AGM 2006: Speech of Heikki Takamäki
Dear shareholders, ladies and gentlemen!
For Kesko Group as a whole, the year 2005 was successful in many respects. Within the Group, our subsidiaries, active in different product lines and countries, achieved different levels of success depending on economic growth and market situation in respective countries.
The Group's total net sales increased by 10.8 percent to over 8,321 million euros, which is clearly the highest annual net sales in Kesko Group's history. Particularly our foreign subsidiaries increased their net sales.
The net sales growth of nearly 11 percent can be considered quite high compared with any other domestic or even international trading company. Kesko Group's pre-tax profit amounted to 238.6 million euros, which corresponds to the record level of the previous year.
Last year Kesko Group continued extensive efforts to integrate responsibility into all aspects of operations. We have also continued to publish comprehensive reports on our achievements. Last autumn, for the second time already, the UN Environmental Programme ranked Kesko's corporate responsibility report the world's best in the trading sector.
The Group has also received other notable acknowledgements, for example, for its internal audit operations, stock exchange communications and financial reporting.
Dear shareholders!
As we already know, Kesko's Board of Directors proposes to the Annual General Meeting that 1.10 euros per share be paid in dividends on the year 2005 profit. The proposal follows in line with Kesko's long-established and published dividend policy.
Owners and the stock market have taken a very encouraging and favourable interest in Kesko shares. This has naturally reflected in the share price and yield development, too. Last year the B share price was up as much as over 33 percent!
In a few moments, President and CEO Matti Halmesmäki, who then took office in March, will review and analyse the Group's operations and financial highlights for last year.
Dear audience!
The first year in office of the new President and CEO has been full of work for himself, the Board of Directors and the Kesko management.
Matti Halmesmäki took an energetic start and many thoroughgoing reform projects have already been initiated in the Group. It is not difficult to guess that many development projects relate to the enhancement of Kesko Food's operations, the management of international trade and the establishment of the Group's current high profit and dividend levels.
I would particularly like to highlight the strong growth of international operations contributing to our net sales, and our new openings in Norway, the Baltic countries and Russia. As much as one fifth of our net sales is generated outside Finland. This proportion has grown rapidly and we have good reason to say that we are an international listed company also in terms of operations.
International shareholders are nothing new to Kesko and their holdings account for nearly 30 percent of all shares.
International operations and increasing them in markets new to us necessitate in-depth competences from ourselves and successful cooperation with local experts. From the shareholders' viewpoint, too, managing all this will undoubtedly be one of our key future challenges and at the same time, a success factor for the increasingly international Kesko.
Last year, the K-Alliance's home and speciality goods trade and car trade developed very favourably in Finland in addition to our successful performance in the hardware and builders' supplies trade during many years.
Like I already mentioned, we failed to keep up with the growth rate of the Finnish food trade market and to reach our own sales targets regardless of intensive efforts. The competitive situation in the food trade proved even more demanding than expected and our actions failed to reverse the declining trend.
Proof of which is ACNielsen's newly published market share report concerning last year's food trade. According to the report, our market share in 2005 was 33.9 percent, which means that we have lost our position as the biggest food retailer in Finland. In the food trade, we aim at a growth rate that exceeds market growth.
It is true that market share is only one indicator of success, but in addition to sales development, it obviously reflects our customers' choices. Already last year, a thoroughgoing reassessment of all areas of Kesko Food was started including reassignments of the management and key personnel.
When market shares are discussed, people often talk about Kesko's market share when in actual fact they refer to the combined share of K-retailers' sales. Therefore in my opinion, it would be very natural to take account of the K-retailers' role and responsibility when the development of our market share as a whole is evaluated.
By this I mean that such operating practices and contractual structures should be established for purchasing, marketing and customer management that are as efficient as possible from the overall perspective.
Dear shareholders!
In this context, it seems natural to say a few words about retailer entrepreneurship and competition in the trading sector in Finland also in more general terms.
Recent structural rearrangements in the domestic trade have taken place across traditional "block frontiers" as cooperative business entered the traditionally private sector through acquisition. The Finnish Competition Authority approved the arrangement with certain marginal terms. In consequence, there have been public comments made by retailer-entrepreneurs who are worried about the future of their business and livelihood.
Kesko's nearly one-hundred-year history has its roots deep in the voluntary cooperation of retailer-entrepreneurs. This basic idea has proved effective throughout decades and helped establish the position of the leading Finnish trading group.
Retailer-entrepreneurship provides a specific alternative and freedom of choice to consumers. For this reason too, and for the sake of effective competition, it is alarming that the number of independent retailer-entrepreneurs is in danger of decreasing.
From an overall perspective, competition in the food trade in our domestic market is quite effective, as could be seen in the report published in February by the Ministry of Trade and Industry.
The main threat is that authorities have made many decisions aimed at limiting the true effectiveness of the market. These include, for example, regulations concerning store opening hours, food store zoning and alcohol sales, and certain interpretations of the competition legislation that place chains of entrepreneurs into a disadvantageous position.
All of these create artificial bars to competition in the trading sector and the sufferers are first and foremost Finnish consumers.
Dear audience!
At the turn of the year, Kesko's Board of Directors decided to transfer all of the K-Alliance's food retail operations in Finland to independent retailer-entrepreneurs. We wanted to stress the role of a retailer as the competitive asset of our Alliance and to help strengthen retailer-entrepreneurship.
That decision increases the number of retailers by about one hundred. Let's hope that entrepreneurs outside our Alliance will see the K-Alliance as a natural channel that would enable them to continue and further develop their retailing businesses.
We are always willing to discuss such opportunities with any retailer-entrepreneur who is considering new alternatives. And now I'm particularly thinking about our retailer-colleagues in the Spar chain.
We at Kesko are very familiar with the daily work and needs of entrepreneurs!
In our society, entrepreneurship is highly esteemed and an entrepreneur's career is an attractive opportunity. I think that the television campaign we ran in January to find and train new entrepreneurs is clear evidence of this.
The campaign brought us applications from some 600 persons, over 70 percent of whom will be invited to a second interview. And also the hardware and builders' supplies business acquired in Norway is largely based on retailer-entrepreneurship.
I see this as a very binding proof of trust for the K-Alliance as a promoter of entrepreneurship. It also encourages us to highlight retailer-entrepreneurship as our special competitive advantage also in the future.
Dear audience!
On behalf of Kesko's whole Board of Directors, I want to thank all our shareholders, Kesko Group's management and personnel and all our partners for a successful co-operation.
I would like to ask President and CEO Matti Halmesmäki to convey the Board's warmest thanks to all employees of the Group, both in Finland and other countries.
I am convinced that the letter 'K' will retain its position also in the future!
Dear attendees!
A General Meeting is also meant, in the framework of the agenda, to provide an opportunity for an active discussion between shareholders and the Board. A General Meeting is a natural place for this kind of exchange of ideas.
I wish you all, once again, warmly welcome to Kesko Corporation's Annual General Meeting!
