AUDITED RESULTS OF OPERATIONS - 2006

Tallinn, ESTONIA


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 246.5 mln kroons was carried out, to renew,
upgrade and develop the asset base of the Company. The main areas of investment 
were networks and water quality (182.8 mln kroons), and treated wastewater      
quality (43.7 mln kroons). In 2005 the Company invested 223.1 mln kroons overall
of which 130.7 mln kroons was in networks and water quality, and 30.4 mln kroons
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 54.7 mln kroons, 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 248.0 mln kroons. In         
parallel, the Company has invested 246.5 mln kroons in new assets.              
The share price increased by 11.35%  in 2006, and the dividend paid out amounted
to 7.85 kroons/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.                                                                     

1 EUR = 15,6466 EEK

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| INCOME STATEMENT                                 |            |              |
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| (thousand EEK)                              |       2006 |        2005 |     |
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| Sales from main operating activities        |    589 176 |     549 918 |     |
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| Revenues from other operating activities    |    104 048 |      42 111 |     |
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| Net sales                                   |    693 224 |     592 029 |     |
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| Costs of goods sold (main operating         |   -220 537 |    -202 055 |     |
| activities)                                 |            |             |     |
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| Costs of goods sold (other operating        |    -97 096 |     -38 338 |     |
| activities)                                 |            |             |     |
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| GROSS PROFIT                                |    375 591 |     351 636 |     |
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| Marketing expenses                          |     -9 578 |      -6 778 |     |
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| General administration expenses             |    -51 319 |     -64 257 |     |
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| Other income/ expenses (-)                  |     23 229 |       1 959 |     |
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| OPERATING PROFIT                            |    337 923 |     282 560 |     |
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| Financial income / expenses (-)             |    -42 981 |     -72 838 |     |
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| PROFIT BEFORE TAXES                         |    294 942 |     209 722 |     |
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| Income tax on dividends                     |    -46 896 |     -35 368 |     |
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| NET PROFIT FOR THE PERIOD                   |    248 046 |     174 354 |     |
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| Attributable to:                            |            |             |     |
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| Equity holders of A-shares                  |    248 036 |     174 344 |     |
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| B-share holder                              |         10 |          10 |     |
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| Earnings per share in kroons                |      12,40 |        8,72 |     |
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| BALANCE SHEET                               |            |             |     |
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| (thousand EEK)                              |                          |     |
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| ASSETS                                      | 31.12.2006 |  31.12.2005 |     |
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| CURRENT ASSETS                              |            |             |     |
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| Cash at bank and in hand                    |    249 413 |     207 067 |     |
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| Customer receivables                        |     71 490 |      66 737 |     |
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| Accrued income and prepaid expenses         |      4 756 |       5 286 |     |
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| Inventories                                 |      3 142 |       3 156 |     |
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| Assets for sale                             |      1 648 |       1 390 |     |
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| TOTAL CURRENT ASSETS                        |    330 449 |     283 636 |     |
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| NON-CURRENT ASSETS                          |            |             |     |
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| Tangible assets                             |  1 877 105 |   1 838 528 |     |
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| Intangible assets                           |     52 595 |      43 981 |     |
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| Unfinished assets - non connections         |     91 676 |      94 793 |     |
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| Unfinished pipelines - new connections      |    117 162 |     109 190 |     |
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| Prepayments for fixed assets                |      2 795 |       3 479 |     |
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| TOTAL NON-CURRENT ASSETS                    |  2 141 333 |   2 089 971 |     |
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| TOTAL ASSETS                                |  2 471 782 |   2 373 607 |     |
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| LIABILITIES AND EQUITY                      |            |             |     |
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| CURRENT LIABILITIES                         |            |             |     |
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| Current portion of long-term borrowings     |        473 |       1 340 |     |
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| Trade and other payables                    |     85 250 |      53 507 |     |
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| Taxes payable                               |     30 508 |      22 724 |     |
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| Short-term provisions                       |        538 |         289 |     |
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| Deferred income                             |     36 325 |      68 569 |     |
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| TOTAL CURRENT LIABILITIES                   |    153 094 |     146 429 |     |
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| NON-CURRENT LIABILITIES                     |            |             |     |
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| Borrowings                                  |  1 166 098 |   1 165 634 |     |
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| Other payables                              |        100 |         100 |     |
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| TOTAL NON-CURRENT LIABILITIES               |  1 166 198 |   1 165 734 |     |
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| TOTAL LIABILITIES                           |  1 319 292 |   1 312 163 |     |
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| EQUITY                                      |            |             |     |
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| Share capital                               |    200 001 |     200 001 |     |
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| Share premium                               |    387 000 |     387 000 |     |
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| Statutory legal reserve                     |     20 000 |      20 000 |     |
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| Accumulated profit                          |    297 443 |     280 089 |     |
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| Net profit for the period                   |    248 046 |     174 354 |     |
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| TOTAL EQUITY                                |  1 152 490 |   1 061 444 |     |
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| TOTAL LIABILITIES AND EQUITY                |  2 471 782 |   2 373 607 |     |
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| CASH FLOW STATEMENTS                        |            |             |     |
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| (thousand EEK)                              |       2006 |        2005 |     |
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| CASH FLOWS FROM OPERATING ACTIVITIES        |            |             |     |
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| Operating profit                            |    337 923 |     282 560 |     |
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| Adjustment for depreciation                 |     81 047 |      78 741 |     |
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| Adjustment for income and expenses from     |     -6 952 |      -3 773 |     |
| constructions                               |            |             |     |
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| Other financial income and expenses         |       -536 |     -20 012 |     |
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| Profit from sale of fixed assets            |    -24 917 |     -11 870 |     |
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| Expensed fixed assets                       |      1 106 |         394 |     |
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| Capitalization of operating expenses        |    -20 921 |     -23 280 |     |
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| Change in current assets involved in        |     -4 142 |      57 754 |     |
| operating activities                        |            |             |     |
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| Change in liabilities involved in operating |      5 994 |       6 414 |     |
| activities                                  |            |             |     |
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| Interest paid                               |    -48 051 |     -59 854 |     |
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| Total cash flow from operating activities   |    320 551 |     307 074 |     |
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| CASH FLOWS FROM INVESTING ACTIVITIES        |            |             |     |
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|                                             |          0 |           0 |     |
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| Acquisition of fixed assets (incl pipelines |   -192 048 |    -199 875 |     |
| construction)                               |            |             |     |
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| Proceeds from pipelines financed by         |    112 662 |      52 494 |     |
| construction income                         |            |             |     |
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| Proceeds from sale of and prepayments       |     -1 293 |      47 345 |     |
| received/ repaid for fixed assets           |            |             |     |
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| Proceeds from sale of assests for sale and  |      1 107 |      11 700 |     |
| of real estate investments                  |            |             |     |
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| Interest received                           |      6 545 |       5 067 |     |
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| Total cash flow used in investing           |    -73 027 |     -83 269 |     |
| activities                                  |            |             |     |
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| CASH FLOWS FROM FINANCING ACTIVITIES        |            |             |     |
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| Received long-term loans                    |          0 |     696 318 |     |
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| Repayment of long-term loans                |          0 |    -664 981 |     |
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| Finance lease payments                      |     -1 282 |      -1 707 |     |
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| Dividends paid                              |   -157 000 |    -112 000 |     |
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| Income tax on dividends                     |    -46 896 |     -35 368 |     |
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| Total cash flow used in financing           |   -205 178 |    -117 738 |     |
| activities                                  |            |             |     |
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| Change in cash and bank accounts            |     42 346 |     106 067 |     |
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| CASH AND EQUIVALENTS AT THE BEGINNING OF    |    207 067 |     101 000 |     |
| THE PERIOD                                  |            |             |     |
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| CASH AND EQUIVALENTS AT THE END OF THE      |    249 413 |     207 067 |     |
| PERIOD                                      |            |             |     |
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Addittional information:
Reigo Marosov                                                         
Head of Public Relations                                                        
+372 6262 209                                                                   
reigo.marosov@tvesi.ee

Attachments

annual report eur eng.pdf annual report eek eng.pdf