FINANCIAL PERFORMANCE IN BRIEF, CONTINUING OPERATIONS:
- The Group's net sales in January-March totalled €2,400.8 million (€2,413.2 million), a decrease of 0.6% in comparable terms
- Comparable operating profit was €57.5 million (€63.8 million)
- Comparable operating profit was impacted by acquisitions that increased seasonal profit fluctuations, which had a €-3.6 million impact, and by a decline in car trade sales and operating profit, mainly related to the implementation of WLTP testing, which meant that the division recorded an operating profit of €7.7 million, €3.4 million less than in the comparison period
- Operating profit was €51.6 million (€60.4 million)
- Comparable return on capital employed was 9.5% (9.8% in 1-12/2018) (rolling 12 months)
- Comparable profit before tax was €34.6 million (€38.3 million)
- Comparable earnings per share were €0.33 (€0.34)
- In comparable terms, the net sales for continuing operations for the next 12 months are expected to exceed the level of the previous 12 months. The comparable operating profit for continuing operations for the next 12-month period is expected to exceed the level of the preceding 12 months.
KEY PERFORMANCE INDICATORS
Adoption of IFRS 16 Leases
At the start of the financial year, the Group adopted the new standard IFRS 16 Leases, which took effect on 1 January 2019. The Group adopted the standard using a retrospective method, and reporting for the 2018 comparison period has been adjusted to be comparable. The change increases the comparable operating profit and capital employed for the first quarter, and decreases the return on capital employed. At Group level, the change increases the Group’s net finance costs and interest-bearing liabilities. The change has a significant impact on the presentation of the Group’s cash flows, as cash flow-based lease expenditure is partly presented under cash flow from operating activities and partly under cash flow from financing activities. The change does not have an impact on the Group’s cash flows overall.
Kesko Corporation has provided information on the implementation of IFRS 16 Leases in a 19 December 2018 release containing comparison figures for January-September 2018, in the 2018 financial statements release published on 6 February 2019, in the 2018 financial statements published on 8 March 2019, and in a 25 March 2019 release containing comparison figures for the full financial year 2018. Detailed information regarding the impacts of IFRS 16 Leases is provided in the Tables section of this release: information on impacts on the consolidated financial statements on page 31, and on operating profit and EBITDA by segment on page 26 and onwards.
PRESIDENT AND CEO MIKKO HELANDER:
Kesko’s good performance continued in the first quarter. In the grocery trade division, sales grew, market share strengthened and profitability improved further. In the building and technical trade division, sales grew markedly and profit was good considering the fact that due to seasonal fluctuation, operating profit tends to be lower in the first quarter than in other quarters. Operating profit for the car trade division was at a good level even though the implementation of the WLTP emissions testing has caused significant disturbances in car trade in Europe.
Changes were made to our financial reporting at the start of the year in line with the new accounting standard IFRS 16 Leases. Our comparable operating profit for the quarter calculated in accordance with the new standard totalled €57.5 million, while under the previous accounting practice, the figure would have been €34.9 million. The adoption of the standard does not, however, have a material impact on our profit before tax, which amounted to €34.6 million for the period.
Our reported operating profit of €57.5 million was down on the comparison period (€63.8 million). This was impacted, in particular, by the acquisitions carried out, which have increased profit seasonality, and by the decline in car trade sales due to the implementation of the WLTP emissions testing.
Net sales performance was good and operating profit grew in the grocery trade division despite the fact that Easter season this year fell on April. Customer numbers continued to grow in all our chains and K Group’s retail sales increased by 1.5%. This clearly exceeded the market growth of 0.4%. Online sales growth continued strong and totalled 110%. Operating profit improved thanks to the good sales performance and improved operational efficiency.
In the building and technical trade, net sales grew markedly. Development was particularly good in the Baltics, Finland and Poland. In Norway, growth was boosted by the acquisitions made to strengthen the Byggmakker chain. Operating profit development for the division was good, but as expected, did not reach the level of the comparison period due to the acquisitions in Norway and the Baltics, which have increased seasonality. Their impact on the comparable operating profit was a negative €3.6 million. We continued actions to improve profitability and strengthen market position in Sweden. The acquisition of the Fresks store chain will make Kesko one of the leading building and home improvement trade operators in the country. During the first quarter, we also announced we will divest Onninen’s loss-making contractor business in Sweden.
In the car trade division, operating profit was good despite the temporary decline in net sales caused by the implementation of the WLTP emissions testing. Uncertainties regarding car taxation and public debate ahead of the Finnish parliamentary elections over the choice of motive power also dampened consumer demand. At the start of the year, we expanded our dealer network by acquiring businesses from Huittisten Laatuauto and LänsiAuto. We expect the market disturbances to decrease and sales to normalise in the latter half of this year.
As a result of the successful execution of our growth strategy, we have significantly improved our profitability and have been able to meet the 14% target level set for return on capital employed in 2015. Following the adoption of the new standard IFRS 16 Leases, the Board of Directors of Kesko Corporation has approved new medium-term financial targets for the Group. For profitability, the new targets are a comparable operating margin of 5.0% and a comparable return on capital employed of 11.0%. As for financial position, the Group now targets a maximum interest-bearing net debt/EBITDA of 2.5, excluding the impact of IFRS 16.
The outlook for 2019 is good. Economic development in all our eight operating countries continues to be stable. Our growth strategy is working and we will continue its determined execution in an effort to become an even stronger and more customer-oriented company.
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