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Annual report 2013

Kesko’s strategy

Kesko's strategy work has begun and the new strategy will be published in spring 2015. In the future, Kesko will be a more focused and unified operator. Special focus areas in the strategy work are to strengthen sales and competitiveness, reduce the cost level through revised functions and develop digital trade and services.

Kesko is the second largest operator in the Finnish grocery trade. In the building and home improvement trade, Kesko is the largest operator in Finland and the fifth largest in Europe. Kesko is also the leading operator in the car trade, the sports trade and the furniture trade in the Finnish market.

Kesko’s objective is to strengthen the market shares of its business operations and to achieve profitable growth. In the grocery trade, the strengthening of price and quality competitiveness will be continued. From the perspective of growth, key areas of capital expenditure are those made by the grocery trade in the largest growth centres in Finland and the carefully targeted international capital expenditure on store sites for the food trade and the building and home improvement trade. Furthermore, a strong emphasis is placed on the technologies and logistics operating models required for digital trade and services. Further improvement of the cost efficiency of business operations is essential to ensure competitiveness.

Strong dividend paying capacity is important to shareholder value. This is supported in the strategy in which capital expenditure is planned so as to maintain a strong financial position for the Group. Kesko’s dividend policy is to distribute at least 50% of the earnings per share excluding non-recurring items, while taking into account the company’s financial position and operating strategy.

Digital trade and services

Customers’ needs and consumer behaviour are changing radically as new digital services and mobile services in particular are adopted. Customers expect stores to provide inspiring digital services with new experiences, as well as comprehensive, real time information on product selections, product information, prices and availability. A strategic objective is to serve the customers of all divisions via electronic channels as well as possible irrespective of time and place.

The development of digital services requires significant investments in the development of competencies and in technological and logistics systems. Kesko’s strategic objective is to achieve significant synergies particularly in the provision of digital services and the development of e-commerce concepts. As of the beginning of 2015, the building and home improvement trade division and the home and speciality goods trade division were combined into the home improvement and speciality goods trade division, which offers customers multi-channel building, interior decoration and home and speciality goods stores and services. The strategy also emphasizes the development of digital services and e-commerce in the grocery trade and digital services for the car and machinery trade.

Exploiting business opportunities in Russia 

One of Kesko’s key geographic growth areas is Russia. The 140 million Russian consumers offer a food trade market worth around €247 billion, a building and home improvement trade market worth around €16 billion and a sports trade market worth around €7 billion. In the medium term, there is a strong basis for consumer demand in the large Russian middle class and the low unemployment rate, which stood at around 5% at the end of 2014. The development of the Russian national economy slowed from previous years in 2014 and real GDP growth was 0.4%. The near future outlook for the Russian economy remains weak. In 2014, Kesko’s total net sales in Russia were €368 million, contributing 4% to the Group’s net sales.


Financial objectives

Kesko’s financial objectives announced on 5 February 2009:

 

Objectives

Target level

Realisation in 2013

Realisation in 2014

Net sales growth

Growth faster than the market

Realised**: in Finland, in the furniture trade and the car trade

Realised**: In the building and home improvement trade in Finland, Estonia and Russia; in the car trade and the agricultural trade in Finland.

Return on equity*

12%

7.7%

7.6%

Return on capital employed*

14%

9.8%

9.9%

Interest-bearing net debt/EBITDA

< 3

-0.3

-0.3

Equity ratio

40-50%

54.5%

54.5%

* excluding non-recurring items

 

** Kesko’s own estimate

 
       
       
Responsible operations

Responsibility is part of the everyday work at Kesko and K-stores. It is also essential in order to achieve profitable growth and building confidence between Kesko, K-stores, customers and business partners.

Our responsibility work is based on the guide ‘Our Responsible Working Principles’ and our responsibility programme. The key strategic objectives of the responsibility programme in all operations include:

  • committing to responsible working principles
  • building responsibility in society and communities
  • looking after the working community
  • providing reliable electronic services
  • responsibility in purchasing and product safety
  • offering services that promote customer wellbeing
  • mitigating climate change.

Kesko's
responsibility programme

Responsible operator

We are committed to responsible working principles and we together generate economic value added

For the benefit of the community

We build a better society together

Working community

We perform and offer high-quality work


Responsible purchasing and sales

We purchase and sell responsibly and support customers in making sustainable choices

Wellbeing for customers

We offer services which promote customers' wellbeing

 

Mitigation of climate change

We jointly mitigate climate change and promote the sustainable use of natural resources

 

The objectives and results of the responsibility programme are presented in more detail in section Responsibility in figures.