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Review by the President and CEO

We continue our determined transformation

In 2017, Kesko and K Group continued on a strong growth path, focusing on our three strategic areas:  the grocery trade, the building and technical trade, and the car trade. Our good performance confirms that our decision to focus on quality, selections and services has been the right one.

  • Net sales grew in comparable terms by 1.8% and comparable operating profit rose to €297 million.
  • Net sales grew in all divisions and profitability improved compared to the year before.
  • Our determined strategy implementation towards becoming a more focused K Group continued with the divestment of the K-maatalous agricultural business, the Asko and Sotka furniture trade, and leisure machinery trade.

A strong year for the grocery trade

The integration of Suomen Lähikauppa and the resulting synergy benefits have been achieved sooner than anticipated. The last remaining Siwa and Valintatalo stores were converted into K-Markets, sporting the rebranded store look and concept, in the spring of 2017. All of the converted stores will be run by K-retailer entrepreneurs by summer 2018.

The expansion of our neighbourhood store network has led us to adopt a multi-store operating model, in which one retailer may run more than one store. The new model has proved a success and already more than half of all K-food stores operate under the multi-store model.

Our determined transformation efforts combined with the recovery in the Finnish economy and consumer purchasing power have resulted in significant growth in sales and customer numbers in all K-food store chains. K Group now has the most extensive and comprehensive network of food stores in Finland, and our grocery trade market share is at its highest in decades.

Our objective is to offer the most inspiring and customer-oriented stores in the market. K-retailers tailor their product selections and services individually to suit the needs of local customers based on their own customer insight and data obtained from the Plussa customer loyalty programme, complementing chain selections with, for example, food by local producers.

Kespro is the market leader in Foodservice wholesale in Finland. Kespro’s sales grew and profitability improved in 2017. Kespro’s strong development is underpinned by the robustly growing trend of eating out.

We have continued the systematic development of digital services and taken big steps in, for example, management by information and online food sales. We offer digital services that make shopping easier for our customers, while providing them with increasingly personalised benefits. 

We seek growth in the building and technical trade

Our building and technical trade division operates in eight countries, and our objective is to become an even more significant operator in Northern Europe. Although we have managed to improve our profitability, we are still behind the best sector companies in Europe. We are now strengthening the foundation for future success and value creation in the building and technical trade.

The acquisition of Onninen in 2016 has strengthened our B2B sales and market position in building and technical trade. Our building and home improvement store chains in various countries paired with Onninen’s expertise in technical wholesale create a unique service combination where the focus is increasingly on business customers.

As building and renovation become more technical and regulated, consumers increasingly prefer to outsource them to professionals. For consumers, we offer more comprehensive solutions, such as renovation projects with start-to-finish planning and execution, as well as sector-best digital services for support.

In the spring of 2017, we combined the K-Rauta and Rautia chains to form a new K-Rauta chain, which offers both business customers and consumers professional service that meets their needs. The new K-Rauta chain is the market leader in Finland, with the most comprehensive network of stores.

On 16 February 2018 we announced that we are to discontinue building and home improvement trade operations in Russia. Our investments in Russia have not met the objectives set for them, and expanding our operations in Russia would have required significant additional investments. The transaction will have a minor impact on Kesko’s net sales and operating profit, but it will significantly improve our return on capital employed. The ownership of the properties will transfer to the buyer during the first half of the year 2018.

Creating new business models for the car trade

Our collaboration and strategic partnership with the world’s leading car manufacturer, Volkswagen Group, became even tighter in 2017, as reflected, for example, in the acquisition and integration of the Porsche business in Finland.

The entire automotive sector and the concept of transport are undergoing a transformation, and therefore we need to be constantly developing our operating models, services and technologies. We are actively taking part in the sector development, and seek future growth especially from the service business, with a multichannel approach.

A good example is our Caara.fi concept, under which we offer services ranging from an online store to used car services and leasing for both businesses and private consumers.

Sustainability forms the foundation for our operations

Alongside financial factors, investors are increasingly taking into account aspects related to the environment, social responsibility and corporate governance (ESG) when making investment decisions.

Kesko is included in prestigious global sustainability indices, such as the DJSI World and DJSI Europe. In the autumn of 2017, Kesko received the A– score in CDP’s Climate questionnaire, and in January 2018 Kesko ranked 31st on the Global 100 Most Sustainable Corporations in the World list.

In 2017, we were the first Finnish company to set Science Based Targets for reducing emissions from our properties, transportation, and supply chains. To achieve these ambitious targets, we will increase the use of renewable energy and improve our energy efficiency. Since the beginning of 2017, all electricity purchased by Kesko in Finland has been renewable. We invest in solar power, and there are already over 20 solar plants located on the rooftops of K-stores.

Promoting the sustainable use of natural resources and circular economy is a central aspect of our responsibility programme. The rise of the circular economy affects operating models in the trading sector and creates opportunities for new product and service solutions. A good example of this is the biogas made from inedible biowaste collected from our stores and used as energy in the manufacture of new Pirkka products. We will continue to develop new solutions for circular economy, and to support the work, are currently in the process of creating a circular economy strategy.

Our mission is to create welfare responsibly for all our stakeholders and for all society. We want to engage in public discussion more actively and more prominently and develop new solutions. The Little Big Deeds model established by K-Retailers' Association and Kesko brings to public attention responsible deeds relevant to our customers, for example, a retailer creating a meeting place for lonely elderly people, or retailers making stores accessible to those with special needs.

In August 2017, we began a multi-year collaboration with the environmental organisation WWF Finland to save endangered migratory fish. We will map out areas in Finland to find obstacles blocking access to spawning grounds, and in a spirit of cooperation with landowners, local K-retailers and volunteers, make the spawning grounds once again accessible to fish.

Transformation requires agility

Our operating environment is undergoing major changes: new technology and global e-commerce are transforming the trading sector at an accelerating pace. We are already actively taking part in the transformation, but we must become notably faster at implementing new ideas and expanding into new fields.

Our future success requires close co-operation across organisational boundaries and agility in the face of change. The only way we can take K Group to the next level is by transforming ourselves and being as flexible and as digital as possible.

We are currently building new headquarters, K-Kampus, in Kalasatama in Helsinki. Once completed, in spring 2019 K-Kampus will bring together some 1,800 K Group people in the greater Helsinki region, and offer us innovative new premises and solutions for everyday work. We are encouraging our people to actively take part in the planning and implementation of these changes so we can create an agile, open and interactive workplace together.

I want to thank our personnel, K-retailers and stakeholders

I’m very happy with the spirit of co-operation we have at K Group. I want to thank all Kesko employees,
K-retailers and their staff, our shareholders, and our partners for the valuable work you have done towards our success.

 

Mikko Helander
President and CEO