AS Tallinna Vesi (TVE1T) Earnings Call Transcript & Summary

[Audio Gap] Again, from the first from the first slide, it was highlights of the 2023. So Aleks, can you please make the short presentation again about the highlights.

Of course. Good morning, everybody. I'm very sorry for the technical interruption what we had, but I believe that the second [trial] will be much better. So I am happy to welcome you today here and I will our main highlights from the first quarter of 2023. I will start with -- not a very good news that are related to the accident at Tallinn Water premises. So in January, an employee of Tallinn Water Technical Service Department had an accident at the construction site, where the employee hit his own finger with a hammer. As a result, 2 weeks of working time was lost but today, the person is back to work and [feel] himself well. At the end of March, the company conducted a water network testing in the Nõmme area, simulating a scenario of a major power outage during which drinking water treated at the water drinking plant of Ülemiste had to be pumped to the Nõmme groundwater area. The testing was successful and covered approximately 30% of [Nõmme] citizens. Tallinn public water supply and sewage development plant was introduced this Tuesday by the city of Tallinn. The proposed of it is to provide a clear direction to the development of the water sector in Tallinn for the next 12 years. The document provides an input to the investment plan of Tallinn Water that will be prepared after the document will be approved by the city of counsel. At the moment, the city council plans to approve the document at the beginning of June. We aim to grow investments in fixed assets to secure a sustainable infrastructure and continuity of our service. In the first quarter, we invested EUR 4.7 million in our capital assets. Already during the first 3 months, [company] reconstructed 7 kilometers of water and their wastewater pipelines. This year, we plan to renovate over 25 kilometers of pipelines in total. In 3 months of 2023, the quality of tap water was excellent with all the water samples taken, meeting the strict standards for the water quality. Within 3 months, the company took 769 water samples and 100% of which met all requirements, according to the quality standards. Also, the wastewater treated at the wastewater treatment plant at Paljassaare met all the strict requirements in the first quarter. The level of water loss in the water network was low and it was 16.7%, remaining at a significantly lower level compared to the same periods last year in 2022. In the first quarter, the result was 20.8%. It is also extremely important for us to provide our customers and consumers with a reliable service, part of which is the ability of important information about the service and the speed at which we answer to the questions. We are especially pleased that in the first quarter, we responded to all recent customer contacts within 2 days. A little bit about the Watercom results. Watercom profits in 2023 First Quarter was EUR 138,000. In addition to the usual maintenance work, we started cleaning of water pipes by using a modern ice pigging methods but is still very new to the Nordic countries. Over 20 kilometers of water pipes were washed during the first 3 months of the year. Early-stage information and samples indicate that this is a very effective method for water pipes maintenance. Ice pigging maintenance brought an increase in the number of customer contracts related to the water pressure and water quality, company plans to improve [notification] of our customers before maintenance work are started during the second quarter of this year. The company will gradually switch to remote readable water meters, which will free customers from the obligation of reporting their water readings every month. By the end of first quarter, 12.2% of our customers have been provided with a smart water meter. The project shall be completed by the end of 2026. A little bit about investments. We constantly put an effort to improve our vital services. In the first quarter, we carried out investments projects for EUR 4.7 million. This year, work will continue on Kalamaja, Joe and Pronski streets. Rehabilitation of pipelines has already started on Rahvakooli Road, Rebase and Naaritsa streets, using Nordic method in the area between Cyprus Avenue and [indiscernible] street. And additional pressure pipe has been built for the [indiscernible] pumping station to ensure security of wastewater service. Our capital investments into the network ensure uninterrupted water and wastewater services and the reliability of water supply to consumers also in the future. At the water treatment plant of Ülemiste reconstruction works are currently underway on the filters. Shortly, we will start with a reconstruction of switchboards. Preparations ongoing for the reconstruction of the clarifiers and the fish ladder in Vaskjala. The main pumping station at Paljassaare got the new pump during the first quarter of 2023. Reconstruction of digesters, installation of [indiscernible] plant and reconstruction of [indiscernible] are under preparation. [indiscernible] contracts have been conducted over a design of screens at the main pumping station. The reconstruction of the screens at the wastewater treatment plant and the reconstruction of secondary clarifiers ongoing as well. Additionally, we have started studies to [indiscernible] the potential for the heat recovery from the air that is coming from the Air Blowers. The operational results of first quarter of 2023 were very good. The quality of drinking water in Tallinn was excellent, being 100% compliant with all requirements. Top level tap water was ensured by an effective work treatment process, continuous preventive maintenance works in the water network and investments made in recent years in water pumping stations. In the first quarter, Ice pigging equipment was approximately 20 kilometers of water pipes. Wastewater process at Paljassaare wastewater [treatment] plant guarantees a high level of quality. Treated wastewater was fully compliant with all the set requirements in the first quarter. The significantly lower indicators of pollutants have a proof of excellent quality of affluent discharge to the Baltic Sea. Our goal is to deliver high-quality service to our customers and within 3 months, our customer satisfaction was 4.0 out of 5, which is a good result. The leakage rate in the first quarter of 2023 was at 67%, remaining at a significantly lower level compared to the same period last year. Last year result was 20.8%. We always try to minimize disturbance on our customers and do everything to keep water supply 24/7. The average water interruption per property lasted 3 hours and 30 minutes, which is shorter than last year. In terms of engaging the reliability of water services to our customers, within the 3 months, we have reconstructed over 7 kilometers of water pipes. I will give over to Taavi who will cover the finance.

Thank you, Aleks. Thank you very much. I'll give a short overview of the financial performance. Further details, as always, in our reporting -- reports. To start off with a quick comment on economic forecast, latest workers from [AC] Bank, clients that conditions are improving for economic recovery. But the recovery is built on the downturn in second half of the last year and the economy will still stand around 0.6% smaller compared to last year. Higher interest rates mean that growth in borrowing and investment will be slower. And consequently, it will offer less support for the economy. Compared to -- now moving on to our financial results compared to the first quarter in '22, the total sales revenue increased by 21% and amounting to EUR 14.6 million. The sales were mainly impacted by higher water services revenues, accompanied by higher construction revenues. The gross profit of the first quarter in '23 was EUR 5.7 million, recovering by 30% compared to the same period last year. The gross profit recovery is primarily impacted by sales revenue and underlying price adjustment caused by increase in costs of goods and services sold. The mentioned increase could already be observed in Q1 '22. In the first quarter of 23, the operating profit was EUR 4.1 million, EUR 1.1 million higher than in the same period in '22 and being mainly impacted by a recovery of gross profit negated partly by higher administrative and marketing expenses. Compared to the first quarter in '22, the net profit of the company was EUR 0.6 million higher, amounting to EUR 3.5 million further impacted by increasing interest expenses due to changes in base rates, which is Euribor. Now let's take a closer look at revenues expense and expenses. Total sales revenue for the Q1 in '23 increased by 21%, amounting to EUR 14.6 million. The first quarter, the total revenue from water services increased 19%, EUR 2.1 million, compared to the first quarter of '22 when revenues amounted to EUR 13.7 million. Increased sales were primarily a result of tariff -- water services price adjustment starting from first of October '22. And the price adjustment was driven by increase in direct production costs. Revenues were also supported by higher commercial customer volumes. In the first quarter, the private customer revenues increased compared to the same period in '22 by 23% to EUR 6 million, reflecting the change in water price services. Commercial customer revenues in main service areas increased compared to the same period last year by 11%, to EUR 4.3 million, driven by price adjustment and also the increase in volumes to commercial customers. And the volumes were impacted by higher consumption of hotels and spas, shopping centers and rental services. Also keeping in mind that the operations of these services were partly still impacted by limitations in Q1 of 2022. Construction Services. So in the first quarter, an increase of over 2x or EUR 3.4 million and amounted to EUR 0.8 million. Accordingly, [were] also higher construction services costs. The increase was mainly related to pipe and road construction projects continued from last year. Let's follow up with a quick look at the costs. The total cost of goods sold increased by 16% or EUR 1.2 million in the first quarter and amounted to EUR 8.9 million. Total direct production cost increased in Q1 by 4% or EUR 0.1 million, primarily due to higher chemicals costs. In the first quarter, Construction services cost increased by 2x or -- and amounted to EUR 0.6 million and were related to higher construction services revenues mentioned earlier. Salary costs increased by 17% to EUR 2.4 million. The cost increase was mainly affected by [average] 9.5% salary increase accompanied by a higher number of employees. We've filled a number of vacant positions, which has had a partial impact also on the staff salary costs. Administrative and marketing expenses increased in the first quarter by 14% to EUR 1.5 million driven also by -- mainly by higher salaries and professional services costs. And finally, let's take a look at the cash flows. As of 31st of March '23, the company's cash balance stood at EUR 12.9 million, forming 5.1% of total assets, compared to the end of last quarter, the cash balance has increased by EUR 0.2 million, mainly as a result of higher operating cash flows. The biggest contribution to the cash flows comes from main operations. During the 3 months of '23, total operating cash flow amounted to EUR 5.7 million, which is EUR 1.8 million higher than in the comparative period of last year. The company's collection and receivables -- collection of receivables continues to be high, being 99.72% on average. The net cash flows from investing activities during the 3 months of '23 resulted in a cash outflow of EUR 5 million, which is EUR 2.3 million more than in the same period last year. Company's financing cash outflows during Q1 were EUR 0.5 million, which is EUR 0.2 million more than in the same period of last year. I will conclude my overview with this. And thank you very much for your time. We will now take some time for your questions.

Thank you both for the presentation. And now we will proceed with the questions. You will have now a few minutes to submit your questions. And please feel free to type in any questions you might have. Thank you. Thank you very much for your attention. It seems that today, we don't have any questions. So the recording of the presentation will be available in the Tallinna Vesi's YouTube channel, within our playlist shortly and presentation materials and reports can be found on Tallinna Vesi's website. And Taavi Groon and Aleksandr Timofejev, thank you for your overview, and thank you all for joining us. Have a good day. Thank you.