Exhibit 99.1
OPC ENERGY LTD.
Report of the Board of Directors regarding the Company’s Matters
for the Six‑Month and Three‑Month Periods Ended June 30, 2018
August 13, 2018
The Board of Directors of OPC Energy Ltd. (hereinafter – “the Company”) is pleased to present herein the Report of the Board of Directors on the activities of the Company and its investee companies, the financial statements of which are consolidated with the Company’s financial statements (hereinafter – “the Group”), as at June 30, 2018 and for the six-month and three-month periods then ended, in accordance with the Securities Regulations (Periodic and Immediate Reports), 1970 (hereinafter – “the Reporting Regulations”).
The review provided below is limited in scope and relates to events and changes in the state of the Company’s affairs during the period of the report that have a material effect on the data included in the interim financial statements and on the data in the description of the company’s business, and is presented based on the assumption that the reader has access to, among other things, the Directors’ Report and the financial statements for the year ended December 31, 2017, which were published on March 29, 2018 (Reference No.: 2018-01-026919), (hereinafter – “the Consolidated Reports”). The information included in the Consolidated Reports is included herein by reference.
It is noted that, as of June 30, 2018, there are no warning signs, as defined in Regulation 10(B)(14) of the Reporting Regulations, that require the Company to publish a report of projected cash flows.
Presented together with this report are the consolidated interim financial statements as at June 30, 2018 (hereinafter – “the Interim Statements”). In certain cases, details are provided regarding events that took place after the date of the financial statements and shortly before the publication date of the report. The materiality of the information included in this report was examined from the point of view of the Company. Occasionally, an additional detailed description has been provided in order to give a comprehensive picture of the issue at hand. The interim financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs).
It is emphasized that the description in this report contains forward‑looking information, as defined in the Securities Law, 1968 (hereinafter – “the Securities Law”). Forward-looking information is uncertain information relating to the future, including projections, assessments, estimates or other information relating to a future matter or event, the realization of which is uncertain and/or outside the Company control. The forward‑looking information included in this report is based on information or assessments existing in the Company as at the publication date of this report.
This Directors’ Report has not been audited or reviewed by the Company’s auditing CPAs.
OPC Energy Ltd.
Report of the Board of Directors
Explanations of the Board of Directors regarding the State of the Group’s Affairs
1. | General |
The Company is a public company the securities of which are listed for trade on the Tel Aviv Stock Exchange Ltd. (hereinafter – “the Stock Exchange”).
Kenon Holdings Inc. (hereinafter – “Kenon”) is the Company’s controlling shareholder for the purposes of the Securities Law and the Companies Law, 1999. Kenon is a company incorporated in Singapore, the shares of which are “dual listed” on both the New York Stock Exchange (NYSE) and on the Tel‑Aviv Stock Exchange.
The Company is engaged, by itself and through several subsidiaries, in the generation and supply of electricity in Israel, including, initiation, development, construction and operation of power plants, and generation and supply of electricity to private customers and Israel Electric Company (hereinafter – “IEC”).
Brief description of the Group, its business environment and its areas of activity
The Company operates in a single segment – generation and supply of electricity. In this framework, the Company is engaged in initiation, development, construction and operation of power plants and generation and supply of electricity to private customers and IEC. In its electricity generation and supply activities, the Company concentrates on generation of electricity using conventional and cogeneration technologies. The Company owns (through subsidiaries that it controls) two power plants: the Rotem Power Plant, which utilizes conventional generation technology, and the Hadera Power Plant, which is currently under construction and will utilize cogeneration technology.
The Rotem Power Plant is owned by OPC Rotem Ltd. (hereinafter – “Rotem”), in which the Company holds 80% of the shares. The remaining shares of Rotem are held by a single shareholder.
The Hadera Power Plant, which is currently under construction, is owned by OPC Hadera Ltd. (hereinafter – “Hadera”). Hadera also owns the energy center that, as at the date of the report, supplies all of the steam consumption and part of the electricity consumption of Hadera Paper Mills Ltd. (hereinafter – “Hadera Paper”). As at June 30, 2018, the investments in the Hadera power plant and infrastructure amounted to about NIS 700 million.
On February 26, 2018, the Company’s Board of Directors approved completion of the Tzomet transaction and to acquire 95% of the issued and paid‑up share capital of Tzomet Energy Ltd. (hereinafter – “Tzomet”), which is advancing a project for construction of a power plant using open‑cycle conventional technology. The above‑mentioned transaction was completed on March 7, 2018, and commencing from that date the Company holds 95% of Tzomet’s issued and paid‑up share capital (for details regarding the Tzomet Transaction, see the Company's Immediate Report dated February 27, 2018 (Reference No.: 2018-01-015789), which are included herein by means of reference, and Note 6 to the Interim Reports).
In addition, pursuant to a resolution of the Government of Israel dated April 2, 2017, the Company has been advancing, through the National Infrastructures Committee, plans for construction of additional power plants running on natural gas located adjacent to the Company’s Hadera and Rotem sites.
The Company is also engaged in initiation of projects for generation of electricity using photovoltaic technology and distributed energy.
2
OPC Energy Ltd.
Report of the Board of Directors
Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)
2. | Financial Position as at June 30, 2018 (in thousands of NIS) |
Category | 6/30/2018 | 12/31/2017 | Analysis | |||
Current Assets | ||||||
Cash and cash equivalents | 485,213 | 508,181 | Most of the decrease stems from current debt payments, in the amount of about NIS 117 million, a net decrease in cash balances of Hadera, in the amount of about NIS 90 million, due to additional investments in construction of the Hadera Power Plant, distribution of a dividend to the holders of non‑controlling interests, in the amount of about NIS 21 million, investments in property, plant and equipment in Rotem, in the amount of about NIS 11 million, a decrease in the net cash due to the acquisition of Tzomet, in the amount of about NIS 8 million, a net deposit in restricted cash, in the amount of about NIS 4 million, an investment in the Tzomet project, in the amount of about NIS 2 million. This decrease was partly offset by an increase in the cash balances deriving from the Company’s current operating activities, in the amount of about NIS 233 million. For further information – see the Company’s condensed consolidated statements of cash flows as at June 30, 2018, in the Interim Reports. | |||
Short-term deposits and restricted cash | 753 | 752 | ||||
Trade receivables | 113,562 | 152,751 | The balance of the trade receivables as at December 31, 2017 is higher than the balance as at June 30, 2018 due to seasonal factors along with settlements in connection with prior periods. | |||
Receivables and debit balances | 25,772 | 39,210 | Most of the decrease stems from a decrease in the balance of Value Added Tax (VAT), in the amount of about NIS 19 million. The decrease was partly offset by an increase in the prepaid expenses, in the amount of about NIS 4 million. | |||
Derivative instruments | 4,693 | 5,099 | ||||
Total current assets | 629,993 | 705,993 |
3
OPC Energy Ltd.
Report of the Board of Directors
Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)
2. | Financial Position as at June 30, 2018 (in thousands of NIS) (Cont.) |
Category | 6/30/2018 | 12/31/2017 | Analysis | |||
Non-Current Assets | ||||||
Long-term deposits and restricted cash | 272,864 | 264,564 | Most of the increase stems from additional deposits, in the amount of about NIS 25 million, in the debt service fund for the debentures (Series A), additional deposits in respect of guarantees of Rotem, in the amount of about NIS 10 million, and an increase of the restricted cash in Rotem, in the amount of about NIS 9 million, mainly as a result of changes in the exchange rate of the dollar, and a deposit in the debt service reserve in Rotem. This increase was partly offset by a decrease in the pledged deposits relating to bank guarantees of the Company, in the amount of about NIS 36 million. | |||
Long-term loans and prepaid expenses | 115,899 | 100,356 | Most of the increase is due to construction of infrastructures in Hadera in the amount of NIS 20 million, which are classified as long‑term prepaid expenses. The increase was partially offset, as the balance as of December 31, 2017 included an amount in connection with Tzomet that was offset due to the initial consolidation of Tzomet in March 2018. In addition, the balance as at June 30, 2018 is after current amortization of deferred expenses in Rotem, in the amount of NIS 2 million. | |||
Deferred taxes | 1,280 | 751 | ||||
Property, plant and equipment | 2,263,417 | 2,184,405 | Most of the increase stems from an investment in the Hadera Power Plant, in the amount of NIS 86 million, the first‑time consolidation of Tzomet, in the amount of about NIS 31 million, and additions to the Property, plant and equipment, in the amount of about NIS 14 million. The increase was partly offset by depreciation on the property, plant and equipment in Rotem and Hadera (the energy center), in the aggregate amount of about NIS 52 million. | |||
Intangible assets | 5,656 | 5,689 | ||||
Total non-current assets | 2,659,116 | 2,555,765 | ||||
Total assets | 3,289,109 | 3,261,758 |
4
OPC Energy Ltd.
Report of the Board of Directors
Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)
2. | Financial Position as at June 30, 2018 (in thousands of NIS) (Cont.) |
Category | 6/30/2018 | 12/31/2017 | Analysis | |||
Current Liabilities | ||||||
Current maturities of loans from banks and others | 82,648 | 104,978 | Most of the decrease stems from repayment of the senior debt in Rotem, in the amount of about NIS 39 million, and repayment of the Company’s debentures (Series A), in the amount of about NIS 11 million. This decrease was offset by update of the current maturities of Rotem in accordance with the repayment schedule, in the amount of about NIS 21 million, and update of the current maturities of the debentures (Series A), in the amount of about NIS 7 million, also in accordance with the repayment schedule. | |||
Trade payables | 177,198 | 202,705 | Most of the decrease derives from a decline in the balance of a supplier relating to the Hadera construction, in the amount of about NIS 19 million, as well as a decline in balances to IEC that had not been paid as at June 30, 2018 and December 31, 2017, in the amount of about NIS 10 million. On the other hand, there was an increase in the amount payable in respect of gas purchases, in the amount of about NIS 6 million. | |||
Payables and other credit balances, including derivative instruments | 27,779 | 35,343 | Most of the decrease derives from a decline in the interest payable, in the amount of about NIS 10 million, and a decline in the fair value of the derivatives, in the amount of about NIS 2 million. The decrease was partly offset by an increase in the accrued expenses, in the amount of about NIS 4 million, mainly due to an increase in the administrative and general expenses. | |||
Current taxes payable | 3,860 | 1,640 | Most of the increase is attributable to the income of Hadera energy center in the period of the report. | |||
Total current liabilities | 291,485 | 344,666 | ||||
5
OPC Energy Ltd.
Report of the Board of Directors
Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)
2. | Financial Position as at June 30, 2018 (in thousands of NIS) (Cont.) |
Category | 6/30/2018 | 12/31/2017 | Analysis | |||
Non-Current Liabilities | ||||||
Long-term loans from banks and financial institutions | 1,771,002 | 1,744,739 | Most of the increase stems from disbursement of loans as part of the senior debt of Hadera, in the amount of about NIS 22 million, interest and linkage differences in respect of balances of the senior debt of Hadera, in the amount of about NIS 14 million, which were accrued to the principal, and linkage of the senior debt of Rotem, in the amount of about NIS 12 million. The increase was partially offset by an increase of the current maturities of Rotem, in the amount of about NIS 21 million. | |||
Debentures | 286,743 | 293,954 | The decrease stems from update of the current maturities of the debentures (Series A), in the amount of about NIS 7 million. | |||
Capital notes to related parties | 1,111 | 1,803 | ||||
Employee benefits | 280 | 280 | ||||
Deferred taxes, net | 213,491 | 191,777 | Most of the increase stems from update of the deferred taxes as a result of the income for the period. | |||
Total non-current liabilities | 2,272,627 | 2,232,553 | ||||
Total liabilities | 2,564,112 | 2,577,219 |
3. | Results of operations for the six‑month and three‑month periods ended June 30, 2018 (in thousands of NIS) |
The Group’s activities are subject to seasonal fluctuations as a result of changes in the official Time of Use of Electricity Tariff (hereinafter – “the TAOZ”), which is regulated and published by the Electricity Authority. The year is broken down into 3 seasons: “summer” (July and August), “winter” (December, January and February) and “transition” (March through June and September through November). For each season a different tariff is set. The Company’s results are based on the generation component, which is part of the TAOZ, and as a result there is a seasonal effect.
6
OPC Energy Ltd.
Report of the Board of Directors
Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)
3. | Results of operations for the six‑month and three‑month periods ended June 30, 2018 (in thousands of NIS) (Cont.) |
For the | ||||||
Six Months Ended | ||||||
Category | 6/30/2018 | 6/30/2017 | Analysis | |||
Sales | 650,801 | 648,308 | For detail regarding the change in the sales – see Section 6, below. | |||
Cost of sales (less depreciation and amortization) | 446,253 | 479,183 | For detail regarding the change in the cost of sales – see Section 7, below. | |||
Depreciation and amortization | 52,950 | 58,841 | The higher depreciation expenses in the first half of 2017 stems mainly from advancing the planned maintenance in 2017 (for additional details – see Note 27(D)(3) to the Consolidated Reports). | |||
Gross profit | 151,598 | 110,284 | ||||
Administrative and general expenses | 24,079 | 15,750 | Most of the increase derives from the increase in the expenses for professional services and legal fees, in the amount of about NIS 6 million, due to, among other things, the Company becoming a public company in August 2017, along with increase in the salaries and wages, in the amount of about NIS 2 million. | |||
Other income, net | 2,082 | 389 | Most of the increase stems from an update of the Company’s estimates in connection with the derivative with respect to the excess quantities of gas sales in Hadera, as a result of which the Company recorded income from increase in its value. | |||
Operating income | 129,601 | 94,923 | ||||
Financing expenses, net | 48,117 | 80,032 | Most of the decrease in the net financing expenses stems from an early prepayment fee in respect of repayment of the interim loan, in the amount of about NIS 23 million in 2017, the impact of changes in the exchange rate of the dollar, in the amount of about NIS 13 million, interest in connection with capital notes repaid during 2017, in the amount of about NIS 1 million, and a decline in the interest payments, in the amount of about NIS 2 million, as a result of repayments of Rotem’s senior debt. The decrease was partly offset by interest in respect of the debentures (Series A), in the amount of about NIS 5 million, and an increase due to changes in the CPI, in the amount of about NIS 2 million, in respect of Rotem’s senior debt. | |||
Income before taxes on income | 81,484 | 14,891 | ||||
Taxes on income | 22,567 | 10,512 | Most of the increase derives from the higher income in the first half of 2018, which was partly offset by the impact of the reduction in the Companies Tax rate in 2018 compared with 2017. | |||
Income for the period | 58,917 | 4,379 | ||||
7
OPC Energy Ltd.
Report of the Board of Directors
Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)
3. | Results of operations for the six‑month and three‑month periods ended June 30, 2018 (in thousands of NIS) (Cont.) |
For the | |||
Three Months Ended | |||
Category | 6/30/2018 | 6/30/2017 | Analysis |
Sales | 301,077 | 299,967 | For detail regarding the change in the sales – see Section 6, below. |
Cost of sales (less depreciation and amortization) | 226,629 | 241,223 | For detail regarding the change in the cost of sales – see Section 7, below. |
Depreciation and amortization | 26,673 | 28,820 | The higher depreciation expenses in the second quarter of 2017 stems mainly from advancing the planned maintenance in 2017 (for additional details – see Note 27(D)(3) to the Consolidated Reports). |
Gross profit | 47,775 | 29,924 | |
Administrative and general expenses | 12,340 | 8,577 | Most of the increase derives from the increase in the expenses for professional services and legal fees, in the amount of about NIS 3 million, due to, among other things, the Company becoming a public company in August 2017, along with increase in the salaries and wages, in the amount of about NIS 1 million. |
Other income, net | 2,107 | 487 | Most of the increase stems from an update of the Company’s estimates in connection with the derivative with respect to the excess quantities of gas in Hadera, as a result of which the Company record income from increase in its value. |
Operating income | 37,542 | 21,834 | |
Financing expenses, net | 32,866 | 58,755 | Most of the decrease in the net financing expenses stems from an early prepayment fee in respect of repayment of the interim loan, in the amount of about NIS 23 million in 2017, the impact of changes in the exchange rate of the dollar, in the amount of about NIS 7 million, and a decline in the interest payments, in the amount of about NIS 1 million, as a result of repayments of Rotem’s senior debt. The decrease was partly offset by interest in respect of the debentures (Series A), in the amount of about NIS 1 million, and an increase due to the changes in the Consumer Price Index (CPI), in the amount of about NIS 3 million, in respect of Rotem’s senior debt. |
Income (loss) before taxes on income | 4,676 | (36,921) | |
Taxes on income (tax benefit) | 2,525 | (2,237) | Most of the increase derives from the higher income in 2018, which was partly offset by the impact of the reduction in the Companies Tax rate in 2018 compared with the first half of 2017. |
Income (loss) for the period | 2,151 | (34,684) |
8
OPC Energy Ltd.
Report of the Board of Directors
Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)
4. | EBITDA |
The Company defines EBITDA as earnings (losses) before depreciation and amortization, net financing expenses or income and taxes on income. EBITDA is not recognized under IFRS or under any other generally accepted accounting standards as an indicator for the measurement of financial performance and should not be considered a substitute for profit or loss, cash flows from operating activities or other terms of operational performance or liquidity prescribed under IFRS.
EBITDA is not intended to represent monies that are available for distribution of dividends or other uses, since such monies may be used for servicing debt, capital expenditures, working capital and other liabilities. EBITDA is characterized by limitations that impair its use as an indicator of the Company’s profitability, since it does not take into account certain costs and expenses deriving from the Company’s business, which could materially affect its net income, such as financing expenses, taxes on income, depreciation, capital expenditures and other accompanying expenses.
The Company believes that the EBITDA data provides transparent information that is useful to investors in examining the Company’s operating performances and in comparing them against the operating performance of other companies in the same sector or in other sectors with different capital structures, debt levels and/or income tax rates. This data item is also used by Company management when examining the Company’s performance.
Set forth below is a calculation of the EBITDA data item for the periods presented. Other companies may calculate the EBITDA differently. Therefore, the EBITDA presentation herein may differ from those of other companies.
Calculation of the EBITDA (in thousands of NIS):
For the | For the | |||||||||||||||
Six Months Ended | Three Months Ended | |||||||||||||||
June 30 | June 30 | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Sales | 650,801 | 648,308 | 301,077 | 299,967 | ||||||||||||
Cost of sales (less depreciation and amortization) | (446,253 | ) | (479,183 | ) | (226,629 | ) | (241,223 | ) | ||||||||
Administrative and general expenses (less | ||||||||||||||||
depreciation and amortization) | (23,587 | ) | (15,592 | ) | (11,929 | ) | (8,479 | ) | ||||||||
Other income | 2,082 | 389 | 2,107 | 487 | ||||||||||||
EBITDA | 183,043 | 153,922 | 64,626 | 50,752 |
9
OPC Energy Ltd.
Report of the Board of Directors
Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)
5. | Energy |
Set forth below are details of the sales, generation and purchases of electricity of the Rotem Power Plant and the Hadera energy center (in millions KW hours):
For the | For the | |||||||||||||||
Six Months Ended | Three Months Ended | |||||||||||||||
June 30 | June 30 | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Sales to private customers | 1,973 | 1,932 | 1,000 | 956 | ||||||||||||
Sales to the System Administrator | 47 | 62 | 9 | 23 | ||||||||||||
Total sales | 2,020 | 1,994 | 1,009 | 979 |
For the | For the | |||||||||||||||
Six Months Ended | Three Months Ended | |||||||||||||||
June 30 | June 30 | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Generation of electricity | 1,930 | 1,790 | 954 | 799 | ||||||||||||
Purchase of electricity from the System | ||||||||||||||||
Administrator | 90 | 204 | 55 | 180 | ||||||||||||
Total sales | 2,020 | 1,994 | 1,009 | 979 |
For the Six Months Ended June 30 | ||||||||||||||||
2018 | 2017 | |||||||||||||||
Electricity | Net | Electricity | Net | |||||||||||||
availability | generation | availability | generation | |||||||||||||
(%) | (KW hours) | (%) | (KW hours) | |||||||||||||
Rotem | 100 | % | 1,888 | 90 | % | 1,745 | ||||||||||
Hadera | 96 | % | 42 | 95 | % | 45 |
For the Three Months Ended June 30 | ||||||||||||||||
2018 | 2017 | |||||||||||||||
Electricity | Net | Electricity | Net | |||||||||||||
availability | generation | availability | generation | |||||||||||||
(%) | (KW hours) | (%) | (KW hours) | |||||||||||||
Rotem | 100 | % | 936 | 81 | % | 778 | ||||||||||
Hadera | 93 | % | 18 | 99 | % | 21 |
10
OPC Energy Ltd.
Report of the Board of Directors
Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)
6. | Revenues |
Set forth below is detail of the Company’s revenues (in NIS thousands):
For the | For the | |||||||||||||||
Six Months Ended | Three Months Ended | |||||||||||||||
June 30 | June 30 | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Revenues from energy generated by the Company and sold to | ||||||||||||||||
private customers (1) | 447,398 | 403,337 | 199,188 | 163,775 | ||||||||||||
Revenues from energy purchased by the Company and sold to | ||||||||||||||||
private customers (2) | 22,275 | 42,375 | 14,096 | 37,234 | ||||||||||||
Revenues from private customers in respect of | ||||||||||||||||
infrastructures services (3) | 147,085 | 167,670 | 72,575 | 82,767 | ||||||||||||
Revenues from sale of energy to the System | ||||||||||||||||
Administrator | 5,339 | 7,343 | 1,081 | 2,975 | ||||||||||||
Revenues from sale of steam | 28,704 | 27,583 | 14,137 | 13,216 | ||||||||||||
Total revenues | 650,801 | 648,308 | 301,077 | 299,967 |
The Company’s net revenues from the sale of electricity to its private customers stem from electricity sold at the generation component tariffs, as published by the Electricity Authority, with some discount. The weighted‑average generation component tariff for 2018, as published by the Electricity Authority, is NIS 0.2816 per KW hour. This weighted‑average is attributed to the mix of consumption in the market, which differs from that of the customers of Rotem and Hadera. In 2017, the weighted‑average of the generation component tariff was NIS 0.264 per KW hour. In addition, the Company’s revenues from sale of steam are linked partly to the price of gas and partly to the Consumer Price Index.
For the six‑month periods ended June 30, 2018 and 2017:
(1) | During the period, there was an increase of about NIS 44 million in the sale of energy generated for private customers, deriving mainly from: (a) an increase in the energy generated and sold to private customers, in the amount of about NIS 20 million, due to higher availability in 2018 (as a result of maintenance work performed in 2017 at the Rotem Power Plant); (b) an increase in the generation component tariff, in the amount of about NIS 23 million; and (c) an increase in the revenues, in the amount of about NIS 9 million, due to higher consumption of electricity by customers, compared with the corresponding period last year. On the other hand, the results in the first half of 2017 included non‑recurring income from a settlement relating to prior periods with private customers, in the amount of about NIS 7 million. |
(2) | Most of the decrease in the total revenues from sale of energy purchased from IEC for private customers, in the amount of about NIS 20 million, stems from higher availability in 2018, mainly as a result of maintenance work performed in 2017 at the Rotem Power Plant, as stated above. |
(3) | Most of the decrease in the revenues from private customers for infrastructure services stems from a decline in the infrastructure tariffs in 2018, in the amount of about NIS 17 million. In addition, revenues from private customers for infrastructure services in the first half of 2017 included revenues from a settlement relating to prior periods, in the amount of about NIS 5 million. On the other hand, in the first half of 2018, there was an increase in the total revenues from private customers for infrastructure services, in the amount of about NIS 3 million, due to higher total sales of energy. |
11
OPC Energy Ltd.
Report of the Board of Directors
Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)
6. | Revenues (Cont.) |
For the six‑month periods ended June 30, 2018 and 2017: (Cont.)
(4) | Most of the decrease in the revenues from sale of energy to the System Administrator in the first half of 2018, in the amount of about NIS 2 million, compared with the corresponding period last year, is a result of the higher consumption by private customers. |
For the three‑month periods ended June 30, 2018 and 2017:
(1) | In the second quarter of 2018, there was an increase of about NIS 36 million in the revenues from energy generated by the Company and sold to private customers, deriving mainly from: (a) an increase in the energy generated and sold to private customers, in the amount of about NIS 23 million, due to higher availability in 2018 (as a result of maintenance work performed in 2017 at the Rotem Power Plant); (b) an increase in the generation component tariff, in the amount of about NIS 11 million; and (c) an increase in the revenues, in the amount of about NIS 9 million, due to higher consumption of electricity by customers, compared with the corresponding quarter last year. On the other hand, the results in the second quarter of 2017 included non‑recurring income from a settlement relating to prior periods with private customers, in the amount of about NIS 7 million. |
(2) | Most of the decrease in the total revenues from sale of energy purchased from IEC for private customers, in the amount of about NIS 23 million, stems from higher availability in 2018, mainly as a result of maintenance work performed in 2017 at the Rotem Power Plant, as stated above. |
(3) | Most of the decrease in the revenues from private customers for infrastructure services stems from a decline in the infrastructure tariffs in 2018, in the amount of about NIS 9 million. In addition, revenues from private customers for infrastructure services in the second quarter of 2017 included revenues from a settlement relating to prior periods, in the amount of about NIS 5 million. On the other hand, in the second quarter of 2018, there was an increase in the total revenues from private customers for infrastructure services, in the amount of about NIS 5 million, due to higher total sales of energy in 2018. |
(4) | Most of the decrease in the revenues from sale of energy to the System Administrator in the second quarter of 2018, in the amount of about NIS 2 million, compared with the corresponding quarter last year, is a result of the higher consumption by private customers. |
7. | Cost of sales (less depreciation and amortization) |
Set forth below is detail of the Company’s cost of sales (less depreciation and amortization) broken down into the following components (in NIS thousands):
For the | For the | |||||||||||||||
Six Months Ended | Three Months Ended | |||||||||||||||
June 30 | June 30 | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Gas and diesel fuel (1) | 238,248 | 230,636 | 120,490 | 102,236 | ||||||||||||
Expenses to IEC for infrastructure services and | ||||||||||||||||
purchase of electricity (2) | 169,360 | 210,045 | 86,671 | 120,001 | ||||||||||||
Gas transmission costs | 13,716 | 13,315 | 6,894 | 6,657 | ||||||||||||
Operating expenses | 24,929 | 25,187 | 12,574 | 12,329 | ||||||||||||
Total cost of sales (less depreciation and | ||||||||||||||||
amortization) | 446,253 | 479,183 | 226,629 | 241,223 |
12
OPC Energy Ltd.
Report of the Board of Directors
Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)
7. | Cost of sales (less depreciation and amortization) (Cont.) |
The gas consumption of Rotem and Hadera in the six‑month and three‑month periods ended June 30, 2018 was 13,941,121 MMBTU and 6,866,133 MMBTU, respectively, and the average gas price in the six‑month and three‑month periods ended June 30, 2018 was US$ 4.706 per MMBTU and US$ 4.701 per MMBTU, respectively (for additional information regarding the gas agreement, see Note 27(G) to the Consolidated Reports).
For the six‑month periods ended June 30, 2018 and 2017:
(1) | Most of the increase in the gas costs is a result of higher availability in the first half of 2018, compared with the corresponding period last year, in the amount of about NIS 17 million. The said increase was partly offset by an upward revaluation of the exchange rate of the shekel against the dollar, in the amount of about NIS 9 million. |
(2) | In the period of the report, there was a decrease of about NIS 41, million in the expenses to IEC in respect of infrastructure services and purchase of electricity, deriving mainly from: (a) higher generation stemming from higher availability as a result of which the Company’s purchases of electricity were lower (mainly due to maintenance work performed in 2017 at the Rotem power station), in the amount of about NIS 20 million; (b) a decrease in the tariffs for infrastructure services in 2018, which contributed to a decrease, in the amount of about NIS 17 million; and (c) expenses for infrastructure services following a settlement relating to prior periods made by the Company with its private customers in 2017, in the amount of about NIS 5 million. On the other hand, during the first half of 2018, there was an increase in the scope of the expenses to IEC in respect of infrastructure services, in the amount of about NIS 3 million, due to higher sales of energy in 2018. |
For the three‑month periods ended June 30, 2018 and 2017:
(1) | Most of the increase in the gas costs is a result of higher availability in the second quarter of 2018, compared with the corresponding quarter last year, in the amount of about NIS 19 million (due to maintenance work performed in 2017 in the Rotem Power Plant). The increase was partly offset by an upward revaluation of the exchange rate of the shekel against the dollar, in the amount of about NIS 1 million. |
(2) | In the second quarter of 2018, there was a decrease of about NIS 34 million in the expenses to IEC in respect of infrastructure services and purchase of electricity, deriving mainly from: (a) higher availability as a result of which the Company’s purchases of electricity (mainly due to maintenance work performed in the second quarter of 2017 at the Rotem power station), in the amount of about NIS 23 million; (b) a decrease in the tariffs for infrastructure services in 2018, which contributed to a decrease, in the amount of about NIS 9 million; and (c) expenses for infrastructure services following a settlement relating to prior periods made by the Company with its private customers in the second quarter of 2017, in the amount of about NIS 5 million. On the other hand, during the second quarter of 2018, there was an increase in the scope of the expenses to IEC in respect of infrastructure services, in the amount of about NIS 5 million, due to higher sales of energy in the second quarter of 2018. |
13
OPC Energy Ltd.
Report of the Board of Directors
Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)
8. | Liquidity and sources of financing (in NIS thousands) |
For the | ||||||
Six Months Ended | ||||||
Category | 6/30/2018 | 6/30/2017 | Analysis | |||
Cash flows provided by operating activities | 232,712 | 190,417 | Most of the increase stems from an increase in the current operating activities, in the amount of about NIS 22 million, and an increase in the working capital, in the amount of about NIS 17 million (mainly due to a refund of VAT received by Hadera in 2018). For further information – see the Company’s condensed consolidated interim statements of cash flows for the six months ended June 30, 2018. | |||
Cash flows used in investing activities | (138,463) | (228,202) | Most of the decrease in the cash flows used in investing activities derives from a deposit in a trust account as part of the arbitration with Tamar in the amount of about NIS 79 million in 2017, and amounts deposited in restricted deposits relating to guarantees and debt service reserves, in the amount of about NIS 4 million, in 2018, compared with about NIS 8 million in the corresponding period last year, higher investments in Rotem, in the amount of about NIS 11 million, in 2017, and in Hadera, in the amount of about NIS 3 million, and payments in respect of derivatives in 2017, in the amount of about NIS 6 million. The decrease was offset by acquisition of Tzomet in 2018, in the amount of about NIS 11 million, and investments in property, plant and equipment in the Tzomet project in 2018, in the amount of about NIS 2 million. | |||
Cash flows provided by (used in) financing activities | (117,416) | 365,068 | Most of the decrease in the cash flows used in financing activities stems from the proceeds from issuance of the debentures (Series A), in the amount of about NIS 316 million, in 2017, lower drawings under the financing agreement framework in the Hadera project: about NIS 415 million in the first half of 2017 versus about NIS 22 million in the first half of 2018. In addition, in the first half of 2018, a dividend was paid to the holders of the non‑controlling interests, in the amount of NIS 21 million. On the other hand, the above‑mentioned decrease was offset by debt payments, including, repayment of the interim loans, current debt payments, an early prepayment fee and settlement of balances of I.C. Power Asia Development, in the net aggregate amount of about NIS 366 million in 2017, compared with a total of about NIS 119 million in 2018. |
14
OPC Energy Ltd.
Report of the Board of Directors
Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)
8. | Liquidity and sources of financing (in NIS thousands) |
For the | ||||||
Three Months Ended | ||||||
Category | 6/30/2018 | 6/30/2017 | Analysis | |||
Cash flows provided by operating activities | 138,775 | 58,823 | Most of the increase stems from an increase in the current operating activities, in the amount of about NIS 10 million, and an increase in the working capital, in the amount of about NIS 70 million (mainly due to three payments for consumption of gas in the second quarter of 2018 versus four payments in the corresponding quarter last year and a refund of VAT received by Hadera in 2018). For further information – see the Company’s condensed consolidated interim statements of cash flows for the three months ended June 30, 2018. | |||
Cash flows used in investing activities | (64,165) | (89,022) | Most of the decrease in the cash flows used in investing activities derives from higher investments in Rotem in 2017, in the amount of about NIS 17 million. In addition, in the second quarter of 2018 the net change in the amounts deposited in restricted deposits relating to guarantees and debt service reserves, came to a receipt of about NIS 1 million, compared with deposits of about NIS 8 million, in the corresponding quarter last year. Furthermore, payments in respect of derivatives in 2017 amounted to about NIS 3 million. The decrease was offset by higher investments in Hadera in the second quarter of 2018, in the amount of about NIS 4 million, compared with the corresponding quarter last year, along with investments in property, plant and equipment in the Tzomet project in the second quarter of 2018, in the amount of about NIS 1 million. | |||
Cash flows provided by (used in) financing activities | (98,160) | 226,241 | Most of the decrease in the cash flows used in financing activities stems from the proceeds from issuance of the debentures (Series A), in the amount of about NIS 316 million, in 2017, and drawings under the financing agreement framework in the Hadera project, in the amount of about NIS 160 million, in the second quarter of 2017. In addition, in the second quarter of 2018, a dividend was paid to the holders of the non‑controlling interests, in the amount of NIS 21 million. On the other hand, the above‑mentioned decrease was offset by debt payments, including, repayment of the interim loans, current debt payments, an early prepayment fee and settlement of balances of I.C. Power Asia Development, in the net aggregate amount of about NIS 250 million in 2017, compared with a total of about NIS 77 million in 2018. |
15
OPC Energy Ltd.
Report of the Board of Directors
Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)
8. | Liquidity and sources of financing (in NIS thousands) (Cont.) |
The following table details the debt, cash and cash equivalents, deposits and restricted cash, as at June 30, 2018 (in thousands of NIS):
Rotem | Hadera | OPC Energy | Tzomet | Others | Consolidated | |||||||||||||||||||
Debt (not including accrued | ||||||||||||||||||||||||
interest | 1,300,326 | 535,269 | 304,798 | – | 1,111 | 2,141,504 | ||||||||||||||||||
Cash and cash equivalents | 140,223 | 42,085 | 300,752 | 230 | 1,923 | 485,213 | ||||||||||||||||||
Short-term and long-term | ||||||||||||||||||||||||
deposits and restricted cash | ||||||||||||||||||||||||
(including debt service | ||||||||||||||||||||||||
reserves) | 186,256 | 5,699 | 81,662 | – | – | 273,617 | ||||||||||||||||||
Debt service reserves (out | ||||||||||||||||||||||||
of the restricted cash) | 106,552 | – | 42,664 | – | – | 149,216 |
– | During the period of the report, Rotem repaid about NIS 39 million (relating to principal only) of its loans. |
– | During the period of the report, the Company paid the amount of about NIS 11 million (relating to principal only) of the debentures (Series A). |
– | During the period of the report, Hadera withdrew NIS 22 million under its senior framework agreement. |
– | During the period of the report, Tzomet paid about NIS 17 million of its liabilities. |
16
OPC Energy Ltd.
Report of the Board of Directors
Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)
8. | Liquidity and sources of financing (in NIS thousands) (Cont.) |
The following table details the debt, cash and cash equivalents, deposits and restricted cash, as at December 31, 2017 (in thousands of NIS):
Rotem | Hadera | OPC Energy | Others | Consolidated | ||||||||||||||||
Debt (not including accrued interest) | 1,327,576 | 500,177 | 315,918 | 1,803 | 2,145,474 | |||||||||||||||
Cash and cash equivalents | 130,373 | 103,111 | 273,033 | 1,664 | 508,181 | |||||||||||||||
Short-term and long-term deposits | ||||||||||||||||||||
and restricted cash (including debt | ||||||||||||||||||||
service reserves) | 167,430 | 5,459 | 92,427 | – | 265,316 | |||||||||||||||
Debt service reserves (out of the | ||||||||||||||||||||
restricted cash) | 91,759 | – | 17,710 | – | 109,469 |
The following table details the debt, cash and cash equivalents, deposits and restricted cash, as at June 30, 2017 (in thousands of NIS):
Rotem | Hadera | OPC Energy | Others | Consolidated | ||||||||||||||||
Debt (not including accrued interest) | 1,372,789 | 414,632 | 315,931 | 1,754 | 2,105,106 | |||||||||||||||
Cash and cash equivalents | 87,662 | 214,304 | 103,650 | 1,441 | 407,057 | |||||||||||||||
Short-term and long-term deposits | ||||||||||||||||||||
and restricted cash (including debt | ||||||||||||||||||||
service reserves) | 150,227 | 6,053 | 17,706 | – | 173,986 | |||||||||||||||
Debt service reserves (out of the | ||||||||||||||||||||
restricted cash) | 74,186 | – | 17,706 | – | 91,892 |
17
OPC Energy Ltd.
Report of the Board of Directors
Other Information
9. | Significant Events in the Period of the Report and Thereafter |
For details – see Part A “Update of the Company’s Business” and Notes 6–8 to the consolidated interim financial statements as at June 30, 2018.
10. | Outstanding Liabilities by Maturity Dates |
For details regarding the Company’s outstanding liabilities – see the Immediate Report regarding outstanding liabilities by maturity dates that is published by the Company concurrent with publication of this report.
11. | Liability Certificates |
On June 21, 2018, the General Meeting of the holders of the Company’s debentures (Series A) approved an amendment to the trust certificate of the debentures (Series A) (hereinafter – “the Amendment”), in connection with the definition of the term “the Company’s cash flows”, such that the reference to the cash flows used in investing activities was deleted. In addition, pursuant to the Amendment, as stated, the Company provided a debt service fund equal to 18 months’ payments of principal and interest and committed to comply with financial covenants and restrictions on distributions, such that the “historical debt coverage ratio” will not fall below 1.2 and for purposes of a distribution, as defined in the trust certificate, the “historical debt coverage ratio” will not be lower than 1.4. For additional details – see the Company’s Immediate Reports dated June 14, 2018 and June 25, 2018 (Reference Nos.: 2018‑01‑056182, 2018‑01‑056206, 2018‑01‑058066 and 2018‑01‑060691), which are presented herein by means of reference. As at the date of the report, the Company is in compliance with all the financial covenants in accordance with the trust certificate of the debentures (Series A).
12. | Corporate Governance |
12.1 | Charitable Contributions |
12.1.1 | In May 2018 a contribution to “A Password for Every Student” in the amount of NIS 1 million was approved for 2018. “A Password for Every Student” was established by the Israel Corporation Group. |
12.1.2 | In June 2018, a contribution to the Nirim Society was approved in the amount of NIS 250 thousand for 2018. |
12.1.3 | In June 2018, a contribution to the Ratzif Bishvil Latait Society was approved in the amount of NIS 50 thousand for 2018. |
12.1.4 | In the period of the report, the Company contributed NIS 250 thousand to the Society for Advancement of the Dimona Sports Club. |
12.2 | Internal Auditor |
Commencing from March 31, 2018, Mr. Oded Berkovich, the Company’s Internal Auditor, ceased to be an employee of the Company. Mr. Berkovich continues to serve as the Company’s Internal Auditor, not as an employee.
Yoav Doppelt | Giora Almogy | |
Chairman of the Board of Directors | CEO |
Date: August 13, 2018
18