Kenon Holdings Ltd. annual report, Q4 FY2023

Kenon Holdings Ltd. — FY2023 Form 20-F

Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a standalone Q4 filing. Financial statements are prepared under IFRS and presented in U.S. dollars. Kenon is a holding company; its principal operating business is OPC Energy (approximately 54.7% owned), while ZIM (approximately 20.7% owned) is equity-accounted. Kenon also held a 12% interest in Qoros, written down to zero in 2021.

Key financial metrics

Metric	FY2023	FY2022
Revenue	$691.8 million	$574.0 million
Operating profit	$42.6 million	$2.8 million
Profit (loss) from continuing operations	$(210.9) million	$349.7 million
Net cash from operating activities	$276.8 million	$771.4 million
Cash and cash equivalents, consolidated	$696.8 million	$535.2 million
Consolidated loans and debentures	$1,530.0 million	$1,163.1 million

Revenue was generated by OPC. Consolidated net loss attributable to Kenon shareholders was $236.0 million (2022: net income of $312.7 million). The loss principally reflects Kenon’s share of ZIM’s 2023 losses and the absence of the prior-year ZIM contribution.

Operating businesses and cash flow

• OPC: Revenue rose to $691.8 million from $574.0 million. Net profit fell to $47 million from $65 million, while Adjusted EBITDA, a non-IFRS measure, increased to $304 million from $250 million. OPC reported debt of $1.53 billion at year-end, up from $1.16 billion. Its cash and cash equivalents were $278 million, including debt-service reserves; it also reported $17 million of restricted cash.
• ZIM: Revenue fell 58.9% to $5.16 billion from $12.56 billion; net loss was $2.69 billion versus net income of $4.63 billion. Adjusted EBITDA declined to $1.05 billion from $7.54 billion. Carried volume fell 2.9%, and average freight rate per TEU fell 62.9% to $1,203. Kenon’s share of ZIM’s loss was approximately $266 million.
• Cash flow: Operating cash flow declined to $276.8 million, mainly because dividends received from ZIM decreased; OPC operating cash flow increased to $135 million from $63 million. Investing cash outflow was $432.2 million, including OPC acquisitions of the Kiryat Gat plant and Mountain Wind. Financing cash inflow was $324.6 million, compared with an outflow of $493.7 million in 2022.
• Liquidity and debt: Kenon reported approximately $634 million of standalone cash and treasury investments and no material standalone third-party debt. Consolidated cash was $696.8 million. Kenon’s consolidated liabilities include substantial operating-company obligations; these should not be read as Kenon-parent debt. ZIM’s disclosed debt figures differ across filing sections: the liquidity discussion gives approximately $5.01 billion, mostly lease liabilities, while risk disclosures refer to approximately $5.9 billion. Reconcile the definitions and amounts.

Changes versus FY2022

• Kenon moved from $349.7 million of continuing-operations profit to a $210.9 million loss. Its share of results from associated companies shifted from $1.12 billion of profit to $200 million of losses, principally as ZIM’s results reversed.
• ZIM’s shipping conditions normalized from pandemic-era highs: freight rates and revenue fell sharply, while operating costs also decreased. ZIM recorded a $2.06 billion impairment in Q3 2023; Kenon’s investment carrying value in ZIM was reduced to zero by year-end after equity-method losses. Kenon had recorded a separate $929 million impairment of its ZIM investment in 2022.
• OPC revenue and Adjusted EBITDA grew, but net profit declined and debt increased. Growth included the start of Tzomet operations and the acquisition of Kiryat Gat and Mountain Wind.
• Kenon received about $159 million of ZIM dividends in 2023, down substantially from the prior year; it paid a $150 million shareholder dividend and repurchased approximately 1.1 million shares for $28 million.

Outlook, commentary and material risks

• No quantified Kenon earnings guidance was provided. Management describes OPC as a growth business and is considering further investment in existing businesses or acquisitions in established industries. OPC’s plans include renewable generation, storage and U.S. carbon-capture projects; execution depends on financing, permits, construction and market economics.
• War in Israel: The war that began in October 2023 has created significant uncertainty for OPC and ZIM, including supply, staffing, financing, currency, insurance and operating risks. Tamar gas supply to OPC was suspended until November 12, 2023; the company reported no significant gas-cost change during that interruption. The ongoing security situation could affect gas supply and project timelines.
• OPC regulation and projects: Israeli tariff revisions affected OPC’s results and shifted revenue toward summer periods. OPC-Rotem’s supply license process was not complete as of the report date, and its terms and related arrangements remain important. Sorek 2 construction and project dates face potential delay; the Ramat Beka solar project requires substantial development funding. OPC suspended its dividend policy for two years in March 2024.
• ZIM industry risks: Management cites container capacity growth expected to outpace demand in 2024, freight-rate volatility, charter exposure, fuel and emissions costs, and Red Sea rerouting and disruption. The 2M cooperation is expected to end in January 2025. ZIM had not paid a dividend since April 2023 as of the report’s discussion.
• Contingencies and unusual items: In February 2024, an arbitration tribunal awarded Quantum approximately RMB 1.9 billion (about $268 million) against the Qoros majority shareholder and Baoneng Group. Collection and enforcement are uncertain; the award is not reported as cash received. Kenon also disclosed a 2023 ICSID award against Peru of $110.7 million in damages plus costs and interest; rectification requests and possible annulment proceedings remain, and a funding provider is entitled to a share of net proceeds. OPC-Hadera settled construction arbitration for compensation of about $21 million gross, approximately $7 million net of offsets.
• Other key risks: High leverage at operating businesses, interest-rate and foreign-exchange exposure, limitations on distributions from subsidiaries, customer and supplier concentration, cyber and regulatory risks, and the ability to obtain financing. Kenon’s controlling shareholder, Ansonia, holds approximately 62% of its shares.

Most important facts for investors to verify

• Confirm the annual reporting period and distinguish Kenon’s IFRS results from OPC’s and ZIM’s standalone results and non-IFRS measures.
• Reconcile the ZIM debt disclosures and understand the lease-liability component, maturities and cash available to service obligations.
• Track collection and enforceability of the Qoros arbitration award and the Peru award; neither should be treated as realized proceeds without confirmation.
• Assess OPC’s funding needs, debt covenants, project costs and schedules, including Sorek 2, Ramat Beka and U.S. projects, and the status and terms of OPC-Rotem’s supply license.
• Verify the effect of the Israel war, gas-supply conditions, insurance renewals and Red Sea shipping disruptions on operating results and liquidity.
• Confirm dividend capacity: Kenon’s approximately $200 million dividend was announced in March 2024 for payment in April; it is subsequent to FY2023. OPC suspended its dividend policy, and ZIM’s future distributions are discretionary.
• Note the auditors’ unqualified IFRS opinion and effective internal-control opinion; the audit identified impairment testing of CPV renewable-energy goodwill as a critical audit matter.