How spa operations lifts profits for Icelandic geothermal power company

Blue Lagoon, Iceland (source: flickr/ Chris Yiu, creative commons)
Alexander Richter 26 Feb 2016

Icelandic company HS Orka receives an incredible $2.7 million in profit dividends from the Blue Lagoon spa operation in Iceland, which greatly contributes to the profitable geothermal business of the company in Iceland.

In presenting financial results for 2015, Canadian Alterra Power Corp. (TSX: AXY) reports on its 66.6% owned Icelandic subsidiary, HS Orka hf.

While showcasing the highlights below, there is one element that sticks out in the results and this is the financial contribution of a spa operation, partly owned by HS Orka that utilises “waste water” for a thermal bath, which is the predominant tourist attraction and destination in Iceland.

Just in dividend payments, for the highly profitable Blue Lagoon, HS Orka received a whopping $2.7 million for the year of 2015. With a wide variety of direct use operations taking advantage of geothermal heat from the operations at its Svartsengi and Reykjanes plants, HS Orka has created a extended revenue model from initially only power generating geothermal plants.

Highlights for the year ended December 31, 2015 include (all amounts in US$):

  • HS Orka generated $21.0 million of EBITDA and $15.0 million of gross profit in 2015 (2014: 23.5 million and 15.9 million, respectively); the decrease in EBITDA and gross profit is entirely due to fluctuations in foreign exchange, in ISK EBITDA and gross profit increased 1% and 7% respectively against the prior year. Both revenue and operating cost decreased by $5.5 million year on year, due to the transfer of certain employees directly to former affiliate HS Veitur. Previously, the employees costs and revenues related to activities performed for HS Veitur were recharged and recorded in income. Excluding the impact of the transfer, revenue increased year on year largely due to increased retail sales (up 13% from prior year).
  • Net loss of $1.9 million was recorded in 2015 versus a net income of $6.3 million in 2014. In addition to the operating results described above, this decrease was primarily due to a year on year change in the fair value of the embedded derivative in power purchase agreements (linked to the aluminum price) which resulted in a non-cash loss of $24.7 million (2014: non-cash loss of $16.9 million).
  • HS Orka’s share of income from associates increased by 78% to $8.9 million (2014: $5.0 million) primarily due to results from the company’s ownership stake in the Blue Lagoon ehf. tourist resort, which continues to outperform expectations due to increased visitor attendance. Income from Blue Lagoon also increased due to a one-time gain of $2.0 million as a result of a share issuance by Blue Lagoon ehf. in the second quarter of 2015.
  • HS Orka received a dividend of $2.7 million in the year from Blue Lagoon (2014: $2.8 million) and consistent with previous years HS Orka plans to pass this dividend to its shareholders in 2016 (2015 HS Orka cash dividend paid to shareholders of $2.4 million, with Alterra’s share being $1.6 million).
  • HS Orka continues to use cash from operating activities to pay down loans and borrowings, with repayments of $17.5 million in 2015 (2014: $19.1 million) and a loan balance outstanding at year-end of $76.5 million. Loan repayments are set to decline substantially from 2017 onwards.

Source: Press release by Alterra Power Corp.