidated financial statements have been prepared on a historical cost basis, except for financial assets and liabilities at fair value through profit or loss and available-for-sale financial assets measured at fair value.

The financial statements have been prepared on going concern basis which assumes the Group will have sufficient funds to continue its operational existence for the foreseeable future covering atleast 12 months. As the Group has forecast it will be able to meet its debt facility interest and repayment obligations, and that sufficient funds will be available to continue with the projects development the assumption that these financials statements are prepared on a going concern basis is appropriate.

The consolidated financial statements are presented in accordance with IAS 1 Presentation of Financial Statements (Revised 2007) and have been presented in Great Britain Pound ('£'), which is the functional and presentation currency of the Company.

3.2. Basis of consolidation

The consolidated financial statements incorporate the financial information of OPG Power Ventures Plc and its subsidiaries for the six months ended 30 September 2015

A subsidiary is defined as an entity controlled by the Company. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Subsidiaries are fully consolidated from the date of acquisition, being the date on which control is acquired by the Group, and continue to be consolidated until the date that such control ceases. All subsidiaries have a reporting date of 30th September and use consistent accounting policies adopted by the group.

All intra-group balances, income and expenses and any resulting unrealized gains arising from intra-group transactions are eliminated in full on consolidation.

Non-Controlling interest represents the portion of profit or loss and net assets that is not held by the Group and is presented separately in the consolidated statement of comprehensive income and within equity in the consolidated statement of financial position, separately from parent shareholders' equity. Acquisitions of additional stake or dilution of stake from/ to minority interests/ other venturer in the Group where there is no loss of control are accounted for as an equity transaction, whereby, the difference between the consideration paid or received and the book value of the share of the net assets is recognised in 'other reserve' within statement of changes in equity.

3.3. List of subsidiaries

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

3.4. Foreign currency translation

The functional currency of the Company is the Great Britain Pound Sterling (£). The Cyprus entity is an extension of the parent and pass through investment entity. Accordingly the functional currency of the subsidiary in Cyprus is the Great Britain Pound Sterling. The functional currency of the Company's subsidiaries operating in India, determined based on evaluation of the individual and collective economic factors is Indian Rupees ('₹'). The presentation currency of the Group is the Great Britain Pound (£) as submitted to the AIM counter of the London Stock Exchange where the shares of the Company are listed.

At the reporting date the assets and liabilities of the Group are translated into the presentation currency which is Great Britain Pound Sterling (£) at the rate of exchange ruling at the Statement of financial position date and the statement of comprehensive income is translated at the average exchange rate for the period. Exchange differences are charged/ credited to other comprehensive income and recognized in the currency translation reserve in equity.

Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the Statement of financial position date are translated into functional currency at the foreign exchange rate ruling at that date. Aggregate gains and losses resulting from foreign currencies are included in finance income or costs within the profit or loss. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to functional currency at foreign exchange rates ruling at the dates the fair value was determined.

3.5. Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits associated with the transaction will flow to the Group, and revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable in accordance with the relevant agreements, net of discounts, rebates and other applicable taxes and duties.

Sale of electricity

Revenue comprises revenue from sale of electricity. Revenue from the sale of electricity is recognised when earned on the basis of contractual arrangement with the customers and reflects the value of units supplied including an estimated value of units supplied to the customers between the date of their last meter reading and the reporting date.

Interest and dividend

Revenue from interest is recognised as interest accrues (using the effective interest rate method). Revenue from dividends is recognised when the right to receive the payment is established.

3.6. Taxes

Tax expense recognised in profit or loss comprises the sum of deferred tax and current tax not recognised in other comprehensive income or directly in equity.

Current income tax assets and/or liabilities comprise those obligations to, or claims from, taxation authorities relating to the current or prior reporting periods, that are unpaid at the reporting date. Current tax is payable on taxable profit, which differs from profit or loss in the financial statements.

3.7. Financial assets

Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument and are measured initially at fair value adjusted by transactions costs, except for those carried at fair value through profit or loss which are measured initially at fair value.

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

The category determines subsequent measurement and whether any resulting income and expense is recognised in profit or loss or in other comprehensive income.

Loans and receivables:

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition these are measured at amortised cost using the effective interest method, less provision for impairment. Discounting is omitted where the effect of discounting is immaterial. The Group's cash and cash equivalents, trade and most other receivables fall into this category of financial instruments.

Individually significant receivables are considered for impairment when they are past due or when other objective evidence is received that a specific counterparty will default. Receivables that are not considered to be individually impaired are reviewed for impairment in groups, which are determined by reference to the industry and region of a counterparty and other shared credit risk characteristics. The impairment loss estimate is then based on recent historical counterparty default rates for each identified group.

Available-for-sale financial assets:

Available-for-sale financial assets are non-derivative financial assets that are either designated to this category or do not qualify for inclusion in any of the other categories of financial assets. The Group's available-for-sale financial assets include Mutual funds and equity instruments. Available-for-sale financial assets are measured at fair value. Gains and losses are recognised in other comprehensive income and reported within the available-for-sale reserve within equity, except for impairment losses and foreign exchange differences on monetary assets, which are recognised in profit or loss. When the asset is disposed of or is determined to be impaired the cumulative gain or loss recognised in other comprehensive income is reclassified from the equity reserve to profit or loss and presented as a reclassification adjustment within other comprehensive income.

Reversals of impairment losses are recognized in other comprehensive income, except for financial assets that are debt securities which are recognised in profit or loss only if the reversal can be objectively related to an event occurring after the impairment loss was recognised.

4. Significant accounting judgements, estimates and assumptions

The preparation of financial statements in conformity with IFRS requires management to make certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The principal accounting policies adopted by the Group in the consolidated financial statements are as set out above. The application of a number of these policies requires the Group to use a variety of estimation techniques and apply judgment to best reflect the substance of underlying transactions.

The Group has determined that a number of its accounting policies can be considered significant, in terms of the management judgment that has been required to determine the various assumptions underpinning their application in the consolidated financial statements presented which, under different conditions, could lead to material differences in these statements. The actual results may differ from the judgments, estimates and assumptions made by the management and will seldom equal the estimated results.

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

· Deferred tax assets:

The assessment of the probability of future taxable income in which deferred tax assets can be utilised is based on the Group's latest approved budget forecast, which is adjusted for significant non-taxable income and expenses and specific limits to the use of any unused tax loss or credit. The tax rules in India in which the Group operates are also carefully taken into consideration. If a positive forecast of taxable income indicates the probable use of a deferred tax asset, especially when it can be utilised without a time limit, that deferred tax asset is usually recognised in full. The recognition of deferred tax assets that are subject to certain legal or economic limits or uncertainties is assessed individually by management based on the specific facts and circumstances.

· Application of lease accounting

Significant judgment is required to apply lease accounting rules under IFRIC 4 Determining whether an arrangement contains a Lease and IAS 17 Leases. In assessing the applicability to arrangements entered into by the Group, management has exercised judgment to evaluate customer's right to use the underlying assets, substance of the transaction including legally enforced arrangements and other significant terms and conditions of the arrangement to conclude whether the arrangements meet the criteria under IFRIC 4.

Estimates and uncertainties:

The key assumptions concerning the future and other key sources of estimation uncertainty at the Statement of financial position date, that have a significant risk of causing a material adjustments to the carrying amounts of assets and liabilities within the next financial year are discussed below:

§ Recoverability of deferred tax assets: The recognition of deferred tax assets requires assessment of future taxable profit.

§ Estimation of fair value of acquired financial assets and financial liabilities: While preparing the financial statements the Group makes estimates and assumptions that affect the reported amount of financial assets and financial liabilities.

o Available for sale financial assets: Management apply valuation techniques to determine the fair value of available for sale financial assets where active market quotes are not available. This requires management to develop estimates and assumptions based on market inputs, using observable data that market participants would use in pricing the asset. Where such data is not observable, management uses its best estimate. Estimated fair values of the asset may vary from the actual prices that would be achieved in an arm's length transaction at the reporting date

o Other financial liabilities: Borrowings held by the Group are measured at amortised cost except where designated at fair value through profit or loss. Further, liabilities associated with financial guarantee contracts in the Company financial statements are initially measured at fair value and re-measured at each Statement of financial position date and

o Impairment tests: In assessing impairment, management estimates the recoverable amount of each asset or cash-generating units based on expected future cash flows and use an interest rate to discount them. Estimation uncertainty relates to assumptions about future operating results and the determination of a suitable discount rate;

§ Useful life of depreciable assets: Management reviews its estimate of the useful lives of depreciable assets at each reporting date, based on the expected utility of the assets.

5. Segment information

The Group has adopted the "management approach" in identifying the operating segments as outlined in IFRS 8 - Operating segments. Segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker evaluates the Group's performance and allocates resources based on an analysis of various performance indicators at operating segment level. Accordingly, there is only a single operating segment "generation and sale of electricity. The accounting policies used by the Group for segment reporting are the same as those used for consolidated financial statements. There are no geographical segments as all revenues arise from India.  

6. Other income

Other income comprises of:

7. Finance Cost

Finance cost comprises of:

8. Finance income

Finance income comprises of:

9. Trade and other receivables

Ageing of receivables from sale of power

10. Cash and cash equivalents

Cash and short term deposits comprise of the following:

Short-term deposits are placed for varying periods, depending on the immediate cash requirements of the Group. They are recoverable on demand.

11. Intangible Assets

12. Property, plant and equipment

The property, plant and equipment comprises of:

13. Borrowings

The borrowings comprises of the following:

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