Reykjavík, 2016-10-03 19:05 CEST (GLOBE NEWSWIRE) -- Orkuveita Reykjavíkur’s (OR; Reykjavík Energy) finances will continue to improve in the next years despite considerable investments and lowering of tariffs January 1st 2017.
This is the result of financial forecasts for years 2017 through 2022 which the company’s Board of Directors passed today. Net debt will decrease by one-third during the period. The forecasts are consolidated for OR and its subsidiaries, the most significant of which are Veitur Utilities, ON Power and Reykjavik Fibre Network.
Lower Tariffs
The Plan which OR has operated by since 2011, expires at year-end 2016. The prudence in operations The Plan has instilled, has become intrinsic to managers and staff and a part of a new company-culture within the group. Customers will benefit directly from this and from the beginning of year 2017 tariffs for electricity distribution and potable water will be lowered. Cost-cutting in these operations has improved the rate of return to the limit set by law. New rates will be published in December. Veitur Utilities’ electric grid extends to about one-half of the Icelandic population and its water works to about 40% of Icelanders. Extensive investments in heating systems and sewerages don’t allow reducing those tariffs.
Dividends Forecast
As a part of The Plan, OR’s owners – The City of Reykjavík, The Township of Akranes and the Municipality of Borgarbyggd – have not received dividends. In the attached forecasts, dividend payments are foreseen in the year 2018. Before dividends are paid, it has to be affirmed that OR’s finances meet the financial conditions for payment of dividends that the owners unanimously agreed upon in year 2015. Such payments also have to pass a stress-test. Finally, it is in the hands of the owners at a general meeting to decide upon this. The forecasts anticipate that dividends will gradually increase during the period as servicing of loans decreases.
Considerable investments
The renewal of mains in all utilities will be continued. Among them are hot-water mains in the Capital Area, West-Iceland and South Iceland. Also, important coupling points in the electric grid will be renewed, i.e. sub-stations. The construction of new sewage systems in West-Iceland will, for the most part, be concluded by year-end 2016 and investment in those systems decrease. The fibre optic network will gradually be extended to remaining homes in the Capital Area during the period of the forecasts. Urban areas of Kópavogur will be fully connected by year-end 2017 and Hafnarfjördur and Gardabær a year later, allowing every household to get a 1.000 MB/sec. connection speed.
Pressure drops in the geothermal reservoirs for Hellisheidarvirkjun call for increased drilling during the forecasted period. Drilling investments are estimated at ISK 20 billion for the next 6 years and additional ISK billion for re-injection wells. The pipeline connecting the Hverahlid geothermal field to the plant, commissioned in January 2016, now delivers the equivalent of 50MW of electricity.
Debt Decrease
Annual payments of debt and interests will amount from ISK 15 to 20 billion for years 2017 through 2022. The investments forecast will be by majority financed from cash-flow but also with new borrowing. The forecasts suppose that OR’s net debt will decrease by over ISK 40 billion for the period or 32%.
The net-debt/EBITDA ratio was 18 at year-end 2009, is forecast at 5.3 at year-end 2016 and 2.7 at year-end 2022, according to the forecasts.
OR’s Financial Forecast for year 2017 and long-term forecast for 2018-2022 are now under consideration by the Reykjavík City Council as a part of the City’s consolidated budget.
Beyond Budgeting
In preparing this forecast, the companies within the OR group took further steps towards strategic forecasting through the Beyond Budgeting method. That involves simplifying traditional budget work, forecasts are more frequent resulting in adjustments to existing budget. The method involves an increased number of managers and other employees in the financial work, who base their decisions on documented policies and clear goals. Accordingly, the attached document is named OR Financial Forecast instead of OR Budget as in previous years.
Contact:
Mr. Bjarni Bjarnason
CEO
Tel: +354 516 6100
