AS Tallinna Vesi’s contractual justified profitability remains at 6.2 per cent

Since privatisation AS Tallinna Vesi’s average real rate of return on invested capital remains at 6.2 per cent, which is less than envisioned in the original business plan signed during the privatization. Contributing towards this, in the rate of return, the Company’s total sales increased by 1.8 per cent to 25.2 million Euros in the first half of 2011, the company’s operating profit decreased by 0.7 per cent to 13.8 million Euros.

To understand AS Tallinna Vesi’s results and to prepare any financial forecasts the most critical number is the average rate of return on invested capital throughout the full contract period, that is expected to remain on a level of 6.2 per cent throughout 2011. The annual return is expec ted to increase in 2011 to 6.5 per cent from 6.4 per cent in 2010. The average return is still lower than the annual return due to the much lower returns earned in the early years of the contract.

AS Tallinna Vesi has in its return calculations used the methodology recommended by the World Bank for privatised utilities and had its returns independently verified by the international economics consulting company Oxera.

During the 2nd quarter of 2011 the sales increased by 2.3 per cent, mainly due to the slight increase in sales volumes. As the result of excellent operational performance and related e fficiencies the gross profit increased by 7.1 per cent. Still the operating profit decreased by 4.0 per cent and the profit before taxes decreased by 1.3 per cent, being impacted by slimmer profits from non-related activities and negative movement in the fair value of financial instruments, both with no cash impacts.

AS Tallinna Vesi’s CEO Ian Plenderleith said that the Company’s underlying results are good, but the sales numbers have suffered due to the frozen tariffs. „As the result of the unilateral breach of the fully legal privatisation contract by the Estonian authorities, the company has been deprived of earning over 600 thousand euros in 2011 that were contractually agreed in the business plan upon privatisation, The Estonian authorities have introduced the new regulatory methodolody for tariff calculation in the middle of the contract while completely ignoring all aspects of the privatization contract,“ said Plenderleith whilst insisting that the Company’s contract and financial perfomance should be evaluated over the full lifetime of the contract and not any individual year.

During the six months of 2011 the Company invested 6.6 mln EUR into fixed assets. In the 2nd quarter the Company renewed all its ISO, environmental and safety certificates. According to the Company’s knowledge it is the only water company in Estonia whose operational and environmental performance indicators are independently verified.