Kesko's interim report for the period 1 January to

KESKO CORPORATION INTERIM REPORT 25.10.2017 AT 09.00

Kesko's interim report for the period 1 January to 30 September 2017: Kesko's profitability improved

FINANCIAL PERFORMANCE IN BRIEF:

• The Group's net sales in January-September totalled €8,058 million (€7,415 million), an increase of 8.7%, or 1.4% in comparable terms
• Comparable operating profit was €215.8 million (€209.6 million)
• Operating profit was €267.7 million (€187.0 million)
• Comparable return on capital employed was 11.4% (12.5%) (rolling 12 months)
• Comparable profit before tax was €218.2 million (€211.2 million)
• Comparable earnings per share were €1.62 (€1.59)
• In comparable terms, the net sales for the next 12 months are expected to exceed the level of the previous 12 months. Due to divestments and restructuring, Kesko Group's net sales for the next 12 months are expected to fall below the level of the previous 12 months. The comparable operating profit for the next 12-month period is expected to exceed the level of the preceding 12 months.

KEY PERFORMANCE INDICATORS

PRESIDENT AND CEO MIKKO HELANDER:

The implementation of our strategy towards becoming a more focused and unified Kesko and K Group is proceeding well.

During the past quarter, net sales grew in comparable terms in all divisions. Profitability improved compared to the year before and cash flow from operating activities continued to strengthen further. Kesko's financial position is very strong.

The strategy for the grocery trade and its implementation, which is proceeding well, resulted in increased sales and improved profitability. The reworking of K-food store chains is well under way. Sales and customer flows are growing for all chains. The changes already made in K-Citymarkets have strengthened the chain's market position. We are also pleased about the progress made in the integration of Suomen Lähikauppa and the resulting synergy benefits, which have materialised sooner than anticipated. Kespro continued to perform well both in terms of sales and profitability.

In the building and technical trade, sales in Finland grew markedly and profitability improved, with Onninen's operating profit in particular continuing to increase. In Onninen's foreign operations, good progress has been made in Poland in measures to improve profitability. Losses in Onninen's Swedish operations have decreased, but work continues to improve profitability further. In the Baltics and Belarus, investments and store renewals continued in an effort to further strengthen Kesko Senukai's sales and market position. The division's sales and operating profit were reduced by the divestments carried out during the first half of the year in the speciality goods trade.

In the car trade, sales and profitability continued to develop positively, and our market share increased during the quarter. The acquisition of AutoCarrera and the good sales of Porsche also contributed to the division's improved profitability.

As a sign of our long-term commitment to corporate responsibility, Kesko is again included in the Dow Jones Sustainability Indices DJSI World and DJSI Europe of the world's most responsible companies.

FINANCIAL PERFORMANCE

Net sales and profit for January-September 2017

The Group's net sales for January-September 2017 totalled €8,058 million, which is 8.7% more than in the corresponding period of the previous year (€7,415 million). Net sales development was affected by both the acquisitions made in 2016 as well as the divestments made in the first half of 2017. In comparable terms, net sales grew by 1.4% in local currencies, excluding the impact of acquisitions and divestments. The Group's net sales increased by 6.6% in Finland and by 1.8% in comparable terms. In other countries, net sales grew by 16.6% and in comparable terms net sales were at the previous year's level. International operations accounted for 21.7% (20.2%) of the Group's net sales.

The 1.8% growth in the net sales for the grocery trade was affected by the acquisition of Suomen Lähikauppa on 12 April 2016 and changes to Suomen Lähikauppa's store site network, as well as by the divestment of Russian business operations on 30 November 2016. In comparable terms net sales increased by 1.6%. The comparable change has been calculated by including in the net sales those stores acquired from Suomen Lähikauppa which have been in the store network during both this reporting period as well as the comparison period.

In the building and technical trade, net sales grew by 17.0%. In comparable terms, net sales increased by 0.7% in local currencies. The comparable change has been calculated excluding the impact of the Onninen acquisition on 1 June 2016, the divestment of the K-maatalous business on 1 June 2017, and the divestment of the Asko and Sotka furniture trade on 30 June 2017. The net sales for the building and technical trade excluding the speciality goods trade increased by 31.9%, or 2.8% in comparable terms. Net sales for the speciality goods trade decreased by 25.1% due to divestments.

Net sales in the car trade increased by 10.1%. In comparable terms, excluding the impact of the acquisition of AutoCarrera in December 2016, net sales increased by 3.3%.

During the reporting period, Kesko Group divested the K-maatalous business on 1 June 2017, and on 30 June 2017, the Asko and Sotka furniture trade, the Yamarin boat business and the Yamaha representation.

(..) Change over 100%

The Group's comparable operating profit in January-September amounted to €215.8 million (€209.6 million). Profitability improved in the grocery trade thanks to increased sales, realised synergy benefits and the divestment of the loss-making Russian operations in 2016. The operating profit for the building and technical trade, excluding the speciality goods trade, was increased by the acquisition of Onninen, which improved its profitability, while the operating profit for Kesko Senukai and the operations in Sweden fell short on the year before. The operating profit in the speciality goods trade decreased on account of divestments. In the car trade, profitability improved due to growth in sales and the acquisition of AutoCarrera's Porsche business. 

The operating profit was €267.7 million (€187.0 million). Items affecting comparability totalled €51.9 million (€-22.6 million). The most significant items affecting comparability were the €49.6 million gain on the divestment of properties in the Baltics, the €19.7 million expenses related to the conversion of the Suomen Lähikauppa chains and the transfer of stores to retailers, the gain on the divestment of the K-maatalous business of €12.1 million, and the gain on the divestment of the Asko and Sotka furniture trade amounting to €19.0 million.

The Group's profit before tax in January-September amounted to €270.0 million (€188.7 million). The Group's earnings per share were €2.16 (€1.40). The comparable earnings per share were €1.62 (€1.59). The Group's equity per share was €20.89 (€20.84). 

K Group's (Kesko and K-chain stores) retail and B2B sales (VAT 0%) for January-September were €9,531 million, representing a growth of 1.4% compared to the previous year (pro forma). The K-Plussa customer loyalty programme added 53,217 new households between January and September 2017. The number of K-Plussa households stood at 2.3 million at the end of September and there were 3.6 million K-Plussa card-holders in total.

Net sales and profit for July-September 2017

The Group's net sales for July-September 2017 were €2,647 million, which is 5.2% less than in the corresponding period of the previous year (€2,792 million). The decrease was related to the divestments made during the previous year and during the second quarter of this year. In comparable terms excluding acquisitions and divestments, net sales grew by 1.8% in local currencies. The Group's net sales decreased by 5.6% in Finland, or grew by 2.2% in comparable terms. In other countries, net sales decreased by 4.0%, or grew by 0.6% in comparable terms. International operations accounted for 23.4% (23.1%) of the Group's net sales.

In the grocery trade, net sales decreased by 4.0%, affected by the transfer of the acquired Suomen Lähikauppa stores to retailers and store closures, as well as by the divestment of Russian business operations on 30 November 2016. In comparable terms, net sales in the grocery trade grew by 2.4%. The comparable change has been calculated by including in the net sales those stores acquired from Suomen Lähikauppa which have been in the store network during both this reporting period as well as the comparison period.

In the building and technical trade, net sales decreased by 9.4%. In comparable terms, net sales increased by 0.8% in local currencies. The comparable change has been calculated excluding the impact of the K-maatalous business sold on 1 June 2017 and that of the Asko and Sotka furniture trade, sold on 30 June 2017. Excluding the impact of the speciality goods trade, net sales for the building and technical trade grew by 3.3% and in comparable terms by 3.2%. Net sales for the speciality goods trade decreased by 55.9% due to divestments.

In the car trade, net sales were up by 12.0%, and excluding the impact of the acquisition of AutoCarrera in December 2016, by 3.2%.

(..) Change over 100%

The Group's comparable operating profit for July-September amounted to €102.5 million (€98.2 million). Profitability improved in the grocery trade due to good sales development and realised synergy benefits. The divestment of the loss-making Russian business operations in 2016 also had a positive impact on the profit. In the building and technical trade, excluding the impact of the speciality goods trade, Onninen's operating profit increased on the year before, while the operating profits of operations in Sweden and Kesko Senukai decreased on the previous year. The operating profit for the speciality goods trade decreased due to divestments. Profitability improved in the car trade due to growth in sales and the acquisition of AutoCarrera's Porsche business.

Operating profit amounted to €98.6 million (€85.5 million). Items affecting comparability totalled €-4.0 million (€-12.7 million). The most significant items affecting comparability were the €2.2 million costs related to the discontinuation of Onninen's Russian business operations and to the conversion of Suomen Lähikauppa's chains.

The Group's profit before tax for July-September amounted to €98.0 million (€84.8 million). The Group's earnings per share were €0.69 (€0.63). The comparable earnings per share were €0.72 (€0.73).

K Group's (Kesko and K-chain stores) retail and B2B sales (VAT 0%) for July-September totalled €3,305 million, which represents a growth of 1.2% compared to the previous year (pro forma).

Finance

Cash flow from operating activities for January-September was €186.0 million (€62.4 million). Cash flow was strengthened by improved profitability and release of working capital. Cash flow from investing activities was a positive of €10.9 million (€-576.6 million) due to the proceeds from divestments amounting to €199.5 million.

At the end of the period, liquid assets totalled €370 million (€245 million). Interest-bearing liabilities at the end of September totalled €530 million (€545 million) and interest-bearing net debt amounted to €159 million (€299 million). The equity ratio was 49.1% (47.9%) at the end of the period.

The Group's net finance income was €2.3 million (€3.3 million) for January-September. The financial items include dividend income and interest income on cooperative capital of €4.5 million, of which €2.3 million is interest income on cooperative capital from Suomen Luotto-osuuskunta.

Cash flow from operating activities for July-September was €102.1 million (€80.2 million). The cash flow from investing activities was €-52.3 million (€-47.6 million).

The Group's net finance costs for July-September were €0.6 million (€1.1 million).

Taxes

The Group's taxes for January-September were €45.9 million (€37.7 million). The effective tax rate was 17.0% (20.0%). The Group's effective tax rate was lowered by the tax-exempt gains on the sale of properties and subsidiaries. The Group's taxes for July-September were €23.8 million (€16.4 million). The effective tax rate was 24.3% (19.3%).

Capital expenditure

The Group's capital expenditure for January-September totalled €232.8 million (€637.7 million), representing 2.9% (8.6%) of net sales. Capital expenditure in store sites was €169.5 million (€158.6 million), in IT €21.6 million (€19.8 million) and other capital expenditure was €41.4 million (€28.2 million).  The comparison period includes acquisitions amounting to €431.0 million.

The Group's capital expenditure for July-September totalled €62.7 million (€73.6 million), representing 2.4% (2.6%) of net sales. Capital expenditure in store sites was €52.4 million (€58.1 million), in IT €4.2 million (€10.9 million) and other capital expenditure was €5.8 million (€4.6 million).

Personnel

In January-September, the average number of personnel in Kesko Group was 22,419 (21,947) converted into full-time employees. The increase was due to the acquisitions of Suomen Lähikauppa and Onninen.

At the end of September 2017, the number of personnel stood at 25,288 (29,338), of whom 12,603 (15,014) were employed in Finland and 12,685 (14,324) outside Finland.

SEGMENTS

Seasonal nature of operations The Group's operating activities are affected by seasonal fluctuations. The net sales and the operating profits of the reportable segments are not earned evenly throughout the year. Instead, they vary by quarter depending on the characteristics of each segment. In terms of the level of operating profit, the second and third quarter are the strongest, whereas the impact of the first quarter on the full year profit is the smallest. The acquisitions of Suomen Lähikauppa and Onninen increase the seasonal fluctuations between quarters. The operating profit levels of Onninen and Suomen Lähikauppa are lowest for the first quarter.

Grocery trade

January-September 2017

The net sales for the grocery trade in January-September amounted to €3,883 million (€3,814 million), representing a growth of 1.8%. Net sales development was affected by the acquisition of Suomen Lähikauppa on 12 April 2016 and changes in its store site network, as well as the divestment of Russian business operations on 30 November 2016. In comparable terms net sales increased by 1.6%. The comparable change has been calculated by including in the net sales those stores acquired from Suomen Lähikauppa which have been in the store network during both this reporting period as well as the comparison period.

K Group's grocery sales grew by 2.1% (incl. VAT) if the impact of the acquisition of Suomen Lähikauppa is excluded. K Group's grocery trade sales pro forma growth was 0.4% (incl. VAT), which was affected by the Suomen Lähikauppa store site network being smaller than the year before. In the Finnish grocery market, retail prices are estimated to have remained at the level of the previous year (incl. VAT, Kesko's own estimate based on the Consumer Price Index of Statistics Finland) and the total market (incl. VAT) is estimated to have increased by approximately 1.6% in January-September (Kesko's own estimate).

The acquisition of Suomen Lähikauppa was completed in April of the previous year and the conversion of Siwas and Valintatalos into K-Markets began in May 2016. By the end of May 2017, all Siwa and Valintatalo stores that continued operating (at 409 store locations) had been converted into K-stores (408 K-Markets and 1 K-Supermarket). Of these, 166 stores had been transferred to retailers by the end of September. The transfer of the stores to retailers will be complete by the end of the first half of 2018.

The grocery trade's comparable operating profit for January-September amounted to €136.3 million (€124.0 million), an increase of €12.3 million. Profitability improved in the grocery trade thanks to increased sales, realised synergy benefits and the divestment of the loss-making Russian operations in 2016. The effect of Suomen Lähikauppa on the comparable operating profit for January-September was €0.2 million (April-September 2016 €0.9 million). The Russian business divested in November 2016 made a loss of €13.3 million in the comparison period. The grocery trade's operating profit was €115.9 million (€119.1 million). Items affecting comparability amounted to €20.4 million (€5.0 million), and they were mainly related to the €19.7 million restructuring of Suomen Lähikauppa.

Capital expenditure in the grocery trade totalled €142.9 million (€188.4 million), of which the capital expenditure in store sites accounted for €133.4 million (€115.6 million).

July-September 2017

Net sales for the grocery trade in July-September were €1,313 million (€1,367 million), down by 4.0%. The development was affected by the transfer of the acquired Suomen Lähikauppa stores to retailers and store closures, as well as the divestment of Russian business operations on 30 November 2016. In comparable terms, net sales in the grocery trade grew by 2.4%. The comparable change has been calculated by including in the net sales those stores acquired from Suomen Lähikauppa which have been in the store network during both this reporting period as well as the comparison period.

K Group's grocery trade sales grew by 2.7% (incl. VAT) if the acquisition of Suomen Lähikauppa is excluded. K Group's grocery trade sales pro forma growth was 0.8% (incl. VAT), impacted by the reductions in Suomen Lähikauppa's store site network compared to the year before. In the Finnish grocery market, retail prices are estimated to have changed by approximately +0.2% compared to the previous year.

The grocery trade's comparable operating profit in July-September amounted to €59.4 million (€49.2 million), an increase of €10.2 million. Profitability improved thanks to good development in sales and realised synergies. The divestment of the loss-making Russian business operations in 2016 also had a positive impact on the profit. The effect of Suomen Lähikauppa on the comparable operating profit for July-September was €3.7 million (€2.4 million). The business in Russia, divested in November 2016, made a loss of €4.0 million in the comparison period. The grocery trade's operating profit was €59.3 million (€44.8 million). Items affecting comparability were €-0.2 million (€-4.4 million).

Capital expenditure in the grocery trade totalled €45.3 million (€49.1 million) in July-September, of which the capital expenditure in store sites accounted for €46.4 million (€45.4 million).

In July-September, three K-Supermarkets (one replacement new building) and two new K-Markets opened. Renewals and extensions were made in a total of 30 stores.

The most significant store sites being built are a K-Citymarket and the Easton shopping centre in Itäkeskus, Helsinki, and new K-Supermarkets in Tesoma, Tampere, Ratina and Kaukajärvi, Turku, Suurpelto, Espoo, Kalasatama and Laajasalo, Helsinki, and Oulu, Lapua, Kouvola and Kauniainen. K-Supermarkets Kamppi, Hertta and Itäpoiju are being expanded.

In addition, an expansion to the grocery trade's central warehouse in Hakkila, Vantaa is under construction.

* Including online stores

** The total number of Suomen Lähikauppa's stores was 407.

In addition, several K-food stores offer e-commerce services to their customers.

Building and technical trade

January-September 2017

The net sales for the building and technical trade in January-September were €3,486 million (€2,979 million), up 17.0%. In comparable terms, net sales increased by 0.7% in local currencies. In the calculation of the comparable change, Onninen's net sales have been included for the period between 1 June and 30 September both for the reporting period and the comparison period, while the net sales for the K-maatalous business, divested on 1 June 2017, and the Asko and Sotka furniture trade, divested on 30 June 2017, have been excluded both for the reporting period and the comparison period.

The net sales for the building and technical trade in Finland in January-September were €1,738 million (€1,562 million), up 11.2%. In comparable terms net sales increased by 1.2% in Finland. Net sales from foreign operations amounted to €1,748 million (€1,417 million) for January-September, an increase of 23.4%. Net sales from foreign operations in comparable terms remained at the previous year's level. Foreign operations contributed 50.1% (47.6%) to the net sales of the building and technical trade.

The net sales of the building and technical trade excluding the speciality goods trade operations were €2,902 million (2,200 million) in January-September, an increase of 31.9%. In comparable terms, net sales grew by 2.8%. Net sales for the building and home improvement trade for January-September totalled €1,756 million (€1,690 million), an increase of 3.9%. In local currencies, net sales were up by 2.3%. Net sales decreased in local currency in Norway by 1.4%, in Sweden by 5.7% and in Russia by 6.7%. Net sales growth strengthened in the building and home improvement trade especially in the B2B sector. Onninen's net sales for January-September totalled €1,164 million (€512 million in June-September 2016). In comparable terms, Onninen's net sales grew by 5.4%. The market share of K Group's building and technical trade is estimated to have strengthened in Finland. K Group's sales of building and home improvement products in Finland increased by 3.5% and the total market (VAT 0%) is estimated to have increased by about 0.7% (Kesko's own estimate).

Net sales for the speciality goods trade amounted to €548 million (€780 million) for January-September, a decrease of 25.1%. The decrease in net sales was affected by divestments carried out. The net sales for the machinery trade for January-September amounted to €205 million (€233 million), a decrease of 12.1% from the previous year. Net sales for the machinery trade in Finland were €89 million, down 25.5%. The net sales from foreign operations were €115 million, up 2.0%. Net sales for the leisure trade in Finland were €142 million (€146 million), down 3.1%. The net sales of the Asko and Sotka furniture trade, K-maatalous business, Yamarin boat business and Yamaha representation, all divested in June, totalled €279 million (January-September 2016 €455 million) in the first half of the year.

In the building and technical trade, comparable operating profit for January-September totalled €81.2 million (€83.5 million), down by €2.3 million on the year before.  The comparable operating profit for the building and technical trade, excluding the speciality goods trade, was €65.2 million (€60.0 million), an increase of €5.2 million. Profitability was boosted by Onninen's good profit performance. Onninen's comparable operating profit for January-September amounted to €22.2 million (€11.0 million for June-September 2016). Profitability was weakened by Kesko Senukai's lower operating profit compared to the previous year, which was partly due to the renewal and expansion of the store site network in the Baltic countries and Belarus, as well as by the weaker profit performance of operations in Sweden. The comparable operating profit for the speciality goods trade was €15.9 million (€23.5 million), down by €7.6 million. The comparable operating profit for the K-maatalous business and the Asko and Sotka furniture trade, divested in June, was €6.8 million for the first half of the year (€11.6 million in January-September 2016).

The operating profit for the building and technical trade was €156.4 million (€72.5 million). The most significant items affecting comparability were the €49.6 million gain from the divestment of properties in the Baltic countries, the €12.1 million gain from the divestment of the K-maatalous business, and the €19.0 million gain on the divestment of Asko and Sotka furniture trade.

The capital expenditure of the building and technical trade in January-September totalled €57.8 million (€428.0 million), of which €35.1 million was related to capital expenditure in store sites (€42.1 million). The comparison period in the previous year includes €376.9 million in acquisitions.

July-September 2017

The net sales for the building and technical trade in July-September were € 1,121 million (€1,238 million), a decrease of 9.4%. In comparable terms, net sales grew by 0.8%. The comparable change has been calculated excluding the impact of the K-maatalous business sold on 1 June 2017 and that of the Asko and Sotka furniture trade, sold on 30 June 2017.

The net sales for the building and technical trade in Finland for July-September were €502 million (€622 million), a decrease of 19.2%. In comparable terms, net sales increased by 1.1% in Finland. Net sales from foreign operations amounted to €619 million (€616 million) for July-September, an increase of 0.5%. Net sales from foreign operations were up by 0.6% in comparable terms. Foreign operations accounted for 55.2% (49.8%) of the net sales for the building and technical trade.

The net sales for the building and technical trade excluding the speciality goods trade operations were €1,004 million (€972 million) in July-September, an increase of 3.3%. In comparable terms, net sales in local currencies, excluding acquisitions and divestments, increased by 3.2%. Net sales for the building and home improvement trade for July-September totalled €612 million (€597 million), an increase of 2.4%. In comparable terms, net sales grew by 2.2%. Net sales decreased in local currency in Norway by 1.5%, in Sweden by 8.6% and in Russia by 6.0%. Onninen's net sales amounted to €399 million (€376 million) for July-September, an increase of 6.2%. In comparable terms, Onninen's net sales grew by 6.0%. K Group's sales of building and home improvement products in Finland increased by 4.1% and the total market (VAT 0%) is estimated to have increased by about 0.5% (Kesko's own estimate).

Net sales for the speciality goods trade amounted to €117 million (€266 million) for July-September, a decrease of 55.9%. The decrease in net sales was affected by the divestments carried out. The net sales of the machinery trade for July-September amounted to €65 million (€85 million), a decrease of 24.0% from the previous year. Net sales for the machinery trade in Finland were €15 million (€32 million), down 54.1%. Net sales for the machinery trade's foreign operations totalled €50 million (€53 million), down 5.4%. Net sales for the leisure trade in Finland were €53 million (€54 million), down 2.0%. The net sales for the Asko and Sotka furniture trade, K-maatalous business, Yamarin boat business and Yamaha representation, all divested in June, totalled €140 million in July-September 2016.

The comparable operating profit for the building and technical trade for July-September totalled €42.7 million (€45.3 million), down by €2.5 million on the year before. The comparable operating profit for the building and technical trade, excluding the speciality goods trade, was €36.6 million (€34.6 million), an increase of €2.0 million. Profitability improved thanks to the increase in the operating profit for Onninen. Onninen's comparable operating profit for July-September amounted to €13.3 million (€8.8 million). Profitability was weakened by Kesko Senukai's lower operating profit compared to the previous year, which was partly due to the renewal and expansion of the store site network in the Baltic countries and Belarus, as well as by weak profit performance in Sweden. The comparable operating profit for the speciality goods trade was €6.1 million (€10.6 million). The K-maatalous business and the Asko ja Sotka furniture trade, divested in June, accounted for €4.4 million of the comparable operating profit for the comparison period.

The operating profit for the building and technical trade was €39.9 million (€37.9 million). Items affecting comparability totalled €-2.8 million (€-7.4 million).

The capital expenditure of the building and technical trade in July-September totalled €8.9 million (€15.1 million), of which €5.5 million was related to capital expenditure in store sites (€12.4 million).

The most important store sites under construction are a K-Rauta in Lapua, Finland, a K-Senukai store in Daugavpils, Latvia, a K-Rauta Onninen in Karlstad, Sweden, two K-Senukai stores in Lithuania, and two building and home improvement stores in Belarus. Two Onninen Express stores are under construction in Finland.

* The K-Rauta and Rautia stores were combined to form the K-Rauta chain, launched with a new brand image in March 2017 in Finland

** Including online stores

In addition, the building and home improvement stores offer e-commerce services to their customers.

One Onninen store in Sweden operates in the same store with K-Rauta.

Car trade

January-September 2017

Net sales for the car trade for January-September were €691 million (€628 million), an increase of 10.1%. The comparable development of net sales without AutoCarrera, purchased in December 2016, amounted to +3.3%. The combined market performance of first time registered passenger cars and vans in January-September was +1.2% (+12.4%). The combined market share for cars and vans imported by VV-Auto was 18.6% (18.2%) in January-September.

In the car trade, profitability continued to improve thanks to good sales performance and the acquisition of AutoCarrera's Porsche business. The comparable operating profit for January-September amounted to €26.4 million (€22.0 million), an increase of €4.4 million. AutoCarrera's comparable operating profit was €2.5 million. The operating profit for January-September totalled €26.4 million (€22.0 million).

Capital expenditure for the car trade for January-September was €14.0 million (€11.2 million).

July-September 2017

Net sales for the car trade for January-September were €212 million (€190 million), an increase of 12.0%. The comparable development of net sales without AutoCarrera, purchased in December 2016, amounted to 3.2%. The combined market share for cars and vans imported by VV-Auto was 18.5% (17.2%) in July-September.

In the car trade, profitability continued to improve thanks to good sales performance and the acquisition of AutoCarrera's Porsche business. The comparable operating profit in July-September amounted to €8.8 million (€6.8 million), an increase of €2.0 million. AutoCarrera's comparable operating profit was €1.4 million. The operating profit for July-September totalled €8.8 million (€6.8 million).

Capital expenditure for the car trade for July-September was €5.0 million (€3.1 million).

Changes in Group composition

Konekesko Ltd, a Kesko Corporation subsidiary, sold its Yamarin boat business to Inhan Tehtaat Oy Ab, a subsidiary owned by Yamaha Motor Europe N.V. At the same time, the transfer of the representation of Yamaha's recreational machinery in Finland from Konekesko Ltd to Yamaha Motor Europe N.V. was also completed. (Press release 30 June 2017)

In March of this year, Kesko and Oriola announced their intention to establish a new chain of health, beauty and wellbeing across Finland. Finland's Competition and Consumer Authority approved the establishment of the joint venture on 26 June 2017 and the establishment of the company was finalised at the end of June. Both parties own 50 per cent of the new company. (Press release 30 June 2017)

Kesko Corporation sold Indoor Group, which is responsible for the Asko and Sotka furniture trade, to a company owned by Sievi Capital Oyj, three franchising entrepreneurs from the Sotka chain and Etera Mutual Pension Insurance Company. The debt free price of the sale, structured as a share transaction, was €67 million. (Press releases on 20 June 2017 and 30 June 2017)

Kesko Corporation sold its K-maatalous business to Swedish Lantmännen ek för. The debt free price of the sale, structured as a share transaction, was €38.5 million. (Press release 1 June 2017)

Kesko sold seven store sites used by Kesko Senukai in Estonia and Latvia to the property investment company UAB Baltic Retail Properties. At the same time, Kesko acquired a 10% shareholding in the property investment company. (Press release 24 May 2017)

Kesko Food Ltd, K-citymarket Oy and Kespro Ltd, subsidiaries wholly-owned by Kesko Corporation, merged into Kesko Corporation on 28 February 2017.

Kesko Corporation's subsidiary Konekesko Ltd sold 45% of its Baltic subsidiaries' shares to Danish Agro a.m.b.a.'s group company DAVA Agravis Machinery Holding A/S. In the same context, an agreement was made on options to expand DAVA Agravis' ownership to include the whole share capital of the Baltic machinery trade companies and Danish Agro group's ownership to include Konekesko's agricultural machinery business in Finland. (Stock exchange release on 10 February 2017)

Shares, securities market and Board authorisations

At the end of September 2017, the total number of Kesko Corporation shares was 100,019,752, of which 31,737,007, or 31.7%, were A shares and 68,282,745, or 68.3%, were B shares. At 30 September 2017, Kesko Corporation held 555,615 own B shares as treasury shares. These treasury shares accounted for 0.81% of the number of B shares, 0.56% of the total number of shares, and 0.14% of votes attached to all shares of the Company. The total number of votes attached to all shares was 385,652,815. Each A share carries ten (10) votes and each B share one (1) vote. The Company cannot vote with own shares held by it as treasury shares and no dividend is paid on them. At the end of September 2017, Kesko Corporation's share capital was €197,282,584.

The price of a Kesko A share quoted on Nasdaq Helsinki was €43.85 at the end of 2016, and €44.88 at the end of September 2017, representing an increase of 2.3%. Correspondingly, the price of a B share was €47.48 at the end of 2016, and €45.37 at the end of September 2017, representing a decrease of 4.4%. In January-September, the highest A share price was €45.99 and the lowest was €40.11. The highest B share price was €48.59 and the lowest was €41.51. In January- September, the Nasdaq Helsinki All-Share index (OMX Helsinki) was up by 8.4% and the weighted OMX Helsinki Cap index by 8.6%. The Retail Sector Index was down by 4.6%.

At the end of September 2017, the market capitalisation of A shares was €1,424.4 million, while that of B shares was €3,072.8 million, excluding the shares held by the parent company as treasury shares. The combined market capitalisation of A and B shares was €4,497.1 million, a decrease of €101.2 million from the end of 2016.

In January-September 2017, a total of 1.0 million (1.3 million) A shares were traded on Nasdaq Helsinki, a decrease of 22.0%. The exchange value of A shares was €43.5 million. The number of B shares traded was 38.4 million (39.1 million), a decrease of 1.8%. The exchange value of B shares was €1,709.2 million. Nasdaq Helsinki accounted for 42.3% of the Kesko A and B share trading in January-September 2017. Kesko shares were also traded on multilateral trading facilities, the most significant of which was BATS. (source: Fidessa).

The Board holds a valid authorisation to decide on the transfer of a maximum of 1,000,000 own B shares held by the Company as treasury shares (the 2016 share issue authorisation). On 1 February 2017, the Board decided to grant own B shares held by the Company as treasury shares to persons included in the target group of the 2016 vesting period, based on this share issue authorisation and the fulfilment of the vesting criteria of the 2016 vesting period of Kesko's three-year share-based compensation plan. This transfer of a total of 192,822 own B shares was announced in a stock exchange release on 15 March 2017. Based on the 2014-2016 share-based compensation plan decided by the Board, a total maximum of 600,000 own B shares held by the Company as treasury shares could be granted within a period of three years based on the fulfilment of the vesting criteria. The Board decided on the vesting criteria and the target group separately for each vesting period. In January- September, a total of 2,328 shares granted based on the fulfilment of the vesting criteria of the share-based compensation plan 2014-2016 was returned to the Company in accordance with the terms and conditions of the share-based compensation plans. The returns during the reporting period were notified in a stock exchange release on 12 May 2017 and 18 September 2017. The share-based compensation plan 2014-2016 was announced in a stock exchange release on 4 February 2014.

On 1 February 2017, Kesko Corporation's Board of Directors made a decision to establish a new share-based long-term incentive scheme for Kesko's top management and key persons selected separately. The scheme consists of a performance share plan (PSP) as the main structure, and of a restricted share pool (RSP), which is a complementary share plan for special situations. Besides the PSP, the Board has made a decision to establish a share-based bridge plan to cover the transitional phase during which Kesko transfers from a one-year performance period to a longer performance period in its long-term incentive scheme structure. If the performance criteria set for the PSP 2017-2020 plan are achieved in full, the maximum number of series B shares to be paid based on this plan is 340,000 shares. If all the performance criteria set for the Bridge Plan are achieved in full, the maximum number of series B shares to be paid based on the Bridge Plan is 340,000 shares. The total maximum amount of share awards payable under the RSP 2017-2019 is 20,000. The new share-based incentive scheme was announced in a stock exchange release on 2 February 2017.

Kesko's Board of Directors holds a valid authorisation decided by the Annual General Meeting held on 4 April 2016 to transfer of a total maximum of 1,000,000 own B shares held by the Company as treasury shares (the 2016 share issue authorisation). Based on the authorisation, own B shares held by the Company as treasury shares can be issued for subscription by shareholders in a directed issue in proportion to their existing holdings of the Company shares, regardless of whether they own A or B shares. Shares can also be issued in a directed issue, departing from the shareholder's pre-emptive right, for a weighty financial reason of the Company, such as using the shares to develop the Company's capital structure, to finance possible acquisitions, capital expenditure or other arrangements within the scope of the Company's business operations, and to implement the Company's commitment and incentive scheme. Own B shares held by the Company as treasury shares can be transferred either against or without payment. A share issue can only be without payment, if the Company, taking into account the best interests of all of its shareholders, has a particularly weighty financial reason for it. The authorisation also includes the Board's authority to make decisions concerning any other matters related to share issues. The amount possibly paid for the Company's own shares is recorded in the reserve of unrestricted equity. The authorisation is valid until 30 June 2020.

Kesko's Board of Directors also held a valid authorisation decided by the Annual General Meeting held on 4 April 2016 to acquire a maximum of 1,000,000 own B shares of the Company (the 2016 authorisation to acquire own shares). B shares are acquired with the Company's distributable unrestricted equity, not in proportion to the shareholdings of shareholders, at the market price quoted in public trading organised by Nasdaq Helsinki Ltd ("the exchange") at the date of acquisition. The shares are acquired and paid in accordance with the rules of the exchange. The acquisition of own shares reduces the amount of the Company's distributable unrestricted equity. B shares are acquired for use in the development of the Company's capital structure, to finance possible acquisitions, capital expenditure and/or other arrangements within the scope of the Company's business operations, and to implement the Company's commitment and incentive scheme. The Board makes decisions concerning any other issues related to the acquisition of own B shares. The authorisation was valid until 30 September 2017.

In addition, Kesko's Board of Directors holds a share issue authorisation, decided by the Annual General Meeting held on 13 April 2015, to issue a maximum of 20,000,000 new B shares (the 2015 share issue authorisation). The shares can be issued against payment to be subscribed by shareholders in a directed issue in proportion to their existing holdings of the Company shares regardless of whether they hold A or B shares, or, departing from the shareholder's pre-emptive right, in a directed issue, if there is a weighty financial reason for the Company, such as using the shares to develop the Company's capital structure and financing possible acquisitions, capital expenditure or other arrangements within the scope of the Company's business operations. The amount paid for the shares is recognised in the reserve of invested non-restricted equity. The authorisation also includes the Board's authority to decide on the share subscription price, the right to issue shares for non-cash consideration and the right to make decisions on other matters concerning share issues. The authorisation is valid until 30 June 2018.

At the end of September 2017, the number of shareholders was 41,955, which is 2,551 more than at the end of 2016. At the end of September, foreign ownership of all shares was 31.2%. Foreign ownership of B shares was 44.6% at the end of September.

Flagging notifications

According to a notification received by Kesko Corporation, the combined voting rights in respect of shares in Kesko held by K-Retailers' Association, its Branch Clubs and the Foundation for Vocational Training in the Retail Trade rose to 15 per cent on 3 February 2017 and exceeded 15 per cent on 6 February 2017. (Stock exchange release on 7 February 2017)

Key events during the reporting period

The court of arbitration dismissed Voimaosakeyhtiö SF's action against Kestra Kiinteistöpalvelut Oy concerning the further financing of the Fennovoima nuclear power plant project. (Stock exchange release on 10 January 2017)

Kesko Corporation's Board of Directors decided to establish a new share-based long-term incentive scheme for Kesko's top management and key persons selected separately. In addition, the Board of Directors decided to grant a total of 192,822 own B shares held by the Company as treasury shares, based on the fulfilment of the performance criteria of the 2016 performance period of Kesko's share-based compensation plan 2014-2016, to 130 Kesko management employees and other named key persons. (Stock exchange release on 2 February 2017)

Kesko Corporation's subsidiary Konekesko Ltd sold 45% of its Baltic subsidiaries' shares to Danish Agro a.m.b.a.'s group company DAVA Agravis Machinery Holding A/S. In the same context, an agreement was made on options to expand DAVA Agravis' ownership to include the whole share capital of the Baltic machinery trade companies and Danish Agro group's ownership to include Konekesko's agricultural machinery business in Finland. (Stock exchange release on 10 February 2017)

Kesko Corporation and Oriola-KD Corporation start building a completely new kind of store chain in Finland, specialising in overall wellbeing. The companies have signed an agreement to establish a joint venture. Finland's Competition and Consumer Authority approved the establishment of the joint venture on 26 June 2017 and the establishment of the company was finalised. Both parties own 50 per cent of the new company. The first phase objective is to build a chain of 100 stores and an online store. The plan is, if legislation is amended, to expand the business to include pharmaceuticals. (Stock exchange release on 13 March 2017, press release 30 June 2017)

The trading symbols of Kesko Corporation shares changed as of 15 March 2017. The new symbols are KESKOA (share series A) and KESKOB (share series B). (Stock exchange release on 13 March 2017)

Kesko Corporation sold its K-maatalous business to the Swedish Lantmännen ek för. The debt free price of the sale, structured as a share transaction, was €38.5 million. Kesko Corporation recorded a profit of €12.2 million on the disposal. On 26 May 2017, the Finnish Competition and Consumer Authority (FCCA) announced that it approves the disposal, and it was completed on 1 June 2017. The approval was not subject to any conditions. (Stock exchange release on 11 April 2017, press release on 1 June 2017)

Kesko Corporation sold Indoor Group, which is responsible for the Asko and Sotka furniture trade chains, to a company owned by Sievi Capital Oyj, three franchising entrepreneurs from the Sotka chain and Etera Mutual Pension Insurance Company. The debt free price of the sale, structured as a share transaction, was €67 million, and the sale was completed on 30 June 2017. Kesko Corporation recorded a profit of €19.0 million on the divestment. (Press releases on 20 June 2017 and 30 June 2017)

Kesko has been listed on the Dow Jones Sustainability Indices DJSI World and DJSI Europe. Kesko's scores rose especially in the areas of environmental responsibility and social responsibility. (Press release 13 September 2017)

Mika Majoinen, 53, Master of Laws, has been appointed Kesko Group General Counsel, a position he will take up on 1 January 2018. He will also become a member of Kesko's Group Management Board. Kesko's current Group General Counsel, EVP Anne Leppälä-Nilsson will retire on 31 December 2017, in accordance with her contract. (Stock exchange release 21.09.2017)

Kesko enters into cooperation with Alibaba to open a food online store in China. The aim of the cooperation between K Group and Alibaba on this project is to export Finnish food brands to the growing market in China. At the same time, Kesko will learn from a global pioneer in e-commerce. (Press release 29.9.2017)

Lauri Peltola, EVP, Marketing and Corporate Affairs and member of Group Management Board, leaves Kesko by the end of the year. Kesko has started a process to create a succession plan for Lauri Peltola. (Stock exchange release 29.09.2017)

Resolutions of the 2017 Annual General Meeting and decisions of the Board's organisational meeting

Kesko Corporation's Annual General Meeting held on 3 April 2017 adopted the financial statements and the consolidated financial statements for 2016 and discharged the Board members and the Managing Director from liability. The General Meeting also resolved to distribute €2.00 per share as dividends, or a total of €198,932,930.00. The dividend pay date was 12 April 2017.

The General Meeting resolved to leave the number of Board members unchanged at seven. The Annual General Meeting held on 13 April 2015 elected seven (7) Board members for terms of office in accordance with the Articles of Association expiring at the close of the Annual General Meeting to be held in 2018. Those Board members are retailer Esa Kiiskinen, Master of Science in Economics Tomi Korpisaari, retailer, eMBA Toni Pokela, eMBA Mikael Aro, Master of Science in Economics Matti Kyytsönen, Master of Science in Economics Anu Nissinen and Master of Laws Kaarina Ståhlberg. Korpisaari and Ståhlberg resigned from the membership of the Company's Board of Directors as of 1 March 2016. The General Meeting held on 4 April 2016 replaced Korpisaari and Ståhlberg by retailer, trade technician Matti Naumanen and Managing Director, Master of Science in Economics Jannica Fagerholm until the close of the Annual General Meeting to be held in 2018.

The General Meeting elected the firm of auditors PricewaterhouseCoopers Oy as the Company's Auditor, with Mikko Nieminen, APA, as the Auditor with principal responsibility.

In addition, the General Meeting approved the Board's proposal for its authorisation to decide on donations in a total maximum of €300,000 for charitable or corresponding purposes until the Annual General Meeting to be held in 2018, and to decide on the donation recipients, purposes of use and other terms of the donations.

After the Annual General Meeting, Kesko Corporation's Board of Directors held an organisational meeting in which it elected M.Sc. (Econ.) Jannica Fagerholm as the Chair of the Audit Committee, eMBA Mikael Aro as its Deputy Chair, and M.Sc. (Econ.) Matti Kyytsönen as its member. Business College Graduate Esa Kiiskinen (Ch.), eMBA Mikael Aro (Dep. Ch.) and M.Sc. (Econ.) Anu Nissinen were elected to the Board's Remuneration Committee.

The resolutions of the Annual General Meeting and the decisions of the Board's organisational meeting were announced in more detail in stock exchange releases on 3 April 2017.

Responsibility

In September, Kesko was added to the Dow Jones Sustainability Indices DJSI World and DJSI Europe. Kesko's scores rose especially in the areas of environmental responsibility and social responsibility.

In August, K Group and the World Wildlife Fund began a multi-year collaboration to save Finland's endangered migratory fish populations. K Group and WWF will jointly map different parts of Finland to find obstacles in migratory fish spawning grounds, and in a spirit of cooperation with landowners, local K-retailers and volunteers, make the spawning grounds once again accessible for fish. The aim is to generate more awareness of and discussion about Finland's endangered migratory fish populations.

K Group hosts the most extensive network of free-of-charge recharging points for electric cars. There are currently 80 recharging points in 23 locations.  During 2017, dozens of new recharging points will be built in Neste K service stations, and going forward, 10-15 new charging points will be built on K-Citymarket parking lots every year.

In September, Pirkka Parhaat Benella Rainbow Trout was introduced to K-food stores. The rainbow trout is farmed in Finland using sustainably produced feed.

In September, K Group took part in Food Waste Week for the fifth time. The campaign aims to encourage decreases in food waste and a greater appreciation of food. In 2013, K Group set itself the target of reducing food waste from its K-food stores by 10% by year 2020. Currently, food waste is being reduced at a rate of 1-2% per year.

In September, K-Rauta opened a new free-of-charge advice service for renovation. The Remonttineuvonta service offers advice on all kinds of questions related to renovation.

K-Market was one of the two main partners of the Lähiöfest2017 neighbourhood festival. During the festival week at the end of September, K-Market hosted a workshop envisioning a food store of the future, set up a pop-up restaurant in the Helsinki suburb of Vuosaari, and took part in marketplace events that livened up different neighbourhoods around Helsinki.

Risk management

Kesko Group has an established and comprehensive risk management process.  Risks and their management responses are regularly assessed within the Group and reported to the Group management. Kesko's risk management and risks associated with business operations are described in more detail on Kesko's website in the Corporate Governance section.

The most significant near-future risks in Kesko's business operations are associated with price competition in the Finnish grocery trade, the implementation of the growth strategy of the building and technical trade, as well as the change in the trading sector caused by digitalisation. Positive change is estimated to have taken place in 2017 in the risks described in Kesko's 2016 Report by the Board of Directors, financial statements and the following risks described on Kesko's website. Purchasing power and trading sector demand are estimated to be developing positively in line with the general economic development in Finland. With regard to the implementation of the neighbourhood market strategy in the grocery trade, the changes to and integration of the stores that were transferred to K Group in the acquisition have proceeded according to plans and the work will be completed in the first half of 2018.The risks and uncertainties related to economic development are described in the outlook section of this release.

Outlook

Estimates for the outlook for Kesko Group's net sales and comparable operating profit are given for the 12-month period following the reporting period (10/2017-9/2018) in comparison with the 12 months preceding the end of the reporting period (10/2016-9/2017).

The general economic situation and the expected trend in consumer demand vary in Kesko's different operating countries. In Finland, the trading sector is expected to grow. In the Finnish grocery trade, intense competition is expected to continue, although, as purchasing power increases, the importance of quality will be emphasised more than previously. In the building and technical trade, the growth in the B2B business is expected to continue stronger than the growth in the B2C business. In the Nordic countries and the Baltics, the market is expected to grow but at a somewhat slower rate. The trend in the Russian market is expected to remain modest.

In comparable terms, the net sales for the next 12 months are expected to exceed the level of the previous 12 months. Due to divestments and restructuring, Kesko Group's net sales for the next 12 months are expected to fall below the level of the previous 12 months. That development results from the divestments of the Russian grocery trade, the K-maatalous business, the Asko and Sotka furniture trade, the Yamarin boat business and Kesko's Yamaha representation as well as store closures and the transfer of Suomen Lähikauppa stores to retailers.

The comparable operating profit for the next 12-month period is expected to exceed the level of the preceding 12 months.

Helsinki, 24 October 2017 Kesko Corporation Board of Directors

The information in the interim report is unaudited.

Further information is available from Jukka Erlund, Executive Vice President, Chief Financial Officer, telephone +358 105 322 113, Kia Aejmelaeus, Vice President, Investor Relations, telephone +358 105 322 533, and Eva Kaukinen, Vice President, Group Controller, telephone +358 105 322 338. A Finnish-language webcast of the interim report briefing can be viewed at 11.00 at www.kesko.fi. An English-language audio conference on the interim report will be held today at 14.00 (Finnish time). The audio conference login is available on Kesko's website at www.kesko.fi.

Kesko Corporation's financial statements release for 2017 will be published on 1 February 2018. In addition, Kesko Group's sales figures are published each month. News releases and other Company information are available on Kesko's website at www.kesko.fi.

KESKO CORPORATION

ATTACHMENTS: Interim report 1-9/2017 pdf

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