Landsvirkjun - Financial Statement Release

Landsvirkjun's Financial Statements for the year 2011

Reduced debt and increased cash flow

Key figures from the financial statements

  -- Operating revenues amounted to USD 436.2 million, which is an increase of
     15.5% from the previous year.
  -- EBITDA amounted to USD 345.2 million. EBITDA ratio is 79.1% of turnover,
     compared to 78.9% in the year 2010.
  -- Cash flows from operations amounted to USD 267.2 million, which is an
     increase of 16.4% from the previous year 2010.
  -- Profit after tax amounted to USD 26.5 million, compared to USD 72.9 million
     for the previous year.
  -- Landsvirkjun's liquidity balance is solid and at year end the Company had
     access to the amount of USD 645.7 million. Strong liquidity balance ensures
     the Company's ability to cover maturities on loans in the next years.
  -- Net liabilities decreased during the year by USD 171 million and amounted
     to USD 2.503 million at year end.
  -- The Company's Board of Directors will during the Annual General Meeting
     propose a dividend payment to the owners in the amount of ISK 1.8 billion
     (USD 14.2 million) for the year 2011.
1



Hordur Arnarson, the CEO:

 “The Company's financial standing improved from the previous year, which is
mainly explained by increased income due to renegotiations on energy prices and
increasing aluminium prices. 

As a result of decreased debt and improved cash flow in the year key ratios for
the Company's financial strength continue to develop in the right direction,
though the Company is still not able to stand the comparison with foreign
energy companies and meet requirements of foreign credit rating agencies. It is
therefore important that we continue to improve these key ratios even further
in the next years. 

The project of Budarhals power plant is now underway and the power plant is
estimated to become operative at year end 2013. The Company's next projects
will be situated in North-East Iceland, where this year, significant
preparation work for the power plants of Bjarnarflag and Theistareykir is being
carried out. 

The Company has met considerable interest from both new and older customers to
buy electric power but the situation in the world economy can have a
significant influence on when agreements will be reached.” 



Key figures from operation


The financial statements
The financial statements of Landsvirkjun are prepared in accordance with
International Financial Reporting Standards (IFRS). The financial statements
are in USD, which is the functional currency of the parent company. Realised
aluminium hedges are now recognised among revenue but were previously
recognised among financial items. Changed presentation in the income statement
does not affect the return or financial position of the Group. 


Income statement
Operating revenues of Landsvirkjun Group increased by USD 58.5 million between
years, or from USD 377.6 million to USD 436.2 million. The increase is mainly
explained by higher energy prices, but sold volume decreased remotely between
years. Increased energy prices are due to higher aluminium prices in the world
market and development in price level indices. Average wholesale price to
retail sales companies (excluding transmission cost) was 3.6 ISK/kWh in the
year 2011 compared to 3.4 ISK/kWh the previous year. Average price to
industrial users was 28.7 USD/MWh in the year 2011, compared to 25.7 USD/MWh in
the previous year. Average price to industrial users here includes transmission
where appropriate. Transmission income remained virtually the same between
years calculated in USD. 

Operating expenses less depreciation and impairment loss amounted to USD 91
million in the year compared to USD 79.6 million in the previous year. The
Group's EBITDA amounted to USD 345.2 million. EBIT amounted to USD 237 million.
EBITDA ratio is 79.1%, compared to 78.9% in the year 2010. Interest expenses
increased between years while foreign exchange gain decreased. Average nominal
interests on long-term loans were around 3.5% in the year 2011 compared to 2.6%
in the previous year, taking into account state guarantee fee. 

A part of the parent company's electric power sales agreements are related to
aluminium price development. International Financial Reporting Standards
require that the aluminium price link be calculated as embedded derivatives.
Calculated change in the value of the embedded derivatives is recognised in the
income statement and may have considerable effect on the Company's financial
items. Foreign exchange differences and fair value changes are mostly
unrealised, which must be kept in mind in the evaluation of the Company's
results. Profit for the period amounted to USD 26.5 million compared to USD
72.9 million in the previous year. 

Unrealised financial items are specified in the management's presentation,
according to which profit before unrealised financial items amounted to USD
106.1 million in the year compared to USD 90 million in the previous year,
which is an increase by 17.9%. 


Balance Sheet
Landsvirkjun's total assets according to the balance sheet amounted to USD
4,622 million at year end 2011.  The Company's equity amounted to USD 1,661
million and equity ratio has increased; it was 35.9% at year end 2011 but 34.0%
at year end 2010. 

Interest bearing liabilities amounted to USD 2,741 million at year end 2011 and
decreased by USD 198 million from year end 2010 when they amounted to USD 2,939
million. Taken into account cash and cash equivalents and restricted cash
Landsvirkjun's net debt amounted to USD 2,503 at year end. Weighted average
maturity time of the loan portfolio was around 7.6 years 

Cash and cash equivalents at year end 2011 amounted to USD 230 million and in
addition thereto the Company has access to Revolving Credit Facilities, which
undrawn amount is USD 286 million. Furthermore, undrawn long term loans amount
to USD 130 million. Liquid assets amounted thus to a total of USD 646 million. 


Cash flow
Landsvirkjun improved its cash flow in the year 2011. Funds from operation
(FFO) amounted to USD 255.6 million compared to USD 218.6 million in the year
2010. Cash flow from the Group's operation amounted to USD 267.2 million. 
Investment activities amounted to USD 107.7 million whereof the project at
Budarhals power plant weighs the most. Amortisation of loans in excess of
borrowings amounted to USD 185.3 million. The Company's cash and cash
equivalents decreased by USD 35.6 million in the year and amounted to USD 230
million at year end. 


Key ratios
The Company's net debt decreased during the year and key ratios related thereto
improved. The Group's leverage measured against operating revenue before
depreciation and amortisation (net liabilities / EBITDA) decreases from 8.97 at
year end 2010 to 7.25 at year end 2011. The Company aims at decreasing this
ratio even further by continuing to decrease debt. Ratio of funds from
operations (FFO) to net debt has also improved and increases from 8.2% to 10.2%
at year end 2011. 

Taking into account financial items interest spread (EBITDA / net interest
expenses) decreases to 3.06 from 3.68 at year end 2010 due to higher interest
expenses. Ratio of funds from operations (FFO) to interest expenses decreased
due to the same reason from 2.58 at year end 2010 to 2.19 at year end 2011. 

As return of equity is calculated on profit, embedded derivatives and
unrealised foreign exchange difference can have considerable effect on the
result, but return on equity decreased from 4.7% in the year 2010 to 1.6% at
year end 2011. 


Operating outlook
The construction of Budarhals power plant is on schedule and the power plant is
estimated to become operative at year end 2013. Landsvirkjun has secured the
financing of the project. The Company continues the preparation work for the
next power plant projects, among others geothermal heat power plants in
North-East Iceland, in order to meet the demand of new and existing customers. 

Landsvirkjun's income is still considerably contingent on the world market
price of aluminium, but aluminium prices during the first months of the year
2012 are quite lower than last year's average. Interest rates in the main
financial markets are currently low, which is good for Landsvirkjun as the main
part of its loans carry floating interests.  The Company's results will
therefore, as before, for the most part be subject to the development in
aluminium prices, interest rates and foreign exchange rates. 



Reykjavik, 16 March 2012


Further information is provided by:
Rafnar Lárusson, CFO
Tel. 515 9000



About Landsvirkjun
Landsvirkjun was established in the year 1965 and is an energy production
company owned by the Icelandic nation. Landsvirkjun's objective is to maximize
yield on the energy sources entrusted to the Company with emphasis on
sustainable utilization, creation of values and efficiency. The Company
produces electricity from renewable energy resources, hydroelectric power and
geothermal heat. Landsvirkjun produces 75% of all electricity in the country
and is the biggest energy producer in Iceland. The Company is at the same time
leading in sustainable utilization of energy resources and contributes to
increased knowledge, innovation and technical development.

Attachments:

Arsreikningur LV 2011 samsta.pdf

120316 Press release.pdf