Frontpage separator Year 2009 separator Review by the President and CEO

Marri Halmesmäki in Fiskars Orange Thumb happening

Review by the President and CEO

A year for adjustment

In all of Kesko’s business divisions and operating countries, the recession had a major impact on the operating environment of the trading sector and on the willingness of customers to consume.

In 2009, we cut costs and adapted our business according to the prevailing market situation. We also had to decrease the number of employees, particularly in the building and home improvement and in the car and machinery trade.

Positive performance in all divisions

The grocery sales of K-food stores increased by 5.6% and clearly exceeded market growth. The popularity of Pirkka products continued. The full reduction in the value added tax on retail sales of food, which took effect in autumn 2009, was implemented in the prices of K-food stores. Kesko Food’s return on capital was the best of all times.

In the home and speciality goods trade, sales development during the latter part of the year clearly improved from the previous year. The sales and profitability of K-citymarket and Intersport improved throughout the year. Anttila, too, had brisk Christmas sales that exceeded expectations.

The halt in construction caused by the recession made 2009 a difficult year for the building and home improvement trade in all the operating countries and particularly in business-to-business trade. The building and home improvement segment managed to reduce costs and stocks and keep trade receivables under control. This contributed to a clear profit despite the recession.

In the car and machinery trade, sales and profits decreased as demand declined. The market share of Audi, Volkswagen and Seat, the brands imported by VV-Auto, increased during the year and the number of new orders grew clearly towards the end of the year.

Aiming at profitable growth

Kesko’s solvency, cash flow and liquidity are at an excellent level. A strong balance sheet and good financial standing provide Kesko with opportunities for making investments during recession, too.

When making investment decisions, we take the market situation and customer demand of the particular country into consideration. We will continue to actively develop the store network.

We will continue to investigate opportunities for expanding the food trade into international markets, particularly in Russia.

K-Plussa provides customers with diversified benefits

The K-Plussa customer loyalty programme provides total services for every K-retailer, store and chain of the K-Group to better cater for their customers and increase customer satisfaction.

More than 3.6 million Finns now have a K-Plussa customer loyalty card. The K-Plussa customer loyalty programme achieved the landmark of two million households in 2009 after more than 100,000 new households had joined. The K-Plussa network comprises over 3,500 outlets throughout Finland.

By concentrating their purchases, K-Plussa customers get diversified benefits. We utilise customer information obtained with the card when planning store-specific selections, targeting our marketing, and planning the store network.

We want to be the most attractive workplace in the trading sector

Kesko and its chains’ K-retailer entrepreneurs employ some 45,000 professionals and experts in trade. The wellbeing, competence and improvements in labour productivity of our employees are important to us. We will continue long-term projects in different companies for promoting wellbeing at work. We will improve labour productivity primarily by enhancing the efficiency of operating practices.

The Master Sales Assistant Training, organised by our own training centre, the K-instituutti, is one of the largest annual vocational training events for adults in Finland. The Master Sales Assistant Training was attended by more than 17,000 students in 2009.

We continue our sustainability work and are committed to energy savings

Kesko has established a top ranking in comparisons measuring the sustainability of international listed companies.

Kesko is included in the Dow Jones sustainability indexes, DJSI World and DJSI STOXX, and also in the FTSE4Good indexes, for example. We also continue on the ‘The Global 100 Most Sustainable Corporations’ list published by the World Economic Forum.

We are proud for the appreciation shown by international independent sustainability experts and different assessment institutes towards our work.

This work will continue: we have drawn up a comprehensive responsibility programme for 2008–2012. The programme sets concrete targets, for instance, for combating climate change, wastage reduction, transportation, responsible purchasing and employee wellbeing.

As part of the implementation of the responsibility programme we have signed the trading sector energy efficiency agreement and committed to saving more than 65 GWh by the end of 2016.

Thanks to employees, shareholders, K-retailers and all business partners

I wish to extend my warmest thanks to all Kesko employees for their diligence and for a job well done. I would also like to thank all shareholders, K-retailers and their staff, and all our business partners for good cooperation during 2009.

Matti Halmesmäki
President and CEO