2017-04-27 08:00:32 CEST
2017-04-27 08:00:32 CEST
REGULATED INFORMATION
Kesko Oyj - Interim report (Q1 and Q3)
Kesko's interim report for the period 1 January to 31 March 2017: strong growth in all divisions
KESKO CORPORATION INTERIM REPORT 27.04.2017 AT 09.00 1(31)
Kesko's interim report for the period 1 January to 31 March 2017: strong growth
in all divisions
Financial performance in brief:
* Group's net sales for January-March were €2,597 million (€2,013 million), up
29.0%, and
in local currencies, acquisitions and disposals excluded, they were up 2.4%
* Comparable operating profit was €28.7 million (€32.3 million)
* Operating profit was €16.6 million (€33.5 million)
* Comparable return on capital employed was 11.2% (rolling 12 mo)
* Comparable profit before tax was €33.6 million (€34.5 million)
* Comparable earnings per share were €0.29 (€0.26)
* Kesko Group's net sales for the next 12-month period are expected to remain at
the level of the preceding 12 months. The net sales expectation takes account of
the divestment of the K-maatalous business expected no later than the third
quarter of 2017, the divestment of the Russian grocery trade in November 2016,
as well as the transfer of the stores included in the acquisition of Suomen
Lähikauppa to retailers and store closures. The comparable net sales for the
next 12-month period are expected to exceed the level of the preceding 12
months. The comparable operating profit for the next 12-month period is expected
to exceed the level of the preceding 12 months.
Key performance indicators
1-3/2017 1-3/2016
Net sales, € million 2,597 2,013
Operating profit, comparable,
€ million 28.7 32.3
Operating profit, € million 16.6 33.5
Profit before tax, comparable,
€ million 33.6 34.5
Profit before tax, € million 21.5 35.7
Capital expenditure, € million 78.3 51.4
Earnings per share, €, diluted 0.18 0.28
Earnings per share, comparable, €, basic 0.29 0.26
31.3.2017 31.3.2016
Equity ratio, % 47.4 54.8
Equity per share, € 20.98 22.13
President and CEO Mikko Helander:
"Kesko's first quarter sales increased in all divisions. The growth was
strongest in the building and technical trade. Net sales growth was
significantly strengthened by the acquisitions of Suomen Lähikauppa, Onninen and
AutoCarrera. Net sales increased by 29.0%, and in local currencies excluding the
impact of acquisitions and disposals by 2.4%.
Kesko's comparable operating profit was €28.7 million. Profitability and the
return on capital employed remained at a good level despite significant renewal
projects.
The extensive chain renewal going on in the grocery trade is progressing well.
Following the acquisition of Suomen Lähikauppa in April 2016, more than 400
Siwas and Valintatalos will be converted into K-Markets by spring 2017 and
transferred to retailers in stages by the end of 2018. By the end of March, 382
stores had already been converted and 49 had been transferred to retailers. The
renewal enables K Group to offer the most comprehensive and service oriented
neighbourhood store network in Finland.
In the building and technical trade, the beginning of the year has started well.
Growth was strong especially in B2B trade, boosted by the acquisition of Onninen
and its integration which is progressing well. K-Rautas and Rautias were
combined into the new K-Rauta chain, which forms the largest network of building
and home improvement stores in Finland. At the end of March, a completely
renewed k-rauta.fi online store was also launched.
In the car trade, sales were boosted by the first time registrations of vans.
The integration of AutoCarrera's Porsche business is progressing as planned and
customer orders increased markedly.
In line with our growth strategy, we start building a new kind of store chain
specialising in overall health and wellbeing jointly with Oriola. The plan is to
expand the business to include pharmaceuticals, if legislation changes.
Corporate responsibility manifests itself in our everyday activities. Since the
beginning of this year, all electricity purchased by Kesko in Finland is
renewable.
The impact of the first quarter on Kesko's full year profit is smallest, whereas
the second and third quarter are strongest in terms of the operating profit
level. We continue to confidently implement our growth strategy aiming at a
stronger, renewing and unified K Group.
In the first quarter, Kesko also published its 2016 Annual Report, which
describes K Group's significant social impact. K Group is the third biggest
retail operator in Northern Europe and its sales total approximately €13.2
billion (pro forma). K Group employs approximately 45,000 trading sector
professionals in nine countries. In Finland, K Group is one of the biggest
employers and taxpayers. K Group's purchases of goods in Finland were more than
€6.2 billion, its remitted and paid taxes over €810 million and capital
expenditure nearly €740 million."
FINANCIAL PERFORMANCE
Net sales and profit for January-March 2017
The Group's net sales for January-March 2017 were €2,597 million, which is
29.0% up on the corresponding period of the previous year (€2,013 million). Net
sales increased significantly due to the acquisitions completed in 2016.
Acquisitions and disposals excluded, net sales in local currencies grew by 2.4%.
In the grocery trade, the 13.6% net sales growth was significantly attributable
to the acquisition of Suomen Lähikauppa. Net sales were up 0.1%, excluding the
impact of the acquisition of Suomen Lähikauppa in April 2016, and the divestment
of the Russian business operations in November 2016. In the building and
technical trade, net sales increased markedly, by 59.9%, and in local
currencies, excluding the impact of the acquisition of Onninen in June 2016, by
5.9%. In the car trade, net sales were up by 8.9%, and excluding the impact of
the acquisition of AutoCarrera in December 2016, by 3.4%. The Group's net sales
in Finland increased by 23.6%, and acquisitions excluded, by 2.1%. In the other
countries, net sales increased by 57.7% and in local currencies, acquisitions
and disposals excluded, by 4.4%. International operations accounted for 19.5%
(15.9%) of the Group's net sales.
1-3/2017 Net sales, Change, % Change in local Operating Change, €
€ million currency excl. profit, million
acquisitions comparable,
and disposals, € million
%
Grocery trade 1,243 +13.6 +0.1 26.4 -4.8
Building and
technical trade 1,112 +59.9 +5.9 3.0 +2.7
Car trade 245 +8.9 +3.4 10.0 +0.6
Common
functions and
eliminations -2 (..) -10.8 -2.1
Total 2,597 +29.0 +2.4 28.7 -3.6
(..) Change over 100%
The Group's comparable operating profit for January-March was €28.7 million
(€32.3 million). In the grocery trade, profitability remained at a good level
despite the significant costs involved in renewing Suomen Lähikauppa's stores.
Suomen Lähikauppa has increased the cyclicality of the grocery trade business,
especially as the profit for the first quarter of the year is lowest. In the
building and technical trade, profitability was improved by the good profit
performances of Onninen, the Finnish and Norwegian operations of the building
and home improvement trade and the furniture trade, as well as the divestment of
Intersport's Russian business operations in July 2016. In the car trade,
comparable operating profit continued at a good level; profitability was
improved by good sales performance.
The operating profit was €16.6 million (€33.5 million). The items affecting
comparability totalled €-12.1 million (€1.3million). The most significant items
affecting comparability were the €9.4 million costs related to the conversion of
Suomen Lähikauppa's chains. In the previous year, the items affecting the
comparability of the operating profit totalled €1.3 million.
Items affecting comparability, € million 1-3/2017 1-3/2016
Operating profit, comparable 28.7 32.3
Items affecting comparability
+gains on disposal +0.3 +1.3
-losses on disposal -0.4 -
+/-structural arrangements -11.3 0.0
+/-others -0.8 -
Items affecting comparability, total -12.1 +1.3
Operating profit 16.6 33.5
The Group's profit before tax for January-March was €21.5 million (€35.7
million). The Group's earnings per share were €0.18 (€0.28). The Group's equity
per share was €20.98 (€22.13).
In January-March, K Group's (i.e. Kesko's and the chain stores') retail and B2B
sales (VAT 0%) were €3,033 million, up 3.5% compared to the previous year (pro
forma). The K-Plussa customer loyalty programme gained 17,789 new households in
January-March 2017. At the end of March, there were 2.3 million K-Plussa
households and 3.6 million K-Plussa cardholders.
Finance
In January-March, the cash flow from operating activities was €-57.3 million (€-
96.3 million). Due to seasonal fluctuations, cash flow from operating activities
for the first quarter is negative. The cash flow from investing activities was
€-34.5 million (€-52.9 million). The cash flow from investing activities
includes a €21.3 million positive cash flow from the sale of a 45% interest in
Konekesko's Baltic subsidiaries sold to Danish Agro group.
At the end of the period, liquid assets totalled €365 million (€746 million).
Interest-bearing liabilities were €591 million (€435 million) and interest-
bearing net debt was €226 million (€-311 million) at the end of March. The
equity ratio was 47.4% (54.8%) at the end of the period.
The Group's net finance income was €4.2 million (€2.7 million) in January-March.
It includes interest income on cooperative capital from Suomen Luotto-osuuskunta
in the amount of €2.3 million.
Taxes
In January-March, the Group's taxes were €4.3 million (€7.0 million). The
effective tax rate was 20.0% (19.7%).
Capital expenditure
In January-March, the Group's capital expenditure totalled €78.3 million (€51.4
million), or 3.0% (2.6%) of net sales. Capital expenditure in store sites was
€53.8 million (€36.9 million), in IT €9.0 million (€2.7 million) and other
capital expenditure was €15.6 million (€11.8 million).
Personnel
In January-March, the average number of personnel in Kesko Group was 22,651
(18,405) converted into full-time employees. The increase was due to the
acquisitions of Suomen Lähikauppa and Onninen.
At the end of March 2017, the number of personnel was 27,356 (21,780), of whom
14,460 (9,878) worked in Finland and 12,896 (11,902) outside Finland. The number
of Suomen Lähikauppa's personnel was 2,846, that of Onninen 2,955 and that of
AutoCarrera 36.
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 strongest, whereas the impact of the first quarter
on the full year profit is smallest. The acquisitions of Suomen Lähikauppa and
Onninen increase the seasonal fluctuations between quarters. The operating
profit levels of Onninen and Suomen Lähikauppa are lowest for the first quarter.
Grocery trade
1-3/2017 1-3/2016
Net sales, € million 1,243 1,094
Operating profit, comparable, € million 26.4 31.3
Operating margin, comparable, % 2.1 2.9
Capital expenditure, € million 53.3 34.7
Net sales, € million 1-3/2017 Change, %
Sales to K-food stores 746 -0.2
K-Citymarket, non-food 127 -0.3
K-Market, own retail trade 158 -
Kespro 191 +5.2
Others 21 -44.0
Total 1,243 +13.6
January-March 2017
The net sales of the grocery trade for January-March were €1,243 million (€1,094
million), representing a growth of 13.6%. Suomen Lähikauppa and the Russian
business excluded, net sales performance was 0.1%. K Group's grocery sales
increased by 15.8%, and excluding the impact of the acquisition of Suomen
Lähikauppa, by 0.2% (incl. VAT). In the Finnish grocery market, retail prices
are estimated to have changed by approximately -0.2% compared with the previous
year (incl. VAT; Kesko's own estimate based on the Consumer Price Index of
Statistics Finland) and the total market (incl. VAT) is estimated to have
increased by approximately 0.1% in January-March (Kesko's own estimate).
The acquisition of Suomen Lähikauppa was completed in April in the previous year
and the conversion of Siwas and Valintatalos into K-Markets was begun in May
2016. By the end of March 2017, 382 Siwas and Valintatalos had been converted
into K-Markets, 49 of which have been transferred to retailers. The conversion
of the stores into K-Markets will be completed within the second quarter of the
year and the transfer of stores to retailers by the end of 2018.
In January-March, the comparable operating profit of the grocery trade was €26.4
million (€31.3 million). Profitability remained at a good level despite a
significant renewal and changes in Suomen Lähikauppa's business operations.
Suomen Lähikauppa's impact on the comparable operating profit for January-March
was €-6.7 million (pro forma for January-March 2016 €-8.0 million), which was
affected by the seasonal fluctuation in the profitability of the business, as
well as a significant store site network change programme.
The loss on the Russian business operations divested in November 2016 was €5.0
million for the comparative period. The operating profit of the grocery trade
was €16.7 million (€30.2 million). The items affecting comparability were €-9.7
million (€-1.1 million), the most important of which, €-9.4 million, are related
to the restructuring of Suomen Lähikauppa.
The capital expenditure of the grocery trade in January-March was €53.3 million
(€34.7 million), of which €46.5 million (€32.8 million) was in store sites.
In January-March, five new K-Markets were opened. Renewals and extensions were
made in a total of 206 stores, of which 159 were conversions of Siwas and
Valintatalos into K-Markets.
The most significant store sites being built are a K-Citymarket (a replacement
new building) and the Easton shopping centre in Helsinki. A new K-Supermarket is
being built in Tesoma and Kaukajärvi in Tampere, in Turku, in Niittykumpu,
Espoonlahti and Suurpelto in Espoo, in Ilmajoki, in Kalasatama, Viikki and
Pasila in Helsinki, in Oulu, Lapua, Kerava, Vantaa, Kouvola, Juva and
Kauniainen.
Store numbers at 31.3. 2017 2016
K-Citymarket 80 81
K-Supermarket 227 221
K-Market** 799 418
Neste K 69 66
Valintatalo and Siwa** 99 -
K-ruoka, Russia - 9
Others* 90 98
* Incl. online stores
** The total number of Suomen Lähikauppa's stores was 481.
In addition, several K-food stores offer e-commerce services to their customers.
Building and technical trade
1-3/2017 1-3/2016
Net sales, € million 1,112 695
Operating profit, comparable,
€ million 3.0 0.3
Operating margin, %, comparable 0.3 0.0
Capital expenditure, € million 13.6 8.2
Net sales, € million 1-3/2017 Change, %
Building and home improvement
trade, Finland 218 +12.1
K-Rauta, Sweden 43 -2.9
Byggmakker, Norway 100 +13.6
K-Rauta, Russia 39 +20.9
Kesko Senukai, the Baltics 98 +8.1
OMA, Belarus 25 +31.4
Onninen 363 -
Agricultural and machinery trade 136 +5.1
Intersport, Finland 46 -1.0
Indoor 45 +6.9
Others 5 -53.3
Total 1,112 +59.9
January-March 2017
The net sales of the building and technical trade for January-March were €1,112
million (€695 million), up 59.9%. Net sales in local currencies, excluding
acquisitions, increased by 5.9%.
In January-March, the net sales of the building and technical trade in Finland
were €606 million (€400 million), up 51.6%. Acquisitions excluded, net sales in
Finland grew by 7.0%. In January-March, the net sales from foreign operations
were €506 million (€296 million), up 71.0%. In local currencies, excluding
acquisitions, the net sales from foreign operations increased by 4.4%. Foreign
operations contributed 45.5% (42.5%) to the net sales of the building and
technical trade.
In January-March, the net sales of the building and home improvement trade were
€522 million (€467 million), an increase of 12.0%. In local currencies, net
sales were up by 8.3%. In respective local currencies, net sales grew in Norway
by 7.2%, decreased in Sweden by 1.0% and in Russia by 8.3%. In the building and
home improvement trade, growth strengthened especially in B2B trade. The market
share of K Group's building and technical trade is estimated to have
strengthened especially in Finland. K Group's sales of building and home
improvement products in Finland increased by a total of 10.0% and the total
market (VAT 0%) is estimated to have grown by approximately 9.4% (Kesko's own
estimate).
The net sales of the agricultural and machinery trade for January-March were
€136 million (€129 million), up 5.1% compared to the previous year. Net sales in
Finland were €116 million, up 3.6%. The net sales from foreign operations were
€19 million, up 15.7%. The retail sales of the K-maatalous chain in Finland were
€83 million, down 3.9%.
The net sales of the leisure trade were €51 million (€56 million), a decrease of
0.8% excluding the Russian Intersport business divested in July 2016.
The net sales of the furniture trade were €45 million (€42 million), which was
up 6.9%.
In January-March, the comparable operating profit of the building and technical
trade was €3.0 million (€0.3 million), up €2.7 million compared to the previous
year, despite the K-Rauta chain renewal in Finland and the launch of K-Senukai
stores in Estonia and Latvia. Profitability was improved by the good profit
performances of Onninen, the Finnish and Norwegian building and home improvement
trade operations and the furniture trade, as well as the divestment of
Intersport's Russian business operations in July 2016. Onninen's contribution to
the comparable operating profit for January-March was €2.5 million.
The operating profit of the building and technical trade was €1.2 million (€1.8
million). The most significant items affecting comparability were the €1.8
million costs related to the structural changes in the Swedish business
operations.
In January-March, the capital expenditure of the building and technical trade
totalled €13.6 million (€8.2 million), of which €7.1 million (€3.6 million) was
in store sites.
In January-March 2017, a building and home improvement store was opened in
Savonlinna and in St. Petersburg, an Onninen Express store in Iisalmi and a The
Athlete's Foot store in Helsinki. The most significant store site being built is
a building and home improvement store in Belarus.
The K-Rauta and Rautia stores were combined to form the K-Rauta chain, launched
with a new brand image in March 2017. The new k-rauta.fi online store was
launched at the same time.
Store numbers at 31.3. 2017 2016
K-Rauta* 139 46
Rautia - 95
K-maatalous* 78 80
K-Rauta, Sweden 19 20
Byggmakker, Norway 82 88
K-Rauta, Estonia 8 8
K-Rauta and K-Senukai, Latvia 8 8
K-Senukai, Lithuania 22 20
K-Rauta, Russia 14 13
OMA, Belarus 16 13
Onninen 145 -
Intersport, Finland** 58 60
Budget Sport** 11 11
The Athlete's Foot 4 -
Asko and Sotka** 88 87
Kookenkä** 38 38
Intersport, Russia - 16
Asko and Sotka, the Baltics** 12 12
Konekesko - 1
* In 2017, 39 (45) K-Rauta stores also operated as K-maatalous stores
** Including online stores
In addition, the building and home improvement stores offer e-commerce services
to their customers.
Car trade
1-3/2017 1-3/2016
Net sales, € million 245 225
Operating profit, comparable,
€ million 10.0 9.4
Operating margin, comparable, % 4.1 4.2
Capital expenditure, € million 3.6 4.6
Net sales, € million 1-3/2017 Change, %
VV-Auto 232 3.4
AutoCarrera 13 -
Total 245 8.9
January-March 2017
The net sales of the car trade for January-March were €245 million (€225
million), up 8.9%. Excluding the impact of the acquisition of AutoCarrera in
December 2016, the change in net sales was +3.4%. The combined market
performance of first time registered passenger cars and vans in January-March
was +2.8% (12.5%). The combined market share of passenger cars and vans imported
by VV-Auto was 17.8% (18.5%) in January-March.
In the car trade, profitability continued to improve thanks to good sales
performance. The comparable operating profit for January-March was €10.0 million
(€9.4 million). The operating profit for January-March was €10.0 million (€9.4
million).
The capital expenditure of the car trade in January-March was €3.6 million (€4.6
million).
Store numbers at 31.3. 2017 2016
VV-Auto, retail trade 10 10
AutoCarrera 3 -
Changes in the Group composition
Kesko Food Ltd, K-citymarket Oy and Kespro Ltd, subsidiaries wholly-owned by
Kesko Corporation, merged into Kesko Corporation on 28 February 2017.
Kesko Corporation's subsidiary Konekesko Ltd sold 45% of its Baltic
subsidiaries' shares to Danish Agro a.m.b.a.'s group company DAVA Agravis
Machinery Holding A/S. In the same context, an agreement was made on options to
expand DAVA Agravis' ownership to include the whole share capital of the Baltic
machinery trade companies and Danish Agro group's ownership to include
Konekesko's agricultural machinery business in Finland. (Stock exchange release
on 10 February 2017)
Shares, securities market and Board authorisations
At the end of March 2017, 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 31 March 2017, Kesko Corporation held 553,287 own B
shares as treasury shares. These treasury shares accounted for 0.81% of the
number of B shares, 0.55% of the total number of shares, and 0.14% 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 March 2017, Kesko Corporation's
share capital was €197,282,584.
The price of a Kesko A share quoted on Nasdaq Helsinki was €43.85 at the end of
2016, and €44.24 at the end of March 2017, representing an increase of 0.9%.
Correspondingly, the price of a B share was €47.48 at the end of 2016, and
€44.70 at the end of March 2017, representing a decrease of 5.9%. In January-
March, the highest A share price was €44.50 and the lowest was €40.11. The
highest B share price was €48.59 and the lowest was €42.05. In January-March,
the Nasdaq Helsinki All-Share index (OMX Helsinki) was up by 3.0% and the
weighted OMX Helsinki Cap index by 2.7%. The Retail Sector Index was down by
1.0%.
At the end of March 2017, the market capitalisation of A shares was €1,404
million, while that of B shares was €3,028 million, excluding the shares held by
the parent company as treasury shares. The combined market capitalisation of A
and B shares was €4,432 million, a decrease of €167 million from the end of
2016.
In January-March 2017, a total of 0.4 million (0.5 million) A shares were traded
on Nasdaq Helsinki, a decrease of 10.1%. The exchange value of A shares was €19
million. The number of B shares traded was 14.3 million (16.6 million), a
decrease of 14.2%. The exchange value of B shares was €637 million. Nasdaq
Helsinki accounted for 61% of the Kesko A and B share trading in January-March
2017. Kesko shares were also traded on multilateral trading facilities, the most
significant of which were BATS Chi-X with 28% and Turquoise with 9% of the
trading (source: Fidessa).
The Board 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 (the 2016 share
issue authorisation). On 1 February 2017, the Board decided to grant own B
shares held by the Company as treasury shares to persons included in the target
group of the 2016 vesting period, based on this share issue authorisation and
the fulfilment of the vesting criteria of the 2016 vesting period of Kesko's
three-year share-based compensation plan. This transfer of a total of 192,822
own B shares was announced in a stock exchange release on 15 March 2017. 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 could be
granted within a period of three years based on the fulfilment of the vesting
criteria. The Board decided on the vesting criteria and the target group
separately for each vesting period. No shares granted based on the fulfilment of
the vesting criteria of the 2014-2016 share-based compensation plan were
returned to the Company during the reporting period. The share-based
compensation plan 2014-2016 was announced in a stock exchange release on 4
February 2014.
On 1 February 2017, Kesko Corporation's Board of Directors made a decision to
establish a new share-based long-term incentive scheme for Kesko's top
management and key persons selected separately. The scheme consists of a
performance share plan (PSP) as the main structure, and of a restricted share
pool (RSP), which is a complementary share plan for special situations. Besides
the PSP, the Board has made a decision to establish a share-based bridge plan to
cover the transitional phase during which Kesko transfers from a one-year
performance period to a longer performance period in its long-term incentive
scheme structure. If the performance criteria set for the PSP 2017-2020 plan are
achieved in full, the maximum number of series B shares to be paid based on this
plan is 340,000 shares. If all the performance criteria set for the Bridge Plan
are achieved in full, the maximum number of series B shares to be paid based on
the Bridge Plan is 340,000 shares. The total maximum amount of share awards
payable under the RSP 2017-2019 is 20,000. The new share-based incentive scheme
was announced in a stock exchange release on 2 February 2017.
Kesko's Board of Directors holds a valid authorisation decided by the Annual
General Meeting held on 4 April 2016 to transfer of a total maximum of
1,000,000 own B shares held by the Company as treasury shares (the 2016 share
issue authorisation). Based on the authorisation, own B shares held by the
Company as treasury shares can be issued for subscription by shareholders in a
directed issue in proportion to their existing holdings of the Company shares,
regardless of whether they own A or B shares. Shares can also be issued in a
directed issue, departing from the shareholder's pre-emptive right, for a
weighty financial reason of the Company, such as using the shares to develop the
Company's capital structure, to finance possible acquisitions, capital
expenditure or other arrangements within the scope of the Company's business
operations, and to implement the Company's commitment and incentive scheme. Own
B shares held by the Company as treasury shares can be transferred either
against or without payment. A share issue can only be without payment, if the
Company, taking into account the best interests of all of its shareholders, has
a particularly weighty financial reason for it. The authorisation also includes
the Board's authority to make decisions concerning any other matters related to
share issues. The amount possibly paid for the Company's own shares is recorded
in the reserve of unrestricted equity. The authorisation is valid until 30 June
2020.
Kesko's Board of Directors also holds a valid authorisation decided by the
Annual General Meeting held on 4 April 2016 to acquire a maximum of 1,000,000
own B shares of the Company (the 2016 authorisation to acquire own shares). B
shares are acquired with the Company's distributable unrestricted equity, not in
proportion to the shareholdings of shareholders, at the market price quoted in
public trading organised by Nasdaq Helsinki Ltd ("the exchange") at the date of
acquisition. The shares are acquired and paid in accordance with the rules of
the exchange. The acquisition of own shares reduces the amount of the Company's
distributable unrestricted equity. B shares are acquired for use in the
development of the Company's capital structure, to finance possible
acquisitions, capital expenditure and/or other arrangements within the scope of
the Company's business operations, and to implement the Company's commitment and
incentive scheme. The Board makes decisions concerning any other issues related
to the acquisition of own B shares. The authorisation is valid until 30
September 2017.
In addition, Kesko's Board of Directors holds a share issue authorisation,
decided by the Annual General Meeting held on 13 April 2015, to issue a maximum
of 20,000,000 new B shares (the 2015 share issue authorisation). 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, departing 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. The
authorisation is valid until 30 June 2018.
At the end of March 2017, the number of shareholders was 41,728, which is 2,324
more than at the end of 2016. At the end of March, foreign ownership of all
shares was 31%. Foreign ownership of B shares was 44% at the end of March.
Flagging notifications
According to a notification received by Kesko Corporation, the combined voting
rights in respect of shares in Kesko held by K-Retailers' Association, its
Branch Clubs and the Foundation for Vocational Training in the Retail Trade rose
to 15 per cent on 3 February 2017 and exceeded 15 per cent on 6 February 2017.
(Stock exchange release on 7 February 2017)
Key events during the reporting period
The court of arbitration dismissed Voimaosakeyhtiö SF's action against Kestra
Kiinteistöpalvelut Oy concerning the further financing of the Fennovoima nuclear
power plant project. (Stock exchange release on 10 January 2017)
Kesko Corporation's Board of Directors decided to establish a new share-based
long-term incentive scheme for Kesko's top management and key persons selected
separately. In addition, the Board of Directors decided to grant a total of
192,822 own B shares held by the Company as treasury shares, based on the
fulfilment of the performance criteria of the 2016 performance period of Kesko's
share-based compensation plan 2014-2016, to 130 Kesko management employees and
other named key persons. (Stock exchange release on 2 February 2017)
Kesko Corporation's subsidiary Konekesko Ltd sold 45% of its Baltic
subsidiaries' shares to Danish Agro a.m.b.a.'s group company DAVA Agravis
Machinery Holding A/S. In the same context, an agreement was made on options to
expand DAVA Agravis' ownership to include the whole share capital of the Baltic
machinery trade companies and Danish Agro group's ownership to include
Konekesko's agricultural machinery business in Finland. (Stock exchange release
on 10 February 2017)
Kesko Corporation and Oriola-KD Corporation start building a completely new kind
of store chain in Finland, specialising in overall wellbeing. The companies have
signed an agreement to establish a joint venture. The establishment of the joint
venture is subject to the approval of the competition authorities. The first
phase objective is to build a chain of 100 stores and an online store. The plan
is, if legislation is amended, to expand the business to include
pharmaceuticals. (Stock exchange release on 13 March 2017)
The trading symbols of Kesko Corporation shares changed as of 15 March 2017. The
new symbols are KESKOA (share series A) and KESKOB (share series B). (Stock
exchange release on 13 March 2017)
Events after the reporting period
Kesko Corporation signed an agreement to sell its K-maatalous business to the
Swedish Lantmännen ek för. The debt free price of the sale, structured as a
share transaction, is €38.5 million. As the transaction is completed, Kesko
Corporation will record a profit of €13 million on the disposal. The completion
of the transaction is subject to the approval of the competition authorities and
the fulfilment of the other terms and conditions of the transaction. The
transaction is expected to be completed no later than the third quarter of
2017. (Stock exchange release on 11 April 2017)
Resolutions of the 2017 Annual General Meeting and decisions of the Board's
organisational meeting
Kesko Corporation's Annual General Meeting held on 3 April 2017 adopted the
financial statements and the consolidated financial statements for 2016 and
discharged the Board members and the Managing Director from liability. The
General Meeting also resolved to distribute €2.00 per share as dividends, or a
total of €198,932,930.00. The dividend pay date was 12 April 2017.
The General Meeting resolved to leave the number of Board members unchanged at
seven. The Annual General Meeting held on 13 April 2015 elected seven (7) Board
members for terms of office in accordance with the Articles of Association
expiring at the close of the Annual General Meeting to be held in 2018. Those
Board members are retailer Esa Kiiskinen, Master of Science in Economics Tomi
Korpisaari, retailer, eMBA Toni Pokela, eMBA Mikael Aro, Master of Science in
Economics Matti Kyytsönen, Master of Science in Economics Anu Nissinen and
Master of Laws Kaarina Ståhlberg. Korpisaari and Ståhlberg resigned from the
membership of the Company's Board of Directors as of 1 March 2016. The General
Meeting held on 4 April 2016 replaced Korpisaari and Ståhlberg by retailer,
trade technician Matti Naumanen and Managing Director, Master of Science in
Economics Jannica Fagerholm until the close of the Annual General Meeting to be
held in 2018.
The General Meeting elected the firm of auditors PricewaterhouseCoopers Oy as
the Company's Auditor, with Mikko Nieminen, APA, as the Auditor with principal
responsibility.
In addition, the General Meeting approved the Board's proposal for its
authorisation to decide on donations in a total maximum of €300,000 for
charitable or corresponding purposes until the Annual General Meeting to be held
in 2018, and to decide on the donation recipients, purposes of use and other
terms of the donations.
After the Annual General Meeting, Kesko Corporation's Board of Directors held an
organisational meeting in which it elected M.Sc. (Econ.) Jannica Fagerholm as
the Chair of the Audit Committee, eMBA Mikael Aro as its Deputy Chair, and M.Sc.
(Econ.) Matti Kyytsönen as its member. Business College Graduate Esa Kiiskinen
(Ch.), eMBA Mikael Aro (Dep. Ch.) and M.Sc. (Econ.) Anu Nissinen were elected to
the Board's Remuneration Committee.
The resolutions of the Annual General Meeting and the decisions of the Board's
organisational meeting were announced in more detail in stock exchange releases
on 3 April 2017.
Corporate responsibility
At the beginning of 2017, Kesko started purchasing 100% renewable electricity in
Finland. This electricity is used in K-stores and K Group's other properties.
Kesko purchases renewable electricity that has The Renewable Energy Guarantee of
Origin (REGO) from the Nordic countries.
In January, Kesko was ranked 25th in the Global 100 Most Sustainable
Corporations in the World list and, at the same time, as the most sustainable
trading sector company in the world.
Kesko was one of the first reporting companies to adopt the new GRI standards in
its Annual Report and joined the Global Reporting Initiative (GRI) Standards
Pioneers.
The Pirkka ESSI circular economy bags were introduced in K-food stores' shopping
bag selections in January. For the first time in Finland, plastic packaging
recycled by households is used in their manufacture.
Save the Children Finland and K Group continue their long-term cooperation for
the benefit of children and young people. In March, K-food stores introduced
Pirkka paper bags, with five cents of each purchased bag going to the "Eväitä
Elämälle" programme that supports children and young people threatened by social
exclusion.
Risk management
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 continue
to be associated with the development of purchasing power and the trading sector
demand especially in Finland, price competition in the Finnish grocery trade,
the implementation of the neighbourhood market strategy of the grocery trade,
business arrangements in the building and technical trade, as well as the change
in the trading sector caused by digitalisation. No material change is estimated
to have taken place in 2017 in the risks described in Kesko's 2016 Report by the
Board of Directors, financial statements and the risks described on Kesko's
website. The risks and uncertainties related to economic development are
described in the outlook section of this release.
Outlook
Estimates for the outlook of Kesko Group's net sales and comparable operating
profit are given for the 12-month period following the reporting period (4/2017-
3/2018) in comparison with the 12 months preceding the end of the reporting
period (4/2016-3/2017).
The general economic situation and the expected trend in consumer demand vary in
Kesko's different operating countries. In Finland, the trading sector is
expected to grow. In the Finnish grocery trade, intense competition is expected
to continue. The market for the Finnish building and technical trade is expected
to grow. In Sweden and Norway, the market is expected to grow but at a somewhat
slower rate. The trend in the Russian market is expected to remain modest. In
the Baltic countries, the market is expected to grow.
Kesko Group's net sales for the next 12-month period are expected to remain at
the level of the preceding 12 months. The net sales expectation takes account of
the divestment of the K-maatalous business expected no later than the third
quarter of 2017, the divestment of the Russian grocery trade in November 2016,
as well as the transfer of the stores included in the acquisition of Suomen
Lähikauppa to retailers and store closures. The comparable net sales for the
next 12-month period are expected to exceed the level of the preceding 12
months. The comparable operating profit for the next 12-month period is expected
to exceed the level of the preceding 12 months.
Helsinki, 26 April 2017
Kesko Corporation
Board of Directors
The information in the interim report is unaudited.
Further information 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
interim report briefing can be viewed at 11.00 at www.kesko.fi. 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 half year financial report for January-June 2017 will be
published on 27 July 2017. 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.
KESKO CORPORATION
ATTACHMENTS:
Interim report
DISTRIBUTION
Nasdaq Helsinki Ltd
Main news media
www.kesko.fi
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