Kesko Q1 2020: Record Q1 result, impact of coronavirus epidemic seen from mid-March onwards

FINANCIAL PERFORMANCE IN BRIEF, CONTINUING OPERATIONS:                                         

  • Net sales for the Group’s continuing operations in January-March totalled €2,540.4 million (€2,400.8 million), an increase of 4.0% in comparable terms, reported net sales up by 5.8%
  • Comparable operating profit totalled €65.1 million (€57.5 million)
  • Operating profit totalled €65.9 million (€51.6 million)
  • Cash flow from operating activities totalled €135.7 million, and it grew operatively by €27.0 million
  • Comparable return on capital employed was 9.6% (9.5%) (rolling 12 months)
  • Comparable profit before tax totalled €32.7 million (€34.6 million)
  • Comparable earnings per share were €0.33 (€0.33)

KEY PERFORMANCE INDICATORS

1-3/2020 1-3/2019 1-12/2019
Continuing operations
Net sales, € million 2,540.4 2,400.8 10,720.3
Operating profit, comparable, € million 65.1 57.5 461.6
Operating margin, comparable 2.6 2.4 4.3
Operating profit, € million 65.9 51.6 447.8
Profit before tax, comparable, € million 32.7 34.6 370.7
Profit before tax, € million 33.1 28.8 403.3
Cash flow from operating activities, € million 135.7 157.0 893.1
Capital expenditure, € million 99.0 97.3 686.1
Earnings per share, €, basic and diluted
Continuing operations 0.35 0.28 3.31
Discontinued operations - 0.00 0.12
Group, total 0.35 0.27 3.42
Earnings per share, comparable, €, basic
Continuing operations 0.33 0.33 2.97
1-3/2020 1-3/2019 1-12/2019
Continuing operations
Return on capital employed, comparable, %, rolling 12 months 9.6 9.5 9.6
Group
Return on equity, comparable, %, rolling 12 months 15.0 12.3 15.1
31.3.2020 31.3.2019 31.12.2019
Group
Equity ratio, % 30.0 31.8 31.2
Equity per share, € 20.09 19.79 20.44

OUTLOOK AND GUIDANCE FOR 2020

Outlook for Kesko Group's continuing operations is given for year 2020, in comparison with year 2019. 

Due to the COVID-19 pandemic and global economic uncertainty, the company estimates that its comparable operating profit for continuing operations will amount to €400450 million in 2020, thus falling somewhat short of the 2019 comparable operating profit of €461.6 million. The company does not issue a guidance regarding net sales.

Kesko estimates that consumer demand for food will remain good despite the exceptional circumstances brought on by the COVID-19 pandemic. Sales are expected to grow in grocery stores and especially in the online sales of groceries. In the foodservice business and home and speciality goods trade, sales are expected to decrease. Under the current circumstances, it is difficult to provide assessments on sales development in the building and technical trade. A weakening in the overall economy is expected to be reflected in sales to B2B customers. In addition, restrictions on store opening hours affect country-specific sales development in the building and technical trade division. In the car trade, both new and used car sales are expected to decrease compared to 2019.

Due to the weakened economic situation, Kesko has initiated extensive cost adjustment measures to ensure profitability and secure cash flow. The measures include temporary personnel lay-offs and extensive adjustment of other costs.

PRESIDENT AND CEO MIKKO HELANDER:

Despite the exceptional circumstances, Kesko recorded its all-time-best first-quarter comparable operating result. Our net sales increased by 5.8%, totalling €2,540.4 million. Our comparable operating profit totalled €65.1 million, representing an increase of €7.6 million.

At the start of the quarter, sales were strong in all divisions. In the grocery trade, net sales grew by 4.6%, and comparable operating profit rose to €60.4 million. Growth continued in the building and technical trade, both in the building and home improvement trade and Onninen’s technical wholesale. Net sales increased by 6.8% and comparable operating profit rose to €9.3 million. In the car trade, net sales increased by 11.0% due to acquisitions, but decreased by 4.6% in comparable terms. The comparable operating profit for the car trade decreased to €6.1 million.

The COVID-19 epidemic began to affect our operations significantly from mid-March onwards.

In the grocery trade division, the impacts vary. Thanks to our retailer business model, Kesko has been able to respond to the situation in an agile manner. Growth in food retail has been strong both in K-food stores and the K-Ruoka.fi online service. K-food store grocery sales grew in all chains in March with a total rate of 9.8%. We have been able to quickly increase capacity for online grocery sales, and K-ruoka.fi has become the biggest online grocery store in Finland. At their highest, our online grocery sales have grown at a pace of over 800% a week. The closures of restaurants, schools and workplaces have pressed Kespro’s sales to approximately 50% of normal levels in recent weeks. 

So far, the epidemic has impacted sales in the building and technical trade division only slightly. Development in B2C sales in the building and home improvement trade has been good in Finland and Sweden. Sales levels have also stayed good in B2B trade. Onninen’s sales development has been very good so far. However, sales in the Baltics have decreased, primarily due to restrictions in Lithuania causing stores to stay closed. In the car trade, demand has weakened significantly. Sales of new and used cars are down, while servicing and spare part sales have remained at almost normal levels.

Although there are ongoing efforts worldwide to stop the epidemic, we must prepare for the possibility that these exceptional circumstances will last for some time. We have taken necessary actions in all our functions at Kesko. Our key priority is to ensure the safety of our customers and personnel. We have also focused on securing our purchasing and supply chains. To secure our cash flow, we have adjusted costs with e.g. temporary personnel lay-offs, we will adjust cash flow from investing activities below €200 million in 2020, and we have increased the availability of financing. We have also paid special attention to securing trade receivables and to ensuring financing.

During the reporting period, Kesko initiated a strategic review concerning the business operations in the Baltics and Belarus.   

Kesko’s financial position is strong. The Annual General Meeting originally convened for 30 March 2020 will be held today, 28 April 2020, at 10.30 am. In line with the Board of Directors’ original proposal, the proposed dividend is €2.52 per share, to be paid in two instalments. The Board also repeats its proposal for a share split in which three new shares are issued to shareholders for each current one held.

Due to the COVID-19 epidemic and global economic uncertainty, we estimate that Kesko’s comparable operating profit for continuing operations will amount to €400–450 million in 2020, thus falling somewhat short of the 2019 comparable operating profit of €461.6 million. Under these exceptional circumstances, we can be happy with this profit level.

IMPORTANT EVENTS

PROFIT WARNING ISSUED ON 18 MARCH 2020 DUE TO COVID-19 AND GLOBAL ECONOMIC UNCERTAINTY

Kesko Corporation issued a profit warning on 18 March 2020. Due to COVID-19 and global economic uncertainty, Kesko cancelled its previous outlook statement regarding the net sales for continuing operations and changed the outlook statement regarding the comparable operating profit for continuing operations, both issued in connection with the financial statements release on 5 February 2020. In the profit warning release, the company estimated that the comparable operating profit for continuing operations in 2020 will amount to €400-450 million, thus falling somewhat short of the record comparable operating profit for 2019. The company does not issue a guidance regarding net sales.

CANCELLATION OF THE ANNUAL GENERAL MEETING CONVENED FOR 30 MARCH 2020 AND RECONVENING A NEW MEETING

On 19 March 2020, Kesko announced it would cancel the Annual General Meeting convened for 30 March 2020 due to the coronavirus epidemic.

After the end of the reporting period on 7 April 2020, the company reconvened its Annual General Meeting for 28 April 2020. The company has employed various precautionary measures to be able to hold the meeting and to ensure the safety of the people who must be present at the meeting venue. Kesko will strive to keep the meeting and the presentations as short as possible, and only necessary matters included on the agenda of the Notice of General Meeting shall be discussed. The Board of Directors’ proposals to the 28 April 2020 Annual General Meeting match those published on 5 February 2020 for the cancelled 30 March 2020 meeting, apart from the record and pay dates for the first proposed dividend instalment, the record date and planned date of book-entry account registrations for the share issue without payment (share split), and the proposal concerning charitable donations. 

FINANCIAL PERFORMANCE OF CONTINUING OPERATIONS

Net sales and profit for January-March 2020

1-3/2020 Net sales,
€ million
Change, % Change, comparable, % Operating profit, comparable,
€ million
Change,
€ million
Grocery trade 1,321.5 +4.6 +4.6 60.4 +3.6
Building and technical trade excl. speciality goods trade 934.9 +7.8 +6.1 9.3 +5.4
Speciality goods trade 66.3 -5.4 -2.4 -2.3 -1.6
Building and technical trade, total 1,001.1 +6.8 +5.5 7.0 +3.8
Car trade 222.6 +11.0 -4.6 6.1 -1.6
Common functions and eliminations -4.8 (..) (..) -8.4 +1.9
Total 2,540.4 +5.8 +4.0 65.1 +7.6

 (..) Change over 100%

 

Despite the COVID-19 epidemic and related restrictions, the net sales for the Group’s continuing operations increased by 5.8%. Kesko’s businesses and operating countries have been affected by the exceptional circumstances in different ways. Net sales grew in the grocery trade and the building and technical trade, but decreased in the car trade. The Group's net sales increased by 5.2% in Finland, or by 3.7% in comparable terms. In other countries, net sales increased by 8.3%, or by 5.2% in comparable terms. International operations accounted for 20.3% (19.9%) of the Group's net sales. The comparable change % has been calculated in local currencies and excluding the impact of acquisitions and divestments completed in 2019. 

In the grocery trade division, net sales grew in all food store chains. However, net sales decreased in
K-Citymarket’s home and speciality goods trade and Kespro’s restaurant and institutional kitchen trade.

Net sales for the building and technical trade grew in comparable terms in Finland, Sweden, Poland, the Baltics and Belarus. Growth was especially strong in Onninen’s technical wholesale. Net sales were also boosted by the acquisition of K-Bygg in Sweden in 2019. Net sales growth in euro terms was diminished by the weakening of the Swedish krona and the Norwegian krone against the euro.

Reported net sales for the car trade increased due to the acquisitions carried out, but in comparable terms, net sales decreased.

The comparable operating profit for the Group's continuing operations grew by €7.6 million in January-March. In the grocery trade, profitability was improved by the good sales development of the K-food store chains. A decrease in net sales in K-Citymarket’s home and speciality goods trade and Kespro’s restaurant and institutional kitchen trade had a weakening impact on the comparable operating profit towards the end of the reporting period. In the building and technical trade division, the comparable operating profit for building and home improvement trade grew in Finland and Sweden. In Norway, the comparable operating profit was at the same level as the year before. In the Baltic States and Belarus, the comparable operating profit fell short of the level of the comparison period. The acquisitions carried out in Norway and Sweden in 2018 and 2019 accounted for €-3.0 million (€-3.0 million) of the comparable operating profit. Acquisitions have increased seasonal fluctuations in profit. Onninen’s comparable operating profit clearly strengthened and grew in Finland, Sweden and Norway. In the Baltics and Poland, Onninen’s comparable operating profit was at level of the previous year. The comparable operating profit for the car trade was down due to weakened demand towards the end of the reporting period.

Items affecting comparability, € million

1-3/2020 1-3/2019 1-12/2019
Operating profit, comparable 65.1 57.5 461.6
Items affecting comparability
+gains on disposal +6.4 +0.0 +4.6
-losses on disposal -0.0 -0.0 -0.9
+/-structural arrangements -5.5 -5.8 -17.5
Items affecting comparability, total +0.8 -5.8 -13.8
Operating profit 65.9 51.6 447.8
 

The most significant items affecting comparability were the €6.4 million sales gain from the divestment of machinery trade operations in the Baltics in the building and technical trade division, completed on 31 March 2020, and the €5.2 million costs related to corporate restructuring in common functions. The most significant items affecting comparability the year before were the €5.5 million costs related to the divestment of Onninen’s HEPAC contractor business in Sweden in the building and technical trade.

K Group's (Kesko and chain stores) retail and B2B sales (VAT 0%) for January-March totalled €3,064.7 million, representing a growth of 3.8% compared to the previous year (pro forma). The K-Plussa customer loyalty programme added 45,216 new households in January-March 2020. The number of K-Plussa households stood at 2.4 million at the end of March and there were 3.5 million K-Plussa cardholders in total.

NET FINANCE COSTS, INCOME TAX AND EARNINGS PER SHARE

1-3/2020

1-3/2019 1-12/2019
Continuing operations
Net finance costs -32.3 -23.7 -91.4
Interests on lease liabilities -23.1 -24.6 -95.4
Profit before tax, comparable, € million 32.7 34.6 370.7
Profit before tax, € million 33.1 28.8 403.3
Income tax, € million -6.4 -6.1 -69.6
Earnings per share, comparable, € 0.33 0.33 2.97
Earnings per share, € 0.35 0.28 3.31
Group
Equity per share, € 20.09 19.79 20.44
 

Net finance costs for the Group’s continuing operations were up in January-March due to exchange differences, change in the fair value of interest rate derivatives, and valuation losses on investments of liquid assets. Of the exchange differences, €-4.6 million was due to exchange rate losses on euro-denominated loan financing at the Belarussian subsidiary OMA in the building and technical trade division, and €-1.4 million due to the weakening of the Norwegian krone, Swedish krona and Polish zloty. The share of result of associates and joint ventures amounted to €-0.6 million (€0.8 million), or €-0.2 million (€0.8 million) in comparable terms.

The Group’s effective tax rate decreased to 19.5% (21.2%).

The comparable profit before tax for the Group’s continuing operations decreased in January-March following the increase in net finance costs and decrease in the share of result of associates and joint ventures. Earnings per share for the Group’s continuing operations grew year-on-year, and the comparable earnings per share matched the level of the previous year.

Cash flow and financial position

€ million

1-3/2020 1-3/2019 1-12/2019
Continuing operations
Cash flow from operating activities 135.7 157.0 893.1
Cash flow from investing activities -35.1 -86.0 -620.3
Group
Cash flow from financing activities -20.6 -80.8 -295.4
Liquid assets 265.4 237.6 169.0
Interest-bearing liabilities 3,085.2 2,699.3 3,037.3
Lease liabilities 2,337.4 2,287.1 2,422.2
Interest-bearing net debt excl. lease liabilities 482.4 174.6 446.1
Interest-bearing net debt/EBITDA, excluding the impact of IFRS 16, rolling 12 months 0.9 0.4 0.9
Gearing, % 134.9 119.2 134.0
Equity ratio, % 30.0 31.8 31.2
 

In January-March, the cash flow from operating activities for the Group’s continuing operations totalled €135.7 million (€157.0 million). The cash flow from operating activities for continuing operations in the comparison period included a €48.3 million return of surplus assets paid by Kesko Pension Fund, meaning that operatively, cash flow from operating activities increased by €27.0 million. The cash flow from operating activities for discontinued operations in the comparison period totalled €4.8 million. The Group’s cash flow from operating activities totalled €135.7 million (€161.7 million).

The cash flow from investing activities for the Group’s continuing operations totalled €-35.1 million (€-86.0 million), improved by the positive cash flow of €19.6 million derived from the divestment of the Baltic machinery trade operations. The acquisition of the store property of K-Citymarket in Järvenpää, previously leased by Kesko, is reported under cash flow from financing activities.

Kesko Group’s liquidity remained strong in the first quarter under the exceptional circumstances brought on by the COVID-19 epidemic affecting business and the financial markets. Kesko Group initiated significant adjustment measures in all its operating countries to secure cash flow. Under the exceptional circumstances, Kesko is forcefully adjusting costs and capital expenditure and effectively managing the credit risk associated with amounts due from customers.

CAPITAL EXPENDITURE

1-3/2020

1-3/2019 1-12/2019
Capital expenditure, continuing operations 99.0 97.3 686.1
Store sites 63.2 32.2 227.7
Acquisitions - 37.7 290.5
IT 5.6 6.6 33.9
Other investments 30.2 20.7 134.0
 

Capital expenditure in store sites increased by €29.7 million in the grocery trade. The increase was partly due to the acquisition of the store property of K-Citymarket in Järvenpää. Other investments increased due to cars obtained for the leasing fleet and rental cars sold with repurchase commitments in the car trade,
€4.4 million.

Personnel

1-3/2020

1-3/2019 1-12/2019
Average number of personnel converted into full-time employees, continuing operations 20,936 19,878 20,846
Personnel at the end of the reporting period 31.3. 31.3.2020 31.3.2019 31.12.2019
Finland 12,449 11,845 12,657
Other countries 11,892 11,681 12,511
Total 24,341 23,526 25,168
 

The growth in personnel numbers in continuing operations is attributable to acquisitions carried out in Finland and Sweden. In mid-March, Kesko initiated adjustment measures due to a reduction in workloads brought on by COVID-19 epidemic. In total, some 2,500 Kesko employees working in business operations and support functions are estimated to be affected by the various adjustment measures. Of those, temporary lay-off measures will affect some 2,000 employees in Finland. Adjustment measures are also taking place in Kesko’s operations in Sweden, Norway, Poland and the Baltic countries.

SEGMENTS

SEASONAL NATURE OF OPERATIONS

The Group's operating activities are affected by seasonal fluctuations. The net sales and the operating profits of the reportable segments are not earned evenly throughout the year. Instead, they vary by quarter depending on the characteristics of each segment. In terms of the level of operating profit, the second and third quarter are the strongest, whereas the impact of the first quarter on the full year profit is smallest. The acquisitions of Suomen Lähikauppa, Onninen and the Norwegian Skattum Handel AS, Gipling AS and the DIY retail business of Sørbø and the Swedish Fresks Group have increased seasonal fluctuations between quarters. The operating profit levels of these companies are at their lowest in the first quarter.

GROCERY TRADE

January-March 2020

1-3/2020

1-3/2019 1-12/2019
Net sales, € million 1,321.5 1,263.9 5,531.2
Operating profit, comparable, € million  60.4 56.8 327.9
Operating margin, comparable 4.6 4.5 5.9
Return on capital employed, comparable, %, rolling 12 months 14.6 13.2 14.5
Capital expenditure, € million 62.7 28.6 180.8
Personnel, average 5,948 5,839 6,063

Net sales, € million

1-3/2020 1-3/2019 Change, % Change, comparable, % 1-12/2019
Sales to K-food stores
K-Citymarket, food 293.0 265.1 +10.5 +10.5 1,150.4
K-Supermarket 357.5 327.5 +9.2 +9.2 1,417.0
K-Market 320.3 299.0 +7.1 +7.1 1,336.3
K-Citymarket, non-food  122.7 127.8 -4.0 -4.0 584.6
Kespro 208.3 215.7 -3.4 -3.4 944.9
Others 19.7 28.8 -31.6 -31.6 98.0
Total 1,321.5 1,263.9 +4.6 +4.6 5,531.2
 

In the grocery trade, net sales grew in January-March in all food store chains. However, net sales decreased in
K-Citymarket’s home and speciality goods trade and Kespro’s restaurant and institutional kitchen trade.

The total grocery market in Finland (incl. VAT) is estimated to have grown by approximately 7.6% in January-March (Kesko’s own estimate) and retail prices are estimated to have risen by some 1.0% (incl. VAT, Kesko’s own estimate based on the price development estimate of the Finnish Grocery Trade Association). K Group's grocery sales grew by 7.8% (incl. VAT), thus exceeding the market growth. K Group’s sales grew in all food store chains. Online sales of groceries grew by 160%, and accounted for approximately 1.4% of K Group’s grocery sales (incl. VAT). All K Group food store chains offer online grocery sales services. The number of K-food stores offering online grocery sales services rose to 271 during the reporting period.

In the grocery trade, profitability was improved by the good development of grocery sales in the K-food store chains. A decrease in net sales in K-Citymarket’s home and speciality goods trade and Kespro’s restaurant and institutional kitchen trade had a weakening impact on the comparable operating profit towards the end of the reporting period. Operating profit for the grocery trade totalled €59.8 million (€56.8 million). Items affecting comparability totalled €-0.5 million (€0.0 million).

Capital expenditure in the grocery trade totalled €62.7 million (€28.6 million), increased in part by the acquisition of the store property of K-Citymarket in Järvenpää.

One new K-Market opened in January-March (replacement new building). Remodelling and expansions took place at a total of 13 stores.

The most significant store sites under construction are K-Supermarket stores in the centre of Jyväskylä and at Vaajakoski, Tampere and Lahti.

Store numbers

3/2020 3/2019 12/2019
K-Citymarket 81 81 81
K-Supermarket  242 244 243
K-Market 773 780 777
Neste K 73 72 73
Other 75 79 78
Total 1,244 1,256  1,252

In addition, 271 K-food stores offer online grocery sales services to their customers.

BUILDING AND TECHNICAL TRADE

January-March 2020

1-3/2020

1-3/2019 1-12/2019
Net sales, € million 1,001.1 937.6 4,331.1
Building and technical trade excl. speciality goods trade 934.9 867.5 3,984.5
Building and home improvement trade 562.2 507.3 2,447.8
Onninen 391.4 370.2 1,587.7
Speciality goods trade 66.3 70.1 346.7
Operating profit, comparable, € million 7.0 3.2                             142.8
Building and technical trade, excl. speciality goods trade 9.3 3.9 133.3
Building and home improvement trade -1.3 -1.3 83.3
Onninen 10.7 5.1 50.0
Speciality goods trade -2.3 -0.7 9.5
Operating margin, comparable 0.7 0.3 3.3
Building and technical trade excl. speciality goods trade 1.0 0.5 3.3
Building and home improvement trade -0.2 -0.3 3.4
Onninen 2.7 1.4 3.2
Speciality goods trade -3.5 -1.0 2.7
Return on capital employed, comparable, %, rolling 12 months 7.4 7.5 7.4
Capital expenditure, € million 10.9 35.5 332.7
Personnel, average 12,850 12,133 12,630

Net sales, € million

1-3/2020 1-3/2019 Change, % Change, comparable, % 1-12/2019
Building and home improvement trade, Finland 222.8 217.2 +2.6 +2.6 908.4
K-Rauta, Sweden 32.3 33.3 -3.0 -0.7 163.7
K-Bygg, Sweden 42.5 - - - 132.8
Byggmakker, Norway 80.5 86.9 -7.3 -1.2 386.9
Kesko Senukai, Baltics 152.0 144.6 +5.1 +5.1 715.5
OMA, Belarus 33.9 26.7 +26.8 +28.5 146.6
Building and home improvement trade, total 562.2 507.3 +10.8 +3.9 2,447.8
Onninen, Finland 228.9 201.1 +13.9 +13.9 909.6
Onninen, Sweden* 29.5 35.5 -16.8 +12.7 121.2
Onninen, Norway 58.2 63.0 -7.6 -0.7 237.8
Onninen, Baltics 18.8 18.0 +4.4 +4.4 85.2
Onninen, Poland 56.7 53.5 +6.0 +6.5 237.2
Onninen, total* 391.4 370.2 +5.7 +9.7 1,587.7
Building and technical trade, excl. speciality goods trade, total 934.9 867.5 +7.8 +6.1 3,984.5
Leisure trade, Finland 43.5 49.2 -11.6 -11.6 203.7
Machinery trade 22.8 20.9 +9.1 +21.7 143.0
Speciality goods trade, total 66.3 70.1 -5.4 -2.4 346.7
Total 1,001.1 937.6 +6.8 +5.5 4,331.1

* Onninen’s comparable net sales in Sweden calculated minus internal net sales in Sweden to K-rauta.
 

Net sales for the building and technical trade grew in January-March despite the coronavirus epidemic and related restrictions. Net sales grew in comparable terms in Finland, Sweden, Poland, the Baltics and Belarus. Net sales in Sweden were also boosted by the acquisition of K-Bygg in 2019. The weakening of the Swedish krona and the Norwegian krone against the euro diminished net sales development in Sweden and Norway in euro terms. The comparable change % has been calculated in local currencies and excluding the impact of acquisitions and divestments completed in 2019. The exceptional circumstances related to COVID-19 have impacted the division’s businesses and operating countries in different ways from March onwards.

In Finland, net sales for the building and technical trade in January-March totalled €484.6 million (€460.6 million), up by 5.2%. In comparable terms, net sales in Finland increased by 5.8%. Net sales from international operations totalled €516.5 million in January-March (€477.0 million), up by 8.3%. In comparable terms, net sales from international operations grew by 5.2%. International operations contributed 51.6% (50.9%) of the net sales for the division.

Net sales for the building and home improvement trade grew in Finland, Sweden, the Baltics and Belarus. In Sweden, K-rauta’s net sales nearly matched the level of the year before, and net sales for K-Bygg were up by 6.1% compared to the 2019 (pro forma) net sales (K-Bygg has been included in the Group’s figures as of 17 May 2019). In comparable terms, net sales decreased slightly in Norway.

Onninen’s net sales grew in comparable terms in Finland, Sweden, Poland and the Baltics. In Norway net sales were almost flat year-on-year in comparable terms in local currency.

In the speciality goods trade, net sales in the leisure trade were down due to mild winter weather and a drop in customer visits due to the coronavirus epidemic.

Comparable operating profit for the building and technical trade increased by €3.8 million in January-March year-on-year. In the building and home improvement trade, the comparable operating profit was at the same level as the year before. The comparable operating profit for the building and home improvement trade grew in Finland and Sweden. In Norway, the comparable operating profit was at the same level as the year before. In the Baltic States, the comparable operating profit fell clearly short of the level of the comparison period. Kesko Senukai’s profitability was burdened significantly by restrictions put in place in Lithuania due to the epidemic, which meant the store were closed from mid-March to mid-April. The acquisitions carried out in Norway and Sweden in 2018 and 2019 accounted for €-3.0 million (€-3.0 million) of the comparable operating profit. Acquisitions have increased seasonal fluctuations in profit. Onninen’s comparable operating profit grew in Finland, Sweden and Norway. In the Baltics and Poland, Onninen’s comparable operating profit matched the level of the previous year.

Operating profit for the building and technical trade totalled €13.5 million (€-2.1 million). Items affecting comparability totalled €6.5 million (€-5.4 million). The most significant item affecting comparability was the €6.4 million sales gain from the divestment of machinery trade operations in the Baltics, completed on 31 March 2020. The most significant items affecting comparability in the comparison period were the €5.5 million costs related to the divestment of Onninen’s HEPAC contractor business in Sweden.

Capital expenditure for the building and technical trade totalled €10.9 million (€35.5 million). Capital expenditure for the comparison period included €25.5 million in acquisitions.

A new B2B centre hosting a K-Rauta Procenter and an Onninen Mega Express store opened in Pasila, Helsinki during the reporting period. The centre also hosts a JIT terminal for K-Rauta PRO customers and a call-off warehouse for Onninen’s Infra customers. One K-Senukai store opened in Lithuania, and two Onninen Express stores in Poland.

The most significant store sites under construction are one K-Bygg store in Sweden, and one Onninen Express store in Finland and two in Poland.

Store numbers

3/2020 3/2019 12/2019
Building and technical trade
K-Rauta, Finland 132 133 131
K-Rauta, Sweden 18 18 18
K-Bygg, Sweden 33 - 34
Byggmakker, Norway 62 65 63
K-Rauta, Estonia 8 8 8
K-Senukai, Latvia 11 10 11
K-Senukai, Lithuania 24 23 23
OMA, Belarus 16 17 17
Onninen, Finland 56 56 57
Onninen, Sweden - 13 -
Onninen, Norway 18 24 18
Onninen, Baltics 17 15 17
Onninen, Poland 36 36 36
Speciality goods trade
Intersport, Finland 53 54 54
Budget Sport 10 11 10
The Athlete’s Foot 9 7 9
Kookenkä 32 35 34
Total 535 525 540

In addition, building and technical trade stores offer extensive e-commerce services to their customers.
Three Onninen stores in Finland operate on the same store premises with K-Rauta.

CAR TRADE

January-March 2020

1-3/2020

1-3/2019 1-12/2019
Net sales, € million 222.6 200.5 863.9
Operating profit, comparable, € million  6.1 7.7 26.8
Operating margin, comparable 2.7 3.8 3.1
Return on capital employed, comparable, %, rolling 12 months 7.7 18.1 9.5
Capital expenditure, € million 19.7 26.7 131.3
Personnel, average 1,292 929 1,179

Net sales, € million

1-3/2020 1-3/2019 Change, % Change, comparable, % 1-12/2019
Car trade 222.6 200.5 +11.0 -4.6 863.9
 

Net sales for the car trade increased by 11.0% due to the acquisitions carried out, but decreased in comparable terms by 4.6%. The comparable change % has been calculated excluding the impact of acquisitions and divestments completed in 2019. The coronavirus epidemic decreased customer demand for both new and used cars towards the end of the reporting period. Net sales for after-sales services and leasing increased by 14.4%, or by 1.1% in comparable terms. After-sales services and leasing accounted for some 18% of the division’s net sales.

The combined market performance of first registrations of passenger cars and vans was -4.1% (-14.6%) in January-March. The combined market share of the Volkswagen, Audi, SEAT, Porsche and Bentley passenger cars and Volkswagen and MAN vans imported by the car trade division was 16.0% (16.5%) in January-March.

The comparable operating profit for the car trade decreased due to weakened demand towards the end of the reporting period.

Operating profit for the car trade in January-March totalled €6.1 million (€7.6 million).

Capital expenditure for the car trade totalled €19.7 million (€26.7 million). Capital expenditure on cars obtained for the leasing fleet and rental cars sold with repurchase commitments increased by €4.4 million. The acquisitions of Volkswagen, Audi and SEAT businesses from Huittisten Laatuauto and Länsiauto, totalling €12.3 million, were completed during the comparison period.

Store numbers

3/2020 3/2019 12/2019
K-Auto 42 23 42
AutoCarrera 4 3 3
Total 46 26 45

CHANGES IN GROUP COMPOSITION

On 31 March 2020, Konekesko Oy divested its remaining shares in its Baltic subsidiaries.

In 2019, Byggmakker Sør AS assumed ownership of the building and home improvement stores and store properties of the Norwegian Sørbø on 31 January 2019. K-Caara assumed ownership of car trade businesses acquired from Huittisten Laatuauto and LänsiAuto on 1 March 2019. K-rauta AB assumed ownership of the Swedish building and home improvement group Fresks on 17 May 2019. The divestment of Onninen AB’s HEPAC contractor business was completed on 15 May 2019. K-Caara assumed ownership of the Volkswagen, Audi and SEAT businesses acquired from Laakkonen Group on 1 July 2019. The Finnish agricultural machinery trade operations were divested on 1 August 2019.

SHARES, SECURITIES MARKET AND BOARD AUTHORISATIONS

At the end of March 2020, the total number of Kesko Corporation shares was 100,019,752, of which 31,737,007, or 31.7%, were A shares and 68,282,745, or 68.3%, were B shares. On 31 March 2020, Kesko Corporation held 837,321 of its own B shares as treasury shares. These treasury shares accounted for 1.23% of the total number of B shares, 0.84% of the total number of shares, and 0.22% of the votes attached to all shares in the company. The total number of votes attached to all shares was 385,652,815. Each A share carries ten (10) votes and each B share one (1) vote. The company cannot vote with own shares held by it as treasury shares and no dividend is paid on them. At the end of March 2020, Kesko Corporation's share capital totalled €197,282,584.

The price of a Kesko A share quoted on Nasdaq Helsinki was €58.80 at the end of 2019, and €50.40 at the end of March 2020, representing a decrease of 14.29%. Correspondingly, the price of a B share was €63.08 at the end of 2019, and €51.60 at the end of March 2020, representing a decrease of 18.20%. In January-March 2020, the highest A share price was €64.80 and the lowest €41.60. The highest B share price was €69.98 and the lowest €41.64. The Nasdaq Helsinki All-Share index (OMX Helsinki) was down by 20.4% and the weighted OMX Helsinki Cap index by 20.2% in January-March 2020. The Retail Sector Index was down by 18.4%.

At the end of March 2020, the market capitalisation of the A shares was €1,599.5 million. The market capitalisation of the B shares was €3,480.2 million, excluding the shares held by the parent company. The combined market capitalisation of the A and B shares was €5,079.7 million, down by €1,034.9 million from the end of 2019.

In January-March, a total of 0.9 million Kesko A shares were traded on Nasdaq Helsinki. The exchange value of the A shares was €50.1 million. Meanwhile, 18.3 million B shares were traded, with an exchange value of €1,117.6 million. Nasdaq Helsinki accounted for approximately 69.0% of the trading on Kesko’s A and B shares in January-March. Kesko shares were also traded on multilateral trading facilities, the most significant of which was Cboe (source: Euroland).

At the end of March 2020, the number of shareholders was 44,940, which is 3,765 more than at the end of 2019. At the end of March, foreign ownership of all shares was 34.6%, and foreign ownership of B shares 49.58%.

Kesko has a share-based commitment and incentive scheme. To implement the scheme, Kesko’s Board of Directors may decide, within share issue authorisations granted by the company’s General Meeting, to transfer Kesko B shares held by the company as treasury shares. In January-March 2020, Kesko Corporation transferred 94,806 Kesko B shares held as treasury shares to members of management and other selected key persons in accordance with the terms and conditions of share award plans. 764 B shares were returned to the company without consideration based on the same terms and conditions. Kesko issued a related stock exchange release on 12 March 2020. Kesko issued a stock exchange release on 5 February 2020 regarding the most recent share-based commitment and incentive plans.

Kesko Corporation’s Annual General Meeting will be held on 28 April 2020. The Board of Directors has proposed to the Annual General Meeting a resolution on a share issue without payment in which new shares will be issued to the shareholders without payment in proportion to their existing holdings so that three (3) new A shares are issued for each current A share, and three (3) new B shares for each current B share. In addition, new B shares will similarly be issued without payment to the company on the basis of B shares held by the company. Based on the number of shares on the date of the Board’s proposal, a total of 95,211,021 new A shares and a total of 204,848,235 new B shares will be issued. The shares will be issued to shareholders who are registered in the company’s register of shareholders maintained by Euroclear Finland Ltd on the record date of the share issue, 30 April 2020. The share issue without payment will be executed in the book-entry system and will not require any action on the part of the shareholders. The new shares will generate shareholder rights as of 30 April 2020 when they have been registered in the Trade Register. The registration of the new shares in the shareholders’ book-entry accounts is planned to take place on 4 May 2020.

Kesko’s Board also proposes that the 28 April 2020 Annual General Meeting authorises the Board to decide on the issuance of new B series shares as well as of own B shares held by the company as treasury shares, with the number of B shares thereby issued totalling at maximum 40,000,000. This would equal to approximately 10% of all shares in the company after the new shares to be issued in the share issue without payment proposed by the Board were registered. 

The Board proposals in their entirety are included in the Notice of General Meeting published as a stock exchange release on 7 April 2020, which is also available on the Kesko website.

Kesko’s Annual General Meeting of 11 April 2018 approved the Board's proposal for its authorisation to decide on the issuance of a maximum of 10,000,000 new B shares (2018 Share issue authorisation). The authorisation is valid until 30 June 2021. The Board also holds a valid authorisation to decide on the transfer of a maximum of 1,000,000 own B shares held by the company as treasury shares (2016 Share issue authorisation). The authorisation is valid until 30 June 2020. The authorisations have been communicated in stock exchange releases issued on 11 April 2018 and 4 April 2016.

KEY EVENTS DURING THE REPORTING PERIOD

The Market Court in Finland announced its decision on Kesko’s acquisition of the Heinon Tukku foodservice wholesale company, prohibiting the transaction. (Press release 17.2.2020)

Kesko agreed to acquire the Swedish Mark & Infra i Sverige AB (MIAB), a company specialising in the sales of water and sewage products. The acquisition will strengthen Onninen’s technical wholesale offering to Infra customers in Sweden. (Press release 6.3.2020)

Kesko issued a profit warning due to the COVID-19 pandemic and related global economic uncertainty. Kesko cancelled its previous outlook statement regarding the net sales for continuing operations and changed the outlook statement regarding the comparable operating profit for continuing operations, both issued in connection with the financial statements release on 5 February 2020. (Stock exchange release 18.3.2020)

Kesko’s Board of Directors decided to cancel the Annual General Meeting convened for 30 March 2020 due to developments concerning the COVID-19 coronavirus, and to reconvene a new meeting later on. (Stock exchange release 19.3.2020)

The Danish Agro Group company DA Agravis Machinery Holding A/S acquired Konekesko Oy’s remaining stake in its Baltic subsidiaries. (Press release 31.3.2020)

KEY EVENTS AFTER THE REPORTING PERIOD

Kesko announced that it would adjust its operations due to the coronavirus epidemic. Temporary lay-off measures are estimated to affect approximately 2,000 Kesko employees in Finland – Kesko has managed to significantly reduce the number with employee transfers between units. (Press release 3.4.2020)

Kesko's Board of Directors convened the Annual General Meeting for 28 April 2020. Due to the seriousness of the coronavirus epidemic, Kesko urged its shareholders to seriously consider not attending the Annual General Meeting in person. (Stock exchange release 7.4.2020)

SUSTAINABILITY

Kesko ranked 99th on the 2020 Global 100 Most Sustainable Corporations in the World list, being the most sustainable grocery trade company in the world for the sixth year in a row.

In February, new climate targets were set to make K Group carbon neutral by 2025. K Group will seek to systematically reduce emissions to reach zero emissions from its own operations by 2030. During a 2025-2030 transition period, Kesko will compensate for emissions.

According to K Group’s new cotton policy, by the end of 2024, all cotton sourced for the mywear clothes, myhome home textiles and Pirkka socks sold in K Group stores and K-Rauta’s PROF workwear and Cello interior textiles will be more sustainably produced. Sustainable cotton is certified organic cotton, recycled cotton, Better Cotton or Fairtrade cotton. Kesko has been a member of the Better Cotton Initiative (BCI) since March 2020.

Kesko published its 2019 Annual Report in early March. The Sustainability section of the Annual Report was the 20th sustainability report published by Kesko.

As a responsible entity, K Group is doing everything it can to prevent COVID-19 from spreading. In March, Kesko and K-stores increased measures and developed new solutions to ensure the safety of customers and personnel in the stores.

RISK MANAGEMENT

The impacts of COVID-19 on Kesko’s operations in all operating countries represent a material change to the risks described in Kesko’s 2019 Report by the Board of Directors and financial statements. The key risks related to the virus concern the health and safety of personnel and customers, and Kesko’s sales, cash flow and profit.

Because of the virus, Kesko switched to crisis management and launched preparedness management teams at both Group and division levels. The primary objectives are to ensure the health and safety of personnel and customers and operational continuity for Kesko and the stores, secure cash flow under all circumstances, and maintain security of supply for groceries in Finland.  

Risk management in Kesko Group is guided by the risk management policy approved by Kesko's Board of Directors. The policy defines the goals and principles, organisation, responsibilities and practices of risk management in Kesko Group. In the management of financial risks, the Group's treasury policy, confirmed by Kesko's Board of Directors, is observed. The management of business operations and common functions are responsible for the execution of risk management. Kesko Group applies a business-oriented and comprehensive approach to risk assessment and management. This means that key risks are systematically identified, assessed, managed, monitored and reported as part of business operations at Group, division, company and function levels throughout the Group.

The Group's risk map, the most significant risks and uncertainties, as well as material changes in and responses to them are reported to the Kesko Board's Audit Committee quarterly in connection with the review of interim reports, the half year financial report and financial statements. The Audit Committee Chairman reports on risk management to the Board as part of the Audit Committee report. The most significant risks and uncertainties are reported to the market by the Board in the Report by the Board of Directors and any material changes in them in the interim reports and the half year financial report.

The risks and uncertainties related to economic development are described in more detail in the outlook section of this release.

Annual General Meeting

Kesko’s Annual General Meeting will be held on 28 April 2020, starting at 10.30 am EET.

Helsinki, 27 April 2020
Kesko Corporation
Board of Directors

 

The information in this interim report is unaudited.

Further information is available from Jukka Erlund, Executive Vice President, Chief Financial Officer, telephone +358 105 322 113, Hanna Jaakkola, Vice President, Investor Relations, telephone +358 105 323 540, and Eva Kaukinen, Vice President, Group Controller, telephone +358 105 322 338. A Finnish-language webcast of the results briefing can be viewed at 9.00 am (EET) at www.kesko.fi. An English-language audio conference on the results briefing will be held today at 12.00 noon (EET). The audio conference login is available on Kesko's website at www.kesko.fi.

Kesko Corporation's half year financial report for January-June 2020 will be published on 23 July 2020. In addition, Kesko Group's sales figures are published monthly. News releases and other company information are available on Kesko's website at www.kesko.fi.

ATTACHMENTS: Q1/2020 INTERIM REPORT

 

KESKO CORPORATION

DISTRIBUTION
Nasdaq Helsinki Ltd
Main news media

www.kesko.fi

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