Kenon Holdings Ltd. — FY2020 Form 20-F
Business context and reporting period. This is an annual report for the year ended December 31, 2020, prepared under IFRS in U.S. dollars—not a standalone Q4 report. Kenon is a holding company whose principal consolidated operating business was OPC Energy, in which it held 62.1% at year-end (58.2% after subsequent share issuances). Kenon also held 32% of ZIM, accounted for under the equity method, and 12% of Qoros, accounted for at fair value after Kenon sold half its remaining stake in April 2020. CPV was acquired by an OPC-controlled entity in January 2021 and is not included in 2020 operating results.
Financial results and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Kenon revenue | $386.5 million | $373.5 million |
| Profit from continuing operations | $495.7 million | Loss of $22.2 million |
| Profit for the year, including discontinued operations | $504.2 million | $2.4 million |
| Net cash from operating activities | $92.2 million | $85.4 million |
| Net cash used in investing activities | $221.6 million | $5.0 million |
| Net cash from/(used in) financing activities | $255.8 million | $(73.6) million |
| Cash and cash equivalents at year-end | $286.2 million | $147.2 million |
Reported earnings were materially affected by non-recurring and equity-accounted items: a $309.9 million net gain related to changes in Kenon’s Qoros interest, $160.9 million share of profit from associated companies (principally ZIM), and a $43.5 million reversal of a prior ZIM impairment. The filing reports no standalone Q4 results in the supplied text.
OPC
- Revenue was $386 million, up from $373 million. Net loss was $13 million versus net profit of $34 million; EBITDA, a non-IFRS measure, fell to $75 million from $105 million.
- Gross profit declined to $71 million from $86 million, and gross margin to 18% from 23%. Cost of sales excluding depreciation increased to $282 million from $256 million.
- OPC’s 2020 results included Hadera’s commercial start in July. Rotem maintenance and lower generation tariff/customer consumption weighed on revenue and margins. OPC reported $921 million of outstanding consolidated indebtedness and $562 million of cash, cash equivalents and short-term deposits at year-end; $64 million was restricted.
Associated businesses
- ZIM: Revenue increased to $3.992 billion from $3.300 billion; net income was $524 million versus a $13 million loss, and adjusted EBITDA was $1.036 billion versus $386 million. Kenon’s 32% share of ZIM’s results was $167 million. ZIM’s freight volume rose about 1%, while average freight rate per TEU increased 22% to $1,229.
- Qoros: Kenon recognized a $6 million share of Qoros losses through the April 2020 sale, then carried its remaining stake at fair value. Qoros sold approximately 12,587 vehicles, down from about 26,000; its reported 2020 comprehensive loss was RMB1.3 billion.
Material changes and notable items
- Kenon distributed approximately $120 million to shareholders in 2020. It received approximately $218 million of deferred Inkia sale consideration early in October; the proceeds were approximately $188 million net of taxes.
- OPC issued shares and Series B bonds to help fund the CPV acquisition; its ownership dilution reduced Kenon’s stake. CPV’s $648 million cash acquisition closed in January 2021, with additional seller financing ultimately reduced after CPV’s Three Rivers interest was lowered.
- In February 2021, ZIM completed a $225 million gross IPO, reducing Kenon’s interest to approximately 28%. Kenon approved a further approximately $100 million dividend in 2021, after year-end.
Outlook, risks and contingencies
The filing provides no consolidated numerical earnings guidance. Management describes a strategy of developing and monetizing portfolio businesses, with any distributions dependent on capital needs, legal restrictions and board decisions. Key near-term factors include a 5.7% reduction in Israel’s 2021 electricity generation tariff, which management expects to pressure OPC’s 2021 profit, and the integration, financing and execution risks of CPV’s U.S. operations. OPC’s gas supply from the Karish field may be delayed; Energean asserted force majeure, which OPC disputed, and timing estimates varied in the filing.
- Kenon is a holding company dependent on subsidiary distributions and external financing. The company’s cash is subject to restrictions: it agreed to maintain at least $50 million through December 31, 2021 and accepted limits on parent-level indebtedness in connection with the Inkia deferred-payment repayment. It also guarantees certain Inkia indemnities, secured in part by a pledge over 55 million OPC shares, and has approximately $17 million of back-to-back guarantees relating to Qoros debt.
- Qoros had only about $2 million of cash at year-end, substantial debt and related-party advances, covenant non-compliance and cross-default exposure. Its 2021 plant shutdown from engine and semiconductor shortages adds operational uncertainty. Kenon’s April 2021 agreement to sell its remaining 12% stake for RMB1.56 billion is conditional; half the price is scheduled after share transfer, and early payments are subject to account, registration and collateral conditions.
- ZIM’s strong 2020 performance occurred amid pandemic-driven freight-rate volatility. It remains highly leveraged and relies on chartered vessels; charter costs, freight rates, fuel, capacity, port congestion, regulation and COVID-related disruption could materially affect results. Its 2M cooperation terms could be amended or terminated, and its 2021 IPO lock-up limited Kenon’s ability to sell shares for 180 days, subject to exceptions.
- Other risks include power-market regulation and customer concentration at OPC, construction and permit risks, foreign exchange and CPI exposure, litigation, cyber incidents, environmental requirements and geopolitical conditions. Kenon’s ZIM investment valuation was a critical audit matter; Qoros fair value relied on comparable-company multiples and other significant valuation judgments.
Most important facts for investors to verify
- Separate recurring operating performance from the Qoros transaction gains, ZIM equity-method earnings and impairment reversal that drove reported 2020 profit.
- Reconcile Kenon parent-level cash and obligations with consolidated balances, subsidiary cash restrictions, guarantees, pledged OPC shares and the $50 million minimum-cash undertaking.
- Track the completion, payment schedule, regulatory approvals and pledge release for the Qoros sale, including the risk attached to deferred installments.
- Assess the sustainability of ZIM’s exceptional 2020 earnings and its debt, charter commitments and dividend capacity; verify subsequent results rather than extrapolating the pandemic-era freight environment.
- Monitor OPC’s 2021 tariff effects, Karish gas timing, Hadera availability, Tzomet construction schedule and financing, and CPV integration and project commitments.
The consolidated financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting as of December 31, 2020.