Finance

Stability characterises main metrics in Reykjavik Energy's finances over the past few years. The rise in revenues is primarily due to an increase in sales, although various tariffs for Veitur Utilities were lowered in 2018.

EBITDA stands for earnings before interest, taxes, depreciation and amortization. EBIT stands for earnings before interest and taxes.

Reykjavik Energy Group's operational margin has been stable and sound over the past years. The operational margin must, among other things, support the investments of the companies in the Group. Operations require substantial investments to be able to maintain the utility systems and power plants, tend to new customers and meet increased demands placed on operations. Here is the margin as a percentage of total revenue.

This performance indicator demonstrates how capable the company is of honouring its interest expense obligations. The company's owners have put forward conditions to pay out dividend which stipulates that cash from operations plus interest expenses shall be at least 3.5 times higher than interest expenses. Reykjavik Energy fell short of that target in the immediate aftermath of the financial crisis, but exceeded it from 2010 onwards.

The heaviest debt load was at the end of 2009. At that time, net debt amounted to ISK 226.4 billion, thus net debt has been reduced by ISK 93 billion at the end of 2018.

Net debt is interest-bearing debt excluding interest-bearing assets.

This performance indicator shows the ratio between net debt and cash at the end of the year. The indicator shows how many years it would take for the company to pay net debt with cash if it were only used to pay down debt.

Reykjavik Energy’s Ownership Policy provides for the implementation of a yardstick that shows returns on the capital employed by the owners in operations. It should, at the very least, exceed the company’s financing costs in addition to a reasonable risk premium.

In October 2018, the board of directors of Reykjavik Energy approved a dividend policy and it was endorsed at an owners’ meeting in November 2018.

The Plan's success and other measures to strengthen the company's cash position have improved the current ratio and the liquidity position is strong. Reykjavik Energy's objective is to have a current ratio that is no lower than 1, which is one of the conditions for paying out dividends to the owners. This means that the company must have a sufficient cash flow to meet obligations for the next 12 months.

The equity ratio indicates how much debt a company has compared to its assets. The total assets of Reykjavik Energy were estimated at ISK 340.1 billion at the end of 2018. OR's objective is to ensure that the equity ratio does not go below 35% - 40% in the long-term.

In the profit and loss account and balance sheet of each company are many calculated figures that should give a clear picture of operations during a specific period and position at the end of it. However, the cash flow overview provides a clearer view of the real cash flow and which factors have an impact on the company's cash position in the period. Furthest to the left one can see the cash position at the beginning of 2018 and, to the right, cash and cash equivalents, marketable securities and deposits at the end of the year.

Credit ratings are important for companies that do business with international financial institutions. The purpose of the rating is to give creditors an objective assessment of a company's financial standing and future prospects. The credit ratings of Reykjavik Energy and other Icelandic companies can never surpass the sovereign rating of Iceland. The owners' guarantee on OR's loans have a positive impact on the company's rating. Reykjavik Energy is currently rated by three agencies: Moody's, Fitch Ratings and Reitun Rating Iceland.

Reykjavik Energy‘s currency risk is mainly due to borrowing in foreign currencies and foreign revenues from Reykjavik Energy‘s subsidiary ON Power due to electric sales in USD. Reykjavik Energy‘s risk policy includes limits on possible currency imbalance in operations and on the balance sheet. Forward contracts are entered into with the aim of reducing the risk of unfavorable exchange rate fluctuations. The graph shows the estimated cash flows of foreign currencies for the next few years.

Higher interest rates pose a risk for Reykjavik Energy‘s operations and balance sheet. This risk has been mitigated in the past few years by fixing interest rates with interest rate swaps. The columns show to what degree the overall liabilities for each year have fixed rates. Reykjavik Energy‘s risk of higher interest is now insubstantial.

Reykjavik Energy executes aluminum hedge contracts to hedge aluminum linked revenues against sharp declines in aluminium prices. Hedges are executed for a few years ahead and the graph shows to what extent revenues have been hedged. The board of directors decides the upper and lower limit of the aluminium hedge ratio.

Liquidity stress tests are conducted by Reykjavik Energy. The approved financial budget and forecast are the underlying benchmarks that are stress tested by applying unfavorable developments of external variables. The variables include exchange rates, aluminium prices, domestic inflation and interest rates. The stress test involves very adverse fluctuations in all external variables. The graph shows Reykjavik Energy‘s ability to withstand such developments.

Reykjavik Energy‘s foreign assets exceeded the company‘s foreign debt at year end 2018. The reason is that the operational currency of Reykjavik Energy subsidiary, ON Power, is in USD. ON Power assets are greater than all Reykjavik Energy’s liabilities in foreign currency.