Börsiteade

Pealkiri

Financial results for the 2nd Quarter 2018

Teade

Management report

Chairman´s summary

In the 2(nd) quarter of 2018, AS Tallinna Vesi once again achieved consistently
good financial results, as well as excellent operational performance.

Financial performance

The Group's total sales during the 2(nd) quarter of 2018 increased by 8.5% to
EUR 15.98 million. We have seen an increase in sales volumes and sales from
construction services were also higher. The sales were higher due to the dryer
weather and temporary increase in several industrial consumers' consumption.
Sales to private customers increased by 1.8%, and sales to corporate customers
by 6.4%.

Group's net profit was EUR 5.47 million, showing an increase by 28.3% year-on-
year.  The net profit was mainly impacted by lower income tax costs, related to
a reduced dividend payment.

Excellent operational results

The quality of drinking water remained excellent in the 2(nd) quarter of 2018.
Water samples taken from customers' taps were 100% compliant with all
requirements. We are also pleased to see that the average water disruption time
to individual properties remained at a high level, being 3 hours 17 minutes in
the 2(nd) quarter of 2018.

The level of leakages in the water network continues to be low. Although 13.00%
in the 2(nd) quarter of 2018 is slightly higher than the result for the same
period previous year, this is still an excellent result.

In the 2(nd) quarter we reviewed our promises to customers, which are to deliver
high-quality water, keep the environment safe, respond to our customers´
requests quickly, be accurate in billing and keep to our agreements. In case we
fail to keep those promises, we pay compensation to the customer on our own
initiative.

A research agency Kantar Emor conducts regular customer satisfaction surveys for
AS  Tallinna Vesi. In the 2(nd) quarter, the customer satisfaction index reached
4.1 points on a 5-point scale.

The issues with the sewerage network have reduced, and the number of sewer
blockages dropped 25% from 393 in the first six months of 2017 to 295 in 2018.
AS Tallinna Vesi continues to improve public awareness about sewer-related
issues, to reduce the volume of domestic waste ending up in the sewerage
network.

In the 2(nd) quarter of 2018, the treated effluent at Paljassaare Wastewater
Treatment Plant was compliant with all stipulated quality requirements.

Awarded achievements

We are proud of high standards in everything we do. Once again, we have been
awarded the highest i.e. a Gold Level mark in the Responsible Business Index.
Achieving such a good result in a nationally recognised index demonstrates our
systematic approach to the CSR matters.

In a study carried out by research agency Kantar Emor, Tallinna Vesi was often
named by people as the most preferred employer in Estonia. We hope that it
encourages more young people to choose to get an education in one of the fields
that are essential for a water-company.

The Company was also recognised for its engineering project and was awarded with
a Ground Engineering Award in the category of "Best international project" for
reconstruction of Tihase collector. We would like to thank our partners,
especially those from United Utilities and Lemmikäinen Eesti AS. Great
cooperation between the partners is fundamental to the success of such a
complicated project.

Tariff application

Shortly before the end of the year, the Estonian Supreme Court made a decision
on the tariff dispute between Tallinna Vesi and Estonian Competition Authority.
The price of water and wastewater service is now subject to approval by the
Competition Authority using their methodology. On 28(th) of February 2018, AS
Tallinna Vesi submitted its application for the approval of the new water
tariffs to Competition Authority. The tariffs calculated in the Company's tariff
application, are close to the currently applicable water tariffs, which have
remained unchanged since 2010.

For Tallinna Vesi this is the first tariff application, which has been submitted
based on the Competition Authority's recommended methodology. The approval
process is ongoing, and it is still unclear, when the new tariffs would be
approved.

Tallinna Vesi is still awaiting the final verdict from the International
Arbitration on whether the investor's interests have been adversely affected,
and whether this should be compensated.

OPERATIONAL INDICATORS FOR SIX MONTHS OF 2018

 Indicator                                         Unit    2018    2017    2016
-------------------------------------------------------------------------------
 Compliance of water quality at the customers' tap %       99.9    99.9    99.9

 Losses in the water distribution network          %       14.1    13.3    16.2

 Average duration of water interruptions per
 property                                          h       3.28    3.25    3.54

 Sewer blockages                                   No       295     393     367

 Sewer bursts                                      No        50      72      52

 Wastewater treatment compliance with
 environmental standards                           %      100.0   100.0   100.0

 Written complaints                                No        69      17      21

 Customer contacts regarding water quality         No       101      70      48

 Customer contacts regarding water pressure        No       183     146     157

 Customer contacts regarding blockages and
 discharge of storm water                          No       516     539     569

 Responding written customer contacts within at
 least 2 work days                                 %      100.0   100.0    99.1

 Failed promises                                   No        31       3       2

 Notification of unplanned water interruptions at
 least 1 h before the interruption                 %       94.4   100.0    97.9

FINANCIAL HIGHLIGHTS FOR THE 2(nd) QUARTER 2018

The Group's sales revenues during the 2(nd) quarter of 2018 were EUR 15.98
million, being up by 8.5% or EUR 1.25 million compared to the same period in
2017.

The gross profit in the 2(nd) quarter of 2018 was EUR 8.90 million, showing an
increase of 4.3% or EUR 0.37 million. Increase in gross profit was related to
higher water and wastewater revenues, accompanied by higher construction
services related profit and lower electricity costs and depreciation. It was
balanced by higher staff and asset maintenance costs.

The operating profit was EUR 7.54 million, showing an increase of 4.9% or EUR
0.36 million, being mainly affected by above-mentioned changes in gross profit.

The net profit for the 2(nd) quarter of 2018 was EUR 5.47 million, showing an
increase by 28.3% or EUR 1.21 million. The net profit was mainly impacted by
lower dividend related income tax cost, accompanied by above mentioned changes
in the operating profit and by slightly higher financial expenses. The changes
in the financial expenses were mostly influenced by the lower positive change in
the fair value of swap contracts in the 2(nd) quarter of 2018 compared to the
positive change in the same quarter of 2017. The net profit for the 2(nd)
quarter of 2018 and 2017 without the impact resulted from the change of the fair
value of swap contracts was EUR 5.39 million and EUR 4.10 million respectively,
being higher by 31.3% or EUR 1.29 million year-on-year.

MAIN FINANCIAL INDICATORS

 EUR             2(nd) quarter                        6 months
 million,
 except key                         Change                             Change
 ratios       2018    2017    2016 2018/2017    2018    2017    2016  2018/2017
-------------------------------------------------------------------------------
 Sales       15.98   14.73   14.50      8.5%    30.06   28.51   28.87      5.4%

 Gross
 profit       8.90    8.53    8.30      4.3%    17.22   16.73   16.64      2.9%

 Gross
 profit
 margin %    55.68   57.89   57.27     -3.8%    57.29   58.70   57.64     -2.4%

 Operating
 profit       7.54    7.18    5.84      4.9%    14.34   13.67   12.47      4.9%

 Operating
 profit -
 main
 business     7.35    7.06    5.69      4.2%    14.08   13.53   12.23      4.1%

 Operating
 profit
 margin %    47.18   48.78   40.29     -3.3%    47.70   47.95   43.21     -0.5%

 Profit
 before
 taxes        7.27    6.96    5.27      4.4%    13.80   13.32   10.91      3.6%

 Profit
 before
 taxes
 margin %    45.47   47.25   36.38     -3.8%    45.91   46.72   37.80     -1.7%

 Net profit   5.47    4.26    0.77     28.3%    12.00   10.62    6.41     13.0%

 Net profit
 margin %    34.20   28.92    5.34     18.3%    39.92   37.25   22.21      7.2%

 ROA %        2.32    1.96    0.37     18.3%     5.16    4.95    3.10      4.3%

 Debt to
 total
 capital
 employed %  61.64   58.54   62.06      6.0%    61.64   58.54   62.06      5.3%

 ROE %        5.97    4.61    0.90     29.7%    13.60   11.89    7.70     14.4%

 Current
 ratio        5.00    3.70    2.63     35.1%     5.00    3.70    2.63     35.1%

 Quick ratio  4.96    3.65    2.60     35.9%     4.96    3.65    2.60     35.9%

 Investments
 into fixed
 assets       2.21    1.30    3.73     70.2%     3.07    3.51    5.73    -12.6%

 Payout
 ratio %*       na   99.72   58.73        na       na   99.72   58.73        na
-------------------------------------------------------------------------------

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 / Average Total equity for the period

Current ratio - Current assets / Current liabilities

Quick ratio - (Current assets - Stocks) / Current liabilities

* Payout ratio - Total Dividends per annum/ Total Net Income per annum

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

FINANCIAL RESULTS FOR THE 2(nd) QUARTER 2018

Statement of comprehensive income

SALES

As in the 2(nd) quarter of 2018 the Company's tariffs were frozen at the 2010
tariff level, the changes in the main activities revenues, i.e. from sales of
water and wastewater services, are fully driven by consumption with no
considerable seasonality in the main business. In the future, the Company does
not expect significant changes in the consumption. There has been incremental
increase in consumption in the past and that is expected to continue.

At the end of 2017, the Supreme Court made a negative decision as regards to the
Company's cassation, as a result of which, the Company's tariffs will be
regulated under the Competition Authority's (CA) methodology. On 28(th) February
2018 Company submitted its tariff application for Tallinn and Saue area to the
CA. The tariffs applied for were similar to the water and wastewater tariffs
currently charged in the area. The amended tariff application was submitted on
2(nd) of May 2018. From 4(th) of May the CA started the tariff application
review process and has asked for additional information during the 2(nd) quarter
from the Company, who has responded to all the questions on time. On 13(th) of
July the CA started administrative procedure as regards to tariff application
and has given time to respond the letter by 13(th) of August 2018. Also the CA
informed the Company that they have extended the tariff application from 30 days
to 90 days starting from receiving the application, which meets all the
requirements as the application is complicated to review the application.
Currently CA has spent 21 days for their procedures to deal with the tariff
application. The new tariffs that will be approved and applied in the area will
be known after the full process is completed and Competition Authority has
approved new tariffs.

In the 2(nd) quarter of 2018 the Group's total sales were EUR 15.98 million,
showing an increase by 8.5% or EUR 1.25 million year-on-year. 83.5% of sales
comprise of sales of water and wastewater services to domestic and commercial
customers within and outside of the service area. 5.5% of sales are the fees
received from the City of Tallinn for operating and maintaining the storm water
system and fire hydrants, 9.8% from construction and asphalting services and
1.1% from other works and services. The construction and asphalting services
sales are more seasonal and the Company continues to seek possibilities to keep
and to grow these services revenues.

                                                               Variance
                                           2(nd) quarter       2018/2017

 EUR thousand                           2018     2017     2016   EUR          %
-------------------------------------------------------------------------------
 Private clients, incl:                6,427    6,313    6,200   114       1.8%
-------------------------------------------------------------------------------
 Water supply service                  3,547    3,470    3,410    77       2.2%

 Wastewater disposal service           2,880    2,843    2,790    37       1.3%

 Corporate clients, incl:              5,525    5,193    5,070   332       6.4%
-------------------------------------------------------------------------------
 Water supply service                  3,083    2,877    2,831   206       7.2%

 Wastewater disposal service           2,442    2,316    2,239   126       5.4%

 Outside service area clients, incl:   1,181    1,102    1,101    79       7.2%
-------------------------------------------------------------------------------
 Water supply service                    370      339      346    31       9.1%

 Wastewater disposal service             733      692      686    41       5.9%

 Storm water disposal service             78       71       69     7       9.9%

 Over pollution fee                      216      258      211   -42     -16.3%
-------------------------------------------------------------------------------
 Total water supply and wastewater
 disposal service                     13,349   12,866   12,582   483       3.8%

 Storm water treatment and disposal
 and fire hydrants service               881      839      924    42       5.0%

 Construction service, design and
 asphalting                            1,569      864      827   705      81.6%

 Other works and services                180      159      164    21      13.2%
-------------------------------------------------------------------------------
 SALES REVENUES TOTAL                 15,979   14,728   14,497 1,251       8.5%

Sales from water and wastewater services were EUR 13.35 million, showing a 3.8%
or EUR 0.48 million increase compared to the 2(nd) quarter of 2017, resulting
from the changes in sales volumes as described below:

There has been an increase in private customers' revenues of 1.8% to EUR 6.43
million. The increase in domestic customer consumption volumes came mainly from
apartment blocks, which is also our biggest private customer group, accompanied
by increase in an individual houses segment water consumption as the spring has
been very dry.

  * Sales to corporate customers within the service area increased by 6.4% to
    EUR 5.52 million. Increase was related to higher consumption in the sales of
    industrial and other commercial customer segments caused by one-time higher
    consumptions.
  * Sales to customers outside the main service area increased by 7.2% to EUR
    1.18 million. It was mainly impacted by an increase in the sales of water
    supply and wastewater disposal services to different surrounding areas.
  * Over pollution fees received have decreased by 16.3% to EUR 0.22 million.

Sales from the operation and maintenance of the main service area storm water
and fire hydrant system amounted to EUR 0.88 million, showing an increase of
5.0% or EUR 0.04 million in the 2(nd) quarter of 2018 compared to the same
period in 2017, driven mainly by 3.5% higher storm water volumes.

Sales of construction, design and asphalting services were EUR 1.57 million,
increasing by 81.6% or EUR 0.71 million year-on-year. The increase was mainly
related to higher pipe construction services revenues during the 2(nd) quarter
of 2018.

COST OF GOODS/ SERVICES SOLD AND GROSS PROFIT

                                                               Variance
                                           2(nd) quarter       2018/2017

 EUR thousand                           2018     2017     2016  EUR           %
-------------------------------------------------------------------------------
 Water abstraction charges              -303     -292     -283  -11       -3.8%

 Chemicals                              -346     -352     -285    6        1.7%

 Electricity                            -698     -777     -728   79       10.2%

 Pollution tax                          -233     -201     -235  -32      -15.9%
-------------------------------------------------------------------------------
 Total direct production costs        -1,580   -1,622   -1,531   42        2.6%

 Staff costs                          -1,631   -1,479   -1,470 -152      -10.3%

 Depreciation and amortization        -1,268   -1,360   -1,591   92        6.8%

 Construction service, design and
 asphalting                           -1,359     -735     -675 -624      -84.9%

 Other costs of goods/services sold   -1,244   -1,006     -928 -238      -23.7%
-------------------------------------------------------------------------------
 Other costs of goods/services sold
 total                                -5,502   -4,580   -4,664 -922      -20.1%
-------------------------------------------------------------------------------
 Total cost of goods/services sold    -7,082   -6,202   -6,195 -880      -14.2%

The cost of goods sold amounted to EUR 7.08 million in the 2(nd) quarter of
2018, increasing by 14.2% or EUR 0.88 million compared to the equivalent period
in 2017. The increase was mainly influenced by increase in construction and
asphalting services related costs, staff and asset maintenance costs, balanced
by decrease in electricity and depreciation expenses.

Total direct production costs (water abstraction charges, chemicals, electricity
and pollution tax expenses) amounted to EUR 1.58 million, showing a 2.6% or EUR
0.04 million decrease compared to the equivalent period in 2017. Changes in
direct production costs came from a combination of changes in prices and in
treated volumes that affected the cost of goods sold together with the following
additional factors:

Water abstraction charges increased by 3.8% to EUR 0.30 million, driven mainly
by overall 3.5% increase in abstracted water volumes.

  * Chemicals costs decreased slightly by 1.7% to EUR 0.35 million, driven by
    lower usage of methanol and coagulant to remove pollutants, balanced by
    higher usage of polymers to remove sludge in the wastewater treatment
    process, worth respectively EUR +0.01 million, EUR +0.02 million and EUR
    -0.01 million. Lower chemicals costs in wastewater treatment process were
    balanced by higher dosage of coagulant and chlorine in water treatment
    process due to poor raw water quality and higher prices of chlorine and
    coagulant, worth respectively both EUR -0.01 million.
  * Electricity costs decreased by 10.2% to EUR 0.70 million, driven by on
    average 12.8% lower electricity prices (including networks fees), worth EUR
    0.11 million. Lower costs from prices were partly balanced by increase in
    treated volumes in water and wastewater processes, worth EUR 0.03 million.
  * Pollution tax expense increased by 15.9% to EUR 0.23 million, mainly due to
    higher pollution load of pollutants and by 2.9% increase in treated
    wastewater volumes, worth respectively EUR -0.02 million and EUR -0.01
    million.

Other costs of goods sold (staff costs, depreciation, construction and
asphalting services costs and other costs of goods sold) amounted to EUR 5.50
million, having increased by 20.1% or EUR 0.92 million. The increase came mostly
from costs related to construction and asphalting services, accompanied by
higher staff and maintenance costs and balanced by decrease in depreciation
costs. Increase in construction and asphalting services costs by 84.9% to EUR
1.36 million was related to higher construction services revenues mentioned
earlier and project specific changes. Staff costs increase by 10.3% to EUR 1.63
million was related to change of salaries from the beginning of the year for all
employees based on CPI increase and higher workload, accompanied by review of
bonus reserve in the 2(nd) quarter of 2018. 21.4% or EUR 0.14 million higher
asset maintenance costs were mainly related to timing of different maintenance
and repair works in wastewater treatment processes.  Decrease in depreciation by
6.8% to EUR 1.27 million was mainly related to lower cost of machinery and
equipment depreciation year-on-year.

As a result of all above the Group's gross profit for the 2(nd) quarter of 2018
was EUR 8.90 million, showing an increase of 4.3% or EUR 0.37 million, compared
to the gross profit of EUR 8.53 million for the comparative period of 2017.

ADMINISTRATIVE AND MARKETING EXPENSES

Administrative and marketing expenses amounted to EUR 1.31 million, having
increased by 1.2% or EUR 0.02 million. The increase was mainly related to change
in marketing expenses salaries by reasons mentioned in other costs of goods sold
and higher postal expenses.

OPERATING PROFIT

As a result of the factors listed above the Group's operating profit for the
2(nd) quarter of 2018 amounted to EUR 7.54 million, being 4.9% or EUR 0.36
million higher than in the corresponding period of 2017. The Group's operating
profit from main business was EUR 7.35 million, being 4.2% or EUR 0.29 million
higher compared to 2017.

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 0.23 million in the 2(nd) quarter
of 2017. The increase was mainly impacted by a lower positive change in the fair
value of the swap contracts year-on-year and lower interest costs, worth
respectively EUR -0.08 million and 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,
amounting to EUR 0.59 million. Effective interest rate of loans (incl. swap
interests) in the 2(nd) quarter of 2018 was 1.46%, amounting to interest costs
of EUR 0.35 million, compared to the effective interest rate of 1.61% and the
interest costs of EUR 0.39 million in the 2(nd) quarter of 2017.

PROFIT BEFORE TAXES AND NET PROFIT

The Group's profit before taxes for the 2(nd) quarter of 2018 was EUR 7.27
million, being 4.4% or EUR 0.31 million higher than for the comparative period
of 2017. The Group's net profit for the 2(nd) quarter of 2018 was EUR 5.47
million, being 28.3% or EUR 1.21 million higher than for the 2(nd) quarter of
2017, being impacted by the decrease in income tax on dividends, worth EUR 0.90
million. Eliminating the effects of the change of the fair value of swap
contracts the Group's net profit for the 2(nd) quarter of 2018 and 2017 would
have been EUR 5.39 million and EUR 4.10 million respectively, showing an
increase of 31.3% or EUR 1.22 million year-on-year.

FINANCIAL RESULTS FOR THE SIX MONTHS OF 2018

Statement of comprehensive income

SALES

During the six months of 2018 the Group's total sales were EUR 30.06 million,
showing an increase by 5.4% or EUR 1.55 million year-on-year. Sales from water
and wastewater services for six months of 2018 were 26.21 million, increasing
2.4% or EUR 0.62 million year-on-year. 87.2% of sales comprise of sales of water
and wastewater services to domestic and commercial customers within and outside
of the service area. 5.6% of sales are the fees received from the City of
Tallinn for operating and maintaining the storm water system and fire hydrants,
6.2% from construction and asphalting services and 1.0% from other works and
services.

                                                               Variance
                                              6 months         2018/2017

 EUR thousand                           2018     2017     2016   EUR          %
-------------------------------------------------------------------------------
 Private clients, incl:               12,855   12,660   12,538   195       1.5%
-------------------------------------------------------------------------------
 Water supply service                  7,079    6,960    6,895   119       1.7%

 Wastewater disposal service           5,776    5,700    5,643    76       1.3%

 Corporate clients, incl:             10,667   10,256    9,952   411       4,0%
-------------------------------------------------------------------------------
 Water supply service                  5,867    5,648    5,504   219       3.9%

 Wastewater disposal service           4,800    4,608    4,448   192       4.2%

 Outside service area clients, incl:   2,293    2,210    2,230    83       3.8%
-------------------------------------------------------------------------------
 Water supply service                    704      669      654    35       5.2%

 Wastewater disposal service           1,421    1,375    1,355    46       3.3%

 Storm water disposal service            168      166      221     2       1.2%

 Over pollution fee                      397      468      382   -71     -15.2%
-------------------------------------------------------------------------------
 Total water supply and wastewater
 disposal service                     26,212   25,594   25,102   618       2.4%

 Storm water treatment and disposal
 service and fire hydrants service     1,677    1,580    1,870    97       6.1%

 Construction service, design and
 asphalting                            1,853    1,045    1,588   808      77.3%

 Other works and services                314      290      306    24       8.3%
-------------------------------------------------------------------------------
 SALES REVENUES TOTAL                 30,056   28,509   28,866 1,547       5.4%

During the six months of 2018 there has been an increase in sales to private
customers by 1.5% to EUR 12.86 million and to corporate customers within the
service area by 4.0% to EUR 10.67 million. The increase in domestic customer
consumption volumes came mainly from apartment blocks, which is also our biggest
private customer group, accompanied by increase in an individual houses segment
in the 2(nd) quarter of 2018 as the spring has been very dry. Higher sales in
corporate clients is related to an increase in the sales of industrial and other
commercial customer segments mostly in 2(nd) quarter of 2018. Sales to customers
outside the main service area increased by 3.8% to EUR 2.29 million, being
mainly impacted by an increase in the sales of water supply and wastewater
disposal services. Over pollution fees received have decreased by 15.2% to EUR
0.40 million.

Sales from the operation and maintenance of the main service area storm water
and fire hydrant system in the six months of 2018 amounted to EUR 1.68 million,
showing an increase of 6.1% or EUR 0.10 million year-on-year, driven mainly by
8.9% higher storm water volumes.

Sales of construction, design and asphalting services were EUR 1.85 million,
increasing by 77.3% or EUR 0.81 million year-on-year. The increase was mainly
related to higher pipe construction services revenues during the 2(nd) quarter
of 2018.

COST OF GOODS/ SERVICES SOLD AND GROSS AND OPERATING PROFITS

                                                               Variance
                                            6 months           2018/2017

 EUR thousand                         2018      2017      2016    EUR         %
-------------------------------------------------------------------------------
 Water abstraction charges            -594      -588      -575     -6     -1.0%

 Chemicals                            -781      -685      -627    -96    -14.0%

 Electricity                        -1,457    -1,630    -1,538    173     10.6%

 Pollution tax                        -511      -493      -571    -18     -3.7%
-------------------------------------------------------------------------------
 Total direct production costs      -3,343    -3,396    -3,311     53      1.6%

 Staff costs                        -3,224    -2,900    -2,888   -324    -11.2%

 Depreciation and amortization      -2,551    -2,711    -3,023    160      5.9%

 Construction service, design and
 asphalting                         -1,600      -874    -1,349   -726    -83.1%

 Other costs of goods/services
 sold                               -2,121    -1,894    -1,657   -227    -12.0%
-------------------------------------------------------------------------------
 Other costs of goods/services
 sold total                         -9,496    -8,379    -8,917 -1,117    -13.3%
-------------------------------------------------------------------------------
 Total cost of goods/services sold -12,839   -11,775   -12,228 -1,064     -9.0%

During the six months of 2018 the cost of goods sold amounted to EUR 12.84
million, increasing by 9.0% or EUR 1.06 million compared to the equivalent
period in 2017. Total direct production costs (water abstraction charges,
chemicals, electricity and pollution tax expenses) amounted to EUR 3.34 million,
showing a 1.6% or EUR 0.05 million decrease compared to the equivalent period in
2017. 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 were at the same level as in the comparative period
last year, amounting to EUR 0.59 million.

  * Chemicals costs increased by 14.0% to EUR 0.78 million, driven by higher
    usage of methanol and polymers to remove Nitrogen and sludge from influent
    in the wastewater treatment process, worth respectively EUR 0.05 million and
    EUR 0.01 million. It was accompanied by higher dosage of coagulant in water
    treatment process due to poor raw water quality, worth EUR 0.01 million.
  * Electricity costs decreased by 10.6% to EUR 1.46 million, driven by on
    average 13.2% lower electricity prices (including networks fees), worth EUR
    0.23 million. Lower costs from prices were partly balanced by increase in
    treated volumes in water and wastewater processes, worth EUR 0.06 million.
  * Pollution tax expense increased by 3.7% to EUR 0.51 million, mainly due to
    3.4% higher treated wastewater volumes, worth EUR 0.02 million.

Other costs of goods sold (staff costs, depreciation, construction and
asphalting services costs and other costs of goods sold) amounted to EUR 9.50
million, having increased by 13.3% or EUR 1.12 million. Changes in other costs
of foods sold were driven by the same reasons as mentioned in the 2(nd) quarter
results.

The Group's gross profit for the six months of 2018 was EUR 17.22 million,
showing an increase of 2.9% or EUR 0.48 million compared to the comparative
period of 2017. The Group's operating profit for the six months of 2018 amounted
to EUR 14.34 million, being 4.9% or EUR 0.67 million higher than in the
corresponding period of 2017. The increase in operating profit was driven by the
changes in gross profit, accompanied by lower tariff dispute related costs.

FINANCIAL EXPENSES

The Group's net financial income and expenses have resulted a net expense of EUR
0.54 million, compared to net expense of EUR 0.35 million in the six months of
2017. The increase was mainly impacted by a lower positive change in the fair
value of the swap contracts year-on-year and lower interest costs, worth
respectively EUR -0.25 million and EUR +0.07 million.

PROFIT BEFORE TAXES AND NET PROFIT

The Group's profit before taxes for the six months of 2018 were EUR 13.80
million, being 3.6% or EUR 0.48 million higher than for the relevant period of
2017. The Group's net profit for the six months of 2018 were EUR 12.00 million,
being 13.0% or EUR 1.38 million higher than for the equivalent period of 2017.
Eliminating the effects of the change of the derivatives fair value the Group's
net profit for the six months of 2018 would have been EUR 11.84 million, showing
an increase by 15.9% or EUR 1.63 million year-on-year.

Statement of financial position

In the six months of 2018 the Group invested into fixed assets EUR 3.07 million.
As of 30.06.2018, non-current tangible assets amounted to EUR 174.71 million and
total non-current assets amounted to EUR 175.48 million (30.06.2017: EUR 171.67
million and EUR 172.48 million respectively).

Compared to the year end of 2017 the trade receivables, accrued income and
prepaid expenses have shown an increase in the amount of EUR 0.43 million to EUR
8.15 million. Increase mainly derives from higher accrued income and trade
receivables, respectively by EUR 0.27 million and EUR 0.13 million, being mainly
impacted by construction activities and higher connection points receivables and
main services revenues. The collectability rate continues to be high at 99.59%
level, compared to 99.45% at the end of June 2017.

Current liabilities have increased by EUR 2.50 million to EUR 12.15 million
compared to the year end of 2017. Increase mainly derives from higher in trade
and other payables by EUR 1.75 million, being related to higher payables related
to pipe construction services and investments, accompanied by higher prepayments
for connections by EUR 0.70 million.

Deferred income from connection fees has grown compared to the end of 2017 by
EUR 0.84 million to EUR 20.47 million.

Provision for possible third party claims has not changed compared to the end of
2017. At the end of 2017, the Company formed a provision of EUR 17.52 million
for possible third-party claims as a result of the Supreme Court Decision from
12(th) December 2017. More detailed information about the provision is in Note
5 to the financial statements.

The Group's loan balance has remained stable at EUR 95 million. The weighted
average interest risk margin for the total loan facility is 0.79%. At the end of
September 2017, the Company refinanced its long-term loan in the amount of EUR
37.5 million.

The Group has a Total debt to assets level of 61.6%, in range of 55%-65%,
reflecting the Group's equity profile. In comparative period of 2017 the total
debt to assets ratio was 58.5%.

CASH FLOW

As of 30.06.2018, the cash position of the Group is strong. At the end of June
2018, the cash balance of the Group stood at EUR 52.15 million, which is 22.1%
of the total assets (30.06.2017: EUR 35.34 million, forming 16.4% of the total
assets).

The biggest contribution to the cash flows comes from main operations. During
the six months of 2018, the Group generated EUR 17.04 million of cash flows from
operating activities, an increase of EUR 1.14 million compared to the
corresponding period in 2017. Underlying operating profit continues to be the
main contributor to operating cash flows.

In the six months of 2018 the result of net cash flows from investing activities
was a cash outflow of EUR 1.67 million, a decrease of EUR 1.09 million compared
to the cash outflow of EUR 2.76 million in the six months of 2017. This is made
up as follows:

The cash outflows from investments in fixed assets have decreased by EUR 0.94
million compared to 2017 amounting to EUR 3.42 million.

  * The compensations received for the construction of pipelines were EUR 1.68
    million, showing an increase of EUR 0.12 million compared to the same period
    of 2017.

In the six months of 2018 cash outflow from financing activities amounted to EUR
8.19 million, decreasing by EUR 3.59 million compared to the same period in
2017. The change was mainly related to lower dividend payment by EUR 3.60
million.

EMPLOYEES

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

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

At the end of the 2(nd) quarter of 2018, the total number of employees was at
the same level as for the same period in 2017 amounting to 319 employees. The
full time equivalent (FTE) was respectively 308 in 2018 compared to the 309 in
2017. Average number of employees (FTE) during the six months was respectively
299 in 2018 and 305 in 2017.

By gender, employee allocation was as follows:

                     As of 30.06.2018   |As of 30.06.2017
                                        |
                     Women   Men   Total|Women   Men   Total
----------------------------------------+-------------------
 Group                  95   224     319|   96   223     319
----------------------------------------+-------------------
 Management Team        14    15      29|   14    13      27
                                        |
 Executive Team          4     4       8|    5     4       9
                                        |
 Management Board        1     2       3|    1     2       3
                                        |
 Supervisory Board       1     8       9|    0     9       9

The total salary costs were EUR 2.24 million for the 2(nd) quarter of 2018,
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 0.09 million should the Council want to replace the current
Management Board members.

DIVIDENDS

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

The Company's dividend policy up to 2017 was related to keeping the dividends in
real term i.e. dividends amounts have been increased in line with inflation.
Every year the Supervisory Council evaluates the proposal of the dividends to be
paid out to the shareholders and approves it to be presented to the voting to
the Annual General Meeting of shareholders, considering all circumstances. In
the Annual General Meeting held on 31(st) May 2018, the Supervisory Board
proposed to pay out EUR 0.36 per A share and 600 EUR per B share, which is equal
to earnings per share in 2017. The proposal was approved by Annual General
Meeting and the dividend pay-out was made on 26(th) of June 2018.

SHARE PERFORMANCE

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

As of 30.06.2018, 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 2018 the shareholder structure has been relatively
stable compared to the end of 2017. At the end of 2(nd) quarter of 2018 the
pension funds shareholding has decreased slightly, being 1.31% of the total
shares compared to 1.43% at the end of 2017.

As of 30.06.2018, the closing price of AS Tallinna Vesi share was EUR 10.25,
which is 4.2% (2017: -10.7%) lower compared to the closing price of EUR 10.70 at
the beginning of the quarter. During the 2(nd) quarter the OMX Tallinn index
decreased by 0.6% (2017: +1.3%).

In the six months of 2018, 2,289 deals with the Company's shares were concluded
(2017: 4,329 deals) during which 439 thousand shares or 2.2% of total shares
exchanged their owners (2017: 640 thousand shares or 3.2%).

The turnover of the transactions was EUR 3,884 thousand lower than in 2017
comparative period, amounting to EUR 4.69 million.

CORPORATE STRUCTURE

As of 30.06.2018, 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. Changes in the Supervisory Council members in the
2(nd) quarter of 2018 were as follows: Mr Simon Roger Gardiner's and Mr Martin
Padley's terms as Supervisory members were extended (respectively valid until
03.06.2020 and 02.11.2020), Mr Rein Ratas has been recalled from the Supervisory
Council member and a new Supervisory Council member Mrs Katrin Kendra was
nominated (term valid until 31.05.2020).

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 14 to the financial statements as well as from the Company's webpage:

About us > Management board > Supervisory council
(https://tallinnavesi.ee/en/ettevote/management-board/supervisory-council/)

About us > Audit committee (https://tallinnavesi.ee/en/ettevote/auditcommittee/)

About us > Principles of governance > Corporate governance report
(https://tallinnavesi.ee/en/ettevote/strategic-objectives/corporate-governance-
report/)

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 Board and Supervisory Council 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
Council 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 2(nd) 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 21(st) March 2020), Aleksandr Timofejev (with
the powers of the Management Board Member until 29(th) October 2021) and Riina
Käi (with the powers of the Management Board Member until 29(th) October 2021).

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

About us > Management board (https://tallinnavesi.ee/en/ettevote/management-
board/)

LEGAL CLAIM FOR BREACH OF INTERNATIONAL TREATY

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

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

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

The hearings of international arbitration took place in Paris in November 2016
and the decision is expected in 2(nd) half of 2018.

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. AS Tallinna Vesi has published all relevant
materials on its website (https://tallinnavesi.ee/en/investor/stock-
announcements/) and to the Tallinn Stock Exchange.




 STATEMENT OF
 COMPREHENSIVE
 INCOME             2nd quarter     2nd quarter     6 months 6 months 12 months

 (EUR thousand)     2018            2017            2018     2017     2017



 Revenue                 15,979          14,728       30,056   28,509    59,815

 Costs of goods
 sold                    -7,082          -6,202      -12,839  -11,775   -25,725
-------------------------------------------------------------------------------
 GROSS PROFIT             8,897           8,526       17,217   16,734    34,090



 Marketing expenses         -94             -78         -206     -179      -356

 General
 administration
 expenses                -1,216          -1,216       -2,595   -2,782    -5,028

 Other income/
 expenses (-)               -48             -48          -79     -103   -17,841
-------------------------------------------------------------------------------
 OPERATING PROFIT         7,539           7,184       14,337   13,670    10,865



 Interest income              5               4            9        9        15

 Interest expense          -279            -229         -547     -359    -1,502

 Other financial
 income (+)/
 expenses (-)                 0               0            0        0       543
-------------------------------------------------------------------------------
 PROFIT BEFORE
 TAXES                    7,265           6,959       13,799   13,320     9,921



 Income tax on
 dividends               -1,800          -2,700       -1,800   -2,700    -2,700



 NET PROFIT FOR THE
 PERIOD                   5,465           4,259       11,999   10,620     7,221
-------------------------------------------------------------------------------
 COMPREHENSIVE
 INCOME FOR THE
 PERIOD                   5,465           4,259       11,999   10,620     7,221



 Attributable to:                                                             0
-------------------------------------------------------------------------------
 Equity holders of
 A-shares                 5,464           4,258       11,998   10,619     7,220

 B-share holder            0.60            0.60         0.60     0.60      0.60



 Earnings per A
 share (in euros)          0.27            0.21         0.60     0.53      0.36

 Earnings per B
 share (in euros)           600             600          600      600       600



 STATEMENT OF FINANCIAL POSITION

 (EUR thousand)                        30.06.2018     30.06.2017     31.12.2017



 ASSETS

 CURRENT ASSETS
-------------------------------------------------------------------------------
 Cash and equivalents                      52,154         35,344         44,973

 Trade receivables, accrued income and
 prepaid expenses                           8,151          6,868          7,716

 Inventories                                  441            484            457
-------------------------------------------------------------------------------
 TOTAL CURRENT ASSETS                      60,746         42,696         53,146



 NON-CURRENT ASSETS
-------------------------------------------------------------------------------
 Property, plant and equipment            174,713        171,666        174,451

 Intangible assets                            771            816            811
-------------------------------------------------------------------------------
 TOTAL NON-CURRENT ASSETS                 175,484        172,482        175,262
-------------------------------------------------------------------------------
 TOTAL ASSETS                             236,230        215,178        228,408



 LIABILITIES AND EQUITY

 CURRENT LIABILITIES
-------------------------------------------------------------------------------
 Current portion of long-term
 borrowings                                   478            244            264

 Trade and other payables                   7,955          7,879          6,200

 Derivatives                                  411            622            578

 Prepayments                                3,308          2,806          2,609
-------------------------------------------------------------------------------
 TOTAL CURRENT LIABILITIES                 12,152         11,551          9,651



 NON-CURRENT LIABILITIES
-------------------------------------------------------------------------------
 Deferred income from connection fees      20,475         18,400         19,632

 Borrowings                                95,239         95,709         95,565

 Derivatives                                  181            292            178

 Provision for possible third party
 claims                                    17,522              0         17,522

 Other payables                                47             11             44
-------------------------------------------------------------------------------
 TOTAL NON-CURRENT LIABILITIES            133,464        114,412        132,941
-------------------------------------------------------------------------------
 TOTAL LIABILITIES                        145,616        125,963        142,592



 EQUITY
-------------------------------------------------------------------------------
 Share capital                             12,000         12,000         12,000

 Share premium                             24,734         24,734         24,734

 Statutory legal reserve                    1,278          1,278          1,278

 Retained earnings                         52,602         51,203         47,804
-------------------------------------------------------------------------------
 TOTAL EQUITY                              90,614         89,215         85,816
-------------------------------------------------------------------------------
 TOTAL LIABILITIES AND EQUITY             236,230        215,178        228,408









 CASH FLOW STATEMENT                   6 months       6 months       12 months

 (EUR thousand)                        2018           2017           2017



 CASH FLOWS FROM OPERATING ACTIVITIES
-------------------------------------------------------------------------------
 Operating profit                          14,337         13,670         10,865

 Adjustment for
 depreciation/amortisation                  2,839          3,005          6,170

 Adjustment for revenues from
 connection fees                             -141           -125           -258

 Other non-cash adjustments                   -11              0            -26

 Profit/loss(+) from sale and write
 off of property, plant and equipment,
 and intangible assets                        -39            -11            -12

 Change in current assets involved in
 operating activities                        -427            264           -558

 Change in liabilities involved in
 operating activities                         484           -902         17,064

 TOTAL CASH FLOW FROM OPERATING
 ACTIVITIES                                17,042         15,901         33,245



 CASH FLOWS FROM INVESTING ACTIVITIES
-------------------------------------------------------------------------------
 Acquisition of property, plant and
 equipment, and intangible assets          -3,418         -4,361         -9,761

 Compensations received for
 construction of pipelines                  1,676          1,554          2,698

 Proceeds from sales of property,
 plant and equipment and intangible
 assets                                        67             38             62

 Interest received                              8              9             15
-------------------------------------------------------------------------------
 TOTAL CASH FLOW FROM INVESTING
 ACTIVITIES                                -1,667         -2,760         -6,986



 CASH FLOWS FROM FINANCING ACTIVITIES
-------------------------------------------------------------------------------
 Interest paid and loan financing
 costs, incl swap interests                  -710           -779         -1,512

 Repayment of finance lease                  -120           -141           -260

 Dividends paid                            -7,201        -10,801        -10,801

 Income tax on dividends                     -163            -63         -2,700
-------------------------------------------------------------------------------
 TOTAL CASH FLOW FROM FINANCING
 ACTIVITIES                                -8,194        -11,784        -15,273


-------------------------------------------------------------------------------
 CHANGE IN CASH AND CASH EQUIVALENTS        7,181          1,357         10,986


-------------------------------------------------------------------------------
 CASH AND CASH EQUIVALENTS AT THE
 BEGINNING OF THE PERIOD                   44,973         33,987         33,987


-------------------------------------------------------------------------------
 CASH AND CASH EQUIVALENTS AT THE END
 OF THE PERIOD                             52,154         35,344         44,973


Karl Heino Brookes

Chairman of the Management Board

+372 62 62 200

[email protected] (mailto:[email protected])

Attachment

  * Q2 2018 final report ENG (https://prlibrary-
    eu.nasdaq.com/Resource/Download/cf3220a7-acd3-498f-8126-42c492787586)