INTERIM REPORT FOR THE FIRST HALF OF THE YEAR
TIIMARI PLC Interim Report 12 August 2011 at 9.30
INTERIM REPORT
INTERIM REPORT FOR THE FIRST HALF OF THE YEAR
In the first half of the year, Tiimari Group’s revenue was 5% lower than a year ago during the first half of the year. The second quarter revenue increased by 9% in comparison with the previous year. As Easter fell into the second quarter in 2011, unlike previous year, the second quarter revenue and key figures are not comparable to the second quarter figures of the previous year. The Group’s income before taxes was well below from previous year.
THE SECOND QUARTER OF 2011 IN BRIEF
- Revenue grew by 9.0% to EUR 15.5 million (14.2)
- Gross margin was EUR 8.9 million (9.0), gross margin % 57.6% (63.2%)
- EBITDA was EUR -3.5 million (-1.6)
- Operating profit (EBIT) was EUR -4.2 million (-2.5)
- Income before taxes was EUR -5.3 million (-3.0)
- Earnings per share (EPS) were EUR -0.32 (-0.18)
THE FIRST HALF OF 2011 IN BRIEF
- Revenue declined by 4.7% to EUR 29.1 million (30.5)
- Gross margin was EUR 15.6 million (18.0), gross margin % 53.6% (58.9%)
- EBITDA was EUR -7.8 million (-4.1)
- Operating profit (EBIT) was EUR -9.0 million (-5.7)
- Income before taxes was EUR -10.1 million (-6.7)
- Earnings per share (EPS) were EUR -0.61 (-0.40)
All figures are unaudited. The interim report was informally reviewed by the auditors in order to ensure that the financial statements do not include material misstatements. In the informal audit report, the auditor draws attention to the sections of business risks and uncertainties, going concern and goodwill impairment. The informal report by the auditors written in Finnish is attached to this Interim Report.
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GROUP KEY FINANCIAL FIGURES EUR 1,000 |
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| 1-6/2011 | 1-6/2010 | Change % | 1-12/2010 | |
| REVENUE | 29,062 | 30,484 | -5 | 75,797 |
| OPERATING PROFIT | -8,996 | -5,732 | -57 | -12,613 |
| EARNINGS PER SHARE EUR | -0.61 | -0.40 | -53 | -0.89 |
TIIMARI OUTLOOK FOR 2011
We estimate that during 2011, the declining trend in Tiimari’s revenue, reported on a monthly basis, will cease and that Tiimari’s EBITDA for the entire year 2011 will remain negative (2010: EUR -1.3 million) and lower than last year. The revenue of Gallerix is forecast to grow and its EBITDA is anticipated to be positive and better than in 2010 (2010: EUR 0.1 million). (See a company announcement published on 5 August 2011 www.tiimari.com)
COMMENTS OF THE MANAGING DIRECTOR
Our financial situation has remained very challenging. This forces us to use operational processes which are not optimal for the targets of the company. Investments in the business have been kept at a minimum.
We have battled against a declining trend in sales. Our gross margin performance has been hit by several factors. Tiimari has faced challenges with regard to availability and sufficiency of goods. The clearance sale of discontinued goods has undermined our sales margin. The clearance sale continues in the third quarter but at the same time our category management is improving.
Tiimari chain’s sales trend seems to be reaching “the hard bottom”: decline in sales that has continued for several quarters has evened out in the second quarter. There are still challenges in the improvement of margins. One of our targets is to increase direct purchasing from the Far East, which would enable us to improve our margins. The whole year’s success relies on the remaining significant seasons: Back to School, Halloween and Christmas (the fourth quarter contributes 40% of the annual revenue). Gallerix chain’s sales trend was positive during the period under review, partly due to currency exchange rates (Euro/SEK). In May–June, the most significant impact was generated by the former franchise shops that were transferred to be operated by the chain unit.
We continue to make arrangements to implement the refinancing package during the second half of the year 2011 as announced on 10 June 2011(Stock Exchange Release, 10 June 2011, www.tiimari.com). The Extraordinary Meeting of Tiimari Plc’s Shareholders on 1 July 2011 (Stock Exchange Release, 1 July 2011, www.tiimari.com) authorized the Company’s Board to implement the planned financial restructures.
GOING CONCERN
The Interim Report was prepared according to the going concern principle with the assumption that the operations of the company will continue for 12 months. Furthermore, the principle presupposes that the company is able to execute the realisation of assets and the payment of loans through its ordinary business activities. Tiimari’s economic situation is challenging. The going concern principle is based on the business operations plan approved by the Board of Directors and on the implementation of the refinancing package authorized by Extraordinary Meeting on 1 July 2011 (Stock Exchange Release, 1 July 2011, www.tiimari.com).
GROUP REVENUE AND PROFIT DEVELOPMENT
The Group’s revenue for the first half of the year declined by 4.7% to EUR 29.1 million (30.5). The sales for the significant Easter period occurred mainly in April whereas in the comparison period the Easter sales occurred entirely in the first quarter, and consequently the second quarter figures are not comparable to the second quarter figures of the previous year. In the second quarter, revenue grew by 9.0% to EUR 15.5 million (14.2).
In the first half of the year, the gross margin fell to EUR 15.6 million (18.0), equalling 53.6% (58.9%). In early 2011 the gross margin percentage was lower than during the comparison period due to several factors. Because of the financial situation Tiimari has faced challenges with regard to availability and sufficiency of goods. The clearance sale of discontinued goods has undermined our sales margin. In the second quarter, the gross margin was EUR 8.9 million (9.0), equalling 57.6% (63.2%) of revenue.
EBITDA for the first half of the year decreased to EUR -7.8 million (-4.1). In the second quarter, the Group’s EBITDA was EUR -3.5 million (-1.6). The operating profit decreased in the first half of the year to EUR -9.0 million (-5.7). The Group’s second quarter operating profit declined to EUR -4.2 million (-2.5).
Net financial expenses amounted to EUR -1.1 million (-1.0) in the first half of the year and EUR -1.1 million (-0.5) during the second quarter. The profit for the first half of the year was EUR -10.1 million (-6.6). The second quarter profit was EUR -5.2 million (-3.0). The earnings per share for the first half of the year was EUR -0.61 (-0.40) and for the second quarter EUR -0.32 (-0.18).
The second quarter results of Tiimari business operations include non-recurring cost items EUR 1.0 million of which EUR 0.8 million affecting EBITDA. Non-recurring items relating to Tiimari’s updated store strategy include EUR 0.7 million rent liabilities and EUR 0.2 million extra depreciation of outdated store fixtures in fixed assets. The second quarter results also include non-recurring items incurred by changes in the company’s management amounting to approximately EUR 0.1 million. These items do not have a cash-flow impact in the second quarter. The rent liabilities will have a minor monthly effect on the company’s cash flow starting from the third quarter of 2011.
BUSINESS CONCEPT AND SEASONAL CHANGES
Due to the Tiimari concept, the seasonal changes in the operations have traditionally been strong. During the spring the quarterly results are significantly affected by the Easter holiday sales peak occurring either during the first or the second quarter. The fourth quarter contributes about 40% of the annual revenue. The remaining 60% is accumulated during the first three quarters with approximately 20% per quarter, depending on when Easter occurs. The summer holiday period is traditionally quiet in terms of revenue.
The Tiimari Group comprises two leading retail shop concepts: Tiimari and Gallerix. The concepts operate 268 shops in five countries around the Baltic Sea region. Both concepts are forerunners in their markets.
Tiimari has 183 shops in Finland and the Baltic states. Tiimari specialises in hobby and craft, gift wrapping, cards, school and office supplies, party, small decoration articles as well as seasonal products. The core of the concept is the element of surprise, affordability and diversity. The operational core comprises a broad assortment of over 20,000 different items, a low average price, small shops, weekly new products and large volume. The Tiimari chain was established in Lahti in 1975.
Gallerix operates 85 shops in Sweden, 30 of which are own shops. The rest operate on a franchising principle. Gallerix specialises in paintings, frames and framing, small decoration articles, gift wrapping and cards. The core of the concept is cosiness, attractiveness, humour and sense of excitement. The Gallerix chain was established in Uppsala in 1974.
In the Tiimari Group, the product purchase and sales in the shops work in close cooperation. A key factor is to succeed consistently and continuously combine a broad product offering and a high turnover rate. The purchasing operations are managed through analyses based on market research and customer feedback. It is possible to gain synergy benefits through larger joint purchasing volumes and partly intersecting product offerings.
Due to seasonal changes, Tiimari's result for the first three quarters has traditionally been non-profitable and the result for the fourth quarter significantly profitable in comparison. The extent of the non-profitable operations during the first three quarters in relation to the profit during the fourth quarter has defined the full year result.
OPERATING SEGMENTS
TIIMARI
The Tiimari segment comprises all the Tiimari concept shops in Finland and the Baltic states. The segment revenue for the review period declined by 9.7% to EUR 22.0 million (24.3). Tiimari’s sales in other markets developed more favourably than in Finland: revenue declined by 5.6% and amounted to EUR 1.2 million (1.3).
At the end of the review period, Tiimari had 183 (192) own shops, of which 164 (168) are in Finland. The Tiimari segment’s gross margin was EUR 12.2 million (15.4), equalling 55.7% (63.4%). The decline in the margins for product categories accounts for half of the difference in margins. In early 2011 the gross margin percentage was lower than in the comparison period due to changes in the distribution of sales as well as higher realised purchase prices and simultaneously lower sales prices.
The Tiimari segment’s EBITDA declined and was EUR -7.2 million (-3.3) for the first half of the year and EUR -1.3 million for the whole year 2010. The operating profit for this segment decreased to EUR -8.0 million (-4.4). The operating profit was undermined by a significant decrease in sales in comparison with the corresponding period last year as well as by a simultaneous decline in margins.
The Tiimari segment’s investments during the review period were EUR 0.022 million (0.269).
GALLERIX
The Gallerix segment comprises the Gallerix concept shops in Sweden. The Gallerix segment revenue grew by 15.7% to EUR 7.2 million (6.2). Revenue of the Gallerix shops in Sweden in local currency amounted to SEK 63.9 million (58.2), an increase of 9.8%. Gallerix shops’ comparable sales growth was 1.7% in the first half of the year.
According to its new strategy, Gallerix has continued taking over retail shops in order to enhance shop-specific sales development, to increase the share of centralised purchasing and in this way to improve the gross profit of the entire chain. A strategic goal of Gallerix is to increase the number of retail shops operated directly by Gallerix. At the end of the review period, Gallerix operated 30 shops (a year ago the corresponding number was 17 and at the end of 2010 it was 14) and 55 shops were operated by franchise entrepreneurs.
With the transition, revenue and gross profits of the Gallerix business operations have developed favourably. However, at the same time personnel, rental expenses and the inventory level have increased along with transferred retail shops. The gross margin improved to EUR 3.3 million (2.5), equalling 46.2% (40.4%). Margin improvement results mainly from increasing the number of own shops and decreasing the number of franchise shops.
The Gallerix segment’s EBITDA was EUR 0.006 million (-0.009) for the first half of the year and EUR 0.1 million for the whole year 2010.
The operating profit grew to EUR -0.362 million (-0.489), or -5.1% (-7.9). The Gallerix segment’s investments were EUR 0.136 million (0.002) due to the increase in the number of own shops. In order to strengthen the company’s financial situation Gallerix has negotiated additional EUR 0.3 million long-term loan during the period under review.
OTHERS
Other operations include common expenses for the Group and senior management (Board of Directors, Managing Director and Chief Financial Officer). All business management related operations and personnel were allocated in the segments during the review period. The operating profit grew and was EUR -0.6 million (-0.9). No internal management fees were charged during the review period.
IMPAIRMENT TESTING
The units which contain goodwill are tested annually for potential impairment. Testing during the year is not justified because of the seasonality of the business, particularly with the strong focus of business on the Christmas season. However, testing is carried out whenever there have been significant deviations from the targets in the company’s economic situation.
The reporting structure used in monitoring the Group’s business operations has not changed in 2010 and 2011. Units generating cash flow and containing goodwill are Tiimari and Gallerix.
On 5 August 2011 the company published a Stock Exchange Release lowering the outlook for the Tiimari segment for 2011 and providing information on non-recurring items mainly related to the new, updated store strategy and included in the Interim Report for the second quarter of 2011. On 1 July 2011 the Board of Directors was authorised by the Extraordinary Meeting of Shareholders to implement a new financing arrangement. The implementation of this arrangement will change the company’s financial position and solvency in autumn 2011, enabling stronger growth and profitability improvements. The implementation period for the strategy is 2011–2015.
As the company did not reach its profit development targets for the review period and made a decision with regard to non-recurring items related to the strategy and included these in the second quarter of 2011, the company decided on 5 August 2011 to test the Group’s goodwill for potential impairment of the Tiimari business operations. Testing showed that in the review period goodwill value of the Tiimari business operations exceeded the book value by approximately EUR 1.0 million; however, maintaining the current goodwill level requires the strategic targets to be achieved, particularly in 2012–2015. The Company’s value in use is very sensitive to the development of sales and profitability according the expectation particularly during the last quarter. The next impairment testing will be carried out according to the normal schedule in connection with the preparation of the 2011 financial statements.
For Gallerix segment the impairment testing was not performed because Gallerix performance and outlook has not changed materially since the previous time of testing.
MANAGEMENT, SHOP NETWORK AND PERSONNEL EXPENSES
The influence of cost savings in the Tiimari segment could be seen particularly in other fixed costs which amounted to EUR 2.3 million in the review period (2.7) before non-recurring items were recorded. Of the personnel expenses of the Group, Gallerix’s personnel expenses saw a particularly significant increase, 36%, due to the increase in the proportional share of own shops and these expenses totalled EUR 2.0 million (1.5). Shop rental expenses in the Tiimari segment were at a lower level than in the corresponding period in the previous year and amounted to EUR 6.9 million (7.1), whereas in the Gallerix segment shop rental expenses were 40% higher than in the corresponding period and were EUR 0.843 million (0.604) due to the increase in the proportional share of own shops.
INVESTMENTS
Investment restrictions in fixed assets continued particularly in the Tiimari segment and the Group capital expenditure during the review period totalled EUR 0.158 million (0.281). In the Tiimari segment, investments amounted to EUR 0.022 million (0.269) and in the Gallerix segment to EUR 0.136 million (0.002).
INVENTORY
Inventory totalled EUR 16.8 million on 30 June 2011, a EUR 0.5 million increase on the comparison period (EUR 16.3 million). The inventory increase resulted from the significant increase in the share of Gallerix’s own shops and the resulting inclusion of the products in shops’ inventories into the Group inventory. Measures are still being taken in order to improve inventory turnover levels by clarifying the product offering and by developing purchase management.
CHANGES IN GROUP STRUCTURE
There were no changes in Group structure during the review period. During the first half of the comparison year 2010, the Tiimari segment withdrew from Russia, Norway and Poland and closed all Tiimari shops in Sweden. In addition, in the same period in Finland all but one Gallerix shops were closed.
BALANCE SHEET, FINANCIAL POSITION AND CASH FLOW
During the first half of 2011 the company was identifying structural and financial options to strengthen its balance sheet. As a result of the survey the company announced on 10 June 2011 plans to implement a fairly extensive financial restructuring. At the same time the company sharpened its strategy and business plan to improve profitability. To improve financial situation the company announced also to consider a possible sale of Gallerix business. Financial restructuring approved by the Extraordinary Meeting of Tiimari Plc’s Shareholders on 1 July 2011 (Stock Exchange Release, 1 July 2011, www.tiimari.com) may have a significant impact on performance throughout the year.
The net working capital for the Group was EUR 4.3 million. The net working capital at the end of the comparison period was EUR 9.1 million and EUR -1.6 million at the end of the 2010 financial year. The net working capital is affected by the seasonal fluctuations in the operations, so that there is an increase during the year and a reduction by the end of the financial year. The inventory levels were EUR 16.8 million (16.3 at the end of the comparison period).
Short-term receivables amounted to EUR 3.7 million, after falling by EUR 0.5 million since the beginning of the financial year (3.3). Short-term non-interest bearing liabilities amounted to EUR 16.2 million, after falling by EUR 4.0 million since the beginning of the financial year (10.4). Both trade payables and value added tax liabilities decreased from the beginning of the financial year.
Non-current assets totalled EUR 44.6 million (53.5), a decrease of EUR 1.2 million from the beginning of the review period. The most significant factor explaining the decrease in non-current assets is that, as announced on 14 February 2011, in the fourth quarter of 2010 Tiimari recorded a goodwill impairment in the Tiimari business operations amounting to EUR 6.9 million with no effect on the cash flow.
Due to the seasonal nature of business operations, the amount of net liabilities increased. Interest-bearing net liabilities totalled EUR 39.7 million (36.7), increasing by EUR 13.7 million from the beginning of the financial year. The equity ratio was 4.2% (26.5% at end of the comparison period and 18.9% at the end of the 2010 financial year), and net gearing was 1,417.6% (182.2% at the end of the comparison period and 208.5% at the end of the 2010 financial year). The equity ratio has been undermined by the non-profitability of the Tiimari business operations and a goodwill impairment amounting to EUR 6.9 million that decreased the shareholders’ equity by having an impact on the results but not on the cash flow, executed in the last quarter of 2010.
The Group has ensured the continuity of debt financing with the Standstill agreement, signed on 30 December 2010 for the period ending 30 December 2011. The company’s financing covenants related to EBITDA are not applied during the Standstill agreement period between 30 December 2010 and 30 December 2011. On 30 December 2010, the company issued a convertible capital loan amounting to EUR 3 million and received the capital in January 2011, which solidified the financial position and liquidity of the Group in the first quarter. Despite the Standstill agreement and convertible capital loan issued, the Group’s financial position continues to be very challenging.
The refinancing package approved by the Extraordinary Meeting of Tiimari Plc’s Shareholders on 1 July 2011 (Stock Exchange Release, 1 July 2011, www.tiimari.com) enables, once implemented, the company to decrease interest-bearing liabilities significantly and improve its equity ratio as well as strengthen the Company’s liquidity.
The objectives of the planned financial restructuring are
(a) to raise, through the Rights Issue, at least EUR 11 million of new capital needed to implement the Company's new business plan and to turn the business profitable, to stabilize the Company's balance sheet and financial position, and to ensure the continuity of the business, and
(b) to lower the current interest bearing debt level of the Company by at least EUR 21.8 million through the Directed Issue with the effect of lowering the net gearing of the Tiimari Group, improving the equity ratio, as well as lowering financial expenses.
(c) to ensure abilities to get interest-bearing debt (loans from financial institutions) needed to finance Company’s net working capital.
The Extraordinary General Meeting authorized the board to decide on the share issues required when implementing the financial restructuring. If implemented the prepared share issues would strengthen significantly the Company’s liquidity and solvency as well as ensure the continuity of the business and the implementation of the new business plan. The Company has received subscription commitments and guarantees to Right Issue total of EUR 11.0 million and subscription commitments of Directed Issue totaling EUR 21.8 million where the subscriptions are paid by offsetting the creditors’ loan receivables from the Company. The Company’s objective is to implement the share issues during the third quarter.
Shareholders’ equity per share was EUR 0.17 (1.22).
Operational cash flow was EUR -13.9 million (-13.6). The negative cash flow was affected by the decrease in short-term non-interest bearing liabilities of EUR 6.1 million (7.1) and the non-profitability of operations in the review period. The short-term liabilities decreased due to trade payments and other payables related to regular Christmas sales. The total investments for the Group were EUR 0.158 million (0.281).
PERSONNEL
The average number of personnel in the Group during the review period was 570 (602). The numbers have been altered to reflect the share of full-time employees. The majority of the shop personnel are part-time employees. Tiimari Retail Ltd is the biggest employer in the Group, employing 461 (453) people.
SHARES AND SHARE CAPITAL
Tiimari shares are listed on the NASDAQ OMX Helsinki Plc stock exchange. As at 30 June 2011, the share price was EUR 0.34 (1.25), and the market value of the company was EUR 5.6 million (20.6). The share capital of the company was EUR 7,686,200 at the end of the review period, and the number of shares was 16,474,755. At the end of the review period, the company did not hold any of its own shares.
ANNUAL GENERAL MEETING – 30 MARCH 2011 (Stock Exchange Release 30 March 2011 www.tiimari.com)
The Annual General Meeting of Tiimari Plc approved the financial statements for 2010 and discharged the Board members and the Managing Director from liability. In accordance with the Board’s proposal, the Meeting decided that the loss for the financial year, EUR 10,978,164.90, shall be booked as retained earnings and that no dividend is to be distributed.
The Board composition was decided as five members. Hannu Ryöppönen, Sven-Olof Kulldorff, Juha Mikkonen, Alexander Rosenlew and Sissi Silván were elected to the Board.
It was decided that the members of the Board shall receive the following remunerations:
- the chairman of the Board will receive EUR 2,400 a month
- the vice chairman of the Board will receive EUR 1,800 a month
- other members of the Board will receive EUR 1,200 a month
- for the meetings of the Board committees, a separate sum of EUR 100 per meeting shall be paid
Travel and accommodation costs are paid in accordance with the company’s expenses remuneration policies.
KPMG Ltd was elected to continue as the Group Auditor. KPMG Ltd named Sixten Nyman, APA, to continue as the auditor with primary responsibility. It was decided that the auditor’s remuneration be paid against the auditor’s invoice and according to the principles approved by the Audit Committee.
In accordance with the Board’s proposal, the Annual General Meeting authorised the Board to decide on a maximum issue of 5,000,000 shares and/or releasing special rights to shares (including share options) in one or several tranches in accordance with Chapter 10, Section 1 of the Finnish Limited Liability Companies Act. This authorisation supersedes previous share-issue authorisations and is valid until the next Annual General Meeting or 30 June 2012 if this is earlier.
The Annual General Meeting, in accordance with the Board’s proposal, decided to change Section 9 in the company's Articles of Association to the following: “The notice of the Annual General Meeting shall be published on the Company’s website three (3) months at the earliest and three (3) weeks at the latest prior to the Meeting, although always a minimum of nine (9) days prior to the record date of the Meeting as defined in Chapter 4, Section 2, Subsection 2 of the Finnish Limited Liability Companies Act. The Board of Directors can also decide to publish the notice by other means. In order for the shareholders to be entitled to participate in the Meeting, they are required to register for the Meeting on the date specified in the notice at the latest, which can be ten (10) days prior to the Meeting at the earliest.”
ORGANISATION OF THE BOARD OF DIRECTORS (Stock Exchange Release, 30 March 2011 www.tiimari.com)
In its organisation meeting held after the Annual General meeting, the Board elected Hannu Ryöppönen as its chairman and Juha Mikkonen as its vice chairman. Hannu Ryöppönen was elected chairman of the Appointment and Remuneration Committee of the Board and Alexander Rosenlew and Juha Mikkonen were elected members of this committee. Juha Mikkonen was elected chairman of the Audit Committee and Hannu Ryöppönen and Sissi Silván were elected members.
MANAGEMENT
The Board of Directors appointed Niila Rajala MBA (born 1964) as the new Managing Director of Tiimari Plc as of 17 May 2011. Hannu Krook MBA (KTM), who had submitted his resignation as the Managing Director, agreed to continue to remain at the service of the company for special assignments designated by the Board of Directors until, at least, 17 June 2011. (Stock Exchange Release, 17 May 2011, www.tiimari.com)
The CFO of Tiimari Plc, Kai Järvikare, has resigned as of 31 August 2011. (Stock Exchange Release, 13 June 2011, www.tiimari.com)
BUSINESS-RELATED RISKS AND UNCERTAINTIES
The Group’s revenue and results development is affected by several uncertainties related to the business operations. The main risks relate to the following factors:
- The Group has ensured the continuity of debt financing with the Standstill agreement, signed on 30 December 2010 for the period ending 30 December 2011. Despite the Standstill agreement and financial arrangements carried out in early 2011, the Group’s financial position continues to be very challenging. The Group has explored options to secure long-term financing, as announced previously. Once the financing solution approved by the Extraordinary Meeting of Tiimari Plc’s Shareholders on 1 July 2011 (Stock Exchange Release, 1 July 2011, www.tiimari.com) is implemented, the Group’s capital structure will strengthen significantly. Failure to maintain adequate liquidity and refinancing risk management before the financing solution is implemented may jeopardise the continuity of business.
- the costs associated with acquiring capital are difficult to predict
- the success of the management in the measures taken to develop operations and improve profitability: renewal of the product offering and elimination of non-profitable operations
- actual sales can differ greatly from the forecast as can the periodisation of the seasonal operative cash flow accrual and their impact on the company’s financial position, loan covenants and on the predictability of both cash flow and results
- the development of foreign exchange rates for goods purchased outside the euro currency area and the gross margin received from the sales of these goods
- the choice of business premises in the long term
- the availability of seasonal products and the functionality of the supply chain
- the general development of salaries, rents and transport expenses
- sensitivity to changes in various factors in the valuation of goodwill and the Tiimari and Gallerix brands
- a relative weakening of economic conditions and a possible downturn in consumer demand can negatively affect the company's sales as well as the availability of external financing and the terms
- general changes in interest rates
- The company is involved as a defendant and a plaintiff in certain ongoing property and rental agreement-related disputes as well as in one other contract termination-related dispute. The Financial Statement includes cumulative provisions of EUR 0.3 million related to disputes.
The operational risks and uncertainties of the company have been presented in more detail in the 2010 financial statements and no significant changes in risks have occurred since.
EVENTS AFTER THE PERIOD UNDER REVIEW
In this Interim Report several references are made to the decisions of the Extraordinary Meeting of Tiimari Plc’s Shareholders on 1 July 2011.
DECISIONS OF THE EXTRAORDINARY MEETING OF TIIMARI PLC’S SHAREHOLDERS ON 1 JUNE 2011 (Stock Exchange Release, 1 July 2011, www.tiimari.com)
In accordance with the Board of Directors’ proposal, the Extraordinary Meeting of Tiimari Plc’s Shareholders held on 1 July 2011 authorised the Board of Directors to decide on the issuance of a maximum of 428,969,771 new shares in two share emissions. The proposed authorisation corresponds to approximately 2,600 percent of the total number of the company’s registered shares. The authorisation can be used to strengthen the company’s balance sheet and financial position and ensure the continuation of the Company’s business operations, and it covers the following share emissions relating to the Company’s Re-financing Plan published on 10 June 2011:
1. a Rights Issue based on shareholders’ pre-emptive right of subscription, in which a maximum of 164,747,550 new shares are offered for subscription at the subscription price of EUR 0.09 per share,
2. a directed share issue, in which a maximum of 264,222,221 new shares are offered for the subscription of the lenders of (i) the Company's convertible capital loans issued on 19 October 2009 and 30 December 2010 amounting to EUR 7.98 million, (ii) the Company's debenture loan maturing on 9 October 2014 and amounting to EUR 11 million and (iii) the Company's financial institution loans and credits amounting to at maximum EUR 4.8 million, at the subscription price of EUR 0.09 per share and subject to a condition that the subscribers pay their subscriptions by offsetting their respective loan receivables from the Company.
The authorisation affords the Board of Directors a right to decide on all other terms and conditions for the emissions. The authorisation also provides the Board of Directors with a right to decide on a directed share issue and, thus, issue new shares in deviation of the pre-emptive subscription rights of the shareholders subject to applicable law. The authorisation is valid until 31 December 2011.
The Extraordinary Meeting of Shareholders also made the decision to elect Benedict Wrede and Mia Åberg to the Board of Directors of the Company, in addition to the current Board Members: Hannu Ryöppönen, Juha Mikkonen and Alexander Rosenlew. The decision regarding the composition of the Board of Directors is conditional and requires the Company to complete the emissions (as defined in the authorisation given by the Extraordinary Meeting of Shareholders on 1 July 2011) by 31 October 2011. The new composition of the Board of Directors and the term of the new Board Members shall become effective on the same date the shares subscribed in the emissions mentioned above are registered in the Trade Register.
Board of Directors
Tiimari Plc
Further information:
Managing Director, Niila Rajala, +358 (0)3 812911, niila.rajala@tiimari.fi
Chief Financial Officer, Kai Järvikare, +358 (0)44 7129475, kai.jarvikare@tiimari.fi
Distribution:
NASDAQ OMX Helsinki
important news media
www.tiimari.com
Tiimari Plc is a listed company. The group consists of two retail shop concepts: Tiimari and Gallerix. These two concepts do business in five countries within the Baltic Sea region and there are altogether nearly 300 shops. All concepts belong to the forerunners of their market segment.
NOTES TO THE FINANCIAL STATEMENT, 1 JANUARY 2011–30 JUNE 2011
Basis of preparation
This Interim Report was prepared in accordance with IAS 34. As of the beginning of the financial year, the company has implemented new or revised IFRS standards and IFRIC interpretations, as described in the financial statements of 2010. The implementation of these new and revised standards and interpretations does not have an impact on the figures reported. Otherwise, the same accounting principles and calculation methods as in the previous annual financial statements have been applied.
The preparation of financial statements in accordance with IFRS requires Tiimari’s management to use estimates and assumptions that affect amounts of assets and liabilities at the time of the preparation as well as amounts of income and expenses in the financial period. Inventory valuation is based on regular stocktaking which is the foundation for the management of the goods flow process. As a general rule, shops do not order goods directly but their inventories are replenished automatically through the logistics system. Time-based mechanical devaluations (30 months 25%, 36 months 50% and 42 months 100%) were abandoned at the end of the previous year as we moved into comprehensive product life cycle management in a systematic goods flow process. Specific write-offs are made, when necessary.
Furthermore, discretion is needed in the application of financial statement accounting principles. Estimates and assumptions are based on knowledge at the time of the Interim Report and consequently include risks and uncertainties. Actual results may differ from the estimates and assumptions made. The figures in the income statement and the balance sheet are for the entire Group. The sum of individual figures may deviate from the presented total figures as the figures in this document have been rounded. This Interim Report is unaudited.
| CONSOLIDATED INCOME STATEMENT | |||||
| eur 1 000 | 4-6/2011 | 4-6/2010 | 1-6/2011 | 1-6/2010 | 1-12/2010 |
| SALES | 15 534 | 14 242 | 29 062 | 30 484 | 75 797 |
| Cost of goods sold | -6 594 | -5 239 | -13 481 | -12 523 | -31 963 |
| Gross profit | 8 940 | 9 003 | 15 581 | 17 961 | 43 834 |
| Gross profit, % | 58 % | 63 % | 54 % | 59 % | 58 % |
| Other operating income | 237 | 479 | 799 | 936 | 961 |
| Employee | |||||
| benefit costs | -5 300 | -4 747 | -10 231 | -10 141 | -20 544 |
| Depreciation | -691 | -867 | -1 203 | -1 612 | -3 124 |
| Goodwill impairment | 0 | 0 | 0 | 0 | -6 918 |
| Other operating expenses | -7 368 | -6 361 | -13 941 | -12 875 | -26 822 |
| OPERATING PROFIT | -4 183 | -2 493 | -8 996 | -5 732 | -12 613 |
| Operating profit, % | -27 % | -18 % | -31 % | -19 % | -17 % |
| Financial income | 12 | 88 | 629 | 186 | 266 |
| Financial expenses | -1 090 | -568 | -1 711 | -1 162 | -2 499 |
| Net financial income | -1 078 | -480 | -1 082 | -976 | -2 233 |
| INCOME BEFORE TAXES | -5 260 | -2 973 | -10 077 | -6 707 | -14 845 |
| Taxes | 15 | 46 | 28 | 87 | 192 |
| NET INCOME FOR THE PERIOD | -5 246 | -2 927 | -10 050 | -6 620 | -14 653 |
| Equity holders of the company | -5 246 | -2 927 | -10 050 | -6 620 | -14 653 |
| Earnings per share | |||||
| for profit attributable | |||||
| to the equity holders of the Company | |||||
| Total | -0,32 | -0,18 | -0,61 | -0,40 | -0,89 |
| CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME | |||||
| NET INCOME FOR THE PERIOD | -5 246 | -2 927 | -10 050 | -6 620 | -14 653 |
| Translation diffrences | -119 | 83 | -100 | 353 | 656 |
| Comprehensive income | |||||
| for the period net of tax | -5 365 | -2 844 | -10 150 | -6 267 | -13 997 |
| Comprehensive income for the period attributable to: | |||||
| Equity holders of the company | -5 365 | -2 844 | -10 150 | -6 267 | -13 997 |
| CONSOLIDATED STATEMENT OF FINANCIAL POSITION | |||
| eur 1 000 | |||
| 30.6.2011 | 30.6.2010 | 31.12.2010 | |
| ASSETS | |||
| Goodwill | 25 828 | 32 618 | 25 877 |
| Other intangible assets | 15 028 | 16 085 | 15 496 |
| Tangible assets | 3 629 | 4 652 | 4 275 |
| Other financial assets | 104 | 104 | 104 |
| Receivables | 5 | 5 | 5 |
| Deferred tax assets | 29 | 29 | 29 |
| Total non-current assets | 44 622 | 53 492 | 45 785 |
| Inventories | 16 812 | 16 268 | 14 435 |
| Trade and other receivables | 3 653 | 3 284 | 4 168 |
| Cash and bank | 1 131 | 2 873 | 1 626 |
| Total current assets | 21 597 | 22 425 | 20 229 |
| TOTAL ASSETS | 66 218 | 75 917 | 66 013 |
| SHAREHOLDERS' EQUITY AND LIABILITIES | |||
| Equity attributable to equity holders of parent company | |||
| Share capital | 7 686 | 7 686 | 7 686 |
| Distributable equity fund | 23 011 | 23 011 | 23 011 |
| Translation differences | -107 | -310 | -7 |
| Retained earnings | -27 792 | -10 267 | -18 229 |
| TOTAL SHAREHOLDERS' EQUITY | 2 799 | 20 120 | 12 461 |
| LIABILITIES | |||
| Deferred tax liabilities | 5 682 | 5 810 | 5 740 |
| Interest-bearing liabilities | 18 459 | 22 192 | 15 859 |
| Provisions | 449 | 31 | 31 |
| Total non-current liabilities | 24 590 | 28 032 | 21 630 |
| Interest bearing liabilities | 22 352 | 17 338 | 11 743 |
| Account payable and other payable | 16 161 | 10 426 | 20 180 |
| Provisions | 317 | 0 | 0 |
| Total current liabilities | 38 830 | 27 764 | 31 923 |
| TOTAL LIABILITIES | 63 420 | 55 796 | 53 553 |
| TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES | 66 218 | 75 917 | 66 013 |
| Consolidated Statement of Cash Flows | ||||
| EUR 1 000 | ||||
| 1-6/2011 | 1-6/2010 | 1-12/2010 | ||
| Cash flow from operations | ||||
| Profit/loss for financial period | -10 050 | -6 621 | -14 653 | |
| Adjustments: | ||||
| Depreciation and impairment | 1 203 | 1 612 | 10 043 | |
| Gain (+) and loss (-) on sale of fixed assets | 8 | 7 | ||
| Financial income and expenses | 1 111 | 998 | 2 247 | |
| Taxes | -28 | -87 | -192 | |
| Other adjustments | -14 | 77 | ||
| Change in working capital: | ||||
| Change in inventories | -2 431 | -1 100 | 834 | |
| Change in short-term receivables | 804 | 466 | 472 | |
| Change in short term liabilities | -4 121 | -8 039 | 501 | |
| Change in provisions | 736 | 0 | 0 | |
| Interest paid | -503 | -605 | -1 018 | |
| Dividends received | 4 | 5 | ||
| Interest income received | 1 | 6 | 13 | |
| Other financing items | -552 | -199 | -782 | |
| Taxes paid | -107 | -64 | -8 | |
| Net cash flow from operations | -13 948 | -13 620 | -2 459 | |
| Cash flow from investment activities | ||||
| Investments in | ||||
| tangible and intangible assets | -162 | -275 | -665 | |
| Capital gains from tangible and intangible assets | 2 | |||
| Loans granted | -177 | |||
| Repayment of loan receivables | -202 | |||
| Income on sale of investments | 1 | 1 | ||
| Net cash flow from investments | -162 | -451 | -864 | |
| Cash flow from financing activities | ||||
| Long-term loans, increase | 3 000 | 6 500 | ||
| Short-term loans, net change | 10 648 | 7 500 | 2 133 | |
| Payment of lease liabilities | -66 | -131 | -241 | |
| Net cash flow from financing | 13 582 | 13 869 | 1 892 | |
| Change in liquid assets | -528 | -202 | -1 431 | |
| Liquid assets, beginning of review period | 1 626 | 3 024 | 3 024 | |
| Effect of exchange rate changes on liquid assets | 33 | 51 | 34 | |
| Liquid assets, end of review period | 1 131 | 2 873 | 1 626 | |
| CONSOLIDATED STATEMENT OF CHANGES IN EQUITY | |||||
| EUR 1 000 | |||||
| Attributable to the equity holders of the company | |||||
| Share capital | Distributable equity fund | Translation differences | Retained earnings | Total | |
| Shareholders' equity 1.1.2010 | 7 686 | 23 011 | -663 | -3 667 | 26 367 |
| Comprehensive income | |||||
| for the period | 353 | -6 620 | -6 267 | ||
| Share based payments | 21 | 21 | |||
| Equity on 30.6.2010 | 7 686 | 23 011 | -310 | -10 267 | 20 121 |
| Shareholders' equity 1.1.2011 | 7 686 | 23 011 | -7 | -18 229 | 12 461 |
| Comprehensive income | |||||
| for the period | -100 | -10 050 | -10 150 | ||
| Equity portion of convertible loan | 472 | 472 | |||
| Share based payments | 15 | 15 | |||
| Equity on 30.6.2011 | 7 686 | 23 011 | -107 | -27 792 | 2 798 |
| SEGMENT INFORMATION | |||||
| NET SALES | |||||
| eur 1 000 | 2011 | 2010 | 2011 | 2010 | 2010 |
| 4-6 | 4-6 | 1-6 | 1-6 | 1-12 | |
| Tiimari | 11 757 | 11 252 | 21 951 | 24 300 | 61 924 |
| Gallerix | 3 796 | 2 988 | 7 162 | 6 189 | 13 914 |
| Other operations | 0 | 227 | 0 | 309 | 376 |
| Eliminations | -19 | -225 | -51 | -314 | -416 |
| Group | 15 534 | 14 242 | 29 062 | 30 484 | 75 797 |
| EBITDA | |||||
| eur 1 000 | 2011 | 2010 | 2011 | 2010 | 2010 |
| 4-6 | 4-6 | 1-6 | 1-6 | 1-12 | |
| Tiimari | -3 218 | -1 453 | -7 232 | -3 281 | -1 330 |
| Gallerix | 66 | 66 | 6 | -9 | 135 |
| Other operations | -339 | -237 | -566 | -829 | -1 376 |
| Group | -3 492 | -1 624 | -7 793 | -4 119 | -2 571 |
| OPERATING PROFIT | |||||
| eur 1 000 | 2011 | 2010 | 2011 | 2010 | 2010 |
| 4-6 | 4-6 | 1-6 | 1-6 | 1-12 | |
| Tiimari | -3 709 | -2 004 | -8 031 | -4 371 | -10 435 |
| Gallerix | -116 | -228 | -362 | -489 | -724 |
| Other operations | -358 | -258 | -603 | -871 | -1 455 |
| Group | -4 183 | -2 491 | -8 996 | -5 731 | -12 613 |
| DEPRECIATION AND GOODWILL IMPAIRMENT | |||||
| eur 1 000 | 2011 | 2010 | 2011 | 2010 | 2010 |
| 4-6 | 4-6 | 1-6 | 1-6 | 1-12 | |
| Tiimari | 491 | 551 | 799 | 1 090 | 9 105 |
| Gallerix | 182 | 294 | 368 | 480 | 859 |
| Other operations | 19 | 21 | 37 | 42 | 79 |
| Group | 691 | 867 | 1 203 | 1 612 | 10 042 |
| CAPITAL EXPENDITURE | |||||
| eur 1 000 | 2011 | 2010 | 2011 | 2010 | 2010 |
| 4-6 | 4-6 | 1-6 | 1-6 | 1-12 | |
| Tiimari | 0 | 168 | 22 | 269 | 622 |
| Gallerix | 111 | 2 | 136 | 2 | 33 |
| Other operations | 0 | 10 | 0 | 10 | 10 |
| Group | 110 | 180 | 158 | 281 | 665 |
| NET SALES BY GEOGRAPHICAL AREA | |||||
| eur 1 000 | 2011 | 2010 | 2011 | 2010 | 2010 |
| 4-6 | 4-6 | 1-6 | 1-6 | 1-12 | |
| Finland | 11 117 | 10 562 | 20 671 | 22 732 | 58 384 |
| Sweden | 3 809 | 3 084 | 7 207 | 6 497 | 14 258 |
| Other countires | 607 | 596 | 1 184 | 1 255 | 3 156 |
| Group | 15 534 | 14 242 | 29 062 | 30 484 | 75 797 |
| INTANGIBLE ASSETS | |||
| eur 1 000 | 30.6.2011 | 30.6.2010 | 31.12.2010 |
| Book value at 1 January | 41 373 | 49 401 | 49 402 |
| Changes in exchange rates | -114 | 370 | 777 |
| Additions | 76 | 18 | 184 |
| Depreciation and impairment | -572 | -1 035 | -8 879 |
| Disposals and intra-balance sheet transfer | 93 | -51 | -111 |
| Book value at the end of period | 40 856 | 48 703 | 41 373 |
| TANGIBLE ASSETS | |||
| eur 1 000 | 30.6.2011 | 30.6.2010 | 31.12.2010 |
| Book value at 1 January | 4 275 | 4 904 | 4 904 |
| Changes in exchange rates | -13 | 22 | 262 |
| Additions | 82 | 253 | 481 |
| Depreciation and impairment | -618 | -527 | -1 131 |
| Disposals and intra-balance sheet transfer | -97 | 0 | -241 |
| Book value at the end of period | 3 629 | 4 652 | 4 275 |
| CHANGES IN PROVISIONS | 1.1.2011 | Additions | 30.6.2011 |
| Changes in provisions, non-current | |||
| Other provisions (shop rents, personnel) | 31 | 418 | 449 |
| Changes in provisions, current | |||
| Other provisions (shop rents, personnel) | 0 | 317 | 317 |
| Total | 31 | 735 | 766 |
| KEY FINANCIAL FIGURES | |||||
| 2011 | 2010 | 2011 | 2010 | 2010 | |
| 4-6 | 4-6 | 1-6 | 1-6 | 1-12 | |
| Net sales | 15 534 | 14 242 | 29 062 | 30 484 | 75 797 |
| EBITDA | -3 492 | -1 626 | -7 793 | -4 120 | -2 571 |
| Operating profit | -4 183 | -2 493 | -8 996 | -5 732 | -12 613 |
| Profit/loss for the financial period | -5 246 | -2 927 | -10 050 | -6 620 | -14 653 |
| Earnings per share, EUR | -0,32 | -0,18 | -0,61 | -0,40 | -0,89 |
| Shareholders' equity per share, EUR | 0,17 | 1,22 | 0,76 | ||
| Solvency ratio | 4,23 % | 26,5 % | 18,9 % | ||
| Gearing | 1417,6 % | 182,2 % | 208,5 % | ||
| Net working capital | 4 304 | 9 078 | -1 551 | ||
| Operating cash flow | -13 703 | -13 034 | -1 429 | ||
| Net Interest-bearing liabilities | 39 680 | 36 657 | 25 976 | ||
| Balance sheet total | 66 218 | 75 917 | 66 013 | ||
| Average number of shares (pcs) | 16 475 | 16 475 | 16 475 | 16 475 | 16 475 |
| CONTINGENT LIABILITIES | ||||
| 30.6.2011 | 30.6.2010 | 31.12.2010 | ||
| Loans from financial institutions | ||||
| against the following securities | 21 945 | 23 500 | 11 632 | |
| Corporate mortgages | 31 137 | 31 137 | 31 137 | |
| Pledged shares | 1 476 | 1 476 | 1 476 | |
| Other own liabilities | ||||
| Bank quarantees | 2 679 | 3 014 | 2 891 | |
| Other liabilities | 5 | 5 | 5 | |
| Leasing liabilities | ||||
| Due within one year | 32 | 60 | 80 | |
| Due after one year | 28 | 50 | 48 | |
| OTHER RENT LIABILITIES | ||||
| Due within one year | 16 386 | 13 668 | 15 534 | |
| Due after one year | 23 002 | 20 313 | 26 182 | |
| Other rent liabilities is covered by a provision of EUR 0,6 million. | ||||
| NOMINAL AMOUNTS OF DERIVATIVES | 30.6.2011 | 30.6.2010 | 31.12.2010 | |
| Forward exchange contracts | 0 | 1 324 | 0 | |
| MARKET VALUE VS. NOMINAL AMOUNTS OF DERIVATIVES | 30.6.2011 | 30.6.2010 | 31.12.2010 | |
| Forward exchange contracts | 0 | 44 | 0 | |
| Foreign exhange contracts have been valued at market value on reporting day. | ||||
| Tiimari has not open foreign exchange contracts at the end of the period under review. | ||||
| Tiimari does not apply hedge accounting and the effect of the derivatives | ||||
| have been booked directly in the income statement. | ||||
| RELATED PARTY TRANSACTIONS (EUR 1 000) | Q2 2011 | Q2 2010 | 1-12 2010 | |
| Managing Director remuneration (Hannu Krook, since May 17, 2011 Niila Rajala) | 190 | 111 | 231 | |
| Board remuneration | 50 | 53 | 107 | |
| Interest paid on capital loan (paid 31 March 2011 for period 1 Apr 2010 - 31 Mar 2011) | ||||
| Hannu Krook | 5 | |||
| Hannu Ryöppönen | 5 | |||
| Sven-Olof Kulldorff | 5 | |||
| Virala Oy Ab (Atine Group Oy parent company) | 216 | |||
| Assetman Oy | 38 | |||
| Baltiska Handels A.B. | 19 | |||
| Total | 288 | |||
| During the first half of the year interests of 2009 convertible capital loan have deferred | ||||
| EUR 199 thousand. During the first half of the year interests of | ||||
| 2011 convertible capital loan have deferred EUR 112 thousand. | ||||
| MAJOR SHAREHOLDERS | Shares | Shares % |
| Major shareholders 30.6.2011 | ||
| Unioca Partners Oy | 3 837 731 | 23,29 |
| Assetman Oy | 1 740 645 | 10,57 |
| Varma Mutual Pension Insurance Company | 828 912 | 5,03 |
| Primate Oy | 750 000 | 4,55 |
| Baltiska Handels A.B. | 716 483 | 4,35 |
| Kargol Oy Ab | 580 000 | 3,52 |
| Aktia Capital Fund | 488 149 | 2,96 |
| Cumasa Oy | 407 625 | 2,47 |
| Suomen Bestand Oy | 210 253 | 1,28 |
| Etera Mutual Pension Insurance Company | 210 000 | 1,27 |
PRESUMPTIONS OF IMPAIRMENT TESTING
The cash flow estimate for Tiimari segment is based on -4.28 % decline in revenue for the second half of year 2011 when full year 2011 revenue would be EUR 58.0 million. The nominal revenue in 2008 of EUR 71.1 million (which had the margin of 63.8%) would be reached in 2013 (revenue EUR 74.4 million). This would mean an annual growth of 17.35 % in 2012, 9.41 % in 2013, 9.03 % in 2014 and 4.5 % in 2015. The terminal growth assumption is 0 %. In 2010 the margin was 63.6%, in 2011 the expectation is 57.5%, in 2012 the expectation is 62.6%, in 2013 the expectation is 63.0%, in 2014 the expectation is 62.4%, in 2015 the expectation is 62.0 % with the terminal expectation at 62.0%. The growth of fixed costs is expected to be an average of 5% per annum. The pre-tax discount rate used was 10.51% (10.51%).
In the sensitivity analysis for Tiimari segment, a pre-tax discount rate of 11.51% would lead to the goodwill impairment being EUR 2.7 million. The corresponding growth percentages of -4.78 %, 16.85 %, 8.91 %, 8.53 %, 4.00 % and the terminal growth of -0.5 % would lead to a goodwill impairment of a EUR 1.7 million higher.
| CALCULATION OF KEY FINANCIAL RATIOS | |||||||
| Gross margin = Revenue - materials and supplies *) | |||||||
| EBITDA = Operating profit + depreciation and amortisation | |||||||
|
Earnings/share (EPS), EUR = Earnings before tax - income taxes / issue-adjusted average number of shares for the fiscal year |
|||||||
|
Shareholders' equity / share, EUR = Equity attributable to the equity holders of the parent company / issue-adjusted number of shares at the end of the fiscal year |
|||||||
| Equity ratio % = Shareholders' equity * 100 / Total assets - prepayments received | |||||||
|
Gearing ratio % = Interest-bearing liabilities - cash and cash equivalents * 100 / Shareholders' equity |
|||||||
|
Interest-bearing net liabilities = Interest-bearing liabilities – cash and cash equivalents |
|||||||
|
Net working capital = Inventory + short-term non-interest-bearing receivables – short-term non-interest-bearing liabilities |
|||||||
| Operating cashflow = EBITDA - increase in net working capital - capital expenditure | |||||||
|
*) In Gallerix franchising activities further charged rental payments are reduced from gross margin. |
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