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 to 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 second quarter of 2026. 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 second quarter. Right after the presentations, you will have the opportunity to ask questions. [Operator Instructions]. Now I will hand over to Aleksandr and Taavi. Here you go.

Thank you, Kristiina. Good morning, everybody. Welcome to our webinar. We will introduce with Tallinna results for the second quarter of 2026. Our results were very good. If we speak about financial results, then our sales were EUR 18.6 million, and we also paid out in June dividend and the volume was EUR 11.4 million, EUR 0.57 per share. We continue to invest into our assets and we provide vital services to our customers and it's really important that our assets are in good shape, and our risks are at minimal. This year, we plan to invest about EUR 60 million. And in the second quarter, we invested EUR 16.56 million. And a lot of large investment projects ongoing, and I will speak about them in bit details on next slides. If we speak about the quality of the product about the tap water quality that it was excellent during the first 6 months of the year, and it was 100%. During the 6 months, we took 1,612 samples from our customer taps and all the samples were according to the standard. If we speak about effluent and about Wastewater Treatment Plant that it's working well, and we've outperformed all limits that are coming from the registration. And the Wastewater Treatment Plant performed during the second quarter very well. At Wastewater Treatment Plant, we produce from that wastewater/biogas. And from biogas, we produce electrical energy and also heating power. 100% of heating power we produce ourself for the Wastewater Treatment Plant and approximately 60% of the electrical power would produce from the biogas and use at the Wastewater Treatment Plant. And if we speak about the second quarter, then it was a production record for us. We produced 3.2 gigawatt hour electrical energy. I have to say that during the second quarter, we had one working accident at work at the Wastewater Treatment Plant and the accident took place on the 1st of May during a filling of the -- works of the Methane tank with water. But today, that person is back to work, and we improved our manuals about considering how we have to behave when we do such works. And if we speak about our customers, then we continue with the project of installation of smart meters. By the end of this year, this project will be completed fully. And by today, already 91% of our customers use smart meters to help them every day. If we move on to the next slide, then I can say that we do a lot of construction works in Tallinn. This year, we have been constructing in the center of Tallinn and also on the [indiscernible] crossing. By today, we constructed already 17.8 kilometers of pipelines and 27% of that was constructed with no-dig method that is environment friendly. And by the end of the year, we plan to construct over 40 kilometers of pipes in the City of Tallinn. If we speak about ongoing projects, then as I have mentioned before, we do some work on Tammsaare Road, Paldiski and the Järvevana Road as well. In the center -- in the heart of Tallinn, in the Rävala Boulevard, the construction works are pretty much completed. There are some finalizing and documentation. And if we speak about the wastewater and water treatment plants, then a lot of investments happening in there as well. At waste treatment, we are ongoing with wastewater treatment sedimentation tank reconstruction, by today, over 50% of that project is completed. This is the 3-year project with the cost of over EUR 9 million. Also, a lot of work have been done during previous years in the main pumping station of Paljassaare. And this year, we completed the first suction tank reconstruction. The second tank will go into the reconstruction when the weather will be suitable for that. At the moment, we plan the fourth quarter for that. We do a lot of work also to improve contingency. So we really think how to double the water production in the City of Tallinn, if there will be any incident in the Ülemiste water treatment plant. So this year, we plan to construct some extra boreholes in the City of Tallinn to improve our contingency in the cases when there is the emergencies at the water treatment plant of Ülemiste. At the moment, we are almost on the last part of the ozonation construction process. We made the procurement and our plan is to construct fully ozonation process in Ülemiste water treatment plants. This is the huge investment project that is really important for the water quality of Tallinn. If we move on to the operational results, then our operational results are excellent. We move on with our strategy to reduce the number of bursts or leaks in the city and also the number of blockages on the wastewater side. As I mentioned before, our rehabilitation program is ongoing. And in the second quarter, we built 13 kilometers of pipes and during the first 6 months, over 17 kilometers of pipes. We also try to deal with emergencies as quickly as possible. And if we speak about the second quarter and average water interruption took less than 2 hours. The leakage rate this year in the second quarter is a little bit higher than last year, and this is connected with tough winter conditions. If we speak about the quality of the product, then as mentioned before, that tap water is with the best quality, and our citizens can use for over 70 taps over the city to get the drinking water 24/7. And if we speak about the customer satisfaction, then in the second quarter, it dropped a little bit comparing with the last year, and this is mostly related with the upgrade of our self-service system. Starting from the end of April, we use our new website that got a very good feedback from our customers. You can find from there, a lot of information about our business and also about our daily activities in the city. So you can get from there, information where we have some bursts or challenges on the network. And also from there, it's possible to get the information about water tanks that are situated in the city during the emergencies and also get some information about water interruptions. Starting from the end of April, we started to use new self-service as well for our customers. And by today, a lot of bugs have been solved in the system. And today, the system should work correctly. So our aim is to improve IT systems as our customers are in touch with them daily, and we feel that during the third quarter, all these systems would be upgraded and all mistakes that have been there at the starting point would be solved. Thank you very much. I will hand over to Taavi, who will speak in details about our financial results. Thank you.

Thank you, Aleksandr, and welcome to everyone to our second quarter webinar. In the next slides, I will give a short overview of our sales and revenue -- sales revenue and cost developments and then the quick glance at our investment progress thus far. First, starting off with water and wastewater volumes in all our key segments; private customers, business customers and outside service area. The volume trends are stable or slightly increasing both for the second quarter and also for the 6 months. Private customer and business customers have most stability in their numbers. Outside service area is a little bit subject to the rainfall volumes, and again, have a little bit more fluctuation in the numbers and based on the 6-month figures, the increase is 2.5% compared to last year which also reflects the overall development is very stable. On the next slide, we will be looking at revenue aspects. What affects our revenue aspect is the price adjustment that was performed in 2025, May. It affects more private customers. Private customer revenues have increased more because there is a price equalization mechanism that is based on the current regulation that requires that prices between private and business customers are on the same level from 1st of July 2026. And with the latest price adjustment that took place from 1st of July, now private and business customer pricing is the same. We do have a pollution load-based pricing for wastewater, but that is not subject to customer segment, but the pollution load of the wastewater. So both of these price equalization aspects are valid for the second quarter and also for the 6 months. This is the main reason you see private customer revenues increasing more and business customer revenues staying close to the same level. On the next slide, let's look at total cost of goods sold in Q2. Total direct production costs remain probably on the same level compared to 2025, which is a good outcome. We have some increases in chemical costs primarily due to methanol but at the same time, decrease -- slight decreases in electricity. And as Aleksandr also mentioned, the main contributor here is own produced electricity, which is produced in wastewater treatment plant, CHP, our combined heat and power plant. The difference that you can observe here compared to last year -- quarter -- second quarter is minimal, but the overall impact for the quarter is significant as we produced 3.2 gigawatt hours of energy. Staff cost increases have also impacted the total cost of goods sold increasing by 6%. Depreciation increases reflect the investment activities that we are carrying on. But construction services costs that have decreased by EUR 1 million reflect very much the construction services that we provide on the market through our subsidiary company, Watercom. And then the next slide, we'll look at a little bit also on revenue impact of that. Basically, it means that service -- construction services that were accrued for in the second quarter were EUR 1 million lower than in same quarter last year. But it's very much related to the revenue and cost timing of construction services. And in overall, the result is that the total cost of goods have slightly decreased by 2%. On the next slide, now let's take net profit level. If we look at the net profit level and the main impacts, in the second quarter of '26, we had a net loss of EUR 0.1 million, it's EUR 1.5 million lower compared to Q2 2025. And as briefly mentioned in the previous slide, the one key aspect is the timing of construction revenue and construction services costs. When comparing quarter-to-quarter, meaning comparing first quarter to second quarter, then we have to keep in mind that in the second quarter, we paid out a dividend in total volume of EUR 11.4 million, which is also triggers corporate income tax cost, which was for the second quarter, EUR 3 million. Year-to-date net profit was EUR 4.2 million, and this is very much in line with our annual business targets. Administrative and marketing expenses showed an increase of 20% compared to 2025 and were primarily driven by IT outsourced services and personnel costs. Also, financial expenses have increased as we have increased our debt to finance our investment activities. And also the base rate for our loans has increased in the first half of 2026. Now on the next slide, let's take a quick look on our cash flow developments in the second quarter. You see that the operating profit level is EUR 5.7 million, comparable to same quarter last year, but slightly lower mainly because of the aspects described earlier. Investment activity cash flow is EUR 13.1 million and financing activity operations close to 0. This is a net outcome of debt received and at the same time, also repayments and dividend payments and financing costs. And on the last slide, a quick look at our investment progress. With the 6 months of 2026, we have invested EUR 24.4 million, which is on target with our annual estimate of EUR 60 million. It's close to the same levels compared to last year. And we expect that total investment volume for the year will be close to EUR 60 million. And that includes an estimated 81% of investments that will be included in regulated asset base. Regulated asset base is reviewed during the price approval process, latest of which took place in the first half of this year and the new price is applicable from 1st of July, also taking into account the investments that we are making this year. With this, I will conclude my summary and back to you, Kristiina.

Yes. Thank you both for the presentation. And now we will proceed with the questions. We have a few minutes to type in any questions you might have. So it seems that we don't have any questions right now, then we will close this meeting. Recording of the presentation will be available on Tallinna Vesi's YouTube channel and webinar presentation materials and reports can be found on Tallinna Vesi's web page. Taavi and Aleksandr, thank you both for your overview. And thank you all for joining. Have a good day.

Thank you.