Expansion into Russia has hit profits from Finland-based retailer Kesko's food division in the first half of the year.
Kesko, which is looking to open its first food stores in Russia, said operating profit excluding non-recurring items from its food arm was down 15.4% at EUR73.8m. Net sales increased 3.8% to EUR2.1bn.
The retailer said costs linked to its foray into Russia put pressure on profits. Kesko plans to open four grocery stores in Russia in the next two years.
Kesko is looking to invest EUR300m in its food business in Russia by 2015, by when it wants to generate EUR500m of local sales and achieve a "positive operating result".
The retailer, which runs non-food chains in Russia and the Baltic states, as well as the Nordic countries, also said the wider expansion of its food store network hit profits.
For Kesko as a whole, net sales increased 4.4% but profits were lower. Operating profit fell 34%.
Kesko's interim report 1 Jan.-30 Jun. 2012
KESKO CORPORATION STOCK EXCHANGE RELEASE 25.07.2012 AT 09.00 1(28)
Financial performance in brief:
* The Group's net sales for January-June increased by 4.4%.
* The K-Group's (i.e. Kesko's and the chain stores') retail and B2B sales (VAT 0%) increased by 4.9% in January-June.
* The operating profit excluding non-recurring items was €84.3 million (€118.3 million).
* The Kesko Group's net sales are expected to grow during the next twelve months. Owing to the costs involved in the expansion of the store site network and Russian business operations, as well as a sales decrease in the car trade, we are prepared for the operating profit excluding non-recurring items for the next twelve months to be lower than the operating profit excluding non-recurring items for the preceding twelve months. Capital expenditure is expected to be lower than the capital expenditure for the preceding twelve months.
January-June 2012
In the food trade, the net sales for January-June were €2,101 million (€2,025 million), up 3.8%. The sales of Pirkka products to K-food stores grew by 14.5% (VAT 0%). During the same period, the grocery sales of K-food stores increased by 4.9% (VAT 0%). In the grocery market, retail prices are estimated to have changed by some 4-4.5% compared to the previous year (VAT 0%; Kesko's own estimate based on the Consumer Price Index of Statistics Finland) and the total grocery trade market (VAT 0%) is estimated to have grown by some 5.5% in January-June compared to the previous year (Kesko's own estimate).
In January-June, the operating profit excluding non-recurring items of the food trade was €73.8 million (€87.2 million), or €13.4 million down on the previous year. The operating profit development was impacted by the expansion of the store site network and costs related to launching business operations in Russia. The operating profit was €76.5 million (€88.0 million). Non-recurring income included €2.7 million of gains on disposals of properties.
Capital expenditure of the food trade was €95.7 million (€94.4 million).