Reykjavík City's A operations show positive results for first time in five years

A and B operations combined show a positive result of 406 million ISK. This is 7.1 billion ISK better than last year. The City Executive Council approved the mid-year financial statement for January-June 2024 today. "These results show our cost-saving measures are working well. New hiring policies are effective. The number of full-time positions remains steady despite increased services and population growth. I'm grateful to our dedicated staff working together to turn the City's finances around," says Mayor Einar Þorsteinsson.

A and B operation revenues were 133.7 billion ISK, up 12 billion (9.9%) from 2023. Tax revenues and Municipal Equalization Fund income increased by 6.7 billion ISK (9.9%). The 0.23% municipal tax increase from January added 982 million ISK. The withholding tax increased by 6.7% year-over-year, excluding the above-mentioned municipal income tax increase. Other revenues increased by 5.1 billion ISK, partly due to Reykjavík Energy's 2.8 billion ISK (9.3%) revenue increase. This partly reflects Sýn's fiber network joining Ljósleiðarinn operations.

Cash from operations was 15.6% of revenues, up 2.1 percentage points from 2023. This is the second consecutive year of increase.

Financial expenses were 15 billion ISK, 3.6 billion lower than the first half of last year. The aluminum hedge produced 566 million ISK in income this year, compared to a 2.6 billion ISK expense last year. The increase in income tax is mainly due to improved performance by Reykjavík Energy compared to the same period in 2023.

Inflation for the period was 3.6%, higher than the 2.8% budgeted. Aluminum prices rose 6% from January to June.

A operations on track

A operations, funded by tax revenues, showed a positive result of 196 million ISK. EBITDA was positive at 5.9 billion ISK, 1.8 billion better than last year. Operating revenues were 1.3 billion ISK above budget, mainly due to higher-than-expected post-assessed municipal tax. However, the withholding portion of municipal tax and asset sales were below budget.

The City reached the second phase of an agreement with the State on funding for services for disabled people in December 2023. The agreement transfers 0.23% of tax revenue from the State to municipalities starting in 2024. This change accounts for nearly a billion króna increase in municipal income tax revenue between years. The first agreement, made in December 2022, transferred 0.22% of tax revenue starting in 2023. Considering the tax increase since early 2023, the percentage increase over both years has resulted in nearly 2 billion ISK higher tax revenue for the first 6 months of the year. Despite this agreement, municipalities still face significant underfunding for disabled services. Correcting this funding is a key priority in Reykjavík City's current financial policy.

Wages and related expenses were 790 million ISK over budget. This is mainly due to sick leave coverage, increased staffing for children's support needs, and workload in residential cores for disabled people.

The average number of full-time positions remains steady at 8,654. Monitoring and oversight of hiring practices has yielded results and the focus has been on maintaining frontline services.

Other operating costs were over 1,600 million ISK above budget, partly offset by revenues. Major variances include cafeteria food costs in the Department of Education & Youth (200 million ISK over budget). The variance at the Department of Welfare is, in part, due to child protection placement costs (757 million ISK over budget).

External uncertainties remain

Persistent inflation and high interest rates pressure operating expenses and financial costs. Moderate private sector wage agreements have raised hopes for lower inflation and stability. Municipalities supported wage agreements by promising to lower fees and participate in free school meals.

Reykjavík City's main challenges stem from tasks transferred from the state without adequate funding. Progress has been made in funding disabled services with municipal tax increases of 0.22% in late 2022 and 0.23% in late 2023. Strong indications suggest service costs will continue to grow significantly in coming years, with major needs in housing resources and other areas. A state-municipal working group was appointed early this year to address remaining cost-sharing issues in this area. Their conclusions are pending.

Reykjavík City's 2024-2028 budget, approved in December 2023, continues to require operational restraint. Departments must cut wage costs by 1%, and only contractual third-party obligations were inflation-adjusted.

More detailed information is available on the Nasdaq Iceland website.