TKM Grupp
Quarterly report

Unaudited consolidated interim accounts for the fourth quarter and twelve months of 2020

In the fourth quarter of 2020, the consolidated unaudited sales revenue of Tallinna Kaubamaja Grupp was 201.3 million euros, which was 4.5% more than the sales revenue of the same period in 2019. The sales revenue in the twelve months was 741.9 million euros, showing a growth of 3.4% compared to the result of 2019, when the sales revenue was 717.2 million euros. In the fourth quarter of 2020, the Group’s unaudited consolidated net profit was 8.0 million euros, which was 45.6% weaker than the profit of the comparable period in the previous year. The Group’s net profit in 2020 was 19.5 million euros, which is 38.6% lower than the previous year. The pre-tax profit earned in twelve months was 24.0 million euros, showing a 36.4% decrease compared to last year.

The fourth quarter began in a relatively positive economic environment, but returned to caution due to a steep rise in the number of coronavirus cases in November. Stores have remained open, but the customers’ purchasing behaviour has changed significantly compared to the year before. People visit stores less frequently, buy more during one visit, and their shopping carts are dominated by essential household goods. For the retail segments of the Group, this has meant a decline in the number of visits to the city centre stores, as well as a significant decrease in the sale of fashion goods, which is evident from the weaker results of the Kaubamaja department store and the footwear segment. On the other hand, the popularity of the Group’s online stores has increased, with the sales volumes multiplied in 2020. The supermarket segment showed great growth, supported by the stores which were added by the acquisition of ABC Supermarkets AS in spring. In spite of the declined revenues, the car trade segment optimised its operations and was able to improve its profitability in the fourth quarter. The financial year has called for unexpected and rapid changes in the business operations, and the annual profit has been influenced by several one-time events or extraordinary expenses. Roughly, 1 million euros was spent to ensure the safety of customers and employees during the spread of the coronavirus. In the footwear segment, the value of the ABC King trademark acquired during the acquisition of stores, was written down by 0.5 million euros. In the real estate segment, the profit in the fourth quarter of 2020 was weaker in comparison with the previous year due to the sales revenue of 3.8 million euros earned from one sales transaction involving an immovable property in the end of 2019. Net profit decreased by 2.4 million euros because of the calculated loss from lease contracts in accordance with IFRS 16 (in 2019, the respective figure was 1.5 million euros). Net profit increased due to an income tax adjustment of 1.4 million euros in 2020, as well as 0.6 million euros retrospectively for 2019, which were brought about by changes in the calculation principles arising from the IFRS standards that entered into force in the financial year. Based on the standards, the income statement will now feature a calculated amount of income tax (see Note 1) instead of the actual amount of income tax paid from distributed profits, which was the standard in Estonia previously.

The most important development activities in the financial quarter included the transfer of the stores which had been operating under the Comarket trademark under the Selver ABC trademark, and developments in the picking and packing solutions of online stores. The production plant of Kulinaaria is being set up and the existing production plant is being renovated; renovations are expected to be completed in the beginning of 2021. Several developments have already been completed in the financial year. The Selver store in Võru was successfully moved to the new location in the Kagukeskus shopping mall in March. Selver fully renovated the Suurejõe Selver store in Pärnu and the Mustakivi Selver store in Tallinn. In Haapsalu, the sales area of the Rannarootsi Selver was expanded. In July, Selver opened a new store at the WOW mall in Saaremaa. In the third quarter, the footwear segment opened online stores of ABC KING and SHU. E-Selver expanded its home delivery services to Ida-Viru County, Jõgeva County, and Põlva County. By the end of the year, the service area of e-Selver covered twelve of the fifteen Estonian counties. In the car trade segment, the showroom in Tallinn was renovated into a modern Peugeot showroom and service centre and a separate bodyworks building was opened with the most modern equipment in the Baltic region.

Selver supermarkets

The consolidated sales revenue of the supermarkets business segment was 524.4 million euros in 2020, increasing by 11.7% in comparison with last year. The consolidated sales revenue was 143.4 million euros in the fourth quarter of 2020, increasing by 16.6% in comparison with the same period of last year. Disregarding the ABC Supermarket stores which were added, the growth of fourth quarter of the segment amounted to 7.0%. In 2020, the monthly average sales revenue of goods per square metre of selling space was 0.39 thousand euros, increasing by 3.2% compared to last year. In the fourth quarter, same indicator per square metre was 0.41 thousand euros, increasing by 2.0% compared to the same period last year. The average sales revenue per square metre of selling space of comparable stores was 0.40 thousand euros in 2020 and 0.42 thousand euros, on average, in the fourth quarter of 2020, growing by 5.2% and 4.2% respectively, compared to the year before. In 2020, 40.8 million purchases were made from the stores, which was 1.1% higher than in the reference year.

In the fourth quarter of 2020, the pre-tax profit was 3.5 million euros, dropping by 2.1 million euros in comparison with the same period the year before. The consolidated pre-tax profit of the segment was 15.5 million euros in 2020, decreasing by 2.5 million euros in comparison with the year before; the net profit was 14.0 million euros, decreasing by 2.0 million euros compared to the year before. As of 1 June, the results of the supermarket segment include the results of ABC Supermarkets, which was acquired by a purchase transaction in spring. The profit was earned thanks to the increased sales revenue, the investments made in increasing the efficiency of daily processes, and the warmer beginning to the winter, which enabled saving on administrative expenses. In the first quarter, the SelveEkspress service was expanded to all Selver stores which had been opened by that point, which had a positive effect on the labour efficiency. The economic results have been significantly impacted by the emergency situation which was established due to COVID-19 in spring, which considerably increased the company’s expenses on personal protective equipment and reshaped the customers’ purchase behaviour and consumption habits. The spread of the virus has steeply increased the demand in the area of e-commerce. The results of 2020 were also influenced by the one-time expenses which were related to the purchase transactions of ABC Supermarkets, as well as by the one-time expenses on the renovation of the stores.

In the financial year, Selver thoroughly renovated the Suurejõe Selver store in Pärnu and the Merimetsa and Mustakivi Selver stores in Tallinn. The stores were closed to customers during the renovation works. The sales area of the Rannarootsi Selver in Haapsalu was expanded. In Võru, Selver moved to new premises at the Kagukeskus shopping mall. In July, Selver opened a new store at the WOW mall in Saaremaa. Due to the emergency situation, the Sepapaja Selver and the Puhvet café at the Kadaka Selver were temporarily closed. The assembly and delivery volumes of e-Selver have been growing rapidly. The e-Selver service area includes all of Harju and Tartu County, Hiiu County, Saare County, Järva County, Rapla County, Lääne County, Jõgeva County, Põlva County, Lääne-Viru County, Ida-Viru County, and a large part of Pärnu County and Lääne County. The e-commerce volume of Selver increased 2.5 times in the year. In the second quarter, Selver acquired the shares of ABC Supermarkets. By the acquisition, Selver improved the availability of its service via a wider network of stores, and thereby increased its market share. The process of transferring Comarket stores under the trademark of Selver ABC was launched in October, which was accompanied by one-time expenses on equipment and inventory, as well as by closing the stores for customers for a few days. Selver ABC is a new format of small stores which was created by Selver in 2020. Nine former Comarket stores were opened as Selver ABC stores in the fourth quarter.

Department stores

In 2020, the Kaubamaja department stores business segment earned a sales revenue of 88.1 million euros, which is 14.3% less than previous year. The average sales revenue of the Kaubamaja department stores per square metre of selling space was 0.3 thousand euros per month in the twelve months, which is 17.3% lower than in the same period last year. In the fourth quarter, the sales revenue of the Kaubamaja department stores was 29.5 million euros, which is 7.7% lower in comparison with the same result of the year before. The pre-tax profit of the Kaubamaja department stores in 2020 was 1.0 million euros, showing a decrease of 70.9% in the year-on-year comparison. In the fourth quarter, the pre-tax profit of the Kaubamaja department stores was 1.7 million euros, which is 26.7% lower in comparison with the same result of the year before.

The sales result of the Kaubamaja department stores in 2020 was influenced by the emergency situation declared by the Government of the Republic of Estonia due to the pandemic in the first quarter, which resulted in a decrease in the number of visitors to the Kaubamaja department stores from the middle of March. On 27 March, the Government of the Republic of Estonia ordered the closing of all shopping malls and Kaubamaja also closed all selling spaces of manufactured goods in Tallinn and Tartu. Only the grocery stores remained open. The department stores were fully reopened on 11 May. In the fourth quarter, when Estonia was hit by the second wave of the coronavirus, shopping centres remained open, but the number of visitors decreased considerably.

The spread of the virus has significantly changed customers’ purchase behaviour. Even more value is placed on quality and such products are sought and purchased. Customers have remained more modest in purchasing fashion goods, but household goods have been very popular. Redesigned Kodumaailm with a new concept was opened in the department store in Tallinn in autumn, which had a positive impact on the sales results. Kodumaailm achieved its best result in the last ten years in 2020. Ilumaailm’s ‘Ilu Aeg’ campaign in autumn was the most successful in recent years. On the other hand, due to its central location, Tallinna Kaubamaja has been strongly affected by the significantly lower number of tourists, the lower number of people working in the offices in the city centre, as well as the general decline in the visitation of the city centre, especially in the summer period, which has had a negative impact on the sales result of the 2020. The online store of Kaubamaja grew by 123% in the year, but this has failed to compensate for the decline in the sales of the physical department stores.

In the fourth quarter of 2020, the sales revenue of OÜ TKM Beauty Eesti, which operates I.L.U. cosmetics stores, was 1.7 million euros, which is 4.2% more than in the same period of 2019. The profit in the fourth quarter was 0.1 million euros, which was 33.0% higher than the profit in the comparable period in 2019. The sales revenue of 2020 was 5.0 million euros, which is 0.8% more than 2019. The profit of 2020 was 0.1 million euros, which is 0.2 million euros more than in the 2019. Key activities of 2020 were updating the product selection, development of the sales and service processes of the online store, and active digital marketing. The COVID-19 crisis had a negative impact on the customer flows and sales results of the stores in shopping malls, but the remarkable growth of the online store enabled to finish the year with expected results.

Car trade

The sales revenue of the car trade segment was 117.6 million euros in 2020, which was 9.8% less than the sales revenue of 2019. The sales revenue for KIAs decreased by 31.1%. The sales revenue of 25.1 million euros of the fourthly quarter of 2020 was 25.2% less than the sales revenue of the same period in the year before, whereas the sales revenue for KIAs decreased by 39.7%. Throughout twelve months, a total of 4,846 new vehicles were sold, 952 of them in the fourth quarter. The net profit of the segment in 2020 was 1.8 million euros, which was 1.5 million euros less than the profit of the year before. The pre-tax profit of the segment in 2020 was 2.2 million euros, which is 1.9 million euros less than the profit of 2019. The pre-tax profit of the fourth quarter of 2020 was 0.4 million euros, which is 0.1 million euros more than the profit of the same period of the year before.

Car supply chain disruptions have hampered the delivery of new vehicles, resulting in a decline in the Group's automotive sales in the fourth quarter. Sales were possible to some extent thanks to the stock in trade, which had, however, been below the normal level throughout all of 2020. The result of the car trade segment was improved by follow-up services, i.e. by vehicle maintenance and repair services, where the turnover increased. The investments and changes made in the course of 2020 were finalised and launched. The showroom at 51 Tammsaare tee in Tallinn was reorganised into a new, modern showroom and service centre and a new separate bodyworks department was opened. Another success which can be highlighted is the fact that the Škoda business in Riga had been launched as planned by the end of the year, in spite of the complicated year. The factories and importers are hoping to resume the deliveries of new vehicles in 2021.

Footwear trade

The sales revenue of the footwear segment was 6.7 million euros in 2020, which is 24.4% less than in 2019. The loss of 2020 was 2.5 million euros, which is 1.3 million euros more than in the year before. Writing down of the value of the ABC King brand influenced the result in the extent of 0.5 million euros. In the fourth quarter, the sales revenue was 1.9 million euros, which is 28.4% less than during the same period in 2019. The loss in the fourth quarter was 0.8 million euros.

The results of 2020 were significantly affected by the coronavirus crisis and the modest customer flows in the shopping centres resulting from said crisis, as well as by a general lower interest in fashion goods. The SHU store in Haapsalu was closed in September, while the SHU store in Jõhvi was moved to another location, which has more perspective. Taking into consideration the changes in consumer behaviour and the development of e-commerce, online stores of ABC KING and SHU were developed and opened to customers in the middle of September.

Real estate

The sales revenue earned in the real estate segment outside the Group was 5.1 million euros in 2020. Sales revenue decreased by 11.2% in comparison with the previous year. The sales revenue earned in the segment outside the Group was 1.4 million euros in the fourth quarter. During the reference period, sales revenue decreased by 5.6%. The pre-tax profit earned in the real estate segment was 10.1 million euros in 2020. Compared to the reference period, profit decreased by 31.0%. The pre-tax profit of the segment in the fourth quarter was 2.6 million euros, which is 60.2% less than during the same period in 2019. The main reason for the decline in profit was the one-time sales revenue from the sale of an immovable property with residential property development potential in Tallinn in the end of 2019 reported in the reference data.

The sales revenue earned in the segment outside the Group decreased by 19% in the first six months due to the emergency situation declared by the Government of the Republic of Estonia and due to the 1.5-month compulsory closure of department stores. In the second half of the year, however, the sales revenue recovered and the sales revenue earned in the segment outside the Group only dropped by 3%. As a responsible and caring lessor, the segment has been flexible in its rental relationships. The lockdown period had a greater effect on the Tartu Kaubamaja shopping centre, where the attendance of the mall decreased by 27% over the year. The emergency situation only had a short-term effect on the Viimsi shopping centre and the attendance of the centre decreased by less than 10% over the year. The success of the centres arises from rapid implementation of the measures to stop the spread of the virus. Measures were immediately taken to ensure the safety of both customers and employees. Within the segment, the Latvian real estate company improved its results. The company is renting a new, fully functional Škoda showroom, which is the most modern in Eastern Europe, and a used vehicle showroom to the car trade segment of the Group in Riga. The annual evaluation of the fair value of the real estate investments which was conducted at the end of year did not have a significant impact on the profit of the segment.

The coronavirus epidemic will continue to affect the results of the lessees of the shopping centres in the first half of 2021. As the economic impact of the epidemic is not yet clear, the volumes of and schedule for future developments will be adjusted as and when needed.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

In thousands of eurosˇ

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

In thousands of euros

Raul Puusepp

Chairman of the Board

Phone +372 731 5000

Attachment

• Börs_Kaubamaja_4Q2020_eng