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Kenon Holdings Ltd (KEN) Q3 2019 Earnings Call Transcript

By Motley Fool Transcribers – Dec 17, 2019 at 7:30AM

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KEN earnings call for the period ending September 30, 2019.

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Kenon Holdings Ltd (KEN -1.44%)
Q3 2019 Earnings Call
Dec 17, 2019, 9:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Ladies and gentlemen, thank you for standing by. Welcome to the Kenon Holdings Ltd. Conference Call to discuss the Third Quarter 2019 Results of Kenon. [Operator Instructions]. Following management's formal presentation, instructions will be given for the question-and-answer session. [Operator Instructions].

Kenon published its press release with Q3 results earlier today. The press release as well as summary financial information of Kenon and OPC have been publicly submitted to the Securities and Exchange Commission on Form 6-K. These documents could be accessed from the SEC's website and have been filed with the Tel Aviv Stock Exchange, and are available on the Company's website.

With us on the call today are the management of Kenon and OPC Energy. This includes Mr. Robert Rosen, CEO of Kenon; Mr. Mark Hasson, CFO of Kenon and Mr. Giora Almogy, CEO of OPC.

Rob will first provide an update on Kenon, Giora will then provide an update on OPC, followed by Mark, who will discuss the financial results of Kenon. We will then open the call for question-and-answer session, followed by a concluding statement by Rob. Before we start, I would like to point out that this conference call may contain forward-looking statements, including statements regarding expected events, developments or the expected performance of the Company and its subsidiaries and associated companies, including those statements identified as forward-looking in Kenon's Q3 2019 results release.

These statements are only estimates or plans and there is no guarantee that they will in fact occur. Actual events or results may differ materially from those projected, including as a result of changing market trends as well as risk factors and uncertainties identified in the Q3 release and the Risk Factors section of the Company's annual report on Form 20-F filed with the Securities and Exchange Commission and in the section entitled Caution Concerning Forward-Looking Statements in the earnings release.

In addition, this conference call includes certain non-IFRS measures, including OPC's EBITDA. For the definition of such terms and the reconciliation to their most directly comparable IFRS measures, see Exhibit 99.2 to the Form 6-K furnished to the SEC today. The Form 6-K is available on the SEC's website as well as Kenon's website.

And with that, I will now hand the call over to Rob. Rob, please go ahead.

Robert L. Rosen -- Chief Executive Officer

Thank you, operator. I'd like to welcome all of you and thank you for joining us today for our investor conference call to discuss Kenon's third quarter 2019 results. Starting with Qoros, earlier this year, we announced an agreement to sell 12% of our remaining stake in Qoros to a majority shareholder of Qoros for approximately $227 million.

We are pleased to update that Kenon and the Baoneng Group have recently obtained material government approvals and third party consents for the sale. We have also agreed a deadline for payment of the purchase price and closing until no later than the end of Q1 2020 and this agreement includes additional provisions to help secure their performance, including a guarantee by another Company within the Baoneng Group and a deposit of RMB500 million or approximately $71 million by an associate of the purchaser into a segregated bank account.

In terms of operational results, Qoros sold approximately 11,300 cars in the third quarter, primarily reflecting orders from a leasing Company introduced by Qoros' majority shareholder. Moving forward to Kenon, last month we distributed a $65 million dividend or $1.21 per share to our shareholders, reflecting our continuous commitment to unlock value for our shareholders.

This distribution follows $38 million of proceeds received from OPC's dividend distribution and $30 million in proceeds received from a successful commercial arbitration.

I would now like to hand the call over to Giora to discuss the business developments and results of OPC. Giora, go ahead, please.

Giora Almogy -- Chief Executive Officer

Thank you, Rob. In terms of business development at OPC, the OPC-Hadera is in process of commissioning a 148 megawatts co-generation power plant in Israel. The total cost of completion of Hadera Plant is expected to be approximately NIS1 billion which is approximately $286 million.

As of September 30th, 2019, OPC-Hadera had invested an aggregate of NIS853 million which are approximately $244 million. We expect to reach commercial operation in the first quarter of 2020. On Tzomet Project, OPC is developing an open cycle natural gas-fired power station with capacity of approximately 396 megawatts in Israel. We are progressing the development of Tzomet project.

In September, we received the results of a connection survey performed by Israel Electric. Earlier this week, we announced the signature of project finance agreement for Tzomet, with the consortium of financing institutions, led by Bank Hapoalim, for the overall amount of NIS1.37 billion. We expect to reach financial closing by the end of this year.

In terms of financial results, OPC's revenues in third quarter 2019 was $102 million as compared to $94 million in the third quarter 2018, mainly due to increased electricity tariffs at the beginning of the year and an increase in the electricity consumption by OPC's customers. OPC's, EBITDA in the third quarter was $33 million as compared to $29 million in the third quarter of 2018.

OPC's net profit in the third quarter was $14 million as compared to $11 million in the third quarter of 2018. OPC's net profit attributable to its equity holders in the third quarter was $10 million as compared to $9 million in the third quarter of last year. Please note that OPC's results as published in Israeli Shekels by OPC are slightly different from those published by Kenon in US dollars as they not include the impact of exchange rate fluctuations or the translations of the results from shekels to US dollars.

That ends my summary and I will now hand over to Mark, Kenon's CFO for the financial summary. Mark, please go ahead.

Mark Hasson -- Chief Financial Officer

Thanks Giora. Kenon's consolidated results are largely made up of the consolidated results of OPC, which were just described by Giora. The results of Qoros and ZIM are reflected under the results from associates. In Q3 2019, Kenon made a profit of $35 million and you can find additional details in our 6-K which was filed earlier today.

In terms of liquidity and capital resources, following Kenon's payments of the $65 million dividend cash of approximately $26 million and Kenon does not have any material debt.

Finally, as a reminder, Kenon is the beneficiary of a four-year deferred payments agreement, reflecting deferred consideration from the sale of its Inkia power businesses in 2017. Amounts under this agreement accrue interest at a rate of 8% per annum, and as of September 30th, 2019, the accrued amount was $201 million.

That ends our summary, and we will now be happy to take your questions. Operator?

Questions and Answers:


Thank you. Ladies and gentlemen, at this time we'll begin the question-and-answer session. [Operator Instructions]. The first question is from [Indecipherable]. Please go ahead.

Unidentified Participant

Hi, thanks for taking the question. You wrote in the reports that you expect the closing of Qoros Sales in the first quarter of 2020. My question is, do you see any obstacles that can delay this closing?

Robert L. Rosen -- Chief Executive Officer

Thank you for your question. Look, at this stage, there is nothing specific that we foresee. But again, we don't have complete visibility all the time when it comes to a third party's obligations to us. What we've done of course is put in measures to help secure their obligations and as we wrote in the 6-K in the event that we do not pay the segregated account is required to be topped up to the full amount of the purchase price. So we've done what we could at this stage to -- we hope that this is sufficient.

Unidentified Participant

Okay, thank you.

Robert L. Rosen -- Chief Executive Officer

Yeah. Thank you.


[Operator Instructions]. The next question is from [Indecipherable]. Please go ahead.

Unidentified Participant

Hello, I would like to congratulate you for the great results. Regarding your holdings in OPC and your -- following past comments on your holdings, do you plan to diversify your holdings in the OPC in the future, near future?

Robert L. Rosen -- Chief Executive Officer

Thank you for your comments and your congratulations. Look, as Kenon's shareholders are well aware at this stage, our strategy is to realize the value of our businesses for our shareholders and in each case when we believe it is in the best interest of our shareholders for us to do so. And there are several ways for this to be achieved.

In June and August 2019, for example, OPC raised NIS275 million by issuing new shares. Kenon did not directly participate in this issuance, but our stake was reduced to 70%. And we have distributed a dividend this quarter which partially included proceedings from the OPC dividend.

Unidentified Participant

Yeah. But your current position in OPC as of [Phonetic] today is not going to be changed as you stated like two or three years ago when you split off the Israel Company?

Robert L. Rosen -- Chief Executive Officer

Look, again, I think our strategy -- and this has been consistent, we are trying to assess the best time to achieve value in the best way to achieve value for our shareholders. So today, is there a sale immediately? No.

Unidentified Participant

No, I'm not talking about the [Speech Overlap]

Robert L. Rosen -- Chief Executive Officer

You're talking about to diversify?

Unidentified Participant

Yeah, but it's not -- it's not supposed to be sale, it could be, for example, like a dividend your OPC Holding for example.

Robert L. Rosen -- Chief Executive Officer

No. I understand. So in terms of distribution or what not, again today, we continue to assess our options and when we have a plan we will disclose it to the market, but today I would not say we have anything to tell the market.

Unidentified Participant

Okay, perfect. Thank you.

Robert L. Rosen -- Chief Executive Officer



There are no further questions at this time, Mr. Rosen, would you like to make your concluding statement?

Robert L. Rosen -- Chief Executive Officer

Thank you, operator. On behalf of the management of Kenon Holdings, I'd like to personally thank you for your interest in our Company. And if you have any further questions, please feel free to contact Kenon's Investor Relations team whose contact details are on the press release. Thank you again and farewell from me. Have a nice day.


[Operator Closing Remarks].

Duration: 13 minutes

Call participants:

Robert L. Rosen -- Chief Executive Officer

Giora Almogy -- Chief Executive Officer

Mark Hasson -- Chief Financial Officer

Unidentified Participant

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