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Award Glossary

Dear Esteemed Shareholders,

For the past three decades since its first coal shipment, Adaro has been a part of Indonesia’s development and growth through the reliable and affordable energy that we provide. Your company has grown from a single site coal mine to become an integrated coal, energy, utilities, and minerals company with operations in many areas of Indonesia and Australia. Although the business has now diversified, we still generate most of our revenue from our core operations in coal. The strong coal price environment in 2022 was a boon for our profitability and this windfall will allow us to accelerate our business transformation to become a bigger and greener Adaro.

 

2022 Performance: Exemplary results

Adaro reported record profitability in 2022 supported by higher sales volume and higher average selling price (ASP) as the high coal price environment continued in 2022. We exceeded our 2022 production guidance of 58 – 60 million tonnes (Mt) and produced 62.88 Mt in 2022, 19% increase from 52.70 Mt in 2021. Of this amount, 3.37 Mt or around 5.4% was metallurgical coal from PT Adaro Minerals Indonesia Tbk (IDX: ADMR). Sales volume also increased, by 19% to 61.34 Mt from 51.58 Mt in 2021.

We recorded overburden removal of 235.68 million bank cubic meter (Mbcm), an 8% increase compared with 218.90 Mbcm in FY21, and strip ratio for the year was 3.75x, lower than 4.15x in FY21. Our strip ratio performance was below guidance of 4.1x due to abnormal wet weather, and limited availability of heavy equipment and manpower.

Continuation of the high coal price environment, leading to our ASP increasing by 74% from 2021. We delivered operational EBITDA of $5.0 billion increasing by 139% from $2.1 billion in 2021 and core earnings increasing by 140% to $3.0 billion from $1.3 billion in 2021, reflecting the quality of our earnings. We recorded industry leading operational EBITDA margin of 62%, an increase from 53% in 2021. 

Our focus on cash generation and disciplined capital allocation saw Adaro close the year with free cash flow of $2.8 billion, net cash of $2.6 billion, and a strong balance sheet. Our contribution to the nation through royalties and income tax in 2022 totaled $2.9 billion. 

In 2022, we recorded a lost-time injury frequency rate (LTIFR) of 0.12, flat y-o-y from 2021, and severity rate (SR) of 57.27, lower than 2021 SR of 176.86. Regrettably, we experienced one fatality in September. We have conducted thorough analysis of the accident and further emphasize the implementation of Adaro Zero Accident Mindset (AZAM) throughout the Adaro Group.

 

Volatile coal market resulting in record high prices

Confluence of geopolitical and market factors had driven coal prices to multi year highs. Inclement weather, war between Ukraine and Russia, logistics challenges and export ban severely affected the coal market. One major lesson from all that happened last year was that energy security is of utmost importance for every country. Fear of energy crisis amid heightened and prolonged geopolitical issues between Russia-Ukraine made coal once again rose to popularity as the fuel of choice, as can be seen in the large-scale restocking in Europe. 

The world’s countries need to balance its energy mix and coal still needs to be a part of it to ensure sufficient energy supply to sustain the economy. Our underlying thesis remain that the long-term fundamental for coal is intact, and coal is still the most reliable and efficient energy source to generate electricity. In Indonesia, PLN’s latest electricity business plan (Rencana Umum Penyediaan Tenaga Listrik or RUPTL) for 2021 – 2030 still has coal as part of the energy mix. Albeit new coal plants will be built to support downstream processing and refinery.

  

Adaro three pillars: Platform for sustainable growth

We use the 30th anniversary momentum as time to reflect on the past and focus on our future; how we can continue to grow the company in a more sustainable manner – to become a bigger and greener Adaro. We continue to look for opportunities to create value from participating in various projects in the green economy, which continues to grow in popularity as the world adopts a greener lifestyle.

We officially launched the three business pillars of Adaro in our 30th anniversary, but the thoughts and process that went into it were from several years of work and research. The business pillars of Adaro are now divided into Adaro Energy, Adaro Minerals, and Adaro Green. 

The first pillar Adaro Energy represents our pit-to-power supply chain which comprises mining, services, logistics, power, water, land, and capital segment. Our thermal coal operations is part of this pillar. The strong coal price environment in 2022 supported the profitability of this pillar and it provides the cash flow to accelerate the Adaro Group’s transformation.

The second pillar Adaro Minerals currently consists of our metallurgical coal assets under PT Adaro Minerals Indonesia Tbk (IDX: ADMR), a subsidiary that we listed in the IDX in 2022. Aside from metallurgical coal, ADMR is building an aluminum smelter at the North Kalimantan Industrial Park. ADMR is set to be the center of our non-coal mineral assets and mineral processing business, a key step in the company’s expansion to greener business ventures. 

The third pillar Adaro Green is set up to accommodate our aspiration to build a bigger and greener Adaro by seizing opportunities in Indonesia’s green economy. Under this pillar, we have signed up for various renewable energy businesses through hydropower, wind power, and solar power projects to provide clean energy for minerals processing and industrial activities at Kaltara, and to support Indonesia’s energy mix diversification.

  

Moving ahead with business transformation

The volatility of coal market is both a blessing and a curse. In an upcycle, like what we saw in 2022, coal producers were able to book hefty profits. Meanwhile in a downturn, only the fittest can survive. In the past thirty years, Adaro has been through several coal cycles. While the upside potential of an upcycle is attractive, but we cannot be complacent. We are grateful for the achievements attained thus far, but we have resolved to face challenges, capture the right opportunities at the right time and execute the right strategies in growing the business further. 

For Adaro, the stars are aligned. The convergence of government policy, strong coal price, and push towards the green economy have enabled us to accelerate our business transformation. We need to disrupt our status quo to build a strong foundation for our business to withstand the test of time and last for another thirty, fifty, even a hundred years. We are excited with the green initiatives at Adaro, as we evolve, innovate and seize opportunities to build the new Adaro over the long-term.

Our product portfolio has now been diversified, and metallurgical coal accounted approximately 5% of Adaro’s coal production in 2022, and approximately 11% of revenue. This contribution is expected to grow as Adaro Minerals continues to increase production and sales to reach 6 Mtpa in the medium term. Albeit new in the market, the Lampunut Hard Coking Coal has garnered interests from steelmakers in the seaborne market. Lampunut Coal has low ash, low phosphor contents, thus producing low emission and improving strength of steel products.

An irreplaceable raw material in the steelmaking process, our high-quality metallurgical coal is forecast to remain critical to make steel necessary to support the green economy, decarbonization and infrastructure growth over coming decades.

I can assure our shareholders we will continue to focus on execution, people and culture as we further invest in renewables, build the world’s largest green industrial park and invest in the EV battery value chain. To achieve all our plans in business transformation, execution is the key. In 2022, we completed several milestones to build the foundation of our business transformation. From the successful IPO of PT Adaro Minerals Indonesia Tbk (IDX: ADMR) in early January, to forming joint ventures in minerals processing and renewable power plants and we will not stop here.

 

Value creation and return to shareholders

Against the backdrop of commitment to create value and delivering shareholder returns, Adaro has delivered considerable value to our shareholders. In 2022, the AGMS approved the distribution of $650 million of dividends out of our FY2021 performance, which translate in 70% of payout ratio. This takes the total dividends amount returned to shareholders over the past fourteen years since our IPO in 2008 to more than $2.4 billion. For FY2022, the company has distributed $500 million of interim dividends which was paid in January of 2023.

To further enhance shareholder returns, we have bought back 1 billion of shares amounting approximately $140 million. We began another share buyback program on February 15, 2023 and have allocated Rp4 trillion (approximately $230 million).

 

Environmental, Social, and Governance (ESG)

The company adheres to good corporate governance principles and the BoD has instilled the implementation of the Adaro Values of integrity, meritocracy, openness, respect, and excellence throughout the company. Our code of conduct is underpinned by the Adaro Values which guide us in our day-to-day activities, and how we behave.

We have several ESG initiatives in place applicable to the Adaro Group such as Adaro Ignites Change in corporate social responsibility, Energy Management System (EnMS) in environment, and Adaro Zero Accident Mindset (AZAM) in safety. We are now in the process of formulating our ESG strategy and carbon abatement and have engaged international consultant to assist us in the journey.

 

Change in the composition of BoD

In our Extraordinary General Meeting of Shareholders (EGMS) held on February 9, 2022, the shareholders approved the appointment of Mr. Michael William P. Soeryadjaya as a Director of PT Adaro Energy Indonesia Tbk. The Board of Commissioners (BoC), which carries out the nomination and remuneration function in the company, had reviewed the BoD structure and nominated competent and experienced BoD members to the shareholders to strengthen the BoD composition and structure in alignment with the company’s direction. We believe that the experience and credentials of Mr. Michael William P. Soeryadjaya will further improve the company’s management team.

 

Gratitude and appreciation

Finally, I would like to take this opportunity to thank all our stakeholders who have continued to support our activities – our dedicated key shareholders, our communities, our loyal customers, our governments and regulators, our suppliers and contractors, our public investors, and especially our loyal and hard-working employees. Adaro is set to deliver strong and sustainable returns to both shareholders and stakeholders in the coming years.

 

 

On behalf of the Board of Directors

Garibaldi Thohir

President Director

Last modified on February 29, 2024, 9:21 am | 58989