Frontpage Financial Statements Consolidated income statement Notes to the consolidated financial statements
NOTE 1
Kesko is a leading provider of trading sector services and a highly valued listed company. Kesko has about 2,000 stores engaged in chain operations in the Nordic and Baltic countries, Russia and Belarus.
The Kesko Group’s reportable segments consist of its business divisions, namely the food trade, the home and speciality goods trade, the building and home improvement trade, and the car and machinery 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, and its registered address is Satamakatu 3, FI-00016 KESKO. Copies of Kesko Corporation’s financial statements and the consolidated financial statements are available from Kesko Corporation, Satamakatu 3, and from the company’s website: www.kesko.fi/en.
Kesko’s Board of Directors has approved these financial statements for disclosure on 1 February 2012.
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 IFRIC and SIC Interpretations effective on 31 December 2011. 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 Standards and regulations based on them. 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 identified below, which have been measured at fair value in compliance with the standards.
The revised standard clarifies and simplifies the definition of a related party and eliminates the requirement for government-related entities to disclose details of all transactions with the government and other government-related entities. The Group has applied the revised standard to transactions with non-controlling interests from 1 January 2011. The revised standard has had no impact on the consolidated financial statements.
The following revisions, amendments and interpretations have had no impact on the consolidated financial statements:
In addition, IASB issued improvements to seven standards in July 2010 as part of its annual improvements project (Improvements to IFRSs). These improvements had no impact on the consolidated financial statements.
The preparation of consolidated financial statements in conformity with IFRS 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 estimates relate to the following.
Assets and liabilities acquired in business combinations are measured at their fair values at the date of acquisition. The fair values on which cost allocation 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.
The amounts recoverable from cash generating units’ operating activities are determined based on value-in-use calculations. In the calculations, forecast cash flows are based on financial plans approved by the management, covering a period of three years. (Note 14)
The Group operates both defined contribution pension plans and defined benefit pension plans. The calculation of items relating to employee benefits requires the application of judgement to several factors. Pension calculations under defined benefit plans in compliance with IAS 19 include the following factors that rely on management estimates (Note 20):
Changes in these assumptions can significantly impact the amounts of pension liability and future pension expenses. In addition, a significant part of the pension plan assets is invested in real estate and shares, whose value adjustments also impact the amounts of liabilities and pension expenses.
The Group regularly reviews inventories for obsolescence and turnover, and for below-cost market values, and recognises obsolescence 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.
Trade receivables
The Group companies apply a uniform practice to measuring mature receivables. Possible changes in customers’ solvency may cause changes in the measurement of trade receivables in future periods.
Critical judgements in the application of the accounting policy
The Group’s management makes judgements concerning the adoption and application of the accounting policies to the financial statements. The management has used its judgement to select the accounting policies when, for example, measuring receivables and classifying leases.
The consolidated financial statements combine the financial statements of Kesko Corporation and subsidiaries controlled by the Group. Control exists when the Group owns more than 50% of the voting rights of a subsidiary or otherwise exerts control. Control refers to the power to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. 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 42.
Internal shareholdings are eliminated by using the costing 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. Direct acquisition-related costs were included in the cost of acquisition up to 1 January 2010. The identifiable assets, liabilities and contingent liabilities are measured at the fair value at the acquisition date, gross of non-controlling interest.
Intra-group transactions, receivables and payables, unrealised gains 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 in equity.
The Group accounts for its real estate company acquisitions as acquisitions of assets.
Associates are all entities over which the Group has significant influence but not control. In the Kesko Group, significant influence accompanies a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting 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. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses.
Unrealised gains on transactions between the Group and its 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 not amortised. Associates are listed in note 42.
Mutual real estate companies are consolidated as assets under joint control 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. The jointly controlled mutual real estate companies consolidated on a line-by-line basis are listed in note 42.
The consolidated financial statements are presented in euros, which is both the functional currency of the Group’s parent company and the reporting currency. On initial recognition, the figures relating to the result and financial position of Group entities located outside the euro zone are recorded in the functional currency of their operating environment. The operating currency of the real estate companies in St. Petersburg and Moscow, Russia has been determined to be the euro, which is why no significant exchange differences are realised from their balance sheets for the Group.
Foreign currency transactions are recorded in euros by applying the exchange rate at the date of the transaction. Foreign currency receivables and liabilities are translated into euros using the closing rate. Gains and losses from foreign currency transactions and from receivables and liabilities are recognised in the income statement, with the exception of those loan exchange rate movements designated as hedges of foreign net investments and regarded as effective. These exchange differences are recognised in equity, in compliance with the rules of hedge accounting, and their changes are presented in other comprehensive income. Foreign exchange gains and losses from operating activities are included in the respective items above operating profit.
Currency forwards and options and foreign exchange gains and losses that relate to borrowings hedging financial transactions are included in financial income and costs.
The income statements of Group entities operating outside the euro zone have been translated into euros at the average rate of the reporting period, and the balance sheets at the closing rate. The foreign exchange difference resulting from the use of different rates, and the translation differences arising from the elimination of the acquisition cost of subsidiaries outside the euro zone, and the hedging result of net investments made in them are recognised in equity, and the changes are presented in other comprehensive income. In connection with the disposal of a subsidiary, currency translation differences are disclosed 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.
The on-balance-sheet assets and liabilities of operations in countries that have experienced hyperinflation are restated prior to foreign currency translation based on the change in purchasing power.
The Group classifies its financial assets into the following categories:
The classification at initial recognition depends on the purpose for which the financial assets were acquired.
Purchases and sales of financial assets are recognised on the trade date. Financial assets are classified as non-current if they have a maturity date greater 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 at fair value through profit or loss are classified as current.
Financial assets are derecognised when the rights to receive cash flow 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.
At each reporting date, the Group assesses whether there is evidence that a financial asset is impaired. If any such indication exists, the recoverable amount of the asset is estimated. The recoverable amount is the fair value based on the market price or the present value of cash flows. The fair value of financial assets is determined on the basis of a maturity-based interest rate quotation. An impairment loss is recognised if the carrying amount of a financial asset exceeds its recoverable amount. The impairment losses are recognised within the financial items of the income statement.
Financial assets at fair value through profit or loss include instruments initially classified as financial assets at fair value through profit or loss (the fair value option). These instruments are managed based on fair value and they include investments in interest rate funds, as defined by the Group’s treasury policy, as well as investments in other interest-bearing papers with maturities of over three months. The interest income and fair value changes of these financial assets, as well as any commissions returned by funds are presented on a net basis in the income statement in the interest income of the category in question.
In addition, financial assets at fair value through profit or loss include all derivatives that do not qualify for hedge accounting in compliance with IAS 39. Derivatives are carried at fair value using prices quoted in active markets. The results of derivatives hedging purchases and sales are recognised in other operating income or expenses. The result of derivatives used to hedge financial items is recognised in financial items, unless the derivative has been designated as a hedging instrument.
Available-for-sale financial assets are non-derivative assets designated as available for sale at the date of initial recognition. Available-for-sale financial assets are measured at fair value at the balance sheet date and their fair value changes are recognised in equity, and the fair value change is presented in other comprehensive income. The fair value of publicly quoted financial assets is determined based on their market value. Financial assets not quoted publicly are measured at cost if their fair values cannot be measured reliably.
The dividends from equity investments included in available-for-sale financial assets are recognised in financial items in the income statement. The interest income from available-for-sale financial assets is recognised in the financial items of the relevant class. When an available-for-sale financial asset is sold, the accumulated fair value changes recognised in equity are included in the income statement as ‘Other financial income/expenses’.
Loans and receivables are non-derivative assets with fixed or measurable payments, and they are not quoted in active markets. Loans and receivables also include trade receivables and other receivables. They are recognised at amortised cost using the effective interest method.
Cash and cash equivalents include cash on hand and deposits with banks. The cash and cash equivalents in the consolidated balance sheet also include amounts relating to the retail operations of division parent companies, used as cash floats in stores, or amounts being transferred to the respective companies.
Financial liabilities have initially been recognised at their cost, net of transaction costs. In the financial statements, financial liabilities are measured at amortised cost using the effective interest rate method. Fees paid on the establishment of loan facilities are amortised over the period of the facility to which it relates. Financial liabilities having maturities greater 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.
When derivative contracts are entered into, derivatives are recognised at fair value and subsequently 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 and, if so, on the hedged item. When entered into, derivative 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 stand-alone 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 currency risk are recognised in profit or loss in other operating income or expenses. The portion of derivatives hedging financial transactions to be recognised in the income statement is included in financial items.
When a hedging arrangement is entered into, the relationship between the item being hedged 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 surplus. The ineffective portion is recognised, according to its nature, either in financial items or other operating income and expenses. The effective portion of changes in the fair value of instruments hedging cash flows, such as long-term credit facilities, is recognised in the revaluation reserve. A change in the fair value of foreign currency derivatives relating to the credit facility is recognised in borrowings, and a change in the fair value of interest rate derivatives in other non-interest-bearing receivables or debt.
Hedge accounting is discontinued when the hedging instrument expires or is sold, 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.
The fair value of forward rate agreements is determined by reference to the market prices on 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 currency forwards is determined by measuring the forward contracts at the forward rate on the balance sheet date. Currency options are measured by using the counterparty’s price quotation, but the Group verifies the price with the help of the Black & Scholes method. Electricity derivatives are measured at fair value using the market quotations on the balance sheet date.
The Group applies hedge accounting in accordance with IAS 39 to hedge foreign currency net investments in foreign entities. Currency forwards or foreign currency loans are used as hedging instruments. Spot price changes in currency forwards are recognised as translation differences under equity, and disclosed in components of comprehensive income. The interest rate differentials of currency forwards are recognised as income under financial items. The exchange differences of foreign currency loans are recognised in translation differences under equity. When a foreign operation is partially or wholly disposed of or wound up, gains or losses accumulated from hedging instruments are recognised in profit or loss.
The Group has prepared method descriptions for identifying embedded derivatives and applies fair value measurement to them. In the Kesko Group, embedded derivatives are included in firm 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 on the measurement date and the change in fair value is recognised in the income statement.
Property, plant and equipment mainly comprise land, buildings, machinery and equipment. Property, plant and equipment are carried at original cost net of planned 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 the replaced commodity is derecognised. The machinery and equipment of buildings are treated as separate commodities and any significant expenditure related to their replacement is capitalised. All other repairs, 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.
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, useful lives and depreciation methods applied to property, plant and equipment are reviewed at least at the end of each accounting period. 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 in accordance with IAS 8.
The depreciation of property, plant and equipment ceases when the asset is classified as held for sale in accordance with IFRS 5. Land is not depreciated.
Gains and losses on disposals of property, plant and equipment are recognised in the income statement and stated as other operating income and expenses.
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net assets and liabilities of an enterprise at the date of the acquisition. The goodwill of business combinations entered into prior to 1 January 2004 corresponds to their carrying amounts reported in accordance with the previous accounting practices used as the deemed cost, in compliance with IFRS.
Goodwill is not amortised but is instead tested annually for impairment and whenever there is an indication of impairment. For testing purposes, goodwill is allocated to the cash generating units. Goodwill is measured at original cost and the share acquired prior to 1 January 2004 at deemed cost net of impairment. Any negative goodwill is immediately recognised as income in accordance with IFRS 3.
Intangible assets with indefinite useful lives are not amortised. They are tested for impairment annually and whenever there is an indication of impairment. These intangible assets include trademarks capitalised upon acquisition.
The cost of intangible assets with definite useful lives are stated in the balance sheet and recognised as expenses during their useful lives. Such intangible assets include software licences, customer relationships and licences to which acquisition cost has been allocated upon acquisition, and leasehold interests that are amortised during their probable terms. The estimated useful lives are:
Computer software and licences | 3–5 years |
Customer and supplier relationships | 10 years |
Licences | 20 years |
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 a subsequent period.
The labour costs of the Group employees working on projects for developing new software and other directly attributable costs are capitalised as part of software cost. On the balance sheet, computer software is included in intangible assets and its costs are amortised over the useful life of the software. Costs associated with maintaining computer software are recognised as an expense as incurred.
At each reporting 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 rate 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 there has been an increase in the recoverable amount after the initial recognition. 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.
The Group acts as both lessor and lessee of real estate and machines. Leases in which risks and rewards incidental to ownership are not transferred to the lessee are classified as operating leases. Lease payments related to them are recognised in the income statement on a straight-line basis over the lease term.
Leases that substantially transfer all risks and rewards incidental to ownership to the Group are classified as finance leases. An asset leased under a finance lease is recognised in the balance sheet at the lower rate of its fair value at the inception date and the present value of minimum lease payments. The rental obligations of finance leases are recorded in interest-bearing liabilities in the balance sheet. Lease payments are allocated between finance charges and the liability. Assets acquired under finance leases are depreciated over the shorter of the useful life of the asset and the lease term.
Leases in which assets are leased out by the Group, and substantially all the risks and rewards incidental to ownership are transferred to the lessee, are also classified as finance leases. Assets leased under such contracts are recognised as receivables in the balance sheet and stated at present value. The financial income from finance leases is determined so as to achieve a constant periodic rate of return on the remaining net investment for the lease term.
In sale and leaseback transactions, the selling price and the future lease payments are usually interdependent. If a sale and leaseback transaction results in a finance lease, any proceeds exceeding the carrying amount are not immediately recognised as income. Instead the amount is recognised as a liability in the balance sheet and amortised over the period of the lease. If a sale and leaseback transaction results in an operating lease and the transaction is established at fair value, any profit or loss is recognised immediately.
If the selling price is less than fair value, any profit or loss is recognised immediately unless the loss is compensated by future lease payments at below market price, in which case the loss is deferred and amortised over the period for which the asset is expected to be used. If the selling price exceeds fair value, the excess over fair value is deferred and amortised over the period for which the asset is expected to be used. If fair value at the time of a sale and leaseback transaction is less than the carrying amount of the asset, a loss equal to the amount of the difference between the carrying amount and fair value is recognised immediately.
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 the estimated costs to sell. The cost is primarily assigned by using the weighted average cost formula. The cost of certain classifications of inventory is assigned by using the FIFO formula. The cost of an acquired asset 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.
Trade receivables are recognised initially at the original sales amounts. Impairment is recognised when there is objective evidence of impairment loss. The Group has established a uniform basis for the determination of impairment of trade receivables based on the time receivables have been outstanding. In addition, impairment is recognised if there is other evidence of a debtor’s insolvency, bankruptcy or liquidation. Losses on loans and advances are recognised as an expense in the income statement as part of ‘Other operating expenses’.
Assets (or a disposal group) and assets and liabilities relating to discontinued operations are classified as held for sale if their carrying amount will be recovered principally through the disposal of the assets rather than through continuing use. For this to be the case, the sale must be highly probable, the asset (or disposal group) must be available for immediate sale in its present condition, subject only to terms that are usual and customary, the management must be committed to selling and the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification.
Non-current assets held for sale (or assets included in the disposal group) and assets and liabilities linked to a discontinuing operation are measured at the lower rate of the carrying amount and fair value net of costs to sell. After an asset has been classified as held for sale, or if it is included in the disposal group, it is not depreciated. If the classification criterion is not met, the classification is reversed and the asset is measured at the lower rate of the carrying amount prior to the classification less depreciation and impairment, and recoverable amount. A non-current asset held for sale and assets included in the disposal group classified as held for sale are disclosed separately in the balance sheet. Liabilities included in the disposal group of assets held for sale are also disclosed separately in the balance sheet. The profit from discontinued operations is disclosed as a separate line item in the income statement.
The comparative information in the income statement is adjusted for operations classified as discontinued during the latest financial period being reported. Consequently, the profit from discontinued operations is presented as a separate line item also for the comparatives. In the financial years 2011 and 2010, the Group had no discontinued operations.
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, and to onerous leases.
A warranty provision is recognised when a product fulfilling the terms is sold. The provision amount is based on historical experience about the level of warranty expenses. Leases become onerous if the leased premises become vacant, or if they are subleased at a rate lower than the original. A provision is recognised for an estimated loss from vacant lease premises over the remaining lease term, and for losses from subleased premises.
The Group operates both defined contribution plans and defined benefit 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 make additional payments, in case the payment recipient is unable to pay the retirement benefits.
In defined benefit plans, after the Group has paid the amount for the period, an excess or deficit may result. The pension obligation represents the present value of future cash flows from payable benefits. The present value of pension obligations has been calculated using the project unit credit method. Pension costs are expensed during employees’ service lives based on calculations by qualified actuaries. The discount rate assumed in calculating the present value of the pension obligations is the market yield of high-quality bonds issued by companies. Their maturity substantially corresponds to the maturity of the calculated 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 the income statement for the average remaining service lives of the employees participating in the plan to the extent that they exceed 10 percent of the higher rate of the present value of the defined benefit plans and the fair value of assets belonging to the plan.
Relating to the arrangements taken care of by the Kesko Pension Fund, the funded portion and the disability portion under the Finnish Employees’ Pension Act are treated as defined benefit plans. In addition, the Group operates a pension plan in Norway, which is treated as a defined benefit plan. The plan is not significant for the Group. The other pension plans operated by the Group are defined contribution plans.
Share options are measured at fair value at the grant date and expensed on a straight-line basis over the commitment period. The counter-item is recognised in retained earnings. The expenditure determined at the option grant date is based on the Group’s estimate of the number of options expected to vest at the end of the commitment period. The Group updates the estimate of the final number of options at each balance sheet date. Any movements in estimates are recorded in the income statement. The fair value of options has been calculated using the Black-Scholes option pricing model.
When share options are exercised, the proceeds received from share subscriptions, adjusted for possible transaction costs, are recognised in shareholders’ equity. Proceeds from share subscriptions based on options granted prior to the entry into force of the new Limited Liability Companies Act (1 Sept. 2006), have been recorded in shareholders’ equity and share premium, in accordance with the plan rules. The proceeds from share subscriptions based on option plans implemented after the new Limited Liability Companies Act entered into force are recorded in shareholders’ equity and the reserve of invested non-restricted equity, in accordance with the plan rules.
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 deferred. The recognised liability is measured at fair value at every balance sheet date. For equity-settled share-based payment transactions, an increase corresponding to the expensed amount is recorded in equity.
Net sales comprise the sale of products, services and energy. The proportion of services and energy of total net sales is insignificant.
For net sales, sales revenue is adjusted for indirect taxes, sales adjustment items and the exchange differences of foreign currency sales. Sales adjustment items include loyalty award credits relating to the
The Group sells products to retailers and other retail dealers, and engages in own retailing. Revenue from the sale of goods is recognised when significant risks, benefits and control relating to the ownership of the goods have transferred to the buyer, and it is probable that the economic benefits associated with the transaction will flow to the Group. Normally, revenue from the sale of goods can be recognised at the time of sale. Sales to retailers and other retail dealers are based on central invoicing. Retail sales are mainly on a cash and credit card basis.
For sales of services, revenue is recognised after the service has been rendered and when a flow of economic benefits associated with the service is probable.
Interest income is recognised on a time proportionate basis using the effective interest method. Dividend income is recognised when the right to receive payment is established.
Other operating income includes income other than that associated with the sale of goods or services, such as lease income, store site and chain fees and various other service fees and commissions. Gains and losses from the sale and disposal of property, plant and equipment are disclosed in other operating income and expenses. Other operating income and expenses also include realised and unrealised profits and losses from derivatives used to hedge currency risks of trade.
The Group has not capitalised borrowing costs, because the Group does not have qualifying assets.
Directly attributable transaction costs clearly associated with a certain borrowing are included in the original amortised cost of the borrowing and amortised to interest expense by using the effective interest method.
The taxes disclosed in the consolidated income statement recognise 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 profit of each company determined by local jurisdiction.
Deferred tax assets and liabilities are recognised on all temporary differences arising between the tax bases and carrying amounts of assets and liabilities. Deferred tax 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 calculated using tax rates enacted by the balance sheet date, and as the rates changed, at the new rate expected to apply. 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 defined benefit plans, property, plant and equipment (depreciation difference, finance lease) and measurement at fair value of asset items in connection with acquisitions.
The dividend proposed by the Board to the General Meeting has not been deducted from equity. Instead, dividends are recognised on the basis of the resolution by the General Meeting.
In addition to the standards and interpretations presented in the 2011 financial statements, the Group will adopt the following standards, interpretations and amendments to standards and interpretations issued for application in its 2012 financial statements:
The amendment will promote transparency in the reporting of transfer transactions and improve users’ understanding of the risk exposures relating to transfers of financial assets and the effect of those risks on an entity’s financial position, particularly those involving securitisation of financial assets. The amendment will not have a material impact on the consolidated financial statements.
The standard currently requires an entity to measure the deferred tax relating to an asset depending on whether the entity expects to recover the carrying amount of the asset through use or sale. The amendment introduces an exception to the existing principle for the measurement of deferred tax assets or liabilities arising on investment property measured at fair value. The amendment will not have an impact on the consolidated financial statements.
The Group will adopt the following standards, interpretations and amendments in 2013 or later:
IFRS 10 establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. The standard defines the principles of control, and establishes controls as the basis for consolidation. The standard sets out how to apply the principle of control to identify whether an investor controls an investee and therefore must consolidate the investee. The standard also sets out the accounting requirements for the preparation of consolidated financial statements. The Group management assesses that the amendment will not have a material impact on the consolidated financial statements.
IFRS 11 is a more realistic reflection of joint arrangements by focusing on the rights and obligations of the arrangement rather than its legal form. There are two types of joint arrangement: joint operations and joint ventures. Joint operations arise where a joint operator has rights to the assets and obligations relating to the arrangement and hence accounts for its interest in assets, liabilities, revenue and expenses. Joint ventures arise where the joint operator has rights to the net assets of the arrangement and hence equity accounts for its interest. Proportional consolidation of joint ventures is no longer allowed. The Group management assesses that the amendment will not have a material impact on the consolidated financial statements.
The standard includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off-balance-sheet vehicles. The Group management assesses that the amendment will have an impact on the information contained in the notes.
The standard aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements do not extend the use of fair value accounting. The Group management assesses that the amendment will not have a material impact on the consolidated financial statements.
The revised standard includes the provisions on separate financial statements that are left after the control provisions have been included in the new IFRS 10. The Group management assesses that the amendment will not have an impact on the consolidated financial statements.
The revised standard includes the requirements for joint ventures, as well as associates, to be equity accounted following the issue of IFRS 11. The Group management assesses that the amendment will not have an impact on the consolidated financial statements.
The main change is a requirement for entities to group items presented in ‘other comprehensive income’ (OCI) on the basis of whether they are potentially reclassifiable to profit or loss subsequently (reclassification adjustments). The amendments do not address which items are presented in OCI. The management assesses that the amendment will have an impact on the presentation of other comprehensive income.
The amendment eliminates the corridor approach and calculates finance costs on a net funding basis (of obligation and plan assets). In addition, the number of notes will increase. The management assesses that the amendment will have an impact on the consolidated profit, equity and notes. The changes will not be material.
The standard addresses the classification, measurement and recognition of financial assets and financial liabilities. Two parts of IFRS 9 have been issued, one in 2009 and the other in 2010, to replace the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. The Group’s management assesses that the new standard will have an impact on the accounting for consolidated available-for-sale debt instruments.
The amendment addresses inconsistencies in current practice when applying the criteria for reporting financial assets and financial liabilities on a net basis in the balance sheet. The management assesses that the amendment will not have a material impact on the consolidated financial statements.
The amended disclosures require more extensive disclosures than are currently required on offset financial instruments reported on a net basis in the balance sheet and on instruments that are subject to master netting or similar arrangements, irrespective of being presented at their gross amounts in the balance sheet. The management assesses that the amendment will not have a material impact on the consolidated financial statements.