Chairman’s statement
2015 was a year of exceptional performance for AS Tallinna Vesi. As in previous years, we managed to achieve further improvements with respect to our operational results and the quality of services that we provide to our customers in Tallinn and its surrounding areas. This is clearly demonstrated by the results of the recent customer satisfaction survey, by the low level of leakages in the network and by the excellent water quality, all of which have surpassed previous performance levels.
As a water utility company, we have a significant interface with the surrounding environment and local communities. Therefore, we work tirelessly to ensure the needs and expectations of our various stakeholders are being met. AS Tallinna Vesi has its own workforce of more than 300 employees and throughout the year, considerable focus was placed on ensuring their continued safety, commitment and development. This was rewarded with excellent results in the 2015 customer and employee opinion surveys as well as with several external awards related to safety, corporate social responsibility and stakeholder relations.
The company has once again excelled in investor relations, which was recognised during the annual Nasdaq Baltic Market Awards, where AS Tallinna Vesi secured the 1st place in several awards, including the main category, “Best Investor Relations in the Baltic market” for a third consecutive year.
The company continues to seek a resolution with respect to the ongoing tariff dispute, and the legal case continues, both in the Local Courts and via International Arbitration. We are continually open to discussions related to a negotiated settlement.
Operations performance – “Best ever water quality and the lowest level of leakages”
Our first priority is to provide a reliable and high quality water service to our customers and ensure that all our activities, from initial water catchment to wastewater treatment, are enacted in accordance with strict environmental legislation.
Together with the legislative requirements, we also have to comply with the 97 levels of service that are stipulated within the Services Agreement, signed by the Company and the City of Tallinn at the time of privatisation, in 2001. Compliance with these service levels ensures the company delivers the best possible service to its customers and carries out investment plans to ensure the continued reliability and performance of the asset base.
One of the most significant indicators directly impacting public health and wellbeing is the quality of drinking water. This is enforced by strict legislation and is backed up by a rigorous sampling and testing regime. In 2015, we took a total of 2,945 water samples from consumers’ taps in Tallinn and Saue and carried out 24,500 water analyses. Results of the samples indicated a 99.86% compliance, which represents an all-time best in terms of Company performance and demonstrates the effectiveness of our day-to-day operations and initial water treatment. We continue to encourage people to drink tap water and recent independent research, carried out by TNS EMOR, confirmed that on average, 82% of customers are now drinking tap water, which compares favourably to only 48% in 2011.
Besides providing a premium drinking water service, we are also responsible for a wastewater discharge service to nearly one third of Estonia’s population. The effective performance of the wastewater treatment plant in Paljassaare is therefore of paramount importance and it ensures that we meet our environmental obligations related to final effluent discharge into the Baltic Sea. In 2015, the treated effluent was 100% compliant with all the stipulated quality requirements. This has been achieved through targeted investments and improvements in the existing technological processes.
As an example of such investments, we completed the construction of a new coagulant dosing system, which has improved both the efficiency and effectiveness of phosphorous removal from wastewater. Another notable success during 2015 was the reduction achieved in network leakage levels, which ended at 14.68% and compares favourably to the previous year’s figure of 16.14%. This is the lowest figure achieved in the Company’s history and is comparable to the best performing European utilities.
Leakage level indicates the water loss in the distribution network, which was almost 32% in 2002. We are now saving almost 5,000,000 m3 of treated drinking water per year, which is a significant contribution to the well-being of the environment.
Excellent customer service – “one of Europe’s best performing utilities”
We are committed to providing the best quality drinking water to our customers. However, we believe this should be reinforced by an equally outstanding service and by effective communications. Each year, an extensive customer satisfaction survey is carried out by an independent research company, TNS EMOR. The results of this survey map the current level of satisfaction for both our contractual clients and our consumers who pay indirectly via housing associations and landlords
The ratings received are not only based on direct customer/consumer experience, but also on the perceptions generated by external coverage in the media and other forms of indirect contact. In 2015, customer satisfaction reached its highest level to date with a 94 index point level being achieved, compared to 85 in the previous year. This maintains the trend and we continue to outperform the European averages for the utility and industrial sector, by a considerable margin.
This is a remarkable result and once again demonstrates the company’s continued commitment to providing an outstanding service to the citizens of Tallinn.
Our employees – “Best working environment in Estonia for 2015”
Ensuring the continued health and safety of employees and third parties who interface with the company’s activities is of vital importance. Considerable management focus has been placed on improving the safety culture and enhancing existing policies and procedures. During 2015, health and safety performance improved and in late autumn, this was recognised externally when the company received an award from the Minister of Health and Labour, Jevgeni Ossinovski, for having the “Best Working Environment” in Estonia.
Critical to AS Tallinna Vesi’s ongoing success is ensuring the continued motivation and commitment of employees, who work extremely hard in all weather conditions, in order to meet the demands set by our customers and external stakeholders. Acting on feedback received from previous employee opinion surveys, additional personal development opportunities have been created and internal communications enhanced to improve overall staff engagement.
Responsible and sustainable thinking – “Continuous work with stakeholders builds trust“
As a listed company we are accountable to shareholders, customers and a variety of external stakeholders, with whom we interact on a daily basis. Our focus is on creating consistency, transparency and balance between the various elements of our operations and we oversee the business with the highest standards of corporate governance.
In recognition of this, during 2015 we received several external awards, which include:
- “Golden” Mark in Corporate Social Responsibility index by the Minister of Entrepreneurship, Liisa Oviir, on behalf of the Ministry of Economic Affairs and Communications, Estonian Responsible Business Forum, Estonian Business School, KPMG and Äripäev. This is a sign of being responsible in our actions and minds thorough the business.
- Nasdaq Baltic Market Awards – 1st place “Best Investor Relations in the Baltics”
- Nasdaq Baltic Market Awards – 1st place “Best Investor Relations in the Baltics according to market professionals”.
- Nasdaq Baltic Market Awards – 1st place “Best Interactive Relations”
- Nasdaq Baltic Market Awards – 1st place “Most Trustworthy Company”
- “Most Youth and Children Friendly Company in Tallinn”
During the year, we also continued to support the wider community and provided support to a number of good causes and charities, including:
- Years of coorperation with and support to the Disabled People’s Union
- Coorperation with the Estonian Basketball Union, Youth basketball
- Many-sided assistance to the Kindergarten “Õunake” for disabled children
- Support to the Elementary School “Ristiku” for children with learning disabilities
- Engaged with fund-raising initiative “Rat Race” and SPIN project to engage youth with sports and healthy lifestyle
- Provided quality drinking water to several community and sporting events
- Contributed to building ice-skating rinks across the city during the winter period
- Continued our environmental education programmes, in co-operation with educational institutions and kindergartens.
- Provided tours of our water and wastewater treatment facilities to more than 3,000 adults and children
Attractive for shareholders
We firmly believe that our operational and financial performance still makes us an attractive investment for current and future shareholders. Last year’s total revenues were EUR 55.93 million, showing an increase by 5.0% or EUR 2.69 million year on year. As tariffs remain frozen at their 2010 levels, related revenues are being impacted by consumption. In 2015, we increased external sales of construction, design and asphalting services by 188.9% or EUR 1.78 million. Operating profit for 2015 was EUR 25.58 million, an increase of 3.0% or EUR 0.75 million, compared to 2014.
We have been a consistent dividend payer. In June 2015, we made a payment of EUR 0.90 per share. This is in accordance with our current dividend policy, which is to increase dividends by a minimum of CPI each year, therefore providing a return that is consistent with other privatised utilities in Europe.
Outlook for 2016
Given the background of the ongoing tariff dispute with the Estonian Competition Authority, the potential for significant expansion into the remainder of the Estonian water utility sector is restricted. Working on the successes of 2015, we will seek further external opportunities in asphalting and construction via our subsidiary Watercom OÜ. However, each opportunity will be carefully considered to ensure no significant risk to the core business. AS Tallinna Vesi has a wealth of knowledge and experience related to the water utility sector and, through various industry bodies and commerce, will continue to share its expertise.
AS Tallinna Vesi has been in dispute with the Estonian Competition Authority, with regards to tariffs, since 2011. Despite the fact that the Administrative court dismissed the Company’s claim, considering the Services Agreement not to be binding on the Competition Authority, the Company has appealed to the Circuit court. Until the final verdict in the matter, our tariffs remain frozen at 2010 levels.
In parallel, and independent from the Local Court proceedings, International Arbitration Proceedings are being held via the “International Centre for Settlement of Investment Disputes” (ICSID). In 2014, AS Tallinna Vesi and its shareholder United Utilities (Tallinn) BV, commenced 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 timetable of the International Arbitration Proceedings has been determined, with the final hearing set for November 2016, which will be webcast live and via the internet.
The tariff dispute will continue to be one of our key focuses during the year.
In 2016, we will expect to finalise also the repair works of Tihase tunnel collector, which is a significant artery in the Tallinn sewerage network. The contract for repair works was signed with the Finnish construction company Lemminkäinen and repair works were started in the spring of 2015. As the ground conditions and the construction works have proven to be challenging, the works have lasted longer than expected. Throughout construction, no disruption has been caused to consumers and no pollution incidents have occurred. We expect to finish the construction works by summer 2016. AS Tallinna Vesi’s major shareholder United Utilities, have provided and continue to provide constant technical assurance throughout the construction and design phases of the project.
We will continue focussing on delivering an outstanding service to our customers and consumers. Building on the achievements of 2015, we will continue to work with all our stakeholders, including investors, and as a good corporate citizen, will continue to support the wider communities and environment.
Finally, I would like to thank my colleagues in AS Tallinna Vesi, Watercom OÜ and United Utilities, and all our suppliers and business partners for their continued support in helping the company to deliver an exceptional performance during 2015.
Sincerely,
Karl Heino Brookes