PT Adaro Energy Tbk : Financial Press Release 9M20

NEWS RELEASE

Jakarta, November 2, 2020

For further information please contact:

Mahardika Putranto, Head of Corporate Secretary & Investor Relations [e-mail]

Febriati Nadira, Head of Corporate Communication [e-mail]

Adaro Implements Operational Efficiency to Weather Challenging Market Condition as

Pandemic Persists

Jakarta, November 2, 2020 - PT Adaro Energy Tbk (IDX: ADRO) (AE) today released its consolidated financial statements for the first nine months of 2020 (9M20). Weaker demand as a result of slower economic growth and tepid interest in key importing countries negatively affected global coal prices. In this challenging time, we continue to focus on our operations and cost efficiency, as well as implementing our strategy to strengthen our core business. We are mindful on our spending and execute our capex plan carefully. Although supply discipline has started to take place, we expect that market recovery will take longer.

Our President Director and Chief Executive Officer, Mr. Garibaldi Thohir, said:

"Despite macro challenges, we have been able to maintain solid operations. The difficult coal market conditions caused by struggling global economy on the back of on-going pandemic have continued to put pressures on our profitability. Although uncertainty remains, our integrated business model has allowed us to operate efficiently through this headwind. On a positive note, we begin to see some signs of rebalancing in the coal market on the back of supply discipline. We continue to be optimistic on the long-term industry fundamentals, and in order to weather the short-term challenges our focus is on cash preservation, strengthening our capital structure and financial position, stay in our course, keep executing our strategy to ensure business sustainability, and continue to contribute to national development."

Highlights of 9M20 performance:

•  We recorded an operational EBITDA of US$676 million, 31% lower compared to the same period in 2019.

•  Our core earnings in 9M20 declined 36% y-o-y to US$326 million. Our net capital expenditure for 9M20 was US$133 million.

•  We generated a solid free cash flow of US$482 million in 9M20. Our balance sheet remained healthy with net debt to last 12 months operational EBITDA of 0.29x and net debt to equity of 0.07x.

Financial Performance
(US$ Million, except otherwise stated)	9M20	9M19	% Change
Net Revenue	1,955 2,654 -26%
Cost of Revenue	(1,492)	(1,855)	-20%
Gross Profit	462 799 -42%
Operating Income	218	631	-65%
Core Earnings1	326 513 -36%
Operational EBITDA2	676 976 -31%
Total Assets	6,471 7,241 -11%
Total Liabilities	2,582 2,712 -5%
Stockholders' Equity	3,889 4,529 -14%
Interest Bearing Debt	1,600 1,305 23%
Cash	1,186 1,008 18%
Net Debt3	264 291 -9%
Capital Expenditure4	133 364 -63%
Free Cash Flow5	482 437 10%
Basic Earnings Per Share (EPS) in US$	0.00342 0.01269 -73%

Financial Ratios

9M20	9M19	% Change
Gross Profit Margin (%)	23.7%	30.1%	-6%
Operating Margin (%)	11.2%	23.8%	-13%
Operational EBITDA Margin (%)	34.6%	36.8%	-2%
Net Debt to Equity (x)	0.07	0.06	0.01
Net Debt to last 12 months Operational EBITDA (x)	0.29	0.22	0.07
Cash from Operations to Capex (x)	4.77	2.62	2.15

• 1 Profit for the period, excluding non-operational items net of tax (amortization of mining properties, prior year tax assessment, loss on derivative financial instruments, recovered allowance for receivable, loss on impairment of mining properties, and loss on decline in fair value of investments in JV).

• 2 EBITDA excluding prior year tax assessment, loss on derivative financial instrument, recovered allowance for receivables, loss on impairment of mining properties, and loss on decline in fair value of investments in JV.

• 3 Cash including the current portion of other investments.

• 4 Capex spending defined as: purchase of fixed assets - proceed from disposal of fixed assets + payment for addition of mining properties + addition of lease liabilities.

• 5 Operational EBITDA - taxes - change in net working capital - capital expenditure excluding lease liabilities.

Operating Segment

Revenue Profit for the period
(US$ Million)	9M20 9M19 % Change 9M20 9M19 % Change 1,824 94 36 2,438 163 53 -25% -42% -32% 135 246 -45% (10) 79 -113% 80 175 -54% - - (84) (62) -35% 1,955 - 2,654 -26% 121 438 -72%
Coal mining & trading
Mining services
Others
Elimination Adaro Energy Group

FINANCIAL PERFORMANCE ANALYSIS FOR 9M20

Revenue, Average Selling Price and Production

In 9M20, our revenue decreased by 26% year-over-year (y-o-y) to US$1,955 million, as a result of 18% lower Average Selling Price (ASP) and 9% lower sales volume. Coal market remains challenging as global coal demand slows down. Despite the y-o-y decline in the seaborne thermal coal market, signs of rebalancing emerged in 3Q20 as a result of supply discipline.

During the period, we produced 41.10 million tonnes (Mt) and sold 40.76 Mt of coal, which was 7% and 9% lower y-o-y, respectively.

Cost of Revenue

Cost of revenue declined 20% y-o-y to US$1,492 million, mainly due to a lower strip ratio and lower royalty payment to the government during 9M20. Coal cash cost per tonne basis (excluding royalty) decreased by 17% y-o-y, attributed to lower strip ratio and lower fuel price.

In 9M20, our fuel cost was down 28% in-line with lower fuel price y-o-y and 18% lower fuel consumption along with lower production and lower strip ratio.

Royalties to Government and Corporate Income Taxes

Royalties to the Government of Indonesia decreased by 27% y-o-y to US$207 million, in-line with the lower revenue and lower average selling price recorded in 9M20.

Operating Expenses

We recorded operating expenses of US$129 million, a 23% lower y-o-y, primarily due to lower 38% lower selling and marketing expenses and 39% lower professional fees y-o-y.

Operational EBITDA

Operational EBITDA in 9M20 was US$676 million, a 31% decline y-o-y driven by lower ASP. We achieved operational EBITDA margin of 34.6% as we continued to improve operational efficiency and cost control amid the declining coal price environment. Contribution from our non-coal mining businesses provided support to our earnings during this challenging time.

We excluded the following non-operational expenses in our operational EBITDA: loss on impairment of mining properties, loss on derivative financial instruments and loss on decline in fair value of investments in joint ventures.

Core Earnings

Our underlying core earnings in 9M20 was US$326 million, 36% lower y-o-y due to lower profitability. Core earnings excludes non-operational accounting items net of tax, which consisted of, among others, amortization of mining properties, loss on impairment of mining properties, loss on derivative financial instruments, and loss on decline in fair value of investments in joint ventures.

Total Assets

Total assets of US$6,471 million were 11% lower compared to the same period last year. Current assets decreased by 18% to US$1,731 million, while non-current assets decreased by 7% to US$4,740 million. We maintained a strong cash balance at the end of 9M20 of US$1,186 million.

Fixed Assets

At the end of 9M20, fixed assets decreased by 8% y-o-y to US$1,623 million. Fixed assets accounted for 25% of total assets.

Mining Properties

In 9M20, our mining properties decreased by 38% y-o-y to US$1,383 million from US$2,242 million on the same period last year. The decrease was due to deconsolidation of one of our coal mining assets in East Kalimantan that we concluded at the end of 2019 and the impairment of some of our underperforming mining assets.

Total Liabilities

Total liabilities decreased 5% compared to the same period last year to US$2,582 million. Current liabilities decreased by 10% to US$1,142 million predominantly due to lower taxes and trade payables. Non-current liabilities relatively flat y-o-y.

Current Maturity of Long-Term Borrowings

The current portion of long-term borrowings in 9M20 increased by 7% compared to the same period last year to US$618 million as some of our bank loans are maturing.