Börsiteade

Pealkiri

Results of operations for the 4th quarter of 2010 (EEK)

Teade

MANAGEMENT REPORT

RESULTS OF OPERATIONS - FOR THE 4th QUARTER 2010



Overview



During 2010 the Company's total sales increased, year on year, by 0.6% to 777.3
mln EEK. The Company's underlying operating profit from water and wastewater
related activities decreased by 10.1% to 377.9 mln EEK in 2010 compared to
2009. Profits from other activities (mainly construction and developments)
increased by 25.2% to 51.8 mln EEK compared to the 2009. The Company's profit
before taxes was 389.6 mln EEK, which is a decrease of 2.9% or 11.5 mln EEK,
compared to 2009. 





--------------------------------------------------------------------------------
mln EEK                  4 Q     4 Q    Change   12 months    12 months   Change
                         2010    2009              2010         2009            
Sales                    195,0   201,8   -3,3%        777,3        772,4    0,6%
Gross profit             106,9   122,4  -12,6%        453,7        488,4   -7,1%
Gross profit margin %     54,8    60,7   -9,6%         58,4         63,2   -7,7%
Operating profit         111,0   134,2  -17,3%        429,7        461,9   -7,0%
Operating profit -        84,1   104,2  -19,4%        377,9        420,6  -10,1%
main business                                                                   
Operating profit          56,9    66,5  -14,5%         55,3         59,8   -7,6%
margin %                                                                        
Profit before taxes      124,1   125,5   -1,2%        389,6        401,1   -2,9%
Net profit               124,1   125,5   -1,2%        256,7        339,9  -24,5%
Net profit margin %       63,6    62,2    2,2%         33,0         44,0  -25,0%
ROA %                      4,3     4,5   -5,0%          8,9         12,3  -27,4%
Debt to total capital     60,1    49,7   20,9%         60,1         49,7   20,9%
employed                                                                        
--------------------------------------------------------------------------------


Gross profit margin - Gross profit / Net sales

Operating profit margin - Operating profit / Net sales

Net Profit margin - Net Profit / Net sales

ROA - Net profit /Total Assets

Debt to Total capital employed - Total Liabilities / Total capital employed

Main business - water and wastewater activities, excl. connections profit and
government grants 





Profit and Loss Statement

4th quarter 2010



Sales



In the 4th quarter of 2010 the Company's total sales decreased, year on year,
by 3.3% to 195.0 mln EEK. Sales in the main operating activity principally
comprise of sales of water and treatment of wastewater to domestic and
commercial customers within and outside of the service area, and fees received
from the City of Tallinn for operating and maintaining the storm water system. 



Sales of water and wastewater services were 177.8 mln EEK, a 2.5% decrease
compared to the 4th quarter of 2009, resulting from the slight fall in sales
volumes as described below in addition to the 0.9% decrease in tariffs from 1
January 2010 for the Company's residential and commercial customers. 



Within the service area, sales to residential customers decreased by 2.1% to
94.3 mln EEK. Sales to commercial customers decreased by 1.1% to 67.8 mln EEK.
Sales to customers outside of the service area decreased by 10.9% to 12.9 mln
EEK in the 4th quarter of 2010. Over pollution fees received were 2.8 mln EEK,
a 6.5% decrease compared to the 4th quarter of 2009. 



In the 4th quarter of 2010, the volumes sold to residential customers decreased
by 1.2% year on year, which is still lower decrease than we faced in first two
quarters of 2010 compared to 2009. 



The volumes sold to commercial customers inside the service area were broadly
on the same level as in 2009 reflecting only a minor 0.3% decrease compared to
the same period in 2009. Total selling volumes to the industrial sector are
decreasing due to Coca-Cola's leave from our service area, eliminating the fall
in its consumption some increase can be noticed from the industrial sector.
Better economic conditions are contributing also to leisure sector volumes
starting to pick up. 



Outside service area sales volumes were 22.5% lower than in the 4th quarter of
2009. The main factor in this decrease was lower storm water volumes in the 4th
quarter of 2010 compared to 2009. 



The sales from the operation and maintenance of the storm water and
fire-hydrant system decreased by 17.8% to 12.5 mln EEK in the 4th quarter of
2010 compared to the same period in 2009. This is in accordance with the terms
and conditions of the contract whereby the storm water and fire hydrant costs
are invoiced based on actual costs and volumes treated. 





Cost of Goods Sold and Gross Margin



The cost of goods sold for the main operating activity was 88.1 mln EEK in the
4th quarter of 2010, an increase of 8.7 mln EEK or 11.0% from the equivalent
period in 2009. 



In the 4th quarter of 2010 the Company did not achieve the beneficial 0.5
coefficient for pollution tax due to the combination of the nitrogen
concentration, low volumes and low temperature in the beginning of the quarter,
and thereby the amount of pollution tax payable was 11.6 mln EEK compared to
3.2 mln EEK in the 4th quarter of 2009. In addition to the coefficient increase
the higher pollution tax payable in 2010 is generated by the increase in tax
rates year on year by 19%. To mitigate the nitrogen treatment and tax risk we
have started with the investment into an additional stage of waste water
treatment and according to the construction schedule the works should be
completed in the beginning of the 3rd quarter of 2011. 



Chemical costs were 5.9 mln EEK, representing a 12.1% increase compared to the
corresponding period in 2009. Although lower volumes were treated the main
contributor to higher chemical costs are dosed methanol and other chemicals
quantities related to the need to treat the increased pollution concentration
in incoming sewerage. Also the increase in prices added some unfavorable impact
to the cost of chemicals. 



Electricity costs increased by 2.2 mln EEK or 23.3% in the 4th quarter of 2010
compared to the 4th quarter of 2009 due to higher electricity prices as a
result of three sites buying electricity from the open market. 



Salary expenses within costs of goods sold decreased in the 4th quarter of
2010, year on year, by 4.1 mln EEK or 18.0% mainly due to the reduced operating
headcount. 



Transport costs decreased by 0.6 mln EEK, or 13.9% year on year, having adverse
impact from the increase in fuel prices that was more than compensated by
decrease in usage of rented machinery and staff cars. 



Other cost of goods sold in the main operating activity increased 1.9 mln EEK,
or 16.1% year on year, mainly due to the additional costs of repair services
resulting from new city act related to the asphalting costs. 



As a result of all of the above the Company's gross profit for the 4th quarter
of 2010 was 106.9 mln EEK, which is a decrease of 15.5 mln EEK, or 12.6%,
compared to the gross profit of 122.4 mln EEK for the 4th quarter of 2009. 



Operating Costs and Operating Margin



Marketing expenses increased by 0.6 mln EEK to 3.4 mln EEK during the 4th
quarter of 2010 compared to the corresponding period in 2009. This is mainly
the result of a slight increase in expenses due to OÜ Watercom start-up costs
in the second half-year of 2010. 



In the 4th quarter of 2010 the General administration expenses increased by 1.4
mln EEK year on year to 15.9 mln EEK mainly due to the need for the
consultancies related to the implication of the Anti Monopoly Bill and attempts
to improve the image of the company insisting on the quality aspects. 



Other net income/expenses



The majority of the income in Other net income/expenses relates to
constructions and government grants. The driver for this income stream is the
connections activity in Tallinn. Income and expenses from constructions and
government grants totaled a net income of 26.9 mln EEK in the 4th quarter of
2010 compared to a net income of 30.0 mln EEK in the 4th quarter of 2009, this
line varies throughout the year depending on construction volumes and estimates
to the profit margins on projects completed. 



The rest of the other income/expenses totaled an expense of 3.6 mln EEK in the
4th quarter of 2010 compared to an expense of 0.9 mln EEK in the 4th quarter of
2009. This line was mainly impacted by the change in accounting principles as
described in the financial accounts and notes to the accounts. In addition it
should be noted that more than 99% of debt is collected in a timely manner. 



As a result the Company's underlying operating profit from sales of water and
wastewater for the 4th quarter of 2010 totaled 84.1 mln EEK compared to 104.2
mln EEK in the corresponding quarter in 2009. In total the Company's operating
profit for all activities for the 4th quarter of 2010 was 111.0 mln EEK, a
decrease of 23.2 mln EEK compared to an operating profit of 134.2 mln EEK
achieved in the 4th quarter of 2009. Year on year the operating profit for the
4th quarter has decreased by 17.3%. 



Financial expenses



Net Financial revenues/expenses were 13.1 mln EEK in the 4th quarter of 2010,
which is a variance of 21.8 mln EEK or 250.3% compared to the net expenses in
the 4th quarter of 2009. The movement in net financial costs is mainly due to
the increase in the fair value of swap agreements as result of increased
interest rates and forecasts for the future. 



The Company has mitigated partly the long term floating interest risk with 5
interest swap agreements, each with a principal value of 15 mln EUR. At this
point in time the estimated fair value of these swap contracts is still
negative, totaling 35.5 mln EEK, with a revaluation in the 4th quarter 2010 in
the amount of 17.3 mln EEK which offsets the interest costs increase and the
financial income decrease during the 4th quarter of 2010 thus contributing to a
net financial income. 





Profit Before Tax



The Company's profit before taxes for the 4th quarter of 2010 was 124.1 mln
EEK, which is 1.4 mln EEK lower than the profit before taxes of 125.5 mln EEK
for the 4th quarter of 2009. 



Results for the twelve months of 2010



During the twelve months of 2010 the Company's total sales increased, year on
year, by 0.6% to 777.3 mln EEK. Sales of water and wastewater treatment were
706.7 mln EEK, a 0.1% decrease compared to the twelve months of 2009. 



The underlying operating profit from the Company's main business activity,
sales of water and wastewater, for the twelve months of 2010 decreased by 10.1%
to 377.9 mln EEK compared to the twelve months of 2009. 



The Company's profit before taxes for the twelve months of 2010 was 389.6 mln
EEK, which is a 2.9% decrease compared to the profit before taxes in the
relevant period in 2009. 



The Company's net profit for the twelve months of 2010 was 256.7 mln EEK, which
is 83.2 mln EEK lower than the net profit of 339.9 mln EEK in the equivalent
period in 2009. 





Balance sheet



During the twelve months of 2010 the Company invested 274.3 mln EEK into fixed
assets. Non-current assets were 2,349.4 mln EEK at 31 December 2010. Current
assets increased by 38.6 mln EEK to 527.4 mln EEK in the twelve months of the
year, with customer receivables increasing by 123.0 mln EEK and cash at bank
decreasing by 85.4 mln EEK. 



Current liabilities increased by 133.2 mln EEK to 248.2 mln EEK in the twelve
months of the year. This was mainly due to a 16.8 mln EEK increase in Trade
payables and also due to 117.1 mln EEK increase in Current portion of long-term
borrowings. 



The Company has a leverage level as expected of 60.1% with the future target
range within 60%. Long-term liabilities stood at 1,480.6 mln EEK at the end of
December 2010, consisting almost entirely of the outstanding balance of three
long-term bank loans. During 2nd quarter of 2010 we drew down an additional 20
mln EUR, and at the end of the 4th quarter of 2010 the total loan balance is 95
mln EUR, which is the total available loan facility. The weighted average
interest margin for the total available facility is 0.67%. 



Cash flow



During the twelve months of 2010, the Company generated 422.1 mln EEK of cash
flows from operating activities, an increase of 5.2 mln EEK compared to the
corresponding period in 2009. 2010 operating cash flows were above 2009 cash
flows mainly due to the payment of unwinding costs in 2009. Underlying
operating profit still continues to be the main contributor to operating cash
flows. 



In the twelve months of 2010 net cash outflows from investing activities were
187.5 mln EEK, which is 124.7 mln EEK more than in 2009. This is mainly due to
reduced inflow due to timing of compensations received for construction of
pipelines. At the end of 2010 the cash outflows in relation to fixed asset
investments were 266.8 mln EEK. 



The cash outflows from financing activities were 320.0 mln EEK during the
twelve months of 2010 compared to a cash outflow of 291.5 mln EEK during the
same twelve months of 2009, representing the payouts of the dividends and
income tax on dividends and received loans following the loan drawdown. 



As a result of all of the above factors, the total cash outflow in the twelve
months of 2010 was 85.4 mln EEK compared to a cash inflow of 62.6 mln EEK in
the twelve months of 2009. Cash and cash equivalents stood at 207.1 mln EEK as
at 31 December 2010 which is 85.4 mln EEK lower than at the corresponding
period of 2009. 



Employees

At the end of the 4th quarter of 2010, the total number of employees was 319
compared to 336 at the end of the 4th quarter of 2009. The full time equivalent
(FTE) was respectively 305 in 2010 compared to the 322 in 2009. The decrease in
FTE is primarily due to reorganization in various departments at the end of
2009. 



Corporate structure



At the end of the quarter, 31 December 2010, 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. 



Dividends and share performance



Based on the results of the 2009 financial year, the Company paid 500,010,000
EEK of dividends. Of this 10,000 EEK was paid to the owner of the B-share and
500,000,000 EEK, i.e. 25.00 EEK per share to the owners of the A-shares. The
dividends were paid out on 11 June 2010, based on the list of shareholders,
which was fixed on 01 June 2010. 



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





As of 31 December 2010 AS Tallinna Vesi shareholders, with a direct holding
over 5%, were: 



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


We have seen the next two biggest shareholders Parvus AM and AKO Capital
reducing their holdings in the Company in the second half-year of 2010. Parvus
AM has declared that their shareholding in the clients' accounts fell below 10%
of the share capital and AKO Capital has declared selling their entire holding
in the Company. 



At the end of the quarter, 31 December 2010, the closing price of the AS
Tallinna Vesi share was 123.45 EEK (7.89 EUR), which is an 11.13% increase
compared to the closing price of 111.09 EEK (7.10 EUR) at the beginning of the
quarter. During the same period the OMX Tallinn index rose by 15.80%. 





Operational highlights in 2010



·         Company's overall operating performance is continuously good, most of
the quality aspects exceeding the level of 2009 as described in TSE notice on
24 January 2011. 

·         Baltic Corporate Governance Institute awarded the Company as the best
Corporate Governance in Estonia and OMX Nasdaq awarded the Company as the best
Investor Relations in Tallinn Stock Exchange. Ministry of Environment awarded
the Company with the title of “Environmental Player of the Year” in the
environmental management category. 

·         In the 3rd quarter the Anti Monopoly Bill (AMB) was passed by the
Parliament and approved by the President. The key impact for the Company will
be related to the fact that from 1 November onwards the tariff approval process
of the Company was transferred from the City of Tallinn to the Competition
Authority (CA). The main aim of the AMB is to control the profits of the water
companies. The CA has issued their recommendations how to calculate the allowed
return and revenues for the water companies. The Company finds it regrettable
that the regulator-to-be has yet only considered the price sensitivity of the
customers and ignored fully their expectations regarding the product and
service quality. 

Another major issue arising from the proposed draft methodology for calculating
water and wastewater tariffs concerns one of the primary objectives of any
regulator - to guarantee an acceptable return on invested capital for
investors. Within the current methodology it appears that the Competition
Authority is excluding the privatisation value of the Company from the
calculation of justified profitability, which since 2001 has been included in
the calculation of justified profitability of the Company under current
regulation within the Services Agreement signed with the City of Tallinn. 

·         On 9 November the Company submitted its tariff application in
accordance with best practice regulation for privatized utilities, such as that
favoured by Ofwat in the UK. In its tariff application the Company has
requested that the Competition Authority should expand the definition of
regulated asset base to include the privatisation value of the utility. This
would ensure the privatisation contract was not unilaterally broken and would
respect the investments made in good faith into Estonia by our investors on the
basis of that contract. The Company has published its tariff application on its
website and to the Tallinn Stock Exchange and will keep its investors informed
of all future developments regarding the further key developments regarding the
processing of the tariff application. Still, at this point in time the Company
is unable to say what next year's tariffs will be as it is unclear at the
moment how the CA intends to analyze and proceed with the tariff applications. 





Additional information:

Siiri Lahe

Chief Financial Officer

+372 6262 262

[email protected]







STATEMENT OF COMPREHENSIVE INCOME   IV quarter  IV quarter  12 months  12 months
(thousand EEK)                         2010        2009        2010       2009  
                                                                                
Revenue                                195 036     201 769    777 326    772 446
Costs of goods sold                    -88 107     -79 367   -323 631   -284 064
                                                                                
GROSS PROFIT                           106 929     122 402    453 695    488 382
                                                                                
Marketing expenses                      -3 356      -2 783    -12 315    -11 213
General administration expenses        -15 911     -14 520    -57 119    -53 493
Other income/ expenses (--)             23 319      29 146     45 464     38 264
                                                                                
OPERATING PROFIT                       110 981     134 245    429 725    461 940
                                                                                
Financial income                         6 050       9 079     16 569     25 267
Financial expenses                       7 040     -17 788    -56 696    -86 131
                                                                                
PROFIT BEFORE TAXES                    124 071     125 536    389 598    401 076
                                                                                
Income tax on dividends                      0           0   -132 914    -61 142
                                                                                
NET PROFIT FOR THE PERIOD              124 071     125 536    256 684    339 934
COMPREHENSIVE INCOME FOR THE           124 071     125 536    256 684    339 934
PERIOD                                                                          
Attributable to:                                                                
Equity holders of A-shares             124 061     125 526    256 674    339 924
B-share holder                              10          10         10         10
                                                                                
Earnings per A share (in kroons)          6,20        6,28      12,83      17,00
Earnings per B share (in kroons)        10 000      10 000     10 000     10 000






STATEMENT OF FINANCIAL POSITION                                                 
(thousand EEK)                                31.12.2010  31.12.2009  31.12.2008
                                                                                
ASSETS                                                                          
CURRENT ASSETS                                                                  
Cash and equivalents                             207 082     292 474     229 860
Customer receivables, accrued income and         314 315     191 317     112 638
prepaid expenses                                                                
Inventories                                        4 784       3 819       3 760
Non-current assets held for sale                   1 193       1 209       1 140
TOTAL CURRENT ASSETS                             527 374     488 819     347 398
                                                                                
NON-CURRENT ASSETS                                                              
Property, plant and equipment                  2 318 494   2 236 900   2 218 687
Intangible assets                                 30 857      40 319      43 428
TOTAL NON-CURRENT ASSETS                       2 349 351   2 277 219   2 262 115
TOTAL ASSETS                                   2 876 725   2 766 038   2 609 513
                                                                                
LIABILITIES                                                                     
                                                                                
CURRENT LIABILITIES                                                             
Current portion of long-term borrowings          119 008       1 936      82 843
Trade and other payables                         114 708      97 867      87 270
Short-term provisions                              1 829       3 570       2 486
Prepayments and deferred income                   12 667      11 687      19 797
TOTAL CURRENT LIABILITIES                        248 212     115 060     192 396
                                                                                
NON-CURRENT LIABILITIES                                                         
Prepayment of single and developing areas         90 198      83 948      50 462
Borrowings                                     1 368 236   1 174 034   1 084 642
Other payables                                    22 204       1 795         735
TOTAL NON-CURRENT LIABILITIES                  1 480 638   1 259 777   1 135 839
TOTAL LIABILITIES                              1 728 850   1 374 837   1 328 235
                                                                                
EQUITY CAPITAL                                                                  
Share capital                                    200 001     200 001     200 001
Share premium                                    387 000     387 000     387 000
Statutory legal reserve                           20 000      20 000      20 000
Retained earnings                                540 874     784 200     674 277
TOTAL EQUITY CAPITAL                           1 147 875   1 391 201   1 281 278
TOTAL LIABILITIES AND EQUITY CAPITAL           2 876 725   2 766 038   2 609 513






CASH FLOW STATEMENT                                              12        12   
                                                               months    months 
(thousand EEK)                                                  2010      2009  
                                                                                
CASH FLOWS FROM OPERATING ACTIVITIES                                            
Operating profit                                               429 725   461 940
Adjustment for depreciation/amortisation                        87 927    89 153
Adjustment for profit from government grants and connection    -51 826   -47 512
fees                                                                            
Other finance expenses                                            -218   -29 203
Profit from sale of property, plant and equipment, and             -41      -150
intangible assets                                                               
Expensed property, plant and equipment                           1 097         0
Change in current assets involved in operating activities     -150 640   -24 722
Change in liabilities involved in operating activities         144 316     6 160
Interest paid                                                  -38 232   -38 793
Total cash flow from operating activities                      422 108   416 873
                                                                                
CASH FLOWS FROM INVESTING ACTIVITIES                                            
Acquisition of property, plant and equipment, and intangible  -266 845  -243 906
assets                                                                          
Compensations received for construction of pipelines            61 731   155 772
Proceeds from sale of property, plant and equipment, and           251       238
intangible assets                                                               
Interest received                                               17 355    25 124
Total cash flow from investing activities                     -187 508   -62 772
                                                                                
CASH FLOWS FROM FINANCING ACTIVITIES                                            
Received loans                                                 312 932   700 968
Repayment of loans                                                   0  -701 303
Dividends paid                                                -500 010  -230 010
Income tax on dividends                                       -132 914   -61 142
Total cash flow from financing activities                     -319 992  -291 487
                                                                                
Change in cash and bank accounts                               -85 392    62 614
                                                                                
CASH AND EQUIVALENTS AT THE BEGINNING OF THE PERIOD            292 474   229 860
                                                                                
CASH AND EQUIVALENTS AT THE END OF THE PERIOD                  207 082   292 474