Q3 engl v2 - Kesko...5 KESKO NET SALES BY COUNTRY 2014 Russia 4% Lithuania 4% Latvia 1% Finland 82%...
81
KESKO ROADSHOW CFO JUKKA ERLUND Q3/2015
Transcript of Q3 engl v2 - Kesko...5 KESKO NET SALES BY COUNTRY 2014 Russia 4% Lithuania 4% Latvia 1% Finland 82%...
KESKO
ROADSHOW
CFO JUKKA ERLUND
Q3/2015
KEY FIGURES 2014
2
Net sales
Operating profit*
Equity ratio
Liquid assets
Return on capital employed*
Personnel (FTE)
Shareholders
* excl. non-recurring items
€9,071m
€233m
54.5%
€598m
9.9%
19,976
39,869
• K-Group’s sales €11.3bn
• Over 1.3 million customer visits
every day
• Personnel 45,000
FOR SHOPPING TO BE FUN
3
K-GROUP
KESKO NET SALES
BY LINE OF BUSINESS
2014
4
Car trade 9%
Agricultural and machinery trade 7%
Sports trade 2%
Furniture trade 2%
Building and home
improvement trade 25%
Kespro 9%Grocery trade
Russia 1%
Grocery trade
Finland 44%
Grocery trade €4,754m
Home improvement and speciality goods trade €3,568m
Car trade €766m
5
KESKO NET SALES BY
COUNTRY 2014
Russia 4%
Lithuania 4%
Latvia 1%
Finland 82%
Belarus 1%
Estonia 1%
Sweden 2%
Norway 5%
Over 80% of net sales
comes from Finland
0
2000
4000
6000
8000
10000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Finland Other countries
NET SALES
6
+5.8%
+11.1%+9.3%
+3.3%
-11.9%+3.9%
+7.8% +2.4%-3.8%
€m
-2.6%
-100
0
100
200
300
400
500
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Operating profit excl. non-recurring items Non-recurring items
OPERATING PROFIT
7
€m
YEAR-ON-YEAR CHANGE IN FIXED COSTSEXCLUDING NON-RECURRING ITEMS
8
10.3%7.5% 8.0%
1.2%
-4.0%-4.5%-4.0%-2.0% -1.3%-1.0%-1.6%
-1.9%-4.4%
-10.6%-15%
-10%
-5%
0%
5%
10%
15%
RETURN ON CAPITAL EMPLOYEDMOVING 12 MO, EXCL. NON-RECURRING ITEMS
9
Group totalHome improvement
and speciality
goods trade
Grocery trade Car trade
%
20.2
4.9
29.8
10.9
0
5
10
15
20
25
30
STRONG FINANCIAL POSITION
10
Liquid assets €843m €461m
Interest bearing net debt €-359m €78m
Equity ratio 52.2% 52.3%
Q2/2015 Q2/2014
• Cash flow €403 million from real estate arrangement
• Strong cash position enables growth and good dividend yield
EARNINGS / SHARE AND DIVIDEND
11
2009 2010 2011 2012 2013 2014
2.0
0.0
1.0
0.5
1.5 1.40
1.651.50
1.68
1.20
1.47
1.20
1.84
1.30
1.78
0.90
0.71
Dividend
Earnings / share excl. non-recurring items % Effective dividend yield
3.9% 3.7% 4.6% 4.8% 5.2% 5.0%€
12
FINANCIAL TARGETS AND
CAPITAL EXPENDITURE
• Return on capital employed 14%
• Return on equity 12%
• Interest bearing net liabilities / EBITDA < 2.5
• Capital expenditure in 2015–2017 approximately €1 billion
• Excluding possible acquisitions
Dividend policy: Kesko Corporation distributes at least 50% of its earnings
per share excluding non-recurring items as dividends, taking however the
company's financial position and operating strategy into account.
13
ROCE AND ROEEXCL. NON-RECURRING ITEMS, %
9.6
12.4
14.7
10.2
7.4
14.013.1
9.09.8 9.9
14.0
10.510.0
14.6
8.1
3.8
8.7 8.8
6.97.7 7.6
12.0
0
2
4
6
8
10
12
14
16
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 target
ROCE ROE
13
14
0
50
100
150
200
250
300
350
400
450
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Capital expenditure in store sites Acquisitions Other capital expenditure
average
CAPITAL EXPENDITURE BACK TO NORMAL
LEVEL
€m
15
IMPROVING PROFITABILITY
• Profitable growth in three strategic areas
• Divestment of Anttila
• Improving cost efficiency
• Enhanced sourcing operations
• Efficient support functions and synergies in core processes
• The objective is to achieve cost savings of at least €50 million in
fixed costs by the end of 2016
OPERATING
ENVIRONMENT
16
RETAIL TRADE TRENDS IN OPERATING
COUNTRIES
17
Source: Eurostat, excl. motor vehicles and fuels
-2,0
0,0
2,0
4,0
6,0
8,0
10,0
% (
roll
ing
12
mo
)
Estonia
Lithuania
Sweden
Norway
Latvia
Finland
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
1/1
5
7/1
5
Expectations for own finances
Expectation, 21st centuryaverage
CONSUMER CONFIDENCE IN FINLAND
18
odotukset omasta taloudesta seuraavan 12 kk:n kuluttua
Lähde: TilastokeskusSource: Statistics Finland
19
BUSINESS ENVIRONMENT SLOWLY RECOVERING
Finland
• Decline of purchasing power will level off, but is not expected to improve significantly in the next few years
Skandinavia and the Baltic countries
• Steady economic growth is expected to continue
Belarus
• Consumers’ purchasing power is expected to strengthen, hyperinflation is expected to ease
20
OPPORTUNITIES AND RISKS IN RUSSIA
• The world’s richest country in terms of raw
material reserves
• Around 150 million consumers and 13
metropolitan cities
• As yet, political and economical risks are
greater than normal
• The economy has potential for strong growth
as soon as the political situation is normalised
21
RETAIL SALES IN RUSSIA, 2000-2014
Source: PMR Online
0
5000
10000
15000
20000
25000
30000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Non-food products Food, beverages and tobacco
RUB, bn
PORTFOLIO
STRATEGY
22
INVESTING IN STRATEGIC
GROWTH AREAS
• Grocery trade (Finland, Russia, Kespro)
• Building and home improvement trade (Europe)
• Car trade (Finland, the Baltic countries)
• Good profitability achieved in all strategic growth areas
• Investments in range of €300 million / year, excluding
potential acquisitions
• Also acquisitions are considered in all three strategic
growth areas
23
KEY STRATEGIC OBJECTIVES
24
• Turning the market share in the Finnish grocery trade around
• Increasing the building and home improvement trade in Europe
• Strengthening the market leadership in the Finnish car trade
• The best omni-channel customer experience in the trading sector
• One unified Kesko, harvesting synergies
25
MAXIMISING VALUE CREATION ALSO IN OTHER
BUSINESSES
• Important to have the best platform for Kesko’s small and medium sized businesses to succeed in tight competition
• Furniture trade (Finland and Estonia)
• Agricultural trade (Finland)
• Machinery trade (Finland and the Baltic countries)
• Shoe trade (Finland)
• Sports trade (Finland and Russia)
• All options which improve competitiveness of other businesses and retailer entrepreneurs are possible
25
26
REAL ESTATE ARRANGEMENT COMPLETED
• The joint real estate investment company established by Kesko, AMF
Pensionsförsäkring and Ilmarinen started operating in June
• The combined fair value was €652 million and the properties owned by
Kesko Group companies accounted for €485 million
• Cash flow to Kesko was €403 million
26
27
GROCERY TRADE
KESKO GROCERY TRADE KEY FIGURES IN 2014
28
Kespro 17%
Grocery trade
Finland 81%
Grocery trade
Russia 2%Net sales €4,754m
Operating profit €223m
Operating margin 4.7%
ROCE 22.2%
29
KESKO – QUALITY LEADER IN GROCERY
• High market share of 33% in Finland
• New customer focused strategy clearly differentiates
Kesko in the market
• already improving market share development
• Steady and strong operating profit and cash flow
• Successful business concept in Russia
• Kesko is the most responsible food retailer in the world
29
30
STRATEGIC OBJECTIVES OF THE GROCERY
TRADE
• Turning the market share in the Finnish grocery trade around
• Further improving quality and service level
• Investments to improve the K-supermarket and K-market store network
• Customer focused renewal of the K-citymarket concept
• Improving price competitiveness and price image
• Offering leading digital services in grocery
• Developed retailer business model
STRATEGY FOR RUSSIA
• Increasing operations and improving profitability
in the St. Petersburg area
• Active in acquiring store sites
• K-ruoka is the best food store in the St. Petersburg area
• Identifying new growth possibilities in the Moscow area
and possibly in other metropolitan cities in Russia
31
32
INCREASING THE
HORECA BUSINESS
• Organic growth through strong international cooperation
• Differentiating the selection with private label products
• Supporting the service counter offering of the K-food stores
• Searching for expansion alternatives in Finland and the
neighbouring areas
HOME IMPROVEMENT
AND SPECIALITY
GOODS TRADE
33
HOME IMPROVEMENT AND
SPECIALITY GOODS TRADE
2014, EXCL. ANTTILA
34
Net sales €3,245m
Operating profit €64m
Operating
margin2.0%
ROCE 7.4%
Sports trade€186m
Shoe trade €20
Furniture trade€176m
Agricultural trade€372m
Others€20m
Building and home improvement trade Belarus €125m
Building and home improvement trade
Russia €250m
Building and homeimprovement tradeFinland €785m
Building and homeimprovement tradeScandinavia €625m
Building and home improvement trade Baltics €443m
KonekeskoBaltics €96m
KonekeskoFinland €161m
35
PROFITABLE GROWTH IN BUILDING AND HOME
IMPROVEMENT TRADE
• Market share in Finland over 40%
• Market #1 or #2 in Finland,
Norway, Estonia, Latvia, Lithuania
and Belarus
• Eight consecutive quarters of
improving profitability
• Strong position in B-2-B trade –
#1 in Finland, Norway and Estonia
35
0
10
20
30
40
50
60
70
2012 2013 2014
Operating profit, € million
36
300 STORES IN EIGHT
COUNTRIESFinland€1,190m138 stores
Sweden€197m
20 stores
Norway€671m
82 stores
Russia€250m
13 stores
Belarus€125m
11 stores
Lithuania€317m
19 stores
Latvia€53m
8 stores
Estonia78 M€
8 stores
TOTAL RETAIL SALES
€2,881m
37
STRATEGIC OBJECTIVES OF THE BUILDING AND
HOME IMPROVEMENT TRADE
37
• Kesko #5 in Europe – strong potential for further growth organically or
through acquisitions
• Providing excellent services from the same store network to the three
different customer segments
• A common core for all countries to ensure efficient operations
• Offering the best omni-channel digital services
38
CAR TRADE
38
CAR TRADE 2014
39
Net sales €766m
Operating profit €29m
Operating margin 3.8%
ROCE 30.1%
Volkswagen 12.3%
Toyota 11.9%
Skoda 9.2%
Volvo 7.3%
Ford 7.0%
Nissan 6.1%
Audi 6.0%
Kia 5.7%
Seat 1.7%
Others 32.8%
Market Share in 2014
40
THE CAR TRADE IS ONE OF KESKO’S THREE
STRATEGIC GROWTH AREAS
• VV-Auto’s market share in the Finnish passenger car and van trade
has risen from 15% to 21% within ten years
• Throughout recent years, Volkswagen has been the best selling car
brand in Finland and Audi has been number one in its competitive
segment
• VV-Auto’s retail net sales have quadrupled within ten years from 100
million to 400 million
• VV-Auto’s profitability has remained at a good level despite the
difficult market situation
40
4141
STRATEGIC OBJECTIVES OF THE CAR
TRADE
• Co-operation with Volkswagen AG: Volkswagen aims to be the biggest car
manufacturer by 2018. Volkswagen is the biggest R&D investor in the world
• VV-Auto will focus on Volkswagen Group's car brands
• Sales growth and growing market share in Finland and in the Baltics
• Increasing retail sales by investing in new sales and service channels
• Developing customer loyalty with new finance and service models
• The best omnichannel customer experience in car trade
42
THE WORLD’S
MOST
SUSTAINABLE
RETAIL OPERATOR
42
KESKO IS THE MOST RESPONSIBLE FOOD AND
STAPLES RETAILER IN THE WORLD
43
In ’The Global 100 Most Sustainable Corporations in the World’ list since 2005
In the Sustainability Yearbook 2015, Kesko was classified into the bronze class
in the Food & Drug Retailers sector
Included in the FTSE4Good index focusing on responsible investment since
2009
Included in the Dow Jones sustainability indexes DJSI World and DJSI Europe
2003-2014
At the top of the Nordic Carbon Disclosure Leadership climate index in 2011-
2014
45
BASIC INFORMATION
45
• Established in 1940
• Listed on the Helsinki Stock Exchange (Nasdaq Helsinki) in 1960
• 40,000 shareholders
– 28% of all shares owned by non-Finnish
– 40% of B-shares owned by non-Finnish
• Market capitalisation €3.0 billion (June 30, 2015)
• Share series: A and B – voting rights 10:1
Number of shares
A shares31.7%
B shares68.3%
Voting rights
B shares
18%A shares
82%
46
SHAREHOLDERS
46
The largest registered shareholders
At 6/2015 by number of shares
%
1 K-retailers´ Association 3,793,012 3.79
2 Vähittäiskaupan Takaus Oy 3,491,771 3.49
3 Kruunuvuoren Satama Oy 3,438,885 3.44
4Ilmarinen Mutual Pension Insurance Company 2,050,632 2.05
5 Valluga-sijoitus Oy 1,340,439 1.34
6Varma Mutual Pension Insurance Company 1,130,986 1.13
7Foundation for Vocational Training in the Retail Trade 1,080,643 1.08
8 Oy The English Tearoom Ab 1,000,000 1.00
9 Elo Pension Company 896,968 0.90
10 Kesko Oyj 876,054 0.88
%
47
REAL ESTATE IN 2014
47
Owned properties
CountryArea,
1,000 m2
Finland 770
Other Nordic countries 117
Baltic countries and Belarus 113
Russia 164
Total
Carrying amount
1,164
€1,430 M
Leased properties total
1,000 m2 2,958
Classification
Strategic properties 53%
Standard properties 43%
Development properties 4%
Realisation properties 0%
48
OPERATING MARGIN EXCL. NON-RECURRING
ITEMS BY DIVISION
48
1-3/2014
4-6/2014
7-9/2014
10-12/2014
1-3/2015
4-6/2015
Grocery 4.1 4.6 5.1 4.9 3.2 3.8
Home improvement and speciality goods
-4.1 0.6 2.1 0.9 -1.6 3.8
Car and machinery 3.0 3.8 3.6 0.8 2.7 4.0
Total 0.9 2.9 3.6 2.7 1.3 3.4
TREND IN FOREIGN OWNERSHIP, % (31.12.)
49
0
10
20
30
40
50
60
2007 2008 2009 2010 2011 2012 2013 2014Q2/2015
All shares B share
%
UNEMPLOYMENT RATE
50
Source: Statistics Finland
RETAIL TRADE, TREND DEVELOPMENT
51
60
70
80
90
100
110
120
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Turnover Volume index
DAILY CONSUMER GOODS TRADE, TREND
DEVELOPMENT
52
60
70
80
90
100
110
120
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Turnover Volume index
GRANTED PERMITS AND STARTED BUILDINGS,
MIL. M3, MOVING ANNUAL TOTAL
53
Source: Statistics Finland
*) The data is based on estimation
NEW REGISTRATIONS OF PASSENGER CARS IN
FINLAND
54
Source: Statistics Finland
5555
INTERIM REPORT
JANUARY-JUNE
2015
KEY EVENTS IN Q2
• K-food stores’ market share is estimated to have increased
• Profitability of the home improvement and speciality goods trade continued to
improve
• Real estate arrangement was completed as planned,
positive cash flow effect €403 million
• Liquid assets rose to €843 million, Kesko has a very strong financial position
• New strategy was published
56
FINANCIAL PERFORMANCE
57
Q2/2015
Q2/2014
H1/2015
H1/2014
Net sales, €m 2,227 2,371 4,310 4,499
Operating profit, €m 176 69 72 56
Operating profit excl. non-recurring
items, €m76 68 103 87
Operating margin excl. non-recurring
items, %3.4 2.9 2.4 1.9
Net profit for the period, €m 153 54 42 42
Net profit for the period excl. non-
recurring items, €m58 52 75 66
NET SALES IN LOCAL CURRENCIES
EXCL. ANTTILA IN Q2 -2.2% AND H1 -0.8%TOTAL CHANGE FOR Q2 -6.0% AND FOR H1 -4.2%
58
5,000
4,000
3,000
2,000
1,000
0
H1/2015
4,310
H1/2014
4,499
Q2/2015
2,227
Q2/2014
2,371
€m
Reported net sales, €, incl. Anttila
Q2 NET SALES BY DIVISION
€1,149m
€797m
€277m
Grocery trade
Home improvementand specialitygoods trade
Car and machinerytrade
52%
36%
12%
59
OPERATING PROFIT EXCL. NON-RECURRING
ITEMS IMPROVED IN Q2 AND H1
60
0
20
40
60
80
100
120
H1/2015
102.9
H1/2014
86.7
Q2/2015
76.4
Q2/2014
67.6
€m
STEADY PROFIT PERFORMANCE CONTINUESOPERATING PROFIT EXCL. NON-RECURRING ITEMS
61
0
20
40
60
80
100
Q2/2015
76.4
Q1/2015
26.5
Q4/2014
61.9
Q3/2014
84.0
Q2/2014
67.6
Q1/2014
19.1
Q4/2013
66.8
Q3/2013
83.6
Q2/2013
69.8
Q1/2013
18.6
€m
RETURN ON CAPITAL EMPLOYED INCREASESEXCL. NON-RECURRING ITEMS, ROLLING 12 MO
62
0
2
4
6
8
10
12
Q2/2015
10.9
Q1/2015
10.2
Q4/2014
9.9
Q3/2014
10.0
Q2/2014
9.9
Q1/2014
9.9
Q4/2013
9.8
Q3/2013
9.7
Q2/2013
9.3
Q1/2013
8.8
%
STRONG CASH FLOW ALSO WITHOUT
REAL ESTATE ARRANGEMENT
63
-200
-100
0
100
200
300
400
500
600
Q2/2015
541.1
Q1/2015
-139.3
Q4/2014
98.6
Q3/2014
82.4
Q2/2014
79.9
Q1/2014
-138.5
Q4/2013
75.8
Q3/2013
80.3
Q2/2013
206.1
Q1/2013
-100.5
€m
Cash flow after capital expenditure
FINANCIAL POSITION
64
30.6.2015 30.6.2014
Equity ratio, % 52.2 52.3
Liquid assets, €m 843 461
Interest-bearing net liabilities, €m -359 78
Capital expenditure, €m 110 99
Return on capital employed*, % 10.9 9.9
Return on equity*, % 8.4 8.3
* Excl. non-recurring items, rolling 12 mo
GROCERY TRADE
65
NET SALES FOR Q2 AND H1
66
2,500
2,000
1,500
1,000
500
0
2,252
H1/2014
2,304
Q2/2015
1,149
Q2/2014
1,202
H1/2015
€m
OPERATING PROFIT EXCL. NON-RECURRING
ITEMS FOR Q2 AND H1
67
0
20
40
60
80
100
120
H1/2015
78.2
H1/2014
100.7
Q2/2015
43.3
Q2/2014
55.3
€m
GROCERY TRADE IN Q2
• K-food stores’ market share in
Finland is estimated to have
increased
• Profitability improved to 3.8% from
the first months of the year
(Q1: 3.2%)
• Sales in Russia increased by
36% in roubles
• Kespro’s market share increased
and profitability remained at a good
level
68
MARKET SHARE IS ESTIMATED TO HAVE
INCREASED SINCE APRIL, NO SIGNIFICANT
CHANGE IN THE LONG TERM
33.4 33.9 33.7 34.2 35.0 35.3 34.7 34.0 33.1
0
10
20
30
40
2006 2007 2008 2009 2010 2011 2012 2013 2014
69
%
K-GROUP’S PERFORMANCE IN THE GROCERY
TRADE HAS BEEN GOOD
• Exceptional operating environment,
consumers’ purchasing power has declined
for three years
• Due to intense competition and consumers’
decreased purchasing power, food prices
have fallen by 1% in 2015
• K-Group has succeeded by investing in
both price and quality
• As the economic cycle turns, the K-Group
will have even better preconditions for
success
70
HOME IMPROVEMENT
AND SPECIALITY
GOODS TRADE
71
NET SALES IN LOCAL CURRENCIES
EXCL. ANTTILA IN Q2 +0.1% AND H1 +1.0%TOTAL CHANGE FOR Q2 -10.4% AND FOR H1 -8.0%
72
797890
2,000
1,500
1,000
500
0
H1/2015
1,519
H1/2014
1,651
Q2/2015Q2/2014
€m
Reported net sales, €, incl. Anttila
OPERATING PROFIT EXCL. NON-RECURRING
ITEMS IMPROVED CLEARLY IN Q2 AND H1
73
-40
-20
0
20
40
H1/2015
18.7
H1/2014
-25.6
Q2/2015
30.1
Q2/2014
5.8
€m
HOME IMPROVEMENT AND
SPECIALITY GOODS TRADE
IN Q2
• Building and home improvement trade
• Market share is estimated to have
increased in Finland, Sweden, the
Baltics and Russia
• Operating profit has improved for nine
consecutive quarters
• Best profit improvement was seen in
Sweden
• In the speciality goods trade, K-maatalous
improved its result in a difficult operating
environment
74
CAR AND
MACHINERY TRADE
75
NET SALES FOR Q2 AND H1
76
538556
277283
0
200
400
600
Q2/2015Q2/2014 H1/2014 H1/2015
€m
OPERATING PROFIT EXCL. NON-RECURRING
ITEMS FOR Q2 AND H1
77
0
10
20
H1/2015
17.9
H1/2014
19.1
Q2/2015
11.0
Q2/2014
10.9
€m
CAR AND MACHINERY TRADE
IN Q2
• Profitability remained at a good level
despite the challenging operating
environment
• Uncertainty related to car taxation
has been removed
• Volkswagen continues as the market
leader
• Net sales growth of the machinery
trade 3.4%, profitability improved
• Yamarin boats had good sales
performance
78
FUTURE OUTLOOK
79
Estimates of the future outlook for Kesko Group's net sales and operating profit
excluding non-recurring items are given for the 12 months following the reporting
period (7/2015-6/2016) in comparison with the 12 months preceding the
reporting period (7/2014-6/2015).
The general economic situation and the expected trend in consumer demand
vary in Kesko’s different operating countries. In Finland, the trading sector’s
performance is expected to remain weak and the tough competitive situation is
expected to continue. In Sweden, Norway and the Baltic countries, the growth in
demand in the trading sector is expected to continue. In Russia, the economic
situation and consumers’ purchasing power are estimated to remain weak.
Kesko Group's net sales for the next 12 months are expected to be lower than
the level of the preceding 12 months and the operating profit excluding non-
recurring items for the next 12 months is expected to exceed the level of the
preceding 12 months.
THE TRAIN KEEPS RUNNING…
• Loss-making department store trade Anttila’s divestment
• Profitability problems in the building and home improvement trade in Sweden
and Norway clear profitability improvement
• Real estate arrangement incomplete real estate arrangement completed
• Declining food trade market share market share is estimated to have
increased
• Strategy new focused strategy
80
