NOTE 40
The Group’s related parties include its key management (the Board of Directors, the President and CEO and the Corporate Management Board), subsidiaries, associates and the Kesko Pension Fund. The subsidiaries and associates are listed in a separate note (note 42).
The related party transactions disclosed consist of transactions carried out with related parties that are not eliminated in the consolidated financial statements.
Among associates consolidated using the equity method, properties owned by Kruunuvuoren Satama Oy have been leased for the Group’s use. Vähittäiskaupan Takaus Oy and Vähittäiskaupan Tilipalvelu Oy sell their services to Kesko’s and K-retailers’ retail companies. The other associates mainly include business property companies which have leased their premises and real estate for use by the Kesko Group. Associates that operate as mutual real estate companies have been consolidated in the financial statements in proportion to their ownership interests.
The Kesko Pension Fund is a stand-alone legal entity which manages part of the pension assets of the Group’s employees in Finland. The pension assets include Kesko Corporation shares in the amount of €32.5 million (€45.3 million). Real estate and premises owned by the Pension Fund have been leased to the Kesko Group.
During the 2011 financial year, the total amount paid by the Kesko Group in contributions to the Pension Fund was €26.0 million (€0.0 million).
During the 2010 financial year, the management of the statutory pension provision and the related Kesko Group employees’ insurance portfolio was transferred from the Kesko Pension Fund to a pension insurance company. Relating to the transfer of the pension insurance portfolio, the Pension Fund returned pension assets to employer companies. The returned assets, with interest, resulted in a €151.6 million cash inflow to the Kesko Group.
The following transactions were carried out with related parties:
Sales of goods and services |
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| € million | 2011 | 2010 |
| Sales of goods | ||
| Board of Directors and management | 37.3 | 35.9 |
| Total | 37.3 | 35.9 |
| € million | 2011 | 2010 |
| Sales of services | ||
| Associates | 2.2 | 1.5 |
| Board of Directors and management | 4.6 | 4.4 |
| Kesko Pension Fund | 0.5 | 1.1 |
| Total | 7.3 | 7.0 |
Some members of Kesko’s Board of Directors act as K-retailers. The Group companies sell goods and services to enterprises controlled by them.
During the financial year, the Kesko Group sold one real estate company to the Pension Fund. The Kesko Group’s loan and receivable from a real estate company is €39.7 million. The loan interest rate is the 3-months Euribor rate plus a 0.5% margin and the loan will be repaid in 2012. The loan is secured by a mortgage.
In 2010, the Kesko Group sold eight properties to Kruunuvuoren Satama Oy, one of the Group’s associates. Their total selling price was €59.9 million. Companies belonging to the Kesko Group leased the properties for use by the Kesko Group companies, mainly under 15-year leases with extension options. The Group’s €13.8 million gain on the disposal was recorded as a non-recurring item within other operating income.
Goods and services are sold to related parties on normal market terms and conditions and at market prices.
Purchases of goods and services |
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| € million | 2011 | 2010 |
| Purchases of goods | ||
| Board of Directors and management | 2.5 | 2.1 |
| Pension Fund | - | 1.6 |
| Total | 2.5 | 3.7 |
| € million | 2011 | 2010 |
| Purchases of services | ||
| Associates | 4.7 | 2.9 |
| Board of Directors and management | 0.1 | 0.1 |
| Total | 4.8 | 3.0 |
Items included in other operating expenses include lease rentals paid by the Kesko Group to the Kesko Pension Fund in a total amount of €16.2 million (€32.2 million), and to associates in a total amount of €9.9 million (€4.4 million).
In 2010, the Kesko Group acquired the share capital of three real estate companies and one real estate property from the Kesko Pension Fund. The debt-free price was €125.5 million, as the Kesko Group assumed responsibility for the real estate companies’ liabilities to the Kesko Pension Fund.
Other operating income |
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| € million | 2011 | 2010 |
| Associates | 0.0 | 0.1 |
| Board of Directors and management | 1.3 | 0.9 |
| Pension Fund | 0.1 | 0.0 |
| Total | 1.5 | 0.9 |
Other operating expenses |
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| € million | 2011 | 2010 |
| Associates | 9.9 | 4.4 |
| Pension Fund | 16.2 | 32.2 |
| Other related party | 1.1 | 0.9 |
| Total | 27.2 | 37.5 |
Finance costs |
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| € million | 2011 | 2010 |
| Associates | 0.4 | 0.3 |
| Pension Fund | 0.6 | 0.0 |
| Total | 1.0 | 0.3 |
Current receivables |
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| € million | 2011 | 2010 |
| Associates | 0.1 | 0.0 |
| Board of Directors and management | 3.7 | 2.6 |
| Pension Fund | - | 0.1 |
| Total | 3.9 | 2.7 |
Some Kesko Board members act as K-retailers. At the balance sheet date, the receivables resulting from sales by Kesko to enterprises controlled by them totalled €3.7 million (€2.6 million). The receivables are secured by the commercial credit collateral granted by Vähittäiskaupan Takaus Oy, a Kesko associate. The maximum amount of the collateral is always limited to the realisable value of the counter-security from the K-retailer’s enterprise and the K-retailer entrepreneur to Vähittäiskaupan Takaus. At the end of the financial year, the value of the counter-security was €3.4 million (€4.8 million).
Other current liabilities |
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| € million | 2011 | 2010 |
| Associates | 35.5 | 34.4 |
| Board of Directors and management | 1.2 | 0.9 |
| Pension Fund | 8.2 | 49.3 |
| Total | 44.9 | 84.6 |
Other current liabilities include, among other things, chain rebate payables to enterprises controlled by three Kesko Board members acting as K-retailers. Chain rebates are paid retrospectively based on criteria related to the amount of actual annual purchases and the quality of operations.
In addition, Kesko has a €1.5 million non-current receivable from a real estate associate.
Board remuneration |
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| € thousand | 2011 | 2010 |
| Heikki Takamäki, Chair | 86.5 | 87.0 |
| Seppo Paatelainen, Deputy Chair | 59.0 | 59.0 |
| Esa Kiiskinen | 42.0 | 42.0 |
| Ilpo Kokkila | 43.0 | 44.0 |
| Mikko Kosonen | 44.5 | 44.0 |
| Maarit Näkyvä | 44.5 | 46.0 |
| Rauno Törrönen | 42.0 | 42.0 |
Remuneration of the President and CEO, |
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| € thousand | 2011 | 2010 |
| Matti Halmesmäki, President and CEO | 1,002.4 | 855.2 |
| Corporate Management Board (the other members) | 2,073.6 | 1,872.2 |
At 31 December 2011, the President and CEO held 130,000 share options. If shares were subscribed for with the President and CEO’s share options, the share options would represent 0.13% of shares and 0.03% of all votes. At 31 December 2011, the other Corporate Management Board members held an aggregate of 294,750 share options. The share options held by the Corporate Management Board members have equal terms and conditions and vesting periods with the other share options included in the management’s option plans.
The President and CEO and the other Corporate Management Board members, except for three (3), belong to the Kesko Pension Fund’s department A which was closed in 1998, and their pensions are determined based on its rules and their personal service contracts. They have defined retirement benefit plans. Three of the members joined Kesko after 1998, and their pensions are determined based on the Employees’ Pensions Act (TyEL) applied in Finland.
If given notice by the company, the President and CEO and the other Corporate Management Board members are entitled to a monetary salary for the period of notice, fringe benefits and a separate nonrecurring termination payment determined on the basis of the executive’s monetary salary and fringe benefits for the month of notice. The termination payment and granted share options, or income from them are not part of the executive’s salary and they are not included in the determination of the salary for the period of notice, termination payment or, in case of retirement, pensionable salary. If an executive resigns, he/she is only entitled to a salary for the period of notice and fringe benefits. When a service relationship terminates due to retirement, the executive is paid a pension based on the service contract without other benefits.