FINANCIAL PERFORMANCE IN BRIEF, CONTINUING OPERATIONS:
· Group net sales in January-September totalled €7,986.1 million (€7,727.6 million), an increase of 1.6% in comparable terms, reported net sales grew by 3.3%
· Comparable operating profit totalled €331.9 million (€314.0 million)
· Operating profit totalled €320.1 million (€300.5 million)
· Comparable return on capital employed was 9.6% (9.8% in 1-12/2018) (rolling 12 months)
· Comparable profit before tax totalled €263.1 million (€234.5 million)
· Comparable earnings per share totalled €2.07 (€1.75)
· Kesko continues the determined customer-oriented transformation of its business and execution of its strategy. 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.
KEY PERFORMANCE INDICATORS
| 1-9/2019 | 1-9/2018 | 7-9/2019 | 7-9/2018 | |
| Continuing operations | ||||
| Net sales, € million | 7,986.1 | 7,727.6 | 2,803.9 | 2,641.8 |
| Operating profit, comparable, € million | 331.9 | 314.0 | 152.0 | 137.0 |
| Operating margin, comparable | 4.2 | 4.1 | 5.4 | 5.2 |
| Operating profit, € million | 320.1 | 300.5 | 148.6 | 134.3 |
| Profit before tax, comparable, € million | 263.1 | 234.5 | 129.3 | 111.2 |
| Profit before tax, € million | 297.6 | 220.9 | 154.8 | 108.5 |
| Cash flow from operating activities, € million | 619.9 | 539.5 | 191.6 | 207.8 |
| Capital expenditure, € million | 602.9 | 349.9 | 132.2 | 221.2 |
| Earnings per share, €, basic and diluted | ||||
| Continuing operations | 2.41 | 1.61 | 1.27 | 0.79 |
| Discontinued operations | 0.10 | -0.54 | -0.01 | -0.03 |
| Group, total | 2.51 | 1.07 | 1.26 | 0.76 |
| Earnings per share, comparable, €, basic | ||||
| Continuing operations | 2.07 | 1.75 | 1.01 | 0.81 |
| 1-9/2019 | 1-12/2018 | |
| Continuing operations | ||
| Return on capital employed, comparable, %, rolling 12 months | 9.6 | 9.8 |
| Group | ||
| Return on equity, comparable, %, rolling 12 months | 14.4 | 12.5 |
| 30.9.2019 | 30.9.2018 | |
| Group | ||
| Equity ratio, % | 29.6 | 30.8 |
| Equity per share, € | 19.69 | 19.04 |
ADOPTION OF IFRS 16 LEASES
At the start of the financial year, the Group adopted the new standard IFRS 16 Leases, which took effect on 1 January 2019. The Group adopted the standard using a retrospective method, and reporting for the 2018 comparison period has been restated to be comparable. The change increases the comparable operating profit and capital employed, and decreases the return on capital employed. At Group level, the change increases the Group’s net finance costs and interest-bearing liabilities. The change has a significant impact on the presentation of the Group’s cash flows, as cash flow-based lease expenditure is partly presented under cash flow from operating activities and partly under cash flow from financing activities. The change does not have an impact on the Group’s cash flows overall.
| 1-9/2019, reported | Impact of IFRS 16 | 1-9/2019 excluding the impact of IFRS 16 | 1-9/2018, reported comparison period | Impact of IFRS 16 | 1-9/2018 excluding the impact of IFRS 16 | |
| Continuing operations | ||||||
| EBITDA, comparable, € million | 690.9 | +310.5 | 380.5 | 643.7 | +300.3 | 343.4 |
| Operating profit, comparable, € million | 331.9 | +68.0 | 263.9 | 314.0 | +72.3 | 241.7 |
| Profit before tax, comparable, € million | 263.1 | -3.9 | 266.9 | 234.5 | -3.2 | 237.7 |
| Cash flow from operating activities, € million | 619.9 | +242.9 | 377.0 | 539.5 | +229.8 | 309.6 |
| 7-9/2019, reported | Impact of IFRS 16 | 7-9/2019excluding the impact of IFRS 16 | 7-9/2018,reported comparison period | Impact of IFRS 16 | 7-9/2018excluding the impact of IFRS 16 | |
| Continuing operations | ||||||
| EBITDA, comparable, € million | 275.4 | +104.0 | 171.4 | 251.0 | +102.1 | 148.9 |
| Operating profit, comparable, € million | 152.0 | +22.8 | 129.3 | 137.0 | +24.4 | 112.6 |
| Profit before tax, comparable, € million | 129.3 | -0.3 | 129.6 | 111.2 | -0.6 | 111.8 |
| Cash flow from operating activities, € million | 191.6 | +83.1 | 108.4 | 207.8 | +77.3 | 130.5 |
Kesko Corporation has provided information on the implementation of IFRS 16 Leases in a 19 December 2018 release containing comparison figures for January-September 2018, in the 2018 financial statements release published on 6 February 2019, in the 2018 financial statements published on 8 March 2019, and in a 25 March 2019 release which comprised comparison figures for the financial year 2018. Detailed information regarding the impacts of IFRS 16 Leases is provided in the Tables section of this release: information on impacts on the consolidated financial statements on page 38, and on operating profit and EBITDA by segment on page 32 and onwards.
PRESIDENT AND CEO MIKKO HELANDER:
In the third quarter, Kesko again recorded its all-time best result. Performance was strong across the board in the grocery trade and building and technical trade. Performance in the car trade was softer than we anticipated, but picked up towards the end of the quarter. The comparable operating profit for the Group’s continuing operations strengthened in July-September and totalled €152.0 million, and reported net sales grew by 6.1%. The Group’s operating margin rose to 5.4%. I am particularly pleased that in line with our strategy we have been able to strengthen our profitable growth and market shares both organically and through successful acquisitions.
In the grocery trade division, sales grew, market share strengthened and profitability improved further. The comparable operating profit totalled €93.5 million and net sales grew by 3.7%. K-Citymarkets performed particularly strongly. Our strategic investments in remodelling stores and store-specific business ideas tailored to each local customer base strengthened sales in the grocery trade. Online sales of groceries also continued to grow forcefully.
In the building and technical trade division, sales grew and profit strengthened, due in particular to good profit development in K-Rauta in Finland and acquisitions carried out in Sweden and Norway. Onninen’s comparable profit also strengthened. The Fresks building and home improvement store chain acquired in Sweden earlier this year was successfully integrated into Kesko and rebranded K-Bygg. In addition to Sweden, we continued actions to strengthen our market position and improve profitability also in Norway. The division recorded a comparable operating profit of €60.3 million in the third quarter, with 8.4% growth in reported net sales. The sales growth and improved profitability prove that our strategy and its execution are working.
The market for the car trade business has been weakening since autumn 2018, and recovery has been slower than we anticipated. Despite the market situation, I believe that our car trade division will strengthen its competitiveness thanks to an updating range, improved availability and the efficiency measures carried out. The acquisitions we have made to strengthen our dealer network also support profitable growth in the car trade.
As a sign of our long-term commitment to corporate responsibility and efforts to combat climate change, Kesko was again included in the prestigious Dow Jones Sustainability Indices in September. In October, we made financing agreements totalling €700 million where the interest margin will increase or decrease depending on our ability to meet set sustainability targets. Kesko will draw down €300 million now, and has the possibility to draw down more later on.
Despite economic growth slowing down, our outlook is positive. We anticipate that in comparable terms, the net sales for continuing operations for the next 12 months will 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.
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