Segment

Strong cash flow financed investments

A strong performance of core operations in the last few years, despite a challenging business environment, has meant that net cash from operating activities has covered investments in recent years; a cash surplus beyond investment costs. The development of this trend is shown in the table below.

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Segment
Segment

An improved operating position has facilitated systematic investment in the maintenance and improved utilisation of power stations whilst continuing to develop industry in Iceland with investments in new power stations. For the first time in the Company's history, two power stations are under construction. These extensive construction projects are currently underway at Búrfell II, a new hydropower station and Þeistareykir, a new geothermal power station. The construction of the Búðarháls Hydropower Station was at its peak between 2012 and 2014 and began operations in 2014.

The Group's cash flow amounted to 145 million USD in 2016. The trend is shown in the graph below. The year 2016 was a busy construction year and investing activities amounted to 172 million USD. Dividends paid to owners for the year 2015 amounted to 13 million USD and could increase within the next two years.

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Segment
Segment

Free cash flow amounted to 211 million USD. The Company can use its free cash flow for new investments, which amounted to 156 million USD in 2016, for debt reduction (net debt decreased by 25 million USD this year) or for the payment of dividends to its owners (13 million USD was paid in 2016).

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Segment
Section
Segment

Decreasing debt whilst investing in new power stations

Landsvirkjun focused on decreasing debt in the last years. Cash flow has been strong in recent years, reducing Landsvirkjun’s net debt by 713 million USD (from year-end 2010 and including extensive investments). Net debt is interest bearing long‐term liabilities less cash and cash equivalents. The trends in net debt can be seen in the graph below.

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Segment

The reduction in net debt in recent years has led to lower interest expenses and the improved performance of core operations. The improved performance has resulted in strong cash flow which is the key to continued debt reduction and increased dividend payments. Landsvirkjun's equity ratio was 45.4% at year-end 2016 and has never been higher.

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Segment

Ratios

Key ratios have been developing in the right direction in recent years even though the Group's leverage, measured against operating profits before depreciation (net debt / EBITDA) rose from 6.2x at the end of 2015 to 6.5x in 2016. This rise can be attributed to a lower EBITDA, due to a challenging business environment, and slower debt reduction. In the short term, debt reduction will slow slightly as the Company is currently building two new power stations.

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Segment

Interest coverage ratio (EBITDA/net interest expenses) increased to 5.1x but was 4.6x at year-end 2015. The ratio of funds from operations against interest expenses increased from 3.3x at year-end 2015 to 3.8x at year-end 2016. This is due to the positive trend of reduction in interest expenses by cause of decreasing debts in the last few years.

The return on equity is calculated based on profit but the fair value change of embedded derivatives and other derivatives, as well as foreign exchange differences, can have a significant impact on the result. The return on equity was positive by 3.5% in 2016 and positive by 4.9% in 2015

Landsvirkjun will continue to focus on decreasing debt with the goal of achieving a net debt below 5 times EBITDA (earnings before depreciation) in the coming years. This will provide more opportunities to pay dividends to our owners as well as offering better access to effective long-term loans, without state guarantees.

Credit rating rises

The Company’s credit rating has risen by three categories as a result of the improved financial position, reduced leverage and declining market risk, most recently in January 2017. The credit rating, without government guarantee, is BBB and is fast approaching the rating of similar companies in neighbouring countries.

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Segment

Supporting documents

You can download the Financial Statements for 2016 in electronic form here. The documents contain the financial statements as a whole in Acrobat (pdf) document and the key figures in an Excel (xls) document. Alternatively, you can download the Annual Report in Acrobat (pdf).