Kesko Oyj

Dear all, welcome to Kesko's Q2 2025 release call and also welcome to warm Helsinki, at least virtually. Today's headline is steady profit development, turnaround in construction cycle slower than previously anticipated and it describes the Q2 and also our guidance update well. Our agenda today is the following. President and CEO Jorma Rauhala will give the Q2 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 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 Q2 can be found at our website 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.

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 Q2 results. Steady profit development, turnaround in construction cycles slower than previously anticipated is our headline. Q2 was actually better than we expected for grocery trade and car trade, but construction cycle improvement has been slower than anticipated and building and technical trade was comparably slightly below our expectations. Now I will give you an overview of our business performance and open up elements behind the result. In the end, I'll present updated guidance and outlook for 2025 and we are ready for the Q&A. Summary of Q2 2025. Net sales increased, profit improved by nearly 5 million euros in comparable terms, meaning excluding share of results from Keskosenokai from both Q2 2025 figures as well as from comparison period. In grocery trade, net sales increased and comparable operating profit decreased slightly. Profit improved in chain operations, meaning food retail operations, but decreased in Kespro and KCD Markets non-food operations. In billing and technical trade, net sales increased, especially supported by acquisitions. Comparable operating profit improved slightly, excluding share of results from Keskos and Lukai. In car trade, net sales increased in new cars and used cars. Comparable operating profit grew clearly. In Denmark, CF Petersen & Son acquisition was completed at the end of April and Tommergarden acquisition at the end of May. Profit guidance for 2025 specified. Kesko now expects its comparable operating profit for the current year to be in the range of 640 to 700 million euros. Net sales in Q2 totaled over 3.2 billion euros. It was up by 95 million euros. Net sales increased in all businesses. Rolling 12 months, net sales increased to over 12 billion euros. In Q2, comparable operating profit was 176.7 million euros and operating margin was 5.5%. Comparable operating profit increased by 4.8 million euros excluding share of result from Keskosenokai, which was 6.3 million euros last year. This time Keskosenukai did not report its financial asset yield and therefore in Keskos Q2-25 reporting the share of results from Keskosenukai is zero. There was a good Keskosenukai board meeting last week and we received preliminary Q2 figures. Keskosenukai figures were at last year's level. This time the official figures were not reported on time, but going forward we will receive figures normally. Comparable operating profit increased in building and technical trade and in car trade and decreased in grocery trade. Rolling 12 months operating profit was 645 million euros and operating margin was 5.3%. Return on capital employed was 10.7. Return on capital employed increased in car trade, was down in building and technical trade and in grocery trade compared to the year end. Financial position. Cash flow from operating activities increased year on year and was 324 million euros. Capital expenditure totaled 317.6 million euros. I'll open up investments on the next page. Net debt to EBITDA was 1.8. It increased but is still well below our maximum target of 2.5. Inter-sparing net debt increased year on year as a result of investments in acquisitions, grocery trade, store site network and logistics. Capital expenditure totaled 317.6 million euros. We continued the investments in growth and the main capex in Q2 was to acquisition CF Petersen & Son as well as Tomer Garden. Store site investment in grocery trade and the construction of Onnela, Onninen and Kei Autos Seed logistics center in Hyvinkää, Finland. Expenses. Expenses have increased mainly due to acquisitions. Expenses excluding the latest acquisition were up by only 0.6%. This is a great achievement, taking into consideration the salary increases. Now to grocery trade, where we saw stable sales and profit performance. In Q2, net sales totaled 1.6 billion euros and increased by 9 million euros. Timing of Easter supported sales development. Kespers net sales declined by 0.7%. Rolling 12 months net sales totaled nearly 6.4 billion euros. In grocery trade, comparable operating profit for Q2 was 111.3 million euros and it declined by 3.2 million euros. Profitability was strong, 6.9%. Cash operating profit declined by 3 million euros. Rolling 12 months operating profit was 425.1 million euros and operating margin was 6.7%. In grocery trade, net sales increased and comparable operating profit improved in chain operations, but decreased in Kespro and K-City markets non-food trade. K-group grocery sales were up by 2%, partly impacted by the timing of Easter, which fell on April this year and on March in 24. Kespro's net sales were down by 0.7%, still again exceeding the market growth. K-City market non-food sales were down by 0.4%. Customer flows continued to grow thanks to the price program and campaigns. Average purchase was also up. Online grocery sales were up by 10.1%. Total grocery market grew by approximately 3.2%. General grocery price inflation in Finland was approximately 2.3%, but with our sales mix it was 0.6%. Market share loss declined and KCT Market Chain gained market share in the hypermarket segment in Q2 and also for the first half year. I'm very pleased with this development. We have emphasized the hypermarket's role in our network strategy, and we have also seen the market share improving in hypermarket segment. In general, the growth in Finnish grocery trade is the strongest in larger store formats. Customers come to hypermarkets primarily for food shopping. KCT markets are large urban grocery stores with 80% food sales and quite compact non-food part of 20% of sales. We have currently 82 K-City markets. Hypermarkets play a crucial role in the development of Keskos store network. Five new and three replacement K-City markets will open in upcoming years. This autumn two will be opened. One in Ideapark shopping center near Tampere and another one in city center of Lahti, southern Finland. The focus is on growth centers and urban locations. Each K-city market has a store-specific business idea, which is tailored to local customer base, and it is operating using an efficient chain operation model. K-retailers operate food sales, while Kesko is responsible for non-food items. Growth in non-food sales has lagged behind the growth in food sales in recent years, So there is a plenty of growth potential in non-food part. We have launched an extensive program to improve K-City markets non-food trade. The objective of the program is to have a more store-specific approach also in non-food sales and to support the business ideas for food trade using data. The customer flows are in place, so our aim is to support regular convenient shopping. In terms of product categories, focus is on beauty, home and everyday clothing. New initiatives include, for example, expanding and modernizing flower departments. Also, we are aiming to increase the role of all brand products in the non-food business. The online stores for food and non-food items have been merged to ensure better and easier customer experience. Now to building and technical trade. Cycle is turning, but pace of recovery is slower than previously anticipated. In building and technical trade, net sales increased by 33 million euros to 1.2 billion euros. The increase was supported by today's acquisitions. Net sales decreased in comparable terms by 1.5 percent. The trading days were negative compared to last year. Rolling 12 months net sales were over 4.4 billion euros. Comparable operating profit for the building and technical trade division totaled 50.9 million euros and operating margin 4.1%. As we did not have Keskosenokas results in our numbers this quarter, but they are included in the comparison period. Operating profit increased by 1.1 million euros in comparable terms. Rolling 12 months operating profit was 168.8 million euros and operating margin was 3.8%. Comparable operating profit increased thanks to positive profit development in building and home improvement business. In building and technical trade, the Q2 result improved year on year, excluding the profit impact from Keskosenukai. In building and home improvement trade, comparable sales growth was weaker than expected. Due to slow recovery in building construction, sales for late cyclical technical trade fell short of last year. In Finland, K-router sales grew in both the B2B and B2C segments, but Oninen's sales decreased year on year. In Norway, sales were slightly down for both Byggmaker and Oninen, but profit improved clearly. The profit improvement was nearly 10 million euros, thanks to our own actions to improve the business performance. Solving the issues we have had in Norway has been one of the clear priorities in BTT divisions. In Denmark, Davidson's sales development was strong. Integration of acquired companies is proceeding as planned. In Sweden, the ramp up of converted Kbygg stores is still ongoing. It had a negative impact on sales and profit. The original Kbygg network is performing well. Like said, the construction cycle is turning, but the pace of recovery is slower than previously anticipated, especially in new building construction. Credit risk is well under control. Write downs of overdue trade receivables totaled 0.9 million euros. And as I told earlier, Kesko Senunkai did not report its financial asset yield and in our Q2-25 reporting, the share of results from Kesko Senunkai was zero and last year it was 6.3 million euros. We have received preliminary information from Kesko Senunkai and the figures were at the last year's level in Q2. In this picture, we can see Keirautas and Onninen's sales development in Finland since 2019. We have saw this picture many times already, and here you can see the Q2 development tool. Here it's clearly visible that the growth pace slowed down in Q2. We can also see the late cyclical nature of Oninen business lacking behind Keirauta. Typically, late cyclical technical trade picks up some six months after a turnaround in building and home improvement B2B sales. Keirauta is the market leader in building and home improvement business in Finland and Oninen in technical trade. This picture describes the Finnish building and technical trade market well. This is bookmaker sales development. Norway is our second largest operating country and bookmaker is among the largest players in the market and focused on P2P trade. Here we see the same type of development as in Finland. Q2 sales declined, but as I said, profits improved clearly in Norway. Cycle is similar in Norway as it is in Finland. And now let's look at our Danish operations after completing all the announced acquisitions. After completing a total of four acquisitions in just less than two years, we have now a nationwide building and on-home improvement trade network in Denmark. Kesko holds 90% of shares in David Chain, and David Chain bought these three new players, Roslav, C.F. Petersen, and Tommerkaden this year. All these four companies used to belong to Excelbook Chain, and all are focused on serving B2B customers. As you can see in the map, the store network covers the whole Denmark. This is important since the building and home improvement rate is based on physical store network supported by digital services. After all the acquisitions, Denmark is Kesko's third-largest operating country after Finland and Norway, with some €800 million sales. Davidson's total market share is nearly 20%, and it is the number three in Denmark. Currently, the construction cycle is improving faster in Denmark than in other Nordic countries. In car trade, in Q2, the profit improvement was significant. In car trade, net sales for Q2 increased by 53 million euros and were 352 million euros. Net sales increased in new cars, used cars and sports trade but decreased in services. Rolling 12 months net sales were almost 1.3 billion euros. The comparable operating profit totaled 21.6 million euros and increased by 6.8 million euros year on year. Operating margin was 6.1%. Rolling 12 months operating profit was over 77.6 million euros and operating margin was 6%. Market demand for new cars continued to be muted. Q2 first registration of passengers, cars and vans were up by only 0.4%. First registration of Kesko brands were up by 32.6% in Q2. This is a great achievement and we gained heavily market share in new car segment. The updated strategy with focus on three car trade business areas and continuous development of operation are now yielding results. Net sales and comparable operating profit grew clearly despite the challenging market situation. Thanks to strong new car sales especially. Especially Volkswagen's EV model sales increased. Used car sales also clearly outperformed the market. Service sales decreased. Net sales and comparable operating profit increased in sports trade. Strong model range have supported the good sales development, especially Volkswagen ID.4 and ID.7. Also Audi Q4 e-tron's demand has been good. And now, specified profit guidance and outlook for 2025. 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 2025 comparable operating profit will amount to 640 to 700 million euros. Kesko previously estimated that the comparable operating profit would amount to 640 to 740 million euros. The profit guidance issued now includes the acquisitions completed in Denmark in the first half of the year. Their impact on Kesko's 2025 comparable operating profit is estimated amount to less than 5 million euros due to costs related to integration and the completion of acquisitions. Kesko Senukai did not report its financial figures for the first half of the year as scheduled. The profit guidance is based on the assumption that the share of results from Kesko Senukai will be at the same level as in 2024. The updated profit guidance is based on developments in the first year half and updated estimates regarding a slower than anticipated cycle recovery in building and technical trade. Key uncertainties impacting Kesko's outlook are developments in consumer confidence and investment appetites, as well as geopolitical crises and tensions. Outlook for 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 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, but the cycle turnaround in new building construction in particular will be slower than previously anticipated. In car trade, the market for new cars is expected to stay at the 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. Thank you. This was my presentation. To summarize, the performance of the second quarter was good despite the slower pace of cycle recovery in building and technical trade. It is recovering. The pace is just lower than we originally expected. We see positive development in grocery trade. The Q2 profitability was very strong. Our strategic actions like the price program and new hypermarket openings are working well. We see signs of recovering market share development, but it takes time to see the full effect. Car trade is doing very well. We are the only operator with the entire car trade value chain. New and used cars, services, leasing, charging and the strategic choices pays off now. 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. So let's take the questions. First, we turn to the conference call line, and then I will ask the questions that you are typing to the chat function. Please note that there is a slight delay in the chat function system, so I will see the questions a bit delayed there. So be fast when typing these questions, but conference call line, please.