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Kesko Oyj

10/29/2020 | Press release | Distributed by Public on 10/29/2020 01:05

Kesko Q3 2020: Kesko celebrates 80th anniversary with all-time record result

FINANCIAL PERFORMANCE IN BRIEF, CONTINUING OPERATIONS:

7-9/2020

  • Net sales for the Group's continuing operations in July-September totalled €2,651.9 million (€2,803.9 million); in comparable terms net sales increased by 4.6%, reported net sales decreased by 5.4%
  • The comparable operating profit totalled €181.8 million (€152.0 million), up by €38.2 million when
    Kesko Senukai is recognised as a joint venture also for the comparison period (illustrative comparison figures)
  • Operating profit totalled €224.6 million (€148.6 million)
  • Comparable earnings per share were €0.33 (€0.25)
  • Reported earnings per share for continuing operations were €0.48

1-9/2020

  • Net sales for the Group's continuing operations in January-September totalled €8,006.9 million (€7,986.1 million); in comparable terms net sales increased by 3.3%, reported net sales were flat year-on-year
  • The comparable operating profit totalled €402.1 million (€331.9 million), up by €74.4 million when
    Kesko Senukai is recognised as a joint venture also for the comparison period (illustrative comparison figures)
  • Operating profit totalled €444.6 million (€320.1 million)
  • Comparable earnings per share were €0.66 (€0.52)
  • Reported earnings per share for continuing operations were €0.81

KEY PERFORMANCE INDICATORS

7-9/2020

7-9/2019 1-9/2020 1-9/2019 1-12/2019
Continuing operations
Net sales, € million 2,651.9 2,803.9 8,006.9 7,986.1 10,720.3
Operating profit, comparable, € million 181.8 152.0 402.1 331.9 461.6
Operating margin, comparable, % 6.9 5.4 5.0 4.2 4.3
Operating profit, € million 224.6 148.6 444.6 320.1 447.8
Profit before tax, comparable, € million 163.6 129.3 331.5 263.1 370.7
Profit before tax, € million 220.0 154.8 389.3 297.6 403.3
Cash flow from operating activities, € million 286.6 191.6 844.0 619.9 893.1
Capital expenditure, € million 174.8 132.2 342.9 602.9 686.1
Earnings per share, €, basic anddiluted
Continuing operations 0.48 0.32 0.81 0.60 0.83
Discontinued operations - 0.00 - 0.02 0.03
Group, total 0.48 0.31 0.81 0.63 0.86
Earnings per share, comparable, €, basic
Continuing operations 0.33 0.25 0.66 0.52 0.74

1-9/2020

1-9/2019 1-12/2019
Continuing operations
Return on capital employed, comparable, %, rolling 12 months 11.0 9.6 9.6
Group
Return on equity, comparable, %, rolling 12 months 17.3 14.4 15.1

Kesko reports Kesko Senukai Group, which is part of Kesko's building and technical trade segment and operates in the Baltic countries and Belarus, as a joint venture as of 1 July 2020. Kesko Senukai Group was reported as a subsidiary until 30 June 2020. In order to enable the comparison of financial performance indicators between reporting periods, Kesko reports illustrative Group performance indicators and segment figures to be used alongside indicators based on IFRS consolidated financial statements. In segment data, Kesko Senukai is reported consolidated as a joint venture also for the comparison periods, as this method is used in management reporting.

Illustrative Group performance indicators

7-9/2020* 7-9/2019 1-9/2020 1-9/2019 1-12/2019
Continuing operations
Net sales, € million 2,651.9 2,568.9 7,580.2 7,352.2 9,862.0
Operating profit, comparable, € million 181.8 143.7 388.0 313.6 434.7
Operating margin, comparable, % 6.9 5.6 5.1 4.3 4.4
Operating profit, € million 176.9 140.3 382.8 301.8 421.0
Profit before tax, comparable, € million 163.6 123.8 327.6 252.6 356.7
Profit before tax, € million 172.3 149.4 337.7 287.3 389.3

*Reported 7-9/2020

In this interim report release, the comparable change % in net sales has been calculated in local currencies and excluding the impact of Kesko Senukai and acquisitions and divestments completed in 2020 and 2019. The comparable operating profit has been calculated by deducting items affecting comparability from the reported operating profit. The illustrative performance indicators have been calculated for the reporting period 1-9/2020 and the comparison periods as if Kesko Senukai had been consolidated as a joint venture.

OUTLOOK AND GUIDANCE FOR 2020

Outlook for Kesko Group's continuing operations is given for year 2020, in comparison with year 2019.

Kesko specifies its profit guidance for 2020. The company now estimates that the comparable operating profit for its continuing operations will be in the range of €530-570 million in 2020. Before, the company estimated that the comparable operating profit for continuing operations would be in the range of €510-570 million.

Retail sales in K-food stores have remained strong in the grocery trade. In the building and technical trade, sales remain at a good level in both B2B and B2C trade. The car trade has recovered well from the decline in sales in H1. At the same time, Kesko has managed to improve cost efficiency.

Expectations for the remainder of the year are good in the grocery trade and building and technical trade with, for example, household consumption more focused on domestic purchases than previously estimated.

The outlook is based on the epidemic situation remaining under control in Kesko's operating countries.
However, concerns over the expansion of the Covid-19 epidemic and general economic weakening remain high. A worsened epidemic situation would have a negative impact on Kesko's businesses and, for example, Christmas sales.

PRESIDENT AND CEO MIKKO HELANDER:

The results for the third quarter of 2020 were the best in Kesko's history. Sales grew in all divisions. Net sales grew by 4.6% in comparable terms, totalling €2,651.9 million. The comparable operating profit totalled €181.8 million, representing an increase of €38.2 million when accounting for the change in the consolidation method of Kesko Senukai. Cash flow from operating activities totalled €286.6 million, and grew by €95.0 million. We were also able to meet our long-term financial targets faster than we had anticipated.

Our strategy is working well in the grocery trade, and our market share has continued to strengthen further in both grocery sales and foodservice. Sales to grocery stores rose by 11.4% and K-Citymarket's home and speciality goods trade also grew. Despite the exceptional circumstances, we have managed to offer safe and successful shopping for our customers, complemented by inspiring digital services that make life easier, such as online grocery sales. The positive customer experiences are reflected in the good sales development of all K Group grocery store chains. Kespro managed to clearly grow its market share in a challenging operating environment.

Good performance in all operating countries in the building and technical trade division clearly strengthened our profit performance. Growth in consumer sales remained very strong. Performance was also good in B2B trade, in both building and home improvement trade and Onninen, which increased our market share. In addition to organic growth, we continued to execute our growth strategy with the acquisitions of the Carlsen Fritzøe building and home improvement trade chain in Norway and the Bygg & Interiör business in Sweden. We continue our strategic review of operations in the Baltic States and Belarus.

In the car trade, there was an upturn in demand during the summer for both new and used cars. Net sales for the car trade division grew by 9.6%. Servicing and spare part sales were also good. The positive development in the car trade has been affected by our wider range and improved availability of cars. Demand has especially continued to grow for all-electric cars and rechargeable hybrids.

The Covid-19 epidemic has remained under control in all of Kesko's operating countries. However, concerns over the expansion of the epidemic and general economic weakening remain high. We estimate that the comparable operating profit for Kesko's continuing operations will be in the range of €530-570 million in 2020.

Kesko celebrates its 80th anniversary this year. The company was founded under exceptional circumstances back in October 1940, and since then, Kesko and K Group have grown into a leading retail operator in Northern Europe. I want to thank our customers, K-retailers, all K Group personnel, Kesko's shareholders and all other stakeholders for these past 80 years.

IMPORTANT EVENTS

Positive profit warning on 17 September 2020

Kesko raised its guidance for the comparable operating profit for its continuing operations in 2020. Kesko estimates that the comparable operating profit for its continuing operations will be in the range of €510-570 million in 2020. The guidance upgrade is based on better than anticipated sales development in all divisions, improved cost efficiency, and a more positive outlook for the remainder of the year.

On 17 September 2020, Kesko issued a release concerning a change in the consolidation method of Kesko Senukai and impacts of the change. In the new operating profit guidance, Kesko Senukai is treated as a joint venture from July 2020 onwards. The change in classification has an approximately €20 million negative impact on the guidance on operating profit. The change in classification does not affect Kesko's comparable earnings per share or Kesko's dividend distribution.

Before, the company estimated that the comparable operating profit for continuing operations would be in the range of €430-510 million. In the previous guidance, Kesko Senukai was treated as a subsidiary for the full year 2020. (Stock exchange releases 17.9.2020)

Positive profit warning on 10 July 2020

Kesko raised its guidance for the comparable operating profit for its continuing operations, issued in connection with the company's interim report on 28 April 2020. Kesko estimated at the time that the comparable operating profit for its continuing operations would be in the range of €430-510 million in 2020. (Stock exchange release 10.7.2020)

Share issue without payment (share split)

Kesko's Annual General Meeting on 28 April 2020 resolved that new shares would be issued to the shareholders without payment in proportion to their existing holdings so that three (3) new A shares would be issued for each existing A share, and three (3) new B shares for each existing B share. The new shares were registered in the Finnish Trade Register on 30 April 2020. (Stock exchange releases 28.4.2020 and 30.4.2020)

Profit warning on 18 March 2020

Kesko issued a profit warning due to the Covid-19 pandemic and related global economic uncertainty. Kesko estimated at the time that the comparable operating profit for its continuing operations would be in the range of €400-450 million in 2020. (Stock exchange release 18.3.2020)

Strategic review of operations in the Baltics and Belarus and consolidation of Kesko Senukai in Kesko's GROUP REPORTING

Kesko is reporting Kesko Senukai Group, which is part of Kesko's building and technical trade segment and operates in the Baltic countries and Belarus, as a joint venture as of 1 July 2020. Kesko Senukai Group was reported as a subsidiary until 30 June 2020.

In its half year financial report on 23 July 2020, Kesko stated that it would continue the strategic review of operations in the Baltics and Belarus, initiated in April. The review process continues. Kesko also stated at the time that it was examining conditions for subsidiary consolidation of Kesko Senukai in Kesko's consolidated financial statements due to significant disagreements concerning the management of and exercise of control in Kesko Senukai.

After re-examining the conditions for consolidation, Kesko has deemed that it no longer exercises the type of control referred to in IFRS 10 over Kesko Senukai. Consequently, Kesko has decided to classify Kesko Senukai as a joint venture. Due to the change in classification, from 1 July 2020 onwards Kesko Senukai is consolidated as a joint venture on one line 'Share of result of joint ventures' before operating profit in Kesko's consolidated income statement, instead of the previous line-by-line subsidiary consolidation. In the consolidated statement of financial position, the change means that the share of Kesko Senukai's net assets is presented on one line 'Shares in associates and joint ventures' instead of the previous line-by-line consolidation of assets and liabilities. The change in classification affects the key performance indicators of Kesko Group and its building and technical trade division. The change in classification does not affect comparable profit for the financial year attributable to equity holders of the parent or comparable earnings per share presented in Kesko's consolidated financial statements, nor Kesko's dividend distribution. The change in classification also does not have a material impact on the Group's comparable operating profit or equity attributable to owners of the parent.

FINANCIAL PERFORMANCE FOR CONTINUING OPERATIONS

In the table of key performance indicators of this 'Financial performance for continuing operations' section, illustrative Group performance indicators are used alongside the reported performance indicators based on the consolidated financial statements, to depict the change in comparable operating profit as if Kesko Senukai had been consolidated in the consolidated financial statements as a joint venture also in the comparison period. The change based on the illustrative comparison figures is reported in the column 'Change, € million, Illustrative comparison figures.'

NET SALES AND PROFIT FOR JULY-SEPTEMBER 2020

7-9/2020

Net sales,
€ million
Change, % Change, comparable, % Operating profit, comparable,
€ million
Change,
€ million
Change,
€ million
Illustrative comparison figures*
Grocery trade 1,462.1 +4.2 +4.2 108.7 +15.2 +15.2
Building and technical trade, excl. speciality goods trade and Kesko Senukai 895.2 +6.7 +4.5 63.7 +19.5 +19.5
Speciality goods trade 56.0 -47.3 +2.9 3.5 -2.2 -2.2
Kesko Senukai - - - 6.0 -4.3 +4.0
Building and technical trade, total 951.2 -19.4 +4.4 73.2 +12.9 +21.3
Car trade 244.3 +9.6 +9.6 7.4 +2.3 +2.3
Common functions and eliminations -5.7 (..) (..) -7.4 -0.7 -0.7
Total 2,651.9 -5.4 +4.6 181.8 +29.8 +38.2

(...) Change over 100%
* Kesko Senukai treated as a joint venture in the illustrative comparison figures

Despite the Covid-19 epidemic and related restrictions, the net sales for the Group's continuing operations increased in comparable terms by 4.6% in July-September. Kesko's businesses and operating countries have been affected by the exceptional situation in different ways. Net sales grew in comparable terms in the grocery trade, building and technical trade, and car trade. The Group's net sales increased in comparable terms by 5.1% in Finland and by 1.9% elsewhere. The comparable change % has been calculated in local currencies and excluding the impact of Kesko Senukai and acquisitions and divestments completed in 2019 and 2020. The change in the Group's reported net sales in July-September was -5.4%, negatively impacted by the consolidation of Kesko Senukai as a joint venture in the consolidated financial statements from 1 July 2020 onwards.

In the grocery trade division, net sales grew in all grocery store chains and home and speciality goods in K-Citymarket. The restrictions imposed on restaurants and events due to the Covid-19 epidemic impacted Kespro's foodservice business, and Kespro's net sales decreased by 9.5%. However, the growth in grocery sales to K-food stores clearly exceeded the decrease in the net sales for Kespro's foodservice business.

In the building and technical trade division, net sales grew in comparable terms in Finland, Sweden and Norway. Net sales grew in both B2C and B2B trade. Net sales were boosted by the acquisitions of Mark & Infra i Sverige AB and Bygg & Interiör in Sweden, completed in April and September 2020, respectively, and the acquisition of Carlsen Fritzøe Handel in Norway, completed in September 2020. The weakening of the Norwegian krone and the Polish zloty against the euro diminished net sales development in Norway and Poland in euro terms.

In the car trade division, net sales increased in July-September as demand strengthened markedly for both new and used cars.

The Group's comparable operating profit for continuing operations in July-September increased by €29.8 million, or by €38.2 million with Kesko Senukai recognised as a joint venture (illustrative comparison figures). Profitability improved in the grocery trade division due to good retail sales development and improved operational efficiency. In the building and technical trade division, the comparable operating profit for building and home improvement trade grew in Finland, Sweden and Norway. The acquisitions carried out in Norway and Sweden in 2018-2020 accounted for €15.1 million (€9.9 million) of the comparable operating profit. Onninen's comparable operating profit also clearly strengthened and grew in Finland, Sweden, Norway and Poland. Kesko Senukai, consolidated as a joint venture, had a €6.0 million impact on the Group's comparable operating profit (€10.3 million, consolidated as a subsidiary). The comparable operating profit for the car trade division grew thanks to strong sales development.

Items affecting comparability, € million

7-9/2020 7-9/2019
Operating profit, comparable 181.8 152.0
Items affecting comparability
+gains on disposal - 0.4
-losses on disposal -0.1 -
+/-structural arrangements 42.8 -3.8
Items affecting comparability, total 42.8 -3.5
Operating profit 224.6 148.6

The most significant items affecting comparability were the positive €47.7 million profit impact of the change in Kesko Senukai's consolidation method, and the negative €2.4 million profit impact of changes in the store network in Sweden. The impacts of Kesko Senukai's consolidation method are detailed on page 33 in the Tables section of this interim report.

In July-September, K Group's (Kesko and chain stores) retail and B2B sales (VAT 0%) totalled €3,660.6 million, up by 4.3% compared to the previous year.

Net finance costs, income tax and earnings per share

7-9/2020

7-9/2019
Continuing operations
Net finance costs, € million -19.1 -23.3
Interests on lease liabilities, € million -19.0 -23.1
Profit before tax, comparable, € million 163.6 129.3
Profit before tax, € million 220.0 154.8
Income tax, € million -30.2 -25.3
Earnings per share, comparable, € 0.33 0.25
Earnings per share, € 0.48 0.32
Group
Equity per share, € 5.15 4.92

The net finance costs for the Group's continuing operations were positively impacted by the recovery of valuation losses on investments of liquid assets. A change in the fair value of interest rate derivatives increased finance costs. The share of result of associates, reported under financial items, amounted to €14.4 million (€29.5 million), or €0.9 million (€0.5 million) in comparable terms. The share of result of associates included a €13.6 million profit related to the dissolution of Valluga-sijoitus Oy, recognised as an item affecting comparability. The share of result of associates in the comparison period included sales gains of €29.0 million, recognised as items affecting comparability.

The Group's effective tax rate was 13.7% (16.3%). The Group's effective tax rate decreased due to a positive profit impact of €47.7 million arising from the change in the consolidation method of Kesko Senukai, recognised as an item affecting comparability. The effective tax rate for the comparison period was affected by the share of result of associates.

The comparable profit before tax for the Group's continuing operations grew in July-September thanks to operating profit growth. Earnings per share and comparable earnings per share for the Group's continuing operations grew compared to the year before.

NET SALES AND PROFIT FOR JANUARY-SEPTEMBER 2020

1-9/2020

Net sales,
€ million
Change, % Change, comparable, % Operating profit, comparable,
€ million
Change,
€ million
Change,
€ million
Illustrative comparison figures*
Grocery trade 4,214.7 +3.4 +3.4 252.0 +22.7 +22.7
Building and technical trade, excl. speciality goods trade 2,562.1 +7.9 +6.3 131.1 +49.8 +49.8
Speciality goods trade 159.8 -41.2 -6.1 2.9 -5.1 -5.1
Kesko Senukai 427.3 -32.7 - 23.6 +1.0 +5.2
Building and technical trade, total 3,148.6 -4.0 +5.6 157.6 +45.7 +49.8
Car trade 658.9 +3.7 -5.2 17.3 -0.5 -0.5
Common functions and eliminations -15.3 (..) (..) -24.7 +2.3 +2.3
Total 8,006.9 +0.3 +3.3 402.1 +70.2 +74.4

(...) Change over 100%
* Kesko Senukai treated as a joint venture in the illustrative comparison figures

Net sales for the Group's continuing operations were flat year-on-year in January-September, but in comparable terms net sales increased by 3.3% despite the Covid-19 epidemic and related restrictions. Kesko's businesses and operating countries have been affected by the exceptional situation in different ways. Net sales grew in the grocery trade division. In the building and technical trade division, net sales decreased by 4.0% compared to the year before, but increased by 5.6% in comparable terms. In the car trade division, net sales increased, but decreased in comparable terms. The Group's net sales increased in comparable terms by 3.2% in Finland, and by 3.8% elsewhere. The comparable change % has been calculated in local currencies and excluding the impact of Kesko Senukai and acquisitions and divestments completed in 2019 and 2020. The change in the Group's reported net sales in January-September was +0.3%, impacted by the consolidation of Kesko Senukai as a joint venture in the consolidated financial statements from 1 July 2020 onwards.

Net sales increased in all grocery store chains, but decreased in Kespro's foodservice business due to the Covid-19 epidemic and related restrictions.

Net sales for the building and technical trade division grew in comparable terms in Finland, Sweden, Norway and Poland. Net sales were boosted by the acquisitions of K-Bygg in 2019, Mark & Infra i Sverige AB in April 2020, and Bygg & Interiör in September 2020 in Sweden, and the acquisition of Carlsen Fritzøe Handel in Norway, completed in September 2020. The weakening of the Norwegian krone and the Polish zloty against the euro diminished net sales development in euro terms.

In the car trade division, net sales increased due to the acquisitions carried out in 2019, but in comparable terms, net sales decreased. Net sales saw a turnaround and began to grow in the third quarter thanks to strengthened demand.

The comparable operating profit for the Group's continuing operations grew by €70.2 million in January-September, or by €74.4 million with Kesko Senukai recognised as a joint venture (illustrative comparison figures). In the grocery trade division, profitability improved thanks to good grocery sales development in the grocery store chains and cost adjustment measures especially in Kespro's foodservice business and K-Citymarket's home and speciality goods trade. The decrease in Kespro's net sales, resulting from restrictions imposed due to the Covid-19 epidemic, had a weakening impact on Kespro's comparable operating profit for the reporting period. In the building and technical trade division, the comparable operating profit for building and home improvement trade grew in Finland, Sweden and Norway. The acquisitions carried out in Norway and Sweden in 2018-2020 accounted for €24.2 million (€13.0 million) of the comparable operating profit. Onninen's comparable operating profit clearly strengthened and grew in Finland, Sweden and Norway. In the Baltics and Poland, Onninen's comparable operating profit matched the level of the previous year. Kesko Senukai had a €23.3 million impact on the Group's comparable operating profit (€22.6 million,consolidated as a subsidiary). Kesko Senukai has been consolidated as a joint venture as of 1 July 2020. In the car trade division, the comparable operating profit decreased due to weak demand in the first half of the year.

Items affecting comparability, € million

1-9/2020 1-9/2019 1-12/2019
Operating profit, comparable 402.1 331.9 461.6
Items affecting comparability
+gains on disposal 6.4 1.3 4.6
-losses on disposal -0.2 - -0.9
+/-structural arrangements 36.3 -13.2 -17.5
Items affecting comparability, total 42.5 -11.9 -13.8
Operating profit 444.6 320.1 447.8

The most significant items affecting comparability in January-September were the profit impact of €47.7 million resulting from the change in the consolidation method of Kesko Senukai; the €2.4 million negative profit impact of changes in the store site network in Sweden; the €6.4 million sales gain from the divestment of machinery trade operations in the Baltics, completed on 31 March 2020 - all in the building and technical trade division - and the €5.2 million costs related to corporate restructuring in common functions. The most significant items affecting comparability the year before were the €8.1 million costs related to the divestment of Onninen's HEPAC contractor business in the building and technical trade in Sweden; the €3.1 million costs related to acquisitions; and the net €4.6 million items related to the subsidiary consolidation of Kruunuvuoren Satama Oy.

K Group's (Kesko and chain stores) retail and B2B sales (VAT 0%) in January-September totalled €10,415.8 million, representing an increase of 4.0% compared to the previous year. The K-Plussa customer loyalty programme added 89,550 new households in January-September 2020. The number of K-Plussa households stood at 2.5 million at the end of September and there were 3.5 million K-Plussa cardholders in total.

Net finance costs, income tax and earnings per share

1-9/2020

1-9/2019 1-12/2019
Continuing operations
Net finance costs, € million -71.8 -70.1 -91.4
Interests on lease liabilities, € million -64.5 -71.9 -95.4
Profit before tax, comparable, € million 331.5 263.1 370.7
Profit before tax, € million 389.3 297.6 403.3
Income tax, € million -67.6 -54.7 -69.6
Earnings per share, comparable, € 0.66 0.52 0.74
Earnings per share, € 0.81 0.60 0.83
Group
Equity per share, € 5.15 4.92 5.11

Net finance costs for the Group's continuing operations were up in January-September due to exchange differences and change in the fair value of interest rate derivatives. Of the exchange differences, €-2.8 million was due to exchange rate losses on euro-denominated loan financing in January-June at Kesko Senukai's Belarussian subsidiary OMA, and €-1.9 million due to the weakening of the Norwegian krone, Swedish krona and Polish zloty. The share of result of associates amounted to €16.4 million (€47.6 million), or €1.2 million (€1.2 million) in comparable terms. The share of result of associates included a €13.6 million profit related to the dissolution of Valluga-sijoitus Oy, recognised as an item affecting comparability. In 2019, Kruunuvuoren Satama Oy had a €17.8 million impact on the share of result of associates and a €0.3 million impact on the comparable share of result, taking into account the gains on disposal and impairment charges related to Kruunuvuoren Satama Oy's ownership arrangement, net €+17.4 million. Other associates had a combined impact of €29.9 million on the result of associates in January-September 2019, and the impact on the comparable share of result was €0.9 million excluding the sales gains amounting to €29.0 million included in the share of results of associates and reported as items affecting comparability.

The Group's effective tax rate was 17.4% (18.4%). The Group's effective tax rate decreased due to a positive profit impact of €47.7 million arising from the change in the consolidation method of Kesko Senukai, recognised as an item affecting comparability.

The comparable profit before tax for the Group's continuing operations grew in January-September thanks to operating profit growth. Earnings per share and comparable earnings per share for the Group's continuing operations grew compared to the year before.

Cash flow and financial position

€ million

7-9/2020 7-9/2019 1-9/2020 1-9/2019 1-12/2019
Continuing operations
Cash flow from operating activities 286.6 191.6 844.0 619.9 893.1
Cash flow from investing activities -265.4 -126.0 -371.0 -559.2 -620.3
Group
Cash flow from financing activities -179.0 -86.9 -423.2 -78.4 -295.4

€ million

30.9.2020 30.9.2019 31.12.2019
Group
Liquid assets 304.1 171.8 169.0
Interest-bearing liabilities 2,665.5 3,029.2 3,037.3
Lease liabilities 2,014.1 2,392.3 2,422.2
Interest-bearing net debt excl. lease liabilities 347.3 465.1 446.1
Interest-bearing net debt/EBITDA, excl. IFRS 16 impact, rolling 12 months 0.5 1.0 0.9
Gearing, % 115.6 138.8 134.0
Equity ratio, % 30.8 29.6 31.2

In July-September, the cash flow from operating activities for the Group's continuing operations totalled €286.6 million (€191.6 million). Cash flow increased due to operating profit growth and improved capital efficiency. The cash flow from operating activities for discontinued operations in the comparison period totalled €-0.8 million. The Group's cash flow from operating activities totalled €286.6 million (€190.7 million).

The cash flow from investing activities for the Group's continuing operations in July-September totalled €-265.4 million (€-126.0 million), which included €135.8 million in acquisitions, and a negative €92.7 million impact of the change in Kesko Senukai's consolidation method, with Kesko Senukai's cash and cash equivalents no longer recognised in the consolidated statement of financial position.

In January-September, the cash flow from operating activities for the Group's continuing operations totalled €844.0 million (€619.9 million). The cash flow from operating activities for continuing operations in the comparison period included a €48.3 million return of surplus assets paid by Kesko Pension Fund, the dividend payment and repayment of equity by Kruunuvuoren Satama Oy in May 2019 totalling €44.1 million, and the €9.2 million dividend paid by the associate Valluga-sijoitus Oy, meaning that operatively, cash flow from operating activities increased by €329.3 million. Cash flow from operating activities increased due to operating profit growth and improved capital efficiency. The cash flow from operating activities for discontinued operations in the comparison period totalled €3.4 million. The Group's cash flow from operating activities totalled €844.0 million (€623.3 million).

The cash flow from investing activities for the Group's continuing operations in January-September totalled
€-371.0 million (€-559.2 million), which included €146.0 in acquisitions, a negative €92.7 million impact of the change in Kesko Senukai's consolidation method, and a positive €19.6 million cash flow impact of the divestment of Baltic machinery trade operations. The acquisition of the store property of K-Citymarket in Järvenpää, previously leased by Kesko, is reported under cash flow from financing activities. The cash flow from investing activities for the comparison period included acquisitions totalling €280.7 million and Kruunuvuoren Satama Oy's ownership arrangement, which had a negative €84.6 million impact.

The Group's liquidity remained strong despite the economic uncertainty caused by the Covid-19 epidemic. Kesko Group has implemented significant adjustment measures in all its operating countries to secure cash flow.

CAPITAL EXPENDITURE

€ million

7-9/2020 7-9/2019 1-9/2020 1-9/2019 1-12/2019
Capital expenditure, continuing operations 174.8 132.2 342.9 602.9 686.1
Store sites 15.4 40.7 109.0 195.4 227.7
Acquisitions 135.9 45.0 146.7 290.3 290.5
IT 4.8 5.5 20.0 22.0 33.9
Other investments 18.7 41.1 67.2 95.2 134.0

Capital expenditure in store sites decreased in July-September by €25.3 million compared to the year before.

Capital expenditure in store sites in January-September was increased in part by the acquisition of the store property of K-Citymarket in Järvenpää in the first quarter. Kruunuvuoren Satama Oy's ownership arrangement had a €85.7 million impact on capital expenditure in store sites in the comparison period.

Acquisitions in January-September consisted of Mark & Infra i Sverige AB (MIAB) and Bygg & Interiör in Sweden and Carlsen Fritzøe Handel in Norway, while acquisitions in the comparison period comprised Sørbø's building and home improvement stores in Norway, Huittisten Laatuauto Oy's Volkswagen and SEAT business operations in Forssa and Huittinen, LänsiAuto Oy's Volkswagen, Audi and SEAT businesses in Kotka, Kouvola and Lappeenranta, Laakkonen Group's Volkswagen, Audi and SEAT businesses, and Fresks group in Sweden.

Personnel

1-9/2020

1-9/2019 1-12/2019
Average number of personnel converted into full-time employees,
continuing operations
18,658 20,717 20,846
Personnel at the end of the reporting period 30.9.2020 30.9.2019 31.12.2019
Finland 12,388 12,356 12,657
Other countries 4,958 12,161 12,511
Total 17,346 24,806 25,168

The change in the consolidation method of Kesko Senukai had a marked impact on the number of Group employees outside Finland.

In the first year-half, Kesko carried out adjustment measures due to a reduction in workloads brought on by the Covid-19 epidemic. In total, some 2,500 Kesko employees in Finland working in business operations and support functions were affected by the various adjustment measures. Of those, temporary lay-off measures affected some 2,000 employees. Adjustment measures were also carried out in Kesko's operations in Sweden, Norway, Poland and the Baltic countries.

SEGMENTS

SEASONAL NATURE OF OPERATIONS

The Group's operating activities are affected by seasonal fluctuations. The net sales and operating profits of the reportable segments are not earned evenly throughout the year. Instead, they vary by quarter depending on the characteristics of each segment. In terms of the level of operating profit, the second and third quarter are the strongest, whereas the impact of the first quarter on the full year profit is the smallest. The acquisitions of Suomen Lähikauppa, Onninen and the Norwegian Skattum Handel AS, Gipling AS, the DIY retail business of Sørbø and Carlsen Fritzøe Handel AS, and the Swedish Fresks Group, Mark & Infra i Sverige AB, and Bygg & Interiör have increased seasonal fluctuations between quarters. The operating profit levels of these companies are at their lowest in the first quarter.

GROCERY TRADE

July-September 2020

7-9/2020

7-9/2019
Net sales, € million 1,462.1 1,402.7
Operating profit, comparable, € million 108.7 93.5
Operating margin, comparable, % 7.4 6.7
Return on capital employed, comparable, %, rolling 12 months 15.5 14.2
Capital expenditure, € million 17.3 30.0
Personnel, average 6,310 6,202

Net sales, € million

7-9/2020 7-9/2019 Change, % Change, comparable, %
Sales to K-food stores
K-Citymarket, food 312.6 280.6 11.4 11.4
K-Supermarket 380.4 356.8 6.6 6.6
K-Market 371.2 348.2 6.6 6.6
K-Citymarket, non-food 147.0 143.0 2.8 2.8
Kespro 224.4 247.9 -9.5 -9.5
Others 26.6 26.1 1.9 1.9
Total 1,462.1 1,402.7 4.2 4.2

Net sales for the grocery trade totalled €1,462.1 million (€1,402.7 million) in July-September, up by 4.2%. Net sales grew in all grocery store chains and home and speciality goods in K-Citymarket. The restrictions imposed on restaurants and events due to the Covid-19 epidemic impacted Kespro's foodservice business, and Kespro's net sales decreased by 9.5%. However, the growth in grocery sales to K-food stores clearly exceeded the decrease in the net sales for Kespro's foodservice business.

The total grocery market in Finland (incl. VAT) is estimated to have grown by approximately 7.0% in July-September (Finnish Grocery Trade Association PTY) and retail prices are estimated to have risen by some 2.0% (incl. VAT, PTY's price development estimate). K Group's grocery sales grew by 7.2% (incl. VAT), thus exceeding the market growth. K Group's sales grew in all grocery store chains. Online sales of groceries grew by 270%, and accounted for approximately 2.2% of K Group's grocery sales (incl. VAT). All K Group grocery store chains offer online grocery sales services. The number of K-food stores offering online grocery sales services grew by nine during the reporting period.

The comparable operating profit for the grocery trade in July-September totalled €108.7 million (€93.5 million), up by €15.2 million. Profitability improved due to good retail sales development and improved operational efficiency. Operating profit for the grocery trade totalled €108.6 million (€93.7 million). Items affecting comparability totalled €-0.1 million (€0.3 million).

Capital expenditure for the grocery trade totalled €17.3 million (€30.0 million), of which €14.2 million (€23.9 million) was in store sites.

Three new K-Market stores opened in July-September (one replacement new building). Remodelling and extensions were made in five stores.

The most significant store sites under construction are K-Supermarket stores in the centre of Jyväskylä and at Vaajakoski, Tampere and Lahti.

January-September 2020

1-9/2020

1-9/2019 1-12/2019
Net sales, € million 4,214.7 4,075.2 5,531.2
Operating profit, comparable, € million 252.0 229.3 327.9
Operating margin, comparable, % 6.0 5.6 5.9
Return on capital employed, comparable, %, rolling 12 months 15.5 14.2 14.5
Capital expenditure, € million 109.9 148.6 180.8
Personnel, average 6,148 6,099 6,063

Net sales, € million

1-9/2020 1-9/2019 Change, % Change, comparable, % 1-12/2019
Sales to K-food stores
K-Citymarket, food 943.0 837.5 12.6 12.6 1,150.4
K-Supermarket 1,147.8 1,049.6 9.4 9.4 1,417.0
K-Market 1,071.9 999.0 7.3 7.3 1,336.3
K-Citymarket, non-food 403.4 408.4 -1.2 -1.2 584.6
Kespro 582.3 701.5 -17.0 -17.0 944.9
Others 66.3 79.1 -16.2 -16.2 98.0
Total 4,214.7 4,075.2 3.4 3.4 5,531.2

Net sales for the grocery trade in January-September amounted to €4,214.7 million (€4,075.2 million), an increase of 3.4%. Net sales increased in all grocery store chains, but decreased in K-Citymarket's home and speciality goods trade and Kespro's foodservice business due to the Covid-19 epidemic and related restrictions.

The total grocery market in Finland (incl. VAT) is estimated to have grown by approximately 8.3% in January-September (Finnish Grocery Trade Association PTY) and retail prices are estimated to have risen by some 2.0% (incl. VAT, PTY's price development estimate). K Group's grocery sales grew by 9.2% (incl. VAT), thus exceeding the market growth. K Group's sales grew in all grocery store chains. Online sales of groceries grew by 383%, and accounted for approximately 2.7% of K Group's grocery sales (incl. VAT). All K Group grocery store chains offer online grocery sales services. The number of K-food stores offering online grocery sales services grew by 228. At the end of reporting period, 456 grocery stores offered online sales services.

The comparable operating profit for the grocery trade in January-September totalled €252.0 million (€229.3 million), up by €22.7 million. Profitability improved thanks to good grocery sales development in the grocery store chains and cost adjustment measures especially in Kespro's foodservice business and K-Citymarket's home and speciality goods trade. The decrease in Kespro's net sales, resulting from restrictions imposed due to the Covid-19 epidemic, had a weakening impact on Kespro's comparable operating profit for the reporting period. Operating profit for the grocery trade totalled €250.7 million (€236.1 million). Items affecting comparability totalled €-1.3 million (€6.9 million).

Capital expenditure for the grocery trade totalled €109.9 million (€148.6 million), of which €95.6 million (€136.5 million) was in store sites. Kruunuvuoren Satama Oy's ownership arrangement had a €63.1 million impact on capital expenditure in store sites in the comparison period.

Seven new K-Market stores opened in January-September (four replacement new buildings). Remodelling and extensions were made in 33 stores.

Number of stores

9/2020 9/2019 12/2019
K-Citymarket 81 81 81
K-Supermarket 239 243 243
K-Market 770 780 777
Neste K 72 73 73
Others 72 78 78
Total 1,234 1,257 1,252

In addition, 456 K-food stores offer online grocery sales services to their customers.

BUILDING AND TECHNICAL TRADE

The change in Kesko Senukai's consolidation method from a subsidiary to a joint venture as of 1 July 2020 has impacted the performance indicators for the building and technical trade in the segment information. In the segment information for the building and technical trade, performance indicators for all comparison periods are illustrative except for the balance sheet indicators and personnel numbers. Due to the change in consolidation method, the Group changed the internal reporting to its highest operative decision-maker, i.e. the Group Management Board. Consequently, Kesko Senukai has been reported in the 1-12/2019 and 1-6/2020 income statement figures for the building and technical trade as if it had been consolidated on one line before operating profit in accordance with ownership interest, as opposed to the subsidiary consolidation method used before. Such a change has not been made to internally reported balance sheet figures or personnel numbers.

July-September 2020

7-9/2020

7-9/2019
Net sales, € million 951.2 945.1
Building and technical trade, excl. speciality goods trade and Kesko Senukai 895.2 839.0
Building & home improvement trade 487.4 438.9
Onninen 419.3 414.1
Speciality goods trade 56.0 106.1
Operating profit, comparable, € million 73.2 51.9
Building and technical trade, excl. speciality goods trade and Kesko Senukai 63.7 44.2
Building & home improvement trade 38.4 24.2
Onninen 25.7 20.0
Speciality goods trade 3.5 5.8
Kesko Senukai 6.0 2.0
Operating margin, comparable, % 7.7 5.5
Building and technical trade, excl. speciality goods trade and Kesko Senukai 7.1 5.3
Building & home improvement trade 7.9 5.5
Onninen 6.1 4.8
Speciality goods trade 6.3 5.4
7-9/2020 7-9/2019
Return on capital employed, comparable, %, rolling 12 months 10.0 7.6
Capital expenditure, € million 139.9 32.7
Personnel, average 5,747 12,784

Net sales, € million

7-9/2020 7-9/2019 Change, % Change, comparable, %
Building and home improvement trade, Finland 250.1 234.0 +6.9 +6.7
K-Rauta, Sweden 50.7 43.1 +17.7 +14.4
K-Bygg, Sweden 60.6 54.4 +11.4 +9.2
Byggmakker and Carlsen Fritzøe, Norway 126.8 108.1 +17.3 +4.9
Building and home improvement trade, total 487.4 438.9 +11.1 +6.8
Onninen, Finland 259.3 245.5 +5.6 +5.6
Onninen and MIAB, Sweden* 25.0 25.4 -1.5 -20.2
Onninen, Norway 53.0 56.6 -6.4 +1.3
Onninen, Baltics 20.8 23.8 -12.4 -12.4
Onninen, Poland 61.9 63.7 -2.7 +0.0
Onninen, total* 419.3 414.1 +1.3 +2.9
Building and technical trade, excl. speciality goods trade, total 895.2 839.0 +6.7 +4.5
Leisure trade, Finland 56.0 54.4 +2.9 +2.9
Machinery trade - 51.7 -100.0 -
Speciality goods trade, total 56.0 106.1 -47.3 +2.9
Total 951.2 945.1 +0.6 +4.4

(...) Change over 100%

* Onninen's comparable net sales development in Sweden calculated minus internal net sales in Sweden to K-Rauta.

Net sales for the building and technical trade in July-September totalled €951.2 million (€945.1 million). Reported net sales were at last year's level, while in comparable terms, net sales grew by 4.4%. Net sales grew in comparable terms in Finland, Sweden and Norway. Net sales in Sweden were boosted by the acquisition of
K-Bygg in 2019 and the acquisition of Bygg & Interiör completed in September 2020. In Norway, net sales were boosted by the acquisition of Carlsen Fritzøe Handel, completed in September 2020. The weakening of the Norwegian krone and the Polish zloty against the euro diminished net sales development in Norway and Poland in euro terms. Net sales in Poland decreased compared to the year before, but remained flat in comparable terms. The comparable change % has been calculated in local currencies and excluding the impact of Kesko Senukai and the acquisitions and divestments completed in 2019 and 2020. The exceptional circumstances related to the Covid-19 epidemic have impacted the businesses and operating countries in different ways from March onwards.

In Finland, net sales for the building and technical trade in July-September totalled €554.2 million (€524.5 million), up by 5.7%. In comparable terms, net sales increased by 6.2% in Finland. Net sales from international operations totalled €397.0 million in July-September (€420.6 million), down by 5.6%. In comparable terms, net sales from international operations grew by 1.9%.

Net sales for the building and home improvement trade grew in both B2C and B2B trade. Net sales grew in Finland, Sweden and Norway.

Onninen's net sales grew in comparable terms in Finland and Norway, and decreased in Sweden and the Baltics. In Poland, comparable net sales were at the same level as the year before.

In the speciality goods leisure trade, net sales increased.

The comparable operating profit for the building and technical trade totalled €73.2 million (€51.9 million) in July-September, up by €21.3 million year-on-year. Comparable operating profit grew in the building and home improvement trade in Finland, Sweden and Norway. The acquisitions carried out in Norway and Sweden in 2018-2020 accounted for €15.1 million (€9.9 million) of the comparable operating profit. Onninen's comparable operating profit grew in Finland, Sweden, Norway and Poland. In the Baltics, Onninen's comparable operating profit remained at level of the previous year.

Operating profit for the building and technical trade totalled €69.0 million (€49.4 million). Items affecting comparability totalled €-4.1 million (€-2.5 million). The most significant item affecting comparability in the reporting period was the €2.4 million negative profit impact of changes in the store site network in Sweden.

Capital expenditure for the building and technical trade totalled €139.9 million (€32.7 million) in July-September. Capital expenditure included €135.9 million in acquisitions.

One new Onninen Express store opened in Riihimäki, Finland and one store in Poland (replacement new building) in July-September.

The most significant store sites under construction are one K-Bygg store in Sweden, and one Onninen Express store in Finland and one in Poland.

January-September 2020

1-9/2020

1-9/2019 1-12/2019
Net sales, € million 2,721.9 2,645.6 3,472.8
Building and technical trade, excl. speciality goods trade and Kesko Senukai 2,562.1 2,374.0 3,126.1
Building & home improvement trade 1,387.5 1,218.9 1,589.0
Onninen 1,208.6 1,189.3 1,587.7
Speciality goods trade 159.8 271.7 346.7
Operating profit, comparable, € million 143.4 93.6 115.9
Building and technical trade, excl. speciality goods trade and Kesko Senukai 131.1 81.3 98.5
Building & home improvement trade 79.9 45.2 48.6
Onninen 52.3 36.1 50.0
Speciality goods trade 2.9 8.0 9.5
Kesko Senukai 9.5 4.3 7.8
Operating margin, comparable, % 5.3 3.5 3.3
Building and technical trade, excl. speciality goods trade and Kesko Senukai 5.1 3.4 3.2
Building & home improvement trade 5.8 3.7 3.1
Onninen 4.3 3.0 3.2
Speciality goods trade 1.8 2.9 2.7
1-9/2020 1-9/2019 1-12/2019
Return on capital employed, comparable, %, rolling 12 months 10.0 7.6 7.4
Capital expenditure, € million 169.5 314.6 332.7
Personnel, average 10,385 12,503 12,630

Net sales, € million

1-9/2020 1-9/2019 Change, % Change, comparable, % 1-12/2019
Building and home improvement trade, Finland 764.0 707.5 +8.0 +7.8 908.4
K-Rauta, Sweden 145.1 129.7 +11.8 +11.7 163.7
K-Bygg, Sweden 166.5 83.2 (..) +9.1 132.8
Byggmakker and Carlsen Fritzøe, Norway 314.6 300.5 +4.7 +6.4 386.9
Building and home improvement trade, total 1,387.5 1,218.9 +13.8 +8.0 1,589.0
Onninen, Finland 741.2 682.8 +8.6 +8.6 909.6
Onninen and MIAB, Sweden* 77.9 95.4 -18.3 -4.2 121.2
Onninen, Norway 163.0 177.9 -8.4 +0.4 237.8
Onninen, Baltics 58.4 62.2 -6.0 -6.0 85.2
Onninen, Poland 170.3 173.5 -1.8 +0.9 237.2
Onninen, total* 1,208.6 1,189.3 +1.6 +5.7 1,587.7
Building and technical trade, excl. speciality goods trade, total 2,562.1 2,374.0 +7.9 +6.3 3,126.1
Leisure trade, Finland 137.1 145.9 -6.1 -6.1 203.7
Machinery trade 22.8 125.8 -81.9 - 143.0
Speciality goods trade, total 159.8 271.7 -41.2 -6.1 346.7
Total 2,721.9 2,645.6 +2.9 +5.6 3,472.8

(...) Change over 100%

* Onninen's comparable net sales development in Sweden calculated minus internal net sales in Sweden to K-Rauta.

Net sales for the building and technical trade in January-September totalled €2,721.9 million (€2,645.6 million). Net sales increased by 2.9%, or by 5.6% in comparable terms. Net sales grew in comparable terms in Finland, Sweden, Norway and Poland. In the Baltics, new sales decreased. The weakening of the Norwegian krone and the Polish zloty against the euro diminished net sales development in Norway and Poland in euro terms. The comparable change % has been calculated in local currencies and excluding the impact of Kesko Senukai and the acquisitions and divestments completed in 2019 and 2020. The exceptional circumstances related to the Covid-19 epidemic have impacted the businesses and operating countries in different ways from March onwards.

In Finland, net sales for the building and technical trade in January-September totalled €1,608.0 million (€1,517.8 million), up by 5.9%. In comparable terms, net sales in Finland increased by 6.8%. Net sales from international operations totalled €1,113.9 million in January-September (€1,127.8 million), down by 1.2%. In comparable terms, net sales from international operations grew by 3.8%.

Net sales for the building and home improvement trade grew in Finland, Sweden and Norway.

Onninen's net sales grew in comparable terms in Finland and Poland. In Norway, comparable net sales were at the same level as the year before. In Sweden and the Baltic countries, net sales decreased compared to the year before.

In the speciality goods trade, net sales in the leisure trade were down due to mild winter weather and a decline in customer visits due to the Covid-19 epidemic.

The comparable operating profit for the building and technical trade totalled €143.4 million (€93.6 million) in January-September, up by €49.8 million year-on-year. The comparable operating profit for the building and home improvement trade was up by €35.1 million, and grew in Finland, Sweden and Norway. The acquisitions carried out in Norway and Sweden in 2018-2020 accounted for €24.2 million (€13.0 million) of the comparable operating profit. Onninen's comparable operating profit grew in Finland, Sweden and Norway. In the Baltics and Poland, Onninen's comparable operating profit matched the level of the previous year.

Operating profit for the building and technical trade totalled €145.3 million (€81.0 million). Items affecting comparability totalled €1.9 million (€-12.6 million). The most significant items affecting comparability were the €2.4 million negative profit impact of changes to the store site network in Sweden, and the €6.4 million sales gain on the divestment of machinery trade operations in the Baltics, completed on 31 March 2020. The most significant items affecting comparability in the comparison period were the €8.1 million costs related to the divestment of Onninen's HEPAC contractor business in Sweden.

Capital expenditure for the building and technical trade in January-September totalled €169.5 million (€314.6 million). Capital expenditure included €146.7 million (€232.8 million) in acquisitions.

Kesko reports Kesko Senukai Group, which is part of the building and technical trade segment and operates in the Baltic countries and Belarus, as a joint venture on one line in the consolidated income statement and balance sheet as of 1 July 2020. Kesko Senukai Group was reported as a subsidiary until 30 June 2020. The table below shows Kesko Senukai's financials for the reporting period and comparison periods and the share of result of joint ventures consolidated in Kesko's consolidated financial statements (7-9/2020) and reported in the illustrative comparison figures (1-9/2020, 1-12/2019, 1-9/2019, 7-9/2019).

Kesko Senukai financials, € million

7-9/2020 7-9/2019 1-9/2020 1-9/2019 1-12/2019
Net sales 250.8 235.4 678.1 635.2 860.1
Operating profit 18.8 10.2 36.4 22.5 34.6
Operating profit, comparable 18.8 10.3 36.4 22.6 34.7
Net profit for the period 11.9 3.9 18.9 8.5 15.9
Kesko Group's share of result of joint ventures 6.0 2.0 9.5 4.3 7.8
30.9.2020 30.9.2019 31.12.2019
Assets 813.9 717.5 721.2
Liabilities 613.2 543.1 529.2
Equity 200.7 174.4 191.9

The figures include Kesko Senukai's business and real estate companies.

Number of stores

9/2020 9/2019 12/2019
Building and technical trade
K-Rauta, Finland 132 132 131
K-Rauta, Sweden 18 18 18
K-Bygg, Sweden 36 33 34
Byggmakker and Carlsen Fritzøe, Norway 86 63 63
Onninen, Finland 57 56 57
Onninen and MIAB, Sweden 3 - -
Onninen, Norway 18 19 18
Onninen, Baltics 17 17 17
Onninen, Poland 36 36 36
Speciality goods trade
Intersport, Finland 53 53 54
Budget Sport 10 10 10
The Athlete's Foot 9 8 9
Kookenkä 32 33 34
Total 507 478 481

In addition, building and technical trade stores offer extensive e-commerce services to their customers.
Three Onninen stores in Finland operate on the same store premises with K-Rauta.

CAR TRADE

July-September 2020

7-9/2020

7-9/2019
Net sales, € million 244.3 222.9
Operating profit, comparable, € million 7.4 5.0
Operating margin, comparable, % 3.0 2.3
Return on capital employed, comparable, %, rolling 12 months 7.1 10.9
Capital expenditure, € million 14.1 61.0
Personnel, average 1,282 1,423

Net sales, € million

7-9/2020 7-9/2019 Change, % Change, comparable, %
Car trade 244.3 222.9 +9.6 +9.6

Net sales for the car trade in July-September totalled €244.3 million (€222.9 million), an increase of 9.6% on the previous year. Net sales increased as demand strengthened markedly for both new and used cars.

The combined market performance of first registrations of passenger cars and vans was -7.5% (-0.9%) in July-September. The combined market share of the Volkswagen, Audi, SEAT, Porsche and Bentley passenger cars and Volkswagen and MAN vans imported by the car trade division was 16.3% (16.5%) in July-September.

The comparable operating profit for the car trade in July-September totalled €7.4 million (€5.0 million). Operating profit for the car trade in July-September totalled €7.3 million (€4.9 million).

Capital expenditure for the car trade totalled €14.1 million (€61.0 million). Capital expenditure for the comparison period contained acquisitions totalling €46.1 million.

January-September 2020

1-9/2020

1-9/2019 1-12/2019
Net sales, € million 658.9 635.4 863.9
Operating profit, comparable, € million 17.3 17.8 26.8
Operating margin, comparable, % 2.6 2.8 3.1
Return on capital employed, comparable, %, rolling 12 months 7.1 10.9 9.5
Capital expenditure, € million 47.2 109.7 131.3
Personnel, average 1,281 1,127 1,179

Net sales, € million

1-9/2020 1-9/2019 Change, % Change, comparable, % 1-12/2019
Car trade 658.9 635.4 +3.7 -5.2 863.9

Net sales for the car trade in January-September totalled €658.9 million (€635.4 million). In comparable terms, net sales decreased by 5.2% in January-September. The comparable change % has been calculated excluding the impact of acquisitions completed in 2019. The Covid-19 epidemic weakened customer demand for both new and used cars in the first half of the year. Net sales saw a turnaround and began to grow in the third quarter thanks to strengthened demand.

The combined market performance of first registrations of passenger cars and vans was -17.4% (-9.5%) in January-September. The combined market share of the Volkswagen, Audi, SEAT, Porsche and Bentley passenger cars and Volkswagen and MAN vans imported by the car trade division was 16.5% (17.1%) in January-September.

The comparable operating profit for the car trade in January-September totalled €17.3 million (€17.8 million). Operating profit for the car trade in January-September totalled €17.2 million (€17.5 million).

Capital expenditure for the car trade totalled €47.2 million (€109.7 million). Capital expenditure for the comparison period contained the acquisitions of Huittisten Laatuauto and the Volkswagen, Audi and SEAT businesses of LänsiAuto and Laakkonen Group, in total €57.5 million.

Number of stores

9/2020 9/2019 12/2019
K-Auto 42 41 42
AutoCarrera 4 3 3
Total 46 44 45

CHANGES IN GROUP COMPOSITION

Kesko Corporation changed the consolidation method of Kesko Senukai in Kesko's consolidated financial statements from a subsidiary to a joint venture as of 1 July 2020.

On 2 September 2020, Kesko acquired the Swedish Bygg & Interiör building and home improvement trade stores. The acquisition complements Kesko's growing K-Bygg chain for professional builders in the Mälaren Valley region of Sweden.

On 2 September 2020, Kesko completed the acquisition of Carlsen Fritzøe Handel AS in Norway. The acquisition strengthens Kesko's position in the Oslo fjord region, where the Carlsen Fritzøe Handel network of 25 stores highly complements Kesko's existing Byggmakker store network.

Kesko Group simplified its corporate structure in Sweden by merging Onninen AB with K-Rauta AB on 1 May 2020. The name of the new company is Kesko AB. The merger did not impact the operations of Onninen or
K-Rauta in Sweden.

On 1 April 2020, Kesko acquired the Swedish Mark & Infra i Sverige AB (MIAB), a company specialising in the sales of water and sewage products. The acquisition will strengthen Onninen's technical wholesale offering to Infra customers in Sweden.

On 31 March 2020, Konekesko Oy divested its remaining shares in its Baltic subsidiaries.

In 2019, Byggmakker Sør AS assumed ownership of the building and home improvement stores and store properties of the Norwegian Sørbø on 31 January 2019. K-Caara assumed ownership of car trade businesses acquired from Huittisten Laatuauto and LänsiAuto on 1 March 2019. K-rauta AB assumed ownership of the Swedish building and home improvement group Fresks on 17 May 2019. The divestment of Onninen AB's HEPAC contractor business was completed on 15 May 2019. K-Caara assumed ownership of the Volkswagen, Audi and SEAT businesses acquired from Laakkonen Group on 1 July 2019. The Finnish agricultural machinery trade operations were divested on 1 August 2019.

SHARES, SECURITIES MARKET AND BOARD AUTHORISATIONS

At the end of September 2020, the total number of shares in Kesko Corporation was 400,079,008, of which 126,948,028, or 31.7%, were A shares, and 273,130,980, or 68.3%, were B shares. In the second quarter, the number of shares in Kesko Corporation increased following the resolution of the 28 April 2020 Annual General Meeting to carry out a share issue without payment (share split) (stock exchange releases on 28 April 2020 and 30 April 2020). On 30 September 2020, Kesko Corporation held 3,339,862 of its own B shares as treasury shares. These treasury shares accounted for 1.22% of the total number of B shares, 0.83% of the total number of shares, and 0.22% of the votes attached to all shares in the company. The total number of votes attached to all shares was 1,542,611,260. Each A share carries ten (10) votes and each B share one (1) vote. The company cannot vote with own shares held by it as treasury shares and no dividend is paid on them. At the end of September 2020, Kesko Corporation's share capital was €197,282,584.

The price of a Kesko A share quoted on Nasdaq Helsinki was €58.80 at the end of 2019 (€14.70 with the share split), and €21.20 at the end of September 2020, representing an increase of 44.22%. Correspondingly, the price of a B share was €63.08 at the end of 2019 (€15.77 with the share split), and €21.88 at the end of September 2020, representing an increase of 38.74%. In January-September 2020, the highest A share price was €21.55 and the lowest €10.40. The highest B share price was €22.30 and the lowest €10.41. The Nasdaq Helsinki All-Share index (OMX Helsinki) was up by 1.3% and the weighted OMX Helsinki Cap index down by 0.3% in January-September 2020. The Retail Sector Index was up by 21.85%.

The market capitalisation of the A shares was €2,691.3 million at the end of September 2020. The market capitalisation of the B shares was €5,903.0 million, excluding the shares held by the parent company. The combined market capitalisation of the A and B shares was €8,594.3 million, up by €2,479.6 million from the end of 2019.

In January-September, a total of 7.8 million A shares were traded on Nasdaq Helsinki (calculated with the post-split number of shares). The exchange value of the A shares was €120.1 million. Meanwhile, 161.6 million B shares were traded (calculated with the post-split number of shares), with an exchange value of €2,608.2 million. Nasdaq Helsinki accounted for over 90% of the trading of Kesko's A shares in January-September, and over 70% of the trading on B shares. Kesko shares were also traded on multilateral trading facilities, the most significant of which was Cboe (source: Euroland).

At the end of September 2020, the number of shareholders was 52,274, which is 11,099 more than at the end of 2019. At the end of September, foreign ownership of all shares was 36.65%, and foreign ownership of B shares 52.66%.

Kesko has a share-based commitment and incentive scheme. To implement the scheme, Kesko's Board of Directors may decide, within share issue authorisations granted by the company's General Meeting, to transfer Kesko B shares held by the company as treasury shares. In January-September 2020, Kesko Corporation transferred 381,124 Kesko B shares held as treasury shares to members of management and other selected key persons in accordance with the terms and conditions of share award plans. 3,692 B shares were returned to the company without consideration based on the same terms and conditions. The share numbers are presented as numbers following the share issue without payment (share split). Kesko issued related stock exchange releases on 12 March 2020 and 29 September 2020. Kesko issued a stock exchange release on 5 February 2020 regarding the most recent share-based commitment and incentive plans. Kesko Corporation also transferred a total of 8,158 of its own B shares held by the company as treasury shares to the members of Kesko's Board of Directors as part of the Board members' annual remuneration, and issued a related stock exchange release on 5 May 2020.

Kesko's Annual General Meeting of 28 April 2020 authorised the Board to decide on the issue of a total maximum of 40,000,000 new B shares and B shares held by the company as treasury shares. The authorisation is valid until 30 June 2021. The authorisation was communicated in a stock exchange release on 28 April 2020.

KEY EVENTS DURING THE REPORTING PERIOD

The Market Court in Finland announced its decision on Kesko's acquisition of the Heinon Tukku foodservice wholesale company, prohibiting the transaction. (Press release 17.2.2020)

Kesko agreed to acquire the Swedish Mark & Infra i Sverige AB (MIAB), a company specialising in the sales of water and sewage products. The acquisition will strengthen Onninen's technical wholesale offering to Infra customers in Sweden. (Press release 6.3.2020)

Kesko issued a profit warning due to the Covid-19 pandemic and related global economic uncertainty. Kesko cancelled its previous outlook statement regarding the net sales for continuing operations and changed the outlook statement regarding the comparable operating profit for continuing operations, both issued in connection with the financial statements release on 5 February 2020. (Stock exchange release 18.3.2020)

Kesko's Board of Directors decided to cancel the Annual General Meeting convened for 30 March 2020 due to developments concerning the Covid-19 coronavirus, and to reconvene a new meeting later on. (Stock exchange release 19.3.2020)

The Danish Agro Group company DA Agravis Machinery Holding A/S acquired Konekesko Oy's remaining stake in its Baltic subsidiaries. (Press release 31.3.2020)

Kesko announced that it would adjust its operations due to the coronavirus epidemic. Temporary lay-off measures were estimated to affect approximately 2,000 Kesko employees in Finland - Kesko managed to significantly reduce the number with employee transfers between units. (Press release 3.4.2020)

Kesko's Annual General Meeting convened on 28 April 2020. (Stock exchange releases 7.4.2020 and 28.4.2020)

A total of 95,211,021 new A shares and 204,848,235 new B shares issued in the share issue without payment (share split) decided upon by the Annual General Meeting of Kesko Corporation on 28 April 2020 were entered in the Finnish Trade Register on 30 April 2020. In the share issue without payment, new shares were issued to the shareholders in proportion to their existing holdings, so that three (3) new A shares were issued for each A share held, and three (3) new B shares for each B share held. (Stock exchange release 30.4.2020)

K Group raised its climate goals to a new level and will strive to become carbon neutral by 2025. K Group will seek to systematically reduce emissions to reach net zero emissions from its own operations and transports by 2030. (Press release 12.5.2020)

Kesko issued a positive profit warning and provided preliminary information on its second-quarter net sales and comparable operating profit. Kesko raised its guidance for the comparable operating profit for its continuing operations, issued in connection with the company's interim report on 28 April 2020. (Stock exchange release 10.7.2020)

Kesko's subsidiary Byggmakker Handel AS acquired Carlsen Fritzøe Handel AS, a Norwegian operator in the building and home improvement trade with net sales of approximately €201 million in 2019. The acquisition strengthens Kesko's position in the Oslo fjord region, where the Carlsen Fritzøe Handel network of 25 stores complements Kesko's existing Byggmakker store network. (Press releases 8.7.2020 and 2.9.2020)

Kesko acquired the Swedish Bygg & Interiör building and home improvement trade stores. The acquisition complements Kesko's growing K-Bygg chain for professional builders in the Mälaren Valley region of Sweden. (Press release 2.9.2020)

Kesko's Annual General Meeting of 28 April 2020 resolved to establish a Shareholders' Nomination Committee. The Committee will prepare proposals related to the number, election and remuneration of Board members to Kesko's General Meeting of shareholders. The Nomination Committee has three members: two appointed by Kesko's biggest shareholders and one who is the Chairman of Kesko's Board of Directors. (Stock exchange release 11.9.2020)

Kesko announced that it would be changing the consolidation method of Kesko Senukai Group, which is part of the building and technical trade segment and operates in the Baltic countries and Belarus, from a subsidiary to a joint venture in its consolidated financial statements as of 1 July 2020. Kesko Senukai Group was reported as a subsidiary until 30 June 2020. (Stock exchange release 17.9.2020)

Kesko issued a positive profit warning and raised its guidance for the 2020 comparable operating profit for its continuing operations. Kesko estimated that the comparable operating profit for its continuing operations would be in the range of €510-570 million in 2020. The guidance upgrade was based on better than anticipated sales development in all divisions, improved cost efficiency, and a more positive outlook for the remainder of the year. (Stock exchange release 17.9.2020)

Karoliina Partanen, M.Sc. (Soc.), was appointed Executive Vice President in charge of Communications, Brand and Stakeholder Relations and a member of Kesko's Group Management Board as of 1 October 2020. (Stock exchange release 18.9.2020)

RESOLUTIONS OF THE 2020 ANNUAL GENERAL MEETING AND DECISIONS OF THE BOARD'S ORGANISATIONAL MEETING

The Annual General Meeting of Kesko Corporation on 28 April 2020 adopted the financial statements and consolidated financial statements for 2019. The Annual General Meeting resolved to distribute a dividend of €2.52 per share on shares held outside the Company, to be paid in two instalments. The record date of the first dividend instalment of €1.28 per share was 30 April 2020 and pay date 8 May 2020. The record date of the second dividend instalment of €0.31 per share was 1 October 2020 and pay date 8 October 2020.

The resolutions of the Annual General Meeting and the decisions of the Board's organisational meeting were communicated in more detail in stock exchange releases on 28 April 2020.

SUSTAINABILITY

K Group began deliveries with two all-electric trucks in the greater Helsinki region. The move is part of logistics efforts to ensure K Group becomes carbon neutral by 2025.

Solar power plants were built on the rooftops of K-Citymarket Mäntsälä, K-Citymarket Rusko in Oulu and Kesko's logistics terminal in Oulu. By the end of the year, K Group will have 42 solar power plants with a combined power of some 13.5 MWp and electricity production capacity of some 11.4 GWh.

A new feature was introduced to the K-Ostokset service, showing customers nutritional information based on their purchase data. Customers can compare their consumption with national nutrition recommendations, and set goals such as reducing their consumption of salt or buying more fish.

K Group launched a collaboration with a juice maker to turn discarded fruit, vegetable and berries from K Group's central warehouse into juice that can be sold in K-food stores.

RISK MANAGEMENT

The impacts of Covid-19 on Kesko's operations in all operating countries from March onwards represent a material change to the risks described in Kesko's 2019 Report by the Board of Directors and financial statements. The key risks related to the virus concern the health and safety of personnel and customers. In the latter half of the year, the biggest risk related to the coronavirus is the second wave of the epidemic in Kesko's operating countries and the resulting impacts on Kesko's operations.

Risk management in Kesko Group is guided by the risk management policy approved by Kesko's Board of Directors. The policy defines the goals and principles, organisation, responsibilities and practices of risk management in Kesko Group. In the management of financial risks, the Group's treasury policy, confirmed by Kesko's Board of Directors, is observed. The management of business operations and common functions are responsible for the execution of risk management. Kesko Group applies a business-oriented and comprehensive approach to risk assessment and management. This means that key risks are systematically identified, assessed, managed, monitored and reported as part of business operations at Group, division, company and function levels throughout the Group.

The Group's risk map, the most significant risks and uncertainties, as well as material changes in and responses to them are reported to the Kesko Board's Audit Committee quarterly in connection with the review of interim reports, the half year financial report and financial statements. The Audit Committee Chair reports on risk management to the Board as part of the Audit Committee report. The most significant risks and uncertainties are reported to the market by the Board in the Report by the Board of Directors and any material changes in them in the interim reports and the half year financial report.

The risks and uncertainties related to economic development are described in more detail in the outlook section of this release.

Helsinki, 28 October 2020
Kesko Corporation
Board of Directors

The information in this interim report is unaudited.

Further information is available from Jukka Erlund, Executive Vice President, Chief Financial Officer, telephone +358 105 322 113, Hanna Jaakkola, Vice President, Investor Relations, telephone +358 105 323 540, and Eva Kaukinen, Vice President, Group Controller, telephone +358 105 322 338. A Finnish-language webcast of the interim report briefing can be viewed at 11.00 am (EET) at www.kesko.fi. An English-language audio conference on the interim report briefing will be held today at 12.30 noon (EET). The audio conference login is available on Kesko's website at www.kesko.fi.

Kesko Corporation's January-December 2020 financial statements release will be published on 3 February 2021. In addition, Kesko Group's sales figures are published monthly. News releases and other company information are available on Kesko's website at www.kesko.fi.

ATTACHMENT: Kesko Q3 2020 Interim Report pdf

DISTRIBUTION
Nasdaq Helsinki Ltd
Main news media

www.kesko.fi