Year 2016

2016 in figures	2
CEO's interview	4
Strategy	7
Business model	11
Operating environment	12
Responsibility	14
Corporate Governance
Board of Directors	16
Executive Group	18
Corporate Governance 2016	20
Tokmanni in figures
Consolidated income statement	22
Consolidated statement of financial position	23
Cash flow statement	24
Key figures	25
Tokmanni as an investment	26

Tokmanni – Finland's leading general discount retailer

Like-for-Like revenue growth

million baskets

Adj. EBITDA margin

Tokmanni is Finland's largest general discount retailer measured by number of stores and revenue. Tokmanni's value proposition combines an attractive and wide product assortment at low prices supported by a good in-store customer experience. Tokmanni is also the only nationwide general discount retailer in Finland. Tokmanni was listed on Nasdaq Helsinki in the spring 2016.

Tokmanni's product categories

Tokmanni's competitive advantages

Groceries
Home cleaning and personal care
Clothing
Tools and electrical equipment
Home, decoration and garden
Leisure and home electronics
Low price image
Attractive and wide product assortment
A strong national brand
A pleasant customer experience
A nationwide store network

HQ and Logistics Center Isolammintie 1 FIN-04600 MÄNTSÄLÄ FINLAND

-0.1%

775.8 2.7%

34.5%

Adj. gross margin

2016 in figures

Tokmanni's customers are served through more than 160 stores around Finland and an online store.

Number of employees

2016

We were listed on the stock exchange in

For more information regarding new stores go to: ir.tokmanni.fi/en/tokmanni-as-an investment/new\_stores

80 70 60 50 40 30 20 10 0 8 7 6 5 4 3 2 1 0 2014 2015 2016 7.8 7.7 8.1 58.5 62.8

3,224 at the end of the year

* Private Labels, Non-branded and Licensed products 162

stores at the end of the year

Key figures

	2016	2015
Revenue, MEUR	775.8	755.3
Like-for-like revenue development, %	-0.1
Number of baskets, million	44.7	43.3
Adjusted gross profit, MEUR	267.9	258.1
Adjusted gross margin, %	34.5	34.2
Adjusted EBITDA, MEUR	62.8	58.5
Adjusted EBITDA, %	8.1	7.7
Adjusted EBIT, MEUR	47.7	43.7
Adjusted EBIT, %	6.1	5.8
Net financial items, MEUR	-15.2	-20.9
Net Capital expenditure, MEUR	9.8	9.0
Net debt/adjusted EBITDA	1.8	2.7
Net cash from operating activities, MEUR	62.5	35.0
Return on capital employed, %	14.5	11.6
Return on equity, %	18.1	12.0
Number of shares, weighted average during the financial period (thousands)*	54,095	44,549
Earnings per share (EUR/share)*	0.50	0.33
Personnel at the end of the period	3,224	3,293

* The amount of shares 2015 and 2016 has been been adjusted with the effects of the bonus issue ('share split') carried out 04/2016.

Could you briefly describe the year 2016?

The year 2016 was eventful for Tokmanni. We were introduced on the Nasdaq Helsinki stock exchange, opened seven new stores around Fin land and a growing number of customers found their way to our stores. This resulted in revenue growth and reinforced the brand awareness.

During the year, the challenges in the market continued and according to the FTGA statistics the non-grocery market continued to decline in 2016. In the summer of 2016, the department store chain Anttila went bankrupt and liquidated its stock which created temporary market turbu lence. The effects were seen also at Tokmanni, especially in the third quarter, but also extending to the fourth quarter impacting our Like-for-Like development negatively.

With the exception of the third quarter, Tok manni's Like-for-Like revenue has grown during the whole year which signals that our measures to improve Like-for-Like growth are heading in the right direction. I am particularly pleased that our number of baskets increased by 3.4% to 44.7 million showing that we create value for our customers, our assortment is topical, that Tokmanni's brand awareness constantly improves and that new customers are finding their way to our stores.

In accordance with our strategy, our profitabili ty improved by developing sourcing efficiency,

2016 was an eventful year

The company opened seven new and relocated stores in Finland and a growing number of people found their way to the company's stores. This increased revenue and reinforced brand awareness. Tokmanni also took the next step in its development path by listing on the Nasdaq Helsinki stock exchange.

focusing on direct sourcing, increasing the share of private labels and through continuous tight cost control. Our cash flow was good and our balance sheet strong enabling the continu ous development of the company and increas ing shareholder value.

Like-for-like sales have been flat for several years. What is Tokmanni doing to increase like-for-like sales?

At the end of 2015, our like-for-like sales began to increase, and in the first half of 2016 some growth was still apparent. In the third quarter of the year, the department store chain Anttila announced its bankruptcy and began to clear stock. This had a impact on our like-for-like sales in the third quarter, which then reduced like-for-like growth for the full year. The mar ket disruption was however temporary. For several years, we have focused especially on the growth of like-for-like sales and are now witnessing its gradual improvement despite a challenging market.

Our goal is to achieve a low single digit growth in like-for-like sales. We will continue our work to develop Tokmanni's brand image through marketing, among othersthings. This is much easier now that we have one single Tokmanni brand instead of seven different store brands and that we have renewed our marketing pro gramme. We seek growth by attracting more customers to our stores. We are also improving

the appearance of our stores and developing the store concept to make Tokmanni an even more attractive place to shop. Our value proposition to our customers is to offer them an interesting assortment, good value for money and the best price image in Finland.

New stores are an important driver for growth and profitability. Why is this?

We have developed a very efficient and fast process. We are able to make new stores profitable very quickly and the payback time for investments is very short. Our comprehensive analysis shows that we have the potential to increase the number of stores to more than 200. At the end of 2016, we had 162 stores, and we announced that we intend to open at least eleven new stores in 2017. In addition, the store space released by Anttila may provide us opportunities to open a few additional new stores in 2017.

One of Tokmanni's strategic goals is to gradually increase the EBITDA margin to approximately ten per cent. In 2016, the adjusted EBITDA margin was 8.1 per cent. What are the main profitability drivers in your opinion?

Improving the EBITDA margin is mainly based on improving gross profit. The EBITDA margin is improved by increasing the share of Tokmanni's private label products in all product categories, as their gross profit is significantly higher than branded products. Tokmanni's Private Labels, Non-branded and Licensed (PLNL) products accounted for 34 per cent of Tokmanni's 2016 revenue. Our goal is to further increase direct sourcing in all product groups and to reduce the use of agents and wholesalers. Direct sourcing from suppliers supports the improvement of gross profit. Our goal is also more careful campaign management, to make the most of sourcing from low cost countries. Tight cost-control also supports the improvement of the EBITDA margin.

The operating environment in retail has been challenging for some time already. In your opinion, will it change significantly in 2017?

During 2016 the Finnish economy has seen slight recovery which has been primarily based on the growth of private consumption. The Finnish Finance Ministry predicts that GDP will grow by 0.9% in 2017 and 1.0% in 2018, but that the growth of private consumption will temporarily slowdown in 2017 as, among others, a result of accelerating inflation, wage development due to the Competitive Pact (KiKy) as well as annual working time changes. Tokmanni expects the Finnish retail market to grow slightly, but tough competition to continue especially in the grocery market. At the same time speciality stores and online stores will continue to strengthen their position.

You have been systematically developing Tokmanni for a long time; what are your next key strategic goals?

Our goal is to be a modern and dynamic general discount retailer and we develop our business operations continuously. We will continue the implementation of the strategic measures that I mentioned above to attain our growth and profitability targets. We will also invest in new development projects in order to serve our customers as well as possible also in the future.

Buying behaviour is changing. Today, buying either begins or is carried out at home, on the sofa. We want to offer our customers an opportunity to make purchases irrespective of time or place. We will invest more in digitalisation and a multichannel approach. We believe that these measures will help us attract our target customers in particular, to shop with us more often.

We are strengthening our position as the leading general discount retailer

Tokmanni's goal is to continue strengthening its position as the leading general discount retailer by exploiting our key competitive advantages: a low price image, an attractive and wide product assortment and a good customer experience.

We target stable and profitable long-term growth

a multi-channel approach to support Like-for-Like revenue growth;

Like-for-like revenue growth

Strengthening brand image and nationwide marketing

According to a survey conducted by Tokmanni in 2015, all Finns recognise Tokmanni. According to the survey, 42 per cent of Finnish adults visit a Tokmanni store at least once every month, while 48 per cent of Finnish adults, Tokmanni's socalled target customers, visit our stores once a year or less frequently.

Tokmanni's goal is to attract more target customers to its stores and to increase the frequency of their visits by continuing to develop the company's brand and marketing.

Between 2013−2015 Tokmanni made its brand consistent by bringing all of its stores under the same Tokmanni brand. From late 2015, the company has had one single Tokmanni brand instead of seven different store brands. A single, consistent and nationwide Tokmanni brand has strengthened the brand image and Finns now associate Tokmanni with smart shopping.

Marketing focuses on attracting core and target customers with a wide product assortment, price and a quality image.

Continuous improvement of store concept and customer experience

We continuously develop our store concept and want to ensure a good customer experience that increases customers' average basket size and the frequency of their visits. The key principles of our store concept are mass displays, clear price communication and presentation of Tokmanni's attractive and wide product assortment. We also continuously develop our store concept. The newest concept is always used in all new, relocated and refurbished stores.

Assortment management and continuous development of category management

We optimise our assortment continuously to make it as interesting to our customers as possible. We focus on the active management of an attractive and wide product assortment with a disciplined category management process and tools that improve our result. However, we maintain an element of surprise in our offering and flexibility in making stock lot purchases, for example.

Digitalisation

Our goal is to be a modern and dynamic general discount retailer and we develop our business operations continuously to be able to serve our customers as well as possible. Today, buying behaviour is changing and buying either begins or is carried out at home, on the sofa. We want to offer our customers an opportunity to make purchases irrespective of time and place and we will increasingly focus on digital solutions and a multichannel approach. We believe that these measures will help us to attract our target customers in particular to shop with us more often.

Developing the store network

Opening new stores is one of the drivers of Tokmanni's revenue and result which is based on efficient setting up and opening of new stores. We have identified several potential locations for new stores to expand our store network to more than two hundred stores. At the end of 2016, Tokmanni had 162 stores across the country. Our goal is to increase our retail space by some 12,000 square metres each year, which means opening around five new or re-located stores each year.

Improving profitability and working capital management

Focusing on private labels

The goal of Tokmanni's category management is to improve gross profit and increase sales by offering an attractive product assortment. Tokmanni's private label products have the biggest impact on improving gross profit because their sourcing costs are lower than those of brand-name products. Tokmanni has added private label products in various product groups and in 2016, Tokmanni's PLNL products accounted for 34 per cent of revenue. We continuously evaluate opportunities for adding private label products to our product categories and increasing their share of sales.

Further improvement of supply chain management

Our goal is to further increase direct sourcing in all product groups and to reduce the use of agents and wholesalers. Direct sourcing from suppliers supports improving gross profit and helps to maintain the high standards of sourcing, product oversight and control. Our goal is to increase

Financial targets and dividend policy

	Long-term financial targets	Target
Like-for-Like reve nue growth	Tokmanni Group's long-term target is to achieve low single digit like for-like net sales growth assuming current market conditions	Low single digit
New stores	Tokmanni Group's target is to, on average, expand by approx. 12,000 square metres of new store space annually, consisting of approximate ly 5 net new stores, expansions and relocations	approximately 5 p.a. 12,000 sqm
Adjusted EBITDA margin	Tokmanni Group's long-term target is to progressively expand to an adjusted EBITDA margin of approximately 10 per cent driven by improving gross margin levels and stable operating expenses in relative terms	Progressively reaching ~10%
Net Debt/ Adjusted EBITDA	Tokmanni Group intends to maintain an efficient long-term capital structure, defined as net debt in relation to adjusted EBITDA of below 2.0x	<2x
Dividend policy	Tokmanni targets a dividend payout ratio of approximately 70 per cent of the net result of Tokmanni subject to capital structure, financial con dition, general economic and business conditions and future prospects	approximately 70%

Efficient business model benefits our customers

and low-cost countries • Sourcing company in
Shanghai, China

sourcing through our sourcing office in Shanghai. The joint venture was established in 2013 with the Norwegian company Europris.

Improving campaign processes

• Centralized functions and cost efficient logistics from the logistics center in Mäntsälä to the stores • The product assortment can be adapted to different store sizes • Three store sizes: large, medium and small stores • A strong brand that allows efficient nationwide marketing which seeks to continuously increase customer amounts 4 3 5 6 Co nss te nt market ni g strategy valu^e ^chaiⁿ Effcien^t S ^calabl^e ^stor^e ^concep^t

We are improving our campaigns by enhancing campaign management and processes. Our goal is to plan our campaigns more carefully, in order to make the most of sourcing from low cost countries. To this end, we implemented an improved campaign planning and optimisation tool in 2016, which is expected to significantly ease the management of campaigns.

Efficient cost control

Efficient cost control plays an important role in improving our profitability. We continuously work to enhance our operations and processes and remove superfluous stages of work. We are also implementing robotics and increasing the use of automation to optimise various routine tasks. The goal is to maintain operating expenses at least on the current level in relation to revenue.

Strategy Business model

Tokmanni has a strong role in the Finnish retail market

Hypermarkets carry a large product assortment, from fresh food to consumer goods. They are mostly located in the suburbs of the main cities and benefit from repeated visits thanks to their fresh food offering. Tokmanni also has a wide range of consumer goods and its low-price image provides it with a competitive advantage over hypermarkets.

In the general discount market, Tokmanni's competitors are several smaller local companies. Tokmanni is the only general discount retailer with a nationwide network of stores and it is the discount market leader in Finland. In addition to the favourable price image, Tokmanni has focused on its store concept and the continuous development of the customer experience to distinguish itself from other discount retailers.

Specialised stores with affordable prices and a strong assortment of private label goods offer a comprehensive assortment in individual product groups. Tokmanni's competitive advantage compared to specialised stores is its wider assortment.

In the centres of large cities, Tokmanni also competes with department stores such as Sokos and Stockmann. Department stores offer a wide assortment of consumer goods but because their price image is higher, their sales have decreased

in recent years. The bankruptcy of the Anttila department store chain is a clear sign of the difficulties the department store segment is facing.

Market outlook

During 2016 the Finnish economy has seen slight recovery which has been primarily based on the growth of private consumption. The Finnish Finance Ministry predicts that GDP will grow by 0.9% in 2017 and 1.0% in 2018, but that the growth of private consumption will temporarily slowdown in 2017 as, among others, a result of accelerating inflation, wage development due to the Competitive Pact (KiKy) as well as annual working time changes. Tokmanni expects the Finnish retail market to grow slightly, but tough competition to continue especially in the grocery market. At the same time, specialty stores and online stores will continue to strengthen their respective position.

While the weak economy is reported to have accelerated the market-share growth of discount stores in the Finnish retail market, the smart shoppig trend is here to stay and the share's growth is expected to continue to outpace that of the overall market even as the economy recovers.

Tokmanni's target market is large and the competitive field is fragmented. The competitive environment includes direct competitors such as hypermarkets, general discount stores and department stores, as well as indirect and product-group specific competitors such as online and specialised stores.

Discount stores Hypermarkets Discount grocery stores Specialised

stores

Department

stores

Operating environment and target market

Our main competitors' names have been highlighted. The size of the circles is illustrative.

Operating environment Operating environment

Responsibility as part of our strategy

Business Integrity	Fair Treatment	Responsible Sourcing and Products	Efficient Use of Resources
Economic	Occupational health	Responsible	Efficient use of
performance	and safety	sourcing	materials
Employment	Employee training	Responsible prod	Energy
Anti-corruption	and development	ucts and packaging	efficiency
Privacy protection	Equality in work and	Product safety	Efficient logistics
	remuneration	Appropriate mark	Efficient waste
Ethical marketing	Non-discrimination	ings on products	recycling

Corporate responsibility is an integral part of Tokmanni's day-to-day business. The company aims to minimise business risks, make use of the opportunities associated with this, and produce added value for stakeholders. Tokmanni's Corporate Responsibility Report 2016 can be found on our website.

More information on responsibility at Tokmanni: yritys.tokmanni.fi/responsibility

0 95%

29%

cases of corruption in 2016

of purchases from BSCI audited factories in risk countries

female Board members

Tokmanni carried out a human rights impact assesment based on UN Guiding Principles on Business and Human Rights in 2016.

Tokmanni's material responsibility themes

Board of Directors

Harri Sivula

Independent of the company and its major shareholders, Chairman of the Board, Tokmanni Group

Member of the Board since 2012, Chairman since 2012, born 1962, M.Sc. (Admin.)

Key work experience: GS1, CEO (since 2015), Restel Oy, CEO (2011–2014), Onninen Oy, CEO (2006–2010), Kesko Oyj, Ruoka-Kesko, Deputy Managing Director; Ruoka-Kesko, Division Director (1987–2006)

Holding in Tokmanni Group Corporation on 31 December 2016: 450,000 shares

Therese Cedercreutz

Independent of the company and its major shareholders Member of the Board since 2016, born 1969, M.Sc. (Econ.)

Key work experience: Barmer-Cedercreutz, CEO (since 2016), 358 Creative Agency, Managing Director (2015–2016), 358 Creative Agency, COO (2013–2014), Spoiled Milk Creative Agency, VP, Business Development (2011–2013), F-Secure Oyj, Director, Global Consumer Business and Marketing (2010–2011), THQ Wireless, VP, Sales and Business Development, EMEA (2003–2009)

Holding in Tokmanni Group Corporation on 31 December 2016: 640 shares

Robert Furuhjelm

Independent of the company, not independent of its major shareholders

Member of the Board since 2012, born 1969, M.Sc. (Econ.)

Key work experience: Nordic Capital, Partner (since 2003), Enskilda Securities Corporate Finance, Director, London and Helsinki (1996–2003), Goldman Sachs London, Investment Banking Division, Analyst (1994–1996)