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Welcome to the conference call. [Operator Instructions]
Now I will hand the conference over to the speakers. Please go ahead.
Ladies and gentlemen, welcome to Kesko's Financial Statements 2022 Release Call. I'm Kesko's CEO, Mikko Helander. I have together with me our business area presidents, Jorma Rauhala, Ari Akseli and Matti Virtanen, as well as CFO, Jukka Erlund; and Investor Relations, Hanna Jaakkola.
In 2022, all divisions generated good results. Now I will first give an overview of our business performance last year as well as the updated guidance and outlook for this year. After the presentation, we will be happy to take questions, both by phone and via chat.
Key topics in '22. First of all, good progress in strategy execution in all divisions. In grocery trade, profitability remained good; in building and technical trade, a record result; in car trade, profitability was good despite availability issues. One action with big impact was opening up already fixed purchasing agreements in grocery trade last spring to secure Finnish food production in new inflationary environment.
Last year, earnings per share grew. Board of Directors is proposing to the Annual General Meeting a dividend of EUR 1.08 per share.
Net sales growth continued in 2022. Net sales totaled EUR 11.8 billion. it was up comparably by 4.4%. Net sales increased the most in building and technical trade, but it grew also in grocery trade, and car trade net sales decreased. Operating profit improved last year by some EUR 40 million and totaled EUR 815 million. Profitability was 6.9%. Operating profit increased in grocery trade and in building and technical trade, and decreased in car trade.
Also, return on capital employed, one of our financial targets, was good at 16.9%, clearly above the lower limit of the financial target, which is 14.5%. Return on capital employed improved in building and technical trade division. Kesko's financial position is strong. Cash flow from operating activities was EUR 915 million, capital expenditure totaled EUR 450 million, net debt-to-EBITDA was 0.2. We continued the investments in growth and better operational efficiency also in 2022. In accordance with our growth strategy last year, we continued consolidating the Scandinavian Building and Technical Trade market by acquiring and integrating 4 companies in Sweden and 1 in Norway.
Q4 results were good in all divisions in a weakened market. First, some Q4 key figures for the whole group. Net sales grew 4.3% and totaled nearly EUR 3 billion. Operating profit was EUR 193 million, down by EUR 11 million compared to last year. Operating margin was at a good level of 6.5%. Cash flow totaled EUR 263 million. The net sales in Q4 totaled nearly EUR 3 billion. It was up comparably by 4.3%. The growth was strongest in car trade, 5.7%, but all divisions grew.
In Q4, comparable operating profit was at a good level. Comparable operating profit was EUR 193 million. It decreased by EUR 11 million. The profitability was 6 5%. In grocery trade, net sales grew in Q4. Net sales totaled EUR 1.618 billion and grew comparably by 3.9%. Net sales for Kespro's foodservice business grew significantly, and sales to K Group grocery store chains grew, too.
In grocery trade, comparable operating profit for Q4 was EUR 123 million, and it decreased by EUR 8 million. Profitability was 7.6%. Changes in customer behavior, in particular, had a negative impact on Q4 operating profit. In grocery trade, profitability remained at a good level despite weakening market. Grocery sales in our stores grew by 1.1%, but fell short of the market.
Changes in customer behavior due to the rise in food prices and growth in the share of campaign sales year-on-year had a negative impact on profitability. The rising cost caused by inflation had also a negative impact on the result. In Q4, Kespro's sales grew by over 14%, and also the market share continued to grow in foodservice business. Also B2C online grocery sales grew, supported by Wolt collaboration.
Now to Building and Technical Trade. Net sales grew comparably by 4.6% to EUR 1.143 billion. Net sales grew in comparable terms in all operating countries. Net sales growth continued strong in Onninen's technical wholesale. Sales grew in B2B trade, but decreased in B2C trade. In addition, weakening Norwegian, Swedish and Polish currencies against the euro impacted negatively net sales development in euro terms.
In Building and Technical Trade, comparable operating profit was EUR 66 million. It decreased by EUR 8 million. The profitability was 5.8%. Profit for the Building and Technical Trade division increased in Onninen's technical wholesale. Onninen's comparable operating profit grew in all countries, except for Poland. In building and home improvement trade, comparable operating profit decreased in all operating countries.
In building and technical trade, result was good in a weakening market. Division sales grew in all operating countries, profitability weakened. Strong sales growth continued in technical wholesale and profit improved further. In building and home improvement trade, sales declined in B2C trade in particular. In sports trade, profitability stayed at a good level. Kesko Senukai's share of result boosted comparable operating profit by EUR 6.9 million.
In car trade, net sales for Q4 grew by 5.7% and was EUR 231 million. Net sales growth was slowed by the weaker-than-normal availability of cars. Comparable operating profit for the car trade division grew by EUR 3.7 million to EUR 12.3 million. Profitability improved and was 5.3%. In car trade, result was good despite availability issues. Net sales grew and profitability improved as issues with car availability eased slightly.
Growth in used car sales continued strong despite weakening market. Profit was improved by sales growth and better sales margins. Profitability was also improved by efforts to increase operational efficiency and a reduction in provision related to warranty expenses. In the service business, sales grew and profitability remained good.
All our divisions are in good shape for profit. Kesko's profit has improved also after the COVID-19 related restrictions were lifted, especially the years 2020 and 2021 were the years of pandemic and pandemic-related restrictions. The result continued to improve also in 2022.
In grocery trade, profitability is on a solid basis. Our share of the total Finnish EUR 20 billion of food sales is significant. We have the most extensive store network with 913 K-retailing entrepreneurs. Also, Kespro is the strong market leader in the growing foodservice wholesale business. Kesko is a forerunner in digitalization. Our stores have data-based, store-specific business ideas, and we are the biggest market operator in online grocery sales in Finland. Kesko is among the best in class in auto sector in Europe in terms of profitability, efficiency and sustainability.
Today, price is increasingly important in food trade. Our stores have been successful in shopping basket comparisons. Prices are constantly competitive in our stores and the offering of available private label products is the widest in our stores. Also personalized benefits are great. We have increased offering of a cheap product, baskets too. In the picture, there are examples of the marketing campaign headlined the cheapest shopping basket from K stores, and also comparison article from the largest newspaper Helsingin Sanomat.
Strong basis for the future in building and technical trade. Kesko is a leading operator in building and technical trade, and among the best in Europe in terms of profitability. Over 80% of sales is to B2B customers. Green transition efforts to improve energy efficiency and growing building renovation are supporting the demand. Our efficient sales and operating practices are supporting profitability. Sales and services via digital channels are growing fast in all markets. And also, acquisitions and the successful integration is truly yielding results.
In car trade, our portfolio is leading to results. We have a comprehensive offering in Kesko, new cars, used cars and services, and long-term collaboration with the Volkswagen Group. Efforts to transform our operations and make them more efficient are yielding results. Today, Kesko is the #1 in Finland in electric car sales and electric vehicle charging network. I'm happy to say the availability of new cars is getting better after many difficult years.
Then some words about sustainability. Kesko is one of the most sustainable trading sector companies in the world. Again, we have received strong proof regarding our sustainability work from esteemed international ratings. In Dow Jones Sustainability Indices, Kesko was ranked highest into Food & Staples Retailing category in Europe and the third best in the world. In Global 100 list, Kesko was ranked as the most sustainable grocery trade company in Europe. Kesko is the only company in the world that has been included in the list every single year since its start in 2005.
We are a responsible operator in the Finnish food chain. There has been a discussion in Finland around food production in the light of higher costs. I would like to shortly highlight here that Kesko responded quickly to the crisis that was facing the Finnish agriculture and food industry by being the first operator to open up already made purchase agreements with the food industry in March 2022. This did set an example to the others and helped agriculture and food industry operators in a difficult situation.
Next, outlook and guidance for 2023. Kesko estimates that its comparable operating profit in 2023 will be in the range of EUR 680 million to EUR 800 million. The guidance is based on an estimate for a relatively short recession in Kesko's operating countries. Key uncertainties impacting Kesko's outlook are developments in inflation and interest rate levels, and Russia's ongoing offensive war in Ukraine.
In the grocery trade division, B2C trade as a whole is estimated to remain stable, and the foodservice market is predicted to continue to grow. Price inflation will support sales development in euro terms, but will also increase costs. Operating profit is expected to remain at a good level.
The construction market is expected to decrease somewhat compared to 2022. New building construction is estimated to decrease, but renovation building and construction related to the green transition are estimated to continue to grow. Operating profit is expected to remain at a good level also in Building and Technical Trade. In the car trade division, car availability is estimated to improve, but demand is estimated to remain below long-term average. Profitability in the car trade division is expected to remain at a good level.
Dividend proposal. Kesko's Board of Directors is proposing a dividend of EUR 1.08 per share, it is proposed to be paid again in 4 installments.
And then to the latest news, growth strategy execution continues. Kesko acquires Elektroskandia in Norway. We announced on Monday that Kesko's subsidiary Onninen will acquire a technical trade company, Elektroskandia Norge from French Rexel Group. Elektroskandia has net sales of EUR 250 million and some 270 employees, as well as a highly automated distribution center and 13 stores and sales points in Norway. The acquisition complements Onninen's business in all current customer segments and increases Onninen's offering to the growing utility sector in Norway. Following the acquisition, Kesko's sales in Norway will approach EUR 1.5 billion. Approval from competition authorities, of course, is needed.
Lastly, I would like to express my gratitude, great results, excellent work made by everybody in K Group. Thank you for that.
Thank you, Mikko. And now it's time for questions. Let's go first to the conference call line. Please, the stage is yours.
[Operator Instructions]
The next question comes from Calle Loikkanen from Danske Bank.
Yes. I have a couple of questions regarding the grocery trade division. First of all, can you kind of explain or describe how the margins in Kespro did develop in Q4?
Yes, Jukka you can open more of those numbers.
Yes. Kespro, as such, improved its profitability due to the good sales growth. So therefore, the margin development is good on Kespro side.
Okay. Okay. And then overall for the grocery trade division. In Q4, there was a rather significant drop in margins, and the margin was 7.6% now in Q4. Is that a level that you're happy with taking into consideration the kind of the operating environment and all of that? Was that a good level, do you think?
Yes. We should remember that the market has changed dramatically in grocery business, especially on a B2C side, especially last autumn end of last year. And as today, we have reported our guidance. We expect a short-term recession in the Finnish market and maybe also wider in Europe. But it depends on very much how economy -- where economy in Finland, economy in our operating countries, will develop later this year. But at the moment, we expect short-term recession. And of course, that has some negative impact on the market. But all in all, we are positive and we are confident that we are in a good position to maintain good profitability in grocery business on a B2C as well as on B2B side in 2023.
Okay. Okay. So expecting a similar kind of drop in margins continuing in the next couple of quarters, sounds pretty reasonable.
No, I don't go into the details. I repeat what I stated that we are in a good position to maintain our strong performance in 2023 even in a situation that the economy is getting weaker. We are in good shape.
Okay. Okay. And then perhaps on the kind of drivers for the margins in this division. You mentioned in the presentation that price is increasingly important for consumers. But at the same time, you also said that increased share of campaign sales was the reason for the lower EBIT in grocery trade. So do you have any kind of -- or what drivers would there be for you to be able to keep the margins level -- margin levels where they are or even improve it? Or is there any kind of positive drivers that you see?
We have and we can see clearly plenty of positive drivers. Once again, I would like to remind that we have exceptional strong position in Finnish grocery business. We have a very strong position in B2C business. We have very extensive store network, widest store network in Finland. We have very a strong online business for B2C and B2B customers. And we have exceptional strong foodservice company. And that is, we can say, even a unique setup in Europe. And thanks to that unique setup, we are definitely in a good position to maintain good profitability even in situation when economy is getting weaker.
Of course, we'll put even more efforts to sharpening our marketing and to convince customers that -- and consumers that even in this current situation, K stores are excellent place also to make shopping and even excellent place for consumers who are seeking opportunities to save money in domestic spendings. But definitely, we will spend more money for campaigning, and that will, in short term, maybe a little bit reduce our earnings. But all in all, thanks to our unique setup, we are a good position to maintain good profitability in our grocery division.
Okay. That's very helpful. And then maybe lastly, do you have an estimate on your current market share in this division or how it has changed over the year, and perhaps retail and foodservice separately?
Yes. As we have reported, especially in the second half, we lost market share in B2C business. At the same time, we have continued to gain heavily market share in B2B business. All in all, in Finnish grocery, our market share is very stable. And of course, important to remember that especially in last 5 years, we have heavily gained market share also during pandemic time. But once again, I repeat that on B2C side, we lost market share, especially in the second half of 2022.
Okay. But you don't want to share any numbers?
No, no. Not yet necessary because we are waiting also more detailed information. But we know that in the second half, in B2C, we lost. But once again, I repeat in B2B, we heavily gained market share.
The next question comes from Miika Ihamaki from DNB Markets.
This is Miika from DNB. Can you talk about your performance in Building and Technical Trade first, perhaps on the building and home improvement profitability, which weakened significantly? And then I would like to ask about the sales development related to green transition and energy efficiency portfolio.
Yes. No, of course, first, important to remember that in Building and Technical Trade as well as in grocery trade, we reported all-time best numbers and results in 2022. And in the last quarter, in Building and Technical Trade, technical trade business, again, improved profitability. Especially home improvement business, B2C, was weak, and we have seen this trend already since 2021 everywhere in Europe, that B2C business is softening, and we saw this development also in our business in the last quarter 2022.
But of course, good news is that today, thanks to our successful transformation, B2C represents less than 20% of our total business. And our position is exceptionally strong nowadays in B2B segment. But maybe Jorma, you can open more detailed this development.
Yes, if you look fourth quarter last year, so as we know, technical trade was a double-digit sales increase there and also the profitability growth on that area. And then we are looking at building and home improvement, we can say what comes to sales that B2B was kind of flat, and there was some decrease in consumer business, which started in whole market 2021 autumn consumer business started to decrease.
But if we look last year, definitely, the second quarter was the weakest one. But if we compare quarter 1, quarter 3 and quarter 4, the decrease was quite similar. So the decrease didn't accelerate it anymore. What comes to profitability of the building and home improvement, I would say that the main reason is the sales mix, of course, more and more B2B sales. And then that we gained inventory gains 2021 quite significantly. And last year, we didn't make so much. I would say that those are the most of the important reasons.
Miika asked about the green transition and...
Green transition, I don't have exact figures how it increased. But of course, double-digit increase there and we see also in future huge demand on that area.
As well as, of course, renovation building. And we are not at all so worried about the new constructions because Jorma remember that, today, more or less 50% of revenues coming from renovation.
More than, more than.
More than 50%, exactly.
Any questions, Miika?
Yes, I think this was good.
The next question comes from Nicklas Skogman from Handelsbanken.
Yes. I have a question on -- we've seen building material prices started to flatline and also come down recently. How do you see that expecting your growth both in your building and home improvement business, but perhaps even more so in Onninen, given that you had inventory gains for a big part of 2022 as prices were increasing?
Yes. Inflation is, of course, a big issue also in Building and Technical Trade. And I'm extremely happy how well my colleagues in Building and Technical Trade succeed to manage inflation in 2022. And the situation in -- when we look at current situation, in many categories prices have turned down and declining situation, let's say, very well under control. But Jorma, you can open more detail also on this current situation.
Yes. As we know, prices started to increase first quarter in 2021 and had continued since that, also in fourth quarter last year. And also, we know that this also we have published our customers' new prices. This first quarter this year also prices continued to increase. And of course, it's difficult to forecast coming quarters. But still, in first quarter, prices continue to increase.
And inventories, quality of goods, value of goods, very well under control.
We have kind of invested to those product groups, which prices increased, and also those green transition products. So there are huge demand for those products, and we have lot of those products in our inventory. So our inventory is very healthy, I would say.
[Operator Instructions]
Svante Krokfors from Nordea. A couple of questions from my side. First, regarding the guidance range, EUR 680 million to EUR 800 million. Could you elaborate a bit on the moving elements in that guidance? I mean you expect a short recession, so that is one thing. But how much of the range is -- how much -- is it mostly related to BTT uncertainty and how much related to grocery trade uncertainty?
Yes. As we have reported, outlook is, despite the recession, despite war in Ukraine, despite inflation and higher interest rates, positive in all divisions. And despite all those challenges and difficulties in our business environment, we are confident that we can report good profitability in grocery trade, Building and Technical material trade as well as in car trade. But of course, this range EUR 680 million, EUR 800 million, clearly reports that we have a lot of uncertainty in the business.
By the way, it is exactly the same range what we had 12 months ago when we started previous year. Unfortunately, where it is today, quite challenging place to make business. But I hope that you understand despite those issues and difficulties, Kesko is in a strong position to make good profit. I see that our guidance is very strong message that we are performing very well despite those challenges. But colleagues, do you want to open more your businesses and your feelings? No, they are happy. They are not ready to open more.
Okay. And then perhaps a question to Jorma regarding the visibility. I mean we know what the expectations for construction market renovation market, so on this green transition growing well. But could you elaborate a bit on how long your visibility really is in BTT and how long is your visibility? Could you elaborate a bit on that?
It's quite difficult to say how we forecast what we have said, what you just mentioned, how the whole markets will go on. And of course, we know that we have a very good situation with our customers. We have gained last year -- for example, in technical trade, we gained market share in every countries. When it comes to building and home improvement, we gained market share in Finland. We were flat in Sweden and lost a little bit in Norway. So I think we are in a very good position what comes to this started year. But very difficult to say more closely that our -- what the market will go on, but that's my comments.
And the last question regarding your announced acquisition in Norway, Elektroskandia Norge, it seems like a quite good fit for you. You don't disclose the price, but is it fair to assume that the below Group Rexel profitability suggests an attractive price tag?
Yes, and we should remember that seller didn't want to report sales price, but it was very well in line our normal valuations, and we are extremely happy that we succeeded to make this deal. Of course, now we wait competition authorities approvals. But we are extremely happy that we are in this stage, and the strategic fit is perfect. And we should remember that Onninen and technical trade all in all, is a wonderful business. And as many times reported, our aim is to strengthen and expand, and consolidate Building and Technical Trade and technical trade in Northern Europe and also in Norway, our position, thanks to this acquisition, will be even stronger. All in all, our sales will be now close to EUR 1.5 billion. So many reasons to be happy, and we are extremely happy and strategic fit, is perfect.
[Operator Instructions]
This is Jutta Rahikainen from SEB. A few questions left for me. On the CapEx level for '23, where will you roughly land? '22, you said it was EUR 449 million, so is that a proxy for '23 as well or something else perhaps?
We continue implementation of our growth strategy also in 2023, meaning that we will spend definitely also a lot of money for investments. And we have in process excellent investments. We will further invest and modernize store networks in Finland. We will continue investments in digitalization, new technology. We will continue investments also to make acquisitions. And we can see and we can feel that in current situation, we are now even in a better position to expand our Building and Technical Trade in Northern Europe. I repeat that expectation is that the investments will remain on a higher level. Jukka, do you have some additional information?
Yes. Maybe just to sort of summarize that. Last year, CapEx was around EUR 450 million, including also the -- from the Kesko pension fund transfer of one of the real estates around EUR 40 million on that side, and M&A acquisition is around EUR 50 million on that side. So going forward, we don't see any big changes on the overall level of -- from that one, taking into consideration also that the Onninen new distribution center CapEx is also taking place initially year-by-year starting this year. But no big changes on the CapEx side overall.
All right. So do I hear you right that if I -- kind of CapEx '23, excluding any M&A, would be, say, EUR 400 million. Is that the good proxy?
Pretty much close to where we were last year, yes. So excluding M&A.
So excluding M&A, EUR 450 million roughly. Okay. Good. And then on the cost inflation, could you open up a bit what you expect for '23 wages, rents, other cost items? I mean, will this be an uphill battle or are you at ease how to handle it?
No. Of course, inflation, as we have mentioned, is a challenge. But our expectation is that inflation will not be this year any more such a big issue as it was in previous year. We are expecting that in the first half, that will still complicate the business. But hopefully, in the second half, that will not be any more such a big issue. Another positive matter is that energy crisis, we have not faced such a big energy crisis, what we expected end of last year, and that we believe will bring and will bring positive impact also on cost inflation. But based on that, we have made our business plans. And based on that, we have given also our business guidance, Jukka?
Yes. Maybe just to add up that we are also all the time focusing a lot on the cost side just to reduce our costs in many areas. So looking at our organizational efficiency as well in direct spending, so a lot of initiatives on that side as well.
This was very important, and we have really in process a lot of efficiency improvement measures. And we have succeeded already to implement those measures and that has helped us to tackle also cost inflation, and those pressures continue also in 2023.
And then one question on the dividend. It was pretty much in line with consensus. I had maybe expected a bit more. But could you walk us through your philosophy when you pay dividends, because you obviously have the balance sheet to pay out massive amounts if you would choose to do so? Then you've said that you have the M&A agenda, naturally, and then you also have quite big investments, I mean, now for '23, but also for the coming years in the logistics side. So how do all this, I mean, play out from a shareholder point of view? Again, you could pay a lot more in dividends, if you wanted to, so just thinking behind this would be nice.
Jutta, as we are hard-working people, and we are doing and we have done our utmost to satisfy shareholders to pay every year better dividend. And I'm extremely happy, and I know my colleagues, they are also extremely happy that we have been in position every single year to increase dividend as we did also this time. That is a great thing. And I guarantee you that we are doing our best to maintain this positive development also in future. And to be in that position means that we need to continue execution of our great strategy. We have to maintain this growth. And if and when we succeed, then we will be in a position to pay higher dividends also in future.
I think we have one more person online. Please.
The next question comes from Miika Ihamaki from DNB Markets.
Just quickly on the M&A pipeline. So I said, you have quite a lot of firepower. So a little bit color, are you looking still for something small? Is there perhaps something bigger coming ahead? Any estimate when you start really pushing out this firepower? Was it what we saw in Norway just the beginning? If you could give a little bit color on that.
Yes. our strategy in Building and Technical Trade, crystal clear. Our aim is to consolidate Building and Technical Trade in Northern Europe as we have done. And we are seeking small, medium-sized, big objectives and targets which support our aim to consolidate those businesses in Northern Europe. And we have good progress. And I'm also extremely happy and even a little bit proud on behalf of my colleagues how well we have succeeded to integrate already those acquired businesses and companies to Kesko Building and Technical Trade set up.
And many times, people raised this question, why you don't go to the continental Europe, why you don't go to U.K., why you don't go to North America, our strategy is crystal-clear. We are doing our utmost to consolidate business in Northern Europe, and we are doing our best to be in Scandinavia, Finland, Northern European countries, as positioned to be #1 or #2. And where we have achieved those positions in consolidated markets, we can see very strong financial performance. Strategy, as I said, is very clear, and we can see plenty of opportunities now further develop this vision and strategy in 2023.
Very good. Thank you, Miika, for the questions. Thank you all, dear analysts for the active discussion. I have a couple of questions from the chat function.
First of all, congratulations, Mikko and Jukka for the strong performing 2022 closure. What digital initiatives are you taking to keep up the momentum? Any transformational projects you plan in 2023?
You can open more digital projects. But digital, I would like first to repeat that we are today among forerunners also in digitalization in European-wide in our businesses. But we will continue development on that side. Transformation, we are completing a successful transformation in our car trade division. Thanks to that, despite challenges in business environment, we are reporting strong profitability. As I mentioned earlier, we are in process, a lot of measures everywhere in Kesko company, Kesko businesses, further improve efficiency, further reduce operational expenses, and that kind of measures we continue. But Jukka, please, report about digitalization.
Yes. We have a lot of focus -- we have had a lot of focus on the e-commerce side earlier and we'll continue on that side, about B2C operations. But especially B2B operations, there's still a lot of potential to go further there. Even though we are really in a good position already, but we'll continue on that side. Then on the acquisitions, like Mikko said, we've done a number of acquisitions. So obviously, integrating those businesses and building the ERP capabilities and so on will take a bit of effort.
And on digital marketing, personalized marketing, digital displays in the stores and so on, we have a lot of projects there as well, which we will continue. So continuing on the digital strategy that we have had in place.
Very good. Thank you. That was our last question. So I would like to thank all of you there online. And any last comments, Mikko, Jukka, Ari, Jorma, Matti?
Thank you for everybody online for active participation. And together, we wish you a very pleasant day. Thank you very much.
Thank you.
Thank you.