Step 3:
KESKO OYJ Annual Report KCQ’s:
A link to my company’s annual reports:
Initial Thoughts
Upon receiving my name and looking up the company, it wasn’t until the website loaded that I realised that this was indeed a company name and Martin had not fallen asleep on his keyboard. This company operates in several European countries, but its main business is in Finland. Kesko Oyj is a retailer that operates across grocery, car sales, technical and building trades.
Upon seeing the sheer number of areas this company was operating in, I couldn’t help but ask “how many divisions does this company have?” A quick glance around the website led me to this link which was a great introduction to this company. Also, it did fill me with a sense of dread because if this is ‘brief’ then given the sheer volume of businesses and division I thought I may be having to sift through an annual report longer than war and peace which is a daunting prospect for a rookie like me. Even going to the Annual Report page led me to 6 different reports but I was able to locate the 2021 Annual Report.
The Annual Report
Upon opening report, I was greeted with a total of 140 pages which did make my eye bulge a little and murmur “what only a mere 140 pages” under my breath. Before even moving off the title page, I wondered if companies expected everyone to read all 140 pages? Hopefully the report has a novice breakdown for someone like me.
Luckily, the initial slides contained a report from the Board of Directors which gave me an insight into Kesko Ojy in 2021. The Board of Directors gave a quick but detailed rundown of the company, what they do, where they operate, all the relevant financials and an outlook for the future. Past experience has shown me that the positive information is put at the front and it is only when you delve deeper do you find the reality.
I cannot stress how helpful this Board of Directors summary was for a novice like me to get an overview however, I did find when looking at the Financials there was a lot of further information that wasn’t contained in this initial summary.
Kesko Oyj principal Finish business seems to be split mainly between Franchisee run retail stores and Klesko’s own retailing. The “K-Retailer”, which is the Franchisee run stores, (assumption here!), accounted for just under 50% of net sales while Kesko’s own retail stores were around 16% of net sales. It would be interesting to know the difference between the number of K-retailer stores, verse Kesko owned stores. I imagine it would be more profitable to allow franchisees to run stores as you only have to look to McDonalds in Australia, all of these stores are run by franchisees proving the method must be profitable for all parties.
It also mentioned an emerging B2B trade market. I initially thought this meant trade stores like Bunnings but, upon further review, it meant Business to Business trades or wholesalers which covers more than just building materials. It lists in the Board of Directors summary that Kesko and its K-Retailers form the K-Group whose preliminary sales totalled 15 Billion in 2021 with (0%VAT). This confused me, the abbreviations like VAT and B2B above are unfamiliar to me and I did find that I had to do quick google searches to get definitions of these terms and how they impact the business.
I did think 15 billion in sales sounds like they had a terrific 2021 but, it didn’t mention expenditure, so while this sounds amazing in theory, I was curious to delve deeper to see what the profit. All divisions seem extremely important to this company as all divisions are currently successful. This really is a company that is firing on all cylinders.
Its strength really seems to be that all the areas the company operates in are all, areas that are currently in demand and therefore they are seeing growth across the board. Grocery, car sales, technical and building trades are all areas that I can see from my perspective strengthened during the pandemic due to people staying at home/focusing on DIY and saving money from staying home to then spend on discretionary items like cars etc.
The business also gave a brief outlook for 2022 which I found helpful because it gave me a run down of where each sector was at and what challenges they feel they are going to face.
Overall, their outlook was positive and they are expecting operating profit again in the 680-800 million range. While this seems positive, it is comparable to the €775.5 million operating profit for 2021 which means they will either be slightly down, or slightly up. It seems like such a broad target but maybe that is due to the uncertainty in the current market.
Key opportunities & risks
They mention their key opportunities but also risks and that these are all in the operating environment and included things like digital services and cyber threats, climate change and personnel. Later in the report under the risk section they mention climate change as both a risk and an opportunity (way to be positive).
The risk is really in relation to climate and how it will impact the production of their products that they retail. Additionally, the increase in regulations due to climate change and how adhering to this regulation will impact cost. I do like that the opportunity created will result in focusing on reduced emissions and supply chain costs and offering solutions to customers to reduce their climate impact, I actually stopped and went wow, what a great initiative.
With I am sure everyone’s reports, the pandemic was discussed often as a challenge; isn’t it ever! The health and safety of their Personnel appeared to be a high priority as well as the safety of the customers.
The strategy they implemented in mitigating this risk looks to be successful as in 2021 they were able to fully utilise their personnel with no significant lay-offs and sickness absences did not increase to a point that they needed to make special arrangements. This did seem surprising as when looking at the financials I noticed that total full-time employees decreased from 2020-2021 so I wonder what their definition of ‘significant’ means?
I will touch briefly on the outlook for each channel as I found the information helpful to understand where the company is going and what challenges/opportunities lay ahead.
Grocery Channel
The grocery channel is expected to grow due to food price inflation. I found this shocking mainly because we think about the current situation and how much more expensive things are and the pain that causes us. Companies like Kesko Oyj see food inflation as a positive, I imagine the current political unrest in Europe would impact supply chain issues but in my brief readings I didn’t see this mentioned. I wonder if other students with European countries had this mentioned as a potential challenge.
Building Sector The building sector is expecting to remain the same. Again, they are mentioning price inflation to support growth, but this inflation would lead to lower construction volumes, again, I can only relate this to my experience of the sheer cost for minor building projects now compared to 5 years ago. I have put off projects currently because the price to build is too high. Car Trade Division
The car trade division is expecting supply chain issues which will lead to lower sales. It is currently notoriously difficult to get new cars. You only must drive past a local car lot and see the empty spaces, I was told a 10 month wait for a new car…I wonder how much to ship over from Finland?
It’s interesting that the pandemic was mentioned as a challenge yet on the other hand the pandemic is driving strong household consumption that focused on domestic consumption. It is funny how a strength can also be a weakness, but I do not believe the challenges faced by this company are that different to many others. The company still predicts profit so they seem to have no problem facing these issues it is more they know they have a working business model it’s just uncertainty that may impact it.
Overall, the groups reported net sales grew by 5.9%. As it first mentioned a change comparable of 8.2% in comparable terms. Why the difference? As I am new to accounting this really threw me until it explained that the comparable change had been calculated in local currencies and with acquisitions and divestments included. They kept mentioning the change in the consolidation methods of Kesko Senukai which was impacting sales. A quick google search lead me to this article.
Kesko reported Kesko Senukai Group as a joint venture as of 1 July 2020. Until 30 June 2020, it was reported as a subsidiary of the company. I take this as Kesko Senukai used to be reported as a company that was owned by Kesko Oyj but now it is operating as a partnership as two separate businesses pooling their resources together and this will impact their financials obviously as they can no longer report this business (and it has no sales figures on the report). In my previous experience at Coca Cola we would undertake joint ventures with our alcohol brands so finally all this reporting clicked with me as to how it was impacting reporting (among other issues).
All of the sectors (grocery, building and trades, car trades) were all in growth of 3.1% up to 15.9%. This is impressive considering this is a company operating across multiple sectors each with their own challenges, but they seem to be meeting them with ease. I think some parallels can be drawn between their success and potential COVID as there was a huge increase in retail spending across the board with people at home and more time at home meant more DIY projects.
Finally for the overall numbers. Operating Profit was €775.5 million which is an increase of a massive €207.7 million. Digging down further into the report the net profit was €571.8 million or an increase of €136.5 million. Obviously, taxes take up a chunk of revenue. But I also found a few other interesting areas that intrigued as I found myself on a google frenzy. Comparability, net finance costs and EBITDA to name a few. Honestly outside of the main figures it’s hard to ascertain what is the most relevant/important to know as there are so many charts and terms that are quite foreign to me. Honestly the 2-page run down from the Board of Directors told me a great deal of what I needed to know about the company, its performance in 2021, its strengths and challenges. However, there was still a need to delve into the financials to find the overall net profit once taxes etc. had been considered. There were also some risk/opportunities that were mentioned initially that were found later in the report.
Nonetheless I found the structure of this report fantastic and easy to comprehend especially for someone like me who has never really read an annual report (just move it to portrait next time please).
I have put some more information about my company including what it does, interesting news articles and anything else I found pertinent to include on my blog. Which can be found at: https://danielpeoples8.wixsite.com/dansdegree/post/who-is-kesko-oyj
Am I happy with my company?
To be honest, when I was scrolling through the list of names and companies assigned, I noticed there was companies like “Brisbane Broncos” and I thought that would be far more interesting than a company called Kesko Oyj! However, the sheer volume of revenue this company brings in and the different industries it operates in is all new to me and I did find it engaging. I felt like I was given a winning team, one that is performing unlike my Gold Coast Titans.
Difficulties I faced with being assigned a Finish company was finding relevant news articles or videos in English. I did have a look at a few other company’s financial statements, in particular the Brisbane Broncos example and noticed that Financial Statements did seem to be set out similarly to Kesko Oyj, even though they are in completely different industries. This makes me think Financial Statements are the same worldwide with only minor differences, I will be curious to see as I learn more in the coming weeks.
Studiosity Feedback
Initially working at the Uni I had heard of this service and recommended it to students however had not previously visited or utilised myself. It was easy to navigate and submit for review and I was gobsmacked how quick the turn around was (is this a bot or is this a person?).
So, wow to my surprise it turns out its not a bot. The support I received from Studiosity was extremely helpful. It identified that I use frequent run on sentences and need to improve the uses of commas to assist with this. It also found multiple grammatical errors that my tired eyes did not pick up after my initial draft revision. I will be using this support site moving forward as it is a great tool to assist with spelling, punctuation and ensuring that your thoughts and sentences are communicated clearly and concisely in my writing.
I would recommend Studiosity to anyone currently studying at CQUniversity.
Top 3 favourite blogs
Angela Louttit
https://angelalouttit.wixsite.com/the-final-stretch
I really enjoyed Angela’s blog for numerous reasons. For starters she is in her final term of study and you can really feel the excitement in her words. I even felt excited for her like I was along for the final journey with her. Angela is also in a similar situation to me and is trying to complete her degree while raising a family which puts me at ease that there is a light at the end of the tunnel.
Joseph Ludeman
https://jludeman90.wixsite.com/website
I related to Joseph a lot as he is in a similar position to myself with trying to balance study and two young kids at home. I enjoyed the run down of his company as it was clear and concise and I enjoyed the personality he injected into his readings and look forward to continuing to follow his journey.
Teagan Allitt https://teaganallitt.wixsite.com/my-site-1/post/acct11059-assessment-1 I loved the look of her site aesthetically and it looked quite professional. What I enjoyed most about her blog was her writing style. The way she communicates in each post is unfiltered and feels like it is her putting down her real thoughts as opposed to “what the assignment wants”. It makes the blog feel more personable which makes reading the blog more enjoyable. Step 4:
Financial Statements are entered into a separate excel file. This will be in a separate blog post.
Step 5:
Some specific sections of theses readings that really engaged me I put in bold and responded to otherwise it is my stream of thoughts and observations while reading these chapters.
Chapter 2: Understanding the Game You have to learn the rules of the game. And then you have to play better than anyone else. Is there also something be said sometimes that you cannot lose a game you do not play? This also assumes everyone who plays game, abides by the same rules.
It’s the referral to all of accounting as a game which honestly leaves me a bit uncomfortable. For something so important to be referred to as a game took some getting used to. Finance to me is all about being accurate, about the accuracy of data. Whereas sure a game can have a score but not everyone plays by the rules. Some people have an advantage before the game starts and some people simply don’t play be the rules.
I also had to google the difference between Rules and Regulations because I found it strange that companies do not have to follow set rules but instead there are several regulatory requirements. Would this be akin to having to put your trolley back in the bay after loading groceries into your car? Would that be the “rule” and say you cannot bark in a loading zone or in this area for longer than 10 minutes be the regulation? Also, I do find it perplexing that if I need to say apply for a loan or lodge my tax etc I am subjected to more stringent requirements than some companies. Managers can get whatever financial and other information they want about their firm. They are constrained only by the limits of practicality and costs. Why would there be a cost to obtain financial information within a company? Are we talking cost as time? Staffing? Do they need external organisations to obtain this information?
Practicality does resonate with me, however. There is nothing worse than trying to obtain information only for it to be stuffed with unrelated information. I recently went to my bank and asked about getting the best rate and why I shouldn’t move, and the explanation talked about how much staff they employee, the services that I don’t use etc and did not answer my initial request.
2.1 Rules of the game
I did have a slight chuckle about the mention of financial statements once not being appropriate for financial discussion and the Facebook analogy. I think the world today seems more public than anything. There is too much information out there about everything and everyone. Everything seems to leak out into public discussion. Again, it seems more likely these days that people are trying to find ‘cheats’ or ‘edges’ to the game rather than play (am I being too negative?).
It really shows the power the banks have over our everyday lives, and I guess I had not considered how far that reaches. Is the author saying that you do not need equity investors or alternatively they aren’t as reliable as a bank when it comes to information? When I invest in a company I want as much information as I can, but I still feel like I don’t have the whole picture regardless.
As the game is constantly changes, I cannot imagine how the governing bodies keep up with regulation. I think it would be safe to assume that some companies would be looking at finding holes in regulation to be able to legally exploit situations.
“However, it is important to remember that a firm usually has only one set of accounting information. It simply has different ways of presenting and using this accounting information depending on whether it is for people inside or outside a firm”. Public persona vs private persona. Is it better to present an accurate portrayal of what is really happening? I look at my social media and sometimes wonder what is being presented vs what is reality. What do you need to know vs what we are going to tell you? My happy holiday snap of me enjoying a beer on the beach didn’t include the 2 hours prior of wrangling with crying toddlers. So, with so many countries having so many rules I do wonder is there one country/group/organisation that would set the tone/be more reliable? Would you say trust a financially strong performing countries regulations and rules more than an underperforming 3rd world country?
So, the above was seemingly answered later with the introduction of GAAP but it still raises questions of who sets these generally accepted terms.
There is no way any one person can know all these rules. And these written rules are not even all the rules. This is such a perplexing statement. I have re-read it a few times and am still thoroughly confused. At least to me it admits that is impossible to know all the rules which is re-assuring but also terrifying as again people always look for an angle. Also does this mean there are “unwritten rules” to accounting? What are they?
It is reassuring to know that Australia follows such high standards and reporting. It did raise a question in me that may or may not be related. When mentioning the rules for ASX, what is required for a company to be listed? Can any company be listed if it meets a certain revenue threshold and is able to produce financial statements?
The chapter on reporting started to bring back prior knowledge together for me, I was now able to see who had to report and why they needed to report. As Martin said not every business you walk past would need to do this.
So it now makes more sense that while there are these rules they don’t apply to every single business.
It would be pointless for some businesses to provide general purpose financial statements as honestly who would read them and who would care.
So, it is a matter of judgement whether a firm is a reporting entity or not. Would the business make this judgement? Is there an advantage of being a reporting entry? Am I just overthinking?
2.2 You cannot have a rule for everything
While I’m still on the fence a little about this I am coming around to it. There are absolutely many shades of grey to life. Look at the prior trolley analogy. Its not a law that you must return your trolley but it’s the right thing to do. However, ultimately, it’s up to you if you do it or not and I take that approach to study. I am a very process driven person which so far has been the biggest difficulty for me in this unit. I like having a set pathway in my study that I can tick off, this might relate to trying to juggle multiple family, work, and study. Following this new standard of learning is the metaphorical trolley and its up to me to return it.
I feel overall this unit is setting me up for future success in my university life and by nailing the approach now it will make future study easier.
We all bring our own different and varied prior knowledge and previous experience with us wherever we go; each one of us. Its amazing no matter how many new things you learn you still have those key things that you always come back to. I can still think back to things in school, sport, or prior jobs and how they have influenced how I approach today. I still have to say to myself righty tighty/lefty loosey when using a screwdriver.
“Studying accounting can change our lives” - I’m open to it but that’s a huge statement to make!
It might seem like a ‘quick and easy’ way to go at first but it will leave you disappointed, bored, and discouraged with your university experience in the end. I do struggle with this. I work full-time and need to make time for family, extracurricular, house upkeep and literally a million things so my study time needs to be maximised. As this is my first unit, I would love nothing more than quick and easy but understand I am learning a new process and will put faith in accepting it because in turn it will lead to a richer experience that will leave me better equipped to succeed.
I am unsure if financial statements are an actual true reflection of a business to a certain extent. I found in my review of Kesko Oyj that the introduction from the board of directors really set the scene for me and painted this terrific picture of profit. However, reading further in a small section I found they had reduced many staff and had to take a loss due to a joint venture which although which was quite huge compared to the small footnote it got.
The AASB framework tells me simply that a firm must provide information in a report that a wide range of people may find relevant but does not have to appeal to every single group which makes complete sense. Everything is relevant or irrelevant depending on what information you are trying to get.
2.3 Accrual Accounting
As silly as this sounds, I hadn’t considered this concept and found the electricity analogy a great way to communicate this through to me which led me to think about all the things I use in my day to day (subscriptions etc) that would use this.
The idea of the lifespan of a company and how the reporting impacts it is a novel concept but again this chapter feels like a bit of a lightbulb moment for me. Its so easy to just think of business as cash in vs cash out.
This can be subjective (meaning different people might have different ideas about it) and will require management to make some assumptions and judgements. This assessment may end up being inaccurate to some extent, either deliberately or unknowingly.
If a company was to knowingly make an inaccurate assumption is there any legality issues to this? Or is more of a white lie scenario? Is the ability to make these assumptions something that adheres to framework or checklist? It seems very “wild west” to me.
The Ansett Australia collapse was really intriguing to me as I had never really thought of them past the Ansett logo on an old footy jersey of mine. The fact that it was the largest failure in corporate history in terms of staff numbers made me feel a bit out of the loop for not realising how big of an impact this was, yet I’m only really hearing about it now. So, Ansett realistically knew they were in trouble and hid it? I will need to investigate further.
2.4 Quality of Information I found this chapter the easiest to digest. The importance of relevancy and faithfulness applies to a large aspect of life outside of just finance. I have utilised this practice in my BUSN11016 assignment when looking at referencing. You can find anything online but is it relevant to the point you are trying to get across? Additionally, is it faithful or from a biased source? Being Faithful and Relevant strengthens your argument so it of course would be integral to reporting.
Comparability really stood out to me in my Kesko Oyj annual report when I entered the financials. You could see dramatic changes each year which would make you go “what happened that year” which could then be explained in the financial report. This was because the data was relatively consistent each year. Footnotes can be so easy to look past at times especially in a 140 page report so it was good to know their importance in financial reporting. Additionally, verifiability in Kesko Oyj made me take all the information and look at potentially purchasing shares in the company.
Another enhancing quality of information is timeliness. Some information is timeless but the constant need to dilute it and reimagine it can decrease its importance over time (like a movie remake). I can appreciate the contrast though that the changing world can render some information obsolete.
To summarise this chapter conveyed a lot of the core accounting and reporting concepts to me. My apprehension that it is somehow a game still exists but after taking in all the above information it is normally not done with any malicious intent. How funny that the opening lines sums up all of chapter 2 “You have to learn the rules of the game. And then you have to play better than anyone else”. Chapter 3 Introducing Financial Statements.
I must admit I had to go back and re-read this chapter a few times to help me with understanding my company’s Annual Report.
I did initially struggle with the layout of the report, especially when it came to entering my financials, but I was put at ease that companies will display their financial statements in different ways and to look for general patterns which I did. The analogy of the party also helped because it made me understand that this report will allow me to understand what I’m looking for and not have to constantly refer to the text or spreadsheets to understand what was being communicated to me through the report. I will admit I am horrible with remembering names and faces and to be honest sometimes its more how engaging a person is or what is memorable about them which will help me to retain their name. I think I’m going to need to put in more effort to make Kesko Oyj extra memorable. That’s ok though as I am completely new to financial reporting and annual reports so I should not put so much pressure on myself. 3.1 A view of business at rest My firms annual report was 140 pages but it only took them 5 pages to really put across just how well they are going across the board. It was basically a mic drop by page 7. It’s human nature to do the same. Jump on social media and everyone is putting forward the best version of themselves regardless of the reality. Every politician is doing great, and every footy team is in perfect harmony but that is just the reality people like to put forward to the public. Its good to know businesses are the same.
When I read down further into the report, I could see that yes, they were making record profits but there were still some areas of concern and they had even reduced their number of employees by a few 100. But your annual report needs to be your Facebook profile picture. The best version of yourself you can display,
The way their financials were presented were difficult for a novice like me to read and then record into my spreadsheet. There were several 1 off entries that were required for certain years due to movement within the business.
I really felt this chapter gave me a bit more understanding of the balance sheet by simplifying the process as to what I should be looking at versus what the company is displaying. Again, it was great to know the importance of footnotes in annual reporting. I honestly found entering my companies balance sheet to be an extremely arduous task. There was a lot of information to put into the spreadsheet, but this chapter helped make it a bit more understandable. It was helpful again to understand what the consolidated balance sheet was versus the multiple other balance sheets in the Annual report. I look back at my time in Coca Cola and all the subsidiaries and brands under the company. I would have customers say that they disliked coke but liked x brand not knowing it was the same company. I am going to look at a few more of my favourite brand and see who they are a subsidiary of.
3.2 Business on the move
The balance sheet really is like a left behind relic of the past few years. It tells a story in numbers and in my case Kesko Oyj just continued to hit new peaks. I did find their balance sheet extremely different to the Westfarmers balance sheet which was used in the YouTube example. For starters it was in landscape which meant I couldn’t copy and paste numbers which was frustrating to say the least! One massive speedbump I did hit was that Kesko Oyj changed the way it presented its financial statements in 2020 which made it extremely hard to balance.
The statement of changes and equity was indeed the geekiest person I ever met at a party. I found calculating a lot of these figures using the calculations found in this chapter difficult. This is due to the different naming conventions in my financial summary and having to jump back between the text and the spreadsheet.
Cash certainly is king as they say and even with all the information provided the simple fact that if the regardless of assets and profit if there is no cash there is no business. I believe this relates back to the collapse of Ansett.
Trust is the most important aspect to me in any business or product I interact with. I find it harder to give trust these days to business. In my opinion it appears that the working of most business today is to see how far they can push your trust and goodwill. A price increase here, reducing what you are given there, but no, trust us, it will be for your own good.
I did find it surprising that revenue and expenses are referred to as temporary elements of accounting, as I would initially believe they would be a permanent element.
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