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 192.8 mln EEK. 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 98.4 mln EEK, which is a 9.9% increase compared to the same
three months of 2008. In 2009 the Company invested 41.7 mln EEK, of which 32.3
mln EEK was invested in network extension and rehabilitation.
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| mln EEK | 1 Q | 1 Q | Change | 3 | 3 | Change |
| | 2009 | 2008 | | months | months | |
| | | | | 2009 | 2008 | |
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| Sales | 192,8 | 180,9 | 6,6% | 192,8 | 180,9 | 6,6% |
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| Gross profit | 126,1 | 114,7 | 9,9% | 126,1 | 114,7 | 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 | 110,8 | 100,2 | 10,6% | 110,8 | 100,2 | 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 | 98,4 | 89,5 | 9,9% | 98,4 | 89,5 | 9,9% |
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| Net profit | 98,4 | 89,5 | 9,9% | 98,4 | 89,5 | 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 192.8 mln EEK. 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 177.0 mln EEK, 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 96.8 mln EEK.
Sales to commercial customers increased by 0.1% to 70.0 mln EEK. 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 6.3 mln EEK. Over pollution fees received were 3.8
mln EEK, 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 12.2 mln EEK 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 66.7 mln EEK in the
1st quarter of 2009, an increase of 0.5 mln EEK 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 3.3 mln EEK
compared to 2.9 mln EEK 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 3.7 mln EEK, 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 0.7 mln EEK 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 0.6 mln
EEK 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 0.2 mln EEK or 1.1%
year on year.
Transport costs decreased by 0.3 mln EEK, 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 0.4 mln
EEK, 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 126.1 mln EEK, which is an increase of 11.4 mln EEK, or 9.9%,
compared to the gross profit of 114.7 mln EEK for the 1st quarter of 2008.
Operating Costs and Operating Margin
Marketing expenses increased by 0.04 mln EEK to 3.4 mln EEK 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 0.4 mln EEK to 14.1 mln EEK 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
3.5 mln EEK, in the 1st quarter of 2009 compared to a net income of 3.5 mln EEK
in the 1st quarter of 2008. The rest of the other income/expenses totaled an
expense of 1.1 mln EEK in the 1st quarter of 2009 compared to an expense of 0.1
mln EEK 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 110.8 mln EEK, an increase of 10.6 mln EEK compared to an
operating profit of 100.2 mln EEK 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 12.4 mln EEK in the 1st quarter of 2009, which is an
increase of 1.7 mln EEK 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 5.3 mln EEK 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 98.4 mln EEK,
which is 8.9 mln EEK higher than the profit before taxes of 89.5 mln EEK for the
1st quarter of 2008.
Balance sheet
During the three months of 2009 the Company invested 41.7 mln EEK into fixed
assets. Non-current assets were 2,192.5 mln EEK at 31 March 2009. Current assets
increased by 125.9 mln EEK to 473.3 mln EEK in the three months of the year,
customer receivables increased by 19.0 mln EEK. During the three months of 2009
cash at bank increased by 107.1 mln EEK.
Current liabilities increased by 3.6 mln EEK to 196.0 mln EEK in the three
months of the year. This was mainly due to increases in the Current portion of
long-term borrowings by 0.8 mln EEK, as a result of the reclassification of the
loan based on the repayment schedule, a decrease in Trade payables by 1.1 mln
EEK, and an increase in Customer prepayments by 3.6 mln EEK.
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 1,090.2 mln EEK 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 114.1 mln EEK of cash
flows from operating activities, a decrease of 8.9 mln EEK 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 7.0
mln EEK, which is 32.8 mln EEK 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
41.7 mln EEK - 32.3 mln EEK on networks (including 23.3 mln EEK on extension and
developments), 5.0 mln EEK at Paljassaare wastewater treatment plant and sludge
treatment, 0.6 mln EEK on water quality (Ülemiste water treatment plant and raw
water) and 3.8 mln EEK 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 107.1 mln EEK compared to a cash inflow of 148.7 mln EEK in
the three months of 2008. Cash and cash equivalents stood at 337.0 mln EEK 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
230,010,000 EEK of dividends. Of this 10,000 EEK will be paid to the owner of
the B-share and 230,000,000 EEK, i.e. 11.50 EEK 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 140.82 EEK (9.00 EUR), which is a 0.11% increase compared to the
closing price of 140.66 EEK (8.99 EUR) 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 313 mln EEK (equal
to 20 mln EUR), 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 EEK) | 2009 | 2008 | 2008 |
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| | | | |
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| Revenue | 192 759 | 180 886 | 719 923 |
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| Costs of goods sold | -66 682 | -66 153 | -272 752 |
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| | | | |
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| GROSS PROFIT | 126 077 | 114 733 | 447 171 |
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| | | | |
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| Marketing expenses | -3 414 | -3 373 | -12 310 |
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| General administration expenses | -14 140 | -14 526 | -54 546 |
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| Other income/ expenses (-) | 2 322 | 3 392 | 25 045 |
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| | | | |
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| OPERATING PROFIT | 110 845 | 100 226 | 405 360 |
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| | | | |
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| Financial income | 5 932 | 3 819 | 15 606 |
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| Financial expenses | -18 380 | -14 550 | -58 805 |
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| | | | |
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| PROFIT BEFORE TAXES | 98 397 | 89 495 | 362 161 |
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| | | | |
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| Income tax on dividends | 0 | 0 | -66 193 |
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| | | | |
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| NET PROFIT FOR THE PERIOD | 98 397 | 89 495 | 295 968 |
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| | | | |
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| Attributable to: | | | |
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| Equity holders of A-shares | 98 387 | 89 485 | 295 958 |
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| B-share holder | 10 | 10 | 10 |
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| | | | |
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| Earnings per A share (in kroons) | 4,92 | 4,47 | 14,80 |
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| Earnings per B share (in kroons) | 10 000 | 10 000 | 10 000 |
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| BALANCE SHEET | | | |
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| (thousand EEK) |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 | 336 966 | 327 136 | 229 860 |
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| Customer receivables | 131 604 | 112 364 | 112 638 |
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| Inventories | 3 568 | 3 917 | 3 760 |
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| Assets for sale | 1 134 | 1 114 | 1 140 |
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| TOTAL CURRENT ASSETS | 473 272 | 444 531 | 347 398 |
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| | | | |
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| NON-CURRENT ASSETS | | | |
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| Tangible assets | 2 150 994 | 2 118 538 | 2 168 225 |
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| Intangible assets | 41 516 | 48 797 | 43 428 |
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| TOTAL NON-CURRENT ASSETS | 2 192 510 | 2 167 335 | 2 211 653 |
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| TOTAL ASSETS | 2 665 782 | 2 611 866 | 2 559 051 |
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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 | 83 673 | 41 699 | 82 843 |
| borrowings | | | |
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| Trade and other payables, incl. | 86 144 | 78 306 | 87 270 |
| dividends | | | |
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| Short-term provisions | 2 693 | 2 486 | 2 486 |
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| Deferred income | 23 443 | 39 948 | 19 797 |
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| TOTAL CURRENT LIABILITIES | 195 953 | 162 439 | 192 396 |
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| | | | |
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| NON-CURRENT LIABILITIES | | | |
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| Bank loans | 1 089 419 | 1 125 499 | 1 084 642 |
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| Other payables | 735 | 113 | 735 |
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| TOTAL NON-CURRENT LIABILITIES | 1 090 154 | 1 125 612 | 1 085 377 |
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| TOTAL LIABILITIES | 1 286 107 | 1 288 051 | 1 277 773 |
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| | | | |
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| EQUITY CAPITAL | | | |
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| Share capital | 200 001 | 200 001 | 200 001 |
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| Share premium | 387 000 | 387 000 | 387 000 |
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| Statutory legal reserve | 20 000 | 20 000 | 20 000 |
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| Retained earnings | 772 674 | 716 814 | 674 277 |
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| TOTAL EQUITY CAPITAL | 1 379 675 | 1 323 815 | 1 281 278 |
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| TOTAL LIABILITIES AND EQUITY CAPITAL | 2 665 782 | 2 611 866 | 2 559 051 |
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| CASH FLOW STATEMENT | 3 months | 3 months | 12 months |
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| (thousand EEK) | 2009 | 2008 | 2008 |
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| | | | |
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| CASH FLOWS FROM OPERATING ACTIVITIES | | | |
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| Operating profit | 110 845 | 100 226 | 405 360 |
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| Adjustment for depreciation/amortisation | 22 471 | 22 145 | 89 669 |
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| Adjustment for profit from government | -3 462 | -3 469 | -27 921 |
| grants and connection fees | | | |
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| Other finance expenses | -5 715 | -412 | -1 614 |
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| Profit from sale of property, plant and | -116 | -5 | -455 |
| equipment, and intangible assets | | | |
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| Expensed property, plant and equipment | 0 | 0 | -19 |
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| Change in current assets involved in | -11 258 | -5 636 | 22 781 |
| operating activities | | | |
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| Change in liabilities involved in | 1 306 | 13 226 | 906 |
| operating activities | | | |
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| Interest paid | 0 | -3 223 | -57 569 |
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| Total cash flow from operating activities | 114 071 | 122 852 | 431 138 |
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| | | | |
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| CASH FLOWS FROM INVESTING ACTIVITIES | | | |
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| Acquisition of property, plant and | -50 937 | -72 303 | -332 407 |
| equipment, and intangible assets | | | |
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| Compensations received for construction | 38 252 | 94 167 | 250 190 |
| of pipelines | | | |
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| Proceeds from sale of property, plant and | 116 | 6 | 480 |
| equipment, and intangible assets | | | |
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| Interest received | 5 604 | 3 994 | 16 906 |
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| Total cash flow from investing activities | -6 965 | 25 864 | -64 831 |
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| | | | |
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| CASH FLOWS FROM FINANCING ACTIVITIES | | | |
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| Received long-term loans | 0 | 0 | 42 246 |
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| Repayment of long-term loans | 0 | 0 | -41 910 |
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| Dividends paid | 0 | 0 | -249 010 |
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| Income tax on dividends | 0 | 0 | -66 193 |
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| Total cash flow from financing activities | 0 | 0 | -314 867 |
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| | | | |
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| Change in cash and bank accounts | 107 106 | 148 716 | 51 440 |
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| | | | |
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| CASH AND EQUIVALENTS AT THE BEGINNING OF | 229 860 | 178 420 | 178 420 |
| THE PERIOD | | | |
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| | | | |
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| CASH AND EQUIVALENTS AT THE END OF THE | 336 966 | 327 136 | 229 860 |
| PERIOD | | | |
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