Most significant risks

Significant risks and uncertainties

 
Impact of economic uncertainty on Kesko's sales and profit

There is great uncertainty regarding developments with the pandemic and its duration, which impacts economic outlook and consumer behaviour in all of Kesko’s operating countries. A significant weakening of the economy would impact especially the building and technical trade and the car trade. Extended restrictions on restaurants impact the foodservice business.

Competitive situation in the grocery trade

A weakening economy causes consumers to focus on price when it comes to decisions on products and services. This causes competition to tighten.

Impact of the Covid-19 pandemic on business continuity and personnel health

Large numbers of sick employees in the logistics centres or stores and key members of personnel getting sick could endanger the continuity of K Group’s critical operations and supply chain and product availability. There is a significantly bigger emphasis on ensuring the safety of personnel and customers in management and everyday operations.

Critical information falling into the wrong hands

Crime is increasingly committed through data networks and crime has become more international and professional. A failure to protect the security of payment transactions and personal data in particular can cause losses, claims for damages and reputational harm.

Business interruptions due to cybercrime and information technology failures

Growing threats necessitate quality actions from service providers, good data security, and sufficient data security skills from our personnel. Cyber-attacks could, for example, result in significant loss of sales and weakened customer satisfaction. In addition to cyber threats, failures may arise due to e.g. hardware failures, issues with data communications, and software errors.

Integration of acquisitions in the building and technical trade

There are operational risks related to the ongoing integration of acquisitions carried out in Sweden and Norway.

Product safety

A failure in product safety control or supply chain quality assurance could result in financial losses, loss of customer trust and reputation, or, in the worst case, a health hazard to customers.

Staff availability

The implementation of strategies and the achievement of objectives require competent and motivated personnel. The acquisitions carried out as well as other significant business and development projects, coupled with an increased need for special competencies increase the key-person risk and the dependency on individual expertise.

Compliance with laws and agreements

Changes in legislation and authority regulations could necessitate significant changes and result in additional costs. Compliance with laws and agreements is an important part of Kesko's corporate responsibility. Non-compliance can result in fines, claims for damages and other financial losses, and loss of trust and reputation. The EU General Data Protection Regulation has placed more importance on the need to protect personal data.

Store sites and properties

With a view to business growth and profitability, good store sites are a key competitive factor. The acquisition of store sites can be delayed by town planning and permit procedures and the availability and pricing of sites. Considerable amounts of capital or lease liabilities are tied up in properties for years. As a result of urbanisation, changes in the market situation, growing significance of e-commerce, or a chain concept proving inefficient, there is a risk that a store site or a property becomes unprofitable and operations are discontinued while long-term liabilities remain.

Responsible operating practices and reputation management

Various aspects of corporate responsibility, such as ensuring responsibility in the purchasing chain of products, fair and equal treatment of employees, the prevention of corruption, and environmental protection, are increasingly important to customers. Any failures in corporate responsibility could result in negative publicity for Kesko and cause operational and operational and financial damage. Challenges in Kesko’s corporate responsibility work include communicating responsibility principles to customers and ensuring responsibility in the supply chain of products.

Climate change

Climate change risks are twofold. Risks for Kesko are related to increasing regulation and extreme weather phenomena. Increasing regulation necessitates changes in business operations and leads to additional costs. Increase in extreme weather phenomena can impact product availability and cause disturbances in logistics and the store site network. The impacts of Kesko’s operations on the climate, in turn, are related to Kesko’s energy solutions and emissions and the lifecycle impact of products and services sold.

Reporting to market

In its investor communication and financial reporting, Kesko follows the disclosure policy approved by Kesko’s Board of Directors. Kesko's objective is to produce and publish reliable and timely information. Disclosure follows the principle of providing all market participants information in a timely manner and non-selectively to form the basis for the price formation of Kesko’s financial instruments such as shares. If any information published by Kesko proved to be incorrect, or communications failed to meet regulations in other respects, it could result in losing investor and other stakeholder confidence and in possible sanctions. Significant business arrangements, tight disclosure schedules and dependency on information systems create challenges for the accuracy of financial information. The risk is mitigated by careful process scheduling and instructions and by ensuring the right resources, explicit responsibilities and sufficient competencies.

Risks of damage

Accidents, natural phenomena and pandemics can cause significant damage to people, property or business. In addition, risks of damage may cause business interruptions that cannot be prevented.

Financial risks

Financial risks are described in note 4.3 in Kesko’s 2020 financial statements.

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