Questions and President and CEO Mikko Helander's Answers
Total Page：16
File Type：pdf, Size：1020Kb
Questions and President and CEO Mikko Helander’s answers at Kesko's Q1/2015 media and analyst briefing on 28 April 2015 Rauli Juva of Nordea: The profit of your grocery trade fell quite a lot. Was it entirely related to your actions in pricing and the competitive situation, or was there something else in the background? Mikko Helander: Yes, the main reason is that the purchasing power of Finnish consumers has decreased over the last three years and the trend seems to continue in 2015. Consumers simply look for cheaper products and the consumption is therefore somewhat lower. But on the other hand, we must not forget that out customer flows have strengthened and we have seen it very important that in such a competitive situation, we can attract more customers to our stores and in that respect, we have succeeded very well. Another thing is that the perception that our stores are the better, high-quality food stores has strengthened further. We are confident that when these things develop in the direction they are now going we will achieve even better results in the future. Rauli Juva of Nordea: You said that stopping the decline of your grocery trade market share and turning the trend upward in Finland is one of your focus areas. Are your prepared to sacrifice profitability for that purpose? Mikko Helander: The decisive factor is the way in which the Finnish economy develops. And as I said, the first signs of a turnaround have been seen. My personal forecast is that the signs will become clearer during the latter half of this year and that in 2016, the operating environment will be somewhat better. National economy is definitely in a central role with respect to the trading sector as a whole. And when we take care that increasing numbers of customers visit our stores we have good reason to be optimistic about the future. Rauli Juva of Nordea: You also said that the improvement of profitability in your home improvement and speciality goods trade in Scandinavia is another focus area. Will it require some additional measures? Mikko Helander: Additional measures will certainly be needed. Now we in Kesko’s management and in the division understand the reasons why in recent years, the home improvement and speciality goods trade in Scandinavia has not been as successful as in all of the other markets. On that basis, the measures that have now been initiated and as the division management and the whole Group’s management invest in Scandinavia we rely on our ability to do good home improvement business also in Scandinavia. And we could also ask why not succeed there when we succeed everywhere else? Let me give you an example: one of the key issues in Sweden is B2B trade. For a number of reasons, we have neglected that sector altogether and have not invested in it the same way as in the others. Now that we have changed that, we have achieved very strong growth figures, which has been one element in the positive performance in the Swedish market. Minna Nalbantoglu of Helsingin Sanomat: Could you please explain in more detail how you are going to turn around the decline of your market share. What are you going to do? Mikko Helander: In the most central role are quality, customer service and taking care that we deliver the quality promises we make to consumers. Another important thing is that we must increasingly intensify our cooperation with the Finnish food manufacturing industry and Finnish agriculture, which will then enable us to be more efficient and more competitive, as well as to serve Finnish consumers better in terms of both price and quality. Pia Leino of STT: I’d like to ask about the situation in Russia: your food trade seems to be profitable at least in St. Petersburg, but you have closed a couple of Intersport stores. What kind of practical impacts do the sanctions have on your operations? And are you going to continue there with the same concepts as in Finland, or are you planning some localised modifications? Mikko Helander: Firstly about profitability; it should not be forgotten that our home improvement trade in Russia is profitable, because for one thing, we launched it much earlier than our food trade there and the13 large K-rauta stores now provide sufficient volume. The profitability of our food trade in Russia has developed exactly as planned, but achieving a positive result requires that the original business plans are implemented and the number of stores is increased. The important thing is now that the experiences we have gained over the last three years have proven that the food store concept we have developed for Russia works well. As for Intersport, the situation can be compared to the food trade: the business was started only a few years ago, the number of stores is still quite small, 17 in all, and volumes are quite low. In other words, we will expand the concept roll-out, canvas more local partners and retailer entrepreneurs to generate volume and visibility and also improve profitability. Admittedly, Intersport is quite a small element in the whole of our Russian operations compared to our food trade and especially our home improvement trade. Niclas Catani of OP Pohjola: You have stressed the importance of quality in the competition in the grocery trade. Isn’t it in contradiction with your actions to lower prices to improve your competitiveness, and isn’t there a lack of confidence in your strategy? Mikko Helander: I don’t see it like that, because as I’ve already said today, we’ve already lowered the prices of some 650 products. Moreover, we have increased and will continue to increase the K-Menu product family, which is the affordable choice for consumers. We have expanded the Pirkka product range and re-launched the premium sub-range, Pirkka Parhaat. There are lots of consumers whose purchasing power has weakened and there are lots of households where money is a limited resource, which is why it’s also our duty to offer such consumers a good, affordable quality alternative. But at the same time, we should remember that for most Finnish consumers, price is not the number one criterion. Instead, they appreciate high quality, good selections, fine stores in good locations, responsibility and a number of other factors. It is our duty to serve all customer groups and that’s what we are doing. Our results for the last few months show that we have done it even better than before. We have been and in the future, we want even more clearly to be the different operator in the Finnish grocery trade. Niclas Catani of OP Pohjola: So, can it be said that the decline in the profitability of your grocery trade is the result of the fact that you have lowered your own margins and your selling mix has deteriorated? Mikko Helander: It is not as simple as that, because at the same time, we have strengthened the sales of our own brand products, K-Menu and Pirkka, whose retail price is, in principle, lower than that of the so-called A brand products. But on the other hand, our margins in them are, however, at a good level. The single major explanatory factor is the fact that consumers spend less money on food. The average purchase amounts have decreased. The reason is, first and foremost, the prolonged period of declining purchasing power. I’m confident that as soon as this sentiment begins to change, the economic trend will start improving and there is no reason why Finnish consumers would not be willing to start buying a little more products and products of a little higher quality. Niclas Catani of OP Pohjola: The preparatory work for your real estate arrangement is taking quite long. Could you explain in more detail what’s happening? Mikko Helander: We are negotiating. It should not be forgotten than this is a large-scale arrangement for both Kesko and the possible partners. In my opinion, there have not been any dramatic developments in the negotiations. It is a major arrangement and all parties want to do their work properly. Determined work has been done and I am confident that we will have clarity on this matter by the given deadline and then we’ll know whether the arrangement will be implemented or not. That depends on whether the terms are good enough for Kesko, bearing in mind that Kesko’s financial position is very strong. It’s as simple as that without any dramatics. Iiris Theman of Carnegie: What was the sales performance of your grocery trade in March compared to January and February, if we exclude the impact of Easter? Mikko Helander: The performance was good when we think about the price reductions announced by the competitor in mid-January. We then launched somewhat bigger actions a little more than week later as a continuation of the extensive price reductions we had already made toward the end of last year. In February, we had already recovered quite well, which could be seen in our customer flows. The March performance was even better. Evidence of our good performance is available in the monthly retail sales figures we have published. Comparison with the figures of other retail operators will show that we have succeeded quite well in this interesting market situation. Iiris Theman of Carnegie: Was the decline in the profitability of your grocery trade due to food, and what was the profitability performance of non-food? Mikko Helander: It was mainly due to food, no material change took place in the profitability of non-food.