Implementation of compliance management system in TKM Group Helen Tulve 12 February 2016 WHO WE ARE TKM Group 55 years of retail experience 130,000 sq m sales area 88 stores 45 supermarkets (Selver) 28 shoe stores (ABC King, SHU, Outlets) 8 beauty stores (I.L.U., LOccitane) 4 car showrooms (Viking Motors, Forum Auto, Kia Automobiles) 2 department stores (Kaubamaja) 1 outlet (Kaubamaja, ABC King, SHU) WHO WE ARE TKM Group 9.9% market share of Estonian retail market 555.5 M revenue 2015 Ca 450,000 different products 61 M visitors and 42M purchases ,946 employees Loyalty program with ca 590,000 loyal customers In 1996 shares of Tallinna Kaubamaja Grupp were listed at Tallinn Stock Exchange WHO WE ARE TKM Group -Kaubamaja is the first and the oldest department store in Estonia -Selver is represented in 23 towns in Estonia with 16.2% market share in Kulinaaria has the biggest kitchen in the Baltics with production area of 4,000 sq m and 14 tons of production every day -Exclusive importer and distributor of KIA vehicles, own dealerships in Tallinn, Riga and Vilnius (Kia, Opel, Peugeot, Cadillac) -Total leasable area ca 110,400 sq m, total book value of real estate ca 205 M (incl. undeveloped) GROUP STRUCTURE TKM Group Tallinna Kaubamaja Grupp AS Selver AS 100% Kulinaaria O 100% SIA Selver Latvia 100% Kaubamaja AS 100% O TKM Beauty 100% O TKM Beauty Eesti 100% Viking Security AS 100% TKM Auto O 100% Kia Auto AS 100% Viking Motors AS 100% Forum Auto SIA 100% UAB Kia Auto 100% AS TKM King 100% Tallinna Kaubamaja Kinnisvara AS 100% O Tartu Kaubamaja Kinnisvara 100% SIA TKM Latvija 100% Supervisory Board Audit Committee Internal Audit Internal Control Dept. HISTORY TKM Group Establishment of controlling bodies in TKM Group: 1996Internal control function in Kaubamaja 2000Internal control function in Selver 2007 Security Departments in Selver and Kaubamaja 2010 Group wide Audit Committee and Internal Audit Department 2012 Security company Topsec Turvateenused O 2014 Acquiring shares of Viking Security AS 2015Acquiring shares of Digisilm Videovalve O HISTORY TKM Group 2016 Clear and more transparent processes Significantly decreased the amount of outflow (stealing, writing off goods etc.) Identified several wrongdoings Few examples of identified wrongdoings: -payroll fraud -forging a death certificate to get a day off -schemes related to discounts and bonus-points -return of counterfeited goods -taking undeclared rewards from suppliers -buying goods from a self related company (conflict of interest situations) -violation of campaign rules HOW WE DO IT TKM Group Controlling bodies at TKM Group are: Audit committee Internal audit Internal control department HOW WE DO IT TKM Group Audit committee conducts supervision over the compliance with accounting principles the sufficiency and efficiency of external audit efforts the development and implementation of internal control system (incl. risk management) the lawfulness of the business of the company The Audit Committee is separately participating in ensuring the independence of external audit process and efforts, and in planning and evaluation of internal audit work. HOW WE DO IT TKM Group Internal audit: Independent and objective function on the Group level Provides risk based assurance by performing assurance and consultative services Evaluates internal controls, risk management and governance processes Reports continuously and directly to the Audit Committee HOW WE DO IT TKM Group Internal control department Risk assessment Control activities (posteriori control) Information and communication Surveillance, prevention, counselling HOW WE DO IT TKM Group Viking Security The best security solutions always a step ahead Video surveillance centre Professional manned security Very good cooperation with internal control department WE CONSIDER IMPORTANT TKM Group High awareness of the employees- continuous trainings and discussions, information sharing Transparency of the processes Clear and uniquely understandable procedures and requirements Separation of duties Four eye principle Rotation WE CONSIDER IMPORTANT TKM Group To ensure high awareness of the employees we are continuously conducting internal and external trainings about: corruption, court case studies, stock rules, internal rules and regulations Informing employees that private sector corruption (giving as well as accepting bribery) is criminal offense in Estonia: for private persons, the punishment is a monetary penalty or imprisonment up to 5 years; the punishment for legal persons is monetary penalty. As a stock/ listed company, we regularly inform our employees about relevant rules Detecting conflicts of interest as preventive measure: collecting declarations of economic interests WE CONSIDER IMPORTANT TKM Group Processes are described in internal regulations that are introduced to the new employees when they start to work and to existing employees continuously through in-house trainings Major changes in the assortment are done collectively and must be confirmed by purchasing managers. For certain products, a separate assortment committee is established Our goal is to cooperate with honest and ethical companies, therefore, we perform a background check from public sources to our new partners Strict rules apply to conducting procurements: -Approval of Supervisory Board is required for predefined monetary limit; -The offers are sent to independently administeredaddress to ensure equal terms for all participants and uncompromised decisions Transparent decisions and informing thereof to all relevant employees WE CONSIDER IMPORTANT TKM Group Internal regulation on accepting, declaring and registering goods with monetary value is enforced Covers goods with monetary value, incl. presents, discount services and travel offers, product samples, which has value of consumption Some companies exercise the so-called zero tolerance all goods have to be declared and are used and dividend collectively; some have enforced a monetary limit for obligation to declare such good If a good with monetary value is used for personal purposes, its estimated value is determined and taxes have to be paid (fringe benefit) The goods brought for degustation are consumed collectively and employees can rate the products We called on our partners during Christmas to respect our practice of not accepting gifts from our partners and to thank each other with kind words and continuous good co-operation WE CONSIDER IMPORTANT TKM Group We have set processes and rules, and we supervise, whether they are followed Job descriptions are detailed, including, in addition to work assignments, also rights, obligations and mandates The organisational structure, incl. subordination, is clear and transparent Wherever reasonable and efficient, we have implemented the four eyes principle to avoid individual decisions Employees are rotated in many departments from time to time It is considered to be challenging and interesting, fresh point of view Eliminates possible corruptive relationships formed through time END REMARKS TKM Group Tone at the top Promote ethical principles Good co-operation between internal control functions and internal audit Good co-operation with police Despite of all measures taken, unexpected/ unwelcomed issues can still happen and we have to learn and evolve constantly. Thank you Helen Tulve Tallinna Kaubamaja Grupp AS Phone: