TKM Grupp
Half Year financial report

Unaudited consolidated interim accounts for the second quarter and first six months of 2016

The unaudited consolidated sales revenue of the 2^nd quarter of 2016 of Tallinna Kaubamaja Group was 150.5 million euros, which exceeded the year-on-year sales revenue by 8.0%. The sales revenue of the first half year of 2016 increased by 9.4% to 287.4 million euros compared to the first half year of 2015, when the sales revenue was 262.8 million euros. The unaudited consolidated net profit of the 2^nd quarter of 2016 of the Group was 8.6 million euros, which exceeded the year-on-year profit by 45.3%. The net profit of the first six months of 2016 of the Group was 8.4 million euros. Compared to the same period in the previous year, the profit has increased by 76.4%. The pre-tax profit was 13.6 million euros in the first half-year, which is a 57.7% increase in a year-on-year comparison. The net profit was affected by a dividend payment, on which 5.2 million euros of income tax was paid in the 1^st quarter of 2016. In the previous year, 3.9 million euros of income tax was paid.

In the 2^nd quarter, the 8% increase in the sales revenue of the Group exceeded the overall trend in Estonian retail sales statistics. All in all, the sales revenue and the financial results of all segments of the Group improved in the quarter. The largest growth was achieved by the segment of car trade where new models by KIA received a warm welcome and several fleet sale deals were won. The largest retail sales segments of the Group, i.e. Selvers and department stores, showed a stable increase in sales and an improvement in profits. The footwear trade segment, which operates in a demanding market situation, continued to implement the chosen strategy. The sales revenue of the footwear segment grew and the loss decreased. The continued optimisation of trade processes and thought-out marketing activities have helped increase the gross profitability. The addition of new stores has increased the number of employees. The wage costs of the new employees as well as increases in the wage level to further increase the Group’s position on the labour market have raised the overall cost of wages. This has helped to maintain professionalism and trained personnel, which is essential to ensure a good level of service, thereby allowing the Group to better service its customers. At the same time, the earnings before interest, taxes, depreciation, and amortisation (EBITDA) per employee and every labour input euro have grown, giving proof of the efficiency of the Group’s labour force and an increase in the sustainability of earning profits.

Selver supermarkets

The consolidated sales revenue of the first half-year of 2016 of the business segment of supermarkets was 191.8 million euros, having grown by 5.2% in a year-on-year comparison. The consolidated sales revenue of the 2^nd quarter was 99.0 million euros, indicating a 3.1% growth in a year-on-year comparison. The consolidated pre-tax profit of the segment of supermarkets was 6.0 million euros in the 1st half-year of 2016 and the net profit 3.4 million euros, having grown by 3.0 and 2.6 million euros respectively compared to the previous year, whereof the pre-tax profit earned in Estonia formed 7.0 million euros and the net profit 4.4 million euros. The difference between the net profit and the profit before income tax arises from the income tax paid on dividends – in 2016, the income tax on dividends surpassed the figure of the previous year by 0.39 million euros. The pre-tax profit and net profit were 3.5 million euros in the 2^nd quarter, indicating a growth of 1.5 million euros, of which the profit earned in Estonia formed 4.0 million euros. The loss incurred in Latvia in the first half-year was 1.0 million euros, of which the share of the 2^nd quarter was 0.5 million euros. In a year-on-year comparison, the loss in the first half-year decreased by 0.2 million euros. The increase in revenue from sales of goods in the 2^nd quarter was supported by successful campaign and holiday sales. Consumers’ increased confidence, increases in the real income of people, and activities to offer a better product mix for customers have raised the price of an average shopping basket. The comparison basis of the 2^nd quarter of 2016 does not include the Viimsi Selver (the seventh hypermarket of the chain was opened in August 2015) or the online store of Selver (e-Selver), which was opened at the end of 2015. The Kärberi Selver in Lasnamäe, which was opened in April, has a positive effect on the growth of sales revenue. As a counterbalance, the Tondi Selver, a hypermarket, was closed for a month due to renovation works. The Selvers that have been opened in the last five years, which are still in a phase of higher-than-average growth, are driving the increase in the sales revenue as far as Selvers are concerned, winning over new customers in a tight competitive situation. The formation of the profit earned in Estonia has primarily been affected by increases in the gross profit earned from the sale of goods, which has been accomplished chiefly by changes in the operating principles of the sale of goods and through optimising the procurement process of goods. With regard to operating expenses, the Group has managed to improve the level of cost effectiveness of the previous year. Tallinn Administrative Court satisfied the claim for refund of sales tax from the Tallinn City Enterprise Department regarding the sales tax collected on excise goods. This non-recurrent income in the amount of 0.4 million is reflected in the results of the 2^nd quarter. The loss in Latvia decreased owing to the termination of a lease contract of one store.

Department stores

The sales revenue of the first six months of 2016 of the business segment of department stores was 46.0 million euros, having increased by 1.6% in a year-over-year comparison. The sales revenue of the 2^nd quarter formed 23.8 million euros of this amount, which is 1.5% higher than the revenue of the 2^nd quarter of 2015. The pre-tax profit of the department stores in the first half-year of 2016 was 1.1 million euros, which is 8.7% higher than the result of the previous year. The pre-tax profit was 1.2 million euros in the 2^nd quarter, which was a 3.7% increase in a year-on-year comparison. The sales revenue of the first half-year of the department stores was affected by renovation works in the dedicated beauty and women’s departments of the Tartu store. The sales revenue of the 2^nd quarter of the department stores was negatively affected by increased competition in central Tartu in the segment of groceries and fashion items. At the same time, well-planned campaigns and favourable weather, which helped to boost the sale of thicker clothes, had a positive effect on the department stores’ results of the first half-year. In addition, the changes in the brand portfolio and the interior decoration have been well accepted. The number of products available in Kaubamaja’s online store, which was opened at the beginning of March, was as high as 28,000 by the end of the 2^nd quarter. The sales revenue of the 2^nd quarter of 2016 of OÜ TKM Beauty Eesti, which operates the I.L.U. cosmetics stores, was 1.1 million euros, having decreased by 2.2% compared to the same period in 2015. The loss was 0.1 million euros in the 2^nd quarter, which remained at the same level compared to the same period in 2015. The sales revenue of the first half-year of 2016 was 2.3 million euros, having grown by 0.4% in a year-on-year comparison. The loss was 0.2 million euros in the first half-year of 2016, which also overlapped compared to the results of the same period in 2015.

Car Trade

The sales revenue of the first half-year of 2016 of the segment of car trade was 41.4 million euros. The sales revenue was 46.1% higher in a year-on-year comparison, incl. an increase of 39.7% in the sales revenue of KIAs. The sales revenue of 23.2 million euros in the 2^nd quarter exceeded the figure of the previous year by 44.8%. The sales revenue of KIAs increased by 37.6%. The net profit of the first half-year of 2016 of the segment was 1.0 million euros, surpassing the profit of the same period of the previous year by 62.4%. The pre-tax profit of the first half-year of 2016 of the segment was 1.4 million euros, surpassing the profit of the first half-year of 2015 by 29.1%. The net profit of the 2^nd quarter of 2016 was 1.0 million euros, surpassing the profit of the same period of the previous year by 50.4%. In the first half-year, all car dealers that are part of the Group have done well. The biggest contribution to the sales revenue was by Forum Auto SIA through the sale of KIAs. Forum Auto SIA won many large public procurements in both the 1^st and the 2^nd quarter. The sales performance of the company that sells Opels in Estonia was also solid in the car trade segment owing to their outstanding marketing campaign. The strong growth numbers are primarily supported by the modest sales volume of the previous year but also by a favourable market growth – the overall market of passenger cars and consumer vehicles in the Baltics grew by 19% in the first half-year, incl. by 12% in Estonia. The sales market of KIAs has also grown at the same pace in Estonia (+12.6%) thanks to the expectedly warm welcome of the new KIA Sportage SUV by customers. Other KIA models like the compact car KIA Cee’d have also met the expected sales targets.

Footwear trade

The sales revenue of the first half-year of 2016 of the segment of footwear trade was 5.8 million euros, increasing by 9.0% year-on-year. The sales revenue of the 2^nd quarter was 3.4 million euros, which is a 9.2% increase in a year-on-year comparison. The profit resulting from the 2^nd quarter was 0.02 million euros. The loss incurred in the same period of the previous financial year was 0.2 million euros. The loss incurred in the first half-year of 2016 was 0.5 million euros, which is a 42.7% decrease compared to the same period of the previous financial year. The decline in loss is a result of an improved procurement process and, above all, a result of a better positioning of the goods of the SHU concept to better fit the expectations of customers. Improvements in the age structure of the stocks have allowed the segment to activate discounts at a later stage and in a more moderate fashion than before.

Real estate

The sales revenue of the first half of 2016 of the business segment of real estate outside the Group was 2.4 million euros, which is 52.8% higher in a year-on-year comparison. The sales revenue of the 2nd quarter outside the Group was 1.2 million euros, which is 57.8% more in a year-on-year comparison. The pre-tax profit of the first half of 2016 of the segment of real estate was 5.6 million euros, which is 28.2% more compared to the same period of the previous financial year. The pre-tax profit of the 2nd quarter was 2.8 million euros, which exceeded the results of the same period of the previous financial year by 26.8%. The increase in the sales revenue was supported by the 14,000-square metre Viimsi Center opened in August 2015 and by renting the building in Rezekne Latvia to an external party. In March 2016, the renovation works in the department store of Tartu were completed. In the course of an exhaustive renovation project, entire shopping environment was modernised.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION 

In thousands of euros

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 

In thousands of euros

         Raul Puusepp
         Chairman of the Board
         Phone +372 731 5000