Festi — Interim / Quarterly Report 2019

Nov 6, 2019

FESTI

Festi hf.

Condensed Consolidated Interim Financial Statements

1 January to 30 September 2019

This is a translation of the Icelandic original. In the event of discrepancies between the Icelandic language version and any translation thereof, the Icelandic language version will prevail.

Festi hf.
Dalvegur 10-14
201 Kópavogur
Reg. No. 540206-2010

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Contents

Page

Endorsement and Statement by the Board of Directors and the CEO ... 3
Statement of Income and Comprehensive Income ... 5
Statement of Financial Position ... 6
Statement of Changes in Equity ... 7
Statement of Cash Flows ... 8
Notes ... 9
Operating segments ... 16

Condensed Consolidated Interim Financial Statements of Festi hf.

January to September 2019

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Endorsement by the Board of Directors and the CEO

The condensed consolidated interim financial statements of Festi hf. for the period from 1 January to 30 September 2019 have been prepared in accordance with the International Financial Reporting Standard for interim financial reporting, IAS 34. The consolidated interim financial statements have neither been audited nor reviewed.

The Group

The interim financial statements comprise the operations, financial position and cash flows of Festi hf. and the subsidiaries Ego ehf. and Hlekkur ehf., as well as Hlekkur's subsidiaries, for the first nine months of 2019. Comparative financial information in the statement of income and comprehensive income, the statement of changes in equity and the statement of cash flows comprise the operations of Festi and the subsidiary Ego for the whole period but the operations of Hlekkur and its subsidiaries from 1 September to the end of the period, i.e. from the time these companies became a part of the Group. At the beginning of 2019 operations of gas stations was transferred to a newly formed operational company, N1 ehf., and warehouse activities to Bakkinn Vöruhötel ehf. These operations were previously carried out within the parent company, Festi hf. Both of the aforementioned companies are subsidiaries of Hlekkur. The parent company, Festi hf. still owns the properties related to those activities.

Operations for the period

The Group's operating revenue for the first nine months of the year amounted to ISK 65,136 million and increased by 77% compared to the same period of the previous year. According to the statement of income and comprehensive income, profit from the Group's operations for the period amounted to ISK 2,081 million. However, when taking into account translation difference due to the operation of a foreign associated company the Group's total comprehensive income amounts to ISK 2,087 million. The Group's equity at the end of the period amounted to ISK 28,057 million including share capital in the amount of ISK 330 million.

Share capital

The Company's share capital amounts to a nominal value of ISK 330 million and one vote is attached to each share. At Festi's Annual General Meeting on 21 March 2019 a proposal from the Board of Directors regarding authorisation to purchase own shares was approved. Accordingly the Board of Directors is authorised on behalf of the Company to purchase up to 10% of its share capital. The authorisation shall be utilised for the purpose of setting up a formal repurchase schedule or to make general offer to shareholders on the Company's purchase of own shares, e.g. by general offering process, on the condition that shareholders will have equal opportunity to take part in such trade. At repurchase the highest permissible payment for each share shall not be higher than the last independent trade or highest available independent purchase offer, in the trade systems where shares are traded, whichever is higher. This authorisation is valid until the Company's Annual General Meeting in 2020, but no longer than to 21 September 2020. The authorisation has not been utilised. At the same time previous authorisations to purchase own shares were revoked.

Condensed Consolidated Interim Financial Statements of Festi hf.

January to September2019

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Endorsement by the Board of Directors and the CEO, contd.:

Shareholders

At the end of the period the Company's shareholders were 787 compared to 915 at the beginning of the year. Following are the Company's 20 biggest shareholders at the end of the period:

Lifeyrissjóður verslunarmanna... 10,1%
Gildi - lifeyrissjóður... 8,9%
Lifeyrissjóður starfsmanna ríkisins A-, B-and S-division... 8,8%
Stefnir... 8,0%
SÍA II slhf... 6,6%
Lansdowne Icav Lansdowne Euro... 6,1%
Birta lífeyrissjóður... 5,4%
Stapi lífeyrissjóður... 4,9%
Almenni lífeyrissjóðurinn... 4,8%
Landsbréf... 3,9%
Festa - lífeyrissjóður... 2,6%
Stormtré ehf... 2,5%
Sjóvá-Almennar tryggingar hf... 2,4%
Lifsvérk lífeyrissjóður... 2,1%
Kvika banki hf... 2,0%
Frjálsi lífeyrissjóðurinn... 1,9%
Vátryggingafélag Íslands hf... 1,5%
Söfnunarsjóður lífeyrísréttinda... 1,5%
Brekka Retail ehf... 1,3%
Arion banki hf... 1,2%

Statement by the Board of Directors and the CEO

The condensed consolidated interim financial statements of Festi hf. for the period from 1 January to 30 September 2019 are prepared in accordance with the International Financial Reporting Standard for interim financial reporting, IAS 34.

According to the best of our knowledge, in our opinion the consolidated interim financial statements give a true and fair view of the Group's assets, liabilities and financial position as at 30 September 2019 as well as of its operating profit and changes in cash and cash equivalents during the period 1 January to 30 September 2019.

Furthermore, in our opinion the consolidated interim financial statements and the Endorsement of the Board of Directors and the CEO include a true and fair view of the development and results of the Group's operations, its standing and describes the main risk factors and uncertainty that the Group faces.

The Board of Directors and the CEO of Festi hf. have today discussed the Company's interim consolidated financial statements for the period 1 January to 30 September 2019 and confirm them by means of their signatures.

Kópavogur, 6 November 2019

The Board of Directors of Festi hf.

Margrét Guðmundsdóttir
Chairman of the Board

Björgólfur Jóhannsson
Gúðjón Karl Reynisson

Kristín Guðmundsdóttir
Þórður Már Jóhannesson

CEO

Eggert Þór Kristófersson

Condensed Consolidated Interim Financial Statements of Festi hf.
January to September2019

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Statement of Income and Comprehensive income

1 January to 30 September 2019

| | Notes | 2019
1.7.-30.9. | 2018
1.7.-30.9. | 2019
1.1.-30.9. | 2018
1.1.-30.9. |
| --- | --- | --- | --- | --- | --- |
| Sales | 6 | 24.091.735 | 17.486.413 | 63.712.205 | 36.401.149 |
| Cost of goods sold | | (18.447.710) | (13.487.094) | (48.789.020) | (27.554.408) |
| Gross profit | 6 | 5.644.025 | 3.999.319 | 14.923.185 | 8.846.741 |
| Other operating income | | 411.794 | 176.608 | 1.423.249 | 405.697 |
| Salaries and other personnel expenses | | (2.371.105) | (1.593.094) | (7.249.646) | (3.924.564) |
| Sales expenses | | (296.401) | (258.539) | (924.706) | (715.727) |
| Other operating expenses | | (770.927) | (703.045) | (2.333.067) | (1.513.397) |
| | | (3.438.433) | (2.554.677) | (10.507.419) | (6.153.688) |
| Profit before depreciation, amortisation
and fair value changes | | 2.617.386 | 1.621.250 | 5.839.014 | 3.098.749 |
| Depreciation and amortisation of property and equipment,
leased assets and intangible assets | 7 | (541.280) | (308.227) | (1.886.248) | (810.465) |
| Fair value changes of investment properties | | 62.325 | 10.951 | (54.956) | 10.951 |
| Operating profit | | 2.138.431 | 1.323.974 | 3.897.810 | 2.299.235 |
| Finance income | | 43.793 | 29.434 | 78.730 | 69.148 |
| Finance expenses | | (536.243) | (272.209) | (1.807.391) | (482.061) |
| Foreign currency difference | | 24.271 | 19.535 | 78.007 | 48.440 |
| Share of profit from associates | | 139.215 | 115.691 | 284.061 | 174.351 |
| Fair value changes of shares
in other companies | | 0 | (13.353) | 0 | (15.796) |
| | | (328.964) | (120.902) | (1.366.593) | (205.918) |
| Profit before income tax | | 1.809.467 | 1.203.072 | 2.531.218 | 2.093.317 |
| Income tax | 8 | (329.842) | (220.018) | (450.478) | (362.142) |
| Profit for the period | | 1.479.625 | 983.054 | 2.080.740 | 1.731.175 |
| Other comprehensive income | | | | | |
| Items that are or may be reclassified subsequently
to profit or loss: | | | | | |
| Translation difference arising from operations of
associate | | (33.187) | 20.830 | 6.325 | 15.012 |
| Other comprehensive income total | | (33.187) | 20.830 | 6.325 | 15.012 |
| Total comprehensive income for the period | | 1.446.438 | 1.003.884 | 2.087.065 | 1.746.187 |
| Basic and diluted earnings per share in ISK | | 4,49 | 3,16 | 6,31 | 6,26 |

Notes on pages 9 to 17 are an integral part of these consolidated interim financial statements

Condensed Consolidated Interim Financial Statements of Festi hf.

January to September2019

Amounts are in ISK thousands

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Statement of Financial Position as at 30 September 2019

	Notes	30.09.2019	31.12.2018
Assets
Goodwill		14.070.463	14.070.463
Other intangible assets		4.674.485	4.504.012
Property and equipment		31.340.776	32.418.877
Leased assets	3	3.533.982	0
Investment properties		6.993.388	8.751.774
Shares in associates		2.176.037	2.079.666
Securities		172.059	66.838
Non-current assets		62.961.189	61.891.630
Inventories		7.600.313	7.616.386
Trade receivables		4.785.935	3.718.347
Other short-term receivables		544.465	305.786
Cash and cash equivalents		6.839.060	4.266.925
Current assets		19.769.773	15.907.443
Total assets		82.730.962	77.799.073
Equity
Share capital		329.574	329.574
Share premium		13.140.383	13.140.383
Other restricted equity		6.497.220	5.258.048
Retained earnings		8.089.734	7.241.841
Equity		28.056.911	25.969.846
Liabilities
Payable to credit institutions	9	30.496.730	33.593.033
Lease liabilities	3	3.100.667	0
Deferred tax liability	8	3.850.672	3.938.773
Non-current liabilities		37.448.069	37.531.807
Current tax		878.605	595.668
Payable to the Icelandic State		3.760.052	2.306.564
Payable to credit institutions	9	4.475.350	3.720.530
Lease liabilities	3	497.619	0
Trade payables		6.028.420	5.654.412
Other short-term liabilities		1.585.936	2.020.246
Current liabilities		17.225.982	14.297.421
Total liabilities		54.674.051	51.829.227
Total equity and liabilities		82.730.962	77.799.073

Notes on pages 9 to 17 are an integral part of these consolidated interim financial statements

Condensed Consolidated Interim Financial Statements of Festi hf.

January to September2019

Amounts are in ISK thousands

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Statement of Changes in Equity 30 September 2019

	Other restricted equity
	Share capital	Share premium	Statutory reserve	Revaluation reserve	Unrealised profit of subsidiaries and associated companies	Translation reserve	Retained earnings	Total equity
1 January to 30 September 2019
Equity 1.1.2019	329.574	13.140.383	82.393	3.654.286	1.642.560	(121.191)	7.241.841	25.969.846
Total comprehensive income for the period						6.325	2.080.740	2.087.065
Restricted due to subsidiaries and associated companies					1.526.213		(1.526.213)	0
Dissolution of revaluation of an associated company				(19.076)			19.076	0
Dissolution of revaluation of property				(274.290)			274.290	0
Equity 30.9.2019	329.574	13.140.383	82.393	3.360.920	3.168.773	(114.866)	8.089.734	28.056.911
Other restricted equity total						6.497.220
1 January to 30 September 2018
Equity 1.1.2018	250.000	3.153.857	62.500	3.846.730	376.857	(154.490)	6.276.324	13.811.778
Share capital increase	79.574	9.986.526						10.066.100
Contribution to statutory reserve		(19.893)	19.893					0
Total comprehensive income for the period						15.012	1.731.175	1.746.187
Restricted due to subsidiaries and an associated companies					1.534.851		(1.534.851)	0
Dissolution of revaluation of an associated company				(26.333)			26.333	0
Dissolution of revaluation of property				(118.150)			118.150	0
Equity 30.9.2018	329.574	13.120.490	82.393	3.702.247	1.911.708	(139.478)	6.617.131	25.624.065
Other restricted equity total						5.556.870

Notes on pages 9 to 17 are an integral part of these consolidated interim financial statements

Condensed Consolidated Interim Financial Statements of Festi hf.

January to September2019

Amounts are in ISK thousands

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Statement of Cash Flows 1 January to 30 September 2019

| | Notes | 2019
1.1.-30.9. | 2018
1.1.-30.9. |
| --- | --- | --- | --- |
| Cash flows from operating activities | | | |
| Profit before depreciation, amortisation and fair value changes | | 5.839.014 | 3.098.749 |
| Operating items not affecting cash flows: | | | |
| Gain on sale of operating assets and investment properties | | (240.281) | (35.177) |
| | | 5.598.734 | 3.063.572 |
| Changes in operating assets and liabilities: | | | |
| Inventories, decrease (increase) | | 16.073 | (1.275.919) |
| Trade and other receivables, increase | | (1.306.267) | (1.252.841) |
| Trade and other payables, increase | | 1.371.012 | 4.557.031 |
| Changes in operating assets and liabilities | | 80.817 | 2.028.271 |
| Interest received | | 89.674 | 58.501 |
| Interest paid | | (1.234.138) | (501.998) |
| Income tax payments | | (257.320) | (304.875) |
| Cash flows from operating activities | | 4.277.767 | 4.343.470 |
| Cash flows from investing activities | | | |
| Purchase of shares in a subsidiary, net of cash acquired | | 0 | (12.261.852) |
| Purchase of intangible assets | | (390.318) | (17.482) |
| Purchase of property and equipment | | (1.066.664) | (927.862) |
| Sale of property and equipment | | 248.160 | 78.216 |
| Purchase of /additions to investment properties | | (39.363) | (6.001) |
| Sales of investment properties | | 2.507.379 | 0 |
| Purchase of shares in other companies | | (110.000) | 0 |
| Dividends from other companies | | 194.000 | 120.000 |
| Investing activities | | 1.343.193 | (13.014.981) |
| Cash flows from financing activities | | | |
| New long-term borrowings | | 13.371.000 | 12.221.777 |
| New short-term borrowings | | 1.000.000 | 0 |
| Repayment of loans from credit institutions | | (17.193.105) | (57.547) |
| Payment of lease liabilities | | (251.163) | 0 |
| Financing activities | | (3.073.269) | 12.164.231 |
| Increase in cash and cash equivalents | | 2.547.692 | 3.492.720 |
| Currency exchange difference on cash and cash equivalents | | 24.444 | 20.831 |
| Cash and cash equivalents at the beginning of the year | | 4.266.925 | 2.800.082 |
| Cash and cash equivalents at the end of the period | | 6.839.060 | 6.313.634 |

Notes on pages 9 to 17 are an integral part of these consolidated interim financial statements

Condensed Consolidated Interim Financial Statements of Festi hf.

January to September2019

Amounts are in ISK thousands

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Notes

1. Operations of the Group

Festi hf. („the Company“) is an Icelandic limited liability company. The Company's headquarters are located at Dalvegur 10-14, Kópavogur. The main objective of the Group is sale of fuel, goods and service to entities, groceries and related products, electrical appliances and leasing of properties. The consolidated interim financial statements of the Group consists of the Company and its subsidiaries, referred to together as the Group and individually as a Group entity.

1. Basis of preparation

Statement of compliance

The consolidated interim financial statements of the Company have been prepared in accordance with the International Financial Reporting Standard for interim financial reporting, IAS 34. The condensed consolidated interim financial statements do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Company for the year ended 31 December 2018.

The Board of Directors of Festi hf. approved the consolidated interim financial statements on 6 November 2019.

Change in classification of operating expenses

As disclosed in the Company's consolidated financial statements for the year 2018 classification of certain operating expenses was changed in 2018 following Festi's acquisition of Hlekkur and its subsidiaries. The amended classification was made to harmonise the classifications of operating expenses in the Group. In these condensed consolidated interim financial statements of the Group comparative figures have been restated in statement of income and comprehensive income in accordance with new classification, which has no impact on net results of the Group, its assets, liabilities, equity or cash flows. The most significant change is that distribution expense is now presented within the statement of income and comprehensive income line item cost of goods sold, but was previously presented with sales- and distribution expenses.

Changes in presentation of interest payments in the statement of cash flows

Presentation of interest payments in the statement of cash flows has been changed. Interest payments on long-term loans from credit institutions are now presented as part of operating activities but were previously presented among financing activities. Therefore, interest paid in the statement of cash flows now include both interest paid on short-term liabilities and long-term liabilities. Furthermore, for the period 1 January to 30 September 2019 this line item also includes interest payments on lease liabilities due to the application of IFRS 16 (see note 3). Presentation of comparative amounts for the previous year has been changed accordingly. Management believes that this change in presentation of interest paid provides a better view with respect to origination and use of cash and cash equivalents in the statement of cash flows.

Changes of the Group's structure and presentation of operating segments

At the beginning of 2019 operations of gas stations was transferred from Festi hf. to the operational company, N1 ehf., and warehouse activities to Bakkinn Vöruhötel ehf. Both of the aforementioned companies are subsidiaries of Hlekkur. The parent company, Festi hf., still owns the properties related to those activities. Following the acquisition of Hlekkur and its subsidiaries on 1 September 2018 a review of the Group's operating segments presentation has been under way. That work has now been finalised and segment information are presented that way from 1 January 2019 more detailed than in the Company's consolidated financial statements for the year 2018. The Group's operating segments are based on internal reporting as presented to the Group's key management personnel. Presentation of operating segments for the comparative period 1 January to 30 September 2018 is based on previous segment breakdown since not all necessary information is available to present it in accordance with current segment breakdown.

Other changes from previous accounting policies

IFRS 16 Leases became effective at the beginning of 2019. Reference is made to note 3 for information on the impact of the standard. Due to the method chosen for the adoption of IFRS 16 comparative amounts for the previous year are unchanged.

Condensed Consolidated Interim Financial Statements of Festi hf.

January to September2019

Amounts are in ISK thousands

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Notes, contd.:

2. Basis of preparation, contd.

Except for the aforementioned changes in classification certain operating expenses, interest payments, in the statement of cash flows, the impact of IFRS 16 and changes of segment reporting the same accounting policies were applied in these consolidated interim financial statements as in the Group's consolidated financial statements for the year 2018.

Presentation and functional currency

These consolidated interim financial statements are prepared and presented in Icelandic krona (ISK) which is the Company's functional currency. All amounts are presented in thousand of Icelandic krona unless otherwise stated.

Going concern

Management has evaluated the Group's going concern. It is the opinion of management that its operations are ensured and that it is able to meet its obligations in the foreseeable future. Therefore, the interim financial statements are presented on a going concern basis.

Estimates and judgement

The preparation of the consolidated interim financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions, which affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates.

3. IFRS 16 Leases

General information about IFRS 16

IFRS 16 Leases became effective on 1 January 2019 and replaced IAS 17 Leases and related interpretations.

IFRS 16 introduces a single, on balance sheet model lease accounting model for lessees. As a result, the Group, as a lessee, has recognised leased assets representing its rights to use the underlying assets and lease liabilities representing its obligations to make lease payments. Lessor accounting remains similar to previous accounting policies, i.e. the lessor classifies each lease contract as either a finance lease or an operating lease. The application of IFRS 16 did not have any effect on the Group's financial statements as a lessor.

Definition of a lease

The Group now assesses whether a contract is or contains a lease based on the new definition of a lease. Under IFRS 16, a contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration.

Impacts on transition

The Group has applied IFRS 16 as from 1 January 2019. The Group adopted the standard using the modified retrospective method, whereas leased assets were recognised in the same amount as lease liabilities, with no effect on equity as at 1 January 2019 and no changes made to comparative amounts for the year 2018. The impact of the standard was that leased assets and lease liabilities in the amount of ISK 3,702 million were recognised in the statement of financial position as at 1 January 2019.

The leased assets and lease liabilities of the Group, as a lessee, are due to leases of buildings and land. When calculating the amounts of leased assets and lease liabilities, lease term was estimated as well as the incremental borrowing rate, since the rate implicit in the lease could not be readily determined.

Condensed Consolidated Interim Financial Statements of Festi hf.

January to September2019

Amounts are in ISK thousands

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Notes, contd.:

3. IFRS 16 Leases, contd.

Estimating the incremental borrowing rate required management to use judgement. In that estimation various factors were taken into account but in particular the type of leased asset and its location and condition and the lease term. Weighted average interest rate was determined as 5.5% - 7.0% for buildings and 5.0% - 7.7% for land.

Management also had to use judgement in determining the lease term, in particular in the case of contracts with no stated lease term and contracts which include extension and / or termination options. The lease term determined can be longer or shorter than the lease term explicitly stated in the contract. The weighted lease term for leases of both buildings and land was determined as 10 years.

The Group's lease contracts for buildings and land were classified as operating leases until 1 January 2019 and therefore not recognised in the statement of financial position at year-end 2018. As disclosed in note 16 to the Group's financial statements for the year 2018, the obligations due to these lease contracts amounted to ISK 4,992 million at year-end 2018. Upon adoption of IFRS 16 those obligations were discounted and lease liabilities in the amount of ISK 3,702 million recognised in the Group's statement of financial position as at 1 January 2019.

Impacts during the accounting period

Leased assets

Leased assets are initially recognised in the statement of financial position at the lease commencement date and measured at cost. They are subsequently recognised at revalued amount, in accordance with the revaluation model in IAS 16, as are similar assets owned by the Group. Adjustments are made for the impact of depreciation, impairment and the effect of revaluation of lease liabilities, as applicable. Leased assets are presented separately among non-current assets in the statement of financial position.

Leased assets from the beginning to the end of the period are specified as follows:

	Buildings	Land	Total
Carrying amount at 1 January 2019	3.158.939	543.122	3.702.061
Impact of revaluation of lease liabilities	129.802	78	129.881
Depreciation of the period	(256.569)	(41.391)	(297.960)
Carrying amount at 30 September 2019	3.032.172	501.809	3.533.982

Lease liabilities

Lease liabilities are initially recognised in the statement of financial position at the lease commencement date and measured at the present value of the lease payments that are not paid at that date, discounted at the Group's incremental borrowing rate.

Subsequent to initial recognition the carrying amount of lease liabilities is increased by interest expense and decreased by lease payments made. Furthermore, the carrying amount is remeasured when there is a change in future lease payments arising from an index or a rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether it is reasonably certain that a purchase or extension option will be exercised or a termination option not exercised. Lease payments are split into interest expense element and payment of principal element. In general, the interest expense element of the lease payments decreases during the lease term. Lease liabilities are presented separately in the statement of financial position and split into non-current and current portion.

Condensed Consolidated Interim Financial Statements of Festi hf. January to September2019

Amounts are in ISK thousands

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Notes, contd.:

3. IFRS 16 Leases, contd.

Lease liabilities from the beginning to the end of the period are specified as follows:

Lease liabilities at 1 January 2019	3.702.061
Interest expense	145.564
Payment of lease liabilities during the period	(379.219)
Reassessment due to indexation of lease payments	63.284
Lease payment increases	66.596
Lease liabilities at 30 September 2019	3.598.286

Impact on the income statement

Due to the recognition of lease contracts in accordance with IFRS 16 the Group has recognised depreciation in the amount of ISK 298 million and interest expense in the amount of ISK 146 million. Due to application of IFRS 16, in the first three quarter of 2019 EBITDA for the period is ISK 379 million higher than it would have been under previous accounting policies.

4. Group entities

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has right to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

Intra-group balances and transactions and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated interim financial statements.

Condensed Consolidated Interim Financial Statements of Festi hf.

January to September2019

Amounts are in ISK thousands

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Notes, contd.:

4. Group entities, contd.

Entities in the Group

The consolidated financial statements include the following entities. All subsidiaries are directly or indirectly fully owned by the parent company, Festi.

Company	Activity
Festi hf.	Festi hf. is a holding company that specialises in operating companies that are leading in the retail and fuel markets in Iceland. Festi's role is to support its operational companies in fulfilling customers' needs so as to enable them to continue to be at the forefront in providing goods and services across the country. Festi provides its subsidiaries with supporting services, such as financial, operating and business development services.
Ego ehf.	Ego ehf. is an investment company designed to hold the Company's investments and future developments in that field.
Hlekkur ehf.	Hlekkur ehf. is a holding company specialising in investments in convenience stores and other companies related to retail.
N1 ehf.	N1 ehf. operates the Company's gas stations. The company operates 29 service stations throughout Iceland whose business is restaurant operations, fuel sales, and sale of various convenience goods. N1 also operates 55 self-service gas stations, 11 repair shops and 5 stores.
Krónan ehf.	Krónan ehf. is a retail company that operates convenience stores in Iceland. The company operates stores under the brand names of Krónan, Kr., Kjarval and Nóatún in the capital region as well as in other areas of the country.
Elko ehf.	The company is an electronics retail store which operates stores in the capital region, at Keflavik Airport as well as an online shop.
Festi fasteignir ehf.	The company leases non-residential real estate.
Bakkinn vöruhótel ehf.	Bakkinn vöruhótel ehf. specialises in product storage, packing, labeling and distribution of products for Group's entities and customers that elect to outsource their warehouse activities, partially or in full.

5. Operating segments

An operating segment is a component of the Group that engages in business activity from which it may earn revenue and incur expenses, including revenue and expenses relating to transactions with other segments of the Group. Segments are determined by the Company's CEO, which regularly reviews the Group's segments so as to decide upon how assets are allocated as well as to monitor their financial performance.

Operating results of segments, their assets and liabilities consist of items directly attributable to individual segments as well as those items which can be allocated in a logical way.

Capital expenditure of segments consist of the total cost of acquisition of operating and intangible assets.

Transactions between segments are priced on an arm's-length basis.

Each operating company within the Group is a separate segment (see note 4 on companies in the Group) but the segment real estate consists of real estate operations of Festi hf. and Festi fasteignir ehf. Segment reporting is presented on page 16.

Condensed Consolidated Interim Financial Statements of Festi hf.

January to September2019

Amounts are in ISK thousands

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Notes, contd.:

6. Sales and gross profit

Total sales are specified as follows:	2019	2018
	1.1.-30.9.	1.1.-30.9.
Fuel	20.459.106	24.309.846
Other goods	43.253.098	12.091.303
Total sales	63.712.205	36.401.149
Breakdown of sales by the Group’s customers
Fishing industry	2.979.439	3.461.551
Transportation	1.348.536	4.965.549
Contractors	2.094.917	1.928.997
Foreign sale	2.248.693	2.465.078
Other industries and individuals	55.040.620	23.579.973
Total sales	63.712.205	36.401.149
Gross profit are specified as follows:
Fuel	3.946.884	4.307.167
Other goods	10.976.302	4.539.574
Total gross profit	14.923.186	8.846.741

7. Depreciation and amortisation

Depreciation and amortisation in the statement of income is specified as follows:
Property and equipment	1.307.476	730.904
Leased assets	297.960	0
Intangible assets	280.812	79.561
Total depreciation and amortisation	1.886.248	810.465

8. Income tax

Income tax in the statement of income is specified as follows:
		2019		2018
		1.1.-30.9.		1.1.-30.9.
Profit before tax		2.531.218		2.093.317
Income tax based on current tax rate	20,0%	(506.244)	20,0%	(418.663)
Non-taxable income of shares	2,2%	(56.812)	0,2%	(4.103)
Other changes	(4,4%)	112.578	(2,9%)	60.624
Effective income tax rate	17,8%	(450.478)	17,3%	(362.142)

Deferred tax liability

Deferred tax liability is specified as follows by individual items at the end of the period:

	30.9.2019	31.12.2018
Property and equipment and investment properties	3.017.952	3.123.132
Intangible assets	806.628	807.850
Other items	26.092	7.791
Deferred tax liability	3.850.672	3.938.773

Condensed Consolidated Interim Financial Statements of Festi hf.

January to September2019

Amounts are in ISK thousands

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Notes, contd.:

9. Payable to credit institutions

Interest bearing liabilities are specified as follows:

	30.9.2019		31.12.2018
	Interest rate	Carrying amount	Interest rate	Carrying amount
Non-indexed loan on floating interests	5,3%	9.109.326	5,5%	13.474.500
Indexed loan on fixed interests		0	3,9%	11.610.538
Indexed loan on floating interest	3,3%	21.387.404	3,8%	8.507.995
Long-term portion total		30.496.730		33.593.033
Current maturities of long-term loans		1.475.350		1.720.530
Short-term loan	5,3%	3.000.000	5,3%	2.000.000
Current portion total		4.475.350		3.720.530
Payable to credit institutions total		34.972.080		37.313.563
Maturities of long-term loans from credit institutions are specified as follows:		30.9.2019		31.12.2018
Next 12 months		1.475.350		1.720.530
Next 12-24 months		1.475.350		1.733.483
Next 24-36 months		1.475.350		1.744.282
Next 36-48 months		1.475.350		1.692.671
Next 48-60 months		1.475.350		1.101.644
Subsequent		24.595.328		27.321.027
Payable to credit institutions total		31.972.080		35.313.563

In May 2019 the long-term loans of the subsidiary Festi fasteignir ehf. and Hlekkur ehf. were refinanced. Older long-term loans in the amount of ISK 15,300 million were repaid but new loans taken in the amount of ISK 13,500 million.

10. Ratios

The Group's key ratios are specified as follows:

	2019	2018
Statement of income	1.1.-30.9.	1.1.-30.9.
Turnover rate of inventories at the end of the period:
Utilisation of goods / weighted average inventories	8,46	8,45
Sales days in trade receivables:
Weighted average trade receivables / goods and services sold	18	26
Profit before depreciation, amortisation and finance items / gross profit	39,1%	35,0%
Salaries and salary related expenses / gross profit	48,6%	44,4%
Sales expenses/ gross profit	6,2%	8,1%
Other operating expenses / gross profit	15,6%	17,1%
Statement of financial position	30.9.2019	31.12.2018
Current ratio: current assets / current liabilities	1,15	1,11
Liquidity ratio: (current assets - inventories) / current liabilities	0,71	0,58
Leverage: Net interest bearing liabilities / EBITDA	4,53	3,52
Equity ratio: Equity / total capital	33,9%	33,4%
Return on equity: Return of the year / weighted average equity	10,4%	11,0%

Condensed Consolidated Interim Financial Statements of Festi hf.

January to September2019

Amounts are in ISK thousands

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Operating segments

	N1	Kronan	ELKO	Real estate	Other	Total	Elimination entries	Application of IFRS 16 *	According to the interim financial statements
First nine months 2019
Sales	28.991.674	27.111.149	7.627.542	0	0	63.730.364	(18.159)	0	63.712.205
Other operating income	171.936	96.082	3.688	3.011.492	2.072.379	5.355.577	(3.932.329)	0	1.423.249
Total segment revenue	29.163.609	27.207.231	7.631.230	3.011.492	2.072.379	69.085.942	(3.950.488)	0	65.135.454
Total segment operating expenses	(27.695.611)	(25.950.648)	(7.406.608)	(657.933)	(2.147.066)	(63.857.866)	4.182.207	379.219	(59.296.439)
Segment EBITDA	1.467.999	1.256.583	224.622	2.353.558	(74.687)	5.228.076	231.719	379.219	5.839.014
Depreciation and amortisation	(376.094)	(384.428)	(125.021)	(583.512)	(119.234)	(1.588.289)	0	(297.959)	(1.886.248)
Fair value change of investment properties	0	0	0	(54.956)	0	(54.956)	0	0	(54.956)
Share of profit from associates	0	0	0	0	284.061	284.061	0	0	284.061
Operating profit for segments	1.091.905	872.155	99.602	1.715.090	90.140	3.868.892	231.719	81.260	4.181.872
Net finance expenses									(1.650.654)
Income tax									(450.478)
Profit for the period									2.080.740
30 September 2019
Segment assets	19.593.565	8.986.332	3.387.479	35.301.193	13.411.546	80.680.115	(11.616.522)	3.533.982	72.597.575
Unallocated assets									10.133.387
Total assets									82.730.962
Unallocated liabilities									54.674.051
Capital expenditure	257.375	522.485	72.047	659.602	89.316	1.600.825	(104.480)	0	1.496.346
Depreciation and amortisation	(376.094)	(384.428)	(125.021)	(583.512)	(119.234)	(1.588.289)	0	(297.959)	(1.886.248)

• Segment information reviewed by management does not take into account the rules of IFRS 16.

Condensed Consolidated Interim Financial Statements of Festi hf.

January to September2019

Amounts are in ISK thousands

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Operating segments, contd.:

	N1	Krónan	ELKO	Real estate	Hlekkur	Total	Elimination entries	Application of IFRS 16	According to the interim financial statements
First nine months 2018
Sales	32.819.323			0	3.582.915	36.402.238	(1.089)		36.401.149
Other operating income	309.566			1.697.772	26.523	2.033.861	(1.628.164)		405.697
Total segment revenue	33.128.889	0	0	1.697.772	3.609.438	38.436.099	(1.629.254)	0	36.806.845
Total segment operating expenses	(31.505.172)			(361.086)	(3.471.092)	(35.337.350)	1.629.254		(33.708.096)
Segment EBITDA	1.623.717	0	0	1.336.686	138.345	3.098.749	0	0	3.098.749
Depreciation and amortisation	(315.049)			(454.864)	(40.552)	(810.465)	0		(810.465)
Fair value change of investment properties				10.951		10.951	0		10.951
Share of profit from associates	174.351			0		174.351	0		174.351
Operating profit for segments	1.483.019	0	0	892.773	97.794	2.473.586	0	0	2.473.587
Net finance expenses									(380.269)
Income tax									(362.142)
Profit for the period									1.731.175
30 September 2018
Segment assets	34.613.786	0	0	40.272.755	20.349.656	95.236.197	(18.748.782)		76.487.415
Unallocated assets									3.674.890
Total assets									80.162.305
Unallocated liabilities									54.538.240
Capital expenditure	360.403	0	0	532.622	58.320	951.345	0		951.345
Depreciation and amortisation	(315.049)	0	0	(444.606)	(40.552)	(800.206)	(10.258)		(810.465)

Condensed Consolidated Interim Financial Statements of Festi hf.

January to September2019

Amounts are in ISK thousands