Management report
Chairman´s summary
2019 has started successfully for Tallinna Vesi, with respect to both operational and financial performance. We saw growth in both the operating and net profit of the Group, due to higher sales revenues from water supply, wastewater and stormwater services, as well as increased profit related to external construction services.
Strong financial performance
In the 1st quarter of 2019, the Company’s sales revenue was €14.66 million, which is 4.2% higher year-on-year. Tallinna Vesi’s gross profit decreased by 0.7%, amounting to €8.26 million. Slight decrease in gross profit was balanced by lower administrative and financial costs. Tallinna Vesi’s net profit was €6.68 million showing an increase of 2.3% in comparison with the same period of 2018.
Reliable water supply and wastewater service
The quality of drinking water was excellent in the 1st quarter of 2019. Water samples taken from customers’ taps, were 99.73% compliant with the requirements. A total of 744 water samples were taken during the 1st quarter. The professionalism of specialists managing the treatment process at Ülemiste Water Treatment Plant, as well as renewal and maintenance of water network, are instrumental in ensuring high quality water to our customers. The average water disruption time to individual properties was 2 hours and 35 minutes in the 1st quarter of 2019, whereas, the result in the same period of 2018 was 2 hours and 52 minutes.
The level of leakages in the water network continues to be at a record low. This year we achieved 12.86% for the level of leakages in the first quarter, which is quite an improvement in comparison with 15.19%, in the 1st quarter last year. We continue to make targeted capital investments to ensure the continued reliability of the infrastructure. In the 1st quarter of 2019, we performed reconstruction works on water pipes and sewers on Reidi street, Gonsiori street and Hiiu-Suurtüki crossroads in collaboration with the City of Tallinn.
In the 1st quarter of 2019, the treated effluent leaving Paljassaare Wastewater Treatment Plant was fully compliant with the stipulated quality requirements. For the purpose of assessing the treatment efficiency and the quality of wastewater, we monitor pollutants in both the incoming wastewater and treated effluent discharged into the sea. Wastewater laboratory analyses the samples taken from different stages of the wastewater treatment process, and the information received thereby, allows us to further improve the treatment efficiency and effluent quality.
High service standards
Besides outstanding financial and operational performance, the Company has set itself high standards to provide first-class customer service. We have established clear and challenging targets and give promises to our customers in terms of the speed of our response and problem-solving. No promises have been broken in 2019. We also think it is fundamental to provide our customers with important information, or respond to their questions as quickly as possible. Therefore, we measure the speed of our responses, and have set a target to respond within two working days, to non-complex written requests.
In order to further improve customer satisfaction, we continue to develop our customer interaction channels, and look for ways to make the processes quicker and more convenient. This year we are introducing a new self-service environment, and we are also in the process of upgrading the mobile phone application, to enhance its functionality and provide better information.
Raising environmental awareness and supporting the community
Contributing to the environmental education of children, youngsters and adults has become a natural part of our day-to-day activities. In the 1st quarter of 2019, another Doors Open Day was held at Ülemiste Water Treatment Plant, in which people show increasingly more interest. We also held numerous water seminars in kindergartens and schools, and hosted several tours for bigger groups in our water and wastewater treatment plants. In cooperation with Tallinn City Museum we are publishing this spring an interesting history book that looks into the early period of water supply in Tallinn.
We opened new public water tap in in SuperSkypark, at the newly opened T1 Mall of Tallinn and plan to further improve the availability of tap water in public spaces during 2019. Our aim is to encourage people to be more environmentally friendly in their daily routines.
Tariff application
The process of setting the new tariffs for water supply and wastewater disposal services is still ongoing between Tallinna Vesi and Estonian Competition Authority. In December 2018, the Competition Authority issued a decision on Tallinna Vesi’s application for the approval of the prices of water services and related extra services in Tallinn and Saue service area. Competition Authority decided to approve the prices of related extra services, however, refused to approve the prices of water services. At the beginning of 2019, AS Tallinna Vesi challenged Competition Authority´s decision. Tallinna Vesi’s challenge was dismissed. Consequently, Tallinna Vesi disputed the Competition Authority’s decision in the Administrative Court and is now waiting for Court’s decision.
AS Tallinna Vesi is still awaiting a verdict from the ICSID Arbitration Panel, which is to decide whether investors are entitled to a compensation as per their damages claim. The decision is expected by 3 May 2019.
OPERATIONAL INDICATORS FOR THREE MONTHS OF 2019
| Indicator | Unit | 2019 Q1 | 2018 Q1 | 2017 Q1 |
| Compliance of water quality at the customers’ tap | % | 99.7 | 99.9 | 100.0 |
| Water loss in the water distribution network | % | 12.9 | 15.2 | 13.7 |
| Average duration of water interruptions per property in hours | h | 2.59 | 2.86 | 3.02 |
| Number of sewer blockages | No | 159 | 156 | 195 |
| Number of sewer bursts | No | 29 | 25 | 39 |
| Wastewater treatment compliance with environmental standards | % | 100.0 | 100.0 | 100.0 |
| Number of customer complaints* | No | 40 | 21 | 9 |
| Number of customer contacts regarding water quality | No | 27 | 14 | 24 |
| Number of customer contacts regarding water pressure | No | 54 | 37 | 38 |
| Number of customer contacts regarding blockages and discharge of storm water | No | 328 | 250 | 269 |
| Responding written customer contacts within at least 2 work days | % | 100.0 | 100.0 | 99.9 |
| Number of failed promises | No | 0 | 3 | 3 |
| Notification of unplanned water interruptions at least 1 h before the interruption | % | 97.2 | 96.7 | 100.0 |
*Until 2018, this figure included only the customer complaints received in writing. The number for 2018 and 2019 includes the complaints received both in writing and by phone.
FINANCIAL HIGHLIGHTS FOR THE 1st QUARTER OF 2019
The Group’s sales revenues during the 1st quarter of 2019 were €14.66 million, being up by 4.2% or €0.58 million compared to the same period in 2018.
The gross profit in the 1st quarter of 2019 was €8.26 million, showing a slight decrease of 0.7% or €0.06 million. Decrease in gross profit was related to higher electricity and staff costs, accompanied by higher pollution tax expenses and depreciation. Higher costs were almost fully balanced by higher water, wastewater and stormwater revenues, accompanied by higher construction services related profit and lower chemicals costs.
The operating profit was €6.89 million, showing an increase of 1.4% or €0.09 million. In addition to above-mentioned changes in gross profit, the operating profit was also impacted by lower administrative and other expenses.
The net profit for the 1st quarter of 2019 was €6.68 million, showing an increase by 2.3% or €0.15 million. The net profit was mainly impacted by above mentioned changes in the operating profit, accompanied by lower financial expenses. The changes in the financial expenses were mostly influenced by lower interest expenses, balanced by lower positive change in the fair value of swap contracts in the 1st quarter of 2019 compared to the positive change in the same quarter of 2018. The net profit for the 1st quarter of 2019 and 2018 without the impact resulted from the change of the fair value of swap contracts was €6.65 million and €6.45 million respectively, being higher by 3.0% or €0.20 million year-on-year.
MAIN FINANCIAL INDICATORS
| € million, except key ratios | 1st quarter | Change 2019/ 2018 | ||
| 2019 | 2018 | 2017 | ||
| Sales | 14.66 | 14.08 | 13.78 | 4.2% |
| Gross profit | 8.26 | 8.32 | 8.21 | -0.7% |
| Gross profit margin % | 56.33 | 59.10 | 59.56 | -4.7% |
| Operating profit before depreciation and amortisation | 8.39 | 8.22 | 7.98 | 2.1% |
| Operating profit before depreciation and amortisation margin % | 57.24 | 58.40 | 57.93 | -2.0% |
| Operating profit | 6.89 | 6.80 | 6.49 | 1.4% |
| Operating profit - main business | 6.78 | 6.73 | 6.48 | 0.7% |
| Operating profit margin % | 47.00 | 48.29 | 47.07 | -2.7% |
| Profit before taxes | 6.68 | 6.53 | 6.36 | 2.3% |
| Profit before taxes margin % | 45.58 | 46.42 | 46.16 | -1.8% |
| Net profit | 6.68 | 6.53 | 6.36 | 2.3% |
| Net profit margin % | 45.58 | 46.42 | 46.16 | -1.8% |
| ROA % | 2.63 | 2.83 | 2.94 | -7.0% |
| Debt to total capital employed % | 57.78 | 60.56 | 56.19 | -4.6% |
| ROE % | 6.30 | 7.33 | 6.87 | -14.1% |
| Current ratio | 6.28 | 6.98 | 5.46 | -10.0% |
| Quick ratio | 6.24 | 6.93 | 5.40 | -10.0% |
| Investments into fixed assets | 3.41 | 0.85 | 2.21 | 300.0% |
| Payout ratio % | na | na | 99.72 | na |
Gross profit margin – Gross profit / Net sales
Operating profit before depreciation and amortisation – Operating profit + depreciation and amortisation
Operating profit before depreciation and amortisation margin – Operating profit before depreciation and amortisation / 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
Quick ratio – (Current assets – Stocks) / Current liabilities
Payout ratio - Total Dividends per annum/ Total Net Income per annum
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 OF 2019
Statement of comprehensive income
SALES
As in the 1st quarter of 2019 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 (CA) methodology. On 28/02/2018 Company submitted its tariff application for Tallinn and Saue area to the CA. The tariffs applied for were similar to the water and wastewater tariffs currently charged in the area. The amended tariff application was submitted on 2/05/2018. From 4/05/2018 the CA started the tariff application review. With its decision from 4/12/2018 CA did not approve the prices of water and wastewater services in Tallinn and Saue service area. With the same decision CA approved prices for services directly related to water and wastewater services. On 6/12/2018 CA notified the company of the possible initiation of a supervisory review procedure, to which the Company responded on time on 23/04/2019. On 3/01/2019 the Company challenged CA’s decision from 4/12/2018 for refusing to approve the prices of water and wastewater services, that AS Tallinna Vesi applied for in Tallinn and Saue service area. On 12/02/2019 the CA informed the Company that they will not satisfy the Company’s challenge. On 14/03/2019 the Company submitted a complaint to the Tallinn Administrative Court, related to the Competition Authority´s negative decision from 4/12/2018. On 13/09/2018 the Company submitted supplemented tariff application additionally to Tallinn and Saue area also to Harku and surrounding areas water companies. CA has informed the Company that the supplemented application meets also all the requirements and that they have extended the review from 30 days to 90 days starting as the application is complicated. On 18/04/2019 the CA sent a request to the Company regarding the application, to which the Company must respond by 13/05/2019. 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 the tariffs. The tariffs could also change if the CA establishes temporary water tariffs in accordance with the procedure specified in applicable law.
In the 1st quarter of 2019 the Group’s total sales were €14.66 million, showing an increase by 4.2% or €0.58 million year-on-year. 88.9% of sales comprise of sales of water and wastewater services to domestic and commercial customers within and outside of the service area. 6.4% of sales are the fees received from the City of Tallinn for operating and maintaining the storm water system and fire hydrants, 3.8% from construction and asphalting services and 0.9% 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 2019/2018 | ||||
| € thousand | 2019 | 2018 | 2016 | EUR | % |
| Private clients, incl: | 6,491 | 6,428 | 6,347 | 63 | 1.0% |
| Water supply service | 3,567 | 3,532 | 3,489 | 35 | 1.0% |
| Wastewater disposal service | 2,924 | 2,896 | 2,858 | 28 | 1.0% |
| Corporate clients, incl: | 5,002 | 5,142 | 5,063 | -140 | -2.7% |
| Water supply service | 2,734 | 2,784 | 2,771 | -50 | -1.8% |
| Wastewater disposal service | 2,268 | 2,358 | 2,292 | -90 | -3.8% |
| Outside service area clients, incl: | 1,346 | 1,112 | 1,108 | 234 | 21.0% |
| Water supply service | 385 | 334 | 329 | 51 | 15.3% |
| Wastewater disposal service | 815 | 688 | 683 | 127 | 18.5% |
| Storm water disposal service | 146 | 90 | 96 | 56 | 62.2% |
| Over pollution fee | 194 | 182 | 210 | 12 | 6.6% |
| Total water supply and wastewater disposal service | 13,033 | 12,864 | 12,728 | 169 | 1.3% |
| Storm water treatment and disposal and fire hydrants service | 944 | 796 | 741 | 148 | 18.6% |
| Construction service, design and asphalting | 558 | 283 | 181 | 275 | 97.2% |
| Other works and services | 129 | 134 | 131 | -5 | -3.7% |
| SALES REVENUES TOTAL | 14,664 | 14,077 | 13,781 | 587 | 4.2% |
Sales from water and wastewater services were €13.03 million, showing a 1.3% or €0.17 million increase compared to the 1st quarter of 2018, resulting from the changes in sales volumes as described below:
- There has been an increase in private customers’ revenues of 1.0% to €6.49 million. The increase in domestic customer consumption volumes came mainly from apartment blocks, which is also our biggest private customer group.
- Sales to corporate customers within the service area decreased by 2.7% to €5.00 million. Decrease was related to lower consumption in the sales of industrial and other commercial customer segment, caused by lower consumption of different customers with biggest impact from Tallinn prison moving out to Rae municipality. It was balanced by higher consumption in the sales of leisure segment impacted by two new leisure centres in Tallinn.
- Sales to customers outside the main service area increased by 21.0% to €1.35 million. It was impacted by an increase in all services, caused by higher water supply to Rae area accompanied by higher consumption of waste and storm water disposal services in all areas.
- Over pollution fees received have increased by 6.6% to €0.19 million.
Sales from the operation and maintenance of the main service area storm water and fire hydrant system were €0.94 million, showing an increase of 18.6% or €0.15 million compared to the same period in 2018, driven mainly by 33.6% higher storm water volumes, balanced partly by lower cost per m3.
Sales of construction, design and asphalting services were €0.56 million, increasing by 97.2% or €0.27 million year-on-year. The increase was mainly related to higher pipe construction and asphalting services revenues during the 1st quarter of 2019.
COST OF GOODS AND SERVICES SOLD AND GROSS PROFIT
The cost of goods and services sold amounted to €6.40 million in the 1st quarter of 2019, increasing by 11.2% or €0.65 million compared to the equivalent period in 2018. The increase was influenced by higher costs in all groups, with only exception of lower chemicals costs.
| 1st quarter | Variance 2019/2018 | ||||
| € thousand | 2019 | 2018 | 2016 | EUR | % |
| Water abstraction charges | -292 | -291 | -296 | -1 | -0.3% |
| Chemicals | -405 | -435 | -333 | 30 | 6.9% |
| Electricity | -1,004 | -759 | -854 | -245 | -32.3% |
| Pollution tax | -367 | -277 | -292 | -90 | -32.5% |
| Total direct production costs | -2,068 | -1,762 | -1,775 | -306 | -17.4% |
| Staff costs | -1,645 | -1,593 | -1,421 | -52 | -3.3% |
| Depreciation and amortisation | -1,340 | -1,283 | -1,351 | -57 | -4.4% |
| Construction service, design and asphalting | -445 | -241 | -138 | -204 | -84.6% |
| Other costs of goods/services sold | -906 | -878 | -888 | -28 | -3.2% |
| Other costs of goods/services sold total | -4,336 | -3,995 | -3,798 | -341 | -8.5% |
| Total cost of goods/services sold | -6,404 | -5,757 | -5,573 | -647 | -11.2% |
Total direct production costs (water abstraction charges, chemicals, electricity and pollution tax expenses) amounted to €2.07 million, showing a 17.4% or €0.31 million increase compared to the equivalent period in 2018. 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:
- Chemicals costs decreased by 6.9% to €0.40 million, driven mainly by lower usage of methanol and polymers to remove Nitrogen and sludge from wastewater, worth respectively €0.02 million and €0.01 million.
- Electricity costs increased by 32.3% to €1.00 million, driven mainly by on average 35.5% higher average price of electricity, accompanied by 16.3% higher wastewater volumes to waste and stormwater pumping stations, worth respectively €0.26 million and €0.03 million. Higher costs were partly balanced by 0.5% decrease in treated volumes in water treatment process, worth €0.02 million.
- Pollution tax expense increased by 32.5% to €0.37 million, mainly due to 16.3% higher treated wastewater volumes and higher pollution load of BOD7 and suspended solids, worth respectively €0.05 million, €0.02 million and €0.01 million.
Other costs of goods sold (staff costs, depreciation, construction and asphalting services costs and other costs of goods sold) amounted to €4.34 million, having increased by 8.5% or €0.34 million. The increase came mostly from costs related to construction and asphalting services, accompanied by other different costs by following reasons:
- Staff costs increased by 3.3% to €1.64 million. It was mainly driven by higher workload in Watercom related to higher construction services revenues mentioned as more construction done by own staff, accompanied by review of bonus reserve in the 1st quarter of 2019.
- Depreciation increased by 4.4% to EUR 1.34 million, being mainly impacted by change of recognising the leases according to accounting standard IFRS 16 Leases, mentioned in note 5 to the financial statements.
- Construction and asphalting services costs increased by 84.6% to €0.44 million, mainly due to higher construction and asphalting services revenues mentioned earlier and project specific changes.
- Other costs of goods/services sold increased by 3.2% to €0.91 million, mainly because of 8.4% or €0.03 million higher asset maintenance costs, driven mainly by higher different maintenance and repair works related costs in wastewater treatment.
As a result of all above the Group’s gross profit for the 1st quarter of 2019 was €8.26 million, showing a decrease of 0.7% or €0.06 million, compared to the gross profit of €8.32 million for the comparative period of 2018.
ADMINISTRATIVE AND MARKETING EXPENSES, OTHER INCOME AND EXPENSES
Administrative and marketing expenses amounted to €1.37 million, having decreased by 7.8% or €0.12 million. The lower costs were mainly related to decrease in tariff dispute related costs.
Other income and expenses amounted to net income of €0.01 million, having decreased by 119.4% or €0.04 million compared to net expense of €0.03 million in comparative period. The decrease was mostly impacted by higher penalty income received, balanced by lower positive change in doubtful receivables, worth respectively +€0.04 million and -€0.02 million.
OPERATING PROFIT
As a result of the factors listed above the Group’s operating profit for the 1st quarter of 2019 amounted to €6.89 million, being 1.4% or €0.09 million higher than in the corresponding period of 2018. The Group’s operating profit from main business was €6.78 million, being 0.7% or €0.05 million higher compared to 2018.
FINANCIAL EXPENSES
The Group’s net financial income and expenses have resulted a net expense of €0.21 million, compared to net expense of €0.26 million in the 1st quarter of 2018. The decrease was mainly impacted by lower interest costs, balanced by lower positive change in the fair value of the swap contracts year-on-year, worth respectively +€0.10 million and -€0.04 million. Lower interest cost was related to Swap contract, which ended in November 2018.
The standalone swap agreements have been signed to mitigate the long-term floating interest risk. The interest swap agreements are signed for €45 million, €50 million are with floating interest rate. At this point in time the estimated fair value of the swap contracts is negative, amounting to €0.34 million. Effective interest rate of loans (incl. swap interests) in the 1st quarter of 2019 was 1.05%, amounting to interest costs of €0.25 million, compared to the effective interest rate of 1.46% and the interest costs of €0.35 million in the 1st quarter of 2018.
PROFIT BEFORE TAXES AND NET PROFIT
The Group’s profit before taxes and net profit for the 1st quarter of 2019 was €6.68 million, being 2.3% or €0.15 million higher than for the comparative period of 2018. Eliminating the effects of the change of the fair value of swap contracts the Group’s net profit for the 1st quarter of 2019 and 2018 would have been €6.65 million and €6.45 million respectively, showing an increase of 3.0% or €0.20 million year-on-year.
Statement of financial position
In the three months of 2019 the Group invested into fixed assets €3.41 million. As of 31/03/2019, non-current tangible assets amounted to €181.17 million and total non-current assets amounted to €182.46 million (31/03/2018: €173.90 million and €174.70 million respectively).
Due to the changes in IFRS (International Financial reporting Standard), starting from 1/01/2019 leases are no longer classified either operating or finance leases and instead, the Group started to recognise operating leases with a term of more than 12 months as Right-of-use assets and corresponding liabilities as liabilities. Consequently, the non-current assets and liabilities increased by €0.70 million on 1/01/2019. See more in note 5 to the financial statements.
Compared to the year end of 2018 the trade receivables, accrued income and prepaid expenses have been relatively stable showing a slight decrease of €0.24 million to €7.39 million. Decrease mainly derives lower trade receivables from construction activities, which were balanced by higher accrued income and prepayments, respectively by -€0.74 million, +€0.28 million and +€0.21 million. The collectability rate continues to be high at 99.79% level, which is by 0.03% lower than as of March 2018.
Current liabilities have decreased by €0.81 million to €12.22 million compared to the year end of 2018, mainly deriving from lower construction activities and investments related trade payables and prepayments for connections, which is balanced by higher current liabilities from the right-of-use assets mentioned above, respectively -€0.59 million, -€0.61 million +€0.19 million.
Deferred income from connection fees has grown compared to the end of 2018 by €3.05 million to €25.79 million.
Provision for possible third-party claims has not changed compared to the end of 2018, being €19.07 million. More detailed information about the provision is in Note 6 to the financial statements.
The Group’s loan balance has remained stable at €95 million. The weighted average interest risk margin for the total loan facility is 0.79%.
The Group has a Total debt to assets level of 57.8%, in range of 55%-65%, reflecting the Group’s equity profile. In comparative period of 2018, the total debt to assets ratio was 60.6%.
Cash flow
As of 31/03/2019, the cash position of the Group is strong. At the end of March 2019, the cash balance of the Group stood at €68.83 million, which is 26.6% of the total assets (31/03/2018: €52.31 million, forming 22.3% of the total assets).
The biggest contribution to the cash flows comes from main operations. During the three months of 2019, the Group generated €8.29 million of cash flows from operating activities, a decrease of €0.52 million compared to the corresponding period in 2018. Underlying operating profit continues to be the main contributor to operating cash flows.
In the three months of 2019 the result of net cash flows from investing activities was a cash outflow of €0.87 million, a decrease of €0.18 million compared to the cash outflow of €1.05 million in the three months of 2018. This is made up as follows:
- The cash outflows from investments in fixed assets has been almost at the same level as in comparative period, amounting respectively to €1.67 million in 2019 and €1.66 million in 2018.
- The compensations received for the construction of pipelines were €0.79 million, showing an increase of €0.20 million compared to the same period of 2018.
In the three months of 2019 cash outflow from financing activities amounted to €0.36 million, decreasing by €0.06 million compared to the same period in 2018. The change was mainly related to lower interest payments.
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 organize 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 2019, the total number of employees was 314 compared to 315 at the end of the same period in 2018. The full time equivalent (FTE) was respectively 299 in 2019 compared to the 303 in 2018. Average number of employees during the three months was respectively 299 in 2019 and 301 in 2018.
By gender, employee allocation was as follows:
| As of 31/03/2019 | As of 31/03/2018 | |||||
| Women | Men | Total | Women | Men | Total | |
| Group | 91 | 223 | 314 | 96 | 219 | 315 |
| Management Team | 14 | 14 | 28 | 14 | 13 | 27 |
| Executive Team | 4 | 4 | 8 | 4 | 4 | 8 |
| Management Board | 1 | 2 | 3 | 1 | 2 | 3 |
| Supervisory Board | 1 | 8 | 9 | 0 | 9 | 9 |
The total salary costs were €2.29 million for the 1st quarter of 2019, including €0.08 million paid to Management and Supervisory Council members (excluding social taxes). The off-balance sheet potential salary liability could be up to €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 2018 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 25 April 2019 to make a proposal to Annual General Meeting to pay out EUR 0.75 per A share and 600 EUR per B share from the 2018 profits. The pay-out is equal to 62.1% of earnings per share in 2018.
The Annual General Meeting of shareholders will be held on 30/05/2019.
SHARE PERFORMANCE
AS Tallinna Vesi is listed on Nasdaq Baltic Main List with trading code TVEAT and ISIN EE3100026436.
As of 31/03/2019, 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 2019 the shareholder structure has been relatively stable compared to the end of 2018. At the end of the 1st quarter of 2019 the pension funds shareholding has decreased, being 1.02% of the total shares compared to 1.33% at the end of 2018.
As of 31/03/2019, the closing price of AS Tallinna Vesi share was €10.60, which is 10.4% (2018: 4.9%) higher compared to the closing price of €9.60 at the beginning of the quarter. During the 1st quarter the OMX Tallinn index increased by 6.5% (2018: 2.2%).
In the three months of 2019, 794 deals with the Company’s shares were concluded (2018: 1,325 deals) during which 166 thousand shares or 0.8% of total shares exchanged their owners (2018: 260 thousand shares or 1.3%).
The turnover of the transactions was €1.10 million lower than in 2018 comparative period, amounting to €1.71 million.
CORPORATE STRUCTURE
As of 31/03/2019, 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 2019 were as follows: Mr Toivo Tootsen’ term as a Supervisory Council member was extended until 7/04/2021.
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 15 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 21/03/2020), Aleksandr Timofejev (with the powers of the Management Board Member until 29/10/2021) and Riina Käi (with the powers of the Management Board Member until 29/10/2021).
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 on 3/05/2019.
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 | |
| (€ thousand) | 2019 | 2018 | 2018 | |
| Revenue | 14,664 | 14,077 | 62,780 | |
| Costs of goods sold | -6,404 | -5,757 | -28,594 | |
| GROSS PROFIT | 8,260 | 8,320 | 34,186 | |
| Marketing expenses | -112 | -112 | -386 | |
| General administration expenses | -1,261 | -1,379 | -5,025 | |
| Other income/ expenses (-) | 6 | -31 | -1,836 | |
| OPERATING PROFIT (+)/LOSS (-) | 6,893 | 6,798 | 26,939 | |
| Interest income | 8 | 4 | 21 | |
| Interest expense | -216 | -268 | -1,010 | |
| PROFIT (+)/LOSS (-) BEFORE TAXES | 6,685 | 6,534 | 25,950 | |
| Income tax on dividends | 0 | 0 | -1,800 | |
| NET PROFIT (+)/LOSS (-) FOR THE PERIOD | 6,685 | 6,534 | 24,150 | |
| COMPREHENSIVE INCOME (+)/LOSS (-) FOR THE PERIOD | 6,685 | 6,534 | 24,150 | |
| Attributable profit (+)/loss(-) to: | ||||
| Equity holders of A-shares | 6,684 | 6,533 | 24,149 | |
| B-share holder | 0.60 | 0.60 | 0.60 | |
| Earnings per A share (in euros) | 0.33 | 0.33 | 1.21 | |
| Earnings per B share (in euros) | 600 | 600 | 600 |
| STATEMENT OF FINANCIAL POSITION | ||||
| (€ thousand) | 31/03/19 | 31/03/18 | 31/12/2018 | |
| ASSETS | ||||
| CURRENT ASSETS | ||||
| Cash and cash equivalents | 68,828 | 52,306 | 61,769 | |
| Trade receivables, accrued income and prepaid expenses | 7,390 | 6,685 | 7,631 | |
| Inventories | 537 | 436 | 498 | |
| TOTAL CURRENT ASSETS | 76,755 | 59,427 | 69,898 | |
| NON-CURRENT ASSETS | ||||
| Property, plant and equipment | 181,171 | 173,902 | 179,185 | |
| Intangible assets | 623 | 797 | 665 | |
| Right-of-use assets | 664 | 0 | 0 | |
| TOTAL NON-CURRENT ASSETS | 182,458 | 174,699 | 179,850 | |
| TOTAL ASSETS | 259,213 | 234,126 | 249,748 | |
| LIABILITIES AND EQUITY | ||||
| CURRENT LIABILITIES | ||||
| Current portion of long-term borrowings | 4,052 | 345 | 3,823 | |
| Trade and other payables | 5,694 | 5,011 | 6,047 | |
| Derivatives | 139 | 452 | 207 | |
| Prepayments | 2,334 | 2,702 | 2,955 | |
| TOTAL CURRENT LIABILITIES | 12,219 | 8,510 | 13,032 | |
| NON-CURRENT LIABILITIES | ||||
| Deferred income from connection fees | 25,792 | 20,058 | 22,745 | |
| Borrowings | 92,437 | 95,423 | 91,919 | |
| Derivatives | 201 | 219 | 173 | |
| Provision for possible third party claims | 19,068 | 17,522 | 19,068 | |
| Other payables | 46 | 44 | 46 | |
| TOTAL NON-CURRENT LIABILITIES | 137,544 | 133,266 | 133,951 | |
| TOTAL LIABILITIES | 149,763 | 141,776 | 146,983 | |
| 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 | 71,438 | 54,338 | 64,753 | |
| TOTAL EQUITY | 109,450 | 92,350 | 102,765 | |
| TOTAL LIABILITIES AND EQUITY | 259,213 | 234,126 | 249,748 | |
| CASH FLOWS STATEMENT | 3 months | 3 months | 12 months | |
| (€ thousand) | 2019 | 2018 | 2018 | |
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||
| Operating profit | 6,893 | 6,798 | 26,939 | |
| Adjustment for depreciation/amortisation | 1,502 | 1,423 | 5,790 | |
| Adjustment for revenues from connection fees | -86 | -69 | -295 | |
| Other non-cash adjustments | 0 | -5 | -20 | |
| Profit/loss(+) from sale and write off of property, plant and equipment, and intangible assets | -5 | -1 | -115 | |
| Change in current assets involved in operating activities | 208 | 1,035 | 54 | |
| Change in liabilities involved in operating activities | -224 | -376 | 1,939 | |
| TOTAL CASH FLOW FROM OPERATING ACTIVITIES | 8,288 | 8,805 | 34,292 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||
| Acquisition of property, plant and equipment, and intangible assets | -1,670 | -1,660 | -10,736 | |
| Compensations received for construction of pipelines, incl connection fees | 787 | 589 | 3,716 | |
| Proceeds from sales of property, plant and equipment and intangible assets | 7 | 15 | 160 | |
| Interest received | 7 | 4 | 17 | |
| TOTAL CASH FLOW FROM INVESTING ACTIVITIES | -869 | -1,052 | -6,843 | |
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||
| Interest paid and loan financing costs, incl swap interests | -258 | -355 | -1,394 | |
| Lease payments | -102 | -65 | -258 | |
| Dividends paid | 0 | 0 | -7,201 | |
| Income tax on dividends | 0 | 0 | -1,800 | |
| TOTAL CASH FLOW FROM FINANCING ACTIVITIES | -360 | -420 | -10,653 | |
| CHANGE IN CASH AND CASH EQUIVALENTS | 7,059 | 7,333 | 16,796 | |
| CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD | 61,769 | 44,973 | 44,973 | |
| CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD | 68,828 | 52,306 | 61,769 |
Karl Heino Brookes
Chairman of the Management Board
+372 62 62 200
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