Kesko’s Journey Towards a More Focused Retailing Company Inv nvestor tor Present esentat atio ion n Q3/2018 1
K Group and Kesko in Brief Biggest in Finland , Profitable growth 42,000 employees, #1 #3 in Northern Europe strategy in 3 core 1,800 stores and with retail sales of divisions comprehensive digital nearly € 13bn services in 8 countries Strong financial Market cap approx. World’s most position with good € 5bn with 41,000 sustainable trading dividend capacity shareholders sector company 2 KESKO | Investor Relations | Q3/2018
Core Divisions at a Glance Gro rocer ery Tra rade de Buildi lding ng and d Technic nical l Tra rade Car Tra rade • • • Net sales approx. € 5.4bn Net sales approx. € 4bn Market leader with net sales of € 0.9bn+ • Quality leader in the Finnish grocery market: • #1 operator in building and technical trade • Operating the Volkswagen Group’s #2 in grocery retailing, #1 in foodservice B2B in Northern Europe business in Finland: Audi, Volkswagen, SEAT, Porsche and MAN • Rapidly expanding online food store network • 430 stores in 8 countries • Value chain includes importing, retailing • • Market share at its highest in >15 years, ~37% 0.3m customer contacts per day and after sales as well as an extensive • • 1.2m customer visits per day Comprehensive digital services dealer and servicing network • • 1,200+ stores in the retailer business model Serves three customer segments – • Various service concepts developed B2B share approx. 70% • One of the most profitable players in Europe under the K-Caara platform 3 KESKO | Investor Relations | Q3/2018
Net Sales and Operating Profit by Division Net sales Comparable operating profit € 921m € 34.2m 9% 10% € 372m € 5.6m 4% 2% € 10,302m € 322.0m € 5,355m € 85.4m € 3,653m € 223.2m 52% 24% 35% 64% Grocery trade Building and technical trade excl. speciality goods trade Speciality goods trade Car trade Rolling 12 months Q3/18, continued operations 4 KESKO | Investor Relations | Q3/2018
Group Management Board Jorma Rauhala President of the Ari Akseli Mikko Helander Johan Friman building and President of President and President of the technical trade the grocery trade CEO car trade division division, Deputy division to President and CEO Anni Ronkainen Matti Mettälä Mika Majoinen Jukka Erlund EVP, EVP, HR, Group General EVP, Chief Digital Corporate Counsel Chief Financial Officer Responsibility Officer and Regional Relations 5 KESKO | Investor Relations | Q3/2018
Steady Progress Towards a Strong, More Focused Company Through Successful Portfolio Transformation Acquis uisit itio ions ns Investments in core business operations € 1.5bn, 10/2018 Sørbø retailer divestments € 1.0bn Divest estments ments group* 6/2018 6/2018 1A Group Gipling, Skattum 6/2018 7/2018 Handel Kalatukku Remaining E. Eriksson, shares of 2/2018 Reinin Liha Konekesko Russian Baltics* 12/2016 building 6/2017 AutoCarrera and home Asko and improvement Sotka furniture 6/2016 trade Onninen 6/2017 trade 4/2016 K-maatalous Suomen Lähikauppa 11/2016 Russian grocery trade 3/2015 Anttila * Waiting for completion 6 KESKO | Investor Relations | Q3/2018
Accelerated Growth and Value Creation with Transformational Acquisitions in All Core Divisions Rationale: Faster neighborhood strategy Rationale: Stronger position in B2B, expansion Rationale : Expand brand portfolio within the implementation by acquiring the #4 retailer into technical trade with HEPAC and electrical VW Group to include Porsche passenger cars Purchase price: € 60m + € 60m store renewals Purchase price: € 369m Purchase price: € 27m Integration completed faster than expected Integration ongoing Integration completed successfully ~60% share of the neighborhood market Net sales € 1,591m and EBITDA € 55m (vs. Net sales € 67m with an excellent operating respectively € 1,456m and € 39m in 2015) margin of 8.2% (vs. net sales € 49m in 2015) ~400 stores converted to K-Markets Further improvement of sales and profitability Being part of Kesko enables enhanced growth € 700m additional net sales, € 30m synergies to continue in line with strategy * Rolling 12 months Q3/18 7 KESKO | Investor Relations | Q3/2018
We Continue With Our Existing Growth Strategy We are the customers' preferred choice and the quality leader in the European trading sector VISION Profitable Business Quality and customer Best digital One STRATEGIC FOCUS AREAS growth focus orientation services unified K BUSINESS FOCUS Grocery trade Building and Car trade Grocery trade technical trade The customer and quality – in everything we do VALUE 8 KESKO | Investor Relations | Q3/2018
Our Strategy Responds to the Changing Retail Landscape Digitalisation and Sustainability and Increasingly individual eCommerce strong brands customer behaviour Globalisation Increased consumer Convenience knowledge and power 9 KESKO | Investor Relations | Q3/2018
Our Growth Strategy Is Delivering Improving Results Net sales Comparable operating profit € m € m +6%* +10%* 322 10,492 10,302 296 10,007 274 8,821 8,487 243 221 3.1% 2.9% 2.8% 2.7% 2.5% 2014 2015 2016 2017 R12M Q3/18 2014 2015 2016 2017 R12M Q3/18 Net sales growth € 1.7bn in 2014-2017 Operating profit growth € 76m in 2014-2017 Continued operations *CAGR 10 KESKO | Investor Relations | Q3/2018
Moving Towards Our Financial Targets Roll. 12 months Q3/18 Target level Return on Capital Employed, %* 13.8 14.0 Return on Equity, %** 11.6 12.0 Interest-bearing net debt / EBITDA 0.6 <2.5 Kesko’s dividend policy At least 50% of comparable earnings Payout ratio (5y average) : 103.4% per share distributed as dividends Dividend yield (5y average B share) : 5.4% * Comparable figures, continued operations, ** Comparable figures, Group 11 KESKO | Investor Relations | Q3/2018
Strong Financial Position Provides Latitude for Further Growth Initiatives and Continued Good Dividends • Financial position strong despite € 1.3bn investments Capex* 350 in 2015-2017 € m 301 282 61 • M&A firepower for additional acquisitions up to 33 219 36 78 above € 1bn 194 31 29 17 49 • Steady growth targeted in dividends 20 34 256 • Cash flow generation to be further enhanced with 217 174 167 143 higher earnings, organic capex decreasing from the 2017 level and improvement potential in NWC 2014 2015 2016 2017 R12M Q3/18 Store sites ICT and digital Other *Additionally, to acquisitions € 462m in 2016 and € 166m in rolling 12 months Q3/2018 12 KESKO | Investor Relations | Q3/2018
We Select Our Growth Initiatives Carefully M&As considered using the following criteria Value creation & Justified price tag Clear integration plan good strategic fit Contribution to our Focus on Northern Europe – it’s the Opportunities in all divisions – the financial targets market we know and where we have greatest potential is in building and the capability to create local technical trade competitive edge 13 KESKO | Investor Relations | Q3/2018
Grocery Trade 14 KESKO | Investor Relations | Q3/2018
Successful Strategy Execution in Grocery Trade 2015 Roll. 12 months Q3/18 Net sales € 4,673m € 5,355m Growth, profitability Operating profit € 177m € 223m and increased efficiency All chain brands redesigned Brand and store Approx. 90% out of 1,200 stores modernised redesigns Developing the retailer Close to 600 stores and over 220 retailers in the multi-store model business model Daily customer flow increased from 900,000 to >1.2m Implementation of store-specific business ideas Customer and quality New customer feedback system: >1m contacts annually New eCommerce and K-Ruoka mobile app with 600,000 users 15 KESKO | Investor Relations | Q3/2018
Strategic Direction to Continue Profitable Growth Most customer- Developing and Offering a Developing retailer Expanding the oriented and modernising the seamless omni- entrepreneurship foodservice inspiring food store network channel customer as a competitive business stores experience advantage 16 KESKO | Investor Relations | Q3/2018
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