Market announcement

Title

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

Message

Segments (EURm)          Q4/16  Q4/15   yoy    12m/16  12m/15   yoy  
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Supermarkets             108.9  104.1   4.6%    400.0   383.4   4.3% 
Department stores         29.9   29.0   3.2%     98.0    95.6   2.6% 
Cars                      19.3   15.2   27.3%    82.6    60.8   35.9%
Footwear                   3.5    3.4   3.2%     12.8    11.9   7.5% 
Real Estate                1.3    1.2   10.0%     5.0     3.7   33.1%
Total sales              162.9  152.9   6.6%    598.4   555.4   7.7% 
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Supermarkets               4.2    4.4   -3.8%    14.7    10.8   36.6%
Department stores          2.6    2.8   -7.8%     4.3     4.4   -2.0%
Cars                       0.6    0.2  207.6%     3.7     2.0   83.0%
Footwear                  -0.1   -1.5  -94.7%    -0.9    -2.6  -67.8%
Real Estate                0.6    4.7  -87.7%     9.1    11.4  -19.9%
Total profit before tax    8.0   10.6  -25.1%    31.0    26.0   19.4%
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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

                                              31.12.2016  31.12.2015
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ASSETS                                                              
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Current assets                                                      
Cash and cash equivalents                         32,375      13,911
Trade and other receivables                       15,396      20,191
Inventories                                       70,186      61,110
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Total current assets                             117,957      95,212
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Non-current assets                                                  
Long-term trade and other receivables                264         293
Investments in associates                          1,762       1,778
Investment property                               48,684      44,963
Property, plant and equipment                    211,511     196,691
Intangible assets                                  8,505       9,043
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Total non-current assets                         270,726     252,768
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TOTAL ASSETS                                     388,683     347,980
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LIABILITIES AND EQUITY                                              
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Current liabilities                                                 
Borrowings                                        26,852      33,377
Trade and other payables                          83,812      77,066
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Total current liabilities                        110,664     110,443
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Non-current liabilities                                             
Borrowings                                        73,772      57,426
Provisions for other liabilities and charges         403         502
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Total non-current liabilities                     74,175      57,928
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TOTAL LIABILITIES                                184,839     168,371
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Equity                                                              
Share capital                                     16,292      16,292
Statutory reserve capital                          2,603       2,603
Revaluation reserve                               83,932      65,701
Currency translation differences                    -255        -255
Retained earnings                                101,272      95,268
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TOTAL EQUITY                                     203,844     179,609
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TOTAL LIABILITIES AND EQUITY                     388,683     347,980
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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

In thousands of euros

                                       IV quarter     IV        12     12 months
                                          2016      quarter   months      2015  
                                                     2015      2016             
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Revenue                                   162,931   152,888   598,414    555,447
Other operating income                      1,941     4,536     3,200      5,140
                                                                                
Cost of sales                            -119,797  -113,072  -445,424   -416,134
Other operating expenses                  -13,730   -11,999   -51,808    -50,776
Staff costs                               -16,090   -14,669   -56,371    -50,890
Depreciation, amortisation and             -6,903    -6,614   -15,590    -15,234
 impairment losses                                                              
Other expenses                               -181      -152      -729       -609
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Operating profit                            8,171    10 918    31,692     26,944
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Finance income                                  0         1         3         12
Finance costs                                -227      -280      -871     -1,144
Finance income on shares of                    35         9       159        142
 associates                                                                     
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Profit before tax                           7,979    10,648    30,983     25,954
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Income tax expense                            -39       -10    -5,258     -3,883
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NET PROFIT FOR THE FINANCIAL YEAR           7,940    10,638    25,725     22,071
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Other comprehensive income:                                                     
Items that may be subsequently                                                  
 reclassified to  profit or loss                                                
Currency translation differences                0         0         0          0
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Other comprehensive income for the              0         0         0          0
 financial year                                                                 
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TOTAL COMPREHENSIVE INCOME FOR THE          7,940    10,638    25,725     22,071
 FINANCIAL YEAR                                                                 
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         Raul Puusepp
         Chairman of the Board
         Phone +372 731 5000