Kesko's year 2007

Year 2007
Divisions The Group
Financial
statements
Further information
Notes to the parent's financial statements
Principles used for preparing the parent's
financial statements
Kesko Corporation's financial statements have been prepared in compliance
with the Finnish Accounting Standards (FAS).
Valuation of fixed assets
Fixed assets are stated in the balance sheet at cost less depreciation
according to plan.
Depreciation plan
Depreciation according to plan is calculated on a straight line basis so as
to write off the cost of fixed assets over their estimated useful lives.
The periods adopted for depreciation are as follows:
Buildings 15–33 years
Fixtures and fittings 8 years
Machinery and equipment 8 years
or machinery and equipment
purchased since 1999 25% reducing balance method
Transportation fleet 5 years
Information technology equipment 3–5 years
Other tangible assets
and other capitalised expenditure 5–14 years
Land has not been depreciated.
The total of depreciation according to plan and the change in depreciation
reserve comply with the Finnish tax legislation. The change in
depreciation reserve has been treated as appropriations in the parent
company.
Valuation of financial assets
Marketable securities have been valued at lower of cost or net realisable
value.
Foreign currencies
Items denominated in foreign currencies have been translated into Finnish
currency at the average exchange rate of the European Central Bank
on the balance sheet date. If a receivable or a debt is tied to a fixed rate of
exchange, it has been used for translation.
Profits and losses arising from foreign currency transactions have
been dealt with in the income statement.
Derivative financial instruments
Interest rate derivative contracts
Interest rate derivatives are used to modify loan durations. The target
duration is three years and it is allowed to vary between one and a half
and four years. Cash flows arising from interest rate derivative contracts
are recognised during the financial year as interest income or expenses,
according to the maturity date. In the financial statements, open forward
agreements, futures, options and swaps are stated at market values.
Unrealised revaluation is not stated as income. Any valuation losses are
included in interest expenses.
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Currency derivative contracts
Currency derivative instruments are used for hedging against translation
and transaction risks. Forward exchange contracts are valued at the
exchange rate of the balance sheet date. The rate differences arising from
open derivative contracts are reported in financial items. If a derivative
instrument has been used to hedge a foreign-currency-denominated
asset, the value change has been recognised against that of the asset
item. The premiums of option contracts are included in the balance sheet
accruals until they expire, or if a value change at the balance sheet date
so requires, recognition in profit or loss.
Commodity derivatives
Kestra Kiinteistöpalvelut Oy, a Kesko Corporation subsidiary, uses electricity
derivatives to balance the energy costs of the Group and its retailers.
Kesko's subsidiaries engaged in the agricultural trade use grain
derivatives to hedge against the grain price risk. Kesko Corporation is an
external counterparty in electricity and grain derivative contracts made
with the bank, and internally hedges the corresponding price with the
subsidiary. At no stage does Kesko Corporation have derivative positions,
and thus there are no effects on profit or loss. The electricity price risk is
reviewed on a 3-year time span. With respect to derivative contracts
hedging the price of electricity supplied during the financial year,
changes in value are recognised in Kesko under interest income and
expenses. The unrealised gains and losses of contracts hedging future
purchases are not recognised through profit or loss. With respect to
grain derivative contracts, the open contracts in the income statement
are recognised at market prices. Valuation differences related to open
contracts are recognised in Kesko under financial items.
Pension plans
The pension insurances of Kesko Corporation's personnel are arranged
through the Kesko Pension Fund. The Fund's A department, which provides
supplementary pension benefits, was closed on 9 May 1998. The
job-based retirement age agreed for a number of directors and other
superiors in the Group is 60 or 62 years.
Provisions
Provisions stated in the balance sheet include items bound to by agreements
or otherwise, but remain unrealised. Changes in provisions are
included in the income statement. Rent liabilities for vacant rented
premises no longer used for the Group business operations, as well as the
losses resulting from renting the premises to outsiders, are included in
provisions.
Income tax
Income tax includes the taxes for the period based on the profit for the
period, and taxes payable for prior periods, or tax refunds. Deferred taxes
are not included in the parent's income statement and balance sheet.