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2008-04-22 08:00:00 CEST 2008-04-22 08:00:03 CEST REGULATED INFORMATION Kesko Oyj - Interim report (Q1 and Q3)Interim financial report for the period 1 January-31 March 2008: Kesko's growth continuedKESKO CORPORATION STOCK EXCHANGE RELEASE 22.04.2008 AT 09.00 1(24) Interim financial report for the period 1 January-31 March 2008: Kesko's growth continued The Group's net sales from continuing operations in January-March 2008 were €2,279 million, up 6.9% on the corresponding period of the previous year (€2,131 million). In January-March, the operating profit excluding non-recurring items was €36.6 million (€57.8 million). The pre-tax profit was €148.6 million (€98.2 million). The earnings per share from continuing operations were €1.11 (€0.75). The Group's profit for the reporting period was €120.0 million (€104.0 million). The Group's earnings per share were €1.22 (€1.06). Net sales and profit, continuing operations Net sales and profit in January-March The Group's net sales in January-March 2008 were €2,279 million, which is 6.9% up on the corresponding period of the previous year (€2,131 million). The Group's net sales increased by 5.7% in Finland and by 12.1% abroad. Excluding business acquisitions and disposals, the Group's net sales increase was 6.3%. Exports and foreign operations accounted for 20.1% (19.2%) of net sales. In January-March, the K-Group's (i.e. Kesko's and the chain stores') retail sales were €2,604 million, an increase of 7.1% on the corresponding period of the previous year. The Group's profit before tax for January-March was €148.6 million (€98.2 million). The operating profit was €150.1 million (€60.4 million). It was increased by a total of €113.6 million (€2.6 million) in non-recurring gains from the disposal of fixed assets and businesses. The non-recurring items include a €10.4 million gain on the disposal of K-Rahoitus Oy shares, and a €103.2 million non-recurring gain from the property lease and sale arrangements between Kesko and Nordisk Renting Oy. The financial items of the comparable period included €37.1 million in non-recurring gains on the sale of SATO Corporation shares. The operating profit excluding non-recurring items was €36.6 million (€57.8 million). It represented 1.6% of net sales (2.7%). The fact that the operating profit excluding non-recurring items remained smaller than in the previous year was due to smaller gross margin compared with the previous year and the expansion and renovation of the store site network. Especially the operating profits excluding non-recurring items of Kesko Food, Rautakesko and Indoor decreased from the previous year. The Group's earnings per share from continuing operations were €1.11 (€0.75). Equity per share was €19.13 (€17.52). Discontinued operations On 28 February 2008, Kesko signed a contract of sale by which it sells the share capital of Kauko-Telko Ltd to Aspo Oyj. The completion of the transaction is subject to the approval of competition authorities. The transaction is expected to be completed during the second quarter of this year. Kauko-Telko is presented as a discontinuing operation in compliance with IFRS 5. On 31 March 2008, Kesko Corporation sold the share capital of Tähti Optikko Group Oy to the Specsavers optical chain. Tähti- Optikko is presented as a discontinued operation in compliance with IFRS 5. The debt-free selling price was about €15 million. The disposal contributed a non-recurring gain of €8.5 million included in discontinued operations. In the comparable period, discontinued operations also include a €28.2 million gain on the disposal of food store properties leasedto Rimi Baltic AB. Investments The Group's investments in January-March totalled €60.3 million (€50.3 million), which is 2.6% (2.4%) of net sales. Investments in store sites were €50.0 million (€41.2 million). The Group's other investments were €10.3 million. Investments in foreign operations represented 28.0% of total investments. Finance In January-March, the cash flow from operating activities was €- 35.5 million (€-19.6 million) and the cash flow from investing activities was €52.6 million (€54.8 million). The cash flow from investing activities included €117.2 million (€112.2 million) of proceeds received from the disposal of fixed assets. At the end of the period, liquid funds totalled €568 million (€383 million). The amount was increased by the disposal of K-Rahoitus Oy, which contributed about €240 million to liquid funds from finance receivables paid to Kesko, and by the real estate and lease arrangement between Kesko and Nordisk Renting Oy, which contributed €82 million to the cash flow. At the end of the reporting period, the interest-bearing net debt was €-35 million (€171 million). Equity ratio was 46.3% (44.6%) and gearing -1.8% (9.8%) at the end of the period. In January-March, the Group's net financial expenses were €1.4 million (net financial income was €37.6 million in the previous year). The income for the comparable period included €37.1 million in non-recurring gains on the sale of SATO shares. As a result of the arrangement with Nordisk Renting, finance lease liabilities decreased by €81 million. Taxes In January-March, the Group's taxes were €37.5 million (€21.7 million). The effective tax rate was 24.7% (21.5%). Seasonal nature of operations The Group's operating activities are affected by seasonal fluctuations. The net sales and operating profits of its business segments are not earned evenly throughout the year. Instead they vary by quarter depending on the characteristics of each business segment. Personnel, continuing operations In January-March, the average number of personnel in the Kesko Group was 21,150 (19,250) converted into full-time employees. There was an increase of 1,900 employees compared with the corresponding period of the previous year. In Finland, the average increase was 194 employees, while outside Finland it was 1,706. At the end of March 2008, the total number of personnel was 24,836 (22,522), of whom 13,254 (13,015) worked in Finland and 11,582 (9,507) outside Finland. Compared with the end of March 2007, there was an increase of 239 employees in Finland and 2,075 outside Finland. Market review It has been forecast that the growth rate of the Finnish economy will decelerate in 2008 compared with 2007, mainly as a result of weakening export demand. The worsened outlook for the US economy will affect the growth of the whole euro zone economy. In Finland, private consumption is forecast to grow at a rate of 3.1% and investments at a rate of about 3.5%. The increase in consumer prices is forecast to reach 3.4%. Housing production is expected to shrink during this year (Nordea, Economic Outlook, 21 April 2008). According to the preliminary data of Statistics Finland, in January-February 2008, the volume of Finnish retail trade increased by 10.9% compared with the corresponding period of the previous year. The increase in the wholesale trade volume was 14.1% in the same period. According to Statistics Finland's consumer survey of March 2008, consumers' confidence in the economy strengthened slightly in March but continued to stand below the long-term average. Consumers' views concerning their own financial situation and saving possibilities were bright, which reflected their slightly higher expectations concerning unemployment. Instead, the outlook for the Finnish economy remains gloomy and inflation expectations high among consumers. In 2008, the Estonian economy is forecast to grow by 4.0%, the Latvian economy by 5.6% and the Lithuanian economy by 7.4%. Private consumption is estimated to grow by about 6.0% in Estonia, by 7.0% in Latvia and by 14.0% in Lithuania. Consumer prices are forecast to rise by 7.9% in Estonia, by 12.0% in Latvia and by 7.0% in Lithuania (Nordea, Economic Outlook, 21 January 2008). The Swedish economy is forecast to grow by 2.1% and private consumption by 2.0% in 2008. Consumer prices are expected to increase at a rate of 3.1%. The increase in investments is forecast to slow down and that of housing construction to level off (Nordea, Economic Outlook, 21 April 2008). The Norwegian economy is estimated to grow by 3.0% and private consumption by 3.3% in 2008. Consumer prices are expected to increase by about 2.9% (Nordea, Economic Outlook, 21 April 2008). The Russian economy is forecast to grow by 7.0% in 2008. Private consumption is forecast to increase by 10% and investments by 21%. Consumer prices are expected to increase by 12% (Nordea, Economic Outlook, 21 January 2008). The market and outlook for each of Kesko's business divisions are discussed in the division reviews of this interim financial report. Divisions Kesko Food In January-March, Kesko Food's net sales totalled €937 million, up 6.1%. In January-March, Kesko Food's operating profit excluding non- recurring items was €20.7 million (2.2% of net sales), i.e. €8.4 million, or 1.1 percentage points, less than in the previous year. The operating profit excluding non-recurring items for the first months of the year was negatively affected by a decrease in gross margin and the extensions and renovations carried out in the store site network. Kesko Food's operating profit was €123.9 million (€29.2 million). The operating profit was increased by a €103.2 million non-recurring gain on real estate and lease arrangements. In January-March, Kesko Food's investments totalled €30.4 million (€24.4 million), of which investments in store sites were €27.9 million (€20.6 million). In January-March, the retail sales of the K-food stores increased by 8.1%, totalling €1,226 million (incl. VAT). At the end of March, there were a total of 1,053 K-food stores (mobile stores excluded). Kesko Food continued the intensive development of the K-food store network. In January-March, a K-supermarket was opened in Hämeenkyrö and K-markets were opened in Olari, Espoo, in Etu- Lyöty, Oulu, in Huittinen and in Puumala. Other renovations and extensions were also implemented. In April, K-supermarkets were opened in Metropoli, Joensuu and in Kuninkoja, Raisio. The most important retail stores being built are K-citymarkets in Päiväranta, Kuopio, in Pori, Tornio, Jämsä, Klaukkala, Ylöjärvi, in the Skanssi shopping centre in Turku, and in Ylivieska, as well as the extension of a K-supermarket into a K-citymarket in Rusko, Oulu, and the K-supermarkets being built in Hämeenlinna, Mustasaari, Alavus, Haukipudas, Viitasaari, Rauma, in Konala, Helsinki, and in Liminka. The growth rate of the total grocery trade market in Finland for January-March is estimated at about 7-8% up on the previous year. In January-February, prices increased at an average monthly rate of about +5.8% compared with the previous year (Statistics Finland). Kesko Food's net sales are expected to grow in 2008. Owing to major investments in store sites and information systems, Kesko Food's operating profit excluding non-recurring items in 2008 is expected to remain at a lower level compared with the previous year. Rautakesko In January-March, Rautakesko's net sales amounted to €591 million, an increase of 10.6%. The contribution of acquisitions excluded, the net sales growth was 8.2%. Net sales in Finland were €232 million, an increase of 7.9%. The net sales of foreign subsidiaries were €358 million, up 12.5%. Foreign subsidiaries contributed 60.6% to Rautakesko's net sales. In Sweden, the net sales of K-rauta AB increased by 13.8% to €38 million in January-March. In Estonia, Rautakesko's net sales were up by 1.1% to €18 million. In Lithuania, the net sales of UAB Senuku Prekybos Centras (Senukai), in which Rautakesko has a majority interest, increased by 24.6% to €111 million, of which the contribution of the Belorussian OOO OMA, acquired by Senukai in July 2007, was €13 million. In Latvia, Rautakesko's net sales increased by 3.8% to €18 million. In Russia, Stroymaster's net sales grew by 40.2% to €40 million. In Norway, Byggmakker's net sales decreased by 0.1% and were €130 million. In January-March, Rautakesko's operating profit excluding non- recurring items was €7.0 million (1.2% of net sales), i.e. €9.3 million, or 1.9 percentage points less than in the previous year. The profit performance was affected by the expansion of the store site network and the weakening of demand in the construction market especially in the Baltics. Rautakesko's operating profit for January-March was €7.0 million (€18.6 million). During the reporting period, new K-rauta stores were opened in Lahti and Raisio. In January-March, Rautakesko's investments totalled €22.3 million (€19.9 million), of which 74.7% (41.2%) was abroad. At the end of March, the K-rauta chain in Finland comprised of 41 stores and the Rautia chain 103 stores. In January-March, the sales of the K-Group's building and home improvement stores in Finland increased by 6.6% to €217.2 million (incl. VAT). The sales of the Rautakesko B-to-B Service decreased by 1.9%. Rautakesko operates 17 K-rauta stores in Sweden, one of which is owned by the retailer. In Estonia, Rautakesko has five stores. In Latvia, Rautakesko has seven stores of its own and two partner stores. In Norway, Rautakesko owns Byggmakker Norge AS, a company managing the Byggmakker chain of building and home improvement stores. The chain comprises 118 stores, 22 of which are owned by Byggmakker. The other stores of the chain are owned by retailer-entrepreneurs who have signed a chain agreement with Byggmakker. There are eight K-rauta stores in St. Petersburg, Russia, three of which are new and operate in conformity with the K-rauta concept. The latest K- rauta in St. Petersburg opened in December 2007. The building and home improvement trade market is expected to grow in all countries in which Rautakesko operates. In 2008, a growth rate of 3-5% is forecast for the Nordic countries and 5-7% for the Baltic countries. The corresponding growth expectation for the St. Petersburg area is about 10%. Market development reflects uncertainties especially in the Baltic countries, with the construction market expected to slow down especially in Estonia and Latvia as a result of an increasing economic uncertainty (Own estimate). In 2008, Rautakesko will continue to invest in new store sites, employee competencies and a uniform information system. It is expected that Rautakesko's net sales will grow in 2008. Its operating profit excluding non-recurring items in 2008 is expected to remain at a lower level compared with the previous year. VV-Auto In January-March, VV-Auto's net sales totalled €261 million, up by 5.1%. The car tax change postponed sales from 2007 to the beginning of 2008. The net sales growth was decreased by the average car prices, fallen as a result of the tax change, and by the extended delivery times of some car models. The aggregate registrations of passenger cars and vans imported by VV-Auto increased by 24.9% during the first months of the year. In January-March, the operating profit excluding non-recurring items was €13.9 million (5.3% of net sales), up €2.2 million, or 0.6 percentage points, compared with the corresponding period of the previous year. Investments totalled €1.6 million (€1.6 million) in January-March. In January-March, first registrations of new passenger cars totalled 46,112 in Finland, up by 14.7% on the previous year. Compared with the year before, first registrations of vans were down by 4.2% to 4,681. In consequence of the change by which the tax on a passenger car is determined based on its CO2 rating, some demand has shifted to diesel models. In January-March, VV-Auto's retail sales increased by 10.6% In January-March, the registrations of Volkswagen passenger cars totalled 5,380 and their market share was 11.7%, compared with 9.3% in the previous year. The number of Volkswagen vans registered was 680, while the market share was 14.5% (18.5%). In January-March, the first registrations of Audis were 1,579, and the market share was 3.4% (3.8%). The registrations of new Seat passenger cars totalled 683 in Finland, 126 in Estonia and 45 in Latvia. The market share in Finland was 1.5%, compared with 1.2% the year before. It is estimated that Finland's total passenger car market will grow markedly compared with the previous year. The total market for vans is expected to be at a slightly lower level than in the previous year (Road Transport Forecasting Group). In 2008, VV-Auto's net sales are expected to grow compared to the previous year. The operating profit excluding non-recurring items is expected to increase compared to the year before. Anttila In January-March, Anttila's net sales totalled €128 million, up 6.6%. In January-March, Anttila's operating loss excluding non-recurring items was €1.3 million (-1.1% of net sales). In January-March the year before, the operating loss was €0.9 million (-0.8% of net sales). Anttila's operating loss was €1.4 million (€-0.9 million). Due to the nature of the department store trade, the majority of profits are made towards the end of the year. In January-March, the retail sales of the Anttila department stores were €84 million, up 2.8%. The retail sales of the Kodin Ykkönen department stores for home goods and interior decoration were €43 million, up 17.8%. Distance retail sales in Finland were €24 million, up 6.6%. The biggest growth was recorded in the sales of home electronics, information technology and interior decoration products. Trends in the home and speciality goods sales vary by product line. The growth is forecast to average 3-5% in 2008 (own estimate). In 2008, Anttila's net sales are expected to grow, and its operating profit excluding non-recurring items is expected to match the level of 2007. Kesko Agro In January-March, Kesko Agro's net sales were €180 million, an increase of 6.8%. The net sales from foreign operations were €62 million, accounting for 34.7% of net sales. In January-March, Kesko Agro's net sales in Finland were €117 million, down 0.6%, due to the animal feed and chemicals trade. The net sales from foreign operations increased by 24.2% in January-March, which is attributable to an increase in the grain and agricultural machinery trade. In January-March, Kesko Agro's operating loss excluding non- recurring items was €0.4 million (-0.2% of net sales), which was €0.2 million, or 0.1 percentage points smaller than in the corresponding period of the previous year. In January-March, investments totalled €0.5 million. At the end of the reporting period, the K-maatalous chain comprised 92 agricultural stores in Finland. The sales of the K- maatalous chain decreased by 1.8% in January-March to €132 million (incl. VAT). Kesko Agro has six stores in Estonia, four in Latvia and three in Lithuania. It is estimated that in 2008, the total Finnish and Baltic agricultural trade market will increase by 5-10% on the previous year (own estimate). Regardless of the structural changes taking place in the sector, it is expected that in 2008, Kesko Agro's net sales will grow and its operating profit excluding non-recurring items will match the level of 2007. Other operating activities Other operating activities comprise the reporting for Konekesko, Intersport Finland, Indoor, Musta Pörssi and Kenkäkesko. In January-March, the aggregate net sales from other operating activities were €189 million, up 2.6%. Net sales from foreign operations were €22 million, contributing 11.8% to the net sales. In January-March, the aggregate operating profit from other operating activities, non-recurring items excluded, was €2.2 million (1.2% of net sales), which was down by €6.4 million, or 3.5 percentage points, on the corresponding period of the previous year. The decline in profitability was mainly attributable to the weakened profit performance of the furniture trade compared with the previous year. The operating profit from other operating activities was €2.2 million (€8.6 million). In January-March, investments were €3.7 million. Konekesko's net sales in January-March were €67.5 million (€62.1 million), an increase of 8.8% on the previous year. In Finland, sales were €55.0 million, up by 10.9% in January-March. Konekesko's export sales totalled €14.3 million, an increase of 3.8%. Intersport Finland's net sales in January-March were €36.9 million (€37.6 million), down 1.8%. During the reporting period, Budget Sport stores were opened in Espoo and Raisio. Indoor's net sales in January-March were €44.7 million, down 3.2%. In January-March, the aggregate net sales of the furniture trade in the Baltic countries and Sweden were €10.0 million, a decrease of 22.9%. Indoor's operating activities in Sweden were discontinued in March 2008. Musta Pörssi Ltd's net sales in January-March were €32.3 million (€32.2 million), up 0.4%. Kenkäkesko Ltd's net sales in January-March were €7.6 million (€6.1 million), an increase of 23.4%. The net sales of other operating activities are expected to increase in 2008. The operating profit excluding non-recurring items is expected to match the level of 2007. Changes in the Group structure K-Rahoitus Oy and its subsidiaries were sold and the disposal was completed on 31 January 2008. Tähti Optikko Group was sold and the disposal was completed on 31 March 2008. Decisions of the Annual General Meeting Kesko Corporation's Annual General Meeting held on 31 March 2008 adopted the financial statements for 2007 and discharged the members of the Board of Directors and the Managing Director from liability. The Annual General Meeting also decided to distribute a dividend of €1.60 per share, as proposed by the Board of Directors, or total dividends of €156,428,592. The record date for dividend distribution was 3 April 2008 and the dividend payment date 10 April 2008. The Annual General Meeting decided to leave the number of Board members unchanged at seven. The members of the Board of Directors elected by the Annual General Meeting of 27 March 2006 are Pentti Kalliala, Ilpo Kokkila, Maarit Näkyvä, Seppo Paatelainen, Keijo Suila, Jukka Säilä and Heikki Takamäki. The Board Chairman is Heikki Takamäki and the Deputy Chairman is Keijo Suila. The term of office of each Board member, in accordance with the Articles of Association, is three years, with the term starting at the close of the General Meeting electing the member and expiring at the close of the third Annual General Meeting after the election (in 2009). The Annual General Meeting also decided to leave the Board members' fees unchanged. The Annual General Meeting decided that the monthly fees paid to the Board Chairman, the Deputy Chairman and a Board member are €5,000, €3,500 and €2,500 respectively. In addition, the Annual General Meeting decided that a meeting fee of €500 is paid for the meetings of the Board of Directors and those of its Committees. However, the fee of a Committee Chairman paid for a Committee meeting, is €1,000 unless he/she also acts as the Chairman or the Deputy Chairman of the Board of Directors The Annual General Meeting elected PricewaterhouseCoopers Oy, Authorised Public Accountants, as the company's auditor. The auditor with principal authority is Johan Kronberg, APA. The decisions of the Annual General Meeting were published in more detail in a stock exchange release on 31 March 2008. Corporate governance Kesko Food Ltd and Rautakesko Ltd, major subsidiaries fully owned by Kesko Corporation, elected the members of their Boards of Directors at their Annual General Meetings held on 28 March 2008. The compositions of the Boards were announced in a stock exchange release on 28 March 2008. The organising meeting of Kesko Corporation's Board of Directors held after the Annual General Meeting on 31 March 2008 decided to leave the compositions of its committees unchanged. The Board elected Maarit Näkyvä as the Chairman of its Audit Committee, and Seppo Paatelainen and Keijo Suila as its members. The Board elected Heikki Takamäki as the Chairman of its Compensation Committee, and Pentti Kalliala and Keijo Suila as its members. The committees' terms of office always expire at the Annual General Meeting. On the basis of the evaluation of independence carried out by the Board of Directors, all members of the Audit Committee are independent of the company and its significant shareholders. The decisions of the organising meeting of the Board of Directors were published in a stock exchange release on the day of the meeting. Shares, securities market and Board authorisations At the end of the reporting period, Kesko Corporation's share capital totalled €195,535,740. Of all shares 31,737,007 or 32.5% are A shares and 66,030,863 or 67.5% B shares. The aggregate number of shares was 97,767,870. Each A share entitles to ten (10) votes and each B share to one (1) vote. During the reporting period, the share capital was increased once by share subscriptions with the stock options of the year 2003 option scheme. The increase was made on 11 February 2008 (€210) and announced in a stock exchange notification on the same day. The subscribed shares were included on the main list of the Helsinki Stock Exchange for public trading with the old B shares on 12 February 2008. The price of a Kesko A share was €37.85 at the end of 2007 and €34.10 in March 2008, at the end of the reporting period, representing a decrease of 9.9%. The price of a B share was €37.72 at the end of 2007, and €32.75 at the end of the reporting period, representing a decrease of 13.2%. During the reporting period, the highest A share quotation was €38.20 and the lowest was €30.00. For B shares, they were €38.12 and €28.68 respectively. During the first months of 2008, the Helsinki Stock Exchange All Share index (OMX Helsinki) dropped by 15.9%, the weighted OMX Helsinki CAP index by 10.6%, while the Consumer Staples Index dropped by 12.6% during the same period. At the end of the reporting period, the market capitalisation of A shares was €1,082 million, while that of B shares was €2,163 million. Their combined market capitalisation was €3,245 million, a decrease of €447 million from the end of 2007. During the first months of 2008, about 485,000 A shares were traded on the Helsinki Stock Exchange at a total value of €16.2 million, while 31.2 million B shares were traded at a total value of €998 million. The total number of the 2003D, 2003E and 2003F stock options of the year 2003 option scheme included on the main list of the Helsinki Stock Exchange traded during the first months of 2008 was about 24,000 at a total value of €526,000. The Board of Directors was authorised by the Annual General Meeting of 26 March 2007 to issue a maximum of 20,000,000 new B shares against payment. The authorisation also includes a right to deviate, for a weighty financial reason, from the shareholders' pre-emptive right with a rights issue so that the issued shares can be used as consideration in possible company acquisitions, other arrangements concerning the company's operations, or to finance investments. The authorisation is valid for two years from the decision of the Annual General Meeting. Flagging notifications Kesko Corporation did not receive any flagging notifications during the reporting period. Main events On 31 January 2008, K-Rahoitus Oy's share capital was transferred to OKO Bank plc (Pohjola Bank plc from 1 March 2008). An agreement to this effect was signed between OKO and Kesko Corporation on 21 December 2007. The preliminary price paid on completion of the deal was about €30 million (stock exchange releases on 21 December 2007 and 31 January 2008). Kesko Corporation waived the purchase option included in the lease agreements made with Nordisk Renting Oy in 2001 and 2002, for which RBS Nordisk Renting paid Kesko €74.2 million in compensation. The previous agreements were finance leases and the non-recurring gain resulting from the cancellation was €26.5 million. The lease arrangement and the property sale contributed a total of €103 million to Kesko Food's and the Kesko Group's operating profits for the first quarter, which is reported as a non-recurring item (stock exchange release on 11 February 2008). Kesko Corporation and Aspo plc signed an agreement by which Aspo acquires the share capital of Kauko-Telko Ltd, a subsidiary wholly owned by Kesko. The debt-free selling price is about €76 million, based on Kauko-Telko's year-end balance sheet. Upon completion of the deal, a gain on the disposal of about €31 million will be recognised in profits from discontinued operations. The selling price will be specified on the date of the completion of the deal. The completion of the deal is subject to the approval of competition authorities. The deal is expected to be completed during the second quarter of this year (stock exchange releases on 23 May 2007 and 28 February 2008). On 31 March 2008 Kesko Corporation sold the shares of Tähti Optikko Group Oy to the Specsavers optical chain (stock exchange release on 1 April 2008). Events after the end of the reporting period No significant events have taken place after the end of the reporting period. Risk management The Kesko Group has adopted an established risk management process in accordance with which the divisions regularly assess risks and their management, and report on them to the Group's management. During the past quarter, risks involved in Kesko's operating activities have not changed in any material way compared with the risks disclosed in the 2007 financial statements. The most significant risks relate to the general economic development in Kesko's operating area, the expansion and the growth rate of foreign operations, especially in Russia and the Baltic countries, the cost-efficiency of operating activities, and the availability of competent personnel. During the reporting period, no damages that would have a significant effect on the Group's result were reported to the Board of Directors. The Board of Directors is not aware of any legal risks that would have an effect on the Group's result. Other risks and uncertainties relating to profit performance are described in the outlook for the Group and its divisions. Future outlook In 2008, the Kesko Group divisions are expected to perform as described in the above division reviews. The Group's operating activities are affected by the economic outlook in its different market areas and especially by the growth rate of private consumption. Market growth is expected to slow down in the Nordic and the Baltic countries. In Finland, consumer demand is expected to remain at a good level. As a result of an economic uncertainty prevailing throughout the Baltics, the construction market is expected to slow down especially in Estonia and Latvia. The sales from the Group's continuing operations are expected to grow during the next six months, which is especially attributable to the expansion of the food store and the building and home improvement store networks, and the expected increase in car sales. During the next six months, the Kesko Group's operating profit, excluding non-recurring items, from continuing operations is expected to remain at a good level, although lower than in the corresponding period of the previous year. In addition to the slowing market growth, profitability will be impacted by an intensive expansion and renovation of the store site network. Helsinki, 22 April 2008 Kesko Corporation Board of Directors The figures of this interim financial report are unaudited. Further information is available from Arja Talma, Senior Vice President, CFO, telephone +358 1053 22113, and Jukka Erlund, Vice President, Corporate Controller, telephone +358 1053 22338. A Finnish-language webcast from the media and analyst briefing on the interim financial report can be accessed at www.kesko.fi at 11.00. An English-language web conference on the interim financial report will be held today at 14.30 (Finnish time). The web conference login is available at www.kesko.fi. KESKO CORPORATION Paavo Moilanen Senior Vice President, Corporate Communications and Responsibility ATTACHMENTS Consolidated income statement Consolidated balance sheet Consolidated statement of changes in equity Consolidated cash flow statement Group indicators Net sales by division Operating profit by division, incl. non-recurring items Operating profit by division, excl. non-recurring items Divisions' operating profits, excl. non-recurring items, as % of net sales Investments by division Group contingent liabilities Group indicators by quarter Calculation of indicators Divisions' net sales by quarter Divisions' operating profits by quarter, incl. non-recurring items Divisions' operating profits by quarter, excl. non-recurring items Personnel, average number, and number at 31 March The K-Group's retail sales Kesko Corporation's interim financial report for January-June will be published on 22 July 2008. In addition, the Kesko Group sales figures will be published each month. News releases and other company information are available at www.kesko.fi. DISTRIBUTION Helsinki Stock Exchange Main news media ******** ATTACHMENTS: This interim financial report has been prepared in accordance with the IAS 34 standard. The interim financial report has been prepared in accordance with the same principles as the annual financial statements for 2007. Consolidated income statement (€ million) 1- 1-3/2007 Change, 1- 3/2008 % 12/2007 Net sales 2,279 2,131 6.9 9,287 Cost of sales -1,973 -1,833 7.6 -7,957 Gross profit 306 299 2.5 1,330 Other operating 248 130 90.8 577 income Staff cost -145 -124 17.0 -547 Depreciation and -29 -28 3.2 -116 impairment charges Other operating -230 -216 6.4 -922 expenses Operating profit* 150 60 (..) 322 Financial income 11 50 -77.4 87 Financial expenses -13 -12 4.8 -51 Income from 0 0 (..) 0 associates* Profit before tax 149 98 51.2 358 Income tax** -37 -21 74.4 -87 Net profit from 112 77 44.9 270 continuing operations Net profit from 10 30 -65.6 37 discontinued operations Net profit 122 107 13.8 307 Attributable to: Equity holders of 120 104 15.4 285 the parent company Minority interest 2 3 -34.1 22 Earnings per share (€) for profit attributable to the equity holders of the parent company Continuing operations Basic 1.12 0.76 48.2 2.54 Diluted 1.11 0.75 48.6 2.52 Whole Group Basic 1.23 1.07 15.1 2.92 Diluted 1.22 1.06 15.4 2.90 * Change over 100% ** Income tax has been calculated on the profit for the reporting period as a proportion of the estimated tax for the whole financial year. Consolidated balance sheet (€ million) 31.3.200 31.3.200 Change, 31.12.20 8 7 % 07 ASSETS Non-current assets Intangible assets 227 247 -8.2 252 Tangible assets 1,097 1,126 -2.5 1,153 Non-current financial assets 31 28 8.7 31 Loans and receivables 59 130 -54.3 45 Pension assets 265 228 16.1 262 Total 1,680 1,760 -4.6 1,743 Current assets Inventories 907 841 7.9 922 Trade and other receivables 944 943 0.1 840 Current financial assets 517 332 55.4 261 Cash and cash equivalents 51 50 1.3 90 Total 2,419 2,167 11.6 2,113 Non-current assets held for 98 1 (..) 237 sale* Total 4,196 3,928 6.8 4,093 * Change over 100% Consolidated balance sheet (€ million) 31.3.200 31.3.200 Change, 31.12.20 8 7 % 07 EQUITY AND LIABILITIES Equity 1,870 1,709 9.4 1,909 Minority interest 57 31 83.1 55 Total equity 1,927 1,740 10.7 1,964 Non-current liabilities Pension obligations 4 4 14.6 4 Interest-bearing 223 319 -30.0 314 Non-interest-bearing 5 17 -69.9 12 Deferred tax liabilities 130 115 13.5 126 Provisions 18 17 5.2 15 Total 380 471 -19.2 471 Current Interest-bearing 310 235 31.5 311 Non-interest-bearing 1,526 1,467 4.0 1,320 Provisions 12 14 -13.9 23 Total 1,847 1,717 7.6 1,654 Liabilities for available- 42 - (..) 3 for-sale assets* Total equity and liabilities 4,196 3,928 6.8 4,093 * Change over 100% Consolidated statement of changes in equity (€ million) Share Issue Share Other Curre Reval Re- Minor Total capit of premi- reser n-cy u- taine ity al share um ves trans-ation d inter capit latio surpl earni est al n us ngs diffe r- ences Balance at 1.1.2007 195 0 196 246 -6 -1 1,120 27 1,777 Shares subscribed for with 1 0 2 3 options Option 2 2 cost Currency translatio n 2 1 3 difference s Minority interest acquisitio 15 15 ns Fair value changes 10 10 Other changes 1 1 2 Dividend -146 -9 -156 Net profit for the 285 22 307 period Balance at 31.12.2007 195 0 200 247 -3 9 1,260 55 1,964 Balance at 1.1.2008 195 0 200 247 -3 9 1,260 55 1,964 Shares subscribed for with 0 0 0 0 options Option 1 1 cost Currency -1 translatio n -2 -3 difference s Fair value changes -2 -2 Other 1 changes -4 4 1 Dividend -156 -156 Net profit for the 120 2 122 period Balance at 31.3.2008 195 0 201 243 -5 7 1,228 57 1,927 Consolidated cash flow statement (€ million) 3/2008 3/2007 Change 12/200 , % 7 Cash flow from operating activities Profit before tax 160 129 23.7 398 Planned depreciation 30 29 3.2 119 Financial income and 1 -38 (..) -37 expenses* Other adjustments* -134 -39 (..) -75 Working capital Current non-interest- -144 -95 50.9 -37 bearing trade receivables, increase ( -)/ decrease (+) Inventories -14 -51 -73.0 -123 increase ( -)/ decrease (+) Current non-interest- 80 72 10.3 95 bearing liabilities, increase (+)/ decrease (-) Financial items and taxes -15 -26 -43.0 -91 Net cash from operating -35 -20 81.5 248 activities Cash flow from investing activities Investments -60 -57 5.8 -237 Disposals of fixed assets 117 112 4.4 146 Increase of long-term -4 0 (..) 0 receivables* Decrease of long-term 0 0 (..) 6 receivables* Net cash used in investing 53 55 -4.0 -85 activities Cash flow from financing activities Debt increase* 3 0 (..) 16 Debt decrease -16 -64 -74.3 -20 Increase (-)/decrease (+) 216 11 (..) -52 in short-term interest- bearing receivables* Dividends paid* 0 0 (..) -156 Equity increase 0 0 -97.9 3 Short-term money market -91 2 (..) 35 investments* Other items* 0 3 (..) 1 Net cash used in financing activities* 111 -48 (..) -173 Change in cash and cash 128 -12 (..) -9 equivalents* Cash and cash equivalents 245 257 -4.5 257 at 1 Jan. Currency translation 0 0 53.4 0 difference Cash and cash equivalents 3 0 (..) 2 relating to available-for- sale assets* Cash and cash equivalents 371 244 51.8 245 at 31 Mar. * Change over 100% Group indicators 3/2008 3/2007 Change, pp Return on invested capital, % 26.6 23.5 3.1 Return on invested capital, %, 19.4 22.4 -3.1 moving 12 months Return on equity, % 25.1 24.4 0.7 Return on equity, %, moving 12 17.6 23.0 -5.4 months Equity ratio, % 46.3 44.6 1.7 Change, % Investments, € million* 60.3 50.3 19.9 Earnings per share, basic, €* 1.12 0.76 48.2 Earnings per share, diluted, €* 1.11 0.75 48.6 Earnings per share, basic, €** 1.23 1.07 15.1 Earnings per share, diluted, 1.22 1.06 15.4 €** Equity per share, € 19.13 17.52 9.2 Personnel, average* 21,150 19,250 9.9 * Continuing operations ** Whole Group Divisions Net sales by division, 1-3/2008 1-3/2007 Change, continuing operations € € % million million Kesko Food, Finland 932 879 6.0 Kesko Food, other 4 4 15.1 countries* Kesko Food, total 937 883 6.1 Rautakesko, Finland 232 215 7.9 Rautakesko, other 358 319 12.4 countries* Rautakesko, total 591 534 10.6 VV-Auto, Finland 256 242 5.9 VV-Auto, other 4 6 -27.1 countries* VV-Auto, total 261 248 5.1 Anttila, Finland 121 114 6.7 Anttila, other 6 6 3.4 countries* Anttila, total 128 120 6.6 Kesko Agro, Finland 117 118 -0.6 Kesko Agro, 62 50 24.2 other countries* Kesko Agro, total 180 168 6.8 Other operating 167 160 4.0 activities, Finland Other operating 22 24 -6.4 activities, foreign countries* Other operating 189 184 2.6 activities, total Common operations and -6 -6 -7.5 eliminations Finland, total 1,821 1,723 5.7 Other countries, 458 409 12.1 total* Group, total 2,279 2,131 6.9 * Exports and net sales outside Finland Operating profit by 1- 1- Change, division incl. non- 3/2008 3/2007 € recurring items, € € million continuing million million operations Kesko Food 123.9 29.2 94.7 Rautakesko 7.0 18.6 -11.6 VV-Auto 13.9 11.7 2.2 Anttila -1.4 -0.9 -0.5 Kesko Agro -0.4 -0.6 0.2 Other operating 2.2 8.6 -6.4 activities Common operations 5.0 -6.1 11.1 and eliminations Group's operating 150.1 60.4 89.7 profit Operating profit by 1- 1- Change, division excl. non- 3/2008 3/2007 € recurring items, € € million continuing million million operations Kesko Food 20.7 29.0 -8.4 Rautakesko 7.0 16.3 -9.3 VV-Auto 13.9 11.7 2.2 Anttila -1.3 -0.9 -0.4 Kesko Agro -0.4 -0.6 0.2 Other operating 2.2 8.6 -6.4 activities Common operations -5.4 -6.3 0.9 and eliminations Total 36.6 57.8 -21.2 Operating profit 1-3/2008 1-3/2007 Change, as % of net sales % of net % of net pp excl. non- sales sales recurring items, continuing operations Kesko Food 2.2 3.3 -1.1 Rautakesko 1.2 3.0 -1.9 VV-Auto 5.3 4.7 0.6 Anttila -1.1 -0.8 -0.3 Kesko Agro -0.2 -0.4 0.1 Other operating 1.2 4.7 -3.5 activities Common operations 97.4 104.4 -7.0 and eliminations Total 1.6 2.7 -1.1 Investments by 1-3/2008 1-3/2007 Change, division, € € € continuing million million million operations Kesko Food 30 24 6 Rautakesko 22 20 2 VV-Auto 2 2 0 Anttila 1 1 0 Kesko Agro 1 2 -2 Other operating 4 1 2 activities Common operations 1 0 1 and eliminations Group, total 60 50 10 Group's contingent liabilities 3/2008 3/2007 Change, % (€ million) For own commitments 231 242 -4.5 For associates For shareholders 0 1 -95.0 For others 7 11 -40.2 Lease liabilities 15 12 27.5 Liabilities arising from derivative financial instruments Fair value at Values of underlying 3/2008 3/2007 31.3.2008 instruments at 31 Mar. Interest rate derivatives Forward and future contracts* 48 Interest rate swap contracts 203 203 5.6 Currency derivatives Forward and future contracts 329 369 -0.3 Currency swap contracts 100 100 -24.5 Commodity derivatives Electricity derivatives 42 38 3.8 Grain derivatives 1 0.1 * Change over 100% Figures by quarter Group indicators by 1-3/ 4-6/ 7-9/ 10- 1-3/ quarter 2007 2007 2007 12/ 2008 2007 Net sales, € million 2,131 2,401 2,365 2,390 2,279 Change in net sales, % 11.6 8.5 10.8 6.9 6.9 Operating profit, € 60.4 99.6 93.3 68.3 150.1 million Operating profit, % 2.8 4.1 3.9 2.9 6.6 Operating profit excl. 57.8 93.4 91.9 71.9 36.6 non-recurring items, € million Operating profit excl. 2.7 3.9 3.9 3.0 1.6 non-recurring items, % Financial 37.6 -1.9 2.5 -2.1 -1.4 income/expenses, € million Profit before tax, € 98 97 96 66 149 million Profit before tax, % 4.6 4.1 4.1 2.8 6.5 Return on invested 23.5 18.6 17.4 12.4 26.6 capital, % Return on equity, % 24.4 17.3 16.2 9.8 25.1 Equity ratio, % 44.6 46.5 47.4 48.5 46.3 Investments, € 50.3 60.3 48.2 68.9 60.3 million* Earnings/share, 0.75 0.69 0.69 0.39 1.11 diluted, €* Equity/share, € 17.52 18.32 19.08 19.53 19.13 * Continuing operations Calculation of indicators Return on invested Profit before tax + financial expenses capital = x 100/ Balance sheet total - non-interest- bearing liabilities Return on equity = Profit before tax - income tax x 100/ Shareholders' equity Equity ratio = Equity x 100/ Balance sheet total - advances received Earnings/share, Profit before tax - income tax - diluted = minority interest/ Average number of shares adjusted for dilutive effect of options Equity/share = Equity/ Number of shares at end of period Interest-bearing debt - cash and cash Gearing = equivalents/ Shareholders' equity Divisions' net 1-3/ 4-6/ 7-9/ 10- 1-3/ sales by quarter, 2007 2007 2007 12/ 2008 € million 2007 Kesko Food 883 983 959 1 046 937 Rautakesko 534 687 694 622 591 VV-Auto 248 218 195 144 261 Anttila 120 111 143 189 128 Kesko Agro 168 216 196 213 180 Other operating 184 193 185 182 189 activities Common operations -6 -7 -7 -6 -6 and eliminations Group's net sales 2,131 2,401 2,365 2,390 2,279 Divisions' 1-3/ 4-6/ 7-9/ 10- 1-3/ operating profits 2007 2007 2007 12/ 2008 by quarter incl. 2007 non-recurring items, € million Kesko Food 29.2 40.9 41.2 40.0 123.9 Rautakesko 18.6 37.6 39.5 22.1 7.0 VV-Auto 11.7 8.1 6.8 -0.5 13.9 Anttila -0.9 0.1 6.3 21.6 -1.4 Kesko Agro -0.6 7.9 3.5 2.1 -0.4 Other operating 8.6 6.5 3.3 -8.4 2.2 activities Common operations -6.1 -1.6 -7.3 -8.6 5.0 Group's operating 60.4 99.6 93.3 68.3 150.1 profit Divisions' 1-3/ 4-6/ 7-9/ 10- 1-3/ operating profits 2007 2007 2007 12/ 2008 excl. non-recurring 2007 items, by quarter, € million Kesko Food 29.0 41.4 41.1 39.8 20.7 Rautakesko 16.3 38.7 39.0 21.9 7.0 VV-Auto 11.7 8.1 6.8 -0.5 13.9 Anttila -0.9 -1.8 6.3 21.6 -1.3 Kesko Agro -0.6 7.9 3.0 2.1 -0.4 Other operating 8.6 6.5 3.3 -4.5 2.2 activities Common operations -6.3 -7.5 -7.6 -8.5 -5.4 Group's operating 57.8 93.4 91.9 71.9 36.6 profit Personnel, 1-3/2008 1-3/2007 Change average number, continuing operations Kesko Food 5,824 5,647 177 Rautakesko 10,068 8,271 1,797 VV-Auto 724 727 -3 Anttila 2,040 1,935 105 Kesko Agro 732 841 -109 Other operating 1,762 1,829 -67 activities and common operations Kesko Group, total 21,150 19,250 1,900 Personnel at 31 March, 2008 2007 Change continuing operations* Kesko Food 7,556 7,335 221 Rautakesko 11,164 8,970 2,194 VV-Auto 757 747 10 Anttila 2,690 2,583 107 Kesko Agro 752 857 -105 Other operating 1,917 2,030 -113 activities and common operations Kesko Group, total 24,836 22,522 2,314 * Total number including part-time employees The K-Group's retail sales (incl. VAT) (preliminary data): 1.1.-31.3.2008 € Change, million % K-Group food stores K-citymarket 425.2 7.7 K-supermarket 368.6 8.2 K-market and other K-food 431.8 8.5 stores Finland, total 1,225.6 8.1 Food stores, total 1,225.6 8.1 K-Group building and home improvement stores K-rauta 121.4 6.3 Rautia 95.8 7.1 Finland, total 217.2 6.6 K-rauta, Sweden 48.4 13.7 K-rauta, Estonia 20.7 1.1 K-rauta, Latvia 21.2 3.7 Senukai, Lithuania 116.4 10.3 OMA, Belarus 15.2 Stroymaster, Russia 47.5 40.2 Byggmakker, Norway 227.7 -1.7 Other countries, total 497.0 9.4 714.2 8.5 Building and home improvement stores, total Kesko Group car stores Helsingin VV-Auto and Turun 127.8 10.6 VV-Auto Finland, total 127.8 10.6 Anttila Anttila department stores 83.8 2.8 Kodin Ykkönen department 42.7 17.8 stores for home goods and interior decoration Distance sales (Mail Order 23.5 6.6 and NetAnttila) Finland, total 150.0 7.3 Anttila Mail Order, Estonia 6.1 0.5 and Latvia Other countries, total 6.1 0.5 Anttila, total 156.1 7.0 K-Group agricultural stores K-maatalous 131.8 -1.8 Finland, total 131.8 -1.8 Kesko Agro, Estonia 18.9 30.5 Kesko Agro, Latvia 24.0 23.8 Kesko Agro, Lithuania 7.0 -58.9 Other countries, total 50.0 -2.1 Agricultural stores, total 181.7 -1.9 Other operating activities Kesko Group machinery stores Yahama Center 1.7 -17.7 Finland, total 1.7 -17.7 K-Group home and speciality goods stores Intersport 66.4 0.9 Kesport 7.5 6.0 Asko 21.8 -1.7 Sotka 26.8 -0.9 Musta Pörssi 53.0 18.0 Andiamo and K-kenkä 9.2 0.8 Kenkäexpertti 2.5 -7.4 Finland, total 187.1 4.7 Furniture sales, Sweden, 9.2 -23.8 Estonia and Latvia Other countries, total 9.2 -23.8 Home and speciality goods 196.3 2.9 stores, total Other operating activities, 198.1 2.6 total Finland, total 2,041.2 7.0 Other countries, total 562.2 7.4 Retail sales, total 2,603.5 7.1 |
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