kesko q4 roadshow material

Kesko Presentation November 2016Jukka Erlund

Kesko Q3/2016rolling 12 mo

• Net sales €9,582m

• Operating profit* €269m

• ROCE* 12.5%

• Personnel 30,000

• Shareholders 40,000

• Market capitalisation €4.4bn (Oct 31, 2016)

* comparable

2

K-Group Today

• K-Group’s pro forma sales €13.4bn

• Operations in nine countries

• Number of personnel around 45,000

• Third largest retailer in northern Europe

3

After the acquisition of Suomen Lähikauppa and Onninen

Kesko Operates in Three Divisions

4

Grocery trade Building and technicaltrade

Car trade

• Net sales €5.1bn

• Some 1,500 storesin Finland

• #2 in the Finnishretail market

• #1 in Finnish food service business


• Some 700 stores in 9 countries

• #1 in northern Europe


• Sole importer of VW, Audi, Seat and MAN trucks

• #1 in Finland

Q3/2016 Net Sales by Division

49%44%

7%

5

Grocery trade -0.5%*total change +16.7%

Building and technical trade +2.0%*total change +44.4%

Car trade +11.2%

* in local currencies excl. acquisitions

Operations in Nine CountriesRetail sales 2015, € million, (excl. Suomen Lähikauppa and Onninen)

GDP growth, 2016e, %(Source: IMF)

Finland 8,927 0.9Sweden 209 3.6Norway 664 0.8Estonia 136 1.5Latvia 90 2.5Lithuania 366 2.6Russia 311 -0.8Poland 3.1Belarus 116 -3.0

6

Growth Strategy

• Growth of the grocery trade particularly in Finland

• Growth of the building and technical trade in Europe

• Growth of the car trade particularly in Finland

7

7

Maximising Value Creation Also in Other Businesses

• Furniture trade (Finland and Estonia)

• Agricultural trade (Finland)

• Machinery trade (Finland and the Baltic countries)

• Sports trade (Finland)

• Shoe trade (Finland)

• Total revenue some €1bn

• Strong market shares and ROCE

8

Real estate arrangementDivestment

of Anttila

Kesko Senukai arrangement in the Baltic countries

Acquisition of Suomen Lähikauppa

Acquisition of Onninen

Strategy Implementation is Progressing

9

One unified

Divestmentof K-ruoka, Russia

Acquisition of AutoCarrera

Net Sales on Strong GrowthNet sales performance, Q/Q

-10

-5

0

5

10

15

20

25

30

2012 2013 2014 2015 2016

10

%

Grocery trade

Kesko’s Grocery Trade

12

77 %

7 %

14 %2 %

Finland SLK Kespro Russia

* comparable

Total market €16.6bn in 2015

Net sales €5,063m

Operating profit* €178m

Operating margin* 3.5%

ROCE* 21.9%

Q4/2015-Q3/2016

Net sales Q4/15-Q3/16

Retail Stores

Sales 2015€ million, VAT 0%

Number of stores at 31.12.2015 Concept

1,505+575 81 Hypermarket

1,716 219 Supermarket

1,189 476 Neighbourhood store

Siwa and Valintatalo stores 936 600 Neighbourhood store

Others 122 108 Incl. online store

13

Strong Position in the Finnish Grocery Trade Market

14

• The leading quality actor in the Finnish grocery trade and food service wholesale market

• Acquisition of Suomen Lähikauppa has significantly increased net sales and strengthened market share, which is expected to settle down to a range of 37-38%

• Good profitability due to strong market position, enhancement actions taken and synergies resulting from the acquisition of Suomen Lähikauppa

• Divestment of Russian operations will further improve profitability and cash flow

K-Group 32.7%S-Group 45.9%Lidl 8.3%Suomen Lähikauppa 6.4%Others 6.7%

Total market €16.6 billion in 2015

Source: Nielsen

Megatrends Affecting Grocery Trade

15

Ageing population

Urbanisation and increase of single

households

Individuality High qualityexpectations

and priceawareness

Responsibility, ethicality and

environmentalaspects

Digitalisation

Direction in Grocery Trade

• Most customer driven and inspirational food retailer

• Renewing concepts, brand and marketing

• Best digital services

• Staying as one of the most profitable retailers in Europe

• Maintaining profitable growth

16

Good Progress in Integration of Suomen Lähikauppa

• Conversion of Siwa and Valintatalo stores into K-Markets is progressing rapidly

• Customer visits and sales have increased markedly

• The stores’ price level is much more competitive and selections more attractive

• Purchasing and logistical operations fully integrated by spring 2017

• Transferring the stores to retailers is progressing

• Due to good progress, we are targeting annual synergies above €30m at 2018

17

Kesko to Dispose of Its Russian Grocery Trade to Lenta

• On 26.10.2016, Kesko Food Russia Holding Oy signed an agreement to dispose of its grocery trade business in Russia to Lenta Ltd

• Lenta is the largest hypermarket chain in Russia in terms of selling space and the country’s fifth largest retail chain in terms of 2015 sales

• Aggregate consideration for the disposal is approximately RUB 11 billion (approximately €158m)

• Kesko Corporation will record a non-recurring expense of approximately €69 million on the disposal

• Growth of grocery trade in Russia would have required significant capital expenditures

• The disposal includes 11 food stores operating in the St. Petersburg and Leningradskiy regions, three land plots in the Moscow and Leningradskiy regions, as well as administrative and support functions

• The disposal is yet subject to the approval of the Russian competition authority, FAS

• The disposal is estimated to be completed on November 30, 2016

18

Building and technical trade

Building and Technical Trade Division

20

Sports trade

Furniture trade

Building and technical trade business

Agricultural and machinery trade

* comparable

Q4/15 - Q3/16

Net sales €3,715m



ROCE* 10.0%

Q4/2015-Q3/2016Retail sales (pro forma)

20

B2B 60%

retail sales (pro forma),excl. speciality goods trade

Building and Technical Trade

21

Belarus 2% Russia 4%

Finland 45%

Sweden 10%

Baltics 12%

21

Norway 22%

Poland 5%€4,436m

B2C 40%

Sales by customer segments

retail sales (pro forma),excl. speciality goods trade

Sales by country

21

• Largest customer groups are contractors and construction companies, 80% of sales

• Building materials, HEPAC* and electricals accountfor 75% of sales

* HEPAC=heating, plumming and air conditioning

• Renovators or builders with a DIY project

• Consumers with a need for a special DIY product

• Main product lines are building materials, home furnishing, decoration and tools

22

B2B Customers B2C Customers

Megatrends Drive B2B Growth

Building and renovation increasingly technical, regulation increases

Consumers increasingly often outsource building to professionals

Growing need for renovation building

Rising standard of living and ageing of population increase the use of services

23

Direction in Building and Technical Trade

• A unified building and technical trade – harvesting synergies

• Better services and synergies from sourcing, logistics, store site network and ICT

• Full annual impact of synergies from Onninen acquisition€30m from 2020

• Best digital services for all customer segments

• Profitability towards the level of the best European performers

• Prioritising profitability and organic growth

• The most natural growth areas are Nordic and Baltic countries

24

Operations in 9 Countries

• K-rauta and Onninen clear #1 in Finland

• Sweden as the biggest market in Nordics offers promising growth opportunities

• Byggmakker #2 in Norway and Onninen strong in electricals

• Kesko Senukai #1 in Baltics and Belarus

• K-rauta has strong presence in St. Petersburg and Moscow

• Onninen well positioned in Poland

25

0 10 20 30 40

Belarus

Russia

Poland

Lithuania

Latvia

Estonia

Norway

Sweden

Finland

Market share 2015

%

Car trade

Car Trade

27

Net sales €805m



Return on capital employed* 22.0%

* comparable

Q4/2015-Q3/201629 %

14 %

9 %

48 %

New car retailing Used car retailing

After sales retailing Importing / sales to dealers

Car Trade and Finnish Car Market

• The fast changes in car industry offer newbusiness opportunities

• Deepening cooperation with VW AG

• Kesko car trade market share app. 20%

• High market share ensures well-performing after sales

• Profitable growth from used car sales, including e-commerce

28

Volkswagen 11.1%

Toyota 10.7%

Skoda 9.5%

Ford 8.3%

Nissan 6.4%

Kia 6.3%

Opel 6.2%

Audi 5.1%

Seat 1.9%

Others 34.5%

1-10/2016

First registrations, passenger cars1-10/16, market growth 10.8%

Kesko to acquire AutoCarrera - Porsche representationtransfers to VV-Auto• On 14.11.2016 VV-Auto Group Oy signed an agreement to acquire Oy Autocarrera Ab, the company

being responsible for importing and retailing Porsche in Finland

• 2015 net sales of the business being acquired were €49 million and the operating profit was €3.3 million

• The acquisition expands VV-Auto's cooperation with Volkswagen AG

• The addition of Porsche to the selection will increase sales and improve car trade profitability

• Acquisition price, structured as a share purchase, is app. €27 million

• The completion of the acquisition is subject to the approval of the competition authorities and the fulfilment of the other terms and conditions of the transaction. The acquisition is estimated to be completed within the year 2016

29

Financials

31

Net sales growthOperating profit*Operating margin %*

Net debt / EBITDA*Return on capital employed*Return on equity*

* comparable

+9.1%€269m

2.8%target

0.8 <2.512.5% 14%10.1% 12%

Kesko Key Figures 9/201612 month rolling

Net Sales by QuarterQ3 growth 26.7%, in local currencies excl. acquisitions 1.1%

32

3,000

2,000

500

2,500

1,500

0

1,000

Q2Q1

2,013

2,3712,227

2,610

2,304

Q4

2,203

Q3

2,792

2,2672,1662,129 2,082

20162014 2015€m

Operating Margin – Targeting Further Growth

3.4

2.3

1.8

3.12.9

2.42.6 2.6

2.8 2.8

0

1

2

3

4

0

50

100

150

200

250

300

350

400

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

Comparable operating profit Comparable operating margin

33

* 2016 rolling 12 mo

€m %

Operating Profitcomparable, by quarter

34

19

68

84

62

27

7682

59

32

79

98

0

20

40

60

80

100

Q4Q3Q2Q1

20162014 2015€m

Operating Margin in Divisions – Potential for Further Growth

3.5

2.4

3.2

0

1

2

3

4

Grocery trade Building and technical trade Car trade

35

%

rolling 12 mo

Successfully Executing €50m Efficiency Program

643

557

86

221

131

Personnel costs

Rents and store site costs

ICT costs

Marketing and loyalty costs

Other costs

36

Total €1,638 million

Rolling 12 mo, € million*Main sources of the savings• Personnel efficiency• ICT costs• Marketing costs• Rents and store site costs

Majority of the actionscompleted – full impact 2017

Fixed cost base

* comparable

Enhancing Cash Flow Generation• Further growth in net sales and operating margin in strategic growth areas

• Synergy benefits

• Suomen Lähikauppa progressed better than expected, full annual impact above €30m from 2018

• Onninen progressed as expected, full annual impact of €30m from 2020

• Executing the €50m cost savings program

• Annual capex level below €200m after 2017 (excl. acquisitions)

• In grocery trade less store site capex needs after 2017

• Reduced capex per store need in building and technical trade

• Target to improve NWC efficiency by €50m

• Potential further business and real estate divestments

37

Annual Capex Level Below €200m After 2017 (Excl. Acquisitions)

38

0

50

100

150

200

250

300

350

400

450

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Capital expenditure in store sites Acquisitions Other capital expenditure

€m

Steady Growth in ROCEcomparable

39

14.7

10.2

7.4

14.013.1

9.09.8 9.9

11.712.5

0

4

8

12

16

2007 2008 2009 2010 2011 2012 2013 2014 2015 9/2016*

%Target

14%

Improving profitability

Real estate transaction2015

Anttila & IntersportRussia divestment

Further improvementfrom Kesko Food Russia divestment

* 9/2016 rolling 12 mo

21.9

10.0

22.0

12.5

0

10

20

30

40

Group totalBuilding and technical trade

Grocery trade Car trade

%

ROCE by Divisioncomparable, rolling 12 mo

40

Strong Financial Position

41

30.9.2016 30.9.2015

Equity ratio, % 47.9 54.2

Liquid assets, €m 245 858

Interest-bearing net debt, €m 299 -394

Cash flow from operating activities, Q3, €m 80 86

Cash flow from investing activities, Q3, €m -48 -46

Aim to Continue Good Dividend Yield

2.2

1.4

0.7

1.8 1.8

1.51.7 1.6 1.7

2.1

1.6

1.0 0.9

1.3 1.2 1.21.4 1.5

2.5

0

1

2

3

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

Comparable EPS DPS

42

€

Kesko Corporation distributes at least 50% of its comparable earnings per share as dividends, taking however the company's financial position and operating strategy into account.

*9/2016 rolling 12 mo

Real Estate in 2015

Owned properties bycountry Area, 1,000 m2

Finland 540

Other Nordic countries 66

Baltic countries and Belarus 109

Russia 191

TotalCarrying amount

906€1,107m

Leased properties total1,000 m2 2,951

4343

Classification

Strategic properties 64%

Standard properties 26%

Development properties 9%

Realisation properties 1%

Shareholders 9/2016

The largest registered shareholders by number of sharesNumber of shares %

1 K-retailers´ Association 3,981,644 3.98

2 Vähittäiskaupan Takaus Oy 3,491,771 3.49

3 Kruunuvuoren Satama Oy 3,438,885 3.44

4 Ilmarinen Mutual Pension Insurance Company 1,990,632 1.99

5 Valluga-sijoitus Oy 1,340,439 1.34

6 Foundation for Vocational Training in the Retail Trade 1,144,158 1.14

7 Varma Mutual Pension Insurance Company 1,130,986 1.13

8 Oy The English Tearoom Ab 1,000,000 1.00

9 The State Pension Fund 950,000 0.95

10 Elo Pension Company 896,968 0.90

44

Foreign ownership of B shares 45%

Market situation and outlook

0

2

4

6

8

10

12

14

16

1/00

7/00 1/01

7/01

1/02

7/02

1/03

7/03

1/04

7/04

1/05

7/05

1/06

7/06

1/07

7/07

1/08

7/08

1/09

7/09 1/10

7/10 1/11

7/11

1/12

7/12

1/13

7/13

1/14

7/14

1/15

7/15

1/16

7/16

Expectations for own finances

Expectation, 21st century average

Consumer Confidence in Finland

46

Source: Statistics Finland

Retail trade trends in operating countriesrolling 3 mo

47

Source: Eurostat, excl. motor vehicles and fuels

% (r

ollin

g3

mo)

- 4,0

- 2,0

0,0

2,0

4,0

6,0

8,0

10,0

1/2015 2/2015 3/2015 4/2015 5/2015 6/2015 7/2015 8/2015 9/2015 10/2015 11/2015 12/2015 1/2016 2/2016 3/2016 4/2016 5/2016 6/2016 7/2016 8/2016 9/2016 latestmonth

Estonia

Lithuania

Norway

Finland

Latvia

Sweden

Outlook

Estimates for the outlook of Kesko Group's net sales and comparable operating profit are given for the 12-month period following the reporting period (10/2016-9/2017) in comparison with the 12 months preceding the end of the reporting period (10/2015-9/2016).

The general economic situation and the expected trend in consumer demand vary in Kesko’s different operating countries. In Finland, owing to the weak trend in consumers’ purchasing power, the trading sector’s growth is expected to remain slow. In the Finnish grocery trade, intense competition is expected to continue. The market for the Finnish building and technical trade is expected to improve slightly. In Sweden and Norway, the market is expected to grow but at a somewhat slower rate. The trend in the Russian market is expected to remain modest. In the Baltic countries, the market is expected to grow.

Kesko Group's net sales for the next 12 months are expected to exceed the level of the preceding 12 months. The comparable operating profit for the next 12-month period is expected to exceed the level of the preceding 12 months.

48

The World’s Most Sustainable Retail Operator

Davos, January 2015 and 2016:’The Global 100 Most SustainableCorporations in the World’ list.

50

Kesko Is the Most Responsible Food and Staples Retailer in the World

• In 2015, Kesko was in CDP’s Climate A List for the first time

• At the top of the Nordic Climate Disclosure Leadership climate index since 2011. In 2015, Kesko was

awarded the full 100 points

• In ’The Global 100 Most Sustainable Corporations in the World’ list since 2005

• Included in the FTSE4Good index since 2009

• Included in the STOXX Global ESG Leaders index family since 2011

• Included in the Dow Jones sustainability indexes DJSI World and DJSI Europe 2003-2014

50

Interim reportQ3 201626 October 2016Mikko Helander

Q3 Highlights

• Kesko’s net sales increased by 27%, comparable growth 1.1%

• Comparable operating profit increased to €98.2 million (€82.5 million)

• Return on capital employed 12.5% (11.3%)

• In the grocery trade, good profitability, integration of Suomen Lähikauppa has progressed well

• In the building and technical trade, market share continued to strengthen. Onninen increased theoperating profit of the building and technical trade

• In the car trade, sales increased markedly and profitability improved

52

Key performance indicators

53

Q3/2016 Q3/2015 Q1-Q3/2016 Q1-Q3/2015

Net sales, €m 2,792 2,203 7,415 6,513

Operating profit*, €m 98.2 82.5 209.6 185.3

Operating margin*, % 3.5 3.7 2.8 2.8

Profit before tax*, €m 97.5 78.2 211.2 177.3

Earnings per share*, € 0.73 0.53 1.59 1.24

Return on capital employed*, %, rolling 12 mo 12.5 11.3

Return on equity*, %, rolling 12 mo 10.1 8.0

* comparable

Q3 grocery trade

• K-Group’s grocery sales +17.3%,Suomen Lähikauppa excluded, +0.7%

• Profitability is good and operating profit strengthened due to synergies andenhancement actions taken

• Change in grocery market prices around -0.5%

• 130 Siwa and Valintatalo stores already converted into K-Markets. Their sales have changed by +9% compared to pre-conversion sales

54

Net sales, grocery tradeQ3 growth 16.7%

55

2,500

2,000

500

0

1,500

1,000

4,000

3,500

3,000

3,424

Q3/2016

1,367

Q3/2015

1,171

Q1-Q3/2016

3,814

Q1-Q3/2015

€m

Operating profit, grocery tradecomparable

56

0

20

40

60

80

100

120

140

Q1-Q3/2016

124.0

Q1-Q3/2015

123.0

Q3/2016

49.2

Q3/2015

44.8

€m

Q3 building and technical trade

• Net sales growth 44.4%, in local currencies, excluding Onninen, 2.0%

• Market share of Kesko’s building and technical tradestrengthened further

• Strong growth in B2B trade continued

• Operating profit of the building and home improvement stores in Sweden turned positive

• Positive profit performance in the agricultural and machinery trade, the sports trade and the furnituretrade

57

Net sales, building and technical tradeQ3 growth 44.4%, in local currencies excl. acquisitions 2.0%

58

8571,000

2,500

2,000

1,500

3,000

500

0Q1-Q3/2016

2,979

Q1-Q3/2015

2,514

Q3/2016

1,238

Q3/2015

M€

Operating profit, building and technical tradecomparable

59

0

20

40

60

80

100

Q1-Q3/2016

83.5

Q1-Q3/2015

56.1

Q3/2016

45.3

Q3/2015

35.8

€m

Q3 car trade

• Car trade net sales growth 11.2%. Total car trade market increased markedly

• Profitability remained at a good level,operating profit €6.8 million

• First registrations of Volkswagen passenger cars increased by 1.5%, those of Seat by 32.7% and those of Audi by 8.2% in January-September

• Trade-in car trade increased by 20%. Strong start for the new Caara.fi online store

• Order book growth 11%

60

Net sales, car tradeQ3 growth +11.2%

61

628

571

190170

0

250

500

750

Q3/2015 Q1-Q3/2016Q1-Q3/2015Q3/2016

€m

Operating profit, car tradecomparable

62

0

10

20

30

Q1-Q3/2016

22.0

Q1-Q3/2015

22.3

Q3/2016

6.8

Q3/2015

6.0

€m

Special focus areas• The most inspiring food stores in the market

• Extensive neighbourhood market renewal and renewal of the K-citymarket chain

• Integration of Suomen Lähikauppa and achievement of synergies

• Fast digitalisation of customer experience: food online store and other digital services

• Increasing building and technical B2C and B2B trade in all markets

• Combining K-rauta and Rautia into a new K-rauta in Finland

• Further improve financial performance in Sweden, Poland and Norway

• Continue profitable growth in Baltics and Belarus

• Creation of new building and technical trade entity and achievement of synergies

• New generation online stores for B2B and B2C customers

63

Special focus areas

• Fast expansion of Caara online dealership service in the car trade

• Reduction of unit costs and further improvement of efficiency

• Total reform of marketing

• Improving marketing effectiveness

• Management by data and increasing targeted marketing

• Building a single unified K-brand and identity

64

65

Main changes:

• Separate guides for personneland business partners

• K Code of Conductambassadors in all operating countries

• SpeakUp reporting channel

[email protected]

www.kesko.fi/investor

Twitter.com/Kesko_IR

Contact information