2017-02-02 08:00:45 CET
2017-02-02 08:00:45 CET
REGULATED INFORMATION
Kesko Oyj - Financial Statement Release
Kesko's financial statements release for the period 1 Jan. 2016 to 31 Dec. 2016: Kesko's comparable operating profit increased
KESKO CORPORATION FINANCIAL STATEMENTS RELEASE 02.02.2017 AT 09.00 1(40)
Kesko's financial statements release for the period 1 Jan. 2016 to 31 Dec.
2016: Kesko's comparable operating profit increased
Financial performance in brief:
* The Group's net sales for January-December were €10,180 million (€8,679
million).
Net sales grew by 17.3% and in local currencies, acquisitions and disposals
excluded,
by 1.6%.
* Comparable operating profit was €272.9 million (€244.5 million)
* Operating profit was €146.8 million (€194.6 million)
* Comparable return on capital employed was 11.9% (11.7%)
* Comparable profit before tax was €271.4 million (€237.9 million)
* Comparable earnings per share were €2.01 (€1.70)
* The Board's proposal for dividend is €2.00 per share
* Kesko Group's net sales for 2017 are expected to exceed the level of the
previous year. The comparable operating profit for 2017 is expected to exceed
the level of 2016.
Key performance indicators
1-12/2016 1-12/2015 10-12/2016 10-12/2015
Net sales, € million 10,180 8,679 2,765 2,166
Operating profit, comparable,
€ million 272.9 244.5 63.3 59.1
Operating profit, € million 146.8 194.6 -40.3 39.3
Profit before tax, comparable,
€ million 271.4 237.9 60.2 60.6
Profit before tax, € million 145.2 188.0 -43.5 40.7
Capital expenditure, € million 743.1 218.5 105.4 66.9
Earnings per share, €, diluted 0.99 1.03 -0.40 0.22
Earnings per share, comparable, €,
basic 2.01 1.70 0.42 0.47
31.12.2016 31.12.2015
Equity ratio, % 48.6 54.7
Equity per share, € 20.44 21.82
President and CEO Mikko Helander:
"For Kesko, 2016 was a year of renewal. Net sales turned to significant growth
and comparable operating profit improved markedly. We continued to make Kesko's
business more focused and strengthened the strategic growth areas with the
acquisitions of Suomen Lähikauppa, Onninen and AutoCarrera. In 2016, we also
started the grocery trade chain reforms in the K-Market and K-Citymarket chains,
and arranged the building and technical trade operations in the Baltics and
Belarus into Kesko Senukai. We made significant progress also in our digital
services, such as food ecommerce, K-ruoka app, K-rauta.fi, Caara.fi and
digitalised Plussa.
Due to the acquisitions we made, Kesko's business grew strongly also in the last
quarter. The integration of Suomen Lähikauppa has progressed as planned and at
the end of the year, 223 Siwa and Valintatalo stores had been converted into K-
Market stores and 18 of them had been transferred to retailers. The acquisition
of Onninen was reflected in a significant growth in the B2B trade of the
building and technical trade. The acquisition of the Porsche business in
Finland, for its part, strengthens our long-standing cooperation with Volkswagen
AG and improves the profitability of the car trade.
Due to the acquisitions, Kesko's last quarter net sales increased by 27.6% and
in local currencies by 1.2%, excluding the impact of the acquisitions.
Comparable operating profit was €63.3 million, up €4.2 million. The 12-month
return on capital employed improved in comparison with the corresponding period
of the previous year.
The K-Group's grocery sales increased by 1.3% in the last quarter, excluding the
impact of Suomen Lähikauppa. In the grocery trade, comparable operating profit
remained at a good level due to retail sales growth, enhancement actions and
synergies. In the building and technical trade, market share continued to
strengthen especially in Finland. Onninen's contribution to the net sales and
the operating profit of the building and technical trade was significant. In the
car trade, net sales and operating profit showed strong growth.
Responsible business is key for the achievement of a good and sustainable
financial result. The World Economic Forum in Davos annually selects the Global
100 Most Sustainable Corporations in the World. Kesko has been included in the
Global 100 list every year since it was established in 2005. In the list
announced in January 2017, Kesko ranked 25th and again as the most sustainable
trading sector company in the world. For the list, companies were assessed on
14 sustainability indicators in the areas of economic, social and environmental
responsibility."
FINANCIAL PERFORMANCE
Net sales and profit for January-December 2016
The Group's net sales for January-December 2016 were €10,180 million, which is
17.3% up on the corresponding period of the previous year (€8,679 million).
Acquisitions and disposals excluded, net sales in local currencies grew by
1.6%. Suomen Lähikauppa Oy has been consolidated into Kesko Group as of 12 April
2016, Onninen Group as of 1 June 2016 and Oy Autocarrera Ab as of 1 December
2016. The Russian business of the grocery trade is included in the figures until
30 November 2016 and Anttila was included in the figures for the comparative
period until 16 March 2015.
In the grocery trade, the 12.0% net sales growth was significantly attributable
to the acquisition of Suomen Lähikauppa. Net sales in local currencies,
excluding Suomen Lähikauppa and the Russian business, were down 0.2%. In the
building and technical trade, net sales increased by 26.2% and in local
currencies, excluding Onninen and Anttila, by 2.1%. In the car trade, net sales
were up markedly, by 13.5%, and excluding the acquisition of AutoCarrera, by
13.0%. The Group's net sales in Finland increased by 15.3%, and acquisitions and
disposals excluded, by 1.1%. In the other countries, net sales increased by
26.0% and in local currencies, acquisitions and disposals excluded, by 3.9%.
International operations accounted for 20.3% (18.9%) of net sales.
1-12/2016 Net sales, Change, % Change in local Operating Change, €
€ million currency excl. profit, million
acquisitions comparable,
and disposals, € million
%
Grocery trade 5,236 +12.0 -0.2 175.9 -1.5
Building and
technical trade 4,100 +26.2 +2.1 97.9 +34.4
Car trade 849 +13.5 +13.0 29.5 +3.4
Common
functions and
eliminations -5 (..) (..) -30.5 -7.7
Total 10,180 +17.3 +1.6 272.9 +28.5
(..) Change over 100%
The Group's comparable operating profit for January-December was €272.9 million
(€244.5 million). In the grocery trade, profitability was good. Comparable
operating profit remained at the previous year's level while an intensive reform
of business operations was carried out, the acquisition of Suomen Lähikauppa was
implemented and its integration into Kesko's business operations was started.
The real estate arrangement completed in June 2015 had a €6.5 million negative
impact on the comparable operating profit of the grocery trade. In the building
and technical trade, profitability was improved by the acquisition of Onninen
during the financial period, the disposal of Intersport's business in Russia,
the good profit performance in the building and home improvement trade in
Lithuania and Sweden, in the agricultural and machinery trade and in the
furniture trade, as well as the divestment of Anttila completed in the previous
year. In the car trade, profitability continued to improve thanks to good sales
performance. The total impact of the real estate arrangement completed in June
2015 on the Group's comparable operating profit in the grocery trade and the
building and technical trade was €-8.4 million.
The operating profit was €146.8 million (€194.6 million). The items affecting
comparability totalled €-126.2 million (€-49.9 million). The most significant
items affecting comparability included a €69.2 million loss on the disposal of
the Russian grocery trade, €30.0 million in impairment charges, €11.4 million in
costs related to the conversion of Suomen Lähikauppa's chains, and €6.9 million
in asset transfer taxes on acquisitions included in structural arrangements. Due
to the change in the Russian real estate market, the functional currency of the
building and home improvement trade's Russian properties was changed from euro
to rouble on 31 December 2016, and as a result, a €15 million impairment charge
was allocated to the properties. In the previous year, the items affecting the
comparability of the operating profit included a €130 million loss on the
divestment of Anttila and €101 million in gains on the disposal of real estate.
Items affecting comparability, € million 1-12/2016 1-12/2015
Operating profit, comparable 272.9 244.5
Items affecting comparability
+gains on disposal +4.2 +101.2
-losses on disposal -71.0 -131.8
-impairment charges -30.0 -
+/-structural arrangements -23.1 -19.3
+/-others -6.3 +0.0
Total items affecting comparability -126.2 -49.9
Operating profit 146.8 194.6
The Group's profit before tax for January-December was €145.2 million (€188.0
million). The Group's earnings per share were €0.99 (€1.03). The Group's equity
per share was €20.44 (€21.82).
In January-December, the K-Group's (i.e. Kesko's and the chain stores') retail
and B2B sales (VAT 0%) were €12,463 million, up 14.6% compared to the previous
year. The K-Plussa customer loyalty programme gained 73,218 new households in
January-December 2016. At the end of December, there were 2.3 million K-Plussa
households and 3.6 million K-Plussa cardholders.
Net sales and profit for October-December 2016
The Group's net sales for October-December 2016 were €2,765 million, which is
27.6% up on the corresponding period of the previous year (€2,166 million).
Acquisitions and disposals excluded, net sales in local currencies grew by 1.2%.
In the grocery trade, the 13.8% net sales growth was contributed by the
acquisition of Suomen Lähikauppa. Net sales performance in local currencies,
excluding Suomen Lähikauppa and the Russian grocery trade business, was -0.5%.
In the building and technical trade, net sales increased by 52.3% and in local
currencies, excluding Onninen, the decrease was 0.7%. In the car trade, net
sales increased by 25.0%, and AutoCarrera excluded, by 22.5%. The Group's net
sales in Finland increased by 24.0% and acquisitions excluded, by 1.8%. In the
other countries, net sales increased by 44.2% and in local currencies,
acquisitions and disposals excluded, the decrease was 1.8%. International
operations accounted for 20.4% (18.1%) of net sales.
10-12/2016 Net sales, Change, % Change in local Operating Change, €
€ million currency excl. profit, million
acquisitions, % comparable,
€ million
Grocery trade 1,422 +13.8 -0.5 51.9 -2.5
Building and
technical trade 1,121 +52.3 -0.7 14.4 +6.9
Car trade 221 +25.0 +22.5 7.5 +3.7
Common
functions and
eliminations 1 -81.6 -50.4 -10.5 -3.8
Total 2,765 +27.6 +1.2 63.3 +4.2
The comparable operating profit for October-December was €63.3 million (€59.1
million). The comparable operating profit of the grocery trade remained at a
good level due to retail sales growth, enhancement actions and synergies. In the
building and technical trade, comparable operating profit was increased by the
acquisition of Onninen, the disposal of Intersport's business in Russia and the
good profit performance of the furniture trade and the agricultural and
machinery trade. In the car trade, comparable operating profit was increased to
€7.5 million (€3.8 million) by strong sales growth.
The operating profit was €-40.3 million (€39.3 million). The operating profit
includes items affecting comparability in the amount of €-103.6 million (€19.9
million). The most significant items included a €69.2 million loss on the
disposal of the Russian grocery trade, €6.1 million in costs related to the
conversion of Suomen Lähikauppa's chains, and €18.9 million in impairment
charges. Due to the change in the Russian real estate market, the functional
currency of the building and home improvement trade's Russian properties was
changed from euro to rouble on 31 December 2016, and as a result, a €15 million
impairment charge was allocated to the properties. In the previous year, the
comparability of the operating profit was affected by the impairment charges and
provisions in the amount of €17.2 million related to the restructuring of
Intersport's Russian business.
Items affecting comparability, € million 10-12/2016 10-12/2015
Operating profit, comparable 63.3 59.1
Items affecting comparability
+gains on disposal -0.8 +0.1
-losses on disposal -70.6 -
-impairment charges -18.9 -
+/-structural arrangements -9.4 -19.3
+/-others -3.9 -0.7
Total items affecting comparability -103.6 -19.9
Operating profit -40.3 39.3
The Group's profit before tax for October-December was €-43.5 million (€40.7
million). The Group's earnings per share were €-0.40 (€0.22).
In October-December, the K-Group's (i.e. Kesko's and the chain stores') retail
and B2B sales (VAT 0%) were €3,355 million, up 22.5% compared to the previous
year.
Finance
In January-December, the cash flow from operating activities was €170.2 million
(€276.4 million). The cash flow from investing activities was €-501.1 million
(€217.1 million).
At the end of the period, liquid assets totalled €391 million (€887 million).
Interest-bearing liabilities were €515 million (€439 million) and interest-
bearing net debt was €123 million (€-448 million) at the end of December. The
equity ratio was 48.6% (54.7%) at the end of the period.
The Group's net finance costs were €1.0 million (€7.1 million) in January-
December.
In October-December, the cash flow from operating activities was €107.8 million
(€123.3 million). The cash flow from investing activities was €75.5 million (€-
70.9 million) and it was positive as a result of the disposal of the grocery
trade business in Russia.
The Group's net finance costs were €4.3 million (net finance income €0.9
million) in October-December.
Taxes
In January-December, the Group's taxes were €31.4 million (€70.7 million). The
effective tax rate was 21.6% (37.6%).
In October-December, the Group's taxes were €6.4 million positive (tax expense
€14.0 million) due to tax deductible losses on disposal.
Capital expenditure
In January-December, the Group's capital expenditure totalled €743.1 million
(€218.5 million), or 7.3% (2.5%) of net sales. Capital expenditure in store
sites was €216.7 million (€166.7 million), in acquisitions €461.6 million, in IT
€29.3 million (€20.4 million) and other capital expenditure was €35.5 million
(€31.4 million).
In October-December, the Group's capital expenditure totalled €105.4 million
(€66.9 million), or 3.8% (3.1%) of net sales. Capital expenditure in store sites
was €58.1 million (€54.8 million), in acquisitions €30.6 million, in IT €9.5
million (€7.7 million) and other capital expenditure was €7.3 million (€4.5
million)
Personnel
In January-December, the average number of personnel in Kesko Group was 22,476
(18,956) converted into full-time employees. The increase was due to the
acquisitions of Suomen Lähikauppa and Onninen.
At the end of December 2016, the number of personnel was 27,656 (21,935), of
whom 14,845 (10,081) worked in Finland and 12,811 (11,854) outside Finland. The
number of Suomen Lähikauppa's personnel was 3,129, that of Onninen 3,068 and
that of AutoCarrera 37.
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
1-12/2016 1-12/2015 10-12/2016 10-12/2015
Net sales, € million 5,236 4,673 1,422 1,249
Operating profit, comparable, €
million 175.9 177.5 51.9 54.5
Operating margin, comparable, % 3.4 3.8 3.7 4.4
Capital expenditure, € million 238.1 128.9 49.7 29.9
Net sales, € million 1-12/2016 Change, % 10-12/2016 Change, %
Sales to K-food stores 3,161 -0.0 826 -0.2
K-Citymarket, non-food 588 +0.0 184 +1.1
Suomen Lähikauppa 575 - 187 -
Kespro 804 +1.5 202 -0.6
K-ruoka, Russia 105 -1.9 22 -29.9
Others and eliminations 4 -85.9 0 (..)
Total 5,236 +12.0 1,422 +13.8
(..) Change over 100%
January-December 2016
The net sales of the grocery trade for January-December were €5,236 million
(€4,673 million), representing a growth of 12.0%. Suomen Lähikauppa and the
Russian business excluded, net sales performance was -0.2%. In January-December,
the grocery sales of K-food stores in Finland increased by 0.5% (VAT 0%)
(excluding Suomen Lähikauppa) and Suomen Lähikauppa included, by 12.1%. In the
grocery market in Finland, retail prices are estimated to have changed by
approximately -0.6% 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 increased by approximately 1% in January-December
(Kesko's own estimate).
The acquisition of Suomen Lähikauppa was completed on 12 April 2016 and the
conversion of the Siwa and Valintatalo stores into K-Market stores was begun in
May. By the end of the year, 223 Siwas and Valintatalos had been converted into
K-Markets. At the same time, the renewal of the entire K-Market chain started.
As a result of the acquisition, Kesko's neighbourhood retail services improve
significantly and the acquisition provides significant economies of scale and
synergies for Kesko. In November, the Russian grocery trade was disposed of, the
growth of which would have required significant capital expenditures.
In January-December, the comparable operating profit of the grocery trade was
€175.9 million (€177.5 million). Comparable operating profit remained at the
previous year's level while an intensive reform of business operations was
carried out, the acquisition of Suomen Lähikauppa was implemented and its
integration into Kesko's business operations was started. Profitability was
improved by cost savings and the synergies achieved from the acquisition of
Suomen Lähikauppa. The real estate arrangement completed in June 2015 had a €6.5
million negative impact on comparable operating profit. The operating profit of
the grocery trade was €93.0 million (€249.4 million). The items affecting
comparability were €-82.9 million (€71.9 million) the most important of which
are the €69.2 million loss on the disposal of the Russian grocery trade and the
€11.4 million expenses related to the conversion of Siwas and Valintatalos into
K-Markets. Suomen Lähikauppa contributed €-7.4 million, and taking synergies
into account, €-3.2 million to the comparable operating profit for January-
December.
The capital expenditure of the grocery trade in January-December was €238.1
million (€128.9 million), of which €159.6 million (€117.7 million) was in store
sites and €54.3 million in acquisitions.
October-December 2016
The net sales of the grocery trade for October-December were €1,422 million
(€1,249 million), representing a growth of 13.8%. Suomen Lähikauppa and the
Russian business excluded, net sales decreased by 0.5%. In October-December, the
grocery sales of K-food stores in Finland increased by 1.3% (VAT 0%) (excluding
Suomen Lähikauppa) and Suomen Lähikauppa included, sales increased by 16.0%. In
the grocery market in Finland, retail prices are estimated to have changed by
approximately -0.2% compared to the previous year.
In October-December, the comparable operating profit of the grocery trade was
€51.9 million (€54.5 million). Comparable operating profit remained at a good
level due to K-food stores' retail sales growth, enhancement actions and
synergies, and K-Citymarket's good profit performance. Suomen Lähikauppa's
profitability was adversely impacted by the seasonal fluctuations of profit
performance coupled with costs incurred from the business transformation
programme. The comparable operating profit of the Russian grocery trade was
lower than in the previous year. The operating profit was €-26.1 million (€53.4
million). The items affecting comparability were €78.0 million (€1.0 million).
The most significant items affecting comparability are the €69.2 million loss on
the disposal of the Russian business and the €6.1 million expenses related to
the conversion of Suomen Lähikauppa's stores.
The capital expenditure of the grocery trade in October-December was €49.7
million (€29.9 million), of which €44.0 million (€27.4 million) was in store
sites.
In October-December, one new K-Supermarket and five K-Markets were opened.
Renewals and extensions were made in a total of 154 stores, of which 105 were
conversions of Siwas and Valintatalos into K-Markets.
The most significant store sites being built are a K-Citymarket in Sastamala and
a K-Citymarket (a replacement new building) and the Easton shopping centre in
Helsinki. A new K-Supermarket is being built in Tampere, in Niittykumpu,
Espoonlahti and Suurpelto in Espoo, in Ilmajoki and in Kalasatama and Pasila,
Helsinki.
Store numbers at 31.12. 2016 2015
K-Citymarket 80 81
K-Supermarket 228 219
K-Market** 638 412
Neste K 70 64
Valintatalo and Siwa** 340 -
K-ruoka, Russia - 9
Others* 92 108
* Incl. online stores
** The total number of Suomen Lähikauppa's stores was 563.
In addition, several K-food stores offer e-commerce services to their customers.
Building and technical trade
1-12/2016 1-12/2015 10-12/2016 10-12/2015
Net sales, € million 4,100 3,250 1,121 736
Operating profit, comparable,
€ million 97.9 63.6 14.4 7.5
Operating margin, %, comparable 2.4 2.0 1.3 1.0
Capital expenditure, € million 451.7 55.3 23.7 28.8
Net sales, € million 1-12/2016 Change, % 10-12/2016 Change, %
Building and home improvement
trade, Finland 826 +4.1 176 +3.8
K-Rauta, Sweden 217 +3.6 44 -8.6
Byggmakker, Norway 402 -3.8 89 -3.7
K-Rauta, Russia 174 -9.5 45 -1.5
Kesko Senukai, the Baltics 486 +5.7 127 +6.8
OMA, Belarus 101 -12.7 26 -9.5
Onninen 908 - 396 -
Agricultural and machinery trade 608 -1.1 123 -7.4
Intersport, Finland 178 +2.1 47 +3.3
Indoor 187 +4.3 49 +6.0
Others 30 -70.9 4 -61.1
Total 4,100 +26.2 1,121 +52.3
January-December 2016
The net sales of the building and technical trade for January-December were
€4,100 million (€3,250 million), up 26.2%. Net sales in local currencies,
excluding acquisitions, increased by 2.1%.
In January-December, the net sales of the building and technical trade in
Finland were €2,142 million (€1,719 million), up 24.6%. Acquisitions and
disposals excluded, net sales in Finland grew by 0.5%. In January-December, the
net sales from foreign operations were €1,959 million (€1,530 million), up
28.0%. In local currencies, excluding acquisitions and disposals, the net sales
from foreign operations increased by 3.9%. Foreign operations contributed 47.8%
(47.1%) to the net sales of the building and technical trade.
The acquisition of Onninen was completed on 1 June 2016. Onninen's net sales in
June-December were €908 million. The acquisition accelerates the implementation
of the international growth strategy of Kesko's building and technical trade and
provides significant synergy potential.
In January-December, the net sales of the building and home improvement trade
were €2,196 million (€2,181 million), an increase of 0.7%. In local currencies,
net sales were up by 3.7%. In respective local currencies, net sales grew in
Sweden by 4.7%, in Norway by 0.6% and in Russia by 0.3%. In the building and
home improvement trade, growth strengthened especially in B2B trade. In the
building and technical trade, the market share of the K-Group's building and
home improvement trade is estimated to have strengthened especially in Finland,
Sweden, the Baltics and Belarus. The K-Group's sales of building and home
improvement products in Finland increased by a total of 4.3% and the total
market (VAT 0%) is estimated to have grown by approximately 1.9% (Kesko's own
estimate).
The net sales of the agricultural and machinery trade for January-December were
€608 million (€615 million), down 1.1% compared to the previous year. Net sales
in Finland were €479 million, down 4.2%. The net sales from foreign operations
were €129 million, up 12.3%. The retail sales of the K-maatalous chain in
Finland were €424 million, down 3.1%.
The net sales of the leisure trade in Finland were €197 million (€193 million),
an increase of 2.0%.
The net sales of the furniture trade were €187 million (€179 million), which was
up 4.3%.
In January-December, the comparable operating profit of the building and
technical trade was €97.9 million (€63.6 million), up €34.4 million compared to
the previous year. Profitability was improved by the acquisition of Onninen
during the financial period, the disposal of Intersport's Russian business, as
well as the good profit performance of the building and home improvement trade
in Lithuania and Sweden, in the agricultural and machinery trade and in the
furniture trade. The profit for the comparative period includes a €12.7 million
operating loss from Anttila divested in March 2015. Onninen's contribution to
the comparable operating profit for January-December was €18.2 million,
adversely impacted by the fair value allocations of inventories written off in
the amount of €5.1 million.
The operating profit of the building and technical trade was €60.8 million (€-
57.2 million). The most significant items affecting comparability are the €15
million in impairment charges related to the change of the functional currency
of the Russian properties and the €5.8 million in asset transfer taxes related
to acquisitions. In the previous year, the most significant items affecting
comparability included a €130 million loss on the divestment of Anttila and €28
million recognized in gains on the disposal of real estate.
In January-December, the capital expenditure of the building and technical trade
totalled €451.7 million (€55.3 million), of which €380.1 million was in
acquisitions and €55.8 million (€40.8 million) in store sites. The acquisitions
include €364.1 million for the acquisition of Onninen and €10.0 million for
increasing the ownership interest in the Belarusian OMA.
October-December 2016
The net sales of the building and technical trade for October-December were
€1,121 million (€736 million), up 52.3%. Net sales in local currencies,
excluding acquisitions, decreased by 0.7%.
In October-December, the net sales of the building and technical trade in
Finland were €579 million (€376 million), up 53.8%. Acquisitions excluded, net
sales in Finland grew by 0.4%. In October-December, the net sales from foreign
operations were €542 million (€360 million), up 50.7%. In local currencies,
excluding acquisitions and disposals, the net sales from foreign operations
decreased by 1.8%. Foreign operations contributed 48.3% (48.9%) to net sales. In
the building and technical trade, market share continued to strengthen
especially in Finland.
In October-December, the net sales of the building and home improvement trade
were €506 million (€502 million), up 0.7%. In local currencies, net sales grew
by 1.4%. In respective local currencies, net sales decreased in Sweden by 3.7%,
in Russia by 2.7% and in Norway by 5.6%. The K-Group's sales of building and
home improvement products in Finland increased by a total of 1.2% and the total
market (VAT 0%) is estimated to have decreased by approximately 0.6% (Kesko's
own estimate). Onninen's net sales in October-December were €396 million.
The net sales of the agricultural and machinery trade for October-December were
€123 million (€133 million), down 7.4% compared to the previous year. Net sales
in Finland were €107 million, down 5.6%. The net sales from foreign operations
were €16 million, down 17.3%. The retail sales of the K-maatalous chain were
down by 8.3%.
The net sales of the leisure trade in Finland were €51 million (€49 million), an
increase of 4.8%.
The net sales of the furniture trade were €49 million (€46 million), which was
up 6.0%.
In October-December, the comparable operating profit of the building and
technical trade was €14.4 million (€7.5 million), up €6.9 million compared to
the previous year. Comparable operating profit was increased by the acquisition
of Onninen, the disposal of Intersport's Russian business, as well as the good
profit performances of the furniture trade and the agricultural and machinery
trade. Onninen's comparable operating profit for October-December 2016 was €7.2
million, adversely impacted by the fair value allocations of inventories written
off in the amount of €1.7 million.
The operating profit of the building and technical trade was €-11.7 million (€-
10.9 million). Items affecting comparability were €-26.1 million (€-18.4
million). The most significant item affecting comparability are the €15.0
million in impairment charges related to the change of the functional currency
of the Russian properties.
In October-December, the capital expenditure of the building and technical trade
totalled €23.7 million (€28.8 million), of which €13.8 million (€24.1 million)
were in store sites.
In October-December 2016, three building and home improvement stores were opened
in Belarus, one Onninen Express store in Finland and one The Athlete's Foot
store in Finland. In addition, the first pilot store of the K-Rauta chain being
reformed was opened in Keuruu and the first K-Senukai store in Latvia.
The most significant store sites being built are a K-Rauta in Savonlinna, a K-
Rauta in St. Petersburg and a building and home improvement store in Belarus.
Store numbers at 31.12. 2016 2015
K-Rauta 46 45
Rautia* 93 93
K-maatalous* 78 80
K-Rauta, Sweden 20 20
Byggmakker, Norway 80 88
K-Rauta, Estonia 8 8
K-Rauta and K-Senukai, Latvia 8 8
K-Senukai, Lithuania 22 20
K-Rauta, Russia 13 13
OMA, Belarus 16 12
Onninen 144 -
Intersport, Finland** 58 60
Budget Sport** 11 11
The Athlete's Foot 3 -
Asko and Sotka** 88 87
Kookenkä** 38 38
Intersport, Russia - 18
Asko and Sotka, the Baltics** 12 10
Konekesko - 1
* In 2016, 39 (45) Rautia 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
1-12/2016 1-12/2015 10-12/2016 10-12/2015
Net sales, € million 849 748 221 177
Operating profit, comparable,
€ million 29.5 26.1 7.5 3.8
Operating margin, comparable, % 3.5 3.5 3.4 2.1
Capital expenditure, € million 41.4 16.0 30.2 4.7
Net sales, € million 1-12/2016 Change, % 10-12/2016 Change, %
VV-Auto 845 +13.0 217 +22.5
AutoCarrera 4 - 4 -
Total 849 +13.5 221 +25.0
January-December 2016
The net sales of the car trade for January-December were €849 million (€748
million), up 13.5%. In January-December, the combined market performance of
first registrations of passenger cars and vans was 10.2% (2.8%). The combined
market share of passenger cars and vans imported by VV-Auto in January-December
was 18.8% (19.1%) and Volkswagen was the most registered passenger car brand in
2016.
On 1 December 2016, VV-Auto acquired the share capital of Oy Autocarrera Ab and
as a result, the import and retailing of Porsche transferred to VV-Auto. In
December, AutoCarrera's net sales were €4.4 million. The net sales growth of the
car trade, excluding AutoCarrera's impact, was 13.0%
The profitability of the car trade continued to improve thanks to good sales
performance. The comparable operating profit for January-December was €29.5
million (€26.1 million). The operating profit for January-December was €28.9
million (€26.1 million). Comparability was affected by the €0.6 million expenses
related to the acquisition of Oy Autocarrera Ab. AutoCarrera's impact on
comparable operating profit was €0.0 million, and the profit was adversely
impacted by the fair value allocations of inventories written off in the amount
of €0.1 million.
The capital expenditure of the car trade in January-December was €41.4 million
(€16.0 million).
October-December 2016
The net sales of the car trade for October-December were €221 million (€177
million), up 25.0%. The acquisition of AutoCarrera excluded, net sales grew by
22.5%. The combined market share of passenger cars and vans imported by VV-Auto
in October-December was 20.8% (18.5%).
The comparable operating profit of the car trade for October-December increased
to €7.5 million representing an increase of €3.7 million on the previous year.
The operating profit for October-December was €7.0 million (€3.8 million). VV-
Auto's order books strengthened from the previous year.
The capital expenditure of the car trade in October-December was €30.2 million
(€4.7 million). Acquisitions were €27.1 million.
Store numbers at 31.12. 2016 2015
VV-Auto, retail trade 10 9
AutoCarrera 3 -
Changes in the Group composition
Kesko implemented the arrangement it had agreed in the autumn of 2015 to
centralise its Baltic building and home improvement trade in UAB Senuku Prekybos
centras (Senukai). The company's name has been changed to Kesko Senukai. In the
arrangement, Kesko sold the shares in its wholly owned companies responsible for
the operations of K-rauta stores in Estonia and Latvia to its subsidiary
Senukai, in which Kesko has a majority interest. (Stock exchange release on 1
April 2016).
Kesko Food Ltd, a Kesko Corporation subsidiary, acquired the whole share capital
of Suomen Lähikauppa Oy from the private equity investment firm Triton. (Stock
exchange release on 12 April 2016). Suomen Lähikauppa Oy was renamed to K-Market
Oy in August.
Kesko Corporation acquired Onninen Oy's whole share capital from Onvest Oy. The
acquisition does not include Onninen's steel business or Russian subsidiary.
(Stock exchange release on 1 June 2016).
In June, the Group's ownership interest in the Group's Belarusian subsidiary OMA
increased to 25% (previously 9%).
In July, Kesko Corporation disposed of the Intersport business in Russia.
In September, Kesko acquired the Russian project business from Onvest Oy.
Kesko Corporation's wholly owned subsidiaries Rautakesko Ltd, Keslog Ltd and
Musta Pörssi Ltd merged into Kesko Corporation on 31 October 2016.
In November, Kesko Food Russia Holding Oy, part of Kesko Group, sold its grocery
trade business in Russia and the real estate companies related to the operations
to Lenta Ltd. (Stock exchange release on 30 November 2016).
In December, Kesko Corporation's subsidiary VV-Auto Group Oy acquired the whole
share capital of Oy Autocarrera Ab. As a result of the transaction, the import
and retailing of Porsche have transferred to VV-Auto. (Stock exchange release on
14 November 2016, 24 November 2016 and on 1 December 2016).
Shares, securities market and Board authorisations
At the end of December 2016, 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 December 2016, Kesko Corporation held 746,109 own B
shares as treasury shares. These treasury shares accounted for 1.09% of the
number of B shares, 0.75% of the total number of shares, and 0.19% 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 December 2016, Kesko
Corporation's share capital was €197,282,584.
The price of a Kesko A share quoted on Nasdaq Helsinki was €31.12 at the end of
2015, and €43.85 at the end of December 2016, representing an increase of
40.9%. Correspondingly, the price of a B share was €32.37 at the end of 2015,
and €47.48 at the end of December 2016, representing an increase of 46.7%. In
January-December, the highest A share price was €44.54 and the lowest was
€28.98. The highest B share price was €48.48 and the lowest was €29.56. In
January-December, the Nasdaq Helsinki All-Share index (OMX Helsinki) was up by
3.6% and the weighted OMX Helsinki Cap index by 8.2%. The Retail Sector Index
was up by 40.6%.
At the end of December 2016, the market capitalisation of A shares was €1,392
million, while that of B shares was €3,207 million, excluding the shares held by
the parent company as treasury shares. The combined market capitalisation of A
and B shares was €4,598 million, an increase of €1,429 million from the end of
2015.
In January-December 2016, a total of 1.7 million (2.4 million) A shares were
traded on Nasdaq Helsinki, a decrease of 26.7%. The exchange value of A shares
was €65 million. The number of B shares traded was 51.6 million (59.4 million),
a decrease of 13.2%. The exchange value of B shares was €2,015 million. Nasdaq
Helsinki accounted for 55% of the Kesko A and B share trading in January-
December 2016. Kesko shares were also traded on multilateral trading facilities,
the most significant of which were BATS Chi-X with 27% and Turquoise with 16% of
the trading (source: Fidessa).
During the reporting period, the Board had the authority to decide on the
transfer of a maximum of 1,000,000 own B shares held by the Company as treasury
shares. On 3 February 2016, the Board decided to grant own B shares held by the
Company as treasury shares to persons included in the target group of the 2015
vesting period, based on this share issue authorisation and the fulfilment of
the vesting criteria of the 2015 vesting period of Kesko's three-year share-
based compensation plan. This transfer of a total of 137,054 own B shares was
announced in a stock exchange release on 17 March 2016, and the transfer of
2,670 own B shares was announced in a stock exchange release on 27 April 2016.
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 decides on the vesting criteria and the target group
separately for each vesting period. The share-based compensation plan was
announced in a stock exchange release on 4 February 2014. In January-December, a
total of 8,256 shares granted based on the fulfilment of the vesting criteria of
the share-based compensation plans (the 2011-2013 and the 2014-2016 share-based
compensation plans) was returned to the Company in accordance with the terms and
conditions of the share-based compensation plans. The returns during the
reporting period were notified in a stock exchange release on 17 March 2016, 31
March 2016, 27 April 2016, 30 May 2016 and 15 November 2016.
Kesko's Annual General Meeting held on 4 April 2016 authorised the Company's
Board to make decisions concerning the transfer of a total maximum of 1,000,000
own B shares held by the Company as treasury shares (the 2016 share issue
authorisation). The authorisation cancelled the earlier share issue
authorisation corresponding in content. 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.
The Annual General Meeting held on 4 April 2016 also approved the Board's
proposal for its authorisation to decide on the acquisition of 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, the Board has a share issue authorisation according to which the
Board is authorised to issue a maximum of 20,000,000 new B shares (the 2015
share issue authorisation). The authorisation is valid until 30 June 2018. 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.
At the end of December 2016, the number of shareholders was 39,404, which is
125 less than at the end of 2015. At the end of December, foreign ownership of
all shares was 32%. Foreign ownership of B shares was 46% at the end of
December.
Flagging notifications
Kesko Corporation did not receive any flagging notifications during the
reporting period.
Key events during the reporting period
Tomi Korpisaari, a member of Kesko Corporation's Board of Directors, announced
that he would resign from the Company's Board of Directors for reasons of health
as of 1 March 2016. Kaarina Ståhlberg was appointed General Counsel and member
of the Management Board of Posti Group Corporation as of 1 March 2016, as a
result of which Ståhlberg announced that she would resign from Kesko
Corporation's Board of Directors as of 1 March 2016. (Stock exchange release on
5 February 2016 and 15 February 2016)
The arrangement agreed by Kesko in the autumn of 2015 to centralise the Baltic
building and home improvement trade in UAB Senuku Prekybos centras (Senukai) was
completed. The company's name has been changed to Kesko Senukai. In the
arrangement, Kesko sold the shares in its wholly owned companies responsible for
the operations of K-Rauta stores in Estonia and Latvia to its subsidiary
Senukai, in which Kesko has a majority interest. (Stock exchange release on 1
April 2016)
The transaction agreed between Kesko Corporation's subsidiary Kesko Food and the
private equity investment firm Triton to acquire Suomen Lähikauppa was
completed. The debt-free price of the acquisition, structured as a share
purchase, was €54 million. In 2015, Suomen Lähikauppa's net sales were €935.7
million, it had around 600 Siwa and Valintatalo stores and around 3,800
employees. The Finnish Competition and Consumer Authority (FCCA) announced their
approval of the acquisition on 11 April 2016. The permission contains conditions
imposed by the FCCA. The FCCA made the acquisition conditional on the sale of
60 stores of Suomen Lähikauppa Oy to competitors. In case the sale of some store
or some stores is not possible, the selling obligation imposed on Kesko Food Ltd
will cease. (Stock exchange release on 11 April 2016 and 12 April 2016)
The transaction agreed between Kesko Corporation and Onvest Oy to acquire the
whole share capital of Onninen Oy was completed. The acquisition does not
include Onninen's steel business or Russian subsidiary. In 2015, the pro forma
net sales of the acquired business were €1,465 million and the EBITDA was €39
million. The price of the debt-free acquisition, structured as a share purchase,
was €364 million. (Stock exchange release on 12 January 2016, 20 April 2016 and
1 June 2016)
Johan Friman, 51, Master of Science (Economics), was appointed Executive Vice
President responsible for Kesko's car trade and President of VV-Auto Group Oy.
He also became a member of Kesko's Group Management Board. Johan Friman took
over his new position on 1 January 2017 and Pekka Lahti, the current Executive
Vice President for the car trade, will retire on a pension in accordance with
his service contract on 1 April 2017. (Stock exchange release on 21 September
2016)
Kesko Food Russia Holding Oy, part of Kesko Group, sold its grocery trade
business in Russia to Lenta Ltd. The aggregate consideration for the disposal
including sales price adjustment was approximately RUB 11.4 billion
(approximately EUR 163 million). (Stock exchange release on 30 November 2016)
Kesko Corporation's subsidiary VV-Auto Group Oy acquired the whole share capital
of Oy Autocarrera Ab. As a result of the transaction, the import and retailing
of Porsche transferred to VV-Auto. The price of the acquisition, structured as a
share purchase, was approximately €27 million. (Stock exchange release on 14
November 2016, 24 November 2016 and 1 December 2016)
Events after 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)
Resolutions of the 2016 Annual General Meeting and decisions of the Board's
organisational meeting
Kesko Corporation's Annual General Meeting, held on 4 April 2016, adopted the
financial statements and the consolidated financial statements for 2015 and
discharged the Board members and the Managing Director from liability. The
General Meeting also resolved to distribute a dividend of €2.50 per share as
proposed by the Board, or a total amount of €248,195,187.50. The dividend pay
date was 13 April 2016.
The General Meeting resolved to leave the number of Board members unchanged at
seven. The term of office of each of the seven (7) Board members elected by the
Annual General Meeting on 13 April 2015, i.e. retailer, Business College
Graduate Esa Kiiskinen, retailer, 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, will expire at the close of the 2018 Annual
General Meeting in accordance with Kesko's Articles of Association. Korpisaari
and Ståhlberg had resigned from the membership of the Company's Board of
Directors as of 1 March 2016. The General Meeting resolved to replace them 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. 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 approved the Board's proposal for share issue authorisation
according to which the Board may decide on the transfer of a total maximum of
1,000,000 own B shares held by the Company as treasury shares (the 2016 share
issue authorisation). The General Meeting also approved the Board's proposal for
the authorisation to acquire own shares, according to which the Board may decide
on the acquisition of a maximum of 1,000,000 own B shares of the Company (the
2016 authorisation to acquire own shares).
In addition, the General Meeting approved the Board's proposal for its
authorisation to decide on the donations in a total maximum of €300,000 for
charitable or similar purposes until the Annual General Meeting to be held in
2017 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, re-elected eMBA Mikael Aro as its Deputy Chair
and M.Sc. (Econ.) Matti Kyytsönen as its member. Business College Graduate Esa
Kiiskinen (Ch.), Mikael Aro (Dep. Ch.) and M.Sc. (Econ.) Anu Nissinen were re-
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 4 April 2016.
Corporate responsibility
Kesko received the A- score in CDP's Climate Change Disclosure inquiry.
Kesko participates in the 2017-2025 action plan of the commerce sector Energy
Efficiency Agreement. In accordance with the agreement, Kesko commits itself to
reducing its energy consumption by 7.5% through various saving measures. All K-
Group store chains are included in the agreement.
The K-Group is committed to the EU's aim to keep the annual consumption of
plastic bags below 40 bags per inhabitant. Actions to achieve this target
include charging a price for plastic bags and providing alternative shopping
bags.
Kesko's updated operating principles, the K Code of Conduct, outline the shared
guidelines for the work of all Kesko personnel and business partners.
Kesko is committed to support the UN Sustainable Development Goals, the SDGs, in
its operations. The website 'UN Sustainable Development Goals and Kesko',
published in November, explains about the actions taken to contribute to the 17
Sustainable Development Goals.
In December, the K-Group started the building of seven new solar power plants on
the rooftops of K-food stores. By summer 2017, there will be as many as 15 solar
power plants operating in connection with K-food stores. The new investments
will make the K-Group the biggest producer and user of solar power in Finland.
Risk MANAGEMENT
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.
The management of financial risks is based on the Group's finance policy
confirmed by Kesko's Board of Directors. The managements of the business and the
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 the
Group, division and function levels in all operating countries.
Kesko Group's risks are considered by the Kesko Board's Audit Committee in
connection with the quarterly interim reports, the half year financial report
and the financial statements. The Audit Committee Chair 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 following describes the risks and uncertainties assessed as significant.
Significant risks and uncertainties
Trends in purchasing power and trading sector demand especially in Finland
The uncertain outlook for the Finnish economy, increases in taxes and public
payments resulting from the indebtedness of the public sector as well as high
unemployment weaken purchasing power and consumer confidence and can cause a
long-term decline in the level of demand. This would have negative repercussions
especially on Kesko's building and technical trade and car trade in Finland.
Decline in price levels and intensification of price competition in Finnish
grocery trade
The level of food prices in Finland declined further in 2016. As consumers'
purchasing power has fallen in recent years, competition has become more intense
and stores have lowered their prices in order to increase market shares. The
decline in price levels and the intensified price competition can weaken the
profitability of Kesko's grocery trade and retailers.
Neighbourhood market strategy of grocery trade
In 2016, Kesko acquired Suomen Lähikauppa as part of the neighbourhood market
strategy implementation. The integration of Suomen Lähikauppa's business
operations into those of Kesko, the conversion of Siwa and Valintatalo stores
into K-Markets as well as the replacement of the stores' business model by the
retailer business model are significant change projects and the achievement of
their objectives involves operational and financial risks.
Business arrangement of building and technical trade
The integration of the Onninen acquisition into Kesko's business operations and
the combination of Kesko Senukai's business in the Baltics are demanding and
extended projects. The integration of business operations and the creation of
uniform operating models involve risks that can make the achievement of the
operational and financial objectives and targets set for the arrangement more
difficult.
Strong change in the trading sector caused by digitalisation
In the midst of the retail transition, the achievement of business objectives
requires an active approach and strong expertise in the development of digital
services and online stores that are attractive to customers, and the use of a
multichannel approach with supporting customer communications. There is a risk
that some of the traditional brick and mortar stores become unprofitable and
that the progress of e-commerce and digital service development projects is
outpaced by competitors. Competition can also be intensified by companies
entering the value chain of trade by introducing new business models.
Employee competencies and working capacity
The implementation of strategies and the achievement of objectives require
competent and motivated personnel. There is a risk that the trading sector does
not attract the most competent people. The acquisitions in progress as well as
other significant business and development projects, coupled with an increased
need for special competencies increase the key-person risk and the dependency on
individual expertise.
Suppliers and distribution channels
In divisions strongly dependent on individual principals and suppliers, such as
the car trade, ownership arrangements and changes in the strategy of a principal
or a supplier as well as changes in product selections, product pricing and
distribution channel solutions can mean weakened competitiveness, a decrease in
sales or loss of business.
Product safety and supply chain quality
A failure in product safety control or in the quality assurance of the supply
chain can result in financial losses, the loss of customer confidence and
reputation or, in the worst case, a health hazard to customers.
Store sites and properties
With a view to business growth and profitability, good store sites are a key
competitive factor. The acquisition of store sites can be delayed by town
planning and permit procedures and the availability and pricing of sites.
Considerable amounts of capital or lease liabilities are tied up in properties
for years. When the market situation changes, the business is rearranged, the
significance of e-commerce grows, or a chain concept proves inefficient there is
a risk that a store site or a property becomes unprofitable and operations are
discontinued while long-term liabilities remain.
Business interruptions and information system failures
The trading sector is characterised by increasingly complicated and long supply
chains and a higher dependency on information systems, data communications and
external service providers. Failures can be caused by hardware failures,
software errors or external cyber threats. Extended malfunctions in information
systems, payment transfers, or in other parts of the supply chain, can cause
significant losses in sales and weaken customer satisfaction.
Responsible operating practices and reputation management
Various aspects of corporate responsibility, such as ensuring responsibility in
the purchasing chain of products, fair and equal treatment of employees and
environmental protection, are increasingly important to customers. Any failures
of corporate responsibility would result in negative publicity for Kesko and can
cause operational and financial damages.
Compliance with laws and agreements
Compliance with laws and agreements is an important part of Kesko's corporate
responsibility. Non-compliance can result in fines, claims for damages and other
financial losses, and a loss of confidence and reputation.
Reporting to the market
Kesko's objective is to produce and publish reliable and timely information. If
any information published by Kesko proved to be incorrect, or communications
failed to meet regulations in other respects, it can result in losing investor
and other stakeholder confidence and in possible sanctions. Significant business
arrangements, tight disclosure schedules and the dependency on information
systems create challenges to the accuracy of financial information.
Risks of damage
Accidents, natural phenomena and epidemics can cause significant damages to
people, property or business. In addition, risks of damage may cause business
interruptions that cannot be prevented. There is also the risk that insurance
policies do not cover all unexpected accidents and damages, or covering them
with insurance is not profitable.
Crime and malpractice
Crimes are increasingly committed through data networks and crime has become
more international and professional. A failure, especially if it affects the
security of payment transactions and personal information, can cause losses,
claims for damages and reputational harm.
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 (1/2017-
12/2017) in comparison with the 12 months preceding the end of the reporting
period (1/2016-12/2016).
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 slightly. In the Finnish grocery trade, intense competition is
expected to continue. The market for the Finnish building and technical trade is
expected to improve slightly. 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 2017 are expected to exceed the level of the
previous year. The comparable operating profit for 2017 is expected to exceed
the level of 2016.
Proposal for profit distribution
The parent's distributable profits are €1,006,169,969.92, of which the profit
for the financial year is €147,927,559.98.
The Board of Directors proposes to the Annual General Meeting to be held on 3
April 2017 that a dividend of €2.00 per share be paid on shares held outside the
Company at the date of dividend distribution. No dividend is paid on own shares
held by the Company as treasury shares at the record date of dividend
distribution.
At the date of the proposal for distributions of profits, 1 February 2017, a
total of 99,273,643 shares were held outside the Company, amounting to a total
dividend of €198, 547,286.00.
Annual General Meeting
The Board of Directors decided to convene the Annual General Meeting at
Messukeskus Helsinki, on 3 April 2017 at 13.00. Kesko Corporation will publish a
notice of the General Meeting at a later date.
Annual Report 2016 and Corporate Governance Statement
Kesko will publish the Annual Report for 2016 on week 10 on its website at
www.kesko.fi. The report contains a strategic review, the Report by the Board of
Directors and the financial statements for 2016, the responsibility reporting
indicators (GRI), Kesko's Corporate Governance Statement and Remuneration
Statement.
Helsinki, 01 February 2017
Kesko Corporation
Board of Directors
The information in the financial statements release is unaudited.
Further information is available from Jukka Erlund, Executive 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 results briefing to the media and analysts can be accessed at
www.kesko.fi, at 11.00. An English-language audio conference on the results 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-March 2017 will be published on
27 April 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: 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 by segment, comparable
Operating margin by segment, comparable
Capital employed by segment
Return on capital employed by segment, comparable
Items affecting comparability
Capital expenditure by segment
Segment information by quarter
Acquisitions
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 Helsinki Ltd
Main news media
www.kesko.fi
TABLES SECTION
Accounting policies
This financial statements release has been prepared in accordance with the IAS
34 standard. The financial statements release has been prepared in accordance
with the same principles as the annual financial statements for 2015.
Consolidated income statement
(€ million), condensed
1-12/ 1-12/ Change, % 10-12/ 10-12/ Change, %
2016 2015 2016 2015
Net sales 10,180 8,679 17.3 2,765 2,166 27.6
Cost of goods sold -8,719 -7,540 15.6 -2,347 -1,875 25.1
Gross profit 1,462 1,139 28.4 418 291 43.8
Other operating income 699 800 -12.7 174 178 -2.3
Employee benefit expense -723 -545 32.7 -215 -138 56.3
Depreciation and impairment
charges -162 -137 18.1 -57 -40 41.2
Other operating expenses -1,128 -1,063 6.2 -360 -252 42.9
Operating profit 147 195 -24.6 -40 39 (..)
Interest income and other
finance income 15 10 43.5 5 3 51.9
Interest expense and other
finance costs -12 -14 -18.7 -4 -2 80.6
Exchange differences -4 -3 31.6 -5 0 (..)
Share of results of equity
accounted investments -1 1 (..) 1 1 70.5
Profit before tax 145 188 -22.8 -43 41 (..)
Income tax -31 -71 -55.6 6 -14 (..)
Net profit for the period 114 117 -3.0 -37 27 (..)
Attributable to
Owners of the parent 99 102 -3.0 -40 22 (..)
Non-controlling
interests 15 16 -3.1 3 5 -45.5
Earnings per share (€)
for profit attributable to
equity holders of the parent
Basic and diluted 0.99 1.03 -3.1 -0.40 0.22 (..)
Consolidated statement
of comprehensive income (€
million)
1-12/ 1-12/ Change,% 10-12/ 10-12/ Change,%
2016 2015 2016 2015
Net profit for the period 114 117 -3.0 -37 27 (..)
Items that will not be
reclassified subsequently to
profit or loss
Actuarial gains/losses -11 23 (..) -5 22 (..)
Items that may be reclassified
subsequently to profit or loss
Exchange differences on
translation of foreign
operations 10 -17 (..) 6 -4 (..)
Cash flow hedge revaluation 2 0 (..) 1 1 -15.5
Revaluation of available-for-
sale financial assets 1 1 -53.3 0 0 (..)
Other items 0 0 -1.0 0 0 -
Total other comprehensive
income for the period,
net of tax 2 6 -69.3 1 18 -92.3
Total comprehensive income for
the period 116 124 -6.4 -36 45 (..)
Attributable to
Owners of the parent 101 119 -15.2 -39 41 (..)
Non-controlling
interests 15 5 (..) 4 4 -18.6
(..) Change over 100%
Consolidated statement of financial position
(€ million), condensed
31.12.2016 31.12.2015 Change, %
ASSETS
Non-current assets
Tangible assets 1,150 1,282 -10.3
Intangible assets 431 168 (..)
Equity accounted investments and other
financial assets 123 115 7.4
Loans and receivables 68 67 2.4
Pension assets 165 176 -6.6
Total 1,937 1,808 7.1
Current assets
Inventories 979 735 33.2
Trade receivables 831 582 42.9
Other receivables 223 127 76.5
Financial assets at fair value
through profit or loss 93 374 -75.1
Available-for-sale financial assets 157 372 -57.8
Cash and cash equivalents 141 141 0,0
Total 2,425 2,331 4,0
Non-current assets held for sale 46 0 (..)
Total assets 4,408 4,139 6.5
31.12.2016 31.12.2015 Change, %
EQUITY AND LIABILITIES
Equity 2,029 2,163 -6.2
Non-controlling interests 97 79 23.8
Total equity 2,126 2,242 -5.2
Non-current liabilities
Interest-bearing liabilities 359 258 38.9
Non-interest-bearing liabilities 40 42 -4.7
Deferred tax liabilities 48 71 -32.6
Pension obligations 1 1 -18.8
Provisions 15 16 -4.7
Total 463 388 19.1
Current liabilities
Interest-bearing liabilities 156 181 -13.7
Trade payables 1,069 795 34.5
Other non-interest-bearing liabilities 552 495 11.4
Provisions 41 38 8.3
Total 1,818 1,509 20.5
Liabilities related to available-for-sale
assets 1 - -
Total equity and liabilities 4,408 4,139 6.5
(..) Change over 100%
Consolidated statement of changes in equity (€ million)
Share Res- Cur- Re- Trea- Re- Non- Total
capi- erves rency valu- sury tained cont-
tal trans- ation sha-res earn- rolling
lation reserve ings inte-
differ- rests
ences
Balance at
1.1.2015 197 463 -38 -1 -31 1,594 82 2,265
Treasury shares 0 0
Share-based
payments 4 4
Dividends -149 -7 -156
Acquisition of
non-controlling
interest 0 0 -1 -1
Other changes 0 0 5 0 5
Transactions
with owners,
total 0 0 4 -143 -8 -147
Comprehen-
sive income
Profit for the
year 102 16 117
Items that will
not be
reclassified
subsequently to
profit or loss
Actuarial
gains/losses 29 29
Items that may
be reclassified
subsequently to
profit or loss
Exchange
differences
on translating
foreign
operations 0 -7 -11 -17
Cash flow
hedge
revaluation 0 0
Revaluation of
available-for-
sale financial
assets 1 1
Others 0 0
Tax related to
comprehensive
income 0 -6 -6
Total
comprehensive
income for the
period 0 -7 1 124 5 124
Balance at
31.12.2015 197 463 -45 0 -27 1,575 79 2,242
Balance at
1.1.2016 197 463 -45 0 -27 1,575 79 2,242
Treasury shares 0 0
Share-based
payments 4 4
Increase in
share capital 13 13
Dividends -248 -1 -249
Disposal of
subsidiary 10 -10
Acquisition of
subsidiary and
non-controlling
interest 0 0 -8 -7
Other changes 0 9 9
Transactions
with owners,
total 0 10 4 -249 4 -231
Comprehen-
sive income
Profit for the
year 99 15 114
Items that will
not be
reclassified
subsequently to
profit or loss
Actuarial
gains/losses -14 -14
Items that may
be reclassified
subsequently to
profit or loss
Exchange
differences
on translation
of
foreign
operations 0 11 0 10
Cash flow
hedge
revaluation 3 3
Revaluation of
available-for-
sale financial
assets 1 1
Others 0 0
Tax related to
comprehensive
income -1 3 2
Total
comprehensive
income for the
period 0 11 3 87 15 116
Balance at
31.12.2016 197 463 -24 3 -23 1,412 97 2,126
Consolidated statement of cash flows (€ million), condensed
1-12/ 1-12/ Change,% 10-12/ 10-12/ Change,%
2016 2015 2016 2015
Cash flows from operating
activities
Profit before tax 145 188 -22.8 -43 41 (..)
Depreciations according to plan 138 128 7.9 41 31 33.7
Finance income and costs 1 7 -86.1 4 -1 (..)
Other adjustments 91 40 (..) 83 18 (..)
Change in working capital
Current non-interest-bearing
receivables, increase (-)/
decrease (+) -44 -2 (..) 84 47 80.1
Inventories,
increase (-)/decrease (+) 5 -44 (..) 17 -31 (..)
Current non-interest-bearing
liabilities, increase (+)/
decrease(-) -79 7 (..) -64 31 (..)
Financial items and tax -87 -48 82.7 -14 -13 12.2
Net cash from operating activities 170 276 -38.4 108 123 -12.6
Cash flows from investing
activities
Investing activities -705 -215 (..) -98 -65 51.1
Sales of fixed assets 205 432 -52.5 172 -6 (..)
Increase in non-current
receivables -1 -1 (..) 1 0 (..)
Net cash used in investing
activities -501 217 (..) 76 -71 (..)
Cash flows from financing
activities
Interest-bearing liabilities,
increase (+)/decrease (-) 59 -61 (..) -40 -25 60.5
Current interest-bearing
receivables, increase (-)/
decrease (+) 2 2 15.1 1 2 -75.6
Dividends paid -250 -156 59.9 0 -1 (..)
Equity increase 13 - - - - -
Short-term money market
investments, increase (-)/
decrease (+) 365 -269 (..) -92 52 (..)
Other items 7 19 -64.4 2 5 -65.0
Net cash used in financing
activities 196 -466 (..) -131 33 (..)
Change in cash and cash
equivalents -135 28 (..) 53 85 -38.0
Cash and cash
equivalents and current
portion of available-for-sale
financial assets at 1 Jan. 334 313 6.6 147 254 -42.0
Currency translation difference
adjustment and revaluation 2 -7 (..) 1 -5 (..)
Cash and cash
equivalents and current
portion of available-for-sale
financial assets at 31 Dec. 201 334 -39.9 201 334 -39.9
(..) Change over 100%
Group's performance indicators
1-12/ 1-12/ Change, pp
2016 2015
Return on capital employed, % 6.4 9.3 -2.9
Return on capital employed, comparable, % 11.9 11.7 0.2
Return on equity, % 5.2 5.2 0.0
Return on equity, comparable, % 9.8 8.2 1.6
Equity ratio, % 48.6 54.7 -6.0
Gearing, % 5.8 -20.0 25.8
Interest-bearing net debt/EBITDA 0.4 -1.4 1.8
Change, %
Capital expenditure, € million 743.1 218.5 (..)
Capital expenditure, % of net sales 7.3 2.5 (..)
Earnings per share, basic, € 0.99 1.03 -3.1
Earnings per share, diluted, € 0.99 1.03 -3.1
Earnings per share, comparable, basic, € 2.01 1.70 17.9
Cash flows from operating activities,
€ million 170 276 -38.4
Cash flows from investing activities,
€ million -501 217 (..)
Equity per share, € 20.44 21.82 -6.3
Interest-bearing net debt, € million 123 -448 (..)
Diluted number of shares, average for the reporting
period, 1,000 pcs 99,249 99,114 0.1
Personnel, average 22,476 18,956 18.6
(..) Change over 100%
Group's performance 1-3/ 4-6/ 7-9/ 10-12/ 1-3/ 4-6/ 7-9/ 10-12/
indicators by quarter 2015 2015 2015 2015 2016 2016 2016 2016
Net sales, € million 2,082 2,227 2,203 2,166 2,013 2,610 2,792 2,765
Change in net sales, % -2.2 -6.0 -4.4 -4.4 -3.3 17.2 26.7 27.6
Operating profit, € million -103.6 175.8 83.1 39.3 33.5 68.0 85.5 -40.3
Operating margin, % -5.0 7.9 3.8 1.8 1.7 2.6 3.1 -1.5
Operating profit,
comparable, € million 26.5 76.4 82.5 59.1 32.3 79.1 98.2 63.3
Operating margin,
comparable, % 1.3 3.4 3.7 2.7 1.6 3.0 3.5 2.3
Finance income/costs,
€ million -0.3 -4.2 -3.5 0.9 2.7 1.7 -1.1 -4.3
Profit before tax, €
million -103.7 172.1 78.8 40.7 35.7 68.1 84.8 -43.5
Profit before tax, % -5.0 7.7 3.6 1.9 1.8 2.6 3.0 -1.6
Return on capital employed,
% -18.1 31.9 17.6 8.2 6.7 12.3 13.6 -6.4
Return on capital employed,
comparable, % 4.6 13.9 17.5 12.4 6.5 14.3 15.6 10.1
Return on equity, % -19.9 28.0 8.9 4.8 5.1 9.8 12.8 -6.9
Return on equity,
comparable, % 3.1 10.6 10.6 9.2 4.8 11.7 14.7 8.4
Equity ratio, % 51.5 52.2 54.2 54.7 54.8 44.8 47.9 48.6
Capital expenditure,
€ million 51.5 58.6 41.5 66.9 51.4 512.7 73.6 105.4
Earnings per share,
diluted, € -1.11 1.48 0.43 0.22 0.28 0.49 0.63 -0.40
Equity per share, € 21.30 21.21 21.41 21.82 22.13 20.31 20.84 20.44
Segment information
Net sales by segment
1-12/ 1-12/ 10-12/ 10-12/
(€ million) 2016 2015 Change,% 2016 2015 Change,%
Grocery trade, Finland 5,131 4,566 12.4 1,399 1,218 14.9
Grocery trade,
other countries* 105 107 -1.9 22 32 -29.9
Grocery trade, total 5,236 4,673 12.0 1,422 1,249 13.8
- of which intersegment trade 10 15 -34.3 2 3 -30.4
Building and technical trade,
Finland 2,142 1,719 24.6 579 376 53.8
Building and technical trade,
other countries* 1,959 1,530 28.0 542 360 50.7
Building and technical trade
total 4,100 3,250 26.2 1,121 736 52.3
- of which intersegment trade 11 1 (..) 1 0 (..)
Car trade, Finland 849 748 13.5 221 177 25.0
Car trade total 849 748 13.5 221 177 25.0
- of which intersegment trade 0 0 -57.7 0 0 -19.4
Common functions and
eliminations -5 8 (..) 1 4 -81.6
Finland total 8,117 7,042 15.3 2,201 1,775 24.0
Other countries total* 2,063 1,637 26.0 564 391 44.2
Group total 10,180 8,679 17.3 2,765 2,166 27.6
(..) Change over 100%
* Net sales in countries other than Finland
Operating profit by segment (€ 1-12/ 1-12/ 10-12/ 10-12/
million) 2016 2015 Change 2016 2015 Change
Grocery trade 93.0 249.4 -156.4 -26.1 53.4 -79.5
Building and technical trade 60.8 -57.2 118.0 -11.7 -10.9 -0.8
Car trade 28.9 26.1 2.8 7.0 3.8 3.1
Common functions and
eliminations -36.0 -23.7 -12.2 -9.5 -7.1 -2.3
Group total 146.8 194.6 -47.8 -40.3 39.3 -79.5
Operating profit by segment,
comparable
1-12/ 1-12/ 10-12/ 10-12/
(€ million) 2016 2015 Change 2016 2015 Change
Grocery trade 175.9 177.5 -1.5 51.9 54.5 -2.5
Building and technical trade 97.9 63.6 34.4 14.4 7.5 6.9
Car trade 29.5 26.1 3.4 7.5 3.8 3.7
Common functions and
eliminations -30.5 -22.7 -7.7 -10.5 -6.7 -3.8
Group total 272.9 244.5 28.5 63.3 59.1 4.2
Operating margin by 1-12/ 1-12/ 10-12/ 10-12/
segment, comparable (%) 2016 2015 Change, pp 2016 2015 Change, pp
Grocery trade 3.4 3.8 -0.4 3.7 4.4 -0.7
Building and technical
trade 2.4 2.0 0.4 1.3 1.0 0.3
Car trade 3.5 3.5 0.0 3.4 2.1 1.2
Group total 2.7 2.8 -0.1 2.3 2.7 -0.4
Capital employed by
segment, cumulative 1-12/ 1-12/ 10-12/ 10-12/
average (€ million) 2016 2015 Change 2016 2015 Change
Grocery trade 828 871 -44 812 733 79
Building and technical
trade 1,000 823 177 1,177 757 421
Car trade 124 104 20 136 120 16
Common functions and
eliminations 336 285 51 372 297 75
Group total 2,288 2,083 204 2,497 1,907 590
Return on capital employed by 1-12/ 1-12/ 10-12/ 10-12/
segment, comparable (%) 2016 2015 Change, pp 2016 2015 Change, pp
Grocery trade 21.3 20.4 0.9 25.6 29.7 -4.1
Building and technical trade 9.8 7.7 2.1 4.9 4.0 0.9
Car trade 23.8 25.2 -1.4 22.0 12.6 9.4
Group total 11.9 11.7 0.2 10.1 12.4 -2.3
Items affecting comparability
€ million 1-3/ 4-6/ 7-9/ 10-12/ 1-3/ 4-6/ 7-9/ 10-12/
2015 2015 2015 2015 2016 2016 2016 2016
Items affecting
comparability
Gains on disposal 0.3 99.6 1.2 0.1 1.3 2.9 0.8 -0.8
Losses on disposal -130.6 -1.0 -0.2 - - -0.3 -0.1 -70.6
Impairment charges - - - - - -7.9 -3.1 -18.9
Structural
arrangements - - - -19.3 0.0 -9.1 -4.6 -9.4
Others 0.2 0.9 -0.4 -0.7 - 3.3 -5.7 -3.9
Items in operating
profit affecting
comparability -130.1 99.4 0.7 -19.9 1.3 -11.1 -12.7 -103.6
Items in income
taxes affecting
comparability 2.1 -4.5 -10.4 -4.6 0.1 0.8 2.7 21.6
Total items
affecting
comparability -128.0 95.0 -9.7 -24.5 1.4 -10.3 -10.0 -82.0
Operating profit,
comparable
Operating profit -103.6 175.8 83.1 39.3 33.5 68.0 85.5 -40.3
Net of
Items in operating
profit affecting
comparability -130.1 99.4 0.7 -19.9 1.3 -11.1 -12.7 -103.6
Operating profit,
comparable 26.5 76.4 82.5 59.1 32.3 79.1 98.2 63.3
Operating margin,
%, comparable 1.3 3.4 3.7 2.7 1.6 3.0 3.5 2.3
Capital employed,
average 2,295 2,204 1,889 1,907 1,990 2,207 2,523 2,497
Return on capital
employed,
comparable, % 4.6 13.9 17.5 12.4 6.5 14.3 15.6 10.1
Profit before tax,
comparable
Profit before tax -103.7 172.1 78.8 40.7 35.7 68.1 84.8 -43.5
Net of
Items in operating
profit affecting
comparability -130.1 99.4 0.7 -19.9 1.3 -11.1 -12.7 -103.6
Profit before tax,
comparable 26.4 72.7 78.2 60.6 34.5 79.2 97.5 60.2
Profit, comparable
Profit before tax,
comparable 26.4 72.7 78.2 60.6 34.5 79.2 97.5 60.2
Net of
Income tax -7.0 -19.4 -30.4 -14.0 -7.0 -14.3 -16.4 6.4
Items in income tax
affecting
comparability -2.1 4.5 10.4 4.6 -0.1 -0.8 -2.7 -21.6
Profit, comparable 17.4 57.8 58.2 51.3 27.3 64.0 78.4 44.9
Equity, average 2,227 2,184 2,189 2,220 2,265 2,195 2,131 2,143
Return on equity,
comparable, % 3.1 10.6 10.6 9.2 4.8 11.7 14.7 8.4
Profit attributable
to owners of the
parent, comparable
Profit, comparable 17.4 57.8 58.2 51.3 27.3 64.0 78.4 44.9
Profit attributable
to non-controlling
interests -1.1 5.9 5.8 5.1 1.3 5.5 5.7 2.8
Profit attributable
to owners of the
parent, comparable 18.5 51.9 52.5 46.1 26.0 58.6 72.7 42.1
Average number of
shares, basic,
1,000 pcs 99,024 99,084 99,104 99,114 99,163 99,221 99,240 99,249
Earnings per share,
comparable, € 0.19 0.52 0.53 0.47 0.26 0.59 0.73 0.42
Capital
expenditure
by segment, € 1-12/ 1-12/ 10-12/ 10-12/
million 2016 2015 Change 2016 2015 Change
Grocery trade 238 129 109 50 30 20
Building and
technical
trade 452 55 396 24 29 -5
Car trade 41 16 25 30 5 25
Common
functions and
eliminations 12 18 -7 2 3 -2
Group total 743 219 525 105 67 38
Segment information by quarter
Net sales by segment, € 1-3/ 4-6/ 7-9/ 10-12/ 1-3/ 4-6/ 7-9/ 10-12/
million 2015 2015 2015 2015 2016 2016 2016 2016
Grocery trade 1,103 1,149 1,171 1,249 1,094 1,353 1,367 1,422
Building and technical
trade 773 883 857 736 695 1,046 1,238 1,121
Car trade 210 190 170 177 225 214 190 221
Common functions and
eliminations -3 4 4 4 -1 -2 -3 1
Group total 2,082 2,227 2,203 2,166 2,013 2,610 2,792 2,765
Operating profit by segment, 1-3/ 4-6/ 7-9/ 10-12/ 1-3/ 4-6/ 7-9/ 10-12/
€ million 2015 2015 2015 2015 2016 2016 2016 2016
Grocery trade 35.2 115.8 45.0 53.4 30.2 44.1 44.8 -26.1
Building and technical trade -144.7 61.5 36.8 -10.9 1.8 32.8 37.9 -11.7
Car trade 9.8 6.5 6.0 3.8 9.4 5.8 6.8 7.0
Common functions and
eliminations -3.9 -8.0 -4.6 -7.1 -7.8 -14.7 -4.0 -9.5
Group total -103.6 175.8 83.1 39.3 33.5 68.0 85.5 -40.3
Items affecting
1-3/ 4-6/ 7-9/ 10-12/ 1-3/ 4-6/ 7-9/ 10-12/
comparability, € million 2015 2015 2015 2015 2016 2016 2016 2016
Grocery trade 0.3 72.4 0.2 -1.0 -1.1 0.5 -4.4 -78.0
Building and technical trade -130.4 27.0 1.0 -18.4 1.5 -5.1 -7.4 -26.1
Car trade - - - - - - - -0.6
Common functions and
eliminations - 0.0 -0.6 -0.5 0.9 -6.5 -0.9 1.1
Group total -130.1 99.4 0.7 -19.9 1.3 -11.1 -12.7 -103.6
Operating profit by segment,
comparable,
1-3/ 4-6/ 7-9/ 10-12/ 1-3/ 4-6/ 7-9/ 10-12/
€ million 2015 2015 2015 2015 2016 2016 2016 2016
Grocery trade 34.9 43.3 44.8 54.5 31.3 43.6 49.2 51.9
Building and technical trade -14.2 34.5 35.8 7.5 0.3 37.9 45.3 14.4
Car trade 9.8 6.5 6.0 3.8 9.4 5.8 6.8 7.5
Common functions and eliminations -3.9 -8.0 -4.1 -6.7 -8.7 -8.2 -3.1 -10.5
Group total 26.5 76.4 82.5 59.1 32.3 79.1 98.2 63.3
Operating margin
1-3/ 4-6/ 7-9/ 10-12/ 1-3/ 4-6/ 7-9/ 10-12/
by segment, %, comparable 2015 2015 2015 2015 2016 2016 2016 2016
Grocery trade 3.2 3.8 3.8 4.4 2.9 3.2 3.6 3.7
Building and technical trade -1.8 3.9 4.2 1.0 0.0 3.6 3.7 1.3
Car trade 4.7 3.4 3.5 2.1 4.2 2.7 3.6 3.4
Group total 1.3 3.4 3.7 2.7 1.6 3.0 3.5 2.3
Acquisitions
On 12 April 2016, Kesko Food Ltd, a Kesko Corporation subsidiary, acquired the
whole share capital of Suomen Lähikauppa Oy from the private equity investment
firm Triton. In addition, Kesko Corporation acquired Onninen Oy's whole share
capital from Onvest Oy on 1 June 2016, and Oy Autocarrera Ab on 1 December
2016, as a result of which the import and retail business of Porsche transferred
to Kesko.
Suomen Lähikauppa Onninen Group Oy Auto-
carrera Ab
€ million € million € million
Consideration paid 54 364 27
Fair values of assets acquired
and liabilities assumed as at
the date of acquisition
Intangible assets 5 94 2
Tangible assets and
investments
33 21 1
Inventories 33 227 9
Receivables 12 238 4
Deferred tax asset 22 3 -
Cash and cash
equivalents 8 17 0
Total assets 113 599 16
Trade payables, other
payables, provisions
134 275 7
Deferred tax
liability 0 16 1
Total liabilities 134 291 8
Net assets acquired,
total -22 309 8
Goodwill 76 55 19
Cash flow impact of
acquisition
Consideration paid -54 -364 -25
Cash and cash 8 17 0
equivalents acquired
Cash flow impact of
acquisition
-46 -347 -25
Suomen Lähikauppa Oy
On 12 April 2016, Kesko Food Ltd, a Kesko Corporation subsidiary, acquired the
whole share capital of Suomen Lähikauppa Oy from the private equity investment
firm Triton. The debt-free price of the acquisition, structured as a share
purchase, was €54 million.
Suomen Lähikauppa has concentrated on grocery stores located near customers. The
acquisition underpins Kesko's new strategy, one focus area of which is to
increase and renew the neighbourhood store network.
The tables above are a condensed presentation of the consideration paid to
Triton, the values of the assets acquired and liabilities assumed by Kesko Group
as at the date of the acquisition, as well as the cash flow impact of the
acquisition.
The €76 million goodwill arising from the acquisition reflects the synergies
expected to arise especially from purchasing and logistics, marketing, store
site network development, information system expenses and administration. Kesko
estimates that it will achieve annual synergies of over €30 million at EBITDA
level from the acquisition as of 2018. The achievement of synergies will require
conversion costs for the renewal of the stores acquired from Suomen Lähikauppa.
The costs of store and network conversion, to be treated as restructuring costs
affecting the comparability of the operating profit, will total approximately
€30 million in 2016-2018. The goodwill arising from the acquisition is not tax
deductible.
The Group's profit for January-December 2016 includes costs incurred from the
acquisition in the amount of €1.2 million, the most significant of which is the
€0.6 million asset transfer tax. The costs are presented within items affecting
comparability.
Suomen Lähikauppa contributed €575 million to the net sales of the April-
December period. The impact on the comparable operating profit for the April-
December period was €-7.4 million and taking synergies into account, €-3.2
million. If the acquisition had been completed on 1 January 2016, the impact on
the Group's net sales would have been approximately €795 million according to
management's estimates. The impact on comparable operating profit would have
been €-17 million. When determining the amounts of net sales and comparable
operating profit, management estimates that the fair values recognized at the
date of acquisition would have been the same if the acquisition had been
completed on 1 January 2016.
Onninen Oy
On 1 June 2016, Kesko Corporation acquired Onninen Oy's whole share capital from
Onvest Oy. The debt-free price of the acquisition, structured as a share
purchase, was €364 million.
Onninen is one of the leading providers of HEPAC and electrical products and
services in the Baltic Sea Region and Scandinavia. The group specializes in the
B2B trade and has around 150 units in Finland, Sweden, Norway, Poland, the
Baltic countries and Russia. Kesko's business operations expand in the HEPAC
and electrical product groups and it is able to better serve contractor
customers in particular. In addition, Kesko gains new customer relationships in
the infrastructure and industry customer groups.
The tables above are a condensed presentation of the consideration paid to
Onvest Oy, the values of the assets acquired and liabilities assumed by Kesko
Group as at the date of the acquisition, as well as the cash flow impact of the
acquisition.
The total value of the intangible assets acquired as at the date of the
acquisition (including customer relationships and trademarks) is €94 million.
The balance sheet value of current trade receivables equals their fair value.
The €55 million goodwill arising from the acquisition reflects the synergies
expected to mainly arise from the utilisation of the common customer
relationships, from purchasing and logistics, the development of the store site
network, as well as from ICT and administration. Kesko estimates that it will
achieve annual synergies of approximately €30 million at EBITDA level from the
acquisition as of 2020. The achievement of synergies will require both capital
expenditures and non-recurring costs. The combined net cash flow impact of
synergies is estimated at around €25 million positive in 2016-2019. The goodwill
arising from the acquisition is not tax deductible.
The Group's profit for January-December 2016 includes costs incurred from the
acquisition in the amount of €6.8 million, the most significant of which is the
€5.8 million asset transfer tax. The costs are presented within items affecting
comparability.
Onninen contributed €908 million to the net sales of the June-December period.
The impact on the comparable operating profit for the June-December period was
€18.2 million, adversely impacted by the fair value allocations of inventories
written off in the amount of €5.1 million. If the acquisition had been completed
on 1 January 2016, the impact on the Group's net sales would have been
approximately €1,500 million according to management's estimates. The impact on
comparable operating profit would have been €17.7 million. When determining the
amounts of net sales and comparable operating profit, management estimates that
the fair values recognized at the date of acquisition would have been the same
if the acquisition had been completed on 1 January 2016.
Oy Autocarrera Ab
In December, Kesko Corporation's subsidiary VV-Auto Group Oy has acquired the
whole share capital of Oy Autocarrera Ab. As a result of the transaction, the
import and retailing of Porsche transferred to VV-Auto. In 2015, the net sales
of the acquired Oy Autocarrera Ab were €49 million and the operating profit was
€3.3 million. The price of the acquisition, structured as a share purchase, was
€27 million.
The tables above are a condensed presentation of the consideration paid to the
sellers, the values of the assets acquired and liabilities assumed by Kesko
Group as at the date of the acquisition, as well as the cash flow impact of the
acquisition.
The €19 million goodwill arising from the acquisition reflects the synergies and
growth potential expected to be realised as Porsche increases VV-Auto's car
selection. The acquisition will also bring synergies to the car trade processes
like purchases, store site network, logistics, ICT and administration. The
goodwill arising from the acquisition is not tax deductible.
The December profit includes costs incurred from the acquisition in the amount
of €0.6 million, the most significant of which is the €0.4 million asset
transfer tax.
AutoCarrera contributed €4.4 million to the net sales of December. The impact on
the comparable operating profit for December was €-0.0 million, adversely
impacted by the fair value allocations of inventories written off in the amount
of €0.1 million. If the acquisition had been completed on 1 January 2016, the
impact on the Group's net sales would have been approximately €45 million
according to management's estimates. The impact on comparable operating profit
would have been €2.2 million. When determining the amounts of net sales and
comparable operating profit, management estimates that the fair values
recognized at the date of acquisition would have been the same if the
acquisition had been completed on 1 January 2016.
Change in tangible and intangible assets (€ million)
31.12.2016 31.12.2015
Opening net carrying amount 1,451 1,802
Acquisitions 315 -
Depreciation, amortisation and impairment charges -159 -137
Investments in tangible and intangible assets 272 206
Deductions -22 -213
Disposals -232 -195
Transfers to available-for-sale -54 -
Currency translation differences 11 -13
Closing net carrying amount 1,581 1,451
Related party transactions (€ million)
The Group's related parties include its 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:
1-12/2016 1-12/2015
Sales of goods and services 78 64
Purchases of goods and services 143 14
Other operating income 13 11
Other operating expenses 66 49
Finance income and costs 6 3
31.12.2016 31.12.2015
Receivables 66 63
Liabilities 45 23
Fair value hierarchy of financial assets and liabilities (€ million)
Level 1 Level 2 Level 3 31.12.2016
Financial assets at fair value through
profit or loss 59.8 33.5 93.3
Derivative financial instruments at fair
value through profit or loss
Derivative financial assets 4.4 4.4
Derivative financial liabilities 6.6 6.6
Available-for-sale financial assets 97.3 59.6 15.1 171.9
Fair value hierarchy of financial assets and liabilities (€ million)
Level 1 Level 2 Level 3 31.12.2015
Financial assets at fair value through
profit or loss 215.1 159.1 374.2
Derivative financial instruments at fair
value through profit or loss
Derivative financial assets 13.3 13.3
Derivative financial liabilities 8.6 8.6
Available-for-sale financial assets 178.9 192.8 15.3 387.0
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.
Personnel, average and as at 31.12.
Personnel average by
segment 1-12/2016 1-12/2015 Change
Grocery trade 8,200 6,420 1,780
Building and technical trade 12,744 11,269 1,476
Car trade 780 780 -1
Common functions 752 487 265
Group total 22,476 18,956 3,520
Personnel as at 31.12.*
by segment 2016 2015 Change
Grocery trade 10,338 8,364 1,974
Building and technical trade 15,630 12,270 3,360
Car trade 817 783 34
Common functions 871 518 353
Group total 27,656 21,935 5,721
* Total number including part-time employees
Group's commitments (€ million)
31.12.2016 31.12.2015 Change, %
Own commitments 186 152 22.8
For others 20 15 35.3
Lease liabilities for machinery and equipment 33 27 23.5
Lease liabilities for real estate 2,996 2,594 15.5
Liabilities arising from derivative instruments (€ million)
Fair value
Values of underlying instruments at 31.12. 31.12.2016 31.12.2015 31.12.2016
Interest rate derivatives
Interest rate swaps 40 100 -0,13
Currency derivatives
Forward and future contracts 178 237 -2,69
Currency swaps 20 50 2,68
Commodity derivatives
Electricity derivatives 11 9 -1,71
Calculation of performance indicators
Return on capital employed*, %
Operating profit x 100 / (Non-current assets + Inventories + Receivables + Other
current assets - Non-interest-bearing liabilities) on average for the reporting
period
Return on capital employed*, %, comparable
Comparable operating profit x 100 / (Non-current assets + Inventories +
Receivables + Other current assets - Non-interest-bearing liabilities) on
average for the reporting period
Return on equity*, %
(Profit/loss before tax - Income tax) x 100 / Shareholders' equity, average of
the beginning and end of the reporting period
Return on equity*, %, comparable
(Profit/loss adjusted for items affecting comparability before tax - Income tax
adjusted for the tax effect of items affecting comparability) x 100 /
Shareholders' equity, average of the beginning and end of the reporting period
Equity ratio, %
Shareholders' equity x 100 /
(Total assets - Prepayments received)
Earnings/share, diluted
(Profit/loss - Non-controlling interests) /
Average diluted number of shares
Earnings/share, basic
(Profit/loss - Non-controlling interests) /
Average number of shares
Earnings/share,
basic, comparable
(Profit/loss adjusted for items affecting comparability - Non-controlling
interests) / Average number of shares
Equity/share
Equity attributable to equity holders of the parent /
Basic number of shares at the balance sheet date
Gearing, %
Interest-bearing net liabilities x 100 /
Shareholders' equity
Interest-bearing net debt
Interest-bearing liabilities - Financial assets at fair value through profit or
loss - Available-for-sale financial assets - Cash and cash equivalents
EBITDA
Operating profit + Depreciation, amortisation and impairment
Interest-bearing
net debt/ EBITDA
Interest-bearing net debt/ EBITDA
* Indicators for return on capital have been annualized.
K-Group's retail and B2B sales*, VAT 0% (preliminary data):
1.1.-31.12.2016 1.10.-31.12.2016
K-Group's retail and € million Change, % € million Change, %
B2B sales
K-Group's grocery trade
K-food stores, Finland 4,636 2.4 1,242 6.7
K-Citymarket, non-food 575 -0.1 180 1.2
Suomen Lähikauppa 453 - 109 -
Kespro 797 1.5 201 -0.4
K-ruoka, Russia 104 -1.9 22 -29.9
Grocery trade, total 6,566 9.6 1,755 11.4
K-Group's building and technical trade
K-Rauta and Rautia 1,012 1.8 225 -1.1
Rautakesko B2B Service 225 17.3 55 11.7
Onninen 481 - 208 -
K-maatalous 424 -3.1 103 -8.3
Machinery trade, Finland 144 -6.6 24 -16.4
Speciality goods trade, Finland 484 1.2 130 5.0
Finland, total 2,770 19.3 745 36.9
Building and technical trade, other
Nordic countries 1,183 34.8 340 60.0
Building and technical trade, the
Baltic countries 677 14.3 168 17.0
Building and technical trade, other
countries 399 24.4 123 57.4
Building and technical trade, total 5,028 22.3 1,377 40.6
K-Group's car trade
VV-Autotalot 429 14.9 111 20.7
VV-Auto, import 436 9.7 108 18.1
AutoCarrera 4 - 4 -
Car trade, total 869 12.8 224 21.8
Finland, total 10,100 12.5 2,702 18.9
Other countries, total 2,362 24.6 653 40.2
Retail and B2B sales,
total 12,463 14.6 3,355 22.5
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