FINLAND: Kesko earnings rise on cost cuts
Kesko forecasts flat sales, profits in 2014
Finnish retailer Kesko has booked an increase in profit despite weaker sales, as the group benefited from cost cutting.
Kesko said net profit was EUR185m (US$249.8m) in 2013, compared to EUR136m in 2012. Adjusted earnings per share rose to EUR1.68 from EUR1.47. Operating profit rose to EUR238.8m, up from EUR230m in 2012. Gains were driven by "the implementation of enhancement measures", Kesko said.
The company reported higher profits in the face of a 4% drop in revenue. Sales in the 12-month period were down 3.8% to EUR9.32bn.
In its food division, Kesko said sales were up 1.4% and operating profit was up 3.5%.
Looking to the coming 12 months, the company forecast flat sales and earnings "unless consumer demand weakens significantly".
Kesko's financial statements release for the period 1 Jan. 2013 to 31 Dec. 2013
KESKO CORPORATION STOCK EXCHANGE RELEASE 04.02.2014 AT 09.00 1(34)
Financial performance in brief:
* The Group's net sales for January-December €9,315 million, change -3.8%
* Due to the implementation of enhancement measures, the operating profit excluding non-recurring items increased to €238.8 million (€230.0 million).
* Earnings per share excluding non-recurring items €1.68 (€1.47)
* The Board proposes a dividend of €1.40 per share
* Equity ratio 54.5% (52.5%)
* Kesko Group's net sales and operating profit excluding non-recurring items for the next twelve months are expected to remain at the level of the preceding twelve months, unless the overall consumer demand weakens significantly.
Key performance indicators
|Net sales, € million||9,315||9,686||2,362||2,459|
|Operating profit excl. non- recurring items, € million||238.8||230.0||66.8||70.9|
|Operating profit, € million||248.4||212.0||68.0||51.8|
|Profit before tax, € million||242.3||210.5||67.9||52.1|
|Capital expenditure, € million||171.5||378.3||46.6||103.8|
|Earnings per share, diluted, €||1.75||1.26||0.60||0.23|
|Earnings per share excl. non-recurring items, basic, €||1.68||1.47||0.59||0.44|
|Equity ratio, %||54.5||52.5|
|Equity per share, €||22.96||22.48|
Net sales and profit for January-December 2013
The Group's net sales for January-December 2013 were €9,315 million, which is 3.8% down on the corresponding period of the previous year (€9,686 million). Especially in Finland, the weakening of the general economic situation and consumer demand contributed to the decline of net sales in the home and speciality goods trade and the building and home improvement trade. In Finland, net sales decreased by 3.3% and in the other countries by 6.1%. Net sales performance in the other countries was materially impacted by exchange rate changes and the sales decline in the building and home improvement trade in Norway resulting from the retailer changes that took place in the Byggmakker chain in the previous year. International operations accounted for 17.8% (18.2%) of net sales. Net sales grew in the food trade and declined in the other divisions.
|1-12/2013||Net sales, € million||Change, %||Operating profit
excl. non- recurring
items, € million
|Home and speciality goods trade||1,457||-9.1||-8.3||-27.9|
|Building and home improvement trade||2,607||-7.8||25.7||+12.4|
|Car and machinery trade||1,037||-6.9||33.9||-8.0|
|Common operations and eliminations||-173||-2.4||-15.8||-3.5|
The operating profit excluding non-recurring items for January-December was €238.8 million (€230.0 million). The enhancement measures of the profitability programme had a significant positive impact on the Group's profit performance. Operating expenses decreased by €87 million regardless of store site network expansion and cost inflation. In the previous year, costs were reduced and the operating profit excluding non-recurring items was improved by the €12 million amount recognised as revenue in connection with the transfer of the pension insurance portfolio. The operating expenses for the previous year included write-offs of €6 million related to personnel reductions and non-recurring expenses of €20.8 million.
Operating profit was €248.4 million (€212.0 million). The operating profit includes €9.6 million (€-18.0 million) of non-recurring items. The non-recurring items include gains on the disposals of properties in the amount of €9.4 million (€2.7 million). The non-recurring items for the previous year included an impairment of Anttila's goodwill, a reversal of the impairment of Indoor's brand and non-recurring expenses for restructuring Musta Pörssi's business operations.
The Group's profit before tax for January-December was €242.3 million (€210.5 million).
The Group's earnings per share were €1.75 (€1.26). The Group's equity per share was €22.96 (€22.48).
In January-December, the K-Group's (i.e. Kesko's and the chain stores') retail and B2B sales (VAT 0%) were €11,575 million, down 4.4% compared to the previous year. The K-Plussa customer loyalty programme gained 74,317 new households in January-December. At the end of December, there was 2,251,311 K-Plussa households and 3.9 (3.8) million K-Plussa cardholders.
Net sales and profit for October-December 2013The Group's net sales for October-December 2013 were €2,362 million, which is 3.9% down on the corresponding period of the previous year (€2,459 million). Net sales decline was mainly attributable to the fall in the net sales of the home and speciality goods trade and the building and home improvement trade. In Finland, net sales decreased by 3.2% and in the other countries by 7.2%. International operations accounted for 16.5% (17.1%) of net sales.
|10-12/2013||Net sales, € million||Change, %||Operating profit
excl. non- recurring
items, € million
|Home and speciality goods trade||439||-9.9||21.6||-10.7|
|Building and home improvement trade||596||-9.4||-1.1||+9.8|
|Car and machinery trade||226||-0.4||3.3||-1.3|
|Common operations and eliminations||-46||-3.6||-5.4||-5.3|
The operating profit excluding non-recurring items for October-December was €66.8 million (€70.9 million), representing 2.8% (2.9%) of net sales. In terms of operations, profitability was better than in the previous year considering that the operating profit excluding non-recurring items for the comparative period included a €15 million amount recognised as revenue in connection with the transfer of the pension insurance portfolio. The enhancement measures implemented had a significant positive impact on profit performance. Operating profit was €68.0 million (€51.8 million). The operating profit includes €1.2 million (€-19.1 million) of non-recurring items. The non-recurring items for the comparative period included an impairment of Anttila's goodwill, a reversal of the impairment of Indoor's brand and non-recurring expenses for restructuring Musta Pörssi's business operations.
The Group's profit before tax for October-December was €67.9 million (€52.1 million).
The Group's earnings per share were €0.60 (€0.23).
In October-December, the K-Group's (i.e. Kesko's and the chain stores') retail and B2B sales (VAT 0%) were €2,945 million, down 5.0% compared to the previous year.
In January-December, the cash flow from operating activities was €413.8 million (€381.7 million). The cash flow from investing activities was €-152.0 million (€-390.7 million) including a €21.8 million (€24.5 million) amount of proceeds from the sales of fixed assets.
The Group's liquidity remained at an excellent level in January-December. At the end of the period, liquid assets totalled €681 million (€489 million). Interest-bearing liabilities were €554 million (€624 million) and interest-bearing net debt €-126 million (€135 million) at the end of December. Equity ratio was 54.5% (52.5%) at the end of the period.
In January-December, the Group's net finance costs were €5.8 million (€0.6 million). The increase in net finance costs was attributable to the low Euribor rates which reduced the return on liquid assets.
In October-December, the cash flow from operating activities stood at €114.5 million (€175.4 million). The cash flow from investing activities was €-38.7 million (€-115.7 million) including a €5.1 million (€1.9 million) amount of proceeds from the sales of fixed assets.
In October-December, the Group's net finance costs were €0.4 million (net finance income €1.1 million).
The Group's taxes for January-December were €57.7 million (€74.6 million). The effective tax rate was 23.8% (35.5%), affected by loss-making foreign operations. The Group's tax rate was affected by the reduction of the corporate tax rate to 20% effective from 1 January 2014 in Finland, which is why deferred taxes of €14 million were recognised as income. The impact of the tax rate change in the Group's tax rate for January-December was 5.6 percentage points.
The Group's taxes for October-December were €5.3 million (€26.9 million). The effective tax rate was 7.9% (51.7%). The impact of change in the Finnish tax rate in the tax rate for October-December was 20.0 percentage points.
In January-December, the Group's capital expenditure totalled €171.5 million (€378.3 million), or 1.8% (3.9%) of net sales. Capital expenditure in store sites was €125.5 million (€310.0 million), in IT €22.9 million (€22.1 million) and other capital expenditure was €23.2 million (€46.1 million). Capital expenditure in foreign operations represented 41.3% (22.9%) of total capital expenditure.
In October-December, the Group's capital expenditure totalled €46.6 million (€103.8 million), or 2.0% (4.2%) of net sales. Capital expenditure in store sites was €33.0 million (€71.5 million), in IT €6.8 million (€4.2 million) and other capital expenditure was €6.8 million (€28.0 million). Capital expenditure in foreign operations represented 37.8% (31.7%) of total capital expenditure.
Kesko's strategic focus areas and profitability programme
The key focus areas in Kesko's business operations are to strengthen sales growth and the return on capital in all divisions, to exploit business opportunities in e-commerce and in Russia, and to maintain good solvency and dividend payment capacity.
As a result of a weakened general economic situation, tightened competition and an increase in the level of costs, Kesko is implementing the profitability programme announced previously, aimed to ensure price competitiveness and to improve profitability. The profitability programme includes significant measures aimed to increase sales, to enhance purchasing operations and to adjust costs, working capital and capital expenditure.
The Group level cost saving target of a total of around €100 million was achieved in 2013. In 2013, Kesko's operating expenses were €1,767 million, representing a net decrease of €87 million (-4.7%) from the previous year regardless of store site network expansion and cost inflation.
Measures for staff cost enhancement were implemented as announced previously. In addition to terminations, reductions included reduced working hours and retirement arrangements. Other significant savings were implemented by adjusting especially marketing and store site expenses and by centralising ICT purchases. In addition, special enhancement measures were targeted at operations with low profitability.
In the next few years, capital expenditure will be aligned with funds generated from operations to some €200-300 million per year.
Improving Anttila's profitability
In the home and speciality goods trade, the increase of online shopping and increased competition have considerably weakened the profitability of Anttila and the home technology trade. In order to improve profitability, plans are made to close some rented store sites during the next two years. The closures are expected to cause non-recurring expenses amounting toapproximately 20 to 30 million euros during the first quarter. Approximately one third of the current Anttila department store network is planned to be closed. At the same time, the selection of products in the NetAnttila and Musta Pörssi online stores will be considerably expanded, and the Anttila and Kodin1 department store concepts will be renewed.
Kesko looks into setting up a real estate fund
In 2013, Kesko reviewed the criteria on which store sites owned by it are classified as strategic and other properties. As at 31 December 2013, according to the new classification, 53% of store sites are strategic, compared to 78% in the old classification.
Kesko is looking into selling some of its store sites to a fund to be set up with Kesko as one of its major investors. Kesko Group would continue its operations in the store sites under long-term leases signed in connection with their sales to the fund.
Kesko's objective is to set up a fund of mainly Kesko-owned store sites and shopping centres in Finland, Sweden and Russia with a maximum fair value of approximately €750 - 950 million.
Launching the real estate investment fund depends, in addition to investor interest, on whether it is possible for Kesko to achieve such terms and conditions in the arrangement that are commercially viable for it, taking the Group's strong financial position into account. Moreover, starting a real estate investment fund is subject to the authorisation of the Financial Supervisory Authority.
The possible fund is expected to be launched in the course of 2014.
Original source: Kesko
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