Kesko Oyj Unsp/Adr

Dear all, warmly welcome virtually to Helsinki, and thank you for tuning in for Kesko's full-year 2025 release call. Today's headline is Kesko's results improved, net sales grew in all divisions, and it outlines 2025 well. In this presentation, we are also presenting 2026 guidance, as well as dividend proposal for the annual general meetings. Today's agenda is the following. President and CEO Jorma Rauhala will give the full year and Q4 presentation. We have here 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, we have time for questions, both by phone and via chat function. All the materials related to full year and Q4 can be found at our website, kesko.fi, under investors. My name is Hanna Jaakkola. I'm responsible for IR at Kesko. I will be at your service after the presentation for your questions and discussions. But now, Jorma, the 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, Kesko's result improved. Net sales grew in all divisions is our headline and it describes our 2025 well. Towards the end of the year we saw a turnaround in performance as the third quarter result improved and growth continued in the fourth quarter. Now I will give an overview of our business performance and open up elements behind the result. I'll also present the guidance and outlook for 2026 and the dividend proposal to the annual general meeting. Kesko's comparable operating profit improved and net sales grew in all divisions. This is a great achievement, especially taking into account last year's market situation and low consumer confidence. In grocery trade, we saw an upturn in market share. Profitability was strong despite investments in price, quality and network. In billionaire technical trade, comparable operating profit grew despite the challenging market. In Denmark, we achieved strong market position through acquisitions. In car trade, market position grew stronger and comparable operating profit increased significantly. Kesko estimates that its 2026 comparable operating profit will amount to 650 to 750 million euros. In 2026 operating environment and profit are estimated to improve in all divisions and all operating countries. We execute our growth strategy and strong growth investments will continue. Dividend proposal to the annual general meeting is in line with dividend policy. 90 cents per share, payout ratio 84%. Net sales for 2025 totaled over 12.5 billion euros and it increased by 2.3% in comparable terms. Net sales increased in all divisions in both comparable terms and in reported figures. Comparable operating profit for last year was 654.9 million euros. It increased by 4.8 million euros. Operating margin was 5.3%. Operating profit increased in building and technical trade and car trade and decreased in grocery trade. Operating margin for grocery trade was 6.5%, which is clearly above 6%. For car trade, it was 6.1%. For building and technical trade, operating margin was 3.8%, which is good result in low cycle. Return on capital employed was 10.4%. Return on capital employed increased in car trade, was down in building and technical trade and in grocery trade compared to 2024. Financial position. Amount of net debt was impacted by investments in store sites and acquisitions. Cash flow from operating activities was 880 million euros and it was affected by the change in the Food Market Act in 1st of July, which shortened the payment terms. The estimated negative impact of the payment term change to cash flow was approximately 100 million euros. Capital expenditure totaled 735.7 million euros. I'll open up the investments on the next page. Interest-bearing net debt increased year on year as a result of investments in acquisition and store site network. Net debt to EBITDA was 1.6, which is clearly below our financial target of 2.5. Capital expenditure totaled 735.7 million euros. We continued the investments in growth, and the main capex in 2025 were three acquisitions in Denmark, store-side investments in grocery trade, and the construction of Onneva, Onninen and Keautos Seed Logistics Center in Hyvinkää, Finland. Expenses have increased mainly due to acquisitions. It is good to bear in mind that we gained some 760 new employees in Denmark last year through acquisitions. Expenses excluding the acquisition were up by only 1.6%. This is a good achievement taking into consideration the salary increases in all our operating countries in 2025. Also, cost rates improved slightly. And now to Q4 results. We saw good net sales development in all divisions. The performance in all divisions was in line with the expectations we had at the beginning of the quarter. Net sales in Q4 totaled over 3.2 billion euros. It was up by 3.1% in comparable terms. The net sales grew in grocery trade by 3%, in billing and technical trade by 2.9% and car trade by 4.4%. Net sales grew by 2.9% on comparable terms in Finland and by 3.9% into other operating countries. In Q4, Comparable operating profit was at 174.8 million euros and operating margin was 5.4%. Comparable operating profit increased in car trade and building and technical trade and decreased in grocery trade. And now to grocery trade in Q4. Upturn in market share. Profit at a good level. In Q4, like said earlier, Divisor's net sales increased and comparable operating profit was slightly down. The total grocery market in Finland grew by 2.7%. K-Group grocery sales were up by 4.2%. K-Group grocery store chains gained market share clearly in Q4, but also in H2 2025. In Q4, all our grocery chains won over market share in their segments. In 25, K-City Market won market share in the hypermarket segment. Customer flows continued to grow thanks to the price program and campaigns. Customer satisfaction was clearly up for all our grocery chains. Getpro's net sales up by 0.4%, and again, Getpro gained market share as it did for the whole 25. K-city market non-food sales were down by 0.4%. Online grocery sales were up by 6.6%. General grocery price inflation in Finland was approximately 1.8%, but the price development in K-group stores was only 1.5%, especially thanks to our price program. Demand for quality products and services increased in our grocery stores, which may indicate a positive change in consumer behavior. I am very pleased that we saw the turn in market share development last year. The change can be clearly seen in the graph on this page. Also in January, good sales development continued. Our strategy is focusing on quality, price and network is working. What comes to quality? We have done significant efforts to raise quality level together with K retailers. Store specific business ideas are at the core. Special focus is on fruits and vegetables, bread and non-food. Our digital reach has risen to a new level. We reach digitally nearly 2 million customers, and the number has increased by over 20% in 2025. This is very crucial to us, as media and data business has grown significantly and offers us earning streams. Our price program launched in January last year. It's a long-term program and we will continue executing it. This is also a joint effort with retailers. Also, active campaigning continues as well as personalized offers, and we can see increased customer flows. Our net investments will continue. In 2025, we opened or renewed 60 stores, including two new city market stores. Network net impact on our market share was still clearly negative in 2025, despite new store openings. In 2026, the network impact is expected to be neutral. The network will start supporting market share development gradually in upcoming years. Annual investments in the store's network will be around 200-250 million euros going forward. Pilling and technical trade in Q4. Cycle is gradually recovering. Sales and profit grew stronger. In pilling and technical trade, net sales increased and profit improved in Q4. Market demand continued to be weak, especially in new housing construction. It is good to note that the market has been very difficult and many of our competitors are struggling. In that light, our 3.8% EBIT margin is strong. Net sales grew and profit improved clearly in both technical trade and building and home improvement trade. In Q4, we could see signs of sales margin returning to normal level throughout the division. In Finland, K-Rauta's result was strong compared to the markets. In Onine, Finland, the Q3 growth trend in sales continued and profit closed to comparison period level. In Norway, sales for Byggmaker and Oninen were close to comparison period level and profit improved for both. In Denmark, the sales development for Davidson was good. Integration of acquired companies were completed technically and then work to increase sales and improve profitability continues. In Sweden, cable store conversions were completed. Credit risk is well under control. Write-downs of overdue trade receivables totalled €0.1 million. Share of result from Kesko Senukai was €12.1 million. In 2025, share of result from Kesko was €19.5 million, €1.4 million below the 2024 figure. For building and technical trade, profit improvements in 2025 came from countries outside Finland. This is important, since nearly 60% of building and technical trade division sales come outside Finland. In Finland, both K-Rauta and Oninen are strong market leaders. In Sweden, the operations made losses. Closer of P2C-focused K-Rauta chain and the conversion of eight stores to K-Bygg did impact profits negatively. In Norway in 2025, there was a significant profit improvement for both Byggmarker and Oninen. Oninen's market share increased in Norway. In Denmark, David Chain has now a strong market position. Integration related costs impacted result. In 2025, the PPA costs related to acquisitions were 5.7 million euros in Denmark. In Poland and the Baltic countries, Oninen has a good market position and stable profitability. In this picture, we can see Keiraute's and Oninen's sales development in Finland since 2019 quarter by quarter. Both have strong market shares. Keiraute is the market leader in building and home improvement business in Finland and Oninen in technical trade. This picture describes the whole market pretty well. Gerard assays development turned black to black figures in Q4. On-end assays continued to grow in Q4. And then to the car trade in Q4. Strong performance continued in a challenging market. Net sales and comparable operating profit increased, even though the market remained challenging. Market demand for Newcastle still muted. Q4 first registration of passenger cars and vans were down by 2%. First registration of brands represented by Kesko increased by 3.5% in Q4. Our good development is a result of the extensive product and service portfolio and constant improvement of operational excellence. Market trend in sales of used cars from dealerships were up by 1.8% and our used car sales were up by 13.3%. Also, service sales increased. We are targeting to grow especially in damage repairs and the servicing of cars five years or older. In sports trade, net sales and comparable operating profit decreased, but market share grew. And then to profit guidance and outlook. Profit guidance for 2026. Kesko Group's profit guidance is given for the year 2026 in comparison with the year 2025. Kesko's operating environment is estimated to improve in 2026, but to still remain somewhat challenging. Kesko's comparable operating profit is estimated to improve in 2026. Kesko estimates that its 2026 comparable operating profit will amount to 650 to 750 million euros. Key uncertainties impacting Kesko's outlook are developments in consumer confidence and investments appetites, as well as geopolitical crises and tensions. Outlook for 2026. The operating environment for Kesko is estimated to improve in 2026 in all divisions and all operating countries. Kesko's comparable operating profit is also estimated to improve in 2026 in all divisions and all operating countries. In grocery trade, P2C trade is estimated to pick up and the food service business to remain stable. In 2026, 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. The comparable operating profit for the grocery trade division is estimated to improve in 2026 compared to 2025. In building and technical trade, the cycle is expected to improve moderately in 2026 from an exceptionally low level. The comparable operating result for the building and technical trade division is estimated to improve in 2026 compared to 2025 in all Kesko operating countries. In the car trade market, new car sales are expected to remain muted compared to long-term levels but to nonetheless grow compared to 2025. The net sales and comparable operating profit for Kesko's car trade division are estimated to improve in 2026 compared to 2025. Finally, the dividend proposal for AGM. 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 84% of the comparable EPS. Strong investments in growth will continue. Proposal is aligned with our dividend policy to pay 60 to 100% of comparable earnings per share as dividend. Some words to summarize my presentation and Kesko's year 2025. Nearly all businesses gained market share in 2025. In grocery trade, market share turned around in H2. Customer visits have increased and customer satisfaction has improved clearly. Strategy execution continues. Quality, price and the store site network. In filling and technical trade, sales increased clearly. Onena logistics center is now in use. Construction cycle is strengthening moderately. In car trade, sales development in new and used cars as well as services were good. Also, sports trade outperformed the market. All divisions are well positioned for further market strengthening. Thank you for attention. This was my presentation. I guess it's time for questions now.

Thank you, Jorma, for your presentation. And now it's time for questions. So we will take first the questions from the conference call line and then from the via chat function. And please know that if you are posing questions through the chat function, there is a slight delay. So be sure to pose your questions so that we have time to take the questions. Please.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Maria Wickstrom from SEB. Please go ahead.

Hello, this is Maria Wickstrom from SEB. I have three questions. I'll take them one by one, and I'll start with the guidance and assumptions behind your guidance. You guide for adjusted EBIT in the range of 650 to 750 million, and the low end of the guidance range is slightly below 2025 EBIT. So what would need to happen for you actually to hit the low end of the guidance range so the results would not grow in 26 compared to 25?

Thank you, Maria. Good question. And I think that, of course, the main topic or issue is the consumer confidence. We believe that the market situation will improve in all countries, all divisions, but very moderately. And of course, if that would happen, let's say that the market wouldn't improve at all, that would be the case. But like I said, we believe, and of course, We believe that the market will improve this year and we have this 100 million range, 650 to 750 million euros. And the biggest question is consumer confidence.

And then my outlook, my next question is on that. on the outlook of the building and technical trade, and if you can be more specific market by market. So which of the markets do you see the biggest recovery happening in 2026? And if you could a little bit discuss the outlook on the different geographies in building and technical trade.

Yes, maybe I can start with a few first, but Sami, you can continue then. But of course, all in all, market outlook is quite similar in all countries. But of course, we have also some differences, like in Norway, interest rate is still high. And if you look Sweden, the market is quite okay, but we have our own issues, let's say, so we'd get out. But now it's kind of implemented this change. But please, Sami, continue.

Thank you, Maria. Like Jorma said, I think... Because the worry overall is, of course, consumer confidence, and that we see in all our operating countries, and that is weak. But to answer your question, where we see the positive signs, of course, Denmark, we still believe, will be the strong, of course, consumer confidence. They're also low. Sweden, we believe that it's going to be better also for Sweden, I mean, overall market for 2020. And of course, still, if we look at the forecasts, what we have, for example, from Forecon, still we see that Finland should be also getting better gradually, of course. And of course, I think overall, all the markets are going for better now. But of course this new construction and particularly new residential construction is something that we need to follow carefully and then we will see whether the bigger improvement will come or not. But overall I would say that we are well positioned when the growth starts. And of course this Q4 was already positive for us, so I'm very happy about our performance in Q4 overall. And of course we saw already that the market is getting gradually better, but I think we were also in many markets doing better than the competition.

May I just have a follow-up here, given that the December sales figure for building a technical trade in Finland was surprisingly strong, up 7%. So is there something like extraordinary, so thinking that, I mean, people bought more before the new price list or something like that, or is this really like showing the early signs of a recovery in the Finnish BNP?

Maybe a little bit too early to say the big picture, but of course it's getting better. And like I said, we saw that we are doing much better than the market, both in technical trade but also with CoreAlto here in Finland. And also I think this is now particularly important that you have good availability and that we have been also building up all the time or keeping that in the good level. So, yeah, I think nothing so special there. Our performance was good and also market getting gradually better also.

And, of course, we can say that there is consolidation happening in Finnish technical trade business and I think that we managed to gain market share quite nicely latter part of the year, especially quarter four and maybe December. Of course, December you have Christmas time and not so many selling days, but it was a strong one.

That's true. We gained market share with Roninen through Q3, Q4, but I would say it's also the market condition and also the sales push, I would say so, and then availability and then, of course, this consolidation.

And then my final question is on... capital allocation. So if you could talk about the investment needs for 26, and then your view on MSA, if we should expect more MSA during this year.

Yes, something around 400 million this year, and like I said, it's clear that we will implement this grocery store site network strategy, and it means 200-250 million euros also this year. And of course, in our strategies that we are seeking growth in billing and technical trade, especially through acquisitions, but not any comments on that one. But of course we are working daily on also with that topic.

Perfect. Thank you so much. I have no further questions at this point.

Question from the line.

The next question comes from Mika Ihamaki from DNB Carnegie. Please go ahead.

Thank you. It's Mika here. Can you elaborate a little bit more on the drivers behind profitability decline in grocery trade? So we know that some of your competitors began aggressively cutting also prices again late last year. So my first question is, would you consider this is typical behavior in the market or does it reflect intensified competition potentially in response to the fact that you started gaining market share? And in this context, did you see that you needed to respond more aggressively on pricing? And then finally, what is your assumption of the impact of price investments on grocery trade profitability into 2026?

Thank you. And all in all, I have to say that I'm very, very pleased with our grocery division. We have to remember that what was our issue has been, let's say, some years now, is that we have lost market share. And 2024 spring, we decided that we have to stop lost market share and start to gain market share. And now we have done that. At the same time, we say that the EBIT level should be clearly about 6%. Of course, we have done that also. But Ari, you can continue with how competitors have reacted. And of course, they have.

Thank you, Eka. Excellent question. And of course, there is very hard competition all the time. in the retail market, especially in the grocery sites. But based on the current development of our market share, we have prices good enough now in the market and we are gaining market share. So we all the time checking around what is the price level and do the necessary actions. But at the same time, we are able to keep the profitability level nearly above 6%.

And about, he asked also this year how we will continue, but we will continue our strategy and to have the store site network quality and pricing and it's so good that we kind of share this topic with our retailers that we really understand that we have to continue with this path because we saw now the results, but Ari, do you have anything to add about this year and pricing?

Yeah. We just can say that we will continue at the same level, but we also put more actions to the target offers for the customers, especially not just the basket prices, but we will add on target prices. And good part for that is that also the supplier side will support that. And the store owners are very happy with the current strategy. So we will continue this. And this will be the first year when we have like a neutral effect of the store network. Last year we had very negative effect. and still we were able to gain market share. And January is continually strong about sales side.

And last year, a year ago, we stated that we will invest together with retailers maximum 50 million euros what comes to our price program. Now we haven't announced any certain amount of that one, but definitely we can continue our price program and we are also ready to react if needed.

Yeah.

Thank you. Just on the assumption that you continue the campaigns or targeted marketing investments, price investments. Now we saw that the profitability declined. You still had a strong growth in grocery. But can you still elaborate on the key assumptions underpinning that the grocery trade profit will actually grow this year?

Let's see. Of course, we believe that the whole market will grow and also our business will grow. And our target is to gain markets here. And what comes to EBIT level, it's still very valid that really about 6% is our target. And the 6.5% last year was that. Very nicely.

I'd add that last year also due to the low consumer confidence we had, Kespro's EBIT did decline. So if the consumer confidence picks up, there is a possibility that that will support the margins in the grocery trade as well.

Yeah, another part was that non-foods business, you know, in the city markets, because there was, you know, not winter in December. It has very strong effect for the profitability of the clothing side and sport goods. So that's one of the reasons behind the results in Q4, especially in December.

Yes. Okay, thank you.

Thank you. No further questions from the conference call line. I don't have any questions from the chat function, so short and sweet. Thank you, everybody, for the good discussions, especially Mika and Maria. And I wish you all very good and, unfortunately, very cold February day. Thank you.

Thank you.