English summary

The Company

RARIK (Iceland State Electricity) was founded in April 1946 and started operations in January 1947. Its function and main responsibility through the years has been the electrification of most parts of Iceland, particularly the rural areas. The main tasks being to procure, distribute and sell electricity in its operating area and thus provide and create added value to its customers.

By devoting its energy to building an electric power transmission and distribution system for the country’s rural as well as urban areas, RARIK has played an important role in the development of individual regions in the country.

Electrical and industrial development went hand in hand in Iceland. RARIK played the principal role in the electrification of Iceland’s rural areas and now provides electricity via the grid system to around 60 population centres around Iceland. Its distribution network covers around 80-90% of the country’s inhabitated areas and serves approximately 15% of the population. The length of the high voltage distribution network is ca 9,360 km and although originally all high voltage distribution was via overhead power lines, by end of 2020 69% of the lines had been replaced with underground cables.

Following the passage of a new Icelandic Electricity Act in 2003 a number of significant changes took place in the field of energy production, transportation, distribution and sales. In accordance with the new act an independent company, Landsnet hf, began operation on the 1st of January 2005. This company was created to organize the transmission of electric power between different parts of Iceland and to its largest population centres. RARIK owns a 22.5% share in Landsnet hf.

The new act also meant that consumers were able to choose an electricity supplier, and thereby competition was initiated in the field of electricity sales in Iceland.

In accordance with the new act, RARIK was incorporated in July 2006, and this limited company took over all activities of the State Electric Power Works as off the 1st of August 2006 – just 60 years after Parliament adopted the act on the Establishment of the State Electric Power Works. RARIK’s operations were divided at the beginning of the year 2007 into its concessioned activities, which are operated by the parent company RARIK ohf, and its competitive business activities, which were transferred to a subsidiary Orkusalan ehf.

The subsidiary, Orkusalan ehf, produces, buys and sells electricity to homes, businesses and institutions throughout the country and is 100% owned by RARIK.

In 2008 a new subsidiary was established, RARIK Energy Development Ltd (RED), also 100% owned by RARIK. The main task of this subsidiary is energy research and development, both domestic and abroad.

In addition, RARIK owns and operates five hotwater supply utilities. Until December 2020 there were three geothermal utilities and two district heating ones, but as of late December the district heating utility in Hofn was replaced by a new geothermal utility. The number of employees of RARIK and subsidiaries at the end of 2020 was 214.

Finances

The 2020 operation of the RARIK group differed somewhat, overall, from what projections anticipated. Operating income decreased from the year before, falling by 3%, while operating expenses increased by approximately 1.5%. Operating profits before financial items decreased by 20% from 2019. Financial items were much less favourable in 2019, and the company’s profit from regular operations, therefore, approximately ISK 1,3bn less than the year before. The effects of associated companies were positive in 2020. The year’s profit, having taken account of taxes, was approximately ISK 1,8bn, a decrease of around 35% from 2019.

Operations

The group’s income decreased between years due to a decrease in energy sales and decreased income from connection fees which were, nevertheless, in excess of projections, although there was also a slight decrease in income from distribution.

Operating profits for 2020 (EBIT) amounted to approximately ISK 1,8bn, which is around 11% of the year’s turnover. Operating profit before depreciation, financial items and taxes (EBITDA) was approximately 32.4% of turnover, or ISK 5,3bn. The tariff for distribution was raised by approximately 2.5% at the beginning of 2020. Despite this increase, income authorisations in both rural and urban areas have not been fully utilised. The tariff for RARIK’s district heating did not change during the year. Orkusalan raised its prices by 2.5% at the beginning of the year in line with Landsvirkjun’s increases of wholesale prices to Orkusalan.

The total operating income of the group during the year was ISK 16,3bn, an increase of approximately 3% from the previous year. Operating expenses amounted to ISK 13,5bn, which is an increase of 1.5% from 2019. Net financial expenses in excess of financial income amounted to approximately ISK 1,6bn, or approximately 6.8% of the interest-bearing debt at the end of the year. Operating results for 2020, excluding the associated company and taxes, were positive to the tune of around ISK 1,2bn, which is half the amount in 2019.

The effects of the associated company Landsnet hf. were positive by ISK 832 million. The year’s profit after income tax was ISK 1,8bn. Due to RARIK’s share in translation differences or exchange rate differences resulting from the translation of the accounts of the associated company Landsnet into Icelandic kronur to the tune of ISK 529m and due to the effects of power plant reassessments and changes to evaluation of an associated company amounting to a total of around ISK 3,5bn, the total profit for 2020 is, therefore, ISK 5,8bn, as stated in the overall profits for the year attached to the income statement.

Financial position

RARIK’s total assets according to the balance sheet amounted to ISK 7,89bn. Liabilities at year-end amounted to ISK 29,1bn. As a result, RARIK’s equity is ISK 49,7bn and its equity ratio 63.1%. The current ratio for the year was approximately 1,5. Investments in 2020 amounted to ISK 7,5bn, while total investments in 2019 amounted to ISK 5,5bn. The bulk of the investments is due to the renewal of the distribution system and the geothermal heating for Höfn í Hornafirði. Investments in distribution systems during the year amounted to a total of ISK 6,5bn, and investments in power plants were approximately ISK 500m. In 2020, RARIK purchased the distribution system of

Rafveita Reyðarfjarðar (Reyðarfjörður Electrical Utility). The purchase price was ISK 440m. In addition, Orkusalan purchased the energy sale and energy production of the company for ISK 130m.

Return on equity in 2020 was 4.1%. By the end of the year, foreign liabilities were just under 12% of interest-bearing debts.

Prospects for 2021

While the effects of the coronavirus pandemic continue, there are general uncertainties in all operations, although the prospects for RARIK’s operation in 2021 are good. Profit from the operation of the company before the impact of the associated company and taxes is expected to increase slightly from 2020. The investment schedule for 2021 is lower than in 2020, or approximately ISK 6,2bn. Work on the renewal of the distribution system will continue in accordance with long-term plans, but less will be invested in RARIK heating utilities.

KEY FIGURES FROM OPERATIONS

ISK 2020 2019 2018

Operating revenues mkr 16,268 16,777 16,637

Operating expenses

mkr 13,470 13,276 13,022 Operating profits mkr 2,798 3,501 3,615 Financial income (fin, expenses) mkr -1,612 -1,059 -1,274 Impact of associated company mkr 832 770 909 Profits before taxes mkr 2,018 3,212 3,250 Income tax mkr -237 -486 -469 Profits before taxes mkr 1,781 2,726 2,781 Total assets mkr 78,854 68,306 65,953 Equity mkr 49,722 43,926 41,132 Liabilities mkr 29,132 24,380 24,821 Cash from operating activities mkr 4,303 4,307 3,755 Interest expenses paid mkr 689 734 667 EBITDA mkr 5,271 5,740 5,569 Interest coverage 7,65 7,82 8,35 Equity ratio 63.1% 64.3% 62.4% Population of distribution area 54,371 53,523 53,152 Customers, meters (electricity) 42,608 44,223 43,564 Distribution of electricity GWh 1,213 1,219 1,311 per capita kWh 22,301 22,775 24,672 High Voltage System km 9,357 9,342 9,047

Í Reyðarfirði er rafmagn frá RARIK meðal annars nýtt til fiskeldis. Þar reka Laxar fiskeldi umfagnsmikið og fullkomið sjókvíaeldi fyrir kröfuhörðustu markaði heims bæði í Evrópu og Bandaríkjunum.

Stórir viðskiptavinir RARIK í fjölbreyttum rekstri um allt land.

Verksmiðja Kjörís í Hveragerði er veigamikill hluti af atvinnulífi bæjarins. Hér tekur starfsmaður við kjöríspinnum af færibandi áður en þeim verður dreift út um allt land með einni öflugustu frystivörudreifingu landsins.

Hjá SS á Hvolsvelli er rekin ein stærsta og fullkomnasta kjötvinnsla landsins. Hér eru gómsætar SS pylsur á leið í pakka undir vökulum augum starfsmanna. Starfsmenn Mjólkursamlags KS á Sauðárkróki huga að búnaði sem gerjar mysu til áfengisgerðar.

SKAMMSTAFANIR OG SKÝRINGAR

kV = kílóvolt kW = kílówatt MW = megawatt = 1.000 kW kVA = kílóvoltamper MVA = megavoltamper = 1.000 kVA kWst = kílówattstund MWst = megawattstund = 1.000 kWst MWe = megawött rafmagns GWst = gígawattstund = 1.000 MWst TWst = terawattstund = 1.000 GWst MVAr = megavoltamper reactive mkr = milljón krónur = 1.000.000 krónur st = klukkustund ISK = Icelandic crowns mkr = million Icelandic crowns h = hour RARIK = Iceland State Electricity RED = RARIK Energy Development (RARIK subsidiary) Orkusalan = Energy sales and production (RARIK subsidiary) hf. = Ltd ehf. = Private Ltd ohf. = Public Ltd, PLC

Útgefandi/published by RARIK ohf. Dvergshöfða 2 – 110 Reykjavík Sími/Tel. 528 9000 – Fax 528 9009 rarik@rarik.is – www.rarik.is

Ábm.: Tryggvi Þór Haraldsson forstjóri Efnisöflun: Rósant Guðmundsson kynningarstjóri Umsjón: Athygli ehf. Hönnun: Ritform ehf. Prentun: Litróf – vistvæn prentsmiðja

Ljósmyndir: Anton Brynjar Ingvarsson, Arnar Valdimarsson, Emil Þór, Hafliði Bjarki Magnússon, Helga Sigurbjörnsdóttir, Helgi Rasmussen Tórzhamar, Helgi Viðar Björnsson, Hlynur Orri Helgason, Juliette Rowland, Lena Marteinsdóttir, Logi Snær Knútsson, Ómar Imsland, Pétur Ágúst Unnsteinsson, Rósant Guðmundsson, Sigurjón Gunnarsson, Þórarinn Elí Helgason, Kjörís, Laxar fiskeldi, Mjólkursamlag KS, Orkusalan, SS, Tesla.

Ljósmynd á kápu: Stofnpípa lögð um 20 km leið frá Hoffelli að Höfn. Ljósmyndari: Pétur Ágúst Unnsteinsson