Frontpage Financial statements Parent's financial   statements Notes to the parent's financial statements

Notes to the parent's financial statements

Principles used for preparing the parent's 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.

Depreciation plan

Other capitalised expenditure 5–14 years
Computer software and licences 3–5 years


Tangible assets

Tangible assets are stated in the balance sheet at cost less depreciation according to plan.

Depreciation plan

Depreciation according to plan is calculated on a straight line basis so as to write off the cost of tangible assets over their estimated useful lives.

The periods adopted for depreciation are as follows:

Buildings 10–33 years
Fixtures and fittings 8 years
Machinery and equipment 25% reducing balance method
Transportation fleet 5 years
Information technology equipment 3–5 years
Other tangible assets 5–14 years


Land has 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 in the parent company.

Valuation of financial assets

Marketable securities have been valued at lower of cost or net realisable value.

Foreign currencies

Items denominated in foreign currencies have been translated into Finnish currency at the average exchange rate of the European Central Bank at the balance sheet date. If a receivable or a debt 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 financial instruments

Interest rate derivative contracts

Interest rate derivatives are used to modify loan durations. 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 derivative contracts are recognised during the financial year as interest income or expenses, according to the maturity date. In the financial statements, open forward agreements, futures, options and swaps are stated at market values. Unrealised revaluation is not stated as income. Any valuation losses are included in interest expenses.

Currency derivative contracts

Currency derivative contracts are used for hedging against translation and transaction risks. Forward exchange contracts are valued at the exchange rate of the balance sheet date. The rate differences arising from open derivative contracts are reported in financial items. If a derivative contract has been used to hedge a foreign-currency-denominated asset, the value change 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

Kestra Kiinteistöpalvelut 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 derivative contracts made with the bank, and internally hedges the corresponding price with the subsidiary. 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 derivative contracts hedging the price of electricity supplied during the financial year, changes in value are recognised in Kesko within financial income and expenses. The unrealised gains and losses of contracts hedging future purchases are not recognised through profit or loss.

Pension plans

On 1 September 2010, the pension insurance of Kesko Corporation’s personnel was transferred from the Kesko Pension Fund to Ilmarinen Mutual Pension Insurance Company. In connection with the transfer, the Financial Supervisory Authority granted the Kesko Pension Fund the permission to return surplus amounts to participants transferred from the Pension Fund. Kesko Corporation’s share of the returned surplus was 94.9 million. In addition, some of Kesko Corporation’s employees participate in a voluntary pension plan in the Kesko Pension Fund’s department A. The department A was closed on 9 May 1998. Pension expenses have been expensed throughout the financial year.

Provisions

Provisions stated in the balance sheet include items bound to by agreements or otherwise, but remain unrealised. Changes in provisions are included in the income statement. Rent liabilities for vacant rented premises no longer used for the Group business operations, as well as the losses resulting from renting the premises to outsiders, are included in provisions.

Income tax

Income tax includes the income tax payments for the period based on the profit for the period, and taxes payable for prior periods, or tax refunds. Deferred taxes are not included in the parent’s income statement and balance sheet.

NOTES TO THE INCOME STATEMENT
     
€ million 2010 2009
     

1. Other operating income

    
Profits on sales of real estate and shares 66.3 95.7
Rent income 137.3 164.4
Others 0.3 1.0
Total 203.9 261.0


During the financial year, Kesko Corporation sold some of its real estate
to one of its associates, Kruunuvuoren Satama Oy and to
Ilmarinen Mutual Pension Insurance Company.
     

2. Average number of personnel

    
Kesko Corporation 150 147
Total 150 147
     

3. Personnel expenses

    
Salaries and fees -9.9 -9.1
Social security expenses    
Pension expenses 94.6 -0.5
Other social security expenses -0.5 -0.7
Total 84.2 -10.3


During the financial year, a plan surplus of €94.9 million was returned
to Kesko Corporation by the Kesko Pension Fund.
     
Salaries and fees to the management    
Managing Director 0.9 0.8
Board of Directors' members 0.4 0.3
Total 1.2 1.1


An analysis of the management’s salaries and fees is included
in the notes to the consolidated financial statements.
     

4. Depreciation and reduction in value

    
Depreciation according to plan -17.4 -22.4
Reduction in value, non-current assets -1.5 -9.1
Total -19.0 -31.6
     

5. Other operating expenses

    
Rent expenses -80.5 -90.0
Marketing expenses -1.6 -1.0
Maintenance of real estate and store sites -10.5 -11.7
Data communications expenses -14.5 -12.2
Losses on sales of real estate and shares -1.0 -0.7
Other operating expenses -6.5 -6.9
Total -114.7 -122.5
     
Auditor’s fees
PricewaterhouseCoopers,
Authorised Public Accountants		    
Auditor's fees 0.1 0.1
Tax consultation 0.1 0.0
Other fees 0.1 0.1
Total 0.3 0.2
     

6. Financial income and expenses

    
Income from long-term investments    
Profits from the sale of shares 0.3 0.0
Income from long-term investments, total 0.3 0.0
Other interest and financial income    
From Group companies 15.7 37.0
From others 27.1 12.9
Interest and financial income, total 42.8 49.8
Interest and other financial expenses    
To Group companies -2.6 -5.5
To others -26.7 -33.1
Interest and financial expenses, total -29.2 -38.6
Total 13.8 11.2
     

7. Items included in extraordinary income and expenses
Contributions from Group companies 100.7 49.7
Contributions to Group companies -49.1 -28.1
Total 51.6 21.6
     

8. Appropriations

    
Difference between depreciation according to
plan and depreciation in taxation		 11.6 39.6
Total 11.6 39.6
     

9. Changes in provisions

    
Future rent expenses for vacant business premises 3.7 -0.5
Other changes 2.2 1.0
Total 5.8 0.4
     

10. Income taxes

    
Income taxes on extraordinary items -13.4 -5.6
Income taxes on operating activities -51.4 -44.1
Total -64.9 -49.7


Deferred taxes

Deferred tax liabilities and assets have not been included in the balance sheet. The amounts are not significant.

€ million 2010 2009
     

11. Other capitalised long-term expenditure
Acquisition cost at 1 January 40.2 39.1
Increases 0.3 1.5
Decreases -1.1 -1.1
Transfers between items 0.2 0.7
Acquisition cost at 31 December 39.6 40.2
     
Accumulated depreciation at 1 January -34.0 -32.6
Accumulated depreciation on decreases
and transfers		 0.5 0.4
Depreciation for the financial year -1.5 -1.8
Accumulated depreciation at 31 December -35.1 -34.0
Book value at 31 December 4.5 6.2
     
Advance payments    
Acquisition cost at 1 January 1.5 1.6
Increases 0.5 0.9
Decreases 0.0 -0.6
Transfers between items -0.2 -0.4
Acquisition cost at 31 December 1.7 1.5
Book value at 31 December 1.7 1.5
     

12. Tangible assets

    
Land and waters    
Acquisition cost at 1 January 97.2 111.4
Increases 0.3 1.8
Decreases -16.2 -16.0
Decrease in value -0.5 -
Acquisition cost at 31 December 80.9 97.2
Book value at 31 December 80.9 97.2
     
Buildings    
Acquisition cost at 1 January 428.0 514.9
Increases 4.1 9.6
Decreases -56.3 -99.6
Transfers between items 2.0 3.1
Acquisition cost at 31 December 377.9 428.0
     
Accumulated depreciation at 1 January -194.8 -205.6
Accumulated depreciation on decreases
and transfers		 36.8 35.5
Decrease in value -1.0 -9.1
Depreciation for the financial year -13.6 -15.6
Accumulated depreciation at 31 December -172.7 -194.8
Book value at 31 December 205.2 233.2
     
Machinery and equipment    
Acquisition cost at 1 January 22.1 24.7
Increases 0.4 0.8
Decreases -2.9 -3.6
Transfers between items 0.2 0.2
Acquisition cost at 31 December 19.7 22.1
     
Accumulated depreciation at 1 January -18.2 -19.8
Accumulated depreciation on decreases
and transfers		 2.3 2.8
Depreciation for the financial year -1.0 -1.3
Accumulated depreciation at 31 December -16.8 -18.2
Book value at 31 December 2.9 3.9
     
Other tangible assets    
Acquisition cost at 1 January 13.7 15.2
Increases 0.3 1.1
Decreases -1.3 -2.6
Transfers between items 0.1 0.0
Acquisition cost at 31 December 12.8 13.7
     
Accumulated depreciation at 1 January -7.1 -7.1
Accumulated depreciation on decreases
and transfers		 0.6 1.4
Depreciation for the financial year -1.1 -1.3
Accumulated depreciation at 31 December -7.5 -7.1
Book value at 31 December 5.3 6.6
     
Advance payments and construction in progress
Acquisition cost at 1 January 4.6 7.1
Increases 1.4 9.2
Decreases -0.9 -8.1
Transfers between items -2.3 -3.6
Acquisition cost at 31 December 2.8 4.6
Book value at 31 December 2.8 4.6
     


Revaluation of non-current assets
At the end of the financial year, Kesko Corporation’s
balance sheet did not contain revaluations.
     

13. Investments

    
Holdings in Group companies    
Acquisition cost at 1 January 264.1 273.5
Increases 27.4 28.6
Decreases -0.6 -38.0
Acquisition cost at 31 December 290.9 264.1
Book value at 31 December 290.9 264.1
     
Participating interests    
Acquisition cost at 1 January 17.8 18.7
Increases 32.7 -
Decreases 0.0 -0.9
Acquisition cost at 31 December 50.4 17.8
Book value at 31 December 50.4 17.8
     
Other shares and similar rights of ownership
Acquisition cost at 1 January 7.3 7.3
Increases 4.5 -
Decreases -0.5 0.0
Acquisition cost at 31 December 11.3 7.3
Book value at 31 December 11.3 7.3


Kesko Corporation’s ownership interests in other companies as at 31 December 2010 are presented in the notes to the consolidated financial statements.

€ million 2010 2009
     

14. Debtors

    
Amounts owed by Group companies    
Long-term    
Loan receivables 251.6 360.7
Subordinated loans 50.4 50.0
Long-term receivables, total 302.0 410.7
     
Short-term    
Trade debtors 1.6 1.1
Loan receivables 415.4 294.3
Prepayments and accrued income 2.3 1.5
Short-term receivables, total 419.3 296.8
Total 721.2 707.5


Kesko Corporation has issued capital loans of €30 million, €10 million and €10 million respectively to its subsidiaries Konekesko Ltd, Indoor Group Ltd and Kiinteistö Mesta Oy.

The loan issued to Konekesko Ltd will mature on 31 December 2024. The capital will be repaid in fifteen equally large instalments of €2 million payable each year on 31 December, provided that the provisions of chapter 12, section 1, paragraph 1 of the Limited Liability Companies Act are fulfilled. The loan interest will only be paid if the aggregate amount of the company’s unrestricted equity and all subordinated loans at the time of repayment exceeds the amount of loss shown in the balance sheet of the financial statements to be adopted for the company’s last concluded financial year, or of any more recent financial statements. If the payment criteria are met, the interest amount comprises the interest payable, a reference rate of interest and an interest margin. The reference rate will be the 3-month Euribor and the margin will be 0.5% p.a. The interest will be paid in arrears on 31 December. Any unpaid interest will be treated as the borrower’s debt and a sum of interest will be payable annually on it, whose rate will be the same as for the interest to be paid on the capital of the loan.

The loan issued to Indoor Group Ltd will mature on 31.3.2014. The capital will be repaid in five equally large instalments. The capital will be repaid only if the provisions of chapter 12, section 1, paragraph 1 of the Limited Liability Companies Act are fulfilled. Interest will be payable only if the amount of the company’s unrestricted equity plus all capital loans at the time of repayment exceeds the amount of loss shown in the balance sheet of the financial statements to be adopted for the company’s last concluded financial year or of any more recent financial statements. If the repayment criteria are met, 10% interest will be paid on the loan.

The loan issued to Kiinteistö Mesta Oy will be repaid only if, after repayment of the loan, the restricted equity shown in the balance sheet to be adopted for the borrower’s last concluded financial year and all other non-distributable items are fully funded.

€ million 2010 2009
     
Amounts owed by participating interests    
Long-term    
Loan receivables 1.5 1.5
     
Short-term    
Loan receivables 1.0 2.1
Short-term receivables, total 1.0 2.1
Total 2.6 3.6
     
Prepayments and accrued income    
Taxes 26.3 -
Others 8.0 3.5
Total 34.3 3.5


   

15. Capital and reserves

    
Share capital at 1 January 196.6 195.6
Subscriptions with options 0.6 1.0
Share capital at 31 December 197.3 196.6
     
Share issue, exercise of options at 1 January - 0.1
Increase 4.2 4.6
Transfer to share capital -0.6 -1.0
Transfer to share premium account -3.6 -3.7
Share issue, exercise of options at 31 December - -
     
Share premium account at 1 January 193.9 190.3
Subscriptions with options 3.6 3.7
Share premium account at 31 December 197.5 193.9
     
Other reserves at 1 January 243.4 243.4
Other reserves at 31 December 243.4 243.4
     
Retained earnings at 1 January 808.4 767.8
Distribution of dividends -88.5 -97.9
Transfer to donations -0.7 -0.3
Retained earnings at 31 December 719.2 669.7
     
Profit for the financial year 189.5 138.8
Capital and reserves, total 1,546.9 1,442.4


Increase in share capital

During the reporting period, the share capital was increased three times corresponding to share subscriptions with the options of the 2003 option scheme. The increases were made on 11 February 2010 (€128,424), 3 May 2010 (€422,754), 3 June 2010 (€88,348) and announced in stock exchange notifications on the same days. The subscribed shares were included on the main list of the Helsinki stock exchange for public trading with the old B shares on 12 February 2010, 4 May 2010 and 4 June 2010.

Distributable reserves

    
Other reserves 243.4 243.4
Retained earnings 719.2 669.7
Profit for the financial year 189.5 138.8
Total 1,152.1 1,051.9

 

Breakdown of the parent company’s share capital
  pcs
counter
value, €		 € million
A shares 31,737,007 2.00 63.5
B shares 66,904,285 2.00 133.8
Total 98,641,292   197.3
       
Voting rights
carried by shares		 number of votes    
A share 10    
B share 1    

 

2003 and 2007 stock option plans

On 31 March 2003, the Annual General Meeting resolved to gratuitously issue a total of 1,800,000 share options to the management of the Kesko Group as well as to a wholly-owned subsidiary of Kesko Corporation. A deviation was made from the shareholders’ pre-emptive right to subscription since the options form a part of the incentive and commitment programme for the management. Each option entitles the holder to subscribe for one new Kesko Corporation B share. The options are marked with symbols 2003D (KESBVEW103), 2003E (KESBVEW203) and 2003F (KESBVEW303) in units of 600,000 options each. The share subscription periods of the options were:

  • 2003D, 1 April 2005 – 30 April 2008 (subscription period expired),
  • 2003E, 1 April 2006 – 30 April 2009 (subscription period expired) and
  • 2003F, 1 April 2007 – 30 April 2010 (subscription period expired).

After the distribution of dividends for 2009, the price of a B share subscribed for with a 2003F option was €12.98. The subscription period expired on 30 April 2010.

The Annual General Meeting of 26 March 2007 decided to grant a total of 3,000,000 stock options for no consideration to the Kesko Group management and other key Kesko personnel, and to a subsidiary wholly owned by Kesko Corporation. The company had a weighty financial reason for granting stock options because they are intended to be part of Kesko’s share-based incentive system. Each stock option entitles its holder to subscribe for one new Kesko Corporation B share. The 2007 option scheme includes an obligation placed by Kesko’s Board of Directors on option recipients to use 25% of their option income to buy company shares for permanent ownership. The stock options were marked with symbols 2007A, 2007B and 2007C in units of 1,000,000 options each. The share subscription periods of the options are:

  • 2007A, 1 April 2010 – 30 April 2012,
  • 2007B, 1 April 2011 – 30 April 2013 and
  • 2007C, 1 April 2012 – 30 April 2014.

The original subscription price for stock option 2007A was the trade volume weighted average quotation of a Kesko Corporation B share on the Helsinki Stock Exchange between 1 April and 30 April 2007 (€45.82), for stock option 2007B between 1 April and 30 April 2008 (€26.57), and for stock option 2007C between 1 April and 30 April 2009 (€16.84).

The subscription prices of shares subscribed for with stock options are reduced by the amount decided after the beginning of the period for the determination of the subscription price but before the subscription, as at the record date for each dividend distribution or other distribution of funds.

After the 2009 dividend distribution, the subscription price for a B share with a 2007A option at the end of 2010 was €42.32, with a 2007B option €24.67 and with a 2007C option €15.94. The share subscription period of the 2007A option began on 1 April 2010. The subscription periods of the 2007B and 2007C options have not yet begun. The share option plan covers about 130 people.

Percentage of issued options out of all shares and votes

If shares were subscribed for with all of the exercisable options, the shares subscribed for under the 2007 plan would account for 2.95% of all shares and 0.77% of all votes. The subscriptions made with options could raise the number of the company’s shares to 101,641,292. As a result of the subscriptions, the voting rights carried by all shares could increase to 387,274,355 votes.

The shares subscribed for with options entitle to dividends and carry other shareholder rights after the corresponding share capital increase has been entered in the Trade Register.

Authorisations of the Board of Directors

Kesko’s Annual General Meeting held on 30 March 2009 authorised the company’s Board of Directors to decide about the issuance of new B shares.

The new shares can be issued against payment either in a directed issue to the company’s existing shareholders in proportion to their existing shareholdings regardless of whether they consist of A or B shares; or in a directed issue deviating from the shareholders’ pre-emptive rights in order for the issued shares to be used as consideration in possible company acquisitions, other company business arrangements, or to finance investments.

The authorisation is for the issuance of up to 20,000,000 new shares.

The Board of Directors was also given the authority to decide about the subscription price of the shares and to issue shares against non-cash consideration.

The authorisation is valid until 30 March 2012.

The Board of Directors does not have other valid authorisations for rights issue, convertible bonds or option rights.


€ million 2010 2009
     

16. Appropriations

    
Depreciation reserve 80.0 91.6
Total 80.0 91.6
     

17. Provisions

    
Future rent expenses for vacant business premises 2.0 5.6
Other provisions 0.0 2.2
Total 2.0 7.8
     

18. Non-current creditors

    
Debt falling due later than within five years    
Private placement notes 50.2 50.2
Loans from credit institutions - 24.1
Total 50.2 74.3


On 10 June 2004, Kesko Corporation issued a private placement of USD 120 million in the US. The arrangement consists of three bullet loans: a 10-year loan (USD 60 million), a 12-year loan (USD 36 million) and a 15-year loan (USD 24 million). Kesko has hedged the loan by using currency and interest rate swaps, as a result of which the loan capital totals €100.4 million and the fixed capital-weighted average interest rate is 5.4%.


€ million 2010 2009
     

19. Current creditors

    
Debt to Group companies    
Trade creditors 0.1 0.1
Other creditors 370.4 237.1
Accruals and deferred income 3.0 1.8
Total 373.6 239.0
     
Amounts owed to participating interests    
Other creditors 34.2 38.4
Total 34.2 38.4
     
Accruals and deferred income    
Staff expenses 3.0 2.5
Taxes - 12.1
Others 7.7 11.2
Total 10.7 25.9


   

20. Interest-free debt

    
Current creditors 17.8 32.0
Total 17.8 32.0

 


OTHER NOTES

€ million 2010 2009
     

21. Guarantees and contingent liabilities
Real estate mortgages    
For own debt 6 7
For Group companies 10 10
     
Pledged shares 39 39
     
Guarantees    
For own debt 2 3
For Group companies 42 36
For others 0 0
     
Other contingent liabilities    
For own debt 7 15
     
Rent liabilities on machinery and fixtures    
Falling due within a year 0 0
Falling due later 0 0
     
Rent liabilities on real estate    
Falling due within a year 62 81
Falling due later 330 463



€ million 2010 Fair value 2009 Fair value
         
Liabilities arising from derivative instruments        
Value of underlying instruments at 31 Dec.        
         
Interest rate derivatives        
Forward and future contracts - - 12 -0.1
Interest rate swaps 201 3.7 201 0.7
         
Currency derivatives        
Forward and future contracts        
Outside the Group 223 -4.2 437 -6.6
Inside the Group 27 0.0 9 0.1
Option agreements        
Bought - - - -
Written 4 0.0 5 0.0
Currency swaps 100 -10.6 100 -17.2
         
Commodity derivatives        
Electricity derivatives        
Outside the Group 63 13.2 40 -5.0
Inside the Group 63 -13.2 40 5.0