TOKMANNI GROUP CORPORATION: THIRD QUARTER: PROFITABILITY IMPROVED - REVENUE AT LAST YEAR'S LEVEL, FULL-YEAR GUIDANCE UNCHANGED
TOKMANNI GROUP CORPORATION Business Review January-September 2016 Unaudited
TOKMANNI GROUP THIRD QUARTER: PROFITABILITY IMPROVED - REVENUE AT LAST YEAR'S LEVEL, FULL-YEAR GUIDANCE UNCHANGED
Numbers in brackets refer to the corresponding period previous year if nothing else is mentioned.
THIRD QUARTER HIGHLIGHTS
- Revenue at last year's level, EUR 187.0 million (187.8), -0.4%
- Like-for-Like revenue decreased by 3.2% due to the bankruptcy clearance sale of department store Anttila and the exceptionally warm autumn which postponed the autumn season affecting particularly clothing sales
- Four new stores to be opened in 2016 in store space released by Anttila. Discussions continue for approximately ten additional Anttila stores, with the target to open several additional new stores in store space released by Anttila in 2017
- Adjusted gross profit improved to EUR 64.8 million (63.2), an adjusted gross margin of 34.7% (33.6%)
- Adjusted EBITDA totaled EUR 18.1 million (17.3), 9.7% of revenue (9.2%)
- Adjusted EBIT totaled EUR 14.4 million (13.7), 7.7% of revenue (7.3%)
- Cash flow from operating activities totaled EUR 6.7 million (-1.7)
- Earnings per Share totaled 0.18 euros (0.27)
HIGHLIGHTS OF THE REVIEW PERIOD JANUARY-SEPTEMBER 2016
- Revenue grew 2.7% to EUR 537.6 million (523.6)
- Like-for-Like revenue at last year's level, -0,2%
- Adjusted gross profit totaled EUR 184.4 million (177.6), an adjusted gross margin of 34.3% (33.9%)
- Adjusted EBITDA totaled EUR 35.5 million (32.1), 6.6% of revenue (6.1%)
- Adjusted EBIT totaled EUR 24.1 million (21.2), 4.5% of revenue (4.0%)
- Cash flow from operating activities totaled EUR 15.0 million (-7.0)
- Earnings per share totaled 0.18 euros (0.05)
TOKMANNI'S SHORT TERM OUTLOOK 2016 UNCHANGED
Tokmanni estimates its revenue to grow based on the revenue from new and relocated stores opened in 2015 and 2016, and on revenue of like-for-like stores, which is expected to remain at the level of the previous year.
TOKMANNI'S CEO HEIKKI VÄÄNÄNEN ABOUT THE THIRD QUARTER: PROFITABILITY IMPROVED, NET SALES AT LAST YEAR'S LEVEL, NEGOTIATIONS ABOUT ANTTILA STORE SPACE PROCEEDING
"During the third quarter our profitability developed well which was mainly attributable to a better gross margin and good cost control. The favorable gross margin development was a result of our focused efforts to increase the share of direct import and better campaign management in accordance with our strategy.
As expected, Anttila's bankruptcy clearance sale caused market turbulence as the price competition increased in the third quarter. We made a conscious decision not to participate in this price competition which was the most significant reason for weak like-for-like sales development. Another reason was the exceptionally warm autumn, which postponed the autumn season and affected Tokmanni's third quarter clothing sales. The market disruption created by Anttila is temporary and we maintain our full-year guidance unchanged.
Anttila's market pullout also creates many opportunities for Tokmanni both when it comes to the redistribution of the customer base as well as to store space released by Anttila. We have signed four leases for new stores to be opened in 2016 in store space released by Anttila and negotiations are on-going for approximately ten additional stores, with the target to open several additional new stores in store space released by Anttila in 2017. These stores would bring a good addition to Tokmanni's 2017 new store plan which, without the Anttila stores includes ten new or relocated stores, corresponding to approximately 20,000 square meters of new store space. Opening new stores is one of the main drivers for Tokmanni's market shares, revenue and earnings growth."
KEY FIGURES
| 7-9/2016 | 7-9/2015 | Change | 1-9/2016 | 1-9/2015 | Change | 1-12/2015 | |
| Revenue, MEUR | 187.0 | 187.8 | -0.4% | 537.6 | 523.6 | 2.7% | 755.3 |
| Like-for-Like growth, % | -3.2% | -0.2% | -0.2% | -1.7% | -0.6% | ||
| Number of baskets, M | 11.1 | 11.0 | 1.2% | 31.9 | 30.9 | 3.4% | 43.3 |
| Gross profit, MEUR | 64.7 | 63.3 | 2.3% | 184.2 | 176.8 | 4.2% | 257.5 |
| Gross margin, % | 34.6 | 33.7 | 0.9 | 34.3 | 33.8 | 0.5 | 34.1 |
| Adjusted* gross profit, (MEUR) | 64.8 | 63.2 | 2.6% | 184.4 | 177.6 | 3.8% | 258.1 |
| Adjusted* gross margin, % | 34.7 | 33.6 | 1.0 | 34.3 | 33.9 | 0.4 | 34.2 |
| OPEX | -47.1 | -48.0 | -2.0% | -150.6 | -151.7 | -0.7% | -207.7 |
| Adjusted* OPEX | -47.5 | -46.9 | 1.4% | -151.3 | -148.3 | 2.0% | -203.7 |
| EBITDA, MEUR | 18.4 | 16.4 | 12.7% | 36.0 | 27.9 | 29.1% | 53.9 |
| EBITDA% | 9.9 | 8.7 | 1.1 | 6.7 | 5.3 | 1.4 | 7.1 |
| Adjusted* EBITDA, MEUR | 18.1 | 17.3 | 4.2% | 35.5 | 32.1 | 10.5% | 58.5 |
| Adjusted* EBITDA, % | 9.7 | 9.2 | 0.4 | 6.6 | 6.1 | 0.5 | 7.7 |
| EBIT, MEUR | 14.8 | 12.8 | 15.7% | 24.6 | 16.9 | 45.6% | 39.1 |
| EBIT, % | 7.9 | 6.8 | 1.1 | 4.6 | 3.2 | 1.4 | 5.2 |
| Adjusted* EBIT, MEUR | 14.4 | 13.7 | 4.7% | 24.1 | 21.2 | 14.1% | 43.7 |
| Adjusted* EBIT, % | 7.7 | 7.3 | 0.4 | 4.5 | 4.0 | 0.4 | 5.8 |
| Net financial costs, MEUR | -1.5 | -5.3 | -71.6% | -13.8 | -15.8 | -12.7% | -20.9 |
| Capital expenditure, MEUR | 2.4 | -3.9** | 5.3 | 3.9 | 9.0 | ||
| Net debt / adjusted EBITDA | 2.5 | 3.4 | 2.5 | 3.4 | 2.7 | ||
| Net cash from operating activities, MEUR | 6.7 | -1.7 | 15.0 | -7.0 | 35.0 | ||
| Average nr. of shares during the period (1 000) | 58 869 | 22 274 | 47 554 | 22 274 | 22 274 | ||
| Earnings Per Share, EUR | 0.18 | 0.27 | 0.18 | 0.05 | 0.67 | ||
| Personnel at the end of the quarter | 3 133 | 164 | 3133 | 3164 | 3 293 |
*Adjustments affecting comparability are presented at the end of this review
** In the third quarter of 2015 the construction projects financed by Tokmanni were sold which affected capital expenditure by EUR -6,6 million.
MARKET DEVELOPMENT
The total sales of the Finnish Grocery Trade Association's FTGA (www.pty.fi) member department stores and hypermarket chains increased by 4.5% in the third quarter of 2016 and 2.2% during the January-September 2016 period. The non-grocery market, the market closest comparable to Tokmanni, grew 6.0% during the third quarter and 1.2% in January-September 2016. The strong growth in the third quarter was mainly attributable to Anttila's clearance sale.
The liberalization of opening hours has had a slight positive effect on larger store sales and especially hypermarkets have taken market shares from smaller actors. Price competition has remained strong in the grocery retail market.
OPERATIONAL DEVELOPMENT
Store network development
Based on efficient roll-out and short ramp up, opening new stores is one of the drivers for Tokmanni's revenue and earnings growth. Tokmanni has 158 stores across Finland and has identified several additional locations suitable for new stores across Finland.
During the third quarter 2016, Tokmanni opened a new store in Ruoholahti in Helsinki and its Kirkkonummi store moved to new and bigger premises. In addition, Tokmanni has agreed to open four new stores in store space released by Anttila. In 2016, Tokmanni's selling space will increase by approximately 8,000 square meters, slightly lower than the target for 2016. The number includes the selling space reduction of the Tammisto store, which is currently undergoing renovations and where the selling space will decrease by 2,500 square meters. During 2017, Tokmanni plans to open approximately ten new or relocated stores, corresponding to approximately 20,000 square meters of additional selling space. In addition, Tokmanni is in negotiations regarding approximately ten stores released by Anttila with the target to open several additional new stores. These stores would bring a good addition to Tokmanni's 2017 new store plan and would speed up the plan to grow the store network to approximately 200 stores.
FINANCIAL DEVELOPMENT
Revenue at last year's level
Tokmanni's revenue for the third quarter 2016 was at last year's level, EUR 187.0 million (187.8). Tokmanni continues to see good results of the strategic measures taken with the target to improve like-for-like revenue. However, third quarter conditions were exceptional due to the market disruption caused by the Anttila clearance sale, as well as the exceptionally warm autumn which postponed the autumn season affecting clothing sales all over the Nordics. According to Tokmanni's calculations, Anttila's impact on like-for-like revenue was approximately -2% and the weather impact on clothing sales was more than -1%. As a consequence Tokmanni's like-for-like revenue decreased by 3.2%. The price competition in groceries remained strong.
Tokmanni's revenue for January-September 2016 totaled EUR 537.6 million (523.6), a growth of 2.7%. Growth was driven by growth from new and relocated stores opened in 2015 and 2016. Like-for-like revenue remained at last year's level, -0.2%.
Profitability developed favorably
The third quarter 2016 gross profit improved to EUR 64.7 million (63.3), 34.6% (33.7%) of revenue. Adjusted gross profit totaled EUR 64.8 million (63.7), corresponding to a gross margin of 34.7% (33.6%). The favorable development of the gross margin was attributable to the increase in direct imports and better campaign management, which Tokmanni is developing in line with its focused strategy.
January-September 2016 gross profit totaled EUR 184.2 million (176.8), 34.3% (33.8%). Adjusted gross profit totaled EUR 184.4 million (177.6), corresponding to a 34.3% gross margin (33.9%). When looking at the development of the adjusted gross margin one must take into account the impact of the results of the 2015 and 2016 realized currency hedges. In the second quarter 2015, the result of the hedges was exceptionally high due to the sharp EUR-USD exchange rate development and the impact on the January-September margin comparison is + 0.3 percentage points in favor of 2015.
Third quarter operating costs totaled EUR 47.1 million (48.0). Adjusted operating costs totaled EUR 47.5 million (46.9). January-September operating costs totaled EUR 150.6 million (151.7). Adjusted operating costs totaled EUR 151.3 million (148.3). The slight increase in costs was mainly attributable to new stores and the extended opening hours. Tokmanni's third quarter and January-September 2016 marketing expenses were at a lower level than in the corresponding periods 2015, when some broader marketing campaigning was conducted to support the brand harmonization. In the fourth quarter Tokmanni has launched its new marketing program and full-year marketing expenses are expected to be at last year's level in relative terms. Tokmanni has renegotiated some of its rental agreements, which has a sustainable positive effect on operating expenses.
Third quarter 2016 EBITDA totaled EUR 18.4 million (16.4) and the EBITDA margin was 9.9% (8.7%). Third quarter adjusted EBITDA amounted to EUR 18.1 million (17.3), 9.7% of revenue (9.2%). January-September 2016 EBITDA totaled EUR 36.0 million (27.9), 6.7% of revenue (5.3%). Adjusted EBITDA totaled EUR 35.5 million (32.1), 6.6% of revenue (6.1%)
The main reasons for Tokmanni's improved profitability were the improved gross profit and good cost management. Third quarter operating profit (EBIT) totaled EUR 14.8 million (12.8), corresponding to an EBIT% of 7.9% (6.8%). Adjusted EBIT totaled EUR 14.4 million (13.7), 7.7% of revenue (7.3%). January -September 2016 EBIT was EUR 24.6 million (16.9), 4.6% of revenue (3.2%). Adjusted EBIT totaled EUR 24.1 million (21.2), 4.5% of revenue (4.0%).
Third quarter financial items totaled EUR -1.5 million (-5.3), reflecting Tokmanni's current finance structure. In January-September 2016 financial items amounted to EUR -13.8 million (-15.8), which include a one-off financial cost of EUR 4.4 million, which relates to accrued, capitalized emission fees from previous loans, which have been released in conjunction with the refinancing.
Third quarter profit before taxes totaled EUR 13.3 million (7.5). Taxes amounted to EUR -2.7 million (-1.4). The net result for the period amounted to EUR 10.6 million (6.1). Earnings per share were 0.18 euros (0.27).
Balance sheet, financing and cash flow
At the end of September 2016, Tokmanni had interest bearing debt totaling EUR 198.8 million (299.2). In connection with its Initial Public Offering Tokmanni repaid its shareholder loans with accrued interest totally amounting to EUR 96.0 million and renegotiated its bank loans with better terms. Net debt/adjusted EBITDA improved to 2.5 at the end of September and it decreased from 2.6 at the end of June. Tokmanni's long-term target is to achieve a net debt/EBITDA ratio of below 2.0. The change in working capital was at a good level and Tokmanni's third quarter 2016 cash flow from operating activities totaled EUR 6.7 million (-1.7). January-September 2016 cash flow from operating activities amounted to EUR 15.0 million (-7.0). At the end of September 2016, cash and cash equivalents amounted to EUR 41.5 million (21.2).
Capital expenditure
Capital expenditure for the period January-September 2016 totaled EUR 5.3 million (3.9), which includes EUR 1.7 million of unfinished construction work relating to the Närpiö store, and which by nature is not capital expenditure but temporary financing. Tokmanni's capital expenditure, excluding unfinished construction work is expected to be at last year's level, approximately EUR 8-9 million. Capital expenditure for 2017 is expected to be in line with previous years, dependent on the number of new stores opened. Opening a middle sized new store requires approximately EUR 0.5 million in capital expenditure.
Organizational changes
Executive Group member, Sales Director, Panu Porkka has decided to pursue his career outside Tokmanni and leaves Tokmanni by the year-end 2016.
Personnel
During the third quarter 2016 the dispatch function of Tokmanni's logistics center in Mäntsälä was outsourced to Barona Logistics. The aim of the cooperation is to ensure the accuracy of delivery times and lead times, while at the same time optimizing the use of resources in accordance with company needs. All 35 employees were transferred to Barona at old terms. Tokmanni is a significant employer in Finland and the company had 3 133 (3 164) employees at the end of September 2016.
Risks and business uncertainties
Tokmanni's risks and uncertainties have been discussed in detail in the Group's prospectus published in connection with its Initial Public Offering in April 2016. No major changes to these risks have occurred during the quarter.
MARKET OUTLOOK
Tokmanni expects the weak economic conditions to continue or to improve slightly in 2016. This will continue to have an effect on the retail market in Finland where the competition is expected to remain high. Especially department stores have been impacted by the weak economic situation and have faced challenges among others due to the increase in popularity of online stores. The latest sign of these challenges were seen in the bankruptcy of the Finnish retail chain Anttila in July 2016. The bankruptcy has disrupted the market during the third quarter but the effects will be smaller in the fourth quarter when the majority of the Anttila stores have been closed. In the longer term, Anttila's market pullout creates opportunities for companies like Tokmanni in regard to new store space, and benefits from the redistribution of Anttila's customer base.
TOKMANNI'S SHORT TERM OUTLOOK UNCHANGED
Tokmanni estimates its revenue to grow based on the revenue from new and relocated stores opened in 2015 and 2016, and on revenue of like-for-like stores, which is expected to remain at the level of the previous year.
Helsinki, 25.10.2016
Tokmanni Group Corporation
Board of Directors
For further information:
Heikki Väänänen, CEO: +358 20 728 6044 heikki.vaananen@tokmanni.fi
Sixten Hjort, CFO: +358 20 728 6043 sixten.hjort@tokmanni.fi
Joséphine Mickwitz, IR: +358 20 728 6535 josephine.mickwitz@tokmanni.fi
RESULT PRESENTATION
Tokmanni's CEO Heikki Väänänen and CFO Sixten Hjort will present the review to analyst, investors and media representatives on the publication day in Finnish at 10.00 am EEST (9.00 CET) and in English at 11.15 am EEST (10.15 CET).
The live webcasts can be accessed via Tokmanni's website at ir.tokmanni.fi or through the link http://www.goodmood.fi/webcaster/accounts/tokmanni/live.
The participants can also join a telephone conference that will be arranged in conjunction with the live webcasts. The participants are asked to dial in 5-10 minutes prior to starting time using the participant passcode.
Phone Number and Participant Passcodes below:
0800 770 349 (Finnish callers)
+44 (0)203 043 2014 (UK callers)
+1 719-325-2340 (US callers)
Participant code: 452494
On-demand versions of both webcasts will be available at ir.tokmanni.fi later during the same day.
Adjustments affecting comparability
Tokmanni has used the non-IFRS measure EBITDA and made adjustments to improve comparability and give a better view of Tokmanni's operational performance. EBITDA represents operating profit before depreciation and amortization. Adjusted EBITDA represents EBITDA adjusted to exclude items that Tokmanni's management considers to be exceptional and non-trading items, including costs incurred from the IPO, brand harmonization costs, which are not expected to be incurred from 2016 onwards and annual changes in the fair value of electricity and currency derivatives, which are adjusted for by Tokmanni as they are unrealized gains or losses related to Tokmanni's open cash flow hedge positions, and hence not related to Tokmanni's operational performance during the periods under review. Tokmanni's management uses adjusted EBITDA and other measures mentioned below as key performance indicators to assess Tokmanni's underlying operational performance.
| MEUR | 7-9/2016 | 7-9/2015 | 1-9/2016 | 1-9/2015 | 1-12/2015 |
| Gross profit | 64.7 | 63.3 | 184.2 | 176.8 | 257.5 |
| Changes in fair value of currency derivatives | 0.1 | -0.1 | 0.2 | 0.8 | 0.6 |
| Adjusted gross profit | 64.8 | 63.2 | 184.4 | 177.6 | 258.1 |
| Operating expenses | -47.1 | -48.0 | -150.6 | -151.7 | -207.7 |
| Changes in fair value of electricity derivatives | -0.5 | 0.3 | -0.7 | 0.5 | 0.3 |
| Brand harmonization costs | - | 0.8 | - | 2.9 | 3.5 |
| IPO costs* | - | - | - | - | 0.2 |
| Adjusted operating expenses | -47.5 | -46.9 | -151.3 | -148.3 | -203.7 |
| EBITDA | 18.4 | 16.4 | 36.0 | 27.9 | 53.9 |
| Operating profit (EBIT) | 14.8 | 12.8 | 24.6 | 16.9 | 39.1 |
| Changes in fair value of currency derivatives | 0.1 | -0.1 | 0.2 | 0.8 | 0.6 |
| Changes in fair value of electricity derivatives | -0.5 | 0.3 | -0.7 | 0.5 | 0.3 |
| Brand harmonization costs | - | 0.8 | - | 2.9 | 3.5 |
| IPO costs* | - | - | - | - | 0.2 |
| Adjusted EBITDA | 18.1 | 17.3 | 35.5 | 32.1 | 58.5 |
| Adjusted operating profit (adj. EBIT) | 14.4 | 13.7 | 24.1 | 21.2 | 43.7 |
*as of January 1st 2016, IPO costs are recorded in the balance sheet
Tokmanni in brief
Tokmanni is the largest general discount retailer in Finland measured by number of stores and revenue. In 2015, Tokmanni's revenue was EUR 755 million and on average it had approximately 3,200 employees. Tokmanni is the only nationwide general discount retailer in Finland, with 156 stores across Finland as at 31 December 2015.
Distribution:
Nasdaq Helsinki
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