Business context and reporting period
Kenon Holdings Ltd.’s Form 20-F is an audited annual report for the fiscal year ended December 31, 2019, prepared under IFRS in U.S. dollars; it is not a quarterly filing. Kenon is a holding company whose principal consolidated operating business is OPC Energy, an Israeli power producer in which Kenon held approximately 70%. Kenon also held equity-method interests in Qoros (24% at year-end; reduced to 12% in April 2020) and ZIM (32%), and a 91% interest in Primus, which was reducing operations. The Latin American and Caribbean Inkia businesses were sold in 2017 and are reported as discontinued operations.
Key financial metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $373.5 million | $364.0 million |
| Gross profit | $86.3 million | $74.7 million |
| Profit/(loss) from continuing operations | $(22.2) million | $450.5 million |
| Total profit for the year, including discontinued operations | $2.4 million | $444.8 million |
| Net cash from operating activities | $85.4 million | $52.4 million |
| Net cash from investing activities | $(5.0) million | $(113.4) million |
| Net cash used in financing activities | $(73.6) million | $(1,217.6) million |
| Cash and cash equivalents at year-end | $147.2 million | $131.1 million |
| Total assets | $1,508.4 million | $1,455.1 million |
| Total liabilities | $796.6 million | $739.4 million |
| Equity attributable to Kenon shareholders | $623.4 million | $649.0 million |
Consolidated gross margin was approximately 23.1% in 2019, versus 20.5% in 2018. Kenon’s 2019 loss attributable to its shareholders was $13.4 million, or $0.25 per share; total profit included $24.7 million of net income from discontinued operations. The 2018 result included a $504.0 million gain related to the Qoros investment and a $62.6 million recovery of financial-guarantee provisions, making the year-on-year net-income comparison unusually affected by nonrecurring items.
Operating businesses, debt and liquidity
- OPC: Revenue was $373.1 million, net income $34.4 million and EBITDA $105.8 million (non-IFRS) in 2019. Revenue increased from $363.3 million; higher plant availability and electricity prices contributed to growth. Net energy generated rose to 3,811 GWh from 3,383 GWh. OPC reported $622 million of debt and $111 million of cash and cash equivalents; restricted cash and deposits were additional. Kenon reported OPC net debt of $400 million in one selected-data table, but the detailed reconciliation shows $470 million; see investor checks below.
- Kenon parent liquidity: Kenon reported approximately $33 million of cash on an unconsolidated basis and no material gross debt at year-end. It received $92 million of cash during 2019, including OPC dividends and proceeds from a favorable arbitration award, and distributed $65 million to shareholders.
- Qoros: Kenon’s share of Qoros losses was $37.1 million. Qoros reported a 2019 net loss of approximately $312 million, cash of about $15 million, net operating cash outflow of approximately $185 million, and current liabilities exceeding current assets by about $510 million. Qoros had approximately $577 million of loans and borrowings. Its financial statements used a going-concern basis relying in part on the majority shareholder’s support.
- ZIM: Kenon’s share of ZIM’s loss was approximately $4 million. ZIM reported approximately $1.6 billion of debt, with $356 million of principal scheduled for repayment in 2020. ZIM’s operating cash flow was $371 million and year-end cash was approximately $183 million.
Material changes versus the prior comparable period
- Consolidated revenue increased 2.6%, and gross profit increased approximately 15.5%. Continuing operations moved from a $450.5 million profit in 2018 to a $22.2 million loss in 2019, primarily reflecting the absence of the large Qoros-related gain recorded in 2018 and changes in associate losses and financing items.
- Operating cash flow increased by $33.0 million, principally due to improved OPC cash generation and working-capital timing. Financing cash outflow fell sharply from 2018, which included major debt repayments and distributions.
- OPC’s net income rose from $26.3 million to $34.4 million and EBITDA from $91 million to $105.8 million. Its generation increased, while electricity purchases from IEC declined as OPC-Rotem availability improved.
- Qoros sales fell to approximately 26,000 vehicles from 62,000, and revenue fell about 55%; its net loss remained substantial. ZIM’s revenue rose modestly, while its net loss narrowed from approximately $120 million to $13 million.
- Kenon paid a $65 million shareholder dividend in 2019. OPC issued shares in two offerings for net proceeds of approximately $76 million, reducing Kenon’s ownership from 75.8% to 69.8%.
Outlook, management commentary, risks and unusual items
- No company-wide earnings guidance: The filing does not provide a clear numerical earnings or cash-flow forecast for Kenon. Management describes its strategy as developing and monetizing existing businesses, with disciplined capital allocation and no intended acquisitions outside current holdings.
- OPC projects and market exposure: OPC-Hadera was expected to begin commercial operations in Q2 2020 after construction delays; its acceptance testing and maintenance schedule faced potential COVID-19 disruption. Tzomet, a planned 396 MW peaker plant, was expected to reach commercial operation by the end of 2022, subject to construction, financing, licensing and regulatory milestones. A roughly 8% reduction in Israel’s 2020 generation tariff could pressure OPC margins because gas-price floors may prevent corresponding fuel-cost reductions.
- COVID-19 and supply risk: The filing describes COVID-related disruption to Qoros manufacturing and suppliers, and force-majeure notices affecting Energean gas supply and OPC-Hadera testing. It also warns of possible effects on ZIM’s shipping demand, operations, liquidity and debt covenants. The full impacts were uncertain as of the filing date.
- Qoros investment and contingent exposure: In April 2020, Kenon sold 12% of Qoros for approximately $220 million, leaving a 12% stake and a put option over the remaining interest. Kenon’s back-to-back guarantee exposure to Chery was stated to fall from about $41 million at year-end to about $23 million, while releases of related pledges and guarantees remained in process. Qoros’s lender waivers, refinancing needs and ability to increase sales are material uncertainties.
- Inkia deferred consideration and indemnities: Kenon held a deferred payment receivable of $204.3 million, including accrued interest, due in 2021. The payment is structurally subordinated to certain buyer-group debt and may be subject to set-off for qualifying indemnity claims. Kenon also described a guarantee and pledged OPC shares securing certain sale-related indemnification obligations.
- Other risks and contingencies: OPC faced customer concentration (top five customers represented approximately 81% of 2019 revenue), dependence on the Tamar Group for gas, regulatory and tariff risks, leverage and covenant requirements, and litigation. Primus had decided to significantly reduce operations; Kenon had provided it approximately $48 million in funding through year-end and could lose some or all of that investment.
- Audit and controls: KPMG issued an unqualified opinion on the IFRS financial statements and an unqualified opinion on the effectiveness of internal control over financial reporting as of December 31, 2019.
Important facts for investors to verify
- Reconcile OPC net debt: the selected-data disclosure states $400 million, while the detailed debt-and-cash reconciliation reports $470 million for 2019.
- Track Qoros’s liquidity and going-concern assumptions, lender covenant-waiver extensions, shareholder support, sales volumes, and completion of Kenon’s guarantee and share-pledge releases after the April 2020 sale.
- Confirm collection and credit protection for the $204.3 million Inkia deferred-payment receivable, and monitor indemnity claims, set-off rights, pledged OPC shares and Kenon’s guarantee exposure.
- Monitor OPC-Hadera’s commercial-operation timing and compensation recoveries, Tzomet’s construction and financing milestones, gas availability, tariff effects, and covenant compliance.
- Assess ZIM’s 2020 debt maturities, liquidity and covenant headroom, alongside freight-rate, fuel-cost and COVID-related developments.