KESKO’S NEW

STRATEGY

CFO JUKKA ERLUND

2 June 2015

2

KESKO

TODAY

2

KEY FIGURES 2014

3

Net sales

Operating profit*

Equity ratio

Liquid assets

Return on capital employed*

Book value of real estate

Personnel (FTE)

Shareholders

* excl. non-recurring items

€9,071m

€233m

54.5%

€598m

9.9%

€1.4bn

19,976

39,869

NET SALES

BY LINE OF BUSINESS

2014

4

Machinery trade 3%

Car trade 9%

Agricultural trade 4%

Sports trade 2%

Furniture trade 2%

Building and home improvement trade 25%

Kespro 9%Grocery trade

Russia 1%

Grocery trade

Finland 44%

Grocery trade €4,754m

Home improvement and speciality goods trade €3,000m

Car and machinery trade €1,011m

5

NET SALES BY

COUNTRY 2014

Russia 4%

Lithuania 4%

Latvia 1%

Finland 82%

Belarus 1%

Estonia 1%

Sweden 2%

Norway 5%

Over 80% of net sales

comes from Finland

0

2000

4000

6000

8000

10000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Finland Other countries

NET SALES

6

+5.8%

+11.1%+9.3%

+3.3%

-11.9%+3.9%

+7.8% +2.4%-3.8%

€m

-2.6%

-100

0

100

200

300

400

500

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Operating profit excl. non-recurring items Non-recurring items

OPERATING PROFIT

7

€m

YEAR-ON-YEAR CHANGE IN FIXED COSTSEXCLUDING NON-RECURRING ITEMS

8

10.3%

7.5% 8.0%

1.2%

-4.0% -4.5% -4.0%

-2.0% -1.3%-1.0% -1.6%

-1.9%

-4.4%-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

RETURN ON CAPITAL EMPLOYEDMOVING 12 MO, EXCL. NON-RECURRING ITEMS

Jukka Erlund

9

Group totalHome improvement

and speciality

goods trade

Grocery trade Car and

machinery

trade

%

€1,013m €869m €161m €2,344m

Capital

employed:

21.0

2.3

17.7

10.2

0

5

10

15

20

25

STRONG FINANCIAL POSITION

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Liquid assets €506m €532m

Interest bearing net debt €41m €25m

Equity ratio 51.5% 53.2%

Gearing 1.9% 1.1%

Q1/2015 Q1/2014

EARNINGS / SHARE AND DIVIDEND

11

2009 2010 2011 2012 2013 2014

2.0

1.5

1.0

0.5

0.0

1.501.65

1.40

1.68

1.20

1.47

1.20

1.84

1.30

1.78

0.90

0.71

Dividend

Earnings / share excl. non-recurring items % Effective dividend yield

3.9% 3.7% 4.6% 4.8% 5.2% 5.0%€

FINANCIAL TARGETS AND

CAPITAL EXPENDITURE

• Return on capital employed 14%

• Return on equity 12%

• Interest bearing net liabilities / EBITDA < 2.5

• Capital expenditure in 2015–2017 approximately €1 billion

• Excluding possible acquisitions

12

Dividend policy: Kesko Corporation distributes at least 50% of its earnings

per share excluding non-recurring items as dividends, taking however the

company's financial position and operating strategy into account.

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OPERATING

ENVIRONMENT

13

RETAIL TRADE TRENDS IN OPERATING

COUNTRIES

5/2015 Jukka Erlund

14

Source: Eurostat, excl. motor vehicles and fuels

-2

0

2

4

6

8

10

1/2

013

2/2

013

3/2

013

4/2

013

5/2

013

6/2

013

7/2

013

8/2

013

9/2

013

10/2

013

11/2

013

12/2

013

1/2

014

2/2

014

3/2

014

4/2

014

5/2

014

6/2

014

7/2

014

8/2

014

9/2

014

10/2

014

11/2

014

12/2

014

1/2

015

2/2

015

% (

movin

g 1

2 m

o)

Estonia

Lithuania

Norway

Sweden

Latvia

Finland

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FINLAND TURNS SLOWLY

• Weakening of the euro, low energy price and low interest rate level support

economic development

• Political tension in Europe maintains uncertainty and has a negative impact on

the Finnish economy

• Savings in public finances reduce purchasing power – tax reductions may

improve the situation

Decline of purchasing power will level off, but is not expected to improve significantly in

the next few years

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OPPORTUNITIES AND RISKS IN RUSSIA

• Russia is the world’s richest country in terms of

raw material reserves

• Around 150 million consumers whose purchasing

power will improve also in the future

• Russia has 13 metropolitan cities

• As yet, political and financial risks are greater

than normal

• The Russian economy has potential for strong

growth as soon as the political situation is

normalised and the prices of energy and raw

materials rise

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PORTFOLIO STRATEGY

Grocery trade

• Finland

• Russia

• Kespro, horeca business

Building and home improvement trade

• Europe

Car trade

• Finland

• The Baltic countries, primarily Estonia

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KESKO’S STRATEGIC GROWTH AREAS

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Sports trade

• Finland and Russia

Shoe trade

• Finland

ALL LINES OF BUSINESS WILL BE DEVELOPED

AIMING AT BUSINESS SUCCESS

Furniture trade

• Finland and Estonia

Agricultural trade

• Finland

Machinery trade

• Finland and the Baltic countries

KEY STRATEGIC OBJECTIVES

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• Turning the market share in the Finnish grocery trade around

• Increasing the building and home improvement trade in Europe

• Strengthening the market leadership in the Finnish passenger car and van trade

• We will operate the retailer business model or Kesko’s own stores when it provides

competitive advantage

• The best customer experience in the trading sector

• One unified Kesko

• Strong brand and identity

• Efficiency

• Managing customer relationships across divisional borders

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GROCERY TRADE

GROCERY TRADE

2014

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Kespro 17%

Grocery trade

Finland 81%

Grocery trade

Russia 2%Net sales €4,754m

Operating profit €223m

Operating margin 4.7%

ROCE 22.2%

Personnel (FTE) 6,176

STRATEGIC OBJECTIVES

OF THE GROCERY TRADE IN FINLAND

• Capital expenditure in the K-supermarket and K-market chains will be increased significantly

• The whole neighbourhood store network will be renewed

• Target is 130 new stores and a completely new store concept will be tested on the market

• The whole K-citymarket concept will be renewed

• We will increasingly improve our price competitiveness and price image

• We will increasingly emphasize digitisation at K-food stores

• We will revise the retailer business model

• We will improve the quality and service level

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STRATEGY FOR RUSSIA

• Increasing operations and improving profitability

in the St. Petersburg area

• We will operate actively in the acquisition of plots and store sites

• Our aim is that K-ruoka is the best food store in the St.

Petersburg area in terms of quality and customer experience

• Identifying new growth possibilities in the Moscow area

and possibly in other metropolitan cities in Russia

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WE WILL INCREASE THE

HORECA BUSINESS

• We will seek organic growth through strong international

cooperation, differentiating the selection especially with the help

of private label products

• We will improve service counter efficiency and diversification of

offering by increasing cooperation with K-food stores

• We will examine expansion alternatives in Finland and the

neighbouring areas

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BUILDING AND HOME

IMPROVEMENT TRADE

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HOME IMPROVEMENT AND

SPECIALITY GOODS TRADE

2014

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Sports trade

€186m 6%

Shoe trade

€20m 1%

Furniture trade

€176m 6%

Agricultural trade

€372m 12%

Others

€20m 1%

Building and home improvement trade

Belarus €125m 4%

Building and home improvement trade

Russia €250m 8%

Building and home

improvement trade

Finland

€785m 26%

Building and home

improvement trade

Scandinavia €625m 21%

Building and home improvement trade

Baltics €443m 15%

Net sales €3,000m

Operating profit €63m

Operating margin 2.1%

ROCE 7.9%

Personnel 10,600

STRATEGIC OBJECTIVES OF

THE BUILDING AND HOME IMPROVEMENT TRADE• In Finland, market position will be strengthened further and profitability will be

improved

• In Scandinavia, improvement of profitability will continue in Sweden and Norway and

then profitable growth will be sought

• In Russia, profitable growth will continue in the St. Petersburg and Moscow areas in

moderation

• Possibilities to increase operations in Russia on a wider scale through both

partnerships and acquisitions will be examined

• In the Baltic countries, Belarus and Eastern Central Europe, the aim is to grow faster

alone or with partners

• Possibilities to expand also elsewhere in Europe will be examined

• In the future, we will aim to offer increasingly extensive services to business and

project customers, in addition to consumer customers

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NEW K-RAUTA EXPRESS CONCEPT

• A concept for locations with large flows of

customers to offer fast and easy shopping

• Satellite store in a shopping centre, city centre

or in connection with a K-citymarket

• Customers will find inspiration, tools and

services for renovation and home improvement

• All tools, small accessories and renovation

projects on the same visit

• Will operate as K-rauta branches

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30

CAR TRADE

CAR AND MACHINERY

TRADE 2014

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Konekesko

Baltics €96m 9%

VV-Auto

€756m 75%

Konekesko

Finland €161m 16%Net sales €1,011m

Operating profit €30m

Operating margin 2.9%

ROCE 18.3%

Personnel 1,244

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STRATEGIC OBJECTIVES

OF THE CAR TRADE

• Aiming at an even closer and more extensive cooperation with Volkswagen

Group

• Aiming at even stronger market leadership in the Finnish car trade

• Expanding operations in Estonia and possibly into other Baltic countries as

far as it supports the cooperation with Volkswagen Group and our

operations in Finland

• Digital services based on customer needs

• Konekesko’s business operations will be organised as part of the home

improvement and speciality goods trade

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BEST CUSTOMER

EXPERIENCE

STRATEGIC OBJECTIVES

FOR IMPROVED CUSTOMER EXPERIENCE

• Corporate identity of Kesko and the K-Group will be revised to be more customer oriented

• Customer loyalty system will be revised to make it even more attractive

• Customers’ shopping, transactions and interaction with the K-Group will bemade easier by offering the best digital services in the sector

• Improving quality in everything we do

• Quality targets will be announced publicly

• Simple customer feedback system will be created

• Received feedback will guide the development of both stores’ and Kesko’soperations

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STRATEGIC OBJECTIVES

FOR MORE EFFICIENT OPERATIONS

• We will operate even more than before as a unified Group across

divisional and organisational borders

• We will create shared processes and functions that support operations:

finance and risk management, HR, communications, legal services,

ICT, customer loyalty system and indirect sourcing

• Improving the competitiveness of business operations through even

more cooperation: logistics, direct sourcing, marketing, store sites and

business development and digital services

• In order to ensure competitiveness and improve profitability the

objective is to achieve cost savings of at least €50 million in fixed costs

by the end of 2016

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FOR SHOPPING TO BE FUN

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