A Successful Plan Completed - OR Annual Financial

Reykjavík, 2017-03-07 15:44 CET (GLOBE NEWSWIRE) -- The results of a series of measures undertaken by Orkuveita Reykjavíkur (OR; Reykjavík Energy) since early 2011, known as The Plan, exceeded expectations. The goal was to improve the cash flow of OR by approximately ISK 50 billion. According to the attached final progress report, cash flow improved by ISK 60 billion through year-end 2016.

OR‘s Board of Directors today approved the consolidated annual financial statements for year 2016. Profits from operations are in line with previous years but in 2016 the appreciation of the Icelandic krona also contributed to profits which were ISK 13.4 billion for the year, or 12.0% return on equity.

The Plan‘s final progress report

Since OR‘s owners–where The City of Reykjavík is predominant–and OR‘s BoD agreed on the Plan in March 2011, the company has published a progress report on a quarterly basis. According to the final results, issued today, the Plan‘s measures improved OR‘s cash flow by ISK 60.2 billion. The original target was set at ISK 51.3 billion. The success of The Plan was first and foremost due to internal actions which exceeded targets by 20%. The Plan’s external measures –a subordinated loan from owners and increased tariffs–exceeded targets by 13%. Of the Plan’s total returns, the tariffs were responsible for 18%.

Reductions in operating cost for the Plan’s duration returned ISK 8.0 billion, surpassing original targets by 60%.

Lower real-term expenses than in 2010

The consolidated annual financial statements, released today, reveal stable and good operational results. EBIT amounted to ISK 15 billion, an increase of 3.7% from previous year. Revenues increased by ISK 1.1 billion between years 2015 and 2016 and expenditures by ISK 880 million. Wages increased considerably in accordance with collective bargaining agreements. Furthermore, utility-related undertakings have increased in line with mounting activities in the construction industry and changes in operations, as previously outsourced utility metering services have been taken in-house, resulted in increased revenues and expenses.

However, when OR’s operating cost is measured at year 2016 price levels, it materializes that real-term operating cost in year 2016 were lower than in year 2010. This is due to the rationalization of operations introduced through The Plan and good control of expenses since. For the foreseeable future, OR and the subsidiaries will benefit from the culture of cost-awareness and practicality implemented with The Plan. The group’s customers benefitted directly from the success of The Plan as tariffs were lowered in the beginning of year 2017.

Effects of exchange rates on bottom-line results

OR’s financial items of the year 2016 were positive for the first time for several years mostly due to the appreciation of the Icelandic currency as it decreased the fair value of loans denominated in foreign currencies. Exchange rate differences amounted to ISK 8.5 billion in the income statements.

OR has gradually serviced its loans and net debt has decreased by almost ISK 100 billion since year 2009. Simultaneously, equity ratio has almost tripled.

Bjarni Bjarnason, CEO

It is important that The Plan worked out and that we managed to utilize it for improvements in multiple other aspects of our operations than finances alone. The solidarity between OR’s owners, BoD, and staff during the years of The Plan has also been gratifying.

Foresight, efficiency, and integrity are the core values of OR and the subsidiaries. I think that the final report on The Plan’s progress published today clearly shows the company’s operational efficiency and we are determined to keep it that way.  We are faced by continuous changes and our foresight will continue to be tested when we aspire to seize the opportunities these changes bring. Among them are the introduction of e-mobility in Iceland and the implementation of cost effective smart-technologies for the power grid and district heating services. In accordance with the track record of The Plan, we will continue to focus on taking long term operational decisions based on scrutinized analysis and be prepared to implement them in a timely manner. As before, we will be transparent by informing the public on OR’s operations and the challenges we are facing.

Managers’ overview

Note: In corresponding tables in recent releases accompanying OR’s financial statements, the values for interest income and interest expense for years 2012 and 2013 have been misstated as they have represented income and expenses from income statements instead of cash-flow.

         Contact:          Bjarni Bjarnason          CEO          +354 516 7707