Börsiteade

Pealkiri

Results of Operations for the 3rd quarter 2015

Teade

MANAGEMENT REPORT

Contractual Highlights

  -- Tariffs of AS Tallinna Vesi continue to be on the same level based on
     temporary
injunction granted by the Court for the period of court proceedings to
     protect the Company from unilateral breach of privatization agreement by
     the Estonian Authorities.
  -- AS Tallinna Vesi would like all its shareholders to be fully aware of the
     facts that the Company was privatised
i
n 2001 with the full support and knowledge of the Estonian national
     government, with written confirmations from the Prime Minister and the
     Minister of Finance regarding the key terms of the agreements, and using
     the expertise and guidance of the European Bank for Reconstruction and
     Development (EBRD).
  -- At the end of May 2012 the District Court ruled that AS Tallinna Vesi’s
     Services Agreement, that was part of the international privatisation, is a
     public law contract. AS Tallinna Vesi firmly believes that the terms and
     conditions of the international privatisation contract that has been deemed
     a public law contract should not be broken simply by transferring the
     duties of the regulator from one state institution (the City of Tallinn) to
     a different state institution (the Competition Authority). A public law
     contract should enjoy the protection of the Estonian legal system, and
     should the contract not be honoured, the company will have a claim against
     the Estonian state.
  -- In May 2014, AS Tallinna Vesi submitted a claim against the Competition
     Authority to the Tallinn Administrative Court to avoid the expiry of
     monetary claims. The Company claims compensation for potential damages over
     the lifetime of the international privatisation contract up to 2020. The
     claim estimation includes future volumes and expectations for consumer
     price index (CPI). As the CPI has been recently lower than at the time of
     submitting the estimated, the estimated undiscounted value of the claim is
     around 74 million euros compared to over the 90 million euros submitted.
     The Court decided to stay the claim proceeding until the main tariff
     dispute is resolved.
  -- In 2015, there has been three hearings in the local court as regards to the
     tariff dispute. On 5th of June, the Tallinn Administrative Court dismissed
     the Company’s complaint in tariff dispute providing no reasoning behind the
     decision.
  -- Tallinn Administrative Court released the reasoning of the dismissal of AS
     Tallinna Vesi’s complaints on 12th of October 2015. Tallinn Administrative
     Court formed an opinion that the tariffs part of the Services Agreement,
     which has been deemed to be as a public law contract by the Estonian Courts
     in 2012, is not binding on the Competition Authority. AS Tallinna Vesi
     finds the opinion formed by the Court to be unfounded.  AS Tallinna Vesi
     will prepare and file the appeal to the next court instance latest by 11th
     of November 2015.
  -- I
n October 2014, in parallel to the local dispute about tariffs AS Tallinna
     Vesi and its shareholder United Utilities (Tallinn) B.V have commenced
     international arbitration proceedings against the Republic of Estonia for
     breaching the international treaty and more specifically “the fair and
     equitable treatment” requirement by changes to the law and activities of
     the public authorities which have deprived AS Tallinna Vesi from tariffs
     approved according to the Services Agreement concluded as part of the
     privatisation in 2001. The arbitration will be carried out through the
     International Centre for the Settlement of Investment Disputes (ICSID),
     which is part of the World Bank Group.
  -- On 17th of June 2015, the timetable of the International Arbitration
     Proceedings was determined, with the final hearing set for November 2016.
     Procedural orders and decisions issued during the arbitration process,
     subject to the redaction of the confidential information, are available on
     the
ICSID website
. 
  -- International Arbitration Proceedings are being held in parallel and
     separately from local Court dispute
. 
  -- It has been three years already during which the Company has made intensive
     effort in trying to agree a solution in order to get the tariff dispute
     solved. Regretfully it has not been achieved.
  -- AS Tallinna Vesi has continuously stated its belief in fully transparent
     regulation and its willingness to enter into meaningful and evidence-based
     dialogue that takes into account the privatization contract signed in 2001.



Financial highlights of 3rd quarter 2015

The Group’s sales revenues during the 3rd quarter of 2015 was 14.08 mln euros,
being up by 6.3% or 0.83 mln euros compared to the same period in 2014. 

The gross profit in the 3rd quarter of 2015 was 7.99 mln euros, showing an
increase by 1.1% or 0.08 mln euros. Increase in gross profit is mainly related
to higher revenues from construction and asphalting. 

The operating profit was 5.92 mln euros, showing a decrease by 6.8% or 0.43 mln
euros. The operating profit was impacted by the increased staff costs due to
higher number of people employed as well as slightly higher salaries and
increased legal costs related to tariff dispute. 

The net profit for the 3rd quarter of 2015 was 5.10 mln euros, being down by
12.5% or 0.73 mln euros, mainly due to mentioned increase in staff and legal
expenses but also by the negative change in fair value of swap contracts in the
3rd quarter in 2015 by 0.44 mln euros, which was partly balanced by the
decrease in interest costs. The net profit for the 3rd quarter of 2015 and 2014
without the impact that resulted from the change of the fair value of swap
contracts was respectively 5.54 mln euros and 5.67 mln euros, being 2.4% or
0.13 mln euros lower than in the comparative period last year. 

mln €            3 Q     3 Q     3 Q    Change     9        9        9    Change
                 2013    2014    2015    15/14   months   months  months   15/14
                                                 2013     2014     2015         
--------------------------------------------------------------------------------
Sales            13.12   13.25   14.08    6.3%    39.31    39.93   41.39    3.7%
Gross profit      7.44    7.90    7.99    1.1%    22.29    22.90   24.07    5.1%
Gross profit     56.71   59.64   56.72   -4.9%    56.70    57.34   58.15    1.4%
 margin %                                                                       
Operating         6.31    6.35    5.92   -6.8%    18.21    18.22   18.83    3.3%
 profit                                                                         
Operating         6.11    6.34    5.77   -9.0%    17.95    17.97   18.60    3.5%
 profit - main                                                                  
 business                                                                       
Operating        48.07   47.91   42.02  -12.3%    46.31    45.64   45.50   -0.3%
 profit margin                                                                  
 %                                                                              
Profit before     5.80    5.83    5.10  -12.5%    18.37    16.44   18.12   10.2%
 taxes                                                                          
Net profit        5.80    5.83    5.10  -12.5%    13.74    11.66   13.62   16.9%
Net profit       44.16   43.97   36.22  -17.6%    34.96    29.19   32.91   12.7%
 margin %                                                                       
ROA %             2.95    2.92    2.51  -14.3%     6.99     5.84    6.69   14.5%
Debt to total    58.81   59.46   59.35   -0.2%    58.81    59.46   59.35   -0.2%
 capital                                                                        
 employed                                                                       
ROE %             7.15    7.21    6.16  -14.5%    16.96    14.41   16.46   14.2%
Current ratio     3.79    4.13    4.26    3.3%     3.79     4.13    4.26    3.3%
--------------------------------------------------------------------------------

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 2015

Profit and Loss Statement

3rd quarter 2015

Sales

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

In the 3rd quarter of 2015 the Group’s total sales was 14.08 mln euros, showing
an increase by 6.3% or 0.83 mln euros year on year. 85.9% of sales comprise of
sales of water and wastewater services to domestic and commercial customers
within and outside of the service area. 5.9% of sales are the fees received
from the City of Tallinn for operating and maintaining the storm water system
and fire hydrants and 8.2% from other works and services. 

Revenues from main operating activities (th.         Quarter 3        Variance  
 €)                                                                     15/14   
                                                 2015   2014   2013    €       %
Private clients, incl:                          5 938  5 967  5 770  -29   -0.5%
Water supply service                            3 267  3 283  3 176  -16   -0.5%
Wastewater disposal service                     2 671  2 684  2 594  -13   -0.5%
Corporate clients, incl:                        4 852  4 780  4 683   72    1.5%
Water supply service                            2 723  2 706  2 654   17    0.6%
Wastewater disposal service                     2 129  2 074  2 029   55    2.7%
Outside service area clients, incl:             1 117  1 118  1 030   -1   -0.1%
Water supply service                              316    296    286   20    6.8%
Wastewater disposal service                       721    738    665  -17   -2.3%
Storm water disposal service                       80     84     79   -4   -4.8%
Over pollution fee                                191    216    185  -25  -11.6%
                                                                                
Storm water treatment and disposal service and    837    739    853   98   13.3%
 fire hydrant service                                                           
Construction service, design and asphalting     1 020    289    420  731  252.9%
Other works and services                          128    144    181  -16  -11.1%

 Sales from water and wastewater services was 12.10 mln euros, showing a slight
0.1% increase compared to the 3rd quarter of 2014, resulting from the changes
in sales volumes as described below: 

  -- There has been a slight decrease in all residential customer groups in the
     3rd quarter in 2015 compared to the same time in 2014 resulting a total
     decrease from private customers of 0.5% to 5.94 mln euros.
  -- Sales to commercial customers within the service area has increased by 1.5%
     to 4.85 mln euros, being mostly supported by the increase in industrial
     customer segment.
  -- Sales to customers outside of the main service area has been relatively
     stable showing a slight decrease by 0.1% to 1.12 mln euros. Wastewater
     revenues decrease by 2.3% to 0.72 mln euros was balanced by an increase in
     water sales by 6.8% to 0.32 mln euros.
  -- Over pollution fees received have decreased by 11.6% to 0.19 mln euros.

The sales from the operation and maintenance of the storm water and
fire-hydrant system in the main service area was 0.84 mln euros, showing an
increase by 13.3% in the 3rd quarter of 2015 compared to the same period in
2014. 

The sales of construction, design and asphalting services was 1.02 mln euros,
having increased by 0.73 euros or 252.9% year on year. Main contribution to
increase was related to start of providing asphalting services for outside the
Group customers, but also higher pipe construction revenues. 



Cost of Goods Sold and Gross profit

The cost of goods sold amounted to 6.10 mln euros in the 3rd quarter of 2015,
showing 13.9% or 0.75 mln euros increase compared to the equivalent period in
2014. The cost increase is mainly influenced by higher staff costs and
increased construction and asphalting services costs, which are related to
extra construction and asphalting revenues. 

Cost of goods sold (th.€)                         Quarter 3           Variance  
                                                                       15/14    
                                            2015    2014    2013      €        %
Water abstraction charges                    -272    -265    -246    -7    -2.6%
Chemicals                                    -395    -433    -464    38     8.8%
Electricity                                  -713    -723    -775    10     1.4%
Pollution tax                                -233    -209    -513   -24   -11.5%
Total direct production costs              -1 613  -1 630  -1 998    17     1.0%
Staff costs                                -1 338  -1 181  -1 165  -157   -13.3%
Depreciation and amortization              -1 423  -1 408  -1 265   -15    -1.1%
Construction service, design and             -868    -281    -343  -587  -208.9%
 asphalting                                                                     
Other costs of goods sold                    -853    -849    -909    -4    -0.5%
Other costs of goods sold total            -4 482  -3 719  -3 682  -763   -20.5%
Total cost of goods sold                   -6 095  -5 349  -5 680  -746   -13.9%

Total direct production costs (water abstraction charges, chemicals,
electricity and pollution taxes) were 1.61 mln euros, showing 1.0% or 0.02 mln
euros decrease year on year. Biggest decrease came from chemical costs. Other
changes in direct production costs came from a combination of changes in prices
and tax rates and movements in treatment volumes that affected the cost of
goods sold together with the following additional factors: 

  -- Water abstraction charges increased by 2.6% to 0.27 mln euros, driven
     mainly by increase in treated volumes and on average 2.0% raise in tax
     rates.
  -- Chemicals costs decreased by 8.8% to 0.40 mln euros. In wastewater
     treatment process less chemicals were used to remove pollutants in
     wastewater. Lower usage was balanced by the increase in methanol price.
  -- Electricity costs decreased by 1.4% to 0.71 mln euros. Lower electricity
     costs were mostly derived from the decreased electricity prices, worth
     0.023 mln euros. Effects of decreased prices were slightly reduced by the
     increase of treated volumes and usage of electricity per m3 in water
     treatment as a result of the quality of raw water, worth 0.013 mln euros.
  -- In the 3rd quarter the pollution tax expense increased by 11.5% to 0.23 mln
     euros. The main contribution to increased pollution tax costs came from
     increased tax rates in the amount of 0.028 mln euros.

Other costs of goods sold (staff costs, depreciation, construction and
asphalting services costs and other costs of goods sold) amounted to 4.48 mln
euros, having increased by 20.5% or 0.76 mln euros. Most of the increase came
from higher staff costs and costs related to construction and asphalting
services. Staff cost increase of 13.3% to 1.34 mln euros was mainly related to
the higher headcount in order to provide more efficient and broader range of
insourced services and increase externally too. Increase in construction and
asphalting services costs by 208.9% to 0.87 mln euros was related to increased
construction and asphalting revenue. 

As a result of all above the Group’s gross profit for the 3rd quarter of 2015
was 7.99 mln euros, showing an increase of 1.1% or 0.08 mln euros, compared to
the gross profit of 7.90 mln euros for the comparative period of 2014. 



Administrative and marketing expenses

Administrative and marketing expenses were 2.05 mln euros, showing an increase
by 39.8% or 0.58 mln euros. Increase in other operating costs were mostly
related to consultation and legal fees related to tariff dispute. The legal and
consultation fees continue to be at the high level during the time the Company
has ongoing local and international disputes. 



Operating profit

As a result of the factors listed above the Group’s operating profit for the
3rd quarter of 2015 totalled 5.92 mln euros, being 6.8% or 0.43 mln euros lower
than in the corresponding quarter of 2014. The Group’s operating profit from
main business was 9.0% or 0.57 mln euros lower compared to 2014. 



Financial expenses

The Group’s net financial income and expenses have resulted a net expense of
0.82 mln euros, compared to net expense of 0.52 mln euros in the 3rd quarter of
2014. It is mainly impacted by a negative change of the fair value of the swap
contracts year on year (-0.59 mln euros) and decrease in the interest costs
(+0.37 mln euros). 

The standalone swap agreements have been signed to mitigate the majority of the
long term floating interest risk. The interest swap agreements are signed for
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 0.87 mln euros. Effective interest rate of loans (incl. swap
interests) in the 3rd quarter of 2015 was 1.62%, amounting in the interest
costs of 0.39 mln euros, compared to the effective interest rate of 3.12% and
the interest costs of 0.76 mln euros in the 3rd quarter of 2014. 



Profit Before and After Tax

The Group’s profit before taxes and net profit for the 3rd quarter of 2015 was
5.10 mln euros, being 12.5% or 0.73 mln euros lower than for the 3rd quarter of
2014, resulting mainly from increased revenues, balanced by the increased legal
costs and net financial expenses as described above. Eliminating the influence
of the derivatives fair value, the Group’s profit before taxes and net profit
for the 3rd quarter of 2015 would have been 5.54 mln euros, showing a decrease
by 2.4% or 0.13 mln euros compared to the relevant period in 2014. 



Results for the nine months of 2015

During the nine months of 2015 the Group’s total sales were 41.39 mln euros,
showing an increase by 3.7% or 1.46 mln euros year on year. Sales from water
and wastewater services were 36.75 mln euros, increasing 1.4% or 0.49 mln euros
compared to the nine months of 2014. 

During the nine months of 2015 there has been a 0.9% or 0.16 mln euros increase
in the sales to residential customers and 1.3% or 0.18 mln euros increase in
the sales to the commercial clients within the service area. Increase in the
sales to residential customers comes mainly from the apartment blocks which is
the biggest private customer group for the Group. The sales increase in
commercial customers is mostly related to industrial clients. The sales
revenues from outside service area clients for water, wastewater and storm
water services have increased 6.2% or 0.21 mln euros compared to the nine
months of 2014. 

The sales from the operation and maintenance of the storm water and
fire-hydrant system in the main service area in the nine months of 2015 were
2.56 mln euros, showing an increase of 3.1% or 0.08 mln euros. 

The sales of construction, design and asphalting services was 1.68 mln euros,
having increased by 0.97 million euros or 135.9% year on year. In 2014 the
Group started with insourcing asphalting and did not provide almost any service
for external clients. During the nine months of 2015 the Group has provided
asphalting services to clients for 0.4 million euros. Reminder of the increase
is related to higher pipe construction revenues. 

Total direct production costs (water abstraction charges, chemicals,
electricity and pollution taxes) were 5.01 mln euros, showing a decrease by
19.3% or 1.20 mln euros year on year. Biggest decrease came from the decrease
in pollution tax and chemicals costs, balanced slightly by the increase in
water abstraction costs as described below: 

  -- Water abstraction charges increased by 3.7% to 0.82 mln euros, driven
     mainly by average 3.2% raise in tax rates.
  -- Total chemical costs decreased by 12.5% to 1.13 mln euros.  In wastewater
     treatment process less chemicals were used in removing pollutants in
     wastewater (worth 0.13 mln euros), lower usage was accompanied by a better
     methanol price (worth 0.05 mln euros). Chemicals costs were slightly higher
     in water treatment mainly due to raw water quality being worse than last
     year same time.
  -- In the nine months of 2015 electricity costs were almost at the same level
     as in 2014 amounting to 2.29 mln euros.
  -- Pollution tax expense decreased by 58.1% to 0.77 mln euros. The decrease is
     influenced by the change of the water permit at the end of 2013 which was
     in effect also during the first two quarters in 2014. In the changed water
     permit the allowed concentration for heavy metals was decreased by 400
     times. Previously applicable concentration limits were re-established
     starting from the 3rd quarter 2014, after which the pollution tax costs
     stabilised at the normal level. Eliminating the one-off influences the
     pollution tax expenses have increased by 12.6% or 0.09 mln euros year on
     year.

Other cost of goods sold (staff costs, depreciation, construction services and
other cost of goods sold) amounted to 12.32 mln euros, being higher by 13.7% or
1.49 mln euros compared to same period in 2014. Main increase is related to the
higher construction, designing and asphalting services costs related to the
increased asphalting and construction revenues. Higher staff costs were mainly
related to the Group having a higher headcount to provide more efficient and
broader range of services internally and externally. 

The gross profit for nine months of 2015 was 24.07 mln euros, by being 5.1% or
1.18 mln euros higher compared to the same period in 2014. The operating profit
was 18.83 mln euros, showing an increase by 3.3% or 0.61 mln euros during the
nine months of 2015. 

The Group’s net financial income and expenses have resulted a net expense of
0.71 mln euros, compared to net expense 1.78 mln euros in the nine months of
2014. It is mainly 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 2015 expenses is 0.97 mln euros (2014: positive impact
0.09 mln euros). 

The Group’s profit before taxes for the nine months of 2015 was 18.12 mln
euros, showing a 10.2% increase compared to the relevant period in 2014. The
Group’s net profit for the nine months of 2015 was 13.62 mln euros, which is
1.97 mln euros higher than the net profit for equivalent period in 2014. 



Balance sheet

In the nine months of 2015 the Group invested 6.52 mln euros into fixed assets.
As of 30 September 2015 non-current tangible assets amounted to 159.45 mln
euros and total non-current assets amounted to 160.47 mln euros (30. September
2014: 154.66 mln euros and 155.54 mln euros respectively). 

Compared to the year end of 2014 there has been a reduction in receivables and
prepayments in the amount of 0.85 mln euros to 7.41 mln euros which is mainly
related to collection of money for network extension program. 

The increase of current liabilities of 1.30 mln euros to 10.12 mln euros
compared to the year end of 2014 is mainly related to the accounts payables for
the ongoing investments. 

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

The Group has a Total debt/Total assets level as expected of 59.3%, in range of
55%-65%, reflecting the Group’s equity profile. This level is consistent with
the same period in 2014 when the Total debt/Total assets ratio was 59.5%. 

Deferred income from connection fees have grown compared to the end of 2014 by
1.48 mln euros to 14.05 mln euros. 



Contingent liability regarding the tariff risk

In the 4th quarter of 2011 the Group evaluated and noted an exceptional
off-balance sheet contingent liability, which could cause an outflow of
economic benefits of up to 36.0 mln euros. In the 4th quarter of 2014 the Group
re-evaluated the liability, which now stands at 40.1 mln euros, as per note 13
to the accounts. The re-evaluation is made annually at the end of the year. 



Cash flows

As of 30 September 2015 the cash position of the Group is strong. At the end of
September 2015 the cash balance of the Group stood at 35.29 mln euros, which is
17.3% of the total assets (30. September 2014: 31.95 mln, forming 16.0% of the
total assets). 

The biggest contribution to the cash flows comes from main operations. During
the nine months of 2015, the Group generated 23.17 mln euros of cash flows from
operating activities, an increase of 0.53 mln euros compared to the
corresponding period in 2014. 

In 2015 the operating cash flows were above 2014 cash flows mainly due to a
change in operating profit. Underlying operating profit still continues to be
the main contributor to operating cash flows. The collection of receivables
continues to be strong. 

In the nine months of 2015 the result of net cash flows from investing
activities was a cash outflow of 1.98 mln euros, a decrease of 4.61 mln euros
compared to the inflow of 2.64 mln euros in the nine months of 2014. This is
made up as follows: 

  -- In the nine months of 2015 the investments in fixed assets have increased
     by 2.04 mln euros compared to 2014 amounting to 8.02 mln euros.
  -- The compensations received for the construction of pipelines were 5.94 mln
     euros in the nine months of 2015, showing a decrease of 2.29 mln euros
     compared to same period of 2014.

In the nine months of 2015, cash outflow from financing amounted to 24.46 mln
euros, decreasing by 0.66 mln euros compared to the same period in 2014. The
reduction in interest payments by 0.44 million euros is mostly related to the
renewal of swap contracts covered above. In addition despite of the same
dividend payment, the dividend income tax was lower by 0.29 mln euros less as
there was a change in income tax rate. 



Employees

At the end of the 3rd quarter of 2015, the total number of employees was 325
compared to 312 at the end of the 3rd quarter of 2014. The full time equivalent
(FTE) was respectively 314 in 2015 compared to the 298 in 2014. The management
continues to work actively for the efficiencies in processes to balance the
increase in individual salaries and cost pressure from the market with more
productive company structure. 



Dividends

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

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

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

Dividends were paid out on 19th of June 2015.



Share performance

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

As of 30 September 2015 AS Tallinna Vesi shareholders, with a direct holding
over 5%, were: 

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

During the nine months of 2015 the shareholder structure has been relatively
stable compared to the end of 2014. At the end of 3rd quarter 2015 the pension
funds owned 1.88% of the total shares compared to 1.54% at the end of 4th
quarter 2014. 

As of 30th September 2015, the closing price of the AS Tallinna Vesi share was
13.80 euros, which is a 5.3% increase (2014: -3.8%) compared to the closing
price of 13.10 euros at the beginning of the quarter. During the same period
the OMX Tallinn index increased by 2.2% (2014: -4.6%). 

In the nine months of 2015, 6 472 deals with the Company’s shares were
concluded (2014: 3 840 deals) during which 1 329 thousand shares or 6.6%
exchanged their owners (2014: 913 thousand shares or 4.6%). 

The turnover of the transactions was 6 566 thousand euros higher than in 2014,
amounting to 18 325 thousand euros. 



Operational performance

Our first priority is to provide our customers with high-quality drinking
water, reliable water supply and wastewater discharge services. Similar to
previous years, the nine months of 2015 can be characterised with excellent
quality levels of our services. We will continue to focus on maintaining and
improving all our key performance indicators so our consumers can rely on the
service they receive. The nine months of the year confirm the quality of
drinking water in Tallinn that has been excellent already for years, thus, we
keep encouraging people to prefer tap water for drinking water. Low leakage
level reducing on a quarterly basis is another positive sign of the Company’s
excellent performance. 

We continue to commit to the improvement of customer service and focus on
activities that will increase the environmental awareness of the community. We
also carry out initiatives that have a significant long-term positive effect on
our environment. One of such initiatives was a recently completed extensive
project of building fish passes at three dams of the reservoirs in Ülemiste
catchment area delivered in cooperation with the Environmental Investments
Centre. 

Operational indicators for the nine months of 2015

Indicator                                                 2014 9      2015 9    
                                                           months      months   
--------------------------------------------------------------------------------
Drinking water                                                                  
--------------------------------------------------------------------------------
- 
Compliance of water quality at the customers’ tap             99.77%      99.86%
--------------------------------------------------------------------------------
Water loss in the water distribution network                  16.33%      14.58%
--------------------------------------------------------------------------------
Average duration of water interruptions per property in   2.96 h      3.20 h    
 hours                                                                          
--------------------------------------------------------------------------------
Wastewater                                                                      
--------------------------------------------------------------------------------
- 
Number of sewer blockages                                        582         583
--------------------------------------------------------------------------------
Number of sewer bursts                                            95          91
--------------------------------------------------------------------------------
Wastewater treatment compliance with environmental              100%        100%
 standards                                                                      
--------------------------------------------------------------------------------
Customer Service                                                                
--------------------------------------------------------------------------------
- 
Number of written complaints                                      51          57
--------------------------------------------------------------------------------
Number of customer contacts regarding water quality              129          81
--------------------------------------------------------------------------------
Number of customer contacts regarding water pressure             273         226
--------------------------------------------------------------------------------
Number of customer contacts regarding blockages and              788         855
 discharge of storm water                                                       
--------------------------------------------------------------------------------
Responding written customer contacts within at least 2         98.9%       99.0%
 work days                                                                      
--------------------------------------------------------------------------------
Number of failed promises                                         42           9
--------------------------------------------------------------------------------
Notification of unplanned water interruptions at least 1       96.8%       98.9%
 h before the interruption                                                      
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Corporate structure

As of 30 September 2015, the Group consisted of 2 companies. The subsidiary
Watercom OÜ is wholly owned by AS Tallinna Vesi and consolidated to the results
of the Company. 



Corporate Governance

Supervisory Council

Supervisory Council plans and organises the management of the Company and
supervises the activities of the Management Board. According to AS Tallinna
Vesi articles of association Supervisory Council consists of 9 members who are
appointed for two years. There has been no changes in Supervisory Council
members in the 3rd quarter of 2015. 

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

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

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



Future actions & risks

Legal claim for breach of international treaty

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

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

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

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

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

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



Disclosure of relevant papers and perspectives

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

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





STATEMENT OF COMPREHENSIVE       III         III         9        9        12   
 INCOME                        quarter     quarter     months   months   months 
(thousand €)                     2015        2014      2015     2014      2014  
                                                                                
Revenue                           14 083      13 253   41 394   39 931    53 241
Costs of goods sold               -6 095      -5 349  -17 322  -17 036   -22 399
                                                                                
GROSS PROFIT                       7 988       7 904   24 072   22 895    30 842
                                                                                
Marketing expenses                   -78         -78     -318     -351      -456
General administration            -1 971      -1 388   -4 843   -4 287    -5 517
 expenses                                                                       
Other income/ expenses (-)           -21         -89      -78      -34       -41
                                                                                
OPERATING PROFIT                   5 918       6 349   18 833   18 223    24 828
                                                                                
Financial income                      18         241       78      467       432
Financial expenses                  -835        -762     -790   -2 249    -2 532
                                                                                
PROFIT BEFORE TAXES                5 101       5 828   18 121   16 441    22 728
                                                                                
Income tax on dividends                0           0   -4 500   -4 785    -4 785
                                                                                
NET PROFIT FOR THE PERIOD          5 101       5 828   13 621   11 656    17 943
COMPREHENSIVE INCOME FOR THE       5 101       5 828   13 621   11 656    17 943
 PERIOD                                                                         
Attributable to:                                                                
Equity holders of A-shares         5 100       5 827   13 620   11 655    17 942
B-share holder                      0,60        0,60     0,60     0,60      0,60
                                                                                
Earnings per A share (in            0,26        0,29     0,68     0,58      0,90
 euros)                                                                         
Earnings per B share (in             600         600      600      600       600
 euros)                                                                         





STATEMENT OF FINANCIAL POSITION                                                 
(thousand €)                                  30.09.2015  30.09.2014  31.12.2014
                                                                                
ASSETS                                                                          
CURRENT ASSETS                                                                  
Cash and equivalents                              35 290      31 946      38 560
Trade receivables, accrued income and              7 414      11 584       8 261
 prepaid expenses                                                               
Inventories                                          429         395         412
TOTAL CURRENT ASSETS                              43 133      43 925      47 233
                                                                                
NON-CURRENT ASSETS                                                              
Other long-term receivables                            0           6           0
Derivatives                                          239           0           0
Property, plant and equipment                    159 454     154 656     157 481
Intangible assets                                    776         882         862
TOTAL NON-CURRENT ASSETS                         160 469     155 544     158 343
TOTAL ASSETS                                     203 602     199 469     205 576
                                                                                
LIABILITIES                                                                     
                                                                                
CURRENT LIABILITIES                                                             
Current portion of long-term borrowings              322         164         261
Trade and other payables                           6 837       5 345       4 855
Derivatives                                          513       1 370       1 078
Prepayments                                        2 449       3 764       2 631
TOTAL CURRENT LIABILITIES                         10 121      10 643       8 825
                                                                                
NON-CURRENT LIABILITIES                                                         
Deferred income from connection fees              14 052      11 102      12 567
Borrowings                                        96 057      95 974      96 250
Derivatives                                          591         859         761
Other payables                                        11          28          23
TOTAL NON-CURRENT LIABILITIES                    110 711     107 963     109 601
TOTAL LIABILITIES                                120 832     118 606     118 426
                                                                                
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                                 44 758      42 851      49 138
TOTAL EQUITY CAPITAL                              82 770      80 863      87 150
TOTAL LIABILITIES AND EQUITY CAPITAL             203 602     199 469     205 576





CASH FLOW STATEMENT                                       9        9        12  
                                                        months   months   months
(thousand €)                                            2015     2014     2014  
                                                                                
CASH FLOWS FROM OPERATING ACTIVITIES                                            
Operating profit                                        18 833   18 223   24 828
Adjustment for depreciation/amortisation                 4 628    4 406    5 851
Adjustment for revenues from connection fees              -142     -109     -143
Other non-cash adjustments                                 -11       28      -33
Profit/loss(+) from sale and write off of property,         -4       42      145
 plant and equipment, and intangible assets                                     
Change in current assets involved in operating          -1 118     -224    1 165
 activities                                                                     
Change in liabilities involved in operating                983      275     -364
 activities                                                                     
Total cash flow from operating activities               23 169   22 641   31 449
                                                                                
CASH FLOWS FROM INVESTING ACTIVITIES                                            
Loans granted                                                0        0        0
Repayment of loan                                            0        0        0
Acquisition of property, plant and equipment, and       -8 015   -5 972   -9 646
 intangible assets                                                              
Compensations received for construction of pipelines     5 942    8 228   10 523
Proceeds from sales of property, plant and equipment        14        3       13
 and intangible assets                                                          
Interest received                                           83      379      432
Total cash flow from investing activities               -1 976    2 638    1 322
                                                                                
CASH FLOWS FROM FINANCING ACTIVITIES                                            
Received loans                                               0   20 000   20 000
Repayment of loans                                           0  -20 000  -20 000
Interest paid and loan financing costs, incl swap       -1 738   -2 182   -2 995
 interests                                                                      
Repayment of finance lease                                -224     -151     -216
Dividends paid                                         -18 001  -18 001  -18 001
Income tax on dividends                                 -4 500   -4 785   -4 785
Total cash flow from financing activities              -24 463  -25 119  -25 997
                                                                                
Change in cash and bank accounts                        -3 270      160    6 774
                                                                                
CASH AND EQUIVALENTS AT THE BEGINNING OF THE PERIOD     38 560   31 786   31 786
                                                                                
CASH AND EQUIVALENTS AT THE END OF THE PERIOD           35 290   31 946   38 560








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