Kesko Oyj

Dear all, warmly welcome virtually to Helsinki, and thank you for tuning in for Kesko's Q4 and full-year 2024 release call. Today's headline is Year-End Turnaround, Quarter Result Up for the First Time in Eight Quarters. This is good news after two years of declining quarter results. Our agenda today is the following. Keskos President and CEO Jorma Rauhala will first give the full year and Q4 presentation. We have here, together with us, our business division presidents, Ari Akseli for grocery trade, Sami Kiiski for building and technical trade, and Johanna Ali for car trade, as well as CFO Anu Hämäläinen. After Jorma's presentation, it's time for questions, both by phone and via chat function. All the materials can be found at our webpage under kesko.fi and their investor site. 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 Kesko's full year and Q4 results. Yes, year and turnaround. Quarter result up for the first time in eight quarters is our headline, and it highlights the change in the fourth quarter. Now I will give an overview of our business performance and open up elements behind the result. In the end, I present the guidance and outlook for 2025 and the dividend proposal to the annual general meeting. Year-end turnaround. Q4 quarter result up for the first time in last two years. Highlights for the full year 2024. Kesko's net sales increased and comparable operating profit decreased. Grocery trade net sales increased, profit was slightly down. In peeling and technical trade, cycle was historically low. Net sales were up thanks to the Davidson acquisition. Comparable operating profit was down. In car trade, net sales and profit decreased. Profitability was at a good level. There were a lot of changes in the management team last year. I started as president and CEO a year ago, and there were several changes in group management board. During 2024, Kesko expanded to Denmark by acquiring Davidson and additional acquisition of Roslev, Tammerkoren and C.F. Petersen and Son were announced. The rules-level acquisition was completed last week and the company will be added to Keskos figures starting from the beginning of February 25. Once all the acquisitions are completed, Keskos market share in Danish building and home improvement trade is set to rise to some 20%. After these acquisitions, Denmark will become the third largest Keskos operating country after Finland and Norway. Dividend proposal to the Annual General Meeting is 90 cents per share. Dividend payout rates will be 81%, slightly up from last year. Net sales for 2024 totaled over 11.9 billion euros and it decreased by 2.3% in comparable terms. Net sales increased in grocery trade and decreased in comparable terms in building and technical trade as well as in car trade. Comparable operating profit for last year was 650 million euros. It decreased by 62 million euros. Operating margin was 5.5%. Operating profit decreased in all divisions. Operating margin for grocery trade was at a good level, 6.9%. And for car trade, 5.7%. For building and technical trade, operating margin was 3.9%, which is a good result in historically low cycle. Return on capital employed was 11.3%. Return on capital employed decreased compared to 2023 in all divisions as earnings declined. Financial position. Cash flow was almost flat year on year. Cash flow from operating activities was over 1 billion euros. Capital expenditure totaled 676 million euros. I'll open up investments on the next page. Interest-bearing net debt increased year on year as a result of investments in acquisitions, grocery trade, store site network and logistics. Net debt to EBITDA was 1.1, well below our maximum target of 2.5. We continue to investments in growth and domain capex, both the Davidson acquisition, the construction of Onninen and Kei Autos shared logistics center in Hyvinkää, Finland, and store site investments in grocery trade. The store site investments include real estate acquisitions of Kei supermarket car property in Espoo, as well as Kei city market Salos property. IT investments were 18 million euros, but actually a large amount of IT investments are software type of SaaS investments and classified as OPEX instead of CAPEX. We have a clear focus on improving our digital capabilities throughout the company. Other investments include the mentioned logistics center on Nela as well as investments in the leasing car fleet. Expenses. Expenses were up due to David's acquisition and real estate costs. We have succeeded well in focusing on cost efficiency. For example, excluding David's, personal expenses have increased only by 0.9% year-to-date, despite significant wage increases. Fixed costs were 2,076,000,000 euros and cost ratio was 17.4%. And now to Q4 results. As said, this was the first quarter result improvement in eight quarters. Net sales in Q4 totaled over 3 billion euros. It was up by 1.1% in comparable terms. The net sales grew in grocery trade by 1.2% and car trade by 9.7%, but decreased in building and technical trade in comparable terms by 1.7%. In Q4, comparable operating profit was at 170.8 million euros and operating margin was 5.6. Comparable operating profit increased in car trade and decreased in grocery trade and building and technical trade. Now to the grocery trade. In Q4, stable performance. Highlights in grocery trade in Q4. Net sales grew and operating margin was at a good level. K-group grocery sales were up by 1.6%. Gespro's net sales were up by 2.5% and the growth exceeded again the market growth and Gespro gained market share. K-city market non-food sales were down by 1%. Online grocery sales grew by 7.6% thanks to fast deliveries. Total grocery market growth in Finland was approximately 2.8%. We increased investments in price in line with our strategy. Market share declined slowed down towards the year end. Christmas sales were especially good in the K-City market chains, which won over market share in the hypermarket category in December. General grocery price inflation in Finland was approximately 0.9% according to the statistics of Finland. Customer flows continued to grow thanks to campaigns, but average purchase decreased. In our grocery trade strategy, we have three main topics. Price, quality and store network. Firstly, to price program. Price program was introduced in stores in line with our strategy. Price program rolled out in January this year. We got prices of some 1,200 products in K-group grocery stores. Kesko and K-Retailers together are investing into this long-term program nearly 50 million euros during 2025. Also our suppliers participate, but their contribution is not included in this 50 million euro investment. We will continue executing the program throughout the year, and the upcoming measures are included in the 50 million euro investment. Prices were cut on some 1,000 branded everyday products and some 200 popular Pirka private label products. Price reductions on branded products were averaged to 4-6% and up to 15-20% in some cases. And price reductions on Pirka products were on average 9-12%. Operating margin target for grocery trade in 24-26 strategy period is clearly above 6%, despite investments in price and store network. And then to another strategic focus area. There is an increased focus on quality. K-Group is and will be the quality leader in Finnish grocery markets. Our unique retail business model enables the constant development of store-specific business ideas and the quality. Store-specific business ideas are created by using customer data based on customer profiles of local residents and customer purchasing behavior. This information is used when creating matching selections and services for the store's catchment area. Digitally assisted services enable increasingly personalized and individual customer experience. Increasingly relevant personal offers are very important. The Keyrock app is the most popular in Finland, and it has some 800,000 weekly users. The number of users is up by 38% in 24. As the media and advertising environment is changing rapidly, the importance of KROAK app is growing and we are in excellent position in this change. All selections are wide. We have a large variety from A brand products to high quality private labels and also the most affordable price fighters. This gives a clear competitive advantage. There is also a lot of further potential in store specific business ideas. Currently, executions of store specific business ideas differs between stores. Kesko is supporting the care retailers by digital systems and services in executing their store specific business ideas. We are also strengthening our store site network as planned. Investments in the store network continue. The impact will become visible especially towards the end of Kesko's 24-26 strategy period. Kesko invests on average 200 to 250 million euros annually in store updates and new stores. In 2024, we renewed 44 stores and opened 15 new stores. K-City Market Vuosaari in Helsinki was opened in November last year. In 2025, we will renew 48 stores and open 15 new stores, including a new K-City Market in Lempäälä Ideapark near Tampere and K-City Market Paavola replacing an existing outdated store in Lahti. In 2026 and 2027, new K-City markets in Haapanemi-Kuopio and Kivisto-Vantaa and a new K-City market replacing existing outdated store in Porvoo will be opened. New K-City market stores are also planned for Ritaportti-Oulu in 2027 and Espoo-Keskus-Espoo in 2028. In the picture, you can see a virtual photo of K3 market Kivistö, not too far from the Helsinki 1 tire port. This is a brand new and growing residential area without any other competing hypermarkets. Building a technical trade in Q4 results in line with expectations. Building and technical trade highlights in Q4. If you look at the construction market in general, the construction cycle is still weak, but we saw sales development improvement in all our operating countries towards the end year and compared to the beginning of the year. In Denmark and Poland, sales improved clearly. In Finland, sales development of K-Rauta and Oninen were at Q3 level. In Norway, bookmarker sales development improved and Oninen's was almost flat on Q3. In Sweden, sales development was impacted by the closure of K-Rauta stores. Overall, Q4 net sales were in line with our expectations as well as comparable operating profit. Comparable operating profit for Finland, Denmark and Poland exceeded our expectations, but fell short in Sweden and Norway. Full year 24 operating margin of 3.9% is a good result in a historically weak cycle. It is good to bear in mind that our long-term target in this business is 6-8% operating margin and the target is very valid as the cycle turns. In Norway, Kesko made a 40 million euro goodwill write-down for bookmakers due to weaker than anticipated profit development in 2024, a weak cycle in Norwegian construction and Norwegian high interest rates. This write-down does not impact the comparable figures. Credit risk is well under control even in this harsh market. Write-downs of overdue trade receivables totaled 2.4 million euros. Share of results from Kesko Senukai was 10.1 million euros. In this picture, we can see Keirauta's and Onninen's sales development in Finland since 2019. We saw this picture twice already, and here you can see the Q4 development too. Keirauta is the market leader in building and home improvement business in Finland and Onninen's in technical trade. Both have nearly 50% market share, so this picture describes the Finnish building and home improvement market well. In the graph, we can see that sales development was pretty much in line with Q3 development. Last quarter, I highlighted that the growth pace was not expected to continue as a straight line. For the current year 25, we will have one trading day less in January, but I can say that if we draw the line further, the development has improved. In January, Keiroata was clearly above the zero level driven especially by good P2P sales. Oninen is at the zero level taking into account one less trading day. This is bookmarker sales development. Norway is our second largest operating country and bookmarker is among the largest players in the market. After several quarters of weak development in 2024, the year end and sales development has been improving and we can see the sales returning. The year ended just marginally below the zero level. For the current year, 25, January sales are always impacted by the holiday season, but we can see that the end of the month sales development was improving in January. If we look at the other countries, the last quarter's strong sales development in Denmark, Poland and Baltic countries has continued also in January. As we have been saying for some time, that we estimate that the construction cycle will turn in 2025. We will see low comparable figures in the first half. We expect the construction activity to grow in the second half, which will support our performance. And then to car trade in Q4. Highlights for the car trade Q4. Market demand for new cars remained muted. Q4 first registration of passenger cars and vans were minus 3% in the market. At the same time, the first registration of brands represented by Kesko grew by 10%. Net sales and comparable operating profit grew clearly despite the challenging market. New car sales increased, in particular due to good sales of Volkswagen models such as ID.4 and ID.7. Used car sales increased and market share grew significantly. In service business, sales continued to grow. In sports trade, net sales declined and comparable operating profit increased Q4. Q4 market share declined, but full year 2024 market share grew clearly. Our business portfolio in car trade is balanced. 47% of key auto sales were new cars, 32% used cars and 21% services. And then outlook and guidance. Profit guidance for 2025. Kesko Group profit guidance is given for the year 2025 in comparison with the year 2024. Kesko's operating environment is estimated to improve in 2025, but to still remain somewhat challenging. Kesko's comparable operating profit is estimated to improve in 2025. Kesko estimates that its comparable operating profit in 2025 will amount to 640 to 740 million euros. The profit guidance is based on an estimate of gradually improving economic cycle in all Kesko operating countries. Key uncertainties impacting Kesko's outlook are developments in consumer confidence, investment appetites, as well as geopolitical crises and tensions. And then outlook for 2025. In grocery trade, B2C 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 the 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 on 2024. In car trade, the market for new cars is expected to stay at a low level. 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. Dividend proposal. Board of Directors is proposing a dividend of 90 cents per share to the annual general meeting. It is proposed to be paid again in four installments. This proposed dividend represents 81% of the comparable EPS. Well, this was my presentation. I guess it's time for questions now.

Thank you, Jorma, for the presentation. So yes, like you said, time for questions now. We will first turn to a conference call line, but you can also ask questions through the chat function and I read them as they come. But conference call, please.