Progress of objectives 2017
Progress of objectives 2016
Progress of objectives 2015
K Code of Conduct
All of our personnel act in compliance with the K Code of Conduct.
As of 2017, we oblige the entire personnel to annually confirm their compliance with the K Code of Conduct guidelines. By the end of 2017, 65% of personnel had made the annual confirmation.
We organise regular training on the K Code of Conduct.
We continued to communicate and implement the K Code of Conduct in practice according to the annual plan. Some 20 K Code of Conduct ambassadors in different operating countries have been appointed to act as messengers and contact persons. Kesko’s Legal Affairs, Risk Management and Internal Audit organised K Code of Conduct training in the subsidiaries in Norway, Poland and Sweden in 2017. The events focused especially on corruption and fraud-related issues. The K Code of Conduct eLearning programme targeted at the entire personnel had been completed by 8,867 people by the end of 2017.
Return on capital
Kesko's objective is to achieve a 14% comparable return on capital employed and a 12% return on equity.
In 2017, the comparable return on capital employed was 12.2% and the comparabe return on equity was 10.9%.
We respect human rights and take them into account in all our operations.
We followed up our human rights assessment by conducting a review of working conditions in the supply chain of grapes in collaboration with the Trade Union Solidarity Centre of Finland (SASK). The human rights assessment will be reviewed every three years, with the next review taking place in 2019.
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 June 2017, Kesko sold Indoor Group, which is responsible for the Asko and Sotka furniture trade chains, and the K-maatalous agricultural business. K-maatalous is consolidated into Kesko Group up until 31 May 2017 and Indoor Group up until 30 June 2017.
In April 2016 Kesko acquired Suomen Lähikauppa Oy, in June 2016 Onninen Oy and in December 2016 Oy Autocarrera Ab. Suomen Lähikauppa Oy (currently K-Market Oy) has been consolidated into Kesko Group as of 12 April 2016, Onninen Group as of 1 June 2016 and Oy Autocarrera Ab as of 1 December 2016. In 2016, Kesko disposed of the Russian grocery trade and the Russian Intersport business. The Russian grocery trade business is included in the figures until 30 November 2016.
In February 2018, Kesko announced it will discontinue its building and home improvement trade operations in Russia. The Russian building and home improvement trade operations are included in the 2017 figures.
Further information on the structural changes is available in note 3.2 to the financial statements.
The consolidated income statement, the consolidated statement of financial position and the consolidated statement of cash flows can be read in full in the Report by the Board of Directors and financial statements section.
|Economic benefits from Kesko's operations to stakeholder groups|
|Value added generated||11,467||10,879||9,479|
|Distribution of value added:|
|Suppliers||Goods, materials and services purchased||-10,221||-9,839||-8,593|
|Employees||Salaries, fees and social security expenses||-759||-723||-545|
|Payments to providers of capital||Net finance income/costs||1||-1||-7|
|Development of business operations||205||67||-7|
|The data is based on audited figures.|
|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 under Society in the Responsibility programme.
Additional information on employee benefit expenses can be found in note 2.4 of the financial statements.
According to its dividend policy, Kesko Corporation distributes at least 50% of its comparable earnings per share 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 2018 that a total dividend of €219 million be paid for the year 2017, which would represent 84.9% of earnings per share and 96.6% of comparable earnings per share. In 2017, Kesko distributed a total of €199 million as dividends for the 2016 profit, which represented 201.3% of earnings per share and 99.5% of comparable earnings per share.
|Economic benefits from Kesko’s operations by market area in 2017|
|€ million||Purchases||Capital expenditure||Salaries and share-based payments||Social security expenses||Taxes¹||Total|
|Other Nordic countries||1,008||3||65||22||61||1,159|
|Baltic countries and Poland||534||22||87||9||103||756|
|Russia and Belarus||210||25||29||9||17||289|
|¹ Taxes include income taxes, real estate taxes, value-added taxes, excise duties, car taxes, customs duties, net-worth taxes and withholding taxes|
One of the themes of Kesko’s responsibility programme is mitigating the progress of climate change. In June 2017, the Science Based Targets initiative approved the emission targets set by Kesko through which Kesko shows its commitment to the target of below 2°C global warming, as set by the Paris Climate Agreement.
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.
Opportunities and risks related to climate change are also described in the report’s 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 2,651.
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 2017, the defined benefit plan obligation was €266.6 million (€302.3 million in 2016), which is fully covered. Calculated under IFRS, the surplus amount was €207.5 million as at 31 December 2017 (€164.7 million in 2016). Calculated under IFRS, the Group’s total pension expenses represent 13.9% of the amount of salaries (13.6% in 2016). Read more in the financial statements section, note 3.8.
In the other countries, pensions are arranged in compliance with local legislation. The former pension plan operated in Norway was classified as a defined benefit plan, but the related liability expired during the financial year 2017.
In 2017, the Group received financial assistance of €1.4 million from the public sector. This amount mainly consists of assistance received from Finland (€1.1 million) and from Sweden (€0.3 million). The majority of public sector assistance in Finland is related to investments in the utilisation of solar power.
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, social security expenses and capital expenditure paid by Kesko and retailers have impacts on regional economic welfare.
In 2017, Kesko operated in nine countries in which it is engaged in both retail and wholesale. On 16 February 2018, we announced we would discontinue our building and home improvement trade operations in Russia.
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 2017, the income taxes paid by Kesko to Finland totalled €46.5 million and to other countries €9.7 million. The Group’s effective tax rate was 17.9%. Kesko paid €3.7 million in real estate taxes and net worth taxes to Finland and €2.8 million to its other operating countries in 2017.
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 2017, Kesko’s value-added taxes payable in Finland amounted to €410.3 million, and €129.2 million in other countries. Kesko remits car taxes and excise duties on, for instance, confectionery, alcohol and soft drinks. In 2017, Kesko remitted excise duties in Finland to a total amount of €61.1 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, is evaluated case-by-case, in connection with the establishment of a new store, for example.
Risks related to corruption are discussed as part of Kesko Group's risk management. Key risks, including risks related to corruption, are identified, assessed, managed, monitored and reported regularly as part of business operations in all operating countries.
Kesko’s anti-corruption principles are included in the K Code of Conduct guidelines published in 2016. The guidelines and website have been published in the languages of all our operating countries. Kesko employees and business partners have their own versions of the K Code of Conduct.
Kesko has prepared a mandatory eLearning package for its employees to smoothly internalise the K Code of Conduct.
Kesko arranges K Code of Conduct sessions in its companies: in 2017, such events were organised in the Norwegian, Polish and Swedish subsidiaries. The events focused largely on corruption and fraud-related issues.
In 2017, the prevention of malpractice was one of the focus areas for Kesko’s corporate security function. During the year, individual cases of suspected malpractice came to our knowledge and the corporate security unit assisted in investigating them.
Towards the end of 2016, Kesko introduced the Group-wide SpeakUp channel through which employees and business partners can report any violations of the K Code of Conduct. During 2017, 38 notices were submitted through the SpeakUp channel, related to e.g. managerial work, store staff and customer service, and Kesko’s partnerships with its suppliers.
In 2017, no corruption related lawsuits against any Kesko Group company came to our knowledge.
Kesko complies with local legislation in all of its operating countries. In Finland, the key statutes governing restructuring situations are included in the Act on Co-operation within Undertakings, which stipulates that the employer must provide reasonable notice of decisions for consideration on the basis of negotiations. The collective agreement for the trading sector does not specify any minimum notice periods applying to restructuring situations.
In Sweden, the statutory minimum notice period in the event of organisational changes is 8–24 weeks depending on the nature of the change. The collective agreement applying to operations in Sweden also does not specify minimum notice periods for restructuring situations. No specific minimum notice period for organisational changes is defined in Norway, but both legislation and the collective agreement stipulate that personnel shall be informed of organisational changes at the earliest opportunity.
Russian legislation states that personnel must be informed of restructuring 8.5 weeks before the new structure takes effect. For major organisational changes concerning more than 20% of the personnel, the authorities must also be informed 8–12 weeks prior to the change. In Estonia and Latvia, the minimum notice period in restructuring situations is four weeks. The corresponding notice period in Belarus is eight weeks. There are no collective agreements in these operating countries.
In all its operating countries, Kesko applies the notice periods specified in local labour legislation. In Finland, the notice period is from two weeks to six months depending on the duration of employment.
The freedom of association or the right to collective bargaining is not seen to be at risk in Kesko’s operating countries within the EU (Finland, Sweden, Estonia, Latvia, Lithuania and Poland) or Norway.
Out of the total personnel, 44% are covered by collective agreements.
So far, no binding industry-wide collective agreements have been drawn up in the Baltic countries and Poland.
The control of the association of suppliers’ employees in high-risk countries and corrective actions are included in social responsibility audits.
In September 2016, Kesko published its statement of commitment on human rights and impact assessment in compliance with the UN's Guiding Principles on Business and Human Rights.
The extensive survey involved listening to the views of customers, personnel and high-risk country factory workers on human rights and on the implementation of human rights in K Group's operations. The survey covered the customers of all of Kesko’s lines of business, and personnel in Finland. Surveys in high-risk countries were carried out in China, India, Bangladesh and the Philippines. Read more about Kesko’s commitment and impact assessment.
In November 2017, Kesko followed up the assessment by publishing a study on working conditions in the supply chain of grapes in Brazil, South Africa and India. The study showed that the human rights of workers involved in the picking, packaging and transport of grapes are vulnerable to violations. Kesko has proposed expanding amfori BSCI audits to cover also logistics in high-risk countries. Read more about the study.
The K Code of Conduct guidelines include a section on human rights. The K Code of Conduct eLearning programme targeted at the entire personnel had been completed by 8,867 people by the end of 2017. Awareness of the K Code of Conduct is regularly promoted through communications and training arranged by K Code of Conduct ambassadors. An article related to the #metoo campaign was published in December 2017 on intranets in Kesko’s operating countries, noting the K Code of Conduct guideline “We treat one another equally” and giving instructions on what to do if people notice inappropriate behaviour at the workplace.
Trainings in responsible purchasing continued in 2017. The trainings focused on the implementation of human rights in global purchasing chains. A total of three trainings were organised in Finland for people engaged in purchasing in Kesko’s grocery trade and building and technical trade. One training was held for the personnel of the Kesko Onninen Purchasing Office in Shanghai, China. The training sessions discussed the amfori BSCI Code of Conduct principles, the assurance process in purchasing from high-risk countries, and the social responsibility assessment systems approved by Kesko. The trainings will continue in 2018.
In election years, political parties and candidates are given equal opportunities to arrange campaign events in the yards and entrance halls of K Group stores. In addition, Kesko may participate in economic and tax policy seminars arranged by political parties, on content basis at its discretion and without indicating partiality.
Kesko does not make monetary donations to political parties. In 2017, Kesko did not participate in political parties’ seminars subject to a charge and did not publish commercial advertisements in party newspapers.
Kesko constantly monitors the amendments to legislation and authorities’ recommendations related to marketing communications and provides information about them to the staff responsible for marketing in each unit.
In 2017, there were no advertisements by Kesko or its subsidiaries submitted for consideration by the Council of Ethics in Advertising or any incidents of non-compliance with legislation or voluntary principles.
In June 2017, the Consumer Ombudsman imposed a prohibition order with a notice of a conditional fine in a matter concerning Intersport Finland Oy’s offer marketing in 8/2016-1/2017.
Kesko Senukai Lithuania received a caution from authorities in 2017 for sending direct marketing to one customer who had prohibited it.
At Kesko, economic responsibility refers to the good management of finances, the efficient use of resources, as well as generating stable, long-term economic benefits for the various stakeholders. Kesko's operations generate economic benefits for shareholders, personnel, retailers, suppliers of goods and services and their employees and customers, as well as municipalities and states.
Different aspects of responsibility, such as the ethicality of production and sourcing, the fair and equal treatment of employees and environmental protection are increasingly important for customers. Kesko's attitude to bribery and other malpractice is absolutely uncompromising. Responsible working principles are essential for building trust between Kesko, K-stores, our customers and our business partners.
Kesko plays an active role in trade and industry organisations in Finland and in the European Union, contributing its expertise to social development and legislative work. Kesko does not donate funds to political parties.
Customers' personal data is, for instance, processed in various personal data registers and online stores' customer registers that are collected for the implementation of marketing activities. Furthermore, Kesko manages and maintains the K-Plussa customer loyalty system, operated by K-chains and K-Plussa partners. Using the information received from the K-Plussa customer loyalty system, we can develop and tailor our operations to better suit our customers' needs. Taking care of our customers' privacy is of utmost importance to us.
Through Kesko's intranet, employees can give feedback and ask questions concerning operations not only in their own units but also directly to top management. Feedback can be given openly or anonymously.
SpeakUp is a confidential reporting channel meant for reporting crime and malpractice suspicions when, for one reason or another, the information cannot be passed directly to Kesko's persons in charge.