Result of operations - for the 1st quarter 2007 (EUR)

Tallinn, ESTONIA


Overview                                                                        

The performance in the 1st quarter of 2007 can be summed up as solid operational
performance strongly supplemented by several one-time improvements initiated and
delivered by the Company. During the 1st quarter of 2007 sales to residential   
customers increased by 9.9% year on year, sales to commercial customers within  
the service area increased by 8.5% year on year, and outside the service area   
sales increased by 72.7% year on year. With regard to costs, the company        
recorded zero failures in all pollution measures taken and as a result the      
amount of pollution tax payable reduced by 50%, also the Ministry of Environment
gave final approval to the success of the nitrogen project which resulted in the
release of a 0.9 mln EUR provision. The Company's quarterly net profit was 6.1  
mln EUR, which is a 0.02 mln EUR increase compared to the 1st quarter of 2006.
  
Key Financial Indicators                                                        

--------------------------------------------------------------------------------
|  | EUR                          |  3 months   |   3 months   |    Change     |
|  |                              |    2007     |     2006     |               |
--------------------------------------------------------------------------------
|  | Sales                        |        13,1 |         11,2 |         16,7% |
--------------------------------------------------------------------------------
|  | Main operating activities    |        10,3 |          9,4 |          9,5% |
--------------------------------------------------------------------------------
|  | Other operating activities   |         2,8 |          1,8 |         53,7% |
--------------------------------------------------------------------------------
|  | Gross profit                 |         7,7 |          6,1 |         27,3% |
--------------------------------------------------------------------------------
|  | Gross profit margin %        |       58,8% |        53,9% |          9,1% |
--------------------------------------------------------------------------------
|  | Operating profit             |         6,8 |          6,7 |          0,8% |
--------------------------------------------------------------------------------
|  | Operating profit margin %    |       51,5% |        59,7% |        -13,7% |
--------------------------------------------------------------------------------
|  | Profit before taxes          |         6,1 |          6,1 |          0,3% |
--------------------------------------------------------------------------------
|  | Profit before taxes margin % |       46,4% |        54,0% |        -14,1% |
--------------------------------------------------------------------------------
|  | Net profit                   |         6,1 |          6,1 |          0,3% |
--------------------------------------------------------------------------------
|  | ROA %                        |        3,8% |         3,9% |         -3,7% |
--------------------------------------------------------------------------------
|  | Debt to total capital        |       50,7% |        52,4% |         -3,3% |
|  | employed %                   |             |              |               |
--------------------------------------------------------------------------------

Gross profit margin - Gross profit / Net sales                                  
Operating profit margin - Operating profit / Net sales                          
Profit before taxes margin - Profit before taxes / Net sales                    
ROA - Net profit /Total Assets                                                  
Debt to Total capital employed - Total Liabilities / Total capital employed     

Profit and Loss Statement                                                       

Sales                                                                           

In the 1st quarter of 2007 the Company's total sales increased, year on year, by
16.7% to 13.1 mln EUR.  Sales from the Company's main operating activities were 
10.3 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 services area, and fees received from the City of Tallinn for
operating and maintaining the stormwater system.                                

Sales of water and wastewater treatment were 9.6 mln EUR, a 9.1% increase       
compared to the first quarter of 2007, resulting from the increase in tariffs   
from 1 January 2007 for the Company's residential and commercial customers.     

Included within this amount were the following increases by sector: Sales to    
residential customers increased by 9.9% to 5.2 mln EUR. Sales to commercial     
customers within the service area increased by 8.5% to 4.1 mln EUR. Sales to    
commercial customers outside of the service area - primarily bulk volumes of    
wastewater treatment services provided to the surrounding municipalities -      
reached 592 000 m3 or 0.3 mln EUR, which represents a 72.7% increase in sales   
value compared to the 1st quarter of 2006. Overpollution fees received were 0.1 
mln EUR lower than in the 1st quarter of 2006 due to a large credit invoice     
issued as a result of incorrect invoicing in prior years.  When excluding the   
effect of overpollution revenue, the growth in the sales of water and wastewater
services was 10.5% in the 1st quarter of 2007.                                  

In the 1st quarter of 2007 sales from the operation and maintenance of the      
stormwater and firehydrant system increased by 9.5% to 0.6 mln EUR compared to  
the same period in 2006. This is in accordance with the terms and conditions of 
the contract whereby the stormwater and firehydrant costs are invoiced based on 
actual volumes treated. This is contractually agreed up to 2015.                

Sales revenues from other operating activities (mainly connections and          
stormwater construction) increased by 53.7% to 2.8 mln EUR compared to the 1st  
quarter of 2006, due to increased connection revenues as a consequence of the   
activity in the real estate market.                                             

Cost of Goods Sold and Gross Margin                                             

The cost of goods sold for the main operating activity was 2.9 mln EUR in the   
1st quarter of 2007, a decrease of 0.6 mln EUR or 18.1% from the equivalent     
period in 2006. During the 1st quarter of 2007 the Ministry of Environment gave 
final approval to the success of the nitrogen project, which resulted in the    
release of a provision worth 0.9 mln EUR for environmental taxes.               
In addition to the environmental tax provision release, in the 1st quarter of   
2007 the Company recorded zero failures in all pollution measures taken and as a
result the amount of pollution tax payable reduced by 50% (0.1 mln EUR).        

In the 1st quarter of 2007 the Company has faced increasing pressure on chemical
prices, especially methanol. However these price increases have been partially  
offset by lower dosages used, which resulted in a total quarterly charge of 0.3 
mln EUR for chemical costs, which represents a 4.6% increase compared to the    
corresponding period in 2006.                                                   

Electricity prices increased by 0.04 mln EUR or 10.7% due to increased usage of 
energy. This was as a consequence of the unusually mild winter, which resulted  
in the peak demand for energy occurring earlier than normal.                    

Salaries increased by 0.06 mln EUR or 8.3%. As a consequence of the highly      
competitive labour market and rapidly growing salaries, in late 2006 all        
salaries were reviewed and increased to ensure competitiveness in the market    
and maintain personnel.                                                         

Other cost of goods sold in the main operating activity increased by 0.09 mln   
EUR, or 17.9% year on year. This was principally due to increased costs on a    
number of support services contracts, such as transport, maintenance, and       
reflects the significant increase in labour costs in Tallinn.                   

As a result of all of the above the Company's gross profit for the 1st quarter  
of 2007 was 7.7 mln EUR, which represents an increase of 1.7 mln EUR, or 27.3%, 
compared to the gross profit of 6.1 mln EUR for the 1st quarter of 2007.        

Operating Costs and Operating Margin                                            

Marketing expenses increased by 0.04 mln EUR to 0.2 mln EUR during the 1st      
quarter of 2007 compared to the corresponding period in 2006. This was a result 
of increases in salary costs and other marketing expenses. This increase in     
other marketing expenses was mainly due to the timing of the customer           
satisfaction survey.                                                            

General administration expenses increased by 0.1 mln EUR to 0.9 mln EUR in the  
1st quarter of 2007 as a consequence of an increase in salaries and other       
general administration expenses. Other general expenses are higher as a result  
of lower salary capitalizations.                                                

Included within the above cost categories are staff costs. These totaled 1.2 mln
EUR in the 1st quarter of 2007, which is a 0.09 mln EUR or 8.4% increase        
compared to the same period in 2006, which as mentioned earlier was due to of   
the company wide revision of salaries.                                          

Other net income/expenses totalled a 0.2 mln EUR income stream in the 1st       
quarter of 2007 compared to a 1.6 mln EUR income stream in the 1st quarter of   
2006. Other net income/expenses in the 1st quarter of 2006 consisted mainly of  
the recognition of 1.5 mln EUR of profits subsequent to concluding the sale of  
excess land in Paljassaare. In the 1st quarter of 2007 this revenue stream      
mainly consists of positive movements of the bad debt provision and revenues    
generated from a consultancy project in the Republic of Tajikistan.             

As a result of all of the above the Company's operating profit for the 1st      
quarter of 2007 was 6.8 mln EUR, an increase of 0.02 mln EUR compared to an     
operating profit of 6.7 mln EUR achieved in the 1st quarter of 2006.            

Financial expenses                                                              

Net Financial expenses were 0.6 mln EUR in the 1st quarter of 2007, which is an 
increase of 0.03 mln EUR or 5.4% compared to the 1st quarter of 2006. The       
Company`s interest costs have increased by 15.5% compared to the 1st quarter of 
2006. This is due to the fact that half of the Company`s loans are connected to 
the 6 month Euribor rate, which has increased from 2.643% at the beginning of   
2006 up to 4.043% at the end of the 1st quarter of 2007. At the same time       
financial income earned has increased by 0.06 mln EUR up to 0.1 mln EUR as a    
result of improved cash management, a favourable cash position and increasing   
interest rates.                                                                 

Profit Before Tax                                                               

The Company's profit before taxes for the 1st quarter of 2007 was 6.1 mln EUR,  
which is 0.02 mln EUR higher than the profit before taxes of 6.1 mln EUR for the
1st quarter of 2006.                                                            

Balance sheet                                                                   

The Company's total assets were 101.8 mln EUR as at 31 March 2007, representing 
an increase of 3.8 mln EUR compared to 31 December 2006. Current assets         
increased by 6 mln EUR in the quarter, which was largely attributable to an     
increase in cash and accounts receivable reflecting the increase in sales of    
water and wastewater treatment services.                                        

In the 1st quarter of 2007 the Company invested 1.7 mln EUR into fixed assets.  
However tangible, intangible and unfinished assets were 134.4 mln EUR at 31     
March 2007, a decrease of 2.3 mln EUR  due to the costs and revenues from       
completed customer connections  being expensed from the balance sheet to the    
income statement - this can be seen in revenues and costs from other operating  
activities in the income statement.                                             

Current liabilities decreased by 2.3 mln EUR to 7.5 mln EUR in the first three  
months of the year. This was mainly due to decreased investment payables,       
reflecting the reduced levels of investment activity during winter.             

The company continues to maintain its leverage level within its target range of 
50-60% with total liabilities to total capital employed of 50.7% as at 31 March 
2007. Long-term liabilities stood at 74.5 mln EUR at the end of March 2007,     
consisting almost entirely of the outstanding balance on the two long-term bank 
loans.                                                                          

Cash flow                                                                       

During the first three months of 2007, the Company generated 5.5 mln EUR of cash
flows from operating activities, an increase of 0.03 mln EUR compared to the    
corresponding period in 2006. An increase in underlying operating profit (after 
removing land sales from 1st quarter 2006) was offset by negative working       
capital movements in the first quarter of 2007 - there were a number of invoices
outstanding at the balance sheet totalling 2.2 mln EUR which have subsequently  
been paid.                                                                      

In the 1st quarter of 2007 net cash outflows from investing activities were 2.2 
mln EUR, which is 1.6 mln EUR more than in 2006. This was mainly due to the 1.7 
mln EUR stormwater construction invoice payment becoming due in April in 2007,  
while it was paid during March  in 2006.                                        

Cash outflows from financing activities were 0.02 mln EUR during the first three
months of the year, which is in line with the outflows in the corresponding     
period in 2006 and consists entirely of finance lease payments.                 

As a result of all of the above factors, the total cash inflow in the 1st       
quarter of 2007 was 3.2 mln EUR compared to a cash inflow of 4.8 mln EUR in the 
first three months of 2006. Cash and cash equivalents stood at 19.2 mln EUR as  
at 31 March 2007.                                                               

Employees                                                                       

As of 31 March 2007 the Company employed 313 people consisting of 223 people in 
the Operations division and 90 people in Commercial and Corporate Services. The 
number of employees has decreased by 5 people since the beginning of the year.  

Dividends and share performance                                                 

Based on the results of the 2006 financial  year,  the  AGM  of AS Tallinna Vesi
approved a dividend payout of 12,527,322.23 EUR. Of this 639.12 EUR will be paid
to the  owner of the B-share and 12.5 mln EUR, ie 0.63 EUR per share to the     
owners of the A-shares.  Dividends will be paid on 15 June 2007.                

As of 31 March 2007 AS Tallinna Vesi shareholders, with a holding over 5%, were:

United Utilities (Tallinn) BV	                            35.3%
City of Tallinn		                                     34.7%
Morgan Stanley + Co International Equity client account	 7.01%
  
At the end of the reporting period, 31 March 2007, the closing price of the AS  
Tallinna Vesi share was 16.01 EUR, which is a 9.9% increase since the beginning 
of the year outperforming the market.                                           

Operational achievements in 2007                                                

-     In the 1st quarter the Ministry of the Environment confirmed the success
of the 
Nitrogen removal project at Paljassaare wastewater treatment plant and reported 
that it had exceeded expectations.                                              
-     The work on the new Paljassaare sludge processing building and the sludge 
composting fields continued. The building will allow for the more effective and 
efficient operation and maintenance of this equipment and realise further       
benefits in the operation of the wastewater and sludge treatment processes. This
will enable the Company to continue with its environmentally friendly and cost  
effective policy of disposing zero sludge to landfill. The total cost of the    
project is over 2.6 mln EUR and it will be completed in 2007.                   
-     All outfall effluent samples at all locations complied with requirements
and as 
a consequence the environmental charges for the quarter attracted a 50%         
reduction.                                                                   
-     During the 1st quarter of 2007 the Company completed the first phase of
its 
customer management system. This included many products and services that have  
and will improve our interactions with customers, direct debit, e-billing, auto 
reminders to name but a few. One part of the system that was implemented in this
quarter was the successful launch of our web-based self-service, which will     
enable customers to self manage many of their transactions with ASTV.  Whilst   
this product is not completely finished we have already seen some immediate     
benefits, with almost 500 customers sending meter readings via the web interface
in March.                                                                       


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| INCOME STATEMENT                  |             |             |              |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| (thousand EUR)                    |   I Quarter |   I Quarter |    12 months |
|                                   |        2007 |        2006 |         2006 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Sales from main operating         |      10 298 |       9 408 |       37 655 |
| activities                        |             |             |              |
--------------------------------------------------------------------------------
| Revenues from other operating     |       2 828 |       1 839 |        6 650 |
| activities                        |             |             |              |
--------------------------------------------------------------------------------
| Net sales                         |      13 126 |      11 247 |       44 305 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Costs of goods sold (main         |      -2 869 |      -3 505 |      -14 095 |
| operating activities)             |             |             |              |
--------------------------------------------------------------------------------
| Costs of goods sold (other        |      -2 535 |      -1 678 |       -6 206 |
| operating activities)             |             |             |              |
--------------------------------------------------------------------------------
|                                   |             |             |              |
--------------------------------------------------------------------------------
| GROSS PROFIT                      |       7 722 |       6 065 |       24 005 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Marketing expenses                |        -202 |        -163 |         -612 |
--------------------------------------------------------------------------------
| General administration expenses   |        -913 |        -806 |       -3 280 |
--------------------------------------------------------------------------------
| Other income/ expenses (-)        |         153 |       1 615 |        1 485 |
--------------------------------------------------------------------------------
|                                   |             |             |              |
--------------------------------------------------------------------------------
| OPERATING PROFIT                  |       6 761 |       6 710 |       21 597 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Financial income / expenses (-)   |        -670 |        -635 |       -2 747 |
--------------------------------------------------------------------------------
|                                   |             |             |              |
--------------------------------------------------------------------------------
| PROFIT BEFORE TAXES               |       6 091 |       6 075 |       18 850 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Income tax on dividends           |           0 |           0 |       -2 997 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| NET PROFIT FOR THE PERIOD         |       6 091 |       6 075 |       15 853 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Attributable to:                  |             |             |              |
--------------------------------------------------------------------------------
| Equity holders of A-shares        |       6 090 |       6 074 |       15 852 |
--------------------------------------------------------------------------------
| B-share holder                    |        0,64 |        0,64 |         0,64 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Earnings per share in euros       |        0,30 |        0,30 |         0,79 |
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| BALANCE SHEET                     |             |             |              |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| (thousand EUR)                    |  31.03.2007 |  31.03.2006 |   31.12.2006 |
--------------------------------------------------------------------------------
| ASSETS                            |             |             |              |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| CURRENT ASSETS                    |             |             |              |
--------------------------------------------------------------------------------
| Cash at bank and in hand          |       18551 |       18004 |        15940 |
--------------------------------------------------------------------------------
| Commercial paper                  |         631 |           0 |            0 |
--------------------------------------------------------------------------------
| Customer receivables              |        7401 |        4799 |         4569 |
--------------------------------------------------------------------------------
| Accrued income and prepaid        |         273 |         755 |          304 |
| expenses                          |             |             |              |
--------------------------------------------------------------------------------
| Inventories                       |         201 |         196 |          201 |
--------------------------------------------------------------------------------
| Assets for sale                   |          97 |          96 |          105 |
--------------------------------------------------------------------------------
| TOTAL CURRENT ASSETS              |       27153 |       23851 |        21120 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| NON-CURRENT ASSETS                |             |             |              |
--------------------------------------------------------------------------------
| Tangible assets                   |      121833 |      116467 |       119969 |
--------------------------------------------------------------------------------
| Intangible assets                 |        3249 |        2740 |         3361 |
--------------------------------------------------------------------------------
| Unfinished assets - non           |        4077 |        6223 |         5859 |
| connections                       |             |             |              |
--------------------------------------------------------------------------------
| Unfinished pipelines - new        |        5254 |        5856 |         7488 |
| connections                       |             |             |              |
--------------------------------------------------------------------------------
| Prepayments for fixed assets      |         206 |         216 |          179 |
--------------------------------------------------------------------------------
| TOTAL NON-CURRENT ASSETS          |      134618 |      131502 |       136856 |
--------------------------------------------------------------------------------
|                                   |             |             |              |
--------------------------------------------------------------------------------
| TOTAL ASSETS                      |      161771 |      155353 |       157976 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| LIABILITIES                       |             |             |              |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| CURRENT LIABILITIES               |             |             |              |
--------------------------------------------------------------------------------
| Current portion of long-term      |          11 |          81 |           30 |
| borrowings                        |             |             |              |
--------------------------------------------------------------------------------
| Trade and other payables, incl.   |        4046 |        2728 |         5448 |
| dividends                         |             |             |              |
--------------------------------------------------------------------------------
| Taxes payable                     |        1269 |        2267 |         1950 |
--------------------------------------------------------------------------------
| Short-term provisions             |          49 |          22 |           34 |
--------------------------------------------------------------------------------
| Deferred income                   |        2100 |        1843 |         2322 |
--------------------------------------------------------------------------------
| TOTAL CURRENT LIABILITIES         |        7475 |        6941 |         9784 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| NON-CURRENT LIABILITIES           |             |             |              |
--------------------------------------------------------------------------------
| Finance lease                     |           0 |           7 |            0 |
--------------------------------------------------------------------------------
| Bank loans                        |       74541 |       74485 |        74527 |
--------------------------------------------------------------------------------
| Other payables                    |           6 |           6 |            6 |
--------------------------------------------------------------------------------
| TOTAL NON-CURRENT LIABILITIES     |       74548 |       74499 |        74534 |
--------------------------------------------------------------------------------
| TOTAL LIABILITIES                 |       82023 |       81440 |        84318 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| EQUITY CAPITAL                    |             |             |              |
--------------------------------------------------------------------------------
| Share capital                     |       12782 |       12782 |        12782 |
--------------------------------------------------------------------------------
| Share premium                     |       24734 |       24734 |        24734 |
--------------------------------------------------------------------------------
| Statutory legal reserve           |        1278 |        1278 |         1278 |
--------------------------------------------------------------------------------
| Accumulated profit                |       34863 |       29044 |        19010 |
--------------------------------------------------------------------------------
| Net profit for the period         |        6091 |        6075 |        15853 |
--------------------------------------------------------------------------------
| TOTAL EQUITY CAPITAL              |       79749 |       73914 |        73658 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| TOTAL LIABILITIES AND EQUITY      |      161771 |      155353 |       157976 |
| CAPITAL                           |             |             |              |
--------------------------------------------------------------------------------


--------------------------------------------------------------------------------
| CASH FLOW STATEMENT                            |              |              |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| (thousand EEK)                                 |     3 months |     3 months |
|                                                |         2007 |         2006 |
--------------------------------------------------------------------------------
| CASH FLOWS FROM OPERATING ACTIVITIES           |              |              |
--------------------------------------------------------------------------------
| Operating profit                               |        6 761 |        6 710 |
--------------------------------------------------------------------------------
| Adjustment for depreciation                    |        1 259 |        1 298 |
--------------------------------------------------------------------------------
| Adjustment for income and expenses from        |         -293 |         -161 |
| constructions                                  |              |              |
--------------------------------------------------------------------------------
| Other financial income and expenses            |          -15 |          -25 |
--------------------------------------------------------------------------------
| Profit from sale of fixed assets               |            1 |       -1 575 |
--------------------------------------------------------------------------------
| Expensed fixed assets                          |            0 |           27 |
--------------------------------------------------------------------------------
| Capitalization of operating expenses           |         -297 |         -332 |
--------------------------------------------------------------------------------
| Movement in current assets involved in         |         -979 |         -861 |
| operating activities                           |              |              |
--------------------------------------------------------------------------------
| Movement in liabilities involved in operating  |         -929 |          398 |
| activities                                     |              |              |
--------------------------------------------------------------------------------
| Interest paid                                  |           -1 |           -2 |
--------------------------------------------------------------------------------
| Total cash flow from operating activities      |        5 508 |        5 478 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| CASH FLOWS FROM INVESTING ACTIVITIES           |              |              |
--------------------------------------------------------------------------------
| Acquisition of fixed assets (incl pipelines    |       -3 327 |       -2 462 |
| construction)                                  |              |              |
--------------------------------------------------------------------------------
| Proceeds from pipelines financed by            |          934 |        1 843 |
| construction income                            |              |              |
--------------------------------------------------------------------------------
| Proceeds from sale of and prepayments received |            1 |         -204 |
| for fixed assets                               |              |              |
--------------------------------------------------------------------------------
| Proceeds from sale of assets and real estate   |            0 |           71 |
| investments                                    |              |              |
--------------------------------------------------------------------------------
| Interest received                              |          145 |           69 |
--------------------------------------------------------------------------------
| Total cash flow from investing activities      |       -2 248 |         -683 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| CASH FLOWS FROM FINANCING ACTIVITIES           |              |              |
--------------------------------------------------------------------------------
| Finance lease payments                         |          -20 |          -24 |
--------------------------------------------------------------------------------
| Total cash flow from financing activities      |          -20 |          -24 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Change in cash and bank accounts               |        3 241 |        4 770 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| CASH AND EQUIVALENTS AT THE BEGINNING OF THE   |       15 940 |       13 234 |
| PERIOD                                         |              |              |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| CASH AND EQUIVALENTS AT THE END OF THE PERIOD  |       19 181 |       18 004 |
--------------------------------------------------------------------------------

Additional information:                                                         
Eteri Harring                                                                   
Head of Treasury and Investor Relations                                         
+372 6262 225                                                                   
eteri.harring@tvesi.ee