Kesko Oyj

Dear all, warmly welcome virtually to Helsinki, and thank you for tuning in for Kesko's Q1 2025 release call. Today's headline is Stable performance during the slowest quarter of the year, and it describes well the first quarter. Our agenda today is the following. President and CEO Jorma Rauhala will first give the Q1 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 our CFO, Anu Hämäläinen. After Jorma's presentation, it is time for questions, both by phone and via chat function. All the materials related to Q1 can be found at our web pages, kesko.fi, under Investors. My name is Hanna Jaakkola, responsible for IR at Kesko. I will be at your service after the presentation for 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'm Jorma Rauhola, and I have now the pleasure to present Kesko's Q1 results. Stable performance during the slowest quarter of the year is our headline. Yes. Yes. Q1 is seasonally the smallest quarter of the year and our performance was good despite this seasonality. Now I will give an overview of our business performance and open up elements behind the result. In the end, I'll present the guidance and outlook for 2025 and we are ready for the Q&A. Summary of Q1 2025. Kesko's net sales increased and comparable operating profit decreased. In grocery trade, net sales and profit were down as anticipated due to the timing of Easter and the implementation of the price program. In building and technical trade, sales picked up, especially in the P2B segment in building and home improvement trade in Finland, Denmark and Norway. In car trade, net sales and profit increased. A balanced and comprehensive product and service portfolio supports the good performance in car trade in changing market conditions. Acquisition of Ruslev, the real last handle, was completed at the end of January. Danish competition authorities approved the acquisition of CF Petersen and Sun without conditions. The acquisition is expected to be completed tomorrow. The profit guidance remains unchanged for this year. Comparable operating profit for the year is estimated to be in the range of 640 to 740 million euros. Net sales in Q1 totaled over 2.8 billion euros. It was up by 68 million euros. Net sales increased in billing and technical trade and in car trade. Rolling 12 months, net sales increased to nearly 12 billion euros. In Q1, comparable operating profit was 95.6 million euros. And operating margin was 3.4%. Comparable operating profit increased in building and technical trade and in car trade and decreased in grocery trade. Rolling 12 months operating profit was 646.2 million euros and operating margin was 5.4%. Return on capital employed was 11%. Return on capital employed increased slightly in car trade, was flat in building and technical trade and decreased in grocery trade compared to the year end. Financial position. There was a seasonal increase in working capital that impacted cash flow in Q1. The main reasons affecting the operating cash flows were increased inventory in building and technical trade as we were preparing for the upcoming season. In car trade, there was inventory of hundreds of rental cars up for delivery in Q2 and also new cars waiting for delivery. In grocery trade, cash flow was impacted by calendar, as the last day of the quarter was Monday, while last year it was Sunday. There are typically large outpayments on Mondays. Also, inventory growth affected the cash flow. Net debt to EBITDA was 1.6, below our maximum target 2.5. We continued to investments in growth, and the main capex was the Ruslev acquisition. the construction of Onninen and Keatosset logistics center in Hyvinkää, Finland, and store-site investments in grocery trade. In comparison period, there is a real estate arrangement in the store-site investments and Davidson acquisition. IT investments fare 3.1 million euros. A large amount of IT investments are classified as OPEX instead of CAPEX. We have a clear focus on improving our digital capabilities throughout the company. Other investments include, among the other things, logistics center Onnela. Expenses. Expenses were up mainly due to acquisitions. The largest item increasing the costs was the personal expenses. Approximately half of the increase in personal expenses came from the Danish acquisitions and half from the salary increases. Now, the grocery trade. There was an expected profit impact from the timing of Easter and the price investments. In Q1, net sales totaled 1.5 billion euros and decreased by 29 million euros. The most significant reason behind the decline was the timing of Easter this year compared to the last year. Kespers net sales declined by 0.5%. Rolling 12 months net sales totaled over 6.4 billion euros. In grocery trade, comparable operating profit for Q1 was 72.8 million euros, and it declined by 9.7 million euros. The comparable operating profit declined as expected due to the timing of Easter and price program implementation. Geschäftsoperating profit declined by 1.4 million euros. Profitability was 4.9%. Rolling 12 months operating profit was 428 million euros and operating margin was 6.7%. In grocery trade, sales and profit were impacted especially by the timing of Easter, which is the second most important sales season for the division. This year Easter was in April, whereas in 24 it was in March. K-group grocery sales decreased by 1.4%. Gas price net sales decreased by 0.5%, but still exceeded market growth. K-City market non-food sales decreased by 1.3%. The price program launched in January, so it got good results, but as expected, it had a negative impact on profit. Online grocery sales increased by 5.6%. The total grocery market growth was flat year on year. Grocery price inflation in Finland was approximately 1.8% according to Statistics Finland. Customer flows continued to grow thanks to the price program and campaigns, but the average purchase decreased. In grocery trade, we are aiming for a market share turnaround. The decline in K-Cross market share slowed down in 2024. According to Tornilsen IQ, the research published once a year and is the widest market share research. K Group's market share in 24 was 33.7% compared to 34.3% in 2023. Our market share in online grocery is above 40%. Withdrawal from the next K service station business and closure of smaller K market stores had an over 0.2 percentage point negative impact on market share, but a positive impact on profit. In 24, the total number of K-group grocery stores decreased by 80 units, of which 65 were Nestec-K stores. According to Nielsen IQ statistics, growth in grocery trade has been driven by larger stores. If we look at the first quarter of 2025, K Group's market share development was in line with the market in the hypermarket segment, which indicates that our actions, including the price program, are working well. The market share turnaround in grocery trade focuses on quality, price, and store network. To improve quality, Store-specific business ideas are being refined, with investments particularly in certain departments like bread and fruit and vegetables. Extensive relevant selection are created by data and AI, and digital services are being developed to make everyday life easier. The price program launched in January includes affordable everyday products. Prices have been cut on 1,200 popular products. There are also relevant campaigns and personalized benefits. Kesko and retailers invest jointly approximately 50 million euros to the prices in 2025. Store-specific price investments are also being made depending on the market situation. Investments in the store site network include 30 new store openings and 92 stores renewed between 2024 and 2025. There is a particular investments focus on hypermarkets with eight new or replacement K-City market stores planned by 2028. Annual investments are expected to be around 200 to 250 million euros in the whole grocery store site network. In building and technical trade, pickup in building and home improvement trade supported sales and profit. In building a technical trade, net sales increased by 69 million euros to 1 billion euros. The increase was supported by the Danish acquisition, but net sales increased in comparable terms, too, by 3.6%. Rolling 12 months, net sales were over 4.4 billion euros. The timing of Easter supported the sales, as there were more trading days in March and less holidays. Comparable operating profit for the building and technical trade division totaled 11.7 million euros and operating margin was 1.1%. Rolling 12 months operating profit was 174 million euros and operating margin was 3.9%. Comparable operating profit increased thanks to positive profit development in building and home improvement business and the Danish acquisitions. Building and technical trade highlights for the first quarter. We can see the construction cycle turning. Demand is stronger, especially in building and home improvement trade. Growth in K-rata sales in Finland has been driven by B2B sales, with a significant increase, especially in sales of heavy construction materials. The growth in timber, for example, was double-digit. The B2C trade has also picked up. Sales for Oninen Finland fell short of the comparison period, but also in technical trade. If we look at the product lines, we can see the HIPAA products and certain electrical products picking up in Oninen Finland. These are the products that are used in the early phase of construction. For our customers, as well ourselves, the amount of tender requests for projects and product prices have clearly increased. Building and home improvement rate sales in Denmark and Norway have increased, with only Norway also reporting higher sales. Technical trade sales in Sweden are clearly up. The converted to K-book store ramp-up is still ongoing and affecting the sales. Sales in Poland have slightly declined. Sales of heavy construction materials is up in building and home improvement rate. Other product categories like decoration typically follow with a slight delay. Post-cyclical e-technical trade usually picks up some six months after a turnaround in building and home improvement, B2B says. Credit risks are well under control. Write-downs of overdue trade receivables totaled 0.3 million euros. Keskosenuka did not report its financial asset schedule. In Kesko Q1-25, reporting the share of the result from Kesko Senokai is 0 million, compared to minus 0.4 million euros the year before. In this picture, we can see Keirautas and Oninen Seis development in Finland since 2019. We have showed this picture many times already, and here you can see the Q1 development too. Keirauta is the market leader in building and home improvement business in Finland and Oninen in technical trade. Keirauta having over 50% market share and Oninen a bit less than 50%. This big picture describes the Finnish building and technical trade market well. We can clearly see now the late cyclical nature of Oninen business lagging a bit behind Keirauta. Last year, it went surprisingly hand in hand. For the Q2 2025, the quarter has started as expected, and especially B2C trade has grown clearly. This is bookmaker sales development. Norway is our second largest operating country, and bookmaker is among the largest players in the markets. After several quarters of weak development, the Q1 sales development has been clearly improving. For Q2, Easter had a significant effect in Norway. In March, we had two trading days more in 2025, and in April, two days less. Also in Norway, there is a significant amount of holidays around Easter affecting P2P activity. For the whole division, as we have been saying for a long time, we estimate that the construction cycle turns in 2025. We are now seeing the clear positive turn in building and home improvement rate, and we estimate that the technical trade will follow in H2. Car trade Q1. Strong position in different areas of car trade supported profit development. In car trade, net sales for Q1 increased by 28 million euros and were 314 million euros. Net sales increased in all businesses, new cars, used cars and services as well as in sports trade. Rolling 12 months net sales were over 1.2 billion euros. The comparable operating profit totaled 17.9 million euros and increased by 1.5 million euros year-on-year. Operating margin was 5.7%. Rolling 12 months operating profit was over 70.8 million euros and operating margin was 5.7%. Cartridge highlights in Q1. Market demand for new cars stayed muted and Q1 first registration of passenger cars and vans were down by 7%. but first registration of brands represented by Kesko were up by 15.1% in Q1. Net sales and comparable operating profit grew clearly despite the challenging market, thanks to the strong new car sales in particular. New car sales continue to grow, thanks to the good sales of Volkswagen models ID.4 and ID.7. This is what we mean by balanced business portfolio. Last year, The growth came especially from used cars, and now the growth is coming from new cars. We are the only operator in the market that has such a strong position in both new and used cars, as well as services. Services include, among other things, servicing, damage repairs, tires or spare parts, and on top of that, EV charging and leasing, too. In Q1, used car and service sales also grew, too. Net sales and comparable operating profit grew also in sports trade. Profit guidance and outlook for 2025 remains unchanged. Profit guidance for 2025. Kesko Group's 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 a 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 the current year. 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, To market for new cars is expected to stay at 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. Well, this was my presentation. To summarize, the year has started off as expected. Of course, Kesko is not immune to the global uncertainties, and especially consumer and business confidence are important, but it's good to bear in mind that we are not an exporter. The clear majority of the products we sell are from Finland or Nordics and elsewhere from the European Union. Despite the turbulence, I am positive and confident about the current year. We see construction recovering, and we see positive development in grocery trade too. Our strategic actions, like the price program, are working well. We see it the first signs of recovering market share development. But it takes time to see the full effect. Also, car trade is doing very well. I see the market situation in all three divisions better this year compared to last year. I guess it's time for questions now.

Thank you, Jorma, for your presentation. And let's take the questions now. We first turn to the conference call line. So please, the stage is yours.