Trading update for the year ended 31 March 2021

22 June 2021

OPG Power Ventures plc

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

Trading update for the year ended 31 March 2021 and COVID-19 Update

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 2021 ("FY21").

Summary

For the year ended 31 March 2021:

·   Total generation (including deemed) of 2.11 billion units (FY20: 2.72 billion units), reduction in generation is primarily due to the COVID-19 induced nationwide lockdown in India;  

·   Plant Load Factor ("PLF") was 58 per cent, compared with FY20 PLF at 75 per cent;

·   PLF for March 2021 was 75% (April 2021 PLF: 85%; May 2021 PLF: 65%);

·   Average tariff for the year was Rs5.52, (FY20: Rs5.67);

·   £8.2 million (Rs.7.8 billion) (2.04p per share) term loan principal repayments made during FY21, with total borrowings, including non-convertible debentures ("NCDs"), reduced by 17.9% to £46.6 million (£56.8 million at 31 March 2020);

·   Subsequent to 31 March 2021, additional £5.7 million (Rs.0.6 billion) collected from a customer in respect of historic contractual claims.

COVID-19 and the Indian Economy

·    Second wave of COVID-19 has surged across India; state governments have imposed various restrictions to bring the situation under control; there are reasons to expect a muted economic impact as compared to the first wave due to lockdowns being implemented more narrowly with companies and individuals adjusting behaviour in ways that cushion the effects;

·    Currently COVID-19 cases are reducing and unlocking processes have been initiated by various State Governments, in phases;

·    World Bank has projected India's economy to grow at 8.3% in 2021 and 7.5% in 2022;

·    On 1 April 2021, the deadline for meeting emission norms for a majority of coal-based power plants in India, was extended from 2021 to December 2024.

Arvind Gupta, Chairman of OPG, commented:

"Despite the disruption caused by COVID-19, OPG delivered very strong cash generation and achieved a significant reduction in debt during the year and has also continued its strategy of deleveraging the business. 

"We expect to meet the market expectations for our FY21 profit after tax and cash generation.

"We continue to work tirelessly to implement plans to limit the business disruption to OPG and the associated human, financial and commercial consequences of the second wave of COVID-19. 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."

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

Deleveraging

In 2018, the Board took the decision to focus on our profitable, long-life assets in Chennai, and to prioritise deleveraging as a method to grow shareholders' equity. This strategy, we believe, will deliver value to shareholders with free cash flows providing significant returns to our shareholders and opportunities to grow the business further. The Board remains convinced, especially in light of COVID-19 challenges, that our strategy of maintaining operational excellence and paying down borrowings was the right one to pursue for all our stakeholders.

The increase in equity value, since the adoption of this strategy is:

* Based upon INR/GBP closing exchange rate at 30 September 2020 of £1=94.74

** based on 400.7 m of Ordinary Shares

Term loan and non-convertible debentures interest and principal repayments during FY21 amounted in aggregate to £12.4 million (Rs1.18 billion), which included £8.2 million (Rs0.78 billion) of term loan principal repayments.

As at 31 March 2021, total borrowings were £46.6 million, including term loans of £20.3 million, NCDs of £19.8 million and working capital loans of £6.5 million. This represents a reduction in gross debt of 17.9% from the £56.8 million at 31 March 2020.

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 FY21 was 2.11 billion units, 22.4% less than in FY20. This decrease in generation was primarily due to decreased demand by commercial and industrial (C&I) clients, as worldwide economic activities slowed down due to the COVID-19 induced lockdown particularly in the first half of FY21.

The average tariff realised during FY21 was Rs5.52 (FY20: Rs5.67). The decrease in tariff realisation is primarily due to the impact of COVID-19.

Subsequent to 31 March 2021, the Company collected £5.7 million (Rs.0.6 billion) from a customer in respect of historic contractual claims which were accumulated over several periods.

Coal and Freight costs

The average landed coal price was £42.67 (Rs4,127) (at a INR/GBP average annual exchange rate of 96.72 INR/GBP) per tonne in FY21 (FY20: £48.07 (Rs4,325) at a INR/GBP exchange rate of 89.97 INR/GBP).

Over last several months the prices of thermal coal and freight have surged primarily due to increased imports of coal and other goods by China and other Asian countries on the back of post COVID-19 economic recovery. Whilst OPG is 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. However, the Company is exploring various options including sourcing the coal from other geographies (including domestic sources) to reduce the per unit cost of electricity. We strongly believe that the prices of coal and freight will moderate later in FY22 and in the longer-term.

62 MW Karnataka solar projects

All plants are operational and have met all critical operating metrics. A Capacity Utilisation Factor ("CUF") for the solar projects of 19.2 per cent was achieved in FY21 (FY20: 18.5 per cent). OPG owns a 31% equity interest in 62 MW Karnataka solar projects.

COVID-19 and Indian Economy Update

A second wave of COVID-19 has surged across India with State governments imposing several restrictions to curb public movement in order to bring the situation under control. However, the Indian authorities have implemented lockdowns more narrowly than in the first wave, and companies and individuals have adjusted behaviour in ways that cushion the effects. Moreover, unlike the first wave, the administrative response is unfolding gradually in a graded manner. In addition, households, businesses and other economic agents are better prepared and there was a significant amount of learning in practice which can help all parties to withstand and navigate the second wave of the COVID-19 crisis more effectively. Lastly, the roll-out of the COVID-19 vaccine since 16 January 2021 has enhance safety and reduced the fear element among the vaccinated economic agents. Both vaccination production and the pace of deployment of the vaccination are key in controlling the pandemic as well as for growth recovery.

The Ministry of Finance in its monthly economic report said that the impact of the second wave of the coronavirus pandemic on the economy is likely to remain muted as compared to the first wave in 2020, even though caseloads and fatalities are much higher. This is because the administrative response is likely to be confined to the regional/local lockdowns and containment zones. Despite COVID-19, the World Bank has projected India's economy to grow at 8.3% in 2021 and 7.5% in 2022.

Power Sector

Power consumption in the country grew nearly 41 and 8 per cents in April and May 2021 respectively over the same months last year, showing robust recovery in industrial and commercial demand of electricity, according to Ministry of Power data. Power consumption remained substantially low in April and May last year due to lockdown. The increased growth rate of power consumption indicates healthy recovery in both commercial and industrial demand. During FY21, power consumption dipped by one per cent to 1,271.54 BU from 1,284.44 BU in FY20.

On 1 April 2021, the Indian Ministry of Environment, Forest and Climate Change extended the timeline for meeting emission norms for a majority of coal-based power plants in India, which are now allowed to comply with the emission norms by December 2024.

Environmental, Social and Governance ("ESG") strategy development

OPG continues to develop its ESG strategy which, among other matters, will include objectives to reduce its carbon footprint.  As part of this strategy, the Company is evaluating various options to increase its renewable energy asset base and to establish joint ventures to roll out various energy transition technologies. These initiatives will ensure that OPG delivers year-on-year improvements to reach the Company's emissions reduction targets in the medium and longer-term and should generate attractive returns for shareholders.

Outlook

Despite the disruption caused by COVID-19, and as a result of our strategy of maximising operational performance and deleveraging we expect that the Company will meet market expectations for our FY21 profit after tax and cash generation.

Robust cash collections, continued deleveraging and the extension of the deadline for meeting emission norms have significantly strengthened the Company's balance sheet and its liquidity position.

Notwithstanding the volatility in coal prices and freight, the Company's medium-term and long-term fundamentals remain unchanged with strong cash flows and a reduction in debt enabling the long-term profitable business model and sustainable returns to shareholders.

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