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TKM GROUP UNAUDITED CONSOLIDATED INTERIM ACCOUNTS FOR THIRD QUARTER AND NINE MONTHS 2024
TALLINN, 10.10.2024, nasdaqbaltic.com - The Group’s consolidated unaudited sales revenue for the third quarter of 2024 was 229.1 million euros, representing a 2.1% decline compared to the sales revenue of the previous year.
Sales revenue for the first nine months was 687.9 million euros, a decrease of 1.0% compared to the 694.7 million euros achieved in the first nine months of 2023. The Group’s consolidated unaudited pre-tax profit for the third quarter of 2024 was 8.6 million euros, down 23.1% compared to the same period last year. Pre-tax profit for the first nine months was 22.3 million euros, a 25.6% decrease compared to the previous year.
The long-standing decline in retail trade, both in sales volumes and current prices, continued to affect the Group's financial results for the third quarter of 2024. The market decline had the most significant impact on the Group’s supermarket and department store segments. However, the car segment remained relatively strong – despite a 5% decline in new passenger car sales in the Baltics, the segment’s sales revenue grew by 0.7% over the nine-month period. Consumers remain cautious, considering larger purchases with more deliberation and over a longer period than usual. The strongest sales growth was recorded in the security segment, supported by both organic growth and previous acquisitions (AS Walde in February Skarabeus Julgestusteenistus OÜ in July, and Caesari Turvateenistuse AS in August 2023). The economic slowdown has increased pressure on sales margins. Professional management of promotional campaigns has allowed the Group to maintain margins at the same level as the previous year. Most of the Group’s operating expenses remain under control. However, higher marketing costs associated with increased campaign volumes and IT expenses directed towards automation showed higher growth rates. Continuous improvements in operational efficiency have helped keep labour costs under control, with labour costs rising by 2.4% in the third quarter, while the number of employees decreased by 0.1%. The Group’s net profit was negatively impacted by the gradual effect of rising interest expenses on the Group’s loans.
In the third quarter of 2024, the Group achieved several important milestones in its development activities. Selver opened two new stores – one in Rocca al Mare shopping centre in Tallinn in August, and another in Raadi, Tartu, in September. The new stores use CO₂-based refrigeration systems, LED lighting, and efficient air circulation with fans, reducing energy consumption by up to 20%. The department store segment opened a new Food Department in the Tartu store in August, which is now the largest food store in Southern Estonia. Development of a new Kaubamaja online store, which is closely integrated with physical stores, continued. The Partner Kuukaart Instalment and Hire Purchase options are now also available online, offering flexible payment solutions. In the department store segment, preparations began for expanding and redesigning the I.L.U. store in Lõunakeskus with a new concept. In the car segment, a KIA showroom will open in the Bikernieku area of Riga in autumn 2024. Construction of a KIA-Škoda showroom in Vilnius, Lithuania, has also started. In Tallinn, preparations continue for the construction of the Viking Motors Peetri car body shop and the opening of a KIA flagship showroom at Veesaare tee 5. In the real estate segment, a logistics centre in Maardu was completed and began operations at the end of September. The construction cost of the new logistics centre was 20 million euros, and it will enhance the Group’s supply chain management and logistics services. In the first phase, the changes in logistics processes will begin with the supermarket segment.
At the end of the reporting period, the number of loyal customers exceeded 740 thousand, an increase of 3.2% over the year. The share of loyal customers in the Group’s turnover was 85.6% (compared to 86.3% in the first nine months of 2023). At the end of September, the Partner Kuukaart "buy now, pay later" payment solutions were expanded to better meet customer expectations. In addition to the physical stores of Tallinn and Tartu Kaubamaja department stores, Instalment and Hire Purchase options are now also available in the Kaubamaja online store, and customers have warmly welcomed these options. The Instalment option allows customers to split their payments into 3 or 6 equal parts with no additional costs, while the Hire Purchase option allows payments to be spread over up to 36 months.
Selver supermarkets
The consolidated sales revenue of the supermarket business segment for the first nine months of 2024 was 446.3 million euros, representing a 1.9% decrease compared to the previous year. Consolidated sales revenue for the third quarter was 149.5 million euros, a decline of 2.6% compared to the same period last year. The average monthly sales revenue per square metre of selling space for the first nine months of 2024 and for the third quarter was 0.40 thousand euros; in both cases, the figures for the previous year were 0.43 thousand euros. For comparable stores, the average monthly sales revenue per square metre of selling space was 0.41 thousand euros for the nine-month period (a change of -6.3%) and also 0.41 thousand euros for the third quarter (a change of -6.1%). A total of 33 million purchases were made in stores during the first nine months of 2024, which remained at the same level as the previous year (a change of -0.4%). In the third quarter of 2024, both pre-tax profit and net profit were 5.3 million euros, 1.0 million euros lower than the base period. The consolidated pre-tax profit of the supermarket segment for the nine months was 11.5 million euros, a decrease of 1.1 million euros compared to the previous year. The net profit for the nine-month period was 9.8 million euros, a decline of 1.6 million euros compared to the previous year. The difference between net profit and pre-tax profit is due to income tax paid on dividends – the income tax on dividends this year was 0.5 million euros higher than the previous year.
The comparison base data are affected by the closure of Järve Selver, the largest store in the segment, in March 2023 for renovation, as well as the prior clearance sale, the closure of WOW Selver ABC in January, and the closure of Punane Selver in May. The base data do not include Kurna Selver, which opened in August 2023.
This year, Selver has opened two new stores – at the end of August, a new store was opened in Rocca al Mare shopping centre in Tallinn, and at the end of September, another new store was opened in Raadi, Tartu. The one-time costs associated with opening these stores impacted the profit for the third quarter of 2024. The new stores have been designed with the most modern and environmentally sustainable technological solutions in mind. The building’s ventilation, heating, and cooling systems are demand-driven, and the refrigeration system operates on CO₂, enabling energy savings of up to 20% compared to older systems. Waste heat from the refrigeration system is used for heating the building and warming domestic water. To ensure optimal air and heat circulation in the sales area, ceiling fans are used, which mix the air and reduce heating costs. Water is purified using a state-of-the-art electrolytic treatment system. The store’s LED lighting is controlled based on demand.
Selver's sales results have been influenced by the general situation in Estonia’s retail environment, where volumes have been declining for the third consecutive year, and consumer confidence remains weak. Sales revenue in non-specialised stores, where foodstuffs, tobacco, and alcohol dominate, grew by 0.6% in the first eight months of 2024. The relatively modest addition of selling space and efforts related to price perception have led to slower-than-average sales revenue growth in the market segment. To stimulate customer purchasing activity, Selver has increased discounts, launched a permanent "Good Prices Every Day" project, offering customers around 650 products at highly competitive prices. In spring, a targeted campaign, "Golden Wednesday" for retired customers, was launched, which has been very well received by the target group. The profit for 2024 has been primarily affected by the reduced turnover of goods and a decrease in the gross profit earned from sales. During the reporting period, the prices of many services and materials increased, driving up operating costs. Nevertheless, through the implementation of cost-saving measures, the Group has managed to reduce operating costs in a challenging economic environment. Continuous process optimisation has also allowed labour costs to remain at the previous year’s level.
The optimisation of the product assortment and processes remains a focus. As a responsible company, Selver has committed to conscious resource consumption in all its activities and contributing to sustainable development. To this end, a sustainable development strategy has been developed, which guides the company’s daily operations. As a company that values openness and transparency, Selver has published its commitments and goals on its website. Selver's focus includes reducing greenhouse gas emissions resulting from its direct activities, increasing recycling rates, reducing food waste, optimising packaging and packaging use, shortening the supply chain, and providing fast and convenient digital solutions. In the field of culinary product production, active product development continues, with the aim of offering customers new flavours, while also focusing on reducing salt, sugar, and fat content in products.
As of the end of September, the supermarket segment included 73 Selver stores, 2 Delice stores, a Mobile Store, and a café, with a total sales area of 124.8 thousand square metres. In addition, there is e-Selver, which is the largest online store in Estonia by service area, and the central kitchen, Kulinaaria OÜ.
Department stores
The sales revenue of the department store business segment for the first nine months of 2024 was 71.0 million euros, down 6.1% compared to the same period last year. Sales revenue for the third quarter was 21.5 million euros, a decrease of 9.7% compared to the previous year. The pre-tax loss for the department store segment for the first nine months of 2024 was 2.1 million euros, which was 1.8 million euros lower than the result from the previous year. The pre-tax loss for the third quarter was 1.1 million euros, an increase of 0.7 million euros.
The average sales revenue per square metre of selling space in the Kaubamaja department store for the first nine months was 0.30 thousand euros per month, 7.3% lower than in the same period last year. The economic downturn that began towards the end of the fourth quarter of the previous year continued into this year, resulting in more aggressive discount campaigns in the first half of the year compared to last year, which impacted the results of the Kaubamaja department store. Additionally, the autumn season began with unseasonably warm weather, which negatively affected third-quarter sales. The results of the Kaubamaja Tallinn department store were also impacted by the ongoing construction of the Vanasadam tramline in the city centre and the closure of the Viru Centre bus terminal, which significantly reduced foot traffic. In the Kaubamaja Tartu department store, a full-scale renovation of the Food Department began at the end of June, leading to the closure of Tartu Food Department for two months during the summer. On 29 August, the store reopened as the best-stocked food store in Southern Estonia, with a completely new concept. In the first quarter, the Kaubamaja launched a new e-store platform, significantly improving customer convenience, and featuring an AI-based recommendation engine that lays the foundation for improved sales results. The new e-store platform integrates seamlessly with the physical stores, offering features like preshopping, fast delivery, and the option to order from the e-store and pay in a physical store, or vice versa.
The sales revenue of OÜ TKM Beauty Eesti, which operates I.L.U. cosmetics stores, was 2.0 million euros in the third quarter of 2024, the same as in the comparable period in 2023. Profit in the third quarter of 2024 was 0.1 million euros, 0.03 million euros less than the comparable period in 2023. The sales revenue for the first nine months of 2024 was 5.9 million euros, an increase of 5.7% compared to the same period in 2023. The profit for the first nine months of 2024 was 0.1 million euros, 0.1 million euros less than the comparable period in 2023. Despite low consumer confidence and the challenging economic situation, the sales revenue in the third quarter remained stable, driven by more intensive promotional offers than usual. Preparations have begun for expanding the I.L.U. store in Lõunakeskus and transitioning it to a new concept.
Car trade
The sales revenue of the car trade segment for the first nine months of 2024 was 149.6 million euros, an increase of 0.7% compared to the same period last year. The third-quarter sales revenue of 50.7 million euros was 0.8% lower than the sales revenue of the third quarter of 2023. A total of 4,741 new vehicles were sold in the first nine months, 2.1% fewer than in the previous year. In the third quarter, 1,570 new vehicles were sold. The pre-tax profit of the car trade segment for the first nine months of 2024 was 8.9 million euros, 2.5 million euros lower than in the previous year. The pre-tax profit for the third quarter of 2024 was 3.2 million euros, 0.4 million euros lower than the same period last year.
The Baltic car market continues to decline. Preliminary data indicate that new car sales in the Baltics fell by 5% in the first nine months of 2024. The largest declines were seen in Latvia (-10%) and Estonia (-9%), while the Lithuanian market grew by 2%. The car tax, which will come into force in Estonia next year, has not significantly accelerated purchasing decisions, although a slight market revival was noticed in September. Customers remain cautious, taking longer and more thorough consideration before purchasing a new car. On a positive note, KIA's importer has been successful, with preparations underway for the launch of several new models, including the electric KIA EV3 and the new KIA Picanto. The KIA EV6 model will also receive an update. Škoda's dealer, Verte Auto, operates in Riga, where competition has intensified due to the entry of a new dealer into the market, increasing the fight for market share. The availability of Peugeot vehicles has somewhat improved, positively impacting their sales.
In the autumn of 2024, a new KIA showroom is scheduled to open in the Bikernieku district of Riga to better serve customers in this area of the city. In Lithuania, construction will begin on a new KIA-Škoda multi-brand showroom in Vilnius in cooperation with TKM Lietuva UAB. Viking Motors, the Estonian dealer in the car segment, is planning to establish a new KIA flagship showroom on the outskirts of Tallinn, in Peetri, which is set to open early next year. Additionally, there are plans to start the construction of a car body shop next to the Peetri showroom.
Security segment
The security segment's sales revenue earned outside the Group in the third quarter of 2024 was 5.6 million euros, representing a 39.6% increase compared to the same period last year. The pre-tax profit for the third quarter was 0.4 million euros, an improvement of 0.4 million euros compared to the same period last year. The sales revenue earned outside the Group for the security segment in the first nine months of 2024 was 15.9 million euros, a 52.8% increase compared to the same period last year. Sales outside the Group accounted for 76% of total sales in the first nine months. The pre-tax profit for the nine-month period was 0.3 million euros, 0.2 million euros higher than the same period last year.
The third-quarter results were strong, with continued growth in both turnover and profit. The growth was broad-based, supported by all business areas. The fastest-growing area was management centre services, where turnover doubled compared to the previous year. The positive impact of last year’s acquisitions has begun to materialise and is expected to continue to grow. The economic environment remains challenging, leading to payment difficulties for customers and continued pressure on input costs. On a positive note, the challenging environment creates numerous opportunities for a growing company to offer innovative and efficient solutions and expand its market share.
Real estate
In the first nine months of 2024, the real estate segment's sales revenue from outside the Group amounted to 5.2 million euros, reflecting a 6.2% increase compared to the same period last year. The sales revenue from outside the Group for the third quarter was 1.7 million euros, up 2.0% compared to the previous year. The pre-tax profit of the real estate segment for the first nine months of 2024 was 5.5 million euros, a decline of 27.4%. The pre-tax profit for the third quarter was 1.6 million euros, which represents a decrease of 25.6% compared to the same period last year.
The low economic activity and slow growth in consumption in the Estonian economy are also reflected in the footfall of shopping centres. The increase in shopping centre visitors observed earlier in the year came to a halt in the last quarter. The footfall at Tartu Kaubamaja Centre declined during the summer due to renovation works. The growth in the segment's sales revenue has been supported by a revitalised rental market for commercial spaces in the centres. Additionally, the expansion of the car wash near Raudkivi tee 1, leased to an external party near the Peetri Selver, which opened last summer, contributed to the segment’s sales revenue.
The decline in the segment’s profit continues to be primarily affected by the rising cost of borrowing due to increased eurozone interest rates. Most of the Group’s loan portfolio is concentrated in this segment, and the construction of the logistics centre during the reporting period increased the loan portfolio and, in turn, interest expenses. The newly completed logistics centre commenced operations at the end of September, with the construction costing approximately 20 million euros. Additionally, the decrease in the segment’s profit compared to last year is also due to a one-off income from the termination of a lease agreement that was recognised in last year’s revenues.
During the summer, renovation works took place at the Tartu Kaubamaja Centre, bringing a new level of quality to the shopping environment on the ground floor and selected areas of the third floor. In total, nearly one-third of the rentable net area underwent refurbishment. The Food Department located on the ground floor and the common areas of the centre were completely renovated. With a new concept, interior design, and an expanded product range, the renewed Food Department has become the most diverse and inspiring grocery store in the area. The interior design project for the ground floor common areas was created by architects from the London-based firm Highly Creative Minds. During the renovation, the children's play area "Mängula" and the Apollo bookstore, both located on the third floor, were expanded. Apollo also fully upgraded its retail space and built a new, larger space for book presentations.
In September, the Latvian real estate company sold the Ogre commercial building to an external party.
The real estate companies continue to improve several store buildings to make them more energy-efficient, thereby raising the energy class of the buildings.
Raul Puusepp
CEO
