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Annual report 2013

Review by the President and CEO: Change in our operating environment provides opportunities

The operating environment in the trading sector is undergoing a major change: e-commerce and multi-channel services are changing customers’ purchasing behaviour and providing Kesko and K-stores with new opportunities to develop themselves and serve customers.

The fast development of digital services enables customers to shop via multiple channels irrespective of time and place. The growth of e-commerce and e-services combined with a comprehensive store network is a key competitive factor in all the countries where Kesko operates.

The digitalisation of retailing is a strategically important part of Kesko’s business development. All our divisions focus on electronic and multi-channel customer service. In spring 2015, Kesko’s Group Management Board will be joined by the Chief Digital Officer, who will be responsible for Kesko’s business development, digital business environment and marketing.

Kesko’s profitability and solvency are strong

The long recession and the weaker employment situation have affected consumers’ purchasing power in all lines of business.

In order to improve competitiveness, Kesko changed its divisional structure at the beginning of 2015. Related cooperation negotiations were carried out in autumn 2014.

As a whole, Kesko's financial performance in 2014 was good despite the difficult market situation. In the food trade and the car trade, profit remained good and the building and home improvement trade more than doubled its operating profit. In the home and speciality goods trade, profitability was negatively impacted by Anttila's significant losses.

Kesko's financial position remained very strong. Liquid assets totalled nearly €600 million at the end of the year and the balance sheet was net debt free, which provides an excellent basis for developing the competitiveness of our business operations.

Domestic origins as a competitive advantage

The decline in purchasing power is reflected in consumers’ choices and price competition is intense in all product lines. Towards the end of 2014, price competition became tougher in food retailing in Finland, and K-food stores reduced the prices of hundreds of products.

For our customers, price is not the only criterion when they choose where to shop for groceries. K-food stores’ competitive advantages will continue to be both superior fresh food departments and competent service, and the widest selections and the availability of Finnish products.

Finnish products and the Blue and White Footprint campaign were visible in K-food stores, as well as Anttila and Kodin1 department stores, during 2014. Finnish origins will continue to be highlighted, as 80% of the products sold in K-food stores are manufactured in Finland. The Blue and White Footprint campaign will continue in 2015, when K-rauta and Rautia stores also join in.

Kesko’s operations have an impact on the whole of society

Throughout its 75-year history, Kesko has played an important role in building Finnish society. Kesko directly employs nearly 20,000 people and is a significant taxpayer in Finland.

From the very beginning, the key success factor of Kesko and the K-Group has been K-retailer entrepreneurs, who are strongly present in consumers’ daily lives. Together with retailer entrepreneurs, we have a good nationwide store network and we will continue to invest in its development. A successful Finnish retailing sector provides the basis for the success of Finnish food production, thereby ensuring good conditions for Finnish agriculture.

Determined corporate responsibility work brings results

Kesko is included in the world’s major sustainability indices, and in 2014 Kesko’s ranking further improved in many of them. In January 2015, Kesko rose to fifth place in the list of ‘the Global 100 Most Sustainable Corporations in the World’.

Kesko’s Corporate Responsibility Report for 2013 was selected as the best in Finland in the 2014 responsibility reporting contest. Kesko was also the choice of NGOs as the best reporting company.

Kesko will continue its long-term corporate responsibility work in accordance with the responsibility programme. During 2015, Kesko’s corporate responsibility work in other operating countries will be promoted systematically and our companies in each of the countries will prepare their own objectives that support Kesko’s responsibility programme.

Around 1,800 unemployed young adults in the Youth Guarantee target group were employed by K-Group stores during the ‘Youth Guarantee in the K-Group’ programme. The success of the programme, which started in August 2013 and terminated at the end of 2014, exceeded all expectations, as the final result was almost double the original target of one thousand.

Strategy work underway

Kesko’s strategy work started in early 2015 and the new strategy will be published in spring 2015. Kesko will be an increasingly focused and unified operator. Significant measures will be taken in the food trade to strengthen competitiveness. All of the divisions will focus on electronic and multi-channel customer service.

I would like to thank all of Kesko’s employees, K-retailers and their staff, our shareholders and our partners for their good and fruitful cooperation. I would like to thank my predecessor, Matti Halmesmäki, for his excellent work for Kesko and the K-Group as the President and CEO and over his long career.

Mikko Helander
President and CEO