Kenon Holdings Ltd
NYSE:KEN
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Kenon Holdings Ltd
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Ladies and gentlemen, thank you for standing-by. Welcome to the Kenon Holding Ltd. Conference Call to discuss the First Quarter 2018 Results of Kenon. All participants are at present in a listen-only mode. Following management’s formal presentation, instructions will be given for the question-and-answer session. As a reminder, this conference is being recorded. The press release as well as summary financial information of Kenon, OPC and Qoros, have been publicly submitted to the Securities and Exchange Commission on Form 6-K.
I would now like to hand over the call to Mr. Ehud Helft of GK Investor and Public Relations. Mr. Helft, would you like to begin?
Thank you, Operator. Welcome to Kenon Holding discussion of its first quarter 2018 results. I’d like to welcome all of you to the conference call, and thank Kenon’s management for hosting this call.
With us on the call today are the management of Kenon and OPC Energy: include Barak Cohen, the Co-CEO of Kenon; Robert Rosen, the Co-CEO of Kenon; Mark Hasson, CFO of Kenon; and Mr. Giora Almogy, the CEO of OPC. Barak will first provide an update on Qoros transaction; Giora will then provide an update on OPC; followed by Mark, who will discuss the financial results of Kenon. We’ll then open the call for the question-and-answer session.
Before we start, I’d like to point out that this conference call may contain forward-looking statements, including statements regarding expected events, development or expected performance of the Company and its subsidiaries, and associated companies, including those statements identified as forward-looking in our first quarter 2018 results release, containing 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 trend, as well as other risks and uncertainties identified in the Risk Factors section of the Company’s Annual Report on Form 20-F filed with Securities and Exchange Commission in the section entitled Caution Concerning Forward-Looking Statements in the earning release.
In addition, this conference call includes certain non-IFRS measures, including OPC EBITDA numbers. While the condition of such terms and reconciliation to the most directly comparable IFRS measurement, Exhibit 99.2 to the Form 6-K furnished to the SEC on May 30, 2018. Exhibit 99.2 is available on the SEC Web site, as well as Kenon’s Web site.
And with this, I will now hand over the call to Barak. Barak, go ahead please.
Thank you very much, Ehud. I’d like to welcome all of you and thank you for joining us today for our investor conference call to discuss Kenon’s first quarter 2018 results. As our last call was not too long ago, we will try to keep this update short and concise. As you know and as evidenced by our track record, including our recent cash distribution, Kenon remains highly committed to its strategy of following and realizing the value in areas within its businesses for its shareholders. OPC had another strong quarter this quarter. Giora, CEO of OPC, will provide the details later.
The recent Qoros third-party investment transaction was a significant step under our strategy to increase shareholder value. Kenon recognize this quarter a gain of over $0.5 billion relating to this investment. Mark will provide some additional details on this.
I’ll start with a few words on Qoros. As part of the third-party investment, Kenon received to-date a total cash consideration of RMB1.69 billion, which is approximately $270 million. Of which, $20 million was used to repay a portion of shareholder loans from Ansonia, Kenon's major shareholder. Kenon's subsidiary Quantum, which holds Kenon's interest in Qoros, currently holds the balance of this proceed, totaling approximately $250 million in cash.
Qoros is currently in the process of approving the capital increase of RMB6.5 billion, which is approximately $1 billion with relevant authorities, which is the next step according to the investment agreement after the share sell closing was completed. Once the capital increase is approved and the shareholder loans repaid or alternatively offset against the conversion of the existing loans, which is according to an agreement recently reached between the parties.
Approximately, net amount of slightly less than 100 million is expected to be reinvested into Qoros. And approximately 55 million is expected to be applied to the repayment of shareholder loans to Ansonia. It will leave Kenon with approximately $95 million from these proceeds of the $250 million I mentioned before. For more details, including the recent agreement relating to the conversion of the Qoros shareholder loans into equity, please see our 6-K, which was published today.
Also, as you may recall, Kenon has the right to call the new Qoros investors to purchase up to 100% of Kenon’s remaining equity into Qoros, following the capital increase to be completed in connection with the transaction related to the initial investment for up to a total of RMB3.12 billion, which is around $0.5 billion in two tranches.
In terms of car sales, Qoros sold approximately 11,400 cars in the first quarter of this year, an increase of over 200% as compared to the first quarter of 2017. In April, Qoros sold approximately 5,400 cars, which is 400% increase as compared to the same month, April 2017. The sales in ’18 include orders from a leasing company introduced by the new Qoros investor.
That ends my summary. And now, I would like to hand the call over to Giora to discuss the business development and financial results of OPC. Giora, please go ahead.
Thank you, Barak. So an update on business development, we are constructing project in OPC-Hadera, it’s 148 megawatt co-generation project with an estimated investment of about NIS1 billion, which approximately $285 million. The construction began in June ’16, and we expect to commence operation in the first half of ’19 as scheduled. To-date through the end of March 21st, we’ve invested in the project NIS629 million, approximately $180 million and the project is approximately 90% complete.
In terms of the financial results, we had a strong quarter, an increase both in revenue, EBITDA, net income. In terms of the net income and revenue we had an increase quarter-to-quarter of $8 million compared to 2017, primarily due to the positive impact of current translation of OPC’s revenues from Israeli shekel to US dollars. On EBITDA, we finished the quarter with $35 million EBITDA compared to $28 million in the first quarter of 2017.
Please note that OPC results are published in Israeli shekel but are slightly different as the global impact of exchange rate fluctuations on translation as a result of shekel to US dollars. That ends my summary. And I hand it over to Mark, Kenon’s CFO, for financial summary.
Thanks, Giora. Kenon's consolidated results of operations are largely made up of the consolidated results of OPC. The results of Qoros and ZIM are reflected under results from associates. And you can find additional details in our 6-K, which was filed earlier today. As Barak mentioned, Kenon recognized $567 million gain in Q1 2018 due to the third-party investment in Qoros; an amount of $504 million was recognized, which includes the gain on dilution following this investment; a gain in connection with the Qoros put option; and a gain in connection with the Qoros shareholder loan.
In addition, Kenon recognized $63 million write-back of financial guarantee. This includes receipts of an $18 million payment from Chery on account of cost guarantees and $45 million reversal of an accounting provision, which is also related to the Qoros investment. As a result of these factors, Kenon’s net income for the first quarter of 2018 was $552 million compared to a net loss of $10 million in the first quarter of 2017.
In terms of liquidity and capital resources, as of March 31, 2018, Kenon’s unconsolidated cash balance was $55 million and Kenon does not have any debt. As Barak mentioned, Kenon through its subsidiary Quantum, has an additional cash balance of approximately $248 million, which is being held and in completion of the transaction related to the Qoros investment. And this brings the total cash balance to approximately $303 million.
Finally, as a reminder, Kenon is a beneficiary of a four year deferred payment agreement in the amount of $175 million, reflecting deferred consideration from the sale of its Inkia power businesses. This amount accrues interest at a rate of 8% per annum, and the interest started accumulating at the beginning of this year.
That ends our summary. And we will now be happy to take your question, operator?
Thank you, Operator. On behalf of the management of Kenon Holdings, I would like to thank you all for your interest in our Company. If you have any questions, please feel free to contact Kenon Investor Relations team, the contact details are on the press release. I thank you again and fare well from all of us. Have a good day.
Thank you. This concludes the Kenon Holdings conference call. Thank you for your participation. You may go ahead and disconnect.