Suomen Osuuskauppojen Keskuskunta SOK Corporation

Annual Report 2005 Suomen Osuuskauppojen Keskuskunta SOK Corporation

Annual Report 2005

1 Contents

4 CEO’s Review

13 SOK Corporation

19 Business-by-business review 19 Market trade 21 Service station stores and fuel sales 22 Department store and speciality store trade 24 Hotel and restaurant business 26 Motor trade and accessories 28 Agricultural trade

29 Procurements and logistics

31 Neighbouring countries

32 Corporate governance within SOK Corporation

38 Accountability 38 Personnel 43 Environment 46 Sponsorship and international contacts

48 Financial Statements 2005 48 Executive Board Report on Operations 54 Consolidated Income Statement 55 Consolidated Balance Sheet 56 Consolidated Cash Flow Statement 57 SOK Income Statement 58 SOK Balance Sheet 59 SOK Cash Flow Statement 60 Accounting Policies 63 Notes to the Consolidated and SOK Income Statement and Balance Sheet 77 Key Ratios and their Method of Calculation 78 Executive Board’s Proposal for the Disposal of SOK’s Proﬁ t for the Year 79 Auditors’ Report 79 Statement of the Supervisory Board

3 CEO’s Review

The S Group’s cooperative enterprises Increasing patronage by our – customer-owners’ own store customer-owners

Th e S Group’s task is to provide services and benefi ts for its Th e S Group succeeded well in carrying out its mission last year. members, its customer-owners. Th is mission guides both strategic Bonus sales targeted at customer-owners outstripped the development and practical operations, and it underlies day-to-day S Group’s overall sales growth. Customer-owners thus showed their service for customer-owners at all our S Group locations. confi dence in the S Group and the way it operates. Over 115,000 Carrying out the mission is thus the starting point and goal new customer-owners became members of cooperative enterprises of everything the S Group does. Th e performance of the entire during the year. At the end of the year, the cooperative enterprises Group can be assessed by how well we have succeeded in accom- had a total of 1,534,710 members, representing 64 per cent of all plishing this task. Finnish households. What kind of retail and service organisation does the S Group More and more, customer-owners are making the bulk of their want to be over the next few years? We have jointly sought an purchases at S Group locations. Th is is one of the Group’s success answer to this question during 2005. As a result of discussions and factors. Bonus sales accounted for 63 per cent of the S Group’s brainstorming, the new “Your Own Store” vision has been forged. sales in 2005, up 13 per cent on the previous year, whereas the In every aspect of its operations, the S Group strives to give our S Group’s overall sales in Finland increased by 6.6 per cent. Bonus customer-owners the feeling that when they are in one of our loca- sales accounted for over 70 per cent of sales in the grocery, service tions, they are customers of their own store. station store, fuel and department store trade. Th e S Group’s owners are more than 1.5 million Finns. Th is When customer-owners make the bulk of their purchases at our group of companies is Finnish in its objectives, in the way it oper- locations, they receive a cash bonus. Th e Bonus paid to customer- ates and by virtue of its core values. owners reached a total of EUR 194 million in 2005. Bonuses paid Furthermore, the Your Own Store vision defi nes the S Group as to members increased by 16 per cent on the previous year. Th e co- a Finnish group of companies which is decidedly modern in the operative enterprises will furthermore distribute to their members, way it operates and international – in its sourcing activities, for for the 2005 fi nancial year, interest on cooperative capital and a example. payout from surplus funds to a total amount of about EUR 15–20 Th e S Group operates through a regional cooperative enter- million. prise structure that bestows a distinct regional identity upon the Th e S Group’s cooperative enterprises and SOK Corporation cooperative enterprises. In the Your Own Store vision, regional have participated in a number of nationwide and regional develop- operations bring the cooperative enterprise’s services close to cus- ment projects involving business, culture and sports during 2005. tomer-owners because the cooperative enterprises know the special Th ese initiatives have been a means of developing economic, social needs of customer-owners in their own territory. Decision making and cultural well-being in diff erent parts of Finland in accordance takes place in the cooperative’s own territory and cash fl ows are with the S Group’s principles of responsible business operations. largely retained to further the development and future of each Part of the earnings of the cooperative enterprises and SOK Cor- individual region. poration are used for the benefi t of the membership and local areas Th e S Group is a cooperative group of companies. Th e members via community activities of this kind. of a cooperative enterprise have a say in deciding how the store operates by taking part in its diff erent administrative bodies. One Financial performance of the S Group of the central tenets of the Your Own Store vision is that members and SOK Corporation are on an even and equal footing. In a cooperative enterprise, the members are genuinely customer-owners who are involved in Th e S Group’s retail sales in Finland in 2005 totalled EUR 8,464 operations and in decision making. million. Th e increase on the previous year was 6.6 per cent. Sales Th e Your Own Store vision stresses that the S Group is a outpaced the market, particularly in the supermarket trade as well retail and service company with a human face. Th e cooperative as the service station store and fuel trade. Apart from the motor enterprises and SOK Corporation strive to operate in a responsible trade, the other business areas also achieved sales growth that was manner both within Finnish society and economic life and in the at least on a par with the market average. international operating environment. Purposeful and long-term Th e cooperative enterprises reported retail sales of EUR 7,244 development work, healthy fi nances, openness and trust among million, or 85.6 per cent of the S Group’s sales. SOK Corporation’s the personnel and other stakeholders coupled with a customer share of this fi gure was 14.4 per cent last year. focus that fl ows from our regional structure and is bolstered by Th e S Group’s grocery trade grew by 6.9 per cent in Finland, a respect for sustainable ethical values in business – these are reaching EUR 4,237 million. the characteristics which the companies in the S Group wish to Th e S Group’s grocery sales last year grew at a considerably faster emphasise. rate than the nationwide average. Th is meant that the Group’s Th e Your Own Store vision furnishes a framework for carry- market share of the grocery trade strengthened markedly last year. ing out the S Group’s mission in day-to-day operations. Th is is Sales by the ABC service station stores and fuel outlets likewise the kind of retail and service company the S Group aspires to be clearly outpaced the average rate of growth in Finland. – now and in the future. SOK Corporation’s net turnover in 2005 totalled EUR 4,209 million (up 11.3%). In line with the S Group’s strategy, business

4 CEO’s Review

that is targeted directly at customer-owners has been transferred is gaining in importance. It is by developing its business and serv- from SOK Corporation to the cooperative enterprises, notably in ice operations that the S Group must meet these challenges. the department store business area. Th e sourcing and service functions which SOK Corporation Net turnover from business operations amounted to EUR 1,473 carries out for the entire S Group will become an ever more million of SOK Corporation’s total net turnover. Sourcing compa- prominent success factor for the S Group in coming years. SOK nies’ share of SOK Corporation’s net turnover has grown rapidly Corporation is increasingly taking on the role of a service, compe- over the past few years. Th is happened in 2005 too. Last year the tence and procurement centre for the entire S Group. net turnover of SOK Corporation’s sourcing companies that pro- In harmony with the Your Own Store vision, the S Group must cure goods and services for the cooperative enterprises and SOK further develop the range of services it off ers its customer-own- Corporation’s operating companies already rose to EUR 1,273 ers. As our customer-owners’ needs become ever more diversifi ed million. A notable sales increase was reported by North European and new service needs arise, we must cope with the challenge of Oil Trade Oy, the subsidiary that is engaged in fuel procurement. developing our services. Over the next few years this will mean a SOK’s operating companies in the Baltic area generated sales of substantial increase in investments. Th e strategies of all our busi- EUR 169 million last year (up 11.7%). Supermarket sales as well ness areas can thus be characterised as growth-driven. as the hotel and restaurant business saw an especially favourable Th e S Group’s near-term development projects will be geared sales trend. Sales by the operating companies in the Baltic area are towards reinforcing the S Group’s strategic success factors. Th e not included in the S Group’s retail sales fi gures presented above. cost-eff ectiveness of our retail, service and sourcing functions must SOK Corporation’s profi t before extraordinary items amounted be boosted further. Th e S Group has devoted resources and eff ort to EUR 69.0 million in 2005, an increase of EUR 14.7 million on to putting in place precision management of the long value chains the previous year’s earnings. for our businesses and services, and so far we have made substantial headway. The S Group’s near-term challenges Customer-ownership combined with a regional cooperative enterprise structure is a strong competitive advantage for the International competition will increase in all the S Group’s busi- S Group. We have launched a number of important development ness areas over the next few years. Consumer behaviour is likewise projects with the aim of being able to make better use of customer- becoming more diff erentiated, and knowledge-based management owner information in developing our operations.

5 CEO’s Review

Development work over the next years will give our service net- A cooperative organisation that is run by its owners has been and work greater reach and depth. New investments in operating loca- still is one of the S Group’s prime strengths. Our owners’ adminis- tions together with major acquisitions will increase sales generated trative work and decision making has shown expertise, a deep and by our diff erent business areas. Th e acquisition of Suomen Spar broad grasp of matters and a far-reaching outlook. Th e dialogue Oyj, the purchase of the shares in Auto-Kivitila Oy in Tampere with management has brought a positive dynamism to the Group’s and the transfer of Stockmann plc’s vehicle business in Espoo and development. My thanks go to all those who have been involved Turku to the ownership of SOK’s subsidiary Maan Auto Oy will in owner-administration within the S Group for the valuable work bring a signifi cant improvement in the S Group’s service network you have done. over the years ahead. Th e companies that have been our bonus partners have made an Th e business acquisitions can be considered highly appropri- important contribution to rounding out our services for customer- ate from the perspective of developing our service off erings to owners. We have co-operated together in a good spirit, with an eye customer-owners, and they also fi t in well with the growth strate- to development. My sincere thanks go to our bonus partners and gies which the S Group has defi ned. In particular, the investments all our business partners for your co-operation during 2005. in car dealerships will bring higher income fl ows from SOK I wish to express my special gratitude to the S Group’s cus- Corporation’s business operations in future years and improve the tomer-owners – the members of the cooperative enterprises – for Corporation’s fi nancial performance. your strong and ever-growing commitment to using the S Group’s Th e S Group is seeking to develop a wider range of fi nancial services. You have taken part in building the ever-developing S services for its customer-owners. Following extensive exploratory Group. You have been exemplary in carrying out the Your Own studies, the S Group founded its own banking company in Febru- Store vision in practical everyday dealings as customer-owners of a ary of this year. Th e deposit bank, which will begin operations as cooperative enterprise. My warm thanks to all of you. an SOK subsidiary, is a far-ranging and major strategic investment for the entire S Group. Its signifi cance for customer-owners and the competitiveness of the entire S Group will show up in the years Helsinki, 23 January 2006 ahead in the form of improved fi nancial services for customer- owners and a step-up in the effi ciency of the S Group’s fi nancing functions. Now that the sourcing company Inex Partners Oy has become an SOK subsidiary at the end of January 2006, there will be greater scope for enhancing the S Group’s long value chain in the grocery and consumer goods trade. Making this large sourcing Kari Neilimo company a part of SOK Corporation’s organisation will nevertheless call for a carefully planned and co-ordinated integration process in order to secure the sought-after procurement benefi ts. Th e S Group currently has in the planning or implementation stage a number of strategically important business and service development projects. A wider range of well-being services for customer-owners, a stronger vehicle sales organisation, the development of speciality store sales and the expansion of operations to nearby areas are examples of strategic development projects across the entire S Group that will bring tangible benefi ts in the years ahead.

People stand behind success

Th e eff ectiveness of all the strategies we have planned is tested at the S Group’s diff erent locations in daily encounters between management, supervisors, the staff and our customers. Th e moment of truth for carrying out the S Group’s mission and the Your Own Store vision lies in these situations and in making them click. Th e competence of management, supervisors and employees, the ability to pay attention to and understand members’ service needs as well as a friendly service-mindedness will underpin the S Group’s success in future years too. Th e S Group has a good and skilled staff . I thank all of you most warmly for your work on behalf of the S Group.

6 The S Group

What is the S Group? ment store and speciality store trade. In the hotel and restaurant business, the nationwide chains are Sokos Hotels, Radisson SAS Th e S Group is a major Finnish cooperative retail and service Hotels, Rosso, Rosso Express, Fransmanni, Amarillo, Sevilla, group. It is made up of Suomen Osuuskauppojen Keskuskunta Memphis, Night, Corner, Coff ee House and Presso. Th e nation- (SOK) with its subsidiaries, 22 independent regional cooperative wide chain in the agricultural trade is Agrimarket. enterprises and 19 local cooperative enterprises. Th e members, or In addition to the domestic market, the S Group carries on customer-owners, own the regional cooperative enterprises, which international operations in the Baltic countries in the supermarket in turn own the central organisation, SOK. trade, the hotel and restaurant business and the motor trade. Th e purpose of the S Group’s entire spectrum of operations is to At the end of the year the S Group had 1,392 locations in Fin- provide services and benefi ts for its members. Th e backbone of op- land, and 10 locations in the Baltic countries. erations is our core values: a customer focus, partnership, renewal, Th e Group had a payroll of 28,092 employees, of whom 23,040 excellence and responsibility. were employed by the cooperative enterprises with their subsidiar- Th e S Group’s main strategic goal is to off er its members ies and 5,052 were SOK Corporation staff . everywhere in Finland versatile services and an extensive network. In line with its strategy, the S Group operates effi ciently, work- Customer-ownership underpins ing for the benefi t of its members and making the best use of the our operations Group’s information, know-how and co-operation networks. Th e S Group’s cooperative heritage is refl ected today in customer- The S Group’s businesses ownership. It underpins planning and development in all business areas and is an overriding success factor. Th e S Group’s business areas are the supermarket trade, the service At the end of 2005 the S Group had 1,534,710 members. Last station store and fuel trade, the department store and speciality year over 115,000 new members joined. store trade, the hotel and restaurant business, vehicle and automo- An extensive and versatile service network everywhere in tive accessories sales and the agricultural trade. Finland, good-quality and aff ordable product and service off er- Th e S Group’s operations are organised into nationwide chains. ings, and highly skilled staff form the foundation for serving our Joint support and development services are produced on a central- customer-owners and realising the S Group’s business idea. Th e ised basis. When chain operations are combined with the regional regional cooperative enterprises are always close to their customer- cooperative enterprises’ good local knowledge of the market and owners. customers, the result is an effi cient business model the S Group Purchases by members already accounted for 63 per cent of way. the S Group’s retail sales in 2005 and this proportion is on the Th e S Group’s nationwide chain brands are Prisma, S market, increase. Members were paid purchase bonuses totalling EUR 194 Sale and Alepa in the grocery trade; ABC in the service station million for their patronage of the S Group’s locations. store and fuel trade; and Sokos and Emotion in the depart-

The S Group is composed of 22 member-owned regional cooperative enterprises and SOK Cor- poration, which is owned by the cooperative enterprises. The primary division of labour is that the regional cooperative enterprises handle the practical provision of goods and services for members and SOK acts as a development and steering organisation. SOK furthermore carries on business operations through its subsidiaries. In essence, the S Group is a strategic network of companies.

7 The S Group

Apart from Bonuses, customer-owners benefi t from their member- Regional Cooperative enterprises ship in other ways too. For example, they receive a wide range of the S Group of constantly changing price and service benefi ts, and Yhteishyvä magazine is mailed to their home once a month. Cooperative Society Varuboden, Kirkkonummi Th e S Group continually develops the spectrum of services it Southern Karelia Cooperative Society, Lappeenranta off ers its members. Th e Group’s own operations in Finland and Southern Ostrobothnia Cooperative Society, Seinäjoki abroad are rounded out by the off erings of carefully chosen bonus Helsinki Cooperative Society Elanto, Helsinki partners. In 2005 the S Group’s bonus partners operated in the in- Cooperative Society Jukola, Nurmes surance, healthcare, optician services, furniture sales, tourist trade, Cooperative Society Keskimaa, Jyväskylä energy and communications sectors. Koillismaa Cooperative Society, Kuusamo Another major benefi t is that members have a real say in how Cooperative Society Arina, Oulu their own cooperative enterprise and the S Group are run. Cooperative Society Hämeenmaa, Lahti Cooperative Society Keula, Rauma The S Group’s Your Own Store concept Cooperative Society KPO, Kokkola Cooperative Society Maakunta, Kajaani In a network-type of company like the S Group, the corporate Cooperative Society Osla, Porvoo vision plays a big role in steering operations. During 2005, the Cooperative Society PeeÄssä, Kuopio S Group’s vision was updated in CEO Kari Neilimo’s book Your Cooperative Society Suur-Savo, Mikkeli Own Store. Cooperative Society Ympyrä, Hamina Th e main elements of the vision are set out in the CEO’s review Cooperative Society Ympäristö, Kouvola at the beginning of this Annual Report. Pirkanmaa Cooperative Society, Tampere Th e Your Own Store concept builds on the S Group’s previ- Northern Karelia Cooperative Society, Joensuu ous visions. It deepens the fundamental tenets that have guided Satakunta Cooperative Society, Pori cooperative activities across the S Group throughout its 100-year Suur-Seutu Cooperative Society SSO, Salo history. Th is logical evolution is portrayed in the triangle diagram Turku Cooperative Society, Turku below.

Cooperative Activities

Customer- A cooperative is based on ownership the idea of producing services Members Services for its members. This was made possible by means of a company set up in the form Market economy of a cooperative. with a human face Regionality Effi ciency

In the Your Benefi ts in Finland and Your Partner in Finland visions, the cooperative philosophy was embodied in the idea of customer-ownership. Services are produced for members regionally and effi ciently.

Community Successful of people company

The Your Own Store vision means a cooperative enterprise cluster that stands for market economics with a human face. The S Group is in business for the long term. It operates in a way that emphasises both human values and effi ciency, whilst also ensuring the company’s success over the long term. Membership in cooperative enterprises that work for the good of their local area has also become a matter of pride and commitment: the cooperative enterprises are taking on an ever-more central role in the community.

8 The S Group

The S Group’s key ﬁ gures in 2005

€ millions Change % S Group’s retail sales 8 633 +6.8 S Group’s retail sales in Finland 8 464 +6.6 S Group’s proﬁ t before extraordinary items 398 +24.0 Cooperative enterprise retail sales 7 244 +8.8 Cooperative enterprise proﬁ t before extraordinary items 329 +23.2 S Group’s investments 315 -2.5 S Group’s bonus sales 5 331 +13.0 Bonus paid to customer-owners 194 +16.0

S Group’s retail sales by business area Supermarket trade 4 745 +6.8 Service station stores and fuel sales 972 +22.2 Department stores and speciality stores 365 +5.0 S GROUP RETAIL TRADE BY BRANCH 2005 Hotel and restaurant business 635 +2.0 Motor trade and accessories sales 688 -3.9 Agricultural trade 1 043 +4.4 Baltic operations 169 +11.7

S GROUP´S BONUS SALES MEMBERSHIP S GROUP RETAIL TRADE

9 S-ryhmä

10 The S Group

S Group Key Figures 2001–2005

EUR million 2001 2002 2003 2004 2005 ± %

SOK CORPORATION Net turnover 2 915 2 998 3 112 3 781 4 209 11.3 Depreciation 35 35 34 40 43 5.8 Operating profi t 35 55 46 53 62 17.1 Financial income and expenses (without value adjustments) -3 -1 2 3 7 113.7 Profi t/loss before extraordinary items, appropriations and taxes 39 55 52 54 69 15 €M Profi t/loss for the fi nancial year 32 44 35 40 57 17 €M

Totalt assets 1 337 1 372 1 449 1 609 1 827 13.5 Fixed assets 530 496 473 423 398 -5.9 Stocks 129 133 135 137 161 17.5 Current assets (without stocks) 678 742 841 1 049 1 268 20.9 Capital and reserves (incl. capital loan) 435 457 445 456 492 7.9 Minority interest 16 17 17 17 14 -21.1 Provisions for liabilities and charges 21 12 9 6 2 -56.0 Creditors 865 887 978 1 130 1 318 16.7

Interest-bearing creditors 413 465 495 555 661 19.0 Liquid funds 322 420 503 658 790 20.1 Net interest-bearing creditors 90 45 -8 -102 -129 -26 €M

Personnel at 31 Dec. 4 537 4 645 4 949 4 790 5 052 5.5

SOK Sales (excl. VAT) 1 494 1 669 1 693 2 194 2 536 15.6 Sales to cooperative enterprises 1 399 1 579 1 597 2 086 2 442 17.1 Operating profi t before extraordinary items, appropriations and taxes -9 4 28 25 6 -20 €M Profi t/loss for the fi nancial year 11 14 23 30 32 2 €M

Personnel at 31 Dec. 494 505 538 631 696 10.3

COOPERATIVE ENTERPRISES + SUBSIDIARES Sales 5 340 5 640 5 894 6 652 7 244 8.9 Number of enterprises 43 43 43 42 41 -2.4 Membership 987 037 1 078 649 1 187 074 1 468 572 1 534 710 4.5

Personnel at 31 Dec. 18 078 18 169 18 488 21 563 23 040 6.8

S GROUP Retail sales 6 554 6 858 7 149 7 929 8 464 6.6 Outlets 1 216 1 222 1 252 1 371 1 392 1.5

Personnel at 31 Dec. 22 615 22 814 23 437 26 353 28 092 6.6

CALCULATION OF KEY RATIOS

Liquid funds = Cash in hand and at bank + investments Net interest-bearing creditors = Interest-bearing creditors - liquid funds

11 The S Group

S Group Retail Locations The S Group’s retail sales by at 31 December 2005 business area 2005

Number Change EUR million Change Prisma hypermarkets 47 1 Prisma hypermarkets 1 881 +6.4 S Markets 372 3 S Markets 2 341 +6.6 Sale and Alepa stores 260 18 Sale and Alepa stores 495 +7.2 Market chains 679 22 Market chains 4 717 +6.6 Other market outlets and Neighbourhood stores 23 -2 Other supermarket trade 28 +71.9 Supermarket trade 702 20 Supermarket trade 4 745 +6.8

Sokos department stores 20 - ABC service station stores 459 +33.6 Emotion speciality stores 11 4 Other service station stores 131 -5.1 Other speciality stores 15 3 ABC unmanned stations 347 +22.3 Department stores and Other unmanned stations 12 -13.6 consumer goods outlets, total 46 7 ABC fuel oil service 23 +42.3 Service station stores and fuel sales 972 +22.2 Sokos Hotels 38 2 Radisson SAS Hotels 6 - Sokos department stores 312 +4.7 Other hotels 3 -3 Emotion speciality stores 12 +25.0 Hotels, total 47 -1 Other consumer goods 41 +2.5 Department stores and speciality stores 365 +5.0 Restaurant catering to diners 71 3 Drinks and socialising restaurant 93 -7 Restaurant catering to diners 169 +4.0 Restaurants providing entertainment 10 3 Drinks and socialising restaurant 99 +2.8 Other restaurants 22 -2 Restaurants providing entertainment 21 -1.2 Cafes 34 1 Other restaurants 132 +0.9 Separate restaurants 230 -2 Cafes 31 +0.5 Restaurants 453 +2,3 Hotels and restaurants, total 277 -3 Sokos Hotels 137 +11.1 Agrimarkets 131 -1 Radisson SAS Hotels 42 +4.9 Machine Centres 8 - Other hotels 3 -82.8 Other farm supply and hardware stores 14 1 Hotels (accommodation) 182 +1.1 Farm supply and hardware locations 152 -2 Hotel and restaurant business 635 +2.0 Car lealerships 46 1 Automaa 188 -9.8 ABC service station stores 71 9 Other car dealerships 499 -1.5 Other service station stores 31 -6 Motor trade and accessories 688 -3.9 ABC unmanned stations 54 -6 Other unmanned stations 3 - Agrimarkets 751 +6.4 Service station stores and fuel sales 1) 159 -3 Machine Centres 130 -2.6 Grain trade 100 -4.5 Other locations 10 1 Other agricultural trade 61 +13.4 Agricultural trade 1 043 +4.4 S Group locations, total 1 392 21 Others 16 +26.3

1) Th e number of locations does not include stores or stations S Group retail sales, total 8 464 +6.6 at other locations.

Total number of ABC service station stores 71 9 Total number of other service station stores 27 -5 Total number of ABC unmanned stations 191 23 Total number of other unmanned stations 15 -3 Total 304 24

12 SOK Corporation

SOK Corporation comprises Suomen Osuuskauppojen Kes- the service station store and fuel trade, the department store and kuskunta (SOK) and its subsidiaries: Sokotel Oy, which runs speciality store trade, the hotel and restaurant business, vehicle the hotel and restaurant business; the Maan Auto Group, which and automotive accessories sales and the agricultural trade. SOK’s sells vehicles and car accessories; Hankkija Maatalous Oy, which chain management functions ensure that the strategies of the S is engaged in the agricultural and hardware business; the Sokos Group’s business areas are carried out in accordance with the entire companies that carry on the department store and speciality store organisation’s objectives. SOK Corporation’s strategy sets out the trade; Intrade Partners Oy, which is responsible for consumer tripartite task described below. goods sourcing and logistics; Rainex Yrityspalvelu Oy, a hardware Within the S Group, the areas of responsibility assigned to and building supply wholesaler as well as the fuel procurement SOK are: company North European Oil Trade Oy (NEOT). In addition, the subsidiaries AS Prisma Peremarket, AS Sokotel Joint development and steering functions and the Kommest Auto Group operate in the Baltic countries. – Strategic development, decision-making and management Th e Inex Partners Oy Group, which produces grocery assort- – Development and control of value chains and chain operations ment, sourcing and logistics services, was an associated company – Development of new business models of SOK up to 28 February 2006. SOK purchased from Tradeka – Development and support of customer-ownership (Cooperative Tradeka Corporation) all the shares it owned in Inex – Safeguarding the S Group’s interests and operations Partners Oy, which thereby became a wholly-owned subsidiary of SOK. Joint services – Th e provision and arrangement of sourcing and logistics services SOK’s operational scope and in a way that boosts the effi ciency of the value chains. strategic positioning – Continuous development and maintenance of the operational models for the other joint services so that they provide cost-ef- SOK’s purpose is to create competitive advantage for the S Group’s fective and value-added services for the S Group. businesses. SOK carries out its operational aim by developing and guiding the S Group’s strategies, value chains and chain operations Th e principal joint services are connected with fi nancing, ac- in co-operation with the cooperative enterprises. SOK provides counting, IT, human resources, training, development, real estate, the joint, competitiveness-enhancing services that the S Group customer-ownership, marketing as well as communications and requires and carries on the business activities specifi ed for it, which publications. supplement the S Group’s service off erings. Th e S Group’s strategies for sourcing and service functions sup- Th e S Group’s strategy sets the framework for the competitive port the competitive strategies of the business areas and defi ne the strategies of the S Group’s business areas and defi nes SOK Corpo- objectives for producing added value for each business across the ration’s strategy and the strategies of the cooperative enterprises. entire value chain. Th e S Group’s strategic business areas are the supermarket trade,

SOK Corporation’s net turnover SOK Corporation’s operating by business area proﬁ t by business area

EUR million EUR million ± prev. year % EUR million EUR million 1.1.–31.12. 1.1.–31.12. 1.1.–31.12. 1.1.–31.12. 2005 2004 2005 2004 Supermarket trade 81 59 37.5 2.5 0.6 Fuel sales 744 444 67.3 1.6 -0.9 Deparment stores and speciality stores 36 97 -62.6 0.8 4.2 Hotels and restaurants 177 169 4.5 14.6 10.6 Motor trade and accessories 345 356 -3.1 4.8 9.1 Agricultural trade 827 827 0.1 8.3 12.8 Consumer goods sourcing 534 492 8.6 -0.0 2.5 EDI invoicing 1 406 1 304 7.8 0.2 0.3 Real-estate, rental and other service operations 210 204 2.6 6.8 12.4 Share of associated companies’ proﬁ ts 2.4 1.8 Eliminations -150 -171 -12.6 20.3 -0.3 Total 4 209 3 781 11.3 62.3 53.2

13 SOK Corporation

Profi table business operations that round out the Th e S Group’s strategy was revamped during the fi nancial year. S Group’s off erings It is based on the mission, vision and core values. Th e strategy – In Finland underlies the formulation of the competition strategies of all the – In neighbouring countries business areas. It is also an integral element of the strategies that – Pilot operation of new business concepts in co-operation are mapped out for the regional cooperative enterprises and SOK with the regional cooperative enterprises Corporation. SOK Corporation’s strategy was also overhauled during the re- SOK Corporation’s fi nancial port year. Th e strategy defi nes SOK Corporation’s role and tasks in performance in 2005 carrying out the Group strategy as well as the strategic objectives for tasks at the S Group level and for the operating subsidiaries. SOK Corporation posted operating profi t in 2005 of EUR 62.3 An important aim of the Development Functions is to enhance million (53.2), up 17.1 per cent on the previous year. SOK Corpo- the S Group’s management processes. During the fi nancial year ration’s profi t before extraordinary items was EUR 69.0 million the priority was to support knowledge-based management. Th is (54.4). Th e fi gure includes other operating income, a share of the eff ort involved producing operations and competitor analyses and associated companies’ profi ts, write-downs on non-current assets developing management-support data bases. and investments, including reversals on them, and the change in Development Functions also coordinates the S Group’s environ- obligatory reserves. SOK Corporation’s operational result, which mental compliance. Th e environmental policy was updated during does not include the items mentioned above, was smaller than the the report year. Environmental experts worked on a broad range of previous year’s earnings. SOK Corporation’s capital expenditures issues together with the authorities and were active in national and in 2005 totalled EUR 68,2 million (53). A more detailed discus- European co-operation organisations in the retail sector. sion of SOK Corporation’s good performance in 2005 is given in the Executive Board Report on Operations in the latter part of this Th e task of the eBusiness unit is to coordinate and develop the Annual Report. S Group’s electronic business operations. Th e unit produces the main jointly used electronic services and is in charge of controlling SOK Corporation’s service functions electronic services within the S Group. Th e task of the eBusiness unit is to promote and plan the utilisation of electronic services as Th e aim of the service functions provided by SOK Corporation part of the S Group’s multichannel operations. is to develop operational models and processes that generate the Th e number of visitors to the S Channel website (www.s-kanava. maximum added value for the S Group’s businesses. Th e task of fi ) that is targeted at consumers has grown steadily. Th e service the service functions is to develop and maintain business models reaches over 200,000 customer-owners monthly and registers over that increase the competitiveness of the entire S Group, thereby 450,000 visits monthly. In an Online Brand Equity study con- producing cost-eff ective services for the S Group. Th e role speci- ducted last year by Taloustutkimus, a consultancy, the S Channel fi ed for joint service functions is to provide for the S Group’s other rose to 19th place, receiving very good marks for user satisfaction. units the kinds of service functions that can be consolidated to Service for customer-owners was improved, notably, by off ering yield cost savings and/or a qualitative improvement in operations. improved browsing of Bonus information and a search function SOK strives to carry out the tasks defi ned for it in a customer-ori- for viewing the Group’s locations. ented, cost-eff ective and competitive manner so as to strengthen the S Group’s operational effi ciency, quality and resources. Th e HR Administration and Development unit deploys Group- wide tools and operational models to support and develop the hu- Strategic development and human resources man resources functions of the S Group’s diff erent units over the Th e purpose of Strategic development and human resources entire employment life cycle. Th e unit furthermore serves as SOK’s functions is to generate added value for the business and service personnel department, and it coordinates and issues guidelines for functions by supporting the S Group’s management and units in SOK Corporation’s HR aff airs. developing and implementing strategies as well as by acquiring and Human resources activities are guided by the S Group’s HR developing the correct know-how and information. strategy, which is based on the S Group’s mission, vision and Th e strategic development and human resources functions work strategic objectives. Th e objective of the HR strategy is to turn our using a customer-oriented and innovative approach in close co- personnel into a competitive advantage for the S Group, whilst operation with the S Group’s management, chains, the regional co- supporting and ensuring the implementation of competitive strate- operative enterprises and service functions, making eff ective use of gies via eff ective human resources actions and the S Group’s ways their own internal synergies. Carrying out these tasks is organised of working. into fi ve diff erent units: Development Functions, eBusiness, HR Th e unit’s priority in 2005 was the development of an HR Administration and Development, Occupational Health Services information system across the S Group. Th e system is a signifi cant and the Jollas Institute training unit. aid in managing the employment life cycle and it furnishes tools for human resources development. Training programmes have Th e Strategic Development unit supports the S Group’s manage- contributed to improving the HR skills of both supervisors and ment and other units in developing and implementing strategies, staff specialists. and reports on the achievement of strategic objectives.

14 SOK-yhtymä

15 SOK Corporation

Th e S Group’s employer organisation, S-ryhmän Työnantajat tion licence to the S Group to operate a bank. On 16 February SOKTA ry, is responsible for co-operation in labour market aff airs. 2006, SOK’s Supervisory Board decided to found S-Pankki Oy A major development priority last year was employment contracts (S-Bank Ltd), which will carry on deposit banking operations. for the S Group’s supervisors. In the spring a new fi nance/treasury system was introduced that makes it possible to handle the SOK Corporation’s fi nancial Th e S Occupational Health Services unit is responsible for the instruments all the way from trading to bookkeeping entries, and S Group’s occupational health services in the Greater Helsinki it also includes facilities for managing fi nancial risks. Th e system is area. Over the years the unit’s priority has shifted from the treat- to be used to produce the above-mentioned functions as a service ment and prevention of accidents and illnesses to promoting and for the S Group’s other companies as well. developing health and job well-being. Yet eff ective medical care Risk management in trading on the electricity market was devel- provided at the general practitioner level and with an emphasis on oped during 2005 and the invoicing process was streamlined. Th e occupational health remains an important objective. number of electricity delivery agreements in force at the end of Th e development of job well-being at SOK units was supported the year – so-called bulk electricity contracts – accounted for more in co-operation with the human resources functions and the than half of the S Group’s electric power consumption. Jollas Institute. Active eff orts were made to improve job well-being. Th ree working groups received Job Verve diplomas and merit Th e Accounting unit is responsible for overseeing the SOK Cor- awards. In addition, the S Occupational Health Services organised poration’s and the entire S Group’s fi nances on the basis of joint a development seminar for the occupational health personnel in principles and guidelines (management accounting, book-keeping, co-operation with other retail groups. fi nancial statements and taxation), and the unit also provides the necessary joint fi nancial services for the Group. In addition, the Th e Jollas Institute is a special vocational institute that provides unit is in charge of developing and maintaining the S Group’s ac- training and coaching services for all the chains and personnel seg- counting information systems, and it furthermore serves as a chain ments of the S Group. Its aim is to use competence development management unit for the S Group’s accounting functions. as a way of boosting the Group’s competitiveness. Its main focuses Implementation of the S Group’s Development Programme for are to develop supervisor skills, reinforce concept-driven ways Financial and Accounting Processes (Talke) has been continued. of operating and implant the best practices across the S Group. Th e working priority during 2005 was to get the new integrated Training courses are designed in co-operation with SOK’s chain fi nancial administration IT system up and running. Th e objective management units and customer companies. Th e Jollas Institute of the development eff ort is to support business decision making furthermore arranges apprenticeship training that prepares entrants more effi ciently, to increase the cost-eff ectiveness of accounting for various vocational diplomas. and fi nancial processes and to realise concrete cost savings. During 2005 Jollas completed about 1,300 training days for Operations have been developed according to plan and the some 17,500 participants in all. Th ere was continued strong de- objective set out in the programme will be reached during 2006. mand for Jollas’ long training courses for supervisors as well as for SOK Corporation expanded its fi nancial administration service courses dealing with product groups and store openings. centre last year so that the unit provides the fi nancial administration services for nearly all the subsidiaries. Administrative Division Apart from the development programme, the unit focused Th e task of SOK’s Finance functions is to ensure that the S on carrying out its fundamental task. Th is involved maintaining Group has access to adequate, balanced and competitively priced and developing the principles and guidelines governing fi nancial fi nance in all conditions as well as to manage SOK Corporation’s and management accounting as well as overseeing Group-level fi nancial risks. Th e cooperative enterprises are responsible for their taxation matters and supporting the information systems of the own fi nancial position. Th e objective of the Finance function is to fi nance functions. As part of the fundamental task, the unit was off er the S Group high-quality services and competitive advantage also in charge of implementing SOK Corporation’s management in the area of fi nancing and treasury activities, customer fi nance and fi nancial accounting. During the year preparations continued and the commodity markets. It reaches this objective by harmonis- for making the transition to International Financial Reporting ing and stepping up operational models, processes and systems Standards (IFRS). and by leveraging the S Group’s volume in managing fi nancial transactions. Th e Information Systems unit devoted resources in 2005 to During 2005, the Finance functions explored alternative future projects for the diff erent business areas and support functions, no- models for customer fi nance services. Agreements on an overhaul tably, by developing the joint infrastructure. Th e server and storage of account and card systems were made in the autumn. Th e sys- solutions that were made jointly available to diff erent user groups, tems enable the S Group to continue its present customer fi nance the development of a systems operation service as well as work on services, and the agreements also provide for expanding function- standardising the workstation network improved cost-eff ectiveness ality to an array of fi nance services. Towards the end of the year, and service quality, and contributed to maintaining data security. after affi rmative decisions were taken by the cooperative enterpris- A PKI solution (Public Key Infrastructure) based on smart cards es, SOK’s Executive Board and Supervisory Board took decisions was developed to provide strong user authentication. Work on in principle on founding the Group’s own bank. On 14 February revamping the information interchange system moved ahead to 2006, the Financial Supervision Authority granted a credit institu- the implementation stage.

16 SOK Corporation

Th e operational concept of the Corporate Security and Risk prises’ capability of focusing more closely on customer-owners’ Management unit that operates as a chain management link needs, expectations and purchasing potential as part of the plan- for the S Group’s risk management is to support the trouble-free ning and management of their normal operations. Th e marketing operation of the S Group’s main functions and processes as well planning and implementation process was stepped up by increas- as their continuity by deploying risk management means and ing the centralised production of marketing materials connected methods with the aim of achieving the Group’s business objectives. with chain concepts by placing in use an electronic marketing Th e main task of the Corporate Security and Risk Management calendar serving all the chains and cooperative enterprises as unit is to develop and defi ne the principles, rules of the game and well as by harmonising customer promises and ways of working. objectives of corporate security and risk management as well as to Th e eff ectiveness of the service concept for customer-owners was support, manage and monitor their application and implementa- increased by introducing new functions for enhancing member-ad- tion within the S Group. ministration, marketing and data analysis that were made possible Major development projects in 2005 were the defi nition of by the revamped integrated information system that went into an integrated risk management model, the introduction of a risk operation in autumn 2004. management and security management information system and Electronic service for customer-owners was improved by renew- the designing of risk management measures for identifi ed threats ing the monitoring system for the S Channel’s Bonus and Account to the S Group’s corporate security. Balance Service and earned bonuses, and customers were given the In 2006 development of Enterprise Risk Management will be option of joining as members over the Internet. continued by formulating the S Group’s risk management strategy as well as by sharpening risk management processes and proce- Communications and publications dures. A further objective is to create continuity plans for mission- Th e Communications and Publications unit supports the critical information systems. Staff and customer security will be S Group’s operations and the achievement of its objectives both improved further by continuing our Security Pass training sessions. strategically and operationally. Th e strategic objective of the Com- munications and Publications unit is to make the communications SOK Corporation’s Legal Aff airs unit seeks to ensure that the perspective a part of all existing business processes. Corporation operates in accordance with the law, draws up high- In 2005 the S Group’s communications strategy was updated calibre agreements and avoids needless disputes and litigation. Th e and approved by the Communications and Publications Board. Legal Aff airs unit assists and guides SOK Corporation’s units and Th e guiding concept of the theme of the year for 2005 – rewards cooperative enterprises in tasks requiring legal expertise. – was mapped out and the initiative will be monitored on an on- Various agreements connected with business operations fi gure going basis. Other major challenges for the unit were the strategic prominently in the Legal Aff airs unit’s activities. Preparatory work communications related to Your Own Store, communications on done during the report year included agreements connected with the development of fi nance services and communications related the purchase of shares in Suomen Spar Oyj and with Baltic opera- to the Spar acquisition. tions, and work moved ahead on a project for developing the Th e chain management dimension of communications was S Group’s fi nance services. put on a fi rm footing by means of training and organising chain management days and training sessions for company management Th e Real Estate launched an overhaul of the property and busi- and experts. ness location strategy in 2005 with the aim of making use of chain Th e communications value chain was developed further by management to arrive at a more eff ective operational model for highlighting process thinking. A new operational model and proc- the entire S Group’s property business. Th e priority for developer esses for the Yhteishyvä magazine went into use as planned together building operations was development work on technical concepts with Sanoma Magazines, Helsinki Cooperative Society Elanto and for diff erent business areas and procedures for checking the safety Hansaprint. of buildings owned by the unit. In the area of property mainte- Th e guiding concepts for communications services were laid nance, the most important measures were connected with moni- out on the basis of a survey of communications needs, and the toring energy consumption and waste amounts and with correctly work on concept formulation will continue during 2006. SOK’s carried out maintenance. During 2005 SOK Real Estate took part Communications and Publications unit also acted as a pilot unit in in launching a feasibility study on a new head offi ce project. 2005 for the pricing review that was decided by SOK’s Executive Board. Customer-owner services and marketing Th e task of the Customer-owner services and marketing unit is to see to it that customer-ownership develops and strengthens as a central driver of the S Group’s success. Th e unit’s task is to see to it that the mission is realised in the operations of the cooperative enterprises and the chains, and its strategic objective is to produce for the businesses a decisive competitive advantage through supe- rior customer relationship management know-how and an eff ective marketing planning and implementation process. In 2005 a special eff ort was made to boost the cooperative enter-

17 SOK Corporation

SOK Corporation organisation 2006

18 Business-by-Business Review

Supermarket trade Tallinn. In Finland the chain reported sales of EUR 1,881 million (excluding restaurants, fuels and other additional services), repre- Th e S Group carries on supermarket trade using four store con- senting an increase of 6.4 per cent. cepts: hypermarkets (Prisma), supermarkets (S Market), grocery Th e Sale and Alepa chains had aggregate sales of EUR 495 mil- stores (Sale and Alepa) and the home and DIY store (Kodin Terra). lion, a rise of 7.2 per cent. Th e number of locations increased by At the end of 2005 the supermarket chains comprised a total of 18 and totalled 260 at the end of the year. 679 locations in Finland as well as 4 in Estonia, where AS Prisma Th e fi rst Kodin Terra pilot store opened for business in Peremarket, a subsidiary of SOK Corporation, is engaged in the Renkomäki, Lahti, in April 2005. Th e store’s target group are supermarket trade. members, with particular emphasis on women members. Kodin Terra has received plenty of positive feedback from its customers Operating environment in 2005 during its fi rst months of operation. Decisions concerning the Th e competitive situation in the sector remained tough in 2005. opening of the next Kodin Terra units will be made during 2006. One of the distinctive features in the sector was the more active role played by venture capitalists. Competitive strategy and scaling up processes Prices in the grocery trade remained at the levels of the previous Th e effi ciency-boosting projects concerning the entire value chain year, and the major players took steps to beef up their networks. in the supermarket trade and its processes, which got started in Last year also witnessed some signifi cant mergers and acquisi- 2003, continued through 2005, as did the development of new tions which will have far-reaching implications on the structures system properties to support them. Th e aim is to enhance the within the grocery trade: Tradeka Ltd and the Wihuri Group availability of goods and the appropriateness of product ranges and merged their retail trading operations and SOK entered into to get the entire process from the supplier to the retail outlet to negotiations, initiated by Axfood AB (publ.), concerning the operate cost-eff ectively. acquisition of all shares in Spar Finland Plc held by Axfood. Fol- A major development project was the continuation of the store lowing the decision by the Finnish Competition Authority, SOK space management project that got underway in the previous concluded the transaction with Axfood in January 2006. year. It aims at putting into action the precision management and Th e international players within the consumer goods trade analysis of space by chain, store, area of demand and merchandis- continued their expansion in diff erent parts of Finland and new ing group as a continual real-time process. Furthermore, the objec- players also launched operations. During the year, privately owned tive is to produce automatically accurate shelf maps for a store’s chains were combined into larger chains, which also brought profi led range of products, matching these maps to the furnishings venture capitalists on board as owners. and fi ttings in each store. Shelf-map data and actual sales data will be used to enhance the product-specifi c use of space and to 2005 in the S Group’s supermarket trade Th e S Group’s supermarket chains continued to press ahead with developing operational models that enable and bolster overall thrift, resulting in good price competitiveness, which in turn led to doing well in the competitive situation. Within the grocery trade, this was borne out by growth in the market share. Th e S Group’s S GROUP’S MARKET SHARE OF market share of the grocery trade was 35.9 per cent at the end of THE SUPERMARKET TRADE 2005, putting the S Group in the market leader position in the grocery trade. Th e S Group’s supermarkets had retail sales in 2005 of EUR 4,745 million, an increase of 6.8 per cent on the previous year. Th e sales growth, which outpaced the general trend as well as competitors’ growth, was attributable to several factors, making it diffi cult to single out any one reason for the strong growth. Th e supermarket trade occupies a central position in serving the S Group’s members, and Bonus sales to members outpaced growth in other sales, up by 11 per cent. Members’ purchases accounted for 82 per cent of total purchases at supermarket locations. All the S Group’s supermarket chains registered increases in sales that outpaced market growth and they all reported a profi t. Th e S Market chain is the S Group’s largest chain of grocery markets. At the end of 2005 it had 372 locations, an increase of three on the previous year. Th e chain’s aggregate sales, excluding fuels, amounted to EUR 2,341 million, an increase of 6.6 per cent on the previous year. In 2005 two new stores joined the Prisma chain, making 47 units by year-end. In addition, four Prismas were operating in

19 Liiketoimintakatsaus

20 Business-by-Business Review

improve availability. A key subproject of space management was Service station store and fuel sales the setting in motion of measuring store fl oor space, furnishings and fi ttings, which was comprehensively carried out to completion Th e S Group’s outlays on the development and extension of a net- in the Prismas, and it got off to a good start in the other units. work of service station stores and fuel sales continued at a vigorous Th e space management project has also progressed to the adoption pace in 2005. by 46 pilot stores of unit-specifi c shelf maps for four diff erent Th e main services off ered by the chain of ABC service station merchandising groups. stores are versatile and moderately priced café, restaurant, super- Th e updating of the competitive strategy for the supermarket market services as well as fuels. A signifi cant factor for customers trade got underway in autumn 2005 and it is being implemented is that ABCs are open for service every day of the year. On a single in 2006. Th e key aspect of the strategy is fi ne-tuning the network stop, customers can eat a meal, do some shopping and fi ll up their structure to respond to the changing competitive environment. tanks. Long opening hours (24 h or 6:00 am-midnight) ensure Last year also saw the start of the planning work, with respect customer convenience. to sourcing and logistics, for the operational model for the 2010s. At the end of 2005 the ABC chain comprised 71 service station Planning was aff ected by the entry into negotiations with Tradeka stores located along traffi c arteries and in urban areas and 191 (Cooperative Tradeka Corporation) concerning the transfer of Inex ABC unmanned stations that operate primarily at the Prismas, Partners Oy to full ownership of SOK. Th e transaction involving S Markets and Sale grocery stores. the acquisition of shares in Inex held by Tradeka was concluded on Th e ABC chain of unmanned stations specialise in selling fuels. 31 January 2006. Th e ABC network operates in the areas of all the 22 regional cooperative enterprises as well as 4 local cooperative enterprises. Th e S Market Chain Management Group’s cooperative enterprises had a total of 304 fuel-selling units Market Chain Management is the S Group’s management and at the end of the year. Of these, 98 were service station stores and development unit for the supermarket business. Its main task is to the remaining 206 units consisted mainly of unmanned petrol sta- develop business area strategy and chain-operation ideas as well as tions. Th e net increase on the previous year was 24 units. to assist the regional cooperative enterprises and provide guidance Th e ABC chain is the fi rst company in the service station sector in the development of the business area. in Finland to have been awarded the right to use the Key Flag standard by the Association for Finnish Work.

Operating environment Petrol consumption increased at a moderate rate in 2005. Th e price of crude oil remained high and the year was characterised by considerable fl uctuations. Th is was largely attributable to increased demand for crude oil and even more so, to the hurricanes which raged in the Gulf of Mexico in August-September. Retail prices for fuels remained relatively high and in the aftermath of the hurricanes, retail prices for petrol and diesel rose to record levels. Price competition in retail sales of fuel was extremely fi erce at times. Dialogue concerning bio-fuels got underway in Finland in summer 2005. ABC Chain Management and the North European Oil Trade Oy (NEOT) launched a study, which also pertained to ABC, last autumn. Despite the rise in prices for petrol, leisure mobility and vehicle mileage have been on the rise. Consumers have come to expect services and products to provide enriched, new experiences. Eating out increased in 2005, with the strongest growth in the low-end price segment of fast casual dining, in which category ABC is also included. However, consumers want to spend an increasing amount of time with family and friends, so there is a call for faster services. Th e signifi cance of price as a criterion when choosing a service is gaining strength, and price competition is expected to become even fi ercer in 2006. Buying behaviour varies according to the situation; customers make their decisions about where and when they buy according to diff erent criteria at diff erent times. Th e versatility off ered by ABC has responded to this through providing services for people on business trips or holidays as well as for local residents. Shopping at service station supermarkets increased, but there were no major changes in the competitive situation. Th e possible

21 Business-by-Business Review

amendment to the act on shop opening hours continues to be a land and new service station stores opened for business, especially topic of discussion. in Ostrobothnia, thus improving service for motoring members Th e requirements set by the Environmental Protection Act have throughout the entire country. made fi nding business locations more of a challenge, and permit Th e popularity of fast casual dining has continued to rise and application processes have become lengthier. ABC employs the this was also confi rmed by the trend in restaurant sales by ABC latest safety technology in setting up its units. service station stores. Growth took place in all the ABC chain’s sub-areas – fuels, restaurants, and supermarkets. About half the 2005 in the S Group’s service station store sales by ABC service station stores accumulated from fuel sales and fuel trade and the other half was divided between supermarket and café and Th e service station stores and fuel stations reported retail sales restaurant sales. across the S Group of EUR 972 million, which represents growth Th e visibility of the ABC chain can now be said to have risen of 22.2 per cent on the previous year. Th e fi gure includes sales by to new heights. During the year, 9 ABC service station stores and unmanned stations at supermarket units. Th e S Group’s market 24 ABC unmanned petrol stations were opened. Th e business share within petrol sales rose by 10.8 per cent to stand at 17.5 per unit’s strategy is to push ahead with its vigorous expansion of the cent, up 1.7 percentage points on the previous year. Th e growth network. was attributable to the nationwide expansion of the ABC network and the fact that members made more of their fuel purchases ABC Chain Management through the S Group’s fuel-selling units. Bonus sales rose consider- ABC Chain Management is the development unit for the S Group’s ably as in previous years. service station store business and fuel trade. Its central task is to Th e fuel procurement company North European Oil Trade Oy develop the strategy for the business and chain business ideas as (NEOT) supplied fuels to the cooperative enterprises. Th e ABC well as to assist the regional cooperative enterprises and provide chain’s excellent trend in volume was strongly attributable to the guidance in the development of the business area. expanded network as well as to members concentrating their fuel Chain Management operations centred on concept-driven plan- purchases at the chain’s units. ning, implementation and operations control for the ABC service SOK sold its shares in Uudenmaan ABC Oy to Helsinki Coop- station stores and ABC unmanned stations and furthermore, it was erative Society Elanto in spring 2005. In the same connection, the in charge of acquiring new business locations. ABC service station stores and new ABC projects in the Greater Helsinki area were transferred to HOK-Elanto. Th e ABC chain gained a foothold in new geographical areas in 2005. Several unmanned stations were opened in Northern Fin-

Department store and speciality store trade Th e S Group has 20 Sokos department stores and 11 Emotion S GROUP’S MARKET SHARE OF PETROL SALES stores that are specialised in cosmetics and ladies’ lingerie. In addition, seven Pukumies men’s apparel stores and eight other speciality stores owned by Osuuskauppa Arina round out the S Group’s speciality palette. Cooperative enterprise-owned Sokos department stores serve members and other customers in the area of 15 regional cooperative enterprises as do speciality stores in the area of ﬁ ve regional cooperative enterprises. Retail sales by the S Group’s department stores and speciality stores in 2005 totalled EUR 365 million, representing growth of 5 per cent on the previous year. Whereas price levels fell for the main product sectors, overall growth in sales was attributable to increased volume. Members are by far the largest consumer group of the Sokos department stores and the S Group’s speciality stores. Purchases made by members accounted for more than 80 per cent of Sokos department store sales. Th e regional cooperative enterprises own all of the S Group’s speciality stores and 17 of the Sokos department stores. Th e business operations of the Tampereen Sokos Oy were transferred to the Pirkanmaa Cooperative Society at the beginning of the year. SOK is responsible for operating the Tapiola Sokos and Helsinki Cooperative Society Elanto is responsible for managing its business

22 Business-by-Business Review

operations. In Turku, SOK and Turku Cooperative Society engage to product displays were carried out in all the Sokos department in Sokos business operations in the jointly owned Turun Sokos Oy. stores to stimulate and attract customers and make shopping at SOK has a 90 per cent holding in the above-mentioned company. our locations more convenient. Th e Sokos chain posted an operat- Th e profi tability of the speciality stores that operated for the full ing profi t on sales of consumer goods, considerably improving on year and the Sokos department store trade increased markedly on the previous year’s result. Th e Sokos locations were similarly in the the previous year and exceeded the levels targeted last year. black (consumer goods + grocery trade) and their result was clearly Customer satisfaction gained strength. Customers felt that price up on the previous year. levels in the department stores were better suited to their budgets. Th ey also felt that they received more knowledgeable customer Emotion chain service. Th e units in the Emotion chain are speciality stores that are located in large shopping centres and the larger town centres and Operating environment in 2005 off er cosmetics and ladies’ lingerie. Th e stores round out the S Th e overall economic trend was favourable across the country. Group’s palette of consumer goods in their localities. Th ere were Labour market solutions, with the exception of the wood process- 11 units at the end of 2005. Aggregate sales by the Emotion stores ing industry, were reached without disrupting the stable trend in amounted to EUR 12.1 million, representing an increase of 25.1 disposable income. Consumer confi dence remained largely positive per cent (like-for-like growth was 10.1 per cent). and healthy. Th e re-openings and expansions of the large shopping centres in Trend in the operations of the Sokos the Greater Helsinki area paved the way for the arrival in Finland companies owned by SOK Corporation of new international chains, such as in the sporting goods and toy Th e Sokos companies had three Sokos department stores in opera- trade. Th e arrival of new players on the market is set to continue. tion for the full fi nancial year 2005: Sokos Wiklund in Turku, Similarly, re-openings and extensions to shopping centres will Sokos Mylly in Raisio and Sokos Tapiola in Espoo. continue, and this trend will spread beyond the Greater Helsinki Net turnover by the Sokos companies amounted to EUR 36.2 area in 2006. million, representing a decline of 62.6 per cent on the previous Th e new technology featured prominently last year in new year due to transfers of units. In 2004 net turnover by the Sokos products and novel approaches to shopping. Th e home technol- companies included the fi gures reported by the Tampere Sokos for ogy trade grew in particular, when new technology came into the full year and the Helsinki Sokos for four months in addition to widespread use in televisions and stereos and players. Th e use of the three department stores mentioned above. information networks increased substantially, in both the pre-selec- Th e Sokos companies reported an operating profi t amounting tion and purchase of goods. Advances in technology will forge to EUR 0.8 million (4.2). In 2005 the companies had an average ahead in 2006. payroll of 251 people (371). Of the traditional product areas, the apparel and footwear trade showed a particularly favourable trend. Average prices for products Sokos Chain Management in the sector have fallen but there has been a positive growth in the Th e tasks of the Sokos Chain Management unit are to defi ne the number of items sold. category structure and sales assortment of the Sokos department Th e changing trends that started in 2005 will continue in 2006. stores and the Emotion speciality stores as well as to develop and Increasing numbers of players and diversifying ways of doing maintain the chains’ business ideas, concepts and information sys- things are competing for consumers’ interest, time and money. tems. Chain Management provides the agreed marketing, logistics and information system services and it prepares policy proposals 2005 in the S Group’s department store guiding the operations of the chains for presentation to their deci- and speciality store trade sion-making bodies. In 2005 Chain Management pressed ahead with developing and Sokos department stores mobilising the business ideas and concepts for various product Sales of consumer goods by the Sokos department stores (20) areas as well as with developing the composition of the range of totalled EUR 312 million, representing growth of 4.7 per cent products and its management systems. Th e Sokos competitive compared with the previous year. strategy, which will constitute the basis for development in the Like-for-like growth in the consumer goods trade in the Sokos years immediately ahead, was updated and at the same time new department stores was on a par with the rate of nationwide like- target levels were determined for the business. for-like growth in trade by department stores. Th e best sales trends were recorded by the footwear and bag trade as well as the cosmetics trade, and the healthy trend of the Sokos home textiles trade refl ected the widespread popularity of home interior decorating. Th e Pori Sokos was extensively refurbished, including improvements made to connections between fl oors, and the range of refreshments off ered by the café and restaurant at the department store was substantially extended. Revamps to departments and

23 Business-by-Business Review

Hotel and restaurant trade tivities will continue to be a major part of the S Group’s hotel and restaurant business. Th e value of competent staff is of prime im- Th e S Group’s hotel and restaurant business comprises a compre- portance so a good deal of eff ort goes into fostering staff well-being hensive network of 48 hotels and 554 restaurants located around and initiating training across the business. Th e S Group seeks to be Finland. the most attractive and desired employer in the sector. Of the hotels, 39 belong to the Sokos Hotels chain and 6 to Th e business has several projects underway to secure new the Radisson SAS chain. In addition to these, the S Group has 3 business sites in urban areas, leisure centres and the neighbour- smaller hotels that do not operate according to a chain concept. ing countries. Processes are being developed to enhance customer Of the restaurants, 313 operate as stand-alone restaurants, 129 convenience. New online services and information system projects in hotels and 70 in connection with ABC service station stores. Of that underpin operations have been introduced alongside tradi- the restaurant units, 213 belong to restaurant chains. tional channels. All the chains are elaborating the quality of service Outside Finland, the S Group carries on hotel and restaurant and management in keeping with their business concepts through operations in Estonia, where hospitality customers are served by training programmes that will span several years. Sokos Hotel Viru with its restaurants and a food court that operates at the Prisma hypermarket in the Sikupilli Shopping Centre. Operating environment More than half of the net turnover from the S Group’s res- Th e hotel sector in Finland is characterised by internationalisation; taurant business consists of sales by the chain restaurants. Th e off erings are on the increase, customer companies are interna- nationwide restaurant chains are Rosso, Fransmanni, Amarillo, tionalising and international business travel and the demand for Sevilla, Torero, Memphis, the Night nightclubs, Public Corner and the leisure sector are on the up. Th e expanding EU is bringing in-house licensed restaurant chains. Regionally operating restau- to the sector competitors who must be taken seriously, but it is rant chains include Chico’s, Mr. Pickwick and Ale-Pub. also bringing new customers. People have higher expectations of Th e café and fast food chains Coff ee House, Presso, Rosso Ex- leisure, and short weekend breaks are becoming commonplace. press and Buff a round out the range of restaurants and in addition, Customers are demanding greater individuality. Along with the Group engages in extensive co-operation with the Hesburger advances in technology, online purchasing is burgeoning and chain in the hamburger restaurant business. technology is also adding a new slant to business travel. Th e Ownership of the S Group’s hotel and restaurant business is changes in the operating environment pose considerable challenges divided between SOK Corporation and the regional cooperative for the players in the sector: the growth in off erings, emergence enterprises. SOK Corporation’s Hotel and Restaurant Division of chains and networking will further heighten price competition comprises SOK’s operating subsidiaries Sokotel Oy and the Esto- and generate a more diversifi ed spectrum of services. Professional nian-based AS Sokotel as well as the S Group’s hotel and restau- buyer activities are gaining prominence, as is a command of the rant management, development and support unit that operates end-to-end process. within SOK. Th e regional cooperative enterprises own hotel and Demand in the hotel business rose favourably in 2005 and the restaurant operations in several diff erent companies. Th e hotel and trend looks set to continue at a brisker rate than in previous years. restaurant units that are owned by the regional cooperative enter- Th e S Group believes in the prospects for near-term success in prises account for about 70 per cent of the S Group’s aggregate net hotel operations and profi tability is expected to improve on previ- turnover in the sector. ous performance. Within restaurant operations, changes are taking place in legisla- Objectives of the hotel and restaurant trade tion, consumer behaviour and the competitive situation. Alcohol Th e objective of the business area is good profi tability, which guar- consumption has continued to shift from the restaurant to the antees the resources for the development and controlled growth of home; alcohol consumed in restaurants accounts for one-fi fth of operations. Adequate fi nancial resources provide the wherewithal overall intake. Along with the decline in sales of alcoholic bever- to secure the best business sites and they in turn will provide ages, the high rate of value added tax on restaurant meals (22%) extensive demand-oriented market coverage both in Finland as puts pressure on prices. Th e impending act concerning smoking in well as, to an increasing extent, in neighbouring countries in the restaurants constitutes one of the looming threats that will aff ect years ahead. development in the sector, especially with regard to nightclubs and Within hotel operations, the S Group’s objective is to ensure dance restaurants. Th e sector fears the spread of the grey economy. that customers continue to receive the highest quality products Competition is tightening and demand is becoming increasingly and services, to deliver off erings for the growing leisure segment fragmented, thus the players in the sector need to either select their and to maintain clear market leadership in Finland. Outstanding target groups or operate across an ever-broadening spectrum. market leadership in accommodation operations in Finland will Restaurant operations represent about 70 per cent of the total call for expanding the network to St Petersburg and within the volume of the hotel and restaurant business. Consequently, and Baltic regions over the next few years in line with the neighbouring also due to the size of the markets, the S Group will be focusing country strategy. increasingly on large, mid-price range units in all four categories Th e objective for restaurant operations is to further enhance the – beverages, socialising, restaurant meals and fast foods. Th e aim service spectrum through diverse product and chain concepts and is to achieve local market leadership by way of a sound regional thereby boost market shares in each region. structure. Th e restaurant business and the hotel business are Paying due attention to safety factors and responsibility in all ac- expected to grow in volume in the near-term. Th ose players who

24 Business-by-Business Review

are in a position to develop their effi ciency, work productivity and line up business sites. Despite substantial investments, the fi nan- capacity to respond to changes are poised to continue outperform- cial performance by the S Group’s hotel and restaurant business ing the rest. maintained an excellent level at 6.7 per cent of net turnover. Two units, Sokos Hotel Presidentti in Helsinki and Sokos Hotel 2005 in the S Group’s hotel and Seurahuone in Kajaani, became part of the Sokos Hotels chain restaurant trade during 2005. Furthermore, Sokotel Oy, which is owned by SOK, Retail sales by the S Group’s hotel and restaurant trade totalled carried out renovations on the Marina Palace real estate in Turku EUR 635 million, an increase of 2 per cent on the fi gure a year for the Radisson SAS chain. It will open for business in early 2006. earlier. Accommodation sales came to EUR 182 million, represent- Within the S Group’s network, considerable renovations and ing growth of 1.1 per cent on the previous year. Restaurant sales extensions were carried out last year on some of the units, includ- amounted to EUR 453 million, up by 2.3 per cent on the year ing the Sokos Hotels Ilves in Tampere, Torni in Helsinki, Vaakuna before. Th e S Group’s growth was on a par with the average for the and Kimmel in Joensuu, Lahden Seurahuone in Lahti, Vantaa and sector, which, according to statistics, is at around the 5 per cent more radical modifi cations and an extension on the Alexandra in mark. Jyväskylä. Th e refurbishment of the Radisson SAS Hotel Oulu Th e S Group’s market share measured in terms of net turnover reached completion. by hotels was 24 per cent, making the S Group Finland’s largest Th e S Group opened about 70 new restaurants of which 47 individual hotel operator. were chain restaurants. In addition, several dozen old restaurants Along with the leisure units that became part of the Sokos Ho- were refurbished. Th e way forward to generating an increase in tels chain as well as increased demand, the proportion of the sales market share is through large units that combine several concepts. of leisure services to members showed an increase. Th e occupancy Food courts were created in, for instance, Pori, Kouvola, Tampere rate of the S Group’s hotels was up on the previous year at 64.5 per and Helsinki. cent (62.9%), whereas occupancy rates reported by other players Fast food Food Court units featuring varied concept combina- throughout Finland remained at around 49 per cent. tions were developed in the areas of several cooperative enterprises. Th e 20 per cent market share of the S Group’s restaurant Th e Rosso Express and Amarillo restaurant chains chalked up the business was also the largest in Finland. Within its restaurant fastest growth in the past year. operations, the S Group increased its market share in the bever- Capital expenditure amounting to approximately EUR 24 age, socialising and restaurant meal sectors. Growth of locations million was allocated for restaurants. Th e restaurant business in specialised in fast foods came in at 10 per cent whereas nationwide 2006 will be characterised by even stronger networking, closer-knit growth reached only 5 per cent. Th ere are large diff erences between market coverage, the search for synergy and new concepts. cooperative enterprises in the control of regional and city-specifi c market shares. Th e capacity utilisation of the S Group’s restaurants Restaurant and Hotel Chain Management (sales/customer place) is continuing at a considerably higher rate In autumn 2005 Sokos Hotels Chain Management unit and than the levels reported by competitors. Th e development in the Ässäravintolat, which is responsible for the management of the market share and the building of closer-knit network coverage has chain restaurants, were combined into the S Group’s Restaurant kept cooperative enterprises busy in the fi ercening competition to and Hotel Chain Management. Chain Management attends to

S GROUP’S MARKET SHARE OF S GROUP’S MARKET SHARE OF THE HOTEL BUSINESS THE RESTAURANT BUSINESS

25 Business-by-Business Review

and is responsible for the development of the competitive strategy, Motor trade and accessories business ideas, concepts and chain brands for the Group’s hotel and restaurant business. Furthermore, it manages logistics and Within the S Group, SOK Corporation and 12 regional coopera- monitors the profi tability and competitiveness of the chains. tive enterprises engaged in vehicle sales. Th e services provided by Chain management of the Radisson SAS hotels is handled from the regional cooperative enterprises are supplemented by SOK the chain’s headquarters in Brussels. Corporation’s Maan Auto Group in Finland and by AS Kommest In 2005 Chain Management activities put emphasis on expand- Auto Group in the Baltic countries. At the end of the year, the ing the network and critical mass, increasing market shares and on S Group had a total of 46 (45) car dealerships in Finland. S Group developing profi tability and quality. All of the chains launched or dealerships represented 13 (13) diff erent makes of cars, of which continued service training courses specifi c to their business con- Peugeot is the S Group’s own imported marque. cepts and development programmes for the day-to-day management of concepts. Operating environment in 2005 In November 2005 Chain Management developed and opened, Th e positive trend in the motor trade continued in 2005 with together with Pirkanmaa Cooperative Society, a pilot for a new the registration of 148,161 new passenger cars, which represents nationwide Budget Meal restaurant concept, Buff a, in Tampere. an increase of 3.9 per cent compared with the previous year. Th e Buff a comes under the mid-price range category of fast foods. In number of new vans registered in 2005 was 14,090, which repre- addition, several new restaurant and product concept projects got sents a drop of 10.6 per cent compared with the previous year. Th e underway ready to launch in 2006. An internal chain operating decline in van registrations was partially attributable to the fact model was refi ned and implemented in the restaurant meal, bever- that many vans were registered in 2004 as so-called dual-use vehi- age and nightclub concepts. cles whose tax advantages ceased at the end of that year. A total of Within support service processes and systems development, the 29,728 used cars were imported into Finland during 2005, or 5.3 most challenging step has been the adoption of the Tuhti DW per cent less than the year before. programme and its fi rm establishment in the fi eld. Other product Activities in the motor trade in recent years have been aff ected innovations launched in 2005 included a wireless information sys- by the EU Block Exemption that came into force on 1 October tem to improve the effi ciency of restaurant and service processes. 2002. Its objective is to increase competition in sales, servicing and repair services of vehicles as well as to strengthen the position Sokotel Oy of car dealerships in relation to manufacturers and importers. Th e Within SOK Corporation, Sokotel Oy in Finland and AS Sokotel fi nal transition period of the Block Exemption ended on 1 Octo- in Estonia operate hotels and restaurants under the Sokos Hotels ber 2005 with the abolition of the location clause, following which and Radisson SAS brands. At the end of 2005, the company com- an authorised dealer of a marque can establish dealerships that prised 13 Sokos Hotels and 6 Radisson SAS hotels. comply with the manufacturer’s standards in any country within Th e hotel network changed at the beginning of 2005 when the the EU. Tougher competition will be translated into the strength- Sokos Hotel Presidentti became part of the chain and Sokos Hotel ened position of so-called independent vehicle servicing and repair Porin Vaakuna was sold to Satakunta Cooperative Society in April service chains within vehicle service and repair operations. Th e 2005. When Presidentti became a part of the Sokos Hotels chain, abolition of the location clause will lead to heightened competition the Memphis and Coff ee House restaurants in the Hotel Vaakuna within retail sales of vehicles, at least in larger population centres, in Helsinki were transferred to Helsinki Cooperative Society as car dealerships endeavour to expand their networks. Fiercer Elanto (HOK-Elanto). Th e Klaus Kurki hotel closed at the begin- competition will underline the importance of customer service in ning of 2005. the success of car dealerships as well as in the service and repairs Sokotel Oy’s net turnover was up 4.0 per cent on the fi gure a business areas. year ago. Like-for-like net turnover grew by 4.2 per cent. Th e com- Car manufacturers have initiated price harmonisation within pany’s sales remained good in spite of large investments, which dis- the EU, as a result of which the ex-factory prices of vehicles would rupted operations in some of the Sokos hotels and Radisson SAS be the same in all EU States. So far, price harmonisation has made hotels. Th e occupancy ratio and average room rate rose compared little headway but as it becomes more widely implemented, it will with a year ago. Th is meant that the room yield also increased and mean higher prices for cars in Finland and this will lead to changes was clearly better than the average for the country as a whole. in market shares of marques and models when compared with the Th e operating profi t posted by Sokotel Oy, which carries on current situation. the hotel and restaurant business in Finland, was at the budgeted level, but fell slightly short of the previous year’s earnings owing to 2005 in the S Group’s motor trade the changes in the Sokos Hotels network. On a like-for-like basis, Th e S Group’s retail sales in the motor trade and accessories in Fin- profi ts improved markedly on the previous year. land amounted to EUR 688 million, which is 3.9 per cent down on the previous year. SOK Corporation’s net turnover from vehicle sales was EUR 345 million (356), down 3.1 per cent on the fi gure the year before. Operating profi t was EUR 4.8 million (9.1). Th e average number of employees in the motor trade was 645 (614).

The Maan Auto Group Th e Maan Auto Group is a wholly-owned subsidiary of SOK, which comprises ﬁ ve companies. Maan Auto Oy imports into Finland and markets Peugeot vehicles, spare parts and accessories through its own network of subsidiaries, Automaa Oy and

26 Business-by-Business Review

27 Business-by-Business Review

Hämeen Leijona Auto Oy, and the rest of its nationwide dealer Agricultural trade network. In 2005 Maan Auto’s distributor network comprised 36 full-service car dealerships, 7 of which were owned and operated Th e S Group’s agricultural trade business area comprises agricul- by the Maan Auto Group itself, 15 by the regional cooperative tural trade, machinery sales, hardware sales and the gardening/hor- enterprises and 14 were owned by private entrepreneurs. ticultural trade. Automaa Oy is a full-service car dealership chain with three Th e sales of agricultural products comprise plant nutrients, pes- dealerships in the greater Helsinki area: in Olari (Espoo), Herttonie- ticides, preservatives, feeds, farm implements, fuels and lubricants mi (Helsinki) and the Airport outlet in Vantaa. It has additional as well as seeds and grain. Machinery sales include tractors, com- dealerships in Tampere and Raisio. Under a business transaction bine harvesters, landscaping and grounds maintenance machinery, fi nalised on 30 December 2005, Automaa acquired additional golf course maintenance machines, spare parts, machine and capacity in Konala, a district of Helsinki, where a full-service car equestrian accessories, and contract maintenance. Besides services dealership will open for business in the fi rst part of 2006. Hämeen for farm building, hardware sales outlets provide hardware store Leijona Auto Oy has dealerships in Hämeenlinna and Lahti. services for S Group members. Th e units specialising in gardening Oy Motortrans Ab is also a subsidiary of Maan Auto Oy. Th e and horticultural supplies provide products for people who want company is responsible for the warehousing and inspections of to do up their yards and for gardening enthusiasts. Peugeot passenger cars at the Hanko Free Port as well as for import Th e S Group’s agricultural trade is conducted by 131 Agrimar- vehicle servicing and vehicle accessory installations, vehicle storage kets, 7 Agrimarket Machine Centres and 1 John Deere Centre. and deliveries to Peugeot car dealerships. Last year the company Th e Agrimarket chain is made up of Hankkija-Maatalous Oy performed import vehicle servicing on 9,806 Peugeot vehicles; together with Southern Ostrobothnia Cooperative Society, Suur- Peugeot vehicles accounted for 96 per cent of all the import vehi- Seutu Cooperative Society SSO and Kymenlaakson Agrimarket cle servicing performed by the company. Oy. Th e Agrimarket chain has 32,000 Agribonus customers. In a transaction signed on 9 December 2005, Maan Auto acquired the entire shares of Auto-Kivitila Oy, which operates a Operating environment in 2005 Ford dealership in Tampere. Under the same agreement, the entire Th e overall agricultural market in Finland remained at the previ- shares of Auto-Kivitila Metro Oy were also acquired; Auto-Kivitila ous year’s level of about EUR 1,900 million. Total demand in Metro operates a Ford service outlet in Turku. Th e Finnish Com- the retail hardware trade grew by about 6 per cent, and growth petition Authority approved the transaction on 3 January 2006. in gardening/horticultural supplies was at the 5 per cent level. A total of 8,773 Peugeot passenger cars were registered, rep- Demand for the production inputs used on farms remained more resenting a decrease of 12.2 per cent on the previous year. Th e or less unchanged. Th e overall market for tractors fell 10 per cent. market share of Peugeot passenger cars fell from 7.0 per cent to 5.9 Sales of farm implements remained at the level of previous years, per cent; Peugeot suff ered the largest loss of market share of the and customers showed particular interest in direct seedling ma- leading makes in Finland. Registration of Peugeot vans rose by 0.2 chines and diff erent disc cultivators. Th e grain harvest in Finland per cent and came to 966 vehicles. Th e market share of vans rose amounted to 4.0 billion kilos, which was about 12 per cent higher from 4.5 per cent to 4.9 per cent. than in the previous year. Th e quality of the grain was predomi- Th e market in Automaa’s business area increased by 3.2 per nantly good. cent and in Hämeen Leijona Auto’s business area, it increased by 5.5 per cent. Th e companies handed over a total of 4,200 Peugeot 2005 in the S Group’s agricultural trade passenger cars and 347 vans. Registrations of Peugeot passenger In 2005 the S Group retained its market leader position within the cars sold by Automaa and Hämeen Leijona Auto declined by 10.5 agricultural trade, with a share of 42 per cent of the market. Agri- per cent, whereas van registrations rose by 25.7 per cent on the cultural tax-inclusive retail sales, including the grain trade, totalled previous year. Th e market share of Peugeot passenger cars within EUR 1,043 million, representing an increase of 4.4 per cent on the Automaa’s business area accounted for 6.2 per cent (7.3%) and previous year. within Hämeen Leijona Auto’s business area, the market share In 2005 sales by the Agrimarket chain came to EUR 751 mil- accounted for 5.2 per cent (5.6%). Th e market share for Peugeot lion, an increase of 6.4 per cent on the previous year. Th e Machine vans within Automaa’s area rose by 0.7 percentage points on the Centres reported sales of EUR 130 million, the grain trade previous year, amounting to 4.3 per cent, and in Hämeen Leijona amounted to EUR 100 million and other agricultural sales came Auto’s area, the market share of vans rose by 1.1 percentage points to around EUR 61 million. Th e Agrimarket chain’s hardware and to stand at 3.8 per cent. Th e companies sold a total of 5,531 trade- interior decoration sales grew by about 16 per cent and gardening/ in vehicles, down 2.5 per cent on the previous year. horticultural sales were up by around 15 per cent when compared Th e fi nancial performance of the Maan Auto Group did not with the year before. come up to expectations. Th is was attributable to tighter competi- Th e hardware and gardening/horticultural range and ways of tion and to a drop in price levels for trade-in vehicles, which was working were developed to become more customer-focused and in largely brought about by increased imports of used vehicles. Mem- particular to respond to the needs of the S Group’s members. bers get a Bonus from vehicle sales, service and spare parts operations. Th e Maan Auto Group paid members Bonuses amounting Hankkija-Maatalous Oy to more than EUR 0.5 million. SOK’s wholly-owned subsidiary Hankkija-Maatalous Oy provides Maan Auto Group’s net turnover in 2005 amounted to more agricultural, machine, hardware and gardening/horticultural than EUR 280 million. services and benefi ts for loyal customers in the agricultural sector Maan Auto Group employed more than 400 people in 2005. as well as for the S Group’s members. Hankkija-Maatalous Oy

28 Business-by-Business Review

Procurements and Logistics

had net turnover in 2005 of EUR 746 million, which represents Intrade Partners Oy growth of 4 per cent on the previous year. Hankkija-Maatalous Oy accounted for about 81 per cent of the Agrimarket chain’s net Intrade Partners Oy is the S Group chains’ procurement and turnover. logistics company whose primary responsibility is the apparel, cos- Th e overall market for tractors dropped 10 per cent from the metics, leisure and household product areas. It is a wholly-owned previous year to 4,507 tractors sold. At the end of the year, the subsidiary of SOK. market share of Hankkija-Maatalous Oy’s John Deere tractors was Th e company’s largest customers are the Prisma, Sokos, S 17.6 per cent. Market and Agrimarket chains. Other customers include the Sale, Around 420 combine harvesters were sold in Finland during Alepa, Emotion and ABC chains. In addition to consumer goods, 2005, of these two thirds were Finnish Sampo Rosenlew combine Intrade Partners Oy supplies store furnishings and fi ttings to the S harvesters supplied by the Agrimarket chain. Th e sales targets set Group’s sites. for the landscaping, grounds maintenance tractor and golf course Th e task of Intrade Partners is to bring added value to its machine business achieved their objectives. customer chains through an appropriate product range in line Several retail outlets were refurbished during 2005. Th e with their business ideas by means of operational processes that are Haapavesi, Ilmajoki, Kiuruvesi, Pielavesi, Padasjoki and Muhos integrated into the customer chains and backed up by informa- Agrimarkets were all relocated in new premises. Th e fi rst outlets in tion systems as well by achieving high-volume advantages through the S Rautamarket chain, which supplies a wide range of hardware centralised purchases. In 2005 cost-effi ciency continued to develop and gardening/horticultural products, were opened in the spring; favourably in tune with more effi cient operations and increased they operate in conjunction with the Forssa, Hämeenlinna, Iisalmi volume. and Somero Agrimarkets. New Multasormi gardening stores were Several projects aimed at optimising operational processes were opened in Vammala, Kokemäki and Laitila and extensions and implemented in 2005 in order to upgrade procurement sources, renovations were carried out at the Orivesi, Kokkola, Juva, Pori assortment and delivery network management, and new methods and Huittinen Multasormi stores. were developed to enhance supplier integration. Intrade Partners Th e Tenhola, Karjalohja and Virojoki Agrimarkets were closed Oy’s SAP Retail operational management system was developed by during the year. introducing new functionalities, particularly in the areas of data Th e hardware and garden operations as well as the business transfer, reporting and portal technology. Th e degree of automa- premises of Veijo Niku Oy in Haapavesi were acquired for Hank- tion in handling invoices increased substantially during the past kija-Maatalous at the beginning of 2005. year. Hankkija-Maatalous Oy’s profi t before extraordinary items was Co-operation between suppliers placed emphasis on availability EUR 9.3 million. and improving other operational quality as well as on assessing In 2005 the company employed an average of 923 people (874). suppliers from the perspective of operational quality. Intrade Partners Oy energetically implemented a European responsible Rainex Yrityspalvelu Oy importer model, BSCI (Business Social Compliance Initiative). Th e BSCI sets out common social requirements and provides a Rainex Yrityspalvelu Oy is a wholly-owned subsidiary of SOK. monitoring system in order to verify and improve the social condi- Rainex Yrityspalvelu is a hardware and building wholesaler that tions of goods suppliers. also deals in civil defence, security, work clothes, catering products Th e outlook for 2006 is positive and Intrade Partners Oy’s and textiles. procurement volume is expected to show further growth in the Th e company has six sales outlets in Helsinki, Jyväskylä, coming fi nancial period. Kuopio, Oulu, Tampere and Turku. Its head offi ce and administra- In 2005 Intrade Partners Oy had net turnover of EUR 533.7 tion are in Pukinmäki, Helsinki, and its warehouses are located in million, representing growth of 8.6 per cent on the previous year. Vantaa (Hakkila and Maantiekylä), Jyväskylä, Oulu and Turku. Operating profi t was EUR 0.0 million (2.5). Th e company em- Company development continued in 2005. A new warehouse ployed an average of 237 people (241). that is due to reach completion in early 2006 is being built in Kuopio. Large outlays were made into electronic trade invoicing North European Oil Trade Oy and ordering systems. Th e company had net turnover of EUR 80.9 million (91.4), North European Oil Trade Oy (NEOT) is a fuel procurement down by 11.5 per cent on the previous year. Operating profi t was company that is jointly owned by SOK and Greeni Oy. Net EUR 0.2 million (1.6). turnover in its fi rst full year of operations amounted to EUR 740 At the end of 2005 the company employed an average of 46 million, of which the company recorded a profi t of EUR 1.8 people (45). million. Th e growth in net turnover compared with the previous year was attributable to a full year of operations, the rise in market prices and to increased sales by customer chains. Th e aim of the company is to create a relative competitive edge for its customer chains (the S Group’s ABC chain and Greeni Oy’s St1 chain). In 2005 joint procurements raised the market share of the fuels NEOT Oy delivers to service stations to approximately 25 per cent of the entire Finnish retail fuel market. Th is gives the

29 Business-by-Business Review

company a strong position when negotiating procurement prices fi gures of EUR 205 million, up 13 per cent. Activities during the for fuels. Centralising procurements results in signifi cant logistics year focused on improving the effi ciency of basic operations. advantages for customer chains and keeps the percentage of fi xed Th e year 2006 will be a challenging period for Inex as it adapts costs for procurement and deliveries at highly competitive levels. volumes in response to the corporate acquisitions made by SOK. Building up NEOT Oy’s organisational structure proceeded While Tradeka Oy’s volumes will gradually be discontinued from according to plan. Th e company’s management of its international Inex’s purchasing and logistics, volumes from Spar stores will oil trade is at a good level but the broadening of its knowledge come under the scope of Inex’s sourcing and logistics operations base is nevertheless one of the company’s main objectives. Th is ob- throughout the year. Furthermore, Inex’s new role as a subsidiary jective will be achieved through constant training, recruitment and of SOK will bring about change. close co-operation with SOK Finance. At the end of the fi nancial Increasingly international trading and the structural changes year, the company employed six people. taking place within Finland are putting pressure on the competitive situation. Th is is refl ected in particular by tougher price com- Inex Group petition. Intensifying basic operations and tightening up co-operation with the S Group are the way to tackle these challenges. At the close of 2005 the Inex Group comprised the parent com- Th e good trend of the Inex Group and its client chains will pany Inex Partners Oy and its wholly-owned subsidiary Meira continue for the most part in 2006. Th e competitive factors of Nova Oy. Inex Partners Oy was owned on a 50-50 basis by SOK primary importance are price-competitiveness, cost-eff ectiveness and Tradeka (Cooperative Tradeka Corporation). Frozen foods and delivery reliability as well as the effi ciency of the value chain logistics was handled in co-operation with the associated company extending from the consumer to the production operation. Finnfrost Oy. Inex Group had a payroll of 2,411 employees at the end of the Th e Inex Group’s operations developed well last year. Th is was year, an increase of 35 people over the previous year. attributable to the good performance of the customer chains and Risto Pyykönen M.Sc. (Econ.) serves as Chairman and CEO of to Inex’s own profi table operations. Overall, 2005 was a good year. the parent company and the Group. Th e added value generated by its operations has had a direct im- pact on strengthening the competitiveness of the customer chains. Sales by the Inex Group grew by 8 per cent on the previous year, amounting to EUR 2,075 million. Th e prevailing trend in sales by Inex Partners Oy, Meira Nova Oy and Finnfrost Oy are still higher than the general trend in the sector. Consequently, Inex’s sourcing and logistics position has gained strength. In 2005 Inex adopted an operational model based on functions and processes, and development projects were implemented to support its fi rm establishment. Key development projects included product group planning, delivery channel selection, voice- controlled order picking at the Kilo logistics centre, preparations to revamp fi nancial control systems and measures to intensify operations at the logistics centre for specialty products. Procure- ment co-operation was developed in unison with the Nordic retail trading company Coop Norden. Last year saw continued good performance by Inex Partners Oy, which produces assortment, purchasing and logistics services for the grocery and speciality trade. Th e company’s sales came to EUR 1,858 million, up 7 per cent on the previous year. Development projects went ahead better than had been planned. Th is enabled the company to improve effi ciency, operational reliability, quality and earnings. Th e company’s competitive benefi ts for customers and its position in the markets strengthened. A continued strong performance was also reported by Meira Nova Oy, which produces assortment, purchasing and logistics services for the HoReCa sector. Sales totalled EUR 223 million, an increase of 12 per cent on the previous year. Warehouse deliveries grew by 14 per cent. Meira Nova’s share of the delivery wholesale trade in the HoReCa sector comes to about 30 per cent. Planning got underway for the building project for a new logistics centre that is due to be ready in 2007. Finnfrost Oy, the associated company that provides purchasing and logistics services for frozen foods, reported excellent sales

30 Business-by-Business Review

Neighbouring Countries

Th e S Group operates in the Baltic countries within the supermar- Th e overall market for vehicles in Estonia in 2005 was 22,025 ket trade, the hotel and restaurant business and the motor trade. new cars and vans, representing growth of 18.6 per cent on the Th e Baltic region saw the continuance of the investment plan previous year. Latvia’s total market was 18,426 cars and vans, an in the supermarket, hotel and restaurant and motor trades. An increase of 46.0 per cent compared with the previous year. updated neighbouring country strategy was approved in December Kommest Auto sold a total of 1,707 Peugeot vehicles in Estonia 2005. An agreement was made in 2005 concerning the opening and 721 in Latvia. Th e market share of Peugeot passenger cars in of the fi rst Prisma hypermarket in the Latvian capital of Riga in Estonia was 6.6 per cent and in Latvia, 4.1 per cent. autumn 2006. Th e Kommest Auto Group had net turnover in 2005 of EUR Business operations in the Baltic countries achieved the objec- 61.8 million (59.7) and posted operating profi t of EUR 0.8 mil- tives set for them in the fi nancial year and showed a profi table lion (1.0). result. At the end of 2005 the company had a payroll of 236 people (210). AS Prisma Peremarket AS Prisma Peremarket, a wholly-owned subsidiary of SOK, is engaged in the retail trade in Tallinn at Prisma hypermarkets in the Sikupilli, Kristiine, Mustamäe and Haabersti town districts. Th e year 2005 saw the acquisition of ETK’s (Eesti Tarbijateühis- tute Keskühistu) subsidiary AS Ramare, the previous owner of the Prisma in the Rocca al Mare Shopping Centre. Th e opening of the fi fth Prisma in Tallinn, in the Lasnamäe town district, was postponed until autumn 2006. In 2005 developments within such spheres as logistics, electronic ordering and data systems took the company’s preparedness for the future a major step forward. Th e company also carries on restaurant operations in line with the Rosso, Rosso Express, Coff ee House and Hesburger concepts in a food court that operates within the Prisma in Sikupilli. In 2005 the net turnover for AS Prisma Peremarket came to EUR 81.0 million (58.6) and it reported operating profi t of EUR 2.5 million (0.6). At the end of 2005 the company had a payroll of 610 employees.

AS Sokotel AS Sokotel is SOK’s wholly-owned subsidiary that operates the Sokos Hotel Viru in Tallinn. As the largest hotel in Estonia, Sokos Hotel Viru and its restaurants serve the S Group’s members, business travellers and other customers. Following the completion of an extension in spring 2004, the hotel has 516 rooms, ﬁ ve restaurants and completely refurbished conference facilities. In 2005 a Letter of Intent was signed concerning the building of a new hotel in the heart of Tallinn, next to the present Sokos Hotel Viru; the new hotel is intended to open for business in 2007, depending on when the building permit is granted. AS Sokotel’s net turnover in 2005 amounted to EUR 18.4 million (16.9) and its operating result was EUR 3.1 million (1.7). At the end of 2005 the company had a payroll of 236 employees.

AS Kommest Auto Group AS Kommest Auto is SOK’s subsidiary that has dealership rights for Peugeot vehicles in Estonia and Latvia. SOK has a 90 per cent holding in the company. AS Kommest Auto’s subsidiary Oü Kom- mest Autokeskused operates as a sales company in Estonia. AS Lauva Auto is the importer in Latvia and SIA Lauva Autocentrs is the sales company.

31 Corporate Governance within SOK Corporation

Applicable regulations meetings of the Committee of Presiding Offi cers. In addition, the Committee of Presiding Offi cers decides on such matters as SOK is a Finnish cooperative whose decision-making and adminis- the chief executive’s compensation. Th e Supervisory Board has tration complies with the Cooperatives Act, other relevant regula- appointed a permanent Compensation Committee and a Nomina- tions and SOK’s Statutes. Th e activities of its subsidiary companies tion Committee. are regulated by the Finnish Companies Act and Corporation-wide Th e Cooperative Meeting elects the members of the Supervisory principles which are based on various regulations and guidelines. Board on the basis of proposals made by the cooperative enterpris- Th e Corporation’s administration seeks to comply with the es. Th e Supervisory Board has 12-25 members. A person elected recommendation on the corporate governance of publicly traded to the Supervisory Board must be a Finnish citizen, a member of a companies issued by the Helsinki Stock Exchange, the Cen- cooperative enterprise and less than 65 years of age. Th e Coopera- tral Chamber of Commerce and the Confederation of Finnish tive Meeting decides the emoluments of the chairman, vice chair- Industry and Employers. Owing to the cooperative form and the men and members as well as the auditors’ fees. structure of the Group, not all the recommendations have been Th e Supervisory Board had 22 members in 2005 as well as two considered applicable. personnel representatives. Th e Supervisory Board met 6 times. Th e special remuneration for the chairman of the Supervisory General Meetings Board in 2005 came to EUR 1,350 per month and the monthly remuneration for the vice chairmen amounted to EUR 420. Th e Cooperative Meeting is SOK’s highest decision-making body. In 2005 the fee paid to the chairmen and members of the Each cooperative enterprise is entitled to send to a Cooperative Supervisory Board per meeting and per day taken up with carrying Meeting a number of representatives equal to its votes. Th e rep- out their duties amounted to EUR 320. resentatives have the right to speak but only one of them has the right to vote on behalf of the cooperative enterprise. Th e exercise Executive Board of owners’ rights is based on the cooperative’s Statutes. Th e task of the Annual Cooperative Meeting is to deal with Election and composition matters that are defi ned in the Statutes, such as adopting the fi - In accordance with SOK’s Statutes, the Supervisory Board elects nancial statements, considering the profi t/loss, discharge of offi cers the members of the Executive Board for a term of one year based from liability, the election of the Supervisory Board and the audi- on a proposal by the Committee of Presiding Offi cers. Under the tors and their remuneration. Extraordinary cooperative meetings Statutes, the Executive Board is comprised of the cooperative en- may be convened as necessary. terprise’s chief executive, who serves as chairman, and a minimum of three and a maximum of eight other members. Th e Execu- Supervisory Board tive Board of SOK in 2006 has eight members, six of whom are managing directors of cooperative enterprises and two of whom Th e Cooperatives Act does not require the appointment of a Su- are employed by SOK. pervisory Board, but SOK’s Statutes defi ne the Supervisory Board In accordance with the Statutes, a person elected must be a as part of the Corporation’s corporate governance model. Th e role Finnish citizen and less than 65 years of age. Th e aim is to ensure of the Supervisory Board is to represent the owners at large and to suffi cient rotation while preserving suffi cient continuity. serve as a forum for taking a common stand on central strategic questions. Its task is to decide on major policies and to oversee Tasks of the Executive Board the best interests of members. Upon a proposal by the Executive Th e activities of the Executive Board are guided by the coopera- Board, the Supervisory Board confi rms all the central strategic tive enterprise’s Statutes, the Corporation-wide principles and the policies of the S Group and SOK Corporation. Th e matters within Board’s rules of procedure. Th e Executive Board confi rms matters the scope of line management fall within the competence of the such as the objectives of the subsidiaries, the operational plans cooperative enterprise’s Executive Board and line management. and the allocation of resources and oversees the implementation Th e Supervisory Board oversees that the administration of the of related decisions. Th e Executive Board oversees the operations cooperative enterprise and SOK Corporation is attended to in of the associated companies to ensure the best interests of SOK accordance with the law, the Statutes, decisions of the Cooperative Corporation and the S Group. Th e Executive Board also monitors Meeting and the Supervisory Board as well as the cooperative en- the savings fund activities of the cooperative enterprises. terprise’s best interests. Th e Supervisory Board accepts and expels Upon a proposal by the chief executive, the Executive Board members of the cooperative enterprise and appoints and dismisses decides on setting up a Management Team, on the appointments the chief executive and other members of the Executive Board as and compensation of members of the Management Team who do well as decides on the remuneration of Executive Board members not belong to the Executive Board as well as on other management other than those who are employed by the cooperative enterprise. appointments. In addition, the Supervisory Board decides on the principles of A member of the Executive Board who is an employee of a co- co-operation for the S Group’s operations and on long-term plans. operative enterprise or exercises a position of trust within one does Th e Supervisory Board has duly confi rmed rules of procedure. not participate in the preparation of decisions concerning the audit Th e chairman and two vice chairmen of the Supervisory Board and auditors of cooperative enterprises or in decision-making or in form a Committee of Presiding Offi cers which assists the Super- monitoring the cooperative enterprises’ savings fund activities. visory Board with its tasks. Th e chief executive participates in the

32 Corporate Governance within SOK Corporation

Meetings of the Executive Board its authority. Its decisions are binding under the Chain Agreement. Th e Executive Board met 18 times during 2005 and the rate Th e Chain Boards are made up of the managing directors and of attendance by its members was 98.4 per cent. Th e Executive business area directors of the cooperative enterprises as well as Board of SOK annually appraises its activities using a system of members of the Executive Board or Management Team who are self-evaluation. Th e members of the Executive Board were paid employed by SOK. SOK’s Executive Board decides on the compo- emoluments totalling EUR 60,000 in 2005. Th ose members of the sition of the Chain Boards. Executive Board who are employed by SOK received no compensation for working on the Executive Board. Profi t-related bonus scheme for management Chief Executive Offi cer All staff within SOK Corporation come under a profi t-related Th e duty of the chief executive offi cer is to direct the activities of bonus scheme. Th e principles of the profi t-related bonus scheme the Executive Board and the cooperative enterprise in accordance for management are approved annually by the Supervisory Board with the relevant acts, SOK’s Statutes and the decisions of the based upon a proposal by the Compensation Committee. Th e governing bodies. Th e chief executive offi cer of SOK is Professor criteria for the bonus scheme include profi t, process effi ciency, and Kari Neilimo, D.Sc. (Econ.). customer and personnel satisfaction. Profi t-related bonus gauges are defi ned from the perspective of one’s own unit as well as from Management Team the wider perspective of SOK and the S Group as a whole. Th e Supervisory Board has set up a Compensation Committee Th e task of the Management Team is to assist the chief executive to determine the principles of the bonus scheme in the future. offi cer and the Executive Board in accordance with the framework determined by the Executive Board. Th e Management Team General and administrative audit prepares matters for presentation to the Executive Board which require co-ordination, such as the S Group’s and SOK Corporation’s General audit business strategies, target levels, operational plans and budgets. Th e Annual Cooperative Meeting elects a minimum of one and Th e Management Team met eleven times in 2005. In 2005 the a maximum of three auditors and two deputy auditors to audit members of the SOK Management Team were paid salaries and the fi nancial statements of the cooperative enterprise and the profi t-related bonuses amounting to EUR 1,920,274. Th e sum Corporation as well as the accounting records and administration. includes remuneration in kind. Th e auditors and deputy auditors must have the legally required qualifi cation. Executive Boards of the subsidiaries Administrative audit, Audit Committee Th e chairman of the Executive Board of a subsidiary is, as a rule, Th e aim of establishing an Audit Committee and electing Man- a member of the Executive Board or Management Team who is agement Auditors is to facilitate the participation in the audit responsible for the subsidiary’s operations and is employed by of persons within the cooperative enterprises owned by SOK SOK. Th e subsidiary’s Executive Board decides on the compa- Corporation who exercise a position of trust. Th e Audit Commit- ny’s strategy, operational plans and budget as well as the hiring, tee is part of corporate owner-oversight. Th e Committee comprises terms of employment and dismissal of the managing director. Th e two Management Auditors and the SOK auditors elected by the decisions of the Executive Board take into account the Corpora- Cooperative Meeting. tion-wide principles and the decisions of SOK’s Executive Board Th e Audit Committee is an oversight body and a link between concerning the company’s objectives, operational plans and alloca- the auditors and the owners. A special task of the Committee and tion of resources. of the Management Auditors is to bring the point of view of the owner administration and basic membership into the audit. Th e Chain Management Audit Committee compiles a report for the Annual Cooperative Meeting. Th e report is submitted to the Supervisory Board chair- Th e business area-specifi c Chain Management organisation man- man and the Executive Board and is entered as received and at- ages and co-ordinates chain operations under the supervision of tached as an appendix to the minutes of the Cooperative Meeting. SOK’s Executive Board. Th e Chain Management organisation Th e Audit Committee’s report is distributed to the Supervisory comprises the Chain Board, the Chain Management unit and the Board, the Executive Board and to other units as necessary. Steering Group that assists it. Th e Chain Management organisa- Th e Management Auditors are paid an emolument according tion is the central commercial joint organisation of the cooperative to the same principles as apply to the members of the Supervisory enterprises and SOK Corporation. Board. Th e emolument paid to the chairman is raised by 50 per Th e Chain Management organisation is independently responsi- cent. ble for managing, developing and monitoring strategic and tactical chain operations within its own business area. It functions in co- 2005 operation with the cooperative enterprises and various professional Th e Cooperative Meeting held on 20 April 2005 elected as SOK’s organisations. Th e Chain Board makes the central decisions con- regular auditors for 2006 Tomi Englund M.Sc. (Econ.), LL.M., cerning its own business area and chains within the framework of Authorised Public Accountant (APA), of Helsinki, Tapani Ro-

33 Corporate Governance within SOK Corporation

tola-Pukkila, Managing Director, APA, of Kauhajoki and Juhani SOK Supervisory Board 2005 Heiskanen D.Sc. (Econ.), APA, of Huittinen. Th e deputy auditors elected were Ernst & Young Oy and Eero Huusko M.Sc. (Econ.), Otto Mikkonen (born 1949) Jouko Härkönen (born 1939) APA, of Kajaani. Th e Management Auditors elected to the Audit Joensuu Kajaani Committee for 2006 were Matti Suokas, M.Sc. (Econ.), Approved Titular Industrial Counsellor Farmer Auditor, of Kotka, Marja Pappila, lawyer, of Laitila and their depu- M.Sc. (Tech.) Chairman, Supervisory Board, ties, Risto Tuori, lawyer, of Vammala and Seppo Ehanti, Senior Chairman 2002– Cooperative Society Maakunta Consultant, of Porvoo. Managing Director, Member of the Supervisory Board Auditing fees for SOK Corporation companies amounting to KM-Yhtymä Oy 2003– EUR 666,000 and fees for consultancy services amounting to Chairman, Supervisory Board, Retiring in 2006 EUR 134,500 were paid in Finland and the Baltic countries in North Karelia Cooperative Society 2005. Th e Management Auditors received payment totalling EUR Member of the Supervisory Board Heikki Ikonen (born 1943) 2001– Nurmes 20,330 for their work. Retiring in 2007 Honorary Counsellor Farmer Internal control, internal audit and Jouko Vehmas (born 1956) Chairman, Supervisory Board, risk management Kouvola Cooperative Society Jukola SOK’s Executive Board is responsible for organising operations in M.Sc. (Econ.) Member of the Supervisory Board an appropriate manner, corporate governance and for the legality First Vice Chairman 2004– 1985– and reliability of the accounting records, fi nance and routine Managing Director, Retiring in 2008 management. In addition, the chief executive offi cer, SOK’s unit Cooperative Society Ympäristö directors and the Executive Boards of the subsidiaries and their Member of the SOK Executive Board Aarto Jalava (born 1947) managing directors carry out the management and control of busi- 2001–2003 Rauma Member of the Supervisory Board M.Soc.Sc. ness activities in day-to-day operations within their own areas of 1994–2000, 2004– Financial Manager responsibility. Retiring in 2007 City of Rauma SOK Corporation’s Controller functions constitute the strategic Member of the Supervisory Board body which is responsible for implementing the internal audit Max van der Pals (born 1945) 20 April 2005– of the Corporation and for assessing strategic profi tability. Th eir Lohja Retiring in 2008 activities cover all business operations and support services within Farmer the Corporation. SOK’s Executive Board annually deliberates on Second Vice Chairman 2003- Pekka Kangasmäki (born 1945) the focal points of internal control and the Controller functions Chairman, Supervisory Board, Porvoo perform an assessment of the functionality and adequacy of inter- Suur-Seutu Cooperative Society SSO B.Sc. (Econ.) nal auditing as well as internal control within a set framework. Member of the Supervisory Board Managing Director, 2001– Cooperative Society Osla Th e Controller functions report regularly to the CEO, the Retiring in 2007 Member of the Supervisory Board Executive Board and to the Committee of Presiding Offi cers of 1994–20 April 2005 the Supervisory Board on matters concerning risk management. Jorma Bergholm (born 1954) Th e Corporation has adopted a comprehensive risk management Helsinki Simo Kutinlahti (born 1957) model. Based on the results, the most signifi cant risks with respect Managing Director Keuruu to the Corporation’s operations and the achievement of its strategic Helsingin Työväenyhdistys ry Farmer objectives have been identifi ed. In addition to the comprehensive Chairman, Supervisory Board, Chairman, Supervisory Board, risk management model, selected functions employ more detailed Helsinki Cooperative Society Elanto Cooperative Society Keskimaa risk management models (including fi nance and the accountancy Member of the Supervisory Board 20 Member of the Supervisory Board function). Insurance policies have been taken out in order to April 2005– 1998– Retiring in 2008 Retiring in 2007 address the risks concerning assets, disruption of operations and business liability. Marcus H. Borgström (born 1946) Leo Laukkanen (born 1947) Sipoo Mikkeli Financial reporting Titular Agricultural Counsellor Titular Commercial Counsellor M.Sc. (Agr. and For.) Managing Director, SOK Corporation and the S Group use a wide-ranging method of Chairman, Supervisory Board, Cooperative Society Suur-Savo reporting on fi nancial key fi gures, trends and forecasts to monitor Cooperative Society Varuboden Member of the SOK Executive Board fi nancial objectives. In addition to comprehensive internal report- Member of the Supervisory Board 1998-2002 ing, the Corporation regularly publishes information on fi nancial 2004– Member of the Supervisory Board performance and the trend in net turnover. Retiring in 2007 1987–1997, 2003– Retiring in 2006

Information SOK Communications and Publications ensures that customers and stakeholders have suﬃ cient correct information at their disposal concerning the company and its operations. Information in written form is available upon request as well as through SOK’s website.

34 Corporate Governance within SOK Corporation

Jouko K. Leskinen (born 1943) Arto Piela (born 1960) Matti Vanto (born 1945) Helsinki Porvoo Raisio LL. M. LL. M LL. M. Chairman, Supervisory Board, Managing Director, Lawyer, City of Naantali Helsinki Cooperative Society Elanto Cooperative Society Osla Chairman, Supervisory Board, Member of the Supervisory Board 2002–20 Member of the Supervisory Board 20 Turku Cooperative Society April 2005 April 2005– Member of the Supervisory Board 1998– Retiring in 2006 Retiring in 2007 Maija-Liisa Lindqvist (born 1951) Lahti Matti Pikkarainen (born 1953) Juha Vuorenhela (born 1944) Member of Parliament Oulu Pori Chairman, Supervisory Board, Dean LL. M. Cooperative Society Hämeenmaa Director of Christian Education Juha Vuorenhela Ky, Law Oﬃ ce Member of the Supervisory Board 1997– Oulu Evangelical Lutheran Parishes Chairman, Supervisory Board, Retiring in 2008 Chairman, Supervisory Board, Satakunta Cooperative Society Cooperative Society Arina Member of the Supervisory Board 2004– Seppo Linjakumpu (born 1958) Member of the Supervisory Board 2004– Retiring in 2006 Kuusamo Retiring in 2007 Agronomist Chairman, Supervisory Board, Jorma Sieviläinen (born 1954) Personnel Representatives Cooperative Society Koillismaa Rauma Member of the Supervisory Board 2001– M.Sc. (Econ. and Bus. Admin.) Tapani Tikkala (born 1947) Retiring in 2006 Managing Director, Helsinki Cooperative Society Keula Project Manager, Ahti Manninen (born 1950) Member of the Supervisory Board SOK Member Services Lappeenranta 1991–20 April 2005 Member of the Supervisory Board 2001– Managing Director, Retiring in 2007 South Karelia Cooperative Society Kimmo Simberg (born 1959) Member of the Supervisory Board 1989–1991, Seinäjoki Annikki Heikkinen (born 1942) 2000– Bachelor of Hospitality Management Helsinki Retiring in 2006 Managing Director, Assistant, South Ostrobothnia Cooperative Society SOK Real Estate Maintenance Jorma Niiniaho (born 1945) Member of the Supervisory Board from Member of the Supervisory Board 1997– Hamina 2004–31 December 2005 Retiring in 2007 Titular Commercial Counsellor M.Sc. (Econ.) Timo Sonninen (born 1948) Managing Director, Iisalmi Cooperative Society Ympyrä Entrepreneur Member of the Supervisory Board 1991–1997, Chairman, Supervisory Board, 2002– Cooperative Society PeeÄssä Retiring in 2006 Member of the Supervisory Board 1985– Retiring in 2008 Klaus Pentti (born 1943) Hämeenkyrö Antero Taanila (born 1941) Titular Agricultural Counsellor Kokkola Member of Parliament Provincial Counsellor Chairman, Supervisory Board, Former Administrative Director, Pirkanmaa Cooperative Society Boliden Kokkola Oy Member of the Supervisory Board 20 April Chairman, Supervisory Board, 2005– Cooperative Society KPO Retiring in 2008 Member of the Supervisory Board 1991– Retiring in 2008

35 Corporate Governance within SOK Corporation

SOK Executive Board 2005–2006

Kari Neilimo (born 1944) Esko Hakala (born 1952) Arto Hiltunen (born 1958) Kuisma Niemelä (born 1958) Chief Executive Oﬃ cer 2002– Titular Commercial Counsellor M.Sc. (Econ.) M.A. D.Sc. (Econ.) Managing Director, Managing Director, Helsinki Managing Director, Cooperative Professor of Business Cooperative Society Maakunta Cooperative Society Elanto Society Keskimaa Osk Administration, University of Member of the Executive Board Member of the Executive Board Member of the Executive Board Tampere, 2003– 2000–2001, 2003– 2002– University of Lapland and With the S Group since 1975 With the S Group since 1980 With the S Group since 1983 Lappeenranta University of Technology, 1983–2002 Managing Director of Neiconsulting Oy, 1991–2002 Member of the Executive Board of Pirkanmaa Cooperative Society, 1988–1991 and Chairman of the Supervisory Board, 1992–2002 Chairman of the SOK’s Supervisory Board, 1991–2002 With the S Group since 1988

Veli-Matti Puutio (born 1961) Jukka Salminen (born 1947) Kimmo Simberg (born 1959) MBA M.Sc. (Econ.) Bachelor of Hospitality Managing Director, Cooperative Titular Commercial Counsellor Management Society Arina Executive Vice President, SOK Managing Director, Southern Member of the Executive Board Administrative Division 1993– Ostrobothnia Cooperative 2004– Director of SOK’s Field Division Society With the S Group since 1986 1993– Member of the Executive Board Member of the Executive Board 2006– 1988– With the S Group since 1988 With the S Group since 1974

Ulla-Maija Tolonen (born 1951) M.Sc. (Econ.), Titular Commercial Counsellor Managing Director, Pirkanmaa Cooperative Society Member of the Executive Board 2005– With the S Group since 1974

36 Corporate Governance within SOK Corporation

SOK Management Team

Kari Neilimo (born 1944) Ensio Hytönen (born 1952) Reijo Kaltea (born 1946) Suso Kolesnik (born 1961) Chairman and CEO Managing Director, Senior Vice President, Senior Vice President, D.Sc. (Econ.) Hankkija-Maatalous Oy SOK Customer-ownership and SOK Communications and M.Sc. (Econ.), University of Licentiate in Agriculture and Specialty Store Division Publications Tampere Forestry B.Sc. (Econ.) M.Soc.Sc Member of SOK’s Executive Member of the Management Member of the Management Member of the Management Board 2002– Team 2003– Team 2002– Team 2003– Member of the Management Team 2002– main positions of trust: Confederation of Finnish Industries, EK member of the Member Associations’ representative council 2004– Federation of Finnish Commerce and Trade, member of the Board 2003– Tapiola Mutual Pension Insurance Company, member of the Supervisory Board 2003– Central Chamber of Commerce 2003– Harri Miettinen (born 1962) Matti Pulkki (born 1947 Jukka Salminen (born 1947) Luottokunta, Vice Chairman of Senior Vice President, Senior Vice President, Executive Vice President, the Executive Board 2003– SOK Strategic Development SOK Hotel and Restaurant SOK Administrative Division Federation of Finnish Commerce and Human Resources Division M.Sc. (Econ.) and Trade, member of the Board M.Sc. (Econ.) B.Sc. (Econ.), MBA Titular Commercial Counsellor 2004–, Managing Director 2005– Member of the Management Titular Turism Councellor Member of SOK’s Executive University of Tampere, member of Team 2004– Member of the Management Board 1988– the University Governing Board Team 2002– Member of the Management 2004– Team 1998– Deputy CEO

Antti Sippola (born 1955) Heikki Strandén (born 1954) Senior Vice President, Senior Vice President SOK Supermarket Trade SOK Service Station Store and Fuel M.Sc. (Econ.) Sales Member of the Management Member of the Management Team Team 2003– 2003–

37 Accountability

Accountability is one of the fundamental values of the S Group. suffi cient resources to develop responsible business practices. Th e scope of accountability within the S Group is wide-rang- Th e S Group makes innovative use of the best available tech- ing due to the Group’s broadly based business. For the S Group nology and expertise on the market. Th is enables the Group to accountability means that members can rely on the quality of the minimise hazardous and adverse situations and the risks they cause products they purchase and that they can be equally confi dent to people and the environment. Matters related to customers’ that employees are content in their jobs and that fuel sales cause health and safety as well as to ethical product procurement play a no harm to the local environment. Th e accountability of corporate prominent role in planning product and service assortments. activities is viewed as a natural part of the S Group’s operations Th e S Group communicates openly about the eff ect of its and of a people-fi rst market economy. Th e aim is to provide added operations on the economy, the environment and people as well as value for the S Group’s business operations and in turn for its regional vitality. To this end, the S Group draws up indicators for members by developing economic, social and environmental data measuring, describing and comparing the results of the develop- management. ment work carried out in the various sub-areas. In November 2002 SOK’s Executive Board endorsed the princi- Th e Group strives for interactive corporate communications ples of social accountability for the S Group that had been drafted with diff erent stakeholders. on the basis of the S Group’s environmental policy which was It is the task of the management of the S Group’s business units approved in 1999. Th e principles encompass the economic, social to ensure that employees are familiar with these principles and and environmental dimensions of accountability. committed to observing them in their daily work. Social responsibility is viewed as a natural part of the S Group’s Principles of the S Group’s set of core values, and the principles are applied in practice by social responsibility means of action plans carried out by the operating units. Th e aim is to provide added value for the S Group’s business operations Th e S Group provides services and benefi ts for its members and in turn for its members by developing economic, social and responsibly and in accordance with the principles of sustainable environmental data management. development. Responsibility means regionally, economically, ecologically and socially responsible business operations over the long term. Operations are developed in co-operation with members, personnel, suppliers of goods and services, local communities, the authorities, partners in co-operation and other stakeholders. Th e observance of international agreements, legislation as well as regulations and guidelines sets the standard within the S Group and this is supplemented with inter-company agreements and good business practices. Responsible business is furthered by The S Group’s Social Accountability Report is available at taking the initiative and being at the forefront in line with the www.s-kanava.fi principle of continuous improvement. Result-oriented operations ensure long-term profi tability and

SOK CORPORATION’S PERSONNEL PER BUSINESS UNIT DISTRIBUTION OF MALE AND FEMALE EMPLOYEES

38 Accountability

Personnel nates the implementation, monitoring and the setting of objectives for the equality plan together with personnel representatives. Th e Within the S Group, the staff are managed in accordance with the achievement of the equality principles is monitored by means of an Group’s core values. Personnel activities are steered by the human annually conducted workplace survey. Management and personnel resources strategy, which is rooted in the S Group’s mission, vision representatives are always informed of the results. and values. Th e objective of the HR strategy is to turn our person- Th e survey for 2005 revealed that equality is achieved success- nel into a unique competitive advantage for the S Group, whilst fully within SOK. Around 80 per cent of staff took part in the supporting and ensuring the implementation of competitive strate- survey. Th e equal treatment of diff erent-aged employees received gies via human resources and the S Group’s ways of working. an excellent score in the survey. Equality between the sexes, the fairness of supervisor work as well as the overall way in which SOK Corporation’s personnel equality is achieved were given good scores. In all, 5,141 people (including absentees) were in the employ When evaluating the implementation of earlier measures, it of SOK Corporation at the end of 2005. Of the staff working is worth drawing attention to the fact that, for instance, fl exible in Finland, 143 were on family leave and 7 were on study leave. working hours have made it easier for employees to maintain the Permanently employed personnel remained at more or less the balance between work and family. Th e workplace surveys have also same level as the previous year (92%). Full-time staff represented contributed towards implementing various development measures. the majority of all employment contracts (75%). Women in SOK Measures included in the equality survey were improving the Corporation accounted for over half the personnel (58%). Th e quality of appraisal discussions, adding equality materials to the average age was 38 years. Employees in the hotel and restaurant intranet and preventing salary discrepancies by continuing to pay business comprised the largest personnel group. particular attention to starting salaries for women.

Equality Compensation and reward Responsibility is one of the S Group’s fundamental values. It refers Within the S Group, reward is a part of good, goal-oriented man- to shouldering responsibility in matters such as equality and to agement as well as of competent supervisor work. It is a means for taking diff erent people and points of view into consideration. A supporting the achievement of the S Group’s business objectives. working community that promotes equality motivates people to Th e primary aim of reward is to positively aff ect competitiveness give their best eff ort, to be committed to their work and to step up and profi tability across the S Group and within each unit. the quality and profi tability of work throughout the community, Th e S Group has a strong tradition of diverse and motivational which in turn leads to better competitiveness. reward of personnel. Eff ective and appropriate reward calls for a Within SOK, equality is defi ned as comprising the equal and sound grasp of diff erent forms of reward and actively using them. fair treatment of a person irrespective of sex, age, ethnic back- A working group was established in 2005 to survey and defi ne the ground or other personal characteristic. S Group’s reward practices. Th e group will continue its work in SOK’s equality plan revolves around the Corporation’s human 2006. resources policy and core values. A random sample questionnaire Th e aim of the principles defi ned by the working group is to concerning equality was devised for personnel as the basis for the encourage the feeling that a job and working within the S Group plan. SOK’s HR Administration and Development unit co-ordi- are rewarding and valued. Th e idea behind comprehensive reward

LENGTH OF EMPLOYMENT PERMANENT EMPLOYEES / TEMPORARY EMPLOYEES (permanent employees in Finland)

39 Vastuullisuus

40 Accountability

is that within an organisation, the focus is on work and its co-ordi- healthcare. Over the years, the emphasis of occupational healthcare nation and development while ensuring that fi nancial reward is in has shifted from treating accidents and illnesses and preventative the right ratio to the work accomplished and profi t achieved. care to promoting and sustaining health and well-being. Bonus schemes within SOK Corporation have applied to all Th e fundamental element within SOK Corporation is that staff since the beginning of 2004. SOK Corporation paid profi t-re- meaningful work and an open and fair atmosphere in the work- lated and incentive bonuses based on operations in 2005 amount- place generate job well-being. Diverse club activities and Job Verve ing to EUR 4,413,704.93. days are also the approaches used to maintain job well-being. Within SOK Corporation, an employee’s salary is determined Forthcoming supervisor courses will concentrate on job well-being by task qualifi cation, the person’s experience and competence as and on the means for its improvement. well as performance of the task. Th e criteria for evaluating job qualifi cation apply equally to all employees. Training and development Th e continual development of personnel ensures that SOK Cor- Management and leadership poration’s staff are equipped with adequate tools to give them the Good leadership and management are used to ensure that social competence to do their work both now and in the future. relations work from the top down, the bottom up and horizon- Last year the Jollas Institute racked up around 1,300 training tally. Reliability, openness and persistence are the hallmarks of days, which were attended by about 17,500 students. Th ere was a well-managed unit. Management and leadership are rooted in continued strong demand for the basic courses off ered at Jollas, profi table activities, by people and with people. such as long-term training programmes for supervisors and prod- Within SOK Corporation, particular attention has been given uct group and store opening courses. to the work of supervisors. For instance, SOK has arranged half- Th e For You, Our Customer in 2004 training programme, day coaching sessions covering a range of themes for supervisors which was aimed widely at S Group personnel, reached conclusion eight times a year. Th e themes in 2005 included appraisal discus- last year. Its aim was to support supervisors in running effi cient sions, the development of capabilities, interactive skills, reward and operations and in service quality management. It was attended the supervisor’s role in dealing with problematic situations within by around 10,000 S Group employees during 2004 and 2005. the work community. Supervisor training is continuing at the Th e programme culminated in spring with the fi nal round of a Jollas Institute, the S Group’s training centre, with a course named competition arranged at Jollas, in which more than 200 contest- Inspired Leadership and a Th riving Working Community. ants took part. Last year saw the start-up and implementation of several new Well-being programmes, such as the Saha course which aims at improving One of the S Group’s overriding objectives concerning personnel is availability, reducing wastage and enhancing the effi ciency of to foster and sustain well-being at work. Occupational healthcare operations by utilising ordering systems. Other courses that started across SOK Corporation is arranged through its own occupational out during the year included in-depth management training for health unit. In addition to Job Verve activities that serve a prevent- S Group supervisors and customer-knowledge training. Th e most ative purpose and promote job well-being, activities comprise gen- signifi cant Chain Management courses were launched for the eral practitioner-level treatment with the emphasis on occupational ABC and Sokos chains. Th e Management in the Future course was

DISTRIBUTION OF EMPLOYEES PER BUSINESS UNIT FULL-TIME EMPLOYEES / PART-TIME EMPLOYEES

41 Accountability

arranged in collaboration with the Continuing Education Centre Commercial fi eld training at the University of Tampere. A course for the S Group’s senior Commercial fi eld training is a recruitment programme aimed management also commenced at the Jollas Institute towards the at recent graduates from universities and polytechnics. It is the end of the year. approach taken by the S Group to recruit and train people for Some of the Jollas Institute’s courses are arranged online. Th e challenging managerial and specialist tasks in the diff erent sectors popularity and importance of this form of training are continu- within the Group. Field training groups are the way to ensure ally rising. Th e most important online course is online induction, suffi cient key resources for the future in the S Group’s units and which is already used in several of the S Group’s units. New, ad- sectors. vanced online training programmes were also devised for the ABC Eighteen trainees were recruited for the university-level com- chain, to name but one example. mercial fi eld training group that started out in February and thir- Arranging apprenticeship training and courses leading to profes- teen trainees started in the polytechnic group launched in June. sional and vocational qualifi cations is an important part of activities at the Jollas Institute. Th ese types of courses were organised Corporate security to prepare students for vocational qualifi cations in sales, car sales, Th e goal of corporate security and risk management within the S secretarial duties and fi nancial administration and for professional Group is to support the unhindered continuity of the S Group’s qualifi cations specialising in store supervision, food supervision as central operations and processes by using risk management well as hotel, restaurant and institutional kitchen supervision and measures and procedures in order to achieve its business strategy management. Last year these courses were attended by more than objectives. Th e aim is to safeguard personnel, customers, assets, 450 students. information and the environment against accidents, damage and Appraisal discussions play an important part in planning the de- misfeasance through preventative and cost-eff ective risk manage- velopment of a person’s competence. Th ey take place at least once ment as well as to reinforce customer confi dence in the S Group. a year. An S Group level recommendation concerning the appraisal In 2005 the development of comprehensive risk management discussion process was issued in 2005. Training programmes for pressed ahead in line with the risk management policy determined supervisors arranged at the Jollas Institute have focused particular by SOK’s Executive Board last spring, and in accordance with the attention on the quality of the discussions. SOK’s HR Admin- organisation and responsibilities of risk management. Further- istration and Development unit, in collaboration with the Jollas more, the work of drawing up the S Group’s risk management Institute, is continuing to develop the tools for successful and high strategy got underway. During the year a risk management and quality appraisal discussions. Th e monitoring of appraisal discus- security management information system (RITU) was developed sions has also been included as part of the workplace survey. and adopted. Th e system is used to promote the management Electronic tools that support HR functions were also taken a of the S Group’s business risks, the internal control of security, step forward. Th e emphasis was on enhancing the readiness for reporting on extraordinary situations as well as online learning as appraisal discussions as well as on steering job-related issues. Last part of comprehensive risk management. year HR courses were organised twice for HR professionals. SOK’s Improvements were made to ensure the unhindered continu- HR Information days, which deal with personnel matters of cur- ity of business functions by drawing up a continuity plan for rent interest, were arranged twice during the year. the S Group’s steering and management functions. In addition, data security reviews and internal audits on the principal service and goods suppliers were carried out as part of a comprehensive security audit. Data security audits were conducted in the Sokos department stores. In 2005 particular attention was given to stepping up workstation anti-virus software and control. Safety Passport courses were arranged in collaboration with the Red Cross, the Jollas Institute, SOK’s Corporate Security and Risk Management unit and the fi re and police authorities. Th ese courses aim at enhancing the safety of customers and personnel in TURNOVER (permanent employees in Finland) the S Group’s locations. By the end of the year, altogether 1,861 S Group employees had completed their Safety Passport training. Other security training was arranged as part of the Jollas Insti- tute’s basic and store opening courses as well as on security courses arranged at the initiative of staff within the organisation. A total of 1,086 students completed the E-jollas online induction security module. Last year the Corporate Security and Risk Management unit arranged security training totalling 311 hours for S Group staff . Management readiness in crisis situations was further improved in co-operation with SOK’s Communications and Publications division. A crisis situation management model was defi ned for the regional cooperative enterprises and the Crisis Communica- tions manual was compiled for supervisors and crisis management organisations. Crisis management organisations and responsibili-

42 Accountability

ties were laid out for the regional cooperative enterprises as part Environment of training and a fi eld exercise was carried out with the purpose of developing practical management capabilities. Fundamentals Last year analyses were carried out on the principal security Th is report focuses on SOK Corporation’s environmental manage- threats related to the S Group’s business operations; risk management, the environmental competence of employees, real estate, ment measures were prescribed accordingly. Furthermore, the energy and water consumption, sourcing and logistics, envi- analysis of business risks using the RITU system was launched ronmental labelling and Fair Trade products, packaging, waste within organisations determined by SOK Corporation. management, recycling services for customers, environmental Co-operation in safety continued within the framework of the communications and co-operation with interest groups. More de- security partnership agreement with the City of Helsinki Rescue tailed information about the environment will be presented in the Department, SOK and Helsinki Cooperative Society Elanto by S Group’s Accountability Report that is to be published in spring developing an internal control tool for fi re safety. Th e comparison 2006 on the S Group’s website at www.s-kanava.net/accountability. of the level of security activities continued between Rezidor SAS and Sokotel Oy. SOK’s Corporate Security and Risk Management Environmental management unit and the Tapiola Group of insurance companies commissioned Th e most important aspect of environmental management is to an inspection of the safety levels in 106 of the S Group’s locations. apply in practice the S Group’s environmental policy, which was Th e S Group entered into a Bonus co-operation agreement with updated in 2005. Th e new environmental policy implements the Falck Security (A Group 4 Securicor Company) concerning the of- S Group’s values and the Group strategy, delineates responsibilities fering of home protection and security systems to customer-own- and the division of labour, fosters the monitoring of the Group’s ers. Th e Bonus co-operation agreement was piloted in Cooperative performance and the dissemination of best practices as well as sup- Society Keskimaa in 2005. ports knowledge-based management, good administrative practices Inspections of safety levels at locations were carried out with and open communications. the aim of stepping up anti-crime security as part of the Safety- Indicators and comparative data are indispensable as the basis Protected campaign being run by the Federation of Finnish Com- for decision-making. Consequently, the S Group employs environ- merce and Trade. By the end of the year, 298 locations had been mental indicators to monitor environmental performance in the approved. fi eld. Development work on environmental auditing at S Group level concentrated on the introduction of indicators of environ- Outlook for the future mental responsibility and integrated auditing rules as well as on Updating the HR strategy across the S Group will be one of automating access to data from numerous source systems. the priority areas in 2006. Th e work of renewing, defi ning and putting SOK Corporation’s personnel policy into tangible shape Environmental competence of employees got started at the end of 2005. Th e work will continue in 2006 Increasing and maintaining the environmental skills of personnel together with personnel representatives. is an important part of day-to-day environmental work. Informa- Th e year will see the launch at the Jollas Institute of the For You, tion was supplied to employees through training, communications, Our Customer programme aimed at all the S Group’s person- and reporting and pilot projects. Training in environmental com- nel, the theme of which is the Your Own Store vision. Personnel pliance is carried out in co-operation between the Jollas Institute capabilities will be taken a step further by such means as strength- and the S Group’s units. At the Jollas Institute, environmental ening competence in business operation systems. Th e competence compliance is included in store opening training, management profi ling that got underway last year will make it possible to focus training days, commercial fi eld training and in vocational degrees and plan future courses even more precisely to match the needs of in sales and service station store sales. diff erent organisations and task groups. In addition, the units have carried out their own internal Within corporate security, the development of comprehensive training by means such as co-operating with goods suppliers and risk management will forge ahead by drawing up the S Group’s other interest groups. Th e environmental message is put across to risk management strategy as well as by developing risk manage- employees in the Ässä magazine, the company’s website and the S ment processes and procedures. Personnel and customer safety will Group’s Accountability Report. Trade magazines, guidebooks, bro- be further improved by continuing the Safety Passport courses. chures, concepts, fairs and working groups also serve as important Continuity plans will be drawn up for information systems critical sources of information. to business operations in order to ensure the unhindered continuity of business functions. Real estate Th e prominence given to environmental compliance in the work going on at new building and renovation sites set up by the S Group’s real-estate arm as well as in the development of maintenance and servicing functions has taken on new dimensions with each passing year. SOK’s Real-Estate Management is actively involved in pioneering programmes in the property and construction fi eld. Th e PromisE system, which is used for classifying and comparing the environmental characteristics of properties, has been in pilot use since 2002. Th e year 2005 saw the launch of the PromisE Prisma Project, which is examining for the fi rst time

43 Accountability

the environmental characteristics and energy effi ciency at all the Initiative (BSCI) co-operation model that seeks to streamline and Prisma hypermarkets; the work will reach conclusion in 2006. standardise monitoring the working conditions of goods suppli- Developer construction across the S Group has adopted techni- ers. In addition, Inex Partners and Intrade Partners are both active cal environmental targets that serve as a design tool in building. members of the Responsible Importer network, which is co-ordi- Targets are defi ned for a construction site, the building itself and nated by the Central Chamber of Commerce. for the operations planned for that building. Th e objectives have played a central role in constructing Prismas, S Markets, ABC Environmental labelling and service station stores and hotels. Fair Trade products Th e number of environmentally labelled products within the Energy and water consumption assortments is constantly on the increase. Organic foods have Extending joint electricity procurement, or bulk electricity, for consolidated their position within the grocery sector. At the end use by the entire retail group calls for monitoring consumption of 2005, market stores stocked more than 500 organic products. readings at individual sites. Providing information on electricity SOK and HOK-Elanto from the S Group participated in the consumption on a centralised basis directly from the S Group’s Organic Products research project funded by the Ministry of Agri- locations serves not only joint procurement objectives but also the culture and Forestry, which reached completion in 2005. use and maintenance of real estate, accountability reporting and Environmentally labelled non-food consumer goods comprise the requirements of the energy effi ciency directive. Bulk electricity products marked with the Nordic Swan (89), the EU Flower (16) accounts for approximately half the S Group’s annual electricity and the FSC Forest Certifi cate (14). In 2005 around 300 products consumption. in the textile assortments bore the “Confi dence in Textiles: tested In 2005 SOK’s Real-Estate Management took part in the RET for harmful substances” product safety label in accordance with the project on auditing eco-effi ciency in buildings, which defi ned the Oeko-Tex Standard 100. It has been common practice for building criterion for country-specifi c application of the energy effi ciency materials to display the relevant environmental specifi cations. directive in projects for constructing extensions and new buildings. Fair Trade products have featured in market store assortments Real-Estate Management participated in the capacity of a since 1999. At the end of 2005, market stores stocked a total of 18 corporate representative in the LED-PLC product development Fair Trade products including coff ee, tea, cocoa, honey, chocolate, project, the aim of which was to develop commercial applications sugar, pineapples, oranges and bananas. Fair Trade products have using lighting solutions based on energy saving and long-life LED been brought to public attention during Fair Trade promotion technology. weeks. Th e S Group is a leading trader of Fair Trade products in Finland. Sourcing and logistics Finland is a sparsely populated country with long distances Waste management between towns and cities; it is both economically and environ- Changes in waste legislation mean stricter local regulations and mentally sound to deliver goods to consumers in as rational a therefore new challenges for the S Group. Producer responsibility manner as possible, avoiding unnecessary transport, packaging and legislation concerning the recovery of waste from electrical and unloading. Co-operation between trade and industry enhances electronic equipment, which came into force in August 2005, gives information management and provides improved opportunities for sellers of such products the role of communicators of information. planning logistics functions. During last year the S Group’s grocery sector prepared to assess the Over half of the grocery products sold by the S Group’s chains impacts from the obligations arising from the Animal By-products are transported to stores by means of the sourcing, warehousing regulation. and distribution services provided by Inex Partners Oy. Environ- Th e “New Services – Increased Material Effi ciency” project led mental co-operation between the S Group and Inex Partners is an by the Helsinki Metropolitan Area Council (YTV) found solutions important aspect of the entire logistics chain. to reduce the amount of waste produced by the service sector. Intrade Partners Oy acts as the S Group chains’ procurement HOK-Elanto’s S Markets and Prisma hypermarkets are seeking and logistics company for consumer goods. Its main task is to means for preventing waste from arising in grocery stores. Th e provide its customer chains with high-quality operational services product range in the grocery trade is expected to expand in the and products that have competitive cost/quality ratios. next few years, which generally leads to greater volumes of wastage. Packaging requirements stress the need to avoid excess packag- However, HOK-Elanto’s objective is to halt the increase in waste ing and the importance of using packaging materials that can be volumes, and sound basic procedures have been set up within the recycled or utilised in other ways. Packaging materials and their Group for the management of waste fl ows. Monitoring waste vol- recyclability must be marked in accordance with EU practices. umes has become more stringent so that waste volumes and costs Products that place a lower burden on the environment must fea- are reported on a monthly basis. New means for preventing waste ture a nationally or internationally approved environmental label. from arising are being actively sought, and working practices in the Th e company’s instructions specify environmental and ethical chains can accordingly be adapted in quick response. requirements for goods suppliers. Th ese guidelines are taken into consideration when evaluating a new supplier. Recycling services for customers Both S Group procurement companies are responsible for en- Th e bottle and can recycling system is the best-known recy- suring that purchased goods and the information provided about cling service for customers. Collection is mainly handled using them comply with environmental legislation and requirements. automated bottle and can collection machines. Over 95 per cent Intrade Partners Oy is involved in the Business Social Compliance of glass and plastic deposit bottles and more than 90 per cent of

44 Vastuullisuus

45 Accountability

aluminium cans are returned. Other recycling services are related SOK Corporation’s sponsorship co-operation work in 2005 placed to recyclable waste collection points, end-of-life vehicle and tyre strong emphasis on social responsibility and targets suited to recycling. families with children, as directed by the sponsorship strategy. Th e major agreements concluded with the Finnish Red Cross and the Communications Mannerheim League for Child Welfare serve as good illustrations Environmental information targeted at interest groups has been of our sponsorship policies. Co-operation also continued with disseminated through the environmental pages of SOK Corpora- the Finnish Freestyle national team, Raumanmeri Midsummer tion’s Annual Report and on the Internet through the S Group’s Festival, Svenska Teatern, the Helsinki Festival, Circus Finlandia, Accountability Report. Art Centre Salmela and Pori Jazz. Moominworld and the Kuhmo Th e environmental message has been conveyed to households Chamber Music Festival came on board as new partners. through the Yhteishyvä magazine. Th e regional cooperatives have Members discovered Moominworld right away in the fi rst year disseminated information by means of accountability reports, of co-operation, and the number of visitors in summer 2005 brochures, ecological experts, bulletin boards and various events. reached record levels; more than 220,000 Moomin enthusiasts Th e Ässä magazine and the S Intranet are the S Group’s internal visited the island, over 52,000 of them S Group members. communications tools. Th e FIS Freestyle World Ski Championships 2005 took place at Ruka in March, and promising youngsters who had risen through Interest groups the ranks of the freestyle schools for children and youth, which are SOK has continued actively to contribute to the dialogue relating supported by the S Group, made it to competitions. to international environmental co-operation within Euro Coop’s In addition to focused group-wide activities, regional coopera- Environmental Working Group. Central themes have been the tive enterprises have actively engaged in co-operation with local EU chemicals legislation, the recycling of waste from electrical and organisations, associations and events. electronic equipment, the utilisation of packaging, issues relating to environmental labelling, Fair Trade and organic production. The Finnish Red Cross and the Mannerheim SOK has actively headed the Environmental Committee of the League for Child Welfare – true partnership Federation of Finnish Commerce and Trade and it has participated Th e S Group has entered into a national agreement of co-opera- in the work of both the Logistics and Purchasing Division of the tion with two distinguished organisations: the Finnish Red Cross Finnish Food Marketing Association as well as the environmental and the Mannerheim League for Child Welfare. Th e national committee of the Confederation of Finnish Industries EK. SOK agreements cover nationwide co-operation and the regional coop- has also been represented in the following working groups: the erative enterprises engage in co-operation with local organisations. Ministry of the Environment’s Co-operation Group of the Waste Th e co-operation agreement with the Red Cross was concluded Branch, the Ministry of the Environment’s Waste Management in December 2002. Th e S Group brought to the table its network Practices Working Group, the Ministry of Trade and Industry’s of regional cooperative enterprises, grocery markets and depart- environmental labelling steering group, the project management ment stores, hotels and restaurants, service station stores, car group of the Recycling Technologies and Waste Management dealerships and hardware and agricultural outlets. Th rough its Project (Streams) initiated by the Finnish Funding Agency for co-operation, the S Group aims to bring the Red Cross into closer Technology and Innovation TEKES, and the steering group for touch with its member families and its personnel. Th is provides the Finnish Oil and Gas Federation’s SOILI soil-remediation the opportunity for the Finnish Red Cross to reach out to over 2 programme. million Finns and thus gain additional resources for helping at the local level. Th e patron project of the co-operation between the S Sponsorship and international contacts Group and the Finnish Red Cross is drumming up membership. Th e project, which has been ongoing for three years, has helped to Sponsorship swell the number of Finnish Red Cross members considerably; it Sponsorship and other co-operation with interest groups are con- has welcomed 20,000 new members during this period. ducted in line with a sponsorship strategy throughout SOK Cor- Th e fi rst three-year co-operation agreement between the Finn- poration and the S Group. Th e strategy ensures that investments ish Red Cross and the S Group ended at the end of 2005 and a are allocated to appropriate targets in a co-ordinated manner. It new three-year agreement was signed at the turn of the year. Th e is important that sponsorship investments are made in line with S Group supports the Red Cross in its drive to gain new mem- objectives. Sponsorship is one of the ways in which the S Group bers and provides prominence for Red Cross activities in its own seeks to build and maintain its image as a responsible actor. Th e publications. Sales of Finnish Red Cross products in the S Group’s aim is to allocate investments to targets that support the S Group’s chains have also been promoted. Th e agreement includes extensive values and that in one way or another touch on the life of each and local co-operation between Red Cross districts and local branches every member. and the S Group’s regional cooperative enterprises. Th e priorities of SOK’s sponsorship and fi nancial support have Th e S Group’s nationwide co-operation with the Mannerheim shifted in recent years. Th e traditionally considerable investments League for Child Welfare got underway in 2000. Prior to this, in top sports have been reduced to make way for endorsing chil- the regional cooperative enterprises had already co-operated with dren’s and young people’s sports activities. Th e scope of cultural local associations within the framework of such projects as the “A sponsorship has also widened to embrace diff erent target groups. Good Start to Schooldays” campaign. In honour of SOK’s centen- Overall, there has been a considerable shift within the S Group at nial, the S Group presented the Mannerheim League for Child large to giving prominence to activities that support children and Welfare with EUR 200,000 in January 2004. Th is sum covers the young people. years 2004–2006 and it is being allocated for the development of

46 Accountability

an Internet service to support parents and for arranging regional In response to the plans to expand the S Group’s fi nance services, “Parents Together” events. 19 regional cooperative enterprises modifi ed the regulations to Th ese events, which have achieved tremendous popularity, have their savings fund activities at their representatives’/cooperative been arranged in the regional cooperative enterprises’ areas up meetings held in the autumn. As in previous years, the coopera- and down the country and they have covered a number of themes tive enterprises received assistance in matters connected with the relating to parenthood. amendments to Statutes and Trade Register fi lings. Furthermore, the Cooperative Department and Field Management took part in The Finnish Cooperative Union, SOKL r.y. a number of sessions that were arranged by the cooperative enter- Th e Executive Board of the Finnish Cooperative Union, SOKL prises for administrative staff and stakeholders. r.y, focuses its activities on developing and examining the mission, values and vision of the S Group, and it analyses, puts forward Cooperative Advisory Board and presents policies and views related to the implementation of Th e S Group is a party to the Cooperative Advisory Board cooperative principles and values to the various decision-making established by cooperative companies. Its purpose is to act as the bodies of the S Group and oversees their practical implementation. body of co-operation for Finnish cooperative organisations and Th e Union does not participate in the management and decision- companies. Th e Advisory Board fulfi ls its functions by acting as the making of business operations. overall lobbyist and discussion forum for cooperative activities and At the end of the year SOKL’s Executive Board launched a by co-ordinating or in some other way implementing projects that project that seeks to shed light on SOKL’s position, role and tasks, improve the common conditions for the activities of cooperative particularly with regard to decision-making across the S Group. companies. Th e members of the Advisory Board are: the Pellervo SOKL is the S Group’s representative in international coopera- Confederation of Finnish Cooperatives, the Cooperative Tradeka tive activities, especially in the International Cooperative Alliance Corporation, the Finnish Cooperative Union, SOKL ry and the (ICA) and Euro Coop. OP Bank Group Central Cooperative. Jukka Huiskonen, Senior SOK’s Field Management unit is responsible for the practical Judge, Otto Mikkonen, Titular Industrial Counsellor, Managing activities of SOKL. Th e Union has no clerical staff of its own. Director, and Professor Kauko Mikkonen serve on the Advisory Th e members of the Union are all of the S Group’s cooperative Board as representatives of the S Group. enterprises and SOK. SOKL’s Executive Board comprised representatives of regional International contacts cooperatives with Jukka Huiskonen, LL.M., Senior Judge, as SOK Corporation’s contacts with international cooperative chairman and Raili Palmi, offi ce manager, vice chairman as well as organisations are handled in the name of SOKL ry, the Finnish members Pekka Kangasmäki, Managing Director (until 20 April), Cooperative Union. Th e Union is a member of the International Ulla Karvo, LL.M., Simo Kutinlahti, farmer, Professor Kauko Cooperative Alliance (ICA) and Euro Coop, a Brussels-based Mikkonen, Jorma Niiniaho, Titular Commercial Counsellor (as lobby organisation for consumer cooperatives. from 20 April), Leena Pelkonen, Chief Financial Offi cer, Jorma Th e ICA is an impartial independent organisation, which brings Sieviläinen, Managing Director, Hanna Valtari, Training Director, together, represents and serves its member cooperatives throughout and Juha Vuorenhela, LL.M., as well as SOK representatives Jorma the world. ICA has 223 member societies in 89 countries and the Koistinen, Director of Field Management and Cooperative Rela- member societies have a total membership of more than 800 mil- tions, and Kari Neilimo, Chairman and CEO. lion. It is the world’s second largest such body immediately after Th e tenth S Group’s Management summer days took place in the United Nations. Kokkola on 11–12 June. Altogether around one thousand people Founded in 1957, the goal of Euro Coop’s activities is to sustain from cooperative enterprises and SOK Corporation attended the and nurture the intensity and values of consumer cooperative various events arranged during the days. activities in a changing Europe. Actively functioning working National-level training for management personnel took place in groups, who work in close association with the European Com- co-operation with the Jollas Institute. A good 50 participants from mission, are one of the most important tools for fulfi lling this cooperative enterprises who are members of the Supervisory Board goal. Th e working groups get to grips with the up-to-the-minute or Executive Board attended the updated management training changes that have a bearing on consumers and consumer coopera- programmes. tives. Working groups have been put together for product safety, Induction courses and training events related to the adoption of foodstuff s safety and environmental matters. One of Euro Coop’s the “Good Administrative Practices within Co-ops” manual, a tool primary objectives is to infl uence legislation at EU level to ensure for administrative staff that was completed in the previous year, that the interests of consumers and consumer cooperatives are were arranged in the cooperative enterprises. taken into due consideration and safeguarded when new legislation A study, which examined the opinions and thoughts of manage- is being drafted. ment concerning the activities of cooperative entrepreneurship, Th e consumer cooperative enterprises of 17 European countries reached completion in the previous year. A summary of the study are members of Euro Coop. Th ey represent 3,200 cooperative was delivered to the cooperative enterprises in February 2005. societies and their 22 million members. Elections of representatives were arranged in six coopera- Euro Coop has EU status, and its prestige as a body that issues tive enterprises. Voter turnout averaged about 30 per cent; the statements and exercises infl uence in Brussels is signifi cant. customer-owners of Satakunta Cooperative Society were the most Anne Santamäki, SOK’s director for contacts with organisations, active (42.3%). Th e cooperative enterprises received assistance in is the vice chairman of both ICA Europe and Euro Coop. conducting the elections. All the cooperative enterprises arranged a training and induction event for the new representatives.

47 Financial Statements

Executive Board Report on Operations

Retail operating environment in 2005 increased markedly more than the monetary amount of sales. Th e rise in the price level of hardware sales contributed to aggregate Th e world economy again grew quite rapidly last year. In the sales growth. Th e department store trade grew by 5.6 per cent by United States, broad-based growth continued at nearly the previ- the end of November. Sales by the member companies of the Finn- ous year’s level. In China, India and Russia, growth was markedly ish Food Marketing Association showed increases of 3.1 per cent stronger than in the western countries. Th e economic trend in the in the department store trade and 0.5 per cent in the grocery trade eurozone improved in the latter months of the year, but full-year in 2005. According to the retail fi gures published by Statistics growth in 2005 will probably come in well below two per cent. Finland, the growth in grocery sales was 2.6 per cent by the end of Record-high crude oil prices fuelled infl ation in the United States November. Th e price level in the grocery trade was still declining and the eurozone. Th e United States Federal Reserve Bank hiked slightly, with sales volume outpacing the value of sales. the federal funds rate a number of times. Weak economic growth Th e overall market for agritrade held up at the previous year’s in the eurozone has maintained a stimulatory level of interest level in Finland. Trade in production inputs used on farms also rates. Th e European Central Bank raised its main lending rate only held steady. Th e total market for tractor sales declined, as it did last slightly. In 2006 the world economy is set to grow at roughly last year. Finland’s grain harvest of 4.0 billion kilograms was 12 per year’s rate. cent larger than the harvest a year earlier. Th e trend in Finland’s gross domestic product last year appears Guests at Finland’s hotels, motels and inns stayed the night 11.8 to be clearly weaker than the 3.6 per cent growth seen in 2004. In million times by the end of October. Th e number of overnight January–September of last year, gross domestic product was only stays grew by 3.4 per cent. Th e hotel occupancy ratio during the 1.5 per cent greater than a year earlier. Last summer’s industrial period was 49.7 per cent, an increase of 1.3 percentage points. disputes in the paper industry cut into GDP growth temporarily. Sales by licensed restaurants grew by just under 4 per cent. Th e During the autumn, GDP returned to its previous growth trend. growth in restaurant sales came from sales of dining services, an Growth over the full year was driven by private consumption and area in which growth is set to continue this year as well. exports, despite the problems in the paper industry. Th e growth Th e employment trend in the retail sector was good last year. trend of the Finnish economy is still markedly faster than in the During the fi rst three quarters, the retail wage bill rose by nearly 6 eurozone on average. Last year growth in the eurozone was only per cent and the number of people employed was up almost 3 per about one and a half per cent. cent. Consumers’ confi dence in their own fi nances and ability to save Changes in the Group structure remained at a good level all year long. Faith in the trend in the Finnish economy and the outlook for receding unemployment Changes during the report period weakened greatly owing to the labour dispute in the paper indus- At the beginning of 2005, the Tampereen Sokos Oy business try. Th e hurricanes in North America in the autumn also jolted was sold to Pirkanmaa Cooperative Society. In the same connec- consumer confi dence. Towards the end of the year, consumer tion, SOK sold its shares in the real-estate management company confi dence nevertheless returned to an even higher level than in Kiinteistö Oy Kauppahalli Piha to Pirkanmaa Cooperative Society, the early part of the year. In particular, consumers were more con- and Kiinteistö Oy Tampereen Valtakulma sold the Tampere Sokos fi dent about the future trend in employment, which did improve department store property it owned to Sampo Pankki plc, a bank. quite favourably during the year. Towards the end of the year, the Tampereen Sokos Oy and Kiinteistö Oy Tampereen Valtakulma industrial confi dence indicator was at its long-term average. Th e merged into SOK at the end of August. Th e companies’ operations confi dence indicators for construction and services strengthened had ended. markedly last year. In transactions between SOK and Helsinki Cooperative Society Th e average rate of infl ation in 2005 was 0.9 per cent. Th e big- Elanto (HOK-Elanto), SOK’s Sokotel Oy subsidiary sold the gest increase in consumer prices was due to the rise in fuel prices. Ravintola Memphis and Coff ee House businesses that operate Th e rise in consumer prices in Finland was clearly slower than in in the Sokos property in Helsinki to HOK-Elanto at the begin- the eurozone, where it was at around two per cent. ning of 2005. Concurrently, Sokotel Oy purchased the Hotelli Th e growth in private consumption last year is estimated at just Presidentti business from HOK-Elanto. Uudenmaan ABC Oy, under 3 per cent. Th e strongest growth, just like last year, was in which develops the network of service station stores in the Greater consumer durables and is estimated at 8 per cent. Within semi-du- Helsinki area and Uusimaa county as well as three real-estate rables, growth was 4 per cent, whereas for services and consumer management companies which own the ABC service station stores non-durables, growth was only 2 per cent. in Tuomarinkylä, Järvenpää and the store in Hyvinkää that is to Th e value of retail sales, excluding the motor trade, grew by 4.9 be completed in early 2006 were sold to HOK-Elanto in May. In per cent by the end of November, according to Statistics Finland. September, SOK sold to HOK-Elanto the shares in the real-estate Vehicle sales were up 6.6 per cent. Th e number of new cars regis- management company Kiinteistö Oy Asematie 8, which entitle tered last year was up 3.9 per cent on the previous year. By the end their holder to possession and occupancy of the extension to the of October, the best growth fi gures were reached in home-related Prisma hypermarket in Tikkurila. retail sectors. Sales of home appliances and electronics grew by In the fi rst part of 2005, SOK founded the real-estate manage- 12.7 per cent, with hardware and furniture sales up 8.8 per cent ment companies Kiinteistö Oy Peltokuumolantie 1 and 4. Th e and 8.0 per cent, respectively. Prices in the home appliance trade latter will soon be the site of the Agricentre in Hyvinkää, where were on a declining trend, and this meant that the sales volume SOK’s subsidiary Hankkija-Maatalous Oy will move its retail loca-

48 Financial Statements

tion from Helsinki’s Vallila district in the early part of 2006. the Companies Act, SOK will thereafter have the right to redeem In April, SOK’s subsidiary Sokotel Oy sold Sokos Hotel Porin the shares held by other shareholders as well. After SOK has Vaakuna’s business to Satakunta Cooperative Society. SOK’s acquired all of Suomen Spar’s shares, it will apply for delisting the Estonian subsidiary AS Prisma Peremarket bought the shares shares from the Helsinki Stock Exchange. Th is is estimated to take in AS Ramare from ETK (Eesti Tarbijateühistute Keskühistu), place during spring 2006. Th e Finnish Competition Authority a local company, in April. AS Ramare operated the business of approved the share purchase, subject to certain conditions, on 4 the Tallinn-based Prisma Rocca al Mare. Rocca al Mare became January 2006. SOK’s Executive Board has decided to carry out the Peremarket’s fourth Prisma hypermarket in Tallinn. AS Ramare transaction in accordance with the Finnish Competition Authori- merged into AS Prisma Peremarket in June. In addition, Peremar- ty’s terms and conditions. ket has made an agreement on building a fi fth Prisma in Tallinn’s SOK and Tradeka (Cooperative Tradeka Corporation) signed an Lasnamäe district. Th e unit will be completed in September 2006. agreement on 31 January 2006 under which SOK will purchase A number of real-estate deals were completed in 2005. In Janu- from Tradeka all the shares it owns in Inex Partners Oy. After the ary, SOK sold the shares in the real-estate management company purchase of shares is completed, Inex Partners Oy will become Kiinteistö Oy Joensuun Valtakulma, which owns the Joensuu a wholly-owned subsidiary of SOK. Completion of the transac- Sokos, to Northern Karelia Cooperative Society. In September tion is still contingent upon approval by the Finnish Competition Kiinteistö Oy City-Oskari was dissolved, and SOK sold the shares Authority. in Kiinteistö Oy Riihimäen Hämeenkatu 40–42 to Interavanti Th e former Hotelli Marina Palace in Turku will be opened as the Oyj. In December SOK sold the shares in Seinäjoen Torihotelli Radisson SAS Marina Palace Hotel on 28 February 2006. Sokotel Oy to Southern Ostrobothnia Cooperative Society. Th e company Oy has a number of hotel projects in the pipeline. In the Greater owns Hotelli Vaakuna, which is located in Seinäjoki’s Torikeskus Helsinki area, three new hotels are in the planning stage, and fur- commercial centre. In December, Kiinteistö Oy Turun Brahenkatu thermore, two Sokos hotels are to be opened in St Petersburg. 8 became an SOK subsidiary when SOK purchased the real-estate In January, SOK founded a company named AS Prisma Latvija management company’s shares that were owned by the construc- to carry on the Prisma business in Latvia. Th e fi rst unit, to be tion company NCC Rakennus Oy. Th e property is located in the located in the Domina Shopping Centre, will open its doors in centre of Turku in the Wiklund block. autumn 2006. Th e objective in the fi rst phase is to open 3–4 On 15 December 2005 SOK’s Executive Board decided to Prismas in diff erent parts of Riga. Over the longer term, the target found a deposit banking company to develop and handle fi nanc- is to become the market leader in the hypermarket trade in Riga, ing services for the S Group’s members. Th e background to the Latvia’s capital. decision is a reform of the Cooperative Societies’ Act that will lead to a stage-by-stage discontinuance of savings fund activities Net turnover by 2013. Accordingly, on 19 December 2005 SOK founded a company named S-Eturahoitus Oy and applied for a credit institu- SOK Corporation had net turnover of EUR 4,209 million, up tion licence on 20 December 2005. A fi nal decision on founding 11.3 per cent on the previous year. Th e bulk of the growth in net of a deposit bank is to be taken by SOK’s Supervisory Board on 16 turnover is attributable to fuel deliveries by the fuel procurement February 2006. company North European Oil Trade Oy to its customers, who are the cooperative enterprises, Greeni Oy and Hankkija-Maatalous Changes after the close of the report period: Oy. SOK’s net turnover does not include the EDI-based SOK On 2 January 2006, SOK sold the shares in the real-estate invoicing that is handled through the associated company Inex management company Kiinteistö Oy Imatran Koskenhelmi in Partners Oy. the city of Imatra and the so-called Urhonkatu plot to HS-Välitys Th anks to the good business trend and the overhaul of the net- Oy. SOK sold the shares it owned in Kiinteistö Oy Tullintori to work, net turnover in the supermarket trade in the Baltic countries Citycon Oyj on 1 February 2006. grew to EUR 81 million, an increase of 37.5 per cent. On 3 January 2006 SOK’s subsidiary Maan Auto Oy purchased Net turnover from fuel sales, EUR 744 million, consisted of the entire shares outstanding in Auto-Kivitila Oy and Auto- the fuel sales by North European Oil Trade Oy (NEOT) and the Kivitila Metro Oy. Auto-Kivitila Oy is a dealer for Ford cars and service station store sales in January-April of Uudenmaan ABC commercial vehicles in the Pirkanmaa economic area. Auto-Kiviti- Oy, which was sold to HOK-Elanto in May. North European Oil la Metro Oy carries on servicing of Ford vehicles in the Turku eco- Trade Oy is a fuel procurement company that is jointly owned by nomic area. Under a business acquisition agreement signed on 20 SOK and Greeni Oy. Net turnover for the fi rst full year of opera- January 2006, the Maan Auto Group purchased Stockmann Auto tions rose to EUR 740 million. Th e growth in turnover compared Oy Ab’s Ford businesses in Espoo and Turku. Th e dealerships will with the previous year is attributable to a full year of operations, continue to be operated at their present locations by Maan Auto’s the rise in market prices and higher sales by the customer chains. subsidiary Automaa, which currently operates a Peugeot dealership SOK Corporation ran Sokos operations through the companies and carries on spare parts and repair operations in both cities. which it owns jointly with the regional cooperative enterprises, On 12 January 2006, SOK purchased all the shares in Suomen these being located in Espoo, Turku and Raisio. Th e companies Spar Oyj that were owned by Axfood AB along with other shares, had net turnover of EUR 36.3 million, down 62.6 per cent on the whereby SOK’s holding of Suomen Spar shares and the voting previous year due to the divestment of the department store busi- rights conferred by all the shares rose to over 90 per cent. Under ness in Helsinki on 1 May 2004 and to the sale of the department

49 Financial Statements

store business in Tampere on 1 January 2005. Like-for-like net Write-downs of EUR 4.9 million were made on non-current as- turnover grew by 3.0 per cent, coming in above budget. sets. Th ese were primarily write-downs on buildings and structures Within SOK Corporation, hotels and restaurants are operated as well as impairment of goodwill. by Sokotel Oy in Finland and AS Sokotel in Estonia under the SOK Corporation’s net fi nancial expenses were in the black, as Sokos Hotels and Radisson SAS brands. Sokotel Oy’s net turnover in the previous year, and were up EUR 5.5 million on the year-ago was up 4.0 per cent on the fi gure a year ago. Th e hotel network fi gure. changed at the beginning of 2005 when the Sokos Hotel Presi- Owing to the good business trend, operating profi ts from the dentti became part of the chain and Porin Vaakuna was sold to grocery trade and fuel trade were above budget and higher than Satakunta Cooperative Society in April 2005. When Presidentti a year ago. Th e aggregate operating profi t of the Sokos compa- became a part of the Sokos Hotels chain, the Memphis and nies weakened due to the sales of businesses to the cooperative Coff ee House restaurants in the Hotel Vaakuna in Helsinki were enterprises, but comparable operating profi t was above budget and transferred to HOK-Elanto. Th e Klaus Kurki hotel also closed at better than a year ago. Th e operating profi t posted by Sokotel Oy, the beginning of 2005. Like-for-like net turnover grew by 4.2 per which carries on the hotel and restaurant business in Finland, was cent. Th e company’s sales remained good in spite of large invest- at the budgeted level, but fell slightly short of the previous year’s ments, which disturbed operations in some of the Sokos hotels and earnings owing to changes in the network. On a like-for-like basis, Radisson SAS hotels. Th e occupancy ratio and average room rate profi ts improved markedly on the previous year. AS Sokotel, which rose compared with a year ago. Th is meant that the room yield also runs hotels and restaurants in Estonia, turned in operating profi t increased and was clearly better than the average for the country as that was clearly ahead of budget and better than was reported in a whole. the previous fi nancial year. AS Sokotel operated the Sokos Hotelli Viru in Tallinn for the Th e Maan Auto Group’s operating profi t was below budget and second full year in 2005. Th e company had net turnover of EUR weaker than a year ago. Th e poor earnings trend was attributable 18.4 million, coming in markedly ahead of the target set. Th e to tougher competition and the fall in the price level of trade-in good trend in net turnover was attributable to strong restaurant vehicles owing to imports of used vehicles. Th e Kommest Group’s and conference sales and to the growth in accommodation sales. operating profi t did not reach the budgeted fi gure or the level of Net turnover derived from the Corporation’s motor trade earnings achieved in 2004. Th e operating profi t reported by Hank- declined by 3.1 per cent compared with the level in 2004 and was kija-Maatalous Oy was below budget and lower than the year-ago EUR 344.9 million. Net turnover of the Maan Auto Group, which fi gure owing to investments made in developing the store network operates in Finland, declined by 3.7 per cent on the previous year, and to the fall in the tractor market. Th e property business and to EUR 283.4 million. By contrast, the comparable net turnover other service units reported operating profi t that was above budget of the Kommest Group, which operates in Estonia and Latvia, but weaker than a year ago. Operating profi t from consumer goods increased by 3.0 per cent on the year-ago fi gure, rising to EUR was at the planned level. Capital gains on fi xed assets, which are 61.5 million. Th e market share of Peugeot cars in Finland dropped recognised as income within the Corporation, are included in from 7.0 per cent to 5.9 per cent and in the Baltic countries from eliminations. 8.0 per cent to 6.2 per cent. In Finland the market share of vans, however, increased by 0.5 per cent to 5.1 per cent. Operations of SOK Net turnover from the agritrade, including hardware sales, increased by 0.1 per cent. Hankkija-Maatalous Oy had net turnover SOK is the parent company of SOK Corporation. In accordance in 2005 of EUR 746.6 million, representing growth of 3.7 per with its Statutes, SOK acts as the central organisation of the S cent on the previous year. Hardware and gardening sales developed Group, promoting and developing the operations of the coopera- favourably in step with store enlargements. Sales of grain and feed tive enterprises and other organisations belonging to the S Group declined owing to the fall in the market price of grain. and attending to the management and supervision of the Group’s overall resources for maximum effi ciency, whilst also monitoring Financial performance the operations and seeing to the interests of the S Group and its diff erent constituent organisations. SOK Corporation’s profi t before extraordinary items was EUR SOK is in charge of the S Group’s strategic management. Its 69.0 million. Th e corresponding earnings in the previous year tasks are to provide the S Group’s companies with services related were EUR 54.4 million. Th e fi gure includes other operating to chain management, customer-ownership and marketing along income, a share of the associated companies’ profi ts, write-downs with general chain and corporate services, including development on non-current assets and investments, including reversals on activities connected with these services and the S Group’s other op- them, and the change in obligatory provisions. SOK Corporation’s erations. Other important services for the S Group’s operations are operational result, which does not include the items listed above, purchasing, rental services and assortment and invoicing services was smaller than the previous year’s earnings. Th e Corporation’s for goods delivered directly from manufacturers to the chain units. return on investment, including wholesale operations that serve Via its nationwide and regional subsidiaries, SOK is able to off er the cooperative enterprises and are organised under fi nance and its members a wider spectrum of services in accordance with the sourcing operations, were 7.6 per cent (7.2 per cent). Th e return decisions taken within the S Group. In addition, in the Baltic area on investment from SOK’s ordinary operations was 17.0 per cent SOK engages in the supermarket and vehicle trade as well as the (19.6 per cent). hotel business via its subsidiaries.

50 Financial Statements

SOK’s net turnover totalled EUR 2,526 million, increasing by Personnel 15.5 per cent on the fi gure a year earlier. Th e increase in net turnover is attributable mainly to higher EDI invoicing through SOK, Th e average number of SOK Corporation employees, converted to primarily owing to the increase in North European Oil Trade full-time staff , was 4,346 during the fi nancial year. SOK Corpora- Oy’s invoicing to the cooperative enterprises (an increase of about tion’s number of personnel at the end of 2005 was 5,052 employ- EUR 135 million) and to grocery suppliers’ higher volumes (an ees, of whom 696 (13.8%) were SOK staff and 4,356 (86.2%) increase of about EUR 100 million). Apart from actual growth, employees of the subsidiaries. Th e number of personnel grew by part of the increase is due to new locations and part is attribut- 262 from the previous year (5.2%). Th e number of staff working able to a change in the invoicing channels used by some suppliers. abroad was 1,095 employees. Th e average age of the personnel SOK’s profi t before extraordinary items was EUR 5.6 million, during the report year was 38 years. compared with the previous year’s profi t of EUR 25.2 million, Th e number of employees was increased by the transfer of which stemmed largely from reversals of write-downs on non-cur- Hotelli Presidentti to SOK Corporation and by the purchase of AS rent investments. Ramare. Th e rents included in other operating expenses consist primarily Th e staff level was reduced in turn by the sale of the Tampereen of the rental expenses of SOK Corporation or are for premises that Sokos Oy business to Pirkanmaa Cooperative Society, the sale of have been sublet to other S Group companies. Sokos Hotel Porin Vaakuna to Satakunta Cooperative Society and the sale of Uudenmaan ABC to HOK-Elanto. Capital expenditures and disposals of fi xed assets SOK’s management and auditors SOK Corporation’s purchases booked in non-current assets, i.e. CEO Kari Neilimo has served as chairman of SOK’s Executive capital expenditures on fi xed assets, amounted to EUR 68.2 mil- Board. In addition to the CEO, the other members of the Execu- lion in 2005. Th e largest items in the fi gure were the purchase of tive Board in 2005 were Managing Director Esko Hakala, Manag- the Sokos Hotel Presidentti business as well as other investments ing Director Arto Hiltunen, Managing Director Kuisma Niemelä, in the hotel and restaurant business. Other important outlays were Managing Director Veli-Matti Puutio, Jukka Salminen, Director for the construction of the Hyvinkää Agricentre and the purchase of SOK’s Administrative Division, and Managing Director Ulla- of a car dealership property in Helsinki’s Pitäjänmäki district. Maija Tolonen. By contrast, disposals of non-current assets and businesses Th e Corporation’s auditors in 2005 were the Authorised Public totalled EUR 56.9 million. Th e most important disposals were the Accountants Tomi Englund, Juhani Heiskanen and Tapani Rotola- divestments of the Sokos properties in Tampere and Joensuu. Pukkila. SOK’s Supervisory Board appointed to seats on SOK’s Execu- Financing tive Board for the term of offi ce beginning on 1 January 2006 the following directors: CEO Kari Neilimo, chairman, Manag- Short-term interest rates in the eurozone remained low for most ing Director Esko Hakala, Managing Director Arto Hiltunen, of the year, but following the rise in rates that got under way in Managing Director Kuisma Niemelä, Manager Director Veli-Matti September, they ended up at clearly higher levels than a year ago. Puutio, Jukka Salminen, Director of SOK’s Administrative Divi- Longer rates were still declining slightly in the fi rst part of the year, sion, Managing Director Kimmo Simberg and Managing Director but they too turned upwards in September, ending up at nearly the Ulla-Maija Tolonen. levels that prevailed at the turn of the previous year. SOK’s chief executive has been assisted in the strategic manage- Cash fl ow before fi nancial items according to SOK Corpora- ment of SOK Corporation and the S Group by SOK’s Manage- tion’s cash fl ow statement was EUR 20.8 million in the black. ment Team, whose members during 2005 were Managing Director SOK Corporation’s liquidity remained good throughout 2004. Ensio Hytönen; Reijo Kaltea, Senior Vice President, Customer- Liquid cash assets and money market investments totalled EUR ownership and Speciality Stores Division; Suso Kolesnik, Director 789.8 million at the end of the year. In addition, SOK Corpora- of Corporate Communications; Harri Miettinen, Vice President, tion had EUR 171.6 million of undrawn binding credit facilities, Strategic Development and Human Resources; Matti Pulkki, of which EUR 152.4 million were long-term. Senior Vice President, Hotels and restaurants; Jukka Salminen, SOK Corporation’s equity ratio remained good and net interest- Director of SOK’s Administrative Division; Antti Sippola, Vice bearing liabilities were EUR 128.8 million in positive territory, an President, Retail, and Heikki Strandén, Director, ABC Service Sta- improvement on the previous year of EUR 26.4 million. tion Chain Management. Th e SOK Group’s fi nancial income and expenses, not counting in write-downs on investments held in non-current assets, contrib- Risks and factors of uncertainty uted EUR 6.8 million to earnings, representing an improvement on the previous year of EUR 3.6 million. SOK Corporation is fully cognizant of the need for strategy-driven and organisation-wide risk management. Particular attention has been paid to managing risks to the achievement of strategic objectives. Within SOK Corporation, risk management is viewed as a strategic competitive factor. Risk management is made an

51 PääjohtajanFinancial Statements katsaus

integral part of the management process. Th e steering and control into development projects that boost the effi ciency of the S of integrated risk management is carried out by the Corporation’s Group’s processes. Major investments in systems and new operat- Security Unit. ing models will weaken the earnings level of the chain manage- SOK’s Finance unit has central responsibility for managing SOK ment and service functions in the current year. Corporation’s treasury operations and fi nancial risks. Th e SOK Because of the above factors, SOK Corporation is estimated to Executive Board has confi rmed SOK Corporation’s guidelines for post a lower operational result than in 2005. fi nancial policy, strategy and the management of fi nancial risks. In its ruling, delivered on 14 February 2006, the Helsinki Court Th ese guidelines defi ne the principles of managing fi nancial risks of Appeal overturned the judgement handed down by the Helsinki and the maximum amounts of fi nancial risks. Furthermore, nu- District Court on 24 February 2003 concerning a contract agree- merical targets have been set for the diff erent subareas of treasury ment made between SOK and YIT Corporation in 1998. Th e con- operations in order to assure the adequacy, balance and aff ordabil- tract related to the conversion of SOK’s old head offi ce located in ity of fi nancing under all circumstances. Vilhonkatu in Helsinki into a hotel. Th e Court of Appeal assessed Environmental risks connected with SOK Corporation’s busi- the evidence presented in the case in a substantially diff erent way ness operations are identifi ed and analysed annually as part of than the District Court and ruled that YIT Corporation has the the analysis of business risk. Th e most important environmental right to receive compensation for part of the demands it presented aspects and the measures connected with them are described in the for additional and conversion works as well as compensation for environment section of SOK Corporation’s Annual Report. In ad- the additional costs incurred. Th e ruling does not have an eff ect dition, an Accountability Report covering the entire S Group will on SOK Corporation’s fi nancial statements at 31 December 2005. be published on the Internet in spring 2006. Th e main key ratios SOK will go through the grounds given in the Court of Appeal’s describing SOK Corporation’s business operations, fi nancial posi- ruling and will later take a decision on the possible making of an tion and result are presented in the key ratios table in the Notes to appeal to the Supreme Court. SOK Corporation’s Annual Report.

Planned adoption of IFRS Helsinki SOK Corporation intends to adopt International Financial Re- 16 February 2006 porting Standards in reporting its consolidated fi nancial statement information for the fi nancial year beginning on 1 January 2007. SUOMEN OSUUSKAUPPOJEN KESKUSKUNTA Outlook for the current fi nancial year Executive Board Th e outlook for the Finnish economy is at present good compared with the eurozone. Th e economy is growing at a faster than average pace, and infl ation is slower than average. Growth in gross domestic product will be on a broader footing as exports and investments increase. Growth will be supported by a slight pick-up in the eurozone economy and Russia’s good economic growth. Th e main risks relate to the imbalances in the United States economy. Th e sales outlook for the retail trade in the current year is quite good. Growth in private consumption expenditure will continue at a level of just under three per cent. Expectations of a slight rise in the level of interest rates will dampen demand for loans and slow down growth in sales of consumer durables. Net turnover generated by SOK Corporation’s business units is estimated to outpace the overall growth in the retail trade this year. Th e largest growth expectations are for the SOK Corporation’s vehicle sales in Finland and for the supermarket trade in the Baltic countries. Growth in the department store trade, the hardware and agritrade as well as the hotel and restaurant business is expected to be close to the general trend. Despite the prospects for good growth, SOK Corporation’s business units are estimated to report slightly lower earnings than in 2005. Th e earnings trend will be aff ected by major investments in the hotel business and in the Baltic area. Th e volume of the S Group’s chain management and service activities for which SOK has overall responsibility, will increase in 2006. Th is year SOK will again continue making strong inputs

52 Financial Statements

PROFIT BEFORE EXTRA- SOK CORPORATION NET TURNOVER ORDINARY ITEMS PERSONNEL AT 31 DEC. 2001–2005 RETURN ON INVESTMENT, % 2001–2005

OPERATING PROFIT NET INTEREST PAYABLE 2001–2005 GROSS INVESTMENT IN FIXED 2001–2005 (% of net turnover) ASSETS 2001–2005

INTEREST-BEARING NET LIABILITIES CAPITAL AND RESERVES* AT 31 DEC. GEARING, % AT 31 DEC. 2001–2005 2001–2005 (equity ratio, %) 2001–2005

* Excluding capital loan 53 Financial Statements

Consolidated Income Statement

EUR million Ref. 1.1.–31.12.2005 1.1.–31.12.2004

Net turnover (1) 4 209.4 3 781.1 Other operating income (2) 36.2 13.1

Materials and services Raw materials and consumables (3) 3 702.7 3 266.7 External services 98.1 3 800.8 95.5 3 362.2

Staﬀ costs Wages and salaries 125.1 125.5 Social security costs (4) 30.5 155.6 29.6 155.1

Depreciation and value adjustments (5) 42.8 40.5

Other operating expenses Rents 68.0 65.7 Other expenses (6) 118.6 186.6 119.5 185.1 Share of associated companies’ proﬁ ts (+/-) 2.4 1.8

Operating proﬁ t (1) 62.3 53.2

Share of associated companies’ proﬁ ts (+/-) -0.0 -0.0 Financial income and expenses (+/-) (8) 6.8 1.2

Proﬁ t before extraordinary items 69.0 54.4

Extraordinary items (+/-) (9)

Proﬁ t before taxes 69.0 54.4

Direct taxes (+/-) (11) -11.3 -14.1 Minority interest (+/-) -0.3 -0.1

Proﬁ t for the ﬁ nancial year 57.4 40.2

54 Financial Statements

Consolidated Balance Sheet

ASSETS EUR million Ref. 31.12.2005 31.12.2004

NON-CURRENT ASSETS Intangible assets (12) 63.6 57.8 Group goodwill (12) 0.7 Tangible assets (12) 239.2 272.7 Shares in associated companies (13) 52.6 56.0 Other investments (13) 42.8 398.2 35.9 423.1

CURRENT ASSETS Stocks (15) 160.7 136.7 Long-term debtors (16) 0.3 3.9 Deferred tax assets (17) 1.8 2.9 Short-term debtors (18) 475.9 384.4 Securities (19) 688.8 571.7 Cash in hand and at bank 101.0 1 428.5 86.1 1 185.6

1 826.7 1 608.8

LIABILITIES EUR million 31.12.2005 31.12.2004

CAPITAL AND RESERVES (20) Cooperative capital 86.9 71.1 Supplementary cooperative capital 16.8 16.8 Revaluation reserve 25.4 Legal reserve 15.3 14.8 Supervisory Board’s disposal fund 0.1 0.0 Profi t brought forward 315.7 287.7 Profi t for the fi nancial year 57.4 492.2 40.2 456.0

MINORITY INTEREST 13.7 17.3 PROVISIONS (22) 2.5 5.6

CREDITORS Long-term creditors (23) 30.9 30.2 Deferred tax liability (24) 9.2 9.8 Short-term creditors (25) 1 278.3 1 318.4 1 089.9 1 129.9

1 826.7 1 608.8

55 Financial Statements

Consolidated Cash Flow Statement

EUR million Ref. 1.1.–31.12.2005 1.1.–31.12.2004

BUSINESS OPERATIONS Operating profi t 62.3 53.2 Adjustments to operating profi t (1) 2.4 23.2 Change in working capital (2) -25.6 20.5 Cash fl ow from business operations before fi nancing and taxes 39.1 96.8 Interest paid and other fi nancial expenses -13.6 -16.1 Interest received and other fi nancial income 16.8 17.3 Dividends received from business operations 1.1 5.1 Direct taxes paid -13.3 -6.0 Cash fl ow from business operations 30.1 97.0

INVESTMENTS Subsidiary shares purchased -6.1 -5.2 Acquisition of other fi xed assets -62.1 -47.3 Subsidiary shares sold 18.1 5.4 Sale of other fi xed assets 38.8 46.2 Change in other long-term investments -0.3 -0.9 Adjustment of items booked on accrual basis 0.0 0.1 Liquid assets of divested and acquired subsidiaries 1.1 -0.5 Dividends received from investments 1.2 1.0 Cash fl ow from investments -9.2 -1.2

FINANCING Increase in long-term creditors 8.7 4.0 Decrease in long-term creditors -6.5 -0.9 Increase (+) / decrease (-) in short-term creditors 103.6 59.2 Increase (-) / decrease (+) in short-term debtors 0.8 -1.5 Change in short-term investments 3.1 -14.5 Minority interests in subsidiaries -0.3 0.5 Increase in cooperative capital and supplementary cooperative capital 15.8 4.5 Interest paid on the cooperative capital and supplementary cooperative capital -10.8 -6.4 Decrease in capital and reserves -0.1 -0.7 Cash ﬂ ow from ﬁ nancing 114.3 44.1

Increase (+) / decrease (-) in liquid funds 135.1 140.0

Liquid funds at the beginning of the year 633.3 493.4 Liquid funds at the end of the year 768.4 633.3

Adjustments to operating proﬁ t (1) Gains (-) and losses (+) from the sale of ﬁ xed assets -34.9 -11.4 Depreciation and value adjustments 42.8 40.5 Income and expenses which do not involve payment -5.5 -5.9 2.4 23.2 Change in working capital (2) Change in trade debtors -86.5 -61.5 Change in stocks -23.3 -9.8 Change in short-term interest-free creditors 84.2 91.8 -25.6 20.5

56 Financial Statements

SOK Income Statement

EUR million Ref. 1.1.–31.12.2005 1.1.–31.12.2004

Net turnover (1) 2 525.7 2 187.4 Other operating income (2) 6.0 4.5

Materials and services Raw materials and consumables (3) 2 361.5 2 026.3 External services 43.0 2 404.6 42.7 2 068.9

Staﬀ costs Wages and salaries 29.9 26.4 Social security costs (4) 8.5 38.4 6.3 32.6

Depreciation and value adjustments (5) 7.5 6.5

Other operating expenses Rents 52.2 54.9 Other expenses (6) 33.5 85.7 33.1 88.0

Operating proﬁ t (loss) (1) -4.6 -4.3

Financial income and expenses (+/-) (8) 10.2 29.5

Proﬁ t before extraordinary items 5.6 25.2

Extraordinary items (+/-) (9) 29.2 17.7

Proﬁ t before appropriations and taxes 34.8 42.8

Appropriations (+/-) (10) 3.5 -2.0 Direct taxes (+/-) (11) -6.3 -10.7

Proﬁ t for the ﬁ nancial year 32.0 30.2

57 Financial Statements

SOK Balance Sheet

ASSETS EUR million Ref. 31.12.2005 31.12.2004

NON-CURRENT ASSETS Intangible assets (12) 10.4 29.5 Tangible assets (12) 19.3 9.6 Shares in Group companies (13) 243.1 234.2 Other investments (13) 233.1 505.9 245.5 518.8

CURRENT ASSETS Stocks (15) 2.4 2.5 Long-term debtors (16) 0.2 3.1 Short-term debtors (18) 399.3 323.6 Securities (19) 688.8 571.7 Cash in hand and at bank 84.6 1 175.4 70.5 971.4

1 681.3 1 490.2

LIABILITIES EUR million 31.12.2005 31.12.2004

CAPITAL AND RESERVES (20) Cooperative capital 86.9 71.1 Supplementary cooperative capital 16.8 16.8 Legal reserve 15.3 14.8 Supervisory Board’s disposal fund 0.1 0.0 Profi t brought forward 336.2 317.4 Profi t for the fi nancial year 32.0 487.2 30.2 450.3

ACCUMULATED APPROPRIATIONS (21) 1.8 5.3 PROVISIONS (22) 1.7 3.5

CREDITORS Long-term creditors (23) 15.4 6.8 Short-term creditors (25) 1 175.1 1 190.6 1 024.3 1 031.1

1 681.3 1 490.2

58 Financial Statements

SOK Cash Flow Statement

EUR million Ref. 1.1.–31.12.2005 1.1.–31.12.2004

BUSINESS OPERATIONS Operating profi t -4.6 -4.3 Adjustments to operating profi t (1) -0.1 -0.4 Change in working capital (2) 1.3 8.9 Cash fl ow from business operations before fi nancing and taxes -3.4 4.2 Interest paid and other fi nancial expenses -13.5 -14.5 Interest received and other fi nancial income 22.7 23.0 Dividends received from business operations 1.0 5.0 Direct taxes paid -9.5 -1.0 Cash fl ow before extraordinary items -2.5 16.8 Cash fl ow from the extraordinary items of business operations 0.1 Cash fl ow from business operations -2.5 16.8

INVESTMENTS Acquisition of fi xed assets -50.3 -26.6 Sale of fi xed assets 41.4 20.9 Change in other long-term investments 4.9 24.0 Dividends received from investments 1.3 2.1 Cash fl ow from investments -2.8 20.4

FINANCING Increase in long-term creditors 8.7 Decrease in long-term creditors 0.0 Increase (+) / decrease (-) in short-term creditors 106.3 106.0 Increase (-) / decrease (+) in short-term debtors 4.2 7.7 Change in short-term investments 3.1 -14.5 Increase in cooperative capital and supplementary cooperative capital 15.8 4.5 Interest paid on the cooperative capital and supplementary cooperative capital -10.8 -6.4 Other decrease in capital and reserves -0.1 -0.7 Group contributions received 33.7 13.8 Group contributions paid -22.1 -5.9 Liquid funds from merger 0.5 0.1 Cash ﬂ ow from ﬁ nancing 139.3 104.6

Increase (+) / decrease (-) in liquid funds 134.0 141.9

Liquid funds at the beginning of the year 617.7 475.8 Liquid funds at the end of the year 751.7 617.7

Adjustments to operating proﬁ t (1) Gains (-) and losses (+) from the sale of ﬁ xed assets -5.8 -4.4 Depreciation and value adjustments 7.5 6.5 Income and expenses which do not involve payment -1.8 -2.6 -0.1 -0.4 Change in working capital (2) Change in trade debtors -82.2 -43.0 Change in stocks 0.0 0.0 Change in short-term interest-free creditors 83.5 51.9 1.3 8.9

59 PääjohtajanFinancial Statements katsaus

Notes to the Financial Statements

Accounting Policies

In accordance with SOK’s Statutes, the name SOK Corporation Group goodwill attributable to buildings has been amortised in is used for the SOK Group. SOK Corporation comprises Suomen line with the depreciation plan for the building in question. Group Osuuskauppojen Keskuskunta (SOK) and its subsidiaries. goodwill is amortised over a period of 5 years on a straight-line SOK’s fi nancial statements and consolidated fi nancial state- basis. ments have been prepared in the manner prescribed by Finnish legislation governing the preparation of fi nancial statements (Finn- Intra-Group transactions and margins ish Accounting Act). Th e cash fl ow statement has been prepared When preparing the consolidated fi nancial statements, all intra- in accordance with the general recommendations of the Finnish Group income and expenses, distribution of profi ts, receivables Accounting Standards Board, applying the indirect form of cash and liabilities as well as unrealised profi t margins from intra-Group fl ow statement. transactions have been eliminated. Cash pool receivables and authorisation account receivables have been transferred from securities to short-term debtors in Minority interests SOK Corporation’s accounts. Th e comparative fi gures have been Minority interests in the profi t for the fi nancial year are shown as adjusted accordingly. a separate item in the income statement. Th e minority interest in capital and reserves is also shown as a separate item in the consoli- Scope of the consolidated fi nancial dated balance sheet. statements Translation diff erences Th e consolidated fi nancial statements include the parent coopera- Th e fi nancial statements of foreign subsidiaries have been trans- tive and all the companies in which the parent cooperative held, at lated into euros at the exchange rate on the balance sheet date. the close of the fi nancial year, either directly or through its subsidi- Translation diff erences arising from the elimination of sharehold- aries, more than half of the voting rights conferred by the shares. ers’ equity have been entered under profi t brought forward in the Of the above-mentioned companies, four subsidiaries operate in consolidated balance sheet. Estonia and two in Latvia. Th e fi nancial statement information of the associated compa- Associated companies nies (voting rights of 20%–50%) are included in the consolidated fi nancial statements. Associated companies have been consolidated using the equity Of the subsidiaries, one dormant company has been excluded method. Th e Group’s share of the associated companies’ profi t from the consolidated fi nancial statements. In addition, of the for the fi nancial year, in accordance with the Group’s propor- associated companies, three housing corporations have been tional holdings and adjusted for any amortisation of goodwill excluded from the consolidation, two of which are subject to State and dividends received, is shown in the consolidated income Housing Board regulations. Th e exclusion of the above-mentioned statement below operating profi t. By contrast, the result of the subsidiary and associated companies does not have a material eff ect associated companies that carry on the Group’s mainline business on the Group’s result and shareholders’ equity. are included in the operating profi t calculations and stated on the previous line. Inex Partners Oy’s EDI invoicing through SOK is Principles of consolidation not included in SOK’s net turnover. In the consolidated balance sheet, the acquisition cost of as- Th e consolidated fi nancial statements have been prepared by sociated companies and the Group’s shareholders’ equity includes combining the Group companies’ income statements and balance the Group’s post-acquisition share of an associated company’s sheets as well as the notes to them. Th e fi nancial statements of the accumulated net assets, inclusive of total appropriations less the Group companies are for the period 1 January – 31 December deferred tax liability. 2005. Companies acquired or formed during the fi nancial year Intra-Group profi t margins arising in transactions between have been consolidated from the date of acquisition or formation. Group companies and associated companies have been eliminated Divested subsidiaries or associated companies have been consoli- in proportion to each party’s holdings. Such margins have been dated up to the date of sale. subtracted from the Group’s profi t brought forward and from the cost of acquiring the shares in associated companies. Eliminated Intra-Group holdings capital gains are recognised as income in step with depreciation. Intra-Group holdings in subsidiaries have been eliminated using the acquisition cost method. Th e intra-Group shareholding has Items in foreign currency and been eliminated by subtracting their acquisition cost as well as, derivative contracts from the shareholders’ equity of the subsidiaries, an amount corresponding to the Group’s holding in them. Th e shareholders’ equity Transactions in foreign currency have been booked at the exchange of subsidiaries acquired also includes accelerated depreciation less rate on the date of the transaction. Foreign currency receivables the deferred tax liability and voluntary provisions. Diff erences and liabilities that are open at the end of the fi nancial year have arising in the eliminations, to the extent that they are due to dif- been translated into euros at the exchange rate quoted by the ferences between the current and book values of properties, have European Central Bank on the closing day of the fi nancial year been allocated to the relevant fi xed assets and the remaining part is and the exchange rate diff erences have been booked as a credit or stated as Group goodwill in the balance sheet. charge to income.

60 FinancialPääjohtajan Statements katsaus

Derivative contracts taken out taken out for hedging purposes are booked to the balance sheet, for hedging purposes whereas realised changes in value are periodised over the contract period. Only electricity forwards were used as hedging instruments Forward exchange contracts during the fi nancial year. Exchange rate diff erences on forward contracts taken out for hedging purposes have been entered as a credit or charge to income Oil commodity derivatives against the exchange rate diff erence arising from the hedged item Oil commodity derivatives are used to hedge price risk in fuel in the course of the fi nancial year during which the exchange rate trading. Realised and unrealised changes in the value of futures diff erence of the hedged item was incurred. Unrealised foreign taken out for hedging purposes are booked as a credit or charge exchange gains are entered as a credit to earnings to a maximum to income to adjust purchases. Premiums on options written for of the amount of a loss arising from the hedged item and the hedging purposes are booked to the balance sheet and changes in proportion in excess of this is booked to a balance sheet account. them are recognised as income to adjust purchases. Options writ- Unrealised foreign exchange losses on derivatives hedging balance ten are treated in the fi nancial statements as non-hedging items. sheet items are booked to the full amount as a charge to earnings. Unrealised foreign exchange diff erences on forward exchange con- Oats-related derivatives tracts hedging future cash fl ows are booked to the balance sheet. Oats-related derivatives are used to secure the price level of sales that will be made in the future. Unrealised changes in the value Forward rate agreements and interest rate swaps of oats futures taken out for hedging purposes are booked to the Unrealised changes in the value of forward rate agreements are balance sheet. Realised changes in value are recognised in income booked to the balance sheet, whereas realised changes in value to adjust purchases if the item hedged has already been realised, or are periodised over the contract period as a credit or charge to otherwise they are entered in the balance sheet. earnings. Th e fi nancial statements contain no open forward rate agreements taken out for hedging purposes. Derivative contracts for purposes Th e interest on interest rate swaps has been periodised over the other than hedging contract period to adjust interest income or expense. Changes in value of interest rate swaps taken out for hedging purposes are Derivative contracts are taken out mainly for hedging purposes. booked to a balance sheet account. Non-hedging derivative contracts may only be taken out within the risk limits specifi ed in the Corporation’s risk management Equity forwards regulations, which are approved by SOK’s Executive Board. Nega- Realised gains and losses are booked as a credit or charge to earn- tive changes in the value of derivative contract positions other than ings. Equity derivatives are valued at the stock exchange prices for hedging and outstanding at the balance sheet date have been on the last stock exchange day of the fi nancial year. Th e valua- charged as expenses. Valuation profi ts on outstanding positions tion profi t on equity forwards has been recognised as income to have only been recognised as income to an extent correspond- a maximum of the amount of a loss charged to expense for the ing to the losses entered earlier for the contracts included in the hedged item, and the proportion in excess of this is booked to the position, and the proportion in excess of this has been entered in balance sheet. Negative changes in value have been booked to a a balance sheet account. Changes in the value of closed positions balance sheet account up to the unbooked valuation gain on the have been entered as a credit or charge to income. Th e fair value of hedged item, and the proportion in excess of this has been entered outstanding contracts made for purposes other than hedging at 31 as a credit or charge to earnings. Th e fi nancial statements contain December 2005 was EUR 154,600. no open equity forwards. Fixed assets and depreciation Interest rate, foreign currency, equity and share index options Premiums received and paid for options have been entered in the In the balance sheet, fi xed assets have been valued at cost less ac- balance sheet. Premiums on interest rate options and realised gains cumulated planned depreciation. In preparing the fi nancial state- or losses have been periodised over the contract period to adjust ments, the remaining revaluations of EUR 26.1 million have been entered, hedged interest. Unrealised changes in value have been reversed in line with the depreciation schedule. entered in the balance sheet. Exchange rate diff erences of foreign Depreciation according to plan has been calculated on the currency options have been entered as credits or charges to income original acquisition cost of the fi xed assets in accordance with an against the exchange rate diff erence caused by the hedged item for advance schedule and on a straight line basis. Depreciation has the fi nancial year during which the exchange rate diff erence of the been calculated from the beginning of the month after the asset hedged item has arisen. Th e valuation profi t on equity and equity was placed in use. Depreciation periods, which are based on the index options has been recognised as income to a maximum of expected useful life of the assets, are shown in the notes to the the amount of a loss charged to expense for the hedged item, and income statement under “Depreciation”. the proportion in excess of this has been booked to a balance sheet account. Negative changes in value have been booked to a balance Stocks sheet account up to the unbooked valuation gain on the hedged Stocks are entered in the balance sheet on a fi fo basis at the lower item, and the proportion in excess of this has been entered as a of the acquisition cost or repurchase price or probable market credit or charge to earnings. Th e fi nancial statements contain no price. open option contracts taken out for hedging purposes. Financial assets Electricity derivatives Electricity derivatives are used mainly for hedging the price risks of Securities are valued at acquisition cost or the market price, which- electricity. Unrealised changes in the value of electricity forwards ever is the lower.

61 PääjohtajanFinancial Statements katsaus

Leases shown in the consolidated balance sheet, whereas the change in the deferred tax assets is shown in the consolidated income statement. Lease payments are shown as rent expenses in the income statement. Th e deferred tax liabilities and assets arising on consolidation are included in the deferred tax liabilities and assets shown in the Future expenses and losses consolidated balance sheet, and any change therein is included in the change in deferred tax liabilities and assets shown in the Future expenses and losses representing a commitment of the consolidated income statement. company or which are likely to materialise are charged as expenses In line with conservative accounting practice, the consolidated under the relevant expense item. In the balance sheet these provi- balance sheet shows the deferred tax liability in its entirety and sions for expenses are stated in the item “Compulsory provisions” deferred tax assets as the estimated and probable amount. Th e or “Accruals and deferred income”. deferred tax liabilities and assets were calculated applying the confi rmed tax rate, which is 26%. Deferred taxes Pension arrangements In the consolidated balance sheet, the accumulated appropriations shown in individual fi nancial statements have been divided into Th e pension liabilities of SOK Group companies have been a deferred tax liability, shareholders’ equity and minority interest, insured through external pension insurance companies. A sup- and changes in them are shown in the consolidated income state- plementary pension policy has been taken out for the former ment. So-called depreciation not deducted in taxation has been Elonvara members who are employed by the SOK Group. Th e taken into account as a reducing factor in calculating the above- policy provides coverage for the earned and future pension benefi ts mentioned deferred tax liability. Deferred tax assets arising from corresponding to the rules and regulations of the pension fund. Group companies’ compulsory provisions and confi rmed losses are

Management of ﬁ nancial risks and electricity price risk in 2005

Liquidity risk Credit risk SOK Corporation seeks to minimise liquidity and refi nancing risks Th e management of credit risks connected with commercial by means of a balanced distribution of loan maturities and suf- activities is part of the business units’ operations. Investments and fi cient fi nancial reserves. Adequate liquidity is maintained through trade in derivatives can only be undertaken with counterparties cash, overdraft accounts, liquid money-market investments and approved by SOK’s Executive Board, within the limits approved by long-term binding credit facilities. In accordance with its fi nancing the Executive Board. strategy, SOK Corporation strives to maintain an amount of liquid funds and undrawn long-term binding credit facilities that is at Electricity price risk least 10% of its total assets plus the amount of the undrawn credit SOK Corporation evaluates the price risks of electricity for a facilities. Liquid funds at the end of the year totalled EUR 789.8 three-year period. Th e minimum hedging degrees for the following million and undrawn long-term binding credit facilities amounted years are defi ned in the guidelines for managing electricity price to EUR 152.4 million, for a total of 47.6%. Th e quick ratio target risk, which have been approved by SOK’s Executive Board. Of the has been set at more than 1, including long-term undrawn credit estimated consumption and binding electricity deliveries, 100% facilities. At the end of the year the quick ratio calculated in the has been hedged for the next calendar year after the closing date above manner was 1.15. of the accounts, 43% for the year after that and 22% for the third year. Th e hedging instruments that can be used are fi xed-price Interest rate risk delivery contracts, futures, forward contracts, options or other SOK Corporation’s interest rate risk is reviewed over 12-month similar electricity derivatives. and three-year periods. A linear change of one percentage point in the level of market interest rates must not cause an increase of Price risk in fuel trading more than 0.5 percentage point in the interest rate level of SOK Th e S Group’s fuel procurements are handled by SOK’s subsidiary Corporation’s average interest-bearing net liabilities. North European Oil Trade Oy. In procuring fuels, the company incurs price risk for its fuel stocks, and this is managed in the man- Foreign exchange risk ner defi ned in the company’s risk management policy. To manage SOK Corporation’s net turnover is generated largely in Finland. price risk, the company makes use of hedging instruments such as Th e Group’s commercial foreign exchange risks are the responsibil- futures and options that are traded on the London and New York ity of the unit closing the business deal. Th e extent of the foreign oil exchanges as well as swaps made on the OTC market. exchange risk for the balance sheets of the Baltic subsidiaries is examined on the basis of balance sheet source-application analysis. Price risk in grain trading Th e foreign exchange risk is reduced by fi nancing the companies’ To hedge the price risk of oat basis trading, SOK’s subsidiary operations in the same currency in which the money is spent and Hankkija-Maatalous Oy employs oats-related derivatives. by means of derivatives. SOK and its Finnish subsidiaries did not have loans denominated in foreign currency at the end of the fi nancial year.

62 Financial Statements

Notes to the Accounts

SOK CORPORATION SOK EUR million 2005 2004 2005 2004

NOTES CONCERNING THE INCOME STATEMENTS

1a. Net turnover by business area Supermarket trade 81.1 59.0 Fuel sales 743.6 444.5 Deparment stores and speciality stores 36.3 97.0 Hotels and restaurants 176.7 169.2 Motor trade and accessories 344.9 356.0 Agricultural trade 827.5 826.8 Consumer goods sourcing 533.7 491.5 EDI invoicing 2 362.0 2 031.6 2 362.0 2 031.6 Real-estate, rental and other service operations 209.7 204.4 163.6 155.8 Eliminations -1 106.1 -898.9 Total 4 209.4 3 781.1 2 525.7 2 187.4

*) includes EUR 956 million of intra-Group EDI invoicing (prev. yr. EUR 727 million)

Domestic business operations constitute 95.3 % of net turnover.

1b. Operating proﬁ t by business area Supermarket trade 2.5 0.6 Fuel sales 1.6 -0.9 Deparment stores and speciality stores 0.8 4.2 Hotels and restaurants 14.6 10.6 Motor trade and accessories 4.8 9.1 Agricultural trade 8.3 12.8 Consumer goods sourcing -0.0 2.5 EDI invoicing 0.2 0.3 0.2 0.3 Real-estate, rental and other service operations 6.8 12.4 -4.8 -4.6 Share of associated companies’ proﬁ ts 2.4 1.8 Eliminations 20.3 -0.3 Total 62.3 53.2 -4.6 -4.3

2. Other operating income Proﬁ ts on sale of ﬁ xed assets 30.9 8.9 5.8 4.4 Goodwill income 4.1 3.1 Other operating income 1.2 1.2 0.2 0.1 Total 36.2 13.1 6.0 4.5

3. Raw materials and consumables Purchases during the ﬁ nancial year 3 725.0 3 269.9 2 361.5 2 014.7 Change in stocks (+/-) -22.3 -3.2 0.0 11.6 Total 3 702.7 3 266.7 2 361.5 2 026.3

4. Staﬀ costs Wages and salaries 125.1 125.5 29.9 26.4 Pension costs 21.1 20.5 6.0 4.1 Other social security costs 9.5 9.1 2.5 2.1 Total 155.6 155.1 38.4 32.6

Information concerning the staﬀ and members of the boards is presented under item 26.

63 Financial Statements

SOK CORPORATION SOK EUR million 2005 2004 2005 2004

5. Depreciation and value adjustments Depreciation according to plan 37.9 34.3 7.5 5.1 Value adjustments on non-current assets 4.9 6.2 0.0 1.4 Total 42.8 40.5 7.5 6.5

Th e itemised speciﬁ cations of the change in depreciation and accelerated depreciation are included under ﬁ xed assets and accumulated appropriations in the notes to the balance sheet.

Planned depreciation is calculated on a straight-line basis so as to write off the cost of fi xed assets over their expected useful lives. Revaluations have not been written down. Planned depreciation is as follows: Year Buildings 30–35 Light constructions and building equipment 10–15 Offi ce and warehouse fi xtures 10 Warehouse, servicing and processing machinery 7 Restaurant and hotel furnishings 5–10 Shop furnishings 5–7 Motor vehicles and computer hardware (other than PCs) 5 Goodwill 5–10 Other tangible and intangible assets as permitted by taxation laws

6. Other operating expenses Losses on sale of ﬁ xed assets 0.1 0.6 0.0 Other operating expenses 118.5 118.9 33.5 33.1 Total 118.6 119.5 33.5 33.1

Rents are presented as a separate item in the income statement.

7. Increase (-) / decrease (+) in provisions for liabilities and charges Increases related to partially vacant premises -0.1 -0.1 Decreases related to partially vacant premises 1.7 2.6 1.7 2.4 Increase in other future expenses and losses -0.3 -0.6 Decrease in other future expenses and losses 1.7 1.6 0.2 0.2 Total 3.1 3.6 1.8 2.6

8. Financial income and expenses Dividend income from Group companies 0.1 1.5 Dividend income from participating interest companies 1.0 7.0 Dividend income from others 1.2 1.4 1.2 1.4 Total dividend income from investments in non-current assets 1.2 1.4 2.3 9.9

Interest income from other non-current assets From Group companies 8.6 9.9 From others 1.0 0.8 0.8 0.8

Other interest and ﬁ nancial income From Group companies 2.4 1.3 From others 18.9 16.7 13.9 11.5 Total interest and ﬁ nancial income 20.0 17.4 25.7 23.5

Value adjustments of investments in non-current assets 0.0 2.0 3.1 2.0 Reversed value adjustments of investments in non-current assets -13.0 Value adjustments of other securities held in current assets 0.1 -0.0 0.1 -0.0

Interest and other ﬁ nancial expenses To Group companies 2.5 1.2 To others 14.2 15.6 12.1 13.6 Total interest and other ﬁ nancial expenses 14.2 15.6 14.6 14.8

Total ﬁ nancial income and expenses 6.8 1.2 10.2 29.5

64 Financial Statements

SOK CORPORATION SOK EUR million 2005 2004 2005 2004

9. Extraordinary items Extraordinary income Group contributions received 25.0 28.7 Merger proﬁ t 11.3 6.0 Other 0.1 Total 36.2 34.9

Extraordinary expenses Group contributions given 6.9 17.2 Merger loss 0.1 Total 7.0 17.2

Total extraordinary items 29.2 17.7

10. Appropriations Increase (-) / decrease (+) in accelerated depreciation 3.5 -2.0

11. Direct taxes Income taxes on ordinary operations for the year 11.0 14.3 1.7 6.1 Income taxes on ordinary operations for the previous year -0.3 1.4 -0.1 1.3 Income taxes on extraordinary items -0.0 0.0 4.7 3.4 Eﬀ ect of consolidation -0.0 -2.4 Change in deferred tax liability / assets 0.7 0.9 Total 11.3 14.1 6.3 10.7

NOTES CONCERNING ASSETS IN THE BALANCE SHEETS

12. SOK Corporation’s intangible and tangible assets, EUR million

Intangible assets Intangible Goodwill Other Advance Total Group Group rights capitalised payments intangible goodwill reserve expenditure assets Acquisition cost at 1.1.2005 66.7 22.9 36.6 7.9 134.1 19.9 1.6 Increase 23.9 9.3 1.7 14.8 49.7 1.6 Decrease -29.9 -2.3 -6.4 -5.1 -43.7 -1.6 Transfers 3.9 5.2 -9.3 -0.2 Acquisition cost at 31.12.2005 64.6 29.9 37.1 8.3 140.0 19.9 1.6

Accumulated depreciation at 1.1.2005 36.2 17.2 22.9 76.4 19.2 Companies acquired 0.1 0.1 Accumulated depreciation on decreases and transfers -13.1 -2.3 -4.5 -19.9 -0.2 Depreciation for the ﬁ nancial year 10.3 3.4 4.3 17.9 0.2 Value adjustments 0.1 1.7 1.8 0.7 Accumulated depreciation at 31.12.2005 33.6 20.0 22.7 76.3 19.9

Accumulated income entries at 1.1.2005 1.6 Accumulated income entries at 31.12.2005 1.6

Book value at 31.12.2005 31.0 9.9 14.4 8.3 63.6 0.0 0.0

Book value at 31.12.2004 30.5 5.7 13.6 7.9 57.8 0.7 0.0

65 Financial Statements

Tangible assets Land Buildings Machinery Other Advance Total and and and tangible payments and tangible water constructions equipment assets construction assets in progress Acquisition cost at 1.1.2005 30.1 279.2 78.2 3.9 6.0 397.3 Increase 2.6 5.7 10.0 0.4 27.5 46.2 Decrease -3.4 -23.4 -8.8 -0.0 -2.4 -38.1 Transfers 0.0 9.9 2.7 -0.1 -12.4 0.2 Acquisition cost at 31.12.2005 29.3 271.4 82.1 4.1 18.7 405.5

Accumulated depreciation and value adjustments at 1.1.2005 2.4 103.3 43.7 1.4 150.7 Companies acquired 0.3 1.4 1.1 0.1 3.0 Accumulated depreciation on decreases and transfers -0.3 -5.5 -3.9 0.0 -9.7 Depreciation for the ﬁ nancial year 9.5 9.9 0.3 19.8 Value adjustments 0.0 2.4 0.1 0.0 2.4 Accumulated depreciation at 31.12.2005 2.4 111.1 50.9 1.8 166.3

Revaluations at 1.1.2005 11.6 14.5 26.1 Decrease -11.6 -14.5 -26.1 Revaluations at 31.12.2005 0.0 0.0 0.0

Book value at 31.12.2005 26.9 160.3 31.2 2.3 18.7 239.3

Book value at 31.12.2004 39.3 190.5 34.5 2.4 6.0 272.7

Share of machinery in the book value of machinery and equipment EUR 0.3 million (prev. yr. EUR 0.3 million)

13. SOK Corporation’s ﬁ nancial assets, EUR million

Shares in Other Total participating shares and shares interest member- companies ships Acquisition cost at 1.1.2005 59.4 8.8 68.2 Increase 0.4 0.1 0.4 Decrease -1.4 -0.3 -1.7 Transfers -2.4 -2.4 Acquisition cost at 31.12.2005 55.9 8.6 64.5

Accumulated value adjustments at 1.1.2005 3.3 0.2 3.5 Accumulated value adjustments on decreases -0.2 -0.2 and transfers Value adjustments 0.0 0.0 0.0 Accumulated value adjustments at 31.12.2005 3.4 0.0 3.4

Book value at 31.12.2005 52.6 8.6 61.2

Book value at 31.12.2004 56.0 8.6 64.7

Undepreciated part of Group goodwill due to associated companies EUR 0.1 million (prev. yr. EUR 1.1 million) Unentered part of Group reserves due to associated companies EUR 0.0 million (prev. yr. EUR 0.1 million)

66 Financial Statements

Capital loan Debtors Capital loan Other Total other debtors from from debtors debtors ﬁ nancial participating participating from others from assets interest interest others companies companies Amount at 1.1.2005 0.8 1.3 0.9 24.4 27.3 Increase 1.0 1.0 Decrease -0.6 -0.0 -0.6 -1.2 Transfers 7.1 7.1 Amount at 31.12.2005 0.8 0.7 0.9 31.8 34.2

Accumulated value adjustments at 1.1.2005 0.0 0.0 Accumulated value adjustments at 31.12.2005 0.0 0.0

Book value at 31.12.2005 0.8 0.7 0.9 31.8 34.2

Book value at 31.12.2004 0.8 1.3 0.9 24.4 27.3

Total ﬁ nancial assets of SOK Corporation 31.12.2005 95.4 Total ﬁ nancial assets of SOK Corporation 31.12.2004 92.0

12. SOK’s intangible and tangible assets, EUR million

Intangible assets Intangible Other Advance Total rights capitalised payments intangible expenditure assets Acquisition cost at 1.1.2005 36.5 6.1 7.4 50.0 Increase 3.8 6.5 10.3 Decrease -27.3 -5.1 -32.4 Transfers 4.5 0.5 -5.0 0.0 Acquisition cost at 31.12.2005 17.5 6.6 3.8 27.9

Accumulated depreciation at 1.1.2005 15.8 4.7 20.5 Accumulated depreciation on decreases and transfers -9.3 -9.3 Depreciation for the ﬁ nancial year 6.0 0.2 6.3 Accumulated depreciation at 31.12.2005 12.6 5.0 17.5

Book value at 31.12.2005 5.0 1.6 3.8 10.4

Book value at 31.12.2004 20.7 1.4 7.4 29.5

Tangible assets Land Buildings Machinery Other Advance Total and and and tangible payments and tangible water constructions equipment assets construction assets in progress Acquisition cost at 1.1.2005 2.6 10.5 12.7 0.4 0.2 26.3 Increase 0.0 1.0 0.0 12.3 13.4 Decrease -0.1 -1.8 -1.2 -3.0 Acquisition cost at 31.12.2005 2.6 10.5 12.0 0.4 11.2 36.7

Accumulated depreciation and value adjustments at 1.1.2005 0.1 7.3 9.4 0.0 16.7 Accumulated depreciation on decreases and transfers -0.0 -0.6 -0.6 Depreciation for the ﬁ nancial year 0.3 1.0 1.3 Value adjustments 0.0 0.0 0.0 Accumulated depreciation at 31.12.2005 0.1 7.5 9.8 0.0 17.4

Book value at 31.12.2005 2.5 3.0 2.2 0.4 11.2 19.3

Book value at 31.12.2004 2.6 3.2 3.3 0.4 0.2 9.6

67 Financial Statements

13. SOK’s ﬁ nancial assets, EUR million Shares Shares in Other Total in group participating shares and shares companies interest member- companies ships Acquisition cost at 1.1.2005 252.1 48.6 10.2 310.8 Increase 26.3 0.4 0.0 26.7 Decrease -16.8 -2.7 -0.0 -19.5 Transfers 2.4 -2.4 0.0 Acquisition cost at 31.12.2005 264.0 43.9 10.2 318.0

Accumulated value adjustments at 1.1.2005 17.9 9.8 0.0 27.7 Accumulated value adjustments on decreases and transfers -0.0 0.0 0.0 Value adjustments 3.0 0.0 0.0 3.1 Accumulated value adjustments at 31.12.2005 20.9 9.8 0.0 30.7

Book value at 31.12.2005 243.1 34.1 10.2 287.3

Book value at 31.12.2004 234.2 38.8 10.2 283.2

Capital loan Debtors Capital loan Debtors Capital Other Total debtors from debtors from from loan debtors other from Group participating participating debtors from ﬁ nancial Group companies interest interest from others assets companies companies companies others Amount at 1.1.2005 41.0 131.7 0.8 1.3 0.9 22.7 198.3 Increase 57.3 1.0 58.3 Decrease -35.4 -29.4 -0.6 -0.0 -0.5 -65.9 Transfers -7.1 7.1 0.0 Amount at 31.12.2005 5.6 152.5 0.8 0.7 0.9 30.2 190.7

Accumulated value adjustments at 1.1.2005 1.8 0.0 1.8 Accumulated value adjustments on decreases and transfers -0.0 0.0 Accumulated value adjustments at 31.12.2005 1.8 0.0 1.8

Book value at 31.12.2005 3.8 152.5 0.8 0.7 0.9 30.2 188.9

Book value at 31.12.2004 39.2 131.7 0.8 1.3 0.9 22.7 196.5

Total ﬁ nancial assets of SOK 31.12.2005 476.2 Total ﬁ nancial assets of SOK 31.12.2004 479.7

Liabilities to secure Group companies’ loans EUR 31.3 million

68 Financial Statements

14. Companies owned by SOK Corporation and SOK 31.12.2005 Corporation’s SOK’s Registered share- voting share- Group companies oﬃ ce holding % rates % holding %

Commercial AS Kommest Auto Group Estonia 90.0 90.0 90.0 AS Sokotel Estonia 100.0 100.0 100.0 Hankkija-Maatalous Oy Group Helsinki 100.0 100.0 100.0 Intrade Partners Oy Helsinki 100.0 100.0 100.0 Jollas-Opisto Oy Helsinki 100.0 100.0 100.0 Maan Auto Oy Group Helsinki 100.0 100.0 100.0 North European Oil Trade Oy Helsinki 66.0 66.0 66.0 Prisma Peremarket AS Estonia 100.0 100.0 100.0 Rainex Yrityspalvelu Oy Helsinki 100.0 100.0 100.0 Rekla Oy Helsinki 100.0 100.0 100.0 S-Etuluotto Oy Helsinki 100.0 100.0 100.0 S-Eturahoitus Oy Helsinki 100.0 100.0 100.0 SOK-Business Oy Helsinki 100.0 100.0 100.0 SOK-Invest Oy Helsinki 100.0 100.0 100.0 Sokotel Oy Group Helsinki 100.0 100.0 100.0 SOK-Takaus Oy Helsinki 99.9 99.9 99.9 Tapiolan Sokos Oy Helsinki 100.0 100.0 100.0 Turun Sokos Oy Turku 90.0 90.0 90.0 Real-estate companies (21 pcs) Real-estate companies under stock (8 pcs) Total Group companies 55 pcs

Participating interest companies

Associated companies Asunto Oy Kauniaisten Kirkkomäki Kauniainen 38.6 38.6 38.6 Elielin Pysäköinti Oy Helsinki 22.2 22.2 22.2 Hotelli Joensuun Kimmel Oy Joensuu 33.0 33.0 Hotellipankki Oy Helsinki 33.3 33.3 Inex Partners Oy Group Helsinki 50.0 50.0 50.0 Kauppakeskus Mylly Oy Turku 50.0 50.0 50.0 Keskuskorttelin Huolto Oy Vaasa 31.5 31.5 31.5 Kiinteistö Oy Pysäköintiveturi Tampere 49.7 40.2 49.7 Kiinteistö Oy Turun Toripaikoitus Turku 38.6 38.6 28.6 Movere Oy Lahti 33.3 33.3 Oy Realinvest Ab Group Helsinki 21.9 21.9 21.9 Tullin Parkki Oy Tampere 45.1 30.0 45.1 Total Associated Companies 12 pcs

Other shares owned by the parent company

Sato-Yhtymä Oyj Helsinki 8.7 8.7

69 Financial Statements

SOK CORPORATION SOK EUR million 2005 2004 2005 2004

15. Stocks Goods 158.9 135.6 Other stocks 0.3 0.4 2.4 2.5 Advance payments 1.4 0.7 Total 160.7 136.7 2.4 2.5

16. Long-term debtors Trade debtors 0.0 3.1 0.0 2.4 Loan receivables 0.2 0.7 0.2 0.7 Other receivables 0.0 0.0 Prepayments and accrued income 0.1 0.1 Total long-term debtors 0.3 3.9 0.2 3.1

17. Deferred tax assets Temporary diﬀ erences 1.3 2.1 From consolidation 0.5 0.8 Total 1.8 2.9

Th e deferred tax asset due to temporary diﬀ erences has been consolidated and is shown in the consolidated balance sheet, but not in the Group company balance sheet.

18. Short-term debtors

Trade debtors 395.4 291.2 315.1 225.0

Amounts owed by Group companies Trade debtors 3.3 7.9 Loan receivables 8.3 3.3 Other receivables 26.0 38.7 Prepayments and accrued income 9.6 7.7 Total 47.2 57.6

Amounts owed by participating interest companies Trade debtors 0.6 0.6 0.4 0.4 Loan receivables 0.0 0.0 Prepayments and accrued income 15.2 27.2 15.1 27.1 Total 15.8 27.7 15.5 27.5

Loan receivables 17.0 16.8 Other receivables 15.5 10.3 1.5 1.8 Prepayments and accrued income 32.3 38.3 20.0 11.8 Total short-term debtors 475.9 384.4 399.3 323.6

Speciﬁ cation of prepayments and accrued income Financial items 9.2 6.1 9.0 6.1 Other 38.3 59.5 35.6 40.5 Total prepayments and accrued income 47.5 65.6 44.7 46.5

19. Securities Other shares and participations 21.3 24.5 21.3 24.5 Money market securities 667.5 547.2 667.5 547.2 Total 688.8 571.7 688.8 571.7

70 Financial Statements

NOTES CONCERNING LIABILITIES IN THE BALANCE SHEETS

SOK CORPORATION SOK EUR million 2005 2004 2005 2004

20. Capital and reserves Cooperative capital at 1 Jan. 71.1 68.6 71.1 68.6 Increase 15.8 2.5 15.8 2.5 Cooperative capital at 31 Dec. 86.9 71.1 86.9 71.1

Cooperative capital consists of the cooperative payments which the cooperative enterprises make to Suomen Osuuskauppojen Keskusosuuskunta (SOK) for cooperative shares. Th e number of a cooperative enterprise’s shares is determined on the basis of the cooperative enterprise’s total membership and annual purchases.

Supplementary cooperative capital at 1 Jan. 16.8 14.8 16.8 14.8 Increase 2.0 2.0 Supplementary cooperative capital at 31 Dec. 16.8 16.8 16.8 16.8

Th e supplementary cooperative capital consists of voluntary investments which the cooperative enterprises make to Suomen Osuuskauppojen Keskusosuuskunta (SOK). Th e cooperative enterprises have the right to a return on their supplementary cooperative capital contributions in the manner and subject to the conditions speciﬁ ed in the Cooperative Societies Act and SOK’s statutes.

Revaluation reserve at 1 Jan. 25.4 51.5 Decrease -25.4 -26.1 Revaluation reserve at 31 Dec. 0.0 25.4

All of SOK Corporation’s revaluations have been reversed in order to make the transition to measuring property, plant and equipment at cost.

Legal reserve at 1 Jan. 14.8 12.8 14.8 12.8 Increase 0.5 2.0 0.5 2.0 Legal reserve at 31 Dec. 15.3 14.8 15.3 14.8

Supervisory Board’s disposal fund at 1 Jan. 0.0 0.2 0.0 0.2 Increase 0.1 0.5 0.1 0.5 Decrease -0.1 -0.7 -0.1 -0.7 Supervisory Board’s disposal fund at 31 Dec. 0.1 0.0 0.1 0.0

Profi t brought forward at 1 Jan. 327.9 296.7 347.6 326.3 Transfer to legal reserve -0.5 -2.0 -0.5 -2.0 Transfer to Supervisory Board’s disposal fund -0.1 -0.5 -0.1 -0.5 Interest on cooperative capital and supplementary cooperative capital -10.8 -6.4 -10.8 -6.4 Revaluations: reversal from retained earnings -0.8 Translation diff erence 0.0 -0.0 Profi t brought forward at 31 Dec. 315.7 287.7 336.2 317.4

Proﬁ t for the ﬁ nancial year 57.4 40.2 32.0 30.2 Total capital and reserves 492.2 456.0 487.2 450.3

Distributable funds at 31 Dec. Profi t brought forward 315.7 287.7 336.2 317.4 Profi t for the fi nancial year 57.4 40.2 32.0 30.2 Minimum amount to be transferred to the reserve fund in accordance with the company statutes -1.5 -0.1 -1.5 -0.1 Share transferred to shareholders’ equity from accumulated appropriations -31.2 -33.2 Total 340.4 294.5 366.6 347.4

71 Financial Statements

SOK CORPORATION SOK EUR million 2005 2004 2005 2004

21. Accumulated appropriations Accelerated depreciation Intangible rights 1.0 4.2 Other capitalised expenditure 0.3 0.4 Buildings and constructions 0.3 0.3 Machinery and equipment 0.2 0.4 Total 1.8 5.3

22. Provisions Partially vacant premises 1.6 3.3 1.6 3.3 Other future expenses 0.9 2.3 0.1 0.3 Total 2.5 5.6 1.7 3.5

23. Long-term creditors Bonds 5.8 Loans from ﬁ nancial institutions 15.2 16.9 Pension loans 0.4 Trade creditors 0.3 0.3 0.0 0.0 Other long-term creditors 15.4 6.8 15.4 6.8 Total long-term creditors 30.9 30.2 15.4 6.8

24. Deferred tax liability Appropriations 9.7 10.4 Temporary diﬀ erences -0.6 -0.6 Included in Group companies’ own balance sheets - - Total 9.2 9.8

25. Short-term creditors

Loans from ﬁ nancial institutions 3.3 2.9 0.3 2.7 Pension loans 0.0 Advances received 46.1 42.2 7.9 6.9 Trade creditors 344.4 300.9 155.0 132.2

Amounts owed to Group companies Trade creditors 61.1 50.0 Other short-term creditors 149.4 184.0 Accruals and deferred income 4.6 5.8 Total 215.2 239.8

Amounts owed to participating interest companies Trade creditors 103.9 65.9 101.2 63.5 Other short-term creditors 1.8 2.7 1.8 2.7 Accruals and deferred income 0.0 0.0 0.0 Total 105.7 68.7 103.0 66.3

Other short-term creditors 662.7 553.8 632.3 523.4 Accruals and deferred income 116.1 121.4 61.4 53.0 Total short-term creditors 1 278.3 1 089.9 1 175.1 1 024.3

Speciﬁ cation of accruals and deferred income Staﬀ costs 26.5 29.7 8.3 7.6 Financial items 10.2 9.6 8.4 7.2 Other 79.3 82.2 49.4 43.9 Total accruals and deferred income 116.1 121.5 66.0 58.8

NOTES CONCERNING INCOME TAXES See 11 above.

72 Financial Statements

NOTES CONCERNING THE STAFF AND BOARD MEMBERS

SOK CORPORATION SOK EUR million 2005 2004 2005 2004

26a. Average staﬀ numbers by group

Supermarket trade 445 433 Fuel sales 6 12 Deparment stores and speciality stores 144 371 Hotels and restaurants 1 141 1 232 Motor trade and accessories 645 614 Agricultural trade 946 953 Consumer goods sourcing 255 235 Real-estate, rental and other service operations 764 644 Total 4 346 4 494

SOK 663 558 Subsidiaries 3 683 3 936 Total 4 346 4 494

Th e average number of personnel has been calculated as the average of the personnel at the end of each month and converted to full-time staﬀ . Th e number of staﬀ at sites abroad at 31 Dec. 2005 was 1095.

26b. Salaries and remuneration: CEO and members of the Executive Board 3.0 3.0 0.7 0.9 Members of the Supervisory Board 0.1 0.1 0.1 0.1

Management pension liabilities: For those members of the Executive Board in the employ of SOK and for certain of the subsidiaries’ managing directors, the retirement age is 60–63 years.

SECURED ASSETS AND CONTINGENT LIABILITIES

27. Contingent liabilities

Pledges and contingent liabilities

Loans secured by mortgages

Loans from ﬁ nancial institutions 0.0 Mortgages 0.1 Total mortgages given as security 0.1

Loans secured by pledges

Loans from ﬁ nancial institutions 0.0 Pledged hire purchase agreements 0.7

Other creditors 1.7 1.7 1.7 1.7 Book value of pledged shares 1.9 1.9 1.9 1.9 Total pledges given as security 1.9 2.7 1.9 1.9

73 Financial Statements

SOK CORPORATION SOK EUR million 2005 2004 2005 2004

Loans secured by guarantees

Loans from ﬁ nancial institutions 11.1 26.8 Guarantees given 11.1 26.8 Guarantees given, total 11.1 26.8

General security for liabilities Mortgages 18.9 19.5

Other security given Pledges 0.8 2.6 0.8 2.6 Mortgages 13.8 13.5 0.3 Guarantees 87.0 101.3 Total 101.6 117.4 1.2 2.6

Security given on behalf of Group companies Guarantees 83.6 113.8

Security given on behalf of others’ liabilities Guarantees given on behalf of associated companies’ liabilities 1.7 0.8 Guarantees given on behalf of cooperative enterprises’ liabilities 5.8 7.2 Guarantees given on behalf of others’ liabilities 0.2 0.2 0.2 0.2 Total 7.6 8.2 0.2 0.2

Security given on behalf of others Guarantees for liabilities of the cooperative enterprises 0.1 0.2

Other contingent liabilities

Repurchasing liabilities: Hire purchase repurchasing liabilities 101.4 104.3 Other repurchasing liabilities 69.3 71.2 32.4 37.0 Total 170.7 175.5 32.4 37.0

Leasing liabilities: Payable next year 5.7 5.0 1.4 1.4 Payable in more than one year 12.2 11.2 0.8 1.3 Total 17.9 16.2 2.3 2.7

Rental liabilities: Rented business facilities used by the S Group are regularly secured with long-term contracts, for which the SOK Corporation bears rental liabilities.

Other ﬁ nancial liabilities: Th e basic improvements and new structures in respect of the properties of Group companies involve a reduced value added tax return liability in accordance with Section 33 of the Value Added Tax Act. Th e return liability materialises if the premises for which reductions have been made are removed from the use entitling them to said reduction within the 5-year period speciﬁ ed by said act.

74 Financial Statements

SOK CORPORATION

Liability under derivative contracts, value of underlying assets, EUR million Of which value Of which value Value of of underlying Value of of underlying underlying instruments of underlying instruments of assets open agreements assets open agreements 31.12.2005 31.12.2005 31.12.2004 31.12.2004 Interest rate derivatives Forward contracts 40.0 40.0 0.8 0.8 Option contracts Purchased 75.2 75.2 Written 75.2 75.2 Interest rate swaps 246.8 101.0 268.5 133.4

Currency derivatives Forward contracts 30.3 25.8 19.1 14.9

Electricity derivatives Forward contracts 22.6 11.4 20.8 7.9

Oil product derivatives Future contracts 24.3 24.3 2.2 2.2 Option contracts Purchased 0.6 Written 3.1 3.1 3.9 3.3

Oat derivatives Future contracts 1.1 1.1 0.4 0.4

Liability under derivative contracts, fair value, EUR million Fair value Fair value of open of open Fair value agreements Fair value agreements 31.12.2005 31.12.2005 31.12.2004 31.12.2004 Interest rate derivatives Forward contracts -0.0 -0.0 0.0 0.0 Option contracts Purchased 0.1 0.2 Written -0.1 -0.2 Interest rate swaps -1.0 -1.0 -1.3 -1.3

Currency derivatives Forward contracts 0.2 0.1 -0.5 -0.5

Electricity derivatives Forward contracts 2.9 2.2 -0.7 -0.8

Oil product derivatives Future contracts 0.4 0.4 0.0 0.0 Option contracts Purchased -0.0 Written -0.1 -0.1 0.1 0.1

Oat derivatives Future contracts 0.1 0.1 0.0 0.0

75 Financial Statements

SOK

Liability under derivative contracts, Of which value Of which value value of underlying assets, EUR million Value of of underlying Value of of underlying underlying instruments of underlying instruments of assets open agreements assets open agreements 31.12.2005 31.12.2005 31.12.2004 31.12.2004 Interest rate derivatives Forward contracts 40.0 40.0 45.8 45.8 Option contracts Purchased 75.2 75.2 Written 75.2 75.2 Interest rate swaps 246.8 101.0 268.5 133.4

Currency derivatives Forward contracts 59.2 1.3 31.5 3.9

Electricity derivatives Forward contracts 22.6 11.4 20.8 7.9

Liability under derivative contracts, Fair value Fair value fair value, EUR million of open of open Fair value agreements Fair value agreements 31.12.2005 31.12.2005 31.12.2004 31.12.2004 Interest rate derivatives Forward contracts -0.0 -0.0 0.1 0.1 Option contracts Purchased 0.1 0.2 Written -0.1 -0.2 Interest rate swaps -1.0 -1.0 -1.3 -1.3

Currency derivatives Forward contracts 0.0 -0.0 0.1 0.0

Electricity derivatives Forward contracts 2.9 2.2 -0.7 -0.8

In examining the overall risk position, the position of the balance sheet items that are to be hedged must be taken into account in addition to derivatives. Th e derivative contracts that were open at the end of the ﬁ nancial year have been used primarily to manage the Group’s foreign exchange, interest rate and price risks.

Th e open interest rate swaps are from one month to nine years in length. Open electricity forwards will fall due within the next three years. Other open derivative contracts are under a year in length.

Th e fair values of derivatives are based on market values or the present values of future cash ﬂ ows.

76 Financial Statements

SOK Corporation Key Ratios 2001– 2005

2001 2002 2003 2004 2005

Net turnover 2 915 2 998 3 112 3 781 4 209

Operating proﬁ t EUR million 35 55 46 53 62 % of net turnover 1.2 1.8 1.5 1.4 1.5

Proﬁ t/loss before extraordinary items EUR million 39 55 52 54 69 % of net turnover 1.3 1.8 1.7 1.4 1.6

Proﬁ t/loss before appropriations and taxes EUR million 33 55 52 54 69 % of net turnover 1.1 1.8 1.7 1.4 1.6

Return on equity, % 7.5 9.9 7.0 9.0 11.8

Return on investment, % 6.4 8.4 6.9 7.2 7.6

Equity ratio, % 33.2 34.1 32.9 30.2 28.4

Gross investment in ﬁ xed assets EUR million 31 43 56 53 68 % of net turnover 1.1 1.4 1.8 1.4 1.6

Gearing, % 21 10 -2 -22 -25

Th e average number of employees during the ﬁ nancial year converted to full-time staﬀ 4 203 4 126 4 557 4 494 4 346

CALCULATION OF KEY RATIOS

Proﬁ t/loss after ﬁ nancial items + value adjustments on investments (nett) - income taxes Return on equity, % = x 100 Capital and reserves + minority interest, average

Return on Profi t/loss after fi nancial items + interest and other fi nancial expenses + value adjustments on investments (nett) = x 100 investment, % Total assets - non-interest-bearing liabilities - provisions, average

2001 2002 2003 2004 2005 Non-interest-bearing liabilities, EUR million 472 442 483 575 657

Capital and reserves + minority interest Equity ratio, % = x 100 Total assets - advances received

Gross investment = Acquisition costs of subsidiary shares and other ﬁ xed assets in ﬁ xed assets

Interest-bearing liabilities - liquid assets Gearing, % = x 100 Capital and reserves + minority interest

Th e average number of employees during the ﬁ nancial year converted to full-time staﬀ Calculated as an average of the number of full-time equivalent employees at the end of each month

77 Financial Statements

Executive Board’s Proposal for the Disposal of SOK’s Proﬁ t for the Year

Surplus indicated in the income statement EUR 31,962,564.33 Surplus from the previous ﬁ nancial years EUR 336,173,838.27 Total EUR 368,136,402.60

Th e Executive Board proposes that the proﬁ t for the ﬁ nancial year of EUR 31,962,564.33 be used as follows:

– to be transferred to the reserve fund in accordance with the company Statutes EUR 1,600,000.00

– paid as interest on the suplementary cooperative capital EUR 634,259.60

– distributed as interest on cooperative contributions paid by the cooperative enterprises by the beginning of the ﬁ nancial period EUR 6,398,325.00

– transferred to the Supervisory Board’s disposal fund EUR 50,000.00

– left in the retained earnings account EUR 23,279,979.73

Providing that the Cooperative Meeting approves the above proposal SOK’s capital and reserves will be:

Cooperative capital EUR 86,852,500.00 Supplementary cooperative capital EUR 16,830,000.00 Legal reserve EUR 16,873,154.85 Supervisory Board’s disposal fund EUR 141,634.97 Retained earnings account EUR 359,453,818.00 Total EUR 480,151,107.82

Helsinki, 16 February 2006

Kari Neilimo

Jukka Salminen Esko Hakala Arto Hiltunen

Kuisma Niemelä Veli-Matti Puutio Kimmo Simberg

Ulla-Maija Tolonen 78 FinancialPääjohtajan Statements katsaus

Auditors’ Report

To the members of Suomen the lawfulness of the activities of the members of the Supervisory Osuuskauppojen Keskuskunta Board and the Executive Board in accordance with the regulations of the Cooperative Societies’ Act. We have audited the accounting records, the fi nancial statements, In our opinion the fi nancial statements and the report on the report on operations and the corporate governance of Suomen operations have been prepared in accordance with the Accounting Osuuskauppojen Keskuskunta for the fi nancial year 1 January Act and other rules and regulations concerning the preparation – 31 December 2005. Th e Executive Board has prepared a report of fi nancial statements and a report on operations. Th e fi nancial on operations and the fi nancial statements, including the income statements and the report on operations provide correct and statement, balance sheet, and cash fl ow statement of both the suffi cient information, as intended in the Accounting Act, on Corporation and the Cooperative as well as the notes to them. the operational results of the Corporation and the Cooperative Based on our audit we express an opinion on the fi nancial state- and their fi nancial standing. Th e report on operations is fully ments, the report on operations and the Cooperative’s corporate consistent with the fi nancial statements. Th e fi nancial statements governance. including the consolidated fi nancial statements can be approved Th e audit has been conducted in accordance with sound audit- and the members of the Supervisory Board and Executive Board ing procedure. Th e accounting records as well as the accounting can be discharged from liability for the period audited by us. Th e policies, content and presentation of the fi nancial statements and proposal made by the Executive Board on the disposal of retained the report on operations have been examined to an extent suf- earnings is in compliance with the Cooperative Societies’ Act and fi cient to determine that there are no material errors or defi cien- the Cooperative’s Statutes. cies. In auditing the corporate governance, we have examined

Helsinki, 9 March 2006

Tomi Englund Authorised Public Accountant

Tapani Rotola-Pukkila Juhani Heiskanen Authorised Public Accountant Authorised Public Accountant

Statement of the Supervisory Board

In accordance with Item 2, Paragraph 1 of Section 13 of the Th e members whose term of offi ce on the Supervisory Board Statutes of Suomen Osuuskauppojen Keskuskunta, the Super- expires are Jouko Härkönen, Leo Laukkanen, Seppo Linjakumpu, visory Board has today examined the fi nancial statements and Ahti Manninen, Jorma Niiniaho, Arto Piela and Juha Vuorenhela. consolidated fi nancial statements prepared by the Executive Board In place of the above-listed persons, it is proposed that at the An- for the 2005 fi nancial year and acquainted itself with the Auditors’ nual Cooperative Meeting a corresponding number of members be Report. elected for the next three-year term of offi ce. In addition, Kimmo Th e Supervisory Board proposes as its statement to the Annual Simberg’s membership of the Supervisory Board ended on 1 Janu- Cooperative Meeting that the fi nancial statements and consolidat- ary 2006 following his election as a member of SOK’s Executive ed fi nancial statements be adopted and that the Executive Board’s Board. proposal concerning the profi t for the fi nancial year and shareholders’ equity be approved.

Helsinki, 17 March 2006

SUOMEN OSUUSKAUPPOJEN KESKUSKUNTA

For the Supervisory Board

Otto Mikkonen Chairman Markku Viljanen Secretary 79 Suomen Osuuskauppojen Keskuskunta (SOK) Fleminginkatu 34, Helsinki, Finland P.O.Box 1, FIN-00088 S GROUP, FINLAND Tel. +358 10 76 8011, telefax +358 10 76 82390 www.s-kanava.ﬁ Photos: Lauri Mannermaa. Printed by MIKTOR 2006