Landsvirkjun - Financial Statement Release

Landsvirkjun's results for the first six months of the year 2011

Strong liquidity position and increased cash flow

Key figures from the interim financial statements

  -- Operating revenue amounted to USD 217.9 million, which is an increase of
     20.3% compared to the same period last year.
  -- EBITDA was USD 179.2 million. EBITDA ratio is 82.3% of turnover, compared
     to 79.4% for the same period last year.
  -- Cash flow from operations amounted to USD 132.7 million, which is an
     increase of 20.6% compared to the same period last year.
  -- Profit after tax amounted to USD 23.4 million, compared to USD 15.7 million
     for the same period last year.
  -- Average energy price to industrial users was 29.6 USD/MWh during the period
     compared to 25.7 USD/MWh in the year 2010. Average energy price to
     wholesale companies was 3.6 ISK/kWh compared to 3.4 ISK/kWh in the previous
     year.
  -- Landsvirkjun's liquidity position is strong and at the end of June the
     Company had access to the amount of USD 545.0 million. Liquidity position
     is important for the Company in order to be able to cover maturities on
     loans in the next years.


Hordur Arnarson, the CEO:
„The improvement in the operating results during the first six months of the
year is satisfactory, and is mainly explained by increased income due to
renegotiations on energy prices and increasing aluminium prices. At the same
time, there has been little increase in operating expenses between periods. 

It is positive that 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. We will continue to improve these key ratios. 

The project of Budarhals power plant is now underway and the power plant is
estimated to become operative in fall 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 an influence
on when agreements will be reached. “ 

Key figures from operation

The interim financial statements
The interim financial statements of Landsvirkjun are prepared according to
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 revenues, but were previously
recognised among financial income and expenses. Changed presentation in the
income statement does not affect the results or financial standing of the
Group. 

Income statement
Operating revenue of Landsvirkjun Group increased by USD 36.7 million during
the first six months of the year 2011 compared to the same period last year, or
from USD 181.2 million to USD 217.9 million, which is mainly explained by
higher energy prices to industrial users. Higher energy prices are due to
higher aluminium prices on the world market, renegotiations and price
development. Average energy price to wholesale companies (excluding
transmission cost) was 3.6 ISK/kWh during the period from January to June 2011
compared to 3.4 ISK/kWh in the previous year. Average price to industrial users
was 29.6 USD/MWh during the period compared to 25.7 USD/MWh in the previous
year. Average price to industrial users includes transmission cost where
appropriate. 

Operating expenses less depreciation and impairment loss amounted to USD 38.7
million in the period compared to USD 37.4 million for the same period last
year. EBITDA amounted to USD 179.2 million. EBIT amounted to USD 125.4 million.
EBITDA ratio is 82.3% compared to 79.4% for the same period in the year 2010.
Interest expenses and realised foreign exchange differences have increased
between periods. Average nominal interest on long-term loans was around 3.03%
in the period from January to June 2011, but was around 2.57% in the previous
year, taking into account the 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 23.4 million compared to USD 15.7 million for the same
period last year. 

In order to provide a better view of the Group's operating results unrealised
financial items are specified in the management's presentation, according to
which, profit before unrealised financial items amounted to USD 50.5 million in
the period compared to USD 47.5 million for the same period last year, an
increase by 6.3%. 

Balance sheet
Landsvirkjun's total assets according to the balance sheet amounted to USD
4,780 million at the end of June 2011. The Company's equity amounted to USD
1,670 million and equity ratio has increased; it was 34.9% at the end of June
2011 but 34.0% at year end 2010. 

The Group's maturities in excess of borrowings amounted to USD 178.2 million
during the period. The USD 116.8 million increase in debt is due foreign
exchange loss on the Company's long term debt, mainly related to the EUR.
Landsvirkjun's net debt amounted to USD 2,684.8 million at the end of June. 

Cash and cash equivalents at the end of June 2011 amounted to USD 193.3 million
and in addition thereto the Company has access to revolving credit facilities,
which undrawn amount is USD 351.7 million. Liquid assets amounted thus to a
total of USD 545.0 million. Weighted average maturity of the loan portfolio was
around 7.5 years at the end of June. 

Cash flow
The Company's cash flow was good during the period, taken into account the
income base. Working capital from operation (FFO) amounted to USD 129.6 million
compared to USD 114.2 million in the same period of the year 2010. Cash flow
from the Group's operation amounted to USD 132.7 million. Emphasis was placed
on liquidity management instead of investments and investing activities
amounted to around USD 26.2 million. The Group's maturities in excess of
borrowings amounted to USD 178.2 million as mentioned before. 

The Company's cash and cash equivalents decreased by USD 72.2 million during
the period and at the end of June cash and cash equivalents amounted to USD
193.3 million. 

Key ratios
Despite an increase in net debt during the period due to calculated items, key
ratios related thereto have improved. The Company's leverage measured against
operating revenue before depreciation and amortisation (net debt/EBITDA)
decreases from 8.97x at year end 2010 to 8.05x at the end of June 2011. The
ratio of working capital from operation (FFO) against net debt has also
improved and increases from 8.2% to 8.7% at the end of June 2011. 

As for financial items, interest coverage ratio (EBITDA/interest expenses)
decreases to 3.2x, compared to 3.51x at year end 2010. The ratio of working
capital from operation (FFO) against interest expenses decreases from 2.58x at
year end 2010 to 2.32x. 

As return on equity is calculated from profit the calculation of embedded
derivatives and unrealised foreign exchange differences can have considerable
effect on the results, but return on equity increased from 4.7% for the year
2010 to 5.1% at the end of June 2011. 

Operating outlook
The construction of Budarhals power plant is on schedule. Landsvirkjun has
secured the financing of the project. Preparation work for the next power plant
projects, which are assumed to be located at Bjarnarflag and Theistareykir, is
being carried out and involves further drilling for geothermal heat, road
construction and tenders for the work of projecting and designing the power
plants. 

Landsvirkjun's income is still considerably contingent on the world market
price of aluminium. Aluminium prices are currently at acceptable levels though
price development in coming periods is uncertain. 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. Therefore, the Company has hopes
that cash flow generation continues to be good. 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. 



Further information is provided by Rafnar Larusson, the Company's CFO, via
telephone number +354 515 9000. 


Reykjavik, 16 August 2011


See attachments.

Attachments:

Árshlutareikningur jan-júní 2011.pdf

110816 Press release.pdf