Kesko to discontinue its building and home improvement trade operations in Russia
Kesko Corporation has agreed today to sell 12 building and home improvement store properties in Russia to Leroy Merlin Vostok LLC, a Russian division of the French Leroy Merlin. Leroy Merlin is the biggest building and home improvement store chain in Russia. The transaction price paid for the properties in cash is approximately RUB 12 billion (some €169 million).
“In accordance with its strategy, Kesko is focusing on the grocery trade, building and technical trade, and car trade. In recent years, we have significantly grown our building and technical trade. Our objective is to grow sales and improve profitability especially in the stable and growing Northern European markets. We have decided to withdraw from the Russian market. Our investments in Russia have not met the objectives set for them, and expanding our operations in Russia outside St. Petersburg and Moscow would have required significant additional investments. The transaction will have a minor impact on Kesko’s net sales and operating profit, but it will significantly improve our return on capital employed,” says Mikko Helander, Kesko’s President and CEO.
In 2017, Kesko had 14 K-Rauta stores in Russia. In the transaction, Kesko sells 12 K-Rauta properties in the St. Petersburg and Moscow regions. The business operations conducted in the properties and stocks are not included within the scope of the transaction; instead, those business operations will be discontinued during spring 2018. The ownership of the properties will transfer to the buyer in H1/2018. The operations of two K-Rauta properties in the Moscow region not included in the transaction will be discontinued during H1/2018. Combined, the operations to be discontinued employ approximately 1,800 people. In 2017, Kesko’s building and home improvement trade operations in Russia recorded net sales of €184 million and a comparable operating profit of €0.6 million.
The divestment of the properties will result in a positive cash flow of €169 million for Kesko Corporation. In Kesko’s consolidated income statement, the discontinuation of the Russian building and home improvement trade operations is presented as discontinued operations for both this year and the comparison period. A gain on sale of approximately €10 million will be recorded in discontinued operations for the divested properties. The profit impact of the shutdown of operations in discontinued operations is estimated to be some €-20 million. Moreover, as a result of the discontinuation of Kesko’s Russian building and home improvement trade operations, negative exchange differences of approximately €-37 million included in equity in the consolidated statement of financial position will be recorded as expenses under discontinued operations in the consolidated financial statement.
Leroy Merlin is an international building and home improvement retail company with more than 450 stores all over the world. Leroy Merlin expanded to Russia in 2004 and currently has 75 stores in the country with more than 23,000 employees. Leroy Merlin is part of the privately owned French Groupe Adeo, which is the largest building and home improvement trade operator in Europe.
Kesko Corporation’s outlook for Q1/2018-Q4/2018 will remain unchanged, as stated in the financial statements release published on 1 February 2018: In comparable terms, the net sales for the next 12 months are expected to exceed the level of the previous 12 months. Due to divestments and restructuring, Kesko Group's net sales for the next 12 months are expected to fall below the level of the previous 12 months. The comparable operating profit for the next 12-month period is expected to exceed the level of the preceding 12 months. However, investments in store openings and redesigns, in the expansion of logistics operations, and in digital services will burden profitability during the period.
Jukka Erlund, Executive Vice President, Chief Financial Officer, Kesko Corporation, tel. +358 105 322 113, firstname.lastname@example.org
Jorma Rauhala, Deputy to President and CEO of Kesko Corporation, President of the building and technical trade division, tel. +358 105 322 211, email@example.com
Investors and analysts: Kia Aejmelaeus, Vice President, Investor Relations, Kesko Corporation, tel. +358 40 765 4616, firstname.lastname@example.org
Media: Jessica Diktonius, Vice President, Communications, building and technical trade division, tel. +358 40 709 9176, email@example.com
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Kesko and K-retailers form K Group, whose sales total €13 billion. K Group is the third largest retail operator in northern Europe and it employs approximately 42,000 people. Kesko operates in the grocery trade, the building and technical trade and the car trade. Its divisions and chains act in close cooperation with retailer entrepreneurs and other partners. Kesko's net sales are €10 billion and it employs approximately 25,000 people. Kesko has some 1,800 stores engaged in chain operations in Finland, Sweden, Norway, Estonia, Latvia, Lithuania, Russia, Belarus and Poland. Kesko is a listed company and its shares are listed on Nasdaq Helsinki. The company's domicile and main premises are in Helsinki. Kesko is the world's most sustainable trading sector company (The Global 100 Most Sustainable Corporations in the World). www.kesko.fi
Leroy Merlin is an international retail company selling goods for home, cottage and garden improvement, construction, and decoration. Leroy Merlin incorporates more than 450 stores all over the world and offers its customers a wide selection of quality goods, attractive prices, and a high level of services. Each store offers a wide range of products in five main areas: home, interior design, building materials, repair, and garden. The first Leroy Merlin hypermarket in Russia opened in 2004 in Mytishchi, Moscow Region. By 2018, 75 stores had been launched in our country. More than 23,000 people are employed at Leroy Merlin stores across Russia. «Low prices every day» – the concept, which unites all stores in Russia.