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Kenon Holdings Reports Third Quarter 2016 Results and Additional UpdatesSINGAPORE, Dec. 6, 2016 /PRNewswire/ -- Kenon Holdings Ltd. (NYSE: KEN, TASE: KEN) announces its results for the third quarter of 2016, as well as additional updates. Key Highlights IC Power
Discussion of Results for Q3 2016 Kenon's consolidated results of operations from its operating companies essentially comprise the consolidated results of IC Power Pte. Ltd. ("IC Power"). The results of Qoros Automotive Co., Ltd. ("Qoros") and ZIM Integrated Shipping Ltd. ("ZIM") are reflected under results from associates. See Exhibit 99.2 of Kenon's Form 6-K dated December 6, 2016 for summary Kenon unaudited consolidated financial information; summary IC Power unaudited consolidated financial information; the definition of IC Power's EBITDA (which is a non-IFRS measure) and for a reconciliation to IC Power's, and each of its segments', net income; summary operational information of each of IC Power's generation businesses; summary unaudited financial information for each of IC Power's businesses; and summary Qoros unaudited consolidated financial information. IC Power IC Power's segments are Generation and Distribution. IC Power's Generation business is further segmented by geography: Peru, Israel, Central America and Other. The following discussion of IC Power's results of operations is derived from IC Power's consolidated financial statements. 1 Net income excluding finance expenses due to intercompany loans owing to Kenon is a non-IFRS measure. IC Power's finance expenses due to intercompany loans owing to Kenon were $9 million and $4 million in the first nine months and third quarter of 2016, respectively. 2 EBITDA is a non-IFRS measure. See Exhibit 99.2 of Kenon's Form 6-K dated December 6, 2016 for the definition of IC Power's EBITDA and a reconciliation to IC Power's, and each of its segments', net income.
3 In March 2016, Kenon announced an internal restructuring pursuant to which its subsidiary IC Power Pte. Ltd., which was a holding company with no material assets, acquired I.C. Power Asia Development Ltd., which held interests in power generation and distribution assets. As a result, IC Power Pte. Ltd. is now the parent holding company of I.C. Power Asia Development Ltd. (formerly I.C. Power Ltd.) and the results of IC Power for Q3 2015 are the results of IC Power Asia Development Ltd.
1. IC Power's Other segment includes the results of certain of IC Power's generation assets. In addition, IC Power's Other segment also includes expenses and other adjustments relating to its headquarters and intermediate holding companies, including amortization of purchase price allocations recorded in connection with IC Power's acquisition of Energuate, which allocations were recorded by Inkia, one of IC Power's intermediate holding companies. 2. Excludes depreciation and amortization.
A discussion of revenues, cost of sales, net income and EBITDA for IC Power's generation business by segment for Q3 2016, as compared to Q3 2015 is as follows: Generation - Peru Segment
Generation - Israel Segment
Generation - Central America Segment
1. In January 2016, IC Power acquired Guatemel, an electricity trading company, as part of its acquisition of its distribution businesses. However, Guatemel's results are included within IC Power's generation business as a result of its business line.
Generation - Other Segment
1. In January 2016, IC Power acquired RECSA, an electricity transmission company, as part of its acquisition of its distribution businesses. However, RECSA's results are included within IC Power's generation business as a result of its business line.
Distribution Segment
Capital Expenditures IC Power's capital expenditures were $33 million in Q3 2016, including $21 million in capital expenditures for maintenance of existing facilities (which included spending of $7 million at Energuate) and $11 million in capital expenditures on projects under construction, consisting of CDA ($9 million) and AIE ($2 million). Liquidity and Capital Resources As of September 30, 2016, IC Power had cash and cash equivalents of $380 million, plus short-term deposits and restricted cash of $84 million, interest bearing financial liabilities of $3,085 million (excluding $229 million of debt (including interest) owed to Kenon), and net interest bearing financial liabilities (a non-IFRS financial measure, which is defined as interest bearing financial liabilities minus cash and short-term deposits and restricted cash) of $2,621 million. In October 2016, IC Power prepaid its $75 million note payable to Kenon (which was part of the $220 million of notes issued by IC Power to Kenon connection with the reorganization of IC Power in March 2016). Business Developments Completion of the CDA Project In August 2016, the three generating units of CDA, a 510 MW hydroelectric plant located in Peru, commenced commercial operations. CDA is the largest hydroelectric plant built in Peru in the last 40 years. Construction of the plant required over four-and-a-half years to complete, and as of September 30, 2016, IC Power had invested $957 million in the development of the project. Update on the Construction of the AIE Plant AIE is constructing a 140 MW co-generation power plant in Israel. IC Power expects that the total cost of completing the AIE plant will be approximately $250 million (including the $16 million consideration for the acquisition of AIE). As of September 30, 2016, AIE had invested an aggregate of $37 million in the project. Construction of the AIE plant commenced in June 2016, and the plant is expected to commence commercial operations by early 2019. As of September 30, 2016, AIE had completed approximately 17% of the project. Update on Samay I Plant In July 2016, all of the units of the Samay I plant were declared unavailable to the system due to damage to the shafts in three of the plant's four units. IC Power has developed a plan to repair the units, and in October 2016, one of the units was declared available to the system. IC Power expects that the remaining units will be operational during the first quarter of 2017. Samay I continues to receive payments under its PPA, but such payments are subject to adjustments depending on the amount of time the plant is unavailable when called for dispatch. In Q3 2016, Samay I was subject to (negative) revenue adjustments of approximately $2.5 million as a result of Samay I's unavailability. Update on Energuate Tax Claims In July 2016, the Guatemalan Tax Administrator (the "SAT") issued a claim against DEORSA and DEOCSA for back taxes for the years 2011 and 2012. In August 2016, the court hearing the SAT complaint ordered DEORSA and DEOCSA to pay $17 million in alleged back taxes immediately, plus interest and fines. The combined amount of interest and fines for these years is estimated to be between $17 million and $24 million; however, the final amount is still under discussion with the SAT, and is expected to be established at a court hearing scheduled for late December 2016. In light of the SAT's actions, and in order to avoid the initiation of complaints by the SAT concerning the tax years 2013, 2014 and 2015 and any resulting fines and interest, upon instruction of the SAT, DEORSA and DEOCSA revised their tax returns for these years and paid $31 million, corresponding to alleged back taxes and interest for those years. The total payments described above (covering 2011 through 2015) are estimated to be in the range of $65 million to $72 million in the aggregate (of which $48 million was paid by the end of Q3 2016), depending on the amount of interest and fines for 2011 and 2012. Proposed Reduction in EA Tariff The Electricity Authority (Israel) (the "EA", formerly the PUAE) power generation component tariff forms the basis for OPC's prices under its PPAs. On September 8, 2015, the EA published a final decision, which reduced the generation component tariff by approximately 12% to NIS 265.2 per MWh. In October 2016, the EA published a draft decision regarding a further reduction of the generation component tariff. If the draft decision is approved at a public hearing to be held in December 2016, the generation component tariff will be further reduced by approximately 8% from NIS 265.2 per MWh to NIS 242.9 per MWh. The natural gas price formula in OPC's supply agreement is subject to a floor mechanism and, as a result of previous declines in the generation component tariff, OPC began to pay the ultimate floor price in November 2015. Therefore, the decline in the generation component tariff to be considered at the December 2016 public hearing, if confirmed, and any further declines in the generation component tariff would not result in a corresponding decline in OPC's natural gas expenses, and therefore would lead to a greater decline in OPC's margins, which would have a negative effect on OPC's results of operations. Qoros4 The following discussion of Qoros' results of operations below is derived from Qoros' consolidated financial statements. 4 Convenience translations of RMB amounts into US Dollars use a rate of 6.7:1. Revenues Revenues increased by RMB214 million ($32 million), or 54%, to RMB607 million ($91 million) in Q3 2016, as compared to RMB393 million ($59 million) in Q3 2015, primarily resulting from a 59% increase in car sales to 5,833 cars in Q3 2016 from 3,667 cars in Q3 2015. Cost of Sales Cost of sales increased by RMB379 million ($57 million), or 85%, to RMB824 million ($124 million) in Q3 2016, as compared to RMB445 million ($67 million) in Q3 2015, primarily resulting from the increase in the number of cars sold in Q3 2016 as compared to sales in Q3 2015, as well as an increase in amortization of capitalized research and development costs and an increase in depreciation of property, plant and equipment. Selling and Distribution Expenses Selling and distribution expenses decreased by RMB39 million ($6 million), or 36%, to RMB69 million ($10 million) in Q3 2016, as compared to RMB108 million ($16 million) in Q3 2015, primarily resulting from a cost management program ("CMP"), which entailed a reduction in advertising, marketing and promotion expenses. Administrative Expenses Administrative expenses decreased by RMB53 million ($8 million), or 33%, to RMB107 million ($16 million) in Q3 2016, as compared to RMB160 million ($24 million) in Q3 2015, primarily resulting from the CMP referenced above, which entailed a reduction in personnel expenses and other administrative expenses. Net Finance Costs Net finance costs decreased by RMB75 million ($11 million), or 55%, to RMB61 million ($9 million) in Q3 2016, as compared to RMB136 million ($20 million) in Q3 2015, primarily as a result of a RMB33 million ($5 million) reduction in interest expense in Q3 2016, as compared to Q3 2015 and a RMB42 million ($6 million) foreign exchange loss in Q3 2015. Loss for the Period For the reasons set forth above, loss for the period decreased by RMB37 million ($6 million), or 8%, to RMB465 million ($70 million) in Q3 2016, as compared to RMB502 million ($75 million) in Q3 2015. Liquidity As of September 30, 2016, Qoros had total loans and borrowings (excluding shareholder loans) of RMB5.6 billion ($840 million). Also as of September 30, 2016, Qoros had current liabilities (excluding shareholder loans) of RMB3.9 billion ($585 million), including trade and other payables of RMB2.6 billion ($390 million) and current assets of RMB1.3 billion ($195 million), including cash and cash equivalents of RMB103 million ($15 million). Qoros actively manages its trade payables, accrued expenses and other operating expenses in connection with the management of its liquidity requirements and available resources. Qoros' principal sources of liquidity are cash flows received from financing activities, including long-term loans, short-term facilities and inflows received in connection with equity contributions or convertible or non-convertible shareholder loans, as well as cash flows received from car sales. Qoros has drawn substantially all of the available amounts under its existing long term credit facilities and will require additional financing, including the renewal or refinancing of its working capital facilities, to fund its continued development and operations. Kenon's major shareholder, Ansonia Holdings Singapore B.V. ("Ansonia"), and Wuhu Chery each made loans of approximately $50 million to Qoros in Q2 2016. In September 2016, Ansonia provided additional loans of RMB150 million ($22 million) to Qoros, and Wuhu Chery provided loans to Qoros in the same amount and on similar conditions. These loans were made to support Qoros' ordinary course working capital requirements. The terms of these loans are described in Kenon's Reports on Form 6-K furnished to the SEC on April 22, 2016, June 29, 2016 and September 7, 2016. Qoros is continuing to seek additional financing for its operations. Consistent with Kenon's strategy to support Qoros and its fundraising efforts, but also to refrain from material "cross-allocation" (i.e., investing returns from one business into another), Kenon is actively exploring possible transactions that will provide further support to Qoros, while not increasing and seeking to reduce, Kenon's exposure to Qoros. Business Updates Car Sales In Q3 2016, Qoros' sales increased by approximately 59% to 5,833 cars, as compared to 3,667 cars in Q3 2015. In October 2016, Qoros' sales increased by approximately 86% to 2,610 cars, as compared to 1,403 cars in October 2015. Dealerships As of September 30, 2016, Qoros had a network of 105 dealerships, of which 5 were in pre-sales mode. As of September 30, 2016, Qoros had also entered into memorandums of understanding for 6 additional dealerships, and had 9 additional dealerships under construction and design. Qoros 3 GT Launch In November 2016, Qoros launched the Qoros 3 GT, a crossover sedan. The Qoros 3 GT was debuted at the Guangzhou Auto Exhibition in November 2016. China Car Market Conditions According to China Association of Automobile Manufacturers, cumulative passenger car wholesales recorded year-on-year growth of approximately 28% in Q3 2016. The growth in passenger car wholesales was due, in part, to a Chinese central government tax policy to incentivize domestic car sales by reducing invoice prices by approximately 4.25% between October 1, 2015 and December 31, 2016. All of Qoros' passenger cars were eligible for this tax cut. If the tax policy is not extended beyond December 31, 2016, when it is scheduled to expire, this may affect the sales performance of Qoros, as well as the entire China passenger car market. Discussion of ZIM's Results for Q3 2016 ZIM carried approximately 622 thousand TEUs in Q3 2016, representing 7% growth as compared to Q3 2015, in which ZIM carried approximately 581 thousand TEUs. In Q3 2016, ZIM's revenues decreased by $105 million, or 14%, to $644 million in Q3 2016, compared to $749 million in Q3 2015, primarily due to an approximately 21% decline in ZIM's average revenue per TEU carried, as a result of a decline in industry container freight rates. ZIM's net loss attributable to ZIM's owners in Q3 2016 was $39 million, as compared to net income of $11 million in Q3 2015. In recent years, the container shipping industry has experienced instability as a result of prolonged global economic crises, reduced market demand, increased capacity and increased uncertainty due to the realignment of global alliances. The container shipping industry has continued to experience an imbalance of supply and demand in 2016, as market demand for shipping remained weak, while new vessel capacity was added to the market. The excess capacity has resulted in historically low freight rates across various major trade zones. The impact on net income from the declines in freight rates has been partially offset by the current relatively low price of bunker, one of ZIM's significant costs. A continuation of the trend of low freight rates could negatively affect ZIM's business, financial position and ability to comply with its financial covenants. ZIM publishes its results on its website. For more information, see www.ZIM.com. This website, and any information referenced therein, is not incorporated by reference herein. Additional Kenon Updates Kenon's (Unconsolidated) Liquidity and Capital Resources As of September 30, 2016, cash, gross debt, and net debt[5] (a non-IFRS financial measure, which is defined as gross debt minus cash) of Kenon (unconsolidated) were $64 million, $220 million and $156 million, respectively. Kenon has fully drawn its $200 million credit facility from Israel Corporation Ltd. As of September 30, 2016, $200 million, plus interest and fees of approximately $20 million, was outstanding under the facility. In October 2016, IC Power prepaid in full its $75 million note to Kenon (which note was part of the $220 million of notes issued by IC Power to Kenon in connection with the reorganization of IC Power in March 2016). The proceeds that Kenon received are intended to provide Kenon with additional cash resources in light of its liquidity position and its obligations under its back-to-back guarantees of Qoros' indebtedness. Kenon has provided back-to-back guarantees to Chery in respect of Chery's guarantees of certain Qoros indebtedness. Set forth below is an overview of the guarantees provided by Kenon in respect of Qoros' indebtedness:
5 Kenon's gross debt and net debt do not include Kenon's back-to-back guarantee obligations in respect of Qoros' indebtedness, as discussed above. 1. In the event that Chery's liability under its guarantee exceeds RMB1.5 billion ($225 million), Kenon has committed to negotiate with Chery in good faith to find a solution so that Kenon's and Chery's liabilities for the indebtedness of Qoros under this credit facility are equal in proportion. 2. In the event that Chery is obligated under its guarantee of the EXIM Bank loan facility to make payments that exceed Kenon's obligations under the guarantee, Kenon and Chery have agreed to try to find an acceptable solution, but without any obligation on Kenon to be liable for more than the amounts set forth in the table above. Appointment of Director to Kenon Board of Directors In November 2016, Antoine Bonnier was appointed to the board of directors of Kenon. Investors' Conference Call Kenon's management will host a conference call for investors and analysts on December 6, 2016. To participate, please call one of the following teleconferencing numbers:
The call will commence at 9:00 am Eastern Time, 6:00 am Pacific Time, 2:00 pm UK Time, 4:00 pm Israel Time and 10:00 pm Singapore Time. About Kenon Kenon is a holding company that operates dynamic, primarily growth-oriented businesses. The companies it owns, in whole or in part, are at various stages of development, ranging from established, cash-generating businesses to early stage development companies. Kenon's businesses consist of:
Kenon's primary focus is to grow and develop its primary businesses, IC Power and Qoros. Following the growth and development of its primary businesses, Kenon intends to provide its shareholders with direct access to these businesses, when we believe it is in the best interests of its shareholders for it to do so based on factors specific to each business, market conditions and other relevant information. Kenon intends to support the development of its non-primary businesses, and to act to realize their value for its shareholders by distributing its interests in its non-primary businesses to its shareholders or selling its interests in its non-primary businesses, rationally and expeditiously. For further information on Kenon's businesses and strategy, see Kenon's publicly available filings, which can be found on the SEC's website at www.sec.gov. Please also see http://www.kenon-holdings.com for additional information. Caution Concerning Forward-Looking Statements This press release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to statements about (i) with respect to IC Power, the expected cost and timing of the completion of IC Power's AIE project, the expected timing of the repair of the Samay I units and such units being operational, the expected timing of court hearings in connection with the Energuate tax claim and the expected amounts payable in respect of this claim, and proposed reduction to the EA generation component tariff, including the expected timing of such reduction and the effect on IC Power's business, (ii) with respect to Qoros, statements with respect to Qoros' liquidity requirements and sources of funding and plans to continue to seek financing, (iii) with respect to ZIM, statements about expected trends in the container shipping industry, (iv) with respect to Kenon, Kenon's expected use of the proceeds from IC Power's repayment of the $75 million note Kenon's intention to explore possible transactions to further support Qoros and its fundraising efforts, while not increasing and seeking to reduce Kenon's exposure to Qoros, and Kenon's strategy to refrain from material cross-allocation, and (v) other non-historical matters. These statements are based on Kenon's management's current expectations or beliefs, and are subject to uncertainty and changes in circumstances. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond Kenon's control, which could cause the actual results to differ materially from those indicated in such forward-looking statements. Such risks include (i) with respect to IC Power, risks relating to IC Power's failure to complete the construction of the AIE project on a timely basis, within expected budget, or at all, risks relating to IC Power's ability to repair the Samay I units on a timely basis, or at all, and legal and regulatory risks, particularly in connection with the Energuate tax claim, including timing for final resolution and total amount to be paid in respect of such claim and with respect to the proposed changes EA generation component tariff, the ultimate amount determined to be payable, (ii) with respect to Qoros, risks related to government policies relating to the Chinese passenger car market, changes in events and circumstances with respect to Qoros and Kenon and other, and Qoros' ability to secure the funding it requires to meet its expenses and liquidity requirements, (iii) with respect to ZIM, developments in the container shipping industry and freight rates, (iv) with respect to Kenon, changes in events and circumstances with respect to Kenon and whether Kenon enters into transactions to further support Qoros and its fundraising efforts, while not increasing and seeking to reduce Kenon's exposure to Qoros, and the terms of such transasctions, and (v) other risks and factors, including those risks set forth under the heading "Risk Factors" in Kenon's Annual Report on Form 20-F filed with the SEC and other filings. Except as required by law, Kenon undertakes no obligation to update these forward-looking statements, whether as a result of new information, future events, or otherwise. Contact Info
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/kenon-holdings-reports-third-quarter-2016-results-and-additional-updates-300373567.html SOURCE Kenon Holdings Ltd. |