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Kesko - Interim Report 2/99

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Kesko - Interim Report 2/99 Kesko - Interim Report 2/99 Kesko Group's net sales for the period from 1 January to 31 August 1999 totalled EUR 4,011 million, which was 1.7% more than during the corresponding period in 1998 (EUR 3,945 million). The Group's profit before extraordinary items for the period was EUR 83.0 million (EUR 72.9 million), which is 2.1% of net sales (1.8%). Earnings per share were EUR 0.66 (EUR 0.59). Equity per share was EUR 15.59 (EUR 14.92). The figures are unaudited. Market review The trading sector developed less favourably than expected during the first eight months of the year. According to Statistics Finland, the volume of wholesale sales, adjusted for the annual number of trading days, increased by 4.0% from January to July, and the volume of retail sales by 4.2%. The wholesale sales of consumer goods in particular developed poorly in several product groups. Car sales, however, have continued to grow throughout the year. Although 1999 as a whole is expected to be the sixth successive year of growth for the trading sector, but the growth will be smaller than projected. There is no single reason for this, but one factor is that consumers' money is increasingly spent on various services rather than goods. Trading was characterised by great seasonal fluctuations in the early part of the year. According to the Research Institute of the Finnish Economy, private consumption will grow this year by 3.5%, compared with the estimate of a 5% growth made at the beginning of this year. Private investment is expected to increase by 9.5%. According to Statistics Finland, consumer prices increased by 1.0% from January to September 1999 compared with the same period in 1998. Statistics Finland's consumer survey of September 1999 shows that the confidence of Finnish consumers in favourable economic growth is still strong, but has slightly weakened since June. The expectations of households for an improvement in their economic situation continued to be optimistic. Their willingness to borrow is still strong. Net sales Kesko Group's net sales for the period from 1 January to 31 August 1999 totalled EUR 4,011 million, which was 1.7% more than during the corresponding period in 1998 (EUR 3,945 million). In the foodstuffs sector, sales to large-scale customers and big grocery stores increased the most. The increased share of sales by department stores in the Group figures contributes to the accumulation of net sales and performance towards the end of the year. Car sales developed favourably, whereas the sales of home technology and agricultural products decreased. At the end of the period, there were nearly 1.2 million households included in the Plussa customer loyalty programme and about 2.1 million Plussa cardholders. Net sales by profit division 1-8/1999 1-8/1998 Change EUR million EUR million % Foodstuffs Division 2,123 2,050 3.6 Home and Speciality Goods Division 525 552 -4.9 Builders' and Agricultural Supplies Division 863 877 -1.6 Kaukomarkkinat 173 183 -5.8 VV-Auto 320 277 15.5 Others 7 6 51.0 Group total 4,011 3,945 1.7 Performance The Group's profit before extraordinary items amounted to EUR 83.0 million (EUR 72.9 million), which is 2.1% of net sales (1.8%). The operating profit includes a total of EUR 22.7 million from gains on the sale of shares and real estate, from the amortisation of the goodwill on consolidation returned and from the reduction in the value of shares. During the same period in 1998, they totalled EUR 26.1 million. Pension costs decreased by EUR 7.9 million. As a result of the small growth in net sales, the operating profits of the Group's commercial divisions did not develop as expected. The Group has made a provision of EUR 13.5 million for the structural change in the Home and Speciality Goods Division. It has not been allocated to the profit division's figures. Anttila Group's operating profit increased by EUR 3.1 million, but still showed a loss of EUR 9.7 million. VV-Auto Group's operating profit grew by EUR 3.9 million to EUR 17.6 million. The operating profit of Citymarket Oy, engaged in the non-food trade of the Citymarket hypermarkets, was EUR 1.3 million, representing a decrease of EUR 5.5 million. The change resulted mainly from the opening costs of two new Citymarket hypermarkets in the spring of 1999. After the period under review, a Citymarket hypermarket, an Anttila department store and several speciality stores were opened in the Jumbo shopping centre in Vantaa. Their establishment expenses affected the Group's profit during the period. Kesko Svenska AB again showed an operating loss, resulting from an investment to extend the K-rauta chain. Two new K-rauta hardware department stores were opened in Sweden. Business operations of Aleksi 13 were unprofitable, and a decision has been made to relinquish them. The Group's net financial income was EUR 7.5 million (EUR 0.5 million). The change was due to a decrease in financing costs. The return on investment was 7.7% (7.6%) and the return on equity was 6.3% (5.7%). Earnings per share were EUR 0.66 (EUR 0.59). Equity per share was EUR 15.59 (EUR 14.92). Operating profit by profit division 1-8/1999 1-8/1998 EUR million EUR million *) Foodstuffs Division 39.4 46.8 Home and Speciality Goods Division -12.7 -9.6 Builders' and Agricultural Supplies Division 15.5 11.6 Kaukomarkkinat 4.9 7.6 VV-Auto 17.5 12.8 Total 64.6 69.2 Common divisions 10.9 3.2 Group’s operating profit 75.5 72.4 Net financial income 7.5 0.5 Associated companies 0 0 Profit before extraordinary items 83.0 72.9 The common divisions include the Resource Division and the Finance and Administration Division. Their results, including the profits and losses on the sale of shares and real estate have not been allocated to the profit divisions engaged in business operations. Other expenses resulting from corporate administration have been allocated to the profit divisions in the table. *)Figures for 1998 have been converted to comparable ones. Investments The Group's total investments amounted to EUR 128.2 million (EUR 128.8 million), which is 3.1% (3.2%) of net sales. The investments in Kesko's wholesale operations and subsidiaries' real estate, information technology and fixtures totalled EUR 38.6 million, while investments in the buildings, fixtures and information technology of retail stores amounted to EUR 89.6 million. Finance The Group's financial position remained good. Investments were financed by funds generated from operations, with the cash flow before financing amounting to EUR 133.1 million. The equity ratio was 56.6% (54.3%). At the end of the period, the interest-bearing net debt totalled EUR 42.7 million (EUR 241.3 million). Personnel The average number of personnel in the Group was 11,042 (11,208), divided by profit division as follows: 1-8/1999 1-8/1998 Foodstuffs Division 4,872 4,815 Home and Speciality Goods Division 3,039 3,278 Builders' and Agricultural Supplies Division 1,355 1,389 Kaukomarkkinat 789 741 VV-Auto 102 97 Others 885 888 Total 11,042 11,208 The number of Kesko Group personnel has decreased by 166 persons. The numbers of personnel grew both in Citymarket Oy and Anttila Oy as they opened new stores and in Kaukomarkkinat Oy due to the expansion of the Tähti Optikko chain. Respectively, the number of personnel was reduced by the sale of Rautia stores and the foodstuffs departments in the Anttila department stores to independent retailers and by turning some of Carrols Oy's fast food outlets into franchisee-run businesses. The Group employed 454 persons abroad. The personnel strategy has been drawn up for the Kesko Group. Its main emphasis is on the management of expertise, the well-being of personnel, and flexible and fast decision-making near employees. The measures for implementing the strategy are under way. The job satisfaction survey is being arranged for the fifth time. Development by profit division Foodstuffs Division The Division's net sales totalled EUR 2,123 million, a growth of 3.6%. The operating profit totalled EUR 39.4 million (EUR 46.8 million). The Division's operating profit decreased owing to a lower-than-expected increase in net sales and large investments in the store network. The Division's return on capital employed was 11% (11%), and investments amounted to EUR 58.8 million. Among the Division's chain units, the sales by the Citymarket Chain Unit and the Superstore Chain Unit developed favourably. The sales by the Neighbourhood Chain Unit remained at the level of the previous year. The attraction of large retail outlets has continued to grow. In January-August, 22 new K-grocery stores were opened, including Citymarket hypermarkets in Joensuu and Riihimäki and K-superstores in Pieksämäki and Espoo. After the end of the interim period in October, a Citymarket hypermarket was opened in the Jumbo shopping centre in Vantaa. The expansion of the Carrols restaurant chain has continued rapidly, with ten new Carrols hamburger restaurants being opened in Finland during the period. The total annual sales of the Foodstuffs Division will fall short of the growth target, and the Division's operating profit is expected to remain at the level of the previous year.
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