Building and technical trade strategy

08.03.2019

The building and technical trade division’s strategic objective is to become an even stronger operator in Northern Europe. To ensure a solid foundation for the execution of our international growth strategy, in 2018 we concentrated on improving our profitability through acquisitions and streamlining of operations.

K Group’s building and technical trade division is a leading operator in building and technical trade in Northern Europe. During 2018, we strengthened the country focus of both our management model and business operations, and made good progress in the execution of country-specific strategies. In Finland, Onninen’s good sales growth continued and K-Rauta’s profit development was strong. In the leisure trade, Intersport and Kookenkä maintained their positions as Finland’s leading sports and shoe store chain, respectively. Sales grew for the Budget Sport and The Athlete`s Foot chains.

In the division’s other operating countries, our market position varies significantly. In Norway, we actively sought to increase our profitability during the year, and carried out two targeted acquisitions for the Byggmakker chain, agreeing on a third. The acquisitions enabled us to significantly increase our operating profit. In Sweden, we actively continued measures to improve profitability. In Poland, we managed to turn the operations into profit. Kesko Senukai’s strong sales performance continued and profitability improved in the Baltics.

Our goal is to offer an efficient combination of online sales, electronic services, professional sales staff and a comprehensive store network to best suit the needs of each of our customer segments. We are constantly developing our digital services. Particularly good development has been seen in the OnnShop online store for Onninen’s technical professional customers.

To further strengthen our digital foothold, we acquired 1A Group, a leading online retail company in the Baltic region, thus becoming the largest omnichannel retail player in the Baltics and obtaining a comprehensive e-commerce platform to serve our customers in Estonia, Latvia and Lithuania.

During the year, we focused our operations by divesting our building and home improvement trade operations in Russia, and by agreeing to sell our remaining stake in the Baltic machinery trade subsidiaries and Konekesko Finland’s agricultural machinery trade operations.Acquisitions enable the division to better seek new opportunities for growth and improved profitability on the stable Northern European markets.

Megatrends and strategic focus areas

Megatrends affecting building and technical trade

Market consolidation
Outsourcing of construction to professionals
Growth in renovation building
Non-traditional players entering the market
Digital becoming increasingly important for the customer journey

STRATEGIC OBJECTIVE	WHAT WE ARE DOING
Country focus, with country-specific strategic actions	Finland: We focus on fully utilising the potential provided by our market-leading position and on constantly improving the customer experience: expanding Onninen’s store network and developing store-specific business ideas for K-Rauta. Norway: We seek growth in sales and profitability by strengthening Byggmakker’s business and management model Sweden: We continue measures to improve profitability The Baltics and Belarus: We focus on growing and redesigning our store network Poland: We systematically develop our business operations
Serving three different customer segments according to their specific customer needs	Continuing the development of digital channels for each customer segment Striving for the best customer experience in all channels
Seeking synergies	We are actively seeking synergies within the operating countries, for example, in support functions, as well as between the operating countries, for example, in sourcing, digital services and concept development
Organic growth and profitability improvement	We continue systematic measures to support growth and profitability Increasing the role of our own brand products
Targeted acquisitions	We continue acquisitions in selected markets and segments

Markets

The building and home improvement trade market by country, along with the improvement from the previous year (retail trade, VAT 0%), market shares and main competitors
Market area	Market size and change	Market share	Main competitors
Finland	€3.2 billion (+1.4 %), (RaSi ry, Finnish Hardware Association, DIY)	42% (RaSi ry, Finnish Hardware Association, DIY)	STARK, S Group, Bauhaus
Sweden	€4.8 billion (+2.4%), (HUI&Byggmaterialhandlarna and Kesko’s own estimate)	4%*	Bauhaus, Beijer, Byggmax, XL Bygg, Optimera, Woody
Norway	€5.1 billion (+4.6 %), (Virke)	10% (Virke)	Optimera, Mestergruppen, Coop, Maxbo
Estonia	€0.6 billion (+5.9%)**	16%**	Espak, Bauhof, Ehituse ABC
Latvia	€0.6 billion (+13.3%)**	12%**	Depo, Kursi
Lithuania	€1.1 billion (+6.5%)**	34%**	Ermitazas, Moki-Vezi, Depo
Belarus	€1.2 billion (+14.5%)*	11%*	Mile, Materik, Praktik

* Kesko’s own estimate

**K-Senukai’s selection, Kesko’s own estimate

Onninen’s market by country, along with the improvement from the previous year (retail trade, VAT 0%), market shares and main competitors
Market area	Market size and change	Market share	Main competitors
Finland	€2.2 billion (+4.1%), (STK, LVI-TEK)	38% (STK, LVI-TEK)	Dahl, Ahlsell, SLO, Rexel
Sweden	€3.7 billion (+4.5%), (SEG, RGF)	4% (SEG, RGF)	Dahl, Ahlsell, Elektroskandia, Rexel
Norway	€1.3 billion (+5.1%), (EFO, electrotechnical trade)	18% (EFO)	Elektroskandia, Solar, Ahlsell, Berggård Amundsen
Poland	€5.2 billion (+10.0%)*	5%*	GC Group (BIMs, HTI, Hydrosolar), Tadmar, Grudnik, TIM, Kaczmarek, Alfa Elektro, Grodno
Estonia	€0.4 billion (+7.5%)*	13%*	FEB (Ahlsell), SLO, W.E.G (Würth)
Latvia	€0.4 billion (+6.2%)*	5%*	Sanistal, EVA-SAT, SLO, Energokomplekss
Lithuania	€0.5 billion (+6.4%)*	3%*	Sanistal, Dahlgera, Elektrobalt, SLO

* Kesko’s own estimate

The leisure goods market in Finland, along with the improvement from the previous year (retail trade, VAT 0%), market shares and main competitors
Market	Market size and change	Market share	Main competitors
The sports trade	Around €0.9 billion (+1.5%), (Textile and Fashion Suppliers and Retailers Finland TMA and Kesko’s own estimate)	Intersport, Budget Sport, The Athlete's Foot ja Kesport 28%*	Stadium, XXL, Sportia, hypermarkets
The shoe trade	Around €0.3 billion (-7.6%), (Textile and Fashion Suppliers and Retailers Finland TMA and Kesko’s own estimate)	Kookenkä and Kenkäexpertti 10%*	Other speciality stores, department stores, hypermarkets, sports stores and online stores

* Kesko’s own estimate

Chains

ONNINEN
Onninen serves technical wholesale business customers and is the market leader in its field in Finland. Onninen offers an extensive selection of products and service packages to contractors, industry, infrastructure building and retail dealers. Through the network of Onninen Express stores, efficient logistic integrated services and multichannel shopping experience, Onninen is the reliable companion of a professional.

There are around 150 Onninen Express stores and Onninen points of sale in Finland, Sweden, Norway, Estonia, Latvia, Lithuania and Poland. In addition, Onninen provides comprehensive services to professionals through electronic channels.

K-RAUTA
K-Rauta is the market leader in the building and home improvement trade, and according to surveys the most trusted building and home improvement store chain in Finland. The chain serves both professional builders and consumers. K-Rauta has the most extensive store network in Finland and a versatile online store. K-Rauta offers products and services for building, renovation, yard and garden, interior decoration and home furnishing.

K-Rauta’s experts want to make building, renovation and shopping at building and home improvement stores surprisingly easy, leaving professional builders with more time for efficient work. In Finland, all K-Rauta stores are run by retailer entrepreneurs. K-Rauta has 135 stores in Finland and 17 stores in Sweden.

BYGGMAKKER
Byggmakker is one of the leading operators in the building and home improvement trade in Norway. Byggmakker has a network of 65 stores. Byggmakker has strong B2B expertise both locally and globally. Approximately half of the stores are owned by Kesko and another half operate under the retailer business model.

K-SENUKAI
Kesko Corporation’s joint venture Kesko Senukai is the leading building and home improvement operator in the Baltics and one of the leading online store operators in Estonia, Latvia and Lithuania. K-Senukai’s stores offer a wide selection of products related to building and living to customers in the Baltics. There are a total of 39 stores in the K-Senukai network of stores in Latvia and Lithuania, eight stores in Estonia, and an online store.

OMA
OMA is the largest building and home improvement store chain in Belarus serving both professional builders and consumers. The OMA chain offers a wide selection of products related to building and living. The chain has 17 stores in Belarus.

KONEKESKO
Kesko Corporation announced on 6.7.2018 that it will sell its remaining stake in its Baltic machinery trade subsidiaries and Konekesko Finland’s agricultural machinery trade operations. The completion of the transactions is waiting for the approval of competition authorities.

LEISURE TRADE CHAINS

INTERSPORT
Intersport is Finland's market leader in the sports trade and, as surveys show, the most trusted sports store in Finland. The Intersport chain comprises 54 stores and an extensive online store. The chain's success is based on extensive selections of sports and leisure products, good service, high-quality products, diverse maintenance services and on providing an expert shopping experience, both in-store and online.

BUDGET SPORT
There are ten Budget Sport stores across Finland. The stores strive to beat competition by making the shopping of sports trade products quicker, easier and less expensive. A diverse online store complements the customer experience.

THE ATHLETE’S FOOT
The Athlete’s Foot is a retailer of sporty leisure footwear and clothing. The chain represents the world's best known sports goods brands and models, and it aims to promote its customers' passion for sport and bring a touch of style into their lives. The chain has six stores and an online store in Finland.

KOOKENKÄ
Kookenkä is Finland’s largest shoe store chain for the whole family. The chain's 36 stores and online store cover the whole country.

Onninen’s partnership chains

The Elfin chain is a national network of independent electrical contractors. The Elfin chain offers electrical products and services with more than 220 independent electrical contractors across Finland.

The Hanakat chain is a retail network of independent HEPAC entrepreneurs in Finland. The chain comprises around 80 independent entrepreneurs who offer their HEPAC solutions and overall services to consumers.

The Elfag chain is one of Norway’s biggest electrical contractor chains. It includes around 120 business members.

Building and technical trade in figures

	Number		*Sales (pro forma) (VAT 0%), € million**
Retail sales and number of stores	2018	2017	2018	Change, %
K-Rauta and Rautia	135	136	1,055	2.1
Rautakesko B2B Service	-	-	262	5.8
Onninen, Finland	56	53	897	8.2
Machinery trade, Finland	-	-	28	-4.5
Leisure trade, Finland**	141	146	284	-0.5
Finland, total	332	335	2,526	4.2
K-Rauta, Sweden	18	17	175	-12.4
Onninen, Sweden	13	18	156	-22.5
Byggmakker, Norway	65	82	520	-19.0
Onninen, Norway	25	25	272	-6.6
Kesko Senukai, Baltic countries	40	39	642	16.1
Onninen, Baltic countries	15	15	77	11.2
Machinery trade, Baltic countries	-	-	147	8.8
OMA, Belarus	17	17	128	7.2
Onninen, Poland	36	35	240	10.2
Other countries, total	229	248	2,358	-3.0
Building and technical trade, total	561	583	4,884	0.6
* The pro forma comparatives have been calculated to illustrate a situation in which the divestments of the K-maatalous agricultural business, the Asko and Sotka furniture trade, the Yamarin boat business and Yamaha representation, and other divestments in the machinery trade completed in 2017, the discontinuation of the Russian building and home improvement trade operations in spring 2018, and the acquisition of 1A Group in autumn 2018 had been completed on 1 January 2017. ** Including Kesport and Kenkäexpertti stores 32 (35).
In addition, building and technical trade stores offer e-commerce services to their customers.
Two Onninen stores in Finland and one Onninen store in Sweden operate in the same store premises with K-Rauta.

Key figures			2018	2017
Net sales, € million			4,103	4,302
Building and technical trade excl. speciality goods trade			3,728	3,639
Speciality goods trade			375	663
Operating profit, comparable, € million			98.4	95.2
Building and technical trade excl. speciality goods trade			92.4	78.9
Speciality goods trade			6.0	16.2
Operating margin, comparable			2.4	2.2
Building and technical trade excl. speciality goods trade			2.5	2.2
Speciality goods trade			1.6	2.4
Return on capital employed, comparable, %, rolling 12 months			10.3	10.3
Capital expenditure, € million			200.7	63.7
Personnel, average			11,663	11,967

Properties			2018	2017
Owned properties, capital, € million			169	329
Owned properties, area, 1,000 m²			235	393
Leased properties, lease liabilities, € million			904	786
Leased properties, area, 1,000 m²			1,169	1,115