Growth strategy delivering results. Welcome to Cresco's fully virtual Capital Markets Day 2020. Today's agenda we have 2 hours of your full attention. 1st, our President and CEO, Mick Cahillander, will go through today's headline growth strategy, delivering results. Thereafter, the president of Building And Technical Trade Division, Deputy CEO, Yora Marahu, Haran, presents our international business and its potential.
Presidents of our largest division, grocery trade, Ariaxelis headline is still room for further profitable growth in grocery trade. Thereafter, we will have a Cartrade update towards growth and better profitability by Johan Freiman, President of Cartrade Division. And last but not least, our CFO, Yuka Evolent presents creating value through growth and efficiency. My name is Hannah Yacolon. I'm responsible for Investor Relations at GESSCO.
Our aim today is to open up the strategic choices and show you why we believe that this good performance will continue. Do you have the great opportunity to ask questions through the chat function on your screens? I will ask a couple of questions after each presentation, but there will be a larger Q and A session after all the presentation without further ado, Mikko, the stage is yours.
Thank
you, Hana. And once again, it is very, very nice that you are participating this CMT. You are very warmly welcome. Cescco celebrates 8 years anniversary. Let's look first at our 8 years anniversary film.
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Okay. Company Tesco, we have great history but I can tell you very strongly, I feel that we have also a great future. What is Kescor what is K group today Definitely number one retailing company in Finland and definitely also leading retailing company in Northern Europe. We have profitable growth strategy in 3 core divisions. We have 1800 stores in 8 European countries as well as comprehensive e commerce business.
Every day, more or less 1,900,000 customers visit K Stores we have very strong financial position with good dividend capacity. And last but not least, we have been many years recognized as the worst most sustainable grocery grade company. Our strategy works and strategy brings profitable growth. We launched 2015, our growth strategy, very important element in our strategy is growth, I underline importance of growth, but also strong focus. We have decided 6 years ago to be strongly focused retailing company, strong focus on grocery trade, building and technical trade, as well as in card rate.
We operate as 1 unified K, meaning that Kescco, K retailing entrepreneurs seamless cooperation. As well as sustainability plays very important role in K Group's businesses measures and actions also to stop climate change. We have very strong strategy execution. First, we put a lot of efforts to divest heavily, our noncore businesses, we collected from divestments 1,000,000,000. But even more important for Tesco and Tesco's future, important successful investments.
We have done for time being 1,000,000,000 investments to support and accelerate growth of our core businesses, successful acquisitions, but also successful investments to strengthen our organic growth. We have experienced I would like to say amazing transformation from traditional fragmented retailing company into a focused 1 unified K group. Company had plenty of different businesses, and we didn't have a very unified identity not at all, from customer's point of view. Today, Keesk Group is more than unified company where we fully utilize also synergies between our businesses and between our divisions. And today, consumers, customers, they recognize us much more unified company, and they highly appreciate also our orange K identity.
As stated, our strategic performs well in fact changing operating environment. Typical for this current situation, business environment is definitely, globalization, industry consolidation, also retailing industry, sustainability climate change, everybody of us knows that those things are getting more and more important. Fast and faster technological development is challenging but also offering great opportunities for the company like Tesco, multichannel and e commerce definitely also at most important and urbanization and demographic changes in Finland, Nordic, Northern Europe, as well as everywhere in Europe, are very important matters, but we sort of keep very clear in our mind. Strategy works, and we can see also that very well from our numbers. Cescos net sales in rolling 12 months exceeded 1000000000 And very proudly, I report that we have succeeded in the last 6 years to increase net sales in core businesses over 1,000,000,000.
I believe that this is very strong message that we follow and we implement very professionally, very systematically our growth strategy. In all three divisions. We have steadily improving profitability since 2014, we have seen very steady profit improvement everywhere in Casco K Group. And we are very pleased to report, again, all time high profitability operating margin in last third quarter. Was 5%.
And we are expecting another all time record result in 2020. The estimated comparable operating profit for continuing operations will be this year in range of 530,000,001,000,000. Less than half of, the profit growth is coming from pandemic related issues, meaning that our strategy works also very well under exceptional circumstances. This means also that agility, fast response and well functioning retailer business model helped us also in current circumstances. Both grocery trade and building a technical trade all in all have benefited from pandemic.
But at the same time, I would like to remind again that we have big businesses like food service business as well as card rate, which have suffered heavily due to EBITDA meal. I'm so happy to present, again, strong market development in grocery trade In grocery trade, we have succeeded steadily to increase our market share, and we are approaching 38% market share in Finland. Very impressive is this 1,000,000,000. This steady market growth increase means that for time being, we have increased net sales in grocery trade 1,000,000,000, but I underline for time being. But also great development in building and technical trade, a steadily strengthening market position in Finland gave out already market share approaching 43%.
Ornament has been part of the family more than 4 years and market share also steadily increasing in on and on businesses. I'm so happy to present total turnaround in Sweden. Thanks to successful strategy execution made by our Building And Technical Trade. Trade success story, 1,000,000 operating profit in last 12 months in Sweden, strong message that our building and technical freight implements very professionally business plan, business strategy also in the Swedish market. But also great news from Norway, successful transformation in Norway into a strong retailing company.
And also in Norway, we can see now from numbers, great development operating profit in last 12 months in Norway, 1000000. All this development real turnaround transformation brings also a great results for our shareholders. Value shareholder value and return on investment, strong development at the moment, Gescos market capitalization is about 1,000,000,000. We were under 1,000,000,000 when we started this journey. But also could return on investment for shareholders more or less 2 70% for time being.
Yesterday evening, Tesco's Port of Directors had meeting And in yesterday's meeting, the board set new targets for the company, new financial targets. Comparable operating margin new target is 5.5 percent comparable return on capital employed 12.5% and interest bearing net debt divided by EBITDA should remain in all circumstances under 2.5. We have great development in our grocery trade division. I would like to underline that we will continue profitable growth in grocery trade by improving further customer experience. Meaning that further development of stores by utilizing fully store specific business ideas in all our grocery stores in Finland is still in future also leading idea when we will maintain this positive development as well as renewing the store network and further improve e commerce services everywhere where K operates in Finland, in grocery trade is very important also in future.
Fully utilized customer data to improve customer loyalty and to enable a seamless omni channel experience for Finnish Consumers, Finnish P2P customers in grocery trade also utmost important. As well as maintaining price competitiveness and price efforts and also in this field, I think strongly we have succeeded, but also there, we can see still a lot of potential. And growing the food service business faster and faster and faster than the market development as we have done 2020 as well as in previous years. That offers also great potential for our grocery business and grocery division. In Building And Technical Trade, I underline that we will continue growth and industry consolidation third.
Especially we put a lot of efforts also in future to consolidate further building and technical trade industry in Northern Europe. We have excellent track records from already completed investments and acquisitions but also we will continue improvement in profitability and very clearly I stress that our objective is unchanged. We are targeting same profitability, profitability, but today, best companies in Europe in this industry, building a technical trade business are reporting. We continue also in building a technical trade or measures and activities further improve customer experience as well as to improve cost efficiency in each country where Tesco operates in building and technical trade business. As well as also in building a technical trade, of course, extremely important to continue all activities and actions further develop digital sales, omni channel services for P2P and P2C customers.
In card rate, we are working towards profitable growth, meaning that we will lift customer experience to a new level also in card rate. We will further develop excellent cooperation between us and Volkswagen Group as the target to have even more seamless corporation between both companies. We are increasing sales with existing and new products and services as well as we are maximizing the use of new technology in improving customer service and operational efficiency in our card business. As well as we can see a lot of potential in card rate by utilizing even better, test practices coming from grocery And Building And Technical Trade Businesses. Many times stressed that sustainability plays very important role in Cescos strategy Sustainability drives us in everything whatever we do.
Meaning, responsible, purchasing and sustainable selections for our customers' environment whatever we do environment plays, a very important role, good corporate governance and finance also a very important element of our sustainability approach, working community. We cultivate better and better working community, everywhere where Tesco and K group works. We support fully our customers, P2C, P2P customers sustainable business approach, sustainable lifestyle And of course, we do utmost to be good corporate cities and in all societies where Kisco and K Group operate. I'm so pleased also to report today that, the case cost, sustainability efforts, sustainability work is very well recognized also internationally by down zone sustainability indices as well as Global 100 and by many, many other highly appreciated bodies. This year, springtime case court of directors said also new sustainability targets.
Target setting is crystal clear 0 on emissions by 2030. Meaning that first 2025, K Group will be carbon neutral. 2025, 2030 period, we will offset its remaining on emissions And by 2030, we will reach net 0 emissions. Salencing target setting, but I can confirm that also in this field, we are moving very fast to the right direction. Last, I would like ladies and gentlemen, to repeat, we continue the execution of our growth strategy without any doubts.
It means in grocery trade, gaining profitable growth and increased market share by improving customer experience everywhere. In building and technical trade, maintaining growth, improving profitability and continuing industry consolidation, especially in Northern Europe. And in card rate, increasing sales by taking customer experience to a new level. 1 unified K is very important part of our successful transformation, very important element of our success. As well as sustainability or measures to stop climate change.
Cultural changes are important part of our renewable story. I can confirm that we will continue measures further develop, our company culture, company culture, where keywords are carried innovations, utility. And that way, I'm very confident that we will drive growth and renewable also in fields. Ladies and gentlemen, thank you. That was my part.
And I suppose Harmat that now we have time for some
So I have a couple of questions for you. First of all, what do you see as the biggest risks in the near term future?
Global Economy Economy Economy In EEO Countries Economy In Finland, When you remember that we are big retailing company's challenge and that includes also risks. I'm not so worried about 2021, but, let's let's start from 2022, 23. Those years might be quite challenging for everybody of us.
And if you're thinking forward, what are the main growth drivers for GESSCO?
Definitely, same growth drivers, but we have had also in the previous years, a wonderful or grocery trade. As I stated, we can see clearly that that those same elements which have helped us to make Tesco very strong, very profitable the most profitable grocery trade company in Europe will help us to continue and support us to continue strong profitable growth also in fields. In building a technical trade, we can see also great growth potential. We have seen already very strong development, strong growth very steady profit improvement development in the billing and technical trade. And we should remember that European market still market in Northern Europe in building a technical trade industry is very fragmented.
And of course, it means for the company like Tesco, great growth opportunities also in the future.
And next, Yara Maraujala talks about the great opportunities in the Northern Europe, and I think about the fragmented market as well. Yara, the stage is yours.
Good afternoon. I'm Yurmarajola, the president of the building at technical trade and Deputy CEO. The warm welcome also on my behalf to Tesco Capital Markets Day 2020. In Pedic And Technical Trade, we are the leading operator in Northern Europe. We serve 3 customer segments technical process denials, personal builders and consumers.
And already some 70% of our sales comes from P2P trade. Our rolling 12 months operating margin has increased to 4.7%. Our country specific approach strategy is working and bringing results in all of our operating countries. The strategy has now been tested during the COVID-nineteen pandemic and it has worked also under these excerpts on our circumstances. As the strategy is well functioning and bringing results to 5 strategic choices made remain unchanged.
Country focus with country specific strategic actions. Serving the 3 customer segments according to their unique customer needs. Synergies that R2P continuously sold between the countries and within each country. 4th, our strategy target is profitable growth, meaning that we always need to ensure that the basics are in place to ensure continuous organic growth. 5th, our strategy is supported by selected acquisitions to win a chosen country or customer segment.
Overall, I'm very satisfied with the developments in each operating country. The COVID-nineteen pandemic has impacted see positively thanks to a real boom in consumer DIY projects. At the same time, we must remember that 70% of the division's net sales comes from P2B, where the coronavirus pandemic has not supported the market development. All in all, it's been a very strong year so far. All operating countries are performing strongly.
Also, our strategic acquisition and their integrations have been successful. Year 2020 has been a strong year in Finland so far. We have had all time high results, for K router and OnNenen. Both have been able to win market share considerably. In Keyera, the building of the store specific business ideas has continued.
We have continued the development of store stores concepts and digital services. For example, roll out of destination categories and increased the role of own brands that differentiate us from the market and bring better profit margin. In only then the strong development as part of Tesco has continued. We have successfully acquired new customers, continued the development of digital services and store network and expanded selections in, for example, solar panels charging stations and tools. I'm very happy with the development seen in Sweden.
Which has been a challenging market for us for many years. There has been an excellent profit improvement for K router White K BOOX profit has stayed strong. Mia has also proven an excellent acquisition and its profit has continued to be good as part of Kescom. On its profit has also improved well. This means that our profit in Sweden has improved in all areas.
Few actions I want to highlight in particular. To shift to a more local focus to bring to operation and this is in making closer to the store level and the customers. Strong development of ecom business, total removal of logistic model, and also successful acquisition of me up and book interior that have impacted the results positively, as well as KBook, which has continued on a strong track. We have also especially in onion, but also in Bitmakar. The acquisition of cars and freitster at the end of the summer has been an excellent move.
And the company's profit has continued strong as part of Eskom. Main actions have been significant acquisition of Carsten Freightster, and continued integration of businesses. Effective streamlining of Omninys, operations, We have increased share of own retailing to some 70% in peeling and home improvement meaning that our position has shift from a wholesaler to retailer, which also supports better profitability. From November onwards, our business has been led by our new counter director, Hilde Kristofersen, and I'm confident that Andrew Herlead, we are able to improve our profitability also in future. In Poland, business has been able in onion, business has been able to keep a steady profit level by the consistent strategy execution, even despite the COVID-nineteen pandemic and restrictions related to it.
In Poland, we have guaranteed a positive track by strong development of ecombusiness, successful roll out of our modern express scores and increasing the level of automatization in our distribution center. In the Baltics, we are clear market leader with Tesco Semokai. All our operations in the Baltics states are well performing and well, and we have a solid and steady track of profitable growth. Owning has continued on the steady track despite the restriction and silencing market situation. We will continue the development of onion and baltics according to the successful Finnish model.
As said, I'm pleased with the fact that all countries performing well. Also, all our operations, like purchasing sales and logistics, are efficient and strongly supporting businesses. This is also one of the main reason why we have been able to improve our result on such a wide front. That was about strategy execution. Now let's move on to our further potential for profitable growth.
The industry consolidation offers many possibilities for us. In all eight operating countries in which we operate, the market size is total over 1,000,000,000. Of which we have around 15% market share today. We see strong growth opportunities into operating markets, and the focus of our growth is to be one of the leading operators in our current countries and in the customer segments we operate. In particular, we seek to grow it into Swedish and Norwegian P2B markets.
Both in building a technical trade business where we already have a good existing platform. Overall, inter building a technical trade business to markets are growing and stable, but still fragmented, which offers us high potential for consolidation and crops. Moving on, let's have a look at operating environment. Our operating environment in Northern Europe is changing rapidly. We are in pole position to benefit from the global mega trends.
Urbanization development is still strong and the need for new resident tower building, especially in crowing Cities continues. In all our operating countries, to maintain its backlog and investment depth is still growing, which is a trend that benefits our P2P business as whole. The whole industry is also experiencing a fast technological development. For example, residential building construction becomes increasingly technical with several internet of team solutions, like automated heating and lighting solutions. This increased standard of leaving highlights the need for more and more technical competence in the whole value chain.
To increase focus on energy and environment efficiency, bring us several new opportunities. From new products, that enhance sustainable new energy products unlike solar panels all the way to sustainable local energy storage solutions. These, especially our opportunities that are matched with progress on sales competence and new more and more sustainable sustainable product portfolio, especially in technical trade. Emission reductions targets and probing electrification of the society as well as growing electric mobility things Mobility brings us further business opportunities. For example, in building building of electric vehicle, vehicle charging stations.
All in all, the industry is growing. And becoming more and more technical. And this offers us many possibilities to growth. Let's look at the The total construction market, including labor, in Finland is around 1,000,000,000, and the structure of the market follow follows almost similar structure in Sweden and in Norway. With our businesses, we operate in all the segments of the construction market hence, we are well positioned to benefit from the overall developments of the market, but this also buffers us against the development in just one segment.
All too often, people look at the indicators related to new residential building. However, New Reserta Building is only around 20% of the market, as the construction market is very evenly split between new building and renovation. Our position is especially strong in renovation. Which is almost half of the total construction market. In renovation projects, to margin are also more, more lucrative.
At the moment, construction forecast indicate that the need for renovation and maintenance will grow next year in all our biggest operating countries also civil engineering is expected to grow in future. All in all, we are very well positioned to benefit from the overall market development as we deliver products to all sectors Technical rate in essence is volume business. Where efficient logistics and sales expertise from the industry are crucial for success. This creates a high threshold to enter the technical trade business. And that is also why, for example, a sole ecom operator fails to meet the customer needs.
Our competitive advantage among technical trade professional include comprehensive technical product assortment of 700,000 stock keeping units, mainly with country and or industry specific technical certificates, that match the different technical requirements in each operating country or industry. Almost 4000 suppliers with best in class products, Over 1500 technical trade professionals with project based sales competence. This is people to people business, and the competence of the sales professional is crucial to success. Our processing accounts ensure the best customer relationship by supporting the customer daily business. Availability, the number one in importance for technical trade customer is guaranteed with our effective distribution centers that deliver almost 40,000 orders line per day.
Of which 50% already happened via automated processes, We have also several customer tailored logistically services that are tightly knit to customer's own process. For example, in Finland, we have almost 200 smaller service warehouses on customer premises stock with onion products. The strong logistic core is supported by comprehensive store of 131 on an HP stores that offer easy pickups to customers from all customer groups. We also consistently develop digital channels with extensive technical information about the products. The considerable part of technical trade products are already solved via electronic channels via web shop EDI and Pancel Solution, already bringing on compound sales, almost EUR 400,000,000.
And for example, in Finland, already 20% of the sales comes via digital channels. All in all, technical trade is volume business where logistics and professional sales are key to success. The industry will continue to consolidate, and we will continue to be a strong operator in the future as well. In the DIY and professional builder builders market, typically, materials for renovation and constructions are peak and heavy items that need to be delivered to the site quickly. Hence, location near the sites or homes is crucial for the success within this market.
Regardless, if you are ecom or and motor operator. Our strong position within these customer groups is a result of comprehensive network of 3 thirty one stores in prime location, with vast selection on nearby pickup and delivery options. We clearly see that our strong competitive advantage comes from the seamless combination of the store network and online services. Customer is able to choose to write Sunnel for him or her. Both Sunnels also support each other.
In Finland, around 30% of our customers who visit us online, phoneword to pre and mortar customers. On top of the physical store network, our online services are also performing well. Online sales are growing steadily, and there is over 160,000,000 customer visits annually. All in Finland, we have around 40,000,000 online visitor KRADAFI per year. The services for personal builders are also under constant development.
We sell products and services to already some 185,000 personal pillar customers. Professional P2P sales will be developed in stores by dedicated KRata Pro concept. That is aimed for P2P customers only. And in digital channels, the next step is to open P2P Webster in Finland early next year. On top of that, we also have an inspiring, inspiring business and categories with own brands that support differentiason and higher margin.
Already, our own brands have sales around 1,000,000 in 2020. All in all, the industry consolidation will continue and our position will continue to be strong due to existing store network in prime locations and strong digital services. I'm confident that the combination of the store network and online services is the winning combination also in the future. We are strongly on track on what we have and firmly moving towards to the target to be among the best in Europe. The main actions for continued EBIT improvement are maintaining the country focus in strategy execution.
Detaminized development of basics processes in each country and synergies between the countries. Continued development of digital services and customer experience in all channels. Active acquisitions of new customers and expanding product selections for existing and new customer. Imitate with good strategic fit. Thank you.
And now it's time for your questions.
So,
One I have two questions here for you now. So how have COVID-nineteen impacted Building And Technical Trade Division in this year?
Yes, this year, there has been, I would say, really boom in the Ava project for consumers and that means, especially in our case, that in Finland K router, Sweden K router, of course, it will be the K BUK in Sweden and Book Macri Norway. Has supported from that boom. But we have same time, remember that 70% of our sales come from P2P sales, which has not supported but the coming situation. Okay.
Good. And could you comment, you mentioned the M and A opportunities in the region. Could you please comment a bit more about that.
I think our strategy is very clear on that, on that, first of all, where we operate on those eight countries where we operate on what segments we want to be one of the leading player. Of course, we know that in Finland, we are quite, quite big player here, but facilities means that in Sweden and in Norway, there we want to be stronger, especially in P2B Business. The strategies quite clear.
Okay. And there are opportunities?
There are huge opportunities.
Very good.
A lot of.
Yes. Very well. And now our 3rd presentation, I will welcome Ari Oxley to join the stage still room for further profitable growth in the grocery, right, please?
Thank you very much, and good afternoon. I think the big question is the name of the presentation. Still room for further profitable growth in growth rate. I know this is one of the questions you are wondering. Is there still room for growth in the grocery rate?
Yes, there is. And I will show your why and how. First, short presentation, who we are. K Group is the 2nd biggest operator in grocery trade Fynoort with our market share 37.6 percent. Our market share has been increasing during the recent years, by 1.5%.
Okay, food store businesses based on the retailer and That's very unique business model. We have some 1250 k boat stores in Finland. With some 1,700,000 customer visits every day, including our ticketed channels. These are huge numbers. And here you can see what are the choices of our strategy.
And its walk in and yielding results. So we will continue at a firm execution of our growth strategy What we want to do is to increase sales and profitability with customer oriented approach. If you think about Finnish grocery market, we have most customer orientated and inspiring food stores, which store specific business ideas. We have developed and invested in the store networks significantly in recent years. Later on, in my presentation, I will give you more detailed information about the store network investments.
At the moment, we are the forerunner in trading sector digitalization in Finland. Especially this year, we have expanded the online sales network and increased sales by big numbers. With our customer data, from 3,500,000 loyalty card, capable of customers, we are able to develop and lead our business with data. And when you think about retail business, it's all about digitalis, how we can improve all of the digitalis. It's based on data.
While we are the quality leader and have the most inspiring food stores in business grocery market, we see as important to maintain our price level and improve our price image. Our biggest advance if comparing to our competitors is our unique business model based on retainer and ruminosip. I will point on later on some of the advantages it's giving to us. Toward the COVID-nineteen epidemic, it has been bambi wetter in Finnish food service market. But we still believe that eating out this growing rent in the future.
And we have been able to gain market share during these difficult times. Hi. Our market share is now growing in all segments from small neighborhood stores to hypermarkets. These cumulative growth rates from beginning of the year until the end of the October. This year, our total market share has grown 0.3%.
In the neighborhood segment, the ground has been 3.3%. This is very impressive that in all the categories we have been able to gain market share. And this is I think that if you look about the what is the long term most important factors when you improve the profitability of retail company is that you are able to sell more with the same stores. When analyzing our performance, I want to highlight that we have managed to improve significantly, our sales per square meter in our stores. On the left, you can see how retail sales has grown over 12% from 2016 to 2019.
At the same time, the number The sales per square meter has grown by 10%. This means that we have been able to generate organic growth in the store. And actually, we are only player in the market who has been able to do that. And so it's naturally very profitable when you manage to do so. It's the most important factor in retail business in the long term based on many international results.
As you know, it's not safe to build new stores and usually it takes 3 to 5 years to make them profitable and up and running. Getting more out of the existing mass in is much more profitable away. And that's the reason why we have been investing how to do it. There has been a lot of writings how COVID-nineteen has boosted grocery rate and common understands has been that grocery trade has only benefited from the COVID situation. But actually, The impacts are different in different businesses.
It's obvious that food stores say wood store retail sales in gay wood stores have grown by big numbers as people have stayed at home. Also, the demand for online shopping has expanded and we were able to respond that fast growth in online grocery demand. We have now 450 stores offered in online services, That's more than 200 comparing to the last year. Also this year has opened opportunities for us. We have established a new services such an offer in shopping held for people over 70 years and selling restaurants meals in grocery stores.
But at the same time, handling the situation caused us many, many costs. For instance, in logistics, And therefore, it has been essential for us to make some profit improvements, and we have succeeded in doing so. The food service provider, Casper says decreased it heavily in bringing time to COVID restrictions on restaurants and events You will hear more about Gazpro later on. There is certain rules about treat our business based on my 30 years experience. One of them is that it The key to sales increase is increased customer satisfaction.
Find out what the customer want and delivery It sounds so easy, but if you think about, we have about 400,000,000 customer visit in our stores. And every of them are individual needs with a very old day. That's needs to have some kind of data, how to do it. So we have measured our customers at this vaccine systemically from 2017. And we have managed to raise customer satisfaction significantly.
Thanks to store specific business ideas based on customer data, our customers are more satisfied than ever. If I look about these numbers and somebody saw them to me about 3 or 4 years ago, I think that keep on reaming. It's not possible to get this kind of level in the stores. These figures show that so Net Promoter Score from our physical stores. Customer satisfaction is actually highest at the Care Walker grocery online store NPS being there more than 80.
In the next video, our Chief Digital Officer, on their own guidance, tells more about customer experience in online channels.
Good customer experience is very crucial for business taxes both online and offline. It's a known fact that a great customer experience generates loyalty and loyalty generates better business results. When developing digital services, it's super important to focus on customer experience. When our customers enter to our sites or web services, we have only 3 to 5 second time to charm them. If the customer experiences that the customer leaves for the competitor with one click.
2 those customers are really demanding. They are using global top notch services like Google Search or Global E Commerce like Amazon or on demand services like Spotify or Netflix. And they are comparing the user experience to those sites. And that's why we really need to set the bar high. And it's good to remember that customer experience it not a project.
It's a journey.
In these slides, you'll see the reason why we focus improving customer experience. There is very strong correlation between sales growth and customer experience. We have 375 stores where NBS is over 71 and 384 stores where NBS is over 61. Those stores have managed to perform better than March. Store per underperformed the market need to focus improving customer satisfaction.
So there is still a lot of potential to grow. Both sales and profitability simply by focusing customer experience. So find out what the customers fund and One important part of maintaining and improving the good development to make sure our cost store network is up to date. We have invested nearly EUR 1,000,000,000 during the last three 5, 5 years in our k food store network. The biggest part when integrating Zuomelahikau per store network to be part of the Big Beautiful K family.
In 20, In next year, we are planning to invest up about EUR 120,000,000 to the store network. New stores our main supermarkets and neighborhood stores in the crow areas and cities. 100 renewables in the pipeline as well. And we have excellent track record about renewing these stores. In some case, the numbers are actually amazing.
The hunger for growth comes from our unique K Retailer Business model. The K Retailer entrepreneurs are a very driven to be successful and TAYS Access is our success, and it's also means higher earnings for Tesco. Store Pacific business idea responds to the Pacific local needs of each carrier and it's based on the customer data. I want to highlight that roughly 50% of the stores have fully adopted the customer specific business idea, and there is still a lot of potential out of 50%. Here is a great example how we can do it more efficient way on how we can help our store owners to do it much more efficient.
New database, tools support store specific business idea and speed up grow. We use database tools that help us create a more efficient way to how to how build tailored store specific selections and optimizing pricing in the store level. To get the idea that if we are able to start at our shopping basket by 1 year. And we have about 1,000,000 customer visits, it means 1,000,000 extra sales. That's not the promise.
We the tool are easy, one click solution for recommendations and decisions for the store selections. As an example, in average, by choosing a product recommended by our handheld selection tool, sales is about four times higher than sales from the products stores recommends taken out of the selection. And if you think about that, we have already done business decision in the stores, almost like a 600,000. And is happening all the time. We are the Finnish market lira in online grocery sales.
Sales of our online boots stock grew during this year by 400%, and our market share is now over 55%. Our focus is to continue the development of online sales and its profitability and also deepen the store specific business idea also in online. We have and will further develop easy to use tools tools for managing online products, information and selections. Not to forget, we are improving efficiency in collection and logistic operating models. Here is one more important element in our profitability improvements.
And improvements potential is our own brands that counts about 20% of our sales. Own Brands are important also in better differentiation and price image. We offer today more than 3000 products and over 1000 tonne of them made in Finland, which is important for our customers. Compared Internationally, The share of own brands products are still low. I think that several European level is between 25% to 40%.
So there is lots of potential. There is still under the potential in premium category, which has grown the most during this year. Year to date, development is almost 20 percent. Additionally, the focus has been in the mid range private label products like Apirka. We are also putting focus developing further our price fighter brand BTK menu.
And here is something very beautiful. Good food coming from the stores. How we have gained at new customers, one of the key elements it stays only K sales. The products only from Kstores are indeed bringing new customers. They bring better margins and it's the way to differentiate outsourced.
The selection differentiation supports store specific business idea and margins. Products that set us apart from the competitors raise average shopping basket and leads to more commitment existing and new customers. For example, if you think about this classic pizza, the price level is about And then, you know, it's so good. If you take one time, you come back. And comparing to the traditional frozen pizzas, which prices are between 3 to 4 Euros.
It means that sales is actually doubled and customers are happy. In recent years, new products related restaurant brands have been successful and the ranges expanded. Here is a couple of examples, Nauty Borker's hook seam link by Farang and so on. And good example, how only from Kstore products can interest and even become topic conversation is based off in Nair Mills. From beginning, they were a huge success and also made headlines internationally in 56 countries.
Wow.
And from food stores to food service. This here has been difficult for the food service market We believe that the strong growth trend in the food service market will come back after COVID-nineteen. The picture tells the story. But also, we also have video where Mika Hallumas Mackay's director responsible of Focus Gescop's food service will open up the past year and future plans.
Jasper is a leading food service wholesaler and 4 runner. In Finland. Our market share in Finnish food service is about 42% in the wholesale segment. And as we know, wholesalers represent only 50% of total food service market. So the potential to grow is very weak.
Our net sales have come down compared to last year, and this year has been challenging. We have still managed to grow our market share even to 47%. Eeding out is a global megatrend that will continue to grow despite the epidemic. We have seen this also in Finland, where potential growth is very big. In the future, our customer needs will be more unique In a future case, there will be a service platform that enables each customer to choose the services they need, more individually.
No more praise that services for everyone offered by the same way. At the same time, the customer gets everything they need from one wholesaler, one stop shopping model. Our ability to offer individual service has a big potential, and we want to be a 1st player on the market to offer 100% service experience to our customer.
To your audience, I would like to summarize why Gescos' growth rate has still a lot of growth potential. Like Mikael said earlier, KESpro has been gaining market share all of this year. And I think that it will recover the market and 10 gas price in very strong position to gain in more sales. And utilizing how well function and store specific business ideas in all stores is offering opening big opportunities, utilizing even more deeply new data tools in all stores. Thirdly, developing in store food force with great examples about SUSY bits and hamburgers and so and developing and improving the efficiency of online sales.
In addition, we are planning to make significant investments in digitalization and developing and removing store network. Thank you very much, and now it's time for questions.
Thank you Ari. I got a comment from online that this guy is amazing. Okay. Sorry with that. So, but I have two questions for you as well.
What do you see as the biggest obstacles for further profitable growth going forward?
If you look about the past of the Tesco history, They used to be different ideas of the independent stone owners, entrepreneurs and geysco, what will be the future plans and choices. But nowadays, we are like a big part of the same K family on integrated K group. So nowadays, actually, there is great opportunities to develop new ideas and to the developing the store level. So it's much more like that how we prioritize things because it's limited number of things that we can bring to the stores. And we have to think about prioritizing of all the projects and ideas.
But at the same time, that's also one of our benefits because we have independent store owners. They can develop something in new areas and we can look at, okay, sales going up. That's good. Maybe we can benchmark and spread it over over to Vinod. Okay.
Thank you. And then, one more time, could you please crystallize where do you see the biggest potential in grocery trade?
I think it's in here in this slide that number 1 is Store Pacific's business ideas. Unless I talk earlier, you know, about 50% of the stores are now executing it. So there's other 50% which is still trying to do And even some of the stores has been developing the sales like a double during the last 3 years, they are still growing. So we can see that there is huge potential. Secondly, our new database tools they are so promising.
And results are looking really good. How we get every stores to use them in every day in every decision making. And that way customers, we really see that our selections are exactly right for me, and the pricing level is exactly right. Thirdly, differentiation in elections, these kind of naughty brokers. If you think about that, normal Hamburgers you can buy from grocery stores, they are like a and nobody really don't like them.
Then you have a naughty poker and everybody like about that.
Very much. I'll go back to the more questions on grocery trade after the YUPES and UHAN's presentations. And now it's time for our 3rd division card trade. You want 3 months, please. Stages yours.
So good afternoon to all of you as the heading is said towards growth and better profit profitability. As you all know, this has been a very challenging year for the car in free globally in Europe, but also in Finland. Anyhow, our rolling operating profit will be or is at, just about 26,000,000 at the moment. So I think all in all, we have because so different things that we did in the spring managed to achieve in the end good results. We have a very strong, product or brand portfolio with all the Volkswagen Group brands.
Except one at the moment, and we are believing that this will bring us to more success in the future. On this slide, I want to show to you, that we are optimistic about the future. We see a large, growth and profit potentially in the market. So this picture is actually showing how the EBIT pool in 2019 in the finished car industry, was composed So you see the blue part where we have already today a strong position, but then in the remaining parts, the orange, the light orange, and the even lighter orange. So you Scott Frey, Cartrade, in after sales and in financing and leasing, there's a lot of EBIT potential for us, for the years to come.
We have decided to focus on the following topics We need we want to focus our business, to Finland. We are very happy that we are the chosen partner from Volkswagen group in Finland, Volkswagen being the biggest car manufacturer in the world. And then we are also confident since we have last year made acquisitions to enlarge our, dealer network And now when the market is estimated, actually, yesterday, we got the new official forecast for 2021 And the estimation is that the market will grow with some 10% next year. Our priorities for the coming years as my colleagues have been also saying, before me today, We want to make a step change in customer experience. We want to put Tesco's car trade into a new unique level that has not been seen before in Finland.
We also believe that we can strengthen our foundation And especially with the large network, we have all the possibilities to sell much more from our premises than what we have been doing so far. New cars, used cars, after sales, etcetera. Then also the synergies coming from the K group, is very important for us, in the future. And as said, being the partner with Volkswagen Group offers us, fantastic opportunities for the future. Better customer experience, and here I would like to use the sentence from good to great, we want to put, our targets to a totally new level in Finland in the future.
Really finding out which are the pain points, in the customer journey, at the moment. Whatever channel is used, showroom online, etcetera. And this we will do also through a cultural change in our car trade. I said before, we have a large own retail network And through this network, we are definitely planning to sell much more used cars, in the future as what we have been doing today. We also believe that we have unique opportunities in the after sales business for older car fleets, also in accident management, but also for brands that are not our brands, at the moment.
And then thirdly, becoming the clear market leader in electric cars. Actually, I just got today, the information that in November, Volkswagen Passenger across in Finland, had a market share, in electric cars of 35.4%. So we are really taking market shares in that segment. Then Of course, we want to grow also through new products and services. The Volkswagen Group is presenting at the moment a wide range of new model models, both in 21 and after.
And especially we believe that all the new full electric cars and plug in hybrid cars that are coming, from our different brands will actually support us in getting better market shares. We know at the moment in Finland that the plug in hybrids have already passed diesel cars, in new car sales. And this development is now continuing. We have also been very successful with our own leasing company. We passed, 3000 cars a few weeks ago, and we believe that this good development will continue also next year.
And then also 2 years ago, Cescco decided to to start investing in in in in in charging facilities in combination with our food stores and DIY stores. This has also been very good, for the business. I think both for artist business, but then also for the car business and this is something that we will continue. Finally, I think I said already that the partnership with the Volkswagen group will actually be a very important driver for our market share growth in the future. Volkswagen Group is investing heavily into electric cars in the coming years.
Actually officially said close to 1,000,000,000 by the end of 2025. The 4th Largo Group is also financially very strong and in a good position, to further develop their products. Thank you for your attention. And now I guess I will also get some questions.
Yes. You will. Yes. We can go back to English. And so I had a couple of questions, like I said.
Consumers interests are have been shifting in this year towards used cars. What does that mean for the entire industry and for us?
Well, I believe that this is really a kind of a corona effect because, when we look at the figures in Finland, actually the used car sales this year, January, November, has increased only with 0.5%. So I mean, also the used car business was hardly hit in March, April, May. Of course, now after the summer, it has been a kind of booming because we know that people, they feel much safer in their own cars. But at the same time, we have to remember that new car sales has suffered because of the corona, because of the fact that the factories were shut down for 2 to 3 months in the spring. So I mean, I I strongly believe, and as just said, I mean, the market is estimated to grow with more than 10% next year.
That also new car sales will start booming again.
Okay. And then one question we quite often get from investors when visiting investors, kind of synergies do you expect to find with Casco's other divisions?
I look at the the clock and I only have 1 a half minutes there. I tried to I tried to I tried to be quick. I think we have there's still a a huge potential that we haven't used, but but but but still mentioning a few. I think this k charging has been a very good corporation between the 2 other divisions and the Cartwright. And that's really helping the 3 of us.
Then we have also been doing like cross sell so. I mean, of course, the 2 other divisions, they have also their own partners and customers that are some of them are very big And we have managed to, you know, to sell cars to those also. And then as a new actually pilot thing, we are now planning next year to start you know, in in the countryside, next or actually in the hyper super sorry, hypermarkets in the countryside to have smaller showrooms, like pop up showrooms, maybe showing one on you two cars in areas where we are not with our own car retail.
Good. Thank you. And, now we have the last presentation. Our CFO, Yuki Ehland, will talk about the growth and efficiency.
Good afternoon, ladies and gentlemen, and my behalf as well. My name is Yukarondan, Sierra Inkesco Corporation, and I have a pleasure to, present my session regarding the financials with the topic creating value through growth and efficiency. Let's start with the financial KPIs. We've had a solid growth in pretty much all fronts. The, top line has grown around 3% during 2019 2020 and at the same time, our operating margin has improved from 4.1 percent to 5 percent, which was the previous target for that one.
The same goes for the return on capital employed, we have improved that to 11%, which was also the previous target for that one. And I'm also, especially happy with the cash flow generation, cash flow from the operating activities. Increased from 1,000,000 to more than 1,000,000,000, which is up by some 50%. And at the same time, Also the net debt to EBITDA has remained at a very healthy level at 0.5, excluding the IFRS 16 liabilities. And we are targeting for further improvement in the financials.
As you know, yesterday evening, we set our new targets For the profitability side, operating profit EBIT margin, the new target is 5.5%. So 0.5% up from the level that we reached in September. And then for the return on capital employed, the new target is 12.5% and that was increased from the 11% by 1.5%. And as we have heard today, the target is to find more growth. We have a growth strategy, but at the same time, we also have initiatives to improve our gross margin and cost efficiency as well.
The net debt to EBITDA target was kept at the same level as previously, so at the maximum of 2.5. Then looking at the negative numbers here for 2018 and for the last 12 months ending in September 2020. We can see that our profitability has been lifted up by more than 1000000. Around 2 thirds from that, that is $66,000,000 has come from growth. But in addition to the growth and growth strategy, like I said, we have also had initiatives to our gross margin and cost efficiency.
And we can see that also 1,000,000 is coming from the gross margin side and then 1,000,000 from the operational efficiency OpEx efficiency. In addition to those also million is coming from the acquisitions, during 2019 2020, mainly from the seasons that we've done in building our technical trade in Sweden and Norway. So altogether, a more than EUR 100,000,000 and on the margin side from 4.125.00 to EUR 5.00 margin. Then a few words regarding our costs. We target by further reducing our unit cost especially in the new normal.
This has been truly a eye opener for us as well this year and the way how we think out our processes, how we are organized, how we use technology, etcetera, is definitely something that we will be working on for the coming months and years. As you can see from the right hand side, our cost ratio went up a bit during the first half of twenty nineteen, mainly due to the fact that our sales in cut rate went down somewhat. But ever since then, the cost ratio has been going down and we target for further improvement on that one. And if you look at the left hand side of the, page, you can find that our cost base is 1,000,000,000. So there's quite a bit of potential to further improve our cost efficiency.
Around 40% of our cost basis, personnel expenses, which means that's around 1,000,000 are our personal expenses and like I said earlier, we definitely target to find new ways of working new ways of having more standardized processes, new ways of utilizing technology, etcetera. But the other cost categories are also highly important, IT costs, marketing expenses, and property maintenance, for example, with will have targets to be more efficient in those areas as well. Looking at our CapEx, as you can see, our CapEx during the last 3, 4 years has been somewhere there between 2 1,000,000 and 1,000,000. And for the upcoming years, our CapEx plans are between 1000000 and 1000000. When it comes to the store side CapEx, the focus is more on renewals like example.
So we definitely want to offer the best possible customer experience in the stores, and we've been very happy with the CapEx capital expenditure that we have been during the past years in that lesson. Obviously, we will still be opening up also new stores, but they're focused more on the renewables. Then technology is highly important part of our strategy execution, and we are investing heavily to the technology. Automation, etcetera. 2 things: 1st of all, to improve our customer experience, not just online, but also in store technology.
And then the other side is the efficiency part. So how to run our processes with a higher automation, for example. Also worth mentioning, like Johan said, we have been investing to our leasing fleet, so we will continue on that and invest to the leasing fleet also going forward. And regarding acquisitions, we definitely target for further acquisitions. So especially in the Nordic market and building a technical trade, especially in order to boost our market shares, in order to get the scale effects and utilize these synergies like we have done in our past transactions.
We continue the measures to improve our cash flow generation. As you can see, our cash flow generation from operating activities was around 1,000,000 during year 2018. And the last 12 months, like I said, we've been at a bit more than CHF 1,100,000,000, which means that that's up by 50%. There's 2 important areas. The first one is obviously the improving the profitability side as we've been hearing today we have a very clear growth strategy and strategic initiatives to boost our growth, but we also focused on improving our gross margin and our cost efficiency.
Like I said, for example, through increased automation and more efficient processes and organizations. And thirdly, I would mention realizing the synergies from our past acquisitions and the potential future ones. But also highly important areas, the net working capital, we've been quite successful, releasing cash from our net working capital side, both the inventories and receivables, but especially from the payables side, for example, using the supplier chain financing finance programs. And lastly, obviously, we want to prioritize our CapEx and be really good on the capital allocation to put capital where it really makes the best returns. Balance sheet.
We have a good strong balance sheet which definitely enables us our strategy execution. Like I said earlier, our net debt to EBITDA level without the IFRS 16 effect is currently at 0.5 where and the maximum target is at 2.5, so that basically means that our additional net debt fire power is more than 1,000,000,000. And for us, this enables both our organic investments as well as potential acquisitions in line with our strategy, but also a good dividend for our shareholders into our dividend policy. Looking at the ownership base, as you can see, during the last 4 years, the international owners proportion has increased a bit more than 10% from the Cascadeshare. And, and at the same time, the domestic household donors proposition has come down slightly, but it's worth mentioning that at the same time also, the number of the registered Finnish owners has increased quite a bit actually more than 30% to almost 55,000 shareholders.
And I'm happy to say that we are one of the favorites among the female investors as well. And last but not least, about dividend, we have a solid dividend track record. As you know, our Dividend policy states that we aim to distribute a steadily growing dividend of some 60 to 100 percent from our comparable earnings per share. Taking into account a company's final position as strategy. And that's exactly what we've been doing throughout the past years.
And this is also our aim for the future to be able to, deliver this kind of dividend. Thank you. This was about the financials and maybe, Hana, you have some questions.
Yes, I do. I do. I have a first couple of questions before the Q and A session. So you talk about the cost reductions there. How much of that is sustainable going forward?
Well, if we think about this year's cost, obviously, there are some costs that during the lockdown period, have been pretty much frozen and so on. Certain temporary layoff type of cost reduction. So so on, which we are not maintaining obviously because we want to run the business according to our strategy and so on. But a lot of the cost savings actually are something that we are targeting in the future as well. And like I said earlier, definitely to target this to in this new normal situation to look at how we are organized, how we run our operations, how we run our processes, how can we standardize them, especially utilize the technology.
We have invested quite a bit new technology, as well. We have had earlier, the ERP system etcetera, but also lately bought a lot of different kind of new technologies like software, robotics and process mining, etcetera. And definitely want to be more efficient in our process going further as well. So there's quite a bit
of potential, yes. And then the cash flow generation, the graph looked really nice. And if going forward, is there still room for further improvement? And if so, how?
Well, definitely, we target, to have a good, cash flow generation. Like I said earlier, the main key drivers are definitely improving profitability. So that's what we are targeting for. And yesterday, we set our new targets for that one. So that's definitely the one part.
And the other part is still the net working capital still have a lot of potential in that one to free up some cash flow from the net working capital as well. So we'll continue that one for supplier, Chen, Finance programs, etcetera.
Very good. Thank you. And now let's have the Q and A. So I ask all the gentlemen join Yuka myself to the stage. There's plenty of good questions coming from the chat.
Please note that there's a small delay when sending the questions. So I don't see them immediately. But, it's good to get a lot of good questions. Good. Thank you all for the great presentations.
I'm sorry, but your schedule. We have so many questions that we might be here
in the evening. We have a half an hour. We have a half an hour.
Oh, okay. We don't need to answer all questions.
It is, well, let's see. Let's see. So now first, about the, financial targets. There's a question about what is the primary source driving the target in increase of return on capital employed 12.5%. What kind of assumptions does this include on sales growth as well as capital expenditure?
Already business itself. And especially, of course, strong positive development coming from grocery trade coming from building a technical trade. Of course, in Cartwright, as Johan explained very well, we have still a pent up plenty of potential, but extremely important that we continue very systematic, very professional implementation of our credit growth strategy is especially in those 2 biggest divisions.
Good. And your financial targets or our financial targets talk about medium term, is that 2 to 3 years or?
Yes. Yes. We have medium term, medium term means medium term. It is not long term and, and I think that 2 or 3 years is quite short, but 5 years is quite long. Maybe somewhere between that.
Fair enough. Fair enough. You mentioned that half of the actually, it's less than half of the 2020 profit growth stems from positive COVID-nineteen effects. Would you mind sharing the estimates COVID impact on revenues, meaning net sales?
No, no, we don't because we don't know It is, believe me, it is not at all easy to understand those, those impacts, Joka, our finance people, our businesses, they have made already great job when they have studied very carefully those impacts. And when we report that less than half, it means less than have. It means at the same time that without the COVID impact, we would been, again, could position further improve our profitability. And that is very strong message that our crowd strategy works and our guys, they do excellent work everywhere in Kayskoye group on that side.
And then about the 2020 COVID-nineteen impact, again, linked to staycation boom, how much of that billing and technical trade EBIT is linked to the staycation? So let's split between the impact less than half?
No, picker's positive impact coming from billing and technical trade as Jyrma already explained. But at the same time, as we presented already in grocery, especially in a grocery change, we have very positive impact coming from COVID, but at the same time, very badly COVID hit our wonderful, food service, Gazprom business. And again, I remind that that the card rate suffered heavily due to COVID. Correct.
Tesco has growth strategy? Does how does acquisitions fit into the picture? It seems accruity of track is over in food trade. So where will the acquisitions be directed in the future?
No. If any doubts, we put more and more efforts to consolidate further building and technical trade industry in Northern Europe. Yorma explained that very well. And also, I repeat that we can see still a lot of lot of potential, especially in consolidation of Swedish, Norwegian not in European Building And Technical Trade. And especially we are targeting companies who has a very strong B2B presence and position on markets.
But I remind, we have definitely wonderful growth potential also organically in grocery trade as well as in building and technical trade. And again, I repeat that in Cartrade, we can see definitely big potential to raise our profitability to the new level, to the new level. Good.
Thanks. And about acquisitions, do you have you talk about having several potential targets? Do you have something in particular now as we speak?
No, as what mentioned, we have several. We are working very systematically our people are searching continuously those interesting targets. And I remind that,
we have completed
and we had integrated successfully plenty of those acquired companies. And, I repeat we can see plenty of potential, also near term, potential, especially in consolidation of building and technical trade in Northern Europe.
And again, building a technical trade in DIY market. It has been very strong in most countries, due to the pandemic. What are your market expectations when looking into 2021?
No, all in all, we are expecting that this Pandemic unfortunately, we'll continue. It's not over very soon. We are estimating that 2021 is similar than 2020. Hopefully, in the second half, we will see that Pantenia is over and life and living will get slowly back to normal, but more back to normal, we are expecting life is globally, may be starting from 2020.
In building a technical trade, 70 percent of sales is B2C. What is the EBIT distribution between B2B and B2C? So sales and EBIT change?
Both are very strong at the moment. Both are steadily improving profitability, but maybe Irma you can open a little
bit more divisions. I think it's not P2P or P2C question because, for example, in Finland care route, split fifty-fifty to P2 P2C. And I'd say it's doing very well. Then we can take also on an end in Finland 100% P2P doing excellent EBIT that then, for example, in Sweden and k router, mostly consumer business, not doing so well. So it's mostly a question about what is our situation in that business in that company, not B2B, not B2C question.
Good. The biggest challenge has been turning around Sweden in the past few years. As Sweden is now back in black figures, what are the next focus areas? Secondly, how much online is from billing and technical trade sales?
Gorma explained already in his presentation that in all operating countries, in building and technical trade, we have still plenty of room for profit improvements, but also plenty of room for growth. Organic growth as well as growth based on acquisitions. And of course, wonderful that today we are in position that we have so strong foundation in Sweden and Norway. Traditionally, we have been very strong. Our operational finance up performance has been already long time, strong in Finland, but now it is very strong everywhere.
And of course, it means that we are now much, much better prepared to expand our building and technical trade everywhere and not in Europe.
In Building And Technical Trade, what do you estimate share of renovation of the division sales to be?
Herman, maybe you can open.
I think it's impossible to say because our customers, mostly we have those smaller meters and construction companies. And of course, they are doing both. They are doing renovation and new buildings. But that's why we are saying that our part is quite high in renovation is that our main customers are those small and medium sized. And normally, those big construction companies are making those new buildings.
And we see that the most peers are investing into automation. I think this is grocery trade question. Given the accelerated growth within online on the track of COVID-nineteen, is there something that we are looking into that automation? Interesting on what? Automation?
Yes. Yes. Very important. Very important. And also on that side, we are working Ari, maybe you can open a little
bit more, but not too much. Okay. So, we are happy with the current business model. Actually, and most important that customers are happy. But of course, we are seeking out what is the neurodevelopment in the area.
And we are looking all the possible way how to make logistics and collection more efficient way. And I think that We need to do some investment, but not the big.
How much do you expect online sales to increase during upcoming years and how you aim to maintain the profitability level with the higher online sales?
I suppose in grocery.
Grocery, I guess so.
No, as I mentioned, PandemicA probably will disturb our life more or less or next year. Or at least first half and some problems coming also to the second half. And based on that, we are expecting that this let's call, amazing crowd in ecom with a continuum this year, we are in 400% and next year, sorry, what is your guess?
We are, we like nowadays like a 3 digit numbers.
So maybe more than 100%? I strongly support you. No idea.
Very good. I guess this is for grocery, but also for building and technical trade. Can you still increase the share of private labels? If yes, how high can it go in 5 to 3 to 5 years?
Yes. Answer is yes, definitely there is big potential, Yarona, please?
Yes. In our industry in Finland, we have quite high share in private label, but also also here, we can increase a lot of them. But especially in Sweden and Norway, we have huge potential. And I think that we will gain a lot of a lot of, better margin in the coming years from that area.
Any comment from from grocery trade side on private labels?
We are aiming to increase the share of the private label, and I think there is big potential in the future. But it's up to customers. Fees are set to table and they make the vinyl choice, but I think the offering is getting better and better every day.
Yes. And Ari, we can, we can, again, remind people that, for example, this premium private label, Birkka Finees, Birkka Parhat, amazing development, very strong growth highly appreciated high quality products by consumers. And of course, also from our business point of view, profitability point of view also, very, very nice product category.
Yes. The grow has been more than 20% and they're actually bringing more customers to us and customers are very satisfied the quality of the products. And we think there is big potential in the future.
Yeah. They are delicious. Growth rate, can you still improve sales per square meter despite the recent leap?
Yes. Definitely. Yes. We have many tools how to do it. And actually, we are sharing the calls with our store owners nowadays.
And it has been very impressive to see how fast we have been able to do it because the numbers are so big.
And it works very, very well. And there is, explained still a lot of room for improvements and formula works very well. Increased sales and reduced square meters, that means very, very strong development also on profitability side.
How far are you into journey of leveraging benefits of existing network through internal efforts like store specific business ideas, NPS, halfway or third, how would you describe the competitive environment?
Very good question. And I can tell you that this is some kind of topic, what we have on the table continuously when we discuss about the future. Anyhow, we can confirm that this shop will end never. We can always improve further customers, satisfaction customer experience. But I must remind you that it is amazing turnaround, what we have seen, how well our people, Cresco people, retailing entrepreneurs have succeeded to improve customer experience and sorry, very well presented that all stores where we have seen this turnaround sales development is amazing, but there is a lot of a lot of potential.
I mean, maybe you want to open a little bit more that happens.
Maybe the rough estimate could be that about 50% is current situation. 50% is spot in Sherpa. Thinking about what can mean in real life, for example, so like our city market beer color. There was a renovation 3 years ago, And now the sales is doubled. Same store, same location.
Big hypermarket. Big hypermarket, but double sales. Yarvon pa. Yarvon pa. Yarvon pa.
Yarvon pa. Yarvon pa. Yarvon pa. Yarvon pa. Yes.
Yes. And the best store in the
world Yes.
Good. What is the share of electric vehicles currently? I think in the market in general, where it will be? Where will it be in 2030? 2030.
If we have a crystal ball.
Oh, let's let's let Johanna to tell this secret.
Maybe we start with 2025 Volkswagen Group estimates that in 2025, the share of plug in hybrids and full electric costs will be around 50%. So then 5 years are from that, I don't know. I mean, of course, it's impossible to say, but my guess would be 70, 80%.
And what areas should we succeed in inter in order to get the car business into right track?
I see that the most important is customer experience as very, very strongly many times stated by you and myself that we have a definitely also in card rate, big potential, when we lift the customer experience to the new level. And it's not a secret that car industry, all in all, globally has not yet done such a great jump to improve customer experience. And our target setting, in our target settings priority number 1 in Cartwright is now to make this big jump, and we are progressing.
And one more cart rate question here, what kind of growth are you expecting from leasing activities within Cartrate?
But please tell first this, this, development. We started 2 years ago and created a development, but of course, very interesting. For audiences to understand the future's future potential.
So as Micko said, we started 2 years ago from scratch and now we are up like just about 3000 cars at the moment. I think one segment that we see that is increasing very rapidly is privately is see. So instead of buying the car, private consumers want to lease the car. And I think that will continue in the future. I said in my presentation that the market growth for next year is estimated to be, around 10%.
I think our leasing company will grow much quicker than what the market will
Then Cresco has on 17th September 2020 announced that it no longer exercises the type of control referred to it, IFRS 10 over Tesco Sanokai and has therefore classified Tesco Sanokai as a joint venture from 1st July 2020 onwards. What has changed in the ownership or management of Gescos senokai during 2020 that has caused such reclassification?
Yes. No, but has changed The change is that the Tesco and co owner of Casco Zenokai, we don't share anymore, same future vision and due to that reason, starting from this year, we have been in negotiations, how Kescoz and Ukai should be managed and further developed and those discussions continue. Good news is that, also, Kaesco Sanokai is, from operational point of view, finance point of view, very well performing growing, taking market share, profitability, also very, very good, meaning that day by day businesses are well managed also in Kescuisenokai. And as I said, we continue negotiations and One day, I don't know yet when, but one day, we will reach resolution somehow and we will fix those problems between us and our co owner.
Detailed questions. What is a normalized free cash flow level that can be expected going forward?
Okay. You, please. We are also, we are also very eager to hear.
I think we have given fairly enough that already today and yesterday evening when it comes to our finances. So the most important thing is that we have a growth strategy. We have return on capital employed target of 12.5 and we have a 5.5 operating margin target. And we have said that we will have a CapEx of 200 to 300,000,000. So that's pretty much tells you about the picture.
And I've said earlier today that we have some potential more it comes to the networking capital and so on and so. Those are the areas where we work and sort of frames in a way.
How you got promised that on your behalf?
Good. How much you have benefited from temporary reduced employee retirement payments, so called dual in 2020.
You could you remember
during this year? So we had certain businesses where we had quite challenging situation during the lock especially in the food service business, for example, and also partially in Cartwright, for example, and so on. So then we had those temporary F spot now when the business is up and running and so on, so much less in a way. Much less.
How much is the profit to come from acquisition synergies, what criteria is used to in allocating capital?
It varies. It depends on, acquisition. But all in all, we have gain synergies more or less as planned. But most important is that We have succeeded to acquire good companies, good businesses, very important that we have allocated investments, businesses where we can grow, where we can become even stronger and businesses where we can compete against best other European players. And this strategy works.
And I guarantee that we will continue on this track. And based on that, we can expect also could success in future acquisitions.
And can you elaborate on the risks for potentially weaker global economy that you see in 2022, 'twenty three? And does your updated midterm financial targets with the expected operating profit margins of five point 5, include such effects?
We see that, thanks to this turnaround thanks to our well performing growth strategy, thanks to very strong financial position of what Tesco has, those silences and issues coming from slower economy, those things offer us great opportunities. Because Cescco is today in so good shape that when sooner or later, we will face in Europe, those challenges coming from big economy. We are in good position, fully benefit
And then, for your billing and technical trade divisions, what market growth are you expecting next year weighted by your different exposures. It's a bit of detail.
Yeah. No, again, I I remind that are expecting that 2021 will be quite similar year compared to year 2020, especially in grocery as well as in billing and technical trade, yes, expecting that 2021 will be better year for card rate. No big change in the short term. But in building a technical trade, we are not expecting any more crode next year.
What are the biggest changes to strategy? Way you're working or consumer behavior due to COVID that you expect to stick even after returning to the new normal?
The good, but very difficult question. Who knows what will be the new normal? Who knows? How long this pandemic will last and who knows how badly this BandEMEA will hurt global economy, our economy here in Northern Europe. But we are optimistic because, again, I repeat that Keesco K Group is in utmost quarter shape.
And I'm very confident that whatever we will see in future we will succeed. Thanks to our well performing strategy, thanks to excellent 43,000 employees who are working every day in a K group. We are a unique retailing company even in European scale. Our grocery trade is probably the most profitable grocery trade company in Europe. Our building and technical trade is moving fast.
And going towards among the best European players. And all that means that compared to many other companies, we are extremely well prepared to face whatever will happen in the market.
A couple of questions still. Time goes quite fast. And here's a question about private labels in Finland, what is the key reason that Finnish private label shares lag compared to broader Europe that even Sweden? This is a growth rate question.
All right, please. I think it's up to the in the past, the offering wasn't good enough, because we didn't have good selection in the premium category. And now when we offer in that we can share that series getting higher and higher because we there was nobody there in that area. And actually, that's the grow area.
And of course, for us, this is, again, a great opportunity as explained also in his presentation because matter of fact is that clearly the best well known and strongest private labels in Finland are owned and operated by Tesco.
ESG question, what are the biggest positive chains that you are making in E S or G, environmental, social governance.
When we discuss from sustainability, corporate responsibilities, I would like to underline importance of transparency. And whatever you do as the leading retailing company, you should keep very clear in your mind that all your operations, all cooperation between you and your partners has to be transparent. And we have put a lot of efforts in Tesco to make all our operations very transparent And this is definitely main reason why we are so highly appreciated and our sustainability work is also well recognized globally.
And the last question here is any special dividend expected to celebrate the 80th anniversary?
Very difficult question. To that reason we have CFO here.
We have a solid, very clear dividend policy. So Yes. I think That's important.
Very good.
Very good, guys.
Thank you, gentlemen, and thank you, audience, for the great number of questions. There are also videos online, extra videos for you to see a little bit more about our business and for example, this store specific business idea.
Thank you. Thank you. And thank you, Hanna, for organizing this nice, nice occasion. And, guys, stay well.