Market announcement

Title

Unaudited consolidated interim accounts for the fourth quarter and twelve months of 2017

Message

Segments (EURm)          Q4/17  Q4/16    yoy    12m/17  12m/16   yoy  
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Supermarkets             116.1  108.9   6.6%     433.1   400.0   8.3% 
Department stores         31.0   29.9   3.6%     102.4    98.0   4.4% 
Cars                      23.6   19.3   22.2%     99.7    82.6   20.7%
Footwear                   3.1    3.5   -13.4%    11.1    12.8  -13.7%
Real Estate                1.3    1.3   2.6%       5.0     5.0   1.4% 
Total sales              175.0  162.9   7.4%     651.3   598.4   8.8% 
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Supermarkets               5.6    4.2   32.4%     16.8    14.7   14.6%
Department stores          2.3    2.6   -11.5%     4.3     4.3   -0.2%
Cars                       0.6    0.6   -15.1%     3.9     3.7   6.8% 
Footwear                  -2.0   -0.1  2506.4%    -3.1    -0.9  263.9%
Real Estate                5.8    0.6   902.8%    14.5     9.1   58.9%
Total profit before tax   12.2    8.0   52.8%     36.5    31.0   17.8%
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The unaudited consolidated sales revenue of Tallinna Kaubamaja Group was 175.0
million euros in the fourth quarter of 2017, exceeding the year-on-year result
by 7.4%. The sales revenue earned in twelve months was 651.3 million euros,
having grown by 8.8% compared to the result of 2016, when the sales revenue
amounted to 598.4 million euros. The unaudited consolidated net profit of the
Group in the fourth quarter of 2017 was 11.9 million euros, which is 50.1%
higher compared to the same period of the previous year. The Group’s net profit
was 29.8 million euros in 2017, which is 16.0% better than the profit for the
previous year. Profit before tax was 36.5 million euros in twelve months,
showing a growth of 17.8% compared to the previous year. Net profit was
influenced by a dividend payment, on which 6.7 million euros in income tax was
calculated in the first quarter of 2017. A year before, income tax was
calculated in the sum of 5.3 million euros. 

The result of the Group in the fourth quarter as well as for the entire year of
2017 was very positive. The growth in the sales revenue of the Group’s main
areas of activity increased faster than that of the respective market segment.
The car segment showed an extremely strong sales revenue growth. The sales
results of the Group’s e-store doubled in a year and exceeded the respective
e-commerce sales statistics in Estonia. As there has not been a proper winter
in recent years, it has taught better management of inventories of seasonal
goods, which has resulted in an improved sales margin in the fourth quarter.
More efficient electricity solutions implemented in the financial year have
helped save other operating expenses. The Group’s labour costs have grown by
10.5% in a year with the average salary growth being 7.9%, which corresponds to
the recent average salary growth in retail and wholesale sectors published by
Statistics Estonia. The addition of two new Selver stores has caused an
increase in the number of employees in the last quarter of the year and the
total salary expenses. The profit of the fourth quarter was influenced by the
revaluation of investment properties. The value of investment properties grew
in 2017; however, the growth was slightly lower than in 2016, which had an
unfavourable effect on other revenue, affecting it by 0.5 million euros. 

Selver supermarkets

In 2017, the consolidated sales revenue in the business segment of supermarkets
was 433.1 million euros, having grown by 8.3% on a year-on-year basis. The
consolidated sales revenue of the fourth quarter was 116.1 million euros,
having grown by 6.6% compared to the same period of the previous year. 37.7
million purchases were made at Selver stores in 2017, exceeding the result of
the previous year by 4.0%. The consolidated profit before tax of the
supermarket segment was 16.8 million euros in 2017, showing a year-on-year
growth of 2.1 million euros. The net profit for the same period was 13.2
million euros, having grown by 1.2 million euros year-on-year. The profit
before tax earned in Estonia was 19.8 million euros and net profit was 16.2
million euros. The difference between the net profit and profit before tax
arises from the income tax paid on dividends: in 2017, the income tax on
dividends was higher by 1.0 million euros compared to the previous year. The
profit before tax and net profit was 5.6 million euros in the fourth quarter,
of which the profit earned in Estonia accounted for 6.2 million euros. The
profit earned in the fourth quarter exceeded that of the previous year by 1.4
million euros. The loss incurred in Latvia in twelve months was 2.1 million
euros, of which the share of the fourth quarter was 0.5 million euros. Loss
remained at the same level as the previous year. 

The growth of Selvers’ sales revenue continued in the fourth quarter at a
faster rate than the average of the market segment. The growth of the sales
revenue was primarily supported by new stores opened in 2016 and 2017. Seven
new stores were opened from October 2016 to the end of 2017, by which the
reference base of the fourth quarter of 2017 is lower. The reference base of
2017 is higher by a store closed in Narva in the first quarter of 2016 and one
additional day because of the leap year. E-commerce has shown good results with
the sales revenue doubled in twelve months. Although competition is tight, new
stores have helped increase the number of purchases. The growth of the average
shopping basket is influenced by successful assortment and campaign activities
and accelerated inflation in the second half of the year. 

The generation of profit earned in Estonia has above all been influenced by the
increased sales revenue. As for operating expenses, cost-effectiveness has
improved compared to the previous year. As expected, investments have had a
positive impact, enabling saving on operating expenses. Although salary
pressure is strong, labour efficiency has remained at the level of previous
year. Salary expenses increased because the over-the-counter service contract
and cooperation with the partner of the e-store courier service were
terminated. This enables better control of the processes, quality and expenses.
The expenses incurred and investments made in 2017 include the opening expenses
of five new stores and a mobile shop in Hiiu County. The reference period
includes the opening expenses of three stores and renovation expenses of two
stores. The profit of the reference period is influenced by a one-time positive
income of 0.4 million euros as a result of a judicial decision of the sales tax
on products subject to excise duty. The net profit of the financial year is
influenced by a one-time judicial decision that required Selver to pay a
penalty and influenced the profit along with taxes in the amount of 0.4 million
euros. 

Department stores

The sales revenue in the business segment of department stores was 102.4
million euros in 2017, having grown by 4.4% year-on-year. The sales revenue
earned in the fourth quarter was 31.0 million euros, which was 3.6% higher than
the revenue of the fourth quarter in 2016. The profit before tax of the
department stores segment was 4.3 million euros in 2017, which was 0.2% lower
compared to the pervious year’s result. The profit before tax was 2.3 million
euros in the fourth quarter, which was lower by 11.5% than in the same period
of 2016. The sales revenue of the department stores segment of twelve months
was influenced by successful sales campaigns organised throughout the year.
Although the beginning of the autumn season in September was very positive,
winter weather expected in the last quarter did not arrive. Regardless, good
inventory management helped increase the margin in the last quarter. The sales
of the e-store launched in March 2016 have doubled in reporting year and
influenced the 12-month result positively. The utility cost savings compared to
the previous year have positively influenced the profit of department stores in
2017, which is primarily thanks to the investments made into LED lighting in
Tallinn as well as Tartu stores over recent years. However, depreciation on
investments made in previous years and labour costs increased faster and slowed
down profit growth. 

The sales revenue in the fourth quarter of 2017 of OÜ TKM Beauty Eesti, which
operates the I.L.U. cosmetics stores, was 1.5 million euros, a 3.0% decrease
compared to the same period of 2016. In the fourth quarter, as in the previous
period, the company broke even. The sales revenue was 4.7 million euros in
2017, having deceased by 5.3% compared to the 2016. Loss earned in 2017 was 0.3
million euros, which is 0.05 million euros less than the loss of the 2016. In
April 2017, the store in Tartu Lõunakeskus moved to a new section of the
shopping centre. This brought about optimisation of the store’s assortment,
renovation of its interior design and termination of the provision of beauty
services in the sales area. 

Car trade

The sales revenue in the car trade segment was 99.7 million euros in 2017. The
sales revenue exceeded the year-on-year revenue by 20.7%; whereas, the annual
sales revenue earned from the sale of KIAs increased by 24.1%. The sales
revenue of 23.6 million euros earned in the fourth quarter exceeded the
year-on-year result by 22.2%. The sales revenue of KIAs grew by 18.8% and the
strongest sales results were achieved in the sale of OPEL and Peugeot vehicles.
In 2017, the Group’s car segment sold altogether 4,706 new vehicles, from which
1,043 vehicles were sold in the fourth quarter. The net profit of the segment
was 3.3 million euros in 2017, which is 2.6% higher than the profit earned for
the same period the year before. The profit before tax of the segment was 3.9
million euros in 2017, exceeding the profit earned in the 2016 by 6.8%.
Operating profit of the fourth quarter of 2017 was 0.7 million euros,
surpassing the operating profit of the fourth quarter of 2016 by 6.1%. Good
economic results in the car trade segment in Latvian and Lithuanian sales
centres caused a reduction of 36.3% in the net profit earned in the fourth
quarter due to a tax system that is different from the one in Estonia compared
to the earlier period because of income tax calculated there. 

Footwear trade

The sales revenue in the business segment of footwear was 11.1 million euros in
2017, having decreased by 13.7% on a year-on-year basis. The sales revenue was
3.1 million euros in the fourth quarter, which is lower by 13.4% compared to
the same period of the previous year. The loss of the segment incurred in the
fourth quarter increased by 1.9 million euros year-on-year, mainly due to the
final reduction of goodwill. EBITDA of the fourth quarter of the segment was
positive and exceeded the year-on-year result by 0.2 million euros. In 2017,
attention was paid to optimising the sales space and lowering the cost base of
a square meter and increasing the revenue base. At the end of 2017, the sales
space used was 18.2% smaller compared to the situation the year before. During
the year, the focus was on finding more appropriate procurement channels to
improve the margin. The first results were realised in the fourth quarter. 

Real estate

The external sales revenue of the real estate segment was 5.0 million euros in
2017. The sales revenue increased by 1.4% on a year-on-year basis. The external
sales revenue was 1.3 million euros in the fourth quarter, showing a growth of
2.6% compared to the same period of the previous year. The profit before tax of
the real estate segment was 14.5 million euros in 2017, surpassing the
year-on-year result by 58.9%. The profit before tax was 5.8 million euros in
the fourth quarter, being almost 10 times higher than the profit of the same
period in the previous year. The sales revenue increased in all real estate
companies during the financial year. The sales revenue growth was driven by
Viimsi shopping centre that customers have received well. Tartu Kaubamaja
Centre has been successful in keeping up with the sales revenue growth although
competition has increased in the centre of Tartu. The profit of the real estate
segment was influenced by the revaluation of assets in the segment which
resulted in a growth of the result of the quarter by 3.2 million euros
(revaluation made in 2016 resulted in profit lower by 2.2 million euros). The
winners of the architecture competition for constructing new buildings on the
registered immovable located at Gonsiori 2 / Rävala 6 were chosen from among 15
competition projects on 15 November 2017. The winner of the competition was a
project called “CITY BREAK”, which was submitted by the architecture bureau
DAGOpen OÜ. 



CONSOLIDATED STATEMENT OF FINANCIAL POSITION

In thousands of euros

                                              31.12.2017  31.12.2016
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ASSETS                                                              
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Current assets                                                      
Cash and cash equivalents                         33,662      32,375
Trade and other receivables                       16,127      15,396
Inventories                                       75,816      70,186
Total current assets                             125,605     117,957
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Non-current assets                                                  
Long-term trade and other receivables                114         264
Investments in associates                          1,724       1,762
Investment property                               49,902      48,684
Property, plant and equipment                    214,475     211,511
Intangible assets                                  5,675       8,505
Total non-current assets                         271,890     270,726
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TOTAL ASSETS                                     397,495     388,683
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LIABILITIES AND EQUITY                                              
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Current liabilities                                                 
Borrowings                                        54,818      26,852
Trade and other payables                          85,569      83,812
Total current liabilities                        140,387     110,664
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Non-current liabilities                                             
Borrowings                                        48,732      73,772
Provisions for other liabilities and charges         360         403
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Total non-current liabilities                     49,092      74,175
TOTAL LIABILITIES                                189,479     184,839
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Equity                                                              
Share capital                                     16,292      16,292
Statutory reserve capital                          2,603       2,603
Revaluation reserve                               82,124      83,932
Currency translation differences                    -255        -255
Retained earnings                                107,252     101,272
TOTAL EQUITY                                     208,016     203,844
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TOTAL LIABILITIES AND EQUITY                     397,495     388,683
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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

In thousands of euros

                                   Note      IV        IV        12        12   
                                           quarter   quarter   months    months 
                                            2017      2016      2017      2016  
--------------------------------------------------------------------------------
-------------------------------------------------------------
                                                              
Revenue                             16     175,031   162,931   651,257   598,414
Other operating income                       1,339     1,941     2,239     3,200
                                                                                
Cost of sales                        5    -128,147  -119,797  -484,760  -445,424
Other operating expenses            17     -14,161   -13,730   -54,611   -51,808
Staff costs                         18     -18,035   -16,090   -62,289   -56,371
Depreciation, amortisation and    10, 11    -3,409    -6,903   -13,356   -15,590
 impairment losses                                                              
Other expenses                                -248      -181    -1,373      -729
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Operating profit                            12,370     8,171    37,107    31,692
--------------------------------------------------------------------------------
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Finance income                                   0         0         1         3
Finance costs                                 -202      -227      -773      -871
Finance income on shares of          7          27        35       162       159
 associates                                                                     
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Profit before tax                           12,195     7,979    36,497    30,983
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Income tax expense                  15        -275       -39    -6,666    -5,258
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NET PROFIT FOR THE FINANCIAL                11,920     7,940    29,831    25,725
 YEAR                                                                           
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Other comprehensive income:                                                     
Items that may be subsequently                                                  
 reclassified to  profit or loss                                                
Revaluation of land and                          0    19 689         0    19,689
 buildings                                                                      
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Other comprehensive income for                   0    19 689         0    19,689
 the financial year                                                             
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TOTAL COMPREHENSIVE INCOME FOR              11,920    27 629    29,831    45,414
 THE FINANCIAL YEAR                                                             
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         Raul Puusepp
         Chairman of the Board
         Phone +372 731 5000