Earnings call transcript: Tallinna Vesi Q3 2025 sees robust growth in sales

Tallinna Vesi reported its Q3 2025 earnings, showcasing a strong financial performance with sales reaching €90.4 million and net profit nearing €5 million. The company’s revenue growth was attributed to strategic price adjustments, with a notable 20% increase for private customers. Despite the solid earnings, the stock price remained stable, reflecting a 0% change on the day of the earnings announcement.

Key Takeaways

• Sales increased significantly year-over-year, driven by price adjustments.
• Smart meter deployment reached 80% of customers.
• Operating cash flow was used primarily for investments.
• Water quality compliance stood at 98%.
• Final water price equalization is expected next year.

Company Performance

Tallinna Vesi demonstrated robust growth in Q3 2025, with sales reaching €90.4 million. This marks an improvement compared to the previous year, driven by strategic price adjustments for private customers. The company continues to focus on infrastructure investments and technological enhancements, which are expected to bolster future performance.

Financial Highlights

• Revenue: €90.4 million, up from previous year
• Net Profit: Nearly €5 million
• Operating cash flow: $8.1 million used for investments
• Investment cash outflows: $12.3 million
• Cash balance at quarter-end: $5.4 million

Outlook & Guidance

Tallinna Vesi plans to invest €60 million in 2025, with 84% of these investments contributing to the regulatory asset base. The company remains focused on process efficiency and infrastructure improvements, with the final water price equalization anticipated next year.

Executive Commentary

"Our results are very good," stated CEO Alexander Demofej, emphasizing the company’s strong performance. CFO Tawi Kron added, "Price adjustments are necessary and reflect our continued investments in our assets." Demofej further noted, "We pretty much treat wastewater twice better than the standard foreseen."

Risks and Challenges

• Potential regulatory changes could impact pricing strategies.
• Economic downturns may affect private customer spending.
• Rising operational costs could pressure profit margins.
• Competitive pressures in the water utility sector.
• Environmental regulations may necessitate additional investments.

Tallinna Vesi’s Q3 2025 performance underscores its strategic focus on growth through infrastructure and technology investments, positioning the company for continued success amidst evolving market conditions.

Full transcript - Tallinna Vesi AS (TVE1T) Q3 2025:

Christina Dumberg, Webinar Host, Dialy NovaSys: Hello, ladies and gentlemen. Thank you for joining. I am Christina Dumberg, and I welcome you all to today’s Dialy NovaSys webinar. This webinar will be hosted by Alexander Demofej, CEO, and Tawi Kron, CFO. Firstly, Alexander Demofej and Tawi Kron will introduce the highlights of the 2025.

The presenters will also speak about Telenovese’s operational and financial results of nine months. Alexander will give you an overview about some of the investments made in the 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 in any part of the webinar. To submit your question, please use the question box on the right side of the screen.

Now I will hand over to Alexander and Tavy. Here you go.

Alexander Demofej, CEO, Telenovese: Well, good morning, everybody. Thank you for joining. A little bit about the highlights of the third quarter twenty twenty five. Our results are very good. So if we speak about the financial results, then some highlights on the screen.

The sales are higher than last year during the first quarter. So in the first quarter, our sales were EUR90.4 million. And if we speak about the net profit, then it was almost EUR5 million in the third quarter. A lot of the divestments done in our assets during the third quarter, we invested €11,300,000 and by the end of the year, we plan to invest approximately €60,000,000. Approximately half of that goes to the underground assets or pipes and the rest we spent on our treatment facilities, our IT technologies and so on.

The water quality was high. In the third quarter, it was 98%. And if we speak about wastewater treatment, then it was also on the very high level. All fluid we discharged to the Baltic Sea was according to all the standards. If we speak about energy production, then as you remember, starting from last year, we installed two CHP engines at the Waste Of Treatment plant.

And during the third quarter, we produced almost 2.8 gigawatt hour electrical energy. At the same time, we do a lot of cooperation with our customers and one of our objectives for that year is the installation of the smart meters. So by the end of the third quarter, 78.8% of our customers already used the smart meter. If we speak about today, then 80% of our customers actually use a smart meter every day. So it helps them to save their time.

They do not have to submit their reading to us. And of course, we can see the consumption online and if there is anything strange. For example, the leakage at the customer’s pipe, then our system gives us information and we can notify the customers. During the third quarter, we had also two working accidents. And one of them happened at the waste water treatment plant when the person just stepped bad and injured his leg.

And the second one happened at the water treatment plant where the person also injured his leg when he stepped into the open manhole. We did some lessons learned from these occasions and our health and safety department do everything to improve the health and safety on on the sites. If we move on to the next slide, then I will introduce you some investments we did during that year. So by today, approximately 32 kilometers of pipes are constructed in the city of Tallinn. And by the end of the year, our aim is to reconstruct approximately 45 kilometers of pipes.

Approximately 4045% we reconstruct using the Nordic method that is environmental friendly and impacts our customers not as much as the reconstruction with the trench method. You can observe also some streets where we do works at the moment. A couple of sites have been completed by today as well. These are Kopri Street and the Thompson Road and our aim is that the construction works will be completed by the November. If we speak about the plants, then a lot of investments are done in these areas as well.

So in the water treatment plant, we completed the reconstruction of the filters and the waste water treatment plant. We did some changes in the screen house. So we installed the new screens and also preliminary screens for the main pumping station have been installed as well. This will improve the mechanical treatment of our processes and if the mechanical treatment is working on the high level, then the biological and the chemical treatment is working again as well. As I mentioned on our previous webinar, we install electrical generators into strategic pumping stations and by the end of this year approximately 40 pumping stations would have the electrical generator in case of energy cuts.

Last year, we started with the reconstruction of the sedimentation tanks. And during this year, we reconstructed four of them. Two have been completed last year and in total we have 12 of them. So by today, of the project is completed and the full cost of that project is a little bit over €9,000,000 that we will complete in 2027. We do also some preparations for a couple of new projects that will take place next year.

One of them is the optimization of the waste water treatment plant process. The idea of that is to use more sensors that will show the information online. And due to that, we can get a better information that will help us to take better and faster decisions that potentially should save some resources such as energy, chemicals and will impact positively on the water tariffs. And also the preparations for the ozone treatment stage reconstruction is ongoing. If we move on, then I would speak a little bit about our operational results.

So as I mentioned about the water quality, then it is on the high level. And during the first quarter, we took over 800 samples and only 16 of them were not according to the standard. That is a very good result for the third quarter as the water temperature and the air temperature is high and this impacts the water quality a lot. The wastewater treatment plant is working very well. We take tones and tones of different materials out from the wastewater and due to that the treated effluent is according to all the standards.

So we pretty much treat wastewater twice better than the standard foreseen. The customer satisfaction is high. So in the first quarter, it was a 4.1 out of five. And if we look into the details and the feedback what we get from our customers, then pretty much it shows that the improvements we do in the network and also the changes in our processes improve the quality of our services and speed of the action on some emergencies. The leakage rate is lower than last year.

This shows that the investments that we do into the network is right. And of course, the proactive maintenance and proactive leakage detection is working well as well. If we speak about the duration of our bot interruptions, then it is on the same level as last year. And if we speak about the rehabilitation of the network, then as I said before, it is according to the plan. Good results and I will give over to Thavy who will cover the financial part of the third quarter.

Thank you.

Tawi Kron, CFO, Telenovese: Thank you very much, Alexander. Let’s start off with a quick review on volumes. Third quarter differences compared to last year are minimal as water consumption is very stable attributes. And we see that on also on a year to date basis, private customer segment is slightly lower, point 4% lower compared to third quarter last year. Business customers slightly higher, 0.5%.

Have slight movements in different customer segments, but nothing that would stand out. So that is also described by those zero point differences compared to last year. We have a higher difference in outside service area in year to date perspective, 9% lower volume compared to 2024. And this is a result due to slower or lower water sales to outside areas. Water sale to outside areas depends on what water sources the outside areas are using.

And then this year, the use of water in outside areas has been lowered. It is also this segment is also impacted by stormwater that’s directed through the wastewater network to Tallinn area. The main attribute here is water, so to outside the area. When let’s next look at sales volumes in Eurowales. One moment.

Here, we see that on a quarter basis and also on a year to date basis, the sales revenue has increased. The increase is a result of price adjustments, the lates of which took place May 1. And the price results price adjustments are necessary and reflect our continued investments in our assets. We are, as Alexander gave an overview, continuously rehabilitating our network and investing in our treatment plant assets to maintain a reliable process and high quality. And we see an increase higher increase for private customers close to 20% in year to date perspective.

And this is a result of price equalization. Business customers, as can be seen, is lower also in quarterly basis and year to date basis. It’s a result of price equalization required by law, which means that water price for both customer segments has to be equalized. And it was also performed with the first of May price change and the next adjustment and final equalization will take place next year. Price increase in outside area and also in other segments is also impacted by as stated by investments at the same time and OpEx or operational expense changes as well.

Moving forward, let’s take a look at how the cost base has changed in third quarter. The total cost of goods sold has increased to million. It’s around 8.8% compared to last year. And there are smaller changes in direct production costs. It’s on the chart, you can see that it’s showing seros, but totaling these zeros make up around 100,000.0.

It’s around 3.3% increase compared to sorry, decrease compared to last year. And this is a result of efficient use of chemicals in our treatment process, but also most significantly a contribution of electricity production in our CHP engines in wastewater treatment plant. The efficiency and direct production cost has been significant and this is something that we will continue to focus on also in in coming years. We have slight increases in staff cost and more significant changes in depreciation cost. Depreciation cost directly involved a result of the investments that we have made into our main assets.

Construction cost service cost reflects the higher revenues in construction services. So connected to those services, we also have higher costs. And with those changes, we end up with roughly 8.8% increase. Now on the next slide, let’s summarize the impact on net profit level. We our net profit grew to close to sorry, million, 9 which is an increase of roughly NOK1 million from NOK3.9 million in twenty twenty four third quarter.

And most significant impact, of course, comes from sales revenue, which is then negated partly by cost of goods sold, increased costs, and also partly by net financial expenses and financial expenses, of course, connected to the loans that we have taken to finance the capital investments. As previously mentioned, the revenue increases are connected to our investment activities. So is the profitability aspect that in our regulatory terms, we earn our profitability from the capital investments that we make. So it’s reflected also on a net profit level. Next, a quick look on our cash position and movement in the third quarter.

Operating cash flow of $8,000,000 $8,100,000 was used for investing activities investment cash flows. Outflows of 12,300,000.0 were then partly financed by additional loans in the extent of CHF 7,000,000 and we ended up with a cash balance of CHF 5,400,000.0 at the end of the quarter. We have sufficient financing tranches to continue our investment programs and we continuously monitor our cash position and capital expenditure. And finally, to summarize briefly our investment perspective for the year, we have stated that we have in previous quarter stated that our annual estimate is 60,000,000. We have slightly adjusted sorry, 1,000,000 and we have slightly adjusted that to 60,000,000.

It depends the final result very much on how the investment projects progress, but see that this is the best estimate at the moment for the year. And at the moment, in the end of third quarter, we have carried out 39,000,000 of these investments. And on a very broad basis, 84% of those investments contribute towards regulatory asset base, not 100% because part of the investments are financed by, for example, customer connection fees or by the city of Tallinn. So with that, I conclude my summary of, of the, third quarter financial aspects. And back to you, Christina.

Christina Dumberg, Webinar Host, Dialy NovaSys: Thank you. And thank you both for the presentation. Now we will proceed with the questions. So we will give a few minutes to submit your questions. Please feel free to type in any question you might have.

So it seems that, we don’t have any questions right now. So we will, end up with a meeting. Recording of presentation will be available in the Telenovesis YouTube channel webinar playlist shortly. Presentation materials and reports can be found on Telenovesis webpage. So, Darwin and Alexander, once again, you for for the overview, and we wish a good day for everyone.

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