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Dear Shareholders,

In a world where change is the only constant, adaptability becomes our greatest asset. As we navigate through the ever-evolving landscape of business, we maintain our agility within our strategies to capture opportunities while effectively managing risks. This has supported AEI to successfully embark on the journey to diversify our business, starting from metallurgical coal. This business has consistently increased its revenue contribution, which in 2023 accounted for 17% of AEI’s total revenue.

  

2023 performance: thriving amidst industry dynamics 

AEI’s operational performance in 2023 soared to hit new heights as we recorded historical-high volume performance in 2023, showcasing a remarkable stride in operational excellence. Sales volume in 2023 of 65.71 Mt, was 7% higher and surpassed our sales volume target of 62 to 64 Mt. Our strip ratio of 4.35x also exceeded the guidance of 4.2x on the back of dry weather condition, availability of heavy equipment, and strong contractor performance. We recorded overburden removal volume of 286.35 Mbcm and production volume of 65.88 Mt, 22% increase and 5% increase, respectively.

We operate in a cyclical industry, and we do not have control over price. Hence, we emphasize the importance of cost discipline throughout all our operations. Our vertically integrated supply chain enables us to achieve our objective of becoming one of the lowest cost coal producers while at the same time minimizing operational risks. Ultimately, this relentless pursuit of efficiency, coupled with unwavering cost discipline and operational excellence, supports our financial health, paving the way for robust profit generation and sustainable growth.

The challenging industry landscape characterized by adverse market conditions, had pushed coal prices down in 2023. This affected our average selling price (ASP), which declined by 26% in the year, as well as our operational EBITDA, which declined 49% to $2.55 billion, while core earnings declined 38% to $1.87 billion. However, our balance sheet has remained robust, bolstered by a solid cash balance of $3.31 billion. In the same year, we generated strong free cash flow of $1.69 billion and had a net cash balance of $1.94 billion. Our ability to generate cash and profit remains a testament to our resilience and strategic foresight implemented throughout the Adaro Group, led and guided by the BoD.

 

Strategy execution and outlook: embracing the green economy 

We have made the strategic decision to grow our business in a more sustainable manner through the three pillars of Adaro Energy, Adaro Minerals, and Adaro Green. As we continue to build our business across those pillars, the advent of green economy is pivotal to our growth story. Our products are key to the green economy of the future to support the decarbonization of various sectors, in particular the power and the transportation sector. 

This is a once in a lifetime opportunity and we need to seize it to maintain our our resilience amid the ever-changing industry landscape, to ensure sustainable growth, and to create maximum sustainable value for our shareholders. This journey is going to take time and requires significant capital commitment, and we must remain prudent and meticulous in capital allocation. In this regard, we are grateful for the support and directives from our esteemed BOC that have enabled us to formulate and follow through on our strategies, and we are requesting our shareholders to remain supportive of us as we are embarking upon this journey.

Overall, the industries in which we are operating have continued to perform well, given their critical role in delivering energy and infrastructure requirements. Our Envirocoal also continues to support reliable and affordable electricity provision for many countries in Asia, including Indonesia. This product’s reputation has earned it a premium position that differentiates it from similar products in the seaborne market. Despite the impact on cost from changes in PT Adaro Indonesia’s royalty, taxation, and non-tax revenue schemes, we still managed to maintain solid profitability. 

Our metallurgical coal product, branded as Enviromet, is an essential raw material for steel making, and we have continuously increased its volume and gained recognition in the seaborne market. We will keep increasing the volumes generated from our metallurgical coal assets under PT Adaro Minerals Indonesia Tbk as well as their contribution to our revenue.

  

Value creation and shareholder return 

Out of 2022 performance, we paid $1 billion in cash dividends to our shareholders in 2023. In our last Annual General Meeting of Shareholders (AGMS), we also received the approval to extend our share buyback program, thus we bought back approximately 0.33% of outstanding shares and spent $18.4 million in 2023. At the end of 2023, total treasury shares were 3.464% of total issued and fully paid shares. We also paid an interim dividend of $400 million on January 14, 2024, out of our 9M23 performance. Although we do not have a specific dividend policy, we have maintained the commitment to pay dividends every year. From the time of our IPO, we have been paying dividends every year with average historical payout ratio of low to mid 40%.

Balancing shareholder return with capital expenditure requires an equilibrium between short-term profitability and long-term sustainability. We must therefore evaluate investment opportunities prudently to ensure that the investments we make align well with our strategic objectives and risk tolerance.

 

Environmental, Social and Governance (ESG)

ESG aspects have emerged as the critical pillars shaping the trajectory of companies in today's global landscape. We believe that embracing these aspects is a strategic imperative for long-term sustainable business growth. In 2023, we further cemented our commitment to ESG by publishing a Net-Zero Emissions (NZE) statement in addition to formulating an internal transition target of having around 50% of total revenues generated from non-thermal coal businesses by 2030. This target will be achieved by expanding our business in areas that support Indonesia’s green economy ecosystem, such as by developing an aluminum smelter, exploring opportunities in various green mineral products, growing our renewable energy business, and expanding the markets for metallurgical coal. 

In 2023, we recorded several milestones in our transition journey: the financial close for our aluminum smelter project, groundbreaking of our hydropower project, and increased contribution of the metallurgical coal business to our revenue. We also welcomed President Joko Widodo to the groundbreaking event of our hydropower plant in North Kalimantan, which he also used as an opportunity to make his second visit to our aluminum smelter project nearby. These two projects have been listed among Indonesia’s national strategic projects and the President’s presence at our projects is a representation of the mutually beneficial relationship as well as reciprocal support between the government and the private sector for the shared aspiration to develop the nation while the private sector captures the opportunities from the projects.

We also have several ESG initiatives in place that have been implemented by our companies, such as Adaro Ignites Change in CSR, Energy Management System (EnMS) in environment, and Adaro Zero Accident Mindset (AZAM) in safety. In operating the company, we put our strongest efforts to comply with the principles of good corporate governance and have instilled the Adaro Values of integrity, meritocracy, openness, respect, and excellence across all levels in the Adaro Group. The Adaro Values underpin our code of conduct as well as guiding us in our day-to-day activities, and in how we must behave. By integrating ESG factors into our strategies, we can pave the way for sustainable growth and value creation, aligning “profit” and “purpose” for a more resilient future.

  

Change in the composition of BOD

In 2023, there were no changes in the composition of AEI’s Board of Directors.

 

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.

Thank you for your continued support and partnership.

 

Sincerely,

Garibaldi Thohir

President Director

Last modified on June 5, 2024, 1:50 pm | 62733