In general, Kesko is in compliance with the Finnish regulations relating to the organization and procedures of the Annual General Meeting.
Under ITEM 9, the Board of Directors proposes to distribute a dividend of EUR 2.34 per share, +6.4% as compared with 2017 despite a 38.0% decline in consolidated net income. The proposed dividend distribution is not fully covered by consolidated net earnings or free cash flow. However, it should be noted that cash flow from operations significantly increased in 2018, by 49.7%, and the reduction in consolidated net income was mainly due to extraordinary transactions, such as the divestments of non-profitable business units. In comparable terms, operating profit increased by 12.2%, and the comparable earnings per share increased by 7.9%. Also taking into account Kesko's healthy financial position (net debt-to-EBITDA ratio was 0.4x in 2018), ECGS recommends to vote FOR.
Under ITEM 13, the Audit Committee of the Board of Directors seeks approval of the remuneration of the auditor. Since non-audit fees paid are greater than 50% of the audit fee on a three-year aggregate basis, ECGS recommends to vote OPPOSE.
Under ITEM 14, the Audit Committee proposes to reappoint PricewaterhouseCoopers as the Company's auditor for FY 2019. As already mentioned above, the level of non-audit fees is not in accordance with ECGS' guidelines, and the current auditor has been in office for 43 years, which exceeds its guidelines. In line with EU regulation, ECGS recommends a term of maximum 20 years (10 + 10 years, if a tender is undertaken). Therefore, ECGS recommends to vote OPPOSE.
Kesko is a provider of trading sector services. Co.'s reportable segments are: food trade, which comprises the wholesale and B2B trade of groceries in Finland and the grocery trade in Russia; home and speciality goods trade, which comprises Co.'s K-citymarket Oy subsidiary's home and speciality goods; building and home improvement trade, which includes Co.'s Rautakesko Ltd's subsidiary's wholesale and B2B sales in the building and home improvement and agricultural trade in Finland, and the trade in Sweden, Norway, the Baltic countries, Russia and Belarus; and car and machinery trade, which comprises the business operations of Co.'s subsidiaries, VV-Auto Group Oy and Konekesko Ltd.
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Item 3: Approve the Remuneration ReportThe remuneration structure is satisfactory, though accelerated vesting is possible. Potential and actual total variable remuneration exceed guidelines, but not very much. They are moderate in comparison with UK market practice. Overall, the quantum during the year was not excessive. We recommend shareholders vote in favor.
Item 3: Approve the Remuneration Report The structure is weighted more heavily towards short-term performance. One of the performance metrics for the LTI is the payment of sustainable dividends, which is not considered appropriate as executives can potentially influence the payout level. The LTI also includes relative TSR as a performance metric. Nevertheless, the quantum is not excessive and even maximum potential amounts are moderate. On balance, we recommend shareholders vote in favor. Item 4: Approve the Remuneration PolicyThe main concern with the Company's remuneration policy is that pa...
Item 2: Approve the Remuneration ReportThe remuneration structure is unsatisfactory. The main concern at the Company is that the potential maximum incentive pay including the bonus, matching shares on the deferred portion of the bonus and the LTI amounts to 1000% of base salary, which is considered grossly excessive. Actual incentive pay during the year was1.6 times the ECGS limit. Furthermore, variable remuneration is overly reliant on a single performance metric, benchmark profit before tax. A second performance criteria will be used in the coming year. We note that the Company has adjusted ...
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