Kenon Holdings Ltd. — FY2021 Form 20-F
Reporting period: Year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter filing; the filing does not provide a clear standalone Q4 financial result. Statements are prepared under IFRS in U.S. dollars.
Business context
Kenon is a holding company. Its principal operating business is OPC Energy, in which it held approximately 58.8% at year-end; OPC’s 2021 operations included Israeli power generation and the U.S. CPV business acquired in January. Kenon also held approximately 26% of publicly traded ZIM at year-end and a 12% interest in Qoros. OPC is consolidated; ZIM is equity-accounted; Qoros is carried as a long-term investment and was written down to zero in 2021. Consequently, ZIM’s shipping revenue is not included in Kenon’s consolidated revenue.
Key financial results and position
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $487.8 million | $386.5 million |
| Gross profit | $98.3 million | $71.2 million |
| Operating profit | $22.5 million | $23.0 million |
| Profit from continuing operations | $875.3 million | $495.7 million |
| Profit attributable to Kenon shareholders | $930.3 million | $507.1 million |
| Net cash from operating activities | $240.5 million | $92.2 million |
| Cash and cash equivalents, year-end | $474.5 million | $286.2 million |
| Total assets, year-end | $4.07 billion | $2.48 billion |
| Total liabilities, year-end | $1.79 billion | $1.21 billion |
| Total equity, year-end | $2.28 billion | $1.28 billion |
Consolidated gross margin was approximately 20.2% of revenue, versus approximately 18.4% in 2020; operating margin was approximately 4.6%, versus 6.0%. Net profit was dominated by Kenon’s $1.261 billion share of ZIM’s earnings. Offsetting items included a $251.5 million Qoros-related loss and $141.4 million of net financing expense. Kenon’s reported shareholder-attributable profit exceeded consolidated profit because of losses attributable to non-controlling interests.
Operating cash flow rose to $240.5 million, including $144.0 million of dividends received from associates. Investing activities used $205.5 million and financing activities provided $146.6 million. Kenon reported $231 million of standalone cash and no material gross debt at year-end; after its January 2022 distribution, standalone cash was approximately $42 million. These parent-level figures differ from consolidated cash, which includes subsidiaries.
Consolidated debt was principally at OPC: OPC reported $1.215 billion of total debt and $243 million of cash at year-end. ZIM and Qoros have substantial debt but are not consolidated as subsidiaries; ZIM’s approximately $3.3 billion of indebtedness was mostly lease liabilities. OPC reported FY2021 revenue of $488 million, net loss of $94 million, Adjusted EBITDA of $91 million and proportionate EBITDA of associated companies of $106 million; EBITDA measures are non-IFRS.
Material changes versus FY2020
- Revenue increased 26%, reflecting a full year of OPC-Hadera operations, the CPV acquisition, and increased Israeli electricity sales and virtual supply. CPV contributed $51 million of revenue after acquisition.
- Operating profit was broadly flat despite higher revenue. Consolidated SG&A rose to $75.7 million from $50.0 million, and net financing expense increased to $141.4 million from $36.9 million, notably including OPC’s approximately $75 million early-repayment charge on OPC-Rotem project debt.
- ZIM’s results improved sharply: its revenue was $10.73 billion versus $3.99 billion, and net income was $4.65 billion versus $524 million. Kenon recognized $1.261 billion of ZIM equity-method earnings versus $167 million.
- Kenon recorded a $235 million fair-value loss on Qoros and reduced its carrying value to zero. Qoros’s manufacturing operation had been shut since July 2021, and its lenders accelerated defaulted loans.
- Cash increased, while total assets and liabilities expanded following CPV’s acquisition and growth in OPC. OPC repaid OPC-Rotem’s project financing and issued $266 million of Series C bonds.
Outlook, commentary, risks and unusual items
- OPC outlook: Management expected the 2022 Israeli electricity generation tariff increase—initially announced at about 13.6%, with a subsequent proposal for about 9.4%—to support profits versus 2021. The final tariff remained subject to regulatory process. Tzomet was under construction, with commercial operation expected in 2023; Sorek was also under construction, with completion expected in late 2023. These are estimates, not guarantees.
- ZIM and distributions: ZIM’s exceptional 2021 results reflected unusually strong freight rates, cargo volumes and pandemic-related supply-chain disruption. Freight rates, charter costs, fuel prices, congestion and future shipping capacity are volatile. ZIM declared a $17-per-share dividend after year-end, totaling approximately $2.04 billion. Kenon proposed a $552 million capital reduction, subject to shareholder and Singapore High Court approval.
- Qoros contingency: The buyer did not make scheduled payments under the agreement to purchase Kenon’s remaining 12% stake. Arbitration and court proceedings against the buyer and Baoneng Group were ongoing; Kenon had obtained an order freezing certain Baoneng assets, but recovery and the value of the pledged shares were uncertain. Kenon paid approximately $16 million on back-to-back guarantees to Chery and reported no remaining such guarantee obligations.
- Principal risks: Kenon depends on distributions from its businesses and has limited control over ZIM and Qoros. Key exposures include OPC leverage and covenant restrictions; construction, permitting, fuel-supply and tariff risks; Qoros defaults and litigation; and ZIM’s freight-rate, charter, bunker-fuel, port-congestion, regulatory, geopolitical and cyber risks. COVID-19 and the Russia-Ukraine conflict contributed to uncertainty, supply disruption and increased costs.
- Reporting and audit: KPMG issued unqualified opinions on the IFRS financial statements and internal control over financial reporting. Management and the auditor excluded CPV from the year-end internal-control assessment under the applicable acquisition transition relief; CPV’s fair-value acquisition accounting was identified as a critical audit matter.
Important facts for investors to verify
- Reconcile consolidated profit with shareholder-attributable profit, especially the $1.261 billion ZIM equity-method contribution and Qoros’s $251.5 million loss; assess how sustainable ZIM-related earnings are.
- Confirm Kenon’s current ZIM ownership, the proceeds and tax effects of the March 2022 share sale, the dividend received after year-end, and the consequences of falling below a 25% stake.
- Track the Qoros sale agreement, arbitration and guarantee litigation, pledged shares, creditor enforcement risk, and whether any recovery is probable despite the zero carrying value.
- Review OPC’s debt, covenants, project funding and completion schedules, including Tzomet and Sorek, and the final Israeli tariff and gas-supply outcomes.
- Distinguish parent-only liquidity from consolidated cash and debt; verify the timing, approvals and funding impact of the proposed $552 million capital reduction.