Kesko s Journey Towards a More Focused Retailing Company. Investor Presentation Q3/2018

Transcription

1 Kesko s Journey Towards a More Focused Retailing Company Investor Presentation Q3/2018 1

2 K Group and Kesko in Brief #1 Biggest in Finland, #3 in Northern Europe with retail sales of nearly 13bn Profitable growth strategy in 3 core divisions 42,000 employees, 1,800 stores and comprehensive digital services in 8 countries Strong financial position with good dividend capacity Market cap approx. 5bn with 41,000 shareholders World s most sustainable trading sector company 2

3 Core Divisions at a Glance Grocery Trade Building and Technical Trade Car Trade Net sales approx. 5.4bn Quality leader in the Finnish grocery market: #2 in grocery retailing, #1 in foodservice B2B Rapidly expanding online food store network Market share at its highest in >15 years, ~37% 1.2m customer visits per day 1,200+ stores in the retailer business model One of the most profitable players in Europe Net sales approx. 4bn #1 operator in building and technical trade in Northern Europe 430 stores in 8 countries 0.3m customer contacts per day Comprehensive digital services Serves three customer segments B2B share approx. 70% Market leader with net sales of 0.9bn+ Operating the Volkswagen Group s business in Finland: Audi, Volkswagen, SEAT, Porsche and MAN Value chain includes importing, retailing and after sales as well as an extensive dealer and servicing network Various service concepts developed under the K-Caara platform 3

4 Net Sales and Operating Profit by Division Net sales Comparable operating profit 372m 4% 921m 9% 5.6m 2% 34.2m 10% 3,653m 35% 10,302m 5,355m 52% 85.4m 24% 322.0m 223.2m 64% Grocery trade Building and technical trade excl. speciality goods trade Speciality goods trade Car trade Rolling 12 months Q3/18, continued operations 4

5 Group Management Board Mikko Helander President and CEO Jorma Rauhala President of the building and technical trade division, Deputy to President and CEO Ari Akseli President of the grocery trade division Johan Friman President of the car trade division Jukka Erlund EVP, Chief Financial Officer Matti Mettälä EVP, HR, Corporate Responsibility and Regional Relations Mika Majoinen Group General Counsel Anni Ronkainen EVP, Chief Digital Officer 5

6 Steady Progress Towards a Strong, More Focused Company Through Successful Portfolio Transformation Investments in core business operations 1.5bn, divestments 1.0bn 10/2018 Sørbø retailer group* Acquisitions Divestments 4/2016 Suomen Lähikauppa 3/2015 Anttila 6/2016 Onninen 11/2016 Russian grocery trade 12/2016 AutoCarrera 6/2017 K-maatalous 6/2018 Kalatukku E. Eriksson, Reinin Liha 6/2017 Asko and Sotka furniture trade 6/2018 Gipling, Skattum Handel 2/2018 Russian building and home improvement trade 6/2018 1A Group 7/2018 Remaining shares of Konekesko Baltics* * Waiting for completion 6

7 Accelerated Growth and Value Creation with Transformational Acquisitions in All Core Divisions Rationale: Faster neighborhood strategy implementation by acquiring the #4 retailer Purchase price: 60m + 60m store renewals Integration completed faster than expected ~60% share of the neighborhood market ~400 stores converted to K-Markets 700m additional net sales, 30m synergies Rationale: Stronger position in B2B, expansion into technical trade with HEPAC and electrical Purchase price: 369m Integration ongoing Net sales 1,591m and EBITDA 55m (vs. respectively 1,456m and 39m in 2015) Further improvement of sales and profitability to continue in line with strategy Rationale: Expand brand portfolio within the VW Group to include Porsche passenger cars Purchase price: 27m Integration completed successfully Net sales 67m with an excellent operating margin of 8.2% (vs. net sales 49m in 2015) Being part of Kesko enables enhanced growth 7 * Rolling 12 months Q3/18

8 We Continue With Our Existing Growth Strategy VISION We are the customers' preferred choice and the quality leader in the European trading sector STRATEGIC FOCUS AREAS Profitable growth Business focus Quality and customer orientation Best digital services One unified K BUSINESS FOCUS Grocery trade Grocery trade Building and technical trade Car trade VALUE The customer and quality in everything we do 8

9 Our Strategy Responds to the Changing Retail Landscape Digitalisation and ecommerce Sustainability and strong brands Increasingly individual customer behaviour Globalisation Increased consumer knowledge and power Convenience 9

10 Our Growth Strategy Is Delivering Improving Results Net sales m Comparable operating profit m 8,821 8,487 +6%* 10,007 10,492 10, %* % 2.9% 2.7% 2.8% 3.1% R12M Q3/18 Net sales growth 1.7bn in Operating profit growth 76m in R12M Q3/18 Continued operations *CAGR 10

11 Moving Towards Our Financial Targets Return on Capital Employed, %* Return on Equity, %** Interest-bearing net debt / EBITDA Roll. 12 months Q3/ Target level <2.5 Kesko s dividend policy At least 50% of comparable earnings per share distributed as dividends Payout ratio (5y average) : 103.4% Dividend yield (5y average B share) : 5.4% * Comparable figures, continued operations, ** Comparable figures, Group 11

12 Strong Financial Position Provides Latitude for Further Growth Initiatives and Continued Good Dividends Financial position strong despite 1.3bn investments in M&A firepower for additional acquisitions up to above 1bn Steady growth targeted in dividends Cash flow generation to be further enhanced with higher earnings, organic capex decreasing from the 2017 level and improvement potential in NWC Capex* m R12M Q3/18 Store sites ICT and digital Other *Additionally, to acquisitions 462m in 2016 and 166m in rolling 12 months Q3/

13 We Select Our Growth Initiatives Carefully M&As considered using the following criteria Value creation & good strategic fit Justified price tag Clear integration plan Contribution to our financial targets Focus on Northern Europe it s the market we know and where we have the capability to create local competitive edge Opportunities in all divisions the greatest potential is in building and technical trade 13

14 Grocery Trade 14

15 Successful Strategy Execution in Grocery Trade Growth, profitability and increased efficiency Net sales Operating profit 2015 Roll. 12 months Q3/18 4,673m 5,355m 177m 223m Brand and store redesigns All chain brands redesigned Approx. 90% out of 1,200 stores modernised Developing the retailer business model Customer and quality Close to 600 stores and over 220 retailers in the multi-store model Daily customer flow increased from 900,000 to >1.2m Implementation of store-specific business ideas New customer feedback system: >1m contacts annually New ecommerce and K-Ruoka mobile app with 600,000 users 15

16 Strategic Direction to Continue Profitable Growth Most customeroriented and inspiring food stores Developing and modernising the store network Offering a seamless omnichannel customer experience Developing retailer entrepreneurship as a competitive advantage Expanding the foodservice business 16

17 A Seamless Customer Experience in All Channels Rebranding and store modernisation progressing well* 17 ** Sales 2.1bn Comprehensive concept renewal 72 out of 81 store redesigns completed Current store network optimal and competitive Sales 1.8bn Rebranding, 178 out of 242 stores renewed Store network expansion profitably Sales 2.0bn Modernisation, nearly all of 784 stores made over Store network expansion profitably Sales 0.1bn Further developing the service station concept 65 out of 73 stations redesigned Future network of 85 service stations Sales 0.8bn with 14 cash & carry outlets Brand redesign, launch of K-RuokaPro online store Expanding central warehousing, adding new outlets *Store numbers from November 2018 **Foodservice B2B, ***Kesko estimate Extending grocery online network strong growth expected 0.4%*** % 67 5x + 40m Share of online sales of the total grocery market is still small, but growing fast People/sq. km, low population density in Finland affecting choice of viable solutions K-food stores offering online services Our online sales growth in Q3/2018 NPS, high customer satisfaction Higher average purchase than in physical stores Our online net sales target for 2019

18 Our Grocery Trade Among the Most Profitable Retailers in Europe Future value creating actions Market share growth with good profitability Exceeding customer expectations with store-specific business ideas Retailer model as a competitive advantage Growth from ecommerce and mobile services Expanding the foodservice business 18

19 Building and Technical Trade 19

20 Strategy Execution Progressing in Building and Technical Trade Financial performance Net sales Operating profit 2015 Roll. 12 months Q3/18 1,989m 3,653m 62m 85m Focusing on core business Acquisitions of Onninen, Skattum, Gipling and Sørbø and 1A Group Kesko-Senukai arrangement Divestments in speciality goods and machinery trade Divestment of K-Rauta Russia Operational efficiency Changed management model and country focus Turnaround achieved in Poland, measures continue in Sweden Merging the K-Rauta and Rautia chains New digital services and ecommerce Continued operations, comparable operating profit, building and technical trade excluding speciality goods trade 20

21 Strategic Direction to Become an Even Stronger Operator in the Northern European Building and Technical Trade Country focus with specified strategic actions Three customer segments served according their specific customer needs Synergies within individual countries and between the operating countries Organic growth and profitability improvement Selected acquisitions to win a chosen country and segment 21

22 Value Creation to Three Customer Segments Technical professionals Professional builders Consumers Technical contractors Infrastructure Industry Retailers Construction companies Renovation contractors Decoration contractors Renovators Home and garden builders Decorators Gardeners Customer drivers differ in each customer segment: 100% availability for key items Reliable next day deliveries Personal sales, always available 100% availability for key items Personal sales, always available Deep assortment Competitive prices Approachable and competent customer service with advice Easy to shop, good availability Showrooms and visual displays 22

23 Sharper Country Specific Focus to Bring Results Good Profit Improvement Potential in All Markets Customers Knut Strand Jacobsen Endre Espeseth Olli Pere Martti Forss Arturas Rakauskas Martti Forss Endre Espeseth Jorma Rauhala 23

24 Market Offering Ample Opportunities for Organic Growth - As Well As Selected Acquisitions Building & home improv. Onninen Key competitors Retail market 2017 ( bn) Market position Retail market 2017 ( bn) Market position Building & home improv. Onninen #3-4 #4 Building & home improv. Onninen #5-11 #6 Key competitors Optimera Mestergruppen Maxbo Coop Key competitors Byggmax Bauhaus XL Bygg Woody Beijer Ahlsell Elektroskandia Solar Ahlsell Dahl Elektroskandia Retail market 2017 ( bn) Market position Retail market 2017 ( bn) Market position #1 #1 Building & home improv. Onninen EE #2 LAT #3 LIT #1 EE #2 LAT #4 LIT #3 STARK S Group Bauhaus Ahlsell LVI Dahl SLO Rexel Key competitors Bauhof FEB (Ahlsell), SLO Ehitus ABC W.E.G (Würth) Espak Sanistal Bauhaus EVA-SAT Depo DIY Sanistal, Dahlgera Kursi (Dahl) Elektrobalt Ermitazas (Würth) Moki-Vezi Onninen Key competitors Building & home improv. Key competitors Retail market 2017 ( bn) Market position 4.6 #2 Tadmar (Saint Gobain), BIMs (GC) Sonepar W.E.G (Würth) Retail market 2017 ( bn) Market position 1.1 #1 Mile Materik Praktik 24

25 Good Value Creation Potential for Upcoming Years in Building and Technical Trade Operating margin (%) 10 8 Best European operators 6 6-8% 4 Kesko ~2%

26 Car Trade 26

27 Strong Strategy Execution in Car Trade Financial performance Net sales Operating profit 2015 Roll. 12 months Q3/18 748m 921m 26m 34m Growing the business in collaboration with the VW Group Acquisition of Porsche business in Finland SEAT sales started in all own retail outlets growth in market share Launching new mobility services K-Caara platform for used car sales, rental, leasing and repair services First K Charge electric car charging stations opened Piloting car sharing at selected K-Supermarket and K-Rauta stores New digital services, e.g. 30% growth in online service booking Continued operations, comparable operating profit 27

28 Car Trade Strategy Targets Faster Than Market Growth Growing the business in collaboration with the VW Group Expanding the service business independent of the VW Group Best customer experience in all channels 28

29 Car Trade Targeting to Grow Faster Than the Market Future value creating actions Close partnership with the VW Group Targeting market share growth Improving profitability in importing, retailing and after-sales Expanding new mobility services Omni-channel customer experience 29

30 Kesko Selected Again in the Prestigious Dow Jones Sustainability Indices, DJSI World and DJSI Europe Kesko received the industry best overall score in the Environmental Dimension 30

31 Sustainability at Kesko Value Creation for All Stakeholders Kesko s responsibility programme contains both shortterm and long-term objectives and has six themes: Good corporate governance and finance Customers Society Working community Responsible purchasing and sustainable selections Environment Value created through e.g. responsible purchasing with full amfori BSCI audits of suppliers' factories or plantations, supporting customers in making sustainable choices or mitigating climate change by reduced energy consumption 31

32 Further Information Financial Calendar for February 2018 Financial Statement Release Week Annual Report 8 April AGM (planned date) 25 April Q1/2019 Interim Report 24 July Q2/2019 Half Year Report 24 October Q3/2019 Interim Report Contact Kia Aejmelaeus, VP Investor Relations, Follow twitter.com/kesko_ir 32

33 Appendix: Q3/2018 Highlights and Outlook 33

34 Highlights Q3/2018 Net sales growth +3.5% All-time-best quarterly result, operating profit 113 million Continued strong market share and profit development in grocery trade Building and technical trade operating profit up by 7 million * Cash flow from operating activities 131 million 34 Comparable figures, continuing KESKO operations Investor Relations Q3/2018 *Excluding the speciality goods trade

35 Growth in Net Sales and Operating Profit Q3/2018 Q3/ / /2017 Net sales, m 2,642 2,596 7,728 7,917 Net sales growth, % Operating profit, m Operating margin, % Profit before tax, m Earnings per share, Return on capital employed, % * Return on equity, Group, % * Comparable figures, continuing operations * Rolling 12 months 35

36 Strong Financial Position Equity ratio, % Liquid assets, m Interest-bearing net debt, m Interest-bearing net debt / EBITDA * Continuing operations Q3: Cash flow from operating activities, m Cash flows from investing activities excl. acquisitions, m Cash flows from investing activities incl. acquisitions, m * Rolling 12 months 36

37 Group Net Sales Comparable Q3 growth +3.5% m m Rolling 12 months ,492 10, ,558 2,763 2,596 2,575 2,413 2,673 2, Q1/17 Q2/17 Q3/17 Q4/17 Q1/18 Q2/18 Q3/ Q3/18 Continuing operations 37

38 Group Operating Profit Q3 profit improvement 12 million m m Rolling 12 months % 3.0% 3.9% 3.1% 1.7% 3.3% 4.3% % 3.1% 0 Q1/17 Q2/17 Q3/17 Q4/17 Q1/18 Q2/18 Q3/ Q3/ Operating margin 38 Comparable operating profit, continuing operations Impact of the divested Asko and Sotka, K-maatalous and Yamarin businesses, Yamaha representation and Baltic real estate on operating profit: 5.8 million in Q2/17, 4.6 million in Q1/17

39 Return on Capital Employed 13.8% Comparable, rolling % 30 Q3/17 Q3/ Grocery trade Building and technical trade Car trade Group, continuing operations 39

40 Grocery Trade The market Grocery trade market growth 4.3%, of which price development +2.4% * Good market development, importance of quality and selections increased Demand for good online food sales services rising Q3 Continued strong growth in customer numbers, sales and market share Online food sales grew by +74% Kespro continued to perform well in the foodservice market We continued investments in store sites, digital services and logistics operations * The Finnish Grocery Trade Association 40

41 Grocery Trade Net Sales Comparable Q3 growth +6.2% m m Rolling 12 months ,282 5, ,243 1,327 1,313 1,399 1,276 1,327 1, Q1/17 Q2/17 Q3/17 Q4/17 Q1/18 Q2/18 Q3/ Q3/18 41

42 Grocery Trade Operating Profit Operating profit grew by over 5 million m m Rolling 12 months % 3.8% 4.5% 4.8% 3.0% 4.0% 4.8% % 4.2% 0 Q1/17 Q2/17 Q3/17 Q4/17 Q1/18 Q2/18 Q3/ Q3/ Operating margin Comparable operating profit 42

43 Building and Technical Trade The market Market situation is expected to remain good, but growth pace is expected to slow down somewhat Renovation building is gaining more ground in the construction market Q3 K-Rauta in Finland performed well Onninen s performance remained good in Finland and Poland in particular Acquisitions of Byggmakker chain companies increased operating profit in Norway Efforts to improve the profitability of K-Rauta and Onninen in Sweden continued Kesko Senukai s strong sales performance continued in the Baltics 43

44 Building and Technical Trade Net Sales Comparable Q3 growth excluding speciality goods trade +2.5% m Building and technical trade excl. speciality goods m , Speciality goods trade 1,202 1, ,102 1, Rolling 12 months 4, , ,639 3, Q1/17 Q2/17 Q3/17 Q4/17 Q1/18 Q2/18 Q3/ Q3/18 Continuing operations 44

45 Building and Technical Trade Operating Profit Operating profit excl. speciality goods + 7m, operating margin from 3.6% to 4.2% m Building and technical trade excl. speciality goods m Speciality goods trade Rolling 12 months Q1/17 Q2/17 Q3/17 Q4/17 Q1/18 Q2/18 Q3/ Q3/18 0.5% 2.9% 3.8% 1.5% -0.3% 3.0% 4.2% 2.2% 2.3% 45 Comparable operating profit, continuing KESKO Investor operations Relations Q3/ Operating margin

46 Car Trade The market Q3 first registrations of passenger cars and vans at last year s level, up 5% in 1-9/2018 New WLTP emissions testing causing delays in deliveries on the market Measures to prevent rise in car tax expected from the Finnish government Q3 Net sales and operating profit at a good level Excellent performance in the Porsche business: sales +35%, profitability strengthened further Order book for new cars +12% 46

47 Car Trade Net Sales Q3 sales -5.6% due to implementation of new WLTP emissions testing m m Rolling 12 months Q1/17 Q2/17 Q3/17 Q4/17 Q1/18 Q2/18 Q3/ Q3/18 47

48 Car Trade Operating Profit Q3 profitability good despite the decrease in net sales m m Rolling 12 months % 5 3.2% 4.2% 3.1% 4.2% 3.6% 3.9% 3.6% 3.7% 0 Q1/17 Q2/17 Q3/17 Q4/17 Q1/18 Q2/18 Q3/ Q3/18 Operating margin 48

49 Outlook Estimates for the outlook for the net sales and comparable operating profit for Kesko Group's continuing operations are given for the 12-month period following the reporting period (10/2018-9/2019) in comparison with the 12 months preceding the end of the reporting period (10/2017-9/2018). The general economic situation and the expected trend in consumer demand vary in Kesko's different operating countries. In Finland, the trading sector is expected to grow. In the Finnish grocery trade, intense competition is expected to continue, although, as purchasing power increases, the importance of quality will be emphasised more than previously. In the building and technical trade, the growth in B2B sales is expected to continue stronger than the growth in the retail market. The market is expected to grow in the Nordic and Baltic countries, but at a somewhat slower rate. In comparable terms, the net sales for continuing operations for the next 12 months are expected to exceed the level of the previous 12 months. The comparable operating profit for continuing operations for the next 12-month period is expected to exceed the level of the preceding 12 months. However, investments in the expansion of logistics operations and in information systems and digital services will burden profitability during the period. Furthermore, in the car trade, profitability is burdened by the shift to WLTP emissions testing, which postpones car delivery times. 49

50