Market announcement

Title

Results of Operations - for the 4th quarter 2014

Message

MANAGEMENT REPORT

Contractual Highlights

  -- AS Tallinna Vesi tariffs continue to be on the same level based on
     temporary
injunction granted by the Court for the period of court proceedings to
     protect the Company from the unilateral breach of privatization agreement
     by Estonian Authorities.
  -- AS Tallinna Vesi would like all its shareholders to be fully aware of the
     facts that the Company was privatised
i
n 2001 with the full support and knowledge of the Estonian national
     government, with written confirmations from the Prime Minister and the
     Minister of Finance regarding the key terms of the agreements, and
     utilising the expertise and guidance of the European Bank for
     Reconstruction and Development (EBRD).
  -- At the end of May 2012 the District Court ruled that AS Tallinna Vesi’s
     Services Agreement, that was part of the international privatisation, is a
     public law contract. AS Tallinna Vesi firmly believes that the terms and
     conditions of the international privatisation contract that has been deemed
     a public law contract should not be broken simply by transferring the
     duties of the regulator from one state institution (the City of Tallinn) to
     a different state institution (the Competition Authority). A public law
     contract should enjoy the protection of the Estonian legal system, should
     the contract not be honoured, then the company will have a claim against
     the Estonian state.
  -- In addition
, 
two experts that were included in the dispute, presented their independent
     expert opinions which were of the view that
the tariff regulation methodology chosen in the Services Agreement, is an
     internationally recognised tariff methodology and complied with the PWSSA
     in force at the time of the privatisation.
 AS Tallinna Vesi hopes that the expert opinions facilitate swifter
     resolution of the complaints submitted by the Company against the
     Competition Authority since 1st of June 2011.
  -- The date of local court hearing took place in 28 January 2015.

  -- In May 2014, AS Tallinna Vesi submitted a claim against the Competition
     Authority to the Tallinn Administrative Court to avoid the expiry of
     monetary claims. The Company claims compensation for potential damages of
     over 90 million euros for total losses over the lifetime of the
international privatisation contract up to 2020. The total compensation
     claim applies when the tariffs will remain unchanged till 2020. Of this
     amount, around 50 million euros has been already caused by the Competition
     Authority’s refusal to approve tariff increases in the period of 2011 –
     2013.The Court decided to stay the claim proceeding until the maintariff
     dispute is resolved.

  -- AS Tallinna Vesi has continuously stated its belief in fully transparent
     regulation and its willingness to enter into meaningful and evidence-based
     dialogue that takes into account the privatization contract signed in 2001.

  -- It has been three years already during which the Company has made intensive
     effort in trying to agree a solution in order to get the tariff dispute
     solved. Regretfully it has not been achieved.

  -- In October 2014, AS Tallinna Vesi and 
and its shareholder United Utilities (Tallinn) B.V have commenced
     international arbitration proceedings against the Republic of Estonia for
     breaching the international treaty and more specifically “the fair and
     equitable treatment” requirement by changes to the law and activities of
     the public authorities which have deprived AS Tallinna Vesi from tariffs
     approved according to the Services Agreement concluded as part of the
     privatisation in 2001. The arbitration will be carried out through the
     International Centre for the Settlement of Investment Disputes (ICSID),
     which is part of the World Bank Group.
  -- Average real return on capital invested at privatization is still 6.2%
     since 2001.



Financial highlights of 4th quarter 2014

The Group’s sales revenues during the 4th quarter 2014 have been in decline,
being down 3.4% to 13.31 mln euros compared to the same period in 2013. The
sales for 12 months in 2014 are slightly up compared to the sales in 2013,
increasing 0.3% to 53.24 mln euros. 

The gross profit in the 4th quarter of 2014 has decreased 4.2% or -0.35 mln
euros. Decrease in gross profit is mainly related to lower storm water and
construction service revenues compared to the comparative period in 2013. 

As mentioned already with our 3rd quarter results, the problems with the
allowed concentrations of heavy metals reported in previous quarters have been
resolved, with the issuance of the new revised water permit. In the 1st and 2nd
quarter of 2014 the Group had higher pollution tax costs as concentrations
limits for heavy metals in treated effluent were reduced 400 times, due to
which the Group was not technically able to meet the limit requirements,
despite of the fact that the efficiency in treating the effluent continued to
be high. In the revised water permit the concentration limits for heavy metals
have been removed. 

The operating profit from Group’s main activities has increased 0.1% to 6.56
mln euros, mainly due to the lower costs related to the construction activities
as the revenues from the construction activities were also down, but also due
to lower administrative costs. The operating profit from main activities for 12
months in 2014 is at the same level with the operating profit for the
comparative period in 2013. 

The net profit for the 4th quarter without the additional exceptional changes
that affected the pollution tax in 2013 and 2014 and impact that resulted from
the change of the fair value of swap contracts       was 5.1% or 0.29 mln euros
higher than in the comparative period last year. 

mln €            4 Q     4 Q     4 Q    Change     12       12      12    Change
                 2012    2013    2014    14/13   months   months  months   14/13
                                                 2012     2013     2014         
--------------------------------------------------------------------------------
Sales             13,7   13,78   13,31   -3,4%    52,92    53,09   53,24    0,3%
Gross profit       8,4    8,29    7,95   -4,2%    32,59    30,58   30,84    0,9%
Gross profit      61,2   60,20   59,71   -0,8%    61,57    57,61   57,93    0,6%
 margin %                                                                       
Operating          8,6    6,55    6,61    0,8%    28,77    24,76   24,83    0,3%
 profit                                                                         
Operating          6,9    6,55    6,56    0,1%    26,82    24,51   24,54    0,1%
 profit - main                                                                  
 business                                                                       
Operating         62,5   47,55   49,62    4,4%    54,36    46,63   46,63    0,0%
 profit margin                                                                  
 %                                                                              
Profit before      8,7    6,19    6,29    1,5%    27,07    24,56   22,73   -7,5%
 taxes                                                                          
Net profit         8,7    6,19    6,29    1,5%    22,60    19,94   17,94  -10,0%
Net profit        63,2   44,95   47,24    5,1%    42,70    37,55   33,70  -10,3%
 margin %                                                                       
ROA %              4,3    3,05    3,06    0,1%    11,26     9,83    8,73  -11,2%
Debt to total     57,8   56,98   57,61    1,1%    57,82    56,98   57,61    1,1%
 capital                                                                        
 employed                                                                       
ROE %             10,2    7,10    7,22    1,6%    26,69    22,86   20,59   -9,9%
Current ratio      4,3    5,13    5,35    4,4%     4,31     5,13    5,35    4,4%
--------------------------------------------------------------------------------

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 / Total equity

Current ratio – Current assets / Current liabilities

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



RESULTS OF OPERATIONS - FOR THE 4th QUARTER 2014

Profit and Loss Statement

4th quarter 2014

Sales

As the Company’s tariffs are frozen at the 2010 tariff level, the changes in
the revenues from main activities i.e. from sales of water and wastewater
services are fully driven by consumption. 

In the 4th quarter of 2014 the Group’s total sales decreased, year on year, by
3.4% to 13.31 mln euros. 92.7% of sales comprise of sales of water and
treatment of wastewater to domestic and commercial customers within and outside
of the service area, 4.5% of sales are the fees received from the City of
Tallinn for operating and maintaining the storm water system and fire hydrants
and 2.8% from other works and services. 

Sales of water and wastewater services were 12.34 mln euros, a 1.9% increase
compared to the 4th quarter of 2013, resulting from the changes in sales
volumes as described below. 

Within the service area, sales to residential customers were at 6.14 mln euros,
showing a 1.9% increase year on year, as revenues from apartment blocks form
the biggest share of our residential sales, the biggest increase came also from
this client group. Sales to commercial customers increased by 1.5% to 4.85 mln
euros. Sales to customers outside of the main service area has remained stable.
30.4% or 0.05 mln euros decrease in stormwater revenues were compensated by
higher water and wastewater sales. Over pollution fees received were 0.19 mln
euros, a 30.6% increase compared to the 4th quarter of 2013. 

                                                    Quarter 4         Variance  
                                                                       14/13    
Revenues from main operating activities         2014   2013   2012   €       %  
Private clients, incl:                         6 139  6 026  6 016   113    1,9%
Water supply service                           3 390  3 329  3 320    61    1,8%
Wastewater disposal service                    2 749  2 697  2 696    52    1,9%
Corporate clients, incl:                       4 848  4 776  4 802    72    1,5%
Water supply service                           2 681  2 640  2 613    41    1,6%
Wastewater disposal service                    2 167  2 136  2 189    31    1,5%
Outside service area clients, incl:            1 163  1 163  1 282     0    0,0%
Water supply service                             319    294    264    25    8,5%
Wastewater disposal service                      741    721    698    20    2,8%
Storm water disposal service                     103    148    320   -45  -30,4%
Over pollution fee                               190    146    274    44   30,1%
                                                                                
Storm water treatment and disposal service       593    980    983  -387  -39,5%
 and fire hydrant service                                                       
Construction service and design                  228    437    160  -209  -47,8%
Other works and services                         149    250    192  -101  -40,4%



The sales from the operation and maintenance of the storm water and
fire-hydrant system in the main service area have decreased by 39.5% to 0.59
mln euros in the 4th quarter of 2014 due to lower volumes compared to the same
period in 2013. 

The sales of construction activities and design services have decreased by
47.8% to 0.23 mln euros in the 4th quarter of 2014 compared to 4th quarter in
2013. 



Cost of Goods Sold and Gross profit

The cost of goods sold for the main operating activity was 5.36 mln euros in
the 4th quarter of 2014, showing 0.12 mln euros or 2.2% decrease compared to
the equivalent period in 2013. The cost decrease is mainly influenced by the
construction services costs decrease and balanced by the increased pollution
tax costs in the 4th quarter of 2014. 

Cost of goods sold                      Quarter 4        Variance 14/13
                                  2014    2013    2012       €        %
Water abstraction charges          -267    -257    -236    -10    -3,9%
Chemicals                          -444    -424    -419    -20    -4,7%
Electricity                        -743    -826    -964     83    10,0%
Pollution tax                      -328     -58    -180   -270  -465,5%
Total direct production costs    -1 782  -1 565  -1 799   -217   -13,9%
Staff costs                       -1157  -1 202  -1 256     45     3,7%
Depreciation and amortization     -1342  -1 266  -1 302    -76    -6,0%
Construction service and design    -173    -357     -75    184    51,5%
Other costs of goods sold          -909  -1 094    -893    185    16,9%
Other costs of goods sold total  -3 581  -3 919  -3 526    338     8,6%
Total cost of goods sold         -5 363  -5 484  -5 325    121     2,2%



Total direct production costs (water abstraction charges, chemicals,
electricity and pollution taxes) increased by 0.22 mln euros or 13.9% year on
year. Biggest increase came from the increase in pollution tax. Other changes
came from a combination of increase in prices and tax rates and movements in
treatment volumes that affected the costs of goods sold together with the
following additional factors: 

  -- Water abstraction charges increased only by 0.01 mln euros or 3.9% to 0.27
     mln euros in the 4th quarter of 2014, driven mainly by 5% raise in tax
     rates (worth 0.01 mln euros).
  -- Total chemical costs remained broadly flat, increasing 0.02 mln euros or
     4.7% to 0.44 mln euros in the 4th quarter of 2014. Costs change was mainly
     influenced by the increase in dosage used in sewage treated, which was
     balanced by decrease in treated volumes and chemicals price. Chemical costs
     were lower also in water treatment due to the better raw water quality.
  -- Electricity costs decreased by 0.08 mln euros or 10.0% in the 4th quarter
     of 2014 compared to the 4th quarter of 2013. Lower electricity costs are
     mostly derived from the decrease in electricity price and used volumes,
     worth 0.17 mln euros. Positive effects are reduced slightly by increased
     used unit costs in treatment plants worth 0.08 mln euros.
  -- In the 4th quarter of 2014 the pollution tax expense increased by 0.27 mln
     euros or 465.5%. The increase is related to the incident in one of the
     pumping stations in the 4th quarter of 2014 and insurance premium received
     in the 4th quarter of 2013. Eliminating the one-off influences the
     pollution tax expenses had been stable increasing only by 0.001 mln euros
     or 0.6% in the 4th quarter of 2014 compared to relevant period in 2013.

Without the mentioned influences in both years, the main contribution to
increased pollution tax costs came from increased pollution load in the amount
of 0.01 mln euros and increased tax rates in the amount of 0.03 mln euros,
balanced by the decreased volumes treated in the amount of 0.04 mln euros. 

Other cost of goods sold (staff costs, depreciation, construction services and
other cost of goods sold) in the main operating activity decreased by 0.34 mln
euros or 8.6%. Most of the decrease came from decrease in construction services
costs due to the lower construction activities and other costs, balanced by the
increase in depreciation costs. 

In 2014 the construction services projects came to an end earlier than in 2013,
lowering the costs related to construction in the 4th quarter compared to the
same period in 2013. In 2014 the external constructions have been less
profitable than in 2013. Decreased staff costs by 3.7% or 0.05 mln euros mainly
relate to performance related payments being lower than last year, while in
general the group has higher headcount to provide more efficient and broader
range of insourced services and higher staff costs related to that. Decrease in
other costs were related to the less maintenance works. 

As a result of all of the above the Group’s gross profit for the 4th quarter of
2014 was 7.95 mln euros, which is a decrease of 0.35 mln euros, or 4.2%,
compared to the gross profit of 8.29 mln euros for the 4th quarter of 2013. 



Other Operating Costs

General administration expenses decreased in total 0.21 mln euros or 14.7%. The
consultation and legal fees and their timing continue to have an impact on the
administrative expenses. For the full year the administrative costs were 9.0%
or 0.46 million euros higher. 



Other net income/expenses

Other net costs resulted a net expense of 0.01 mln euros, compared to 0.15 mln
euros net expense in the 4th quarter of 2013. The result in the 4th quarter of
2014 has been influenced by lower amount of doubtful receivables than in the
4th quarter of 2013. 



Operating profit

As a result of above factors the Group’s operating profit for the 4th quarter
of 2014 totalled 6.61 mln euros compared to 6.55 mln euros in the corresponding
quarter in 2013, which shows an increase of 0.05 mln euros or 0.8%. Removing
the impact of pollution tax in relevant periods the Group’s operating profit
had been 5.1% or 0.32 mln euros higher. 



Financial expenses

The Group’s net financial expenses have been relatively stable amounting to
0.32 mln euros in the 4th quarter of 2014, which is a positive change of 0.04
mln euros compared to 0.36 mln euros financial expense in the 4th quarter of
2013. The difference is a result of positive change of the fair value of the
swap contracts and which is balanced by a negative decline from interest
income. 

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
75 mln euros and 20 mln euros are still with floating interest rate. At this
point in time the estimated fair value of the swap contracts is negative,
totalling 1.84 mln euros. Effective interest rate (incl. swap interests) in the
4th quarter of 2014 was 3.14%, amounting in the interest costs of 0.76 mln
euros, compared to the effective interest rate of 3.18% and the interest costs
of 0.77 mln euros into the 4th quarter of 2013. 

Interest income has decreased in the 4th quarter of 2014 by 0.04 mln euros or
40.8%. 



Profit Before and After Tax

The Group’s profit before and after taxes for the 4th quarter of 2014 was 6.29
mln euros, which is 0.10 mln euros or 1.5% higher than the profit before taxes
of 6.19 mln euros for the 4th quarter of 2013, resulting mainly from decreased
revenues, increased pollution tax costs and an decrease in professional fees
and other income/expenses as described above. 



Results for the twelve months of 2014

During the twelve months of 2014 the Group’s total sales increased, year on
year, by 0.3% to 53.24 mln euros. Sales of water and wastewater treatment were
48.60 mln euros, a 1.8% increase compared to the twelve months of 2013. 

The movements in sales are mostly similar to the movements in the 4th quarter
described above. There has been a slight 0.51 mln euros or 2.2% increase in the
sales to residential customers and 0.03 mln euros or 0.2% increase in the sales
to the commercial clients. The sales revenues from outside service area clients
for water, wastewater and storm water services has also been relatively stable
showing an increase of 0.21 mln euros or 4.9% compared to twelve months in
2013. 

The revenues from storm water treatment and fire hydrants services in the
twelve months of 2014 have decreased 0.35 mln euros or 10.3% compared to twelve
months in 2013. 

Total direct production costs (water abstraction charges, chemicals,
electricity and pollution taxes) decreased by 0.01 mln euros or 0.1% year on
year. Biggest decrease came from the decrease in electricity costs, balanced by
the increase in pollution tax costs as described below. 

  -- Water abstraction charges increased only by 0.06 mln euros or 6.0% to 1.06
     mln euros during 12 months in 2014, driven mainly by 5% raise in tax rates
     (worth 0.05 mln euros).
  -- Total chemical costs remained broadly flat, increasing 0.01 mln euros or
     0.2% to 1.74 mln euros in the 12 months in 2014. Costs change was mainly
     influenced by the increase in dosage used in sewage treated, which was
     balanced by increase in treated volumes and chemicals price. Chemical costs
     were lower in water treatment due to the better raw water quality resulting
     in lower dosage used.
  -- Electricity costs decreased by 0.36 mln euros or 10.6% during the 12 months
     in 2014 compared to the same period in 2013. Lower electricity costs are
     mostly derived from the decrease in electricity price and used unit costs,
     worth 0.26 mln euros.
  -- In the 12 months of 2014 the pollution tax expense increased by 0.29 mln
     euros or 15.5%. The slight increase is masked by the incidents in the
     wastewater treatment plant in the twelve months of 2013. Eliminating the
     one-off influences the pollution tax expenses have increased by 1.19 mln
     euros or 159.1% in the twelve months of 2014 compared to relevant period in
     2013.

The problems with the allowed concentrations of heavy metals reported in the
1st and 2nd quarters have been resolved, with the issuance of the new revised
water permit. In the 1st and 2nd quarter of 2014 the Group had higher pollution
tax costs as limit concentrations of heavy metals in treated effluent were
reduced 400 times, due to which the Group was not technically able to meet the
limit values, although nothing was changed in the efficiency of Group’s
operations 

Other cost of goods sold (staff costs, depreciation, construction services and
other cost of goods sold) in the main operating activity decreased by 0.10 mln
euros or 0.7%. Most of the decrease came from lower construction services costs
and other costs, as construction profitability has not been that high and there
have been less maintenance works than in the relevant period in 2013. Decrease
has been balanced by increased depreciation costs and staff costs. 

Due to the increased revenues and broadly flat expenses the gross profit for 12
months in 2014 has improved by 0.26 mln euros or 0.9% compared to the same
period in 2013. The operating profit remained also fairly stable increasing by
0.3% to 24.83 mln euros during the twelve months of 2014 compared to the twelve
months of 2013. The increase in the operating profit of 0.07 mln euros was very
much influenced by increased administration costs, which in itself were highly
impacted by higher legal charges related to ongoing tariff dispute. 

Net financial expenses increased by 1.90 mln euros or 971.4%. Almost fully
influenced by the non-monetary impact of the change in the fair value of the
swap contracts the Company has entered. The positive non-monetary impact for
2014 expenses is 0.48 mln euros (2013: positive impact 2.25 mln euros). 

The Group’s profit before taxes for the twelve months of 2014 was 22.73 mln
euros, which is a 7.5% decrease compared to the relevant period in 2013. The
Group’s net profit for the twelve months of 2014 was 17.94 mln euros, which is
1.99 mln euros lower than the net profit of 19.94 mln euros in the equivalent
period in 2013. 



Balance sheet

In the twelve months of 2014 the Group invested 11.07 mln euros into fixed
assets. As of 31 December 2014 non-current fixed assets amounted to 157.48 mln
euros and total non-current assets amounted to 158.34 mln euros. (31. December
2013: 152.25 mln euros and 155.50 mln euros respectively). 

The reduction in receivables and prepayments of 6.75 mln euros to 8.26 mln
euros is mainly related to collection of the money for extension program. 

Compared to the year end of 2013 the current liabilities have decreased by 2.39
mln euros to 8.83 mln euros. The movement is mainly related to the decrease in
Current portion of long-term borrowings in the amount of 1.98 mln euros. As a
result of the refinancing of 20 mln euro loan the current portion of the loan
balance was reclassified to the long term liabilities. The liabilities were
also affected by the change of the fair value of derivatives having an impact
on the current liabilities in the amount of 0.74 mln euros. 

The Group’s loan balance has remained stable at 95 mln euros. As mentioned
before in May 2014, the Company replaced its loan from NIB with the new loan in
the amount of 20 mln euros. In December 2014 the Company amended two loans,
extending the maturity date from 2015 to 2020. The weighted average interest
risk margin for the total loan facility is 1.04%. 

The Group has a Total debt/Total assets level as expected of 57.6%, in range of
55%-65%, reflecting the Group’s equity profile. This level is consistent with
the same period in 2013 when the total debt/total assets ratio was 57.0%. 

Biggest share of the rest of the long term liabilities is deferred income from
connection fees amounting to 12.57 mln euros (2013: 10.14 mln euros). 

In the 4th quarter of 2011 the Group recorded and noted an exceptional
contingent liability, which could cause an outflow of economic benefits of up
to 36.0 mln euros. In the 4th quarter of 2014 the Group re-evaluated the
liability, which now stands at 40.1 mln euros, as per note 13 to the accounts. 



Cash flow

As of 31 December 2014 the cash position of the Group is strong. At the end of
December 2014 the cash balance of the Group stood at 38.56 mln euros, which is
18.8% of the total assets (2013: 31.79 mln, which is 15.7% of the total
assets). 

The biggest contribution to the cash flows comes from main operations. During
the twelve months of 2014, the Group generated 31.45 mln euros of cash flows
from operating activities, an increase of 1.65 mln euros compared to the
corresponding period in 2013. 

2014 operating cash flows were above 2013 cash flows due to a change in working
capital. Underlying operating profit still continues to be the main contributor
to operating cash flows. The collection of receivables is continuously strong. 

The Group’s cash flows from investing activities have also been positive for
past two years. In the twelve months of 2014 net cash flows from investing
activities resulted in a cash inflow of 1.32 mln euros, a decrease of 2.05 mln
euros compared to an inflow of 3.37 mln euros in the twelve months of 2013.
This is made up as follows: 

In the twelve months of 2014 the investments in fixed assets have increased
0.46 mln euros compared to 2013 amounting to 9.65 mln euros. 

The compensations received for the construction of pipelines were 10.52 mln
euros in the twelve months of 2014, an increase of 2.64 mln euros compared to
same period in 2013. Most of the cash collected for pipes is related to the
sewage network extension program which was ended in 2012. The collections will
still continue till March 2015. In 2013 the loan from Maardu Vesi was collected
in full. The Group has not given out any new loans. 

In the twelve months of 2014, cash outflow from financing amounted to 26.00 mln
euros, which is 0.68 mln euros more than in the same period of 2013, mainly due
to increased dividend payment and dividend income tax payment by 0.76 mln
euros, balanced slightly by lower interest and financing costs by 0.08 mln
euros. 



Employees

At the end of the 4th quarter of 2014, the total number of employees was 321
compared to 304 at the end of the 4th quarter of 2013. The full time equivalent
(FTE) was respectively 307 in 2014 compared to the 293 in 2013. The management
continues to work actively for the efficiencies in processes to balance the
increase in individual salaries and cost pressure from the market with more
productive company structure. 



Dividends

Dividend allocation to the shareholders is recorded as the 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. 

According to the dividend policy, which is also published on Company’s website,
the Company will maintain dividends to shareholders at the same amount in real
terms, i.e. dividends will increase in line with inflation each year. 

On the annual general meeting of shareholders held on 20th May 2014, 90 cents
dividends per share and the total dividend pay-out from the profit of 2013 net
income in the amount of 18.00 mln euros was approved. It is in accordance with
the Company’s dividend policy. Compared to 2013 dividends of 87 cents per
share, the increase is equal to the inflation. 

Dividends were paid out on 13th of June 2014.



Share performance

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

As of 31 December 2014 AS Tallinna Vesi shareholders, with a direct holding
over 5%, were: 

United Utilities (Tallinn) BV  35.3%
------------------------------------
City of Tallinn                34.7%
------------------------------------



Pension funds holdings in the Company shares dropped in the 4th quarter of
2014, after Nordea bank acquired Ergo Life insurance and liquidated its
holdings in companies listed on the Baltic market. At the end of 2014 the
pension funds owned 1.54% of the total shares compared to 2.56% at the end of
4th quarter 2013. 

As of 31 December 2014, the closing price of the AS Tallinna Vesi share was
13.10 euros, which is a 3.2% (2013: 15.5%) increase compared to the closing
price of 12.70 euros at the beginning of the quarter. During the same period
the OMX Tallinn index decreased by -1.3% (2013: -2.3%). 

In the twelve months of 2014 4 962 deals with the Company’s shares were
concluded (2013: 5 469 deals) during which 1 239 thousand shares or 6.2%
exchanged their owners (2013: 1 853 thousand shares or 9.3%). 

The turnover of the transactions was 3 192 thousand euros lower than in 2013
amounting to 15 947 thousand euros. The share price has shown an increase
despite of the on-going contractual debate. 



Operational performance

Similarly to previous years, in 2014 can be characterized by permanently high
quality levels. Above all, it gives security to our consumers that they are
provided with a high-quality drinking water. Low leakage level is another
positive sign of the Company’s excellent performance. We continue to commit to
the improvement of customer service and focus on our activities in increasing
the environmental awareness of the community. Operational indicators in 2014
are as follows: 

Indicator                                                        2014     2013  
                                                                   12       12  
                                                                 months   months
--------------------------------------------------------------------------------
Drinking water                                                                  
--------------------------------------------------------------------------------
- 
Compliance of water quality at the customers tap                 99.80%   99.70%
--------------------------------------------------------------------------------
Water loss in the water distribution network                     16.14%   16.98%
--------------------------------------------------------------------------------
Average duration of water interruptions per property             3.15 h   3.46 h
--------------------------------------------------------------------------------
Wastewater                                                                      
--------------------------------------------------------------------------------
- 
Number of sewer blockages                                         757      762  
--------------------------------------------------------------------------------
Number of customer contacts regarding flooding, blockages and    1 060    1 405 
 storm water                                                                    
--------------------------------------------------------------------------------
Wastewater treatment compliance with environmental standards     100%     100%  
--------------------------------------------------------------------------------
Customer Service                                                                
--------------------------------------------------------------------------------
- 
Number of written complaints                                       76      118  
--------------------------------------------------------------------------------
Number of customer contacts regarding water quality               152      252  
--------------------------------------------------------------------------------
Number of customer contacts regarding water pressure              380      576  
--------------------------------------------------------------------------------
Responding written customer contacts within at least 2 work      99.1%    99.1% 
 days                                                                           
--------------------------------------------------------------------------------
Number of failed promises                                          54      117  
--------------------------------------------------------------------------------
Notification of unplanned water interruptions at least 1h        95.00%   96.90%
 before the interruption                                                        
--------------------------------------------------------------------------------



Corporate structure

At the end of the quarter, 31 December 2014, 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. 

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

More information about the Supervisory Council and committees can be found in
the note 12 to the financial statements as well as from the Company’s webpage: 

http://tallinnavesi.ee/en/Investor/Corporate-Governance/Supervisory-Board

http://tallinnavesi.ee/en/Investor/Corporate-Governance/Audit-Committee

http://tallinnavesi.ee/en/Investor/Corporate-Governance/Corporate-Governance-Rep
ort 



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 and Supervisory Board 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 Board 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 20 March 2017), Aleksandr Timofejev (with the
powers of the Management Board Member until 29 October 2015) and Riina Käi
(with the powers of the Management Board Member until 29 October 2015). 

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

http://tallinnavesi.ee/en/Investor/Corporate-Governance/Management-Board





Future actions & risks

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. 

Additional details surrounding this claim can be found via the following links:

https://newsclient.omxgroup.com/cdsPublic/viewDisclosure.action?disclosureId=609
264&messageId=754811 

https://newsclient.omxgroup.com/cdsPublic/viewDisclosure.action?disclosureId=627
851&messageId=779161 



Disclosure of relevant papers and perspectives

The Company has published its tariff application and all relevant
correspondence with the CA on its website
(http://www.tallinnavesi.ee/?op=body&id=728) and to the Tallinn Stock Exchange
and will keep its investors informed of all future developments regarding the
further key developments regarding the processing of the tariff application. 

In opposite to the Company the CA has requested the Court procedures to be
closed. Based on misleading information submitted by the CA the Court approved
the CA’s request. ASTV has reapplied for open proceedings. 

At this point in time the Company is unable to say what is going to happen to
the tariffs before Court judgments and outcome of an arbitration. The outcome
and lengths of the Court proceedings and arbitration is outside the control of
the Company. 







STATEMENT OF COMPREHENSIVE INCOME   IV quarter  IV quarter  12 months  12 months
(thousand €)                           2014        2013        2014       2013  
                                                                                
Revenue                                 13 310      13 778     53 241     53 087
Costs of goods sold                     -5 363      -5 484    -22 399    -22 505
                                                                                
GROSS PROFIT                             7 947       8 294     30 842     30 582
                                                                                
Marketing expenses                        -106        -152       -456       -690
General administration expenses         -1 229      -1 440     -5 517     -5 060
Other income/ expenses (-)                  -7        -151        -41        -75
                                                                                
OPERATING PROFIT                         6 605       6 551     24 828     24 757
                                                                                
Financial income                            58          98        432        681
Financial expenses                        -375        -456     -2 532       -877
                                                                                
PROFIT BEFORE TAXES                      6 288       6 193     22 728     24 561
                                                                                
Income tax on dividends                      0           0     -4 785     -4 625
                                                                                
NET PROFIT FOR THE PERIOD                6 288       6 193     17 943     19 936
COMPREHENSIVE INCOME FOR THE             6 288       6 193     17 943     19 936
 PERIOD                                                                         
Attributable to:                                                                
Equity holders of A-shares               6 287       6 192     17 942     19 935
B-share holder                            0,60        0,60       0,60       0,60
                                                                                
Earnings per A share (in euros)           0,31        0,31       0,90       1,00
Earnings per B share (in euros)            600         600        600        600







STATEMENT OF FINANCIAL POSITION                                               
(thousand €)                                            31.12.2014  31.12.2013
                                                                              
ASSETS                                                                        
CURRENT ASSETS                                                                
Cash and equivalents                                        38 560      31 786
Trade receivables, accrued income and prepaid expenses       8 261      15 010
Inventories                                                    412         429
TOTAL CURRENT ASSETS                                        47 233      47 225
                                                                              
NON-CURRENT ASSETS                                                            
Other long-term receivables                                      0       2 213
Property, plant and equipment                              157 481     152 246
Intangible assets                                              862       1 037
TOTAL NON-CURRENT ASSETS                                   158 343     155 496
TOTAL ASSETS                                               205 576     202 721
                                                                              
LIABILITIES                                                                   
                                                                              
CURRENT LIABILITIES                                                           
Current portion of long-term borrowings                        261       2 146
Trade and other payables                                     4 855       4 761
Derivatives                                                  1 078       1 816
Prepayments                                                  2 631       2 490
TOTAL CURRENT LIABILITIES                                    8 825      11 213
                                                                              
NON-CURRENT LIABILITIES                                                       
Deferred income from connection fees                        12 567      10 143
Borrowings                                                  96 250      93 618
Derivatives                                                    761         507
Other payables                                                  23          32
TOTAL NON-CURRENT LIABILITIES                              109 601     104 300
TOTAL LIABILITIES                                          118 426     115 513
                                                                              
EQUITY CAPITAL                                                                
Share capital                                               12 000      12 000
Share premium                                               24 734      24 734
Statutory legal reserve                                      1 278       1 278
Retained earnings                                           49 138      49 196
TOTAL EQUITY CAPITAL                                        87 150      87 208
TOTAL LIABILITIES AND EQUITY CAPITAL                       205 576     202 721







CASH FLOW STATEMENT                                                12       12  
                                                                 months   months
(thousand €)                                                     2014     2013  
                                                                                
CASH FLOWS FROM OPERATING ACTIVITIES                                            
Operating profit                                                 24 828   24 757
Adjustment for depreciation/amortisation                          5 851    5 809
Adjustment for profit from government grants and connection        -150     -117
 fees                                                                           
Other non-cash adjustments                                          -33       11
Profit/loss(+) from sale and write off of property, plant and       145     -138
 equipment, and intangible assets                                               
Change in current assets involved in operating activities         1 165     -433
Change in liabilities involved in operating activities             -357      -92
Total cash flow from operating activities                        31 449   29 797
                                                                                
CASH FLOWS FROM INVESTING ACTIVITIES                                            
Loans granted                                                         0        0
                                                                      0    3 814
Acquisition of property, plant and equipment, and intangible     -9 646   -9 187
 assets                                                                         
Proceeds from sales of property, plant and equipment             10 523    7 885
Compensations received for construction of pipelines                 13      165
Interest received                                                   432      693
Total cash flow from investing activities                         1 322    3 370
                                                                                
CASH FLOWS FROM FINANCING ACTIVITIES                                            
Received loans                                                   20 000        0
Repayment of loans                                              -20 000        0
Interest paid and loan financing costs, incl swap interests      -2 995   -3 154
Repayment of finance lease                                         -216     -136
Dividends paid                                                  -18 001  -17 401
Income tax on dividends                                          -4 785   -4 625
Total cash flow from financing activities                       -25 997  -25 316
                                                                                
Change in cash and bank accounts                                  6 774    7 851
                                                                                
CASH AND EQUIVALENTS AT THE BEGINNING OF THE PERIOD              31 786   23 935
                                                                                
CASH AND EQUIVALENTS AT THE END OF THE PERIOD                    38 560   31 786








         Karl Heino Brookes
         Chairman of the Management Board
         +372 6262 201
         [email protected]