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TKM GROUP UNAUDITED CONSOLIDATED INTERIM ACCOUNTS FOR SECOND QUARTER AND SIX MONTHS OF 2023
TALLINN, 12.07.2023, www.nasdaqbaltic.com - The sales revenue in the first six months was 460.5 million euros, which was an 11.8% increase in comparison with the result of the first six months of 2022.
The consolidated unaudited sales revenue of the Group in the second quarter of 2023 was 242.5 million euros, which was 13.8% more than the sales revenue of the previous year. The sales revenue in the first six months was 460.5 million euros, which was an 11.8% increase in comparison with the result of the first six months of 2022, when the sales revenue was 411.9 million euros. The consolidated unaudited net profit of the Group in the second quarter of 2023 was 12.8 million euros, which was 20.5% higher than the profit of the comparable period last year. The net profit of the Group in the first six months of 2023 was 13.4 million euros, which exceeded the result of the previous comparable period by 21.4%. The pre-tax profit earned in in the first half was 18.7 million euros, showing a 20.5% increase compared to last year. Net profit was affected by the dividend payment, from which 5.3 million euros of income tax was calculated in the first quarter of 2023; 4.5 million euros of income tax was calculated a year before.
The significant increase in the sales revenue of the Group in the second quarter of 2023 is partly due to the general price increase reaching the sales prices of the retail segments of the Group, unfortunately sometimes leading to a slight decrease in volume consumption. The supply chain issues in the car segment in recent years increased the number of customers who wanted to buy a car, which greatly contributed to the strong 44.7% increase in sales revenue of the car segment after the improvement of car availability. However, the prices of vehicles have also increased and in terms of volume sales, the growth of the car segment is slightly more modest. The resurgence of availability across the market has led to more flexible pricing. The increasing pressure on the margin accompanying the decrease in the purchasing power of customers is also affecting other retail segments of the Group. Customers who value quality have supported the recovery of sales revenue in the Kaubamaja department stores segment. The impact of comprehensive cost-saving measures implemented by the supermarket segment, which suffered the most due to extremely high energy prices in 2022, to mitigate cost growth has been more evident in the reporting period. Cost-saving measures combined with lower energy costs have strengthened the profit position of the supermarkets and helped bring the operating margin of the segment back close to 2021 levels. The labour costs of the Group increased by 12.5% in the second quarter of 2023, while the number of employees decreased by 5.7%. Compared to the previous year, the shoe stores of the Group have been closed.
In the second quarter, the largest store in the supermarket segment in Tallinn, Järve, was closed for renovation works for nearly two months. Reopened at the end of May, the renovated Järve Selver has been well received by customers. In the first quarter, the supermarket segment renovated the Ringtee Selver in Tartu. In addition, the supermarket segment plans to renovate the Solaris store in the centre of Tallinn and open a new hypermarket by the Tallinn roundabout in the reporting year. In the Kaubamaja department stores segment, development work on the e-store platform continued in the second quarter. In addition, preparatory work was started for the renovation of the I.L.U. cosmetics store in Kristiine Centre, the updated opening of which is planned for August. In the first quarter, the Ülemiste I.L.U. cosmetics store was renovated: the sales area was increased by almost half to 460 square metres. The NYX make-up shop-in-shop with a separate entrance was opened in the Ülemiste I.L.U. cosmetics store. In the real estate segment, the solar park built on the roof of Viimsi Centre was completed in the second quarter In January, the underperforming WOW Selver was closed in Saaremaa, and in May, Punane Selver in Lasnamäe, Tallinn, closed as well.
Supermarkets
In the first six months of 2023, the consolidated sales revenue of the supermarket business segment was 301.7 million euros, an increase of 6.5% as compared to the same period of the previous year. In the second quarter, the consolidated sales revenue was 154.5 million euros, an increase of 7.4% as compared to the same period of the previous year. The average sales revenue per square metre of selling space was 0.43 thousand euros per month in the first six months of 2023 and 0.44 thousand euros per month in the second quarter of 2023, which is respectively 7.2% and 7.3% more than in the same periods of the previous year. From the point of view of comparable stores, the revenue from the sale of goods per square metre of selling space was 0.44 thousand euros in the first half of the year and 0.45 thousand euros in the second quarter, an increase of 8.8% and 10.6% respectively, compared to the reference period. In the first half of 2023, 21.7 million purchases were made from the stores, which was 3.5% more than in the reference year.
In the second quarter of 2023, both pre-tax profit and net profit were 4.6 million euros, which was 1.5 million euros more than in the reference period. The consolidated pre-tax profit of the supermarket segment in the first half of the year was 6.3 million euros, increasing by 0.9 million euros compared to the previous year. The net profit in the first half of the year was 5.2 million euros, increasing compared to the previous year by 1.9 million euros. The difference between net profit and profit before income tax is due to the income tax paid on dividends – this year, the income tax on dividends was 1.0 million euros less than the year before.
The financial results of the first half of 2023 were affected by the turnover added from the opening of the Priisle and Tabasalu Selver supermarkets in Tallinn in 2022 and the lost turnover due to the closure of WOW Selver in Saaremaa in January and the closure of Punane Selver in May. The temporary closure of Ringtee Selver in Tartu and the temporary suspension of sales of the largest Selver store in Tallinn, Järve, due to renovation works also had a significant impact. All the projects listed above have also involved one-time costs and investments. The turnover results of the supermarket segment continue to be affected by accelerated inflation. The significant increase in the price of food products has changed the buying habits of customers and keeps the volume sales of goods below the level of last year. The decline in volume sales stopped at the end of the second quarter. The warm weather had a positive effect on the sale of seasonal goods while the demand for industrial goods that are not essential on a daily basis is more modest. Expenditures on energy carriers are at the level of last year thanks to the implementation of savings opportunities and stabilisation of prices. At the same time, the sharp and high increase in energy prices and raw material prices that started at the beginning of 2022 has raised almost all expenses. Price increases, despite the search and implementation of savings opportunities, have a significant impact on the financial result. The growth of labour costs in the supermarket segment has been 12% in the first half of the year, exceeding the growth rate of sales revenue. On the one hand, this has resulted from the general pressure to raise wages, but there has also been a constant search for ways to increase the efficiency of work processes, reduce working hours, and thereby increase employee wages.
The sales revenue of e-commerce decreased due to the higher reference base in the first quarter. However, in the second quarter, the sales revenue of the e-commerce returned to growth, exceeding the sales revenue of last year by more than 25%. At the beginning of 2023, e-Selver earned two titles in the public survey organised by the Estonian Ecommerce Association: the title of the best e-store in the category of food e-stores and the title of the people’s favourite e-store in general.
The rapid decline in the production volume of Kulinaaria OÜ, which belongs to the supermarket segment, which started in the second half of last year, slowed down in the first quarter, and in the second half of the second quarter, it has begun to rapidly approach the volume of the reference period. An important goal of Selveri Köök is the continuous development of new products, keeping up with the change in consumption habits and constantly offering customers new tastes. At the beginning of May, the food magazine Oma Maitse chose our seafood risotto and strawberry-pistachio curd cake among its favourites. The same products were also recognised in the Eesti Parim Toiduaine 2023 competition. When it comes to packaging, Kulinaaria OÜ has completely switched to salad boxes made of 100% recycled material, which ensure food safety and hygiene. In addition, their production of which requires less plastic.
Selver has renovated two stores this year. In February, the renovated Ringtee Selver in Tartu was reopened to customers and in May, the largest store of the Selver chain, Järve Selver, was reopened in Tallinn. In July, the renovation of the Solaris Grocery Store in Tallinn will begin and one new store is planned to open in the second half of the year. In the first quarter, fourteen Selver stores started issuing identity documents issued by the Police and Border Guard Board. By the end of the second quarter, this number had reached 40.
As at the end of March, the supermarket segment includes 70 Selver stores, one Delice store, Solaris food store, Rändpood store, and a cafe, with a total sales area of 116.2 thousand m²; in addition, e-Selver, which is an e-store with the largest service area in Estonia, and the central kitchen Kulinaaria OÜ.
Department store segment
The sales revenue of the Kaubamaja department stores business segment for the six months of 2023 was 51.7 million euros, exceeding the sales of the same period last year by 6.7%. The sales revenue of the second quarter was 27.0 million euros, which exceeded the result of the comparable period last year by 0.7%. The pre-tax profit of the Kaubamaja department store segment for the six months of 2023 was 0.2 million euros, 61.2% lower than a year ago. In the second quarter, the pre-tax profit was 1.0 million euros, 55.9% less than last year.
The average sales revenue of Kaubamaja department stores per square metre of selling space was 0.3 thousand euros per month in the first six months, 6.4% higher than in the same period last year. Last year, the full-scale war that started in Ukraine on 24 February negatively affected sales in the second half of the first quarter. This spring, however, customer interest was high and the number of visits to stores was much higher than last year. The discount of winter season goods was affected by a warmer than average winter in the first six months of the year, which is why the discount percentages were higher this year, but the increased sales volumes compensated for the lower margin and had a positive effect on the result. At the same time, the result of the second quarter was negatively affected by the construction works of the Old City Harbour tramline in the centre of Tallinn, which started at the beginning of April, as a result of which most of the intersections surrounding the Kaubamaja department store were closed by the beginning of July. Pedestrians were also affected. Therefore, the Group offered higher discount percentages for the summer campaign this year.
In the second quarter of 2023, the sales revenue of TKM Beauty Eesti OÜ, which operates the I.L.U. cosmetics stores, was 1.9 million euros, 24.1% more than in the second quarter of 2022. In the second quarter of 2023, the profit was 0.06 million euros, 0.02 million euros more than during the comparable period in 2022. The sales revenue of the first six months of 2023 was 3.6 million euros, 24.9% more than during the same period of 2022. In the first six months of 2023, profit was 0.1 million euros, 0.08 million euros more than during the comparable period in 2022. The good sales result of the second quarter was driven by the newly renovated I.L.U. cosmetics store in Ülemiste Centre. All other stores also grew with the support of successful marketing campaigns. Preparatory work for the renovation of the store in Kristiine Centre began, the updated opening of which is planned for August.
The 2022 reference base of the Kaubamaja department store segment was affected by the closure of shoe stores operated by TKM King AS in the second quarter of 2022. The sales revenue of the shoe stores in the first half of 2022 was 2.0 million euros and the profit, 0.02 million euros. The sales revenue for the second quarter of 2022 was 0.7 million euros and the profit, 0.4 million euros. By the end of the second quarter of 2022, all ABC KING and SHU shoe stores operated by TKM King AS were closed, the lease agreements with the centres were terminated, and the employees of the stores were laid off.
Car trade
The sales revenue of the car trade segment for the first half of 2023 was 97.6 million euros, increasing by 34.4% compared to the same period last year. The sales revenue of 55.9 million euros in the second quarter was 44.7% higher than the sales revenue of the second quarter of 2022. During the first six months, a total of 3,169 new vehicles were sold, 1,708 of them in the second quarter. The net profit of the segment in the first half of 2023 was 6.6 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 2023 was 7.7 million euros, exceeding the profit for the first half of 2022 by 2.5 million euros. The pre-tax profit of the second quarter of 2023 was 4.7 million euros, which is 1.6 million euros more than the profit of the same period of the year before.
Regarding the first half and second quarter of 2023, it can be said in summary that the supply of new vehicles has improved both in terms of brands represented by the Group and by competitors. The sales of the Kia importer to the contracted dealers of Kia increased by 16% and profitability was also affected by the significantly improved availability of the Kia Sorento and the EV6 electric car. On the one hand, the improvement of the situation has made it possible to increase sales. On the other hand, however, price pressure has increased. The sales success in the second quarter is thanks to largescale sales to fleet customers and car rental companies, such as Bolt, Citybee, and Herz. After-sales services and body repair departments are working at full capacity, as the fleet of brands sold by the Group has been constantly growing. The increase in the price of new cars has led to a greater interest in used cars. An increase in interest in electric cars and plug-in hybrid vehicles can also be seen.
The Group obtained the right to start selling new Škoda vehicles in Lithuania. The new Škoda Superb mid-class sedan and the KIA EV9 electric SUV are expected to hit the market in the near future.
Security segment
The sales revenue of the security segment outside the Group in the first half of 2023 was 6.4 million euros, increasing by 40.3% in comparison with the same period of last year. The pre-tax profit of the segment in the first half of the year was 0.1 million euros, increasing by 0.1 million euros compared to the same period last year. The sales revenue of the segment outside the Group in the second quarter of 2023 was 3.5 million euros, increasing by 55.1% compared to the same period last year. The pre-tax profit of the second quarter of the segment was 0.1 million euros, increasing by 0.03 million euros compared to the same period last year.
The second quarter was successful for all business areas of the security segment and both turnover and profit increased. Fallen energy prices had a positive effect on profits, but the pressure for other input prices to increase remains strong. The risks of customers and cooperation partners ending up in payment difficulties have increased.
In May, an agreement was signed to acquire a 100% stake in Skarabeus Julgestusteenistus OÜ and at the beginning of July, the necessary approval for the transaction was received from the Competition Authority. Skarabeus Julgestusteenistus OÜ is a pan-Estonian security company with departments in Tallinn, Tartu, Pärnu, and Central Estonia, which provides manned security, patrol, and technical security services. The turnover of the company in 2022 was 3.1 million euros and the company employs 168 people. The acquisition of the stake in Skarabeus Julgestusteenistus OÜ enables the security segment to strengthen its business activities in all areas by providing positive synergy through the integration of strong industry know-how, increased operational capacity, and cost efficiency. The transaction creates an opportunity to continue successful growth and develop new services.
Real estate
The sales revenue of the real estate segment outside the Group was 3.2 million euros in the first six months of 2023. Sales revenue increased by 5.8% compared to the same period the previous year. The sales revenue of the segment outside the Group in the second quarter was 1.6 million euros. Sales revenue increased by 5.5% compared to the previous year. The pre-tax profit of the real estate segment in the first half of 2023 was 5.5 million euros, with the profit increasing by 0.8%. The pre-tax profit of the second quarter of the segment was 3.0 million euros. Pre-tax profit increased by 7.5% over the comparison period.
The number of visitors to the shopping centres belonging to the segment, which at the end of last year due to the uncertainty in the economy turned into a decline, has again shown strong growth since the beginning of the year. This has been supported by high-quality and inspiring marketing campaigns to highlight the good reputation of the centres for both high-quality product selection and service. The success of the centres in both Estonia and Latvia has contributed to the growth of the sales revenue of the segment in the first half of the year. In May, a car wash operated by an external party was opened in the immediate vicinity of Peetri Selver.
The profit of the segment is greatly affected by the increase in the cost of loan money due to the increase in interest rates in the euro area intended by the European Central Bank to tighten monetary policy, as the majority of the loan portfolio of the Group is concentrated in the real estate segment. The interest expense has multiplied compared to the reference base of a year ago. The increase in profit in the second quarter was affected by a one-time fine due to the early termination of a lease agreement.
The construction of the Viimsi Centre solar energy park, which started at the end of last year, was completed in May. This is the second building of the Group that has an electricity generation plant installed on its roof where the produced electricity is mainly used for the building itself.
Raul Puusepp
Chairman of the Board
