Pörssi-ilta 13.3.2025 / Keskon pääjohtaja Jorma Rauhala

Thank you. Good evening, early evening to everyone, and it's great that I have been able to present Kesko's growth strategy to this forum.

Kesko's updated strategy aims for growth. Let's look at some key figures: what Kesko includes. We have these three divisions: grocery trade, building and technical trade, and car trade. The total is just under 12 billion euros, with grocery trade being the largest. In that, we operate in Finland domestically. In building and technical trade, that is the growing international division, I would say. We now operate in eight countries, and over half of that division's sales come from abroad. And then car trade includes sports trade, 1.2 billion. If we look at operating profits from last year, grocery trade 6.9%, building and technical trade 3.9%, and car trade 5.7%. All of these saw some decline, but of course, if we compare them to domestic competitors or foreign competitors in the other countries where we operate, we can be quite satisfied with these figures, especially when we know that in building and technical trade and car trade, we can say that the market situation was historically, even historically weak.

Last spring we updated our growth strategy. We did not make any changes to the portfolio strategy; we operate in these three business areas with no changes. But we specified and clarified our competitive advantages. Our vision is to be the leading and attractive growth company in the retail sector in Northern Europe.

I'll go through a few points. From the strategic objectives, especially ensuring profitable growth, and we seek to strengthen market position in all our divisions, in all our countries of operation, in all businesses, we seek market share growth. What this focused P2C, P2P business portfolio building means? It means that we have very clearly defined where we want to operate: in consumer business and in professional customer business. It may be a surprise to many that nearly 40% of Kesko's sales today come from professional customer business, i.e., from this P2P, which of course comes largely from building and technical trade. And regarding that, we have decided that when we make foreign acquisitions, they are only for these professional customer companies. From competitive advantages, I will highlight one: first, quality and efficiency in all operations. This means that in the retail sector, it's about customer relationship management, correct assortments, correct pricing of products, product availability, good and precise logistics, deliveries, convenient ordering tools, and so on. When these are in order and in good shape, very often that is already a significant competitive advantage.

For grocery trade, the goal is to gain market share profitably. What are the key measures? Three key things: strengthening store-specific business ideas. We have a store-specific strategy, a store-specific business idea. Every K-store is different, so we focus on strengthening these selected competitive advantages and further raising the quality level of stores. Developing the store network – I'll come back to that; we will invest significantly in the store network in the coming years. Third, improving price competitiveness. These three things have been the focus when we updated the strategy last spring. In addition, Gespro, which is our company focused on the food service business, will be further strengthened to solidify its position as market leader. As we invest in these price and store network investments, it will have a slight impact on grocery trade profitability in the coming years, but still so that profitability is clearly above the 6% level.

During the strategy period, regarding the network, as I said, we will invest significantly this year and in the coming years. The essential thing is that the investments are made in growth centers in Finland. Whether we like it or not, migration is very strong. If we take last year as an example, last year we renovated 44 stores and opened 15 new stores. This year we will renovate 48 stores and open 15 new stores, including a new Citymarket in Lempäälä's Ideapark, a replacement Citymarket in Paavola, Lahti, where our oldest Citymarket from 1971 is located. In 2026-2027, completely new Citymarkets in Kuopio's Haapaniemi, Vantaa's Kivistö, and replacements in Porvoo and Ylivieska. And then in the following years, we are planning Citymarkets in Oulu's Ritaportti and Espoo's center. In this illustration, there is City Market Kivistö, Vantaa. Why do I highlight these Citymarkets? Because the impact of one such hypermarket, a Citymarket, on market share can be as much as 0.1 to 0.2 percentage points. They are very, very central in our strategy.

Building and technical trade, indeed, the internationally growing division. The focus is on ensuring profitability and creating cash flow. The situations vary greatly by country. In Finland, K-rauta and Onninen are practically this business, and their market share is very strong, and their profitability is very strong compared to competitors. Meanwhile, in Sweden and Norway, we have made a significant number of acquisitions in recent years, and there we focus on stabilizing those businesses and completing the integrations. We entered Denmark a little over a year ago, and there we are integrating Davidsen and improving results through growth. We will continue to seek acquisitions, especially in Northern Europe, with Sweden, Denmark, and Norway in focus. The long-term target for building and technical trade is 6-8% operating profit level. This Denmark, so far, I would say, has been a reasonably successful success story. A little over a year ago, we bought from Southern Denmark – you can see in this picture dark blue dots – about 20 stores from the Southern Denmark area. But in addition, now in February, Rlev from Central Jutland, Central Denmark, has become part of our numbers, and then two more, Tommeren and CF Petersen, will be closed in the coming months and become part of Kesko's Davidsen business. This means that after these, we will be in Denmark with a market share of about 20% in the hardware trade, with sales of around 800 million, so a very significant Denmark-wide operation.

Then, regarding building and technical trade, this market situation has been much discussed and we can even talk about a historically weak situation. And here are the charts, how to read them. From 2019, we have plotted the sales development of K-rauta and Onninen in Finland, comparing each quarter to the same quarter of the previous year. If we look from the left, in 2019, normal times before corona or other factors. Then came corona, a DIY boom worldwide, people were working remotely and renovating at home, painting walls, and in Finland, many bought cottages and renovated them. But especially from the beginning of 2021, the professional construction market also started to grow quite clearly, and prices rose significantly. There were global problems with the availability of goods, prices rose about 15%, and demand was strong. So the years 2021 and 2022 were very strong for hardware stores across Europe, for technical wholesale, and also for us in Finland, K-rauta performed very well. Then in February 2022, as we know, things happened that began to affect interest rates: a strong rise in interest rates, weakening of consumer confidence, inflation, rising energy prices, and so on. And construction, I would say, didn't stop completely, but there was a very strong decline across the entire market. And that can be seen in these figures. We had been strongly positive, then we went strongly negative. What these last quarters show is that based on these, we can see that the worst is behind us in that sense. At the end of last year, the negative numbers of Q4 decreased all the time and began to approach zero. And we believe that this situation, especially the first half of the year, the comparison figures are quite modest, and we believe that growth will come through that, and then certainly by the end of the year, in the second half, construction will start to recover also in terms of volume.

Here is our long-term target: 6-8%. Let's take, for example, 2018, when Onninen had been at Kesko for a couple of years, but in Kesko's figures, we made about 2.4% operating profit. Then in those strong years, we achieved over 7% operating profit. And now, I would say, as I said, in a historically weak market situation, we are still at about 4% operating profit level. So we consider it very realistic that our target of 6-8% in the coming years is a very realistic target.

Car trade, the third division. If we look at this pie chart, it best describes the business we are in. About half is new cars, i.e., cooperation with the Volkswagen and Porsche Group. So we sell Volkswagen, Audi, Seat, Cupra, Porsche, Bentley, new cars, 48%. But what is new is especially the used car trade, which is already a very significant business for us at K-Auto, and also services, of course. So this three-part whole supports each other well. Also, in sports trade, Kesko is the market leader in Finland with Intersport and Patesport brands.

On sustainability, as is known, Kesko is known for its sustainability, and that is still the case. The Dow Jones results in December: the best company in its industry in the Europe index for the third consecutive time in Europe, and globally the fourth best company. Global 100 results in January: Kesko was again selected as the world's most responsible grocery retail company. And we continue on this path. We have four areas of sustainability that we all promote.

The board's dividend proposal to the Annual General Meeting is 90 cents and is in line with our dividend policy of 60-100% of comparable earnings per share, and in this case, 81%.

Finally, why invest in Kesko? A stable player with strong market positions in different countries and businesses. In all countries where we operate, with maybe one exception, we are market number one or two. Good dividend yield for shareholders. Performs well even in a challenging market. Good earnings improvement potential as the market improves, and there are signs of that in the air, both in building and technical trade and in car trade. Profitable growth strategy and good track record of successful implementation. Long-term, internationally recognized sustainability work. Dear listeners, here is a compact package of Kesko's strategy.

Yes, as we see, there were exceptionally good years 2021-2022 when we achieved over 7% operating profit, which is a very strong level. And then we came down to 3.9%. And now it looks like, as I showed in the K-rauta and Onninen sales chart, the worst is behind us. We can see that even this week, there has been a lot of housing trade starting in Finland. And that means for us, for example, renovation, which is half of our business. So yes, the first half of the year may not see strong growth yet, but especially since the comparison figures are from two years of decline, I believe it will show positively. And besides, Finland needs 35,000 new homes every year, and the current level is below 20,000, so it will start to grow. And we see that especially in Denmark, growth has already started, so perhaps Finland, Sweden, and Norway will follow. So it looks like we had two very strong years and then two market-wise much weaker years, and now we are heading towards better times.

Yes, why we ended up with this? Of course, Onninen had grown so well, especially in the last few years after Kesko bought it, and we simply ran out of space. We started using four or five external warehouses. So we decided to make this significant investment. Looking back, the timing was perfect. Volumes had fallen a bit, so we could manage with our old warehouse, and on the other hand, construction costs were somewhat cheaper than during the peak years. Now in the fall, we will get it into use, the first customers can start receiving deliveries from there. This brings efficiency and reliability to logistics and ensures strong growth. Especially Onninen's business is technical wholesale, and we talk about the digitalization of construction and the green transition. I definitely see that the industry will grow in the coming years, and this new warehouse supports that nicely.

Yes, there are in the pipeline every day, it's part of the job. And I would say it's good that our strategy is clear on where we seek acquisitions. It goes to building and technical trade, and of course outside Finland. I would say that number one, my wish, would be to find good targets in Sweden. In Sweden, our market position is not so strong; we are about number five in the hardware trade, and on Onninen's side, in technical wholesale, we are only in small electrical infrastructure, selling wind turbine cables and such. So there is room for growth and need, especially in Sweden. In Denmark, we have done well in the hardware trade, but the technical wholesale side is not yet present at all, that's an opportunity. In Norway, we are the overwhelming market leader in technical wholesale on the electrical side, but then there is the heating, plumbing side where we are not present. So we are constantly working on it. Acquisitions are such that you can't really predict when they will come to fruition, but it is definitely a key strategic objective.

Well, I would say, perhaps in that way, of course, tariffs or such, they don't affect directly, but indirectly they can affect, for example, our industrial customers. But I would say more that it's about consumer confidence. If we think about Finland, inflation has come down, especially in food, we are talking about near-zero price inflation; with our sales mix, the last quarter was negative. Interest rates have come down, consumer purchasing power has grown and continues to grow. So in a way, the fundamentals are in place, and now it's about consumer confidence: when do they decide to buy that new car, renovate the apartment, move, or do such things. And I believe that the news we read every morning about what's happening in the world affects that consumer confidence. So in that sense, it has an indirect, perhaps significant, impact.

Well, no surprises there, because I've been with the company for over 30 years, and of course these two large divisions were familiar to me. I was the head of the building and technical trade division for the last six years, so that is familiar. In grocery trade, I was the division head for five years before that, so it's very familiar. So no surprises. Of course, the role changes, and for example, investor meetings have become a much bigger part of the new role, but no surprises. And as we agreed with the board a year ago when I started, we didn't go into thinking about portfolio strategy – should we be in some other business or divest something – but instead we set out to clarify the current strategies. So no surprises. But it has been a very interesting and enjoyable year.

Yes, a good question. We raised this for consideration a couple of years ago. Actually, we sell to Ukraine every day. Our Onninen business in Poland is there, we are market number two with about 3.5 million sales. And about a year ago, we opened Ukrainian-language websites and an online store. Currently, we already operate with a central warehouse in Central Poland, through which we deliver to Ukraine via e-commerce. It's still small, not big numbers, but it's there. And we are prepared that it might require a bit more logistics capacity. But the idea currently is to operate through Poland. Then, of course, there could be an impact if and when, hopefully as soon as possible, the reconstruction of Ukraine begins. It is already being done to some extent. I think then, of course, the prices and availability of construction materials, things like that, but I think we have opportunities there, more opportunities than threats. How wonderful.

Yes, that's exactly how it is. As we say, in Finland, we have a clear strategy: in grocery trade, we have decided that we are in Finland, we stay in Finland. We were once in Russia, we divested in 2016, and we have restored that. We are in Finland, and we seek organic growth. Acquisitions in grocery trade in Finland are hardly possible. In hardware and technical wholesale, we have a very strong market position. So growth is sought in all divisions, but faster growth is always through acquisitions. In grocery trade, we seek growth through the network, quality, and price in Finland. Abroad, of course, we always need to improve current businesses every day, but faster growth, like the example of Denmark, when we close these deals, in a year and a half we will become the number two in the Danish market with over 800 million in sales. There, organic growth is too slow; opening one new hardware store is not enough pace.

Yes, it is so. The choice of Kesko's K-store entrepreneurs, I would say, over decades has been quality. We start from the premise that Kesko's K-stores are qualitatively the best stores. At the same time, these price differences in comparisons are sometimes made by the parties themselves, but ultimately the price differences are not very large. And the consumer can greatly influence the price themselves by how they use offers, how they use our personalized offers, and so on. But we seek a combination: we must be qualitatively the best, the most suitable store for the particular customer group that lives in that area. And then we seek to increase market share through the growth of the network. And in pricing, of course, we must be alert; we must show the consumer that they feel it is right to choose that Citymarket, supermarket, or market compared to the competing store. The price level is not far from competitors, but there is something much better, like the fish counter or some service or other thing. That is the core of the store-specific business idea. Each entrepreneur can do that and see what their customers want and do that. That is our choice, and I believe that if we invest in these three things, it works.

As said, it is not a management matter. And in my opinion, it is quite good that it is 60-100% of comparable earnings per share. We have stuck to it well, and as we see, it varies a bit according to the result. In my opinion, the policy is good, and shareholders have clearly been satisfied.

That we operate in these three business areas, and we have a very strong position in all of them. And if we think about the last year, we had two divisions, building and technical trade, with a historically weak year. In grocery trade, the market is much more stable, but the market has also been very price-driven, which was not always the most favorable situation for us. The assumption is that the situation will improve. We are in a situation where the market is quite weak, and we have performed that well, so I see a very positive future for Kesko.

Thank you, thank you very much.