Currency risk
Reykjavik Energy Group's currency risk is mainly due to borrowing in foreign currencies and foreign revenues from Reykjavik Energy Group's subsidiary, ON Power, due to electric sales in USD. Reykjavik Energy Group's Risk Policy includes limits on possible currency imbalance in the income statement and the balance sheet. Forward contracts are used to reduce the risk from unfavourable exchange rate fluctuations. The graph shows the estimated cash flows of foreign currencies for the next few years.
Estimated currency flow
Interest rate risk
Higher interest rates pose a risk for Reykjavik Energy Group's operations and balance sheet. This risk has been mitigated in the past few years by fixing interest rates with interest rate swaps. The columns show to what degree the overall liabilities for each year have fixed rates. Reykjavik Energy Group's risk of higher interest is now insubstantial.
Interest rate risk
Aluminium price risk
Reykjavik Energy Group executes aluminium hedge contracts to hedge aluminium linked revenues against sharp declines in aluminium prices. Hedges are executed for a few years ahead and the graph shows to what extent revenues have been hedged. Reykjavik Energy Group's Board of Directors decides the upper and lower limit of the aluminium hedge ratio.
Aluminum Price Risk
Currency risk on balance sheet
Reykjavik Energy Group‘s foreign assets exceeded the company‘s foreign debt at year end 2020. The reason is that the operational currency of the Group's subsidiary, ON Power, is in USD. ON Power assets are greater than all Reykjavik Energy Group’s liabilities in foreign currency.
Currency risk on balance sheet
Appendices and links
The older bucket truck – or rather a ladder truck – is a Russian GAZ model and was in the service of Reykjavik Electric in the years around 1960. The latter is a Mercedes Benz and one of the smaller bucket trucks that serve the street-lamp team of ON Power.
Credit: RE and ON Power's collection.
