Half year financial report 1-6/2020: Record Q2 result

Profitability improved thanks to fast response to exceptional circumstances and well-functioning strategy.


FINANCIAL PERFORMANCE IN BRIEF, CONTINUING OPERATIONS:

 

4-6/2020

•    Net sales for the Group's continuing operations in April-June totalled €2,814.5 million (€2,781.4 million), an increase of 2.2% in comparable terms, reported net sales up by 1.2%
•    Comparable operating profit totalled €155.2 million (€122.5 million) 
•    Operating profit totalled €154.1 million (€119.9 million)
•    Cash flow from operating activities totalled €421.8 million (€271.4 million), and grew operatively by €194.5 million
•    Comparable return on capital employed was 10.1% (9.5%), rolling 12 months
•    Comparable profit before tax totalled €135.2 million (€99.2 million)
•    Comparable earnings per share were €0.24 (€0.18)

1-6/2020
•    Net sales for the Group's continuing operations in January-June totalled €5,355.0 million (€5,182.2 million), an increase of 3.0% in comparable terms, reported net sales up by 3.3%
•    Comparable operating profit totalled €220.3 million (€179.9 million) 
•    Operating profit totalled €220.0 million (€171.5 million)
•    Cash flow from operating activities totalled €557.4 million (€428.3 million), and grew operatively by €221.5 million
•    Comparable profit before tax totalled €167.9 million (€133.8 million)
•    Comparable earnings per share were €0.32 (€0.27)

 

KEY PERFORMANCE INDICATORS

  4-6/2020 4-6/2019 1-6/2020 1-6/2019 1-12/2019
Continuing operations          
Net sales, € million 2,814.5 2,781.4 5,355.0 5,182.2 10,720.3
Operating profit, comparable, € million 155.2 122.5 220.3 179.9 461.6
Operating margin, comparable 5.5 4.4 4.1 3.5 4.3
Operating profit, € million 154.1 119.9 220.0 171.5 447.8
Profit before tax, comparable, € million 135.2 99.2 167.9 133.8 370.7
Profit before tax, € million 136.2 114.1 169.3 142.8 403.3
Cash flow from operating activities, € million 421.8 271.4 557.4 428.3 893.1
Capital expenditure, € million 69.1 373.4 168.2 470.7 686.1
           
Earnings per share, €, basic and diluted          
Continuing operations 0.24 0.22 0.33 0.28 0.83
Discontinued operations - 0.03 - 0.03 0.03
Group, total 0.24 0.24 0.33 0.31 0.86
Earnings per share, comparable, €, basic          
Continuing operations 0.24 0.18 0.32 0.27 0.74
  1-6/2020 1-6/2019 1-12/2019
Continuing operations                           
Return on capital employed, comparable, %, rolling 12 months 10.1 9.5 9.6
Group      
Return on equity, comparable, %, rolling 12 months 16.7 14.4 15.1
  30.6.2020 30.6.2019 31.12.2019
Group      
Equity ratio, % 27.4 27.9 31.2
Equity per share, € 4.68 4.61 5.11

OUTLOOK AND GUIDANCE FOR 2020

Outlook for Kesko Group's continuing operations is given for year 2020, in comparison with year 2019.

Kesko estimates that the comparable operating profit for continuing operations will be in the range of €430-510 million in 2020. Before, the company estimated that the comparable operating profit for continuing operations would be in the range of €400-450 million.

The profit guidance upgrade is based on better than anticipated net sales development in the building and technical trade division in various operating countries as well as in the grocery trade. Consumer sales have developed better than anticipated during the exceptional circumstances. B2B sales have also continued stronger than anticipated in both building and home improvement stores and Onninen. Retail sales for all the grocery trade chains have developed better than anticipated, compensating for the decrease in sales in the foodservice business.

In addition to the foodservice business, net sales have clearly decreased in the car trade. Adjustment measures carried out have enabled the company to manage the situation and costs in its various business operations under the challenging circumstances. 

Although conditions surrounding the coronavirus have improved in Kesko’s operating countries, it is hard to predict the development of the epidemic situation and its economic impact. Therefore, the range for the guidance on comparable operating profit for 2020 is still wide. 

PRESIDENT AND CEO MIKKO HELANDER:

Kesko achieved a record result in the second quarter. Our fast response, well-functioning strategy and good market for the building and technical trade enabled a good result under exceptional circumstances. Net sales grew by 0.8% in comparable terms, totalling €2,814.5 million. Our comparable operating profit totalled €155.2 million, representing an increase of €32.8 million. Cash flow from operating activities totalled €421.8 million, and it grew by €150.4 million, or by €194.5 million operatively. Kesko’s sales were strong in the grocery trade and the building and technical trade, but decreased in the car trade.

In July, we issued a positive profit warning as the development in the building and technical trade division in our operating countries and in the grocery trade division has been stronger than anticipated during the coronavirus epidemic. In the building and technical trade, consumer sales have developed better than anticipated during the epidemic. B2B sales have also continued stronger than anticipated in both building and home improvement stores and Onninen. Retail sales in all our grocery trade chains have developed better than anticipated: the growth has compensated for the decrease in net sales in the foodservice business. In addition to foodservice, net sales clearly decreased in the car trade.

In the grocery trade, our well-functioning strategy has been helpful also during these exceptional times. Retail sales of food grew by 12.3% in April-June, and our market share growth continued stronger than before. Sales grew in all K-food store chains and online. The growth in online grocery sales continued above 500% in June, and we have been able to respond to the rapid rise in demand better than our competitors. Online sales accounted for over 4% of total grocery sales in the second quarter. We responded to the strong decline in sales in the foodservice business with successful adjustment measures. A distinct turnaround for the better was seen in the foodservice business in June. 

The building and technical trade division achieved a record result thanks to systematic strategy execution and good market. Net sales grew forcefully and profit rose to a new level. B2B sales have continued strong in both building and home improvement stores and Onninen. Consumer sales also grew clearly more than anticipated. We strive to accelerate growth also via new acquisitions. On 8 July 2020, we announced we would acquire Carlsen Fritzøe Handel AS, the leading building and home improvement trade company in the Oslo region in Norway. Carlsen Fritzøe’s 25 stores in the Oslo fjord region highly complement the Byggmakker store network. Kesko Senukai’s sales and profitability recovered quickly from the problems caused by the coronavirus epidemic. We continue the strategic review of our operations in the Baltic States and Belarus, first announced in April.   

In the car trade division, demand for new cars weakened significantly during the reporting period. However, the decline in net sales flattened towards the end of the reporting period, and sales began to grow. Sales of servicing and spare part services remained good throughout the reporting period. The combined market share of brands of passenger cars and vans we represent rose to 18.5% in June, and Volkswagen became the market leader.

The adjustment measures carried out have enabled Kesko to manage the situation and costs in its various business operations under the challenging circumstances. To secure our cash flow, we have adjusted our costs on a wide scale, and will adjust our capital expenditure – excluding acquisitions – to some €200 million. We have also focused especially on ensuring financing and securing trade receivables.

Although conditions surrounding the COVID-19 coronavirus have improved in Kesko’s operating countries, it is still difficult to predict the development of the epidemic situation and its economic impact. We estimate that the comparable operating profit for Kesko’s continuing operations will be in the range of €430-510 million in 2020. Before, Kesko estimated that the comparable operating profit for continuing operations would be in the range of €400-450 million. Due to the prevailing uncertainty, the range for the guidance on comparable operating profit for 2020 is still wide. 

I want to thank everyone at K Group for their good performance under exceptional circumstances.

 

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