CHAIRMAN'S STATEMENT
In 2007, Tallinna Vesi made steady progress on its route towards its strategic
objectives and delivered good results. Customer service has improved as clearly
demonstrated by the results of the independent satisfaction survey, operational
efficiency has improved with the achievement of our best ever water and treated
effluent quality, the Company has launched a new activity demonstrating its will
to grow, and finally a solid set of financial results, with growth in turnover
and profit.
Customer Service Excellence
Providing our Customers with excellent service is a prime objective for the
Company. We are pleased that the customer satisfaction survey independently
carried out by TNS Emor at the end of 2007 demonstrated a significant
improvement regarding customer relationships. The index indicating customer
satisfaction has increased from 73 to 79 on a scale of 100, this places the
company in the top 10% of world utility companies.
A lot has been done to achieve this improvement. Beside the educational message
continuously circulated across the Company about the need for customer focus, we
have developed and implemented some additional tools and restructured our
organization. Following the new Customer Management System that went live in
2006, we developed in early 2007 a web based interface, giving our clients more
possibilities to easily manage their accounts. This interface, along with new
billing functionalities (direct debit, e-invoice) has had tremendous success.
The internal organization has also been reviewed. Looking at our activities from
a customer point of view, client related processes have been analysed and the
customer and network management activities have been reorganized to better
support these processes and deliver better customer service.
Being an environmental company and dealing with a product that impacts the life
of one third of the Estonian population every day, we have a very special
responsibility towards our clients, the Community and the Environment. Besides
focusing on the quality of product and the quality of service, we have further
engaged with the Community, supporting social and educational projects. We have
this year completed ‘Randur Tilk' a computer based educational game about water.
This game will be distributed to all schools in Estonia with the aim to raise
the environmental awareness of the younger generation.
Operational Excellence
The team greatly improved the quality and efficiency of operation and can be
credited with several real successes.
The water quality delivered to our customers was the highest ever achieved. We
know that this is one of the most important factors for the satisfaction of our
clients. Each day, throughout the process: from catchment area to water network
operation via water treatment plant in a joint effort the teams are looking for
every possible way to improve the water quality even further.
The quality of the treated effluent was also the highest ever achieved. The
large investments carried out during the last years in the wastewater treatment
plant (particularly to treat nitrogen pollution and to improve sludge
processing) coupled with the highly professional skills of the team enable us to
treat the pollution of the Capital city and its surrounding municipalities to a
level that is fully compliant with EU standards.
Health and Safety of our people is of paramount importance for us. In 2007,
international occupational health and safety management system (OHSAS)
certificate was awarded to the Company after a successful audit in May. This is
great recognition for the work that has been done to improve the working
conditions of our staff, but we are even more proud of the fact that in 2007
there were simply no work accidents.
Being able to improve our operation efficiency results from a combination of two
factors: the commitment of our people and the large investment programme that we
have carried out in 2007 and during the previous years. In 2007 we have
continued to invest heavily (285 mln kroons) on water quality, with improvements
made in the catchment area, the water treatment plant and continuous renewal of
our distribution network. We have also invested in wastewater treatment with the
completion of the nitrogen treatment project. This project received the final
approval of the Ministry of Environment and together with the completion of the
sludge treatment plant we are able to keep under control the quality of the
treated effluent.
These investments give us the possibility to improve our operational efficiency
and the quality of our product, and in addition they also help us to reduce our
environmental impact. This is apparent in the high quality and fully compliant
treated effluent discharged to Tallinn Bay, full reuse of sludge as soil
conditioner and better use of the water resource with control of the amount of
water lost in leakages. Taking care of the environment is something that we have
included in our actions and will continue to do in the future.
Growing the activity of the Company
One of our ambitions is to grow the activity of the Company by focussing on our
core competences and developing our core business: management of water and
wastewater assets. In 2007 we have launched the trademark ‘Veemees' (Waterman).
This activity is very closely linked to our core activity. Veemees is operating
on the private side of the connection and proposes to our clients to take care
of their plumbing problems, small pipe construction works inside their plots and
houses. The volume of activity remained modest in 2007 but we expect it to grow
because it corresponds to a real demand from clients.
Our work to bring public water and sewerage network to the citizens of Tallinn
has continued in 2007, and we have laid down another 14.9 km of pipe. We have
also continued to extend the stormwater network by an additional 10.4 km. This
construction activity will improve the service to customers, enlarge our area of
activity but also improve the protection of the environment.
Our cooperation with the municipalities surrounding Tallinn is an important
component of our development activity. With spare capacity at our plants, we can
provide the surrounding municipalities with a large quantity of good quality, EU
compliant water and we can collect their effluent and treat it to EU standards.
Physical connections have been built between our network and the territories of
the municipalities, we are already providing water and receiving wastewater and
we are ready to accompany the surrounding municipalities in their development
during the following years.
Delivering Shareholder Value
An important milestone was delivered in 2007 with the signing of the amendment
to the Services Agreement which sets the rights and obligation of the Company
and the City of Tallinn. The amendments shall significantly accelerate the
construction of the sewerage network and ensure its provision for the City by
March 2011 (currently 97% of the City is covered with sewerage network). The
amendment to the Agreement places the responsibility for the delivery of the
programme on the Company. This amendment ensures an excellent visibility for the
revenue of the company until 2020, extended term of the agreement, and
sustainability of the profitability level as the K-coefficient is fixed until
the end of the contract period.
The financial results of 2007 have been good, in steady progress compared to
2006, with turnover increased by 18.4% and profit before tax increased by 12.9%.
In terms of revenue, the volumes sold to domestic customers were almost constant
and a small decrease was registered from the commercial customers mainly due to
one industrial consumer leaving Tallinn. The volumes from the surrounding
municipalities have shown a good increase reflecting the intense development of
these areas. The connection activity was also very dynamic generating a 65.7%
increase in turnover. Overall the total revenue increased to 820.8 mln kroons.
The Company has been successful in managing its cost despite an inflationary
environment. Cost of goods sold has decreased by 1.75%. When taking out the
exceptional items, the underlying increase of cost of goods sold would have been
4.5%, which is a remarkable performance considering the inflationary situation
of some items (especially wages) in Estonia. This was achieved by a strong cost
control culture and a constant focus on efficient improvement.
In 2007, the Company increased its dividend payment to shareholder by 25%.
It was great that the Company was recognized by its peers and awarded the title
of ‘Most Competitive Service Company' in Estonia by the Estonian Chamber of
Commerce and Industry and the Estonian Employer's Confederation.
The Company stays committed to achieve high standards of corporate governance.
Our aim is to be transparent in our ways of working, corporate disclosures and
relation with shareholders and stakeholders. Once again in 2007 this was
recognized by the financial community as the Company was nominated by the OMX
Baltic Stock Exchange for the quality of its investor relations.
A Team effort
All this has only been possible because of the fantastic effort the team has put
into the Company and I want to pay tribute to them for their commitment. The
employee opinion survey carried out in 2007 has seen the index increasing by
10%. This is a very positive result, and we will continue to work on our human
resource strategy to improve further this result.
In 2007, we invested significant time and energy on our human resource strategy
and policy and have developed a set of values:
Commitment
Customer Focus
Teamwork
Creativity
We do believe that behaving according to these values will strongly support the
achievement of our strategic objectives. A new remuneration system, based on
performance achievement, will be implemented from the beginning of 2008. It
includes an assessment on behaviour and how we live our values.
We have a clear vision for the future of the Company. To achieve this vision we
have set clear long term strategic objectives. We set every year Company's
annual objectives derived from the strategic objectives, and finally we cascade
down these company's objectives into individual objectives. This is the heart of
our performance management system and it has proven to be an efficient way to
drive the Company towards success. We will continue to use this methodology in
2008.
All in all, in 2007, the Company performed well and delivered good results. This
is another step in building a strong foundation for the future. In 2008, with
our strategic objectives as a target, we will continue to stay focussed on
delivering a high level of performance.
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| INCOME STATEMENT (thousand EEK) | 2007 | 2006 |
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| Sales from main operating activities | 648 335 | 589 176 |
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| Revenues from other operating activities | 172 437 | 104 048 |
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| Net sales | 820 772 | 693 224 |
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| Costs of goods sold (main operating activities) | -216 677 | -220 537 |
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| Costs of goods sold (other operating activities) | -158 187 | -97 096 |
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| GROSS PROFIT | 445 908 | 375 591 |
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| Marketing expenses | -13 547 | -9 578 |
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| General administration expenses | -56 849 | -51 319 |
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| Other income/ expenses (-) | 1 850 | 23 229 |
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| OPERATING PROFIT | 377 362 | 337 923 |
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| Financial income / expenses (-) | -44 237 | -42 981 |
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| PROFIT BEFORE TAXES | 333 125 | 294 942 |
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| Income tax on dividends | -55 285 | -46 896 |
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| NET PROFIT FOR THE PERIOD | 277 840 | 248 046 |
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| Attributable to: | | |
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| Equity holders of A-shares | 277 830 | 248 036 |
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| B-share holder | 10 | 10 |
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| Earnings per share in kroons | 13,89 | 12,40 |
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| BALANCE SHEET (thousand EEK) | 2007 | 2006 |
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| ASSETS | | |
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| CURRENT ASSETS | | |
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| Cash and equivalents | 178 420 | 249 413 |
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| Customer receivables | 185 223 | 71 490 |
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| Accrued income and prepaid expenses | 5 179 | 4 756 |
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| Inventories | 3 645 | 3 142 |
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| Assets for sale | 1 120 | 1 648 |
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| TOTAL CURRENT ASSETS | 373 587 | 330 449 |
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| NON-CURRENT ASSETS | | |
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| Tangible assets | 1 992 978 | 1 877 105 |
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| Intangible assets | 49 137 | 52 595 |
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| Unfinished assets - non connections | 48 034 | 91 676 |
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| Unfinished pipelines - new connections | 90 057 | 117 162 |
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| Prepayments for fixed assets | 5 399 | 2 795 |
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| TOTAL NON-CURRENT ASSETS | 2 185 605 | 2 141 333 |
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| TOTAL ASSETS | 2 559 192 | 2 471 782 |
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| LIABILITIES AND EQUITY | | |
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| CURRENT LIABILITIES | | |
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| Current portion of long-term borrowings | 41 486 | 473 |
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| Trade and other payables | 86 966 | 85 250 |
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| Taxes payable | 26 486 | 30 508 |
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| Short-term provisions | 2 231 | 538 |
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| Deferred income | 42 099 | 36 325 |
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| TOTAL CURRENT LIABILITIES | 199 268 | 153 094 |
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| NON-CURRENT LIABILITIES | | |
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| Borrowings | 1 125 491 | 1 166 098 |
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| Other payables | 113 | 100 |
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| TOTAL NON-CURRENT LIABILITIES | 1 125 604 | 1 166 198 |
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| TOTAL LIABILITIES | 1 324 872 | 1 319 292 |
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| EQUITY | | |
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| Share capital | 200 001 | 200 001 |
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| Share premium | 387 000 | 387 000 |
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| Statutory legal reserve | 20 000 | 20 000 |
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| Accumulated profit | 349 479 | 297 443 |
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| Net profit for the period | 277 840 | 248 046 |
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| TOTAL EQUITY | 1 234 320 | 1 152 490 |
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| TOTAL LIABILITIES AND EQUITY | 2 559 192 | 2 471 782 |
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| CASH FLOW STATEMENT (thousand EEK) | 2007 | 2006 |
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| CASH FLOWS FROM OPERATING ACTIVITIES | | |
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| Operating profit | 377 362 | 337 923 |
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| Adjustment for depreciation | 79 241 | 81 047 |
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| Adjustment for income and expenses from | -14 250 | -6 952 |
| constructions | | |
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| Other financial income and expenses | -1 585 | -536 |
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| Profit from sale of fixed assets | -2 422 | -24 917 |
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| Expensed fixed assets | 476 | 1 106 |
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| Capitalization of operating expenses | -19 764 | -20 921 |
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| Change in current assets involved in operating | -32 062 | -4 142 |
| activities | | |
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| Change in liabilities involved in operating | -327 | 5 994 |
| activities | | |
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| Interest paid | -52 986 | -48 051 |
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| Total cash flow from operating activities | 333 683 | 320 551 |
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| CASH FLOWS FROM INVESTING ACTIVITIES | | |
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| Acquisition of fixed assets (incl pipelines | -265 951 | -192 048 |
| construction) | | |
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| Proceeds from pipelines financed by construction | 101 840 | 112 662 |
| income | | |
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| Proceeds from sale of and prepayments received/ | 390 | -1 293 |
| repaid(-) for fixed assets | | |
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| Proceeds from sale of assets for sale and of real | 242 | 1 107 |
| estate investments | | |
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| Interest received | 10 571 | 6 545 |
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| Total cash flow used in investing activities | -152 908 | -73 027 |
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| CASH FLOWS FROM FINANCING ACTIVITIES | | |
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| Finance lease payments | -473 | -1 282 |
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| Dividends paid | -196 010 | -157 000 |
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| Income tax on dividends | -55 285 | -46 896 |
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| Total cash flow used in financing activities | -251 768 | -205 178 |
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| Change in cash and bank accounts | -70 993 | 42 346 |
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| CASH AND EQUIVALENTS AT THE BEGINNING OF THE | 249 413 | 207 067 |
| PERIOD | | |
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| CASH AND EQUIVALENTS AT THE END OF THE PERIOD | 178 420 | 249 413 |
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Additional information:
Siiri Lahe
Chief Financial Officer
+372 6262 262
siiri.lahe@tvesi.ee
