Market announcement

Title

Results of operations - for the 4th quarter of 2015

Message

MANAGEMENT REPORT

Chairman's summary

Our first priority is to provide our customers with high-quality drinking
water, reliable water supply and wastewater discharge services. Similar to
previous years, 2015 can be characterised with excellent and even further
improved quality levels across all the services we provide. We will continue to
focus on maintaining and improving all our key performance indicators so our
consumers can rely on the service they receive. 

Last year was crowned by an exceptionally high customer satisfaction, reaching
as high as 94 index points according to the survey carried out by EMOR. This is
the highest score we have achieved so far, significantly exceeding the average
of the European and Estonian industrial sector, and taking us to the Top 10% of
European utility sector (average 86 index points). The high satisfaction is
definitely a reflection of a very high quality service, but also of our
dedication to making continuous improvements throughout the business. 

In 2015 we achieved the best ever water quality of 99.86%. We took altogether
2,945 samples from consumers taps and did 24,500 water analysis, out of which,
only 4 samples exceeded the limit values. 

The level of leakages indicating water loss in the distribution network is also
decreasing year-on-year due to preventive actions. Despite that the level of
leakages was very low already in 2014, in 2015 this parameter improved even
more, reaching the lowest ever level in Tallinna Vesi’s history. While in 2014
the level of leakages was at 16.14%, in 2015 the respective number was 14.68%. 

In 2015, we were awarded with the Golden Mark in CSR Index, which is a sign of
being responsible in our actions and minds. At the end of 2015, we were
recognized as the most youth and children-friendly company in Tallinn, which is
a great pleasure, especially because we consider the work done with the young
people to be a starting point for a more environment-friendly consumer
behaviour. It is also extremely important in our service that working would be
safe for both our employees and the residents of Tallinn. In 2015, we received
the “Good Working Environment 2015” award demonstrating that we are doing the
right thing. 

All good results and recognition is only possible thanks to the dedication and
hard work of our employees. The employee satisfaction survey showed
continuously high commitment, above the average satisfaction of both the
Estonian and European companies. In 2014 the satisfaction was at 71 index point
level and 72 index points in 2015. 

Operational performance for 2015

Indicator                                                 2014 12     2015 12   
                                                           months      months   
--------------------------------------------------------------------------------
Drinking water                                                                  
--------------------------------------------------------------------------------
- 
Compliance of water quality at the customers’ tap             99.80%      99.86%
--------------------------------------------------------------------------------
Water loss in the water distribution network                  16.14%      14.68%
--------------------------------------------------------------------------------
Average duration of water interruptions per property in   3.15 h      3.22 h    
 hours                                                                          
--------------------------------------------------------------------------------
Wastewater                                                                      
--------------------------------------------------------------------------------
- 
Number of sewer blockages                                        757         737
--------------------------------------------------------------------------------
Number of sewer bursts                                           119         127
--------------------------------------------------------------------------------
Wastewater treatment compliance with environmental              100%        100%
 standards                                                                      
--------------------------------------------------------------------------------
Customer Service                                                                
--------------------------------------------------------------------------------
- 
Number of written complaints                                      76          67
--------------------------------------------------------------------------------
Number of customer contacts regarding water quality              152         115
--------------------------------------------------------------------------------
Number of customer contacts regarding water pressure             380         337
--------------------------------------------------------------------------------
Number of customer contacts regarding blockages and            1 060       1 061
 discharge of storm water                                                       
--------------------------------------------------------------------------------
Responding written customer contacts within at least 2         99.1%       99.2%
 work days                                                                      
--------------------------------------------------------------------------------
Number of failed promises                                         54           9
--------------------------------------------------------------------------------
Notification of unplanned water interruptions at least 1       95.0%       98.7%
 h before the interruption                                                      
--------------------------------------------------------------------------------



Contractual Highlights

  -- Tariffs of AS Tallinna Vesi 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 unilateral breach of privatization agreement by
     the 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 using
     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, and
     should the contract not be honoured, the company will have a claim against
     the Estonian state.
  -- 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 over
     the lifetime of the international privatisation contract up to 2020. The
     claim estimation includes future volumes and expectations for consumer
     price index (CPI). As the CPI has been recently lower than at the time of
     submitting the estimated, the estimated undiscounted value of the claim is
     around 74 million euros compared to over the 90 million euros submitted.
     The Court decided to stay the claim proceeding until the main tariff
     dispute is resolved.
  -- In 2015, there was three hearings in the local court as regards to the
     tariff dispute. On 5th of June, the Tallinn Administrative Court dismissed
     the Company’s complaint in tariff dispute. The reasoning of the dismissal
     of complaints was released not until 12th of October 2015. Tallinn
     Administrative Court formed an opinion that the tariffs part of the
     Services Agreement, which has been deemed to be as a public law contract by
     the Estonian Courts in 2012, is not binding on the Competition Authority.
     AS Tallinna Vesi finds the opinion formed by the Court to be unfounded. AS
     Tallinna Vesi filed the appeal to the Tallinn District Court on 11th of
     November 2015.
  -- I
n October 2014, in parallel to the local dispute about tariffs AS Tallinna
     Vesi 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.
  -- On 17th of June 2015, the timetable of the International Arbitration
     Proceedings was determined, with the final hearing set for November 2016.
     Procedural orders and decisions issued during the arbitration process,
     subject to the redaction of the confidential information, are available on
     the
ICSID website
. 
  -- International Arbitration Proceedings are being held in parallel and
     separately from local Court dispute
. 
  -- There has not been no hearings in disputes in 4th quarter of 2015.
  -- 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.
  -- 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.



Financial highlights of 4th quarter 2015

The Group’s sales revenues during the 4th quarter of 2015 were EUR 14.53
million, being up by 9.2% or EUR 1.22 million compared to the same period in
2014. 

The gross profit in the 4th quarter of 2015 was EUR 8.18 million, showing an
increase by 2.9% or EUR 0.23 million. Increase in gross profit was related to
higher water, wastewater and storm water revenues and lower chemical and
pollution tax costs which was accompanied by higher revenues and profit from
construction and asphalting services for outside the Group customers. 

The operating profit was EUR 6.75 million, showing an increase by 2.1% or EUR
0.14 million. The operating profit was mainly impacted by the above mentioned
increase in revenues, which was balanced by higher staff costs and continuously
high legal costs. 

The net profit for the 4th quarter of 2015 was EUR 6.24 million, being down by
0.8% or EUR 0.05 million.  The net profit was mainly impacted by above
mentioned changes in operating profit and higher financial expenses. Higher
financial expenses was influenced by the negative change in the fair value of
swap contracts in the 4th quarter of 2015 by EUR 0.53 million compared to the
same period in 2014, which was partly balanced by the decrease in interest
costs by EUR 0.38 million year on year. The net profit for the 4th quarter of
2015 and 2014 without the impact resulted from the change of the fair value of
swap contracts was respectively EUR 6.38 million and EUR 6.02 million, being
6.0% or EUR 0.36 million higher than in the comparative period last year. 



million EUR       Q4      Q4      Q4    Change     12       12      12    Change
                 2013    2014    2015    15/14   months   months  months   15/14
                                                 2013     2014     2015         
--------------------------------------------------------------------------------
Sales            13.78   13.31   14.53    9.2%    53.09    53.24   55.93    5.0%
Gross profit      8.29    7.95    8.18    2.9%    30.58    30.84   32.25    4.6%
Gross profit     60.20   59.71   56.26   -5.8%    57.61    57.93   57.66   -0.5%
 margin %                                                                       
Operating         6.55    6.61    6.75    2.1%    24.76    24.83   25.58    3.0%
 profit                                                                         
Operating         6.55    6.56    6.65    1.3%    24.50    24.53   25.24    2.9%
 profit - main                                                                  
 business                                                                       
Operating        47.55   49.62   46.41   -6.5%    46.63    46.63   45.73   -1.9%
 profit margin                                                                  
 %                                                                              
Profit before     6.19    6.29    6.24   -0.8%    24.56    22.73   24.36    7.2%
 taxes                                                                          
Net profit        6.19    6.29    6.24   -0.8%    19.94    17.94   19.86   10.7%
Net profit       44.95   47.24   42.91   -9.2%    37.55    33.70   35.51    5.4%
 margin %                                                                       
ROA %             3.05    3.06    2.98   -2.5%     9.83     8.73    9.50    8.8%
Debt to total    56.98   57.61   57.43   -0.3%    56.98    57.61   57.43   -0.3%
 capital                                                                        
 employed                                                                       
ROE %             7.10    7.22    7.01   -2.9%    22.86    20.59   22.31    8.4%
Current ratio     5.13    5.35    5.40    0.8%     5.13     5.35    5.40    0.8%
--------------------------------------------------------------------------------

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 / 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 2015

Profit and Loss Statement

4th quarter 2015

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 2015 the Group’s total sales were EUR 14.53 million,
showing an increase by 9.2% or EUR 1.22 million year on year. 86.3% of sales
comprise of sales of water and wastewater services to domestic and commercial
customers within and outside of the service area. 5.5% of sales are the fees
received from the City of Tallinn for operating and maintaining the storm water
system and fire hydrants and 8.2% from other works and services. 

Revenues from main operating activities              Quarter 4        Variance  
 (thousand EUR)                                                         15/14   
                                                 2015   2014   2013  EUR       %
Private clients, incl:                          6 232  6 139  6 026   93    1.5%
Water supply service                            3 437  3 390  3 329   47    1.4%
Wastewater disposal service                     2 795  2 749  2 697   46    1.7%
Corporate clients, incl:                        4 942  4 848  4 776   94    1.9%
Water supply service                            2 726  2 681  2 640   45    1.7%
Wastewater disposal service                     2 216  2 167  2 136   49    2.3%
Outside service area clients, incl:             1 202  1 163  1 163   39    3.4%
Water supply service                              341    319    294   22    6.9%
Wastewater disposal service                       760    741    721   19    2.6%
Storm water disposal service                      101    103    148   -2   -1.9%
Over pollution fee                                169    190    146  -21  -11.1%
                                                                                
Storm water treatment and disposal service and    801    593    980  208   35.1%
 fire hydrant service                                                           
Construction service, design and asphalting     1 037    228    437  809  354.8%
Other works and services                          151    149    250    2    1.3%



Sales from water and wastewater services were EUR 12.55 million, showing a 1.7%
or EUR 0.20 million increase compared to the 4th quarter of 2014, resulting
from the changes in sales volumes as described below: 

  -- There has been a slight increase in all residential customer groups in the
     4th quarter of 2015 compared to the same period in 2014 resulting an
     increase in private customers’ revenues in total by 1.5% to EUR 6.23
     million.
  -- Sales to commercial customers within the service area has increased by 1.9%
     to EUR 4.94 million, coming mostly from the increase from industry and also
     other customer segment.
  -- Sales to customers outside of the main service area has shown an increase
     by 3.4% to EUR 1.20 million. Wastewater revenues increased by 2.6% to EUR
     0.76 million and water revenues increased by 6.9% to EUR 0.34 million.
  -- Over pollution fees received have decreased by 11.1% to EUR 0.17 million.

Sales from the operation and maintenance of the main service area storm water
and fire-hydrant system were EUR 0.80 million, showing an increase of 35.1% or
EUR 0.21 million in the 4th quarter of 2015 compared to the same period in
2014. 

Sales of construction, design and asphalting services were EUR 1.04 million,
having increased by 354.8% or EUR 0.81 million year on year. The increase was
related to the asphalting services that the Group started to provide for
external customers in 2015, but also higher pipe construction revenues due to
favourable weather and longer construction period in 2015 compared to last year
end. 



Cost of Goods Sold and Gross profit

The cost of goods sold amounted to EUR 6.36 million in the 4th quarter of 2015,
showing 18.5% or EUR 0.99 million increase compared to the equivalent period in
2014. The cost increase is mainly influenced by higher staff costs and increase
in construction and asphalting services related costs, which were balanced by
lower total direct production costs. 

Cost of goods sold (thousand EUR)               Quarter 4         Variance 15/14
                                          2015    2014    2013      EUR        %
Water abstraction charges                  -282    -267    -257     -15    -5.6%
Chemicals                                  -400    -444    -424      44     9.9%
Electricity                                -747    -743    -826      -4    -0.5%
Pollution tax                              -234    -328     -58      94    28.7%
Total direct production costs            -1 663  -1 782  -1 565     119     6.7%
Staff costs                              -1 481  -1 157  -1 202    -324   -28.0%
Depreciation and amortization            -1 437  -1 342  -1 266     -95    -7.1%
Construction service, design and           -951    -173    -357    -778  -449.7%
 asphalting                                                                     
Other costs of goods sold                  -825    -909  -1 094      84     9.2%
Other costs of goods sold total          -4 694  -3 581  -3 919  -1 113   -31.1%
Total cost of goods sold                 -6 357  -5 363  -5 484    -994   -18.5%

Total direct production costs (water abstraction charges, chemicals,
electricity and pollution tax) were EUR 1.66 million, showing 6.7% or EUR 0.12
million decrease year on year. Biggest decrease came from chemical costs and
pollution tax. Other direct production costs increase came from a combination
of changes in prices and tax rates and changes in treatment volumes that
affected the cost of goods sold together with the following additional factors: 

  -- Water abstraction charges increased by 5.6% to EUR 0.28 million, driven by
     increase in treated volumes and on average 2.8% raise in tax rates.
  -- Chemicals costs decreased by 9.9% to EUR 0.40 million, mainly due to
     smaller use of chemicals to remove pollutants in wastewater treatment
     process and also by 13.8% lower methanol price, worth EUR 0.017 million and
     EUR 0.026 million respectively.
  -- Electricity costs were relatively stable increasing only by 0.5% to EUR
     0.75 million. Electricity costs increase was related to higher electricity
     use per m3 in both treatment processes and increase in treated volumes
     balanced by lower electricity prices.
  -- Pollution tax expense decreased by 28.7% to EUR 0.23 million. Compared to
     the 4th quarter of 2014 the pollution tax expenses decreased partly due to
     incident in one pumping station in the 4th quarter of 2014 which had the
     impact on costs of EUR 0.12 million. Eliminating the influence of this
     incident in 2014 the pollution tax expense increased by 12.0% in the 4th
     quarter of 2015. The main contribution to increased pollution tax expenses
     came from on average 3.2% raise in tax rates in the amount of EUR 0.029
     million.

Other costs of goods sold (staff costs, depreciation, construction and
asphalting services costs and other costs of goods sold) amounted to EUR 4.69
million, having increased by 31.1% or EUR 1.11 million. Most of the increase
came from higher staff costs and costs related to construction and asphalting
services. Staff cost increase of 28.0% to EUR 1.48 million was partly related
to higher headcount in order to provide more efficient and broader range of
services internally and externally, but also reduced bonus reserve in 2014 and
increases in salaries in 2015. Increase in construction and asphalting services
costs by 449.7% to EUR 0.95 million was related to increased construction and
asphalting revenues. 

As a result of all above the Group’s gross profit for the 4th quarter of 2015
was EUR 8.18 million, showing an increase of 2.9% or EUR 0.23 million, compared
to the gross profit of EUR 7.95 million for the comparative period of 2014. 



Administrative and marketing expenses

Administrative and marketing expenses were EUR 1.36 million, showing a slight
increase by 1.9% or EUR 0.03 million. Increase in salary expenses was mostly
related to reduced bonus reserve in 2014 but also to salary increases in the
beginning of 2015. Other administrative costs were lower as no outside
awareness campaign was carried out in 4th quarter in 2015. Legal and
consultation fees also continue to be at a high level during the time the
Company has ongoing local and international disputes. 



Operating profit

As a result of the factors listed above the Group’s operating profit for the
4th quarter of 2015 totalled EUR 6.75 million, being 2.1% or EUR 0.14 million
higher than in the corresponding quarter of 2014. The Group’s operating profit
from main business was 1.3% or EUR 0.09 million higher compared to 2014. 



Financial expenses

The Group’s net financial income and expenses have resulted a net expense of
EUR 0.51 million, compared to net expense of EUR 0.32 million in the 4th
quarter of 2014. It is mainly impacted by a negative change of the fair value
of the swap contracts year on year (EUR -0.53 million), which was balanced by
the decrease in the interest costs (EUR 0.38 mln euros). 

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,
totalling EUR 1.01 million. Effective interest rate of loans (incl. swap
interests) in the 4th quarter of 2015 was 1.57%, amounting in the interest
costs of EUR 0.38 million, compared to the effective interest rate of 3.12% and
the interest costs of EUR 0.76 million in the 4th quarter of 2014. 



Profit Before and After Tax

The Group’s profit before taxes and net profit for the 4th quarter of 2015 was
EUR 6.24 million, being 0.8% or EUR 0.05 million lower than for the 4th quarter
of 2014, resulting mainly from increased revenues, balanced by the increased
costs and net financial expenses as described above. Eliminating the influence
of the derivatives fair value and pollution tax influence, the Group’s profit
before taxes and net profit for the 4th quarter of 2015 would have been EUR
6.38 million, showing an increase by 6.0% or EUR 0.36 million compared to the
relevant period in 2014. 



Results for the twelve months of 2015

During the twelve months of 2015 the Group’s total sales were EUR 55.93
million, showing an increase by 5.0% or EUR 2.69 million year on year. Sales
from water and wastewater services were EUR 49.30 million, increasing 1.4% or
EUR 0.70 million compared to the twelve months of 2014. 

During the twelve months of 2015 there has been a 1.1% or EUR 0.25 million
increase in the sales to residential customers and 1.4% or EUR 0.27 million
increase in the sales to the commercial customers within the service area.
Increase in the sales to residential customers comes mainly from the apartment
blocks, which is the biggest private customer segment for the Group. The sales
increase in commercial customers is mostly related to industrial and other
customer segments. The sales revenues from outside service area customers for
water, wastewater and storm water services have increased 5.4% or EUR 0.25
million compared to the twelve months of 2014. 

Sales from the operation and maintenance of the main service area storm water
and fire-hydrant system in the twelve months of 2015 were EUR 3.36 million,
showing an increase of 9.2% or EUR 0.28 million. 

Revenues from main operating activities       Year ended 31.12.       Variance  
 (thousand EUR)                                                        15/14    
                                            2015    2014    2013    EUR      %  
Private clients, incl:                     24 408  24 154  23 642    254    1.1%
Water supply service                       13 436  13 303  13 022    133    1.0%
Wastewater disposal service                10 972  10 851  10 620    121    1.1%
Corporate clients, incl:                   19 358  19 085  19 053    273    1.4%
Water supply service                       10 736  10 664  10 585     72    0.7%
Wastewater disposal service                 8 622   8 421   8 468    201    2.4%
Outside service area clients, incl:         4 765   4 520   4 308    245    5.4%
Water supply service                        1 280   1 153   1 095    127   11.0%
Wastewater disposal service                 3 011   2 957   2 730     54    1.8%
Storm water disposal service                  474     410     483     64   15.6%
Over pollution fee                            766     839     734    -73   -8.7%
                                                                                
Storm water treatment and disposal          3 357   3 073   3 424    284    9.2%
 service and fire hydrant service                                               
Construction service, design and            2 724     943   1 146  1 781  188.9%
 asphalting                                                                     
Other works and services                      550     627     780    -77  -12.3%



Sales of construction, design and asphalting services were EUR 2.72 million,
increasing by 188.9% or EUR 1.78 million year on year. In 2014 the Group
started with insourcing asphalting services and did not provide almost any
service for external customer. During the twelve months of 2015 the Group has
provided asphalting services to external customers for EUR 0.79 million.
Reminder of the increase is related to higher pipe construction revenues mainly
because of longer construction period in 2015 compared to last year due to
favourable weather conditions. 

Cost of goods sold (thousand EUR)         Year ended 31.12.       Variance 15/14
                                       2015     2014     2013     EUR       %   
Water abstraction charges              -1 101   -1 057     -997     -44    -4.2%
Chemicals                              -1 531   -1 737   -1 734     206    11.9%
Electricity                            -3 035   -3 032   -3 392      -3    -0.1%
Pollution tax                          -1 002   -2 163   -1 872   1 161    53.7%
Total direct production costs          -6 669   -7 989   -7 995   1 320    16.5%
Staff costs                            -5 603   -4 880   -4 833    -723   -14.8%
Depreciation and amortization          -5 690   -5 370   -5 115    -320    -6.0%
Construction service, design and       -2 398     -784     -947  -1 614  -205.9%
 asphalting                                                                     
Other costs of goods sold              -3 319   -3 376   -3 615      57     1.7%
Other costs of goods sold total       -17 010  -14 410  -14 510  -2 600   -18.0%
Total cost of goods sold              -23 679  -22 399  -22 505  -1 280    -5.7%



Total direct production costs (water abstraction charges, chemicals,
electricity and pollution taxes) were EUR 6.67 million, showing a decrease by
16.5% or EUR 1.32 million year on year. Biggest decrease came from the decrease
in pollution tax and chemicals costs, balanced slightly by increase in water
abstraction charges as described below: 

  -- Water abstraction charges increased by 4.2% to EUR 1.10 million, driven by
     increase in treated volumes and on average 3.1% raise in tax rates.
  -- Chemicals costs decreased by 11.9% to EUR 1.53 million, driven mainly by
     smaller use of chemicals to removing pollutants in wastewater treatment
     process and on average 10.4% lower methanol price, worth respectively EUR
     0.15 million and EUR 0.07 million.
  -- In the twelve months of 2015 electricity costs were almost at the same
     level as in 2014 amounting to EUR 3.04 million.
  -- Pollution tax expense decreased by 53.7% to EUR 1.00 million. The decrease
     is mainly influenced by the change of the water permit at the end of 2013,
     which was in effect until the end of the 2nd quarter of 2014. In the
     changed water permit the allowed concentration for heavy metals was
     decreased by 400 times. Previously applicable concentration limits were
     re-established starting from the 3rd quarter of 2014, after which the
     pollution tax costs stabilised at the normal level. Eliminating the
     influences of changed water permit the pollution tax expenses have
     increased by 12.6% or EUR 0.11 million year on year. The main contribution
     to increased pollution tax expenses came from on average 4.8% raise in tax
     rates in the amount of EUR 0.12 million.

Other cost of goods sold (staff costs, depreciation, construction and
asphalting services costs and other cost of goods sold) amounted to EUR 17.01
million, being higher by 18.0% or EUR 2.60 million compared to the same period
in 2014. Main increase came from increase in staff costs and costs related to
higher construction and asphalting services. Higher staff costs were partly
related to the Group having a higher headcount on average to provide more
efficient and broader range of services internally and externally, but also to
increases in salaries and reduced bonus reserve in 2014. 

The gross profit for the twelve months of 2015 was EUR 32.25 million, being
4.6% or EUR 1.41 million higher compared to the same period in 2014. The
operating profit was EUR 25.58 million, showing an increase by 3.0% or EUR 0.75
million during the twelve months of 2015. The increase in operating profit came
from changes in gross profit mentioned earlier, which was balanced by increase
in other operating costs mostly driven by higher salary costs and consultation
and legal fees related to tariff dispute. Legal and consultation fees continue
to be at a high level during the time the Company has ongoing local and
international disputes. 

The Group’s net financial income and expenses have resulted a net expense of
EUR 1.22 million, compared to net expense of EUR 2.10 million in the twelve
months of 2014. Being influenced by the decrease in interest costs by EUR 0.85
million, which was supplemented 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 2015 expenses is EUR 0.83 million (2014: positive
impact EUR 0.48 million). 

The Group’s profit before taxes for the twelve months of 2015 was EUR 24.36
million, showing a 7.2% increase compared to the relevant period in 2014. The
Group’s net profit for the twelve months of 2015 was EUR 19.86 million, which
is EUR 1.92 million higher than the net profit for equivalent period in 2014. 



Balance sheet

In the twelve months of 2015 the Group invested EUR 11.30 million into fixed
assets. As of 31st December 2015 non-current tangible assets amounted to EUR
162.73 million and total non-current assets amounted to EUR 163.63 million
(31st December 2014: EUR 157.48 million and EUR 158.34 million respectively). 

Compared to the year end of 2014 there has been a reduction in receivables and
prepayments in the amount of EUR 1.09 million to EUR 7.17 million, which is
mainly related to collection of money for network extension program. 

Current liabilities have decreased by EUR 0.41 million to EUR 8.42 million
compared to the year end of 2014.  The increase in trade and other payables by
EUR 0.73 million was balanced by decrease in derivatives fair value by EUR 0.56
million and in prepayments by EUR 0.65 million. Increase in payables is related
to increased investment related liabilities as well as bigger bonus reserve. 

The Group’s loan balance has remained stable at EUR 95 million. The weighted
average interest risk margin for the total loan facility is 0.95%. 

The Group has a Total debt/Total assets level as expected of 57.4%, in range of
55%-65%, reflecting the Group’s equity profile. This level is consistent with
the same period in 2014 when the Total debt/Total assets ratio was 57.6%. 

Deferred income from connection fees has grown compared to the end of 2014 by
EUR 2.46 million to 15.03 million. 



Contingent liability regarding the tariff risk

In the 4th quarter of 2011 the Group evaluated and noted an exceptional
off-balance sheet contingent liability, which could cause an outflow of
economic benefits of up to EUR 36.0 million. In the 4th quarter of 2015 the
Group re-evaluated the liability, which now stands at EUR 42.8 million, as per
note 13 to the accounts. The re-evaluation is made annually at the end of the
year. 



Cash flows

As of 31st December 2015 the cash position of the Group is strong. At the end
of December 2015 the cash balance of the Group stood at EUR 37.82 million,
which is 18.1% of the total assets (31st December 2014: EUR 38.56 million,
forming 18.8% of the total assets). 

The biggest contribution to the cash flows comes from main operations. During
the twelve months of 2015, the Group generated EUR 31.11 million of cash flows
from operating activities, a decrease of EUR 0.34 million compared to the
corresponding period in 2014. Underlying operating profit still continues to be
the main contributor to operating cash flows. The collection of receivables
continues to be strong. 

In the twelve months of 2015 the result of net cash flows from investing
activities was a cash outflow of EUR 6.87 million, a decrease of EUR 8.19
million compared to the inflow of EUR 1.32 million in the twelve months of
2014. This is made up as follows: 

  -- In the twelve months of 2015 the investments in fixed assets have increased
     by EUR 3.85 million compared to 2014 amounting to EUR 13.50 million.
  -- The compensations received for the construction of pipelines were EUR 6.50
     million in the twelve months of 2015, showing a decrease of EUR 4.02
     million compared to the same period of 2014.

In the twelve months of 2015 cash outflow from financing activities amounted to
EUR 24.99 million, decreasing by EUR 1.01 million compared to the same period
in 2014. The change was mainly related to reduction in interest payments by EUR
0.82 million related to the renewal of swap contracts. In addition, despite of
the same dividend payment, the dividend income tax was lower by EUR 0.29
million as there was a change in income tax rate. 

                                        

Employees

At the end of the 4th quarter of 2015, the total number of employees was 323
compared to 321 at the end of the 4th quarter of 2014. The full time equivalent
(FTE) was respectively 311 in 2015 compared to the 307 in 2014. Average number
of employees (FTE) during the full year was respectively 307 in 2015 and 300 in
2014. 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 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. 

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. 

In the annual general meeting of shareholders held on 27th of May 2015, 90
cents dividends per share and the total dividend pay-out from the profit of
2014 net income in the amount of EUR 18.0 million was approved. It is in
accordance with the Company’s dividend policy. Compared to 2014 dividends of 90
cents per share there was no change. 

Dividends were paid out on 19th of June 2015.

                                        

Share performance

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

As of 31 December 2015 AS Tallinna Vesi shareholders, with a direct holding
over 5%, were: 

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

During the twelve months of 2015 the shareholder structure has been relatively
stable compared to the end of 2014. At the end of 4th quarter 2015 the pension
funds owned 1.89% of the total shares compared to 1.54% at the end of 4th
quarter 2014. 

As of 31st December 2015, the closing price of the AS Tallinna Vesi share stood
at the same level as of 30th of September 2015 being EUR 13.80 (in the 4th
quarter of 2014: the change was +3.2%). During the same period the OMX Tallinn
index increased by 4.1% (2014: -1.3%). During the twelve months of 2015 AS
Tallinna Vesi share price changed by 5.3% from 13.10 euros to 13.80 euros,
while OMXT index increased by 19.1% (2014: +10.1% from 11.9 euros to 13.1
euros; OMXT -7.7%). 

In the twelve months of 2015, 7,818 deals with the Company’s shares were
concluded (2014: 4,962 deals) during which 1,581 thousand shares or 7.9%
exchanged their owners (2014: 1,239 thousand shares or 6.2%). 

The turnover of the transactions was EUR 5.80 million higher than in 2014,
amounting to EUR 21.75 million. 



Corporate structure

As of 31st December 2015, 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. There has been no changes in Supervisory Council
members in the 4th quarter of 2015. 

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 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 2018) and Riina Käi
(with the powers of the Management Board Member until 29 October 2018). 

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 related with the 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 will keep the investment community informed of all relevant
developments of the tariff dispute, both locally as well as internationally. AS
Tallinna Vesi has published all relevant materials on its website
(http://www.tallinnavesi.ee/en/Investor/Regulation) and to the Tallinn Stock. 

At this point in time the Company will not speculate on future developments,
possible outcomes or timing of the proceedings. 







STATEMENT OF COMPREHENSIVE INCOME   IV quarter  IV quarter  12 months  12 months
(thousand EUR)                         2015        2014        2015       2014  
                                                                                
Revenue                                 14 534      13 310     55 928     53 241
Costs of goods sold                     -6 357      -5 363    -23 679    -22 399
                                                                                
GROSS PROFIT                             8 177       7 947     32 249     30 842
                                                                                
Marketing expenses                        -117        -106       -435       -456
General administration expenses         -1 243      -1 229     -6 086     -5 517
Other income/ expenses (-)                 -72          -7       -150        -41
                                                                                
OPERATING PROFIT                         6 745       6 605     25 578     24 828
                                                                                
Financial income                            16          58         95        432
Financial expenses                        -524        -375     -1 315     -2 532
                                                                                
PROFIT BEFORE TAXES                      6 237       6 288     24 358     22 728
                                                                                
Income tax on dividends                      0           0     -4 500     -4 785
                                                                                
NET PROFIT FOR THE PERIOD                6 237       6 288     19 858     17 943
COMPREHENSIVE INCOME FOR THE             6 237       6 288     19 858     17 943
 PERIOD                                                                         
Attributable to:                                                                
Equity holders of A-shares               6 236       6 287     19 857     17 942
B-share holder                            0,60        0,60       0,60       0,60
                                                                                
Earnings per A share (in euros)           0,31        0,31       0,99       0,90
Earnings per B share (in euros)            600         600        600        600







STATEMENT OF FINANCIAL POSITION                                               
(thousand EUR)                                          31.12.2015  31.12.2014
                                                                              
ASSETS                                                                        
CURRENT ASSETS                                                                
Cash and equivalents                                        37 819      38 560
Trade receivables, accrued income and prepaid expenses       7 174       8 261
Inventories                                                    447         412
TOTAL CURRENT ASSETS                                        45 440      47 233
                                                                              
NON-CURRENT ASSETS                                                            
Derivatives                                                    142           0
Property, plant and equipment                              162 732     157 481
Intangible assets                                              758         862
TOTAL NON-CURRENT ASSETS                                   163 632     158 343
TOTAL ASSETS                                               209 072     205 576
                                                                              
LIABILITIES                                                                   
                                                                              
CURRENT LIABILITIES                                                           
Current portion of long-term borrowings                        328         261
Trade and other payables                                     5 586       4 855
Derivatives                                                    523       1 078
Prepayments                                                  1 983       2 631
TOTAL CURRENT LIABILITIES                                    8 420       8 825
                                                                              
NON-CURRENT LIABILITIES                                                       
Deferred income from connection fees                        15 030      12 567
Borrowings                                                  95 974      96 250
Derivatives                                                    628         761
Other payables                                                  13          23
TOTAL NON-CURRENT LIABILITIES                              111 645     109 601
TOTAL LIABILITIES                                          120 065     118 426
                                                                              
EQUITY CAPITAL                                                                
Share capital                                               12 000      12 000
Share premium                                               24 734      24 734
Statutory legal reserve                                      1 278       1 278
Retained earnings                                           50 995      49 138
TOTAL EQUITY CAPITAL                                        89 007      87 150
TOTAL LIABILITIES AND EQUITY CAPITAL                       209 072     205 576







CASH FLOW STATEMENT                                                12       12  
                                                                 months   months
(thousand EUR)                                                   2015     2014  
                                                                                
CASH FLOWS FROM OPERATING ACTIVITIES                                            
Operating profit                                                 25 578   24 828
Adjustment for depreciation/amortisation                          6 184    5 851
Adjustment for revenues from connection fees                       -194     -143
Other non-cash adjustments                                          -15      -33
Profit/loss(+) from sale and write off of property, plant and         2      145
 equipment, and intangible assets                                               
Change in current assets involved in operating activities          -897    1 165
Change in liabilities involved in operating activities              453     -364
Total cash flow from operating activities                        31 111   31 449
                                                                                
CASH FLOWS FROM INVESTING ACTIVITIES                                            
Acquisition of property, plant and equipment, and intangible    -13 495   -9 646
 assets                                                                         
Compensations received for construction of pipelines              6 499   10 523
Proceeds from sales of property, plant and equipment and             30       13
 intangible assets                                                              
Interest received                                                    99      432
Total cash flow from investing activities                        -6 867    1 322
                                                                                
CASH FLOWS FROM FINANCING ACTIVITIES                                            
Received loans                                                        0   20 000
Repayment of loans                                                    0  -20 000
Interest paid and loan financing costs, incl swap interests      -2 178   -2 995
Repayment of finance lease                                         -306     -216
Dividends paid                                                  -18 001  -18 001
Income tax on dividends                                          -4 500   -4 785
Total cash flow from financing activities                       -24 985  -25 997
                                                                                
Change in cash and bank accounts                                   -741    6 774
                                                                                
CASH AND EQUIVALENTS AT THE BEGINNING OF THE PERIOD              38 560   31 786
                                                                                
CASH AND EQUIVALENTS AT THE END OF THE PERIOD                    37 819   38 560








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