January-December 2008
Continuing operations
Net sales and profit
The Group’s net sales in January-December 2008 were €9,600
million, which is 3.4% up on the corresponding period of the
previous year (€9,287 million). The net sales increased by 4.4%
in Finland and decreased by 0.2% abroad. Exports and foreign
operations accounted for 21.4% (22.2%) of net sales. The trend
in the Group's net sales was significantly affected by the weakening
construction market especially in the Nordic and Baltic
countries towards the end of 2008. Grocery sales grew steadily
throughout 2008.
In January-December, the K-Group’s (i.e. Kesko’s and the chain
stores’) retail sales (incl. VAT) were €11,916 million, an increase
of 3.4% on the previous year.
The Group’s profit before taxes for January-December was
€288.5 million (€357.8 million). The operating profit was €285.6
million (€321.5 million). Non-recurring items excluded, the
operating profit was €217.0 million (€315.0 million), accounting
for 2.3% (3.4%) of net sales. The most significant amounts
included in non-recurring income are the €103.2 million gain on
property lease and sale arrangements between Kesko and Nordisk
Renting Oy, the €16.3 million gain on a property transaction
between Kesko and Aberdeen Property Fund Finland 1 Ky, and
the €10.3 million gain on the sale of K-Rahoitus Oy shares. Nonrecurring
expenses include a €45.6 million impairment charge
on the consolidated goodwill and trademark of Byggmakker
Norge, a Rautakesko subsidiary, based on a weakened outlook
for the business. The non-recurring expenses also include a
€15.5 million impairment charge on Anttila's logistics centre in
Vantaa to be replaced by the new logistics centre in Kerava in
2011. The financial items of the comparative period included a
€37.1 million non-recurring gain on the sale of SATO Corporation
shares.
The smaller year-on-year operating profit excluding nonrecurring
items was mainly due to a decreased demand in the
construction market in the Nordic and Baltic countries, and the
expansion and renovation of the networks of building and
home improvement stores and food stores. Owing to the dramatic
deterioration of the economic situation, the measurement
principles of inventories and trade receivables have been tightened
further. There is a €25 million year-on-year increase in the
impairment charges on inventories and trade receivables recognised
in 2008.
The Group's earnings per share from continuing operations
were €1.81 (€2.52). Equity per share was €20.09 (€19.53).
Investments
In January-December 2008, the Group's investments totalled €338.4 million (€227.7 million), which is 3.5% (2.5%) of net sales. Investments in store sites were 279.0 million (€188.2 million) and other investments €59.5 million (€39.5 million). Investments in foreign operations represented 29.0% of total investments.
Finance
In January-December, the cash flow from operating activities
was €134.0 million (€248.4 million) and the cash flow from
investing activities was €-45.8 million (€-84.7 million). The
cash flow from investing activities included €281.4 million
(€146.1 million) of proceeds received from the disposal of fixed
assets.
At the end of the period, liquid assets totalled €443 million
(€351 million). The amount was increased by the about €44 million
real estate transaction between Kesko and Aberdeen Property
Fund Finland 1 Ky, and the property and lease arrangement
between Kesko and Nordisk Renting Oy, which contributed €82
million to the cash flow. In addition, the amount of liquid
assets was increased by the debt-free selling price of about €77
million received from the disposal of Kauko-Telko, and by the
disposal of K-Rahoitus Oy, which contributed about €240 million
to liquid assets in finance receivables paid to Kesko. At the end
of the reporting period, the interest-bearing net debt was €47
million (€275 million). Equity ratio was 52.4% (48.5%) and gearing
2.3% (14.0%) at the end of the period.
In January-December, the Group's net financial income was
€1.0 million (€36.1 million). Net financial income was increased
by an increase in the amount of liquid assets and in the interest
rate level. Towards the end of the year, net financial income was
decreased by an increase in the currency interest rate spreads.
The income for the comparative period included a €37.1 million
gain on the sale of SATO Corporation shares.
Taxes
In January-December, the Group's taxes were €89.4 million (€87.1 million). The effective tax rate was 30.9% (24.4%), increased by the non-deductible impairment charge on Byggmakker Norge's consolidated goodwill recognised for the reporting period.
Personnel
In January-December, the average number of personnel in the
Kesko Group was 21,327 (20,520) converted into full-time
employees. In Finland, the average decrease was 95 employees,
while outside Finland, the increase was 902. The number of
personnel was significantly increased by the Belarusian subsidiary
OMA, acquired in July 2007.
At the end of December 2008, the total number of personnel
was 24,668 (25,228), of whom 13,651 (13,762) worked in Finland
and 11,017 (11,466) outside Finland. Compared with the end of
2007, there was a decrease of 111 employees in Finland and 449
outside Finland. As a result of the decline in consumer demand,
several measures aimed at staff cost adjustment were initiated
during 2008 in different operations of the Group.
Market review
According to the data from Statistics Finland, in January-
November 2008, the Finnish retail trade sales increased by 7.6%
compared with the previous year. In January-November, the
wholesale trade sales were up by 9.1%. Towards the end of
2008, however, both retail and wholesale trade sales slowed
down significantly, and in November 2008, the retail trade
dropped by 0.5% and the wholesale trade by 11.4%. The average
inflation rate for 2008, calculated by Statistics Finland, was
4.1%.
According to Statistics Finland’s consumer survey of January
2009, consumers' confidence in the economy was weak. Consumers
considered their own financial situation and saving
possibilities to be good, although the possibility of becoming
unemployed was considered to be more likely than before.
Their views of Finland's economy and the economic development
continued to be gloomy.
The economic development and consumer demand in Kesko's
operating area are subject to significant uncertainties resulting
from aggravated problems in the international financial market
and weakened general economic development. Therefore the
report by the Board of Directors does not make separate forward-
looking statements concerning the divisions.
Seasonal nature of operations
The Group’s operating activities are affected by seasonal fluctuations.
The net sales and operating profits of its business
segments are not earned evenly throughout the year. Instead
they vary by quarter depending on the characteristics of each
business segment.
Divisions' performances in January-December
Kesko Food
In January-December, Kesko Food's net sales were €4,110 million
(€3,871 million), up 6.2%. The retail sales of K-food stores
(incl. VAT) increased by 6.0%, totalling €5,351 million. Especially
the K-food stores' own Pirkka products saw good sales growth
of 14.6%. During 2008, 37 new K-food stores were opened. The
number of K-citymarkets opened was eight, two of which were
expansions from
In January-December, Kesko Food's operating profit excluding
non-recurring items was €135.2 million (3.3% of net sales), i.e.
€16.2 million, or 0.6 percentage points, lower than in the previous
year. The operating profit excluding non-recurring items
was negatively impacted by the expansions and renovations
carried out in the store site network, and the weaker year-onyear
sales growth in the home and speciality goods trade. The
operating profit was €245.0 million (€151.3 million). The operating
profit was increased by a €103.2 million non-recurring gain
on the property and lease arrangement between Kesko and Nordisk
Renting, and by a €10.7 million non-recurring gain on the
property transaction between Kesko and Aberdeen Property
Fund Finland 1 Ky.
In January-December, Kesko Food's investments totalled
€185.9 million (€117.6 million), of which investments in store
sites were €161.7 million (€104.8 million).
Rautakesko
In January-December, Rautakesko's net sales amounted to
€2,518 million (€2,537 million), a decrease of 0.8%. Sales growth
declined dramatically especially in sales to professional customers.
The contribution of business acquisitions and disposals
excluded, the change in net sales was -1.4%. Net sales in
Finland were €882 million (€909 million), a decrease of 3.0%.
Foreign operations' contribution to net sales was €1,636 million
(€1,628 million), up 0.5%. Foreign operations accounted for
65.0% (64.0%) of Rautakesko’s net sales.
In January-December, the retail sales (incl. VAT) of the K-rauta
and Rautia chains in Finland increased by 2.1% and were €1,225
million. The sales of Rautakesko B-to-B Service decreased by
11.7%.
During 2008, two new and six replacement stores were
opened in Finland. 12 new and one replacement store were
opened abroad.
In Sweden, the net sales increased by 1.0% to €186 million in
January-December. In Norway, the net sales decreased by 7.7%
and were €570 million. In Estonia, the net sales were down by
11.6% to €81 million. In Latvia, the net sales decreased by 15.8%
and were €71 million. In Lithuania, Senukai's net sales decreased
by 0.9% to €449 million. In Russia, Stroymaster's net sales grew
by 34.9% to €203 million. The net sales of the Belarusian OMA
were €71 million.
In January-December, Rautakesko's operating profit excluding
non-recurring items was €53.3 million (2.1% of net sales), i.e.
€62.6 million, or 2.5 percentage points, lower than in the previous
year. In addition to the decreasing demand in the construction
market, the profitability was impacted by the expansion of
the store site network, and the tightening of the measurement
principles of trade receivables and inventories. There is an
approximately €14 million year-on-year increase in the impairment
charges on inventories and trade receivables recognised in
2008. Rautakesko’s operating profit for January-December was
€16.3 million (€117.8 million). The operating profit includes a
€45.6 million non-recurring impairment charge on Byggmakker
Norge's intangible assets. In addition, the operating profit
includes a €5.4 million non-recurring gain on the property transaction between Kesko and Aberdeen Property Fund Finland
1 Ky.
In January-December, Rautakesko's investments were €121.1
million (€77.0 million). Investments abroad accounted for 80.1%
(59.3%) of total investments.
VV-Auto
In January-December, VV-Auto's net sales were €884 million
(€805 million), up 9.9%. The aggregate number of registrations
of passenger cars and vans imported by VV-Auto increased by
23.6% in Finland. This development is attributable to the car
tax change enacted at the beginning of 2008, and the good
competitiveness of Volkswagen and Audi. In 2008, the combined
market share of passenger cars and vans imported by
VV-Auto was 17.1% (15.1%). The restrained trend in net sales
was attributable to the average car prices, fallen as a result
of the car tax change, by a slowdown in the Baltic car sales,
and a decrease in van sales.
In January-December, the number of first registrations of new
passenger cars totalled 139,647 in Finland, up 11.2% on the previous
year. Compared with the year before, first registrations of
vans were down by 8.1% to 15,522.
In January-December, first registrations of passenger cars
imported by VV-Auto increased by 30.6%. First registrations of
Volkswagen passenger cars in January-December were 16,493
and the market share was 11.8% (10.2%). In January-December,
first registrations of Audis were 5,836 and the market share was
4.2% (3.3%). The registrations of new Seat passenger cars
totalled 1,832 in Finland and the market share was 1.3% (1.2%).
The number of Volkswagen vans registered was 2,463 and their
market share was 15.9% (18.0%).
In January-December, the operating profit was €36.3 million
(4.1% of net sales), which was up €10.3 million, or 0.9 percentage
points, compared with the corresponding period of the previous
year. The profitability was improved by the good sales
performance of the brands represented by VV-Auto.
Investments totalled €6.9 million (€6.3 million) in January-
December.
Anttila
In January-December, Anttila's net sales were €560 million
(€564 million), down 0.7%. As the economic outlook worsened,
consumers became more cautious, which had an impact on the
demand for home decoration products and consumer electronics
in particular.
In January-December, the retail sales (incl. VAT) of the Anttila
department stores were €393 million, down 1.3%. The retail
sales of the Kodin Ykkönen department stores for home goods
and interior decoration were €181 million, down 1.9%. The distance
retail sales of Net Anttila in Finland were €93 million, up
4.9%. In Estonia, NetAnttila's sales were €9 million, showing a
growth of 1.4%. In Latvia, NetAnttila's sales were €8 million,
representing a decrease of 17.6%.
In January-December, Anttila's operating profit excluding
non-recurring items was €19.8 million (3.5% of net sales), i.e.
€5.4 million, or 0.9 percentage points, lower than in the corresponding
period of the previous year. Anttila’s operating profit
was €4.3 million (€27.2 million). The non-recurring items include
an impairment charge of €15.5 million on the logistics centre
property in Vantaa. Anttila is having a new logistics centre built
in Kerava to be completed in 2011.
Anttila's investments totalled €5.8 million (€5.8 million), the
most significant of which were made in the new department
stores in Pori and Rovaniemi.
Kesko Agro
In January-December, Kesko Agro's net sales were €846 million
(€793 million), an increase of 6.6%. The net sales from foreign
operations were €318 million (€295 million), accounting for
37.6% of total net sales.
In January-December, Kesko Agro's net sales in Finland were
€527 million, up 5.7%, which was significantly affected by the
increase in the price levels of agricultural inputs and fuels. The
net sales from foreign operations increased by 8.0%, which is
attributable to an increase in the grain and agricultural inputs
trade. The Baltic construction machinery trade clearly declined
over the previous year.
The sales of the K-maatalous chain in Finland increased by
6.0% to €714 million (incl. VAT) in January-December.
In January-December, Kesko Agro's operating loss excluding
non-recurring items was €3.5 million (-0.4% of net sales), i.e.
€15.9 million lower than in the corresponding period of the previous
year. The profit performance was significantly affected by
the weakening of the Baltic agricultural and machinery markets
towards the end of 2008, as a result of which the impairment
charges on Kesko Agro's inventories and trade receivables
increased by about €7 million over the previous year.
In January-December, investments were €2.4 million
(€7.6 million).
Other operating activities
Other operating activities comprise the reporting for Konekesko,
Intersport Finland, Indoor, Musta Pörssi and Kenkäkesko.
In January-December, the aggregate net sales of other operating
activities were €699 million (€743 million), a decrease of
6.0%. The net sales from foreign operations totalled €56 million,
accounting for 8.0% of total net sales.
In January-December, the aggregate operating loss of other
operating activities excluding non-recurring items was €0.1 million
(0.0% of net sales), i.e. €14.0 million down on the corresponding
period of the previous year. The decline in profitability
was attributable to the weaker profit performance of the recreational
machinery trade, the furniture trade and home technology
compared with the previous year. In January-December, the
operating profit was €0.8 million (€10.0 million).
In January-December, investments were €15.7 million
(€7.4 million).
In January-December, Konekesko's net sales were €214 million
(€229 million), down 6.5% on the previous year. Sales and profitability
weakened especially in the recreational machinery
trade.
In January-December, Intersport Finland's net sales were €158
million (€147 million), an increase of 7.5%. In March, Budget
Sport stores were opened in Espoo and Raisio.
Indoor's net sales in January-December were €177 million
(€197 million), down 9.7%. Sales and profitability were weakened
by consumers' cautiousness and the decline in the housing trade. Indoor's operating activities in Sweden were discontinued
in March 2008.
Musta Pörssi Ltd's net sales in January-December were €123
million (€148 million), down 16.8%. The sales trend was affected
by changes in the store site network, coupled with a lower yearon-
year demand for consumer electronics since households had
gone digital in the comparative year. The Konebox.fi online store
was opened at the end of 2008.
In January-December, Kenkäkesko Ltd's net sales were €26
million (€23 million), up 12.6%.
Discontinued operations
In January-December, the Group's profit from discontinued operations was €41.5 million (€36.6 million). Discontinued operations comprise the reporting for Kauko-Telko Ltd and the €31 million gain on its disposal, and TähtiOptikko Group Oy, with the about €8.5 million gain on its disposal. In the comparative year, discontinued operations included a €28.2 million gain on the disposal of food store properties leased to Rimi Baltic AB.
October-December 2008
Continuing operations
Net sales and profit
The Group’s net sales in October-December 2008 were €2,336
million, which is 2.3% down on the corresponding period of
the previous year (€2,390 million). The Group's net sales
increased by 1.8% in Finland and decreased by 16.0% abroad.
Exports and foreign operations accounted for 19.4% (22.6%) of
net sales.
In October-December, the K-Group’s (i.e. Kesko’s and the
chain stores’) retail sales (incl. VAT) were €3,016 million, a
decrease of 2.0% on the corresponding period of the previous
year.
The Group’s profit before tax for October-December was €7.7
million (€66.1 million). The operating profit was €6.9 million
(€68.3 million). The operating profit included a net total of
€-20.4 million (€-3.7 million) of non-recurring gains and losses
on the disposal of fixed assets, and impairment charges. The
non-recurring expenses include a €15.5 million impairment
charge on Anttila's logistics centre in Vantaa to be replaced by
the new logistics centre in Kerava in 2011.
The operating profit excluding non-recurring items was €27.3
million (€71.9 million). It represented 1.2% of net sales (3.0%).
The smaller year-on-year operating profit excluding non-recurring
items was mainly due to a decreased demand in the Nordic
and Baltic construction markets. Owing to the dramatic deterioration
of the economic situation, the measurement principles of
inventories and trade receivables have been tightened further.
There is an approximately €17 million year-on-year increase in
the impairment charges on inventories and trade receivables
recognised in October-December.
The smaller year-on-year operating profit excluding nonrecurring
items was due to a decreased demand in the construction
market and the home and speciality goods trade,
and the expansion and renovation of the store site network.
The Group's earnings per share from continuing operations
were €-0.05 (€0.39). Equity per share was €20.09 (€19.53).
Investments
The Group’s investments in October-December totalled €105.2 million (€68.8 million), which is 4.5% (2.9%) of net sales. Investments in store sites were €84.1 million (€61.9 million). The Group’s other investments were €21.1 million (€6.9 million). Investments in foreign operations represented 37.8% of total investments.
Finance
In October-December, the cash flow from operating activities was €15.7 million (€70.2 million) and the cash flow from investing activities was €-95.7 million (€-71.0 million). The cash flow from investing activities included €3.7 million (€5.1 million) of proceeds received from the disposal of fixed assets. At the end of the period, liquid assets totalled €443 million (€351 million). The assets have been invested in a diversified manner, within counterparty specific limits, across the debt instruments of enterprises (€203 million) and banks (€141 million), in funds (€9 million), Finnish Government bonds (€32 million) and bank deposits (€58 million). In October-December, the Group’s net financial income was €0.8 million (€-2.1 million).
Taxes
In October-December, the Group’s taxes were €5.5 million (€20.6 million). The effective tax rate was 71.2% (31.1%), increased by foreign companies' loss-making performances in the reporting period.
Personnel
In October-December, the average number of personnel in the Kesko Group was 20,921 (21,376) converted into full-time employees. There was a decrease of 455 employees compared with the corresponding period of the previous year. In Finland, the average decrease was 397 employees, while outside Finland, it was 58 employees.
Divisions' performances in October-December
Kesko Food
In October-December, Kesko Food's net sales totalled €1,122 million
(€1,046 million), up 7.3%. The retail sales of K-food stores
in October-December totalled €1,456 million (incl. VAT), representing
a growth of 6.5%, and their grocery sales increased by
7.8%. At the end of December, there were a total of 1,055
K-food stores (mobile stores excluded).
In October-December, Kesko Food’s operating profit excluding
non-recurring items was €43.3 million (3.9% of net sales), i.e.
€3.5 million, or 0.1 percentage points, higher than in the previous
year. Kesko Food's operating profit was €39.0 million (€40.0
million).
In October-December, Kesko Food's investments totalled €48.5
million (€37.8 million), of which investments in store sites were
€38.5 million (€36.7 million).
Kesko Food continued the intensive development of the
K-food store network. In October-December, a
The most important store sites being built are the K-citymarkets
in Turku, Ylöjärvi, Kirkkonummi, in Linnainmaa, Tampere,
in Koivukylä, Vantaa, the expansion of K-citymarket Mikkeli,
and the new K-supermarkets being built in Kempele, Porvoo,
Järvenpää and Eurajoki.
Rautakesko
Compared with the previous year, the market situation in the
Nordic and Baltic building and home improvement trade weakened
clearly during the last quarter. In October-December, Rautakesko’s
net sales amounted to €518 million (€622 million), a
decrease of 16.7%. Net sales in Finland were €166 million (€195
million), a decrease of 15.1%. Foreign operations contributed
€352 million (€427 million) to the net sales, a decrease of 17.5%.
In addition to the decline in demand, the sales development of
foreign operations was affected by the weakening of the Swedish
krona, the Norwegian krone and the Russian rouble. Foreign
operations accounted for 68.0% of Rautakesko’s net sales.
In Sweden, the net sales of
In October-December, Rautakesko’s operating loss excluding
non-recurring items was €6.2 million (-1.2% of net sales), i.e.
€28.2 million lower than in the corresponding period of the previous
year. The profit performance was affected by a decreasing
demand in the Nordic and Baltic construction markets, and by
the expansion of the store site network. In addition, the profitability
was affected by the tightening of the measurement principles
of trade receivables and inventories. There is an approximately
€9 million year-on-year increase in the impairment
charges on inventories and trade receivables recognised in October-
December. Rautakesko’s operating loss for October-December
was €5.3 million (operating profit €22.1 million).
In October-December, Rautakesko’s investments totalled €44.7
million (€21.2 million). Investments abroad accounted for 88.0%
(75.5%) of total investments.
In October-December, the retail sales (incl. VAT) of the K-rauta
and Rautia chains in Finland decreased by 4.2% to €266 million.
The sales of Rautakesko B-to-B Service decreased by 24.5%. At
the end of December, the K-rauta and Rautia chains in Finland
comprised 42 and 102 stores respectively.
In Sweden, there are 19 K-rauta stores, one of which is owned
by the retailer. In Estonia, there are eight K-rauta stores. In Norway,
the Byggmakker chain comprises 120 stores, 18 of which are
owned by Byggmakker.
Three new stores were opened in October-December. In St.
Petersburg, Russia, the ninth K-rauta store was opened at the
end of November. Five of the K-rauta stores in St. Petersburg
operate in conformity with the new K-rauta concept. In Latvia,
Rautakesko opened a new K-rauta store in Rezekne in October.
There are eight K-rauta stores and two K-rauta partner stores in
Latvia. In Lithuania, Senukai opened a new store in Klaipeda in
October. Senukai has 15 stores of its own and 76 partnershop
stores.
VV-Auto
In October-December, VV-Auto's net sales totalled €161 million
(€144 million), up 12.2%. The net sales of the comparative
period were decreased by the car tax change published in
November 2007, which postponed a significant part of sales to
2008. During the last quarter, the aggregate market share of
passenger cars and vans imported by VV-Auto was 18.3%
(15.6%).
In October-December, the operating profit excluding nonrecurring
items was €1.9 million (1.2% of net sales), i.e. €2.5
million, or 1.6 percentage points, higher than in the corresponding
period of the previous year.
Investments totalled €1.9 million (€1.3 million) in October-
December.
Anttila
In October-December, Anttila's net sales totalled €184 million
(€189 million), down 3.1%.
In October-December, the retail sales (incl. VAT) of the Anttila
department stores were €137 million, down 3.6%. The retail
sales of the Kodin Ykkönen department stores for home goods
and interior decoration were €56 million, a decrease of 7.4%.
Distance retail sales in Finland were €28 million, up 3.5%. Especially
in interior decoration and home technology, the sales
trend was heavily impacted by an increase in the overall economic
uncertainty and the slowdown in the housing trade.
In October-December, Anttila’s operating profit excluding
non-recurring items was €20.0 million (10.9% of net sales), i.e.
€1.6 million, or 0.5 percentage points, lower than for the corresponding
period of the previous year. Anttila’s operating profit
was €4.6 million (€21.6 million). The non-recurring items
include a €15.5 million impairment charge on the logistics centre
property in Vantaa. Anttila is having a new logistics centre
built in Kerava, which will be completed in 2011.
Anttila's investments were €2.3 million (€1.5 million).
At the end of December, there were 28 Anttila department
stores and two specialist stores, eight Kodin Ykkönen department
stores, and one Kodin1.com online department store for
home goods and interior decoration. NetAnttila engages in distance
sales and operates in Finland, Estonia and Latvia.
In October, a new department store was opened in Pori in
replacement of the old department store. In November, a new
department store was opened in Rovaniemi and a specialist
Anttila Store in Nummela, Vihti.
In 2009, a new department store will be opened in the
Skanssi shopping centre in Turku, and a new Kodin Ykkönen
store in Lielahti, Tampere.
Kesko Agro
In October-December, Kesko Agro's net sales were €202 million
(€213 million), a decrease of 5.2%. Kesko Agro's net sales in Finland
were €118 million, down 9.6% in October-December. The
net sales from the Baltic agricultural and machinery trade were
€84 million (€83 million), an increase of 1.8% in October-
December.
In October-December, Kesko Agro's operating loss excluding
non-recurring items was €15.8 million (-7.8% of net sales), i.e.
€17.9 million lower than in the corresponding period of the previous
year. The profit performance was significantly affected by
the weakening of the Baltic construction and agricultural markets
towards the end of 2008, as a result of which a total of €9
million higher impairment charges and provisions on trade
receivables and inventories was recognised for October-December
compared with the previous year. Approximately half of the
amount relates to financial difficulties found in the activities of
a Latvian warehouse operator.
At the end of the reporting period, the K-maatalous chain
comprised 91 agricultural stores in Finland. Kesko Agro has six
stores in Estonia, four in Latvia and three in Lithuania.
Other operating activities
Other operating activities comprise the reporting for Konekesko,
Intersport Finland, Indoor, Musta Pörssi and Kenkäkesko.
In October-December, the aggregate net sales of other operating
activities were €152 million (€182 million), down 16.1%.
In October-December, the aggregate operating loss of other
operating activities, non-recurring items excluded, was €7.9
million (-5.2% of net sales), i.e. €3.4 million lower than in the
corresponding period of the previous year. In October-December,
the operating loss was €9.5 million (€8.4 million).
In October-December, investments were €4.9 million (€3.7
million).
Konekesko's net sales in October-December were €32 million
(€43 million), a decrease of 26.0% compared with the previous
year. In Finland, sales were €29 million, down 19.2%.
Konekesko’s export sales totalled €2 million, a decrease of
73.5%.
Intersport Finland's net sales in October-December were €40
million (€41 million), down 1.6%.
Indoor's net sales in October-December were €42 million (€51
million), down 17.8%. In October-December, the net sales of the
furniture trade in foreign operations were €6 million, a decrease
of 50.5%. Indoor's operating activities in Sweden were discontinued
in March 2008.
Musta Pörssi Ltd's net sales in October-December were €35
million (€42 million), down 17.3%.
Kenkäkesko Ltd's net sales in October-December were €4 million
(€5 million), a decrease of 21.3%.
Changes in the Group composition
K-Rahoitus Oy and its subsidiaries were sold and the transaction was completed on 31 January 2008. Tähti Optikko Group Oy was sold and the transaction was completed on 31 March 2008. Kauko-Telko Ltd was sold and the transaction was completed on 30 April 2008.
Resolutions of the 2008 Annual General Meeting and the Board's organisational meeting
Kesko Corporation’s Annual General Meeting held on 31 March
2008 adopted the financial statements for 2007 and discharged
the members of the Board of Directors and the Managing Director
from liability. The Annual General Meeting also resolved to
distribute a dividend of €1.60 per share, as proposed by the
Board of Directors, or total dividends of €156,428,592. The dividend
payment date was 10 April 2008.
The Annual General Meeting resolved to leave the number of
Board members unchanged at seven. The members of the Board
of Directors elected by the Annual General Meeting of 27 March
2006 are Pentti Kalliala, Ilpo Kokkila, Maarit Näkyvä, Seppo
Paatelainen, Keijo Suila, Jukka Säilä and Heikki Takamäki. The
Chair of the Board is Heikki Takamäki and the Deputy Chair is
Keijo Suila. The term of office of each Board member, in accordance
with the Articles of Association, is three years, with the
term starting at the close of the General Meeting electing the
member and expiring at the close of the third Annual General
Meeting after the election. The terms of office of all current
Board members will expire at the close of the 2009 Annual General
Meeting.
The Annual General Meeting elected PricewaterhouseCoopers
Oy, Authorised Public Accountants, as the auditor of the company.
The firm has announced Johan Kronberg, APA, to be their
auditor with principal responsibility.
The resolutions of the Annual General Meeting were published
in more detail in a stock exchange release on 31 March 2008.
The organisational meeting of Kesko Corporation's Board of
Directors held after the Annual General Meeting on 31 March
2008 decided to leave the compositions of its committees
unchanged. The Board elected Maarit Näkyvä as the Chair of its
Audit Committee, and Seppo Paatelainen and Keijo Suila as its
members. The Board elected Heikki Takamäki as the Chair of its
Remuneration Committee, and Pentti Kalliala and Keijo Suila as
its members. The committees' terms of office expire at the close
of the Annual General Meeting. The decisions of the organisational
meeting of the Board of Directors were published in a
stock exchange release on 31 March 2008.
Kesko Food Ltd and Rautakesko Ltd, major subsidiaries fully
owned by Kesko Corporation, elected the members of their
Boards of Directors at their Annual General Meetings held on 28
March 2008. The compositions of the Boards were announced in
a stock exchange release on 28 March 2008.
Shares, securities market and Board authorisations
At the end of the reporting period, Kesko Corporation's share
capital totalled €195,649,708. Of all shares 31,737,007 or 32.4%
are A shares and 66,087,847 or 67.6% are B shares. The aggregate
number of shares was 97,824,854. Each A share entitles to
ten (10) votes and each B share to one (1) vote. During the
reporting period, the share capital was increased seven times as
a result of share subscriptions with the stock options of the year
2003 option scheme. The increases were made on 11 February
2008 (€210), 28 April 2008 (€38,168), 9 June 2008 (€42,200), 28
July 2008 (€8,600), 1 October 2008 (€4,000), 27 October 2008
(€6,000) and 18 December 2008 (€15,000), and announced in
stock exchange notifications on the same days. The subscribed shares were included on the main list of the Helsinki Stock
Exchange for public trading with the old B shares on 12 February
2008, 29 April 2008, 10 June 2008, 29 July 2008, 2 October
2008, 28 October 2008, and 19 December 2008.
The price of a Kesko A share was €37.85 at the end of 2007,
and €22.00 at the end of 2008, representing a decrease of
41.9%. The price of a B share was €37.72 at the end of 2007, and
€17.80 at the end of 2008, representing a decrease of 52.8%.
During the reporting period, the highest A share quotation was
€38.20 and the lowest was €21.33. For B shares, they were €38.12
and €15.31 respectively. During 2008, the NASDAQ OMX Helsinki
Stock Exchange All Share index (NASDAQ OMX Helsinki) fell by
53.4%, the weighted NASDAQ OMX Helsinki CAP index by 50.1%,
while the Consumer Staples Index dropped by 57.1% during the
same period.
At the end of the reporting period, the market capitalisation
of A shares was €698 million, while that of B shares was €1,176
million. Their combined market capitalisation was €1,875 million,
a decrease of €1,817 million from the end of 2007. During
2008, 1,427,575 A shares were traded on the Helsinki Stock
Exchange at a total value of €41.0 million, while 121.1 million
B shares were traded at a total value of €2,859 million.
The listed 2003E and 2003F stock options of the year 2003
option scheme were available for trading and a total of 179,000
options were traded at a total value of €1,570,000 during 2008.
The Board of Directors was authorised by the Annual General
Meeting of 26 March 2007 to issue a maximum of 20,000,000
new B shares against payment. The authorisation also includes
a right to deviate, for a weighty financial reason, from the
shareholders’ pre-emptive right with a rights issue so that the
issued shares can be used as consideration in possible company
acquisitions, other arrangements concerning the company’s
operations, or to finance investments. The authorisation is valid
for two years from the resolution of the Annual General Meeting.
The authorisation has not been used.
At the end of 2008, the number of shareholders was 38,080,
showing an increase of 9,155 shareholders during the year. Foreign
ownership interest decreased from 34% to 20% of the
share capital during the year.
Flagging notifications
Kesko Corporation did not receive any flagging notifications during the reporting period.
Main events during the reporting period
On 31 January 2008, K-Rahoitus Oy's share capital was transferred
to OKO Bank plc (Pohjola Bank plc from 1 March 2008). An
agreement to this effect was signed between OKO and Kesko
Corporation on 21 December 2007. The price paid was about €30
million (stock exchange releases on 21 December 2007 and 31
January 2008).
Kesko Corporation waived the purchase option included in the
lease agreements made with Nordisk Renting Oy in 2001 and
2002, for which RBS Nordisk Renting paid Kesko €74.2 million in
compensation. The previous agreements were finance leases
and the non-recurring gain resulting from the cancellation was
€26.5 million. The lease arrangement and the property sale contributed
a total of €103 million to Kesko Food's and the Kesko
Group's operating profits for the first quarter, which was
reported as a non-recurring item (stock exchange release on 11
February 2008).
On 31 March 2008, Kesko Corporation sold the shares of Tähti
Optikko Group Oy to the Specsavers optical chain. The debt-free
selling price was about €15 million. The disposal contributed a
non-recurring gain of €8.5 million to Kesko's profit from discontinued
operations (release on 1 April 2008).
Kesko Corporation sold the share capital of Kauko-Telko Ltd to
Aspo plc on 30 April 2008. Based on Kauko-Telko's end-of-April
balance sheet, the debt-free selling price was about €77 million.
A non-recurring gain on the disposal of about €30 million has
been recognised in Kesko's profit from discontinued operations
(stock exchange releases on 23 May 2007, 28 February 2008 and
30 April 2008).
On 28 May 2008, Kesko announced that it would strengthen
the competitiveness of the K-maatalous and Rautia chains by
demerging Kesko Agro Ltd on 1 January 2009, so that the agricultural
trade activities in Finland become part of Rautakesko Ltd
and the trade of tractors and combines, as well as the agricultural
and machinery trade companies in the Baltic countries
became part of Konekesko Ltd. It is estimated that the arrangement
will result in an annual benefit of approximately €3 million
to Kesko (stock exchange release on 28 May 2008).
On 30 September 2008, the Kesko Group, the Kesko Pension
Fund and Valluga-sijoitus Oy sold 23 of their store properties in
different parts of Finland to Aberdeen Property Fund Finland 1
Ky. The selling price was about 56 million euros, of which the
Kesko Group's share was about 44 million euros. The Kesko
Group's gain on the sale was about 16 million euros, which was
treated as a non-recurring item in Kesko's third quarter operating
profit (stock exchange release on 30 September 2008).
Kesko announced that Anttila Oy, K-citymarket Oy (home and
speciality goods) and the other Kesko Group home and speciality
goods companies were intensifying their cooperation. They
seek synergy benefits especially in goods purchasing, management
and customer relationship management. At the same
time, it was announced that Kesko's reporting system would be
changed so that the primary reportable segments are the food
trade, the home and speciality goods trade, the building and
home improvement trade, and the car and machinery trade
with effect from 1 January 2009. During the first quarter of 2009,
Kesko will publish the comparative information in accordance
with its new segment reporting structure (stock exchange release
on 12 December 2008).
Events after the end of the reporting period
On 1 January 2009, Kesko Agro Ltd demerged so that the agricultural
trade activities in Finland became part of Rautakesko
Ltd. In addition, the trade of tractors and combines, as well as
the agricultural and machinery trade companies in the Baltic
countries became part of Konekesko Ltd (stock exchange release
on 28 May 2008).
Anttila Oy, K-citymarket Oy (home and speciality goods) and
the other Kesko Group home and speciality goods companies
intensify their cooperation. As of 1 January 2009, the Kesko
Group's primary reportable segments are the food trade, the
home and speciality goods trade, the building and home
improvement trade, and the car and machinery trade (stock
exchange release on 12 December 2008).
Information contained in the notes to the financial statements
Information on the Group's personnel is disclosed in note 8.
The Group's financial and share performance indicators with
calculation formulas are disclosed in note 48.
Information on share ownership structure, major shareholders
and management's shareholdings is disclosed in note 49.
Information on options, shares under options and voting
rights is disclosed in note 37.
Related party transactions are disclosed in note 46.
The Kesko Group is not engaged in significant research and
development activities.
In April 2009, Kesko will publish a separate corporate responsibility
report which analyses the Group's performance in economic,
social and environmental responsibility. An assurance
statement will be provided by an independent external party.
Risk management
The Kesko Group has established a risk management process
based on the risk management policy approved by the Board of
Directors. The divisions assess the risks in connection with the
strategy cycle and prioritise them according to their criticality
and management level. Risk assessments are updated on a
quarterly basis. Also Group units have assessed the risks threatening
the Group objectives and the risk management. Risks
and their management has been discussed by the division parent
companies' and the Group's management. Separate risk
analyses have been carried out for major projects.
On the basis of the Divisions' and Group units' risk analyses,
the Corporate Risk Management Unit has prepared summaries
of major risks and their management on a quarterly basis. The
resulting risk report has been handled by Kesko Corporation's
Board of Directors' Audit Committee. The main risks and uncertainties
have been reported in the interim financial reports.
The effects of the recession
The international financial crisis and its impact on economic
development, consumer confidence, availability of finance and
investment readiness have greatly added to uncertainties in
Kesko's operating environment, especially in the building
materials, car and machinery, and home and speciality goods
trade in Kesko's operating countries. Consumer demand has
weakened especially in Latvia and Estonia. With regard to consumer
demand in Russia, the crude oil price trend is a key
factor.
The recession has caused consumers' confidence about their
own finances to fall. Consumers are increasingly price conscious
and careful about buying, especially more expensive products.
In addition, risks relating to the profitability and financing of
business customers and retailers grow as consumer demand
weakens. All of this has a negative effect on Kesko's sales development
and increases default risks.
Currency risks and counterparty risks relating to financial
instruments have increased. Among Kesko's operating countries,
only Finland belongs to the euro area. The currencies of Norway,
Sweden and Russia have weakened against the euro. The risk of
devaluation has increased in the Baltic countries. As a result of
the financial crisis, profitable low-risk investment of liquid
assets has become more difficult.
Other risks
- Considerable amounts of capital and lease liabilities are tied up in store properties for years. Failures in ongoing store site investments, international expansion projects or programmes aimed at more efficient operations, or their delayed implementation can put growth and profitability at risk.
- Suppliers' choices for product selections and distribution channels, bankruptcies or business restructurings can influence the availability of products in stores.
- The trading sector is characterised by increasingly complicated and long supply chains and a dependency on information systems, telecommunications and external service providers. Disturbances in the supply chain can cause major losses in sales and profit.
- Failure in the protection of personal information and card payments could cause losses, claims for damages and the degrading of reputation.
- A failure in the quality assurance of the supply chain or in product control may result in financial losses, the loss of customer confidence or, in the worst case, a health hazard to customers.
- Shrinkage causes significant financial losses for the retail trade. Shrinkage results, for example, from spoiled or damaged goods, theft or other malpractice, and unsuccessful purchasing. Recession entails a growing risk of financial malpractice.
- Implementation of strategies requires competent and motivated personnel. There is a risk that the trading sector will not attract the most skilled people. The recession is likely to temporarily improve the availability of labour.
- Non-compliance with legislation, agreements and Kesko's ethical principles can result in fines, compensation for damages and other financial losses, and a loss of confidence or reputation.
- The goal of Kesko's communications is to produce and publish reliable information at the right time. If some information published by Kesko proves to be incorrect or a release fails to meet regulations, this may result in investors and other stakeholder groups losing confidence and in possible sanctions.
More information about Kesko's business risks and uncertainties and their management responses, as well as Kesko's risk management system and principles is given in notes 44 and 45 and Kesko's website at www.kesko.fi. Other risks and uncertainties relating to profit performance are described in the Group's future outlook.
Future outlook
Estimates of the future outlook for the Kesko Group's net sales
and operating profit excluding non-recurring items are given
for the 12 months following the reporting period (1/2009–
12/2009) in comparison with the 12 months preceding the
reporting period (1/2008–12/2008).
The development of the Group's operating activities is
affected by the economic outlook in its different market areas
and especially by the growth rate of private consumption. During
the past months, the economic outlook has continued to
weaken as a result of the aggravated problems in the financial
market and the contraction in the real economy. Private consumer
demand is expected to decelerate in the Nordic and Baltic
countries owing to lower levels of consumer confidence and
higher levels of saving. It is also expected that difficulties in the
availability of financing will weaken the demand of businesses
and consumers.
The steady development in the food trade is expected to continue.
Market development is expected to weaken especially in
the construction sector, the car and machinery trade, and the
home and speciality goods trade.
The increasing uncertainty about the economic outlook makes
any statement about the Group's future outlook significantly
more difficult. In consequence of the weakening economic
development, the Kesko Group's net sales and operating profit
excluding non-recurring items from continuing operations in
2009 are expected to remain at a lower level compared with the
net sales and operating profit excluding non-recurring items of
2008. The Group's liquidity and solvency are expected to remain
strong.
Proposal for profit distribution
The parent's distributable profits are €1,011,234,459.96 of which
the profit for the period is €236,710,599.08.
The Board of Directors proposes to the Annual General Meeting
to be held on 30 March 2009 that the distributable profits be
used as follows:
€1.00 per share, or a total of 97,851,050.00, be distributed as
dividends.
Consistent with the dividend policy, the Board of Directors'
proposal for dividend distribution takes the company's financial
position and operating strategy into account.
€300,000.00 be reserved for charitable donations at the discretion
of the Board of Directors.
€913,083,409.96 be carried forward in equity.
