Opg Power Regulatory News (OPG)

29 April 2019

OPG Power Ventures plc

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

Trading update for the year ended 31 March 2019

OPG (AIM: OPG), the developer and operator of power generation plants in India, announces its trading update in respect of the full year ended 31 March 2019 ("FY19").

Summary

For the full year ended 31 March 2019:

· Profits are expected to be in line with market expectations

· Total generation (including deemed) of 2.71 billion units, down 2 per cent from FY18

· Plant Load Factor ("PLF") at Chennai was 75% compared with 77% in FY18

· Average tariff was Rs5.41, up 10 per cent from FY18 as a result of tariff increases during the year for captive customers

· £20.6 million (Rs1.86 billion) of term loan principal repayments made, reducing term loans balance to £69.9 million (Rs6.31 billion) at 31 March 2019

Arvind Gupta, Executive Chairman of OPG, commented:

"We are pleased to report continued strong operational performance in FY19 and expect to report profits for our FY19 results to be in line with expectations" 

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

Generation excluding deemed generation during FY19 was 2.47 billion units, 1 per cent lower than during FY18. This slight decrease in generation was primarily due to Unit IV (180 MW) being shut down from early December 2018 to early March 2019 whilst turbine repairs were undertaken.

Average tariff realised during FY19 were Rs5.41 (FY18: Rs4.92), 10 per cent higher than in FY18, as a result of tariff increases during the year for captive customers.

Coal and Freight costs

The average landed coal price was £49.30 (Rs4,513) per tonne in FY19 (FY18: £49.40 (Rs4,527) at a INR/GBP exchange rate of 91.6 INR/GBP). Following the coal price spike in the first seven months of calendar 2018, coal prices have since weakened. Independent forecasts are for international coal prices to reduce further in FY20 and beyond. We are cautiously optimistic that the lower coal prices will provide some additional benefits for the Group in FY20.

The Company started hedging coal costs by purchasing ICI 4 index swaps trading on the Chicago Mercantile Exchange for 30,000 tonnes at a fixed price US$39 per tonne with delivery from July 2019 to September 2019. In addition, the Company has booked forward its freight requirement for the first half of calendar 2019 at fixed prices. Taken together, the Company now has greater visibility on its future financial performance.

Focus on Deleveraging

Total borrowings during FY19 were reduced from £93.5 million (Rs 8.43 billion) to £80.3 million (Rs 7.24 billion). This included term loan interest and principal repayments at Chennai, amounting in aggregate to £29.6 million (Rs2.67 billion), including £20.6 million (Rs1.86 billion) of term loan principal repayments.

As at 31 March 2019, total borrowings were £80.3 million (Rs7.25 billion), including term loans of £69.9 million (Rs6.31 billion) and working capital loans of £10.4 million (Rs0.94 billion).

As previously reported, the Company achieved a major milestone by fully repaying term loans with respect to Unit I of the Chennai plant (77 MW out of 414 MW) in December 2018. The remainder of the Chennai plant term loans are scheduled to be fully repaid for Unit II and III by calendar year 2022 and for Unit IV by Q3 2023.

62 MW Karnataka solar projects commissioned

The Group's Karnataka solar projects (62MW) are situated north of Bengaluru. All plants are operational and have met all critical operating metrics. A Capacity Utilisation Factor for the solar projects of 17 per cent was achieved in FY 19.

Long Term Incentive Plan ("LTIP")

The Remuneration Committee of the Board of Directors has approved the introduction of an LTIP for a performance-related award of 18.5 million new ordinary shares (representing approximately 4.8 per cent of the Company's issued share capital) in order to incentivise further the executives and senior management to deliver its planned strategy.

Approximately 17 million LTIP awards (4.4 per cent of outstanding shares) were made to three executive directors of the Company, including approx. 9.9 million awards to Gita Investments Limited, a company controlled by Arvind Gupta, Executive Chairman, approx. 4.7 million awards to Dmitri Tsvetkov, CFO and approx. 2.4 million awards to Avantika Gupta, COO. The remaining 1.5 million of performance shares under the LTIP remain to be awarded later.

The LTIP performance shares will vest in three tranches (one third on the date of first anniversary, one third on the date of second anniversary, one third on the date of third anniversary) subject to continued service with OPG until vesting and meeting performance targets. Vesting of awards under the LTIP will be subject to the following shareholder value based performance targets (overall target is 50% increase in share price from 20.25p, being the closing price at the date of approval of the LTIP plan, over the three year period to 24 April 2022):

- A 16.5 per cent (33.3 per cent of 50 per cent) increase in share price from date of awards grant till the first anniversary for the first tranche (one third of the total award);

- A 33 per cent (66.6 per cent of 50 per cent) of increase in share price from date of awards grant till the second anniversary for the second tranche (one third of the total award);

- A 50 per cent (100 per cent of 50 per cent) of increase in share price, from date of awards grant till the third anniversary for the third tranche (one third of the total award).

Indian Economy

India's gross domestic product is expected to reach US$6 trillion by FY27 and India is forecasted to be the third largest consumer economy in the world, with its consumption predicted by some to triple to US$4 trillion by 2025, reflecting shifts in consumer behaviour and expenditure patterns.

With inflation expectations adjusting downwards, many commentators suggest there could be room for further cuts in interest rates if inflation durably remains below 4 per cent. The FY18 annual inflation rate was 4.36 per cent.

India's GDP grew by 6.6 per cent in FY18 and is projected to strengthen to above 7 per cent in FY19 and just under 7 per cent in FY20, gradually recovering from the transitory adverse impact of the rolling out of the Goods and Services Tax ("GST"). In the longer run, it is expected that the GST will boost corporate investment, productivity and growth by creating a single market and reducing the cost of capital equipment.

Power Sector

With electricity production of 1,201.5 billion units in India in FY18, India is the third largest producer and consumer of power in the world and the government's goal is to meet the anticipated growth in demand by doubling the current capacity to provide 24x7 electricity to all users. Multiple drivers such as industrial expansion and growing per-capita incomes are adding to that growth in demand, which is set to continue in the coming years as India seeks to become a global manufacturing hub. India is planning to derive 40 per cent of its energy output from non-fossil fuel sources by 2030, thereby raising renewable energy installed capacity from 57 GW to 175 GW by 2022.

However, the 2015 International Energy Agency's special report forecasts that in 2040 coal-fired power plants will remain the backbone of India's power system. Total installed capacity of power stations in India stood at 350.16 Gigawatt (GW) as of February 2019 (Source: Central Electricity Authority). Coal-based power generation capacity in India, which currently stands at 191.09 GW is expected to reach 330-441 GW by 2040.

Outlook

The Company continued to deliver robust operational performance and repayment of its scheduled term loans during FY19. The Indian economy is expected to be the fastest growing major economy, resulting in high GDP growth and higher demand for electricity. Looking forward to OPG's FY20, the Company expects to benefit from robust tariffs and the projected lower level of coal prices. The Company's term loans will continue to be repaid in accordance with their repayment schedule and the Company expects to prosper as management seek to deliver a long term, profitable and sustainable business model.

-ends-