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

Tallinna Kaubamaja Grupp
Company Announcement

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

The unaudited consolidated sales revenue of the 3 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 3 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 1 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 3 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 3 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 3 quarter, of which the profit earned in Estonia amounted to 5.5 million euros. The profit for the 3 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 3 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 3 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 3 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 3 quarter made 23.3 million euros of this amount, being by 5.4% higher than the revenues of the 3 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 3 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 3 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 3 quarter and had a positive effect on the 9-month result.

The sales revenue in the 3 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 3 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 3 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 3 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 3 quarter of 2017 was 1.1 million euros, showing a smaller profit by 0.5 million compared to the 3 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 3 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 3 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 3 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 3 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 3 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 3 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

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

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Raul Puusepp
Chairman of the Board
Phone +372 731 5000