HS Orka hf. - Annual Financial Report

HS Orka hf announces Consolidated Financial Statements for the year ended December 31, 2016

Consolidated Financial Statements for the year ended December 31, 2016 of HS
Orka hf. (the “Company”) were approved at a Board of Directors meeting on 27
February 2017. The financial statements of HS Orka hf. are prepared in
accordance with International Financial Reporting Standards as adopted by the
European Union and are stated in Icelandic krónur (ISK). The financial
statements can be found on the Company´s website: http://www.hsorka.is 

Net profit for the year was ISK 3,104 million, up from a net loss of ISK 247
million in 2015, with the movement predominantly due to non-cash gains in the
year further discussed below. 

Operating revenue was ISK 7,099 million against 7,343 million in 2015, with the
decrease primarily due to a reduction in aluminum based sales (as a result of a
decline in aluminum prices in 2016) plus a decrease in the sale of geothermal
water due to unusually warm weather in 2016. This is somewhat offset by a
continuing growth in sale of electricity to the retail market. 

Production cost increased by 13% to ISK 3,671 million in 2016 mostly because of
an increase in power purchases and a rise in depreciation derived from the
revaluation of the Svartsengi Power Plant at year-end 2015. 

Research and development costs were higher in 2016 due to the deep drilling
program at Reykjanes. Drilling was completed at a depth of 4,650 meters.
Initial well readings (427ºC temperature, 340 bars pressure) indicate
supercritical conditions at the base of the well, comprising significantly
higher energy content versus conventional high-temperature geothermal steam. 

Legal fees were higher in 2016 due to arbitration proceedings regarding the
power purchase agreement with Norðurál Helguvík ehf (“Norðurál”). HS Orka hf.
received positive results in November 2016, indicating that the power purchase
agreement had lapsed due to certain circumstances, and therefore was at an end.
The panel further determined that the ending of the contract was not due to any
fault on the part of the Company. All counterclaims advanced by Norðurál
Helguvík ehf. in the arbitration were denied. 

Finance-related income increased to a gain of ISK 2,364 million (2015: ISK
3,141 million loss). This was driven primarily by an increase in future
aluminum prices during the year, resulting in an increase in the fair value of
embedded derivatives in power purchase agreements of ISK 1,467 million (2015:
ISK 3,248 million loss). Currency gains were ISK 970 million compared to a gain
of ISK 197 million in 2015. 

A total comprehensive profit of ISK 2,757 million was recorded against ISK
2,633 million profit in 2015. The Company’s equity ratio is 66.7% compared to
58.6% at year-end 2015. 

Further information can be provided by Ásgeir Margeirsson, Managing Director of
HS Orka hf., tel. 520 9300 / 855 9301.

Viðhengi:

Financial Statements for 2016.pdf

Press release - 2016 HS Orka Financial Statements.pdf