Section
Segment

Profit before unrealised financial items increases by 20%

The operations of Landsvirkjun went well during the year 2014, despite demanding business environment, especially due to low aluminum prices and limitations in the delivery of electricity due to low levels in water reservoirs. Profit before unrealized financial items amounted to USD 147 million, an increase of 20% from the previous year and has never been higher. Net debt continues to decrease, amounted to USD 2,190 million at the end of 2014, a reduction of USD 239 million between years.

Income Statement 2014

The operating revenues of the Group increased by USD 15 million from the previous year or from USD 423 million to USD 438 million in spite of low aluminium prices and limitations in the delivery of electricity due to low levels in water reservoirs. Aluminium price affects around 31% of the Company’s revenues, but efforts have been made to decrease the linkage of aluminium prices to revenues. Since the year 2009 the ratio of revenues linked to aluminium prices has decreased from 51% to 31%.

Recognized in other revenues are USD 17 million relating to an agreement between Landsvirkjun and Rio Tinto Alcan á Íslandi hf. Average wholesale price to retail sales companies (excluding transmission cost) was ISK 4.3 per kWh compared to ISK 4.0 per kWh the previous year. Average price for industrial users was USD 25.9 per MWh but was USD 25.8 per MWh the previous year. The average price to industrial users includes transmission costs where it is contractual. Revenues from transmission increased between years from USD 57 million to USD 59 million. The Company hedges against fluctuations in aluminium prices and revenues due to realised aluminium hedges amounted to USD 10 million in the year 2014 compared to USD 15 million in the year 2013.

Segment
Segment

Operating expenses before depreciation and impairment loss amounted to USD 106 million in the year 2014 compared to USD 94 million the previous year. EBITDA amounted to USD 332 million and increased from the previous year. EBITDA ratio is 75.8% compared to 77.8% in the year 2013. Taking into account depreciation, EBIT amounted to USD 218 million compared to USD 211 in the previous year.

Segment
Section
Segment

Profit before unrealised financial items is a benchmark Landsvirkjun uses to evaluate the core operations of the Company. The return of core operations has increased in previous years and in 2014 was the highest in Company history. Profit before unrealised financial items amounted to USD 147 million in the year 2014 compared to USD 122 in the previous year.

Realised foreign exchange difference was positive by USD 19 million in the year 2014 (positive by USD 7 million in the previous year) and partly accounts for the increased return of fundamental operations. Nominal interest rates of long term loans were on average 3.5% taking into account the state guarantee fee, which is virtually unchanged from the previous year. Low interest rates in the international markets and reduction of liabilities in previous years has had a positive impact on the Company’s return.

A proportion of the parent company’s contracts for sale and purchase of electricity are linked to aluminium prices. International financial reporting standards require this link to be recalculated as embedded derivatives. The recalculated value of these embedded derivatives are recognised in the balance sheet as expenses of USD 88 million in the year 2014 compared to USD 175 million in the previous year. Foreign exchange difference and changes in fair value are mostly unrealised which must be kept in mind when evaluating the return of the Company. Therefore, unrealized financial items are specified separately in management's presentation.

The Company’s return after taxes is as previously mentioned subject to changes in unrealised financial items which Landsvirkjun has limited influence over. Profit of the year was USD 78 million compared to a loss of USD 39 million in the previous year.

Segment

Operational outlook

Interesting changes have occurred in recent years in the business environment of electricity companies in Iceland. There is now a diverse demand for electricity in Iceland. Industries like silicon metal plants and data centers, which have been sought after for a long time to come to Iceland, are now planning increased operations in Iceland. Demand for electricity is now higher than the supply which creates both opportunities and challenges.

Landsvirkjun's results will for the most part continue to be subject to development in aluminium prices, interest rates and foreign exchange rates. Landsvirkjun's income is partly linked to aluminium prices and changes in world market aluminium prices will therefore continue to have an effect on Landsvirkjun's future income. Currently, the price of aluminium is low and significant uncertainty prevails over its development during the coming months.

The majority of the Company’s liabilities carry floating interest rates and thus a continuing low level of interest rates is essential for the operations.

Section
Segment

Appendix

Here you can download Landsvirkjun’s financial statements for the year 2014. This includes Landsvirkjun’s entire Financial Statement in Acrobat (pdf) and key figures in Excel (xls).