Kesko Oyj

Warmly welcome virtually Helsinki and thank you for tuning in for Kesko's Q3 2024 release call. Today's headline is a turn for better in building and technical trade. Other divisions did well as well, but we wanted to highlight the building and technical trade after many harsh quarters. Our agenda today is the following. President and CEO Jorm Rauhala will give the Q3 presentation. We have here together with us business division presidents Ari Akseli for grocery trade, Sami Kiiski for building and technical trade, and Johanna Ahli for car trade, as well as CFO Anu Hämäläinen. After Jorma's presentation, it is time for questions both by phone and via chat function. All the materials related to Q3 can be found at our webpage kesko.fi under Investors. My name is Hanna Jaakkola, responsible for IR at Kesko. I will be at your service after the presentation for your questions and discussions. But now, Jorma, the virtual stage is yours, please.

Thank you, Hanna. Ladies and gentlemen, welcome also on my behalf to this release call. I am Jorma Rauhola and I have now the pleasure to present Keskos Q3 results. Yes, a turn for the better in building and technical trade. It's our headline and it highlights the biggest change in the third quarter. Other divisions performed well too. Now I will give an overview of our business performance and open up elements behind the result. Key events in the third quarter. Kesko's net sales increased and comparable operating profit decreased. Billing and technical trade net sales increased. A turnaround can be seen. Year-on-year result increased for the first time in eight quarters. Grocery trade net sales increased. Result was flat year-on-year. Car trade net sales and results decreased. Profitability was at a good level. Kesko announced it will acquire three builders merchants in Denmark. Roslev, Drehlaasthandel, Tömmel Garden and C.F. Petersen & Son. The combined net sales of the companies total approximately 400 million euros. Once the acquisitions are completed in the first half of 2025, Kesko's market share in Danish building and home improvement trade is set to rise to some 20%. Kesko issued a 300 million euro screen bond, which will mature on 2nd February 2013. Net sales in Q3 totalled 3 billion euros. It was up by 77 million euros. Net sales increased in billing and technical trade and grocery trade. Rolling 12 months net sales were flat compared to 2023 and were over 11.7 billion euros. In Q3, comparable operating profit was 201.5 million euros and operating margin was 6.7%. Comparable operating profit increased slightly in grocery trade and billing and technical trade and decreased in car trade. Rolling 12 months, operating profit was 650 million euros and operating margin was 5.5%. Return on capital employed was 11.5%. Return on capital employed decreased compared to 23 in all divisions as earnings declined. Financial position. Increase in working capital impacted cash flow in Q3. Cash flow from operating activities was 286 million euros. Cash flow was impacted by calendar, as the last day of the quarter this year was Monday, while last year it was Saturday. There are typically large outpayments of trade payables on Mondays. Also, inventory growth affected the cash flow. Net debt to EBITDA was 1.2, well below our maximum target of 2.5. Interest bearing net debt increased year on year as a result of investments in acquisitions, grocery trade store site network and logistics. I'll open up the logistic investments on the next slide. Onnela is Keskos History's largest construction project. It is also the largest ongoing construction project in Finland at the moment. This is an investment in future growth. The center will serve both Onnela's technical trade and K-Auto's spare parts business. Implementation of the center will take place in stages from Q3 2025 onwards. Once the center is on full use by the end of 26, it will remarkably improve Oninen's efficiency. Timing for the construction has been good and the project cost is estimated to be less than the original cost estimate of 300 million euros. Total investment so far is 174 million euros. Capital received by Kesko through the issuance of green notes is used to finance the project. In this project, special attention has been paid to reducing energy consumption and carbon footprint, which reduces costs and emissions over the property's long life cycle. The site will host, for example, some 100 geothermal wells and an entire solar power plant. Expenses. Expenses fair up due to David Chen acquisition and real estate costs. We have succeeded well in focusing on cost efficiency. For example, excluding David Chen, personal expenses have increased only by 0.3% year to date, despite wage increases. Fixed costs were 484 million euros and cost raise was 16%. It was down compared to last water, but up year on year. Now to the grocery trade. Stable performance. In Q3, net sales totaled 1.6 billion euros and increased by 16 million euros. Rolling 12 months, net sales totaled over 6.3 billion euros. In grocery trade, comparable operating profit for Q3 was 118.8 million euros, and it was close to last year's level, up by 0.5 million euros. Profitability was 7.4%. Rolling 12 months operating profit was 440 million euros, and operating margin was 6.9%. Key events in grocery trade in Q3. In the grocery trade division, net sales and profit increased, operating margin was flat year on year. K-group grocery sales were down by 0.1%. Kespers net sales were up by 3.1%, again exceeding market growth. K-city market non-food sales were down by 4.1%. Good development continued in online grocery. Online sales were up by 13.9%, thanks to express deliveries. Total grocery trade market was approximately 1.5% and group sales performance was slightly below the market. Grocery price inflation in Finland was approximately 0.4%. Customer flows continued to grow thanks to campaigns, but average purchase was down. According to our strategy, media business and data utilization are supporting profitability. Strategy execution is proceeded according to plan. I want to highlight our key actions in grocery trade strategy. One, strengthening store specific business ideas. Two, developing our store site network. Three, improving price competitiveness. Impact from stronger stores, specific business ideas and investments in price will become visible from yearly 25 onwards. Investments in the store network continue. Impacts will become visible in the end of Kesko's strategy period. This year, we will open 15 new stores and 44 renewed stores, of which 7 new and 14 renewed stores in Q4-24. In 2025, we will open 18 new and 46 renewed stores. In billing and technical trade, the result was better than expected. Net sales increased by 78 million euros to 1.1 billion euros, thanks to David Chain acquisition. In comparable terms, net sales decreased by 2.2% due to the challenging construction cycle. Rolling 12 months net sales were over 4.6 billion euros. Comparable operating profit for the building and technical trade division totaled 70.1 million euros and operating margin 6.2%. Rolling 12 months operating profit was 173.6 million euros and operating margin was 4.1%. Comparable operating profit increased thanks to positive profit development in K-Rauta Finland and David Chain Acquisition. Key events in building and technical trade in Q3. Construction cycle is still weak, but we have seen a turnaround. Result for the division grew for the first time in eight quarters. Sales have picked up in both building and home improvement rate and technical trade, but the market continues to be challenging. Net sales and operating profit development was better than anticipated. Operating profit for Oninen Finland was at last year's level. Sales and profitability for solar power products have returned to normal levels. In Norway, there have been logistic-related delays in Electroscandia's integration, and bookmakers slightly underperformed the market. In Sweden, increased focus on P2P trade under the K-bygg brand has proceeded according to plan. Credit risks are well under control. Write downs of overdue trade receivables totaled 0.5 million euros. Share of result from Kesko Senokai was 4.8 million euros. In this picture, we can see Keerauta's and Oninen's sales development in Finland since 2019. We showed this picture last quarter, and here you can see the Q3 development added. Keerauta is the market leader in building and home improvement business in Finland and Oninen in technical trade. Both have nearly 50% market shares. So this picture describes the Finnish building and home improvement market well. In the graph, we can see now that after several quarters of week cycle, sales are turning. This positive trend has continued also in Q3, but numbers are still below zero level. We believe that the moderate sales development will continue, but there are no major sales hikes in sight. Low comparable figures support the development too. This is Byggmarker's sales development, which is very similar to Keirauta and Oninen's graph. Norway is our second-largest operating country, and Byggmarker's market share in 2013 was some 13%, and Byggmarker is among the largest players in the market. Here, too, we can see the consumer COVID boost starting in late 2020, and then in 2021, we saw P2P sales increase with high demand and global price increases. Turning construction cycle started to affect 2022 and sales declined sharply in first half of 2022. After several quarters of week cycle, we can now see sales returning. We estimate that the construction cycle will turn in 2025 in Norway too. In car trade, we saw good performance in a challenging market. In car trade, net sales for Q3 decreased by 16 million euros and were 295 million euros. Net sales decreased in new cars and increased in used cars and services. In the comparison period, net sales for new cars increased by the clearing of order books as the availability of cars improved. The comparable operating profit totalled 17.9 million euros and decreased by 6.5 million euros year on year. Operating margin was 6%. Rolling 12 months operating profit was 63.5 million euros and operating margin was 5.4%. Key events in car trade in Q3. Market demand for new cars stayed muted. Q3 first registrations in Finland were minus 24.4%. Net sales and comparable operating profit decreased as market continued to be challenging. Profitability remained at a good level. New car sales were down, but in new car orders, the share of brands represented by Kesko grew. Used car sales were up. Kei Auto's market share strengthened significantly. Service sales continued to grow. Acquisition of Autotalo Lohja was completed in September. In sports trade, net sales and comparable operating profit increased, and market share strengthened. Our business portfolio in car trade is balanced. 47% of Kei Auto's sales were new cars. 32% used cars and 21% services. And now to profit guidance 2024 and outlook for 2025. Keskos operating environment is estimated to remain challenging in 2024. Keskos net sales and operating profit are estimated to remain at a good level in 2024, despite the challenges in the company's operating environment. Kesko estimates that its comparable operating profit in 2024 will amount to 630 to 680 million euros. Previously, the comparable operating profit was estimated to amount to 620 to 680 million euros. The profit guidance specification is based on third quarter positive profit development in building and technical trade. Outlook for 2025. The operating environment is estimated to improve in 2025 and Kesko's comparable operating profit is also estimated to improve in 2021, then 2025. In grocery trade, P2C trade and the food service market are estimated to remain stable. In 2025, the comparable operating margin for the grocery trade division is estimated to stay clearly above 6%, despite the investments in price and store site network in accordance with Kesko's strategy for 2024-2026. In building and technical trade, the cycle is expected to improve in 2025 from the historically low levels. Profitability in the building and technical trade division is estimated to improve compared to 2024. In car trade, new car orders are expected to stay at a low level in 2025. Demand for used cars and services is estimated to remain good. Profitability for the car trade division is estimated to remain at a good level in 2025, despite weak demand for new cars. Well, this was my presentation. Thank you. I guess it's time for questions now.

Yes, thank you, Jorma, for your presentation. Now it's time for questions. Like you said, let's turn to the conference call line first.