Kesko interim report 1 Jan. -30 Sept. 2023: A fine performance in a weak market

FINANCIAL PERFORMANCE IN BRIEF:

7-9/2023

• Group net sales in July-September totalled €2,949.1 million (€3,009.8 million). Reported net sales were down by 2.0%, in comparable terms net sales decreased by 2.7%
• Comparable operating profit totalled €208.1 million (€242.8 million)
• Operating profit totalled €206.6 million (€242.4 million)
• Cash flow from operating activities totalled €394.9 million (€318.8 million)
• Comparable earnings per share €0.38 (€0.47), reported earnings per share €0.37 (€0.47)

1-9/2023

• Group net sales in January-September totalled €8,881.8 million (€8,825.5 million). Reported net sales increased by 0.6%, in comparable terms net sales increased by 0.2%
• Comparable operating profit totalled €541.6 million (€622.5 million)
• Operating profit totalled €535.5 million (€625.3 million)
• Cash flow from operating activities totalled €707.1 million (€652.2 million)
• Comparable earnings per share €0.97 (€1.18), reported earnings per share €0.96 (€1.18)

KEY PERFORMANCE INDICATORS

In this interim report release, the comparable change % in net sales has been calculated in local currencies and excluding the impact of acquisitions and divestments completed in 2022 and 2023. Comparable operating profit has been calculated by deducting items affecting comparability from the reported operating profit.

GUIDANCE FOR 2023 (SPECIFIED)

Kesko Group’s profit guidance is given for the year 2023, in comparison with the year 2022. Kesko estimates that its comparable operating profit in 2023 will be in the range of €680–730 million. Before, the company estimated that the comparable operating profit would be in the range of €680–760 million.

The guidance specification is based on developments in the first 9 months of 2023, as well as updated estimates concerning weaker construction market development. Key uncertainties impacting Kesko’s outlook are developments in inflation and interest rate levels, and Russia’s ongoing offensive war in Ukraine.

OUTLOOK FOR 2024

Kesko’s operating environment is estimated to remain challenging in 2024. Kesko’s operating profit is expected to remain at a good level also in 2024 despite the challenges in the company’s operating environment.

In grocery trade, B2C trade and the foodservice market are expected to remain stable, and inflation is expected to slow down in 2024. Profitability in grocery trade is estimated to remain good also in 2024.

In building and technical trade, the market is expected to continue to decline in 2024. The economic cycle will have the biggest impact on new residential building, while the decline in other building construction, renovation building, and infrastructure construction is expected to be smaller. The cycle is expected to turn in 2025. Profitability in building and technical trade is estimated to fall short of the 2023 level, but to still remain at a reasonably good level in 2024.

In car trade, orders for new cars are expected to fall short of the 2023 level. Demand for used cars and services is estimated to stay at a good level. Profitability in car trade is estimated to decrease from the excellent level of 2023, but to continue to remain at a good level in 2024.

PRESIDENT AND CEO MIKKO HELANDER:

Kesko managed a fine performance in a challenging market in the third quarter of 2023. We recorded net sales of €2,949.1 million, down by 2.0% year-on-year. Our comparable operating profit totalled €208.1 million, and was thus at the same level as in the second quarter, but fell short of the level seen a year ago. Our cost-efficiency has improved further thanks to measures implemented. Our cash flow in the third quarter stood strong at €395 million. In August, we announced Kesko would be acquiring Davidsen Koncernen A/S, a leading Danish builders’ merchant, thus expanding our operations to Denmark and gaining a solid foothold on the local building and home improvement market. Kesko’s objective is to take part in the consolidation of Northern European building and technical trade on the B2B side also going forward, and to be a leading operator in the sector not only in Finland and Norway, but also in Sweden and Denmark. In technical trade, growth will also be important in Poland and the Baltics.

In the grocery trade division, net sales totalled €1,593.5 million, and comparable operating profit amounted to €118.2 million. K Group's grocery sales grew by 3.6%.  Sales also grew in the foodservice business: Kespro’s net sales increased by 4.7% and profitability stood at 7.3%. Price continues to be an important factor in grocery trade, but demand for premium products has started to recover. Customer flows have grown stronger thanks to campaigns and other marketing efforts. Kesko continues to update its existing stores, and will be opening many new grocery stores in Finnish growth centres in the near future. Sales of Kesko’s K-Citymarket hypermarket stores in particular have been growing considerably, and they have a crucial impact on the profitability and market share of Kesko’s grocery store business. In the food trade market, Kesko’s annual retail and B2B sales total over €8 billion, and the company holds a market share of approximately 37%. In contrast to many other European operators, Kesko holds a strong position in all areas of food trade.

In the building and technical trade division, net sales amounted to €1,050.3 million, with a comparable operating profit of €69.8 million. Profitability weakened, but stayed at a good level of 6.6%. In our biggest market Finland, the operating margin for building and home improvement trade was 7.2% and the margin for Onninen 8.6%. Inflation and rising interest rates have seen construction activity decline in 2023. Cyclical fluctuations are natural for the construction sector, and the down-cycle  is currently impacting new residential building in particular, which accounts for 20-30% of all construction. However, in the long term, the outlook for building and technical trade is positive. Urbanisation, renovation and investment debt, infrastructure projects and the green transition sustain construction over cycles. Kesko is a leading operator in building and technical trade in Northern Europe, and has great potential to grow further.

In the car trade division, sales grew clearly in all car trade business segments. The division’s net sales grew by 7.2% in comparable terms and totalled €310.8 million, and its comparable operating profit was €24.3 million. New car deliveries grew markedly year-on-year. Used car sales grew clearly, and our market share strengthened. Service sales also developed well. The order book for new cars continues to be at a good level, but demand and orders are clearly below normal levels.

Kesko’s outlook for the remainder of 2023 continues to be positive. Kesko specifies its profit guidance and now estimates that its comparable operating profit in 2023 will be in the range of €680–730 million. Kesko’s operating profit is expected to remain at a good level also in 2024 despite the challenges in our operating environment.

FURTHER INFORMATION, AUDIO CONFERENCE AND WEBCAST

Further information is available from Jukka Erlund, Executive Vice President, Chief Financial Officer, tel. +358 105 322 113, Hanna Jaakkola, Vice President, Investor Relations, tel. +358 105 323 540, and Eva Kaukinen, Vice President, Group Controller, tel. +358 105 322 338. An English-language audio conference on the results briefing will be held on 26 October 2023 at 9.00 am (EET/EEST). The audio conference login is available on Kesko's website at www.kesko.fi. A Finnish-language webcast of the interim report briefing can be viewed at 11.30 am (EET/EEST) at www.kesko.fi.

Kesko's financial statements release for January-December 2023 will be published on 30 January 2024. In addition, Kesko Group's sales figures are published monthly. News releases and other company information are available on Kesko's website at www.kesko.fi.

This is a summary of Kesko Corporation’s January-June 2023 Half-year Report. The complete report is attached to this release and also available at www.kesko.fi/en/investor/