Finland: Kesko - Interim Report for 1 January-30 June 2008

 

Net sales and profit, continuing operations
The Group's net sales in January-June 2008 were €4,828 million, which is 6.5% up on the corresponding period of the previous year (€4,532 million). The Group's net sales increased by 5.5% in Finland and by 10.3% abroad. The contribution of business acquisitions and disposals excluded, the Group's net sales growth was 6.1%. Exports and foreign operations accounted for 21.7% (20.9%) of the net sales.

 

In January-June, the K-Group's (i.e. Kesko's and the chain stores') retail sales (incl. VAT) were €5,764 million, an increase of 6.9% on the corresponding period of the previous year.

 

The Group's profit before tax for January-June was €232.9 million (€195.7 million). The operating profit was €235.0 million (€160.0 million). It was increased by a total of €117.3 million (€8.8 million) in non-recurring gains on the disposal of fixed assets and businesses. The non-recurring items include a €103.2 million non-recurring gain on the property lease and sale arrangements between Kesko and Nordisk Renting Oy, and a €10.3 million gain on the sale of K-Rahoitus Oy shares. The financial items of the comparative period included €37.1 million in non-recurring gains on the sale of SATO Corporation shares.

 

The operating profit excluding non-recurring items was €117.7 million (€151.2 million). It represented 2.4% of net sales (3.3%). The smaller year-on-year operating profit excluding non-recurring items was due to the gross profit remaining below last year's level, the expansion and renovation of Rautakesko's and Ruokakesko's store site networks and the decline in demand in the construction market.

The Group's earnings per share from continuing operations were €1.69 (€1.44). Equity per share was €20.17 (€18.32).

 

Discontinued operations
In January-June, the Group's profit from discontinued operations was €41.4 million (€33.0 million).

 

On 28 February 2008, Kesko signed a contract of sale by which it sold the share capital of Kauko-Telko Ltd to Aspo Oyj. The transaction was completed on 30 April 2008. The debt-free selling price was about €77 million and the disposal contributed a non-recurring gain of about €31 million. Kauko-Telko is presented as a discontinued operation in compliance with IFRS 5.

 

On 31 March 2008, Kesko Corporation sold all Tähti Optikko Group Oy shares to the Specsavers optical chain. The debt-free selling price was about €15 million. The disposal contributed a non-recurring gain of €8.5 million. Tähti-Optikko is presented as a discontinued operation in compliance with IFRS 5.

 

In the year of comparison, discontinued operations include a €28.2 million gain on the disposal of food store properties leased to Rimi Baltic AB.

 

Investments
In January-June, the Group's investments totalled €143.3 million (€110.6 million), which is 3.0% (2.4%) of net sales. Investments in store sites were 119.4 million (€84.8 million). The Group's other investments were €23.9 million (€25.8 million). Investments in foreign operations represented 26.1% of total investments.

 

Finance
In January-June, the cash flow from operating activities was €90.9 million (€97.0 million) and the cash flow from investing activities was €78.5 million (€-3.5 million). The cash flow from investing activities included €217.3 million (€136.5 million) of proceeds received from the disposal of fixed assets.

 

At the end of the period, liquid funds totalled €551 million (€283 million). The amount was increased by the debt-free selling price of about €77 million received from the disposal of Kauko-Telko, by the property and lease arrangement between Kesko and Nordisk Renting Oy, which contributed €82 million to the cash flow, and by the disposal of K-Rahoitus Oy, which contributed about €240 million to liquid funds in finance receivables paid to Kesko. At the end of the reporting period, the interest-bearing net debt was €-43 million (€290 million). As a result of the arrangement with Nordisk Renting, finance lease liabilities decreased by €81 million. Equity ratio was 49.0% (46.5%) and gearing -2.1% (16.0%) at the end of the period.

 

In January-June, the Group's net financial expenses were €1.6 million (net financial income was €35.7 million in the previous year). The income for the comparative period included €37.1 million in non-recurring gains on the sale of SATO Corporation shares.

 

Taxes
In January-June, the Group's taxes were €58.8 million (€45.9 million). The effective tax rate was 24.9% (22.7%).

 

Personnel, continuing operations
In January-June, the average number of personnel in the Kesko Group was 21,458 (19,643) converted into full-time employees. There was an increase of 1,815 employees compared with the corresponding period of the previous year. In Finland, the average increase was 112 employees, while outside Finland it was 1,703. The number of personnel was significantly increased by the employees of the Belorussian subsidiary OMA, acquired in July 2007, who were included in the Group figures.

 

At the end of June 2008, the total number of personnel was 25,255 (24,156), of whom 13,762 (14,353) worked in Finland and 11,493 (9,803) outside Finland. Compared with the end of June 2007, there was a decrease of 591 employees in Finland and an increase of 1,690 employees outside Finland.

 

Market review
The international economy is suffering from the combined impact of uncertainty in the financial market and rising world market prices of raw materials. The strong economic upswing of the Finnish economy is now levelling off and the economic outlook is deteriorating as a result of an accelerating inflation and the uncertainty of the international economy, among other things. In Finland, however, strong private consumption continues and it is forecast to increase by 3% in 2008. The growth rate of investments will slow down to 3.7%, and housing production will decelerate towards the end of the year. The consumer price index is forecast to rise by 4.0% in 2008, mainly due to housing costs, foodstuffs and fuels (Ministry of Finance, Economic Bulletin, June 2008).

 

According to the preliminary data of Statistics Finland, in January-May 2008, the Finnish retail trade sales increased by 9.1% compared with the previous year. The wholesale trade sales were up by 12.7% compared with the previous year. The year-on-year change in inflation, calculated by Statistics Finland, was 4.4% in June.

 

According to Statistics Finland's consumer survey of June 2008, consumers' confidence in the economy weakened again slightly in June. At the same time, confidence in the economy was clearly weaker than 12 months earlier and below the long-term average. Nevertheless, consumers' views concerning their own employment situation and saving possibilities were still positive and consumers' views concerning their own finances were bright. Instead, the outlook for the Finnish economy remains gloomy and inflation expectations high among consumers.

 

In 2008, the Estonian economy is forecast to grow by 1.0%, the Latvian economy by 0.5% and the Lithuanian economy by 5.5%. Private consumption is estimated to grow by about 0.4% in Estonia, by -1.4% in Latvia and by 5.8% in Lithuania. Consumer prices are forecast to rise by 10.6% in Estonia, by 17.5% in Latvia and by 10.0% in Lithuania (Nordea, Baltic Rim Outlook, 11 June 2008).

 

The Swedish economy is forecast to grow by 2.1% and private consumption by 2.0% in 2008. Consumer prices are expected to rise at a rate of 3.1%. The increase in investments is forecast to slow down and that of housing construction to level off (Nordea, Economic Outlook, 21 April 2008).

 

The Norwegian economy is estimated to grow by 3.0% and private consumption by 3.3% in 2008. Consumer prices are expected to rise by about 2.9% (Nordea, Economic Outlook, 21 April 2008).

 

The Russian economy is forecast to grow by 7.0% in 2008. Private consumption is forecast to increase by 11.5% and investments by 18.5%. Consumer prices are expected to rise by 13.5% (Nordea, Baltic Rim Outlook, 11 June 2008).

 

The market and outlook for each of Kesko's business divisions are discussed in the division reviews of this interim financial report.

 

Seasonal nature of operations
The Group's operating activities are affected by seasonal fluctuations. The net sales and operating profits of its business segments are not earned evenly throughout the year. Instead they vary by quarter depending on the characteristics of each business segment.

 

 

Kesko Food
In January-June, Kesko Food's net sales were €1,964 million (€1,866 million), up 5.3%.

 

In January-June, Kesko Food's operating profit excluding non-recurring items was €56.1 million (2.9% of net sales), i.e. €14.3 million, or 0.9 percentage points, less than in the previous year. The operating profit excluding non-recurring items for the first part of the year was negatively affected by a gross profit decrease in the home and speciality goods trade and the expansion and renovation of the store site network. The operating profit was €159.4 million (€70.1 million). The operating profit was increased by a €103.2 million non-recurring gain on the property and lease arrangement between Kesko and Nordisk Renting.

 

In January-June, Kesko Food's investments totalled €79.8 million (€54.8 million), of which investments in store sites were €72.0 million (€43.7 million).

 

In January-June, the retail sales (incl. VAT) of K-food stores increased by 6.6%, totalling €2,550 million.

 

The growth rate of the total grocery trade market in Finland for January-June is estimated at about 9-10% up on the previous year. In January-May, prices increased at an average monthly rate of about +6.3% compared with the previous year (Statistics Finland).

 

During the next 12 months, Kesko Food's net sales are expected to grow compared with the 12 months preceding the reporting period. Kesko Food's operating profit excluding non-recurring items for the next 12 months is expected to match the level of the comparative period.

 

Rautakesko
In January-June, Rautakesko's net sales amounted to €1,319 million (€1,221 million), an increase of 8.1%. The contribution of acquisitions excluded, the net sales growth was 5.5%. Net sales in Finland were €491 million (€482 million), an increase of 1.9%. The net sales of foreign subsidiaries were €827 million (€738 million), up 12.1%. Foreign subsidiaries contributed 62.7% to Rautakesko's net sales.

 

In Sweden, the net sales increased by 10.6% to €98 million in January-June. In Norway, the net sales increased by 4.8% and were €308 million. In Estonia, the net sales were down by 7.5% to €40 million. In Latvia, the net sales decreased by 6.3% and were €37 million. In Lithuania, the net sales increased by 24.2% to €250 million, of which the contribution of the Belorussian OMA was €31 million. In Russia, Stroymaster's net sales grew by 37.6% to €90 million.

 

In January-June, Rautakesko's operating profit excluding non-recurring items was €34.2 million (2.6% of net sales), i.e. €20.8 million, or 1.9 percentage points, less than in the previous year, affected by the expansion of the store site network and the weakening demand in the construction market. Rautakesko's operating profit for January-June was €37.9 million (€56.2 million).

 

In January-June, Rautakesko's investments were €51.0 million (€38.6 million), of which 72.3% (47.6%) was abroad.

 

In January-June, Rautakesko's retail sales (incl. VAT) in Finland increased by 5.0% and were €597 million. The sales of Rautakesko B-to-B Service decreased by 5.3%. In January, a new K-rauta store opened in Lahti and another in Raisio in March.

 

During the next 12 months, the building and home improvement market is expected to grow by some 0-3% in the Nordic countries and Lithuania, while a growth rate of some 10% is forecast for the St. Petersburg area. The Estonian and Latvian markets are expected to shrink by some 10-15%. Market development reflects uncertainties as a result of a general increase in economic uncertainty (own estimate).

 

Rautakesko invests in new store sites and information systems. It is expected that Rautakesko's net sales will grow during the next 12 months, but its operating profit excluding non-recurring items is expected to remain at a lower level compared with the prior 12-month comparative period.

 

VV-Auto
In January-June, VV-Auto's net sales were €506 million (€466 million), up 8.6%. The aggregate number of registrations of passenger cars and vans imported by VV-Auto increased by 24.1% during the first part of the year. The net sales growth was reduced by the average car prices, fallen as a result of the car tax change, and by the decline in van sales.

 

In January-June, the number of first registrations of new passenger cars totalled 88,182 in Finland, up by 13.9% on the previous year. Compared with the year before, first registrations of vans were down by 6.0% to 9,055.

 

In January-June, the first registrations of passenger cars imported by VV-Auto increased by 31.2%. In January-June, the registrations of Volkswagen passenger cars totalled 10,258 and their market share was 11.6%, compared with 9.8% in the previous year. In January-June, the first registrations of Audis were 3,296, and the market share was 3.7% (3.5%). The registrations of new Seat passenger cars totalled 1,210 in Finland, 232 in Estonia and 77 in Latvia. The market share in Finland was 1.4%, compared with 1.2% the year before. The number of Volkswagen vans registered was 1,343, while the market share was 14.8% (17.9%).

 

In January-June, VV-Auto's retail sales were up 12.7%.

 

In January-June, the operating profit excluding non-recurring items was €24.9 million (4.9% of net sales), up €5.1 million, or 0.7 percentage points, compared with the corresponding period of the previous year.

 

Investments totalled €3.4 million (€3.6 million) in January-June.

 

It is estimated that this year, owing to the car tax change, Finland's passenger car market will grow markedly compared with the previous year. The total market for vans is expected to be at a slightly lower level than in the previous year (Road Transport Forecasting Group).

 

During the next 12 months, VV-Auto's net sales are expected to grow and its operating profit excluding non-recurring items is expected to match the level of the prior 12-month comparative period.

 

Anttila
In January-June, Anttila's net sales were €244 million (€231 million), up 5.6%.

 

In January-June, Anttila's operating loss excluding non-recurring items was €1.9 million (-0.8% of net sales). In January-June of the previous year, the operating loss excluding non-recurring items was €2.7 million (-1.2% of net sales). Anttila's operating loss was €2.0 million (€0.8 million). Due to the nature of the department store trade, the majority of profits are made towards the end of the year.

 

In January-June, the retail sales (incl. VAT) of the Anttila department stores were €165 million, up 4.0%. The retail sales of the Kodin Ykkönen department stores for home goods and interior decoration were €82 million, up 10.2%. Distance retail sales in Finland were €42 million, up 8.8%. In Estonia, the distance sales grew by 4.8%, but decreased by 14.3% in Latvia owing to the weakening of the Latvian economy.

 

Trends in the home and speciality goods sales vary by product line. The growth is forecast to average 2-3% in 2008 (own estimate).

 

During the next 12 months, Anttila's net sales are expected to match the level of the 12 months preceding the reporting period. The operating profit excluding non-recurring items is expected to match the level of the comparative period during the next 12 months.

 

Kesko Agro
In January-June, Kesko Agro's net sales were €425 million (€385 million), an increase of 10.4%. The net sales from foreign operations were €150 million (€131 million), accounting for 35.4% of the net sales.

 

In January-June, Kesko Agro's net sales in Finland were €274 million, up 8.2% due to the grain, animal feed and chemicals trade. The net sales from foreign operations increased by 14.7% in January-June, which is attributable to an increase in the grain and agricultural machinery trade.

 

In January-June, the operating profit excluding non-recurring items was €8.8 million (2.1% of net sales), i.e. €1.5 million, or 0.2 percentage points, bigger than in the corresponding period of the previous year.

 

The sales of the K-maatalous chain increased by 8.3% to €352 million (incl. VAT) in January-June.

 

In January-June, investments were €1.4 million.

 

It is estimated that in 2008, the total Finnish and Baltic agricultural trade market will increase by 5-10% on the previous year (own estimate).

 

Regardless of the structural changes taking place in the sector, Kesko Agro's net sales are expected to grow during the next 12 months compared with the 12 months preceding the reporting period. During the next 12 months, its operating profit excluding non-recurring items is expected to match the level of the comparative period.

 

Other operating activities
Other operating activities comprise the reporting for Konekesko, Intersport Finland, Indoor, Musta Pörssi and Kenkäkesko.

 

In January-June, the aggregate net sales of other operating activities were €380 million (€377 million), an increase of 0.7%. In January-June, the net sales from foreign operations totalled €41 million, accounting for 10.8% of the net sales.

 

In January-June, the aggregate operating profit of other operating activities, non-recurring items excluded, was €6.9 million (1.8% of net sales), i.e. €8.2 million, or 2.2 percentage points, down on the corresponding period of the previous year. The decline in profitability was mainly attributable to the weakened profit performance of the furniture trade compared with the previous year. In January-June, the operating profit was €7.1 million (€15.1 million).

 

In January-June, investments were €7.5 million.

 

In January-June, Konekesko's net sales were €147 million (€142 million), up 3.9% on the previous year. In Finland, sales were €122 million, up 3.2% in January-June. Konekesko's export sales totalled €28 million, an increase of 9.9%.

 

In January-June, Intersport Finland's net sales were €74 million (€68 million), an increase of 8.9%. In March, Budget Sport stores were opened in Espoo and Raisio.

 

Indoor's net sales in January-June were €88 million (€94 million), down 6.7%. In January-June, the aggregate net sales of the furniture trade in foreign operations were €16 million, a decrease of 38.6%. Indoor's operating activities in Sweden were discontinued in March 2008.

 

Musta Pörssi Ltd's net sales in January-June were €59 million (€63 million), down 6.3%.

 

In January-June, Kenkäkesko Ltd's net sales were €12 million (€11 million), up 14.2%.

 

As a result of the slowing consumer demand, the net sales of other operating activities during the next 12 months are expected to decrease compared with the 12 months preceding the reporting period. Due to the discontinuation of the loss-making furniture trade business in Sweden, the operating profit excluding non-recurring items is expected to grow during the next 12 months compared with the comparative period.

 

 

Net sales and profit, continuing operations
The Group's net sales in April-June 2008 were €2,549 million, which is 6.2% up on the corresponding period of the previous year (€2,401 million). The Group's net sales increased by 5.4% in Finland and by 8.9% abroad. The contribution of business acquisitions and disposals excluded, the Group's net sales growth was 5.9%. Exports and foreign operations accounted for 23.1% (22.5%) of the net sales.

 

In April-June, the K-Group's (i.e. Kesko's and the chain stores') retail sales (incl. VAT) were €3,160 million, an increase of 6.7% on the corresponding period of the previous year.

 

The Group's profit before tax for April-June was €84.3 million (€97.4 million). The operating profit was €84.8 million (€99.6 million). It was increased by a net total of €3.7 million (€6.2 million) in non-recurring gains and losses on the disposal of fixed assets and businesses.

 

The operating profit excluding non-recurring items was €81.1 million (€93.4 million). It represented 3.2% of net sales (3.9%). The smaller year-on-year operating profit excluding non-recurring items was due to the expansion and renovation of Rautakesko's and Kesko Food's store site networks, the decline in demand in the Nordic and Baltic construction markets, and the deceleration of growth in the home and speciality goods trade.

The Group's earnings per share from continuing operations were €0.58 (€0.69). Equity per share was €20.17 (€18.32).

Discontinued operations
In April-June, the Group's profit from discontinued operations, non-recurring items included, was €31.0 million (€2.8 million). Kesko sold Kauko-Telko Ltd to Aspo plc on 30 April 2008. The debt-free selling price was about €77 million and a non-recurring gain on the disposal of about €31 million was recognised in the profit from discontinued operations.

 

Investments
The Group's investments in April-June totalled €83.0 million (€60.3 million), which is 3.3% (2.5%) of net sales. Investments in store sites were €69.4 million (€43.6 million). The Group's other investments were €13.6 million (€16.8 million). Investments in foreign operations represented 24.8% of total investments.

 

Finance
In April-June, the cash flow from operating activities was €126.4 million (€116.6 million) and the cash flow from investing activities was €25.9 million (€-58.3 million). The cash flow from investing activities included €100.2 million (€24.3 million) of proceeds received from the disposal of fixed assets.

 

At the end of the period, liquid funds totalled €551 million (€283 million). During the reporting period, the amount was increased by the debt-free selling price of about €77 million received from the disposal of Kauko-Telko.

 

In April-June, the Group's net financial expenses were €0.2 million (€1.9 million).

 

Taxes
In April-June, the Group's taxes were €21.3 million (€24.2 million). The effective tax rate was 25.3% (23.9%).

 

Personnel, continuing operations
In April-June, the average number of personnel in the Kesko Group was 21,769 (20,035) converted into full-time employees. There was an increase of 1,734 employees compared with the corresponding period of the previous year. In Finland, the average increase was 34 employees, while outside Finland it was 1,700.

 

Divisions

Kesko Food
In April-June, Kesko Food's net sales totalled €1,027 million (€983 million), up 4.5%.

 

In April-June, Kesko Food's operating profit excluding non-recurring items was €35.5 million (3.5% of net sales), i.e. €6.0 million, or 0.8 percentage points, less than in the previous year. The operating profit excluding non-recurring items was negatively affected by the expansions and renovations carried out in the store site network, and the weaker year-on-year sales trend in the home and speciality goods trade. Kesko Food's operating profit was €35.5 million (€40.9 million).

 

In April-June, Kesko Food's investments totalled €49.4 million (€30.5 million), of which investments in store sites were €44.1 million (€23.1 million).

 

In April-June, the retail sales (incl. VAT) of the K-food stores increased by 5.2%, totalling €1,324 million. At the end of June, there were a total of 1,053 K-food stores (mobile stores excluded).

 

Kesko Food continued the intensive development of the K-food store network. In April-June, six new K-supermarkets were opened in Alavus, Haukipudas, in Hätilä, Hämeenlinna, in Viitasaari, Raisio and Joensuu, and the first K-markets operating at Teboil stations were opened in Hyvinkää, Ilmajoki, Heinola and Lempäälä. Other renovations and expansions were also implemented.

 

The most important store sites being built are K-citymarkets in Päiväranta, Kuopio, in Pori, Tornio, Jämsä, Ylivieska, in Klaukkala, Nurmijärvi, in Ylöjärvi, Kirkkonummi, in the Skanssi shopping centre in Turku, in Koilliskeskus, Tampere, as well as the expansions of K-supermarkets into K-citymarkets in Rusko, Oulu and in Kemi, the expansion of the K-citymarket in Mikkeli, and the K-supermarkets being built in Mustasaari, Kempele, Suomussalmi, Rauma, in Konala, Helsinki, and in Liminka.

 

Rautakesko
In April-June, Rautakesko's net sales amounted to €728 million (€687 million), an increase of 6.1%. The contribution of acquisitions excluded, the net sales growth was 3.5%. Net sales in Finland were €259 million (€266 million), a decrease of 2.9%. The net sales of foreign subsidiaries were €469 million (€420 million), up 11.8%. Foreign subsidiaries contributed 64.4% to Rautakesko's net sales.

 

In Sweden, the net sales of K-rauta AB increased by 8.6% to €60 million in April-June. In Norway, Byggmakker's net sales increased by 8.6% and were €179 million. In Estonia, Rautakesko's net sales were down by 13.2% to €23 million. In Latvia, Rautakesko's net sales decreased by 14.3% and were €19 million. In Lithuania, the net sales of UAB Senuku Prekybos Centras (Senukai), in which Rautakesko has a majority interest, increased by 23.8% to €139 million, of which the contribution of the Belorussian OMA, acquired by Senukai in July 2007, was €18 million. In Russia, Stroymaster's net sales grew by 35.6% to €50 million.

 

In April-June, Rautakesko's operating profit excluding non-recurring items was €27.3 million (3.7% of net sales), i.e. €11.5 million, or 1.9 percentage points, less than in the corresponding period of the previous year. The profit performance was affected by the expansion of the store site network and the weakening demand in the construction market in the Nordic and Baltic countries. Rautakesko's operating profit for April-June was €30.9 million (€37.6 million).

 

In April-June, Rautakesko's investments totalled €28.8 million (€18.7 million), of which 70.6% (54.4%) was abroad.

 

New Rautia stores opened in Kerava and Huittinen in April, in Sodankylä in May, and in Ivalo in June. At the end of June, the K-rauta chain in Finland comprised 41 stores and the Rautia chain 103 stores. In April-June, the retail sales (incl. VAT) of the K-Group's building and home improvement stores in Finland increased by 4.2% to €380 million. The sales of Rautakesko B-to-B Service decreased by 7.9%.

 

In Sweden, Rautakesko opened new K-rauta stores in Göteborg and Stockholm in April. There are 19 K-rauta stores in Sweden, one of which is owned by the retailer. In Estonia, a new K-rauta store opened in Vôru in April and another in Rakvere in May. There are seven K-rauta stores in Estonia.

 

In Norway, Rautakesko opened a new Byggmakker store in Trondheim in April and sold five of its stores to Byggmakker retailer-entrepreneurs in May. The Byggmakker chain comprises 120 stores, 18 of which are owned by Byggmakker. The other stores of the chain are owned by retailer-entrepreneurs who have signed a chain agreement with Byggmakker. In St. Petersburg, Russia, a concept reform and expansion were implemented in the K-rauta store in Vyborskij. Four of the eight K-rauta stores in St. Petersburg now operate in conformity with the new K-rauta concept.

 

VV-Auto
In April-June, VV-Auto's net sales totalled €246 million (€218 million), up 12.5%.

 

In April-June, VV-Auto's retail sales increased by 14.8%.

 

In April-June, the operating profit excluding non-recurring items was €11.0 million (4.5% of net sales), up €2.9 million, or 0.8 percentage points, compared with the corresponding period of the previous year.

 

Investments totalled €1.7 million (€2.0 million) in April-June.

 

Anttila
In April-June, Anttila's net sales totalled €116 million (€111 million), up 4.5%.

 

In April-June, Anttila's operating result excluding non-recurring items was €-0.6 million (-0.5% of net sales), i.e. €1.2 million, or 1.1 percentage points, better than for the corresponding period of the previous year. Anttila's operating loss was €0.6 million (operating profit €0.1 million). Due to the nature of the department store trade, the majority of profits are made towards the end of the year.

 

In April-June, the retail sales (incl. VAT) of the Anttila department stores were €82 million, up 5.4%. The retail sales of the Kodin Ykkönen department stores for home goods and interior decoration were €39 million, up 3.0%. Distance retail sales in Finland were €18 million, up 11.8%.

 

At the end of the reporting period, there were 28 Anttila department stores and one TopTen specialist store, eight Kodin Ykkönen department stores, and one Kodin1.com online department store for home goods and interior decoration. NetAnttila engages in distance sales and operates in Finland, Estonia and Latvia.

 

The most important store site projects underway are the department stores in Rovaniemi and Pori, scheduled to open for the Christmas season. The new store site in Pori is a replacement of the old department store.

 

Kesko Agro
In April-June, Kesko Agro's net sales were €245 million (€216 million), an increase of 13.2%. The net sales from foreign operations were €88 million (€81 million), accounting for 35.9% of its total net sales.

 

In April-June, Kesko Agro's net sales in Finland were €157 million, up 15.9%. The net sales from the agricultural and machinery trade in the Baltics increased by 8.7% in April-June.

 

In April-June, Kesko Agro's operating profit excluding non-recurring items was €9.2 million (3.8% of net sales), i.e. €1.3 million, or 0.1 percentage points, bigger than in the corresponding period of the previous year. The operating profit excluding non-recurring items was affected by a good sales trend.

 

In April-June, investments totalled €0.9 million.

 

At the end of the reporting period, the K-maatalous chain comprised 92 agricultural stores in Finland. Kesko Agro has six stores in Estonia, four in Latvia and three in Lithuania.

 

Other operating activities
Other operating activities comprise the reporting for Konekesko, Intersport Finland, Indoor, Musta Pörssi and Kenkäkesko.

 

In April-June, the aggregate net sales of other operating activities were €191 million (€193 million), down 1.1%. In April-June, the net sales of other operating activities from foreign operations were €19 million, contributing 9.7% to the net sales.

 

In April-June, the aggregate operating profit of other operating activities, non-recurring items excluded, was €4.6 million (2.4% of net sales), i.e. down by €1.8 million, or 0.9 percentage points, on the corresponding period of the previous year. In April-June, the operating profit was €4.8 million (€6.5 million).

 

In April-June, investments were €3.8 million.

 

Konekesko's net sales in April-June were €80 million (€80 million), an increase of 0.1% on the previous year. In Finland, sales were €67 million, down by 2.3%. Konekesko's export sales totalled €14 million, an increase of 17.1%.

 

Intersport Finland's net sales in April-June were €37 million (€30 million), up 22.3%.

 

Indoor's net sales in April-June were €43 million (€48 million), down 10.2%. In April-June, the aggregate net sales of the furniture trade in foreign operations were €6 million, a decrease of 54.3%. Indoor's operating activities in Sweden were discontinued in March 2008.

 

Musta Pörssi Ltd's net sales in April-June were €26 million (€31 million), down 13.4%.

 

Kenkäkesko Ltd's net sales in April-June were €5 million (€5 million), an increase of 2.2%.

 

Changes in the Group composition
K-Rahoitus Oy and its subsidiaries were sold and the disposal was completed on 31 January 2008. Tähti Optikko Group Oy was sold and the disposal was completed on 31 March 2008. Kauko-Telko Ltd was sold and the disposal was completed on 30 April 2008.

 

Decisions of the Annual General Meeting
Kesko Corporation's Annual General Meeting held on 31 March 2008 adopted the financial statements for 2007 and discharged the members of the Board of Directors and the Managing Director from liability. The Annual General Meeting also decided to distribute a dividend of €1.60 per share, as proposed by the Board of Directors, or total dividends of €156,428,592. The record date for dividend distribution was 3 April 2008 and the dividend payment date 10 April 2008.

 

The Annual General Meeting decided to leave the number of Board members unchanged at seven. The members of the Board of Directors elected by the Annual General Meeting of 27 March 2006 are Pentti Kalliala, Ilpo Kokkila, Maarit Näkyvä, Seppo Paatelainen, Keijo Suila, Jukka Säilä and Heikki Takamäki. The Board Chairman is Heikki Takamäki and the Deputy Chairman is Keijo Suila. The term of office of each Board member, in accordance with the Articles of Association, is three years, with the term starting at the close of the General Meeting electing the member and expiring at the close of the third Annual General Meeting after the election (in 2009).

 

The decisions of the Annual General Meeting were published in more detail in a stock exchange release on 31 March 2008 and in the interim financial report for January-March 2008.

 

Corporate governance
Kesko Food Ltd and Rautakesko Ltd, major subsidiaries fully owned by Kesko Corporation, elected the members of their Boards of Directors at their Annual General Meetings held on 28 March 2008. The compositions of the Boards were announced in a stock exchange release on 28 March 2008.

 

The organising meeting of Kesko Corporation's Board of Directors held after the Annual General Meeting on 31 March 2008 decided to leave the compositions of its committees unchanged. The Board elected Maarit Näkyvä as the Chairman of its Audit Committee, and Seppo Paatelainen and Keijo Suila as its members. The Board elected Heikki Takamäki as the Chairman of its Compensation Committee, and Pentti Kalliala and Keijo Suila as its members. The committees' terms of office always expire at the Annual General Meeting. On the basis of the evaluation of independence carried out by the Board of Directors, all members of the Audit Committee are independent of the company and its significant shareholders. The decisions of the organising meeting of the Board of Directors were published in a stock exchange release on the day of the meeting.

 

Shares, securities market and Board authorisations
At the end of the reporting period, Kesko Corporation's share capital totalled €195,616,108. Of all shares 31,737,007 or 32.4% are A shares and 66,071,047 or 67.6% are B shares. The aggregate number of shares was 97,808,054. Each A share entitles to ten (10) votes and each B share to one (1) vote. During the reporting period, the share capital was increased three times by share subscriptions with the stock options of the year 2003 option scheme. The increases were made on 11 February 2008 (€210), 28 April 2008 (€38,168) and 9 June 2008 (€42,200), and announced in stock exchange notifications on the same days. The subscribed shares were included on the main list of the Helsinki Stock Exchange for public trading with the old B shares on 12 February 2008, 29 April 2008 and 10 June 2008.

 

The price of a Kesko A share was €37.85 at the end of 2007 and €26.90 in June 2008, at the end of the reporting period, representing a decrease of 28.9%. The price of a B share was €37.72 at the end of 2007, and €20.57 at the end of the reporting period, representing a decrease of 45.5%. During the reporting period, the highest A share quotation was €38.20 and the lowest was €25.02. For B shares, they were €38.12 and €19.70 respectively. During the first part of 2008, the Helsinki Stock Exchange All Share index (OMX Helsinki) dropped by 26.1%, the weighted OMX Helsinki CAP index by 19.7%, while the Consumer Staples Index dropped by 33.9% during the same period.

 

At the end of the reporting period, the market capitalisation of A shares was €854 million, while that of B shares was €1,359 million. Their combined market capitalisation was €2,213 million, a decrease of €1,479 million from the end of 2007. During the first part of 2008, about 989,000 A shares were traded on the Helsinki Stock Exchange at a total value of €30.4 million, while 57.8 million B shares were traded at a total value of €1,693 million.

 

The 2003E and 2003F stock options of the year 2003 option scheme were now available for trading and a total of some 50,000 pcs were traded at a total value of €766,000 during the first part of 2008.

 

The Board of Directors was authorised by the Annual General Meeting of 26 March 2007 to issue a maximum of 20,000,000 new B shares against payment. The authorisation also includes a right to deviate, for a weighty financial reason, from the shareholders' pre-emptive right with a rights issue so that the issued shares can be used as consideration in possible company acquisitions, other arrangements concerning the company's operations, or to finance investments. The authorisation is valid for two years from the decision of the Annual General Meeting.

 

Flagging notifications
Kesko Corporation did not receive any flagging notifications during the reporting period.

 

Main events
On 31 January 2008, K-Rahoitus Oy's share capital was transferred to OKO Bank plc (Pohjola Bank plc from 1 March 2008). An agreement to this effect was signed between OKO and Kesko Corporation on 21 December 2007. The price paid was about €30 million (stock exchange releases on 21 December 2007 and 31 January 2008).

 

Kesko Corporation waived the purchase option included in the lease agreements made with Nordisk Renting Oy in 2001 and 2002, for which RBS Nordisk Renting paid Kesko €74.2 million in compensation. The previous agreements were finance leases and the non-recurring gain resulting from the cancellation was €26.5 million. The lease arrangement and the property sale contributed a total of €103 million to Kesko Food's and the Kesko Group's operating profits for the first quarter, which was reported as a non-recurring item (stock exchange release on 11 February 2008).

 

On 31 March 2008, Kesko Corporation sold the shares of Tähti Optikko Group Oy to the Specsavers optical chain. The debt-free selling price was about €15 million. The disposal contributed a non-recurring gain of €8.5 million to Kesko's profit from discontinued operations (release on 1 April 2008).

 

Kesko Corporation sold the share capital of Kauko-Telko Ltd to Aspo plc on 30 April 2008. Based on Kauko-Telko's end-of-April balance sheet, the debt-free selling price was about €77 million. A non-recurring gain on the disposal of about €31 million was recognised in Kesko's profit from discontinued operations (stock exchange releases on 23 May 2007, 28 February 2008 and 30 April 2008).

 

Kesko will strengthen the competitiveness of the K-maatalous and Rautia chains. Kesko Agro Ltd will demerge on 1 January 2009 so that the agricultural trade activities in Finland will become part of Rautakesko Ltd. The trade of tractors and combines as well as the agricultural and machinery trade companies in the Baltic countries will become part of Konekesko Ltd. The arrangement is not anticipated to have an immediate impact on the number of personnel. It is estimated that the arrangement will result in an annual benefit of approximately €3 million to Kesko (stock exchange release on 28 May 2008).

 

Events after the end of the reporting period
No significant events have taken place after the end of the reporting period.

 

Risk management
The Kesko Group has adopted an established risk management process in accordance with which the divisions regularly assess risks and their management, and report on them to the Group's management. Kesko's risk management and business risks are described in more detail in the 2007 Annual Report and financial statements.

 

For Kesko, the most significant business risks relate to the general economic development in Kesko's operating area, the expansion and growth rate of foreign operations especially in Russia and the Baltic countries, the cost-efficiency of operating activities, and the availability of competent personnel. During the past quarter, risks involved in the general economic development, the construction market and consumers' buying power and behaviour have risen in the Nordic and Baltic countries.

 

During the reporting period, no damages that would have a significant effect on the Group's result were reported to the Board of Directors. The Board of Directors is not aware of any legal risks that would have significant effects on the Group's result.

 

Other risks and uncertainties relating to profit performance are described in the outlook for the Group and its divisions.

 

Future outlook
An estimate of the future outlook for the Kesko Group's and its divisions' net sales and operating profits excluding non-recurring items is given for the 12 months following the reporting period (7/2008-6/2009) in comparison with the 12 months preceding the reporting period (7/2007-6/2008). The divisions are expected to perform as described in the above division reports.

 

The Group's operating activities are affected by the economic outlook in its different market areas and especially by the growth rate of private consumption. During the past quarter, the economic outlook has deteriorated in the Nordic and Baltic countries, especially as a result of inflation, higher interest rate levels and weakened consumer confidence. Market growth is expected to decelerate in the Nordic and the Baltic countries, especially in the construction market and in the home and speciality goods and machinery trade.

 

The net sales from the Group's continuing operations are expected to grow during the next 12 months compared with the 12 months preceding the reporting period, which is especially attributable to the expansion of the food store and the building and home improvement store networks, and the expected increase in car sales. However, net sales growth is expected to decelerate as a result of the general slowdown of economic growth.

 

During the next 12 months, the Kesko Group's operating profit excluding non-recurring items from continuing operations is expected to remain at a good level, although lower than in the preceding 12 months. In addition to the slowing market growth, profitability will be impacted by an intensive expansion and renovation of the store site network.