Börsiteade

Pealkiri

Results of operations for the 1st half-year 2016

Teade

MANAGEMENT REPORT

Chairman's summary

In the first six months of 2016, the Company’s operational and financial
performance was excellent. The majority of key performance indicators (KPIs)
are on track, which given the colder weather in the 1st quarter and associated
increase in network disruption, was very good and a testament of all the hard
work done by AS Tallinna Vesi staff, during the period. 

In the first half of 2016, the water quality was 99.93% compliant. Only one
sample taken from customer taps, out of the 1,472 samples taken, was
non-compliant. The average network leakage for the period was 16.22%, which is
higher than the same period in 2015 (13.95%), but attributable to the colder
ambient temperatures in the 1st quarter in 2016, resulting in a higher number
of bursts within the clean water network. With the advent of warmer weather, we
hope to see a corresponding reduction in network leakage. 

Besides providing premium drinking water, we are also responsible for a
wastewater discharge service to nearly one third of Estonia’s population
(440,000). It is therefore extremely important that the wastewater treatment
plant in Paljassaare works effectively and in accordance with the stipulated
quality requirements, set by the Estonian Ministry of Environment. During the
1st half-year of 2016, the final effluent leaving Paljassaare was 100%
compliant with the stipulated limits and no pollution incidents have occurred
on the network. 

We continue to make targeted capital investments, renovating or replacing
assets based on previous condition surveys and performance data, to ensure the
continued reliability of the infrastructure. This includes the 5+5 programme,
where 5 km of water and wastewater network is replaced each year. 

Delivering good operational and financial performance is only possible through
the continued motivation, commitment and performance of AS Tallinna Vesi staff.
We remain focused on the development and training of internal staff and
ensuring appropriate succession plans are in place. An example of this, is the
company’s ongoing graduate and apprentice programmes, which will also inject
fresh talent into the business for the future. 

Operational performance for the first six months of 2016

                                                                  
Drinking water                                                                  
                                     2016                    2015               
--------------------------------------------------------------------------------
- 
Compliance of water quality at the customers’ tap.                99.93%  99.93%
--------------------------------------------------------------------------------
Water loss in the water distribution Network.                     16.22%  13.95%
--------------------------------------------------------------------------------
Average duration of water interruptions per property in hours.    3.54 h  3.17 h
--------------------------------------------------------------------------------
Wastewater                                                                      
--------------------------------------------------------------------------------
- 
Number of sewer blockages.                                         367     428  
--------------------------------------------------------------------------------
Number of sewer bursts.                                             52      68  
--------------------------------------------------------------------------------
Wastewater treatment compliance with environmental standards       100%    100% 
--------------------------------------------------------------------------------
Customer Service                                                                
--------------------------------------------------------------------------------
- 
Number of written complaints                                        21      37  
--------------------------------------------------------------------------------
Number of customer contacts regarding water quality                 48      38  
--------------------------------------------------------------------------------
Number of customer contacts regarding water pressure               157     146  
--------------------------------------------------------------------------------
Number of customer contacts regarding blockages and discharge of   569     601  
 storm water                                                                    
--------------------------------------------------------------------------------
Responding written customer contacts, within at least 2 working   99.10%  98.70%
 days                                                                           
--------------------------------------------------------------------------------
Number of failed promises                                            2       6  
--------------------------------------------------------------------------------
Notification of unplanned water interruptions, at least 1 h       97.90%  98.80%
 before the interruption                                                        
--------------------------------------------------------------------------------



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.
  -- 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 months, CPI has been lower than at the time
     the claim was originally calculated, with a current value of EUR 73
     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 made 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.
  -- I
n October 2014, in parallel to the local dispute about tariffs, AS Tallinna
     Vesi and its shareholder United Utilities (Tallinn) B.V have commenced
     international arbitration proceedings against the Republic of Estonia, for
     breaching the international treaty and more specifically “the fair and
     equitable treatment” requirement by changes to the law and activities of
     the public authorities which have deprived AS Tallinna Vesi from tariffs
     approved according to the Services Agreement concluded as part of the
     privatisation in 2001. The arbitration will be carried out through the
     International Centre for the Settlement of Investment Disputes (ICSID),
     which is part of the World Bank Group.
  -- On 17th of June 2015, the timetable of the International Arbitration
     Proceedings was determined, with the final hearing set for November 2016.
     Procedural orders and decisions issued during the arbitration process,
     subject to the redaction of the confidential information, are available on
     the
ICSID website
.
  -- International Arbitration Proceedings are being held in parallel, and are
     not linked to the local Court dispute
.
  -- In February this year, the Republic of Estonia submitted their Memorial,
     with AS Tallinna Vesi and United Utilities (Tallinn) B.V, responding with
     their counter Memorial in June.
  -- There have been no hearings connected with the dispute during 2016.

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 of 2nd quarter 2016

The Group’s sales revenues during the 2nd quarter of 2016 were EUR 14.50
million, being up by 5.5% or EUR 0.75 million compared to the same period in
2015. 

The gross profit in the 2nd quarter of 2016 was EUR 8.30 million, showing an
increase of 3.7% or EUR 0.29 million. Increase in gross profit was related to
higher water, wastewater and storm water revenues and lower chemicals costs,
which was accompanied by higher revenues and profit from construction and
asphalting services. Increased revenues were balanced by higher depreciation
and staff costs. 

The operating profit was EUR 5.84 million, showing a decrease by 6.3% or EUR
0.39 million. The operating profit was impacted by the above mentioned positive
changes in gross profit, which was further more impacted by higher legal costs. 

The net profit for the 2nd quarter of 2016 was EUR 0.77 million, being down by
63.8% or EUR 1.36 million. The net profit was mainly impacted by above
mentioned changes in operating profit and higher financial expenses. Higher
financial expenses were mostly influenced by the negative change in the fair
value of swap contracts in the 2nd quarter of 2016 compared to the big positive
change in the same quarter of 2015. The net profit for the 2nd quarter of 2016
and 2015 without the impact resulted from the change of the fair value of swap
contracts was EUR 0.99 million and EUR 1.13 million respectively. 

EUR million       Q2      Q2      Q2    Change     6        6        6    Change
                 2014    2015    2016    16/15   months   months  months   16/15
                                                 2014     2015     2016         
--------------------------------------------------------------------------------
Sales            13.37   13.74   14.50    5.5%    26.68    27.31   28.87    5.7%
Gross profit      7.73    8.01    8.30    3.7%    14.99    16.08   16.64    3.4%
Gross profit     57.80   58.28   57.27   -1.7%    56.20    58.89   57.64   -2.1%
 margin %                                                                       
Operating         6.19    6.23    5.84   -6.3%    11.87    12.92   12.47   -3.4%
 profit                                                                         
Operating         6.00    6.17    5.69   -7.8%    11.63    12.83   12.23   -4.6%
 profit - main                                                                  
 business                                                                       
Operating        46.30   45.34   40.29  -11.1%    44.51    47.29   43.21   -8.6%
 profit margin                                                                  
 %                                                                              
Profit before     5.55    6.64    5.27  -20.5%    10.61    13.02   10.91  -16.2%
 taxes                                                                          
Net profit        0.77    2.14    0.77  -63.8%     5.83     8.52    6.41  -24.8%
Net profit        5.74   15.54    5.34  -65.7%    21.85    31.19   22.21  -28.8%
 margin %                                                                       
ROA %             0.39    1.06    0.38  -64.4%     2.96     4.25    3.14  -26.0%
Debt to total    61.91   61.28   62.06    1.3%    61.91    61.28   62.06    1.3%
 capital                                                                        
 employed %                                                                     
ROE %             1.02    2.75    1.00  -63.6%     7.77    10.97    8.28  -24.5%
Current ratio     2.89    3.19    2.63  -17.7%     2.89     3.19    2.63  -17.7%
--------------------------------------------------------------------------------

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 and asphalting services, doubtful debt, other
income 



RESULTS OF OPERATIONS FOR THE 2nd QUARTER 2016

Profit and Loss Statement

2nd quarter 2016

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 2016 the Group’s total sales were EUR 14.50 million,
showing an increase by 5.5% or EUR 0.75 million year on year. 86.8% 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 6.8% from other works and services. 

Revenues from main operating activities EUR        Quarter II         Variance  
 thousand                                                               16/15   
                                               2016    2015    2014  EUR       %
Total water supply and waste water disposal  12,582  12,394  12,138  188    1.5%
 service, incl:                                                                 
Private clients, incl:                        6,200   6,083   6,001  117    1.9%
Water supply service                          3,410   3,345   3,303   65    1.9%
Wastewater disposal service                   2,790   2,738   2,698   52    1.9%
Corporate clients, incl:                      5,070   4,891   4,804  179    3.7%
Water supply service                          2,831   2,717   2,697  114    4.2%
Wastewater disposal service                   2,239   2,174   2,107   65    3.0%
Outside service area clients, incl:           1,101   1,197   1,095  -96   -8.0%
Water supply service                            346     332     283   14    4.2%
Wastewater disposal service                     686     759     722  -73   -9.6%
Storm water disposal service                     69     106      90  -37  -34.9%
Over pollution fee                              211     223     238  -12   -5.4%
                                                                                
Storm water treatment and disposal service      924     875     750   49    5.6%
 and fire hydrant service                                                       
Construction service, design and asphalting     827     324     297  503  155.2%
Other works and services                        164     149     186   15   10.1%



Sales from water and wastewater services were EUR 12.58 million, showing a 1.5%
or EUR 0.19 million increase compared to the 2nd quarter of 2015, resulting
from the changes in sales volumes as described below: 

  -- There has been a slight increase in all residential customer groups within
     the service area in the 2nd quarter of 2016 compared to the same period in
     2015 resulting a total increase in private customers’ revenues by 1.9% to
     EUR 6.20 million.
  -- Sales to commercial customers within the service area have increased by
     3.7% to EUR 5.07 million. Increase is mostly related to leisure and other
     customer segments.
  -- Sales to customers outside the main service area have shown a decrease by
     8.0% to EUR 1.10 million. Wastewater revenues decreased by 9.6% to EUR 0.69
     million and storm water revenues decreased by 34.9% to EUR 0.07 million,
     while water revenues increased by 4.2% to EUR 0.35 million. Decrease in the
     revenues from customers outside the main service area is mainly related to
     the sales to Viimsi, as they started to use their new wastewater treatment
     facilities from the beginning of 2016. Whilst the sales to Viimsi have
     ceased, the sales to other areas have increased.
  -- Over pollution fees received have decreased by 5.4% to EUR 0.21 million.

Sales from the operation and maintenance of the main service area storm water
and fire hydrant system were EUR 0.92 million, showing a slight increase of
5.6% or EUR 0.05 million in the 2nd quarter of 2016 compared to the same period
in 2015. 

Sales of construction, design and asphalting services were EUR 0.83 million,
having increased by 155.2% or EUR 0.50 million year on year. The increase was
mainly related to the higher construction revenues resulted from an ongoing big
project started at the end of 2015 and couple of ongoing bigger projects
started in June. 



Cost of Goods Sold and Gross profit

The cost of goods sold amounted to EUR 6.20 million in the 2nd quarter of 2016,
showing 8.1% or EUR 0.46 million increase compared to the equivalent period in
2015. The cost increase is mainly influenced by increase in construction and
asphalting services related costs and also by higher depreciation and staff
costs, which was partly balanced by lower chemicals and electricity costs. 

Cost of goods sold                               Quarter II           Variance  
EUR thousand                                                           16/15    
                                             2016    2015    2014   EUR        %
Water abstraction charges                    -283    -276    -261    -7    -2.5%
Chemicals                                    -285    -377    -448    92    24.4%
Electricity                                  -728    -747    -729    19     2.5%
Pollution tax                                -235    -235    -550     0     0.0%
Total direct production costs              -1,531  -1,635  -1,988   104     6.4%
Staff costs                                -1,470  -1,436  -1,314   -34    -2.4%
Depreciation and amortization              -1,591  -1,437  -1,321  -154   -10.7%
Construction service, design and             -675    -271    -243  -404  -149.1%
 asphalting                                                                     
Other costs of goods sold                    -928    -954    -777    26     2.7%
Other costs of goods sold total            -4,664  -4,098  -3,655  -566   -13.8%
Total cost of goods sold                   -6,195  -5,733  -5,643  -462    -8.1%



Total direct production costs (water abstraction charges, chemicals,
electricity and pollution tax) were EUR 1.53 million, showing 6.4% or EUR 0.10
million decrease year on year. 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 slightly by 2.5% to EUR 0.28 million,
     driven mainly by increase in treated volumes.
  -- Chemicals costs decreased by 24.4% to EUR 0.29 million, driven mainly by
     45.1% lower methanol price used in wastewater treatment, worth EUR 0.05
     million, which was complemented by lower usage of methanol, coagulant and
     polymer in the wastewater treatment process, respectively worth EUR 0.02,
     EUR 0.02 and EUR 0.01 million.
  -- Electricity costs decreased by 2.5% to EUR 0.73 million. Electricity costs
     decrease was related to lower electricity prices and electricity usage,
     balanced by increase in treated volumes.
  -- Pollution tax expense stayed at the same level compared to the 2nd quarter
     of 2015, being EUR 0.24 million.

Other costs of goods sold (staff costs, depreciation, construction and
asphalting services costs and other costs of goods sold) amounted to EUR 4.66
million, having increased by 13.8% or EUR 0.57 million. The increase of costs
came from costs related to construction and asphalting services, depreciation
and higher staff costs. Staff costs increased by 2.4% to EUR 1.47 million. It
was partly driven by higher headcount and also increase in salaries compared to
the same period in 2015. Increase in construction and asphalting services costs
by 149.1% to EUR 0.68 million was related to increased construction and
asphalting services revenues mentioned earlier. Increase in depreciation costs
by 10.7% to EUR 1.59 million was related to accelerated depreciation of fixed
assets in wastewater treatment process, which will cease to be used. 

As a result of all above the Group’s gross profit for the 2nd quarter of 2016
was EUR 8.30 million, showing an increase of 3.7% or EUR 0.29 million, compared
to the gross profit of EUR 8.01 million for the comparative period of 2015. 



Administrative and marketing expenses

Administrative and marketing expenses were EUR 2.42 million, showing an
increase of 37.7% or EUR 0.66 million. Most of the increase came from higher
legal and consultation fees, which continue to be at a high level during the
time the Company has ongoing local and international disputes. Increase in
salary expenses was related to slightly higher headcount, but also to some
increase in salaries. 



Operating profit

As a result of the factors listed above the Group’s operating profit for the
2nd quarter of 2016 totalled EUR 5.84 million, being 6.3% or EUR 0.39 million
lower than in the corresponding quarter of 2015. The Group’s operating profit
from main business was 7.8% or EUR 0.48 million lower compared to 2015. 



Financial expenses

The Group’s net financial income and expenses have resulted a net expense of
EUR 0.57 million, compared to net income of EUR 0.41 million in the 2nd quarter
of 2015. It is mainly impacted by a negative change of the fair value of the
swap contracts year on year (-EUR 1.22 million), which was balanced by decrease
in interest expenses (+EUR 0.26 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,
totalling EUR 1.88 million. Effective interest rate of loans (incl. swap
interests) in the 2nd quarter of 2016 was 1.52%, amounting to interest costs of
EUR 0.37 million, compared to the effective interest rate of 2.56% and the
interest costs of EUR 0.61 million in the 2nd quarter of 2015. 



Profit Before and After Tax

The Group’s profit before taxes for the 2nd quarter of 2016 was EUR 5.27
million, being 20.5% or EUR 1.36 million lower than for the 2nd quarter of
2015, resulting mainly from increased revenues, balanced by the increased costs
and net financial expenses as described above. Eliminating the influence of the
derivatives fair value, the Group’s profit before taxes for the 2nd quarter of
2016 would have been EUR 5.49 million, showing a decrease by 2.5% or EUR 0.14
million compared to the relevant period in 2015. 

The Group’s profit after taxes for the 2nd quarter of 2016 was EUR 0.77
million, being 63.8% or EUR 1.36 million lower than for the 2nd quarter of
2015. Eliminating the effects of the derivatives fair value the net profit
after taxes would have been 12.6% or EUR 0.14 million lower than in 2015. 



Results for the six months of 2016

During the six months of 2016 the Group’s total sales were EUR 28.87 million,
showing an increase by 5.7% or EUR 1.56 million year on year. 

Sales from water and wastewater services for six months of 2016 were EUR 25.10
million, increasing 1.8% or EUR 0.45 million compared to the six months of
2015. 87.0% of sales comprised of sales of water and wastewater services to
domestic and commercial customers within and outside of the service area. 6.5%
of sales were the fees received from the City of Tallinn for operating and
maintaining the storm water system and fire hydrants and 6.5% from other works
and services. 

Revenues from main operating activities            6 months           Variance  
 EUR thousand                                                          16/15    
                                              2016    2015    2014   EUR       %
Total water supply and waste water          25,102  24,654  24,178   448    1.8%
 disposal service, incl:                                                        
Private clients, incl:                      12,538  12,237  12,048   301    2.5%
Water supply service                         6,895   6,731   6,630   164    2.4%
Wastewater disposal service                  5,643   5,506   5,418   137    2.5%
Corporate clients, incl:                     9,952   9,564   9,458   388    4.1%
Water supply service                         5,504   5,287   5,277   217    4.1%
Wastewater disposal service                  4,448   4,277   4,181   171    4.0%
Outside service area clients, incl:          2,230   2,446   2,240  -216   -8.8%
Water supply service                           654     623     538    31    5.0%
Wastewater disposal service                  1,355   1,531   1,478  -176  -11.5%
Storm water disposal service                   221     292     224   -71  -24.3%
Over pollution fee                             382     407     432   -25   -6.1%
                                                                                
Storm water treatment and disposal service   1,870   1,719   1,741   151    8.8%
 and fire hydrant service                                                       
Construction service, design and             1,588     667     427   921  138.1%
 asphalting                                                                     
Other works and services                       306     271     332    35   12.9%



During the six months of 2016 there has been a 2.5% or EUR 0.30 million
increase in the sales to residential customers and 4.1% or EUR 0.39 million
increase in the sales to the commercial customers within the service area.
Increase in the sales to residential customers comes from different private
customers segments. The sales increase in commercial customers is mostly
related to industrial and other customer segments. The sales revenues from
outside service area customers for water, wastewater and storm water services
have decreased 8.8% or EUR 0.22 million compared to the six months of 2015,
being mainly influenced by Viimsi having their own wastewater treatment
facilities from the beginning of the year mentioned earlier. 

Sales from the operation and maintenance of the main service area storm water
and fire hydrant system in the six months of 2016 were EUR 1.87 million,
showing an increase of 8.8% or EUR 0.15 million. 

Sales of construction, design and asphalting services were EUR 1.59 million,
increasing by 138.1% or EUR 0.92 million year on year. Increase resulted mainly
from construction of a large project which was started already at the end of
last year and couple of ongoing projects started in June. 

Cost of goods sold                             6 months           Variance 16/15
EUR thousand                                                                    
                                         2016     2015     2014     EUR        %
Water abstraction charges                -575     -546     -525     -29    -5.3%
Chemicals                                -627     -736     -860     109    14.8%
Electricity                            -1,538   -1,575   -1,566      37     2.3%
Pollution tax                            -571     -536   -1,626     -35    -6.5%
Total direct production costs          -3,311   -3,393   -4,577      82     2.4%
Staff costs                            -2,888   -2,784   -2,542    -104    -3.7%
Depreciation and amortization          -3,023   -2,830   -2,619    -193    -6.8%
Construction service, design and       -1,349     -579     -330    -770  -133.0%
 asphalting                                                                     
Other costs of goods sold              -1,657   -1,641   -1,618     -16    -1.0%
Other costs of goods sold total        -8,917   -7,834   -7,109  -1,083   -13.8%
Total cost of goods sold              -12,228  -11,227  -11,686  -1,001    -8.9%



Total direct production costs (water abstraction charges, chemicals,
electricity and pollution taxes) were EUR 3.31 million, showing a decrease by
2.4% or EUR 0.08 million year on year. Biggest decrease came from the decrease
in chemicals and electricity costs, balanced slightly by increase in water
abstraction charges and pollution tax as described below: 

  -- Water abstraction charges increased by 5.3% to EUR 0.58 million, driven by
     increase in treated volumes.
  -- Chemicals costs decreased by 14.8% to EUR 0.63 million, driven mainly by on
     average 30.6% lower methanol price and smaller use of chemicals to remove
     pollutants in wastewater treatment process, worth respectively EUR 0.08
     million and EUR 0.03 million.
  -- In the six months of 2016 electricity costs have decreased by 2.3% to EUR
     1.54 million. Electricity costs decrease was related to on average 4.2%
     lower electricity prices, balanced by increase in treated volumes.
  -- Pollution tax expense increased by 6.5% to EUR 0.57 million. The increase
     is influenced by the increase in treated volumes.

Other costs of goods sold (staff costs, depreciation, construction and
asphalting services costs and other costs of goods sold) amounted to EUR 8.92
million, being higher by 13.8% or EUR 1.08 million compared to the same period
in 2015. Main increase came from increase in staff costs, depreciation and
costs related to higher construction and asphalting services by the same
reasons mentioned earlier in 2nd quarter results. 

The gross profit for the six months of 2016 was EUR 16.64 million, being 3.4%
or EUR 0.55 million higher compared to the same period in 2015. The operating
profit was EUR 12.47 million, showing a decrease by 3.4% or EUR 0.44 million
during the six months of 2016. The decrease in operating profit was driven by
changes in operating profit mentioned earlier in 2nd quarter results. 

The Group’s net financial income and expenses have resulted a net expense of
EUR 1.56 million, compared to net income of EUR 0.10 million in the six months
of 2015. The net financial expenses were influenced by the decrease in interest
costs by EUR 0.65 million, which was supplemented by the negative non-monetary
impact of the change in the fair value of the swap contracts the Company has
entered. The negative non-monetary impact for 2016 expenses is EUR 0.87 million
(2015: positive impact EUR 1.41 million). 

The Group’s profit before taxes for the six months of 2016 was EUR 10.91
million, showing a 16.2% decrease compared to the relevant period in 2015. The
Group’s net profit for the six months of 2016 was EUR 6.41 million, which is
EUR 2.11 million lower than the net profit for equivalent period in 2015.
Eliminating the effects of the derivatives fair value the profit before taxes
and the net profit after taxes would have been in six months of 2016
respectively EUR 11.78 million and EUR 7.28 million (as of 30th June 2015 EUR
11.61 million and EUR 7.11 million respectively). 



Statement of financial position

In the six months of 2016 the Group invested EUR 5.73 million into fixed
assets. As of 30th June 2016 non-current tangible assets amounted to EUR 165.11
million and total non-current assets amounted to EUR 165.91 million (30th June
2015: EUR 159.00 million and EUR 160.48 million respectively). 

Compared to the year end of 2015 the receivables and prepayments have shown a
decrease in the amount of EUR 0.17 million to EUR 7.01 million. The collection
rate of receivables continues to be high being 99.76% compared to 99.75% in the
2nd quarter of 2015. 

Current liabilities have increased by EUR 6.11 million to EUR 14.53 million
compared to the year end of 2015. The increase in trade and other payables by
EUR 5.12 million is related to dividend income tax liability and also increased
investment related liabilities. 

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

The Group has a Total debt/Total assets level as expected of 62.1%, in range of
55%-65%, reflecting the Group’s equity profile. This level is consistent with
the same period in 2015 when the Total debt/Total assets ratio was 61.3%. 

Deferred income from connection fees has grown compared to the end of 2015 by
EUR 0.38 million to 15.41 million. 



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 4th quarter of 2015 the Group
re-evaluated the liability, which now stands at EUR 43 million, as per note 13
to the accounts. The re-evaluation is made annually at the end of the year. 



Cash flows

As of 30th June 2016 the cash position of the Group is strong. At the end of
June 2016 the cash balance of the Group stood at EUR 30.79 million, which is
15.1% of the total assets (30th June 2015: EUR 33.04 million, forming 16.5% of
the total assets). 

The biggest contribution to the cash flows comes from main operations. During
the six months of 2016, the Group generated EUR 16.34 million of cash flows
from operating activities, an increase of EUR 0.06 million compared to the
corresponding period in 2015. Underlying operating profit continues to be the
main contributor to operating cash flows. The collection of receivables
continues to be strong. 

In the six months of 2016 the result of net cash flows from investing
activities was a cash outflow of EUR 4.38 million, an increase of EUR 2.31
million compared to the cash outflow of EUR 2.07 million in the six months of
2015. This is made up as follows: 

  -- The investments in fixed assets have increased by EUR 0.70 million compared
     to 2015 amounting to EUR 5.41 million.
  -- The compensations received for the construction of pipelines were EUR 0.97
     million, showing a decrease of EUR 1.59 million compared to the same period
     of 2015. It is mostly related to the extension program for which last
     payments were received in the 1st quarter of 2015.

In the six months of 2016 cash outflow from financing activities amounted to
EUR 19.00 million, decreasing by EUR 0.74 million compared to the same period
in 2015. The change was mainly related to reduction in interest payments by EUR
0.65 million related to renewal of swap contracts in 2nd quarter of 2015. Most
of the outflow was comprised of the dividends payment in the amount of EUR
18.00 million in both years. 



Employees

Competent and engaged employees are the key to any business. The Group is
committed to creating a work environment where everyone is respected and
valued. We have described our human resource management procedures, including
but not limited to recruitment, remuneration, evaluation and training 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 that they have access to the same opportunities as is
reasonably 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; sexuality orientation or marital status. 

At the end of the 2nd quarter of 2016, the total number of employees was 323
compared to 320 at the end of the 2nd quarter of 2015. The full time equivalent
(FTE) was respectively 313 in 2016 compared to the 308 in 2015. Average number
of employees (FTE) during the six months was respectively 310 in 2016 and 305
in 2015. 

By gender, employee allocation was as follows:

As of 30th June 2016  Women  Men   Total
                                        
Group                 97   226       323
----------------------------------------
----------------------------------------
Management Team       13    12        25
Executive Team         6     3         9
Management Board       1     2         3
                                        
Supervisory Board      0     9         9
                                        



As of 30th June 2015  Women  Men   Total
                                        
Group                 97   223       320
----------------------------------------
----------------------------------------
Management Team       11    13        24
Executive Team         5     3         8
Management Board       1     2         3
                                        
Supervisory Board      0     9         9
                                        

 The total salary costs were EUR 2.10 million for the 2nd quarter of 2016,
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. 

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 2nd of June 2016, 90
cents dividends per share and the total dividend pay-out from the profit of
2015 net income in the amount of EUR 18.0 million was approved. It is in
accordance with the Company’s dividend policy. There was no change compared to
2015 in dividends of 90 cents per share. 

Dividends were paid out on 27th of June 2016.



Share performance

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

As of 30th June 2016 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 2016 the shareholder structure has been relatively
stable compared to the end of 2015. At the end of 2nd quarter 2016 the pension
funds owned 1.87% of the total shares compared to 1.88% at the end of 4th
quarter 2015. 

As of 30th June 2016, the closing price of AS Tallinna Vesi share was EUR
13.70, which is -7.4% (2015: -7.1%) lower compared to the closing price of EUR
14.80 at the beginning of the quarter. During the same period the OMX Tallinn
index increased by 1.0% (2015: -2.1%). 

In the six months of 2016, 3,171 deals with the Company’s shares were concluded
(2015: 4,571 deals) during which 537 thousand shares or 2.7% exchanged their
owners (2015: 1,027 thousand shares or 5.1%). 

The turnover of the transactions was EUR 6.64 million lower than in 2015,
amounting to EUR 7.63 million. 



Corporate structure

As of 30th June 2016, the Group consisted of 2 companies. The subsidiary
Watercom OÜ is wholly owned by AS Tallinna Vesi and consolidated to the results
of the Company. 



Corporate Governance

Supervisory Council

Supervisory Council plans and organises the management of the Company and
supervises the activities of the Management Board. According to AS Tallinna
Vesi articles of association Supervisory Council consists of 9 members, who are
appointed for two years. There has been no changes in Supervisory Council
members in the 2nd quarter of 2016. In the annual general meeting four of the
Supervisory Council members were re-elected (more information here). 

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: 

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 20th of March 2017), Aleksandr Timofejev
(with the powers of the Management Board Member until 29th of October 2018) and
Riina Käi (with the powers of the Management Board Member until 29th of October
2018). 

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

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



Future actions & risks

Legal claim for breach of international treaty

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

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

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

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

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

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



Disclosure of relevant papers and perspectives

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

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








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