TKM Grupp
Quarterly report

Unaudited consolidated interim accounts for the third quarter and first nine months of 2022

In the third quarter of 2022, the consolidated unaudited sales revenue of the Group was 216.5 million euros, which was 5.0% more than the sales revenue of the same period in 2021. The sales revenue in the nine months was 628.4 million euros, which was a 4.0% increase in comparison with the result of the first nine months of 2021, when the sales revenue was 604.1 million euros. In the third quarter of 2022, the unaudited consolidated net profit of the Group was 7.8 million euros, which was 38.2% lower than the profit of the comparable period in the previous year. The net profit of the Group for the first nine months of 2022 was 18.9 million euros, which was 7.2% lower than the result of the comparable period in the previous year. In the first nine months, the pre-tax profit was 23.3 million euros, decreasing by 5.3% compared to the year before. 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.

The keywords for the third quarter of 2022 were inflation and rising energy costs. Although the decrease in the purchasing power of the population has not kept pace with inflation due to rapid wage growth, consumers have become cautious in making other purchases in anticipation of an explosive increase in housing costs during the winter period. Therefore, the sales revenue of the retail segments of the Group grew at a moderate pace. The heat and electricity costs of the Group increased almost threefold, making up the largest part of the decrease in the profit of the third quarter compared to 2021. In the competitive Estonian business environment, it is neither possible nor reasonable to realise such a rapid increase in costs to retail prices at the same pace. To reduce energy costs, existing business processes are reviewed with the aim of significantly optimising energy use; for all new stores, the use of energy-efficient solutions is taken into account. The increase in energy costs has forced number of goods suppliers of the Group who are local small producers to stop their activities. In addition, caterers and other small businesses that provided synergy in terms of customer flow in shopping centres are closing their doors. This has an indirect and long-term negative impact on the economic activities of the Group. Labour costs increased by 11.5% in the third quarter, while the number of employees decreased by 3.1% as a result of optimising operations. Regardless of the high price pressure, the Group was still able to maintain a strong sales margin in the department store and supermarket segment, and with the support of the better margin due to the car shortage in the car segment, overall increase the sales margin of the Group.

In the third quarter, preparations were made for the opening of a new Selver store with a total area of nearly 2,000 m² in Tabasalu near Tallinn. The premises of the store are planned with the most modern and environmentally friendly technological solutions in mind. The cold storage and freezing facilities of the store operate on a CO₂-based cooling system, which ensures energy consumption savings of up to a fifth compared to older analogues. The residual heat is used in the ventilation system to heat the building and water. All faucets in the store are equipped with aerators, which reduce the amount of water consumed. In addition, digital solutions are used to reduce paper waste – electronic price tags in the fruit and vegetable department, digital screens used for ads, and Partnerkaart e-receipts. In August, the Partnerkaart app was launched, which is one of the most awaited digital developments among our customers. The Partnerkaart app has all the functions of the Partnerkaart card and it also works as a scanner and a payment solution. The focus is still on updating the platforms and developing services of the e-stores, for which demand is growing. In September, the party snacks of Selveri Köök, previously ordered from a separate environment, were integrated into the eSelver platform, enabling customers to conveniently order from both the grocery store and Selveri Köök with one order and delivery to a significantly expanded service area. Construction work for the construction of a solar park on the roof of the Pirita Selver building, where electricity is used for own consumption, was completed. A similar park is planned to be built on the roof of the Viimsi Centre in the near future. One of the major renovation projects of the sales space in the first half of 2022 was the opening of the renovated Naistemaailm (Women’s department) in the Kaubamaja in Tallinn in the first quarter, where both the physical environment and the selection of brands were updated. In June, the new Priisle Selver was opened in the Lasnamäe district in Tallinn. 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. In September, the completely renovated I.L.U. store opened with a new concept in the Pärnu shopping mall. A renewed store in Rocca al Mare mall was opened in October. The Partnerkaart app launched in August, which has all the functions of the Partnerkaart card, works as a scanner and a payment solution. When creating the Partnerkaart app, the goal was to bring to the market an innovative, intuitive, and functional application, which makes the shopping experience faster and more convenient and increases customer loyalty. The software used in the Partnerkaart app makes it possible to read the barcode of the product with a smartphone much faster than with a scanner and allows to spread the workload of the scanners of the stores. The payment platform used in the app supports both Visa and MasterCard payments and enables the fast processing of digital payments. Almost 90,000 Estonians had downloaded the Partnerkaart app by the beginning of October.

Selver supermarkets

The consolidated sales revenue of the supermarket business segment in the nine months of 2022 was 433.1 million euros, increasing by 3.7% compared to the previous year. The consolidated sales revenue was 149.8 million euros in the third quarter of 2022, increasing by 5.1% in comparison with the same period of last year. The average monthly sales revenue per square metre of sales area in the nine months of 2022 was 0.41 thousand euros, increasing by 3.3% compared to the same period last year. In the third quarter, the respective indicator was 0.42 thousand euros, which is 3.6% more than in the same period last year. In terms of comparable stores, the sales revenue of goods per square metre of sales area was 0.41 thousand euros in the nine months of 2022, growing by 3.1% compared to the same period last year. In the third quarter, the respective indicator was 0.43 thousand euros, which is 4.8% more than in the same period last year. In the first nine months of 2022, 32.6 million purchases were made from the stores, which was 1.9% more than in the reference year.

In the third quarter of 2022, both the pre-tax profit and net profit were 2.6 million euros, which is 5.2 million euros less than in the reference period. The consolidated pre-tax profit of the supermarkets segment in the nine months of 2021 was 8.0 million euros, decreasing by 6.2 million euros in comparison with the previous year. In the first nine months, the net profit was 5.8 million euros, which signifies a decrease of 6.8 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 nine months 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 war in Ukraine, and the effects of COVID-19 included in the reference base. The 9-month reference base is lower by the costs associated with the rebranding of Selver ABC stores and the negative effects of temporary store closures. The reference base is higher due to one closed store and a significantly higher e-commerce and manufactured goods base on the crest of the 2021 crisis. The decrease in e-commerce sales revenue in the second quarter turned into an increase of approximately 10% in the third quarter. The decline in volume sales of food products continued in the third quarter due to accelerated inflation. The increase in prices is largely due to the increase in the price of energy carriers, which has significantly increased the operating costs of companies, which, in turn, are transferred to the final prices of products and services. In order to alleviate the increase in food prices 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 impact of inflation is mitigated by customers buying campaign products in larger quantities. The share of products with discount prices in the shopping cart rose over 42% in the third quarter. The Lidl store chain, which entered the Estonian market in the first quarter of this year, has not had a significant impact on the sales results of Selver stores. In order to counter-balance the price pressure, Selver has taken steps to increase efficiency. Investments in self-checkout registers and IT solutions have had a positive impact on labour efficiency and the basic process of handling goods. Economic results are strongly affected by the significant increase in energy prices, especially electricity (increase of 5 million euros in nine months), significantly increasing the operating expenses of the segment.

92% of the production of the Kulinaaria central kitchen, which is part of the supermarket segment, is sold to store chains within the Group. The nine-month non-group sales revenue of the kitchen increased by 20% in the reporting period. The turnover growth partly reflects the temporary decline in turnover caused by the coronavirus restrictions still in force in the reference period, but at the same time, the turnover growth has also been supported by the successful introduction of new products to the market. The non-group sales revenue of the central kitchen in the third quarter decreased by 11%. The decrease in turnover is due to the decrease in the sales volume of food products that can be ordered in advance in the online environ-ment. At the beginning of the school year, Selveri Köök had the great pleasure of baking a total of 189 delicious cakes for children starting school on the order of the city of Tallinn. In the pan-European energy crisis, various ways to optimise energy costs have been sought: the product portfolio has been reduced, energy-intensive semi-finished and finished products have been removed, and production has switched to a reduced six-day work week from September. The factory expansion project started in 2019 has now been completed; the last salad packaging lines, long-awaited due to supply chain issues, were installed in August. Instructions for sorting the package have been added to the new packages. From 1 October, Selveri Köök joined the e-Selver ordering environment. We hope to thereby significantly increase the sales volume of pre-order Selveri Köök products.

Selver opened its 75th store in Tabasalu town at the beginning of October. One more store is planned to be renovated this year. The focus is still on the development of the e-store service, for which there is an increasing demand. The self-checkout solution, which is popular among customers, was introduced to all stores during the year.

The merger of AS TKM King with Selver AS, entered in the commercial register in September, will not have a significant impact on the economic results of the supermarket segment.

Department stores

The sales revenue of the Kaubamaja department stores in the first nine months of 2022 was 71.4 million euros, exceeding the sales of the same period last year by 17.7%. The sales revenue of the third quarter was 22.9 million euros, which was 4.7% better than last year. The pre-tax profit of the segment in the first nine months of 2022 was 0.3 million euros. Pre-tax profit increased by 1.3 million euros compared to the previous year. The pre-tax loss of the third quarter was 0.2 million euros, which increased by 0.1 million compared to the same period last year.

The nine-month average sales revenue of Kaubamaja department stores per square metre of selling space was 0.3 thousand euros per month, which is 23.5% higher than in the same period last year. One of the biggest news for the customers of the Kaubamaja department store in the first half of 2022 was the opening of the renovated Naistemaailm in the Kaubamaja in Tallinn, where both the physical environment and the selection of brands were updated. The shopping behaviour of customers is increasingly characterised by the keywords quality, sustainability, and planning – they visit stores less often, think through their purchases, and make larger purchases at once. The same behaviour characterises and justifies successful campaigns – major campaigns such as SAH, Ilu Aeg, Osturalli, and several others that took place during the first nine months have exceeded the results of previous campaigns and the volume of products sold was higher than ever. In the second half of the year, fear of the coronavirus is easing and customers are once again happy to visit physical stores. In summer, Kaubamaja launched the sustainable product labelling project ‘World. One and only’, which helps to make sustainable choices in the e-store. The label has been very popular among our customers.

In the third 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 0.2% more than in the same period of 2021. In the third quarter of 2022, the profit was 0.1 million euros, which was 0.02 million euros more than during the com-parable period in 2021. The sales revenue in the first nine months of 2022 was 4.3 million euros, which is 25.1% more than in the same period of 2021. In the first nine months of 2022, the profit was 0.1 million euros, which was 0.07 million euros more than during the comparable period in 2021. The result of the quarter was affected by a partial business interruption and reduced trading on the sales floor in the Pärnu shopping mall and the Rocca al Mare shopping mall due to the planned innovations in the store's concept area. The most important event of the third quarter was the opening of the renewed I.L.U. cosmetics store in Pärnu Centre. In the renewed store, the previous sales hall solution based on product groups is pre-served, but all the furniture and interior elements have been modernised and digitised, and sustainable solutions have been used in the lighting and furniture. By the time the report was published at the beginning of October, a store with the renewed concept was also opened in the Rocca al Mare Centre. The renovation of the I.L.U. store in Ülemiste Centre is planned for the beginning of 2023.

Car trade

The sales revenue of the car trade segment was 112.4 million euros in the first nine months of 2022. The sales revenue was 3.3% lower than the sales revenue in the same period the year before. The 39.8-million-euro sales revenue of the third quarter was 4.1% higher than the sales revenue in the third quarter of 2021. In the first nine months, a total of 3,995 new vehicles were sold, of which 1,357 were sold in the third quarter. The net profit of the segment in the first nine months of 2022 was 8.1 million euros, exceeding the profit for the same period of the year before by 2.5 million euros. The pre-tax profit of the segment for the first nine months of 2022 was 8.5 million euros, exceeding the profit for the same period in 2021 by 2.7 million euros. The pre-tax profit of the third quarter of 2022 was 3.2 million euros, which is 0.8 million euros more than the profit of the same period of the year before.

The automotive industry is gripped by a deficit in 2022, and as a result, the discount pressure on prices has decreased significantly. The sale of new and used cars is going well in all companies of the car trade segment of the Group. In Latvia, the results are somewhat more modest as the launch of our new car showrooms in Riga has been slower than expected due to the coronavirus. The most popular and best-selling models continue to be the Kia Sportage lineup and the Kia Ceed model range. There are still major difficulties with the supply of Korean products, due to which the availability of electric cars is very limited. The development plans of the car trade segment rather focus on the market of Latvia and Lithuania. The plan is to build a new multi-brand car showroom in Vilnius next year. We also plan to build a second KIA showroom on the Bikernieku property belonging to the Group.

Security segment

The non-group sales revenue of the security segment in the third quarter of 2022 was 2.4 million euros, increasing by 10.5% compared to the same period last year. The pre-tax profit of the segment in the third quarter was 0.1 million euros, which is the same level as last year. The non-group sales revenue of the segment in the first nine months of 2022 was 6.9 million euros, increasing by 19.1% compared to the same period last year. The pre-tax profit of the segment in the first nine months was 0.1 million euros, which is also the same level as last year.

The third quarter showed the same trends. The areas of services continued to grow, but the construction turnover of security technology projects remained at a lower level. A large-scale three-year contract was concluded with State Real Estate Ltd. The volume of the contract is approximately 1.5 million euros.

Real estate

The non-group sales revenue of the real estate segment in the first nine months of 2022 was 4.6 million euros. Sales revenue increased by 19.9% compared to the same period last year. The non-group sales revenue of the segment was 1.6 million euros in the third quarter. Sales revenue increased by 12.1% compared to the previous year. The pre-tax profit of the real estate segment in the first nine months of the current year was 8.1 million euros, the profit increased by 0.9%. The pre-tax profit earned in the segment was 2.7 million euros in the third quarter. The pre-tax profit decreased by 12.4% in the reference period.

The growth of the sales revenue of the segment has been affected by the temporary rent discounts applied during the coronavirus restrictions. The opening of a reconstructed business centre in Salaspils (Latvia) last summer and the lease contract signed with the Kuldiga Centre this year significantly contributed to the increase in sales revenue. In addition, the Kaubamaja department store in Tallinn has new lessees. The number of visitors of shopping centres, which has increased since the beginning of the year, began to approach the pre-pandemic level in the last quarter, but slowed down in the reporting quarter and remained at the level of the last few months. The caution that characterises the general economic situation has also affected the purchasing behaviour of visitors. The decrease in the profit of the third quarter of the segment was caused by the sharply multiplied energy prices resulting from Russian aggression and the increase in the cost of loan money due to the increase in the interest rates of the euro zone intended to tighten the monetary policy by the European Central Bank at the beginning of the summer. Real estate companies have paid a lot of attention to improving the energy efficiency of buildings and made several investments to reduce the energy consumption of buildings. Investments have also been made for more accurate measurement and management of the energy consumption of technical systems in buildings. In the summer, a solar park was built on the roof of the Pirita Selver building. The electricity produced is mainly used to cover the on-site consumption of the building. In the spring of next year, it is planned to build a solar park on the roof of Viimsi Centre. The construction possibilities of solar power plants are also being analysed for other buildings belonging to the Group.

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_3Q2022_eng