Chairman’s statement
In 2014 once again we managed to improve already very high standards for services we are providing to our customers. Without a doubt the quality and operational measures are the best in Baltics. I am very proud to state that in most areas we have managed to improve our performance levels even further. This is due to efforts of our people and teams who have delivered an excellent standard of service across the entire water and wastewater value chain.
Operations performance – best ever water quality
It is imperative that we meet or exceed the levels of services in the contract we signed with the City of Tallinn in 2001. This services contract requires us to maintain a high standard of service to our customers across a range of over 90 levels of service, ensuring that we deliver a service to our customers, that is second to none.
The water quality compliance is something that we are very proud. Whilst in 2013 99.7% of all samples were compliant with EU standards, then in 2014 the result was even better and 99.8% of the samples were compliant. To put this into context, during the year we took 2,496 samples at the customers’ tap, and of these only 6 did not meet the required standards.
This high quality product and service has been recognized by our customers. From the results of our 2014 customer satisfaction survey 83% of respondents said they regularly drank tap water, compared with only 48% in 2011. Thanks to the quality of our product and the quality of our communications, more and more of our customers trust the quality of the service we are providing.
Excellent customer service – one of Europe’s best performing utilities for service performance
This year we achieved a customer satisfaction rating of 85, as measured by the TRI*M index. Satisfaction with our performance is considerably higher than the European average, reaching the top 10% of European utility sector for several years. This is an excellent outcome and is a good reflection of the hard work we have done to improve all aspects of our service.
In addition to the improvements in the quality of our water and wastewater, we continue to reduce the customer risks related to potential flooding and pollution by making preventative improvements in the performance of our networks. For example, the leakage level is consistently decreasing year-on-year. Figuratively speaking, constant reduction in leakage levels means that we are saving approximately 13,000 m3 of treated drinking water a day, compared to the time 10 years ago. Compared to 2013, the saving in 2014 was 200,000 m3, which is the average amount of water being consumed in Tallinn within three days. In 2014, the level of leakages was 16.14% compared to 16.98% in 2013.
Preventive jet washing has resulted in an over 24% reduction in customer contacts related to sewer blockages and problems with storm water discharge.
Our people and teams
The key to any company’s success are the people. Our teams have worked “hard and smart” in order to deliver the highest levels of service to our customers. I would very much like to thank all of our people for their dedication and flexibility during the year.
A committed, capable and motivated workforce is central to delivering our objectives, and we remain fully focused on maintaining high levels of employee development and engagement. We are always looking to develop our people and teams.
We strive to continuously improve our safety culture. The safety and well-being of our employees is paramount and we believe that everybody in AS Tallinna Vesi, both collectively and individually, has a part to play in maintaining a safe working environment. In 2014, our health and safety performance stood comparison with the performance of the best in class, and we will remain vigilant in our efforts to achieve the same very high standards in the future.
Responsible company
We acknowledge that by providing a service compliant with all requirements, we influence the quality of life of the citizens of Tallinn, neighbouring municipalities, as well as the wider environment in and around the Baltic Sea. This means that our management practices take into account the impact we have on our living environment, and our associations with different stakeholder interests. Our responsibility to all our stakeholder groups, including the environment, is a key reason for our ongoing business improvement. We are one of the initiative members of the Responsible Business Forum in Estonia. We have been recognized for our responsible way of doing business, through our activities for several years. In 2014, we were recognized with CSR Silver marking for our social, environmental and workplace practices, but also business ethics.
Not only do we aim to do the right things for our stakeholders, we also want to manage our business in the right way by operating to the highest standards of corporate governance. In 2014, for a second year in a row, we were awarded the Best Investor Relations of all the companies on the Nasdaq Balti Exchanges in all three Baltic Countries. This is the big recognition and a great honour for ourselves and Estonia. In addition, AS Tallinna Vesi was recognized as the most attractive company in the Nasdaq Balti Baltic Market. I would like to take this opportunity to thank the Nastaq Balti in Tallinn and the bank analysts who have worked with us to help improve the quality of our interactions with the investment community.
Still attractive for shareholders
We believe our operational and financial performance still makes us an attractive investment for current and future shareholders. We will continue to work hard in our court dispute to ensure that the privatization contract is respected. Beyond this we will continue to invest in our people and systems to ensure we are well placed to grow across the region if and when the opportunity arises.
For the 2014 financial year our total revenues increased slightly by 0.3% year on year to 53.2 mln euros, mainly due to an increase in sales of water and wastewater services. However, our EPS reduced by 10% year on year to 0.90 euro per share, the reduction is primarily related to the non-monetary revaluation of the fair value of SWAP contracts.
In June 2014, we paid a dividend of 0.90 cents per share, an increase of 3.4% year-on-year. This is in accordance with our dividend policy, which is to increase dividends by a minimum of CPI each year.
Outlook
Given the slow progress in our court cases and the lack of transparent regulatory practice, the outlook for the company remains very uncertain. The Estonian authorities have been unwilling to enter into any meaningful discussions over the privatization contracts, therefore it appears that the company will be engaged in a long court process, the duration of which is outside of the control of the company. This ongoing dispute and the unstable regulatory environment severely limit our growth opportunities.
In addition to the local court case, in October 2014, AS Tallinna Vesi and its shareholder United Utilities (Tallinn) B.V. commenced the arbitration proceeding against the Republic of Estonia for the breach of the Agreement on the Encouragement and Reciprocal Protection of Investments between the Kingdom of The Netherlands and the Republic of Estonia. As the tariff dispute has lasted very long time with no outcome, international arbitration is the other possibility to solve the dispute.
Regardless of the ongoing tariff dispute, our primary focus in 2015 will be to continue providing very high quality service to our customers, and seeking further efficiencies within our main services area in Tallinn. We are committed to retain our place as the leading water and wastewater company in the Baltic region.
We are very grateful that besides our own professionals we can use technical support and know-how from one of our major shareholder United Utilities, which is also one of the leading water and wastewater companies in UK. Finally, I would like to thank my colleagues in AS Tallinna Vesi, Watercom OÜ and United Utilities, and all our suppliers and business partners for all their expertise, energy and support in serving our customers during the past year. It is because of all your efforts that we are able to report a level of operating and service performance that is second to none. I look forward to our continuing success in the year ahead.