Hello, everybody. My name is Jukka Erlund, CFO of Kesko Corporation. I warmly welcome you to this Kesko Capital Markets Day 2016. Very nice to see all of you here. As you know, we renewed our strategy 2015 last year and have been executing that strategy during the last couple of years in many areas. Today I'm very happy to have our Group Management Board here to present a bit more of our strategy to show all the things that are on the strategy agenda and what we are executing at the moment. I hope that we will have a very informative and very interactive day with you today. I'll start with the agenda and presenting our Group Management Board for you. First I would like to present our President and CEO, Mikko Helander.
Hello.
I would like to introduce our President for our Grocery Trade, Jorma Rauhala.
Hello.
President for the Building and Technical Trade, Terho Kalliokoski. Director Mikko Mykrä from VV-Auto car trade. As Pekka Lahti will join us later in the evening today, but he's at the moment abroad, so couldn't attend this session. I would also like to mention that Johan Friman will start as a President of our car trade beginning of next year. I would like to present Lauri Peltola, Executive Vice President of our marketing and communications. Anni Ronkainen, Kesko Chief Digital Officer. I would like to present Anne Leppälä-Nilsson as well, our Group General Counsel. Matti Mettälä, Executive Vice President, Human Resources.
Good afternoon.
Riikka Toivonen, Head of Financial Communications. Good afternoon. Here's the program of the day. We'll start with Mikko Helander's presentation, Creating the New Kesko. That will be followed by my presentation regarding enhancing cash flow generation and the financials. After a short break, Jorma Rauhala will present his presentation regarding the grocery trade, strong and renewing grocery trade, followed by Terho Kalliokoski's presentation in Building and Technical Trade , journey of improving profitability and growth. After coffee break, Mikko Mykrä will present our car division, re-engineering the car industry. Followed by Anni Ronkainen's and Lauri Peltola's presentation, boosting business through marketing and digitalization. After the presentations, I hope that we could do so that each of these presentations will be presented first, then there would be a Q&A type of session after each of the presentation.
Of course, at the end of the day, there's plenty of time for discussion as well. I also hope that as many of you as possible could attend the dinner with us at the restaurant Elite later on this evening. We have a transportation from here. We will continue the discussion during the evening as well. Once again, you are warmly welcome to this Kesko Capital Markets Day 2016. We will start with Mikko Helander's presentation, Creating the New Kesko. Please, Mikko.
Thank you. Thank you, Jukka. Once again, thank you for coming. Jukka, myself, we did a big effort to organize this wonderful winter day just only for you. At the same time when you enjoy our presentations, please enjoy also this beautiful winter view. As Jukka said, I will communicate Creating the New Kesko. I will share our latest development and definitely most interesting and most important part is how we will further develop and how we will further continue this very exciting journey to create a new Kesko. Important to remind that K Group is third largest retailing company in Northern Europe. Together with retailing entrepreneurs, we have pro forma sales EUR 13.4 billion. We operate in nine countries and together with entrepreneurs we have in this K Group more or less 45,000 employees. Very big company.
Once again, I repeat, third largest retailing company in northern part of Europe. Kesko rolling 12 months figures you can see here. Net sales, EUR 9.6 billion, operating profit almost EUR 270 million. Personnel we have in Kesko's payroll in Finland and abroad about 22,000 employees and shareholders 40,000. More and more also foreign shareholders. Of course, we are very happy that Finnish shareholders, Finnish investors, but at the same time especially investors in Western Europe, U.K. USA have increased very much ownership in Kesko. Our market capitalization end of October was EUR 4.4 billion. We operate in three divisions, as you know. The biggest is grocery trade. We are number two in Finnish retailing market, as well as we are number one in Finnish food service business. Very strong market position in both two main segments. We have in Finland about 1,500 stores.
Building and Technical Trade, a little bit smaller, but very important to recognize that Building and Technical Trade fast-growing, and this difference between Grocery Trade, Building and Technical Trade is not anymore very big. This is very good position that we have two very massive, very strong divisions as we have in Grocery and Building and Technical business. We are clear number one in Northern Europe in Building and Technical Trade, and we have about 700 stores in 9 European countries. Car Trade, we are also a market leader in Finnish Car Trade business, and we have more or less 20% market share. My understanding is that this is quite abnormal situation that in Europe, in one country, one player has so dominant market position as we have in Finnish Car Trade. 20% market share, and we are sole importer of Volkswagen, Audi, SEAT, and MAN trucks.
I apologize that MAN trucks are missing, Riko we forgot MAN trucks. Mikko Mykrä, please don't tell Pekka and your colleagues that we did this stupid mistake. MAN trucks are very, very good product and also very good progress in sales of heavy MAN trucks in Finland. As well as we have also good progress and good development in sales of all other Volkswagen Group brands. I underline that mega trends very strongly lead Kesko's development, K Group's development. Those most important mega trends from our point of view are, First, consumers' very strong position to make nowadays analytical decisions. This is a big change compared to situation what we had in retailing business, let's say five, 10 years ago.
In Finland, everywhere in Europe, aging population is big mega trend without any doubts, as well as urbanization everywhere in Western part of the world, as well as in Asia. Fast-growing amount of single households, also big mega trend, especially in Western Europe, in Northern Europe. Corporate responsibilities are more and more important, not just in our company, but all business to be in good position to succeed, you must take full responsibility for all your business activities, and you have to be good corporate citizen in all societies, in all countries where you operate. Importance of strong brands, bigger and bigger, this is also definitely clear mega trend. Everybody knows that in retailing business, traditional local players are more and more challenged by new, very focused international retailing companies.
That is in Grocery Trade, that is in DIY business, that is in sport trade. This is very common trend everywhere, especially in Western world. Digital services, digital revolution, we can call that real revolution. Definitely in Kesko, we recognize that as positive revolution, as Anni Ronkainen will explain later today, that is great opportunity for Kesko and K Group. Our position also is very strong because our main markets are in Scandinavia, Finland, Baltic countries, we can say that our markets and countries where we operate are, without any doubts, most stable from economical and political point of view. That is wonderful position because compared to many other markets, compared to many other business territories our situation from economical and political point of view, as I stated, is very stable, very positive.
In Finland, we had some concerns, but now it seems that the Finnish economy is getting better. Norway, Sweden, despite the challenges in world economy, very strong. I'm big fan of Baltic countries. Wonderful development in last 10-15 years. It seems that in Baltic countries development continues very strong and we can see still wonderful opportunities in that part of Europe. Russia is more challenging. Russia definitely very promising market, but especially due to political challenges, Russia is more complicated. Once again, Kesko's main markets are countries where we can see very stable political, economical situation, and of course that is always good news for business. We have growth strategy in Kesko. Big retailing company has to grow. Without growth, sooner or later we would face serious problems and difficulties. We are growing. We follow very systematically.
We implement very professionally our growth strategy, meaning that Kesko is growing in grocery trade particularly in the Finnish market. We have strong growth in building and technical trade in Finland, in Northern Europe, in Baltic countries and we are seeking different options also to accelerate growth in car trade especially in Finnish market. At the same time, again, I would like to remind that we have also other businesses. Very strong businesses, furniture trade, agricultural trade, machinery trade, sports trade, shoe trade. Those so-called small businesses as we call those businesses have total revenue almost EUR 1 billion. All those businesses have strong market shares and return on capital employed and all those businesses have succeeded also 2016 further improve own operational and financial performance. Again, I repeat that we are also maximizing value creation of our other businesses.
Of course strong focus further develop increased value creation of our core businesses, but at the same time we further develop other businesses and we will do our utmost to safeguard success of those businesses in longer term as part of Kesko or as part of some other companies. We have good progress in the implementation work of our new strategy. We started implementation one and a half years ago. Successful divestment of heavy loss-making Anttila department store chain was first step. We succeeded reduce risk positions in properties when we completed very extensive real estate arrangement 2015. Kesko Senukai good arrangement. We merged all Baltic, Belarusian operations. We established one unified, strong Kesko Senukai, clear market leader in Baltics and Belarus in DIY business, revenue EUR 600 million-EUR 650 million, and already midterm target to exceed EUR 1 billion revenue. Very profitable, very strong company.
Acquisition of Suomen Lähikauppa was very important action and I have stated and I have said that was definitely once in life chance and we fully utilized that opportunity. Jorma Rauhala will later today report our wonderful progress in this acquisition. After Lähikauppa, Onninen acquisition, Terho, myself we stated that a perfect match we can confirm also today in Terho's presentation that this is real perfect match. Latest divestment of loss-making K-Ruoka Russian operations deal should be completed and closed end of this month. One unified K starting from day one in new strategy, it has been very important to create one strong, unified Kesko K Group, and I can confirm that also on that side we have wonderful progress. We have established shared services, HR, legal affairs and so on. That way we are in position utilize better synergies.
We have also succeeded to motivate our entrepreneurs to participate this development and we can see that we are already today in much better position. Utilize synergies in internal operations as well as in customer interface. We expect that when we will continue this development, we will gain a lot of benefits and savings as well as commercial success from this one unified K approach. A few words about direction and directions in different business areas. First, grocery trade. We are and we must become even more customer-driven and most customer-driven and inspirational food retailer. Today, after Suomen Lähikauppa acquisition, we have anymore just two main players in Finnish grocery trade and then a newcomer from Germany. Definitely our aim is to be even more positively different retailing company in Finland compared to two other players. We are on the right track without any doubts.
Jorma will present more detail this latest development. Another important part of direction in grocery trade to renew our concepts, brands, as well as to have more modern, more efficient approach in marketing. As well as provide best digital services. I believe that already today we are in position to offer best digital services in grocery trade, but our aim is to become even more digital-driven player to be in position to be at frontline in those services even in European scale. We are today very profitable grocery trade company, and we have strong will to be among the best profitable retailing companies in Europe also in future. Plus maintain profitable growth, as I said, to succeed to be and to become even better company means that we must grow, and that is definitely our aim also in grocery trade.
In building and technical trade based on our strategy we will create more unified building and technical trade company. That way we will harvest synergies. It is not just question of Onninen, it is also a question of all our DIY and building and technical trade businesses in Scandinavia, Finland, Baltic countries, Belarus, Russia. We have lot of synergy potential, but we have to establish more unified business approach and that we are doing definitely. In building and technical trade we have to provide and we have to offer best digital services for business customers, for consumer customers. We have good services, but not at all, not yet, we are at the level where as the leading company we should be. Profitability, we have succeeded 14 quarters to improve profitability in building and technical trade.
Great development, at the same time I would like to remind that we are not yet, not at all, on the level where we must be in future. Our profitability is quite far away from the best players' profitability in Europe. We are targeting in mid- and longer-term high profitability, same level what the best European companies are reporting. We are prioritizing profitability as well as organic growth. Acquisitions, we are well prepared to make acquisitions also in future. I repeat, priority number 1 is better profitability, priority number 2 is organic growth. We have to be well prepared to make also acquisitions when timing is good. Most natural growth areas for our building and technical trade are Nordic and Baltic countries and of course also Finland. I repeat, most natural growth areas are Nordic and Baltic countries. Direction in car trade.
The fact is that car industry is in the middle of big changes. Volkswagen Group, but also all other leading companies in car industry, they are changing, they are developing new strategies. I am convinced that in the coming years we will see very extensive re-engineering in all meanings in car industry worldwide. It means also that we are re-engineering in many manners our car trade division. At the same time, we are maintaining our high market share. We are seeking all different options to grow also in car business as well as I am convinced that we can maintain also good profitability. Important part of our strategy in car trade is that we will do our utmost to have even deeper cooperation with Volkswagen AG. Volkswagen AG is the biggest company in car industry in the world.
I repeat, we have wonderful long-lasting cooperation with Volkswagen AG, and our aim is to have even deeper and even wider cooperation with the Volkswagen Group. Digital services, very important. We are very pleased that today Volkswagen AG stated many times that probably Kesko and Kesko's car trade is the leading player in digitalization in whole Volkswagen Group society. We have launched completely new online car store, Caara, in May. Wonderful startup. Mikko Mykrä later today will present this new platform and open more detailed our plans how we will further develop online services in our car trade. Few words about the capital allocation. Our annual CapEx level will remain below EUR 200 million after 2017, meaning that we do not need to make such big investments in the coming years what earlier was estimated. Reasons are very simple.
First, successful acquisition of Suomen Lähikauppa means that we will have very competitive neighborhood store network in Finland. We will be in leading position. Our market share in neighborhood market will be very close 55%-60%, and we do not need to make such big investments as earlier was planned thanks to acquisition of Suomen Lähikauppa. Also, we will complete very extensive renewal of our successful hypermarket chain. This work will be completed by 2018. This is second reason why such big investments are not anymore needed. As well as we will complete very big shopping center investment in eastern part of Helsinki. First phase will be in operation in 2017. Of course, successful divestment of Russian food operations will also heavily reduce need for investments in the coming years. Once again, I repeat, investments will remain below EUR 200 million after 2017.
Jukka will open more detailed how whole company will be even more cash flow driven player in future. Last but not least, I remind, Kesko is the world's most sustainable retailing operator. Not bad. We will continue on that track. We see that we have still lot of homework to do to become even more sustainable company, but not bad. We are the most sustainable retailing company, and that is definitely also highly appreciated by our customers, consumers, and I believe also investors. Ladies and gentlemen, thank you very much, and questions. Who is first? Jukka is not first.
Good afternoon, Niklas. Is this on? Yes.
Yes.
Good afternoon, Niklas [Katani] from OP Financial Group. I could start. There was no mention about dividends. Can you elaborate a little bit on that, perhaps?
Yes, I can. We are working very hard to be in position to pay good dividend also in future. As you remember, last year it was nice dividend as well as dividend has been very nice already many years. Our aim is to pay good dividend, not just next year, but also in the coming years. Don't ask how much.
Kalle Karppinen, Danske Bank. Question about the profitability in building and technical trade, talking about benchmarking towards best European performers. Can you break that down a little bit? You have different business models in your building and technical. You have the wholesale business with the retailer model.
You have your own retail business, and you have B2B online business.
What kind of differences do you see in these going forward, and where are the best improvement potentials?
Yeah. When we take our current, and now I mean Kesko's profitability, for example, in DIY, and then we add EBIT, what the entrepreneurs, for example, in Finland report, that is still quite far away from the profitability what the best European DIY companies report. Just look Kingfisher, ADEO, and that is a clear message for us that we have still lot of potential, and we have to improve further our financial and operational performance. Also Ahlsell reports much better profitability compared to Onninen. Also Rexel, Dahl. We have also on that side a big potential further improve our financial and operational performance. We were aware when we acquired Onninen and many actions in process, but again, I underline importance of more unified business approach. I underline importance fully utilize synergies in internal operations as well as in customer interface.
Thank you.
Okay. Jukka continues.
Okay. Thank you, Mikko. Let's look at the financials after enhancing cash flow generation. I will start with the financial figures, our sort of key KPI figures. Happy to say that currently during the last two years, we have been able to progress in pretty much all areas of our financial KPIs. We are finally on a positive track in our top line growth, plus 9.1%, also organically, also on positive figures, and that's one of our major goals with a growth strategy, obviously. Also, the operating profit EUR 269 million and operating margin 2.8% has been increasing. There's still way to do and potential to increase it further, and that's for sure. At least we are on the right track there. The debt to EBITDA level is very decent, I would say.
There's room to have some higher figures as well, but not necessarily to upper level of 2.5, but we have clearly room there to still work on the balance sheet as well. Also, the return on capital employed and return on equity figures have been progressing well during the last two years and especially on the return on equity, we are finally on double-digit figures again. Somewhat below the targets still, but clearly progressing towards them. Like Mikko said, the GDP development in the countries where we operate in the majority of the countries, in the Nordic countries and Baltic countries, the situation seems to be very stable, and we have positive growth on those areas. Also, Russian environment seems to be on positive figures, most likely during next year as well.
Therefore, the overall market situation seems to be quite good after, especially in Finland, as we had several years of negative growth in GDP in Finland. The overall situation is getting better, and especially in Finland, the positive thing is that we have positive development after some years now. Mikko went through the acquisitions and divestments that we have done during the last couple of years, and we are naturally very happy that we have been able to sharpen our strategy quite a bit during the last year and a half. In addition to these acquisitions and divestments, also the operations of Musta Pörssi home electronics business was discontinued last year.
In that sense, there's been a lot of work done in our capital allocation and on our portfolio work as the goal is to really focus the company and operate in those three strategy growth areas of Grocery Trade, Building and Technical Trade, and Car Trade. A few words about our capital allocation. Like I said, we have done a lot of work in this sense during the last two years, started our strategy work last year.
The whole big picture is that we have looked very carefully on the mega trends and then the retail trends, what is really happening on the consumer side there overall, look at the macro environment in great detail during the last two years and following that constantly. Taking those things into consideration, renewed our portfolio strategy, which of course you know is driven by the investment strategy where we are now able to go further in our strategy with below EUR 200 million annual CapEx. We clearly see the situation as so that with these three growth areas that we have in the portfolio now, we are very well competitive in those businesses. We have good scale and good capabilities in those areas and good growth potential and return on capital employed potential in those areas.
Also, the risks are well-balanced in our current macro environment position and in the business way we are. It has been a lot of work in this area and we are very satisfied how the portfolio of our business is developing. Looking at the financials in more detail. Like I said, we have had three years of negative top-line development, mostly due to the Finnish retail environment. Like I said, we are happy now that our top line is also growing, +9% during the last 12 months and with the acquisitions we made during the last quarter with +27% growth rate. It is of course very important that we have a profitable growth, healthy growth in our operations so that we get more scale into our operations and by that way, we are able to improve our profitability on a longer-term perspective.
Also, the organic growth has been positive as well during the last quarter and first nine months of this year. Looking at the operating margin, like I said, we are targeting for further growth. We have been improving our operating margin during the last couple of years, and there's still room to improve there. That's definitely our target as well. Hopefully, the environment will be also slightly better going further, and that seems to be the case at this moment. If we look at our different divisions, I could say that we have potential to improve in all of these three divisions. Of course, the Building and Technical Trade is the one where we see the most potential here with 2.4% operating margin during the last 12 months.
Like I said, also we seek for further improvement in our grocery trade as well as in the car trade. Grocery trade, of course like you know, we had a loss-making Russian operations in the grocery business, and that is one thing which will also improve our profitability when the deal has been closed. A few words about our cost efficiency. Last year, we launched a EUR 50 million efficiency program. We are very satisfied how that program has been going further. We have been able to maintain good cost efficiency even though there's a lot of strategic initiatives taking place in the group. In our store sites, a lot has been done in order to offer customers better customer experience in the stores, refurbishments and a lot of new marketing, that kind of things.
A lot has been done in the digital side in order to improve our digital channels and digital marketing as well. A lot has been done. At the same time, we have been able to finance those development areas by reducing our cost base in these areas like personal efficiency, ICT, marketing, and the store-side costs. The majority of these actions are completed, and they will have a full impact during next year, but it already impacts our profitability currently, and that has been seen in our profitability during this year.
There are still, of course, a lot of things that we can still further improve, and that is of course very clear for us and we will do that and continue our efficiency programs and cost-cutting in those areas where there's more potential and at the same time invest also in those areas like digital capabilities where we still have to further develop our capabilities. Cash flow generation is one of the key parts of our strategy to improve that one. We definitely want to have a better cash flow from our operating activities. I will come to that one in the next slide. To open up a little bit about this topic, we are scaling down somewhat our CapEx, like Mikko introduced in his presentation. We are coming below that EUR 200 million after 2017.
We also see that we can work out downwards our networking capital, which has been somewhat lifted up by the Onninen acquisition. Those are some of the areas. We want to improve our cash flow from the operating activities and scale down our cash flow from the investing activities. Enhancing the cash flow generations. The main target, of course, is to further get growth in the strategic growth areas where we operate and to increase the operating margin in these businesses. Continue that area in all of the businesses, like I said, especially in the Building and Technical Trade. We have the synergy benefits from the acquisitions that we have done during this year.
In Suomen Lähikauppa, the progress has been better than expected, and we expect a full annual impact of above EUR 30 million from 2018. The integration, we chose a very fast integration of the Suomen Lähikauppa acquisition into our operations, and that has gone very well. Jorma will open up that one a little bit later, and therefore, we also see that we can get these synergies above EUR 30 million from 2018. Also, the Onninen integration is progressing as expected. There, the full annual impact of EUR 30 million is expected to take place at 2020. Of course, there as well, we are getting, of course, and trying to realize all the synergies as soon as possible already heading to 2020. Like I said, we have the EUR 50 million cost savings program, which is progressing well, and the full impact will be next year in that area.
The annual CapEx level will be below EUR 200 million after 2017. Like Mikko said, in the grocery trade, we need less CapEx after 2017 as we have then integrated the Suomen Lähikauppa operation into our operations and as we are closing the deal of exiting the Russian grocery trade. We have also opened up quite a few supermarket-size stores in our operations during last year and this year and the following year. They will impact the grocery trade CapEx needs after 2017. Also in the building and technical trade, we see that we can be more efficient with our store-side CapEx needs as the growth is mostly coming from the B2B side of the operations. That is also reducing that side. We also have a target to reduce our networking capital by EUR 50 million.
Like I said, it was somewhat uplifted by Onninen during this year and also in some of the other operations. Now we have a very clear view that we have to further improve our networking capital during the next year. Of course, potential further business and real estate divestments also can have a possible positive cash flow effect in our operations as well. Overall, the real estate joint venture with Ilmarinen and AMF has gone really well, and we are happy how that took place, and in that sense, we have potential for both business and real estate divestments in the future. Looking at the return on capital employed, this is the most important profitability KPI for us, for all of our businesses. We have seen good progress on that side during the last five years as we started at 9% in 2012.
Currently, we are at 12.5%. That has been driven by the improving profitability in our operations, especially in the building and technical trade side. Also, the real estate transaction made last year had a positive impact also on the return on capital employed side. Anttila and Intersport Russia divestments have also improved our profitability, and further improvement will also come from Kesko Food Russia divestment. In that sense, we are well on track towards our target level of 14%. I would like to finalize my presentation with a dividend. As you know, we know, of course, that dividend is very important for many of our shareholders, and we definitely want to have a good level of dividends also in the future. Of course, the dividend paid out this year was driven by the real estate transaction effect.
During this year, the dividend payout ratio was clearly above 100%. Also during the last years, we have been quite close to 90/80/90%, close to 100% there in the dividend payout ratio as well. We have been definitely at a higher level than our dividend policy. During the last 12 months, our comparable earnings per share development has been good at EUR 2.1, which just shows that it is not just our operating profit which has been on a good track, but also our financial net has been progressing well, as well as our effective tax rate as well, which has come down to 20%. In that sense, the earnings per share development has been good, and that of course also enables a good dividend as well in the coming years as well. Thank you. This was my presentation.
I'm happy to answer any of your questions you may have.
Thank you. Anssi Kiviniemi, SEB. I have two questions. First of all, your return on capital employed target is 14%. That's the key KPI on that side. On slide 12, you highlight a bunch of the drivers in the history. Could you a little bit open up the future drivers of improving ROCE in your businesses? My second question relates to the first question. The second question is that given the bunch of huge kind of transforming deals that has really changed your business structure, is the 14% still a good target, or as a matter of fact, should the target be higher
Good question. Going further, we are still below that 14% now. In that sense, we first want to reach that target. I don't want to too much speculate on the possible future targets, but of course, we see that we are well on track to that 14%. Going further, we see a potential improvement, like I said, especially in the building and technical trade side. Improving that division's profitability is one of the key drivers here to improve also the return on capital employed going further. I think we are in a fairly good level already if we look at the grocery trade and the car trade, we are well above 20% return on capital employed in those two businesses. Like I said, we have a target to improve the operating margin there as well.
We definitely don't have any plans to increase the capital employed in those areas. In that sense, there's also potential in those two other businesses, but the most potential lies in the building and technical trade. That's pretty much my answer to your question on that sense. At this point, like I said, we first want to reach that 14%. Let's see the future targets after that one. Of course, this is something that going further, possible increases, of course, depend on how well we reach that 14% first. Yeah.
Thank you. It's Ted Roberts from Nordea. This real estate divestment seems to be a thing that kind of always comes up. By looking at the very strong balance sheet today, by understanding that the kind of buyers in the real estate market are probably more eager to buy today than they were yesterday and so forth, could you a little bit open up about the kind of thought process about the whole divestments? I think that in the past you have kind of had strategic real estate and then less strategic investments.
Yeah. Good question. About one-third of our real estates that we currently own is so-called non-strategic. In that sense, the book value is a bit more than EUR 1 billion, about EUR 1.1 billion currently. We see that that book value is below the market value of those real estates. About one-third of that one is currently so-called non-strategic. In that sense, there's room to make these real estate transactions and divestments in the future. It can be done by sale and lease back, it can be done by, for example, using this kind of joint ventures that we currently have. We have the tools to make some divestments also from the real estate side. The divestment we did last year was substantially bigger, of course, than we did previously.
In that sense, we have not sort of rushed to any new kind of divestments. We are all the time following our real estate portfolio, in that sense, like I said, in the presentation as well, of course, we look at potential business and real estate divestments. One part of that is the one-third of those real estates which are non-strategic.
Is it kind of you're waiting for someone to knock on your door or are you kind of doing something actively yourself this side?
We have continuous discussions with potential buyers of these kinds of real estate investors. In that sense, it's one of the things that we have on our agenda as well. Yeah.
We are very active people. In all meetings. Yeah, well, this is kind of an ever-evolving thing that it's always the 350 or something is non-strategic, and just by looking at the market today.
Yeah
Maybe it's even better tomorrow, who knows what it should be a market where you should be able to get.
Yeah, it's a good market. Yeah. True. Yeah.
All right. Thank you.
Two further questions on the real estate issue. First one, the stores in Russia, are they in the non-strategic part of it or in the strategic part of the portfolio?
Yeah, of course, regarding the grocery side, of course, that transaction will take place. That's mostly, of course, the assets which will be sold are mostly, of course, real estate. That's clear. In the DIY operations, in the building and technical side operations, it has been very clear for us that the strategy has been earlier being that we want to own those like locations due to the very high yields on the rental side there. Also we have wanted to own those locations because it's a scarce resource, I would say, in Russia. We don't have any chances on that side that I could open up at this point. There is always possibilities. In the grocery side, we have had some rented premises as well, but at this point, no big changes in our strategy there. They are currently our.
Stores that you are now selling, are they in that one-third of book value, which was non-strategic?
Yeah, they are there. Yes.
Okay. That will be substantially reduced after those are sold.
Yeah. There are some locations also which are in the strategic part.
Yeah. Okay.
The bigger ones. Yeah.
Another question on the real estate is that there's this IFRS change where you have to recognize lease liabilities in the balance sheet in the future. Does that affect your thinking on the decision whether to own or lease?
Yeah.
How do you think about that?
It has some effect, of course, that it comes even more crucial that really what you as there will be more effects in the balance sheet, of course, in that sense, you have to very carefully see that what are you sort of leasing with a very long lease terms and so on, because the balance sheet impact is so big with those ones. Yes, it does have an effect on our side. And in some cases, it's good for us to have it in our current way of accounting balance sheet. Thank you.
Rauhala, continuing on the same subject, I think last year you said that you're not aiming to do any larger deals on the real estate divestment side, so it would be single asset based if you do something. And also that on total, your real estate exposure in the balance sheet should remain roughly at the current level. Are those thinkings still valid, or has there been some change in those?
Compared to last year transaction, we don't have currently on the table that kind of size of real estate divestments. They will be smaller then going on to the future. In that sense, that still holds that strategy. Of course, we want to be more active when we go further than we have been during this year, of course, because we have not done too much divestments. Want to be more active, but currently we not have that big deals on the table that we did last year.
On the longer term, do you still want to clearly keep a big real estate portfolio in your balance sheet? It would be you invest somewhere and divest something, but there will be a big chunk of real estate in your balance sheet also in the longer term.
We want to own and keep in our own balance sheet those so-called strategic properties. It means that those are the big ones, big hypermarket stores and big K-Rauta stores, for example, which have a more economical life of more than 10 years, and there has to be at least 100,000 inhabitants in those catchment areas. They are big cities with growing population, good locations, long-term view, and that's the so-called strategic property, and those are the ones we want to rather keep in our own balance sheet.
Okay, good. Another thing related to the dividends. You mentioned that the last year's dividend was supported by this larger real estate transaction. Should we expect some kind of support from the Russian divestment also to the next dividend or?
I can't, frankly speaking, too much open. It's up to the board about the dividend, how we distribute it. Like Mikko said, we fully, of course, acknowledge that we want to be a good dividend payer. Last year's dividend was, of course, driven by the fact that we had over capitalized balance sheet and huge cash reserve. Of course, our cash position after the closing of the deal of the Russian grocery operations will be at a very good level as well. In that sense, it's a combination of looking at the earnings per share development, looking at the yield, looking at our balance sheet structure. Of course, like I said earlier, last spring 2015, I say that we want to be more efficient on the balance sheet side, so that holds still.
In that sense, we look at the total package and then sort of the board decides the dividend.
Great. Thank you.
Okay, very good. I think we have a time for short break now, then we'll continue with Jorma's presentation regarding grocery trade.
Yes.
Great.
Good afternoon, welcome also on my behalf. Today, I will tell how we are renewing our operations and building even stronger grocery trade business. I will focus on the following themes in my presentation. We will first take a quick look at our position at the general situation in the Finnish grocery market. We will also look at the grocery trade trends and the consumer's will. Lastly, I will highlight our strategic choices and the implementation of our strategy in the chosen areas. You can see here the key figures of the grocery trade. We seek profitable growth. Our operating profit in quarter three exceeded the previous year's level. The net sales for the last 12 months were over EUR 5 billion, operating profit stood at a good level of 3.5%.
Kesko's grocery trade business has consisted of grocery trade in Finland and in Russia, Kespro's food service business, and the acquired business of Suomen Lähikauppa. In the next slide, I will open our business scope and figures in more details. We are number two in Finnish grocery trade. We have 80 K-Citymarket hypermarkets with EUR 2.1 billion sales. We have some 230 K-Supermarkets and sales EUR 1.7 billion. In addition, we have some 1,000 neighborhood store after the acquisition of Suomen Lähikauppa. The sales is today approximately EUR 2 billion. Kespro is a clear number one in the Finnish food service wholesale market, the sales is today EUR 800 million. We have 11 K-Rauta stores in St. Petersburg area, in Russia. As announced in October, we have signed the divestment agreement with Lenta. In the future, we will focus on further strengthening our position in the Finnish grocery trade market.
The total grocery trade market has turned to slight growth in Finland. After last year's market decrease, the total market has grown about 1% this year. The most significant change in the market is the liberalization of store opening hours, which has increased the total market and changed the structure so that supermarket-sized stores have significantly increased their sales, whereas malls less than 400 sq m stores have lost sales. Retail operators whose network mainly consists of supermarket-sized stores and who have significantly invested in opening hours, even at the expense of profitability, have gained some market share. The liberalization of opening hours had a big impact on the market 2016. We expect that the difference in sales between different store size categories will be much smaller next year. The tough price competition of the previous year has continued without any significant change.
An intense price competition is expected to continue due to low level of consumer purchasing power. However, the importance of price has not increased in consumers' buying decision since 2014. For example, Taloustutkimus Suomi Syö 2016 survey results show that price is not higher than the seventh most important criteria in shopping for groceries for the weekend. Instead, consumers increasingly appreciate the quality of the food, Finnish origin, healthiness, and taste of food, to name a few. We have a strong position in the Finnish grocery market. Kespro is the leading company in the Finnish food service wholesale market. One topical consumer trend is spending on dining out. Also, different kind of takeaway services are growing. Kespro strong position and performance in the food service wholesale market support our position in the Finnish grocery market.
The acquisition of Suomen Lähikauppa has significantly increased net sales and strengthened market share, which is expected to settle down to range 37%-38%. We had good profitability due to strong market position, enhancement actions taken, and the synergies resulting from the acquisition of Suomen Lähikauppa. We have achieved significant savings in real estate and personnel costs through the whole organization. For example, in logistics, our efficiency is at the best level ever. I'm glad that we were able to divest our Russian operations since it would have needed significant new investments worth hundred of millions in an uncertain economic environment. The divestment will improve our profitability and cash flow. Moving to our strategic choices. There are certain mega trends that are affecting grocery trade. Our choice is to be the quality leader of the Finnish grocery market.
Topical consumer trends such as aging population, urbanization, individuality, and responsibility underpin our choices. Every K-food store is different, tailored to local customer demand. Store specific business idea enable us to ensure that the consumer's will and wishes are made true. Our retailer business model is our key competitive factor. Our retailers know their customers and can interpret consumers' behavior also with the help of unique Plussa data. This enables a rapid response to consumers' needs. As Mikko Helander mentioned in his presentation, we have a clear direction. We want to be the most customer-driven and inspirational food retailer. We will renew our store concepts, brand, and marketing. We offer to our customer the best digital services in grocery trade. K Group's target is to stay as one of the most profitable retailers in Europe and maintain profitable growth also in the future.
The customer and quality guide everything we do. For us, there is no average customer, therefore, every K is different and unique in its own way. This is underpinned by our store specific business idea. Store specific business idea is built on our centralized and effective sourcing, logistics, IT, and marketing operations. The idea that every K different is not having any negative impact on our efficiency. One way to ensure a rise in our quality level is the fact that our best retailers can run more than one stores. We already have several excellent examples of this. We have created a completely new customer feedback system through which we receive over 1 million customer feedback messages per year. All feedback is collected in one place. I can, for example, follow the feedback received by all our stores by phone in real time.
One example of customer orientation is also the revision of the Plussa CRM in the future. In the future, the Plussa CRM will be even more personalized. Next, I will focus on the neighborhood market renewal. Our strategic choice is to increase the neighborhood store network. We will renew all our current K-Market stores. 120 K-Markets will be renewed by the end of this year, and all of the nearly 400 K-Markets will be modernized by the end of next year. The first results are promising. For instance, the sales development has been better in the renewed stores compared to old K-Markets. Siwa and Valintatalo stores will be converted into K-Markets. I will open the integration in more details in the next slide. We have created a completely new Neste K service station concept.
We want to offer a better stop for people on the road. We are in a close cooperation with Neste. At the end of 2016, we will have already 25 completely modernized service stations, and the figure will rise to 60 by the end of next year. Our choice is to concentrate especially on restaurant and cafeteria services, taking account of the change in the regulation of opening hours. Restaurant rate of the renewed service station is growing at a rate of 10%. The integration of Suomen Lähikauppa is processing faster than we planned. Over 160 Siwa and Valintatalo stores have already been converted. All will be K-Markets by the end of April next year. Sales and customer visits have increased markedly. Compared to period before conversion, the sales increase has been over 12%, and the customer visits have grown even more.
The store's price level is much more competitive and selection more attractive. The K-Market conversion has lowered the price level by as much 20%. We have modified the store selection to be more attractive and relevant. 70% of selection has changed. Purchasing and logistical operations will be fully integrated by Spring 2017. We have made an agreement with Tuko Logistics. As a result of the agreement, we are able to transfer the logistics into our more effective system earlier than we planned. Moreover, transferring stores to retailer is progressing. At present, the K-r etailer career is attractive, and we have received plenty of applications to our retailer training program. There are three different alternatives in transferring Siwas and Valintatalos to retailers. One, the so-called traditional one store per retailer model. Two, the model in which the current retailer is given a second, a so-called satellite store.
Three, a cluster of several stores. Due to good progress, we are targeting annual synergies above EUR 30 million at 2018. Synergies are expected to rise especially from sourcing, logistics, and personnel costs. How is possible to convert Siwa into K-Market in only two days? The next video will show how the conversion happens in practice.
Mun mielestä toi K-Marketin uus kyltti tuolla lupaa hyvää asiakaspalvelua ja hyvän valikoiman. Aluksi tää kaikki tuntui siltä, että miten voidaan muuttaa Siwasta K-kaupaksi alle viikossa ja se tuntui tosi kuumottavalta ja aika ahdistavaltakin ajatukselta, että tää tempo on niin nopea. Mutta kaikki vaan lähti rullaamaan päivä kerrallaan tää alkoi näyttää enemmän K-kaupalta ja sitten tuli itsellekin semmoinen usko, että hei, me pystytään tähän, me voidaan avata ajoissa ja kaikki lähtee kyllä rullaamaan. Mun mielestä meidän onnistumisen salaisuus on se yhteistyö, että kaikki on puhaltanut yhteen hiileen.
I am extremely proud of our competent and dedicated people. Every Thursday we open 15 new K-Markets that have gone through the conversion process shown in the video. Our high-performing K-Citymarket chains will be renewed. Each K-Citymarket will be tailored according to its local customer base. By now, 23 stores have been renewed and the renewal of all stores will be completed in 2018. We will also continue the development of chosen superiority departments. These include meat, fish, fruit and vegetable, beauty and footwear. An example of a child concept development is the renewal of the beauty departments. We made the decision to start the concept renewal in May this year, and the outcome has been visible in all K-Citymarkets already by the end of October this year. We'll also continue focusing on category optimization and new partnerships that bring more customer flow.
We will have 25 Posti outlets and three Starbucks in connection with K-Citymarkets by the end of this year. I believe in the future, we will have even more attractive partnerships that will increase K-Citymarket customer flow. Our current hypermarket network is optimal and competitive. According to our view, the era of hypermarkets is definitely not over. The development of digital services builds our competitiveness now and in the future. Food online trade in Finland is still low, accounting for around 0.2% of the whole grocery market, but the share of online trade is growing strongly. Customers who shop online are often also very good customers at physical stores. This is why we want to be actively involved to the development of online trade. Currently, we have over 80 K-Food stores that are offering e-commerce services, mainly through the click and collect service.
We are in the process of adopting a new operating model, which will enable us to offer wider store specific selections and more affordable price level. This will be realized early 2017. Our K-Ruoka.fi service has around 1 million visitors per week. We provide versatile food content and inspiration for online grocery shopping. We are continuously developing our services. We currently focus on improving the user experience and developing the direction from contents to shopping. K-Ruoka mobile services is definitely the best grocery mobile app in the market. Our target for K-Ruoka mobile services is to have 450,000 downloads by the end of 2017. Our present focus is on the tailor features of the application, increasing Plussa functionalities and enabling mobile purchasing. All in all, we have performed quite well in the demanding economical environment.
I'm confident that by implementing our strategy, we are able to perform even better in the future. Thank you for your time. It was a pleasure to be here today. Now I assume it's time for questions. Okay, it seems that there is no Okay.
Hi. Kalle from Danske Bank again. On Suomen Lähikauppa, can you give a little bit of analysis on what do you see as where Suomen Lähikauppa's major weaknesses and problem areas, why they were not able to become profitable over many years of trying as a standalone company?
One is logistics. Our logistics is much more efficient. One is that they didn't have enough purchasing power. One of is that they didn't have any good private label. Few I mention. Okay, I think it's Tero's turn now.
Good afternoon. It is my pleasure to present building and technical trade strategy and issues because as you heard, Mikko and Jukka explained so exactly what I have to make happen. Now it is only the implementation. Implementation, it is so easy. First, I will describe a little bit what is this new building and technical trade division. Last 4 quarters figures, you see it here in left side. Net sales were about EUR 3.7 billion and operating profit, EUR 91 million. It was about 2.4% from sales. Our return of capital employed we finally reached this 10% level. I am saying so because some years ago it was in negative side. We have been able to improve it. As Mikko presented, we have those 4 different business areas inside this building and technical trade division. Of course, the biggest is this real building and technical trade.
There is this agricultural and machinery trade. It is quite big business altogether. I don't know how to point this, but this agriculture and machinery, it is about EUR 700 million altogether in retail side. This furniture about EUR 200 million and this sports trade, including this shoe trade, it is about EUR 200 million. Altogether, in retail side, pro forma figures are about EUR 5.7 billion. Now I will concentrate on this building and technical trade issues. I will not anymore handle those other business areas. This building and technical trade, it is divided to 2 business segments. B2B, after Onninen acquisition it is bigger business area than B2C business. Before Onninen acquisition we were also big B2B operator consist of wholesales. It was about 40%, but now it is 60% and it is increasing. This B2C about this 40%.
After this acquisition some weeks ago, we created new organization structure. There is different business unit for B2B and different for B2C because we see that we have to have a clear idea how to develop those 2 different business areas. Sales by country. This building and technical trade from Finland it is about 45% from total sales and abroad, it is bigger abroad outside Finland. 55%. The biggest business is in Norway, altogether about 22% of total sales and Baltics altogether 12% and Sweden 10%. Altogether, we are operating in 9 different countries. We are number 5 player in Europe and number 1 player in Northern Europe as Mikko said. What is B2B customer?
As I said, it is about 60% from sales come from B2B operations and largest customer groups are those construction companies, this 43%, and contractors, about 38%. What do these contractors mean? It is more or less small companies, which are focusing mainly on installation or maintenance of heating, plumbing, air conditioning, or household technology, or electrical issues. Those are quite often small companies. Sometimes we are saying that father and son and transporter. We transport. This is how to call it. We have industrial customers, and this is also very important sector for us and new sector after this Onninen acquisition. Also this infra sector, it was also new sector for us as a customer point of view, and some retailers we have also our customer. Building materials and HVAC. HVAC, it means heating, plumbing, and air conditioning goods.
Those electrical goods account for 75% of total sales. B2C customers, it is altogether 40% of total sales. Those project customers, of course, it is not so white and black to say who are project customers, because sometimes some customer might feel that he or she is a project customer if they want to put some very small issue to happen. We are thinking that those project customers, they are renovators who are making, for example, some kitchen renovation, bathroom renovation or something like that. Builders who are building own house or something like that. Those consumer customers, who are visiting on average in our stores less than three times per year compared to grocery trade. Consumers are visiting three times every week. There is huge difference. Of course, those project customers, they are visiting very often during their project.
Maybe every day, maybe twice per day. It depends on situation, what is in their site. When we compare those products, B2B and B2C, of course, there in B2C side, there are more decoration goods and home furnishing goods. Also in this side, this building material is the biggest product line. This yard and garden, it is increasing quite a lot and it is very important for us as a product sector. As I said, and as you know, we are operating in nine countries and I briefly described the situations in those countries. I am very happy to say that in Finland, we are clear number one player altogether this building and technical trade and also separately, so that K-Rauta, of course, together with Rautia today, it is market leader, market position, market share, more than 40%.
If I call Onninen sector in Finland, we are clear number one player also in this side, especially there in heating and plumbing market share, it is more than K-Rauta, Rautia together. In all sectors there, we have a good market share. Now we are under process to combine our power, we will create new or we will launch next week new K-Rauta sign also in Keuruu. In Norway we have two different chains there. Byggmakker, which is retailer chain. We acquired it about 10 years ago, 2005. Onninen is strong in electricals. I am happy to say that this Onninen Norway, they have a very good e-com platform. We are now converting this system to other Onninen countries and also to whole B2B operations.
As you know, Sweden is the biggest market in Nordics, and I am saying that there is still huge potential. As you recognized from our third quarter's presentation that we finally reach positive side in K-Rauta after many years. Only 10 years ago, it was in zero level, now we are happy that again, we are in positive side there. This Kesko Senukai, we are number one player in the Baltics and also in Belarus. As you know, Kesko Senukai or the previous name, it was Senukai, it has made a positive EBIT every year after acquisition in Lithuania and is strong player there in DIY sector and also in whole non-food sector. It is number one player in non-food sector in Lithuania.
In Latvia we have suffered and many years we have made negative EBIT, but finally we have been able to improve it so that it has been some years in positive side and in Estonia even quite good level. I see that when we have this company, Kesko Senukai, now we are able to improve our sales, so growth and also EBIT side. Now we will test the new concept there in Riga. Just now one store is under renovation and we will open it before Christmas. I am quite sure that it will be successful and it will help us to continue good process there in Latvia also. We have a good presence there in Russia, in St. Pete and in Moscow. We are in positive side also there in EBIT.
In Poland we are just now studying what is the market there, what our operations and we are exploring how to utilize this big potential there in Poland. Here you can see that in Finland and this is all together this building and technical trade. Not only DIY, but all together. In Finland we are in high level but still we have room for improvement also in Finland. I see that we can improve our market share also here. In Lithuania it is in quite good level. In many countries there is huge potential to improve our size especially as you see for example in Sweden, I would say that I am not satisfied the situation where we are today.
Sorry, for Finland that includes just K-Rauta and Rautia.
No, this includes everything. It includes K-Rauta, Rautia and Onninen operations and compared to whole market.
Okay, fine.
Maybe you remember that in K-Rauta and Rautia side we are more than 40%.
Okay.
Our megatrends which influence to our operations and some strategy points. As we have presented previously, these megatrends which drive B2B growth building and renovation increasingly is technical, and also regulation increases. It's very easy to see that consumers more and more often outsource building to professionals. We can see that there is growing need for renovation in different buildings everywhere, I would say. Also rising standard of living and aging of population increase the use of services. There are many trends which affect that B2B share will increase. As I said, of course, we will also concentrate on B2C and improve this efficiency and service to customers. As Mikko presented our direction in our division, I would say some more words about what does it mean, this unified building and technical trade.
In what side we see this synergy potential? It's from customer side. There, it is more or less to create new kind of services. We see that we have a great potential to serve better our existing customers, give better service to them, a wider assortment, and I see that it has started to develop. There are many, yes, details and many issues which we are concentrating to improve. This customer side, it's more or less creating something new. How to call, support functions or there we have integration issue. Of course, we are integrating our operation in HR issues, finance issues, ICT issues, logistic issues. In logistic side, I even see also potential to serve our customers better. We can combine our logistics in online side and in DIY side.
There are two potential which we are concentrating to make this new unified Building and Technical Trade. This Best Digital Services, we are really concentrating to improve our digital services in B2B side and B2C side. Those are differentiated to those projects because customers need for service is there is big difference between B2B and B2C. Of course, I see that there is huge potential to improve our profitability, also in coming years. We are prioritizing to profitability and organic growth, third is this acquisition possibilities which we are also exploring. The best areas where we can create this growth it is in Nordic countries and also in Baltic countries, so near Finland. We have changed our organization structure so that, as I mentioned previously, it is very important to create or to give better service to customers.
We have, since mid of last month, 2 different business units, one for B2B and one for B2C. In country level, we are implementing those synergies and taking care of customer service. We are combining Kesko and Onninen strengths and offering to customers better service. This common global core, what does it mean? There are also central units for purchasing, for logistics issues, for marketing, for store side issues, and ICT, some of those functions are also Kesko level functions. We are utilizing whole Kesko power also there. For example, 1 issue which I want to point out in store side. We are preparing a pilot where Onninen Express will be in same premises as K-Rauta. There, we see that we can serve those B2B customers better in same site.
Also, I am quite sure that we can have sales growth and also better return on capital invested employed. There are also 2 different things how to improve this. Our own brands, we have worked a lot of this, but still we are in quite low level. Our best product category, tools and yard and garden, we are only a little bit more than 10% level. We see also in this side, big potential to improve and give better service to our customers. One part of this unified business approach is this that we are integrating K-Rauta and Rautia in Finland to new K-Rauta. I am very happy to say that last Friday we had very good meeting with K- retailers, K-Rauta and Rautia retailers in Finland, and they are very enthusiastic about the situation.
We see that it will give us good possibilities to serve even better our customers in Finland. This is why I say that I see that we are able to improve or make growth also in Finland. Some words about B2B trade. As I have said this, there is very good potential to give even better offering to our customers by utilizing all product lines. I am so happy after Onninen acquisition, we made our homework very carefully before acquisition, and it has started as we supposed Onninen will start. I am very convinced that we will be able to deliver those synergies as we announced after Onninen acquisition, so EUR 30 million to 2020. Of course, target is to make it even earlier. Best Digital Services to B2B customers.
It's not only this e-commerce platform, it's planning services so that those constructors and so on, they can use our services so that they can make also themselves more efficient in their operations so that they are more connected to us. Also those mobile construction site, it is very important that we can offer to constructors that they can handle easier their paperwork. It is also very important for us. This expansion of Onninen Express network we are working on that, it's good to understand that on average Onninen Express, it requires only about EUR 1 million investments. It's so small investment compared, as Jukka said, we have also renewed our K-Rauta concept that it requires 20% less capital to the new K-Rauta sites.
If we compare those, it is at least 10 times bigger investment or 10 times less investment to Onninen Express than K-Rauta store. Then B2C side trade. The main question is how and how quickly we are able to develop our e-commerce services. Now I'm very convinced that next year we will make or take big steps. For example, last week I visited one pilot K-Rauta 75, seiskanvitonen in Vantaa, and there is one pilot in kitchen side, so that we have developed one mobile application so that we can communicate with customer easily, and also constructor can communicate easily with customer. There are also many other actions going on, and the most important in Finland is this new K-Rauta e-commerce release which we are planning to announce at the same time as we are announcing or implementing this new K-Rauta chain in Finland.
Also there is this common global core and of course local adaptation. Own brands are very important also in this side. We see also big potential how to utilize this new Onninen, Kesko, new Building and Technical Trade operations. We have been able to improve our profitability, but still there is huge potential in this side, and we are working on that. As you see, we have many ideas how to improve, and I'm very confident that we will continue this good development. As said, we are concentrating on profitability and organic growth, and at the same time we are exploring what a good moment and to acquisitions. Of course, now we are concentrating to take Onninen and creating a new Building and Technical Trade Division. Thank you. This was my presentation. Please, questions.
Tom Saukkoriipi, SEB Wealth. As you pointed out, you have a target of being among the European top players when it comes to profitability. Mikko also referred to competitors such as Ahlsell, et cetera, Ahlsell having, say, 8% margin and even 12% in Sweden. Is it feasible to believe that Onninen could reach about the same or even better?
I see in Onninen side also or absolutely, I see big potential there. There we are creating this common core. Onninen has been very diversified company. It hasn't utilized the power in country level or altogether Onninen operation. We see that there is big potential and how to combine and utilize our existing K-Rauta B2B operations. We are working to reach same level. We know very well what Ahlsell has achieved. Many questions. Maybe the presentation wasn't so good.
Just Ted Roberts from Nordea. On the Onninen, first of all, the strategy of Onninen outside of Finland, could you explain a little bit more about how you think about doing that?
Yes, we are working on that and we have some ideas how to utilize and how to proceed there. For example, in Norway, we see that we can combine our logistical operations there. In Sweden, we see that, as I mentioned, we are piloting that Onninen Express will be inside K-Rauta premises. As you know, of course, we have reached positive figure in K-Rauta operations, but it is still in very low level, and it can be many percent higher, and we can improve our effectiveness and capital allocation there. I see that we can enlarge our store network in this side, in Onninen side. As I said, in Poland, we are studying the market, and in coming months or in coming years, we will decide if and how we will proceed there. We are now operating there only in Onninen side.
We are not whole B2B actor. Of course, we lack a B2C operation totally there.
What's the strategy? The killer application for Ahlsell seems to have been that they are in many different product categories, i.e., the HVAC, the electricals, and the tools. You will now have, of course, the tools in your DIY business via the K-Rauta. Is the kind of thinking that you would take the K-Rauta tools into the Onninen business as well in Finland, for example, to improve the profitability via that side?
At least from customer's point of view. To customers, we will offer whole assortment, including tools and so on. This is what we are working on just now, and we see that we have big possibilities there also compared to our competitors. I'm happy to say that we have new Mega Express there in, what's the name?
Koivuhaka
Koivuhaka, Vantaa. There we have piloted to have more tools and even some working clothes and so on. It has affected so that gross margin has improved quite well and also customer has be satisfied also. We can make this happen. We haven't planned to have so big stores. This is very big stores, this Koivuhaka, Onninen Mega, Onninen Express. As I said, we can combine our existing sites. In existing sites we can make this happen by not investing so huge amount of money.
Then the last question. On the sourcing, is there a lot you can do with the Onninen and with the K-Rauta combining them together? Have you started to do that already?
We have started. We see also in this side quite big potential.
All right. Thank you.
Some comments more about this Onninen future. We should remember that Onninen Finland and Norway, as Terho stated, are performing pretty well. Norway and Finland have also good progress. The biggest question marks are definitely Poland and Sweden. We have decided that within coming 6 months we will decide what kind of measures are needed to turn business back to the black figures in Sweden and Poland. Baltic countries are quite small when we discuss about Onninen, we have very strong company, Kesko Senukai, as stated many times. Definitely our intention is to combine Onninen Baltics and Kesko Senukai, but maybe that will do a little bit later on because much more critical issues we have in Poland and in Sweden.
Kalle from the Danske. Yeah. Well, you partly answered my question about Onninen's country level profitability, but few other questions. K-Rauta, Rautia, you have owned this for quite a long time, only now you are combining the brands into one. What has changed your thinking in here? Another question regarding Sweden. You have five-ish % market share or something like that. Is it smart to be in Sweden without acquiring something to be bigger? Just working organically from 5% market share maybe to 6% or 7%, can that become a significant contributor without buying something to make it bigger faster?
This first question was easier. This K-Rauta and Rautia. When we started to work with our strategy in the beginning of year 2015 we made very carefully our surveys and we analyzed our customer surveys. The answer was that from customers' point of view, those K-Rauta and Rautia are quite similar, kind of. It was not so easy to see what is the difference. Another issue is that because of this digital services, it's much more complicated to create digital services to two different chains and also marketing. Those three drivers are behind this solution. What was the second question?
About Sweden. Gradually increasing the market share through organic growth, is that enough for it to become a meaningful player in your portfolio or should it become bigger faster by buying something?
I think that, of course, this Sweden is very decentralized country in operation compared to Finland. At the same time I want to say that we have also in our existing operations big potential to improve because as I said that EBIT is about 0 or plus 0. I see that there is also potential and how to combine our Onninen and the K-Rauta operations also there and maybe there are also we will need some investments also in K-Rauta but we are not as Mikko and Jukka Erlund has presented any huge investment programs there but some investments are also needed there.
Right. Once again, repeat. I stated that Nordic countries, Baltic countries most natural growth areas and as Terho said Sweden is surprisingly fragmented market compared to Norway, Finland also due to that reason, definitely very interesting for us. Before that, as you know very well, we have still quite many homeworks to do
I feel that we are on the right track. We are now back to black figures. Onninen, once again, I repeat that we have to decide very soon what kind of measures are needed, and definitely we need heavy measures on the Swedish operations. At the same time, we very carefully evaluate those acquisition opportunities in Nordic countries as well as in Baltic countries.
Just to get back at that Onninen's country-level profitability, can you give any indication of the size of losses in Sweden and Poland? Alternatively, the size of profits in Finland and Norway? Pretty much the same question.
In Poland, it hasn't been a loss-making company. It has made a small positive EBIT there. We launched new SAP to Poland some months ago. Of course, as you know, sometimes there is some influence to figures also. Poland market has gone a little bit down in building and home improvement side.
Sweden is quite painful when we discuss about Onninen operations.
Yes. [Rale] from Nordea. On acquisitions on last CMD, you talked out also about the potential to expand to new markets in Europe in the DIY trade, and now you're clearly highlighting the Nordic and Baltic countries as the areas to go. What has changed there in your thinking?
Of course, now we are concentrating to utilize this Onninen acquisition, and as I said, we have explored and we are exploring those countries what Mikko mentioned are the most interesting countries from our point of view.
It's possible basically to come back with the growth strategy to also new markets in a few years after you have integrated Onninen or
Exactly. We have growth strategy, not just in Building and Technical Trade in all core businesses. Once again, important to repeat, most natural growth areas at the moment are those regions what we mentioned.
Okay. In the DIY trade in the markets where you have a weaker market share, basically Sweden and Latvia maybe in particular, are you happy with your concept of your business and stores? Is that working and you have faith that's the way going forward or do you think you would have to totally renew your concept in one of the weaker countries? Speaking about DIY.
In Sweden, I think that the most important success factor has been that we have improved our B2B operations there in K-Rauta. Especially this B2B sales growth has been significant in Sweden, and this has been very important from our point of view. As I said, in Latvia we are piloting also a new concept and we will launch also a new brand there in Latvia and we are utilizing this Kesko Senukai power there. Kesko Senukai has been very profitable in Lithuania and they have some differs to our existing concept. They are more utilizing whole non-food. I think it's very interesting to see how does it work in Riga, in Latvia also. We are ready to invest also new locations there in Latvia, especially in Riga.
Really very important to remember that Senukai concept in Lithuania is amazing success story from commercial point of view, from operational point of view, from profit point of view. As Terho stated, our aim is more and more have same approach especially in Lithuania, Latvia and let's see more and more common approach probably in all Baltic countries.
Okay. Thank you.
Any other questions? Thank you so much.
Ladies and gentlemen, ready to continue with the presentations. Nice to meet you everyone. My name is Mikko Mykrä. I come from the car trade of Kesko and as Jukka described already, I'm not Pekka Lahti even though I also am losing already some hair from my head but anyway, Pekka will join us later on in the evening and will be with us at the dinner. We agreed already with Pekka that if there's questions I can't answer he will take care of it in the evening. Please be gentle on me. Some words and let's say insight on car industry or car business.
We were just discussing here that quite a, let's say A lot promising headline I have here, but at least we are trying to describe here what we are doing inside our company and in car trade to take advantage of the changes that are really happening in the industry as we speak. First of all, just to show you the basic size and the figures of the company, we are clearly a little brother in the company compared to Terho's and Jorma's divisions. On the other hand, it's a good side because everybody always likes the little brother, and our business is really interesting, and we are happy to represent it. The sales is roughly 800 million EUR, operating profit EUR 26, around 3.2%, and return on capital employed 22%, which is, of course, quite nice.
On the right side of the slide, you see a little bit more that how our business in sales wise is divided. There's roughly half of the business coming from the importing activities, importing business of Volkswagen, Audi, SEAT, and MAN, and then the other half roughly is coming from our own retail operations we have in the capital area and Turku area. Also if you take the retailing business in pieces, there's naturally the new car retailing part, some 30% of the totality, and then used car sales and after-sales retailing, including also work, after sales 9% and used car retailing 14%. Actually quite surprisingly, used car business is currently a growing segment in whole of European car industry. There's many players playing around this thing and boosting new services and new kind of business models in that area.
Not only Finland, but also European-wide growth is bigger in used car sales currently than in new car sales. If you take the car market a little bit and perhaps the Finnish car market in more detail, for us in car businesses, it's really important to maintain this good market share level Mikko mentioned, some 20%, and this is what it's been already for years, but because why it's important to us is the fact that to maintain good level of operations and business in the after-sales, we need a good car park in the traffic, and when we have a good market share, the good car park is remained, and of course, we have good business in after-sales side as well.
For example, today looking at the weather, it's the best marketing campaign we can have because unfortunately, a lot of Volkswagens are in a small traffic accidents, and it means new business for us in the body repair side and so on. This is how the business works. We need, even when we have hard situations in the market, it's really crucial for us to maintain the market share levels we have, around 20% as a totality. Volkswagen, after 10 months, is still the market leader in Finland with 11% market share. Audi is number 1 in premium segment, so those figures as well are quite nice with a market share of 5% roughly. SEAT has, let's say, after some years, a great offensive going on, for example, with new Ateca, SEAT Ateca model reaching 2% this year. For us that is, of course, a cheerful thing.
Also MAN trucks we discussed earlier. Also there we have, let's say, the growing brands currently we have are MAN and SEAT in passenger cars and then MAN trucks in truck market. We are boosted quite nicely about the market growth as well. As you see here, the market growth is roughly 11% after 10 months. In commercial vehicles, van business, it's even bigger. It's 16%, and in trucks, it's around 20%. Quite nice boost also from the market development currently. Let's put it this way, that something nice is happening in Finnish car market or let's say hopefully also in Finnish economy in more general scale. Getting back to the industry or let's say re-engineering or our view on re-engineering the industry. As in all businesses, mega trends are behind and as discussed already today, there are big things going on in car industry.
Urbanization being one of the global mega trends sort of pushes the car industry in the situation where there are more new services like car sharing, short-time leasing, mobility as a service as general. Same happens with digitalization when we have a lot of different digital good means in the market. It pushes autonomous driving, for example. Here a nice picture in Palo Alto of Google self-driving car. The technology exists already in many places, and also different kind of easy access services are pushed heavily by digitalization, meaning that when people have the need to move from point A to point B, you have the nice services in place in your mobile, and you sort of Uber-like take the journey into another place. Regulation plays a crucial role, naturally. There's limitations in car usage already existing in many cities. We see this as a growing trend.
More and more big cities will have limitations in how to use car in city center areas, metropolitan areas. Authorities naturally are highly steering the business all the time with emissions on car taxation. This is also happening in Finland. Whatever happens in the car taxation, it has immediate effect on the car market and what happens there. Of course, environmental awareness is also one thing pushing electric cars currently, and also as a separate thing, the battery technology to enable the electric cars will be a huge challenge for car industry in the future. Direction, or let's say our view of direction for Car Trade, Mikko showed you this slide already. We want to think it in the way that things are happening, we want to take our own advantage of the things happening and finding new business areas in car industry.
We want to deepen our cooperation with Volkswagen AG. I will come back to that later on. Maintaining high market share, as I already discussed, growth and good profitability, also fast expansion of online car service or let's say platform Caara.fi. I will also describe a little bit later in more detail. Let me just give you a couple of words about our manufacturer strategy. Our manufacturer or OEM is also in, let's say, biggest change of its history, basically. Partly it's caused by the emission crisis, which pushes them to renew themselves and to push new kind of approach to the business. On the other hand, as like as us, it's derived from the fact that the market is changing and big things are happening all the time in the market.
Volkswagen has stated out that it's about transforming one of the world's best car makers into leading providers of sustainable mobility. How to do it in Volkswagen's language is to sort of push electrification of vehicles, as already mentioned. Autonomous driving is the second one, the third one are different mobility services delivered nicely for the consumers. Three, let's say, building pillars of the new strategy, electrification of vehicles, autonomous driving, which is totally different approach for the whole car industry, also then different mobility services that are easy for customers to approach. A little bit perhaps in more detail about the new strategy and declaration of it that was made this summer. Volkswagen has stated out that there will be 30 totally new pure electric vehicles by 2025.
The same thing other way around, much more actually more interesting is that they've stated out that 20%-25% of total sales in Volkswagen Group will be electric vehicles by 2025. On the other hand, it means that there's still like 80%-75% combustion engine market, but still, that is a huge change in Volkswagen's, let's say, whole strategy and approach and car manufacturing. In addition, full autonomous vehicles with Volkswagen's own self-driving system will be developed from 2021 also, that is also stated already in the summer in the strategy. The new mobility services are basically built on a strategic partnership with Gett. I don't know if you know the service, but you can consider it pretty much as a competitor of Uber. Same kind of hailing service thing.
They have a strategic partnership there, a new kind of, let's say, mobility services, robotaxis, car sharing, on-demand transport will be grouped around this service later on as the following years will come. This is basically the Volkswagen approach to the subject. For us as VV-Auto, naturally, this is all exploitable for us as well. When these things go on, we want to be one of the first ones to utilize them in the Finnish market. When we come back to our own approach in VV-Auto or Kesko in cars, this is our strategy in a nutshell. We have three basic building blocks in the strategy, deepening cooperation with Volkswagen AG. This means naturally that we are not looking for dealerships for Isuzu or something, brands like this.
We are concentrating on Volkswagen Group brands and count on the fact that they produce enough business for us in that sense. Good examples in there are the growth of SEAT this year, as I mentioned, for example, to MAN business we started as a part of VV-Auto in the beginning of this year. We are also pushing to increase, let's say, services business. It doesn't mean only the aftersales business. It means only new kind of approach to produce mobility as a service for consumers. This kind of new services. Caara.fi is a good example of that. It is a, let's say, genuine e-commerce channel, which we started in the late May, early June this year. We are purely selling used cars to consumers in online channel there. No brick and mortar outlets are existing.
It's only the sales guy contacting the customer online, producing rich content of pictures for the customers about the cars online, being totally transparent about the cars, being totally trustworthy towards the consumer, making it easy for the consumers to buy those cars. This kind of approaches and spaces in the market we need to find to find also growth in this kind of services area. The third pillar of the strategy is naturally the digitalization. No business can survive after a while if we are not coping with the change. This means also that in the traditional brand business of Volkswagen, Audi, SEAT, we need to be able to offer customers the services they want in the channel they want. In our language, this means that if customers wants to start the buying process online, we need to offer it for him.
If the customer wants to buy his service online, we need to offer it for him. All the time in multi-channel approach so that it's complementing the existing dealer chain we already have. Looking at the VV-Auto's growth strategy or Kesko's car trade growth strategy, I would say that if you look at this year's figures, we are nicely on the path. VV-Auto's sales growth this year after nine months is 10%, and their own retail sales growth is even more, plus 13% in that business. Used car sales is 20%, as I already mentioned. It's a growing segment currently, partly boosted by the Caara.fi model and let's say the e-commerce model we have there.
After-sales growth is in sales 8%, as I mentioned, SEAT and MAN, those figures we consider ourselves are quite nice, increase in SEAT registration 35% and increase in MAN truck registration some 60%. In this sense, the growth strategy is proceeding nicely. If you look at the omni-channel a little bit more in detail, I pointed out some key figures or KPIs for you just to understand it more precisely what kind of services we already have and with what kind of omni-channel approach we already act with the customers. People often ask me, "When can I buy a new car online?" This is actually happening already all the time. We have a chat model in volkswagen.fi, audi.fi. The sales guy is taking contact to customer into online channel and starting the buying process, or let's say the customer service process online.
In this model, we'll have this year or we have had this year some 40% growth in the new cars sold via this chat model service. It clearly shows that this is a model how customers want to operate in the future as well. Another value is the online booking system or e-commerce channel we have in place. It's a service where customer, Volkswagen, Audi, SEAT customer can easily book his or her next service online. In that channel, actually, the sales value this year will reach roughly EUR 10 million. In our opinion, that represents some 15% of all the throughputs in our network. In that perspective, it's actually generated a nice channel, growing channel for our customers to take contact and make the business with us. EUR 10 million, in my opinion, is a nice figure in our context.
Perhaps a little bit different approach, if you take e-commerce as such, we have also an e-commerce platform for accessories and lifestyle products and products like this in the brand business. It's not about the volume so much. It's quite much peanuts business, but nice thing there is that the customers who have bought in that e-commerce channel, 25% of those customers are totally new to us. They have bought before nothing from our dealers nor us, and we can sort of reach new customer potential with this new channel in e-commerce. The last figure, 300, is the Caara figure. From the beginning of June, we've sold some 300 cars online with this Caara.fi e-commerce model. This is just the beginning, let's put it this way.
We are actively working on different kind of, let's say, innovative services under the Caara brand to utilize this service approach in the car business. For example, we have some 800 to 1,000 used cars in our inventory all the time. Why not offering these cars more as a service to customer? If customer don't want to buy the car, he wants to lease it for six months, we need to make it possible. The nice thing is that we have the asset and the cars already there. This kind of new approaches we need, but believe me when I say it's not easy. It's pushing sort of new ways of doing things, and we are also a traditional company, little by little we go forward.
The whole idea in Caara is to disrupt our own business in a way and find new service areas in the business. That is my last slide, hopefully some easy questions for me.
Not sure if these are easy, but starting with this Caara.fi.
Yeah.
These 800 to 1,000 cars that you have in the inventory, those would be at your current dealers?
At our own dealership, VV-Auto's own dealership, yeah.
How does that model work? Of course, the model today works in such a way that you would take in the old car and then kind of you give the rebate-
Yeah
for the new one and so forth. It's kind of very tough to then sell it at the right price forward.
Yeah, it is. It is actually working more or less in the same way, but the customer interaction is done online. We have a chat service, and we approach the whole subject totally openly from our side. If there's scratches in the car, we take pictures of it, we show the scratches. If there's bad winter tires, we take picture of the winter tires, show it for the consumer. It seems to be ending in the situation that also the consumer is quite open towards us. We always have the possibility that then when we take the car for the consumer and our car or his car is not what he sort of thought it would be, the deal can be canceled. That actually doesn't happen. Since we are open, the consumer is open, and it seems to be working quite nicely currently.
Then a follow-up on, can I access these cars also via Nettiauto and these other online services?
Yes. Yes, you can. Yes, you can.
It will be there.
That's a good question as well because some a little bit from the sleeve, but 90%, perhaps, of the used car volume in Finland comes from Nettiauto, so we need to be there. It's a simple fact of life.
Yeah. The last question, there was one company which tried to come to the market this year who gave interesting numbers around this whole business where they were selling a lot of insurance, extra kind of one-year guarantees, et cetera, where at the end of the day, they made all the money for the business in services which were nothing to do with actually selling the car.
Are you providing those kind of services or top of services for selling used cars?
This is exactly what we are trying to achieve, to find the places in the industry where we can go forward with the services inside the industry. Yes, little by little, yes.
All right. Thank you.
Niklas Katonen from OP Financial Group. I'm not sure if you're the right one to comment, but maybe Mikko or someone else can comment on this. You have had quite good growth this year, but the profitability has come down quite significantly. Can you describe what is behind that?
May I?
Please. This is the easy one.
Yeah, this is easy one. I agree, this is easy one. Basically, the emission crisis Volkswagen had last autumn is behind of that. In a way, this year we've been in a situation where we have to take care of our market share, and we have to fight for our market share, and that has naturally costed some money as well. The good thing here is that it little by little seems to be over. The brand preference of Volkswagen took, I would say, an enormous hit last autumn, but it's already coming back to almost the same level it has been in. In this sense, we can look quite positively in the future. It wouldn't be open if we say that the emission crisis hadn't had an effect on the profitability of VV-Auto.
Okay. Thank you.
Okay. Thank you very much.
All right. Good afternoon, everyone. I'm trying to make a really quick recap on the digital projects in 15 minutes or so you have good time to then enjoy your drinks and dinner. We have also recognized some mega trends within the digitization when we are looking outside the window. What is maybe the kind of common nominator for all of the businesses is the change. The change is becoming faster and faster. It has a really, really big impact on our businesses. The digitization or the digital technology is very often behind the speed and the change. What kind of implication it has to our business, probably in the finance and business as well. I think that one of the biggest challenges for every retailer is that the consumer really, really is the king today.
Actually, he or she has a kind of endless global selection in front of him, and we just are one player within that group. The other thing is that the importance of data will increase, and this has two sides of the coin. On the other hand, our consumers are more analytical. When they come into the store, they know everything about the product, and they more kind of make better decisions all the time. On the other hand, the amount of data within the business is increasing a lot. It's a kind of oil to the machine that makes the machine tick a little bit faster, better, and with less mistakes, I would say. The third thing maybe I would point out from this slide is that the importance of a positive customer experience.
We believe that the next battlefield will be within the customer experience because all the price and the good products brings you only to the par with the competition. Where you can excel and make a competitive edge is really the customer experience. In the mobile, I think we are going the same track that every other business is. Today, we see that more than half of all traffic coming into the K Group's domain come from mobile devices, and it's growing. As Mikko pointed out in his presentation, the on-demand services will grow in every industry, in car business and in other retail sections as well. This is the world we are facing, and this is the world we strongly believe in it. In our strategy work 2015, we already stated that we want to create best digital services to our customers.
Why is that? Our customers are already living this kind of life. We definitely want to be with the same page with them. How we are doing there, this is kind of a long journey. This year and next year, we will still be very strongly in the digital platform and service development. This means that we have lots to do in the basics still. We have a topic or issues that we need to solve within, for example, the product information management or data asset management. These are huge project or programs for the kind of corporate size as us. Going further on 2017-2018, we definitely will come up with the new services and ecosystem development.
In 2019, I think that we are kind of sitting behind the rear here as well, really thinking that, as a big company, we should kind of really set the way where, for example, e-commerce is done in Finland, especially. As you heard during the day, there are a lot of digital projects ongoing in every challenge. This is actually only the tip of the iceberg because the digitization is also impacting all the processes what we are having. If we are doing anything with our logistics or HR, these are programs that are visible to our consumers. In each of the other business division, there are so-called spearhead projects.
You heard about grocery trade, about K-Ruoka.fi, which is actually a very big media in Finland, one of the biggest one, having 1 million weekly visitors, or K-Ruoka mobile application, with a target of 450,000 uploads by the end of this year. Currently, we have actually already approximately 400,000 uploads. We don't include them all in our statistics because we want people to finalize their registration process, and that number is 250,000 at the moment. About the K-Ruoka mobile application, that is kind of your friendly daily assistant when you are shopping. We know that it's working. People who have downloaded the application, the average basket size has grown by EUR 8 approximately. If you calculate that in the yearly numbers, that's a big number for us. It's a real business case for us.
It seems to increase loyalty very much. Also customer seems to be very happy on the product itself. Talking about building and technical trade, there are different kind of target groups, B2B and B2C. We have to offer services to all of these needs, being e-commerce, being kind of order tools, being kind of how you can manage your several sites if you are a constructor, or what kind of inspiration or design tools we can offer our consumers. This great success within the car industry. For us, the modern store is a physical store plus all digital services around it. This really means that we have to integrate this endlessly. This is a kind of ongoing challenge for, I think, every kind of brick-and-mortar player at this point of time.
One of the biggest projects we have conducted during the past 18 months is K-Plussa loyalty program. We are on the way to build that as the most personalized retail loyalty program in the country. I think that when we start about Plussa, it's kind of good to stop here with the kind of volumes and numbers for a while. We are having 3.6 million card holders in Finland. They done approximately 8 million kind of digital visits to K Group's domains in a month. They do 250 million physical store visits in our stores, and they cover EUR 5.9 billion of the revenue. It's a huge volume what we are talking about, and that kind of indicates the importance of the whole program for us and for our customers. What we have done during the past year are several things.
Technically, we have renewed the program and also concept-wise. This means that Plussa has gone digital more or less, so it's on your mobile. You can access it through your K-Ruoka mobile application, and you can use your kind of loyalty bonuses or Plussa money, as we called it, during the checkout project in the counter. This seems to work very well. After the first release of the Plussa money two weeks ago, there were approximately 40,000 transactions a day within the checkouts. The customer feedback has been really well. On the concept level, we are moving more and more towards the personalized content. This means that you should be received offers and recommendations on the products that are suitable for you. If you are vegetarian, you should not receive any promotions on meat or products which is not in your shopping basket in general.
Everything is obviously based on the data, so that when you register a purchase on the counter, we are able to target the promotions better and better for you. The one more thing I would like to mention about the renewal is that we also launch a program for our best customers. The customers who are bringing more than EUR 6,500 a year to the K Group will be receiving even better offers and this is very important target group for the whole K Group as a whole. The journey in this has already started, and we are doing a lot of improvements all the time, and we'll be launching new, for example, cooperation with outside partners later this year and in the beginning of next year. The aim here is really to become more and more personalized loyalty program.
Not for everybody, but exactly actually tailored for your needs. A few things about data. Mikko has mentioned, and we also stated in the strategy that we want to turn this company very strongly into the data-driven company. We really believe that it gives us a head start compared to our competitors, and it also make us more agile, more faster company, because when we are able to make decisions based on the data, we probably are able to move faster and make more decision at the same time. Actually, the number of data or amount of data or collecting a data is not a problem as the challenge for every big player is what do you do with the data? For these days, almost, we have looked strongly on the internal data. That means Plussa data, the data the customers give us.
Now we are moving towards combining both internal data to the external data. Why external data? Our customers have life outside K Group as well, and for us, it's super important to understand what is the attribution model on the web and in our stores as well. Based on this kind of mix, we really believe that we are able to build the winning customer experience with more relevant services, products, tools, and so on. Also really turn the company so that we are not any more looking from the rear mirror, but more looking through the windscreen. One thing what we have been doing during the last year is related to Jorma's business and the stores' specific business ideas. This means that every grocery store has the business idea of their own, and how they can build it based on the data.
Currently, every K-Supermarket retailer, K-Citymarket retailer, and K-Market retailer has access to their own data. This means that they have a good picture about what are their customers like, where they come from, what do they buy, and also on the other hand, what does the competition look like? What's the potential business potential in the market, what they could have and the customers are currently shopping somewhere else. This actually doesn't mean that there would have been the data before. This kind of Excel sheet has been sent to the retailers earlier. To be honest, this sheet continues to column GT. There's a long way to go. You can imagine we're having hundreds and hundreds of retailers. The data literacy is not always on the top. We have moved more and more towards this live direction.
Now every retailer has a kind of visual access to usable data and the feedback from the retailers has been very good. That's needless to say that this is also a huge training program, education program for us, and we need to really train all the retailers to understand what kind of decisions they can do based on that. As one example how the retailers are using the data is that they are looking when they should be open. They are comparing the sales data and opening hours and thinking, "Okay, what are the good opening hours for them?" Or they are thinking when there should be people serving clients in the service desks or the service counters.
That's easily a very good business case for us because personal cost is, of course, a big cost for the retailers, especially during the weekends and late hours. We also show data for our customers, and the K-Ruoka mobile application has you actually access their own data. If you haven't downloaded it, now it's a commercial break. If you haven't downloaded it yet, you can easily do it by going to App Store or Google Play Store, and it's even available for Windows if somebody has Windows first still, and you really can have a look on the data. Based on your purchase behavior, we target you offers. These are usually the products you are usually found in your shopping basket in general. We also give you recommendations on recipes which are based on your shopping basket.
About the product or ingredients you usually buy. We can populate you a shopping list based on the shopping basket, what usually your family has. This works because 80% of their daily purchases are always the same. We only vary 20% of our shopping basket. You, of course, can see your Plussa credentials there, and also see how much Plussa money you have available, if you have any. This seems to work very well at the moment. This is a direction we want to build our customer communication as well. We have a unique tool to be connected with our customers, and we just need to build a relevant content to our customers.
This makes us really humble, because if the content is not good, we all know that what we do as a customer, we quite quickly remove the application from the phone. So far, we are happy. The journey has really begun. We have lots to do, and we have only scratched the surface, especially if you are talking about the data. The way forward is, I would like to point out three topics. One is that we really have to focus on the customer experience and really understand and improve the omnichannel experience as well. We have to bring the data to the next level and really embrace the data-driven decision-making. Machine learning is a big topic for us. The human power still does a lot of work within the analytics that the machines could already do.
That's what we are thinking at the time. We're also thinking about the real-time. Not all the data is real-time. Really have to think that what kind of value add that would bring us if we were able to do it. There's also big topics like every business organization today about the big data and privacy subject as well. To the last is that this is not a technical exercise. We are really trying to cultivate the experimental culture, build lean organization with more activity in it and really work across as one Kesko Group. This data is a very good tool for doing that. Of course, we have to develop the competencies accordingly. I don't know if any of you have noticed that today we'll announce a new digital recruiting campaign.
We are looking for 20 more digital talent to join K Group, mostly within the analytics and marketing platforms today. In Terho's business, we're launching in the summer that they are looking for 50 digital people to develop their existing services. Actually, that was my last slide. Happy to take some questions, if any.
Hi, thanks for the presentation. Rami Vehmas from Ilmarinen. Question on the data, who owns the data? Can you sell the data and form a revenue share model with the company using the data as a selling lead?
Yeah. K Group owns, so Kesko owns the data currently. That's a good question, so what will happen in two years' time? Who really owns the data? Does the customer own its own data? Regarding do we sell the data, we have some cooperation models, we need to think that more carefully so that what kind of concept we have within the data, so meaning that what kind of data we give for free. What kind of data we give for research purposes, for example, and what is the commercial conceptualization within the data, definitely we see a huge potential in that.
Okay. Another question on the mobile app. Can you do dietary advice based on customer desires on the app?
That's a good question as well. Well, we might could, we won't. The thing is that if we are looking for two years ahead when probably we all own our own data, is that if you can bring the data to your doctor, for example, and ask the doctor to have a look on your shopping data and asks recommendations from that side. That's interesting thing.
Are you referring to PSD2 world on banking side, where the customer's own the data later on and it happens over here as well?
Well, Anne can comment on that then later, but the EU legislation regarding the privacy really seems to go that direction, and that will enter in force in 2018, so that you should have access to your own data and take it wherever you want to take. Nobody knows that for sure yet.
Thank you.
All right.
Just regarding the basic boring e-commerce, K-Rauta.fi seems to have been in the making for quite a while in these events every year. I think four or five years ago, it was next year, there will be a new K-Rauta.fi that's better than ever before. Now it's there again next year.
Yeah.
What has been the story-
Now it will happen.
Yeah. What have been the challenges and have you kept changing the goal of where you want to go with it or a little bit on that?
I think that the basic challenge, Terho, please fill in if you wish, is that the purchasing or the customer journey when buying, for example, some kind of tool is totally different from buying grocery stuff. Usually, when you buy a tool or hammer or whatever, you go first to Google. Then you search for the certain product. Then you want to see the price. Then you shop it. We were actually asked customers first to decide the shop or physical store and combining this digital life and the physical structures just doesn't work in this concept. Now we are changing that.
How does that work with your retailer business model that how do you get around the problem that every retailer is guarding his sales and has really no incentive to tell the customer that go to K-Rauta.fi and buy this thing?
Do you want to comment on that, Terho?
Yes, we have had very good conversations, discussions with retailers. They totally agree what we are doing now because, we all have realized that we have to listen customers' needs and make then things happen. Then at the same time, we can utilize our store network in certain issues. We have common understanding about the steps needed in this side.
Has this been a change over the last three, four, five years?
I would say that it has been a journey. First we started so that we decided that every store have to have click and collect services. Then customer gave us a feedback that this is not good enough, that they don't want to choose the store before they have price or product information. They want to act at another way. Then we realized that maybe also have to change. Maybe Mikko have now better answer.
I don't know better answer, let's be very open. We have had very much internal discussions, old e-commerce platform was developed more from our own internal purposes. Now I don't remember when it was, but it was a very clear decision made by Kesko and retailing entrepreneurs that this time we have to develop from customers and consumers' point of view. I call that a revolution. I call that revolution.
Due to that reason, I'm very optimistic that this new K-Rauta.fi, when we will launch that next spring, is new generation application and definitely much more customers and consumers driven e-commerce application.
Maybe Terho has now better answer.
Then we have to remember that this is for B2C customers, and there is totally different kind of services to B2B clients
Yeah, exactly. I think also it's a good phase to do the change. There's enough volume in the e-commerce channels as well. It's a good push to do it at this point of time, it's good combination with the kind of integrating K-Rauta and Rautia brands at the same time.
Thank you.
All right. Well, [ Ethan].
Thank you. Last one. Yeah. Last but not least. I'm always happy to be the last one to stand between the audience and the sparkling wine. Champagne. I was sure that if I say sparkling wine, he will say champagne. A fast recap of the Kesko strategy process. 2015, one of the megatrends sort of influenced us to focus on brands and identity and sustainability. Furthermore, later on, in addition to digitalization, marketing as a whole was sort of picked as one of the focus areas in the Kesko strategy, of course, among the businesses or in addition to the businesses. We do this from the consumer and customer point of view, but now I'll show you Jukka's favorite slide. This is something that when I back investment fund from Mikko and Jukka, I'll first show this.
It was actually an old UC Berkeley professor, David Aaker, who already in 1990 said that or revealed that there is actually a Even though Jukka don't always believe this, but there is a connection between those companies which really put some investments and effort to brand and identity and really take care, nurture their brand portfolios. There is a clear connection between the long-term value growth. Therefore, we as Mikko kindly points out every morning, we don't only work for the customers, but we also work for the shareholders and yes. I have a Windows Phone, Anni. I'm one of the old guys. We really started a year ago, a very strong work with the brand and identity.
We started to unify the brands within the K Group. We also, after a very considerable amount of consumer and customer research, also made a bit of a revolutionary color change. That's the customer behavior question. We're now getting to be a bit orange. If we look at what we are really trying to do now, we will change the content of the marketing that we do, go from the traditional price tactical marketing towards strategic marketing, go to targeted personalized marketing. We started with K-Market, the change already in the spring and the rest of the grocery chains, Jorma's businesses are going to take place early next year, and Terho's K-Rauta as well, first quarter next year. One of the most important and one of the most interesting things is the return on marketing investment. I'll come back to that a bit later on.
We also sort of appointed three major projects within marketing, we do everything actually through brand preference because as Mikko pointed out earlier today, there's a clear connection between brand preference and profitability and market share. We really drive through brand preference. The old calculation said that when you increase 2.8% of the brand preference, you get 1% more market share. That is of course an academic calculation and doesn't always go exactly like in streams. We've succeeded in something at least. During the first year, we have the new K brand that was launched a year ago. During the first year, the value has increased from the little below EUR 500 million to close to EUR 900 million. Making a 42% leap in a year is a pretty good result, I would say. We have some really ambitious goals.
As I said, we try to drive market share through brand preference. Mikko, who is a very patient person, would like this to be ready next Monday. However, to be a bit more realistic, it takes about three to five years because we're talking about changing consumer behavior, which is never very easy. We're heavily relying on three key attributes, which is inspirational, personal, and responsible, and the objective 2019 is no more or no less the master of inspirational customer experience, where we do a lot of cooperation also with Anni. This is the old saying that half of our marketing spend is wasted, we just don't know which half, and I'd like to say that it's busted. One of the key things that we're doing together with Anni's team is actually the return on marketing investment.
I took a small case here just to go through a bit of a more practical stuff in the end of the talk, we don't only talk about brands. When you create a way to calculate return on marketing investment, there are basically three ways to do it. You do strategic metrics and objective, like brand preference. You measure campaigns, which is somewhat exciting, but the most important thing is that when you try to really improve sales, you need to look into how you get more out of the marketing investment that you're doing. Now, well, okay, I cannot move because there are tapes actually here which sort of put a limit to where we can change, and I'm the one who always runs everywhere. From here the long, big gray area there is the base footfall, meaning the base customer traffic that we have.
Then the light blue is the customer traffic that we get from marketing. It is quite funny and understandable that the small stores actually, they are there for the location. People go there because of the location. Of course, Jorma's team has been able to show that you put Pirkka products into a Siwa, suddenly you also get some preference. Basically, it's about location. Also the supermarket store, the base footfall, they have a very strong food brand, food image. Supermarkets are the best Finnish food source. I think we all can agree upon that. Therefore, because they have such a strong base footfall, such a strong brand, also for them, the marketing investment is quite small, actually. Then we go to hypermarkets, where price is the thing, and you suddenly see a big influence from the marketing.
Therefore, you need to be extremely careful of how to use the investment, especially in the Citymarket chain. Taking an example, and here's the last slide, from the supermarket chain, how you actually start working on the investment. For instance, if you look at television, the investment, and now I'm talking about the marketing investment, which is on top of the base footfall, meaning the small little thing for K-Market and gradually a lot bigger for Citymarket. If you take that thing and then you start splitting that marketing investment into pieces, you suddenly realize that in K-Supermarket case, 22% investment on television seems to pay off 33% of the new turnover, the additional customer traffic.
At the same time, you start seeing that the old-fashioned leaflets, which you see between Helsingin Sanomat and here and there, 16% of the investment, only 6% of the customer traffic. The same with so-called Monday leaflet offer letter. 19% of the investment, it's really heavy investment when you print things and you deliver them to people homes. 19%, however, only bringing 4% of the additional footfall. This is the kind of stuff that we work with the return on marketing investment, trying to optimize the stuff that we do, trying to get more out of the investment. Also, one of the key things is that we're gradually starting to move the right way, meaning that we're gradually moving from mass media marketing into personalized marketing, because as Anni pointed out, the future of the marketing and the future of the customer experience is actually mobile.
We need to be there. We need to be present there rather than be present in the Helsingin Sanomat pages and pay dearly for it. Thank you very much. I actually took the schedule.