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Consolidated Financial Statements Parent Company's Financial statements Notes to the parent's financial statements
Notes to the parent company'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 | 5–20 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.
Valuation of financial assets
Marketable securities have been valued at the lower of cost and 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 derivatives
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 derivatives 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 but unrealised revaluation is not stated as income. Any valuation losses are included in interest expenses.
Foreign exchange derivatives
Foreign exchange derivatives are used for hedging against translation and transaction risks. Foreign exchange forwards 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 has been used to hedge a foreign-currency-denominated asset, 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 derivatives made with a 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 derivatives hedging the price of electricity supplied during the financial year, value changes are recognised at Kesko under interest income and expenses. Unrealised gains and losses of contracts hedging future purchases are not recognised through profit or loss.
Pension plans
Pension costs are recognised as expenses in the income statement for the whole financial year and the personnel’s statutory pension coverage is managed by a pension company.
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 | 2011 | 2010 |
| 1. Other operating income | ||
| Profits on sales of real estate and shares | 0.0 | 66.3 |
| Rent income | 123.1 | 137.3 |
| Others | 0.4 | 0.3 |
| Total | 123.5 | 203.9 |
| During financial year 2010, Kesko Corporation sold some of its real estate properties to one of its associates, Kruunuvuoren Satama Oy and to Ilmarinen Mutual Pension Insurance Company. |
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| 2. Average number of personnel | ||
| Kesko Corporation | 162 | 150 |
| Total | 162 | 150 |
| 3. Personnel expenses | ||
| Salaries and fees | -12.3 | -9.9 |
| Social security expenses | ||
| Pension expenses | -1.8 | 94.6 |
| Other social security expenses | -0.6 | -0.5 |
| Total | -14.7 | 84.2 |
| During financial year 2010, a surplus amount of €94.9 million was returned to Kesko Corporation by the Kesko Pension Fund. |
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| Salaries and fees to the management | ||
| Managing Director | 1.0 | 0.9 |
| Board of Directors' members | 0.4 | 0.4 |
| Total | 1.4 | 1.2 |
| An analysis of the management’s salaries and fees is included in the notes to the consolidated financial statements. |
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| 4. Depreciation and value adjustments | ||
| Depreciation according to plan | -15.9 | -17.4 |
| Value adjustments, non-current assets | - | -1.5 |
| Total | -15.9 | -19.0 |
| 5. Other operating expenses | ||
| Rent expenses | -67.8 | -80.5 |
| Marketing expenses | -1.5 | -1.6 |
| Maintenance of real estate and store sites | -7.2 | -8.0 |
| Data communications expenses | -15.8 | -14.5 |
| Losses on sales of real estate and shares | - | -1.0 |
| Other operating expenses | -6.9 | -6.5 |
| Total | -99.2 | -112.2 |
| Auditor's fees | ||
| PricewaterhouseCoopers, Authorised Public Accountants | ||
| Auditor's fees | 0.1 | 0.1 |
| Tax consultation | 0.1 | 0.1 |
| Other fees | 0.1 | 0.1 |
| Total | 0.3 | 0.3 |
| 6. Financial income and expenses | ||
| Income from long-term investments | ||
| Dividend income from Group companies | 0.1 | - |
| Profit from sales of shares | - | 0.3 |
| Income from long-term investments, total | 0.1 | 0.3 |
| Other interest and financial income | ||
| From Group companies | 23.9 | 15.7 |
| From others | 18.2 | 27.1 |
| Interest and financial income, total | 42.1 | 42.8 |
| Interest and other financial expenses | ||
| To Group companies | -6.7 | -3.0 |
| To others | -21.9 | -28.8 |
| Interest and other financial expenses, total | -28.7 | -31.7 |
| Total | 13.6 | 11.3 |
| 7. Items included in extraordinary income and expenses | ||
| Contributions from Group companies | 130.9 | 100.7 |
| Contributions to Group companies | -27.8 | -49.1 |
| Total | 103.1 | 51.6 |
| 8. Appropriations | ||
| Difference between depreciation according to plan and depreciation in taxation |
0.2 | 11.6 |
| Total | 0.2 | 11.6 |
| 9. Changes in provisions | ||
| Future rent expenses for vacant business premises | 1.4 | 3.7 |
| Other changes | 0.3 | 2.2 |
| Total | 1.7 | 5.8 |
| 10. Income taxes | ||
| Income taxes on extraordinary items | -26.8 | -13.4 |
| Income taxes on ordinary activities | -8.9 | -51.4 |
| Total | -35.7 | -64.9 |
Deferred taxes
Deferred tax liabilities and assets have not been included in the balance sheet. The amounts are not significant.
| € million | 2011 | 2010 |
| 11. Intangible assets | ||
| Intangible assets | ||
| Acquisition cost at 1 January | 38.9 | 39.5 |
| Increases | 6.7 | 0.3 |
| Decreases | -10.4 | -1.1 |
| Transfers between items | 1.1 | 0.2 |
| Acquisition cost at 31 December | 36.3 | 38.9 |
| Accumulated depreciation at 1 January | -35.1 | -34.0 |
| Accumulated depreciation on decreases and transfers | 10.4 | 0.5 |
| Depreciation for the financial year | -1.6 | -1.5 |
| Accumulated depreciation at 31 December | -26.3 | -35.1 |
| Book value at 31 December | 10.0 | 3.8 |
| Advance payments | ||
| Acquisition cost at 1 January | 1.7 | 1.5 |
| Increases | 1.8 | 0.5 |
| Decreases | -0.5 | 0.0 |
| Transfers between items | -1.1 | -0.2 |
| Acquisition cost at 31 December | 1.9 | 1.7 |
| Book value at 31 December | 2.0 | 1.7 |
| 12. Tangible assets | ||
| Land and waters | ||
| Acquisition cost at 1 January | 80.9 | 97.2 |
| Increases | 0.4 | 0.3 |
| Decreases | - | -16.2 |
| Value adjustment | - | -0.5 |
| Acquisition cost at 31 December | 81.3 | 80.9 |
| Book value at 31 December | 81.3 | 80.9 |
| Buildings | ||
| Acquisition cost at 1 January | 377.9 | 428.0 |
| Increases | 14.5 | 4.1 |
| Decreases | -16.4 | -56.3 |
| Transfers between items | 0.1 | 2.0 |
| Acquisition cost at 31 December | 376.0 | 377.9 |
| Accumulated depreciation at 1 January | -172.7 | -194.8 |
| Accumulated depreciation on decreases and transfers | 16.4 | 36.8 |
| Value adjustment | - | -1.0 |
| Depreciation for the financial year | -12.4 | -13.6 |
| Accumulated depreciation at 31 December | -168.7 | -172.7 |
| Book value at 31 December | 207.3 | 205.2 |
| Machinery and equipment | ||
| Acquisition cost at 1 January | 19.7 | 22.1 |
| Increases | 1.0 | 0.4 |
| Decreases | -3.4 | -2.9 |
| Transfers between items | 0.6 | 0.2 |
| Acquisition cost at 31 December | 17.9 | 19.7 |
| Accumulated depreciation at 1 January | -16.8 | -18.2 |
| Accumulated depreciation on decreases and transfers | 3.4 | 2.3 |
| Depreciation for the financial year | -0.9 | -1.0 |
| Accumulated depreciation at 31 December | -14.3 | -16.8 |
| Book value at 31 December | 3.6 | 2.9 |
| Other tangible assets | ||
| Acquisition cost at 1 January | 12.8 | 13.7 |
| Increases | 0.8 | 0.3 |
| Decreases | -0.8 | -1.3 |
| Transfers between items | 0.1 | 0.1 |
| Acquisition cost at 31 December | 12.9 | 12.8 |
| Accumulated depreciation at 1 January | -7.5 | -7.1 |
| Accumulated depreciation on decreases and transfers | 0.8 | 0.6 |
| Depreciation for the financial year | -1.0 | -1.1 |
| Accumulated depreciation at 31 December | -7.7 | -7.5 |
| Book value at 31 December | 5.2 | 5.3 |
| Advance payments and construction in progress | ||
| Acquisition cost at 1 January | 2.8 | 4.6 |
| Increases | 3.5 | 1.4 |
| Decreases | -1.2 | -0.9 |
| Transfers between items | -0.8 | -2.3 |
| Acquisition cost at 31 December | 4.3 | 2.8 |
| Book value at 31 December | 4.3 | 2.8 |
| Revaluation of non-current assets At the end of the financial year, Kesko Corporation’s balance sheet did not contain revaluations. |
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| 13. Investments | ||
| Holdings in Group undertakings | ||
| Acquisition cost at 1 January | 290.9 | 264.1 |
| Increases | - | 27.4 |
| Decreases | - | -0.6 |
| Acquisition cost at 31 December | 290.9 | 290.9 |
| Book value at 31 December | 290.9 | 290.9 |
| Participating interests | ||
| Acquisition cost at 1 January | 50.4 | 17.8 |
| Increases | - | 32.7 |
| Acquisition cost at 31 December | 50.4 | 50.4 |
| Book value at 31 December | 50.4 | 50.4 |
| Other investments | ||
| Acquisition cost at 1 January | 12.0 | 8.0 |
| Increases | 0.4 | 4.5 |
| Decreases | - | -0.5 |
| Acquisition cost at 31 December | 12.4 | 12.0 |
| Book value at 31 December | 12.4 | 12.0 |
Kesko Corporation’s ownership interests in other companies as at 31 December 2011 are presented in the notes to the consolidated financial statements
| € million | 2011 | 2010 |
| 14. Debtors | ||
| Amounts owed by Group companies | ||
| Long-term | ||
| Loan receivables | 316.8 | 251.6 |
| Subordinated loans | 38.0 | 50.4 |
| Long-term, total | 354.8 | 302.0 |
| Short-term | ||
| Trade receivables | 2.5 | 1.6 |
| Loan receivables | 701.0 | 415.4 |
| Prepayments and accrued income | 0.9 | 2.3 |
| Short-term, total | 704.4 | 419.3 |
| Total | 1,059.2 | 721.2 |
Kesko Corporation has provided subordinated loans to Indoor Group Ltd, Kiinteistö Mesta Oy and Johaston Oy, companies owned by it, in the amounts of €10.0 million, €10.0 million and €24.0 million respectively.
The loan provided to Indoor Group Ltd will mature on 31 March 2014. The loan capital will be repaid in five equal repayments, provided that the provisions of chapter 12, section 1, paragraph 1 of the Limited Liability Companies Act are fulfilled. The loan interest will be payable only if the amount of the company’s unrestricted equity plus 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 financial year last ended or of more recent financial statements. If the repayment criteria are met, a 10% interest will be paid on the loan.
The loan provided to Kiinteistö Mesta Oy will be repaid only if the restricted shareholders’ equity and other non-distributable items in the balance sheet confirmed for the debtor’s financial year last ended are fully funded after loan repayment.
The loan provided to Johaston Oy will mature on 31 December 2016. The loan capital will be repaid in a single instalment. The loan capital will be repaid provided that the legal requirements regarding the repayment of a subordinated loan are met. The loan is interest free.
| € million | 2011 | 2010 |
| Amounts owed by participating interest undertakings | ||
| Long-term | ||
| Loan receivables | 1.5 | 1.5 |
| Short-term | ||
| Loan receivables | 0.1 | 1.0 |
| Short-term, total | 0.1 | 1.0 |
| Total | 1.6 | 2.6 |
| Prepayments and accrued income | ||
| Taxes | 31.6 | 26.3 |
| Others | 4.8 | 8.0 |
| Total | 36.4 | 34.3 |
| € million | 2011 | 2010 |
| 15. Capital and reserves | ||
| Share capital at 1 January | 197.3 | 196.6 |
| Subscriptions with options | 0.0 | 0.6 |
| Share capital at 31 December | 197.3 | 197.3 |
| Share issue, exercise of options at 1 January | - | - |
| Increase | 0.1 | 4.2 |
| Transfer to share capital | - | -0.6 |
| Transfer to other reserves | -0.1 | -3.6 |
| Share issue, exercise of options at 31 December | - | - |
| Share premium account at 1 January | 197.5 | 193.9 |
| Subscriptions with options | - | 3.6 |
| Share premium account at 31 December | 197.5 | 197.5 |
| Other reserves | ||
| Contingency fund at 1 January | 243.4 | 243.4 |
| Contingency fund at 31 December | 243.4 | 243.4 |
| Invested unrestricted equity fund at 1 January | - | - |
| Increase | 0.1 | - |
| Invested unrestricted equity fund at 31 December | 0.1 | - |
| Other reserves | 243.5 | 243.4 |
| Retained earnings at 1 January | 908.7 | 808.4 |
| Distribution of dividends | -128.2 | -88.5 |
| Own shares | -22.9 | - |
| Transfer to donations | -0.1 | -0.7 |
| Retained earnings at 31 December | 757.5 | 719.2 |
| Profit for the financial year | 100.6 | 189.5 |
| Capital and reserves, total | 1,496.4 | 1,546.9 |
During the reporting period, the number of B shares was increased twice corresponding to share subscriptions with the share options of the 2007 option plan. The increases were made on 31 May 2011 (€64,267) and 1 August 2011 (€23,370) 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 1 June 2011 and 2 August 2011. The combined share subscription price of €87,638 received by the company was recorded in the reserve of invested non-restricted equity.
| Calculation of distributable profits | 2011 | 2010 |
| Other reserves | 243.5 | 243.4 |
| Retained earnings | 757.5 | 719.2 |
| Profit for the financial year | 100.6 | 189.5 |
| Total | 1,101.6 | 1,152.1 |
| Breakdown of the parent’s share capital | |||
| pcs | equivalent, € | € million | |
| A shares | 31,737,007 | 2.00 | 63.5 |
| B shares | 66,908,035 | 2.00 | 133.8 |
| Total | 98,645,042 | 197.3 | |
| Voting rights carried by shares | number of votes | ||
| A share | 10 | ||
| B share | 1 | ||
Board's authorisations to acquire and issue own shares
The Board of Directors was authorised by the Annual General Meeting of 4 April 2011 to acquire a total maximum of 1,000,000 own B shares. The authorisation is valid until 30 September 2012. The Annual General Meeting also authorised the Board to decide on the issuance of a maximum of 1,000,000 own B shares held by the company itself. The authorisation is valid until 30 June 2014. The prior authorisation by the Annual General Meeting of 30 March 2009 to issue a maximum of 20,000,000 new B shares against payment or other consideration until 30 March 2012 is still valid. By virtue of the share acquisition authorisation, a total of 700,000 own B shares were acquired from the Helsinki stock exchange during the financial year. The beginning of acquisition was announced on a stock exchange release on 28 April 2011. Each subsequent acquisition was announced in a stock exchange notification on the same day. The total price paid for the shares was €23.7 million. No company shares have been issued by virtue of the share issue authorisations.
Options
The Group operates share option plans as part of management’s incentive and commitment plans. Each option gives its holder the right to subscribe for one Kesko Corporation B share at the price and during the period specified in the terms and conditions of the option plan. The options are forfeited if the employee leaves the company before the end of the vesting period, unless, in an individual case, the Board decides that the option recipient can keep all or some of the options under offering obligation.
2007 option scheme
On 26 March 2007, the Annual General Meeting decided to grant a total of 3,000,000 options for no consideration to the management of the Kesko Group, other key personnel, and a subsidiary wholly owned by Kesko Corporation. The Company had a weighty financial reason for granting the options because they are intended to be part of Kesko’s share-based incentive system. Each option entitles its holder to subscribe for one new Kesko Corporation B share. In addition, the option scheme also includes an obligation to buy company shares for permanent ownership for the value of 25% of the proceeds from the sale of options. The options are marked with the symbols 2007A, 2007B and 2007C in units of 1,000,000 options each.
The options are exercisable as follows:
- 2007A 1 April 2010–30 April 2012
- 2007B 1 April 2011–30 April 2013
- 2007C 1 April 2012–30 April 2014
The original price of a share subscribed for with 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), with option 2007B, between 1 April and 30 April 2008 (€26.57), and with option 2007C, between 1 April and 30 April 2009 (€16.84). The prices of shares subscribed for with 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 distribution of profits or other assets.
After the distribution of dividends for 2010, the price of a B share subscribed for with option 2007A was €41.02 at the end of 2011, with option 2007B €23.37, and with option 2007C €14.64. The option scheme covers approximately 130 people.
Percentage of issued share options out of all shares and votes
If all of the exercisable share options were exercised, the shares subscribed for with all of the 2007 options would account for 2.95% of all shares and for 0.77% of all votes. The subscriptions made with share options can 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.
Dividend rights and other shareholder rights carried by the shares will apply after the share capital increase has been entered in the Trade Register.
| € million | 2011 | 2010 |
| 16. Appropriations | ||
| Depreciation difference | 79.8 | 80.0 |
| Total | 79.8 | 80.0 |
| 17. Provisions | ||
| Future rent expenses for vacant business premises | 0.3 | 2.0 |
| Total | 0.3 | 2.0 |
| 18. Non-current creditors | ||
| Debt falling due later than within five years | ||
| Private placement bonds | 20.1 | 50.2 |
| Loans from credit institutions | - | - |
| Total | 20.1 | 50.2 |
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 | 2011 | 2010 |
| 19. Current creditors | ||
| Amounts owed to Group undertakings | ||
| Trade creditors | 0.1 | 0.1 |
| Other creditors | 317.7 | 370.4 |
| Accruals and deferred income | 1.9 | 3.0 |
| Total | 319.7 | 373.6 |
| Amounts owed to participating interest undertakings |
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| Other creditors | 35.5 | 34.2 |
| Total | 35.5 | 34.2 |
| Accruals and deferred income | ||
| Staff expenses | 3.4 | 3.0 |
| Taxes | 0.3 | - |
| Others | 9.8 | 7.7 |
| Total | 13.5 | 10.7 |
| 20. Interest-free debt | ||
| Current creditors | 21.3 | 17.8 |
| Total | 21.3 | 17.8 |
Other notes
| € million | 2011 | 2010 |
| 21. Guarantees, liability engagements and other liabilities | ||
| Real estate mortgages | ||
| For own debt | 6 | 6 |
| For Group companies | 10 | 10 |
| Pledged shares | 44 | 39 |
| Guarantees | ||
| For own debt | 1 | 2 |
| For Group companies | 50 | 42 |
| For others | 0 | 0 |
| Other liabilities and liability engagements | ||
| For own debt | 9 | 7 |
| Rent liabilities on machinery and fixtures | ||
| Falling due within a year | 0 | 0 |
| Falling due later | 1 | 0 |
| Rent liabilities on real estate | ||
| Falling due within a year | 55 | 62 |
| Falling due later | 305 | 330 |
| € million | 2011 | Fair value |
2010 | Fair value |
| Liabilities arising from derivative instruments |
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| Values of underlying instruments at 31 Dec. | ||||
| Interest rate derivatives | ||||
| Forward and future contracts | - | - | ||
| Interest rate swaps | 201 | 4.1 | 201 | 3.7 |
| Currency derivatives | ||||
| Forward and future contracts | ||||
| Outside the Group | 351 | -3.4 | 223 | -4.2 |
| Inside the Group | 24 | -1.0 | 27 | 0.0 |
| Option agreements | ||||
| Bought | - | - | ||
| Written | 4 | 0.0 | ||
| Currency swaps | 100 | -7.7 | 100 | -10.6 |
| Commodity derivatives | ||||
| Electricity derivatives | ||||
| Outside the Group | 32 | -3.4 | 63 | 13.2 |
| Inside the Group | 32 | 3.4 | 63 | -13.2 |