Kesko's year 2007

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64 Kesko's year 2007 which serve to increase price competitiveness and consumer-customers’ satisfaction with retail stores’ offering and selection. Product safety and quality of the supply chain Kesko’s goal is to provide safe products for its customers. A failure in the quality assurance of the supply chain or in product control may result in financial losses, the loss of customer confidence or, in the worst case, a health hazard. In order to manage this risk the Product Research Unit controls the quality of products sold by Kesko Food and Anttila and also supervises companies manufacturing products for Kesko Food. The trading sector’s self-control practices play a key role in ensuring the quality of foodstuffs sold and the observance of regulations and rules concerning them. The practice of recalling products ensures that defective products are withdrawn from sale quickly. Ethical purchasing principles and related guidelines secures the ethical quality of products. Store sites Store sites are a strategic competitive factor. Considerable amounts of capital are tied up in store properties for decades. Local competitive situations can change fast and there is a risk that operations at the store site will become unprofitable. The risk is managed by long-term planning of the store network, by careful preparation of each store site investment decision and by applying a sell-lease back approach. When arranging construction, Kesko aims to ensure that the use of each store site can be flexibly changed, should a need arise. Contracts made on leased properties also take flexibility into account. The acquisition of new store sites can be delayed not only by shortage of sites, town planning and permit practices, but also by the price trends of sites and construction. Different countries also have their specific features. Online sales are growing, which affects the store network. Success in e-commerce requires a completely new kind of business expertise, logistics and information security solutions. Suppliers and distribution channels In business divisions that are strongly dependent on individual principals, changes in a principal’s or supplier’s strategy concerning the product selection, pricing and distribution channel solutions can mean a reduction in competitiveness or sales or loss of business. Good market shares, growing sales and development of operations create a basis for long-term cooperation. Shrinkage The retail trade involves a high risk of shrinkage. Shrinkage can result for example from spoilage or breakage of goods, theft or other malpractice, and unsuccessful purchasing, for example. The most important loss prevention activities include uniform measuring and monitoring of shrinkage, and the consequent development and introduction of new management methods. Loss resulting from unsuccessful purchasing is managed by surveying customer needs, planning selections carefully, and monitoring. Internationalisation Internationalisation aims at growth either through business acquisitions or expanding the existing store network. Success in international growth requires careful planning of acquisitions and expansion projects, resources and risk management. Challenges include different cultures, local business practices, authorities’ actions and fast-changing operating environments. Finnish retail trade operating processes and control practices cannot always be introduced as such outside Finland. The efficient steering of operations and the achievement of synergy benefits require implementation of common practices and information systems across country and organisational boundaries. Personnel Competition for skilled employees has intensified in the labour market. Recruiting competent employees and retaining their commitment is challenging particularly in the Baltic countries and Russia. Implementation of strategies requires competent and motivated personnel. There is a risk that the trading sector will not attract the most skilled people. Specialisation increases dependence on the competence of individuals. In updating strategies, the competencies required to implement the strategy are identified, and personnel plans are drawn up on that basis. Job satisfaction surveys play a central role in the development of management and leadership. Kesko’s employer image is redefined by systematic internal and external communications and stakeholder cooperation. Continuity of operations and information security The trading sector is characterised by increasingly complicated and long supply chains and their dependency on information systems, telecommunications and external service providers. Disturbances in the supply chain can cause major losses in sales and profit. These problems may be reflected to the customer in that there are no products available in the store or the store is closed. Kesko has continuity management projects underway which aim to secure undisturbed critical operations and a sufficiently fast recovery after a serious disturbance. The importance of information in business operations is increasing all the time. The requirements of stakeholders and the legislation to safeguard the handling of information in case of accidents and misuse have grown. Confidentiality of customer and employee information is protected with up-to-date information security solutions. Appropriate guidelines are also of key importance for keeping business secrets confidential. Critical transactions, such as payments, are protected with job descriptions, acceptance limits, access rights and system controls. Legislation, agreements and ethical principles Compliance with legislation, regulations, agreements and Kesko’s ethical principles is an important basic value. Non-compliance may result in fines, compensation for damages and other financial losses, and a loss of confidence or reputation. The Group has specific Compliance programmes to avoid this. Self-assessments are made in matters concerning competition legislation. Contractual risks are managed by harmonising agreements and agreement-making processes. An essential issue in the chain agreements between Kesko and the retailers is finding solutions for the high-quality delivery of customer promise and commitment to the chain business. The efficient steering of chain operations is, to some extent, complicated by interpretations of competition legislation. Kesko has specified its guidelines concerning responsible working principles and commenced the related communications and introduction. Discussions between managers and other employees are being arranged in connection with the key contents of the guide.
Year 2007 Divisions The Group Financial statements Further information The goal of Kesko’s corporate communications is to produce and publish reliable information at the right time. If some information published by Kesko proves to be wrong or a release fails to meet regulations, this may result in investors and other stakeholder groups losing confidence and in possible sanctions. Further pressure is put on the accuracy of financial information by the tightening of information disclosure schedules and the dependence on information systems. These risks are minimised by careful scheduling and control of the process and by ensuring proper resources and sufficient competence. Other risks Damage, accidents and crimes are prevented with uniform practices and cost-efficient safety precautions. Financial losses and interruptions in operations are covered with Group-wide and appropriate insurance, revised on a regular basis. Financial risks With respect to financial risks, the Group observes a uniform financial policy that has been approved by Kesko’s Board of Directors. The Corporate Treasury unit is responsible centrally for Group funding, liquidity management, relations with providers of finance, and the management of financial risks. Financial risks include the currency risk, the interest rate risk, the liquidity risk, the credit risk and commodity risks. Further information about them is available in Note 44 of the financial statements, ’Financial risk management’. Internal audit Roles of management and the Internal Audit Department in internal control The Audit Committee of Kesko’s Board of Directors has confirmed Kesko’s internal audit policies, which are based on good auditing principles, widely accepted internationally. The main duty of the Group’s Internal Audit Department is to support Kesko’s President and CEO, the Board of Directors and management in their task of control. Internal control is an essential part of corporate governance and management. The Board of Directors and the Managing Director are responsible for organising internal control. The Board of Directors is accountable to shareholders and the Managing Director to the Board of Directors. The chain of responsibilities continues throughout Kesko’s organisation so that the direct subordinates of the President and CEO report to him, and each Kesko employee is accountable for the internal control of his/her area of responsibility to his/her immediate superior. Kesko’s Internal Audit Department is responsible for the independent corporate assessment and assurance functions required of a listed company that systematically evaluate and verify the effectiveness of risk management, control, management and governance. In addition, support is given to the management and organisation in their work of ensuring that the Group’s goals and objectives are achieved and that the monitoring system is developed further. Organisation and focus of internal audit The operating policies of Kesko’s Internal Audit Department have been defined in the Charter confirmed by the Audit Committee. The department is subject to the Group’s President and CEO and the Audit Committee, and it reports about its plans and activities to them on a regular 65 basis. Audit findings, recommendations and the progress of actions are reported to the auditee management, the President and CEO, the Audit Committee and the external auditors. The Audit Committee regularly handles a summary of the Internal Audit Department’s reports and activities. The Internal Audit Department is divided into foreign audit, group audit and IT audit. Auditing is based on risk analyses and the control discussions carried on with Group and divisional management. The department cooperates with the Corporate Risk Management Unit and participates in the work of the Group’s Risk Management Steering Group. The department assesses the effectiveness of Kesko’s risk management system annually. When recruiting people to conduct auditing outside Finland, special attention has been paid to their competence and knowledge of local circumstances in Kesko’s main geographical areas. The Internal Audit Department’s foreign operations team represents four nationalities and masters seven languages. IT auditing has been strengthened by increasing resources, developing IT-assisted audit models and enhancing all internal auditors’ IT competence. Auditing evaluates the effectivity and efficiency of operations, the reliability of financial and operational reporting, the compliance with laws and regulations, and the safeguarding of assets. Focus areas include foreign operations and retailing, especially controls of goods and money in purchasing and the supply chain, finance and reporting, information systems and information security. Special attention is paid to good communications with management and providing support in adopting good audit practices. The Internal Audit Department communicates and consults on good audit solutions within the Group by preparing reports and arranging events for exchanging experiences. Controls are constantly compared with the best Finnish and international practices with the aim to identify the most efficient solutions from the viewpoint of Kesko. Ensuring professional competence According to its Charter, the Internal Audit Department must have sufficient resources available and the knowledge, skills and other competencies needed for performing its duties. The President and CEO and the Audit Committee approve the Department’s annual plan and decide on its resources. The auditors’ competencies are developed by systematic professional education and examinations. Kesko’s Internal Audit Department has six employees with the international qualification of Certified Internal Auditor and two employees with the qualification of Certified Information System Auditor, both qualifications granted by the Institute of Internal Auditors (IIA). The extent and competence of auditing is ensured and coordinated by regular contacts and exchange of information with the Group’s other internal assurance operations and external auditors. In addition, the Department acquires external services for occasional needs or assessment assignments that require special competence. International guidelines of the IIA require that an external quality assurance audit be conducted in internal audit operations every five years. According to the audit carried out at Kesko in 2005, Kesko´s Internal Audit Department mainly complies with the international professional and ethical IIA standards. Up-to-date information on Kesko’s Corporate Governance is available at www.kesko.fi.
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Kesko’s year 2007
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Year 2007 Contents Divisions The Gr
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Year 2007 the best offers Divisions
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Year 2007 Financial highlights for
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Year 2007 list. In 2008, we intend
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Year 2007 Competitive environment F
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Year 2007 Divisions The Group Finan
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Page 65: Year 2007 Divisions The Group Finan
Page 69 and 70: Year 2007 Maarit Näkyvä b. 1953,
Page 71 and 72: Year 2007 Pekka Lahti b. 1955, M.Sc
Page 81 and 82: Year 2007 Key indicators Group’s
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Page 103 and 104: Year 2007 Note 12 Tangible assets
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Year 2007 Economic value added form
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Year 2007 Owned by other Group comp
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Year 2007 Shares and shareholders D
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Year 2007 Share capital and shares
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Year 2007 Latvia Rautakesko A/S Ren
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Year 2007 Logistics is a process in
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