Market announcement

Title

Unaudited consolidated interim accounts for the third quarter and first nine months of 2017

Message

Segments (EURm)          Q3/17  Q3/16   yoy    9m/17  9m/16   yoy  
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Supermarkets             108.5   99.4   9.2%   317.1  291.1   8.9% 
Department stores         23.3   22.1   5.4%    71.4   68.1   4.8% 
Cars                      25.2   21.9   15.2%   76.1   63.3   20.2%
Footwear                   2.6    3.5  -25.1%    8.0    9.3  -13.8%
Real Estate                1.2    1.2   0.6%     3.7    3.7   1.0% 
Total sales              160.9  148.1   8.6%   476.2  435.5   9.4% 
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Supermarkets               5.0    4.4   12.4%   11.2   10.5   7.3% 
Department stores          0.7    0.7   10.6%    2.0    1.7   16.5%
Cars                       1.1    1.6  -31.7%    3.4    3.0   11.6%
Footwear                  -0.2   -0.3  -27.7%   -1.1   -0.8   37.3%
Real Estate                2.9    3.0   -1.5%    8.7    8.6   2.1% 
Total profit before tax    9.5    9.4   1.5%    24.3   23.0   5.6% 
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The unaudited consolidated sales revenue of the 3rd quarter of 2017 of Tallinna
Kaubamaja Group was 160.9 million euros, exceeding the sales revenue of the
previous year 8.6%. The sales revenue of nine months was 476.2 million euros,
having grown by 9.4% compared to the first nine months of 2016, when the sales
revenue amounted to 435.5 million euros. The unaudited consolidated net profit
of the Group in the 3rd quarter of 2017 was 9.5 million euros, which is 1.5%
higher on a year-on-year basis. The net profit of the Group in the first nine
months of 2017 was 17.9 million euros being by 0.7% better than the profit for
the previous year. The pre-tax profit in the first nine months was 24.3 million
euros, showing a year-on-year growth of 5.6%. Net profit was affected by
dividend payment, on which 6.4 million euros in income tax were paid in the 1st
quarter of 2017. A year before, income tax payment amounted to 5.2 million
euros. 

The growth in sales revenue of the Group’s basic areas of activity has on a
current basis exceeded the average of the respective market segment, confirming
thereby the right choice in the course of action in terms of the more important
areas. Similarly to previous quarters, the car segment achieved the strongest
sales growth. E-stores demonstrated really good results, although the total
sales potential has not been implemented yet. This can be achieved through
significant improvements in pick-up and delivery solutions, being one of the
Group’s priorities. In the 3rd quarter, the Group continued at the same margin
level in a year-on-year comparison, although the car segment with increasing
share contained fleet transactions with more modest margins. Investments in
modern lighting technology have given a worthwhile contribution to reducing
energy costs while the rest of the administrative expenses are increasing owing
to labour costs. Group’s labour costs have gone up by 9.9% in nine months,
while the average salary has increased 7.3%. Despite the faster than average
market growth of salary, it is even more difficult to find and motivate
employees for the Group’s service-intensive retail trade operations. To
alleviate the labour problem, the Group cooperates closely with state
authorities and has increased the share of employees with special needs. 

Selver supermarkets

The consolidated sales revenue for the first nine months of 2017 in the
business segment of supermarkets was 317.1 million euros, having grown by 8.9%
in a year-on-year comparison. The consolidated sales revenue of the 3rd quarter
was 108.5 million euros, indicating a 9.2% growth in a year-on-year comparison.
The consolidated pre-tax profit of the supermarket segment was 11.2 million
euros in the first nine months of 2017, showing a respective growth of 0.8
million euros compared to the previous year. The net profit for the same period
amounted to 7.6 million euros, having decreased 0.2 million euros compared to
the year before. The pre-tax profit earned in Estonia was 12.8 million euros
and net profit 9.2 million euros. The difference between the net profit and
profit before income tax arises from the income tax paid on dividends: in 2017,
the income tax on dividends surpassed the figure of the previous year by 1.0
million euros. The pre-tax profit and net profit were 5.0 million euros in the
3rd quarter, of which the profit earned in Estonia amounted to 5.5 million
euros. The profit for the 3rd quarter exceeded that of the previous year by 0.6
million euros. The loss incurred in Latvia in 9 months was 1.6 million euros,
of which the share of the 3rd quarter was 0.5 million euros. Loss remained at
the same level with the previous year. 

The growth of Selver’s sales revenue continued in the 3rd quarter at a higher
speed than the average of the market segment. The sales revenue growth was
supported by stores opened and renovated in the past few years. The sale of
seasonal goods was adversely affected by cool summer. The reference base of the
3rd quarter of 2017 is lower by two stores opened in 2016 and three stores in
2017 and by two stores temporarily closed in 2016 for one month due to
renovations. The reference base is higher by a store closed in Narva in the 1st
quarter of 2016 and an additional day due to the leap year. A successful area
has been e-commerce with more than doubled sales revenue for 9 months. In a
tight competition, we have managed to increase the number of purchases with the
support of new stores. Continued strong position of consumer confidence and
successful assortment and campaign activities have had a positive impact on the
average shopping basket. 

The development of profit earned in Estonia has above all been influenced by
increased sales revenue. The optimisation of trade processes has also had a
positive effect. With regard to operating expenses, the segment has managed to
improve the level of cost effectiveness of the previous year. As expected, the
positive effect has come from investments, enabling saving on administrative
costs and under the strong salary pressure maintain the labour efficiency at
the level of previous year. The costs and investments of 2017 include the
expenses of opening three new stores. The reference period includes the opening
costs of one store and renovation costs of another store. The profit of the
reference period is positively influenced by extraordinary income of 0.4
million euros as a result of a judicial decision of the sales tax of excise
goods. A one-off effect to the net profit of the current year arises from the
judicial decision, according to which Selver had to pay a penalty of 0.4
million euros. 

Department stores

The sales revenue for the first nine months of 2017 in the business segment of
department stores was 71.4 million euros, having increased by 4.8% in a
year-over-year comparison. The sales revenue of the 3rd quarter made 23.3
million euros of this amount, being by 5.4% higher than the revenues of the 3rd
quarter of 2016. The pre-tax profit of the department stores in the first nine
months of 2017 was 2.0 million euros, which is by 16.5% higher than the result
of the previous year. The pre-tax profit was 0.7 million euros in the 3rd
quarter, showing a 10.6% increase in a year-on-year comparison. The 9-month
sales revenue of the department store segment was influenced by successful
all-the-year-round sales campaigns. In July, the discount campaign of summer
goods was successful and the beginning of the autumn season in September has
also been really positive, which is why the result of the 3rd quarter was
better than expected and surpassed the previous year. The 9-month profit of
department stores has been positively influenced also by utility savings
compared to the year prior and this above all thanks to the investments made
into LED lighting in Tallinn as well as in the Tartu store over the last years.
The sales of e-store launched last March have also doubled in the 3rd quarter
and had a positive effect on the 9-month result. 

The sales revenue in the 3rd quarter of 2017 of OÜ TKM Beauty Eesti, which
operates the I.L.U. cosmetics stores, was 1.1 million euros, having decreased
by 5.6% compared to the same period in 2016. The loss of the 3rd quarter was
0.1 million euros, being by 0.03 million euros less than the loss for the
comparable period of the last year. The sales revenue of the first nine months
of 2017 was 3.2 million euros, having decreased by 6.4% in a year-over-year
comparison. The 9-month loss was 0.3 million euros in 2017, which is 0.1
million euros less than the loss for the same period of the previous year.
Negative impact on the sales revenue originated from the number of people
entering the Rocca al Mare store and decrease in sales caused by extensive
building works around the centre. 

Car Trade

The sales revenue of nine months of 2017 in the car trade segment amounted to
76.1 million euros. The sales revenue exceeded that of the previous year by
20.2%, whereas the sales revenue of KIAs increased by 25.6%. The 3rd quarter
sales revenue of 25.2 million euros exceeded that of the previous year by
15.2%. Whereas the sales revenue of KIAs increased by 11.0%. In the first nine
months of the year, the total car sale of the Group was 3,663 new vehicles,
including 1,230 vehicles in the 3rd quarter. The pre-tax profit of the segment
in 9 months of 2017 was 3.4 million euros, surpassing the profit of the same
period in the previous year by 11.6%. The pre-tax profit of the 3rd quarter of
2017 was 1.1 million euros, showing a smaller profit by 0.5 million compared to
the 3rd quarter of 2016. 

The new car sale is backed by an overall increase of the car market in the
Baltics and especially in Lithuania and Latvia. In Latvia, KIA won a
significant public procurement, which notably increased the market share of
KIA. The sales growth of KIA has been boosted by active marketing and
effectively targeted media campaigns organised by the importer of KIA. The SUV
Sportage and the middle-class model Cee’d are still the main hit models of KIA.
In addition, the sale of new Opels has continued well and the sale of Cadillac
passenger cars has improved. The sales hits of Opel are the SUV Mokka X and the
middle-class model Astra. The brand-new Opel Insignia has also been accepted
well by customers. Based on the 9-month sales results, we can be satisfied with
all car dealers belonging to the Group. The drop in profit in the 3rd quarter
can be attributed to a slight decline in the margins of KIA passenger cars,
caused by consolidation of the sale from retail sale rather to whole-sale and
fleet sale, with a purpose of securing and increasing the market share of KIA.
Furthermore, the margin of the popular KIA Cee’d was lower due to the last
production year of the model of this generation. In 2018, a completely new KIA
Cee’d will be introduced to the market. 

In Latvia, a new subsidiary – VERTE AUTO SIA – was established for further
development of the car business, which will become the dealer of Škoda in
Latvia. Opening of the new dealership is planned into the first half of 2019. 

Footwear trade

The sales revenue of the first nine months of 2017 in the business segment of
footwear trade amounted to 8.0 million euros, having decreased by 13.8% in a
year-over-year comparison. The sales revenue in the 3rd quarter was 2.6 million
euros, which is a quarter lowed in a year-on-year comparison. The net loss of
the segment in the 3rd quarter decreased 27.7% compared to the year prior,
remaining at the level of 0.2 million euros. In the course of optimising the
sales spaces, the SHU store in the Krooni centre and the existing old ABC King
store in Põhjakeskus, Rakvere were closed. Instead, a completely new SHU store
was opened on a more compact space in Rakvere Põhjakeskus. To replace the ABC
King store closed in the Auriga centre, Kuressaare this spring, a renewed SHU
store was opened in the updated centre in August. The biggest decline in sales
revenue of the 3rd quarter came from the closure of ABC King and SHU stores
during the renovation of the Kristiine centre and the flood in the Rocca al
Mare shopping centre in August, when the damages to the ABC King and SHU stores
in the centre turned out to be great, bringing along an almost one-month
business interruption for the stores. 

Real estate

The external sales revenue of the real estate segment amounted to 3.7 million
euros in 9 months of 2017. The year-on-year sales revenue increased 1.0%. The
external sales revenue of the 3rd quarter was 1.2 million euros, indicating a
0.6% growth in a year-on-year comparison. The pre-tax profit of 9 months of the
real estate segment was 8.7 million euros, surpassing the result of the same
period last year by 2.1%. The pre-tax profit of the 3rd quarter was 2.9 million
euros, being by 1.5% lower than the profit for the same period last year. The
increase in value of assets in the segment, performed at the end of 2016,
increased the depreciation cost in 2017, causing a slight decline in the profit
of the segment. Rental income is driven by Tartu Kaubamaja Shopping Centre,
where despite the tougher competition in the city centre, the occupancy rate of
the centre is still good. 

In September, 15 competition projects were received by the architectural
competition for reconstructing the Tallinna Kaubamaja quarter, i.e. the
registered immovable at Gonsiori 2/Rävala 6. Among the projects we hope to find
sufficiently high-quality works to select the best solution for Kaubamaja in
November. Building works of a gas station and a store started at the request of
partner on the registered immovable belonging to a Group in Rae rural
municipality, next to Peetri Selver. The building works are to be completed in
December 2017. From among the most important ongoing real estate developments
of the Group we could mention also commencing the establishment of a car
salesroom in Lithuania. 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

In thousands of euros

                                              30.09.2017  31.12.2016
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ASSETS                                                              
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Current assets                                                      
Cash and cash equivalents                          9,378      32,375
Trade and other receivables                       14,850      15,396
Inventories                                       71,766      70,186
Total current assets                              95,994     117,957
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Non-current assets                                                  
Long-term trade and other receivables                246         264
Investments in associates                          1,797       1,762
Investment property                               48,722      48,684
Property, plant and equipment                    211,123     211,511
Intangible assets                                  8,000       8,505
Total non-current assets                         269,888     270,726
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TOTAL ASSETS                                     365,882     388,683
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LIABILITIES AND EQUITY                                              
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Current liabilities                                                 
Borrowings                                        12,873      26,852
Trade and other payables                          74,604      83,812
Total current liabilities                         87,477     110,664
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Non-current liabilities                                             
Borrowings                                        81,906      73,772
Provisions for other liabilities and charges         403         403
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Total non-current liabilities                     82,309      74,175
TOTAL LIABILITIES                                169,786     184,839
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Equity                                                              
Share capital                                     16,292      16,292
Statutory reserve capital                          2,603       2,603
Revaluation reserve                               82,576      83,932
Currency translation differences                    -255        -255
Retained earnings                                 94,880     101,272
TOTAL EQUITY                                     196,096     203,844
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TOTAL LIABILITIES AND EQUITY                     365,882     388,683
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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

In thousands of euros

                                           III         III    9 months  9 months
                                         quarter     quarter    2017      2016  
                                           2017       2016                      
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Revenue                                    160,893   148,099   476,226   435,483
Other operating income                         159       308       900     1,259
                                                                                
Cost of sales                             -119,734  -110,131  -356,613  -325,627
Other operating expenses                   -13,371   -12,512   -40,450   -38,078
Staff costs                                -14,352   -13,019   -44,254   -40,281
Depreciation, amortisation and              -3,360    -3,006    -9,947    -8,687
 impairment losses                                                              
Other expenses                                -568      -159    -1,125      -548
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Operating profit                             9,667     9,580    24,737    23,521
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Finance income                                   1         1         1         3
Finance costs                                 -188      -213      -571      -644
Finance income on shares of associates          57        27       135       124
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Profit before tax                            9,537     9,395    24,302    23,004
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Income tax expense                              -5         0    -6,391    -5,219
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NET PROFIT FOR THE FINANCIAL YEAR            9,532     9,395    17,911    17,785
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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           9,532     9,395    17,911    17,785
 FINANCIAL YEAR                                                                 
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         Raul Puusepp
         Chairman of the Board
         Phone +372 731 5000