MANAGEMENT REPORT
Chairman´s summary
The performance of AS Tallinna Vesi in the 1st quarter of 2018 once again reflects improvements in several operational, as well as financial indicators, compared to previous years. Consistently high standards were achieved regarding the parameters reflecting the quality of both drinking water and treated effluent, as well as customer service.
Financial performance
The Group’s total sales during the 1st quarter of 2018 increased by 2.1% to 14.08 million, as we witnessed an increase in sales in all our main water supply and waste water disposal related services. Sales to private customers increased by 1.3% and sales to corporate customers by 1.6%. Group’s net profit was EUR 6.53 million, showing an increase of 2.7% year-on-year.
Excellent operational results
The quality of drinking water remained excellent in the 1st quarter of 2018. Water samples taken from customers’ taps were 99.87% compliant with all requirements. We are also delighted to see a reduction in the number of customer contacts regarding water quality year on year.
We work tirelessly to provide our customers and end users with a stable and uninterrupted service. We are pleased to see that the average water disruption time to individual properties, has further reduced from 3 hours 1 minute to 2 hours 52 minutes. The issues with the sewerage network have also reduced, and the number of sewer blockages dropped to 156 during the first three months.
Water losses showed a slight increase in the first three months of 2018, compared to the previous year, 15.19% v 13.73%. This is still an excellent result, with the slight decline in performance resulting from the longer winter, which made leakage detection difficult under the continuous blanket of snow.
In the 1st quarter of 2018, the treated effluent at Paljassaare Wastewater Treatment Plant was compliant with all stipulated quality requirements.
Tariff application
Shortly before the end of the year, the Estonian Supreme Court made a decision on the tariff dispute between Tallinna Vesi and Estonian Competition Authority. The price of water and wastewater service, is now subject to approval by the Competition Authority using their methodology. On 28th of February, AS Tallinna Vesi submitted its application for the approval of the new water tariffs to Competition Authority. The tariffs calculated in the Company’s tariff application, are close to the currently applicable water tariffs, which have remained unchanged since 2010.
This is the first tariff application for Tallinna Vesi, which has been submitted based on the Competition Authority’s recommendatory methodology. Consequently, there are several key points in the tariff application that have required further discussions with the Competition Authority, who has reviewed the initial application and suggested several additions for it to meet all of the requirements. Therefore, it is still unclear, when the new tariffs will be approved.
Tallinna Vesi still awaiting the final verdict from the International Arbitration, on whether the investor’s interests have been adversely affected, and whether this should be compensated.
OPERATIONAL INDICATORS FOR THREE MONTHS OF 2018
| Indicator | Unit | 2018 | 2017 | 2016 | |||||||||
| Compliance of water quality at the customers’ tap | % | 99.9 | 100.0 | 100.0 | |||||||||
| Water loss in the water distribution network | % | 15.2 | 13.7 | 17.5 | |||||||||
| Average duration of water interruptions per property in hours | h | 2.86 | 3.02 | 3.49 | |||||||||
| Number of sewer blockages | No | 156 | 195 | 188 | |||||||||
| Number of sewer bursts | No | 25 | 39 | 26 | |||||||||
| Wastewater treatment compliance with environmental standards | % | 100.0 | 100.0 | 100.0 | |||||||||
| Number of written complaints | No | 21 | 9 | 11 | |||||||||
| Number of customer contacts regarding water quality | No | 14 | 24 | 13 | |||||||||
| Number of customer contacts regarding water pressure | No | 37 | 38 | 58 | |||||||||
| Number of customer contacts regarding blockages and discharge of storm water | No | 250 | 269 | 300 | |||||||||
| Responding written customer contacts within at least 2 work days | % | 100.0 | 99.9 | 98.1 | |||||||||
| Number of failed promises | No | 3 | 3 | 0 | |||||||||
| Notification of unplanned water interruptions at least 1 h before the interruption | % | 96.7 | 100.0 | 96.5 |
FINANCIAL HIGHLIGHTS FOR THE 1st QUARTER 2018
The Group’s sales revenues during the 1st quarter of 2018 were EUR 14.08 million, being up by 2.1% or EUR 0.30 million compared to the same period in 2017.
The gross profit in the 1st quarter of 2018 was EUR 8.32 million, showing an increase of 1.4% or EUR 0.11 million. Increase in gross profit was mainly related to higher water, wastewater and storm water revenues, accompanied by lower electricity costs and depreciation. It was balanced by higher staff and chemicals costs.
The operating profit was EUR 6.80 million, showing an increase of 4.8% or EUR 0.31 million. In addition to the above-mentioned changes in gross profit, the operating profit was mainly impacted by lower tariff dispute related costs in the 1st quarter of 2018.
The net profit for the 1st quarter of 2018 was EUR 6.53 million, showing an increase by 2.7% or EUR 0.17 million. The net profit was mainly impacted by above mentioned changes in the operating profit, and by higher financial expenses. The changes in the financial expenses were mostly influenced by the lower positive change in the fair value of swap contracts in the 1st quarter of 2018 compared to the positive change in the same quarter of 2017. The net profit for the 1st quarter of 2018 and 2017 without the impact resulted from the change of the fair value of swap contracts was EUR 6.45 million and EUR 6.11 million respectively, being higher by 5.6% or EUR 0.34 million year-on-year.
MAIN FINANCIAL INDICATORS
| EUR million, | 1st quarter | Change 2018/2017 | ||
| except key ratios | 2018 | 2017 | 2016 | |
| Sales | 14.08 | 13.78 | 14.37 | 2.1% |
| Gross profit | 8.32 | 8.21 | 8.34 | 1.4% |
| Gross profit margin % | 59.10 | 59.56 | 58.02 | -0.8% |
| Operating profit | 6.80 | 6.49 | 6.63 | 4.8% |
| Operating profit - main business | 6.73 | 6.48 | 6.55 | 3.9% |
| Operating profit margin % | 48.29 | 47.07 | 46.15 | 2.6% |
| Profit before taxes | 6.53 | 6.36 | 5.64 | 2.7% |
| Profit before taxes margin % | 46.42 | 46.16 | 39.23 | 0.6% |
| Net profit | 6.53 | 6.36 | 5.64 | 2.7% |
| Net profit margin % | 46.42 | 46.16 | 39.23 | 0.6% |
| ROA % | 2.83 | 2.94 | 2.65 | -4.0% |
| Debt to total capital employed % | 60.56 | 56.19 | 56.15 | 7.8% |
| ROE % | 7.33 | 6.87 | 6.14 | 6.8% |
| Current ratio | 6.98 | 5.46 | 5.79 | 27.8% |
Gross profit margin – Gross profit / Net sales
Operating profit margin – Operating profit / Net sales
Net profit margin – Net profit / Net sales
ROA – Net profit / Average Total assets for the period
Debt to Total capital employed – Total liabilities / Total capital employed
ROE – Net profit / Average Total equity for the period
Current ratio – Current assets / Current liabilities
Main business – water and wastewater activities, excl. connections profit and government grants, construction, design and asphalting services, doubtful debt
FINANCIAL RESULTS FOR THE 1st QUARTER 2018
Statement of comprehensive income
SALES
As in the 1st quarter of 2018 the Company’s tariffs were frozen at the 2010 tariff level, the changes in the main activities revenues, i.e. from sales of water and wastewater services, are fully driven by consumption with no considerable seasonality in the main business. In the future, the Company does not expect significant changes in the consumption. There has been incremental increase in consumption in the past and that is expected to continue.
At the end of 2017, the Supreme Court made a negative decision as regards to the Company’s cassation as a result of which, the Company’s tariffs will be regulated under the Competition Authority’s methodology. On 28th February 2018 Company submitted its tariff application for Tallinn and Saue area to the Competition Authority. The tariffs applied for are similar to the water and waste water tariffs currently charged in the area. The Competition Authority had reviewed the tariff application and asked additional information, in order to the application to meet set requirements. The Company needs to submit the amended tariff application by 2nd May 2018. Competition Authority has up to 90 days to review the application starting from receiving the application, which meets all the requirements. The new tariffs that will be approved and applied in the area will be known after the full process is completed and Competition Authority has approved new tariffs.
In the 1st quarter of 2018 the Group’s total sales were EUR 14.08 million, showing an increase by 2.1% or EUR 0.30 million year-on-year. 91.4% of sales comprise of sales of water and wastewater services to domestic and commercial customers within and outside of the service area. 5.7% of sales are the fees received from the City of Tallinn for operating and maintaining the storm water system and fire hydrants, 2.0% from construction and asphalting services and 1.0% from other works and services. The construction and asphalting services sales are more seasonal and the Company continues to seek possibilities to keep and to grow these services revenues.
| 1st quarter | Variance 2018/2017 | |||||||
| EUR thousand | 2018 | 2017 | 2016 | EUR | % | |||
| Private clients, incl: | 6,428 | 6,347 | 6,338 | 81 | 1.3% | |||
| Water supply service | 3,532 | 3,489 | 3,485 | 43 | 1.2% | |||
| Waste water disposal service | 2,896 | 2,858 | 2,853 | 38 | 1.3% | |||
| Corporate clients, incl: | 5,142 | 5,063 | 4,883 | 79 | 1.6% | |||
| Water supply service | 2,784 | 2,771 | 2,673 | 13 | 0.5% | |||
| Waste water disposal service | 2,358 | 2,292 | 2,21 | 66 | 2.9% | |||
| Outside service area clients, incl: | 1,112 | 1,108 | 1,13 | 4 | 0.4% | |||
| Water supply service | 334 | 329 | 308 | 5 | 1.5% | |||
| Waste water disposal service | 688 | 683 | 670 | 5 | 0.7% | |||
| Storm water disposal service | 90 | 96 | 152 | -6 | -6.3% | |||
| Over pollution fee | 182 | 210 | 171 | -28 | -13.3% | |||
| Total water supply and waste water disposal service | 12,864 | 12,728 | 12,522 | 136 | 1.1% | |||
| Storm water treatment and disposal service and fire hydrants service | 796 | 741 | 945 | 55 | 7.4% | |||
| Construction service, design and asphalting | 283 | 181 | 761 | 102 | 56.4% | |||
| Other works and services | 134 | 131 | 141 | 3 | 2.3% | |||
| SALES REVENUES TOTAL | 14,077 | 13,781 | 14,369 | 296 | 2.1% | |||
Sales from water and wastewater services were EUR 12.86 million, showing a 1.1% or EUR 0.14 million increase compared to the 1st quarter of 2017, resulting from the changes in sales volumes as described below:
- There has been an increase in private customers’ revenues of 1.3% to EUR 6.43 million. The increase in domestic customer consumption volumes came mainly from apartment blocks, which is also our biggest private customer group. There was a slight decrease in an individual houses segment consumption.
- Sales to corporate customers within the service area increased by 1.6% to EUR 5.14 million. Increase was related to an increase in the sales of industrial and other commercial customer segments. At the same time the consumption of leisure sector customers decreased.
- Sales to customers outside the main service area increased by 0.4% to EUR 1.11 million. It was mainly impacted by a small increase in the sales of water supply and waste water disposal services, balanced by decrease in the sales of storm water disposal service.
- Over pollution fees received have decreased by 13.3% to EUR 0.18 million.
Sales from the operation and maintenance of the main service area storm water and fire hydrant system amounted to EUR 0.80 million, showing an increase of 7.4% or EUR 0.05 million in the 1st quarter of 2018 compared to the same period in 2017, driven mainly by 14.5% higher storm water volumes.
Sales of construction, design and asphalting services were EUR 0.28 million, increasing by 56.4% or EUR 0.10 million year-on-year. The increase was related to higher pipe construction services revenues during the 1st quarter of 2018.
COST OF GOODS/ SERVICES SOLD AND GROSS PROFIT
The cost of goods sold amounted to EUR 5.78 million in the 1st quarter of 2018, increasing by 3.3% or EUR 0.18 million compared to the equivalent period in 2017. The increase was mainly influenced by increase in construction and asphalting services related costs, chemicals and staff costs, balanced by decrease in electricity and depreciation expenses.
| 1st quarter | Variance 2018/2017 | ||||
| EUR thousand | 2018 | 2017 | 2016 | EUR | % |
| Water abstraction charges | -291 | -296 | -291 | 5 | 1.7% |
| Chemicals | -435 | -333 | -342 | -102 | -30.6% |
| Electricity | -759 | -854 | -810 | 95 | 11.1% |
| Pollution tax | -277 | -292 | -336 | 15 | 5.1% |
| Total direct production costs | -1,762 | -1,775 | -1,779 | 13 | 0.7% |
| Staff costs | -1,593 | -1,421 | -1,418 | -172 | -12.1% |
| Depreciation and amortization | -1,283 | -1,351 | -1,431 | 68 | 5.0% |
| Construction service, design and asphalting | -241 | -138 | -675 | -103 | -74.6% |
| Other costs of goods/services sold | -878 | -888 | -729 | 10 | 1.1% |
| Other costs of goods/services sold total | -3,995 | -3,798 | -4,253 | -197 | -5.2% |
| Total cost of goods/services sold | -5,757 | -5,573 | -6,032 | -184 | -3.3% |
Total direct production costs (water abstraction charges, chemicals, electricity and pollution tax expenses) amounted to EUR 1.76 million, showing a slight 0.7% or EUR 0.01 million decrease compared to the equivalent period in 2017. Changes in direct production costs came from a combination of changes in prices and in treated volumes that affected the cost of goods sold together with the following additional factors:
- Water abstraction charges decreased by 1.7% to EUR 0.29 million, driven mainly by overall 1.0% decrease in subtracted water volumes.
- Chemicals costs increased by 30.6% to EUR 0.44 million, driven by higher usage of methanol and coagulant to remove pollutants and 8.8% higher methanol price in the waste water treatment process, worth respectively EUR 0.05 million, EUR 0.02 million and EUR 0.02 million. Higher chemicals costs in wastewater treatment process were accompanied by higher dosage of coagulant in water treatment process due to poor raw water quality, worth EUR 0.01 million.
- Electricity costs decreased by 11.1% to EUR 0.76 million, driven by on average 13.7% lower electricity prices (including networks fees), worth EUR 0.12 million. Lower costs from prices were partly balanced by increase in treated waste water volumes, worth EUR 0.03 million.
- Pollution tax expense decreased by 5.1% to EUR 0.28 million, mainly due to lower pollution load of pollutants, balanced by 4.0% increase in treated waste water volumes, worth respectively EUR +0.03 million and EUR -0.01 million.
Other costs of goods sold (staff costs, depreciation, construction and asphalting services costs and other costs of goods sold) amounted to EUR 3.99 million, having increased by 5.2% or EUR 0.20 million. The increase came mostly from staff and costs related to construction and asphalting services, balanced by decrease in depreciation costs. Staff costs increase by 12.1% to EUR 1.59 million was related to change of salaries from the beginning of the year for all employees based on CPI increase and higher workload during winter time, accompanied by redundancy payments related to structural changes made in the 1st quarter 2018 to increase efficiency in Company’s processes. Increase in construction and asphalting services costs by 74.6% to EUR 0.24 million was related to an increase in construction and asphalting services revenues mentioned earlier and project specific changes. Decrease in depreciation by 5.0% to EUR 1.28 million was mainly related to lower cost of machinery and equipment depreciation year-on-year.
As a result of all above the Group’s gross profit for the 1st quarter of 2018 was EUR 8.32 million, showing an increase of 1.4% or EUR 0.11 million, compared to the gross profit of EUR 8.21 million for the comparative period of 2017.
ADMINISTRATIVE AND MARKETING EXPENSES
Administrative and marketing expenses amounted to EUR 1.49 million, having decreased by 10.6% or EUR 0.18 million. The decrease was mainly related to lower tariff dispute related costs.
OPERATING PROFIT
As a result of the factors listed above the Group’s operating profit for the 1st quarter of 2018 amounted to EUR 6.80 million, being 4.8% or EUR 0.31 million higher than in the corresponding period of 2017. The Group’s operating profit from main business was EUR 6.73 million, being 3.9% or EUR 0.25 million higher compared to 2017.
FINANCIAL EXPENSES
The Group’s net financial income and expenses have resulted a net expense of EUR 0.26 million, compared to net expense of EUR 0.13 million in the 1st quarter of 2017. The increase was mainly impacted by a lower positive change in the fair value of the swap contracts year-on-year and lower interest costs, worth respectively EUR -0.17 million and EUR +0.03 million.
The standalone swap agreements have been signed to mitigate the majority of the long term floating interest risk. The interest swap agreements are signed for EUR 75 million and EUR 20 million are still with floating interest rate. At this point in time the estimated fair value of the swap contracts is negative, amounting to EUR 0.67 million. Effective interest rate of loans (incl. swap interests) in the 1st quarter of 2018 was 1.46%, amounting to interest costs of EUR 0.35 million, compared to the effective interest rate of 1.60% and the interest costs of EUR 0.38 million in the 1st quarter of 2017.
PROFIT BEFORE TAXES AND NET PROFIT
The Group’s profit before taxes and net profit for the 1st quarter of 2018 were EUR 6.53 million, being 2.7% or EUR 0.17 million higher than for the 1st quarter of 2017. Eliminating the effects of the change of the fair value of swap contracts the Group’s net profit for the 1st quarter of 2018 and 2017 would have been EUR 6.45 million and EUR 6.11 million respectively, showing an increase of 5.6% or EUR 0.34 million year-on-year.
STATEMENT OF FINANCIAL POSITION
In the three months of 2018 the Group invested into fixed assets EUR 0.85 million. As of 31.03.2018, non-current tangible assets amounted to EUR 173.90 million and total non-current assets amounted to EUR 174.70 million (31.03.2017: EUR 171.88 million and EUR 172.70 million respectively).
Compared to the year end of 2017 the trade receivables, accrued income and prepaid expenses have shown a decrease in the amount of EUR 1.03 million to EUR 6.68 million. Decrease mainly derives from lower trade receivables by EUR 1.24 million, being mainly impacted by construction activities. The collectability rate continues to be high at 99.8% level.
Current liabilities have decreased by EUR 1.14 million to EUR 8.51 million compared to the year end of 2017. Decrease mainly derives from decrease in trade and other payables by EUR 1.19 million, being related to lower payables related to pipe construction services and investments.
Deferred income from connection fees has grown compared to the end of 2017 by EUR 0.43 million to EUR 20.06 million.
Provision for possible third party claims has not changed compared to the end of 2017. At the end of 2017, the Company formed a provision of EUR 17.52 million for possible third-party claims as a result of the Supreme Court Decision from 12th December 2017. More detailed information about the provision is in Note 5 to the financial statements.
The Group’s loan balance has remained stable at EUR 95 million. The weighted average interest risk margin for the total loan facility is 0.79%. At the end of September 2017, the Company refinanced its long-term loan in the amount of EUR 37.5 million.
The Group has a Total debt to assets level of 60.6%, in range of 55%-65%, reflecting the Group’s equity profile. In comparative period of 2017 the total debt to assets ratio was 56.2%.
CASH FLOW
As of 31.03.2018, the cash position of the Group is strong. At the end of March 2018, the cash balance of the Group stood at EUR 52.31 million, which is 22.3% of the total assets (31.03.2017: EUR 38.51 million, forming 17.6% of the total assets).
The biggest contribution to the cash flows comes from main operations. During the three months of 2018, the Group generated EUR 8.80 million of cash flows from operating activities, an increase of EUR 1.59 million compared to the corresponding period in 2017. Underlying operating profit continues to be the main contributor to operating cash flows.
In the three months of 2018 the result of net cash flows from investing activities was a cash outflow of EUR 1.05 million, a decrease of EUR 1.22 million compared to the cash outflow of EUR 2.27 million in the three months of 2017. This is made up as follows:
- The cash outflows from investments in fixed assets have decreased by EUR 1.51 million compared to 2017 amounting to EUR 1.66 million.
- The compensations received for the construction of pipelines were EUR 0.59 million, showing a decrease of EUR 0.30 million compared to the same period of 2017.
In the three months of 2018 cash outflow from financing activities amounted to EUR 0.42 million, being at the same level compared to the same period in 2017.
EMPLOYEES
We believe it is important to treat our employees equally, involve them in the decision-making process and to inform them regularly. We consider the involvement of our staff in the decision-making process instrumental for them to understand and be able to support the Company in its pursuits. Our staff can vary to a large degree in age, nationality, nature of work and in many other aspects. This requires us to be resourceful and flexible in our communication with the staff in order to involve, engage and listen to them. This is done using several opportunities and channels of communication, such as regular staff meetings with the management, information boards, intranet, informative letters, team events and a quarterly internal newsletter. Estonian is not a communication language for quite a number of our staff. Therefore, we organise Estonian classes at the Company’s expense to make the staff, whose mother tongue is not Estonian, also feel as part of our unified team. At the same time, we provide the majority of important information also in Russian.
We have described our human resource policies. We follow equality principles in selecting and managing people, which translates into providing, when feasible, equal opportunities to everyone. Understanding and appreciating the diversity of our staff, we ensure, that everyone is treated fairly and equally and they have access to the same opportunities as is reasonable and practicable. We aim to ensure, that no employees are discriminated against due to, but not exclusive to age, gender, religion, cultural or ethnic origin, disability, sexual orientation or marital status.
At the end of the 1st quarter of 2018, the total number of employees was 315 compared to 312 at the end of the 1st quarter of 2017. The full time equivalent (FTE) was respectively 301 in 2018 compared to the 303 in 2017. Average number of employees (FTE) during the three months was respectively 299 in 2018 and 301 in 2018.
By gender, employee allocation was as follows:
| As of 31.03.2018 | As of 31.03.2017 | |||||||||||||||
| Women | Men | Total | Women | Men | Total | |||||||||||
| Group | 96 | 219 | 315 | 87 | 225 | 312 | ||||||||||
| Management Team | 14 | 13 | 27 | 12 | 13 | 25 | ||||||||||
| Executive Team | 4 | 4 | 8 | 4 | 4 | 8 | ||||||||||
| Management Board | 1 | 2 | 3 | 1 | 2 | 3 | ||||||||||
| Supervisory Board | 0 | 9 | 9 | 0 | 9 | 9 | ||||||||||
The total salary costs were EUR 2.25 million for the 1st quarter of 2018, including EUR 0.08 million paid to Management and Supervisory Council members (excluding social taxes). The off-balance sheet potential salary liability could rise up to EUR 0.09 million should the Council want to replace the current Management Board members.
DIVIDENDS
Dividend allocation to the shareholders is recorded as a liability in the financial statement of the Company at the time when the profit allocation and dividend payment is confirmed by the annual general meeting of shareholders.
The Company’s dividend policy up to 2017 was related to keeping the dividends in real term i.e. dividends amounts have been increased in line with inflation. Every year the Supervisory Council evaluates the proposal of the dividends to be paid out to the shareholders and approves it to be presented to the voting to the Annual General Meeting of shareholders, considering all circumstances. The Supervisory Council decided in its meeting held on 26th April 2018 to make a proposal to Annual General Meeting to pay out EUR 0.36 per A share and 600 EUR per B share from the 2017 profits. The pay-out is equal to earnings per share in 2017.
The Annual General Meeting of shareholders will be held on 31st May 2018.
Dividends will be paid out in June 2018.
SHARE PERFORMANCE
AS Tallinna Vesi is listed on NASDAQ OMX Main Baltic Market with trading code TVEAT and ISIN EE3100026436.
As of 31.03.2018, AS Tallinna Vesi shareholders, with a direct holding over 5%, were:
- United Utilities (Tallinn) BV (35.3%)
- City of Tallinn (34.7%)
During the three months of 2018 the shareholder structure has been relatively stable compared to the end of 2017. At the end of 1st quarter 2018 the pension funds shareholding has decreased slightly, being 1.37% of the total shares compared to 1.43% at the end of 2017.
As of 31.03.2018, the closing price of AS Tallinna Vesi share was EUR 10.70, which is 4.9% (2017: +1.4%) higher compared to the closing price of EUR 10.20 at the beginning of the quarter. During the 1st quarter the OMX Tallinn index increased by 2.2% (2017: 4.3%).
In the three months of 2018, 1,325 deals with the Company’s shares were concluded (2017: 1,784 deals) during which 260 thousand shares or 1.3% of total shares exchanged their owners (2017: 246 thousand shares or 1.2%).
The turnover of the transactions was EUR 581 thousand lower than in 2017, amounting to EUR 2.81 million.
CORPORATE STRUCTURE
As of 31.03.2018, the Group consisted of 2 companies. The subsidiary Watercom OÜ is wholly owned by AS Tallinna Vesi and consolidated to the results of the Company.
CORPORATE GOVERNANCE
SUPERVISORY COUNCIL
Supervisory Council plans and organises the management of the Company and supervises the activities of the Management Board. According to AS Tallinna Vesi articles of association Supervisory Council consists of 9 members, who are appointed for two years. Changes in the Supervisory Council members in the 1st quarter of 2018 were as follows: Mr Steven Fraser term as a Supervisory Council member expired on 21st January 2018 and a new Supervisory Council member Mr Keith Haslett was nominated (term valid until 22.01.2020).
Supervisory Council has formed three committees to advise Supervisory Council on audit, remuneration and corporate governance matters.
More information about the Supervisory Council and committees can be found in the note 14 to the financial statements as well as from the Company’s webpage:
About us > Management board > Supervisory council
About us > Principles of governance > Corporate governance report
MANAGEMENT BOARD
Management Board is a governing body, which represents and manages AS Tallinna Vesi in its daily operations in accordance with the legal requirements as well as the Articles of Association. The Management Board must act economically in the most efficient way taking into consideration the interest of the Company and its shareholders and ensure the sustainable development of the Company in accordance with the set objectives and strategy.
To ensure that the Company’s interests are met in the best way possible, the Management and Supervisory Boards shall extensively collaborate. Meetings of Management Board and Supervisory Council members are held at least once a quarter. In those meetings the Management Board informs the Supervisory Council about all significant issues in Company’s business operations, the fulfilment of the Company’s short and long-term goals are being discussed and the risks impacting them. For every meeting of the Management Board prepares report and submits the report in advance with the sufficient time for the Supervisory Council to study it.
According to the Articles of Association the Management Board consists of 2-5 members, who are elected for 3 years.
Starting from 2nd of June 2014 there are 3 members of the Management Board of AS Tallinna Vesi: Karl Heino Brookes (Chairman of the Board, with the powers of the Management Board Member until 21st March 2020), Aleksandr Timofejev (with the powers of the Management Board Member until 29th October 2018) and Riina Käi (with the powers of the Management Board Member until 29th October 2018).
Additional information on the members of the Management Board can be found from the Company’s website:
LEGAL CLAIM FOR BREACH OF INTERNATIONAL TREATY
In May 2014, the Supervisory Council of the Company gave notice of potential international arbitration proceedings against the Republic of Estonia for breaching the undertakings it is required to abide by in the bilateral investment treaty.
In October 2014 AS Tallinna Vesi and its shareholder United Utilities (Tallinn) B.V have commenced international arbitration proceedings against the Republic of Estonia for breach of the Agreement on the Encouragement and Reciprocal Protection of Investments between the Kingdom of The Netherlands and the Republic of Estonia.
The claim was filed as three years of intensive negotiation to try and reach an amicable settlement that has not happened.
The hearings of international arbitration took place in Paris in November 2016 and the decision is expected in 1st half of 2018.
Additional details related with the claim can be found via the following links:
https://newsclient.omxgroup.com/cdsPublic/viewDisclosure.action?disclosureId=609264&messageId=754811
https://newsclient.omxgroup.com/cdsPublic/viewDisclosure.action?disclosureId=627851&messageId=779161
DISCLOSURE OF RELEVANT PAPERS AND PERSPECTIVES
The Company will keep the investment community informed of all relevant developments of the tariff dispute. AS Tallinna Vesi has published all relevant materials on its website (https://tallinnavesi.ee/en/investor/stock-announcements/) and to the Tallinn Stock Exchange.
| STATEMENT OF COMPREHENSIVE INCOME | 1st quarter | 1st quarter | 12 months | ||||
| (EUR thousand) | 2018 | 2017 | 2017 | ||||
| Revenue | 14,077 | 13,781 | 59,815 | ||||
| Costs of goods sold | -5,757 | -5,573 | -25,725 | ||||
| GROSS PROFIT | 8,320 | 8,208 | 34,090 | ||||
| Marketing expenses | -112 | -100 | -356 | ||||
| General administration expenses | -1,379 | -1,566 | -5,028 | ||||
| Other income/ expenses (-) | -31 | -55 | -17,841 | ||||
| OPERATING PROFIT | 6,798 | 6,487 | 10,865 | ||||
| Interest income | 4 | 4 | 15 | ||||
| Interest expense | -348 | -380 | -1,502 | ||||
| Other financial income (+)/ expenses (-) | 80 | 250 | 543 | ||||
| PROFIT BEFORE TAXES | 6,534 | 6,361 | 9,921 | ||||
| Income tax on dividends | 0 | 0 | -2,700 | ||||
| NET PROFIT FOR THE PERIOD | 6,534 | 6,361 | 7,221 | ||||
| COMPREHENSIVE INCOME FOR THE PERIOD | 6,534 | 6,361 | 7,221 | ||||
| Attributable to: | 0 | 0 | |||||
| Equity holders of A-shares | 6,533 | 6,360 | 7,220 | ||||
| B-share holder | 0.60 | 0.60 | 0.60 | ||||
| Earnings per A share (in euros) | 0.33 | 0.32 | 0.36 | ||||
| Earnings per B share (in euros) | 600 | 600 | 600 | ||||
| STATEMENT OF FINANCIAL POSITION | |||||||
| (EUR thousand) | 31.03.2018 | 31.03.2017 | 31.12.2017 | ||||
| ASSETS | |||||||
| CURRENT ASSETS | |||||||
| Cash and equivalents | 52,306 | 38,514 | 44,973 | ||||
| Trade receivables, accrued income and prepaid expenses | 6,685 | 6,911 | 7,716 | ||||
| Inventories | 436 | 456 | 457 | ||||
| TOTAL CURRENT ASSETS | 59,427 | 45,881 | 53,146 | ||||
| NON-CURRENT ASSETS | |||||||
| Property, plant and equipment | 173,902 | 171,881 | 174,451 | ||||
| Intangible assets | 797 | 819 | 811 | ||||
| TOTAL NON-CURRENT ASSETS | 174,699 | 172,700 | 175,262 | ||||
| TOTAL ASSETS | 234,126 | 218,581 | 228,408 | ||||
| LIABILITIES AND EQUITY | |||||||
| CURRENT LIABILITIES | |||||||
| Current portion of long-term borrowings | 345 | 245 | 264 | ||||
| Trade and other payables | 5,011 | 5,129 | 6,200 | ||||
| Derivatives | 452 | 612 | 578 | ||||
| Prepayments | 2,702 | 2,423 | 2,609 | ||||
| TOTAL CURRENT LIABILITIES | 8,510 | 8,409 | 9,651 | ||||
| NON-CURRENT LIABILITIES | |||||||
| Deferred income from connection fees | 20,058 | 18,170 | 19,632 | ||||
| Borrowings | 95,423 | 95,771 | 95,565 | ||||
| Derivatives | 219 | 459 | 178 | ||||
| Provision for possible third party claims | 17,522 | 0 | 17,522 | ||||
| Other payables | 44 | 15 | 44 | ||||
| TOTAL NON-CURRENT LIABILITIES | 133,266 | 114,415 | 132,941 | ||||
| TOTAL LIABILITIES | 141,776 | 122,824 | 142,592 | ||||
| EQUITY | |||||||
| Share capital | 12,000 | 12,000 | 12,000 | ||||
| Share premium | 24,734 | 24,734 | 24,734 | ||||
| Statutory legal reserve | 1,278 | 1,278 | 1,278 | ||||
| Retained earnings | 54,338 | 57,745 | 47,804 | ||||
| TOTAL EQUITY | 92,350 | 95,757 | 85,816 | ||||
| TOTAL LIABILITIES AND EQUITY | 234,126 | 218,581 | 228,408 | ||||
| CASH FLOW STATEMENT | 3 months | 3 months | 12 months | ||||
| (EUR thousand) | 2018 | 2017 | 2017 | ||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||
| Operating profit | 6,798 | 6,487 | 10,865 | ||||
| Adjustment for depreciation/amortisation | 1,423 | 1,497 | 6,170 | ||||
| Adjustment for revenues from connection fees | -69 | -61 | -258 | ||||
| Other non-cash adjustments | -5 | 0 | -26 | ||||
| Profit/loss(+) from sale and write off of property, plant and equipment, and intangible assets | -1 | -4 | -12 | ||||
| Change in current assets involved in operating activities | 1,035 | 249 | -558 | ||||
| Change in liabilities involved in operating activities | -376 | -951 | 17,064 | ||||
| TOTAL CASH FLOW FROM OPERATING ACTIVITIES | 8,805 | 7,217 | 33,245 | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||
| Acquisition of property, plant and equipment, and intangible assets | -1,660 | -3,167 | -9,761 | ||||
| Compensations received for construction of pipelines | 589 | 872 | 2,698 | ||||
| Proceeds from sales of property, plant and equipment and intangible assets | 15 | 21 | 62 | ||||
| Interest received | 4 | 4 | 15 | ||||
| TOTAL CASH FLOW FROM INVESTING ACTIVITIES | -1,052 | -2,270 | -6,986 | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||
| Interest paid and loan financing costs, incl swap interests | -355 | -341 | -1,512 | ||||
| Repayment of finance lease | -65 | -79 | -260 | ||||
| Dividends paid | 0 | 0 | -10,801 | ||||
| Income tax on dividends | 0 | 0 | -2,700 | ||||
| TOTAL CASH FLOW FROM FINANCING ACTIVITIES | -420 | -420 | -15,273 | ||||
| CHANGE IN CASH AND CASH EQUIVALENTS | 7,333 | 4,527 | 10,986 | ||||
| CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD | 44,973 | 33,987 | 33,987 | ||||
| CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD | 52,306 | 38,514 | 44,973 |
Karl Heino Brookes
Chairman of the Management Board
+372 62 62 200
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