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5.3 Related party transactions
The Group’s related parties include its management personnel (the Board of Directors, the President and CEO and the Group Management Board), companies controlled by them, subsidiaries, associates, joint ventures and Kesko Pension Fund. The subsidiaries, associates and joint ventures are listed in a separate note (note 5.2).
The related party transactions disclosed consist of such transactions carried out with related parties that are not eliminated in the consolidated financial statements.
Some members of the Kesko Board are K-retailers. The Group companies sell goods and services to companies controlled by them. Goods and services have been sold to related parties on normal market terms and conditions and at market prices.
The joint ventures consolidated using the equity method, Kruunuvuoren Satama Oy and Mercada Oy, own properties which have been leased for use by the Group. Vähittäiskaupan Takaus Oy and Vähittäiskaupan Tilipalvelu Oy sell their services to Kesko’s and K-retailers’ retail companies and the Lithuanian UAB Mokilizingas provides consumer financing to local consumers. Until 10 October 2016, Suomen Lähikauppa was a member of Tuko Logistics Cooperative. Suomen Lähikauppa's purchases from Tuko have been reported within related party transactions until 10 October 2016. Hehku Shop Ltd is a joint venture established by Kesko and Oriola in June 2017 to create a chain of health, beauty and wellbeing stores in Finland. The other associates mainly comprise business property companies which have leased their properties for use by Kesko Group. Associates that operate as mutual real estate companies have been consolidated in the financial statements in proportion to their ownership interests.
Kesko Pension Fund is a stand-alone legal entity which manages the majority of the pension assets related to the voluntary pensions of the Group’s employees in Finland. The pension assets include Kesko Corporation shares with a value of €21.9 million (€23.0 million). Properties owned by Pension Fund have been leased to Kesko Group.
During the financial years 2017 and 2016, Kesko Group did not pay contributions to Pension Fund.
The following transactions were carried out with related parties:
Associates and joint ventures Board and management Pension Fund
Income statement
€ million
2017 2016 2017 2016 2017 2016
Sales of goods 0.1 0.0 79.6 73.6
Sales of services 3.9 3.6 0.4 0.3 0.3 0.3
Purchases of goods -128.8 -7.8 -6.9
Purchases of services -0.1 -7.7 -0.1 -0.1
Operating income 1.5 1.5 13.1 11.3 0.0
Operating costs -53.0 -53.2 -2.9 -1.6 -11.1 -11.3
Finance income 5.6 5.7
Associates and joint ventures Board and management Pension Fund
Balance sheet
€ million
2017 2016 2017 2016 2017 2016
Current receivables 0.5 0.2 5.9 7.6 0.0
Non-current receivables 57.7 57.6
Current liabilities 24.1 37.5 0.9 1.6 9.7 5.5
At the balance sheet date, receivables arisen from Kesko's sales to companies controlled by the Board members were €5.9 million (€7.6 million). The receivables are collateralised by a commercial credit granted by Vähittäiskaupan Takaus Oy, a Kesko associate, with the maximum amount always limited to the maximum realisable value of the countersecurity from the K-retailer company and entrepreneur to Vähittäiskaupan Takaus. At the end of the financial year, the countersecurity was valued at €5.5 million (€5.5 million).
Other current liabilities include, for example, chain rebate payables to companies controlled by the Kesko Board members. Chain rebates are paid retrospectively based on criteria related to the amount of actual annual purchases and the quality of operations.
During the financial year, Kesko bought two properties from Kesko Pension Fund for a transaction price of €46.5 million, including asset transfer tax.
Management's employee benefits
The top management comprises the Board of Directors and the Group Management Board. The compensation paid to them for their employee services consists of the following items:
Monetary salaries, fees, fringe benefits and share-based compensation
2017 2016
Mikko Helander President and CEO 2,849.4 2,174.0
Group Management Board other members 6,185.1 4,683.4
Esa Kiiskinen Board Chairman 87.5 87.5
Mikael Aro Board Deputy Chairman 60.0 60.5
Toni Pokela Board member 43.0 42.5
Matti Kyytsönen Board member 45.5 45.5
Anu Nissinen Board member 44.5 44.5
Matti Naumanen Board member (since 4 Apr. 2016) 43.0 31.1
Jannica Fagerholm Board member (since 4 Apr. 2016) 48.0 34.1
Tomi Korpisaari Board member (until 29 Feb. 2016) 7.2
Kaarina Ståhlberg Board member (until 29 Feb. 2016) 10.7
Total 9,406.1 7,221.0
Retirement benefits
The statutory pension provision of the President and CEO and the other members of the Group Management Board is provided through a pension insurance company. The supplementary pensions of three Group Management Board members are based on a defined benefit plan and determined based on the rules of Kesko Pension Fund and their personal service contracts. The supplementary pensions of four Group Management Board members are based on a defined contribution plan. President and CEO Mikko Helander's old-age pension age is 63 and the amount of his old-age pension is 60% of his pensionable earnings in accordance with the Employees' Pensions Act (TyEL) for the ten (10) calendar years preceding the retirement. The pension is based on a defined benefit plan. The cost of the supplementary pension for the period, calculated on an accrual basis, was €0.9 million (€1.0 million) and the pension asset was €0.6 million (€0.6 million). The pension cost of the President and CEO's statutory pension provision was €0.3 million (€0.2 million).
Share awards
The following share awards were granted to the Group Management Board members: under the 2015 plan 39,516 shares (maximum was 74,000) and under the 2016 plan 56,684 shares (maximum was 74,000). The maximum under the 2017 plan is 114,200 shares, which represents gross earnings, from which the applicable withholding tax is deducted.
Termination benefits
If the service contract of the President and CEO or some other Group Management Board member is terminated by the Company, he/she is entitled to a monetary salary and fringe benefits for the period of notice and a separate non-recurring termination compensation determined on the basis of the executive's monetary salary and fringe benefits for the month of notice. The termination compensation is not part of the executive's salary and it is not included in the determination of the salary for the period of notice, termination compensation 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 his/her service contract without other compensations.
At 31 December 2017, the President and CEO held 36,091 Kesko Corporation B shares, which represented 0.04% of the total number of shares and 0.01% of votes carried by all shares of the Company. As at 31 December 2017, the Group Management Board, including the President and CEO, held 81 Kesko Corporation A shares and 116,858 Kesko Corporation B shares, which represented 0.12% of the total number of shares and 0.03% of votes carried by all shares of the Company.