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Economic impacts

Economic performance

Indicators: EC1–EC4

EC1 Direct economic value generated and distributed

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.

The consolidated income statement, the consolidated statement of financial position and the consolidated statement of cash flows can be read in full in the financial statements section.

Economic benefits from Kesko’s operations to stakeholder groups

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Economic benefits from Kesko's operations to stakeholder groups
€ million 2015 2014 2013
Customers1 Revenues 9,479 9,800 10,050
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
Owners Dividend -2482 -149 -138
Public sector Taxes3 -92 -54 -82
Community investments Donations -1 -1 -1
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.

Dividend policy

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.

Further information on the financial statement's indicators and Kesko shares and shareholders can be found in the financial statements section.

Economic benefits from Kesko’s operations by market area in 2015
€ millionPurchasesCapital expenditureSalaries and share-based paymentsPension and social security expensesTaxes¹Total
Finland4,956131317717436,218
Other Nordic countries6404371238731
Baltic countries252454431346
Russia and Belarus30080381112441
Other countries1,2251,225
Total7,373219447988248,960
¹ Taxes include income taxes, real estate taxes, value-added taxes, excise duties, car taxes, customs duties, net-worth taxes and withholding taxes
Store network

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
7–9 9 2.8
5–6 16 5.0
3–4 48 15.1
2 53 16.7
1 130 41.0
0 47 14.8
Municipalities total 317 100.0
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
€ million 2015 2014 2013
Salaries and fees 440 497 495
Social security expenses
pension costs 55 64 64
social security expenses 43 47 49
Share-based payments 6 6 3
Total 545 614 611
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
€1,000 2015 2014 2013
Non-governmental, environmental and other organisations 555 474 207
Sports (adults) 721 556 575
Youth sports and other youth work 64 244 281
Science, research and education 61 65 32
Culture 32 36 59
Health care 12 11 2
Veteran organisations and national defence 5 4 6
Political parties and organisations 8 5 5
Total 1,457 1,395 1,168
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.

EC2 Financial implications and other risks and opportunities for the organisation’s activities related to climate change

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.

Climate change presents physical and regulatory risks and opportunities as well as risks and opportunities affecting reputational factors
Physical impact
  • Extreme weather phenomena, such as storms and heavy rains, have consequences for the built environment. Physical risks are related to both the physical store network and logistics. Unusual weather patterns can cause interruptions in operations or problems in the availability of products and changes in sales particularly in the home improvement and speciality goods trade.
  • Climate change can affect the procurement sources and availability of products both within and outside Europe. Due to drought and desertification, water has become less available in many countries, reducing the productive potential of local economies. Agricultural production will suffer if desertification and rising sea levels reduce the arable land area. Drought or floods may destroy agricultural harvests. Intensifying competition for raw materials may lead to higher prices.
  • The availability of energy sources and emission limitations may affect energy prices.
  • Accidents and epidemics resulting from natural phenomena can cause damage or business interruptions that cannot be prevented.
 Regulation
  • Climate change may have an impact in terms of risks involved in regulation, such as various permit procedures, or costs arising from emission pricing and taxation.
  • The implementation of the EU and Finnish Government climate and energy policy will affect energy solutions and may increase energy prices, adding to pressures for energy savings and energy self-sufficiency.
Customers
  • Customers are paying increasing attention to issues related to climate change. Environmentally friendly products, corporate responsibility communications, retail stores’ K-responsibility concept and package labelling can help customers make purchasing decisions that mitigate climate change. Any failures to implement responsible practices in this area may weaken Kesko’s reputation.
  • The K-maatalous Experimental Farm tests the suitability of crop varieties for the Finnish climate. The aim is to help customers choose optimal varieties and cultivation methods for Finnish conditions, also as the climate changes.
  • The Energy Expert concept, which has been deployed in the building and home improvement stores, makes it easy for customers to improve the energy efficiency of their homes.

Opportunities and risks related to climate change are also described in the report’s our operating environment / opportunities and risks section.

EC3 Coverage of the organisation's defined benefit plan obligations

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.

EC4 Financial assistance received from government

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).

Indirect economic impacts

Indicators: EC7–EC8

EC7 Development and impact of infrastructure investments and services supported

Especially outside growth centres, retail stores can offer community services which may otherwise be scarcely available. In 2015, the following were located in connection with K-food stores:

  • around 170 Posti service points
  • 17 pharmacy service points
  • cashback service at more than 700 stores
  • 137 SmartPost automatic parcel pick-up points
  • 24 DHL’s automatic parcel lockers

 

For several recent years, Kesko’s most significant store site project has been the new shopping centre being built in Itäkeskus, Helsinki. The capital expenditure of the first phase totals €100 million. Its employment impact is about 250 person-years over two years.

The K-Group participated in the village store development project in 2013–2015.

In addition to statutory waste recycling obligations, K-stores provide the following recycling services:

  • collection of impregnated wood
  • collection of clothing

Waste statistics are presented under EN23 Waste.

Kesko’s community investments are presented under EC1 Direct economic value generated and distributed.

EC8 Significant indirect economic impacts, including the extent of impacts

Kesko is a service sector company which has significant indirect impacts related to the production, use and recyclability of products.

Purchases by Kesko and the retailers have economic impacts on the suppliers and service providers, such as an increase in the number of jobs. Furthermore, purchases from local producers affect regional business activities. The salaries, taxes, employee benefit expenses and capital expenditure paid by Kesko and retailers have impacts on regional economic wellbeing.

Kesko operates in eight countries in which it is engaged in both retail and wholesale. It is one of Kesko’s principles that taxes on operating income and assets are always paid to the respective operating country in compliance with local laws and regulations.

Kesko is a significant tax payer. In 2015, the income taxes paid by Kesko to Finland were €76.9 million and to other countries €6.4 million. The Group’s effective tax rate was 37.6%. Kesko paid €4.0 million in real estate taxes and net worth taxes to Finland and €4.8 million to its other operating countries in 2015.

Kesko collects, reports and remits also indirect taxes, such as value-added taxes and excise duties. Kesko remits value-added taxes to tax recipients in its capacity as a company selling goods and services. In 2015, Kesko remitted value-added taxes in Finland to the amount of €341.0 million, and €45.8 million in other countries. Kesko remits car taxes and excise duties on, for instance, confectionery, alcohol and soft drinks. In 2015, Kesko remitted excise duties in Finland to a total amount of €58.3 million.

Kesko’s measurable indirect impact on society, such as its employment impact, increased municipal tax income, or income in the producer and supply chain, should be evaluated case-by-case, in connection with the establishment of a new store, for example.

Taxes by country in 2015

* Incl. only income taxes

Economic benefit generated by Kesko and K-retailers to Finnish regions in 2015
Region

€ million
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
Åland 28.5 - 0.1 - - - 28.6
Southern Karelia 4.7 14.5 10.5 3.7 11.1 0.6 45.0
Southern Ostrobothnia 240.1 33.5 0.8 4.3 12.4 0.7 291.8
Southern Savo 33.2 14.4 1.7 3.7 11.1 1.3 65.4
Kainuu 5.9 6.9 0.6 1.0 6.4 0.4 21.2
Kanta-Häme 65.8 23.4 4.3 4.0 11.1 0.9 109.5
Central Ostrobothnia 44.0 13.0 2.6 1.4 4.8 0.7 66.6
Central Finland 50.2 24.7 3.9 7.7 18.5 1.7 106.8
Kymenlaakso 45.5 17.6 0.7 4.5 11.1 1.1 80.6
Lapland 13.6 25.6 5.5 4.9 18.0 1.9 69.4
Pirkanmaa 253.1 32.6 6.5 23.8 33.9 2.7 352.6
Ostrobothnia 140.1 11.4 3.6 4.0 8.6 0.8 168.4
Northern Karelia 24.4 26.0 3.3 3.7 11.6 1.4 70.3
Northern Ostrobothnia 104.2 44.5 14.6 14.2 25.6 2.2 205.4
Northern Savo 132.8 36.2 3.0 9.7 20.4 1.4 203.6
Päijät-Häme 126.2 26.3 10.3 8.0 12.0 1.2 184.0
Satakunta 112.1 27.0 2.5 4.2 15.0 0.9 161.7
Uusimaa 2,852.2 162.3 94.3 242.6 116.8 11.4 3,479.6
Varsinais-Suomi 653.0 70.2 10.2 20.4 35.7 3.4 792.9
Total 4,929.6 610.0 178.9 365.7 384.2 34.9 6,503.4
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.

Procurement practices

Indicators: EC9

EC9 Proportion of spending on local suppliers

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 %
Finland 9,561 4,930 80.8% 2,088 1,174 19.2%
Sweden 1,049 114 82.7% 156 24 17.3%
Norway 817 374 97.6% 41 9 2.4%
Estonia 882 56 55.5% 299 45 44.5%
Latvia 611 24 34.3% 333 46 65.7%
Lithuania 892 78 30.8% 1,195 176 69.2%
Russia 1,892 229 95.5% 60 11 4.5%
Belarus 1,003 51 62.3% 244 31 37.7%
Total 16,707 5,857 79.4% 4,416 1,516 20.6%
Kesko's purchases by company's and supplier's country of domicile in 2015
Company's country of domicile Supplier's country of domicile
€ million Finland Sweden Norway Estonia Latvia Lithuania Russia Belarus Other
countries
Total
Finland 4,930 128 9 39 2 6 0 - 989 6,104
Sweden 7 114 4 0 - - - - 13 138
Norway 0 8 374 0 - - - - 1 383
Estonia 10 1 1 56 5 2 - - 27 101
Latvia 5 0 0 6 24 2 0 - 33 70
Lithuania 4 1 0 8 19 78 3 2 139 254
Russia 0 - - 1 - - 229 - 9 240
Belarus 0 - - - 0 2 15 51 14 82
Total 4,956 252 388 111 50 90 247 53 1,225 7,373
Capital expenditure

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.