AS Tallinna Vesi (TVE1T) Earnings Call Transcript & Summary

Hello, ladies and gentlemen. Thank you for joining. I am Kristiina Tamberg, and I welcome you all today's Tallinna Vesi's webinar. This webinar will be hosted by Aleksandr Timofejev, Chief Executive Officer; and Taavi Groon, Chief Financial Officer. Firstly, Aleksandr and Taavi will introduce the highlights of the third quarter of 2024. The presenters will also speak about Tallinna Vesi's operational and financial results of the first 9 months. Aleksandr will give an overview on some of the investments made in the third quarter of 2024. Right after the presentation, you will have the opportunity to ask questions. It is also possible to type in your questions during the presentation. All of these will be answered in the later part of the webinar. To submit your questions, please use the question box on the right side of the screen. Now I will hand over to Aleksandr and Taavi. There you go.

Thank you, Kristiina, and good morning to everybody, and welcome to our webinar. As Kristiina mentioned, I will do a quick overview about our results. And then after that, we will give over to Taavi. So if we speak about the third quarter, then our results were very good. If we speak about total revenues, then as you can see, in the third quarter, they have been EUR 16.2 million. And the positive impact was done due to the change of the tariffs from the 1st of July 2024. Our net profit in the third quarter was EUR 3 million and -- so EUR 3.9 million and were moving with the similar targets towards the end of the year. In the third quarter, we invested over EUR 15 million in our assets. And if we speak about the 9 months, then by today, it is already over EUR 35 million in our assets. Our plan during this year to invest a number of assets, approximately EUR 60 million. If we speak about our best estimation, then we believe that approximately EUR 15 million of that will be expensed this year, and some projects will be completed at the beginning of next year. Drinking water quality was very high. The third quarter was challenging for us as the temperature of the late quarter was high. And because of that, we had some samples that were not compliant with the regulation. During the third quarter, we took over 700 samples from the taps in the City of Tallinn at Saue and Maardu municipality. And only 8 of them was not according to standard. Of course, after maintenance done, the quality of the water was according to the standard. But still, we have to inform that 8 of them were not compliant. Wastewater treatment plant is working very well, and our effluent is according to the old standards. So we outperformed the parameters, but coming from the law. And I have a very good mood because of the very low pollutants that we discharge to the sea. Our working environment is safe. And until today, in 2024, we have no working accidents. This is a very positive about starting from this autumn, our water treatment plant in Paljassaare uses distributed heating in its facilities. This will improve our contingency and will give us opportunity in the future to be sure that the heating power is 24/7 in the facilities. Previously, we used natural gas. As on previous years, we mentioned that at the moment, we have a huge project that is related to the smart meters. And I'm happy to say that by the end of the third quarter, 57% of our customers had smart meter in their houses. Our plan is to complete the project in 2 years. And by the end of this year, we feel that the objective of 60% will be achieved. If we move on to the next slide, then I will give you an overview about some big projects that we have in our service area. So if we speak about the network, then this year, we plan to reconstruct approximately 45 kilometers of pipe lines. By today, approximately 36 kilometers are completed. You can see also from the slide what -- you can see also from the slide what [ suites ] work in progress during the third quarter. And I'm happy to say that we did a lot of cooperation with the city of Tallinn and also Utilitas, and we reconstructed pipes together. A lot of pipe lines have been reconstructed using the technology or nontrash technology, and this is a modern way how to improve the network in the city of Tallinn and also how to not disturb our customers as possible. If we speak about our treatment plants. And of course, a lot of investments is done in there as well. We have a lot of reconstructions at the wastewater plant at the moment. During the third quarter, we did some works on the [indiscernible], also 2 years long project with the digesters or the [indiscernible] have been almost completed. Today, both tanks are working, and we produce biogas from what we produce electrical energy and heated power. The secondary qualifiers project is also ongoing. This is the long 3-year project. The cost of that is approximately EUR 9 million, and this is moving in accordance with the plan. During next year, we will install also additional screens in the main pumping station and will start the renovation of the screens in the wastewater treatment plant. The idea of that is to improve the wastewater treatment and improve the efficiency of the mechanical water treatment. In the water treatment plant at the moment, we have also reconstruction that is related to the filters. And at the moment, this is the end phase of the design of our oscillation system. Our oscillation system by today is 24 years old and should be changed. The new system will be more efficient and more reliable. If we move on to the next slide, then I will introduce you also some operational results from the third quarter. As I mentioned before, there have been some challenges. So with the water quality in the city, but due to the teams that did a lot of work and due to the relative technology, it is what we used today in the network cleaning as [indiscernible]. The result by the end of the quarter was still high. Our leakage rate is on the [indiscernible] level. This is a little bit higher than last year. And if we speak about our goal for 2024, that is 14%, then will feel this is also achievable. Waste treatment plant effluent is very good. It is 100%. And for us, it's one of the most important objectives, what we have to fulfill as this is related to the environment and the quality of the water. If we speak about water interruptions in the city, then they definitely caused us some difficulty to serve our customers. And due to that, we try to do everything to minimize them. We have a lot of projects that should, in the future, make sure that the interruptions are shorter than today and the number of them smaller. If we speak about the third quarter, then our average interruption was 2 hours and 36 minutes. That is very good if we compare with the previous years. The customer satisfaction is growing as well. If we speak about the third quarter, it was 4.2 and that is high than last year. And if we look into details, then our customers today are really happy about the metering processes we have in the company, about connections and also about contracts. The area we have to have some improvements is related to the feedback to the customers, if they would like to get from us some additional information and some questions. And as I mentioned before, the network consolidation program is according to the plan. And in the third quarter, we reconstructed 15 kilometers of our pipe lines. And then by the end of the year, the aim is to complete 45 kilometers of our network. I will give over now to Taavi, who will go into details on the financial results.

Thank you, Aleksandr. The overall sentiment in the economy is it is slowly starting to improve, but still remains cautious. And our operational environment continues to be stable. And in the next slides, I'll give an overview of our financial performance for the quarter and also catching up on 9 months. Well, to start off with the values, and we see that there is a slight increase in private customer water and waste water volumes. It's slightly above last year. This is an overall macro trend. Those changes in volumes are really low, as the number of consumers and customers is large, and consumption has changed quickly. Business customer levels water and waste are -- for the quarter are on the same level. And outside service area, volumes are slightly higher. The same trends we've seen also for the 9 months, but we must note for the outside area volumes is that those are in partly affected by storm volumes than is for the wastewater services. Now next, looking -- taking a look at revenues. First off, as I already noted, we had a price change in the 1st of -- in July from 1st of July. Price increase to private customers slightly decreased to business customers and also increased to outside service area customers. The difference between private and business customers is that under the current regulation, the service prices for private and individual customers have to be harmonized in the next years. The deadline is 2026. And with this price change, one step towards the harmonization was taken, thus affecting private customers with high increase than business customers. And we see on the quarterly numbers that private customer sales revenues have increased by 7.5%. And in a smaller number, this can be also followed on a quarterly level. It is, of course, partially affected by volume changes as well, but Q3 figures primarily due to changes in pricing. And Q3 numbers for business customers show that the volume -- sales revenue has increased by 0.2%. This is primarily the result of the price applied from 1st of July. And same aspects are impacting the revenues from outside service area. Now next, taking a look at total cost of goods sold. We see the total increase of EUR 0.3 million compared to Q3 in 2023. Our total direct production costs have decreased by 21.5%, and this is primarily driven by electricity. Electricity has two components in that change. It is price of electricity and the impact of our own electricity production. This is done in our CHP, or combined heat and power engine, that is operating in wastewater treatment plant and supplies energy to the wastewater treatment plant. And as a result, the total production cost has decreased compared to last year. We have -- we can observe increases in staff costs by 11.7%, and this is -- in both terms or led by salary increases performed in the beginning of the year and also hirings during the year. Slight increases in depreciation, and this is a result of investments made and a EUR 0.4 million increase in construction services, and this is reflecting similar changes in revenues -- construction service revenues. Now as next slide, I will summarize the overall changes on net profit level. Net profit level for the quarter has decreased to EUR 0.2 million. We expect that the -- one of the main components, interest expenses will related to base rate changes in the coming years, but the sales revenue increase in Q3 with a positive impact of EUR 0.6 million on net profit is negated also by cost changes in cost of goods sold and marketing and general expenses. So in operating profit level, we are at the same level as previous year. And on the net profit level, EUR 0.2 million below the previous year. Seeing that there are some seasonality also on cost and revenue side, we expect Q4 to be slightly better. On our cash position -- the overall cash position in end of Q3 has increased by EUR 2.5 million. This is primarily due to the additional financing. Our investing cash flows in Q3 were the most significant for the whole year, totaling EUR 11.6 million. Our total assets amounted to EUR 284.5 million and is increasing as a result of our investments made. And the financing cash flow is primarily a result of additional lending to finance those investments. Now summarizing on the next slide. The total investments for the previous and this year, our investments have increased significantly in previous year. We are looking at EUR 3.4 million investments in tangible assets in the 9 months of this year. And it is close to the level that was performed last year for the full year. We estimate that on the balance sheet level, the investment amount will reach up to EUR 50 million for this year. We have earlier estimate that close to EUR 60 million, but this estimate is adjusted with the project time lines that we see at the end of Q3, some -- and up to 17% of the projects totaling around EUR 10 million will be completed during 2021. These projects include investments in wastewater treatment plant, main pumping station and pipeline construction. With this, I will conclude my presentation. Thank you very much, and I will go back to Kristiina.

Yes. Thank you both for the presentation. And now we will proceed great questions. You will have a few minutes to submit your questions. Please feel free to type in any questions you might have. It seems that we have received one question, and that is there was water testing in [indiscernible] district. When they also lose water from [indiscernible] water testament plant. Will we see more tests in the near future and in other districts also? Aleksandr will give the answer.

Yes. Thank you. Very good question. we definitely had the test approximately 2 years ago, which was in the spring of 2023 when we wanted to test if it's possible to pump cold water from the [indiscernible] area to [indiscernible] and vice versa. So the test was actually successful. And at the moment, we do not have tests tap for the fourth quarter or for the first quarter of 2024 in this area in our area accelerated to the water change. But as in water provides vital service to the 500,000 citizens. And of course, we have different tests monthly. This year, we try to understand how good we are in the current situations regarding the connection between different departments and different parties. And we do a lot of cooperation with the security department and our vital services providers. So if there will be any trading that will impact our customers, then we definitely will give about that information through the newspapers and media. At the moment, there are no plans in the near future. There will be any such event. Thank you.

Thank you. Seems like we don't have any more questions. So I thank you all for joining. Recording of the presentation will be available in the Tallinna Vesi's YouTube channel webinar page shortly. Presentation materials and reports can be found on Tallinna Vesi's page. Taavi and Aleksandr, thank you for the overview, and thank you all for the joining. Have a good day.