Opg Power Regulatory News (OPG)

3 May 2022

OPG Power Ventures plc

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

Trading update for the year ended 31 March 2022 and CFO Appointment

OPG Power Ventures plc (AIM: OPG), the developer and operator of power generation plants in India, announces a trading update in respect of the full year ended 31 March 2022 ("FY22").

Summary

For the year ended 31 March 2022:

· India has been experiencing power shortages recently due to recovery of the Indian economy and coal shortages;

· Coal is expected to remain the most significant contributor in the energy sector at 22-23 per cent according to International Energy Association's projections for 2040;

· India is projected to remain the world's fastest-growing major economy despite the global economy being severely affected by Russia's invasion of Ukraine. The IMF has projected a 8.2 per cent growth for the Indian economy in FY23 against a global growth projection of 3.6 per cent for CY22 and CY23;

· Total generation (including deemed) of 1.87 billion units (FY21: 2.11 billion units) - the reduction is primarily due to the spike in coal prices and freight costs in international markets;

· Plant Load Factor ("PLF") was 52 per cent, compared with 58 per cent in FY21;

· Average tariff for the year was Rs 5.60 (FY21: Rs5.52);   

· Net debt was £10.2 million (£16.2 million at 31 March 2021), a 37 per cent reduction during the year;

· Investment in Atsuya Technologies Private Limited in line with the strategy to diversify into ESG compliant opportunities and to reduce and offset carbon emissions;

· Current CFO, Dmitri Tsvetkov, to step down from the Board and be replaced by Ajit Pratap Singh, currently an Executive Director of OPG's Chennai operating company.

N. Kumar, Non-Executive Chairman of OPG, commented:

"Given the current business climate, OPG has delivered solid operational results and has been able to continue deleveraging the business. Coal prices were impacted by the disruptions caused by geopolitical issues. It is expected that power prices are likely to increase due to the coal shortages. We expect to meet market expectations for FY22 earnings.

We would like to thank all of our employees, investors, vendors, banks, and all stakeholders for the incredible support we have received during these unprecedented and extraordinary times.

On behalf of the Board I would like to thank Dmitri for his services over the last five years and his contribution to OPG and we wish him well in his future career. Ajit brings considerable financial, commercial, and operational expertise of working in India and internationally and I look forward to working with him as we continue to deliver our strategy."

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

Group Operations Summary

Note:

1. MU - millions units or kWh; Mue - millions units or kWh of equivalent power

2. Reported Average PLF based on Mue

Total generation at the Chennai plant, including deemed generation, in FY22 was 1.87 billion units, 11.3 per cent less than in FY21. This decrease in generation was primarily due to the spike in coal prices and freight costs in international markets, recently exacerbated by the crisis in Ukraine.

The average tariff realised during FY22 was Rs5.60 (FY21: Rs5.52). The increase in tariff realisation is primarily due to the increase in raw material prices.

Coal and freight

Over the last several months the prices of thermal coal and freight have surged primarily due to geopolitical issues and the increased requirement for coal as a result of post COVID-19 economic recovery and the war in Ukraine. The current year average coal price is almost double in comparison to the average price for Indonesian coal over the last ten years.

Whilst OPG was partially covered from increases in prices with fixed price agreements for coal and freight, the Company remains exposed to market fluctuations for the unhedged portion of coal consumption and freight.

In light of this, the Company has explored various options including sourcing coal from other geographies as well as domestic sources to reduce the per unit cost of electricity. The Company sourced 0.4 million tons of Indian coal at auction during the period in order to replace higher cost Indonesian coal. In addition, OPG procured 0.13 million tons per year from Indian mines under a five year contract which can be converted into a longer-term fuel supply agreement for ten years, at the option of the Company. The price is fixed and is significantly lower than the imported coal prices. The quantity of domestic coal secured at fixed prices will meet approximately 25-30 per cent of the Company's requirement for the first year and 8-10 per cent of annual coal requirements from the second year onwards.

Deleveraging

In 2018 the Board took the decision to focus on the Company's profitable, long-life assets in Chennai, and to prioritise the deleveraging of the business to enhance and increase the value of shareholders' equity. The Board continues to believe that this strategy will deliver value to shareholders with free cash flows providing significant returns and opportunities to grow the business further.

Net debt comprising total borrowings of £42.2 million less unrestricted cash and cash equivalents of £32.0 million was £10.2 million at the end of the financial year (31 March 2021: £16.2 million) representing a 37 per cent reduction in net debt during the year. The balance of the term loans and non-convertible debentures are scheduled to be fully repaid by Q2 2024.

62 MW Karnataka solar projects

A Capacity Utilization Factor ("CUF") for the solar projects of 19.9 per cent was achieved in FY22 (FY21: 19.2 per cent). OPG owns a 31 per cent equity interest in the 62 MW Karnataka solar projects. As previously announced, the Board has decided to sell OPG's interest and these assets remain in a disposal process.

Environmental, Social and Governance ("ESG") - strategic Investment in Atsuya Technologies

OPG continues to develop its ESG strategy. The Company aims to identify and undertake various initiatives that will reduce and offset carbon emissions from its operations and to be aligned with the UN Sustainable Development Goals ("SDGs").

As previously reported, as part of OPG's strategy to diversify into energy savings/ESG compliant opportunities, the Company made an investment to acquire an equity stake in Chennai-based sustainability solutions provider, Atsuya Technologies Private Limited ("Atsuya") (www.atsuyatech.com).

Independent of this investment, OPG continues to evaluate various options to increase its renewable energy asset base and to establish joint-ventures to roll out various energy transition technologies, including energy efficiency improvements, smart meters and green hydrogen production. These initiatives will ensure that OPG delivers its emissions reduction targets in the medium and long-term.

The Global and Indian Economy and Indian Power Sector

The COVID-19 pandemic followed by the war in Ukraine and breakdown of supply chains has impacted economic growth across the globe. In its latest World Economic Report, IMF has projected the world economy will grow at 3.6 per cent in CY 2022 and CY 2023. The IMF has projected a growth rate for the Indian economy at 8.2 per cent in FY23 and 6.9 per cent in FY24.

During the initial lockdown, the total power consumption in India reduced by approximately 25 per cent primarily due to a decrease in industrial demand for electricity resulting from COVID-19 restrictions. As the restrictions were eased, power consumption has gradually increased. Following the gradual recovery of the Indian economy, power demand in the country is expected to grow, driven by rising industrial demand. India's power generation rose by 7.8 per cent in FY22 to 1,490 billion units ("BU") (provisional data as per CEA) compared with 1,382 BU in FY21.

India has been experiencing power shortages recently due to improvements in Indian economy and coal shortages, exacerbated by the war in Ukraine and high global coal prices, causing blackouts across the country. The situation was amplified by a record-breaking heatwave across north-west India in March and April 2022 with May 2022 expected to see similar temperatures. As a result of these factors spot power prices doubled in India.

The World Coal Association recently stated that with the current confluence of energy events there is a future for coal in order to address energy affordability, security and reliability. According to the International Energy Association's projections for 2040, coal would remain the most significant contributor in the energy sector at about 22-23 per cent of the total energy mix.

Appointment of Chief Financial Officer

The Company announces today that, after 5 years as Chief Financial Officer, Mr Dmitri Tsvetkov is stepping down and retiring from the Board with effect from 31 May 2022. Dmitri will support the Company with the finalisation of the FY22 audited financial statements and ensure a smooth transition.

The Company has appointed Mr Ajit Pratap Singh initially as a non-Board Chief Financial Officer and Dmitri will be working with Ajit to ensure an orderly handover of responsibilities.

Ajit has been an Executive Director of OPG Power Generation Pvt. Ltd., the Chennai subsidiary of OPG, since February 2019. He has over 24 years of corporate finance, accounting, M&A, commercial and investors relations experience, working primarily with large conglomerates publicly listed in India. He is a Company Secretary, Cost Accountant, Law Graduate, Certified Management Accountant and Chartered Financial Analyst.

Outlook

During the first seven months to the end of October 2021, the prices of thermal coal and freight surged primarily due to the increased requirement for coal and other goods as a result of post COVID-19 economic recovery. Coal prices decreased significantly since the peak in October 2021, however increased again in February and March 2022 primarily due to the crisis in Ukraine. The Company anticipates that coal prices will normalise over the medium term. In April 2022, OPG signed a short-term offtake contract for 150 MW of capacity at Rs 9.65 per kWh. State regulated tariffs are expected to be reviewed during FY23 which would favourably impact the Company's tariffs.

Due to the negative impact of higher coal prices and freight costs, the Group's plants are expected to operate at lower than normal capacity in FY23 and revenue and net profit respectively will be lower than during normal years.

OPG believes that the medium and long-term fundamentals of the Group remain unchanged and post-COVID-19 recovery and the normalisation of coal prices and freight costs, the Company expects to continue to prosper as management seeks to deliver its long term, profitable and sustainable business model. OPG will also continue to focus on advancing its ESG strategy and the maiden investment in Atsuya is the first step in the Group's ESG development and focus on ESG compliant projects.