MANAGEMENT REPORT
RESULTS OF OPERATIONS - FOR THE 1st QUARTER 2009
Overview
During the first three months of 2009 the Company's total sales increased, year
on year, by 6.6% to 12.3 mln EUR. Total water and sewerage services sales
volumes decreased in the three months of 2009 by 5.2% compared to the same three
months of 2008, respective sales increased by 5.1%. Within the service area
sales to residential customers increased by 9.0% year on year, sales to
commercial customers increased by 0.1% year on year, and sales to customers
outside of the service area increased by 1.4% year on year. The Company's profit
before taxes was 6.3 mln EUR, which is a 9.9% increase compared to the same
three months of 2008. In 2009 the Company invested 2.7 mln EUR, of which 2.1 mln
EUR was invested in network extension and rehabilitation.
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| mln EUR | 1 Q | 1 Q | Change | 3 | 3 | Change |
| | 2009 | 2008 | | months | months | |
| | | | | 2009 | 2008 | |
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| Sales | 12,3 | 11,6 | 6,6% | 12,3 | 11,6 | 6,6% |
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| Gross profit | 8,1 | 7,3 | 9,9% | 8,1 | 7,3 | 9,9% |
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| Gross profit margin | 65,4 | 63,4 | 3,1% | 65,4 | 63,4 | 3,1% |
| % | | | | | | |
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| Operating profit | 7,1 | 6,4 | 10,6% | 7,1 | 6,4 | 10,6% |
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| Operating profit | 57,5 | 55,4 | 3,8% | 57,5 | 55,4 | 3,8% |
| margin % | | | | | | |
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| Profit before taxes | 6,3 | 5,7 | 9,9% | 6,3 | 5,7 | 9,9% |
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| Net profit | 6,3 | 5,7 | 9,9% | 6,3 | 5,7 | 9,9% |
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| Net profit margin % | 51,0 | 49,5 | 3,2% | 51,0 | 49,5 | 3,2% |
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| ROA % | 3,7 | 3,4 | 7,7% | 3,7 | 3,4 | 7,7% |
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| Debt to total | 48,2 | 49,3 | -2,2% | 48,2 | 49,3 | -2,2% |
| capital employed | | | | | | |
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Gross profit margin - Gross profit / Net sales
Operating profit margin - Operating profit / Net sales
Net Profit margin - Net Profit / Net sales
ROA - Net profit /Total Assets
Debt to Total capital employed - Total Liabilities / Total capital employed
Profit and Loss Statement
1st quarter 2009
Sales
In the 1st quarter of 2009 the Company's total sales increased, year on year, by
6.6% to 12.3 mln EUR. Sales in the main operating activity principally comprise
of sales of water and treatment of wastewater to domestic and commercial
customers within and outside of the service area, and fees received from the
City of Tallinn for operating and maintaining the storm water system.
Sales of water and wastewater services were 11.3 mln EUR, a 5.1% increase
compared to the 1st quarter of 2008, resulting from the 12.8% increase in
tariffs from 1 January 2009 for the Company's residential and commercial
customers combined with the factors described below.
Included within this amount were the following increases by sectors: within the
service area, sales to residential customers increased by 9.0% to 6.2 mln EUR.
Sales to commercial customers increased by 0.1% to 4.5 mln EUR. Sales to
customers outside of the service area - primarily bulk volumes of wastewater
treatment services provided to the surrounding municipalities - increased by
1.4% reaching 0.8 mln m3 or 0.40 mln EUR. Over pollution fees received were 0.24
mln EUR, a 10.0% increase compared to the 1st quarter of 2008.
In the 1st quarter of 2009, the volumes sold to residential customers dropped
3.4%. We believe that this is due to the combination of the economic recession
and the fact that people have continued to move to the surrounding areas of
Tallinn.
The volumes sold to commercial customers inside the service area decreased by
11.5% compared to the relevant period in 2008 due to several factors combined.
Most of the reduction in sales volumes in Tallinn is a result of the
macroeconomic impact of companies reducing their production volumes and
implementing efficiency measures, supplemented by companies moving to
surrounding municipalities.
The sales from the operation and maintenance of the storm water and fire-hydrant
system increased by 22.8% to 0.78 mln EUR in the 1st quarter of 2009 compared to
the same period in 2008. This is in accordance with the terms and conditions of
the contract whereby the storm water and fire hydrant costs are invoiced based
on actual costs and volumes treated.
Cost of Goods Sold and Gross Margin
The cost of goods sold for the main operating activity was 4.3 mln EUR in the
1st quarter of 2009, an increase of 0.03 mln EUR or 0.8% from the equivalent
period in 2008.
In the 1st quarter of 2009 the Company achieved the beneficial 0.5 coefficient
for pollution tax, and the amount of pollution tax payable was 0.21 mln EUR
compared to 0.19 mln EUR in 1st quarter of 2008. This increase in pollution tax
was mainly due to the increase in tax rates year on year by 20%, partly offset
by the reduction in treatment volumes. Despite the fact that the pollution level
of the incoming sewerage has increased and the Company does not have full
control over storm water outlets regarding pollution, we are working hard to use
the optimum level of chemicals to achieve the 0.5 coefficient in the forthcoming
quarters.
Chemical costs were 0.24 mln EUR, representing a 16.7% decrease compared to the
corresponding period in 2008. This result is the combination of volumes treated,
chemicals dosed and the favorable price impact.
Electricity costs increased by 0.04 mln EUR or 9.1% in the 1st quarter of 2009
compared to the 1st quarter of 2008 due to higher electricity prices offset by
lower volumes treated.
Salary expenses increased in the 1st quarter of 2009, year on year, by 0.04 mln
EUR or 3.7% due to the increase in headcount required to manage the increased
construction supervision need during the networks extension program. There is
also some impact from the company's performance management system where
individual salaries were revised based on personal achievements.
Depreciation charges increased in the 1st quarter of 2009 by 0.01 mln EUR or
1.1% year on year.
Transport costs decreased by 0.02 mln EUR, or 7.0% year on year, due to the
combination of the reduction in fuel prices and reduced rates for rental
machines.
Other cost of goods sold in the main operating activity decreased by 0.03 mln
EUR, or 5.8% year on year. As result of the successful negotiation of long term
contracts the applicable unit rates were reduced for a number of support
services and maintenance contracts.
The management's target is to achieve further efficiencies through review of
processes, work organization and procurements.
As a result of all of the above the Company's gross profit for the 1st quarter
of 2009 was 8.1 mln EUR, which is an increase of 0.73 mln EUR, or 9.9%, compared
to the gross profit of 7.3 mln EUR for the 1st quarter of 2008.
Operating Costs and Operating Margin
Marketing expenses increased by 0.003 mln EUR to 0.22 mln EUR during the 1st
quarter of 2009 compared to the corresponding period in 2008. This is partly the
result of the cost savings, balanced by the minor increase in depreciation
charges.
Mainly as a consequence of lower services costs the General administration
expenses decreased by 0.03 mln EUR to 0.90 mln EUR in the 1st quarter of 2009
year on year.
Other net income/expenses
Income/expenses from constructions and government grants totaled a net income of
0.22 mln EUR, in the 1st quarter of 2009 compared to a net income of 0.22 mln
EUR in the 1st quarter of 2008. The rest of the other income/expenses totaled an
expense of 0.07 mln EUR in the 1st quarter of 2009 compared to an expense of
0.01 mln EUR in the 1st quarter of 2008 due to slightly worsened debt
collection.
As a result of all of the above the Company's operating profit for the 1st
quarter of 2009 was 7.1 mln EUR, an increase of 0.68 mln EUR compared to an
operating profit of 6.4 mln EUR achieved in the 1st quarter of 2008. Compared to
the operating profit in the 1st quarter of 2008, the operating profit has
increased 10.6%.
Financial expenses
Net Financial expenses were 0.79 mln EUR in the 1st quarter of 2009, which is an
increase of 0.11 mln EUR or 16.0% compared to the 1st quarter of 2008. The
Company's interest costs have decreased by 10.5% compared to the 1st quarter of
2008. This is due to the decrease in the 6 month Euribor rate. Financial
expenses have increased due to loan costs which were capitalized earlier but
were expensed in amount of 0.34 mln EUR in the 1st quarter of 2009. The new
capex loan agreement triggers the full repayment of the EBRD loan on next
interest payment date in May 2009. The EBRD loan is hedged with a fixed interest
rate, therefore we will incur some unwinding costs related to the early
repayment as a result of the low Euribor rates. The increase is partially offset
by an increase in financial income earned during the 1st quarter of 2009, as a
result of a more favourable cash position and higher deposit rates.
Profit Before Tax
The Company's profit before taxes for the 1st quarter of 2009 was 6.3 mln EUR,
which is 0.57 mln EUR higher than the profit before taxes of 5.7 mln EUR for the
1st quarter of 2008.
Balance sheet
During the three months of 2009 the Company invested 2.7 mln EUR into fixed
assets. Non-current assets were 140.1 mln EUR at 31 March 2009. Current assets
increased by 8.0 mln EUR to 30.2 mln EUR in the three months of the year,
customer receivables increased by 1.2 mln EUR. During the three months of 2009
cash at bank increased by 6.8 mln EUR.
Current liabilities increased by 0.23 mln EUR to 12.5 mln EUR in the three
months of the year. This was mainly due to increases in the Current portion of
long-term borrowings by 0.05 mln EUR, as a result of the reclassification of the
loan based on the repayment schedule, a decrease in Trade payables by 0.07 mln
EUR, and an increase in Customer prepayments by 0.23 mln EUR.
The Company continues to maintain its leverage level within its target range of
50% with total liabilities to total capital employed of 48.2% as of 31 March
2009. Long-term liabilities stood at 69.7 mln EUR at the end of March 2009,
consisting almost entirely of the outstanding balance on the three long-term
bank loans.
Cash flow
During the three months of 2009, the Company generated 7.3 mln EUR of cash flows
from operating activities, a decrease of 0.57 mln EUR compared to the
corresponding period in 2008. Underlying operating profit continues to be the
main driver for growth.
In the three months of 2009 net cash outflows from investing activities were
0.45 mln EUR, which is 2.1 mln EUR more than in 2008. This was mainly due to the
change in constructions compensation mechanism as result of the 30 November 2007
agreement with the local municipality. In the 1st quarter of 2008 the Company
received the compensation for 2007 constructions. In 2009 the Company invested
2.7 mln EUR - 2.1 mln EUR on networks (including 1.5 mln EUR on extension and
developments), 0.32 mln EUR at Paljassaare wastewater treatment plant and sludge
treatment, 0.04 mln EUR on water quality (Ülemiste water treatment plant and raw
water) and 0.24 mln EUR for other investments (IT, capital maintenance, meters,
etc).
There were no cash flows related to the financing activities in 1st quarters of
2009 and 2008.
As a result of all of the above factors, the total cash inflow in the three
months of 2009 was 6.8 mln EUR compared to a cash inflow of 9.5 mln EUR in the
three months of 2008. Cash and cash equivalents stood at 21.5 mln EUR as at 31
March 2009.
Employees
At the end of the 1st quarter of 2009, the total number of employees was 331
compared to 315 at the end of the 1st quarter of 2008. The full time equivalent
was respectively 316 in 2009 compared to the 303 in 2008.
Dividends and share performance
Based on the results of the 2008 financial year, the Company intends to pay
14,700,318 EUR of dividends. Of this 639 EUR will be paid to the owner of the
B-share and 14,699,679 EUR, i.e. 0.73 EUR per share to the owners of the
A-shares. The Annual Meeting of the Shareholders will vote to approve the
dividend payment on 19th May 2009.
AS Tallinna Vesi is listed on OMX Main Baltic Market with trading code TVEAT and
ISIN EE3100026436.
As of 31 March 2009 AS Tallinna Vesi shareholders, with a direct holding over
5%, were:
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| United Utilities (Tallinn) BV | 35.3% |
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| City of Tallinn | 34.7% |
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| Credit Suisse Securities (Europe) Ltd Prime Brokerage | 5.76% |
| A/C Prime Brokerage Clients | |
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| HSBC Bank Plc Re Parvus European Absolute | 5.46% |
| Opportunities Master Fund | |
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Parvus AM has declared that their shareholding in the clients' accounts exceeds
10% and AKO Capital has declared their indirect ownership above 5% of the share
capital.
At the end of the quarter, 31 March 2009, the closing price of the AS Tallinna
Vesi share was 9.00 EUR (140.82 EEK), which is a 0.11% increase compared to the
closing price of 8.99 EUR (140.66 EEK) at the beginning of quarter, this is
still outperforming the market as the OMX Tallinn index dropped by 2.41% during
the quarter.
Operational highlights in the three months of 2009
The Company finalised the loan negotiations and concluded a 20 mln EUR (equal to
313 mln EEK), 10-year maturity loan agreement with the Nordic Investment Bank on
the 9th of April. The necessity for this additional loan resource was triggered
by the extensive 3-year network expansion program, the costs of which will be
compensated to the Company over a period of ten years.
Due to fall in sales volumes it has been a challenging quarter for the Company.
We are still pleased to report that the cost efficiency programs we have
initiated and successful contract negotiations have enabled us to deliver the
increase in profits.
Additional information:
Siiri Lahe
Chief Financial Officer
+372 6262 262
siiri.lahe@tvesi.ee
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| INCOME STATEMENT | I quarter | I quarter | 12 months |
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| (thousand EUR) | 2009 | 2008 | 2008 |
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| | | | |
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| Revenue | 12 320 | 11 561 | 46 011 |
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| Costs of goods sold | -4 262 | -4 228 | -17 432 |
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| | | | |
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| GROSS PROFIT | 8 058 | 7 333 | 28 579 |
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| | | | |
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| Marketing expenses | -218 | -216 | -787 |
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| General administration expenses | -904 | -928 | -3 486 |
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| Other income/ expenses (-) | 148 | 217 | 1 601 |
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| | | | |
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| OPERATING PROFIT | 7 084 | 6 406 | 25 907 |
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| | | | |
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| Financial income | 379 | 244 | 997 |
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| Financial expenses | -1 175 | -930 | -3 758 |
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| | | | |
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| PROFIT BEFORE TAXES | 6 289 | 5 720 | 23 146 |
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| | | | |
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| Income tax on dividends | 0 | 0 | -4 231 |
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| | | | |
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| NET PROFIT FOR THE PERIOD | 6 289 | 5 720 | 18 916 |
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| | | | |
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| Attributable to: | | | |
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| Equity holders of A-shares | 6 279 | 5 710 | 18 906 |
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| B-share holder | 0,64 | 0,64 | 0,64 |
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| | | | |
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| Earnings per A share (in euros) | 0,31 | 0,29 | 0,95 |
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| Earnings per B share (in euros) | 639 | 639 | 639 |
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| BALANCE SHEET | | | |
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| (thousand EUR) |31.03.2009 | 31.03.2008 | 31.12.2008 |
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| | | | |
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| ASSETS | | | |
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| CURRENT ASSETS | | | |
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| Cash at bank and in hand | 21 536 | 20 908 | 14 691 |
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| Customer receivables | 8 411 | 7 181 | 7 199 |
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| Inventories | 228 | 250 | 240 |
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| Assets for sale | 72 | 71 | 73 |
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| TOTAL CURRENT ASSETS | 30 248 | 28 411 | 22 203 |
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| | | | |
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| NON-CURRENT ASSETS | | | |
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| Tangible assets | 137 474 | 135 399 | 138 575 |
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| Intangible assets | 2 653 | 3 119 | 2 776 |
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| TOTAL NON-CURRENT ASSETS | 140 127 | 138 518 | 141 350 |
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| TOTAL ASSETS | 170 375 | 166 929 | 163 553 |
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| | | | |
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| LIABILITIES | | | |
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| | | | |
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| CURRENT LIABILITIES | | | |
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| Current portion of long-term | 5 348 | 2 665 | 5 295 |
| borrowings | | | |
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| Trade and other payables, incl. | 5 506 | 5 005 | 5 578 |
| dividends | | | |
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| Short-term provisions | 172 | 159 | 159 |
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| Deferred income | 1 498 | 2 553 | 1 265 |
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| TOTAL CURRENT LIABILITIES | 12 524 | 10 382 | 12 296 |
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| | | | |
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| NON-CURRENT LIABILITIES | | | |
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| Bank loans | 69 627 | 71 932 | 69 321 |
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| Other payables | 47 | 7 | 47 |
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| TOTAL NON-CURRENT LIABILITIES | 69 674 | 71 940 | 69 368 |
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| TOTAL LIABILITIES | 82 197 | 82 321 | 81 665 |
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| | | | |
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| EQUITY CAPITAL | | | |
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| Share capital | 12 782 | 12 782 | 12 782 |
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| Share premium | 24 734 | 24 734 | 24 734 |
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| Statutory legal reserve | 1 278 | 1 278 | 1 278 |
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| Retained earnings | 49 383 | 45 813 | 43 094 |
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| TOTAL EQUITY CAPITAL | 88 177 | 84 607 | 81 889 |
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| TOTAL LIABILITIES AND EQUITY CAPITAL | 170 375 | 166 929 | 163 553 |
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| CASH FLOW STATEMENT | 3 months | 3 months | 12 months |
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| (thousand EUR) | 2009 | 2008 | 2008 |
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| | | | |
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| CASH FLOWS FROM OPERATING ACTIVITIES | | | |
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| Operating profit | 7 084 | 6 406 | 25 907 |
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| Adjustment for depreciation/amortisation | 1 436 | 1 415 | 5 731 |
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| Adjustment for profit from government | -221 | -222 | -1 784 |
| grants and connection fees | | | |
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| Other finance expenses | -365 | -26 | -103 |
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| Profit from sale of property, plant and | -7 | 0 | -29 |
| equipment, and intangible assets | | | |
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| Expensed property, plant and equipment | 0 | 0 | -1 |
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| Change in current assets involved in | -720 | -360 | 1 456 |
| operating activities | | | |
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| Change in liabilities involved in | 83 | 845 | 58 |
| operating activities | | | |
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| Interest paid | 0 | -206 | -3 679 |
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| Total cash flow from operating activities | 7 290 | 7 852 | 27 555 |
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| | | | |
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| CASH FLOWS FROM INVESTING ACTIVITIES | | | |
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| Acquisition of property, plant and | -3 255 | -4 621 | -21 245 |
| equipment, and intangible assets | | | |
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| Compensations received for construction | 2 445 | 6 018 | 15 990 |
| of pipelines | | | |
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| Proceeds from sale of property, plant and | 7 | 0 | 31 |
| equipment, and intangible assets | | | |
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| Interest received | 358 | 255 | 1 080 |
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| Total cash flow from investing activities | -445 | 1 653 | -4 143 |
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| | | | |
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| CASH FLOWS FROM FINANCING ACTIVITIES | | | |
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| Received long-term loans | 0 | 0 | 2 700 |
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| Repayment of long-term loans | 0 | 0 | -2 679 |
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| Dividends paid | 0 | 0 | -15 915 |
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| Income tax on dividends | 0 | 0 | -4 231 |
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| Total cash flow from financing activities | 0 | 0 | -20 124 |
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| | | | |
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| Change in cash and bank accounts | 6 845 | 9 505 | 3 288 |
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| | | | |
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| CASH AND EQUIVALENTS AT THE BEGINNING OF | 14 691 | 11 403 | 11 403 |
| THE PERIOD | | | |
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| | | | |
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| CASH AND EQUIVALENTS AT THE END OF THE | 21 536 | 20 908 | 14 691 |
| PERIOD | | | |
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