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FINANCIAL
REVIEW
KESKO ANNUAL REPORT
2KESKO'S YEAR 2020 I FINANCIAL REVIEW
KESKO’S DIRECTION CORPORATE GOVERNANCESUSTAINABILITY
FINANCIAL REVIEW
THE REPORT BY THE BOARD OF DIRECTORS 5
Operating environment 5
Outlook and guidance for 2021 5
Important events 6
Financial performance for continuing operations 7
Segments 11
Changes in group composition 14
Main objectives and results achieved in sustainability 14
Shares, securities market and board authorisations 22
Key events during the financial year 23
Key events after the financial year 24
Resolutions of the 2020 annual general meeting and
decisions of the board's organisational meeting 25
Information contained in the notes to the financial
statements 26
Risk management 26
Significant risks and uncertainties 26
Proposal for profit distribution 29
Annual general meeting 29
Group's key performance indicators 30
Calculation of performance indicators 37
Analysis of shareholding 44
The following symbols indicate that additional information
can be found either in this report or on our website:
Read more on
our website
Read more in
the Annual Report
Kesko’s Annual Report 2020
has four sections. This section
comprises the Report by the
Board of Directors, the Group's
key performance indicators, and
the financial statements and
Auditor’s Report for 2020.
FINANCIAL REVIEW
FINANCIAL STATEMENTS 46
CONSOLIDATED FINANCIAL
STATEMENTS (IFRS) 47
Consolidated income statement 47
Consolidated statement of comprehensive income 48
Consolidated statement of financial position 49
Consolidated statement of cash flows 51
Consolidated statement of changes in equity 52
Notes to the consolidated financial statements 54
1. ACCOUNTING POLICIES FOR THE
CONSOLIDATED FINANCIAL STATEMENTS 54
1.1 Basic information about the Company 55
1.2 Basis of preparation 55
1.3 Critical accounting estimates and assumptions 55
1.4 Critical judgements in applying accounting policies 56
1.5 Consolidation principles 56
1.6 Discontinued operations and non-current assets
classified as held for sale and related liabilities 58
1.7 New IFRS standards and IFRIC interpretations
and the impact of new and updated standards 58
2. FINANCIAL RESULTS 59
2.1 Revenue recognition 60
3KESKO'S YEAR 2020 I FINANCIAL REVIEW
KESKO’S DIRECTION CORPORATE GOVERNANCESUSTAINABILITY
FINANCIAL REVIEW
2.2 Segment information 61
2.3 Material and services 70
2.4 Other operating income 70
2.5 Operating expenses 70
2.6 Foreign exchange differences recognised in
operating profit 71
2.7 Income tax 72
2.8 Earnings per share 74
2.9 Notes related to the statement of cash flows 74
2.10 Components of other comprehensive income 77
3. CAPITAL EMPLOYED 78
3.1. Business acquisitions, disposals of assets,
and non-current assets classified as held for sale
and related liabilities 79
3.2 Property, plant and equipment 84
3.3 Intangible assets 86
3.4 Right-of-use assets 89
3.5 Inventories 90
3.6 Trade and other current receivables 91
3.7 Pension assets 91
3.8 Shares in associates and joint ventures 95
3.9 Provisions 97
4. CAPITAL STRUCTURE AND FINANCIAL RISKS 98
4.1 Capital management 99
4.2 Shareholders' equity 99
4.3 Financial risks 101
4.4 Finance income and costs 109
4.5 Financial assets and liabilities by category 110
4.6 Leases 114
4.7 Contingent liabilities 115
5. OTHER 116
5.1 Group composition 117
5.2 Subsidiaries, associates, joint ventures and
proportionately consolidated mutual real estate
companies 118
5.3 Related party transactions 121
5.4 Share-based compensation 124
5.5 Legal disputes and possible legal proceedings 127
5.6 Events after the balance sheet date 127
PARENT COMPANY'S
FINANCIAL STATEMENTS (FAS) 128
Parent company's income statement 128
Parent company's balance sheet 129
Parent company's cash flow statement 131
Notes to the parent company's financial statements 132
Note 1. Principles used for preparing the financial
statements 132
Note 2. Net sales by division 133
Note 3. Material and services 133
Note 4. Other operating income 133
Note 5. Employee benefit expenses 134
Note 6. Depreciation, amortisation and impairment 134
Note 7. Other operating expenses 134
Note 8. Finance income and costs 135
Note 9. Appropriations 135
Note 10. Changes in provisions 135
Note 11. Income taxes 135
Note 12. Deferred taxes 135
Note 13. Intangible assets 136
Note 14. Property, plant and equipment 137
Note 15. Investments 138
Note 16. Receivables 138
Note 17. Shareholders' equity 139
Note 18. Provisions 140
Note 19. Non-current liabilities 140
Note 20. Current liabilities 140
Note 21. Non-interest-bearing liabilities 140
Note 22. Guarantees, liability engagements
and other liabilities 141
Note 23. Cash and cash equivalents within the
statement of cash flows 142
Note 24. Related parties 142
SIGNATURES 143
AUDITOR’S REPORT 144
THE REPORT BY
THE BOARD
OF DIRECTORS
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5KESKO'S YEAR 2020 I FINANCIAL REVIEW
KESKO’S DIRECTION CORPORATE GOVERNANCESUSTAINABILITY
FINANCIAL REVIEW
Kesko has operations in Finland, Sweden, Norway, Estonia, Latvia, Lithuania and Poland with
over 1,800 stores engaged in chain operations.
Kesko’s principal business model in the Finnish market is the chain business model, in which
independent K-retailers run retail stores in Kesko's chains. Retailer operations accounted for
approximately 49% of Kesko’s net sales in 2020. At the end of 2020, Kesko had over 1,100
independent K-retailer entrepreneurs as partners. Kesko also engages in own retailing, which
accounted for some 18% of net sales in 2020. B2B trade is a significant and growing part of
Kesko’s business operations. In 2020, net sales from B2B trade totalled some €3.6 billion,
accounting for some 33% of Kesko’s net sales.
Kesko’s international operations mainly concern own retailing and B2B trade. Net sales from
international operations totalled some €1,964 million, representing 18.4% of Kesko’s net sale.
Together, Kesko and K-retailers form K Group, whose retail sales (pro forma) totalled some
€14 billion in 2020 (0% VAT). K Group employs around 39,000 people.
Operating environment
Identified megatrends affecting K Group’s operations are the global economy, climate
change and biodiversity, digitalisation, increased customer knowledge and power,
sustainability and conscientious consumption, and increasingly individual customer
behaviour. Key opportunities and risks in the operating environment are related to the
economic operating environment, risks related to climate change, maintaining biodiversity,
responsibility in purchasing chains, and the increased importance of digitalisation and a
multichannel approach in the trading sector. Risks have been described in more detail in the
Significant risks and uncertainties section of this Board of Directors’ Report.
Main impacts of the Covid-19 pandemic on Kesko’s business in 2020
The Covid-19 pandemic began affecting Kesko’s business operations from mid-March
onwards. Impacts of the exceptional situation varied between the divisions. In the grocery
trade, net sales grew in all grocery store chains and K-Citymarket’s home and speciality
goods. Demand also increased for online sales of groceries. Restrictions imposed on
restaurants and events due to the pandemic impacted Kespro’s foodservice business
negatively. The growth in grocery sales to K-food stores exceeded the decrease in
foodservice net sales. In the building and technical trade, Covid-19 related circumstances
and restrictions varied between businesses and operating countries. Nonetheless, the
market remained good for both B2C and B2B trade. In the car trade, the pandemic weakened
customer demand for both new and used cars in the first half of the year. Net sales saw a
turnaround and began to grow in the latter half of the year as demand strengthened.
Key measures in managing the exceptional situation included ensuring the safety of
customers and personnel, and securing operational purchasing and supply chains under all
circumstances. We also quickly increased our online sales services. Development projects
were postponed, as we focused on managing the situation. We secured cash flow by e.g.
ensuring the availability and sufficiency of financing, managing the credit risks associated
with amounts due from customers, cutting investments and adjusting fixed costs.
Outlook and guidance for 2021
Kesko Group’s outlook is given for the year 2021, in comparison with the year 2020.
Kesko estimates that its comparable operating profit in 2021 will be in the range of €520-620
million. The illustrative comparable operating profit in 2020 was €553.6 million.
THE REPORT BY THE BOARD OF DIRECTORS
6KESKO'S YEAR 2020 I FINANCIAL REVIEW
KESKO’S DIRECTION CORPORATE GOVERNANCESUSTAINABILITY
FINANCIAL REVIEW
The range for Kesko Group’s 2021 profit guidance is wide due to the uncertainties related
to the Covid-19 pandemic. The pandemic situation and progress with vaccinations have a
significant impact on the overall economy, consumer behaviour and trading sector demand
in Kesko’s operating countries. During the pandemic, household consumption has focused
on domestic purchases, which is expected to have a positive impact on some of Kesko’s
businesses also in 2021.
Overall, the outlook for Kesko's business in 2021 is positive. We anticipate moderate
growth in Finnish grocery trade. Recovery in the foodservice business largely depends on
the pandemic situation. Renovation building is expected to grow in the Northern European
construction market. In housing construction, new construction volumes are expected to
decrease overall, but to remain stable in the construction of small housing and vacation
homes. The Finnish car trade market is expected to grow in 2021.
Important events
Kesko’s new financial targets, 1 december 2020
Thanks to the successful execution of its growth strategy, Kesko achieved its previous
financial targets at the end of September 2020, sooner than anticipated. The Covid-19
pandemic and related changes in consumer behaviour also had a positive impact on the
company’s profit in 2020. Kesko estimates that less than half of its profit growth in 2020
was related to the Covid-19 pandemic. The new targets take into account economic
development in Kesko's operating countries in upcoming years, which is generally expected
to bemoderate.
The new medium-term financial targets for profitability, as approved by the Board of
Directors of Kesko Corporation on 1 December 2020, are a comparable operating margin of
5.5% and a comparable return on capital employed of 12.5%. In terms of financial position,
as before, the Group targets a maximum interest-bearing net debt/EBITDA ratio of 2.5,
excluding the impact of IFRS 16. Kesko Group’s previous financial targets were a comparable
operating margin of 5.0%, a comparable return on capital employed of 11.0%, and interest-
bearing net debt/EBITDA of less than 2.5 excluding the impact of IFRS 16.
Positive profit warning, 17 September 2020
Kesko raised its guidance for the comparable operating profit for its continuing operations
in 2020. Kesko estimated that the comparable operating profit for its continuing operations
would be in the range of €510-570 million in 2020. The guidance upgrade was based on
better than anticipated sales development in all divisions, improved cost efficiency, and a
more positive outlook for the remainder of the year.
On 17 September 2020, Kesko issued a release concerning a change in the consolidation
method of Kesko Senukai and impacts of the change. In the new operating profit guidance,
Kesko Senukai is treated as a joint venture from July 2020 onwards. The change in
classification has an approximately €20 million negative impact on the guidance on operating
profit. The change in classification does not affect Kesko’s comparable earnings per share or
Kesko’s dividend distribution.
Before, the company estimated that the comparable operating profit for continuing operations
would be in the range of €430-510 million. In the previous guidance, Kesko Senukai was
treated as a subsidiary for the full year 2020. (Stock exchange releases 17.9.2020)
Positive profit warning, 10 July 2020
Kesko raised its guidance for the comparable operating profit for its continuing operations,
issued in connection with the company’s interim report on 28 April 2020. Kesko estimated
at the time that the comparable operating profit for its continuing operations would be in the
range of €430-510 million in 2020. (Stock exchange release 10.7.2020)
Share issue without payment (share split)
Kesko‘s Annual General Meeting on 28 April 2020 resolved that new shares would be issued
to the shareholders without payment in proportion to their existing holdings so that three
(3) new A shares would be issued for each existing A share, and three (3) new B shares for
each existing B share. The new shares were registered in the Finnish Trade Register on 30
April 2020. The registration of the new shares on the shareholders’ book-entry accounts and
the initiation of public trading on them on the Helsinki Stock Exchange took place on 4 May
2020. (Stock exchange releases 28.4.2020 and 30.4.2020)
7KESKO'S YEAR 2020 I FINANCIAL REVIEW
KESKO’S DIRECTION CORPORATE GOVERNANCESUSTAINABILITY
FINANCIAL REVIEW
Profit warning, 18 March 2020
Kesko issued a profit warning due to the Covid-19 pandemic and related global economic
uncertainty. Kesko estimated at the time that the comparable operating profit for its
continuing operations would be in the range of €400-450 million in 2020. (Stock exchange
release 18.3.2020)
Strategic review of operations in the Baltics and Belarus and
consolidation of Kesko Senukai in Kesko’s Group reporting
Kesko is reporting Kesko Senukai Group, which is part of Kesko’s building and technical trade
segment and operates in the Baltic countries and Belarus, as a joint venture as of 1 July 2020.
Kesko Senukai Group was reported as a subsidiary until 30 June 2020.
In its half year financial report on 23 July 2020, Kesko stated that it would continue the
strategic review of operations in the Baltics and Belarus, initiated in April. The review process
continues. Kesko also stated at the time that it was examining conditions for subsidiary
consolidation of Kesko Senukai in Kesko’s consolidated financial statements due to significant
disagreements concerning the management of and exercise of control in Kesko Senukai.
After re-examining the conditions for consolidation, Kesko has deemed that it no longer
exercises the type of control referred to in IFRS 10 over Kesko Senukai. Consequently, Kesko
has decided to classify Kesko Senukai as a joint venture. Due to the change in classification,
from 1 July 2020 onwards Kesko Senukai is consolidated as a joint venture on one line “Share
of result of joint ventures” before operating profit in Kesko’s consolidated income statement,
instead of the previous line-by-line subsidiary consolidation. In the consolidated statement
of financial position, the change means that the share of Kesko Senukai’s net assets is
presented on one line “Shares in associates and joint ventures” instead of the previous
line-by-line consolidation of assets and liabilities. The change in classification affects the
key performance indicators of Kesko Group and its building and technical trade division.
The change in classification does not affect the comparable profit for the financial year
attributable to equity holders of the parent or the comparable earnings per share presented
in Kesko’s consolidated financial statements, nor Kesko’s dividend distribution. The change
in classification also does not have a material impact on the Group's comparable operating
profit or equity attributable to owners of the parent.
Kesko is reporting Kesko Senukai Group, which is part of Kesko’s building and technical trade
segment and operates in the Baltic countries and Belarus, as a joint venture as of 1 July 2020.
Kesko Senukai Group was reported as a subsidiary until 30 June 2020. In order to enable the
comparison of financial performance indicators between reporting periods, Kesko reports
illustrative Group performance indicators to be used alongside indicators based on IFRS
consolidated financial statements. In segment data, Kesko Senukai is reported consolidated as a
joint venture also for the comparison periods, as this method is used in management reporting.
Illustrative Group performance indicators –/ –/
Continuing operations
Net sales, € million ,. ,.
Operating profit, comparable, € million . .
Operating margin, comparable, % . .
Operating profit, € million . .
Financial performance for continuing operations
In the table of key performance indicators of this “Financial performance for continuing
operations” section, illustrative Group performance indicators are used alongside the
reported performance indicators that are based on the consolidated financial statements, to
depict the change in comparable operating profit as if Kesko Senukai had been consolidated
in the consolidated financial statements as a joint venture also in the comparison period.
The change based on the illustrative comparison figures is reported in the column “Change,
illustrative comparison figures, € million.”
The comparable change % has been calculated in local currencies and excluding the impact
of Kesko Senukai and acquisitions and divestments completed in 2019 and 2020. The
comparable operating profit has been calculated by deducting items affecting comparability
from the reported operating profit. Illustrative performance indicators have been calculated
for the 2020 financial year and the comparison period as if Kesko Senukai had been
consolidated as a joint venture.
8KESKO'S YEAR 2020 I FINANCIAL REVIEW
KESKO’S DIRECTION CORPORATE GOVERNANCESUSTAINABILITY
FINANCIAL REVIEW
Net sales and profit for 2020
and the acquisition of Carlsen Fritzøe Handel in September 2020 and Flokkmann in October
2020 in Norway. The weakening of the Norwegian krone and the Polish zloty against the euro
diminished net sales development in euro terms.
In the car trade division, net sales increased due to the acquisitions carried out in 2019, but
in comparable terms, net sales decreased. The decrease in net sales was impacted by the
weakened demand witnessed in the first year-half, and longer car delivery times.
The comparable operating profit for the Group's continuing operations grew by €106.2
million, or by €118.9 million with Kesko Senukai treated as a joint venture also for the
comparison period (illustrative comparison figures). Profit development was also positively
affected by the Covid-19 pandemic and resulting changes in consumer behaviour. Kesko
estimates that less than half of the profit improvement in 2020 is attributable to the pandemic.
In the grocery trade division, profitability improved thanks to good grocery sales development
in the grocery store chains and cost adjustment measures especially in Kespro’s foodservice
business and K-Citymarket’s home and speciality goods trade. The decrease in Kespro’s net
sales, resulting from restrictions imposed due to the Covid-19 pandemic, had a weakening
impact on Kespro’s comparable operating profit. In the building and technical trade division,
the comparable operating profit for building and home improvement trade grew in Finland,
Sweden and Norway. The acquisitions carried out in Norway and Sweden in 2018-2020
–/ Net sales, € million Change %
Change,
comparable, %
Operating profit,
comparable, € million Change, € million
Change, illustrative
comparison figures, €
million*
Grocery trade ,. +. +. . +. +.
Building and technical trade excl. speciality goods trade ,. +. +. . +. +.
Speciality goods trade . -. -. . -. -.
Kesko Senukai . -. - . -. +.
Building and technical trade total ,. -. +. . +. +.
Car trade . +. -. . -. -.
Common functions and eliminations -. (..) (..) -. +. +.
Total ,. -. +. . +. +.
(..) change over 100%
* Kesko Senukai treated as a joint venture in the illustrative comparison figures
In comparable terms, net sales for the Group’s continuing operations grew by 3.6%. The
change in the Group’s reported net sales was -0.5%, impacted by the consolidation of
Kesko Senukai as a joint venture in the consolidated financial statements from 1 July 2020
onwards. Kesko’s businesses and operating countries have been affected by the exceptional
circumstances brought on by the Covid-19 pandemic in different ways. Net sales grew in the
grocery trade division by 3.6%. In the building and technical trade division, net sales grew by
5.7% year-on-year in comparable terms, while reported net sales decreased by 6.1% due to
the change in the consolidation method of Kesko Senukai. Net sales for the car trade division
increased 3.3% thanks to the acquisitions carried out, but decreased 3.3% in comparable
terms. The Group's net sales increased in comparable terms by 3.3% in Finland, and by 5.1%
elsewhere. The comparable change % has been calculated in local currencies and excluding
the impact of Kesko Senukai and acquisitions and divestments completed in 2019 and 2020.
Net sales grew in the grocery trade division in all grocery store chains and K-Citymarket’s
home and speciality goods trade. Net sales decreased in Kespro’s foodservice business due
to the Covid-19 pandemic and related restrictions.
Net sales for the building and technical trade division grew in comparable terms in Finland,
Sweden, Norway and Poland. Net sales were boosted by the acquisitions of K-Bygg in 2019,
Mark & Infra i Sverige AB in April 2020, and Bygg & Interiör in September 2020 in Sweden,
9KESKO'S YEAR 2020 I FINANCIAL REVIEW
KESKO’S DIRECTION CORPORATE GOVERNANCESUSTAINABILITY
FINANCIAL REVIEW
accounted for €33.9 million (€14.5 million) of the comparable operating profit. Onninen’s
comparable operating profit clearly strengthened and grew in Finland, Sweden, Norway and
Poland. In the Baltics, Onninen’s comparable operating profit remained at level of the previous
year. Kesko Senukai had a €25.1 million impact on the Group’s comparable operating profit
(€34.7 million, consolidated as a subsidiary). Kesko Senukai has been consolidated as a joint
venture from 1 July 2020 onwards. In the car trade division, the comparable operating profit
decreased due to weakened demand in the first year-half and longer car delivery times.
Items affecting comparability, € million –/ –/
Comparable operating profit . .
Items affecting comparability
+gains on disposal . .
-losses on disposal -. -.
+/-structural arrangements . -.
Total items affecting comparability . -.
Operating profit . .
The most significant items affecting comparability were the positive profit impact of €46.1
million resulting from the change in the consolidation method of Kesko Senukai; the €2.5
million negative profit impact of changes in the store site network in Sweden; the €6.4 million
sales gain from the divestment of machinery trade operations in the Baltics, completed on 31
March 2020 – all in the building and technical trade division – as well as the €5.2 million costs
related to corporate restructuring in common functions, and the €10.4 million costs related
to the discontinuation of The Athlete’s Foot and Kookenkä chains in the leisure trade. The
most significant items affecting comparability in the comparison year were the €7.8 million
costs related to the divestment of Onninen’s HEPAC contractor business in the building and
technical trade in Sweden, the €4.3 million costs related to acquisitions, and the net €+4.8
million items related to the subsidiary consolidation of Kruunuvuoren Satama Oy.
K Group's (Kesko and the chain stores) retail and B2B sales (0% VAT) totalled €13,988.5
million, representing a growth of 4.4% compared to the previous year. The K-Plussa
customer loyalty programme added 113,143 new households in 2020. The number of K-Plussa
households stood at 2.5 million at the end of December and there were 3.5 million K-Plussa
cardholders in total.
Net finance costs, income tax and earnings per share
Net finance costs, income tax and earnings per share –/ –/
Continuing operations
Net finance costs, € million -. -.
Interests on lease liabilities, € million -. -.
Profit before tax, comparable, € million . .
Profit before tax, € million . .
Income tax, € million -. -.
Earnings per share, comparable, € . .
Earnings per share, € . .
Group
Equity per share, € . .
Net finance costs for the Group’s continuing operations were up due to exchange differences
and change in the fair value of interest rate derivatives. Of the exchange differences, €-2.8
million was due to exchange rate losses on euro-denominated loan financing in January-June
at Kesko Senukai’s Belarussian subsidiary OMA, and €-1.7 million due to the weakening of
the Norwegian krone, Swedish krona and Polish zloty.
The share of result of associates amounted to €14.3 million (€46.8 million), or €1.5 million
(€0.7 million) in comparable terms. The share of result of associates included a €11.6 million
profit related to the dissolution of Valluga-sijoitus Oy, recognised as an item affecting
comparability. In 2019, Kruunuvuoren Satama Oy had a €17.8 million impact on the share of
result of associates and a €0.3 million impact on the comparable share of result, taking into
account the gains on disposal and impairment charges related to Kruunuvuoren Satama Oy’s
ownership arrangement, net €+17.4 million. Other associates had a combined impact of €29.1
million on the result of associates in the comparison year, and the impact on the comparable
share of result was €0.3 million excluding the sales gains amounting to €28.7 million included
in the share of results of associates and reported as items affecting comparability.
The comparable profit before tax for the Group’s continuing operations grew thanks to
operating profit growth and reduction in net finance costs compared to the year before. The
Group’s effective tax rate was 17.5% (17.3%). The Group’s effective tax rate decreased due to
a positive profit impact of €46.1 million arising from the change in the consolidation method
of Kesko Senukai, recognised as an item affecting comparability, tax-exempt sales gains, and
10KESKO'S YEAR 2020 I FINANCIAL REVIEW
KESKO’S DIRECTION CORPORATE GOVERNANCESUSTAINABILITY
FINANCIAL REVIEW
share of result of associates and joint ventures totalling €21.8 million. The Group’s effective
tax rate was raised by a €3.7 million residual tax related to a reassessment decision on 2013
and 2014 for Indoor Group Oy concerning the right of deduction of losses transferred in a
cross-border merger, recorded in Q2.
Earnings per share and comparable earnings per share for the Group’s continuing operations
grew compared to the year before.
Cash flow and financial position
The cash flow from operating activities for the Group’s continuing operations totalled €1,152.4
million (€893.1 million). The cash flow from operating activities for continuing operations in the
comparison year included a €48.3 million return of surplus assets paid by Kesko Pension Fund, the
dividend payment and repayment of equity by Kruunuvuoren Satama Oy in May 2019 totalling
€44.1 million, and the €39.3 million dividend paid by the associate Valluga-sijoitus Oy, meaning
that operatively, cash flow from operating activities increased by €391.1 million. Cash flow from
operating activities increased due to operating profit growth and improved capital efficiency. The
cash flow from operating activities for discontinued operations in the comparison year totalled €3.5
million. The Group’s cash flow from operating activities totalled €1,152.4 million (€896.6 million).
Cash flow, € million –/ –/
Continuing operations
Cash flow from operating activities ,. .
Cash flow from investing activities -. -.
Group
Cash flow from financing activities -. -.
Financial position // //
Group
Liquid assets, € million . .
Interest-bearing liabilities, € million ,. ,.
Lease liabilities, € million ,. ,.
Interest-bearing net debt excl. lease liabilities, € million . .
Interest-bearing net debt/EBITDA, excl. IFRS 16 impact,
rolling 12 months . .
Gearing, % . .
Equity ratio, % . .
The cash flow from investing activities for the Group’s continuing operations totalled
€-413.7 million (€-620.3 million), which included €155.7 million in acquisitions, a negative
€92.7 million impact of the change in Kesko Senukai’s consolidation method, and a positive
€19.6 million cash flow impact of the divestment of Baltic machinery trade operations. The
acquisition of the store property of K-Citymarket in Järvenpää, previously leased by Kesko, is
reported under cash flow from financing activities. The cash flow from investing activities for
the comparison year included acquisitions totalling €280.7 million and Kruunuvuoren Satama
Oy’s ownership arrangement, which had a negative €84.6 million impact.
The Group’s liquidity remained strong throughout the year despite the economic uncertainty
caused by the Covid-19 pandemic. Kesko Group implemented adjustment measures in all its
operating countries to secure cash flow.
Capital expenditure
Capital expenditure, € million –/ –/
Continuing operations . .
Store sites . .
Acquisitions . .
IT . .
Other investments . .
Capital expenditure in store sites was increased in part by the acquisition of the store
property of K-Citymarket in Järvenpää in the first quarter. Kruunuvuoren Satama Oy’s
ownership arrangement had a €85.3 million impact on capital expenditure in store sites in the
comparison year.
Acquisitions consisted of Mark & Infra i Sverige AB (MIAB) and Bygg & Interiör in Sweden
and Carlsen Fritzøe Handel and Flokkmann in Norway, while acquisitions in the comparison
year comprised Sørbø’s building and home improvement stores in Norway, Huittisten
Laatuauto Oy’s Volkswagen and SEAT business operations in Forssa and Huittinen,
LänsiAuto Oy’s Volkswagen, Audi and SEAT businesses in Kotka, Kouvola and Lappeenranta,
Laakkonen Group’s Volkswagen, Audi and SEAT businesses, and Fresks group in Sweden.
11KESKO'S YEAR 2020 I FINANCIAL REVIEW
KESKO’S DIRECTION CORPORATE GOVERNANCESUSTAINABILITY
FINANCIAL REVIEW
Segments
Seasonal nature of operations
The Group's operating activities are affected by seasonal fluctuations. The net sales and the
operating profits of the reportable segments are not earned evenly throughout the year.
Instead, they vary by quarter depending on the characteristics of each segment. In terms
of the level of operating profit, the second and third quarter are the strongest, whereas the
impact of the first quarter on the full year profit is the smallest. The acquisitions of Suomen
Lähikauppa, Onninen and the Norwegian Skattum Handel AS, Gipling AS, the DIY retail
business of Sørbø, Carlsen Fritzøe Handel AS and Flokkmann, and the Swedish Fresks Group,
Mark & Infra i Sverige AB, and Bygg & Interiör have increased seasonal fluctuations between
quarters. The operating profit levels of these companies are at their lowest in the first quarter.
Grocery trade
–/ –/
Net sales, € million ,. ,.
Operating profit, comparable, € million . .
Operating margin, comparable, % . .
Return on capital employed, comparable, % . .
Capital expenditure, € million . .
Personnel, average , ,
Net sales, € million –/ –/ Change, %
Change, %,
comparable
Sales to K-food stores
K-Citymarket, food ,. ,. +. +.
K-Supermarket ,. , . +. +.
K-Market ,. ,. +. +.
K-Citymarket, non-food . . +. +.
Kespro . . -. -.
Others and eliminations . . -. -.
Total ,. ,. +. +.
Net sales for the grocery trade amounted to €5,732.0 million (€5,531.2 million), an increase
of 3.6%. Net sales grew in all grocery store chains and K-Citymarket’s home and speciality
goods trade. Net sales decreased in Kespro’s foodservice business due to the Covid-19
pandemic and related restrictions.
The total grocery market in Finland (incl. VAT) is estimated to have grown by approximately
8.6% (Finnish Grocery Trade Association PTY) and retail prices are estimated to have risen
by some 1.9% (incl. VAT, PTY’s price development estimate). K Group's grocery sales grew
by 9.4% (incl. VAT), thus exceeding the market growth. K Group’s sales grew in all grocery
store chains. Online sales of groceries grew by 378%, and accounted for approximately 2.9%
of K Group’s grocery sales (incl. VAT). All K Group grocery store chains offer online grocery
sales services. The number of K-food stores offering online grocery sales services grew by
241 to 469.
The comparable operating profit for the grocery trade totalled €375.2 million (€327.9
million), up by €47.3 million. Profitability improved thanks to good grocery sales development
in the food store chains and cost adjustment measures. The decrease in Kespro’s net sales,
resulting from restrictions imposed due to the Covid-19 pandemic, had a weakening impact
on Kespro’s comparable operating profit. Operating profit for the grocery trade totalled
€373.7 million (€334.6 million). Items affecting comparability totalled €-1.5 million (€6.7
million).
Capital expenditure for the grocery trade totalled €125.4 million (€180.8 million), of which
€109.7 million (€157.0 million) was in store sites. Kruunuvuoren Satama Oy’s ownership
arrangement had a €62.8 million impact on capital expenditure in store sites in the
comparison year.
Two new K-Supermarket stores and eight new K-Market stores (four replacement new
buildings) opened in 2020. Remodelling and extensions were made in a total of 43 stores.
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Building and technical trade
The change in Kesko Senukai’s consolidation method from a subsidiary to a joint venture as of
1 July 2020 has impacted the performance indicators for the building and technical trade in the
segment information. In the segment information for the building and technical trade, performance
indicators are illustrative except for the balance sheet indicators and personnel numbers. Due
to the change in consolidation method, the Group changed the internal reporting to its highest
operative decision-maker, the Group Management Board. Consequently, Kesko Senukai has
been reported in the 1-12/2019 and 1-6/2020 income statement figures for the building and
technical trade as if it had been consolidated on one line before operating profit in accordance with
ownership interest, as opposed to the subsidiary consolidation method used before. Such a change
has not been made to internally reported balance sheet figures or personnel numbers.
–/ –/
Net sales, € million ,. ,.
Building and technical trade excl. speciality goods trade ,. ,.
Building & home improvement trade ,. ,.
Onninen ,. , .
Speciality goods trade . .
Operating profit, comparable, € million . .
Building and technical trade excl. speciality goods trade . .
Building & home improvement trade . .
Onninen . .
Speciality goods trade . .
Kesko Senukai . .
Operating margin, comparable, % . .
Building and technical trade excl. speciality goods trade . .
Building & home improvement trade . .
Onninen . .
Speciality goods trade . .
–/ –/
Return on capital employed, comparable, % . .
Capital expenditure, € million . .
Personnel, average , ,
Net sales, € million –/ –/ Change, %
Change, %,
comparable
Building and home improvement
trade, Finland . . +. +.
K-Rauta, Sweden . . +. +.
K-Bygg, Sweden . . +. +.
Byggmakker and Carlsen Fritzøe,
Norway . . +. +.
Building and home improvement
trade, total ,. ,. +. +.
Onninen, Finland . . +. +.
Onninen and MIAB, Sweden* . . -. -.
Onninen, Norway . . -. +.
Onninen, Baltics . . -. -.
Onninen, Poland . . -. +.
Onninen, total* ,. ,. +. +.
Building and technical trade excl.
speciality goods trade total ,. ,. +. +.
Leisure trade, Finland . . -. -.
Machinery trade . . -. -
Speciality goods trade total . . -. -.
Total ,. ,. +. +.
(...) Change over 100%
* Onninen’s comparable net sales development in Sweden calculated minus internal net sales in Sweden to K-Rauta.
Net sales for the building and technical trade totalled €3,639.5 million (€3,472.8 million). Net
sales grew by 4.8%, or by 5.7% in comparable terms. Net sales grew in comparable terms in
Finland, Sweden, Norway and Poland. In the Baltics, net sales decreased. The weakening of
the Norwegian krone and the Polish zloty against the euro diminished net sales development
in Norway and Poland in euro terms. The comparable change % has been calculated in local
currencies and excluding the impact of Kesko Senukai and the acquisitions and divestments
completed in 2019 and 2020. The exceptional circumstances related to the Covid-19
pandemic have impacted the businesses and operating countries in different ways from
March onwards.
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In Finland, net sales for the building and technical trade totalled €2,102.7 million (€1,992.8
million), up by 5.5%. In comparable terms, net sales in Finland grew by 6.2%. Net sales from
international operations amounted to €1,536.8 million (€1,480.0 million), an increase of
3.8%. In comparable terms, net sales from international operations grew by 5.1%.
Net sales for the building and home improvement trade grew in Finland, Sweden and Norway.
Onninen’s net sales grew in comparable terms in Finland, Norway and Poland. In Sweden and
the Baltic countries, net sales decreased compared to the year before.
In the speciality goods leisure trade, net sales decreased.
The comparable operating profit for the building and technical trade totalled €187.7 million
(€115.9 million), up by €71.9 million. The comparable operating profit for the building and
home improvement trade grew by €50.8 million, and grew in Finland, Sweden and Norway.
The acquisitions carried out in Norway and Sweden in 2018-2020 accounted for €33.9 million
(€14.5 million) of the comparable operating profit. Onninen’s comparable operating profit
grew in Finland, Sweden, Norway and Poland. In the Baltics, Onninen’s comparable operating
profit remained at level of the previous year.
The comparable operating profit for the building and technical trade totalled €126.5 million
(€94.2 million) in Finland, €15.4 million (€-6.2 million) in Sweden and €29.5 million (€10.3
million) in Norway.
Operating profit for the building and technical trade totalled €177.7 million (€100.7 million).
Items affecting comparability totalled €-10.0 million (€-15.2 million). The most significant
items affecting comparability were the €10.4 million costs related to the discontinuation of
The Athlete's Foot and Kookenkä chains in the leisure trade, the €2.5 million negative profit
impact of changes to the store site network in Sweden, and the €6.4 million sales gain on the
divestment of machinery trade operations in the Baltics, completed on 31 March 2020. The
most significant items affecting comparability in the comparison year were the €7.8 million
costs related to the divestment of Onninen’s HEPAC contractor business in Sweden.
Capital expenditure for the building and technical trade totalled €186.3 million (€332.7
million). Capital expenditure included €159.1 million (€233.2 million) in acquisitions.
Kesko reports Kesko Senukai Group, which is part of the building and technical trade
segment and operates in the Baltic countries and Belarus, as a joint venture on one line in the
consolidated income statement and balance sheet as of 1 July 2020. Kesko Senukai Group
was reported as a subsidiary until 30 June 2020. The table below shows Kesko Senukai’s
financials for the financial year 2020 and the comparison year and the share of result of joint
ventures reported in the illustrative comparison figures.
Kesko Senukai financials, € million –/ –/
Net sales . .
Operating profit . .
Operating profit, comparable . .
Net profit for the period . .
Kesko Group’s share of result of joint ventures . .
// //
Assets . .
Liabilities . .
Equity . .
The figures include Kesko Senukai’s business and real estate companies. A profit impact of €4.4 million of fair value
allocation has been deducted from Kesko Group’s share of result of joint ventures for 1-12/2020.
14KESKO'S YEAR 2020 I FINANCIAL REVIEW
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Car trade
–/ –/
Net sales, € million . .
Operating profit, comparable, € million . .
Operating margin, comparable, % . .
Return on capital employed, comparable, % . .
Capital expenditure, € million . .
Personnel, average , ,
Net sales, € million –/ –/ Change, %
Change, %,
comparable
Car trade . . +. -.
Net sales for the car trade totalled €892.6 million (€863.9 million). In comparable terms,
net sales decreased by 3.3%. The comparable change % has been calculated excluding the
impact of acquisitions completed in 2019. The Covid-19 pandemic weakened customer
demand for both new and used cars in the first half of the year. Net sales saw a turnaround
and began to grow in the latter half of the year thanks to strengthened demand.
The combined market performance of first registrations of passenger cars and vans was
-15.6% (-5.4%). The combined market share of the Volkswagen, Audi, SEAT, Porsche and
Bentley passenger cars and Volkswagen and MAN vans imported by the car trade division
was 16.9% (16.9%).
The comparable operating profit for the car trade totalled €23.4 million (€26.8 million).
Operating profit for the car trade totalled €23.3 million (€25.5 million). In the comparison
year, items affecting comparability totalled €-1.2 million, related to efficiency improvement
measures and structural arrangements carried out.
Capital expenditure for the car trade totalled €64.7 million (€131.3 million). Capital expenditure
for the comparison year contained the acquisitions of Huittisten Laatuauto and the Volkswagen,
Audi and SEAT businesses of LänsiAuto and Laakkonen Group, in total €57.4 million.
Changes in group composition
Kesko Corporation changed the consolidation method of Kesko Senukai in Kesko’s
consolidated financial statements from a subsidiary to a joint venture as of 1 July 2020.
On 1 October 2020, Kesko acquired Reidar Flokkmanns Eftf AS (Flokkmann), which is part of
the Norwegian Byggmakker chain, and the store property Arn Eiendom AS.
On 2 September 2020, Kesko acquired Carlsen Fritzøe Handel AS in Norway. The acquisition
strengthens Kesko’s position in the Oslo fjord region, where the Carlsen Fritzøe Handel
network of 25 stores complements Kesko’s existing Byggmakker store network.
Kesko Group simplified its corporate structure in Sweden by merging Onninen AB with
K-Rauta AB on 1 May 2020. The name of the company is Kesko AB. The merger did not
impact the operations of Onninen or K-Rauta in Sweden.
On 1 April 2020, Kesko acquired the Swedish Mark & Infra i Sverige AB (MIAB), a company
specialising in the sales of water and sewage products. The acquisition strengthens
Onninen’s technical wholesale offering to Infra customers in Sweden.
On 31 March 2020, Konekesko Oy divested its remaining shares in its Baltic subsidiaries.
Main objectives and results achieved in sustainability
Kesko's operations generate value and economic benefits for various stakeholder groups
in Kesko’s operating countries and market areas. Key stakeholders include shareholders,
customers, personnel, retailers, goods suppliers and service providers, and the society. Kesko
promotes the growth of welfare throughout its supply chain, including developing countries.
The most important cash flows comprise revenue from customer purchases and retailer
operations, purchases from goods suppliers and service providers, dividends to shareholders,
salaries and wages paid to personnel, taxes and capital expenditure. Kesko employs 17,650
people. In 2020, Kesko paid €613.1 million in wages and salaries. The income taxes paid by
15KESKO'S YEAR 2020 I FINANCIAL REVIEW
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FINANCIAL REVIEW
Kesko in 2020 totalled €70.6 million in Finland and €13.9 million in other countries. Kesko also
pays real estate and net-worth taxes and collects, reports and remits indirect taxes, such as
value added tax and excise duties. Kesko’s capital expenditure has a positive financial impact
on the operations of building firms and suppliers of fixtures, equipment and information
systems, for example. In 2020, Kesko’s capital expenditure totalled €398 million. At the end of
2020, Kesko had over 57,000 shareholders. Dividends paid for 2019 totalled €249 million.
Key commitments, policies and principles
Corporate responsibility is a strategic choice for K Group and it is integrated into our
day-to-day activities. Kesko’s operations are based on its value, vision and mission. Our
corporate responsibility and sustainability work is guided by Kesko’s sustainability strategy,
responsibility programme, general corporate responsibility principles, the K Code of
Conduct, and our ethical purchasing principles.
Key group-level policies guiding Kesko’s operations include Kesko’s risk management
policy, treasury policy, data protection policy, information security policy, security policy,
sustainability policy, HR policy, and ethical principles for utilising artificial intelligence.
Kesko’s operations are based on data and processing of data in the company’s operating
environments. Ensuring data protection is part of Kesko’s compliance activities, risk
management and the K Code of Conduct. Kesko’s data protection policy determines the
principles, practices and responsibilities concerning the lawful processing of personal data
and for ensuring the high level of data protection at Kesko.
Kesko is committed to promoting the UN’s Sustainable Development Goals (SDG) in its
operations. For Kesko and its stakeholders, the three key goals are Responsible consumption,
Decent work and economic growth, and Climate action. In accordance with Kesko’s human
rights commitment, we respect all internationally recognised human rights.
In spring 2019, Kesko’s Board made sustainability and combatting climate change strategic
focus areas for Kesko. Key concerns in our corporate responsibility work are transparency in
sourcing, mitigating climate change and environmental care, responsibility for personnel, and
extensive value creation throughout the society.
Kesko's materiality assessment determines key corporate responsibility and sustainability
themes for Kesko and its stakeholders. It guides Kesko’s corporate responsibility efforts and
work with stakeholders and actions to meet stakeholder expectations. Kesko last conducted
a materiality assessment in autumn 2020. The biggest changes to the previous assessment
were the increased importance of climate change, sustainable products, and biodiversity.
Responsibility in the purchasing chain and personnel responsibility remained among key
issues.
Since 2000, Kesko has reported on its actions annually in accordance with the Global
Reporting Initiative (GRI) guidelines for reporting on sustainable development. The
Sustainability section of Kesko’s Annual Report is prepared in accordance with the GRI
Standards: Core option, and covers the key areas of economic, social and environmental
responsibility. The Sustainability section of Kesko’s Annual Report details Kesko’s
sustainability principles, management, objectives, processes and results.
Kesko in sustainability indices
As a result of its long-term commitment to corporate responsibility work, Kesko is listed
on several major sustainability indices, such as the Dow Jones Sustainability Index the DJSI
World, the FTSE4Good Index, and the STOXX Global ESG Leaders Index.
In September 2020, Kesko was included in the Dow Jones Sustainability Index the DJSI
World. In the 2020 assessment, Kesko’s overall score rose compared to the year before.
Kesko received the industry best overall score in the Environmental Dimension. Kesko
received excellent scores in Climate Reporting, Climate Strategy, Operational Eco-Efficiency,
and Water Related Risks. Kesko has previously been included in the DJSI World and DJSI
Europe indices in 2003-2014 and 2017-2019.
Kesko received the ‘A’ score in CDP’s global Climate questionnaire in 2020.
Kesko ranked 87th on the Global 100 list of the Most Sustainable Corporations in the World
in 2021 (99th in 2020). In 2021, Kesko ranked the highest in the ‘Grocery and Diversified
Stores’ category, and thus was the most sustainable grocery trade company in the world for
the seventh consecutive year.
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Human rights and purchasing
In 2016, Kesko published its human rights commitment and impact assessment in
compliance with the UN's Guiding Principles on Business and Human Rights. The human
rights assessment is reviewed every three years by the Group’s Corporate Responsibility
Management Team – the most recent review took place in 2019.
In accordance with the human rights commitment, Kesko respects all internationally
recognised human rights. Kesko’s purchasing is guided by Kesko’s ethical principles for
purchasing, which are based on the fundamental rights at work accepted by the International
Labour Organisation (ILO), the UN Declaration of Human Rights, and the UN Convention on
the Rights of the Child.
According to Group guidelines, a K Code of Conduct contract clause is to be added to
all agreements under which Kesko Group companies purchase products or services from
external parties.
Kesko employs sustainability policies to guide the sourcing of products containing raw
materials identified as critical from a social and environmental responsibility perspective. At
the end of 2020, Kesko had ten sustainability policies, the most recent addition being the
packaging policy published in the summer of 2020.
In terms of purchasing chains, Kesko pays special attention to human rights issues and
working conditions in high-risk countries. Kesko utilises international social responsibility
assessment systems in the assessment of suppliers in high-risk countries, primarily
amfori BSCI auditing. Kesko is a member of amfori and part of the amfori Business Social
Compliance Initiative (BSCI). Kesko’s principle in high-risk countries is to collaborate only
with suppliers that are already included within the scope of social responsibility audits or
that start the process when cooperation begins. The audits focus on e.g. the observance of
working time regulations, management practices at factories, and occupational health and
safety of the workers.
Kesko has joined the 2018 Accord on Fire and Building Safety in Bangladesh to improve the
safety of clothing factories in the country. Kesko is a member of the Center for Child Rights
and Corporate Social Responsibility (CCR CSR) based in China.
In an effort to improve the transparency of its supply chains, Kesko launched a new ‘Tracing
our products’ website at kesko.fi/producttracing in autumn 2020. The products highlighted
on the website represent K Group’s own product brands. Focus is especially on products
where the sustainable production of ingredients or raw materials is challenging and where
K Group uses its own sustainability policies to guide purchasing.
Product safety
Kesko and K Group stores together with suppliers are responsible to the products' end-users
for ensuring that the products comply with all the requirements of Finnish and EU legislation,
are safe for users and meet quality and other promises. Product labelling complies with
legislative requirements and authority recommendations. All food product operations have a
self-control plan in place, as required by law.
The assessment of the health and safety impacts of products is part of the operations of
the Quality and Product Development unit in Kesko’s grocery trade. The manufacturers
of Kesko’s own-brand food products have international certifications that assure product
safety. The standards approved by Kesko’s grocery trade include BRC, IFS, FSSC 22000 and
GlobalGAP. The unit's laboratory monitors the product safety and quality of the own brand
products and own imports in the grocery trade. It is a testing laboratory T251 which has been
accredited by the FINAS accreditation services and approved to comply with the SFS-EN
ISO/IEC 17025 standard.
Climate and environment
K Group's sustainability policy guides the climate and environmental actions of Kesko Group
and K Group stores in all operating countries. Kesko's key business partners are expected to
observe corresponding environmental management principles.
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Kesko’s most significant direct environmental impacts are related to emissions from the
generation of electrical and heat energy on properties, emissions from transport, and waste
produced in warehouse functions and at the stores. The biggest indirect impact comes
from the manufacture, use and disposal of the products sold. Kesko's grocery trade plays a
significant role in reducing food waste through cooperation with the whole food chain, from
primary production to the end user.
Kesko is committed to the Paris Climate Agreement goal of mitigating global warming. In
2017, Kesko was the first company in Finland to set Science Based Targets for emissions from
its own operations and supply chain.
In February 2020, Kesko set more challenging climate targets, aiming for carbon neutrality by
2025. Kesko will seek to systematically reduce emissions to reach net zero emissions from its
own operations by 2030. From 2025 onwards, Kesko will offset the remaining emissions from
its own operations. Kesko also aims to have reduction targets set for two-thirds of its direct
supplier emissions by 2025.
K Group is moving towards carbon neutrality by increasing the share of electricity and
heat produced with renewable energy, by improving energy efficiency, and by switching
to biofuels in transports in Finland. In October 2020, Kesko joined the CDP supply chain
programme to challenge its suppliers to reduce and report their emissions.
Kesko participates in the 2017-2025 action plan of the commerce sector Energy Efficiency
Agreement, according to which Kesko commits to reducing its energy consumption through
various savings measures by 7.5%. A new energy recycling model was developed for K-food
stores in 2019, which can reduce heat consumption by as much as 95% and turn a grocery
store property almost carbon neutral in terms of energy. Our objective is to have the new
system installed in all K Group grocery stores by 2030.
All electricity purchased by Kesko for K-stores and other Kesko properties in Finland is
produced with renewable energy. In 2020, this comprised hydropower, bioenergy and wind
power. Some of the electricity is generated with Kesko’s own solar power plants. At the
end of 2020, K Group stores and properties hosted 42 solar power plants, with a combined
power of some 13.5 MWp and an electricity production capacity of some 11.4 GWh.
In 2019, Kesko began extensive work to identify sustainable products from a climate
perspective in each division. Sustainable products are those with a markedly smaller climate
impact than that of comparable products, and products that are significant in adjusting to
climate change. The objective is to monitor and report the sales of sustainable products
going forward.
Climate related risks and opportunities
Kesko regularly assesses risks related to climate change as part of its responsibility risk
assessment. The most significant risks are reported to Kesko’s Board and the market as part
of the Group’s risk management steering and management model.
Climate change related transition risks for Kesko are increasing regulation, which
necessitates changes in business operations and leads to additional costs, and in the longer
term, changes in consumer behaviour that require changes to business models. Increase in
extreme weather phenomena is a physical risk that impacts product availability and causes
disturbances in logistics and the store site network.
Identified opportunities related to climate change are sustainable products, new business
models related to mobility, products and services that improve energy-efficiency, and
promoting circular economy.
Financing linked to sustainability targets
During the 2019 financial year, Kesko made financing agreements totalling €700 million,
where the interest margin will increase or decrease depending on Kesko’s ability to meet
the sustainability targets set for its carbon footprint, food waste, and audits in high-risk
countries. Kesko drew down €300 million during the 2019 financial year, and has the
possibility to draw down more later on with a separate credit decision by the banks. Kesko
also agreed on a Revolving Credit Facility of €100 million linked to the same sustainability
targets, which was not in use on 31 December 2020.
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Personnel
Personnel –/ –/
Average number of personnel converted into full-time
employees, continuing operations , ,
// //
Personnel at the end of the reporting period
Finland , ,
Other countries , ,
Total , ,
The change in the consolidation method of Kesko Senukai has a marked impact on the
number of Group employees outside Finland.
In the first year-half, Kesko carried out adjustment measures due to a reduction in
workloads brought on by the Covid-19 pandemic. In total, some 2,500 Kesko employees
in Finland working in business operations and support functions were affected by the
various adjustment measures. Of those, temporary lay-off measures affected some 2,000
employees. Adjustment measures were also carried out in Kesko’s operations in Sweden,
Norway, Poland and the Baltic countries.
Professional, committed personnel is the basis for all our operations. Kesko’s personnel
management is guided by Kesko’s HR policy, the K Code of Conduct and common operating
principles. The HR policy is based on Kesko’s mission, vision, strategy, value and responsible
operating and management principles. The objective of the HR policy is to ensure that
Kesko has skilled and committed personnel that knows where Kesko is heading and what
their own objectives are, thus creating a foundation for achieving good and sustainable
financialresults.
To ensure the implementation of Kesko’s strategy, the company’s methods for target
setting, performance management, personnel development and remuneration are based
on management by information. Recruitments are based on need, an approved resourcing
plan, and identified change initiatives. In recruitments, we are committed to equality, non-
discrimination and selection based on factors that predict success at a position.
Personnel satisfaction and wellbeing are measured, and development measures are drafted
at various organisational levels based on the results. Proactive management of personnel
wellbeing and working capacity is used to reduce the number of sick leaves and to prevent
occupational injuries and premature retirement due to disability. We aim for zero injuries.
Since the beginning of the Covid-19 pandemic, ensuring the safety of personnel and
customers has been a key priority for K Group. Special focus has been on doing everything
possible to ensure the health and safety of the people working in logistics and the stores,
while also enabling safe shopping for customers. Kesko and the K-retailers have developed
new services, such as dedicated shopping hours for at-risk people, extended online grocery
services, delivery services, and a new advice and phone order service for people over 70.
In accordance with the non-discrimination plan, Kesko has established a working group
comprising representatives of the employer, personnel and the labour protection function,
to handle matters related to non-discrimination and equality within the Group. Combatting
discrimination is at the core of the group’s activities. The group reviews matters related to
e.g. recruitment, career development and training, remuneration and the reconciliation of
work and family life.
In 2020, we prepared a diversity and inclusion programme to enable a more diverse and
equal K Group. Our objectives include increasingly employing minority language speakers
and helping persons with partial working capacity cope at work. A diverse working
community and inclusive corporate culture are built through the actions, attitudes and
choices of everyone at Kesko.
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Compliance programmes
Kesko’s Board has confirmed a K Compliance operating model for Kesko. The model
strengthens Kesko’s compliance with laws, rules and regulations. The K Code of Conduct
forms the basis and core for the operating model. Individual group-wide programmes
confirmed based on the operating model concern key legislation the breach of which
could result in significant negative consequences for Kesko, such as serious financial
or reputational risk. The programmes include the prevention of corruption and bribery,
competition law, data protection, and consumer protection.
The K Compliance operating model confirms the organisation and steering model for the
compliance function. Operations are guided by the identification of key compliance risks
related to Kesko’s strategy and business. Kesko’s Legal Affairs, Risk Management and
business operations regularly survey and prioritise risks. Based on the prioritisation of risks,
Kesko’s Governance, Risk and Compliance (GRC) steering group determines the necessary
compliance programmes, which are confirmed by Kesko’s President and CEO and reported to
the Board’s Audit Committee. Annual plans for the compliance programmes are established
based on risk assessment. The GRC steering group monitors changes in risks and guides and
controls the implementation of the compliance programmes.
Prevention of corruption and bribery
The prevention of corruption and bribery has been confirmed as a K Compliance programme.
The main instructions can be found in the K Code of Conduct. The K Code of Conduct
is a means to ensure that everyone at Kesko has the same understanding of the values
and principles that guide their daily work. K Code of Conduct has been published in nine
languages and the principles are the same for all Kesko employees in all operating countries,
and it lays out what is expected of Kesko employees and business partners in the areas of, for
example, human rights, environmental care, and fair competition.
Kesko's attitude to bribery is absolutely uncompromising. ”We do not offer or accept bribes”,
”We comply with the Kesko policies on hospitality and gifts” and “We avoid conflicts of
interest” are key statements of the K Code of Conduct.
All Kesko Group personnel are obliged to confirm annually their commitment to comply with
the K Code of Conduct. Kesko’s Legal Affairs, Risk Management and Internal Audit organise
training on the K Code of Conduct. Kesko Group's Internal Audit monitors and ensures the
functioning and efficiency of management, supervision, risk management and corporate
governance in Kesko Group. Kesko's Internal Audit pays special attention to the efficiency of
controls that prevent malpractice and financial losses.
SpeakUp is a confidential reporting channel for both Kesko’s partners and personnel, meant
for reporting criminal and malpractice suspicions when, for one reason or another, the
information cannot be passed directly to Kesko's persons in charge. The SpeakUp channel
can also be used to report suspected breaches of securities market regulation.
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Main objectives and results achieved
Human rights and purchasing
Target Method Results in
The social
responsibility of the
production of own
direct imports from
high-risk countries has
been assured
Full amfori BSCI audits conducted at the factories and farms of
suppliers in high-risk countries.
210 (180) factories or farms underwent full amfori BSCI audits
Amfori BSCI follow-up audits conducted at the factories and farms
of suppliers in high-risk countries.
117 (172) factories or farms underwent amfori BSCI follow-up
audits
Suppliers in high-risk countries have valid social responsibility
audits and certifications.
613 (733) suppliers in high-risk countries had valid social
responsibility audits and certifications
Product safety
Target Method Results in
Products are safe for
users and meet quality
promises
The manufacturers of Kesko’s own-brand food products have
international certifications that assure product safety.
517 (605) suppliers have an audit certificate
The Quality and Product Development unit monitors the safety and
quality of own brand products and own imports in the grocery trade.
Product samples analysed by the unit’s laboratory and test kitchen
6,440 (7,405)
If a fault is detected in the quality of a product on the market, a
recall is made.
167 (164) product recalls, of which 43 (46) K Group’s own brand
products;
6 (2) public recalls of own brand products (cases where a fault in
the product could endanger consumer health)
Climate and environment
Target Method Results in
Reducing the climate
and environmental
impacts of Kesko’s
operations
Kesko has committed to the Energy Efficiency Agreement for
the commerce sector in Finland and to reducing its energy
consumption by 7.5% between 2017 and 2025.
Energy consumption in properties managed by Kesko in all
operating countries* (Q4/2019–Q3/2020) 934 GWh (997 GWh)
*Change in calculation method: electricity consumption in Finland
includes electricity provided by Ankkuri-Energia Oy and electricity
obtained by retailers from other sources, used by Kesko
All electricity purchased by Kesko for K-stores and other Kesko
properties in Finland is produced with renewable energy.
In recent years, Kesko has been building solar power plants at
K Group stores and properties.
Renewable electricity purchases 560 GWh (560 GWh), 42 (34)
own solar power plants, electricity production in Finland 9.3 GWh
(6.8 GWh)
Kesko has set Science Based Targets for reducing emissions
from its facilities, transportation, and supply chains. Kesko has
committed to reducing its direct and indirect (Scope 1 and 2)
emissions by 18% by 2025, using a 2015 base year.
Scope 1 and 2 emissions in all operating countries
(Q4/2019–Q3/2020) 90,260 (118,879) tCO
2
e
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Personnel
Target Method Results in
Prevention of
corruption and bribery
(Governance)
Employees agree upon their personal objectives together with
their managers in accordance with the performance management
process.
Objectives set for approximately 84% (85%) of the target group
Personnel satisfaction and commitment are measured in personnel
surveys conducted every other year (last conducted in 2019), with
complementary Pulse surveys when necessary.
In 2020, two Pulse surveys were conducted to gauge how
personnel were coping with the prolonged exceptional
circumstances caused by the Covid-19 pandemic.
Personnel commitment in 2019 was 76% (78%); 76% (76%) of
personnel would recommend K Group as an employer (in 2019).
Respondents to the Pulse surveys rated their overall satisfaction at
3.4 in the spring and 3.5 in the autumn.
Active early identification and intervention with regard to sickness
absences is used to promote personnel wellbeing and working
capacity.
Sickness absences 5.1% (4.7%); premature retirement due to
disability 23 (21)
Prevention of corruption and bribery (Governance)
Target Method Results in
100% commitment to
compliance with the
KCode of Conduct
”We do not offer or accept bribes”, ”We comply with the Kesko
policies on hospitality and gifts” and “We avoid conflicts of
interest” are key sections of the K Code of Conduct.
86% (82%) of personnel signed the annual revision of the K Code
of Conduct
SpeakUp is a confidential reporting channel for both personnel
and Kesko’s partners, meant for reporting criminal and
malpractice suspicions when, for one reason or another, the
information cannot be passed directly to Kesko's persons
in charge. The SpeakUp channel can also be used to report
suspected breaches of securities market regulation.
31 (28) notifications received via the SpeakUp channel
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Shares, securities market and board authorisations
At the end of December 2020, the total number of Kesko Corporation shares was
400,079,008, of which 126,948,028, or 31.7%, were A shares and 273,130,980 or 68.3%,
were B shares. In the second quarter, the number of shares in Kesko Corporation increased
following the resolution of the 28 April 2020 Annual General Meeting to carry out a share
issue without payment (share split) (stock exchange releases on 28 April 2020 and 30 April
2020). On 31 December 2020, Kesko Corporation held 3,339,862 of its own B shares as
treasury shares.
These treasury shares accounted for 1.22% of the total number of B shares, 0.83% of the
total number of shares, and 0.22% of the votes attached to all shares in the Company. The
total number of votes attached to all shares was 1,542,611,260. Each A share carries ten (10)
votes and each B share one (1) vote. The Company cannot vote with own shares held by it
as treasury shares and no dividend is paid on them. At the end of December 2020, Kesko
Corporation's share capital totalled €197,282,584.
The price of a Kesko A share quoted on Nasdaq Helsinki was €58.80 at the end of 2019
(€14.70 with the share split), and €20.00 at the end of 2020, representing an increase of
36.1%. Correspondingly, the price of a B share was €63.08 at the end of 2019 (€15.77 with the
share split), and €21.04 at the end of December 2020, representing an increase of 33.4%. In
2020, the highest A share price was €22.80 and the lowest €10.40. The highest B share price
was €24.08 and the lowest €10.41. The Nasdaq Helsinki All-Share index (OMX Helsinki) was
up by 10.1% and the weighted OMX Helsinki Cap index by 10.4%. The Retail Sector Index was
up by 45.9%.
At the end of December 2020, the market capitalisation of the A shares was €2,539 million.
The market capitalisation of the B shares was €5,676 million, excluding the shares held by
the parent company. The combined market capitalisation of the A and B shares was €8,215
million, an increase of €2,100.7 million from the end of 2019.
In 2020, a total of 10.6 million A shares were traded on Nasdaq Helsinki (calculated with
the post-split number of shares). The exchange value of the A shares was €175.3 million.
Meanwhile, 249.0 million B shares were traded (calculated with the post-split number of
shares), with an exchange value of €4,434.2 million. Nasdaq Helsinki accounted for over 90%
of the trading on Kesko’s A shares in 2020 and over 80% of the trading on B shares. Kesko
shares were also traded on multilateral trading facilities, the most significant of which was
Cboe (source: Euroland).
The number of registered shareholders rose by 38.8% in 2020. At the end of December
2020, the number of registered shareholders was 57,132, which is 15,957 more than at the
end of 2019. At the end of December, foreign ownership of all shares was 37.12%, and foreign
ownership of B shares 53.38%.
Kesko has a share-based commitment and incentive scheme. To implement the scheme,
Kesko’s Board of Directors may decide, within share issue authorisations granted by the
Company’s General Meeting, to transfer Kesko B shares held by the Company as treasury
shares. In 2020, Kesko Corporation transferred 381,124 Kesko B shares held as treasury
shares to members of management and other selected key persons in accordance with the
terms and conditions of share award plans. 3,692 B shares were returned to the Company
without consideration based on the same terms and conditions. The share numbers are
presented as numbers following the share issue without payment (share split). Kesko issued
related stock exchange releases on 12 March 2020 and 29 September 2020. Kesko issued
a stock exchange release on 5 February 2020 regarding the most recent share-based
commitment and incentive plans. Kesko Corporation also transferred a total of 8,158 of its
own B shares held by the Company as treasury shares to the members of Kesko’s Board of
Directors as part of the Board members’ annual remuneration, and issued a related stock
exchange release on 5 May 2020.
Kesko’s Annual General Meeting of 28 April 2020 authorised the Board to decide on the
issue of a total maximum of 40,000,000 new B shares and B shares held by the Company
as treasury shares. The authorisation is valid until 30 June 2021. The authorisation was
communicated in a stock exchange release on 28 April 2020.
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Key events during the financial year
The Market Court in Finland announced its decision on Kesko’s acquisition of the Heinon
Tukku foodservice wholesale company, prohibiting the transaction. (Press release 17.2.2020)
Kesko agreed to acquire the Swedish Mark & Infra i Sverige AB (MIAB), a company
specialising in the sales of water and sewage products. The acquisition strengthens
Onninen’s technical wholesale offering to Infra customers in Sweden. (Press release
6.3.2020)
Kesko issued a profit warning due to the Covid-19 pandemic and related global economic
uncertainty. Kesko cancelled its previous outlook statement regarding the net sales for
continuing operations and changed the outlook statement regarding the comparable
operating profit for continuing operations, both issued in connection with the financial
statements release on 5 February 2020. (Stock exchange release 18.3.2020)
Kesko’s Board of Directors decided to cancel the Annual General Meeting convened for 30
March 2020 due to developments concerning the Covid-19 pandemic, and to reconvene a
new meeting later on. (Stock exchange release 19.3.2020)
The Danish Agro Group company DA Agravis Machinery Holding A/S acquired Konekesko
Oy’s remaining stake in its Baltic subsidiaries. (Press release 31.3.2020)
Kesko announced that it would adjust its operations due to the Covid-19 pandemic.
Temporary lay-off measures were estimated to affect approximately 2,000 Kesko employees
in Finland – Kesko managed to significantly reduce the number with employee transfers
between units. (Press release 3.4.2020)
Kesko’s Annual General Meeting convened on 28 April 2020. (Stock exchange releases
7.4.2020 and 28.4.2020)
A total of 95,211,021 new A shares and 204,848,235 new B shares issued in the share
issue without payment (share split) decided upon by the Annual General Meeting of Kesko
Corporation on 28 April 2020 were entered in the Finnish Trade Register on 30 April 2020. In
the share issue without payment, new shares were issued to the shareholders in proportion
to their existing holdings, so that three (3) new A shares were issued for each A share held,
and three (3) new B shares for each B share held. (Stock exchange release 30.4.2020)
K Group raised its climate goals to a new level and will strive to become carbon neutral by
2025. K Group will seek to systematically reduce emissions to reach net zero emissions from
its own operations and transports by 2030. (Press release 12.5.2020)
Kesko issued a positive profit warning and provided preliminary information on its second-
quarter net sales and comparable operating profit. Kesko raised its guidance for the
comparable operating profit for its continuing operations, issued in connection with the
company’s interim report on 28 April 2020. (Stock exchange release 10.7.2020)
Kesko’s subsidiary Byggmakker Handel AS acquired Carlsen Fritzøe Handel AS, a Norwegian
operator in the building and home improvement trade with net sales of approximately €201
million in 2019. The acquisition strengthens Kesko’s position in the Oslo fjord region, where
the Carlsen Fritzøe Handel network of 25 stores complements Kesko’s existing Byggmakker
store network. (Press releases 8.7.2020 and 2.9.2020)
Kesko acquired the Swedish Bygg & Interiör building and home improvement trade stores.
The acquisition complements Kesko’s growing K-Bygg chain for professional builders in the
Mälaren Valley region of Sweden. (Press release 2.9.2020)
Kesko’s Annual General Meeting of 28 April 2020 resolved to establish a Shareholders’
Nomination Committee. The Committee will prepare proposals related to the number,
election and remuneration of Board members to Kesko’s General Meeting of shareholders.
The Nomination Committee has three members: two appointed by Kesko’s biggest
shareholders and one who is the Chairman of Kesko’s Board of Directors. (Stock exchange
release 11.9.2020)
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Kesko announced that it would be changing the consolidation method of Kesko Senukai,
which is part of the building and technical trade segment and operates in the Baltic countries
and Belarus, from a subsidiary to a joint venture in its consolidated financial statements as of
1 July 2020. Kesko Senukai was reported as a subsidiary until 30 June 2020. (Stock exchange
release 17.9.2020)
Kesko issued a positive profit warning and raised its guidance for the 2020 comparable
operating profit for its continuing operations. Kesko estimated that the comparable
operating profit for its continuing operations would be in the range of €510-570 million in
2020. The guidance upgrade was based on better than anticipated sales development in all
divisions, improved cost efficiency, and a more positive outlook for the remainder of the year.
(Stock exchange release 17.9.2020)
Karoliina Partanen, M.Sc. (Soc.), was appointed Executive Vice President in charge of
Communications, Brand and Stakeholder Relations and a member of Kesko’s Group
Management Board as of 1 October 2020. (Stock exchange release 18.9.2020)
The new medium-term financial targets for profitability, as approved by the Board of
Directors of Kesko Corporation, are a comparable operating margin of 5.5% and a
comparable return on capital employed of 12.5%. In terms of financial position, as before,
the Group targets a maximum interest-bearing net debt/EBITDA ratio of 2.5, excluding the
impact of IFRS 16. Kesko Group’s previous financial targets were a comparable operating
margin of 5.0%, a comparable return on capital employed of 11.0%, and interest-bearing
net debt/EBITDA of less than 2.5 excluding the impact of IFRS 16. (Stock exchange release
1.12.2020)
The Board of Directors of Kesko Corporation approved an updated disclosure policy on 17
December 2020, which describes the key disclosure principles Kesko observes in its investor
communication and financial reporting. The updated disclosure policy came into force on 1
January 2021. The main changes to the disclosure policy concern the so-called silent period
and a new “investor news” category for releases. (Stock exchange release 18.12.2020))
After the financial year, Riikka Joukio, M.Sc. (Tech.), eMBA, has been appointed Executive
Vice President in charge of Corporate Responsibility and Public Affairs, and a member of
Kesko’s Group Management Board. Joukio will join the company on 1 August 2021 at the
latest. (Stock exchange release 11.1.2021)
Key events after the financial year
No significant events took place after the balance sheet date.
25KESKO'S YEAR 2020 I FINANCIAL REVIEW
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Resolutions of the 2020 annual general meeting and
decisions of the board's organisational meeting
The Annual General Meeting of Kesko Corporation on 28 April 2020 adopted the financial
statements and consolidated financial statements for 2019. The Annual General Meeting
resolved to distribute a dividend of €2.52 per share on shares held outside the Company,
paid in two instalments. The record date of the first dividend instalment of €1.28 per share
was 30 April 2020 and pay date 8 May 2020. The record date of the second dividend
instalment of €0.31 per share was 1 October 2020 and pay date 8 October 2020. The Annual
General Meeting discharged the Board members and the Managing Director from liability for
the financial year 2019, confirmed the Company’s Remuneration Policy for Governing Bodies,
and resolved to keep the Board members' fees unchanged.
The Annual General Meeting resolved that the Auditor's fee and the reimbursements of
the Auditor's expenses will be paid according to an invoice approved by the Company. The
Annual General Meeting elected the firm of authorised public accountants Deloitte Oy as the
Company’s new Auditor. APA Jukka Vattulainen is the auditor with principal responsibility.
The Annual General resolved, in accordance with the Board’s proposal, to carry out a share issue
without payment (share split). According to the resolution, in the share issue without payment,
new shares were issued without payment to the shareholders in proportion to their existing
holdings, so that three (3) new A shares were issued for each A share held, and three (3) new B
shares for each B share held. In addition, new B shares were similarly issued without payment to
the Company on the basis of B shares held by the Company. A total of 95,211,021 new A shares
and a total of 204,848,235 new B shares were issued. The shares were issued to shareholders
who were registered in the Company’s register of shareholders maintained by Euroclear Finland
Ltd on the record date of the share issue, 30 April 2020. The share issue without payment
was executed in the book-entry system and did not require any action on the part of the
shareholders. The new shares have generated shareholder rights as of 30 April 2020 when they
were registered in the Trade Register. The registration of the new shares in the shareholders’
book-entry accounts took place on 4 May 2020. The new shares did not entitle their holders
to the first instalment of dividend in accordance with the Board’s proposal for the distribution
of profit of €1.28 per share, but they did entitle the holders to the second proposed dividend
instalment of €0.31 per share. The Annual General Meeting also resolved to amend section 3 of
the Company’s Articles of Association (“Shares”) in accordance with the Board’s proposal.
The Annual General Meeting resolved, in accordance with the Board’s proposal, to authorise
the Board to decide on the issuance of new B series shares as well as of own B shares held
by the Company as treasury shares. The number of B shares thereby issued would total at
maximum 40,000,000. The authorisation is valid until 30 June 2021.
The Annual General Meeting resolved, in accordance with the Board’s proposal, to establish
a Shareholders’ Nomination Committee, and confirmed the Committee’s rules of procedure.
The Annual General Meeting resolved, in accordance with the Board’s proposal, to authorise
the Board to decide on donations in a total maximum of €300,000 for charitable or
corresponding purposes until the Annual General Meeting to be held in 2021, and to decide
on the donation recipients, purposes of use and other terms of the donations.
The Board members were elected by the 2018 Annual General Meeting to serve the
three-year terms provided in the Company’s Articles of Association, ending at the close of
the 2021 Annual General Meeting. The Board elects its Chairman and Deputy Chairman
for the Board’s whole three-year term of office. In the organisational meeting held by the
Board after the Annual General Meeting of 11 April 2018, the Board elected Esa Kiiskinen
as Chairman of the Board and Peter Fagernäs as Deputy Chairman. The Board did not make
changes to the compositions of its Audit Committee or Remuneration Committee in its
organisational meeting held after the Annual General Meeting on 28 April 2020. Jannica
Fagerholm was elected as Chairman of the Board’s Audit Committee, Matti Kyytsönen as
Deputy Chairman, and Piia Karhu as a Committee member. Esa Kiiskinen was elected as
Chairman of the Board’s Remuneration Committee, Peter Fagernäs as Deputy Chairman, and
Matti Kyytsönen as a Committee member.
The resolutions of the Annual General Meeting and the decisions of the Board's organisational
meeting were communicated in more detail in stock exchange releases on 28 April 2020.
26KESKO'S YEAR 2020 I FINANCIAL REVIEW
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Information contained in the notes
to the financial statements
Information on the Group’s personnel is disclosed in Note 2.5.
Financial risks and information on financial instruments measured at fair value are disclosed
in Note 4.3.
Related party transactions are disclosed in Note 5.3.
Information on disputes and legal and authority proceedings is disclosed in Note 5.5.
Risk management
Risk management in Kesko Group is guided by the risk management policy approved
by Kesko's Board of Directors. The policy defines the goals and principles, organisation,
responsibilities and practices of risk management in Kesko Group. In the management
of financial risks, the Group's treasury policy, confirmed by Kesko's Board of Directors, is
observed. The management of business operations and common functions are responsible
for the execution of risk management. Kesko Group applies a business-oriented and
comprehensive approach to risk assessment and management. This means that key risks are
systematically identified, assessed, managed, monitored and reported as part of business
operations at Group, division, company and function levels throughout the Group.
The Group's risk map, the most significant risks and uncertainties, as well as material
changes in, responses to and indicators for them are reported to the Kesko Board's Audit
Committee quarterly in connection with the review of interim reports, the half year financial
report and financial statements. The Audit Committee Chair reports on risk management to
the Board as part of the Audit Committee report. The most significant risks and uncertainties
are reported to the market by the Board in the Report by the Board of Directors and any
material changes in them in the interim reports and the half year financial report.
The following describes the risks and uncertainties assessed as significant.
Significant risks and uncertainties
Impact of economic uncertainty on Kesko's sales and profit
There is great uncertainty regarding developments with the pandemic and its duration, which
impacts economic outlook and consumer behaviour in all of Kesko’s operating countries. A
significant weakening of the economy would impact especially the building and technical
trade and the car trade. Extended restrictions on restaurants impact the foodservice
business.
Should the economy weaken, we will continue the determined execution of Kesko’s strategy,
and if necessary, will prioritise and adjust operations to changes in demand.
Competitive situation in the grocery trade
A weakening economy causes consumers to focus on price when it comes to decisions on
products and services. This causes competition to tighten.
K Group ensures customer satisfaction and the competitiveness of its stores by efficiently
utilising customer data, by offering customers a safe shopping experience, by implementing
store-specific business ideas, by investing considerably in digital services that make everyday
life easier for customers, and by ensuring competitive selections and prices.
Impact of the Covid-19 pandemic on business
continuity and personnel health
Large numbers of sick employees in the logistics centres or stores and key members of
personnel getting sick could endanger the continuity of K Group’s critical operations and
supply chain and product availability. There is a significantly bigger emphasis on ensuring the
safety of personnel and customers in management and everyday operations.
The safety of personnel is ensured by following internal safety instructions and procedures
that are based on instructions and recommendations issued by authorities and healthcare
experts. Business continuity and product availability are ensured through efficient
implementation of function-specific contingency and preparedness plans.
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Critical information falling into the wrong hands
Crime is increasingly committed through data networks and crime has become more
international and professional. A failure to protect the security of payment transactions and
personal data in particular can cause losses, claims for damages and reputational harm.
When protecting critical information, it is essential to constantly monitor data security
threats and proactively develop data security, train personnel comprehensively, and maintain
the data security of systems throughout their lifecycle.
Business interruptions due to cybercrime and
information technology failures
Growing threats necessitate quality actions from service providers, good data security, and
sufficient data security skills from our personnel. Cyber-attacks could, for example, result
in significant loss of sales and weakened customer satisfaction. In addition to cyber threats,
failures may arise due to e.g. hardware failures, issues with data communications, and
software errors.
A high level of service data security and contingency and recovery plans for disruptions
are required from critical service providers. To ensure operational continuity, contingency
plans have been established for critical operations and there is a standard process for
managing disruptions. Continuity exercises are used to maintain the ability to operate during
disruptions.
Integration of acquisitions in the building and technical trade
There are operational risks related to the ongoing integration of acquisitions carried out in
Sweden and Norway.
The key to risk management is to follow the integration plan and ensure sufficient resources
for implementing the plan.
Product safety
A failure in product safety control or supply chain quality assurance could result in financial
losses, loss of customer trust and reputation, or, in the worst case, a health hazard to
customers.
Risk management responses include Kesko’s quality and product development unit’s quality
control of grocery trade products, and product safety management of the companies
manufacturing own brand products. Self-control ensures compliance with foodstuffs
regulations. Defective products can be quickly withdrawn from sale using the recall
procedure.
Staff availability
The implementation of strategies and the achievement of objectives require competent and
motivated personnel. The acquisitions carried out as well as other significant business and
development projects, coupled with an increased need for special competencies increase the
key-person risk and the dependency on individual expertise.
In connection with strategy work, the competencies required for strategy implementation
are identified and personnel plans are drawn up. Personnel surveys play a central role in the
development of human resources management. Recruitment processes have been developed
and personnel members are provided with a variety of training opportunities and career
paths. Employee wellbeing and working capacity are promoted with Kesko’s wellbeing at
work development programme. Kesko’s employer image is developed through systematic
cooperation with stakeholders, as well as internal and external communications.
Compliance with laws and agreements
Changes in legislation and authority regulations could necessitate significant changes and
result in additional costs. Compliance with laws and agreements is an important part of
Kesko's corporate responsibility. Non-compliance can result in fines, claims for damages
and other financial losses, and loss of trust and reputation. The EU General Data Protection
Regulation has placed more importance on the need to protect personal data.
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Separate compliance programmes are established for managing key legal risks. In general,
legal risks are managed through the monitoring of changes in legislation, personnel training,
by conducting audits and self-assessments, and by developing technical data security and
data protection. Contractual risks are managed by harmonising agreements and agreement-
making processes and by electronic agreement archiving.
Store sites and properties
With a view to business growth and profitability, good store sites are a key competitive
factor. The acquisition of store sites can be delayed by town planning and permit procedures
and the availability and pricing of sites. Considerable amounts of capital or lease liabilities are
tied up in properties for years. As a result of urbanisation, changes in the market situation,
growing significance of e-commerce, or a chain concept proving inefficient, there is a risk
that a store site or a property becomes unprofitable and operations are discontinued while
long-term liabilities remain.
Management responses to the risks include long-term store network planning, careful
preparatory work preceding each decision to invest in a store site, long-term cooperation
with lessors, as well as management solutions and the sale and leaseback operating model.
In cases where Kesko is the property developer, the aim is that the space solutions and use
of the store site can be changed flexibly as necessary. The needs of multichannel business
operations are taken into account when new premises are designed and existing premises are
modernised. Flexibility and continuity are ensured with extension options included in lease
agreements.
Responsible operating practices and reputation management
Various aspects of corporate responsibility, such as ensuring responsibility in the purchasing
chain of products, fair and equal treatment of employees, the prevention of corruption, and
environmental protection, are increasingly important to customers. Any failures in corporate
responsibility could result in negative publicity for Kesko and cause operational and financial
damage. Challenges in Kesko’s corporate responsibility work include communicating
responsibility principles to customers and ensuring responsibility in the supply chain of
products.
The K Code of Conduct has been implemented among the whole personnel and partners.
Kesko’s responsible purchasing is guided by ethical purchasing principles, the compliance
with which is ensured by continuous training of purchasing personnel. Responsibility in
purchasing is also maintained by ensuring the existence and timeliness of suppliers’ product
safety systems and self-control plans. The SpeakUp reporting channel, intended for reporting
suspected criminal offences or misconduct related to Kesko’s operations, is in use in all
Kesko operating countries.
Climate change
Climate change risks are twofold. Risks for Kesko are related to increasing regulation and
extreme weather phenomena. Increasing regulation necessitates changes in business
operations and leads to additional costs. Increase in extreme weather phenomena can impact
product availability and cause disturbances in logistics and the store site network. The
impacts of Kesko’s operations on the climate, in turn, are related to Kesko’s energy solutions
and emissions and the lifecycle impact of products and services sold.
Kesko aims to reach carbon neutrality in K Group by 2025 and to cut emissions from
own operations and transports down to zero by 2030. One key action on the road to zero
emissions is to increase the share of electricity and heat produced with renewable energy.
K Group is also encouraging its suppliers, the whole supply chain, and customers to take
action to reduce emissions. Kesko aims to have reduction targets set for two-thirds of its
direct supplier emissions by 2025.
Reporting to market
In its investor communication and financial reporting, Kesko follows the disclosure policy
approved by Kesko’s Board of Directors. Kesko's objective is to produce and publish
reliable and timely information. Disclosure follows the principle of providing all market
participants information in a timely manner and non-selectively to form the basis for the
price formation of Kesko’s financial instruments such as shares. If any information published
by Kesko proved to be incorrect, or communications failed to meet regulations in other
respects, it could result in losing investor and other stakeholder confidence and in possible
29KESKO'S YEAR 2020 I FINANCIAL REVIEW
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sanctions. Significant business arrangements, tight disclosure schedules and dependency on
information systems create challenges for the accuracy of financial information.
The risk is mitigated with efficient internal control, careful process scheduling and
instructions and by ensuring the right resources, explicit responsibilities and sufficient
competencies.
Risks of damage
Accidents, natural phenomena and epidemics can cause significant damage to people,
property or business. In addition, risks of damage may cause business interruptions that
cannot be prevented.
Financial consequences of damage are insured against in accordance with the principles
confirmed by Kesko’s Board of Directors. Kesko Group has international insurance schemes
that cover, for example, property damage, business interruption losses and liability damage.
The Group’s risk management has centralised control over the implementation of the
Group’s insurance schemes.
Proposal for profit distribution
The Board of Directors of Kesko Corporation proposes to the Annual General Meeting to
be held on 12 April 2021 that a dividend of €0.75 per share be paid for the year 2020 based
on the adopted balance sheet on shares held outside the Company at the date of dividend
distribution. The remaining distributable assets will remain in equity. The Board proposes that
the dividend be paid in two instalments.
The first instalment, €0.38 per share, is to be paid to shareholders registered in the
Company's register of shareholders kept by Euroclear Finland Ltd on the first dividend
instalment payment record date 14 April 2021. The Board proposes that the first dividend
instalment pay date be 21 April 2021.
The second instalment, €0.37 per share, is to be paid to shareholders registered in the
Company's register of shareholders kept by Euroclear Finland Ltd on the second dividend
instalment payment record date 1 October 2021. The Board proposes that the second
dividend instalment pay date be 8 October 2021. The Board proposes that it be authorised
to decide, if necessary, on a new dividend payment record date and pay date for the second
instalment if the rules and statutes of the Finnish book-entry system change or otherwise
sorequire.
As at the date of the proposal for the distribution of profit, 2 February 2021, 396,739,146
shares were held outside the Company, and the corresponding total amount of dividends is
€297,554,359.50.
The distributable assets of Kesko Corporation total €1,436,295,866.09, of which profit for
the financial year is €234,293,405.12.
Annual general meeting
The Board of Directors has decided that the Annual General Meeting will be held on 12 April
2021 at 1.00 pm (EET).
30KESKO'S YEAR 2020 I FINANCIAL REVIEW
KESKO’S DIRECTION CORPORATE GOVERNANCESUSTAINABILITY
FINANCIAL REVIEW
Group's key performance indicators
Group Continuing operations
IFRS applied
Income statement
Net sales € million ,. ,. ,. ,. ,.
Change in net sales % . . -. . -.
Change in net sales, comparable % . . . . .
Operating profit, comparable € million . . . . .
Operating profit as percentage
of net sales, comparable % . . . . .
Operating profit € million . . . . .
Operating profit as percentage
of net sales % . . . . .
Profit for the year
(incl. non-controlling interests) € million . . . . .
Profit for the year as percentage
of net sales % . . . . .
Profitability
Return on equity, group % . . . . .
Return on equity, comparable,
group % . . . . .
Return on capital employed % . . . . .
Return on capital employed,
comparable % . . . . .
Group Continuing operations
IFRS applied
Funding and financial position
Interest-bearing net debt, group € million . . ,. ,. ,.
Interest-bearing net debt
excluding lease liabilities € million . . . . .
Gearing, group % . . . . .
Equity ratio, group % . . . . .
Interest-bearing net debt/
EBITDA excluding the impact of
IFRS 16, group . . . . .
Other performance indicators
Capital expenditure € million . . . . .
Capital expenditure as
percentage of net sales % . . . . .
Cash flow from operating
activities € million . . . . ,.
Cash flow from investing
activities € million -. -. -. -. -.
Cash flow from operating
activities, discontinued
operations € million - . -. . -
Cash flow from investing
activities, discontinued
operations € million - -. . . -
Personnel, average for the
period, group total , , , , ,
Personnel, as at 31 Dec.,
group total , , , , ,
31KESKO'S YEAR 2020 I FINANCIAL REVIEW
KESKO’S DIRECTION CORPORATE GOVERNANCESUSTAINABILITY
FINANCIAL REVIEW
IFRS applied
Share performance indicators
Earnings/share,
basic and diluted**
Continuing operations € - . . . .
Discontinued operations € - -. -. . -
Group total € . . . . .
Earnings/share, comparable,
basic**
Continuing operations € - . . . .
Group total € . - - - -
Equity/share** € . . . . .
Dividend/share* € . . . . .
Payout ratio % . . . . .
Payout ratio, comparable % . . . . .
Cash flow from operating
activities/share, adjusted,
grouptotal** € . . . . .
Cash flow from operating
activities/share, adjusted,
continuing operations** € - - . . .
Price/earnings ratio (P/E), A
share, adjusted . . . . .
Price/earnings ratio (P/E), B
share, adjusted . . . . .
Effective dividend yield, A share % . . . . .
Effective dividend yield, B share % . . . . .
IFRS applied
Share price as at 31 Dec.
A share** € . . . . .
B share** € . . . . .
Average share price
A share** € . . . . .
B share** € . . . . .
Market capitalisation as at 31
Dec., A share € million . ,. ,. ,. ,.
Market capitalisation as at 31
Dec., B share € million ,. ,. ,. ,. ,.
Turnover
A share
Million
pcs ***
B share
Million
pcs ***
Relative turnover rate
A share % . . . . .
B share % . . . . .
Diluted average number of
shares**
Thousand
pcs , , , , ,
* Proposal to the General Meeting
**Kesko Corporations ‘s Annual General Meeting on 28 April 2020 decided on a share issue without payment (share
split) in which three (3) new A shares were issued for each existing A share, and three (3) new B shares for each
existing B share. The share-specific indicators have been calculated using the post-share split number of shares.
Share-specific indicators for the comparison periods have been adjusted to correspond to the post-share split number
of shares.
*** Calculated with post-split number of shares
32KESKO'S YEAR 2020 I FINANCIAL REVIEW
KESKO’S DIRECTION CORPORATE GOVERNANCESUSTAINABILITY
FINANCIAL REVIEW
Net sales by segment
€ million –/ –/ Change, %
Grocery trade, Finland ,. ,. .
Grocery trade, total ,. ,. .
- of which intersegment trade . . .
Building and technical trade, Finland ,. ,. .
Building and technical trade, other
countries* ,. ,. .
Building and technical trade, total ,. ,. .
- of which intersegment trade -. -. .
Car trade, Finland . . .
Car trade, total . . .
- of which intersegment trade . . .
Common functions and eliminations -. -. (..)
Finland, total ,. ,. .
Other countries, total* ,. ,. .
Segment information, total ,. ,. .
Impact of change in Kesko Senukai’s
consolidation method** . . -.
Reported continuing operations ,. ,. -.
(..) Change over 100%
*Net sales in countries other than Finland
** Kesko Senukai’s net sales, net of Group company net sales from sales of products and services to Kesko Senukai,
have been consolidated in the consolidated income statement. The sum is not presented in the segment reporting as
net sales due to a different accounting policy.
Operating profit by segment
€ million –/ –/ Change
Grocery trade . . .
Building and technical trade . . .
Car trade . . -.
Common functions and eliminations -. -. .
Segment information, total . . .
Impact of change in Kesko Senukai’s
consolidation method* . . .
Reported continuing operations . . .
* 100% of the operating profit reported by Kesko Senukai in 1-12/2019 and 1-6/2020 and the realised profit of
€46.1 million from the change in consolidation method in 7-12/2020 are consolidated in the operating profit in the
consolidated income statement. In segment reporting, the share of joint venture’s net profit equivalent to ownership
interest has been consolidated in the 1-12/2019 and 1-6/2020 operating profit.
Comparable operating profit by segment
€ million –/ –/ Change
Grocery trade . . .
Building and technical trade . . .
Car trade . . -.
Common functions and eliminations -. -. .
Segment information, total . . .
Impact of change in Kesko Senukai’s
consolidation method* . . -.
Reported continuing operations . . .
* 100% of the operating profit reported by Kesko Senukai in 1-12/2019 and 1-6/2020 has been consolidated in the
operating profit in the consolidated income statement. In segment reporting, the share of joint venture’s net profit
equivalent to ownership interest has been consolidated in the 1-12/2019 and 1-6/2020 operating profit.
33KESKO'S YEAR 2020 I FINANCIAL REVIEW
KESKO’S DIRECTION CORPORATE GOVERNANCESUSTAINABILITY
FINANCIAL REVIEW
Comparable operating margin by segment, %
–/ –/ Change, pp
Grocery trade . . .
Building and technical trade . . .
Car trade . . -.
Segment information, total . . .
Impact of change in Kesko Senukai’s
consolidation method* . . .
Reported continuing operations . . .
* The difference between the operating margin in segment reporting and the operating margin calculated based on
the consolidated income statement
Comparable return on capital employed by segment, %
€ million –/ –/ Change, pp
Grocery trade . . .
Building and technical trade . . .
Car trade . . -.
Continuing operations, total . . .
Capital expenditure by segment
€ million –/ –/ Change
Grocery trade . . -.
Building and technical trade . . -.
Car trade . . -.
Common functions and eliminations . . -.
Continuing operations, total . . -.
34KESKO'S YEAR 2020 I FINANCIAL REVIEW
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FINANCIAL REVIEW
Group's performance indicators by quarter
–/ –/ –/ –/ –/ –/ –/ –/
Net sales, continuing operations, € million ,. ,. ,. ,. ,. ,. ,. ,.
Change in net sales, continuing operations, % -. . . . . . -. -.
Change in net sales, comparable, continuing operations, % -. . . . . . . .
EBITDA, comparable, € million . . . . . . . .
Operating profit, continuing operations, € million . . . . . . . .
Operating profit, comparable, continuing operations, € million . . . . . . . .
Operating margin, comparable, continuing operations, % . . . . . . . .
Finance income/costs, continuing operations, € million -. -. -. -. -. -. -. -.
Interest expense for lease liabilities, € million -. -. -. -. -. -. -. -.
Profit before tax, continuing operations, € million . . . . . . . .
Profit before tax, continuing operations, % . . . . . . . .
Return on capital employed, continuing operations, % . . . . . . . .
Return on capital employed, comparable, continuing operations, % . . . . . . . .
Return on equity, % . . . . . . . .
Return on equity, comparable, % . . . . . . . .
Cash flow from operating activities/share, continuing operations, € . . . . . . . .
Equity ratio, % . . . . . . . .
Capital expenditure, continuing operations, € million . . . . . . . .
Earnings/share, basic and diluted, €
Continuing operations . . . . . . . .
Discontinued operations . . . . - - - -
Group total . . . . . . . .
Earnings/share, basic and diluted, comparable €
Continuing operations . . . . . . . .
Equity/share, € . . . . . . . .
35KESKO'S YEAR 2020 I FINANCIAL REVIEW
KESKO’S DIRECTION CORPORATE GOVERNANCESUSTAINABILITY
FINANCIAL REVIEW
Net sales by segment
€ million –/ –/ –/ –/ –/ –/ –/ –/
Grocery trade ,. ,. ,. ,. ,. ,. ,. ,.
Building and technical trade . . . . . . . .
Car trade . . . . . . . .
Common functions and eliminations -. -. -. -. -. -. -. -.
Segment information, total ,. ,. ,. ,. ,. ,. ,. ,.
Impact of change in Kesko Senukai’s consolidation method* . . . . . . - -
Reported continuing operations ,. ,. ,. ,. ,. ,. ,. ,.
* Kesko Senukai’s net sales, net of Group company net sales from sales of products and services to Kesko Senukai, have been consolidated in the consolidated income statement. The sum is not presented in the segment reporting as net sales due
to a different accounting policy.
Operating profit by segment
€ million –/ –/ –/ –/ –/ –/ –/ –/
Grocery trade . . . . . . . .
Building and technical trade -. . . . . . . .
Car trade . . . . . . . .
Common functions and eliminations -. -. -. -. -. -. -. -.
Segment information, total . . . . . . . .
Impact of change in Kesko Senukai’s consolidation method* . . . . . . . -.
Reported continuing operations . . . . . . . .
* 100% of the operating profit reported by Kesko Senukai in 1-12/2019 and 1-6/2020 and the realised profit of €46.1 million from the change in consolidation method in 7-12/2020 are consolidated in the operating profit in the consolidated income
statement. In segment reporting, the share of joint venture’s net profit equivalent to ownership interest has been consolidated in the 1-12/2019 and 1-6/2020 operating profit.
Items in operating profit affecting comparability
€ million –/ –/ –/ –/ –/ –/ –/ –/
Grocery trade . . . -. -. -. -. -.
Building and technical trade -. -. -. -. . -. -. -.
Car trade -. -. -. -. - - -. -
Common functions and eliminations -. -. -. . -. . -. .
Segment information, total -. -. -. -. . -. -. -.
Impact of change in Kesko Senukai’s consolidation method - - -. - - - . -.
Reported continuing operations -. -. -. -. . -. . -.
36KESKO'S YEAR 2020 I FINANCIAL REVIEW
KESKO’S DIRECTION CORPORATE GOVERNANCESUSTAINABILITY
FINANCIAL REVIEW
Comparable operating profit by segment
€ million –/ –/ –/ –/ –/ –/ –/ –/
Grocery trade . . . . . . . .
Building and technical trade . . . . . . . .
Car trade . . . . . . . .
Common functions and eliminations -. -. -. -. -. -. -. -.
Segment information, total . . . . . . . .
Impact of change in Kesko Senukai’s consolidation method* . . . . . . - -
Reported continuing operations . . . . . . . .
* 100% of the comparable operating profit reported by Kesko Senukai in 1-12/2019 and 1-6/2020 has been consolidated in the comparable operating profit calculated based on the operating profit in the the consolidated income statement. In
segment reporting, the share of joint venture’s net profit equivalent to ownership interest has been consolidated in the 1-12/2019 and 1-6/2020 comparable operating profit.
Comparable operating margin by segment, %
€ million –/ –/ –/ –/ –/ –/ –/ –/
Grocery trade . . . . . . . .
Building and technical trade . . . . . . . .
Car trade . . . . . . . .
Segment information, total . . . . . . . .
Impact of change in Kesko Senukai’s consolidation method* -. -. -. -. -. -. - -
Reported continuing operations . . . . . . . .
* The difference between the operating margin in segment reporting and the operating margin calculated based on the consolidated income statement.
37KESKO'S YEAR 2020 I FINANCIAL REVIEW
KESKO’S DIRECTION CORPORATE GOVERNANCESUSTAINABILITY
FINANCIAL REVIEW
Calculation of performance indicators
Kesko uses alternative performance measures to reflect business performance and
profitability. These indicators should be examined together with the IFRS-compliant
performance indicators.
Change in comparable net sales is used to reflect changes in the Group’s business volume
between periods. The indicator reflects the change in net sales excluding the impact of
acquisitions and divestments, in local currencies. The comparable net sales have been
calculated by including in the net sales the business operations that have been part of
Kesko Group in both the financial year as well as the comparison year. Other structural
arrangements related to acquisitions and divestments have been adjusted in the same
manner as acquisitions.
Performance indicators reflecting comparable profit and profitability are used to improve the
comparability of operational performance between periods. Gains and losses on disposal of
real estate, shares and business operations, impairment charges and significant restructuring
costs are identified as items affecting comparability. Gains on disposal have been presented
within other operating income, and losses on disposal within other operating expenses in the
income statement.
In addition, the financial performance indicators required by the Decree of the Ministry
of Finance on obligation of securities issuers to disclose periodic information have been
presented as alternative performance measures. The management uses these indicators to
monitor and analyse business performance, profitability and financial position.
Profitability
Operating profit, comparable Operating profit +/– items affecting comparability
Items affecting comparability
– gains on disposal + losses on disposal + impairment charges +/-
structural arrangements
Return on equity, %
(Profit/loss before tax − Income tax) x 100
Shareholders' equity, average of the beginning and end of the financial
year
Return on equity,
comparable, %
(Profit/loss adjusted for items affecting comparability before
tax − Income tax adjusted for the tax effect of the items affecting
comparability) x 100
Shareholders' equity, average of the beginning and end of the financial
year
Return on capital employed, %
Operating profit x 100
(Non-current assets + Inventories + Receivables + Other current
assets - Non-interest-bearing liabilities) on average for 12 months
Return on capital employed,
comparable, %
Comparable operating profit x 100
(Non-current assets + Inventories + Receivables + Other current
assets - Non-interest-bearing liabilities) on average for 12 months
EBITDA
Operating profit + Depreciation and amortisation + Impairment
charges
38KESKO'S YEAR 2020 I FINANCIAL REVIEW
KESKO’S DIRECTION CORPORATE GOVERNANCESUSTAINABILITY
FINANCIAL REVIEW
Funding, capital expenditure and financial position
Equity ratio, %
Shareholders' equity x 100
(Balance sheet total − Advances received)
Gearing, %
Interest-bearing net debt x 100
Shareholders' equity
Interest-bearing net debt
Interest-bearing liabilities + Lease liabilities – Financial assets at fair
value through profit or loss – Available-for-sale financial assets - Cash
and cash equivalents
Interest-bearing net debt
excluding lease liabilities
Interest-bearing net debt – Lease Liabilities
Capital expenditure
Investments in property, plant and equipment, intangible assets,
subsidiary shares, shares in associates and joint ventures and other
shares
Interest-bearing net debt /
EBITDA excluding the impact
of IFRS 16
Interest-bearing net debt excluding lease liabilities / EBITDA excluding
the impact of IFRS 16
Share performance indicators
Earnings/share, diluted
Net profit/loss - Share of non-controlling interests of net profit/loss
Average number of shares adjusted for the dilutive effect
Earnings/share, basic
Net profit/loss − Share of non-controlling interests of net profit/loss
Average number of shares
Earnings/share, basic,
comparable
Net profit/loss adjusted for items affecting comparability − Share of
non-controlling interests of net profit/loss adjusted for items affecting
comparability
Average number of shares
Equity/share
Equity attributable to equity holders of the parent
Basic number of shares at the balance sheet date
Payout ratio, %
(Dividend/share) x 100
(Earnings/share)
Price/earnings ratio (P/E)
Share price at balance sheet date
(Earnings/share)
Effective dividend yield, %
(Dividend/share) x 100
Share price at balance sheet date
Market capitalisation Share price at balance sheet date x Number of shares
Cash flow from operating
activities/share
Cash flow from operating activities
Average number of shares
Yield of A share and B share Change in share price + Annual dividend yield
39KESKO'S YEAR 2020 I FINANCIAL REVIEW
KESKO’S DIRECTION CORPORATE GOVERNANCESUSTAINABILITY
FINANCIAL REVIEW
Reconciliation of performance indicators
to IFRS financial statements
€ million –/ –/
Continuing operations
Items affecting comparability
Gains on disposal . .
Losses on disposal -. -.
Structural arrangements . -.
Items in operating profit affecting comparability . -.
Items in financial items affecting comparability . .
Items in income taxes affecting comparability . .
Total items affecting comparability . .
Items in EBITDA affecting comparability . -.
Operating profit, comparable
Operating profit . .
Net of
Items in operating profit affecting comparability . -.
Operating profit, comparable . .
EBITDA
Operating profit . .
Plus
Depreciation and impairment charges . .
Depreciation and impairment charges for right-of-use assets . .
EBITDA ,. .
EBITDA, comparable
EBITDA ,. .
Net of
Items in EBITDA affecting comparability . -.
EBITDA, comparable ,. .
€ million –/ –/
Profit before tax, comparable
Profit before tax . .
Net of
Items in operating profit affecting comparability . -.
Items in financial items affecting comparability . .
Profit before tax, comparable . .
Net profit, comparable
Comparable profit before tax . .
Net of
Income tax . .
Items in income taxes affecting comparability . .
Net profit, comparable . .
Net profit attributable to owners of the parent, comparable
Net profit, comparable . .
Net profit attributable to non-controlling interests . .
Net profit attributable to owners of the parent, comparable . .
Earnings/share, comparable, €
Net profit attributable to owners of the parent, comparable . .
Average number of shares, basic, 1,000 pcs , ,
Earnings/share, comparable, € . .
Return on capital employed, %
Operating profit . .
Capital employed, average ,. ,.
Return on capital employed, % . .
40KESKO'S YEAR 2020 I FINANCIAL REVIEW
KESKO’S DIRECTION CORPORATE GOVERNANCESUSTAINABILITY
FINANCIAL REVIEW
€ million –/ –/
Return on capital employed, comparable, %
Operating profit, comparable . .
Capital employed, average ,. ,.
Return on capital employed, comparable, % . .
Group
Return on equity, %
Net profit . .
Equity, average ,. ,.
Return on equity, % . .
Return on equity, comparable, %
Net profit, comparable . .
Equity, average ,. ,.
Return on equity, comparable, % . .
Equity ratio, %
Shareholders’ equity ,. ,.
Total assets ,. ,.
Advances received . .
Equity ratio, % . .
41KESKO'S YEAR 2020 I FINANCIAL REVIEW
KESKO’S DIRECTION CORPORATE GOVERNANCESUSTAINABILITY
FINANCIAL REVIEW
Reconciliation of performance indicators to IFRS financial statements by quarter
€ million –/ –/ –/ –/ –/ –/ –/ –/
Continuing operations
Items affecting comparability
Gains on disposal . . . . . - - .
Losses on disposal -. - - -. -. - -. -.
Impairment charges - - . - - - - -
Structural arrangements -. -. -. -. -. -. . -.
Items in operating profit affecting comparability -. -. -. -. . -. . -.
Items in financial items affecting comparability - . . -. -. . . -.
Items in income taxes affecting comparability . -. . . . . . .
Total items affecting comparability -. . . -. . . . -.
Items in EBITDA affecting comparability -. -. -. -. . -. . -.
Operating profit, comparable
Operating profit . . . . . . . .
Net of
Items in operating profit affecting comparability -. -. -. -. . -. . -.
Operating profit, comparable . . . . . . . .
EBITDA
Operating profit . . . . . . . .
Plus
Depreciation and impairment charges . . . . . . . .
Depreciation and impairment charges for right-of-use assets . . . . . . . .
EBITDA . . . . . . . .
EBITDA, comparable
EBITDA . . . . . . . .
Net of
Items in EBITDA affecting comparability -. -. -. -. . -. . -.
EBITDA, comparable . . . . . . . .
42KESKO'S YEAR 2020 I FINANCIAL REVIEW
KESKO’S DIRECTION CORPORATE GOVERNANCESUSTAINABILITY
FINANCIAL REVIEW
€ million –/ –/ –/ –/ –/ –/ –/ –/
Profit before tax, comparable
Profit before tax . . . . . . . .
Net of
Items in operating profit affecting comparability -. -. -. -. . -. . -.
Items in financial items affecting comparability - . . -. -. . . -.
Profit before tax, comparable . . . . . . . .
Net profit, comparable
Profit before tax, comparable . . . . . . . .
Net of
Income tax . . . . . . . .
Items in income taxes affecting comparability . -. . . . . . .
Net profit, comparable . . . . . . . .
Net profit attributable to owners of the parent, comparable
Net profit, comparable . . . . . . . .
Net of
Net profit attributable to non-controlling interests -. . . . -. . - -
Net profit attributable to owners of the parent, comparable . . . . . . . .
Earnings/share, comparable, €
Net profit attributable to owners of the parent, comparable . . . . . . . .
Average number of shares, basic, 1,000 pcs , , , , , , , ,
Earnings/share, comparable, € . . . . . . . .
Return on capital employed, %
Operating profit . . . . . . . .
Capital employed, average ,. ,. ,. ,. ,. ,. ,. ,.
Return on capital employed, % . . . . . . . .
Return on capital employed, comparable, %
Operating profit, comparable . . . . . . . .
Capital employed, average ,. ,. ,. ,. ,. ,. ,. ,.
Return on capital employed, comparable, % . . . . . . . .
43KESKO'S YEAR 2020 I FINANCIAL REVIEW
KESKO’S DIRECTION CORPORATE GOVERNANCESUSTAINABILITY
FINANCIAL REVIEW
€ million –/ –/ –/ –/ –/ –/ –/ –/
Group
Return on equity, %
Net profit . . . . . . . .
Equity, average ,. ,. ,. ,. ,. ,. ,. ,.
Return on equity, % . . . . . . . .
Return on equity, comparable, %
Net profit, comparable . . . . . . . .
Equity, average ,. ,. ,. ,. ,. ,. ,. ,.
Return on equity, comparable, % . . . . . . . .
Equity ratio, %
Shareholders’ equity ,. ,. ,. ,. ,. ,. ,. ,.
Total assets ,. ,. ,. ,. ,. ,. ,. ,.
Advances received . . . . . . . .
Equity ratio, % . . . . . . . .
44KESKO'S YEAR 2020 I FINANCIAL REVIEW
KESKO’S DIRECTION CORPORATE GOVERNANCESUSTAINABILITY
FINANCIAL REVIEW
Analysis of shareholding
Analysis of shareholding by shareholder type as at 31 Dec. 2020
All shares Number of shares, pcs Percentage of all shares, %
Nominee-registered and non-Finnish holders ,, .
Households ,, .
Non-financial corporations and housing corporations ,, .
General government* ,, .
Non-profit institutions serving households** ,, .
Financial and insurance corporations ,, .
Total ,, .
A shares
Number of
shares, pcs
Percentage of A
shares, %
Percentage of
all shares, %
Non-financial corporations and housing corporations ,, . .
Households ,, . .
General government* ,, . .
Non-profit institutions serving households** ,, . .
Nominee-registered and non-Finnish holders ,, . .
Financial and insurance corporations ,, . .
Total ,, . .
B shares
Number of
shares, pcs
Percentage of B
shares, %
Percentage of
all shares, %
Nominee-registered and non-Finnish holders ,, . .
Households ,, . .
Non-financial corporations and housing
corporations ,, . .
General government* ,, . .
Non-profit institutions serving households** ,, . .
Financial and insurance corporations ,, . .
Total ,, . .
* General government, for example, municipalities, the provincial administration of Åland, authorised pension
providers and social security funds
** Non-profit institutions, for example, foundations awarding scholarships, organisations safeguarding certain
interests and various charitable associations
Analysis of shareholding by number of
shares held as at 31 Dec. 2020
All shares
Number of shares
Number of
shareholders, pcs
Percentage of
shareholders, % Share total, pcs
Percentage
of shares, %
1−100 , . , .
101−500 , . ,, .
501−1,000 , . ,, .
1,001−5,000 , . ,, .
5,001−10,000 , . ,, .
10,001−50,000 , . ,, .
50,001−100,000 . , , .
100,001−500,000 . ,, .
500,001− . ,, .
Total , . ,, .
A shares
Number of shares
Number of
shareholders, pcs
Percentage of A
shareholders, % A share total, pcs
Percentage of
A shares, %
1−100 , . , .
101−500 , . , .
501−1,000 , . , .
1,001−5,000 , . ,, .
5,001−10,000 . ,, .
10,001−50,000 . ,, .
50,001−100,000 . ,, .
100,001−500,000 . ,, .
500,001− . ,, .
Total , . ,, .
45KESKO'S YEAR 2020 I FINANCIAL REVIEW
KESKO’S DIRECTION CORPORATE GOVERNANCESUSTAINABILITY
FINANCIAL REVIEW
B shares
Number of shares
Number of
shareholders, pcs
Percentage of B
shareholders, % B share total, pcs
Percentage of
B shares, %
1−100 , . , .
101−500 , . ,, .
501−1,000 , . ,, .
1,001−5,000 , . ,, .
5,001−10,000 , . ,, .
10,001−50,000 , . , , .
50,001−100,000 . ,, .
100,001−500,000 . ,, .
500,001− . ,, .
Total , . ,, .
10 largest shareholders by number of shares held as at 31 Dec. 2020
Number of
shares, pcs
Percentage of
shares, %
Number of
votes
Percentage of
votes, %
1. K-Retailers' Association ,, . ,, .
2. Ilmarinen Mutual Pension
Insurance Company ,, . , .
3. Vähittäiskaupan Takaus Oy ,, . ,, .
4. Varma Mutual Pension
Insurance Company ,, . ,, .
5. Foundation for Vocational
Training in the Retail Trade ,, . ,, .
6. Elo Mutual Pension Insurance ,, . ,, .
7. The State Pension Fund ,, . ,, .
8. Heimo Välinen Oy ,, . ,, .
9. K-Food Retailers' Club ,, . ,, .
10. Food Paradise Oy ,, . ,, .
Does not contain shares held by Kesko Corporation, amounting to 3,339,862 on 31 Dec. 2020.
10 largest shareholders by number of votes as at 31 Dec. 2020
Number of
shares, pcs
Percentage of
shares, %
Number of
votes
Percentage of
votes, %
1. K-Retailers' Association ,, . ,, .
2. Ilmarinen Mutual Pension
Insurance Company ,, . ,, .
3. Vähittäiskaupan Takaus Oy ,, . ,, .
4. Foundation for Vocational
Training in the Retail Trade ,, . ,, .
5. Heimo Välinen Oy ,, . ,, .
6. K-Food Retailers' Club ,, . ,, .
7. Food Paradise Oy ,, . ,, .
8. OP-Finland mutual fund ,, . ,, .
9. T.A.T. Invest Oy , . ,, .
10. Pokela Oy Iso Omena , . ,, .
Management's shareholdings
At the end of December 2020, Kesko Corporation's Board members, the President and CEO
and the corporations controlled by them held 1,277,056 Kesko Corporation A shares and
315,530 Kesko Corporation B shares, i.e. a total of 1,592,586 shares, which represents 0.40%
of the total number of shares and 0.85 % of votes carried by all shares of the Company.
At 31 December 2020, the President and CEO held 269,844 Kesko Corporation B shares,
which represented 0.07% of the total number of shares and 0.02% of votes carried by all
shares of the Company. At 31 December 2020, the Group Management Board including the
President and CEO held 324 Kesko Corporation A shares and 774,528 Kesko Corporation B
shares, which represented 0.19% of the total number of shares and 0.05% of votes carried by
all shares of the Company.
FINANCIAL
STATEMENTS
20
20
47KESKO'S YEAR 2020 I FINANCIAL REVIEW
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FINANCIAL REVIEW
Consolidated income statement
€ million Note
Jan.– Dec.
%
Jan.– Dec.
%
Continuing operations
Net sales . . .
Material and services . -. -.
Change in inventory -. .
Other operating income . . .
Employee benefit expenses . -. -.
Depreciation, amortisation and impairment charges .,. -. -.
Depreciation, amortisation and impairment charges for right-of-use assets . -. -.
Other operating expenses . -. -.
Share of result of joint ventures . - -
Operating profit . .
Interest income and other finance income . . .
Interest expense and other finance costs . -. -.
Interest expense for lease liabilities . -. -.
Foreign exchange differences . . .
Total finance income and costs . -. -.
Share of result of associates . .
Profit before tax . .
Income tax . -. -.
Net profit for the year, continuing operations . .
Discontinued operations
Net profit for the year from discontinued operations - .
Net profit for the year . .
Net profit for the year attributable to
Owners of the parent
Non-controlling interests
Earnings per share for net profit attributable to owners of the parent
Basic and diluted, continuing operations, € .
Basic and diluted, discontinued operations, € . -
Basic and diluted, Group total, € .
CONSOLIDATED FINANCIAL STATEMENTS (IFRS)
48KESKO'S YEAR 2020 I FINANCIAL REVIEW
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Consolidated statement of comprehensive income
€ million Note Jan.– Dec. Jan.– Dec.
Net profit for the year
Items that will not be reclassified subsequently to profit or loss
Actuarial gains and losses .,.
Items that may be reclassified subsequently to profit or loss
Currency translation differences related to a foreign operation .
Cash flow hedge revaluation .
Others .
Total comprehensive income for the year, net of tax
Total comprehensive income for the year
Comprehensive income for the year attributable to
Owners of the parent
Non-controlling interests
49KESKO'S YEAR 2020 I FINANCIAL REVIEW
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Consolidated statement of financial position
€ million Note Dec. % Dec. %
ASSETS
Non-current assets
Property, plant and equipment .
Goodwill .
Intangible assets .
Right-of-use assets .
Shares in associates and joint ventures .,.
Financial assets at fair value through profit or loss .,.
Non-current receivables .,.
Deferred tax assets .
Pension assets .
Total non-current assets . .
Current assets
Inventories .
Interest-bearing receivables .,.
Trade receivables .,.,.
Income tax assets .
Other non-interest-bearing receivables .,.
Financial assets at fair value through profit or loss .,.
Financial assets at amortised cost .,.
Cash and cash equivalents
Total current assets . .
Non-current assets classified as held for sale . .
Total assets . .
50KESKO'S YEAR 2020 I FINANCIAL REVIEW
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€ million Note Dec. % Dec. %
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital .
Share premium .
Other reserves .
Currency translation differences .
Revaluation reserve .
Retained earnings
. .
Non-controlling interests . - - .
Total equity . .
Non-current liabilities
Interest-bearing non-current liabilities .,.,.
Lease liabilities .,.
Non-interest-bearing non-current liabilities .,.
Deferred tax liabilities .
Pension obligations
Provisions .
Total non-current liabilities . .
Current liabilities
Current interest-bearing liabilities .,.,.
Lease liabilities .,.
Trade payables .,.
Other non-interest-bearing liabilities .,.
Income tax liabilities .
Accrued liabilities .,.
Provisions .
Total current liabilities . .
Liabilities related to available-for-sale non-current assets . .
Total liabilities . .
Total equity and liabilities . .
51KESKO'S YEAR 2020 I FINANCIAL REVIEW
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Consolidated statement of cash flows
€ million Note
Jan.– Dec.
Jan.– Dec.
Cash flows from operating activities
Profit before tax
Adjustments
Depreciation according to plan
Depreciation and impairment for right-of-use assets
Finance income and costs
Interest expense for lease liabilities
Other adjustments .
Change in working capital
Current non-interest-bearing receivables,
increase (-)/decrease (+)
Inventories, increase (-)/decrease (+)
Current non-interest-bearing liabilities, increase (+)/decrease (-)
Interest paid and other finance costs
Interest paid on lease liabilities
Interest received
Dividends received
Dividends received from associated companies and joint
ventures
Income taxes paid
Net cash flows from operating activities,
continuing operations
Net cash flows from operating activities,
discontinued operations -
Net cash flows from operating activities, total
Cash flows from investing activities
Payments for acquisition of subsidiary shares,
net of cash acquired .
Payments for property, plant, equipment and intangible assets .
Proceeds from sale of subsidiaries, net cash deducted -
€ million Note
Jan.– Dec.
Jan.– Dec.
Impact of change in Kesko Senukai’s consolidation method . -
Proceeds from equity accounted investments
Proceeds from sale of property, plant, equipment
and intangible assets
Proceeds from sale of financial assets measured at fair value -
Non-current loan and receivables, increase (-)/decrease (+)
Net cash flows from investing activities,
continuing operations
Net cash flows from investing activities,
discontinued operations -
Net cash flows from investing activities, total
Cash flows from financing activities
Interest-bearing liabilities, increase (+)/decrease (-) .
Payments for lease liabilities .
Interest-bearing receivables, increase (-)/decrease (+) .
Dividends paid
Equity increase -
Short-term money market investments,
increase (-)/decrease (+)
Other items
Net cash flows from financing activities,
continuing operations
Net cash flows from financing activities,
discontinued operations - -
Net cash flows from financing activities, total
Change in cash and cash equivalents
Cash and cash equivalents as at 1 January,
continuing operations .
Cash and cash equivalents as at 1 January,
discontinued operations . -
Currency translation difference adjustment and
change in value
Cash and cash equivalents assets as at 31 December,
Group .
52KESKO'S YEAR 2020 I FINANCIAL REVIEW
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Consolidated statement of changes in equity
Attributable to owners of the parent
€ million Share capital Reserves
Currency
translation
differences
Revaluation
reserve
Treasury
shares
Retained
earnings Total
Non-
controlling
interest Total equity
Balance as at 1 January 2020
Share-based payments
Dividends
Increase in share capital
Disposal of subsidiaries
Change in Kesko Senukai's consolidation
method
Other changes
Transactions with owners, total
Comprehensive income
Net profit for the year, continuing
operations
Actuarial gains/losses
Currency translation differences related to
a foreign operation
Cash flow hedge revaluation
Other items
Tax related to other comprehensive
income
Total comprehensive income for the period
Balance as at 31 December 2020
53KESKO'S YEAR 2020 I FINANCIAL REVIEW
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Attributable to owners of the parent
€ million Share capital Reserves
Currency
translation
differences
Revaluation
reserve
Treasury
shares
Retained
earnings Total
Non-
controlling
interest Total equity
Balance as at 1 January 2019
Share-based payments
Dividends
Increase in share capital
Other changes
Transactions with owners, total
Comprehensive income
Net profit for the year, continuing
operations
Net profit for the year, discontinued
operations
Actuarial gains/losses
Currency translation differences related to
a foreign operation
Cash flow hedge revaluation
Other items
Tax related to other comprehensive
income
Total comprehensive income for the period
Balance as at 31 December 2019
Further information on share capital and reserves is disclosed in note 4.2, on components of other comprehensive income in note 2.10 and on share-based compensation plans in note 5.4.
54KESKO'S YEAR 2020 I FINANCIAL REVIEW
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IN THIS SECTION
1.1 Basic information about the Company 55
1.2 Basis of preparation 55
1.3 Critical accounting estimates and assumptions 55
1.4 Critical judgements in applying accounting policies 56
1.5 Consolidation principles 56
1.6 Discontinued operations and non-current assets
classified as held for sale and related liabilities 58
1.7 New IFRS standards and IFRIC interpretations and
the impact of new and updated standards 58
Accounting policies are stated in each note in sections 2–5.
Notes to the consolidated financial statements
1. ACCOUNTING POLICIES FOR THE
CONSOLIDATED FINANCIAL STATEMENTS
55KESKO'S YEAR 2020 I FINANCIAL REVIEW
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The notes to the consolidated financial statements have been grouped into sections based on
their nature. The basis of preparation is described as part of this note (Accounting policies
for the consolidated financial statements), while the accounting policies directly related to
a specific note are presented as part of the note in question. The notes contain the relevant
financial information as well as a description of the accounting policies and key estimates and
judgements applied for the topics of the individual note.
1.1 Basic information about the Company
trade, the building and technical trade, and the car trade.
The Group's parent company, Kesko Corporation , is a Finnish public limited company
constituted in accordance with the laws of Finland . The Company's business ID is 0109862-8,
it is domiciled in Helsinki, Finland and its registered address is PO Box 1, FI-00016 KESKO.
Copies of Kesko Corporation's financial statements and the consolidated financial statements
are available from Kesko Corporation , PO Box 1, Helsinki, FI-00016 KESKO , visiting address
Kesko's Board of Directors has approved these financial statements for disclosure on
2February 2021.
Kesko is issuing an XHTML financial review complying with the ESEF requirements on a
voluntary basis on Kesko’s website. The Audit firm Deloitte Oy has provided to company an
independent auditor’s reasonable assurance report in accordance with ISAE 3000 (Revised)
on Kesko’s ESEF Financial Statements.
1.2 Basis of preparation
Kesko's consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS) approved for adoption by the European Union, and they
comply with the IAS and IFRS standards and respective SIC and IFRIC Interpretations effective
on 31 December 2020. The International Reporting Standards refer to standards and their
interpretations approved for adoption within the EU in accordance with the procedure enacted
in EU regulation (EC) 1606/2002, included in the Finnish Accounting Act and regulations
based on it. Accounting standards not yet effective have not been adopted voluntarily for the
consolidated financial statements. The notes to the consolidated financial statements also
include compliance with Finnish accounting and corporate legislation.
All amounts in the consolidated financial statements are in millions of euros and based on
original cost, with the exception of items specified below, which have been measured at fair
value in compliance with the standards.
1.3 Critical accounting estimates and assumptions
The preparation of consolidated financial statements in conformity with international
accounting standards requires the use of certain estimates and assumptions about the future
that affect the reported amounts of assets and liabilities, contingent liabilities, and income
and expense. The actual results may differ from these estimates and assumptions. The most
significant circumstances for which estimates have been required are described below.
The estimates and judgements made are continuously evaluated, and they are based on
historical experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances.
Measurement of assets acquired and liabilities assumed
Assets acquired and liabilities assumed in business combinations are measured at their fair
values at the date of acquisition. The fair values on which the allocation of costs and liabilities
is based are determined by reference to market values to the extent they are available.
If market values are not available, the measurement is based on the estimated earnings-
generating capacity of the asset and its future use in Kesko's operating activities. The
measurement of intangible assets, in particular, is based on the present values of future cash
flows and requires management estimates regarding future cash flows and the use of assets.
More detailed information in Note 3.1.
56KESKO'S YEAR 2020 I FINANCIAL REVIEW
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Impairment test
The recoverable amounts of cash generating units have been determined using calculations based
on value in use. In the calculations, forecast cash flows are based on financial plans approved by
management, covering a period of three years. More detailed information inNote 3.3.
Employee benefits
The Group operates both defined contribution pension plans and defined benefit pension
plans. Items relating to employee benefits are calculated using several factors that require
the application of judgement. Pension calculations under defined benefit plans in compliance
with IAS 19 are based on, among others, the following factors that rely on management
estimates:
• discount rate used in calculating pension expenses and obligations and net finance cost
for the period
• future salary level trend
• employee service life.
Changes in these assumptions can significantly impact the amounts of pension obligation and
future pension expenses. In addition, a significant part of the pension plan assets is invested
in real estate and shares, whose value adjustments impact the recognised amount of pension
assets. More detailed information in Note 3.7.
Measurement of inventories
The Group regularly reviews inventories for obsolescence and turnover, and for possible
reduction of net realisable value below cost, and records an impairment as necessary. Such
reviews require assessments of future demand for products. Possible changes in these
estimates may cause changes in inventory measurement in future periods. More detailed
information in Note 3.5.
Trade receivables
The Group companies apply a uniform practice to measuring receivables past due. Possible
changes in customers' solvency may cause changes in the measurement of trade receivables
in future periods. More detailed information in Note 3.6.
Provisions
The existence of criteria for recognising provisions and the amounts of provisions are determined
based on estimates of the existence and amount of the obligation. Estimates may differ from the
actual future amount of the obligation and with respect to the existence of the obligation.
Leases
When recognising leases in the balance sheet, assessments must be made concerning the
lease term, use of extension options and the discount rate used. When assessing the lease
term of a new lease, extension options are not acknowledged until a commitment has been
made to use the extension option. The assessments may differ from the actualised future
lease terms and conditions. More detailed information in Note 4.6.
1.4 Critical judgements in applying accounting policies
The Group's management uses its judgement in the adoption and application of accounting
policies in the financial statements. The management has exercised its judgement in the
application of accounting policies in the income statement with regard to the presentation
of profits (Note 2.1), the existence of control over subsidiaries (Note 3.1), measuring
receivables, determining provisions for restructuring, and measuring assets and liabilities
recognised in the balance sheet based on leases (Note 4.6).
1.5 Consolidation principles
Subsidiaries
The consolidated financial statements combine the financial statements of Kesko
Corporation and subsidiaries controlled by the Group. Control exists when the Group has
more than half of the voting rights of a subsidiary or otherwise exerts control. An investor
controls an investee when it is exposed, or has rights, to variable returns from its involvement
with the investee and has the ability to affect those returns through its power over the
investee. Acquired subsidiaries are consolidated from the date on which the Group gains
control until the date on which control ceases. The existence of potential voting rights has
been considered when assessing the existence of control in the case that the instruments
entitling to potential control are currently exercisable. Subsidiaries are listed in note 5.2.
57KESKO'S YEAR 2020 I FINANCIAL REVIEW
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Mutual shareholding is eliminated by using the acquisition cost method. The cost of
assets acquired is determined on the basis of the fair value of the acquired assets as at the
acquisition date, the issued equity instruments and liabilities resulting from or assumed
on the date of the exchange transaction. The identifiable assets, liabilities and contingent
liabilities acquired are measured at the fair value at the acquisition date, gross of non-
controlling interest.
Intragroup transactions, receivables and payables, unrealised profits and internal distributions
of profits are eliminated when preparing the consolidated financial statements. Unrealised
losses are not eliminated if the loss is due to the impairment of an asset. Non-controlling
interest in the profit for the period is disclosed in the income statement and the amount of
equity attributable to the non-controlling interests is disclosed separately inequity.
The Group accounts for its real estate company acquisitions as acquisitions of assets.
Associates
Associates are companies over which the Group has significant influence but not control. In
Kesko Group, significant influence accompanies a shareholding or agreement of between
20% and 50% of the voting rights. Investments in associates are accounted for using the
equity method and are initially recognised at cost.
The Group’s share of post-acquisition profits or losses is recognised in the income statement.
The cumulative post-acquisition movements are adjusted against the carrying amount of the
investment. If the Group’s share of losses in an associate equals or exceeds its interest in the
associate, the Group does not recognise further losses.
Unrealised gains on transactions between the Group and the associates are eliminated to the
extent of the Group’s interest in the associates. Unrealised losses are also eliminated, unless
the transaction provides evidence of an impairment of the asset transferred. Dividends
received from associates are deducted from the Group's result and the cost of the shares.
An investment in an associate includes the goodwill generated by the acquisition. Goodwill is
notamortised.
Joint agreements
Joint agreements are arrangements in which the sharing of joint control has been
contractually agreed between two or more parties. Joint control exists only when decisions
about the relevant activities require the unanimous consent of the parties sharing control.
A joint venture is a joint agreement whereby the parties that have joint control of the
agreement have rights to the net assets of the agreement. Investments in joint ventures
are accounted for using the equity method, and on initial recognition, they are recognised
atcost.
The Group’s share of post-acquisition profits or losses is recognised in the income statement.
The cumulative post-acquisition movements are adjusted against the carrying amount of the
investment. If the Group’s share of losses in a joint venture equals or exceeds its interest in
the joint venture, the Group does not recognise further losses.
Unrealised gains on transactions between the Group and the joint ventures are eliminated
to the extent of the Group’s interests in the joint ventures. Unrealised losses are also
eliminated, unless the transaction provides evidence of an impairment of the asset
transferred. Dividends received from joint ventures are deducted from the Group's result and
the cost of the shares. An investment in a joint venture includes the goodwill generated by
the acquisition. Goodwill is not amortised.
Mutual real estate companies are consolidated as common functions on a line-by-line basis
in proportion to ownership. The Group's share of mutual real estate companies' loans and
reserves is accounted for separately in the consolidation.
Subsidiaries, associates and joint ventures and proportionately consolidated mutual real
estate companies are listed in note 5.2.
Foreign currency items
The consolidated financial statements are presented in euros, which is both the functional
currency of the environment in which the Group’s parent operates and the presentation
currency. On initial recognition, the amounts with respect to the result and financial position
58KESKO'S YEAR 2020 I FINANCIAL REVIEW
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FINANCIAL REVIEW
of the Group companies located outside the euro zone are recorded in the functional
currency of each of their operating environments.
Foreign currency transactions are recorded in euros by applying the exchange rate at the
date of the transaction. Receivables and liabilities denominated in foreign currency are
translated into euros using the closing rate. Exchange rate gains and losses on foreign
currency transactions as well as receivables and liabilities denominated in foreign currency
are recognised in the income statement, with the exception of monetary items that form a
part of a net investment in a foreign operation and loans designated as hedges for foreign
net investments and regarded as effective. These exchange differences are recognised
in equity and their changes are presented in other comprehensive income. The exchange
differences are presented in the income statement on disposal of the foreign operation or
settlement of the hedges. The Group has currently no loans designated as hedges for foreign
net investments. Foreign exchange gains and losses resulting from operating activities are
included in the respective items above operating profit. Foreign exchange gains and losses
from foreign exchange forward contracts and options used for hedging financial transactions,
and from foreign currency borrowings are included in finance income and costs.
The income statements of the Group companies operating outside the euro zone have been
translated into euros at the average rate of the financial year, and their balance sheets at
the closing rate. The foreign exchange difference resulting from the use of different rates,
the translation differences arising from the elimination of the acquisition cost of subsidiaries
outside the euro zone, exchange differences arising from monetary items that form a part
of a net investment in a foreign operation and the hedging results of net investments are
recognised in equity, and the changes are presented in other comprehensive income. In
connection with the disposal of a subsidiary, translation differences are recognised in the
income statement as part of the gains or losses on the disposal.
Goodwill arising on the acquisition of foreign operations and the fair value adjustments of
assets and liabilities made upon their acquisition are treated as assets and liabilities of these
foreign operations and translated into euros at the closing rate.
1.6 Discontinued operations and non-current assets
classified as held for sale and related liabilities
Non-current assets (or a disposal group) are classified as held for sale if their carrying
amount will be recovered principally through the disposal of the assets and the sale
is highly probable. If their carrying amount will be recovered principally through their
disposal rather than through their continuing use, they are measured at the lower rate of
the carrying amount and fair value net of costs to sell.
The comparative information in the income statement is adjusted for operations classified
as discontinued during the latest financial period being reported. Consequently, the result of
discontinued operations is presented as a separate line item also for the comparatives. The
Group did not have discontinued operations in the 2020 financial year.
1.7 New IFRS standards and IFRIC interpretations
and the impact of new and updated standards
IFRIC interpretations, amendments to existing standards,
and new and updated standards
In May 2020, IASB published the 'Covid-19-Related Rent Concessions’ amendment to ‘IFRS
16 Leases’. The amendment enables an alternative treatment of rent concessions related to
the Covid-19 pandemic. The lessee does not have to determine whether rent concessions
are lease modifications. The Group does not apply the alternative treatment. The rent
concessions received do not have a material impact.
An amendment to IFRS 3 'Business Combinations' specifies the definition of a business. The
amendment did not have an impact on the 2020 financial statements.
Annual improvements or amendments to standards that become effective on 1 January
2021 or later are not estimated to have a significant impact on the consolidated
financialstatements.
59KESKO'S YEAR 2020 I FINANCIAL REVIEW
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IN THIS SECTION
2.1 Revenue recognition 60
2.2 Segment information 61
2.3 Material and services 70
2.4 Other operating income 70
2.5 Operating expenses 70
2.6 Foreign exchange differences recognised in operating profit 71
2.7 Income tax 72
2.8 Earnings per share 74
2.9 Notes related to the statement of cash flows 74
2.10 Components of other comprehensive income 77
Notes to the consolidated financial statements
2. FINANCIAL RESULTS
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2.1 Revenue recognition
Accounting policies
In the consolidated income statement, net sales comprise the sales of goods, services
and energy based on customer agreements. The share of sales of services and energy of
total net sales is not significant. The Group sells products to retailers and other business
customers and engages in own retailing. Income from sales of goods and services is
recognised when the customer obtains control of the goods or services. Customers obtain
control when they have the ability to direct the use of and obtain the benefits from the
goods or services. As a rule, income from sales of goods can be recognised at the time of
transfer. Income from services is recognised after the service has been performed. Sales
to retailers and business customers are based on invoicing. Sales to consumers are mainly
in cash or by credit card.
When calculating net sales, sales revenue is adjusted for indirect taxes, sales adjustment
items and the exchange differences of foreign-currency-denominated sales. In businesses
in Finland that are part of the K-Plussa customer loyalty scheme, sales adjustment
items include loyalty award credits, recognised as part of sales transactions. Income
from corresponding sales is recognised when the award credits are redeemed or expire.
Contract liability is recognised in the balance sheet. Loyalty award credits affect the net
sales of those businesses that grant K-Plussa customer loyalty award credits in Finland
and engage in retailing.
Other operating income includes income other than that associated with the sale of goods
or services based on customer agreements, such as lease income, store site and chain
fees charged from retailers, and various other service fees and commissions. Fees charged
from retailer entrepreneurs are based on a partnership agreement (chain agreement)
based on which the retailers engage in business in line with the chain’s operating
models and objectives. Store site fees and chain fees vary depending on the growth
and profitability of the retailer’s business operations under the chain agreement. Chain
marketing fees and data system fees are cost-based charges.
Other operating income also includes gains on the disposal of property, plant and
equipment and intangible assets as well as gains on disposal of businesses and realised
and unrealised gains on derivatives used for hedging foreign currency risks associated
with commercial transactions.
Interest income is recognised on a time apportionment basis using the effective interest
method. Dividend income is recognised when the right to receive payment is established.
61KESKO'S YEAR 2020 I FINANCIAL REVIEW
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The assets and liabilities of a division's capital employed consist of operating items that
can be justifiably allocated to the divisions. The assets of capital employed comprise
property, plant and equipment and intangible assets, right-of-use assets related to
leases, interests in associates and joint ventures and other investments, pension assets,
inventories, trade receivables and other non-interest-bearing receivables, interest-bearing
receivables, and assets held for sale. The liabilities of capital employed consist of trade
payables, the share of other non-interest-bearing liabilities and provisions. The Group’s
real estate assets and the revenue and costs generated from them have been allocated
to the divisions. Capital employed does not include deferred tax assets and liabilities,
financial assets at fair value through profit or loss with the exception of fair value of
foreign exchange forward contracts recognised in the balance sheet, cash and cash
equivalents, or interest-bearing liabilities.
The same revenue recognition policies apply to segment information as to the
consolidated financial statements and consolidated statement of financial position. The
revenue recognition policies are presented in Note 2.1.
Kesko’s business models
Kesko’s principal business model in the Finnish market is the chain business model, in
which independent K-retailers run retail stores in Kesko's chains and B2B trade. Kesko
manages the operations of the chains made up of the stores. Chain operations ensure higher
competitiveness and a strong operational basis for K-retailers in terms of purchasing goods,
building selections, marketing and price competition. Outside Finland, Kesko mainly engages
in own retailing and B2B trade. Retailer operations accounted for 49 % (45%) of the Group’s
net sales in 2020. B2B trade accounted for 33% (37%) of the Group’s net sales in 2020.
Kesko’s own retailing accounted for 18 % (18%) of the Group’s net sales. According to Kesko’s
management, the above depicts how economic factors impact the nature, amount, timing
and uncertainties of sales gains and cash flows.
2.2 Segment information
Accounting policies
The Group's reportable segments are composed of the Group's divisions, namely the
grocery trade, the building and technical trade, and the car trade.
Division information is reported in a manner consistent with the internal reporting
provided to the chief operating decision-maker. The chief operating decision-maker,
responsible for allocating resources to the divisions, has been identified as the Group
Management Board. The reportable operating segments derive their net sales from the
grocery trade, the building and technical trade, and the car trade. Sales between divisions
are charged at prevailing market rates. The change in Kesko Senukai’s consolidation
method from a subsidiary to a joint venture as of 1 July 2020 impacted performance
indicators for the building and technical trade in segment information. Due to the change,
the Group changed internal reporting to its highest operative decision-maker, the Group
Management Board, so that Kesko Senukai is reported in the income statement figures
for the building and technical trade as if it has been consolidated on one line before
operating profit in accordance with ownership interest as of 1 January 2019, as opposed
to the subsidiary consolidation method used before. Such a change has not been made for
internally reported balance sheet figures.
The Group Management Board uses alternative performance indicators alongside
the IFRS financial statements indicators in the Group’s results reporting. The Group
Management Board assesses the divisions' performances based on operating profit,
comparable operating profit, and comparable return on capital employed. Results
reporting to management corresponds to the accounting policies of the consolidated
financial statements apart from items affecting comparability and the treatment of the
change in the consolidation method of Kesko Senukai, detailed above. Finance income
and costs are not allocated to the divisions as the Group’s cash and cash equivalents and
financial liabilities are managed by the Group Treasury. Changes in the fair values of intra-
Group foreign exchange forward contracts entered into and realised gains and losses are
reported as part of other operating income and expenses to the extent that they hedge
the divisions’ foreign exchange risk.
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Grocery trade
The grocery trade comprises the wholesale and B2B trade of groceries and the retailing of
home and speciality goods in Finland. Kesko's grocery trade operates under the K-retailer
business model. There are approximately 1,200 K-food stores operated by K-retailers
in Finland. These stores form the K-Citymarket, K-Supermarket, K-Market and Neste K
grocery retail chains. Kespro is the leading foodservice provider and wholesaler in Finland.
K-Citymarket's home and speciality goods trade operates in home and speciality goods
retailing in Finland.
Building and technical trade
The building and technical trade operates in the wholesale, retail and B2B trade in Finland,
Sweden, Norway, the Baltic countries and Poland. In the building and home improvement
trade, Kesko is responsible for the chains’ concepts, marketing, purchasing and logistics
services and the store site network in all operating countries and for retailer resources in
Finland where the retailer business model is employed. Kesko itself acts as a retail operator
in Sweden and Norway. The retail store chains are K-Rauta (Finland and Sweden), K-Bygg
(Sweden) and Byggmakker as well as Carlsen Fritzøe (Norway). The building and home
improvement stores serve both consumers and business customers. Onninen provides
HEPAC and electrical products and services to business customers in the Baltic Sea Region
and Scandinavia. The group specialises in the B2B trade and has around 130 places of
business in Finland, Sweden, Norway, Poland and the Baltic countries.
The specialty trade included in the building and technical trade division comprises leisure
trade in Finland. The chains in the leisure trade are Intersport, Budget Sport, The Athlete’s
Foot and Kookenkä. As part of the strategy for the leisure trade, measures were initiated
in December to discontinue The Athlete’s Foot and KooKenkä chains. The machinery trade
operations in the Baltics were divested during the 2020 financial year.
Car trade
The car trade comprises the business operations of K-Auto, K-Caara and AutoCarrera. The
car trade imports and markets Volkswagen, Audi, Seat, Porsche and Bentley passenger
cars and Volkswagen and MAN commercial vehicles in Finland. K-Auto also engages in car
retailing and provides after-sales services at its own retail outlets.
Common functions
Common functions comprise Group support functions.
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Segment information 2020
Profit, continuing operations
€ million Grocery trade
Building and
technical trade Car trade
Common
functions
Segment
information total
Impact of change
in Kesko Senukai’s
consolidation method Total
Division net sales ,. ,. . . ,. . ,.
of which intersegment sales -. . -. -. -. . -.
Net sales from external customers ,. ,. . -. ,. . ,.
Change in net sales in local currency excluding
acquisitions and disposals, % . . -. (..) . .
Change in net sales, % . . . (..) . -.
Other division income . . . . . . .
of which intersegment income -. -. . - . -. -. -.
Other operating income from external customers . . . . . . .
Depreciation and amortisation -. -. -. -. -. -. -.
Depreciation and impairment charges for
right-of-use assets -. -. -. -. -. -. -.
Share of result of joint ventures . . -. .
Operating profit . . . -. . . .
Items affecting comparability -. -. -. -. -. . .
Comparable operating profit . . . -. . . .
Finance income and costs -.
Share of result of associates .
Profit before tax .
(..) Change over 100%
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Assets and liabilities
€ million
Grocery
trade
Building
and
technical
trade Car trade
Common
operations Eliminations Total
Property, plant, equipment
and intangible assets ,. . . . -. ,.
Right-of-use assets ,. . . . ,.
Interests in associates and
joint ventures and other
investments . . . . -. .
Pension assets . . . .
Inventories . . . .
Trade receivables . . . . -. .
Other non-interest-bearing
receivables . . . . -. .
Interest-bearing receivables . . . . .
Non-current assets
classified as held for sale . . . .
Assets included in capital
employed ,. ,. . . -. ,.
Unallocated items
Deferred tax assets .
Financial assets at fair value
through profit or loss .
Financial assets at
amortised cost .
Cash and cash equivalents .
Total assets ,. ,. . . -. ,.
€ million
Grocery
trade
Building
and
technical
trade Car trade
Common
operations Eliminations Total
Trade payables . . . . -. ,.
Other non-interest-bearing
liabilities . . . . -. .
Provisions . . . . .
Liabilities related to assets
held for sale . .
Liabilities included in
capital employed . . . . -. ,.
Unallocated items
Interest-bearing liabilities .
Lease liabilities ,.
Other non-interest-bearing
liabilities .
Deferred tax liabilities .
Total liabilities . . . . -. ,.
Total capital employed as
at 31 December, continuing
operations ,. ,. . . -. ,.
Average capital employed,
continuing operations ,. ,. . . -. ,.
Return on capital
employed, %, comparable . . . .
Number of personnel as at
31 December, continuing
operations , , , ,
Average number of
personnel, continuing
operations , , , ,
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Segment information 2019
Profit, continuing operations
€ million Grocery trade
Building and
technical trade Car trade
Common
functions
Segment
information total
Impact of change
in Kesko Senukai’s
consolidation method Total
Division net sales ,. ,. . . ,. . ,.
of which intersegment sales -. . -. -. -. . -.
Net sales from external customers ,. ,. . . ,. . ,.
Other division income . . . . . . .
of which intersegment income -. -. . -. -. -. -.
Other operating income from external customers . . . . . . .
Depreciation and amortisation -. -. -. -. -. -. -.
Depreciation and impairment charges for
right-of-use assets -. -. -. -. -. -. -.
Share of result of joint ventures . . -. .
Operating profit . . . -. . . .
Items affecting comparability . -. -. -. -. -.
Comparable operating profit . . . -. . . .
Finance income and costs -.
Share of result of associates .
Profit before tax .
(..) Change over 100%
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FINANCIAL REVIEW
Assets and liabilities
€ million
Grocery
trade
Building
and
technical
trade Car trade
Common
operations Eliminations Total
Property, plant, equipment
and intangible assets ,. . . . -. ,.
Right-of-use assets ,. . . . ,.
Interests in associates and
joint ventures and other
investments . . . . -. .
Pension assets . . . .
Inventories . . . ,.
Trade receivables . . . . -. .
Other non-interest-bearing
receivables . . . . -. .
Interest-bearing receivables . . . . .
Non-current assets
classified as held for sale . . -. .
Assets included in capital
employed ,. ,. . . -. ,.
Unallocated items
Deferred tax assets .
Financial assets at fair value
through profit or loss .
Financial assets at
amortised cost .
Cash and cash equivalents .
Total assets ,. ,. . . -. ,.
€ million
Grocery
trade
Building
and
technical
trade Car trade
Common
operations Eliminations Total
Trade payables . . . . -. ,.
Other non-interest-bearing
liabilities . . . . -. .
Provisions . . . . .
Liabilities related to assets
held for sale . .
Liabilities included in
capital employed . . . . -. ,.
Unallocated items
Interest-bearing liabilities .
Lease liabilities ,.
Other non-interest-bearing
liabilities .
Deferred tax liabilities .
Total liabilities . . . . -. ,.
Total capital employed as
at 31 December ,. ,. . . -. ,.
Average capital employed ,. ,. . . -. ,.
Return on capital
employed, %, comparable . . . .
Number of personnel as at
31 December , , , , ,
Average number of
personnel , , , ,
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Alternative performance indicators in segment reporting
Kesko uses alternative performance indicators in internal reporting of business performance
and profitability to the highest operational decision-making body, i.e. the Group
Management Board. These indicators should be examined together with the IFRS-compliant
performance indicators.
Change in comparable net sales is used to reflect changes in the Group’s business volume
between periods. The indicator reflects the change in net sales excluding the impact of
acquisitions and divestments, in local currencies. The comparable net sales have been
calculated by including in the net sales the business operations that have been part of Kesko
Group in both the reporting period as well as the comparison period. Other structural
arrangements related to acquisitions and divestments have been adjusted in the same
manner as acquisitions.
Exceptional transactions outside the ordinary course of business are treated as items
affecting comparability. Performance indicators reflecting comparable profit and profitability
are used to improve the comparability of operational performance between periods. As
items affecting comparability are identified gains and losses on the disposal of real estate,
shares and business operations, impairments and significant restructurings as items affecting
comparability. Gains on disposals are presented in the income statement within other
operating income, and losses on disposals within other operating expenses. Impairment
charges and significant profit and loss items related to changes in leases are presented in the
income statement under depreciation, amortisation and impairment charges.
Alternative performance measures that have been adjusted for the impact of IFRS 16
are used to illustrate continuity in business profitability and financial position and the
achievement of certain financial targets. The EBITDA excluding the impact of IFRS 16
corresponds to EBITDA before the adoption of IFRS 16, and the interest-bearing net debt
excluding lease liabilities correspond to interest-bearing net debt before the adoption of
the standard. These restated indicators are included as components in the Group’s financial
targets’ performance indicators. The indicator is presented in Note 4.1 Capital management.
Items affecting comparability
€ million, continuing operations
Gains on disposal . .
Losses on disposal -. -.
Structural arrangements . -.
Items in operating profit affecting comparability, total . -.
The most significant items affecting comparability were the positive profit impact of €46.1
million resulting from the change in the consolidation method of Kesko Senukai; the negative
€2.5 million profit impact of changes in the store site network in Sweden; the €6.4 million
sales gain from the divestment of machinery trade operations in the Baltics, completed on
31 March 2020, the €5.2 million costs related to corporate restructuring, and the €10.4
million costs related to the discontinuation of The Athlete’s Foot and Kookenkä chains in
the leisuretrade. Items related to structural arrangements are presented on the following
lines in the consolidated income statement: materials and services (€-0.6 million), change
in inventory (€-1.1 million), other operating income (€46.1 million), employee benefit
expenses (€-5.0 million), depreciation, amortisation and impairment charges (€-0.3 million),
depreciation, amortisation and impairment charges for right-of-use assets (€-6.7 million),
and other operating expenses (€-9.4 million).
In 2019, the most significant items affecting comparability were the €7.8 million costs related
to the divestment of Onninen’s HEPAC contractor business in the building and technical
trade in Sweden, the €4.3 million costs related to acquisitions, and the net €+4.8 million
items related to the subsidiary consolidation of Kruunuvuoren Satama Oy. Items related to
structural arrangements are presented on the following lines in the consolidated income
statement: materials and services (€-0.4 million), change in inventory (€-5.2 million), other
operating income (€0.9 million), employee benefit expenses (€-5.5 million), depreciation,
amortisation and impairment charges (€-3.6 million), depreciation, amortisation and
impairment charges for right-of-use assets (€3.4 million), and other operating expenses
(€-7.2 million).
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FINANCIAL REVIEW
Reconciliation of performance indicators to IFRS financial statements
€ million, continuing operations
Operating profit, comparable
Operating profit . .
Net of
Items in operating profit affecting comparability . -.
Operating profit, comparable . .
Return on capital employed, comparable, %
Operating profit, comparable . .
Capital employed, average ,. ,.
Return on capital employed, comparable, % . .
Comparable change in net sales
€ million
Net sales, illustrative, building and technical trade ,. ,.
Foreign exchange effects .
Effect of acquisitions and divestments -. -.
Change in net sales, comparable, % .
Net sales, car trade . .
Effect of acquisitions and divestments* -.
Change in net sales, comparable, % -.
Net sales, illustrative, Group ,. ,.
Foreign exchange effects .
Effect of acquisitions and divestments -. -.
Change in net sales, comparable, % .
* When calculating the change in the comparable net sales for the car trade, on the line ‘Effect of acquisitions and
divestments’ the total net sales of dealers acquired have been deducted and the net sales from car trade imports to
the acquired dealers added.
Calculation of performance indicators
Operating profit, comparable
Operating profit +/– items affecting comparability
Return on capital employed, comparable, %
Comparable operating profit x 100
(Property, plant and equipment + Goodwill + Intangible assets + Right-of-use assets + Shares in
associates and joint ventures + Financial assets at fair value through profit or loss + Non-current
receivables + Pension assets + Inventories + Trade receivables + Income tax assets + Other non-
interest-bearing receivables + Non-current assets classified as held for sale - Non-interest-bearing
non-current liabilities - Pension obligations - Provisions - Trade payables - Other non-interest bearing
liabilities - Income tax liabilities - Accrued liabilities - Liabilities related to available-for-sale non-
current assets) on average for the reporting period
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Geographical information, continuing operations
The Group operates in Finland, Sweden, Norway, Estonia, Latvia, Lithuania and Poland.
The grocery trade operates in Finland. The building and technical trade operates in Finland,
Sweden, Norway, the Baltic countries and Poland, and the car trade operates in Finland. Net
sales, assets, capital expenditure and personnel are presented by location.
The change in Kesko Senukai’s consolidation method from a subsidiary to a joint venture
as of 1 July 2020 impacted performance indicators for the building and technical trade
in segment information. Due to the change, the Group changed internal reporting to its
highest operative decision-maker, the Group Management Board, so that Kesko Senukai is
reported in the income statement figures for the building and technical trade as if it has been
consolidated on one line before operating profit in accordance with ownership interest as
of 1 January 2019, as opposed to the subsidiary consolidation method used before. Such a
change has not been made for internally reported balance sheet figures.
€ million Finland
Other Nordic
countries Baltic countries Others Eliminations
Segment
information total
Impact of change
in Kesko Senukai’s
consolidation
method
Total, continuing
operations
Net sales ,. ,. . . -. ,. . ,.
Assets included in capital employed , . ,. . . - - ,.
Average number of personnel , , , - - ,
€ million Finland
Other Nordic
countries Baltic countries Others Eliminations
Segment
information total
Impact of change
in Kesko Senukai’s
consolidation
method
Total, continuing
operations
Net sales ,. ,. . . -. ,. . ,.
Assets included in capital employed ,. . . . - - ,.
Average number of personnel , , , , - - ,
Net sales are nearly completely derived from sales of goods. The amount derived from sales
of services is minor.
Kesko Group does not have income derived from a single customer amounting to more than
10% of Kesko Group’s total income.
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FINANCIAL REVIEW
2.3 Material and services
€ million
Material and services -,. -,.
External services -. -.
Total, continuing operations -,. -,.
2.4 Other operating income
Revenue recognition, including the definition of income reported under other operating
income, is presented in Note 2.1.
€ million
Income from services . .
Lease income . .
Gains on disposal of property, plant, equipment and intangible
assets . .
Gains on disposal of businesses . .
Realised gains on derivative contracts and changes in fair value . .
Others . .
Total, continuing operations . .
Income from services mainly comprises chain and store site fees paid by retailers' chain
companies.
More information on lease income is provided in note 4.6.
2.5 Operating expenses
Accounting policies
Other operating expenses include expenses other than the cost of goods sold, such as
employee benefit expenses, marketing costs, property and store site maintenance costs,
information system expenses, and lease payments recognised in the income statement
on leases classified as short-term leases or leased assets classified as of low value. Other
operating expenses also include losses on the disposal of property, plant and equipment
and intangible assets, losses on disposal of business operations as well as realised and
unrealised losses on derivatives used for hedging foreign currency risks associated with
commercial transactions.
Employee benefit expenses
€ million
Salaries and fees -. -.
Social security costs -. -.
Pension costs
Defined benefit plans -. -.
Defined contribution plans -. -.
Share-based payment -. -.
Total, continuing operations -. -.
Information on the employee benefits of the Group’s management personnel and other
related party transactions are presented in note 5.3, and information on share-based
compensation in note 5.4.
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Average number of the Group personnel
Grocery trade , ,
Building and technical trade , ,
Car trade , ,
Common functions
Total, continuing operations , ,
Discontinued operations -
Total, Group , ,
Other operating expenses
€ million
Marketing costs -. -.
Property and store site maintenance expenses -. -.
ICT expenses -. -.
Lease expenditure -. -.
Losses on disposal of property, plant, equipment and
intangible assets -. -.
Realised losses on derivative contracts and changes in fair value -. -.
Other operating expenses -. -.
Total, continuing operations -. -.
Lease expenditure for short-term leases and low-value leased assets as well as variable lease
payments are presented under Lease expenditure. Property and store site maintenance
expenses also include maintenance expenses for leased properties. More information on
lease expenditure is provided in note 4.6.
Auditors' fees
€ million
Audit . .
Tax consultation . .
Other services . .
Total . .
The Annual General Meeting of 28 April 2020 elected Deloitte Oy as Kesko Corporation’s
Auditor. In 2019, Kesko’s Auditor was PricewaterhouseCoopers Oy.
2.6 Foreign exchange differences recognised in operating profit
€ million
Sales -. -.
Other income . .
Purchases -. .
Other expenses -. -.
Total, continuing operations -. .
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2.7 Income tax
Accounting policies
The taxes recognised in the consolidated income statement include the Group companies'
taxes on current net profits on an accrual basis, prior period tax adjustments and changes
in deferred taxes. The Group companies' taxes have been calculated from the taxable
income of each company determined by local jurisdiction. The tax impact of items
recognised in other comprehensive income has been recognised correspondingly in other
comprehensive income.
Deferred tax assets and liabilities are recognised on all temporary differences arising
between the tax bases and carrying amounts of assets and liabilities and for unused tax
losses. Deferred tax liability has not been calculated on goodwill insofar as goodwill is
not tax deductible. Deferred tax on subsidiaries' undistributed earnings is not recognised
unless a distribution of earnings is probable, causing tax implications.
Deferred tax has been determined using the tax rates enacted at the balance sheet
date, and as the rates changed, at the known new rate. A deferred income tax asset is
recognised to the extent that it is probable that it can be utilised against future taxable
income. The Group's deferred income tax assets and liabilities are offset when they relate
to income taxes levied by the same taxation authority.
The most significant temporary differences arise from leases, defined benefit pension
plans, property, plant and equipment (depreciation difference), provisions and
measurements at fair value of asset items in connection with acquisitions.
The Group’s tax position is regularly assessed to identify situations open to interpretation.
The Group prepares for situations in which it is deemed unlikely that the Group’s
interpretation will be approved in the calculation of income tax. An uncertain tax position
may affect taxes or deferred taxes for the financial year or both.
€ million
Current tax -. -.
Tax for prior years -. -.
Deferred tax -. .
Total, continuing operations -. -.
Reconciliation between tax expense shown in the income
statement and tax calculated at parent's rate
€ million
Profit before tax . .
Tax at parent's rate 20.0% -. -.
Effect of foreign subsidiaries' different tax rates -. -.
Effect of tax-free income . .
Effect of expenses not deductible for tax purposes -. -.
Effect of unrecognised deferred tax assets . .
Effect of consolidation of share of result of associates and joint
ventures . .
Tax for prior years -. -.
Effect of change in tax rate . -
Others . .
Tax charge, continuing operations -. -.
Effective tax rate, continuing operations .% .%
The Group’s effective tax rate decreased due to a positive profit impact of €46.1 million
arising from the change in the consolidation method of Kesko Senukai, and by tax-exempt
sales gains and share of result of associates and joint ventures totalling €21.8 million. Taxes
for previous financial years include a €3.7 million residual tax related to a reassessment
decision on 2013 and 2014 for Indoor Group Oy concerning the right of deduction of losses
transferred in a cross-border merger, paid during the financial year.
The impact of the corporation tax rate change effective from 1 January 2021 in Sweden on
taxes for the financial year 2020 was €0.1 million.
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FINANCIAL REVIEW
Movements in deferred tax in 2020
€ million
Jan.
Income
statement
charge
Tax
charged/
credited
to equity
Exchange
differences
Other
changes
Dec.
Deferred tax assets
Leases . . . -. .
Provisions . . . . .
Defined benefit pension
plans . . .
Tax loss carry-forwards . -. . -. .
Other temporary
differences . . . -. -. .
Total . -. . -. -. .
Deferred tax liabilities
Difference between
accounting depreciation and
tax depreciation . . . .
Fair value allocation . - . -. . .
Defined benefit pension
plans . -. . .
Other temporary
differences . -. . -. -. .
Total . . . -. . .
Net deferred tax asset (+)/
liability (-) . -.
Balance sheet division of net deferred tax asset
€ million
Deferred tax assets . .
Deferred tax liabilities . .
Total -. .
Other temporary differences within deferred tax assets include €15.3 million of deferred tax
assets resulting from timing differences between local accounting principles and taxation.
Movements in deferred tax in 2019
€ million
Jan.
Income
statement
charge
Tax
charged/
credited
to equity
Exchange
differences
Other
changes
Dec.
Deferred tax assets
Leases . -. . . .
Provisions . -. .
Defined benefit pension
plans . . .
Tax loss carry-forwards . -. . . .
Other temporary
differences . . . . . .
Total . . . . . .
Deferred tax liabilities
Difference between
accounting depreciation and
tax depreciation . . . .
Fair value allocation . -. . . .
Defined benefit pension
plans . -. -. .
Other temporary
differences . . -. . . .
Total . -. -. . . .
Net deferred tax asset . .
Tax loss carry-forwards
As at 31 December 2020, the Group had €209.2 million losses from foreign operations for
which deferred tax assets have not been recognised, because at the balance sheet date, the
realisation of the related tax benefit through future taxable profits is not probable.
Tax losses carried forward for which tax assets
have not been recognised expire as follows:
€ million - Total
. .
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2.8 Earnings per share
Accounting policies
Basic earnings per share are calculated by dividing the net profit for the period attributable
to the parent’s equity holders by the weighted average number of shares outstanding
during the period. Diluted earnings per share are calculated by adjusting the weighted
average number of all shares to assume conversion of all potentially dilutive shares.
Kesko Corporations ‘s Annual General Meeting on 28 April 2020 decided on a share
issue without payment (share split) in which three (3) new A shares were issued for each
existing A share, and three (3) new B shares for each existing B share. The share-specific
indicators have been calculated using the post-share split number of shares. Share-
specific indicators for the comparison periods have been adjusted to correspond to the
post-share split number of shares.
Net profit for the period attributable to equity holders of
the parent, € million . .
Number of shares
Weighted average number of shares outstanding ,, ,,
Diluted weighted average number of shares outstanding ,, ,,
Earnings per share from net profit attributable to equity
holders of the parent
Basic and diluted, continuing operations, € . .
Basic and diluted, discontinued operations, € - .
Basic and diluted, Group total, € . .
2.9 Notes related to the statement of cash flows
Capital expenditure and non-cash financing activities
€ million
Total acquisitions of property, plant, equipment and intangible
assets . .
Total acquisitions of subsidiaries and investments in associates
and other investments . .
Total capital expenditure . .
of which cash payments . .
Loans relating to acquired companies and cash and cash
equivalents . .
Payments arising from prior period investing activities -. -.
Capital expenditure financed with liabilities . .
Total, continuing operations . .
The acquisition of the store property of K-Citymarket in Järvenpää, previously leased by
Kesko, is reported under cash flow from financing activities in the statement of cash flows.
Adjustments to cash flows from operating activities
€ million
Adjustment of non-cash transactions in the income statement
and items presented elsewhere in the statement of cash flows:
Change in provisions . -.
Share of results of associates and joint ventures -. -.
Impairments - .
Credit losses . .
Gains on disposal of property, plant, equipment and intangible
assets and business operations -. -.
Losses on disposal of property, plant, equipment and
intangible assets and business operations . .
Share-based compensation -. -.
Defined benefit pensions . .
Others . .
Total, continuing operations -. .
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FINANCIAL REVIEW
The group ‘Others’ within the adjustments to cash flows from operating activities includes
the adjustment of unrealised foreign exchange gains and losses on purchases and sales, and
the adjustment of other transactions of a non-cash nature.
Cash flow from leases
€ million
Interest expense for lease liabilities -. -.
Decrease in lease liabilities -. -.
Rent in income statement -. -.
Total -. -.
Information on leases is presented in Note 4.6, and information on right-of-use assets
related to leases in Note 3.4.
Cash and cash equivalents
€ million
Financial assets at amortised cost (maturing in less than 3
months), continuing operations . .
Financial assets at amortised cost (maturing in less than 3
months), discontinued operations - -
Cash and cash equivalents, continuing operations . .
Cash and cash equivalents, discontinued operations - .
Total . .
Cash and cash equivalents include cash on hand and deposits with banks as well as liquid
funds measured at amortised cost which are invested in instruments with maturities of less
than three months from acquisition.
Reconciliation of cash and debt
€ million
Financial assets at amortised cost (maturing in less than 3
months) . .
Cash and cash equivalents . .
Borrowings - repayable within one year (including overdraft) -. -.
Lease liabilities - repayable within one year -. -.
Borrowings - repayable after one year -. - .
Lease liabilities - repayable after one year -,. -,.
Cash and debt, net -,. -,.
€ million
Cash and cash equivalents and financial assets at amortised
cost (maturing in less than 3 months) . .
Gross debt - fixed interest rates -. -.
Gross debt - variable interest rates -. -.
Lease liabilities -,. -,.
Cash and debt, net -,. -,.
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Other assets Finance-related debt
€ million Cash and overdraft
Financial assets at
amortised cost
Lease liabilities
due within year
Lease liabilities due
after year
Borrowings due
within year
Borrowings due
after year Total
Cash and debt, net as at 1 Jan. 2020 . . -. -,. - . -. -.
Cash flows . . . -. . .
Acquisitions of subsidiaries . -. -. -. -. -.
Sale of subsidiaries -. . . - .
Impact of change in Kesko Senukai’s
consolidation method -. . . . . .
Net changes of lease liabilities -. . -.
Foreign exchange adjustments -. . . . . .
Cash and debt, net as at 31 Dec. 2020 . . -. -,. -. -. -,.
Other assets Finance-related debt
€ million Cash and overdraft
Financial assets at
amortised cost
Lease liabilities
due within year
Lease liabilities due
after year
Borrowings due
within year
Borrowings due
after year Total
Cash and debt, net as at 1 Jan. 2019 . . -. -,. -. -. -,.
Cash flows . -. . . -. .
Acquisitions of subsidiaries . -. -. -. -. -.
Net changes of lease liabilities -. -. -.
Foreign exchange adjustments . -. -. -. -. -.
Cash and debt, net as at 31 Dec. 2019 . . -. -,. -. -. -,.
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2.10 Components of other comprehensive income
€ million
Before tax
Tax charge/
credit After tax
Before tax
Tax charge/
credit After tax
Items that will not be reclassified subsequently to profit or loss
Actuarial gains and losses . -. . -. . -.
Items that may be reclassified subsequently to profit or loss
Currency translation differences relating to a foreign operation -. -. . .
Cash flow hedge revaluation -. . -. -. . -.
Others -. -. -. -.
Total, continuing operations -. . -. -. . -.
Discontinued operations - - . .
Group total -. . -. -. . -.
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IN THIS SECTION
3.1 Business acquisitions, disposals of assets, and non-current
assets classified as held for sale and related liabilities 79
3.2 Property, plant and equipment 84
3.3 Intangible assets 86
3.4 Right-of-use assets 89
3.5 Inventories 90
3.6 Trade and other current receivables 91
3.7 Pension assets 91
3.8 Shares in associates and joint ventures 95
3.9 Provisions 97
Notes to the consolidated financial statements
3. CAPITAL EMPLOYED
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3.1. Business acquisitions, disposals of assets, and non-current
assets classified as held for sale and related liabilities
Acquisitions in 2020
Carlsen Fritzøe Handel AS
Kesko’s subsidiary Byggmakker Handel AS acquired the entire capital stock of the Norwegian
building and home improvement trade company Carlsen Fritzøe Handel AS on 1 September
2020. The preliminary consideration paid was €127.6 million, and the amount of cash and
cash equivalents obtained was €0.1 million. The amount of consideration paid will be specified
during 2021. Carlsen Fritzøe Handel AS recorded net sales of some €201 million in 2019. The
acquisition strengthens Kesko’s position in the Oslo fjord region, where the Carlsen Fritzøe
Handel network of 25 stores complements Kesko’s existing Byggmakker store network.
On 1 October 2020, Kesko’s subsidiary Byggmakker Nord AS acquired the entire capital
stock of both Reidar Flokkmanns Eftf AS, which is part of the Norwegian Byggmakker
chain, and the store property Arn Eiendom AS (together ‘Flokkmann). The preliminary
consideration paid was €10.4 million, and the amount of cash and cash equivalents obtained
was €0.8 million. The amount of consideration paid will be specified during 2021.
According to a preliminary acquisition cost calculation concerning Carlsen Fritzøe Handel
AS, assets acquired for Kesko Group amounted to €156.2 million and liabilities assumed
to €129.2 million. The fair value of the intangible assets acquired (including customer
relationships and trademark) at the date of acquisition totalled €8.8 million. The €103.7
million goodwill arising from the acquisition reflects the synergies expected to be achieved
in sales, purchasing, selections, logistics and operational efficiency. The goodwill is not tax
deductible. The Group income statement includes €1.3 million in acquisition-related costs
under “Other operating expenses”, presented as items affecting comparability. According
to a preliminary acquisition cost calculation for Flokkmann, assets acquired for Kesko Group
amounted to €7.7 million and liabilities assumed to €2.1 million. The Group income statement
includes minor acquisition-related costs for Flokkmann under “Other operating expenses”,
presented as items affecting comparability.
Carlsen Fritzøe Handel AS had a €77.9 million impact on net sales for September-December.
The impact on the profit for September-December was €5.0 million. If the acquisition had
taken place on 1 January 2020, according to management estimates, the impact on Group
net sales would have been approximately €226.9 million. The impact on profit would have
been €15.1 million. In determining the net sales and profit, the management estimates that
recorded fair values would have been the same on the date of acquisition had the acquisition
taken place on 1 January 2020. Flokkmann’s impact on Group net sales and profit was minor.
Mark & Infra i Sverige AB Bygg & Interiör
Kesko’s Swedish subsidiary Fresks Försäjlning AB acquired the Bygg & Interiör building and
home improvement trade stores for professional builders in Sweden on 1 September 2020.
On 1 April 2020, Kesko’s Swedish subsidiary Kesko AB acquired the Swedish Mark & Infra i
Sverige AB (MIAB), a company specialising in the sales of water and sewage products. The
combined consideration paid for the acquisitions completed in Sweden was €21.6 million, and
the amount of cash and cash equivalents obtained was €0.1 million.
According to preliminary acquisition cost calculations concerning Bygg & Interiör and Mark
& Infra, assets acquired for Kesko Group amounted to €16.8 million and liabilities assumed
to €10.2 million. The goodwill is not tax deductible. The Group income statement includes
minor acquisition-related costs under “Other operating expenses”, presented as items
affecting comparability. The impact of the acquired businesses on the Group’s net sales and
operating profit was minor.
The acquisitions completed in Sweden complement Kesko’s K-Bygg chain for professional
builders in the Mälaren Valley region as well as Onninen’s technical wholesale offering for
Infra customers in Sweden.
The following table provides a summary of the consideration paid, the values of assets
acquired and liabilities assumed by Kesko Group at the date of acquisition, and the cash flow
impact of the acquisitions.
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€ million
Carlsen Fritzøe
Handel AS and
Flokkmann
Mark & Infra
i Sverige AB and
Bygg & Interiör
Debt-free acquisition price . .
Fair values of assets acquired and liabilities
assumed at the date of acquisition
Intangible assets . .
Property, plant, equipment, right-of-use assets and
investments . .
Inventories . .
Receivables . .
Deferred tax asset .
Cash and cash equivalents . .
Total assets . .
Trade payables, other payables, provisions, lease
liabilities . .
Deferred tax liability . .
Total liabilities . .
Net assets acquired, total . .
Goodwill . .
Cash flow impact of acquisition
Consideration paid -. -.
Cash and cash equivalents acquired . .
Unpaid share . .
Cash flow impact of acquisition -. -.
Change in Kesko Senukai’s consolidation method in
the 2020 consolidated financial statements
During the financial year, Kesko announced that it had initiated a strategic review concerning
the business operations in the Baltics and Belarus. Kesko also stated that it was examining
conditions for the subsidiary consolidation of the company UAB Kesko Senukai Lithuania in
Kesko’s consolidated financial statements due to significant disagreements concerning the
management of and exercise of control over Kesko Senukai.
Kesko’s management exercised its judgement in reassessing control over and conditions
for subsidiary consolidation of Kesko Senukai under IFRS 10. In 2020, the company’s
shareholders had significant differences of opinion regarding the management and
development of the company and exercise of control over it. According to Kesko’s
management’s assessment, the company is no longer managed in accordance with the
shareholders’ agreement and previously established practices. Work on Kesko Senukai’s
Board has become difficult and has been fully prevented in some areas. Kesko’s ability
to obtain information on the company has been significantly restricted. According to the
management assessment, Kesko no longer exercises the type of control referred to in IFRS
10 over Kesko Senukai. According to the management estimate, the loss of control was not
due to any individual event, but was affected by the changes in circumstances and actions
by minority shareholders referred to above. Kesko has detailed the litigation related to these
actions in Note 5.5 of the consolidated financial statements.
Due to the loss of control, Kesko decided to classify Kesko Senukai as a joint venture as of
1 July 2020. None of the shareholders exercise control over Kesko Senukai. Instead, the
shareholders exercise joint control based on a contractual arrangement, as defined in IFRS
11.5. As a joint venture, Kesko Senukai’s shareholders are entitled to its net assets, and the
shareholders’ liability for the company’s obligations is limited to the amount of equity invested.
As a result of the change in classification, the assets, liabilities, share of non-controlling
interests, and accumulated currency translation differences were no longer recognised in the
consolidated statement of financial position, and the share of joint ventures was recognised
at fair value on the balance sheet. Consequently, a profit of €46.1 million was recognised
under “Other operating income” on the consolidated income statement, which arose when
the share of joint venture related to Kesko Senukai was valued at fair value. A negative
item of €92.7 million was recognised under “Cash flows from investing activities” in the
consolidated statement of cash flows, corresponding to the amount of Kesko Senukai’s cash
and cash equivalents on the balance sheet on 30 June 2020 before the end of subsidiary
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consolidation. The €109.9 million non-controlling interest in Kesko Senukai, included in
equity in the consolidated statement of financial position, is no longer recognised in the
consolidated statement of financial position.
The fair value of the share of joint venture has been determined using discounted cash
flow method. Cash flows have been determined using country-specific projections on
developments in construction, consumer demand, GDP and inflation. In the DCF model
the compound annual growth rate for the forecast period is 3.7% and the EBITDA ratio
range (excluding IFRS 16 impact) is 3.7-4.4%. Cash flows have been discounted using the
weighted average cost of capital of Kesko Senukai’s operating countries, which was 10.3%.
The discount rate has been determined taking into account the weak liquidity of the unlisted
shareholding by raising the discount rate. Due to the differences of opinion regarding
the management and development of the joint venture, the forecast periods contain the
assumption that Kesko Senukai cannot be managed optimally. This may lead to a lower
valuation (minority discount).
Due to the change in classification, from 1 July 2020 onwards Kesko Senukai is consolidated
as a joint venture on one line “Share of result of joint ventures” before operating profit
in Kesko’s consolidated income statement, instead of the previous line-by-line subsidiary
consolidation. In the consolidated statement of financial position, the change means that the
share of Kesko Senukai’s net assets is presented on one line “Shares in associates and joint
ventures” instead of the previous line-by-line consolidation of assets and liabilities.
Calculation of impacts of the change in Kesko Senukai’s classification, € million Jul.
Kesko Senukai’s net assets in the consolidated statement of financial position -.
Carrying amount of non-controlling interests .
Fair value of ownership interest in joint venture .
Translation differences in comprehensive income -.
Profit recognised in income statement for measurement at fair value .
Kesko Senukai’s assets and liabilities included in the consolidated statement of
financial position, € million Jun.
Assets
Property, plant and equipment .
Right-of-use assets .
Intangible assets .
Deferred tax assets and other long-term receivables .
Total .
Inventories .
Non-interest-bearing receivables .
Other interest-bearing receivables .
Cash and cash equivalents .
Total .
Total assets .
Non-current interest-bearing liabilities .
Lease liabilities .
Deferred tax liabilities .
Total .
Current interest-bearing liabilities .
Lease liabilities .
Non-interest-bearing liabilities .
Total .
Total liabilities .
Net assets .
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Disposals of assets in 2020
On 31 March 2020, Kesko sold its remaining stake in its Baltic machinery trade subsidiaries
in the building and technical trade division to the Danish Agro Group company DA Agravis
Machinery Holding A/S.
Impact of the divestment of Baltic machinery trade operations, € million Mar.
Konekesko Baltics' net assets in the consolidated statement of financial position -.
Carrying amount of non-controlling interests .
Transaction price .
Translation differences in comprehensive income -.
Profit recognised in income statement for the disposal .
Baltic machnicery trade assets and liabilities included in the consolidated
statement of financial position, € million Mar.
Property, plant and equipment .
Right-of-use assets .
Intangible assets .
Inventories .
Trade receivables and other non-interest-bearing receivables .
Interest-bearing receivables .
Cash and cash equivalents .
Assets, total .
Trade payables and other non-interest-bearing current liabilities .
Lease liabilities .
Other interest-bearing liabilities .
Provisions .
Liabilities, total .
Net assets .
Of the total transaction price, €20.4 million was paid during the 2020 financial year. As for
cash flow, cash and cash equivalents and interest-bearing receivables from Kesko at the
date of disposal are deducted from the selling price and interest-bearing liabilities to Kesko
added, arriving at a cash flow impact of €19.6 million.
Non-current assets classified as held for sale and related liabilities
Liabilities related to available-for-sale non-current assets,
€ million
Intangible assets . .
Property, plant and equipment . .
Right-of-use assets - .
Inventories . .
Trade receivables . .
Other receivables . .
Non-current assets held for sale . .
Trade payables -. -.
Other liabilities -. -.
Provisions - -.
Liabilities related to assets held for sale -. -.
At the end of the 2020 financial year, non-current assets classified as held for sale and
related liabilities mainly comprised items related to two building and home improvement
stores in Finland. The building and home improvement stores are to be transferred to
retailers during 2021. At the end of the 2019 financial year, non-current assets classified as
held for sale and related liabilities mainly comprised items related Baltic machinery trade
operations.
Acquisitions in 2019
The DIY business of the Sørbø retailer group
In January, Kesko Corporation subsidiaries Skattum Handel AS and Rake Eiendom AS
acquired the DIY retail business and related properties of the Norwegian Sørbø retailer
group as well as a B2B logistics centre. The acquired stores previously operated Byggmakker
stores under the retailer business model. The debt-free price of the transaction, structured
as a share purchase and business acquisition, totalled NOK 238.2 million (€24.2 million). The
acquisitions resulted in goodwill totalling €4.6 million.The consolidated income statement
includes minor acquisition-related costs under other operating expenses, presented as items
affecting comparability. The impact of the acquired businesses on the Group’s net sales and
operating profit in 2019 February-December was minor.
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Fresks Group (K-Bygg)
Kesko Group company K-rauta AB completed the acquisition of Fresks Group from Litorina,
Oscarson Invest and the group’s management. The debt-free price of the transaction, structured
as a share purchase, was SEK 2,192.0 million (€209.8 million). The acquisition of Fresks Group
significantly strengthened Kesko’s market position in Sweden, especially in the growing
professional builders customer segment. With the acquisition, Kesko assumed ownership of
33 stores and some 500 employees, who mainly serve small and medium-sized renovation
companies. Since June 2019, Fresks Group has served customers under the K-Bygg brand.
The fair value of the intangible assets acquired (including customer relationships) at the date
of acquisition totalled €4.8 million. The €170.5 million goodwill arising from the acquisition
reflects the synergies expected to be achieved in sales, purchasing, selections, logistics and
operational efficiency. The consolidated income statement included €1.4 million in acquisition-
related costs under other operating expenses, presented as items affecting comparability.
Fresks Group’s impact on net sales for May-December 2019 was €132.8 million. The impact
on the profit for May-December 2019 was €6.2 million. If the acquisitions had taken place on
1 January 2019, according to management estimates, the impact on Group net sales would
have been approximately €199.1 million. The impact on profit would have been €6.5 million.
In determining the net sales and comparable operating profit, management estimates that
recorded fair values would have been the same on the date of acquisition had the acquisition
taken place on 1 January 2019.
Car trade acquisitions from Huittisten Laatuauto, LänsiAuto and Laakkonen Group
In March, Kesko Group company K Caara Oy completed the acquisitions of the
Volkswagen and SEAT businesses of Huittisten Laatuauto Oy in Forssa and Huittinen,
and the Volkswagen, Audi and SEAT businesses of LänsiAuto Oy in Kotka, Kouvola and
Lappeenranta. In July, K Caara Oy completed the acquisition of the Volkswagen, Audi and
SEAT businesses of Laakkonen Group. The combined debt-free transaction price of the
acquisitions, structured as business acquisitions, was €57.4 million.
The fair value of the intangible assets acquired (including customer relationships) at the date
of acquisition totals €0.5 million. The €23.1 million goodwill arising from the acquisitions
reflects the synergies expected to be achieved in efficiency in retail and other operations.
The consolidated income statement included minor acquisition-related costs under other
operating expenses. The impact of the acquired businesses on the Group’s net sales and
operating profit in March-December 2019 was minor.
The table provides a summary of the consideration paid, the values of assets acquired and liabilities
assumed by Kesko Group at the date of acquisition, and the cash flow impact of the acquisitions.
€ million
DIY business
of Sørbø
retailer group
Fresks Group
(K-Bygg)
Car trade
acquisitions
Consideration paid . . .
Fair values of assets acquired and liabilities
assumed at the date of acquisition
Intangible assets - . .
Property, plant, equipment, right-of-use
assets and investments . . .
Inventories . . .
Receivables . . .
Deferred tax asset . . -
Cash and cash equivalents . . -
Total assets . . .
Trade payables, other payables, provisions,
lease liabilities . . .
Deferred tax liability . . .
Total liabilities . . .
Net assets acquired, total . . .
Goodwill . . .
Cash flow impact of acquisition
Consideration paid -. -. -.
Cash and cash equivalents acquired . . -
Unpaid share - - .
Cash flow impact of acquisition -. -. -.
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Disposals of assets in 2019
Kesko Corporation completed the divestment of Onninen AB’s HEPAC contractor business in
Sweden to Solar A/S on 15 May 2019.
Kesko Group company Konekesko Oy sold its Finnish agricultural machinery trade
operations to Danish Agro Machinery’s Finnish subsidiary Finnish Agro Machinery on
1August 2019.
3.2 Property, plant and equipment
Accounting policies
Property, plant and equipment mainly comprise land, buildings, machinery and equipment.
Property, plant and equipment are carried at historic cost net of depreciation and possible
impairment. The property, plant and equipment of acquired subsidiaries are measured at
fair value at the date of acquisition.
Subsequent costs relating to items of property, plant and equipment are included in the
asset’s carrying amount or recognised as a separate asset only when it is probable that
future economic benefits associated with the item will flow to the Group and the cost of
the item can be measured reliably. The carrying amount of any component accounted
for as a separate asset is derecognised when replaced. The machinery and equipment of
buildings are treated as separate assets and any significant expenditure related to their
replacement is capitalised. All other repair, service and maintenance expenditures of
items of property, plant and equipment are charged to the income statement during the
financial period in which they are incurred.
Depreciation on property, plant and equipment is calculated using the straight-line
method over their estimated useful lives. Land is not depreciated.
The most common estimated useful lives are:
Buildings 10−33 years
Components of buildings 8−10 years
Machinery and equipment 3−8 years
Cars and transport equipment 5 years
The residual values and useful lives of property, plant and equipment are reviewed at least
at the end of each financial year. If the estimates of useful life and the expected pattern
of economic benefits are different from previous estimates, the change in the estimate is
accounted for.
Depreciation of property, plant and equipment ceases when an item is classified as a non-
current asset held for sale.
Gains and losses on disposals of property, plant and equipment are recognised in the
income statement and stated as other operating income and expenses.
The Group has not capitalised interest costs incurred as part of the acquisition of assets,
because the Group does not have qualifying assets.
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€ million
Land
and
waters Buildings
Machinery
and
equipment
Other
tangible
assets
Prepayments
and
construction
in progress
Total
Cost
Cost as at 1 January . ,. . . . ,.
Exchange differences -. -. -. -. -. -.
Additions . . . . . .
Acquisitions . . . . .
Deductions -. -. -. -. -. -.
Impact of change in Kesko
Senukai’s consolidation
method -. -. -. -. -. -.
Transfers between items . . . . -. -.
Cost as at 31 December . ,. . . . ,.
Accumulated depreciation
and impairment charges
Accumulated depreciation
and impairment charges
as at 1 January -. -. -. -. -.
Exchange differences . . -. .
Accumulated depreciation on
deductions . . . .
Impact of change in Kesko
Senukai’s consolidation
method . . . .
Accumulated depreciation on
transfers . . . .
Depreciation and impairment
charges for the year -. -. -. -.
Accumulated depreciation
and impairment charges
as at 31 December -. -. -. -. -.
Carrying amount
as at 1 January . . . . . , .
Carrying amount
as at 31 December . . . . . ,.
€ million
Land
and
waters Buildings
Machinery
and
equipment
Other
tangible
assets
Prepayments
and
construction
in progress
Total
Cost
Cost as at 1 January . ,. . . . ,.
Exchange differences -. . . . . .
Additions . . . . . .
Acquisitions . . . . . .
Deductions -. -. -. -. -. -.
Transfers between items* . . -. . -. -.
Cost as at 31 December . ,. . . . ,.
Accumulated depreciation
and impairment charges
Accumulated depreciation
and impairment charges
as at 1 January -. -. -. -. -.
Exchange differences . . . .
Accumulated depreciation on
deductions . . . . .
Accumulated depreciation on
transfers* . . -. .
Depreciation and impairment
charges for the year -. -. -. -.
Accumulated depreciation
and impairment charges
as at 31 December -. -. -. -. -.
Carrying amount
as at 1 January . . . . . ,.
Carrying amount
as at 31 December . . . . . ,.
*Transfers between items include transfers to non-current assets classified as held for sale and transfers of assets
reported as finance lease assets before the implementation of IFRS 16 to right-of-use assets.
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3.3 Intangible assets
Accounting policies
Goodwill and trademarks
Goodwill is not amortised but is instead tested for impairment annually and whenever
there is an indication of impairment. For testing purposes, goodwill is allocated to the cash
generating units. Goodwill is measured at initial cost and that acquired prior to 1 January
2004, at deemed cost net of impairment. Any negative goodwill is immediately recognised
as income. For goodwill, a recognised impairment loss is not reversed.
Intangible assets with indefinite useful lives are not amortised. They are tested for
impairment annually and whenever there is an indication of impairment. Costs for
intangible assets without indefinite useful lives are recognised in the balance sheet as
costs during the useful lives of the assets. These intangible assets include trademarks
capitalised upon acquisition, recorded at their fair values at the acquisition date.
Other intangible assets
The cost of intangible assets with definite useful lives are recorded in the balance sheet
and recognised as expenses during their useful lives. Such intangible assets include
software licences, customer relationships and licences measured at the fair value at the
date of acquisition, and leasehold interests that are amortised during their probable
leaseterms.
The estimated useful lives are:
Software and licences 3−5 years
Customer and supplier relationships 5-10 years
Licences 20 years
Research and development expenses
The costs of research and development activities have been expensed as incurred,
because the Group does not have development costs eligible for capitalisation.
Development costs previously recognised as an expense are not recognised as an asset in
subsequent periods.
Software
Costs directly attributable to the development of new software are capitalised as part of
the software cost. On the balance sheet, software is included in intangible assets and its
cost is amortised over the useful life of the software. Costs associated with maintaining
the software are recognised as an expense as incurred.
Impairment of non-financial assets
At each balance sheet date, the Group assesses whether there is any indication that an
asset may be impaired. If any such indication exists, the recoverable amount of the asset
is estimated. The recoverable amount of goodwill and intangible assets with indefinite
useful lives is assessed every year whether or not there is an indication of impairment. In
addition, an impairment test is performed whenever there is an indication of impairment.
The recoverable amount is the higher of an asset's fair value less costs to sell and value in
use. Often, it is not possible to estimate the recoverable amount for an individual asset.
Then, as in the case of goodwill, the recoverable amount is determined for the cash
generating unit to which the goodwill or asset belongs.
An impairment loss is recognised if the carrying amount of an asset exceeds its
recoverable amount. The impairment loss is recognised in the income statement. An
impairment loss recognised for an asset in prior years is reversed, if the revaluation
shows an increase in the recoverable amount. However, the reversal of an impairment
loss of an asset should not exceed the carrying amount of the asset without impairment
loss recognition. For goodwill, a recognised impairment loss is not reversed under any
circumstances.
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€ million Goodwill Trademarks
Other
intangible
assets
Prepay-
ments Total
Cost
Cost as at 1 January . . . . .
Exchange differences . -. -. -.
Additions . . .
Acquisitions . . . .
Deductions - . -. - .
Impact of change in Kesko
Senukai’s consolidation
method -. -. -.
Transfers between items -. . -. .
Cost as at 31 December . . . . .
Accumulated amortisation
and impairment charges
Accumulated amortisation
and impairment charges as
at 1 January -. -. -. -.
Exchange differences -. . . .
Accumulated amortisation
and impairment charges on
disposals . .
Impact of change in Kesko
Senukai’s consolidation
method . . .
Accumulated amortisation
on transfers . .
Amortisation and impairment
charges for the year . -. -. -.
Accumulated amortisation
and impairment charges
as at 31 December -. -. -. -.
Carrying amount
as at 1 January . . . . .
Carrying amount
as at 31 December . . . . .
€ million Goodwill Trademarks
Other
intangible
assets
Prepay-
ments Total
Cost
Cost as at 1 January . . . . .
Exchange differences . . . -. .
Additions . . . .
Acquisitions . .
Deductions -. -. -. -.
Transfers between items . -. -.
Cost as at 31 December . . . . .
Accumulated amortisation
and impairment charges
Accumulated amortisation
and impairment charges as
at 1 January -. -. -. -.
Exchange differences . -. -. -.
Accumulated amortisation
and impairment charges on
disposals . . .
Accumulated amortisation
on transfers . . .
Amortisation and impairment
charges for the year . -. -.
Accumulated amortisation
and impairment charges as
at 31 December -. -. -. -.
Carrying amount
as at 1 January . . . . .
Carrying amount
as at 31 December . . . . .
Other intangible assets include other non-current expenditure, of which €50.0 million (€66.0
million) are software and licence costs.
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Goodwill and intangible rights by division
€ million
Trade-
marks
Goodwill
Pre-tax
discount
rate
Trade-
marks
Goodwill
Pre-tax
discount
rate
Grocery trade, chain
operations . . . .
Grocery trade, Kespro . . . . . .
Building and technical trade
Byggmakker and Carlsen
Fritzøe, Norway . . . . . .
Onninen . . . . . .
Kesko Senukai, Baltics - - . .
K-Bygg, Sweden . . . .
Car trade . . . .
Total . . . .
Intangible assets with indefinite useful lives are tested annually for possible impairment and
whenever there is an indication of impairment.
The useful lives of some trademarks (brands) included in intangible assets have been
classified as indefinite, because it has been estimated that the period over which they
generate cash inflows is indefinite. This is because no foreseeable limit to the period over
which they are expected to generate net cash inflows for the Group can be seen. Trademarks
are part of assets acquired in connection with acquisitions.
Cash generating units have been identified at maximum at the level of reported divisions.
Impairment test for goodwill and intangible assets
The recoverable amount of a cash-generating unit’s business is determined based on value-
in-use calculations in impairment testing. In the calculations, forecast cash flows are based
on financial plans approved by management, covering a period of three years. The plans are
based on external sources concerning projections for total market growth, weighted with
the cash-generating unit’s own business’ share of the market in question. Profitability trends,
including changes in store site network, product and service selection, pricing and movements
in operating costs, are based on management-approved plans. The average compound annual
growth rate for the forecast period was 1.7-7.8% and the EBITDA ratio range 4.7-12.4%. Cash
flows after the period are estimated based on a 0.5-2.0% (1.0−2.0%) growth projection,
taking into account country-specific differences. The growth projection for chain operations
in grocery trade in Finland for the period following the forecast period is 0.5%, while the
projection for Kespro is 1.5% and for the car trade 1.5%. The projected growth for K-Bygg in
Sweden and Byggmakker and Carlsen Fritzøe in Norway is 2.0%. The projected growth for
Onninen, which operates in seven countries, after the forecast period is 2.0%.
The discount rate used is the weighted average cost of capital (WACC) after tax, specified
for each division and country and adjusted for tax effect in connection with the test. The
WACC formula inputs are risk-free rate of return, market risk premium, industry-specific
beta factor, target capital structure, borrowing cost and country risks. In goodwill impairment
testing, the adoption of IFRS 16 Leases in 2019 increased recoverable amounts and assets
tested. Discount rates have been determined using formula inputs based on IFRS 16.
Impairment losses
There were no impairment charges recognised on goodwill or intangible rights in the financial
years 2020 and 2019.
Sensitivity analysis
The key variables used in impairment testing are the growth percentage, EBITDA margin and
discount rate after the forecast period. The plans are based on external sources concerning
projections for total market growth, weighted with the cash-generating unit’s own business’
share of the market in question.
The most sensitive to movements in assumptions is the goodwill impairment test for K-Bygg.
K-Bygg’s net sales in 2020 totalled €228.4 million, and the comparable change in net sales
(calculated in local currency and excluding the impact of acquisitions and divestments) was
9.6%. During the forecast period, the range for change in K-Bygg’s net sales is 3.2-9.0%;
the highest growth rate is explained by the acquisitions completed in September 2020. The
growth forecast for K-Bygg’s net sales for the period following the forecast period is2%.
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3.4 Right-of-use assets
Accounting policies
The Group leases properties, machinery and equipment for use in its business operations.
A right-of-use asset and lease liability corresponding to the present value of future lease
payments are recognised in the balance sheet at the initiation of a lease. The right-of-use
asset is remeasured with corresponding remeasurement of lease liability. The lease
liability is remeasured at the effective date of lease modification, and the consequent
change is recognised as an adjustment to the right-of-use asset. If the reduction in lease
liability exceeds the right-of-use asset, the difference is recognised in profit or loss. Lease
liabilities must be remeasured using a revised discount rate when there is a change in
the lease term, the assessment of whether an option to extend or terminate the lease is
exercised, or the lease payment amount, and when there is a change in the assessment
of whether an option to purchase the underlying asset is exercised. Information on leases
can be found in Note 4.6, and cash flows from leases are presented in Note 2.9.
The lessee depreciates the right-of-use asset from the commencement date of the lease
to the earlier of the end of the useful life of the right-of-use asset or the end of the lease
term. If the lease transfers ownership of the underlying asset to the lessee by the end of
the lease term or if the cost of the right-of-use asset reflects the exercise of the purchase
option, the depreciation is made from the commencement date of the lease to the end of
the useful life of the underlying asset.
If the use of a leased asset is discontinued or if a leased asset is re-leased at a lower rate,
the lease becomes loss-making and an impairment is recognised for the corresponding
right-of-use asset.
By the end of the forecast period, K-Bygg’s EBITDA margin is expected to have grown by
0.1 percentage points from the EBITDA margin achieved in 2020. Impairment would be
recognised if the post-forecast period EBITDA margin would decrease by more than 1.5
percentage points, if the post-forecast period growth percentage would be below 0.7%, or
if the pre-tax discount rate was above 8.0%. In K-Bygg’s impairment test, the recoverable
amount exceeded the carrying amount of the assets tested by €81.5 million (31 Dec. 2019:
€204.3 million).
The impairment testing sensitivity of Byggmakker’s goodwill has been reduced by the
increase in the share of own retailing following the acquisition of Carlsen Fritzøe, which has
increased the profitability of the cash-generating unit.
During the financial year, an impairment test concerning goodwill for the car trade was
conducted because due to increased economic uncertainty caused by the Covid-19
pandemic, projections for the car trade market had not materialised. According to the annual
impairment testing conducted at the end of the financial year, sensitivity to movements
in assumptions used in the testing had decreased, primarily due to the improved market
situation in the car trade in the latter half of the financial year. According to the impairment
test, the recoverable amount on 31 December 2020 exceeded the carrying amount of the
assets tested by €202.8 million, versus €74.7 million in the impairment test on 30 June 2020.
With regard to the other cash generating units, according to management estimates, a
foreseeable change in any key variable would not create a situation in which the unit’s
recoverable amount would be lower than its carrying amount.
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€ million
Land and
buildings
Machinery and
equipment Total
Carrying amount as at 1 January ,. . ,.
Additions . . .
Acquisitions . .
Transfers between items . . .
Impact of change in Kesko Senukai’s
consolidation method -. -. -.
Depreciation - . -. -.
Impairment charges -. -.
Deductions -. -. -.
Exchange differences -. -. -.
Carrying amount as at 31 December ,. . ,.
€ million
Land and
buildings
Machinery and
equipment Total
Carrying amount as at 1 January ,. . ,.
Additions . . .
Acquisitions . . .
Transfers between items - . .
Depreciation -. -. -.
Impairment charges -. - -.
Carrying amount as at 31 December ,. . ,.
3.5 Inventories
Accounting policies
Inventories are measured at the lower of cost and net realisable value. Net realisable value
is the estimated selling price in the ordinary course of business less direct costs necessary
to make the sale. The cost is determined using weighted average costs. The cost of certain
categories of inventory is determined using the FIFO method. The cost of finished goods
comprises all costs of purchase including freight. The cost of self-constructed goods
comprises all costs of conversion including direct costs and allocations of variable and
fixed production overheads. The cost excludes borrowing costs.
€ million
Goods . ,.
Prepayments . .
Total . ,.
Write-down of inventories to net realisable value . .
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3.6 Trade and other current receivables
Accounting policies
Trade receivables are recognised in the amounts of initial sale. According to the IFRS
9 impairment model, impairments must be recognised on the basis of expected credit
losses. The Group has adopted the standard’s simplified approach for recognising
impairment of trade receivables using the provision matrix. For the impairment model,
Group companies have been classified into risk categories on the basis of their business
model and realised historical credit losses. In addition, impairment is recognised, if there
is other evidence of a debtor's insolvency, bankruptcy or liquidation. Impairment is
recognised as an expense in other operating expenses. If an amount previously written off
is subsequently settled, it is recognised as a reduction of other operating expenses.
€ million
Interest-bearing receivables
Interest-bearing loans and receivables . .
Total interest-bearing receivables . .
Trade receivables . .
Income tax assets . .
Other non-interest-bearing receivables
Non-interest-bearing loans and receivables . .
Prepaid expenses . .
Total other non-interest-bearing receivables . .
Total ,. ,.
A total amount of €6.1 million (€3.6 million) of trade receivables has been recognised within
credit losses in the income statement. The credit risk is described in more detail in note 4.3.
Prepaid expenses mainly comprise allocations of purchases.
The fair values of current trade and loan receivables, and those of current interest-bearing
receivables are estimated to equal the carrying amounts due to their short maturities.
3.7 Pension assets
Accounting policies
The Group operates both defined contribution pension plans and defined benefit pension
plans. The contributions payable under defined contribution plans are recognised as
expenses in the income statement for the period to which the payments relate. In defined
contribution plans, the Group does not have a legal or constructive obligation to pay further
contributions, in case the payment recipient is unable to pay the retirement benefits.
In defined benefit plans, the Group may incur obligations or assets after the payment of
the contribution. The pension obligation represents the present value of future cash flows
from the benefits payable. The present value of pension obligations has been calculated
using the projected unit credit method. Pension costs are expensed during employees'
service lives based on actuarial calculations. The discount rate assumed in calculating
the present value of the pension obligation is the market yield of high-quality corporate
bonds. Their maturity substantially corresponds to the maturity of the pension liability.
The assets corresponding to the pension obligation of the retirement benefit plan are
carried at fair values at the balance sheet date. Actuarial gains and losses are recognised
in comprehensive income in the income statement.
The Group operates several pension plans in different operating countries. In Finland,
the statutory pension provision of personnel is provided through pension insurance
companies and the voluntary supplementary pension provision is mainly provided through
Kesko Pension Fund. The statutory pension provision provided through pension insurance
companies is a defined contribution plan. The supplementary pension provision provided
through Kesko Pension Fund is a defined benefit plan.
Pension plans in foreign subsidiaries are managed in accordance with local regulations and
practices, and they are defined contribution plans.
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Kesko Pension Fund
Kesko Pension Fund is a pension provider of its members providing supplementary
retirement benefits to employees who are beneficiaries of the Pension Fund's department
A. Department A was closed on 9 May 1998. As the conditions set out in the Fund's rules
are met, beneficiaries between 60 and 65 years of age are granted an old-age pension. The
amount of retirement benefit granted by the Fund is the difference between the employee's
retirement benefit based on his/her pensionable salary calculated in accordance with the
Fund's rules and the statutory pension. In addition to the individually calculated pensionable
salary, the retirement benefit amount of each beneficiary is impacted by the duration of
his/her membership of the Pension Fund. At the end of 2020, the Pension Fund had 2,269
beneficiaries, of whom 330 were active employees and 1,939 were retired employees. Kesko
Group's contribution to the Pension Fund's obligation is 96.9% (96.6%). The notes present
Kesko Group's interest in the Pension Fund except for the analysis of assets by category and
the maturity analysis of the obligation.
In addition to its rules, the Pension Fund's operations are regulated by the Employee Benefit
Funds Act, the decrees under the Act and official instructions, and the Fund's operations are
controlled by the Financial Supervisory Authority. The regulations include stipulations on
the calculation of pension obligation and its coverage, for example. The pension obligation
shall be fully covered by the plan assets, any temporary deficit is only allowed exceptionally.
In addition, the regulations include detailed stipulations on the acceptability of the covering
assets and the diversification of investment risks.
Kesko Pension Fund did not charge contributions from its shareholders during this or the
previous financial year. During the previous financial year, Kesko Pension Fund paid €48
million in total in return of surplus assets to Finnish Group companies. Kesko Group does not
expect to pay contributions to the Pension Fund in 2021.
The defined benefit asset recognised in the
balance sheet is determined as follows:
€ million
Present value of defined benefit obligation -. -.
Fair value of plan assets . .
Net assets recognised in the balance sheet . .
Movement in the net assets recognised in the balance sheet:
As at 1 January . .
Income/cost recognised in the income statement -. -.
Remeasurement . -.
Return of surplus assets . -.
Contributions to plan and plan costs . .
As at 31 December . .
€ million
Present value of
defined benefit
obligation
Fair value
of plan assets Total
As at 1 January 2020 -. . .
Current service cost -. -.
Past service cost .
Gains or losses on settlement -. -.
Interest cost/income -. . .
-. . -.
Remeasurement
Return on plan assets . .
Gain/loss from changes in demographic
assumptions .
Gain/loss from changes in financial assumptions -. -.
Experience gains/losses . .
-. . .
Contributions to plan and plan costs . .
Return of surplus assets . .
Benefit payments . -. .
As at 31 December 2020 -. . .
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€ million
Present value of
defined benefit
obligation
Fair value
of plan assets Total
As at 1 January 2019 -. . .
Current service cost -. -.
Past service cost .
Gains or losses on settlement -. -.
Interest cost/income -. . .
-. . -.
Remeasurement
Return on plan assets . .
Gain/loss from changes in demographic
assumptions .
Gain/loss from changes in financial
assumptions -. -.
Experience gains/losses . .
-. . -.
Contributions to plan and plan costs . .
Return of surplus assets -. -.
Benefit payments . -. .
As at 31 December 2019 -. . .
Plan assets were comprised as follows in 2020
€ million Quoted Unquoted Total
Europe
Equity instruments . .
Debt instruments . . .
Investment funds . . .
Properties . .
United States .
Equity instruments .
Investment funds . .
Other countries .
Investment funds . .
Total . . .
Plan assets were comprised as follows in 2019
€ million Quoted Unquoted Total
Europe
Equity instruments . . .
Debt instruments . . .
Investment funds . . .
Properties . .
United States
Equity instruments . .
Investment funds . .
Other countries
Investment funds . .
Total . . .
€ million
Kesko Corporation shares included in fair value - -
Properties leased by Kesko Group included in fair value . .
Principal actuarial assumptions:
Discount rate .% .%
Salary growth rate .% .%
Inflation .% .%
Pension growth rate .% .%
Average service expectancy, years
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Weighted average duration of pension obligations and expected
maturity analysis of undiscounted pension obligations
Weighted average duration of pension obligations, years
Expected maturity analysis of undiscounted pension
obligations, € million
Less than 1 year . .
Between 1−10 years . .
Between 10−20 years . .
Between 20−30 years . .
Over 30 years . .
Total . .
Risks related to pension plan
Asset related risks
The Pension Fund's investment assets comprise properties, equity index funds, private equity
funds, unlisted shares and both long-term and short-term money market investments. The
Pension Fund's investment policy defines the investment restrictions pertaining to classes of
assets and the allowed investees. The investment plan, annually confirmed by the Pension
Fund board, sets the investment allocation and return targets for the year ahead. The
objective of investing activity is to secure a return on the investments and their convertibility
into cash, as well as ensuring appropriate diversity and diversification of investments. On an
annual basis, the objective is to exceed the Pension Fund's obligation expenses and costs,
so that contributions need not be charged to the members. The long-term target return
on investment activity is 5.0%. The risks involved in investment activity are managed by
continuously monitoring market developments and analysing the adequacy of the return and
risk potential of the investments. The returns compared to chosen reference indices and the
breakdown of investments are reported on a monthly basis. In 2020, the realised return on
investing activity was 6.4%.
If the return on investment assets underperforms the discount rate applied to the calculation
of the present value of defined pension obligation, a deficit in the plan may arise. The
diversification of assets is aimed to reduce this risk in varying financial conditions. If a
deficit is created in the pension plan, such that the pension obligation is not fully covered,
Pension Fund members are obligated to pay contributions to the Fund in order to cover
the obligation. Calculated in compliance with the IAS 19 standard, the amount of plan
assets exceeded the plan obligation by €91.0 million as at 31 December 2020. Local rules
concerning the Pension Fund may also create a contribution obligation in situations in which
the IAS 19 obligation is fully covered. In such a case, the amount of contributions charged
increases the amount of pension assets according to IAS 19.
Obligation related risks
In addition to the general level of interest rates, the defined benefit obligation is impacted
by changes in the statutory pension provision, future salary increases, index-based
pension increases and changes in life expectancy. The pension promise made to the Fund's
beneficiaries is tied to the amount of pensionable salary and it is a lifelong benefit. The
total pension amount consists of the statutory pension and the supplementary pension
provided by the Fund. Salary increases will increase the future pension amount. Changes
in statutory pension provision, such as an increase in the retirement age or a reduction of
pension provision, which are compensated to pensioners by the supplementary pension
and, consequently, the changes would increase the defined benefit obligation. The amount
of future pensions is adjusted annually with an index-based increase in accordance with the
terms and conditions of the plan. The extension of life expectancy will result in an increase in
plan obligation.
Changes in the general level of interest rates and the market yield of high-quality bonds have
an impact on the present value of the defined benefit obligation. When the level of interest
rates falls, the present value of the defined benefit obligation rises. Because the Pension
Fund's investment assets are invested and their return targets are set for long terms, changes
in the annual return on investments do not necessarily correlate in the short term with
changes in the discount rate applied to the defined benefit obligation.
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3.8 Shares in associates and joint ventures
Associates and joint ventures
Associates and joint ventures are treated as equity-accounted investments. The shares in
associates and joint ventures are not quoted on the market. Associates and joint ventures are
listed in Note 5.1. Related party information is presented in Note 5.3.
Significant joint ventures
The Group has a significant joint venture, UAB Kesko Senukai Lithuania. Kesko Senukai
Group engages in building and home improvement trade in Lithuania, Estonia, Latvia and
Belarus. The Group’s parent company, UAB Kesko Senukai Lithuania, is a limited liability
company registered in Lithuania. Kesko Group has a 50.0% holding in Kesko Senukai Group.
UAB KS Holding is a limited liability company registered in Lithuania that engages in real
estate development and real estate rental. Its operations are closely related to the operations
of Kesko Senukai Group. The real estate companies owned by KS Holding in Lithuania, Latvia
and Estonia rent and build store properties primarily for the use of Kesko Senukai Group.
Kesko Group’s holding in KS Holding Group is 50.0%.
Kesko Senukai and KS Holding were consolidated as a subsidiary in the consolidated financial
statements up until 30 June 2020; as of 1 July 2020, they have been consolidated as joint
ventures. Due to the change in classification, from 1 July 2020 onwards the companies are
consolidated as joint ventures on one line “Share of result of joint ventures” before operating
profit in Kesko’s consolidated income statement. The reclassification had a positive impact
of €127.7 million on the balance sheet value of associates and joint ventures. The change
in consolidation methods, the grounds for the change and the financial impacts have been
detailed in Note 3.1. Kesko Senukai’s subsidiary consolidation in the 2019 financial year is
presented in Note 5.1.
Sensitivity analysis
The sensitivity of the defined benefit obligation to changes in the principal assumptions is
presented in the following table.
Actuarial assumption
Change in
assumption
Impact on
defined benefit
obligation,
increase
Impact on
defined benefit
obligation,
decrease
2020
Discount rate .% -.% .%
Salary growth rate .% .% -.%
Pension growth rate .% .% -.%
2019
Discount rate .% -.% .%
Salary growth rate .% .% -. %
Pension growth rate .% .% -.%
The impacts of sensitivity analysis have been calculated so that the impact of a change in
the assumption is calculated while assuming that all other assumptions are constant. In
practice, this is unlikely to occur, and changes in some of the assumptions may correlate with
each other. The sensitivity of the defined benefit obligation has been calculated using the
same method as when calculating the pension obligation recognised within the statement of
financial position.
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Summary of financials of significant joint ventures, € million
Current assets .
Non-current assets .
Current liabilities .
Non-current liabilities .
The above-mentioned balance sheet items contain the following items:
Cash and cash equivalents .
Current interest-bearing liabilities .
Non-current interest-bearing liabilities .
.-.. .-..
Net sales . .
Net profit attributable to owners of the parent . .
Group share of profit for the year . -
Fair value allocation of inventories -. -
Share consolidated as a joint venture in consolidated financial
statements in 1.7.-31.12.2020 . -
The above-mentioned income statement items contain the
following items:
Depreciation, amortisation and impairment -. -.
Interest income . .
Interest expense -. -.
Income tax -. -.
Dividends received from Kesko Senukai during the financial year -. -.
Reconciliation for balance sheet value of joint ventures, € million
Net assets of joint ventures .
Minority interest in net assets .
Group interest in net assets .
Goodwill .
Fair value allocations .
Balance sheet value of joint ventures .
Significant associates
Mercada Oy is a limited liability company registered in Finland, which operates in real estate
investment. Mercada owns, manages and develops retail sites mainly used by Kesko Group
in Finland and Sweden. Kesko Corporation's holding in Mercada is 33.3%. Mercada’s three
shareholders have equal stakes in the company.
Summary of financials of a significant associate, € million
Current assets . .
Non-current assets . .
Current liabilities . .
Non-current liabilities . .
Equity attributable to equity holders of the parent . .
Non-controlling interests - -
Net sales . .
Net profit for the year -. .
Parent company owners' share of comprehensive income for
the year -. .
Comprehensive income for the year, total -. .
Reconciliation for balance sheet value of an associate,
€million
Net assets of the associate . .
Group interest in net assets . .
Balance sheet value of the associate . .
Other associates
Summary of financials of other associates, € million
Group share of profit for the year . .
Group share of comprehensive income for the year . .
Balance sheet value of associates in the consolidated
statement of financial position . .
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The table depicts the associates Vähittäiskaupan Takaus Oy and Vähittäiskaupan Tilipalvelu
Oy, which sell services to Kesko and retail companies of K-retailers, as well as business
property companies that have leased their properties for use by Kesko Group.
The associate Valluga-Sijoitus Oy was dissolved during the financial year. In the dissolution,
Kesko Corporation received shares in Vähittäiskaupan Takaus Oy and minor liquid assets
as share in the distribution. The dissolution of Valluga-Sijoitus Oy resulted in a €11.6 million
profit in the consolidated income statement. The dissolution had a positive impact of €13.4
million on the balance sheet value of associates and joint ventures.
Kruunuvuoren Satama Oy became a wholly-owned subsidiary of Kesko Corporation in May
2019, when Kesko Corporation, Kesko Pension Fund and Ilmarinen Mutual Pension Insurance
Company dissolved their joint ownership of Kruunuvuoren Satama Oy. In November 2019,
Hehku Kauppa Oy became a wholly-owned subsidiary of Kesko Corporation, when Kesko
Corporation acquired Oriola Corporation’s 50% stake in the company.
Mutual real estate companies
Associates that are mutual real estate companies are consolidated in the consolidated
financial statements in proportion to ownership. The figures in the table below are the
Group’s share of real estate companies’ assets and liabilities and net profit, included in
the consolidated statement of financial position and income statement. Mutual real estate
companies have been treated as common functions in proportion to ownership.
€ million
Non-current assets . .
Current assets . .
Non-current liabilities . .
Current liabilities . .
Net assets . .
Income . .
Costs . .
Net profit for the year -. -.
3.9 Provisions
Accounting policies
A provision is recognised when the Group has a present legal or constructive obligation
as the result of a past event, and it is probable that an outflow of resources embodying
economic benefits will be required to settle the obligation, and that a reliable estimate can
be made of the amount of the obligation. Provision amounts are reviewed on each balance
sheet date and adjusted to reflect the current best estimate. Changes in provisions are
recorded in the income statement in the same item in which the provision was originally
recognised. The most significant part of the Group's provisions relates to warranties given
to products sold by the Group.
A warranty provision is recognised when a product covered by warranty provisions is
sold. The provision amount is based on historical experience about the level of warranty
expenses.
€ million
Warranty
provisions Other provisions Total
Provisions as at 1 Jan. 2020 . . .
Foreign exchange effects . . .
Additional provisions . . .
Unused amounts reversed -. - . -.
Amounts charged against provision -. -. -.
Changes in the Group structure -. . .
Provisions as at 31 Dec. 2020 . . .
Analysis of total provisions
Non-current . . .
Current . . .
The biggest items in other provisions are costs related to care plans of vehicles and machines
sold by Group companies, real estate costs for empty store sites, and restructuring costs.
The average duration for care plans is 3-4 years.
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IN THIS SECTION
4.1 Capital management 99
4.2 Shareholders' equity 99
4.3 Finacial risks 101
4.4 Finance income and costs 109
4.5 Financial assets and liabilities by category 110
4.6 Leases 114
4.7 Other contingent liabilities 115
Notes to the consolidated financial statements
4. CAPITAL STRUCTURE AND FINANCIAL RISKS
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4.1 Capital management
Kesko Group’s objectives in capital management include target rates set for the Group’s
solvency and liquidity. The Group’s capital structure (equity-to-debt ratio) is managed at
Group level. The targets for the Group’s solvency and liquidity are set with the purpose of
securing the Group’s liquidity in all market situations, enabling the implementation of Group
strategy, and increasing shareholder value. The targets have been set for the performance
indicator ‘interest-bearing net debt/EBITDA’. Some of the Group’s interest-bearing liabilities
include covenants, whose terms and conditions have been taken into account in the above
target rate. The Group does not have a credit rating from any external credit rating institution.
Target levels for Kesko Group’s performance indicators are approved by the Board of
Directors of Kesko Corporation. As part of the Group’s medium-term financial targets, on
1December 2020, the Board approved the target level of <2.5 for interest-bearing net debt/
EBITDA. As before, the indicator is calculated as interest-bearing net debt/EBITDA excluding
the impact of IFRS 16. The actual interest-bearing net debt/EBITDA on 31 December 2020
was 0.4 (0.9).
€ million
Interest-bearing liabilities and lease liabilities in the
consolidated statement of financial position ,. ,.
- Lease liabilities ,. ,.
- Current financial assets at fair value through profit or loss . .
- Current financial assets at amortised cost . .
- Cash and cash equivalents . .
Interest-bearing net debt excluding lease liabilities . .
Operating profit . .
+ depreciation, amortisation and impairment . .
+ depreciation and impairment charges for right-of-use-assets . .
- lease payments for right-of-use-assets . .
EBITDA excluding the impact of IFRS 16 . .
Interest bearing net debt/EBITDA
excluding the impact of IFRS 16 . .
4.2 Shareholders' equity
Accounting policies
The Group classifies the instruments it has issued either in equity or in financial liabilities
based on their nature. An equity instrument is any contract that evidences a residual
interest in the assets of an entity after deducting all of its liabilities. Expenses related
to the issuance or acquisition of equity instruments are presented as an allowance for
equity. If Kesko Corporation acquires equity instruments of its own, their cost is deducted
fromequity.
The dividend proposed by the Board of Directors to the General Meeting has not been
deducted from equity. Instead, dividends are recognised on the basis of the resolution by
the General Meeting.
The number of shares in Kesko Corporation increased during the financial year following the
resolution of the 28 April 2020 Annual General Meeting to conduct a share issue without
payment (share split). In the share issue without payment, new shares were issued without
payment to the shareholders in proportion to their existing holdings, so that three (3) new
A shares were issued for each A share held, and three (3) new B shares for each B share
held. At the end of December 2020, the total number of shares in Kesko Corporation was
400,079,008, of which 126,948,028, or 31.7%, were A shares and 273,130,980 or 68.3%,
were B shares. All issued shares have been paid in full. The maximum number of A shares is
250 million and the maximum number of B shares is 360 million, and the maximum number
of total shares 610 million. Each A share carries ten (10) votes and each B share one (1) vote.
The total number of votes attached to all shares was 1,542,611,260. At the end of December
2020, Kesko Corporation's share capital totalled €197,282,584.
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Treasury shares
Authorised by the General Meeting, the Board acquired a total of 500,000 of the Company’s
own B shares during the 2018 financial year. The Board also acquired a total of 1,200,000 of
the Company’s own B shares during the financial years 2011 and 2014. The shares are held by
the Company as treasury shares and the Company’s Board is entitled to transfer them. The
acquisition cost of the B shares held by the Company and acquired during the 2018 financial
year was €24.4 million, and the acquisition cost of the shares acquired during the 2011
and 2014 financial years was €23.5 million. These costs have been deducted from retained
earnings in equity. Information on share-based payments has been given in note 5.4.
pcs
B shares held by the Company as at 31 Dec. 2019 ,,
Transfer, share-based compensation plan -,
Returned during the period ,
B shares held by the Company as at 31 Dec. 2020 ,,
Change in share numbers and equity reserves
Number of shares
Share capital A B Total Share capital € million
Reserve of invested
non-restricted equity
€ million
Share premium
€ million Total € million
1 January 2019 ,, ,,* ,,* . . . .
Transfer of treasury shares , ,
31 December 2019 ,, ,,* ,,* . . . .
Number of shares after the split ,, ,, ,,
Transfer of treasury shares , ,
31 December 2020 ,, ,,* ,,* . . . .
Number of votes ,,, ,, ,,,
* Excluding treasury shares, which totalled 3,339,862 (3,725,452) at the end of the financial year.
Dividends
After the balance sheet date, the Board of Directors proposed the distribution of a dividend
of €0.75 per share. The dividend distributed for the profit for 2019 was €2.52 per share, or
€0.63 per share with the post-split number of shares.
Equity and reserves
Equity consists of share capital, share premium, reserve of invested non-restricted equity,
other reserves, revaluation reserve, currency translation differences and retained earnings
net of treasury shares.
Share premium
The amount exceeding the par value of share received by the Company in connection with
share subscriptions was recorded in the share premium in cases where options had been
granted under the old Limited Liability Companies Act (29 Sept. 1978/734). As at the end of
the financial year, the share premium was €197.8 million.
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Reserve of invested non-restricted equity
The reserve of invested non-restricted equity, €22.8 million, includes the other equity-related
investments and share subscription prices to the extent not designated to be included in
share capital.
Other reserves
Other reserves, a total of €244.3 million, have mainly been created and increased as a result
of resolutions by the General Meeting. Other reserves mainly comprise contingency reserves
to a total amount of €242.3 million at the end of the financial year.
Currency translation differences
Currency translation differences arise from the translation of foreign operations’ financial
statements. Exchange differences arising from monetary items that form a part of a net
investment in a foreign operation or exchange differences from loans designated as hedges
for foreign net investments and regarded as effective, are also included in currency
translation differences. The change in currency translation differences is stated within
comprehensive income.
Revaluation reserve
The revaluation reserve includes the effective portion of the change in the fair value of
derivatives for which cash flow hedge accounting is applied. Cash flow hedges include
electricity derivatives. The change in the reserve is stated within comprehensive income. The
result of cash flow hedging has been presented in note 4.3 Financial risks.
4.3 Financial risks
With respect to financial risk management, the Group observes a uniform treasury policy
that has been approved by the Company's Board of Directors. Compliance with this policy
and developments in the Group’s financial situation are monitored by the Board’s Audit
Committee. The Group Treasury is centrally responsible for obtaining financial resources for
the Group, for liquidity management, relations with providers of finance, and the management
of financial risks. In the main, the Group’s financial resources have been obtained through the
parent company, and the Group Treasury arranges financial resources for subsidiaries in their
functional currencies. For subsidiaries with significant external ownership, the Group has not
guaranteed financial liabilities in excess of its ownership interest.
Foreign exchange risks
Kesko Group conducts business operations in seven countries, in addition to which it makes
purchases from numerous countries. In consequence, the Group is exposed to various
foreign exchange risks arising from net investments in foreign operations (translation risks)
and from assets, liabilities and forecast transactions (transaction risks) denominated in
foreign currencies.
The Group companies’ financial resources are arranged in their functional currencies. The
parent company bears the ensuing foreign exchange risk and hedges the risk exposure using
derivatives or borrowings denominated in the relevant foreign currencies.
Translation risks
The Group is exposed to foreign currency translation risks relating to net investments in
subsidiaries outside the euro zone held on the balance sheet. This balance sheet exposure
has not been hedged. The hedge can be designated if equity is repatriated, or if a currency
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is expected to be exposed to a significant devaluation risk. The most significant translation
exposures are the Norwegian krone and the Swedish krona. The exposure does not include
the non-controlling interest in equity. Relative to the Group's volume of operations and the
balance sheet total, the foreign currency translation risk is low.
Group's translation exposure as at Dec.
€ million NOK SEK PLN
Net investment . . .
Group's translation exposure as at Dec.
€ million NOK SEK PLN BYN
Net investment . . . .
The following table shows how a 10% change in the Group companies’ functional currencies
would affect the Group’s equity.
Sensitivity analysis, impact on equity
as at Dec.
€ million NOK SEK PLN
Change +10% -. -. -.
Change -10% . . .
Sensitivity analysis, impact on equity
as at Dec.
€ million NOK SEK PLN BYN
Change +10% -. -. -. -.
Change -10% . . . .
Transaction risks
International purchasing activities and foreign currency denominated financial resources
arranged by the parent to subsidiaries expose the Group to transaction risks relating to
several currencies. The currency-specific transaction risk exposure comprises foreign
currency denominated receivables and liabilities in the balance sheet, forecast foreign
currency cash flows, and foreign subsidiaries’ liabilities and receivables with respect to
the parent. The risk is commercially managed by, for example, transferring exchange rate
changes to selling prices, or by replacing suppliers. The remaining exposures are hedged
using foreign currency derivatives. The subsidiaries report their foreign exchange exposures
to the Group Treasury on a monthly basis.
In the main, the subsidiaries hedge their risk exposures with the Group Treasury, which
in turn hedges risk exposures using market transactions within the limits confirmed for
each currency. Intra-Group derivative contracts are allocated to the segments in segment
reporting.
As a rule, the Group does not apply hedge accounting in accordance with IFRS 9 to hedge
the transaction risk relating to purchases and sales. In initial measurement, derivative
instruments are recognised at fair value and subsequently in the financial statements, they
are remeasured at fair value. The change in fair value of foreign currency derivatives used for
hedging purchases and sales is recognised in other operating income or expenses.
Insofar as the Group applies hedge accounting to hedge purchases, the valuation of
derivatives is recognised in the revaluation reserve of equity. When a derivative matures, it is
treated similarly to the hedged item.
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Hedge accounting is applied to some USD-denominated purchases. The foreign currency risk
of these items is €18.7 million, and the related hedges total €14.5 million. The impact of the
open exposure on equity would be €+0.4 million/€-0.5 million with a +/-10% exchange rate
change. These figures are not included in the table below.
Group's transaction exposure
as at Dec.
€ million USD SEK NOK PLN
Group's transaction risk -. . . .
Hedging derivatives . -. -. -.
Open exposure . . . .
Group's transaction exposure
as at Dec.
€ million USD SEK NOK PLN BYN
Group's transaction risk -. . . . .
Hedging derivatives . -. -. -. -
Open exposure . . . . .
The Group monitors the transaction risk exposure in respect of existing balances and
forecast cash flows. The table above depicts transaction exposure excluding future cash
flows. It does not depict the Group’s actual foreign exchange risk after hedging. When
forecast amounts are included in the transaction exposure, the most significant difference
to the table is in the USD exposures. As at 31 December 2020, the exposure with respect to
USD was €-15.9 million.
A sensitivity analysis of the transaction exposure shows the impact on profit or loss of a
+/-10% exchange rate change in intra-Group receivables and liabilities denominated in
foreign currencies and foreign currency derivatives and borrowings used for hedging.
Sensitivity analysis, impact on
pre-tax profit as at Dec.
€ million USD SEK NOK PLN
Change +10% -. -. -. -.
Change -10% . . . .
Sensitivity analysis, impact on
pre-tax profit as at Dec.
€ million USD SEK NOK PLN BYN
Change +10% -. -. -. -. -.
Change -10% . . . . .
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Dec. Dec.
€ million < years – years > years Total < years – years > years Total
Maturities of financial liabilities and related finance costs
Borrowings from financial institutions . . . . . . . .
finance costs . . . . . . . .
Pension loans . . . . . . . .
finance costs . . . . . . . .
Lease liabilities . ,. . ,. . ,. . ,.
finance costs . . . . . . . .
Payables to K-retailers . . . .
finance costs
Other interest-bearing liabilities . . . . . . . .
finance costs . . . . .
Non-current non-interest-bearing liabilities . . . . . . . .
Current non-interest-bearing liabilities
Trade payables ,. ,. ,. ,.
Accrued expenses . . . .
Other non-interest-bearing liabilities . . . .
Financial liabilities in the balance sheet include €14.9 million (€6.8 million) in items related to
derivatives, of which €8.7 million will mature within the next 12 months. Lease liabilities are
presented in note 4.6.
Liquidity risk
Liquidity risk management aims to maintain sufficient liquid assets and credit facilities in
order to ensure the ongoing availability of sufficient financial resources for the Group’s
operating activities.
Liquid assets comprise cash and cash equivalents in the balance sheet, financial assets at
amortised cost, and current financial assets at fair value through profit or loss. Changes in
these balance sheet items are presented in the consolidated statement of cash flows under
change in cash and cash equivalents for cash and cash equivalents, and under change in
short-term money market investments in cash flow from financing activities for other items.
The Group’s liquid assets have mainly been invested in the debt instruments of major Finnish
companies, in certificates of deposit and deposits with banks operating in Kesko’s market area,
in bonds of selected companies and in corporate bond funds. The return on these investments in
2020 was -0.1% (2.5%) and the duration 0.6 years at the end of the financial year. The maximum
credit risk is the fair value of these investments on the balance sheet at the balance sheet date.
The Group had liquid assets of €306.0 million (€169.0 million) on 31 December 2020.
Interest-bearing liabilities on 31 December 2020 totalled €2,616.3 million (€3,037.3 million)
of which lease liabilities accounted for €2,025.0 million (€2,422.2 million). Interest-bearing
net debt totalled €2,310.3 million (€2,868.4 million), and interest-bearing net debt excluding
lease liabilities totalled €285.3 million (€446.1 million).
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Dec. Dec.
€ million < years – years > years Total < years – years > years Total
Cash flows of derivatives
Payables
Foreign currency derivatives . . . .
Interest rate derivatives . . . . . . . .
Electricity derivatives . . . . . . .
Receivables
Foreign currency derivatives . . . .
Interest rate derivatives . . . . . .
Electricity derivatives . . . . . .
Payables to K-retailers consist of two types of interest-bearing liabilities by Kesko to
K-retailers: retailers’ prepayments to Kesko and Kesko’s chain rebate liabilities to retailers.
During the 2019 financial year, Kesko made financing agreements totalling €700 million,
where the interest margin will increase or decrease depending on Kesko’s ability to meet
the sustainability targets set for its carbon footprint, food waste, and audits in high-risk
countries. Kesko drew down €300 million during the financial year 2019, and has the
possibility to draw down more later on with a separate credit decision by the banks. Kesko
also agreed on a Revolving Credit Facility of €100 million linked to the same sustainability
targets, which was not in use on 31 December 2020.
At the balance sheet date, the total equivalent of undrawn committed long-term credit
facilities was €300 million (€300 million). According to the terms and conditions of loan
agreements, at change of control, the lenders have the right to terminate the credit facility
and loan amounts possibly drawn. According to the terms and conditions of the loan facility,
the change of ownership to retailers or an association of retailers does not constitute a
change of control. In addition, the Group’s uncommitted financial resources available
contained commercial paper programmes denominated in euros totalling an equivalent of
€506 million (€506 million).
Interest rate risk on borrowings and sensitivity analysis
Changes in the interest rate level have an impact on the Group’s interest expense. The policy
for hedging interest rate risk is aimed at balancing the effects of changes in the interest rate
level on profit or loss for different financial periods.
The interest rate risk is centrally managed by the Group Treasury, which adjusts the duration
by using interest rate derivative contracts. The target duration is three years, which is
allowed to vary between one and a half and four years. The actual duration during the
financial year was 2.0 (2.1) years on average.
The sensitivity analysis for changes in interest rate level in respect of commercial paper liabilities
realised during the financial year has used average balance values. At the balance sheet date of
31 December 2020, the effect of variable rate borrowings on the pre-tax profit would have been
€-/+0.3 million (€-/+1.1 million), if the interest rate level had risen or fallen by 1 percentage point.
Pension loans, €137.5 million in aggregate, have fixed rates, and their effective interest cost
was 1.3%. Other borrowings from financial institutions have variable interest rates. At the end
of the financial year, the average rate of these borrowings, payables to retailers, and other
interest-bearing liabilities was 0.7%.
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Fair value hierarchy of financial assets and liabilities Fair value as at Dec.
€ million Level Level Level Total
Financial assets at fair value through profit or loss
Money market funds . .
Private equity funds and other shares and interests . .
Total . . .
Derivative financial instruments at fair value
Derivative financial assets . .
Derivative financial liabilities . .
Level 1 instruments are traded in active markets and their fair values are directly based on
quoted market prices. The fair values of level 2 instruments are derived from market data.
The fair value of level 3 instruments is not based on observable market data (inputs not
observable).
Changes in level instruments
€ million
Private equity funds and other shares
and interests as at 1 January . .
Purchases . .
Refunds received - -.
Gains and losses through profit or loss -. -.
Changes in fair values . .
Private equity funds and other shares
and interests as at 31 December . .
Level includes private equity funds and other shares and interests. These investments
have been classified as financial assets through profit or loss. Level financial assets are
measured based on computations received from the companies. An income of €. million
has been recorded on these investments for the financial year .
Supply chain financing scheme
The Group has established a supply chain financing scheme with three banks. Trade payables
in the consolidated statement of financial position on 31 December 2020 totalled €1,091.3
million, of which €180.9 million were liabilities related to open purchase accounts covered
by the schemes. In supply chain financing, the supplier utilises the buyer’s credit rating
when selling its receivables to a financing institution. Once the buyer approves the purchase
accounts, the bank pays them to the supplier without a right of recourse, meaning the
supplier has quick access to the cash flows related to trade receivables. The Group does not
pay commission to the banks for the supply chain financing, and the payment terms do not
materially deviate from the payment terms applied with suppliers. Open purchase accounts
covered by the scheme are presented under trade payables on the Group balance sheet. The
impact of these trade payables can be seen in cash flow from operating activities as change
in working capital.
Financial assets and liabilities recognised at fair value
The following table analyses financial instruments carried at fair value by valuation method.
Fair value hierarchy of financial assets and liabilities Fair value as at Dec.
€ million Level Level Level Total
Financial assets at fair value through profit or loss
Money market funds . .
Private equity funds and other shares and interests . .
Total . . .
Derivative financial instruments at fair value
Derivative financial assets . .
Derivative financial liabilities . .
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Current interest-bearing receivables and sensitivity analysis
The objective is to invest liquidity consisting of financial assets in the money markets using
efficient combinations of return and risk. At regular intervals, the Group’s management
approves the investment instruments and limits for each counterparty among those analysed
by the Group Treasury. The risks and actual returns on investments are monitored regularly.
Financial assets at amortised cost
€ million
Carrying amount as at 1 January . .
Changes -. -.
Carrying amount as at 31 December . .
The financial assets at amortised costs include investments in commercial papers, certificates
of deposits and other interest rate instruments.
In the sensitivity analysis of floating rate receivables, average annual balances of invested
assets have been used. The receivables include customer financing receivables, other
interest-bearing receivables, and within investments money market funds. The sensitivity of
money market funds has been determined based on duration. If the interest rate level had
changed by +/-1 percentage point, the effect of these items on the pre-tax profit would have
been €+/-1.4 million (€+/-1.1 million).
Maturity of non-current receivables
Maturity analysis of non-current receivables
as at Dec.
€ million − Total
Non-interest-bearing non-current receivables . . . . . .
Loans and receivables from associates
and joint ventures . . . . . .
Other non-current receivables . . - - - .
Total . . . . . .
The carrying amount of non-interest-bearing non-current receivables equals their fair value.
Maturity analysis of non-current receivables
as at Dec.
€ million − Total
Non-interest-bearing non-current receivables . . . . . .
Loans and receivables from associates
and joint ventures . .
Other non-current receivables . . . . . .
Total . . . . . .
Credit and counterparty risk
Business entities are responsible for managing the credit risk associated with amounts due
from customers. Due to the Covid-19 pandemic, the Group’s credit policy was tightened in
March 2020 by specifying the terms and conditions of credit sale and collateral requirements
and by tightening the decision-making authorisations for credit facilities. Efficiency was
raised in credit control to identify customers with risk and to ensure that credit decisions
are based on up-to-date information on a customer’s solvency and any changes in solvency.
The amount of credit losses remained moderate despite the pandemic. Increased economic
uncertainty has been acknowledged in the measurement of trade receivables by increasing
the amount of credit losses recognised. The Group’s trade receivables are from a large
number of individual customers, and balance sheet receivables do not contain significant risk
concentrations. In Finland, the main part of the Group’s business activities is carried out in
cooperation with retailers. According to retailer agreements, retailers shall arrange overdraft
facilities to be held as collateral for their trade payables by the relevant Kesko subsidiary.
The seasonality of businesses impacts the amount of trade receivables in the consolidated
statement of financial position.
According to the IFRS 9 impairment model, impairments must be recognised on the basis
of expected credit losses. The Group has adopted the standard’s simplified approach for
recognising impairment of trade receivables using the provision matrix. For the impairment
model, the Group has classified Group companies into risk categories on the basis of their
business model and realised historical credit losses. In addition, impairment is recognised,
if there is other evidence of a debtor's insolvency, bankruptcy or liquidation. As for
other financial assets, the change in impairment model has not had a material impact on
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the consolidated financial statements. The ageing analysis of trade receivables as at 31
December is presented in the following table.
Ageing analysis of trade receivables
€ million
Trade receivables fully performing . .
1−7 days past due trade receivables . .
8−30 days past due trade receivables . .
31−60 days past due trade receivables . .
over 60 days past due trade receivables . .
Total . .
Within trade receivables, €350.2 million (€317.2 million) were from chain retailers. The
collateral for chain retailer receivables is an overdraft facility granted by a Kesko associate,
Vähittäiskaupan Takaus Oy, with the maximum always limited to the realisable value of the
countersecurity from the K-retailer's company and its entrepreneur to Vähittäiskaupan
Takaus Oy. At the end of the financial year, the aggregate value of countersecurities was
€309.6 million (€247.4 million). In addition, the collateral for receivables includes other
collaterals, such as business mortgages and other pledged assets.
Trade receivables include an impairment charge to a total of €21.5 million (€23.7 million). The
aggregate amount of credit losses and impairments recognised in the profit for the financial
year was €6.1 million (€3.6 million).
The amount of receivables with renegotiated terms totalled €1.2 million (€1.2 million).
Financial credit risk
Financial instruments involve the risk of non-performance by counterparties. Credit risk
is managed with agreements with financially sound Finnish and foreign banks, financial
institutes and brokers, within the counterparty risks limits set in the treasury policy. Financial
assets are also invested in money market funds and the bonds, commercial papers and
certificates of deposit issued by conservatively selected companies and banks. Due to the
Covid-19 pandemic, target-specific limits in line with the Group’s investment policy were
reduced to a minimum. The limits are reviewed regularly depending on the market situation.
Commodity risks and their sensitivity analysis
The Group uses electricity derivatives for the purpose of balancing out energy costs. The
electricity price risk is assessed for five-year periods. The changes in the fair values of
derivatives hedging the price of electricity supplied during the financial year are recognised
within adjustments to purchases. Hedge accounting is applied to contracts hedging future
purchases. In hedge accounting, the Group applies hedging to the electricity system price in
compliance with IFRS 9. The effective portion of the change in the value of derivatives that
qualify for hedge accounting is recognised in the revaluation reserve of equity. The change in
the revaluation reserve recognised in equity is presented in the statement of comprehensive
income under Revaluation of cash flow hedge.
Result of cash flow hedging
As a result of hedge accounting applied to electricity, an amount of €2.7 million (€0.7 million)
was removed from equity and included in the income statement as purchase cost adjustment,
and €-5.1 million (€-0.8 million) was recognised in equity, respectively. Their combined effect
on the revaluation reserve for the year was €-7.8 million (€-1.5 million) before accounting for
deferred tax.
As at the balance sheet date, a total quantity of 922,338 MWH (495,424 MWH) of
electricity had been purchased with electricity derivatives and 744,744 MWH (559,027
MWH) under fixed price purchase agreements. The 1–12 month hedging level was 83%
(76%), the 13–24 month level was 73% (62%), the 25–36 month level was 70% (43%), and the
37–48 month level was 35% (18%).
The sensitivity analysis of electricity derivatives assumes that derivatives maturing in
less than 12 months have an impact on profit. If the market price of electricity derivatives
changed by -/+20% from the balance sheet date 31 December 2020, it would contribute
€-/+0.7 million (€-/+1.1 million) to the 2021 income statement and €-/+3.5 million (€-/+2.2
million) to equity. The impact has been calculated before taxes.
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4.4 Finance income and costs
€ million, continuing operations
Interest income and other finance income
Interest income on financial assets at amortised cost . .
Interest income on loans and receivables . .
Interest income on financial assets at fair value through profit
or loss . -.
Gains on disposal of financial assets at amortised cost - .
Gains on disposal of financial assets at fair value through profit
or loss . .
Other finance income . .
Total interest income and other finance income . .
Interest expense and other finance costs
Interest expense on financial liabilities at amortised cost -. -.
Losses on disposal of financial assets at amortised cost -. .
Losses on disposal of financial assets at fair value through
profit or loss -. -
Other finance costs -. -.
Total interest expense and other finance costs -. -.
Interest expense for lease liabilities -. -.
Exchange differences
Exchange differences and changes in fair values of derivatives,
borrowings denominated in foreign currencies not qualifying
for hedge accounting, and cash at bank -. -.
Total exchange differences -. -.
Total finance income and costs -. -.
Derivatives
Fair values of derivative contracts
€ million
Dec.
Positive
fair value
(balance
sheet value)
Dec.
Negative
fair value
(balance
sheet value)
Dec.
Positive
fair value
(balance
sheet value)
Dec.
Negative
fair value
(balance
sheet value)
Interest rate derivatives . -. . -.
Foreign currency derivatives . -. . -.
Electricity derivatives . -. . -.
Notional principal amounts of
derivative contracts
€ million Dec. Dec.
Interest rate derivatives . .
Foreign currency derivatives . .
Electricity derivatives . .
The fair values of derivatives are presented as gross amounts. Kesko has entered into netting
arrangements under ISDA contracts with all counterparties engaged in transactions with
derivatives. All of these contracts provide for mutual posting of collateral. The threshold
level for collateral posting had not been exceeded at the balance sheet date. Analysed by
counterparty, derivative financial liabilities could be set off in a total of €0.5 million.
The maximum credit risk from derivatives is the fair value of the balance sheet at the
reporting date.
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4.5 Financial assets and liabilities by category
Accounting policies
Financial assets
The Group classifies financial assets into three groups in accordance with IFRS 9. Financial
assets are classified either as instruments measured at amortised cost, or as instruments
measured at fair value through profit or loss or in other comprehensive income, depending
on the business model targets and cash flows based on agreements.
Regular way purchases or sales of financial assets are recognised on settlement date.
Financial assets are classified as non-current, if they have a maturity of more than 12
months after the balance sheet date. If financial assets are expected to be settled within
12 months, they are classified as current.
Financial assets are derecognised when the rights to receive cash flows from the financial
asset have expired or have been transferred from the Group, and when the risks and
rewards of ownership have been transferred from the Group.
Financial assets at amortised cost and financial assets at fair value are only invested in
counterparties deemed creditworthy. The impairment model for expected credit losses
in line with the standard requires credit losses to be recognised with a forward-looking
approach. As for other financial assets, lacking historical credit losses, counterparty risk is
monitored actively and credit losses are recognised if risk is observed.
Financial assets at amortised cost
Financial assets at amortised cost consist of assets that are to be held to maturity and
whose cash flows consist solely of payments of principal and interest. Financial assets at
amortised cost also include trade receivables and other receivables.
Financial assets at fair value
Financial assets at fair value in other comprehensive income comprise derivatives that
meet the hedge accounting criteria. Financial assets that do not meet the criteria of the
other groups are classified as financial assets measured at fair value through profit or loss.
Cash and cash equivalents
Cash and cash equivalents include cash on hand and deposits with banks as well as liquid
funds measured at amortised cost which are invested in instruments with maturities of less
than three months from acquisition. The cash and cash equivalents in the consolidated
balance sheet also include amounts relating to the retail operations of the group
companies, used as cash floats in stores, or amounts being transferred to the respective
companies.
Financial liabilities
Financial liabilities have initially been recognised at fair value, net of transaction costs.
In the financial statements, financial liabilities are measured at amortised cost using
the effective interest rate method. Arrangement fees paid on the establishment of loan
facilities and financial liabilities are amortised over the period of the facility to which it
relates. Financial liabilities having maturities of more than 12 months after the balance
sheet date are classified as non-current liabilities. Those maturing within 12 months after
the balance sheet date are classified as current liabilities.
Derivative financial instruments and hedge accounting
When derivative contracts are entered into, they are recognised at fair value and in the
financial statements, they are re-measured at their fair value. The recognition of changes
in the fair value of derivatives depends on whether the derivative instrument qualifies for
hedge accounting or not and, if so, on the hedged item. When entered into, derivative
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contracts are treated either as fair value hedges of receivables or liabilities, or in the
case of interest rate risk and electricity price risk, as cash flow hedges, as hedges of net
investments in a foreign entity, or as derivative contracts that do not meet the hedge
accounting criteria. If the hedge accounting criteria are not met, the results of instruments
hedging a commercial foreign exchange risk are recognised in profit or loss within other
operating income or expenses. Concerning derivatives hedging financial transactions, the
amount to be recognised in the income statement is included in financial items.
When a hedging arrangement is entered into, the relationship between the hedged item
and the hedging instrument, as well as the objectives of the Group's risk management
are documented. The effectiveness of the hedge relationship is tested regularly and the
effective portion is recognised, according to the nature of the hedged item, against the
change in the fair value of the hedged item, in translation differences in equity, or in the
revaluation reserve. The ineffective portion is recognised, according to its nature, either in
financial items or other operating income and expenses.
Hedge accounting is discontinued when the hedging instrument expires or is sold, or when
the contract is terminated or exercised. Any cumulative gain or loss existing in equity at
that time remains in equity until the forecast transaction has occurred.
Measurement principles
The fair value of forward rate agreements is determined by reference to the market prices
at the balance sheet date. The fair value of interest rate swaps is calculated on the basis
of the present value of future cash flows, using the market prices at the balance sheet
date. The fair value of foreign exchange forward contracts is determined by measuring
the forward contracts at the forward rate at the balance sheet date. Currency options are
measured using the counterparty's price quotation, but the Group also verifies the price
by applying the Black−Scholes method. Electricity derivatives are measured at fair value
using the market quotations at the balance sheet date.
Hedging a net investment in foreign operations
During the financial year, the Group has not hedged net investments in foreign operations.
If a hedge is initiated, the Group applies hedge accounting in accordance with IFRS 9 to
hedge foreign currency net investments in foreign operations. Foreign exchange forward
contracts or foreign currency borrowings are used as hedging instruments. Spot price
changes in foreign exchange forward contracts are recognised in translation differences
under equity, and disclosed in other comprehensive income. The premiums of forward
contracts are recognised as income under financial items. The exchange difference of
foreign currency borrowings is recognised in translation differences under equity. When a
foreign operation is partially or wholly disposed of or wound up, cumulative gains or losses
from the hedging instruments are recognised in profit or loss.
Embedded derivatives
The Group has prepared method descriptions for identifying embedded derivatives and
applies fair value measurement to them. In Kesko Group, embedded derivatives can be
included in binding commercial contracts denominated in a currency which is not the
functional currency of either party and not commonly used in the economic environment
in which the transaction takes place. The fair value of embedded derivatives is determined
using the market prices at the measurement date and the change in fair value is
recognised in the income statement.
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As at 31 December 2020
Balance, € million
Financial assets/
liabilities at fair value
through profit or loss
Financial assets/liabilities
at amortised cost
Measured at fair value in
comprehensive income
Carrying amounts of
assets/liabilities
as per balance sheet Fair value
Non-current financial assets
Financial assets at fair value through profit or loss . . .
Non-current receivables . . .
Non-current receivables contain derivatives .
Current financial assets
Trade and other receivables ,. ,. ,.
Other receivables contain derivatives . .
Financial assets at fair value through profit or loss . . .
Financial assets at amortised cost . . .
Cash and cash equivalents . . .
Total financial assets . ,. ,. ,.
Balance, € million
Financial assets/
liabilities at fair value
through profit or loss
Financial assets/liabilities
at amortised cost
Measured at fair value in
comprehensive income
Carrying amounts of
assets/liabilities
as per balance sheet Fair value
Non-current financial liabilities
Non-current interest-bearing liabilities . . .
Non-current lease liabilities ,. ,. ,.
Non-current non-interest-bearing liabilities . . .
Non-current non-interest-bearing liabilities contain derivatives .
Current financial liabilities
Current interest-bearing liabilities . . .
Current lease liabilities . . .
Trade payables ,. ,. ,.
Other non-interest-bearing liabilities and accrued liabilities . . .
Other non-interest-bearing liabilities and accrued liabilities
contain derivatives . .
Total financial liabilities ,. ,. ,.
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As at 31 December 2019
Balance, € million
Financial assets/
liabilities at fair value
through profit or loss
Financial assets/liabilities
at amortised cost
Measured at fair value in
comprehensive income
Carrying amounts of
assets/liabilities
as per balance sheet Fair value
Non-current financial assets
Financial assets at fair value through profit or loss . . .
Non-current receivables . . .
Non-current receivables contain derivatives .
Current financial assets
Trade and other receivables ,. ,. ,.
Other receivables contain derivatives . .
Financial assets at fair value through profit or loss . . .
Financial assets at amortised cost . . .
Cash and cash equivalents . . .
Total financial assets . ,. ,. ,.
Balance, € million
Financial assets/
liabilities at fair value
through profit or loss
Financial assets/liabilities
at amortised cost
Measured at fair value in
comprehensive income
Carrying amounts of
assets/liabilities
as per balance sheet Fair value
Non-current financial liabilities
Non-current interest-bearing liabilities . . .
Non-current lease liabilities ,. ,. ,.
Non-current non-interest-bearing liabilities . . .
Current financial liabilities
Current interest-bearing liabilities . . .
Current lease liabilities . . .
Trade payables ,. ,. ,.
Other non-interest-bearing liabilities and accrued liabilities . . .
Other non-interest-bearing liabilities and accrued liabilities
contain derivatives . .
Total financial liabilities ,. ,. ,.
Non-current receivables from associates and joint ventures contain the shareholder loan
granted to Mercada Oy and the financing loans granted to UAB Kesko Senukai.
Prepaid expenses and accrued expenses do not include income tax assets of €1.6 million (€14.4
million) or income tax liabilities of €35.2 million (€11.8 million). Prepayments received of €32.8 million
(€34.6 million) are not categorised as financial liabilities and are not included in the table above.
The fair values of borrowings have been calculated based on the present value of future
cash flows using the 0.0%−1.7% market rates of interest of the balance sheet date. The fair
value of current interest-bearing liabilities has been estimated to approximately equal their
balance sheet value. The maturity structure of non-current borrowings has been presented
in note 4.3.
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4.6 Leases
Accounting policies
IFRS 16 Leases is only applied to the leases of properties, machinery and equipment. Kesko
Group leases properties, machinery and equipment for use in its business operations in
all of its operating countries. For most of these leases, assets and liabilities corresponding
to the present value of future lease payments are recognised in the balance sheet at the
commencement of the lease. The Group adopted IFRS 16 using a full retrospective method,
and the impact on the date of transition 1 January 2018 has been calculated as if the standard
had always been in effect. The change in right-of-use assets from leases recognised in the
balance sheet is presented in Note 3.4 and cash flows related to leases in Note 2.9.
The Group determines at inception of a contract whether the contract is, or contains, a lease.
A contract is deemed a lease if it conveys the right to control the use of an identified asset
for a period of time in exchange for consideration. A right-of-use asset and lease liability
corresponding to the present value of the lease’s future lease payments are recognised in the
consolidated statement of financial position at the commencement date of the lease.
The lease term is the period during which the lease is non-cancellable. The lease term
shall include periods covered by an option to extend the lease if it is reasonably certain
that the option will be exercised, and periods covered by an option to terminate the lease,
if it is reasonably certain that the option will not be exercised.
When calculating the present value of future lease payments, the interest rate implicit in the
lease is primarily used, if available. An interest rate implicit in the lease is not available for all
leases. In such cases, the incremental borrowing rate is used, which comprises the reference
rate, credit spread for the incremental borrowing, and a potential country and currency risk
premium. The interest expenses for lease liabilities are recognised in financial items in the
income statement. The Group applies the exemptions for leases with a term of less than 12
months and assets of low value included in IFRS 16, according to which such leases are not
included in the balance sheet. Lease payments for short-term leases and low-value assets are
recognised as expenses on a straight-line basis over the lease term.
At the commencement date of the lease, the measurement of the lease liability includes fixed
lease payments, variable lease payments that depend on an index or a rate, potential residual
value guarantees, and the price of a purchase option if it is reasonably certain the option
will be exercised. Payments of penalties for terminating the lease are also included in the
measurement of the lease liability if the lease term reflects the option to terminate the lease.
The lease liability is remeasured at the effective date of lease modification, and the
consequent change is recognised as an adjustment to the right-of-use asset. If the
reduction in lease liability exceeds the right-of-use asset, the difference is recognised
in profit or loss. Lease liabilities must be remeasured using a revised discount rate when
there is a change in the lease term, the assessment of whether an option to extend or
terminate the lease is exercised, or the lease payment amount, and when there is a change
in the assessment of whether an option to purchase the underlying asset is exercised.
The right-of-use asset is remeasured with corresponding remeasurement of lease liability.
The lessee depreciates the right-of-use asset from the commencement date of the lease
to the earlier of the end of the useful life of the right-of-use asset or the end of the lease
term. More information on right-of-use assets is provided in note 3.4.
In reporting for the lessor, leases are divided into operating leases and finance lease
agreements. Leases where the risks and rewards incidental to ownership are transferred
to the lessee are classified as finance lease agreements. At the commencement date
of the lease, the lessor records in the balance sheet a finance lease receivable that
corresponds to the net investment in the lease. Lease income for operating leases is
recognised in the income statement on a straight-line basis over the lease term.
In sale and leaseback transactions, the parties assess whether the transfer of the asset
satisfies the requirements of IFRS 15 for a sale. If the transfer is accounted for as a sale,
the right-of-use asset recognised in the balance sheet will be measured by the portion
of the carrying amount of the original asset that corresponds to the value of the right
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to use that remains with the seller. Only the portion of the sales proceeds of the asset
corresponding to the rights transferred to the buyer is presented as sales gain or loss.
If the consideration for the sale of the asset or payments for the lease do not equal the
fair value, the difference is recognised as an adjustment to the asset’s sales proceeds.
Any below-market terms are accounted for as a prepayment of lease payments, and any
above-market terms are accounted for as financial liability. If the requirements for a sale
are not satisfied, the Group will continue to recognise the transferred asset in its balance
sheet, and will present the transfer proceeds as financial liability.
Group as a lessee
The Group leases for business purposes facilities required for retail and for logistics
operations serving retail. The leases are mostly fixed term and in line with local market
practices. Some of the leases for the properties contain extension options. The Group also
leases for business purposes machinery and equipment such as vehicles, logistics machinery
and equipment, and equipment for recycling waste at stores and logistics operations.
The Group has classified office machinery and equipment as low-value assets, and lease
payments for them are recognised as annual expenses in the income statement.
Lease expenditure
€ million
Lease expenditure for short-term leases -. -.
Lease expenditure for low-value assets -. -.
Variable lease expenditure -. -.
Total, continuing operations -. -.
Right-of-use assets related to leases are presented in note 3.4.
Cash flows from lease liabilities are detailed in note 2.9, and the maturity of lease liabilities
and related finance costs is detailed in note 4.3.
Lease liabilities
€ million
Lease liabilities for leases not recognised in the balance sheet . .
Lease liabilities for leases not recognised in the balance sheet include the nominal amount of
liability for leases that will enter into force in the future.
Group as a lessor
Kesko leases premises to entrepreneurs other than K-retailers to ensure that the combination
of services at a store site supports Kesko’s overall profit generation. Such premises typically
include so-called store entrance shops at large retail outlets. The business premises owned
or rented by Kesko and used by K-retailers to conduct chain operations are provided to the
retailers under chain agreements, and are not treated as leases. The treatment of income
based on chain agreements is detailed in Note 2.1.
Lease income
€ million
Lease income for operating leases . .
Lease income for subleases . .
Total, continuing operations . .
4.7 Contingent liabilities
€ million
Collateral given for own commitments
Pledges . .
Mortgages . .
Guarantees . .
Other commitments and contingent liabilities . .
Collateral given for others
Guarantees - .
Other commitments and contingent liabilities - .
The guarantees given do not include guarantees related to the items presented within
liabilities in the consolidated statement of financial position or as a lease liability in note 4.6.
Guarantee maturities are €3.5 million in 2021 and €21.6 million in 2022−2025.
Lease liabilities for leases not recognised in the balance sheet are presented in note 4.6.
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IN THIS SECTION
5.1 Group composition 117
5.2 Subsidiaries, associates, joint ventures and
proportionately consolidated mutual real estate companies 118
5.3 Related party transactions 121
5.4 Share-based compensation 124
5.5 Legal disputes and possible legal proceedings 127
5.6 Events after the balance sheet date 127
Notes to the consolidated financial statements
5. OTHER
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5.1 Group composition
Group composition
Kesko Group has 92 (118) subsidiaries. The Group has the majority of voting rights in
all companies. Consolidation principles are described in Note 1.5. Kesko Senukai was
consolidated as a subsidiary in the consolidated financial statements up until 30 June 2020;
as of 1 July 2020, it has been consolidated as a joint venture. The change in consolidation
method, the grounds for the change and the financial impacts have been detailed in Note 3.1.
Information about the Group composition as at the balance sheet date:
Toimiala
Country of
incorporation
Most significant
subsidiaries
Number of
wholly-owned
subsidiaries
Number of
wholly-owned
subsidiaries
Number of
partly-owned
subsidiaries
Number of
partly-owned
subsidiaries
Grocery trade Finland K-Market Oy
Building and
technical trade
Finland, Sweden,
Norway, Estonia,
Latvia, Lithuania,
Poland
Onninen Group,
Byggmakker Group,
Kesko AB,
K-Bygg Group -
Car trade Finland K-Auto Oy - -
Others Finland - -
In addition, the Group has partly owned mutual real estate companies. The Group's
subsidiaries, equity-accounted investments and mutual real estate companies consolidated
using the proportionate method are listed in note 5.2.
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Material non-controlling interest 31.12.2019
There is a material non-controlling interest in Kesko Group company Kesko Senukai Group,
which was consolidated as a subsidiary in the consolidated financial statements up until 30
June 2020. Kesko Group’s holding in Kesko Senukai Group's parent UAB Kesko Senukai
Lithuania is 50.0%. The company is domiciled in Vilnius, Lithuania. Kesko Senukai Group
operates in Lithuania, Estonia, Latvia and Belarus. The share of non-controlling interests of
the net profit of Kesko Senukai Group was €8.5 million in 2019 and in equity, the share was
€105.7 million in 2019.
Summarised financial information on subsidiary
with material non-controlling interest
€ million Kesko Senukai Group
Current assets .
Non-current assets .
Current liabilities .
Non-current liabilities .
Net sales .
Net profit/loss .
Parent company owners' share of net profit/loss .
Non-controlling interests' share of net profit/loss .
Comprehensive income for the period .
Parent company owners' share of comprehensive income for the period .
Non-controlling interests' share of comprehensive income for the period .
Dividends paid to non-controlling interests -.
Net cash generated from operating activities .
Net cash used in investing activities -.
Net cash used in financing activities -.
The amounts above are before intra-Group eliminations.
5.2 Subsidiaries, associates, joint ventures and
proportionately consolidated mutual real estate companies
Subsidiaries
Owned by the parent Domicile
Group's
ownership
interest, %
Parent's
ownership
interest, %
Ankkuri-Energia Oy Helsinki . .
Asunto Oy Kirkkonummen Västeruddintie 33 Kirkkonummi . .
Barker-Littoinen Oy Espoo . .
Byggmakker Handel AS Oppegård, Norway . .
Fiesta Real Estate AS Tallinn, Estonia . .
Hehku Kauppa Oy Espoo . .
Intersport Finland Oy Helsinki . .
Kalatukku E. Eriksson Oy Helsinki . .
K Auto Oy Helsinki . .
Kenkäkesko Oy Helsinki . .
Keskinäinen Kiinteistö Oy Malmin Kankirauta Helsinki . .
Keskinäinen Kiinteistö Oy Voisalmentie 9
Lappeenranta Helsinki . .
Kesko AB Stockholm, Sweden . .
Kesko Export Oy Helsinki . .
Kesko Food Russia Holding Oy Helsinki . .
Kesko Real Estate Latvia SIA Riga, Latvia . .
Kiinteistö Oy Helsingin Itäkeskus Helsinki . .
Kiinteistö Oy Hiukkavaaran Kauppa Oulu . .
Kiinteistö Oy Hämeenlinnan Visamäentie 16 Helsinki . .
Kiinteistö Oy Järvenpään Helsingintie 41 Helsinki . .
Kiinteistö Oy Kiimingin Liiketalo 1 Oulu . .
Kiinteistö Oy Kittilän Valtatie 31-33 Helsinki . .
Kiinteistö Oy Kolmisopentie 3 Kuopio . .
Kiinteistö Oy Lappeenrannan Oksasenkatu 4 Helsinki . .
Kiinteistö Oy Lappeenrannan Rakuunaparkki Lappeenranta . .
Kiinteistö Oy Liike-Jaako Rovaniemi . .
Kiinteistö Oy Pontsonkulma Helsinki . .
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Owned by the parent Domicile
Group's
ownership
interest, %
Parent's
ownership
interest, %
Kiinteistö Oy Pälkäneen Liikekeskus Pälkäne . .
Kiinteistö Oy Riistaveden Keskustie 15 Helsinki . .
Kiinteistö Oy Sarviniitynkatu 4 Kerava . .
Kiinteistö Oy Sunan Hallitalo Helsinki . .
Kiinteistö Oy Tarkkaiikka Oulu . .
Kiinteistö Oy Voisalmen Liiketalo Helsinki . .
Klintcenter Ab Mariehamn . .
K-Market Oy Helsinki . .
Konekesko Oy Helsinki . .
Koskelan Ostokeskus Oy Oulu . .
K-Rauta Holding Finland Kaukajärvi Oy Helsinki . .
Liiketalo Oy Kaijonkeskus Oulu . .
Mežciems Real Estate SIA Riga, Latvia . .
Onninen Oy Helsinki . .
Rake Eiendom AS Oppegård, Norway . .
Reinin Liha Oy Helsinki . .
Tampereen Länsikeskus Oy Tampere . .
Vaajakosken Liikekeskus Oy Jyväskylä . .
Owned by other Group companies Domicile
Group's
ownership
interest, %
Parent's
ownership
interest, %
Arn Eiendom AS Vefsn, Norway .
Oy Autocarrera Ab Helsinki .
Autocarrera Autotalot Oy Helsinki .
Bygg & Interiör i Katrineholm AB Katrineholm, Sweden .
Bygg & Interiör i Flen AB Flen, Sweden .
Bygg & Interiör i Vingåker AB Vingåker, Sweden .
Byggmakker Mosjøen AS Vefsn, Norway .
Byggmakker Nord AS Steinkjer, Norway .
Byggmakker Sør AS Gjøvik, Norway .
Carlsen Fritzøe Handel AS Sandefjord, Norway .
Fresks Försäljning AB Östersund, Sweden .
Hasti-Ari AS Oppegård, Norway .
K Auto Leasing Oy Helsinki .
K Bygg Östergyllen AB Linköping, Sweden .
K Caara Oy Helsinki .
Kesko Onninen International Trading Co., Ltd Shanghai, China .
K rauta SIA Riga, Latvia .
Kestra Kiinteistöpalvelut Oy Helsinki .
Kiinteistö Oy Kokkolan Kaanaanmaantie 2-4 Kokkola .
Kiinteistö Oy Piispansilta Espoo .
Kiinteistö Oy Vantaan Kiitoradantie 2 Vantaa .
Kiinteistö Oy Vantaan Simonsampo Vantaa .
Kiinteistö Oy Visuveden Liiketalo Ruovesi .
KR Fastigheter i Järfälla AB Sollentuna, Sweden .
KR Fastigheter i Linköping AB Sollentuna, Sweden .
KR Fastigheter i Täby AB Sollentuna, Sweden .
K-rauta Fastigheter i Malmö AB Sollentuna, Sweden .
K-Rauta Holding Finland Oy Helsinki .
Marks & Infra i Sverige AB Täby, Sweden .
Olarin Autokiinteistö Oy Espoo .
Onninen AS Skedsmo, Norway .
Onninen AS Tallinn, Estonia .
Onninen LLP Aktau, Kazakhstan .
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Owned by other Group companies Domicile
Group's
ownership
interest, %
Parent's
ownership
interest, %
Onninen Russia Holding Oy Helsinki .
Onninen SIA Riga, Latvia .
Onninen Sp. z o.o. Warsaw, Poland .
Onninen UAB Vilnius, Lithuania .
Oskar Harju AB Örnsködsvik, Sweden .
Peltosaaren Liikekeskus Oy Riihimäki .
Profelco Oy Vantaa .
Rake Bergen AS Oppegård, Norway .
Sørbø AS Skedsmokorset, Norway .
Tau & Jørpeland Eiendom Jørpeland, Norway .
TM Christensen VVS Detaljer AS Oslo, Norway .
Trøgstadveien 13 AS Oppegård, Norway .
Urban Strålin Byggvaror AB Ulricehamn, Sweden .
Övik Låsteknik AB Örnsköldsvik, Sweden .
Associates and joint ventures
Associates and joint ventures are consolidated using the equity method.
Owned by the parent Domicile
Group's
ownership
interest, %
Parent's
ownership
interest, %
Graanin Liikekeskus Oy Mikkeli . .
Kesko Senukai Lithuania UAB Vilna, Lithuania . .
Kiinteistö Oy Itäaukio Lahti . .
Kiinteistö Oy Janakkalan Linnatuuli Janakkala . .
Kiinteistö Oy Joensuun Kaupunginportti Joensuu . .
Mercada Oy Helsinki . .
Vähittäiskaupan Takaus Oy Helsinki . .
Vähittäiskaupan Tilipalvelu VTP Oy Helsinki . .
Owned by other Group companies Domicile
Group's
ownership
interest, %
Parent's
ownership
interest, %
1A Grupa SIA Riga, Latvia .
1A.EE Oü Tallinn, Estonia .
1A.LT Vilnius, Lithuania .
Daugavpils project 1 SIA Daugavpils, Latvia .
Delta turtas UAB Vilnius, Lithuania .
Fintorus Oy Lappeenranta .
Inovatyvus prekybos sprendimai UAB Vilnius, Lithuania .
Kesko Senukai Digital UAB Vilna, Liettua .
Kesko Senukai Estonia AS Tallinn, Estonia .
Kesko Senukai Latvia AS Riga, Latvia .
KS Holding UAB Vilnius, Lithuania .
Ksenukai Digital Oü Tallinn, Estonia .
MD Galerija Azur SIA Riga, Latvia .
Mobilukss SIA Riga, Latvia .
Nomine UAB Vilnius, Lithuania .
OMA OOO Minsk, Belarus .
Penktoji Projekto Bendrové UAB Vilnius, Lithuania .
Proffsenteret AS Ringerike, Norway .
Punane Project Oü Tallinn, Estonia .
Romos Holdingas UAB Kaunas, Lithuania .
Senukai UAB Kaunas, Lithuania .
Senuku Tirdzniecibas Centrs SIA Riga, Latvia .
SPC Holding UAB Kaunas, Lithuania .
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Proportionately consolidated mutual real estate companies
Owned by the parent and others Domicile
Group's
ownership
interest, %
Parent's
ownership
interest, %
Asunto Oy Harjutie Espoo . .
Asunto Oy Kajaanin Louhikatu 2 Kajaani . .
Asunto Oy Soukan Itäinentorni Espoo . .
Asunto-Oy Punkalaitumen Pankkitalo Punkalaidun .
Itäkeskuksen Pysäköintitalo Oy Helsinki . .
Kiinteistö Oy Lahden Lyhytkatu 1 Lahti . .
Kiinteistö Oy Lukonmäen Palvelukeskus Tampere .
Kiinteistö Oy Ulvilan Hansa Ulvila . .
Kiinteistö Oy Vantaanportin Liikekeskus Vantaa . .
Lapin Tehdastalo Oy Tampere . .
Munkkivuoren Ostoskeskus Oy Helsinki . .
Raksilan Paikoitus Oy Oulu . .
Talo Oy Kalevanpuisto Kuopio . .
Voisalmen Ostoskeskus Oy Lappeenranta .
5.3 Related party transactions
The Group's related parties include its management (the Board of Directors, President
and CEO and the Group Management Board) and the companies controlled by them, their
family members and companies controlled by the family members, the Group’s subsidiaries,
associates and joint ventures, and Kesko Pension Fund. The subsidiaries, associates and joint
ventures are listed in a separate note (note 5.2).
The related party transactions disclosed consist of such transactions carried out with related
parties that are not eliminated in the consolidated financial statements.
Some members of the Kesko Board are K-retailers. The Group companies sell goods and
services to companies controlled by them. Goods and services have been sold to and
purchased from related parties on normal market terms and conditions and at market prices.
Kesko reports Kesko Senukai Group, which is part of Kesko’s building and technical trade
segment and operates in the Baltic countries and Belarus, as a joint venture accounted for
using the equity method as of 1 July 2020. The change in consolidation method has been
detailed in Note 3.1. Transactions involving Kesko Senukai Group companies have been
reported as related party transactions as of 1 July 2020.
The associated company consolidated using the equity method, Mercada Oy, owns
properties which have been leased for use by the Group. Vähittäiskaupan Takaus Oy and
Vähittäiskaupan Tilipalvelu Oy sell their services to Kesko’s and K-retailers’ retail companies.
The other associates mainly comprise business property companies which have leased their
properties for use by Kesko Group. Associates that operate as mutual real estate companies
have been consolidated in the financial statements in proportion to their ownership interests.
During the financial year 2019, Kruunuvuoren Satama Oy and Hehku Kauppa Oy became
whollyowned subsidiaries of the Group. Before, they were joint ventures. Transactions
between these companies and the Group are presented in the table up until the point the
companies became wholly-owned subsidiaries of the Group.
Kesko Pension Fund is a stand-alone legal entity which manages the majority of the pension
assets related to the voluntary pensions of the Group’s employees in Finland. At the end
122KESKO'S YEAR 2020 I FINANCIAL REVIEW
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FINANCIAL REVIEW
of 2020 or 2019, the pension assets did not include Kesko Corporation shares. Properties
owned by Pension Fund have been leased to Kesko Group.
During the financial years 2020 and 2019, Kesko Group did not pay contributions to
PensionFund.
The following transactions were carried out with related parties:
Income statement
Associates and
joint ventures
Board and
management Pension Fund
€ million
Sales of goods . . . .
Sales of services . . . . . .
Purchases of goods -. -. -. -.
Purchases of services -. . . . -. .
Other operating income . . . .
Other operating costs -. -. -. -. -. -.
Finance income . .
Balance sheet
Associates and
joint ventures
Board and
management Pension Fund
€ million
Current receivables . . . . .
Non-current receivables . .
Current liabilities . . . . . .
Non-current liabilities . .
Items related to leases
Associates and
joint ventures
Board and
management Pension Fund
€ million
Cash flow from leases -. -. -. -. -. -.
Lease liabilities . . . . . .
At the balance sheet date, receivables arisen from Kesko's sales to companies controlled
by the Board members were €6.8 million (€7.4 million). The receivables are collateralised
by a commercial credit granted by Vähittäiskaupan Takaus Oy, a Kesko associate, with the
maximum amount always limited to the maximum realisable value of the countersecurity
from the K-retailer company and entrepreneur to Vähittäiskaupan Takaus. At the end of the
financial year, the countersecurity was valued at €8.8 million (€6.5 million).
Non-current receivables from associates and joint ventures contain the shareholder loan
granted to Mercada Oy and the financing loans granted to UAB Kesko Senukai and UAB
KS Holding. Current receivables contain €11.5 million of the current portion of these loans.
Other current liabilities include, for example, chain rebate payables to companies controlled
by the Kesko Board members. Chain rebates are paid retrospectively based on criteria
related to the amount of actual annual purchases and the quality of operations.
During the financial year, Kesko Corporation sold the entire capital stock of one real estate
company and 6,600 shares in Vähittäiskaupan Takaus Oy to Kesko Pension Fund. The
combined transaction price totalled €6.5 million, based on the fair value of the asset items
sold. During the 2019 financial year, Kesko Corporation sold 7,000 shares in Vähittäiskaupan
Takaus Oy to Kesko Pension Fund for €4.6 million.
During the financial year 2019, Kesko Pension Fund paid in total €48 million in return of
surplus assets to Finnish Group companies.
During the financial year 2019, Kruunuvuoren Satama Oy’s dividend payments and
repayments of capital to Kesko Corporation totalled €44 million before the company
became a subsidiary of Kesko Corporation. The associate Valluga-Sijoitus Oy paid €39
million in dividends to Kesko Corporation. Dividends paid by the joint venture and associate
are eliminated in the Group’s income statement and are not included in the table above.
Dividends received have been reported in the Group’s cash flow from operating activities.
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Management's employee benefits
The top management comprises the Board of Directors and the Group Management Board.
The compensation paid to them for their employee services consists of the following items:
Monetary salaries, fees, fringe benefits and share-based
compensation
€,
Mikko Helander President and CEO ,. ,.
Group Management Board other members ,. ,.
Esa Kiiskinen Board Chairman . .
Toni Pokela Board member . .
Matti Kyytsönen Board member . .
Matti Naumanen Board member . .
Jannica Fagerholm Board member . .
Peter Fagernäs Board Deputy Chairman . .
Piia Karhu Board member . .
Total ,. ,.
Approximately 30% of the annual fees for Board members was paid in shares in the Company
and the remaining fee amount was paid in cash. 8,158 Kesko Corporation B shares were
granted to members of Board of Directors in 2020.
Retirement benefits
The statutory pension provision for the President and CEO and other members of the
Group Management Board is provided through a pension insurance company. Three Group
Management Board members are provided with a supplementary pension based on a defined
benefit plan in line with the rules of Kesko Pension Fund and personal service contracts. Four
Group Management Board members are provided with a defined contribution supplementary
pension. President and CEO Mikko Helander's old-age pension age is 63 and the amount of
his old-age pension is 60% of his pensionable earnings for the final 10 years in accordance
with the Employees' Pensions Act (TyEL). The pension is based on a defined benefit plan. The
cost of the supplementary pension for the period, calculated on an accrual basis, was €1.2
million (€1.1 million) and the related pension asset in the balance sheet was €1.7 million (€1.0
million). The pension cost of the President and CEO's statutory pension provision was €0.3
million (€0.3 million).
Share awards
During the 2020 reporting period, members of the Group Management Board were granted
77,922 shares based on the 2020 PSP 2018–2022 plan, while the maximum number of shares
to be granted was 123,000. The number of shares represents gross earnings, from which
withholding tax is deducted. During the 2019 reporting period, 61,219 shares were granted
based on the 2017 PSP Plan. The number of shares represents gross earnings, from which
withholding tax is deducted.
Termination benefits
If the service contract of the President and CEO or some other Group Management Board
member is terminated by the Company, he/she is entitled to a monetary salary and fringe
benefits for the period of notice and a separate non-recurring termination compensation
determined on the basis of the executive's monetary salary and fringe benefits for the
month of notice. The termination compensation is not part of the executive's salary and
it is not included in the determination of the salary for the period of notice, termination
compensation or, in case of retirement, pensionable salary. If an executive resigns, he/she
is only entitled to a salary for the period of notice and fringe benefits. When a service
relationship terminates due to retirement, the executive is paid a pension based on his/her
service contract without other compensations.
Shareholdings
On 31 December 2020, the President and CEO held 269,844 Kesko Corporation B shares,
which represented 0.07% of the total number of shares and 0.02% of votes carried by
all shares of the Company. As at 31 December 2020, the Group Management Board,
including the President and CEO, held 324 Kesko Corporation A shares and 774,528 Kesko
Corporation B shares, which represented 0.19% of the total number of shares and 0.05% of
votes carried by all shares of the Company.
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5.4 Share-based compensation
Accounting policies
The costs relating to share-based payments are recorded in the income statement and
the corresponding liability for share-based payments settled in cash is recognised in
the balance sheet. The liability in the balance sheet is measured at fair value at each
balance sheet date. For equity-settled share-based payment transactions, an increase
corresponding to the expensed amount is recorded in equity.
The Company's Board of Directors has granted a share-based compensation plan to
management under which an award consisting of B series shares and an amount in cash
is paid upon fulfilling the plan’s terms. The fair value of the award paid in shares is the
value of the share at the grant date and it is recognised as an expense on a straight-line
basis over the vesting and commitment period of the plan. The expensed amount is
based on the Group's estimate of the amount of award payable in shares at the end of the
vesting period. The effects of non-market conditions are not included in the fair value of
the awards. Instead, they are accounted for in the assumptions of the number of shares
expected to vest at the end of the vesting period. A cash component is paid to cover the
taxes and tax-like charges incurred under the award. The cash component is recognised
as an expense during the vesting period. Changes in estimates are recorded in the income
statement.
Following the change in IFRS 2 Share-based Payment, effective as of 1 January 2018, the
Group has reclassified the cash-settled portions of its share-based compensation schemes
as equity-settled share-based payments. As a result of the change, such cash-settled
share-based payments for which the employer shall deduct, on behalf of the employee,
from the share award such number of shares which covers taxes and tax-like charges paid
in cash, shall be classified in their entirety as equity-settled share-based payments. The
change concerns the following share plans: the 2017 PSP, the 2017 Bridge Plan, and the
2017 RSP, as well as share plans initiated after 1 January 2018.
Share-based commitment and incentive scheme
Kesko’s long-term share-based commitment and incentive scheme consists of four share-
based compensation plans, under which the Board can annually decide on the initiation of
new share plans. The primary plan, the Performance Share Plan (PSP), consists of annually
commencing individual share plans, each with a two-year performance period and a two-
year commitment period following the potential payment of a share award, during which the
shares must not be pledged or transferred, but the other rights attached to the shares remain
in force. If a person's employment or service relationship terminates prior to the expiry of a
commitment period, the person must, as a rule, return the shares under transfer restriction to
Kesko or its designate for no consideration. Kesko Group's tax free sales (%), Kesko Group's
comparable return on capital employed (ROCE,%) and the absolute total shareholder return
(TSR, %) of a Kesko B share are the performance criteria for the PSPs initiated between
2017-2020. The recipient of the shares is free to use them once the commitment period of
the share plan ends, provided that the person is still employed by Kesko Group. The number
of shares granted based on the share-based compensation plan represents gross earnings,
from which the applicable withholding tax is deducted and the remaining net amount is paid
to the participants in shares. Kesko Corporation’s Board decides annually whether to initiate
a new plan.
The PSP was complemented with a new Key Personnel Share Plan (KPSP) decided upon by
the Board in 2020. The KPSP is targeted at specific key persons at Kesko. The KPSP has a
one-year performance period followed by a two-year commitment period. The performance
criteria for the plan comprise indicators related to Kesko’s profitability and the profitability,
growth and capital efficiency of the participant’s area of responsibility, and Kesko’s share
performance. The shares are paid to the recipients after the commitment period. This
number of shares represents gross earnings, from which the applicable withholding tax is
deducted and the remaining net amount is paid to the participants in shares.
The one-off transitional Bridge Plan for 2017 had a one-year performance period (1 Jan. 2017
– 31 Dec. 2017) followed by a three-year commitment period (1 Jan. 2018 – 10 Feb. 2021).
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Apart from that, the rules of the plan are the same as for the PSP. The Bridge Plan aimed at
covering the transitional phase from Kesko's previous long-term commitment and incentive
scheme, which was based on one-year performance periods, to the new commitment and
incentive scheme adopted in 2017 with two-year performance periods. RSP (Restricted Share
Pool) is a secondary share plan for special situations, to be decided upon separately. The
plan consists of annually commencing individual share plans that each have a three-year
commitment period, after which the potentially promised share awards for an individual plan
will be paid to the participants, provided that their employment or service relationship with
Kesko Group continues until the payment of the awards.
The 2014-2016 share-based compensation scheme had three one-year performance periods:
calendar years 2014, 2015 and 2016. A commitment period of three calendar years following
each performance period was attached to the shares granted, during which the shares could
not be pledged or transferred, but the other rights attached to the shares remained in force.
If a person's employment or service relationship was terminated prior to the expiry of a
commitment period, the person must, as a rule, return the shares under transfer restriction
to Kesko or its designate for no consideration. In the 2014-2016 plans, in addition to the
shares granted, a cash component at maximum equal to the value of the shares was paid to
cover the taxes and tax-like charges incurred under the award.
The purpose of the share-based compensation schemes is to promote Kesko's business
and increase the Company's value by aligning the objectives of the shareholders and
executives. The schemes also aim to commit the grantees to Kesko Group and give them the
opportunity to receive Company shares upon fulfilling the objectives set in the share-based
compensationplan.
The assumptions used in accounting for the share-based compensation plan are presented in
the following tables.
Share award grant dates and fair values:
PSP, KPSP and RSP PSP KPSP RSP PSP RSP
Grant dates .. .. .. .. ..
Grant date fair value of share award, € . . . . .
Share price at grant date, € . . . . .
Share-based compensation plan duration
Performance period start date .. .. - .. -
Perfromance period end date .. .. - .. -
Commitment period start date .. .. .. .. ..
Commitment period end date .. .. .. .. ..
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Share award grant dates and fair values:
PSP, RSP and Bridge plan PSP RSP PSP RSP
Bridge plan
Grant dates .. .. .. .. ..
Grant date fair value of share award, € . . . . .
Share price at grant date, € . . . . .
Share-based compensation plan duration
Performance period start date .. - .. - ..
Perfromance period end date .. - .. - ..
Commitment period start date .. .. .. .. ..
Commitment period end date .. .. .. .. ..
Assumptions applied in determining the fair value of share award:
PSP, KPSP, RSP, Bridge plan*
Performance
period -
PSP and RSP
Performance
period KPSP
Performance
period -
PSP and RSP
Performance
period -
PSP and RSP
Performance
period -
PSP
Performance
period
Bridge plan
Number of share awards granted, maximum, pcs** , , ,, ,, ,, ,,
Changes in the number of shares granted, pcs -, -, -, -, -, -,
Actual amount of share award, pcs , , ,
Number of plan participants at end of financial year
Share price at balance sheet date, € . . . . . .
Assumed fulfilment of performance criteria, % . . . . . .
Estimated number of share awards returned prior to the end of commitment
period, % . . . . . .
* The Annual General Meeting of Kesko Corporation on 28 April 2020 decided on a share issue without payment in which three (3) new A shares were issued for each existing A share, and three (3) new B shares each existing B share. The share
numbers and prices are presented with the post-split (share issue without payment) number of shares. Share numbers for the pre-2020 plans have been adjusted to correspond to the post-split number of shares.
** Gross number of shares from which the applicable withholding tax is deducted and the remaining net amount is paid in shares.
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Share award grant dates, fair values and assumptions applied in determining
the fair value of share award: share-based payments plan
Vesting period
Grant dates ..
Grant date fair value of share award, €* .
Share price at grant date, €* .
Share-based compensation plan duration
Vesting period start date ..
Vesting period end date ..
Commitment period end date ..
Number of share awards granted, maximum, pcs* ,,
Changes in the number of shares granted, pcs* -,
Actual amount of share award, pcs* ,
Number of plan participants at end of financial year
Share price at balance sheet date, €* .
Assumed fulfilment of vesting criteria, % .
Estimated number of share awards returned prior to the end of commitment
period, % .
* The share numbers and prices are presented with the post-split (share issue without payment carried out on 28 April
2020) number of shares.
The impact of the above share-based compensation plans on the Group's profit for 2020 was
€-9.5 million (€-7.0 million).
As at 31 December 2020, the amount to be recognised as expense for the financial years
2021−2023 is estimated at a total of €-10.4 million. The actual amount may differ from
theestimate.
5.5 Legal disputes and possible legal proceedings
Group companies act as plaintiffs, defendants or parties to certain legal proceedings,
disputes or investigations related to the Group’s business operations. Although according to
Kesko’s management's estimate, the outcome of pending disputes and legal and authority
proceedings is unlikely to have any material impact on the Group's financial position, the
outcome of disputes and legal and authority proceedings is difficult to predict.
Investigation by the Finnish Competition and Consumer Authority regarding Onninen Oy –
The Finnish Competition and Consumer Authority has a pending investigation concerning a
suspected infringement of competition rules by Onninen Oy. Onninen Oy was informed of
the investigation in 2015. Kesko acquired the entire capital stock of Onninen Oy on 1 June
2016. The investigation and the potential related risks are addressed in the acquisition terms
and conditions.
Legal proceedings concerning UAB Kesko Senukai Lithuania – Kesko is party to two legal
proceedings concerning the shareholder agreement of Kesko’s joint venture UAB Kesko
Senukai Lithuania and the disagreements concerning the management and development
of the company and its subsidiary. The other parties to these legal proceedings include the
minority shareholders of UAB Kesko Senukai Lithuania.
5.6 Events after the balance sheet date
No significant events after the balance sheet date.
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PARENT COMPANY'S FINANCIAL STATEMENTS (FAS)
Parent company's income statement
€ Jan.– Dec. Jan.– Dec.
Net sales ,,,. ,,,.
Other operating income ,,. ,,.
Materials and services -,,,. -,,,.
Change in inventory ,,. ,,.
Employee benefit expenses -,,. -,,.
Depreciation, amortisation and impairment -,,. -,,.
Other operating expenses -,,. -,,.
Operating profit ,,. ,,.
Finance income and costs ,,. ,,.
Profit before appropriations and taxes ,,. ,,.
Appropriations
Change in depreciation reserve -,,. -,,.
Group contribution -,,. ,,.
Profit before taxes ,,. ,,.
Income taxes -,,. -,,.
Profit for the financial year ,,. ,,.
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Parent company's balance sheet
€ Dec. Dec.
ASSETS
NON-CURRENT ASSETS
INTANGIBLE ASSETS
Intangible rights ,,. ,,.
Other intangible assets ,,. ,,.
Prepayments ,,. ,, .
,,. ,,.
PROPERTY, PLANT AND EQUIPMENT
Land and waters
Owned ,,. ,,.
Leasehold interests and connection fees ,,. ,,.
Buildings
Owned ,,. ,,.
Machinery and equipment ,,. ,,.
Other tangible assets ,,. ,,.
Prepayments and construction in progress ,,. , ,.
,,. ,,.
INVESTMENTS
Investments in subsidiaries ,,,. ,,,.
Investments in associates ,,. ,,.
Other investments ,,. ,,.
,,,. ,,,.
CURRENT ASSETS
INVENTORIES
Finished products/goods ,,. ,,.
,,. ,,.
€ Dec. Dec.
RECEIVABLES
Long-term
Receivables from subsidiaries ,,. ,,.
Receivables from associates ,,. , ,.
Other receivables ,,. ,,.
,,. ,,.
Short-term
Trade receivables ,,. ,,.
Receivables from subsidiaries ,,. ,,.
Receivables from associates ,,. ,,.
Loan receivables ,. -
Other receivables ,,. ,,.
Prepayments and accrued income ,,. ,,.
,,. ,,,.
INVESTMENTS
Other investments ,,. ,,.
CASH AND CASH EQUIVALENTS ,,. ,,.
TOTAL ASSETS ,,,. ,,,.
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€ Dec. Dec.
EQUITY AND LIABILITIES
CAPITAL AND RESERVES
Share capital ,,. ,,.
Share premium ,,. ,,.
Reserve of invested non-restricted equity ,,. ,,.
Other reserves ,,. ,,.
Retained earnings ,,. ,,.
Profit for the financial year ,,. ,,.
,,,. ,,,.
APPROPRIATIONS
Depreciation reserve ,,. ,,.
PROVISIONS
Other provisions ,,. ,,.
LIABILITIES
Non-current
Loans from financial institutes ,,. ,,.
Pension loans ,,. ,,.
Other creditors ,,. ,,.
,,. ,,.
Current
Pension loans ,,. ,,.
Advances received ,,. ,,.
Trade payables ,, . ,,.
Payables to subsidiaries ,,. ,,.
Payables to associates ,,. ,,.
Other payables ,,. ,,.
Accruals and deferred income ,,. ,,.
,,,. ,,,.
TOTAL LIABILITIES ,,,. ,,,.
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Parent company's cash flow statement
€ Jan.– Dec. Jan.– Dec.
Cash flows from operating activities
Profit before appropriations ,,. ,,.
Adjustments
Depreciation according to plan ,,. ,,.
Finance income and costs -,,. -,,.
Other adjustments -,,. -,,.
,,. ,,.
Change in working capital
Current non-interest-bearing receivables,
increase (-)/decrease (+) -,,. ,,.
Inventories increase (-)/decrease (+) -,,. -,,.
Current non-interest-bearing liabilities, increase
(+)/decrease (-) ,,. -,,.
,,. ,,.
Interests paid and other finance costs -,,. -,,.
Interests received ,,. ,,.
Dividends received ,,. ,,.
Income tax paid -,,. -,,.
-,,. ,,.
Net cash generated from operating activities ,,. ,,.
Cash flows from investing activities
Purchases of property, plant, equipment and
intangible assets -,,. -,,.
Acquisitions of subsidiaries -,,. -,,.
Sales of subsidiaries, net of cash ,. -
Acquisitions of associates -,. -
Proceeds from equity accounted investments ,,. , ,.
Proceeds from disposal of property, plant,
equipment and intangible assets ,,. ,,.
Long-term receivables, increase (-)/decrease (+) ,,. -,,.
Net cash used in investing activities -,,. -,,.
€ Jan.– Dec. Jan.– Dec.
Cash flows from financing activities
Interest-bearing liabilities, increase (+)/decrease (-) ,,. ,,.
Short-term interest-bearing receivables, increase
(-)/decrease (+) -,,. -,,.
Short-term money market investments, increase
(-)/decrease (+) -,,. ,,.
Dividends paid -,,. -,,.
Group contributions received and paid -,,. ,,.
Other items -,,. -,,.
Net cash used in financing activities -,,. -,,.
Change in cash and cash equivalents ,,. -,,.
Cash and cash equivalents as at 1 Jan. ,,. ,,.
Cash and cash equivalents transferred in
connection with dissolution ,. ,,.
Cash and cash equivalents as at 31 Dec. ,,. ,,.
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Notes to the parent company's financial statements
Note 1. Principles used for preparing the financial statements
Kesko Corporation's financial statements have been prepared in compliance with the Finnish
Accounting Standards (FAS).
Non-current assets
Intangible assets
Intangible assets are stated in the balance sheet at cost less depreciation according to plan
and possible amortisations.
Depreciation plan
Other capitalised expenditure 5−10 years
IT software and licences 3−5 years
Property, plant and equipment
Property, plant and equipment are stated in the balance sheet at cost less depreciation
according to plan and possible amortisations.
Depreciation plan
Depreciation according to plan is calculated on a straight line basis so as to write off the cost
of property, plant and equipment over their estimated useful lives.
The most common estimated useful lives are:
Buildings 10–33 years
Fixtures and fittings 8 years
Machinery and equipment 25% reducing balance method
Transportation fleet 5 years
IT equipment 3–8 years
Other tangible assets 5−14 years
Land and connection fees have not been depreciated. The total of depreciation according to
plan and the change in depreciation reserve comply with the Finnish Business Tax Act. The
change in depreciation reserve has been treated as appropriations.
Valuation of inventories
Inventories are stated, using the moving-average cost method, at lower of direct purchase
cost, replacement cost and probable selling price.
Valuation of financial assets
Marketable securities have been valued at the lower of cost and net realisable value.
Foreign currency items
Foreign currency transactions have been recorded in euros using the rate of exchange at the
date of transaction. Foreign currency receivables and payables have been translated into
euros using the rate of exchange at the balance sheet date. If a receivable or a payable is tied
to a fixed rate of exchange, it has been used for translation. Exchange rate differences have
been recognised in profit or loss.
Derivative contracts
Interest rate derivatives
Interest rate derivatives are used to modify the durations of borrowings. The target duration
is three years and it is allowed to vary between one and a half and four years. Cash flows
arising from interest rate derivatives are recognised during the financial year as interest
income or expenses, according to the maturity date. In the financial statements, outstanding
interest rate forward contracts, interest rate future contracts, interest rate option contracts
and interest rate swap contracts are stated at fair value, but unrealised revaluation is not
stated as income. Any valuation losses are included in interest expenses.
Foreign currency derivatives
Foreign currency derivatives are used for hedging against translation and transaction risks.
Foreign currency derivatives are used for hedging against commercial foreign exchange
133KESKO'S YEAR 2020 I FINANCIAL REVIEW
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risk. Foreign exchange forward contracts are valued using the forward exchange rate of the
balance sheet date. The exchange differences arising from outstanding derivative contracts
are reported in financial items and adjustment items of sales and purchases. If a derivative
has been used for hedging a foreign-currency-denominated asset, the change in value
has been recognised against that of the asset item. The premiums of option contracts are
included in the balance sheet accruals until they expire, or if a value change at the balance
sheet date so requires, recognition in profit or loss.
Commodity derivatives
Ankkuri-Energia Oy, a Kesko Corporation subsidiary, uses electricity derivatives to balance
the energy costs of the Group and its retailers. Kesko Corporation is an external counterparty
in electricity derivatives with a bank, and enters into corresponding internal hedge with
Ankkuri-Energia Oy. At no stage does Kesko Corporation have derivative positions, and thus
there are no effects on profit or loss. The electricity price risk is reviewed on a 5-year time
span. With respect to derivatives hedging the price of electricity supplied during the financial
year, change in fair value is recognised at Kesko under finance income and cost. Unrealised
gains and losses on contracts hedging future purchases are not recognised in profit or loss.
Pension plans
Personnel's statutory pension provision is organised through pension insurance companies
and the voluntary supplementary pension provision is mainly organised through Kesko
Pension Fund. Pension costs are recognised as expense in the income statement.
Provisions
Provisions stated in the balance sheet include items committed to under agreements or
otherwise but not yet realised. Changes in provisions are included in the income statement.
Rent liabilities for vacant rented premises no longer used for the Group's business operations,
as well as losses resulting from renting the premises to third parties, are included in provisions.
Income tax
Income tax includes the income tax payments for the period calculated based on the profit
for the period, and taxes payable for prior periods, or tax refunds. Deferred taxes are not
included in the parent company's income statement and balance sheet.
Notes to the income statement
Note 2. Net sales by division
€ million
Grocery trade ,. ,.
Building and home improvement trade . .
Others . .
Total ,. ,.
Note 3. Material and services
€ million
Material and services -,. -,.
Change in inventory . .
External services -. -.
Total -,. -,.
Note 4. Other operating income
€ million
Gains on sales of real estate and shares . .
Rent income . .
Fees for services . .
Profits from mergers . .
Others . .
Total . .
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Note 5. Employee benefit expenses
€ million
Salaries and fees -. -.
Social security costs
Pension costs -. -.
Other social security costs -. -.
Total -. -.
In the comparison perios Kesko’s pension costs include a €45.3 million return of surplus
assets by Kesko Pension Fund.
The average number of personnel at Kesko Corporation was 7,271 (7,224) people.
Salaries and fees to the management
€ million
Managing Director . .
Members of the Board of Directors . .
Total . .
An analysis of the management's salaries and fees is included in the notes to the
consolidated financial statements.
Note 6. Depreciation, amortisation and impairment
€ million
Depreciation according to plan -. -.
Impairment, non-current assets -. -.
Total -. -.
Note 7. Other operating expenses
€ million
Rent expenses -. -.
Marketing expenses -. -.
Maintenance of real estate and store sites -. -.
Losses on disposals of non-current assets - -.
Telecommunication expenses -. -.
Losses from mergers -. .
Other operating expenses -. -.
Total -. -.
Auditors' fees
€ million
Audit . .
Tax consultation . .
Other services . .
Total . .
The Annual General Meeting on 28 April 2020 elected Deloitte Oy as Kesko Corporation’s
Auditor. In 2019, Kesko’s Auditor was PricewaterhouseCoopers Oy.
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Note 8. Finance income and costs
€ million
Income from long-term investments
Dividend income from subsidiaries . .
Dividend income from associates - .
Dividend income from others . .
Gains on disposal of shares . .
Gains on sales of investments . .
Income from long-term investments, total . .
Other interest and finance income
From subsidiaries . .
From others . .
Interest and finance income, total . .
Impairment of investments held as non-current assets
Impairment of shares -. -.
Changes in fair value . .
Impairment and changes in fair value of investments held as
non-current assets, total -. .
Interest and other finance costs
To subsidiaries -. -.
To others -. -.
Interest and finance costs, total -. -.
Total . .
Note 9. Appropriations
€ million
Difference between depreciation according to plan and
depreciation in taxation -. -.
Group contributions received . .
Group contributions paid -. -.
Total -. .
An increased 50% depreciation on machinery and equipment and similar fixed assets acquired
during the 2020 financial year has been made in compliance with the Finnish Business Tax Act.
Note 10. Changes in provisions
€ million
Other changes -. -.
Total -. -.
Note 11. Income taxes
€ million
Income taxes on group contributions . -.
Income taxes on ordinary activities -. -.
Taxes for prior years -. -.
Total -. -.
Note 12. Deferred taxes
Deferred tax assets and liabilities have not been recorded on the balance sheet. The deferred
tax liability on accumulated appropriations is €28.0 million. The amount of other deferred tax
liabilities or assets is not material.
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€ million
Prepayments
Acquisition cost as at 1 Jan. . .
Increases . .
Decreases -. -.
Transfers between items -. -.
Acquisition cost as at 31 Dec. . .
Book value as at 31 Dec. . .
Notes to the balance sheet
Note 13. Intangible assets
€ million
Intangible rights
Acquisition cost as at 1 Jan. . .
Increases . .
Decreases - . -.
Transfers between items . .
Acquisition cost as at 31 Dec. . .
Accumulated depreciation as at 1 Jan. -. -.
Accumulated depreciation on decreases and transfers . .
Depreciation and amortisations for the financial year -. -.
Accumulated depreciation as at 31 Dec. -. -.
Book value as at 31 Dec. . .
Other intangible assets
Acquisition cost as at 1 Jan. . .
Increases . .
Decreases -. -.
Transfers between items . .
Acquisition cost as at 31 Dec. . .
Accumulated depreciation as at 1 Jan. -. -.
Accumulated depreciation on decreases and transfers . .
Depreciation and amortisations for the financial year -. -.
Accumulated depreciation as at 31 Dec. -. -.
Book value as at 31 Dec. . .
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Note 14. Property, plant and equipment
€ million
Land and waters, owned
Acquisition cost as at 1 Jan. . .
Increases . .
Transferred in mergers . .
Decreases - -.
Transfers between items . .
Acquisition cost as at 31 Dec. . .
Book value as at 31 Dec. . .
Land and waters, leasehold interests
Acquisition cost as at 1 Jan. . .
Increases - .
Transfers between items - .
Acquisition cost as at 31 Dec. . .
Book value as at 31 Dec. . .
Buildings
Acquisition cost as at 1 Jan. . .
Increases . .
Transferred in mergers . .
Decreases -. .
Transfers between items . .
Acquisition cost as at 31 Dec. . .
Accumulated depreciation as at 1 Jan. -. -.
Transferred in mergers -. .
Accumulated depreciation on decreases and transfers . .
Depreciation for the financial year -. -.
Accumulated depreciation as at 31 Dec. -. -.
Book value as at 31 Dec. . .
€ million
Machinery and equipment
Acquisition cost as at 1 Jan. . .
Increases . .
Decreases -. -.
Transfers between items . .
Acquisition cost as at 31 Dec. . .
Accumulated depreciation as at 1 Jan. -. -.
Accumulated depreciation on decreases and transfers . .
Depreciation for the financial year -. -.
Accumulated depreciation as at 31 Dec. -. -.
Book value as at 31 Dec. . .
Other tangible assets
Acquisition cost as at 1 Jan. . .
Increases . .
Transferred in mergers . .
Decreases . .
Transfers between items . .
Acquisition cost as at 31 Dec. . .
Accumulated depreciation as at 1 Jan. -. -.
Transferred in mergers . .
Accumulated depreciation on decreases and transfers . .
Depreciation for the financial year -. -.
Accumulated depreciation as at 31 Dec. -. -.
Book value as at 31 Dec. . .
Prepayments and construction in progress
Acquisition cost as at 1 Jan. . .
Increases . .
Decreases -. .
Transfers between items -. -.
Acquisition cost as at 31 Dec. . .
Book value as at 31 Dec. . .
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Note 15. Investments
€ million
Investments in subsidiaries
Acquisition cost as at 1 Jan. ,. ,.
Increases . .
Transferred in mergers . .
Decreases -. - .
Transfers between items -. .
Acquisition cost as at 31 Dec. ,. ,.
Impairment as at 1 Jan. - . -.
Accumulated impairments on decreases - .
Accumulated impairments on transfers - -.
Impairment for the period -. -.
Impairment as at 31 Dec. -. - .
Book value as at 31 Dec. ,. ,.
Investments in associates
Acquisition cost as at 1 Jan. . .
Increases . -
Decreases -. -.
Transfers between items . -.
Book value as at 31 Dec. . .
Other investments
Acquisition cost as at 1 Jan. . .
Increases . .
Transferred in mergers . -.
Transfers between items - .
Acquisition cost as at 31 Dec. . .
Book value as at 31 Dec. . .
An analysis of Kesko Corporation's ownership interests in other companies as at 31
December 2020 is presented in the notes to the consolidated financial statements.
Note 16. Receivables
Receivables from subsidiaries
€ million
Long-term
Loan receivables . .
Long-term, total . .
Short-term
Trade receivables . .
Loan receivables . .
Prepayments and accrued income . .
Short-term, total . .
Total . .
Receivables from associates and joint ventures
€ million
Long-term
Loan receivables . .
Other receivables . .
Long-term, total . .
Short-term receivables . .
Total . .
Kesko Corporation has advanced a long-term loan to its associated company, Mercada Oy,
in the amount of €56.0 million and to its joint venture, UAB Kesko Senukai, in the amount of
€13,9 million.
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Prepayments and accrued income
€ million
Taxes - .
Fees for services . .
Employee benefit expenses . .
Purchases . .
Others . .
Total . .
Note 17. Shareholders' equity
€ million
Share
capital
Share
premium
Contin-
gency
fund
Reserve of
invested
non-
restricted
equity
Retained
earnings
Total
equity
Balance as at 1 January 2019 . . . . ,. ,.
Dividends -. -.
Treasury shares . .
Transfer to donations -. -.
Profit for the year . .
Balance as at 31 December
2019 . . . . ,. ,.
Dividends -. -.
Treasury shares . .
Transfer to donations -. -.
Profit for the year . .
Balance as at 31 December
2020 . . . . ,. ,.
Restricted equity
Share capital . .
Share premium . .
Total . .
Non-restricted equity
Contingency fund . .
Reserve of invested non-restricted equity . .
Retained earnings ,. ,.
Total ,. ,.
Calculation of distributable profits
Other reserves . .
Retained earnings . .
Profit for the year . .
Total ,. ,.
On 31 December 2020, Kesko’s distributable assets totalled €1,436,295,866.09.
Breakdown of parent company shares Pcs
A shares ,,
B shares ,,
Total ,,
Votes attached to shares Number of votes
A share
B share
The number of shares in Kesko Corporation increased during the financial year following the
resolution of the 28 April 2020 Annual General Meeting to conduct a share issue without
payment (share split). In the share issue without payment, new shares were issued without
payment to the shareholders in proportion to their existing holdings, so that three (3) new
A shares were issued for each A share held, and three (3) new B shares for each B share
held. At the end of December 2020, the total number of shares in Kesko Corporation was
400,079,008, of which 126,948,028, or 31.7%, were A shares and 273,130,980 or 68.3%,
were B shares. All issued shares have been paid in full. The maximum number of A shares is
250 million and the maximum number of B shares is 360 million, and the maximum number
of total shares 610 million.
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Board's authorisations to acquire and issue own shares
Authorised by the General Meeting, the Board acquired a total of 500,000 of the Company’s
own B shares during the 2018 financial year. The Board also acquired a total of 1,200,000 of
the Company’s own B shares during the financial years 2011 and 2014. The shares are held
by the Company as treasury shares and the Board is entitled to transfer them. The Board has
an authorisation, granted by the Annual General Meeting of 28 April 2020 and valid until 30
June 2021, to issue a maximum of 40,000,000 B shares.
Treasury shares
On 5 May 2020, Kesko Corporation transferred a total of 8,158 of its own B shares (KESKOB)
held by the Company as treasury shares to the members of Kesko’s Board of Directors. The
transfer was based on the resolution made by the Annual General Meeting on 28 April 2020
to pay a portion of the Board members’ annual fees in Kesko B shares.
Shares
Own B shares held by the Company as at 31 Dec. 2019 ,,
Transferred, share-based compensation scheme -,
Transferred, Board of Directors -,
Returned during the financial year ,
Own B shares held by the Company as at 31 Dec. 2020 ,,
Note 18. Provisions
€ million
Provisions for leases . .
Other provisions . .
Total . .
Note 19. Non-current liabilities
During the 2019 financial year, Kesko made financing agreements totalling €700 million,
where the interest margin will increase or decrease depending on Kesko’s ability to meet
the sustainability targets set for its carbon footprint, food waste, and audits in high-risk
countries. During the financial year 2019 Kesko drew down €300 million, and has the
possibility to draw down more later on with a separate credit decision by the banks. Kesko
also agreed on a Revolving Credit Facility of €100 million linked to the same sustainability
targets, which was not in use on 31 December 2020.
Note 20. Current liabilities
€ million
Liabilities to subsidiaries
Trade payables . .
Other payables . .
Accruals and deferred income . .
Total . .
Liabilities to associates
Trade payables . .
Accruals and deferred income . .
Other payables . .
Total . .
Accruals and deferred income
Employee benefit expenses . .
Accruals and deferred income from purchases . .
Taxes . -
Transaction prices . .
Fees for services . .
Others . .
Total . .
Note 21. Non-interest-bearing liabilities
€ million
Current liabilities ,. .
Total ,. .
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Note 22. Guarantees, liability engagements and other liabilities
€ million
Real estate mortgages
For own debt . .
For subsidiaries . .
Pledged shares . .
Guarantees
For own debt . .
For subsidiaries . .
Other liabilities and liability engagements
For own debt . .
Rent liabilities on machinery and fixtures
Falling due within a year . .
Falling due later . .
Rent liabilities on real estate
Falling due within a year . .
Falling due later ,. ,.
Foreign currency risks
The result of the Company's operating activities is affected by the amount of working capital
financing granted by the Company to its foreign subsidiaries and in part also, in its capacity
as the Group's parent company, the subsidiaries' hedgings against their parent.
The foreign currency exposure is hedged using foreign currency derivatives in accordance
with the confirmed foreign currency risk policy. The fair value of foreign currency derivatives
is calculated by measuring them based on quoted market prices at the balance sheet date.
The measurement of derivatives is based on direct market data, in other words, they are
classified at level 2. The maximum credit risk of these derivatives corresponds to their fair
value at the balance sheet date.
The results of derivatives are recognised in financial items.
Company's transaction exposure
as at Dec.
€ million USD SEK NOK PLN
Transaction risk -. . . .
Hedging derivatives . -. -. -.
Exposure . . . .
Company's transaction exposure
as at Dec.
€ million USD SEK NOK PLN
Transaction risk -. . . .
Hedging derivatives . -. -. -.
Exposure . . . .
The sensitivity analysis of transaction exposure shows the profit impact of a +/-10%
exchange rate change on the Company's foreign currency denominated acquisitions and
hedging foreign currency derivatives.
Sensitivity analysis, impact on pre-tax profit
as at Dec.
€ million USD SEK NOK PLN
Change +10% -. -. -. -.
Change -10% . . . .
Sensitivity analysis, impact on pre-tax profit
as at Dec.
€ million USD SEK NOK PLN
Change +10% -. -. -. -.
Change -10% . . . .
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Derivatives
Fair values of derivative
contracts € million
Dec.
Positive fair
value (balance
sheet value)
Dec.
Negative fair
value (balance
sheet value)
Dec.
Positive fair
value (balance
sheet value)
Dec.
Negative fair
value (balance
sheet value)
Currency derivatives . -. . -.
Interest rate derivatives . -. . -.
Notional amounts of
derivative contracts
€ million Dec. Notional amount Dec. Notional amount
Currency derivatives . .
Interest rate derivatives . .
All currency derivatives mature in 2021. Interest rate derivatives mature in 2022, 2024, 2026
and 2027.
€ million Fair value Fair value
Liabilities arising from
derivative instruments
Values of underlying
instruments as at 31 Dec.
Interest rate derivatives
Interest rate swaps -. -.
Foreign currency derivatives
Forward and future contracts -. -.
Outside the Group -. -.
Inside the Group . .
Currency swaps
Commodity derivatives
Electricity derivatives . .
Outside the Group -. .
Inside the Group . -.
Note 23. Cash and cash equivalents within
the statement of cash flows
€ million
Available-for-sale financial assets . .
Cash and cash equivalents . .
Total . .
In the statement of cash flows, cash and cash equivalents includes those recognised in the
balance sheet and portions of available-for-sale financial assets with maturities of less than
three months from acquisition.
Note 24. Related parties
Kesko Corporation’s related parties include the company’s management (the Board of
Directors, President and CEO and the Group Management Board) and the companies
controlled by them, their family members and companies controlled by the family members,
the Group’s subsidiaries, associates and joint ventures, and Kesko Pension Fund. The
subsidiaries, associates and joint ventures are listed in a separate note (note 5.2).
Some members of the Kesko Board are K-retailers. Kesko Corporation sells goods and
services to companies controlled by them. Goods and services have been sold to related
parties on normal market terms and conditions and at market prices.
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SIGNATURES
Signatures for financial statements
and report by the Board of Directors
Helsinki, 2 February 2021
Esa Kiiskinen Peter Fagernäs
Jannica Fagerholm Piia Karhu Matti Kyytsönen
Matti Naumanen Toni Pokela Mikko Helander
President and CEO
The Auditor's note
Our auditor's report has been issued today.
Helsinki, 2 February 2021
Deloitte Oy
Authorised public accountants
Jukka Vattulainen
APA
144KESKO'S YEAR 2020 I FINANCIAL REVIEW
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AUDITOR’S REPORT (Translation of the Finnish original)
To the Annual General Meeting of Kesko Oyj
Report on the Audit of Financial Statements
Opinion
We have audited the financial statements of Kesko Oyj (business identity code 0109862-8)
for the year ended 31 December, 2020. The financial statements comprise the consolidated
income statement, statement of comprehensive income, financial position, statement of
cash flows, statement of changes in equity and notes, including a summary of significant
accounting policies, as well as the parent company’s income statement, balance sheet,
statement of cash flows and notes.
In our opinion
• the consolidated financial statements give a true and fair view of the group’s financial
position, financial performance and cash flows in accordance with International Financial
Reporting Standards (IFRS) as adopted by the EU,
• the financial statements give a true and fair view of the parent company’s financial
performance and financial position in accordance with the laws and regulations governing
the preparation of financial statements in Finland and comply with statutory requirements.
Our opinion is consistent with the additional report submitted to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with good auditing practice in Finland. Our
responsibilities under good auditing practice are further described in the Auditor’s
Responsibilities for the Audit of Financial Statements section of our report.
We are independent of the parent company and of the group companies in accordance with
the ethical requirements that are applicable in Finland and are relevant to our audit, and we
have fulfilled our other ethical responsibilities in accordance with these requirements.
In our best knowledge and understanding, the non-audit services that we have provided
to the parent company and group companies are in compliance with laws and regulations
applicable in Finland regarding these services, and we have not provided any prohibited non-
audit services referred to in Article 5(1) of regulation (EU) 537/2014.
The non-audit services that we have provided have been disclosed in note 2.5 to the
consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most
significance in our audit of the financial statements of the current period. These matters were
addressed in the context of our audit of the financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
We have also addressed the risk of management override of internal controls. This includes
consideration of whether there was evidence of management bias that represented a risk of
material misstatement due to fraud.
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Key audit matter How our audit addressed the key audit matter
Impairment testing of Goodwill and trademarks
Refer to Note 3.3 in the consolidated financial
statements of Kesko Oyj.
Consolidated statement of financial position
includes goodwill of €572.1 million (€479.0
million), of which €124.8 million relates to
goodwill arising from provisional business
combination accounting prepared in accordance
with IFRS 3 relating to businesses acquired during
2020. In addition, Consolidated statement of
financial position includes €87.7 million (€87.4
million) Trademarks.
Goodwill is subject to management’s annual
impairment test. As a result of management’s
goodwill impairment test, no impairment was
identified.
Goodwill impairment testing requires substantial
management judgment over the projected future
business performance, cash flows and applied
discount rate.
Note 3.3 in the Consolidated financial statements
describes key assumptions used by management
and sensitivity analysis for the impairment tests
approved by the Board.
This matter is a significant risk of material
misstatement referred to in Article 10(2c) of
Regulation (EU) No 537/2014.
As part of our audit procedures we have assessed
the impairment testing calculations prepared by
management and approved by the board, and
assessed key controls over impairment testing for
each cash generating unit.
The recoverable amounts of the cash-generating
units are determined based on value-in-use
calculations. Estimated Cash flows used in these
calculations are based on three-year financial
plans approved by management. The key
assumptions used for the plans are total market
growth and profitability trends, changes in store
network, product and service selection, pricing
and movements in operating costs.
We have assessed the key assumptions used by
management in the Goodwill impairment tests:
• comparing the growth and profitability estimates
to historical performance.
• comparing the estimates with the latest
approved budgets and strategic plans.
• comparing applied discount rates to external
sources.
• testing the mathematical accuracy of the
impairment calculations
We have also assessed the related disclosure
information.
Key audit matter How our audit addressed the key audit matter
Revenue recognition
Refer to accounting policies for the consolidated
financial statements and note 2.1.
Consolidated Net Sales of Kesko Oyj amounted
to €10,669.2 million (€10,720.3 million). Kesko
operates in grocery trade, building and technical
trade, and car trade through wide sales- and retail
network.
Consolidated net sales comprise the sale of
goods, services and energy from contracts
with customers. The contribution of the sales
of services and energy to total net sales is not
significant. The Group sells products to retailers
and other retail dealers and engages in own
retailing.
Due to the volume of transactions and due to the
significance of related IT systems for the revenue
process, we identified as a specific risk of error
and fraud in respect of revenue recognition, as
follows:
- Improper revenue recognition relating to manual
journal entries for exceptional sales transactions.
Revenue recognition due to its significance require
specific attention both from the accounting and
the auditing perspective.
We have evaluated the IT systems used for
recognizing revenue by testing access and change
management controls. We also evaluated process
level controls by performing walkthroughs of
each significant class of revenue transactions,
assessed the design of key controls and tested the
operating effectiveness of those controls.
We have analyzed the revenue transactions
recored to net sales to identify entries originating
from automated processes and entries from
manual journals, and to focus our audit
procedures.
Our audit procedures to ensure appropriateness
of revenue recognition for sales transaction
population recorded to net sales have consisted
among others, performing comprehensive data
analytics based substantive audit procedures
together with sample based test of details.
We have made a focused risk assessment
for addressing fraud risk relating to revenue
recognition, and identified manual journal
entries by applying data analytics. Based on the
risk assessment for fraud, we have focused our
substantive audit procedures for the transactions
identified to ensure the appropriateness and
accuracy. We have assessed the basis and
appropriateness for significant credit entries
and the appropriateness of exceptional entries,
and assessed the appropriateness of applied
management judgment.
We have no key audit matters to report with respect to our audit of the parent company financial
statements. There are no significant risks of material misstatement referred to in Article 10(2c) of
Regulation (EU) No 537/2014 with respect to the parent company financial statements.
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Responsibilities of the Board of Directors and the
President and CEO for the financial statements
The Board of Directors and the President and CEO are responsible for the preparation
of consolidated financial statements that give a true and fair view in accordance with
International Financial Reporting Standards (IFRS) as adopted by the EU, and of financial
statements that give a true and fair view in accordance with the laws and regulations
governing the preparation of financial statements in Finland and comply with statutory
requirements. The Board of Directors and CEO are also responsible for such internal control
as they determine is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Board of Directors and the President and CEO are
responsible for assessing the parent company’s and the group’s ability to continue as going
concern, disclosing, as applicable, matters relating to going concern and using the going
concern basis of accounting. The financial statements are prepared using the going concern
basis of accounting unless there is an intention to liquidate the parent company or the group
or cease operations, or there is no realistic alternative but to do so.
Auditor’s responsibilities in the audit of financial statements
Our objectives are to obtain reasonable assurance on whether the financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with good auditing
practice will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of
the financialstatements.
As part of an audit in accordance with good auditing practice, we exercise professional
judgment and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the financial statements, whether
due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for
one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the parent company’s or the group’s internal
control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of the Board of Directors’ and the President and
CEO’s use of the going concern basis of accounting and based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may
cast significant doubt on the parent company’s or the group’s ability to continue as a
going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in the financial statements or, if
such disclosures are inadequate, to modify our opinion. Our conclusions are based on the
audit evidence obtained up to the date of our auditor’s report. However, future events or
conditions may cause the company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements,
including the disclosures, and whether the financial statements represent the underlying
transactions and events so that the financial statements give a true and fair view.
• Obtain sufficient appropriate audit evidence regarding the financial information of the
entities or business activities within the group to express an opinion on the consolidated
financial statements. We are responsible for the direction, supervision and performance
of the group audit. We remain solely responsible for our audit opinion.
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We communicate with those charged with governance regarding, among other matters, the
planned scope and timing of the audit and significant audit findings, including any significant
deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied
with relevant ethical requirements regarding independence, and communicate with
them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those
matters that were of most significance in the audit of the financial statements of the current
period and are therefore the key audit matters. We describe these matters in our auditor’s
report unless law or regulation precludes public disclosure about the matter or when, in
extremely rare circumstances, we determine that a matter should not be communicated in
our report because the adverse consequences of doing so would reasonably be expected to
outweigh the public interest benefits of such communication.
Other Reporting Requirements
Information on our audit engagement
We have been acting as Kesko’s auditor a total period of uninterrupted engagement of 1 year
since 2020.
Other information
The Board of Directors and the President and CEO are responsible for the other information.
The other information comprises the report of the Board of Directors and the information
included in the Annual Report, but does not include the financial statements and our report
thereon. We have obtained the report of the Board of Directors prior to the date of the
auditor’s report, and the Annual Report is expected to be made available to us after thatdate.
Our opinion on the financial statements does not cover the other information.
In connection with our audit of the financial statements, our responsibility is to read the
other information identified above and, in doing so, consider whether the other information
is materially inconsistent with the financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated. With respect to report of the Board
of Directors, our responsibility also includes considering whether the report of the Board
of Directors has been prepared in accordance with the applicable laws and regulations. In
our opinion, the information in the report of the Board of Directors is consistent with the
information in the financial statements and the report of the Board of Directors has been
prepared in accordance with the applicable laws and regulations.
If, based on the work we have performed on the other information that we obtained prior
to the date of this auditor’s report, we conclude that there is a material misstatement of
this other information, we are required to report this fact. We have nothing to report in
thisregard.
Other Statements
We support that the financial statements should be adopted. The proposal by the Board
of Directors regarding the use of profit shown in balance sheet is in compliance with the
Limited Liability Companies Act. We support that the Members of the Board of Directors and
the President and CEO of the parent company should be discharged from liability from the
financial period audited by us.
Helsinki, 2 February 2021
Deloitte Oy
Audit Firm
Jukka Vattulainen
Authorised Public Accountant (KHT)