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Net debt continued to decrease, whilst the construction of new power stations was underway

Landsvirkjun's earnings in the year 2016 are acceptable despite a decrease year over year. External conditions were unfavourable this year. Aluminium prices remained low but rose in the second half. Revenues are still in some part connected to aluminium prices but due to contract re-negotiation the effects will be reduced in the coming years.

The demand for electricity from the Company is now greater than the supply. The Company is currently involved in the construction of two power stations at Þeistareykir and Búrfell to meet these demands. Net debt continued to decrease which reflects robust cash generation. The decrease in debt and improved financing conditions have resulted in a significant reduction in financial expenses which is important to operations.

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Income statement 2016

Operating revenues have been stable despite low aluminium prices in recent years. The emphasis in recent years has been to reduce aluminum's impact on revenues. New contracts and the re-negotiation of contracts with customers, at competitive energy prices, are unrelated to the price of aluminium. The renewed contract with Norðurál will take effect in 2019 and is linked to the Nordpool market price of electricity.

Sold volume decreased between years as some customers experienced operational difficulties and needed to reduce their purchases. Thus, sold volume was 450 GWh lower than contractual amounts. Due to contract obligations, it is difficult for Landsvirkjun to sell the energy to other customers. The power system is at maximum capacity and two power stations are under construction in order to meet the increasing demand for electricity. 

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Despite the drop in aluminium prices and a decrease in sold volume, the operating revenues in 2016 remain relatively unchanged compared to the previous year. This is due to increased transmission revenues and foreign exchange rate effects. EBITDA decreased between years, which is explained by an increase in expenses, in particularly due to foreign exchange rate effects, general salary development in the labour market and maintenance of power plants. The emphasis in recent years has been to reduce market risk which has led to a more stable operating performance.

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The nominal interest rate average for long-term loans was approx. 3.3% in 2016 (taking into account the state guarantee fees). Debt reduction and a low interest rate environment have led to lower interest expenses. This development is important for the performance of core operations.

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In assessing Landsvirkjun’s performance of core operations, the Company considers profit before unrealised financial items. The profit amounted to USD 118 million which is a decrease of USD 13 million from the previous year. The main influential factors on the year’s profit are a lower EBITDA and interest expenses. EBITDA decreased as previously mentioned. Reduced debt and low interest rates in the global market have led to a lower interest expense. Profit before unrealised financial items has a direct influence on the Company’s cash flow creation.

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Operating outlook

With continued operational improvements and debt reduction the Company will have more opportunities to pay dividends to owners and refinance foreign debt for the long-term at favourable interest rates. Landsvirkjun has focused on reducing the effect of aluminium prices, interest rates and foreign exchange rates on the Company’s performance, the result will though continue to be based on the developments of these factors to some extent.

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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).