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TALLINNA KAUBAMAJA GROUP UNAUDITED CONSOLIDATED INTERIM ACCOUNTS FOR 6 MONTHS OF 2020
TALLINN, 13.07.2020, www.nasdaqbaltic.com - The sales revenue in the first six months of Tallinna Kaubamaja Group was 346.5 million euros, which was a 0.5% increase in comparison with the result of the first six months of 2019.
In the second quarter of 2020, the consolidated unaudited sales revenue of Tallinna Kaubamaja Grupp was 171.0 million euros, which was 5.8% less than the sales revenue of the same period in 2019. The sales revenue in the first six months was 346.5 million euros, which was a 0.5% increase in comparison with the result of the first six months of 2019, when the sales revenue was 344.9 million euros. The Group’s consolidated unaudited net profit of the second quarter of 2020 was 5.8 million euros, which was about a third less than the profit of the comparable period in 2019. The Group’s net profit of the first six months of 2020 was 4.1 million euros, which was also about a third less than the result of the previous comparable period. In the first six months, pre-tax profit was 9.9 million euros, which is 21.7% less than the year before. Net profit was affected by the dividend payment, from which 5.8 million euros of income tax was calculated in the first quarter of 2020; 6.5 million euros of income tax was calculated a year before.
The crisis months brought on by the spread of the new coronavirus left a deep mark on the economic results of the Group in the first six months of the year. Closing stores and movement restrictions caused the popularity of the Group’s e-stores to increase explosively, but still, the sales revenue in the segments in which business operations were limited was significantly lower than the sales revenue in 2019. In order to rapidly increase the capacity of e-commerce, investments were made in reprocessing logistics solutions, acquiring additional vehicles and reorganising work processes. The negative impact was less pronounced in the supermarket segment, as food and convenience stores remained open. In the changed situation, the whole cost base of the Group was reviewed critically. Special agreements were achieved with lessors to reduce the rental costs of closed sales areas. Various measures have been used to reduce labour costs, including the reduction of wages and the use of state aid measures, to deal with the surplus of labour force caused by the reduction of workload related to the slowdown in the economic activities of the Group companies. The Group applied for remuneration compensation on the terms set by the state for eight Group companies whose economic activities were extensively disrupted due to the crisis. The state compensated for the remuneration of the employees in the extent of 1.3 million euros, thereby preserving about 1,000 jobs in the Group. In the second quarter, labour force costs decreased by 2.1%. In connection with the virus threat, the Group immediately took measures to ensure the safety of both its customers and employees, which led to an increase in operating expenses. To ensure the safety of customers, the Group’s retail units were equipped with hand disinfectants and instructions for their use at store entrances. In addition, signs and warning lines were used to make sure that people keep a two-metre distance from each other in the stores and the number of people in the store at one time was limited. Security staff and store employees instructed customers to make safe purchases. Corresponding instructions were also distributed via speakers and on the digital screens in the stores. Customers were encouraged to use self-service checkouts, which also ensured a safe distance between customers. To protect the health of store employees, safety glasses were installed at checkouts and protective visors and masks were distributed to personnel who come in direct contact with customers.
By acquiring shares of ABC Supermarkets AS on 29 May 2020, Tallinna Kaubamaja Grupp realised one of its long-term strategic goals of expanding its activities in the supermarkets area. As a result of the acquisition, a company with a strong market position and store network that supplements the Group’s supermarket segment in a suitable way is joining the Group. The acquisition of ABC Supermarkets AS creates a synergy of two domestic retail chains that combines the most valuable experiences and successes of both companies. A larger chain with a denser network of stores strengthens commerce based on Estonian capital, values customer-focused service, and helps to provide to the customer a good selection of goods at reasonable prices, offering a wide selection of high-quality goods made by local Estonian producers. In the near future, the focus will be on realising synergies of both chains.
In April, the new production building of the central kitchen of Kulinaaria OÜ was completed in Tallinn and production began there. At the same time, renovations of the old factory building continued according to plan. The Selver store in Võru was successfully moved to the new location in the Kagukeskus shopping mall in March and it was the latest Selver store to introduce the SelveEkspress service. During the reporting period, Selver fully renovated the Suurejõe Selver in Pärnu and extended the sales area at the Rannarootsi Selver in Haapsalu. During the second half of the year, it is planned to renovate two Selver stores. On 9 July, Selver opened a new store at the WOW mall in Saaremaa, which is the 54th store in the Selver chain. The Group’s attention continues to be focused on developing e-commerce and increasing the shopping convenience of customers.
At the end of the reporting period, the number of loyal customers was more than 676,000, which is 0.4% less than the year before due to the movement restrictions enacted during the corona crisis. On 1 July, the Group launched a new functionality of the Partnerkaart loyalty card called ‘Kuukaart’ or ‘Monthly Card’, which enables the customers to pay for purchases made in the Group’s retail stores within one month by a monthly invoice.
Selver supermarkets
The consolidated sales revenue of the supermarkets business segment was 246.5 million euros in the first quarter of 2020, increasing by 7.7% in comparison with the same period of last year. The consolidated sales revenue was 128.2 million euros in the first quarter of 2020, increasing by 8.8% in comparison with the same period of last year. During the first six months of 2020, 18.3 million purchases were made from the stores, which was 7.4% less than the reference year. The decrease in the number of purchases is impacted by the crisis situation in the Republic of Estonia, during which the customers visited the stores more rarely, but in turn, the average total sum of purchases increased. In the second quarter of 2020, both the pre-tax profit and net profit were 4.3 million euros, growing by 0.6 million euros in comparison with the same period the year before. The consolidated pre-tax profit of the supermarkets segment in the first six months of the year was 7.6 million euros, growing by 1.6 million euros in comparison with the previous year. In the first six months, the net profit was 5.5 million euros, which is an increase of 2.1 million euros in comparison with 2019. The difference between the net profit and profit before income tax compared to the results from a year earlier is due to income tax paid on dividends – income tax paid on dividends was 1.8 million euros lower in 2020 compared to the year before. All supermarket profit is earned in Estonia. As of 1 June 2020, the supermarkets segment includes the results of ABC Supermarkets AS.
The increase in sales revenue of Selver in the second quarter has been faster than the average growth in the market segment. The basis for comparison is higher on the account of the Suurejõe Selver being temporarily closed for renovations, Sepapaja Selver being closed due to the emergency situation, and the Ilulaat campaign being cancelled due to the emergency situation. The basis for comparison is lower on the account of the sales revenue of stores of ABC Supermarkets AS that were added in June. The restrictions related to the emergency situation reduced the attendance of stores operating in shopping malls, but increased the attendance of separately located stores. During the emergency situation, the demand for e-Server services increased significantly. In the area of e-commerce, the sales revenue doubled in the second quarter and the sales revenue of the first six months grew by more than 135%. The number of purchases in the second quarter decreased significantly due to the emergency situation in the country, due to which the customers visited the stores less often and purchased more at once.
The profit was earned thanks to the increased sales revenue, the investments made in increasing the efficiency of daily processes, and the warmer winter, which enabled saving on administrative expenses. The SelveEkspress service that became available at all Selver stores in the first quarter enabled to maintain the previous year’s level of labour force efficiency in the conditions of the salary pressure that remained prevalent at the beginning of the year. In the second quarter, the economic results were affected by the crisis situation in the Republic caused by COVID-19, when expenses made to protect the health of customers and employees increased significantly. The one-off expenses related to the purchase transaction of ABC Supermarkets also affected the results.
During the current year, Selver has fully renovated the Suurejõe Selver in Pärnu and extended the sales area at the Rannarootsi Selver in Haapsalu. In Võru, Selver moved to new premises at the Kagukeskus shopping mall. Due to the crisis situation, Sepapaja Selver was temporarily closed. The SelveEkspress service has been extended and is now available in all Selver stores. The assembly volumes of e-Selver have been grown rapidly. By the end of the first six months, the e-Selver service area includes all of Harju and Tartu County, Hiiu County, Saare County, a large part of Pärnu County, and a part of Lääne County. In the second quarter, Selver acquired the shares of ABC Supermarkets AS. By acquiring the shares, Selver improves the availability of its service via a wider network of stores, and thereby increases its market share by nearly 2 percentage points. The Comarket store chain mainly includes stores with a small sales area, which is why Selver is beginning to operate and develop the small stores format more seriously.
In the second half of 2020, Selver plans to renovate two stores. On 9 July, Selver opened a new store at the WOW mall in Saaremaa, which is the 54th store in the Selver chain. Attention continues to be paid to developing the e-commerce area.
Department stores
In the six months of 2020, the Kaubamaja department stores business segment earned a sales revenue of 37.0 million euros, which is 21.7% less than in the same period of last year. The pre-tax loss of the Kaubamaja department stores in the first six months of 2020 was 1.0 million euros, weakened of 1.4 million euros in the year-on-year comparison. The sales revenue of Kaubamaja department stores in the second quarter of 2020 was 15.8 million euros, which was 35.0% less than during the same period of 2019. The pre-tax profit of the Kaubamaja department stores in the second quarter of 2020 was zero, which was 0.9 million weaker than in the second quarter of last year. After a relatively successful start to the year, the sales result of the Kaubamaja department stores in the both first and second quarter was influenced by the emergency situation declared by the Government of the Republic of Estonia due to the COVID-19 virus, which resulted in a lower 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 with only the grocery stores remaining open. Kaubamaja department stores were reopened on 11 May. Closing the spaces of manufactured goods in April was not compensated by the turnovers of the e-store being multiplied during the crisis.
In the second quarter of 2020, the sales revenue of OÜ TKM Beauty Eesti, which operates I.L.U. cosmetics stores, was 0.9 million euros, which is 16.0% less than in the second quarter of 2019. In the second quarter of 2020, profit was 0.04 million euros, which was 0.1 million euros more than during the comparable period in 2019. The sales revenue of the first six months of 2020 was 1.9 million euros, which is 7.9% less than during the same period of 2019. The loss of the first six months of 2020 was 0.01 million euros, which is an improvement of 0.16 million euros compared to the loss of the same period in 2019. The sales revenue of the second quarter was affected by the emergency situation enacted due to the COVID-19 virus spreading and shopping malls being closed. The results of the company were supported by a sudden increase in the sales of the ilu.ee e-store, including increasing its assortment to include additional goods categories. Successful negotiations with shopping malls to reduce rent payments and using the Unemployment Fund’s support measures to reduce salary expenses had a significant impact on reducing costs.
Car trade
The sales revenue of the car trade segment was 57.9 million euros in the first six months of 2020. Sales revenue was 6.7% less than the sales revenue of the same period in 2019, whereas the sales revenue for KIAs decreased by 30.2%. The sales revenue of 24.8 million euros of the second quarter of 2020 was 30.5% less than the sales revenue of the same period in 2019, whereas the sales revenue for KIAs decreased by 49.7%. During the first six months, a total of 2,471 new vehicles were sold, 1,033 vehicles of them in the second quarter. The net profit of the segment in the first six months of 2020 was 0.2 million euros, which was 1.4 million euros less than the profit of the same period a year before. The pre-tax profit of the segment in the first six months of 2020 was 0.8 million euros, showing a decrease of 1.4 million euros in comparison with the profit of the first six months of 2019. The pre-tax profit of the second quarter of 2020 was 0.5 million euros, which is 1.1 million euros less than the profit of the same period a year before.
In the second quarter, sales revenue and business profit decreased mainly due to the restrictions on movement and the economic situation caused by the coronavirus crisis, due to which the purchases of car rental companies did not happen and in Lithuania, car showroom was closed. In addition, the launching period of the new Škoda car showroom in Riga, which coincided with the corona crisis, reduced profitability. Major restructuring has also taken place in the Tallinn Viking Motors car showroom, where, in relation to establishing a new bodyworks building and reconstructing the Tammsaare tee 51 showroom, one-time expenses were higher. These activities did reduce the business income of the second quarter, but are aimed at the future and the good results in June confirm their profitability. Of new models, the new Kia Sorento will be launched in September.
Footwear trade
The sales revenue of the footwear trade segment was 2.9 million euros in the first six months of 2020. In comparison with 2019, the sales revenue in the first six months decreased by 28.0%. In the second quarter, the sales revenue of the segment was 1.3 million euros, which is 41.0% less than during the same period in 2019. The loss of the first six months was 1.2 million euros. The loss of the comparable period in 2019 was 0.6 million euros. The loss of the second quarter was 0.2 million euros, which is 0.08 million euros weaker than during the same period of 2019. The sales revenue of the second quarter was affected by the emergency situation enacted due to the COVID-19 virus spreading and shopping malls being closed. Successful negotiations with shopping malls to reduce rent payments and using the Unemployment Fund’s support measures to reduce salary expenses had an impact on reducing costs. The discounts on stock made during the last month of the quarter were higher than usual, as the emergency situation completely eliminated sales options at the beginning of the spring season.
Real estate
The sales revenue earned in the real estate segment outside the Group was 2.3 million euros in the first six months of 2020. Sales revenue decreased by 19.4% in comparison with the previous year. The sales revenue earned in the real estate segment outside the Group was 0.9 million euros in the second quarter of 2020. During the reference period, sales revenue decreased by 33.9%. The sales revenue earned in the real estate segment was 4.6 million euros in the first six months of 2020. During the reference period, profit decreased by 14.3%. The pre-tax profit of the segment in the second quarter was 2.0 million euros, which is 28.8% less than during the same period in 2019.
The drop in the profits and sales revenue in the first six months of 2020 was caused by the emergency situation declared by the Government of the Republic on 12 March 2020 and the restriction of the freedom of movement implemented on 27 March 2020, as well as the prohibition on visiting shopping malls. As a responsible and caring lessor, we agreed to reduce the rent of lessees during the emergency situation. The emergency situation, restriction on the movement of persons, and prohibition on being in shopping mall caused a difficult economic situation for lessees. The Tartu Kaubamaja department store and Viimsi Keskus shopping mall were largely closed until 10 May. Grocery stores, telecommunication stores, and stores with a separate entrance were open at the malls. Catering enterprises were open only for take-away. The restriction on movement hit the Tartu Kaubamaja department store the hardest – the attendance of the mall decreased by more than 80% during the period that shopping malls were closed. During the same period, the attendance of the Viimsi Keskus shopping mall decreased by nearly 40%. The recreational area of Viimsi Keskus shopping mall was completely opened for visitors only on 1 June. Within the segment, the Latvian real estate company improved its results. At the end of last year, the sales showroom for Škodas and used cars was completed, and it was also open during the crisis.
The aftermath of the coronavirus epidemic will continue to affect the results of the retail rental market for the whole of 2020 due to both a decrease in rent income and vacancies of commercial premises. As the economic impact of the epidemic is not yet clear, the volume and schedule for future developments will be reviewed.
Impact of the coronavirus
Baltic States began to extensively implement different measures to prevent the spread of COVID-19 starting from March 2020, which brought along sudden changes in the former organisation of life and the economic environment and affected the daily operations of the Group’s companies.
In order to limit the spread of the virus, the Government of the Republic of Estonia declared an emergency situation on 12 March. On March 25, an additional order was issued to close all shopping malls from March 27. As a result, all stores of the Group’s footwear trade segment, the industrial goods departments of the Kaubamaja segment, and I.L.U. shops were closed for visitors from that date. The Tartu Kaubamaja department store, Viimsi Keskus shopping mall, and the historic Kaubamaja building, mainly used by the Kaubamaja segment and located in the centre of Tallinn – all managed by the Group’s real estate segment – were also closed. On 11 May, permission was granted to reopen stores in Estonia. From March 16, the Lithuanian car showroom of the Group's car trade segment was closed for almost a month.
On May 11, all of the Group's sales premises were reopened and by the time of preparing this report, business operations have substantially resumed. In conclusion, our estimation is that the economic changes caused by the virus will not affect the Group’s sustainability.
Raul Puusepp
Chairman of Board
