Ladies and gentlemen, welcome to our 2018 financial statements release call. I'm Cescos President and CEO, Mick Cohallander. Together with me, I have our CFO, Yuka Ehlund and Vice President, Investor Relations, Kia MLAOS. I will first give an overview of our business performance and after that, we will be happy to take questions. The cornerstones of Tesco's strategy are profitable growth and 1 unified K.
Since the launch of our 2015 growth strategy, we have become a stronger, more focused retailing company. We have achieved growth in all core divisions and operating profit has improved by over 1,000,000 from 1000000 to 1000000. I am pleased to state that our growth strategy is working. Successful strategy execution enabled us to achieve CashCall's all time best result in 2018. Net sales grew and operating profit rose to a record level and return on capital employed reached the target level of 14%.
In the grocery trade, we had further improved we had further improvement in market share and profit into building a technical trade, profitability improved and the execution of a country specific strategies proceeded as planned. In the card rate, there was strong profitability and we introduced new services to the market. We continued acquisitions and divestments in line with our growth strategy. The Board of Directors proposes a growing dividend. 3rd
quarter
2018 highlights included net sales growth of 3.1 percent. Operating profit grew by 1000000 to 1000000. In the grocery trade, sales and market share strengthened and profitability improved. Into building a technical trade sales grew and profit improved, especially in the Baltic, Politics and Finland. In the card rate, profitability as good despite new car deliveries being delayed by WLTP implementation.
As a result of the net sales and operating profit, growth just mentioned, earnings per share increased from 0 point EUR0.65 to 29 to for the full year. Looking at 2018 net sales and operating profit by division, grocery trade remains the largest division in terms of sales and profit contribution. Excluding specialty growth rate, all core businesses improved profitability. Comparable sales grew 3.1 percent to 1000000 in 4th quarter and 3.5 percent to 1000000000 in 2018. Operating profit improved by 1000000 to 1000000 in 4th quarter and by 1000000 to 1000000 in 2018.
Correspondingly, margin improved from 3.1percentto3.4percent in 4th quarter and from 2.8percentto3.2percent for the fall of year. Return on capital employed for the group improved from 3.3 from 13.3% to 14% to reaching our targeted level. A few comments about our financial position. At the end of the year, equity ratio strengthened from 50.4 51.4 percent liquid assets were 250,000,000 and interest bearing net debt 162,000,000. The net debt to EBITDA ratio was 0.4%.
Cash flow from operating activities improved in the fourth quarter from 1000000 to 1000000. Cash flow from investing activities was 1000000, clearly lower than the minus 1,000,000 a year ago. In addition to core dividend capacity, our strong financial position enables also investments in growth. I will discuss next business development by division. 1st, cross rate rate.
Comparable sales grew 4.2 percent to 1000000 in 4th quarter and 5.1 percent to 1000000 in 2018. Operating profit improved by 1000000 to 1000000 in 4th quarter and by 1000000 to 1000000 in 2018. Correspondingly, margin improved from 4.8% to 5% in 4th quarter and from 3.99% to 4.2% for the full year. In grocery trade, retail market growth was 3.5percentinthe4thquarterandapproximately 4% in 2018. Price inflation was approximately 2.4% of which slightly or one third was attributable to the increase in alcohol and tobacco taxes.
The market has developed well with increased emphasis on quality and selections still also price remains important. The growing trend of eating out increases demand for full service wholesale. 2018 highlights included growth in customer numbers and market share. Thanks to sales, growth and successful integration of Sommelahekaupa profitability improved clearly. We continued investments in store redesigns.
Also, cash cost competitiveness improved by the acquisitions we made. Highlights in 4th quarter included continued growth in market share. KCT market and KG supermarket had record Christmas sales The growth rate of our online grocery sales was nearly 100%. The retailer business model is a clear competitive advantage in our grocery trade. Together with the retailer entrepreneurs, we target to have the most customer oriented food stores on the market.
In already 11 109 stores out of 1200, the operations, selections and look have been redesigned. Store specific business ideas have been implemented in 10 12 stores Today, it is possible for a good retailer to operate multiple stores. Currently, 555 stores and 225 retailers operate under the multi store model. At the end of last year, already 156 k full stores offered online sales of groceries. Lastly, we have extended opening hours to respond to customer needs.
Next, building and technical freight. Comparable sales grew 5.1 percent to 1,000,000 in 4th quarter and 2.6% to 1,000,000 in 2018. Operating profit improved by 1000000 to 1000000 in 4th quarter and finally 1000000 to 1,000,000 in 2018. Correspondingly, margin improved from 1.6% to 2.2% in 4th quarter and from 2.2to2.5percent for the full year. A few comments on the building and technical trade market.
Despite slowing growth, the market situation in Northern Europe remained favorable. The need for renovation building and its share are growing. Construction is focused on growth centers. Fertheimer, with the market being fragmented, we expect consolidation to continue. Important of Digital Services continued continues to grow.
2018 highlights included good results from the new country specific operating model. In line with strategy, we continue with acquisitions and divestments. Comparable growth for the building and home improvement rate was 2.3% and for owning and 1.7 operating profit for building and home improvement rate grew by 1,000,000 to 1,000,000 Owninance operating profit grew by 1000000 to 1000000. Highlights in fourth quarter included net sales and operating profit growth, especially in the politics and Finland. In building and home improvement trade, comparable net sales grew also in Norway and Sweden, we saw continued growth in owning.
As mentioned on the previous page, focus has accelerated strategy execution. In Finland, K router and Oningen are both cleared market leaders and their profitability improved. The successful redesigns of stores and selections in the politics has led to growth in sales and profit. In Norway, we made strategic acquisitions that increased the share of own retailing for the Dukemaker chain. A comprehensive transformation program is ongoing in Sweden.
It was encouraging to note that comparable net sales were slightly up in 4th quarter. In Poland, we achieved a targeted turnaround in profit. The Russian operations were successfully divested, which improved focus and return on capital employed. The divestments carried out in the first half of twenty seventeen decreased, especially expectedly the net sales and operating profit of the specialty cost trade. Profitability in leisure trade remained good despite tight competition.
The announced divestment of Baltic Machinery Trade finish agricultural and machinery trade is expected to be completed during the first half of twenty nineteen. Next Cartwright. Due to implementation of WLTP emissions testing and change in car tax, net sales declined by 12.9% to 1,000,000 in 4th quarter and by one point 8% to 1000000 in 2018. Operating profit at 1000000 remained at a good level in 4th quarter and improved slightly to 34 point 5,000,000 in 2018. Correspondingly, much improved from 3.1to3.7percentinthe4thquarter and from 3.6percentto3.9percent for the full year.
A few comments on the car trade market First, race trations of passenger cars, vans were up by 1.3% in 20 teen and down by 12.1% in fourth quarter. The new WLTP emissions testing implemented since the start of September has caused significant disturbances in the market. Also, there have been uncertainties related to taxation and technological transformation. 2018 highlights included solid market share for Volkswagen, Audi, SEAT and post the cars advance at 18.5%. The Porsche business had a record year with race ratios up by 65.7%.
Our mobility services were off to a good start. Also, card rate was incorporated more tightly under the 10 K brand with its name changed to K ATO and K Cara. Highlights in 4th the included operating profit growing slightly despite the decrease in net sales. At yearend, the order book for new cars was minus 12%. We had approximately 550 new orders for K car leasing services in 2018.
Furthermore, K starts at 194 starting points at year end. Kescot and KAauto have a long standing partnership with diverse largest car maker Volkswagen Group. More recently, in 2016, we expanded our print portfolio by acquiring also deposit business in Finland. And the expansion continues, we will start importing and selling pantry in Finland from autumn onwards. Now a few comments on our outlook.
Our outlook is based on EFS in force on 31st December 2018. And does not take account for the impacts of EFS 16 leases, which took effect on 1st January 2019. In comparable terms, the net sales for continuing operating operations for the next 12 months are expected to exceed the level of the previous 12 months. The comparable operating profit for continuing operations for the next 12 month period is expected to exceed the level of the preceding 12 months. Briefly of our focus areas for 2019.
Into growth rate, we will grow sales and further improve customer experience. Focus is on further strengthening store specific business ideas and retailer entrepreneurship. We also want to expand the full service wholesale business. Increasing sales and profitability is key for the building and technical trade of importance is improving profitability in Sweden, additionally selected acquisitions in Northern Europe would support organic growth. Growth and tightening strategic partnership with the Volkswagen Group is the focus in the car trade.
Furthermore, increasing sales and efficiency by operating as 1 unified K continues on our agenda. The Board of Directors proposes a growing dividend at the annual to the annual general meeting. According to our updated dividend policy in the long term Kesco aims to distribute a steadily growing dividend of some from 60 200% of its comparable earnings per share, taking into account the company's financial position and strategy. Gescot plans to pay its dividends in 2 installments starting with the dividend paid for the year. 2018.
The objective of our corporates responsibility, FERC is to enable sustainable lifestyle for our current and future generations of customers in the areas of food. Mobility and living. We were pleased that Cresco was recently again included on the Global 100 list as the most sustainable trading sector companies in the world. We will move to the new K campus this spring. This is a significant step toward forward in implement implementing our strategy as it's as it brings all divisions and functions together in one location.
This ends my prepared remarks. Thank you for your attention.
Ladies and gentlemen, The first question comes from the line of Farooik Yveson from Kepler Chevrolet. Please go ahead.
Super. Hey guys, congrats to a good year. 1st, I guess you mentioned a comprehensive transformation in Sweden K Rafta. I'm curious if you can give some color on that statement. Exactly have you changed in order to grow sales and improve profitability?
That's my first question. And the second one, wonder if you can give an update, the update on where you are in terms of the redesigns you mentioned of the store network in grocery trade how much much have you left? And what do you plan for 2019 in particular? I stopped there in my come back with a couple more later.
Yes. Let's start from Sweden. And Once again, I would like to underline importance of new country specific approach, we changed roughly 12 months ago, our management approach we put on place plenty of new managers. And I can confirm that this new country specific approach has accelerated development in billing and technical trade. Also, we can see in Sweden today good progress.
And we are extremely happy that we have on place completely new country management. Andrea S percent ordered very successful chop 1st in Norway on in an after that, he did very successful turnaround in Poland He is now country head in Sweden and he has a round of him completing new country management and those guys are doing extremely good job. Your morale personally supports this team and in 4th quarter, we could see already some progress and our expectation is that more positive development in Sweden, we will see in 2019. Apart grocery, as you have seen, Also on that side, the strategy works extremely well, very important part of our grocery strategy is to modernize based on store specific business idea, store specific business strategy, all k food stores. And today, already, major part of stores, we have modernized but still quite big amount of stores are under contraction and especially 2019 we will major part of those stores update and modernize.
Probably still some stores will be modernized 2020, but we can confirm that end of 2019, more or less all 1200 stores, we have modernized.
Thank you. A short follow-up on the first because I do appreciate the country specific approach and the new management model in B And C trade. But still don't really understand what have what measures have been taken in Sweden in order to change and improve.
So I can I can start that Yukon can then continue? But, most important also in Sweden, is that we have on place, right, selections. And we have put lot of efforts by new country management to put on place also in Sweden, country and store specific selections based on store specific strategies that is one important element. Another important issue is that we have made and we will continue also a structural changes in a store network. 3rd important issue is on on in a business, we succeeded already 2018 to improve commercial and financial performance on in Sweden, Sweden, those measures will continue and especially heavy loss making contractor side of Owning And Business on that side, we will continue heavy measures.
Maybe you can continue, if you have in your mind, is there
more of those measures?
Yes, maybe
just shortly regarding the Care router side. So We've done a lot of work, especially on the B2B side, and that has, did a lot better during the last year. And and we had some some, sales decreases, in the, in the, B2C side on that business, but the actions we've done there to have been what's more active towards the end of the year end and the initiatives, on that side and that was already sort of, fruitful during the last quarter when we saw like for like growth also in the B2C sales in Sweden and so on. So in that sense, Like Mick said, there's a lot of things, which we are doing and it's a, you know, groundwork that we have to do, in all sides and, and in the stores in the actions in the logistics and efficiency and so on. So that work will continue.
But like I said, on the last quarter, like for like growth was positive. So that's obviously a good thing.
And the next question comes from the line of Harry Heckkela from Nordea. Please go ahead.
Yes, hello. It's Hardik on Nordea. I have a couple of questions. So the first one, when do you expect the car trade to normalize Have you seen any signs from the AWLTP emission testing coming to an end or or how do you see the situation?
Yeah. No. First situation is already today much better compared to situation, what we had, let's say, some months ago Still in first quarter, some disturbances we have in card rate, but the situation is getting steadily better. 2nd quarter, I believe, is already quite close, normal and especially in the second half 2019, we are full of optimism that business environment and all conditions to make great business in card rate will be there on place. But once again, I repeat that the still some challenges in the first quarter, but much less compared to situation.
What we had in autumn and end of 2018.
Okay. And then the second one regarding the synergies from on mainland. Have you already realized a major part of the planned 330,000,000 annual yearly synergies, or where is it that, where is that standing?
No. As you remember, when on and was acquired was stated many times that synergies are coming in much slower compared to situation, what we had, for example, in a Swamelajicopa acquisition. And all in all, I repeat and I confirm that Olinen has fulfilled extremely well our expectations. And all in all, Owninance development is very well in line our expectations, what we had when the acquisition was made. As well as we can see that also synergies what we calculated, are progressing very well, regarding according to our expectations.
Most important from my point of view is to review whole building and technical trade division. And as you have seen, we have succeeded now in fourth quarter as well as in third quarter to improve profitability. Thanks, too. Strategy thanks to extremely good implementation of strategy thanks to new management and country specific management model. And based on that, we are expecting that also in 2019 positive development continues in Building And Technical Trade Division, including also on and on businesses.
So can we assume that you haven't yet reached half, even half of the planned annual synergies
We have still homeworks to do. And once again, I repeat that already originally was it that synergies are coming in much slower, what in acquisition, for example, from a lake up, we are progressing as we planned.
Okay. And the last one, have you considered divesting this Swedish building, okay, route operations as one possibility, if cannot turn them.
At the moment, we put all efforts to make our Swedish operations better. And we are very optimistic that we will see more positive development also in the coming months 2019 in last quarter 2018, we could see already a lot of progress. And I remind again that Sweden is extremely important market for Tesco, for Tesco's building a technical credit division. Swedish market is bigger than Finnish Norwegian market together. And we can see also a lot of opportunities to participate consolidation of Spirit's market.
Also due to that reason, we put lot of efforts to put on place more solid platform to restructure successfully our current business in Sweden.
And the next question comes from the line of Nicholas Forman from Handelsbanken. Please go ahead.
Yes, Hi. Could you please start with, if you could explain the restructuring costs in Sweden this quarter, what do they relate to? I think it was 1,000,000.
You mean in last in fourth quarter?
Yes. Yes. Those mostly relate to the some of the store network. Change it that's happened taking place during the last year and those are parts of the also some restructurings in the operations as well. So sort of mostly related to those ones.
Did you say the store network, but I mean, you have there's the same amount of stores in Q4 as in Q3 and in Q2?
Yeah. But there has been some changes in the locations of those stores. So some new ones and some closed out ones. So So it's not the same store side network anymore.
Okay. Perfect. And on and then profit decline in the quarter year on year, could you maybe to go through the different countries, what's which are the negative factors? Which countries are weighing down on it on in all in all?
Yes, no, all in all, on and development again was very positive in 20 18. In last quarter, we had some challenges in Norway. Norwegian market competition is at the moment very tough in Norway in technical trade. And due to that reason, we are also changing our sales approach we are implementing measures to make whole on in an organization in Norway, more cost competitive. And we believe that those measures will improve a competitiveness also in Norway already in short and mid term, especially from Norway came that active impact, but the situation is very well under control.
All in all, once again, I repeat that on the NNE's processing very well.
Yes. And on NNE Sweden, where are you seeing the impact of softer new residential construction?
Yes, on Hidden Sweden improved already 2018. There is access fully operational and financial performance, but still any house, we have a lot of homeworks to do also on the onion side in Sweden because onion and Sweden reported still 2018 the active result. But anyhow they succeeded heavily reduced, losses. Measures continue and, we are full of optimism that 2019, we will see even a bigger and even more positive development in Sweden on K router side as well as on onion side. Okay.
And your margins in the Cartrait business are holding up very well. What's behind this?
Jacob, maybe you can a little bit more open to those numbers.
Yes. We were happy with profitability in the cost rate in the last quarter as well. I think it shows that we have a good situation in Finland overall with covering the whole value chain from importing to retailing to aftersales to leasing and services and so on. So in that sense, the packet is really really good in the last quarter, especially the importing and aftersales business was good. So in that sense, that's that gave us good numbers.
And as we all know after sales, it's a very important part of the profit generation in Cartwright. So So in that sense, importing and after sales were the really positive ones, even though the top line in retailing was somewhat negative.
Okay. And the last question, I guess, is on the the dividend now coming into installments. What's the re I mean, I understand it smooths out the cash low, but is that an indication that acquisitions could be coming pretty sooner?
No, no, no, it's not the indication from that. Just a modern way to pay a dividend, getting more and more common. But anyhow, we are working very hard to maintain strong positive development and to increase our sales supported also by acquisitions. And when we remember that GESCO's financial position is extremely strong. Also, based on that, we are in good shape and well prepared to make acquisitions if and when we will find core targets.
Yeah. And like you said, the cash flow generation profile is an important factor. So the cash flow generation is much more, much more, higher during the latter part of the year and the second quarter compared to the first quarter.
And we have a follow-up question from Pradag Yvesan from Kepler Cheuvreux. Please
go ahead. Coming back to Norway, but moving to the big market business, I guess you mentioned in the report that the the acquisitions you carried out added some 30% in local currencies, but I guess there were also one retailer who expired his his agreement and I wonder what is the impact from that please?
Yeah, you mean retailer not in part of Norway or? Yes. Yes. You can really remember, in fact, the figures impact is not huge.
It's pretty much the same as in the early part of the year. So during the 1st and second and third quarters, so clearly, it had a negative impact on the top line, but not too much to the profitability side. So it's not really not dramatic at all on the profitability side, but
Yes, those strongest and best Pukhmakkar stores are in the middle and southern part of Norway. Those stores, which were in northern part, they didn't have such a big impact on sales and especially on profitability.
Right. So is it fair to assume that, I guess, comparable sales growth was low single digit negative in the quarter?
Well, we haven't published the sort of that kind of like for like numbers here.
So The time is flying very soon. We will publish first quarter numbers and figures and then you will see.
Thank you. And one last for me. You mentioned 156, I believe, K Stores offers online today. Wonder if you have a target for that by the end of 2019. And also, I'm curious if you have or are ready to share your online sales and growth pace at this moment or when we could expect to get those more, I guess, more detail on those numbers, please?
I would assume that the number will go higher from that, but I think it's also worth mentioning that that the sort of, centralized transportation so called K transportation for the, for the e commerce stores. In the biggest cities, it really brings the volume the highest volume and there like I said, the overall growth rate was close to 100% during the last quarter and This year, we have earlier said that it's around 1,000,000 that we could get from the e commerce, the target level. So that gives you a flavor that way we could do we could be during this year.
Thank you. That's all for me.
Hello. Yes. We do have a few questions from, that have been submitted over the website. First one, Will you provide a new IFRS 16 based 12 month guidance in conjunction with the Q1 2019 report?
Yeah. We will, sort of the base figures going forward from the first quarter will be IFRS 16 figures. So in that sense, the guidance also will be in relation to the IFRS 16. In addition to that one, of course, we will be very transparent with the reporting so that also the sort of previous type of numbers on the key figures will be presented and that also includes the cash flow generation. So So EBITDA is an EBITDA and cash flow generation will be presented in a way which is pre IFRS 16 and post IFRS 16.
But the main sort of outlook is more, more based than on or is based on the IFRS 16. Reporting us that is the official one.
Yes. And then another, can you give a CapEx guidance going forward?
Yeah. During this year, still, we will have, quite a few, stores at investments and upgrades in our stores. So in that sense, the investment is fairly close to the level where we were during last year. Of course, last year in the investments, we had a lot of investments really in relation to the acquisitions, but if we take out of those acquisitions, we are pretty much on the same level as during 2018.
Then another one, you say that the building and technical trade has grown particularly in Finland and the Baltics. Could you please open up on the comparable operating profit from the Senokai operations?
Well, Senokai operations are really working well. And like you all know, 3 years ago, we made a change in both the countries where we put, Estonia and Latvia also under this Gescosenokai operations. And that has been really fruitful. We have always had a good profitability in Lithuania as well as in Estonia, but had some hard times in Latvia Last year, we also turned Latvia into black figures and generated positive operating profit from Latvia as well. So So sales growth has been really good there and overall profitability in the whole Baltics is now at a really good level.
And And also Latvia, as a country is catching up well. So, strategy implementation in SKCO SENOKA is going going really well and we are very happy with that one.
Lastly on the Building And Technical Trade, How do you see the renovation and DIY market in 2019?
All in all, we see and we feel that also in building a technical rate business in environment market. Will remain positive everywhere in Northern Europe. We can see that the business environment is sound and we have excellent platform to further develop our existing businesses. 2020, 2021, let's see. As everybody knows, there are some cloud, especially in which economy.
But once again, I repeat that we are not worried, not at all, regarding, our business environment in Northern Europe in 2019.
Okay,
guys. Ladies and gentlemen, That was all. Thank you for your active participation. Thank you for your questions Kia Yuka, myself, we wish you very pleasant afternoon, very pleasant evening. Have a nice day.
Thank you. Bye bye.