Kesko was established in 1940 by four regional wholesale companies, with the purpose of sourcing and delivering goods to K-retailers on competitive terms. This function has remained, although the operation has expanded to cover the management and development of store chains, retailing and store site operations.
Kesko was listed on the stock exchange in 1960. At the end of 2010, there were over 38,000 shareholders, of whom 26 percent were foreign. In 2010, Kesko’s net sales totalled some €8.8bn and the whole K-Group’s (i.e. Kesko and retailers) sales amounted to some €11bn. Kesko operates in eight countries and has about 22,000 employees, while the whole K-Group staff is 45,000. More than a million customers shop at K-stores every day. Since 2005, Kesko’s President and CEO has been Matti Halmesmäki, MSc (Econ), LL.M.
Seventy years of responsible operation
In 2010, Kesko’s net sales returned to growth with an increase of 3.9 percent from the previous year. Improved management of inventories coupled with cost reductions contributed to a more than 70 percent improvement in operating profit over the previous year. Kesko has a very strong balance sheet and the company has no net indebtedness. This enables capital expenditure on future growth areas, and capital expenditure will grow in 2011 – with the main emphasis on the food trade and the building and home improvement trade. Growth is sought especially in the rapidly developing Russian market.
For years, Kesko has been included in the most important sustainability indices and ranked among the best companies in the world in the compliance with the principles of sustainable development. Kesko is included in the Dow Jones sustainability indices DJSI World and DJSI Europe. In the 2010 assessment, Kesko ranked the best in the sector in operational eco-efficiency, environmental reporting, risk management, and anti-corruption and anti-bribery practices. Kesko is included in the FTSE4Good Global and FTSE4Good Europe indices focusing on responsible investment.
Kesko is also included in The Global 100 Most Sustainable Corporations in the World list, published annually at the meeting of the World Economic Forum in Davos. Kesko has been on the list since 2005. Kesko’s ranking on the list published in January 2011 was 26, compared with 33 a year before.
In the Sustainability Yearbook 2010, published by the SAM Group in January 2010, Kesko’s sustainability work qualified in the SAM Silver Class in the Food and Drug Retailers sector. Kesko was also recognised as the ‘Sector Mover,’ a qualification given to the company that has achieved the biggest proportional improvement in its sustainability performance. Kesko’s responsibility programme covers the period 2008-12 and the updating will start in 2011. The CSR report provides information on the performance of the programme with various indicators and case studies.
Sustainable business success
Kesko is strongly committed to the best of good corporate governance practices – openness, transparency and the pursuit of the best interests of the company and its shareholders – encouraging confidence in internal and external stakeholders.
A continuous improvement of Kesko’s corporate governance has prominently featured on the agenda of Kesko’s board of directors and top management, says Anne Leppälä-Nilsson, the Kesko Group’s General Counsel. She is responsible for the Kesko Group’s legal affairs, enterprise risk management and internal audit, all of which are key corporate governance support functions.
Anne Leppälä-Nilsson has actively contributed, not only to the development of Kesko’s corporate governance, but also to the self-regulation concerning all listed companies in Finland and the Nordic countries. Ms Leppälä-Nilsson chaired the corporate governance working group which updated the Finnish Corporate Governance Code 2008, represented Finland in the Nordic corporate governance working group, and was a member of the 2003 and 2010 corporate governance working groups.
Communications and responsibilities
Kesko has wanted to exceed the level of corporate governance obligations of listed companies and to establish explicit and transparent decision-making structures and systems which are communicated to the market in an open and up-to-date manner. Kesko’s website at www.kesko.fi/investors provides the most up-to-date information, with the company’s corporate governance principles, decision-making structures, decision-makers and their background, board and management remuneration and reporting all easily accessible to stakeholders.
Kesko’s enterprise risk management, major risks, and the internal control and internal audit functions are described extensively.
Kesko’s one-tier governance model is clear. The board is composed of seven non-executive directors, all of whom are elected for a three-year term at Kesko’s general meeting. The operative management is not represented on the board, as the board’s principal functions include choosing the managing director as well as supervising and controlling the company’s top operative management.
The decisions of the board members are made in the best interests of all shareholders and the company – it is therefore important that the majority of the board’s members are independent of the company, and all board members are independent of significant shareholders.
Committees enhance preparation
The audit committee and the remuneration committee are elected by the board from its own members to enhance the efficient preparation of matters for the board. The committees have no autonomous decision-making power, and all decisions are made by the board. The board has confirmed a charter for the committees, which defines the matters to be prepared by them. This enables the board to concentrate more extensively on strategic matters.
The audit committee addresses and evaluates financial reports regularly released to the market; the audits, reports and consultation services provided by auditors; the efficiency and function of internal audit and risk management functions; and the implementation of Kesko’s responsible operating principles. The audit committee also regularly conducts a competitive tendering of auditing services and prepares a proposal for the auditor elected by the general meeting.
The remuneration committee evaluates and prepares, for decision-making by Kesko’s board, competitive and appropriate remuneration and compensation plans for the Kesko Group’s top management. Long-term compensation plans are aimed to align the objectives of Kesko’s shareholders and management with the positive long-term development of the company’s shareholder value. The annual short-term bonus system provides rewards for achieving annual targets to the extent that predetermined criteria are fulfilled. The performance based bonuses have maximum amounts. Any share or share-based compensation plans are resolved by the general meeting.
Kesko’s compensation plans are linked to pre-determined objectives and their realisation. The remuneration schemes are designed to have an incentive effect in enhancing the long-term growth of shareholder value, not in short-term risk-taking.
The openness of remuneration, remunerations schemes and decision-making play a key part in good corporate governance and confidence. On its website, Kesko discloses detailed information on the compensation, fees, benefits, retirement benefits, annual bonuses, option or share remuneration and remuneration criteria of the board members, the President and CEO, and the Corporate Management board as part of Kesko’s remuneration statement.
The board does not have share-based fees. All of the board’s fees are resolved by the general meeting. All of the fees and remuneration schemes of the top management are decided by the board.
Strategic objectives
Profitable growth
– Our objective is to grow faster than market
– We seek growth in nearby areas, particularly in Russia
– We invest in our store network
– We develop e-commerce solutions
– We increase our shareholder value
Sales and services for consumer-customers
– We increase the value of our brands
– Our customer satisfaction exceeds that of our competitors
– Our competitive asset is the K-retailers who know the local customers and their needs
– We use loyal customer information efficiently and commit our customers
Responsible and efficient operating practices
– Our operating practices are responsible
– We efficiently combine retailer entrepreneurship and chain operations
– We leverage our economies of scale and competence for the benefit of customers
– We automate our routines and processes
Kesko’s divisions
Food trade
Kesko Food is the leading operator in the Finnish grocery trade. K-retailers, with whom Kesko Food applies the chain business model, are responsible for customer satisfaction at the more than 1,000 K-food stores.
Kesko Food manages four K-food store chains. Kesko Food’s main functions include the centralised purchasing of products, selection management, logistics, and the development of chain concepts and the store site network. Chain operations ensure the efficiency and competitiveness of business. In addition, Kesko Food’s subsidiary Kespro is the leading wholesaler in the Finnish HoReCa business.
Home and speciality goods trade
Kesko’s home and speciality goods trade consists of clothing, home goods, sports, leisure, home technology, entertainment electronics and furniture. The total number of home and speciality goods stores is 427, which operate in 13 chains.
Building and home improvement trade
Rautakesko is an international service provider which retails building, renovation and home improvement supplies in Finland, Sweden, Norway, Estonia, Latvia, Lithuania, Russia and Belarus. Rautakesko manages and develops the K-rauta, Rautia, K-maatalous, Byggmakker, Senukai and OMA retail chains and B2B sales in its operating area.
Rautakesko’s main functions include the centralised development of chain selections, centralised purchasing and logistics, and the development of chain concepts and the store network. There are 331 building and home improvement stores in eight countries and 88 agricultural stores in Finland. All stores in Finland are run by retailers.
Car and machinery trade
This division consists of VV-Auto and Konekesko with their subsidiaries. VV-Auto imports and markets Volkswagen, Audi and Seat passenger cars, and Volkswagen commercial vehicles in Finland, and it also imports and markets Seat passenger cars in Estonia and Latvia. VV-Auto is also engaged in car retailing and provides after-sales services.
Konekesko is a service company specialising in the import, marketing and after-sales services of recreational machinery, construction and materials handling machinery, agricultural machinery, and buses and trucks. Konekesko operates in Finland, Estonia, Latvia, Lithuania and Russia. Konekesko arranges the manufacture of and sells Yamarin boats in Finland and exports them to several European countries and Russia.
