TKM Grupp
Quarterly report

Unaudited consolidated interim accounts for the fourth quarter and 12 months of 2016

Tallinna Kaubamaja Group’s consolidated unaudited sales revenue for the fourth quarter of 2016 amounted to 162.9 million euros, exceeding the sales revenue of the previous year by 6.6%. The sales revenue of 12 months was 598.4 million euros, having grown by 7.7% compared to the 2015 result, when the sales revenue amounted to 555.4 million euros. The Group’s consolidated unaudited net profit for the fourth quarter of 2016 was 7.9 million euros, being 25.4% less than the profit of the comparable period of the previous year. The Group’s net profit for the 12 months of 2016 was 25.7 million euros, being 16.6% better than the profit of the previous year. The pre-tax profit of 12 months was 31.0 million euros, having grown by 19.4% compared to the previous year. Net profit was affected by dividend payment, on which 5.2 million euros in income tax were paid in the first quarter of 2016. A year before, income tax payment amounted to 3.9 million euros.

The fourth quarter of 2016 continued to be a successful quarter for the Group in terms of sales results and for the fifth quarter in a row, all segments of the Group managed to increase their sales revenue. Strong sales growth in the car trade segment throughout the year also continued in the fourth quarter; in addition, other segments of the Group achieved good sales growth in the tight competition. Decrease in the fourth quarter profit compared to the quarterly profit of one year ago was caused by the revaluation of the Group’s assets, with a total impact on the profit being a write-down of 1.6 million euros in the last quarter of 2016 (write-up in the fourth quarter of 2015 was 0.8 million euros). The profit was also affected by a lower margin primarily due to public procurements in the car segment and performance pay calculated in the last quarter to the employees for overall good annual results. The latter increased the average monthly wage costs of employees in the fourth quarter compared to the average annual growth. In addition, the number of employees and the total wage costs in the last quarter increased due to two new Selvers.

Selver supermarkets

The consolidated sales revenue of 2016 in the business segment of supermarkets was 400.0 million euros, having grown by 4.3% in a year-on-year comparison. The consolidated sales revenue of the fourth quarter was 108.9 million euros, indicating a 4.6% growth in a year-on-year comparison. 36.2 million purchases were made in Selvers in 2016, surpassing the figure of the previous year by 0.4%. The consolidated pre-tax profit of the segment of supermarkets was 14.7 million euros in 2016, net profit was 12.1 million euros, having grown by 3.9 and 3.5 million euros respectively compared to the previous year. The difference between the net profit and the profit before income tax arises from the income tax paid on dividends. The pre-tax profit earned in Estonia amounted to 16.8 million euros and the net profit to 14.1 million euros. The pre-tax profit and net profit were 4.2 million euros in the fourth quarter, indicating a decrease of 0.2 million euros, of which the profit earned in Estonia made 4.8 million euros. The loss incurred in Latvia in 2016 was 2.1 million euros, of which the share of the fourth quarter was 0.5 million euros. The loss incurred in Latvia decreased by 0.3 million euros in 2016. In 2016, the retail trade was highly competitive. Increasingly more work has to be done to maintain the market share. The sales growth in the segment of supermarkets was supported by an increase in the average shopping basket backed by an upsurge in the real income of people and successful sales campaigns. In the tightening competition, new clients were gained and the number of purchases of the previous year was surpassed by opening new stores. Negative impact on the sales growth originated from the closure of Kerese Selver in February 2016, resulting in a higher comparison basis and lost turnover from shops temporarily closed for renovation works – Tondi Selver in Tallinn (closed for 4 weeks) and Veeriku Selver in Tartu (closed for 6 weeks). Considering the stores, the drivers of the growth of sales revenue are the Selvers that were opened and renovated in recent years. 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 purchase process of goods. With regard to operating expenses, the Group has managed to increase the level of cost efficiency of 2015. Pressure for salary increase is strongly pronounced also in the segment of supermarkets, as a result of which we can see a slight decrease in labour efficiency in 2016 compared to the previous year. The Tallinn Administrative Court satisfied the claim for the refund of sales tax from the Tallinn City Enterprise Department regarding the sales tax collected on excise goods. This non-recurrent income was reflected in the results of the second quarter. The loss in Latvia decreased, owing to the termination of a lease contract of one store.

Department stores

The sales revenue of 2016 in the business segment of department stores was 98.0 million euros, having grown by 2.6% in a year. The sales revenue of the fourth quarter formed 29.9 million euros of this amount, being 3.2% higher than the revenues of the fourth quarter 2015. The pre-tax profit earned by department stores amounted to 4.3 million euros in 2016, being 2.0% less than the result of the previous year. The pre-tax profit of the fourth quarter made 2.6 million euros, which was a 7.8% decrease in a year-on-year comparison. The sales revenue of the department stores in 2016 was influenced by renovation works in both sales locations, where in the first quarter, the renovation of the beauty and women’s departments of the Tartu department store was completed and at the beginning of September, the updated women’s shoe department and third floor of the men’s department in the Tallinn department store were opened. Starting from the second quarter, the increased competition in the Tartu town centre in the segment of groceries and fashion items has negatively affected the result of the Tartu department store. The turnover of Kaubamaja’s online store, which was opened at the beginning of March, exceeded, by the end of December, the level planned for 2016 with the number of products being as high as 90,000 by the end of the fourth quarter. The profit of department stores has been positively influenced by lower utility costs compared to the previous year due to milder weather and investments made into modern lighting and technology. The sales revenue of OÜ TKM Beauty Eesti, which operates the I.L.U. cosmetics stores, was 1.6 million euros in the fourth quarter of 2016, having decreased by 8.3% compared to the same period in 2015. The profit was 0.02 million euros in the fourth quarter, which was 0.02 million euros less than the profit of the comparable period of 2015. The sales revenue of 2016 was 4.9 million euros, having decreased by 4.0% in a year-on-year comparison. The loss was 0.3 million euros in 2016, which is 0.1 million euros more than the loss of 2015. In 2016, the location of the store in the Tartu town centre was changed. In May, the store in Tasku Centre was closed and a new store was opened in the shopping centre Kvartal. Launching the operations of the Kvartal I.L.U. store on a new sales area immediately before the summer season appeared to be a challenge. The annual sales outcome of the store remained below expectations, which also influenced the total result of the company. The Ülemiste I.L.U. store underwent a reconstruction, in the course of which another client entrance was opened through the neighbouring L’Occitane store.

Car Trade

The sales revenue of 2016 in the segment of car trade was 82.6 million euros. The sales revenue was 35.9% higher in a year-on-year comparison, including an increase of 33.5% in the sales revenue of KIAs. The fourth quarter sales revenue of 19.3 million euros exceeded the previous year by 27.3%. The sales revenue of KIAs increased by 23.9%. In 2016, the total car sale of the Group was 3,893 new vehicles, including 881 vehicles in the fourth quarter. The net profit of the segment in 2016 was 3.2 million euros, surpassing the profit of the same period of the previous year by 113.1%. The pre-tax profit of 2016 of the segment was 3.7 million euros, surpassing the profit of the same period of 2015 by 83.0%. The net profit of the fourth quarter of 2016 was 0.6 million euros, which is 205.5% more than the profit of the fourth quarter of 2015. In addition to the superb sales results, good profitability in all car sale companies of the Group was achieved in 2016. The sales growth is reinforced by the good work of the dealers themselves by achieving a high level of service quality and customer satisfaction. This has contributed to the sales growth of new cars and thanks to improved reliability, increased the workload of after-sale service. In addition, the sale of new cars in 2016 was supported by the growth in the car sale market in all three Baltic States. The driving force in car sales has continued to be the hit model of KIA – Sportage SUV – and the competitive and strong model range of OPEL in all model segments. In Latvia and Lithuania, we could also highlight winning several large public procurements in 2016. The sale of new cars was supported, in turn, by the sale of used cars by the car group dealers.

Footwear trade

The sales revenue of 2016 in the business segment of footwear trade was 12.8 million euros, having grown by 7.5% compared to the previous year. The sales revenue in the fourth quarter was 3.5 million euros, which is a 3.2% increase in a year-on-year comparison. The loss was 0.1 million euros in the fourth quarter of 2016, which is 1.4 million euros less than the loss of the fourth quarter of 2015, when 1.4 million euros of footwear segment goodwill was written down. The improvement of the fourth quarter results was supported by early winter and a more aggressive sale-oriented strategy, which has helped improve the age structure of stock and given a good starting point for margin growth. The performance of SHU footwear stores has advanced well compared to 2015. In addition to shoe sales, the sales in the line of children’s goods and bags also showed a notable increase.

Real estate

The external 12-month sales revenue of 2016 in the business segment of real estate was 5.0 million euros. The sales revenue increased by 33.1%, i.e. 1.2 million euros compared to the previous year. The external sales revenue of the fourth quarter was 1.3 million euros, being 10.0%, i.e. 0.1 million euros more in a year-on-year comparison. The 12-month pre-tax profit of 2016 of the real estate segment was 9.1 million euros, which is 19.9% less in a year-on-year comparison. The pre-tax profit of the fourth quarter was 0.6 million euros, which is 4.1 million euros less compared to the same period of the previous financial year. The growth in the sales revenue was supported by the Viimsi trade and recreation centre opened in August 2015 and renting out the Rezekne building in Latvia to an external party. In March 2016, the renovation works of the Tartu Kaubamaja centre were finalised, in course of which the entire shopping environment was modernised. Profit in the real estate segment was affected by the revaluation of the segment’s assets, resulting in a 2.2 million euro decrease in the profit of the quarter (as a result of the 2015 revaluation, the profit increased by 2.3 million euros).

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