DJ OPG Power Ventures plc Trading and Dividend Update
FY16 outturn in line with market expectations
The year to 31 March 2016 ended in line with market expectations. Aggregate generation increased by 70 per cent in FY16 to 3,177 GWh from 1,861 GWh in FY15. The Gujarat plant commenced supplies from its first unit in April 2015 and from its second unit at the end of January 2016. Delivered coal costs were on average around 7 per cent lower in FY16 than in FY15 and the Company made loan repayments of GBP23 million during the year, continuing its history of doing so and effecting further annual interest savings.
The Company expects to announce its full year results in July 2016.
Dividend – interim FY17 dividend expected to be paid in 2016
The Company has stated previously that, at the appropriate time and once its plants have achieved sustainable operating levels, it would introduce a dividend policy. The Company is pleased therefore to announce that it expects its maiden dividend to be for the year ending 31 March 2017 and to declare the final amount of that dividend along with the results for that year. The Company expects to pay an interim dividend for that financial year at the end of calendar year 2016. The Company’s dividend policy will, initially, seek to pay out 15 per cent of full year net earnings, subject to the level of free cash flow generated calculated after scheduled debt repayments and expected capital expenditure.
FY17 Current year trading – faster cash collections in Chennai, Gujarat ramping up
Chennai: Faster customer collections, more direct to industry sales and improved visibility of revenues
In the current financial year, the Chennai plants’ cash flows from sales are expected to improve due to a combination of its multi-year sales contracts and faster cash collections. With effect from June 2016, the Company has agreed to sell an additional 77 MW to industrial customers, bringing the total capacity under multi-year contracts with a wide spread of industrial customers to 334 MW out of a capacity of 414 MW. These contracts are typically for three years and accelerate the Company’s cash collections, with the payment profile of these contracts being more favourable for OPG. The remaining capacity of 80 MW is traded on the Long Term Variable Tariff contract with the state utility, expiring in 2028.
Ramping up Gujarat to management’s expected levels of operation
The output from both units of this new plant is being supplied directly to industrial customers, both within and outside the state of Gujarat, and to the national power exchange. Recently, the plant has operated at a load factor of over 50 per cent and management expect this to rise steadily such that management’s expected normal level of operation of 75 per cent is achieved in the current year.
Tariffs to reflect sales mix and coal costs
The Company expects to achieve an average tariff in FY17 of approximately INR 4.40, with the tariff trending in line with the geographic sales mix and the net cost of delivered coal. Whilst the cost of imported coal remains subdued this has been offset, to an extent, by a nationwide increase in coal cess (local duty) applicable to all users of coal. Whilst there is an industry view that the increased coal cess will lead to an increase in tariffs, as has been the case in the past, management have taken a prudent approach and not incorporated any tariff increases into the assumptions that support the expected average tariff of INR 4.40 for FY17.
In addition to ramping up to the Group’s full 750 MW capacity the Directors expect the Company to benefit from a reduction in interest rates by approximately 1 per cent on debt facilities for the Chennai units, where the Indian credit rating has been raised to A+ from A (the third recent credit rating increase for Chennai).
Outlook – examining accretive growth opportunities, Main Market move and appointment of Joint Broker
The Group continues to strive to be the leading developer and operator in the growing Indian energy sector. With that aim the Company continues to examine potentially accretive renewable and thermal opportunities for the Group to grow and in line with its previously stated strategy of replicating the energy generation mix of India. The Directors remain confident of OPG’s ability to deliver attractive, incremental growth on top of its existing installed base and will evaluate any opportunities in the context of the Group’s internally generated cash and intention to pay a dividend.
Having built out its projects to reach a key milestone of instituting a dividend policy, the Company is now working with its advisers to evaluate the prospect of moving to the Main Market of the London Stock Exchange and we expect to provide further updates on this in due course.
The Company is pleased to appoint Macquarie Capital (Europe) Limited as a Joint Corporate Broker, alongside Cenkos Securities, the Company’s existing Corporate Broker and Nominated Adviser.
The Company’s investor day is expected to be held in mid-September 2016 for which further details will be made available by the Company’s London based investor relations team shortly.
CEO Arvind Gupta commented: “We are at a point of significant transition, where we hope to be recognised for our pursuit of the best results from our operational assets, for maximising our cash flows and for delivering on our promises in establishing a dividend paying company. We believe that, as India leads global growth amongst major economies, we are uniquely placed to grow our business and our earnings and to become the leading developer and operator in the Indian power sector.”
Chairman M C Gupta added: “The Board has acknowledged the excellence of the management team and its confidence in the team’s strategy and long term direction by clearly stating its approach to dividends. This discipline represents a leap forward for a fast maturing company that is striving to become the leading player in the exciting Indian power market.”
The year to 31 March 2016 ended in line with market expectations. Aggregate generation increased by 70 per cent in FY16 to 3,177 GWh from 1,861 GWh in FY15. The Gujarat plant commenced supplies from its first unit in April 2015 and from its second unit at the end of January 2016. Delivered coal costs were on average around 7 per cent lower in FY16 than in FY15 and the Company made loan repayments of GBP23 million during the year, continuing its history of doing so and effecting further annual interest savings.
The Company expects to announce its full year results in July 2016.
Dividend – interim FY17 dividend expected to be paid in 2016
The Company has stated previously that, at the appropriate time and once its plants have achieved sustainable operating levels, it would introduce a dividend policy. The Company is pleased therefore to announce that it expects its maiden dividend to be for the year ending 31 March 2017 and to declare the final amount of that dividend along with the results for that year. The Company expects to pay an interim dividend for that financial year at the end of calendar year 2016. The Company’s dividend policy will, initially, seek to pay out 15 per cent of full year net earnings, subject to the level of free cash flow generated calculated after scheduled debt repayments and expected capital expenditure.
FY17 Current year trading – faster cash collections in Chennai, Gujarat ramping up
Chennai: Faster customer collections, more direct to industry sales and improved visibility of revenues
In the current financial year, the Chennai plants’ cash flows from sales are expected to improve due to a combination of its multi-year sales contracts and faster cash collections. With effect from June 2016, the Company has agreed to sell an additional 77 MW to industrial customers, bringing the total capacity under multi-year contracts with a wide spread of industrial customers to 334 MW out of a capacity of 414 MW. These contracts are typically for three years and accelerate the Company’s cash collections, with the payment profile of these contracts being more favourable for OPG. The remaining capacity of 80 MW is traded on the Long Term Variable Tariff contract with the state utility, expiring in 2028.
Ramping up Gujarat to management’s expected levels of operation
The output from both units of this new plant is being supplied directly to industrial customers, both within and outside the state of Gujarat, and to the national power exchange. Recently, the plant has operated at a load factor of over 50 per cent and management expect this to rise steadily such that management’s expected normal level of operation of 75 per cent is achieved in the current year.
Tariffs to reflect sales mix and coal costs
The Company expects to achieve an average tariff in FY17 of approximately INR 4.40, with the tariff trending in line with the geographic sales mix and the net cost of delivered coal. Whilst the cost of imported coal remains subdued this has been offset, to an extent, by a nationwide increase in coal cess (local duty) applicable to all users of coal. Whilst there is an industry view that the increased coal cess will lead to an increase in tariffs, as has been the case in the past, management have taken a prudent approach and not incorporated any tariff increases into the assumptions that support the expected average tariff of INR 4.40 for FY17.
In addition to ramping up to the Group’s full 750 MW capacity the Directors expect the Company to benefit from a reduction in interest rates by approximately 1 per cent on debt facilities for the Chennai units, where the Indian credit rating has been raised to A+ from A (the third recent credit rating increase for Chennai).
Outlook – examining accretive growth opportunities, Main Market move and appointment of Joint Broker
The Group continues to strive to be the leading developer and operator in the growing Indian energy sector. With that aim the Company continues to examine potentially accretive renewable and thermal opportunities for the Group to grow and in line with its previously stated strategy of replicating the energy generation mix of India. The Directors remain confident of OPG’s ability to deliver attractive, incremental growth on top of its existing installed base and will evaluate any opportunities in the context of the Group’s internally generated cash and intention to pay a dividend.
Having built out its projects to reach a key milestone of instituting a dividend policy, the Company is now working with its advisers to evaluate the prospect of moving to the Main Market of the London Stock Exchange and we expect to provide further updates on this in due course.
The Company is pleased to appoint Macquarie Capital (Europe) Limited as a Joint Corporate Broker, alongside Cenkos Securities, the Company’s existing Corporate Broker and Nominated Adviser.
The Company’s investor day is expected to be held in mid-September 2016 for which further details will be made available by the Company’s London based investor relations team shortly.
CEO Arvind Gupta commented: “We are at a point of significant transition, where we hope to be recognised for our pursuit of the best results from our operational assets, for maximising our cash flows and for delivering on our promises in establishing a dividend paying company. We believe that, as India leads global growth amongst major economies, we are uniquely placed to grow our business and our earnings and to become the leading developer and operator in the Indian power sector.”
Chairman M C Gupta added: “The Board has acknowledged the excellence of the management team and its confidence in the team’s strategy and long term direction by clearly stating its approach to dividends. This discipline represents a leap forward for a fast maturing company that is striving to become the leading player in the exciting Indian power market.”