Börsiteade

Pealkiri

Results of Operations - for the 1st half-year 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
     Court decided to stay the claim proceeding until the main tariff dispute is
     resolved.
  -- In addition, two experts that were included in the dispute, presented their
     independent expert opinions which were of the view that the tariff
     regulation methodology chosen in the Services Agreement
 is an internationally recognised tariff methodology and complied with the
     PWSSA in force at the time of the privatisation.
 AS Tallinna Vesi hopes that the expert opinions facilitate swifter
     resolution of the complaints submitted by the Company against the
     Competition Authority since 1st of June 2011.
  -- 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. The Company will appeal the
     decision.
  -- It has been three years already during which the Company has made intensive
     effort in trying to agree a solution in order to get the tariff dispute
     solved. Regretfully it has not been achieved.
  -- In October 2014, AS Tallinna Vesi and 
and its shareholder United Utilities (Tallinn) B.V have commenced
     international arbitration proceedings against the Republic of Estonia for
     breaching the international treaty and more specifically “the fair and
     equitable treatment” requirement by changes to the law and activities of
     the public authorities which have deprived AS Tallinna Vesi from tariffs
     approved according to the Services Agreement concluded as part of the
     privatisation in 2001. The arbitration will be carried out through the
     International Centre for the Settlement of Investment Disputes (ICSID),
     which is part of the World Bank Group.
  -- 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 2nd quarter 2015

The Group’s sales revenues during the 2nd quarter of 2015 was 13.74 mln euros,
being up by 2.8% or 0.37 mln euros compared to the same period in 2014. 

The gross profit in the 2nd quarter of 2015 was 8.01 mln euros, showing an
increase by 3.6% or 0.28 mln euros. Increase in gross profit is related to
higher revenues from main operating activities but also by lower pollution tax
costs compared to the comparative period in 2014. 

The pollution tax has been lower in 2nd quarter of 2015 compared to the same
period last year, as at the beginning of 2014 the Group had problems with 400
times lowered allowed concentrations of heavy metals in the treated effluent,
compared to the previous water permit limits. The problem was resolved with the
issuance of the revised water permit in September 2014. In the revised water
permit the concentration limits for heavy metals have been removed. The revised
water permit is valid until the end of the 1st quarter of 2018. 

The operating profit from Group’s main activities was 6.17 mln euros, showing
an increase by 2.7% or 0.17 mln euros. The higher revenues from main operating
activities and lower pollution tax costs had also the major impact on operating
profit. 

The net profit for the 2nd quarter of 2015 was 2.14 mln euros, being up by
178.5% or 1.37 mln euros, mainly due to change in fair value of swap agreements
by 1.04 mln euros. The net profit for the 2nd quarter of 2015 and 2014 without
the additional exceptional changes that affected the pollution tax in 2014 and
impact that resulted from the change of the fair value of swap contracts was
respectively 1.13 mln euros and 1.15 mln euros, being 1.5% or 0.02 mln euros
lower than in the comparative period last year. 



mln €             Q2      Q2      Q2    Change     6        6        6    Change
                 2013    2014    2015    15/14   months   months  months   15/14
                                                 2013     2014     2015         
--------------------------------------------------------------------------------
Sales            13.49   13.37   13.74    2.8%    26.19    26.68   27.31    2.4%
Gross profit      7.32    7.73    8.01    3.6%    14.85    14.99   16.08    7.3%
Gross profit     54.26   57.80   58.28    0.8%    56.69    56.20   58.89    4.8%
 margin %                                                                       
Operating         5.74    6.19    6.23    0.6%    11.90    11.87   12.92    8.8%
 profit                                                                         
Operating         5.70    6.01    6.17    2.7%    11.84    11.64   12.78    9.8%
 profit - main                                                                  
 business                                                                       
Operating        42.56   46.30   45.34   -2.1%    45.43    44.51   47.29    6.2%
 profit margin                                                                  
 %                                                                              
Profit before     6.36    5.55    6.64   19.5%    12.57    10.61   13.02   22.7%
 taxes                                                                          
Net profit        1.73    0.77    2.14  178.5%     7.95     5.83    8.52   46.2%
Net profit       12.84    5.74   15.54  171.0%    30.35    21.85   31.19   42.8%
 margin %                                                                       
ROA %             0.88    0.39    1.06  173.5%     4.05     2.96    4.25   43.6%
Debt to total    61.65   61.91   61.28   -1.0%    61.65    61.91   61.28   -1.0%
 capital                                                                        
 employed                                                                       
ROE %             2.30    1.02    2.75  169.0%    10.57     7.77   10.97   41.2%
Current ratio     2.31    2.89    3.19   10.5%     2.31     2.89    3.19   10.5%
--------------------------------------------------------------------------------

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 2nd QUARTER 2015

Profit and Loss Statement

2nd 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 2nd quarter of 2015 the Group’s total sales was 13.74 mln euros, showing
an increase by 2.8% or 0.37 mln euros year on year. 90.2% of sales comprise of
sales of water and wastewater services to domestic and commercial customers
within and outside of the service area. 6.4% of sales are the fees received
from the City of Tallinn for operating and maintaining the storm water system
and fire hydrants and 3.4% from other works and services. 

                                                     Quarter 2        Variance  
                                                                        15/14   
Revenues from main operating activities (th.€)   2015   2014   2013    €       %
Private clients, incl:                          6 083  6 001  5 913   82    1.4%
Water supply service                            3 345  3 303  3 253   42    1.3%
Wastewater disposal service                     2 738  2 698  2 660   40    1.5%
Corporate clients, incl:                        4 891  4 804  4 988   87    1.8%
Water supply service                            2 717  2 697  2 782   20    0.7%
Wastewater disposal service                     2 174  2 107  2 206   67    3.2%
Outside service area clients, incl:             1 197  1 095  1 114  102    9.3%
Water supply service                              332    283    263   49   17.3%
Wastewater disposal service                       759    722    683   37    5.1%
Storm water disposal service                      106     90    168   16   17.8%
Over pollution fee                                223    238    224  -15   -6.3%
                                                                                
Storm water treatment and disposal service and    875    750    864  125   16.7%
 fire hydrant service                                                           
Construction service and design                   305    285    186   20    7.0%
Other works and services                          168    198    204  -30  -15.2%



Sales from water and wastewater services was 12.39 mln euros, showing a 2.1%
increase compared to the 2nd quarter of 2014, resulting from the changes in
sales volumes as described below: 

  -- Sales to private customers within the service area has increased by 1.4% to
     6.08 mln euros, as our biggest residential customer segment apartment
     blocks has shown ongoing increase in consumption.
  -- Sales to commercial customers within the service area has increased by 1.8%
     to 4.89 mln euros, as the consumption of industrial and other commercial
     customer segment has increased.
  -- Sales to customers outside of the main service area has increased by 9.3%
     to 1.20 mln euros. Storm water revenues increase by 17.8% to 0.11 mln euros
     was accompanied by higher water and wastewater sales respectively to 0.33
     mln euros and 0.76 mln euros.
  -- Over pollution fees received have been decreasing by 6.3% to 0.22 mln
     euros.

The sales from the operation and maintenance of the storm water and
fire-hydrant system in the main service area was 0.88 mln euros, showing an
increase by 16.7% in the 2nd quarter of 2015 compared to the same period in
2014. 

The sales of construction and design services was 0.31 mln euros, having
increased by 7.0% year on year. 



Cost of Goods Sold and Gross profit

The cost of goods sold for the main operating activity was 5.73 mln euros in
the 2nd quarter of 2015, showing 1.6% or 0.09 mln euros increase compared to
the equivalent period in 2014. The cost increase is influenced by higher staff
and depreciation costs and other costs of goods sold, which is balanced by
lower pollution tax costs in the 2nd quarter of 2015. 

Cost of goods sold (th €)               Quarter 2        Variance 15/14
                                  2015    2014    2013       €        %
Water abstraction charges          -276    -261    -248    -15    -5.7%
Chemicals                          -377    -448    -426     71    15.8%
Electricity                        -747    -729    -855    -18    -2.5%
Pollution tax                      -235    -550  -1 086    315    57.3%
Total direct production costs    -1 635  -1 988  -2 615    353    17.8%
Staff costs                      -1 436  -1 314  -1 250   -122    -9.3%
Depreciation and amortization    -1 437  -1 321  -1 285   -116    -8.8%
Construction service and design    -257    -237    -149    -20    -8.4%
Other costs of goods sold          -968    -783    -873   -185   -23.6%
Other costs of goods sold total  -4 098  -3 655  -3 557   -443   -12.1%
Total cost of goods sold         -5 733  -5 643  -6 172    -90    -1.6%



Total direct production costs (water abstraction charges, chemicals,
electricity, and pollution taxes) were 1.64 mln euros, showing 17.8% or 0.35
mln euros decrease year on year. Biggest decrease came from pollution tax.
Other changes 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 5.7% to 0.28 mln euros, driven
     mainly by increase in treated volumes and an average 4.1% raise in tax
     rates.
  -- Chemicals costs decreased by 15.8% to 0.38 mln euros. Change of costs in
     wastewater treatment was mainly influenced by the decrease in dosage used
     to remove pollutants in wastewater and methanol price. Chemicals costs were
     slightly higher in water treatment mainly due to raw water quality being
     worse than last year same time.
  -- Electricity costs increased by 2.5% to 0.75 mln euros. Higher electricity
     costs mostly derived from the increase of treated volumes and usage of
     electricity per m3 in water treatment due to raw water quality being worse,
     worth in total 0.043 mln euros. Effects of increased costs were slightly
     reduced by decreased electricity prices, worth 0.025 mln euros.
  -- In the 2nd quarter of 2015 the pollution tax expense decreased by 57.3% to
     0.24 mln euros. Lower costs were related to the change in the allowed
     concentration of heavy metals in treated effluent in the changed water
     permit effective in the first two quarters of 2014. Eliminating the one-off
     impact, the pollution tax expenses increased by 14.5% or 0.03 mln euros
     year or year.

Without the above mentioned influence, the main contribution to increased
pollution tax costs came from increased volumes treated in the amount of 0.04
mln euros and increased tax rates in the amount of 0.02 mln euros, balanced by
the decreased pollution load in the amount of 0.03 mln euros. 

Other costs of goods sold (staff costs, depreciation, construction services and
other costs of goods sold) were 4.10 mln euros, having increased by 12.1% or
0.44 mln euros. Most of the increase came from higher staff and depreciation
costs and other costs of goods sold. Increased staff costs by 9.3% to 1.44 mln
euros was mainly related to the Group having a higher headcount to provide more
efficient and broader range of insourced services. Increase in other costs of
goods sold by 23.6% to 0.97 mln euros was related to timing of maintaining and
repairing works and spring recovery asphalting volumes being higher than last
year same period. 

As a result of all above the Group’s gross profit for the 2nd quarter of 2015
was 8.01 mln euros, showing an increase by 3.6% or 0.28 mln euros, compared to
the gross profit of 7.73 mln euros for the comparative period of 2014. 



Other Operating Costs

Other operating costs were 1.76 mln euros, showing an increase by 7.3% or 0.12
mln euros. Increase in other operating costs were related to consultation and
legal fees as their timing continues to have an impact on the administrative
expenses. 



Other net income/expenses

Other net costs resulted a net expense of 0.02 mln euros, compared to 0.10 mln
euros net income in the 2nd quarter of 2014. The results were mainly influenced
by the change in the amount of doubtful receivables. 



Operating profit

As a result of the factors listed above the Group’s operating profit for the
2nd quarter of 2015 totalled 6.23 mln euros, being 0.6% or 0.04 mln euros
higher than in the corresponding quarter in 2014. Removing the pollution tax
impact in relation to the concentration limits for heavy metals, the Group’s
operating profit had been 4.7% or 0.31 mln euros lower compared to 2014. 



Financial expenses

The Group’s net financial income and expenses have resulted a net income of
0.41 mln euros, compared to net expense 0.64 mln euros in the 2nd quarter of
2014. It is mainly impacted by a positive change of the fair value of the swap
contracts. 

The standalone swap agreements have been signed to mitigate the majority of the
long term floating interest risk. The interest swap agreements are signed for
75 mln euros and 20 mln euros are still with floating interest rate. At this
point in time the estimated fair value of the swap contracts is negative,
totalling 0.43 mln euros. Effective interest rate (incl. swap interests) in the
2nd quarter of 2015 was 2.57%, amounting the interest costs of 0.62 mln euros,
compared to the effective interest rate of 3.05% and the interest costs of 0.73
mln euros in the 2nd quarter of 2014. In April 2015, the Company signed 4 SWAP
contracts in the notional amount of 45 mln euros. The contracts became
effective from the 1st of June 2015 after the existing contracts finished. The
interest rates fixed in the new contracts are on average 2.9% lower than for
the contracts that ended. 



Profit Before and After Tax

The Group’s profit before taxes for the 2nd quarter of 2015 was 6.64 mln euros,
being 19.5% or 1.08 mln euros higher than for the 2nd quarter of 2014,
resulting mainly from increased revenues and lower pollution tax costs and net
financial expenses as described above. Eliminating the influence of the
pollution tax and derivatives fair value, the Group’s profit before taxes for
the 2nd quarter of 2015 would have been 5.63 mln euros, showing a decrease by
5.1% or 0.30 mln euros compared to the relevant period in 2014. 

The Group’s profit after taxes for the 2nd quarter of 2015 was 2.14 mln euros,
by being 1.37 mln euros higher than for the 2nd quarter of 2014. Net profit
after taxes eliminating the effects of the pollution tax and derivatives in
both years would have been 1.5% or 0.02 mln euros lower in 2015. 



Results for the six months of 2015

During the six months of 2015 the Group’s total sales were 27.31 mln euros,
showing an increase by 2.4% or 0.63 mln euros year on year. Sales from water
and wastewater services were 24.65 mln euros, being increased by 2.0% or 0.48
mln euros compared to the six months of 2014. 

The movements in sales are mostly similar to movements in the 2nd quarter
described above. There has been a slight 1.6% or 0.19 mln euros increase in the
sales to residential customers and 1.1% or 0.11 mln euros increase in the sales
to the commercial clients within the service area. The sales revenues from
outside service area clients for water, wastewater and storm water services
were 2.45 mln euros, by showing an increase of 9.2% 0.21 mln euros compared to
the six 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 six months of 2015 were
1.72 mln euros, showing a decrease by 1.3% or 0.02 mln euros. 

Total direct production costs (water abstraction charges, chemicals,
electricity, and pollution taxes) were 3.39 mln euros, showing a decrease by
25.9% or 1.18 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 and electricity costs as described below: 

  -- Water abstraction charges increased by 4.0% to 0.55 mln euros, driven
     mainly by 4.1% raise in tax rates.
  -- Total chemical costs decreased by 14.4% to 0.74 mln euros. Change of costs
     in wastewater treatment was mainly influenced by the decrease in dosage
     used to remove pollutants in wastewater and methanol price. Chemicals costs
     were slightly higher in water treatment mainly due to raw water quality
     being worse than last year same time.
  -- Electricity costs have increased slightly by 0.6% to 1.58 mln euros. Higher
     electricity costs were mostly derived from increase in volumes in treatment
     facilities and usage of electricity per m3 in water treatment due to raw
     water quality being worse, worth 0.07 mln euros, balanced by the decrease
     in electricity price, worth 0.06 mln euros.
  -- In the 6 months of 2015 the pollution tax expense decreased by 67.0% to
     5.54 mln euros. The decrease is influenced by the problems with allowed
     concentrations of heavy metals covered above. Eliminating the one-off
     influences the pollution tax expenses have increased by 13.5% or 0.06 mln
     euros year of year.

Other cost of goods sold (staff costs, depreciation, construction services and
other cost of goods sold) were 7.83 mln euros, by being higher by 10.2% or 0.73
mln euros. Most of the increase came from higher construction services costs,
staff and depreciation costs. Higher construction services costs were related
to earlier start of construction activities due to favourable weather and some
high-value contracts. Higher staff costs were mainly related to the Group
having a higher headcount to provide more efficient and broader range of
insourced services. 

Due to the increased revenues and decreased expenses the gross profit for 6
months in 2015 was 16.08 mln euros, by being 7.3% or 1.09 mln euros higher
compared to the same period in 2014. The operating profit was 12.92 mln euros,
showing an increase by 8.8% or 1.04 mln euros during the six months of 2015. 

The Group’s net financial income and expenses have resulted a net income of
0.10 mln euros, compared to net expense 1.26 mln euros in the 6 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 1.41 mln euros (2014: negative impact 0.06 mln
euros). 

The Group’s profit before taxes for the six months of 2015 was 13.02 mln euros,
showing a 22.7% increase compared to the relevant period in 2014. The Group’s
net profit for the six months of 2015 was 8.52 mln euros, which is 2.69 mln
euros higher than the net profit for equivalent period in 2014. 



Balance sheet

In the six months of 2015 the Group invested 4.59 mln euros into fixed assets.
As of 30 June 2015 non-current tangible assets amounted to 159.0 mln euros and
total non-current assets amounted to 160.5 mln euros. (30. June 2014: 153.5 mln
euros and 154.5 mln euros respectively). 

Compared to the year end of 2014 there has been a reduction in receivables and
prepayments in the amount of 1.66 mln euros to 6.60 mln euros which is mainly
related to collection of money for network extension program. 

Compared to the year end of 2014 the current liabilities have increased by 3.74
mln euros to 12.56 mln euros. The movement is mainly related to the dividend
income tax payable in July. 

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 61.3%, 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 61.9%. 

Biggest share of the rest of the long term liabilities is deferred income from
connection fees amounting to 13.71 mln euros (2014: 10.75 mln euros). 

In the 4th quarter of 2011 the Group recorded and noted an exceptional
contingent liability, which could cause an outflow of economic benefits of up
to 36.0 mln euros. In the 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. 



Cash flows

As of 30 June 2015 the cash position of the Group is strong. At the end of June
2015 the cash balance of the Group stood at 33.04 mln euros, which is 16.5% of
the total assets (2014: 26.57 mln, which was 13.5% of the total assets). 

The biggest contribution to the cash flows comes from main operations. During
the six months of 2015, the Group generated 16.28 mln euros of cash flows from
operating activities, an increase of 2.45 mln euros compared to the
corresponding period in 2014. 

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

In the six months of 2015 the result of net cash flows from investing
activities was a cash outflow of 2.07 mln euros, a decrease of 3.09 mln euros
compared to the inflow of 1.02 mln euros in the six months of 2014. This is
made up as follows: 

  -- In the six months of 2015 the investments in fixed assets have increased
     1.09 mln euros compared to 2014 amounting to 4.71 mln euros.
  -- The compensations received for the construction of pipelines were 2.56 mln
     euros in the six months of 2015, showing a decrease of 1.78 mln euros
     compared to same period of 2014. Most of the cash collected for pipes was
     related to the sewage network extension program, which was completed in
     2012. The collection for extension program ended in March 2015.
  -- In the six months of 2015, cash outflow from financing amounted to 19.73
     mln euros, which is on the same level compared to previous year. Cash
     outflow was mainly made of dividend payment, which was on the same level as
     same period of 2014.



Employees

At the end of the 2nd quarter of 2015, the total number of employees was 320
compared to 317 at the end of the 2nd quarter of 2014. The full time equivalent
(FTE) was respectively 308 in 2015 compared to the 304 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 June 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 six months of 2015 the shareholder structure has been relatively
stable compared to the end of 2014. At the end of 2nd quarter 2015 the pension
funds owned 1.87% of the total shares compared to 1.54% at the end of 4th
quarter 2014. 

As of 30th June 2015, the closing price of the AS Tallinna Vesi share was 13.10
euros, which is a 7.1% decrease (2014: +4.8%) compared to the closing price of
14.10 euros at the beginning of the quarter. During the same period the OMX
Tallinn index decreased by 2.1% (2014: +0.7%). 

In the six months of 2015, 4 571 deals with the Company’s shares were concluded
(2014: 2 519 deals) during which 1 027 thousand shares or 5.1% exchanged their
owners (2014: 581 thousand shares or 2.9%). 

The turnover of the transactions was 6 786 thousand euros higher than in 2014,
amounting to 14 271 thousand euros. 



Operational performance

The first half of 2015 can be characterised with stability in the quality of
our services. Above all, this provides confidence to all consumers that they
are provided with a high-quality drinking water, stable water supply and
wastewater discharging service. In addition to the quality of service, we also
concentrate on being a good partner for our customers. Feedback from the
customers has become more and more positive, however, we aim to continue making
efforts to meet and exceed the customers’ expectations. 

Operational indicators for the first half of 2015

Indicator                                                 6 months    6 months  
                                                           2014        2014     
--------------------------------------------------------------------------------
Drinking water                                                                  
--------------------------------------------------------------------------------
- 
Compliance of water quality at the customers’ tap             99.86%      99.93%
--------------------------------------------------------------------------------
Water loss in the water distribution network                  16.38%      13.95%
--------------------------------------------------------------------------------
Average duration of water interruptions per property in         2.80        3.17
 hours                                                                          
--------------------------------------------------------------------------------
Wastewater                                                                      
--------------------------------------------------------------------------------
- 
Number of sewer blockages                                        434         428
--------------------------------------------------------------------------------
Number of sewer bursts                                            72          68
--------------------------------------------------------------------------------
Wastewater treatment compliance with environmental              100%        100%
 standards                                                                      
--------------------------------------------------------------------------------
Customer Service                                                                
--------------------------------------------------------------------------------
- 
Number of written complaints                                      32          37
--------------------------------------------------------------------------------
Number of customer contacts regarding water quality               65          38
--------------------------------------------------------------------------------
Number of customer contacts regarding water pressure             144         146
--------------------------------------------------------------------------------
Number of customer contacts regarding blockages and              529         601
 discharge of storm water                                                       
--------------------------------------------------------------------------------
Responding written customer contacts within at least 2         99.0%       98.7%
 work days                                                                      
--------------------------------------------------------------------------------
Number of failed promises                                         21           6
--------------------------------------------------------------------------------
Notification of unplanned water interruptions at least 1       97.4%       98.8%
 h before the interruption                                                      
--------------------------------------------------------------------------------



Corporate structure

As of 30 June 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. 

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

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

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

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

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



Management Board

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

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

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

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

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

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



Future actions & risks

Legal claim for breach of international treaty

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

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

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

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

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

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



Disclosure of relevant papers and perspectives

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

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



STATEMENT OF COMPREHENSIVE         II         II         6        6        12   
 INCOME                          quarter    quarter    months   months   months 
(thousand €)                       2015       2014     2015     2014      2014  
                                                                                
Revenue                            13 742     13 371   27 311   26 678    53 241
Costs of goods sold                -5 733     -5 643  -11 227  -11 686   -22 399
                                                                                
GROSS PROFIT                        8 009      7 728   16 084   14 992    30 842
                                                                                
Marketing expenses                   -103       -106     -240     -273      -456
General administration             -1 657     -1 535   -2 871   -2 900    -5 517
 expenses                                                                       
Other income/ expenses (-)            -18        104      -58       55       -41
                                                                                
OPERATING PROFIT                    6 231      6 191   12 915   11 874    24 828
                                                                                
Financial income                    1 025        154    1 472      288       432
Financial expenses                   -620       -793   -1 368   -1 549    -2 532
                                                                                
PROFIT BEFORE TAXES                 6 636      5 552   13 019   10 613    22 728
                                                                                
Income tax on dividends            -4 500     -4 785   -4 500   -4 785    -4 785
                                                                                
NET PROFIT FOR THE PERIOD           2 136        767    8 519    5 828    17 943
COMPREHENSIVE INCOME FOR THE        2 136        767    8 519    5 828    17 943
 PERIOD                                                                         
Attributable to:                                                                
Equity holders of A-shares          2 135        766    8 518    5 827    17 942
B-share holder                       0,60       0,60     0,60     0,60      0,60
                                                                                
Earnings per A share (in             0,11       0,04     0,43     0,29      0,90
 euros)                                                                         
Earnings per B share (in              600        600      600      600       600
 euros)                                                                         





STATEMENT OF FINANCIAL POSITION                                                 
(thousand €)                                  30.06.2015  30.06.2014  31.12.2014
                                                                                
ASSETS                                                                          
CURRENT ASSETS                                                                  
Cash and equivalents                              33 035      26 566      38 560
Trade receivables, accrued income and              6 602      15 526       8 261
 prepaid expenses                                                               
Inventories                                          467         441         412
TOTAL CURRENT ASSETS                              40 104      42 533      47 233
                                                                                
NON-CURRENT ASSETS                                                              
Other long-term receivables                            0          22           0
Derivatives                                          631           0           0
Property, plant and equipment                    159 004     153 526     157 481
Intangible assets                                    846         919         862
TOTAL NON-CURRENT ASSETS                         160 481     154 467     158 343
TOTAL ASSETS                                     200 585     197 000     205 576
                                                                                
LIABILITIES                                                                     
                                                                                
CURRENT LIABILITIES                                                             
Current portion of long-term borrowings              306         169         261
Trade and other payables                           9 649       9 947       4 855
Derivatives                                          565       1 764       1 078
Prepayments                                        2 042       2 846       2 631
TOTAL CURRENT LIABILITIES                         12 562      14 726       8 825
                                                                                
NON-CURRENT LIABILITIES                                                         
Deferred income from connection fees              13 713      10 752      12 567
Borrowings                                        96 125      95 846      96 250
Derivatives                                          493         620         761
Other payables                                        24          21          23
TOTAL NON-CURRENT LIABILITIES                    110 355     107 239     109 601
TOTAL LIABILITIES                                122 917     121 965     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                                 39 656      37 023      49 138
TOTAL EQUITY CAPITAL                              77 668      75 035      87 150
TOTAL LIABILITIES AND EQUITY CAPITAL             200 585     197 000     205 576





CASH FLOW STATEMENT                                       6        6        12  
                                                        months   months   months
(thousand €)                                            2015     2014     2014  
                                                                                
CASH FLOWS FROM OPERATING ACTIVITIES                                            
Operating profit                                        12 915   11 874   24 828
Adjustment for depreciation/amortisation                 3 079    2 895    5 851
Adjustment for profit from government grants and           -93      -72     -143
 connection fees                                                                
Other non-cash adjustments                                  -8       24      -33
Profit/loss(+) from sale and write off of property,         -2        3      145
 plant and equipment, and intangible assets                                     
Change in current assets involved in operating            -341   -1 592    1 165
 activities                                                                     
Change in liabilities involved in operating                730      703     -364
 activities                                                                     
Total cash flow from operating activities               16 280   13 835   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       -4 709   -3 618   -9 646
 intangible assets                                                              
Compensations received for construction of pipelines     2 556    4 340   10 523
Proceeds from sales of property, plant and equipment        12        1       13
 and intangible assets                                                          
Interest received                                           67      296      432
Total cash flow from investing activities               -2 074    1 019    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       -1 388   -1 486   -2 995
 interests                                                                      
Repayment of finance lease                                -156      -82     -216
Dividends paid                                         -18 001  -18 001  -18 001
Income tax on dividends                                   -186     -505   -4 785
Total cash flow from financing activities              -19 731  -20 074  -25 997
                                                                                
Change in cash and bank accounts                        -5 525   -5 220    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           33 035   26 566   38 560








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