TIDMOPG
RNS Number : 2333P
OPG Power Ventures plc
30 August 2017
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
GBP3.5 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 GBP40 million in FY17 of which dues
from TANGEDCO amounted to GBP26 million. The Company has since
collected nearly GBP13 million of GBP26 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 GBP26
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 +91 (0) 44 429
Investor Relations 11211
+44 (0) 20 7850
Ajay Paliwal / Pooja Maru 7070
Cenkos Securities (Nominated
Adviser & Broker) +44 (0) 20 7397
Stephen Keys / Camilla Hume 8900
Macquarie Capital (Europe)
Limited (Joint Broker) +44 (0) 20 3037
Raj Khatri / Nick Stamp 2000
Tavistock (Financial PR)
Simon Hudson / Barney Hayward +44 (0) 20 7920
/ James Collins 3150
-ends-
This information is provided by RNS
The company news service from the London Stock Exchange
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