Kesko Oyj

OMXH:KESKOB

Earnings Call Analysis

Kesko's Q2 Performance Amid Weak Markets

Kesko's Q2 results showed resilience in a weak market environment. Net sales were close to EUR 3.1 billion, a slight decrease of EUR 11 million, with a comparable operating profit of EUR 178.3 million and a 5.8% operating margin. The grocery trade's net sales totaled EUR 1.6 billion, down by EUR 28 million, while the building and technical trade saw a net sales increase due to the Davidsen acquisition. The car trade faced challenges with net sales down by EUR 39 million. The company maintained its guidance, expecting comparable operating profit for 2024 between EUR 620 million and EUR 680 million, slightly adjusted from the earlier range.

Quarterly Performance Amid Weak Market Conditions

Kesko encountered a challenging market environment in the second quarter of 2024, but held its ground with some positive highlights. Total net sales amounted to almost €3.1 billion, reflecting a slight decline of €11 million compared to the previous year. Despite the market's adversity, Kesko demonstrated solid cash flow from operating activities, reaching €309 million, indicating strengthened working capital management.

Segment Overview

In the Grocery Trade segment, net sales fell by €28 million, totaling €1.6 billion. Despite this drop, the segment's profitability was stable with a comparable operating profit of €114.5 million, slightly lower by €3.9 million from the previous year, yielding a 7.2% operating margin. The sales decline was primarily attributed to reduced sales of non-food items in K-Citymarket and increased store site costs. However, online grocery sales continued to grow robustly, up 13.5%, and comprised 4.1% of K Group's grocery sales.

Building and Technical Trade: Challenging Yet Steady

The Building and Technical Trade segment showed resilience with net sales increasing by €55 million to €1.2 billion, largely due to the Davidsen acquisition. However, when adjusted for comparable terms, net sales decreased by 5.4% owing to the weak construction cycle. The comparable operating profit was €56.1 million, translating to a 4.7% operating margin. Signs of recovery were observed in Poland and the Baltics where Onninen's sales began picking up.

Car Trade Performance

The Car Trade segment faced a tough market with net sales dropping by €39 million, totaling €299 million. Sales decreased in new cars but increased in used cars and services. Despite the difficult market, new models generated strong customer demand. The segment's comparable operating profit stood at €14.9 million, reflecting a year-on-year decrease of €9.5 million and an operating margin of 5%. Growth in K-Lataus EV charging also progressed as planned, with over 1,700 charging points now available.

Strategic Updates and Future Outlook

In June, Kesko updated its growth strategy, maintaining its main strategic pillars while refining targets for each division. The company indicated stable prospects for grocery and food service markets but expected continued decline in the building and technical trade market through 2024, anticipating a turnaround in 2025. For the car trade, a muted new car market was forecasted, with growth expected in used cars and services.

Profit Guidance for 2024

Kesko's operating environment is anticipated to remain challenging. Nonetheless, the company estimates a comparable operating profit of €620 million to €680 million for 2024. This guidance was slightly narrowed from an earlier range of €620 million to €700 million, reflecting updated expectations based on the first half's performance and future market conditions in building and technical trade and car trade.

Earnings Call Transcript 2024-Q2

[Hanna Jaakkola, executive]

Dear all, warmly welcome virtually to sunny Helsinki, and thank you for tuning in for Kesko's Q2 2024 release call. Our agenda today is the following: CEO and President, Jorma Rauhala, will give first the Q2 presentation. We have here together with us, our business division presidents, Ari Akseli for Grocery Trade; Sami Kiiski for Building and Technical Trade; and Johanna Ali for Car Trade; as well as CFO Anu Hamalainen. After Jorma's presentation, it's time for questions both by phone and via chat function. All the materials related to Q2 can be found at our web page kesko.fi under Investors. My name is Hanna Jaakkola, I work as IR Director at Kesko. I will be at your service after the presentation for your questions and discussions. But now Jorma, the stage is yours. Please.

[Jorma Rauhala, executive]

Thank you, Hannah. Ladies and gentlemen, welcome also on my behalf to this release call. I am Jorma Rauhala, and I have now the pleasure to present Kesko's Q2 results. Today's headline is good performance in a weak market and it describes the second quarter well. Now, I will give an overview of our business performance and open up elements behind the results.

Key events in the second quarter. Net sales and profit decrease as expected. Cash flow from operating activities strengthened. In grocery trade, net sales were down and profit at a good level. In building and technical trade, profitability weakened as expected, due to the weak construction cycle, but decline was slower than in Q1. In car trade, net sales and profit were down. In May, Kesko agreed to acquire the operations of the Autotalo Lohja dealership. In June, we published our updated strategy. Main strategic pillars are intact and competitive advantage as well as targets for each division were refined.

There were many changes in the company's Group Management Board. Sami Kiiski was appointed as President of Building and Technical Trade; Johanna Ali as President of Car Trade; Anu Hamalainen as Chief Financial Officer; and Lasse Luukkainen as EVP, Legal and Sustainability.

Net sales in Q (sic) [ Q2 ] totaled close to EUR 3.1 billion. It was down by EUR 11 million. Net sales increased in Building and Technical trade as Davidsen acquisition is now included in the figures. Rolling 12 months, net sales were over EUR 11.7 billion.

In Q2, comparable operating profit was EUR 178.3 million and operating margin was 5.8%. Comparable operating profit decreased in all 3 divisions. Rolling 12 months operating profit was EUR 656.3 million, and operating margin was 5.6%.

Return on capital employed was 11.8%. Return on capital employed decreased in all divisions as earnings declined.

Financial position. Cash flow from operating activities rose clearly to EUR 309 million. Cash flow strengthened on the comparison year, thanks to further improvement in working capital management. Interest-bearing net debt increased year-on-year as a result of investments in logistics and in grocery trade store site network. Net debt to EBITDA was 1.1.

Capital expenditure. Capital expenditure decreased in Q2 and totaled EUR 128.4 million. We continued investments in grocery store site network. Other investments include Onninen and K-Rauta shared logistics center in Hyvinkää, Finland, where construction is expected to be completed in 2025.

Expenses. Expenses were up due to Davidsen acquisition and real estate costs, but personnel expenses were at last year's level, excluding acquisitions. Fixed costs were EUR 532 million and cost ratio was 17.2. It was down compared to last quarter, but up year-on-year. We have succeeded well in focusing on cost efficiency.

Now to grocery trade. Profitability was at good level. In Q2, net sales totaled EUR 1.6 billion and declined by EUR 28 million. Rolling 12 months, net sales totaled EUR 6.3 billion.

In grocery trade, comparable operating profit for Q2 was EUR 114.5 million and it was close to last year's level, decreasing only by EUR 3.9 million. Profitability was 7.2%. Rolling 12 months, operating profit was EUR 439.5 million, and operating margin was 6.9%. The decrease in comparable operating profit was impacted by an increase in store site costs and a decline in net sales for K-Citymarket's home and specialty goods so-called nonfood. The comparable operating profit for Kespro increased slightly.

Key wins in grocery trade in Q2. In the grocery trade division, net sales and operating profit decreased, operating margin was close to flat year-on-year. K Group's grocery sales were down by 1.1%. Kespro's net sales were down by 1.3%, still again exceeding market growth. K-Citymarket nonfood sales were down by 4.3%. Online grocery sales continued on the strong growth trend and grew by 13.5% and with some 4.1% of K Group's grocery sales. Total grocery market growth was approximately 0.1%. K Group sales performance was slightly below the market.

Price inflation for groceries in Finland stood at 0.1%. Last year, at the same time, it was over 10%. Customer flows continued to grow, thanks to campaigns, but average purchase was down. There's also change in Finnish legislation that enabled the sales of beverage with 5.6% to 8% alcohol content in grocery stores at 10th of June. Previously, the limit was 5.5%. These beverages were successfully added to grocery store selection all over Finland. The impact of the legislative change on Kesko sales is expected to be around some tens of million of euros annually. Nearly 450 wine products are now sold in K Group grocery stores.

Approximately 30% of sales are coming from products that are available exclusively in our stores. White wines account for about half of the wine sales. Also, some 100 stronger beer products were added to selections. They now account for a few percent of total beer sales. New alcohol products were introduced to stores in a responsible manner and wine is typically bought as a part of larger food baskets. The possibility to buy strong alcoholic beverages from a grocery store increases customer convenience and benefits especially smaller stores in rural areas.

And now to building and technical trade, where the result was in line with expectations in a difficult cycle. Net sales increased by EUR 55 million to EUR 1.2 billion, thanks to Davidsen acquisition. In comparable terms, net sales decreased by 5.4% due to the weak construction cycle. Rolling 12 months, net sales was EUR 4.1 billion.

Comparable operating profit for the building and technical trade division totaled EUR 56.1 million and operating margin, 4.7%. Rolling 12 months, operating profit was EUR 173.4 million, and operating margin was 4.1%. The decrease was due to a decline in net sales, which was impacted by the weak construction cycle.

Key events in building and technical trade in Q2. Construction cycle is still weak in the Nordics, but turnaround can be seen in Poland and the Baltics, where Onninen's sales are growing. Overall, net sales and operating profit development were in line with expectations, Davidsen is included in the figures. Onninen's operating profit, in particular, was impacted by weaker sales and profitability of solar power products compared to the exceptional levels of Q2 2023. The allocation of fair value related to Davidsen acquisition, mainly related to inventories had a positive EUR 1.2 million impact affecting comparable operating profit. Write-downs of overdue trade receivables totaled EUR 2 million. Share of results from Kesko Senukai was EUR 6.3 million.

There are signs of a pickup in sales in both building and home improvement trade and technical trade. In this picture, we can see K-Rauta's and Onninen's sales development in Finland since 2019. K-Rauta is the market leader in building and home improvement business in Finland and Onninen in technical trade, both have nearly to 50% market shares. And these 2 represent approximately half of the home building and technical trade division. In the graph, we can clearly see the consumer COVID boost for K-Rauta in Q2 and Q3 2020. And then in 2021, we saw B2B sales increase with high demand and global price increases, the same demand and price increases happened in Onninen, too. Turning construction cycle started to affect first K-Rauta in 2022, but Onninen was at this time -- at the time boosted by high demand for alternative energy solutions like solar panels and heat pumps as energy prices increased due to Russia's offensive war to Ukraine. After several quarters of weak cycle, we can now see sales turning, first in K-Rauta but also in Onninen. This positive trend has continued also in July.

In car trade, good performance in a challenging market. In car trade, net sales for Q2 decreased by EUR 39 million and were EUR 299 million. Net sales decreased in new cars and increase in used cars and services. In the comparison period, net sales for new cars increased by the clearing of order books as the availability of cars improved.

The comparable operating profit totaled EUR 14.9 million and decreased by EUR 9.5 million year-on-year. Operating margin was 5%, rolling 12 months operating profit was EUR 70 million, and operating margin was 5.9%.

Key events in car trade. Market demand for new cars was muted. Q2 first registrations in Finland decreased by almost 20% and market for used cars were up 2.9%. Net sales and profitability were at expected level in a difficult market. New car sales were down, but customer demand for new models is at a good level. In used cars, sales grew significantly outpacing the market. Good growth continued also in service sales. Growth in K-Lataus EV charging proceeded according to plans. There are over 1,700 charging points located on K stores parking lots, creating also customer flows to the stores, 679 of the charging points are fast charging. In sports trade, net sales decreased, but market share strengthened.

Now, let's move to some key highlights to summarize the businesses. In grocery trade, consumer confidence in Finland is still weak, but it has improved in recent months. Consumption is polarized, price is still important, but quality and convenience are important too. The development of our stores and network continues. There will be 7 new stores openings in the second half of 2024 and 23 stores updated. Our position is strong in all areas of food trade.

In building and technical trade, market is showing signs of picking up in all operating countries, but the cycle is still weak. We will continue the execution of country-specific strategies. Inventories are today at a healthier level in both building and home improvement trade and technical trade.

In car trade, the business portfolio is balanced. New car sales are muted, but new models are expected to support sales. New models include, for example, Audi Q6 e-tron, Porsche Macan, a new Volkswagen ID7 Tourer and Volkswagen Passat. Strong sales growth is expected to continue in used cars and services.

Guidance and outlook. Outlook there are actually no changes to the outlook compared to what we said in January and in Q1. The big picture is that in grocery trade, B2C trade and the food service market are expected to remain stable. In building and technical trade to market is expected to continue to decline in 2024, the cycle is expected to turn in 2025. In car trade, new car sales are expected to fall short of the level -- 2023 level. Sales of used cars and services are expected to grow.

Profit guidance for 2024. Kesko's operating environment is estimated to remain challenging in 2024. Kesko's net sales and operating profit are estimated to remain at a good level in 2024 despite the challenges in the company's operating environment. Kesko estimates that its comparable operating profit in 2024 will amount to EUR 620 million to EUR 680 million. Previously, the comparable operating profit was estimated to amount to EUR 620 million to EUR 700 million. The profit guidance specification is based on development in the first year half and on updated estimates regarding development in building and technical trade and car trade in latter half of the year.

In June, we published our updated growth strategy for 2024, 2026. I'll go through the key slides now. Kesko's growth strategy in 1 page. This is my most important slide and the way I lead Kesko. The leading and most attractive trading sector growth company in Northern Europe, this is our vison. Strategic targets, delivering profitable growth, strengthening market position in all businesses and all countries, building focused B2B and B2C business portfolio, increasing customer value. Competitive advantage, operational excellence. This is very important, critical and also very difficult. It includes our daily processes, store concepts, assortment and pricing management, product availability, delivery accuracy and so on, but these are the most important for our customers.

Omnichannel customer experienced both physical stores and digital services and customers make the choice. K-retailer model is important in the grocery, B2C business and K-Rauta and into sport, commercial spirit in all our businesses. Forerunner in sustainability is important, not only, for example, in fighting the climate change, but it is important for our customers, too. We focus on 3 businesses: grocery trade, building and technical trade and car trade. Our purpose is to strive for better trade every day, customer and quality in everything we do. The way we work in Kesko is to operate directly, openly and honestly creating trust.

In grocery trade, our aim is to gain market share. Key actions strengthening store-specific business ideas, focusing on strengthening chosen competitive advantage and raising the quality level of stores. Developing store-site network, targeted investments in the store site network, focusing on growth centers, improving price competitiveness, strengthening price competitiveness and improving price image. Continuing good development in Kespro, further strengthening Kespro's market-leading position. Store site and price investments will have a slight impact on grocery trade profitability in upcoming years. However, EBIT development will be stable and profitability clearly above 6% despite investments during the strategy period.

In building and technical trade, we are focusing on securing profitability. Key actions. In Finland, continuing growth and winning over market share. In Sweden and Norway, stabilizing and improving business performance and integration of acquired companies. In Denmark, finalizing the integration of Davidsen and improving performance through growth. Growth through acquisition, M&A to boost credible growth in Northern Europe. Our long-term target of 6% to 8% operating margin is still valid.

In car trade, focus is on outperforming the market in all businesses. Key actions. Continuing with growth strategy execution, major turnaround and continuous development establish a robust foundation for the next strategy period, maintaining the balanced business portfolio, new cars, used cars and services. Cooperation with the Volkswagen Group continuing the good cooperation with the Volkswagen Group and Porsche. Sports trade, continuing as a strong market leader in sports trade, solid EBIT development and number one, brand awareness and preference.

The team to lead this strategy is our Group Management Board. There has been 5 changes in the management team this spring, new presidents for building and technical and car trade, new CEO, CFO as well as new position for legal counseling, including responsibility for sustainability. I am happy to have this professional and ambitious team in place.

Well, this was my presentation from my behalf. I guess it's time for questions now.

[Hanna Jaakkola, executive]

Thank you, Jorma, for your presentation. And now it's time for questions. Let's go first to the conference call. Do we have any questions coming from the conference call, please?

[Operator]

[Operator Instructions] The next question comes from Fredrik Ivarsson from ABG Sundal Collier.

[Fredrik Ivarsson, analyst]

I have 3, at least. The first one, I think you mentioned the margin in BTT was sort of boosted by higher gross margins of solar power products. And in that sense, what does the comparison figure look like? Because I think I remember you saying in Q3 last year that these sort of products already started to decline. So can you give some color on the comparable figures in terms of those products, please?

[Hanna Jaakkola, executive]

Thank you for your question. Actually, we opened up the solar panels in Q1 this year and gave quite a bit of flavor then. And then we described that the majority of the margin came in the beginning of the year in the Q1 and Q2. So the comparison figures were quite high last quarter. And Jorma?

[Jorma Rauhala, executive]

Yes, I agree. That was, if I remember by my heart, it was something -- first quarter and second quarter was something like more than 80%, maybe 85% last year, what we said about solar panels. So last year, 2023, second half of the year was very weak, when it comes to solar panels, and now the situation is much better. The solar panels, what we are selling now are kind of new inventories and gross margin is okay. So I would say that this problem has now solved.

[Fredrik Ivarsson, analyst]

Okay. Good. Very clear. And then in terms of the June figures you reported a couple of weeks ago, which I guess were on the soft side, minus 8% comp sales in grocery and minus 14% in BTT. Can you give us some color on these figures? And I guess, it's difficult to quantify, but was it due to poor weather? It was quite cold and rainy, for instance. Did that impact grocery at all and BTT for that matter?

[Jorma Rauhala, executive]

I can start. So that, of course, the sales days that we have our 2 or even 3 sales days less. That was definitely the most important reason behind that. But maybe, Ari, you can comment about grocery business and Sami, BTT.

[Ari Akseli, executive]

Yes, we have this -- maybe some of areas was depending about the weather. Weather was excellent in May, we had excellent sales in May but it's not so good in June, it affected, especially for the barbecue and ice cream sectors. These are the main reasons.

[Sami Kiiski, executive]

And in building and technical trade, it was pretty much what we expected in June. And there was, of course, less days, sales days and so on, but it was pretty much what we expected.

[Fredrik Ivarsson, analyst]

Okay. And last one from my side. On the store side, investments and price investments that's going to impact grocery margins. Can you give us something more than that we're talking tens of basis points or more?

[Jorma Rauhala, executive]

Yes, I can start. Of course, we published our updated strategy at beginning of June, and those will be the actions what we will do in the outstretched period in grocery division. And of course, those actions, of course, we have increased already some investment in store site network, but we will increase those investments and also those investments, which will be due in pricing and quality, those are not yet done. But what we said when we published our strategy was that we believe that in grocery and also in future, we will do clearly above 6% margin.

[Hanna Jaakkola, executive]

Any further questions on the conference call line?

[Operator]

The next question comes from Miika Ihamaki from DNB Markets.

[Miika Ihamaki, analyst]

It's Miika from DNB. Firstly, grocery sales lagged roughly 1% and the gap didn't narrow sequentially. So are you currently satisfied with the level of investment in prices? Or do you feel that you need to further increase campaigning?

[Jorma Rauhala, executive]

Maybe, Ari, you can take this one, but I refer our updated strategy and of course, those actions we haven't started yet, but if you want to add something.

[Ari Akseli, executive]

Yes. We will invest that to the prices, but we will use more data. So it's more concentrating how we use the customer loyalty card data to offer best offers for the best customers. And by doing this, we try to increase the average shopping basket because we have been able to increase already the number of visitors in stores.

[Miika Ihamaki, analyst]

That's clear. And then secondly, how much was building and technical trade profitability in Finland?

[Hanna Jaakkola, executive]

Our building and technical trade profitability in Finland. Let's see, we have -- we don't actually publish the figures by country. So you have to assume from the figures we gave. So we have the exact number.

[Jorma Rauhala, executive]

We can see that building and home improvement side was quite strong when it comes to whole division. It was only a little about EUR 3 million decrease compared to last year and technical trade was the bigger issue because of those solar panels, mainly in Finland and Norway, also.

[Hanna Jaakkola, executive]

That's correct.

[Miika Ihamaki, analyst]

Okay. And maybe lastly, any losses in any of the operating countries is margin positive in BTT in all countries?

[Jorma Rauhala, executive]

Like I said, we don't publish those one, but I would say that yes, we're on a positive side in all countries. Sami do you -- yes.

[Sami Kiiski, executive]

To date, yes.

[Jorma Rauhala, executive]

Yes, that's true. Yes.

[Sami Kiiski, executive]

Now of course, we have disclosed the Onninen Finland numbers there that is in the report also.

[Jorma Rauhala, executive]

But all the countries.

[Hanna Jaakkola, executive]

Any further -- one more coming from the conference call line, please?

[Operator]

The next question comes from Anna Schumacher from BNP Paribas Exane.

[Anna Schumacher, analyst]

I have a couple. So the first one is on grocery and a bit of a carry on from Miika's question. So a like-for-like decline of 1.7% suggests that you've lost volumes in the quarter. And industry data is suggesting that volumes are actually returning to Finland. So why is it that you're losing volumes? And what levers will you pull in the future to have those volumes return to yourselves?

[Jorma Rauhala, executive]

So grocery and volume, maybe, Ari, you can comment this one.

[Ari Akseli, executive]

Yes. I think the main reason why we are losing the volumes comparing to that market. It was something that we actually expect at the level. And main reason for that is that our competitor has been opening 14 new hypermarkets during the recent years, and we haven't opened any. Now we are concentrating to the investments in the growing areas of the Finland and in the bigger stores size, this is one of the key issues. And if you think about the profitability side, typically, the hypermarkets are the most profitable part of the business, so in the long term, that will bring more profit for the company. And secondly, we need to invest more to the prices, but we keep on the same time, this clearly profitability target, more than 6%. So we need to use more data, how to optimize these pricing and we are putting more efforts for the best customers, how to offer more the best customers to increase average shopping baskets.

[Anna Schumacher, analyst]

Okay. Understood. And so where you compete with your main customer, and they haven't opened a new hyper, are you not losing volume there? It's only in these new sites?

[Ari Akseli, executive]

I think the main reason is this new store sites because if you look about what is happening in the market, the biggest change is in the markets are in the hypermarket segments.

[Anna Schumacher, analyst]

Okay. Okay. And then I had a question on your working capital. So you've significantly improved your working capital again in the quarter, which looks to be driven by other noninterest-bearing liabilities and accrued liabilities. Can you give us a little bit more color on what they are and what measures you've taken to improve them?

[Jorma Rauhala, executive]

Maybe, Hanna, you can take this one.

[Hanna Jaakkola, executive]

Yes. Thank you, Anna. The thing is that if you look at our cash flow, we have been doing quite good effort of putting effort to inventory management actually. So our inventory turnover has been improving when we sort of internally look at it. And on top of that, of course, there is a change in our, especially on accounts payable, which has been like on a lower side last year than what this year compared to the year-end. So as such, the accounts payable have been putting also a lot more pluses to our cash flow compared to last year. So I would say that these 2 are the things and as you saw, or I'm not -- I think that it was also published in the slides that our accounts payable, we have been writing off only EUR 2 million and on group level, EUR 3 million on that side. So it's a very small amount there. So I would say that the main reasons are really the inventories as well as the increase on our accounts payable side.

[Anna Schumacher, analyst]

Okay. Understood. That's clear. And then maybe just one final question. So you commented on the change in legislation, which means you can now sell alcohol up to 8%. Are you able to share what uplift you've seen in sales due to this change in legislation and what you might expect for -- going forward to the year?

[Jorma Rauhala, executive]

So alcohol and wine questions, maybe, Ari, you can take this one.

[Ari Akseli, executive]

Yes. I think the sale has been pretty much what we expected with the alcohol sales, maybe a little bit in the positive size. And I think that especially the sales in the rural areas with the smaller stores have had positive impacts, especially for these stores because now customers don't really have any reasons to go different city and then they do all the shoppings from bigger stores over there. And I think that the customer feedback from these new wines has been quite positive, especially the sale of the white wine has been more than 50%, and I think it's looking quite promising. But of course, we are looking for the future because we like to be one of these European countries, which are allowed to sell alcohol under 15%.

[Hanna Jaakkola, executive]

Thank you so much, Anna. And now I will go to the chat function and ask some questions I have received -- we have received. So Svante Krokfors from Nordea is asking. Your profitability in grocery trade is holding up well despite weakish top line. What are the main reasons on cost efficiency side, cost and efficiency side?

[Jorma Rauhala, executive]

Ari, you can take?

[Ari Akseli, executive]

Yes. The overall cost of efficiency has been very under control, despite the growth in sales in the past years. And one of the reason is that that we have been using more and more data and AI, how to optimize investments in the marketing, pricing and how we are able to improve the sales per kilometers in the stores. So the use of data in white space and very, very efficient cost control system in our division.

[Hanna Jaakkola, executive]

Very good. This question was already a little bit asked -- answered, but I ask it anyways. What are your working capital management efforts that boosted strong cash flow in the quarter? So if you want to elaborate something on the working capital management side?

[Jorma Rauhala, executive]

I think, Anu...

[Hanna Jaakkola, executive]

Anu kind of answered it already or do you have anything to add?

[Anu Hamalainen, executive]

Well, like I said, we are still going to put effort to our inventory management. So doing that then, of course, checking -- doing this kind of -- well, I think that is the main reason really here.

[Hanna Jaakkola, executive]

Yes. Very good. The EUR 20 million decline in 2024 EBIT guidance high end, is it more BTT or car trade?

[Jorma Rauhala, executive]

Yes. When it comes to our EBIT guidance, typically, we give a wider range speaking of the year. And then during the year when the visibility increases and also the results accumulate, then we narrow the range. So I would say that there is no drama behind that. So we have mentioned those 2 divisions. And I don't have so specific figures, but if I would mention, maybe, for example, that new cars market is softer than we expected. Maybe this is one reason, but we don't have so exact figures.

[Hanna Jaakkola, executive]

Yes, very good. Then Arttu Heikura, Inderes is asking. Grocery trade market in both businesses was quite weak. How do you see the reasons for weak market development during the quarter? And what is your expectations for H2? This is somewhat answered in our guidance, but you want to say something?

[Jorma Rauhala, executive]

Ari, do you have anything to add?

[Ari Akseli, executive]

I think we said already in the guidance, but main reason is that customers buying power is still very low and they are worried.

[Hanna Jaakkola, executive]

Yes, that was mentioned to the investor. Grocery trades average purchase was down. Does this stem from a decrease in price points or in volumes? Does it come from...

[Ari Akseli, executive]

Yes. The main reason is that customers are now looking for better prices. They go picking up campaigns from different stores and try to optimize the use of the money.

[Hanna Jaakkola, executive]

Very good. Has the price campaigns in grocery trade impacted your gross margins?

[Ari Akseli, executive]

It has had a slight impact to the gross margins and especially because we have been doing more campaigns and a bit of better price points.

[Hanna Jaakkola, executive]

Yes. We already discussed the wine sales, but is there anything to elaborate or the start of the 8% wine sales. At least it was a success logistically, how we distributed all the wines to the stores all over Finland in a couple of days.

[Ari Akseli, executive]

I think that was the good flavor for that because we get the final approval from the governments in Friday, and we started business in Monday.

[Hanna Jaakkola, executive]

That's quite efficient start, yes. Yes, it was discussed in the presentation and already earlier. Could you elaborate the market share development in building and technical trade?

[Jorma Rauhala, executive]

Sami, you can take this one.

[Sami Kiiski, executive]

Thank you. Good question. And it's diverse market, of course, and also in that respect that we don't have the latest numbers. Finland, we have, but from abroad, the latest numbers are normally coming -- or next ones are coming during August. But what we can see in Finland is that the K-Rauta still gaining the market share and that we are very happy. And then Onninen, a little bit losing first 6 months of the year, losing the market share just slightly, but that is also what we expected because of the product mix, but also the mix of our customers on the segments.

[Jorma Rauhala, executive]

If I remember right, that we gained market share in the HEPAC side and we lost some in electric side and mainly because of those solar panels.

[Sami Kiiski, executive]

Exactly, yes that was the case. So HEPAC, we are still very strong and that's the thing. And then when we go to different countries, just to say it shortly, it differs, but we can see that market starts to recover a little bit more now from the consumer business side. And of course, we are strong in B2B side. And that's also a little bit affecting. But we are in line there also in abroad.

[Jorma Rauhala, executive]

Last because what I remember from Poland and Baltics, there, we gained market share. I would say that in Norway, [indiscernible], what comes to market maybe a little bit losing there and ordinary Norway is okay. But mainly gaining market share, but in some areas a little bit losing.

[Hanna Jaakkola, executive]

Good. How was the sales of solar panels products in H2 '23? But I would like to refer to Q1 presentation where we opened it up quite well. So only 13% and 4% of the margin -- gross margin came from solar panels of the whole in '23, but you can look at the presentation, you can find it online. I'll go to the next one. How Davidsen has developed under Kesko? Did it sales and operating profits decreased compared to the group development?

[Jorma Rauhala, executive]

Sami, you can continue. But I would say that all in all, Davidsen has been a very good acquisition and the performance has been, I would say, exactly what we expected. Maybe the market has been a little bit softer than we expected as maybe all markets. But Sami, you can add.

[Sami Kiiski, executive]

Exactly. You said it already in the right way that only the market has been a little bit softer than what we -- and also the forecast was showing early in the year. But other than that, we have been very happy of how Davidsen is performing and also how the management is executing the strategy there.

[Hanna Jaakkola, executive]

Yes. One question. How has your assumptions regarding the guidance changed from the guidance that was introduced in Q4 '23? So when we released our full year results. And here, I would like to say that we already commented that in Q1. And we then said that the weaker than anticipated outlook for construction was then seen in Q1. Anything else to add?

[Jorma Rauhala, executive]

No.

[Hanna Jaakkola, executive]

We have opened it up in the slides. Then do you give -- do you want to give some color on grocery trade margin sacrifice in coming years? Magnitude and sources, price investment, store investments and timing. Again, around this comment on clearly above 6% EBIT.

[Jorma Rauhala, executive]

Ari, do we have anything to add or...

[Ari Akseli, executive]

I think that we have already opened as much as we could go.

[Hanna Jaakkola, executive]

I do agree. Your comparable EBIT is down 17% year-on-year in the first half. The midpoint of your updated guidance range implies that a 1.7% decline. What is driving the improvement that is baked into the guidance? So since the sales decreased quite a bit in the first quarter.

[Jorma Rauhala, executive]

Yes, I would say that the building and technical trade is, of course, the biggest reason. And what we have said that we believe that the next year will be stronger. And of course, the change most probably what happened in first of January, of course, as we have said now that the markets start to pick up a little bit, and we have already those evidence of that already in Poland and Baltics since now in black figures. And Also, we can see in other countries that every day when we look, every morning when I look, I would say from yesterday's sales, there are more and more days that there are several units that are now positive increase. So building and technical trade start to improve. And I would say that this is the most important reason.

[Hanna Jaakkola, executive]

Very good. And we commented on the presentation that new car sales were down, but the customer demand for new models was at a good level. Would you, Johanna, would like to elaborate a bit about the new models and customer demand for that?

[Johanna Ali, executive]

Yes, of course, this is product business and new products are always really important in car trade. And in our portfolio, there are now many new great products. And we can see that the customer demand is really focused on new products in the market. And like it was mentioned by Jorma in presentation, there is numerous in each of our brands. And maybe just to repeat and comment that in Volkswagen, for example, ID7 is having great demand, in Porsche Macan as well, bringing quite a new kind of product for Porsche business in Finland and then Audi Q6 e-tron has also created a nice demand in the market, and surprised us positively.

[Hanna Jaakkola, executive]

And how much synergies do you expect to receive for the next four quarters from Elektroskandia is the next question. We haven't opened up Elektroskandia, any comment on that?

[Jorma Rauhala, executive]

Always very difficult to say exact figures about synergies because we have now integrated 2 companies totally. So now 1 organization, now 1 customer agreements, 1 supplier agreements, we have integrated everything. But it's not so easy to give any exact figures. But we will get synergies and now the integration has completed, it's of very challenging IT exercise, what we done especially in IT side, but it was done now in end of June, and I think we are already now gain synergies. So Sami, do you have something to add?

[Ari Akseli, executive]

Indexation is still a little bit on, but yes, particularly in IT and [indiscernible] of course, we believe that there's already some synergies. And then, of course, like Jorma said, from the purchases and supplier side and also then the -- of course, the products know how we can serve our customers even better. There's also synergies, but we don't give any exact numbers out like I said already.

[Hanna Jaakkola, executive]

Very good. I think that was the end of our Q&A session. I would like to thank all the active participants of your questions. And if you have any further questions, I will be at your service don't hesitate calling. Any last comments Jorma to the audience?

[Jorma Rauhala, executive]

Last comment. So as we stated, weak markets, especially, I would say that in building and technical trade in car trade, but good results what we made. And look, I would say, quite positive what comes to the future and what we -- for example, in our presentation was this kind of change what is happening now in building and technical trade. I have to say that, of course, this is what we expected also, but now it's good to see those changes what is happening now. So I -- looks very -- trust the future, what we see now. Thank you.

[Hanna Jaakkola, executive]

Thank you.