Kesko published its Q3 earnings report today, and let us talk about it. Together with the company CEO Jorma Rauhala. Hello, Jorma. Hello. Could you first summarize how your Q3 earnings report or period went?

Let us say it was a strong quarter. All divisions increased their sales, and earnings improved. So I am very satisfied regarding all divisions. Strong earnings.

Yes, let us move straight to the grocery trade. There, indeed, a preparation process for a food market act has been underway for some time now, and it is apparently in its final stages, to my understanding. So what this would mean in short is that they aim to restrict the sale of private label products in some way. Could you now reiterate to investors how this matter is proceeding, or at what stage it is, and how it affects the company?

Yes, the food market. The market act has indeed undergone many revisions over the years. Now the latest ones have already entered into force, and it relates to various unfair trading practices and things of this nature, and private label products have been heavily discussed there. That means these own brands at that point and at the present time. If we also have discussions with the Food Market Ombudsman regarding how this is applied. But let us put it this way, since we have acted responsibly in the past and will continue to do so, we do not see that this will have any significant impact on our day-to-day operations or even regarding these private labels.

Understood. Hey, your competitor Prisma launched a Foodservice concept that operates in connection with regular Prisma stores, meaning it is also open to consumers. What do you think of this concept, and do you see it having any impact, for example, on Kesko, Kespro, or hypermarket sales overall?

Yes, that was very interesting because the concept is quite familiar to me. Namely, it was some years ago, I would say 2010. I was the Managing Director of Kespro from 2007 to 2012, and back then we developed a concept like this, I still remember. It was a concept called Horeca-kauppa, and we created it together with retailers, and there were such stores at least in Vantaa Jumbo, Mikkeli, and Seinäjoki. Forssa, Pori, in at least five locations. We created a very extensive corresponding type of Horeca department specifically inside Citymarkets, meaning that, so to speak, large SKU products and so on were brought there. And the idea was naturally to sell them to consumers, but particularly to sell them to local pizzeria entrepreneurs or others in the area. Those were towns in the region where we had cash-and-carry wholesale units, and we invested in that. And if I look at this concept made by a competitor now, ours was perhaps even more advanced. Because we had Kespro's sales personnel, they contacted all entrepreneurs in the area, entrepreneurs of this type. We gave out a discount card, which could then be used to get further markdowns on these prices.

It had a decent start, but in the end, the concept didn't really take off. It was run for a few years, and then it has probably been phased out by now. Some products might have remained in all of them perhaps. And if one considers the reasons behind it, one is that the products are generally speaking not very suitable for consumers after all. For example, there is a two-kilogram tuna can, so how often does one need something like that? And then for a pizzeria customer, they cannot operate with 450-gram tuna cans, so those products are not necessarily suitable except in very specific cases. Their price as such is hardly any cheaper, it might even be more expensive, so it didn't appeal to consumers. And then for business customers, there was probably a mental barrier that an entrepreneur prefers to patronize places intended for businesses. That means an entrepreneur genuinely prefers to order that delivery from Kespro, for instance, or shop at the cash-and-carry wholesalers that we have. So it is a very familiar concept, and we have tried it, and it has not been continued on that basis. So individual products have probably remained, say, somewhere in the frozen food section, larger boxes of frozen pastries and the like have been left behind.

Let us then move on to the building and technical trade. Particularly the earnings trend in technical wholesale was really strong during the quarter. What drove these earnings?

Yes, it was. It was strong, and it was strong in all countries. In Finland and the other technical trade countries. Indeed, including all our countries. New residential construction is still actually quite sluggish in almost every country, particularly in Finland, but as has been reported, out there. Infrastructure construction and data centers play a significant role in Finland, and strong industrial demand is also seen in Norway, showing that stronger demand is emerging there, and that is now reflected particularly in the technical trade a bit more than in the hardware trade. So it is through that kind of demand recovery, and then perhaps the fact that compared to last year, when price levels were still heading downward, now they are going upward to some extent, and through that, it is also easier to achieve a better margin. So those factors are in the background.

When considering the market or demand through that weakening new construction sector, is it like. If we look at history, is it still such a negative factor for your earnings? Or have you somehow been able to compensate for the impact of the weak new construction market on your earnings?

Well, yes, I do not know. Naturally, one has had to be more active where business has been better and win market shares, and market shares have been won. In all countries, that is one factor. It is interesting in the sense that if we look a bit ahead to our future regarding Dahl, and in that regard, there is public information available for instance. From the sales structure of that Dahl, it is very heavily focused on infrastructure and renovation. If I remember correctly, it is. Around a quarter is new construction, and even of that only a part is residential construction, so we have. In the future, especially our product and customer portfolio that we sell will be even broader.

If we delve into those data centers that are now being established in Finland in several locations, is this? When considering this whole entity as a project, does it differ in any way from some other project?

From Onninen's perspective at present, if we consider through what channels they are sold, we do not always know precisely where the product goes when a customer makes a purchase. But of course we do business. Let us say with the large construction companies that have also been in the public eye. And then there are numerous dozens, if not hundreds, at least dozens of such contractors operating as subcontractors on those sites. And we have been doing business with them for years. So in the big picture it does not differ much, but of course we constantly aim to develop our own operations so that there, especially now, the availability of goods and products and fast, reliable deliveries will probably be emphasized even more strongly. In which we have succeeded well. But in the big picture it is the same type of business that we do and have done before.

So you do not see it as possible that a foreign data center contractor or project manager would try to find similar products from, for example, their own home country or similar places?

Well, I am not entirely familiar with that, but they certainly exist. We probably come right to what I referred to, that delivery reliability and delivery speed must be maintained. Because this technical trade is such that the customer orders goods today mostly through digital tools, and we deliver in the morning, it is extremely fast. And if I understand it correctly, it is precisely required there that these projects must be advanced quickly. I certainly think that it is essential then that the wholesalers, or wherever they procure from, are capable of operating efficiently, rapidly, in an environmentally friendly manner, covering all the different aspects. Also calculations regarding climate emissions and so forth. I definitely see that we will have a strong position in that regard in the future as well.

Yes. In car trade, earnings improved perhaps a bit more slowly than expected. There has been positive development in new cars and used cars. But, but. Could you comment somewhat on the distribution of earnings in the low-volume car trade, explaining what might account for that slightly softer earnings improvement?

Certainly it is likely that way when thinking about the coming years in the car trade as well. Improving the margin as such is moderately challenging if we talk in percentages. It is precisely through sales growth that profit euros would flow in there. But this major revision happening with us and across the whole market is that if we consider these three elements: services. It has broadly encompassed whatever is involved there, maintenance, body repair, oil changes, and so on. That has had the best margin. Then there are new cars, and used cars have the smallest. And now as these services decrease and used cars increase, and then perhaps even in new cars, we are talking about especially recently. They are cheaper electric cars again, so according to this mix? That is it. It means volume will be sought in the future too. Sales growth is being pursued, but growing the EBIT percentage. That is moderately challenging, and ours is exceptionally strong when talking about the automotive market in general.

Indeed, indeed. Then the number of low-priced Chinese electric cars and entire brands has increased in Finland over recent years. As what kind of competitive threat does Kesko view these new operators in Finland?

Well yes, naturally all competitors must be taken seriously, including these. It is interesting in itself that if we talk about the car trade, we talk about Volkswagen, Audi, Mercedes, or BMW. And then we talk about Chinese cars. So fundamentally, that is how I have understood it. At least a hundred brands are produced there, of which gradually even some have already ceased operations. And I would imagine that they have come to stay, but how many brands of them will actually remain? But for example. At present, none of them seem to be in the top ten yet, if we look at car brands in Finland. So I believe that as the Volkswagen family, as the Porsche family, we are in very strong positions for the future as well, and we still see that strong operators are strengthening. Then new ones like this will certainly emerge. I think rather in the mid-range or somewhere like that, traditional operators and brands might suffer more. I do not believe Volkswagen or Porsche is that.

There is only one quarter left of the year, but you have your own outlook for next year included in connection with the report, so if you could comment on those a bit. And how do you expect EBIT to develop next year?

Yes, indeed we do. Yes, so we expect that, naturally this world is turbulent. That is known everywhere, and perhaps we've even grown used to it. But regarding next year, we expect that these eight countries of ours. Where we operate, the market will improve somewhat in all countries. And also that our sales, our EBIT would improve across all business segments and all countries. So at this point we look quite confident about it. And here I am speaking without the impact of Dahl, so with our current setup, quite confident. And naturally there are these, what I would call, normal risks that we've had up until now as well. Related to consumer confidence and investments as a whole, which are ongoing all the time, so they persist there. And then these geopolitical situations that we've had and will probably continue to have, but quite confidently. We look forward to next year.

Thanks, Jorma, and good luck going forward!

Yes, thank you, thank you, likewise.