Message from the Ceo

MESSAGE FROM THE CEO

Iceland is an island nation that relies heavily on flight transportation and trading with other nations. We wish to welcome our guests while still being able to enjoy the excitement of being able to travel to exotic places, experience new cultures and exchange knowledge and goods with other nations. These lead to progress, and we thereby create economic growth for the national economy. We here at Isavia also understand that the growth must be sustainable and that we must work in harmony with our community. It is a matter of some satisfaction that the international flight sector as a whole is working together to reduce carbon emissions. We are also aware that we must play our part and that co- operation is the key to success. We have set ourselves a course and action plans which we will work toward with every effort in co-operation with our business partners. We will e.g. work with neighbouring local authorities at Keflavík Airport toward a future vision of the area, taking into account the UN Global Goals. This is not least because Keflavík Airport is the largest workplace on the Reykjanes peninsula, and the growing scope of the airport has, therefore, a considerable impact on the municipalities around it.

2018 was another busy year for us. Passenger movements through Isavia airports totalled just under 10.6 million in 2018, an increase of just under 11% from 2017. The number of international passengers using Icelandic scheduled-ﬂight airports increased from just under 8.8 million to just over 9.8 million, i.e. an increase of some 12% year-on-year. The number of domestic passengers fell over the same period, from just over 772,000 to just under 737,000, i.e. a decrease of some 5%.

The year’s operations went well, and despite a greater slowdown in passenger number increases than had been anticipated during the latter part of the year, the operating results were in accordance with the company’s original ﬁnancial forecasts. The operating income of the Group amounted to almost ISK 42bn and increased by ISK 3.8bn between years, or by around 10%. EBITDA, i.e. results before depreciation, ﬁnancial items and taxes, increased by almost ISK 1.5bn, or 15%. The total assets amounted to ISK 79.8bn at year-end 2018, an increase of ISK 7.3bn between years. The position of cash and cash equivalents continued to be strong by the end of the year, as did the company’s access to borrowed funds for continued development. Isavia’s tax footprint for 2018 was ISK 9,152m. This is the proportion that the Group pays or collects in the form of taxes and public levies, together with matching contributions to employee pension funds. Increased scope of operations and growth calls for new solutions, with the added fact that great challenges await us internationally. With this in mind, Isavia’s policies were revised. Increased focus was brought to bear on corporate responsibility in accordance with the company’s policies that were set in this regard in 2016. We will continue to work on the adoption of the policies in co-operation with our employees, business partners and the local community.

We have been party to the UN Global Compact since 2016. By virtue of its participation, Isavia undertakes to ensure that its polices and work practices are in accordance with the ten basic rules of the United Nations on human rights, work issues, environmental issues and actions against corruption. We undertake, moreover, to participate in projects supporting the UN’s Sustainable Development Goals and to publish information on the company’s social responsibility. We concentrate on issues in a number of ﬁelds, and the company sets itself high standards in this respect every year. Objectives and related improvement projects were selected with reference to the nature and policies of the company, comments from external stakeholders and the principles of the UN Global Compact, international goals and related government priorities. The objectives for 2019 are linked to six of the seventeen UN Global Goals.

WE UNDERTAKE, MOREOVER, TO“ PARTICIPATE IN PROJECTS SUPPORTING THE UN’S SUSTAINABLE DEVELOPMENT GOALS AND TO PUBLISH INFORMATION ON THE COMPANY’S SOCIAL RESPONSIBILITY. „ Isavia issues an annual and social responsibility report according to the criteria of the Global Reporting Initiative for the third time this year. The report is modelled on the GRI Standards: Core this year together with GRI-G4 special provisions for airports. These special provisions deal speciﬁcally with the challenges and opportunities faced by airports when it comes to sustainability. Consideration is given to the company’s operations and to their impact on the economy, the environment and the community. The report is only issued electronically on the Internet this year. A large number of employees from all departments within the company were involved in its preparation, and we recruited an external consultant to review and ensure the reliability of the information. We welcome any and all comments on the content of the report, as continuous improvements are an integral part of our operations.

The key to success lies in the concentrated efforts of the employees of Isavia. I would like to express my thanks to all my colleagues for all their efforts and excellent collaboration. We are a united team! Together, we perform better. This social responsibility report describes the operation of Isavia in 2018. The report is published as a progress report toward our goals as regards the UN Global Compact Convention (UNGC). Thereby we conﬁrm our wish to work in accordance with the ten principles of the UN and work toward global goals. We declare our continued support of the UN Global Compact.

Björn Óli Hauksson, CEO ISAVIA’S OPERATIONS

Isavia is a publicly owned company responsible for the operation, maintenance and development of airports for scheduled ﬂights and landing sites in Iceland. In addition, the company provides air navigation services for domestic and international ﬂights over the northern part of the North Atlantic Ocean.

MISSION Isavia is a service company in airport ISAVIA’S POLICY operations and air navigation and forms the foundation for Iceland’s civil Isavia is responsible for the operation and aviation. We work maintenance of the infrastructure that is the basis together to be a part of a pleasant journey for aviation services in Iceland, connections to the both in Iceland and wider world and flights between three continents abroad. over a large areaIts operations are of considerable national interest. The employees, moreover, make VISION every effort to conduct their work in a safe and Centre for aviation in efficient manner in harmony with the community. the North Atlantic. The importance and priorities of these operations are reflected in the company’s policy pyramid. OUR VALUES

SAFETY

Safety is our middle name.

We are aware of risks, follow recognised processes and thereby contribute to the safety of the public, customers and staff. This is achieved by means of disciplined operating procedures, constant gathering of knowledge and systematic monitoring.

CO-OPERATION

We are one team.

Co-operation leads to success. We respect the work of others

and work in harmony with the community around us.

SERVICE

We are hospitable.

We provide a good service, welcome our customers and meet their expectations with a positive attitude and respect.

POLICY FORMULATION OUR GOALS

Isavia is a publicly owned company and operates in Our goals are pillars which help us to work accordance with operations and state-ownership in a targeted way to legislation. The company’s policies are formulated fulﬁl our misson and by its Board of Directors and Executive Board achieve our vision. A within this framework. A review of the company’s desirable and progressive policies was completed in 2018. It was decided to workplace offering sharpen the company’s mission, vision, values and enjoyable challenges goals. Policies were arranged into a policy pyramid, and the Board of Directors approved the overall • Valuable and eﬃcient service policy mid-way through the year, after consultation with staff. In accordance with the priorities • Operations established for the company’s operations, social featuring targeted responsibility was adopted as one of the adoption of new technology and company’s goals. Managers and staff are expected development of to follow company policy, and the Executive Board processes and is responsible for implementing policy. responses

• Proﬁtable company Isavia has set support policies in accordance with in the short and long the company’s overall policy where appropriate. term based on strong There exist policies on staff, social responsibility, infrastructure the environment, quality, safety, information • A socially security, working conditions, marketing and risk. responsible company The also exists a gender equality plan, a See more about purchasing practice policy, a code of conduct for Isavia's policy employees, codes of conduct for suppliers and ownership policies for the Duty Free Store and Tern. The executive directors of each ﬁeld are responsible for support policies as appropriate. Support policies are set and reviewed in accordance with formal procedures, and policies are approved by the Managing Director or the Board of Directors, as appropriate.

Decisions on Isavia’s day-to-day operations, including issues relating to social responsibility, are taken by the company’s Managing Director and Executive Board. Isavia’s Board of Directors monitors issues related to this field and regularly discusses matters concerning the company’s financial position, development plans, organisational issues, service and efficiency, human resources and security and quality issues. ISAVIA’S OPERATIONS

The core operations of the company fall under three categories: the operation of Keflavík Airport, air navigation services and the operation of other Icelandic airports. The operating structures of the three core operations are, by their nature, very dissimilar. Keflavík Airport is operated wholly on business terms, which means that it is sustainable. The operation of other Icelandic airports is not sustainable and is based on the company’s agreement with the Ministry of the Interior, which determines their level of service, operation and maintenance. State contributions amount to approximately 70% of their total income. The operation of air navigation services in the upper airspace over the North Atlantic Ocean is based on agreements with 24 countries for services and financing, which is based on fee collection on a cost basis.

Isavia owns four subsidiaries, each of which have their own purpose. The Duty Free Store sells dutyfree goods at Keﬂavík Airport, Tern Systems develops software for air navigation services, Domavia manages some of the real property owned by Isavia and Suluk manages the operation of air navigation services in Greenland. Isavia’s headquarters are located at Reykjavík Airport.

Isavia operates four international airports: Keﬂavík Airport, Reykjavík Airport, Akureyri Airport and Egilsstaðir Airport. In addition, there are nine landing sites for regular scheduled ﬂights in Iceland. The company is also responsible for 36 other landing sites throughout Iceland.

NUMBER OF NUMBER OF DOMESTIC NUMBER OF LANDING SITES INTERNATIONAL AIRPORTS AIRPORTS 4 9 36 VIDEO OF ISAVIA'S OPERATIONS

M GOVERNANCE

THE BOARD OF DIRECTORS OF ISAVIA CONSISTS OF FIVE MEMBERS AND FIVE ALTERNATES, ALL OF WHOM ARE ELECTED AT THE ANNUAL GENERAL MEETING FOR A TERM OF ONE YEAR. BOARD MEMBERS ARE NOMINATED BY THE MINISTER FOR FINANCE AND ECONOMIC AFFAIRS.

STRUCTURE AND COMPOSITION OF GOVERNANCE Isavia is a publicly owned company owned by the THE BOARD OF Icelandic state. The operations of the company are DIRECTORS OF in accordance with Act No. 153/2009 on the Merger ISAVIA 2018-19 of the Government-owned Limited Companies

Flugstoðir and Keﬂavík Airport, Act No. 76/2008 Ingimundur on Establishing a Government-owned Limited Sigurpálsson (second Company for the running of Keﬂavík Airport, Act from the left),born No. 102/2006 on the Establishment of a Public 1951, Business Administration, CEO Limited Company for Air Navigation Services and of Íslandspóstur. Airport Operations by the Icelandic Civil Aviation Chairman of the Authority and the Aviation Act (Act No. 60/1998). Board since 2014.

Matthías Imsland, The company’s corporate governance is prescribed (third from the right) by Act No. 2/1995 on Public Limited Companies born 1974, political (August 2012), the company’s Articles of scientist. Board Association and Rules of Procedure of the Board. member from 2014. Deputy Chairman of the Board 2014-17 and The company’s Board refers to the Guidelines of from 2018. Corporate Governance and complies with them in all major respects, although it is not legally bound Eva Pandora to do so. Baldursdóttir (second from the right), born in 1990, a Three formal sub-committees – the Remuneration business economist, a Committee, the Audit Committee and the specialist at the Executive Committee – currently operates under Institute of Regional the company’s Board. A policy on social Development, a board member from 2018. responsibility has been set. No court rulings have been issued in which the company is believed to Nanna Margrét have broken any laws or regulations. Gunnlaugsdóttir (third from the left), born 1978, Business MBA, Investment Manager at Hafbliks Investment Company. Board member from 2018.

Valdimar Halldórsson (ﬁrst from the right), born 1973, Business Administration, Director of North Sailing, Board member from 2018. Isavia's alternate ISAVIA BOARD OF DIRECTORS board

The Board of Directors of Isavia consists of ﬁve members and ﬁve alternates, all of whom are ALTERNATES IN elected at the Annual General Meeting for a term BOARD OF of one year. Board members are nominated by the DIRECTORS Minister for Finance and Economic Affairs. The gender ratio in Isavia’s Board is 40% women and Björg Eva 60% men. All Board members are independent Erlendsdóttir, born 1960, BA in Icelandic, within the meaning of the Guidelines on Corporate Norwegian and Governance. All Board members have given the Journalism, Managing Board an account of their assets in other Director of the Left- companies. None of these declared assets have Green Movement. any bearing on the work of these individuals as Hreiðar Eiríksson, Isavia Board members. fæddur 1963, lögfræðingur, sérfræðingur hjá Fiskistofu.

Ingveldur Sæmundsdóttir, born 1970, MBA, Business Assistant to the Minister of Transport and Rural Affairs.

Reynir Þór Guðmundsson, born 1973, commercial pilot and aircraft engineer, Managing Director of Jökulﬂugs. Sigrún Traustadóttir, born 1962, Business MBA, consultant. Was the director of the board 2014-17.

Further information on Isavia's Board of Directors

BOARD’S ACTIVITIES AND RULES OF PROCEDURE

The Board has established detailed Rules of More information on Governance Procedure deﬁning its scope of authority and the divisions of tasks between it and the Managing Rules of Director. The current Rules of Procedure were procedure for the Board of approved at a meeting of the Board of Directors on Directors of 27 April 2018. They include the division of tasks Isavia between Board members, rules on the eligibility of politicians to take part in processing matters, procedure and minutes for meetings, rules on conﬁdentiality, the obligation to provide information to the Board and the decision-making power of the Board.

The Board of Directors shall constitute the supreme authority of the company from one shareholders’ meeting to the next, in accordance with laws and the company’s Articles of Association. The Board’s main role is to manage the company between shareholders’ meetings and ensure adequate supervision of the company’s accounts and disposal of the company’s property, as well as conﬁrming the operating budget and investment plans and ensuring compliance with them. The Board takes all major decisions in the company’s operations and makes sure that the company is operated in accordance with the relevant laws and regulations. Furthermore, the Board has the goal of promoting the company’s growth and results in the long term by formulating company policy in consultation with company management. THE BOARD’S PERFORMANCE ASSESSMENT

The Board regularly evaluates its performance, its practices and rules of procedure, development of the company, the performance of the Managing Director and the eﬃciency of sub-committees, if operational. The performance assessment is intended, among other things, to evaluate the strengths and weaknesses of the Board’s work and practices and take into consideration the components which the Board believes may be improved. This assessment has two aspects: a self- assessment conducted with the assistance of an external party in January 2018 and a second self- assessment conducted in February 2019.

MANAGING DIRECTOR OF ISAVIA The Managing Director is responsible for the management of all day-to-day operations in accordance with the policies and instructions of the Board. Day-to-day operations do not include measures which are unusual or extraordinary. He has decision-making powers regarding all operational and ﬁnancial issues of the company and manages its assets. He submits an account of the company’s operations and performance at Board meetings and answers to the Board for all day-to-day operations and compliance with the company’s Articles of Association, laws and regulations.

Björn Óli Hauksson (born 1961) has a Master’s Degree in Industrial Engineering from Aalborg University, Denmark. He has been Isavia’s Managing Director since its founding in 2010. Björn Óli Hauksson, CEO

SUB-COMMITTEES

Three sub-committees operate under the Board of Directors:

REMUNERATION COMMITTEE The Remuneration Committee is made up of the Chair and Vice-Chair of the Isavia Board of Directors. The main tasks of the Remuneration Committee are to prepare an annual draft remuneration policy to be submitted to the company’s Annual General Meeting, draft proposals for the Annual General Meeting on the remuneration of Board members and draft proposals for the Board on benchmarks for salaries and other remuneration for the Managing Director and for Directors of subsidiaries. The committee monitors implementation of the remuneration policy and compliance of salaries and remuneration with laws, regulations and best practices.

AUDIT COMMITTEE

The Audit Committee is made up of at least three members, at least one of whom must be independent of the company and its employees. Board member Nanna Margrét Gunnlaugsdóttir sits on the Audit Committee. The main tasks of the Audit Committee are evaluating internal audits; monitoring the execution of audits; preparing proposals for the selection of an external auditor in consultation with the Icelandic National Audit Office (INAO) according to Article 7 of Act No. 46/2016 on the Auditor General and the Auditing of Government Accounts; assessing the independence of the auditor; assessing the assessment of the effectiveness of risk policy, risk willingness and risk management; and ensuring compliance with existing laws and regulations. The Audit Committee is to monitor working processes in the preparation of financial statements to increase the trust in and safety of financial information.

EXECUTIVE COMMITTEE

The Executive Committee is made up of three members – one from the Board of Directors and two independent members. The Chair of the Isavia Board of Directors sits on the committee on behalf of the Board of Directors.

The Executive Committee has the task of discussing, analysing and giving the Board of Directors its opinion on all planned investment on the basis of the Keﬂavík Airport Development Plan involving amounts greater than ISK 200 million. The objective of the committee’s work is to ensure than the company’s funds are used responsibly and professionally as regards new projects.

COMMUNICATION ARRANGEMENTS BETWEEN SHAREHOLDERS AND THE BOARD

One shareholder, the Icelandic state, holds all shares, and the Minister for Finance and Economic Affairs has all shareholder rights. Notices of shareholder meetings are sent to a contact at the Ministry of Finance and Economic Affairs. Shareholders’ meetings are the main forum for providing information to the shareholder, who holds the supreme authority of the company. The Chair of the Board and the Managing Director met the minister or a representative from the ministry on various occasions last year. The Board conducts itself in accordance with the ‘General policy on state ownership of limited liability and partnership companies’. The company releases press releases on the company’s performance and other matters pertaining to its operations.

2019 CORPORATE GOVERNANCE STATEMENT

The 2019 Corporate Governance Statement was Rules of procedure for the approved at the Board meeting of 7 March 2019. Board of Directors of Isavia

CODE OF ETHICS

Isavia’s Code of Ethics applies to all employees and management of the company and is an integral Code of conduct part of all employment contracts. The Code of Rules of Ethics is available to all employees on the intranet procedure for the of the company and on the Isavia Board of Directors of website: www.isavia.is/um-isavia. In addition, Isavia there is a separate section on disqualiﬁcation in the Board’s Rules of Procedure. These Rules of Procedure are available on the Isavia website: http://www.isavia.is/um-isavia/stjorn/. EXECUTIVE BOARD

THE DIRECTORS OF THE OPERATIONS AND SUPPORT UNITS FORM THE EXECUTIVE BOARD TOGETHER WITH THE MANAGING DIRECTOR.

The Executive Board debates and discusses matters of policy formulation for the company’s operations as a whole. It examines issues cutting across ﬁelds and departments. The Executive Board also takes a leading role in safety and quality management in the company, is chieﬂy responsible for providing resources for the development and implementation of a safety and quality management system, has an overview of the running and effectiveness of the system and assesses achievement in respect of given objectives.

Five operating divisions are responsible for the core operations of the company: Air Navigation Services, Airport Operations Division, Keflavík Airport Operations, Keflavík Airport Technological and Property Division and Keflavík Airport Commercial Operations. There are three support divisions: Development and Administration, Human Resources and Performance and Finance. In addition, Standards and Quality form a separate support unit. The Directors of the operations and support units form the Executive Board together with the Managing Director.

EXECUTIVE BOARD OF ISAVIA

MANAGING DIRECTOR OF ISAVIA

Björn Óli Hauksson, born 1961, he has a Master's degree in Business Administration from the University of Aalborg in Denmark. He has been Managing Director of Isavia since the beginning of the company's operations in 2010.

DEVELOPMENT AND ADMINISTRATION / DEPUTY MANAGING DIRECTOR

Development and administration is a support division for the CEO and Board of directors. Employees are responsible for marketing and information matters, business development, project management, strategic planning, legal issues, Keﬂavík airport's organizational issues, management of corporate governance and coordination of airports and aviation security. Managing Director is Elin Árnadóttir born in 1971, a business economist. Deputy managing director at Isavia from 2010, Managing Director of Development and Administrationt from 2013..

AIR NAVIGATION SERVICES DIVISION The Air navigation services division handles air navigation on domestic and international ﬂights across Iceland and a large area across Greenland and the North Atlantic. Managing Director is Ásgeir Pálsson, born 1951, an air traﬃc controller. Ásgeir has been a Managing Director at Isavia from 2010.

AIRPORT OPERATIONS DIVISION The airport operations division handles the operation and maintenance of all airports in Iceland outside Keﬂavik Airport. The Managing Director is Sigrún Björk Jakobsdóttir, born 1966, has a hotel operation management degree. Sigrún has been a Managing Director from 2018.

OPERATIONS DIVISION OF KEFLAVIK AIRPORT The Operations division of Keflavik Airport handles aviation security, airport services, passenger services, equipment services and tower services at Keflavik Airport, as well as passenger services and PRM services. Managing Director is Þröstur V. Söring, born 1968, a technologist. He has been Managing Director at Isavia from 2014, and at the Keflavik Airport Operations Department from 2016. AIRPORT TECHNOLOGY AND PROPERTY DIVISION OF KEFLAVIK AIRPORT

The Airport technology and property division oversees major practical projects, environmental issues, maintenance and operation of real estate and luggage systems at Keﬂavik Airport. Managing Director is Guðmundur Daði Rúnarsson, born 1979, Business Engineer. Guðmundur has been a Managing Director from 2016.

COMMERCIAL OPERATIONS DIVISION AT KEFLAVIK AIRPORT

The commercial operations divison handles the operation of retail and food and beverage area and handles all contracting with operators at Keﬂavik Airport, as well as operating parking space services and developing new routes. Managing Director is Hlynur Sigurðsson, born 1974, Business Engineer and a. Managing Director at Isavia from 2010, and in the Keﬂavik Airport business area from 2016.

MANNAUÐUR OG ÁRANGUR

Human resources and performance is a support division for human resources, recruitment, training and education, payroll and wage agreements, internal communications, policy implementation and performance measurement. The Managing Director is Sigurður Ólafsson, born 1962, Business Economist. Managing Director from 2013.

FINANCE DIVISION Finance division is responsible for accounting, ﬁnancial management, risk management, economy, ﬁnancing and control of procurement. Directing Manager is Sveinbjörn Indriðason, born 1972, an economist. He has been Managing Director from 2013.

STANDARDS AND QUALITY

The Standards and Quality is a support department for the organization and coordination of safety and quality issues, as well as the management of environmental issues. The safety and quality manager is Helga Eyjólfsdóttir, born in 1964, a chemical engineer. She has been Standard and Quality Manager from 2010.. DÓTTURFÉLÖG

DUTYFREE ICELAND

Duty Free Iceland operates ﬁve stores at the Leifur Eiríksson Air Terminal, four for departing passengers and one for arrivals. The shops are open in connection with scheduled ﬂights. Duty Free Iceland emphasizes on diverse selection of domestic and international brands at favorable prices. The permanent employees are about 210 but during the summer 310. The Managing Director of Duty Free Iceland is Þorgerður Þráinsdóttir.

TERN SYSTEMS

Tern Systems develops and manufactures air navigation service software used in the operation of air traﬃc control centers, air control towers and air traﬃc controller training. Systems from Tern are used in Iceland, Ireland, Spain and Indonesia, along with South Korea and Morocco. Employees are around 50 in the company's headquarters in Iceland. The Managing Director of Tern Systems is Magnús Þórðarson.

DOMAVIA

Domavia houses part of Isavia's real estate. Sveinbjörn Indriðason, Managing Director of Finance of Isavia, is responsible for the company.

SULUK APS

Suluk is a Greenlandic private limited company owned by Isavia. The company handles air navigation services in Greenland. Sveinbjörn Indriðason, Managing Director of Finance of Isavia, is responsible for the company. OBJECTIVES AND IMPROVEMENTS

ISAVIA HAS SET ITSELF EIGHT OBJECTIVES RELATING TO SOCIAL RESPONSIBILITY FOR 2019. OBJECTIVES AND RELATED IMPROVEMENT PROJECTS WERE SELECTED WITH REFERENCE TO THE OPERATION AND STRATEGY OF THE COMPANY, COMMENTS FROM EXTERNAL STAKEHOLDERS AND THE UN GLOBAL GOALS AND RELATED GOVERNMENT PRIORITIES. ISAVIA’S MATERIALITY TOPICS

Isavia’s CSR Report is drafted in accordance with GRI (Global Reporting Initiative) Standards (Core). Those aspects which it is important for the company to cover in its CSR Report are expected to be highlighted there. Consideration is given to the company’s operations and to their impact on the economy, the environment and the community. It was decided to obtain the views of company stakeholders when making this assessment. The company hired a Swedish consultancy company to interview a sample of stakeholders from the five stakeholder groups identified by Isavia, i.e. customers, staff, authorities, suppliers and communities surrounding the company’s airports. Ten interviews with sample stakeholders were conducted in autumn 2018, dealing with topics which stakeholders deemed to be of particular importance for their co-operation with the company, their expectations of the company and their assessment of co-operation with Isavia. The findings were presented to the company’s Executive Management and discussed with a view to selecting objectives in this field for 2019. A team of staff representatives from all parts of the company submitted proposals for marketing initiatives based on the operation of their divisions. Isavia experts analysed the findings in accordance with the company’s policy-making priorities and identified the most important aspects from that perspective. The focus was on aspects deemed important as regards the content of the report and as regards selecting objectives and improvement projects for 2019. Proposed objectives were submitted to the Managing Director and Executive Management for their approval and presented to the Board of Directors.

OBJECTIVES FOR 2019 AND ACHIEVEMENTS IN 2018

ISAVIA EMPHASIS Isavia has set itself eight objectives relating to AND OBJECTIVES social responsibility for 2019. Objectives and More detailed related improvement projects were selected with information on the reference to the nature and policies of the goals and their company, comments from external stakeholders connection to Isavia's policy, the global and the UN Global Goals and related government goals, GRI, the UN priorities. Account was also taken of improvement Global Compact and opportunities linked to GRI aspects and to the the incentive project company’s commitments to the main rules of the UN Global Compact and to the ‘Responsible on responsible Tourism’ incentive programme run by Festa (Centre tourism. for Corporate Social Responsibility) and Iceland Table - Tourism. Air Transport Action Group (ATAG), an Objectives and results organisation within the aviation sector which aims to support sustainable growth, links the UN Global Goals to ideas for improvement projects for companies engaged in aviation-related activities. The company also looked at priority aspects in their work. The objectives for 2019 are linked to seven of the seventeen UN Global Goals.

GLOBAL GOAL 3: GOOD HEALTH AND WELL-BEING

The company set itself the objective in 2018 of reducing staff accidents which lead to absence. This objective is indirectly linked to Global Goal 3 and specifically to Target 3.6, which aims to ‘halve the number of global deaths and injuries from road traffic accidents’ by 2020. The Air Transport Action Group (ATAG) report links this Global Goal to ongoing training in safety awareness in aviation, and Isavia uses this as its reference. The number of accidents leading to absence rose from seven to eleven over the year. Six of these accidents were due to working facilities, while the other five were caused by other reasons. We will continue to pursue this objective in 2019.

GLOBAL GOAL 5: GENDER EQUALITY

Isavia set itself the objectives of equal pay for equal work and of increasing the number of women in third-level management positions, i.e. middle management. This action related to Global Goal 5.1, which aims to ‘end all forms of discrimination against all women and girls everywhere’, and Global Goal 5.5, which aims to ‘ensure women’s full and effective participation and equal opportunities for leadership at all levels of decision making in political, economic and public life’. Efforts were focused on Indicator 5.5.2, which measures the proportion of women in managerial positions.

Isavia achieved accredited certiﬁcation under equal pay standard ÍST 85:2012 in 2018 and met its goals of eliminating unexplained general pay discrepancies. Owing to changes to the weighting of certain jobs, the share of women in third-level management positions rose from 14% to 16%. It was decided to recast the objective and make it longer term.

A new objective was added under this Global Goal to train staff who are in direct contact with passengers to recognise human traﬃcking. GLOBAL GOAL 8: DECENT WORK AND ECONOMIC GROWTH

Isavia uses risk management to a high degree in relation to company issues requiring an operating licence. This year, the company has set itself the objective of taking a comprehensive approach to risk management to ensure that it covers social responsibility up to 2024. The plan is to cover the current situation and draft an adoption plan for 2019. This objective is linked to Global Goal 8. GLOBAL GOAL 12: RESPONSIBLE CONSUMPTION

Isavia set itself the objective in 2018 of increasing the share of sorted waste in its operations. This linked up to Global Goal 12 on responsible consumption and particularly Target 12.6, which aims to ‘substantially reduce waste generation through prevention, reduction, recycling and reuse’ by 2030. An objective was set to increase the share of recyclable waste by at least 5% per passenger year-on-year, and this objective was achieved. For 2019, it was decided to include Target 12.1 in efforts to address Global Goal 12.

The company also set itself the objective of making its purchasing more transparent, more traceable and more accessible and, in this connection, adopting the Code of Ethics for suppliers which was approved by the Managing Director last year. The Code of Ethics is established in accordance with the ten main aspects of the UN Global Compact and covers labour issues, human rights, environmental issues and actions against corruption. This links up to Target 12.6, which aims to ‘encourage companies [...] to adopt sustainable practices’, and Target 12.7, which aims to ‘promote public procurement practices that are sustainable, in accordance with national policies and priorities’. These objectives were achieved, and a new objective in this ﬁeld has been set for 2019, i.e. to promote effective monitoring of Isavia’s purchasing activities.

GLOBAL GOAL 13: CLIMATE ACTION

Isavia set itself the objective of reducing the amount of fossil fuels used per passenger using the company’s airports. This links up to Target 13.2 under Global Goal 13, which aims to ‘integrate climate change measures into national policies, strategies and planning’. Isavia also participates in the Airport Carbon Accreditation (ACA) system, run by Airports Council International. This system provides airports with a common framework to take targeted action to reduce the carbon footprint of their actions. The ultimate goal is carbon neutrality. Keﬂavík Airport has taken part in the project for three years. The objective has been set to reduce carbon emissions by 2030, and work on a detailed plan to achieve this objective is ongoing. A reduction of 1.5% in the use of fossil fuels was achieved in 2018 – this was below expectations. We will continue to pursue this objective in 2019, and it will become a long-term objective.

GLOBAL GOAL 17: PARTNERSHIPS FOR THE GOALS AND GLOBAL GOAL 11: SUSTAINABLE CITIES AND COMMUNITIES

Since it was founded, Isavia has endeavoured to attract airlines and passengers to Iceland. There have been calls for closer co-operation in this regard with stakeholders located nearby Iceland’s airports.

Partnership-related action focuses on further strengthening co-operation with the company’s external stakeholders by means of effective and co-ordinated communication. This links up to Target 17.17, under which the company aims to ‘encourage and promote effective public, public- private and civil society partnerships’. This objective was partially achieved in 2018 and efforts will continue in 2019. These efforts include a plan for Isavia to set up a co-operation forum with the municipalities of Suðurnes, in which they can all get involved and work actively together with Isavia on important issues relating to both the airport and the nearby community. These policy-making activities will be linked to the Global Goals.

Extra focus on Global Goal 11 has been added for 2019. This is linked to the work planned for 2019. THE YEAR IN BRIEF

NINE-MILLIONTH PASSENGER AT KEFLAVÍK AIRPORT

Isavia welcomed Keﬂavík Airport’s nine- millionth passenger in November – a passenger arriving in Iceland from Pittsburgh, USA, on a WOW air ﬂight. The lucky passengers were Olive Ho from Hong Kong and Chun Liang Li from Taiwan. They were presented with gift vouchers from the Blue Lagoon and the restaurant Hjá Halla.

HISTORY OF AIRPORTS AND AIR NAVIGATION SERVICES IN ICELAND PUBLISHED

Isavia has published a history of airports and air navigation services in Iceland. The book is intended to mark seventy years of airports and navigation services in Iceland and the 70th anniversary of Iceland’s assuming control of the Allies’ military airports in Reykjavík and Keﬂavík and beginning the operation of air navigation services. The book is just under 550 pages long and is dedicated to all staff of Isavia and its predecessors, together with others who have generously supported the development and operation of such important services, which played a key role in putting an end to isolation within Iceland.

ISAVIA STAFF COLLECT OVER ISK 1 MILLION FOR CHARITY

42 members of Isavia staff took part in the Reykjavík Marathon and collected over ISK 1 million for charity. Isavia pledged to add an extra 50% to the amount collected by the employees who took part in the marathon.

ISAVIA DELIVERS GROUP ACCIDENT TRAILERS TO ICE-SAR

In June, Isavia delivered nine equipment trailers for group accidents to ICE-SAR. These were distributed to areas most vulnerable to group accidents and for which response times are the longest owing to their location. These equipment trailers contain such things as stretchers, tents, woollen blankets, generators and heaters. This equipment is meant to enable rescue teams to provide shelter and care at the scene of accidents off the beaten track and places far away from healthcare and other rescue services.

KEFLAVÍK AIRPORT SOUTH BUILDING INAUGURATED

In March, the South Building of Keﬂavík Airport was inaugurated. The new building increases the area of the airport by 7,000 m2, including changes to and expansion of the border hall. Twelve new automatic border stations were also brought online. 33 GRANTS FROM ISAVIA’S COMMUNITY FUND

Isavia assigned 33 grants from its Community Fund for a diverse range of projects over the year. The aim of the Fund is to support projects with a broad social dimension and a positive impact on Icelandic society. The selection of beneﬁciaries focused on environmental issues, humanitarian issues, preventative measures, aviation matters, arts, culture and education. Among the projects selected were: Iceland Family Aid, the Birta National Bereavement Association, Keilir Academy, the Reykjavík Queer Choir and Sandgerðisbær.

QUICKER AND EASIER FLIGHT INFORMATION ON THE NEW ISAVIA WEBSITE Isavia’s new website went online in June. The aim of the new website is to improve services and connections with the tourism industry and to provide interactive information on flights and other airport services. Passengers can now find real-time information on their flight on the social media of their choice, via the medium of artificial intelligence.

USING ALIPAY TO PAY AT KEFLAVIK AIRPORT

Keﬂavík Airport became the ﬁrst service provider in Iceland to adopt Alipay via ePass. Alipay is a part of the Alibaba Group, the largest online store in the world, and one of the most popular mobile phone payment solutions in the world, with more than 870 million active users. Alipay handles more than 70% of Chinese payments through mobile phones. INFORMATION MEETING ON STARTUP TOURISM

In November, a well-attended information meeting was held in Reykjanesbær to discuss the Startup Tourism business accelerator. Isavia has been a proud sponsor of Startup Tourism from the very beginning, and those who have an interest were encouraged to attend an information meeting in Reykjanesbær. The meeting discussed various ideas in connection with the business accelerator. Ten companies were selected. They will receive guidance and training over a ten-week period and be given oﬃce facilities in the premises of Iceland Tourism. The participants will receive consultancy from experienced innovators, investors and key players in the tourism industry to help them speed up development of their business ideas and get them launched. SUCCESSFUL ISAVIA SAFETY WEEK

Isavia’s Safety Week was held on 1–5 October. Attendance exceeded expectations – it is evident that Isavia staff take safety issues very seriously and are keen to get more information. The event featured a great many lectures and information meetings on safety issues at Isavia. Staff were also invited to visit airport services and ﬂight towers at Keﬂavík Airport, Reykjavík Airport and Akureyri Airport. The Safety Week was held in accordance with the focus Isavia places on safety issues and the importance it attaches to all staff fully participating in ensuring safety in the workplace. The company’s values are safety, co-operation and service.

INTERNATIONAL CERTIFICATION FOR ICELAND RADIO’S ENVIRONMENTAL MANAGEMENT SYSTEM Isavia’s Iceland Radio received ISO14001 certiﬁcation from the British Standards Institution. This certiﬁes that the workplace has in place an active environmental management system compliant with the ISO14001 standard.

TOLLI ART EXHIBITION AT EGILSSTAÐIR AIRPORT

In September, an exhibition of 23 new oil paintings by Icelandic artist Tolli was opened at Egilsstaðir Airport. The exhibition was organised by the airport operator, Isavia. This is the ﬁrst of several exhibitions of Tolli’s work, with others planned for most airports in Iceland over the coming months. VISITORS PLEDGE RESPONSIBLE TOURISM

The Icelandic Pledge button was set up at Keflavík Airport under co-operation between Isavia and Promote Iceland. The button is intended to have a positive influence on how tourists behave and how they experience their journey in Iceland. Almost all overseas visitors arrive in Iceland through Keflavík Airport, and they can pledge to be responsible tourists in Iceland as soon as they land.

The Icelandic Pledge covers eight elements promoting responsible tourism, including: respecting nature, leaving nature in the same state in which you ﬁnd it, avoiding off-road driving, avoiding getting into dangerous situations when taking photographs, camping in appropriate camping areas and being well prepared for your journey around Iceland. The project falls under the Inspired by Iceland initiative, and passengers are invited to press the button when they arrive in Iceland. IN HARMONY WITH SOCIETY

Isavia is responsible for the operation and maintenance of the infrastructure that is the basis for aviation services in Iceland, connections to the wider world and flights between three continents over a large area. Iceland’s airports constitute important public-transport infrastructure. Of these airports, Keflavík Airport is the largest entry point into Iceland and is especially important for the transport of passengers and goods by air in and out of the country. Isavia’s operations are of considerable national interest, and its staff make every effort to conduct their work in a safe and efficient manner in harmony with the community.

Isavia follows a policy of social responsibility, with priorities in accordance with the company’s overall policy. The company is working on and participating projects linked to this policy in various ways. The common thread running through these projects is that they support us in being part of a pleasant journey for passengers, customers and other stakeholders.

ISAVIA’S OPERATIONS ARE OF “CONSIDERABLE NATIONAL INTEREST, AND ITS STAFF MAKE EVERY EFFORT TO CONDUCT THEIR WORK IN A SAFE AND EFFICIENT MANNER IN HARMONY WITH THE COMMUNITY.„ „

SOCIAL RESPONSIBILITY POLICY

The company’s social responsibility policy is based CORPORATE on expectations of corporate social responsibility SOCIAL RESPONSIBILITY as stated in the general state ownership policy, the POLICY

Annual Accounts Act, and the Public Procurement Isavia promotes Act, to name but a few. equilibrium between the economy, environment and

society with sustainability as a guiding light.

Our Policy

UNITED NATIONS GLOBAL COMPACT

Isavia is a party to the UN Global Compact. By virtue of its participation, Isavia undertakes to ensure that its polices and work practices are in accordance with the ten basic rules of the United Nations on human rights, work issues, environmental issues and actions against corruption. Isavia also undertakes to participate in projects supporting the UN’s Sustainable Development Goals and to publish information on the company’s social responsibility in accordance with the criteria of the UN Global Compact and the GRI. UN WOMEN EQUALITY CONVENTION

Isavia has signed the UN Women Equality Convention, an international initiative spearheaded by UN Women and the UN Global Compact. As a signatory, Isavia undertakes to address equality issues with the company, demonstrate social responsibility and take the initiative in the ﬁeld. The agreement contains seven criteria to guide the efforts of companies and institutions to foster equality and increase their participation of women in business. Signing this Convention is the natural continuation of other efforts made by the company under the banner of social responsibility and dovetails with the company’s objectives on gender equality.

UNITED NATIONS GLOBAL GOALS

Isavia has set itself a policy-making objective linked to the United

Nations’ Sustainable MORE INFORMATION Development Goals.

Special emphasis has See more information on been placed on Global Isavia's objectives and Goals 3 (Good health improvements and well-being), 5 (Gender equality), 12 (Responsible consumption and production), 13 (Climate action) and 17 (Partnerships for the goals). Isavia intends to prioritise these goals in 2019 as well as focus on Global Goals 8 (Decent work and economic growth) and 11 (Sustainable cities and communities).

GRI - GLOBAL REPORTING INITIATIVE This is the third time Isavia is issuing an Annual and CSR Report, but this is the ﬁrst year the report has been issued in accordance with GRI standards (Core criteria plus GRI- G4 special provisions on airports). These special provisions deal speciﬁcally with the challenges and opportunities faced by airports when it comes to sustainability. The aim of issuing this report is to provide a more in-depth view of the company’s activities and its effects on society at large. The information in the report is based on operations in 2018.

FESTA - ICELANDIC CENTRE FOR CORPORATE SOCIAL RESPONSIBILITY

Isavia is an active member of Festa, the Icelandic Centre for Corporate Social Responsibility (CSR). The aim of Festa is to raise awareness of CSR in Icelandic companies and in the community and encourage research in this ﬁeld. RESPONSIBLE TOURISM

Responsible tourism is a motivational project with the aim of Icelandic tourism companies agreeing on some clear and simple actions concerning responsible tourism. The purpose of the project is to promote Iceland as a desirable tourist destination going forward, which supports sustainability for future generations of the country. ICELAND TOURISM

The establishment of Iceland Tourism was a milestone of innovation in the Icelandic tourism industry. Iceland Tourism is an interdisciplinary co- operation initiative which systematically supports and promotes the industry. It is a real addition to the tourism-related activities conducted elsewhere (e.g. by the Travel Industry Association, the Icelandic Tourist Board and Promote Iceland, to name but a few) and does not replace them. Iceland Tourism promotes greater co-operation with these and other partners throughout Iceland.

STARTUP TOURISM

Isavia is one of the sponsors of the Startup Tourism business accelerator, which gives startup companies in the tourism sector a chance to bring their business ideas to fruition. Ten companies are selected for participation and their representatives are given a ten-week training course by various experts to further develop their business ideas.

DRILLS ARE AN IMPORTANT SOCIAL ASPECT, TESTING AND TRAINING THE COMMUNITY’S LEVEL OF DISASTER RESILIENCE. CIVIL PROTECTION AND ACCIDENT RESPONSE

Isavia is a member of the Civil Protection Control Centre and plays a key role in response plans for search and rescue in the Icelandic air traﬃc control area. Response drills at the airport are an important part of Isavia’s preparedness as well as civil protection measures and their development. As a rule, four air accident drills are held every year throughout Iceland. Participation is without fail good, with more than 1,000 people from all response units usually taking part in these drills. Since the company began holding regular drills at airports, the response plans of the Civil Protection unit for multi-party accidents have developed in line with the working procedures used in airport drills. The company’s drills have therefore become a consultation forum for response entities for the development of knowledge and procedures that have been codiﬁed in regulations and the Civil Protection Act.

In 2018, air accident drills were held at Vopnafjörður Airport, Bíldudalur Airport, Húsavík Airport and Egilsstaðir Airport. Some 550 people from all response units took part in these drills. Drills are an important social aspect, testing and training the community’s level of disaster resilience.

DRILLS ARE AN IMPORTANT SOCIAL“ ASPECT, TESTING AND TRAINING THE COMMUNITY’S LEVEL OF DISASTER RESILIENCE. „ „

ISAVIA´S COMMUNITY FUND

The Community Fund awarded numerous grants to various projects during the year. The grants focus on environmental issues, humanitarian issues, preventative measures, aviation matters, arts, culture and education. In addition, the company supports various other charities by providing space for collection boxes in airports. ISAVIA’S UNIVERSITY GRANTS

Grants have been allocated to students who are taking their master’s degrees and doctorates at Reykjavík University and the University of Iceland. There are many exciting area of research within the aviation and tourism sector, including in the ﬁelds of engineering, technology, computer science, law, tourism studies, business studies and economics. Further information on grants for university students is available from the oﬃces of the University of Iceland and Reykjavík University. ICELANDIC ASSOCIATION FOR SEARCH AND RESCUE (ICE-SAR) AND ICELANDIC RED CROSS

The Isavia and ICE-SAR Grant Fund has been active since 2012 and has, up to 2018, allocated close to ISK 70 million to search and rescue teams. At the beginning of 2018, a similar agreement was signed with the Red Cross. Isavia has now set up multi- party accident equipment throughout the country via our partners, which can be used when necessary, e.g. in the event of a coach accident or when it is necessary to house a large number of people in mass relief centres. In 2018, carts were delivered to ICE-SAR search and rescue teams and Red Cross divisions throughout Iceland. Co-operation between Isavia, the Red Cross and ICE-SAR has been successful, and the volunteers from these organisations are an important parts of the airports’ response systems. You can see a ﬁlm about Isavia and ICE-SAR’s multi-party accident projects here.

MAIN ORGANIZATIONS OF WHICH ISAVIA IS A MEMBER: Travel Industry Association

Confederation of Icelandic Employers

American-Icelandic Chamber of Commerce

French-Icelandic Chamber of Commerce

Danish-Icelandic Chamber of Commerce

Project Management Association of Iceland

Stjórnvísi

Airport Council International

Icelandic Bar Association Mannauður, Association of Human Resources Managers

ÍMARK – Marketing Association of Iceland

Association of Reykjanes Employers

Iceland Tourism

Iceland Ocean Cluster

Festa, Icelandic Centre for Corporate Social Responsibility

Iceland Chamber of Commerce

NAT-SPG, co-operative forum of States within the ICAO NAT Region

Borealis, co-operative forum for ﬂight navigation service providers in North-West Europe

Civil Air Navigation Services Organisation (CANSO) STAKEHOLDERS

Isavia focuses on extensive collaboration with those stakeholders who rely on the services of the company and who are affected by its operations. Operations have an impact throughout the country and on all its inhabitants. Isavia has analysed over a hundred stakeholders – these can be classiﬁed as customers, employees, the community, the authorities and suppliers.

Since 2017, Isavia has used the same list of stakeholders. The Executive Directors of all divisions have gathered information in consultation with their staff. Over a hundred stakeholders were classiﬁed in ﬁve main groups: customers, employees, the community, the authorities and suppliers. One of the company’s improvement projects currently under way is to review this list and draw up a stakeholder communication plan. This is to achieve the goal of ‘targeted and co-ordinated communication to external entities’.

In autumn 2018, Isavia hired the Swedish consultancy company Enact Sustainable Strategies to conduct interviews with the company’s stakeholders. The aim was to ﬁnd out what major stakeholders consider to be the most important issues and topics as regards the company’s social responsibility. The results of these interviews, as well as the advice of Isavia’s social team, were taken into account when the company set its objectives for 2019 and decided upon the approach to take for its CSR Report.

THE COMMUNITY

There are extensive communications with local authorities and regional associations in the neighbourhood of the airport such as the Suðurnes municipalities, the City of Reykjavík, Akureyri, Ísafjörður, Fljótsdalshérað, Þórshöfn, Vopnafjörður, Húsavík and Vestmannaeyjar.

The company is working constantly to improve the way in which information is disseminated, as the activities of the company can have a considerable impact on local communities. This is particularly true of the Suðurnes area, as Keﬂavík Airport is the largest workplace in the area. Communications have been carried out at meetings with the town and municipal authorities, as well as other stakeholders. There is also close collaboration with the marketing agencies in North and East Iceland where, for example, work has been carried out on marketing efforts on direct ﬂights to Akureyri and Egilsstaðir in collaboration with the Icelandic Route Development Fund.

Isavia also collaborates extensively with entities in the tourism sector such as the Travel Industry Association (SAF), the Icelandic Tourist Board, Promote Iceland and the Tourism Task Force. In addition, the company is a member of Iceland Tourism and Iceland Naturally and a sponsor of Inspired by Iceland. Isavia is also an active member of the port and transport group of the Icelandic Ocean Cluster, a collaborative forum for companies, most of which are directly involved in transport and port operations.

ISAVIA HAS BEEN ONE OF THE “SPONSORS OF THE CONSULTATION VENUE ARCTIC CIRCLE FROM THE VERY BEGINNING, AND EMPLOYEES TAKE AN ACTIVE PART IN DISCUSSIONS ON THE ISSUES„ FACING THE NORDIC REGION.

Isavia has been one of the sponsors of the consultation venue Arctic Circle from the very beginning, and employees take an active part in discussions on the issues facing the Nordic region, whether in connection with air traﬃc in the Nordic area or in connection with ideas of developing a rescue services hub in Iceland.

In addition, Isavia regularly holds open meetings to provide information to the public and entities within the tourism sector as regards the company’s operations at Keﬂavík Airport, such as on construction and traﬃc forecasts within the travel industry. Isavia employees have also given talks at numerous open meetings that have been held by other entities.

In the field of flight navigation services, Isavia collaborates closely with service providers and adjacent flight control centres. The company participates in Borealis, a collaborative venue for nine flight navigation service providers in North Europe. THE AUTHORITIES

Communications with the authorities take many forms. The state is the owner of the company, and it follows the general owner policies of the state in its operations. The Ministry of Finance and Economic Affairs has overall control of the shares, and formal communications are carried out at shareholders’ meetings and the Annual General Meeting. Other communications with the owner take place during meetings which are convened as needed. The Ministry of Transport and Local Government plays a two-fold role in connection with operations of Isavia: 1) as the professional ministry for air traﬃc issues; and 2) as a business partner of the company as regards the running of the domestic airport system. The company has a seat on three committees and boards operated by the Ministry: the Professional Board for Aviation Issues, the Facilitation Board and the Transport Board (permanent representative). The company has regular professional communications with the Ministry on aviation issues and close collaboration as regards the implementation of the service agreement. The company has representatives in various Ministry committees dealing with aviation issues, including a seat on the committee responsible for formulation of Iceland’s aviation policy.

Isavia is also responsible for the implementation of two international agreements on flight navigation services. The ‘Joint Finance’ agreement applies to flight navigation services within the Icelandic flight information region (Reykjavík FIR) with 24 other states, and the International Civil Aviation Organisation (ICAO) is its monitoring body. The other agreement is with the Danish authorities for flight navigation services in part of the flight information region of Greenland.

Meetings are also held a few times a year with the Ministry of Industries and Innovation in connection with tourism issues. The Ministry has established a Flight Development Fund aimed at strengthening international flights to Akureyri and Egilsstaðir, and Isavia has a representative on the Board of the Fund. The company also has one representative in the Promote Iceland Board responsible for the ‘Inspired by Iceland’ and ‘Iceland Naturally’ marketing projects, which are intended to raise awareness of Iceland as a tourist destination. Meetings are also held with the Ministry of Foreign Affairs and the Icelandic Coast Guard in connection with defence-related operations at Keflavík Airport and the airport’s organisational issues. Isavia has a great deal of interaction with many public bodies, owing to the diversity of the company’s activities. The closest interaction is with the Icelandic Transport Authority, which issues operating permits for airports and flight controls and is responsible for the appropriate supervision of implementation and operations. Other monitoring bodies of note are the National Centre for Hygiene, Food Control and Environmental Protection, the Construction Authority, the Administration of Occupational Safety and Health, the Health Authorities, the National Planning Agency and the Environment Agency. Many public bodies have operating units within or in close collaboration with the company, such as the police, the Directorate of Customs, the National Civil Protection Authorities and the Coast Guard. The municipal bodies connected to the operation of Isavia are mainly the health authorities, fire protection and fire brigades.

Isavia is also monitored by and collaborates with foreign entities. The most important of these is the International Civil Aviation Organisation (ICAO), a sub-organisation of the United Nations which establishes international standards for all main aspects of civil aviation and monitors the performance of states and service providers. The ICAO also monitors the performance of the abovementioned ‘Joint Finance’ agreement. As regard the company’s operations in Greenland and the Faroe Islands, Isavia is monitored by the Traﬁk- og byggestyrelsen (Transport, Construction and Housing Authority) in Denmark, and as regards collaboration on ﬂight communications services in the North Atlantic, there is close communication with the Irish Aviation Authorities. In the arena of the Borealis collaboration, the company collaborates with the European Aviation Safety Agency (EASA).

SUPPLIERS CODE OF CONDUCT

Code of conduct for suppliers

Since Isavia is owned by the Icelandic state, the company is subject to the Act on Public Procurement. The company’s main purchases may be divided between operating purchases, service purchases and building construction. In 2017, changes were made to the legal environment and Isavia was able to make use of the provisions of Regulation No. 340/2017 on procurement by parties operating in the water, energy, transportation and postal service sectors. Isavia’s purchasing department operates across all of the company’s divisions. In early 2018, Isavia’s tendering website was introduced and an electronic tendering process was launched. The company also began to utilise new tendering methods, such as a negotiated process following a publication of tendering speciﬁcation. This method has yielded good results as regards price and quality. The purchasing department began introducing new purchasing processes, rules and systems in 2018, with particular focus on electronic communication with a view to maintaining and improving traceability in procurement.

ALL TENDER PROCEDURES AND“ MAJOR PRICE INQUIRIES REQUIRE BASIC ELIGIBILITY OF TENDERING COMPANIES, E.G. PARTIES WHO ARE IN DEFAULT OF WITHHOLDING TAX, PUBLIC LEVIES AND STATUTORY PENSION FUND DUES WILL BE DISQUALIFIED. THERE IS ALSO A CHAIN-OF- RESPONSIBILI All tender procedures and major price inquiries require basic eligibility of tendering„ companies, e.g. parties who are in default of withholding tax, public levies and statutory pension fund dues will be disqualiﬁed. There is also a chain-of- responsibility clause in all purchasing documentation.

Contracts also contain clauses prohibiting pseudo- contracting, and an employment relationship between parties is the governing principle in relations between the employees and the contractor. This is to ensure that all employee charges, of any denomination, are paid and that the provisions of collective wage agreements are complied with.

All Isavia contracts contain provisions on data protection which comply with new provisions laid down in EU data protection legislation, where appropriate. Finally, all of our contracts are accompanied by a copy of the Code of Conduct for Suppliers. The Code requires suppliers used by the company to adhere to the rules it contains and to ensure that their own suppliers do likewise. Upon request, suppliers must be able to demonstrate that these rules are being followed. The Code of Ethics for Suppliers is available on the Isavia website.

The proportion of Icelandic suppliers is 86%, and that of overseas suppliers is 14%, although there are no records detailing which of these are based outside the European Economic Area. CUSTOMERS

The company’s main customers are aircraft operators that use airports and flight navigation areas; operators at the airports, such as flight services entities, shops, caterers, car rentals and coach service companies; and last but not least, passengers. Communication with users and operators happens first and foremost during regular meetings. Communications with passengers are the direct interactions of the company’s employees at airports and using all main communication formats: telephone, e-mail, websites and social media and regular customer surveys.

Communications with airlines that pass through Isavia airports take place during regular user committee meetings to which all users are invited, as well as during private meetings with each of them as needed. The airport user committees operate in accordance with the provisions of the Aviation Act and regulations. These consist of representatives from all airlines that use the airport regularly and their agents. The meetings are an opportunity for users to discuss their views before making important decisions on operations, quality of service, fee collection, new construction, tower services or other issues that have an impact on their important interests. The Keﬂavík Airport User Committee meets as often as necessary but never less than once a year. As a rule, the Domestic Airports User Committee meets once a year.

Consultation meetings are held once a year with the users of the flight navigation services as regards operations and investments. Consultation meetings with users of other aspects of flight navigation services also take place under the auspices of the ICAO Planning Group (NAT-SPG) for the North Atlantic. Regular meetings are held with users, and there is communication with individual users or representatives of user groups if considered necessary. Isavia’s partner, the Icelandic Meteorological Office, has a role to play in such user consultation as regards weather information and is the monitoring body for volcanic eruptions and other natural disasters.

THE COMPANY’S MAIN CUSTOMERS“ ARE AIRCRAFT OPERATORS THAT USE AIRPORTS AND FLIGHT NAVIGATION AREAS; OPERATORS AT THE AIRPORTS, SUCH AS FLIGHT SERVICES ENTITIES, SHOPS, CATERERS, CAR RENTALS AND COACH SERVICE COMPANIES; AND LAST BUT NOT LEAST, PASSENGERS. „

Communication with operators at Keﬂavík Airport happens during joint meetings or with each operator. Fixed group meetings are held with retail operators and caterers four times a year, performance meetings with each operator are held 3–4 times a year and store manager coffee meetings are held ten times a year. Larger user meetings for all stakeholders and service providers at and near the airport are, at present, held in public.

Communications with passengers are handled first and foremost with the help of various media where enquiries are received and responded to. Isavia regularly performs marketing and service surveys at its airports. Standardised service surveys have been carried out at Keflavík Airport for the past fourteen years. The survey in question is an international survey created by the Airports Council International (ACI) and measures passenger satisfaction at more than 250 airports worldwide and provides a good comparison. Data on 34 service aspects in the airport are collected throughout the year. The results are published on a quarterly basis, which allows for a swift response if anything is found that needs remedial action. Passenger satisfaction is measured on a scale of 0–5. Keflavík Airport has generally improved its position in recent years. There have been, however, limited periods where the overall satisfaction has fallen, and these can usually be traced to disruptions due to renovations of the terminal. Other surveys are carried out as needed in addition to these regular surveys. INTERNATIONAL FLIGHTS AT DOMESTIC AIRPORTS In 2010, Isavia began work on raising awareness of the marketing activities of international airports other than Keflavík Airport. Previously, individual charter airlines had flown to international airports other than Keflavík Airport, but these had not been regular services. The aim of the project was to establish regular charter and scheduled flights at such airports as Akureyri Airport and Egilsstaðir Airport. We systematically attend travel trade fairs around the world to raise awareness of Iceland’s other international airports. AN IMPORTANT STEP WAS TAKEN“ LAST YEAR WHEN THE BRITISH TRAVEL AGENCY SUPER BREAK LAUNCHED FLIGHTS TO AKUREYRI WITH GROUPS„ OF TOURISTS FROM THE UK. Isavia and Akureyri Airport have worked together with the North Iceland Regional Marketing Office to promote North Iceland as a tourist destination. The Air 66N aviation cluster was set up in 2010 and is backed by the North Iceland Regional Marketing Office, municipalities and Isavia.

It was decided in 2016 to present Akureyri Airport and Egilsstaðir jointly at the Routes Europe travel conference as ‘Isavia Regional Airports’. In recent years, there has been growing interest in the regions and airlines have been increasingly turning their attention to North Iceland and East Iceland. An important step was taken last year when the British travel agency Super Break launched ﬂights to Akureyri with groups of tourists from the UK. Flights were operated for three months in early 2018 and then from New Year 2018/19 through to March.

In November 2018, it was announced that the Dutch travel agency Voigt Travel would launch ﬂights with groups from Rotterdam. Flights will be operated throughout summer 2019, and there are plans to operate more ﬂights during the following winter. HUMAN RESOURCES

Communication with and between employees happens first and foremost on the company's intranet, at staff meetings with the Managing Director and at events held by the company. The company’s intranet, Flugan, is designed as a social media service connecting employees. Everybody can make entries and upload pictures and videos HUMAN RESOURCE they wish to share with their colleagues. POLICY Employees can also retrieve various tools and The Human Resources equipment to use in their work and manage Policy of Isavia is based on and reflects registrations of events, training courses and the company’s main entertainment within the company. policy and its values. The staff association of Isavia and its subsidiaries, Human resource Staffið (the Staff), is responsible for a diverse and policy dynamic social life and organises numerous events for its members, such a family outing during the summer, a Christmas buffet, trips to the cinema and bowling. In addition, the association has negotiated discounts with various companies for its members. All employees are eligible for membership in Staffið. The company focuses on providing a good and family friendly working environment, effective education and training and positive morale.

The parent company Isavia employs a diverse group of staff at various workplaces across the country. At the end of 2018, there were 1,255 people in employment with the company, of which one-third were women. The average age of employees is 40.5 years, and the average length of service is 7.39 years. GENDER RATIO MANAGEMENT LEVEL

Male Female Total Average

Manag. Director and 7 3 10 52 years Deputy Manag. Dir.

Department 20 11 31 50 managers - step 2 years

Other managers - 26 5 36 50 step 3 years

Total 53 19 72 50 years

Staff turnover over the year was 15%. This rate varies across jobs and professional ﬁelds. The workforce is growing rapidly and 460 employees were recruited in the course of the year, of which some 300 were recruited for summer work.

NUMBER OF EMPLOYEES BY AGE GROUPS

Male Women Total

- 30 years 38 52 90

30 - 50 years 29 29 58

+ 50 years 19 11 30

Total 86 92 178

NUMBER OF RECENTLY HIRED EMPLOYEES BY AGE GROUPS

Male Women Total

- 30 years 179 167 346

30 - 50 years 41 85

+ 50 years 21 6 27 Total 244 214 458

VIDEO OF ISAVIA'S OPERATIONS

PARENTAL LEAVE A total of 91 employees took parental leave, of which 58% were male and 42% female. Everyone, except for three females, returned to work after maternity leave. Of the 69 who returned from maternity / paternity leave in 2017, 61 were still employed a year later. Five males and three females. EDUCATION AND CAREER DEVELOPMENT Educational courses, refresher courses and regular training are part and parcel of everyday working life. Organised training and learning takes place all year round. The company organises extensive and ambitious educational activities with the goal of developing the knowledge and skills of employees in accordance with the policies and values of the company. This educational work can be divided into two categories: specialised learning and general learning. 2018 saw a total of 94,009 hours of learning activities, corresponding to 72 hours per employee over the year. Some 90% of these learning hours involved basic training, refresher courses and vocational and professional training required by staff to retain the necessary certiﬁcation and skills for the jobs that they do, such as air navigation, airport security services and ground handling services. Staff in other Isavia departments and divisions also attend information meetings in Iceland and abroad to further their career development.

Employee interviews are a part of the career development of employees. Such interviews are intended to give the employee and his/her superior the opportunity to discuss tasks, possible problems and remedial actions. The employee interview is also an opportunity for the employee to inﬂuence their own working conditions, skills, career development and education.

NUMBER OF TRAINING HOURS BY GENDER AND FIELD OF WORK LABOUR MARKET Isavia operates in the general labour market and follows general collective wage agreements negotiated by the Confederation of Icelandic Employers with numerous unions on behalf of the company. Special collective wage agreements have been made with the following unions: Landssamband slökkviliðsmanna (LSS) (firefighters), Félag flugmálastarfsmanna ríkisins (FFR) (state-employed aeronautics employees), Stéttarfélag í almenningsþágu (SFR) (public servants) and Félag íslenskra flugumferðarstjóra (FÍF) (air traffic controllers). The company complies with laws and regulations on health and safety, human rights and child labour. The company does not employ persons under the age of eighteen, pays all public charges and does not employ persons to do undeclared work.

The notice of termination of employees is in accordance with the applicable collective wage agreement but varies according to length of service and age. The right to terminate employment is mutual, and all information is in writing.

SOCIAL ENVIRONMENT

The company’s Code of Ethics states that we should show respect for everybody’s work and that we do not discriminate against our colleagues or customers on the basis of gender, religion, beliefs, ethnic origin, race, colour, ﬁnancial situation, origin, disability, age or on any other grounds.

In 2018, seven reports of bullying or sexual and/or gender-based harassment were received. These reports were processed according to company procedure. A speciﬁc initiative was launched to raise awareness of Isavia’s social environment among staff. More than 600 members of staff attended the meeting at which this initiative was presented. The market-research company Maskína also conducted a workplace analysis focusing on the company’s psychosocial environment. The ﬁndings of this analysis were presented to employees at a series of meetings.

EQUAL RIGHTS Isavia’s equal rights programme aims to increase general work satisfaction and improve morale. The purpose of the programme is to ensure full equality between men and women in the workplace, with the goal of fully utilising staff abilities, energy and knowledge, free of gender-based discrimination.

The programme also tackles, among other things, the issue of equal pay, insisting that the utmost level of equality must be observed when setting wages. Employees shall enjoy equal pay and working conditions for the same or equally valuable work (IST 85), and the criteria used to determine pay shall not be gender discriminatory.

Isavia has for many years focused on the issue of equal pay and has won a gold medal in the PwC’s equal wage audit on three occasions.

EQUAL PAY CERTIFICA TION

Isavia has achieved equal pay certification, as endorsed by the Equal Opportunities Agency. The objective of adopting the equal pay system by means of an equal pay standard (IST 85:2012) is to maintain wage equality and fulfil the employer obligations laid down in Chapter III of Act No. 10/2008 on the Equal Position and Equal Rights of Women and Men. The company also undertakes to work on constant improvement in this field, monitor the relevant criteria and react to any deviations which may arise. HEALTH AND WORKING ENVIRONMENT We focus on raising employee awareness of the importance of having a healthy lifestyle and thus show that the company cares for both the health and safety of its employees. The company’s aim is to support the psychological and physical well- being of its staff, provide them with a good working environment and meet their psychological, social and physical needs in the workplace. The company gives its staff financial support to take physical exercise. Employees can contact the service desk of the Occupational Health Service and obtain advice on their own illness or that of family members. In addition, Occupational Health Service nurses hold regular consultations at the company’s largest operating units.

END OF EMPLOYMENT

End of employment is considered to occur at the end of the month in which the employee reaches the age of seventy. Members of the Icelandic Air Traﬃc Controller Association, however, retire at the age of 63. The company offers an end-of- employment training course for those nearing retirement age, and their spouses are also invited. The course covers useful information and deals with this important career milestone. Fourteen employees participated in such a course in 2018. OCCUPATIONAL SAFETY AND HEALTH

SAFETY Particular emphasis is placed on staff safety in the workplace. In the event of an accident, it must be speciﬁcally registered. Isavia’s health and safety representative is responsible for analysing the accident and proposing improvements to facilities or procedures to prevent such an accident from happening again. Accidents are recorded electronically, and particular efforts have been made to make staff aware of the concept of ‘near- miss accidents’, by means of a special button on the company’s intranet and special information posters displayed everywhere. The Safety Committee, made up of staff and company representatives, discuss all cases relating to the occupational health of Isavia staff.

The number of reports of work-related accidents has fallen year-on-year, and the company has placed great emphasis on the prevention of work- related accidents. There were 56 work-related accidents recorded last year, of which eleven led to staff absence. Special emphasis has been placed over the year on the value of safety, with the overall aim of raising awareness of safety issues among Isavia staff. A ‘safety week’ was held in October, featuring a diverse series of events to foster safety and raise FLIGHT SAFETY awareness of safety issues among staff. POLICY OF ISAVIA

Management and other staff members participated Isavia's main actively in Isavia working locations throughout the objective is to reduce country. Another event organised was the the risk of accidents, particularly popular FOD (Foreign Object Debris) incidents and other walk, in which participants walked around aprons events that could risk flight safety. and runways to ensure that there were no foreign objects in the area which could pose a significant Safety policy risk. There were also various lectures over the week at workplaces and on the Isavia intranet, on subjects such as runway safety and on defibrillator functions, to name but a few. Attendance at organised events was very good – unsurprising given the very great importance of safety in the work of Isavia staff. SAFETY, HEALTH AND OCCUPATIONAL HEALTH

Particular emphasis is placed on staff safety in the workplace. In the event of an accident, it must be speciﬁcally registered. Isavia’s health and safety representative is responsible for analysing the accident and proposing improvements to facilities or procedures to prevent such an accident from happening again. Accidents are recorded electronically, and particular efforts have been made to make staff aware of the concept of ‘near- miss accidents’, by means of a special button on the company’s intranet and special information posters displayed everywhere. The Safety Committee, made up of staff and company representatives, discuss all cases relating to the occupational health of Isavia staff.

Special emphasis has been placed over the year on the value of safety, with the overall aim of raising awareness of safety issues among Isavia staff. A ‘safety week’ was held in October, featuring a diverse series of events to foster safety and raise awareness of safety issues among staff. Management and other staff members participated actively in Isavia working locations throughout the country. Another event organised was the particularly popular FOD (Foreign Object Debris) walk, in which participants walked around aprons and runways to ensure that there were no foreign objects in the area which could pose a signiﬁcant risk. There were also various lectures over the week at workplaces and on the Isavia intranet, on subjects such as runway safety and on deﬁbrillator functions, to name but a few. Attendance at organised events was very good – unsurprising given the very great importance of safety in the work of Isavia staff.

SPECIAL EMPHASIS HAS BEEN “PLACED OVER THE YEAR ON THE VALUE OF SAFETY, WITH THE OVERALL AIM OF RAISING AWARENESS OF SAFETY ISSUES„ AMONG ISAVIA STAFF. ISO 45001

At the end of 2018, it was decided to adopt ISO45001 certiﬁcation for the operations of the Technical and Infrastructure Division and to complete adoption this year. This is a large-scale project which involves not only designing safety management system for the division but also increasing staff involvement in safety matters and raising safety awareness among Isavia staff.

DATA PROTECTION

Isavia began adopting new data-protection MORE legislation (which entered into force in summer INFORMATION 2018) back in 2017 and is now being fully Data protection implemented. An analysis was made of the changes at Isavia the new legislation would necessitate and the Information effect it would have on Isavia’s operations. security policy Personal data were mapped and processing ﬁles compiled to manage the handling of such information. An adoption plan was drawn up and a personal data representative appointed.

Staff have attended courses on data protection. A procedure has been established governing applications from individuals for personal data in Isavia’s possession. One such application has already been fully processed, and three more are in the system.

Data protection is expected to have been fully adopted by autumn 2019, and our data-protection management system should be ready to come online at that time. Isavia began adopting new data-protection legislation (which entered into force in summer 2018) back in 2017 and is now being fully implemented. An analysis was made of the changes the new legislation would necessitate and the effect it would have on Isavia’s operations. Personal data were mapped and processing ﬁles compiled to manage the handling of such information. An adoption plan was drawn up and a personal data representative appointed. Staff have attended courses on data protection. A procedure has been established governing applications from individuals for personal data in Isavia’s possession. One such application has already been fully processed, and three more are in the system.

Data protection is expected to have been fully adopted by autumn 2019, and our data-protection management system should be ready to come online at that time. ENVIRONMENTAL FACTORS

THE ENVIRONMENT

ENVIRONMENTAL POLICY Isavia strives to keep the negative environmental Isavia will strive to impact of its operations to a minimum. The minimize negative environmental impact company has made systematic efforts to make of its operations and improvements regarding environmental factors always consider while handling a signiﬁcant rise in its scope and environmental passenger numbers. matters in its decision making.

Work on environmental factors is based on Isavia’s Our policy Environmental Policy and on Isavia’s Environment and Climate Action Plan, which was approved in spring 2018. This plan set out various measures aimed at reducing the negative environmental impact of the company’s operations. It contains twelve objectives to be achieved over the period 2019–30. These objectives include renewal of the company’s car ﬂeet with eco-friendly vehicles, setting up charging stations, electriﬁcation of aircraft stands, increased sorting of waste and achieving carbon-neutral operations.

THESE OBJECTIVES INCLUDE RENEWAL“ OF THE COMPANY’S CAR FLEET WITH ECO-FRIENDLY VEHICLES, SETTING UP CHARGING STATIONS, ELECTRIFICATION OF AIRCRAFT STANDS, INCREASED SORTING OF WASTE AND ACHIEVING CARBON-NEUTRAL OPERATIONS.„

Efforts are in full swing at all Isavia’s operational units, but Iceland Radio in Gufunes has been especially active in tackling environmental issues. In 2018, Iceland Radio became the first Isavia workplace to achieve ISO14001 certification and complete five green steps. It has set itself ambitious goals for saving energy and prioritised waste management.

In the course of the last year, Isavia began working together with Klappir Green Solutions on a data gateway which makes it easier to monitor important environmental factors such as fuel consumption and waste.

There have been no major spillages, and no rulings have been passed where the company was considered to have violated environmental legislation. WATER

Isavia’s operating licence permits to the company to conduct a comprehensive analysis of the chemical state of the groundwater in the Keflavík Airport Zone. In the past, the US Army ran facilities in this area, and it is common knowledge that their operations led to a certain amount of pollution. Isavia is conscious of the importance of preserving the freshness and cleanliness of the groundwater in the surrounding area. The engineering firm Verkís exercises overall management of groundwater tests on the basis of a three-year monitoring plan. Groundwater samples from all boreholes display traces of chemical use in the airport zone. These findings suggest varying levels of pollution but not to any great extent. Work will continue on taking measurements and monitoring the quality of groundwater.

In recent years, Isavia has also improved wastewater drainage at international airports, which is commonly connected to municipal drainage systems.

Isavia obtains water from utilities at each site and has not reused or recycled water from airport areas.

ISAVIA IS CONSCIOUS OF THE IMPORTANCE“ OF PRESERVING THE FRESHNESS AND CLEANLINESS OF THE GROUNDWATER IN THE SURROUNDING AREA.„

USE OF CHEMICALS Isavia uses both natural and biodegradable chemicals at Iceland’s airports for the purposes of de-icing. De-icing substances are used at Keﬂavík Airport, while sand is used at domestic airports (except 4,000 litres of de-icing material at Akureyri Airport). Isavia uses Clearway F1 de-icing liquid and Clearway SF3 de-icing grains.

De-icing substances are either based on sodium formate or potassium formate and bear the Blue Angel ecolabel. They are biodegradable and have a low toxicity effect on water. They meet all mandatory environmental and ecological requirements.

QUANTITY OF DE-ICING SUBSTANCES IN AIRPORTS

GRI G4-A06 2016 2017 2018

Clearway SF3 de-icing 27 58 123 grains tonnes tonnes tonnes

Clearway F1 de-icing 54.300 79.959 216.000 liquid litres litres litres ECOSYSTEM

Isavia airport zones are as diverse as regards ecosystems as they are numerous. For years, Isavia has been closely monitoring fauna within airport zones and has analysed adjacent airport environments in terms of the presence of animals and birds. The appearance of wild animals varies greatly from airport to airport, as the respective areas differ in vegetation and food supply. An important part of airport operations involves taking measures to reduce the risk for air passengers and reduce the likelihood of collisions between animals and aircraft. This is done by applying a variety of deterrence methods, e.g. habitat management.

Isavia registers all possible collisions between birds and wild animals with aircraft at all its airports. Last year, seven conﬁrmed instances of aircraft birdstrike were registered at Keﬂavík Airport. At domestic airports, 28 aircraft birdstrikes were registered, of which sixteen occurred at Grímsey Airport and nine at Reykjavík Airport.

COLLISIONS BETWEEN ANIMALS AND AIRCRAFT

GRI G4-A09

Total no of ﬂight movements 193.070

No of birdstrikes 35

No of birdstrikes per 10,000 ﬂight movements 1,8 CLIMATE

ENERGY Isavia’s operations are in many respects energy intensive, and fuel consumption is the weightiest environmental factor in Isavia’s operations. The greatest share of this consumption is accounted for by the servicing and maintenance of the runways and operating areas of airports. Such services are signiﬁcantly dependent on the weather. This means that major ﬂuctuations can occur from year to year – regardless of passenger numbers – particularly if winter services using the most energy-intensive equipment are required for many days in the year. We closely monitor fuel consumption in our operations and have begun to make efforts to try and reduce it.

Isavia adopted an Environment and Climate Action Plan in the course of 2018. This plan set out various measures aimed at reducing the negative environmental impact of the company’s operations. These measures include a 70% target for eco- friendly vehicles of all new vehicles purchased, in those categories where such vehicles are available. It is hoped that this will lead to a drop in fuel consumption going forward. Isavia’s total fuel consumption rose from the previous year, but fuel consumption per passenger fell slightly by just over 1%. Isavia’s target for 2018 was to reduce fuel consumption per passenger by 4%, but this was not achieved.

FUEL CONSUMPTION BY LITRE

2015 2016 2017 2018

Benzine 45.665 47.131 40.769 39.964

Diesel 751.722 714.574 819.696 893.326

Aircraft fuel 62.468 77.520

Litres per 0,148 0,106 0,096 0,095 passenger

THESE MEASURES INCLUDE A 70%“ TARGET FOR ECO- FRIENDLY VEHICLES OF ALL NEW VEHICLES PURCHASED, IN THOSE CATEGORIES WHERE SUCH VEHICLES ARE AVAILABLE. IT IS HOPED THAT THIS WILL LEAD TO A DROP IN FUEL CONSUMPTION GOING FORWARD.„ „

Last year, electricity consumption at Isavia was 28,682,370 kWh – this is lower than in 2017. Electricity consumption is, however, expected to rise in the coming years as result of the expansion of Keﬂavík Airport and of further installation and greater use of energy-intensive infrastructure, e.g. grounding for aircraft and charging stations for cars and other vehicles. The amount of hot water used by Isavia was 901,089 cubic metres.

The company has begun work in reducing its need for energy from non-renewable energy sources such as fossil fuels – these efforts include purchasing new electric cars and sending employees with a commercial driver’s licence on eco-driving courses. Also noteworthy is Isavia’s Environment and Climate Action Plan, referred to above, which contains various measures aimed at reducing energy consumption, particularly fuel consumption. Isavia has also decided to put its electricity purchasing out to tender in 2019. The seller will be required to deliver exclusively renewable energy. GREENHOUSE-GAS EMISSIONS

Isavia’s direct greenhouse-gas emissions can be traced directly to fuel consumption. In 2018, the amount of direct greenhouse-gas emissions caused by burning fossil fuels was 2,694 t CO2e . The energy used by Isavia in its operation in the form of electricity or heat comes from district heating plants or hydropower plants. In both cases, the energy in question is from renewable sources which generate very low emissions of greenhouse gases. Indirect emissions due to heat and electricity, therefore, are very slight if account is taken of electricity production by other means. According to the National Energy Authority, the average emission level for energy generation is 11.8 g CO2e per kilowatt-hour. Indirect emissions through energy consumption in 2018 totalled 338 t CO2.

The landfilling of waste and staff travel can also be considered indirect sources of greenhouse gas emissions from the company’s operations. In 2018, 1,303 tonnes of unsorted waste were sent to landfill. Emissions from landfill waste disposal by Isavia in 2018 were 785 tonnes of CO2e.

Direct greenhouse-gas emissions from the burning of fossil fuels per passenger in 2018 totalled 0.254 kg, slightly less than in the previous year. There was a decrease in direct greenhouse-gas emissions per passenger from fuel consumption from 2017 to 2018. This is part of the measures taken by Isavia to reduce greenhouse-gas emissions. In 2015, the company set itself the objective of reducing greenhouse-gas emissions by 29% per passenger by 2030. Today, Isavia has reduced greenhouse-gas emissions from its operations by just under 40%. This target has therefore been revised and is now a reduction of 60% by 2030, as compared to 2015 levels. ISAVIA '5 CARBON FOOTPRINT lsavia has set itself a number of objectives of reducing greenhouse gas emissions in its operations and is thereby leading by example in being environmentally and socially respon sible. Keflavik airport participates in the Airport Carbon Accreditation system with the goal of carbon neutrality. A distinction is made between three sources of emissions (scopes): Firstly, direct emissions from lsavia 's own operations, secondly indirect emissions from purchased energy and thirdly emissions from third parties associated with lsavia 's operations.

SCOPE 1 SCOPE 2 SCOPE 3

AIR QUALITY

Isavia monitors nitrogen dioxide levels around Keflavík Airport by means of an air-quality meter located over Eyjabyggð. Real-time measurements can be found on the loftgaedi.is website. A new air- quality forecast for Keflavík Airport was made last year, using a base figure of 14.5 million passengers in 2025. The conclusion of this forecast was that sulphur dioxide, particulate matter and carbon monoxide concentrations are always below the reference limits. Probability calculations show that hourly values of nitrogen dioxide may exceed the regulatory reference limit, but the number of such incidences would be below the norm. The conclusion of the assessment is that air-quality criteria are met. THE CLIMATE ACTION PLEDGE

In 2015, the Managing Director of Isavia signed a pledge on climate action drafted by Reykjavík City and Festa, the Icelandic Centre for Corporate Social Responsibility. Following signature of this pledge, Isavia set itself the objective of reducing greenhouse-gas emissions, thus demonstrating initiative and responsibility towards the environment and society. In 2017, Isavia received the Incentive Award for Climate Action from the City of Reykjavík and Festa. Isavia is conscious of the responsibility it bears regarding climate issues and greenhouse-gas emission and is working in an active and organised way on measures to reduce its carbon footprint.

ISAVIA IS CONSCIOUS OF THE RESPONSIBILITY“ IT BEARS REGARDING CLIMATE ISSUES AND GREENHOUSE-GAS EMISSION AND IS WORKING IN AN ACTIVE AND ORGANISED WAY ON MEASURES TO REDUCE„ ITS CARBON FOOTPRINT. AIRPORT CARBON ACCREDITATION

Keflavik Airport is a participant in Airport Counsel International (ACI) Airport Carbon Accreditation (ACA) program, which aims to reduce airports’ carbon emissions. The program is developed by airports for airports. Four levels of certification are in the program: Mapping of the carbon footprint, carbon management towards a reduced carbon footprint, third party engagement in carbon footprint reduction and finally carbon neutrality for direct emissions by offsetting. Keflavik Airport has participated for the last three years in the program. Work on environmental issues is based on Isavia’s Environmental Policy and on Isavia’s Environment and Climate Action Plan. This plan set out various measures aimed at reducing the negative environmental impact of the company’s operations. It contains twelve objectives to be achieved over the period 2019–30. MORE INFORMATION

Airport Carbon Accrediation

BOREALIS ALLIANCE FREE ROUTE AIRPSPACE

MORE Isavia is a member of Borealis Alliance, an INFORMATION association of nine air navigation service Borealis Free providers in Northern Europe. Route Airspace

Work is ongoing on the Free Route Airspace project, aimed at shorter ﬂight times resulting in lower fuel consumption, lower costs and less pollution.

In Iceland, aircraft operators can now schedule and operate direct flights from Keflavík Airport to airports in Norway and Scotland, the nearest air traffic control areas to the south-east of Icelandic airspace. ACOUSTICS

Isavia has taken various measures to mitigate ACOUSTIC NOISE noise from flights at Keflavík Airport. One such MONITORS measure was to set up a noise-measuring system Acoustic noise to monitor which flights cause the most noise and monitors have been react accordingly. This was done in 2017. placed at several locations in and around the airport. Three fixed sound-level meters and one mobile Web track sound-level meter are located in the vicinity of system Keflavík Airport. These meters form a system enabling residents, stakeholders and Isavia to monitor flights and noise measurements and report nuisances caused by flight traffic movements. A link to the noise-measuring system can be found on the Isavia website. Last year, Isavia received 31 reports of noise and nuisance caused by air traffic. The vast majority of these reports occurred in July, August and September and were linked to: 1) military flights; and 2) runway milling, meaning it was impossible to use the runway pointing away from inhabited areas on several days of good weather.

The two pictures below show the comparison between flight routes 2017 and 2018. The pictures are drawn from heat maps and show well the change in air traffic over residential area at Reykjanes. Now considerable smaller part of the residential area is under direct air traffic.

IN SPRING 2018, NEW FLIGHT PROCEDURES“ FOR KEFLAVÍK AIRPORT WERE ADOPTED. THESE PROFILES WERE DESIGNED WITH THE AIM OF MINIMISING NOISE AND NUISANCE CAUSED BY FLIGHT TRAFFIC„ AT THE AIRPORT.

In 2017, Isavia hired the engineering firm Efla to produce a sound map for the airport. This map was released in early 2018 and shows calculated 24- hour noise levels around Keflavík Airport. At the end of 2018, work also began on a future noise abatement action plan. This work is in co-operation with Reykjanesbær and the Icelandic Road Administration and complies with Regulation No. 1000/2005 on noise and action plans.

In spring 2018, new flight procedures for Keflavík Airport were adopted. These procedures were designed among other things with the aim of minimising noise and nuisance caused by flight traffic at the airport.

When organising air traﬃc, Keﬂavík Airport strives to use those runways which cause the least nuisance for residents in the vicinity of the airport. Every effort is made to implement this, with due regard to safety and environmental factors, such as wind and runway conditions.

There were two reports of nuisances caused by ﬂight movements at domestic airports in 2018: one at Reykjavík Airport and one at Akureyri Airport. RECYCLING

At the end of 2017, Isavia set itself objectives for 2018 in connection with Responsible Tourism and the City of Reykjavík and Festa Climate Action Pledge. One of these targets was to increase the ratio of sorted waste by at least 5% per passenger. Great progress has been made in increasing waste sorting over the past year, particularly at Keﬂavík Airport, where sorting of organic waste from operators began at the end of the year. Isavia met its target for increasing the ratio of sorted waste. In 2017, the ratio of sorted waste per passenger was 20%. By 2018, this had risen to 27%.

PERCENTAGE OF RECYCLED WASTE PER PASSENGER PERCENTAGE OF RECYCLED WASTE PER PASSENGER GREEN STEPS

Isavia is a participant in the Green Steps project organised by the Environment Agency of Iceland. The aims of the project include making the company’s operations more environmentally friendly, increasing staff well-being, improving working conditions, reducing operating costs and adopting approved environmental priorities.

Iceland Radio in Gufunes last year became the first Isavia workplace to complete adoption of the fifth and final Green Step and receive ISO14001 certification from the British Standards Institution (BSI) for operating an active environmental management system. One of the ways in which Iceland Radio has gone the extra mile to reduce waste is keeping hens to eat generated organic waste which is not used for composting. “ ICELAND RADIO HAS GONE THE EXTRA MILE TO REDUCE WASTE BY KEEPING HENS TO EAT GENERATED ORGANIC WASTE WHICH IS NOT USED„ FOR COMPOSTING.

Keﬂavík Airport’s warehouse at Grænás receives furnishings and useable building materials from the renovations in Leifur Eiríksson Air Terminal and other airport buildings. Furnishings are reused if spare parts are needed or sent to other locations around the country. Part of the Green Steps initiative currently being adopted by Isavia is awareness of the possibilities of re-using of furnishings and other material within the company. DEVELOPMENT

KEFLAVÍK INTERNATIONAL AIRPORT

FURTHER READING The Leif Eiriksson Air Terminal was brought into Keflavik Airport use in April 1987. It was, at the time, around 20,000 Major Development m2. At present, it is approximately 73,000 m2, 3.5 Plan times larger than when opened. During the same period, the number of passengers passing through 3D Images of the planned changes the airport has increased thirteen-fold, rising from 750,000 the first year to 9.8m in 2018. This is far beyond what was stated in the basic passenger forecast of the development schedule for Keflavík Airport four years ago. The schedule assumed 8.8 million passengers in 2025 and 13.8m passengers in 2040. It is clear, therefore, that to meet international service standards properly, the airport will have to be enlarged, and the development schedule is prepared to meet this need. The schedule is based on an extensive needs analysis. The tasks of the schedule are divided between air terminal and the airport systems projects. The airport terminal projects are, according to the development schedule, four: 1. The continued broadening of the concourse between the north and south buildings, with new boarders and the enlargement of the catering area.

2. The north building enlarged to the east, with space for luggage screening.

3. New concourse with up to 17 aircraft gates with gangways together with gates that can be used for remote stands.

4. New service desks for arrivals and departures passengers in the new north building.

The airport systems projects are intended to increase the capacity and safety of the runway system and eliminate the bottlenecks that could form there. These projects include a de-icing apron, two new access taxiways, a fast-track taxiway and other connections between aprons and taxiways.

In 2018, design of the ﬁrst airport project began with the design of a new connecting building between the north and south buildings of the airport. Construction could begin as early as 2020. The project involves an approximately 30,000 m2 structure. In addition, preparations are underway for an invitation to tender for the project management of the design and construction of a new concourse.

OTHER AIRPORTS AND LANDING SITES.

There was little new construction at other airports during 2018, although work was carried out on maintenance projects at scheduled-ﬂight airports and landing sites throughout Iceland.

At Reykjavík Airport, several trees were felled in Öskjujhlíð, as they were beginning to disrupt approaches to the airport. In addition, maintenance work is being carried out on the buildings at the airport. The most pressing tasks relating to the surface of runways were also carried out.

Vestmannaeyjar Airport suffered damages to facilities and equipment due to lightning, which called for costly repairs.

At Akureyri Airport, work was carried out on the design and preparations for the installation of ILS approach equipment at the north end of the runway. At Egilsstaðir Airport, work was carried out on repairs to the roof of the airport building.

At Ísafjörður Airport, the weather equipment at Arnarnes was renewed.

Investments in equipment amounted to almost ISK 200m during the year. By far the largest investment can be attributed to that at Egilsstaðir Airport, where equipment was renewed for more than ISK 150m where a new combination machine and sand disperser were purchased. A new sand disperser was purchased for the airport at Akureyri. A surveillance vehicle was renewed at Reykjavík Airport. A new runway server was purchased for the airport in Ísafjörður.

AIR NAVIGATION SERVICES DIVISION

The Air Navigation Services Division began the year with projects relating to the renewal of flight data systems for the Air Traffic Control Centre. The new system will take over from the current one, which has been operating for some eighteen years and is approaching maximum capacity. Definitions have been completed, and an update schedule for the next seven years has been issued that assumes the first overflight use will be in 2024. The system, named Polaris, will be designed by Tern Systems, a subsidiary of Isavia, in co- operation with Isavia’s Air Navigation Division.

Renewals of facilities at the Air Traffic Control Centre were completed this year. The projects were carried out on many levels to minimise disruption and support the requirements of the Air Traffic Control Centre each time, e.g. the installation of worktables for use in the ADS-B radar in the west sector and added worktables for increased approach traffic.

The goal of the project was to redesign and update the working facilities in the air traffic control room to accord with modern requirements for occupational safety and health as well as ergonomics. The focus was on a flexible working environment, adding workstations through the better use of floor space and design that makes future expansions more manageable.

The main results were the redesign of the arrangement of the Air Traffic Control Centre, the installation and addition of new specially designed workstations for air controllers and the construction of a new work area for shift leaders and flight data experts. The project was extensive, as in addition to the renewal of working facilities, the ventilation, electrical systems, Internet connections, floor materials, lighting and acoustics were redesigned and updated. At present, there is access to 20 workstations for flight traffic controllers as well as facilities for the shift leader and flight data experts. SCOPE OF OPERATIONS

Two factors have the greatest impact on the scope of Isavia’s operations: the number of flight movements and the number of passengers. Isavia’s income from Keflavík Airport can be attributed first and foremost to the airlines that land at the airport, rent income from catering and retail FLIGHT STATISTICS outlets as well as other income from renting Isavia publishes flight facilities. statistics on the web with basic statistics about passengers, As a whole, the company’s operations have widened aircraft movements, in scope as compared to last year. Domestic flight cargo and traffic in passenger throughput decreased by around 4.5%, the Reykjavik Control while the number of international passengers Area. travelling through domestic airports increased by Passenger 8%. At Keflavík Airport, the number of passengers Statistics increased by 12%; and traffic in Icelandic airspace Flight Statistics - increased by 5.8% in 2018. Annual

Three aircraft operators ran scheduled flights within Iceland, i.e. Air Iceland Connect, Flugfélagið Ernir and Norlandair. Other aircraft operators who regularly used Isavia services were Mýflug, Circle Air, Atlantsflug and Norðurflug. Vesturflug / Blue West and Helo operate a helicopter service at the company’s airports. Air Iceland Connect flies from Reykjavík to several locations in Greenland, and Atlantic Airways flew to the Faroe Islands for most of the year from Reykjavík Airport until they transferred to Keflavík Airport. In addition, the Icelandic Flight Academy (Flugskóli Íslands) and Flugfélagið Geirfugl have facilities at Reykjavík Airport. BIRK Flight Services, Reykjavík FBO and Air Iceland Connect are responsible for ground handling services at airports.

At Akureyri Airport, Norlandair has regular scheduled flights within Iceland and scheduled and chartered flights to Greenland. In addition, travel agencies in the area offer direct flights from Akureyri to a few destinations overseas. Circle Air offers chartered and sight-seeing flights from Akureyri. Air Iceland Connect has being flying between Akureyri and Keflavík Airport in connection with the Icelandair’s main destinations in Europe and North America since 2017. In February 2018, the company announced that it intended to drop this route as of summer 2018. These plans, however, changed and the airline restarted the service in October 2018. In addition, the Akureyri Aviation Academy (Flugskóli Akureyrar) is based at the airport. Air Iceland Connect and South Air are responsible for ground handling services at Akureyri Airport. Akureyri Airport is the centre for Iceland’s ambulance flights, as the Mýflug airline has an agreement thereto with the Ministry of Health.

At Egilsstaðir, Air Iceland Connect deals with ground handling services for private and leased aircraft. Travel agencies have offered direct charter ﬂights from Egilsstaðir to several overseas destinations. Icelandair WOW air

Air Iceland Connect Ernir Norlandair

Reykjavík Airport has two runways (1,567 and 1,230 m long), Akureyri Airport has one (2,400 m) and Egilsstaðir Airport has one (2,000 m). Other airports and landing sites have runways ranging from 634 m to 1,887 m in length.

The largest customers of Isavia’s flight navigation services are Icelandair, WOW air, United Airlines, SAS, Lufthansa, British Airways, Air Canada, Delta, Emirates, Norwegian, Air Greenland, Qatar Airways and KLM. These airlines fly the greatest number of kilometres within the Icelandic flight traffic control area. Icelandic airlines are the biggest users of flight navigation services at Keflavík Airport.

During the summer of 2018, 30 airlines flew from Keflavík Airport to more than 100 destinations. Eleven airlines flew to and from Iceland all year round: Icelandair, WOW air, easyJet, Wizz Air, British Airways, Norwegian, SAS, Air Iceland Connect, Delta, Lufthansa and Finnair. Two airfreight airlines, Icelandair Cargo and Bluebird, fly from Keflavík Airport throughout the year.

Three handling agents operate at Keﬂavík Airport: IGS, Airport Associates and South Air.

Numerous passengers take advantage of Keflavík Airport as a transit airport, and both WOW air and Icelandair use the airport for such purpose on routes between Europe and North America. The minimum flight connection time for passengers at Keflavík Airport is 25 minutes.

Isavia has, with the assistance of an incentives system, been quite successful in getting airlines to ﬂy to Iceland over the winter months. In addition, Isavia has marketed time slots outside peak hours each day, with the aim of making better use of the airport’s facilities.

Keﬂavík Airport has two runways, which are 3,054 and 3,065 m long.

KEFLAVIK AIRPORT REYKJAVÍK AIRPORT AKUREYRI AIRPORT LONGEST RUNWAY LONGEST RUNWAY LONGEST RUNWAY

EGILSSTAÐIR AIRPORT LONGEST RUNWAY

PASSENGER AND TRAFFIC FORECASTS Isavia compiles a traffic forecast at least once a year for the company’s core operations – one for passenger numbers at domestic airports and Keflavík Airport and one for traffic in Icelandic airspace.

A passenger forecast for domestic airports is compiled at the end of each year. It is based on information obtained from the largest users of the airports and is used in connection with operating plans and the preparation of fee lists. Traffic in the Icelandic air traffic control area is assessed in accordance with information from a working group entitled the Economic Financial Forecasting Group (EFFG). The working group, which prepares a forecast for air traffic over the North Atlantic, is made up of all service providers and representatives of associations using the service in the North Atlantic.

A passenger forecast for Keﬂavík Airport is compiled at the end of each year for the coming year and is published in November. Due to uncertainties relating to one of the largest customers of Keﬂavík Airport, it proved impossible to publish a passenger forecast for 2019 in November as has been the norm. Instead, the forecast was published in January 2019.

When creating passenger forecasts for Keﬂavík Airport, the following methodology is used:

• Co-operation – All airlines using Keﬂavík Airport were contacted for information on their expected seating availability or expected number of passengers.

• Information gathering – Isavia’s experience and knowledge is used to improve the ﬁrst drafts.

• Facts – Booking data and information from Keﬂavík International Airport’s booking system is used to reﬁne the forecast.

The forecast is based on information about time slots that airlines have reserved for the upcoming summer and the winter schedule that they have prepared. Major airlines have been very co- operative in providing information about seat availability. Isavia focuses on sharing information that the company collects with tourist services entities, analysts and the public and holds open meetings for such purposes. “ AIRPORTS ARE IMPORTANT BUSINESS CENTRES AND DIRECTLY AND INDIRECTLY STRENGTHEN THE CREATION OF ECONOMIC AND SOCIAL VALUE FOR THE COMMUNITIES THAT THEIR OPERATIONS TOUCH.„

VALUE CREATION

Isavia is a company that plays an important role both community-wise and in an economic sense. Isavia’s airports, especially Keflavík International Airport, create value for the community and the economy, both in Iceland and elsewhere in the world. Direct flight connections are extremely important. The more direct connections by flight from Iceland to the main cities of the world, the easier it is for Icelandic companies and private persons to engage in business overseas and export goods and seek international experience. In addition, they increase the interest of overseas companies to begin operations in Iceland.

Airports are important business centres and directly and indirectly strengthen the creation of economic and social value for the communities that their operations touch. Being located close by an airport allows companies and their value chains to enjoy the beneﬁts of their closeness and directly and indirectly support positive economic developments for such areas.

Isavia has, through e.g. the preparation of its Masterplan to 2040, examined the possibility of constructing, in the operating area of the airport, an Airport City. There are numerous opportunities that arise from creating an airport city. This consists of the area that covers the airport, the terminal, cargo areas, office buildings, shops and services as well as hotels. The area could support the development of operations, both flight-related and non-flight-related, enjoying the benefits of being located near an international airport with strong flight connections to gain a competitive edge. Clear policies towards such goals can result in an increase in goods and services transactions, attract increased foreign investment in Iceland, increase the number of valuable jobs and increase the prosperity of all Icelanders.

A total of 764 employees work in the largest operation unit of Isavia at Keﬂavík Airport. In addition, hundreds of employees work in other companies that have operations in direct connection with the airport. Approximately 239 companies have long-term access authorisations to the airport. These are companies or public bodies with facilities within the airport and the companies that provide them with services. Isavia’s contribution to the community consists of a range of different elements. Some of Isavia’s contributions are in the form of taxes and public levies that the Group pays or collects, together with matching contributions to employee pension funds. DIRECT ECONOMIC VALUE GENERATED AND DISTRIBUTED

GRI 201-1 2018

Direct economic value generated

Revenues 42.025 m.kr.

Economic value distributed

Operating costs 11.403 m.kr

Employee wages and beneﬁts 16.820 m.kr.

Payments to providers of capital 1.173 m.kr.

Payments to government 3.623 m.kr.

Investments 6.045 m.kr.

Community investmens 58 m.kr.

Economic value retained 2.903 m.kr.

Average number of positions 1430 KEY FIGURES FROM OPERATIONS 2018

From the balance sheet (million kr.) 2 FURTHER READING

Financial statement 2018 GROUP REVENUE INCOME FROM AIRPORT SERVICES OPERATING COSTS

FLIGHT STATISTICS

Isavia publishes monthly ﬂight statistics on the web with basic statistics about passengers, aircraft movements, cargo and traﬃc in the Reykjavik Control Area.

INTERESTING FLIGHT STATISTICS

SNOW REMOVAL AT SNOW REMOVAL AT REYKJAVÍK AIRPORT AKUREYRI AIRPORT

FLIGHT STATISTICS 2018

PASSENGERS

Passenger movements through Isavia airports FLIGHT totalled 10.6 million in 2018, an increase of around STATISTICS 11% from 2017. The number of international passengers increased from almost 8.8 million to Isavia publishes flight more than 9.8 million, i.e. an increase of some 12% statistics on the web with basic statistics year-on-year. The greatest increase (70%) was at about passengers, Akureyri Airport, followed by Keflavik Airport aircraft movements, (12%), Egilsstaðir Airport (10%) while international cargo and traffic in passenger at Reykjavik Airport decreased by just the Reykjavik Control 3%. The number of domestic passengers Area. decreased during the same period from just more Passenger than 772,000 to just less than 737,000, i.e. a Statistics decrease of some 5%, as indicated above. Flight Statistics - Annual FLIGHT MOVEMENTS

There were just more than 193,000 flight movements at Isavia airports in 2018. This is a decrease of just more than 2% from the previous year. International flight movements at Icelandic scheduled flight airports totalled over 72,000, an increase of some 9%. The increase was the greatest at Egilsstaðir (just less than 16%), with an increase of more than 9% at Keflavík Airport. Flight movements within Iceland on scheduled flight airports totalled more than 121,000, a decrease of 6% year-on-year. FREIGHT TRANSPORTATIONS

In total, almost 61,000 tonnes of goods were transported through the company’s airports in 2018, an increase of more than 2% from the previous year. Freight transportation between countries was almost 60,000 tonnes in 2018, an increase of more than 6% year-on-year. In 2018, domestic freight transportation totalled just more than 1,260 tonnes, a decrease of 7% year-on-year. AIR TRAFFIC CONTROL

Around 196,000 aircraft passed through Icelandic airspace in 2018, an increase of around 6% from 2017. A total of almost 267 million kilometres were flown in the Icelandic air traffic control area in 2018. Over a quarter of all air traffic crossing the North Atlantic passes through the Isavia-managed Reykjavik CTA. It is somewhat unique among oceanic control areas in its flexibility regarding flight routing and altitudes.

GRI INDEX

ISAVIA´S ANNUAL AND CSR REPORT 2018 IS PUBLISHED IN ACCORDANCE WITH THE CRITERIA OF THE GLOBAL REPORTING INITIATIVE GRI STANDARDS: CORE OPTION AND GRI-G4 AIRPORT OPERATOR SECTOR DISCLOSURES

GRI CONTENT INDEX

Isavia´s Annual and CSR report 2018 is published in accordance with the criteria of the Global Reporting Initiative GRI Standards: Core option and GRI-G4 Airport Operator Sector Disclosures. Personnel from all divisions of the company participated in gathering content and writing of the report. Information in the report originates from the company’s IT systems and reflect current knowledge at the time. The reporting period is 2018 calendar year. Status: ⬤ Fulfilled ◑ Partly fulfilled.

Disclosure Disclosure Title Location Comments Status UNGC SDG Number

Organizational Proﬁle

GRI 102-1 Name of the organization Isavia ohf ⬤

GRI 102-2 Activites, brands, products, and services ⬤ Operation

GRI 102-3 Location of headquarters Reykjavíkurﬂugvöllur, ⬤ 101 Reykjavík

GRI 102-4 Location of operations Isavia operates only in ⬤ Iceland. The company owns four subsidiaries: Duty Free Store, Tern Systems, Domavia and Suluk

GRI 102-5 Ownership and legal form Isavia is a public ⬤ limited company

GRI 102-6 Market served. Additionally, for airports: Catchment ⬤ Operation area for passengers and cargo originating in the vicinity of the airport. Business Partners

Flight Statistics

GRI 102-7 Scale of reporting organization. Additionally, for ⬤ Operation airports: Estimated number of employees in the reporting organization, size of airport, number and Flight Statistics length of runways, stating whether they are primary or crosswind runways, minimum connection time between Key Figures ﬂights at the airport, number of operations, number of airlines served, and number of destinations served. Financial

Statement

GRI 102-8 Information on employees and other workers ⬤ 8 Human Resources

GRI 102-9 Supply chain ⬤ 6 Stakeholders

GRI 102-10 Signiﬁcant changes to the organization and its supply ⬤ 3 chain Message from the

CEO

Development

GRI 102-11 Precautionary Principle or approach ⬤ Corporate

Governance

GRI 102-12 External initiatives ⬤ Social Participation

GRI 102-13 Membership of associations ⬤ Social Participation

Strategy

GRI 102-14 Statement from senior decision-maker ⬤ Message from the

CEO

Ethics and Integrity

GRI 102-16 Values, principles, standards, and norms of behavior ⬤ 10 Corporate

Governance

Code of Conduct

Governance

GRI 102-18 Governance structure ⬤ Corporate

Governance

GRI 102-20 Executive-level responsibility for economic, ⬤ Executive Board environmental, and social topics

GRI 102-21 Consulting stakeholders on economic, environmental, PMO Development & ⬤ Objectives and and social topics Administration Isavia on behalf of the Improvements Managing Director

GRI 102-22 Composition of the highest governance body and its ⬤ Corporate committees Governance

Corporate

Governance

Statement

GRI 102-23 Chair of the highest governance body ⬤ Corporate

Governance

Rules of procedure

for the Board of

Directors

GRI 102-25 Conﬂicts of interest ⬤ Corporate

Governance

Corporate

Governance

Statement

GRI 102-26 Role of highest governance body in setting purpose, ⬤ Operation values, and strategy Rules of procedure

for the Board of

Directors

GRI 102-32 Highest governance body’s role in sustainability Managing Director ⬤ reporting GRI 102-33 Communicating critical concerns Via the Managing ⬤ Director and Excecutive Board

GRI 102-35 Remuneration policies ⬤ Remuneration

Policy

GRI 102-36 Process for determining remuneration ⬤ Rules of procedure

of the Isavia ohf.

Remuneration

Committee

Stakeholder Engagement

GRI 102-40 List of stakeholder groups ⬤ Stakeholders

Business Partners

Scope of

Operations

GRI 102-41 Collective bargaining agreements ⬤ 3 Human Resources

GRI 102-42 Identifying and selecting stakeholders ⬤ Stakeholders

Objectives and

Improvements

Business Partners

Human Resources

GRI 102-43 Approach to stakeholder engagement ⬤ Stakeholders Objectives and

Improvements

Business Partners

Human Resources

GRI 102-44 Key topics and concerns raised ⬤ Message from the

CEO

Objectives and

Improvements

Operation

Stakeholders

Business Partners

Human Resources

Reporting Practice

GRI 102-45 Entities included in the consolidated ﬁnancial ⬤ Financial statements Statement

GRI 102-46 Deﬁning report content and topic Boundaries ⬤ Objectives and

Improvements

GRI 102-47 List of material topics ⬤ Objectives and

Improvements

GRI 102-48 Restatements of information ⬤ Objectives and

Improvements GRI 102-49 Changes in reporting ⬤ Objectives and

Improvements

GRI 102-50 Reporting period Report for calendar ⬤ year 2018

GRI 102-51 Date of most recent report 5. apríl 2018 ⬤

GRI 102-52 Reporting cycle Yearly ⬤

GRI 102-53 Contact point for questions regarding the report ⬤ Click here to contact

Isavia

GRI 102-54 Claims of reporting in accordance with the GRI ⬤ Objectives and Standards Improvements

GRI 102-55 GRI content index ⬤ GRI Index

GRI 102-56 External assurance Independent Auditor´s ⬤ Financial Report. Independant Statement advisors report and veriﬁcation Message from the

CEO

Objectives and

Improvements

ECONOMIC

Economic Performance

GRI 103-1 Explanation of the material topic and its Boundary ⬤ Objectives and

Improvements

Financial

Statement

GRI 103-2 The management approach and its components ⬤ Corporate

Governance

Financial

Statement

Executive Board

GRI 103-3 Evaluation of the management approach ⬤ Corporate

Governance

Financial

Statement

Executive Board

GRI 201-1 Direct economic value generated and distributed ⬤ Financial

Statement

Scope of

Operations

Market Presence

GRI 103-1 Explanation of the material topic and its Boundary ⬤ Objectives and

Improvements

GRI 103-2 The management approach and its components ⬤ Operation Stakeholders

Scope of

Operations

Flight Statistics

GRI 103-3 Evaluation of the management approach ⬤ Operation

Stakeholders

Scope of

Operations

Flight Statistics

GRI A01 Total number of passengers annually, broken down by ⬤ Scope of passengers on international and domestic ﬂights and broken down by origin and destination and transfer, Operations including transit passengers Flight Statistics

GRI A02 Annual total number of aircraft movements by day and ⬤ Scope of by night, broken down by comercial cargo, general aviation and state aviation ﬂights Operations

Flight Statistics

GRI A03 Total amount of cargo tonnage ⬤ Scope of

Operations

Flight Statistics

Indirect Economic Impacts

GRI 103-1 Explanation of the material topic and its Boundary ⬤ Objectives and Improvements

GRI 103-2 The management approach and its components ⬤ Financial

Statement

Corporate

Governance

Stakeholders

Executive Board

GRI 103-3 Evaluation of the management approach ⬤ Financial

Statement

Corporate

Governance

GRI 203-1 Infrastructure investments and services supported. ⬤ Financial Additionally, for airports: Relevance to the airport sector because of high impact on local economies Statement

Scope of

Operations

Development

GRI 203-2 Signiﬁcant indirect economic impacts ⬤ Financial

Statement

Scope of

Operations

Development

Procurement Practices

GRI 103-1 Explanation of the material topic and its Boundary ⬤ Objectives and

Improvements

GRI 103-2 The management approach and its components ⬤ Operation

Corporate

Governance

Stakeholders

Executive Board

GRI 103-3 Evaluation of the management approach ⬤ Corporate

Governance

Stakeholders

Executive Board

GRI 204-1 Proportion of spending on local suppliers ⬤ 8,9 Stakeholders

EVIRONMENTAL

Energy

GRI 103-1 Explanation of the material topic and its Boundary ⬤ Objectives and

Improvements

GRI 103-2 The management approach and its components ⬤ Operation

Climate Issues

Environment GRI 103-3 Evaluation of the management approach ⬤ Operation

Climate Issues

Environment

GRI 302-1 Energy consumption within the organization ⬤ 7,8 Climate Issues

GRI 302-2 Energy consumption outside of the organization ⬤ Climate Issues

GRI 302-4 Reduction of energy consumption. Additionally, for ⬤ 8,9 Climate Issues airports: Important for airports to share sectoral best practice

Water

GRI 103-1 Explanation of the material topic and its Boundary ⬤ Objectives and

Improvements

GRI 103-2 The management approach and its components ⬤ Operation

Environment

GRI 103-3 Evaluation of the management approach ⬤ Operation

Environment

GRI 303:2016 Water withdrawal by source ◑ 7,8 Environment 303-1

GRI A04 Quality of storm water by applicable regulatory ◑ Environment standards

Emissions

GRI 103-1 Explanation of the material topic and its Boundary ⬤ Objectives and

Improvements GRI 103-2 The management approach and its components ⬤ Operation

Environment

Climate Issues

GRI 103-3 Evaluation of the management approach ⬤ Operation

Environment

Climate Issues

GRI 305-1 Direct (Scope 1) GHG emissions ⬤ 7 Climate Issues

GRI 305-2 Energy indirect (Scope 2) GHG emissions ⬤ 7 Climate Issues

GRI 305-3 Other indirect (Scope 3) GHG emissions ⬤ 8 Climate Issues

GRI 305-5 Reduction of GHG emissions. Additionally, for airports: ⬤ 8,9 Climate Issues Reference to ACI-ACA Airport Carbon Accreditation Program

GRI A05 Ambient air quality levels according to pollutant ⬤ Climate Issues concentrations in microgram per m3 or parts per million (ppm) by regulatory regime

GRI 305-7 Nitrogen oxides (NOX), sulfur oxides (SOX), and other ⬤ 7,8 Climate Issues signiﬁcant air emissions

Eﬄuents and Waste GRI 103-1 Explanation of the material topic and its Boundary ⬤ Objectives and

Improvements

GRI 103-2 The management approach and its components ⬤ Operation

Environment

Recycling

GRI 103-3 Evaluation of the management approach ⬤ Operation

Environment

GRI 306-2 Waste by type and disposal method. Additionally, for ⬤ 8 Environment airports: Report on the weight of waste from international ﬂights Recycling

GRI 306-3 Signiﬁcant spills ⬤ 8 Environment

GRI A06 Aircaraft and pavement de-icing/anti-icing ﬂuid used ⬤ Environment and treated by m3 and/or tonnes

Noise

GRI 103-1 Explanation of the material topic and its Boundary ⬤ Objectives and

Improvements

GRI 103-2 The management approach and its components ⬤ Operation

Environment

Noise

GRI 103-3 Evaluation of the management approach ⬤ Operation

Environment Noise

GRI A07 Number and percentage change of people residing in ⬤ Noise areas affected by noise

Evironmental Compliance

GRI 103-1 Explanation of the material topic and its Boundary ⬤ Objectives and

Improvements

GRI 103-2 The management approach and its components ⬤ Operation

Environment

GRI 103-3 Evaluation of the management approach ⬤ Operation

Environment

GRI 307-1 Non-compliance with environmental laws and ⬤ 8 Environment regulations

SOCIAL

Employement

GRI 103-1 Explanation of the material topic and its Boundary ⬤ Objectives and

Improvements

GRI 103-2 The management approach and its components ⬤ Operation

Human Resources

GRI 103-3 Evaluation of the management approach ⬤ Operation

Human Resources GRI 401-1 New employee hires and employee turnover ⬤ 6 Human Resources

GRI 401-3 Parental leave ⬤ Human Resources

Labor Management Relations

GRI 103-1 Explanation of the material topic and its Boundary ⬤ Objectives and

Improvements

GRI 103-2 The management approach and its components ⬤ Operation

Human Resources

GRI 103-3 Evaluation of the management approach ⬤ Operation

Human Resources

GRI 402-1 Minimum notice periods regarding operational changes ⬤ 3 Human Resources

Occupational Health and Saftey

GRI 103-1 Explanation of the material topic and its Boundary ⬤ Objectives and

Improvements

GRI 103-2 The management approach and its components ⬤ Operation

Human Resources

Occupational

Health and Saftey

GRI 103-3 Evaluation of the management approach ⬤ Operation

Human Resources

Occupational

Health and Saftey

GRI 403:2016 Workers representation in formal joint management– ⬤ Occupational 403-1 worker health and safety committees Health and Saftey

GRI 403:2016 Types of injury and rates of injury, occupational ◑ Occupational 403-2 diseases, lost days, and absenteeism, and number of work-related fatalities Health and Saftey

Training and Education

GRI 103-1 Explanation of the material topic and its Boundary ⬤ Objectives and

Improvements

GRI 103-2 The management approach and its components ⬤ Operation

Human Resources

GRI 103-3 Evaluation of the management approach ⬤ Operation

Human Resources

GRI 404-1 Average hours of training per year per employee ⬤ 6 Human Resources

GRI 404-2 Programs for upgrading employee skills and transition ⬤ Human Resources assistance programs

GRI 404-3 Percentage of employees receiving regular ◑ 6 Human Resources performance and career development reviews

Diversity and Equal Opportunity

GRI 103-1 Explanation of the material topic and its Boundary ⬤ Objectives and

Improvements

GRI 103-2 The management approach and its components ⬤ Operation

Human Resources

Social Participation

GRI 103-3 Evaluation of the management approach ⬤ Operation

Human Resources

Social Participation

GRI 405-1 Diversity of governance bodies and employees ◑ 6 Human Resources

GRI 405-2 Ratio of basic salary and remuneration of women to ⬤ 6 Human Resources men

Non Discrimination

GRI 103-1 Explanation of the material topic and its Boundary ⬤ Objectives and

Improvements

GRI 103-2 The management approach and its components ⬤ Operation

Human Resources

Social Participation GRI 103-3 Evaluation of the management approach ⬤ Operation

Human Resources

Social Participation

GRI 406-1 Incidents of discrimination and corrective actions taken ⬤ 6 Human Resources

Child Labor

GRI 103-1 Explanation of the material topic and its Boundary ⬤ Objectives and

Improvements

GRI 103-2 The management approach and its components ⬤ Operation

Social Participation

Human Resources

GRI 103-3 Evaluation of the management approach ⬤ Operation

Social Participation

Human Resources

GRI 408-1 Operations and suppliers at signiﬁcant risk for ⬤ 5 Code of Conduct incidents of child labor for Suppliers

Forced or Compulsory Labor

GRI 103-1 Explanation of the material topic and its Boundary ⬤ Objectives and

Improvements

GRI 103-2 The management approach and its components ⬤ Operation Social Participation

Stakeholders

Human Resources

GRI 103-3 Evaluation of the management approach ⬤ Operation

Social Participation

Stakeholders

GRI 409-1 Operations and suppliers at signiﬁcant risk for ⬤ 4 Code of Conduct incidents of forced or compulsory labor for Suppliers

Human Rights Assessment

GRI 103-1 Explanation of the material topic and its Boundary ⬤ Objectives and

Improvements

GRI 103-2 The management approach and its components ⬤ Operation

Social Participation

Stakeholders

GRI 103-3 Evaluation of the management approach ⬤ Operation

Social Participation

Stakeholders

GRI 412-3 Signiﬁcant investment agreements and contracts that ⬤ 2 Stakeholders include human rights clauses or that underwent human rights screening Code of Conduct

for Suppliers Local Communities

GRI 103-1 Explanation of the material topic and its Boundary ⬤ Objectives and

Improvements

GRI 103-2 The management approach and its components ⬤ Operation

Social Participation

Stakeholders

GRI 103-3 Evaluation of the management approach ⬤ Operation

Social Participation

Stakeholders

GRI 413-1 Operations with local community engagement, impact ⬤ 1 Social Participation assessments, and development programs Stakeholders

Development

GRI A08 Number of persons physically or economically No such incidents ⬤ displaced, either voluntarily or involuntarily, by the reported airport operator or on its behalf by governmental or other entity, and compensation provided

Customer Health and Safety

GRI 103-1 Explanation of the material topic and its Boundary ⬤ Objectives and

Improvements

GRI 103-2 The management approach and its components ⬤ Operation Occupational

Health and Saftey

Environment

GRI 103-3 Evaluation of the management approach ⬤ Operation

Occupational

Health and Saftey

Environment

GRI A09 Total annual number of wildlife strikes per 10.000 ⬤ Environment aircraft movements

Customer Privacy

GRI 103-1 Explanation of the material topic and its Boundary ⬤ Objectives and

Improvements

GRI 103-2 The management approach and its components ⬤ Operation

Occupational

Health and Saftey

Business Partners

GRI 103-3 Evaluation of the management approach ⬤ Operation

Occupational

Health and Saftey

Business Partners

GRI 418-1 Substantiated complaints concerning breaches of ⬤ Occupational customer privacy and losses of customer data Health and Saftey

Socioeconomic Compliance

GRI 103-1 Explanation of the material topic and its Boundary ⬤ Objectives and

Improvements

GRI 103-2 The management approach and its components ⬤ Operation

GRI 103-3 Evaluation of the management approach ⬤ Operation

GRI 419-1 Non-compliance with laws and regulations in the social No ﬁnes have been ⬤ and economic area imposed on the company CONSOLIDATED FINANCIAL STATEMENT 2018

FINANCIAL STATEMENT OF ISAVIA 2018 (PDF) Isavia ohf. Consolidated Financial Statements 2018

Isavia ohf. Reykjavik Airport 101 Reykjavík id.no. 550210-0370 Isavia ohf. Consolidated Financial Statements 2018

Table of Contents Statement by the Board of Directors and CEO 2 Independent Auditor's Report 3-4 Consolidated Statements of Comprehensive Income 5 Consolidated Statements of Financial Position 6 Consolidated Statements of Changes in Equity 7 Consolidated Statements of Cash Flows 8 Notes to the Consolidated Financial Statements 9-30 Statement by the Board of Directors and Managing Director

Isavia ohf. is a government owned private limited company and complies with the Icelandic Limited Companies Act, No. 2/1995. The Company’s shareholder is the Treasury of Iceland and the Company's domicile and venue is Reykjavik Airport. Isavia ohf. is the national operator of airports in Iceland and controls the air navigation services in the Icelandic Air Navigation Territory. The Company is a service provider in airport service and air navigation service and lays the foundation for air traffic in Iceland.

The Consolidated Financial Statements for the year 2018 is prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union.

According to the Consolidated Statement of Comprehensive Income, the operating revenues for the year 2018 amounted to ISK 41.788,4 million and had increased ISK 3.814,1 million from previous year. Net income for the year 2018 amounted to ISK 4.261,7 million which is a increase about ISK 313,1 million from previous year. Negative foreign exchange rate losses are because of the weakening of the Icelandic krona and amounts about ISK 1.604,4 million for the year 2018 and amounted ISK 810,5 million for the previous year. According to the Consolidated Statement of Financial Position, total assets has increased ISK 7.285,4 million during the year 2018 and amounted to ISK 79.833,7 million at year end. The Company´s total equity at year end 2018 is ISK 35.267,4 million and had increased ISK 4.262 million since year end 2017. The Company’s equity ratio is 44,18% at the end of the year 2018 compared to 42,74% at the end of the year 2017. The number of full-time staff equivalents throughout the year 2018 was 1.430 and had increased about 80 from previous year.

The Board of Directors propose that the profit for the year 2018 will be carried on to next year but refers to the financial statements regarding other changes in the Company's equity. The Board of Directors have established detailed procedure where the main tasks and authority of the Board and Mangaging Director are defined. These procedures provide that the Board of Directors shall follow the Guidelines on Corporate Governance, issued by the Iceland Chamber of Commerce in collaboration with the Confederation of Icelandic Employers and Nasdaq OMX Iceland. The Company´s Corporate governance statement was refreshed in April 2018.

The Board of Directors have established a policy regarding social responsibility and joined the UN Global Compact (UNGC). Collaterally the Company has put efforts to coordinate the Company´s policies and procedures to the ten main rules of UNGC. The Company's Annual report reflects now for the first time these emphasis in enviromental, social and employee matters. Isavia ohf. will report yearly to the United Nations where the Company's goals and performance of the ten categories in question will be specified. Further information regarding non-financial matters are to be found in that annual report.

The Board of Directors and Managing Director of Isavia ohf. confirm hereby according to their best knowledge that these Consolidated Financial Statements give a true and fair view of the Company´s net income, assets, liabilites and cash flow in the year 2018. However it should be noted that there is uncertainty about the treatment of submitted VAT to Directorate of internal revenues. The discussion about the uncertainty can be found in note 14 with the consolidated financial statements, but the company has reasonably kept its consideration against the Directorate of internal revenues. Until the final ruling is made in this matter there will be uncertainty regarding VAT period from September 2016 to December 2018 and if the ruling becomes unfavorable to the company it will affext the company's operations. This uncertainty was removed with amending of the Value Added Tax Act which came into force on January 1st 2019. It is also the opinion of the Board of Directors and Managing Director that accounting policies used are appropriate and these Consolidated Financial Statements present all the information necessary to give an overview of developement and results in Company´s operating performance, as well as describing the principal risk and uncertainty factors faced by the Company.

The Board of Directors and the Managing Director today hereby confirm the Company´s Consolidated Financial Statements for the year 2018 with their signature.

Reykjavík, March 7th 2019 Board of Directors

Ingimundur Sigurpálsson Chairman of the Board

Eva Pandora Baldursdóttir Nanna Margrét Gunnlaugsdóttir

Matthías Páll Imsland Valdimar Halldórsson

Managing director Björn Óli Hauksson

2 INDEPENDENT AUDITOR’S REPORT

To the Board of Directors and Shareholders of Isavia ohf.

Opinion We have under a mandate of the Icelandic National Audit Office, audited the accompanying Consolidated Financial Statements of Isavia ohf. for the year ended December 31st 2018 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows and the Notes to the Consolidated Financial Statements, including a summary of significant accounting policies and other explanatory notes. In our opinion, the accompanying Consolidated Financial Statements give a true and fair view of the financial position of Isavia ohf. as at December 31st 2018, and its financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) and additional requirements in the Icelandic Financial Statement Act. Emphasis of matter Without qualifying our opinion we draw attention to Note 14 to the financial statements which describes the uncertainty of the recovery of a claim due to value added tax from the Directorate of Internal Revenue. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards, are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of Isavia ohf. in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) and the Icelandic Institute of State Authorized Public Accountants, Code of Ethics (FLE Code) and we have fulfilled our ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other information The Board of Directors and the Managing Director are responsible for the other information. Other information comprises the Statement by the Board of Directors and Managing Director and Statements of Corporate Governance which we obtained prior to the date of this auditor’s report and the Annual Report which is expected to be made available to us after that date but does not include the consolidated financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon, except the confirmation regarding report of the board of directors as stated below.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

In accordance with Paragraph 2 article 104 of the Icelandic Financial Statement Act no. 3/2006, we confirm to the best of our knowledge that the accompanying report of the board of directors includes all information required by the Icelandic Financial Statement Act that is not disclosed elsewhere in the financial statements.

Responsibilities of the Board of Directors and the Managing Director for the Consolidated Financial Statements The Board of Directors and the Managing Director are responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU and additional requirements in the Icelandic Financial Statement Act, and for such internal control as the Board of Directors and the Managing Director determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the Board of Directors and the Managing Director are responsible for assessing Isavia ohf.’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors and the Managing Director either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so.

3 INDEPENDENT AUDITOR’S REPORT

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Isavia ohf.'s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings including any significant deficiencies in internal control that we identify during our audit, if applicable.

Reykjavík, March 7th 2019

Anna Birgitta Geirfinnsdóttir State Authorized Public Accountant

Kristján Þór Ragnarsson State Authorized Public Accountant

4 Consolidated Statements of Comprehensive Income 2018

Consolidation Notes 2018 2017

Operating revenues ...... 4 41.788.354 37.974.293

Cost of goods sold ...... (6.540.646) (5.842.486) Salaries and related expenses ...... 5 (18.287.666) (16.741.851) Administrative expenses ...... (543.804) (627.211) Other operating expenses ...... (5.118.217) (4.909.509) Depreciation and amortization ...... 9, 10 (3.460.925) (3.330.096)

Operating profit 7.837.095 6.523.140

Financial income ...... 7 237.611 226.080 Financial expenses ...... 7 (1.172.899) (1.022.348) Net exchange rate differences ...... 7 (1.604.456) (810.548)

Profit before taxes 5.297.352 4.916.324 Income tax ...... 8 (1.035.653) (967.738)

Total comprehensive income for the year 4.261.698 3.948.586

Consolidate Financial Statements of Isavia ohf. 2018 5 All amounts are in thousands of ISK Consolidated Statements of Financial Position

Assets Consolidation Notes 31.12.2018 31.12.2017

Non-current assets Property, plant and equipment ...... 9 57.195.995 54.331.542 Intangible assets ...... 10 4.965.176 5.173.155 Bonds and other long term assets ...... 12 152.967 188.262 62.314.137 59.692.959

Current assets Inventories ...... 13 674.761 546.721 Accounts receivables ...... 14 5.616.752 4.653.881 Current maturities of long term assets ...... 12 37.514 36.964 Other receivables ...... 14 5.754.389 4.516.482 Bank balances and cash ...... 14 5.436.127 3.101.287 17.519.544 12.855.335 Total assets 79.833.681 72.548.293

Equity and liabilities

Equity 15 Share capital ...... 5.589.063 5.589.063 Statutory reserves ...... 2.483.798 2.483.798 Revaluation reserves ...... 43.684 45.007 Retained earnings ...... 27.150.903 22.887.611 Total equity 35.267.448 31.005.480

Non-current liabilities Loans from credit institutions ...... 16 33.626.775 25.515.178 Deferred tax liabilities ...... 17 2.138.638 2.056.586 35.765.413 27.571.764 Current liabilities Accounts payable ...... 18 1.858.581 2.276.999 Current maturities of non-current liabilities ...... 16 3.133.778 8.223.715 Current tax liabilities ...... 8 953.694 898.152 Other current liabilities ...... 18 2.854.767 2.572.183 8.800.819 13.971.050 Liabilities 44.566.233 41.542.814 Total equity and liabilities 79.833.681 72.548.293

Consolidate Financial Statements of Isavia ohf. 2018 6 All amounts are in thousands of ISK Consolidated Statement of Changes in Equity

Share Capital Statutory Revaluation Retained Total Equity reserves reserves earnings

Opening balance at 1 January 2017 ...... 5.589.063 2.483.798 46.331 18.937.671 27.056.863 Transfer to retained earnings ...... 0 0 (1.324) 1.324 0 Translation exchange differences ...... 0 0 0 30 30 Comprehensive income ...... 0 0 0 3.948.586 3.948.586 Balance at 31 December 2017 ...... 5.589.063 2.483.798 45.007 22.887.611 31.005.480

Opening balance at 1 January 2018 ...... 5.589.063 2.483.798 45.007 22.887.611 31.005.480 Transfer to retained earnings ...... 0 0 (1.324) 1.324 0 Translation exchange differences ...... 0 0 0 270 270 Comprehensive income ...... 0 0 0 4.261.698 4.261.698 Balance at 31 December 2018 ...... 5.589.063 2.483.798 43.684 27.150.903 35.267.448

No dividends were paid to shareholders for the year. Share capital has been fully paid.

Consolidate Financial Statements of Isavia ohf. 2018 7 All amounts are in thousands of ISK Consolidated Statement of Cash Flows

Consolidation Notes 2018 2017 Cash flows from operating activities Operating profit ...... 7.837.095 6.523.140 Depreciation and amortization ...... 9, 10 3.460.925 3.330.096 Accounting provision of current assets ...... 13,14 119.197 76.305 (Gain) Loss on disposal of assets ...... (12.982) (14.394) Operating cash flow before transfer to working capital 11.404.235 9.915.147 Changes in inventories ...... 13 (128.579) (29.803) Changes in operating assets ...... (2.304.507) (4.904.808) Changes in operating liabilities ...... (162.219) (34.979) Cash generated from operations 8.808.930 4.945.556 Interest earned ...... 371.525 290.528 Finance costs ...... (1.132.554) (994.055) Income taxes paid ...... (898.152) (1.075.721)

Net cash generated from operating activities 7.149.749 3.166.308

Investing activities Acquisition of property, plant and equipment ...... 9 (6.045.203) (14.424.814) Sales of property, plant and equipment ...... 57.704 23.411 Acquisition of intangible assets ...... 10 (116.918) (176.643) Installments on bonds ...... 12 40.488 36.298

(6.063.928) (14.541.748)

Financing activities Repayments of borrowings ...... 16 (8.514.747) (1.234.444) New bank loans raised ...... 16 9.824.100 9.984.250

1.309.353 8.749.806 Net change in cash and cash equivalents ...... 2.395.173 (2.625.634) Cash and cash equivalents at the beginning of the year ...... 3.101.287 5.830.506 Effect of foreign exchange rates ...... (60.333) (103.585)

Cash and cash equivalents at the end of the year ...... 5.436.127 3.101.287

Consolidate Financial Statements Isavia ohf. 2018 8 All amounts are in thousands of ISK Notes

1. General information

Isavia ohf. (the Company) was established in the beginning of 2010 with a merger between Flugstodir ohf. and Keflavíkurflugvöllur ohf. Isavia ohf. is a government owned private limited company and complies with the Icelandic limited companies law No. 2/1995. The company‘s domicile and venue is Reykjavik Airport.

Isavia ohf. is the national operator of airports and air navigation services in Iceland. The Company ensures flight safety and airport security in accordance with recognized international standards and operating licenses issued and supervised by the Icelandic Transport Authority.

The Consolidated Financial Statements of Isavia ohf. consist of the Parent Company and its subsidiaries. Companies within the consolidation are in addition to Isavia ohf., Duty Free Store ehf., Tern Systems ehf., Domavia ehf. and Suluk ApS in Greenland.

2. Summary of Significant Accounting Policies

Statement of compliance The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards, IFRS, as adopted by the European Union by the end of the year 2018, new and revised.

Application of new and revised International Financail Reporting Standards (IFRS)

Two new accounting standards, IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers became effective on 1 Januar 2018, see the effect of implementation below. The Company has not applied new and revised IFRSs that have been issued but are not yet effective. IFRS 16 Leases becomes effective from 1 January 2019. The effects of implentations of IFRS 16 on the Company's financial statements have been estimated by management and deemed immaterial. The effect of other standards and amendments in issue but not effective are considered none or immaterial for the Company's financial statements.

IFRS 9 Financial Instruments IFRS 9 replaces IAS 39 and describes the accounting for financial instruments. IFRS 9 introduces new requirements for the classification and measurement of financial assets and liabilities, impairments of financial assets and general hedge accounting. The implementation of the standard has an immaterial impact on the impairment measurement of financial assets, but otherwise does not affect the financial statements.

IFRS 15 Revenue from contracts with customers IFRS 15 replaces IAS 18, IAS 11 and related interpretations. The standard introduces new requirements for revenue recognition and additional disclosures. IFRS 15 introduces a five step approach to revenue recognition, which requires that revenue is recognised when control of the sold product or service has been transferred to the customer, instead of focusing only on risk and reward as the previous guidance.

The implementation of the standard has an immaterial impact on the Company's revenue recognition and no adjustments were made to 2018 opening balances. The standard requires more detailed disclosures regarding revenue recognition. For further information on the Company's accounting policies for revenue recognition can be found later in this note.

Basis of preparation The Consolidated Financial Statements have been prepared on the historical cost basis except that certain assets are evaluated by the revaluation methods. Accounting policies which concern certain properties and financial instruments that are measured at fair value is explained in note below. The Financial Statements are presented in ISK, which is the Company's functional currency.

The principal accounting policies are set out below. Basis of consolidation

The Consolidated Financial Statements incorporate the Financial Statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an investee enterprise so as to obtain benefits from its activities and use its power to affect the time of investment.

The Consolidated Financial Statements have been prepared using the purchase method. The result of subsidiaries acquired during the year are included in the Consolidated Income Statement from the effective date of acquisition as appropriate. Where necessary, adjustments are made to the Financial Statements of subsidiaries to bring their accounting policies into line with those used by other members of the Company.

One of the purposes of Consolidated Financial Statements is to show only the net external sales, expenses, assets and liabilities of the consolidated entities as a whole. Hence, intercompany transactions have been eliminated within the consolidated businesses in the presentation of the consolidated financial statements.

Consolidate Financial Statements of Isavia ohf. 2018 9 All amounts are in thousands of ISK Notes

Consolidate Financial Statements of Isavia ohf. 2018 10 All amounts are in thousands of ISK Notes

2. Summary of Significant Accounting Policies (continued)

Risk management The Company's general policy in risk management is to manage interest rate and foreign currency risk. The Company has no currency swap contracts, options or derivatives outstanding at year-end. Special risk committee operates under mandate from Board of Directors and determines scope and nature on risk and profitability analysis for construction and projects which can have significant influence on income and financial position.

Revenue recognition Revenue recognition The revenue recognition of the company reflects the consideration that the company expects to receive due to the sale of goods and services to the customer. The company records revenues when the control of the sold goods or services is transferred to the customer. In general, the company's invoices are made monthly as provided service for the relevant month, with the exception of the sale of the Duty Free Store that is recorded when the sale takes place.

Air navigation The air navigation division handles air navigation services for domestic and international flights across large areas of the North Atlantic. The revenue of the division are coming, i.a. of air navigation services to flight operators in North Atlantic on the basis of a Joint Finance agreement (international agreement), air navigation services on airspace and air navigation services at airports in Iceland.

Domestic airports

The domestic airports system handles the operation and maintenance of all airports in Iceland besides Keflavik airport. The largest part of revenue from domestic airports comes from a service agreement with the Ministry of Transport and Local Government, but other revenues consist of user charge and leasing of buildings. All buildings at airports in Iceland besides Keflavik airport are owned by the Icelandic state.

Keflavik airport Keflavik airport is divided into airport techonology and property division, operations divison and commercial operations. Airport technology and property division is responsible for practical projects, environmental issues, maintenance and operation of real estate and baggage handling at Keflavik airport. The operations division handles aviation security and airport services at Keflavik airport. The commercial operations division handles passenger service, the operation of the retail area and catering area and handles all contracting with operators af Keflavik airport, as well as the operation of parking services and the development of new routes. Keflavik airport's revenues include, among other things, revenues from user charges, revenues from retail area and catering area at the airport, other rent, market revenues and revenues from parking services.

Duty Free Store Revenue from Duty Free Store are mainly revenues from sales of goods but other revenue of the company are for example advertisting revenue.

Other subsidiaries Revenue from other subsidiaries of the company are mainly revenues from sales of service and goods and from contracts and also other various revenues.

Lease income Revenues from operating lease contracts are entered linear over the contract time. Costs that are related to the contract are added to the book value of the leased asset and the cost will be charged linear over the contract time. The company has no financing lease contracts as lessor.

Consolidate Financial Statements of Isavia ohf. 2018 11 All amounts are in thousands of ISK Notes

2. Summary of Significant Accounting Policies (continued) Construction contracts Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the balance sheet date, measured based on the proportion of contract costs incurred for work performed to date relative to the estimated total contract costs, except where this would not be representative of the stage of completion. Variations in contract work, claims and incentive payments are included to the extent that they have been agreed upon.

Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that is probable to be recoverable. Contract costs are recognised as expenses in the period in which they incur.

When it is probable that total contract costs will exceed total contract revenue, the expected loss is immediately recognised as an

Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. Assets held under finance leases are recognized as assets of the Company at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. All other leases are classified as operating leases and lease payments are charged in the period to which they belong.

Foreign currencies Transactions in foreign currencies are initially recorded at the rates of exchange prevailing on the dates of the transactions. Monetary assets and liabilities denominated in such currencies are re-translated at the rates prevailing on the balance sheet date. Profits and losses arising on exchange are included in net profit or loss for the period.

Borrowing costs Interest income are charged over period according to the principal and interest rate.

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

Investment revenues from short term investments that relates financing for capitalized assets, are transfered to reduce capitalized borrowing costs.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

Income tax Income tax is calculated and recognised in the Financial Statements. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible. The Company's current tax rate is 20%.

The tax currently payable is income tax that is likely to be paid within the next 12 months for taxable income of the year and corrections in income tax for previous years.

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the Financial Statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. The difference is due to different assumptions in calculation of income tax.

Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized.

Consolidate Financial Statements of Isavia ohf. 2018 12 All amounts are in thousands of ISK Notes

2. Summary of Significant Accounting Policies (continued)

Property, plant and equipment Property, plant and equipment are recognised as an asset when it is probable that future economic benefits associated with the asset will flow to the Company and the cost of the asset can be measured in a reliable manner. Property, plant and equipment which qualifies for recognition as an asset is initially measured at cost. The cost of a property, plant and equipment comprises its purchase price and any directly attributable cost of bringing the asset to working condition for its intended use.

With the merger of Flugfjarskipti ehf. and Isavia ohf. the properties of the former company were revaluated because the market value of their properties were considered higher than the book value. The revaluation is based on an estimated sales price, which has been confirmed by appropriated assessor. The changes in the value is credited to other equity as revaluation reserve and the tax effect in deferred tax liability.

The depreciable amount of an asset is allocated on a straight-line basis over its useful life, less residual value.

Assets held under finance lease are depreciated over their expected useful lives on the same basis as owned assets. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset on sales day.

Intangible assets Intangible assets are recognised only if it is probable that the asset will generate future economic benefits and the cost of the asset can be measured reliably. Intangible assets includes softwares. Intangible asset which qualifies for recognition as an asset is initially measured at cost. The depreciable amount of the asset is allocated on a fixed annual percentage of the historical cost over its useful life, less residual value. Estimated useful life and depreciaton methods are evaluated in end of each accounting period.

Expenditure on research activities is recognised as an expense in the period in wich it is incurred. Developement cost is recognised only if all of the following conditions are met: - The technical feasibility of completing the intangible asset so that it will be avilable for use and sale - The intension to complete the intangible asset and use or sell - The ability to use or sell the intangible asset - How the intangible asset will generate probable future enocomic benefits - The avilabilty of adequate technical, financial and other resources to complete the development and to use or sell the asset - The ability to mesure reliably the expenditure attributable to intangible assets during its development.

Where no intangible asset can be recognised, development expenditure is charged to profit or loss in the period in which it is incurred. Subsequent to initial recognition, intangible assets are reported at cost less accumulated amortization and accumulated impairment losses.

Intangible assets resulting from the merger of the companies are only accounted for if they are distinctive from goodwill. At the initial registration they are recognized at cost, but with later assesments they are stated at cost less accumulated depreciations and impairment losses.

Impairment At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Recoverable amount is the higher of fair value less cost to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. Impairment of goodwill is not permitted to reverse.

Consolidate Financial Statements of Isavia ohf. 2018 13 All amounts are in thousands of ISK Notes

2. Summary of Significant Accounting Policies (continued)

Inventories Inventories are stated at the lower of cost or net realisable value, after taking obsolete and defective goods into consideration. Net realisable value represents the estimated selling price less all estimated costs to completion and costs to be incurred in marketing, selling and distribution.

Provisions

Provisions are recognised when the Company has a present obligation as a result of a past event, and it is probable that the Company will be required to settle that obligation. Financial assets

Financial assets are recognized at fair value on initial recognition in accounting. When financial assets are not measured at fair value through profit or loss, all direct vost are increased to their value in the initial recognition of the accounts. IFRS 9 divides financial assets within the scope of IAS 39 into two categories - financial assets at amortized cost and financial assets at fair value. The company registers all its financial assets at amortized cost. Financial assets at amortized cost Financial assets that is due for maturity and contractual payments on set dates consists only of installments of princial and interest, shall be recorded at amortized cost unless the instrument is defined at fair value through profit or loss in accordance with fair value. Such assets are initially recognized at fair value plus any related cost. After initial recognition, such financial assets are measured at amortized cost based on effective interest, net of impairment. The Company's financial assets valued at amortized cost are bonds, accounts receivable, other short-term receivables and cash. Effective interest method

The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Interest income is recognised on an effective interest basis for debt instruments other than those financial assets classified as at FVTPL.

Investments held to maturity Financial assets are classified as financial assets intended to be held to maturity when the Company has investments, i.e. bills or bonds with the intent and the ability to hold to maturity. When applicable, investments held to maturity are recognised at amortized cost, using effective interest method less any impairment losses. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are measured at amortized cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

Consolidate Financial Statements of Isavia ohf. 2018 14 All amounts are in thousands of ISK Notes

2. Summary of Significant Accounting Policies (continued)

Impairment of financial assets

IFRS 9 requires an expected credit loss model as opposed to an incurred credit loss model under IAS 39. The Company's financial assets that are subject to IFRS 9 impairment requirements are bonds, trade and other receivables (excluding withheld capital gains tax, VAT receivable and pre-payments) and cash and cash equivalents.

The Company always recognises lifetime expected credit losses for trade receivables. The expected credit losses on these financial assets are estimated using a provision matrix based on the Company’s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date. The Company's estimate for trade receivable ECL is described in detail in note 13.

At each reporting date the Company assesses if there is objective evidence of financial assets being credit-impaired. A financial asset is credit‑impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. The Company records special allowance for credit-impaired assets. Changes in valuation allowance are recognised in profit or loss in the period they occur. Impairment can be reversed subsequently if there has been a change in the estimates used for the impairment.

Derecognition of financial assets

The Company derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.

Financial liabilities and equity instruments

Financial liabilities

Financial liabilities are classified as either financial liabilities ‘at FVTPL' or ‘other financial liabilities'.

Financial liabilities at FVTPL

Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or it is designated as at FVTPL.

A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if: - Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or - The financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Company's documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or - It forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at FVTPL.

Other financial liabilities

Other financial liabilities (including borrowings) are subsequently measured at amortised cost using the effective interest method.

Derecognition of financial liabilities

The Company derecognizes financial liabilities when, and only when, the Company's obligations are discharged, cancelled or they expire.

Consolidate Financial Statements of Isavia ohf. 2018 15 All amounts are in thousands of ISK Notes

3. Critical accounting judgements and key sources of estimation uncertainty

In the application of the Company's accounting policies, which are described in note 3, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. Accounting judgements are preferably in estimated useful life of assets and in write-downs of receivables and inventories, as described at note no. 9, 10, 13 and 14.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised.

4. Revenues

The consolidated composition of revenues, is specified as follows 2018 2017

Revenue from sales ...... 13.216.029 12.033.544 Revenue from services ...... 23.428.408 21.626.387 Revenue from contracts ...... 0 109.165 Revenue from long term assets...... 5.143.918 4.205.197 41.788.354 37.974.293

Revenue from long term assets consist from revenues of assets, land and equipment. Within revenues from long term assets are rental revenues that fall under IAS 17 Rental Contracts. Other revenues above are within IFRS 15 Revenues from contracts with customers. Further description of revenues and timing of the companys revenues can be found in Note 2.

5. Salaries and related expenses

2018 2017

Salaries ...... 14.015.826 12.838.337 Contribution to defined contribution plans ...... 2.166.032 1.772.964 Payroll taxes ...... 1.099.324 990.759 Salary-related expenses ...... 234.250 201.142 Additional contribution to pension fund and changes in vacation obligation ...... 403.849 564.149 Capitalized employment expenses ...... (378.803) (314.699) Contractor payments ...... 1.688 5.174 Other employee expenses ...... 745.500 684.026 18.287.666 16.741.851

Average number of employees ...... 1.430 1.350

Total salaries and contribution to defined contribution plans, to the company's CEO for the year 2018 were ISK 38 million, compared to ISK 30,7 millions for the year 2017. The Company´s total salaries and contribution to defined contribution plans to the three boards of the companies in this consolidation, two directors for subsidiaries and executives of the parent company for the year 2018 were ISK 330 million compared to ISK 296,4 million for the year 2017.

6. Fees to auditors 2018 2017 Audit Other service Audit Other service Deloitte ehf...... 23.615 31.044 26.143 28.451

Other services are mainly review of interim financial statement, accounting and tax service and assistance on tax return. Included in other service for the year 2018 are ISK 19,3 million (year 2017: ISK 17,5 million) because of projects that are not related to accounting.

Consolidate Financial Statements of Isavia ohf. 2018 16 All amounts are in thousands of ISK Notes

7. Financial income and expenses

Financial income 2018 2017

Interest on bank deposits ...... 78.303 108.857 Interest revenue on investments held to maturity ...... 17.040 19.381 Other interest revenue ...... 142.268 97.842 237.611 226.080

Financial expenses 2018 2017

Interest expense and indexation ...... (1.090.648) (931.555) Debt collection fee ...... (72.980) (86.612) Interest on late payments ...... (9.271) (4.181) (1.172.899) (1.022.348)

Net exchange rate differences 2018 2017

Net exchange rate differences ...... (1.604.456) (810.548) (1.604.456) (810.548)

8. Income tax

Income tax has been calculated and recorded in the Financial Statements, the amount charged in the Income Statement is ISK 1.035,7 million. Income tax payable in the year 2019 is ISK 953,7 million. In year 2017 income tax charged in the Income Statement was ISK 967,7 million and income tax payable in year 2018 was ISK 898,2 million.

The effective tax rate is specified as follows: 2018 2017 Amount % Amount %

Profit before taxes ...... 5.297.352 4.916.324

Tax rate ...... 1.059.470 20,0% 983.265 20,0% Non-taxable revenues ...... (22.500) (0,4%) (16.216) (0,3%) Joint taxation ...... 1 0,0% 319 0,0% Other changes ...... (1.318) 0,0% 371 0,0% Income tax acc. to Statement of Comp. Income ...... 1.035.653 19,6% 967.738 19,7%

Consolidate Financial Statements of Isavia ohf. 2018 17 All amounts are in thousands of ISK Notes

9. Property, plant and equipment

Buildings Aprons Control Other Total and artwork and car parks systems assets Cost Balance at 1 January 2017 ...... 30.206.306 9.962.029 4.803.178 11.420.431 56.391.944 Additions ...... 4.082.305 7.308.869 263.030 2.770.609 14.424.814 Disposals ...... 0 0 (189.781) (886.962) (1.076.743) Sold ...... 0 0 0 (36.346) (36.346) Balance at 1 January 2018 ...... 34.288.611 17.270.898 4.876.427 13.267.732 69.703.669 Revaluation ...... 0 0 (19.858) (26.363) (46.221) Additions ...... 1.376.529 1.520.646 247.211 2.900.817 6.045.203 Disposals ...... 0 (280.783) (1.127.739) (322.456) (1.730.979) Sold ...... 0 0 0 (87.241) (87.241) Balance at 31 December 2018 ...... 35.665.140 18.510.762 3.976.041 15.732.489 73.884.432

Accumulated depreciation Balance at 1 January 2017 ...... 6.030.575 1.506.154 2.301.958 3.631.598 13.470.284 Charge for the year ...... 991.945 545.752 338.178 1.130.041 3.005.915 Disposals ...... 0 0 (189.781) (728.300) (918.081) Sold ...... 0 0 0 (185.991) (185.991) Balance at 1 January 2018 ...... 7.022.519 2.051.906 2.450.355 3.847.347 15.372.127 Revaluation ...... 0 0 (23.463) (9.001) (32.465) Charge for the year ...... 927.331 701.261 304.736 1.188.944 3.122.272 Disposals ...... 0 (280.783) (1.127.739) (322.456) (1.730.979) Sold ...... 0 0 0 (42.518) (42.518) Balance at 31 December 2018 ...... 7.949.850 2.472.383 1.603.889 4.662.316 16.688.437

Book value Book value at beginning of year ...... 27.266.092 15.218.993 2.426.072 9.420.386 54.331.542 Book value at year-end ...... 27.715.290 16.038.378 2.372.151 11.070.173 57.195.995

Estimated useful lives of fixed assets are as follows:

Buildings and artwork ...... 7-100 years Aprons and car parks ...... 5-50 years Fixtures and machinery ...... 3-20 years Other assets ...... 3-20 years

Information about the revalued properties in year-end: 31.12.2018 31.12.2017

Revalued book value ...... 109.707 112.712 Impact of the special revaluation ...... (53.268) (54.887) Book value without impact of revaluation ...... 56.439 57.825

The assessment- and insurance value for the Company's assets is itemized as the following: 2018 2017 Assessment Insurance Assessment Insurance Consolidation value value value value Buildings and sites ...... 25.899.015 55.900.869 23.499.100 54.968.780 Machinery and equipment, asset insurances ...... 12.133.955 10.926.075 Other insurances ...... 43.440 692.686 Halt insurance ...... 20.562.434 15.440.299

Consolidate Financial Statements of Isavia ohf. 2018 18 All amounts are in thousands of ISK Notes

10. Intangible assets and amortization Consolidation Usage agreement Usage agreement Software Total on facilities on runways Cost Balance at 1 January 2017 ...... 477.035 5.706.000 1.233.082 7.416.117 Additions ...... 0 0 176.643 176.643 Disposals ...... 0 0 (44.328) (44.328) Balance at 1 January 2018 ...... 477.035 5.706.000 1.365.397 7.548.432 Revaluation ...... 0 0 16.436 16.436 Additions ...... 0 0 116.918 116.918 Disposals ...... 0 0 (317.527) (317.527) Balance at 31 December 2018 ...... 477.035 5.706.000 1.181.224 7.364.259

Amortization Balance at 1 January 2017 ...... 127.209 1.521.600 446.615 2.095.425 Charge for the year ...... 15.901 190.200 118.080 324.181 Disposals ...... 0 0 (44.328) (44.328) Balance at 1 January 2018 ...... 143.110 1.711.800 520.367 2.375.277 Revaluation ...... 0 0 2.680 2.680 Charge for the year ...... 15.944 190.713 131.996 338.653 Disposals ...... 0 0 (317.527) (317.527) Balance at 31 December 2018 ...... 159.055 1.902.513 337.516 2.399.084

Book value Book value at beginning of year ...... 333.925 3.994.200 845.030 5.173.155 Book value at year-end ...... 317.980 3.803.487 843.708 4.965.176

Due to the development of software intended for sale on the global market in the coming years, the development cost amounts to approximately ISK 62.5 million which was capitalized in calendar years 2012 to 2015. This is due to additions in one of the company's software product which is Tern ATC System or TAS but this software divides into several parts. The software development was completed in the second half of calendar year 2015 and are availble for sale and already in use by clients. The Company has assessed the recoverable amount of this intangible asset and determined that this asset has not suffered an impairment loss. Other software is purchased and its estimated lifespan is 3-20 years.

According to an agreement between Keflavik International Airport ohf., now Isavia ohf. and The Icelandic Defence Agency, now the Icelandic Coast Guard, signed on April 22nd 2009, the Company would take over certain NATO inventory airport facilities and equipment at Keflavik from the beginning of 2009 for the next 30 years. No fees will be charged for the usage but the Company must cover all costs of daily operations and maintenance expenses, to ensure the conditions are in accordance with the regulated standards by The International Civil Aviation Organization. On behalf of NATO inventory, the Icelandic Coast Guard has the right to use these facilities of which the usage rights are recognised proportionately over the lease term.

11. The Consolidation The Consolidated Financial Statements of Isavia ohf. consists of the parent Company and the following subsidiaries: Ownership% Nominal amount Principal activity Shares in subsidiaries Duty Free Store ehf., Keflavik Airport ...... 100,00% 50.000 Retail and commerce Tern Systems ehf., Kopavogur ...... 100,00% 80.000 Software and consulting Domavia ehf., Reykjavik ...... 100,00% 500 Real estate business Suluk ApS, Greenland ...... 100,00% 1.999 Services of air traffic controllers

Consolidate Financial Statements of Isavia ohf. 2018 19 All amounts are in thousands of ISK Notes

12. Bonds and other long term assets

31.12.2018 31.12.2017

Bond loan, weighted average of interest rate 5,48%...... 190.481 225.226 Current maturities ...... (37.514) (36.964) 152.967 223.530

Bonds and long term assets installments are specified as follows: 31.12.2018 31.12.2017

Year 2018 ...... - 36.964 Year 2019 ...... 37.514 37.277 Year 2020 ...... 37.852 37.605 Year 2021 ...... 38.205 37.947 Year 2022 ...... 38.575 38.305 Year 2023 ...... 8.961 8.678 Installments later ...... 29.374 28.449 190.481 225.226

There is an insignificant difference between the fair value and the book value of financial assets in the management's opinion.

13. Inventories

31.12.2018 31.12.2017 Goods for resale ...... 623.666 538.977 Goods in transit ...... 63.731 19.841 Allowance for old and obsolete inventory ...... (12.636) (12.097) 674.761 546.721

Changes in allowance for old and obsolete inventory:

At the beginning of the year ...... (12.097) (14.665) Reversed allowance for old and obsolete inventory ...... (32.887) (18.330) Inventories written off ...... 32.348 20.898 At year-end ...... (12.636) (12.097)

Insurance value of inventories ...... 699.387 686.549

No inventories have been pledged at year-end 2018.

The Company´s plan is to sell all of its inventories in next 12 months.

14. Other financial assets

Accounts receivables 31.12.2018 31.12.2017

Domestic receivables ...... 5.033.487 2.963.459 Foreign receivables ...... 833.541 645.247 Construction contracts ...... 0 109.165 Allowances for doubtful accounts ...... (250.684) (132.026) Receivables Joint Finance contract ...... 408 1.068.034 5.616.752 4.653.881

Construction contracts consist of two contracts. In the year 2017 a contract was made regarding installation of system for four largest airports in South-Korea and that contract is still in progress. Also the company made a contract regarding installation on a system at Jeju Island in South-Korea which is still not finished. At the end of year 2018 the company has no credit because of these contracts. At the same time last year the credit was ISK 109,2 million because of contracts.

Consolidate Financial Statements of Isavia ohf. 2018 20 All amounts are in thousands of ISK Notes

14. Other financial assets (continued)

Aging and allowance for doubtful accounts

Changes in the allowance for doubtful accounts:

31.12.2018 31.12.2017

At the beginning of the year ...... (132.026) (58.289) Impairment loss recognized on receivables ...... (122.947) (73.737) Amounts written off as uncollectable...... 4.289 0 At year-end ...... (250.684) (132.026)

Allowance has been made for doubtful accounts. This allowance has been determined by management in reference to past default experience. Allowance in the year end 2018 has been valued according to IFRS9, but allowance in the year end 2017 is valued according to IAS 39, see below: Value of allowance for doubtful accounts in accordance with IFRS 9 is following:

The Company assesses the allowance for doubtful accounts based on the likelihood of default occurring any time during the life of the receivables. Accounts receivables are divided into age groups and impairment loss estimated for each age group that is based on experience of previous years, management estimates and future prospects in the client's economic environment. It is the opinion of the Company's management that the carrying amount of accounts receivables and other receivables reflects their fair value.

The company is of the opinion that objective evidence of impairment is present if the information from the company or outside parties indicate that the debtor is in financial difficulties or if receivables are more than 90 days past due.

Analysis of aging and allowance for doubtful accounts at the balance sheet date were as follows: 31.12.2018 Expected loss Gross amount Allowance Book value

Receivables not yet due ...... 2% 3.234.799 46.219 3.188.580 1-90 days ...... 4% 1.369.437 57.156 1.312.282 91-180 days ...... 10% 1.089.124 112.253 976.871 181-270 days ...... 20% 44.602 8.797 35.804 > 271 days ...... 20% 129.066 26.259 102.807 Total...... 5.867.028 250.684 5.616.344

Analysis of aging and allowance for doubtful accounts at the year end 2017 were according to IAS 39 and were as follows:

31.12.2017 Gross amount Allowance Receivables not yet due ...... 2.007.007 24.914 1-90 days ...... 1.471.454 56.057 91-180 days ...... 183.902 24.787 181-270 days ...... 30.367 17.682 > 271 days ...... 25.141 8.585 3.717.872 132.026

Consolidate Financial Statements of Isavia ohf. 2018 21 All amounts are in thousands of ISK Notes

14. Other financial assets (continued)

Other receivables 31.12.2018 31.12.2017 Value added tax, receivables ...... 5.214.471 4.005.085 Prepaid expenses ...... 87.424 96.191 Capital income tax ...... 18.312 34.709 Prepaid salaries ...... 51.355 60.032 Other receivables ...... 382.827 320.464 5.754.389 4.516.482

The company's claim for value added tax consists mainly of unprocessed VAT reports from the Directorate of Internal Revenue for the period September 2016 to December 2018. The Directorate of Internal Revenue has questioned the validity of the assumption of value added tax registration that the company serves international flights at Keflavík Airport, according to article 12 in the Act on Value Added Tax, and the company does not therefore have the right to use a zero tax rate method and get VAT refunded from purchased supplies and services at the same time. The company on the other hand believes that this important assumption was in place when the company was established. The company has made it's argument but The Directorate of Internal Revenue has not ruled on the matter. The financial statement for the year 2018 is done according to the methodology that has been used since the company was established in the year 2010.

If the ruling of the matter becomes unfavorable for the company, the impact can be significant. The estimated effect on the financial statements for the period will be a decrease in the operating income for the period by 862 million ISK, increase in tangible fixed assets by 4.623 million ISK while the corresponding decrease in other short-term claims is the same. There will also be a decrease ISK 690 million in equity after taking into account tax effects.

Changes have been made to the Value Added Tax Act that eliminates all doubt about the company's authorization to apply the methodology that has been applied since the establishment of the company. This change came into force on January 1st 2019. Different interpretations of the company and the Dircector of Internal Revenue on the provisions of the VAT act now only relate to the submission of value added tax reports for the period from September 2016 to December 2018 or until the time the amendment to the Ace came into force.

Bank balances and cash

The Company´s cash and cash equivalent consist of cash and bank balances. 31.12.2018 31.12.2017 Bank balances in ISK ...... 1.624.126 1.354.884 Bank balances in foreign currencies ...... 2.803.972 1.738.149 Redemption accounts ...... 1.001.250 0 Cash in ISK ...... 6.779 8.254 5.436.127 3.101.287

15. Equity

Share capital is specified as follows: Shares Ratio Amount

Total share capital at year-end ...... 5.589.063 100,0% 5.589.063 5.589.063 100,0% 5.589.063

Each share of one ISK carries one vote. The Ministry of Finance carries the voting rights on behalf of the Icelandic Treasury. All shares have been paid in full.

Consolidate Financial Statements of Isavia ohf. 2018 22 All amounts are in thousands of ISK Notes

16. Long term borrowings Loans from credit institutions 31.12.2018 31.12.2017 Liabilites in EUR ...... 27.851.711 24.611.729 Liabilites in USD ...... 2.892.813 2.764.134 Liabilites in ISK ...... 6.016.029 6.363.030 36.760.553 33.738.894 Current portion of long term liabilities ...... (3.133.778) (8.223.715)

Non-current liabilities at year-end ...... 33.626.775 25.515.178

Change in liabilities for the year is following:

Liabilities at beginning of the year ...... 33.738.894 24.206.482 New liabilities in the year ...... 9.824.100 9.984.250 Installments for the year ...... (8.514.747) (1.234.444) Exchange rate difference and indexation ...... 1.712.306 782.605 Liabilities at the end of the year ...... 36.760.553 33.738.894

Installments of non-current liabilities are specified as follows: Loans from credit institutions 31.12.2018 31.12.2017

Installments in 2018 ...... 8.223.715 Installments in 2019 ...... 3.133.778 4.634.826 Installments in 2020 ...... 5.068.473 1.409.903 Installments in 2021 ...... 1.494.920 1.416.623 Installments in 2022 ...... 1.408.541 1.332.836 Installments in 2023 ...... 1.669.171 1.334.825 Installments later ...... 23.985.670 15.386.166 36.760.553 33.738.894

Loans amounting to ISK 35.642,8 million are subject to financial covenants regarding equity ratio. Thereof loans amounting to ISK 22.120,3 million are also subject to condition of net interest bearing debts/EBITDA ratio. The financial covenants are reviewed on a regular basis and it is management view that they are unlikely to be breached.

17. Deferred tax liability 31.12.2018 31.12.2017

Balance at beginning of the year ...... 2.056.586 1.987.019 Effects from joint taxation ...... 0 (3.992) Calculated income tax for the year ...... 1.035.653 972.229 Income tax payable for the next year ...... (953.694) (898.670) Translation exchange difference ...... 93 0 Balance at the end of the year ...... 2.138.638 2.056.586

Deferred tax balances consist of the following account balances

31.12.2018 31.12.2017 Property, plant and equipment ...... 2.400.675 1.974.767 Current assets ...... (559) 2.594 Other items ...... (256.442) 1.138 Exchange differences ...... (5.036) 78.087 2.138.638 2.056.586

Consolidate Financial Statements of Isavia ohf. 2018 23 All amounts are in thousands of ISK Notes

18. Other financial liabilities Accounts payable 31.12.2018 31.12.2017

Domestic accounts payable ...... 1.508.057 1.890.185 Foreign accounts payable ...... 350.523 386.814 1.858.581 2.276.999

Current maturities of long-term liabilities 31.12.2018 31.12.2017

Loans from credit institutions ...... 3.133.778 8.223.715 3.133.778 8.223.715 Other current liabilities 31.12.2018 31.12.2017

Value added tax, payable ...... 30.388 23.596 Deferred revenue ...... 13.477 13.232 Accrued additional contribution to pension fund ...... 295.460 292.551 Salaries and related expenses payable ...... 696.103 645.885 Accrued holiday commitment ...... 1.304.353 1.227.694 Accrued interest, payable ...... 159.662 150.669 Other liabilities ...... 92.097 88.311 Deferred revenue ...... 226.223 129.791 Unfinished construction contract ...... 37.004 455 2.854.767 2.572.183

19. Financial risk

Financial instruments

The consolidated financial assets and liabilities are specified into following types of financial instruments:

Financial assets 31.12.2018 31.12.2017

Bank balance and cash ...... 5.436.127 3.101.287 Financial assets that are intended to hold to maturity ...... 190.481 225.226 Loans and receivables ...... 11.232.362 9.014.140

Financial liabilities 31.12.2018 31.12.2017

Other financial liabilities ...... 42.427.594 39.486.228

Financial assets which are intended to hold to maturity, loans and advances and other financial liabilities are measured at amortized cost with effective interest method less impairment.

Risk management The company has established a risk policy and has an active risk management that has the role of assessing and managing the risk factors that the company has. The risks under active risk management are market risk, counterparty risk and liquidity risk. There are also other risks related to, operations, reputation, management and other factors that have been mapped and evaluated on the basis of seriousness and probability. The Risk Committee of the Company regularly meets about issues related to risk management.

Consolidate Financial Statements of Isavia ohf. 2018 24 All amounts are in thousands of ISK Notes

19. Financial risk (continued)

Interest rate risk Interest rate risk is the risk that fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

Interest rate changes affect the expected cash flow of assets and liabilities which bear floating interest rates.

Sensitivity analysis In the analysis below the effects of 50 and 100 basis points increase on profit or loss and equity are demonstrated. The sensitivity analysis below has been determined based on the exposure to interest rates at the balance sheet date. The analysis is prepared assuming the amount outstanding at the balance sheet date was outstanding for the whole year. The analysis assumes that all other variables than basis points are held constant. The sensitivity analysis does take into account tax effects. A positive amount below indicates an increase in profit and other equity. A decrease in basis points would have an opposite impact on income statement and equity.

Effects on profit or loss and other equity are the same as change in valuation of the underlying financial instruments is not charged directly to equity. Positive amount indicates increased profits and equity. Lower interest rates would have the same effect but in the opposite direction:

31.12.2018 31.12.2017 50 bps. 100 bps. 50 bps. 100 bps.

Effects on profit or loss and other equity ...... (88.085) (176.169) (116.511) (233.022)

Foreign currency risk

Foreign currency risk is the risk that fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign currency rates. Foreign currency risk exposure does arise when there is a difference between assets and liabilities denominated in foreign currency. The majority of assets of the Company are in the local currency, but some of the financial assets are denominated in foreign currency. The majority of the liabilities of the Company are denominated in foreign currencies. Following table details the currencies that affect the operations of the Company. Rates and volatility in exhange rates are based on mid rates. Year-end rate Average rate Currency 2018 2017 2018 2017 EUR ...... 133,23 125,05 127,73 120,54 GBP ...... 148,33 140,98 144,35 137,45 JPY ...... 1,057 0,928 0,980 0,951 CHF ...... 118,23 107,07 110,72 108,43 DKK ...... 17,84 16,80 17,14 16,20 NOK ...... 13,40 12,73 13,31 12,93 SEK ...... 13,02 12,71 12,46 12,52 USD ...... 116,33 104,42 108,38 106,78 CAD ...... 85,47 83,32 83,61 82,36 HUF ...... 0,40

Foreign currency risk 31.12.2018 Assets Liabilities Net balance EUR ...... 2.648.281 28.132.478 (25.484.197) GBP ...... 680.592 13.425 667.167 JPY ...... 1.684 0 1.684 CHF ...... 3.904 10.714 (6.810) DKK ...... 156.023 33.603 122.420 NOK ...... 3.431 2.358 1.072 SEK ...... 2.421 185 2.236 USD ...... 158.307 2.946.636 (2.788.329) CAD ...... 2.515 0 2.515 HUF ...... 2.292 1.358 935

Consolidate Financial Statements of Isavia ohf. 2018 25 All amounts are in thousands of ISK Notes

19. Financial risk (continued)

Foreign currency risk 31.12.2017 Assets Liabilities Net balance

EUR ...... 2.180.470 24.863.853 (22.683.383) GBP ...... 36.376 19.263 17.112 JPY ...... 832 0 832 CHF ...... 6.801 12.074 (5.273) DKK ...... 78.037 6.871 71.166 NOK ...... 1.293 7.171 (5.878) SEK ...... 915 2.016 (1.101) USD ...... 309.855 2.962.730 (2.652.875) CAD ...... 3.385 0 3.385

Sensitivity analysis The table below shows what effects 5% and 10% increase of the relevant foreign currency rate against the ISK would have on profit or loss and other equity based on the balance of assets and liabilities in the relevant currency at the reporting date. The table above details monetary assets and liabilities that are denomintated in foreign currency and the sensitivity analysis apply to. The foreign currency assets and liabilities in the sensitivity analysis are mainly foreign currency borrowings and foreign currency bank balances. The analysis assumes that all other variables than the relevant foreign currency rate are held constant. The sensitivity analysis covers the currencies that include the most exchange rate risk. The sensitivity analysis does take into account tax effects and therefore reflects the impact on the income statement and equity. The effect on profit or loss and equity are the same as the change in valuation of underlying financial instruments in foreign currency is not in any case recognized directly in equity. Change of the ISK by 5% and 10% against the currencies below would have had the same effect but in the opposite direction.

Effects on profit or loss and equity 31.12.2018 31.12.2017 5% 10% 5% 10%

EUR ...... (1.019.368) (2.038.736) (907.335) (1.814.671) GBP ...... 26.687 53.373 684 1.369 JPY ...... 67 135 33 67 CHF ...... (272) (545) (211) (422) DKK ...... 4.897 9.794 2.308 4.615 NOK ...... 43 86 (235) (470) SED ...... 89 179 (44) (88) USD ...... (111.533) (223.066) (106.115) (212.230) CAD ...... 101 201 135 271 HUF ...... 37 75

Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss for the Company. The Company actively monitors the changes to its credit risk. A more detailed description of the Company's assessment of expected loan losses due to financial assets can be found in Notes 2 and 14. The Company has no write-down on bond assets that are low amounts and the estimate of the management is that the write-down would be insignificant.

31.12.2018 31.12.2017

Bonds and other long term assets ...... 190.481 225.226 Accounts receivables ...... 5.616.752 4.653.881 Other receivables ...... 5.615.610 4.360.259 Bank balances and cash ...... 5.436.127 3.101.287 16.858.970 12.340.652

The maximum risk of the Company is the carrying amount itemized above.

Consolidate Financial Statements of Isavia ohf. 2018 26 All amounts are in thousands of ISK Notes

19. Financial risk (continued)

Liquidity risk management

Liquidity risk is the risk that the Company has difficulties to meet its financial commitments in the near future. On a regular basis the Company monitors the liquidity balance, development and the effects of market environment.

Payable Payable between Payable within 1 year 1 - 4 years after 4 years Total Liabilities 31.12.2018 Non-interest bearing ...... 5.667.042 0 0 5.667.042 Floating interest rates ...... 3.020.407 9.052.786 15.553.646 27.626.839 Fixed interest rates ...... 113.371 588.319 8.432.024 9.133.714 8.800.819 9.641.105 23.985.670 42.427.594 Assets 31.12.2018 Non-interest bearing ...... 11.233.388 0 0 11.233.388 Floating interest rates ...... 5.472.615 123.593 29.374 5.625.582 16.706.003 123.593 29.374 16.858.970

Net balance 31.12.2018 7.905.184 (9.517.512) (23.956.296) (25.568.624)

Payable Payable between Payable within 1 year 1 - 4 years after 4 years Total Liabilities 31.12.2017 Non-interest bearing ...... 5.747.334 0 0 5.747.334 Floating interest rates ...... 8.119.749 8.405.433 16.027.382 32.552.564 Fixed interest rates ...... 103.966 388.755 693.609 1.186.330 13.971.050 8.794.187 16.720.991 39.486.228 Assets 31.12.2017 Non-interest bearing ...... 9.016.248 0 0 9.016.248 Floating interest rates ...... 3.136.142 151.134 37.128 3.324.404 12.152.391 151.134 37.128 12.340.652

Net balance 31.12.2017 (1.818.659) (8.643.053) (16.683.863) (27.145.576)

20. Other issues

Revenues of International Air Navigation Services

On the basis of a service agreement with the Ministry of the Interior, the Company offers air navigation services within the Icelandic, Greenland, and Faroese airspaces in accordance with the Icelandic Government's commitments in international agreements. For this obligation, there is a so called Joint Financing Agreement which was signed in 1956 between 13 member countries of ICAO, The International Civil Aviation Organization. These member countries are now 24. The users of the service pay for the service in full.

Court Proceedings In the year 2015 Drífa ehf. started Court proceedings against Isavia ohf. demanding compensation for alleged damages in connection with the pre-qualification process when renting commercial space in the duty free area of Leifur Eiríksson Air Terminal. A selection committee considered an offer from another bidder more advantageous. The amount of Compensation claimed is ISK 1,5 billion. Isavia ohf. is on the opinion that it acted in accordance with the pre-qualification procedure and the lawsuit is without merit.

Consolidate Financial Statements of Isavia ohf. 2018 27 All amounts are in thousands of ISK Notes

21. Other obligations

Operating license

Isavia ohf. holds a license from the Iceland Civil Aviation Administration for the operations of air navigation services under regulation No. 1129/2014 and a license for the operation of airports according to regulation No. 464/2007. The Company is also a holder of flight operating license to operate aerial work (flight test etc.) according to regulation No. 97/2009. The licenses are granted for variable periods. Licenses for the operations of air navigation service is valid until 2021 and Keflavik Airport, Reykjavik Airport, Akureyri Airport and Egilsstadir Airport are valid for an indefinite period. Registered landing area or other airports including airports for scheduled flights are valid for an indefinite period.

Under its operating license the Company is required to respect and meet all obligations within the range of responsibilities and the operational area of the airport, the runways and terminal at Keflavik Airport which the Icelandic goverment has undertaken, and may undertake. In times of war, and in emergencies, the Company shall be obliged to grant the American Military Authorities, use of airport facilities at Keflavik Airport. The International and Security Affairs Department of the Ministry for Foreign Affairs shall be responsible for liaising between the Company and the American Military Authorities, whether directly or indirectly.

Service agreement for construction The service agreement between the Ministry of the Interior and the Company applies to maintenance and construction of airports others than Keflavik Airport. The company works with the Ministry of the Interior and prepares a proposal for maintance and construction which the company believes is neccessary to perform in accordance with the National Transportation Policy. The construction projects are included in this plan and are therefore agreed, according to the transportation policy. Payments are received according to a payment plan. In 2018 the amount for construction projects was in total ISK 150,5 million (2017: ISK 246,9 million).

Service agreements for operations On the basis of the service agreement with the Ministry of the Interior the Company provides navigation services in local airspace; operations, maintance and construction of airports and landing strips and publishes the AIP handbook.

The Company is obliged to have in effect all legally binding insurance including liability insurance for air traffic control and airports. The liability coverage at year-end for air traffic control and airports for the year 2019 amounted to USD 1.500.000.000.

The Company's legally binding insurance is exempt from liability due to acts of terrorism. The Company has procured insurance against terrorism covering damage in air navigation services and airports for the year 2019 amounting to approximately USD 1.500.000.000.

The Company has purchased insurance for the company's airplane TF-FMS that amounted USD 2.500.000. The Company has purchased an idemnity insurance for the Board of Directors and Management which covers a loss up to ISK 300.000.000.

Obligation due to employees

The Company has insured all its employees in accordance with applicable collective agreements, except certificates of insurance for air traffic controllers. According to collective agreements, the Company shall at its own expense ensure certification of each controller that has VFR and/or IFR qualifications. The Company has not purchased insurance and therefore has an obligation in accordance with applicable collective agreements, if loss of certifications occurs.

22. Related parties

Related parties are those parties which have considerable influence over the Company, directly or indirectly, including parent company, owners or their families, large investors, key employees and their families and parties that are controlled or dependent on the Company, i.e. affiliates and joint ventures. Isavia ohf. is a government owned private limited company and partial exemption is provided from the disclosure requirements for government-related entities in the revised version of IAS 24.

Disclosures regarding salaries for the Board of Directors and Managing Director is explained in note no. 5. Sales of goods and service to key management personnel and related parties are immaterial.

23. Approval of financial statements

The financial statements were approved by the Board of Directors and authorised for issue on March 7th, 2019.

Consolidate Financial Statements of Isavia ohf. 2018 28 All amounts are in thousands of ISK Notes

24. Consolidated ratios

From Statement of Comprehensive Income: 2018 2017

Profitability Earnings before interests, taxes, depreciation and amortisation (EBITDA) ...... 11.298.021 9.853.236 a) Contribution margin on operation ...... 27,04% 25,95% b) Profit margin on operating revenue ...... 10,20% 10,40% c) Earning per share (EPS) ...... 0,76 0,71 d) Return on equity ...... 12,86% 13,60%

a) EBITDA/total revenue b) Net income/total revenue c) Earnings per share (EPS) d) Net income/average equity

From Balance sheet: 31.12.2018 31.12.2017

Activity ratios e) Investment in inventories ...... 0,02 0,01 f) Rate of return on assets ...... 0,55 0,58 g) Inventory turnover ...... 10,71 10,96 h) Receivables turnover ...... 8,14 10,43

e) Inventory/revenues g) Cost of goods sold/average inventory f) Net income/average total assets h) Reveneus/average accounts receivables

Liquidity ratios i) Quick or acid-test ratio ...... 1,91 0,88 j) Current ratio ...... 1,99 0,92 k) Net Interest Bearing Debts/EBITDA ...... 2,77 3,11

i) (Current assets - inventories)/average total assets j) Current assets/current liabilities

Coverage ratios l) Equity ratio ...... 44,18% 42,74% m) Internal value of shares ...... 6,31 5,55

l) Shareholders equity/total assets m) Shareholders equity/capital stock

From Cash flow: 2018 2017

n) Net cash debt coverage ...... 0,16 0,08 o) Quality of sales ...... 1,68 0,80 p) Quality of net profit ...... 1,12 0,76

n) Cash flow from operat./Total liabilities o) Paid in revenue/stated revenue p) Cash flow from operat./net profit

Operating expenses as percentage of revenues 2018 2017

Cost of goods sold/income from retail division ...... 15,65% 15,39% Salaries and related expenses/operating revenues ...... 43,76% 44,09% Administrative expenses/operating revenues ...... 1,30% 1,65% Other operating expenses/operating revenues ...... 12,25% 12,93% Depreciation and amortization/operating revenue ...... 8,28% 8,77% Operating expenses/operating revenues 81,25% 82,82%

Consolidate Financial Statements of Isavia ohf. 2018 29 All amounts are in thousands of ISK Notes

25. Segment reporting

Segment information are disclosed on basis of organizational structure and internal management information. Segments are divided on basis of three operational components from the parentcompany and support divisions are included in others. Majority of Air navigationcomponent consists of service to carriers granted on basis of the JointFinance Agreement. Domestic systems are operationof airports and airport control towers for domestic flights. Keflavik airport are operation of airport and control tower in Keflavik in addition to Leifur Eiriksson Air Terminal. Revenue from the parentcompany's biggest clients are from Icelandair Group amounts ISK 7.478,7 million or about 23% (2017: Icelandair Group ISK 6.879,8 million; 23%) and from Duty Free amounts ISK 4.596,2 million or about 14% (2017: Duty Free amounts ISK 4.166,5 million; 14%). Comprehensive income from Domestic airports is to a large extent based on a service agreement between the government and Isavia ohf. The operating profit in this segment reporting does not take into account the cost of capital from what Isavia has invested in non current assets that are used for the Domestic airports operation. From the year 2011 the aggregated operating profit before financial income and expenses has been ISK 110,4 million while Isavia estimated aggregated cost of capital because of these investments are about ISK 370,7 million. Therefore operating profit from the operation of the Domestic Airports in the years of 2011 – 2018 is considerably too low to cover the cost of capital from the investments in the current assets.

Within the income of segments are lease income that amounts ISK 8.149,2 million (2017: about 7.073,7 million) which fall within the scope of IAS 17 Leases. Other revenue specified above are within the scope of IFRS 15 Revenue from contracts with customers. More detailed description of the nature of revenue and timing can be found in note number 2.

Segment information year 2018 Air- Domestic Keflavik Duty Free navigation Airports Airport Store Others Eliminations Consolidated Revenue: External revenue ...... 7.225.351 2.484.642 18.392.965 13.479.989 205.407 41.788.354 Inter-segment revenue ...... 756.893 43.592 4.631.737 829.230 (6.261.452) 0 Total revenue ...... 7.982.245 2.528.233 23.024.702 13.479.989 1.034.637 (6.261.452) 41.788.354 Comprehensive income: Operating profit ...... 625.204 81.669 6.969.132 193.503 (32.412) 7.837.095 Net financial income / (expenses) ...... (2.539.744) Profit before taxes ...... 5.297.352 Total comprehensive income ...... 4.261.698 Balance sheet: Non-current assets ...... 4.024.807 1.318.038 55.504.853 375.621 1.655.112 (564.293) 62.314.137 Other assets unallocated to segments ...... 17.519.544 Total assets ...... 79.833.681 Total liabilities ...... 44.566.233 Other information: Capital additions ...... 522.858 199.310 5.280.969 64.354 94.631 6.162.121 Depreciation and amortization ...... 321.443 107.097 2.876.055 100.060 56.270 3.460.925

Consolidate Financial Statements of Isavia ohf. 2018 29 All amounts are in thousands of ISK Notes

25. Segment reporting (continued)

Segment information year 2017 Air- Domestic Keflavik Duty Free navigation Airports Airport Store Others Eliminations Consolidated Revenue: External revenue ...... 6.766.500 2.391.179 16.305.631 12.256.870 254.114 37.974.293 Inter-segment revenue ...... 735.691 66.061 4.255.892 0 655.589 (5.713.232) 0 Total revenue ...... 7.502.190 2.457.240 20.561.523 12.256.870 909.703 (5.713.232) 37.974.293 Comprehensive income: Operating profit ...... 608.307 104.233 5.745.106 241.244 (16.058) (159.692) 6.523.140 Net financial income / (expenses) ...... 2.303.887 Profit before taxes ...... 8.625.890 Total comprehensive income ...... 6.922.830 Balance sheet: Non-current assets ...... 3.894.852 1.226.600 52.686.490 412.152 2.037.157 (564.293) 59.692.959 Other assets unallocated to segments ...... 10.762.737 Total assets ...... 59.229.033 Total liabilities ...... 32.172.170 Other information: Capital additions ...... 586.158 411.516 13.055.694 157.419 385.252 14.596.038 Depreciation and amortization ...... 307.669 91.221 2.780.835 95.834 54.537 3.330.096

Consolidate Financial Statements of Isavia ohf. 2018 30 All amounts are in thousands of ISK