ENERGY FOR CHANGE November 2017 1
Key questions: • What is the outlook for coal industry? • How was Adaro Energy’s performance in 9M17 and what is the view for FY17 and FY18? • What is the progress of Adaro Energy’s projects? • What is Adaro Energy’s strategy and future plans? 2
Supply control to continue 2,500 -10% • Coal Production (Mt) Supply reform in China is expected to continue, targeting up to 1 Bt of excess capacity cut. FY15 2,000 • Indonesia is expected to maintain a FY16 relatively flat production, and as its domestic requirement increase, its export will decline. 1,500 • Australia is constrained by infrastructure capability. • Overall coal supply continues to be sticky 1,000 due to: -0.2% - Higher cost structure as a result of high-grading during the downturn. 500 - Limited funding availability. - Some miners are focusing on 0 restructuring previous debts. Indonesia China • Coal supply data continues to indicate that Source: Adaro’s research, IHS Energy, WoodMackenzie supply discipline is prevalent. 3
Coal price gaining back momentum 120 750 110 700 100 650 90 600 US$ 80 550 RMB 70 500 60 450 50 400 40 350 30 300 Global Coal Newcastle (US$) QHD 5500 NAR (RMB) • Despite a better price outlook in 2017 vs 2016, uncertainties remain in the coal market. • Higher summer demand and supply shortage due to unfavorable weather in Indonesia have helped maintain a robust price for seaborne coal. • Domestic coal price in China has been persistently higher than China’s price bracket. • Coal prices are expected to remain fairly strong through the remainder of 2017. 4
Long term coal demand outlook remains robust… Seaborne coal demand by country (Mt) Note: JKT (Japan, Korea, Taiwan); SEA (Southeast Asia); RoW (rest of the world) Source: Wood Mackenzie Thermal Trade H1 2017 Long-term Outlook • China’s share in seaborne market to decline. • Increased potential from Southeast Asia, Indo-China, and India. • Electrification in the developing world continues to drive coal demand. Despite progress in renewables, coal will still be preferred due to its affordability. 5
…especially from Southeast Asia Coal capacity additions inSoutheast Asia per annum Southeast Asia coal demand Total 600 Mt Total 73 360 Mt Total 259 214 Mt 97 132 80 268 78 131 56 2013 2020 2030 Domestic Consumption (Non-Indonesia) Domestic Consumption (Indonesia) Imports Source: WoodMackenzie Energy Market Service Source: Adaro’s Research • Coal remains as the fuel of choice for developing economies in Southeast Asia. – Affordable and abundant. • 2016-2017: additional ~10GW in coal fired capacity in SEA. • SEA countries imported 75 Mt of coal in 2016, a y-o-y increase of 13 Mt. • Wood Mackenzie estimates that in 2017, SEA countries will import 88 Mt of coal. 6
Quick look on Indonesia Indonesia’s Coal Sales (Mt) • While Indonesia’s coal production in 2016 was relatively flat y-o-y and its export decreased ~2% 400 y-o- y… • …domestic coal demand in 2016 increased 300 ~11% y-o-y. 200 100 0 Export Domestic FY15 FY16 Indonesia’s Electricity Generation by Source • Coal accounted for 58% of Indonesia’s electricity 100% generation in 2016. 8% 10% 8% 8% 80% • Despite expected increase from gas and 26% 26% renewables, coal remains as key energy source 60% for power generation in Indonesia. 40% 58% 56% 20% 0% 2015 2016 Coal Natural Gas Diesel Renewables 7 Source: MoEMR, PLN
Performance of Adaro Energy 8
Resilient operational and financial results OPERATIONAL 9M17 9M16 % Change 39.36 39.33 0% Production (Mt) 39.44 40.45 -2% Sales (Mt) 183.17 174.78 5% OB removal (Mbcm) FINANCIAL (US$ millions, unless indicated) 9M17 9M16 % Change Net Revenue 2,439 1,778 37% Core Earnings 495 281 76% Operational EBITDA 1,006 625 61% Cash 1,259 964 31% Net Debt (Cash) (141) 511 -128% Net Debt to Equity (x) Net cash 0.14 - Net Debt to Last 12 months Operational EBITDA (x) Net cash 0.65 - Free Cash Flow 623 352 77% Cash from Operations to Capex (x) 11.99 6.81 - 9
Solid balance sheet and strong cash generation Strong cash balance and free cash flow Reduced debt and achieved net cash generation 1200 2,500 2.0 1000 2,000 1.6 800 1,500 1.2 600 1,000 0.8 500 400 0.4 0 200 2012 2013 2014 2015 2016 9M17 -500 0.0 0 Net debt (cash) (million US$) Net debt to equity (x) 2012 2013 2014 2015 2016 Net debt to EBITDA (x) Cash (million US$) Free cash flow (million US$) • Discipline debt repayment, combined with higher operating cash flow enabled us to achieve net cash position. • Investment grade rating (BBB-) from Japan Credit Rating Agency with a POSITIVE outlook. 10
Cost control – key in delivering strong performance Adaro’s estimated coal cash cost Operational EBITDA margin breakdown (9M17) 45% 40% Fixed 35% overhead, Mining, 5% 35% - 40% 30% Coal 25% processing, 10% 20% 15% Freight & 10% handling, 20% 5% 0% Shenhua PTBA ITMG Harum Adaro Fuel, 25% - Source: Bloomberg, based on trailing 12M EBITDA 30% • Adaro has one of the highest operational EBITDA margin among thermal coal peers 11
Delivering return to shareholder 150 60% 50% 120 40% 90 30% 60 20% 30 10% 0 0% 2012 2013 2014 2015 2016 Dividend (million US$) Payout Ratio • Adaro has continued to pay dividend through the cyclical downturn. • Dividend payout ratio since IPO in 2008 averages ~38% and in total we have paid US$965 million in dividend. • Total dividend for 2016 was US$101.1 million. 12
Snapshot of Adaro Energy 13
Business model that creates sustainable value PT Adaro Energy, Tbk (AE) *Simplified Corporate Structure Mining Power Services and Logistics Maritim Barito 100% 88.5% Adaro Indonesia (AI) Saptaindra Sejati 100% Makmur Sejahtera 100% Coal mining, S Kalimantan Perkasa (MBP) (SIS) Wisesa (MSW) Barging & shiploading Operator of 2x30MW Coal mining and hauling Balangan Coal 75% mine-mouth power contractor Coal mining, S Kalimantan Sarana Daya 51.2% plant in S. Kalimantan Mandiri (SDM) Jasapower Indonesia 100% Mustika Indah Permai 75% Dredging & maintenance (JPI) (MIP) Bhimasena Power in Barito River mouth Coal mining, S Sumatra Operator of overburden (BPI) 34% crusher and conveyor Partner in 2x1000MW Indonesia Multi 100% power generation Bukit Enim Energi (BEE) 61% Adaro Eksplorasi Purpose Terminal Coal mining, S Sumatra project in Central 100% Indonesia (AEI) (IMPT) Java Mining exploration Port management & Adaro MetCoal (AMC), 100% terminal operator Tanjung Power Coal mining, C Kalimantan Adaro Mining 100% Indonesia (TPI) E Kalimantan 65% Technologies (AMT) 100% Indonesia Bulk Partner in 2x100MW Coal research & Terminal (IBT) Bhakti Energi power plant project in 10.2% development Coal terminal & fuel Persada (BEP) S. Kalimantan storage Coal mining, E Kalimantan 14
Adaro Mining 15
Diversified Coal Assets Across Indonesia 5 Deepening Coal Product Portfolio and Set to Capitalize Assets to Support Indonesia’s Development 6 1 2 3 4 Adaro has more than 13.5 billion tonnes (Bt) of coal resources (including option to acquire 7.9 Bt) and 1.2 Bt of coal reserves. 1 6 2 3 4 5 Adaro BEP: 10.22% Adaro Balangan MIP: 75% BEE: 61.04% Indonesia: stake with MetCoal Coal stake stake S 88.5% option to Companies Companies: Sumatra S Sumatra Existing, acquire 90% S Kalimantan Central and sub- sub- S Kalimantan sub- E Kalimantan East bituminous bituminous sub- bituminous sub- Kalimantan Resources Geological bituminous Resources bituminous Metallurgical 288Mt study phase Resources: Resources coal 333Mt Reserves 254 5.4Bt 7.9Bt Resources Reserves Mt Reserves 1.27Bt 184Mt 980Mt Note: Reserves and Resources numbers above Indonesian Coal are before taking into account AE’s equity ownership Resources : 124.8 Bt Reserves : 28.0 Bt 16 Source: Bureau of Geology, 2015
Over two decades of solid production performance 60 350 2017 2016 2015 Units Guidance Actual Actual 300 Production 50 Mt 52 - 54 52.5 51.5 volume Strip ratio bcm/tonne 4.85 4.45 5.19 Overburden removal (Mbcm) 250 40 Production (Mt) 200 30 150 20 100 10 50 0 0 1992199319941995199619971998199920002001200220032004200520062007200820092010201120122013201420152016 Tutupan Wara Paringin Balangan AMC Overburden Removal • Produce low to medium heat value coal with low pollutant content, ideal for power generation. • Control over supply chain ensures timely delivery to customers. • Continued focus on productivity, safety and sustainability will support value creation 17 for shareholder.
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