Risk Management
Effective risk management is fundamental to informed decision making within the Company and has been integrated into every work procedure, across all our operations. Our Risk Management Policy supports continuous and safe operations as well as the Company’s corporate social responsibility objectives.
Landsvirkjun‘s risk management objectives:
- Support policy development and implementation
- Support successful, stable and responsible operations
- Support the systematic execution of tasks and projects
- Prevent or reduce undesirable incidents in operations
- Ensure an acceptable risk level in accordance with set guidelines
Landsvirkjun‘s Board approves the Risk Management Policy.
Risk management process
Landsvirkjun follows a formal risk management process to identify and manage financial and non-financial risk. The process consists of four sequential steps:
Risk identification
Landsvirkjun's risk is identified and mapped, based on the Company's main processes and construction projects. Risk identification is performed on a regular basis, according to a planned process, in accordance with risk management rules.
Risk analysis
Risk analysis includes an assessment of ‘risk severity’, based on likelihood, potential impact and the relationship between the two. The potential impact of risk on financial status, image, health and safety or the environment is assessed, as appropriate.
Risk treatment
Risk management may include accepting, avoiding, reducing, increasing or transferring risk. Measures are only implemented when the risk is considered unacceptable or if opportunities for improvement are identified.
Risk management
Risk management, which involves risk monitoring and disclosure, supports operations by using approved risk management policies and procedures, and is designed to ensure that risk is within authorised risk acceptance levels.
Principles of risk management
Each operating unit is responsible for managing its own risk. However, centralised risk management is sometimes necessary. The Treasury Division is responsible for managing the Company's market and liquidity risk. The Information Security Manager and the IT & Digital Development Division are responsible for the security of the major network and information systems. The Human Resources Division manages employee risk and the Legal Division oversees external requirements and compliance.
Risk division
There are many risks associated with Landsvirkjun's operations and value chain. The Company's risk is divided into business risk, financial risk and operational risk.
Business risk
Landsvirkjun operates in an ever-changing business environment. External factors, out of the Company‘s control, can create various types of risk for the Company. Landsvirkjun closely monitors any shifts within the business environment to assess the potential impact on its operations, customers or on the Icelandic energy market. Managing business risk involves data collection and analyses (in both a wide and narrow context), the development of flexible business plans and decision making based on risk and opportunity.
Financial risk
The Company's financial risk is divided into market risk, liquidity risk and counterparty risk.
Market risk
The Company is exposed to market risk due to power agreements linked to contract prices, foreign exchange and interest rate risk due to the Company’s liabilities. Landsvirkjun uses derivative contracts to protect the Company from market risk, in accordance with authorised risk acceptance levels.
Liquidity risk
Landsvirkjun's liquidity risk is managed with a long-term cash flow planning, stress tests and easy access to credit. These measures enable Landsvirkjun to fulfil its obligations in a timely and cost-effective manner.
Counterparty risk
Landsvirkjun’s counterparty risk arises first and foremost due to the Company’s power agreements, derivative contracts and cash and cash equivalents. Power contracts include a guaranteed minimum purchase for energy as well as guarantees. In relation to derivative contracts and cash and cash equivalents, counterparties are required to have an investment grade credit rating.
Operational risk
Landsvirkjun's operational risk includes risk associated with operations, the maintenance of power stations and other structures, as well as construction. Operational risk is the risk of loss or damage resulting from failures or damage to property and equipment, inadequate internal procedures, system failures, human error or external events.
Operational risks can cause:
- Incidents involving employees, contractors or third parties
- Damage to the environment
- Production losses or property damage incurred by the customer
- Financial losses
- Image damage
- Information leaks or loss
Risk management is an intrinsic part of our operations. This includes the preparation of contingency plans, design of technical solutions, process automation, improved work procedure registration, knowledge dissemination and training. The company operates in accordance with international standards and requirements. Mitigation and effective monitoring are used to prevent potential loss or damage.
Supporting documents
You can download the Financial Statements for 2019 in electronic form here. The documents contain the financial statements as a whole in Acrobat (pdf) document and the key figures in an Excel (xls) document.
