Kesko's operations generate economic benefits for the different stakeholder groups in Kesko’s operating countries and market areas. Key stakeholder groups include shareholders, customers, personnel, retailers, suppliers of goods and providers of services, and society. Kesko promotes the growth of welfare throughout its supply chain, including developing countries.
The following tables show cash flows between Kesko and its stakeholders, as well as the distribution of economic value added between stakeholder groups. The most important cash flows comprise revenue from customers and retailers, purchases from suppliers of goods and providers of services, dividends to shareholders, salaries and wages paid to personnel, taxes and capital expenditure.
In March 2015, Kesko sold the department store chain Anttila Oy. Anttila Oy is consolidated into Kesko Group until 16 March 2015.
|Economic benefits from Kesko's operations to stakeholder groups|
|Value added generated||9,479||9,800||10,050|
|Distribution of value added:|
|Suppliers||Goods, materials and services purchased||-8,593||-8,828||-9,027|
|Employees||Salaries, fees and social security expenses||-545||-614||-611|
|Payments to providers of capital||Net finance income/costs||-7||-6||-6|
|Development of business operations||-7||147||185|
|1 Incl. net sales and other operating income|
|2 Proposal to the General Meeting|
|3 Incl. income taxes, real estate taxes and net worth taxes|
The division of the economic benefit generated by Kesko and K-retailers to Finnish regions is presented at EC8.
According to its dividend policy, Kesko Corporation distributes at least 50% of its earnings per share excluding non-recurring items as dividends, taking into account, however, the company’s financial position and operating strategy. Kesko’s Board of Directors proposes to the General Meeting to be held in April 2016 that a total dividend of €248 million be paid for the year 2015, which would represent 243.8% of earnings per share and 146.7% of earnings per share excluding non-recurring items. In 2015, Kesko distributed a total of €149 million as dividends for the 2014 profit, which represented 154.7% of earnings per share and 91.1% of earnings per share excluding non-recurring items.
|Economic benefits from Kesko’s operations by market area in 2015|
|€ million||Purchases||Capital expenditure||Salaries and share-based payments||Pension and social security expenses||Taxes¹||Total|
|Other Nordic countries||640||4||37||12||38||731|
|Russia and Belarus||300||80||38||11||12||441|
|¹ Taxes include income taxes, real estate taxes, value-added taxes, excise duties, car taxes, customs duties, net-worth taxes and withholding taxes|
Kesko operates in the grocery trade, the home improvement and speciality goods trade, and the car trade. Kesko has over 1,500 stores engaged in chain operations in Finland, Sweden, Norway, Estonia, Latvia, Lithuania, Russia and Belarus.
The K-food store network is comprehensive and there are K-food stores in nearly all Finnish municipalities (see the table below). The K-food stores are visited by around 900,000 customers every day.
A multi-channel approach is becoming increasingly important in retailing. The growth of e-commerce and electronic services coupled with a comprehensive store site network are a key competitive factor for Kesko.
At the end of 2015, Kesko had over 1,100 independent K-retailer entrepreneurs and 125 other retailer entrepreneurs as partners. Kesko’s sales to retailer entrepreneurs accounted for 53.0% of total sales in 2015.
Kesko and K-retailers form the K-Group, whose retail sales (excluding Anttila) totalled around €10.8 billion (VAT 0%) in 2015. The K-Group employs around 40,000 people.
|K-food stores in Finnish municipalities (as at 31 Dec. 2015)|
|Number of K-food stores||Municipalities in 2015||% of all municipalities|
|10 or more||14||4.4|
|In 2015, Kesko Group employed an average of 18,955 (19,976) people, of whom 8,300 (9,580) in Finland and 10,655 (10,936) outside Finland.|
|Employee benefit expenses|
|Salaries and fees||440||497||495|
|Social security expenses|
|social security expenses||43||47||49|
|In 2015, foreign operations accounted for €129 million of total salaries and for €27 million of total pension costs and other social security expenses.|
|Kesko's community investments|
|Non-governmental, environmental and other organisations||555||474||207|
|Youth sports and other youth work||64||244||281|
|Science, research and education||61||65||32|
|Veteran organisations and national defence||5||4||6|
|Political parties and organisations||8||5||5|
|In addition, Veikkaus Oy contributed an estimated revenue of €55-60 million to the Ministry of Education and Culture, generated from the sales of games by Veikkaus points of sale located at K-stores. The calculation is based on the average breakdown of each euro spent on games in 2015. The estimate has been calculated by Veikkaus Oy. The Ministry of Education and Culture distributes the total proceeds to Finnish arts, sports, science and youth work.|
One of the key objectives of Kesko’s responsibility work is mitigating the progress of climate change.
Kesko’s operations are surveyed regularly by risk assessments, which also cover changes that may be necessitated by climate change. The Group’s risk map, the most significant risks and uncertainties, as well as changes in and management responses to them are discussed by the Kesko Board’s Audit Committee when the interim reports and financial statements are handled.
Read more about risk management and control practices.
Opportunities and risks related to climate change are also described in the report’s our operating environment / opportunities and risks section.
The Group operates several pension plans in its different operating countries. In Finland, statutory pension provision for personnel is organised through pension insurance companies and voluntary supplementary pension provision is mainly organised through Kesko Pension Fund’s department A. At the end of the year, the number of employees eligible to receive supplementary retirement benefits from department A was 2,763.
The statutory pension provision organised through a pension insurance company is a defined contribution plan. The supplementary pension provision organised by Kesko Pension Fund is a defined benefit plan. As at 31 December 2015, the plan obligation was €266.1 million (€289.3 million in 2014), which is fully covered. Calculated under IFRS, the surplus amount was €176.4 million as at 31 December 2015 (€147.2 million in 2014). Calculated under IFRS (the Pension Fund’s insurance premium is based on a defined benefit plan), the Group’s total premium represents 12.5% of the amount of salaries (12.8% in 2014). Read more in the financial statements section, note 17.
In the other countries, pensions are arranged in compliance with local legislation, and there are no defined benefit plans, except in Norway. The number of employees eligible to receive supplementary retirement benefits in Norway is immaterial in proportion to the whole Group.
In 2015, the Group received financial assistance of €1.0 million from the public sector. This amount mainly consists of assistance received from Finland (€0.6 million) and from Sweden (€0.4 million).
|Economic benefit generated by Kesko and K-retailers to Finnish regions in 2015|
|Kesko's purchases of goods||K-retailers' direct purchases of goods||Kesko's and K-retailers' capital expenditure1||Salaries paid by Kesko||Salaries paid by K-retailers||Taxes paid by K-retailers||Total|
|1 Incl. increase in lease liabilities of K-retailers' equipment|
|The figures are for those K-retailers whose accounts and payroll are managed by Vähittäiskaupan Tilipalvelu VTP Oy, representing around 85% of K-retailers’ total business volume.|
Kesko assesses the economic benefit it generates by reporting its purchases by operating country and the company’s country of domicile. Kesko also reports K-retailers’ direct purchases of goods in Finland by region.
Most of the economic benefit generated by Kesko’s operations – approximately 85% of Kesko’s net sales – flows to suppliers of goods, from which purchases were valued at €7.4 billion in 2015.
In 2015, Kesko had around 21,100 suppliers and service providers from whom purchases were valued at a minimum of €1,000 during the year. Of these, around 9,800 operated in Finland, around 8,100 in Kesko’s other operating countries, and around 3,200 elsewhere.
The 10 largest suppliers accounted for 24.2% (23.5% in 2014) of the Group’s purchases of goods, and the 100 largest suppliers for 53.1% (52.2% in 2014). Six out of the 10 largest suppliers were Finnish food industry companies, one import company operating in Finland, one grocery trade company and two German car manufacturers.
The purchases of all Kesko companies from suppliers operating in Finland totalled €4,956 million, accounting for 67.2% (68.3% in 2014) of the Group’s total purchases.
The purchases of goods by Kesko Group’s Finnish companies totalled €6,104 million. Of these purchases, 80.8% were from suppliers operating in Finland and 19.2% from other countries. It should be noted that because some of the suppliers operating in Finland are import companies, reliable statistics cannot be compiled on the origin of goods supplied by them.
Kesko actively increases the amount of local purchases and encourages K-retailers to include products from near-by producers in their selections. In 2015, K-retailers’ direct purchases from Finnish regions totalled €610 million.
In 2014–2015, Kesko and Ruokatieto ry, an association that promotes Finnish food culture, organised Local Food Date (Lähiruokatreffit) events that bring together local food producers and K-retailers. The purpose is networking as well as improving the supply of local products in the K-food stores in the area and thereby supporting Finnish work.
The Blue and White Footprint campaign for Finnish work was launched in early 2014 by the Association for Finnish Work, K-food stores and a great number of Finnish food manufacturers and home and speciality goods companies. The campaign continued in 2015, when the K-rauta and Rautia stores joined the K-food stores in the campaign.
|Kesko's purchases by operating country in 2015|
|Suppliers of goods and services in operating country||Purchases from suppliers of goods||Suppliers of goods and services in other operating countries||Purchases from suppliers of goods|
|number||€ million||%||number||€ million||%|
|Kesko's purchases by company's and supplier's country of domicile in 2015|
|Company's country of domicile||Supplier's country of domicile|
In 2015, Kesko’s capital expenditure totalled €219 million (€194 million in 2014), or 2.5% of net sales (2.1% in 2014). Capital expenditure in store sites was €167 million (€143 million in 2014). Capital expenditure in foreign operations accounted for 40.2% (40.5% in 2014) of the total capital expenditure.
In addition to Kesko, K-retailers make capital expenditures in the fixtures of stores used by the K-Group. These figures included, the total capital expenditure in Finland was around €179 million in 2015.
Kesko’s capital expenditure has a positive financial impact on the operations of building firms, building sector service companies, and suppliers of fixtures, equipment and information systems, for example.