AS Tallinna Vesi (TVE1T) Q4 FY2025 Earnings Call Transcript & Summary

Hello, ladies and gentlemen. Thank you for joining. I am Kristiina Tamberg and I welcome you all today's Tallinna Vesis' webinar. This webinar will be hosted by Aleksandr Timofejev, Chief Executive Officer; and Taavi Groon, Chief Financial Officer. Firstly, Aleksandr Timofejev will introduce the highlights of the fourth 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 fourth quarter of 2025. [Operator Instructions] Now I will hand over to Aleksandr and Taavi. Here you go.

Good morning, everybody. Thank you for joining our presentation today. I will cover now the general objectives that were achieved at the end of 2025. We speak about our results and they were very good. Financial results were achieved. And if we speak about the sales in the fourth quarter, sales were EUR 18.92 million. And if we speak about the net profit, then the net profit was EUR 4.5 million. If we speak about 2025, the financial results were outperformed, and Taavi will go into details a little bit later. Also last year, we continued investments in our assets. In the fourth quarter, we invested in our assets, EUR 18.6 million. And if we speak about the full year, then we invested almost EUR 58 million. The production results were very good as well. If we speak about the water quality, then the water quality in the fourth quarter was 99.9%, only one sample was not according to the standard. And if we speak about the wastewater treatment plant, then the water treated there was according to all standards that are in Europe and the Estonian law. In the fourth quarter, we also produced energy. And during the last 3 months of the year, we produced 2.1 gigawatt hour electrical energy. And if we speak about 2025 in total, then we produced almost 10 gigawatt per hour electrical energy. That is over 50% of the electrical consumption of waste water treatment plant. And if we speak about energy in general, I mean, heating power and also electrical energy, then 70% of the needs of the wastewater treatment plant were fulfilled with the CHP engine. We continue also with the project related to the smart meters. By the end of last year, 83% of our customers had smart meter in their houses, and we plan to continue with this project this year as well. And by the end of 2026, all our customers should have an opportunity to get the smart meter in place. In the fourth quarter, there have been no working accidents. And this is quite a good work from our managers to be sure that our environment -- working environment is according to all standards. Let's move on to the next slide, and I will cover a little bit the investments we completed last year. So in total, we constructed 45 kilometers of pipes in the city of Tallinn and 49% of that were constructed with the trenchless method. A lot of huge construction works have been completed, for example, in Tuukri Street and also in the Kolde Boulevard and some other streets. And we, at the moment, are constructing pipes on the Lauteri Street and Tehnika Streets as well. So after the weather will be warmer, we will start construction on some other streets as well. This year, we plan to construct also over 40 kilometers of pipes in the city of Tallinn. A lot of investments also done in our treatment plants. So at the moment, we do preparations for the automation process reconstruction. The design is ready. And at the moment, we prepare for the procurement to start construction works this year. Also last year, we made some investments in the production pipes at the water treatment plant and reconstructed some filters and sedimentation tanks. If we speak about the wastewater treatment plant, then our focus was on the thickness process and new thickeners have been installed. And of course, the reconstruction of the sedimentation tanks was in progress as well. By today, half of the secondary sedimentation tanks are reconstructed and 6 more will be reconstructed this year and the beginning of next year as well. We also upgraded the mechanical treatment of the wastewater treatment plant. The new screens -- additional screens were installed to the main pumping station. And also we changed the screens in the wastewater treatment plant as well. If the mechanical treatment process is working according to the expectations, then it has a very good impact on the chemical and biological treatment as well. So mechanical treatment by today is fully reconstructed, and we are expecting for the better results of the waste treatment in 2026 as well. If we move on, then I will cover a little bit the production operational results. The leakage rate in the fourth quarter was on the lower level, below 12%. If we speak about 2025 in total, then the leakage rate was 13%. The water quality in the fourth quarter was 99.9%. If we speak about the full year, then 99.5% was achieved by the end of the year. We took more than 3,100 samples from the customer taps and during the year, only 17 of the samples had some levels that were not achieved. Effluent quality of the wastewater treatment plant was according to the expectation. We actually outperformed. And if we speak about the efficiency of the waste treatment plant facilities, then these are over 95% in all areas. The customer satisfaction in the fourth quarter of 2025 was really high, 4.4 points. And if we speak about the full year, then the full year result was 4.2 points. That is the highest result company ever achieved. We continue to improve our customer service and our services what we offer to our customers daily, and we believe that we can keep the same level in 2026. We also prepare additional plans, and we have some plans this year how to improve the customer experience that is related to water and wastewater services. The average duration of water interruption was quite low, and we do every day a lot of work in the way to increase the speed of first liquidation on the street and to reduce the water interruption times. And as I mentioned before, the rehabilitation of the networks was according to the plan. And by the end of the year, we reconstructed over 45 kilometers of pipes. The results in 2025 were great. And I think our team made a very good job. We continue with that, and we will offer you a good customer service and top-level water services. I will now go over -- give over to Taavi, who will go into details and speak about the financial results of the company.

Thank you very much, Aleksandr, and welcome to everyone listening to us. I will start off with volumes for water and wastewater services. For the fourth quarter, first of private customer segment, it was on the same level practically as in fourth quarter last year, reaching 8 million cubic meters. This level -- this segment, private customer segment was for the annual volume slightly lower. We saw some lower volumes throughout the year, but the differences are small and reflect a very stable consumption volumes that is descriptive for the segment and for the business. For the fourth quarter, for business customer segment, we saw a slight 1% increase in Q4 and the same can be observed for the annual volumes. This is more and directly related to the business activities of the industries and the companies consuming our services. Outside service area for the fourth quarter reached 1.8 million cubic meters. This is around 9% lower than in Q4. This is a result of consumption behavior of our neighboring areas where we provide our water or wastewater services, but this change also is reflected throughout the year. And for annual volumes, the outside service area reached 7.2 million and is lower than 2024. Now next, taking a look at revenues. Private customer volumes -- private customer revenues reached EUR 8.4 million, which is significantly higher than EUR 7.4 million for the last quarter last year. And this is very much a result of price equalization between private and business customers, which impacts the price adjustment, which took effect from 1st of May 2025, and it's also reflect the revenues impact the revenues in fourth quarter. And this also carries over to the business customer segment as right now, price levels, for example, for water, for private customers are lower and business customers higher. This equalization between the customer segments has now taken place in 2 recent years and the water price will be equal for both customer segments this year, 1st of July. But this also affects the fourth quarter revenues for business customers, which in both terms is on the same level as in last quarter 2024. Outside service area is also slightly lower in the fourth quarter compared to last year, reaching EUR 2 million compared to EUR 2.1 million last year, and this correlates with volume adjustments throughout the year. We see the same impacts also on annual volumes for private customer business customer outside service customer segments. And next, let's take a look at our production and total cost of goods sold. We see that the direct production costs had a slight increase, showing a 2.3% increase compared to '24 -- sorry, a decrease compared to '24, and this is a result of -- primarily of electricity costs. We have been able to achieve a higher production in our own electricity production. And it was also supported by other direct production costs, for example, chemicals for which changes were minimal. Staff costs had a slight increase of 10%, which in staff cost is quite significant, but we have to take into account that fourth quarter includes also adjustments in performance-related pay. And on annual level, staff costs also include a base salary adjustment that was done in the beginning of the year that was around 5%. Depreciation costs have increased around 12%. And this reflects the investment activities that have been performed throughout the year. Other items regarding construction costs and other costs had a minimal impact and the total cost of goods sold reached EUR 11 million for the fourth quarter of '25, and that is around EUR 0.5 million higher than same quarter last year. Now next, let's look at the changes on net profit level, summarizing these in main cost groups and revenue groups. '24 fourth quarter net profit was around EUR 4.2 million, and we ended up with EUR 4.5 million in 2025 fourth quarter. In the revenue part, sales change had an impact of EUR 1.1 million, and this is very much a result of price adjustment from the 1st of May. Administrative cost of goods sold increased around 5%, around EUR 0.5 million. And we saw changes in also the items that were described on previous slide. We saw positive impact from lower variable costs in energy, very much as said, due to our own energy production in the combined heat and power system and some, of course, changes in depreciation and staff costs. General marketing administration costs had an increase of 5%. This is a result of also impacted by depreciation and staff costs and some smaller changes also in net income and expenses. And as said, total quarter, we reached a net profit of EUR 4.1 million, which is around EUR 0.36 million higher than same quarter last year. Now next, in our slides, let's look at the cash flow changes in fourth quarter. We started out with the cash balance in the end of last quarter with EUR 5.4 million and ended up with EUR 11.3 million. Operating cash flow was stronger, reaching EUR 9 million compared to EUR 8.4 million last year same quarter. We continued our investing activities. Investment cash flows reached EUR 13.6 million, and this also reflects the changes in our asset lines on the balance sheet. To perform all those activities, we also used loans. Financing cash flow had a positive impact of EUR 10.6 million and coming to the cash balance that was already mentioned, EUR 11.3 million by the end of the year. This level is slightly higher than end of last year, and it's very much related to the timing at which point financing has to be used to cover investing costs. And this is -- financing is primarily used to cover our investing and CapEx cost. And last slide, let's take a look at the investments that we have done for this year. You can see that on the balance sheet, we had a total investment reaching EUR 56 million. This is slightly lower compared to the estimate of EUR 60 million that we have communicated in previous quarters, but this slight difference depends very much on the timing and specific cash flow at the end of the year for each individual project that is performed and ended towards the year. It reflects a very good level in our investment activities. That means that we have performed according to the plans that we made for this year. And for the next year, our investment ambitions and plans are on the same scale, and we expect to invest close to EUR 60 million. And when we look at the split of the investments that have been performed in 2025, the biggest and largest share of investments is attributed to water and wastewater networks accounting for 43% of the investment. We are making a significant effort to future-proof our assets and provide reliability in our services which is also reflected in the investments that we make into the wastewater treatment plant projects that already Aleksandr mentioned that were continued in 2025 and significant, for example, sludge removal projects are also continued in 2026. But the focus in 2026 will move more towards water treatment with, for example, also nation project starting in 2026 and increasing thus the share in total investments for water treatment for this year. Around 78% of the investments that we made in 2025 is towards our regulated asset base. The regulated asset base was set with the last price approval process and the price adjustment that took place 1st of May in '25. And the '26 investment budget and price approval process will take place this year. And we know that one of the milestones in that regard is 1st of July where equalization of water prices need to be performed by us. Thank you very much from my behalf for the moment and giving back to Kristiina.

So thank you both for the presentation. Now we will proceed with the questions. You will have a few minutes to submit your questions. Feel free to type in any questions you might have. It seems that we don't have any questions right now. A recording of the presentation will be available in the Tallinna Vesi's YouTube channel webinar playlist shortly. And presentation materials and report can be found on Tallinna Vesi's web page. Taavi Groon and Aleksandr Timofejev, thank you for the overview, and thank you all for joining. Have a good day.