PT Barito Renewables Energy (BREN) Q2 2024 earnings summary

Risk factors and uncertainties

• Ongoing government audit claims for subsidiaries, including SEGWWL, Darajat Contractor Group, SEGSL, and SEGSPL, with potential additional income tax exposure if disputed findings are realized, though management believes many claims lack merit or have been resolved in favor of the group.

• Several legal proceedings and appeals related to government audit findings, with some provisions for impairment already recognized in profit or loss, and others still under negotiation or awaiting final resolution.

• Deferred VAT claims remain outstanding, with management confident of recovery based on favorable Supreme Court decisions, so no provision for non-recovery has been recognized.

• Credit risk is concentrated as all electricity and steam sales are to PLN and PGE, both Indonesian state-owned enterprises with no history of default, and 80% of bank deposits are with a single Aa1-rated bank.

• Liquidity risk is managed through maintaining adequate reserves and committed credit facilities, with a prudent approach to matching asset and liability maturities.

• Market risk includes exposure to foreign currency fluctuations, interest rate changes on variable-rate borrowings, and minimal commodity price risk due to long-term fixed pricing in contracts.

• Capital risk is managed to maintain a gearing ratio of 70%, balancing net debt and equity to support ongoing operations and shareholder value.

Significant events and developments

• Settlement agreement reached with PT PLN Indonesia Power for a steam sales dispute, with future excess steam deliveries agreed as compensation for unpaid invoices.

• Multiple acquisitions completed, including majority stakes in wind and geothermal subsidiaries, with detailed purchase price allocations and recognition of goodwill and project development costs.

• Guarantees provided for Salak-Darajat and Sekincau acquisitions, with management assessing the probability of guarantee calls as remote due to strong operational performance and compliance with net worth thresholds.

• Carbon credit projects registered and monetized, with ongoing revenue from CER and VCU sales, and crediting periods extended for key projects.

• Extension of PSPE (Preliminary Survey and Exploration Assignment) periods for geothermal projects in South Suoh Sekincau and Hamiding due to regulatory and community issues.

Capital allocation and financing

• Group maintains a prudent capital structure with a 70% gearing ratio, balancing net debt and equity.

• Liquidity is supported by significant cash reserves, restricted deposits, and access to committed credit facilities.

• No provision for non-recovery of deferred VAT receivables, as management expects recovery based on legal precedents.