Kesko YKV Raportti WEB/ENG.QXP

2 Contents of the report

Contents of the report

Kesko’s fourth corporate responsibility vacy protection. Definitions of the most between the parties. The report also report has again been prepared on the important terms and a list of the key presents information concerning K- basis of the ‘Sustainability Guidelines contact persons are also included. stores when this is integrally related to on Economic, Environmental and Social Kesko’s reporting and complements the Performance’ drawn up by the Global Re- More foreign operations total picture of the relations of Kesko included porting Initiative (GRI), and the content and K-retailers with society. The report for 2002 contained, for the structure of the report has not moved first time, some statistics on the away from that of previous years. The ti- Assurances for online Group’s foreign subsidiaries. The assur- and printed reports tles of the report are selected from ance statement of the report included a An electronic version of the printed re- Kesko’s starting-points and do not fol- port containing some complementary low the order of presentation or the information is available on numbering of titles provided by Kesko’s Internet pages. The ad- the GRI. As a publisher, Kesko ditional information provid- does not – despite the GRI ed by the Internet pages guidelines – take a stand has been marked in the on whether the report is corresponding parts of in accordance with the the printed report. The GRI guidelines. Any devi- electronic report for each ations from GRI guide- year is presented on the In- lines and any shortcomings ternet pages as it is at the mo- in presenting its core indica- ment of publication, in the ver- tors are noted in the comparison pub- sion for which the assurance has been lished at the end of the report. provided. The information presented GRI core guidelines will not be updated afterwards. All The report begins with basic informa- changes in the information during the tion about Kesko and an assessment by year will be presented in the report pub- Kesko’s top management of the present lished the following year. status and future prospects for corpo- As in the previous year, an assur- recommendation of universally con- rate responsibility. Kesko’s values, op- ance statement has been provided for necting the functions abroad under the erating principles guiding responsibili- the printed and electronic versions in same performance indicators. The indi- ty, strategies and management systems both Finnish and English. The assur- cators of economic and social responsi- are described in brief, as are its corpo- ance provider is the Sustainability Ser- bility are now specified by country in all rate governance and stakeholders sys- vices unit of PricewaterhouseCoopers the cases where the figures fulfil the tems. The main focus is on the indica- Oy, Kesko’s audit firm. The assurance qualitative requirements set for report- tors of economic, social and environ- statement is published at the end of ing. The implementation of environmental performance, which are now a this report. mental systems in foreign subsidiaries little more numerous and more specific. The report covers performance in is, however, at such an initial stage that Some statistics, for instance, on the 2003, with some information about Jan- indicators can be provided for some ar- breakdown of economic benefits per re- uary-March 2004 included. The previ- eas of activities only. gion in Finland are now included. A ous report, covering the year 2002, was summary table of the key indicators published in May 2003. The following report, for 2004, will be published in has also been drawn up. At the end of Information about the report, there is a description of oth- K-retailers, too spring 2005. er areas of responsibility, such as activ- Kesko acts in close co-operation with K- ities promoting product safety and pri- retailers, based on chain agreements Review by the President and CEO 3

Review by the President and CEO

The value survey made at Kesko in autumn 2003 shows that the personnel considers values important and would like them to be discussed even more thoroughly from the viewpoint of their duties. This is a clear message to the management that employees are prepared to commit themselves to the values as far as their connection with everyday work is understandable and acceptable. Bearing corporate responsibility is considered to be one of Kesko’s values that is best implemented. The other three values are ranked as more important, but they also contain elements of responsible operations. Employees feel that the standards and guidelines concerning responsibility are so good that acting in accordance with the value is easy. There is wide unanimity that corporate responsibility is every employee’s duty. This shows that responsibility has become a self-evident part of Kesko employees’ daily work, and of our operating practices. Kesko has many years of experience in measuring the performance of economic, social and environmental responsibility. We have continued to find room for improvement in the operations themselves and in measuring them. The third party assurance statement has helped us to specify the collection of data and the interpretation of results. The implementation of the SAP operations portant because the indicators in this of indicators of sustainability in their control system sets new demands on the area are necessary for the management own analyses. At Kesko we can be calculation and statistical systems serv- of an up-to-date business. Rewarding be- pleased that the results of our work are ing corporate responsibility. Extending cause the impacts of the work are re- valued by Dow Jones, Storebrand and reporting to cover our foreign opera- flected in the company’s economic per- Ethibel, for instance. Any investors seek- tions presents a major challenge for us. formance and reputation. A precise im- ing companies that bear responsibility Inevitably, there are and will be some pact on the profit remains hard to define hardly miss the fact that the two last- drawbacks in our collection of data. with current information and compar- mentioned organisations have named However, we recognise them and are isons with other companies are not easy Kesko as the best company in the sector. committed to gradually eliminate them. either. Fortunately, there are neutral Although collecting data that illus- comparisons available. Experts who as- Matti Honkala trates responsibility is challenging, it is sess the performance of listed compa- President and CEO also both important and rewarding. Im- nies have considerably increased the use Kesko Corporation 4 Contents

Contents

Contents of the report 2 K-environmental stores 35 Review by the President and CEO 3 Environmental office work programmes 35 Basic information about the Kesko Group 5 Stakeholder co-operation and communications 36 Key indicators of corporate Environmental risks, damage and incidents 37 responsibility for 2001-2003 6 Social performance 38 Vision and strategy of corporate responsibility 8 Number of employees 39 Vision of key factors in corporate responsibility 8 Average age and duration of employment 40 Strategies 9 Reasons for terminating employment 40 Kesko’s principles and management Kesko’s attraction as a workplace 41 systems guiding corporate responsibility 10 Quality of management 41 Kesko’s values 10 Health and safety 42 Corporate governance statement 10 Salaries and other benefits 43 Management systems 11 Pensions 44 Key areas and methods of influence 11 Equality 44 Stakeholder analysis 13 Training 46 Corporate responsibility performance in 2003 14 Unionisation 46 Economic performance 15 Social quality control of suppliers 48 Economic development from Ethical principles for Kesko’s purchasing 49 the viewpoint of shareholders 15 Supervision in practice 49 Investments and store network 17 Slow progress 50 Job development 18 Co-operation between Finnish importers 51 Salaries, social security expenses and taxes 19 Fair Trade products 51 Employee pension and health insurance systems 20 The UNICEF project in India 52 Suppliers of goods and services 20 Closer co-operation between buyers worldwide 53 Breakdown of economic benefits by region 21 A European agreement 53 Financial support 21 Other responsibility areas 54 Environmental performance 23 Product safety 54 Environmental system and data management 24 Corporate security 56 Eco-efficiency in construction 25 Marketing and competition regulations 56 Environmental risks of land use 26 Privacy protection 56 Energy and water consumption 26 Political relations 57 Environmental profile of energy 27 Attitude to bribes 57 Transport 29 Comparison of the report with the guidelines Transport emissions 29 of the Global Reporting Initiative 58 Use of materials 31 Contact persons in corporate responsibility 61 Waste management and recycling 31 Assurance statement 62 Developments in the products trade 33 Definitions of terms 63 Basic information 5

Basic information about the Kesko Group

Kesko’s business operations largest shareholders calculated by the Kesko is Finland’s biggest trading sec- number of votes held 35.0% of all votes tor group. Its main market area is Fin- and 18.5% of all shares. During the year, land, but in accordance with its strate- the shareholdings of foreigners de- gy, the Group has expanded its opera- creased from 20.6% to 16.8%, entitling tions to neighbouring countries: Swe- to 4.1% of all votes. den, the Baltic countries and Russia. In At the end of 2003, the market capi- addition, Kaukomarkkinat Oy operates talisation of A shares was EUR 578 mil- in over 20 countries, including Den- lion and that of B shares EUR 825 mil- mark, Germany, Poland, Hungary, Chi- lion, with the total market capitalisation na and Vietnam. of the company being EUR 1,403 million. Kesko’s division parent companies - Kesko Food Ltd, Rautakesko Ltd, Kesko Personnel Agro Ltd and Keswell Ltd - are responsi- In 2003, Kesko had 15,219 employees on ble for store sites, purchasing, logistics, average, of whom 5,360 (35.2%) worked store concepts and chain co-operation for Kesko’s foreign subsidiaries. The total with the respective K-retailers. Kesko al- number of employees increased by 3,002 EUR 6.2 billion and services at about so has its own retail outlets: home and (24.6%) over 2002. The growth abroad EUR 98 million. Active Finnish suppliers speciality goods and agricultural stores was 114.7% and in Finland 1.4%. In the av- – about 14,500 in all - accounted for in Finland, hardware and builders’ sup- erage figures, part-time jobs have been 72.8% and foreign suppliers – 4,500 in all plies stores in Sweden as well as food, converted into full-time jobs according to - for 27.2% of Kesko’s purchases. The hardware and builders’ supplies and agri- working hours. At the end of the year, the main countries from which goods were cultural stores in the Baltic countries. total number of employment relation- imported were Germany, China, Italy, Moreover, in Finland Kesko has started ships was 19,411, which was 4,199 more Sweden, Denmark, France and Spain. testing the Cassa discounter stores and than the year before. 68.4% of the per- Kesko is a member of the following owns Pikoil Oy, which is responsible for sonnel worked in retailing. international purchasing organisa- K-pikkolo stores, on a fifty-fifty basis with Real estate Fortum Corporation. Kesko’s subsidiary tions: Associated Marketing Services At the end of 2003, the Kesko Group VV-Auto Oy imports cars. AMS (groceries), EuroMat (building and owned or leased 3,109,000 square metres Of the Group’s net sales of EUR 7.1 interior decoration products), Inter- of real estate and premises in all. Out of billion in 2003, 53% came from the food sport International (sports goods), this area, Kesko owned 1,157,000 square trade. Foreign operations accounted for EP:International (home electronics) metres in Finland and 148,000 square 11.7% (8.3% in 2002). and World Wide Retail Exchange (B-to- metres abroad. Warehouses, offices and Kesko works in close chain co-oper- B Internet marketplace). ation with the K-retailers. There were other premises accounted for over a quar- Customers 1,378 K-retailers at the end of 2003. The ter of this area, with store premises ac- The K-retailers accounted for 46.1% of K-Alliance had 1,789 retail stores in Fin- counting for the rest. The total floor area Kesko’s sales. On average, the K-retail- land and 107 in other countries, and of premises leased for use, consisting ers made 88.5% of all their purchases their sales totalled EUR 7.9 billion. mainly of retail stores, was 1,546,000 square metres in Finland and 258,000 (86.3% in 2002) and 90.8% of their food Kesko’s shareholders square metres abroad. The majority of the purchases (90.3% in 2002) from Kesko. Kesko is a listed company, with 28,761 store premises owned or leased in Fin- Wholesale customers - hotels, restau- shareholders at the end of 2003. The land have been rented to the K-retailers. rants, service stations, kiosks, con- proportion of A shares of the total share struction companies, etc. - accounted capital was 34.8% and 84.2% of all Suppliers of products for 31.6% of Kesko’s sales. The remain- votes. The corresponding percentages and services ing 22.3% went via Kesko’s retailing for B shares were 65.2% and 15.8%. 20 In 2003, Kesko bought products at about subsidiaries directly to consumers. 6 Key indicators

Keyindicators of corporate responsibility for 2001-2003 7 8 Vision and strategy

Vision and strategy of corporate responsibility

Kesko’s vision and mission highlight vestors in the operating ethics of com- baby-boomers retire. The values and ap- the viewpoint of a service company. As panies will grow as performance indica- preciation of the company and its profit divisions have been incorporated tors are developed. Other stakeholders brands contribute to the attraction of and the focus shifted to core business also demand versatile and open infor- the job. Kesko’s corporate responsibility operations, the development and pro- mation about company operations, actions interest the new generation now duction of various trading services has which will increase the provision of cor- entering working life and thereby facili- become Kesko’s principal business. De- porate responsibility indicators and re- tate recruitment. The problems associ- velopment work requires the formation porting to complement financial state- ated with the performance and job pres- of networks and partnerships with oth- ments. The use of the indicators in inter- sures of ageing employees will be pre- er experts in the sector. company benchmarking requires spe- vented with systematic job rotation and Responsibility is an essential part cial reliability from reporting, making training. In occupational health of Kesko’s values and strategies. Trad- independent assurances a necessity. care, too, the emphasis is on pre- ing is based on confidence between the ventive work, the targets being Economy buyer and the seller. Long-standing op- a reduction in the number of Kesko will experience steady growth in erations are only possible if customers disability pensions and a sales, profits and share value. Kesko have confidence in the products and rise in the average re- will maintain a good liquidity and will services offered by the seller and in his tirement age. operating practices. be able to continue its investor-friendly Responsibility for economic opera- dividend policy. This will enable in- tions has been Kesko’s most important creased wealth for Kesko’s financial operating principle throughout its his- stakeholders and help Kesko to keep its tory. Kesko has made a profit and paid environmental and social performance dividends in nearly every year of its op- at the head of the field. erations. Good financial management Personnel has also enabled responsible operations In Finland, Kesko will grow at the pace in environmental and social issues. of the domestic market, but will ex- The Corporate Management Board pand strongly abroad at the same approved the first vision of the future time. Due to the strong structur- factors in Kesko’s corporate responsi- al change in the trading sec- bility in spring 2001 and made some re- tor, no significant increase visions in spring 2003. The vision will is expected in the num- be assessed every second year, unless a ber of jobs in Finland. clear need for change is identified at The competition other times. for new employ- Vision of key factors in ees will in- corporate responsibility tensify as

General During this decade, globalisation will accelerate the concentration of companies, foreign investment and competition across national borders. Progress in the development of international trade regulations will be slow, increasing pressure for responsible self-regula- tion by companies. The interest of in- 9

Trading services organisations, the authorities and oth- The key points of Kesko’s strategy Kesko will be largely responsible for the er decision-makers, and will participate are presented in the table. More de- competitiveness of retailing based on in diverse national and international tailed information about the strategy is private enterprise, which, correspond- organisations in its own sector and in available in Kesko’s annual report. The ingly, will be a significant factor in business in general. annual report can also be read on Kesko’s success. The store sites, busi- Kesko’s Internet pages at www.kesko.fi ness operating systems and services Strategies (Investor information). supporting competitiveness, provided Kesko’s values and mission guide the Besides the Group strategy and the by Kesko, give K-retailers an added val- preparation of the Group’s overall plan management system, the Group’s oper- ue that, along with economical purchas- or strategy based on the activities taken ating principles guide planning and op- es, allows them to stand out from com- to achieve Kesko’s vision and goals. The erations at all business levels. They in- petitors while making a profit. The re- values cannot be overlooked in planning clude personnel, environmental, com- tailers, for their part, have financial re- for financial or other short-term rea- munications, financial administration, sponsibility for their own business op- sons. The above vision concerning cor- real estate, safety and security and risk erations and store-specific customer porate responsibility is challenging and management principles. The corporate satisfaction. As internal migration con- includes critical success factors for responsibility viewpoint, based on the tinues, the store and distribution net- many units and opportunities to gain a values, is also included in the operating works must be kept at the right size to competitive advantage. principles. serve customers, while maintaining financial efficiency.

Consumers As the supplies of products and services grow, consumers making purchasing decisions will have, besides more options, also more influence to affect the trading structure and supply of goods. The role of the media in consumer business will grow, too. An increasing number of consumers will want information on the origin, safety and production conditions of merchandise, which will require from Kesko an active management of the purchasing chain and open and active communications. Kesko and the K-retailers can affect consumers’ wellbeing and quality of life by their actions in general, and by their product policies, selections and monitoring. In communications and marketing, safety, reliability and ethics will gradually rival price.

Stakeholder co-operation In order to lead the way and have influence, Kesko will actively monitor and forecast changes in society, and will of- fer its expertise for the benefit of its business sector and for society as a whole. To do this, Kesko will maintain active contacts with non-governmental 10 Principles and management systems

Kesko’s principles and management systems guiding corporate responsibility

Since the mid-1990s, all Kesko Group Internet pages at www.kesko.fi (Kesko ried out the survey. The number of re- units have acted according to value and in brief/Corporate citizenship). sponses received was 2,428, making the quality management systems. In the im- response rate 37%. Three group discus- proved management system, introduced Kesko’s values sions were also arranged. The perceived in 2002, the importance of values in pro- Bearing corporate responsibility forms importance and implementation of the viding the basis for all operations was the foundation of the Group's opera- values are presented in the figure. increasingly highlighted. The values tions and exceeding customers’ expec- According to the survey, Kesko em- were also specified and the ethical prin- tations is essential to its business oper- ployees feel that both the importance and ciples of personnel, ‘Our working prac- ations. Kesko strives to be the best op- the implementation of all four values ex- tices’, were revised to correspond the erator in its sector. Creating a good ceed the average. Creating a good work- new values. Kesko’s values and working working community is crucial in the ing community is considered the most practices have also been translated from implementation of commercially and important value, the implementation of Finnish into other languages used with- socially important values. which is at the same time rated the poor- in the Group, namely Swedish, Estonian, Since spring 2002, the values have est. Bearing corporate responsibility is Latvian, Lithuanian, Russian and Eng- been discussed at all the Group units’ considered to be the value that is best im- lish. Separate training material is avail- employee and training events. A survey plemented, but least important. able to support their adoption. The K-re- of the personnel’s views of the impor- Working communities are continu- tailers also adopted the corresponding tance and implementation of the values ously improved at Kesko, but corporate values and principles within their own was conducted via the intranet and culture does not change in a moment. management. mail in Kesko’s units in Finland in No- The result also shows how stable the ‘Our working practices - ethical vember-December 2003. Martti Puo- values are. Real values change very principles’ can also be found on Kesko’s hiniemi, Doctor of Social Science, car- slowly, after many years of work. 85% of respondents agreed that bearing corporate responsibility is every employee’s duty. Group discus- sions revealed that as Kesko has provided good guidelines and standard opera- tional procedures in issues that fall under corporate responsibility, it is easy to operate in accordance with the value – so easy in fact that employees do not necessarily think about the value they are implementing at work. 75% of survey respondents think that discussion about values is really important. There remains room for improvement though, as only 44% think that the values have been thoroughly discussed from the viewpoint of their own duties.

Corporate governance statement Kesko’s corporate governance statement is updated on a regular basis, and it is available on the company’s Internet 11

for dealing with the development proj- sponsibility section on page 24. The en- ects comprising the whole Group as well vironmental policy is available on as Group-level principles and practices. Kesko’s Internet pages at www.kesko.fi In addition, the Corporate Management (Environment and responsibility/Envi- Board also participates in the prepara- ronmental responsibility). tion of the matters to be handled by The purchasing units carry out quali- Kesko Corporation’s Board of Directors. ty control with the help of the interna- In the company organisation, the Se- tional Social Accountability SA 8000 nior Advisor and Senior Manager who are standard in their trading relations involv- responsible for the development and co- ing social risks, mainly in imports from ordination of corporate responsibility at developing countries. More information the Group level are from the Corporate about social quality control is available Communications and External Relations from page 48 onwards. Kesko's purchas- unit. The unit’s director is a member of ing principles can be found on Kesko’s In- pages at www.kesko.fi (Investor infor- the Corporate Management Board. ternet pages at www.kesko.fi (Environ- mation). The statement valid in spring Indicators of corporate responsibili- ment and responsibility/Economic and 2004 has been published in full in ty have been partly included in the units’ social responsibility). Kesko’s annual report for 2003, on profit-sharing system (indicators of job pages 49-54. The following update, satisfaction, customer satisfaction and Keyareas and methods based on the new corporate governance recycling performance, for instance). of influence recommendation for listed companies, With active and target-oriented opera- will be made in summer 2004. Management systems tions, Kesko can achieve results that Kesko Corporation’s Board of Direc- Kesko’s management system includes a benefit society and stakeholder groups. tors consists of eight members, three of quality evaluation which is carried out Growth in purchases for goods and whom are K-retailers in normal busi- by units as an annual self-assessment services creates wellbeing for the suppli- ness relations with the Kesko Group. based on the criteria of the Finnish er companies and their employees, which Kesko Corporation’s President and CEO Quality Award. The Group’s internal increases the tax income of municipali- Matti Honkala is a member of the Board quality prize competition between ties and the state, providing more funds of Directors. The Board of Directors has units is part of the quality evaluation. for the development of social security established no committees or appointed At present, Kesko Food is gradually and services. For shareholders, responsi- no Board members specialised in corpo- adopting a quality system, based on the ble and profitable operations mean a rate responsibility. The Board of Direc- EFQM / ISO 9000 structure, which is steady growth in the share value and a tors will handle the corporate responsi- documented in Kesko Food’s intranet. It good dividend yield. Maintaining a com- bility report in the spring after it has is estimated that the system will be prehensive store network and having re- been completed and other related issues mostly completed in 2005. tailer entrepreneurship as a local re- included in its duties when necessary. The quality control of groceries and source secures services near consumers. Kesko Group has a Corporate Man- some home and speciality goods for Continuous improvements in envi- agement Board, the Chairman of which which Kesko Food’s Product Research ronmental performance include, for in- is Kesko Corporation’s President and unit is responsible is based on the qual- stance, more efficient use of energy, a rel- CEO and the members of which are the ity system that complies with the ISO ative drop in emissions, preventing the Presidents of the major division parent 9000 standard and the in-house control generation of waste, increasing recovery, companies, the Corporate Executive system approved by the authorities. and improving the environmental proper- Vice President responsible for Finance Kesko Food’s subsidiary Kespro Ltd has ties of both products and packaging. and the Senior Vice Presidents responsi- a certified ISO quality system. Improvements in the quality of ble for Administration and Corporate The environmental system comply- management increase employees’ job Communications. The Corporate Man- ing with the ISO 14001 standard has satisfaction and motivation. Through agement Board has no authority based been adopted in all the units with major co-operation, the working conditions of on legislation or the Articles of Associa- environmental impacts. More informa- suppliers operating in developing coun- tion, but it is an advisory body appointed tion about certifications within the sys- tries are being improved, in small steps. by the Managing Director, responsible tem is given in the environmental re- The emphasis is on the prevention of 12 Principles and management systems

employees’ problems at individual level Industries in Finland (chair in Board) • International Chamber of Commerce both in our own operations and • Federation of Finnish Commerce and ICC (environmental committee, cor- throughout the purchasing chain. Trade (vice chair in Board) porate responsibility committee, Supporting the institutions and as- • Central Chamber of Commerce (vice National Committee of Finland: sociations related to Kesko’s operations chair in Board) chair in Board) promotes services and wellbeing in so- • Finnish Business & Society network • United Nations Environmental Pro- ciety and communities nearby. Kesko (Board) gramme UNEP (trading sector group) hopes that these kinds of projects will • UNICE, the Union of Industrial and • CIES - The Food Business Forum lead to interactive co-operation and will Employers’ Confederations of Europe (food safety working group). provide Kesko with information about (Council of Presidents) the wishes and expectations of stake- • Multi Stakeholder Forum on CSR, EU Kesko employees are also active in sev- holder groups. Commission working group on corpo- eral state committees and working Participation in national and inter- rate responsibility groups, industry and recycling organi- national economic and trading sector • EuroCommerce, the retail, wholesale sations. A more detailed list with www development is part of corporate re- and international trade representa- links is available on Kesko’s Internet sponsibility. Kesko’s representatives tion to the EU (environmental com- pages at www.kesko.fi (Environment carry out this work in the following na- mittee and CSR experts) and responsibility). tional and international organisations • UGAL, EU organisation of groups of and groups: independent retailers (vice chair in • Employers’ Confederation of Service Board)

New generation wholesale outlets meet customers’ wishes for a faster delivery rhythm, wider product selection and more customer- specific sales service. Waitress Leila Tainio is laying the table for lunch at the Vanajanlin- na restaurant, one of the system’s customer restaurants.

fication of all Kespro’s business units. The indicators of quality at Kespro are customer and job satisfaction, delivery accuracy, and process efficiency. Responsibilities and authorisations have been delegated to the district units that operate with a close cus- Quality and customer-orientation tomer interface. All feedback is registered and handled in accordance with are the cornerstones of Kespro’s the quality system. The customer is also given information on the outcome. operations Development needs in the operations Since 1997, Kesko has arranged inter- At Kespro, quality management pro- are assessed with the help of weekly cus- nal quality prize competitions that are vides a framework for all management tomer satisfaction enquiries and cus- based on the requirements and prac- and operations. In 2003, the ISO 9002 tomer meetings. In 2003, the number of tices of the Finnish Quality Award. The certificate earlier awarded to delivery customer visit reports totalled 3,165. In quality prize for 2003 went to Kespro sales was revised to comply with the ISO addition to customer surveys, Kespro col- Ltd. The jury gave particular praise to 9001 standard. The Vantaa and Jyväskylä lects customer feedback with the help of Kespro’s systematic operations and cus- wholesale outlets also have the ISO 9001 unit-specific customer councils, and vari- tomer-orientation. certification. Future targets include certi- ous customer and fair events. Stakeholder analysis 13

Stakeholder analysis

The company’s financial performance its corporate relations. needed for monitoring some of the con- is usually considered from the share- A stakeholder analysis and action tacts and the results achieved. The tar- holders’ point of view. When estimating plans are included in the units’ annual get of the unit in charge of developing performance in terms of corporate re- and long-term planning. Success in co- corporate responsibility is to create sponsibility, there are several stake- operation is measured in many differ- such a process description and indica- holder groups with their own expecta- ent ways. The table below presents tors of stakeholder co-operation for the tions which may also be contradictory. Kesko’s activities concerning each units in 2004 that would enable a better A responsible company must be able to stakeholder group, their expectations assessment of the results from co-oper- balance between different expecta- concerning Kesko, and the indicators to ation between authorities and non-gov- tions, to allow all stakeholder groups to assess performance. ernmental organisations. feel that the company has succeeded in A documented practice would be 14 Economic performance

Corporate responsibility performance in 2003

Key economic performance in 2003 • Group profit reached an all-time high • Number of shareholders increased by 3,000 • Dividend yield was high • Breakthrough into sustainability indexes • Largest investments of all times • Reduction in the number of K-food stores in Finland nearly stopped • Proportion of large stores in K-food trading increased by 2.5 percentage points • Number of employees nearly doubled abroad and increased slightly in Finland • Relative proportion of fixed-term and part-time employees dropped • Purchases from Finland remained unchanged, purchases from abroad increased considerably • Total support for the public good increased, the proportion allocated to youth work increased, while the proportion to sports decreased • Statistics by region on the economic wellbeing produced by Kesko were prepared for the first time

Executive Assistant Päivi Ahlgren of the Legal Affairs unit making arrangements for the meeting of Kesko’s Board of Directors. 15

Economic performance ments in marketing, information sys- votes and each B share to one vote. tems and store sites. Other divisions, ex- At the end of 2003, the total number General cept for Kesko Agro and Kaukomarkki- of shares was 91,190,500, of which 34.8% Kesko Group’s net sales in 2003 totalled nat, improved their profits. were A shares, entitling to 84.2% of votes. EUR 7,070 million, representing an in- The following analysis handles The corresponding percentages for B crease of 9.3%. Growth in Finland was Kesko’s economic performance from the shares were 65.2% and 15.8%. Kesko has 5.2% and in foreign countries 54.7%. viewpoint of different stakeholder two stock option schemes for manage- VV-Auto and Rautakesko recorded the groups. Other financial indicators and ment (for 2000 and 2003). Presuming that best increases in Finland, while the development of business operations shares are subscribed for with all of these Rautakesko achieved the best sales in 2003 can be found in Kesko’s annual stock options, the number of B shares will growth abroad, becoming market leader report. The corresponding information increase by 7,640,000 shares by the end in the Baltics when it acquired the ma- is also given on Kesko’s Internet pages of the subscription period in 2010. jority shareholding in Lithuania’s (www.kesko.fi), at ‘Investor information’. largest hardware and building supplies More shareholders company. Kesko Food and Kesko Agro Economic development from At the end of 2003, Kesko had 28,761 also considerably expanded their opera- the viewpoint of shareholders shareholders, over 3,000 more than the tions in the Baltic countries. Kesko has been listed on the Helsinki Ex- year before. The number has increased The Group’s profit before taxes grew changes since 1960 with the B share (pre- every year since 1999. In recent years, by 47.3% to EUR 161.6 million. All divi- viously ordinary share) and since 1999 al- the ownership structure has remained sions were profit-making. The operating so with the A share (previously exclusive relatively unchanged. In 2003, the pro- profit of Kesko Food, the biggest division share). The share series differ from each portion of foreign shareholders dropped parent company, dropped by 6.9% to EUR other only as to the votes they entitle to. from 20.6% to 16.8%, accounting for 56.3 million, because of major invest- Each A share entitles the holder to 10 4.1% of the votes. On 13 February 2004, 16 Economic performance

tion about Kesko’s shareholders and prices on the stock exchange. In 2003, trends in share prices is available on the price of Kesko’s A share increased Kesko’s Internet pages (www.kesko.fi) at by 11.0% and the price of the B share by ‘Investor information’. 14.7%, compared with a rise of 4.4% in the Hex general index of the Helsinki High dividend yield Exchanges and a rise of 16.2% in the Since its establishment Kesko has gen- weighted Hex portfolio index. At the erated profits and paid dividends every end of 2003, the market value of A year except 1967. For the past ten years shares was EUR 578 million and the the annual yield (dividend and appreci- market value of B shares EUR 825 mil- ation) of Kesko’s B shares has averaged lion. After many years of undervalua- 10.7%, and for the past five years 8.9%. tion, the market capitalisation exceed- For the past five years the dividend ed the book value of shareholders’ equi- yield has averaged 9.9%. According to ty at the end of 2003. its dividend policy, Kesko distributes at least a third of its earnings per share as Plenty of information for dividends, or half if the equity ratio ex- the markets ceeds 50%. During the past five years, Kesko continually produces accurate, the combined shareholding of the K-Re- the average dividends have been 135.4% open and up-to-date information for the tailers’ Association, its branch clubs and of the earnings per share. markets to serve as a basis for the set- the Foundation for Vocational Training Kesko’s share price performance ting of Kesko’s share price. The aim is in the Retail Trade reached 10.1% by has been relatively steady and followed to make Kesko’s activities better number of votes. More detailed informa- the general trends in trading sector known, to increase the transparency of 17

tumn, Kesko participated in the Sijoitus- three new K-citymarkets, eight K-super- Invest Fair in Helsinki. Road show trips markets and 18 K-pikkolos. At the end were made to the United States and to of 2003, Pikoil Oy, the joint venture of London, Paris and Frankfurt in Europe. Kesko Food Ltd and a Fortum sub- About 80 individual meetings for about sidiary Neste Marketing Ltd, had a total 200 analysts and investors were of 46 K-pikkolo neighbourhood stores arranged at home and abroad. and K-pikkolo service station stores. Kesko observes a two-week period The target is to expand the network to of silence before publishing informa- comprise 200 stores. There were 192 tion on its results. At other times it an- store type changes caused by the chain swers the questions of analysts and in- reform in which two store types re- vestors by telephone, e-mail and at in- placed the three smallest ones. vestor meetings. Number of K-food stores During 2003, several independent nearly unchanged experts comparing the performance of At the end of the year, the number of K- listed companies ranked Kesko among food stores in Finland was 1,110, which the best companies in the world judged was 14 less than the year before. Of all by the indicators of sustainability. The food stores, 570 were small (K-extras, K- accompanying table gives a summary of pikkolos and others). In addition, many these rankings. of the 344 K-markets have an area of un- Investments and store network der 400 square metres and belong to investor information and to make In 2003, Kesko’s investments totalled those small food stores that are allowed Kesko more attractive to investors. The EUR 259 million, or 3.7% of net sales. to trade all year on Sundays. Large out- principle of objectivity is observed in Out of this amount, which was an all- lets, i.e. K-citymarkets, accounted for all investor communications. All in- time high, EUR 205.5 million was in- 33.9% (31.4% in 2002) of K-food stores’ vestor information is primarily pub- vested in store sites and business ac- sales in Finland. In February 2004 lished on Kesko’s Internet pages in quisitions. Foreign investments ac- Kesko opened the first Cassa stores to Finnish, Swedish and English counted for 30.2% of the total (36.9% in test the hard discounter concept. (www.kesko.fi). Kesko’s Internet pages 2002). Kesko’s investments have finan- The K-food stores were located in 391 were ranked the best pages for in- cial impacts, above all, on the business of Finland’s 446 municipalities (see the vestors in Finland both in 2002 and operations of construction companies, accompanying table). At the end of 2003, 2003 in a competition arranged by the services companies in the construction 45.3% of all Finns lived under one kilo- Finnish Foundation for Share Promo- sector and suppliers of fixtures, equip- metre away from the nearest K-food store tion, the Finnish Society for Financial ment and information systems. (specification by province in the accom- Analysts and Talouselämä magazine. panying table). At the end of 2001, the cor- Kesko publishes the printed annual New stores and changes responding figure was 46.4%. report in Finnish, Swedish and English. In 2003, inputs in the K-food store net- There were 679 K-speciality stores Kesko’s financial statements and three work in Finland included the opening of in Finland. No essential changes took interim reports are included in the TradeMaker stakeholder magazine, which is sent to all shareholders. Kesko arranges press conferences for analysts and the media when announcing its annual and interim results. In 2003, the press conferences concerning six-month and yearly results were also sent as In- ternet webcasting transmissions. An event giving background information for analysts was arranged in June. In au- 18 Economic performance

place in the network. The number of Musta Pörssi stores increased by five.

Growth abroad The number of K-rauta stores in Sweden remained unchanged. Two new Citymar- kets and one agricultural and machinery centre were opened in Estonia and three new Citymarkets, ten Supernetto hard discounters and one agricultural and machinery centre in Latvia. In Lithuania, a majority shareholding was acquired in Senukai, the country’s biggest hardware and building supplies company. Senukai has 10 own Superstores and the Partner- shop network of 50 stores in Lithuania, and one own store in Riga, Latvia.

Job development At the end of 2003, the Kesko Group had 19,411 employees, an increase of 4,199 on the previous year. This comprised 12,596 (+444) employees in Finland and 6,815 (+3,755) abroad. The average number of employees during the year was 15,219 (+3,002), of whom 9,859 (+139) worked in Finland and 5,360 (+2,863) abroad. The increase in the year-end numbers of employees was 21.6% and the increase in the average 19.7%. The average number is calculated monthly from all employees with permanent or fixed-term contracts, excluding those on long-term leave. Part- time jobs are converted into full-time according to working hours.

Most new jobs in the Baltics Employee numbers increased most in the Baltic countries where Kesko Food, Rautakesko and Kesko Agro expanded their operations. The increase was the biggest in Lithuania where the majority shareholding was acquired in the Senukai hardware and building supplies chain. Senukai employed 2,753 persons at year-end. The openings of new K-citymarkets and the conversion of two Anttila department stores into K-citymarkets increased the number of Kesko Food personnel in Finland. Keswell Ltd’s sub- 19

sidiary Interwell Oy got 100 new employees when the company bought the sports business operations of Rea Rintamäki Oy in August. In Kesko Food’s logistics, the number of employees also increased by more than 100. The biggest decrease in the number of personnel – 143 employees of whom 78 had to be given notice – was caused by the reform in Citymarket Oy’s business operations system, in which the home and speciality goods business was organised in three product lines instead of the previous five. Outsourcing of service and support activities also continued on a small scale. At the end of the year about 700 persons in total worked in outsourced operations.

Proportion of part-timers dropped At year-end, 16,914 (87.1% of) employees were permanent, while 2,497 (12.9%) were on fixed-term contracts. The 876 people who were on long-term leave are here included as permanent employees. The proportion of part-time employees dropped to 29.8% from 34.9% in the previous year, which was mainly due to the fact that Senukai, which was largely responsible for the increase in the Baltic countries, employs hardly any part-timers. Most of the part-time jobs in Finland were in retailing companies. Of all Group employees 68.4% work in the retail trade. K-stores, retailers included, employ about 21,500 people in all. As there are one or more K-stores in nearly every Finnish municipality, and Kesko has premises in nearly 60 municipalities, the about 34,000 jobs offered by the K- Alliance contribute to the wellbeing of EUR 315.8 million, pension expenses K-retailers paid about EUR 261 mil- people practically throughout the whole EUR 43.2 million and other social secu- lion in salaries and about EUR 38 mil- of Finland. In the Baltic countries, rity expenses EUR 31.5 million. Foreign lion in taxes. The figures include those Kesko is the biggest Finnish and at the operations accounted for EUR 42.7 mil- K-retailers whose bookkeeping and wage same time the biggest foreign employer. lion of salaries. calculation is done by Vähittäiskaupan The whole Group’s income taxes to- Tilipalvelu VTP Oy. The data is estimated Salaries, social security talled EUR 57.5 million, of which EUR to cover about 80-85% of the K-retailers’ expenses and taxes 2.8 million were paid abroad. Kesko total business volume. As for partner- In 2003, Kesko Group salaries, accord- paid EUR 2.5 million in real estate taxes ships, the accuracy of tax data is not as ing to the income statement, totalled to 116 municipalities in Finland in all. high as for business names and limited 20 Economic performance

liability companies. Statistics do not bers of department A have available to portion of domestic products sold, as show the taxes on salaries drawn by the them, on certain conditions, for instance Kesko registers purchases from im- K-retailers themselves. Consequently, an early retirement pension, granted for porters operating in Finland as domes- the combined tax data of the K-retailers production reasons. tic. Correspondingly, for instance Es- contains plenty of inaccuracies, and the In 2003, the Kesko Pension Fund tonian subsidiaries’ purchases from Es- data must be considered as illustrative paid about EUR 45.5 million in pen- tonia are registered in the Group as pur- of the size category only. sions to 3,123 people. The Pension Fund chases from abroad, although the prod- covered nearly 3,800 Kesko Group em- ucts are domestic from the point of Employee pension and health ployees at year-end, with department A view of Estonian operations. We intend insurance systems covering about 1,200 persons. to enhance our statistics to describe the The Kesko Sickness Fund is responsible Foreign subsidiaries all arrange ratio between domestic and foreign for the statutory sickness insurance of their own employee pension and health purchases for each country separately. Group subsidiaries and Kesko-related insurances, observing the legislation The ten largest suppliers accounted units in Finland. The Sickness Fund cov- and practices of the country in question. for 22.0% of Kesko’s purchases (24.8% ers over 10,600 employees. In 2003, sick- in 2002), and the hundred largest for ness insurance contributions paid by the Suppliers of goods and services 50.7% (no change). Out of the ten Sickness Fund totalled EUR 6.9 million. In 2003, Kesko’s purchases from largest suppliers, six represented the The Kesko Pension Fund is responsi- Finnish suppliers totalled EUR 4,485 Finnish food industry, two the agricul- ble for pension contributions, based on million, while purchases from abroad tural supplies business and two were the Employees’ Pensions Act, of those totalled EUR 1,675 million. The value of German car suppliers. employees of Kesko Corporation, the divi- purchases from Finland remained at K-retailers concentrated 88.5% of sion parent companies and some other the level of the previous year, and those their purchases in Kesko, and bought organisations close to Kesko who are from abroad increased by 47.5%. This the remaining 11.5% from outside members of the Fund’s department B. information applies to the whole Group. Kesko, to a large extent from regional Varma-Sampo is responsible for the cor- The growth in purchases from abroad and local suppliers. K-retailers’ purchas- responding pension contributions of em- can mainly be attributed to the rapid es from Kesko totalled about EUR 3.3 bil- ployees of other subsidiaries. The Pen- expansion of the Group’s foreign opera- lion, so direct purchases from nearby ar- sion Fund also has a department A, tions and the considerable growth in eas amounted to about EUR 400 million. closed on 8 May 1998, that provides extra car sales in Finland. The figure is only indicative, as Kesko benefits. Those employees who are mem- These figures do not show the pro- has no specification on K-retailers’ pur- 21

chases from outside Kesko available. tion could be included. Nearly 13% of the total economic benefits produced by Kesko bought services, mainly from goods purchases (about EUR 570 mil- Kesko and K-retailers for Finland, are not Finnish providers, at EUR 98 million. lion) are not included, only the largest specified here. Our target is for the calcu- Investments, which amounted to EUR suppliers of services are included, and lation to include all of Kesko’s purchases 259 million (see page 17), are also count- the breakdown of investments has been and investments in the report for 2004. ed among wellbeing generated by the left out. Income taxes paid in Finland company. Foreign investments account- are not included in the statistics, as Financial support ed for 30.2% of all investments and their distribution among municipalities Kesko and its subsidiaries have for amounted to EUR 78 million. is carried out by the tax administration. decades given support to various, main- Kesko paid over 99% of its invoices Only those K-retailers who are cus- ly nationwide, organisations that work within the agreed time periods. As no ac- tomers of Vähittäiskaupan Tilipalvelu for the good of society. More and more curate statistics are available, this fig- VTP Oy are included in the figures often, support is based on reciprocal co- ure has been estimated on the basis of (salaries, taxes), and their proportion of operation, in which Kesko is not only a the penalty interests paid (EUR 50,000). combined net sales is around 80-85%. It sponsor but also an active player. In ac- was not possible to specify K-retailers’ cordance with its sponsoring princi- Breakdown of economic direct purchases from local suppliers, as ples, Kesko directs support primarily at benefits by region Kesko does not have such data available. targets that encourage people of differ- The operations of Kesko and K-retailers Goods purchases could only be bro- ent ages to think, solve problems and produce economic wellbeing for their ken down by the supplier’s invoicing lo- create something new. Affecting the co-operation partners and employees in cation, even if production might have everyday life of families with children, Finland and abroad. The above table taken place in several locations. There- supporting socially responsible activi- presents a breakdown of these benefits fore Uusimaa’s proportion of purchasing ties close to Kesko’s operating environ- in Finland by region. figures is slightly higher than in reality. ment and sustainable development are The calculation was prepared now For the above reasons about EUR 1.2 – important to Kesko. for the first time, and not all informa- 1.3 billion, representing over one fifth of Drawing a line between donations, 22 Economic performance

sponsorship and marketing is often dif- tions and clubs (alpine skiing, football, Ships’ Races and various music events). ficult. When pure marketing measures ice hockey, scholarships for young ath- The proportion of Kesko’s support go- are left out of the calculations, the fi- letes). Likewise nearly one third was do- ing to youth work, science and educa- nancial support provided by the Kesko nated to youth work - with the Young tion slightly increased, whereas the Group for the public good in 2003 Finland Association and the Finnish proportion going to sports and health amounted to about EUR 2.4 million. Science Centre Heureka being the most care decreased. One third of this amount was given to important partners - and about 12% to sports and physical exercise organisa- culture (e.g. the Tapiola Choir, the Tall

The Kipinä science contest for classes 1-6

The Heureka Science Centre, Kesko and The winner of the 2003 contest was the Association of Class Teachers have class 3B of Vaunukangas school in Tuu- developed in co-operation a science con- sula with the entry ’I wish I could fly’. test for year 1-6 comprehensive school The second prize was jointly won by classes. The theme that changes with the class 1B of Kyrölä school in Järvenpää Heureka exhibition themes was flying in and the combined preschool group and the first contest in 2003. The Kipinä con- class 2 of Saimaanharju school. The test aims to give pupils the joy of discov- winning class had dealt with different ery and make them familiar with science flying-related issued for the project, us- while encouraging the class to work as a ing lessons in Finnish, mathematics, team. Entries to the Kipinä contest come handicrafts and environmental and sci- from whole classes working together. The ence education, and ending up with the jury consists of representatives of Heure- idea of a hot air balloon. ka, Kesko and the Association of Class Prizes were given to all entries. The Teachers. Inventing and working as a winning class was awarded a trip to team provide the most important basis Heureka and Kesko’s Central Ware- for the evaluation. Other criteria include house in Vantaa and, in accordance the ingenuity and novelty of the entry. with the theme, a visit to Finnair. Environmental performance 23

Environmental performance

Key environmental performance in 2003 • The ISO 14001 certification of Anttila and Kodin Ykkönen department stores progressed faster than estimated • More efficient use of natural light was piloted in construction • Specific consumption of energy increased • Premises in foreign countries were included in energy monitoring • Relative emissions in distribution transportation decreased • Waste recovery rate continued to rise • The proportion of packaging of imported volume decreased • K-environmental store diplomas were awarded to 71 stores • An environmental programme for office work was established

Store Planner Jari Salmela (back) and Store Site Director Pekka Niva (front) checking the draw- ings of a new store. 24 Environmental performance

The most significant of Kesko’s own di- Environmental system The certificates awarded to Kesko rect environmental impacts come from and data management Food logistics and Kesped in 2001 were warehousing, handling and transporta- Kesko’s environmental management is renewed in January 2004. Preparations tion of goods, construction and use of based on the company’s own environ- concerning the ISO 14001 system have real estate, and waste management. In- mental policy, the International Cham- commenced in Kesko Food’s logistics in direct environmental impacts result ber of Commerce’s principles of sus- the Baltics. The final implementation from the manufacture and use of prod- tainable development and the ISO will be made by the joint venture of ucts sold and their packaging. 14001 standard. The environmental sys- Kesko Food and ICA AB and will begin This section primarily deals with tem has been certified in the units with in summer 2004. work concerning direct environmental major environmental impact: Kaukomarkkinat Oy uses an envi- impacts. As Kesko has reported on its en- • Kesko Food Ltd’s logistics ronmental system based on the ISO vironmental performance since 1997, a • Kesped Ltd, transport and forward- 14001 standard, but it has not, however, great deal of information and experience ing company been certified. Kesko’s main office has been gained. Indirect impacts are al- • Anttila Oy’s central unit and building at Katajanokka, Helsinki and so discussed here, but measuring per- NetAnttila mail order operations Kesko Food’s central warehouses in formance in these areas is more difficult. • all Anttila and Kodin Ykkönen Hakkila, Vantaa adopted an environ- In Kesko’s foreign companies, envi- department stores mental programme for office work in ronmental work is at an initial stage. • real estate management and mainte- 2003 (see page 36). K-stores’ environ- The most progress has been made in nance (certificate held by YIT Kiin- mental management is based on the op- monitoring energy consumption, and teistötekniikka Oy, to whom the oper- erating concept of the K-environment some transportation and waste statis- ations have been outsourced). store diploma (see page 35). tics are also now available. The attached graph illustrates the 25

Anttila Oy’s environmental year 2003 During 2003, the Hämeenkylä distribu- by guiding the personnel towards the en- tion centre and ten Anttila department ergy-saving use of lights and electric ap- stores were certified in accordance with pliances and with revised control of light- the ISO 14001 standard. By the end of the ing. The efficiency in co-operation with year, all Kodin Ykkönen and more than other interest groups in the premises was 70% of Anttila department stores had had also improved. their systems certified. The operations of In addition to energy savings, focal ar- the NetAnttila online store have also been eas in environmental concerns included certified. The building of the environmen- the optimisation of the use of the packag- tal management systems at Anttila Oy ing material in co-operation with the dis- has proceeded faster than expected. The tribution centre and the purchasing or- remaining seven department stores and ganisation, and the development of waste the mail order business were certified in management to increase the collection of March 2004. energy waste. In packaging materials, ac- The environmental target for the year tivities were focused on the prevention of 2003 was to decrease energy consump- excessive packaging, one example of Annele Siltanen returning her used TV set to tion at Anttila Oy by 5% compared with which is the packing of sheets manufac- electronics recycling through Kodin Ykkönen the 2002 figures. Electricity consump- tured for Anttila Oy with paper straps. department store in Espoo. Warehouse Work- tion dropped at Kodin Ykkönen depart- er Petri Kalinainen receives the appliance. ment stores for home goods and interior decoration by 6.7% and at Anttila department stores by 5.5%. This was achieved

coverage of the environmental management system in relation with the volume of the operations. The indicator is net sales, presented in the graph as an area. The KELO (short for sustainable logistics in Finnish) environmental data management model of Kesko’s logistics chain was used, for example, to produce Kesko Food’s waste management and return logistics statistics. This model’s au- tomatic data transfer between the logistics warehouses in Hakkila, Vantaa and the waste management company was introduced at the beginning of 2003. Ex- tending the use of KELO to comprise other logistical operations and Kesko’s other units requires that its compatibili- ty with the SAP information management system introduced in Kesko be improved. The aim is to make the decision on the development plans during 2004.

Eco-efficiency in construction The value of Kesko’s real estate invest- 26 Environmental performance

K-citymarket at Seppälä, Jyväskylä focuses on energy efficiency Major car- about 30% of all electricity consump- days, too. No corresponding solution bon dioxide emis- tion in K-citymarket type premises. has been previously tested in Finland in sions in Kesko’s opera- A decision was made to use indirect wide-frame hypermarkets and it is ex- tions are generated from natural light through 14 continuous pected to bring energy savings of about the energy consumption in the windows that are tilted and face North- 20% in lighting. use of premises. In the planning East. This way the building will, after The investment costs of the techni- of the K-citymarket hypermarket to cooling at night, benefit from the morn- cal system selected for the K-citymarket be completed in Seppälä, Jyväskylä in ing sun. On the other hand, tilting pro- at Seppälä were above average, but con- spring 2004, the importance of energy vides shade to light openings, prevent- versely, maintenance costs will be low- efficiency was emphasised both in lighting unnecessary thermal radiation. er. Calculations on the payback period ing and in other technical systems of the Natural light can replace general light- show that the lower energy consump- building. Above all, new solutions were ing completely in summer, and some of tion should compensate for the extra in- sought for lighting as it accounts for the artificial lighting on bright winter vestment in less than five years.

ments in Finland in 2003 totalled about tice concerning consumption of elec- present use. In other Baltic building EUR 111 million and in other countries tricity in store premises in particular projects, groundwater surveys revealed about EUR 27 million. The quantities need further specification. The task is that no further studies were needed. In are considerable by Finnish standards, not easy as stores differ considerably Sweden, studies were made in three which has made Kesko focus on the fur- from each other, both in their size and sites, which were all found to be clean. ther development and use of eco-effi- operations. The enhancement of the cient construction. The basis of this is practice will continue in 2004, when it Energy and water consumption that the entire life cycle of the real es- will be specified and expanded to also The real estate owned or leased by Kesko tate is taken into account - starting cover new construction projects. totals over 3.1 million square metres, of from site acquisition to the supposed which 2.7 million square metres are in demolition of the building. The goal is Environmental risks of land use Finland. From the viewpoint of energy to optimise energy, alteration and other The additional study and remediation consumption, the most important real es- costs during the building’s life cycle for needs, as revealed in the survey that tate categories are K-citymarkets, K-su- environmental and economic reasons. looked at possibly contaminated land permarkets, Anttila department stores, In 2003, the special pilot target in eco- areas, started in the summer of 2002 and office and warehouse buildings. efficient construction was the K-citymar- and were mainly carried out in 2003. Energy consumption is monitored ket hypermarket in Seppälä, Jyväskylä New studies were made in connection with the EnerKey system of Ener- and its use of natural light for reducing with construction work or real estate giakolmio Oy. The system enables au- energy consumption in lighting. deals in Finland in six projects, two of tomation of monitoring in the places Kesko has actively participated in which were found to be contaminated where the electricity company has an the joint project started in 2000 be- and underwent a remediation process. hour-based measurement terminal. In tween the Ministry of Environment, Other sites were found to be clean or so most buildings the distance reading of RAKLI, Motiva and the real estate com- little contaminated that their present terminals takes place via the telephone panies to develop an environmental use does not necessitate remediation. network at least six times a month. Read- classification of buildings. The result- In Estonia, environmental surveys ings from the manually monitored meters ing PromisE environmental classifica- were made in two sites, which were are collected by maintenance companies. tion reached the trial stage at the end of found to be clean. In Latvia, one soil In 2002-2003, the emphasis was on 2002. The trial stage revealed that the study was made and found that there expanding consumption monitoring and definitions and limit values of the prac- was no need for remediation in the increasing its accuracy. About 63% of all 27

real estate in Finland is now included in of water were used for cooling purposes. 0.8% (www.energia.fi, January 2004 ex- multi-energy monitoring (electricity, The trends in specific consumption press statistics), and heat for about 1.0% heat and water). Electricity consumption are presented in the accompanying (www.energia.fi, 2002 statistics) of the is monitored in 85% of premises. Con- graph. Premises in the sphere of Real total consumption in Finland. sumption in premises outside this sys- Estate and Construction Sector Energy Year 2004 has been named as the tem has been evaluated by the type of re- Saving Agreement (KRESS) have been theme year for energy savings in Kesko’s al estate based on the specific consump- specified in the calculation. real estate operations. ABB Kiinteistö- tion of the premises monitored. Information about electricity con- palvelut Oy which is responsible for the The combined electricity consump- sumption was obtained from 83% of management and maintenance of tion of Kesko and the K-retailers operat- Kesko’s foreign premises, and informa- Kesko’s real estate was sold to YIT Kiin- ing in Kesko’s premises in 2003 was 667 tion about heat and water consump- teistötekniikka Oy in September 2003. GWh, an increase of 3.5% over the previ- tion, too, from 59% of them. Foreign The most important development target ous year. The total consumption of heat premises used 63 GWh of electrical en- in co-operation with YIT is more efficient was 306 GWh, an increase of 8.4% over ergy, 31 GWh of heating energy and use of consumption monitoring. The 2003. The consumption of water – 121,162 cubic metres of water. No com- purpose is to react faster than before to 595,258 cubic metres in all – increased parison with previous years is avail- exceptionally high consumption figures by 6.8%. The increase in consumption able. As in Lithuania most of the prem- and continue investments in energy-effi- can mainly be attributed to the increase ises were included in monitoring dur- cient technology. Investments will be in real estate, with the focus on energy- ing the year 2003, no consumption fig- based on energy audits, made in accor- consuming food stores, while many ures are available for the whole year. dance with the Motiva model in 34 prem- warehouse type buildings that use less Kesko’s proportion of the total con- ises – mainly K-citymarkets – in 2001- energy were sold during the year. The sumption in Finland remained at the 2002. The average annual savings poten- cold first months of the year also had level of 2002. The primary energy used tial of the investments already imple- the effect of increasing the consump- was about 0.4% of the total consump- mented and to be implemented in the tion of heat energy, while the hot sum- tion of energy in Finland (Statistics Fin- near future on the basis of the audits is mer, on the other hand, added water con- land: Energy in Finland 2002, Finland in EUR 120,000 – 140,000, while the aver- sumption when considerable amounts Figures). Electricity accounted for about age payback time is six months.

Environmental profile of energy Proventia Oy has calculated the environmental profiles for 2003 using the ’benefit sharing method’ of the previous years. The calculation that includes a comparison with the energy protocol of the GRI reporting guidelines has been published in full on Kesko’s Internet pages at www.kesko.fi as an attachment to the corresponding part of this report. Out of the total consumption of electricity (667 GWh), Kesko supplied 518 GWh and K-retailers purchased the remaining 149 GWh themselves. The environmental profile of electricity supplied by Kesko is based on the information given by energy companies, whereas the environmental profile of the electricity purchased by K-retailers is based on the Finnish average data. The profile of district heat used is the average Finnish district heat. 28 Environmental performance

Competitive tendering is arranged mental profile of the total consumption tion include both district heat and the for Kesko’s electricity suppliers every largely depends on the electricity suppli- natural gas and oil used directly for year. In 2003, the main supplier was For- ers chosen by Kesko. heating real estate. tum Markets (45.2%) and the second In 2003, the relative combined share Foreign premises accounted for largest was Helsinki Energy (37.8%), of Kesko and K-retailers out of the total 13% of Kesko's total real estate, about compared with 2002 when Espoon Sähkö greenhouse gas emissions in Finland re- 9% of the real estate’s total energy con- was the largest supplier (61.5%), and the mained unchanged at about 0.3%. sumption and about 22% of greenhouse share of Helsinki Energy was 25.8%. This For premises abroad, country-spe- gas emissions. also changed the environmental profile cific environmental profiles of energy In Sweden, average electricity is of electricity. In 2002, electricity pur- production have been used to calculate mainly produced by water and nuclear chased by Espoon Sähkö from Nordpool the environmental impacts of electrici- power, which reduces carbon dioxide was produced by water power to a consid- ty consumption, based on national sta- and acidifying emissions well below the erable extent. Now its proportion tistics and the emission co-efficients level of other countries. The large pro- dropped, whereas the proportion of elec- provided by the international energy as- portion of biofuel explains the small tricity produced by nuclear power and sociation IEA and IPCC (Intergovern- greenhouse emissions of district heat. fossil fuels increased. As Kesko buys 78% mental Panel on Climate Change). Envi- In Estonia, most energy production of the K-Alliance’s electricity, the environ- ronmental impacts of heat consump- is based on coal, which explains high 29

acidifying and greenhouse gas emis- About 70% of domestic goods for drove 3.5 million kilometres of Kesko sions. In Latvia, most energy is pro- Kesko Food’s warehouses are bought at deliveries. The calculations are based duced by water, while the rest is natural the so-called ’ex works’ price, when on the information given by these com- gas and oil. Lithuania also uses some Kesko Food decides on the form of trans- panies on the proportion of Kesko deliv- natural gas and oil, but nuclear power port. In most cases this is handled by eries of their total distances. It has not accounts for some 70% there. Kesko Food’s lorries returning from de- been possible to compile sufficiently ac- livery transportation. No reliable statis- curate statistics on the loads, cubic me- Transport tics are available on purchasing trans- tres and tons of this transportation. Kesko’s warehousing and distribution portation, nor on the so-called trunk The number of kilometres driven in networks were reorganised in 2002-2003. transportation between the central ware- Estonian distribution totalled nearly 1.7 Warehousing of groceries was, to some house and distribution warehouses. million. The number of loads was extent, centralised in Southern Finland Kesko’s subsidiary Kesped Ltd ac- 10,356, and an average of 161.1 kilome- near production and imports, and ware- counted for nearly 80% of Kesko’s distri- tres were driven per single load. houses concentrated on different product bution deliveries in Finland. Kesped Anttila’s transportation consisted categories. Terminal operations and dis- owns 25 distribution lorries and also us- of 10,200 loads and 502,000 kilometres tribution were partially outsourced, and es 300 contract lorries. In 2003, Kesped driven, representing an increase of 2%. deliveries to all K-citymarkets and K-su- transported 97,226 loads to K-retailers The total volume of import for- permarkets were transferred to distant and other Kesko’s customers (106,061 warding by Kesped Ltd was 296,000 deliveries from the central warehouse in loads in 2002), representing 609,000 tons, an increase of 6% over the previ- Vantaa. Rautakesko’s warehousing was tons of goods (683,000 tons). The total ous year. Transportation from within transferred to Finland Post. distance driven was 14.0 million kilome- Europe was handled by lorries, semi- The impacts of structural changes tres (14.9 million). One load contained an trailers and containers, and from out- on the indicators for 2002 could not yet average of 6,261 kilos and 18.4 cubic me- side Europe by containers only. Kesko be accurately specified. Accuracy im- tres of goods. The average distance driv- Food accounted for 75% of all imports. proved in 2003 when transportation statistics were also obtained from out- en per single load was 143.7 kilometres. Export deliveries, mainly to Swe- side operators, and these were included The volumetric efficiency of loads den, the Baltic countries and Russia, in emission calculations. A survey of increased by an average of 4%, with the were handled by lorries. The total vol- the co-operation partners’ level of oper- greatest increases in the Helsinki and ume of export forwarding by Kesped, ations and development needs was also Turku distribution areas. The average grain trade excluded, was 15,000 tons, a underway, to be followed by audits in driving distance per load rose by 2.5%. decrease of 17% over the previous year. 2004. For the first time, statistics were The number of kilometres driven per also prepared for the loads, kilometres each cubic metre delivered has reduced Transport emissions driven and CO2 emissions of Kesko every year since 2000. The emissions in Kesped’s and other Food’s transportation in Estonia. Contract transport companies transporters’ deliveries are calculated 30 Environmental performance

according to the kilometres driven, as ban traffic accounts for 70% of trans- minal generate volatile organic com- no fuel consumption data is available. portation by lorries, while 70% of full pounds (VOC emissions), which are esti- The calculation is based on the emis- trailer transportation is undertaken in mated by the annual calculation based sion factors and definitions of the LIISA the countryside. on the US Environmental Protection 2002 model by VTT, the Technical Re- 69% of outsourced deliveries are Agency’s (EPA) TANKS 4.0 program. In search Centre of Finland. made by lorries and 31% by semi or full 2003, imputed VOC emissions from In vehicle definitions, EURO2 factors trailers. In lorry transportation, urban tanks were 32.4 tons (38.3 tons in 2002) (for models produced in 1996-98) have driving accounts for 70% and in other and emissions during loading 12.2 tons been used for Kesped’s fleet and the av- transportation for 80%. Assumed volu- (12.3 tons). Most of the emissions (41.9 erage age of other companies’ fleet. metric efficiencies are the same as with tons) generate from handling methanol 22% of Kesped’s transportation is Kesped. – 31.3 tons from tanks and 10.6 tons made by lorries, whose volumetric effi- Anttila’s calculations are based on from ships. Compared with the year ciency is 50%, and 78% by full trailers, the general factors in all lorries. 2002, methanol emissions reduced by whose volumetric efficiency is 70%. Ur- In Estonian transportation, emission about 12% due to the better volumetric calculations are based on the Greenhouse efficiency of the tanks. The terminal's Gas Protocol to be included in the GRI environmental programme has set the guidelines. The Protocol does not contain target limit of these emissions at under the calculation of any other emissions. 0.1 kilos per ton handled and stored. Lorries account for 47% of kilometres The target was achieved in 2003, when driven, and semi and full trailers for 53%. the ratio was 0.08 kilos per ton. The relative CO2 emissions of Ke- sped’s transportation decreased for the The Group's carbon third year in succession both in terms of dioxide emissions tons and cubic metres. With outsourced Carbon dioxide emissions are among the transportation, the relative amount of key indicators of Kesko’s environmental carbon monoxide, hydrocarbon and parti- impact. In two previous years, Kesko has cle emissions was higher than with Ke- calculated the carbon dioxide balance of sped, because their transportation main- all its operations using the ‘Green Index’, ly consisted of urban driving by lorries. developed in Sweden for comparing emissions of listed companies. However, VOC emissions at Kauko- Kesko has not had accurate information markkinat’s Hamina terminal about purchasing and trunk transporta- Loading, unloading and storage operation, import transportation, fuel con- tions at Kaukomarkkinat’s Hamina ter- sumption or the personnel’s business 31

travel by air, for instance. Because the Green Index calculation method has not gained uncontested acceptance and the result would be inaccurate due to insuffi- cient basic data, Kesko has decided to cease calculating the carbon dioxide balance for the time being. The information given in this report regarding real estate and transportation covers the majority of the emissions caused by Kesko, so their size category is known and comparable with the net sales.

Use of materials Kesko continues its active work in tistics. The total amount of materials in There are not as yet any correspon- Finnish producer associations and in- packaging imported or packed by Kesko ding statistics available for foreign ternational standardisation organisa- decreased by 1% from 31,704 tons to companies. tions, aiming for packaging standardis- 31,392 tons. As the amount of imports ation, the use of environmentally sound increased by nearly 7% at the same Waste management materials and a reduction in the time, the relative proportion of packag- and recycling amount of materials used. In 2003, ing of the total imported volume again At Kesko Food, the KELO model has pro- Kesko Food’s logistics published a CD- took a downward turn. duced statistical data on waste manage- ROM manual on logistical packaging In Kesko Food, reusable Transbox ment in all distribution centres. Since principles, with the purpose of provid- cases were used 5.7 million times, repre- the beginning of 2003, the waste man- ing guidance and harmonisation for de- senting an increase of 13% over the previ- agement operator L&T at the Vantaa lo- cisions related to packaging at Kesko ous year. The number of disposable bot- gistics warehouses has automatically Food in general and the design of house tles collected increased, while the num- transferred data into the KELO model, brand packaging in particular. ber of reusable bottles decreased slightly. which has made it increasingly easy to Calculations of the packaging data The number of aluminium cans returned monitor waste management. of Kesko’s divisions for 2003 are still in Kesko’s loads totalled 20 million, The amount of waste from Kesko mainly based on import forwarding sta- which was 31% more than the year before. Food’s warehouses totalled 8,346 tons, 32 Environmental performance

which was at the same level as the previous year. The total amount in relation to cubic metres supplied (2.17 million) was 3.87 kilos, which includes corrugated board collected by return logistics from K-stores. If the corrugated board were excluded, the figure would be 1.5 kilos. The target for 2003 was a relative decrease in the amount of mixed waste, which was achieved. The amount of mixed waste dropped by 6 tons and was 0.36 kilos per cubic metre delivered (0.37 kilos in 2002). The amount of wood waste decreased considerably, as broken pallets were re- paired effectively and disposable pallets were also recycled. More scrap metal than usual was generated as the high-bay storage and shelves were replaced in Central Warehouse 2. The waste recovery rate rose from 90% to 90.6%. The amount of mixed waste continued to decrease at Rautakesko’s and Kesko Agro’s warehouses, though more building waste than usual generated from their refurbishment. No essential changes took place at Anttila’s central Estonia. They are not comparable with centres. In Estonia, waste segregation warehouse. Finnish statistics, as Estonian opera- remains limited when compared with The first waste statistics were avail- tions consist of retailing, while Finnish Finland, because no corresponding re- able from Kesko Food’s operations in waste statistics concern distribution covery systems are available. The total 33

Metal packaging recycled for recovery

Hundreds of tons of metal waste suit- tral warehouse and from there for fur- able for recycling are generated annual- ther treatment at Kuusakoski Oy. The ly in stores and institutional kitchens: same return logistics have been utilised food tins, metal cans, aluminium trays for years in the recycling and recovery of and tubes, screw caps, crown corks, and goods returned by customers to stores, various metal closures and straps. The such as cardboard, roll-containers, pal- target to recycle 50% of metal by 2008 lets, cans and alcohol bottles. also challenges the trading sector. The trial helped us to create an effi- In co-operation with Mepak-Kierrä- cient return logistics model, which will tys Oy, Kesko implemented an 11-month continue to be used in 2004 by stores recycling project for metal packages included in the test. Participating re- from eight food stores and institutional tailers considered it important that the kitchens. The project aimed to discover metal waste was flexibly picked up the readiness of retail stores and insti- from stores as part of other goods traf- tutional kitchens to recycle metal pack- fic and that it brought financial bene- aging, and to obtain quantitative infor- fits, in addition to a positive environ- mation on the amount of waste generat- mental impact. ed. The project also wanted to look into No scrap-metal, electronic scrap or the possible risk factors in recycling paint cans were accepted for the collec- and the cost structure of the return lo- tion.

Metal packaging waste collected by Kesko is gistics of metal packaging. sent to Kuusakoski’s premises in Vantaa for Recycling relied on Kesko’s existing further treatment. logistics: metal waste was taken in Kesko Food’s return transport to the cen-

amount of waste was 5,418 tons, of ernment in the greater Helsinki area impacts in the food basket – FOOD- which cardboard and paper accounted that has succeeded to considerably re- CHAIN’ as one of the main sponsors. The for 2,284 tons, organic waste for 359 duce the amount of waste generated survey was implemented by VTT Chemi- tons and mixed waste for 2,775 tons. and therefore saved natural resources. cal Technology and Agrifood Research Components are not clean but may in- In 2001 the corresponding prize went to Finland’s natural resources research clude plastic or wood. There may be or- Kesko Food Ltd and in particular to its unit. One of the products studied was the ganic waste among mixed waste, as col- central warehouse in Vantaa. Pirkka potato flour manufactured for lection of organic waste is only carried Kesko by Finnamyl. The results of the Developments in out in Citymarkets and SuperNetto survey were published in spring 2003. stores. Only 107 tons of waste was col- the products trade In 2003 Kesko participated in the lected at the Jüri distribution centre. For many years, Kesko’s division parent Waste statistics were not yet avail- companies have co-operated with suppli- preliminary stage of the research proj- able on any other foreign subsidiaries. ers to decrease the environmental im- ect concerning recycling opportunities The Helsinki Metropolitan Area pacts of products and packages. As envi- and methods of textile fibres, charting Council Waste Management awarded ronmental impacts must be assessed for the existing systems at home and the 2003 Natural Resource Saver prize the entire life-cycle, the achievement of abroad. The project was initiated by the to K-supermarket Hertta in Helsinki. unambiguous results has been difficult. Tampere University of Technology’s Fi- The prize is awarded annually to a com- In 2000-2002, Kesko Food participat- bre Material Science unit. After the pre- pany or representative of general gov- ed in the survey project ‘Environmental charting, a decision was made to inter- 34 Environmental performance

rupt the project for the time being, as a sufficient number of willing parties for its implementation could not be found. In autumn 2003, Kesko was invited Food- to participate as an expert in the so- chain called ’Yardstick’ project of the Finnish Environment Institute, the purpose of project: which is to promote measuring and il- lustrating the environmental impacts Environmental of the products well-known to con- impacts of Pirk- sumers. Besides the Finnish Environ- ment Institute, participants in the proj- ka Potato Flour ect that will last until 2005 are the Con- The Foodchain project of 2002-2003 sumer Research Centre, the Agrifood studied the environmental impacts of a Research Finland, and the Finnish food basket containing four foodstuffs. Game and Fisheries Research Institute. One of the products studied was Pirkka At the end of 2003, Kesko Food had potato flour. The project was based on about 450 organic products and about real production chains of foodstuffs 200 products with environmental la- and its purpose was to provide such in- belling. The numbers remained at the formation about environmental im- level of the previous year. pacts during the whole life cycle that Some organic products – such as would also give support to consumers milk and meat – are delivered to K- making their purchasing decisions. The stores straight from suppliers. There- study looked into the environmental fore Kesko’s own sales statistics do not burden of the production of Pirkka po- show organic products’ real market tato flour during its whole life cycle shares. It is only for fruit and vegeta- starting from the production of farm in- bles, mainly sold from warehouses, that puts and ending with the distribution the market share of 2% is relatively ex- of a finished product to stores. act, but even in that case retailers buy In the production of Pirkka potato organic vegetables from local produc- flour, major factors contributing to the ers outside Kesko’s range. acidification were potato cultivation K-food stores again succeeded ex- and the production of fertilisers and cellently in the ’Organic Store of the their raw materials. In cultivation, nitro- Year’ competition arranged by Finfood gen oxide emissions of agricultural ma- LUOMU – all finalists of the year 2003 chinery had the largest impact, while in greenhouse gas emissions in the pro- were K-stores. Organic products ac- fertiliser production, sulphur dioxide duction of one kilo of potato flour with count for 2% of the total sales of K-mar- emissions had the largest impact. the emissions of a car (default con- ket Kaisaniemi of Helsinki, which won Potato cultivation also had the sumption rate is 8 l of petrol per 100 the category for small stores. greatest impact on the climate warming km). According to calculations, the CO2 Rautakesko offers a wide selection potential, about 35% of total emissions. emissions in the production chain of of products with environmental, energy Processing accounted for 25% of the one kilo of potato flour corresponded to or emission category labelling. Suppli- warming potential. Greenhouse emis- the CO2 emissions of a drive of about sions of cultivation consisted of the car- two kilometres by car, while the green- ers of board and timber buy their raw bon dioxide emissions in cultivation house gas emissions totalled a drive of materials increasingly from certified and the nitrous oxide emissions caused about three kilometres. (Source: Vouti- forests. In 2003, the proportion of certi- by fertilisation. lainen et al., 2003) fied timber of sawn goods sold by Kesko The study also compared the quan- was 90%. The share of garden furniture tity of carbon dioxide emissions and Read more at: www.mtt.fi/foodchain made of FSC certified hardwood has 35

been increasing year by year. The supply of heat-treated timber is increasing, but its proportion of total sales remains small. In all, 300 tons of impregnated timber were recycled through K-rauta and Rautia stores. Since 1996, the jury of Motiva Oy and Tuulilasi magazine has selected ‘the Eco-car of the Year’. The main criteria include fuel consumption, carbon dioxide emissions and other regulated exhaust gas emissions. The 2004 ’eco-car’ is the Volkswagen Passat 1.9 TDI Diesel, imported by VV-Auto Oy. The eco-cars of 2002 (Audi A2 1.2 TDI Diesel) and 2001 (Volkswagen Polo Classic 1.9 TDI Diesel) also belong to VV-Auto Oy’s range. At events for a great number of participants, catering generates a large amount of waste that can be reduced through careful planning. K-environmental stores The recognition given to the K-environmental store diploma by the United Na- K-team event’s environmental profile tions Environmental Programme UNEP The K-Retailers’ Association arranges an MWh of heat and 106 m3 of water were and the International Chamber of Com- annual K-team event for K-retailers and consumed. Nearly 5 tons of mixed merce ICC in summer 2002 encouraged K-store personnel. The event includes a waste, 0.6 m3 of glass waste and 3.0 m3 K-retailers to focus on environmental product exhibition, the finals of the Mas- of cardboard waste were generated. actions. 42 new diplomas were granted ter Sales Assistant training and many The total consumption of primary en- in the spring and 29 in the autumn, kinds of programmes and get-togethers. ergy was 1,015 GJ. Carbon dioxide emis- which meant that the total number fell The 2003 event was held on 1 November sions were 52 tons, nitrogen oxide emis- slightly short of the target of 75 diplo- at the Turku Fair and Congress Centre sions 312 kilos, sulphur dioxide emis- mas. At the end of 2003, there were 221 and attracted 3,500 participants. sions 45 kilos and particle emissions 32 K-environmental stores. The K-Retailers’ Association want- kilos. The biggest environmental load The numbers of diplomas by chain ed to analyse the environmental load was generated by transportation of peo- are presented in the attached table. All K- caused by the event so that environ- ple, above all from transportation by car. citymarkets have the diploma. The fig- mental issues could be better taken into The production of electricity needed for ure is also high in the K-supermarket account when planning future events the event caused the most particle emis- chain where stores with the diploma ac- on a similar scale. The survey was con- sions. In addition to calculating the envi- counted for 79% of the chain’s total sales. ducted by JP-Talotekniikka Oy of the ronmental profile, observations were also The target set for 2004 is 73 new Jaakko Pöyry Group. The environmental made on the proportion of disposable diplomas. The system will be reformed profile consisted of the transportation tableware in the total amount of waste. and expanded during the year, and the involved, the electricity and heat ener- In Finland, events of this size can new plans will be published in autumn gy used and the waste generated at the only be arranged in a few cities, so the 2004. Fair and Congress Centre. location cannot be selected on environ- Getting the diploma requires that the Bus and train transportation to the mental grounds alone. In the future, the retailer, the hypermarket or department event was arranged from various parts environmental impact of the K-team store director, the employees responsible of Finland. 36% of visitors chose the event can be reduced for instance by infor environmental affairs and the whole transportation provided, while the rest creasing the proportion of transporta- personnel are trained, and that a compre- travelled mainly by car. The distances tion provided, searching for opportuni- hensive environmental audit is passed. driven to and from the event totalled ties to save energy, reducing the In the audit, made by a neutral profes- nearly 150,000 kilometres. During the amount of waste, increasing sorting on sional, an estimate is made as to whether event, about 28 MWh of electricity, 32 the site and increasing waste recovery. 36 Environmental performance

the store fulfils the detailed require- These involved participation in the na- maintain close contacts with stakehold- ments set for awarding the diploma. tional energy savings week, collection of er groups related to its environmental electronic scrap and sending unneces- activities. Environmental office sary office supplies to the recycling cen- Contacts with the Finnish and EU work programmes tre, outdated office paper to kinder- authorities were primarily maintained The ’ViherNokka’ environmental pro- gartens for drawing paper and maga- through the Environmental Committee gramme for office work was introduced zines to hospitals and retirement homes. of the Federation of Finnish Commerce in Kesko’s main office building at Kata- The target for 2004 includes estab- and Trade. Kesko had a representative janokka in May 2003, and under the ti- lishing the environmental programme in the environmental committee of Eu- tle of ‘ViherHakkila’ at Kesko Food’s in all office work. The intention is to roCommerce, in the environmental central warehouses’ office work in Octo- raise the waste recovery rate, while the committee of the International Cham- ber 2003. The target was to create uni- success in assortment will be monitored ber of Commerce and in the UNEP trad- form instructions and practices for together with the waste management ing sector group. waste segregation, energy savings, pa- company, and a new method developed Co-operation with suppliers for the per consumption and office purchases. for monitoring paper consumption. benefit of organic foods and various re- Both of the two programmes have a Though the impacts of office work manual and related pages on Keskonet, cycling systems continued. on the environment are not essential Kesko’s intranet site. Segregation in- Kesko continued as a supporting from the point of Kesko’s environmen- structions for all waste have been re- member of the Finnish Association for tal activities, the programme affects at- vised and specified, and a colour code Nature Conservation and the main titudes, bringing environmental protec- system has been adopted to help assort- sponsor of the family activity project. tion close to every Kesko employee’s ing. Instructions also show waste cycles The three-year project ended at the work. The programmes received an hon- and responsibilities, and the pages con- close of the year, and as from 2004 na- orary mention in Kesko’s competition tain hints for saving energy, recommen- ture clubs and events for families will for quality actions in November 2003. dations concerning purchases, links, continue as part of the Association’s news and a feedback channel. Stakeholder co-operation standard programme. The Association In 2003, the programme was comple- and communications edited the Finnish section of the World- mented with several other projects. During the year, Kesko continued to watch Institute’s publication ‘State of 37

Ship loading is supervised by specialised pumpmen Veijo Joffel (front) and Risto Apo.

impacts on the environment and safety. In 2003, the operations of the terminal caused no such leakage to the environment of which the terminal should have been obliged to notify in compliance with its environmental permit. In January 2003, an individual case of a ’near miss’ occurred with a chemical leak. On 12 January 2003 at 8.40 hours, when a ship was being loaded, a dock guard noticed something yellowish in the icy slush between the ship and the dock. The guard immediately informed the ship’s personnel and the Environmental Manager of Kaukomarkkinat. Loading A near miss with chemicals was interrupted at 9.15 hours and the local authorities were invited to the place at the Hamina terminal following the emergency instructions. The Hamina terminal of Kaukomarkki- hazardous to the environment. Investigations revealed that the nat Oy is located at the Port of Hamina, In accordance with the Seveso Direc- welding seam of the valve on the ship deck had a small split, out of which which specialises in handling liquid tive, the Hamina terminal has been clas- some substance was leaking into the goods and provides transit services for sified as a facility with major accident sea. Being lighter than water the sub- industrial raw materials. The products hazards. The level of operations and stance remained on the surface of water arrive mainly in tank wagons from Rus- safety management is monitored with and slush, from where it was easy to re- sia and are transported to customers in regular inspections by the authorities. move with a suction lorry. Cleaning tank lorries or ships. Annually, more The terminal is committed to keeping measures were carried out during the than 500,000 tons of flammable liquids all emergency instructions updated, and day before the ship left. It was estimated and acids go through the terminal. has prepared instructions for and as- that some dozens of litres of the sub- Some of them have been classified as sessed risks of all its operations with stance had leaked among the slush.

the World 2004’ with Kesko’s support. Environmental risks, ronmental permit and submits reports The co-operation project on the ap- damage and incidents about its operations to the authorities. plication of the GRI reporting guide- The management of environmental The environmental management sys- lines in food sector companies’ environ- risks is part of Kesko’s security plan. tems of the Group include a level of pre- mental reporting, relating to the quality The greatest risk to a company operat- paredness for environmental risk man- strategy work of the Finnish food chain, ing in the trading sector is fire, and the agement that is fully compliant with was completed in the spring. Pro Agria’s required instructions and training have the ISO 14001 standard. quality unit was responsible for the im- been given to personnel to meet this No such environmental damage or plementation of the project, and contingency. Risks relating to the con- incidents occurred in the Group in 2003 Kesko’s representative acted as the tamination of land areas are discussed that would have required a notification chairman of the project steering group. on page 26. Kaukomarkkinat Oy’s ter- to the authorities. Smaller leakages, Kesko’s overall reporting was minal operations in Hamina include the mainly from valves, occurred at the judged as the second best in the annual transportation and intermediate ware- Hamina terminal eight times. Immedi- comparison of environmental and cor- housing services of products and raw ate actions were taken to repair leak- porate responsibility reports by materials of the oil and chemical indus- ages and to prevent subsequent ones. ‘Elinkaari’, the Finnish Forum of Envi- tries involving environmental risks. ronmental Experts in autumn 2003. The terminal is bound by the envi- 38 Social performance

Social performance

Key social performance in 2003 • Proportion of foreign subsidiaries out of all personnel reached 35% • Turnover of personnel in Finland dropped from 25% to 22% • The most common reason for ending a job in Finland was a fixed-term contract • Proportion of jobs terminated by Kesko was 6% • Job satisfaction by country remained at the same level of the previous year • Sick absences increased slightly both in Finland and abroad • Number of job accidents decreased • Number of retirements nearly halved and the average retirement age grew • Number of training days per person increased slightly • Proportion of women in middle management and superior/ specialist categories increased • Unionisation of employees decreased in Finland and Sweden

Warehouse Worker Toni Koskelin in Kesko Food’s freezer warehouse, Vantaa 39

The company's social responsibility is demonstrated, for instance, in the mental and physical wellbeing of personnel, job satisfaction, implementation of equality and focus on training. Job satisfaction is reflected in the average length of employment, and the attraction as a workplace tells us what kind of image the company has among outsiders. Kesko divides its social performance reporting into two parts: indicators of responsibility concerning corporate personnel, and the working conditions of personnel employed in the supply chain of our products. We now have more statistical and research data available on corporate personnel for each country. Data regarding the supply chain has been obtained from major suppliers in developing countries.

Structural change continued The fast structural change in Kesko Group personnel continued in 2003. Foreign subsidiaries’ proportion of the whole personnel grew to 35%, compared with 20% at the end of 2002 and 8% at the end of 2000. The proportion of Group employees in retailing increased to over 68%.

Number of employees At the end of 2003, the number of Kesko Lithuania increased the number by Group personnel was 19,411 (compared 2,753. Other than the number of person- with 15,212 in 2002). There were 12,596 nel, no additional Senukai employee sta- (12,152) employees in Finland and 6,815 tistics were available for this report. (3,060) abroad. The breakdown of per- Correspondingly, 3,908 employees sonnel by country is presented in the left the Group in Finland, of whom about table on page 40. 2,670 worked in retailing. The turnover in The average number (for the calcu- Finland was about 22% (excluding sum- lation method, see page 18) of person- mer employees, the difference in relation nel during the year was 15,219 (12,217), to the number of personnel at the end of of whom 9,859 (9,720) worked in Fin- the year), compared with 25% in 2002. land and 5,360 (2,497) abroad. During the year, 1,254 employees Including fixed-term and part-time left the Group’s foreign subsidiaries. employees, the Group employed 4,412 Turnover rates are available by country new people in Finland, 3,140 of whom for except for Lithuania. retailing. Foreign subsidiaries employed Kesko Group had 1,113 summer em- 2,238 new people, and the acquisition of ployees in Finland and 217 abroad, most a majority shareholding in Senukai, of whom worked in retailing and ware- 40 Social performance

housing. During the year there were The average duration of employment stores in Sweden have the longest as the about 450 vacancies at Kesko Group’s relationships effective in Finland was a first of these were established in 1996. internal market (on the Intranet). few days short of 9 years. As a deviation from previous years, statistics also in- Reasons for terminating Average age and employment clude retailing companies, which lowers duration of employment The most common reason for ending a the average. The longest employment re- At the end of December 2003, the aver- job in Finland was a fixed-term contract – lationships on average were in Kesko Cor- age age of Group personnel in Finland accounting for 61% – and abroad the em- poration, VV-Auto Oy and Rautakesko was 35 years (same as the year before) ployees leaving their jobs – 81%. In 221 Ltd. 28.4% of all employment periods had and abroad 33 years. The average age cases in Finland, less than 6% of the total was the lowest in subsidiaries engaged lasted for less than two years, while 13.2% number, and in 110 cases abroad, repre- in retailing. People usually start work- had lasted for over 20 years. senting 9% of the total number, employing relatively young in the retailing sec- As foreign subsidiaries have only ment was terminated for production and tor and the turnover rate is higher than been established in recent years, employ- financial reasons or other reasons based in the wholesale business. ment relationships are still short. K-rauta on the Contracts of Employment Act. 41

78 staff had to be given notices when placed on one survey describing the opin- Kesko’s strengths listed by the stu- Citymarket Oy reorganised its home and ions of students (Universum) and two sur- dents included sound economy, market speciality goods business into three veys conducted among the working popu- success, interesting products and serv- product lines instead of the former five. lation (Universum and Talentum). ices, the great number of different du- Citymarket Oy is a retailing company, The Universum student survey com- ties, growing challenges at work and in- which runs the home and speciality prised 120 organisations, and there were ternal training. They presented wishes goods business of 50 K-citymarket hy- 2,510 respondents from 19 educational es- that international duties, opportunities permarkets in 38 localities. Employee tablishments (universities and polytech- for learning on-the-job and the trainee arrangements did not apply to the gro- nics). 1,000 of the respondents were stu- programmes should be emphasised. cery business of the K-citymarket chain dents of business administration, among operated by independent K-retailers. 151 Quality of management whom Kesko rose from rank 32 to 31. persons retired during the year. Kesko personnel’s job satisfaction is In the Universum survey, Kesko’s at- monitored annually through a written Kesko’s attraction traction among young professionals job satisfaction survey. In Finland and as a workplace who had worked for about three years Sweden, the survey was carried out by In Finland, Kesko’s attraction as a (more than half of them had a degree in TNS Gallup Oy/Retail and in the Baltics workplace is monitored in several sur- business administration) dropped from by the Latvian Fontes R&I. The surveys veys both among students and the rank 12 to 17. In the Talentum survey in contents were identical in all countries. working population. Regular surveys which respondents work in sales, mar- The K-rauta stores in Sweden have been are also conducted into Kesko’s employ- keting, financial administration and IT included in the survey since 2001, and er image among top decision-makers duties, Kesko’s attraction increased the Baltic companies since 2002. The and influential persons. from rank 47 to 20 (63 companies were most recently acquired company of the In 2003, particular emphasis was included in the ranking). Group, Senukai in Lithuania, has not 42 Social performance

yet been included in the survey. ple, the results in various countries are name, comment and make proposals on In the survey, respondents were not fully comparable. matters related to Kesko. Management asked, on a scale of 1-5, to assess their Management quality is evaluated replies to feedback on the direct chan- own jobs (19 statements), their superiors’ with many surveys on a regular basis. nel. The President and CEO gives per- performance (18 statements), their per- The annual customer satisfaction sur- sonal replies to the mail he receives. formance and development discussion (2 vey is used to see how both external and statements), their unit’s operations (21 internal customer relations are devel- Health and safety statements), Kesko’s (or the local sub- oping. All Group units make annual Since 2002, statistics on sickness ab- sidiary’s) operations (16 statements), the self-evaluations in teams, using the cri- sence has also been covered in the for- development of operations and atmos- teria of the Finnish Quality Award. An eign operations of the Group. However, phere (4 statements) and the handling of in-house quality competition has been the breakdown of reasons for absence is survey results (2 statements). Personnel linked to this evaluation. In 2003 the not as accurate in foreign statistics as also evaluated the management of some winner was Kespro Ltd. The evaluations it is for Finland. affairs related to their employment and of managers’ practices and related de- In Finland, the total number of sick employee benefits (the wage level, shop- velopment plans started in autumn days in 2003 was 105,261, i.e. 8.8 days ping benefits, occupational safety, staff 2002 and they have also been intro- per person or 6,067 days per million facilities, health care, training, staff duced for superiors at other levels. working hours. Compared with 2002, the restaurant, etc.). The outcome of this sur- The selection of an ‘Employee of the figures increased slightly, partly also vey contributes to superiors’ profit bonus. Month’ and a ‘Manager of the Year’ con- due to the fact that the notification prac- In Finland, employees’ satisfaction tinued in 2003. These selections, based tice was changed. In the attached graph, with Kesko’s operations remained prac- on personnel proposals, are intended to sickness absence is presented by reason. tically unchanged. The highest ratings highlight individuals who set a good ex- The proportion of unpaid, long illnesses were given to commitment to the tar- ample in promoting Kesko’s values. This increased over the previous year. The gets of the unit and overall satisfaction practice will be continued and it has been number of sick days caused by workplace with the superior’s performance. The extended to Group companies abroad. or commuting accidents decreased by most important improvement areas in- Personnel can give feedback on cor- over 400 on the previous year. cluded opportunities to influence the porate operations in their own units, In foreign subsidiaries, the total development and planning of the em- and also directly to top management. number of sick days in 2003 was 41,576, ployee's own work, internal mobility op- The ‘Keskonet’ intranet has a channel which represented 10.9 days per person portunities and the development and entitled ‘mail to the President and CEO’ or 7,487 days per million working training of personnel. and a ‘direct channel’ where employees hours. In the calculation, the number of The results by country remained at may, anonymously or by giving their working hours is the same as in Fin- the level of the previous year. The best results were reached in Lithuania, where the survey covered only the personnel of Kesko Agro. In Estonia and Latvia, job and company satisfaction increased, while the superior’s performance was ranked slightly below the level of the previous year but still remained higher than in Finland. In Sweden, employees’ satisfaction with their own job and the company decreased, but the average ratings nearly reached the level of the previous year. A summary of the survey results and response rates are presented in the attached table. Because of the differ- ences in corporate cultures, for exam- 43

land, that is 1,760 hours per year. Ab- Warehouse Worker Richard Jung senteeism increased since 2002, which moves baby food jars to a raised was partly due to the more established shelf in Kesko Food’s warehouse, system used in statistics reporting. Vantaa. The work safety organisation covers all Finnish companies of the Group. The occupational health and safety manager, committees and delegates work for one company, district or real estate. The safety work has been partic- ularly successful in warehouses where the number of accidents has decreased. Kesko’s own occupational health service unit served 6,000 Kesko Group employees, 5,200 of whom were seen at the Group’s own health stations. Retail- ing companies in Finland and all companies abroad purchase occupational health services from outside providers. Kesko’s occupational health service focuses on wellbeing at work and on activi- Recognised input in work safety ties that maintain physical and mental and ergonomy fitness. In recent years, these activities The Finnish Ergonomics Society granted 2002, and nearly 800 warehouse work- have accounted for over 40% of occupa- their ergonomics prize for 2003 to Kesko ers and superiors have since been tional health operations. In 2003, Kesko’s Food’s logistics for its important work for trained to be TOP experts. The target is occupational health service used EUR the development of warehouse work safe- to have all of the people working in 359 per person for the maintenance of ty and ergonomics. The TOP online learn- Kesko Food’s warehouses - approximate- physical and mental fitness and health ing programme developed for Kesko ly 1,200 - trained by the end of 2004. care. No corresponding information con- Food’s work induction process helped to Inspired by the ergonomics prize, a cerning retailing companies in Finland create uniform teaching methods for the contest was arranged in late autumn and all companies abroad is available. warehouse work ergonomics and safety 2003 for the personnel of the logistics If required, Kesko’s occupational training. The programme was developed unit, with the purpose of finding new health service participates in care and by a large number of Kesko Food workers, ideas on how to reduce the physical load treatment guidance for employees superiors and professionals in work safe- of the work and to promote work safety. abusing intoxicants and provides train- ty and occupational health. The contest prize was the sum of EUR ing to superiors for handling problem- The TOP programme, which is avail- 1,000 received from the Finnish Er- atic situations involving intoxicants able on Kesko Food’s intranet, helps the gonomics Society. Prizes were given to with prevention being the primary tar- personnel to learn to assess the impor- five best proposals for improving er- get. HIV tests are only made in connec- tance of their work from the viewpoint gonomics at work, all of which led to tion with medical treatment, not at nor- of work safety, ergonomics and produc- immediate actions. The proposal made mal employment and health check-ups. tivity. The programme consists of five by Petri Tynkkynen who is in charge of parts dealing with the logistics chain, placing the products in the warehouse Salaries and other benefits warehouse and terminal work, safe resulted in the shelf places of baby food In 2003, the average annual salary of working with machines, manual lifting jars being raised by 40 cm from the Kesko employees in Finland was EUR at work and danger evaluation of one’s floor. Improving the ergonomics of 29,155 and in foreign countries EUR 8,211 own work. Virtual examples, games and shelving arrangements facilitates the (for country-specific information see the animated pictures support learning. picking of high-demand items and re- table on page 40). The number of employ- Practical exercises are also set in the pa- duces the burden of work postures on ees used in the calculation is the average rameters studied online. The pro- employees’ backs. number of personnel. Because Kesko gramme was introduced in autumn 44 Social performance

Group’s operations are very diverse with Meeting approved a new stock option 95 (132) were insured by Varma-Sampo. an estimated 650 different job titles, the scheme for about 50 persons in the top The figure includes those employees on average salary is not a very good indica- management of Kesko Group and to partial retirement and partial disability tor of salary level and structure. Kesko Corporation’s wholly-owned sub- pensions who have valid job contracts. About EUR 10 million in bonuses un- sidiary Sincera Oy. Kesko’s Board of Di- Occupational retraining was arranged der the profit-sharing system, accounting rectors will decide on the distribution of for 10 (18) employees who, due to illness, for about 3.2% of the total payroll, were the stock options held by Sincera to the were not able to continue in their previ- paid for 2003. The bonus system applies management employed by or to be re- ous jobs or whose working ability was at to all personnel of Kesko Corporation and cruited by Kesko. These subscription pe- risk. There were no retirements in for- its domestic subsidiaries, with the excep- riods will end, depending on stock op- eign subsidiaries. tion of retail stores, in which bonuses are tion, at the end of April 2008, 2009 or Members of department A of the only paid to superiors of Anttila depart- 2010. Both of the stock option schemes Pension Fund have an option of early re- ment stores and K-citymarkets. Key fac- are presented on Kesko’s Internet pages tirement arrangements on certain pro- tors contributing to the bonus are the to- at www.kesko.fi (Investor informa- duction and economical terms. In 2003, tal performance of the Group and the dition/Shares and shareholders). the number of early retirement pensions vision, the sales and performance of own In 2003, fringe benefits increased granted by the Pension Fund decreased unit or their development, and customer slightly in Finland. 619 (576 in 2002) by 27. The number of employees who re- satisfaction. Various process indicators employees had a company car, 826 tired on full pension on health grounds can also be applied. For management, the (809) employees had a company decreased by 22 over the previous year. job satisfaction of personnel is another dwelling and 2,083 (1,989) employees The average retirement age in contributing factor. In addition to the had a company telephone. No statistics Kesko Pension Fund pension decisions Group’s profit-sharing system, sub- are available on fringe benefits in for- rose to 57.4 years (56.1). In Varma-Sam- sidiaries – both in Finland and other eign companies. Seven holiday cottages po decisions, the retirement age also countries – have their own bonus sys- were rented for employees and their oc- rose to 57.4 years (57.2). tems. The top management of the Group – cupancy rate was nearly 100%. In 2003, the average pension paid by comprising some 50 executives of the Supporting the Kesko Staff Club, the Kesko Pension Fund – to 3,123 per- Kesko Group – have a profit-sharing sys- which arranges recreational activities sons in all – was EUR 1,213 per month. tem in which the maximum amounts of for personnel, promotes wellbeing in The Pension Fund has been financing bonuses vary depending on the profit im- the working community. The annual the production of dwellings since 1965. At pact of the job up to amounts correspon- budget of the Club has remained at the end of 2003, the Pension Fund owned ding to a salary of 2-6 months. about EUR 0.5 million in recent years. 914 (825) dwellings, of which about half Kesko has two stock option No corresponding data is available for were rented to Kesko employees. schemes. When the year 2000 stock op- foreign subsidiaries. tion scheme for the top and middle man- Equality agement was announced it comprised Pensions Since 1996, Kesko Corporation and all of nearly 600 persons. The share subscrip- In 2003, 151 people (254 in 2002) retired its Finnish subsidiaries with over 30 tion period of the scheme will end on 31 from Kesko Group. Of these, 56 (122) were employees have participated in an March 2006. The 2003 Annual General members of the Kesko Pension Fund and equality plan, the implementation of 45

Pia Ranta-aho (front) and Ulla Viljanen ap- preciate being part of Järvelän Rauta’s working community.

tracts with the municipality in the open work programme. The money paid for the work is not called a salary but an in- centive payment, which does not affect the person’s pension. Working hours vary according to the person’s working capacities and duties. Pia has worked for Järvelän Rauta for a year. Her duties include product shelving, archiving and light cleaning. Pia has enjoyed the work which has also given her more confidence: she has moved to live by herself and learnt to take care of her own business independently. Ulla has worked for the store for three years, giving a helping hand at the café connected to the store. She finds the job interesting and likes her co-workers. Previously, Ulla worked for the sheltered workshop. At Järvelän Rauta she is part of an ’ordinary’ working community, something that she ap- Järvelän Rauta and social preciates. Retailer Sirpa Kaalikoski has been responsibility very pleased with Pia’s and Ulla’s input. Järvelän Rauta, which belongs to the itive. The present store staff include Pia The question is not, however, about the Rautia chain, has shown social respon- Ranta-aho and Ulla Viljanen. profitability of their work only. Sirpa says sibility for over several years by em- Pia and Ulla have no actual con- that Pia and Ulla have brought much joy ploying people with impaired work ca- tracts of employment with Järvelän and positive attitude to the working com- pacity. Experiences have been very pos- Rauta but instead have special con- munity, and broadened its set of values.

which is evaluated annually. The plan is two more women have been recruited to 2000 when the statistics were first pub- available on Kesko’s Internet pages at top management. One of the eight mem- lished. In subsidiaries engaged in retail- www.kesko.fi (Kesko as an employer/Ba- bers of the Board of Directors is a ing, the share of women in supervisory sic information and principles). woman, as is one of the seven Corporate positions is significant. Statistics show According to year-end statistics, Management Board members. that 88% of department managers in K- 61.9% (62.8% in 2002) of Kesko Group In middle management in Finland, citymarket hypermarkets and 80% of employees in Finland were women and the proportion of women is 23.9% (22.2% department managers in Anttila depart- 38.1% (37.2%) were men. in 2002), while in superiors and special- ment stores are women. There were four women in top man- ists the proportion is 58.2% (56.8%). In In the 2003 job satisfaction survey, agement, representing a proportion of both of these categories, the proportion the implementation of equality was 8.9%. During the first months of 2004, of women has increased every year since ranked at 3.6 (on a scale of 1-5), the same 46 Social performance

of 15,740 working days, or 1.6 days per employee (calculations are based on the average number of personnel), were spent on complementary training in Finland. The attached table presents complementary training by job category. In Finland, about 83% of training was internal, including training at the K-instituutti. The number of training days in foreign companies was 8,272, or 2.2 days per employee. Internal training accounted for about 60%. The K-instituutti training centre provided courses for about 8,570 employees in 2003, representing a growth of 39% over 2002. The number of student workdays totalled 20,556. In 2003, competence management systems and tools and their practical implementation were developed further. The resources of K-instituutti’s Development Services were strength- ened in order to support these goals and Kesko’s other change projects. On- line learning was increasingly included in training programmes. as in 2002. Until now, the mark had im- Training 15,676 K-Alliance employees, of proved every year since 1996. Satisfac- Statistics have been prepared regarding whom 1,047 were Kesko employees (in- tion with equality was highest among Kesko employees’ basic training in Fin- cluding personnel from K-citymarkets personnel at retailing companies (3.7). land, with the exception of retailing and Anttila department stores), partici- In foreign companies, 64.9% of em- companies. Of the 4,598 persons in- pated in the Master Assistant training ployees were women and 35.1% were men. cluded in the statistics, 58% have medi- arranged by the K-Retailers’ Association. In 2002, the proportion of women was um-level or lowest high-level vocational The training is mainly organised as dis- 58.1%. The figure includes the foreign of- training and 17% have a degree from an tance learning. Training is also arranged fices of Kaukomarkkinat Oy. There are no institution of higher education. in many business colleges, in which the women in the top management of foreign In Latvian subsidiaries, employees total number of students was 4,842. companies. In middle management in with a degree from institutions of higher Latvia women accounted for 15.8% and in education account for 20% and those Unionisation superiors and specialists 75.2% (exclud- with vocational training for 35%. For Es- 37.3% (39.6% in 2002) of Kesko Group ing data from Kesko Agro). No compara- tonia, corresponding information is employees in Finland are unionised, ble information is available for other available on hardware, builders’ supplies mainly in the Service Union United. In countries as the job system applied in and agricultural trade only – there 48% of the retailing sector, the rate was 41.8% Finnish companies has not yet been employees have a degree from an institu- (43.6%). The figure consists of employ- adopted for all foreign companies and tion of higher education, while 40% have ees whose union membership fee is tak- equality statistics are only available for a vocational training. In Lithuania, as en from their salary. In Sweden, 15.0% small part of the operations. many as 81% of Kesko Agro’s employees (17.3%) of the local subsidiary’s employ- No statistics on equality on other have a higher education degree. No edu- ees are unionised. In the Baltic coun- grounds than gender have been pre- cation statistics are available for Sweden. tries, the unionisation rate is very low. pared at Kesko. According to the statistics, a total Kesko is a member of the Commer- 47

cial Employers’ Association in Fin- land, in Handelns Arbetsgivareorgani- sation (HAO, part of the ‘Svensk Han- Content Provider Tero Laatikainen del’ central organisation) in Sweden, (front) and IT Trainee Niklas Bergström participated in the de- and in Eesti Kaupmeeste Liit, a mem- velopment of the online training ber of the Estonian Employers’ Central project in hygiene competence at Organisation, in Estonia. In Latvia SIA K-instituutti. Kesko Food is a member of the Latvian Trade Association. In Estonia – as in other Baltic countries – the unionisation rate is at present so low both among employers and employees that no binding, collective agreement covering the whole sector exists. Kesko has a company-specific shop steward system, adopted by all major subsidiaries. However, Kesko Food Ltd continues to have some office-specific shop stewards who also represent the employees of other division parent companies in their operating districts. Kesko Food Ltd has two chief shop stewards, while other companies have one. International Group-level co-operation (a European Works Council) started in compliance with the Act on Co-operation within Undertakings. Partici- pants of the first international co-oper- Online training creates experts ation meeting of the Group, arranged on 11 February 2004, included a repre- in food hygiene sentative of K-rauta AB from Sweden. The Ministry of Social Affairs and an alternative to events arranged in var- In 2003, the district courts had three Health decree on the competence in food ious parts of Finland, K-instituutti has cases (two in 2002), the court of appeal hygiene required from those working in developed an online course in hygiene one case (none) and the labour court one food premises and the testing of this competence to enable learning irrespec- case (none) concerning employment dis- competence entered into force in 2002. tive of time and place. Key subject areas putes at Kesko Group's domestic compa- New workers have been required to pass in this web training include legislation, nies. The disputes in the district court the test or the exam since the beginning microbiology, food poisonings, hygienic and the court of appeal concerned termi- of 2003. Old employees have to give the working practices, personal hygiene and nation of employment, whereas the dis- corresponding proof by the end of 2004. the requirements of in-house control. pute in the labour court concerned the The K-instituutti training centre has There are exercises for each section and strike arranged by the Kesko department arranged training and testing events in questions the students can use to test of the Service Union United. By the end hygiene competence throughout Finland their learning. The links supplied give of the year, no decision had been taken since the decree entered into force. So far an opportunity to gain more in-depth in- in one of the disputes at the district about 4,000 people have completed the formation about various subject areas. court, while in the other disputes deci- required training and passed the test. The present decree does not allow the sions had been made in favour of Kesko. The challenge in the trading sector students to take the hygiene compe- No corresponding data has been collect- is the implementation of the hygiene tence test online, but they have to attend ed for foreign companies. training for a great number of people a supervised testing event. and maintaining their competence. As 48 Social quality control

Social quality control of suppliers

Keyperformance in social quality control in 2003 • Kesko’s direct imports from so-called high-risk countries increased by 43% • The number of suppliers with SA 8000 certification increased by just two, which fell short of the target • Certified suppliers had 47,000 employees, which exceeded the target • In the UNICEF India project, financed by Kesko, the number of children attending school doubled. 49

Kesko is indirectly responsible for the tional basic workplace standards. So- working conditions and terms of the cial Accountability International, employees who participate in the manu- which has developed the standard, au- facture of the products it purchases. thorises certification bodies (e.g. DNV, This social responsibility applies to SGS and BVQI) to carry out SA 8000 purchases of goods from the poorest de- certifications and supervises their op- veloping countries above all. In these erations. countries national working condition Social certification can be com- legislation or its supervision is not al- pared with the certification of quality ways up to the standards of internation- and environmental systems in the al agreements, which means an insuffi- sense that the company manufacturing cient level of protection for employees. the products or having them manufac- Kesko’s target is to ensure that its sup- tured does not assure its compliance pliers at least comply with the national with the quality requirements, but veri- legislation or the international key fication is carried out by an independ- working condition conventions, de- ent, accredited auditor. Social certifi- pending on which alternative ensures a cates indicate that the minimum re- better position for employees. The tar- quirements of working life are fulfilled, get is ambitious and cannot be reached compared with national legislation and in a short time. However, every single international standards. The adoption improvement, no matter how small, is of standards and their certification are an important step towards socially sus- voluntary, which means that working tainable development. life standards can be met even without Besides Kesko’s own actions, this any certifications. The adoption of so- section gives information on joint proj- cial standards is best suited to compa- ects by European trading chains, be- nies in developing countries and for quality control, which contains detailed cause their progress considerably af- those companies in developed coun- instructions for the co-operation be- fects Kesko’s opportunities to achieve tries whose subcontracting chains tween Kesko and its suppliers to im- results in social quality control. largely extend to developing countries. prove working conditions. Corresponding social risks do not occur Buyers are unable to control work- Ethical principles for in Finland or most other developed ing conditions in practice. They usually Kesko’s purchasing countries, where legislation has been visit suppliers once or twice a year, and In spring 2000 Kesko published its taken further than the minimum re- the visits are short meetings with peo- principles of socially responsible trad- quirements of ILO and the negotiation ple who are responsible for sales. Buy- ing (see www.kesko.fi/Environment and supervision mechanisms work. ers do not speak the local language and and responsibility/Economic and social cannot therefore interview the person- responsibility). They are based on the Supervision in practice nel or read documents related to work- International Labour Organisation’s Social quality control is part of the buy- ing conditions. Getting acquainted with key conventions and the UN Universal er’s job description, just like the control the national legislation is also impossi- Declaration of Human Rights and Con- of environmental management, the ble. Therefore supervision must be sub- vention on the Rights of the Child. The product’s physical quality and product mitted to local, independent experts international Social Accountability SA safety. For this purpose, Kesko’s buyers who speak the language of the employ- 8000 standard (see www.sa-intl.org) is of imported products participated in ba- ees and are familiar with both the na- based on these regulations, and Kesko sic training in the ILO conventions and tional legislation and international recommends the adoption of this stan- the SA 8000 standard in 1999-2001. The conventions. To promote certification, dard to its suppliers. The companies corresponding training is arranged for Kesko co-operates with Bureau Veritas that adopt the standard can seek an in- new buyers in spring 2004, in March Quality International (BVQI). The buy- dependent certification for their opera- and May. For buyers, Kesko has pre- er’s duties include collecting from sup- tions, proof that they fulfil the interna- pared an internal handbook on social pliers the basic information needed for 50 Social quality control

quality control, personally presenting Kesko’s principles and the content of the SA 8000 standard, and keeping the idea of implementing the standard and certification continuously alive. At Kesko, the supervision of social quality is part of the risk management of import purchases. Supervision covers many countries and product categories in which defects relating to working conditions and terms have been noted. Kesko considers this risk group to consist of 35 countries, and the product groups under control include coffee, fruit, clothing, home textiles, carpets, shoes, toys and furniture. In 2003, Kesko’s purchases from the countries in question totalled EUR 116 million (EUR 81 million in 2002). These imports accounted for 1.9% of Kesko’s total purchases, 6.9% of Kesko’s total imports and 17.3% of Kesko’s imports from outside the EU. In addition to its own imports, Kesko also buys goods produced in high- risk countries from other importers operating in Finland and through international purchasing groups. These imports mainly consist of international branded products, in which much atten- mains unknown to small and medium trading companies and firms for which tion has been paid in recent years to en- sized companies in particular, its im- branded goods are manufactured have suring the social quality control of their plementation and certification are con- demanded neutral certification from manufacture. Kesko estimates that sidered expensive, and small compa- their suppliers. This is also partly due to these purchases amount to approxi- nies have no previous experience on the the fact that only a few consumers are mately the same as its own high-risk im- use of other standards. There is no doc- interested in the manufacturing condi- ports described above. No reliable statis- umentation, written operating princi- tions of products, and there is no reli- tics are available on this. If the estimate ples or management systems available, able product labelling for this purpose is correct, Kesko’s imports from high- and the competence needed for this available. Therefore manufacturers feel risk countries account for about 4% of kind of work is not easy to gain. If that the demand for independent certifi- its total purchases. The certificates reaching the certification level necessi- cation is small and do not obtain it even granted to companies producing inter- tates significant changes in operations, if their operations might fulfil the re- national branded goods are monitored they cannot be implemented all at once quirements of the standard. in the same way as Kesko’s own imports. but must instead be realised gradually. By the end of February 2004, the The commercial pressures of small worldwide register kept by SAI (see Slow progress buyers like Kesko do not lead to changes www.sa-intl.org) included only 354 com- SA 8000 certification has progressed in the enormous mass of global trade. panies with the SA 8000 certificate, slowly both globally and among Kesko’s On a large scale, social quality can only compared with 203 in February 2003. suppliers. There are many reasons for be improved with large purchasing vol- The certifications represented 39 dif- the slow progress. The standard re- umes. So far, however, only a few large ferent sectors in 39 countries. The busi- 51

Fair Trade bananas ready to be picked in Ecuador.

ness sectors with the most representa- tificates and 30,700 employees. The tar- merce under Kesko’s chairmanship. tions were clothing and textiles, and get for 2003 was 30 certificates and During the year the network arranged the countries were Italy (75 certifi- 40,000 employees, so the number of two member meetings, provided mem- cates), Brazil (50) and China (49). companies fell short of the target, bers with related information, and At the end of 2003, Kesko’s buyers whereas the number of employees was maintained contacts with the news me- had at their disposal written replies exceeded. Only about 15% of the long- dia on issues concerning the ethical concerning working conditions and term target – ensuring the working con- principles of imports. Unlike Germany, terms from 247 companies with a total ditions of about 300,000 employees – France or Britain, no co-operation has of 263,000 employees in 33 countries. has so far been reached. been sought in Finland for supplier au- Information has been received from vir- At regular intervals Kesko’s buyers dits, but each member has implemented tually all companies with whom trading establish which suppliers are preparing social quality control in its own way, ob- is regular. In cases where Kesko’s pur- the implementation of the standard and serving jointly accepted principles. chases are small and irregular, it is dif- where and when certificates are expect- At the end of 2003 the network com- ficult to receive any reply. Small supplied. The lack of certification cannot, as prised 16 companies, including all major ers included, the companies in the such, be regarded as a sign of poor food trading groups and many clothing sphere of Kesko’s social quality control working conditions. All activities im- and shoe manufacturers and importers. have about 300,000 employees in all. proving working conditions and terms Operations, principles and members are This figure has remained more or less are important, and they are being con- presented on the Internet pages of the Cen- unchanged in recent years. tinuously made on a small scale. No big tral Chamber of Commerce (www.kaup- In 2003, four of Kesko’s suppliers leaps can be expected in one year, and pakamari.fi/keskuskauppakamari). received the SA 8000 certificate. Two ten new certificates a year looks like a that had received certificates earlier realistic annual target. Fair Trade products were eliminated from the statistics, as It is estimated that the total sales of there was no trading with them during Co-operation between Finnish Fair Trade products in the world in- the year. At the end of the year, Kesko importers creased by about 30% to EUR 360 mil- had 19 suppliers with the SA 8000 cer- The 'Network to advance Social Respon- lion in 2003. In Finland, Fair Trade tificate, employing a total of 47,000 sibility in Importing' continued opera- products were sold at about EUR 7.5 staff. The year before, there were 17 cer- tions in the Central Chamber of Com- million, that is, at less than EUR 1.5 per 52 Social quality control

person. The relative sales are largest in support for its electricity consumption. Switzerland, about EUR 10 per person. Many factories closed down, and the The data is based on the information number of children working in the area given by the Finnish Fair Trade La- dropped, because children moved to belling Organisation. There are no sta- work elsewhere or returned to the coun- tistics available on the value of K- tryside. To some extent the difficulties stores’ sales. companies experienced increased the The products available and their school attendance of children. During countries of origin are shown in the at- the year, the project was extended to the tached table. Kesko’s selections include town of Malegaon, where diagnostic all Fair Trade product groups. Bananas tests of and treatment for tuberculosis continue to be the most important Fair were added to the programme. Trade product, and their share of total During the year the project helped sales of bananas increased slightly. Or- 657 more working children to attend anges were launched on the market in school either on a part-time or a full- February 2004. In Finland, sales of Fair time basis. Including the children who Trade coffee remain small compared to had earlier started school, those moved many Central European countries. from preparatory training to proper Sales of tea grew by 20%. school attendance, and the sisters or brothers of those working children who The UNICEF project in India had already started school, the number Since 2000, Kesko has financed a proj- of children attending school under the ect mediated by UNICEF Finland and project at the end of 2003 was 1,655 in implemented by UNICEF India’s Mum- Bhiwandi and 816 in Malegaon. Train- bai office, with a total of USD 85,000 to ing groups for adult women had 699 prevent the use of child labour in the participants, and there were 52 house- town of Bhiwandi. The financing will wife groups, each of which had 20 mem- continue until the end of 2004. bers. Over 3,000 children were tested In the project, the field workers of for tuberculosis. Over 700 of them were UNICEF and other non-governmental found to have this disease for which organisations survey the families’ fi- they are now getting regular treatment. nances, diet, availability of water, sick- The scale of the project has more nesses, children’s work and their oppor- than doubled during the year, so the re- tunities to attend school. The target is sults achieved can be considered good to make working children start school and the operating system feasible even at least on a part-time basis, to have on a wider scale. The English language small children attend school full-time annual report of the project is accessi- right from the beginning, and to assist ble via the online version of this report. Through UNICEF Finland, Kesko al- older children to have vocational train- so participates in the campaign to pro- ing. Adult women who have never had mote the global education of girls. The an opportunity to attend school are funds raised in Finland will be used to taught to read and learn skills they promote girls’ education in Nepal. Since need for family care. Self-help groups the beginning of 2004, cardholders in have been started for housewives where the Plussa customer loyalty system they learn about home economics, nu- have been able to donate the money ac- trition and self-employment. crued for their purchases in the form of 2003 was a difficult year for the Plussa points to this project. Bhiwandi weaving industry in particular, because it no longer received state 53

Review of co-operation in European imports

The review is written by Jouko Kuisma, certification bodies as for the SA 8000 ducted in EU organisations in Brussels – Kesko’s representative in EuroCom- standard have mainly been selected to in the Foreign Trade Association (FTA) merce, CSR experts. conduct audits. These audits do not, and EuroCommerce, the trade represen- however, include certifications, as the tation to the EU. The problem with the administrative requirements of the FTA is that only some of the organisa- Closer co-operation between standard are not complied with. The tions and companies that represent the buyers worldwide aim at this stage is to gain information imports trade of the EU countries are its Many companies and trading chains for the companies’ own risk manage- members. The FTA aims at creating – in that have products manufactured for ment and quality control. No consumer co-operation with Social Accountability them have had their own purchasing information – ‘a social quality guaran- International (SAI) – a European social principles (‘Code of Conduct’) for years. tee’ – is yet being planned. standard that would deviate from SA All of them have been prepared on the In France, co-operation is made 8000 only as far as administrative pro- basis of the same international working within FCD, the central federation of visions are concerned. Members of Eu- life agreements and are more or less commerce. In Germany, the co-operation roCommerce include, in addition to the similar in their basic content. Besides model has been developed in AVE, the FTA, all other important parties, but the buyers, many companies also have spe- foreign trade association of the retail purpose of EuroCommerce is not to de- cial personnel who supervise the work- trade, and it contains detailed, standard- velop and administer standards, but to ing conditions of suppliers and subcon- like manuals for buyers, suppliers and represent European trade to the Euro- tractors. Some co-operate with non-gov- auditors alike. AVE has also implement- pean Commission and Parliament. ernmental organisations or local offices ed some working life development proj- It is expected that a solution will be of ILO, while others have audits made by ects in developing countries, in co-oper- found during 2004. Kesko has suggested independent certification bodies. In ation with the German Ministry of For- in the EuroCommerce working group spite of the fact that the importance of eign Affairs. The British ‘Ethical Trad- that EuroCommerce and the FTA make a social quality has largely been recog- ing Initiative’ differs from the rest in proposal to the SAI on changing some nised, international understanding on the respect that besides business com- points of the SA 8000 standard that have its verification has not yet been reached. panies its members include trade been criticised. No decision had been The SA 8000 standard is the only unions and non-governmental organisa- made on the matter by March 2004. So- international tool which has been pre- tions, and it gets some public funding. cial standards are also discussed in the pared in co-operation between many ex- Though the principles of the above EU Multi Stakeholder Forum on CSR, a perts and the representatives of trade national co-operation projects are ap- working group set up by the European unions and non-governmental organi- proximately similar to each other, their Commission, due to publish its final re- sations. No significant progress has, practical implementations differ, for in- port in June 2004. Kesko has a represen- however, been made in its implementa- stance as to the breakdown of costs and tative in this working group. tion, though international certification the exchange of information. About When the trading sector is consid- bodies have devoted much competence 1,500 audits have already been conduct- ering its operating practices, interna- to the issue. There is no disagreement ed in these three projects, comprising tional industry organisations have about the basis of the standard, but mainly clothing and consumer goods been developing their social quality large European trading companies con- manufacturers in the Far East. From control. The World Federation of the sider the administrative section too Kesko’s viewpoint, particular progress Sporting Goods Industry (WFSGI), for heavy and expensive. The required man- has been made in the sense that audit- instance, has had ethical operating agement system is considered bureau- ing has been given to an outside, inde- principles for a long time, the clothing cratic, and the number of personal in- pendent certification body. If common sector has several international co-op- terviews is seen as unnecessarily high, practices could be adopted in all re- eration projects underway, and most re- which increases auditing costs. spects, the number of certificates would cently the International Council of Toy In some European countries trad- considerably increase from the level Industries (ICTI) has prepared detailed ing chains have had co-operation proj- reached with SA 8000 so far. operating principles with a special fo- ects that search for efficient, cost-effec- cus on work safety, on the basis of tive solutions to the social auditing of which factories conduct independent suppliers. The target is to avoid over- AEuropean agreement? audits. lapping audits and exchange audit in- Negotiations on the all-European social formation between buyers. The same quality assurance system have been con- 54 Other responsibility areas

Other responsibility areas

The guidelines of the Global Reporting In 2003, a total of 7,280 (8,820) volving potential health hazards. In Initiative suggest that companies product samples were analysed, of such cases national supervising au- should, besides economic, social and en- which 5,873 were food products, 650 thorities are always notified. vironmental performance also report non-food products, 733 home and spe- Detailed guidelines about other work regarding corporate ciality goods and 21 flowers. Nearly on package markings responsibility. Such issues include prod- three quarters of the samples were im- In addition to products, the product re- uct safety and corporate security, com- ported and one quarter domestic. Nearly search unit also supervises package pliance with marketing and competition 15% of the samples were catering prod- markings. For house brands and own im- regulations, privacy protection, political ucts and the rest consisted of retail ports Kesko Food uses guidelines based relations and attitude to bribes. products. An increasing proportion of on EU directives, Finnish legislation and the samples were suggestions for new Product safety the recommendations of authorities. Nu- Kesko house brand products. The num- Product safety is related to all lines of tritional values are always included – ber of new food products dropped slight- Kesko’s business. It calls for particular package size and space permitting – on ly, whereas the number of new home and attention in the food trade, as such faults the packaging of house brand products, speciality goods grew more than seven- have occurred globally in food produc- although they are not always required by fold compared with 2002. The number of tion from time to time, which Kesko law. Any allergenic ingredients are product comparisons decreased consid- wants to avoid in every way. Therefore marked on house brand packages in ad- erably over the previous year. A total of Kesko has emphasised product safety for dition to the obligatory markings, even 1,571 product lot and other own control decades by auditing industrial opera- when it is just that they may uninten- samples were analysed. The number of tions, analysing product compositions tionally – through cross-contamination – analyses totalled 15,378 (17,216). The lab- and quality features and by suggesting end up in the product during the produc- oratory conducted eight intercalibra- improvements to manufacturers. tion process. Country of origin is marked tion audits (comparisons of analysis ac- At Kesko Food, the main responsi- on imported house brand products and curacy between several laboratories) bility lies with the Product Research the manufacturer’s name and domicile and the results were within the accepted unit. In addition to food products, the on domestic products. tolerance. Based on consumer com- unit controls the quality of certain non- Instructions for package label infor- plaints, 2,020 samples were analysed. food products and home and speciality mation also determine the use of the The consumer service maintained goods. In the case of Kesko’s house swan flag symbol, the seed leaf flag sym- by the Product Research unit received brand products like Pirkka, the Product bol, the key flag symbol, the Nordic envi- Research unit acts as a product devel- 15,023 (13,642) feedback contacts dur- ronmental label, the ‘Wash Right’ mark- oper in close-knit co-operation with ing the year. Feedback was mainly prod- ing, the Luomu organic product label manufacturers. The unit and its K-test uct complaints and questions, but also and the use of recycling symbols. These kitchen employ 21 people. included thanks, ideas and proposals. guidelines can be read on Kesko’s Inter- The most common contact channel – in net pages at www.kesko.fi (Environment Supplier and product audits 9,279 cases – was telephone. Answers and responsibility/Product safety). In 2003, the product research unit audit- were given to all feedback. ed 53 suppliers (39 in the previous year), Participation in current projects of which 37 (29) were Finnish. The audit- Recalls when required The Product Research unit participates ed companies mainly include suppliers During the year, there were 31 (26) prod- in several projects and organisations of Kesko’s house brands and are selected uct recalls, most of them caused by de- promoting food quality and product leg- in accordance with Kesko Food’s self fective quality or taste, or a manufac- islation on the national and interna- control plan. Auditing is carried out in turing flaw. 12 of the recalls were Kesko tional levels. If required, the unit pre- compliance with Kesko Food’s own proto- Food’s house brand products. In the oth- pares and publishes Kesko Food’s views col. In most cases, improvement propos- er cases, the product research unit as- on current issues, for instance on ge- als relate to the planning of production sisted manufacturers in recalls. Two of netic engineering and acrylamide in facilities and hygiene. them were so-called food alert cases in- foods. The stand on genetic engineer- 55

A serious product mistake – a recall of Pirkka chicken casserole from 250 K-stores On Friday, 4 April immediately informed the research cases of serious product mistakes. 2003, 336 boxes of Pirk- chemist responsible for the product cate- On Wednesday, 9 April 2003, it ap- ka rainbow trout casserole gory about the matter. The chemist start- peared that Pirkka chicken casserole in were packed in packages bear- ed closer examinations with the product correct packs with the same dates as on ing the product name of Pirkka manufacturer, those responsible for the defective ones had also been delivered chicken casserole. The mistake was category at the purchasing department to about 200 K-stores. In order to sta- due to the change in the production pro- and K-citymarket Vaasa. The research bilise the situation and to avoid confu- gramme at the manufacturing plant. chemist also contacted the allergy asso- sion, a decision was made to also recall The products were distributed to stores ciation to find out how serious the possi- the flawless packs. on Monday, 7 April 2003. ble danger situation would be for con- The situation was considered closed At lunchtime on Tuesday, 8 April sumers with fish allergy. Because people after the last sell-by date (23.4.2003) on 2003, K-citymarket Vaasa noticed that with fish allergy could, in the most seri- this lot had passed, when it was stated the store had received Pirkka chicken ous cases, suffer a fatal reaction (an ana- that the recall and information concern- casserole packs that contained rainbow phylactic shock), the Product Research ing it had been effective. Some products trout casserole. K-citymarket Vaasa in- Manager started the product recall in defective packages had ended up with formed Kesko’s Consumer Service at process at 15.30 hours, which is necessi- consumers, but no serious allergy cases 11.50 hours and the Consumer Service tated in Kesko Food’s self control plan in had been reported to the authorities. 56 Other responsibility areas

ing includes the regulations on la- of the K-retailer chains. Kesko and the K- tiations with the Federation of Finnish belling and traceability, stating that retailers operate in a so-called vertical Commerce and Trade. The guidelines can Kesko keeps a close eye on the develop- agreement relationship, in which market- be read on the Internet pages of the Con- ment of the legislation and research da- ing actions are carried out in compliance sumer Agency at www.kuluttajavirasto.fi ta. According to the stand, Kesko does with exemptions granted by the Finnish (Legislation and Guidelines). not prevent such products from being Competition Authority on the basis of the In 2003, neither the Finnish Com- launched on the market when their Promotion of Competition Act. petition Authority, the Consumer Om- safety has been proved and they have In 2001, the Finnish Competition budsman nor the Market Court gave been marked appropriately. However, Authority granted an exemption to any decisions concerning Kesko or the no ingredients of genetically modified Kesko Food, according to which it could, K-retailer chains in any breaches of origin are allowed in Kesko's own on certain conditions, set the maxi- marketing or competition regulations. branded products. The stands are avail- mum retail prices to some of the prod- able in full on Kesko’s Internet pages at ucts sold at K-food stores. Retailers can, Privacy protection www.kesko.fi (Environment and re- if they wish, sell the products at lower A Kesko subsidiary, K-Plus Oy, maintains sponsibility/Product safety). prices. The exemption was valid until 31 and manages the customer loyalty sys- December 2003. On 30 June 2003, tem of the K-store chains. On 31 October Corporate security Kesko Food applied for a new exemp- 2003, the development of Plussa cards’ Security operations within the Kesko tion. However, the Authority did not payment and credit card properties was Group aim at securing people, property, have time to handle the application be- transferred to Nordea Rahoitus Oy when information, reputation and the envi- fore the end of the year so it decided on Kesko sold all the shareholding of K- ronment against accidents, damages 23 December 2003 to extend the validi- Luotto Oy which had earlier been re- and crime and ensuring undisturbed ty of the exemption granted in 2001 un- sponsible for the operations. At the end operations in advance. Security opera- til 30 April 2004. The new exemption, of 2003, Plussa cards were held by about tions support the implementation of valid until the end of 2004, was granted 2.9 million people in 1.6 million house- Kesko’s strategic targets and are a nat- on 16 April 2004. Starting from the be- holds. The programme only includes the ural part of business. The Corporate ginning of May, the competition legisla- Group’s operations in Finland. Management Board approved Kesko’s tion in the EU will change in such a way The customer information of Plussa new security policy in 2003. that exemptions will no longer be grant- cardholders constitutes a customer reg- Corporate security consists of the ed, but companies have to evaluate ister at Kesko, used, with customers’ per- following areas: rescue operations, oc- themselves on the acceptability of their mission, for customer relationship man- cupational safety, criminal and environ- agreements and practices from the agement, customer contacts and market- mental safety, crisis and continuation viewpoint of competition legislation, ing for the Plussa scheme. Cardholders’ planning, as well as personnel, premis- taking competition regulations, legal purchasing behaviour is registered in es, real estate and information security. practices and Commission guidelines the form of sum total of purchases, if the Employees responsible for security mat- into account. The exemptions granted customer has not forbidden it. The registers have been appointed to Kesko’s divi- by 30 April 2004 will remain in force tered information may also be used in sion parent companies’ management during the time given in the decision. the direct mail marketing of companies and a network of contact persons cover- Kesko’s foreign subsidiaries them- included in the Plussa scheme, if a cus- ing the whole Group is being created. selves act as retailers, which is why this tomer has not forbidden the use of his or Kesko’s security organisation supports kind of permission is not needed. Their her information in this way. The compa- the business operations units providing marketing and advertising actions are nies who receive this information are not them with expert services in the sector. carried out in compliance with the mar- allowed to distribute it further. Responsibility for security at the practi- keting, consumer protection and price By virtue of the Personal Data Act, cal level covers employees, superiors marking regulations and complementary every customer register keeper must and unit management alike. guidelines of each country. In Finland, have an official file description, which Marketing and these include the guidelines issued by is a public document. K-Plus Oy’s file competition regulations the Consumer Ombudsman based on de- description can be read in Finnish on One of Kesko’s functions is to plan and cisions made by the Market Court and the Internet pages of the Plussa service implement the marketing programmes the Consumer Ombudsman, and/or nego- at www.plussa.com. 57

In its capacity as register keeper, K- Political relations Plus Oy sees to it that customer infor- Kesko takes an active role in legislative mation is only used for the purposes work concerning trade and industry in specified in the file description. Infor- Finland and the European Union. Influ- mation on individual customers is pro- ence is exercised via the Central Cham- tected by instructions given to person- ber of Commerce, the Federation of nel and by efficient technical means. Finnish Commerce and Trade and its Customer data are only disclosed to branch organisations, and the Employ- outsiders if required by law. ers’ Confederation of Service Indus- In March 2004, the Plussa.com con- tries. The Federation of Finnish Com- sumer portal became the first Finnish merce and Trade is a member of Euro- consumer web service to receive the in- Commerce, the retail, wholesale and international Qweb certificate, granted by ternational trade representation to the SFS-Inspecta Sertifiointi Oy. The pur- EU Commission and the European Par- pose of the certification is to ensure the liament. In addition, Kesko belongs to security and rights of the service users. UGAL, the EU organisation of groups of Operations audits include ethical prin- independent retailers that safeguards its members’ interests directly or via EuroCommerce. EuroCommerce has ap-

pointed many Kesko experts as its rep- concerning this issue have been com- resentatives for EU working groups, municated to personnel in, for instance, most recently for the group involved the guidebook ‘Our working practices – with corporate responsibility in the Eu- the ethical principles of personnel’, the ropean Union. most recent version of which was pub- In the Baltic countries, industry and lished in 2002. The guidebook has been commerce have been subject to organi- published in Finnish, Swedish, English, sation under branch and central organi- Russian and all Baltic languages. It has sations only in recent years. Chambers been distributed to all Group personnel of commerce have also been established and the subject matter has been pre- in a global manner. As in Finland, Kesko sented orally in units’ own meetings. has joined the branch organisations and The guidebook can be read on Kesko’s chambers of commerce in the Baltic Internet pages at www.kesko.fi (Kesko countries. Labour organisation mem- in brief/Corporate citizenship). ciples, privacy protection, IT security bership is presented on page 47. Kesko’s ethical purchasing principles and the quality of business processes. In 2003, Kesko’s financial support – mainly distributed to suppliers operat- The certificate is valid for one year, and to political parties amounted to EUR ing in developing countries – make a clear auditors will monitor the certified 22,240 in Finland and EUR 2,300 in statement about Kesko’s negative atti- pages every three months. Latvia. No support was given to parties tude to bribery under all circumstances. The reform of the Plussa system at in other countries. The support does These principles also emphasise that co- the end of 2003 offered cardholders an not contain advertising in party news- operation between Kesko and suppliers opportunity to donate the sum corre- papers. The amount is included under must be open and fair, equal and in com- sponding to the Plussa points they have ‘non-governmental and environmental pliance with agreements. accrued to Kesko’s main partners of cor- organisations’ in the table ‘Kesko’s sup- Kesko became a member of Trans- porate responsibility. In 2004 these port for the public good’ (page 22). parency International Suomi – Finland, partners are the Young Finland Associa- established in 2003. tion and UNICEF Finland. The results of Attitude to bribes this collection will be included in Kesko has always assumed a strictly Kesko’s corporate responsibility report negative attitude to bribes – be it ac- starting from 2004. cepting or offering them. The principles 58 Comparison with GRI guidelines

Comparison of the report with guidelines of the Global Reporting Initiative 59 60 Comparison with GRI guidelines Contact persons 61

Contact persons in corporate responsibility

The list gives contact information about the persons who primarily provide additional information on different areas of the report. The list does not include all Kesko employees who have participated in editing the report. Kesko’s telephone number from outside Finland is +358 10 5311. E-mail address = [email protected]

Name Title Unit Development, coordination, responsibility for editing the report Jouko Kuisma Senior Advisor, Corporate Responsibility Corporate Communications and External Relations Ulla Rehell Senior Manager, Corporate Responsibility Corporate Communications and External Relations

Indicators of economic responsibility Pauli Alajoki Accounting Manager Corporate Accounting Pekka Niva Store Site Director Kesko Food Ltd/Retail Services Antti Mansikka GIS Planner Kesko Food Ltd/Retail Services Jukka Pokki Investor Relations Manager Corporate Communications and External Relations

Indicators of environmental responsibility Johanna Saarivuo Real Estate Development Manager Kesko Real Estate Timo Jäske Development Manager Kesko Food Ltd/Logistics Marja-Riitta Jarva Environmental Manager Kesko Food Ltd/Customer Relationship Process Merja Saarinen Environmental Manager, Kesko Food Ltd/Customer Relationship Process K-environmental stores Juha Kortesalmi Environmental Manager Anttila Oy Marja Ola Environmental Specialist Rautakesko Ltd/Development Sari Koskinen Environmental Specialist Rautakesko Ltd/Development Virpi Kantoluoto Environmental Specialist Kesko Agro Ltd/Development Toni Tynkkynen Environmental Specialist Kesped Ltd Nina Rintanen Environmental Assistant Kaukomarkkinat Oy

Indicators of social responsibility Lea Heikkinen Development Manager Human Resources Mikko Myyryläinen HR Controller Human Resources Saara Halko Office Supervisor Pension Insurance and Occupational Health

Social quality control system Jouko Kuisma Senior Advisor, Corporate Responsibility Corporate Communications and External Relations

Product safety Matti Kalervo Product Research Manager Kesko Food Ltd/Product Research

Corporate security Juha Pietarinen Security Director Corporate Security

Privacy protection Tapio Pesonen Financial Services Manager K-Plus Oy

Corporate communications Erkki Heikkinen Senior Vice President Corporate Communications and External Relations 62 Assurance statement

Assurance statement Translation from the Finnish original

To the management •∑Assess the level of implementation This is Kesko Group’s fourth year of of Kesko Corporation as regards to Kesko Corporation full corporate responsibility reporting At the request of the management of strategy and management princi- and the Report follows mainly the re- Kesko Corporation we have reviewed ples in the area of corporate respon- porting structure of previous years in the Kesko Corporation Corporate Re- sibility, especially in the new due form. We recommended in the last sponsibility Report 2003 (the Report) in reporting areas and in the foreign year’s Assurance Statement to connect order to provide assurance on its infor- functions. the functions abroad universally under ∑ mation contents. Kesko Corporation's the same performance indicators. Now • Assess the data management proce- management has prepared the Report more detailed information about the dures used to compile and report and is responsible for the collection and Baltic functions has been reported, and information presented in the Report. presentation of the information within ∑ regarding domestic activities, new indi- it. This assurance statement in itself • Assess the completeness, accuracy cators like statistics by the Finnish re- cannot be taken as a basis for interpret- and comparability of the informa- gions on the economic wellbeing pro- ing Kesko Corporation's performance in tion presented. duced by Kesko Corporation have been relation to its non-financial policies. added. Further, the Report gives now a Our work consisted of the interviews more complete picture of Kesko’s per- with the responsible persons about used Scope and method of our work formance by presenting some cases. practices, and procedures for data gener- There are currently no statutory re- However, the scope of the corporate re- ation in Finnish functions and on Jüri lo- quirements in Finland relating to the sponsibility reporting could still be fur- gistics center in Estonia. The assess- preparation, publication or independ- ther complemented within Kesko Corpo- ment of the information was based on ent assurance of corporate responsibili- ration, especially in those countries the initial data delivered to us from the ty reports. The Global Reporting Initia- where the reporting does not yet cover all functions reported, as well as interviews tive (GRI) Sustainability Reporting performance indicators and functions. with the persons responsible for generat- Guidelines 2002 have been referred to The Kesko Corporation Corporate ing such data. The interviews and infor- as one criterion for corporate responsi- Responsibility Report 2003 provides a mation got from last year’s assurance bility report assurance. balanced representation of Kesko Cor- were also used as a basis of our work. Our scope covered the assurance of poration’s performance in the area of the information content of the report. Our conclusions Corporate Responsibility. Furthermore, Our review process involves the main Our conclusions and observations the information in the Report is pre- steps outlined below. based on our work are outlined below. sented in an appropriate manner.

Helsinki, 13 April 2004

PricewaterhouseCoopers Oy Authorised Public Accountants

Pekka Nikula Sirpa Juutinen Authorised Public Accountant Global Risk Management Solutions Definitions of terms 63

Definitions of terms

The text and graphs contain terms, indicators and abbreviations whose contents are defined below.

Return on invested capital (ROI), % = profit before extraordinary items + interest and other financial expenses x 100 balance sheet total less interest-free debt (average during year)

Equity ratio, % = shareholders’ equity + minority interest x 100 balance sheet total less advances received

Debt to equity ratio, % = liabilities + provisions x 100 balance sheet total less advances received

Gearing ratio, % = interest-bearing liabilities less marketable securities less cash in hand and at bank x 100 shareholders’ equity + minority interest

Market capitalisation = share price x number of shares GWh = gigawatt hour = a million kilowatt hours (kWh) 1 kWh = 3.6 MJ = 3,600 J (in GRI guidelines the unit for measuring energy is joule or J) PJ = petajoule = 1,000,000,000,000 joules CO2 = carbon dioxide = affects climate change (‘greenhouse effect’) CO2 eq. = carbon dioxide equivalent, the amount of different gases whose combined impact on the greenhouse effect corresponds to the amount of carbon dioxide mentioned SO2 = sulphur dioxide equivalent (affects acidification) C2H4 = ethene (affects the ozone content of the lower atmosphere) CO = carbon monoxide or coal gas HC = hydro carbons NOx = nitrogen oxides Transbox case = reusable transport case made of plastic KRESS real estate = premises in the sphere of Real Estate and Construction Sector Energy Saving Agreement (KRESS), for which savings targets related to the specific consumptions of electricity and heat have been set.

Kesko’s corporate responsibility report is available in Finnish and English and can be ordered by mail from Kesko Corporation, Corporate Communications, Satamakatu 3, FI-00016 Kesko, Finland by e-mail from [email protected] or by phone from +358 1053 22404. You can also order and read the report on Kesko’s web site at www.kesko.fi.

The report has been edited by Kesko’s Corporate Communications (Jouko Kuisma and Ulla Rehell) in co-operation with the environmental team of Mainostoimisto Rauta advertising agency (Tapio Heickell and Anne Soikkeli). Photos: Jari Härkönen, except for p.14, 23 and 38 Petri Artturi Asikainen, p.35 Mauri Ratilainen, p.48 Mikkel Østergaard/Gorilla and p.51 Max Havelaar France/Kaare Viamose.

Printed by: Libris, Helsinki, Finland 2004 Paper: Cyclus (100% recycled paper) Both the printers and the paper used have been granted the right to use the Nordic Swan environmental label.