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Note 33. 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 37).
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 transaction until 10 October 2016. 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 €23.0 million (€15.7 million). Properties owned by Pension Fund have been leased to Kesko Group.
During the financial years 2016 and 2015, 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
2016 2015 2016 2015 2016 2015
Sales of goods 0.0 73.6 59.8
Sales of services 3.6 3.6 0.3 0.2 0.3 0.3
Purchases of goods -128.8 -6.9 -13.8
Purchases of services -7.7 -0.2 -0.1 0.0
Operating income 1.5 0.6 11.3 10.6 0.0
Operating costs -53.2 -37.0 -1.6 -0.1 -11.3 -12.2
Finance income 5.7 3.1
Associates and joint ventures Board and management Pension Fund
Balance sheet
€ million
2016 2015 2016 2015 2016 2015
Current receivables 0.2 1.1 7.6 4.3 0.0
Non-current receivables 57.6 57.6
Current liabilities 37.5 19.2 1.6 2.0 5.5 2.1
At the balance sheet date, receivables arisen from Kesko's sales to companies controlled by the Board members were €7.6 million (€4.3 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 (€5.0 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.
In 2015, Kesko, AMF Pensionsförsäkring and Ilmarinen established a joint venture, Mercada Oy. The joint venture owns, governs and develops store sites mainly used by Kesko Group. Kesko sold some of its store sites in Finland and Sweden to the joint venture. The fair value of the stores sites sold totalled €485 million and a €75.6 million selling profit affecting comparability was recorded on the transaction. The cash inflow from the arrangement was €403 million. Kesko Group companies lease the sold stores sites for their use with 15-year long-term leases and in Sweden, with 10-year long-term leases. At shopping centres, the Group companies lease premises for their use with 5−15-year leases. Kesko's equity investment in the joint venture is around €67 million, comprising an investment in the company's equity and an equity shareholder loan.
In addition, Kesko sold four properties to Kesko Pension Fund in 2015. A €22.9 million gain on the sale affecting comprability was recorded on the transaction.
In addition, Kesko had non-current receivables from a real estate associate to the amount of €1.5 million in 2015.
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 and fringe benefits
€1,000
2016 2015
Mikko Helander President and CEO (since 1 Jan. 2015) 1,316.8 1,018.5
Group Management Board other members 2,534.2 2,275.9
Esa Kiiskinen Board Chair 87.5 88.0
Mikael Aro Board Deputy Chair (since 13 Apr. 2015) 60.5 43.5
Toni Pokela Board member 42.5 43.5
Matti Kyytsönen Board member (since 13 Apr. 2015) 45.5 33.7
Anu Nissinen Board member (since 13 Apr. 2015) 44.5 32.2
Matti Naumanen Board member (since 4 Apr. 2016) 31.1 -
Jannica Fagerholm Board member (since 4 Apr. 2016) 34.1 -
Tomi Korpisaari Board member (until 29 Feb. 2016) 7.2 43.5
Kaarina Ståhlberg Board member (since 13 Apr. 2015)(until 29 Feb. 2016) 10.7 35.2
Seppo Paatelainen Board Deputy Chair (until 13 Apr. 2015) - 17.0
Ilpo Kokkila Board member (until 13 Apr. 2015) - 12.3
Maarit Näkyvä Board member (until 13 Apr. 2015) - 13.2
Virpi Tuunainen Board member (until 13 Apr. 2015) - 12.3
Total 4,214.6 3,669.1
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. Four Group Management Board members are members of Kesko Pension Fund's department A which was closed in 1998, and their supplementary pensions are determined based on its rules and their personal service contracts. Their retirement benefits are based on a defined benefit plan. 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). The pensionable salary is determined based on his non-variable monetary salary, performance bonuses and fringe benefits for the last ten (10) years. The supplementary pension is based on a defined benefit plan. The cost of the supplementary pension for the period, calculated on an accrual basis, was €1.0 million and the pension asset was €0.6 million. The pension cost of the President and CEO's statutory pension provision was €0.2 million.
Share awards
The following share awards were granted to the Group Management Board members: under the 2012 plan 15,113 shares (maximum was 56,600 shares), under the 2013 plan 13,500 shares (maximum was 67,500), under the 2014 plan 18,354 shares (maximum was 69,000) and under the 2015 plan 39,516 shares (maximum was 74,000). The maximum under the 2016 plan is 74,000 shares. In addition, the taxes and tax-like charges incurred from the award were paid in cash.
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.
Shareholdings
As at 31 December 2016, the President and CEO held 20,005 Kesko Corporation B shares, which represent 0.02% of all shares of the Company and 0.01% of votes attached to all shares. As at 31 December 2016, the Group Management Board, including the President and CEO, held 104,678 Kesko Corporation B shares, which represent 0.1% of all shares of the Company and 0.03% of votes carried by all shares.