Why Adaro? Financial
Dividend Presentation Press

Why Invest in Adaro?

The Power of Positive Energy

Each time we ship Envirocoal, the cleanest thermal coal available on the export market, on schedule and as ordered to our loyal customers, we deliver positive energy.

In the passionate work of each of our employees, in the way we conduct ourselves, in the impact that we have on those around us and in the contributions we make to society, we deliver positive energy.

As we turn a non-renewable resource into a renewable one by building strong, healthy communities surrounding our operations, as we create maximum sustainable value from Indonesian coal, we deliver positive energy.

Here are eight core reasons to believe in us:

The integration of our three engines of growth – coal mining, mining services and logistics and power, differentiate us from others and enable deepened co-operation, synergy and low-cost operation.

This business model provides a reliable coal production and supply chain as well as multiple opportunities across the value chain.

Control over the supply chain means we have been able to make continuous improvements in our quest for better efficiency and productivity. Our subsidiaries are also positioned as independent profit centers, continuously helping us towards our objective of creating long-term value.

Our integrated business model has been tested by the challenging market conditions and proved resilient, as our results demonstrate. Despite tremendous pressure on profitability, we recorded Operational EBITDA of US$730 million and Core Earnings of US$293 million, demonstrating the quality of our earnings and the resilient performance of our business model. Our Operational EBITDA margin of 27.2% is among the highest of Indonesian thermal coal producers.

We remain on track to build a power business fit for the future, creating synergies with our coal business. We already successfully operate PT Makmur Sejahtera Wisesa (MSW), a 2x30MW coal-fired power plant in Tanjung, South Kalimantan. MSW uses circulating fluidized bed (CFB) technology with 86% availability.

We are now focused on executing the plans of PT Bhimasena Power Indonesia (BPI), a joint venture to build a 2x1,000MW power plant with Japan’s Electric Power Development Co (J-Power) and Itochu Corporation. BPI is now working towards construction of the plant, one of the first and largest power plant projects in Southeast Asia to employ ultra-supercritical boiler technology. It will use around 7Mt of coal every year, for which Adaro will be a major supplier.

We are also working on further opportunities with potential partners. With demand in Indonesia growing for new coal-fired power plants, the power sector is strategically important for Adaro: our power business will diversify and deliver stable returns while creating a market for our coal.

Over more than two decades of growth, we have delivered over 620Mt of coal to our customers in 14 countries around the world.

We still have reserves and resources sufficient for many years of operation from our core concession in South Kalimantan and others in Central Kalimantan, East Kalimantan, and South Sumatra. Our reserves (JORC-compliant) were 1.3Bt as of the end of 2015.

In a competitive market, efficiency, reliability and cost management are imperative to securing customers’ ongoing trust. By having one of our subsidiaries involved in each segment of our coal supply chain, we reduce counterparty risk and the likelihood of disruptions to our operations, meaning thorough reliability of supply to our customers. Our proven ability to service their needs along with cost-management flexibility presents a solid case for our customers, who value our commitment to the long term.

Our large reserves also make us a key player in the thermal coal power-generation market for the foreseeable future.

All coal from our core concession area, trademarked as Envirocoal, is sub-bituminous and has low-pollutant characteristics, including low ash, sulphur and nitrogen. This has earned it a reputation as among the most environmentally acceptable and cost effective solid fuels available.

Envirocoal’s gas and airborne emissions are lower than any other solid fuel, and waste ash is less than other coals. Envirocoal provides excellent economic and technical benefits through lower maintenance and operating costs, improved combustion and ash disposal efficiencies.

On the services side, we closely support our customers by offering technical expertise and services. The company is on hand to help them get the most value from our coals by adjusting furnace operations to minimize environmental emissions, raise heat efficiency or implement coal-blending strategies to get the lowest electricity production costs.

Amid the current coal industry downturn, we manage our top line by being a leading supplier to the domestic market, focusing on premium customers, and selling our low sulphur, ash and nitrogen products at a fair price.

We optimize productivity and efficiency in our mining services and logistics business, and are building our power business. We lowered our coal cash cost further by 16% to US$28 per tonne (excluding royalty) in 2015, mainly due to a lower strip ratio, lower freight and handling costs and lower fuel costs.

As a result, we managed to lower our cost of revenue by 18% to US$2,141 million to cope with a 19% drop in revenue to US$2,684 million, keeping our Operational EBITDA margin solid at 27.2%.We have reduced net debt by 25% and maintained a strong balance sheet, solid capital structure and tight capital expenditure at US$98 million as we focus on capital preservation. We also maintain our strong liquidity, providing support in the current downturn.

Our strong banking relationships enable us to access liquidity and competitive financing, and we provide consistent returns to shareholders.

Strong management is a pillar of Adaro’s success. Our management has been consistent with its business strategy while also being nimble in reacting to business developments.

With extensive experience in the industry, our management team continuously nurtures shareholder value and focuses on both the short-term and long-term interests of shareholders and stakeholders.

Our resilient business model and financial performance demonstrates how our management has steered the Company during the coal market downturn. Despite challenges that the industry is facing, our management has motivated and co-ordinated the efforts of all stakeholders to accomplish objectives effectively.

Adaro is committed to achieving the highest standards of health and safety of its workforce by minimizing the risk of accidents and injuries. How our contractors manage safety is of equal importance to Adaro, and we ensure that they comply with all of our standards and procedures.

We use lost-time injury frequency rate (LTIFR) and severity rate (SR) as measures of safety performance. Our LTIFR dropped from 0.18 in 2014 to 0.09 in 2015. Our SR also dropped from 122.8 to 120.84.

We work continually to minimize the impact of our operations, and an environmental management plan is in place. Reclamation of mining-affected land is carried out in a number of phases before, during and after mining ceases. We have so far planted 117,335 trees and reclaimed 1,170 hectares of land.

We are controlled by five Indonesian families, highly respected and with a long track record in business. The families collectively hold approximately 65% of Adaro, and none has outright control.

Two of the five Commissioners are independent, we have seven Directors who meet regularly, and our Audit Committee consists of one independent commissioner as the chairman and two expert members who are not Adaro employees.

This creates a system of check and balances to ensure decisions are made in the best interests of the company and its stakeholders. Good corporate governance is integral to our success, and we continue to improve and systematize relationships between management, our workforce, shareholders and other stakeholders.

We also continue to strengthen the structures and processes by which the company’s objectives are set, attained and monitored. We regularly update and review our corporate governance systems.

Last modified on March 20, 2017, 3:44 pm | 5403