Kesko Oyj ($KESKOB)

Dear all, warmly welcome virtually to Helsinki, and thank you for tuning in for Kesko's Q1 2026 Release Call. Strong sales and profit in all divisions is our headline. So a good start for the year despite turbulent times. We have the familiar agenda. First, President and CEO, Jorma Rauhala, will give the presentation. After the presentation, we are happy to take questions from you. We have here with us our business division presidents, Ari Akseli for grocery trade; Sami Kiiski for building and technical trade; Johanna Ali for car trade; as well as CFO, Anu Hamalainen. The questions can be asked both by phone and via chat function after the presentation. All the materials related to the quarter can be found at our web page, kesko.fi, under Investors. My name is Hanna Jaakkola. I'm responsible for IR at Kesko. I will be happy to have a discussion and answer your follow-up questions after the presentation. But now, without further ado, Jorma, the virtual stage is yours, please.

Thank you, Hanna. Ladies and gentlemen, welcome also on my behalf to this release call. I am Jorma Rauhala, and I have now the pleasure to present Kesko's Q1 results. Strong sales and profit in all divisions is our headline. In grocery trade and in building and technical trade, sales and profits improved. In car trade, sales grew, but operating profit declined a bit. But now I will give an overview of our business performance and open up elements behind the results. After the presentation, we are ready for the Q&A. Summary of the first quarter in '26. Kesko's comparable operating profit improved. Net sales grew in all divisions. In grocery trade, K Group stores gained market share. Profitability was strong despite investments. In building and technical trade, comparable operating profit increased, even though the market remained challenging. In car trade, our market position improved. Sales growth was strong, especially in used cars. Operating profit decreased slightly. The current situation in the Middle East did not have a significant impact on Kesko's operations in Q1, but a prolonged conflict could weaken consumer confidence and purchasing power. Overall, the first quarter performance was in line with our expectations. We repeat our guidance for 2026 and expect the comparable operating profit to amount to EUR 650 million to EUR 750 million. Net sales in Q1 totaled over EUR 3 billion. It was up by EUR 201 million. Net sales increased in all businesses. Rolling 12 months net sales increased to nearly EUR 12.7 billion. In Q1, comparable operating profit was EUR 102 million, and operating margin was 3.4%. Comparable operating profit increased in grocery trade and in building and technical trade and decreased in car trade. Rolling 12 months operating profit was EUR 661.4 million, and operating margin was 5.2%. Return on capital employed was 10.2%. In building and technical trade, return on capital employed was at the same level as in 2025. It decreased in grocery trade and in car trade compared to the year-end. Financial position. Cash flow from operating activities was at a good level at EUR 78 million. It strengthened significantly, especially thanks to effective working capital management. Capital expenditure totaled EUR 113.5 million. I'll open up investments on the next page. Interest-bearing net debt increased year-on-year as a result of investments in acquisitions, logistics and grocery trade store site network. Net debt-to-EBITDA was 1.9x, well below our maximum target of 2.5x. Capital expenditure totaled EUR 113.5 million. We continued the investments to strengthen our grocery trade network and the main CapEx in Q1 were store site net investments. For example, during the quarter, we opened a new hypermarket in Kivistö, Vantaa, in Helsinki metropolitan area. Other investments include investments in, for example, the leasing car fleet. Expenses. Expenses increased mainly due to acquisitions. Approximately half of the increase in expenses came from the Danish acquisitions. Despite increased cost, the cost ratio improved. The big topic in the market and media is now the war in Iran. Let's look at the potential impacts of the Middle Eastern conflict on Kesko in the second quarter. It is impossible to estimate further as the situation may change rapidly. In the short term, there are no significant impacts on our businesses. But if the crisis prolongs, it could weaken consumer confidence, purchase power and corporate investments, and increase costs. In Q2, for grocery trade, rise in cost of freight, both purchasing freights to the warehouse and delivery freights from the warehouse to the stores and customers. No significant impact on food prices in Q2, but a prolonged situation would have a cost impact on agriculture and the whole food chain. In Q2, for building and technical trade, rise in costs of purchasing freights and delivery freights, rise in the prices in particular of oil-based products like pipes, cables and insulation products. For car trade during current quarter, rise in fuel prices could have a positive impact on demand for electric cars. Demand may also focus especially on used cars. Now to grocery trade. We gained market share and result was strong. In Q1, net sales totaled nearly EUR 1.6 billion and increased by EUR 72 million. Sales to the K-food stores chains increased by 6.2%. Kespro's foodservice business net sales declined by 0.6%. Rolling 12 months net sales totaled over EUR 6.5 billion. In grocery trade, comparable operating profit for Q1 was EUR 78.4 million, and it increased by EUR 5.6 million. Profitability was 5%. Kespro's operating profit declined by EUR 1 million. Rolling 12 months operating profit was EUR 423.7 million and operating margin was the same as last year, 6.5%. As said, grocery trade net sales increased and comparable operating profit improved. Most of the Easter wholesales took place in March since the Easter was in early April. Last year, the Easter sales was entirely in April. In Q1, total grocery market grew up by approximately 2.9%. K Group grocery sales were up by 4.4%. K Group grocery stores gained market share in Q1. Customer flows and average purchase continue to grow. Also, customer satisfaction was clearly up in all our grocery store chains. Kespro's net sales were down by 0.6%, but Kespro gained market share in Q1. K-Citymarket non-food sales were up by 4.4%. Online grocery sales were up by 10.5% and online sales accounted for 4.6% of K Group's grocery sales. Grocery price inflation in Finland was approximately 1.5%. Price development in K Group stores was up by only 1%, especially thanks to our price program. Demand for quality products and services increased in our grocery stores. In the grocery trade, long-term strategic investments in quality, price and store site network are delivering results. For the first time since the pandemic, we saw growth in the grocery trade across all 3 fronts. Sales increased, operating profit improved and market share strengthened. Our target in grocery trade is to strengthen market share while maintaining good profitability, clearly above 6%. Market share development for K Group grocery stores turned in summer 2025 and positive progress has continued in 2026. As you can see in the graph, the market share gain in Q1 was 0.5 percentage points. All our store chains won our market share in Q1 in their size segments. The good performance is thanks to the investments in quality, price and the store site network. In 2025, the net impact was clearly negative. Net impact in 2026 is expected to be neutral. In building and technical trade, sales grew and result improved. In building and technical trade, net sales increased by EUR 114 million to over EUR 1.1 billion. The increase was supported by the Danish acquisitions. Net sales improved in comparable terms by 4.2%. In comparable terms, technical trade net sales increased by 5.3% and building and home improvement trade net sales increased by 3.3%. Rolling 12 months net sales were EUR 4.8 billion. Comparable operating profit for the building and technical trade division totaled EUR 14.5 million and operating margin was 1.3%. Operating profit increased by EUR 2.8 million. Rolling 12 months operating profit was EUR 181.4 million and operating margin was 3.8%. In technical trade, comparable operating profit increased in all operating countries. In building and technical trade, net sales increased and profit improved. Sales margin also improved. Market demand continued to be muted, especially in new residential construction. There is a pickup in construction activity in Finland, for example, in infrastructure construction, industrial projects and data centers. In Finland, in technical trade, Onninen sales grew and profit improved clearly. Growth was supported by strengthening market share. In building and home improvement trade in Finland, K-Rauta sales grew slightly and profit was at a good level. In Norway, sales for Byggmakker and Onninen were close to last year's levels. Onninen's profit improved while Byggmakker's decreased. In Denmark, Davidsen sales increased and profit improved. Exceptionally cold winter impacted negatively Davidsen sales in January, February. In Sweden, K-Bygg sales growth was strong and also profit improved. In Poland and the Baltic countries, Onninen sales growth was strong and profit improved. Retail and B2B sales for K-Rauta and Onninen, Finland, is shown in this graph. Onninen's Q1 sales increased clearly by 11%, while competitor sales development was negative 1.5%. This is a great achievement and proof of active sales work in this muted market. In Onninen, Finland, also prices increased for the first time since June 2023. In Q1, prices increased by 0.3%. K-Rauta sales decreased by 1.4% in Q1 and competitor sales decreased by 0.6%. Good to note that in comparison period, sales development was strong. In car trade, good sales development was driven by used cars. In car trade, net sales for Q1 increased by EUR 17 million to EUR 331 million. Net sales increased in used cars, services and sports trade, but decreased in new cars. Rolling 12 months net sales were nearly EUR 1.4 billion. The comparable operating profit totaled EUR 16.1 million and decreased by EUR 1.8 million year-on-year. Operating margin was 4.9%. Rolling 12 months operating profit was EUR 81.3 million and operating margin was 5.9%. In car trade, net sales increased, comparable operating profit decreased due to the increase in the share of used car sales. In used cars, sales margins are lower than in new cars. Market demand for new cars continue to be muted. Q1 first registration of passenger cars and vans increased by 0.1%. First registration of brands represented by Kesko increased by 1.5% in Q1. The order book for new cars has strengthened clearly, especially in March, and the current order book is expected to convert into sales over the next 6 months. Used car sales from dealerships were up by 1.1% in Finland. Used car sales in K-Auto were up by 18%. Also, service sales in car trade increased. In sports trade, net sales and comparable operating profit increased, also market share grew stronger. To highlight some of the latest new electric car models from K-Auto, this brings new launches to include the CUPRA RAVAL and Volkswagen ID. Polo. Cars in these lower price segments have been long awaited as they open up an entirely new price category for us. Sales of ID. Polo begin today. And now profit guidance and outlook. Profit guidance stays intact. Kesko Group's profit guidance is given for the year 2026 in comparison with the year 2025. Kesko's operating environment is estimated to improve in 2026, but to still remain somewhat challenging. Kesko's comparable operating profit is estimated to improve in 2026. Kesko estimates that its 2026 comparable operating profit will amount to EUR 650 million to EUR 750 million. Key uncertainties impacting Kesko's outlook are developments in consumer confidence and investment appetite as well as geopolitical crisis and tensions. The operating environment for Kesko is estimated to improve in 2026 in all divisions and all operating countries. Kesko's net sales and comparable operating profit are also estimated to improve in 2026 in all divisions and all operating countries. In grocery trade, B2C trade is estimated to pick up and the foodservice business to remain stable. In 2026, the comparable operating profit margin for the grocery trade division is estimated to stay clearly above 6% despite the investments in price and the store site network. The comparable operating profit for the grocery trade division is estimated to improve in 2026 compared to 2025. In building and technical trade, the cycle is expected to improve moderately in 2026 from an exceptionally low level. The comparable operating result for the building and technical trade division is estimated to improve in 2026 compared to 2025 in all Kesko operating countries. In the car trade market, new car sales are expected to remain muted compared to long-term levels, but to nonetheless grow compared to 2025. The comparable operating profit for Kesko's car trade division is estimated to improve in 2026 compared to 2025. To summarize the first quarter and the presentation. Kesko's net sales grew and profit improved, an excellent performance in a turbulent operating environment. Strategic actions are yielding results in grocery trade, growth seen on all fronts for the first time since the pandemic. Net sales increased, profit improved and market share grew. In building and technical trade, net sales and comparable operating profit improved in all operating countries except Norway. Good sales development in car trade, driven by used car sales, strong order book in new cars, an excellent quarter for sports trade. We estimate that Kesko's operating environment, net sales and comparable operating profit will improve in 2026 despite global turbulence. Thank you. This was my presentation. I guess it's time for questions now.

Thank you, Jorma, for your presentation. And now it's time for questions. We will first turn to the conference call line, but you can also post questions using the chat function. And there is a slight delay, so please type your question as soon as it pops up into your mind. But now conference call line, please?

[Operator Instructions] The next question comes from Fredrik Ivarsson from ABG Sundal Collier.

I have 2 questions. First, I want to come back to what you said regarding the market expectation in Finnish grocery. You said you expect B2C trade to pick up. And I wonder if you could sort of clarify exactly what you mean with this statement. Do you expect the growth rate from 3.9%, I think it was -- or sorry, 2.9%, to pick up in the coming quarters? Or do you expect volumes to grow more? Or yes, if you could give some more color on that statement first. That's my first question.

Okay. Thank you for your question. And I think that all in all, if we look at the situation what we have in Finland, we know that consumer confidence is very low, and we can see that consumers are not so willing to buy, for example, a new house or a new car or things like that. And also, they are not using so much money on restaurants. But what we can see is that they use maybe a little bit more money in the grocery stores. And like I said, maybe not going to restaurants, maybe not buying a car, but let's eat a little bit better. I think that's the reason that we can see and we believe that the consumer grocery market will be a little bit stronger.

To add a little bit, yes, in outlook for 2026, we are comparing to last year. So last year was quite muted, especially in the beginning of the year for grocery trade. So the volumes picked up H2 last year in the grocery business.

Yes. Excellent. And second question, I wonder if you could give a stab on your assessment on the calendar impact to the margin in grocery trade, obviously, had a little positive impact from the early Easter.

Okay. Yes, we know that early Easter this year, and last year, it was entirely in April. But Ari, maybe you can a little bit open this Easter situation.

Yes. Thank you for the question. And I think the biggest impact was for the sales side, especially in the wholesale side. And in Easter time, people usually buy a little bit more expensive food. For example, share of the lamb is a good example about that. And we can see some effect for the Easter, but it's very difficult to estimate it by gross margin side, what is the exact effect for that, especially in the sales side and maybe a little bit more expensive products.

Yes. I appreciate it. It's a tough assessment to make. And maybe if I could sneak in a last question. If you could comment on the sort of current trading within the BTT market as of now? I guess, spring has come and the market is sort of seasonally picking up after the winter. So what you see currently in the market?

Yes, good question. Of course, we can see it. If you look at the first quarter in all our countries, when it comes to building and technical trade, we saw that January and February was kind of extremely cold weather. Especially in Denmark, it was the coldest weather in 16 years. But then March already was a little bit better. And we see some -- I would say that the trend has continued. When it comes to April, we still have a couple of days left. But especially, I would say the technical trade has been quite strong in all countries. And of course, warm and early spring helps a little bit also that we can see that, for example, people are going to the summer cottage and doing some gardening and maybe some renovation. But not any big change, but not any negative, I would say, so when it comes to building and technical trade and all in all, our customers behaving.

The next question comes from Miika Ihamaki from DNB Carnegie.

This is Miika from DNB Carnegie. The first question is on the building and home improvement trade. There the profits were somewhat soft, and you mentioned that comparable operating profit in Finland decreased slightly. How do you see the outlook in Finland for this business for the rest of the year? Was there any specific reasons for this weakness? Has something changed? And also that would you expect that the comparable operating profit will increase from the last year also in this business, as that is implied in your guidance?

Okay. Sami, you can also answer, but especially you asked about building and home improvement, especially in Finland. First of all, of course, we have to remember that our K-Rauta business is very strong. Also, our profitability is very strong. I would say, not so big changes on that one. And all in all, we believe that the trend of consumer behavior, if nothing special will happen in this Iran situation, we believe, as we have stated also in that business, that the market will be stronger this year, both sides, when it comes to consumer and also B2B customers. But Sami, would you like to add something about that?

Sure. Thank you, Miika. And, of course, this is indeed even our peak season. It's actually off-season for us, as you know, quarter 1. And of course, we see also, like Jorma said, that activity is getting better, and it's actually coming I think mainly related to renovation and also some infra also when it comes to in general, but particularly in building and home improvement, of course, this was also a particularly cold period even in Finland. Quite many construction sites were closed. So actually, we see that it's getting better and quite positive feeling about the market. But of course, we need to see a little bit more months, because spring is, of course, important. But activity is getting better and we can see that we're also getting more orders from our small and midsized customers.

And then my next question would be that if the conflict in the Middle East continues to disrupt, keeps the freight rates high, oil price volatility continues to affect logistics, energy, et cetera. So I know that this is quite hard for you to answer, but given that you now saw limited impact in Q1, what level of extra costs from energy, freight, et cetera, could you expect to land in the coming quarters? If you can give any hints on this one?

Yes. Of course, very good question. And as we stated, I would say that there was any significant -- or I would say any impact of the first quarter. We have to remember that this crisis started beginning of March. But of course, we can see already now what will happen in Q2. And also now April is kind of behind us. And the first thing what we can see in the grocery business is what we mentioned is rise in freight, both kind of inbound purchase and also delivery freights. But impact of those ones is not so big, that some may be minor impact when it comes to food prices. And already now we can see that there won't be any big changes in food prices when it comes to Q2. Then Q2, if we look at building and technical trade, the freight cost hasn't so big impact. But there, we can see already certain products, some kind of oil-based products like pipes and cables and some insulation products, there has been already, in fact, quite big price increases, and we can see that those will continue also in May and June. So of course, in short time, those could even support a little bit our sales. And then what we mentioned about car business, we can't see any effect yet. Maybe people can be -- consumer can be a little bit more interested about electric cars. But okay, then if this crisis prolongs, what will happen? I would say that maybe we are talking about Q3, Q4, of course, so difficult to kind of think what could happen, what will happen about interest rate, inflation, all in all, these kind of things. But if it would be only the oil price, there will be, of course, some impact all in all, food prices and things like that. But let's see. So difficult to say what will happen on that time. But now we can see this first quarter very clearly. And also, I would say also Q2, we know what will happen and not any dramatic topics for us.

The next question comes from Joonas Häyhä from OP.

It's Joonas from OP. Firstly, regarding the grocery trade. Obviously, timing of Easter supported earnings this year. But can you elaborate what was the earnings contribution from K-Citymarket non-grocery sales in Q1? As if I recall it right, you had somewhat muted sales due to weather-related reasons in the last quarter.

Okay. Ari, you can take the K-Citymarket and non-food.

Yes. K-Citymarket, of course, it has good benefit for it that we have a little bit warmer spring time this year. It supports sales in the non-food, especially in the clothing side, and also in some other categories. So it was positive, but not so big positive impact, maybe a little bit extra sales, especially these kind of categories like clothing and maybe gardening.

And non-food sales were up by 4.4% for K-Citymarket in Q1, and we are not disclosing the earnings on that.

Yes. I think that the biggest positive we can now say is in the beauty categories, we have been adding more assortment, especially K-Beauty and so on.

Okay. And then regarding BTT, any comments regarding the margin outlook in technical trade, as I think you previously mentioned, tight price competition. And more specifically, in Sweden, if I look at the Q1 numbers, earnings apparently improved in the Swedish technical trade, even though sales declined quite a lot. So can you open this development a bit?

Yes. All in all, I can start and Sami can continue, especially what comes to Sweden after me. But all in all, I think that I have earlier said that when it comes to last year, what happened in building and technical trade, especially in technical trade that sales volumes decreased, prices decreased and also we have some pressure in our gross margin. But now we can see already that the volumes start to increase. And now in fact, in Finland, in Onninen, we saw first time since it was '23 June, if I remember right, first time since that, there was some price increases already now. And also, we can see that there is not so much pressure anymore when it comes to gross margin. So kind of last year, we have, kind of, 3 negative elements. And this year, those start to be a little bit positive elements. But then about Sweden, especially Sweden, of course, we have big changes there, but Sami, please.

Thank you, Joonas. And about Sweden technical trade was the question and more Onninen. So of course, quarter 1 also very difficult weather conditions there. Actually, we are mainly in the infra business there, in electric grid, and there a little bit the same story that they were not able to put up electric grids or renovate those ones. And of course, the whole market was also minus 8.5% in Sweden technical trade market, which we are following, which is relative to our business. But of course, now during March also, already, we see that the activity came back. So we are not so worried about that situation there. We think that we are well positioned also in electric grid market in Sweden and activity should be actually increasing also, because there's a lot of deficit also in the electric grid business in Sweden in general.

Okay. And then finally, regarding car trade, you're guiding for improving earnings this year, but in Q1, earnings declined. So how do you expect to close the gap during the rest of the year?

Okay. Johanna, please, you can take this one.

Yes. Thanks for the question. Yes, the first quarter was a bit behind comparison period. But like mentioned, the order book for new cars is relatively strong, and those will be resulted to the financial figures in coming 6 months. So that's a good base for our estimation and also the new product launches, what's also mentioned in the presentation. We estimate them to have a strong effect on our figures. In used cars and services, business is more stable, and we see a positive development in those as well. So I think the estimation is well based on the current performance and known information.

The next question comes from Rob Joyce from BNP Paribas.

I dropped off for a second, so apologies if this has been asked. But on the grocery division, can you comment on -- even I guess, excluding the Easter estimate, it looks like March was particularly strong. Can you comment on whether that strength has continued into April in the Grocery division? And have you seen any competitive response yet -- elevated response to your incremental share gains over the last 2 quarters? And then the second one, we've kind of touched on, but just specifically, within your own consumer, have you seen any response since the Middle East conflict really picked up? Any changes in behavior from the consumer?

Okay. Mainly grocery this question, but all in all, what comes to the latter part of question about Middle East and the consumer behaving, I would say that we don't see any changes on that one. I would say that, of course, consumer confidence has decreased, but we don't see any changes on that one. Even more important is that if there is a warm weekend, for example, people are going to their summer cottages and eating well and make some renovations and things like that. But Easter side and grocery, Ari, you can take this one.

Yes. Of course, Easter is like a celebration and people usually spend more money for their food in that time, especially. The good part for us is that barbecue is now increasing. And average spend of the food basket is higher then. And we had quite warm Easter, and it has positive effect in that side. But we can also say that about the competition, it seems to be hard all the time, but we have been able to continue with our current pricing program and keep the margins at a reasonable level at the same time. And we see that we are able to do it even this year, and that's our estimate.

He was asking about has the good performance in March been in April figures. Would you like to comment anything on April?

Yes. I already commented that kind of retail sales trend when it comes to grocery has continued, not any big changes on that one. But of course, when it comes to wholesale, we have to bear in mind Easter in there.

Yes, in the wholesale, the Easter event was something like 6% is roughly estimate about that.

No more questions from the conference call line. And also, I don't have any questions from the chat. In that case, I would like to thank you all for good questions. And if you have any further questions, don't hesitate calling me. Well, we would like to wish you a sunny and beautiful 1st of May, and please enjoy the long weekend if you have one. Thank you.