Analyst Breakfast Meeting 29.9.2014

Analyst breakfast CFO

Jukka Erlund29.9.2014

Retail trade, trend development

70

75

80

85

90

95

100

105

110

115

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Turnover Volume index

29.9.2014Jukka Erlund2

Consumers’ expectations for own financesOwn finances in 12 months

0

2

4

6

8

10

12

14

16

1/0

0

7/0

0

1/0

1

7/0

1

1/0

2

7/0

2

1/0

3

7/0

3

1/0

4

7/0

4

1/0

5

7/0

5

1/0

6

7/0

6

1/0

7

7/0

7

1/0

8

7/0

8

1/0

9

7/0

9

1/1

0

7/1

0

1/1

1

7/1

1

1/1

2

7/1

2

1/1

3

7/1

3

1/1

4

7/1

4

Expectations for own finances

Expectation, 21st centuryaverage

Jukka Erlund3

Source: Statistics Finland

29.9.2014

Unemployment rate

Jukka Erlund4 29.9.2014


Retail sales of non-food products, excl. fuel(index of turnover, yoy)

-5

0

5

10

15

2020

13

M01

20

13

M02

20

13

M03

20

13

M04

20

13

M05

20

13

M06

20

13

M07

20

13

M08

20

13

M09

20

13

M10

20

13

M11

20

13

M12

20

14

M01

20

14

M02

20

14

M03

20

14

M04

20

14

M05

20

14

M06

20

14

M07

Estonia

Latvia

Lithuania

Finland

Sweden

Norway

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Source: Eurostat

%

29.9.2014

Jukka Erlund6

Q3/2013-Q2/2014 key figures

Net sales, € million 9,235

Net sales performance, % -2.7

Gross margin, % 13.8

Fixed costs*, € million 1,758

Operating profit*, € million 237

Profit before tax, € million 206

EPS*, € 1.75

Liquid assets, € million 461

Return on capital employed*, % 9.9

Equity ratio, % 52.3

Capital expenditure, € million 181

* excluding non-recurring items

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Operating margin excl. non-recurringitems by division

1-3/2012

4-6/2012

7-9/2012

10-12/2012

1-3/2013

4-6/2013

7-9/2013

10-12/2013

1-3/2014

4-6/2014

Food 3.4 3.5 4.6 4.0 4.6 4.6 5.1 4.2 4.6 4.8

Home and specialitygoods

-3.5 -0.2 0.2 6.6 -5.2 -3.1 -0.6 4.9 -7.3 -6.3

Building and home improvement

-1.4 1.9 2.4 -1.6 -3.0 2.6 3.4 -0.2 -1.8 3.6

Car and machinery

4.4 3.7 4.4 2.1 3.1 4.3 3.8 1.5 3.0 3.8

Total 1.0 2.4 3.2 2.9 0.9 2.9 3.5 2.8 0.9 2.9


Kesko Group’s sales 1-8/2014

8 Jukka Erlund 29.9.2014

August 2014 1.1.-31.08.2014

€ million Change, %

€ million Change, %

Food trade, total363.6 -3.9 2,870.2 -1.4

Home and speciality goods trade, total112.5 -8.5 820.7 -9.3

Building and home improvement trade, Finland 100.5 -6.7 838.3 0.1

Building and home improvement trade, other countries

138.2 -2.7 984.9 0.3 Building and home improvement trade, total

238.7 -4.4 1,823.2 0.2Car and machinery trade, total

78.1 -11.7 740.1 -1.2Common operations and eliminations

-14.2 -110.1Grand total 778.8 -5.6 6,143.9 -2.1

Finland, total 620.8 -5.7 4,993.0 -2.8 Other countries, total 158.0 -5.2 1,151.0 1.3 Grand total 778.8 -5.6 6,143.9 -2.1

3 mo rolling sales performance

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

Food trade

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-15%

-12%

-9%

-6%

-3%

0%

3%

6%

9%

Home and speciality goods trade

-12%

-8%

-4%

0%

4%

8%

12%

16%

Building and home improvement trade

-30%

-20%

-10%

0%

10%

20%

30%

40%

Car and machinery trade

29.9.2014

Strategic priorities

Jukka Erlund10

Strengthening

sales growth and

improving

profitability

E-commerce and

multi-channel service

models

Utilising Russia’s

business

opportunities

29.9.2014

Strong financial position and good dividend payment capacity

Retail trends• Growth of e-commerce and multi-

channel retailing in all product lines

• Consumers are increasingly product

conscious and demanding

• Importance of customer-oriented

services as a competitive tool

emphasized

• Slow economic growth and

consumers’ price awareness

• Increasing proportion of private

labels

• Customer loyalty programs to be

made interactive and provide more

individual rewards


Shopping via online 2004-2013

Jukka Erlund12


% from population of ages 16-74

Sometimes During 12 months During 3 months

29.9.2014

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Food trade

•Net sales €4,356 million, +0.0%

•Operating profit* €203.7 million (4.7%),

€+10.6 million

•Return on capital employed* 25.7%

*excl. non-recurring items

Total 916 stores

29.9.2014

Q3/2013-Q2/2014

Net sales, €M 1-6/2014

Change, %

Sales to K-foodstores

1,585 -3.4

Kespro 380 -2.8

K-ruoka Russia 51 ..

Total 2,112 -1.5

Operatingprofit *, €M

1-6/2014

1-6/2013

Total 99.4 99.0

Operating margin

4.7 4.6

Food trade

• Sales performance of Kesko’s food

trade in January-August -1.4%

- Two delivery days less than in the

previous year

- Zero price inflation

• Weakened purchasing power,

importance of price, private label

brands

• Renewal of fresh foods departments

• Responsibility

• Quick and easy shopping

• Online food retailing


Food trade in Russia

Jukka Erlund15

• Business was begun in St. Petersburg

- First store in 12/2012

- Net sales for 2013 €71million

- Today, a total of five K-ruoka

stores

• Net sales target for 2017 €500 million

and a positive business result

• ‘Best in Fresh’ concept

− Extensive fresh foods selections

• Purchases mainly from local markets,

Finnish products and Pirkka have a

prominent position

− Majority of products not affected

by sanctions

29.9.2014

Jukka Erlund


16

Operating profit *, €M

1-6/2014

1-6/2013

Total -41.0 -27.8

Operating margin -6.8 -4.2


Change, %

K-citymarket, home and speciality goods

267 -6.1

Anttila 143 -16.1

Intersport, Finland 78 -10.5

Intersport, Russia 8 -21.9

Indoor 85 -3.0

Musta Pörssi 10 -37.2

Kenkäkesko 10 -7.5

Total 600 -10.0

Total 368 stores

•Net sales €1,390 million, -10.2%

•Operating profit* €-21.5 million (-1.5%),

€-26.9 million

•Return on capital employed* -5.2%


Q3/2013-Q2/2014

29.9.2014


• Sales performance of the home and speciality

goods trade in January-August -9.3%

• Change in customer behaviour most notably

visible in the home and speciality goods trade

• Consumer demand has weakened and

competition tightened at both physical and

online stores

• Key objective is to achieve growth in online

services and e-commerce

• Improving Anttila’s profitability

- Concept renewal

- Improvement in cost efficiency and

network adjustment



Jukka Erlund18


Change, %

Rautakesko, Finland 625 +1.6

K-rauta, Sweden 100 -3.0

Byggmakker, Norway

220 -7.5

K-rauta, Estonia 36 +17.1

K-rauta, Latvia 25 +6.3

Senukai, Lithuania 137 +20.5

K-rauta, Russia 118 -8.1

OMA, Belarus 57 +14.4

Total 1,317 +1.2

Operating profit*, €M

1-6/2014

1-6/2013

Total 16.2 2.9

Operating margin 1.2 0.2

Total 339 stores

•Net sales €2,623 million, -3.5%


€+29.1 million



Q3/2013-Q2/2014

29.9.2014

Building permits granted and building starts, mil. m3, variable annual sum



* Preliminary data

Development of the number of transactions of dwellings in housing companies

0

10 000

20 000

30 000

40 000

50 000

60 000

70 000

80 000

2008 2009 2010 2011 2012 2013 1-6/2014

Whole country Greater Helsinki




• Sales performance of Kesko’s building and

home improvement trade in January-

August +0.2%

- Performance in local currencies +4.3%

• Especially in Norway and Russia, sales

affected by exchange rate movements

- Impact on NOK -8%

- Impact on RUB -14%

• Significant differences in country-specific

market developments

• Increasing e-commerce and online

services and strengthening B2B sales



Jukka Erlund22


Change, %

VV-Auto 410 +3.4

Konekesko 146 -5.7

Total 556 +0.9

Operating profit *, €M

1-6/2014

1-6/2013

Total 19.1 20.8

Operating margin 3.4 3.8

•Net sales €1,042 million, +0.4%


€-4.6 million



Q3/2013-Q2/2014

29.9.2014

Volkswagen 12.6%

Toyota 11.5%

Skoda 9.4%

Volvo 7.2%

Ford 7.0%

Audi 6.3%

Nissan 6.1%

Kia 5.7%

Mercedes-Benz 4.8%

Seat 1.7%

Others 27.7%

20.6%


Jukka Erlund23

• Market trend in new registrations of passenger cars in January-August+2.7%

• Sales performance of Kesko’s carand machinery trade in January-August -1.2%

- VV-Auto +4.1%- Konekesko -13.4%

• Market share of Volkswagen, Audi and Seat continued to strengthen

− Strong brands− Emphasis on after-sales

services

• Increasing number of onlineservices

• Challenging market situation in machinery trade

Market share (passenger cars),

new registrations 1-8/2014

29.9.2014

New registrations of passenger cars in Finland

Jukka Erlund


24 29.9.2014

In the home and speciality goods trade and the building and home improvement trade, the importance of e-commerce and online services has greatly increased and the improvement of competitiveness necessitates major renewal. In response to these requirements, Kesko is seeking synergies especially in the production of online services and the development of concepts. At the same time, the planned changes will form a basis to improve profitability and the organisational structure will be evaluated. Also the combination of the building and home improvement trade with the home and speciality goods trade, as well as the integration of the non-food part of the K-citymarket chain, currently part of the home and speciality goods division, into Kesko Food operations, are planned.

The objective is to offer customers multi-channel building, interior decoration and home and speciality goods stores and services. The aim of the planned integration of resources is to achieve better customer satisfaction as well as improved competitiveness and profitability. In Kesko’s food trade, the annual sales are around €4.4 billion, in the building and home improvement trade around €2.7 billion and in the home and speciality goods trade around €1.4 billion. As at 30 June 2014, the food trade employed 4,035 people, the building and home improvement trade 10,520 people and the home and speciality goods trade 8,111 people.The changes will be planned in more detail and the required cooperation negotiations will be conducted during the rest of 2014. The aim in Kesko Group’s reporting is that starting from 1 January 2015, the reportable segments would be the grocery trade, the home improvement and speciality goods trade, and the car and machinery trade. Kesko will publish comparatives according to the new reporting structure in the first quarter of 2015.President Terho Kalliokoski is responsible for the planning concerning the home improvement and speciality goods trade and President Jorma Rauhala is responsible for the planning concerning the grocery trade.

Kesko to seek more competitive multi-channel home and speciality goods trade


Thank you!

• [email protected]

• www.kesko.fi/investors

• Twitter.com/Kesko_IR


Analyst Breakfast Meeting 29.9.2014

Retail

Transcript of Analyst Breakfast Meeting 29.9.2014