'Expectation' sculpture

Review by the President and CEO

Kesko's profitability improvement was excellent

Growth in business operations gained speed towards the end of 2010 and the development in profitability was excellent throughout the year. The food trade and the home and speciality goods trade achieved record performance. Kesko's solvency and liquidity continued to strengthen.

In the food trade, efficiency and performance have continued to improve and sales growth has been better than the market. The home and speciality goods sales took a moderate turn upward after the recession. K-citymarket's, Anttila's, Intersport's, Asko's and Sotka's profit improvements are significant. The turn in the building and home improvement trade boosted sales and also improved profit. Profit in the car and machinery trade increased as expected. The market share of Volkswagen and Audi increased.

We aim at profitable growth in Finland
and nearby areas

In addition to the Finnish market, Kesko aims at profitable growth in nearby areas. The direction for growth is, above all, the large and fast growing market in Russia, where Kesko is continuing to further strengthen the network of building and home improvement stores. We are also investigating opportunities for expanding the food trade, the car and machinery trade, and the sports trade into Russia.

The core of K-food stores' competitive advantages lies in superior selections of fruit, vegetables, bakery products, meat, fish and ready-to-eat meals, as well as Pirkka products. They have a crucial impact on where customers most often choose to shop and on customer loyalty. Competitiveness will be improved by continuing the strong development of the store network.

In the home and speciality goods trade, competitiveness will be improved by enhancing the current online stores and electronic services and opening new ones. Anttila's new logistics centre will ensure efficient warehousing and distribution in e-commerce too.

The network of building and home improvement stores will be expanded in Finland and our other operating countries, particularly in Russia, over the next few years. Competitiveness will be enhanced by investing in centrally directed sourcing and selections development, as well as in the joint enterprise resource planning system and logistics network.

Our aim is to increase the commitment of
K-Plussa customers

K-Plussa is the K-Group's joint customer loyalty system, which helps K-Group retailers, stores and chains improve customer satisfaction and attention. K-Plussa is the most extensive and diverse customer loyalty programme in Finland. More than 3.6 million Finns already have the K-Plussa customer loyalty card. Customer information is used when planning selections and pricing, in marketing and when planning the store network.

Chip&pin terminals came to K-stores

Following the European practice, Finland adopted international chip&pin payment cards at the end of 2010. Updating payment systems to the new era is a major project in the Kesko Group and the K-Group, starting from selecting a joint payment terminal for some 1,400 K-Group stores in Finland, approximately 7,000 terminals in all. Security of payments, ease of use and reliability were highlighted when selecting the terminal. All stores will have new chip&pin terminals by the summer of 2011.

Personnel

Kesko and its chain stores employ some 45,000 professionals and experts. Job satisfaction among our personnel and availability of competent employees are of primary importance. The key objective of the work and productivity programme launched in 2008 is to increase labour productivity in Kesko and the chains' stores. The most important tools for improving productivity include increasing personnel competence and management, as well as the efficiency of operating practices.

Kesko has also launched a new, extensive project to improve wellbeing at work.

Responsibility

Kesko has been working for sustainability on a long-term basis and has an established position in comparisons measuring sustainability.

Kesko was included in the Dow Jones sustainability indexes, DJSI World and DJSI Europe, for the eighth time. In the 2010 international comparison, Kesko gained the sector's best score in operational eco-efficiency, environmental reporting, risk management, and anti-corruption and anti-bribery practices.

Kesko's Corporate Responsibility Report was selected as the second best in the 'Corporate Responsibility Reporting 2010' competition in Finland.

Kesko's responsibility programme covers the period 2008–2012 and the updating will start during 2011. The Corporate Responsibility Report provides information on the objectives and performance of the programme with various indicators and case examples.

Kesko 70 years

In January 2011 we celebrated Kesko's 70th anniversary by working towards continued success. Kesko was established on 14 October 1940 by four regional wholesale companies – Oy Savo-Karjalan Tukkuliike, Keski-Suomen Tukkukauppa Oy, Kauppiaitten Osakeyhtiö and Maakauppiaitten Osakeyhtiö – which had been founded by retailers. Kesko was entered in the Trade Register on 3 January 1941, which marked the start of business operations.

On Mother's Day, Kesko and K-retailers donated sculptor Pekka Jylhä's 'Expectation', depicting an expectant mother, to the City of Helsinki. The bronze sculpture is located in Kaivopuisto Park in Helsinki. The sculpture project is part of Kesko's corporate responsibility.

Thanks to employees, shareholders,
K-retailers and all business partners

I wish to extend my warmest thanks to all Kesko employees for their diligence and for a job well done. I would also like to thank all shareholders, K-retailers and their staff, and all our business partners for good cooperation during 2010.

Matti Halmesmäki
President and CEO