AS Tallinna Vesi : 2023 audited

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Translation of the company's consolidated financial statements in pdf-format without European Single Electronic Format (ESEF) markups. The original document is submitted in machine-readable .xhtml format to the Tallinn Stock Exchange and digitally signed (Link: https://nasdaqbaltic.com/statistics/en/instrument/EE3100026436/reports).

MANAGEMENT REPORT

CHAIRMAN'S STATEMENT

2023 has been a year of preparing for the future - investing more than ever as a business in going green, ensuring sustainable infrastructure and continuity of our services. We have also continued to introduce innovative technologies, such as the ice-pig technique for cleaning pipes and the smart water metering. It is important to us that the way we run our operations is sustainable, and having our gold label renewed by the Responsible Business Index demonstrates this once again. We also value the wellbeing of our employees and have joined the Family-Friendly Employer's Development Programme.

In preparing this annual report, we have introduced a set of sustainability reporting principles for the first time and are moving step-by-step towards their wider implementation.

As the largest water company in Estonia, we impact the daily lives of almost one third of Estonian people. We are aware of this and offer a service that meets all standards, taking into account the impact we have on the environment and nature. The tap water we produce meets all the drinking water standards and the quality of the treated effluent even exceeds the standards currently in place. For now, we only use electricity from renewable sources and have set a number of ambitious targets for reducing energy consumption and generating renewable energy ourselves by 2030. Using biogas from the wastewater treatment process, we have started to produce green heat and power. Our wastewater treatment plant treats almost 40% of all domestic wastewater in Estonia, with the utmost care to keep the Baltic Sea clean.

INVESTING FOR THE FUTURE

In 2023, Tallinna Vesi continued to install smart water meters at a rapid pace. This will free our customers from the obligation to report their water meter readings every month. By 2026, the entire service area will be covered with smart water meters, and more than 40% of customers have already got new smart meters. The new meters provide information on water consumption, giving us a better picture of water use in our service area and allowing us to detect water leaks in customers' pipes as early as possible. This saves the environment and minimizes potential damage to property due to water emergencies.

Compared to the previous year, Tallinna Vesi invested 39 per cent more totalling 35 million euros in fixed assets in 2023.

The investment plan for the coming years is based on the Tallinn Public Water Supply and Sewerage Development Plan 2023-2034 and aims to reduce the environmental impact of water consumption, ensure the continuity of services and sustainable urban development. The investments planned for 2023-2025 will be carried out using loan agreements signed in the spring of 2023 with the Nordic Investment Bank, as well as with AS SEB Pank, Swedbank AS and the Estonian branch of OP Corporate Bank plc.

Current and future investments will continue to ensure high-quality drinking water for Tallinners and help keep the nature clean. Using modern technology and materials will increase the average life of pipes and improve treatment efficiency. This allows us to ensure

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Translation of the company's consolidated financial statements in pdf-format without European Single Electronic Format (ESEF) markups. The original document is submitted in machine-readable .xhtml format to the Tallinn Stock Exchange and digitally signed (Link: https://nasdaqbaltic.com/statistics/en/instrument/EE3100026436/reports).

the continuity of a vital service at an affordable price and with minimal disruption to people's lives.

NEW TECHNOLOGIES

In 2023, large-scale investment projects continued at the treatment plants, for example, the upgrade of the high-speed filters at the Ülemiste Water Treatment Plant was completed and the renovation of the clarifiers began. We continue to prepare for implementing two major projects in the coming years. The first is to upgrade and reconstruct ozone production for water treatment, and the second is to convert floating bed clarifiers to flotators. These projects aim to reduce the energy consumed by the treatment plant and to increase its production capacity.

At the Paljassaare Wastewater Treatment Plant, the largest project in 2023 was the reconstruction of the digesters, which is expected to result in Tallinna Vesi producing more biogas from the sewage sludge generated during the wastewater treatment process. The first of the two digesters was completed by the end of the year and is ready for commissioning, while the reconstruction of the second digester will be continued in 2024. While the digesters were being reconstructed, work also progressed on a combined heat and power plant, which will not only generate heat from the biogas, but also provide most of the electricity needed for the wastewater treatment process. The cogeneration plant was completed by the end of the year and will be fully operational in 2024. Work will also continue in 2024 to install a knife gate valve between the suction basins at the wastewater headworks in Paljassaare.

In early 2023, our subsidiary Watercom launched a new water pipe cleaning service using innovative ice-pigging technology. Ice-pigging is many times more efficient, faster and better for the environment than any other method of maintenance that has been used to date. The service has got off to a good start and has attracted interest from a number of companies using the pipe systems as part of their core business.

PROVEN QUALITY

The consistently high level of quality is proof that Tallinna Vesi provides a reliable and safe water and wastewater service - water samples taken during 2023 confirmed that the tap water meets all the strict quality standards for drinking water to 99.87%.

Clean drinking water is a valuable resource that cannot be taken for granted. There are a lot of people, strategic work and science behind excellent water quality. Clean tap water has been ensured by well-targeted investments, an efficient water treatment process, regular monitoring and continuous preventive maintenance work in the water network.

More than 140 km of water mains were cleaned during the year using the ice-pigging method introduced in early 2023. Ice-pigging is a unique maintenance technology that involves preparing a mass of ice flakes from a solution of water and table salt and pumping this mass through a water pipe.

During 2023, we removed more than 800 tons of debris, 200 tons of grit, 1800 tons of nitrogen and 240 tons of phosphorus from wastewater. The effluent treated at the Paljassaare wastewater treatment plant met all standards in all quarters.

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Translation of the company's consolidated financial statements in pdf-format without European Single Electronic Format (ESEF) markups. The original document is submitted in machine-readable .xhtml format to the Tallinn Stock Exchange and digitally signed (Link: https://nasdaqbaltic.com/statistics/en/instrument/EE3100026436/reports).

CONTRIBUTING TO THE COMMUNITY

Tallinna Vesi provided clean drinking water for the 13th Youth Song and Dance Celebration "Holy is the Land" in July 2023, taking more than 100,000 litres of fresh drinking water to rehearsals and performances. In this way, together with the singers, dancers and the audience, we saved the resources it would have taken to produce, transport and dispose of more than 200,000 plastic bottles. In addition to the water tanks, drinking water was provided at the song and dance celebration from drinking water taps installed at the Tallinn Song Field and Kalevi Stadium.

We contributed to Impact Day, a sustainability festival promoting environmental education, and the Investment Festival, as well as community events such as Tallinn Old Town Days, Tallinn Maritime Days, Kalamaja Days, Tallinn Urban Space Festival, Midsummer Day in Põhja-Tallinn, KopliFest and Uue Maailma Street Festival. We also helped organize several sporting events, such as the 51st Lake Ülemiste Run and the IRONMAN.

In 2023, we supported the Kindergarten Õunake and the Ristiku Elementary School in Tallinn, the Estonian Disabled Athlete Sports Association, the Agrenska Foundation, the Autism School, the North Estonian Association of the Blind, the Tallinn Crisis Centre for Women and the Food Bank.

We organized open days and guided tours at the Ülemiste Water Treatment Plant and the Paljassaare Wastewater Treatment Plant, and held discussion groups on topics related to water and the environment. In total, more than 2,600 people participated in these initiatives.

OUTLOOK FOR 2024

On 21 September 2023, we submitted an application to the Competition Authority to change the prices for water services. The application concerns the prices for water services in the main service area in Tallinn and Saue, in the Maardu service area and to other water companies. Subject to approval by the Competition Authority, the new prices will be applied in 2024. The need for water price adjustments is due to justified cost increases and investments to ensure the operation of vital services, reduce the environmental impact of water consumption and maintain a clean environment.

I would like to sincerely thank the whole dedicated team of Tallinna Vesi and Watercom, the members of the Supervisory Council and our customers, consumers and partners for the good co-operation!

Aleksandr Timofejev

Chairman of the Board

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Translation of the company's consolidated financial statements in pdf-format without European Single Electronic Format (ESEF) markups. The original document is submitted in machine-readable .xhtml format to the Tallinn Stock Exchange and digitally signed (Link: https://nasdaqbaltic.com/statistics/en/instrument/EE3100026436/reports).

OUR COMPANY

Tallinna Vesi is the largest water company in Estonia, providing water and wastewater services to almost a third of Estonian population. We serve more than 24,900 private and commercial customers and nearly 470,000 end-consumers in Tallinn and the surrounding municipalities - the towns of Maardu and Saue and the village of Männiku in Saku municipality. The company had 364 employees as at 31 December 2023.

Ülemiste Water Treatment Plant (left) and Paljassaare Wastewater Treatment Plant (right)

The company has two treatment plants: Ülemiste Water Treatment Plant and Paljassaare Wastewater Treatment Plant. Every day, our plants treat an average of 70,200 m³ of drinking water and 133,000 m³ of wastewater. Tallinna Vesi also has an accredited water and waste water laboratories.

The public water supply system includes more than 1,210 km of water pipes, 22 water pumping stations and 49 groundwater pumping stations with a total of 91 borewells. The surface water catchment area covers about 1,800 km2 in Harju and Järva counties. The public sewerage system consists of more than 1,195 km of wastewater pipes, 518 km of stormwater pipes and 181 wastewater and stormwater pumping stations throughout the service area.

Tallinna Vesi was privatized in 2001. The service agreement concluded with the City of Tallinn at the time of privatisation was valid until 30 November 2022. A new administrative contract has been signed with the city for the period 01/12/2022-30/01/2032. Together with the approval of the administrative duty, AS Tallinna Vesi has been appointed as the water undertaker within the main public water supply and wastewater service area in Tallinn until 30 November 2032 (incl.).

The Tallinna Vesi Group consists of the parent company AS Tallinna Vesi and its subsidiaries Watercom OÜ and ASTV Green Energy OÜ.

Watercom, a subsidiary established in 2010, aims to provide services to the parent company, expand the range of services offered and develop non-regulated services. The subsidiary Watercom OÜ is wholly owned by AS Tallinna Vesi and its results are consolidated in the group's results.

Tallinna Vesi also owns a 100% stake in the subsidiary ASTV Green Energy OÜ (established in 2021), which has a longer-term goal to offer reusable resources generated from the provision of water services as products in the green energy market.

The structure of the group has remained largely unchanged in recent years.

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Translation of the company's consolidated financial statements in pdf-format without European Single Electronic Format (ESEF) markups. The original document is submitted in machine-readable .xhtml format to the Tallinn Stock Exchange and digitally signed (Link: https://nasdaqbaltic.com/statistics/en/instrument/EE3100026436/reports).

The shares of Tallinna Vesi are listed on the Nasdaq Baltic Main List. As of 31 December 2023, the shareholders with a direct shareholding of more than 5% were OÜ Utilitas and the City of Tallinn.

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Translation of the company's consolidated financial statements in pdf-format without European Single Electronic Format (ESEF) markups. The original document is submitted in machine-readable .xhtml format to the Tallinn Stock Exchange and digitally signed (Link: https://nasdaqbaltic.com/statistics/en/instrument/EE3100026436/reports).

Management System

To ensure that the company is managed effectively and systematically, we have implemented an integrated management system that complies with the international standards for quality management systems (ISO 9001), environmental management systems (ISO 14001) and occupational health and safety management systems (ISO 45001), as well as the requirements of the EU's Eco-Management and Audit Scheme (EMAS) Regulation. We also have an ISO/IEC 27001:2017 certified information security management system in place since 2023 to more effectively operate and protect our information systems and infrastructure. The scope of all the standards covers the main areas of activity of Tallinna Vesi:

• abstraction and treatment of groundwater and surface water for the production of drinking water,
• supplying drinking water to consumers in Tallinn and the surrounding area,
• collection and treatment of wastewater and stormwater,
• customer service to ensure the intended service.

The activities of the subsidiary Watercom are certified according to the quality standards ISO 9001:2015, ISO 14001:2015 and ISO 45001:2018 and the scope of standards covers the following areas of activity:

• owner supervision,
• construction of water and wastewater pipes,
• repair and maintenance,
• road construction,
• development of services related to water business.

Risk Management

Risks and uncertainties of all kinds are an everyday part of running any business. Tallinna Vesi has defined risk as something that could have a material adverse effect on the achievement of the company's targets and objectives. Risks can mean threats, uncertainties or stranded opportunities related to the activities or operations of Tallinn Vesi, either today or in the future.

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Translation of the company's consolidated financial statements in pdf-format without European Single Electronic Format (ESEF) markups. The original document is submitted in machine-readable .xhtml format to the Tallinn Stock Exchange and digitally signed (Link: https://nasdaqbaltic.com/statistics/en/instrument/EE3100026436/reports).

The aim of the continuous risk management process is to assess, manage and regularly monitor risks that could undermine the achievement of Tallinna Vesi's objectives. A risk owner is assigned to each risk, who, together with the quality manager, carries out regular risk assessments, additionally involving specialists in the respective field. Risks are divided into normal risks and strategic risks. Strategic risk is a business-critical risk that affects the entire company and relates to its governance, long-term strategy, sustainability and objectives, and which, if materialised, could jeopardise the

company's performance, the achievement of its objectives and result in significant losses. All other risks that fall below the strategic risk threshold qualify as normal risk.

The identification of risks is based in particular on:

• the requirements set out in legislation,
• the requirements arising from the standards underlying the management systems,
• the company's business plan and annual targets,
• known and documented information about possible adverse events,
• the knowledge and experience of the employees in connection with the possible negative effects on the events,
• information in the media about the area of activity,
• trends and developments in the field of technologies used in the company,
• changes in the supply chain.

The impact of the risk is assessed based on the severity of the consequences across the various impact areas. The severity of the potential consequences of each risk is rated on a 4-point scale, depending on the nature of the risk, either for all or some of the topics listed below:

• Financial loss
• Quality of service
• Health and quality of life of residents
• Health and safety at workplace
• Nature
• Reputation and co-operation with stakeholders
• Data loss, downtime of information systems/ alarm time

In the risk management process, the company's risks are categorised according to their area of impact as follows:

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Translation of the company's consolidated financial statements in pdf-format without European Single Electronic Format (ESEF) markups. The original document is submitted in machine-readable .xhtml format to the Tallinn Stock Exchange and digitally signed (Link: https://nasdaqbaltic.com/statistics/en/instrument/EE3100026436/reports).