AGM 2007: Speech of Heikki Takamäki

Dear shareholders,
 
The year 2006 was a record year for the Kesko Group. The consolidated net sales grew by 10.4 per cent to €8.7 billion. Our operating profit was €357.8 million. Both results were the best in Kesko's history. Our foreign subsidiaries' net sales increased especially strongly, but our Finnish sales also performed very well. A special matter for delight was that the declining sales trend of the K-food stores came to a halt and turned to a rise in the second half of the year.
 
With respect to the 2006 result, Kesko's Board of Directors proposes, for the decision of the Annual General Meeting, the payment of a dividend of €1.50 per share. This proposal is in line with the principles of Kesko's long-term and published dividend policy. I would also like to add that Kesko's share price performed extremely well last year, rising by about 67 per cent.
 
After a moment, Matti Halmesmäki, President and CEO, will give a more detailed review of the Group's operations and key figures for last year.
 
Distinguished meeting guests,
 
Kesko is the largest and most international Finnish trading group. The Group's sales performance has been excellent and its growth has been healthy. Of great importance last year was also the fact that all our divisions were profitable. The market was buoyant and, for example, the interest shown in building, home decorating and renovating was really high, which was reflected in many of Kesko's business areas.
 
It is unlikely, however, that the trading market will continue to grow at such a high rate. In the future, the growth of trade and the maintenance of profitability will require that much more attention is paid to productivity and operational efficiency. It should be possible to improve productivity, but this will also require action from the public sector, the first step being to dismantle unfounded regulation. Studies show that trading in Finland is more regulated than the average for other countries such as Sweden and Norway.
 
Regulation reduces competition and slows down the introduction of new operating concepts. Many official decisions are aimed at restricting the functioning of the market – such as the regulations related to opening hours, the trading of alcohol and pharmaceuticals and the zoning of land for food stores, as well as certain interpretations of competition law which put chains of entrepreneurs in a more unfavourable position than others. It is high time to abolish these regulations in Finland.
 
But the improvement of productivity will also require the efficient utilisation of new technology in the trading sector. Information and communications technology is fuelling economic growth today in the same way that electric power did 100 years ago. Trading benefits greatly from these technologies and therefore has become an innovative, high tech sector. Bar codes, scanners, customer relationship management and enterprise resource planning systems, and electronic trading are examples of the application of new technology which has been of great benefit to trading. As an intensive user of information and communications technology, the growth prospects of the trading sector are better than those of many other sectors.
 
New technology also enables new services. As the importance of services grows in society, the role of trade as a service producer and provider is being highlighted. Kesko's store types and brands are constantly evolving, but, for the customer, we are trying, above all, to continuously create new, beneficial services.
 
Goods and services are being linked ever more closely to each other – as, for example, with home appliances and related installation and advisory services, or goods sold after being assembled in the hardware store. Rather than buying tiles, one can go to a hardware store and buy a whole bathroom planning and building service. In another example, the food store's "What are we having today?" concept offers customers recipes, ingredients and tips concerning the whole meal.
 
In addition to creating more efficient concepts, Kesko has carried out other major research and development projects. As an example of this I would mention Kesko's wide-ranging consumer and market research, and the tests conducted by the Product Research Unit, of which over 11,000 were done last year. In addition, Kesko has initiated a major cooperation programme with one of the world's leading universities of technology, MIT, in order to design products and services for living. Furthermore, Kesko is investigating ways of improving productivity in the trading chain together with the Helsinki and Turku Schools of Economics, the Helsinki University of Technology, the University of Tampere and various other partners.
 
Kesko has a highly skilled management and staff who are responsible for managing the chains, creating well-working concepts and fine-tuning the trading structures so that each entrepreneur is able to keep his or her customer promise. The enterprise of the K-retailers is the key competitive advantage of our trading group, and this has again been raised to its rightful place in Kesko's strategy. The professionally skilled K-retailers and their staff are able to adapt the store to local conditions, in just the way that serves their own customers the best. The local K-retailer is the guarantor of good service to the customer, of an appropriate product range and competitive pricing. With the help of the K-retailers, we can stand out from our competitors.
 
The K-retailers are also encouraged to take local initiatives by Kesko Food's new strategy. The strategy seems to be working because, during 2006, the sales of the K-food stores turned upwards and the positive trend looks like continuing.
 
Kesko has also grown rapidly abroad, particularly in Russia and the Baltic countries where the trading infrastructure and markets are still developing. Rautakesko, in particular, has succeeded very well both in Finland and abroad. For the first time in recent history, Rautakesko's business operations were profitable in all its countries of operation. Rautakesko's concepts are working well, the acquisitions made in 2005 have proven to be successful and operations have got off to a fine start. Russia now has seven K-rauta stores and the intention is to expand the network rapidly in the coming years. Altogether, Kesko has 162 hardware and builders' supplies stores outside Finland.
 
Operating internationally and growing vigorously in new markets requires not only a great deal of expertise, but also fruitful cooperation with local players.
 
The skills of the staff are critical to the K-Group's success. As is well known, the age groups are diminishing and there will be hard competition for good employees in the future. It will become increasingly difficult to find professionally skilled and motivated trading sector specialists.
 
Fortunately, the K-Group seems to be a sufficiently attractive employer. As an example of this, the recruitment campaign for new retailers implemented through TV advertising at the beginning of the year produced more than 500 applicants. The best of them were included in our high-quality K-retailer trainee programme to develop into entrepreneurs.
 
Immense interest was also engendered by the K-trainee programme launched last September, the aim of which was to train young professionals for jobs as managers or experts in the K-Group. The programme attracted applications from over 1,000 young people, of whom 20 commenced training at the beginning of this year.
 
Nor can we forget our present staff. Kesko has monitored job satisfaction on a sustained and regular basis since 1996. It is important to invest in the development of the staff and their competence, and this is one of Kesko's focus areas.
 
It is essential to take good care of our current skilled staff. Each of us must further develop our talents in order to cope with the new challenges that accompany continuous development. For this purpose we have our own, high-quality training centre, the K-instituutti. Only a highly skilled and enthusiastic staff can exceed our customers' expectations and thereby achieve excellent results.
 
Dear listeners!
 
On behalf of Kesko's Board of Directors, I want to thank all of our shareholders, the management and staff of the Kesko Group, the K-retailers and all of our cooperation partners for your successful collaboration.
 
I respectfully ask Matti Halmesmäki to convey the heartfelt thanks of the Board of Directors to the whole staff of the Group, both in Finland and abroad.
 
The Annual General Meeting is also intended, within the framework of the agenda, to be a forum for active discussion between the shareholders and the Board. The shareholders' meeting is the natural and right place for such an exchange of views.
 
I wish you all once more a warm welcome to the Annual General Meeting of Kesko Corporation.