Finance and operations
Positive steps have been taken to improve Landsnet’s operating environment through a new government regulation designed to secure the company’s revenue source in the future. Landsnet’s reporting and functional currency will henceforward be the US dollar, which creates opportunities to obtain funding at more favourable terms and to reduce operational risks. Thus, 2015 is the last financial year for which the ISK serves as the reporting currency of Landsnet’s financial statements.
The company’s fixed assets were revalued during the year. The revaluation of the asset base increases transparency in our operations. The value of the company’s fixed assets is now in line with price level changes, the valuation of grid rebuilding costs and the asset base used by the National Energy Authority to determine Landsnet’s revenue framework. This was the first revaluation of the company’s assets since 2008, when the Board of Directors decided that revaluations should be carried out periodically. The reason why no revaluations were made until last year was the uncertainty surrounding the company’s required rate of return.
Highlights of the 2015 financial statements (ISKm)
Profit of ISK 4 billion
According to the income statement, Landsnet generated a total profit of ISK 4,010 million in 2015, compared with a profit of ISK 3,762 million in 2014. Earnings before interest and taxes (EBIT) were ISK 7,491 million, against ISK 6,174 million for 2014, which is mostly explained by a favourable exchange rate impact.
Operating expenses were ISK 16,183 million, up by ISK 1,833 million or 12.8% year-on-year. While the transmission tariffs for power-intensive consumers and distribution system operators remained unchanged in 2015, transmission volume was up slightly. Revenue from transmission to power-intensive consumers, which is denominated in USD, was up by ISK 1,226 million (14.5%), primarily driven by the higher dollar (12.6%). The impact of exchange rate movements accounts for almost ISK 1.1 billion of the year-on-year increase.
Revenue from transmission to distribution system operators was up by ISK 255 million (6.8%) in the year, although the tariff remained unchanged. Priority transmission (firm service) to general consumers was up slightly year-on-year and non-firm transmission increased somewhat more strongly. Revenue from the sale of ancillary services and from charges for transmission losses was up by ISK 354 million (18.6%) between years. The tariff for ancillary services was reduced by 4.2% on 1 February and raised again by 12.5% on 1 August. The tariff for energy losses was raised by 24.7% on 1 February. The tariff increases in August were due to higher purchasing prices for these items, as the tariffs are determined on a cost-price basis with a 1.5% margin.
Operating expenses before depreciation and amortisation were ISK 5,769 million, up by ISK 561 million or 11% year-on-year. This increase was primarily due to higher purchasing prices for ancillary services and energy losses, which were up by ISK 404 million.
Net financial expenses for 2015 were ISK 2,502 million, compared with ISK 1,519 million for 2014, up by 983 million or 64% year-on-year. Foreign exchange gains were down by ISK 787 million year-on-year and came to ISK 195 million in 2015. The company’s funding was mostly denominated in ISK, with inflation for the year calculated at approximately 2%, compared with around 1% in 2014, as a result of which inflation indexation was up by ISK 453 million year-on-year. Interest expenses, on the other hand, were down by ISK 157 million.
Assets revalued at ISK 103 billion
Total assets stood at ISK 102,973 million at year-end 2015, up from ISK 81,859 million a year earlier. Of this total, fixed assets accounted for ISK 91,983 million, compared with ISK 66,780 million at year-end 2014. Fixed assets in operation were valued at ISK 86,428 million at year-end, compared with ISK 63,771 million at the end of 2014.
Landsnet’s fixed assets were revalued in 2015, resulting in an ISK 23,422 million upwards adjustment in value. The first and only previous revaluation of Landsnet’s assets dates from 2008, when the Board decided to exercise the right to use the revaluation model under the International Accounting Standards. Once revaluation has been applied, the company is obliged to carry out periodic revaluations, but owing to uncertainty regarding Landsnet’s required rate of return no revaluations were made until last year. The initial value of the company’s lines and substations was revalued at year-end 2015. Two methods were applied in the revaluation. First, it was based on the estimated reconstruction cost of the transmission system. Second, the company’s operating value was estimated using cash flow analysis. The revaluation carried out during the year was based on the operating value of the company’s current assets.
Long-term liabilities and obligations stood at ISK 56,485 million and short-term liabilities at ISK 4,533 million at year-end 2015. At the end of 2014, in comparison, long-term liabilities and obligations were ISK 58,496 million and short-term liabilities ISK 4,155 million. No new loans were raised during the year. In addition to yearly repayments in the amount of ISK 967, the company repaid ISK 6,895 million on the start-up loan from the parent company, Landsvirkjun.
Of interest-bearing debt, ISK-denominated loans accounted for 90% and CFH-denominated loans for 10%. No loan refinancing was required in 2015 as loan repayments and investments were made with cash on hand.
Equity at year-end 2015 stood at ISK 41,956 million, including share capital of ISK 5,903 million, as stated in the balance sheet. By comparison, equity at the end of 2014 was ISK 19,208 million. The equity ratio was 40.7% at year-end 2015, up from 23.5% at the end of 2014.
Net cash from operating activities was ISK 8,113 million in 2015, compared with ISK 6,231 million in 2014. Cash outflows from investing activities for the year were ISK 4,711 million and financing activities amounted to ISK 7,862 million. Cash at year-end 2015 was ISK 8,072 million. The company’s liquidity position is thus very strong.