NOTE 41
With respect to financial risks, the Group observes a uniform funding policy that has been approved by the company Board of Directors. Compliance with this policy and developments in the Group's financial situation are monitored by the Board of Directors' Audit Committee. The Group's Treasury is centrally responsible for the Group funding, liquidity management, relations with providers of finance, and the management of financial risks. In the main, the Group's funding is arranged through the parent company, and the Group's Treasury arranges funding for subsidiaries in their functional currencies. For companies with significant external ownership, the Group has not guaranteed financial liabilities in excess of its ownership interest.
The Kesko Group operates in eight countries and makes purchases from numerous countries. As a result, the Group is exposed to various foreign exchange risks arising from net investments in foreign operations (translation-related risks), foreign currency assets, liabilities and forecast transactions (transaction risk).
The Group companies' funding is arranged in their functional currencies. The parent company bears the ensuing foreign currency risk and hedges it by using derivatives or foreign currency-denominated loans. In the 2009 financial year, the hedging cost arising from subsidiary funding, in other words the interest rate differences between the euro and the hedged currencies, was €17.9 million (€4.6 million). These interest rate differences were 5% p.a. on average in 2009.
The Group's balance sheet is exposed to currency translation risks relating to net investments in subsidiaries outside the euro area. This balance sheet exposure has been hedged by borrowings denominated in the relevant foreign currencies and forward exchange contracts. The most significant translation positions are in the Estonian kroon, Norwegian krone, Swedish krona, Russian ruble, Lithuanian litas and Latvian lat. The position does not include the non-controlling interest in equity. In proportion to the volume of operations and the balance sheet total, the foreign currency translation risk is small. The hedging percentage of the foreign currency translation exposure has been reduced further in 2010.
The functional currency of the real estate companies in St. Petersburg and Moscow in Russia has been determined to be the euro, which is why net investments in these companies are not exposed to foreign currency translation risk, and they are not included in the currency translation position.
International purchasing activities and foreign currency denominated funding provided by the parent to subsidiaries expose the Group to transaction risks relating to several foreign currencies. The currency-specific transaction risk consists of receivables and liabilities denominated in foreign currencies in the balance sheet, forecast foreign currency cash flows, and foreign subsidiaries' liabilities and receivables with respect to the parent.
The exposure is commercially managed by, e.g., transferring exchange rate changes to selling prices, or by replacing suppliers. The remaining positions are hedged by currency derivative instruments. The percentage of hedging in commercial transactions is decided by each relevant subsidiary within the limits of documented hedging policies. The subsidiaries report their currency exposures to the Group Treasury on a monthly basis.
In the main, the subsidiaries carry out their hedging operations together with the Group Treasury, which hedges risk positions by using market transactions within the limits confirmed for each currency. Intra-Group derivatives are allocated to the segments in segment reporting.
The Group does not apply hedge accounting in accordance with IAS 39 to the hedging of currency risks relating to purchases and sales. In initial measurement, derivative instruments are recognised at cost and at subsequent measurement they are recognised at fair value. The value changes of currency derivatives used to hedge purchases and sales are recognised in 'Other operating income or expenses'.
Kesko Corporation's USD-denominated private placement loan has been hedged against currency risk and interest rate risk by applying hedge accounting. Currency and interest rate swaps to the same amount and with the same maturity as the loan have been designated as the hedging instruments. Consequently, the loan is entirely hedged against currency and interest rate risk. During the period, no amount of ineffectiveness has been recognised in the income statement relating to this credit facility.
| Konsernin translaatiopositio 31.12.2009 | |||||||
| Milj. € | LVL | NOK | EEK | SEK | RUB | LTL | BYR |
| Nettosijoitus | 2.7 | 32.4 | 63.8 | 24.3 | 28.3 | 45.8 | 1.6 |
| Suojaavat johdannaiset | 0.0 | 0.0 | -44.7 | -10.5 | -19.2 | -26.6 | 0.0 |
| Suojaavat lainat | -2.8 | -18.8 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Avoin positio | -0.1 | 13.6 | 19.1 | 13.8 | 9.1 | 19.1 | 1.6 |
| Konsernin translaatiopositio 31.12.2008 | |||||||
| Milj. € | LVL | NOK | EEK | SEK | RUB | LTL | BYR |
| Nettosijoitus | 2.0 | 38.6 | 62.9 | 2.0 | 25.1 | 37.5 | 1.9 |
| Suojaavat johdannaiset | 0.0 | 0.0 | -40.6 | -1.4 | -17.0 | -31.9 | 0.0 |
| Suojaavat lainat | -4.9 | -17.4 | -15.7 | 0.0 | 0.0 | 0.0 | 0.0 |
| Avoin positio | -2.9 | 21.2 | 6.7 | 0.6 | 8.1 | 5.6 | 1.9 |
Seuraavassa taulukossa on esitetty, miten konserniyhtiöiden toimintavaluuttojen 10 %:n muutos vaikuttaisi konsernin omaan pääomaan. Herkkyys on laskettu nettopositiosta, eli suojattavan position lisäksi on laskettu myös suojaavien johdannaisten tai lainojen vaikutus. |
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| Herkkyysanalyysi, vaikutus omaan pääomaan 31.12.2009 | |||||||
| Milj. € | LVL | NOK | EEK | SEK | RUB | LTL | BYR |
| Muutos + / -10 % | 0.0 | 1.4 | 1.9 | 1.4 | 0.9 | 1.9 | 0.2 |
| Herkkyysanalyysi, vaikutus omaan pääomaan 31.12.2008 | |||||||
| Milj. € | LVL | NOK | EEK | SEK | RUB | LTL | BYR |
| Muutos + / -10 % | -0.3 | 2.1 | 0.7 | 0.1 | 0.8 | 0.6 | 0.2 |
Interest rate movements affect the Group's interest expense. The interest rate hedging policy is aimed at equalising the effects of interest rate movements on the profits for different accounting periods.
Interest rate risks are centrally managed by the Group Treasury, which adjusts loan duration by interest rate derivative instruments. The target duration is three years which is allowed to vary between one and a half and four years. The realised duration during the period was 3.5 (3.2) years on average.
A sensitivity analysis for commercial paper liabilities realised during the period used average balance values. At the balance sheet date of 31 December 2009, the effect of interest-bearing variable rate liabilities on pre-tax profit would have been €-/+3.3 million, if the interest rate level had risen or fallen by
1 percentage point (€-/+3.8 million).
Liabilities to K-retailers consist of two types of interest-
bearing receivables payable by the Kesko Group companies to K-retailers; retailers' prepayments to Kesko, and retailers' chain rebates. Chain rebates are subsequent discounts granted to retailers and their terms vary from one store chain to another.
Private placement bonds and the aggregate amount of €170.6 million in loans from financial institutions have fixed rates, and the effective interest cost was 4.8%. At the end of the year, the average rate of variable-interest-rate loans from financial institutions, liabilities to retailers and other interest-bearing liabilities was 7.7%. Some of the loans are euro-denominated, private placement bonds are USD-denominated, and loans from financial institutions and commercial paper liabilities include NOK-denominated loans corresponding to €24.1 million (€20.5 million) and LVL-denominated loans corresponding to €21.1 million (€29.8 million).
Liquidity risk management aims at maintaining sufficient liquid assets and credit lines in order to guarantee the availability of sufficient funding for the Group's business activities at all times.
The aim is to invest liquidity consisting of financial assets in the money market by using efficient combinations of return and risk. At regular intervals, the Group's management approves the instruments and limits for each investment among those analysed by the Group Treasury. The risks and actual returns of investments are monitored regularly.
A sensitivity analysis for variable-rate receivables uses average annual balance values of invested assets. The receivables include customer financing receivables, finance lease receivables, other interest-bearing receivables, and within investments, commercial papers and bond funds. The sensitivity of bond funds has been determined based on duration. At the balance sheet date, the effect of these items on the pre-tax profit would have been €+/-4.0 million (€+/-4.4 million), and +/-€1.5 million on equity, if the interest rate level had changed by +/-1 percentage point.
At the balance sheet date, the counter value of undrawn committed long-term credit facilities was €227 million (€225 million). The committed credit limits mature at the end of 2010, 2011 and 2012. In addition, the Group's uncommitted credit lines available contain commercial paper programmes denominated in euros to a total counter value of €329 million (€449 million).
The terms and conditions of the private placement credit facility and the committed limit include ordinary financial covenants. The requirements of these covenants have been met. The loan terms included a financial covenant concerning the relation between the net debt and the amount of EBITDA, which remained well under the limit throughout the accounting period.
The debt to K-retailers consist of two types of interest-bearing receivables payable by the Kesko Group companies to K-retailers: retailers' prepayments to Kesko and retailers' chain rebates. Chain rebates are subsequent discounts given to retailers and the terms vary from one chain to another. The private placement bonds include the fair value change of currency derivative instruments.
| Konsernin transaktiopositio 31.12.2009 | ||||||||
| Milj. € | USD | SEK | NOK | EEK | LVL | LTL | RUB | BYR |
| Konsernin transaktioriski | -4.5 | 69.7 | 43.5 | -23.9 | 39.8 | -20.4 | 32.1 | -2.3 |
| Suojaavat johdannaiset | 10.1 | -68.9 | -37.8 | 25.8 | -13.5 | -3.8 | -38.8 | 0.0 |
| Suojaavat lainat | 0.0 | 0.0 | -5.3 | 0.0 | -18.3 | 0.0 | 0.0 | 0.0 |
| Avoin positio | 5.6 | 0.8 | 0.4 | 1.9 | 7.9 | -24.2 | -6.7 | -2.3 |
| Transaktionposition herkkyysanalyysissä on laskettu, mikä olisi valuuttamääräisten saamisten ja velkojen sekä näitä eriä suojaavien valuuttajohdannaisten ja -lainojen tulosvaikutus, jos kurssimuutos olisi +/- 10 %. Laskennassa ei ole mukana ennustettuja valuuttamääräisiä tulevia kassavirtoja, mutta valuuttajohdannaiset, joita käytetään näiden positioiden suojauksessa, sen sijaan sisältyvät analyysiin. |
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| Herkkyysanalyysi, vaikutus tulokseen ennen veroja 31.12.2009 | ||||||||
| Milj. € | USD | SEK | NOK | EEK | LVL | LTL | RUB | BYR |
| Muutos + / -10 % | 0.6 | 0.1 | 0.0 | 0.2 | 0.8 | -2.4 | -0.7 | -0.2 |
The Group's liquid assets have mainly been invested in the debt instruments of major Finnish companies, in certificates of deposit and in deposits in banks operating in Kesko's market area, in Finnish and Swedish government bonds, and in the bonds of selected companies. The return on these investments for 2009 was 2.2% (4.9%). The maximum credit risk is the fair value of these investments in the balance sheet at the balance sheet date as presented below. The classification is based on the measurement hierarchy required by IFRS 7: level 1 instruments are traded in active markets and their fair values are the quoted prices. The fair values of level 2 instruments are derived from market data, but these instruments are not so actively traded. The fair values of level 3 instruments are partly based on measurement parameters that require management's judgement.
The business companies of the Group's divisions are responsible for the management of the credit risk associated with trade receivables. The company has a credit policy and compliance with it is monitored. The aim is to secure the payment of receivables by carefully assessing customers' creditworthiness, by reviewing customer credit terms and collateral requirements, by effective credit control and credit insurances as applicable. In Finland, the main part of the Group's business activities is carried out in cooperation with retailers. According to the retailer agreements, retailers lodge bank overdrafts as collateral against their trade payables to the relevant Kesko subsidiaries.
Group companies apply a uniform practice to measuring past due receivables. A receivable is written down when there is objective evidence of impairment. The ageing analysis of trade receivables at 31 December is as follows:
| Ageing analysis of trade receivables | ||
| € million | 2009 | 2008 |
| Trade receivables fully performing | 550.0 | 567.7 |
| 1–7 days past due | 14.5 | 18.4 |
| 8–30 days past due | 9.2 | 20.0 |
| 31–60 days past due | 4.8 | 6.8 |
| Over 60 days past due | 15.1 | 20.2 |
| Total | 593.6 | 633.1 |
Of trade receivables, €319.5 million (€298.1 million) were from chain retailers and €38.0 million (€21.4 million) were credit card receivables. 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 realisation value of the counter collateral given by the K-retail company and entrepreneur to Vähittäiskaupan Takaus. At the end of the year, the aggregate value of the counterparty collateral was €164.1 million. In addition, the collateral for receivables includes other collateral, such as business mortgages and other pledged assets.
The trade receivable impairments were €19.9 million. An amount of €12.6 million in credit losses and impairments has been recognised in the net profit for the period.
The amount of receivables with renegotiated terms amounted to €13.0 million at 31 December 2009.
Financial instruments involve the risk of counterparties failing to settle their obligations. Kesko only makes currency and other derivative contracts with banks that have good creditworthiness. Liquid funds are invested annually, within the limits confirmed for each counterparty, in instruments with good creditworthiness. Company and bank-specific limits in terms of euros and time are set for interest investments. These limits are reviewed during the year depending on the market situation.
| Rahoitusvelkojen ja niihin liittyvien rahoituskulujen diskonttaamattomat kassavirrat 31.12.2009 | ||||||
| Milj. € | 2010 | 2011 | 2012 | 2013 | 2014 | 2015- |
| Lainat rahoituslaitoksilta | 8.2 | 1.2 | 17.8 | 0.9 | 0.7 | 26.7 |
| rahoituskulut | 4.6 | 3.4 | 2.2 | 1.1 | 1.1 | 1.3 |
| Suunnatut velkakirjalainat (USD) | 41.6 | 41.6 | ||||
| rahoituskulut | 5.2 | 5.2 | 5.2 | 5.2 | 3.9 | 7.2 |
| Eläkelainat | 2.9 | 5.8 | 5.8 | 5.8 | 26.3 | |
| rahoituskulut | 1.9 | 1.9 | 1.7 | 1.4 | 1.2 | 2.6 |
| Rahoitusleasingvelat | 17.3 | 23.4 | 10.8 | 10.5 | 13.3 | 10.5 |
| rahoituskulut | 3.6 | 1.9 | 1.6 | 1.5 | 1.5 | 0.4 |
| Velat K-kauppiaille | 109.7 | |||||
| rahoituskulut | 0.5 | |||||
| Muut korolliset velat | 56.6 | |||||
| rahoituskulut | 0.1 | |||||
| Yritystodistukset | ||||||
| rahoituskulut | ||||||
| Pitkäaikaiset korottomat velat | 0.0 | 0.0 | 0.0 | |||
| Lyhytaikaiset korottomat velat | ||||||
| Ostovelat | 703.5 | |||||
| Siirtovelat | 245.0 | |||||
| Muut korottomat velat | 161.6 | |||||
Rahoitusvelkojen ja niihin liittyvien rahoituskulujen diskonttaamattomat kassavirrat 31.12.2008 |
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| Milj. € | 2009 | 2010 | 2011 | 2012 | 2013 | 2014– |
| Lainat rahoituslaitoksilta | 20.0 | 0.8 | 1.0 | 0.8 | 0.7 | 23.6 |
| rahoituskulut | 2.6 | 1.2 | 1.2 | 1.1 | 1.1 | 2.4 |
| Suunnatut velkakirjalainat (USD) | 0.0 | 0.0 | 86.2 | |||
| rahoituskulut | 5.4 | 5.4 | 5.4 | 5.4 | 5.4 | 11.5 |
| Eläkelainat | ||||||
| rahoituskulut | ||||||
| Rahoitusleasingvelat | 22.7 | 11.8 | 23.4 | 10.8 | 10.6 | 13.4 |
| rahoituskulut | 4.5 | 2.5 | 1.8 | 1.5 | 1.5 | 0.7 |
| Velat K-kauppiaille | 114.1 | |||||
| rahoituskulut | 4.9 | |||||
| Muut korolliset velat | 83.4 | |||||
| rahoituskulut | 0.6 | |||||
| Yritystodistukset | 47.7 | |||||
| rahoituskulut | 4.0 | |||||
| Pitkäaikaiset korottomat velat | 0.1 | 0.0 | ||||
| Lyhytaikaiset korottomat velat | ||||||
| Ostovelat | 755.6 | |||||
| Siirtovelat | 241.5 | |||||
| Muut korottomat velat | 165.7 | |||||
| Undiscounted cash flows from derivative instruments at 31 Dec. 2009 | ||||||
| € million | 2010 | 2011 | 2012 | 2013 | 2014 | 2015- |
| Payables | ||||||
| Foreign currency hedge forward contracts of net investment | 141.8 | |||||
| Foreign currency forward contracts outside hedge accounting | 296.4 | |||||
| Net settlement of payables | ||||||
| Interest rate derivatives | 0.3 | 0.2 | 0.1 | 0.0 | 0.0 | |
| Electricity derivatives | 3.1 | 2.1 | 0.6 | 0.2 | 0.0 | |
| Grain derivatives | ||||||
| Derivatives relating to private placement bonds* | ||||||
| Foreign currency derivatives | 1.1 | 1.1 | 1.1 | 1.1 | 9.4 | 10.0 |
| Receivables | ||||||
| Net investment hedging instruments | 138.0 | |||||
| Foreign currency forward contracts outside hedge accounting | 293.4 | |||||
| Net settlement of receivables | ||||||
| Interest rate derivatives | ||||||
| Electricity derivatives | 0.2 | 0.4 | 0.3 | 0.0 | 0.0 | |
| Grain derivatives | ||||||
| Derivatives relating to private placement bonds* | ||||||
| Interest rate derivatives | 0.9 | 0.9 | 0.9 | 0.9 | 0.7 | 1.2 |
| Undiscounted cash flows from derivative instruments at 31 Dec. 2008 | ||||||
| Milj. euroa | 2009 | 2010 | 2011 | 2012 | 2013 | 2014- |
| Velat | ||||||
| Nettoinvestoinnin valuuttasuojaustermiinit | 89.6 | |||||
| Valuuttatermiinit, joihin ei sovelleta suojauslaskentaa | 239.8 | |||||
| Nettona selvitettävät velat | ||||||
| Korkojohdannaiset | ||||||
| Sähköjohdannaiset | 3.0 | 4.4 | 3.0 | 0.8 | 0.1 | 0.0 |
| Viljajohdannaiset | 0.0 | |||||
| Suunnattuihin velkakirjalainoihin liittyvät johdannaiset* | ||||||
| Valuuttajohdannaiset | 0.9 | 0.9 | 0.9 | 0.9 | 0.9 | 16.1 |
| Saamiset | ||||||
| Nettoinvestoinnin suojausinstrumentit | 91.3 | |||||
| Valuuttatermiinit joihin ei sovelleta suojauslaskentaa | 244.7 | |||||
| Nettona selvitettävät saamiset | ||||||
| Korkojohdannaiset | 0.0 | 0.0 | 0.0 | 0.0 | ||
| Sähköjohdannaiset | 0.0 | |||||
| Viljajohdannaiset | 0.0 | |||||
| Suunnattuihin velkakirjalainoihin liittyvät johdannaiset* | 0.0 | |||||
| Korkojohdannaiset | 0.9 | 0.9 | 0.9 | 0.9 | 0.9 | 1.9 |
* Suunnattujen velkakirjojen ja niihin liittyvien valuutta- ja korkojohdannaisten kassavirrat suoritetaan nettoperiaatteella. |
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| Breakdown of liability maturities 2009 | ||||||||
| € million | 31 Dec 2009 | Available | Total | 2010 | 2011 | 2012 | 2013 | 2014 and later |
| Loans from financial institutions | 55.3 | 55.3 | 8.2 | 1.2 | 17.8 | 0.9 | 27.3 | |
| Private placement bonds | 100.0 | 100.0 | 100.0 | |||||
| Pension loans | 46.4 | 46.4 | 2.9 | 5.8 | 5.8 | 31.8 | ||
| Finance lease liabilities | 85.7 | 85.7 | 17.3 | 23.4 | 10.8 | 10.5 | 23.8 | |
| Liabilities to K-retailers | 109.7 | 109.7 | 109.7 | |||||
| Other interest-bearing liabilities | 56.6 | 56.6 | 56.6 | |||||
| Trade payables | 703.6 | 703.6 | 703.5 | 0.0 | ||||
| Accrued liabilities | 254.1 | 254.1 | 254.1 | |||||
| Other non-interest-bearing liabilities | 185.5 | 185.5 | 179.9 | 3.0 | 1.5 | 1.1 | 0.0 | |
| Binding credit limits | * | 225.0 | 227.0 | 76.0 | 0.9 | 150.0 | ||
| Commercial papers | 0.0 | 329.0 | 329.0 | |||||
| Guarantees | 23.3 | 23.3 | 0.2 | 1.5 | 0.0 | 0.0 | 21.6 | |
| Total | 1,620.3 | 554.0 | 2,176.2 | 1,405.5 | 33.0 | 185.9 | 18.3 | 204.6 |
| * The amount withdrawn from binding credit limits is included in loans from financial institutions. | ||||||||
| The financial guarantees given do not include guarantees relating to an item presented as a liability in the consolidated statement of financial position, or as a lease liability in note 34. | ||||||||
| Breakdown of liability maturities 2008 | ||||||||
| € million | 31 Dec 2008 | Available | Total | 2009 | 2010 | 2011 | 2012 | 2013 and later |
| Loans from financial institutions | 47.1 | 47.1 | 20.2 | 0.8 | 1.0 | 0.8 | 24.3 | |
| Private placement bonds | 100.0 | 100.0 | 100.0 | |||||
| Pension loans | 0.0 | 0.0 | ||||||
| Finance lease liabilities | 92.7 | 92.7 | 22.7 | 11.8 | 23.4 | 10.8 | 24.0 | |
| Liabilities to K-retailers | 114.1 | 114.1 | 114.1 | |||||
| Other interest-bearing liabilities | 88.9 | 88.9 | 88.9 | |||||
| Trade payables | 755.6 | 755.6 | 755.9 | |||||
| Accrued liabilities | 245.5 | 245.5 | 245.5 | |||||
| Other non-interest-bearing liabilities | 196.3 | 196.3 | 184.5 | 11.8 | ||||
| Binding credit limits | * | 246.5 | 247.7 | 75.0 | 21.5 | 150.0 | ||
| Commercial papers | 47.7 | 401.3 | 449.0 | 47.7 | ||||
| Total | 1,687.9 | 647.8 | 2,336.9 | 723.6 | 99.4 | 45.9 | 161.6 | 148.3 |
* The amount withdrawn from binding credit limits is included in loans from financial institutions. |
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| Fair value measurement levels for financial assets and liabilities | ||||
| Fair value at 31 Dec. 2009 | ||||
| € million | Level 1 | Level 2 | Level 3 | Total |
| Financial assets at fair value through profit or loss | ||||
| Bank certificates of deposit and deposits | 202.9 | 202.9 | ||
| Bond funds | 10.1 | 10.1 | ||
| Total | 10.1 | 202.9 | 213.1 | |
| Derivative instruments at fair value | ||||
| Derivative receivables | 3.5 | 3.5 | ||
| Derivative liabilities | 31.9 | 31.9 | ||
| Available-for-sale financial assets | ||||
| Commercial papers (maturing in less than 3 months) | 214.1 | 214.1 | ||
| Bank certificates of deposit and deposits (maturing in less than 3 months) | 3.8 | 199.6 | 203.4 | |
| Bonds | 10.2 | 10.2 | ||
| Total | 14.0 | 413.7 | 427.7 | |
According to the terms of Kesko Corporation's USD-denominated private placement loan, in a situation involving a change of control, Kesko is obligated to offer a repayment of the whole loan capital to all noteholders. The noteholders have the right to accept or refuse the repayment.
According to the terms of Kesko Corporation's syndicated loan, the syndicate has the right to call in the loan and any withdrawn loan amounts.
According to the terms of either loan agreement, a transfer
of ownership to retailers or a retailers' association shall not be considered a change of control.
For the present, Kesko Corporation has not applied for a credit rating, because it has not been considered necessary in the
company's present financial situation.
The Group uses electricity derivatives to level out energy costs. The electricity price risk is evaluated for five-year periods. The value changes of derivatives hedging the price of electricity supplied during the period are recognised within the adjustment items of purchases. Hedge accounting is applied to contracts hedging future purchases. The effective portion of derivatives that meet hedge accounting criteria are recognised in the revaluation reserve of equity and the ineffective portion in the income statement within other operating income or expenses. The change in the revaluation reserve recognised in equity is presented in the statement of comprehensive income under 'Revaluation of cash flow hedge'.
At the end of the year, the ineffective portion of hedge accounting was €-0.4 million (€-0.9 million).
At the balance sheet date, a total quantity of 955,344 MWH (1,174,056 MWH) of electricity had been purchased with electricity derivatives, and the 1–12 month hedging rate was 70.2% (75.4%), the 13–24 month rate was 47.3% (62.3%), the 25–36 month rate was 29.6% (34.1%), the 37–48 month rate was 9.6% (12.6%) and the 49–60 month rate was 0.0% (9.6%).
A sensitivity analysis for 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 percentage points from the balance sheet date 31 December 2009, it would contribute €+/-3.4 million (€+/-3.5 million) to the 2010 profit and €+/-4.4 million (€+/-5.3 million) to equity. The impact has been calculated before tax.
The Group's agricultural trade operations use a minor amount of grain derivatives to hedge against grain price risk. At the
balance sheet date, there were no open grain derivatives.
| Fair values of derivative financial instruments | ||||||
| € million | 31 Dec. 2009 Positive fair value (balance sheet value) |
31 Dec. 2009 Negative fair value (balance sheet value) |
31 Dec. 2009 Net fair value |
31 Dec. 2009 Net fair value |
||
| Interest rate derivatives | 0.7 | ** | -0.1 | 0.6 | 9.9 | |
| Currency forwards | 1.9 | */** | -25.9 | */** | -24.0 | -7.6 |
| Electricity derivatives | 0.9 | -5.9 | -5.0 | -10.8 | ||
| Grain derivatives | 0.0 | 0.0 | 0.0 | 0.0 | ||
| Nominal values of derivative financial instruments | ||||||
| € million | 31 Dec. 2009 Nominal amount |
31 Dec. 2009 Nominal amount |
||||
| Interest rate derivatives | 206.7 | ** | 204.9 | |||
| Currency forwards | 541.7 | */** | 433.0 | |||
| Electricity derivatives | 40.1 | 45.9 | ||||
| Grain derivatives | 0.0 | 0.7 | ||||
*) Derivative financial instruments also include currency forwards used to hedge net investments in stand-alone foreign entities, |
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**) Derivative financial instruments include interest rate swaps relating to a currency-denominated loan arrangement with a nominal gross value of €200.8 million |
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| The maximum credit risk of derivatives is the fair value of the balance sheet at the reporting date. | ||||||
Due to the global financial crisis and the consequent weakening of the real economy, the importance of capital structure management was increasingly emphasized in 2008, and the situation was not completely restored to normal during 2009. The Kesko Group's capital management objectives include targets set for the Group's solvency and liquidity, as well as its capital productivity.
The objectives 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 investment programmes based on the Group's strategy, and maintaining the shareholder value. Objectives have been set for the financial indicators 'equity ratio' and 'interest-bearing net debt/EBITDA'. The calculation formulas for these indicators are presented in the report by the Board. Some of the Group's interest-bearing liabilities include covenants, whose terms and conditions have been taken into account in the above target levels. The Group does not have a credit rating given by any external credit rating institution.
The purpose of setting objectives for the Group's capital productivity is to steer the operating activities in increasing shareholder value on a long-term basis. The objectives for capital productivity have been set for the Group's equity and capital employed. The calculation formulas for the indicators 'return on equity' and 'return on capital employed' are presented in the report by the Board of Directors. The Group's capital structure (equity-to-debt ratio) is only optimised at the Group level, which is why at the lower levels of the organisation, i.e. in the divisions and companies, the targets relating to capital productivity have been set for the indicators 'economic value added' and 'return on capital employed'.
Operating profit excluding non-recurring items
- operational taxes
- return requirement for average capital employed
+/- other adjustment items
The above target levels set for the Group's financial indicators are approved by the Board of Directors. On 4 February 2009, the Board approved the following values for the Group's medium term objective.
| Target level | |
| Return on equity | 12 % |
| Return on capital employed | 14 % |
| Equity ratio | 40–50 % |
| Interest-bearing net debt /EBITDA | < 3 |
Kesko Corporation distributes at least 50% of its earnings per share excluding non-recurring items as dividends, taking however the company's financial position and operating strategy into account.