Below is a summary of the business news of relevance in Iceland the week beginning on 22 May 2023. The summary, which is based on publicly available information only, is prepared by the BBA//Fjeldco team for the benefit of clients and contacts of the firm and is subject to the disclaimer noted below.
Wednesday, 31 May 2023
Interest rates up 1.25% - Further hikes expected
Real income drops less in Iceland than elsewhere
Inflation down from 9.9% to 9.5%
Fishing gear and rope manufacturer Hampidjan to offer new shares worth 10 billion ISK and upgrade Nasdaq listing
Profits of aluminium companies in Iceland 46 billion ISK
Markets react favourably to extended partnership of pharmaceutical companies Alvotech and Advanz Pharma
JP Morgan values Alvotech 40% less because of further delay in accessing US market
The two largest companies pressing down the stock market this year
Synergy of Fossar Investment Bank and VIS insurance company merger estimated 650
750 million ISK
Investment funds effectively bought shares in Marel by lending to Eyrir Invest
Producer of BuddyPhones and StudyPhones raises 2.2 million USD
EasyJet offers scheduled flights from London to Akureyri in North Iceland
No secret that funding Icelandic banks has been difficult
Income of outdoor clothing brand 66 °North up 30% this year – London Regent Street store a success
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Interest rates up 1.25% - Further hikes expected
Last week the monetary policy committee of the Central Bank of Iceland (CBI) decided to raise the bank’s interest rates by 1 25 percentage points – the key interest rate from 7 5% to 8 75% The committee also decided to increase the fixed minimum reserve requirement for deposit institutions from 1% to 2% The increase was higher than expected, which was a push of 1% as was widely reported in the media. According to a statement from the CBI, economic activity has been strong in 2023 and the bank’s new macroeconomic forecast assumes that GDP growth will measure 4.8% this year instead of the 2.6% projected in February. This is due in large part to the prospect of stronger growth in domestic demand, although the outlook is also for more robust activity in the tourism industry. Inflation measured 9.9% in April and rose slightly between months Underlying inflation is still increasing, and steep price hikes can be seen in a steadily growing share of the consumption basket The outlook is for stronger inflationary pressures in 2023 and 2024 than was previously assumed, according to the statement Long-term inflation expectations have also risen and are well above target with a greater risk of inflation becoming entrenched CBI warns against wageprice spiral as there is a strong demand pressure in the economy and a new round of wage negotiations looming by the end of this year CBI says there is an outlook for further rate hikes to ensure a better-balanced economy and bring inflation back to target levels. The CBI’s decision to raise interest rates to 8.75% has been met with mixed reactions from trade union representatives and the Federation of Icelandic Industries, that are scheduled to begin a new round of wage negotiations this winter as the current collective agreements are up for renewal next spring.
Real income drops less in Iceland than elsewhere
Daily newspaper Morgunbladid reports that despite high nominal increase of wages in Iceland, real income is beginning to drop for the first time in a decade. According to CBI´s monetary bulletin for 2023, real income dropped by 1% in Q1 2023, compared to a real increase of 8% in 2019 – 2021 Compared to neighbouring countries Iceland is doing well as the drop in real income in UK in 2022 was 2 9%, 3 6% on average in Central Europe and 4 1% in the Scandinavian countries
Inflation down from 9.9% to 9.5%
The annual inflation dropped by 0.4% in May to 9.5% because the rise of the consumer price index is slowing down, according to a statement from Statistics Iceland. The index rose by 0.39% in May this year, which is 9.5% higher than in May 2022.
Fishing gear and rope manufacturer Hampidjan to offer new shares worth 10 billion ISK and upgrade Nasdaq listing
Hampidjan Group, the world leader in the production, development and servicing of fishing gear and netting, are offering 85 million new shares in the company, or 13.37% of all shares, in a public offering that began on 26 May 2023 and will close at 2pm local
time this Friday In class A, 17 million shares will be offered for a fixed price of 120 ISK per share, which is 14% below the average share price last month, and in class B, 68 million shares will be offered for a minimum price of 120 ISK per share Hampidjan is listed on the First North secondary market of Nasdaq Iceland The company has applied for an upgrade to the main market of Nasdaq Iceland where trading of the shares is expected to begin on 9 June 2023 The issuing of new shares and the offering is one step of many that the company has to take for further growth, which until now has been financed by loans and increasing return from operations Last November the company took over the Norwegian competitor Morenot and further growth is expected. According to the offering statement, 60% of the new equity will be used to refinance debts and 40% for further growth. Expected turnover in 2023 is 320340 million EUR with an EBITDA ratio of 13.5 - 14.5%. The company ´ s policy is to pay 30 – 40% of annual profits in dividends. Hampidjan Group now consists of 28 companies and services the world fishing fleets at 35 locations around the world, stretching from Dutch Harbour in Alaska in the west and to Nelson in New Zealand in the east
Profits of aluminium companies in Iceland 46 billion ISK
The total profits of the three international aluminium companies operating in Iceland was 46 billion ISK in 2021, which is a record according to business gazette Vidskiptabladid Alcoa in East Iceland reported 18 9 billion ISK in profit, ISAL near Reykjavik (part of the Rio Tinto group) 17 3 billion, and Century Aluminium owned Nordural in West Iceland 10 1 billion ISK Indications are that 2022 will be another record year as reports from Nordural and ISAL show improved operations. This confirms a turnaround in the operations of aluminium production companies in Iceland as overall they lost 51 billion ISK in 2019 and 2020. The improvement is because of increased prices of aluminium in world markets due to the closing down of China as a reaction to the spread of Covid-19. According to a report from the Association of Icelandic Aluminium Producers, the total domestic costs of the three operations in Iceland, including energy and salary cost, services and taxes were 174 billion ISK in 2022
Markets react favourably to extended partnership of pharmaceutical companies
Alvotech and Advanz Pharma
Last week pharmaceutical companies Alvotech and the global Advanz Pharma announced that the companies had extended their strategic partnership where Advanz Pharma will commercialise five proposed biosimilars developed by Alvotech in Europe. According to a report on business website Innherji, Alvotech will receive a prepayment of 56 million EUR in a contract that could earn Alvotech up to 320 million EUR. On the day of the the announcement the share price of Alvotech went up 7.6%.
JP Morgan values Alvotech 40% less because of further delay in accessing US market
The global financial services company JP Morgan has lowered its market valuation of
the Icelandic pharmaceutical company Alvotech, which is listed both in NY and Iceland, from 10 USD per share to 6 USD, according to a report on business website Innherji Last Thursday, the new market valuation of the pharmaceutical company was published and the reason for the drop in valuation that was given is that the bank expects that the US Food and Drug Administration (FDA) will not grant Alvotech permission to sell and market its first ever product in the US market until December, or until its re-inspection of Alvotech’s production facilities in Reykjavik is completed Previously it was expected that the inspection would be completed earlier and that the licence to sell the product would be granted in June 2023.
The two largest companies pressing down the stock market this year
The difficulties that Alvotech and Marel, the two largest listed companies in Iceland, have been faced with have been the main reason for the downturn of the Icelandic stock market so far this year while markets abroad have been bullish, according to a report on business website Innherji. The OMXI10 index of Nasdaq Iceland has dropped by 3% while the US Nasdaq IT index is up 22%, the German index DAX30 is up 16%, the Swedish Stockholm is up 12% and the Danish OX Copenhagen 25 has risen 11% Another factor in this, according to the report, is that authorities in Iceland have not been able to lower inflation while there are clear indications on both sides of the Atlantic that inflation is on the way down, prompting increased optimism among investors
Synergy of Fossar Investment Bank and VIS insurance company merger estimated
650 – 750 million ISK
Economical synergy of the planned merger of insurance company VIS and Fossar Investment Bank is estimated at 650 – 670 million ISK and should mature after the year 2025, according to a report on business website Innherji. Long term yield will increase from 1.5% to 2.5% per share. The economic benefits stem from cutting costs by 350 – 450 million ISK and by avoiding expenses that would be necessary without the merger In addition, the financial cost of the corporate banking is expected to be lower after the merger with the capital rich insurance company Additional income as a result of the merger is expected to be 300 million ISK from 2026 onward
Investment funds effectively bought shares in Marel by lending to Eyrir Invest
Arni Oddur Thordarson, CEO of the food processing solution company Marel, said in an interview with daily newspaper Morgunbladid that the US investment funds Baupost Group and JNE Partners had in fact bought an 8% share in Marel while financing Eyrir Invest, the principal investor in Marel, by the end of last year with a convertible loan worth 26 billion ISK. When the loan converts in four years, Eyrir Invest’s share in Marel will be reduced from 25% to 17%. Thordarson says that it would not have been possible to seek funds from existing shareholders in Eyrir Invest as the situation at the time was critical and Icelandic banks did not have access to international capital markets. “I am not saying this is comparable but banks in US that
decided to seek funds from shareholders went bankrupt the following day,” Thordarson said.
Producer of BuddyPhones and StudyPhones raises 2.2 million USD
Nordic Enterprises Ltd, the parent company of the specialised audio device producer Onanoff, recently sold convertible bonds for 2.2 million USD to Icelandic investors to support expected growth in demand and income, according to business gazette Vidskiptabladid. The headphones BuddyPhones and StudyPhones are award winning products, with the former designed especially for children and the latter for children and adults who listen to spoken content for a long period at a time, optimised for spoken audio Centra Corporate Consulting managed the sale of the bonds, which according to the company were oversubscribed
EasyJet offers scheduled flights from London to Akureyri in North Iceland
The European airline easyJet has started selling flights to Akureyri in North Iceland from Gatwick international airport in London, according to a report in daily newspaper Morgunbladid On offer are two flights per week on Tuesdays and Saturdays from 31 October till the end of March 2024 Previously Icelandic airline NiceAir had offered regular flights from Akureyri to the UK and Europe but it went bankrupt earlier this year.
No secret that funding Icelandic banks has been difficult
Birna Einarsdottir, CEO of Islandsbanki, said in an interview with daily newspaper Morgunbladid last week that it is no secret that it has been difficult for the Icelandic banks to seek funding on international capital markets. “We realise when speaking with foreign parties that Iceland and the size of the market is not a problem but the fact that the credit rating of the banks is not higher is an issue,” Einarsdottir said and welcomed the upgrade from S&P Global Rating of the Icelandic State to positive outlook Einarsdottir said that all Icelandic parties such as the State, the CBI and the banks need to attend more thoroughly to informing and communicating with the rating agencies
Income of outdoor clothing brand 66°North up 30% this year – London Regent Street store a success
The outdoor clothing brand 66°North is doing quite well now according to daily newspaper Morgunbladid. The increase in revenue has been 30% in the first four months of this year. The company lost 400 million ISK last year because of a costly international marketing campaign, purchasing of stock and the opening of a flagship store on London’s Regent Street last November. According to Helgi Runar Oskarsson, CEO of 66°North, the operations are on schedule and the reception of the London store has been greater than expected, partly because it was chosen by design
magazine Wallpaper as one of the ten most beautiful shops in the world. According to Oskarsson, the company is also selling its products in leading retail stores in the UK such as Selfridges, Harrods, and Browns and to stores in Denmark, Germany, and the US.
