Interim report 1.1.-31.3.2004: Profit before extraordinary items EUR 20.6 million
The Group’s net sales in January-March 2004 were EUR 1,751 million, which is 13.0% more than in the corresponding period of the previous year (EUR 1,549 million). The Group’s profit before extraordinary items was EUR 20.6 million (EUR 20.0 million). Non-recurring items excluded, the profit grew by EUR 11.5 million. Earnings per share were EUR 0.14 (EUR 0.12). Equity per share was EUR 13.21 (EUR 14.13).
Market review
According to advance information, the volume of the Finnish wholesale trade in January-February 2004 increased by 2.0% over the corresponding period of the previous year. The increase in retail trade was 5.5% (Statistics Finland).
The Research Institute of the Finnish Economy (ETLA) forecasts that the volume of both wholesale and retail trade will increase in Finland this year by about 3%.
Domestic demand and slowly recovering exports will maintain the growth of the Finnish economy. The Finnish GDP is estimated to grow this year by 2.9% and private consumption by 2.7%. Investments are estimated to accelerate to a growth rate of 1.7%. According to forecasts, the annual increase in consumer prices will remain below 1% (Research Institute of the Finnish Economy ETLA). Price development in the food trade may be slightly negative owing to decreased alcohol prices, the Baltic states’ admission to the EU and price competition.
Statistic Finland’s consumer survey of April shows that Finnish consumers are confident about their own financial situation and the future of the Finnish economy.
The Estonian economy is forecast to grow in 2004 by about 5%, and the Latvian and Lithuanian economies by about 6-7%. Private consumption is estimated to grow by about 5% in all of the Baltic states. In Estonia and Latvia, consumer prices are forecast to increase by about 3%, while in Lithuania, prices are forecast to more or less remain at the level of the previous year (Nordea). Retail trade is forecast to experience fair growth in the Baltic countries.
The Swedish economy is forecast to increase by about 2.5% in 2004. Private consumption is also estimated to grow by about 2.5%. The growth of consumer prices is anticipated to remain below 1% (Konjunkturinstitutet). Building investments are forecast to experience an overall decline of about 4% this year. However, house building is forecast to increase by about 1% this year and by about 2% in 2005 (Byggindustrier).
The market and future outlook of each of Kesko’s business divisions are reviewed in the respective sections of this interim report.
Net sales and profit
Net sales
The Group’s net sales in January-March 2004 were EUR 1,751 million, which is 13.0% up on the corresponding period of the previous year (EUR 1,549 million). The increase was attributable mostly to domestic hardware and builders’ supplies, home and speciality goods and car trade operations and to the Baltic trade. The Group’s net sales increased by 8.0% in Finland and by 65.4% abroad.
| Net sales by division | 1-3/ 2004 | 1-3/ 2003 | Change |
| EUR million | EUR million | % | |
| Kesko Food, Finland | 797 | 784 | 1.7 |
| Kesko Food, foreign countries* | 68 | 53 | 27.6 |
| Kesko Food, total | 865 | 837 | 3.4 |
| Rautakesko, Finland | 171 | 147 | 16.1 |
| Rautakesko, foreign countries*, ** | 76 | 34 | (..) |
| Rautakesko,total | 247 | 181 | 36.5 |
| Kesko Agro,Finland | 147 | 146 | 0.3 |
| Kesko Agro, foreign countries* | 45 | 23 | 98.8 |
| Kesko Agro, total | 192 | 169 | 13.5 |
| Keswell, Finland | 170 | 146 | 16.4 |
| Keswell, foreign countries* | 7 | 7 | 6.9 |
| Keswell, total | 177 | 153 | 16.0 |
| VV-Auto, Finland | 190 | 141 | 34.2 |
| VV-Auto, foreign countries* | 3 | 4 | -8.9 |
| VV-Auto, total | 193 | 145 | 33.2 |
| Kaukomarkkinat,Finland | 51 | 53 | -5.1 |
| Kaukomarkkinat,foreign countries* | 26 | 17 | 55.5 |
| Kaukomarkkinat, total | 77 | 70 | 9.6 |
| Other units - eliminations | 0 | -6 | |
| Finland, total | 1,526 | 1,413 | 8.0 |
| Foreign countries, total* | 225 | 136 | 65.4 |
| Group total | 1,751 | 1,549 | 13.0 |
*Exports and net sales abroad
** Change over 100%
During the period under review, exports and foreign operations accounted for 12.9% (8.8%) of net sales. Rautakesko’s subsidiary, UAB Senuku Prekybos centras (Senukai), acquired from Lithuania is included in the figures starting from 13 March 2003 and its impact on Rautakesko’s growth was 20.2 percentage points.
Profit
During the period under review, the Group’s profit before extraordinary items and taxes was EUR 20.6 million (EUR 20.0 million), representing 1.2% of net sales (1.3%). Operating profit was EUR 21.6 million (EUR 20.0 million). The biggest increases in profits were registered by Keswell, VV-Auto and Rautakesko. The other divisions, except for Kesko Food, increased their profits compared with the corresponding period in the previous year.
The operating profit includes profits and losses from sales of fixed assets and business operations and value adjustments to a total net value of EUR 1.0 million (EUR 11.9 million). Consequently the operating profit excluding non-recurring items was EUR 12.5 million bigger than in the corresponding period of the previous year.
The Group’s financial income and expenses were EUR -1.0 million (EUR -0.0 million).
Earnings per share were EUR 0.14 (EUR 0.12). Equity per share was EUR 13.21 (EUR 14.13).
| Operating profit bydivision | 1-3/ 2004 | 1-3/ 2003 | Change, | Change |
| EUR million | EURmillion | % | EUR million | |
| Kesko Food* | -0.8 | 7.9 | (..) | -8.7 |
| Rautakesko* | 3.1 | 0.4 | (..) | 2.7 |
| Kesko Agro* | 2.4 | 0.6 | (..) | 1.7 |
| Keswell | -2.7 | -10.3 | 74.1 | 7.6 |
| VV-Auto | 8.7 | 5.8 | 49.4 | 2.9 |
| Kaukomarkkinat* | 2.5 | 1.0 | (..) | 1.5 |
| Common operations | 8.4 | 14.6 | -42.5 | -6.1 |
| Group’s operating profit | 21.6 | 20.0 | 7.8 | 1.6 |
| Associated companies | 0.1 | 0.1 | -1.8 | 0.0 |
| Net financial income | -1.1 | -0.1 | (..) | 1.0 |
| Profit before taxes | 20.6 | 20.0 | 3.1 | 0.6 |
* Change over 100%
The operating profit from real estate is included in the operating profit of common operations. It also includes the net expenses or income of other common operations, as well as Group items, such as corporate management expenses and amortisation of goodwill on consolidation.
Investments
The Group’s investments totalled EUR 37.8 million (EUR 69.7 million), which is 2.2% (4.5%) of net sales. Investments in retail stores and company acquisitions amounted to EUR 29.8 million. The Group’s other investments were EUR 8.0 million. Investments in foreign business operations represented about 33.5% of total investments.
Finance
Cash flow from operating activities was EUR -46.7 million (EUR -50.5 million), while cash flow from investing activities was EUR -22.7 million (EUR -43.0 million). At the end of the period, the equity ratio was 43.4% (47.5%). Interest-bearing net debt was EUR 282.8 million (EUR 297.9 million). Liquid funds totalled EUR 143.8 million (EUR 150.8 million).
Personnel
During the period under review, the Kesko Group’s average personnel was 16,096 (13,144) converted into full-time employees. There was an increase of 2,952 persons over the corresponding period in the previous year. In Finland, the increase was 138 persons on average and 2,814 outside Finland.
At the end of March 2004, the total personnel was 18,999 (17,148), of whom 11,966 (11,633) worked in Finland and 7,033 (5,515) worked outside Finland. Compared with the figure for the end of March 2003, there was an increase of 333 persons in the figure for Finland and 1,518 outside Finland, distributed by business division as follows:
| Number of employees, average | 1-3/ 2004 | 1-3/ 2003 | Change |
| Kesko Food | 7,310 | 6,461 | 849 |
| Rautakesko | 3,837 | 1,947 | 1,890 |
| Kesko Agro | 952 | 892 | 60 |
| Keswell | 2,504 | 2,348 | 156 |
| VV-Auto | 190 | 110 | 80 |
| Kaukomarkkinat | 763 | 794 | -31 |
| Others | 540 | 592 | -52 |
| Total | 16,096 | 13,144 | 2,952 |
| Number of employeesat 31 March* | 31.3.2004 | 31.3.2003 | Change |
| Kesko Food | 8,996 | 7,871 | 1,125 |
| Rautakesko | 4,165 | 3,690 | 475 |
| Kesko Agro | 1,014 | 947 | 67 |
| Keswell | 3,249 | 3,071 | 178 |
| VV-Auto | 198 | 114 | 84 |
| Kaukomarkkinat | 799 | 825 | -26 |
| Others | 578 | 630 | -52 |
| Total | 18,999 | 17,148 | 1,851 |
* total number of employees, including part-time employees
The biggest increases were registered in the Baltic countries where Kesko Food, Rautakesko and Kesko Agro increased their operations. The biggest increase took place in Lithuania, where Rautakesko acquired in March 2003 a majority in the hardware and building supplies company, Senukai, which employs a total of 2,829 persons. The impact on the average figures for three months is 1,914 persons.
Kesko Food’s personnel decreased in Finland when Citymarket Oy’s home and speciality goods business was re-organised into three categories instead of the former five. The increase in Keswell Ltd’s personnel was mainly attributable to the growth in the number of stores operated by Interwell and Jättipörssi. The number of VV-Auto employees increased as a result of the acquisition of Airiston Auto.
Divisions
Kesko Food
In January-March, Kesko Food’s net sales amounted to EUR 865 million, an increase of 3.4%. Net sales from Baltic operations totalled EUR 66.5 million and accounted for 7.7% of total net sales. Kesko Food’s operating loss was EUR 0.8 million. In the previous year, the operating profit for the corresponding period was EUR 7.9 million, which included the profit from the divestiture of Viking Coffee Ltd’s business operations. The main factors contributing to the decrease in profit for the period under review were the costs of building and implementing new systems for operations control and costs effected in testing the Cassa discounter concept. Kesko Food’s total investments were EUR 8.4 million, of which investments in retail stores accounted for EUR 6.7 million. About 29% of all investments were made in Baltic operations.
According to the Finnish Food Marketing Association, the retail sales of its member companies increased by 1.3%. In January-March, prices increased only slightly owing to intensive price competition, decreased alcohol prices and growth in the sales share of retail operators’ own brands. During the first quarter, the retail sales of the K-food stores in Finland grew by 1.9%, amounting to EUR 1,057 million (incl. VAT). Owing to the differing local and regional markets and competitive situation, there were great differences between the retail sales growth of the chains and individual K-food stores. In terms of euros, the sales of the K-citymarket chain recorded the biggest growth, about EUR 27 million, or an increase of 8.1%. Grocery sales accounted for 10.4% of this. The sales figures of the neighbourhood store chains are affected by chain modifications among other things. There were 1,118 K-food stores operating at the end of the review period.
The operations of Pikoil Oy, a joint venture of Kesko Food Ltd and a Fortum subsidiary, Neste Marketing Ltd operating in the neighbourhood and service station store markets, has developed as planned. At the end of the period under review, there were a total of 59 K-pikkolo neighbourhood stores and K-pikkolo service station stores, and the joint venture had a total of 137 store sites. In the future, all of the chain’s food stores will operate under the K-pikkolo sign, whereas the service station stores will continue selling oil products under the Neste sign.
In February, Kesko Food started testing discounters in Finland. There are currently 10 Cassa stores in operation. The objective is to improve the competitive base of the K-Alliance by testing the new concept in various parts of the country.
Kesko Food’s grocery trade grew much more in the Baltic countries than in Finland, by a total of 29.1%. Net sales grew by 11.2% in Estonia and by 184.0% in Latvia. The growth in these countries was boosted by the opening of new Citymarket stores at the end of the year 2003 and by the expansion of the SuperNetto discounter chain by four new outlets at the beginning of the year. At the end of the review period, the Säästumarket chain in Estonia included a total of 45 discount stores and there were 15 SuperNetto stores in Latvia.
On 19 December 2003, Kesko Food Ltd and the Swedish ICA AB signed a letter of intent to establish a joint venture for the Baltic food market. The aim is to combine the parties’ current operations in Estonia, Latvia and Lithuania. Kesko Food and ICA would both have a 50% ownership in the joint venture. After the parties have completed a due diligence procedure they intend to sign the final agreements and obtain the necessary permissions so that the joint venture could start operating in summer 2004.
The net sales of Kespro Ltd, which provides services for the catering, kiosk, service station and restaurant trade, were EUR 174 million (EUR 169 million), an increase of 3.0%. The total market in Finland in this sector has decreased during the beginning of the year due to the decrease of alcohol products among other things.
In 2004, the total food trade market in Finland is estimated to grow more slowly than in the previous year. The total Baltic market is anticipated to increase by about 5%. Kesko Food’s net sales are expected to at least match the market growth in Finland and to exceed market growth in the Baltic countries.
Rautakesko
In January-March, Rautakesko’s net sales amounted to EUR 247.3 million, an increase of 36.5%. In Finland, the net sales were EUR 171.3 million, an increase of 16.1%. The net sales of foreign subsidiaries were EUR 75.8 million, an increase of 127.5%. About 30% of Rautakesko’s net sales came from foreign countries.In January-March, Rautakesko’s operating profit was EUR 3.1 million (EUR 0.4 million), although the performance was affected by costs related to the implementation of a new information system. Rautakesko’s investments totalled EUR 1.8 million. 52% of investments were abroad.
In Finland, new private building is anticipated to begin growing slowly owing to the low interest rate level and consumer’s confidence in the future, which has remained positive. However, industrial and office building activity is weak (Ministry of Finance).
At the end of March, the K-rauta hardware and builders’ supplies chain included 43 stores, while the Rautia chain included 102 stores in Finland. The sales of the K-rauta stores grew by 13.2% and the sales of the Rautia stores by 10.2%. Building supplies categories and house sales recorded the biggest sales growth. The sales of Rautakesko’s Industrial and Constructor Sales unit increased by 17.2%. The Rautakesko chains’ sales growth in Finland clearly exceeded that of the competition.
In Sweden, a new K-rauta was opened in Sundsvall in March. The operations of the outlet in Sickla, Stockholm will be transferred to Täby, Stockholm due to a lease expiry. There are currently 11 K-rauta stores in Sweden, 4 in Estonia and 1 in Latvia.
Since March, 2003, Rautakesko has held a majority in Lithuania’s biggest hardware and building supplies company, UAB Senuku Prekybos centras, which operates 10 Senukai superstores and 50 partner stores. The acquisition of Senukai made Rautakesko the market leader in the Baltic countries. The company has exceeded the set targets. Its net sales are included in Rautakesko's figures as of 13 March 2003.
In 2004, the total hardware and builders’ supplies market in Finland and in Sweden is estimated to grow by some 3-4% and in the Baltic countries by some 6-7%. Rautakesko’s net sales are expected to exceed market growth in 2004.
Kesko Agro
In January-March, the Kesko Agro Group’s net sales were EUR 192 million, an increase of 13.5%. Net sales of foreign subsidiaries totalled EUR 36.5 million, which was 19.0% of total net sales. The Kesko Agro Group’s operating profit was EUR 2.4 million (EUR 0.6 million). Profit performance was affected by costs arising from information systems development. Investments totalled EUR 2.5 million, about 43% of which were in foreign targets.
Kesko Agro Ltd’s net sales were EUR 115.5 million. Delayed agricultural subsidies have slowed down the investments of Finnish farmers in production buildings. More expensive outward freight charges and low export prices weakened the profitability of the grain trade at the beginning of the year. K-Maatalousyhtiöt Oy will merge with its parent company, Kesko Agro Ltd, at the beginning of July 2004 according to plan.
Kesko Machinery Ltd’s net sales were EUR 40.2 million, a decrease of 5.7% over the corresponding period in the previous year. The company’s profitability is still good. Poor industry investment has affected the sales of heavy machinery. In addition, the transfer of Kesko Machinery’s garden machine trade to Rautakesko in September 2003 decreased sales. A new MAN lorry centre will open in Espoo in June 2004.
Agricultural and machinery sales in the Baltic countries have progressed better than expected. Business operations in Lithuania, in particular, have clearly increased. The profit performance of the Baltic operations have also exceeded expectations. The biggest net sales growth has been registered in the grain trade.
The purchasing power of the Baltic countries is expected to increase further after they have been admitted to the EU at the beginning of May 2004. The new agricultural and machinery trade centre of Kaunas has reached topping height and will open in June.
In 2004, the total agricultural trade market is estimated to grow by about 1% in Finland and by some 5-10% in the Baltics. In 2004, Kesko Agro’s net sales are expected to match the growth rate of the overall market and to exceed market growth in the Baltic countries.
Keswell
In January-March,Keswell’s net sales totalled EUR 177 million, an increase of 16.0%. The net sales of foreign operations amounted to EUR 6.9 million, representing 3.9% of total net sales. Keswell’s operating loss was EUR 2.7 million, which was EUR 7.6 million less than during the corresponding period in the previous year. Owing to the nature of home goods trading, Keswell’s profit is mainly generated during the last quarter. Investments totalled EUR 0.8 million.
Net sales of the Anttila Group totalled EUR 108.3 million, an increase of 16.6%. The sales of the Anttila department stores grew by 17.9% and the sales of Kodin Ykkönen department stores for home goods and interior decoration increased by 14.0%. Sales increased in all product lines. Anttila’s distance sales (mail order sales and NetAnttila) grew by 18.3%, which was particularly attributable to NetAnttila. The operating loss of the Anttila Group was EUR 3.1 million, which is EUR 6.6 million smaller than in the corresponding period in the previous year.
The net sales of Kesko Sports amounted to EUR 33.4 million, an increase of 23.0%. The retail sales of the Intersport store chain grew by 23.0% thanks to a successful winter season. The sales of the Kesport stores rose by 21.8%.
The net sales of Kesko Musta Pörssi amounted to EUR 27.0 million, up by 7.7%. The retail sales of the Musta Pörssi chain increased by 16.4%. The increase was partly due to the higher number of stores and partly to the increase of sales in digital and information technology products and household appliances.
The net sales of Kesko Shoes decreased by 2.8%, totalling EUR 6.4 million. The retail sales of the K-kenkä chain dropped by 2.9% those of the Andiamo chain by 8.6%. The sales of the Kenkäexpertti stores decreased by 1.5%. The whole shoe trade sector has been declining during the beginning of the year.
In 2004, the total home and speciality goods trade market in Finland is estimated to grow by about 2-3%. Keswell’s net sales are estimated to exceed market growth in 2004.
VV-Auto
In January-March, the net sales of the VV-Auto Group totalled EUR 193 million, representing an increase of 33.2%. The operating profit was EUR 8.7 million (EUR 5.8 million). Investments totalled EUR 2.2 million.
The growth of the total new car market in Finland continued during the beginning of the year. In January-March, registrations of new cars totalled 43,041 representing an increase of 16.2% over the corresponding period of the previous year. Registrations of new vans were up by 21.0%, totalling 4,037.
During the period under review, the market share of the cars imported by the VV-Auto Group totalled 15.1%. The number of registrations of new Volkswagens increased by 11.3%, that of Audi by 25.3% and that of Seat by 10.6% over the corresponding period of the previous year. Volkswagen’s market share in the van trade reached 16.8%.
The general positive mood in the Finnish car trade is expected to continue in 2004. VV-Auto’s net sales are estimated to increase in line with the intensive market growth.
Kaukomarkkinat
In January-March, the Kaukomarkkinat Group’s total sales, which includes the value of commission-based trade in addition to net sales, amounted to EUR 101.9 million, an increase of 16.7%. Net sales were EUR 76.8 million, representing an increase of 9.6%. The Group’s operating profit was EUR 2.5 million (EUR 1.0 million). Investments totalled EUR 0.4 million.
The biggest net sales growth was registered in trading with China, which was expanded to include new product groups. The sales of Telko, a Kaukomarkkinat subsidiary, increased in the other Nordic countries, partly as a result of the acquisition of ASM Sweden AB last year.
Operating profit grew in several profit units owing to increased sales revenue and efficient cost control. The biggest increase was registered in trading with China and Russia and in the operations of Kauko Electronics. In 2004, the net sales of Kaukomarkkinat are expected to increase markedly.
Decisions by the Annual General Meeting
Kesko Corporation’s Annual General Meeting held on 29 March 2004 adopted the income statement and balance sheet and the consolidated income statement and balance sheet for 2003 and discharged the members of the Board of Directors and the Managing director from their responsibilities. As proposed by the Board of Directors, the Annual General Meeting decided to pay a dividend of EUR 2.00 per share, or a total amount of EUR 182,249,600.00. The record date is 1 April 2004 and the dividends are payable from 8 April 2004.
The Annual General Meeting decided that the fees of the members of the Board of Directors will remain as they are. In addition, the Annual General Meeting decided that the members of possible committees will be paid the same fee for a committee meeting as is paid for a Board of Directors’ meeting. However, no fees will be paid to Board members employed by the Corporation, that is, to the President and CEO, Matti Honkala. The term of each of the eight members of the company’s current Board of Directors is three years in accordance with the Articles of Association. The term started on 31 March 2003 and will expire at the close of the Annual General Meeting of 2006.
The Annual General Meeting elected one auditor for the company, namely Authorised Public Accountants PricewaterhouseCoopers Oy, with Pekka Nikula, B.Sc. (Econ.), APA, as the auditor with principal responsibility.
The Annual General Meeting was attended by about 600 shareholders.
Boards of Directors of Kesko’s division parent companies
Kesko Food Ltd, Rautakesko Ltd, Kesko Agro Ltd, Keswell Ltd, VV-Auto Oy and Kaukomarkkinat Oy, the parent companies of the major sub-groups fully owned by the Kesko Group, elected the members of their Boards of Directors at their Annual General Meetings held on 26 March 2004. In accordance with the corporate governance statement of the Kesko Group, the Chairman of the Boards of Kesko Food Ltd, Rautakesko Ltd, Kesko Agro Ltd and Keswell Ltd is Kesko Corporation’s President and CEO. The Board members are elected from among the management of the Kesko Group. The Boards’ compositions were published in a stock exchange release on 26 March 2004.
Shares and the stock market
A total of 24,300 Kesko B shares were subscribed with C warrants under the year 2000 stock option scheme during 11-31 December 2003. The corresponding increase in share capital, EUR 48,600, was entered in the Trade Register on 6 February 2004. The new B shares were included in the main list of the Helsinki Exchanges for public trading with old B shares on 9 February 2004. Kesko Corporation’s share capital increased to a total of EUR 182,429,600. 34.8% of all shares are A shares and 65.2% are B shares.
The price of a Kesko A share was EUR 18.20 at the end of 2003, and EUR 17.50 at the end of the review period, a fall of 3.8%. The B share price was EUR 13.88 at the end of 2003 and EUR 14.30 at the end of the review period, a rise of 3.0%.
During the period under review, the HEX general index grew by 11.7% and the HEX portfolio index by 4.3%. The trading sector index dropped by 0.7% during the review period.
At the end of the review period, the market value of A shares was EUR 555 million and that of B shares EUR 850 million, with the total market capitalisation of the company being EUR 1,406 million.
During the review period, 0.6 million A shares were traded on the Helsinki Exchanges at a total value of EUR 12.0 million, while 30.8 million B shares were traded at a total value of EUR 481.6 million.
On 11 February 2004, Jättipörssi Oy, a Kesko Corporation subsidiary, sold the 34,400 Kesko Corporation A shares it held to the Kesko Pension Fund. After this transaction, neither Kesko Corporation nor its subsidiaries hold any company shares. The selling price was EUR 19.90 per share, or a total amount of EUR 684,560.
Flagging notifications
On 16 February 2004, Kesko Corporation was notified that, on 13 February 2004, the share of Kesko Corporation’s voting rights held jointly by the K-Retailers' Association, its branch clubs and the Foundation for Vocational Training in the Retail Trade had increased to 10.08%. At the end of 2003 they held a total of 9.76% of Kesko Corporation's voting rights.
Adoption of the IAS/IFRS standards
Kesko will prepare its first complete IFRS financial statements for 2005. The opening IFRS balance sheet prepared for the transition day of 1 January 2004 has been prepared in accordance with standards in force in April 2004.
Effects of IFRS standards on Kesko’s balance sheet at 1.1.2004.
| FASEUR million | IFRSEUR million | EUR million | |
| Assets | 1.1.2004 | 1.1.2004 | Difference |
| Non-current assets | |||
| Intangible assets | 223 | 164 | -59 |
| Tangible assets | 1,013 | 1,218 | +205 |
| Investments | 68 | 222 | +154 |
| Current assets | |||
| Stocks | 677 | 669 | -8 |
| Receivables | 690 | 702 | +12 |
| Marketable securities | 23 | 28 | +5 |
| Cash on hand and at bank | 63 | 65 | +2 |
| Total | 2,757 | 3,068 | +311 |
| Liabilities | |||
| Shareholders’ equity | 1,375 | 1,478 | +103 |
| Minority interest | 40 | - | -40 |
| Provisions | 24 | 24 | - |
| Liabilities | |||
| Deferred tax liability | 62 | 104 | +42 |
| Other liabilities | 1,256 | 1,462 | +206 |
| Total | 2,757 | 3,068 | +311 |
Summary of the effects of IFRS standards on shareholders’ equity at 1.1.2004.
| EURmillion | 1.1.2004 |
| Shareholders’ equity FAS | 1,375 |
| IFRSadjustments: | |
| IAS 1 Presentationof financial statements (minority interest) | 35 |
| IAS 12Incometaxes | -41 |
| IAS 17Leases | -37 |
| IAS 19Employeebenefits (pensions) | 142 |
| IAS 31Jointventures and associated companies | 10 |
| IAS 36Impairmentof assets | -6 |
| EquityIFRS | 1,478 |
In accordance with IAS 1, minority interests are presented in equity in the IFRS balance sheet. On the basis of IAS 12, deferred tax balances have been recognised on all taxable IFRS differences that influence equity. The opening balance liabilities include deferred tax liabilities, relating to IFRS differences, to the amount of EUR 40 million, set off in compliance with IAS 12.
Leases, sales and leaseback transactions that fulfil the IAS 17 criteria have been recognised in compliance with the standard. The opening IFRS balance includes EUR 88 million in buildings financed with leases and EUR 34 million in other property, plant and equipment financed with leases. In addition, the opening IFRS balance includes EUR 22 million in leases with Kesko as the lessor.
The Group’s retirement benefit plans have been recognised in compliance with IAS 19 and all accumulated actuarial gains and losses have been recognised in the balance sheet of the transition date. EUR 167 million have been recognised in the opening IFRS balance sheet corresponding to the amount by which the fair value of the assets of Kesko Pension Fund exceeds the obligations caused by the plan. In addition, an obligation of EUR 25 million has been recognised in the long-term liabilities of the opening IFRS balance sheet for future disability pensions of persons whose retirement plan is provided by an employment pension insurance company.
According to IAS 36, it should be assessed whether there is any indication that an asset may be impaired. If any such indication exists, the recoverable amount of the asset is to be estimated. As a result, an impairment loss of EUR 6 million has been recognised for property, plant and equipment in the opening IFRS balance sheet.
Before the first interim report for 2005, Kesko will publish a separate stock exchange release including the IFRS accounting policies, comparison figures and reconciliation calculations for 2004 with respect to the Finnish Accounting Standards.
Main events in January-March
Kesko Food centralised Citymarket Oy’s accounting in its Accounting Service Centre in Tampere and in its Lahti unit. The reorganisation will improve the efficiency of Citymarket Oy’s accounting and generate cost savings. Because of the reorganisation, Kesko Food initiated a co-operation procedure on 16 January 2004 in the Lahti and Turku units. The co-operation procedure ended on 8 March 2004. 11 persons from the Lahti unit and 9 from the Turku unit had to be given notice. The Turku unit was discontinued altogether, while 18 employees remained in the Lahti unit to take care of the accounting of the Citymarket hypermarkets.
Kesko Food is testing discount stores in various parts of Finland. The first Cassa stores were opened in Anjalankoski, Haukipudas, Jämsänkoski and Ylivieska. Further stores were opened in Kajaani, Kotka, Mänttä, Vantaa, Viitasaari and Virrat. Decisions on the length of the test and on continuation activities will be made later this year.
On 26 March 2004, the Helsinki District Court decided to totally dismiss the actions of eight former K-citymarket retailers against Kesko Corporation. In their actions pending since 2001 and now dismissed they primarily claimed compensation to a total of EUR 13.8 million from Kesko for notices claimed to have been contrary to agreements. The District Court ordered the claimants to pay Kesko’s legal costs. The decision of the District Court is not legally binding.
On 16 April 2004, the Finnish Competition Authority granted an exemption to Kesko Corporation’s subsidiary Kesko Food Ltd, on the basis of which it can decide the highest retail prices for Pirkka products and some other products sold at K-food store chains. The exemption is valid until the end of 2004. Maximum prices can be determined for those products included in the chain selection of each K-food store chain which do not account for more than 35 percent of the average sales of the stores in each size category of the chain, calculated annually afterwards, and for all Pirkka products. The exemption now granted is an extension to the exemptions concerning K-food store chains which were granted by the Finnish Competition Authority in 2001 and whose validity it extended in December 2003 until 30 April 2004. The exemptions granted by the Finnish Competition Authority in 2001 concerning Rautakesko Ltd’s, Kesko Agro Ltd’s and Keswell Ltd’s chains remain valid until 31 December 2005.
Future outlook
Intense international competition in trading continues in Finland in most product lines. The chain operations of Kesko and the K-retailers will be developed further, particularly in purchasing, information management and marketing.
Among the Group’s divisions, hardware and builders’ supplies trade and home and speciality goods trade are expected to exceed market growth in Finland and the other divisions to at least match the market growth, specified in the market review. Thanks to the expansion of operations, international sales continue to grow vigorously in the Baltic countries. The Group’s net sales are expected to reach the level of EUR 7.5 billion in 2004.
The Group’s steady profit performance will continue. Kesko Group’s operating profit excluding non-recurring items for the next six months is estimated to exceed the level of the corresponding period in the previous year.
Helsinki, 29 April 2004
Kesko Corporation
Board of Directors
The figures of this interim report are unaudited.
For further information, please contact Juhani Järvi, Executive Vice President, CFO, telephone +358 1053 22209, or Arja Talma, Vice President, Corporate Controller, telephone +358 1053 22113. A web conference about the interim report Q1/
2004 will be held in English at 14.30 hrs (Finnish time). Link to the web conference is available at: www.kesko.fi.
KESKO CORPORATION
Corporate Communications
Erkki Heikkinen
Senior Vice President
ATTACHMENTS
Group’s net sales by division
Consolidated income statement and balance sheet
Group’s key indicators
Group’s cash flow
Group’s contingent liabilities
Group’s key indicators by quarter
Divisions’ net sales and operating profits by quarter
K-Alliance’s retail sales
Kesko Corporation’s interim report for the first 6 months of the year will be published on 30 July 2004 and the interim report for the first 9 months of the year will be published on 29 October 2004. In addition, Kesko Group’s sales figures and the K-Alliance’s retail sales figures are published each month. News releases and other company information are available on Kesko’s Internet pages at www.kesko.fi.
DISTRIBUTION
HEX Helsinki Exchanges
Main news media
ATTACHMENTS:
| Group’s net sales by division | 1.1.-31.3.2004 | 1.1.-31.3.2003 | |
| EUR million | EURmillion | Change% | |
| Kesko Food | |||
| NeighbourhoodChain Unit | 192 | 211 | -9.2 |
| SupermarketChain Unit | 180 | 174 | 3.9 |
| CitymarketChain Unit | 231 | 214 | 7.8 |
| Kespro Ltd | 174 | 169 | 3.0 |
| Kesko Food, Estonia | 51 | 46 | 11.2 |
| SIA Kesko Food, Latvia* | 15 | 5 | (..) |
| Others | 10 | 2 | - |
| ./.eliminations | 12 | 16 | - |
| Total | 865 | 837 | 3.4 |
| Rautakesko | |||
| Rautakesko Ltd | 172 | 149 | 15.7 |
| K-rauta AB | 16 | 14 | 11.0 |
| AS Rautakesko, Estonia | 10 | 7 | 32.6 |
| A/SRautakesko, Latvia | 4 | 4 | 4.6 |
| SenukaiGroup** | 45 | 7 | (..) |
| (as from13 March 2003) | |||
| ZAOKestroy, Russia* | 1 | 1 | (..) |
| ./.eliminations | -1 | -1 | - |
| Total | 247 | 181 | 36.5 |
| Kesko Agro | |||
| Kesko Agro Ltd | 115 | 112 | 3.2 |
| KeskoMachinery Ltd | 40 | 43 | -5.7 |
| K-maatalousyhtiöt Oy | 37 | 37 | -0.2 |
| Kesko Agro Eesti AS | 10 | 7 | 44.8 |
| SIA Kesko Agro Latvia* | 11 | 5 | (..) |
| UAB Kesko Agro Lietuva* | 15 | 4 | (..) |
| ./.eliminations | -36 | -39 | - |
| Total | 192 | 169 | 13.5 |
| Keswell | |||
| Anttila Group | 108 | 93 | 16.6 |
| Kesko Sports | 33 | 27 | 23.0 |
| Kesko Musta Pörssi | 27 | 25 | 7.7 |
| KeskoShoes | 6 | 7 | -2.8 |
| Others | 3 | 1 | - |
| Total | 177 | 153 | 16.0 |
| VV-AutoGroup | 193 | 145 | 33.2 |
| KaukomarkkinatGroup | 77 | 70 | 9.6 |
| Othersubsidiaries - eliminations | - | -6 | - |
| GROUP TOTAL | 1,751 | 1,549 | 13.0 |
* Change over 100%, ** Comparable change 40.0%
| Consolidated income statement (EUR million) | ||||
| 1-3/ 2004 | 1-3/ 2003 | Change% | 1-12/ 2003 | |
| Net sales | 1,751 | 1,549 | 13.0 | 7,070 |
| Otheroperating income | 110 | 121 | -9.4 | 482 |
| Materials and services | -1,528 | -1,364 | 12.0 | -6,169 |
| Personnel expenses | -104 | -91 | 14.2 | -390 |
| Depreciation and value adjustments | -29 | -32 | -8.8 | -110 |
| Other operating expenses | -178 | -163 | 9.2 | -726 |
| Share of associated companies’ profit (loss) | 0 | 0 | -10.6 | 1 |
| Operatingprofit | 22 | 20 | 7.8 | 158 |
| Financial income and expenses* | -1 | -0 | (..) | 4 |
| Profitbefore extraordinary items | 21 | 20 | 3.1 | 162 |
| Extraordinary income | ||||
| Extraordinary expenses | ||||
| Profitbefore taxes | 21 | 20 | 3.1 | 162 |
| Income taxes | -6 | -8 | -22.9 | -58 |
| Minorityinterest* | -1 | -1 | (..) | -8 |
| Profit | 13 | 11 | 15.1 | 96 |
| * Change over 100% | ||||
| Consolidated balance sheet (EUR million) | 31.03.2004 | 31.03.2003 | Change % | 31.12.2003 |
| Assets | ||||
| Non-current assets | ||||
| Intangible assets | 219 | 201 | 8.8 | 223 |
| Tangible assets | 1,022 | 903 | 13.1 | 1,013 |
| Investments | 63 | 137 | -53.9 | 68 |
| Current assets | ||||
| Stocks | 692 | 632 | 9.6 | 677 |
| Receivables | ||||
| Long-term receivables | 48 | 55 | -13.5 | 49 |
| Short-term receivables | 704 | 723 | -2.6 | 641 |
| Marketable securities | 100 | 68 | 46.9 | 23 |
| Cash onhand and at bank | 44 | 83 | -46.8 | 63 |
| Total | 2,892 | 2,802 | 3.2 | 2,757 |
| 31.03.2004 | 31.03.2003 | Change % | 31.12.2003 | |
| Liabilities | ||||
| Shareholders’equity | 1,205 | 1,288 | -6.4 | 1,374 |
| Share capital | 182 | 182 | 0.1 | 182 |
| Other shareholders’ equity | 1,023 | 1,106 | -7.5 | 1,192 |
| Minorityinterest | 42 | 36 | 16.4 | 41 |
| Provisions | 24 | 21 | 15.5 | 24 |
| Liabilities | ||||
| Deferred tax liability | 58 | 58 | 0.6 | 62 |
| Non-current debt | 100 | 159 | -37.1 | 103 |
| Current debt | 1,462 | 1,240 | 17.9 | 1,153 |
| Total | 2,892 | 2,802 | 3.2 | 2,757 |
| Group’s key indicators | ||||
| 03/ 2004 | 03/ 2003 | Change % | 12/ 2003 | |
| Return on invested capital, % | 6.2 | 5.8 | 6.9 | 10.9 |
| Return on invested capital, %, moving 12 months | 11.1 | 8.0 | 38.8 | |
| Return on equity, % | 4.3 | 3.5 | 22.9 | 7.4 |
| Return on equity, %, moving 12 months | 8.3 | 5.3 | 56.6 | |
| Equity ratio, % | 43.4 | 47.5 | -8.6 | 51.7 |
| Investments, EUR million | 37.8 | 69.7 | -45.8 | 259.0 |
| Earnings per share, EUR, undiluted | 0.14 | 0.12 | 16.7 | 1.06 |
| Earnings/share, EUR | 0.14 | 0.12 | 16.7 | 1.05 |
| Equity/share, EUR | 13.21 | 14.13 | -6.5 | 15.07 |
| Personnel, average | 16,096 | 13,144 | 22.5 | 15,219 |
| Group’s cash flow, EUR million | ||||
| 03/ 2004 | 03/ 2003 | Change % | 12/ 2003 | |
| Operatingprofit | 21.6 | 20.0 | 7.8 | 157.6 |
| Depreciationand other adjustments | 29.8 | 20.6 | 44.9 | 102.6 |
| Change inworking capital | -89.0 | -85.4 | 4.2 | -51.2 |
| Financingitems and taxes | -9.1 | -5.7 | 60.5 | -44.5 |
| Cash flow from operating activities | -46.7 | -50.5 | -7.4 | 164.5 |
| Cash flow from investing activities | -22.7 | -43.0 | -47.3 | -120.5 |
| Cash flow before financing activities | -69.4 | -93.5 | -25.8 | 43.9 |
| Cash flow from financing activities | 127.5 | 71.0 | 79.5 | -131.5 |
| Group contingent liabilities (EUR million) | 03/ 2004 | 03/ 2003 | Change % | 12/ 2003 |
| For owndebt | 222 | 185 | 19.8 | 218 |
| Forassociated companies | 1 | 1 | 0.0 | 1 |
| Forshareholders | 1 | 1 | 0.0 | 1 |
| Forothers | 13 | 13 | -1.0 | 14 |
| Leasingliabilities | 70 | 49 | 41.7 | 60 |
| Liabilitiesarising from derivative | ||||
| Instruments | ||||
| Market value | ||||
| Value ofunderlying instruments at 31.3. | 03/ 2004 | 03/ 2003 | 31.03.2004 | 12/ 2003 |
| Interestrate derivatives | ||||
| Forward and future contracts | 77 | 6 | -0.38 | 6 |
| Option agreements | ||||
| Bought | - | |||
| Written | - | |||
| Interest rate swaps | 19 | 13 | -0.13 | 21 |
| Currencyderivatives | ||||
| Forward and future contracts | 132 | 107 | -1.37 | 125 |
| Option agreements | ||||
| Bought | - | |||
| Written | - | |||
| Currency swaps | - | |||
| Equitiesderivatives | ||||
| Forward and future contracts | - | |||
| Option agreements | ||||
| Bought | 7 | - | 0.04 | |
| Written | 0 | - | -0.01 | |
| Asset derivatives | ||||
| Electricity derivatives | 15 | 7 | 0.76 | 7 |
| Group’skey indicators by quarter | 1-3/ 2003 | 4-6/ 2003 | 7-9/ 2003 | 10-12/ 2003 | 1-3/ 2004 | |
| Net sales, EUR million | 1,549 | 1,827 | 1,816 | 1,878 | 1,751 | |
| Change in net sales, % | 6.9 | 8.1 | 11.3 | 10.8 | 13.0 | |
| Operatingprofit, EUR million | 20.0 | 44.1 | 48.0 | 45.5 | 21.6 | |
| Operating profit, % | 1.3 | 2.4 | 2.6 | 2.4 | 1.2 | |
| Financialincome/expenses, EUR million | -0.0 | 6.3 | -2.2 | -0.0 | -1.0 | |
| Profitbefore extraordinary items, EUR million | 20.0 | 50.4 | 45.7 | 45.5 | 20.6 | |
| Profitbefore extraordinary items, % | 1.3 | 2.8 | 2.5 | 2.4 | 1.2 | |
| Return oninvested capital, % | 5.8 | 12.4 | 11.9 | 12.4 | 6.2 | |
| R eturn onequity, % | 3.5 | 10.0 | 8.0 | 9.0 | 4.3 | |
| Equity ratio, % | 47.5 | 48.6 | 49.8 | 51.7 | 43.4 | |
| Investments,EUR million | 69.7 | 60.6 | 53.9 | 74.8 | 37.8 | |
| Earnings/share, EUR | 0.12 | 0.34 | 0.27 | 0.31 | 0.14 | |
| Equity/share, EUR | 14.13 | 14.49 | 14.76 | 15.07 | 13.21 | |
| Divisions’ net sales by quarter, EUR million | 1-3/ 2003 | 4-6/ 2003 | 7-9/ 2003 | 10-12/ 2003 | 1-3/ 2004 | |
| Kesko Food | 837 | 953 | 959 | 1,017 | 865 | |
| Rautakesko | 181 | 280 | 281 | 253 | 247 | |
| Kesko Agro | 169 | 237 | 179 | 183 | 192 | |
| Keswell | 153 | 151 | 180 | 242 | 177 | |
| VV-Auto | 145 | 161 | 139 | 113 | 193 | |
| Kaukomarkkinat | 70 | 62 | 77 | 76 | 77 | |
| Commonoperations - eliminations | -6 | -17 | 1 | -6 | 0 | |
| Group’s net sales | 1,549 | 1,827 | 1,816 | 1,878 | 1,751 | |
| Divisions’ operating profits by quarter, EURmillion | 1-3/ 2003 | 4-6/ 2003 | 7-9/ 2003 | 10-12/ 2003 | 1-3/ 2004 | |
| Kesko Food | 7.9 | 9.1 | 18.3 | 21.1 | 0.8 | |
| Rautakesko | 0.4 | 10.9 | 12.2 | 4.6 | 3.1 | |
| Kesko Agro | 0.6 | 9.3 | 1.3 | -3.8 | 2.4 | |
| Keswell | -10.3 | -2.8 | 0.1 | 16.5 | 2.7 | |
| VV-Auto | 5.8 | 6.3 | 5.3 | 4.9 | 8.7 | |
| Kaukomarkkinat | 1.0 | -0.4 | 3.8 | 1.7 | 2.5 | |
| Commonoperations | 14.6 | 11.7 | 7.0 | 0.5 | 8.4 | |
| Group’s operating profit | 20.0 | 44.1 | 48.0 | 45.5 | 21.6 | |
K-Alliance’s retail sales 1-3/2004 (incl. VAT) (advance information):
1.1.- 31.3.2004 | ||
| EUR million | Change, % | |
| K-Alliance’s food stores | ||
| K-citymarket | 357.0 | 8.1 |
| K-supermarket | 322.4 | 2.6 |
| K-market | 254.2 | -3.5 |
| K-extra | 75.6 | -14.8 |
| K-pikkolo | 21.4 | 16.0 |
| Other K-food stores and mobile stores | 26.2 | 17.3 |
| Finland, total | 1,056.8 | 1.9 |
| Citymarket, Estonia | 21.3 | 56.5 |
| Säästumarket, Estonia | 36.0 | 11.0 |
| Citymarket, Latvia* | 11.8 | (..) |
| Supernetto, Latvia* | 6.0 | (..) |
| Foreigncountries, total | 75.1 | 32.2 |
| Food stores, total | 1,131.9 | 3.4 |
| K-Alliance’s hardware and builders’ supplies stores | ||
| K-rauta | 88.6 | 13.2 |
| Rautia | 63.5 | 10.2 |
| Finland, total | 152.1 | 12.0 |
| K-rauta, Sweden | 20.0 | 10.8 |
| K-rauta, Estonia | 11.3 | 32.4 |
| K-rauta, Latvia | 5.2 | 4.7 |
| Senukai, Lithuania* | 52.9 | (..) |
| Foreign countries, total* | 89.4 | (..) |
| Hardware and builders’ supplies, total | 241.5 | 44.3 |
| K-Alliance’s agricultural stores | ||
| K-agriculture | 110.2 | -1.6 |
| Finland,total | 110.2 | -1.6 |
| Kesko Agro Eesti | 11.9 | 47.0 |
| Kesko Agro Latvia* | 12.2 | (..) |
| Kesko Agro Lietuva* | 16.5 | (..) |
| Foreigncountries, total* | 40.6 | (..) |
| Agriculturalstores, total | 150.8 | 15.2 |
| K-Alliance’shome and speciality good stores | ||
| Anttila department stores | 76.9 | 17.9 |
| KodinYkkönen department stores for home goods and interior decoration | 30.7 | 14.0 |
| Anttiladistance trade (NetAnttila and mail order sales) | 17.3 | 18.3 |
| Intersport | 61.3 | 23.0 |
| Kesport | 6.2 | 21.8 |
| Musta Pörssi | 37.4 | 16.4 |
| K-kenkä | 4.3 | -2.9 |
| Andiamo | 4.4 | -8.6 |
| Kenkäexpertti | 3.1 | -1.5 |
| Finland, total | 241.6 | 17.3 |
| Foreigncountries, total | 5.9 | 5.8 |
| Homeand speciality goods stores, total | 247.5 | 17.0 |
| Tähti Optikko chain | 12.0 | 5.3 |
| Finland, total | 1,572.7 | 4.7 |
| Foreigncountries, total | 211.0 | 87.1 |
| Retailsales, total | 1,783.7 | 10.4 |
* Change over 100%
2 K-rauta stores and 43 Rautia stores also operate as K-agricultural stores. Their sales are partly included in the sales of the hardware and builders’ supplies stores and partly in the sales of agricultural stores.
