“Landsvirkjun´s operations performed generally well the first half of the year and strong cash flow enabled us to continue to decrease the net debt of Landsvirkjun, which resulted in a decrease by USD 172 million in the period.
There are positive signs in the interim financial statements for the first half of the year. Key ratios are improving, the equity ratio is 42.2% compared to 39.9% at the beginning of the year and the Group´s net liabilities measured against profit before depreciation decreases from 6.6 to 5.8. In the first half of the year all conditions precedent were lifted in the electricity contract with PCC BakkiSilicon hf. Furthermore, the construction of Theistareykir power plant commenced in the period.
There is a great demand for electricity in Iceland, coming from diverse industries, which are prepared to pay higher prices than before. Landsvirkjun aims to utilize every opportunity the Company has to increase the energy production in order to meet this interesting demand.
However, short term, there are concerns in the external environment. Aluminium prices have decreased considerably in the last months, which has negative effects on Landsvirkjun´s revenues. Furthermore, inflow to Landsvirkjun’s reservoirs has been low this summer due to a late arrival of spring.”
Total operating revenues of the Group for the first half of 2015 increased by USD 13 million compared to the same period in 2014. The Group’s profit before depreciation, EBITDA, amounted to USD 169 million.
Profit before unrealised financial items is the criterion used by Landsvirkjun in evaluating the Company’s core operations. The profit amounted to USD 80 million in the period from January to June 2015 compared to USD 54 million in the same period last year.
Low interest rates in the global markets and the decrease in interest bearing liabilities over the last years has had a positive effect on the Company’s results. Average nominal interest rates on long-term loans were around 3.3% in the period, taking into account the state guarantee fee, compared to 3.5% in the previous year. Profit in the period amounted to USD 64 million compared to USD 35 million in the same period last year.
Landsvirkjun has put much emphasis on decreasing debt in the last years and net liabilities have decreased by USD 484 million since year end 2011. Net liabilities are interest bearing liabilities less the Company’s cash and cash equivalents. Landsvirkjun’s net liabilities have decreased by USD 172 million from year end 2014.
The Company’s total equity amounted to USD 1,751 million at the end of June 2015. The equity ratio has increased the last years, but since 2011 it has increased from around 36% to around 42%. Landsvirkjun’s total assets amounted to USD 4,151 million at the end of June 2015.
The Group’s cash and cash equivalents amounted to USD 182 million at the end of June 2015. The change can be seen in the graph below. The Group’s cash flow from operating activities amounted to USD 146 million. Investing activities amounted to USD 22 million. Cash flow from operating activities has sustained the last years’ investing activities which is the prerequisite of the Company’s improved debt level.
Landsvirkjun will continue to put emphasis on decreasing the Company’s debt. The largest part of the Company’s cash flow from operations will thus, as in the last years, be used to decrease debt. This emphasis has resulted in that net liabilities are currently 5.8x EBITDA. Landsvirkjun’s aim is to get this ratio below 5. If this will be successful, there will be more leeway to pay dividends to the owners and refinance foreign long term liabilities at more favourable interest rates. The development of key ratios can be seen in the graph below.
At Landsvirkjun, we consistently endeavour to maximise the potential yield and value of the natural resources we have been entrusted with, in a sustainable, responsible and efficient manner. Landsvirkjun’s vision is to be a progressive energy company in the field of renewable energy. The Company operates within an international environment and hopes to be amongst the very best in generating and selling energy.
At the beginning of 2015 the state of Landsvirkjun’s reservoirs was good, but cold weather during spring delayed the inflow to the reservoirs and thus decreased the probability that the reservoirs will be full in the autumn. Hydroelectric energy is around 96% of the production of Landsvirkjun and geothermal energy around 4%. There have been no serious interruptions in the period.
Landsvirkjun’s results will continue to be subject to the development of aluminium prices, interest rates and foreign exchange rates. Landsvirkjun’s revenues is partly linked to aluminium prices and changes in the world market aluminium prices will therefore continue to have an effect on Landsvirkjun’s future revenues. Aluminium prices have decreased considerably and that will have a negative effect on Landsvirkjun´s results. The majority of the Company’s loans are on floating interest rates and therefore continued low interest rates are important for the Company.
Landsvirkjun was established in the year 1965 and is an energy production company owned by the Icelandic nation. The Company produces ¾ of all electricity in Iceland from renewable energy resources, hydroelectric energy, geothermal energy and wind energy. The Company is at the same time leading in sustainable ulitization of energy resources and contributes to increased knowledge, innovation and technical development.
The interim financial statements of Landsvirkjun have been prepared in accordance with International Financial Reporting Standards (IFRS) and are in USD which is the functional currency of the parent company.