NOTE 39
With respect to financial risks, the Group observes a uniform financing policy that has been approved by the company’s Board of Directors. Compliance with this policy and developments in the Group’s financial situation are monitored by the Board’s Audit Committee. Group Treasury is centrally responsible for obtaining financial resources for the Group, for liquidity management, relations with providers of finance, and the management of financial risks. In the main, the Group’s financial resources are obtained through the parent company, and Group Treasury arranges financial resources for subsidiaries in their functional currencies. For companies with significant external ownership, the Group has not guaranteed financial liabilities in excess of its ownership interest.
The Kesko Group operates in eight countries in addition to which it makes purchases from numerous other countries. In consequence, the Group is exposed to various foreign exchange risks arising from net investments in foreign operations (translation-related risks), foreign currency assets, liabilities and forecast transactions (transaction risks).
The Group companies’ financial resources are arranged in their functional currencies. The parent company bears the ensuing currency risk and hedges it by using derivatives or foreign currency loans. The Belarusian currency BYR is not a freely convertible currency and hedging against the associated currency risk is not possible.
The Group’s assets are exposed to foreign currency translation risks relating to net investments in subsidiaries outside the euro zone. This balance sheet exposure has not been hedged. The hedge is activated if equity is repatriated, or if a currency is expected to be exposed to a significant devaluation risk. The most significant translation exposures are in the Russian ruble, Lithuanian litas, Norwegian krone, Swedish krona and Latvian lat. The exposure does not include the non-controlling interest in equity. In proportion to the Group’s volume of operations and the balance sheet total, the translation risk is small.
The functional currency of the real estate companies operating in St. Petersburg and Moscow in Russia has been determined to be the euro, which is why net investments in these companies are not exposed to translation risk, and consequently are not included in the translation exposure.
Group's translation exposure at 31 Dec. 2011 |
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| € million | LVL | NOK | SEK | RUB | LTL | BYR | |
| Net investment | 15.5 | 26.2 | 22.8 | 50.5 | 39.7 | 1.3 | |
Group's translation exposure at 31 Dec. 2010 |
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| € million | EEK | LVL | NOK | SEK | RUB | LTL | BYR |
| Net investment | 61.4 | 7.3 | 24.9 | 17.7 | 29.2 | 37.2 | 2.0 |
| The following table shows how a 10% change in the Group companies’ functional currencies would affect the Group’s equity. | |||||||
Sensitivity analysis, effect on equity, at 31 Dec. 2011 |
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| € million | LVL | NOK | SEK | RUB | LTL | BYR | |
| Change + / -10% | 1.6 | 2.6 | 2.3 | 5.1 | 4.0 | 0.1 | |
Sensitivity analysis, effect on equity, at 31 Dec. 2010 |
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| € million | EEK | LVL | NOK | SEK | RUB | LTL | BYR |
| Change + / -10% | 6.1 | 0.7 | 2.5 | 1.8 | 2.9 | 3.7 | 0.2 |
International purchasing activities and foreign currency denominated financial resources arranged by the parent to subsidiaries expose the Group to transaction risks relating to several currencies. The currency-specific transaction risk consists of receivables and liabilities denominated in foreign currencies in the balance sheet, forecasted cash flows in foreign currencies, and foreign subsidiaries’ liabilities and receivables with respect to the parent. The risk is commercially managed by, for example, transferring exchange rate changes to selling prices, or by replacing suppliers. The remaining exposures are hedged by foreign currency derivatives. The level of hedging in commercial transactions is decided by each relevant subsidiary within the limits of documented hedging policies. The subsidiaries report their currency exposures to Group Treasury on a monthly basis.
Fair values of derivative contracts |
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| € million | 31 Dec. 2011 Positive fair value (balance sheet value) |
31 Dec. 2011 Negative fair value (balance sheet value) |
31 Dec. 2010 Positive fair value (balance sheet value) |
31 Dec. 2010 Negative fair value (balance sheet value) |
| Interest rate derivatives | 4.1* | 0.0 | 3.7 | -0.1 |
| Foreign currency derivatives | 1.8 | -12.9* | 1.4 | -16.2 |
| Electricity derivatives | 0.0 | -3.4 | 13.3 | -0.1 |
| Notional principal amounts of derivative contracts |
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| € million | 31 Dec. 2011 |
31 Dec. 2010 Notional principal amount |
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| Interest rate derivatives | 207.7* | 205.4 | ||
| Foreign currency derivatives | 458.1* | 324.8 | ||
| Electricity derivatives | 31.5 | 63.2 | ||
| * Derivative contracts include interest rate swaps relating to a foreign currency borrowing facility with a gross notional principal amount of €200.8 million and a fair value of €4.1 million (€3.7 million), and currency swaps with a notional principal amount of €100.4 million and a fair value of €-7.7 million (€-10.6 million). |
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| The maximum credit risk of derivatives is the fair value of the balance sheet at the reporting date. | ||||
In the main, the subsidiaries carry out their hedging operations with Group Treasury, which hedges risk exposures by using market transactions within the limits confirmed for each currency. Intra-Group derivatives are allocated to the segments in segment reporting.
The Group does not apply hedge accounting in accordance with IAS 39 to the hedging of transaction risks relating to purchases and sales. In initial measurement, derivative instruments are recognised at cost and at subsequent measurement they are recognised at fair value. The changes in fair value of currency derivatives used to hedge purchases and sales are recognised in other operating income or expenses.
The Group monitors transaction risk in respect of the existing and projected cash flows. The accompanying table analyses the transaction exposure excluding future cash flows. The presentation does not illustrate the Group’s actual currency risk after hedgings. With projected amounts included in the transaction exposure, the most significant differences from the table below are in the USD and LTL exposures. At 31 December 2011, the exposure to USD risk was €6.3 million, and the exposure to LTL risk was €6.9 million.
Group's transaction exposure at 31 Dec. 2011 |
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| € million | USD | SEK | NOK | LVL | LTL | RUB | BYR | |
| Group's transaction risk | -4.7 | 130.2 | 60.5 | 11.8 | 0.3 | 53.2 | 0.0 | |
| Hedging derivatives | 33.2 | -127.5 | -19.3 | -2.6 | -8.7 | -52.4 | 0.0 | |
| Hedging loans | 0.0 | 0.0 | -25.8 | -7.1 | 0.0 | 0.0 | 0.0 | |
| Exposure | 28.5 | 2.7 | 15.4 | 2.1 | -8.4 | 0.8 | 0.0 | |
Group's transaction exposure at 31 Dec. 2010 |
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| € million | EEK | USD | SEK | NOK | LVL | LTL | RUB | BYR |
| Group's transaction risk | -32.9 | -0.7 | 104.9 | 59.8 | 21.8 | -4.6 | 38.5 | 0.1 |
| Hedging derivatives | 0.0 | 26.2 | -87.7 | -25.6 | -11.4 | -8.7 | -31.7 | 0.0 |
| Hedging loans | 0.0 | 0.0 | 0.0 | -25.6 | -7.0 | 0.0 | 0.0 | 0.0 |
| Exposure | -32.9 | 25.5 | 17.2 | 8.5 | 3.4 | -13.3 | 6.8 | 0.1 |
The following table shows how a 10% change in the Group companies' functional currencies would affect the Group's equity.
Changes in interest rates have an impact on the Group’s interest expense. The interest rate risk hedging policy is aimed at equalising the effects of interest rate movements on the profits for different accounting periods.
The interest rate risk is centrally managed by Group Treasury, which adjusts interest rate duration by using interest rate derivatives. The target duration is three years, which is allowed to vary between one and a half and four years. The realised duration during the period was 2.9 (3.5) years on average.
On 10 June 2004 in the United States, Kesko Corporation issued USD private placement notes in three tranches at a total value of USD 120 million; split USD 60 million for a ten-year term, USD 36 million for a 12-year term and USD 24 million for a 15-year term. The credit facility qualifies for hedge accounting against both foreign exchange and interest rate risk and it has been hedged by using currency swaps and interest rate swaps with the same maturities as the loan. As a result, the loan is fully hedged against foreign exchange and interest rate risk. During the financial year, there was no ineffectiveness to be recorded in the income statement from this credit facility.
A sensitivity analysis for commercial paper liabilities realised during the financial year used average balance values. At the balance sheet date of 31 December 2011, the effect of variable rate borrowings on the pre-tax profit would have been €-/+2.2 million (€-/+2.6 million), if the interest rate level had risen or fallen by 1 percentage point.
Sensitivity analysis, pre-tax profit impact at 31 Dec. 2011 |
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| € million | USD | SEK | NOK | LVL | LTL | RUB | BYR | |
| Change +/-10% | 2.9 | 0.3 | 1.5 | 0.2 | -0.8 | 0.1 | 0.0 | |
Sensitivity analysis, pre-tax profit impact at 31 Dec. 2010 |
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| € million | EEK | USD | SEK | NOK | LVL | LTL | RUB | BYR |
| Change +/-10% | 3.3 | 2.6 | 1.7 | 0.9 | 0.3 | 1.3 | 0.7 | 0.0 |
Liquidity risk management aims to maintain sufficient liquid assets and credit facilities in order to ensure the availability of sufficient financial resources for the Group’s operating activities at all times.
The objective is to invest liquidity consisting of financial assets in the money market by using efficient combinations of return and risk. At regular intervals, the Group’s management approves the investment instruments and limits for each counterparty among those analysed by Group Treasury. The risks and actual returns of investments are monitored regularly.
A sensitivity analysis for variable-rate receivables uses average annual balance values of invested assets. The receivables include customer financing receivables, finance lease receivables, other interest-bearing receivables, and within investments, commercial papers and money market funds. The sensitivity of money market funds has been determined based on duration. At the balance sheet date, the effect of these items on the pre-tax profit would have been €+/-5.5 million (€+/-6.5 million), and €+/-1.5 million (€+/-2.2 million) on equity, if the interest rate level had changed by +/-1 percentage point.
At the balance sheet date, the total of undrawn committed long-term credit facilities was €100.0 million (€151.5 million) and the total of undrawn short-term credit facilities was €158.6 million. In addition, the Group’s uncommitted financial resources available contain commercial paper programmes denominated in euros totalling an equivalent of €359 million (€359 million).
The terms and conditions of the private placement notes and the committed facilities include ordinary financial covenants. The requirements of these covenants have been met. The loan terms include a financial covenant defining the ratio between net debt and EBITDA, which remained well below the maximum throughout the financial year.
The Group’s liquid assets have mainly been invested in the debt instruments of major Finnish companies, in certificates of deposit and in deposits with banks operating in Kesko’s market area, in Finnish government bonds, and in the bonds of selected companies. The return on these investments for 2011 was 1.6% (1.5%). The maximum credit risk is the fair value of these investments in the balance sheet at the balance sheet date as presented below.
Undiscounted cash flows from financial liabilities and related finance costs at 31 Dec. 2011 |
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| € million | 2012 | 2013 | 2014 | 2015 | 2016 | 2017- | Total |
| Loans from financial institutions | 8.6 | 1.2 | 1.0 | 26.7 | 0.6 | 2.7 | 40.8 |
| Finance costs | 1.5 | 1.3 | 1.3 | 1.3 | 0.1 | 0.2 | 5.6 |
| Private placement notes (USD) | 46.4 | 27.8 | 18.5 | 92.7 | |||
| Finance costs | 5.8 | 5.8 | 4.3 | 2.9 | 2.1 | 3.0 | 23.9 |
| Pension loans | 5.8 | 5.8 | 5.8 | 5.8 | 5.8 | 14.6 | 43.8 |
| Finance costs | 1.7 | 1.4 | 1.2 | 1.0 | 0.7 | 0.8 | 6.9 |
| Finance lease liabilities | 11.6 | 7.5 | 10.1 | 6.5 | 15.7 | 0.3 | 51.8 |
| Finance costs | 2.9 | 1.5 | 1.4 | 1.1 | 0.6 | 0.0 | 7.6 |
| Payables to K-retailers | 117.6 | 117.6 | |||||
| Finance costs | 0.1 | 0.1 | |||||
| Other interest-bearing liabilities | 45.7 | 45.7 | |||||
| Finance costs | 0.1 | 0.1 | |||||
| Non-current non-interest-bearing liabilities | 2.5 | 4.2 | 1.2 | 0.1 | 0.0 | 0.0 | 8.0 |
| Current non-interest-bearing liabilities | |||||||
| Trade payables | 885.8 | 885.8 | |||||
| Accrued liabilities | 261.4 | 261.4 | |||||
| Muut korottomat velat | 181.7 | 181.7 | |||||
Undiscounted cash flows from financial liabilities and related finance costs at 31 Dec. 2010 |
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| € million | 2011 | 2012 | 2013 | 2014 | 2015 | 2016- | Total |
| Loans from financial institutions | 3.3 | 10.7 | 0.9 | 0.7 | 26.3 | 1.7 | 43.5 |
| Finance costs | 1.5 | 1.3 | 1.2 | 1.2 | 1.2 | 0.1 | 6.6 |
| Private placement notes (USD) | 44.9 | 44.9 | 89.8 | ||||
| Finance costs | 5.6 | 5.6 | 5.6 | 4.2 | 2.8 | 4.9 | 28.7 |
| Pension loans | 2.9 | 5.8 | 5.8 | 5.8 | 5.8 | 20.4 | 46.7 |
| Finance costs | 1.9 | 1.7 | 1.4 | 1.2 | 1.0 | 1.6 | 8.8 |
| Finance lease liabilities | 14.6 | 9.3 | 9.0 | 11.7 | 8.2 | 13.4 | 66.1 |
| Finance costs | 3.2 | 1.9 | 1.8 | 1.7 | 1.5 | 0.2 | 10.3 |
| Payables to K-retailers | 128.9 | 128.9 | |||||
| Finance costs | 0.2 | 0.2 | |||||
| Other interest-bearing liabilities | 90.9 | 90.9 | |||||
| Finance costs | 0.6 | 0.6 | |||||
| Non-current non-interest-bearing liabilities | 2.1 | 0.3 | 0.0 | 0.0 | 0.0 | 2.5 | |
| Current non-interest-bearing liabilities | |||||||
| Trade payables | 838.3 | 838.3 | |||||
| Accrued liabilities | 245.4 | 245.4 | |||||
| Other non-interest-bearing liabilities | 162.2 | 162.2 | |||||
The private placement notes and some of the loans from financial institutions, €169.6 million in aggregate, have fixed rates, and their effective interest cost was 4.8%. At the end of the financial year, the average rate of variable-interest-rate loans from financial institutions, payables to retailers and other interest-bearing liabilities was 1.3%. Some of the loans are euro-denominated, the private placement notes are USD-denominated, and the loans from financial institutions include NOK-denominated loans totalling €25.8 million (€25.6 million) and LVL-denominated loans totalling €7.1 million (€7.0 million).
Undiscounted cash flows from derivative instruments at 31 Dec. 2011 |
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| € million | 2012 | 2013 | 2014 | 2015 | 2016 | 2017- | Total |
| Payables | |||||||
| Currency forwards outside hedge accounting | 354.1 | 354.1 | |||||
| Net settlement of payables | |||||||
| Interest rate derivatives | 0.1 | 0.1 | 0.1 | 0.1 | 0.0 | 0.4 | |
| Electricity derivatives | 2.2 | 0.8 | 0.3 | 0.1 | 0.0 | 3.4 | |
| Derivatives relating to private placement notes* | |||||||
| Foreign currency derivatives | 0.5 | 0.5 | 4.2 | 0.2 | 2.5 | 1.8 | 9.7 |
| Receivables | |||||||
| Currency forwards outside hedge accounting | 350.7 | 350.7 | |||||
| Net settlement of receivables | |||||||
| Derivatives relating to private placement notes* | |||||||
| Interest rate derivatives | 0.9 | 0.9 | 0.7 | 0.4 | 0.3 | 0.5 | 3.7 |
* The cash flows from private placement notes and related foreign currency derivatives and interest rate derivatives are settled on a net basis. |
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Undiscounted cash flows from derivative instruments at 31 Dec. 2010 |
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| € million | 2011 | 2012 | 2013 | 2014 | 2015 | 2016- | Total |
| Payables | |||||||
| Currency forwards outside hedge accounting | 222.9 | 222.9 | |||||
| Net settlement of payables | |||||||
| Interest rate derivatives | 0.2 | 0.1 | 0.0 | 0.0 | 0.2 | ||
| Electricity derivatives | 0.0 | 0.1 | 0.0 | 0.0 | 0.0 | 0.1 | |
| Derivatives relating to private placement notes* | |||||||
| Foreign currency derivatives | 0.7 | 0.7 | 0.7 | 5.8 | 0.3 | 5.9 | 14.0 |
| Receivables | |||||||
| Currency forwards outside hedge accounting | 218.7 | 218.7 | |||||
| Net settlement of receivables | |||||||
| Interest rate derivatives | |||||||
| Electricity derivatives | 9.0 | 3.2 | 1.1 | 0.2 | 0.0 | 13.5 | |
| Derivatives relating to private placement notes* | |||||||
| Interest rate derivatives | 0.9 | 0.9 | 0.9 | 0.7 | 0.4 | 0.8 | 4.5 |
| * The cash flows from private placement notes and related foreign currency derivatives and interest rate derivatives are settled on a net basis. | |||||||
Maturity analysis for liabilities 2011 |
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| € million | 31 Dec. 2011 | Käytettävissä | Yhteensä | 2012 | 2013 | 2014 | 2015 | 2016 and later |
| Loans from financial institutions | 40.8 | 40.8 | 8.6 | 1.2 | 1.0 | 26.7 | 3.3 | |
| Private placement notes | 100.2 | 100.2 | 50.1 | 50.1 | ||||
| Pension loans | 43.5 | 43.5 | 5.8 | 5.8 | 5.8 | 5.8 | 20.3 | |
| Finance lease liabilities | 51.8 | 51.8 | 11.6 | 7.5 | 10.1 | 6.5 | 16.1 | |
| Payables to K-retailers | 117.6 | 117.6 | 117.6 | |||||
| Other interest-bearing liabilities | 45.7 | 45.7 | 45.7 | |||||
| Trade payables | 885.8 | 885.8 | 885.8 | |||||
| Accrued liabilities | 261.4 | 261.4 | 261.4 | |||||
| Other non-interest-bearing liabilities | 181.7 | 181.7 | 181.7 | |||||
| Committed credit facilities | * | 258.6 | 265.9 | 165.9 | 100.0 | |||
| Commercial paper programmes | 359.0 | 0.0 | ||||||
| Financial guarantees | 25.8 | 25.8 | 20.4 | 4.5 | 0.9 | |||
| Total | 1,754.4 | 617.6 | 2,020.3 | 1,704.5 | 14.5 | 71.5 | 39.0 | 190.7 |
| * The amount withdrawn from committed borrowing facilities is included in loans from financial institutions. | ||||||||
Maturity analysis for liabilities 2010 |
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| € million | 31 Dec. 2010 | Käytettävissä | Yhteensä | 2011 | 2012 | 2013 | 2014 | 2015 and later |
| Loans from financial institutions | 43.4 | 43.4 | 3.3 | 10.7 | 0.9 | 0.7 | 27.8 | |
| Private placement notes | 100.1 | 100.1 | 50.1 | 50.1 | ||||
| Pension loans | 46.4 | 46.4 | 2.9 | 5.8 | 5.8 | 5.8 | 26.0 | |
| Finance lease liabilities | 66.1 | 66.1 | 14.6 | 9.3 | 9.0 | 11.7 | 21.6 | |
| Payables to K-retailers | 128.9 | 128.9 | 128.9 | |||||
| Other interest-bearing liabilities | 91.8 | 91.8 | 91.8 | |||||
| Trade payables | 838.4 | 838.4 | 838.3 | 0.1 | ||||
| Accrued liabilities | 311.1 | 311.1 | 311.1 | |||||
| Other non-interest-bearing liabilities | 200.8 | 200.8 | 196.3 | 3.1 | 1.4 | 0.0 | ||
| Committed credit facilities | * | 151.5 | 153.6 | 151.5 | ||||
| Commercial paper programmes | 359.0 | 359.0 | ||||||
| Financial guarantees | 28.6 | 28.6 | 17.2 | 1.5 | 9.8 | |||
| Total | 1,855.6 | 510.5 | 2,368.2 | 1,604.4 | 182.0 | 17.1 | 68.3 | 135.2 |
| * The amount withdrawn from committed borrowing facilities is included in loans from financial institutions. | ||||||||
The division companies are responsible for the management of credit risk associated with customer receivables. The Group has a credit policy and its implementation is controlled. The aim is to ensure the payment of receivables by carefully assessing customers’ creditworthiness, by specifying customer credit terms and collateral requirements, by effective credit control and credit insurances, as applicable. In Finland, the main part of the Group’s business activities is carried out in cooperation with retailers. According to retailer agreements, retailers shall arrange overdraft facilities to be held as collateral for their trade payables by the relevant Kesko subsidiary.
The Group companies apply a uniform practice to measuring past due receivables. A receivable is written down when there is objective evidence of impairment. The ageing analysis of trade receivables at 31 December was as follows:
Ageing analysis of trade receivables |
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| € million | 2011 | 2010 |
| Trade receivables fully performing | 655.5 | 579.1 |
| 1–7 days past due | 12.1 | 12.3 |
| 8–30 days past due | 15.4 | 12.3 |
| 31–60 days past due | 4.6 | 3.6 |
| Over 60 days past due | 12.4 | 12.4 |
| Total | 700.0 | 619.6 |
The above analysis includes impaired receivables in a total amount of €24.3 million (€27.0 million).
Within trade receivables, €376.2 million (€346.5 million) were from chain retailers and €37.5 million (€24.3 million) were credit card receivables. The collateral for chain retailer receivables is an overdraft facility granted by a Kesko associate, Vähittäiskaupan Takaus Oy, with the maximum always limited to the realisable value of the counter security from the K-retail company and entrepreneur to Vähittäiskaupan Takaus. At the end of the financial year, the aggregate value of counter securities was €157.4 million (€224.3 million). In addition, the collateral for receivables includes other collaterals, such as business mortgages and other pledged assets.
The provision for impairment of trade receivables totalled €13.5 million (€14.2 million). An aggregate amount of €4.8 million (€3.6 million) in credit losses and impairments has been recognised in the net profit for the period.
At 31 December 2010, the amount of receivables with renegotiated terms amounted to €3.1 million (€4.6 million).
Financial instruments involve the risk of non-performance by counterparties. Kesko only enters into foreign currency and other derivatives with creditworthy banks. Liquid funds are invested, in accordance with limits set annually for each counterparty, in instruments with good credit quality. Company and bank-specific euro and time limits are set for interest investments. The utilisation of these limits is reviewed during the year depending on the market situation.
The table below analyses financial instruments carried at fair value, by valuation technique.
Fair value hierarchy of financial assets and liabilities |
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| Fair value at 31 Dec. 2011 | ||||
| € million | Level 1 | Level 2 | Level 3 | Total |
| Financial assets at fair value through profit or loss | ||||
| Commercial papers | 77.8 | 77.8 | ||
| Bank certificates of deposit and deposits | 19.9 | 19.9 | ||
| Total | 97.7 | 97.7 | ||
| Derivative financial instruments at fair value through profit or loss | ||||
| Derivative financial assets | 5.9 | 5.9 | ||
| Derivative financial liabilities | 8.7 | 8.7 | ||
| Available-for-sale financial assets | ||||
| Private equity funds | 5.9 | 5.9 | ||
| Commercial papers (maturing in less than 3 months) | 59.3 | 59.3 | ||
| Bank certificates of deposit and deposits (maturing in less than 3 months) | 87.5 | 87.5 | ||
| Bonds | 38.8 | 38.8 | ||
| Total | 38.8 | 146.8 | 5.9 | 191.5 |
Fair value hierarchy of financial assets and liabilities |
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| Fair value at 31 Dec. 2010 | ||||
| € million | Level 1 | Level 2 | Level 3 | Total |
| Financial assets at fair value through profit or loss | ||||
| Commercial papers | 15.8 | 15.8 | ||
| Bank certificates of deposit and deposits | 215.9 | 215.9 | ||
| Equity funds | 10.4 | 10.4 | ||
| Total | 10.4 | 231.7 | 242.1 | |
| Derivative financial instruments at fair value through profit or loss | ||||
| Derivative financial assets | 18.4 | 18.4 | ||
| Derivative financial liabilities | 16.4 | 16.4 | ||
| Available-for-sale financial assets | ||||
| Equity funds | 4.4 | 4.4 | ||
| Commercial papers (maturing in less than 3 months) | 172.0 | 172.0 | ||
| Bank certificates of deposit and deposits (maturing in less than 3 months) | 281.3 | 281.3 | ||
| Bonds | 95.7 | 95.7 | ||
| Total | 95.7 | 453.3 | 4.4 | 553.4 |
Level 1 instruments are traded in active markets and their fair values are directly based on the market price. The fair values of level 2 instruments are derived from market data.The fair values of level 3 instruments are not based on observable market data (unobservable input).
The table below presents movements in level 3 instruments for 1 Jan.–31 Dec. 2011 |
|
| € million | Equity funds |
| Opening balance at 1 Jan. 2011 | 4.4 |
| Purchases | 0.6 |
| Gains and losses recognised in profit or loss | - |
| Fair value adjustments | 0.9 |
| Total | 5.9 |
The table below presents movements in level 3 instruments for 1 Jan.–31 Dec. 2010 |
|
| € million | Equity funds |
| Opening balance at 1 Jan. 2010 | 0.0 |
| Purchases | 4.4 |
| Gains and losses recognised in profit or loss | - |
| Total | 4.4 |
Private equity funds have been classified as non-current available-for-sale financial assets. Private equity funds are measured based on valuation calculations obtained from fund management companies. Gains or losses from private equity funds have not been recorded for the 2011 financial year.
According to the terms of Kesko Corporation’s USD-denominated private placement notes, in a situation involving a change of control, Kesko is obligated to offer a repayment of the whole loan capital to all noteholders. The noteholders have the right to accept or refuse the repayment.
According to the terms of Kesko Corporation’s syndicated loan facility and other loan facilities, the lenders have the right to cancel the loan facility and any amounts drawn down.
According to the terms of both loan agreements, a transfer of ownership to retailers or a retailers’ association shall not be considered a change of control.
For the present, Kesko Corporation has not applied for a credit rating, because it has not been considered necessary in the company’s present financial situation.
The Group uses electricity derivatives to level out energy costs. The electricity price risk is evaluated for five-year periods. The fair value changes of derivatives hedging the price of electricity supplied during the financial year are recognised within adjustments to purchases. Hedge accounting is applied to contracts hedging future purchases. The effective portion of derivatives that qualify for hedge accounting are recognised in the revaluation reserve of equity and the ineffective portion in the income statement within other operating income or expenses. The change in the revaluation reserve recognised in equity is presented in the statement of comprehensive income under ‘Revaluation of cash flow hedge’.
At the end of the year, the ineffective portion of hedge accounting was €-1.1 million (€0.0 million).
At the balance sheet date, a total quantity of 798,000 MWH (1,131,120 MWH) of electricity had been purchased with electricity derivatives, and the 1–12 month hedging rate was 78% (79.5%), the 13–24 month rate was 46% (67.0%), the 25–36 month rate was 14% (39.7%), the 37–48 month rate was 3% (5.8%) and the 49–60 month rate was 0% (0.0%).
A sensitivity analysis for electricity derivatives assumes that derivatives maturing in less than 12 months have an impact on profit. If the market price of electricity derivatives changed by +/-20% from the balance sheet date 31 December 2011, it would contribute €-/+3.3 million (€-/+6.0 million) to the 2012 profit and €-/+2.9 million (€-/+6.4 million) to equity. The impact has been calculated before tax.
The Kesko Group’s objectives in capital management include targets set for the Group’s solvency and liquidity. The Group’s capital structure (equity-to-debt ratio) is optimised at the Group level. The objectives for the Group’s solvency and liquidity are set with the purpose of securing the Group’s liquidity in all market situations, enabling the implementation of capital expenditure programmes based on the Group’s strategy, and maintaining the shareholder value. Objectives have been set for the indicators ‘equity ratio’ and ‘interest-bearing net debt/EBITDA’. Some of the Group’s interest-bearing liabilities include covenants, whose terms and conditions have been taken into account in the above target levels. The Group does not have a credit rating from any external credit rating institution.
The target levels for the Group’s financial indicators are approved by the Board of Directors. On 4 February 2009, the Board approved the following values for the indicators ‘equity ratio’ and ‘interest-bearing net debt/EBITDA’.
| Target level | Level achieved in 2011 | Level achieved in 2010 | |
| Equity ratio | 40–50% | 53.9% | 53.5% |
| Interest-bearing net debt /EBITDA | < 3 | 0.1 | -0.9 |
| € million | 2011 | 2010 | |
| Shareholders' equity | 2,233.0 | 2,209.9 | |
| Balance sheet total | 4,190.0 | 4,176.5 | |
| - Prepayments received | 44.0 | 35.0 | |
| Total | 4,146.0 | 4,141.5 | |
| Equity ratio | 53.9% | 53.5% | |
| Interest-bearing liabilities | 400.0 | 476.8 | |
| Financial assets | 367.3 | 847.2 | |
| Interest-bearing net debt | 32.8 | -370.5 | |
| EBITDA | 405.4 | 427.6 | |
| Interest-bearing net debt /EBITDA | 0.1 | -0.9 |