Kesko Oyj (KESKOB) Earnings Call Transcript & Summary

Welcome to this special briefing. Just a moment ago, Kesko announced that it will acquire Dahl's operations in Sweden, Norway and Denmark from the French company, Saint-Gobain. Through the transaction, Kesko will significantly strengthen its position in technical trade business in the Nordics. But without further ado, I will hand over to President and CEO, Jorma Rauhala. Please, Jorma, the stage is yours.

Thank you, Hanna. Welcome also on my behalf. These are indeed great news. We have had a very busy weekend and the acquisition was actually signed just a moment ago. I'm very pleased to announce that our long-term strategic target to grow significantly, particularly in technical trade is now becoming a reality. For years, we have been looking for major acquisition opportunities, especially in technical trade in the Nordic region and attractive targets are extremely rare. When I have previously been asked what would be a strategic theme target? It would be exactly this. Dahl is a strong player in Sweden, Norway and Denmark with no overlapping operations. Technical Trade is based on centralized logistics, strong digital services and skilled personnel. This is exactly what we are now acquiring. After the completion, this acquisition will take us to the next level in the growing technical trade business in Nordics, and I'm extremely pleased and happy. Now to our presentation. Kesko strengthens technical trade by acquiring the operations of Dahl in Sweden, Norway and Denmark. Like I said, Kesko has been seeking notable large acquisition targets, especially in Nordic technical trade for years. Interesting companies rely available. Kesko has agreed to acquire the Dahl technical trade companies in Sweden, Norway and Denmark from Saint-Gobain. The combined net sales of the companies to be acquired totaled some EUR 2.1 billion and EBITDA EUR 146 million, making this the largest acquisition in Kesko's history. The companies to be acquired are an excellent fit for Kesko's growth strategy. They will complement Kesko's current building and technical trade business and strengthen our position in Nordic technical trade. Right timing. underpinned by megatrends, there is a significant growth potential in technical trade in the stable and affluent Nordic markets. The Dahl acquisition in brief, primarily a strategic acquisition. Supports Kesko's growth and strengthening of profitability synergies, not the main driver. Significant sales and earnings growth potential, strengthening market and megatrends that supports growth benefits derived from higher volumes, strong own brands, continuous digital development, respecting Dahl's history and valuable brand. Preliminary plan is to likely integrate the acquired businesses, which would continue as separate business units under their existing brands. Transaction price, the debt-free transaction price is EUR 1.2 billion, excluding lease commitments or EUR 1.518 billion, including lease commitments. Financing. Kesko will initially finance the acquisition in full using bridge financing, which will be refinanced with equity and debt once the completion of the transaction is secured, while maintaining the interest-bearing net debt-to-EBITDA ratio below 2.5, excluding the IFRS 16 impact. The plan is for the equity component of the financing to be implemented through a share issue estimated at approximately EUR 500 million to EUR 700 million. Authority approvals, the completion of the acquisition is subject to approval by competition authorities as well as the fulfillment of certain other conditions. Timetable, the acquisition is estimated to be finalized by the beginning of 2027. The acquisition marks the beginning of the next chapter in Kesko's growth story. Kesko sees net sales of some EUR 20 billion in the early 2030s through the acquisition and growth strategy execution. Building and technical trade would become Kesko's biggest division following the acquisition. Net sales expected to amount to nearly EUR 10 billion in the early 2030s. Long-term profitability target for building and technical trade continues to be 6% to 8%. Growth in technical trade supported by megatrends, renovation building, steady growth in renovation building and in renewing technical infrastructure. Urbanization, building new technical infrastructure, dense urban development, green transition, increasing EU regulation and volatile energy markets, growing demand for energy solutions, technological development and digitalization, construction becoming more technical, smart building technology solutions. Dahl is an iconic leading operator in technical trade, a company with over 160 years of history. Our current business in technical trade, Onninen has 113 years history and Kesko has 85 years old history. So Dahl has 160 years old history and very respected among technical trade B2B customers. A leading operator, especially in HPAC products and infrastructure construction. Combined net sales of businesses to be acquired in Sweden, Norway and Denmark, some EUR 2.1 billion. Digital accounts for 35% of sales, combined network of some 190 stores, 3 automated central warehouses, some 2,700 employees and over 70,000 customers. Dahl has a strong foothold in HPAC and infrastructure products, stable business. More than half of sales come from renovation building and 1/3 from infrastructure construction and 100% is B2B trade. Particularly strong HPAC and infrastructure product sales. Over 50% of sales come from HPAC products, some 25% from sewage and plumbing network infrastructure products. Strengths, modern technical trade expertise, extensive product portfolio, own brands, good availability and reliable deliveries, efficient logistics, skilled technical sales staff, good digital services. Good strategic fit, no overlap with Kesko's existing operations in Sweden, Norway or Denmark would complement our current product offering considerably. What would the acquisition mean for Kesko's building and technical trade division? A significantly stronger foothold and sales growth in technical trade in the Nordic countries, raising technical trade share of the division net sales to 65%, raising B2B trade shares of the division net sales to 88% raising international operation share of the division net sales to 71%, strengthening the stable infrastructure and renovation building business. Stronger expertise in technical sales and technological expertise, expanding our offering with Dahl's modern and extensive product portfolio, for example, own brands. Synergies due, for example, higher purchase volumes. Kesko nearly triple its sales volumes in HPAC products from Onninen's current EUR 1 billion. So profit improvement in line with the division's operating margin target of 6% to 8%. Kesko gained strong expertise in technical trade and experience in major integration by acquiring Onninen. Of course, it could be asked how we manage this kind of business, what we -- what is the Dahl. But I think we have quite nice track record what we have done with Onninen. So Onninen has been part of Kesko since 2016, successful integration in 7 countries, operates under the independent Onninen brand, strong expertise in technical trade, strong development of digital and logistics capabilities, extensive store network and skilled sales staff, business-specific strategies in each country. So Onninen's net sales have grown by EUR 820 million or 56% and operating by 232% as part of Kesko. So if we look at Kesko today, so grocery business is the biggest division, something like EUR 6.4 billion and building and technical trade, a little bit less than EUR 5 billion. After this acquisition, building and technical trade would be your biggest division with almost EUR 7 billion. And then if we look how this technical trade business is in its countries, we can see that very stable business set in Finland and in Norway, we would be clear #1 and in Sweden and Denmark, #3 operator in technical trade. So key takeaways. Kesko has been seeking notable large acquisition targets, especially in Nordic technical trade for years, interesting companies rarely available. Dahl is a leading technical trade company in the Nordics with a long history, a strong and well-respected brand, a comprehensive and efficient distribution platform and a stable business model. The business to be acquired are an excellent fit to Kesko's growth strategy. The acquisition would complement the current building and technical trade business and clearly strengthen our position in technical trade in the Nordics. A strategic acquisition, the largest in Kesko's history that supports growth and strengthening of profitability. So -- and I think now it's time for questions.

Thank you, Jorma, for your presentation. Yes, it's time for questions. Please ask your questions using the chat function. There's a slight delay if you ask a question before I see it. But now it's a perfect time for that. I will ask one question, which I got before. Can you describe what's the difference between Dahl and Onninen and what is difference between technical trade and building and home improvement trade, just like briefly basic things.

Yes. First of all, Dahl, for example, in Norway, it's only HPAC products. And Onninen in Norway only electric products. That's the main difference. Dahl is only HPAC products. Onninen Finland has both HPAC and electric products. That was the first answer. And the difference between building and...

Home improvement business.

Of course, first, I would say that customers are totally different. They are different customers. And in building and home improvement, we have also consumer as customers. But building the technical rate is only B2B business. Maybe also one difference is that this technical rate is based on kind of central warehouses, automated central warehouses, digital orders, but the building and home improvement, it's very much based on store network business. I would say those are main differences.

Very good. One the question here. What does the deal imply for your net debt to EBITDA, excluding IFRS 16 target? And is there an impact on your dividend payout? So dividend and the target of net debt to EBITDA?

Yes. Net debt to EBITDA, as we told, our target is that we can keep them below 2.5. And of course, temporarily, it can be a little bit higher before -- when we take this kind of bridge financing first. What comes to dividend policy, we don't have any reason to change our dividend policy, 60% to 100%. Was it so that Anu and Sami should join us.

Yes. We -- at this point, if we get more questions there, I could ask our Building -- Head of Building and Technical Trade, Sami Kiiski; and CFO, Anu Hamalainen, to join us as we are now getting more questions probably. Thank you. And I, my name is Hanna Jaakkola. If you have any questions after the presentation, you can contact me. I'm responsible for Investor Relations. Very good. And then there's a question about the profitability. Profitability development of the acquired businesses during the past 5 years. Can you comment on targeted synergies and time line -- synergies, time line and profitability?

Profitability, yes, we have agreed with the seller that we are not disclosing the historical figures. But I could say so that, of course, Dahl's profitability was much higher than, for example, '21, '22, '23 when we are comparing now '25 figures. As we know, '25 has been extremely weak market. Also, we can see that from our figures. So I would say that those go quite hand-in-hand when it comes to Onninen figures and Dahl figures. So very, very low seasonal cycle now, and we really much believe that the market will improve in coming years.

Very good. And then was synergies and time line.

Yes. So first of all, this is not a synergy case. We have made many acquisitions, and I think we know how to implement those ones. We have to bear in mind that Dahl is a great company. It's a great company, very strong in Sweden, quite nice businesses in Denmark and Norway. We shouldn't disturb that business. The market will recover and our kind of first, what we are doing is carve out the business out from Saint-Gobain operations. There are some common operation in Dahl, Saint-Gobain, something like HR, IT and things like that. This is the first what we'll do. And that's crucial because we shouldn't disturb the business. And of course, we are seeking also synergies. And I would say that the most important one, of course, is sourcing, sourcing and private label, also IT and things like that. What comes about those synergies, of course, the timing, of course, the sourcing is the first one. Of course, we start that immediately after closing that deal. But for example, other possible synergies from IT come a little bit later. But we already know that, for example, our IT systems, our cost level is quite low compared to Dahl. So there are some potential in there.

Very good. There's plenty of synergy questions, but this was a good answer.

I think that -- like I said, it would be so easy to say that we are gaining so much synergies. But we know how to do this business. We know which are the synergy case, which are carve-out case. And we know that because those businesses, those companies, they are doing well. They are doing well and the market will improve. And those EBIT will improve significantly after that. But of course, we are also searching synergies.

Very good. There's a question about the EBITDA margin. Dahl's EBITDA margin is 7.1%, similar to your own building and technical trade division, 6.8% in '25. If margins are already comparable, where exactly does the value creation come from? And can you quantify the expected synergy benefits in absolute terms?

I think we already discussed about the synergies. But all in all, the whole deal is a strategic deal. It's -- it is not so easy to acquire these kind of companies. Like I said, that was the best what you can get from the market. And this is kind of growth story about building and technical trade and whole Kesko. And we know that the market has been now very, very weak, and we can see already that the market will improve. And I'm very confident that also Kesko's building and technical trade figures, also Dahl figures will improve in coming months and years.

Yes. And of course, Dahl is technical trade, and that was the whole building and technical trade to our figures.

That's true.

So it's not comparable in the business-wise.

That's true, yes.

How does Dahl Nordics business develops in '26 versus '25? Wondering if there have been signs of the cycle turning. So any news about spring '26 compared to last year? And is there.

Sami, do you have those figures? And can we disclose those figures. But of course, we can see from our figures that the market has.

Exactly. We can describe the market.

We can describe the market and 2026 numbers we don't disclose from Dahl business. But of course, we can see the market that activity levels are step-by-step coming better, so increasing. Of course, new buildings still not much happening to say so, the starts of the new residential building starts. But in general, we see that activity is going in the right direction. And of course, we need to remember that this business, what is also great in Dahl business is that it's much of that -- half of that is renovation -- building renovation business and also infra business, which is stable, and we see a lot of opportunities there.

Very good. Thank you. There's a question about what is the tax rate of Dahl. I don't know, Anu, do we have the figure?

Actually, we do not disclose that. But the thing is really that if I were you, I would be like using the local tax rates what we have in the countries. Very good.

This we already discussed, but if there's anything you want to add, can you talk about potential earnings accretion? Even at the top end of the equity raise, should we assume low single-digit earnings accretion? So how earnings potential and also in the light of equity raise, we discussed already what are the potentials. We don't get any synergies, exact synergies. Any other comments you would like to add at this point?

I think we are pretty much there what Jorma already said so...

And we don't have any details about the equity issuance yet.

Exactly.

So we will come back to that. Was Dahl's '25 earnings more distressed if comparing to Kesko's technical trade business in total? So '25 Dahl, Kesko difference in profitability?

Yes. As you mentioned already, our figures include also home building and technical trade. But I see that all in all, we can see the same pattern what has been in Dahl and with Onninen, if you're looking at '21, '22, '23 and now since '24, '25, '26, they have been very, very weak markets. And I see that we can see the same trend in the figures, what we have on the figures. And also, we can see that the market has now started to improve.

Very good. And what is the expected closing time line? And is there any reason to anticipate remedies from competition authorities?

Yes. We think that this will be closed end of this year. And if you look at this competition situation country by country, first, Sweden there shouldn't be any problem. We are only -- our only is in electric intra business and not so big one. In Norway, we are strong in electric products, electric business, but we are operating at all in HPAC business. In fact, we have a small HPAC business some years ago, but we divested that one in Norway. And Denmark, of course, we don't have at all that kind of business. So there shouldn't be any problems with that one.

How many locations Dahl have in Sweden, Norway and Denmark?

So it was all in all 190, but Sami, do you remember how much in different countries?

Yes, different countries, we can check that, but 190 and of course, Sweden being the biggest. So I would say, 88 stores or pickup stores.

Sweden, yes. And I think that, of course, stores are important. We have those stores, but I see that even more important are those automated warehouses. They have excellent automated warehouses, especially in Sweden, Norway and also in Denmark. And that's the heart of the business.

Exactly. Very good. I can come back to the questions that if -- we will put in Q&A afterwards. I take these questions and answer this later on as well on our website, if anything is unanswered. What risks do you see from the transaction?

I would see so that this acquisition don't have any special risks. There are kind of normal risk what you -- every time you have when you are making those acquisitions. Like said, this is kind of a carve-out case, but there is nothing new, I would say so. They have some cooperation in Dahl with Saint-Gobain, like I mentioned, in HR, IT, finance, something like that. So first, we can carve out that from the Saint-Gobain businesses. And then we -- very light integration. One example is that those country directors, for example, in Sweden, Norway and Denmark, they will report direct to Sami, our President of the division. They won't be part of our current setup. That's why we don't want to disturb current business, and we don't want to disturb this business because we also know if you try to put them together, you most probably will have also some problems. And we want have to those ones because we can see that the market will be -- will recover, and we want to take everything out of that.

Very good. So we have a lot of experience from acquisitions and how to do them.

Yes.

How about Dahl in Finland? Will Saint-Gobain continue long term with Dahl in Finland? That is not our...

Yes, we are not disclosing that one. But of course, for us, it was clear that it was not possible to us to acquire Dahl Finland because Onninen is so strong in Finland.

Does Dahl have similar EBIT margins to building and technical trade of Kesko? We don't disclose the EBIT margins in this year.

We already discussed about that one that can I say that Sweden is very strong even last year, Dahl Sweden and in Norway and Denmark, there are, I would say, more potential there on those.

There's a question about Dahl's earnings in Denmark, they has been close to 0 in '24, '25. How can you plan -- how do you plan to make it profitable?

Of course, the first reason why the EBIT has been maybe that level is the market. Of course, we know that one. And if we look the differences between Denmark and Dahl Denmark and Sweden, for example, I think that maybe they haven't kind of in Denmark cut enough costs when the market kind of collapsed, maybe they didn't cut the cost enough. And the one difference is also the share of private label in Sweden, it's much higher than in Denmark. But I would say those 2 are kind of normal business cases.

Very good. Then I have one last one. So if you have any further questions, now it's time to ask those. What is the interest rate on the extra debt you need to think of?

Well, the question is really that are we talking about the bridge financing or the final financing? So from the bridge financing perspective, I would say that we are pretty much on the margin level on the same level as what we have in Kesko today already. And of course, the future refinancing is really depending also on the market conditions, but our aim is to keep it on the same level as we would be like having normally without this kind of deal. So -- and if we think about our average interest rate at the moment, we are at 3.3 to 3.5 percentage points on average level on this kind of financing today in Kesko.

Very good. Thank you all. I think that was it. No further questions. If any questions, don't hesitate contacting me. And I will put, like I said, the Q&A to the website later on. Thank you so much.

Okay. Thank you.

Thank you.