IN MOTION For profitable growth Tokmanni 2017 STRATEGY AND FINANCIAL TARGETS Material responsibility themes Tokmanni as an investment Table of contents This is Tokmanni Tokmanni is Finland’s leading discount retailer. We offer our customers DIRECTION an interesting and wide assortment at affordable prices in 175 stores around Finland and an online store. 3 This is Tokmanni 11 Strategy 4 Year 2017 in brief 13 Tokmanni's strengths Our target is to grow by improving our Our strengths are: Responsibility as part Like-for-Like growth and by opening new stores. • Low price image Interim CEO's review 6 14 of business strategy In addition, we seek improved profitability • Attractive and wide through an increased Private Label and direct product assortment Operating environment and Tokmanni as an investment sourcing share of sales. • A strong national brand 8 Tokmanni's markets 15 Corporate responsibility is a strategic focus • A pleasant customer area for Tokmanni and we respect people and the experience environment. • A nationwide store Tokmanni is in motion. We work hard for smart shopping and more The company is listed on the Nasdaq Helsinki network sustainable discount retailing. Our vision and strategy define the direction main list. In 2017 Tokmanni’s revenue totaled we are heading towards. EUR 796,5 million and it had 3,255 employees. RESULTS We want to offer our customers an inspirational shopping experience in all our sales channels. We have a wide range of products at low prices in six product categories: Consolidated statement of Key figures 18 20 financial position Consolidated income Consolidated statement of 19 statement 21 cash flows Groceries Home cleaning Clothing and personal care Global trends and phenomena impacting retail in general and Tokmanni are described in detail in Tokmanni's Responsibility Report 2017. Tools and electrical Home, decoration Leisure and home equipment and garden electronics 2 IN MOTION – FOR PROFITABLE GROWTH IN MOTION – FOR PROFITABLE GROWTH 3 Year 2017 in brief Tokmanni opened a record high Tokmanni's marketing amount of new stores concept was recognized in A total of 13 net new and 2 relocated stores several competitions were opened during 2017. Thereby, Tokmanni Tokmanni's The world's best buyer increased its selling space by approximately marketing concept, launched in the 24,000 square meters. Tokmanni’s target is to fall of 2016, attracted attention and increase the amount of net new selling area by won several awards during 2017. approximately 12,000 square meters annual- ly, translating into approximately five new or relocated stores. Tokmanni continued to develop its private labels Tokmanni continued to develop its Tokmanni's store openings are very popular not assortment and seasonal offering least because the company is distributing red and launched, among others, a new buckets containing a surprise at the openings. Kotikulta home-lighting series in the Hundreds of people are queuing for the surprise fall. Kotikulta is Tokmanni's private buckets at the openings. label and the product range includes nearly 130 decorative and Christmas Tokmanni distributed lights and LED candles. Customers have welcomed the new light series 16,500 very well and demand has been high. surprise buckets during Tokmanni will launch in the spring of Tokmanni's store network its store openings in 2017 2018 among others a new Brücke tool 796.5 2.7% series and Namipäivä candies. Both Revenue, MEUR Revenue growth brands are Tokmanni's private labels. Tokmanni established a Sustainability Advisory Board In 2017 Tokmanni set up a Sustainability Advisory Board to support its responsibility Tokmanni as an employer for work. The Advisory Board consists of exter- young people 46.4 175 3,255 Million baskets Stores employees nal experts and aims to support Tokmanni by In the summer 2017, Tokmanni providing the company with an outside view of employed a total of about one the company's responsibility work and sparring thousand full-time summer work- the company in, among others, sustainability ers or minors around Finland. The trends, risks and best practices. youngsters were very interested in Tokmanni and the company re- -1.3% ceived over 15,000 summer job and Like-for-Like revenue development training applications. In the autumn, Tokmanni’s customers are served Mika Rautiainen was appointed as Tokmanni decided to launch a train- through 175 stores around Finland new CEO of Tokmanni Group ee program aimed at newly grad- and an online store. In 2017 Tokmanni’s Board of Directors appointed M.Sc. uated or nearly graduating college Tokmanni opened a record high (Econ.) Mika Rautiainen as new CEO of Tokmanni students who want to be involved in 6.9% amount of new stores: 13 net new Group. He will take up his position in June 2018. building a new kind of Tokmanni. EBITDA margin stores and 2 relocated stores. 4 IN MOTION – FOR PROFITABLE GROWTH IN MOTION – FOR PROFITABLE GROWTH 5 Interim CEO Harri Sivula: In 2018, we focus heavily on sharpening our private label strategy and marketing to 2017 started increase their share of sales. with challenges but through slightly negative at -1.0%. Our Christmas Expanding the store network our determined sales were record high but October and is one of Tokmanni's revenue and earnings November Like-for-Like sales were a slight- drivers. Over the last few years, we have ly behind last year’s sales mainly due to invested exceptionally heavily in the open- actions the strong market competition as a result of the ing of new stores and our store network challenging first part of the year. Our gross has grown by nearly 20 stores over the last trend turned margin was slightly below the correspond- couple of years. In 2017, we opened a re- ing quarter last year but our comparable cord number of new stores, 13 net new and towards the EBITDA margin remained at the previous 2 relocated stores. In our investment pro- year’s good level. gram for 2018, we will invest more heavily in the maintenance of our store network than end of the Full-year revenue increased in the previous years, especially in updat- 2.7% but Like-for-Like revenue decreased ing our grocery stores, and in Tokmanni's year 1.3% from the previous year. This digital services to support was mainly due to the weak Like-for-Like sales. In 2018 we beginning of the year, will open approximately stronger competition five new stores. especially in groceries, and the impact from In 2017, we have We predict The beginning of 2017 some new stores and good sales growth paid even more was challenging sales wise for Tokmanni store size reductions in 2018. attention to our pricing due to Tokmanni's internal system prob- on Like-for-Like sales. strategy, the develop- lems as well as external circumstances. The strong competition ment of our custom- At the same time, the market development brought on by online er-focused assortment was slower than we had expected. Despite stores and specialty dis- as well as the continuous the strong recovery in the Finnish economy, count retailers could be seen development of our store signs of a turn in the non-grocery market especially in the clothing and tools concept to improve our Like-for- were seen only at the end of the year. product categories. When analyzing the Like sales. At the same time, we continue However, due to our resolute measures, we numbers, it is also good to keep in mind to develop our private labels and direct managed to stabilize the situation towards that 2017 had one selling day less than the imports to improve our profitability. In 2018, the end of the year and the performance of previous year. As we had anticipated, our we focus heavily on sharpening our private the fourth quarter was good measured by profitability weakened from the previous label strategy and marketing to increase many metrics. year. This was mainly due to the sales mix their share of sales. and the high amount of new stores opened Fourth quarter Group revenue during the period. In 2017, the financial We predict good sales growth developed well and our revenue grew 4.4% structure of the Group was clearly lighter in 2018. Based on the actions mentioned based on revenue from new stores opened than in the previous year, as a result of above we expect Like-for-Like revenue to in 2016 and 2017. During the last quarter which our financial expenses declined turn to low single digit growth and at the of the year we opened six new stores. The significantly and net income was almost at same time for new stores opened in 2017 Like-for-Like revenue development was the previous year's level. and 2018 to bring good revenue growth. 6 IN MOTION – FOR PROFITABLE GROWTH IN MOTION – FOR PROFITABLE GROWTH 7 Operating environment and target market Tokmanni’s markets Tokmanni's target market is large and the competitive field is value fragmented. The competitive environment includes direct competitors such as hypermarkets, general discount stores and department stores, Lidl Tokmanni as well as indirect and product-group specific competitors such as Kärkkäinen online and specialised stores. Motonet Gigantti Halpa-Halli Tokmanni is the market leader in Finland tronics. Tokmanni's primary competitive in the discount retail market. In this market advantage compared to specialty retailers Puuilo Hong Kong Tokmanni's competitors are several smaller is its considerably wider assortment and a regional companies and Tokmanni is the nationwide store network. Ikea Prisma only discount retailer with a nationwide In the centers of large cities, Tokmanni store network. In addition to its low per- also competes with department stores, Citymarket ceived price image, Tokmanni has focused such as Sokos and Stockmann.