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Kesko's interim report for the period 1 January to 30 June 2015: Operating profit increased and financial position continued to strengthen
KESKO CORPORATION INTERIM REPORT 22.07.2015 AT 09.00 1( 32)
Financial performance in brief:
* The Group's net sales for January-June EUR4,310 million. Net sales performance in local
currencies excluding Anttila was -0.8%.
* Operating profit excluding non-recurring items increased to EUR102.9 million (EUR86.7 million).
* Earnings per share excluding non-recurring items grew to EUR0.71 (EUR0.64).
* Equity ratio 52.2% (52.3%).
* 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.
"Kesko improved its profit in the second quarter of the year despite the ongoing challenging operating environment. In the grocery trade, K-food stores' market share is estimated to have increased during the second quarter. This indicates that the changes and renewals implemented during the first months of the year have been well received by customers. We will continue our responsible approach based on both affordable price and quality in all respects. The profitability of the grocery trade remained at a good level as well.
The profitability of the home improvement and speciality goods trade continued to improve and market share strengthened in the key market areas. In the car trade, Volkswagen continues as the clear market leader and Audi as number one in its class. The reduction in car tax contained in the Government's programme slowed the sales of new cars in May-June.
Kesko's financial position continued to strengthen in the second quarter. This is partly attributable to the joint real estate arrangement completed in June between Kesko, Ilmarinen and AMF, in which the sale of real estate property generated a cash inflow of over EUR400 million. At the end of the reporting period, liquid assets were approximately EUR840 million.
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's strategy was published at the end of May. The core of the strategy is profitable growth in the grocery trade, the building and home improvement trade and the car trade. Strategy implementation has got off to a good start and practical measures are well under way, which can be seen in, for instance, the renewal of the Neste service station concept and the first K-rauta Express store to open in August. We have defined our strategy for the coming years and now we will concentrate on its systematic implementation."
The Group's net sales for January-June 2015 were EUR4,310 million, which is 4.2% down on the corresponding period of the previous year (EUR4,499 million). Anttila excluded, net sales performance was -0.8% in local currencies. The decline in consumers' purchasing power weakened consumer demand in the reporting period in Finland and Russia. In the grocery trade, net sales performance was -2.2%. In the home improvement and speciality goods trade, net sales decreased by 8.0%, but Anttila excluded, they increased by 1.0% in local currencies. In the car and machinery trade, net sales were down 3.2%. The Group's net sales in Finland decreased by 4.4% and in the other countries by 3.3%; in local currencies, net sales abroad increased by 5.8%. The weakening of the Russian rouble impacted net sales performance in euros especially in the home improvement and speciality goods trade. International operations accounted for 18.2% (18.0%) of net sales.
(..) Change over 100%
The operating profit excluding non-recurring items for January-June was EUR102.9 million (EUR86.7 million). Profitability was at a good level in the grocery trade, although the operating profit excluding non-recurring items decreased from the previous year due to a further intensification of price competition. The operating profit for the first months of the year includes a EUR12.7 million operating loss from Anttila, divested in March; the operating loss for the previous year was EUR42.7 million. Profitability strengthened especially in the building and home improvement trade in Finland and the other Nordic countries. In the car and machinery trade, profitability remained steady.
Operating profit was EUR72.2 million (EUR56.3 million). The operating profit includes EUR-30.7 million (EUR-30.4 million) of non-recurring items. The most significant non-recurring items are the EUR75.7 million capital gain recorded on a real estate transaction completed in the second quarter of the year and the EUR130 million loss on the divestment of Anttila. In addition, the non-recurring items include other gains on the sale of properties in the amount of EUR24.3 million. The non-recurring expenses of the comparative period included a EUR30.0 million restructuring provision recognised on measures taken to improve Anttila's profitability.
The Group's profit before tax for January-June was EUR68.5 million (EUR57.0 million). The Group's earnings per share were EUR0.38 (EUR0.39). The Group's equity per share was EUR21.21 (EUR21.86).
In January-June, the K-Group's (i.e. Kesko's and the chain stores') retail and B2B sales excluding Anttila (VAT 0%) were EUR5,282 million, down 2.2% compared to the previous year. The K-Plussa customer loyalty programme gained 27,919 new households in January-June 2015. At the end of June, there were 2.3 million K-Plussa households and 3.6 million K-Plussa cardholders.
The Group's net sales for April-June 2015 were EUR2,227 million, which is 6.0% down on the corresponding period of the previous year (EUR2,371 million). Anttila excluded, net sales performance was -2.2% in local currencies. The decline in consumers' purchasing power weakened consumer demand in the reporting period in Finland and Russia. In the grocery trade, net sales performance was -4.4%, partly weakened by the timing of Easter sales in the first quarter of the year. In the home improvement and speciality goods trade, net sales decreased by 10.4%, but Anttila excluded, they were at the level of the previous year in local currencies. In the car and machinery trade, net sales were down 2.2%. The Group's net sales in Finland decreased by 7.1% and Anttila excluded, by 4.2%. In the other countries, net sales were down 1.6%, but in local currencies, up 5.6%. International operations accounted for 20.5% (19.6%) of net sales.
The operating profit excluding non-recurring items for April-June was EUR76.4 million (EUR67.6 million). Profitability improved clearly in the home improvement and speciality goods trade, whose profit performance strengthened especially in the building and home improvement trade in Finland and Sweden. The operating profit of the home improvement and speciality goods trade for the comparative period includes a EUR20.5 million operating loss from Anttila.
Operating profit was EUR175.8 million (EUR69.4 million). The operating profit includes EUR99.4 million (EUR1.8 million) of non-recurring items. The most significant non-recurring item was the EUR75.7 million capital gain recorded on a real estate arrangement completed in June. In addition, the non-recurring items include other gains on the sale of properties in the amount of EUR24.0 million.
The Group's profit before tax for April-June was EUR172.1 million (EUR71.4 million). The Group's earnings per share were EUR1.48 (EUR0.51).
In April-June, the K-Group's (i.e. Kesko's and the chain stores') retail and B2B sales (VAT 0%) were EUR2,859 million, and Anttila excluded, they were down 2.0% compared to the previous year.
In January-June, the cash flow from operating activities was EUR67.5 million (EUR33.9 million). The cash flow from investing activities was EUR334.3 million (EUR-92.5 million) and it included proceeds from the sale of fixed assets in the amount of EUR444.2 million (EUR6.3 million), of which the cash inflow from the real estate arrangement completed in June was EUR402.9 million.
The Group's liquidity remained at an excellent level in January-June. At the end of the period, liquid assets totalled EUR843 million (EUR461 million). Interest-bearing liabilities were EUR483 million (EUR539 million) and interest-bearing net liabilities were EUR-359 million (EUR78 million) at the end of June. The equity ratio was 52.2 % (52.3%) at the end of the period.
In January-June, the Group's net finance costs were EUR4.5 million (net finance income EUR0.6 million). The finance income for the previous year included interest income on cooperative
capital from Suomen Luotto-osuuskunta in the amount of EUR4.9 million.
In April-June, the cash flow from operating activities was EUR142.3 million (EUR128.7 million). The cash flow from investing activities was EUR398.7 million (EUR-48.8 million) and it included proceeds from the sale of fixed assets in the amount of EUR460.3 million (EUR4.4 million).
The Group's net finance costs were EUR4.2 million (net finance income EUR2.2 million) in April-June. The finance income for the previous year included interest income on cooperative
capital from Suomen Luotto-osuuskunta in the amount of EUR4.9 million.
In January-June, the Group's taxes were EUR26.4 million (EUR15.1 million).
The effective tax rate was 38.5% (26.4%).
In April-June, the Group's taxes were EUR19.4 million (EUR17.6 million). The effective tax rate was 11.2% (24.6%).
In January-June, the Group's capital expenditure totalled EUR110.1 million (EUR99.1 million), or 2.6% (2.2%) of net sales. Capital expenditure in store sites was EUR78.5 million (EUR74.4 million), in IT EUR8.6 million (EUR15.6 million) and other capital expenditure was EUR23.0 million (EUR9.1 million). Capital expenditure in foreign operations represented 43.4% (42.6%) of total capital expenditure.
In April-June, the Group's capital expenditure totalled EUR58.6 million (EUR55.7 million), or 2.6% (2.3%) of net sales. Capital expenditure in store sites was EUR38.3 million (EUR46.6 million), in IT EUR3.9 million (EUR4.8 million) and other capital expenditure was EUR16.4 million (EUR4.3 million). Capital expenditure in foreign operations represented 34.7% (46.8%) of total capital expenditure.
Kesko's Board of Directors decided on a strategy aimed at achieving profitable growth in three strategic areas: the grocery trade, the building and home improvement trade and the car trade. Kesko operates the retailer business model or Kesko's own stores when it provides competitive advantage. Kesko differentiates from the competitors with quality and customer orientation, and by bringing the best digital services in the trading sector to the market.
In the grocery trade, Kesko's strategic objective is to turn the K-Group's market share around in Finland in 2016. Capital expenditure in the K-supermarket and K-market chains will be increased significantly. The target is approximately 30 new K-supermarkets. In the K-market chain, the current network will be revised and the objective is to establish over 100 new neighbourhood stores and to test a completely new store concept. In addition, the whole K-citymarket concept will be renewed. In the online food trade, the target is a 40% market share. In Russia, increasing business operations and improving profitability in the St. Petersburg area will continue. Moreover, new growth opportunities in the Moscow area and possibly other metropolitan cities in Russia will be explored. Increasing the business operations of the grocery wholesale company Kespro is also at the centre of the grocery trade strategy.
In the building and home improvement trade, Kesko's objective is to further strengthen its position in Europe. Kesko is already now the market leader in Finland and the fifth largest operator in the sector in Europe. The objective is to increase market share and achieve profitable growth in the existing markets alone, through acquisitions, or in cooperation with partners. At the same time, possibilities to expand also elsewhere in Europe will be examined. The K-rauta Express concept of fast and easy shopping will be launched for locations with large flows of customers at, for example, shopping centres and city centres.
In the passenger car and van trade as well, Kesko is currently the clear market leader in Finland. In the future, the Group aims to increase its market share in Finland and the Baltic countries.
In the core and support processes of the Group's different business operations, the objective is to achieve significant synergies and enhancement benefits. For this purpose, common functions that support business operations will be created and the competitiveness of business operations will be strengthened through an even closer cooperation in the core processes of business operations. Kesko Group will also immediately start planning to simplify the legal structure.
In order to ensure competitiveness and improve profitability, Kesko's objective is to achieve cost savings of at least EUR50 million in fixed costs by the end of 2016.
The composition of Kesko's divisional structure and segment reporting has been changed as of 1 July 2015 to correspond to the new strategy. An agricultural and machinery trade unit has been established as part of the home improvement and speciality goods trade division. As of 1 July 2015, Kesko Group's reportable segments are the grocery trade, the home improvement and speciality goods trade and the car trade.
The joint real estate investment company established by Kesko, AMF Pensionsförsäkring and Ilmarinen started operating in June. The joint venture owns, manages and develops store sites primarily used by Kesko Group. Kesko Group continues operating on the store sites under long-term leases signed in connection with their sale.
Kesko sold some of its store sites in both Finland and Sweden to the established joint venture. The fair value of the store sites sold totalled EUR485 million and Kesko recorded a EUR75.7 million non-recurring gain on the store sites sold for the second quarter of 2015. The cash inflow generated by the arrangement was EUR403 million. Kesko's equity investment in the joint venture was EUR67 million.
On 16 March 2015, Kesko sold the department store chain Anttila Oy to the German investment fund 4K INVEST at a price of EUR1 million. The transaction included all assets and liabilities in Anttila Oy. Anttila Oy's approximately 1,500 employees continue in the employment of the company. The date of the transaction was 16 March 2015. Kesko recorded a EUR-130 million non-recurring item on the transaction for the first quarter of 2015 relating to the financing, working capital and fixed assets of Anttila. The transaction will improve Kesko's profitability and make Kesko's operations more focused.
In January-June, the average number of personnel in Kesko Group was 19,065 (19,935) converted into full-time employees. In Finland, the average decrease was 1,204 people, while outside Finland, there was an increase of 334 people.
At the end of June 2015, the number of personnel was 22,894 (24,493), of whom 10,774 (12,889) worked in Finland and 12,120 (11,604) outside Finland. Compared to the end of June 2014, there was a decrease of 2,115 people in Finland and an increase of 516 people outside Finland.
In January-June, the Group's employee benefit expenses were EUR281.9 million, down 10.4% compared to the previous year. In April-June, employee benefit expenses decreased by 12.9% compared to the previous year and were EUR138 million. The movement is attributable to the divestment of Anttila on 16 March 2015.
The Group's operating activities are affected by seasonal fluctuations. The net sales and 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.
January-June 2015
The net sales of the grocery trade for January-June were EUR2,252 million (EUR2,304 million), representing a change of -2.2%. In January-June, the grocery sales of K-food stores in Finland decreased by 1.3% (VAT 0%). In the grocery market in Finland, retail prices are estimated to have changed by approximately -1% compared to the previous year (VAT 0%; Kesko's own estimate based on the Consumer Price Index of Statistics Finland) and the total market (VAT 0%) is estimated to have decreased by 1% in January-June (Kesko's own estimate). The decline in the value of the rouble reduced the sales of the food stores in Russia in euros. In terms of roubles, the sales increased by 30.6%.
In January-June, the operating profit excluding non-recurring items of the grocery trade was EUR78.2 million (EUR100.7 million). Profitability remained at a good level despite the measures taken to improve competitiveness. Kespro's market share increased and profitability remained at a good level. Operating profit was EUR151.0 million (EUR98.8 million). Non-recurring items, in the amount of EUR72.8 million (EUR-2.0 million), include EUR72 million in gains on the sales of properties as the most significant items.
The capital expenditure of the grocery trade in January-June was EUR70.9 million (EUR50.3 million), of which EUR64.3 million (EUR44.5 million) in store sites.
April-June 2015
The net sales of the grocery trade for April-June were EUR1,149 million (EUR1,202 million), representing a change of -4.4%. The timing of Easter sales in the first quarter of the year impacted the net sales performance in the reporting period. The net sales of the food stores in Russia increased by 10.4% in euros and by 36.4% in roubles.
In April-June, the operating profit excluding non-recurring items of the grocery trade was EUR43.3 million (EUR55.3 million). Profitability remained at a good level despite the measures taken to improve competitiveness. Kespro's market share increased and profitability remained at a good level. Operating profit was EUR115.8 million (EUR54.4 million). Non-recurring items were EUR72.4 million (EUR-0.9 million).
The capital expenditure of the grocery trade in April-June was EUR33.2 million (EUR30.6 million), of which EUR30.1 million (EUR27.7 million) in store sites.
In April-June 2015, two K-food stores in St. Petersburg and three new K-supermarkets, as well as three K-markets in Finland were opened. Renewals and space modifications were made in a total of 15 stores.
The most significant store sites being built are the K-citymarket shopping centre in Itäkeskus, Helsinki, the new K-supermarkets in Oulu, in Niittykumpu, Espoo, in Keuruu, Lappeenranta and in Lauttasaari, Töölö and Kalasatama, Helsinki. One new food store is being built in Russia.
* Incl. online stores
In addition, several K-food stores offer e-commerce services to their customers.
January-June 2015
The net sales of the home improvement and speciality goods trade for January-June were EUR1,519 million (EUR1,651 million), down 8.0%. Net sales excluding Anttila increased by 1.0% in local currencies.
The net sales of the home improvement and speciality goods trade for January-June in Finland were EUR832 million (EUR945 million), a decrease of 11.9%. Anttila excluded, net sales decreased in Finland by 3.0%.
The K-Group's sales of building and home improvement products in Finland decreased by a total of 2.8% and the total market (VAT 0%) is estimated to have fallen by approximately 4.4% (Kesko's own estimate). The K-Group's market share is estimated to have grown during the first months of the year. The retail sales of the K-maatalous chain were down by 5.1%.
In January-June, the net sales from the foreign operations of the home improvement and speciality goods trade were EUR687 million (EUR707 million), a decrease of 2.8%. In local currencies, the net sales from foreign operations increased by 5.2%. In Sweden, net sales in kronas grew by 8.2% and in Norway in krones by 2.3%. In the building and home improvement trade in Russia, net sales in roubles grew by 6.3%. Market position is estimated to have strengthened in the building and home improvement trade in Sweden, the Baltic countries and Russia. Foreign operations contributed 45.2% (42.8%) to the net sales of the home improvement and speciality goods trade.
In January-June, the operating profit excluding non-recurring items of the home improvement and speciality goods trade was EUR18.7 million (EUR-25.6 million), up EUR44.4 million compared to the previous year. The EUR12.7 million (EUR42.7 million) operating loss of Anttila, divested in March, is included in the profit of the home improvement and speciality goods trade. The operating profit of the home improvement and speciality goods trade, excluding non-recurring items and Anttila, was EUR31.4 million, up EUR14.4 million on the previous year. The clearly improved profitability is attributable to a sales increase in foreign currency terms, coupled with implemented cost savings. Profit improved especially in the building and home improvement trade in Finland and the other Nordic countries. In the building and home improvement trade in Russia, the operational result excluding foreign exchange impacts remained at the level of the previous year. The operating profit of the home improvement and speciality goods trade was EUR-84.7 million (EUR-54.1 million). Non-recurring items include a EUR130 million loss on the divestment of Anttila and EUR27 million in gains recorded on the sales of properties.
In January-June, the capital expenditure of the home improvement and speciality goods trade totalled EUR18.1 million (EUR31.2 million), of which 29.0% (70.4%) was abroad. Capital expenditure in store sites represented 63.7% of total capital expenditure.
April-June 2015
The net sales of the home improvement and speciality goods trade for April-June were EUR797 million (EUR890 million), down 10.4%. Net sales excluding Anttila in local currencies were at the level of the previous year (+0.1%).
The net sales of the home improvement and speciality goods trade for April-June in Finland were EUR400 million (EUR484 million), a decrease of 17.2%. Anttila excluded, net sales decreased in Finland by 4.2%.
The K-Group's sales of building and home improvement products in Finland decreased by a total of 2.1% and the total market (VAT 0%) is estimated to have fallen by approximately 3.8% (Kesko's own estimate). The K-Group's market share is estimated to have grown during the first months of the year. The retail sales of the K-maatalous chain were down by 6.9%.
In April-June, the net sales from the foreign operations of the home improvement and speciality goods trade were EUR397 million (EUR407 million), a decrease of 2.4%. In local currencies, the net sales from foreign operations increased by 4.5%. In Sweden, net sales in kronas grew by 7.2% and in Norway in krones by 3.2%. In the building and home improvement trade in Russia, net sales decreased by 1.1% in roubles. Market position is estimated to have strengthened in the building and home improvement trade in Sweden, the Baltic countries and Russia. Foreign operations contributed 49.8% (45.7%) to the net sales of the home improvement and speciality goods trade.
In April-June, the operating profit excluding non-recurring items of the home improvement and speciality goods trade was EUR30.1 million (EUR5.8 million), up EUR24.3 million compared to the previous year. The comparative period includes a EUR20.5 million operating loss from Anttila. In addition, the profitability improvement is attributable to a sales increase in foreign currency terms, coupled with implemented cost savings. Profit improved especially in the building and home improvement trade in Sweden, Lithuania and Belarus. The operating profit of the home improvement and speciality goods trade was EUR57.1 million (EUR8.4 million). Non-recurring items include EUR27 million in gains recorded on the sales of properties. In the comparative period, non-recurring items were EUR2.7 million.
In April-June, the capital expenditure of the home improvement and speciality goods trade totalled EUR8.6 million (EUR17.0 million), of which 21.1% (74.8%) was abroad. Capital expenditure in store sites represented 74.8% of total capital expenditure.
In April-June, one K-rauta store was opened in Lahdesjärvi, Tampere, one building and home improvement store was closed in Norway and one Intersport store in St. Petersburg. The most significant store sites being built are the K-rauta stores in Kokkola, Lahti and Imatra.
* In 2015, 45 (46) Rautia stores also operated as K-maatalous stores
** Incl. online stores
In addition, the building and home improvement stores offer e-commerce services to their customers.
January-June 2015
The net sales of the car and machinery trade for January-June were EUR538 million (EUR556 million), down 3.2%.
VV-Auto's net sales for January-June were EUR393 million (EUR410 million), a decrease of 4.2%. In January-June, the combined market performance of first time registered passenger cars and vans was -2.8%.
In January-June, the combined market share of passenger cars and vans imported by VV-Auto was 20.0% (21.0%). Volkswagen was the market leader in passenger cars and vans.
Konekesko's net sales for January-June were EUR145 million (EUR146 million), down 0.5% compared to the previous year. Net sales in Finland were EUR98 million, up 5.5%. The net sales from Konekesko's foreign operations were EUR48 million, down 11.0%. The decline in net sales was especially driven by the weak market performance of the agricultural machinery trade.
In January-June, the operating profit excluding non-recurring items of the car and machinery trade was EUR17.9 million (EUR19.1 million), down EUR1.2 million compared to the previous year. The profitability of the car trade remained at a good level despite the weakened market situation.
The operating profit for January-June was EUR17.9 million (EUR19.1 million).
The capital expenditure of the car and machinery trade in January-June was EUR6.9 million (EUR9.4 million).
April-June 2015
The net sales of the car and machinery trade for April-June were EUR277 million (EUR283 million), down 2.2%.
VV-Auto's net sales for April-June were EUR187 million (EUR196 million), a decrease of 4.7%.
In April-June, the combined market share of passenger cars and vans imported by VV-Auto was 21.2% (21.2%).
Konekesko's net sales for April-June were EUR90 million (EUR87 million), up 3.4% compared to the previous year. Net sales in Finland were EUR60 million, up 6.0%. Net sales growth was driven by the good sales performance of Yamarin boats. The net sales from Konekesko's foreign operations were EUR31 million, down 1.5%.
In April-June, the operating profit excluding non-recurring items of the car and machinery trade was EUR11.0 million (EUR10.9 million), up EUR0.1 million compared to the previous year. The profitability of the car trade remained at a good level despite the weakened market situation. Konekesko improved its profitability.
The operating profit for April-June was EUR11.0 million (EUR10.9 million).
The capital expenditure of the car and machinery trade in April-June was EUR4.0 million (EUR6.5 million).
During the reporting period, Kesko Corporation sold its subsidiary Anttila Oy. (Stock exchange release on 16 March 2015). As part of the real estate arrangement completed in June, 11 real estate companies were sold.
At the end of June 2015, 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. At 30 June 2015, Kesko Corporation held 876,054 own B shares as treasury shares. These treasury shares accounted for 1.28% of the number of B shares, 0.88% of the total number of shares, and 0.23% of votes attached to all shares of 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 June 2015, Kesko Corporation's share capital was EUR197,282,584.
The price of a Kesko A share quoted on Nasdaq Helsinki was EUR28.56 at the end of 2014, and EUR29.50 at the end of June 2015, representing an increase of 3.3%. Correspondingly, the price of a B share was EUR30.18 at the end of 2014, and EUR31.21 at the end of June 2015, representing an increase of 3.4%. In January-June, the highest A share price was EUR38.13 and the lowest was EUR28.52. The highest B share price was EUR41.04 and the lowest was EUR29.95. In January-June, the Nasdaq Helsinki All-Share index (OMX Helsinki) was up 6.8% and the weighted OMX Helsinki Cap index 7.9%. The Retail Sector Index was up 2.5%.
At the end of June 2015, the market capitalisation of A shares was EUR936 million, while that of B shares was EUR2,104 million, excluding the shares held by the parent company. The combined market capitalisation of A and B shares was EUR3,040 million, an increase of EUR103 million from the end of 2014. In January-June 2015, a total of 1.5 million (1.0 million) A shares were traded on Nasdaq Helsinki, an increase of 42.1%. The exchange value of A shares was EUR49 million. The number of B shares traded was 32.2 million (25.3 million), an increase of 27.3%. The exchange value of B shares was EUR1,132 million. Nasdaq Helsinki accounted for 56% of Kesko A and B share trading in January-June 2015. Kesko shares were also traded on multilateral trading facilities, the most significant of which were BATS Chi-X with 38% and Turquoise with 6% of the trading (source: Fidessa).
The Board had the authority, granted by the Annual General Meeting of 16 April 2012, to issue a total maximum of 20,000,000 new B shares, which was intended to expire on 30 June 2015. The shares could be issued against payment for subscription by shareholders in a directed issue in proportion to their existing holdings of the company shares regardless of whether they consisted of A or B shares, or, deviating from the shareholder's pre-emptive right, in a directed issue, if there had been a weighty financial reason for the company, such as using the shares to develop the company's capital structure and financing possible acquisitions, capital expenditure or other arrangements within the scope of the company's business operations. The amount paid for the shares would have been recognised in the reserve of invested non-restricted equity. The authorisation also included the Board's authority to decide on the share subscription price, the right to issue shares against non-cash consideration and the right to make decisions on other matters concerning share issues.
On 13 April 2015, the Annual General Meeting approved a share issue authorisation which cancels the above authority granted by the General Meeting of 16 April 2012. In consequence, the Board has the authority, granted by the Annual General Meeting of 13 April 2015 and valid until 30 June 2018, to issue a total maximum of 20,000,000 new B shares. The shares can be issued against payment to be subscribed by shareholders in a directed issue in proportion to their existing holdings of the company shares regardless of whether they hold A or B shares, or, deviating from the shareholder's pre-emptive right, in a directed issue, if there is a weighty financial reason for the company, such as using the shares to develop the company's capital structure and financing possible acquisitions, capital expenditure or other arrangements within the scope of the company's business operations. The amount paid for the shares is recognised in the reserve of invested non-restricted equity. The authorisation also includes the Board's authority to decide on the share subscription price, the right to issue shares for non-cash consideration and the right to make decisions on other matters concerning share issues.
In addition, the Board has the authority, valid until 30 June 2017, to decide on the transfer of a maximum of 1,000,000 own B shares held by the company as treasury shares. On 9 February 2015, the Board decided to grant own B shares held by the company as treasury shares to persons included in the target group of the 2014 vesting period, based on the valid authority to issue treasury shares granted by the Annual General Meeting held on 8 April 2013 and the fulfilment of the vesting criteria of the 2014 vesting period of Kesko's three-year share-based compensation plan. This transfer of a total of 120,022 own B shares was announced in a stock exchange release on 1 April 2015 and 7 April 2015. Based on the 2014-2016 share-based compensation plan decided by the Board, a total maximum of 600,000 own B shares held by the company as treasury shares can be granted within a period of three years based on the fulfilment of the vesting criteria. The Board will separately decide on the vesting criteria and target group for each vesting period. The share-based compensation plan was announced in a stock exchange release on 4 February 2014.
In January-June, a total of 761 shares granted based on the earlier share-based compensation plan ( the 2011-2013 share-based compensation plan) was returned to the company in accordance with the terms and conditions of the share-based compensation plan . The return during the reporting period was notified in a stock exchange notification on 23 March 2015.
At the end of June 2015, the number of shareholders was 39,291, which is 578 less than at the end of 2014. At the end of June, foreign ownership of all shares was 28%. At the end of June, foreign ownership of B shares was 40%.
Kesko Corporation did not receive flagging notifications during the reporting period.
Kesko's Board of Directors decided on the new strategy which is aimed at achieving profitable growth in three strategic areas: the grocery trade, the building and home improvement trade and the car trade. At the same time, financial targets in accordance with Kesko's new strategy were announced. The composition of Kesko's divisional structure and segment reporting has been changed as of 1 July 2015. An agricultural and machinery trade unit has been established as part of the home improvement and speciality goods trade division. (Stock exchange release on 27 May 2015)
Kesko Corporation, the Swedish life insurance company AMF Pensionsförsäkring AB and Ilmarinen Mutual Pension Insurance Company set up a joint venture named Ankkurikadun Kiinteistöt Oy. The joint venture owns, manages and develops store sites acquired for it, primarily in use by Kesko Group. (Stock exchange release on 8 May 2015 and 11 June 2015)
On 20 March 2015, at http://kesko2014.kesko.fi/en, Kesko published its first annual report that makes use of the <IR> integrated reporting framework. The annual report includes a business review, GRI indicators, the financial statements for 2014, the Corporate Governance Statement and the Remuneration Statement.
Kesko sold the department store chain Anttila Oy to the German investment fund 4K INVEST for EUR1 million. The transaction includes all assets and liabilities in Anttila Oy. Anttila Oy's approximately 1,500 employees continue in the employment of the company. The date of the transaction was 16 March 2015. (Stock exchange release on 16 March 2015)
M.Sc. (Econ.) Anni Ronkainen, 48, was appointed Kesko's Chief Digital Officer responsible for business development, digital business environment and marketing, and a member of the Group Management Board. (Stock exchange release on 26 January 2015)
Kesko Corporation's Annual General Meeting, held on 13 April 2015, adopted the financial statements and the consolidated financial statements for 2014 and discharged the Board members and the Managing Director from liability. The General Meeting also resolved to distribute a dividend of EUR1.50 per share as proposed by the Board, or a total amount of EUR148,715,547.00. The dividend pay date was 22 April 2015. The General Meeting resolved to leave the number of Board members unchanged at seven. The General Meeting resolved to elect retailer, Business College Graduate Esa Kiiskinen, Master of Science in Economics, retailer Tomi Korpisaari, retailer, Secondary School Graduate Toni Pokela, eMBA Mikael Aro (new member), Master of Science in Economics Matti Kyytsönen (new member), Master of Science in Economics Anu Nissinen (new member) and Master of Laws Kaarina Ståhlberg (new member) as Board members for a three-year term expiring at the close of the 2018 Annual General Meeting in accordance with the Articles of Association. In addition, the General Meeting resolved to leave the Board members' fees and the basis for reimbursement of expenses unchanged.
The General Meeting elected the firm of auditors PricewaterhouseCoopers Oy, Authorised Public Accountants, as the company's auditor, with APA Mikko Nieminen as the auditor with principal responsibility. The General Meeting also approved the Board's proposals for the Board's authorisation to issue of a total maximum of 20,000,000 new B shares until 30 June 2018, and its authorisation to decide on donations in a total maximum of EUR300,000 for charitable or corresponding purposes until the Annual General Meeting to be held in 2016.
After the Annual General Meeting, Kesko Corporation's Board of Directors held an organisational meeting in which it elected retailer, Business College Graduate Esa Kiiskinen as its Chair and eMBA Mikael Aro as its Deputy Chair. Master of Laws Kaarina Ståhlberg (Ch.), eMBA Mikael Aro (Dep. Ch.) and Master of Science in Economics Matti Kyytsönen were elected to the Board's Audit Committee. Esa Kiiskinen (Ch.), Mikael Aro (Dep. Ch.) and Master of Science in Economics Anu Nissinen were elected to the Board's Remuneration Committee.
The resolutions of Annual General Meeting and the decisions of the Board's organisational meeting were announced in more detail in stock exchange releases on 13 April 2015.
In spring 2015, the K-Group and the association Ruokatieto organised Local Food Date events (Lähiruokatreffit) in six localities in Finland. The events were aimed to provide retailers and local producers an opportunity to network and enhance the offer of local products in K-food stores. K-retailers' direct purchases from Finnish regions totalled EUR566.7 million in 2014.
Plan, an international development organisation promoting children's rights, and Kesko presented their research cooperation at the Ratkaisun Paikka 2015 corporate responsibility event in Helsinki in May. A survey carried out in spring focused on working conditions in the production chain of the fish and shellfish industry in north-eastern Thailand and the situation of migrant workers' children in local communities. Cooperation with Plan and their knowledge of local conditions provided Kesko with an opportunity to progress beyond the first step in the production chain.
At the beginning of June, Finnwatch published a follow-up report which showed that the tuna factories of Kesko's suppliers TUM and Unicord have clearly improved their working conditions over the last few years.
In May, Kesko published a list of the factories in high-risk countries manufacturing Kesko's own brand clothes and shoes and those imported by the company itself on its website. Direct purchases from high-risk countries account for around 20 per cent of the total purchases of clothing.
At the beginning of May, the K-job 2015 competition was launched to seek the Young K-store Employee of the Year and the Employer of the Young of the Year. K-stores and Kesko with its subsidiaries annually employ around 5,000 summer employees and around 10,000 employees under 30 years of age in Finland.
The Veturi shopping centre, opened in Kouvola in 2012, became the first property in Finland to achieve an Excellent rating in the Building Management part of the BREEAM environmental assessment. In the assessment, Veturi was praised for its own energy production, for the continuous monitoring of energy use and for paying attention to user comfort for example in indoor air conditions and lighting.
Kesko Group has an established and comprehensive risk management process. Risks and their management responses are regularly assessed within the Group and reported to the Group management. Kesko's risk management and risks associated with business operations are described in more detail on Kesko's website in the Corporate Governance section.
The most significant near-future risks in Kesko's business operations are associated with the general development of the economic situation and consumer confidence especially in Finland and Russia, as well as their impact on Kesko's sales and profit. Resulting from the crisis in Greece, risks relating in particular to the euro area economy have increased. In other respects, no material change is estimated to have taken place during the first months of the year in the risks described in the Report by the Board of Directors and the financial statements for 2014 and the risks described on Kesko's website. The risks and uncertainties related to economic development are described in the section future outlook of this release.
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.
Helsinki, 21 July 2015
Kesko Corporation
Board of Directors
The information in the interim report is unaudited.
is available from Jukka Erlund, Senior Vice President, Chief Financial Officer, telephone +358 105 322 113, and Eva Kaukinen, Vice President, Group Controller, telephone +358 105 322 338. A Finnish-language webcast of the media and analyst briefing on the interim report can be accessed at www.kesko.fi, at 11.00. An English-language audio conference on the interim report will be held today at 14.30 (Finnish time). The audio conference login is available on Kesko's website at www.kesko.fi.
Kesko Corporation's interim report for January-September will be published on 22 October 2015. In addition, Kesko Group's sales figures are published each month. News releases and other company information are available on Kesko's website at www.kesko.fi.
Merja Haverinen
Vice President, Group Communications
ATTACHMENTS: TABLES SECTION
Accounting policies
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Group's performance indicators
Net sales by segment
Operating profit by segment
Operating profit excl. non-recurring items by segment
Operating margin excl. non-recurring items by segment
Capital employed by segment
Return on capital employed excl. non-recurring items by segment
Capital expenditure by segment
Segment information by quarter
Change in tangible and intangible assets
Related party transactions
Fair value hierarchy of financial assets and liabilities
Personnel average and at the end of the reporting period
Group's commitments
Calculation of performance indicators
K-Group's retail and B2B sales
DISTRIBUTION
NASDAQ OMX Helsinki Ltd
Main news media
www.kesko.fi
TABLES SECTION
This interim report has been prepared in accordance with the IAS 34 standard. The interim report has been prepared in accordance with the same principles as the annual financial statements for 2014.
(..) Change over 100%
(..) Change over 100%
* Net sales in countries other than Finland
The Group's related parties include its key management (the Board of Directors, the Managing Director and the Group Management Board) and companies controlled by them, the Group's subsidiaries, associates and joint ventures as well as Kesko Pension Fund.
The following transactions were carried out with related parties:
Level 1 instruments are traded in active markets and their fair values are directly based on quoted market prices. The fair values of level 2 instruments are derived from market data. The fair values of level 3 instruments are not based on observable market data.
* Total number incl. part-time employees
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Attachment(s)
http://hugin.info/3055/R/1940390/700717.pdf
Regulatory News
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