Ladies and gentlemen, welcome to Kesko's Q3 release call.
I'm Kesko's CEO, Mikko Helander. I have together with me our business area presidents, Jorma Rauhala, Ari Akseli, and Matti Virtanen, as well as CFO Jukka Erlund and Investor Relations Hanna Jaakkola. In Q3, sales growth improved profit. Now, I will first give an overview of our business performance in Q3 and our updated guidance and outlook. After the presentation, we will be happy to take questions both by phone and via chat. Key events in Q3. Again, record result, Kesko's all-time best quarter result.
Our quarter result has now improved 14 quarters in a row relative to comparison period. In grocery trade, profitability improved despite the changes in operating environment. Building and Technical Trade Division's result was good thanks to strong B2B trade. In Sweden, we completed two acquisitions, Föllinge Såg and Djurbergs Järnhandel.
The acquired companies will be added to our Swedish B2B-focused K-Bygg chain. Net sales growth continued in Q3. The net sales totaled EUR 3 billion. It was up comparable by 3.4% or EUR 107 million, thanks to our strong strategy execution. Net sales increased in building and technical trade as well as in grocery trade. The rolling twelve months net sales was EUR 11.7 billion. Comparable operating profit for Q3 was EUR 243 million and profitability 8.1%. The rolling twelve months operating profit was EUR 826 million and operating margin 7.1%.
Also, return on capital employed, one of our financial targets, improved and was at the level of 17.6%. It improved in grocery trade and building and technical trade divisions. Kesko's financial position is strong.
Cash flow from operating activities was EUR 319 million. Cash flow was excellent in grocery trade and building and technical trade. In car trade, there was significantly lower inventories in Q3 2021 due to availability issues. Capital expenditure totaled EUR 90 million, including EUR 53 million capital expenditure on store sites. CapEx also included EUR 13 million investments in acquisitions in Sweden. Net debt to EBITDA was 0.2. In grocery trade, profit continued to improve in Q3. Net sales totaled almost EUR 1.6 billion and grew by EUR 58 million.
Net sales grew in Kespro. Also, sales to K Grocery store chains grew. The rolling twelve months net sales exceeded EUR 6 billion. Comparable operating profit for Q3 was EUR 133.4 million and profitability was 8.5%.
Rolling twelve months operating profit was nearly EUR 470 million. Profitability improved in particular thanks to strong growth in Kespro's food service business. In Q3, profit improved in grocery trade thanks to good development in Kespro and K Group grocery stores. Grocery sales in K Group grocery stores were up by 0.9%, which is below the market.
We have added focus on price competitiveness in our grocery stores. Marketing is based on the premium and bargains concept. Our stores have also been successful in price comparisons in the media. In the picture, there is an example of the marketing campaign headlined the cheapest shopping basket from K Stores. Food service operator Kespro's sales were up by 15.1%. Market share growth continued strong. Kespro's market share is now 46%.
Online consumer grocery sales up by 3.4%. Online growth was supported by Wolt collaboration. Our online consumer service, K-Ruoka.fi, was named the best online grocery store in Finland. K-Citymarket's non-food sales were down by 2.7%. I'm pleased to announce that Kesko has expanded its collaboration with Wolt. In a short term, we have created an effective concept for fast grocery deliveries in Finland.
There is big demand for fast grocery deliveries across the country, as is also the growing international trend. Currently, already 127 neighborhood K markets at 40 locations offer fast deliveries together with Wolt. By the end of the year, the number of stores will be some 160. Also, the assortment is wide, up to 5,000 products. Our online grocery sales turned positive in Q3, thanks to the fast deliveries.
In building and technical trade, result was good thanks to strong B2B trade. Net sales grew comparably by EUR 70 million to over EUR 1.2 billion. Net sales grew in comparable terms in Finland, Sweden, Poland and Baltic countries. In Norway, net sales decreased in comparable terms. Net sales growth continued strong in Onninen's technical wholesale.
The growth was supported by good volume development as well as rising prices in some product categories. In building and home improvement trade, sales grew in B2B trade but decreased in B2C trade. The division's rolling twelve months net sales was over EUR 4.7 billion. Comparable operating profit decreased by EUR 1.7 million and was EUR 103 million. The profitability was high, 8.5%. The rolling twelve months operating profit was nearly EUR 350 million and operating margin 7.3%.
In Q3, good result in all businesses in building and technical trade. In Finland, the result was strong both in Onninen and K-Rauta. In Norway, profitability was good for both Onninen and Byggmakker. The result was also good in Sweden thanks to B2B-focused K-Bygg, Onninen and MIAB. Onninen's result was good also in Poland and the Baltics. Result was strong also in sports trade, but profitability was down from the exceptionally high levels seen in the comparison period. The share of result reported by Kesko from the Kesko Senukai joint venture was down by EUR 4.4 million.
In car trade, profitability was at a good level in Q3. Net sales decreased by EUR 19 million due to availability problems and totaled EUR 242 million. The division's rolling twelve months net sales was EUR 900 million.
In car trade, operating profit was EUR 13.3 billion despite the difficult operating environment. Operating profit declined EUR 4.9 million. Operating margin was 5.5%. In Q3, result was good in car trade despite availability issues. Net sales were down due to new car delivery problems. Profitability was at a good level thanks to better sales margins and efficiency measures.
Used car business progressed well. In service business, net sales grew. K Charge network is growing and charging has more than doubled in a year. Kesko is a unique trading sector company. Kesko is a strong company. All our three divisions are generating good results. Operating profits have risen to a new level and operating margins have clearly improved in recent years.
This gives us a solid basis for good performance in the future, even in turbulent operating environment. In Finnish food trade, Kesko has a strong position, and we are doing well also in a price-driven market.
If we first look at K grocery stores, our market share 36.6%, and we have the most extensive store network in Finland with some 1,200 stores. K is number one choice for customers who value service and quality, but also a good choice for customers seeking affordable prices. Our online grocery store is the leading online grocery store in Finland. Kesko is a European forerunner in using digitalization and customer data. Our efficient and high-quality processes and systems create a significant competitive advantage. Kespro is the clear market leader in food service wholesale with a market share of 46%.
Kespro sales were over EUR 1 billion and over 70% of Kespro sales are via digital channels. Kespro has extensive selections and also strong own brands. The customer base is wide from private restaurants to public sector operators.
There are also significant synergies with K Group grocery stores. K Group is the leading operator in technical wholesale and building and home improvement trade in Northern Europe with total retail and B2B sales of EUR 6.5 billion. Green transition, energy efficiency improvement needs and growing building renovation will support the demand. B2B sales are strong in all our operating countries as shown on the slide. In Finland, the sales are almost EUR 3 billion with B2B trade share being 80%. In Sweden, B2B's share has grown to over 70%, and retail sales are EUR 700 million.
In Norway, B2B is over 80% with EUR 1.2 billion sales. Onninen and Poland together is 100% B2B with EUR 500 million sales. Kesko Senukai is more B2C-focused with retail sales of EUR 1.2 billion. Sales via digital channels is growing fast.
Now it is over EUR 1.7 billion. Onninen is Finland's biggest and best online store for technical wholesale. Kespro's online store is the biggest in food service wholesale in Finland. Also, B2C sales are on a good level with well-functioning stores for consumer online grocery and sports goods. I would like to also highlight that K-Rauta's online store was named the best in the business in Sweden. Kesko is a responsible and sustainable operator.
We are increasing efficiency in energy use. Some 50%-80% of K Group's electricity consumption in 2022-2025 is hedged. We aim to cut our electricity use by as much as twenty percent during peak times. Results can already be seen. Our electricity use in September was down by 4%. We are also preparing for possible disruptions in energy distribution.
The strategy and outlook. We have a good strategy. We continue strategy execution in all our business areas. We continue to invest in growth as well as it is important to improve operational efficiency due to weakened economic outlook and rising inflation. Our guidance for 2022. Kesko estimates that its comparable operating profit in 2022 will be in the range of EUR 790 million-EUR 840 million.
Before the company estimated that the comparable operating profit would be in the range of EUR 750 million-EUR 840 million. In 2021, Kesko's comparable operating profit totaled EUR 775.5 million. Outlook for 2023. Kesko's net sales and operating profit are expected to remain at a good level also in 2023, despite the challenges in the company's operating environment.
The grocery trade market is expected to remain stable as a whole, in part supported by price inflation. Kesko is a strong operator in all areas of food trade. Consequently, operating profit is expected to remain at a good level despite rising costs. The construction market is expected to decrease somewhat compared to 2022. New building construction is expected to decrease, but renovation building and construction related to the green transition are expected to continue to grow.
B2B trade accounts for over 80% of the sales for Kesko's building and technical trade division. Good profit levels in building and technical trade are underpinned by the significant share of renovation building and the strong demand for products related to saving energy and the green transition. In the car trade market, the availability and demand for cars are expected to remain below their long-term average in 2023.
Despite the market situation, profitability in Kesko's car trade division is expected to remain at a good level thanks to the transformation and efficiency measures carried out.
Ladies and gentlemen, thank you.
Thank you, Mikko. Now it's time for questions.
We will first turn to the conference call line, but there's also a possibility to post questions using the chat function. When using the chat function, please note that there's a slight delay before we see the question. So just ask your question as soon as it pops into your mind.
Now conference call line, please.
Thank you. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. A voice prompt on the phone line will indicate when your line is open. Please state your name before posing your question. Again, press star one to ask a question.
We'll pause for just a moment to allow everyone an opportunity to signal for a question. We'll take the first question from our participant. Your line is open. Please go ahead.
Yes. Hello. This is Magnus Norman with.
I have a question first, yeah, on the grocery business in terms of historic patterns here where you had market share losses for the grocery business in times of economic weakness and how you regard that if we are now entering such a period. Also related to what you stated in the presentation about price comparisons, is there anything different you think that you would like to highlight this time around compared to historic patterns? Also perhaps if you can help us understand to what extent you are willing to take a leading position in price to protect your market share and position. Thank you.
Yes. All in all, we are very satisfied with how our grocery business and grocery division is performing. As you can see also from numbers, we have succeeded again very well even in a situation when market situation and whole business landscape is changing. You are right, we have lost some market share in consumer business. All in all, we can see that also in this current situation our store formats and concepts are performing well and we are doing a great job. At the same time, of course, important to recognize that on the B2B side we have gained heavily market share, meaning that all in all in Finnish food business our market share is pretty stable.
We are living also quite unusual situation at the moment in Finnish grocery business because especially Finnish cooperative, Finnish S Group has had in this year unusually many store openings and those new stores are little bit also disturbing this situation. Ari definitely is more than happy to open a little bit more this situation.
Yes. Thank you, Mikko. Currently we are investing heavily into the prices, but we are able to keep the margins good level because we can increase the share of the private brands, especially Pirkka the best choices of the Pirkka brand and K-Menu, and we can see development in that area. We have also just launched a new concept including premium and bargains for the consumers in the stores. That's something that customers seems to be very happy that under the same roof you can find the best bargains and also the best premium. We think it's gonna be very strong asset in the future.
Ari, as I mentioned,
Thank you.
Sorry. As I mentioned.
That.
Quite many new store openings made and completed by S Group. Maybe you can a little bit more open also that development.
We haven't opened any hypermarkets during the recent years, but they have been opened, if you calculate everything together, almost like 10, and during this year, 3. Because of that, we have been able to increase all the time sales per square meter and gross margin per square meter. It's actually the most important way to improve the results of the stores in the long term. It also keep us in very good position in the future that we are able to do investments in the future also.
We don't expect any more so many new store openings made by them in the coming years.
We are expecting it will be slowed down in the future.
Mm-hmm.
Once again, if you'd like to ask a question, please press star one. We'll take our next question from the next participant. Your line is open. Please go ahead.
Thanks so much. This is Fredrik Ivarsson from ABG Sundal Collier. Had a question on the outlook for the grocery market. You say you expect a stable market but positive food price inflation, implying that you assume that volumes will be down, if I read it correctly. Can you just confirm that and also talk around how you reason around your outlook?
Yes, you are right. Our expectation is that price inflation will continue, especially in Finnish market. We are a little bit behind other Europe in food price inflation, and expectation is that inflation continues end of this year and we will see definitely also still quite big inflation in the first half of 2023. As Ari explained, we are very confident that we are in strong and very good position to compete and succeed also in this current situation in B2C business. At the same time, we can see that on the B2B side, we will see strong development, market development also in future.
Of course, when we remember that at the same time when demand remains strong on B2B side, we are gaining heavily market share, meaning that the volumes are increasing, and we are very optimistic that this volume increase will continue also in on B2B side in future. Altogether means that outlook is positive in grocery business.
Thank you. A follow-up, as you mentioned, the B2B, I suppose you allude to Kespro, which has seen a very strong margin over the coming or last quarters, mid-single digits or so. Can you give us any clues on the margin development of Kespro in the Q3? Was it equally good as in Q2?
No. I can just underline that we are extremely happy how Kespro is performing and they are doing amazing job operationally, but also we are extremely happy that steadily Kespro gains so much market share. We are optimistic that this positive trend will continue also in future.
Okay. That's my questions. Thank you.
Frederick.
We'll take our next question. Your line is open. Please go ahead.
Hi. Good morning. This is Jutta Rahikainen from SEB. I was wondering about the building and technical trade now in the Q3 specifically. The EBIT was slightly, very little, but still slightly down. Could you describe what's happening there? Is it a certain geography or is it costs, volumes, something specific? Just to get a feeling on the kind of current trading momentum in that part of your business.
Yeah. Well, first, maybe I can start and underline that also building and technical trade very strong numbers and very strong development, thanks to situation that all businesses in building and technical trade division are performing well. Of course, because we have such a strong position in Northern Europe in B2B business.
When we look at building and technical trade numbers, those let's say disappointments are coming from Baltics joint venture, Kesko Senukai, mainly, I believe, due to very high cost inflation in Baltic countries, a little bit suffered and profitability declined in Kesko Senukai. That was this drawback. All other businesses succeeded very well. Due to that reason, we are optimistic that we will continue strong performance also in future.
Those numbers, Jutta, as Jukka knows much better, and he's more than happy to open a little bit more numbers. Jukka, please.
Yeah. Just to add a little. If you take out of the Kesko Senukai and the sporting goods business, which had really high comparatives last year, actually the margins were quite close to previous year. Onninen was especially strong with a really good sales growth, so there the margin even improved. In building and home improvement, then there the margin was a bit lower than last year. Altogether, very good, strong in the core operations there. Happy with the margin.
Okay. Thank you. If I can follow up on that, are you seeing in your Nordic home market any kind of cyclical slowdown signs? I know you describe yourself as late cyclical, and that's probably the case still. Are you seeing some kind of economic negative effects on your building and technical trade? Thinking about the B2B side specifically here.
As you mentioned, on B2B side, outlook is positive, and we are not worried, not at all. Difficulties there are in on B2C side, but as our stake on B2C is so small that we don't expect such a big negative impact coming from that. This decline on B2C side we have seen already, not just in Northern Europe, but European-wide. Jorma, maybe you can open a little bit more this current situation.
Yes. As it's forecasted that the volume will decrease, the total construction volume will decrease a little bit next year in all of those main markets. Important thing is that the share, the renovation will increase.
In our business, if you look for example, Finland, and whole total construction volume, new buildings is more than half of that business. In our business, in our figures, renovation is more than half. Now we expect that the renovation will increase. That's positive for us. The second thing is this green transition and those energy savings products, and the share of those products and those related products is quite remarkable in our figures.
As we know, total volume will go a little bit down, but renovation and green transition energy savings will go up, and our share on that business is quite big.
Exactly.
Okay. Thank you. I have one more question which is completely different. On your CapEx, and I'm looking into 2022 and 2023, what should we estimate? You probably don't have that much store openings, but then this one of the larger logistics investments, is kicking off. Could you provide us a ballpark for CapEx, this year, sorry, 2023 and why not also 2024? Thanks.
Yeah. Those CapEx numbers, we will open more definitely early February when we will publish 2022 numbers and when we will give more guidance for 2023. All in all, important to remember that we have growth strategy since 2015, and we have very systematically and successfully, I would like to say also, implemented our growth strategy.
Based on that, spent quite much money also to invest on growth. Definitely we continue implementation of this strategy, and we have done lot of investments. We have modernized the grocery stores. We have opened also some new stores, but not so much, especially in 2022.
We have made successful acquisitions, especially in building and technical trade as well as Suomen Lähikauppa, of course, was very successful. Lot of investments in digitalization on IT side, car trade, and we continue investments. I would like to remind that the current situation what we have in Europe in economy offers also interesting opportunities, and we are seeking and we are searching those opportunities very carefully also at the moment. We continue investments. Maybe Jukka, you can a little bit more open also in current situation our plans and ideas.
Yeah, sure. This year we have invested a bit more than last year and we'll continue investing into our store operations. Refurbishments and renewals is one of the key topics.
Otherwise, we of course during these times prioritize the CapEx very carefully, but at the same time, like you mentioned, the distribution center investments are then on the contrary increasing a bit of the CapEx. Not really too far from this year, I would say. But high prioritization, but then the certain distribution center CapEx is then adding the numbers upwards a bit, but not really too far from this year.
Okay. That's clear. Thank you. No further questions from me.
We'll take the next question. Your line is open. Please go ahead.
Yes. It's Magnus Norman with Kepler Cheuvreux back here again. I just wanted to follow up on building and technical. Did I understand you correctly that you would also say that in refurbishments and energy efficiency investments and those type of products, you typically render a higher margin than sort of new build related projects?
Well, I didn't mention it with margin, but the share of those green transition and energy saving related products, the share of those products is quite remarkable if we look our whole total sales. Also the margin is good on those ones.
Of course, quite often.
Yeah
Quite often when we look renovation projects, quite often are made and completed by small and medium-sized professionals and construction companies. When we look new buildings, quite often new buildings are made by big construction companies. Of course, both are important customers for us, but small and medium-sized companies, they are, let's say this way, different customers compared to big international construction companies.
That makes sense. That's helpful. That's an explanation factor here. Would you care to also elaborate on what you expect in terms of balance? You mentioned that you expect new builds of course to new build related activity to come down next year, but an increase in investment in refurbishments. The balance of which do you have any idea in your anticipation and your planning?
Yes. As Jorma mentioned already, green transition and renovation clearly we can see growing trend as well as energy saving. We can see clearly that especially when winter comes and people will receive those electricity bills, that will, we believe strongly, motivate even more people, but also companies, to make electric and energy-saving investments. Of course, that will support also our business everywhere in Northern Europe.
Great. I just have a final one on online. The Wolt collaboration here seems to have been very successful for you and your overall online is returning to positive growth here in the quarter.
Can you provide any insights into the magnitude here or the numbers into what share of your online is represented by these ultra-quick deliveries currently? Do you expect them to grow as a share of your total online? Also perhaps if you have any insights into the ability for you to pass on the cost for these deliveries to the end consumer. Is there a willingness to pay for this service? Thank you.
You mean in the grocery business, those fast deliveries?
Yeah, exactly. I'm talking about the fast deliveries in the online side in collaboration with Wolt.
Yeah. It's great, amazing development what we have in on that side. I can tell you that we are Ari, I dare say on behalf of you and myself, we are positively surprised how much we have together with Wolt increased those fast deliveries and how well we have succeeded to satisfy consumers, customers also on that side. Also big surprise that that demand is strong, not just in Helsinki capital area, but let's say everywhere in Finnish towns and cities. People are very eager to use those fast deliveries. Kesko-Wolt partnership is working extremely well. Our intention is now to expand this collaboration. Ari, maybe you can continue and open a little bit more.
Yes. Thank you, Mikko. By the end of the year, number of the stores will rise to be 160. In coming years, it will also be rising because demand from point of view of the customers is growing much faster than we expected. This is quite new business model. Thinking about in year 2019, we was visiting in autumn London, and we saw these kind of operators, and they was very proud that they are able to make deliveries within one hour. But we are currently in average able to make these deliveries in 26 minutes.
Think about all over 40 location all over the Finland and we can see that this is also great way to get new customers to visit also in the stores.
We are able to provide very wide assortment currently something like, 5,000 SKUs, and that is also driving the basket to grow in the future.
Also very important to stress that often also I hear that people are saying that nobody can make money in grocery online business. That is wrong. Again, I stress that online business is profitable for Kesko and also thanks to this cooperation with Wolt, also fast delivery online business is a profitable business for us.
Thank you. That's all for me.
Thank you, Magnus, and also Fredrik and Jutta.
Now we will turn to chat questions, since there are no further questions on conference call lines.
There's a question about car trade. What are your plans in car trade as availability seems to be difficult at the moment?
Matti Virtanen, definitely the right man to give answer for this tricky question.
Well, yeah. Thank you. Thank you for the good question. Of course, we are considering every day about that situation. If you first elaborate a little bit of the supply situation on the new cars, it looks like that it will continue completely next year. This question that you are raising is absolutely correct one. If you look at our position in Finland, we are number one in the new cars business, but then there are some other areas which are very significant in the car industry overall in Finland. We are not very well present. Of course, that area is one of the biggest areas is the used car business.
The used car business naturally has an impact also when the supply of new cars is not there. Our intention is to grow significantly in the used car business over the next months to go. If you look at our results over the last quarters, we have been continuing to grow faster than the market in the used car business, and our intention is definitely to keep on that growth.
There are also some other areas that we are planning to grow outside the new cars business. Naturally, this one investment, the investment or together with the building and construction in the new very efficient supply on the spare parts area is definitely another growth area we have in the car business.
Our really strategy is to expand our presence in all of the segments that we are not playing in the car business, and that will hopefully bring us into the growth path during the times when the supply of new cars is very limited over the next 18 months. That's what we assume.
Very good. Thank you. There's a question from Calle Loikkanen from Danske Bank asking, "The margin improvement in grocery trade, was this fully driven by Kespro, or did the grocery side improve as well?
Jukka maybe.
Yeah, sure.
You can open.
Yeah. Kespro was the main driver of the profitability improvement, but altogether we had a good progress on the profitability in other areas there as well. On the non-food side, we had a little bit decrease on the profitability, but altogether otherwise positive, so.
Strong performance on both sides.
Yep. Yep.
Very good. Laura Kukkonen from Helsingin Sanomat is asking, "What is your message to those Finns who struggle with the rising prices when you are at the same time, your profits are at the all-time high levels?
Definitely our strong message is that please visit K stores because K stores are everywhere in Finland, and definitely we are well prepared also today and future offer cheap products. Important to remember that we have very attractive private labels, but we can offer also branded products in good price. Today we can see clearly that also share of private labels is increasing. Many, many special offers. Ari Akseli, please continue and open again a little bit more what kind of things we have done and we will do to attract all Finnish consumers.
Yes, thank you for the good questions, and we will do our utmost to help customers to find low price SKUs in these difficult times. Currently we can actually show that customers are very active with this our marketing base that we have premium and bargains under the same roof, and we can see that, for example, price fighter series K-Menu sales has been increasing by 30%.
We just won the price competition which was done by Helsingin Sanomat. We had the lowest prices in K-Citymarket. We keep on doing that customers in these difficult times can find the best prices from K stores. But also in difficult times customers are looking how they can make their lives happier.
Many customers also prefer that you have opportunity to have premium choices and best ready meals and so on. We can see great development in both areas currently.
Thank you. That is our strategy.
Yeah.
Very well. That was it with the questions. Thank you, gentlemen.
We will have our Capital Markets Day on the seventh of December. We will further discuss with these topics. Please join the virtual or physical event on seventh of December. Otherwise, thank you.
Yes, thank you. Have a nice day.