Börsiteade

Pealkiri

Results of operations for the 3rd quarter 2017

Teade

MANAGEMENT REPORT

CHAIRMAN'S SUMMARY



Tallinna Vesi has had successful first 9 months in 2017, with respect to both
operational and financial performance. 

Reliable water supply and wastewater service

We are very pleased with our performance regarding water quality, which is
further reinforced by the results of the drinking water samples taken from the
customers’ taps that were 99.91% compliant with all the required quality
standards. This means only two samples out of 2,225 samples taken, exceeded the
allowed limits. 

To further safeguard the supply of high quality drinking water to our
end-users, we commissioned a new water pipe in the third quarter of 2017, which
can provide an alternative supply to nearly 100,000 people in Tallinn. The
alternative supply pipe is one of the most important investments of the last
decade in securing uninterrupted water supply service to the City. ASTV also
opened a new public water tap on the cycle and pedestrian track on Järvevana
Road, in order to improve the availability of pure drinking water to the
general public. 

Water losses in the distribution network have been considerably lower in the
first nine months compared to previous years, and are now at 13.52%, compared
to 15.39% in 2016. We also managed to reduce the average water interruption
time to 3 hours and 15 minutes in 2017, which is testament to the reliability
of the network and the effectiveness of our operational teams, who work on a
continuous 24/7 basis. 

AS Tallinna Vesi does not compromise on safety or protecting the environment.
Our final effluent was once again 100% compliant with the applicable permit
requirements during the 9 months of 2017. Maintaining the quality of final
effluent is essential to the continued security of the Baltic Sea. 



Solid financial performance

In the first 9 months of the year, the Company’s sales revenues were 1.4% lower
year-on-year, which was mainly due to the reduced sale volumes of the Company’s
subsidiary Watercom, and lower revenues from storm water collection service.
However, this decrease was partially offset by higher volumes of water and
wastewater services. 

Despite the reduction in revenues, the Company’s net profit amounted to EUR
17.66 million, showing an increase of 36.5% year-on-year. Besides the above
factors affecting the sales revenues, the net profit was also impacted by lower
costs related to the tariff dispute, as well as a change in the fair value of
interest SWAP agreements. 

In September Tallinna Vesi refinanced its long-term loan in a total amount of
37.5 million euros. Refinancing has generated a reduction in our loan interest
risk margin, from 0.95% to 0.79%. 

Strong financial results of Tallinna Vesi were recognised at the largest
Estonian entrepreneurship competition held by Estonian Chamber of Commerce and
Industry. We were awarded with the 3rd place in the Estonian Companies´
Competitiveness ranking 2017” among service providers. 



Raising environmental awareness and supporting the community

Along with our main activities, it is important for us to be contributing to
the initiatives that add value and positively impact our surrounding
environment and the children and youth living within the wider Tallinn
communities. 

One of our objectives is to improve our customers’ awareness of the
environmental aspects concerning water supply and wastewater disposal services.
For this purpose, we welcomed a large number of visitors during the Open House
Day event at Ülemiste Water Treatment Plant in September, and later this year
we will also be launching our annual awareness campaign. 



For many years, we have been proud to host the annual Ülemiste Lake Run, by
opening our sanitary zone for the public on this special occasion. This year
the run celebrated its 45th anniversary. 

Good investor relations also continue to be one of our top priorities. In
September, we welcomed nearly 100 private investors to our water treatment
plant, for an investor themed presentation and site tour. 



OPERATIONAL INDICATORS FOR NINE MONTHS OF 2017

Indicator                                                           2017    2016
--------------------------------------------------------------------------------
Drinking water                                                                  
--------------------------------------------------------------------------------
Compliance of water quality at the customers’ tap                  99.9%   99.9%
Water loss in the water distribution network                       13.5%   15.4%
Average duration of water interruptions per property in hours      3.26h   3.51h
Waste water                                                                     
--------------------------------------------------------------------------------
Number of sewer blockages                                            520     503
Number of sewer bursts                                               109      73
Wastewater treatment compliance with environmental standards      100.0%  100.0%
Customer service                                                                
--------------------------------------------------------------------------------
Number of written complaints                                          29      29
Number of customer contacts regarding water quality                  177     108
Number of customer contacts regarding water pressure                 240     247
Number of customer contacts regarding blockages and discharge of     812     909
 storm water                                                                    
Responding written customer contacts within at least 2 work days   99.9%   99.0%
Number of failed promises                                              3       4
Notification of unplanned water interruptions at least 1 h         98.7%   98.4%
 before the interruption                                                        



 Karl Heino Brookes

 Chairman of the Management Board



CONTRACTUAL HIGHLIGHTS

  -- Tariffs of AS Tallinna Vesi continue to be on the same level, based on a
     temporary injunction granted by the Court for the period of court
     proceedings back in 2011.
  -- The Company was privatised 
in 2001, with the support and knowledge of the Estonian national
     government.

  -- At the end of May 2012, the District Court ruled that AS Tallinna Vesi’s
     Services Agreement, which was part of the international privatisation, is a
     public law contract.
  -- AS Tallinna Vesi believes that the terms and conditions of the
     international privatisation contract, that has previously been deemed a
     public law contract, should be protected by the Estonian legal system.
  -- 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 is claiming compensation for potential damages
     over the lifetime of the international privatisation contract, up until
     2020. The claim is based on estimated future volumes and level of consumer
     price index (CPI). In recent years, CPI has been lower than at the time the
     claim was originally calculated, with a current undiscounted value of EUR
     72 million, compared to the original of EUR 90 million.
  -- On 5th of June 2015, the Tallinn Administrative Court dismissed the
     Company’s complaint in the local tariff dispute. The reasoning for the
     dismissal, was not disclosed until 12th of October 2015. Tallinn
     Administrative Court, formed an opinion that the tariffs part of the
     Services Agreement, which has been deemed to be as a public law contract by
     the Estonian Courts in 2012, is not binding on the Competition Authority.
     AS Tallinna Vesi filed the appeal to the Tallinn District Court on 11th of
     November 2015.
  -- On 23rd November 2016, the hearing in District Court took place and on the
     26th January 2017, the District Court dismissed AS Tallinna Vesi’s appeal.
  -- The Company submitted its Cassation to the Court on 27th February 2017. 
  -- On 20th of June 2017 Supreme Court decided to open proceedings on AS
     Tallinna Vesi´s appeal in cassation. The time of final decision has not yet
     been determined.
  -- 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 of 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. Procedural orders and decisions issued during
     the arbitration process, subject to the redaction of confidential
     information, are available on the
ICSID website
. 
  -- International Arbitration Proceedings are being held in parallel, and are
     not linked to the local dispute
.
  -- In February 2016, the Republic of Estonia submitted their Memorial, with AS
     Tallinna Vesi and United Utilities (Tallinn) B.V, responding with their
     counter Memorial in June 2016 to which Government of Estonia submitted
     their rejoinder in September 2016.
  -- The International Arbitration hearings were held on 7-11 and 14-15 November
     2016 in Paris.
  -- Both parties submitted their Post Hearing Briefs in February 2017. The time
     of final verdict is not announced but it is expected rather at the end of
     this year or in the beginning of 2018.
  -- AS Tallinna Vesi has continuously stated its belief in fully transparent
     regulation, and its willingness to enter into meaningful and evidence-based
     dialogue, which takes into account the privatisation contract that was
     originally signed back in 2001.



FINANCIAL HIGHLIGHTS FOR THE 3rd QUARTER 2017

The Group’s sales revenues during the 3rd quarter of 2017 were EUR 15.33
million, being down by 1.7% or EUR 0.26 million compared to the same period in
2016. 

The gross profit in the 3rd quarter of 2017 was EUR 8.57 million, showing an
increase of 2.2% or EUR 0.18 million. Increase in gross profit was mainly
related to higher water and wastewater revenues and construction and asphalting
related profit, which was supported by lower electricity and pollution tax
expenses. It was balanced by lower storm water revenues and by higher
depreciation and chemical costs. 

The operating profit was EUR 7.42 million, showing an increase of 9.2% or EUR
0.63 million. In addition to the above-mentioned changes in gross profit, the
operating profit was impacted by considerably lower tariff dispute related
costs in the 3rd quarter of 2017. 

The net profit for the 3rd quarter of 2017 was EUR 7.04 million, being higher
by 7.9% or EUR 0.52 million. The net profit was mainly impacted by above
mentioned changes in the operating profit, and by higher financial expenses.
The changes in the financial expenses were mostly influenced by the lower
positive change in the fair value of swap contracts in the 3rd quarter of 2017
compared to the positive change in the same quarter of 2016. The net profit for
the 3rd quarter of 2017 and 2016 without the impact resulted from the change of
the fair value of swap contracts was EUR 7.02 million and EUR 6.42 million
respectively, being higher by 9.3% or EUR 0.60 million year-on-year. 



MAIN FINANCIAL INDICATORS



EUR million,          3rd quarter                      9 months                 
except key         2015   2016   2017   Change     2015   2016   2017   Change  
 ratios                                2017/2016                       2017/2016
--------------------------------------------------------------------------------
Sales             14.08  15.60  15.33      -1.7%  41.39  44.46  43.84      -1.4%
Gross profit       7.99   8.38   8.57       2.2%  24.07  25.02  25.30       1.1%
Gross profit      56.72  53.75  55.86       3.9%  58.15  56.27  57.71       2.5%
 margin %                                                                       
Operating profit   5.92   6.79   7.42       9.2%  18.83  19.27  21.09       9.5%
Operating profit   5.77   6.69   7.11       6.2%  18.60  18.93  20.64       9.1%
 - main business                                                                
Operating profit  42.02  43.55  48.39      11.1%  45.50  43.33  48.10      11.0%
 margin %                                                                       
Profit before      5.10   6.53   7.04       7.9%  18.12  17.44  20.36      16.8%
 taxes                                                                          
Profit before     36.22  41.85  45.93       9.8%  43.78  39.22  46.44      18.4%
 taxes margin %                                                                 
Net profit         5.10   6.53   7.04       7.9%  13.62  12.94  17.66      36.5%
Net profit        36.22  41.85  45.93       9.8%  32.91  29.10  40.28      38.4%
 margin %                                                                       
ROA %              2.52   3.17   3.23       1.8%   6.66   6.21   8.13      30.8%
Debt to total     59.35  59.56  56.47      -5.2%  59.35  59.56  56.47      -5.2%
 capital                                                                        
 employed %                                                                     
ROE %              6.16   7.78   7.32      -5.9%  16.46  15.41  18.35      19.0%
Current ratio      4.26   3.46   4.74      36.9%   4.26   3.46   4.74      36.9%
--------------------------------------------------------------------------------

Gross profit margin – Gross profit / Net sales

Operating profit margin – Operating profit / Net sales

Net profit margin – Net profit / Net sales

ROA – Net profit / Average Total assets for the period

Debt to Total capital employed – Total liabilities / Total capital employed

ROE – Net profit / Total equity

Current ratio – Current assets / Current liabilities

Main business – water and wastewater activities, excl. connections profit and
government grants, construction, design and asphalting services, doubtful debt 



FINANCIAL RESULTS FOR THE 3rd QUARTER 2017

STATEMENT OF COMPREHENSIVE INCOME

SALES

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

In the 3rd quarter of 2017 the Group’s total sales were EUR 15.33 million,
showing a decrease by 1.7% or EUR 0.26 million year-on-year. 81.8% of sales
comprise of sales of water and wastewater services to domestic and commercial
customers within and outside of the service area. 5.8% of sales are the fees
received from the City of Tallinn for operating and maintaining the storm water
system and fire hydrants, 11.3% from construction and asphalting services and
1.1% from other works and services. The construction and asphalting services
sales are more seasonal and the Company continues to seek possibilities to keep
and to grow these services revenues. 

                                                 3rd quarter          Variance  
                                                                     2017/2016  
EUR thousand                                  2017    2016    2015   EUR       %
--------------------------------------------------------------------------------
Private clients, incl:                       6,148   6,059   5,938    89    1.5%
--------------------------------------------------------------------------------
Water supply service                         3,380   3,330   3,267    50    1.5%
Waste water disposal service                 2,768   2,729   2,671    39    1.4%
Corporate clients, incl:                     5,000   4,989   4,852    11    0.2%
--------------------------------------------------------------------------------
Water supply service                         2,775   2,758   2,723    17    0.6%
Waste water disposal service                 2,225   2,231   2,129    -6   -0.3%
Outside service area clients, incl:          1,143   1,068   1,117    75    7.0%
--------------------------------------------------------------------------------
Water supply service                           336     323     316    13    4.0%
Waste water disposal service                   706     665     721    41    6.2%
Storm water disposal service                   101      80      80    21   26.3%
Over pollution fee                             254     214     191    40   18.7%
--------------------------------------------------------------------------------
Total water supply and waste water          12,545  12,330  12,098   215    1.7%
 disposal service                                                               
                                                                                
Storm water treatment and disposal service     888     972     837   -84   -8.6%
 and fire hydrants service                                                      
Construction service, design and             1,735   2,150   1,020  -415  -19.3%
 asphalting                                                                     
Other works and services                       164     145     128    19   13.1%
--------------------------------------------------------------------------------
SALES REVENUES TOTAL                        15,332  15,597  14,083  -265   -1.7%



Sales from water and wastewater services were EUR 12.55 million, showing a 1.7%
or EUR 0.22 million increase compared to the 3rd quarter of 2016, resulting
from the changes in sales volumes as described below: 

  -- There has been an increase in private customers’ revenues by 1.5% to EUR
     6.15 million. The increase in domestic customer consumption volumes came
     mainly from apartment blocks, which is also our biggest private customer
     group. There was also a slight increase in individual houses and other
     private customer groups.
  -- Sales to corporate customers within the service area increased by 0.2% to
     EUR 5.00 million. Increase was mostly related to increase in sales of other
     and leisure segments.
  -- Sales to customers outside the main service area have increased by 7.0% to
     EUR 1.14 million. It was mainly impacted by increase in the sales of waste
     water and storm water disposal services and complemented by a small
     increase in the sales of water supply service.
  -- Over pollution fees
received have increased by 18.7% to EUR 0.25 million.

Sales from the operation and maintenance of the main service area storm water
and fire hydrant system were EUR 0.89 million, showing a decrease of 8.6% or
EUR 0.08 million in the 3rd quarter of 2017 compared to the same period in
2016, driven mainly by 18.3% lower storm water volumes as the summer was quite
dry. 

Sales of construction, design and asphalting services were EUR 1.74 million,
decreasing by 19.3% or EUR 0.42 million year-on-year. The decrease was mainly
related to lower pipe construction services revenues during the 3rd quarter of
2017. 



COST OF GOODS/ SERVICES SOLD AND GROSS PROFIT

The cost of goods sold amounted to EUR 6.77 million in the 3rd quarter of 2017,
decreasing by 6.2% or EUR 0.45 million compared to the equivalent period in
2016. The decrease in cost was mainly influenced by decrease in construction
and asphalting services related costs, pollution tax expenses and electricity
costs, balanced by increase in chemicals costs, depreciation and other costs of
goods sold. 

                                                  3rd quarter         Variance  
                                                                      2017/2016 
EUR thousand                                   2017    2016    2015  EUR       %
--------------------------------------------------------------------------------
Water abstraction charges                      -285    -277    -272   -8   -2.9%
Chemicals                                      -415    -345    -395  -70  -20.3%
Electricity                                    -724    -760    -713   36    4.7%
Pollution tax                                  -233    -281    -233   48   17.1%
--------------------------------------------------------------------------------
Total direct production costs                -1,657  -1,663  -1,613    6    0.4%
Staff costs                                  -1,288  -1,273  -1,338  -15   -1.2%
Depreciation and amortization                -1,515  -1,427  -1,423  -88   -6.2%
Construction service, design and asphalting  -1,441  -2,039    -868  598   29.3%
Other costs of goods/services sold             -866    -812    -853  -54   -6.7%
--------------------------------------------------------------------------------
Other costs of goods/services sold total     -5,110  -5,551  -4,482  441    7.9%
--------------------------------------------------------------------------------
Total cost of goods/services sold            -6,767  -7,214  -6,095  447    6.2%



Total direct production costs (water abstraction charges, chemicals,
electricity and pollution tax) were EUR 1.66 million, showing 0.4% or EUR 0.01
million decrease compared to equivalent period in 2016. Changes in direct
production costs came from a combination of changes in prices and in treated
volumes that affected the cost of goods sold together with the following
additional factors: 

  -- Water abstraction charges
increased by 2.9% to EUR 0.29 million, driven mainly by overall 0.4%
     increase in treated water volumes.
  -- Chemicals
costs increased by 20.3% to EUR 0.42 million, driven by 34.1% higher
     methanol price in the wastewater treatment process, worth EUR 0.03 million,
     and higher usage of methanol and coagulant, worth in total EUR 0.03
     million. Higher total year-on-year chemicals costs in wastewater treatment
     process were accompanied by increase in costs of different chemicals in
     water treatment due to higher price and higher dosage of different
     chemicals due to poor raw water quality, worth in total EUR 0.01 million.
  -- Electricity costs
decreased by 4.7% to EUR 0.72 million. It was related to on average 2.6%
     lower electricity price, worth EUR 0.02 million.
  -- Pollution tax expense
decreased by 17.1% to EUR 0.23 million, mainly due to lower pollution load
     of Nitrogen and 8.4% decrease in treated wastewater volumes, worth
     respectively EUR 0.02 million and EUR 0.02 million.

Other costs of goods sold (staff costs, depreciation, construction and
asphalting services costs and other costs of goods sold) amounted to EUR 5.11
million, having decreased by 7.9% or EUR 0.44 million. The decrease came mostly
from costs related to construction and asphalting services, balanced by
increase in depreciation costs and other costs of goods sold. Increase in
depreciation by 6.2% to EUR 1.52 million was mainly related to accelerated
depreciation costs in 2017. Other costs of goods sold increase is mainly
related to timing of asset maintenance works in wastewater treatment process
and higher cleaning costs rising from the new cleaning supplier contract, worth
EUR 0.02 million. Decrease in construction and asphalting services costs by
29.3% to EUR 1.44 million was related to a decrease in construction and
asphalting services revenues mentioned earlier and project specific changes. 

As a result of all above the Group’s gross profit for the 3rd quarter of 2017
was EUR 8.57 million, showing an increase of 2.2% or EUR 0.18 million, compared
to the gross profit of EUR 8.38 million for the comparative period of 2016. 



ADMINISTRATIVE AND MARKETING EXPENSES

Administrative and marketing expenses amounted to EUR 1.11 million, having
decreased by 28.5% or EUR 0.44 million. The decrease was mainly related to
lower tariff dispute related costs. 



OPERATING PROFIT

As a result of the factors listed above the Group’s operating profit for the
3rd quarter of 2017 amounted to EUR 7.42 million, being 9.2% or EUR 0.63
million higher than in the corresponding period of 2016. The Group’s operating
profit from main business was EUR 7.11 million, being 6.2% or EUR 0.42 million
higher compared to 2016. 



FINANCIAL EXPENSES

The Group’s net financial income and expenses have resulted a net expense of
EUR 0.38 million, compared to net expense of EUR 0.27 million in the 3rd
quarter of 2016. The increase was mainly impacted by a negative change in the
fair value of the swap contracts year-on-year, worth EUR 0.08 million. 

The standalone swap agreements have been signed to mitigate the majority of the
long term floating interest risk. The interest swap agreements are signed for
EUR 75 million and EUR 20 million are still with floating interest rate. At
this point in time the estimated fair value of the swap contracts is negative,
amounting to EUR 0.89 million. Effective interest rate of loans (incl. swap
interests) in the 3rd quarter of 2017 was 1.62%, amounting to interest costs of
EUR 0.39 million, compared to the effective interest rate of 1.57% and the
interest costs of EUR 0.38 million in the 3rd quarter of 2016. 



PROFIT BEFORE TAXES AND NET PROFIT

The Group’s profit before taxes and net profit for the 3rd quarter of 2017 were
EUR 7.04 million, being 7.9% or EUR 0.52 million higher than for the 3rd
quarter of 2016. Eliminating the effects of the change in derivatives fair
value, the Group’s net profit for the 3rd quarter of 2017 would have been EUR
7.02 million, showing an increase by 9.3% or EUR 0.60 million compared to the
relevant period in 2016. 



RESULTS FOR THE NINE MONTHS OF 2017

STATEMENT OF COMPREHENSIVE INCOME

SALES

During the nine months of 2017 the Group’s total sales were EUR 43.84 million,
showing a decrease by 1.4% or EUR 0.62 million year-on-year. 

Sales from water and wastewater services for nine months of 2017 were EUR 38.14
million, increasing 1.9% or EUR 0.71 million compared to the nine months of
2016. 87.0% of sales comprised of sales of water and wastewater services 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, 6.3% from construction
and asphalting services and 1.0% from other works and services. 

                                                   9 months           Variance  
                                                                     2017/2016  
EUR thousand                                  2017    2016    2015   EUR       %
--------------------------------------------------------------------------------
Private clients, incl:                      18,808  18,597  18,175   211    1.1%
--------------------------------------------------------------------------------
Water supply service                        10,339  10,225   9,998   114    1.1%
Waste water disposal service                 8,469   8,372   8,177    97    1.2%
Corporate clients, incl:                    15,256  14,942  14,416   314    2.1%
--------------------------------------------------------------------------------
Water supply service                         8,423   8,262   8,010   161    1.9%
Waste water disposal service                 6,833   6,680   6,406   153    2.3%
Outside service area clients, incl:          3,353   3,298   3,563    55    1.7%
--------------------------------------------------------------------------------
Water supply service                         1,005     977     939    28    2.9%
Waste water disposal service                 2,081   2,020   2,251    61    3.0%
Storm water disposal service                   267     301     373   -34  -11.3%
Over pollution fee                             722     596     597   126   21.1%
--------------------------------------------------------------------------------
Total water supply and waste water          38,139  37,433  36,751   706    1.9%
 disposal service                                                               
                                                                                
Storm water treatment and disposal service   2,468   2,841   2,556  -373  -13.1%
 and fire hydrant service                                                       
Construction service, design and             2,780   3,738   1,687  -958  -25.6%
 asphalting                                                                     
Other works and services                       454     451     400     3    0.7%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SALES REVENUES TOTAL                        43,841  44,463  41,394  -622   -1.4%



During the nine months of 2017 there has been an increase in sales to private
customers by 1.1% to EUR 18.81 million and 2.1% increase to EUR 15.26 million
in sales to corporate customers within the service area. Increase in sales to
private customers came mainly from apartment blocks, accompanied by slight
increase in individual houses, while other domestic customer segments had a
slight decrease. Sales increase in corporate customers is mostly related to
industrial and leisure segments. Sales to customers outside the main service
area have increased by 1.7% to EUR 3.35 million, mainly due to higher water and
waste water disposal services, decreased by lower snow melting water and storm
water volumes in 2017. Over pollution fees received have increased by 21.1% to
EUR 0.72 million. 

Sales from the operation and maintenance of the main service area storm water
and fire hydrant system in the nine months of 2017 were EUR 2.47 million,
showing a decrease of 13.1% or EUR 0.37 million year-on-year, driven mainly by
26.2% lower storm water volumes in 2017. 

Sales of construction, design and asphalting services were EUR 2.78 million,
decreasing by 25.6% or EUR 0.96 million year-on-year. The decrease was mainly
related to lower pipe construction services revenues during 2017. 



COST OF GOODS SOLD AND GROSS AND OPERATING PROFITS

                                                 9 months             Variance  
                                                                     2017/2016  
EUR thousand                               2017     2016     2015    EUR       %
--------------------------------------------------------------------------------
Water abstraction charges                  -873     -852     -819    -21   -2.5%
Chemicals                                -1,100     -972   -1,131   -128  -13.2%
Electricity                              -2,354   -2,297   -2,288    -57   -2.5%
Pollution tax                              -726     -852     -768    126   14.8%
--------------------------------------------------------------------------------
Total direct production costs            -5,053   -4,973   -5,006    -80   -1.6%
Staff costs                              -4,188   -4,161   -4,122    -27   -0.6%
Depreciation and amortization            -4,227   -4,449   -4,253    222    5.0%
Construction service, design and         -2,315   -3,389   -1,447  1,074   31.7%
 asphalting                                                                     
Other costs of goods/services sold       -2,759   -2,470   -2,494   -289  -11.7%
--------------------------------------------------------------------------------
Other costs of goods/services sold      -13,489  -14,469  -12,316    980    6.8%
 total                                                                          
--------------------------------------------------------------------------------
Total cost of goods/services sold       -18,542  -19,442  -17,322    900    4.6%



Total direct production costs (water abstraction charges, chemicals,
electricity and pollution taxes) were EUR 5.05 million, showing an increase of
1.6% or EUR 0.08 million year-on-year. Change in costs came from the decrease
in pollution tax expense, balanced by increase in all other direct production
costs as described below: 

  -- Water abstraction charges
increased by 2.5% to EUR 0.87 million, driven by 1.2% increase in treated
     water volumes.
  -- Chemicals costs
 increased by 13.2% to EUR 1.10 million, driven mainly by on average 37.9%
     higher methanol price and higher use of polymers in wastewater treatment
     process, worth respectively EUR 0.09 million and EUR 0.04 million, which
     was accompanied by increased water treatment process chemicals costs driven
     by increase in usage and treated volumes, worth EUR 0.03 million. Increased
     costs were balanced by decrease in methanol and coagulant usage in
     wastewater treatment process to remove pollutants, worth respectively EUR
     0.03 million and EUR 0.02 million.
  -- Electricity costs
 have increased by 2.5% to EUR 2.35 million. It was related to on average
     4.2% higher electricity prices and higher cost per m3 in treating raw water
     in water treatment plant, worth respectively EUR 0.10 million and EUR 0.01
     million, balanced by decrease in treated wastewater volumes, worth EUR 0.05
     million.
  -- Pollution tax expense
 decreased by 14.8% to EUR 0.73 million, driven mainly by 11.3% decrease in
     treated sewage volumes, worth EUR 0.09 million, supplemented by the
     decreased pollution loads, worth EUR 0.03 million.

Other costs of goods sold (staff costs, depreciation, construction and
asphalting services costs and other costs of goods sold) amounted to EUR 13.49
million, having decreased by 6.8% or EUR 0.98 million compared to the same
period in 2016.  Changes in other costs of goods sold are driven mainly by the
same reasons as mentioned in 3rd quarter results. 

Group’s gross profit for the nine months of 2017 was EUR 25.30 million, being
1.1% or EUR 0.28 million higher compared to the same period in 2016. Group’s
operating profit was EUR 21.09 million, showing an increase by 9.5% or EUR 1.82
million during the nine months of 2017. The increase in operating profit was
mostly driven by the changes in gross profit mentioned earlier and lower tariff
dispute related costs in 2017. 



FINANCIAL EXPENSES

The Group’s net financial income and expenses have resulted a net expense of
EUR 0.73 million, compared to net expense of EUR 1.83 million in the nine
months of 2016. The decrease was mainly impacted by a positive change in the
fair value of the swap contracts year-on-year, worth EUR 1.21 million. 



PROFIT BEFORE TAXES AND NET PROFIT

The Group’s profit before taxes for the nine months of 2017 was EUR 20.36
million, showing a 16.8% or EUR 2.92 million increase compared to the relevant
period in 2016. The Group’s net profit for the nine months of 2017 was EUR
17.66 million, which is 36.5% or EUR 4.72 million higher than the net profit
for equivalent period in 2016, impacted by the decrease in income tax on
dividends, worth EUR 1.80 million. Eliminating the effects of the derivatives
fair value, the net profit for the nine months of 2017 would have been EUR
17.23 million, showing an increase by 25.7% or EUR 3.52 million compared to the
relevant period in 2016. 



STATEMENT OF FINANCIAL POSITION

In the nine months of 2017 the Group invested into fixed assets EUR 5.90
million. As of 30.09.2017, non-current tangible assets amounted to EUR 172.40
million and total non-current assets amounted to EUR 173.20 million
(30.09.2016: EUR 167.99 million and EUR 168.80 million respectively). 

Compared to the year end of 2016 the trade receivables, accrued income and
prepaid expenses have shown an increase in the amount of EUR 0.52 million to
EUR 7.68 million. The collection rate of receivables continues to be high,
being 99.51% compared to 99.78% at the end of September 2016. 

Current liabilities have decreased by EUR 0.52 million to EUR 10.12 million
compared to the year end of 2016. Decrease mainly derives from decrease in
trade and other payables by EUR 0.72 million and from increased prepayments of
connections in construction process by EUR 0.20 million. Changes in trade and
other payables were related to lower construction activities and investments
related liabilities. 

Deferred income from connection fees has grown compared to the end of 2016 by
EUR 1.80 million to EUR 18.85 million and is related to bigger developments in
the beginning of the year. 

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

The Group has a Total debt to assets level as expected of 56.5%, in range of
55%-65%, reflecting the Group’s equity profile. This level is consistent with
the same period in 2016, when the Total debt to assets ratio was also 59.6%. 



CONTINGENT LIABILITY REGARDING THE TARIFF RISK

In the 4th quarter of 2011 the Group evaluated and noted an exceptional
off-balance sheet contingent liability, which could cause an outflow of
economic benefits of up to EUR 36 million. In the 3rd quarter of 2017 the Group
re-evaluated the liability, which now stands at EUR 44 million (2nd quarter of
2017 EUR 44 million), as per note 14 to the accounts. 



CASH FLOW

As of 30.09.2017, the cash position of the Group is strong. At the end of
September 2017, the cash balance of the Group stood at EUR 39.77 million, which
is 18.0% of the total assets (30.09.2016: EUR 30.41 million, forming 14.6% of
the total assets). 

The biggest contribution to the cash flows comes from main operations. During
the nine months of 2017, the Group generated EUR 24.75 million of cash flows
from operating activities, an increase of EUR 1.12 million compared to the
corresponding period in 2016. Underlying operating profit continues to be the
main contributor to operating cash flows. 

In the nine months of 2017 the result of net cash flows from investing
activities was a cash outflow of EUR 4.16 million, a decrease of EUR 3.10
million compared to the cash outflow of EUR 7.26 million in the nine months of
2016. This is made up as follows: 

  -- The cash outflows from investments in fixed assets have decreased by EUR
     3.36 million compared to 2016 amounting to EUR 6.41 million.
  -- The compensations received for the construction of pipelines were EUR 2.19
     million, showing a decrease of EUR 0.25 million compared to the same period
     of 2016.

In the nine months of 2017 cash outflow from financing activities amounted to
EUR 14.80 million, decreasing by EUR 8.98 million compared to the same period
in 2016. The change was mainly related to decrease in dividends paid by EUR
7.20 million and income tax on dividends by EUR 1.80 million. 



EMPLOYEES

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

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

At the end of the 3rd quarter of 2017, the total number of employees was 314
compared to 317 at the end of the 3rd quarter of 2016. The full time equivalent
(FTE) was respectively 302 in 2017 compared to the 307 in 2016. Average number
of employees (FTE) during the nine months was respectively 306 in 2017 and 310
in 2016. 

By gender, employee allocation was as follows:

As of 30.09.2017   Women  Men  Total
Group                 92  222    314
------------------------------------
------------------------------------
Management Team       14   13     27
Executive Team         4    4      8
Management Board       1    2      3
                                    
Supervisory Board      0    9      9



As of 30.09.2016   Women  Men  Total
Group                 93  224    317
------------------------------------
------------------------------------
Management Team       12   12     24
Executive Team         5    3      8
Management Board       1    2      3
                                    
Supervisory Board      0    9      9



The total salary costs were EUR 1.78 million for the 3rd quarter of 2017,
including EUR 0.05 million paid to Management and Supervisory Council members
(excluding social taxes). The off-balance sheet potential salary liability
could rise up to EUR 0.08 million should the Council want to replace the
current Management Board members. 



DIVIDENDS

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

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

In the annual general meeting of shareholders held on 01.06.2017, the
Supervisory Board propose to pay out 60% of the usual dividend in June 2017,
and defer the decision as regards to the remaining 40%, until after decisions
have been received related to the ongoing tariff disputes. These decisions are
expected later in the year, from both the Supreme Court of Estonia and the
International Arbitration. Proposal of dividend payment of EUR 0.54 per A-share
and total pay-out in the amount of EUR 10.8 million was approved. Dividends
were paid out on 26.06.2017. 



SHARE PERFORMANCE

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

As of 30.09.2017, AS Tallinna Vesi shareholders, with a direct holding over 5%,
were: 

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



During the nine months of 2017 the shareholder structure has been relatively
stable compared to the end of 2016. At the end of 3rd quarter 2017 the pension
funds shareholding has decreased, being 1.6% of the total shares compared to
2.1% at the end of 2016. 

As of 30.09.2017, the closing price of AS Tallinna Vesi share was EUR 12.40,
which is 0.8% (2016: 2.2%) lower compared to the closing price of EUR 12.50 at
the beginning of the quarter. During the 3rd quarter the OMX Tallinn index
increased by 7.8% (2016: 2.1%). 

In the nine months of 2017, 5,890 deals with the Company’s shares were
concluded (2016: 4,684 deals) during which 911 thousand shares or 4.6% of total
shares exchanged their owners (2016: 753 thousand shares or 3.8%). 

The turnover of the transactions was EUR 1.31 million higher than in 2016,
amounting to EUR 11.95 million. 



CORPORATE STRUCTURE

As of 30.09.2017, the Group consisted of 2 companies. The subsidiary Watercom
OÜ is wholly owned by AS Tallinna Vesi and consolidated to the results of the
Company. 



CORPORATE GOVERNANCE

SUPERVISORY COUNCIL

Supervisory Council plans and organises the management of the Company and
supervises the activities of the Management Board. According to AS Tallinna
Vesi articles of association Supervisory Council consists of 9 members, who are
appointed for two years. There were no changes in the Supervisory Council
members in the 3rd quarter of 2017. 

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

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

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

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

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



MANAGEMENT BOARD

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

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

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

Starting from 2nd of June 2014 there are 3 members of the Management Board of
AS Tallinna Vesi: Karl Heino Brookes (Chairman of the Board, with the powers of
the Management Board Member until 21st March 2020), Aleksandr Timofejev (with
the powers of the Management Board Member until 29th October 2018) and Riina
Käi (with the powers of the Management Board Member until 29th October 2018). 

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

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



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. 

The hearings of international arbitration took place in Paris in November 2016
and the decision is expected in 2017. 

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

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

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



DISCLOSURE OF RELEVANT PAPERS AND PERSPECTIVES

The Company will keep the investment community informed of all relevant
developments of the tariff dispute, both locally as well as internationally. AS
Tallinna Vesi has published all relevant materials on its website
(http://www.tallinnavesi.ee/en/Investor/Regulation and
https://www.tallinnavesi.ee/en/investor/stock-announcements) and to the Tallinn
Stock Exchange.At this point in time the Company will not speculate on future
developments and possible outcomes or timing of the proceedings. 





STATEMENT OF COMPREHENSIVE          III        III       9        9        12   
 INCOME                           quarter    quarter   months   months   months 
(EUR thousand)                      2017      2016     2017     2016      2016  
                                                                                
Revenue                             15 332    15 597   43 841   44 463    58 982
Costs of goods sold                 -6 767    -7 214  -18 542  -19 442   -25 721
--------------------------------------------------------------------------------
GROSS PROFIT                         8 565     8 383   25 299   25 021    33 261
                                                                                
Marketing expenses                     -76       -74     -255     -270      -365
General administration expenses     -1 031    -1 474   -3 813   -5 356    -7 799
Other income/ expenses (-)             -39       -43     -142     -130      -470
--------------------------------------------------------------------------------
OPERATING PROFIT                     7 419     6 792   21 089   19 265    24 627
                                                                                
Interest income                          3         7       12       35        41
Interest expense                      -387      -367   -1 151   -1 076    -1 447
Other financial income (+)/              7        95      411     -786      -331
 expenses (-)                                                                   
--------------------------------------------------------------------------------
PROFIT BEFORE TAXES                  7 042     6 527   20 361   17 438    22 890
                                                                                
Income tax on dividends                  0         0   -2 700   -4 500    -4 500
                                                                                
NET PROFIT FOR THE PERIOD            7 042     6 527   17 661   12 938    18 390
--------------------------------------------------------------------------------
COMPREHENSIVE INCOME FOR THE         7 042     6 527   17 661   12 938    18 390
 PERIOD                                                                         
                                                                                
Attributable to:                                                                
--------------------------------------------------------------------------------
Equity holders of A-shares           7 041     6 526   17 660   12 937    18 389
B-share holder                        0,60      0,60     0,60     0,60      0,60
                                                                                
Earnings per A share (in euros)       0,35      0,33     0,88     0,65      0,92
Earnings per B share (in euros)        600       600      600      600       600





STATEMENT OF FINANCIAL POSITION                                                 
(EUR thousand)                                30.09.2017  30.09.2016  31.12.2016
                                                                                
ASSETS                                                                          
CURRENT ASSETS                                                                  
--------------------------------------------------------------------------------
Cash and equivalents                              39 767      30 405      33 987
Trade receivables, accrued income and              7 684       7 960       7 167
 prepaid expenses                                                               
Inventories                                          472         423         449
--------------------------------------------------------------------------------
TOTAL CURRENT ASSETS                              47 923      38 788      41 603
                                                                                
NON-CURRENT ASSETS                                                              
--------------------------------------------------------------------------------
Property, plant and equipment                    172 402     167 991     171 177
Intangible assets                                    793         808         830
--------------------------------------------------------------------------------
TOTAL NON-CURRENT ASSETS                         173 195     168 799     172 007
--------------------------------------------------------------------------------
TOTAL ASSETS                                     221 118     207 587     213 610
                                                                                
LIABILITIES AND EQUITY                                                          
CURRENT LIABILITIES                                                             
--------------------------------------------------------------------------------
Current portion of long-term borrowings              246         670         264
Trade and other payables                           6 308       6 434       7 030
Derivatives                                          630         622         610
Prepayments                                        2 934       3 488       2 735
--------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES                         10 118      11 214      10 639
                                                                                
NON-CURRENT LIABILITIES                                                         
--------------------------------------------------------------------------------
Deferred income from connection fees              18 851      15 802      17 050
Borrowings                                        95 607      95 447      95 795
Derivatives                                          263       1 162         715
Other payables                                        23          18          15
--------------------------------------------------------------------------------
TOTAL NON-CURRENT LIABILITIES                    114 744     112 429     113 575
--------------------------------------------------------------------------------
TOTAL LIABILITIES                                124 862     123 643     124 214
                                                                                
EQUITY                                                                          
--------------------------------------------------------------------------------
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                                 58 244      45 932      51 384
--------------------------------------------------------------------------------
TOTAL EQUITY                                      96 256      83 944      89 396
--------------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY                     221 118     207 587     213 610





CASH FLOW STATEMENT                                       9        9        12  
                                                        months   months   months
(EUR thousand)                                          2017     2016     2016  
                                                                                
CASH FLOWS FROM OPERATING ACTIVITIES                                            
--------------------------------------------------------------------------------
Operating profit                                        21 089   19 265   24 627
Adjustment for depreciation/amortisation                 4 670    4 847    6 406
Adjustment for revenues from connection fees              -191     -161     -218
Other non-cash adjustments                                 -19      -11      -15
Profit/loss(+) from sale and write off of property,        -17      -10      -42
 plant and equipment, and intangible assets                                     
Change in current assets involved in operating            -534     -749       41
 activities                                                                     
Change in liabilities involved in operating               -250      450    1 073
 activities                                                                     
TOTAL CASH FLOW FROM OPERATING ACTIVITIES               24 748   23 631   31 872
                                                                                
CASH FLOWS FROM INVESTING ACTIVITIES                                            
--------------------------------------------------------------------------------
Acquisition of property, plant and equipment, and       -6 414   -9 776  -14 526
 intangible assets                                                              
Compensations received for construction of pipelines     2 194    2 445    3 002
Proceeds from sales of property, plant and equipment        44       31       50
 and intangible assets                                                          
Interest received                                           12       39       45
--------------------------------------------------------------------------------
TOTAL CASH FLOW FROM INVESTING ACTIVITIES               -4 164   -7 261  -11 429
                                                                                
CASH FLOWS FROM FINANCING ACTIVITIES                                            
--------------------------------------------------------------------------------
Interest paid and loan financing costs, incl swap       -1 099   -1 078   -1 510
 interests                                                                      
Repayment of finance lease                                -204     -205     -264
Received loans                                          37 500        0        0
Repayment of loans                                     -37 500        0        0
Dividends paid                                         -10 801  -18 001  -18 001
Income tax on dividends                                 -2 700   -4 500   -4 500
--------------------------------------------------------------------------------
TOTAL CASH FLOW FROM FINANCING ACTIVITIES              -14 804  -23 784  -24 275
                                                                                
--------------------------------------------------------------------------------
CHANGE IN CASH AND CASH EQUIVALENTS                      5 780   -7 414   -3 832
                                                                                
--------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE       33 987   37 819   37 819
 PERIOD                                                                         
                                                                                
--------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD      39 767   30 405   33 987








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