Börsiteade

Pealkiri

Results of Operations - for the 3rd quarter 2014

Teade

MANAGEMENT REPORT

Contractual Highlights

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

  -- Following their investigation, the European Commission announced in May
     2014 that it has decided not to proceed with the Company’s complaints in
     relation to the anti-monopoly bill. The European Commission did not assess
     the lawfulness of the application of the amendments made to the
     Anti-Monopoly Bill adopted in 2010 as regards to the Company and it also
     did not assess or comment upon the water tariffs of AS Tallinna Vesi. In
     its letter the European Commission was explicit about leaving the legal
     opinion on the impact on the Company for the court to decide.

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

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

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

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



Financial highlights of 3rd quarter 2014

The Group’s sales revenues during the 3rd quarter 2014 have been relatively
stable being slightly up compared to the same period in 2013, increasing 1.0%
to 13.25 mln euros. Similarly to the 3rd quarter the sales for 9 months in 2014
are also slightly up compared to the sales in 2013, increasing 1.6% to 39.93
mln euros. 

The gross profit in the 3rd quarter of 2014 has increased 6.2% or 0.46 mln
euros. Increase in gross profit is mainly related to lower pollution tax costs
compared to the comparative period in 2013. The pollution tax change is mainly
impacted by the incident in wastewater treatment plant in the 3rd quarter 2013,
causing extra pollution tax of 0.37 mln euros. 

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

The operating profit from Group’s main activities has increased 3.8% to 6.34
mln euros, mainly due to the lower variable costs, which are in more detailed
described below. The operating profit for 9 months in 2014 is at the same level
with the operating profit for the comparative period in 2013. 

The net profit for the 3rd quarter without the extra pollution tax impact in
2013 and 2014 and swap costs impact was 3.6% or 0.21 mln euros lower than in
the comparative period last year. 

mln €            3 Q     3 Q     3 Q    Change     9        9        9    Change
                 2012    2013    2014    14/13   months   months  months   14/13
                                                 2012     2013     2014         
--------------------------------------------------------------------------------
Sales            13,08   13,12   13,25    1,0%    39,21    39,31   39,93    1,6%
Gross profit      8,16    7,44    7,90    6,2%    24,20    22,29   22,90    2,7%
Gross profit     62,37   56,71   59,64    5,2%    61,72    56,70   57,34    1,1%
 margin %                                                                       
Operating         6,96    6,31    6,35    0,6%    20,20    18,21   18,22    0,1%
 profit                                                                         
Operating         6,78    6,11    6,34    3,8%    19,94    17,96   17,98    0,1%
 profit - main                                                                  
 business                                                                       
Operating        53,26   48,07   47,91   -0,3%    51,51    46,31   45,64   -1,5%
 profit margin                                                                  
 %                                                                              
Profit before     6,48    5,80    5,83    0,6%    18,40    18,37   16,44  -10,5%
 taxes                                                                          
Net profit        6,48    5,80    5,83    0,6%    13,94    13,74   11,66  -15,2%
Net profit       49,54   44,16   43,97   -0,4%    35,54    34,96   29,19  -16,5%
 margin %                                                                       
ROA %             3,39    2,95    2,92   -0,8%     7,29     6,99    5,84  -16,4%
Debt to total    60,22   58,81   59,46    1,1%    60,22    58,81   59,46    1,1%
 capital                                                                        
 employed                                                                       
ROE %             8,52    7,15    7,21    0,8%    18,33    16,96   14,41  -15,0%
Current ratio     3,73    3,79    4,13    9,0%     3,73     3,79    4,13    9,0%
--------------------------------------------------------------------------------

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 3rd QUARTER 2014

Profit and Loss Statement

3rd quarter 2014

Sales

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

In the 3rd quarter of 2014 the Group’s total sales increased, year on year, by
1.0% to 13.25 mln euros. 91.2% of sales comprise of sales of water and
treatment of wastewater to domestic and commercial customers within and outside
of the service area, 5.6% of sales are the fees received from the City of
Tallinn for operating and maintaining the storm water system and fire hydrants
and 3.3% from other works and services. 

Sales of water and wastewater services were 12.08 mln euros, a 3.5% increase
compared to the 3rd quarter of 2013, resulting from the changes in sales
volumes as described below. 

Within the service area, sales to residential customers were at 5.97 mln euros,
showing a 3.4% increase year on year, as revenues from apartment blocks form
the biggest share of our residential sales, the biggest increase came also from
this client group. Sales to commercial customers increased by 2.1% to 4.78 mln
euros, mainly coming from the sales in other inside sector. Sales to customers
outside of the main service area increased by 8.2% to 1.12 mln euros in the 3rd
quarter of 2014. It was mostly affected by wastewater sales. The sales of water
was stable. Over pollution fees received were 0.22 mln euros, a 16.7% increase
compared to the 3rd quarter of 2013. 

                                                    Quarter 3         Variance  
                                                                       14/13    
Revenues from main operating activities         2014   2013   2012     €       %
Private clients, incl:                         5 967  5 770  5 782   197    3,4%
Water supply service                           3 283  3 176  3 180   107    3,4%
Wastewater disposal service                    2 684  2 594  2 602    90    3,5%
Corporate clients, incl:                       4 780  4 683  4 617    97    2,1%
Water supply service                           2 706  2 654  2 549    52    2,0%
Wastewater disposal service                    2 074  2 029  2 068    45    2,2%
Outside service area clients, incl:            1 118  1 030  1 101    88    8,5%
Water supply service                             296    286    255    10    3,5%
Wastewater disposal service                      738    665    702    73   11,0%
Storm water disposal service                      84     79    144     5    6,3%
Over pollution fee                               216    185    234    31   16,8%
                                                                                
Storm water treatment and disposal service       739    853  1 082  -114  -13,4%
 and fire hydrant service                                                       
Construction service and design                  282    420     83  -138  -32,9%
Other works and services                         151    181    177   -30  -16,6%



Outside service area sales volumes were 0.07 mln m3 or 5.4% higher than in the
3rd quarter of 2013. As already mentioned before the main factor in this
increase came from higher sewage volumes. 

The sales from the operation and maintenance of the storm water and
fire-hydrant system in the main service area have decreased by 13.4% to 0.74
mln euros in the 3rd quarter of 2014 due to lower volumes compared to the same
period in 2013. 

The sales of construction activities and design services have decreased by
32.9% to 0.28 mln euros in the 3rd quarter of 2014 compared to 3rd quarter in
2013. 



Cost of Goods Sold and Gross profit

The cost of goods sold for the main operating activity was 5.35 mln euros in
the 3rd quarter of 2014, showing 0.33 mln euros or 5.8% decrease compared to
the equivalent period in 2013. The cost decrease is mainly influenced by the
pollution tax decrease in the 3rd quarter of 2014 as described below. 

Cost of goods sold                      Quarter 3        Variance 14/13
                                  2014    2013    2012       €        %
Water abstraction charges          -265    -246    -226    -19     7,7%
Chemicals                          -433    -464    -467     31    -6,7%
Electricity                        -723    -775    -899     52    -6,7%
Pollution tax                      -209    -513    -154    304   -59,3%
Total direct production costs    -1 630  -1 998  -1 746    368   -18,4%
Staff costs                      -1 181  -1 165  -1 163    -16     1,4%
Depreciation and amortization    -1 408  -1 265  -1 289   -143    11,3%
Construction service and design    -278    -343     -83     65   -19,0%
Other costs of goods sold          -852    -909    -639     57    -6,3%
Other costs of goods sold total  -3 719  -3 682  -3 174    -37     1,0%
Total cost of goods sold         -5 349  -5 680  -4 920    331    -5,8%



Total direct production costs (water abstraction charges, chemicals,
electricity and pollution taxes) decreased by 0.37 mln euros or 18.4% year on
year. Biggest decrease came from the decrease in pollution tax. Other changes
came from a combination of increase in prices and tax rates and movements in
treatment volumes that affected the costs of goods sold together with the
following additional factors: 

  -- Water abstraction charges increased only by 0.02 mln euros or 7.7% to 0.27
     mln euros in the 3rd quarter of 2014, driven mainly by 5% raise in tax
     rates (worth 0.01 mln euros).
  -- Total chemical costs remained broadly flat, decreasing 0.03 mln euros or
     6.7% to 0.43 mln euros in the 3rd quarter of 2014. Costs change was mainly
     influenced by the decrease in dosage used in sewage treated and chemicals
     price, which was balanced by increase in treated volumes. Chemical costs
     were lower also in water treatment due to the better raw water quality.
  -- Electricity costs decreased by 0.05 mln euros or 6.7% in the 3rd quarter of
     2014 compared to the 3rd quarter of 2013. Lower electricity costs are
     mostly derived from the decrease in electricity price and used unit costs,
     worth 0.08 mln euros. Positive effects are reduced slightly by increased
     used volumes in treatment plants worth 0.03 mln euros.
  -- In the 3rd quarter of 2014 the pollution tax expense decreased by 0.30 mln
     euros or 59.3%. The decrease is related to the incident in the wastewater
     treatment plant in the 3rd quarter of 2013. Eliminating the one-off
     influence the pollution tax expenses have increased by 0.07 mln euros or
     47.0% in the 3rd quarter of 2014 compared to relevant period in 2013.

Without the incident in the treatment plant in 2013, the main contribution to
increased pollution tax costs came from increased volumes treated in the amount
of 0.04 mln euros and increased tax rates in the amount of 0.03 mln euros. 

Other cost of goods sold (staff costs, depreciation, construction services and
other cost of goods sold) in the main operating activity increased by 0.04 mln
euros or 1.0%. Most of the increase came from increased depreciation costs,
balanced by the decrease in construction services costs and other costs. 

In 2014 the construction services projects are coming to an end earlier than in
2013, lowering the costs related to construction in the 3rd quarter compared to
the same period in 2013. In 2014 the external construction have been less
profitable than in 2013. Increased staff costs by 1.4% or 0.02 mln euros mainly
relate to higher headcount to provide more efficient and broader range of
insourced services. Decrease in other costs were related to the less
maintenance works. 

As a result of all of the above the Group’s gross profit for the 3rd quarter of
2014 was 7.90 mln euros, which is an increase of 0.46 mln euros, or 6.2%,
compared to the gross profit of 7.44 mln euros for the 3rd quarter of 2013. 



Other Operating Costs

General administration expenses increased in total 0.25 mln euros or 21.6%,
mainly because of higher consultation and legal fees related to continuing
tariff dispute. 



Other net income/expenses

Other net income increased to a net expense of 0.09 mln euros, compared to 0.15
mln euros net income in the 3rd quarter of 2013. The result in the 3rd quarter
of 2013 has been influenced by collecting the doubtful receivables. 



Operating profit

As a result of above factors the Group’s operating profit for the 3rd quarter
of 2014 totalled 6.35 mln euros compared to 6.31 mln euros in the corresponding
quarter in 2013, which shows an increase of 0.04 mln euros or 0.6%. Removing
the impact of pollution tax in relevant periods the Group’s operating profit
had been 4.9% or 0.33 mln euros lower. 



Financial expenses

The Group’s net financial expenses have been stable amounting to 0.52 mln euros
in the 3rd quarter of 2014, which is a negative change of 0.01 mln euros
compared to 0.51 mln euros financial income in the 3rd quarter of 2013. The
biggest reason for the decline comes from difference of the change of the fair
value of the swap contracts. 

The standalone swap agreements have been signed to mitigate the majority of the
long term floating interest risk, the interest swap agreements are signed for
75 mln euros and 20 mln euros are still with floating interest rate. At this
point in time the estimated fair value of the swap contracts is negative,
totalling 2.23 mln euros. Effective interest rate (incl. swap interests) in the
3rd quarter of 2014 was 3.12%, amounting in the interest costs of 0.76 mln
euros, compared to the effective interest rate of 3.21% and the interest costs
of 0.78 mln euros into the 3rd quarter of 2013. 

Other influences for change in financial expenses has been increase in interest
income by 0.09 mln euros. 



Profit Before and After Tax

The Group’s profit before and after taxes for the 3rd quarter of 2014 was 5.83
mln euros, which is 0.03 mln euros or 0.6% higher than the profit before taxes
of 5.80 mln euros for the 3rd quarter of 2013, resulting mainly from increased
revenues, decreased pollution tax costs and an increase in professional fees as
described above. 



Results for the nine months of 2014

During the nine months of 2014 the Group’s total sales increased, year on year,
by 1.6% to 39.93 mln euros. Sales of water and wastewater treatment were 36.26
mln euros, a 1.8% increase compared to the nine months of 2013. 

The movements in sales are mostly similar to the movements in the 3rd quarter
described above. There has been a slight 0.40 mln euros or 2.3% increase in the
sales to residential customers and 0.04 mln euros or 0.3% of decrease in the
sales to the commercial clients. The sales revenues from outside service area
clients for water, wastewater and stormwater services has also been relatively
stable showing an increase of 0.21 mln euros or 6.7% compared to nine months in
2013. 

The revenues from storm water treatment in the nine months of 2014 are
relatively stable, increasing 0.04 mln euros or 1.5% compared to nine months in
2013. 

Total direct production costs (water abstraction charges, chemicals,
electricity and pollution taxes) decreased by 0.22 mln euros or 3.5% year on
year. Biggest decrease came from the decrease in electricity costs as described
below. 

  -- Water abstraction charges increased only by 0.05 mln euros or 6.8% to 0.79
     mln euros during 9 months in 2014, driven mainly by 5% raise in tax rates
     (worth 0.04 mln euros).
  -- Total chemical costs remained broadly flat, decreasing 0.02 mln euros or
     1.3% to 1.29 mln euros in the 9 months in 2014. Costs change was mainly
     influenced by the decrease in dosage used in sewage treated, which was
     balanced by increase in treated volumes and chemicals price. Chemical costs
     were lower also in water treatment due to the better raw water quality.
  -- Electricity costs decreased by 0.28 mln euros or 10.8% during the 9 months
     in 2014 compared to the same period in 2013. Lower electricity costs are
     mostly derived from the decrease in electricity price and used unit costs,
     worth 0.29 mln euros. Positive effects are reduced slightly by increased
     used volumes in treatment plants worth 0.01 mln euros.
  -- In the 9 months of 2014 the pollution tax expense increased by 0.02 mln
     euros or 1.2%. The slight increase is masked by the incidents in the
     wastewater treatment plant in the nine months of 2013. Eliminating the
     one-off influences the pollution tax expenses have increased by 1.09 mln
     euros or 203.9% in the nine months of 2014 compared to relevant period in
     2013.

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

Other cost of goods sold (staff costs, depreciation, construction services and
other cost of goods sold) in the main operating activity increased by 0.24 mln
euros or 2.2%. Most of the increase came from increased depreciation costs and
staff costs. 

Due to the increased revenues and broadly flat expenses the gross profit for 9
months in 2014 has improved by 0.61 mln euros or 2.7% compared to the same
period in 2013. The operating profit remained also fairly stable increasing by
0.1% to 18.22 mln euros during the nine months of 2014 compared to the nine
months of 2013. The increase in the gross profit of 0.61 mln euros was very
much influenced by increased administration costs, which in itself were highly
impacted by higher legal charges related to ongoing tariff dispute. 

Net financial expenses increased by 1.94 mln euros or 1200.0%. Almost fully
influenced by the non-monetary impact of the change in the fair value of the
swap contracts the Company has entered. The positive non-monetary impact for
2014 expenses is 0.09 mln euros (2013: positive impact 1.94 mln euros). 

The Group’s profit before taxes for the nine months of 2014 was 16.44 mln
euros, which is a 10.5% decrease compared to the relevant period in 2013. The
Group’s net profit for the nine months of 2014 was 11.66 mln euros, which is
2.09 mln euros lower than the net profit of 13.74 mln euros in the equivalent
period in 2013. 

Without the impact from the revaluation of swap contracts the net profit for
nine months in 2014 is lower by 0.24 mln euros compared to same period in 2013. 



Balance sheet

In the nine months of 2014 the Group invested 6.71 mln euros into fixed assets.
As of 30 September 2014 non-current fixed assets amounted to 154.66 mln euros
and total non-current assets amounted to 155.54 mln euros. (30. September 2013:
151.21 mln euros and 156.41 mln euros respectively). 

The reduction in receivables and prepayments of 5.6 mln euros to 11.58 mln
euros is mainly related to collection of the money for extension program. 

Compared to the year end the current liabilities have decreased by 0.57 mln
euros to 10.64 mln euros in the nine months. The movement is mainly related to
increased prepayments in the amount of 1.27 mln euros and Trade payables by
0.58 mln euros, balanced by the decrease in Current portion of long-term
borrowings in the amount of 1.98 mln euros. 

The Group’s loan balance has remained stable at 95 mln euros. In May 2014, the
Company replaced its loan from NIB with the new loan in the amount of 20 mln
euros. The weighted average interest risk margin for the total loan facility is
1.04%. 

The Group has a Total debt/Total assets level as expected of 59.5%, in range of
55%-65%, reflecting the Group’s equity profile. This level is consistent with
the same period in 2013 when the total debt/total assets ratio was 58.8%. 

Biggest share of the rest of the long term liabilities is deferred income from
connection fees amounting to 11.10 mln euros (2013: 8.57 mln euros). 

In the 4th quarter of 2011 the Group recorded and noted an exceptional
contingent liability, which could cause an outflow of economic benefits of up
to 36.0 mln euros. In the 3rd quarter of 2013 the Group re-evaluated the
liability, which now stands at 34.0 mln euros, as per note 13 to the accounts. 



Cash flow

As of 30 September 2014 the cash position of the Group is strong and
continuously stable. At the end of September 2014 the cash balance of the Group
stood at 31.95 mln euros, which is 16.0% of the total assets (2013: 24.58 mln,
which is 12.5% of the total assets). 

The biggest contribution to the cash flows comes from main operations. During
the nine months of 2014, the Group generated 22.64 mln euros of cash flows from
operating activities, an increase of 1.05 mln euros compared to the
corresponding period in 2013. 

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

The Group’s cash flows from investing activities have also been positive for
past two years. In the nine months of 2014 net cash flows from investing
activities resulted in a cash inflow of 2.64 mln euros, a decrease of 0.86 mln
euros compared to an inflow of 3.49 mln euros in the nine months of 2013. This
is made up as follows: 

In the nine months of 2014 the investments in fixed assets have decreased 0.20
mln euros compared to 2013 amounting to 5.97 mln euros. 

The compensations received for the construction of pipelines were 8.23 mln
euros in the nine months of 2014, an increase of 3.08 mln euros compared to
same period in 2013. Most of the cash collected for pipes is related to the
sewage network extension program which was ended in 2012. The collections will
still continue till March 2015. In 2013 the loan from Maardu Vesi was collected
in full. The Group has not given out any new loans. 

In the nine months of 2014, cash outflow from financing amounted to 25.12 mln
euros, which is 0.68 mln euros more than in the same period of 2013, mainly due
to increased dividend payment and dividend income tax payment by 0.76 mln
euros, balanced slightly by lower interest and financing costs by 0.08 mln
euros. 



Employees

At the end of the 3rd quarter of 2014, the total number of employees was 312
compared to 305 at the end of the 3rd quarter of 2013. The full time equivalent
(FTE) was respectively 298 in 2014 compared to the 293 in 2013. The management
continues to work actively for the efficiencies in processes to balance the
increase in individual salaries and cost pressure from the market with more
productive company structure. 



Dividends

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

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

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

Dividends were paid out on 13th of June 2014.



Share performance

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

As of 30 September 2014 AS Tallinna Vesi shareholders, with a direct holding
over 5%, were: 

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



Pension funds have continued to hold the share in their portfolios during the
3rd quarter of 2014, owning 2.53% of the total shares compared to 2.54% at the
end of 3rd quarter 2013. 

As of 30 September 2014, the closing price of the AS Tallinna Vesi share was
12.70 euros, which is a -3.8% (2013: 3.0%) decrease compared to the closing
price of 13.20 euros at the beginning of the quarter. During the same period
the OMX Tallinn index decreased by -4.6% (2013: 2.9%). 

In the nine months of 2014 3 840 deals with the Company’s shares were concluded
(2013: 4 278 deals) during which 913 thousand shares or 4.6% exchanged their
owners (2013: 1 562 thousand shares or 7.8%). 

The turnover of the transactions was 4 147 thousand euros lower than in 2013
amounting to 11 758 thousand euros. The share price has shown an increase
despite of the on-going contractual debate. 



Operational performance

Similarly to previous years, the 9 months in 2014 can be characterized by
permanently high quality levels. Above all, it gives security to our consumers
that they are provided with a high-quality drinking water. Low leakage level is
another positive sign of the Company’s excellent performance. We continue to
commit to the improvement of customer service and focus on our activities in
increasing the environmental awareness of the community. Operational indicators
for 9 months in 2014: 

Indicator                                                   2013 9      2014 9  
                                                            months      months  
--------------------------------------------------------------------------------
Drinking water                                                                  
--------------------------------------------------------------------------------
- 
Compliance of water quality at the customers tap            99.64%      99.77%  
--------------------------------------------------------------------------------
Water loss in the water distribution network                16.65%      16.33%  
--------------------------------------------------------------------------------
Average duration of water interruptions per property        3.54 h      2.96 h  
--------------------------------------------------------------------------------
Wastewater                                                                      
--------------------------------------------------------------------------------
- 
Number of sewer blockages                                    605         582    
--------------------------------------------------------------------------------
Number of customer contacts regarding flooding,              1150        788    
 blockages and storm water                                                      
--------------------------------------------------------------------------------
Wastewater treatment compliance with environmental           100%        100%   
 standards                                                                      
--------------------------------------------------------------------------------
Customer Service                                                                
--------------------------------------------------------------------------------
- 
Number of written complaints                                 107          51    
--------------------------------------------------------------------------------
Number of customer contacts regarding water quality          195         129    
--------------------------------------------------------------------------------
Number of customer contacts regarding water pressure         472         273    
--------------------------------------------------------------------------------
Responding written customer contacts within at least 2       99%        98.90%  
 work days                                                                      
--------------------------------------------------------------------------------
Number of failed promises                                    115          42    
--------------------------------------------------------------------------------
Notification of unplanned water interruptions at least      96.95%      96.77%  
 1h before the interruption                                                     
--------------------------------------------------------------------------------





Corporate structure

At the end of the quarter, 30 September 2014, the Group consisted of 2
companies. The subsidiary Watercom OÜ is wholly owned by AS Tallinna Vesi and
consolidated to the results of the Company. 



Corporate Governance

Supervisory Council

Supervisory Council plans and organises the management of the Company and
supervises the activities of the Management Board. According to AS Tallinna
Vesi articles of association Supervisory Council consists of 9 members who are
appointed for two years. 

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

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

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

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

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



Management Board

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

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

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

Starting from 2nd of June 2014 there are 3 members of the Management Board of
AS Tallinna Vesi: Karl Heino Brookes (Chairman of the Board, with the powers of
the Management Board Member until 20 March 2017), Aleksandr Timofejev (with the
powers of the Management Board Member until 29 October 2015) and Riina Käi
(with the powers of the Management Board Member until 29 October 2015). 

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

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



Future actions & risks

Legal claim for breach of international treaty

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

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

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

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

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

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



Disclosure of relevant papers and perspectives

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

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

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





STATEMENT OF COMPREHENSIVE       III         III         9        9        12   
 INCOME                        quarter     quarter     months   months   months 
(thousand €)                     2014        2013      2014     2013      2013  
                                                                                
Revenue                           13 253      13 122   39 931   39 309    53 087
Costs of goods sold               -5 349      -5 680  -17 036  -17 021   -22 505
                                                                                
GROSS PROFIT                       7 904       7 442   22 895   22 288    30 582
                                                                                
Marketing expenses                   -78        -139     -351     -538      -690
General administration            -1 388      -1 141   -4 287   -3 620    -5 060
 expenses                                                                       
Other income/ expenses (-)           -89         146      -34       75       -75
                                                                  ,             
OPERATING PROFIT                   6 349       6 308   18 223   18 205    24 757
                                                                                
Financial income                     241         282      467    2 519       681
Financial expenses                  -762        -795   -2 249   -2 357      -877
                                                                                
PROFIT BEFORE TAXES                5 828       5 795   16 441   18 367    24 561
                                                                                
Income tax on dividends                0           0   -4 785   -4 625    -4 625
                                                                                
NET PROFIT FOR THE PERIOD          5 828       5 795   11 656   13 742    19 936
COMPREHENSIVE INCOME FOR THE       5 828       5 795   11 656   13 742    19 936
 PERIOD                                                                         
Attributable to:                                                                
Equity holders of A-shares         5 827       5 794   11 655   13 741    19 935
B-share holder                      0,60        0,60     0,60     0,60      0,60
                                                                                
Earnings per A share (in            0,29        0,29     0,58     0,69      1,00
 euros)                                                                         
Earnings per B share (in             600         600      600      600       600
 euros)                                                                         





STATEMENT OF FINANCIAL POSITION                                                 
(thousand €)                                  30.09.2014  30.09.2013  31.12.2013
                                                                                
ASSETS                                                                          
CURRENT ASSETS                                                                  
Cash and equivalents                              31 946      24 579      31 786
Trade receivables, accrued income and             11 584      15 393      15 010
 prepaid expenses                                                               
Inventories                                          395         311         429
TOTAL CURRENT ASSETS                              43 925      40 283      47 225
                                                                                
NON-CURRENT ASSETS                                                              
Other long-term receivables                            6       4 389       2 213
Property, plant and equipment                    154 656     151 210     152 246
Intangible assets                                    882         815       1 037
TOTAL NON-CURRENT ASSETS                         155 544     156 414     155 496
TOTAL ASSETS                                     199 469     196 697     202 721
                                                                                
LIABILITIES                                                                     
                                                                                
CURRENT LIABILITIES                                                             
Current portion of long-term borrowings              164         150       2 146
Trade and other payables                           5 345       6 071       4 761
Derivatives                                        1 370       1 836       1 816
Prepayments                                        3 764       2 579       2 490
TOTAL CURRENT LIABILITIES                         10 643      10 636      11 213
                                                                                
NON-CURRENT LIABILITIES                                                         
Deferred income from connection fees              11 102       8 567      10 143
Borrowings                                        95 974      95 650      93 618
Derivatives                                          859         806         507
Other payables                                        28          24          32
TOTAL NON-CURRENT LIABILITIES                    107 963     105 047     104 300
TOTAL LIABILITIES                                118 606     115 683     115 513
                                                                                
EQUITY CAPITAL                                                                  
Share capital                                     12 000      12 000      12 000
Share premium                                     24 734      24 734      24 734
Statutory legal reserve                            1 278       1 278       1 278
Retained earnings                                 42 851      43 002      49 196
TOTAL EQUITY CAPITAL                              80 863      81 014      87 208
TOTAL LIABILITIES AND EQUITY CAPITAL             199 469     196 697     202 721





CASH FLOW STATEMENT                                       9        9        12  
                                                        months   months   months
(thousand €)                                            2014     2013     2013  
                                                                                
CASH FLOWS FROM OPERATING ACTIVITIES                                            
Operating profit                                        18 223   18 205   24 757
Adjustment for depreciation/amortisation                 4 406    4 381    5 809
Adjustment for profit from government grants and          -109      -85     -117
 connection fees                                                                
Other non-cash adjustments                                  28     -177       11
Profit/loss(+) from sale and write off of property,         42     -119     -138
 plant and equipment, and intangible assets                                     
Change in current assets involved in operating            -224   -1 528     -433
 activities                                                                     
Change in liabilities involved in operating                275      911      -92
 activities                                                                     
Total cash flow from operating activities               22 641   21 588   29 797
                                                                                
CASH FLOWS FROM INVESTING ACTIVITIES                                            
Loans granted                                                0        0        0
                                                             0    3 814    3 814
Acquisition of property, plant and equipment, and       -5 972   -6 173   -9 187
 intangible assets                                                              
Proceeds from sales of property, plant and equipment     8 228    5 150    7 885
Compensations received for construction of pipelines         3      121      165
Interest received                                          379      582      693
Total cash flow from investing activities                2 638    3 494    3 370
                                                                                
CASH FLOWS FROM FINANCING ACTIVITIES                                            
Received loans                                          20 000        0        0
Repayment of loans                                     -20 000        0        0
Interest paid and loan financing costs, incl swap       -2 182   -2 314   -3 154
 interests                                                                      
Repayment of finance lease                                -151      -98     -136
Dividends paid                                         -18 001  -17 401  -17 401
Income tax on dividends                                 -4 785   -4 625   -4 625
Total cash flow from financing activities              -25 119  -24 438  -25 316
                                                                                
Change in cash and bank accounts                           160      644    7 851
                                                                                
CASH AND EQUIVALENTS AT THE BEGINNING OF THE PERIOD     31 786   23 935   23 935
                                                                                
CASH AND EQUIVALENTS AT THE END OF THE PERIOD           31 946   24 579   31 786










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