DJ OPG Power Ventures plc Final Results
Delivery, Performance and Progress
Record Results
OPG (AIM: OPG), the developer and operator of power generation assets in India, announces its preliminary results for the year ended 31(st) March 2016 (“FY16”).
Highlights — 480 MW new capacity commissioned in the year – total operating capacity 750 MW
— EBITDA margin of 39.5% up from 33.4% compared with FY15
— Profit before tax of GBP28.6 million up by 32% compared with FY15
— EPS of 5.29 pence up by 8% compared with FY15
— Q1 FY17 aggregate group revenues approx. GBP57 million and average group PLF 72%
— 334 MW allocated to 2-3 year captive sales agreements at Chennai plant – transforms sales mix
— Initial target dividend of 15% of net earnings commencing with an interim in calendar 2016
— 62 MW solar growth projects expected to be funded from a combination of new debt facilities and internal equity
Summary financial information
GBP million INR million
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FY16 FY15 FY16 FY15
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Revenue 128.4 100.0 12,681 9,838
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EBITDA 50.7 33.4 5,004 3,287
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Profit before tax 28.6 21.7 2,819 2,130
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EPS (pence) 5.29 4.91 – –
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Net debt 254.1 250.6 24,159 23,251
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Total units (millions) 3,163* 1,861
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GBP:INR ex-rate 98.7 98.4
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*includes 704m units from Gujarat for which results are being capitalised
Commenting on the results, Mr M C Gupta, Chairman stated: “The OPG management team have much to be proud of upon the completion of their 750 MW programme. The Company's results and continued growth in revenues are a testament to this. This positions the Company uniquely well, in my view, to take advantage of the many good growth opportunities the Indian power sector will have to offer in the years to come. After the Board having announced a firm approach to dividends I have informed the Board of my decision to retire and I wish to thank my Board colleagues and the entire team at OPG for their warmth and for their efforts in making this a company of the future – I have every reason to believe OPG is well on its way to achieving its goal of leadership in the Indian energy sector.”
For further information, please visit www.opgpower.com or contact:
OPG Power Ventures PLC +91 (0) 44 429 11
Arvind Gupta / V Narayan Swami 211
Investor Relations
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 / James Collins +44 (0) 20 7920 3150
Disclaimer
This announcement does not constitute or form part of any offer or invitation on to sell or issue, or any solicitation on of any offer to purchase or subscribe for any securities. The making of this announcement does not constitute a recommendation on regarding any securities. Certain statements, beliefs and opinions contained in this announcement, particularly those regarding the possible or assumed future financial or other performance of OPG, industry growth or other trend projections are or may be forward looking statements. Forward–looking statements can be identified by the use of forward looking terminology, including the terms “believes”, “estimates”, “anticipates”, “expects”, “intends”, “plans”, “goal”, “target”, “aim”, “may”, “will”, “would”, “could” or “should” or, in each case, their negative or other variations or comparable terminology. These forward looking statements include all matters that are not historical facts. By their nature, forward–looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future and may be beyond OPG's ability to control or predict. Forward–looking statements are not guarantees of future performance. No representation on is made that any of these statements or forecasts will come to pass or that any forecast result will be achieved. Neither OPG, nor any of its associates or directors, officers or advisers, provides any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward–looking statements in this announcement will actually occur. You are cautioned not to place reliance on these forward–looking statements. Other than in accordance with its legal or regulatory obligations, OPG is not under any obligation and OPG expressly disclaims any intention or obligation to update or revise any forward–looking statements, whether as a result of new information, future events or otherwise.
No statement in this announcement is intended as a profit forecast or a profit estimate and no statement in this announcement should be interpreted to mean that earnings per OPG share for the current or future financial years would necessarily match or exceed the historical published earnings per OPG share.
Chief Executive's review
Performance Overview
This has been something of a landmark year of an eight year journey during which the Company has delivered record results, completed its 750 MW program and is now embarking on an exciting new phase of development.
During FY16, OPG generated a record 3.2 billion units of electricity as a result of which reported revenues rose by 28% to GBP128 million. A 480 MW uplift in capacity has been delivered progressively through FY16 and the Q1 FY17 revenues of approximately GBP57 million reflect the ramp up to date of this newly delivered capacity. Profit before tax was up 32%, and operating margins were higher than last year, tracking delivered coal prices.
The low point of the year was some of the worst flooding ever seen in Chennai with severe impact upon communities in the region. Although generation at the Chennai plant was impacted it remained available throughout to supply electricity and more importantly the plant had an essential role in providing emergency drainage to nearby communities where the impact could have been significantly greater.
As well as knowing their Company has been playing its part in the community, shareholders will be pleased that we announced the timing and basis for our initial dividend policy with an initial pay out target of 15% of net earnings (subject to cash flows and commitments) commencing with an interim payment in the current calendar year and with an intention to grow that pay out over time. We also re-affirmed our strategy of pursuing responsible, sustainable growth from new projects, mirroring the energy mix of India in the longer term, in line with which we recently announced our entry into the promising solar energy segment.
Market
This is a time of opportunity in the Indian power sector especially for cash generative participants due to the major developments taking place.
– The Company operates in the fastest growing major economy of the world with GDP growth of over 7% in the last fiscal year. Electricity is a key growth enabler and a further 480 GW will need to be added to India's power generating capacity in order to reach the government's stated per capita consumption target of 1800 kWh by 2034 and to provide electricity for approximately 260 million people. Population growth, industrialisation, electrification and urbanisation continue apace in India
– Financial restructuring of state utilities, the biggest buyers of electricity in India, by way of a program known as UDAY, is expected to bring about a material reduction in finance costs to a large number of utilities. This together with reforms in the banking sector are expected to provide a boost to the availability of efficient financing for well-run thermal and renewable energy players
– Fuel availability and mix is changing rapidly. India produces more coal than ever and globally, supplies have remained strong while producer currencies have been weak, keeping prices subdued. Utilities and regulators have sought to track those dynamics in power pricing. Renewable energy is also much more relevant
– Following the COP21 meeting of nations in December 2015, India committed to fast-track renewables development and responsible growth in thermal capacity. Thermal energy is still forecast to remain the backbone of the country's power needs for several decades to come where a focal point will be mobilising idle capacity in that segment. FY16 also saw over 5 GW of new solar energy projects commissioned and the pace of this development is expected to quicken as 10 GW of solar projects are anticipated to be auctioned every year. With solar development costs in India being amongst the lowest in the world and continuing to maintain a benign momentum, projects have become viable without subsidies.
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DJ OPG Power Ventures plc Final Results -2-
We believe these features make India the most exciting power market in the world seeking, to add 20 GW of new capacity every year to keep pace with demand. Both thermal and renewables will be important and around a third of all energy generation is expected to be from renewable sources from by 2030. We believe our entry into renewables and our strong thermal portfolio will ensure we are well placed across the spectrum of opportunities.
Future Projects
Against this fast evolving backdrop, last year the Company outlined to shareholders its aim of replicating the power generation mix of the nation and on 5(th) July 2016, the Company announced the investment of GBP45 million in four new solar projects (total 62 MW) across various locations in Karnataka, one of the most industrialised states in India. This investment is expected to be funded from a combination of internal cash generation and debt and the Directors consider all four of these new projects capable of generating cash flow by June 2017. The fully permitted projects were secured in a competitive bidding process and the Company has signed long term (25 year) power purchase agreements (PPAs) at an average tariff of Rs 5 with Karnataka State Electricity Distribution companies (“Discoms”). The targeted return levels are expected to be met without any subsidies and the Board expects these projects to deliver long term returns ahead of our average cost of capital.
OPG's Priorities
With many potential opportunities, the Board seeks to augment the Company's strong track record by focusing management on certain priorities as follows:
– Our first priority has been and must remain maximising the cash generation and performance of existing operations. This means making the most of our multi-year contracts in Chennai, achieving cost, working capital, safety and environmental performance leadership there and of course, ramping up Gujarat as profitably as possible. We need to maintain our unbroken track record on timely coal procurement and as well as our cost of operations, seek to continually optimise our cost of capital. With the normal determined efforts of the OPG team, these efforts will be the backbone of our cash generation, dividends and growth.
– Our second priority is to engage in responsible and sustainable growth. We should seek to navigate some of the pitfalls experienced by others seeking out profitable megawatts only. In so doing we will retain our ability to be selective if and when interesting growth opportunities arise to achieve the Company's true potential. In the context of this priority, we believe our commitment to internally fund growth of 300 MW of solar over the coming years and paying out returns from the free cash flow generated from them is achievable and exciting for shareholders.
– And in everything we do, it's a priority that we must be conscious of the need to protect our people and our environment. Due to its recent construction, our existing portfolio operates well within all Indian regulatory requirements and we want our plans to involve continual improvement in this regard. As a result, as well as rebalancing our portfolio with renewable energy regeneration, in implementing any growth in thermal, our management team has undertaken to the Board to target improvements in the environmental performance of our thermal portfolio as a whole following such growth. This is an important part of becoming a leader in the sector.
Board and other developments
Mr M. C Gupta, our Chairman, has informed of his wish to retire from the Board at the next general meeting. I have the special privilege of thanking him for his leadership and guidance over the last eight years. In my view we could not have achieved what we have without his direction and counsel. He has overseen the forty-fold growth of OPG from its initial size, which gives us the platform for our continued growth. On behalf of shareholders, my Board colleagues and I, we wish Mr M.C. Gupta well for his retirement.
We have identified a new non-executive director to join the Board and I look forward to welcoming Mr Jeremy Beeton to our Board. Jeremy's experience in emerging markets and on the boards of many leading companies as well as his leadership in delivering large, complex projects including the London Olympics in 2012 will be valuable to the Company. We will make a further announcement regarding the appointment of Jeremy Beeton in due course which will include the requisite AIM Rule disclosures.
Being familiar amongst our shareholders, having completed our 750 MW program and built a strong, stable and capable commercial and operations team, the Board has considered it appropriate that I take on the role of Executive Chairman of OPG, which I have agreed to accept.
Finally, I am delighted to welcome Mr T Chandramoulee to the new position of Group Chief Operating Officer, with a non-Board responsibility for running the day-to-day operating affairs of the Company. T Chandramoulee has been with OPG since 2007, is known to our customers, suppliers and lenders and has played a leading role in all aspects of the development and operation of the Chennai and Gujarat plants.
In other developments, the Board continues to evaluate with its advisors the possibility of a move to the Main Market.
Summary
A lot has changed in the last eight years to position the Company well as a potential leader in the sector. We will look to continue our momentum onwards from this landmark year by introducing our dividend shortly and by judiciously identifying good growth projects. There is no doubt that encouraging and major reforms are going on in our sector and our vision is to couple the opportunities they bring with our natural skills and to become a sector leader known for its all round performance.
I want to pay a special tribute to the efforts of our team, many of whom have been an integral part of the entire journey. I look forward to their continued support and dedication without which we cannot achieve our desired leadership status.
Similarly, as the Board and I look forward with confidence to the Company's future, we wish to place on record our thanks to all of our shareholders for their support and participation during our journey.
Financial Review