"In 2023, Landsvirkjun had its best operating year in its nearly 60 years of history. Profit from core operations amounted to 375 million US dollars and increased by 19% from 2022, which was a record year.. This performance was achieved despite a decrease in revenues from industrial customers because of lower market prices, but overall operating revenues increased significantly, particularly due to hedges. Thus, active risk management in Landsvirkjun‘s operations has proven its value, as it reduces income fluctuations and contributes to the steady operational performance of the company. Operating expenses only increased by 4% between years.
Hörður Arnarson, forstjóri Landsvirkjunar
The company‘s financial position has never been better. The equity ratio is higher than it has ever been at 65.4%, but was 59,3% at year end 2022. Net debt, i.e. interest bearing debt net of cash and cash equivalents, decreased by 151 million US dollars and leverage is now down to 1.4x EBITDA. This compares favorably with or exceeds the performance of other energy companies we benchmark against in the Nordic region. This reduction in interest bearing debt has rightly had a positive impact on the company's interest coverage, as interest expenses in excess of interest income continue to decrease as in previous years. In an environment of rising interest rates, it has proven beneficial to have systematically worked in prior years to shift loan terms from variable to fixed interest rates, which do not change with increasing interest levels. Today, 77% of our loans carry fixed interest rates.
A strong financial position is reflected in the company's credit rating, as S&P Global Ratings upgraded the company's rating from BBB+ to A- at the end of the year. In light of this operational success, the company's board intends to propose a dividend of 150 million US dollars at the annual meeting for the last fiscal year, which is 72% of the profit for the year.
While the operation of the national energy company is better than ever before, there are concerns looming in Iceland's energy sector. Various factors have led to delays in energy generation projects, and it is likely that electricity generation will not meet demand due to the energy transition and general economic growth until at least 2027-28. However, there are hopes that construction on Hvammsvirkjun, hydropower, and Búrfellslundur, wind power, will commence this year, as they are the furthest along in development. Additionally, preparations for the expansion of both Þeistareykjavirkjun, geothermal power, and Sigölduvirkjun, hydropower, are underway, with plans to obtain approval from Landsvirkjun's board to initiate tenders related to these projects later in the year.
The operational years of 2022-23 have been exceptional in the company's history, especially due to renegotiations in recent years, favorable market conditions, and a power contract with a large customer linked to the price development on the Nord Pool market, which proved highly beneficial for Landsvirkjun but has now expired. Prospects for Landsvirkjun's performance remain positive in 2024, although the likelihood of achieving the same results as in these past two years is slim until renegotiations with Alcoa are concluded and new power stations commence operations."
