OPG Power Ventures : Trading update

RNS Number : 6151G OPG Power Ventures plc 31 May 2017

31 May 2017

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

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 2017 ("FY17").

• Total generation c4.4 billion units up 30% from 3.3 billion units in FY16;

• Chennai plant load factor ("PLF") of 76% and 63% for Gujarat;

• Gujarat PLF up from 52% in FY16 and consistent with long term target of 75%;

• Management expect FY17 results to be in line with consensus expectations;

• Group debt repayment profile significantly improved;

• 62 MW Karnataka solar project - construction set to begin next quarter.

"During the year we stuck to our strategic priority of maximising the cash contribution of our existing assets and thereby making our business stronger for the long term. We have delivered on our commitment to start paying dividends following a continued strong performance by our flagship plant at Chennai. At the younger asset in our portfolio, Gujarat, our attention has been devoted to increasing the mix of higher value sales, accelerating slow receivables and establishing a significantly better debt repayment profile. We thus maintain our commitment to strong cash generation from our asset portfolio to fuel dividends and growth."

Arvind Gupta / V Narayan Swami Ajay Paliwal / Pooja Maru

+91 (0) 44 429 11211

+44 (0) 207 850 7070

Stephen Keys / Camilla Hume +44 (0) 20 7397 8900

Raj Khatri / Nick Stamp +44 (0) 20 3037 2000

Simon Hudson / Barney Hayward / James Collins +44 (0) 20 7920 3150

OPG operates and develops power generation related assets in India and at 30 September 2016 had 750 MW of assets with a further 186 MW under development or in the pipeline. In the six months ended 30 September 2016, according to its unaudited results for the period, the Company generated revenues of £118 million, EBITDA of £42 million and profit before tax of £18 million.

Note:

1. Includes 704 million units generated until January 2016 from Gujarat for which results were capitalised

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

3. Reported Average PLF based on Mue

4. Unit 4 operated for 9 Months in FY16

Total generation for the year was 12% higher than last year despite the seasonal and regional events previously reported.

The plant realised an average tariff of Rs5.18 in FY17 and a "deemed" offtake charge of Rs1.50 per unit for deemed generation. The difference between tariff and cost of coal on a per unit basis ("the Clean Dark Spread"), was Rs2.63 at Chennai for FY17, which we believe continues to be amongst the best in the sector, notwithstanding the sharp spike in coal prices we reported earlier during the year as well as measures taken by management to mitigate high coal price volatility. Once again, the plant maintained full availability, a strong and diverse customer base and did not experience any coal shortages.

For FY18, the Chennai plant expects to continue with its diversified sales mix, contracting the majority of its generation from 414 MW to Group Captive customers and the balance of 74 MW (net) to TANGEDCO under the 15 year Power Purchase Agreement ("PPA"). The Reported Average PLF achieved during April 2017 was 79%.

Cash collection from customers at Chennai improved significantly in FY17 following our earlier shift of sales to Group captive industrial customers with whom we have an average collection period of approximately 40 days. During the year, the Company also collected £24m of the £35m outstanding from TANGEDCO as at 31 March 2016. The Company expects to receive the balance of this amount during FY18.

The Gujarat plant's generation was up 79% from FY16 to 1.7 billion units following the commissioning of both units. The plant continued to ramp up achieving a PLF of 63% in FY17, up from 52% in FY16 and on track to rise to 75% during FY18. The PLF in April 17 was 66%.

The plant realised an average tariff of Rs 4.03 per unit for FY17 and the Clean Dark Spread was Rs 1.37 per unit.

For FY18 the Company continues to focus on maximising profitability through diversifying sales to industrial customers outside the state.

Following the year end, the Company announced an amendment of the share capital rights in the Gujarat subsidiary to address payment delays by the state electricity companies ("DISCOMS"). As the Company'sGujarat subsidiary continues to be in compliance with the Captive Power Regulations, and having made the aforesaid amendments following discussions with Gujarat DISCOMS, the Company anticipates that the amounts delayed will be recovered principally in FY18.

The average landed coal price was Rs 3,526 per tonne in FY17 (FY16: Rs. 3,171 per tonne). Following the coal price spike in 2016 which we reported on as part of our interim results, and some volatility at the beginning of 2017, coal prices have been declining. Independent expectations are for international coal prices to recede further throughout the rest of 2017 and 2018.

The Company has purchased coal on short term contracts recently and continually reviews its longer term arrangements. We believe our track record shows this approach serves us well given the term for which we commit our prices to our customers.

The India credit rating of OPG Gujarat has been raised to A- and for OPG Power Generation Limited has been reaffirmed to A+.

The Company has already secured debt financing for 40 MW of its 62 MW solar project development in Karnataka and sanction for the debt financing for the remaining 22 MW is expected to be received in the next few weeks on similar terms. The sanctioned debt is to be repaid over 17 years and carries a variable rate of interest. As previously reported the projects have a 25 year PPA with Karnataka DISCOMS at an average tariff of Rs.5.00 across the 4 sites. With the EPC awarded, construction is expected to commence in the next quarter and is on track for commissioning in the current financial year.

The Company has secured a Letter of Intent for the award of a 25 year PPA for 124 MW at an average tariff of Rs5.36. The necessary security deposits and guarantees have been lodged with the Jharkhand authorities.

The land has been identified and potential debt providers are ready to fund the project. The process of financial closure and land acquisition is expected to start post signing of the PPA, with a progressive commissioning timeframe over 18 months.

With India dedicated to reducing its carbon intensity, the initiation of new greenfield coal fired projects is widely expected to slow for the next couple of years. Correspondingly, load factors at existing coal fired power plants, which

will continue to provide base load, are expected to rise in parallel with the growth in renewables. A similar focus on carbon intensity worldwide, China's policy in seeking coal prices within a narrow range and the importance of coal mining in India are generally expected to mean coal prices will continue their downward trend and resume a period of stability similar in trend to that witnessed prior to last year's spike.

India continues to improve as an investment destination and the prospects for the power sector continued to improve during the year. Notable features of the year include:

1. A 7% GDP growth in FY17 recovering faster than expected from the short-term effect of demonetisation. Independent forecasts are for similar growth rates to persist to FY20 and demand for electricity is typically correlated to GDP growth;

2. a Goods and Services Tax bill was introduced to provide a uniform indirect tax system and bring transparency in doing business;

3. UDAY, the financial restructuring scheme for DISCOMS, has now been adopted by 27 States in India and approximately 80% of the industry's debt has been restructured into bonds with 15 States already filing applications for tariff increases.

Operations at the beginning of FY18 have continued to perform well. The extended debt schedule at Gujarat, which reduces our principal payments by £67m over the next five years, and the expected commissioning of our first solar projects are expected to provide further strength, stability and diversification in our cash flows and we look forward to reporting further progress in FY18. The Company remains committed to a path of strong cash generation to fuel dividends and growth.

The Company expects to issue its results and annual report for the year ended 31 March 2017 in the week commencing 28 August 2017.

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