Sensensimen. Welcome to our Q1 twenty twenty release call. I'm Kescos, CEO Mick O' Hellander, together with me, I have our CFO, Yuka Ehland and Vice President, Investor Relations, Anna Jagala. He published again a record result for 1st quarter. The impact of COVID-nineteen coronavirus epidemic was seen from mid March and onwards.
I will first give a brief overview of our business performance in first quarter. And thereafter, I will go through the impact of, the Corona epidemic to Tesco and K Group. After the presentation, we will be happy to take questions, both by phone and via chat. Key events in the first quarter. Market share shares have strengthened further the market shares of k food stores, K.
Rouda and Oningen are growing. Grocery sales in k food stores grew by 7.8% also online grocery sales grew significantly. At their highest, our online grocery sales have grown at the base of over 8 percent a week. In technical trade, I would like to highlight the performance of all in an strong net sales and profit improvement continued in first quarter. Konnect cash co divestment was completed in March.
The divestment was accurate already in summer 2018. During the period, we acquired a technical wholesale company, MiAP in Sweden. The impact of corona epidemic was seen in our business operations starting from March around the Tourette, and that was and that weekend. The net sales for Tesco's continuing operations in first quarter 2020 totaled 1,000,000. It was up by 5.8% comparable up by 4%.
The probe equals approximately 1,000,000. Rolling 12 months net sales were 1,000,008,660,000,000. Net sales increased in all our three divisions. Comparably, it fell in car trade. Net sales grew in all food stores chains and building a technical trade, net sales continue to grow.
Owning and scrolled was especially strong. Comparable operating profit for first quarter was 1,000,000 and it increased by 1,000,000. It is a record operating profit for 1st quarter, which is typically the lowest quarter of the year. Profitability was 2.6%, and it increased due to good sales development. Rolling 12 month operating profit was nearly 4 1,000,000.
Comparable operating profit for continuing operations, growing grocery trade and building a technical trade. Crosory trade grew by 1,000,000. The growth was strongest into building a technical trade, excluding specialty growth rate it grew by 1,000,000. Weak and demand pushed the card rates comparable operating profit. Return on capital employed.
1 of our one of our strategic targets improved and was at the level of 9.6%. It improved in the grocery trade. Tesco's financial position is strong. The operating cash flow improved by 1,000,000 and was 1,000,000. Last year, first quarter was posted by a return of surplus assets by KSCO pension fund.
Our liquid assets were 265,400,000 interest bearing net debt, excluding lease liabilities was 1000000. And the corresponding net debt to EBITDA ratio was 0.9. Now to the COVID 19 epidemic and to the measures we have taken. The COVID-nineteen epidemic began to affect our operations significantly from mid March onwards. Despite ongoing worldwide efforts to stop the epidemic we must prepare for the possibility that exceptional circumstances will last for some time.
In response, we have adjusted our management practices and operations as necessary. Impacts of the pandemic on the economy depend on the duration and success of condignment measures. Finland and Norway have similar COVID-nineteen strategies. Norway is now lifting the restrictions gradually, while in Finland, we are preparing to ease the restrictions. The Baltic Countries and Poland have had very tight restrictions and now lifting gradually.
In Sweden, the cases and mortality is higher than in the other Nordic countries. IMF currently estimates that the negative GDP impact in the region are between 4.6 to 8.6%. What are the key measures we as KESSCO and K Group have taken? Number one is to ensure the safety of customers and personnel. We need to ensure the functioning purchasing and supply chains under all circumstances.
And also we need to grow online sales services fast. It is important to postpone development projects that are not critical. The focus is on dealing with the current situation. To secure the strong financial position and secure cash flow, we are saving in personal costs. Or one thousand people currently laid off.
We are also cutting other fixed costs. In 2020, we are cutting cash flow investing activities to be below $200,000,000. Also, efficient management of credit risk and amounts due to from customers are critical. One of the key measures is to ensure the availability and efficiency of financing. In K Group, epidemic is well under control.
Significant investments have been made in protection and constant efforts to improve safety. COVID-nineteen testing has begun and it will be expanded. In our company, there are currently some 30 confirmed COVID 19 cases, preparations to safely return back to normal have begun. Impacts of the corona epidemic vary within grocery trade. We have seen strong sales growth on K food stores and online.
While our P2P operator case process sales are down by approximately 50%. Also, sales of home and specialty coach in KCT markets are suffering due to lower customer footfall. Reduced traffic has had a significant negative impact on SDK service station sales. On market, there is a significant growth in food retail in general, horing of some product categories was seen in mid March. Such as tissue paper can't force, threat, and meet.
There are fewer customer visits and bigger average purchases. Also, in general, the demand for online sales of groceries have increased. Foodservice business is down due to the restrictions. Kroga. Fee has become the biggest online grocery service in Finland, the highest growth rate was over 800% a week.
We have been able to successfully respond a strong growth in online demand. Our care worker dotfeed network is expanding fast some 20 new stores have been added to the network every week. Currently, some 360 k food stores of online grocery sale services at krokadotv, all over Finland. Despite the strong growth, The customer satisfaction is very high. NPS is 82.
Online grocery sales now account for 5% of our retail sale. For building a technical trade sales, the impact has been moderate so far. P2C trade sales development in building and home improvement has been good in Finland and Sweden. Sales levels have also stayed good in P2P trade also on and on sales development has been very good so far. In Lithuania, there was a step drop there was a steep drop in sales due to stores being closed until 16th April from March 16.
Lesser trade sales has declined significantly. On market, the activity on construction sites has continued without major disruptions. Home, decoration and renovation have increased, but there are a few new construction starts. Currently, it is difficult to predict trends in demand in the longer term. It is possible that stimulus measures could accelerate economic turnaround and increase demand.
In card rate, the demand has decreased significantly. New car sales and orders are significantly below normal levels. Also, used car sales also clearly down. On the other hand, servicing and spare parts services, service sales are almost at a normal level there has been production shutdowns at Volkswagen Group Plans, but we have plenty of previously imported cars available for sale. Due to the corona epidemic, we have expanded car pickup and return services on market overall orders for new passenger cars are down by approximately 60% and orders for vans down by 40%.
Demand has weakened significantly among both customer and corporate customers also used car sales also down by significantly. Our cross strategy execution continues. But right now, I stress our focus is on crisis management. Cescco initiates a strategic review concerning business operations in the Baltic Countries and Belarus. Cescco has many different businesses in the Baltic Countries and Belarus.
The combined net sales is approximately 900 1,000,000. The largest part is the building and home improvement and home and specialty growth rate in Tonia, Latvia, Latonia and Belarus, Trokesco and Okaia. Tesco's ownership varies between businesses. Ownining is our technical wholesale operator in the Baltic Countries. We also import shared cars in Estonia and Latvia.
The starting point for this strategic review is, the market and its size, which is the same size as Finland. The region consists of 4 different countries with different cultures. The economies are growing and there is further potential for purchasing power growth in all, the countries. Currently, economic growth has slowed down and population development is negative the Baltic countries. CASCO and UAP are invested here, have different views on how to develop CASKOS and UQI.
The objectives of this strategic review, the strategic choices in building and home improvement and home and specialty portrait in technical wholesale and also strategic choices in Cartwright. Our objective is to stream to establish a common point of view with UAPR Invested Sierra on how to develop and manage Casa and Okai. And to the annual general meeting, the annual general meeting originally convened for 13th March 2020 was held today, 28th, April, 2020 at 10:30 AM. On the agenda where among other things where the dividend of €2 52 euros per share, it is in line with the original port proposal. It will be paid in 2 installments.
And to split and to share split 1 to 4, their new shares will be issued for each current one in line with the original port proposal. And then the guidance for 2020, the guidance for Tesco group's continuing operations is given for year 2020 in comparison with year 2019. Due to the COVID-nineteen pandemic and global economic uncertainty, the company estimates that its comparable operating profit for continuing operations will amount to 1000000, 450,000,000 in 2020. So falling somewhat short of 2019 comparable operating profit of 1,000,000. The company does not issue a guidance regarding net sales.
Thank you. And now it is time for questions. From the conference
please dial 1 on your telephone keypads now to ask the question. If you find your question is answered before it's returned to steep, you can dial 2 to cancel. So once again, that's 0 1 to ask a question or 2 if you need to cancel. Our first question comes from Frederick Stevenson of ABG. Please go ahead.
Your line is open.
Hi, Mikko. Thanks for taking my questions. First one on the CapEx levels. Obviously, you're cutting CapEx below 200. I think it's it's set in the report.
Can you tell us what kind of investments that relates to, and how should we also expect 2021 to develop, are you sort of pushing investments towards the future or just more cancelling in them? That's my first question.
I repeat, but I stated also in my presentation that, definitely, after pandemic, we will continue implementation of our approach, Fidelity. And definitely, it means also that we will allocate after pandemia, again, more money on investments and allocate more resources on growth. At the moment, when we are in the middle of Epidemia, we have decided to curtail investments, but anyhow, I remind that money, what we will spend will be below 1,000,000, but it is still a big amount of money and mainly those investments we will make on our store network to modernize stores to open some new grocery stores as well as we continue also investments on ecom applications on grocery side building a technical trade business as well as we will further develop our IT systems. Okay, thanks.
A question on B And T, and you, I think you touched upon it, but we currently see very strong demand on the B2C side. Are you currently seeing a big shift in the mix of your sales from B2B towards more B2C And if yes, maybe how much approximately?
No. Building a technical trade, as we stated also today, development for time being has been very positive on P2C side as well as in P2P business. We can see that in Builders Merchant in DIY, on Builders Merchant DIY side, as well as owning and what is 100 percent dedicated on a P2P has had also very strong development.
Right. Thanks. And last one from me before I jump back in the queue. On the strong online sales within food retail. Can you say anything about how that's been impacting your and maybe also your franchisees profitability?
No, all in all, we are extremely happy that we have succeeded to meet so well fast growing demand, especially in a groceryecombusiness. And based on that, we believe that we can maintain strong development also in future. Part of our success is that we have succeeded very well to combine ecomandstore network, that is the beauty of our ecomconcept. We will put definitely also in future more and more effort further develop our grocery, e comm sales, but also we will look after that we can continue also profit improvements on that side.
Thanks. I'll jump back in the queue.
Thank you. Our next question comes from the line of Magnus Roman of Kepler Cheuvreux. Please go ahead. Your line is open.
Hi, and thanks for the presentation. I'll begin to start to tie in all my questions on the online side. You mentioned here that you're up on on a penetration of 5% in April, and you, you you just stated here that you you see to maintain this momentum going forward in the future, doesn't that imply that you should, be looking for decisions on on mentioned centralizing the ecommerce deliveries, at least in in larger city regions, and also to improve that profitability and then cost per handed unit that that you mentioned. That's my first one.
All in all, once again, I repeat that, that, we have very strong development in ecom on grocery side, but also I would like to remind that we are now also fast growing in ecombusinessinpealingandtechnicaltrade. All in all, our beauty, in, e competitiveness is that we have 1800 Stores in Finland and in Nordic Countries. And our strategy to combine excellent e comm services with our store network works very well. And we believe that this concept offers a lot of opportunities for us in grocery business as well as in building a technical trade business.
All right. So at this point, you see no need or you see no risk that other Nordic competitors are moving in the way of large, large sites. Centralized investments in the e commerce delivery to bring down cost per handle unit and and, improve efficiency and profitability. When volumes are growing rapidly?
All in all, we have seen competition and we will definitely see more and more competition. But strongly, we believe that, for example, in Finland, we are in good position, thanks to excellent store network in DIY business as well as in a grocery great business. And we launched 2.5, 3 years ago, current ecom platform for example, in grocery business. And when we look current developments, when we look also our profitability, we can say that we have succeeded very well. And based on this success, we believe strongly that we are in excellent position to develop e comm services, for example, in Finland.
Maybe to add up a little bit on that one that we've been adding some 20 stores per week to increase the capacity that the customers are asking for. So in that sense, our sort of scalability of the e commerce platform is still something that we can increase. So that has worked really well during these times.
Yes. But perhaps when you add new source that fulfill econsensus, the Profitability dynamics will not, you will not leverage that volume increase, profitability wise, perhaps Damn? But but but I appreciate your help. Anyhow, I I have a second one on on the the weaker sales of the home and specialty goods in case if market. I guess you did hear to non food sales.
This setback that you witnessed in the second half of March, has that continued in April, at the same pace, or or has it has it deteriorated further? Or can you say anything there?
Could you please repeat the question Sorry. It's the line is not too good here.
Sorry. Yes. I I hear you and echo as well. The question, relates to the home and specialty goods sales that has weakened in case it market. Over the second half of March.
If you can comment on how that has progressed throughout April if if the weakness has been sort of at a stable level or is it if, it has deteriorated further? In April.
Thank you. We will we will pop our April sales figures very soon. We are now end of April and normally 2nd week 2nd week of the next month, we will publish a previous month sales figures. But all in all, I can repeat what I mentioned already in my presentation that specialty culture trade has suffered due to epidemic. And we believe that this trend will continue at least for time being.
All right. Just a final one for me on the car trade side here. You mentioned, significantly weaker sales of both new and used cars. However, that the off the market of the spare parts and servicing is is holding up well as I get it. Do you have a view here for how long time the aftermarket sales can be sort of disconnected from from new sales?
Could could could that be the case for for over several years? Or or, do you see that the the week saints will spill over in the off to market at some point?
Thank you. Not easy. Not easy question, but this would remember that climate, warming, big challenge. And, for example, in Finland, we have, one of the oldest, car, 1 of the oldest car in Finland, meaning that also in Finland, we have big pressure to modernize cars have more modern cars, cars which have less emissions. And based on that, we believe strongly that in future, we will see also positive development in car sales.
But of course, now it depends on how long we'll continue this epidemic as well as how badly this epidemic hurts, economy in Finland and, overall in Europe. Also, I would like to remind that, thanks to wonderful partnership between us and Volkswagen Group, we can offer excellent cars, all brands, what we represent have also very modern electric cars. And when economy starts to improve via an excellent position also to offer finished consumers and companies new cars.
And maybe just to add up a little bit on that one. So obviously in the long term, there is a correlation between the new car sales and after sales. And that's obviously one of the key reasons why we, we had a good and high market share, but we also want to maintain that one in order to keep also the aftersales business at the good level. So obviously, We have quite a bit of efforts in order to sell new cars as well in order to sort of secure the long term profitability without the sales.
I agree that that's a discounting pressure in the market at the moment.
Thank you. Our next question comes from the line of Nicholas Skogman of Handelsbanken Capital Markets. Please go ahead. Your line is open.
Yes. Hi. I assume there were some hoarding effects seen in March. Do you have any estimate for sort of the the 2 week impact from hoarding that you saw in March. Yeah.
Sorry, within the grocery, within the food retail business.
Yes. As you mentioned, some hoarding was in March, in April, not anymore. So March Of course, it had some positive impact. But at the same time, of course, we should remember that in foodservice business in Casper sales declined very dramatically and that, that decline had definitely much bigger negative impact on our grocery business.
Yes, of course. But are you seeing I guess what I'm getting at is are you seeing a continued elevated volume demand in your food retail business? Also in April?
I can confirm that, that we are doing still very well in our grocery division despite this this this epidemic. And also, I would like to remind that again, in first quarter, we gained market share in grocery business.
It's quite clear that people have to eat some somehow. So when the restaurants are closed and schools are closed and workplaces are many times closed, you know, then that's FX positively on the food retailing, obviously?
Got that. And then a question on this, strategic review in the boat for the Baltics and the Bella Russian business. What are the possible outcomes from this review?
Definitely, one very important outcome of this review is that we will have more clear picture out of countries and economies will develop in the future. And based on that, definitely, we will have even sharp, strategy how businesses will prefer to developed in both the countries and the Belarus. I would like it I would like to remind that we have succeeded to implement very successfully also our growth strategy in those countries, but our business portfolio is quite fragmented We have DIY home improvement business in all four countries. At the same time, we have separate technical trade business in those countries or in a 3 Baltic Countries and also we have small scale car, trade business in Latownia, in Latvia and Estonia. Also due to those reasons, we feel very strongly that it is now perfect timing to clarify our strategy in that part of Europe.
As well as I remind that in Gescosenu Kai, we have also some different opinions between Tesco and minority shareholder how the company should be further developed. Also, that will be definitely clarified in this review.
Okay. When do you expect this review to be to conclude?
Yeah. I don't have any time time schedule. I have learned that, when you start a strategy exercise successful review. It is better that you don't hurry. And we should also remember that businesses are running all in all very well in Baltic Countries.
Of course, Epidemia has disturbed, but all in all, our position is very strong. And we don't see any need to hurry in this review.
Okay. And how have the Lithuanian stores performed since they reopened on April 16?
Stores are open and we are extremely happy that we are now getting also back to normal in the and business continues as planned.
Thank you. Our next question comes from the line of Frederic Everson of ABG. Please go ahead. Your line is open.
Thank you. A few more questions from me. On K-twelve in Sweden, you saw sort of flattish sales in the quarter, while I think some of your competitors have been reporting 20% sales growth in the quarter. How should we view this? And also, can you say anything about the timing over the quarter, in particular, what did you see over the last 2, 3 weeks.
That's my first question.
All in all, we are also very happy with our Swedish operations, thanks to heavy measures, what we have implemented, Keyurawa is now performing better and better. Of course, we should remember that still there are in a process, some corrective actions, but all in all, Kozhofer, Sweden has had much better progress and performance in this year, but in many years earlier. Also, we are very happy. Our acquisition K. Duke, performing also very well very strong development as well as owning and technical trade in Sweden.
Also, I would like to underline our happiness with, management we have today on place in Sweden. Very strong, very capable, very professional management, and, they are developing and managing our Swedish operations very well. Based on that, we are expecting also positive development in fields.
Okay. And then one question on the cost adjustments. You're making adjustments to a cost apart from the temporary lay layoff as well. Can you do do some or give some further insight on on what kind of costs you're targeting and maybe also quantify it?
Yeah. Actually, as I mentioned in my presentation, very quickly when, epidemiology hit us and countries where we operate, we started very extensive measures. And thanks to those measures, situation, all in all, is now very well under control, but you can please, you can open more of measures.
Yeah. Maybe just to, tell that obviously when the, when in certain businesses, the sales, decrease obviously, we have needed to respond to that one and with personal layoffs and reducing costs by that. That way, But obviously, during these times when the focus is totally on the overall, you know, cash generating and cash flows, Obviously, we have gone all all the sort of, cost other cost lines through as well and some are short term, some are a bit longer term, things that we are currently doing, we have gone through all the projects and so on and prioritized those and made some cuts there. And like I said earlier, capital expenditure has been reduced substantially as well and so on. So it's pretty much looking at the CAS, all cost elements and cost lines and doing that work.
That's pretty much what we're doing.
And those projects, what kind of projects are you are you talking about here?
Well, during these times again, when you really have to focus on all the, you know, process is working well, continuous and that kind of things and cash flows and and really focusing on that side. Obviously, there's a lot of development projects that then you have to think about that, how to postpone them and so on and so it that that's really the thing that that there are good projects which we'll we'll do later on and so on about currently, we obviously have to focus that our supply chain and systems and everything works well so that we can serve our customers in the stores.
Okay. Thank you.
Our next question comes from Sandy CrowFirst of Nadia. Please go ahead. Your line is open.
Yes. Thank you for taking my question. I only have one left and it regarding the the food service business that you say that the decline is 50% in the last week. Should that be taken as, an implied guidance for for the coming months as long as the the restaurants remain closed, or do you see there's a delta in either direction from that and and, can you also elaborate a bit on the margin impact from the decline?
We have all in all, we have, positive news in Finland. Epidemia is very well under control in Finland, thanks to also right, measures implemented by, to finish government. And, of course, today we don't know yet, but if epitomere, and if we will have, And if this positive development will continue in the coming days weeks, it is possible that that restrictions, some restrictions and limitations will be canceled and that might open slowly also restaurants. And of course, that would be good news for us. All in all, development in food service business we believe will go to the right direction.
And coming weeks, we will give a definitely us more information. But all in all, in the second quarter, we are optimistic compared to development, but we experienced, especially in the second half of March.
Okay. Thank you. And then a follow-up, in which categories within food service have you have you seen at least impact, where is the business holding up well?
No. No. Especially, public, customers, still many schools and institutional customers and customers owned by the state and, communities are still in operation and we are also main supplier for those customers. And that is maintaining also Casper's business pretty well. But once again, I repeat that at the moment, we are more and more optimistic, thanks to positive development in epidemia in Finland.
And based on that, might be possible that, restaurants, will be, slowly opened also in Finland in, Maine.
Okay, thank you. That's all from me.
Thank you. And our next question comes from the line of Magnus Raman at Kepler Cheuvreux. Please go ahead. Your line is open.
Thank you. I have 2 more questions. Firstly, on your work to secure the supply of goods, I I'm thinking of the growth rate paid primarily. Yeah. What what type of goods are are most affected And and and are there any categories, that are being that sort of empty, that that you cannot find alternatives sourcing routes and so forth?
Well, I could of that one. So overall, our supply chain has worked well and we have a good availability of our products overall. So no major problems for us.
But you're right in the report that we've been working hard to secure the supplier goods and what we hear from other retail assist is that there there is problem in certain categories on on the supply. So so I just wanted to check when you look forward now when you plan your purchases, if there's any, you know, if there's any extraordinary action that you have needed to take to to secure supply of goods. So if you can get any provide any comments and colors of of which type of goods that that there might be constraints in in in this supply.
Yeah. Well, like like I said, we don't have any major problems with our, sort of assortment at the moment, just some, perhaps, at some time, but not nothing, nothing big problems there. Obviously, we have done a in our supply chain to secure that one and a lot of work there and so on, and preparations. But like I said, altogether, the selection is good and we can serve our customers well.
Okay. And then the cost structure again or the costs, and and your, but there's been questions about this previously, but but but perhaps I can put it this way. Has there been any discussions on rent on rental terms or or or or actual rent levels? At this stage.
So it's very clear that we are looking for cost savings in all areas.
Okay, that was a short answer. Alright, thank you.
Please dial 1 on your telephone keypad. Once again, any more questions, please dial 01
Okay. Thank you so much for the active discussion. And if you have any further questions, don't hesitate contacting me. And keep safe and, have a great rest of the week. Thank you.