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 to 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 Timofejev and Taavi Groon will introduce the highlights of the first quarter of 2025. The presenters will also speak about Tallinna Vesi's operational and financial results of the quarter. Aleksandr will give an overview about some of the investments made in the first quarter of 2025. Right after the presentation, you will have the opportunity to ask questions. It is also possible to type in your question during the presentation, but this will be answered at the end part of the webinar. [Operator Instructions] Now I will hand over to Aleksandr and Taavi. Here you go.

Good morning, everybody. Thank you for participating in our webinar, and I will comment on the first quarter results of Tallinna Water. In general, our results are very good. If we speak about financial numbers, then in the first quarter, we achieved EUR 16 million in sales and the net profit was EUR 3.4 million. At the same time, we do a lot of investments. This year, we plan to invest up to EUR 61 million. And during the first quarter, we invested into our assets EUR 10.2 million. Investments help us to keep our service in good shape. So we will speak about the quality of the drinking quarter, then, in the first quarter, which was 100%. Of course, it is very important to treat wastewater and the water that was treated and the waste treatment plant of Paljassaare was also according to all the standards that we have. Working environment is safe. So we had no environment -- we had no working accidents in our company. And I think that this is very important on the operational side of the company. We did a lot to fulfill environmental objectives. And as you know, starting from last year, we also used our CHP engines to burn biogas that we produce in the waste treatment plant. And in the first quarter, we produced over 2 gigawatt per hour electrical energy that we used at our facilities in Paljassaare. The customer satisfaction is on the high level. And during the first quarter, we installed many smart meters to our customers. By today, approximately 15,000 of our customers have their smart meters installed, and it helps us to get data for their consumption daily and helps us also to find better the leaks in the network. So if we move on to the next slide, I'll speak a little bit about investments we are doing at the moment. So as the winter was warm, we had an opportunity to construct our pipes also during the winter period and 7 kilometers of pipes have been completed during the first 3 months of the year. It is important to say that over 4 kilometers of pipes have been built with no-dig or trenchless method. This is environmentally friendly, and of course, gives us an opportunity to work quicker and this does not impact the water customers that are participating in the trunk. At the moment, we have many sites under construction. So we are doing some works in Mannimetsa. We do some works in [indiscernible] Tallinn, in Paljassaare and Kopli Streets, and of course, in the center of Tallinn as well so Lastekodu Street and Tuukri Street are under construction. We do a lot of investments also in our pumping stations and treatment plants. So during the first quarter, we installed over 30 generators in our big pumping stations around the city to save ourselves from the electrical cuts that can come to our assets. And due to that, we were ready also in the middle of February for the synchronization from the Russian electrical [indiscernible]. We do a lot of preparations at the water treatment plant at the moment to start changes -- changing the ozonation plants. The preliminary design is ready, and in the second quarter, we started the procurement to find the constructor. And the new ozonators should be ready during next year. At the same time, we do some reconstructions with filters at water treatment plants that will help us in the future also to keep very high quality standards for drinking water also in summertime. Wastewater treatment plant screens are under progress. We changed at the moment the screen setting in the waste treatment plant, and we installed new extra screens set to the main pumping station. That will help us to improve the mechanical treatment of wastewater when it gets to waste treatment plant. And if the mechanical treatment will work perfectly, it will also positively impact the biological treatment of the wastewater. A year ago, we shared information that during 3 years we will reconstruct all secondary tanks in waste treatment plant. And last year, we did first 2 and already now we are doing some reconstructions that are related to the [indiscernible] tanks. If we move on to the next slide, then I will cover also the quality results that are connected to our operations. Our leakage rate is lower than last year. In the first quarter of the year, it was 15.9%. The number of bursts was lower and it impacts also positively the number of complaints. The number of complaints in the first quarter was also lower than last year. As I already mentioned, the water quality in the network was very good. We took almost 800 samples and all the samples were according to the standards. Wastewater treatment plant was working good as well. I would like to mention that in January we got a lot of storm water that was treated at the wastewater treatment plant. But despite the fact that the volume was 40% higher, we coped with that and our quality results were according to the standard. The customer satisfaction is high as well. If we compare it with the last year, it is 0.1 point higher. We have less complaints. If we speak about the first quarter, then the number of complaints were impacted by the number of water bursts and the number of blockages on the wastewater side. Number of blockages was on the record low level and it shows that the investments we do in our network were done in the right place. If we speak also about the average duration of water interruption, then it was also 2.5 hours during the first quarter and this is on the planned level. Overall, the performance of Tallinna Water is very good, and our staff do everything to keep that also in the future. I will hand over to Taavi who will speak about our financial results in details. Thank you.

Thank you very much, Aleksandr. On the next slides, I will give an overview of our sales volumes and financial performance in the first quarter. And I will start off with volumes as one of the items Aleksandr already mentioned. Storm water impacted, for example, our sales volumes to outside service area. We are collecting also wastewater from outside of our service area, which is also impacted by storm water. And while January was very high, February and March were slightly lower, which resulted in the outside service area being 6.5% lower compared to last year. In the business customer volumes, the levels were very comparable to last year with a slight 0.2% decrease compared to first quarter 2024. We also had a slightly lower result in private customers. Private customer volumes were 0.8%, lower compared to 2024. The slight impact might be related to 1 less day in that time period, but also depending very much on individual consumption of customer groups. Next, taking a look at the revenue side. The revenue side is very much affected by price adjustments, which occurred in the second half of 2024. The most significant price change occurred in 1st of July 2024, thus, private customer sales have increased significantly in the first quarter compared to last year's same period. Also, it does have increased sales to outside service area. But business customer sales have decreased. And this difference between business customers and private customer revenues is a result of price harmonization. There is currently a price difference between private customer and business customer prices and the current regulation requires that those prices will be harmonized. And the first -- one of the significant steps in harmonizations was taken in 2024. The next will occur now with the next price adjustment in May. And there is one final stage that will occur in coming years. By 1st of July 2026, prices for customer groups will have to be harmonized. And that means that drinking water prices will be same for customer groups, but wastewater prices will be different based on the pollution load or the quality or pollution of the wastewater. Now next, looking at our cost side. Our total cost of goods sold increased in the first quarter by EUR 0.2 million, reaching 9.2 -- sorry, EUR 0.4 million, reaching EUR 9.4 million for the first quarter in 2025. This is roughly a 4% increase compared to last year. While in total direct production cost, we have a small decrease, which was primarily driven by electricity. And electricity is significantly impacted by our own products, in our electricity in wastewater treatment plant, where we produce electricity from the biogas generated in the wastewater treatment process. And this impact was around EUR 0.2 million for the first quarter, which was slightly set off by higher chemical prices. We had increases in staff costs and depreciation and also construction services. Construction services cost increases are directly tied to also higher revenues for the same period. And on the next slide, we'll take a look at how the net profit has changed in that time period. We have had a positive change in our profitability due to the price adjustments, which is a result of the investment activities. Our profitability is very directly tied to our regulated asset base and regulated profitability. And as we do investments, this profitability will need to increase in accordance with regulation and regulated profitability rates. And we reached EUR 3.4 million net profit for the first quarter, primarily driven by sales changes, revenue changes, which cover the cost increases in cost of goods sold. In general expenses, we had a positive outcome from financial costs as the base rate for our loan has slightly decreased in the first quarter, and we expect this to continue this year. This expectation is only based on the general market reviews and estimates. Next, looking at our cash position, we ended the quarter with EUR 8.9 million cash on our balance sheet, which was impacted by EUR 7.4 million operating cash flows. A EUR 6.8 million investment outflow of cash, and the EUR 6.8 million is now a net position taking into account the targeted financing that will also impact the first quarter cash flows. And finally, our financing cash flows had an inflow of EUR 4.7 million. It's a result of increase in long-term lending. And as a final comment regarding our investments, our estimate for the year is up to EUR 61 million. Roughly 85% of these investments are related to our regulated asset base. The 15% is financed -- the rest of the 15% is financed either by the city and is directed at the construction of stormwater systems or by connection fees from customers and related to connecting new clients to the network. Our investment activities have proceeded according to plan in the first quarter, and we are working very hard to make the estimate -- to reach the estimate. And these investments are also already reflected in the price adjustment that will occur 1st of May. And investments are the main reason also for the price adjustment. With this, I will conclude my overview. Thank you very much. And I will hand over to my colleague, Kristiina.

Thank you both for the presentation. Now we will proceed with the questions. You will have now a few minutes to submit your questions. [Operator Instructions]

Hello. Thank you. We have one question regarding our proposed dividend, and we will publish the dividend proposal today. It will come shortly after our webinar, and we're setting everything in order for the publishing of the proposal. And as it is, it will be during today and at the moment, I cannot comment any further, but I can confirm that it will be today. For the time being, we don't have any more questions. I will give over to Kristiina at this point. Thank you very much.

Yes. It seems that we don't have any more questions. So recording of the presentation will be available in the Tallinna Vesi's YouTube channel webinar playlist shortly after this webinar. And presentation materials and reports can be found on Tallinna Vesi's web page. Taavi and Aleksandr, thank you both for the overview, and thank you all for joining. Have a good day.