Börsiteade

Pealkiri

Results of operations for the 3rd quarter 2016

Teade

MANAGEMENT REPORT

Chairman's summary

During the nine 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. 

During the nine months of 2016, the water quality was 99.91% compliant. Only
two samples taken from customer taps, out of the 2,207 samples taken, were
non-compliant. The average network leakage for the period was 15.39%, which is
higher than the same period in 2015 (14.58%), 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. 

Besides providing quality 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
nine months of 2016, the final effluent leaving Paljassaare was again 100%
compliant with the stipulated limits. 

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 5 km wastewater network are 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 nine months of 2016

                                                                  
Drinking water                                                                  
                                    2016                    2015                
--------------------------------------------------------------------------------
- 
Compliance of water quality at the customers’ tap.                99.91%  99.86%
--------------------------------------------------------------------------------
Water loss in the water distribution Network.                     15.39%  14.58%
--------------------------------------------------------------------------------
Average duration of water interruptions per property in hours.    3.51 h  3.20 h
--------------------------------------------------------------------------------
Wastewater                                                                      
--------------------------------------------------------------------------------
- 
Number of sewer blockages.                                         503     583  
--------------------------------------------------------------------------------
Number of sewer bursts.                                             73      91  
--------------------------------------------------------------------------------
Wastewater treatment compliance with environmental standards       100%    100% 
--------------------------------------------------------------------------------
Customer Service                                                                
--------------------------------------------------------------------------------
- 
Number of written complaints                                        29      57  
--------------------------------------------------------------------------------
Number of customer contacts regarding water quality                108      81  
--------------------------------------------------------------------------------
Number of customer contacts regarding water pressure               247     226  
--------------------------------------------------------------------------------
Number of customer contacts regarding blockages and discharge of   909     855  
 storm water                                                                    
--------------------------------------------------------------------------------
Responding written customer contacts, within at least 2 working    99.0%   99.0%
 days                                                                           
--------------------------------------------------------------------------------
Number of failed promises                                            4       9  
--------------------------------------------------------------------------------
Notification of unplanned water interruptions, at least 1 h        98.4%   98.9%
 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 undiscounted 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 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 to which Government of Estonia submitted
     their rejoinder in September 2016. The International Arbitration hearings
     will be held on 7-11 and 14-15 November 2016 in Paris.
  -- The next local hearing is also expected to take place later on in 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 for the 3rd quarter 2016

The Group’s sales revenues during the 3rd quarter of 2016 were EUR 15.60
million, being up by 10.8% or EUR 1.51 million compared to the same period in
2015. 

The gross profit in the 3rd quarter of 2016 was EUR 8.38 million, showing an
increase of 4.9% or EUR 0.39 million. Increase in gross profit was related to
higher water, wastewater and storm water revenues and lower chemicals and staff
costs. It was balanced by lower profit from construction and asphalting
services and by higher electricity and pollution tax costs. 

The operating profit was EUR 6.79 million, showing an increase of 14.8% or EUR
0.87 million. The operating profit was impacted by the above mentioned positive
changes in gross profit, which were additionally impacted by lower legal costs
in the 3rd quarter in 2016 compared to the same period in 2015. 

The net profit for the 3rd quarter of 2016 was EUR 6.53 million, being higher
by 28.0% or EUR 1.43 million. The net profit was mainly impacted by above
mentioned changes in operating profit and lower financial expenses. Lower
financial expenses were mostly influenced by the positive change in the fair
value of swap contracts in the 3rd quarter of 2016 compared to the negative
change in the same quarter of 2015. The net profit for the 3rd quarter of 2016
and 2015 without the impact resulted from the change of the fair value of swap
contracts was EUR 6.42 million and EUR 5.54 million respectively, being higher
by 16.0% or EUR 0.88 million year on year. 

Other main economic indicators

EUR million       Q3      Q3      Q3    Change     9        9        9    Change
                 2014    2015    2016    16/15   months   months  months   16/15
                                                 2014     2015     2016         
--------------------------------------------------------------------------------
Sales            13.25   14.08   15.60   10.8%    39.93    41.39   44.46    7.4%
Gross profit      7.90    7.99    8.38    4.9%    22.90    24.07   25.02    3.9%
Gross profit     59.64   56.72   53.75   -5.2%    57.34    58.15   56.27   -3.2%
 margin %                                                                       
Operating         6.35    5.92    6.79   14.8%    18.22    18.83   19.27    2.3%
 profit                                                                         
Operating         6.34    5.77    6.69   16.0%    17.97    18.60   18.93    1.8%
 profit - main                                                                  
 business                                                                       
Operating        47.91   42.02   43.55    3.6%    45.64    45.50   43.33   -4.8%
 profit margin                                                                  
 %                                                                              
Profit before     5.83    5.10    6.53   28.0%    16.44    18.12   17.44   -3.8%
 taxes                                                                          
Net profit        5.83    5.10    6.53   28.0%    11.66    13.62   12.94   -5.0%
Net profit       43.97   36.22   41.85   15.5%    29.19    32.91   29.10  -11.6%
 margin %                                                                       
ROA %             2.92    2.51    3.14   25.5%     5.84     6.69    6.23   -6.8%
Debt to total    59.46   59.35   59.56    0.4%    59.46    59.35   59.56    0.4%
 capital                                                                        
 employed %                                                                     
ROE %             7.21    6.16    7.78   26.2%    14.41    16.46   15.41   -6.3%
Current ratio     4.13    4.26    3.46  -18.8%     4.13     4.26    3.46  -18.8%
--------------------------------------------------------------------------------

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 3rd QUARTER 2016

Results for the 3rd quarter 2016

Statement of comprehensive income

Sales

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

In the 3rd quarter of 2016 the Group’s total sales were EUR 15.60 million,
showing an increase by 10.8% or EUR 1.51 million year on year. 79.1% of sales
comprise of sales of water and wastewater services to domestic and commercial
customers within and outside of the service area. 6.2% of sales are the fees
received from the City of Tallinn for operating and maintaining the storm water
system and fire hydrants, 13.8% from construction and asphalting services and
0.9% from other works and services. The construction and asphalting services
sales are more seasonal and the Company continues to seek possibilities to keep
and to grow construction and asphalting revenues. 

Revenues from main operating activities         Quarter III           Variance  
EUR thousand                                                           16/15    
                                             2016    2015    2014    EUR       %
Total water supply and waste water         12,330  12,098  12,081    232    1.9%
 disposal service, incl:                                                        
Private clients, incl:                      6,059   5,938   5,967    121    2.0%
Water supply service                        3,330   3,267   3,283     63    1.9%
Wastewater disposal service                 2,729   2,671   2,684     58    2.2%
Corporate clients, incl:                    4,989   4,852   4,780    137    2.8%
Water supply service                        2,758   2,723   2,706     35    1.3%
Wastewater disposal service                 2,231   2,129   2,074    102    4.8%
Outside service area clients, incl:         1,068   1,117   1,118    -49   -4.4%
Water supply service                          323     316     296      7    2.2%
Wastewater disposal service                   665     721     738    -56   -7.8%
Storm water disposal service                   80      80      84      0    0.0%
Over pollution fee                            214     191     216     23   12.0%
                                                                                
Storm water treatment and disposal            972     837     739    135   16.1%
 service and fire hydrant service                                               
Construction service, design and            2,150   1,020     289  1,130  110.8%
 asphalting                                                                     
Other works and services                      145     128     144     17   13.3%

Sales from water and wastewater services were EUR 12.33 million, showing a 1.9%
or EUR 0.23 million increase compared to the 3rd quarter of 2015, resulting
from the changes in sales volumes as described below: 

  -- There has been an increase in residential customers’ revenues by 2.0% to
     EUR 6.06 million. 99% from the total increase in domestic customer volumes
     comes from apartment blocks, which is also our biggest customer group.
     There has been also a slight increase in other residential customer groups.
  -- Sales to commercial customers within the service area have increased by
     2.8% to EUR 4.99 million. Increase is mostly related to industrial and
     other commercial customer segments.
  -- Sales to customers outside the main service area have shown a decrease by
     4.4% to EUR 1.07 million. It is mainly driven by decrease in wastewater
     revenues by 7.8% to EUR 0.67 million. The decline is related to the sales
     to Viimsi, as they started to use their new wastewater treatment facilities
     from the beginning of 2016. While the sales to Viimsi have ceased, the
     sales to other outside areas have increased.
  -- Over pollution fees received have increased by 12.0% to EUR 0.21 million.

Sales from the operation and maintenance of the main service area storm water
and fire hydrant system were EUR 0.97 million, showing an increase of 16.1% or
EUR 0.14 million in the 3rd quarter of 2016 compared to the same period in
2015. 

Sales of construction, design and asphalting services were EUR 2.15 million,
having increased by 110.8% or EUR 1.13 million year on year. The increase was
related to the higher pipe construction revenues resulting from different
projects during the quarter. 



Cost of goods sold and Gross profit

The cost of goods sold amounted to EUR 7.21 million in the 3rd quarter of 2016,
showing 18.4% or EUR 1.12 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 electricity and pollution
tax costs, which was partly balanced by lower chemicals and staff costs. 

Cost of goods sold                            Quarter III         Variance 16/15
EUR thousand                                                                    
                                           2016    2015    2014     EUR        %
Water abstraction charges                  -277    -272    -265      -5    -1.8%
Chemicals                                  -345    -395    -433      50    12.7%
Electricity                                -760    -713    -723     -47    -6.6%
Pollution tax                              -281    -233    -209     -48   -20.6%
Total direct production costs            -1,663  -1,613  -1,630     -50    -3.1%
Staff costs                              -1,273  -1,338  -1,181      65     4.9%
Depreciation and amortization            -1,427  -1,423  -1,408      -4    -0.3%
Construction service, design and         -2,039    -868    -281  -1,171  -134.9%
 asphalting                                                                     
Other costs of goods sold                  -812    -853    -849      41     4.8%
Other costs of goods sold total          -5,551  -4,482  -3,719  -1,069   -23.9%
Total cost of goods sold                 -7,214  -6,095  -5,349  -1,119   -18.4%

Total direct production costs (water abstraction charges, chemicals,
electricity and pollution tax) were EUR 1.66 million, showing 3.1% or EUR 0.05
million increase 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 1.8% to EUR 0.28 million,
     driven mainly by increase in treated volumes.
  -- Chemicals costs decreased by 12.7% to EUR 0.35 million, driven mainly by
     37.2% lower methanol price, worth EUR 0.05 million, and by lower usage of
     coagulant in the wastewater treatment process, worth EUR 0.02 million.
     Savings were balanced by increase in usage of different chemicals in water
     treatment due to higher water volumes and to improve poor raw water
     quality, worth in total EUR 0.01.
  -- Electricity costs increased by 6.6% to EUR 0.76 million. It was related to
     increase in treated volumes and electricity usage, balanced by lower
     electricity prices.
  -- Pollution tax expense increased by 20.6% to EUR 0.28 million, mainly due to
     increase in treated sewage volumes.

Other costs of goods sold (staff costs, depreciation, construction and
asphalting services costs and other costs of goods sold) amounted to EUR 5.55
million, having increased by 23.9% or EUR 1.07 million. The increase came from
costs related to construction and asphalting services, balanced by decrease in
staff costs. Increase in construction and asphalting services costs by 134.9%
to EUR 2.04 million was related to increased construction and asphalting
services revenues mentioned earlier. Staff costs decreased by 4.9% to EUR 1.27
million. It was mostly driven by the review of bonus reserve in the 3rd quarter
of 2016. 

As a result of all above the Group’s gross profit for the 3rd quarter of 2016
was EUR 8.38 million, showing an increase of 4.9% or EUR 0.39 million, compared
to the gross profit of EUR 7.99 million for the comparative period of 2015. 



Administrative and marketing expenses

Administrative and marketing expenses were EUR 1.55 million, showing a decrease
of 24.5% or EUR 0.50 million. Most of the decrease came from lower tariff
disputes related legal and consultation fees. Despite of the fact that in the
3rd quarter of 2016 the legal costs were lower than in the comparative period
in 2015, the legal fees continue to be at a high level during the time the
Company has ongoing local and international disputes. 



Operating profit

As a result of the factors listed above the Group’s operating profit for the
3rd quarter of 2016 totalled EUR 6.79 million, being 14.8% or EUR 0.87 million
higher than in the corresponding quarter of 2015. The Group’s operating profit
from main business was 16.0% or EUR 0.92 million higher compared to 2015. 



Financial expenses

The Group’s net financial income and expenses have resulted a net expense of
EUR 0.27 million, compared to net expense of EUR 0.82 million in the 3rd
quarter of 2015. It was mainly impacted by a positive change of the fair value
of the swap contracts year on year, worth EUR 0.54 million, which was
complemented by decrease in interest expenses, worth EUR 0.03 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 1.78 million. Effective interest rate of loans (incl. swap
interests) in the 3rd quarter of 2016 was 1.57%, amounting to interest costs of
EUR 0.38 million, compared to the effective interest rate of 1.63% and the
interest costs of EUR 0.40 million in the 3rd quarter of 2015. 



Profit before taxes and Net profit

The Group’s profit before taxes and net profit for the 3rd quarter of 2016 was
EUR 6.53 million, being 28.0% or EUR 1.43 million higher than for the 3rd
quarter of 2015, resulting mainly from increased revenues and decreased net
financial expenses, balanced by the increased costs as described above.
Eliminating the influence of the derivatives fair value, the Group’s net profit
for the 3rd quarter of 2016 would have been EUR 6.42 million, showing an
increase by 16.0% or EUR 0.88 million compared to the relevant period in 2015. 



Results for the nine months of 2016

Statement of comprehensive income

Sales

During the nine months of 2016 the Group’s total sales were EUR 44.46 million,
showing an increase by 7.4% or EUR 3.07 million year on year. 

Sales from water and wastewater services for nine months of 2016 were EUR 37.43
million, increasing 1.9% or EUR 0.68 million compared to the nine months of
2015. 84.2% of sales comprised of sales of water and wastewater services to
domestic and commercial customers within and outside of the service area. 6.4%
of sales were the fees received from the City of Tallinn for operating and
maintaining the storm water system and fire hydrants, 8.4% from construction
and asphalting services and 1.0% from other works and services. 

Revenues from main operating activities           9 months            Variance  
 EUR thousand                                                          16/15    
                                             2016    2015    2014    EUR       %
Total water supply and waste water         37,433  36,751  36,259    682    1.9%
 disposal service, incl:                                                        
Private clients, incl:                     18,597  18,175  18,015    422    2.3%
Water supply service                       10,225   9,998   9,913    227    2.3%
Wastewater disposal service                 8,372   8,177   8,102    195    2.4%
Corporate clients, incl:                   14,942  14,416  14,238    526    3.6%
Water supply service                        8,262   8,010   7,983    252    3.1%
Wastewater disposal service                 6,680   6,406   6,255    274    4.3%
Outside service area clients, incl:         3,298   3,563   3,358   -265   -7.4%
Water supply service                          977     939     834     38    4.0%
Wastewater disposal service                 2,020   2,251   2,216   -231  -10.3%
Storm water disposal service                  301     373     308    -72  -19.3%
Over pollution fee                            596     597     648     -1   -0.2%
                                                                                
Storm water treatment and disposal          2,841   2,556   2,480    285   11.2%
 service and fire hydrant service                                               
Construction service, design and            3,738   1,687     716  2,051  121.6%
 asphalting                                                                     
Other works and services                      451     400     476     51   12.8%

During the nine months of 2016 there has been a 2.3% or EUR 0.42 million
increase in the sales to residential customers and 3.6% or EUR 0.53 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 7.4% or EUR 0.27 million compared to the nine months of 2015,
being mainly influenced by Viimsi having their own wastewater treatment
facilities from the beginning of the year as mentioned earlier. 

Sales from the operation and maintenance of the main service area storm water
and fire hydrant system in the nine months of 2016 were EUR 2.84 million,
showing an increase of 11.2% or EUR 0.29 million year on year. 

Sales of construction, design and asphalting services were EUR 3.74 million,
increasing by 121.6% or EUR 2.05 million year on year. Increase was mainly a
result of different pipe construction projects. 



Cost of goods sold and Gross and Operating profits

Cost of goods sold                             9 months           Variance 16/15
EUR thousand                                                                    
                                         2016     2015     2014     EUR        %
Water abstraction charges                -852     -819     -790     -33    -4.0%
Chemicals                                -972   -1,131   -1,293     159    14.1%
Electricity                            -2,297   -2,288   -2,289      -9    -0.4%
Pollution tax                            -852     -768   -1,835     -84   -10.9%
Total direct production costs          -4,973   -5,006   -6,207      33     0.7%
Staff costs                            -4,161   -4,122   -3,723     -39    -0.9%
Depreciation and amortization          -4,449   -4,253   -4,027    -196    -4.6%
Construction service, design and       -3,389   -1,447     -611  -1,942  -134.2%
 asphalting                                                                     
Other costs of goods sold              -2,470   -2,494   -2,467      24     1.0%
Other costs of goods sold total       -14,469  -12,316  -10,828  -2,153   -17.5%
Total cost of goods sold              -19,442  -17,322  -17,035  -2,120   -12.2%

Total direct production costs (water abstraction charges, chemicals,
electricity and pollution taxes) were EUR 4.97 million, showing a decrease by
0.7% or EUR 0.03 million year on year. Decrease in costs came from the decrease
in chemicals, balanced by increase in water abstraction charges and pollution
tax as described below: 

  -- Water abstraction charges increased by 4.0% to EUR 0.85 million, driven by
     increase in treated volumes.
  -- Chemicals costs decreased by 14.1% to EUR 0.97 million, driven mainly by on
     average 32.7% lower methanol price and smaller use of different chemicals
     to remove pollutants in wastewater treatment process, worth respectively
     EUR 0.13 million and EUR 0.04 million, balanced by the increased water
     treatment process chemicals costs driven by increase in treated volumes,
     worth EUR 0.01 million.
  -- Electricity costs have increased by 0.4% to EUR 2.30 million. Electricity
     costs increase was related to increase in treated volumes and in usage,
     balanced by on average 3.5% lower electricity prices.
  -- Pollution tax expense increased by 10.9% to EUR 0.85 million, driven mainly
     by the increase in treated sewage volumes.

Other costs of goods sold (staff costs, depreciation, construction and
asphalting services costs and other costs of goods sold) amounted to EUR 14.47
million, being higher by 17.5% or EUR 2.15 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. 

The gross profit for the nine months of 2016 was EUR 25.02 million, being 3.9%
or EUR 0.95 million higher compared to the same period in 2015. The operating
profit was EUR 19.27 million, showing an increase by 2.3% or EUR 0.43 million
during the nine months of 2016. The increase in operating profit was driven
mostly by the changes in operating profit mentioned earlier in 3rd quarter
results. 



Financial expenses

The Group’s net financial income and expenses have resulted a net expense of
EUR 1.83 million, compared to net expense of EUR 0.71 million in the nine
months of 2015. The net financial expenses were influenced by the decrease in
interest costs by EUR 0.68 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
0.78 million (2015: positive impact EUR 0.97 million). 



Profit before taxes and Net profit

The Group’s profit before taxes for the nine months of 2016 was EUR 17.44
million, showing a 3.8% decrease compared to the relevant period in 2015. The
Group’s net profit for the nine months of 2016 was EUR 12.94 million, which is
EUR 0.68 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 would have been in nine months of 2016 respectively EUR
18.21 million and EUR 13.71 million (as of 30th September 2015 EUR 17.15
million and EUR 12.65 million respectively). 



Statement of financial position

In the nine months of 2016 the Group invested EUR 10.18 million into fixed
assets. As of 30th September 2016 non-current tangible assets amounted to EUR
167.99 million and total non-current assets amounted to EUR 168.80 million
(30th September 2015: EUR 159.45 million and EUR 160.47 million respectively). 

Compared to the year end of 2015 the receivables and prepayments have shown an
increase in the amount of EUR 0.79 million to EUR 7.96 million, mainly due to
higher receivables from construction activities. The collection rate of
receivables continues to be high being 99.78% compared to 99.75% in the 3rd
quarter of 2015. 

Current liabilities have increased by EUR 2.79 million to EUR 11.21 million
compared to the year end of 2015. Increase mainly derives from increased
prepayments of connections in construction process by EUR 1.51 million and
increase in trade and other payables by EUR 0.85 million, which is related to
increased construction activities and 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 59.6%, 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 59.3%. 

Deferred income from connection fees has grown compared to the end of 2015 by
EUR 0.77 million to 15.80 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 flow

As of 30th September 2016 the cash position of the Group is strong. At the end
of September 2016 the cash balance of the Group stood at EUR 30.41 million,
which is 14.6% of the total assets (30th September 2015: EUR 35.29 million,
forming 17.3% of the total assets). 

The biggest contribution to the cash flows comes from main operations. During
the nine months of 2016, the Group generated EUR 23.63 million of cash flows
from operating activities, an increase of EUR 0.05 million compared to the
corresponding period in 2015. Underlying operating profit continues to be the
main contributor to operating cash flows. 

In the nine months of 2016 the result of net cash flows from investing
activities was a cash outflow of EUR 7.26 million, an increase of EUR 5.29
million compared to the cash outflow of EUR 1.98 million in the nine months of
2015. This is made up as follows: 

  -- The cash outflows from investments in fixed assets have increased by EUR
     1.76 million compared to 2015 amounting to EUR 9.78 million.
  -- The compensations received for the construction of pipelines were EUR 2.45
     million, showing a decrease of EUR 3.50 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 nine months of 2016 cash outflow from financing activities amounted to
EUR 23.78 million, decreasing by EUR 0.68 million compared to the same period
in 2015. The change was mainly related to reduction in interest payments by EUR
0.66 million related to renewal of swap contracts in the 2nd quarter of 2015.
Most of the outflow was comprised of the dividends and income tax on dividends
payment, respectively in the amount of EUR 18.00 million and EUR 4.50 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 3rd quarter of 2016, the total number of employees was 317
compared to 325 at the end of the 3rd quarter of 2015. The full time equivalent
(FTE) was respectively 307 in 2016 compared to the 314 in 2015. Average number
of employees (FTE) during the nine months was respectively 310 in 2016 and 307
in 2015. 

By gender, employee allocation was as follows:

As of 30th September 2016  Women  Men   Total
Group                      93   224       317
---------------------------------------------
---------------------------------------------
Management Team            12    12        24
Executive Team              5     3         8
Management Board            1     2         3
                                             
Supervisory Board           0     9         9
                                             



As of 30th September 2015  Women  Men   Total
Group                      99   226       325
---------------------------------------------
---------------------------------------------
Management Team            12    13        25
Executive Team              6     3         9
Management Board            1     2         3
                                             
Supervisory Board           0     9         9
                                             

The total salary costs were EUR 1.77 million for the 3rd 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 September 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 nine months of 2016 the shareholder structure has been relatively
stable compared to the end of 2015. At the end of 3rd quarter 2016 the pension
funds owned 2.24% of the total shares compared to 1.88% at the end of 4th
quarter 2015. 

As of 30th September 2016, the closing price of AS Tallinna Vesi share was EUR
14.00, which is 2.2% (2015: 5.3%) higher compared to the closing price of EUR
13.70 at the beginning of the quarter. During the same period the OMX Tallinn
index increased by 2.1% (2015: 2.2%). 

In the nine months of 2016, 4,684 deals with the Company’s shares were
concluded (2015: 6,472 deals) during which 753 thousand shares or 3.8%
exchanged their owners (2015: 1,329 thousand shares or 6.6%). 

The turnover of the transactions was EUR 7.69 million lower than in 2015,
amounting to EUR 10.64 million. 



Corporate structure

As of 30th September 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 3rd 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. 





STATEMENT OF COMPREHENSIVE       III         III         9        9        12   
 INCOME                        quarter     quarter     months   months   months 
(EUR thousand)                   2016        2015      2016     2015      2015  
                                                                                
Revenue                           15 597      14 083   44 463   41 394    55 928
Costs of goods sold               -7 214      -6 095  -19 442  -17 322   -23 679
                                                                                
GROSS PROFIT                       8 383       7 988   25 021   24 072    32 249
                                                                                
Marketing expenses                   -74         -78     -270     -318      -435
General administration            -1 474      -1 971   -5 356   -4 843    -6 086
 expenses                                                                       
Other income/ expenses (-)           -43         -21     -130      -78      -150
                                                                                
OPERATING PROFIT                   6 792       5 918   19 265   18 833    25 578
                                                                                
Financial income                       7          18       35       78        95
Financial expenses                  -272        -835   -1 862     -790    -1 315
                                                                                
PROFIT BEFORE TAXES                6 527       5 101   17 438   18 121    24 358
                                                                                
Income tax on dividends                0           0   -4 500   -4 500    -4 500
                                                                                
NET PROFIT FOR THE PERIOD          6 527       5 101   12 938   13 621    19 858
COMPREHENSIVE INCOME FOR THE       6 527       5 101   12 938   13 621    19 858
 PERIOD                                                                         
Attributable to:                                                                
Equity holders of A-shares         6 526       5 100   12 937   13 620    19 857
B-share holder                      0,60        0,60     0,60     0,60      0,60
                                                                                
Earnings per A share (in            0,33        0,26     0,65     0,68      0,99
 euros)                                                                         
Earnings per B share (in             600         600      600      600       600
 euros)                                                                         





STATEMENT OF FINANCIAL POSITION                                                 
(EUR thousand)                                30.09.2016  30.09.2015  31.12.2015
                                                                                
ASSETS                                                                          
CURRENT ASSETS                                                                  
Cash and equivalents                              30 405      35 290      37 819
Trade receivables, accrued income and              7 960       7 414       7 174
 prepaid expenses                                                               
Inventories                                          423         429         447
TOTAL CURRENT ASSETS                              38 788      43 133      45 440
                                                                                
NON-CURRENT ASSETS                                                              
Other long-term receivables                            0           0           0
Derivatives                                            0         239         142
Property, plant and equipment                    167 991     159 454     162 732
Intangible assets                                    808         776         758
TOTAL NON-CURRENT ASSETS                         168 799     160 469     163 632
TOTAL ASSETS                                     207 587     203 602     209 072
                                                                                
LIABILITIES                                                                     
                                                                                
CURRENT LIABILITIES                                                             
Current portion of long-term borrowings              670         322         328
Trade and other payables                           6 434       6 837       5 586
Derivatives                                          622         513         523
Prepayments                                        3 488       2 449       1 983
TOTAL CURRENT LIABILITIES                         11 214      10 121       8 420
                                                                                
NON-CURRENT LIABILITIES                                                         
Deferred income from connection fees              15 802      14 052      15 030
Borrowings                                        95 447      96 057      95 974
Derivatives                                        1 162         591         628
Other payables                                        18          11          13
TOTAL NON-CURRENT LIABILITIES                    112 429     110 711     111 645
TOTAL LIABILITIES                                123 643     120 832     120 065
                                                                                
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                                 45 932      44 758      50 995
TOTAL EQUITY CAPITAL                              83 944      82 770      89 007
TOTAL LIABILITIES AND EQUITY CAPITAL             207 587     203 602     209 072





CASH FLOW STATEMENT                                       6        6        12  
                                                        months   months   months
(EUR thousand)                                          2016     2015     2015  
                                                                                
CASH FLOWS FROM OPERATING ACTIVITIES                                            
Operating profit                                        19 265   18 833   25 578
Adjustment for depreciation/amortisation                 4 847    4 628    6 184
Adjustment for revenues from connection fees              -161     -142     -194
Other non-cash adjustments                                 -11      -11      -15
Profit/loss(+) from sale and write off of property,        -10       -4        2
 plant and equipment, and intangible assets                                     
Change in current assets involved in operating            -749   -1 118     -897
 activities                                                                     
Change in liabilities involved in operating                450      983      453
 activities                                                                     
Total cash flow from operating activities               23 631   23 169   31 111
                                                                                
CASH FLOWS FROM INVESTING ACTIVITIES                                            
Loans granted                                                0        0        0
Repayment of loan                                            0        0        0
Acquisition of property, plant and equipment, and       -9 776   -8 015  -13 495
 intangible assets                                                              
Compensations received for construction of pipelines     2 445    5 942    6 499
Proceeds from sales of property, plant and equipment        31       14       30
 and intangible assets                                                          
Interest received                                           39       83       99
Total cash flow from investing activities               -7 261   -1 976   -6 867
                                                                                
CASH FLOWS FROM FINANCING ACTIVITIES                                            
Received loans                                               0        0        0
Repayment of loans                                           0        0        0
Interest paid and loan financing costs, incl swap       -1 078   -1 738   -2 178
 interests                                                                      
Repayment of finance lease                                -205     -224     -306
Dividends paid                                         -18 001  -18 001  -18 001
Income tax on dividends                                 -4 500   -4 500   -4 500
Total cash flow from financing activities              -23 784  -24 463  -24 985
                                                                                
Change in cash and bank accounts                        -7 414   -3 270     -741
                                                                                
CASH AND EQUIVALENTS AT THE BEGINNING OF THE PERIOD     37 819   38 560   38 560
                                                                                
CASH AND EQUIVALENTS AT THE END OF THE PERIOD           30 405   35 290   37 819








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