TKM Grupp
Half Year financial report

Unaudited consolidated interim accounts for the second quarter and first six months of 2022

In the second quarter of 2022, the consolidated unaudited sales revenue of the Group was 213.0 million euros, which was 2.8% more than the sales revenue of the same period in 2021. The sales revenue in the first half of the year was 411.9 million euros, showing a growth of 3.5% compared to the result of the first half of 2021, when the sales revenue was 398.0 million euros. In the second quarter of 2022, the Group’s unaudited consolidated net profit was 10.7 million euros, which is 7.7% higher than the profit of the comparable period in the previous year. The Group’s net profit of the first six months of 2022 was 11.1 million euros, which was 43.4% higher than the result of the previous comparable period. The pre-tax profit earned in in the first half of 2022 was 15.6 million euros, showing a 29.0% increase compared to last year. Net profit was affected by the dividend payment, from which 4.5 million euros of income tax was calculated in the first quarter of 2022; 4.3 million euros of income tax was calculated a year before.

Segments contributed quite differently to the growth of the sales revenue of the Group in the second quarter. The highest revenue growth (30.8%) was achieved by the real estate segment that was affected by corona restrictions in in the second quarter of 2021, which, however, has a small impact on the total sales of the Group. For the same reason, the sales revenue of the Kaubamaja department store segment grew strongly. The growth of the sales revenue of the supermarket segment slowed down in the second quarter due to the change in the purchase behaviour of customers due to the startling price increase. Sales in the car trade segment of the Group, which was struggling with supply chain issues, fell slightly. At the end of the quarter, in addition to supply chain issues, the general cooling of the car market was evident. The cost base of the Group was affected by fuel and electricity costs with rapidly increasing prices and wage costs that increased under the pressure of price growth. The Group was able to maintain a strong sales margin, mainly thanks to the car trade segment, where the limited availability of cars allowed for more profitable pricing.

On 16 June, the new Priisle Selver with a total area of 1,500 m² was opened in the Lasnamäe district in Tallinn. The Priisle Selver is located on the ground floor of the ten-story new development Priisle Kodu. The format of the store is a supermarket, with an assortment of approximately 10,000 articles of food and consumer goods. This year, it is planned to open another supermarket and to renovate one store as well. In addition, there are plans to expand the SelveEkspress self-service solution to all Selver ABC stores. The focus is still on updating the platforms of the e-stores, for which demand is growing, and developing services. Construction work is in the final stages to built a solar park on the roof of the Pirita Selver building, where electricity is used for own consumption. A similar park is planned to be built on the roof of the Viimsi Centre in the near future. Design work for a new Selver store is underway in Tartu. The Kulinaaria central kitchen, which was thoroughly updated and expanded last year, entered another new product segment – the breakfast category. At the beginning of the reporting period, an in-house Bepco box transport line was launched at the Kulinaaria factory, which allows moving finished products in boxes along the conveyor belt directly to the goods issuing warehouse. The Kulinaaria automation project in cooperation with TalTech, which started in 2019, will be continued from autumn. One of the major renovation projects of the sales space of the first half of 2022 was the opening of the renovated Naistemaailm (Women’s department) in the Kaubamaja Tallinn sales building in the first quarter, where both the physical environment and the selection of brands were updated. In accordance with the strategic decision to stop selling shoes in stand-alone shoe stores, all ABC King and SHU stores were closed by the end of the second quarter.

The loyalty program buy-now-pay-later Partner Kuukaart functionality has been on the market for almost two years now. With this functionality, the customer can, immediately after opening the purchase limit in self-service, pay for all purchases made in the Group's retail stores and e-shops in the following month with one invoice. Nearly 16 thousand loyal customers actively used this functionality as of the end of the reporting period. TKM Finants AS, a 100% subsidiary of the Group, has been issued a creditor’s licence. It has been decided to consolidate the financial services of the Group into one subsidiary company, TKM Finants AS. In this regard, in August of this year, it is planned to transfer the facility related to the Kuukaart service of Tallinna Kaubamaja Grupp AS to TKM Finants AS. This change does not entail any changes in the terms and conditions of the contracts concluded with Kuukaart customers. It is planned to expand the portfolio of financial services offered by TKM Finants AS and to start offering payments by instalments to private individuals in the retail segments of the Group.

Selver supermarkets

The consolidated sales revenue of the supermarket business segment was 283.3 million euros in the first half of the 2022, increasing by 3.0% in comparison with the same period of last year. The consolidated sales revenue was 143.8 million euros in the second quarter, increasing by 1.8% in comparison with the same period of last year. In the first six months and during the second quarter of 2022, the average sales revenue per square metre of selling space was 0.40 thousand euros per month, which is respectively 3.1% and 0.3% higher than during the same periods last year. From the point of view of comparable stores, the revenue from the sale of goods per square metre of selling space was 0.41 thousand euros in both the first half of the year and in the second quarter, increasing by 2.8% and 1.3% respectively, compared to the reference period. During the first six months of 2022, 21 million purchases were made from the stores, which was 2.5% more than in the reference year.

In the second quarter of 2022, both the pre-tax profit and net profit were 3.1 million euros, which is 1.7 million euros less than in the reference period. The consolidated pre-tax profit of the supermarkets segment in the first six months was 5.4 million euros, dropping by 0.9 million euros in comparison with the previous year. In the first six months, the net profit was 3.3 million euros, which signifies a decrease of 1.5 million euros in comparison with the previous year. The difference between the net profit and profit before income tax is due to the income tax paid on dividends – this year, the income tax on dividends was 0.6 million euros higher than in the year before. The entire revenue of the supermarket segment was earned in Estonia.

The financial results of the first half of the year were affected by the increased turnover of the new Priisle Selver store opened in Tallinn in June, as well as by the one-time costs and investments made for the opening. The results of the supermarket segment have been affected by accelerated inflation, the Ukrainian crisis, COVID-19, and the changed consumption habits of customers. The basis for comparison for the first half of 2021 is lower due to the short-term closure of stores that accompanied the rebranding process of Selver ABC stores. The basis for comparison is higher due to one closed store and a significantly higher e-commerce and manufactured goods base on the crest of the 2021 crisis. In the second quarter, the sales revenue of e-commerce and industrial goods remained below the level of the previous year. The non-group sales revenue of the Kulinaaria central kitchen, which is part of the supermarket segment and sells more than 90% of its production to store chains within the Group, increased by 39% in the second quarter compared to the same period in the previous year. The turnover growth of the Kulinaaria of the reporting period still reflects the decline in turnover due to the coronavirus restrictions that were still in force in the comparison period. However, marketing campaigns aimed at new products have contributed to turnover growth. The party food segment continues to grow rapidly towards pre-pandemic levels.

Influenced by accelerated inflation, the volume sales of food products turned to a decline in the second quarter. The prices of many goods and services have increased in the global market and the transition of those increases into final retail prices is impossible for the retail sector to prevent. Several goods of Russian or Ukrainian origin have had to be replaced with alternative products, which are somewhat more expensive. The increase in prices is largely due to the increase in the price of electricity, gas, and fuel, which has significantly increased the operating costs of companies, which, in turn, are inevitably transferred to the final prices of all products and services, regardless of the field of activity. In order to alleviate the price increase for customers, Selver continues with a frozen price campaign for the third year, within the framework of which the prices of more than 400 products have been fixed. The Lidl store chain, which entered the Estonian market with eight stores in the first quarter of this year, has not had a significant impact on the sales results of Selver stores. In order to fight the price pressure, Selver has taken actions to increase efficiency. Investments in self-checkouts and IT solutions have had a positive impact on labour efficiency and the basic process of handling goods. The economic results are also affected by the significant increase in the price of energy carriers, especially electricity, resulting in a significant increase in the operating costs of the segment (adding 2.7 million euros to the costs).

Selver plans to open one new store and renovate one store in the second half of this year. The focus is still on the development of the e-store service, for which there is an increasing demand. While the SelveEkspress service is currently available to customers in all Selver stores and some Selver ABC stores, the goal is to offer the self-service solution in all Selver ABC stores by the end of this year.

Department stores

The sales revenue of the Kaubamaja department stores business segment in the first six months of 2022 was 48.5 million euros, exceeding the sales of the same period last year by 25.0%. The sales revenue of the second quarter was 26.8 million euros, which was 28.7% better than last year. The pre-tax profit of the Kaubamaja department stores segment in the first six months of 2022 was 0.5 million euros. Pre-tax profit increased by 1.4 million euros compared to the previous year. In the second quarter, the pre-tax profit was 2.2 million euros, which was 62.0% better than the comparable period last year.

The six-month average sales revenue of Kaubamaja department stores per square metre of selling space was 0.3 thousand euros per month, which is 28% higher than in the same period last year. The result of the department stores was positively affected by the better state of the stocks, which is why the big discount campaign was smaller than last year, when the department stores were closed for more than a month. One of the biggest news for the customers of the Kaubamaja department stores in the first half of 2022 was the opening of the renovated Naistemaailm in the Kaubamaja Tallinn sales building in the first quarter, where both the physical environment and the selection of brands were updated. A strong focus on the home and home goods continues to be reflected in consumption trends and in the behaviour of the customers of the Kaubamaja department stores. The result of the Kodu Aeg campaign, which was carried out in the first quarter, has only been better once – last year. The renewed Ilumaailm section has also been very well received by customers – good results are evidenced by daily sales and the results of the Ilu Aeg campaign in spring were the best in the last five years.

In the second quarter of 2022, the sales revenue of OÜ TKM Beauty Eesti, which operates the I.L.U. cosmetics stores, was 1.5 million euros, which is 49.0% more than in the second quarter of 2021. The profit for the second quarter was 0.04 million euros, which was 0.02 million euros higher compared to the comparable period of 2021. The sales revenue of the first six months of 2022 was 2.9 million euros, which is 41.8% more than during the same period of 2021. In the first six months of 2022, profit was 0.02 million euros, which was 0.05 million euros more than during the comparable period in 2021.

The operation of stores compared to 2021 was normal and expected, as none of the stores had to be closed due to the virus and the restrictions overall were more relaxed. Sales revenue in the second quarter was boosted by attractive sales campaigns and a significant increase in the number of visitors to shopping centres. Ukrainian war refugees who arrived in the country also played a part here.

The sales revenue of the shoe stores operated by TKM King AS, reported in the department stores segment from 1 April 2021, was 2.0 million euros in the first half of 2022. The profit for the first half of 2022 was 0.02 million euros, which was 0.6 million euros higher compared to the same period in 2021. The sales revenue was 0.7 million euros in the second quarter of 2022, decreased by 57.3% compared to the same period last year. Due to a more successful clearance than planned, the profit for the second quarter was 0.4 million euros. At the end of the quarter, in accordance with the strategy of the Group, all ABC KING and SHU stores were closed, the lease agreements with the centres terminated, and the employees of the stores laid off, meaning TKM King AS now only operates in the field of importing footwear. The merger of Selver AS and TKM King AS is planned to be carried out in 2022, the aim of which is to consolidate the imports of both footwear and other industrial goods, mainly intended for the supermarket segment, to Selver.

Car trade

The sales revenue of the car trade segment for the first half of 2022 was 72.6 million euros, decreasing by 6.9% compared to the same period last year. The sales revenue of 38.6 million euros in the second quarter was 7.6% weaker than the sales revenue of the second quarter of 2021. During the first six months, 2,638 new vehicles were sold, 1,361 of them in the second quarter. The net profit of the segment in the first half of 2022 was 4.8 million euros, exceeding the profit of the same period of the previous year by 1.7 million euros. The pre-tax profit of the segment in the first half of 2022 was 5.3 million euros, exceeding the profit for the first half of 2021 by 1.9 million euros. The pre-tax profit of the second quarter of 2022 was 3.1 million euros, which is 1.0 million euros more than the profit of the same period of the year before.

The ongoing supply chain crisis in the world and the war in Ukraine, which has made the situation even worse, mean that car warehouses are empty and there is little hope of the situation getting better in the near future. The availability of KIAs imported by the Group to the Baltic countries has been slightly better than the availability of new vehicles from Peugeot and Škoda, but the latter has still significantly slowed down the growth of the car sales revenues of the Group. Due to the volatile market situation, the Group has decided to slightly postpone the construction of new showrooms to monitor and evaluate changes in the global economy.

We expect new electric cars to be added to the model range, such as the Kia e-Niro and the KIA EV-6, which has received a lot of positive feedback around the world.

Security segment

The non-group sales revenue of the security segment in the first half of 2022 was 4.5 million euros, increasing by 24.2% compared to the same period last year. The pre-tax profit of the segment in the first half of the year was 0.03 million euros, increasing by 0.04 million euros compared to the same period last year. The non-group sales revenue of the segment in the second quarter of 2022 was 2.3 million euros, increasing by 2.5% compared to the same period last year. The pre-tax profit of the second quarter of the segment was 0.03 million euros, decreasing by 0.02 million euros compared to the same period last year.

Cash transport and control centre services showed faster growth. The only decline was in the field of technical projects, where turnover decreased by nearly a third due to delays in projects and supply chain issues. Profitability continues to be negatively affected by labour shortages and high energy prices. The increase in fuel prices reduced the profit by 0.05 million euros in the first half of the year.

Real estate

The non-group sales revenue of the real estate segment was 3.0 million euros in the first six months of 2022. Sales revenue increased by 24.5% compared to the same period last year. The non-group sales revenue of the segment in the second quarter was 1.5 million euros. Sales revenue increased by 30.8% compared to the previous year. The pre-tax profit of the real estate segment in the first half of 2022 was 5.4 million euros, the profit increased by 9.2%. The pre-tax profit of the second quarter of the segment was 2.8 million euros. Pre-tax profit increased by 14.7% in the comparison period.

The noticeable increase in the sales revenue and profit of the segment was mostly achieved thanks to the effect of the temporary rent discounts granted to tenants during the period of the restrictions imposed to prevent the spread of the coronavirus, but the opening of the reconstructed business centre in Salaspils in Latvia also had a significant impact. In addition, new tenants have been added to the Tartu Kaubamaja shopping centre. In the second quarter, the number of visitors of shopping centres almost reached the pre-pandemic level. The behaviour of customers shows that the effect of online shopping resulting from the coronavirus restrictions on regular trade has been shorter than expected, and customers still highly value high-quality face-to-face service. The number of visitors to the Viimsi Centre was affected by the repair of the Randvere–Rohuneeme roundabout and the road section between Randvere and Aiandi road at the end of the second quarter. During peak hours, a drop of up to 10% in visitors can be observed.

During the reporting period, real estate companies have made investments to more accurately measure and control the energy consumption of technical systems; for example, the ventilation system in the Tartu Kaubamaja shopping centre is controlled using CO₂ meters. Construction work is in the final stages to build a solar park on the roof of the Pirita Selver building, where electricity is used for own consumption. A similar park is planned to be built on the roof of the Viimsi Centre in the near future. Design work for a new Selver store is underway in Tartu.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

In thousands of euros

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

In thousands of euros

Raul Puusepp

Chairman of the Board

Phone +372 731 5000

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• Börs_Kaubamaja_2Q2022_eng