AS Tallinna Vesi (A1T.F) Earnings Call Transcript & Summary

Hello, ladies and gentlemen. Thank you for joining. I am Kristiina Tamberg, and I welcome you all to AS Tallinna Vesi's webinar. This webinar will be hosted by Aleksandr Timofejev, CEO; and Taavi Groon, CFO. Firstly, Aleksandr Timofejev and Taavi Groon will introduce the highlights of the third quarter of 2025. The presenters will also speak about Tallinna Vesi's operational and financial results of 9 months. Aleksandr will give an overview about some of the investments made in the third quarter of 2025. Now I will hand over to Aleksandr and Taavi.

Well, good morning, everybody. Thank you for joining. A little bit about the highlights of the first quarter 2025. Our results are very good. So if we speak about the financial results, then some highlights are on the screen. The sales are higher than last year during the third quarter. So in the first quarter, our sales were EUR 19.4 million. And if we speak about the net profit, then it was almost EUR 5 million in the third quarter. A lot of investments done in our assets. During the third quarter, we invested EUR 11.3 million. And by the end of the year, we plan to invest approximately EUR 60 million. Approximately half of that goes to the underground assets or pipes and the rest we spent on our treatment facilities, our IT technologies and so on. The water quality was high. In the third quarter, it was 98%. And if we speak about wastewater treatment, then it was also on the very high level. All fluid we discharge to the Baltic Sea was according to all the standards. If we speak about energy production, then as you remember, starting from last year, we installed 2 CHP engines at the wastewater treatment plant. And during the third quarter, we produced almost 2.8 gigawatt hour electrical energy. At the same time, we do a lot of cooperation with our customers and one of our objectives for that year is the installation of the smart meters. So by the end of the third quarter, 78.8% of our customers already used the smart meter. If we speak about today, then 80% of our customers actually use a smart meter every day. So it helps them to save their time. They do not have to submit their reading to us. And of course, we can see the consumption online. And if there is anything strange, for example, the leakage at the customer's pipe, then our system gives us information, and we can notify the customer. During the third quarter, we had also 2 working accidents. And one of them happened at the wastewater treatment plant where the person just stepped back and injured his leg. And the second one happened at the water treatment plant where the person also injured his leg when he stepped into the open manhole. We did some lessons learned from these occasions and our health and safety department do everything to improve the health and safety on the sites. If we move on to the next slide, then I will introduce you some investments we did during that year. So by today, approximately 32 kilometers of pipes are constructed in the city of Tallinn. And by the end of the year, our aim is to reconstruct approximately 45 kilometers of pipes. Approximately 40%, 45% we reconstruct using the Nordic method that is environmental friendly and impacts our customers not as much as the reconstruction with the French method. You can observe also some streets where we do works at the moment. A couple of sites have been completed by today as well. These are Kopli street and Paljassaare road and our aim is that the construction works will be completed by the end of November. If we speak about the plants, then a lot of investments done in these areas as well. So in the water treatment plant, we completed the reconstruction of the filters and the wastewater treatment plant, we did some changes in the screen house. So we installed the new screens and also preliminary screens for the main pumping station have been installed as well. This will improve the mechanical treatment of our processes. And if the mechanical treatment is working on the high level, then the biological and the chemical treatment is working as well. As I mentioned on our previous webinar, we installed electrical generators in the strategic pumping stations. And by the end of this year, approximately 40 pumping stations would have the electrical generator in case of energy cuts. Last year, we started with the reconstruction of the sedimentation tanks. And during this year, we reconstructed 4 of them. 2 have been completed last year. And in total, we have 12 of them. So by today, half of the project is completed, and the full cost of that project is a little bit over EUR 9 million that we will complete in 2027. We do also some preparations for a couple of new projects that will take place next year. One of them is the optimization of the wastewater treatment plant process. The idea of that is to use more sensors that will show the information online. And due to that, we can get better information that will help us to take better and faster decisions that potentially should save some resources such as energy, chemicals and will impact positively on the water tariffs. And also the preparations for the ozone treatment stage reconstruction is ongoing. If we move on, then I would speak a little bit about our operational results. So as I mentioned about the water quality, then it is on the high level. During the third quarter, we took over 800 samples and only 16 of them were not according to the standard. That is a very good result for the third quarter as the water temperature and the active air temperature is high, and this impacts the water quality. Wastewater treatment plant is working very well. We take tons and tons of different materials out from the wastewater. And due to that, the treated effluent is according to all the standards. We pretty much treat wastewater twice better than the standard foresee. The customer satisfaction is high. So in the third quarter, it was 4.1 out of 5 and if we look into the details and the feedback what we get from our customers, then pretty much it shows that the improvements we do in the network and also the changes in our processes improve the quality of our services and speed of the action on some emergencies. The leakage rate is lower than last year. This shows that the investments that we do into the network is right. And of course, the proactive maintenance and proactive leakage detection is working well as well. If we speak about the duration of water interruptions, then it is on the same level as last year. And if we speak about the rehabilitation of the network, as I said before, it is according to the plan. Good results, and I will give over to Taavi, who will cover the financial part of the third quarter. Thank you.

Thank you very much, Aleksandr. Let's start off with a quick review on volumes. Third quarter differences compared to last year are minimal as water consumption is a very stable attribute. And we see that also on a year-to-date basis, private customer segment is slightly lower, 0.4% lower compared to third quarter last year. Business customers slightly higher, 0.5%. We have slight movements in different customer segments, but nothing that would stand out. So that is also described by those 0 point differences compared to last year. We have a higher difference in outside service area in year-to-date perspective, 9% lower volume compared to 2024. And this is a result due to slower or lower water sales to outside areas. Water sale to outside areas depends on what water sources outside areas are using. And in this year, the use of water in outside areas has been lower. It is also -- this segment is also impacted by stormwater that is directed through the wastewater network to Tallinn area. The main attribute here is water sold to outside the area. When -- let's next look at the sales volumes in euro values. Here, we see that on a quarter basis and also on a year-to-date basis, the sales revenue has increased. The increase is a result of price adjustments, the latest of which took place 1st of May and the price results -- price adjustments are necessary and reflect our continued investments in our assets. We are, as Aleksandr gave an overview, continuously rehabilitating our network and investing in our treatment plant assets to maintain a reliable process and high quality. And we see an increase -- higher increase for private customers close to 20% in year-to-date perspective. And this is a result of price equalization. Business customers, as can be seen, is lower also in quarterly basis and year-to-date basis. It's a result of price equalization required by law, which means that the water price for both customer segments has to be equalized, and it was also confirmed with the 1st of May price change and the next adjustment and final equalization will take place next year. Price increase in outside area and also in other segments is also impacted by -- as stated by investments at the same time and OpEx or operational expense changes as well. Moving forward, let's take a look at how the cost base has changed in the third quarter. The total cost of goods sold has increased to EUR 10.3 million. It's around 8.8% compared to last year. And there are smaller changes in direct production costs. It's on the chart, you can see that it's showing 0, but totaling these areas make up for around EUR 0.1 million. It's around 3.3% increase compared -- sorry, decrease compared to last year. And this is a result of efficient use of chemicals in our treatment process, but also most significantly a contribution of electricity production in our CHP engines in wastewater treatment plant. The efficiency in direct production cost has been significant, and this is something that we will continue to focus on also in coming years. We have slight increases in staff costs and more significant changes in depreciation costs. Depreciation costs directly involved as a result of the investments that we have made into our main assets. Construction cost -- service cost reflects the higher revenues in construction services. So connected to those services, we also have higher costs. And with those changes, we end up with roughly 8.8% increase. Now on the next slide, let's summarize the impact on net profit level. We -- our net profit grew to close to -- sorry, EUR 5 million, which is an increase of roughly EUR 1 million from EUR 3.9 million in 2024 third quarter. And most significant impact, of course, comes from sales revenue, which is then negated partly by cost of goods sold, increased costs and also partly by net financial expenses and financial expenses, of course, connected to the loans that we have taken to finance the capital investments. As previously mentioned, the revenue increases are connected to our investment activities, so is the profitability aspect that in our regulatory terms, we earn our profitability from the capital investments that we make. So it's reflected also on the net profit level. Next, a quick look on our cash position and movement in the third quarter. Operating cash flow of EUR 8 million, EUR 8.1 million was used for investing activities, investment cash flows. Outflow of EUR 12.3 million were then partly financed by additional loans in the extent of EUR 7 million, and we ended up with a cash balance of EUR 5.4 million at the end of the quarter. We have sufficient financing tranches to continue our investment programs, and we continuously monitor our cash position and capital expenditure. And finally, to summarize briefly our investment perspective for the year, we have stated that -- we have in previous quarters stated that our annual estimate is EUR 60 million, we have slightly adjusted -- sorry, EUR 61 million, and we have slightly adjusted that to EUR 60 million. It depends the final result very much on how the investment projects progress, but we see that this is the best estimate at the moment for the year. And at the moment, in the end of third quarter, we have carried out EUR 39 million of these investments. And on a very broad basis, 84% of those investments contribute towards regulatory asset base, not 100% because part of the investments are financed by, for example, customer connection fees or by the city of Tallinn. So with that, I conclude my summary of the third quarter financial aspects. And back to you, Kristiina.

Thank you and thank you both for the presentation. Now we will proceed with the questions. So we will give a few minutes to submit your questions. Please feel free to type in any questions you might have. So it seems that we don't have any questions right now. So we will end up the meeting. Recording of the presentation will be available in the Tallinna Vesi's YouTube channel webinar playlist shortly. Presentation materials and reports can be found on Tallinna Vesi's webpage. So Taavi and Aleksandr, once again, thank you for the overview, and we wish a good day for everyone.