Consolidated Financial Statements 2021
ssn. 551298-3029
Contents
Orkuveita Reykjavíkur emphasizes these United Nations‘
Sustainable Development Goals in its operations
Financial ratios and scope of services
Operating summary
Endorsement by the Board of Directors and the CEO
Independent Auditor´s Report
Income Statement
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
3
4
5
13
17
18
19
20
21
22
These Financial statements are translated from the Icelandic original. Should there be
discrepancies between the two versions, the Icelandic version will take priority.
Financial ratios
46,1%
47,3%
49,3%
47,7%
51,6%
0,0%
10,0%
20,0%
30,0%
40,0%
50,0%
60,0%
2017 2018 2019 2020 2021
Equity ratio ROA
6,2
6,4
6,0
6,1
5,5
0,0
2,0
4,0
6,0
8,0
2017 2018 2019 2020 2021
Net debt / Net cash from operation activities
0,9
1
1,1
1,3 1,3
0,0
0,4
0,8
1,2
1,6
2017 2018 2019 2020 2021
Current ratio without aluminum derivative
Services
Borgarbyggð
Reykjanesbær
Ólafsvík
Grundarfjörður
Stykkishólmur
Akranes
Hvalfjarðarsveit
Þingvellir
Búðardalur
Andakílsárvirkjun
Vík
Hvolsvöllur
Hella
Flúðir
Selfoss
Hellisheiðarvirkjun
Vegamót
Ísafjörður
Blönduós
Víðihlíð
Varmahlíð
Mývatn
Skjöldólfsstaðir
Egilsstaðir
Stöðvarfjörður
Djúpivogur
Jökulsárlón
Freysnes
Kirkjubæjarklaustur
Höfn
Akureyri
Húsavík
Dalvík
Sauðárkrókur
Hveragerði
Grímsnes
Biskupstungur
Ásahreppur
Þorlákshöfn
Nesjavallavirkjun
Hafnarfjörður
Veitur
Orka Náttúrunnar
Reykjavík
Garðabær
Kópavogur
Ljósleiðarinn
Carbfix
Seltjarnarnes
Mosfellsbær
6,4%
6,1%
4,9%
4,9%
5,9%
0,0%
2,0%
4,0%
6,0%
8,0%
2017 2018 2019 2020 2021
________________________________________________________________________________________
Operating year 2021 2020 2019 2018 2017
Amounts are at each years price level in ISK millions
Revenues .......................................................................... 51.890 48.627 46.570 45.916 43.666
Expenses ........................................................................... 18.380)( 19.172)( 18.398)( 17.299)( 17.285)(
thereof energy purchase and distribution ....................... 5.872)( 5.793)( 5.659)( 6.106)( 5.949)(
EBITDA .............................................................................. 33.510 29.454 28.172 28.617 26.380
Depreciation ...................................................................... 13.257)( 13.056)( 12.121)( 10.271)( 9.063)(
EBIT ................................................................................... 20.253 16.398 16.051 18.346 17.318
Cash flow statement:
Received interest income .................................................. 256 397 337 398 572
Paid interest expense ........................................................ 4.398)( 4.940)( 5.373)( 4.806)( 4.186)(
Net cash from operating activities ..................................... 25.582 23.152 22.864 21.054 20.595
Working capital from operation ......................................... 22.412 22.357 21.684 24.337 21.293
Liquid funds
31.12.2021 31.12.2020 31.12.2019 31.12.2018 31.12.2017
Deposits and marketable securities .................................. 14.657 14.867 9.833 7.223 6.125
Cash and cash equivalents ............................................... 10.320 15.820 8.657 10.988 6.255
Undrawn credit lines .......................................................... 9.629 11.776 11.600 11.000 10.000
Liquid funds total ............................................................... 34.606 42.463 30.090 29.211 22.380
Operating summary
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
4
Consolidated Financial Statements of Orkuveita Reykjavikur 2021 5
Report and statement of
the Board of Directors and the CEO
Reykjavík Energy (OR) is a joint venture that is governed by Act no. 136/2013 on Reykjavík Energy. OR's statutory
role is to engage in the harnessing, production and sale of electricity, hot water and steam, and the operation of
basic systems, such as a distribution system for electricity, heating, water supply, sewerage and fiber optics system,
as well as other similar activities. It also encompasses other operations that can benefit from OR’s research,
knowledge, or facilities, as well as industrial development and innovation, as this relates to the company's core
operations.
The overview below shows the core operations of the Reykjavík Energy Group. Below are the main business
processes in the value chain and, finally, there are specific key stakeholders for each link in the chain.
Value chain
RESOURCES
– Searching for and
researching resources
and acquiring rights to
utilize them
– Monitoring and control
of utilization
NEW DEVELOPMENTS
– Design and acquisition
of permits
– Purchase of materials,
equipment and services
of contractors
– Inspections and tests
PROCESS AND
DISTRIBUTION
– Reception of new
construction for
operations
– Control and monitoring
of processing
– Inspection,
maintenance and
renewal
– Purchase of materials,
equipment and services
BUSINESS AND SERVICE
– Acquisition and
registration of customers
– Connection of homes and
companies
– Reading meters and
issuing invoices
– Response to
malfunctions
RESOURCES
– Reception
monitoring
Stakeholders
Public entities
Licensing, organization
and supervision
General public
Reviews on licences,
right of appeal
OR owners
Confirmation of plans in
new areas
Public entities
Licensing, organization
and supervision
Contractors and
suppliers
Construction, supply of
materials, consultancy,
financing
General public
Reviews and right of
appeal
OR owners
Confirmation of plans in
new areas
Public entities
Monitoring of operations
and resource utilization
General public
Tips, information
Customers
Information on service
failure
Contractors and
suppliers
Construction, supply of
materials, consultancy,
financing
Customers
Payment of invoices,
reading of meters
Public entities
Monitoring of security of
supply, usage
measurements and prices
Public entities
Environmental impact
monitoring
General public
Tips, information
Employees, organisations and associations of people and companies, as well as inspectors of working conditions in the labor market
have an interest in the enti
r
e value chain
The Consolidated Financial Statements are prepared in accordance with International Financial Reporting
Standards (IFRS), as confirmed by the European Union, and the additional requirements set out in Icelandic law
and regulations regarding financial statements of companies with listed bonds. It contains the annual accounts of
Reykjavík Energy and its subsidiaries.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021 6
Report and statement of the Board of Directors and the CEO, cont.:
Alongside the publication of these Financial Statements, OR electronically publishes the integrated Annual Report
of OR for 2021.
It is prepared in accordance with the ESG (environment, social, governance) reporting guide of
Nasdaq OMX Nordic. It gives a detailed account of governance, environmental and climate issues, human
resources and social issues, the Group's business model and value chain, the main business processes and
stakeholders in the operation, OR's human rights policy and how OR prevents fraud and bribery. The report receives
independent external inspections and endorsements, and is also endorsed by the Board and CEO of OR. OR 2021's
annual report is accessible on https://arsskyrsla2021.or.is. The report can also be found at the same URL in pdf
format. References to the report are in this Report‘s individual subsections.
The Reykjavík Energy Group
Reykjavík Energy fulfills its statutory role in the community under four brands, in addition to the parent company's
brand, which plays a leadership role within the Group. The owners of Reykjavík Energy, at the beginning and end
of 2021, were the City of Reykjavík (93.539%), Akranes municipality (5.528%) and Borgarbyggð municipality
(0.933%). All subsidiaries within the Group are wholly owned by OR, see explanation 35.
The parent company manages the group's finances and procurement, human resources and
information technology, operates a service division with a joint customer service and invoicing, and
researchers that conduct research and innovation for the Group's companies. The parent
company also operates specialist units that provide leadership and services, e.g. in terms of health
and safety, environmental and climate issues, legal issues, and communications.
The average number of full-time equivalent positions during the year was 581.4.
The Group's permanent employees at the end of 2021 were 496, 29% of whom were women and
71% men. At the end of the year, there was an equal number of men and women at OR Group‘s
mana
g
erial level.
Compan
y
Veitur PLC
OR Vatns- o
g
fráveita s
f
Orka náttúrunnar PLC
ON Power PLC
Reykjavík Fibre Network LTD Carbfix PLC
Field of work
Veitur operates electric utilities
and district heating utilities,
almost all of which are
licensed in their area of
operation. Veitur takes care of
the operations of OR vatns- og
fráveita sf. (en. OR Water and
sewerage partnership), which
performs the statutory
obilgations of municipalities
with regard to water supply
and sewerage, especially in
those municipalities that own
OR.
Orka náttúrunnar PLC
produces hot water and
electricity at the Nesjavellir
geothermal power plant and
electricity at the Andarkílsá
hydropower station. The water
goes to Veitur‘s district
heating in the capital area,
while the electricity goes
mostly to the wholesale
market. ISK is the working
currency.
Orka náttúrunnar manages
the operations of ON Power
PLC which produces hot
water and electricity at the
Hellisheiði geothermal power
plant. The water goes to
Veitur‘s district heating in the
capital area and the electricity
to the wholesale market. USD
is the workin
g
currenc
y
.
Reykjavík Fibre Network lays
and operates an extensive
fiber-optic network that is
utilized by telecommunications
companies in order to provide
network services to
households and companies.
Carbfix is a research,
innovation, and consulting
company in the field of carbon
sequestration. It provides
services to companies both
within and outside the OR
Group.
Main Acts that apply to the operations
The Act on Re
y
k
j
avík Ener
gy
applies to all operations of the Re
y
k
j
avík Ener
gy
Group
Energy Act
Electricity Act
Act on the construction and
operation of sewers
Act on municipal water supply
Water Act
Information Act
Administrative Act (water and
sewerage)
Act on Environmental
Responsibilit
y
Electricity Act
Energy Act
Water Act
Competition Act
Act on Environmental
Responsibility
Act on telecommunications
Competition Act
Act on Hygiene and Pollution
Prevention
Act on Environmental
Responsibility
Consolidated Financial Statements of Orkuveita Reykjavikur 2021 7
Report and statement of the Board of Directors and the CEO, cont.:
Income
(
see also explanation 3
)
Revenue is almost entirely
from the sale of utilities with
concessions to households
and businesses. Tariffs are
subject to supervision by the
following authorities:
District heating: Ministry of the
Environment, Energy and
Climate
Electricity supply: National
Energy Authority
Water supply: Ministry of
Infrastructure
Sewerage: Ministry of
Infrastructure
Revenue is from the sale of
electricity in the general
market, the sale of electricity
in the wholesale market, the
sale of hot water wholesale to
Veitur's district heating in the
capital area, and rent for the
facilities at the Hellisheidi
Geothermal Park in Ölfus. The
wholesale price of hot water is
subject to the supervision of
the National Energy Authority,
but the electricity market is a
competitive market which is
monitored by i.a. The
Competition Authority and the
National Energy Authority.
Revenues are, on the one
hand, from fiber-optic
connections to homes and
companies that use the
services of electronic
communications companies
via the Reykjavík Fibre
Network's systems, and on the
other hand from the wholesale
of data transmission via fiber-
optic cables within the
communications companies'
systems. The electronic
communications market is a
competitive market under the
supervision of the Electronic
Communications Office of
Iceland and the Competition
Authority.
Carbfix is a newly established
start-up company based on
the method of the same name
for carbon sequestration and
the company's main income is
grants from international
competition funds for research
and development.
Avera
g
e number of full-time equivalent
j
obs 2021
218,6 98,2 46 7,8
Proportion of women on boards and in chair positions at
y
ear-end 2021
40%: Women 60%: Women 40%: Women 40%: Women
Key financial results for 2021
Profit from the Group's operations in 2021 amounted to ISK 12.040 million (2020: profit ISK 5.628 million). The
Group's total profit in 2021 was ISK 29.527 million (2020: ISK 8.827 million). According to the balance sheet, the
group's assets amounted to ISK 413.882 million at the end of the year (31.12.2020: ISK 394.164 million). Equity
was ISK 213.653 million at the end of the year (31.12.2020: ISK 188.126 million) and the Group's equity ratio was
51,6% (31.12.2020: 47,7%).
On 5 October, 2020, Reykjavík Energy published a financial forecast in Nasdaq Iceland‘s news system. According
to the forecast, revenue for 2021 was expected to be ISK 49,1 billion, but turned out to be ISK 51,9 billion, or 2,8
billion higher than expected, the higher revenue can be attributed to higher income from electricity sales linked to
aluminum prices. Operating expenses were forecast at ISK 1911 billion, but turned out to be ISK 18,4 billion, or 0,8
billion lower than estimated, which can be attributed to lower than expected Utility systems maintenance costs.
Investment in fixed assets for the year amounted to ISK 18,5 billion, compared to the forecast of ISK 21,2 billion.
The main reasons for lower investment can be attributed to delays in the reconstruction of OR‘s headquarters at
Bæjarháls 1 and fewer production wells due to a better state of steam reserves in the power plants.
The Board of Directors of Reykjavík Energy proposes at the Annual General Meeting that a dividend be paid to the
owners in the year 2022, for the operating year 2021, in the amount of ISK 4.000 million. In other respects, reference
is made to the Financial Statements regarding the allocation of profits and other changes in equity.
Sustainable Development Goals and ESG 2021
The OR Board of Directors has decided to put special emphasis on 5 of the 17 UN Sustainable Development Goals
(SDGs) in the Group's operations. OR 2021's Annual Report describes in detail the performance in 2021 with regard
to the SDGs and their sub-goals.
Achieve gender
equality and empower
all women and girls
Ensure availability
and sustainable
management of water
and sanitation for all
Ensure access to
affordable, reliable,
sustainable and
modern energy for all
Ensure sustainable
consumption and
production patterns
Take urgent action to
combat climate
change and its
impacts
Consolidated Financial Statements of Orkuveita Reykjavikur 2021 8
Report and statement of the Board of Directors and the CEO, cont.:
OR‘s 2021 Annual Report is also prepared in accordance with the ESG reporting guide of Nasdaq OMX Nordic.
Here is a quick overview, while the annual report itself provides a more detailed account of each of the table‘s items.
ENVIRONMENT GOVERNANCE SOCIAL
U1. Greenhouse gas emissions 48,6 tn. F1. CEO‘s salary ratio 3,0 S1. Gender ratio in the Board 50/50
U2. Emission intensity
0,9tn/ma
.ISK
F2. Gender pay gap
0,2% in
favor of
women
S2. Independence of the Board
See
report
U3. Energy usage
99,9%re
newable
F3. Employee turnover 13,7% S3. Bonuses No
U4. Energy Intensity
646
MWh/
person
F4. Gender equality See report
S4. Collective labor
agreements
98,2%
union
members
hip rate
U5. Energy mix
99,9%
renewab
le
F5. Proportion of temporary
staff
See report S5. Supplier code of conduct Yes
U6. Water usage 77 m.m3
F6. Anti-discrimination
measures
See report
S6. Ethics and anti-corruption
measures
See
report
U7. Environmental operations
ISO
14001
F7. Ratio of work accidents
5,7/million.
work hours
S7. Data protection Yes
U8. Climate
control/management
Yes F8. Global health and safety
Sickness
proportion.
3,1%
S8. Sustainability report Yes
U9. Climate control/managers Yes F9. Child and forced labor See report
S9. Procedures for providing
information
SDGs
and ESG
U10. Climate risk mitigation
See
report
F10. Human rights See report
S10. Data extracted / verified
by an external party
Yes
The content of OR 2021's Annual Report is based on the ESG criteria and references are in the relevant section of the report.
Governance and internal control
OR's governance should ensure professionalism, efficiency, transparency and responsibility in its operations. On
the basis of the Act on Reykjavík Energy, the owners entered into a partnership agreement, which further specifies
responsibilities and authority. It is accessible on OR's website, e.g. OR's Ownership Strategy, where the owners'
emphases on the Group's work practices are explained. The Boards of the subsidiaries within the OR Group have
established detailed rules of procedure as well as a Code of Ethics which can be found on OR's website or the
websites of the subsidiary in question, and all minutes of OR's meetings are published on the company's website,
together with non-confidential meeting documents.
Reykjavík Energy's values are economy, foresight and honesty. OR's Code of Ethics is based on Reykjavík Energy's
values. The Code of Ethics is documented and public and is intended to help employees ensure that honesty,
respect and equality characterize all communication, whether with customers, colleagues, the board, contractors
or other stakeholders.
The rules of procedure of OR's Board of Directors take into account the Code of Ethics, Guidelines on Corporate
Governance, published by the Iceland Chamber of Commerce, Nasdaq OMX Iceland ehf. and the Confederation of
Icelandic Employers, and a handbook for board members, published by KPMG. Subsidiaries are governed by the
articles of association of each company and the rules of procedure of their boards.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021 9
Report and statement of the Board of Directors and the CEO, cont.:
According to law, OR's board consists of six representatives, five elected by the Reykjavík city council and one
elected by the Akranes town council. The Reykjavík city council elects the chair and vice-chair of the board from
among the city‘s representatives. At the end of 2021, the board of Reykjavík Energy was as follows:
Dr. Brynhildur Davíðsdóttir, chair, Professor of Environment and Resources Programme at the University
of Iceland.
Dr. Gylfi Magnússon, Vice Chair, Professor of Finance and Economics at the University of Iceland.
Vala Valtýsdóttir, Chair of the Board's Compensation Committee, lawyer and specialist in corporate law.
Eyþór Arnalds, city representative from Reykjavík.
Hildur Björnsdóttir, city representative from Reykjavík.
Valgarður Lyngdal Jónsson, town representative from Akranes.
Borgarbyggð Municipality and OR’s Employee Organisation have observers at board meetings.
The CEO of Reykjavik Energy is Bjarni Bjarnason, geologist and engineer.
The Compensation Committee is a subcommittee of OR's Board of Directors and the Board nominates a
representative to the Audit Committee of the City of Reykjavík. The Audit Committee monitors governance, risk
management effectiveness, and internal review by reviewing and approving the internal auditors' work plan. To
monitor and examine the effectiveness of risk management and the effectiveness of internal control is a large part
of the internal audit's tasks. At the committee's meeting on 19 October 2020, the committee approved an internal
audit plan for the period 1 December 2020 to 1 September 2022. In its work, the committee regularly discusses
internal audit projects and discusses reports on its individual projects.
The committee reviews and approves the audit plan of the external auditors, and, in preparing the plan, risk and
uncertainty factors in the company's operations are assessed. Part of the external auditors' tasks is to evaluate
internal control related to the company's accounting. The committee monitors the progress of the audit and reviews
the results of the external auditors. The committee also pays special attention to how internal and external auditors‘
comments are resolved.
During the year, the committee met with the company's experts in risk management and was introduced to the OR's
risk management system.
OR's Board of Directors actively monitors the most important uncertainties in the Group's operations and receives
monthly reports on the state of finances, resources, occupational safety and health issues and significant
environmental factors. Risk management, operational risk and other risks in OR's operations are discussed
regularly at board meetings.
The City of Reykjavík's Internal Audit also carries out financial and administrative
supervision at OR on behalf of the Board. This means that the Internal Audit evaluates the effectiveness of risk
management, supervisory methods and governance with the aim of continuous improvement.
OR and its subsidiaries have implemented management systems in accordance with international standards and
legal requirements. Independent accredited bodies regularly verify the functionality of these systems:
ISO 9001 - International Quality Management Standard
ISO 14001 - International Environmental Management Standard
ISO 27001 - International standard for information security management
ISO 45001- International standard for health and safety management at the workplace
HACCP / GÁMES - International Food Control System
ÍST 85 - Icelandic standard for equal pay
Electrical safety management system
Internal monitoring system for Sales meters
Strategic governance, the active implementation of risk policy, and the policies specified in OR's Ownership strategy
and the partnership agreement are conducive to strengthening internal control. Internal control systems are
regularly monitored in internal and external audits where their effectiveness is confirmed. If, following an audit, it
becomes clear that improvements are needed, they are dealt with.
OR's management, managing directors and directors are responsible for internal control in their respective fields.
Risk & process management are responsible for ensuring that OR's internal control system is active.
OR's quality
systems are independently certified by external parties. OR adheres to the standards of the Institute of Internal
Auditors on the implementation of internal auditing. The City of Reykjavík's internal audit also serves as
Consolidated Financial Statements of Orkuveita Reykjavikur 2021 10
Report and statement of the Board of Directors and the CEO, cont.:
OR's internal auditor. OR employs a Compliance Officer, who supervises the disclosure of information to the
Exchange and the Financial Supervisory Authority.
OR has a listed procedure for handling cases where there is a suspicion that an employee or manager has violated
the company's rules or to have perpetrated fraud at work. The procedure is accessible to all staff. If a breach is
suspected, the next supervisor or internal auditor of the company must be notified, who must then report the matter,
while maintaining confidentiality regarding the information, including the name of the person who notified the matter.
There were no cases of fraud or corruption in 2021.
Success and uncertainties 2021
Reykjavík Energy's operations are inherently prudent, as the basic services of the subsidiaries within the group
must be safeguarded. We work according to a risk policy, which is regularly reviewed by the Board. The main
objective of the risk policy is to ensure that OR can fulfill its basic role in a safe and cost-effective manner with
minimal risk. OR does this by:
Reducing fluctuations in the Group's performance at any given time with regard to the underlying risk in
the operation and that risk factors are always within defined limits set by the Board and listed in the risk
manual.
Ensuring that OR has sufficient funds to support the development of services and regular operations.
Analyzing, assessing and managing risks in operations with regard to OR's operations, policies and
defined boundaries.
Reykjavík Energy has set numerical targets for the Group in key areas, which it aims to achieve by the end of 2023.
The progress is shared publicly on OR's website. Here below are the goals and status of each key area at the end
of 2021. Climate criteria are in line with the Paris Agreement, job satisfaction is measured by the Ísland í vinnunni
database, and for brand measurements, the average measure of attitudes towards Icelandic company brands in
the OR Group's field of work.
Total number of
connectable electric
cars
Size of carbon
footprint, compared to
2015
Absence of
employees due to
illness or accidents
Job satisfaction
according to analysis
Public attitude
towards OR‘s brands
Goal: 40.000
Status: 26.052
Criteria: -30%
Goal: -40%
Status: -21%
Goal: < 3,6%
Status: 2,8%
Criteria: 4,2
Goal: 4,5
Status: 4,3
Criteria: 5,7
Goal: 6,3
Status: 6,1
The Reykjavík Energy Group's utilization of natural resources consists mainly of the utilization of high temperature
areas for electricity and heat production for district heating, low temperature areas for district heating, groundwater
for water supply and for heating in power plants for district heating, sea as sewerage receivers, and the atmosphere
as the receiver of emissions. The need for resources for energy production is assessed with energy management
plans. These, along with demand forecasts, are the basis for decisions regarding system development or increased
energy supply. In 2021, these basic data were strengthened and solidified, and this work revealed areas which
require development in the coming years or decades. Reserve issues for most utilities need to be carefully
considered, as well as significant additions to energy generation and re-injection of high-temperature areas. There
were no major problems during the year, but in some district heating supplies there were almost no reserves. With
regard to high temperatures, the drawdown is in line with forecasts and the goal of steam drilling maintenance was
largely met. Cold water reserves are good, and all water samples met quality requirements. Real-time monitoring
of the quality of drinking water in Reykjavík gave good results. Increased frequency of precipitation intensity in 2021
led to more frequent overflows at sewage pumping and treatment plants and stoppages of maintenance of treatment
plants led to increased overflow time, but measurements in the summer of 2021 at the outlets of the treatment
plants revealed very little marine pollution due to sewage.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021 11
Report and statement of the Board of Directors and the CEO, cont.:
The Group's carbon footprint decreased slightly in 2021, but a major step towards its reduction will be taken with
the expansion of the air purification plant in Hellisheidi in 2025. At the Nesjavellir power plant, the operation of a
similar experimental plant is planned for 2022, where carbon dioxide and hydrogen sulphide are captured from
geothermal steam and sequestered by turning it into rock. Hydrogen sulphide did not exceed the regulatory limits
in the Group's area of operation in 2021.
Climate risk affects all aspects of OR's operations, but especially its utility operations. During the year, efforts were
made to integrate the knowledge gained through Veitur's reporting into the Group's other risk management. It mainly
concerns adaptation to sea level rise, greater precipitation and thawing intensity, and uncertain long-term changes
in air temperature in Iceland with a corresponding change in the demand for water for central heating. Counter-
measures and adaptation measures are being worked on at the same time. One of them is that customers become
more aware of their energy use and that utilization can be improved with management. Veitur's smart meters is
highly conducive to both, and the key contracts for this project were signed during the year.
It is unclear which climate hazards could pose threats to groundwater or water reserves, but Veitur's real-time
monitoring of drinking water enables the company to better monitor for possible changes and protect society from
them. In the year 2021, wildfires broke out near Veitur's water source in Heiðmörk. There was no contamination of
drinking water, but the risk of this could be increased by the changing climate.
Reykjavík Energy began issuing Green Bonds in 2019, whithin the Green Bond framework. As a result, more bids
were received for issued bonds than before. In 2021, OR introduced a new framework, a framework for Green
Financing, which also covers different financing formats than those of issuing bonds. The change means that the
Group’s green assets are now being financed, and not specific projects of individual subsidiaries. All the Group's
financing in 2021 fell under the new Green Financing framework, including the independent bond issue of the
Reykjavík Fibre Network.
In 2021, OR issued a Code of Conduct for the Group's suppliers. They are based on the 10 pillars of the UN’s
Global Compact and the purpose of the Code is to achieve a better grasp of the sustainability of the Group‘s entire
value chain. By signing the Code of Conduct, the Supplier agrees to comply with requirements to respect human
rights, labor market rules, the environment, and to counteract corruption. Corresponding requirements have been
included in OR's tender documents for years, but now they also apply to smaller procurements than those that go
into formal tenders. In year-end 2021, 96 suppliers had signed the Code of Conduct.
The extent of the damage that occurred at the University of Iceland, when a water main exploded near the University
early in the year, is still unclear. Assessors are assessing the extent of the damage, a process that is handled by
Veitur's insurance company.
The Ministry of Transport and Local Government is also investigating a complaint
regarding the water charges of OR vatns- og fráveita sf. The Ministry of Infrastructure initiated a study on water
utility charges by municipal water utilities following the complaint, but the outcome of the complaint is not available.
Market risk increased for both of the OR Group subsidiaries that operate on the competitive markets. A new foreign
investor has established itself in the Icelandic electronic communications market, which seems to be developing in
the direction of increased concentration, especially in the wholesale market in which the Reykjavík Fibre Network
operates. The company has responded in various ways - both in the development of its network and with improved
financing in successful bond auctions. Reykjavík Fibre Network attracted public attention when it took the initiative
to lay new fiber-optic cables, after the eruption at Fagradalsfjall dismantled the main communications cable for the
area. ON Power operations were threatened when it became clear that the arrangement for selecting electricity
sales as a last resort were such that customers could be transferred between sales companies without their
knowledge. The company requested adjustments to the arrangement, and later reiterated the request when it was
discovered that the arrangement appears to have been exploited.
Litigation is ongoing due to two disputes within competitive markets. The Reykajvík Fibre Network made a claim
against Siminn, following the decision of the Post and Telecom Administration (now The Electronic Communications
Office of Iceland) due to a violation of media law. Siminn appealed the Administration's decision to the courts and
was convicted of the offence in the District Courts The case has been appealed to the Court of Appeals. Ísorka's
appeal is also before the Court of Appeals, after the District Courts revoked the ruling of the Public Procurement
Complaints Committee which had led to the closure of ON's neighborhood charging stations for EVs. The case is
being expedited, and it is hoped that a conclusion will be reached in the first months of 2022. In addition, a decision
was made on behalf of OR to refer a dispute over the terms of the electricity sales agreement with Norðurál, which
ON is implementing, to an international arbitral tribunal.
Over the course of the year, Carbfix received a € 3.9 million grant from the EU‘s Innovation Fund. While receiving
such a grant is a recognition of excellent work, such income is inherently uncertain. It was therefore also an
important milestone during the year when the first agreements for CO
2
mineralisation were signed with parties
outside
the OR Group. The Agreement was with Rio Tinto‘s aluminium smelter in Straumsvík, while at the same
Consolidated Financial Statements of Orkuveita Reykjavikur 2021 12
Report and statement of the Board of Directors and the CEO, cont.:
time also preparing for the import of CO
2
with permanent storage using the Carbfix method in mind in the vicinity of
Straumsvík. The establishment of a project company for this purpose was postponed until the uncertainty about
OR's authorization to participate in the project was resolved.
The Covid-19 epidemic had a variety of effects on the OR Group's operations in 2020 and 2021. The direct effect
was a decrease in aluminum prices in 2020, but a sharp increase in 2021.
Due to the international accounting
standards that OR follows, this fluctuation affects the Group's calculated results, and the value of aluminium
derivatives in electricity sales agreements is therefore estimated at ISK 6,6 billion more in the Financial Statements
2021 than in the Financial Statements 2020. This is not money in hand. OR meets the risk due to these fluctuations
with hedging agreements, and stress tests are regularly performed, which assume unfavorable developments in
the exchange rate, aluminum prices and inflation at the same time.
The cash position is strong and was ISK 25 billion at the end of the year, and in addition, the company has access
to credit lines in the amount of ISK 9,6 billion at year end 2021. This solid liquidity position also ensures that the
company is able to meet shocks such as the unfavorable decision of the Court of Appeals in the so-called Glitnir
case. The matter is discussed in more detail in Note 37, first paragraph.
The price of raw materials other than aluminum has also risen, and with it various inputs for the maintenance and
development of power plants and utility systems. In addition, the disruption caused by the epidemic on transport
has been reflected in delays in the delivery of supplies, albeit without any significant damage so far.
The impact of the pandemic on employees is unknown, but there are indications that employees' sense of loyalty
to the workplace has diminished during the epidemic. Prolonged working from home, and possibly other factors,
seem to have increased staff turnover. In response to the danger of such brain-drain, the company has launched
an assessment of the reasons for increased employee turnover, which has traditionally been relatively small at OR,
in comparison with the general labor market in Iceland.
Notes 27 to 31 with the Financial Statements contain further discussion of Reykjavík Energy's risks.
The company is well operational and can handle shocks for the foreseeable future. Due to the nature of the business
- providing basic services to households and businesses - the impact of the economic downturn on the company's
income is limited.
Statement by the Board of Directors and the CEO
To the best of Reykjavík Energy's Board of Directors and its CEO‘s knowledge, the consolidated Financial
Statements are in accordance with International Financial Reporting Standards, as confirmed by the European
Union, and additional requirements set out in Icelandic legislation and regulation on the financial statements of
listed companies. In the opinion of the Board of Directors and the CEO, the Financial Statements give a true and
fair view of the Group's assets, liabilities and financial position as of 31 December 2021, together with its operating
results and changes in cash during the year, as well as describing major risks and uncertainties facing the Group.
Reykjavik, 8 March 2022
Board of Directors:
Brynhildur Davíðsdóttir
Gylfi Magnússon
Vala Valtýsdóttir
Eyþór Laxdal Arnalds
Hildur Björnsdóttir
Valgarður Lyngdal Jónsson
CEO:
Bjarni Bjarnason
________________________________________________________________________________________________
To the Board of Directors and Owners of Orkuveitu Reykjavíkur.
Opinion on the Consolidated Financial Statement
Opinion
Basis for Opinion
Key Audit Matters
In our opinion the following matters were key audit matters:
Explanation of Key Audit Matter Responses to Key Audit Matter
Valuation of production and distribution systems
An assessment is made of the changes in construction
costs of similar types of assets and both cost and
accumulated depreciation are revalued accordingly.
The Group performs impairment tests on the reporting
date and recognises impairment loss if value in use is
lower than book value of an asset. Revalued amount will
also not be higher than value in use.
We evaluated management assumptions by comparing
to public information where applicable. Where
assumptions are not based on public information, we
made our own evaluation on management assumptions.
We reviewed the Group‘s processes for the revaluation
and impairment tests. We also reviewed the functionality
of models used in the assessments.
As part of our audit, we reviewed the Group‘s
methodology for valuing the production and distribution
systems and its consistency with international financial
reporting standards.
We used the work of a valuation specialist to assist in
this evaluation.
Independent Auditor's Report
We have audited the accompanying Consolidated Financial Statements of Orkuveitan Reykjavíkur. (hereafter the
Group) for the year 2021. The Consolidated Financial Statements comprise the Statement by the Board of Directors
and CEO, the Statement of Income, the Statement of Financial Position, the Statement of Comprehensive Income, the
Statement of Cash Flows, the Changes in Equity, a summary of significant accounting policies and other explanatory
information.
In our opinion, the Consolidated Financial Statements present fairly, in all material respects, the consolidated results of
operations of the Group. for the year 2021, its consolidated financial position as at December 31, 2021, and its
consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as
adopted by the EU and the Financial Statements Act.
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial
Statements section of our Report. We are independent of the Group in accordance with the Code of Ethics for
Professional Accountants in Iceland, and we have fulfilled all ethical requirements therein. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the
Consolidated Financial Statements for the year 2021. These matters were addressed in the context of our audit of the
Consolidated Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters.
We have defined the valuation of production and
distribution systems as a key audit matter in our audit.
The Group‘s production and distribution systems are
carried at revalued amount.
The assumptions used for revaluation and impairment
tests are based on management assessments and are
partly subjective. With production and distribution
systems being a significant part of the consolidated
financial statements, any change in assumptions can
have significant effect on the income statement and
balance sheet of the Group. Our work both included
estimates of the revaluation assessments and the
impairment tests of the production and distribution
systems.
See note 38 (d) pages 59-60 on significant accounting
policies and note 12 page 31-33: on property, plant and
equipment.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
13
________________________________________________________________________________________________
Independent auditor's report, contd.
Key Audit Matters, contd.
Revenue recognition
Valuation of embedded derivatives
Other Information
In our audit of revenues, we have assessed controls
relating to revenues in the Group. We have also tested
certain controls relating to revenue recognition. We
have reviewed and evaluated the IT control environment
in the Group, including review of how access to finance
and accounting related IT systems is controlled.
We have used substantive testing methods where we
have for example reviewed reconciliations between
accounting systems and subsystems and received third
party confirmation of energy usage, turnover and
outstanding balances at year-end from specific
customers. We have also reviewed deposits after year-
end where balance confirmations from customers were
not available.
We reviewed the Group‘s process for analysing and
assessing assumptions used in the valuation, as well as
reviewing valuation models used. We recalculated
derivative valuations based on information we collected.
We used the work of a valuation specialist to assist with
this review.
See note 38 (j) page 62 on significant accounting
policies and note 3 pages 23-24 on operation and
revenue recognition of Group‘s components.
Due to the fact that income recognition at the end of the
year is based on management estimates, there is
uncertainty regarding revenue recognition relating to
revenue cut-off and existence. For that reason, we focus
specifically on revenue cutoff in our audit, as well as
performing other audit procedures relating to revenue
recognition.
Revenue from sale and distribution of electricity and hot
water is recognised based on measurements into the
systems, taking into account energy losses occurring in
the distribution systems. Differences between the actual
amounts that go into the systems, minus losses and
invoiced usage, leads to a period correction.
The Board of Directors and the CEO are responsible for all information presented by the Group, both the Consolidated
Financial Statements as well as other information. Our opinion does not cover other information other than we
specificly discuss in our opinion here above. The other information comprises for example endorsment of the Board of
directors and the CEO and unaudited report on governance report of the information included in the Annual Report,
but does not include the Consolidated Financial Statements and our Auditor’s Report thereon. Our opinion on the
Consolidated Financial Statements does not cover other information issued by the Group, and we do not express any
form of assurance on the information in those documents thereon. In connection with our audit of the Consolidated
Financial Statements, our responsibility is to read the other information identified above when it becomes available
and, in doing so, consider whether the other information is materially inconsistent with the Consolidated Financial
Statements, our knowledge obtained in the audit, or otherwise appears to be materially misstated.
Because prices of specific electricity sales contracts with
large counterparties are tied to aluminium prices, the
Group recognises embedded derivatives on the balance
sheet. As electricity and aluminium prices are generally
not closely related, financial reporting standards require
the risk relating to this relationship to be evaluated
specifically.
The embedded derivatives are considered to be third
level financial items, where estimates are based on
management assumptions and unobservable inputs.
Because of the vulnerability of the estimate, any change
in assumptions can have significant effect on the income
statement and balance sheet of the Group. For these
reasons, we assume there is significant risk related to
embedded derivatives and have therefore defined them
as a ke
y
audit matter.
We have also performed substantive tests where we
have compared our expectations to actual revenue
recognition in the Group.
In our audit, we reviewed the Group‘s pricing
methodology and consistency with international financial
reporting standards.
See note 28 (c) pages 47-48 on significant accounting
policies, note 17 page 36 on embedded derivatives in
electricity sales contracts and note 32 pages 52-53 on
fair value hierarchy.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
14
________________________________________________________________________________________________
Independent auditor's report, contd.
Other Information, contd.
The Board of Directors and CEO’s Responsibilities for the Consolidated Financial Statements
The Board of Directors and the Audit Committee are responsible for overseeing the Group’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
-
-
-
-
-
Our objectives are to obtain reasonable assurance about whether the Consolidated Financial Statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an Auditor’s Report that includes our
opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these Consolidated Financial Statements.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Group´s internal control.
The Board of Directors and CEO are responsible for the preparation and fair presentation of the Consolidated
Financial Statements in accordance with International Financial Reporting Standards as adopted by the EU and the
Financial Statements Act, and for such internal control as management determines is necessary to enable the
preparation of Consolidated Financial Statements that are free from material misstatement, whether due to fraud or
error.
In preparing the Consolidated Financial Statements, the Board of Directors and CEO are responsible for assessing the
Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the Board of Directors and CEO either intend to liquidate the Group or to
cease operations, or have no realistic alternative but to do so.
As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism
throughout the audit. We also:
Identify and assess the risks of material misstatement of the Consolidated Financial Statements, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and
related disclosures made by management. Conclude on the appropriateness of management’s use of the going
concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exist
related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern.
If we conclude that a material uncertainty exists, we are required to draw attention in our Auditor’s Report to the
related disclosures in the Consolidated Financial Statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our Auditor’s Report. However,
future events or conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the Consolidated Financial Statements, including the
disclosures, and whether the Consolidated Financial Statements represent the underlying transactions and events
in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities
within the Group to express an opinion on the Consolidated Financial Statements. We are responsible for the
direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.
In accordance with the provisions of Article 104, paragraph 2 of the Icelandic Financial Statements Act No. 3/2006, we
confirm that the Statement by the Board of Directors and CEO accompanying the Consolidated Financial Statements
includes at least the information required by the Financial Statements Act if not disclosed elsewhere in the
Consolidated Financial Statements.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
15
________________________________________________________________________________________________
Independent auditor's report, contd.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements, contd.
Report on other legal and regulatory requirements
Report on European single electronic format (ESEF Regulation)
On behalf of Grant Thornton endurskoðun ehf.
Reykjavik, 8 March 2022
Davíð Arnar Einarsson, State Authorized Public Accountant
J. Sturla Jónsson, State Authorized Public Accountant
In our opinion, the Consolidated Financial Statements of Orkuveita Reykjavíkur for the year 2021 with the file name
5493004ARP9VPUIX5B73-2021-21-31-is.zip prepared, in all material respects, in compliance with the ESEF
Regulation.
We have not provided the Group with any services that are prohibited according to laws on auditors. We have
provided the Board of Directors and the Audit Committee with a statement that we have complied with relevant ethical
requirements regarding independence, and communicated with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the Board of Directors and the
A
udit Committee, we determined those matters
that were of most significance in the audit of the Consolidated Financial Statements of the current year and are
therefore the key audit matters. We describe these matters in our Auditor’s Report unless law or regulations precludes
public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be
communicated in our Report because the adverse consequences of doing so would reasonably be expected to
outweigh the public interest benefits of such communication.
We were elected auditors for the Group in the Group's annual general meeting on 14 April 2021 and this is therefore
the 4 continuous fiscal year where we are the Group's auditors.
As part of our audit of the Consolidated Financial Statements of Orkuveita Reykjavíkur we performed procedures to be
able to issue an opinion on whether the Consolidated Financial Statements of the Group for the year 2021 with the file
name 5493004ARP9VPUIX5B73-2021-21-31-is.zip are prepared, in all material respects, in compliance with laws no.
20/2021 disclosure obligation of issuers of securities and the obligation to flag relating to requirements regarding
European single electronic format regulation EU 2019/815 which include requirements related to the preparation of the
Consolidated Financial Statements in XHTML format and iXBRL markup.
The Board of Directors and CEO are responsible for preparing the consolidated financial statements in compliance
with laws no. 20/2021 disclosure obligation of issuers of securities and the obligation to flag . This responsibility
includes preparing the consolidated financial statements in a XHTML format in accordance to EU regulation 2019/815
on the European single electronic format (ESEF regulation).
Ou
r
responsibility is to obtain reasonable assurance, based on evidence that we have obtained, on whether the
consolidated financial statements is prepared in all material respects, in compliance with the ESEF Regulation, and to
issue a report that includes our opinion. The nature, timing and extent of procedures selected depend on the auditor's
judgement, including the assessment of the risks of material departures from the requirement set out in the ESEF
regulation, whether due to fraud or error.
We communicated with the Board of Directors and the Audit Committee regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that
we identified during our audit. Our Audit Report, which has been provided to the Board of Directors and the Audit
Committee, reports these matters and is in accordance with this report.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
16
________________________________________________________________________________________________
Notes 2021 2020
Operating revenue ........................................................................................... 4 51.745.550 48.619.545
Profit from sale of assets ................................................................................. 144.286 6.978
Operating revenues, total 51.889.836 48.626.523
Energy purchase and distribution .................................................................... 5.871.919 )( 5.793.122 )(
Salaries and salary related expenses ............................................................. 7 7.502.005 )( 7.750.009 )(
Other operating expenses ............................................................................... 5.006.382 )( 5.629.196 )(
Operating expenses, total 18.380.306 )( 19.172.327 )(
EBITDA ........................................................................................................... 33.509.530 29.454.196
Depreciation and amortisation ......................................................................... 9 13.256.961 )( 13.056.194 )(
Results from operating activities, EBIT ....................................................... 20.252.570 16.398.002
Interest income ................................................................................................ 182.844 313.417
Interest expenses ............................................................................................ 8.394.213 )( 7.642.896 )(
Other income (expenses) on financial assets and liabilities ............................ 4.154.981 3.522.869 )(
Total financial income and expenses 10 4.056.388 )( 10.852.347 )(
Share in (loss) profit of associated companies ............................................... 15 3.967 )( 4.137
Profit before income tax 16.192.215 5.549.792
Income tax ....................................................................................................... 11 4.152.386 )( 78.298
The notes on pages 22 to 67 are an integral part of these Consolidated Financial Statements.
Income Statement 2021
Profit for the year
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
17
Amounts are in ISK thousand
________________________________________________________________________________________
Notes 2021 2020
Profit for the year ................................................................................................... 12.039.829 5.628.090
Other comprehensive income
Items moved to equity that will not be moved later to the income statement
Revaluation reserve, increase ............................................................................... 12 18.501.057 0
Income tax effect of revaluation ............................................................................ 19 2.645.771 )( 0
Items moved to equity that could be moved later to the income statement
Changes in fair value for financial assets at fair value through OCI ..................... 16 228.000 706.413
Translation difference ............................................................................................ 23 1.403.976 2.492.019
Other comprehensive income, after taxes ............................................................ 17.487.262 3.198.432
Total comprehensive income for the year 29.527.091 8.826.522
The notes on pages 22 to 67 are an integral part of these Consolidated Financial Statements.
Statement of Comprehensive Income 2021
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
18
Amounts are in ISK thousand
________________________________________________________________________________________
Notes 31.12.2021 31.12.2020
Assets
Property, plant and equipment ....................................................................... 12 363.713.260 337.493.229
Intangible assets ............................................................................................ 13 2.966.481 2.837.133
Right-of-use assets ........................................................................................ 14 2.576.177 2.590.642
Investments in associated companies ........................................................... 15 80.923 81.389
Investments in other companies ..................................................................... 16 55.680 5.922.680
Hedge contracts ............................................................................................. 18 73.264 509.904
Deferred tax assets ........................................................................................ 19 3.812.930 6.675.003
Total non-current assets 373.278.714 356.109.980
Inventories ...................................................................................................... 20 1.337.505 1.249.674
Trade receivables ........................................................................................... 21 5.625.149 5.439.828
Embedded derivatives in electricity sales contracts ....................................... 17 1.548.338 0
Investments available for sale ........................................................................ 16 6.095.000 0
Hedge contracts ............................................................................................. 18 17.036 45.399
Other receivables ........................................................................................... 21 674.401 404.863
Prepaid expenses ........................................................................................... 328.780 227.706
Deposits and marketable securities ............................................................... 22 14.657.369 14.866.902
Cash and cash equivalents ............................................................................ 22 10.319.874 15.820.051
Total current assets 40.603.452 38.054.423
Total assets 413.882.166 394.164.403
Equit
y
Revaluation reserve ....................................................................................... 101.733.552 89.478.008
Equity reserve ................................................................................................ 66.451.877 60.207.208
Development reserve ..................................................................................... 123.873 108.308
Fair value reserve ........................................................................................... 5.695.000 5.467.000
Translation reserve ......................................................................................... 6.307.814 4.903.838
Retained earnings .......................................................................................... 33.340.963 27.961.627
Total equity 23 213.653.079 188.125.988
Liabilities
Loans and borrowings .................................................................................... 24 149.859.537 152.350.925
Lease liabilities ............................................................................................... 14 2.475.864 2.472.960
Pension liability ............................................................................................... 25 630.879 659.027
Embedded derivatives in electricity sales contracts ....................................... 17 931.389 4.907.730
Hedge contracts ............................................................................................. 18 332.279 571.981
Deferred tax liabilities ..................................................................................... 19 16.929.779 14.662.897
Total non-current liabilities 171.159.726 175.625.520
Accounts payable ........................................................................................... 3.522.684 2.822.579
Loans and borrowings .................................................................................... 24 15.187.655 19.349.528
Lease liabilities ............................................................................................... 14 179.498 167.953
Embedded derivatives in electricity sales contracts ....................................... 17 0 1.048.651
Hedge contracts ............................................................................................. 18 1.584.188 846.690
Deferred revenue ........................................................................................... 142.970 541.288
Current tax liability .......................................................................................... 11 1.753.949 1.847.570
Other current liabilities .................................................................................... 26 6.698.418 3.788.635
Total current liabilities 29.069.361 30.412.895
Total liabilities 200.229.088 206.038.415
Total equity and liabilities 413.882.166 394.164.403
The notes on pages 22 to 67 are an integral part of these Consolidated Financial Statements.
Statement of Financial Position
31 December 2021
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
19
Amounts are in ISK thousand
____________________________________________________________________________________________________________________________________
Develop- Fair
Revaluation Equity ment value Translation Retained Total
reserve reserve reserve reserve reserve earnings equity
Equity at 1 January 2021 ............................................................... 89.478.008 60.207.208 108.308 5.467.000 4.903.838 27.961.627 188.125.988
Revaluation, increase .................................................................... 18.501.057 18.501.057
Income tax effect of revaluation ..................................................... 2.645.771 )( 2.645.771 )(
Translation difference .................................................................... 1.403.976 1.403.976
Profit for the year ........................................................................... 12.039.829 12.039.829
Total comprehensive income ......................................................... 15.855.286 0 0 228.000 1.403.976 12.039.829 29.527.091
Depreciation transferred to retained earnings ............................... 3.599.741 )( 3.599.741 0
Transfer to development reserve ................................................... 15.565 15.565 )( 0
Dividends paid ............................................................................... 4.000.000 )( 4.000.000 )(
Equity at 31 December 2021 ......................................................... 101.733.552 66.451.877 123.873 5.695.000 6.307.814 33.340.963 213.653.079
The year 2020
Equity at 1 January 2020 ............................................................... 93.186.474 48.585.813 0 4.760.587 2.411.820 33.354.772 182.299.466
Translation difference .................................................................... 2.492.019 2.492.019
Profit for the year ........................................................................... 5.628.090 5.628.090
Total comprehensive income ......................................................... 0 0 0 706.413 2.492.019 5.628.090 8.826.522
Depreciation transferred to retained earnings ............................... 3.708.466 )( 3.708.466 0
Transfer to development reserve ................................................... 108.308 108.308 )( 0
Divident paid .................................................................................. 3.000.000 )( 3.000.000 )(
Equity at 31 December 2020 ......................................................... 89.478.008 60.207.208 108.308 5.467.000 4.903.838 27.961.627 188.125.988
Statement of Changes in Equity for the year 2021
The year 2021
The notes on pages 22 to 67 are an integral part of these Consolidated Financial Statements.
associates transferred to equity reserve ....................................
Share in profit of subsidiaries and
associates transferred to equity reserve ....................................
Share in profit of subsidiaries and
Changes in fair value for financial assets
at fair value through OCI ............................................................
at fair value through OCI ............................................................
Changes in fair value for financial assets
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
20
Amounts are in ISK thousand
________________________________________________________________________________________
Note
s
2021 2020
Cash flows from operating activities
Profit for the year ................................................................................................ 12.039.829 5.628.090
Financial income and expenses ......................................................................... 10 4.056.388 10.852.347
Share in P/L of associates ................................................................................. 15 3.967 4.137 )(
Income tax .......................................................................................................... 11 4.152.386 78.298 )(
Depreciation and amortisation .......................................................................... 9 13.256.961 13.056.194
Profit from sale of property, plants and equipment ............................................ 144.286 )( 6.978 )(
Pension liability, change ..................................................................................... 26.148 )( 61.057 )(
Working capital from operation before interest and taxes 33.339.096 29.386.161
Inventories, increase .......................................................................................... 87.831 )( 54.199 )(
Current assets, increase .................................................................................... 639.144 )( 601.636 )(
Current liabilities, increase ................................................................................. 246.166 599.287
Cash generated from operations before interests and taxes 32.858.288 29.329.613
Received interest income ................................................................................... 256.459 396.760
Paid interest expenses ....................................................................................... 4.397.886 )( 4.940.326 )(
Dividend received ............................................................................................... 120.972 88.119
Payments due to other financial income and expenses ..................................... 1.408.825 )( 11.742 )(
Paid taxes .......................................................................................................... 1.847.091 )( 1.710.389 )(
Net cash from operating activities 25.581.917 23.152.033
Cash flows from investing activities
Acquisition of property, plant and equipment ..................................................... 12 17.598.548 )( 15.986.233 )(
Acquisition of intangible assets .......................................................................... 13 519.866 )( 699.222 )(
Proceeds from sale of property, plant and equipment ....................................... 168.522 17.000
A
cquisition of associated companies ................................................................. 3.500 )( 3.500 )(
Change in deposits ............................................................................................ 6.500.000 4.000.000 )(
Change in marketable securities ........................................................................ 5.618.663 )( 154.324 )(
Net cash used in investing activities 17.072.056 )( 20.826.279 )(
Cash flows from financing activities
Proceeds from new borrowings .......................................................................... 24 14.283.912 29.965.498
Repayment of borrowings .................................................................................. 24 24.183.955 )( 22.225.138 )(
Payments of currency hedges ............................................................................ 0 37.743 )(
Dividends paid .................................................................................................... 23 4.000.000 )( 3.000.000 )(
Repayment of lease liability ............................................................................... 14 98.186 )( 93.187 )(
Net cash (used in) from financing activities 13.998.229 )( 4.609.429
(Decrease) increase in cash and cash equivalents ....................................... 5.488.368 )( 6.935.183
Cash and cash equivalents at year beginning ............................................... 15.820.051 8.657.025
Effect of currency fluctuations on cash and cash equivalents .................... 11.809 )( 227.842
Cash and cash equivalents at the end of the year ........................................ 22 10.319.874 15.820.051
Other information:
36 22.412.430 22.357.403
The notes on pages 22 to 67 are an integral part of these Consolidated Financial Statements.
Adjusted for:
Working capital from operation ......................................................................
Statement of Cash Flows for the year 2021
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
21
Amounts are in ISK thousand
________________________________________________________________________________________
1. Reporting entity
2. Basis of preparation
a. Statement of compliance
b. Functional and presentation currency
c. Basis of measurement
d. Use of estimates and judgements
- note 12 - Property, plant and equipment (revaluation of the distribution- and production system and
valuation of impairment.)
classified as assets held for sale.)
- note 17 - Embedded derivatives in electricity sales contracts (presumptions when calculating fair value)
- note 18 - Hedge contracts (presumptions when calculating fair value)
- note 19 - Deferred tax assets and liabilities (valuation of future taxable profits against carry forward tax
losses)
- note 28 - Market risk
Notes
Reykjavíkur. OR's headquarters are at Bæjarháls 1 in Reykjavik . OR's consolidated financial statements
include the financial statements of the parent company and its subsidiaries, (together referred to as "the
Group") and a share in associated companies. The consolidated financial statments of Orkuveita Reykjavíkur is
a part of the consolidated financial statements of Reykjavík C ity .
The consolidated financial statements were approved by the Board of Directors on 8 March 2022.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognised in the period in which the estimates are revised and in any future periods affected.
The consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (IFRS) as adopted by the EU and the additional requirements set out in the local rules
and regulations regarding financial statements of companies with listed bonds.
- note 16 - Investments in other companies (presumptions made when calculating fair value of assets
In particular, information about significant areas of estimation uncertainty and critical judgements in applying
accounting policies that have the most significant effect on the amounts recognised in the financial statements
is included in the following notes:
The preparation of the consolidated financial statements in conformity with IFRSs requires management to
make judgements, estimates and assumptions that affect the application of accounting policies and the
reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Significant accounting policies for the Group are described in note 38.
The consolidated financial statements have been prepared on the historical cost basis except for a part of
property, plant and equipment have been revalued at fair value, derivative agreement, embedded derivatives in
electricity sales contracts, assets held for sale and other financial assets and liabilities are stated at fair value.
The methods used to measure fair values are discussed further in note 38.
The consolidated financial statements are presented in Icelandic kronas, which is OR’s functional currency. All
financial information has been rounded to the nearest thousand unless otherwise stated.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
22
Amounts are in ISK thousand
________________________________________________________________________________________
Notes
3. Operation and revenue recognition of Group's components
Products and services Nature, timing of revenue recognition and payments terms
a. Electricity
b. Hot water
c. Cold water
ON Power, Orka náttúrunnar and Utilities generate harness hot water and
Utilities distribute harness hot water. Revenue from the sale and distribution
of harness hot water is recognised in the income statement according to
measured delivery to customer over the period plus a fixed fee. Upon
connection of new users to distribution systems of harness hot water or upon
renewal of connection an initial fee is charged. The initial fee is intended to
cover cost of new distribution systems and their renewal. Connection fee is
recognised in the income statement upon delivery of the service. Trade
receivables from the sale and distribution of harness hot water generally
have a 30 day grace period. Some contracts with certain customers may
have different payment arrangements but that is an exception.
ON Power ohf. and Orka náttúrunnar ohf. generate electricity and sell
electricity and Utilities distribute electricity according to law no. 65/2003.
Revenue from the sale and distribution of electricity is recognised in the
income statement according to measured delivery to customer over the
period plus a fixed fee. The rate for the distribution of electricity has a
revenue cap set by the National Energy Authority in accordance with laws on
energy number 65/2003. Upon connection of new users to distribution
systems of electricity and upon renewal of connection an initial fee is
charged. The initial fee is intended to cover cost of new distribution systems
and their renewal. Connection fee is recognised in the income statement
upon delivery of the service. Trade receivables from the sale and distribution
of electricity generally have a 30 day grace period. Some contracts with
certain customers may have different payment arrangements but that is an
exception.
The following provides information about the operation of Group's components. Breakdown of revenue for
different operations is given in note 4 and income by segment in note 5.
OR Water and Sewage collects and distributes cold water from reservoirs.
Revenue from the sale of cold water is based on the size of properties plus a
fixed fee which is recorded over the period in the income statement. The
legal limitation on the upper limit of the rate is 0,5% of the real estate value.
In addition revenue is stated for cold water according to measurement from
specific industries. Upon connection of new users to distribution systems of
cold water and upon renewal of connection an initial fee is charged. The
initial fee is intended to cover cost of new distribution systems and their
renewal. Connection fee is recognised in the income statement upon
delivery of the service. Trade receivables from the sale of cold water
generally have a 30 day grace period. Some contracts with certain
customers may have different payment arrangements but that is an
exception. Billing for cold water and sewage is done in the first 9 months of
the year but income is distributed evenly over the year.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
23
Amounts are in ISK thousand
________________________________________________________________________________________
Notes
3. Operation and revenue recognition of Group's components, contd.
Products and services Nature, timing of revenue recognition and payments terms
d. Sewer system
e. Other revenues
4. Revenues from sales of goods and services
The Group's income from sales of goods and services is specified as follows:
2021 2020
22.081.359 19.692.020
14.112.039 14.134.120
3.523.769 3.441.212
6.010.583 5.839.857
6.162.086 5.519.314
51.889.836 48.626.523
Cold water.....................................................................................................
OR Water and Sewage runs the sewer system. Revenue is based on the size
of properties plus a fixed fee which is recorded over the period in the income
statement. The legal limitation on the upper limit of the rate is 0,5% of the
real estate rateable value. Upon connection of new users to sewage system
and upon renewal of connection an initial fee is charged. The initial fee is
intended to cover cost of new sewer systems and their renewal. Connection
fee is recognised in the income statement upon delivery of the service. Trade
receivables from the sewer system generally have a 30 day grace period.
Some contracts with certain customers may have different payment
arrangements but that is an exception. Billing for cold water and sewage is
done in the first 9 months of the year but income is distributed evenly over
the year.
Sewer system................................................................................................
Revenues from sales of goods and services total.........................................
Hot water.......................................................................................................
Electricity.......................................................................................................
Other revenues..............................................................................................
Ljósleiðarinn operates fiber optics data system. Revenue from fiber optics
data system is recognised in the income statement upon delivery of the
goods and service. This is a competitive practice that is supervised by The
Electronic Communications Office of Iceland. Orkuveita Reykjavíkur the
parent company operates rental of housing and equipment, incidental sale of
specialist consultancy services and more. Rental income is recorded as
income in the income statement linearly over the lease term and other
revenue is recognised upon delivery of goods or services. Trade recevables
from other revenues generally have a 30 day grace period.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
24
Amounts are in ISK thousand
________________________________________________________________________________________
Notes
5. Segment reporting
Business divisions and sectors
Sector Official obligations
Customers that have significant effect on the Group's revenues
Sewer system
Other operations cover the fiber optic system, rental of housing and equipment, incidental sale of specialist
consultancy services and more. Also development and distibution the CarbFix carbon storage method, with the
aim of reducing greenhouse gas emissions and combating climate change.
The Group's service area is mainly in the Reykjavík city area, but it also extends to the southern and western
parts of Iceland. The Group is divided into three separate divisions: Energy sale and production, Utilities and
Other Operation.
Utilities distribute electricity, harnessing hot water from low-temperature fields and the geothermal plants and
distribute it for space heating. It also collects and distributes cold water from reservoirs and runs a sewerage
system.
Hot water
Energy sale and production generate electricity and harness hot water from the power plants, sells electricity
to wholesale and retail customers as well as the new construction and operation of street lighting.
Electricity, production
The Group is income taxed and collects value added tax, except for operations regarding cold water and sewer
but they are regulated by law no. 33/2004 concerning cold water suppliers of municipalities and law no. 9/2009
concerning the operations of sewer. The provision of hot water supply is subject to law no. 58/1967, concerning
earnings from hot water. The distribution of electricity is subject to law no. 65/2003, which stipulates revenue
caps that are decided by the National Energy Authority.
Fiber-optic data system
Electricity, distribution
Cold water
Minister approves utility rates not subject to the
open market. These take effect upon publication in
the Ministerial Gazette.
Price rates are subject to authorisation from The
National Energy Authority. Rates are officially
published.
Energy sales are subject to the open market,
electricity rate changes are therefore not subject to
government approval.
The Rates for the sewer system shall cover all
costs. Rates are officially published in the
Ministerial Gazette.
This is a competitive practice that is supervised by
The Electronic Communications Office of Iceland.
The legal limitation on the upper limit of the rate is
0,5% of the real estate value. Rates are officially
published in the Ministerial Gazette.
One customer of Energy sale and production has significant effect on the Group's revenues in the year 2021
due to the purchase of electricity for heavy industry. The Group´s revenues from this customer represents
approximately ISK 8.378 million or 16,1% of total revenues. (2020: ISK 6.157 million, or 12.7% of total
revenue).
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
25
Amounts are in ISK thousand
____________________________________________________________________________________________________________________________________
5. Segment reporting, contd.
Business segments - divisions Energy sale Other Adjust-
The year 2021 Utilities and production Operation ments IFRS 16* Total
External revenue ................................................................... 31.636.055 16.338.974 3.914.807 0 51.889.836
Inter-segment revenue .......................................................... 4.809.368 8.731.561 9.599.222 23.140.151)( 0
Total segment revenue ......................................................... 36.445.423 25.070.535 13.514.029 23.140.151)( 51.889.836
Segment operation expenses ............................................... 20.592.408)( 11.358.125)( 9.675.656)( 23.071.626 174.257 18.380.306)(
Segment profit EBITDA ......................................................... 15.853.015 13.712.410 3.838.373 68.525)( 174.257 33.509.530
Depreciation and amortisation .............................................. 5.934.076)( 5.221.711)( 2.025.583)( 51.355 126.947)( 13.256.961)(
Segment results, EBIT .......................................................... 9.918.940 8.490.698 1.812.791 17.169)( 47.310 20.252.570
Financial income and expenses ............................................ 5.081.383)( 5.254.790)( 244.422)( 6.600.430 76.224)( 4.056.388)(
Share in loss of associated companies ................................. 0 0 3.967)( 0 3.967)(
Income tax ............................................................................. 568.486)( 629.260)( 493.939)( 2.471.572)( 10.871 4.152.386)(
Profit for the year ................................................................... 4.269.072 2.606.649 1.070.463 4.111.688 18.042)( 12.039.830
The year 2020
External revenue ................................................................... 30.980.893 14.415.534 3.230.096 0 48.626.523
Inter-segment revenue .......................................................... 5.019.268 10.222.671 8.018.632 23.260.572)( 0)(
Total segment revenue ......................................................... 36.000.161 24.638.205 11.248.728 23.260.572)( 48.626.523
Segment operation expenses ............................................... 19.733.603)( 13.582.972)( 9.282.989)( 23.260.572 166.665 19.172.327)(
Segment profit EBITDA ......................................................... 16.266.558 11.055.233 1.965.739 0 166.665 29.454.196
Depreciation and amortisation ............................................ 5.750.380)( 5.293.309)( 1.892.632)( 0 119.873)( 13.056.194)(
Segment results, EBIT .......................................................... 10.516.178 5.761.925 73.107 0 46.792 16.398.002
Financial income and expenses ............................................ 3.933.205)( 2.432.032)( 5.135.512)( 724.576 76.174)( 10.852.347)(
Share in profit of associated companies ............................... 0 0 4.137 0 4.137
Income tax ............................................................................. 935.595)( 691.996)( 1.967.101 262.200)( 989 78.298
Profit (loss) for the year ......................................................... 5.647.379 2.637.896 3.091.167)( 462.376 28.393)( 5.628.090
* Segment reporting as used by management does not take into account the guidance of IFRS 16.
Notes
Segment information is presented by the Group's internal reporting. Business segments presented are Utilities, that represent licensed operations in hot and cold water,
distribution of electricity and sewage, Energy sale and production , representing the competitive operations in producing and sale of electricity and hot water and Other
Operation, that represents the activities of the parent company, the fiber optic operations and Carbfix. The parent company's main activities is providing service to
subsidiaries, rental of housing and equipment, incidental sale of specialist consultancy services and more. Reykjavik fiber network represents the fiber optic operations
and Carbfix is working on development and distibution the of the CarbFix carbon storage method, with the aim of reducing greenhouse gas emissions and combating
climate change. Segment reporting is conducted by using the same accounting principle as the group uses and is described in note 38.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
26
Amounts are in ISK thousand
____________________________________________________________________________________________________________________________________
Notes
5. Segment reporting, contd.
Business segments - divisions, contd.
Energy sale Other Adjust-
Utilities and production Operation ments IFRS 16* Total
Balance sheet (31.12.2021)
Property, plant and equipment and intangible assets ........... 188.654.726 137.513.969 40.511.046 0 366.679.741
Right-of-use assets ............................................................... 2.576.177 2.576.177
Other assets ......................................................................... 19.054.117 10.896.392 187.047.232 172.371.492)( 44.626.249
413.882.166
Loans and borrowings ........................................................... 68.675.925 57.795.104 165.047.192 126.471.030)( 165.047.192
Lease liabilities ...................................................................... 2.655.361 2.655.361
Other liabilities ...................................................................... 16.040.778 11.224.130 50.026.064 44.764.436)( 32.526.535
200.229.088
Investments
Property, plant and equipment and intangible assets ........... 11.992.633 2.300.589 4.228.820 0 18.522.041
Balance sheet (31.12.2020)
Property, plant and equipment and intangible assets ........... 170.907.579 134.658.796 34.763.987 0 340.330.362
Right-of-use assets ............................................................... 2.590.642 2.590.642
Other assets .......................................................................... 17.299.445 9.017.863 180.282.563 155.356.472)( 51.243.399
394.164.403
Loans and borrowings ........................................................... 63.350.425 59.115.637 171.700.453 122.466.062)( 171.700.453
Lease liabilities ...................................................................... 2.640.913 2.640.913
Other liabilities ...................................................................... 13.438.843 9.820.903 37.631.920 29.194.617)( 31.697.049
206.038.415
Investments
Property, plant and equipment and intangible assets ........... 9.894.685 3.790.152 3.099.391 0 16.784.228
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
27
Amounts are in ISK thousand
________________________________________________________________________________________
6. Analysis of geothermal power plant operation
Return analysis of production of electricity and hot water, cf. Article 41, paragraph 5 of law no. 65/2003:
Electricity Hot water Electricity Hot water
2021 2021 2020 2020
Geothermal power plant
Revenue .................................................................
12.211.221 4.958.641 9.978.521 4.181.425
Operating expenses ...............................................
2.354.935)( 1.274.160)( 2.184.318)( 1.074.388)(
Depreciation and amortisation ...............................
4.005.916)( 1.138.493)( 3.611.269)( 1.639.636)(
Profit before financial expenses .............................
5.850.370 2.545.989 4.182.934 1.467.401
Return on investment .............................................
5,7% 8,2% 4,2% 4,4%
7. Salaries and salary related expenses
2021 2020
Salaries and salary related expenses are specified as follows:
Salaries ....................................................................................................................
7.077.519 7.289.655
Defined contribution pension expenses ...................................................................
959.265 938.688
Defined benefit pension expenses, changes ...........................................................
9.167 27.574)(
Other salary related expenses .................................................................................
617.346 630.105
Total salaries and salary related expenses ..............................................................
8.663.297 8.830.874
Salaries and salary related expenses are stated in the financial statements as follows:
Expensed in the income statement ..........................................................................
7.502.005 7.750.009
Capitalised on projects ............................................................................................
1.161.292 1.080.866
Total salaries and salary related expenses ..............................................................
8.663.297 8.830.874
Number of employees:
Number of annual working units .............................................................................. 581 612
Management's salaries and benefits for the parent company and subsidiaries are specified as follows:
Salaries to the Board of Directors of the Parent Company .....................................
18.536 17.149
Salaries of the CEO of the Parent Company ...........................................................
38.746 31.899
Salaries of four Managing Directors of the Parent Company* .................................
123.536 105.911
Salaries to the Board of Directors of four subsidiaries .............................................
12.719 12.318
Salaries of four Managing Directors of subsidiaries .................................................
119.031 106.141
Termination expenses ..............................................................................................
16.200 0
328.769 273.418
* For four months of 2021 there were five Managing Directors.
The cost allocation is based on Orka náttúrunnar and ON Power´s methods, that the National Energy Authority
"NEA" has not approved. NEA is obligated to set new cost allocation rules after having disapproved the
companies proposal, NEA has not yet carried this out. Until NEA sets new rules for cost allocation, the return of
the sectors are reported using Orka náttúrunnar and ON Power's methods.
Notes
The power plants at Hellisheiði and Nesjavellir are mixed production plants, where both hot water and energy
are produced.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
28
Amounts are in ISK thousand
________________________________________________________________________________________
Notes
8. Auditors fee
2021 2020
Audit of financial statements and review of interim financial statements .................
27.026 20.323
Other services .........................................................................................................
5.002 3.463
Total auditors fee .....................................................................................................
32.028 23.786
9. Depreciation, amortisation and impairment
2021 2020
Depreciation, amortisation and impairment is specified as follows:
Depreciation of property, plant and equipment cf. note 12 ......................................
12.736.800 12.576.132
Amortisation of intangible assets, cf. note 13 ..........................................................
393.214 360.189
Depreciation of Right-of-use assets, cf. Note 14 .....................................................
126.947 119.873
Depreciation, amortisation and impairment expensed in income statement ............
13.256.960 13.056.194
10. Financial income and expenses
2021 2020
Financial income and expenses are specified as follows:
Interest income ........................................................................................................
182.844 313.417
Interest expense and paid indexation ......................................................................
4.031.786)( 4.337.988)(
Indexation ................................................................................................................
3.832.508)( 2.658.020)(
Guarantee fee to owners 1) .....................................................................................
529.919)( 646.888)(
Total interest expenses ............................................................................................
8.394.213)( 7.642.896)(
Fair value changes of embedded derivatives in electricity sales contracts ..............
6.573.330 722.948
Fair value changes of financial assets and financial liabilities through P/L .............
671.804 879.564
Fair value changes of hedge contracts ....................................................................
962.797)( 549.880)(
Interest on settlement of currency agreements ........................................................
2.578.937)( 0
Hedge contracts .......................................................................................................
1.408.740)( 43.742)(
Foreign exchange difference ...................................................................................
1.739.350 4.619.877)(
Dividends .................................................................................................................
120.972 88.119
Total of other income (expenses) on financial assets and liabilities ........................
4.154.981 3.522.869)(
Total financial income and expenses .......................................................................
4.056.388)( 10.852.347)(
Fair value changes through P/L
Generally accepted valuation methods are used to determine the fair value of certain financial assets and
financial liabilities, further discussed in note 38. Change in fair value that is recognized in the income statement
amounts to ISK 6.282 million income in the year 2021 (2020: income ISK 1.053 million). Fair value changes on
financial assets and liabilities defined at level 3 amounts to ISK 6.801 million income in the year 2021 (2020:
income ISK 1.429 million).
1) The Group paid a guarantee fee to current and former owners of the company for guarantees they have made
on the Groups loans and borrowings according to a decision made on the annual meeting of Orkuveita
Reykjavikur in 2005. The fee on yearly basis for its licensed operations is 0,81% (2020: 0,85%) and 0,60%
(2020: 0,61%) regarding loans due for operations in the open market. The guarantee fee is calculated on total
loans quarterly. The guarantee fee amounted to ISK 530 million in the year 2021 (2020: ISK 647 million) and is
accounted for among interest expenses.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
29
Amounts are in ISK thousand
________________________________________________________________________________________
Notes
11. Income tax
The parent Company´s tax rate is 37,6%, other taxable subsidiaries have a 20% tax rate.
Income tax recognised in the income statement is specified as follows:
2021 2020
Current income tax ...................................................................................................
1.753.949 1.847.570
Change in deferred income tax ................................................................................
2.398.436 1.925.868)(
Income tax recognised through P/L .........................................................................
4.152.386 78.298)(
Reconciliation of effective tax rate:
2021 2020
Profit before income tax .........................................
16.192.215 5.549.792
Income tax according to tax ratio of parent ............
37,6% 6.088.273 37,6% 2.086.722
Effect of tax rates of subsidiaries ...........................
7,1%)( 1.141.887)( 26,7%)( 1.480.390)(
Non-taxable operation of
water supply and sewer ......................................
4,6%)( 750.246)( 12,9%)( 716.278)(
Effect of different functional currencies
in the Group ........................................................
0,09%)( 15.075)( 0,37% 20.677
Other items ............................................................
0,18%)( 28.679)( 0,20% 10.970
Effective income tax ...............................................
25,6% 4.152.386 1,4%)( 78.298)(
Income tax recognised in other comprehensive income
Deferred tax
Due to income and expenses moved direct to equity
2021 2020
Tax effect of revaluation ..........................................................................................
2.645.771 0
Deferred tax, total ....................................................................................................
2.645.771 0
The Group's companies are tax liable according with Article 2 of law no. 90/2003 on income tax. The part of the
Group's operation concerning operation of cold water supply and sewer is though exempt from income tax.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
30
Amounts are in ISK thousand
________________________________________________________________________________________
Notes
12. Property, plant and equipment
Production Utility Other Other
The year 2021 system system real estates equipment Total
Cost or deemed cost
Balance at year beginning ............
296.669.526 342.855.126 9.056.003 3.254.290 651.834.946
Additions during the year ..............
4.453.577 11.572.904 1.330.226 642.773 17.999.480
Translation difference ...................
3.152.458 0 0 0 3.152.458
Sold or disposed of .......................
89.203)( 86.597)( 122.968)( 103.003)( 401.772)(
Revaluation, increase ...................
13.143.369 27.271.229 0 0 40.414.598
Balance at year end ......................
317.329.727 381.612.662 10.263.261 3.794.059 712.999.709
Depreciation
Balance at year beginning ............
125.987.170 185.814.894 718.007 1.821.647 314.341.717
Depreciated during the year .........
6.633.720 5.586.469 186.380 330.231 12.736.800
Translation difference ...................
683.451 0 0 0 683.451
Sold or disposed of .......................
63.051)( 86.630)( 122.764)( 105.092)( 377.537)(
Revaluation, increase ...................
7.411.786 14.490.232 0 0 21.902.018
Balance at year end ......................
140.653.075 205.804.966 781.623 2.046.786 349.286.450
Carrying amounts
A
t 1.1. 2021................................... 170.682.357 157.040.232 8.337.996 1.432.643 337.493.228
A
t 31.12. 2021............................... 176.676.652 175.807.696 9.481.638 1.747.273 363.713.260
The year 2020
Cost or deemed cost
Balance at year beginning ............
286.821.727 333.939.325 8.588.468 3.698.076 633.047.596
Additions during the year ..............
6.384.782 8.894.595 586.423 219.205 16.085.006
Translation difference ...................
5.829.966 0 0 0 5.829.966
Sold or disposed of .......................
2.366.948)( 21.206 118.888)( 662.992)( 3.127.622)(
Balance at year end ......................
296.669.526 342.855.126 9.056.003 3.254.290 651.834.946
Depreciation
Balance at year beginning ............
120.910.890 180.405.224 686.648 2.088.703 304.091.464
Depreciated during the year .........
6.632.187 5.405.879 152.152 385.914 12.576.132
Translation difference ...................
791.721 0 0 0 791.721
Sold or disposed of .......................
2.347.628)( 3.791 120.793)( 652.969)( 3.117.600)(
Balance at year end ......................
125.987.170 185.814.894 718.007 1.821.647 314.341.717
Carrying amounts
A
t 1.1. 2020................................... 165.910.837 153.534.101 7.901.820 1.609.374 328.956.132
A
t 31.12. 2020............................... 170.682.357 157.040.232 8.337.996 1.432.643 337.493.228
Investments during the year without payment effect amounted to ISK 1.788,8 million at year-end 2021. (2020:
ISK 1.391,8 million). The year's change in investments without payment effect amounts to ISK 396,9 million.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
31
Amounts are in ISK thousand
________________________________________________________________________________________
Notes
12. Property, plant and equipment, contd.
Revaluation
Revaluation was last conducted according to the following table:
Date of
Revaluation
Production systems
30.9.2021
30.9.2021
31.12.2018
Distribution systems
30.9.2021
30.9.2021
30.9.2021
30.9.2021
30.9.2021
Information on revalued assets at year end
Production Distribution
31.12.2021 system system Total
Revalued carrying amount ..............................................................
176.676.652 175.807.696 352.484.348
Thereof effect of revaluation ...........................................................
53.113.203)( 65.811.657)( 118.924.860)(
Carrying amount before effect of revaluation ..................................
123.563.448 109.996.040 233.559.488
31.12.2020
Revalued carrying amount ..............................................................
170.682.357 157.040.232 327.722.589
Thereof effect of revaluation ...........................................................
49.995.549)( 55.203.793)( 105.199.342)(
Carrying amount before effect of revaluation ..................................
120.686.808 101.836.439 222.523.247
The fair value of these assets is determined on the basis of the depreciated replacement cost. This consists in
that an assessment is made on changes in the construction cost of comparable assets and both cost and
accumulated depreciations are revaluated in accordance with those changes. The calculation is based on
official information and actual statistics from the Group's books on value changes of cost of items and takes into
account an estimate on the weight of each cost item in the total cost of construction of comparable assets. Cost
items and their proportional weight were determined by experts within the Group. The impairment test of assets
is also taken into consideration and revaluation is not recognised beyond the expected future cash flow of the
assets. Distribution systems for hot water, cold water, sewage and electricity are licensed operations and subject
to official revenue targets that are based mostly on changes in the construction cost index. This is taken into
consideration when revaluating these systems. Revaluation is classified as level 3 of the hierarchy of fair value,
further explained in note 32.
Hot water ..........................................................................................................................................
When revaluating, the relevant asset groups are measured at fair value. The aforementioned revaluation is
recognised in a revaluation reserve among equity taken into account effects of deferred income tax as further
explained in note 38 d. The revaluation is carried out by experts within the Group.
Fiber-optic cable system ..................................................................................................................
Cold water ........................................................................................................................................
Electricity ..........................................................................................................................................
Sewage ............................................................................................................................................
Cold water ........................................................................................................................................
Hot water ..........................................................................................................................................
Electricity ..........................................................................................................................................
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
32
Amounts are in ISK thousand
________________________________________________________________________________________
Notes
12. Property, plant and equipment, contd.
Impairment tests
The following criteria was used in assessing the value in use:
Prod. systems
Hot water Electricity Cold water Sewage Power plants
1,9% 2,5% 1,6% 1,9% 4,1%
0,7% 0,5% 0,4% 0,3% 0,15%-0,20%
5,2% 3,7% 5,0% 4,6% 6,2%
3,6% 3,7% 3,2% 3,4% 3,59%-4,35%
Prod. systems
Hot water Electricity Cold water Sewage Power plants
0,0% 1,9% 1,3% 1,6% 1,0%
0,5% 0,7% 0,4% 0,3% 0,0%-6,8%
-1,8% 1,4% 4,7% 4,9% 0,1%
3,7% 3,7% 4,0% 3,8% 4,35%-7,85%
Rateable value and insurance value
Obligations
Distribution system
CAGR w.r.t. to price changes .....
EBITDA CARG 2021-2025 .........
Year 2020
EBITDA CARG 2022-2026 .........
Revenue CAGR 2022-2026 ........
WACC .........................................
Distribution system
The recoverable amount of each sector was evaluated based on value in use. The value in use was determined
by discounting the expected future cash flows at the continued use in each sector. Cash flows were based on
the future cash flow of the next five years. In assessing value in use, management make the plan for business
development, based on both internal and external information.
Impairment tests were performed at the end of September 2021 for distribution systems, production systems
and power plants in order to confirm if both carrying amounts of assets and main assets under construction
would meet estimated future cash flows of these assets. The impairment tests are carried out for every sector in
the distribution and production systems.
CAGR w.r.t. to price changes .....
Year 2021
Impairment for distribution system for Utilities or Power plants is unlikely because of additional value. However
the test for electricity in power plants is sensitive to changes in key assumptions. If the required rate of ROCE
increased by 0,1 percentage points, and other criteria are kept unchanged the calculated impairment of
additional value in electricity for power plants would be ISK 7,5 billion. If the projected EBITDA is 1% lower
during the planning period and other terms are unchanged, calculated impairment would be ISK 3,5 billion. In
neither case is there any impairment.
The rateable value of the Group's assets measured in the rateable value assessment amounted to ISK 39.603
million at year end 2021 (2020: ISK 32.241 million). The fire insurance value of the company's assets amounted
to ISK 52.042 million at the same time (2020: ISK 48.117 million). Among those assets are real estates
capitalised among production and distribution systems. The insurance value of the Group's assets amounted to
ISK 454.249 million at year end 2021 (2020: ISK 402.885 million).
The Group has entered into contracts and placed purchase orders with suppliers and developers concerning
work on production and distribution systems. The balance of these contracts and purchase orders at year end is
estimated at ISK 5.144 million (2020: ISK 1.903 million).
Revenue CAGR 2021-2025 ........
WACC .........................................
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
33
Amounts are in ISK thousand
________________________________________________________________________________________
Notes
13. Intangible assets
Intangible assets are specified as follows:
Heating Development
The year 2021 rights Software cost Total
Cost
1.427.031 3.528.686 135.385 5.091.101
0 465.668 56.894 522.562
0 126.916)( 0 126.916)(
1.427.031 3.867.437 192.278 5.486.746
Amortisation
457.768 1.796.199 0 2.253.968
0 385.777 7.437 393.214
0 126.916)( 0 126.916)(
457.768 2.055.060 7.437 2.520.265
Carrying amounts
969.263 1.732.486 135.385 2.837.133
969.263 1.812.377 184.841 2.966.481
The year 2020
Cost
1.427.031 3.020.288 0 4.447.319
0 563.838 135.385 699.222
0 55.440)( 0 55.440)(
1.427.031 3.528.686 135.385 5.091.101
Amortisation
457.768 1.491.451 0 1.949.219
0 360.189 0 360.189
0 55.440)( 0 55.440)(
457.768 1.796.199 0 2.253.968
Carrying amounts
969.263 1.528.837 0 2.498.100
969.263 1.732.486 135.385 2.837.133
14. Lease agreements
Significant accounting policies are described in note 38t.
Balance at year beginning ....................................
Additions during the year ......................................
The Group rents office space and land. These leases are for varying lengths of time, but usually with the
possibility of renewal at the end of the lease. Some leases include additional lease payments that are based on
a change in certain indices. The Group may not enter into sublease agreements for certain leases.
The Group has elected not to recognise right-of-use assets and lease liabilities for some short-term leases and
leases of low-value assets. The Group charges lease payments for these leases on a straight-line basis during
the lease term.
Sold or disposed of ...............................................
Balance at year end ..............................................
Sold or disposed of ...............................................
Balance at end of the year ....................................
Balance at year beginning ....................................
Amortisation during the year .................................
Balance at end of the year ....................................
Additions during the year ......................................
Balance at year end ..............................................
Balance at year beginning ....................................
Sold or disposed of ...............................................
Sold or disposed of ...............................................
Amortisation during the year .................................
At 1.1. 2021 ...........................................................
At 1.1. 2020 ...........................................................
At 31.12. 2020 .......................................................
At 31.12. 2021 .......................................................
Balance at year beginning ....................................
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
34
Amounts are in ISK thousand
________________________________________________________________________________________
Notes
14. Lease agreements, contd.
Changes in right-of-use assets in the year are specified as follows:
2021 2020
Right-of-use assets
2.590.642 2.488.863
101.751 53.454
33.915)( 0
44.645 168.198
126.947)( 119.873)(
2.576.177 2.590.642
Amounts in Income statement:
126.947 119.873
Changes in lease liabilities in the year are specified as follows:
2021 2020
Lease liabilities
2.640.913 2.509.752
101.751 53.454
33.915)( 0
76.224 76.174
174.257)( 166.665)(
44.645 168.198
2.655.361 2.640.913
Undiscounted cash flow due to lease payments is as follows:
Within a year In 1 to 5 years After 5 years Total
179.498 540.935 3.721.876 4.442.309
74.972)( 277.305)( 1.434.670)( 1.786.948)(
104.525 263.630 2.287.206 2.655.361
Amounts in Income statement:
2021 2020
76.224 76.174
Amounts in Statement of Cash Flows:
76.071 73.478
98.186 93.187
Reduction due to termination of contracts during the year ......................................
The installment element of the lease payments
Additions or extended contracts during the year .....................................................
Indexation ................................................................................................................
Lease payments ....................................................
Lease liabilities at year beginning ...........................................................................
Interest rate of rent payments
(presented in cash flow statement in line "Paid interest expenses") ..................
Most of the Group's leasing contracts for real estate include extension permits that the Group may use up to one
year before the end of an unenforceable lease period. At the beginning of the lease, the Group assesses
whether it is considered likely that it will utilize extensions. If there are significant changes in circumstances that
are within the control of the Group, it will reassess whether the extension rights will be used.
(presented in cash flow statement in the line "Payments of lease liabilities") ....
Right-of-use assets at year beginning .....................................................................
Right-of-use assets, depreciation ............................................................................
Depreciation of the year ..........................................................................................
Right-of-use assets at year-end ..............................................................................
Interests ................................................................
Total ......................................................................
Interest expenses: ...................................................................................................
Interests ...................................................................................................................
Reduction due to termination of contracts during the year ......................................
Repayment of lease liabilities ..................................................................................
Indexation ................................................................................................................
Lease liabilities at year-end .....................................................................................
New lease liabilities or extended contracts during the year .....................................
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
35
Amounts are in ISK thousand
________________________________________________________________________________________
Notes
15. Investments in associated companies
Carrying Carrying
Share amount Share amount
Íslensk Nýorka ehf. ................................................
29,11% 32.758 29,46% 33.235
Netorka hf. ............................................................. 38,41%
44.411
38,41%
42.138
Orkuskólinn REYST hf. .......................................... 45,00%
3.753
45,00%
6.017
Total .......................................................................
80.923 81.389
16. Investments in other companies
Share 2021 Share 2020
Non-current assets
0,0% 0 6,8% 5.867.000
55.680 55.680
55.680 5.922.680
Current assets
6,8% 6.095.000 0,0% 0
17. Embedded derivatives in electricity sales contracts
2021 2020
Fair value of embedded derivatives at the beginning of the year ............................
5.956.381)( 6.679.329)(
Fair value changes during the year ..........................................................................
6.573.330 722.948
Fair value of embedded derivatives at year-end asset/(liability) ..............................
616.949 5.956.381)(
The allocation of embedded derivatives in electricity sales contracts is specified as follows:
Non-current embedded derivatives asset/(liability) ..................................................
931.389)( 4.907.730)(
Current embedded derivatives, asset/(liability) ........................................................
1.548.338 1.048.651)(
Total embedded derivatives at year-end ..................................................................
616.949 5.956.381)(
Landsnet hf. 1) ......................................................
Other shares in companies ...................................
Other shares in companies, total ..........................
Landsnet hf. 1) ......................................................
1) A legal provision on a change in the ownership of an electricity transmission company will be implemented 1
July 2022, according to Article 19 Act no. 74/2021. The law requires a change in the ownership of Landsnet hf.
in such a way that it will be directly owned by the state and/or municipalities. Declarations of intent are available
for negotiations between all owners of Landsnet, including Orkuveita Reykjavíkur, where a price will be agreed
for each owner’s share and payment arrangements for 1 July 2022. OR’s holding in Landsnet hf. at the end of
2021 is therefore included in current assets and not non-current assets as at the end of 2020.
2020
The Group's share in the loss of its associated companies amounted to ISK 3.967 thousand in 2021 (2020: profit
of ISK 4.137 thousand).
Further discussion regarding embedded derivatives can be found in note 28 c.
Fair value of financial assets available for sale is based on generally accepted valuation methods performed by
independent experts and internal experts. Fair value change of Landsnet hf. amounted to ISK 228 million in
2021 (2020: ISK 706 million) and the increase was transferred to a fair value reserve among equity. See further
discussion in note 32.
2021
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
36
Amounts are in ISK thousand
________________________________________________________________________________________
Notes
18. Hedge contracts
Financial assets at fair value through profit or loss:
2021 2020
Non-current assets
Hedge contracts .......................................................................................................
73.264 509.904
Current assets
Hedge contracts .......................................................................................................
17.036 45.399
Non current liabilities
Hedge contracts .......................................................................................................
332.279)( 571.981)(
Current liabilities
Hedge contracts .......................................................................................................
1.584.188)( 846.690)(
19. Deferred tax assets and liabilities
Deferred tax assets and liabilities is specified as follows:
2021 Tax assets Tax liabilities Net amount
Deferred tax assets/(liabilities) at the beginning of the year ...........
6.675.003 14.662.897)( 7.987.895)(
Calculated income tax for the year ..................................................
2.888.687)( 1.263.699)( 4.152.386)(
Current tax liability ...........................................................................
26.614 1.727.336 1.753.949
Tax effect on the revaluation account .............................................
0 2.654.292)( 2.654.292)(
Other changes ................................................................................
0 76.227)( 76.227)(
Deferred tax assets/(liabilities) at end of the year ...........................
3.812.930 16.929.779)( 13.116.849)(
2020
Deferred tax assets/(liabilities) at the beginning of the year ...........
4.879.759 14.679.794)( 9.800.035)(
Calculated income tax for the year ..................................................
1.775.858 1.697.238)( 78.620
Current tax liability ...........................................................................
19.386 1.828.184 1.847.570
Other changes ................................................................................
0 114.050)( 114.050)(
Deferred tax assets/(liabilities) at end of the year ...........................
6.675.003 14.662.897)( 7.987.895)(
Deferred tax assets and liabilities are attributable to the following:
Tax assets Tax liabilities Tax assets Tax liabilities
Property, plant and equipment ..............................
840.820 17.344.151)( 788.958 14.809.204)(
Embedded derivatives ..........................................
231.973)( 0 2.239.599 0
Other items ...........................................................
635.223 414.372 1.954.481 108.290
Effect of carry forward taxable loss .......................
2.568.859 0 1.691.965 38.016
Deferred tax assets/(liabilities) at year end ...........
3.812.930 16.929.779)( 6.675.003 14.662.897)(
31.12.202031.12.2021
Hedge contracts are measured by discounted future cash flow and market observable data is used in the price
determination.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
37
Amounts are in ISK thousand
________________________________________________________________________________________
Notes
19. Deferred tax assets and liabilities, cont.
Carry forward taxable loss
2021 2020
Carry forward taxable loss for the year 2017, usable until year 2027 ......................
0 159.548
Carry forward taxable loss for the year 2018, usable until year 2028 ......................
41.429 41.429
Carry forward taxable loss for the year 2019, usable until year 2029 ......................
2.059.754 2.059.754
Carry forward taxable loss for the year 2020, usable until year 2030 ......................
2.398.725 2.429.258
Carry forward taxable loss for the year 2021, usable until year 2031 ......................
2.332.165 0
Carry forwards taxable loss at year end ..................................................................
6.832.073 4.689.989
20. Inventories
2021 2020
Inventory of materials ..............................................................................................
1.337.505 1.249.674
21. Receivables
Trade receivables is specified as follows at year end:
2021 2020
Trade receivables, industrial consumers .................................................................
1.159.284 838.993
Trade receivables, retail ..........................................................................................
4.613.079 4.756.092
Trade receivables, total ...........................................................................................
5.772.363 5.595.085
Allowance for doubtful accounts ..............................................................................
147.214)( 155.258)(
5.625.149 5.439.828
O
t
h
er current rece
i
va
bl
es are spec
ifi
e
d
as
f
o
ll
ows at year en
d
:
Capital income tax ...................................................................................................
166.192 176.318
Accrued interest income ..........................................................................................
3.509 61.334
Receivables from employees ..................................................................................
2.676 4.307
Other receivables ....................................................................................................
502.025 162.903
674.401 404.863
22. Cash and cash equivalents, deposits and marketable securities
2021 2020
0 6.500.000
14.657.369 8.366.902
14.657.369 14.866.902
Bank balances available within three months ..........................................................
10.319.874 15.820.051
Based on current tax law, a carry forwards taxable loss can be used against taxable profit within 10 years from
when it was incurred. Carry forwards taxable loss at year end can be used as follows:
Bank deposits, available from three to twelve months ............................................
The Group's material inventories consist of material for maintenance, renewal and construction of the Group's
production and distribution systems. A part of the inventories is defined as safety inventories, i.e. inventories that
are necessary to have on hand in case of malfunction or maintenance even though their turnover is low. The
value of inventories is estimated regularly. Inventories for renewal and new constructions are accounted for
among property, plant and equipment as part of building cost of assets under construction.
Marketable securities ...............................................................................................
Management has evaluated the utilization of income tax losses and made plans for taxable profit for the next
years. Deferred tax assets due to the taxable loss carried forward is recognized to the extent that it is believed to
be useful.
Cash and cash equivalent, deposits and marketable securities at year end are
specified as follows:
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
38
Amounts are in ISK thousand
________________________________________________________________________________________
Notes
23. Equit
y
Revaluation reserve
Translation reserve
Fair value reserve
Equity reserve
Development reserve
Retained earnings
Fair value reserve comprises change of the value of assets categorised as available for sale after taking tax
effects into account.
Dividend in the amount of ISK 4.000 million was paid to the owners of the parent Company in the year 2021.
(2020: ISK 3.000 million).
Equity ratio of the Group at year end 2021 is 51,6% (2020: 47,7%). Return on equity was positive by 6,2% in the
year 2021 (2020: positive by 3,1%).
According to the Financial Statement Act no. 3/2006, companies that capitalize development cost should
account for the same amount on a restricted reserve account among equity.
Revaluation reserve comprises of increase in the value of properties, plant and equipment after taking tax
effects into account. Depreciation of the revaluated price are expensed in the income statement and transferred
at the same time from the revaluation reserve account to retained earnings.
The translation reserve comprises all foreign currency differences arising from the translation of financial
statements of operations with other functional currency than ISK.
According to the Financial Statements Act no. 3/2006, share in profit of subsidiaries and associates, which
exceeds the dividends received or the dividend decided of retained earnings, is accounted for on a restricted
reserve account among equity.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
39
Amounts are in ISK thousand
________________________________________________________________________________________
Notes
24. Loans and borrowings
Non-current liabilities
31.12.2021 31.12.2020
Bank loans ...............................................................................................................
77.649.505 90.611.094
Subordinated loan from owners of the Company .....................................................
0 3.550.949
Bond issuance .........................................................................................................
87.397.686 77.538.410
165.047.192 171.700.453
Current portion on non-current liabilities ..................................................................
15.187.655)( 19.349.528)(
149.859.537 152.350.925
Current liabilities
Current portion on non-current liabilities ..................................................................
15.187.655 19.349.528
Total interest bearing loans and borrowings ............................................................
165.047.192 171.700.453
Terms of interest-bearing loans and borrowings
Liabilities in foreign currencies:
Date of Average Carrying Average Carrying
maturity interest rate amount interest rate amount
Liabilities in CHF ..........................
5.10.2027 0,00% 7.166.297 0,00% 8.961.014
Liabilities in EUR ..........................
19.12.2027 0,80% 17.390.754 0,77% 20.569.184
Liabilities in USD ..........................
26.11.2035 2,03% 34.665.932 2,04% 33.949.380
Liabilities in JPY ...........................
10.5.2027 0,02% 2.187.201 0,01% 3.107.268
Liabilities in GBP ..........................
26.2.2024 1,11% 1.207.197 1,13% 1.589.628
Liabilities in SEK ...........................
5.10.2027 0,02% 2.069.306 0,06% 2.611.626
64.686.686 70.788.101
Liabilities in Icelandic kronas:
Indexed ......................................... 18.2.2055
2,62%
81.376.580
2,76%
84.547.786
Non-indexed ................................. 18.2.2042
4,06%
18.983.926
2,96%
16.364.565
100.360.506 100.912.352
Total interest-bearing loans and borrowings ..................................
165.047.192 171.700.453
Repayment on non-current liabilities are specified as follows on the next years:
31.12.2021
15.187.655
19.196.497
15.082.367
15.967.229
14.038.102
85.575.342
165.047.192
31.12.2020
19.349.528
14.927.515
19.046.846
14.967.994
14.734.478
88.674.091
171.700.453
The year 2022..................................................................................................................................
Later ................................................................................................................................................
The year 2024..................................................................................................................................
The year 2026..................................................................................................................................
Total non-current liabilities, including next year's repayment ..........................................................
The year 2025..................................................................................................................................
The year 2023..................................................................................................................................
31.12.2020
The year 2022..................................................................................................................................
Total non-current liabilities, including next year's repayment ..........................................................
The year 2025..................................................................................................................................
The year 2021..................................................................................................................................
The year 2023..................................................................................................................................
Later ................................................................................................................................................
Interest bearing loans are recorded using the method of amortised cost. Further information on the Group's
exposure to interest rate and foreign currency risk, see note 28. Loans and borrowings are specified as follows:
31.12.2021
The year 2024..................................................................................................................................
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
40
Amounts are in ISK thousand
________________________________________________________________________________________
Notes
24. Loans and borrowings, contd.,
Changes in loans and borrowings in the year are specified as follows:
2021 2020
Movements with payment effects
171.700.453 154.019.113
14.283.912 29.965.498
24.183.955)( 22.225.138)(
Movements without payment effects
678.424)( 7.235.628
3.925.206 2.705.352
165.047.192 171.700.453
Guarantees and pledges
Covenants
25. Retirement benefit obligation
2021 2020
Retirement benefit obligation at the beginning of the year .......................................
692.027 753.084
Contribution due to pension payments during the year ........................................... 35.315)( 33.483)(
Inecrease (decrease) in the pension fund obligation during the year ...................... 9.167 27.574)(
Retirement benefit obligation at year end ................................................................
665.879 692.027
Non-current component of retirement benefit obligation .......................................... 630.879 659.027
Current component of retirement benefit obligation ................................................. 35.000 33.000
Retirement benefit obligation at year end ................................................................
665.879 692.027
The Group's accrued retirement benefit obligation amounted to ISK 665,9 million at year end 2021, discounted
based on 2% interests and taken into account the share in the net asset of the pension fund (2020: ISK 692,0
million). The Group updates the obligation according to an assessment from an actuary each year when that
assessment is available. Premises for life expectancy are in accordance with provisions of Regulation no.
391/1998 on obligatory insurance of pension benefits and operation of pension funds. The estimated increase
in the obligation in the year is based on general increase in salaries taken into account interests. The part of the
obligation that is estimated to be payable in the year 2022 is recognised among current liabilities.
Loans for the amount of ISK 102.279 million have certain covenants that regard repayment time as a proportion
of EBITDA and as interests as a proportion of EBITDA as well as reviewing that budgets are within set limits
(31.12.2020: ISK 81.617 million). Management regularly evaluate the covenants and in their view there is not
risk of them being breached. At the end of the year the Group measured up to all financial covenants of loan
agreements.
The Group has retirement benefit obligation due to benefits of current and former employees in pension benefit
plans.
Repayment of borrowings ........................................................................................
The owners of the parent company are responsible, pro rata, for 42,1
%
of all loans and borrowings. The Group
has not pledged its assets as guarantee for its liabilities.
Currency fluctuation .................................................................................................
Indexation ................................................................................................................
New borrowings .......................................................................................................
Total interest bearing loans and borrowings 31 December ....................................
Total interest bearing loans and borrowings 1 January ...........................................
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
41
Amounts are in ISK thousand
________________________________________________________________________________________
Notes
26. Current liabilities
Other current liabilities is specified as follows:
2021 2020
Unpaid taxes ............................................................................................................
670.554 428.076
Unpaid salaries and salary related items .................................................................
1.711.810 1.750.339
Accrued interest expenses .......................................................................................
790.891 751.557
Current component of retirement benefit obligation .................................................
35.000 33.000
Derivative contracts in default, see note 37 .............................................................
3.335.937 740.000
Other liabilities .........................................................................................................
154.226 85.663
Total current liabilities ..............................................................................................
6.698.418 3.788.635
27. Risk management and financial instruments
• Market risk, further discussed in note 28
• Liquidity risk, further discussed in note 29
• Credit risk, further discussed in note 30
• Operational risk, further discussed in note 31
28. Market risk
a. Currency risk due to assets and liabilities in the balance sheet and cash flow in foreign currencies.
b. Interest rate risk due to loans and contracts made by the Group
c. Risk due to changes in the world market price of aluminium.
Financial risk is divided into:
• to formulate a proposal for a risk policy and risk limits for the board
• that suitable methods are used to recognise and measure risk
• that risk monitoring systems are in place and efficient
• that the risk policy of the Board is complied with in the operations of the Group
• that deviations from policy are reviewed and referred to the Board if applicable
• to monitor the Group's operational risk
The Orkuveita Reykjavikur Board´s policy is that in all of the Group´s operations, risks are to be considered and
by that implementing efficient decision making and governance. The risk policy explains the overview and main
targets of the Board in this matter. The risk policy also defines the main risk factors, measurement indicators,
objectives and risk limits in the daily risk management. One of the main foundation in the risk policy is to define
the risk factors which are of relevance, measure their impact and define acceptable limits when controlling them.
The Risk management department oversees and controls risk. The objective of the department is to monitor,
analyse and control the financial and operational risks of the Group.
Market risk is the risk that changes in the exchange rate of foreign currencies, aluminium price, interests and
other price changes will affect the Group’s income or the value of its financial instruments. With regards to the
current Balance Sheet, market risk is mainly due to changes in interest, exchange rates, CPI and aluminium
price but risk regarding portfolio assets such as shares in companies and bonds is minimal. The risk that weighs
the most in the Group is divided into:
Decision making and control on the execution of the risk management is in the hands of a Risk council. The
CEO appoints the risk concil. The CEO appoints a risk council that manages risk on behalf of the Board. The
Risk concil overviews for instance:
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
42
Amounts are in ISK thousand
________________________________________________________________________________________
Notes
28. Market risk, contd.
a. Currency ris
k
2021 2020 31.12.2021 31.12.2020
CHF ........................................................................
138,974 144,330 142,830 144,380
EUR .......................................................................
150,189 154,520 147,600 156,100
USD ......................................................................
127,047 135,270 130,380 127,210
JPY ........................................................................
1,157 1,270 1,133 1,234
GBP .......................................................................
174,707 173,590 175,730 173,550
SEK ........................................................................
14,807 14,750 14,392 15,569
CAD .......................................................................
101,304 100,950 102,420 99,910
TWI ........................................................................ 196,103 200,920 195,602 200,456
Currency risk is the risk of changes in exchange rates having a negative effect on the Group's income. Currency
risk is measured in the difference between assets and liabilities in each currency where taken into consideration
all assets, liabilities and derivatives. The Risk Management department is permitted to use forward contracts
and currency swaps to mitigate risk due to currency fluctuations. Limits on the minimum/maximum currency
imbalance in cash flows for the next 5 financial years have been approved.
Approx. 39% of the Group's interest bearing loans are in foreign currencies. The Group has entered into long
term electricity sales contracts in foreign currency (USD). The expected future revenues from these contracts on
the accounting date amount to approx. ISK 69.130 million (2020: ISK 67.430 million). That amount is based on
the future price of aluminium on LME (London Metal Exchange), the USD exchange rate and longterm
expectations of price development of aluminium according to, an independent evaluation party CRU, as
available on the accounting date. In addition to the above, other smaller sales agreementson have been made in
foreign currency.
The Group is exposed to currency risk on sales, purchases and borrowings in different currencies. Main
currency exposures are in United States dollar (USD), Euro (EUR) and Swiss Francs (CHF).
Average exchange rate Exchange rate at year end
Exchange rates of main currencies:
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
43
Amounts are in ISK thousand
_________________________________________________________________________________________________________________________________________________
28 Market risk, contd.
a. Currency risk, contd.
Balance sheet currency risk
The Group's exposure to currency risk is specified as follows:
Other
31.12.2021
CHF EUR USD JPY SEK ISK currencies Total
Loans and borrowings ....................................
7.166.297)( 17.390.754)( 34.665.932)( 2.187.201)( 2.069.306)( 1.207.197)( 64.686.686)(
Trade receivables (accounts payables) ..........
167.991)( 914.978 401)( 30.995)( 4.515)( 711.075
Bank deposits .................................................
2.320 133.458 1.809.111 1.058 1.171 2.754 51.655 2.001.527
Embedded derivatives ....................................
616.949 616.949
Hedge contracts ..............................................
1.826.166)( 1.826.166)(
Receivables/(payables) within the Group* ......
4.463.001)( 1.148.899)( 5.611.900)(
Loans and borrowings to related parties* .......
44.459.387 44.459.387
Total risk through P/L ..................................... 7.163.977)( 17.425.288)( 6.845.327 2.186.143)( 2.068.536)( 1.177.141)( 1.160.056)( 24.335.813)(
Subsidiaries equity in USD** .......................... 58.241.335 58.241.335
Investments in other companies ..................... 6.095.000 6.095.000
Total risk through P/L and in equity ................ 7.163.977)( 17.425.288)( 71.181.662 2.186.143)( 2.068.536)( 1.177.141)( 1.160.056)( 40.000.522
Notes
(*) The functional currency of ON Power is in USD and exchange gains/losses from assets and liabilities in ISK are accounted for through P/L. In addition the exchange
gains/losses for foreign assets and liabilities of the parent company towards it´s subsidiary, ON Power, are accounted through P/L .
(**) The functional currency of ON Power is in USD and translational differences due to changes in the USD/ISK exchange rate is accounted for in equity.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
44
Amounts are in ISK thousand
_________________________________________________________________________________________________________________________________________________
Notes
28 Market risk, contd.
a. Currency risk, contd.
Balance sheet currency risk, contd.
Other
31.12.2020
CHF EUR USD JPY SEK ISK currencies Total
Loans and borrowings ....................................
8.961.014)( 20.569.184)( 33.949.380)( 3.107.268)( 2.611.626)( 1.589.628)( 70.788.101)(
Trade receivables (accounts payables) ..........
0 217 196.989 0 1.606)( 113.460 21.608)( 287.452
Bank deposits .................................................
260.965 809.126 4.411.361 25.911 113.225 272.975 228.289 6.121.853
Embedded derivatives ....................................
5.956.381)( 5.956.381)(
Hedge contracts ..............................................
34.130)( 829.238)( 863.369)(
Receivables/(payables) within the group* .......
126)( 2.066.939)( 838.481)( 2.905.546)(
Loans and borrowings to related parties* .......
45.817.850 45.817.850
Total risk through P/L ..................................... 8.700.049)( 19.794.098)( 7.624.262 3.081.357)( 2.500.008)( 452.046)( 1.382.947)( 28.286.243)(
Subsidiaries equity in USD** .......................... 54.907.420 54.907.420
Investments in other companies ..................... 5.867.000 5.867.000
Total risk through P/L and in equity ................ 8.700.049)( 19.794.098)( 68.398.682 3.081.357)( 2.500.008)( 452.046)( 1.382.947)( 32.488.177
Sensitivity analysis
Other
CHF EUR USD JPY SEK ISK currencies Total
The year 2021
716.398 1.742.529 684.533)( 218.614 206.854 117.714 116.006 2.433.581
The year 2020
870.005 1.979.410 762.426)( 308.136 250.001 45.205 138.295 2.828.624
The year 2021
716.398 1.742.529 7.118.166)( 218.614 206.854 117.714 116.006 4.000.052)(
The year 2020
870.005 1.979.410 6.839.868)( 308.136 250.001 45.205 138.295 3.248.818)(
Equity
Profit or (loss)
A
ppreciation by 10% of the Icelandic krona against the following currencies at year-end would have increased (decreased) equity and profit or (loss) by the amounts shown
below, taking into account tax effects. Depreciation by 10% of the Icelandic krona against the following currencies would have had the equivalent, but opposite effect. This
analysis assumes that all other variables, in particular interest rates and aluminium prices, remain constant.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
45
Amounts are in ISK thousand
________________________________________________________________________________________________
28 Market risk, contd.
b. Interest rate risk
Interest-bearing financial assets and liabilities are specified as follows:
Fixed rate instruments
31.12.2021 31.12.2020
Financial liabilities .....................................................................................................
99.241.377)( 100.944.357)(
V
ariable rate instruments
Financial liabilities .....................................................................................................
65.805.815)( 70.756.095)(
Financial instruments at fair value
Marketable securities ................................................................................................
14.657.369 8.366.902
Hedge contracts ........................................................................................................
1.826.167)( 863.369)(
12.831.203 7.503.534
Sensitivit
y
anal
y
sis on interest
100 p 100 p 100 p 100 p
31.12.2021
increase decrease increase decrease
0 0 50.306 54.110)(
0 0 1.625.771)( 3.246.739
41.117 41.117)( 25.646 51.718)(
220.795)( 220.795 0 0
179.678)( 179.678 1.549.819)( 3.140.910
100 p 100 p 100 p 100 p
31.12.2020
increase decrease increase decrease
0 0 144.689 152.710)(
0 0 1.418.445)( 2.881.957
57.369 57.369)( 35.582 27.176
246.943)( 246.943 0 0
189.574)( 189.574 1.238.174)( 2.756.423
Fair value sensitivityCash flow sensitivity
The following table shows the calculated effect of changes in interest on one year cash flows and on the value of
financial instruments measured at fair value, taken into account the effect of taxes. The analysis was done in the
same way for the year 2020.
Investments in other companies ............................
Embedded derivatives ...........................................
Hedge contracts .....................................................
Interest rate risk is the risk of changes in interest rates having a negative effect on the Group's income. The
Group is exposed to interest rate risk due to interest bearing assets, liabilities and financial instruments measured
at fair value. The Group´s liabilities both have fixed and variable interest rates, majority being subject to fixed
interest rates. The risk management department monitors that interest rate risk is within preset limits and has
permission to control interest rate risk with derivatives for the next 5 financial years within approved limits. On the
accounting date hedges covered 82% of loans, taking into account hedges, with fixed interest rates 1 year ahead.
Investments in other companies ............................
Interest bearing liabilities .......................................
Notes
analysis
Interest bearing liabilities .......................................
analysis
Embedded derivatives ...........................................
Hedge contracts .....................................................
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
46
Amounts are in ISK thousand
________________________________________________________________________________________________
Notes
28 Market risk, contd.
c. Aluminium risk
Embedded derivatives in electricit
y
sales contracts
Two electricity sales contracts are in place at the accounting date. One is with Norðurál in regards of the
aluminium plant at Grundartangi and Norðurál have also made an electricity sales contract due to sale of
electricity to a pending aluminium plant in Helguvík, where delivery of electricity has begun partly with delivery to
Grundartangi. These electricity sales contracts are denominated in USD and the price of the electricity is
connected to the market price of aluminium. Income of electricity contracts that is effected by price of aluminium
is 16,1% of total revenue in the reporting year 2021 (2020: 12,7%).
As the market value of the embedded derivatives is not available their fair value has been measured with
generally accepted evaluation methods. The expected net present value of the cash flow of a contract on the
accounting date has been measured, based on the future price of aluminium on LME (London Metal Exchange)
on the accounting date and long term expectations of price development of aluminium according to the
assessment of CRU, an independent evaluation party, as available on the accounting date. From the expected
net present value of cash flow of the contract on the accounting date the expected net present value based on
premises on aluminium price on the initial date of the contract is deducted. The difference is the fair value of the
derivative. The valuation is based on the premises that the derivative has no value at the initial date of the
contract.
Aluminium risk is the risk that changes in the price of aluminium has a negative impact on the income of the
Group.
To reduce risk due to aluminium prices the Group has entered into derivative contracts to reduce the fluctuation
of income affected by aluminium prices. The risk management department has permission to hedge this risk
within approved limits for the nest 5 financial years. At the accounting date hedges amounted to 89% of expected
income affected by aluminium price for the next 12 months (31.12 2020: 56%).
Embedded derivatives of the electricity sales contracts recognised in the financial statements are capitalised in
the balance sheet at fair value at the accounting date and fair value changes during the year are recognised in
the income statement among income on financial assets and liabilities.
The aforementioned electricity sales contracts include embedded derivatives as income thereon is subject to
changes in the future world market price of aluminium. In accordance with provisions of International standards
on financial instruments, the fair value of embedded derivatives for Grundartangi has been measured and
recognised in the financial statements and partly for the contracts with Helguvík.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
47
Amounts are in ISK thousand
________________________________________________________________________________________________
Notes
28 Market risk, contd.
c. Aluminium risk, contd.
Sensitivit
y
anal
y
sis on the
p
rice of aluminium
31.12.2021
10% decrease 10% increase
Embedded derivatives ...............................................................................................
3.827.863)( 3.827.863
Aluminium hedges .....................................................................................................
983.022 1.058.701)(
Total ..........................................................................................................................
2.844.840)( 2.769.162
31.12.2020
10% decrease 10% increase
Embedded derivatives ...............................................................................................
3.382.919)( 3.382.919
Aluminium hedges .....................................................................................................
309.029 585.965)(
Total ..........................................................................................................................
3.073.890)( 2.796.954
d. Other market risk
29 Liquidity risk
Sensitivity of
Fair value
Sensitivity of
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The
Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity
to meet its liabilities when due.
In the following table shows the calculated effect on financial instruments measured at fair value due to change in
aluminium price, taking tax effect into account.
Fair value
Other market risk such as interest spread and risk in shares in other companies is limited as investments in such
securities is an insubstantial part of the Group's operation with the exception of liquity management. The value of
the financial assets tied up in funds or in asset management is subject to changes in the market, e.g. due to price
changes in the bond- and equity markets. For further information, see note 29.
The Group's cash and cash equivalents at end of the year amounted to ISK 10.320 million as well as marketable
securities amounting to ISK 14.657 million. Therefore the Group owned ISK 24.977 million in bank deposits at
year end 2021. Furthermore, the Group had unused loan authorisations and a open credit line to the total amount
of approx. ISK 9.629 million. The Group had thus in total ensured capital at year-end to the amount of approx.
ISK 34.606 million. The corresponding amount at year end 2020 amounted to ISK 42.463 million.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
48
Amounts are in ISK thousand
________________________________________________________________________________________________
Notes
29 Liquidity risk, contd.
31.12.2021
Carrying Contractual
Less than After After More than
amount cash flows
1 year 1 - 2 years 2 - 5 years 5 years
Non-derivative financial instruments
Trade
receivables .......
5.625.149 5.625.149 5.625.149 0 0 0
Other
receivables .......
674.401 674.401 674.401 0 0 0
Marketable
securities ..........
14.657.369 14.657.369 14.657.369 0 0 0
Cash and cash
equivalents .......
10.319.874 10.319.874 10.319.874 0 0 0
Interest-bearing
liabilities ............
165.047.192)( 200.378.478)( 18.625.353)( 22.318.196)( 53.368.080)( 106.066.850)(
A
ccounts
payable ............
3.522.684)( 3.522.684)( 3.522.684)(
0 0 0
Other liabilities ....
6.698.418)( 6.698.418)( 6.698.418)( 0 0 0
143.991.500)( 179.322.787)( 2.430.339 22.318.196)( 53.368.080)( 106.066.850)(
Derivative financial instruments, net financial assets and financial liabilities
Embedded
derivatives .......
616.949 69.130.064 10.143.657 9.607.663 25.259.708 24.119.036
Hedge
contracts ..........
1.826.167)( 3.008.122)( 2.653.618)( 437.654)( 83.150 0
1.209.217)( 66.121.941 7.490.038 9.170.009 25.342.859 24.119.036
31.12.2020
Non-derivative financial instruments
Trade
receivables .......
5.439.828 5.439.828 5.439.828 0 0 0
Other
receivables .......
404.863 404.863 404.863 0 0 0
Deposits ..............
6.500.000 6.500.000 6.500.000 0 0 0
Marketable
securities ..........
8.366.902 8.366.902 8.366.902 0 0 0
Cash and cash
equivalents .......
15.820.051 15.820.051 15.820.051 0 0 0
Interest-bearing
liabilities ............
171.700.453)( 204.856.007)( 22.613.652)( 17.798.455)( 55.995.854)( 108.448.045)(
A
ccounts
payable ............
2.822.579)( 2.822.579)( 2.822.579)(
0 0 0
Other liabilities ....
3.788.635)( 3.788.635)( 3.788.635)(
0 0 0
141.780.023)( 174.935.577)( 7.306.778 17.798.455)( 55.995.854)( 108.448.045)(
Derivative financial instruments, net financial assets and financial liabilities
Embedded
derivatives .......
5.956.381)( 67.430.057 7.055.996 7.187.410 22.620.445 30.566.207
H
e
d
ge
contracts ..........
863.369)( 1.409.052)( 835.698)( 547.501)( 25.854)( 0
6.819.750)( 66.021.005 6.220.298 6.639.909 22.594.591 30.566.207
Contractual payments due to financial instruments, including estimated interest payments, are specified as
If non-current loans are refinanced in order to prolong the loan terms, it can be assumed that the distribution of
the repayments will be different from the above.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
49
Amounts are in ISK thousand
________________________________________________________________________________________________
Notes
30 Credit risk
31.12.2021 31.12.2020
Trade receivables ......................................................................................................
5.625.149 5.439.828
Other current receivables ..........................................................................................
674.401 404.863
Hedge contracts ........................................................................................................
90.300 555.303
Deposits ....................................................................................................................
0 6.500.000
Marketable securities ................................................................................................
14.657.369 8.366.902
Cash and cash equivalents .......................................................................................
10.319.874 15.820.051
Total ..........................................................................................................................
31.367.093 37.086.946
The maximum exposure to credit risk for trade receivables at the reporting date by type of customer was:
Trade receivables, industrial consumers ...................................................................
1.159.284 838.993
Trade receivable, retail ..............................................................................................
4.465.865 4.600.835
Total ..........................................................................................................................
5.625.149 5.439.828
Impairment of trade receivables
The year 2021
Gross balance Impairment Book value
5.378.359 75.128 5.303.232
271.988 9.847 262.140
38.721 3.267 35.453
83.295 58.972 24.324
5.772.363 147.214 5.625.149
The year 2020
Gross balance Impairment Book value
5.216.756 72.019 5.144.737
215.463 5.640 209.823
50.471 7.952 42.519
112.396 69.647 42.749
5.595.085 155.258 5.439.828
Not past due receivables ................................................................
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to
meet its contractual obligations. Credit risk is mainly due to whole sale electricity contracts and derivatives that
the Group has entered into for hedging purposes. Possible losses due to unpaid receivables are insubstantial
and have limited effect on the Group’s return. The Group disregards the financing factors of receivables that are
expected to be collected within a year according to authorization in IFRS 15.
When entering into contracts it shall be insured, as possible, that the counterparty is trustworthy and settlement
with large counterparties shall be looked into regularly as well as their credit rating.
Past due, 91 days and older ...........................................................
The carrying amount of financial assets represents the maximum credit exposure, which is specified as follows:
Financial assets as stated above are categorised at amortised cost or at fair value throught P/L. Their
categorisation can be seen in note 33.
Past due, 1 to 30 days ....................................................................
Past due, 31 to 90 days ..................................................................
Total ................................................................................................
Not past due receivables ................................................................
Past due, 1 to 30 days ....................................................................
Past due, 31 to 90 days ..................................................................
Past due, 91 days and older ...........................................................
Total ................................................................................................
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
50
Amounts are in ISK thousand
________________________________________________________________________________________________
Notes
30 Credit risk, contd.
Changes in impairment of Trade receivables is specified as follows:
2021 2020
155.258 99.749
51.485 66.194
59.528)( 10.685)(
147.214 155.258
31 Operational risk
Impairment of trade receivables is among other operating expenses in P/L.
The Customer Services department governs the collection of receivables and supplies customers with
information regarding claims. Collection is done in a well defined process where among other things, consistency
in procedures is maintained as much as possible.
Balance at year end ..................................................................................................
Balance at year beginning .........................................................................................
Receivables written off ..............................................................................................
Impairment ................................................................................................................
Operational risk is the risk of negative impact on income as the result of inadequate information systems,
administrative error, inadequate controls and human error. The company's management assesses operational
risk and monitors known operational risks of the Company and measures on a regular basis.
Allowance due to receivables is valuated at each reporting date by management. Collectability is valuated both in
general using historic evidence and economic conditions and also specifically for receivables that are in default.
Allowance is only deemed necessary for trade receivables.
Receivables due to sewage and cold water have statutory lien in properties and therefore allowance is not
considered for those claims.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
51
Amounts are in ISK thousand
________________________________________________________________________________________________
Notes
32 Fair value
Comparison of fair value versus carrying amounts
Carrying Fair Carrying Fair
amount value amount value
Interest-bearing liabilities .......................................
165.047.192 176.771.819 171.700.453 183.772.703
Interest rates used for determining fair value
Embedded derivatives in electr. sales contr. .........
Hedge contracts .....................................................
Interest bearing liabilities .......................................
Fair value hierarch
y
31.12.2021 Level 1 Level 2 Level 3 Total
0 0 6.150.680 6.150.680
0 0 616.949 616.949
0 1.826.167)( 0 1.826.167)(
14.657.369 0 0 14.657.369
14.657.369 1.826.167)( 6.767.629 19.598.832
31.12.2020
0 0 5.922.680 5.922.680
0 0 5.956.381)( 5.956.381)(
0 863.369)( 0 863.369)(
8.366.902 0 0 8.366.902
8.366.902 863.369)( 33.701)( 7.469.833
31.12.2020
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly (i.e., as prices) or indirectly (i.e., derived from prices).
0,45% to 3,32%
9,58% to 10,72%
The carrying amounts of financial assets and financial liabilities is equal to their fair value with the exception that
interest bearing loans are stated at amortised cost. The fair values of interest bearing liabilities, together with the
carrying amounts are specified as follows:
31.12.2021
Hedge contracts .....................................................
0,49% to 3,88%
The fair value of interest bearing liabilities is calculated based on present value of future principal and interest
cash flows, discounted at the interest rate plus appropriate interest rate risk premium at the reporting date. The
fair value of interest bearing liabilities is defined at Level 2.
7,99% to 9,49%
Where applicable, the interest yield curve at the reporting date is used in discounting estimated cash flow. The
interests are specified as follows:
-0,6% to 0,2%
Marketable securities .............................................
Shares in other companies ....................................
31.12.2020
Shares in other companies ....................................
Embedded derivatives in sales contracts ..............
The table below analysis financial instruments carried at fair value, by valuation method. The different levels have
been defined as follows:
31.12.2021
0,1% to 1,3%
Marketable securities .............................................
Embedded derivatives in sales contracts ..............
Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities.
Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Valuation of shares in other companies is prepared by specialists within the company and other specialists and
based on the results and official data on future earnings and investments in underlying assets.
Hedge contracts .....................................................
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
52
Amounts are in ISK thousand
________________________________________________________________________________________________
Notes
32 Fair value, contd.
Changes in assets and liabilities defined at level 3 is specifed as follows:
2021 2020
33.701)( 1.463.062)(
6.801.330 1.429.361
6.767.629 33.701)(
Fair value measurement
33 Overview of financial instruments
Financial assets and financial liabilities are specified in the following financial groups:
Financial asset/ Financial asset/ Financial asset/ Financial asset/
financial liability
f
inancial liabilit
y
financial liability financial liability
Amortised at fair value at fair value Amortised at fair value at fair value
cost
through P/L
through OCI cost
through P/L
through OCI
Shares in other
companies .......
55.680 55.680 5.867.000
Investments
av. for sale .......
6.095.000 0
Embedd. contr. ...
616.949 5.956.381)(
Hedge contr. .......
90.300 555.303
Trade receivabl. ..
5.625.149 5.439.828
Other receivabl. ..
674.401 404.863
Prepaid exp. .......
328.780 227.706
Bank deposits
and marketable
securities ..........
14.657.369 6.500.000 8.366.902
Cash ...................
10.319.874 15.820.051
Interest-bearing
liabilities ...........
165.047.192)( 171.700.453)(
Hedge contr. .......
1.916.467)( 1.418.671)(
Account payabl. ..
3.522.684)( 2.822.579)(
Deferred rev. .......
142.970)( 541.288)(
Other current
liabilities ...........
6.698.418)( 3.788.635)(
Total ....................
158.407.380)( 13.448.152 6.095.000 150.404.827)( 1.547.153 5.867.000
Valuation changes .....................................................................................................
Balance at year beginning .........................................................................................
A part of the Group´s financial assets and financial liabilities are measured at fair value. Fair value of these
assets and liabilities are determined by market data or price in recent transactions if that is available. Otherwise,
accepted valuation methods are used. Further information on fair value calculations can be found in the
discussion of the relevant assets and liabilities in notes 16, 17 and 18.
31.12.2021 31.12.2020
Embedded derivatives in electric sales contracts that have more than ten years duration is classified under level 3
due to the fact that the forward market for aluminium only reaches maximum of ten years.
Balance at year end ..................................................................................................
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
53
Amounts are in ISK thousand
________________________________________________________________________________________________
Notes
34 Related parties
Definition of related parties
Transactions with related parties
Sale to related parties:
2021 2020
Reykjavik City ............................................................................................................
1.787.928 2.008.642
Institutions and companies controlled by Reykjavik City ...........................................
643.833 660.075
Associates .................................................................................................................
1.040 0
2.432.801 2.668.717
Purchases from related parties:
Reykjavik City ............................................................................................................
135.004 87.808
Institutions and companies controlled by Reykjavik City ...........................................
95.510 44.537
Associates .................................................................................................................
72.944 65.170
303.458 197.515
Receivables for related parties:
Reykjavik City ............................................................................................................
199.107 167.785
Institutions and companies controlled by Reykjavik City ...........................................
44.932 38.605
244.039 206.390
Payables for related parties:
Reykjavik City ............................................................................................................
176.414 11.105
Institutions and companies controlled by Reykjavik City ...........................................
1.035 0
Associates .................................................................................................................
0 6.994
177.449 18.099
Interest bearing loans from owners of the parent Company:
Reykjavik City ............................................................................................................
0 3.321.522
Akranes town .............................................................................................................
0 196.296
Borgarbyggð, municipality ........................................................................................
0 33.130
0 3.550.949
Interest expense on loans from owners of the parent Company:
Reykjavik City ............................................................................................................
526.868 930.850
Akranes town .............................................................................................................
36.055 53.847
Borgarbyggð, municipality ........................................................................................
3.113 9.297
566.036 993.993
The following gives an overview of the transactions with related parties during the year as well as a statement of
receivables and payables at year end. Transactions and positions with subsidiaries are eliminated in the
consolidated financial statement, therefore that information is not provided. This information does not include sale
of conventional household supplies to the related parties.
The parties mentioned here above have had transactions with the Group within the year. Terms and conditions of
these transactions were equivalent with transactions with unrelated parties.
Orkuveita Reykjavíkur paid a guarantee fee to Reykjavík City and other owners of the company for guarantees
they have granted on the Groups loans and borrowings. For further information regarding amounts and the
guarantee fee, see note 10. Management´s salaries and benefits are listed in note 7.
Reykjavik city, institutions and companies ruled by the city, associated companies, Board members, Directors
and key management are considered as the Group's related parties. Spouses of the before mentioned and
financially dependent children are also considered as related parties as well as companies owned by or directed
by those in question.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
54
Amounts are in ISK thousand
________________________________________________________________________________________________
Notes
35 Group entities
Subsidiaries Main operation 31.12.2021 31.12.2020
Ljósleiðarinn ehf. Data transfer 100,0% 100,0%
OR Eignir ohf. Holding company 100,0% 100,0%
Veitur ohf. Distribution of electricity and hot water 100,0% 100,0%
Orka náttúrunnar ohf. Sale of electricity 100,0% 100,0%
ON Power ohf. Sale of electricity 100,0% 100,0%
OR vatns- og fráveita sf. Cold water and sewage 100,0% 100,0%
Carbfix ohf. Consulting, researches and innovation 100,0% 100,0%
36 Statement of cash flows
Working capital from operation is specified as follows:
2021 2020
12.039.829 5.628.090
Operating items that do not affect cash flow:
13.256.961 13.056.194
144.286)( 6.978)(
3.967 4.137)(
26.148)( 61.057)(
2.160.207 7.542.116
4.101.758)( 451.119)(
59.550)( 2.221.748)(
0 3.567)(
671.804)( 879.564)(
11.431 149.367)(
56.419)( 91.460)(
22.412.430 22.357.403
Profit for the year .......................................................................................................
Share
Depreciation and amortisation ...................................................................................
Profit from sale of assets ...........................................................................................
Fair value changes ....................................................................................................
Effects of currency fluctuation on cash and cash equivalents ...................................
Other items ................................................................................................................
Working capital from operation .................................................................................
Embedded derivatives in electricity sales contracts ..................................................
Hedge contracts ........................................................................................................
Pension liability change .............................................................................................
Share in profit (loss) of associated companies .........................................................
Currency fluctuation and indexation ..........................................................................
Deferred tax liability ...................................................................................................
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
55
Amounts are in ISK thousand
________________________________________________________________________________________________
Notes
37 Other matters
Derivative contracts in default
Repair at headquarters
Water damage at Vatns- og fráveita
Litigation and claims
No entries have been made regarding this claim in the company's Financial Statemenst for the year 2021.
Covid-19
Since 2020, the COVID-19 epidemic has affected the economy of Iceland and the world as a whole. The
epidemic has had an insignificant effect on the company's operations. Its cash position is strong at the moment
and the company is well operational and can handle shocks for the foreseeable future.
The company has not received any public subsidies or used other government measures for COVID-19. No loan
terms have been renegotiated due to the epidemic. Its impact on the company's financial instruments, impairment
of assets and the fair value of assets and liabilities do not threaten the company's operations or finances for the
foreseeable future.
On 28 January 2022, the Supreme Court of Iceland refused Orkuveita Reykjavikur’s appeal against the decision
of the National Court in Glitnir's bankruptcy estate lawsuit, regarding a dispute over the settlement of currency
swap agreements made shortly before the economic collapse of 2008. Orkuveita Reykjavikur will have to pay the
bankruptcy estate ISK 3,4 billion, the debt is accounted for among current liabilities. In previous periods ISK 740
million had been expensed, the remaining amount wat expensed at year-end 2021.
At the end of August 2015, severe water damage occurred at the company's headquarters on Bæjarháls 1. From
the beginning, the actions of OR's management has been aimed at creating adequate working conditions for
employees. Experts have been consulted in all main decisions. Attempts have also been made to find the most
sensible ways to remedy and investigate what caused the damage. In 2017, the building was closed and
operations relocated. It was decided to go into a detailed options analysis and look at the possibilities that were in
the situation. The result was to remove the defective walls of the house, repair it and rebuild the walls. Orkuveita
Reykjavíkur entered into a construction contract with Ístak for the renovation of the building. The construction
began in May 2021 and is on schedule. The estimated construction period is 22 months. The construction
contract amounts to ISK 1.580 million, there of ISK 270 million has already accrued.
Ljósleiðarinn ehf. (formerly Gagnaveita Reykjavíkur) submitted a claim on March 5th 2019 to Síminn hf.
demanding compensation for damage allegedly suffered as a result of violation of the Media Act, which was the
subject of Decision published by the Electronic Communications office of Iceland (ECOI) (formerly: the Post and
Telecom Administration (PTA)) on July 3th 2018. The claim amounts to ISK 1,3 billion for loss of income, accrued
cost and interest. A formal response was requested from Síminn. On March 19th, 2019 a response came from
Síminn where they rejected the claim entirely. Síminn hf. took legal action against ECOI, Ljósleiðarinn ehf., Sýn
hf. and Míla ehf. in respect of the Decision of the Administration regarding the alleged violation. The ruling of the
District Court was announced on 1 July 2020, where the ECOI decision was upheld, albeit with some changes in
the criteria. The case was appealed to the National Court by Síminn hf., ECOI and Sýn hf., the date of
proceedings has not been decided.
A water main was rubted on 21 January 2021 during Vatns- og fráveita's repair by Suðurgata in Reykjavík. The
rubtion resulted in a great flood of water streaming into the buildings of the University of Iceland. The damage has
been reported to the insurance companies of Vatns- og fráveita, consultants and contractors. The University of
Iceland requested court-appointed assessors to assess the extent of the damage and they submitted an
assessment report in January 2022. The University of Iceland submitted a request to the District Court of
Reykjavík on March 4th 2022 requesting reassessment by court-appointed assessors. Vatns- and fráveita has not
yet received the assessment and therefore, the extent of the damage is not known at this time. Vatns- og fráveita
has a free liability insurance that covers liability that falls on the company. The terms of that insurance prescribe
about ISK 5 million deductible and 50% of the amount of damage thereafter. The ceiling of the insurance is ISK
300 million.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
56
Amounts are in ISK thousand
________________________________________________________________________________________________
38 Significant accounting policies
a. Basis of consolidation
i) Subsidiaries
ii) Associates
iii) Transactions eliminated on consolidation
b. Foreign currency
i Trade in foreign currencies
ii Subsidiary with other currencies than the Icelandic krona
c. Financial instruments
i) Non-derivative financial assets
Loans, receivables and cash in bank are recognised when received. All other financial instruments are
recognised in the financial statements when the Company becomes a party of contractual provisions of the
relevant financial instruments.
Trade in foreign currencies is reported into each consolidation company at the rate of the business day. Monetary
assets and debts in foreign currencies are reported in the rate of the reporting date. Other assets and debts
reported at fair value in foreign currency are reported at the rate of the day the fair value was set. Exchange
difference due to foreign trade is reported through P/L.
Assets and debts in the operations of a company of the consolidated financial statements that has USD as its
functional currency are calculated into Icelandic kronas at the rate of the reporting date. Income and expenses of
this companies operation is calculated into Icelandic kronas at the average exchange rate of the year. The
exchange difference due to this is reported in a special account in the statement of comprehensive income.
When operations with another functional currency than the Icelandic krona are sold, partly or in full, the
accommodating exchange difference is recognised in P/L.
Notes
The accounting policies set out below have been applied consistently to all periods presented in these
consolidated financial statements, and have been applied consistently by Group entities.
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the
financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of
subsidiaries are included in the consolidated financial statements from the date that control commences until the
date that control ceases.
Associates are those entities in which the Group has significant influence, but not control, over the financial and
operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50 percent of
the voting power of another entity.
Associates are entered in the Group's financial statements by using the equity method.
Associated companies are reported at original cost, including business cost. After the original transaction the
share of the Company is reported until significant influence ceases or joint control is concluded.
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group
transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from
transactions with equity accounted investees are eliminated against the investment to the extent of the Group’s
interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the
extent that there is no evidence of impairment.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
57
________________________________________________________________________________________________
Notes
38 Significant accounting policies, contd.
c. Financial instruments, contd.
i) Non-derivative financial assets, contd.
Financial assets at fair value through OCI
Financial assets at fair value through profit or loss
Financial assets af amortised cost
ii) Non-derivative financial liabilities
iii) Derivative financial instruments
Financial liabilities are eliminated from the financial statements when the contractual agreements of the
instrument are no longer valid.
The Group classifies non-derivative financial liabilities as financial liabilities at amortised cost. Such liabilities are
recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly
attributable transaction costs. Subsequent to initial recognition financial liabilities are measured at amortised cost
using the effective interest method.
Other non-derivative financial liabilities comprise of borrowings, accounts payable and other current liabilities.
Derivatives are recognised initially at fair value; attributable transaction costs are recognised in profit or loss when
incurred. Subsequent to initial recognition, derivatives are measured at fair value in the balance sheet and fair
value changes are recognised in the income statement.
The Group’s investments in equity securities are classified as financial assets at fair value throught OCI.
Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment
losses and foreign exchange gains and losses for monetary items are recognised directly in equity. When an
investment is derecognised, the cumulative gain or loss in equity is transferred to profit or loss. Fair value
changes recognised under equity are derecognised when the financial asset at fair value through OCI is
derecognised.
A Financial asset is classified at fair value through profit or loss if it is current asset or if it is designated as such
upon initial recognition. Financial assets are designated at fair value through profit or loss if purchase and sale
decisions are based on their fair value in accordance with the Company´s risk policy or investment plan. Financial
assets at fair value through profit or loss are measured at fair value, and changes therein are recognised in profit
or loss. Direct transaction cost is recognised in the income statement as it is incurred.
Financial assets at amortised cost are financial assets with certain or determinable payments and are not listed in
active markets. Such assets are recognised initially at fair value plus, for instruments not at fair value through
profit or loss, any directly attributable transaction costs. Subsequent to initial recognition financial assets at
amortised cost are measured at amortised cost using the effective interest method, less any impairment losses.
Financial assets at amortised cost comprise of receivables and other current assets.
Financial assets are eliminated from the financial statements if the Company's contractual right to cash flow due
to the financial asset expires or if the Group transfers the assets to another party without retaining control or
nearly all risk and gain inherent with their ownership. Any interest in transferred financial assets that is created or
retained by the group is recognized as a separate asset or liability.
Non-derivative financial instruments comprise of; financial assets at fair value throught OCI, financial assets at
fair value through P/L and financial assets at amortised cost.
Cash and cash equivalents comprise cash balances and deposits available within three months.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
58
________________________________________________________________________________________________
Notes
38 Significant accounting policies, contd.
c. Financial instruments, contd.
iv) Embedded derivatives
d. Property, plant and equipment
i) Recognition and measurement
ii) Subsequent costs
The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the
item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost
can be measured reliably. All other cost is expensed in the income statement when incurred.
Items of property, plant and equipment, except distribution and production systems, are measured at cost less
accumulated depreciation and accumulated impairment losses.
Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed
assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset
to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the
site on which they are located. Purchased software that is integral to the functionality of the related equipment is
capitalised as part of that equipment.
Interest expenses on loans used to finance cost of buildings in construction are capitalised over the construction
period. Interest is not calculated on preparation cost. After the assets have been taken into use interest
expenses are expensed in the income statement.
The fair value of these assets is determined on the basis of the depreciated replacement cost. This consists in
that an assessment is made on changes in the construction cost of comparable assets and both cost and
accumulated depreciations are revaluated in accordance with those changes. The calculation is based on official
information and actual statistics from the Company's books on value changes of cost of items and takes into
account an estimate on the weight of each cost item in the total cost of construction of comparable assets. Cost
items and their proportional weight were determined by experts within and outside of the Company. The
impairment test of assets is also taken into consideration and revaluation is not recognised beyond the expected
future cash flow of the assets. Distribution systems for hot water, cold water, sewage and electricity are licensed
operations and subject to official revenue targets that are based mostly on changes in the Construction cost
index. This is taken into consideration when revaluating these systems.
Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the
proceeds from disposal with the carrying amount of property, plant and equipment and are recognised net within
“other income” in the income statement. When revalued assets are sold, the amounts included in the revaluation
surplus reserve are transferred to retained earnings.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as
separate items (major components) of property, plant and equipment and depreciated over their useful lives.
The Group's distribution- and production systems, are stated at revalued carrying amount in the balance sheet,
which is their fair value at the revaluation date less additional depreciation from that date. Revaluation of those
assets is made on a regular basis. Value surplus due to the revaluation is recognised in a revaluation reserve
among equity after taking the effect on deferred tax liability into consideration. Depreciation on the revalued
carrying amount is recognised in the income statement. Upon sale or discontinuance of the asset the part of the
revaluation reserve belonging to the asset is transferred from the revaluation reserve to retained earnings after
taking tax effect into consideration. No recognition takes place from the revaluation reserve to retained earning
unless the relevant asset is sold or discontinued.
Embedded derivatives are separated from the host contract and accounted for separately if the economic
characteristics and risks of the host contract and the embedded derivative are not closely related, a separate
instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the
combined instrument is not measured at fair value through profit or loss.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
59
________________________________________________________________________________________________
Notes
38 Significant accounting policies, contd.
d. Property, plant and equipment, contd.
iii) Depreciation
7-60 years
15-50 years
10-60 years
30-90 years
15-60 years
9-46 years
25-50 years
3-25 years
Depreciation methods, useful lives and scrap value are reviewed on the accounting date.
e. Intangible assets
i) Heating rights
ii) Other intangible assets
iii) Subsequent expenditure
iv) Amortisation
5-7 years
f. Inventories
Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the
first-in first-out principle, and includes expenditure incurred in acquiring the inventories, production or conversion
costs and other costs incurred in bringing them to their existing location and condition. Net realisable value is the
estimated selling price in the ordinary course of business, less the estimated costs of completion and selling
expenses.
Software ...............................................................................................................................................
Other real estate ...................................................................................................................................
Other equipment ...................................................................................................................................
Heating rights are recognised in the balance sheet at amortised cost as intangible assets. Heating rights are
separated from land up on purchase.
Other intangible assets are measured at cost less accumulated depreciation and impairment losses.
Heating distribution systems .................................................................................................................
Cold water distribution systems ............................................................................................................
Sewer distribution system .....................................................................................................................
Fiber-optic distribution system ..............................................................................................................
Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible
assets from the date that they are available for use. The estimated useful lives is determined as follows:
Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of
an item of property, plant and equipment. Land is not depreciated. Estimated useful lives are specified as
follows:
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the
specific asset to which it relates. All other expenditure is recognised in profit or loss as incurred.
Production system ................................................................................................................................
Electricity distribution systems ..............................................................................................................
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
60
________________________________________________________________________________________________
Notes
38 Significant accounting policies, contd.
g. Impairment
i) Financial assets
- decrease is 15% below cost or
- fair value decrease lasts for at least six months.
ii) Non-financial assets
h. Employee benefits
i) Defined contribution plans
ii) Defined benefit plans
Obligations for contributions to defined contribution pension plans are recognised in the income statement when
they are due.
The Group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by
estimating the amount of future benefit that current and former employees have earned in return for their service
in the current and prior periods. The benefit is discounted to determine its present value and any unrecognised
past service costs and the fair value of any plan assets are deducted. The calculation is performed annually by a
qualified actuary using the projected unit credit method. Changes in the obligation are recognised in the income
statement as incurred.
The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets, are
reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication
exists, then the asset’s recoverable amount is estimated.
Impairment is recognized if the carrying amount of an asset or a cash generating unit exceeds its estimated
recoverable amount. A cash generating unit is the smallest separable group of assets that form a cash flow that
is mostly independent of other units or groups of units. Impairment loss of revalued operating assets is
recognized in equity under revaluation reserve.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value
less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset.
An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable
amount. An impairment loss is reversed only to the extent that the asset´s carrying amount does not exceed the
carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had
been recognized.
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is
impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events
have had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference
between its carrying amount, and the present value of the estimated future cash flows discounted at the original
effective interest rate. An impairment loss in respect of an available-for-sale financial asset is calculated by
reference to its fair value at each time. The Group defines decrease in fair value below cost as a subjective
indication of impairment of available-for-sale financial assets when:
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial
assets are assessed collectively in groups that share similar credit risk characteristics.
All impairment losses are recognised in profit or loss. Any cumulative loss in respect of an available-for-sale
financial asset recognised previously in equity is transferred to profit or loss.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the
impairment loss was recognised. For financial assets measured at amortised cost and available-for-sale financial
assets that are debt securities, the reversal is recognised in profit or loss. For available-for-sale financial assets
that are equity securities, the reversal is recognised directly in equity.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
61
________________________________________________________________________________________________
Notes
38 Significant accounting policies, contd.
i. Obligations
j. Revenue
i) Revenues from sale and distribution of electricity and hot water
ii) Revenues from sale of cold water and sewage
iii) Connection revenues
iv) Rental income
v) Other revenues
Rental income is recorded as income in the income statement linearly over the lease term.
An obligation is recognised in the balance sheet when the Group has the legal right or has entered into an
obligation due to previous events and it is likely that it will incur cost upon settling the obligation. The obligation is
measured on the basis of the estimated future cash flow, discounted based on interests reflecting market
interests, and the risk inherent with the obligation.
Revenue from the sale and distribution of electricity and hot water is recognised in the income statement
according to measured delivery to purchasers during the year plus a fixed fee.
The rate for the distribution of electricity has a revenue cap set by the National Energy Authority in accordance
with laws on energy number 65/2003. The revenue cap is based on actual figures from prior years from the
operation of distribution utilities, the depreciation of assets, real losses in the distribution system and return on
equity. When setting the revenue cap financial income and expenses are not taken into account. The rate is
decided from the revenue cap and projections of sale of electricity in the Group´s utilities area.
Revenue from the sale of cold water and sewage are based on the size of properties plus a fixed fee and are set
forth linearly in the income statement. In addition revenue is stated for cold water according to measurement from
specific industries.
Upon connection of new users to distribution systems of electricity, water and sewage or upon renewal of
connection an initial fee is charged. The initial fee meets cost due to new distribution systems or their renewal.
Income on connection fees is recognised in the income statement upon delivery of the service.
Other revenue is recognised when generated or upon delivery of goods or services.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
62
________________________________________________________________________________________________
Notes
38 Significant accounting policies, contd.
k. Financial income and expenses
l. Income tax
m. Segment reporting
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or
substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. The
income tax ratio for the parent company is 37,6% and the tax ratio for the subsidiaries is 20,0%. Cold water
supply and sewage is exempt from tax.
Deferred tax is recognised using the balance sheet method, providing for temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation
purposes. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences
when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
Deferred tax was measured in accordance with the current tax rate, which is 37,6% for the parent company that is
a partnership and 20,0% for the subsidiaries that are companies with limited liability.
A deferred tax asset is only recognised to the extent that it is probable that future taxable profits will be available
against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date
and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
A segment is a distinguishable component of the Group that is engaged in business and is capable to earn
revenues and accept cost, both within and outside of the Group. The return of all segments is overviewed by
management to value their performance.
Segment results and their assets include items directly attributable to a segment as well as those that can be
allocated on a reasonable basis.
Segment investments are investments in property, plant and equipment and intangible assets.
Inter-segment pricing is determined on an arm’s length basis.
Finance income comprises interest income on funds invested, dividend income, changes in the fair value of
financial assets at fair value through profit or loss, foreign exchange gain and gains on hedging instruments that
are recognised in the income statement. Interest income is recognised as it accrues in the income statement,
using the effective interest method. Dividend income is recognised in the income statement on the date that the
Group’s right to receive payment is established.
Finance expenses comprise interest expense on borrowings, unwinding of the discount on provisions, foreign
exchange losses, impairment losses recognised on financial assets, and losses on hedging instruments that are
recognised in the income statement. Borrowing cost is recognised in the income statement based on effective
interests.
Effective interest is the required rate of return used when discounting estimated cash flow over the estimated
useful life of a financial instrument or a shorter period when applicable, so that it equals to the book value of the
financial asset or liability in the balance sheet.
Currency gains and losses are reported on a net basis as either finance income or finance cost depending on
whether foreign currency movements are in a net gain or net loss position.
Income tax expense comprises current and deferred tax. Income tax expense is recognised in the income
statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised
in equity.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
63
________________________________________________________________________________________________
Notes
38 Significant accounting policies, contd.
n. Determination of fair value
o. Property, plant and equipment
p. Investments in equity and debt securities
A number of the Group’s accounting policies and disclosures require the determination of fair value, for both
financial and non-financial assets and liabilities.
The Group´s CFO is responsible for overseeing all significant fair value measurements, including Level 3 fair
values. Risk management, led by the CFO, regularly reviews significant unobservable inputs and valuation
adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values,
then that information is used to support the conclusion that such valuations meet the requirements of IFRS,
including the level in the fair value hierarchy in which such valuations should be classified.
When measuring the fair value of an asset or a liability, the Group uses market observable data as far as
possible.
Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation
techniques as follows.
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the
fair value hierarch, then the fair value measurement is categorised in its entirety in the same level of the fair value
hierarchy as the lowest level input that is significant to the entire measurement.
The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period
during which the change has occurred.
Further information about the assumptions made in measuring fair values can be found in relevant notes and in
note 32 regarding fair value.
The fair value of financial assets at fair value through profit or loss is determined on the basis of their market
value at the reporting date. If the market value is not known the valuation is based on generally accepted
valuation methods. Valuation methods can be based on known recent financial transactions between unrelated
parties. In applying these valuation methods factors are considered which would be used in the respective market
concerning calculation of fair value and the methods are in accordance with generally accepted methods
concerning valuation of financial assets.
The fair value of production- and fiber-optic systems that have undergone a revaluation is determined on the
basis of the depreciated replacement cost, which consists in the assessment of changes in construction cost of
comparable assets and both cost and accumulated depreciation are revalued in accordance with those changes.
The results of the impairment tests are also taken into consideration and revaluation is not recognised beyond
the expected future cash flow of those assets.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
64
________________________________________________________________________________________________
Notes
38 Significant accounting policies, contd.
q. Derivatives
r. Trade and other receivables
s. Non-derivative financial liabilities
t. Leases
At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or
contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in
exchange for consideration. To assess whether a contract conveys the right to control the use of an identified
asset, the Group uses the definition of a lease in IFRS 16.
The fair value of interest rate swaps is based on broker quotes. Those quotes are tested for reasonableness by
discounting estimated future cash flows based on the terms and maturity of each contract and using market
interest rates for a similar instrument at the measurement date.
The fair value of trade and other receivables, is estimated at the present value of future cash flows, discounted at
the market rate of interest at the reporting date if applicable. This fair value is determined for disclosure purposes.
Fair value, which is determined for disclosure purposes, is calculated based on the present value of future
principal and interest cash flows, discounted at the market rate of interest at the reporting date.
The fair value of derivatives is based on their market value, if available. If the market value is not available the fair
value is determined on the basis of generally accepted valuation methods.
Valuation methods may be based on prices in recent transactions between unrelated parties. The measurement
is based on the value of other financial instruments comparable to the instrument in question, methods in order to
evaluate the present value of cash flow or other valuation methods, which may be applied in order to reliably
assess the real market value. When valuation methods are applied all factors are used, which market parties
would use in price evaluations, and the methods are in accordance with generally accepted methods for the price
evaluation of financial instruments. The Group verifies on a regular basis its valuation methods and tests them by
using a price obtained in a transaction on an active market with the same instrument, without adjustments and
changes, or are based on information from an active market.
The fair value of derivative agreements not listed in active markets is determined by use of valuation methods,
which are regularly reviewed by qualified employees. All valuation models used must be approved and tested in
order to ensure that the results reflect the data used.
The most reliable indication of the fair value of derivative agreements at the beginning is the purchase value,
unless the fair value of the instruments is verifiable in comparison with other listed and recent market transactions
with the same financial instrument or based on a valuation method where variables are only based on market
data. When such data is available the Group recognises profit or loss at the initial registration date of the
instruments.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
65
________________________________________________________________________________________________
Notes
38 Significant accounting policies, contd.
t. Leases, contd.
i As a lessee
Lease pa
y
ments included in the measurement of the lease liabilit
y
comprise the followin
g
:
– fixed payments, including in-substance fixed payments;
– amounts expected to be payable under a residual value guarantee; and
Right-of-use assets and lease liabilities are listed in the balance sheet.
– variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the
commencement date;
– the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in
an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for
early termination of a lease unless the Group is reasonably certain not to terminate early.
The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there
is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s
estimate of the amount expected to be payable under a residual value guarantee, if the Group changes its
assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-
substance fixed lease payment.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of
the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been
reduced to zero.
The Group has elected not to recognise right-of-use assets and lease liabilities for leases of low-value assets and
short-term leases, including IT equipment. The Group recognises the lease payments associated with these
leases as an expense on a straight-line basis over the lease term.
At commencement or on modification of a contract that contains a lease component, the Group allocates the
consideration in the contract to each lease component on the basis of its relative stand-alone prices. However,
for the leases of property the Group has elected not to separate non-lease components and account for the lease
and non-lease components as a single lease component.
The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use
asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease
payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of
costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is
located, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date
to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end
of the lease term or the cost of the right-of-use asset reflects that the Group will exercise a purchase option. In
that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is
determined on the same basis as those of property and equipment. In addition, the right-of-use asset is
periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the
commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily
determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as
the discount rate.
The Group determines its incremental borrowing rate by obtaining interest rates from various external financing
sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
66
________________________________________________________________________________________________
Notes
38 Significant accounting policies, contd.
t. Leases, contd.
ii As a lesso
r
39 New accounting standards not yet adopted
– IFRS 17 Insurance Contracts
– Amendments to IFRS 17 Insurance Contracts (Amendments to IFRS 17 and IFRS 4)
– References to the Conceptual Framework
– Proceeds before Intended Use (Amendments to IAS 16)
– Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37)
– Annual Improvements to IFRS Standards 2018-2020 Cycle (Amendments to IFRS 1, IFRS 9, IFRS 16, IAS 41)
– Classification of Liabilities as Current or Non-current (Amendments to IAS 1)
When the Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an
operating lease.
To classify each lease, the Group makes an overall assessment of whether the lease transfers substantially all of
the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a
finance lease; if not, then it is an operating lease. As part of this assessment, the Group considers certain
indicators such as whether the lease is for the major part of the economic life of the asset.
The Group recognises lease payments received under operating leases as income on a straight-line basis over
the lease term as part of ‘other revenue’.
At inception or on modification of a contract that contains a lease component, the Group allocates the
consideration in the contract to each lease component on the basis of their relative stand-alone prices.
A number of new standards are effective for annual periods beginning after 1 January 2022 and earlier
application is permitted; however, the Group has not early adopted the new or amended standards in preparing
these consolidated financial statements.
The following amended standards and interpretations are not expected to have a significant impact on the
Group’s consolidated financial statements.
Consolidated Financial Statements of Orkuveita Reykjavikur 2021
67