Kenon Holdings Ltd. — FY2022 Form 20-F
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone Q4 filing; quarterly results are not separately provided in the supplied text. Financial statements are prepared under IFRS and presented in U.S. dollars.
Business context
Kenon is a holding company with an approximately 54.7% interest in OPC, which operates power-generation businesses in Israel and the United States, and an approximately 20.7% equity-method interest in ZIM, a global container-shipping company. Kenon also holds a 12% interest in Qoros, carried at zero after a 2021 write-down. Because ZIM is not consolidated, its revenue and debt are not included in Kenon’s consolidated revenue and debt; Kenon records its share of ZIM’s results.
Key financial metrics
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue, principally OPC | $574.0 million | $487.8 million |
| Gross profit | $99.8 million | $98.3 million |
| Gross margin, approximate | 17.4% | 20.2% |
| Operating profit | $2.8 million | $22.5 million |
| Profit from continuing operations | $349.7 million | $875.3 million |
| Profit attributable to Kenon shareholders | $312.7 million | $930.3 million |
| Net cash provided by operating activities | $771.4 million | $240.5 million |
| Cash and cash equivalents, consolidated | $535.2 million | $474.5 million |
| Total assets | $3.772 billion | $4.038 billion |
| Total liabilities | $1.476 billion | $1.758 billion |
| Total equity | $2.296 billion | $2.280 billion |
Kenon’s FY2022 profit included a $1.118 billion share of profit from associated companies, substantially ZIM, offset by a $727.7 million ZIM-related loss, principally the $928.8 million impairment of Kenon’s ZIM investment. Accordingly, reported net profit is not a straightforward measure of operating performance.
Consolidated cash flow included $727.3 million of dividends from associated companies. Investing activities used $203.4 million and financing activities used $493.7 million, including Kenon’s $552.3 million capital reduction and $188.6 million dividend paid. Separately, Kenon reported approximately $638 million of cash on a standalone basis and no material third-party debt.
OPC
- Revenue rose to $574 million from $488 million; net profit was $65 million versus a $94 million loss. Adjusted EBITDA, a non-IFRS measure, declined to $77 million from $91 million.
- OPC reported $1.163 billion of consolidated debt and $241 million of cash at year-end. Proportionate net debt of CPV associated companies was approximately $865 million.
- Higher Israeli electricity generation tariffs supported margins, while higher gas and energy-purchase costs, maintenance and operating expenses also weighed on results. Israel revenue was $517 million; U.S. revenue was $57 million.
ZIM
- ZIM reported revenue of $12.562 billion, net income of $4.629 billion and Adjusted EBITDA of $7.541 billion. Revenue increased from $10.729 billion, while net income was broadly flat versus $4.649 billion.
- Volumes carried fell 2.9% to 3.38 million TEUs, but average freight revenue per TEU increased 16.3% to $3,240. Operating expenses rose 22%, including a 94% increase in bunker expense.
- ZIM had $4.332 billion of debt at year-end, mostly lease liabilities, and $1.022 billion in cash plus $3.589 billion in bank deposits and other investments. It paid approximately $3.30 billion in dividends during 2022.
Material changes and unusual items
- Kenon’s continuing-operations profit fell to $349.7 million from $875.3 million. ZIM’s share of profit declined to $1.033 billion from $1.261 billion, and Kenon recorded a $928.8 million impairment of its ZIM investment following the decline in ZIM’s market value late in 2022.
- Kenon sold approximately 6 million ZIM shares in March 2022 for $463 million and recognized a $204.6 million gain. Its ZIM interest fell to approximately 20.7%.
- Kenon returned $552.3 million to shareholders through a capital reduction in July 2022 and paid a further $188.6 million dividend in January 2022.
- OPC’s financing expense fell substantially from 2021, which included a $75 million one-time expense from early repayment of OPC-Rotem project financing. The 2022 cash-flow improvement largely reflected higher dividends received from associated companies, rather than a comparable increase in operating cash generated by OPC.
Outlook, risks and contingencies
- OPC outlook: Tzomet’s 396 MW plant was expected to begin commercial operation in the first half of 2023; Sorek 2 was expected in the second half of 2023. These are forward-looking expectations, not reported completed results. The Kiryat Gat acquisition remained subject to closing conditions. OPC’s Israeli power-supply licensing and regulatory arrangements, including those affecting OPC-Rotem, remained uncertain.
- OPC financing and execution: Construction cost inflation, supply delays, higher interest rates, gas take-or-pay commitments, tariff changes, customer concentration and project financing requirements may affect returns and liquidity. OPC’s two largest customers represented approximately 31% of 2022 revenue; a major customer contract was expected to expire in July 2023.
- CPV refinancing and permits: Valley had approximately $502 million of financing due June 30, 2023. Refinancing discussions were ongoing, with higher costs and a possible sponsor equity contribution anticipated; its New York air permit remained unresolved. Failure to refinance could require repayment at maturity.
- ZIM market risk: Freight rates had fallen sharply from 2021 peaks, and the filing cited expected capacity growth in 2023 exceeding projected demand growth. ZIM’s high chartered-fleet share and higher bunker costs increase sensitivity to shipping-market conditions.
- Qoros and litigation: The buyer failed to pay the agreed approximately RMB 1.56 billion for Kenon’s remaining 12% stake. Arbitration and court proceedings were ongoing; the shares remained pledged, and Qoros’ loans were reported in default and accelerated. Kenon cautions that recovery is uncertain.
- Post-year-end developments: In March 2023 Kenon declared a $150 million dividend and authorized up to $50 million of share repurchases. ZIM declared a $769 million Q4 2022 dividend, of which Kenon expected approximately $151 million net of tax. CPV agreed to acquire four Maine wind facilities for $172 million, subject to conditions.
The financial statements received unqualified audit opinions from KPMG. Management and the auditor reported effective internal control over financial reporting as of December 31, 2022. The auditor identified CPV renewable-energy goodwill impairment testing, particularly discount-rate assessment, as a critical audit matter.
Most important facts for investors to verify
- Reconcile the $928.8 million ZIM impairment, $204.6 million share-sale gain and equity-method income to the carrying value of Kenon’s ZIM stake and subsequent market prices.
- Confirm the receipt and timing of ZIM dividends, including the declared Q4 payment, and assess how much of Kenon’s cash generation depends on distributions from investees.
- Track Valley’s refinancing, air-permit status and any required sponsor funding; verify OPC project completion, licensing and acquisition milestones against actual subsequent disclosures.
- Review the status and recoverability of Kenon’s Qoros claims, guarantees and pledged shares, given the buyer’s non-payment and Qoros loan defaults.
- Distinguish Kenon standalone liquidity from consolidated cash and subsidiary debt, and monitor covenant compliance, restrictions on distributions and planned shareholder returns.