30 August 2017
OPG Power Ventures plc
("OPG", the "Group" or the "Company")
Q1 FY18 Trading Update
Notice of final FY17 results
OPG (AIM: OPG), the developer and operator of power generation plants in India, announces its trading update in respect of the three months ended 30 June 2017 ("Q1 FY18").
Summary
· Q1 FY18 total generation of 1.25 billion units up 27% from 0.98 billion units in Q4 FY17
· Q1 FY18 plant load factor ("PLF") in line with expectations at 78% for Chennai and 79% for Gujarat as compared to the National Average PLF of 57.20% for Thermal Power Projects as per the Power Ministry's bulletin
· Since June 2017 forecast international coal prices have unexpectedly risen and this significant increase is expected to have a corresponding impact on the Company's FY18 results. However, the coal price is forecast to fall to lower levels in FY19 and beyond
· Dividend policy to be maintained for FY18
· Good cash collections of TANGEDCO aged receivables to date in FY18 and constructive dialogue on Gujarat receivables continuing with a positive outcome expected in FY18
· Development work on 62 MW Karnataka solar commenced and on track for FY18
· Roll over of multi-year sale agreements now negotiated for approx. two-thirds of Group capacity for FY19 onwards
· For FY18, Chennai average tariff is expected to be around Rs5.00 and Rs3.80 for Gujarat
· Average tariff increase of 6% by TANGEDCO from FY 19 in the state of Tamil Nadu (as committed under the UDAY financing agreement).
· FY17 results expected to be announced by the week of 25 September 2017, with earnings and dividends expected to be in line with consensus expectations
Operations Summary
|
Q1 |
Q4 |
Q1 |
FY17 |
|
|
|
FY18 |
FY17 |
FY17 |
Generation (million kWh) |
|
|
|
|
414 MW Chennai |
597 |
588 |
680 |
2,346 |
300 MW Gujarat |
521 |
304 |
450 |
1,657 |
Generation (MU) excluding auxiliary |
1,118 |
892 |
1,130 |
4,003 |
Additional "deemed" offtake at Chennai (3) |
137 |
95 |
|
364 |
Total Generation (MUe) (1) |
1,255 |
987 |
1,224 |
4,367 |
|
|
|
|
|
Reported Average PLF (%) (2) |
414 MW Chennai |
78% |
75% |
85% |
76% |
300 MW Gujarat |
79% |
47% |
69% |
63% |
Note:
1. MU - million units or kWh; Mue - millions units or kWH of equivalent power
2. Reported Average PLF based on Mue
3. Additional "deemed" offtake at Chennai was calculated on a different basis in Q1FY17 and therefore it is not reported
Q1 FY18 update - strong load factors but impacted by coal prices being significantly higher than consensus expectations.
Load factors and tariffs
Total generation for Q1 FY18 was 27% higher than the immediately preceding quarter with both plants recording load factors in line with the full year guidance.
For FY18, at Chennai, the Company expects PLF to be around 76%, including "deemed" offtake and the average tariff to be around Rs5.00 (FY17: Rs5.18). At Gujarat, the Company expects PLF to be approximately 80% and for the average tariff to be around Rs3.80 (FY17: Rs4.03). The Company has had a change in the customer mix with a higher proportion of offtake by some large customers paying slightly lower tariffs, on multi-year sales.
For FY19, with a large number of multi-year sales contracts agreed to be rolled over as and when they fall due, the Company expects load factors at both of its plants to be at around 80% and for average group tariff to be around Rs4.60 (FY 18: Rs4.40). Average realised tariffs on multi-year contracts would benefit from any increase in regulated tariffs.
Agreement has been reached between Ministry of Power, Government of India, Government of Tamil Nadu and TANGEDCO stipulating a 6% average increase in tariffs in FY19, following their implementation of the UDAY financing scheme. Similar increases have been seen in other states. In the past the increase in industrial tariffs has been higher than the average committed by TANGEDCO.
Coal
As has been widely reported, prices for imported coal have risen substantially higher than consensus expectations, predominantly as a result of policy actions undertaken in China. The table below illustrates the volatile, fluctuating market expectations for forward coal prices (using a benchmark of Newcastle, Australia coal) at different points during 2017:
|
28/02/2017 |
31/05/2017 |
23/08/2017 |
Newcastle coal forward prices |
Forward price As at date |
81.17 |
72.71 |
100.70 |
31-Aug-17 |
79.25 |
72.85 |
100.70 |
31-Dec-17 |
78.65 |
71.40 |
90.80 |
31-Mar-18 |
77.13 |
70.50 |
88.00 |
31-Dec-18 |
72.57 |
65.20 |
77.30 |
(Source: Macquarie)
The average landed cost of the Company's coal in Q1 FY18 was Rs4,420 (FY 17: Rs3,526). Based on the current market we expect the average landed cost of coal to fall by around 10% over the course of the period to March 2019.
The Company will continue to actively review its procurement and hedging practices to establish ways in which to mitigate the volatility of the coal price and will report any material developments in this regard.
Consensus expectations continue to be for international coal prices to recede in 2018 and 2019 with longer-term consensus expectations for that trend to continue. The Chinese government announced policy changes recently to restrict coal imports and plans to suspend new coal power plant development of a total capacity of 150 GW, as well as to shut down a further 20GW of outdated capacity. In India, in view of rising domestic production of coal, plans are to significantly reduce thermal coal imports over the next two to three years with state owned power plants importing significantly less. These China related factors, the reduction of coal imports by India and global investments in renewables are generally expected to underpin the outlook for lower international coal prices going forward. However, the higher than forecast cost of coal is expected to have a material impact on the Company's profits for FY 2018, with a change in the price of coal of Rs100 impacting total annual cost of coal by approximately £3.5 million.
With the outlook for coal prices to revert closer to 2016 - 17 levels In FY 19, the Company expects to resume its trajectory of consistent growth in volumes, tariffs and earnings. In addition, the Company believes that there is scope for an increase in OPG tariffs to result from across the board increases in TANGEDCO tariffs as committed under the UDAY agreements.
Update on remittances from state electricity companies
Chennai receivables stood at £40 million in FY17 of which dues from TANGEDCO amounted to £26 million. The Company has since collected nearly £13 million of £26 million trade receivables that were due from TANGEDCO as at 31 March 2017.
In Gujarat, following the amendment to capital rights announced earlier this year, we continue to have a constructive dialogue with the state electricity companies ("DISCOMS") in relation to £26 million of cross subsidy amounts owed to us at 31 March 2017 and the Company continues to expect this to be resolved in FY18.
Solar: 62 MW Karnataka project in progress
The 60 MW out of 62 MW solar projects have achieved financial closure and work has started on the first 20 MW site, and all sites remain on track to be commissioned in FY18.
FY17 results update
The Company's FY17 audit is progressing with the full year FY17 results expected to be announced during the week of 25 September 2017. Management expect FY17 earnings and dividends to be in line with consensus expectations.
Arvind Gupta, Chairman, commented:
"The first quarter of FY18 has been a challenging one given the sustained high seaborne thermal coal prices that have impacted our sector as a whole. Although consensus prices for the second half of the year are expected to be lower, we anticipate a reduction in earnings for FY18 in the absence of a material reversal in the coal price. However, the business model remains robust and despite the challenging macroeconomic backdrop, I am pleased to be able to reaffirm our dividend guidance for FY18. Whilst we have experienced slightly lower average tariffs in FY18 at Chennai and Gujarat which are expected to impact the FY18 result, we have multiple reasons to look forward to FY19. This confidence is built on the expected continuing decline in coal prices and in particular the anticipated tariff increases being promulgated by the relevant Indian state authorities alongside an improving sales mix in our customer base. Operationally the business has continued to deliver strong load factors which we believe puts us in a strong position to withstand the short-term challenges to the business and we are working on a number of projects that we believe will mitigate the impact of volatility in commodity prices on our business. With coal prices continuing to point downwards, positive pipeline developments on tariffs and our renewable projects progressing, we see a path to stronger profitability in FY19."
This announcement contains price sensitive information.
For further information, please visit www.opgpower.com or contact:
OPG Power Ventures PLC Arvind Gupta / V Narayan Swami Investor Relations |
+91 (0) 44 429 11211 |
Ajay Paliwal / Pooja Maru |
+44 (0) 20 7850 7070 |
Cenkos Securities (Nominated Adviser & Broker) Stephen Keys / Camilla Hume |
+44 (0) 20 7397 8900 |
Macquarie Capital (Europe) Limited (Joint Broker) Raj Khatri / Nick Stamp |
+44 (0) 20 3037 2000 |
Tavistock (Financial PR) Simon Hudson / Barney Hayward / James Collins |
+44 (0) 20 7920 3150 |
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