Market announcement

Title

RESULTS OF OPERATIONS FOR THE 4th QUARTER 2017

Message

MANAGEMENT REPORT

CHAIRMAN'S SUMMARY

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

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

Long-awaited decision

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

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

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

Record low level of leakages in the water network

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

We belong to the top of European utilities

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

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

Reliable and high-quality service

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

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

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

We care for the environment

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

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



OPERATIONAL INDICATORS FOR TWELVE MONTHS OF 2017

                                                       12 months     4th quarter
Indicator                                       Unit   2017   2016   2017   2016
--------------------------------------------------------------------------------
Drinking water                                                                  
--------------------------------------------------------------------------------
- 
Compliance of water quality at the customers’      %   99.9   99.9  100.0  100.0
 tap                                                                            
Water loss in the water distribution network       %   13.8   15.1   14.7   14.1
Average duration of water interruptions per        h   3.14   3.44   2.91   3.21
 property in hours                                                              
Waste water                                                                     
--------------------------------------------------------------------------------
- 
Number of sewer blockages                         No    654    670    134    167
Number of sewer bursts                            No    135    107     26     34
Wastewater treatment compliance with               %  100.0  100.0  100.0  100.0
 environmental standards                                                        
Customer service                                                                
--------------------------------------------------------------------------------
- 
Number of written complaints                      No     36     45      7     16
Number of customer contacts regarding water       No    219    166     42     58
 quality                                                                        
Number of customer contacts regarding water       No    298    339     58     92
 pressure                                                                       
Number of customer contacts regarding             No  1,111  1,190    299    281
 blockages and discharge of storm water                                         
Responding written customer contacts within at     %   99.9   99.5  99.97  99.93
 least 2 work days                                                              
Number of failed promises                         No      5      4      2      0
Notification of unplanned water interruptions      %   98.2   98.8   95.9   99.8
 at least 1 h before the interruption                                           





 Karl Heino Brookes

 Chairman of the Management Board





FINANCIAL HIGHLIGHTS FOR THE 4th QUARTER 2017

The Group’s sales revenues during the 4th quarter of 2017 were EUR 15.97
million, being up by 10.0% or EUR 1.46 million compared to the same period in
2016. 

The gross profit in the 4th quarter of 2017 was EUR 8.79 million, showing an
increase of 6.7% or EUR 0.55 million. Increase in gross profit was mainly
related to higher water, wastewater and storm water revenues and construction
and asphalting related profit, and lower depreciation. It was balanced by
higher pollution tax and chemical costs. 

The operating profit was -EUR 10.22 million, showing a decrease of 290.6% or
-EUR 15.59 million. In addition to the above-mentioned changes in gross profit,
the operating profit was mainly impacted by the provision for possible
third-party claims in the amount of EUR 17.52 million and lower tariff dispute
related costs in the 4th quarter of 2017. 

The net profit for the 4th quarter of 2017 was -EUR 10.44 million, being lower
by 291.5% or EUR 15.89 million. The net profit was mainly impacted by above
mentioned changes in the operating profit, and by higher financial expenses.
The changes in the financial expenses were mostly influenced by the lower
positive change in the fair value of swap contracts in the 4th quarter of 2017
compared to the positive change in the same quarter of 2016. The net profit for
the 4th quarter of 2017 and 2016 without the impact resulted from the change of
the fair value of swap contracts and provision for possible third-party claims
was EUR 6.95 million and EUR 4.99 million respectively, being higher by 39.1%
or EUR 1.95 million year-on-year. 



MAIN FINANCIAL INDICATORS

EUR million,               4th quarter       Change       12 months       Change
except key ratios      2015   2016    2017  2017/20   2015   2016   2017  2017/2
                                            16                            016   
--------------------------------------------------------------------------------
Sales                 14.53  14.52   15.97    10.0%  55.93  58.98  59.82    1.4%
Gross profit           8.18   8.24    8.79     6.7%  32.25  33.26  34.09    2.5%
Gross profit margin   56.26  56.75   55.04    -3.0%  57.66  56.39  56.99    1.1%
 %                                                                              
Operating profit       6.75   5.36  -10.22  -290.6%  25.58  24.63  10.87  -55.9%
Operating profit -     6.67   5.52  -10.40  -288.4%  25.27  24.44  10.24  -58.1%
 main business                                                                  
Operating profit      46.41  36.94  -64.00  -273.3%  45.73  41.75  18.16  -56.5%
 margin %                                                                       
Profit before taxes    6.24   5.45  -10.44  -291.5%  24.36  22.89   9.92  -56.7%
Profit before taxes   42.91  37.56  -65.36  -274.0%  43.55  38.81  16.59  -57.3%
 margin %                                                                       
Net profit             6.24   5.45  -10.44  -291.5%  19.86  18.39   7.22  -60.7%
Net profit margin %   42.91  37.56  -65.36  -274.0%  35.51  31.18  12.07  -61.3%
ROA %                  3.02   2.59   -4.64  -279.4%   9.58   8.70   3.27  -62.5%
Debt to total         57.43  58.15   62.43     7.4%  57.43  58.15  62.43    7.4%
 capital employed %                                                             
ROE %                  7.01   6.10  -12.17  -299.4%  22.31  20.57   8.41  -59.1%
Current ratio          5.40   3.91    5.51    40.8%   5.40   3.91   5.51   40.8%
--------------------------------------------------------------------------------

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, design and asphalting services, doubtful debt 





FINANCIAL RESULTS FOR THE 4th QUARTER 2017

STATEMENT OF COMPREHENSIVE INCOME

SALES

As in 2017 the Company’s tariffs were frozen at the 2010 tariff level, the
changes in the main activities revenues, i.e. from sales of water and
wastewater services, are fully driven by consumption with no considerable
seasonality in the main business. In the future, the Company does not expect
significant changes in the consumption. There has been incremental increase in
consumption in the past and that is expected to continue. 

At the end of 2017, the Supreme Court made a negative decision as regards to
the Company’s cassation as a result of which the Company’s tariffs will be
regulated under the Competition Authority’s methodology. 

In the 4th quarter of 2017 the Group’s total sales were EUR 15.97 million,
showing an increase by 10.0% or EUR 1.46 million year-on-year. 82.0% of sales
comprise of sales of water and wastewater services to domestic and commercial
customers within and outside of the service area. 7.5% of sales are the fees
received from the City of Tallinn for operating and maintaining the storm water
system and fire hydrants, 9.4% from construction and asphalting services and
1.1% from other works and services. The construction and asphalting services
sales are more seasonal and the Company continues to seek possibilities to keep
and to grow these services revenues. 

                                                4th quarter           Variance  
                                                                     2017/2016  
EUR thousand                                 2017    2016    2015    EUR       %
--------------------------------------------------------------------------------
Private clients, incl:                      6,417   6,352   6,232     65    1.0%
--------------------------------------------------------------------------------
Water supply service                        3,532   3,495   3,437     37    1.1%
Waste water disposal service                2,885   2,857   2,795     28    1.0%
Corporate clients, incl:                    5,150   5,128   4,942     22    0.4%
--------------------------------------------------------------------------------
Water supply service                        2,787   2,813   2,726    -26   -0.9%
Waste water disposal service                2,363   2,315   2,216     48    2.1%
Outside service area clients, incl:         1,326   1,102   1,202    224   20.3%
--------------------------------------------------------------------------------
Water supply service                          342     329     341     13    4.0%
Waste water disposal service                  752     689     760     63    9.1%
Storm water disposal service                  232      84     101    148  176.2%
Over pollution fee                            205     181     169     24   13.3%
--------------------------------------------------------------------------------
Total water supply and waste water         13,098  12,763  12,545    335    2.6%
 disposal service                                                               
                                                                                
Storm water treatment and disposal          1,200     830     801    370   44.6%
 service and fire hydrants service                                              
Construction service, design and            1,507     773   1,037    734   95.0%
 asphalting                                                                     
Other works and services                      169     153     151     16   10.5%
--------------------------------------------------------------------------------
SALES REVENUES TOTAL                       15,974  14,519  14,534  1,455   10.0%



Sales from water and wastewater services were EUR 13.10 million, showing a 2.6%
or EUR 0.34 million increase compared to the 4th quarter of 2016, resulting
from the changes in sales volumes as described below: 

  -- There has been an increase in private customers’ revenues by 1.0% to EUR
     6.42 million. The increase in domestic customer consumption volumes came
     mainly from apartment blocks, which is also our biggest private customer
     group. At the same time, there was a slight decrease in individual houses
     and other private customer groups.
  -- Sales to corporate customers within the service area increased by 0.4% to
     EUR 5.15 million. Increase was mostly related to increase in sales of other
     commercial customer segments.
  -- Sales to customers outside the main service area have increased by 20.3% to
     EUR 1.33 million. It was mainly impacted by increase in the sales of storm
     water and waste water disposal services and complemented by a small
     increase in the sales of water supply service.
  -- Over pollution fees
received have increased by 13.3% to EUR 0.21 million.

Sales from the operation and maintenance of the main service area storm water
and fire hydrant system were EUR 1.20 million, showing an increase of 44.6% or
EUR 0.37 million in the 4th quarter of 2017 compared to the same period in
2016, driven mainly by 109.6% higher storm water volumes as the weather was
quite rainy. 

Sales of construction, design and asphalting services were EUR 1.51 million,
increasing by 95.0% or EUR 0.73 million year-on-year. The increase was mainly
related to higher pipe construction services revenues during the 4th quarter of
2017. 



COST OF GOODS/ SERVICES SOLD AND GROSS PROFIT

The cost of goods sold amounted to EUR 7.18 million in the 4th quarter of 2017,
increasing by 14.4% or EUR 0.90 million compared to the equivalent period in
2016. The increase in cost was mainly influenced by increase in construction
and asphalting services related costs, pollution tax expenses, chemicals and
electricity costs, balanced by decrease in water abstraction charges costs and
depreciation. 

                                                4th quarter           Variance  
                                                                     2017/2016  
EUR thousand                                 2017    2016    2015   EUR        %
--------------------------------------------------------------------------------
Water abstraction charges                    -295    -318    -282    23     7.2%
Chemicals                                    -401    -336    -400   -65   -19.3%
Electricity                                  -839    -809    -747   -30    -3.7%
Pollution tax                                -374    -239    -234  -135   -56.5%
--------------------------------------------------------------------------------
Total direct production costs              -1,909  -1,702  -1,663  -207   -12.2%
Staff costs                                -1,596  -1,569  -1,481   -27    -1.7%
Depreciation and amortization              -1,351  -1,412  -1,437    61     4.3%
Construction service, design and           -1,328    -617    -951  -711  -115.2%
 asphalting                                                                     
Other costs of goods/services sold           -998    -979    -825   -19    -1.9%
--------------------------------------------------------------------------------
Other costs of goods/services sold total   -5,273  -4,577  -4,694  -696   -15.2%
--------------------------------------------------------------------------------
Total cost of goods/services sold          -7,182  -6,279  -6,357  -903   -14.4%



Total direct production costs (water abstraction charges, chemicals,
electricity and pollution tax) were EUR 1.91 million, showing 12.2% or EUR 0.21
million increase compared to equivalent period in 2016. Changes in direct
production costs came from a combination of changes in prices and in treated
volumes that affected the cost of goods sold together with the following
additional factors: 

  -- Water abstraction charges
decreased by 7.2% to EUR 0.30 million, driven mainly by overall 4.3%
     decrease in water volumes.
  -- Chemicals
costs increased by 19.3% to EUR 0.40 million, driven by 27.4% higher
     methanol price in the wastewater treatment process, worth EUR 0.02 million,
     and higher usage of coagulant, worth in total EUR 0.02 million. Higher
     total year-on-year chemicals costs in wastewater treatment process were
     accompanied by increase in costs of different chemicals in water treatment
     due to higher price and higher dosage of different chemicals due to poor
     raw water quality, worth in total EUR 0.01 million.
  -- Electricity costs
increased by 3.7% to EUR 0.84 million. It was related to increase in
     treated volumes, worth EUR 0.10 million, which was balanced by on average
     7.5% lower electricity price, worth EUR 0.08 million.
  -- Pollution tax expense
increased by 56.5% to EUR 0.37 million, mainly due to 46.3% increase in
     treated wastewater volumes and higher pollution load of pollutants, worth
     respectively EUR 0.12 million and EUR 0.01 million.

Other costs of goods sold (staff costs, depreciation, construction and
asphalting services costs and other costs of goods sold) amounted to EUR 5.27
million, having increased by 15.2% or EUR 0.70 million. The increase came
mostly from costs related to construction and asphalting services, balanced by
decrease in depreciation costs. Decrease in depreciation by 4.3% to EUR 1.35
million was mainly related to accelerated depreciation costs decrease
year-on-year. Increase in construction and asphalting services costs by 115.2%
to EUR 1.33 million was related to an increase in construction and asphalting
services revenues mentioned earlier and project specific changes. 

As a result of all above the Group’s gross profit for the 4th quarter of 2017
was EUR 8.79 million, showing an increase of 6.7% or EUR 0.55 million, compared
to the gross profit of EUR 8.24 million for the comparative period of 2016. 



ADMINISTRATIVE AND MARKETING EXPENSES

Administrative and marketing expenses amounted to EUR 1.32 million, having
decreased by 48.1% or EUR 1.22 million. The decrease was mainly related to
lower tariff dispute related costs. 



OTHER INCOME / EXPENSES

Other income/expenses amounted to expenses of EUR 17.70 million, having
increased EUR 17.36 million. The increase was mainly due to tariff dispute
related potential liability provision for possible third-party claims, if those
are to be recognised by the court, worth EUR 17.52 million. The provision takes
into account three years of possible difference in prices between the tariffs
approved by City of Tallinn in 2010 and the tariffs calculated based on
Competition Authorities methodology. The estimation takes into account
approximately 40% of the total previous contingent liability. Still the Company
does not consider itself liable to customers for any claims related to the
tariffs applied until the new tariffs approved by the Competition Authority are
duly implemented. Additional information in Note 5 to the abbreviated accounts. 



OPERATING PROFIT

As a result of the factors listed above the Group’s operating profit for the
4th quarter of 2017 amounted to -EUR 10.22 million, being EUR 15.59 million
lower than in the corresponding period of 2016. The Group’s operating profit
from main business was -EUR 10.40 million, being 288.4% or EUR 15.92 million
lower compared to 2016. 



FINANCIAL EXPENSES

The Group’s net financial income and expenses have resulted a net expense of
EUR 0.22 million, compared to net income of EUR 0.10 million in the 4th quarter
of 2016. The increase was mainly impacted by a negative change in the fair
value of the swap contracts year-on-year, worth EUR 0.32 million. 

The standalone swap agreements have been signed to mitigate the majority of the
long term floating interest risk. The interest swap agreements are signed for
EUR 75 million and EUR 20 million are still with floating interest rate. At
this point in time the estimated fair value of the swap contracts is negative,
amounting to EUR 0.76 million. Effective interest rate of loans (incl. swap
interests) in the 4th quarter of 2017 was 1.46%, amounting to interest costs of
EUR 0.35 million, compared to the effective interest rate of 1.58% and the
interest costs of EUR 0.38 million in the 4th quarter of 2016. 



PROFIT BEFORE TAXES AND NET PROFIT

The Group’s profit before taxes and net profit for the 4th quarter of 2017 were
-EUR 10.44 million, being 291.5% or EUR 15.89 million lower than for the 4th
quarter of 2016. Eliminating the effects of the change of the fair value of
swap contracts and provision for possible third party claims the Group’s net
profit for the 4th quarter of 2017 and 2016 would have been EUR 6.95 million
and EUR 4.99 million respectively, showing an increase of 39.1% or EUR 1.95
million year-on-year. 





RESULTS FOR THE TWELVE MONTHS OF 2017

STATEMENT OF COMPREHENSIVE INCOME

SALES

During the twelve months of 2017 the Group’s total sales were EUR 59.82
million, showing an increase by 1.4% or EUR 0.83 million year-on-year. 

Sales from water and wastewater services for twelve months of 2017 were EUR
51.24 million, increasing 2.1% or EUR 1.04 million compared to the twelve
months of 2016. 85.7% of sales comprised of sales of water and wastewater
services to domestic and commercial customers within and outside of the service
area. 6.1% of sales are the fees received from the City of Tallinn for
operating and maintaining the storm water system and fire hydrants, 7.2% from
construction and asphalting services and 1.0% from other works and services. 

                                                   12 months          Variance  
                                                                     2017/2016  
EUR thousand                                  2017    2016    2015    EUR      %
--------------------------------------------------------------------------------
Private clients, incl:                      25,225  24,949  24,408    276   1.1%
--------------------------------------------------------------------------------
Water supply service                        13,872  13,720  13,436    152   1.1%
Waste water disposal service                11,353  11,229  10,972    124   1.1%
Corporate clients, incl:                    20,407  20,069  19,358    338   1.7%
--------------------------------------------------------------------------------
Water supply service                        11,210  11,075  10,736    135   1.2%
Waste water disposal service                 9,197   8,994   8,622    203   2.3%
Outside service area clients, incl:          4,678   4,400   4,765    278   6.3%
--------------------------------------------------------------------------------
Water supply service                         1,346   1,306   1,280     40   3.1%
Waste water disposal service                 2,833   2,709   3,011    124   4.6%
Storm water disposal service                   499     385     474    114  29.6%
Over pollution fee                             927     778     766    149  19.2%
--------------------------------------------------------------------------------
Total water supply and waste water          51,237  50,196  49,297  1,041   2.1%
 disposal service                                                               
                                                                                
Storm water treatment and disposal service   3,668   3,671   3,357     -3  -0.1%
 and fire hydrant service                                                       
Construction service, design and             4,287   4,511   2,724   -224  -5.0%
 asphalting                                                                     
Other works and services                       623     604     550     19   3.1%
--------------------------------------------------------------------------------
-------------------------------------------                                     
SALES REVENUES TOTAL                        59,815  58,982  55,928    833   1.4%



During the twelve months of 2017 there has been an increase in sales to private
customers by 1.1% to EUR 25.23 million and 1.7% increase to EUR 20.41 million
in sales to corporate customers within the service area. Increase in sales to
private customers came mainly from apartment blocks, accompanied by slight
increase in individual houses, while other domestic customer segments had a
slight decrease. Sales increase in corporate customers is attributable to all
customer segments. Sales to customers outside the main service area have
increased by 6.3% to EUR 4.68 million, mainly due to higher storm and waste
water disposal services, accompanied by slightly increased water supply volumes
in 2017. Over pollution fees received have increased by 19.2% to EUR 0.93
million. 

Sales from the operation and maintenance of the main service area storm water
and fire hydrant system in the twelve months of 2017 were EUR 3.67 million,
showing a decrease of 0.1% or EUR 0.01 million year-on-year, driven mainly by
lower cost per m3, which was balanced by 4.1% higher storm water volumes in
2017. 

Sales of construction, design and asphalting services were EUR 4.29 million,
decreasing by 5.0% or EUR 0.22 million year-on-year. The decrease was mainly
related to lower pipe construction services revenues during 2017. 



COST OF GOODS SOLD AND AND GROSS AND OPERATING PROFITS



                                                 12 months            Variance  
                                                                     2017/2016  
EUR thousand                                2017     2016     2015   EUR       %
--------------------------------------------------------------------------------
Water abstraction charges                 -1,168   -1,169   -1,101     1    0.1%
Chemicals                                 -1,501   -1,308   -1,531  -193  -14.8%
Electricity                               -3,193   -3,107   -3,035   -86   -2.8%
Pollution tax                             -1,100   -1,091   -1,002    -9   -0.8%
--------------------------------------------------------------------------------
Total direct production costs             -6,962   -6,675   -6,669  -287   -4.3%
Staff costs                               -5,784   -5,729   -5,603   -55   -1.0%
Depreciation and amortization             -5,577   -5,862   -5,690   285    4.9%
Construction service, design and          -3,638   -4,006   -2,398   368    9.2%
 asphalting                                                                     
Other costs of goods/services sold        -3,764   -3,449   -3,319  -315   -9.1%
--------------------------------------------------------------------------------
Other costs of goods/services sold       -18,763  -19,046  -17,010   283    1.5%
 total                                                                          
--------------------------------------------------------------------------------
Total cost of goods/services sold        -25,725  -25,721  -23,679    -4    0.0%



Total direct production costs (water abstraction charges, chemicals,
electricity and pollution taxes) were EUR 6.96 million, showing an increase of
4.3% or EUR 0.29 million year-on-year. Change in costs came from the increase
in all other direct production costs, except marginal decrease in water
abstraction charges as described below: 

  -- Water abstraction charges
decreased by 0.1% to EUR 1.17 million, driven by 0.3% decrease in water
     volumes.
  -- Chemicals costs
 increased by 14.8% to EUR 1.50 million, driven mainly by on average 34.7%
     higher methanol price and higher use of polymers in wastewater treatment
     process, worth respectively EUR 0.12 million and EUR 0.04 million, which
     was accompanied by increased water treatment process chemicals costs driven
     by increase in usage, worth EUR 0.04 million. Increased costs were balanced
     by decrease in methanol usage in wastewater treatment process to remove
     pollutants, worth EUR 0.03 million.
  -- Electricity costs
 have increased by 2.8% to EUR 3.19 million. It was related to on average
     0.9% higher electricity prices and higher cost per m3 in network
     distribution, worth respectively EUR 0.03 million and EUR 0.02 million,
     accompanied by increase in treated wastewater volumes, worth EUR 0.03
     million.
  -- Pollution tax expense
 increased by 0.8% to EUR 1.10 million, driven mainly by 2.5% increase in
     treated sewage volumes, worth EUR 0.03 million, balanced by the decreased
     pollution loads, worth EUR 0.01 million.

Other costs of goods sold (staff costs, depreciation, construction and
asphalting services costs and other costs of goods sold) amounted to EUR 18.76
million, having decreased by 1.5% or EUR 0.28 million compared to the same
period in 2016.  Changes in other costs of goods sold are driven mainly by the
same reasons as mentioned in 4th quarter results. In 2017, due to the
favourable weather, the construction work could also be done during the 4th
quarter, compensating lower volumes of construction work in previous quarters. 

Group’s gross profit for the twelve months of 2017 was EUR 34.09 million, being
2.5% or EUR 0.83 million higher compared to the same period in 2016. Group’s
operating profit was EUR 10.87 million, showing a decrease by 55.9% or EUR
13.76 million during the twelve months of 2017. The decrease in operating
profit was mostly driven by the changes in gross profit and by the provision
for possible third-party claims in 2017 mentioned earlier. 



FINANCIAL EXPENSES

The Group’s net financial income and expenses have resulted a net expense of
EUR 0.94 million, compared to net expense of EUR 1.74 million in the twelve
months of 2016. The decrease was mainly impacted by a positive change in the
fair value of the swap contracts year-on-year, worth EUR 0.89 million. 



PROFIT BEFORE TAXES AND NET PROFIT

The Group’s profit before taxes for the twelve months of 2017 was EUR 9.92
million, showing a 56.7% or EUR 12.97 million decrease compared to the relevant
period in 2016. The Group’s net profit for the twelve months of 2017 was EUR
7.22 million, which is 60.7% or EUR 11.17 million lower than the net profit for
equivalent period in 2016, impacted mainly by the provision for possible
third-party claims, mentioned earlier, worth -EUR 17.52 million and by the
decrease in income tax on dividends, worth EUR 1.80 million. Eliminating the
effects of the derivatives fair value and the effect of possible third party
claims the net profit for the twelve months of 2017 would have been EUR 24.17
million, showing an increase by 29.2% or EUR 5.47 million compared to the
relevant period in 2016. 



STATEMENT OF FINANCIAL POSITION

In the twelve months of 2017 the Group invested into fixed assets EUR 9.47
million. As of 31.12.2017, non-current tangible assets amounted to EUR 174.45
million and total non-current assets amounted to EUR 175.26 million
(31.12.2016: EUR 171.18 million and EUR 172.01 million respectively). 

Compared to the year end of 2016 the trade receivables, accrued income and
prepaid expenses have shown an increase in the amount of EUR 0.55 million to
EUR 7.72 million. The collection rate of receivables continues to be high,
being 99.83% compared to 99.49% at the end of December 2016. 

Current liabilities have decreased by EUR 0.99 million to EUR 9.65 million
compared to the year end of 2016. Decrease mainly derives from decrease in
trade and other payables by EUR 0.83 million and from decreased prepayments of
connections in construction process by EUR 0.13 million. Changes in trade and
other payables were related to lower construction activities and investments
related liabilities. 

Deferred income from connection fees has grown compared to the end of 2016 by
EUR 2.58 million to EUR 19.63 million and is related to bigger developments in
the beginning of the year. 

At the end of 2017, the Company has formed a provision of EUR 17.52 million for
possible third-party claims as a result of the Supreme Court Decision from 12th
December 2017. More detailed information about the provision is in Note 5 to
the financial statements. 

The Group’s loan balance has remained stable at EUR 95 million. The weighted
average interest risk margin for the total loan facility is 0.79%. In the end
of September, the Company refinanced its long-term loan in the amount of EUR
37.5 million, decreasing the interest risk margin from previous 0.95%. 

The Group has a Total debt to assets level as expected of 62.4%, in range of
55%-65%, reflecting the Group’s equity profile. In 2016 the total debt to
assets ratio was 58.1%. 



CASH FLOW

As of 31.12.2017, the cash position of the Group is strong. At the end of
December 2017, the cash balance of the Group stood at EUR 44.97 million, which
is 19.7% of the total assets (31.12.2016: EUR 33.99 million, forming 15.9% of
the total assets). 

The biggest contribution to the cash flows comes from main operations. During
the twelve months of 2017, the Group generated EUR 33.25 million of cash flows
from operating activities, an increase of EUR 1.37 million compared to the
corresponding period in 2016. Underlying operating profit continues to be the
main contributor to operating cash flows. 

In the twelve months of 2017 the result of net cash flows from investing
activities was a cash outflow of EUR 6.99 million, a decrease of EUR 4.44
million compared to the cash outflow of EUR 11.43 million in the twelve months
of 2016. This is made up as follows: 

  -- The cash outflows from investments in fixed assets have decreased by EUR
     4.77 million compared to 2016 amounting to EUR 9.76 million.
  -- The compensations received for the construction of pipelines were EUR 2.70
     million, showing a decrease of EUR 0.30 million compared to the same period
     of 2016.

In the twelve months of 2017 cash outflow from financing activities amounted to
EUR 15.27 million, decreasing by EUR 9.00 million compared to the same period
in 2016. The change was mainly related to decrease in dividends paid by EUR
7.20 million and income tax on dividends by EUR 1.80 million. 



EMPLOYEES

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

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

At the end of the 4th quarter of 2017, the total number of employees was 312
compared to 311 at the end of the 4th quarter of 2016. The full time equivalent
(FTE) was respectively 300 in 2017 compared to the 301 in 2016. Average number
of employees (FTE) during the twelve months was respectively 305 in 2017 and
308 in 2016. 

By gender, employee allocation was as follows:

As of 31.12.2017   Women  Men  Total
Group                 94  218    312
------------------------------------
------------------------------------
Management Team       14   12     26
Executive Team         4    4      8
Management Board       1    2      3
                                    
Supervisory Board      0    9      9



As of 31.12.2016   Women  Men  Total
Group                 87  224    311
------------------------------------
------------------------------------
Management Team       12   13     25
Executive Team         4    4      8
Management Board       1    2      3
                                    
Supervisory Board      0    9      9



The total salary costs were EUR 2.17 million for the 4th quarter of 2017,
including EUR 0.05 million paid to Management and Supervisory Council members
(excluding social taxes). The off-balance sheet potential salary liability
could rise up to EUR 0.08 million should the Council want to replace the
current Management Board members. 



DIVIDENDS

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

The Company’s dividend policy up to 2017 was related to keeping the dividends
in real term i.e. dividends amounts have been increased in line with inflation.
Every year the Supervisory Board evaluates the proposal of the dividends to be
paid out to the shareholders and approves it to be presented to the voting to
the annual general meeting of shareholders, considering all circumstances. 

In the annual general meeting of shareholders held on 01.06.2017, the
Supervisory Board propose to pay out 60% of the usual dividend in June 2017,
and defer the decision as regards to the remaining 40%, until after decisions
have been received related to the ongoing tariff disputes. Proposal of dividend
payment of EUR 0.54 per A-share and total pay-out in the amount of EUR 10.8
million was approved.  Future dividends are also evaluated by the Supervisory
Board, who makes the proposal to annual general meeting. Dividends were paid
out on 26.06.2017. 



SHARE PERFORMANCE

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

As of 31.12.2017, 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 2017 the shareholder structure has been relatively
stable compared to the end of 2016. At the end of 4th quarter 2017 the pension
funds shareholding has decreased, being 1.4% of the total shares compared to
2.1% at the end of 2016. 

As of 31.12.2017, the closing price of AS Tallinna Vesi share was EUR 10.20,
which is 17.7% (2016: -1.4%) lower compared to the closing price of EUR 12.40
at the beginning of the quarter. During the 4th quarter the OMX Tallinn index
increased by 1.3% (2016: 7.4%). 

In the twelve months of 2017, 8,476 deals with the Company’s shares were
concluded (2016: 6,502 deals) during which 1,345 thousand shares or 6.7% of
total shares exchanged their owners (2016: 1,048 thousand shares or 5.2%). 

The turnover of the transactions was EUR 1.77 million higher than in 2016,
amounting to EUR 16.48 million. 



CORPORATE STRUCTURE

As of 31.12.2017, the Group consisted of 2 companies. The subsidiary Watercom
OÜ is wholly owned by AS Tallinna Vesi and consolidated to the results of the
Company. 



CORPORATE GOVERNANCE

SUPERVISORY COUNCIL

Supervisory Council plans and organises the management of the Company and
supervises the activities of the Management Board. According to AS Tallinna
Vesi articles of association Supervisory Council consists of 9 members, who are
appointed for two years. Changes in the Supervisory Council members in the 4th
quarter of 2017 were as follows. Mr Brendan Francis Murphy’ and Mr Priit Lello’
terms as a Supervisory Council member were extended (respectively until
28.10.2019 and 16.11.2019). 

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: 

https://www.tallinnavesi.ee/en/about-us/corporate-governance/supervisory-council
/ 

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 21st March 2020), Aleksandr Timofejev (with
the powers of the Management Board Member until 29th October 2018) and Riina
Käi (with the powers of the Management Board Member until 29th October 2018). 

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

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



LEGAL CLAIM FOR BREACH OF INTERNATIONAL TREATY

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

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

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

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

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

https://newsclient.omxgroup.com/cdsPublic/viewDisclosure.action?disclosureId=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
https://www.tallinnavesi.ee/en/investor/stock-announcements) and to the Tallinn
Stock Exchange.At this point in time the Company will not speculate on future
developments and possible outcomes or timing of the proceedings. 







STATEMENT OF COMPREHENSIVE INCOME    IV quarter     IV      12 months  12 months
                                                  quarter                       
(EUR thousand)                          2017        2016       2017       2016  
                                                                                
Revenue                                  15 974     14 519     59 815     58 982
Costs of goods sold                      -7 182     -6 279    -25 725    -25 721
--------------------------------------------------------------------------------
GROSS PROFIT                              8 792      8 240     34 090     33 261
                                                                                
Marketing expenses                         -101        -95       -356       -365
General administration expenses          -1 217     -2 443     -5 028     -7 799
Other income/ expenses (-)              -17 698       -339    -17 841       -470
--------------------------------------------------------------------------------
OPERATING PROFIT                        -10 224      5 363     10 865     24 627
                                                                                
Interest income                               3          6         15         41
Interest expense                           -352       -371     -1 502     -1 447
Other financial income (+)/                 133        455        543       -331
 expenses (-)                                                                   
--------------------------------------------------------------------------------
PROFIT BEFORE TAXES                     -10 440      5 453      9 921     22 890
                                                                                
Income tax on dividends                       0          0     -2 700     -4 500
                                                                                
NET PROFIT FOR THE PERIOD               -10 440      5 453      7 221     18 390
--------------------------------------------------------------------------------
COMPREHENSIVE INCOME FOR THE PERIOD     -10 440      5 453      7 221     18 390
                                                                                
Attributable to:                                                                
--------------------------------------------------------------------------------
Equity holders of A-shares              -10 441      5 452      7 220     18 389
B-share holder                             0,60       0,60       0,60       0,60
                                                                                
Earnings per A share (in euros)           -0,52       0,27       0,36       0,92
Earnings per B share (in euros)             600        600        600        600







STATEMENT OF FINANCIAL POSITION                                               
(EUR thousand)                                          31.12.2017  31.12.2016
                                                                              
ASSETS                                                                        
CURRENT ASSETS                                                                
------------------------------------------------------------------------------
Cash and equivalents                                        44 973      33 987
Trade receivables, accrued income and prepaid expenses       7 716       7 167
Inventories                                                    457         449
------------------------------------------------------------------------------
TOTAL CURRENT ASSETS                                        53 146      41 603
                                                                              
NON-CURRENT ASSETS                                                            
------------------------------------------------------------------------------
Property, plant and equipment                              174 451     171 177
Intangible assets                                              811         830
------------------------------------------------------------------------------
TOTAL NON-CURRENT ASSETS                                   175 262     172 007
------------------------------------------------------------------------------
TOTAL ASSETS                                               228 408     213 610
                                                                              
LIABILITIES AND EQUITY                                                        
CURRENT LIABILITIES                                                           
------------------------------------------------------------------------------
Current portion of long-term borrowings                        264         264
Trade and other payables                                     6 200       7 030
Derivatives                                                    578         610
Prepayments                                                  2 609       2 735
------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES                                    9 651      10 639
                                                                              
NON-CURRENT LIABILITIES                                                       
------------------------------------------------------------------------------
Deferred income from connection fees                        19 632      17 050
Borrowings                                                  95 565      95 795
Derivatives                                                    178         715
                                                            17 522           0
Other payables                                                  44          15
------------------------------------------------------------------------------
TOTAL NON-CURRENT LIABILITIES                              132 941     113 575
------------------------------------------------------------------------------
TOTAL LIABILITIES                                          142 592     124 214
                                                                              
EQUITY                                                                        
------------------------------------------------------------------------------
Share capital                                               12 000      12 000
Share premium                                               24 734      24 734
Statutory legal reserve                                      1 278       1 278
Retained earnings                                           47 804      51 384
------------------------------------------------------------------------------
TOTAL EQUITY                                                85 816      89 396
------------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY                               228 408     213 610







CASH FLOW STATEMENT                                                12       12  
                                                                 months   months
(EUR thousand)                                                   2017     2016  
                                                                                
CASH FLOWS FROM OPERATING ACTIVITIES                                            
--------------------------------------------------------------------------------
Operating profit                                                 10 865   24 627
Adjustment for depreciation/amortisation                          6 170    6 406
Adjustment for revenues from connection fees                       -258     -218
Other non-cash adjustments                                          -26      -15
Profit/loss(+) from sale and write off of property, plant and       -12      -42
 equipment, and intangible assets                                               
Change in current assets involved in operating activities          -558       41
Change in liabilities involved in operating activities           17 064    1 073
TOTAL CASH FLOW FROM OPERATING ACTIVITIES                        33 245   31 872
                                                                                
CASH FLOWS FROM INVESTING ACTIVITIES                                            
--------------------------------------------------------------------------------
Acquisition of property, plant and equipment, and intangible     -9 761  -14 526
 assets                                                                         
Compensations received for construction of pipelines              2 698    3 002
Proceeds from sales of property, plant and equipment and             62       50
 intangible assets                                                              
Interest received                                                    15       45
--------------------------------------------------------------------------------
TOTAL CASH FLOW FROM INVESTING ACTIVITIES                        -6 986  -11 429
                                                                                
CASH FLOWS FROM FINANCING ACTIVITIES                                            
--------------------------------------------------------------------------------
Interest paid and loan financing costs, incl swap interests      -1 512   -1 510
Repayment of finance lease                                         -260     -264
Received loans                                                   37 500        0
Repayment of loans                                              -37 500        0
Dividends paid                                                  -10 801  -18 001
Income tax on dividends                                          -2 700   -4 500
--------------------------------------------------------------------------------
TOTAL CASH FLOW FROM FINANCING ACTIVITIES                       -15 273  -24 275
                                                                                
--------------------------------------------------------------------------------
CHANGE IN CASH AND CASH EQUIVALENTS                              10 986   -3 832
                                                                                
--------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD         33 987   37 819
                                                                                
--------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD               44 973   33 987










         Karl Heino Brookes
         Chairman of the Management Board
         +372 62 62 200
         [email protected]