AS Tallinna Vesi

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  • #311164 Reply

    Nauris Treigys
    Keymaster

    On December 11, 2017, the Management Board of Nasdaq Tallinn stock exchange decided in accordance with the stock exchange rulebook section “Supervision” to suspend automatic order matching in AS Tallinna Vesi shares (ticker: TVEAT, ISIN code: EE3100026436) from the start of the trading day on December 12, 2017 until the information about the decision of the Supreme Court has been disclosed by AS Tallinna Vesi via stock exchange information distribution system.
    Notice on resumption of automatic order matching will follow.

    #312122 Reply

    Nauris Treigys
    Keymaster

    The operational performance of AS Tallinna Vesi in 2017 once again reflects the high standards achieved in the supply of pure drinking water to the inhabitants, treatment of wastewater, maintenance of the water and sewerage networks and customer service.

    Record low level of leakages in the water network

    For Tallinna Vesi it has always been important to use natural resources sparingly and in a responsible way. Thanks to the preventive maintenance and targeted capital investments into the networks and committed performance of our emergency teams in 2017, we achieved the lowest level of leakages of all time within our water network – 13.82%. This means that Tallinna Vesi has managed to reduce water losses by more than one percentage point during one year (15.07% in 2016).

    We belong to the top of European utilities

    Tallinna Vesi’s customer satisfaction levels continue to be evenly high in all segments. Our customers gave us significantly higher ratings than the average level of European utilities sector. According to the survey carried out by Kantar Emor, the Company scored 88-92 TRI*M index points on 100-points scale against the European average of 65 points.

    Tallinna Vesi received 36 written complaints from customers. The number of complaints concerning water pressure, blockages and draining of storm water has dropped considerably. The Company managed to keep its promises in almost all cases.

    Reliable and high quality service

    Besides the high standards of customer service, customer satisfaction is strongly affected above all by a reliable and high quality service. We do not compromise the quality of drinking water and once again this is demonstrated by high level of compliance with the stipulated standards, at 99.93%. End-users’ trust in the quality of tap water among users also remains high –75% of them drink tap water.

    In order to ensure the reliability of service to our consumers, numerous considerable investments were made in 2017, the largest of which was providing an alternative pipe to supply consumers in Mustamäe, Õismäe and Harku. The average duration of water interruptions per property dropped to 3 hours and 8 minutes (3.14 hours) in 2017 (3.44 hours in 2016).

    The number of blockages has also reduced gradually over the years and in 2017 reached 654 blockages (670 in 2016). In order to inform people more of their own role in avoiding unpleasant sewer blockages, we launched an awareness campaign in 2017 to remind them that trash must not be thrown to the toilet.

    We care for the environment

    Tallinna Vesi’s focus lied on contributing to the local community and promoting environmental education also in 2017. We organised water seminars in nurseries and schools, we hosted numerous tour groups in our water and wastewater treatment plants and organised doors-open days.

    Besides our long-term sponsorship projects, we are also committed to making pure drinking water available in public spaces and allowing people to choose a more environmentally friendly alternative to bottled water. In 2017, we opened several new public water taps and plan to continue setting them up also in 2018.

    Indicator Unit 2017 12 months 2016 12 months 2017 Q4 2016 Q4
    Drinking water
    Compliance of water quality at the customers’ tap % 99.93% 99.93% 100.00% 100.00%
    Water loss in the water distribution network % 13.82% 15.07% 14.69% 14.14%
    Average duration of water interruptions per property in hours h 3.14 3.44 2.91 3.21
    Wastewater
    Number of sewer blockages No 654 670 134 167
    Number of sewer bursts No 135 107 26 34
    Wastewater treatment compliance with environmental standards % 100.0% 100.0% 100.00% 100.00%
    Customer Service
    Number of written complaints No 36 45 7 16
    Number of customer contacts regarding water quality No 219 166 42 58
    Number of customer contacts regarding water pressure No 298 339 58 92
    Number of customer contacts regarding blockages and discharge of storm water No 1,111 1,190 299 281
    Responding written customer contacts within at least 2 work days % 99.94% 99.46% 99.97% 99.93%
    Number of failed promises No 5 4 2 0
    Notification of unplanned water interruptions at least 1 h before the interruption % 98.2% 98.8% 95.92% 99.84%

    #312263 Reply

    Nauris Treigys
    Keymaster

    The performance of AS Tallinna Vesi in 2017 once again reflects the high standards achieved in the supply of pure drinking water to the inhabitants, treatment of wastewater, maintenance of the water and sewerage networks and customer service.

    The Group’s total sales increased by 1.4% to 59.82 million, as we witnessed an increase in sales in all our main water supply and waste water disposal related services. Sales to private customers increased by 1.1% and sales to corporate customers by 1.7%. Sales to customers outside the main service area have increased by 6.3% to EUR 4.68 million, mainly due to higher storm and waste water disposal services. Group’s net profit for 2017 was EUR 7.22 million – this result is 60.7% lower than in 2016 as was mainly influenced by the provision for possible third-party claims, related to recent decision from the Supreme Court, if potential customer claims are to be recognised by the courts. The Company is of a position, that we have acted on the legal bases.

    Long-awaited decision

    Shortly before the end of the year, the Estonian Supreme Court made a decision on the tariff dispute between Tallinna Vesi and Estonian Competition Authority. Unfortunately, the final verdict was a disappointment to Tallinna Vesi and we were unsuccessful with our Cassation. Despite the fact that the court did not find any reasons to doubt the legality of the Services Agreement, signed with the City of Tallinn, it still decided that the Competition Authority is not bound by the agreement. For Tallinna Vesi, the decision means that from now it will have to operate under new conditions. The price of water and wastewater service, is now subject to approval by the Competition Authority using their methodology.

    However, the dispute is not entirely over for Tallinna Vesi. We are still awaiting the final verdict from the International Arbitration, on whether the investor’s interests have been adversely affected, and whether this should be compensated.

    Nevertheless, the company continues its everyday operations, with the utmost priority to ensure uninterrupted high-quality services for customers.

    Record low level of leakages in the water network

    For Tallinna Vesi it has always been important to use natural resources sparingly and in a responsible way. Thanks to the preventive maintenance and targeted capital investments into the networks and committed performance of our team in 2017, we achieved the lowest level of leakages of all time within our water network – 13.82%. This means that Tallinna Vesi has managed to reduce water losses by more than one percentage point during one year (15.07% in 2016).

    We belong to the top of European utilities

    Tallinna Vesi’s customer satisfaction levels continue to be evenly high in all segments. Our customers gave us significantly higher ratings than the average level of European utilities sector. According to the survey carried out by Kantar Emor, the Company scored 88-92 TRI*M index points against the European average of 65 points.

    Tallinna Vesi received 36 written complaints from customers. The number of complaints concerning water pressure, blockages and draining of storm water has dropped considerably. The Company managed to keep its promises in almost all cases.

    Reliable and high-quality service

    Besides the high standards of customer service, customer satisfaction is strongly affected above all by a reliable and high-quality service. We do not compromise the quality of drinking water and once again this is demonstrated by high level of compliance with the stipulated standards, at 99.93%. End-users’ trust in the quality of tap water among users also remains high –75% of them drink tap water.

    In order to ensure the reliability of service to our consumers, numerous considerable investments were made in 2017, the largest of which was providing an alternative pipe to supply consumers in Mustamäe, Õismäe and Harku. The average duration of water interruptions per property dropped to 3 hours and 8 minutes (3.14 hours) in 2017 (3.44 hours in 2016).

    The number of blockages has also reduced gradually over the years and in 2017 reached 654 blockages (670 in 2016). In order to inform people more of their own role in avoiding unpleasant sewer blockages, we launched an awareness campaign in 2017 to remind them that trash must not be thrown to the toilet.

    We care for the environment

    Tallinna Vesi’s focus lied on contributing to the local community and promoting environmental education also in 2017. We organised water seminars in nurseries and schools, we hosted numerous tour groups in our water and wastewater treatment plants and organised doors-open days.

    Besides our long-term sponsorship projects, we are also committed to making pure drinking water available in public spaces and allowing people to choose a more environmentally friendly alternative to bottled water. In 2017, we opened several new public water taps and plan to continue setting them up also in 2018.
    Attachments:
    ASTV 12 months 2017.pdf

    #312264 Reply

    Nauris Treigys
    Keymaster

    The Company’s total sales revenue for 2017 was EUR 59.82 million (2016: 58.98), showing an increase of 1.4% year-on-year. At the same time AS Tallinna Vesi’s net profit for 2017 was EUR 7.22 million.

    During the twelve months of 2017 there has been an increase in sales to private customers by 1.1% to EUR 25.23 million and 1.7% increase to EUR 20.41 million in sales to corporate customers within the service area. Sales to customers outside the main service area have increased by 6.3% to EUR 4.68 million, mainly due to higher storm and waste water disposal services, accompanied by slightly increased water supply volumes in 2017.

    The net profit of the company decreased by 60.7% or EUR 11.17 million compared to the same period in 2016. The change was mainly impacted by the provision for possible third-party claims, that might follow 12 December 2017 decision from the Supreme Court, if such claims are to be recognised by the courts. Change in net profit was also impacted by the decrease in income tax on dividends. Eliminating the effects of the derivatives fair value and the effect of possible third-party claims, the net profit for the twelve months of 2017 would have been EUR 24.17 million, showing an increase by 29.2% or EUR 5.47 million compared to the relevant period in 2016.

    AS Tallinna Vesi is still waiting for the final verdict from international arbitration. The hearings in the international arbitration proceedings were held in 2016 and the decision is expected in the beginning of 2018.

    #312995 Reply

    Nauris Treigys
    Keymaster

    Yesterday, on 28th February, AS Tallinna Vesi submitted its application for the approval of the new water tariffs to the Competition Authority. According to the Public Water Supply and Sewerage Act the Competition Authority has 30 days to review the application which the authority may extend to up to 90 days.

    For AS Tallinna Vesi it is the first tariff application for the cities of Tallinn and Saue, which has not been submitted based on the methodology stipulated within the Services Agreement agreed with the City of Tallinn, but instead based on the Competition Authority’s recommendatory methodology which differs significantly from the previous methodology. Consequently, the Company is of the opinion that there are several key points in the tariff application that require further discussions with the Competition Authority, and the Company is planning to meet with the Authority’s representatives in the near future.

    The tariffs calculated in the Company’s tariff application submitted yesterday are close to the currently applicable water tariffs, which have remained unchanged since 2010.

    The obligation to submit the tariff application to the Competition Authority arises from the 12th December 2017 Supreme Court decision. The Court concluded that the Competition Authority is not bound by the tariff agreement contained in the Services Agreement, which had been signed between the water undertaking and the City of Tallinn upon privatisation, and AS Tallinna Vesi has to comply with the Competition Authority’s precept to submit a new tariff application.

    #313146 Reply

    Nauris Treigys
    Keymaster

    Since the sludge handling process used by AS Tallinna Vesi is technically not compliant with all of the newly introduced requirements set forth in the regulation no. 24 issued by the Minister of Environment and consequently, AS Tallinna Vesi has ceased making soil for greening out of sludge and distributing it to customers since the beginning of 2018. Therefore, the water company is currently looking for new opportunities to treat and recycle sludge. The company intends to choose the drying technology and develop the treatment process so that sludge can be recycled or burnt. Until the implementation of the new treatment process, sludge will only be distributed to waste handlers holding a waste permit.

    In the near future, the company will launch procurements to find a waste handling company, which can take wastewater sludge from AS Tallinna Vesi. Tenders will also be carried out for the design and construction of the relevant upgrade to the sludge treatment process. The cost of waste treatment by the waste handling company and the cost of modifying the treatment process of the company will be known after the procurement.

    #313516 Reply

    Nauris Treigys
    Keymaster

    The Supervisory Council of AS Tallinna Vesi approved the audited financial results for the year 2017. The financial results remained unchanged compared to the preliminary disclosure on 26th of January 2018.

    The Company’s total sales revenue for 2017 was EUR 59.82 million (2016: 58.98), showing an increase of 1.4% year-on-year. At the same time AS Tallinna Vesi’s net profit for 2017 was EUR 7.22 million.

    During the twelve months of 2017 there has been an increase in sales to private customers by 1.1% to EUR 25.23 million and 1.7% increase to EUR 20.41 million in sales to corporate customers within the service area. Sales to customers outside the main service area have increased by 6.3% to EUR 4.68 million, mainly due to higher storm and waste water disposal services, accompanied by slightly increased water supply volumes in 2017.

    The net profit of the company decreased by 60.7% or EUR 11.17 million compared to the same period in 2016. The change was mainly impacted by the provision for possible third-party claims, that might follow 12 December 2017 decision from the Supreme Court, if such claims are to be recognised by the courts. Change in net profit was also impacted by the decrease in income tax on dividends. Eliminating the effects of the derivatives fair value and the effect of possible third-party claims, the net profit for the twelve months of 2017 would have been EUR 24.17 million, showing an increase by 29.2% or EUR 5.47 million compared to the relevant period in 2016.

    Audited financial results for the year 2017 have been included as an attachment to current announcement.

    Attachments:
    2017 Annual Report.pdf

    #314362 Reply

    Nauris Treigys
    Keymaster

    Chairman´s summary

    The performance of AS Tallinna Vesi in the 1st quarter of 2018 once again reflects improvements in several operational, as well as financial indicators, compared to previous years. Consistently high standards were achieved regarding the parameters reflecting the quality of both drinking water and treated effluent, as well as customer service.

    Financial performance

    The Group’s total sales during the 1st quarter of 2018 increased by 2.1% to 14.08 million, as we witnessed an increase in sales in all our main water supply and waste water disposal related services. Sales to private customers increased by 1.3% and sales to corporate customers by 1.6%. Group’s net profit was EUR 6.53 million, showing an increase of 2.7% year-on-year.

    Excellent operational results

    The quality of drinking water remained excellent in the 1st quarter of 2018. Water samples taken from customers’ taps were 99.87% compliant with all requirements. We are also delighted to see a reduction in the number of customer contacts regarding water quality year on year.

    We work tirelessly to provide our customers and end users with a stable and uninterrupted service. We are pleased to see that the average water disruption time to individual properties, has further reduced from 3 hours 1 minute to 2 hours 52 minutes. The issues with the sewerage network have also reduced, and the number of sewer blockages dropped to 156 during the first three months.

    Water losses showed a slight increase in the first three months of 2018, compared to the previous year, 15.19% v 13.73%. This is still an excellent result, with the slight decline in performance resulting from the longer winter, which made leakage detection difficult under the continuous blanket of snow.

    In the 1st quarter of 2018, the treated effluent at Paljassaare Wastewater Treatment Plant was compliant with all stipulated quality requirements.

    Tariff application

    Shortly before the end of the year, the Estonian Supreme Court made a decision on the tariff dispute between Tallinna Vesi and Estonian Competition Authority. The price of water and wastewater service, is now subject to approval by the Competition Authority using their methodology. On 28th of February, AS Tallinna Vesi submitted its application for the approval of the new water tariffs to Competition Authority. The tariffs calculated in the Company’s tariff application, are close to the currently applicable water tariffs, which have remained unchanged since 2010.

    This is the first tariff application for Tallinna Vesi, which has been submitted based on the Competition Authority’s recommendatory methodology. Consequently, there are several key points in the tariff application that have required further discussions with the Competition Authority, who has reviewed the initial application and suggested several additions for it to meet all of the requirements. Therefore, it is still unclear, when the new tariffs will be approved.

    Tallinna Vesi still awaiting the final verdict from the International Arbitration, on whether the investor’s interests have been adversely affected, and whether this should be compensated.

    OPERATIONAL INDICATORS FOR THREE MONTHS OF 2018

    Indicator Unit 2018 2017 2016
    Compliance of water quality at the customers’ tap % 99.9 100.0 100.0
    Water loss in the water distribution network % 15.2
    13.7
    17.5
    Average duration of water interruptions per property in hours h 2.86
    3.02
    3.49
    Number of sewer blockages No 156 195 188
    Number of sewer bursts No 25 39 26
    Wastewater treatment compliance with environmental standards % 100.0 100.0 100.0
    Number of written complaints No 21 9 11
    Number of customer contacts regarding water quality No 14 24 13
    Number of customer contacts regarding water pressure No 37 38 58
    Number of customer contacts regarding blockages and discharge of storm water No 250 269 300
    Responding written customer contacts within at least 2 work days % 100.0 99.9 98.1
    Number of failed promises No 3 3 0
    Notification of unplanned water interruptions at least 1 h before the interruption % 96.7 100.0 96.5

    FINANCIAL HIGHLIGHTS FOR THE 1st QUARTER 2018

    The Group’s sales revenues during the 1st quarter of 2018 were EUR 14.08 million, being up by 2.1% or EUR 0.30 million compared to the same period in 2017.

    The gross profit in the 1st quarter of 2018 was EUR 8.32 million, showing an increase of 1.4% or EUR 0.11 million. Increase in gross profit was mainly related to higher water, wastewater and storm water revenues, accompanied by lower electricity costs and depreciation. It was balanced by higher staff and chemicals costs.

    The operating profit was EUR 6.80 million, showing an increase of 4.8% or EUR 0.31 million. In addition to the above-mentioned changes in gross profit, the operating profit was mainly impacted by lower tariff dispute related costs in the 1st quarter of 2018.

    The net profit for the 1st quarter of 2018 was EUR 6.53 million, showing an increase by 2.7% or EUR 0.17 million. The net profit was mainly impacted by above mentioned changes in the operating profit, and by higher financial expenses. The changes in the financial expenses were mostly influenced by the lower positive change in the fair value of swap contracts in the 1st quarter of 2018 compared to the positive change in the same quarter of 2017. The net profit for the 1st quarter of 2018 and 2017 without the impact resulted from the change of the fair value of swap contracts was EUR 6.45 million and EUR 6.11 million respectively, being higher by 5.6% or EUR 0.34 million year-on-year.

    MAIN FINANCIAL INDICATORS

    EUR million, 1st quarter Change 2018/2017
    except key ratios 2018 2017 2016
    Sales 14.08 13.78 14.37 2.1%
    Gross profit 8.32 8.21 8.34 1.4%
    Gross profit margin % 59.10 59.56 58.02 -0.8%
    Operating profit 6.80 6.49 6.63 4.8%
    Operating profit – main business 6.73 6.48 6.55 3.9%
    Operating profit margin % 48.29 47.07 46.15 2.6%
    Profit before taxes 6.53 6.36 5.64 2.7%
    Profit before taxes margin % 46.42 46.16 39.23 0.6%
    Net profit 6.53 6.36 5.64 2.7%
    Net profit margin % 46.42 46.16 39.23 0.6%
    ROA % 2.83 2.94 2.65 -4.0%
    Debt to total capital employed % 60.56 56.19 56.15 7.8%
    ROE % 7.33 6.87 6.14 6.8%
    Current ratio 6.98 5.46 5.79 27.8%
    Gross profit margin – Gross profit / Net sales

    Operating profit margin – Operating profit / Net sales

    Net profit margin – Net profit / Net sales

    ROA – Net profit / Average Total assets for the period

    Debt to Total capital employed – Total liabilities / Total capital employed

    ROE – Net profit / Average Total equity for the period

    Current ratio – Current assets / Current liabilities

    Main business – water and wastewater activities, excl. connections profit and government grants, construction, design and asphalting services, doubtful debt

    FINANCIAL RESULTS FOR THE 1st QUARTER 2018

    Statement of comprehensive income

    SALES

    As in the 1st quarter of 2018 the Company’s tariffs were frozen at the 2010 tariff level, the changes in the main activities revenues, i.e. from sales of water and wastewater services, are fully driven by consumption with no considerable seasonality in the main business. In the future, the Company does not expect significant changes in the consumption. There has been incremental increase in consumption in the past and that is expected to continue.

    At the end of 2017, the Supreme Court made a negative decision as regards to the Company’s cassation as a result of which, the Company’s tariffs will be regulated under the Competition Authority’s methodology. On 28th February 2018 Company submitted its tariff application for Tallinn and Saue area to the Competition Authority. The tariffs applied for are similar to the water and waste water tariffs currently charged in the area. The Competition Authority had reviewed the tariff application and asked additional information, in order to the application to meet set requirements. The Company needs to submit the amended tariff application by 2nd May 2018. Competition Authority has up to 90 days to review the application starting from receiving the application, which meets all the requirements. The new tariffs that will be approved and applied in the area will be known after the full process is completed and Competition Authority has approved new tariffs.

    In the 1st quarter of 2018 the Group’s total sales were EUR 14.08 million, showing an increase by 2.1% or EUR 0.30 million year-on-year. 91.4% of sales comprise of sales of water and wastewater services to domestic and commercial customers within and outside of the service area. 5.7% of sales are the fees received from the City of Tallinn for operating and maintaining the storm water system and fire hydrants, 2.0% from construction and asphalting services and 1.0% from other works and services. The construction and asphalting services sales are more seasonal and the Company continues to seek possibilities to keep and to grow these services revenues.

    1st quarter Variance 2018/2017
    EUR thousand 2018 2017 2016 EUR %
    Private clients, incl: 6,428 6,347 6,338 81 1.3%
    Water supply service 3,532 3,489 3,485 43 1.2%
    Waste water disposal service 2,896 2,858 2,853 38 1.3%
    Corporate clients, incl: 5,142 5,063 4,883 79 1.6%
    Water supply service 2,784 2,771 2,673 13 0.5%
    Waste water disposal service 2,358 2,292 2,21 66 2.9%
    Outside service area clients, incl: 1,112 1,108 1,13 4 0.4%
    Water supply service 334 329 308 5 1.5%
    Waste water disposal service 688 683 670 5 0.7%
    Storm water disposal service 90 96 152 -6 -6.3%
    Over pollution fee 182 210 171 -28 -13.3%
    Total water supply and waste water disposal service 12,864 12,728 12,522 136 1.1%
    Storm water treatment and disposal service and fire hydrants service 796 741 945 55 7.4%
    Construction service, design and asphalting 283 181 761 102 56.4%
    Other works and services 134 131 141 3 2.3%
    SALES REVENUES TOTAL 14,077 13,781 14,369 296 2.1%
    Sales from water and wastewater services were EUR 12.86 million, showing a 1.1% or EUR 0.14 million increase compared to the 1st quarter of 2017, resulting from the changes in sales volumes as described below:

    There has been an increase in private customers’ revenues of 1.3% to EUR 6.43 million. The increase in domestic customer consumption volumes came mainly from apartment blocks, which is also our biggest private customer group. There was a slight decrease in an individual houses segment consumption.
    Sales to corporate customers within the service area increased by 1.6% to EUR 5.14 million. Increase was related to an increase in the sales of industrial and other commercial customer segments. At the same time the consumption of leisure sector customers decreased.
    Sales to customers outside the main service area increased by 0.4% to EUR 1.11 million. It was mainly impacted by a small increase in the sales of water supply and waste water disposal services, balanced by decrease in the sales of storm water disposal service.
    Over pollution fees received have decreased by 13.3% to EUR 0.18 million.
    Sales from the operation and maintenance of the main service area storm water and fire hydrant system amounted to EUR 0.80 million, showing an increase of 7.4% or EUR 0.05 million in the 1st quarter of 2018 compared to the same period in 2017, driven mainly by 14.5% higher storm water volumes.

    Sales of construction, design and asphalting services were EUR 0.28 million, increasing by 56.4% or EUR 0.10 million year-on-year. The increase was related to higher pipe construction services revenues during the 1st quarter of 2018.

    COST OF GOODS/ SERVICES SOLD AND GROSS PROFIT

    The cost of goods sold amounted to EUR 5.78 million in the 1st quarter of 2018, increasing by 3.3% or EUR 0.18 million compared to the equivalent period in 2017. The increase was mainly influenced by increase in construction and asphalting services related costs, chemicals and staff costs, balanced by decrease in electricity and depreciation expenses.

    1st quarter Variance 2018/2017
    EUR thousand 2018 2017 2016 EUR %
    Water abstraction charges -291 -296 -291 5 1.7%
    Chemicals -435 -333 -342 -102 -30.6%
    Electricity -759 -854 -810 95 11.1%
    Pollution tax -277 -292 -336 15 5.1%
    Total direct production costs -1,762 -1,775 -1,779 13 0.7%
    Staff costs -1,593 -1,421 -1,418 -172 -12.1%
    Depreciation and amortization -1,283 -1,351 -1,431 68 5.0%
    Construction service, design and asphalting -241 -138 -675 -103 -74.6%
    Other costs of goods/services sold -878 -888 -729 10 1.1%
    Other costs of goods/services sold total -3,995 -3,798 -4,253 -197 -5.2%
    Total cost of goods/services sold -5,757 -5,573 -6,032 -184 -3.3%

    Total direct production costs (water abstraction charges, chemicals, electricity and pollution tax expenses) amounted to EUR 1.76 million, showing a slight 0.7% or EUR 0.01 million decrease compared to the equivalent period in 2017. Changes in direct production costs came from a combination of changes in prices and in treated volumes that affected the cost of goods sold together with the following additional factors:

    Water abstraction charges decreased by 1.7% to EUR 0.29 million, driven mainly by overall 1.0% decrease in subtracted water volumes.
    Chemicals costs increased by 30.6% to EUR 0.44 million, driven by higher usage of methanol and coagulant to remove pollutants and 8.8% higher methanol price in the waste water treatment process, worth respectively EUR 0.05 million, EUR 0.02 million and EUR 0.02 million. Higher chemicals costs in wastewater treatment process were accompanied by higher dosage of coagulant in water treatment process due to poor raw water quality, worth EUR 0.01 million.
    Electricity costs decreased by 11.1% to EUR 0.76 million, driven by on average 13.7% lower electricity prices (including networks fees), worth EUR 0.12 million. Lower costs from prices were partly balanced by increase in treated waste water volumes, worth EUR 0.03 million.
    Pollution tax expense decreased by 5.1% to EUR 0.28 million, mainly due to lower pollution load of pollutants, balanced by 4.0% increase in treated waste water volumes, worth respectively EUR +0.03 million and EUR -0.01 million.
    Other costs of goods sold (staff costs, depreciation, construction and asphalting services costs and other costs of goods sold) amounted to EUR 3.99 million, having increased by 5.2% or EUR 0.20 million. The increase came mostly from staff and costs related to construction and asphalting services, balanced by decrease in depreciation costs. Staff costs increase by 12.1% to EUR 1.59 million was related to change of salaries from the beginning of the year for all employees based on CPI increase and higher workload during winter time, accompanied by redundancy payments related to structural changes made in the 1st quarter 2018 to increase efficiency in Company’s processes. Increase in construction and asphalting services costs by 74.6% to EUR 0.24 million was related to an increase in construction and asphalting services revenues mentioned earlier and project specific changes. Decrease in depreciation by 5.0% to EUR 1.28 million was mainly related to lower cost of machinery and equipment depreciation year-on-year.

    As a result of all above the Group’s gross profit for the 1st quarter of 2018 was EUR 8.32 million, showing an increase of 1.4% or EUR 0.11 million, compared to the gross profit of EUR 8.21 million for the comparative period of 2017.

    ADMINISTRATIVE AND MARKETING EXPENSES

    Administrative and marketing expenses amounted to EUR 1.49 million, having decreased by 10.6% or EUR 0.18 million. The decrease was mainly related to lower tariff dispute related costs.

    OPERATING PROFIT

    As a result of the factors listed above the Group’s operating profit for the 1st quarter of 2018 amounted to EUR 6.80 million, being 4.8% or EUR 0.31 million higher than in the corresponding period of 2017. The Group’s operating profit from main business was EUR 6.73 million, being 3.9% or EUR 0.25 million higher compared to 2017.

    FINANCIAL EXPENSES

    The Group’s net financial income and expenses have resulted a net expense of EUR 0.26 million, compared to net expense of EUR 0.13 million in the 1st quarter of 2017. The increase was mainly impacted by a lower positive change in the fair value of the swap contracts year-on-year and lower interest costs, worth respectively EUR -0.17 million and EUR +0.03 million.

    The standalone swap agreements have been signed to mitigate the majority of the long term floating interest risk. The interest swap agreements are signed for EUR 75 million and EUR 20 million are still with floating interest rate. At this point in time the estimated fair value of the swap contracts is negative, amounting to EUR 0.67 million. Effective interest rate of loans (incl. swap interests) in the 1st quarter of 2018 was 1.46%, amounting to interest costs of EUR 0.35 million, compared to the effective interest rate of 1.60% and the interest costs of EUR 0.38 million in the 1st quarter of 2017.

    PROFIT BEFORE TAXES AND NET PROFIT

    The Group’s profit before taxes and net profit for the 1st quarter of 2018 were EUR 6.53 million, being 2.7% or EUR 0.17 million higher than for the 1st quarter of 2017. Eliminating the effects of the change of the fair value of swap contracts the Group’s net profit for the 1st quarter of 2018 and 2017 would have been EUR 6.45 million and EUR 6.11 million respectively, showing an increase of 5.6% or EUR 0.34 million year-on-year.

    STATEMENT OF FINANCIAL POSITION

    In the three months of 2018 the Group invested into fixed assets EUR 0.85 million. As of 31.03.2018, non-current tangible assets amounted to EUR 173.90 million and total non-current assets amounted to EUR 174.70 million (31.03.2017: EUR 171.88 million and EUR 172.70 million respectively).

    Compared to the year end of 2017 the trade receivables, accrued income and prepaid expenses have shown a decrease in the amount of EUR 1.03 million to EUR 6.68 million. Decrease mainly derives from lower trade receivables by EUR 1.24 million, being mainly impacted by construction activities. The collectability rate continues to be high at 99.8% level.

    Current liabilities have decreased by EUR 1.14 million to EUR 8.51 million compared to the year end of 2017. Decrease mainly derives from decrease in trade and other payables by EUR 1.19 million, being related to lower payables related to pipe construction services and investments.

    Deferred income from connection fees has grown compared to the end of 2017 by EUR 0.43 million to EUR 20.06 million.

    Provision for possible third party claims has not changed compared to the end of 2017. At the end of 2017, the Company formed a provision of EUR 17.52 million for possible third-party claims as a result of the Supreme Court Decision from 12th December 2017. More detailed information about the provision is in Note 5 to the financial statements.

    The Group’s loan balance has remained stable at EUR 95 million. The weighted average interest risk margin for the total loan facility is 0.79%. At the end of September 2017, the Company refinanced its long-term loan in the amount of EUR 37.5 million.

    The Group has a Total debt to assets level of 60.6%, in range of 55%-65%, reflecting the Group’s equity profile. In comparative period of 2017 the total debt to assets ratio was 56.2%.

    CASH FLOW

    As of 31.03.2018, the cash position of the Group is strong. At the end of March 2018, the cash balance of the Group stood at EUR 52.31 million, which is 22.3% of the total assets (31.03.2017: EUR 38.51 million, forming 17.6% of the total assets).

    The biggest contribution to the cash flows comes from main operations. During the three months of 2018, the Group generated EUR 8.80 million of cash flows from operating activities, an increase of EUR 1.59 million compared to the corresponding period in 2017. Underlying operating profit continues to be the main contributor to operating cash flows.

    In the three months of 2018 the result of net cash flows from investing activities was a cash outflow of EUR 1.05 million, a decrease of EUR 1.22 million compared to the cash outflow of EUR 2.27 million in the three months of 2017. This is made up as follows:

    The cash outflows from investments in fixed assets have decreased by EUR 1.51 million compared to 2017 amounting to EUR 1.66 million.
    The compensations received for the construction of pipelines were EUR 0.59 million, showing a decrease of EUR 0.30 million compared to the same period of 2017.
    In the three months of 2018 cash outflow from financing activities amounted to EUR 0.42 million, being at the same level compared to the same period in 2017.

    EMPLOYEES

    We believe it is important to treat our employees equally, involve them in the decision-making process and to inform them regularly. We consider the involvement of our staff in the decision-making process instrumental for them to understand and be able to support the Company in its pursuits. Our staff can vary to a large degree in age, nationality, nature of work and in many other aspects. This requires us to be resourceful and flexible in our communication with the staff in order to involve, engage and listen to them. This is done using several opportunities and channels of communication, such as regular staff meetings with the management, information boards, intranet, informative letters, team events and a quarterly internal newsletter. Estonian is not a communication language for quite a number of our staff. Therefore, we organise Estonian classes at the Company’s expense to make the staff, whose mother tongue is not Estonian, also feel as part of our unified team. At the same time, we provide the majority of important information also in Russian.

    We have described our human resource policies. We follow equality principles in selecting and managing people, which translates into providing, when feasible, equal opportunities to everyone. Understanding and appreciating the diversity of our staff, we ensure, that everyone is treated fairly and equally and they have access to the same opportunities as is reasonable and practicable. We aim to ensure, that no employees are discriminated against due to, but not exclusive to age, gender, religion, cultural or ethnic origin, disability, sexual orientation or marital status.

    At the end of the 1st quarter of 2018, the total number of employees was 315 compared to 312 at the end of the 1st quarter of 2017. The full time equivalent (FTE) was respectively 301 in 2018 compared to the 303 in 2017. Average number of employees (FTE) during the three months was respectively 299 in 2018 and 301 in 2018.

    By gender, employee allocation was as follows:

    As of 31.03.2018 As of 31.03.2017
    Women Men Total Women Men Total
    Group 96 219 315 87 225 312
    Management Team 14 13 27 12 13 25
    Executive Team 4 4 8 4 4 8
    Management Board 1 2 3 1 2 3
    Supervisory Board 0 9 9 0 9 9

    The total salary costs were EUR 2.25 million for the 1st quarter of 2018, including EUR 0.08 million paid to Management and Supervisory Council members (excluding social taxes). The off-balance sheet potential salary liability could rise up to EUR 0.09 million should the Council want to replace the current Management Board members.

    DIVIDENDS

    Dividend allocation to the shareholders is recorded as a liability in the financial statement of the Company at the time when the profit allocation and dividend payment is confirmed by the annual general meeting of shareholders.

    The Company’s dividend policy up to 2017 was related to keeping the dividends in real term i.e. dividends amounts have been increased in line with inflation. Every year the Supervisory Council evaluates the proposal of the dividends to be paid out to the shareholders and approves it to be presented to the voting to the Annual General Meeting of shareholders, considering all circumstances. The Supervisory Council decided in its meeting held on 26th April 2018 to make a proposal to Annual General Meeting to pay out EUR 0.36 per A share and 600 EUR per B share from the 2017 profits. The pay-out is equal to earnings per share in 2017.

    The Annual General Meeting of shareholders will be held on 31st May 2018.

    Dividends will be paid out in June 2018.

    SHARE PERFORMANCE

    AS Tallinna Vesi is listed on NASDAQ OMX Main Baltic Market with trading code TVEAT and ISIN EE3100026436.

    As of 31.03.2018, AS Tallinna Vesi shareholders, with a direct holding over 5%, were:

    United Utilities (Tallinn) BV (35.3%)
    City of Tallinn (34.7%)
    During the three months of 2018 the shareholder structure has been relatively stable compared to the end of 2017. At the end of 1st quarter 2018 the pension funds shareholding has decreased slightly, being 1.37% of the total shares compared to 1.43% at the end of 2017.

    As of 31.03.2018, the closing price of AS Tallinna Vesi share was EUR 10.70, which is 4.9% (2017: +1.4%) higher compared to the closing price of EUR 10.20 at the beginning of the quarter. During the 1st quarter the OMX Tallinn index increased by 2.2% (2017: 4.3%).

    In the three months of 2018, 1,325 deals with the Company’s shares were concluded (2017: 1,784 deals) during which 260 thousand shares or 1.3% of total shares exchanged their owners (2017: 246 thousand shares or 1.2%).

    The turnover of the transactions was EUR 581 thousand lower than in 2017, amounting to EUR 2.81 million.

    CORPORATE STRUCTURE

    As of 31.03.2018, the Group consisted of 2 companies. The subsidiary Watercom OÜ is wholly owned by AS Tallinna Vesi and consolidated to the results of the Company.

    CORPORATE GOVERNANCE

    SUPERVISORY COUNCIL

    Supervisory Council plans and organises the management of the Company and supervises the activities of the Management Board. According to AS Tallinna Vesi articles of association Supervisory Council consists of 9 members, who are appointed for two years. Changes in the Supervisory Council members in the 1st quarter of 2018 were as follows: Mr Steven Fraser term as a Supervisory Council member expired on 21st January 2018 and a new Supervisory Council member Mr Keith Haslett was nominated (term valid until 22.01.2020).

    Supervisory Council has formed three committees to advise Supervisory Council on audit, remuneration and corporate governance matters.

    More information about the Supervisory Council and committees can be found in the note 14 to the financial statements as well as from the Company’s webpage:

    About us > Management board > Supervisory council

    About us > Audit committee

    About us > Principles of governance > Corporate governance report

    MANAGEMENT BOARD

    Management Board is a governing body, which represents and manages AS Tallinna Vesi in its daily operations in accordance with the legal requirements as well as the Articles of Association. The Management Board must act economically in the most efficient way taking into consideration the interest of the Company and its shareholders and ensure the sustainable development of the Company in accordance with the set objectives and strategy.

    To ensure that the Company’s interests are met in the best way possible, the Management and Supervisory Boards shall extensively collaborate. Meetings of Management Board and Supervisory Council members are held at least once a quarter. In those meetings the Management Board informs the Supervisory Council about all significant issues in Company’s business operations, the fulfilment of the Company’s short and long-term goals are being discussed and the risks impacting them. For every meeting of the Management Board prepares report and submits the report in advance with the sufficient time for the Supervisory Council to study it.

    According to the Articles of Association the Management Board consists of 2-5 members, who are elected for 3 years.

    Starting from 2nd of June 2014 there are 3 members of the Management Board of AS Tallinna Vesi: Karl Heino Brookes (Chairman of the Board, with the powers of the Management Board Member until 21st March 2020), Aleksandr Timofejev (with the powers of the Management Board Member until 29th October 2018) and Riina Käi (with the powers of the Management Board Member until 29th October 2018).

    Additional information on the members of the Management Board can be found from the Company’s website:

    About us > Management board

    LEGAL CLAIM FOR BREACH OF INTERNATIONAL TREATY

    In May 2014, the Supervisory Council of the Company gave notice of potential international arbitration proceedings against the Republic of Estonia for breaching the undertakings it is required to abide by in the bilateral investment treaty.

    In October 2014 AS Tallinna Vesi and its shareholder United Utilities (Tallinn) B.V have commenced international arbitration proceedings against the Republic of Estonia for breach of the Agreement on the Encouragement and Reciprocal Protection of Investments between the Kingdom of The Netherlands and the Republic of Estonia.

    The claim was filed as three years of intensive negotiation to try and reach an amicable settlement that has not happened.

    The hearings of international arbitration took place in Paris in November 2016 and the decision is expected in 1st half of 2018.

    Additional details related with the claim can be found via the following links:

    https://newsclient.omxgroup.com/cdsPublic/viewDisclosure.action?disclosureId=609264&messageId=754811

    https://newsclient.omxgroup.com/cdsPublic/viewDisclosure.action?disclosureId=627851&messageId=779161

    DISCLOSURE OF RELEVANT PAPERS AND PERSPECTIVES

    The Company will keep the investment community informed of all relevant developments of the tariff dispute. AS Tallinna Vesi has published all relevant materials on its website (https://tallinnavesi.ee/en/investor/stock-announcements/) and to the Tallinn Stock Exchange.

    STATEMENT OF COMPREHENSIVE INCOME 1st quarter 1st quarter 12 months
    (EUR thousand) 2018 2017 2017

    Revenue 14,077 13,781 59,815
    Costs of goods sold -5,757 -5,573 -25,725
    GROSS PROFIT 8,320 8,208 34,090

    Marketing expenses -112 -100 -356
    General administration expenses -1,379 -1,566 -5,028
    Other income/ expenses (-) -31 -55 -17,841
    OPERATING PROFIT 6,798 6,487 10,865

    Interest income 4 4 15
    Interest expense -348 -380 -1,502
    Other financial income (+)/ expenses (-) 80 250 543
    PROFIT BEFORE TAXES 6,534 6,361 9,921

    Income tax on dividends 0 0 -2,700

    NET PROFIT FOR THE PERIOD 6,534 6,361 7,221
    COMPREHENSIVE INCOME FOR THE PERIOD 6,534 6,361 7,221

    Attributable to: 0 0
    Equity holders of A-shares 6,533 6,360 7,220
    B-share holder 0.60 0.60 0.60

    Earnings per A share (in euros) 0.33 0.32 0.36
    Earnings per B share (in euros) 600 600 600

    STATEMENT OF FINANCIAL POSITION
    (EUR thousand) 31.03.2018 31.03.2017 31.12.2017

    ASSETS
    CURRENT ASSETS
    Cash and equivalents 52,306 38,514 44,973
    Trade receivables, accrued income and prepaid expenses 6,685 6,911 7,716
    Inventories 436 456 457
    TOTAL CURRENT ASSETS 59,427 45,881 53,146

    NON-CURRENT ASSETS
    Property, plant and equipment 173,902 171,881 174,451
    Intangible assets 797 819 811
    TOTAL NON-CURRENT ASSETS 174,699 172,700 175,262
    TOTAL ASSETS 234,126 218,581 228,408

    LIABILITIES AND EQUITY
    CURRENT LIABILITIES
    Current portion of long-term borrowings 345 245 264
    Trade and other payables 5,011 5,129 6,200
    Derivatives 452 612 578
    Prepayments 2,702 2,423 2,609
    TOTAL CURRENT LIABILITIES 8,510 8,409 9,651

    NON-CURRENT LIABILITIES
    Deferred income from connection fees 20,058 18,170 19,632
    Borrowings 95,423 95,771 95,565
    Derivatives 219 459 178
    Provision for possible third party claims 17,522 0 17,522
    Other payables 44 15 44
    TOTAL NON-CURRENT LIABILITIES 133,266 114,415 132,941
    TOTAL LIABILITIES 141,776 122,824 142,592

    EQUITY
    Share capital 12,000 12,000 12,000
    Share premium 24,734 24,734 24,734
    Statutory legal reserve 1,278 1,278 1,278
    Retained earnings 54,338 57,745 47,804
    TOTAL EQUITY 92,350 95,757 85,816
    TOTAL LIABILITIES AND EQUITY 234,126 218,581 228,408

    CASH FLOW STATEMENT 3 months 3 months 12 months
    (EUR thousand) 2018 2017 2017

    CASH FLOWS FROM OPERATING ACTIVITIES
    Operating profit 6,798 6,487 10,865
    Adjustment for depreciation/amortisation 1,423 1,497 6,170
    Adjustment for revenues from connection fees -69 -61 -258
    Other non-cash adjustments -5 0 -26
    Profit/loss(+) from sale and write off of property, plant and equipment, and intangible assets -1 -4 -12
    Change in current assets involved in operating activities 1,035 249 -558
    Change in liabilities involved in operating activities -376 -951 17,064
    TOTAL CASH FLOW FROM OPERATING ACTIVITIES 8,805 7,217 33,245

    CASH FLOWS FROM INVESTING ACTIVITIES
    Acquisition of property, plant and equipment, and intangible assets -1,660 -3,167 -9,761
    Compensations received for construction of pipelines 589 872 2,698
    Proceeds from sales of property, plant and equipment and intangible assets 15 21 62
    Interest received 4 4 15
    TOTAL CASH FLOW FROM INVESTING ACTIVITIES -1,052 -2,270 -6,986

    CASH FLOWS FROM FINANCING ACTIVITIES
    Interest paid and loan financing costs, incl swap interests -355 -341 -1,512
    Repayment of finance lease -65 -79 -260
    Dividends paid 0 0 -10,801
    Income tax on dividends 0 0 -2,700
    TOTAL CASH FLOW FROM FINANCING ACTIVITIES -420 -420 -15,273

    CHANGE IN CASH AND CASH EQUIVALENTS 7,333 4,527 10,986

    CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 44,973 33,987 33,987

    CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 52,306 38,514 44,973

    #314363 Reply

    Nauris Treigys
    Keymaster

    The Group’s total sales during the 1st quarter of 2018 increased by 2.1% to 14.08 million. Group’s net profit was EUR 6.53 million, showing an increase of 2.7% year-on-year.

    Increase in sales was mainly related to higher revenues from water supply and waste water disposal services. Sales to private customers increased by 1.3% and sales to corporate customers by 1.6%. The gross profit of the company was EUR 8.32 million in the 1st quarter of 2018, showing an increase of 1.4%.

    Due to higher methanol price and usage, the chemical costs were EUR 102 thousand higher. This was balanced by the savings in electricity and other direct production costs, resulting in a total saving in direct production costs of EUR 13 thousand.

    The operating profit for the first quarter was EUR 6.80 million, showing an increase of 4.8% or EUR 0.31 million. Higher staff costs were balanced by lower legal fees. Legal fees will impact the Company’s costs till the end of all main disputes. Tallinna Vesi still awaiting the final verdict from the International Arbitration.

    The Group’s net profit for the 1st quarter of 2018 was EUR 6.53 million, being 2.7% or EUR 0.17 million higher than for the 1st quarter of 2017. Eliminating the effects of the change of the fair value of swap contracts the Group’s net profit for the 1st quarter of 2018 and 2017 would have been EUR 6.45 million and EUR 6.11 million respectively, showing an increase of 5.6% or EUR 0.34 million year-on-year.

    #314364 Reply

    Nauris Treigys
    Keymaster

    The Supervisory Board of AS Tallinna Vesi approved the dividend proposal to pay the shareholders a dividend of EUR 0.36 per A-share and EUR 600 per B-share for the financial year of 2017. The proposal will be submitted for approval to the Annual General Meeting of Shareholders, gathering on 31st May 2018.

    Company´s retained profits as of 31st December 2017 were EUR 47,804,000, including the net profit for 2017 in the amount of EUR 7,221,000. The proposed dividend payment amounts to EUR 7,200,600.

    The share capital of the Company consists of 20 million A-shares and 1 preference share i.e. B-share.

    The dividend payment will be made on 26th June 2018 and the list of shareholders entitled to receive dividends is fixed based on the share ledger as at 23.59 on 13th June 2018.

    Tallinna Vesi is still awaiting the final verdict from the International Arbitration.

    #314365 Reply

    Nauris Treigys
    Keymaster

    Today, on the 27th of April 2018, AS Tallinna Vesi held an investor conference webinar where Chairman of the Board Karl Heino Brookes and Chief Financial Officer Riina Käi introduced the performance of the first quarter of 2018.

    AS Tallinna Vesi would like to thank all participants.

    Webinar recording is available here.

    Presentation is available here.

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