In 2006, our Company has again improved its performance: its operating
performance, with a very high water quality level and a treated effluent quality
now compliant with all EU standards; its customer service performance with the
full deployment of a new customer relationship management and billing software;
its financial performance with a strong set of results. The dynamism of our
employees was instrumental in reaching this level of performance.
2006 has seen the full deployment of our new client relationship and billing
software. The new system gathers in one place information that was stored
previously in different databases. This enables a much more complete and
accurate overview of each client's information, and thus a much more accurate
and diligent response to any client's request. This new system brings a lot more
possibilities to interact with the client in a friendly and effective way. The
web interface gives the possibility for each client to have access to their own
information and engage in dialogue easily with the Company. In addition, new
billing functionalities offer, for example direct debit and e-invoice.
The Guaranteed Standard Scheme (‘Our Promises') implemented in 2006 was very
well received by our clients. This scheme, in which we pay a monetary
compensation in case we fail to deliver on our promises, demonstrates how far we
are engaged to continuously improve the quality of our service.
Our employees drive the performance of the Company and they deserve credit for
what has been achieved in 2006. The strong cost control culture of the Company
enabled a good set of financial results to be achieved in a situation where the
cost pressure was significant. The shift from a production culture towards a
service culture is underway however there is more to be done to achieve the
level of excellence we desire. A full review of the human ressources strategy
has been started and the outcome will be implemented in 2007, providing to all
our employees an environment in which they can develop their full potential.
Our health and safety performance, whilst still at a good level, has fallen
compared to the previous years. Focus on this key area will be enhanced in 2007.
An extensive investment programme of 15.8 mln euros was carried out, to renew,
upgrade and develop the asset base of the Company. The main areas of investment
were networks and water quality (11.7 mln euros), and treated wastewater quality
(2.8 mln euros). In 2005 the Company invested 14.2 mln euros overall of which
8.4 mln euros was in networks and water quality, and 1.9 mln euros in treated
wastewater quality. This ongoing investment programme is a key contributor to
the good level of operational performance in 2006. The water quality has been
100% compliant for microbiological standards and 99.55% compliant for all
standards. With this level of quality, the Company is already delivering
compliance with the new standards that come into force 1st January 2007. The
leakage level stands at 19.3%, more than 6% below contractual target, and
continues to be closely monitored. In addition to these good technical results,
we are constantly looking at the possibility to improve and streamline the
organization. A project to review and simplify our internal processes was
initiated and will be continued in 2007.
The Company has been heavily investing in different projects. The nitrogen
project, total investment of 3.5 mln euros, which aimed to reduce the amount of
nitrogen discharged to the Baltic Sea was successfully completed. As a result,
Tallinn was removed from the HELCOM (Environmental body monitoring the quality
of the Baltic sea) hotspots list. This international recognition is a great
achievement for the Company, the City of Tallinn and Estonia. The construction
of 13 hectares of composting fields, which enable us to turn all our sludge
production into a good quality soil conditioner used for greenery works and
reforestation, is now almost completed and already in use. The Paljassaare waste
water treatment plant, is not only treating effluent to a very high level of
quality and composting its sludge, but also turning the gas produced during the
treatment process into electricity, and is now a reference in terms of
recycling. On the clean water side, the biomanipulation project to improve the
condition of lake Ülemiste continues.
As we provide one of life's essential services, we have a very special
responsibility to the Community. The Company is well aware of this fact and has
been focusing on the quality of product delivered and the quality of service
provided to its clients, who are the community. In addition we have pursued our
investment and our support into several educational and social projects.
Our out performance in delivering the Services Agreement in Tallinn gives us a
strong market position and we are well positioned to build on our current
success. Focusing on our core activity, water and wastewater services, we have
expanded our service area: a way to maximise the excess capacity of our assets
and share our economy of scale with the municipalities surrounding Tallinn. We
will continue to focus on our core activity, and seek to expand geographically.
In addition, a review of potential routes for growing the Company in activities
closely related to water and wastewater, has been undertaken. The growth
prospects look promising.
The Company understands the importance of high standards of governance and
transparency in its actions and reporting, and this is described in more detail
in the corporate governance section of this report.
The Company has in 2006 delivered a strong set of financial results achieved in
a challenging environment. Revenue, supported by the strong economic growth of
the country, has grown year on year. A growth in volumes of water and waste
water sold was recorded, originating from a moderate increase in consumption in
the main service area of Tallinn and from a very sharp increase in the new
contracts signed with other municipalities. Despite pressure on labour costs,
increases in environmental taxes, more stringent consents that have triggered an
increase in chemical consumption, and the high level of inflation, the Company
has succeeded in improving its profit after tax to 15.9 mln euros. In parallel,
the Company has invested 15.8 mln euros in new assets.
The share price increased by 11.35% in 2006, and the dividend paid out amounted
to 0.5 euros/share. The Company is committed to stay focused on creating
shareholder value.
A review of the strategy established the 4 strategic objectives aligned with our
vision:
-To deliver Customer Service Excellence
-To deliver Operational Excellence
-To Grow the Activity of the Company
-To deliver Shareholder Value
The 2007 Company's objectives, with a strong emphasis on improving performance,
have been cascaded down and all the objectives have been aligned throughout the
Company.
With the commitment and hard work of all its employees, with the support of its
Supervisory Board and Shareholders, with constructive cooperation with all its
business partners, especially the City of Tallinn, the Company has developed
strong foundations for the future.
We intend to build on these strong foundations and continue to meet our business
objectives.
--------------------------------------------------------------------------------
| INCOME STATEMENT | | |
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--------------------------------------------------------------------------------
| (thousand EUR) | 2006 | 2005 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Sales from main operating activities | 37 655 | 35 146 |
--------------------------------------------------------------------------------
| Revenues from other operating activities | 6 650 | 2 691 |
--------------------------------------------------------------------------------
| Net sales | 44 305 | 37 838 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Costs of goods sold (main operating activities) | -14 095 | -12 914 |
--------------------------------------------------------------------------------
| Costs of goods sold (other operating activities) | -6 206 | -2 450 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| GROSS PROFIT | 24 005 | 22 474 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Marketing expenses | -612 | -433 |
--------------------------------------------------------------------------------
| General administration expenses | -3 280 | -4 107 |
--------------------------------------------------------------------------------
| Other income/ expenses (-) | 1 485 | 125 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| OPERATING PROFIT | 21 597 | 18 059 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Financial income / expenses (-) | -2 747 | -4 655 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| PROFIT BEFORE TAXES | 18 850 | 13 404 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Income tax on dividends | -2 997 | -2 260 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| NET PROFIT FOR THE PERIOD | 15 853 | 11 143 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Attributable to: | | |
--------------------------------------------------------------------------------
| Equity holders of A-shares | 15 852 | 11 143 |
--------------------------------------------------------------------------------
| B-share holder | 0,64 | 0,64 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Earnings per share in euros | 0,79 | 0,56 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| BALANCE SHEET | | |
--------------------------------------------------------------------------------
| (thousand EUR) | |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| ASSETS | 2006 | 2005 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| CURRENT ASSETS | | |
--------------------------------------------------------------------------------
| Cash at bank and in hand | 15 940 | 13 234 |
--------------------------------------------------------------------------------
| Customer receivables | 4 569 | 4 265 |
--------------------------------------------------------------------------------
| Accrued income and prepaid expenses | 304 | 338 |
--------------------------------------------------------------------------------
| Inventories | 201 | 202 |
--------------------------------------------------------------------------------
| Assets for sale | 105 | 89 |
--------------------------------------------------------------------------------
| TOTAL CURRENT ASSETS | 21 120 | 18 128 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| NON-CURRENT ASSETS | | |
--------------------------------------------------------------------------------
| Tangible assets | 119 969 | 117 503 |
--------------------------------------------------------------------------------
| Intangible assets | 3 361 | 2 811 |
--------------------------------------------------------------------------------
| Unfinished assets - non connections | 5 859 | 6 058 |
--------------------------------------------------------------------------------
| Unfinished pipelines - new connections | 7 488 | 6 979 |
--------------------------------------------------------------------------------
| Prepayments for fixed assets | 179 | 222 |
--------------------------------------------------------------------------------
| TOTAL NON-CURRENT ASSETS | 136 856 | 133 573 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| TOTAL ASSETS | 157 976 | 151 701 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| LIABILITIES AND EQUITY | | |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| CURRENT LIABILITIES | | |
--------------------------------------------------------------------------------
| Current portion of long-term borrowings | 30 | 86 |
--------------------------------------------------------------------------------
| Trade and other payables | 5 448 | 3 420 |
--------------------------------------------------------------------------------
| Taxes payable | 1 950 | 1 452 |
--------------------------------------------------------------------------------
| Short-term provisions | 34 | 18 |
--------------------------------------------------------------------------------
| Deferred income | 2 322 | 4 382 |
--------------------------------------------------------------------------------
| TOTAL CURRENT LIABILITIES | 9 784 | 9 359 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| NON-CURRENT LIABILITIES | | |
--------------------------------------------------------------------------------
| Borrowings | 74 527 | 74 498 |
--------------------------------------------------------------------------------
| Other payables | 6 | 6 |
--------------------------------------------------------------------------------
| TOTAL NON-CURRENT LIABILITIES | 74 534 | 74 504 |
--------------------------------------------------------------------------------
| TOTAL LIABILITIES | 84 318 | 83 863 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| EQUITY | | |
--------------------------------------------------------------------------------
| Share capital | 12 782 | 12 782 |
--------------------------------------------------------------------------------
| Share premium | 24 734 | 24 734 |
--------------------------------------------------------------------------------
| Statutory legal reserve | 1 278 | 1 278 |
--------------------------------------------------------------------------------
| Accumulated profit | 19 010 | 17 901 |
--------------------------------------------------------------------------------
| Net profit for the period | 15 853 | 11 143 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| TOTAL EQUITY | 73 658 | 67 839 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| TOTAL LIABILITIES AND EQUITY | 157 976 | 151 701 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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| CASH FLOW STATEMENT | | |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| (thousand EUR) | 2006 | 2005 |
--------------------------------------------------------------------------------
| CASH FLOWS FROM OPERATING ACTIVITIES | | |
--------------------------------------------------------------------------------
| Operating profit | 21 597 | 18 059 |
--------------------------------------------------------------------------------
| Adjustment for depreciation | 5 180 | 5 032 |
--------------------------------------------------------------------------------
| Adjustment for income and expenses from | -444 | -241 |
| constructions | | |
--------------------------------------------------------------------------------
| Other financial income and expenses | -34 | -1 279 |
--------------------------------------------------------------------------------
| Profit from sale of fixed assets | -1 592 | -759 |
--------------------------------------------------------------------------------
| Expensed fixed assets | 71 | 25 |
--------------------------------------------------------------------------------
| Capitalization of operating expenses | -1 337 | -1 488 |
--------------------------------------------------------------------------------
| Change in current assets involved in operating | -265 | 3 691 |
| activities | | |
--------------------------------------------------------------------------------
| Change in liabilities involved in operating | 383 | 410 |
| activities | | |
--------------------------------------------------------------------------------
| Interest paid | -3 071 | -3 825 |
--------------------------------------------------------------------------------
| Total cash flow from operating activities | 20 487 | 19 626 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| CASH FLOWS FROM INVESTING ACTIVITIES | | |
--------------------------------------------------------------------------------
| Proceeds from sale of shares of associated | 0 | 0 |
| company | | |
--------------------------------------------------------------------------------
| Acquisition of fixed assets (incl pipelines | -12 274 | -12 774 |
| construction) | | |
--------------------------------------------------------------------------------
| Proceeds from pipelines financed by construction | 7 200 | 3 355 |
| income | | |
--------------------------------------------------------------------------------
| Proceeds from sale of and prepayments received/ | -83 | 3 026 |
| repaid for fixed assets | | |
--------------------------------------------------------------------------------
| Proceeds from sale of assests for sale and of | 71 | 748 |
| real estate investments | | |
--------------------------------------------------------------------------------
| Interest received | 418 | 324 |
--------------------------------------------------------------------------------
| Total cash flow used in investing activities | -4 667 | -5 322 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| CASH FLOWS FROM FINANCING ACTIVITIES | | |
--------------------------------------------------------------------------------
| Received long-term loans | 0 | 44 503 |
--------------------------------------------------------------------------------
| Repayment of long-term loans | 0 | -42 500 |
--------------------------------------------------------------------------------
| Finance lease payments | -82 | -109 |
--------------------------------------------------------------------------------
| Dividends paid | -10 034 | -7 158 |
--------------------------------------------------------------------------------
| Income tax on dividends | -2 997 | -2 260 |
--------------------------------------------------------------------------------
| Total cash flow used in financing activities | -13 113 | -7 525 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Change in cash and bank accounts | 2 706 | 6 779 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| CASH AND EQUIVALENTS AT THE BEGINNING OF THE | 13 234 | 6 455 |
| PERIOD | | |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| CASH AND EQUIVALENTS AT THE END OF THE PERIOD | 15 940 | 13 234 |
--------------------------------------------------------------------------------
Addittional information:
Reigo Marosov
Head of Public Relations
+372 6262 209
reigo.marosov@tvesi.ee
