|Economic benefits from Kesko's operations to stakeholder groups|
|Value added generated||10,879||9,479||9,800|
|Distribution of value added:|
|Suppliers||Goods, materials and services purchased||-9,839||-8,593||-8,828|
|Employees||Salaries, fees and social security expenses||-723||-545||-614|
|Payments to providers of capital||Net finance income/costs||-2||-7||-6|
|Development of business operations||67||-7||147|
|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 at 203-2.
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 2017 that a total dividend of €199 million be paid for the year 2016, which would represent 201.3% of earnings per share and 99.5% of comparable earnings per share. In 2016, Kesko distributed a total of €248 million as dividends for the 2015 profit, which represented 243.8% of earnings per share and 146.7% of comparable earnings per share.
Further information on the financial statements' indicators and Kesko shares and shareholders can be found in the financial statements section.
|Economic benefits from Kesko’s operations by market area in 2016|
|€ million||Purchases||Capital expenditure||Salaries and share-based payments||Social security expenses||Taxes¹||Total|
|Other Nordic countries||905||3||53||19||51||1,032|
|Baltic countries and Poland||453||25||70||7||97||653|
|Russia and Belarus||265||85||35||10||14||409|
|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 building and technical trade, and the car trade. Kesko has over 2,000 stores engaged in chain operations in Finland, Sweden, Norway, Estonia, Latvia, Lithuania, Poland, 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 1.2 million 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. Read more about the importance of a multi-channel approach.
At the end of 2016, Kesko had over 1,080 independent K-retailer entrepreneurs as partners. Kesko’s sales to retailer entrepreneurs accounted for 45.4% of total sales in 2016.
Kesko and K-retailers form the K Group, whose retail sales totalled around €12.5 billion (VAT 0%) in 2016. The K Group employs around 45,000 people.
|K-food stores in Finnish municipalities (as at 31 Dec. 2016)|
|Number of K-food stores||Municipalities in 2016||% of all municipalities|
|10 or more||29||9.3|
|Employee benefit expenses|
|Salaries and fees||575||440||497|
|Social security expenses|
|social security expenses||57||43||47|
|In 2016, foreign operations accounted for €159 million of total salaries and for €36 million of total pension costs and other social security expenses.|
|In 2016, the Kesko Group employed an average of 22,476 (18,955) people, of whom 10,714 (8,300) were located in Finland and 11,762 (10,655) outside of Finland. The personnel increase was due to the acquisitions completed during the year. At the end of the year, the number of personnel at Suomen Lähikauppa was 3,129, at Onninen it was 3,068 and at AutoCarrera it was 37.|
|Kesko's community investments|
|Non-governmental, environmental and other organisations||412||555||474|
|Youth sports and other youth work||56||64||244|
|Science, research and education||67||61||65|
|Veteran organisations and national defence||3||5||4|
|Political parties and organisations||-||8||5|
|In addition, Veikkaus Oy contributed an estimated revenue of €60-65 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 2016. 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.|
More detailed information on donation recipients is available in the responsibility programme.
One of the key objectives of Kesko’s responsibility work is mitigating the progress of climate change. Kesko has committed to set emission targets in line with two degree climate warming and approved by the Science Based Targets initiative. The work to calculate the targets began in December 2016.
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 2,717.
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 2016, the plan obligation was €300.4 million (€266.1 million in 2015), which is fully covered. Calculated under IFRS, the surplus amount was €164.1 million as at 31 December 2016 (€176.4 million in 2015). Calculated under IFRS (the Pension Fund’s insurance premium is based on a defined benefit plan), the Group’s total premium represents 13.6% of the amount of salaries (12.5% in 2015). 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 2016, the Group received financial assistance of €0.9 million from the public sector. This amount mainly consists of assistance received from Finland (€0.6 million) and from Sweden (€0.3 million).
Especially outside growth centres, retail stores can offer community services which may otherwise be scarcely available. In 2016, the following were located in connection with K-food stores:
For several upcoming years, Kesko’s most significant store site project will be the new shopping centre, Easton Helsinki, being built in Itäkeskus, Helsinki. The capital expenditure of the first phase is valued at €100 million. Its employment impact is about 250 person-years for a period of two years. The first part of Easton Helsinki will open to customers in autumn 2017. The next part is estimated to be completed in 2019. The capital expenditure of the whole complex is valued at over €200 million.
In addition to statutory waste recycling obligations, K-stores provide the following recycling services:
Waste statistics are presented under 306-2 Waste.
Kesko’s community investments are presented under 201-1 Direct economic value generated and distributed.
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 nine 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 2016, the income taxes paid by Kesko to Finland were €31.2 million and to other countries €10.1 million. The Group’s effective tax rate was 21.6%. Kesko paid €3.5 million in real estate taxes and net worth taxes to Finland and €4.2 million to its other operating countries in 2016.
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 2016, Kesko remitted value-added taxes in Finland to the amount of €380.3 million, and €110.5 million in other countries. Kesko remits car taxes and excise duties on, for instance, confectionery, alcohol and soft drinks. In 2016, Kesko remitted excise duties in Finland to a total amount of €66.9 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.
|Economic benefit generated by Kesko and K-retailers to Finnish regions in 2016|
|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|
|2 Incl. acquisitions in 2016 (Suomen Lähikauppa, Onninen and AutoCarrera) €445.5 million|
|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's purchases by operating country in 2016|
|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 2016|
|Company's country of domicile||Supplier's country of domicile|
In 2016, Kesko’s capital expenditure totalled €743 million (€219 million in 2015), or 7.3% of net sales (2.5% in 2015). Capital expenditure in store sites was €216 million (€167 million in 2015). Capital expenditure in foreign operations accounted for 15.2% (40.2% in 2015) of the total capital expenditure. Duting the financial year, Kesko Group acquired Onninen Oy, Suomen Lähikauppa Oy and Oy Autocarrera Ab. The total capital expenditure on the acquisitions was €445.5 million.
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 €738 million in 2016.
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.
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 at the Group, division, company and unit levels in all operating countries.
Kesko’s anti-corruption principles are included in the K Code of Conduct guidelines updated 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 annual Value Discussions on the K Code of Conduct in its companies. In 2016, a Value Discussion event was organised in Suomen Lähikauppa and two Russian subsidiaries. They mainly focused on issues related to corruption and malpractice.
In 2016, one of the focus areas in Kesko’s risk management and corporate security function was the prevention of malpractice. During the year, individual cases of suspected malpractice came to our knowledge. The Risk Management and 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. In 2016, six incidents were reported via the SpeakUp channel.
In 2016, no corruption related lawsuits against any Kesko Group company came to our knowledge.