Suomen Osuuskauppojen Keskuskunta SOK Corporation

Annual Report 2006 Suomen Osuuskauppojen Keskuskunta SOK Corporation

Annual Report 2006

1 Contents

4 CEO’s Review

13 SOK Corporation

20 Review of Business Areas 20 Supermarket trade 22 Service station stores and fuel sales 24 Department store and speciality store trade 25 Hotel and restaurant trade 28 Automotive trade and accessories 30 Agricultural trade

31 Sourcing and logistics

33 Neighbouring Countries

34 Corporate Governance within SOK Corporation 36 SOK Supervisory Board 38 SOK Executive Board 39 SOK Management Team

40 Accountability 41 Personnel 45 Environment 48 Sponsorship and international contacts

50 Financial Statements 2006 50 Executive Board Report on Operations 57 Consolidated Income Statement 58 Consolidated Balance Sheet 59 Consolidated Cash Flow Statement 60 SOK Income Statement 61 SOK Balance Sheet 62 SOK Cash Flow Statement 63 Accounting Policies 67 Notes to the Consolidated and SOK Income Statement and Balance Sheet 82 Key Ratios and their Method of Calculation 83 Executive Board’s Proposal for the Disposal of SOK’s Proﬁ t for the Year 84 Auditors’ Report 84 Statement of the Supervisory Board

3 CEO’s Review

Strong growth in operations and services terms for the Group’s customer-owners. Th e fuel terminals that for the benefi t of our customer-owners were included in the oy Esso ab deal will give the S Group’s fuel procurement function greater latitude to operate independently. Th e S Group’s mission is to provide services and benefi ts for its In the agricultural trade, Hankkija Maatalous Oy carried out a members, its customer-owners. Th is business idea guides both share purchase transaction at the beginning of the year, whereby strategic development and practical operations, and it underlies it acquired a 51 per cent holding in Suomen Rehu Oy and Avena day-to-day service for customer-owners at all our S Group loca- Nordic Grain Oy. Th is gives the S Group improved and more tions. Th e performance of the entire Group can be assessed by how extensive possibilities to serve customer-owners in the agricultural well we have succeeded in accomplishing this mission. sector. Th e S Group achieved strong growth in 2006, with 127,300 In addition to growth through acquisitions, the S Group’s new customer-owners joining the cooperative enterprises as service off erings grew organically and by expanding our network members – bringing the total number of customer-owners to over of locations. Th e capital expenditures made by the cooperative 1.6 million, or nearly 67 per cent of Finnish households. Over enterprises and SOK Corporation in 2006 totalled EUR 532 mil- 878,000 new members have joined the S Group’s cooperative lion, most of which went for enhancing our own locations serving enterprises during the past six years. People are interested in the customer-owners and other customers. products and services which the S Group off ers. Likewise, the Of particular importance was the decision taken by SOK S Group’s way of operating as a market economy company with Corporation’s Executive Board to found the S-Bank in order to a human touch rings true with Finns. provide and develop fi nancing services for customer-owners. Th e Th anks to the growing number of customer-owners, both the S-Bank will open at the end of this year. It will make customer- cooperative enterprises and SOK Corporation have been able to owners’ daily dealings at the locations of the S Group and its provide jobs for more and more people. At the end of 2006, the partners easier and faster, whilst giving greater scope for use of the S Group had a payroll of 34,000 employees, 6,000 more than in S Benefi t Card. 2005. Growth endows an enterprise with positive, dynamic momen- Sourcing and support services help tum, even if this is not an end in itself. By growing, the S Group is the S Group’s businesses grow better able to realise its business concept. Th is philosophy has been a motive force behind the investments in growth that the S Group In the report year, the grocery sourcing company Inex Partners Oy made last year. Th ese inputs have also laid the foundation for ac- became a wholly-owned subsidiary of SOK through a purchase of complishing the S Group’s fundamental task in future years. shares. Th e deal was strategically important for the S Group. Hav- During the report year, we sought to improve our service of- ing our own sourcing company will make it possible to reorganise ferings for customer-owners and our service network by investing the whole long value chain in the supermarket trade. Th e inclusion in new units. Apart from these, the S Group carried out major of Inex Partners Oy in the S Group’s supermarket operational investments and initiatives with a view to developing sourcing and model has already boosted cost-eff ectiveness and improved our support services for the entire Group. service capability in the grocery trade. Expanding the service network enables us better to take into Another major move was the establishment of a Corporate account our customers’ changing needs, whilst ensuring the geo- Financial Services unit to handle and develop fi nancial adminis- graphical coverage of our services. Th e acquisition of the Holiday tration services for SOK Corporation and Helsinki Cooperative Club chain of six spa hotels for Sokotel Oy made it possible for Society Elanto. A joint service centre will bring effi ciency, broader the S Group to focus its hotel off erings increasingly on leisure time know-how and an improved operational capability within fi nancial hotel services, family holidays and well-being services. Over the administration in these two organisations. Placing in use a Group- next few years, there will be growing demand for travel and hos- wide fi nancial administration information system will provide op- pitality services that can be off ered to customer-owners and other portunities for developing the service centre model for application customers in these areas. to the S Group’s other units as well. At the same time, it will step By acquiring the car dealerships of Oy Stockmann Ab in Espoo up the fi nancial control supporting the activities of the S Group’s and Turku, the Etelä-Suomen Autotalo Oy dealership in Lahti units that operate as a network of companies. and Vaunula Oy, the S Group was able to add another vehicle We seek to manage the future through knowledge and expertise. marque, Ford, to its repertoire, especially in the Greater Helsinki Major investments in developing operational information systems area and southern Finland. Th e range of vehicles off ered by the were made in 2006. Th e Jollas Institute played a leading part in S Group expanded signifi cantly in Finland’s best market area for training and developing the entire S Group’s personnel. Th e future the automotive trade. success factors of a modern retail and service company like the Th e purchase of the shares in oy Esso ab towards the end of the S Group are built upon competent, strongly motivated staff and year improved our off erings to customer-owners, particularly in the active use of information systems that span all the Group’s the Greater Helsinki area and southern Finland, by increasing the functions. number of service station and fuel distribution outlets. Th e Esso deal strengthened the procurement volume of SOK’s subsidiary North European Oil Trade Oy, which supplies fuel to the ABC chain, thereby creating the potential to purchase fuel on better

4 CEO’s Review

Ever more services and benefi ts for customer-owners par with the market average. Th e only unit to fall short of the sales and profi t targets set was the automotive and car accessories More and more, customer-owners are making the bulk of their trade, though it did achieve a substantial increase in sales through purchases at S Group locations. Th is is one of the Group’s success acquisitions. factors. Bonus sales accounted for 64 per cent of the S Group’s Th e cooperative enterprises’ retail sales amounted to EUR 8,073 domestic retail sales in 2006, up 15 per cent on the previous year. million, up 11.6 per cent on the fi gure a year earlier. Bonus sales accounted for 80 per cent of sales in the grocery, ser- In Finland, the S Group’s grocery trade grew by 15.4 per cent vice station store, fuel and department store trade. Our customer- on the previous year, reaching EUR 4,909 million. Th e increase owners have made wide use of the services off ered by the S Group, was triple the national average for the grocery trade, bringing a particularly in these business areas, but the trend in bonus sales has big gain in the S Group’s market share in the grocery trade and been favourable in other operational areas too. strengthening its position as the market leader. Sales growth in the Apart from other benefi ts, patronage yields cash benefi ts for our ABC service station store and fuel trade also outstripped the na- customer-owners. Last year, members were paid EUR 232 million tional average, and the chain gained market share in the fuel trade. in Bonuses. Profi ts returned as Bonuses rose by 20 per cent on the SOK Corporation had net turnover of EUR 6,634 million, up a previous year, thanks to the growth in the number of customer- whopping 62.3 per cent on the previous year. Th e biggest increase owners and increased customer loyalty. In addition to Bonuses, the in net turnover came from the acquisition of the sourcing com- cooperative enterprises will distribute to their members, for the pany Inex Partners Oy by SOK Corporation from the beginning 2006 fi nancial year, interest on cooperative capital and a payout of 2006, as well as from the sales growth of North European Oil from surplus funds to a total amount of about EUR 15–20 mil- Trade Oy, the fuel sourcing subsidiary. lion. SOK’s businesses in the Baltic countries had sales of EUR 190 Th e S Group’s cooperative enterprises and SOK Corpora- million, showing an increase of 12.7 per cent on the fi gure a year tion have participated in a number of nationwide and regional ago. Th e supermarket trade as well as the hotel and restaurant development projects involving business, culture and sports during business saw an especially favourable sales trend. the report year. Th ey have been a means of developing economic, SOK Corporation’s profi t before extraordinary items amounted social and cultural well-being in diff erent parts of Finland in to EUR 29.9 million, down EUR 39.1 million on the correspond- accordance with the S Group’s principles of responsible business ing profi t fi gure a year earlier, but higher than the earnings target operations. Part of the earnings of the cooperative enterprises and set for 2006. Th e lower earnings were attributable mainly to the SOK Corporation are used for the benefi t of the membership and growth and development investments that were made in 2006 in local areas via community activities of this kind. line with the Group’s strategy as well as to smaller one-off capital gains and the weak earnings trend in the automotive trade. Financial performance of the S Group Th e corresponding profi t posted by the cooperative enterprises and SOK Corporation was EUR 311 million, a decrease of EUR 20 million on the previous year’s result. Th is was due to smaller capital gains on the sale Th e growth in the number of customer-owners and their increas- of non-current assets. Th e operational result of the cooperative ing patronage of the S Group’s service units has lifted the S Group’s enterprises was substantially better than a year ago. In line with the sales substantially in 2006. Retail sales were up 13.4 per cent to S Group’s operational model, earnings are generated chiefl y by the EUR 9,777 million, representing growth that was nearly double front line units – the cooperative enterprises. Th e earnings trend in the average sales increase in recent years. 2006 is in harmony with this strategy. Sales outpaced the market, particularly in the supermarket Th e entire S Group generated profi t before extraordinary items trade as well as the service station store and fuel trade. Th e other and taxes of EUR 341 million. Th e earnings fi gure is one of the business areas also achieved sales growth that was at least on a best in the S Group’s history.

5 CEO’s Review

Onwards together to create People stand behind the success of customer-owners’ own store the S Group’s operations

Th e theme of SOK’s centennial in 2004 was “Onwards Together.” Th e competence of management, supervisors and employees, It conveyed the essence of the S Group’s cooperative enterprise the ability to pay attention to and understand members’ service model. One of our symbols, the basket-carriers, depicting a needs as well as a friendly service-mindedness will underpin the woman and a man together carrying a basket towards a rising sun, S Group’s success in future years too. Th e S Group has a good portrays the idea of “being in business together”. and skilled staff . I am convinced of this. I thank all of you most Th e S Group’s cooperative operations involve being in busi- warmly for your work on behalf of the S Group. ness together in many ways. A cooperative is at the same time Th e owners’ administrative work and decision making within a business and a member-owned enterprise. It is a very modern the S Group has shown expertise, a deep and broad grasp of mat- form of business, in which the members – customer-owners – are ters and a far-reaching outlook. Th e dialogue with management at the same time both the cooperative enterprise’s customers and has brought a positive dynamism to the Group’s development. Be- the object of its operations, and they are owners who have a say ing run actively by its owners is one of the strengths of a coopera- in running it. Correctly implemented, a customer and owner relative enterprise. My thanks go to all those who have been involved tionship of this kind will give us, as a cooperative retailer, a strong in owner-administration within the S Group for the valuable work edge in future years. Our customer-owners can truly say: we are you have done. the cooperative. By putting in place modern management models, My warm thanks go to our bonus partners and to all our busi- cost-eff ective operations can be built upon this customer-owner ness partners for your good and constructive co-operation during relationship, whilst refl ecting a spirit of belonging together. 2006. Across the S Group, Onwards Together also denotes the I wish to express my special gratitude to the S Group’s cus- co-operation network of companies formed by the cooperative tomer-owners – the members of the cooperative societies – for enterprises and SOK Corporation. Th e mission of the coopera- your strong and ever-growing commitment to using the S Group’s tive enterprises is to be a skilled and strong retail organisation that services. You have taken part in building the ever-developing off ers customer-owners in their own territories the services they S Group. You have been exemplary in carrying out the Your Own need. Th e cooperative enterprises know their market, their cus- Store vision in practical everyday dealings as customer-owners of a tomer-owners, their region’s identity and the needs for developing cooperative enterprise. My heartfelt thanks to all of you. operations. Th e role of SOK Corporation, in turn, is to be a know- how and service centre for the entire S Group, and a provider of Warm thanks and best wishes for centralised sourcing and other services. Th e strategies for the S Group future success as a whole are created and decided jointly in SOK’s diff erent steering and decision-making organisations. Th is network-type My own term as Chief Executive of Suomen Osuuskauppojen of business model in which operations and management are both Keskuskunta, SOK, will end on 31 July 2007. I wish to thank spread across the units and centralised has proved to be effi cient every member of our S Group staff for your enthusiastic and and well functioning in retail and service fi elds, provided that there skilled work on behalf of the S Group. It has been great to work is a good spirit of co-operation and trust among its actors and that with you. You have been a knowledgeable and motivated team, of they understand clearly the part each must play. Th is has been re- whom a chief executive can well be proud. Together we have done alised within the S Group over the past years. Th ere is every reason our part in developing the S Group so that it has an ever-improv- that this good joint spirit will fl ourish in future years as well. ing capability to realise our mission. Th e S Group’s vision – its mindset – that will shape the kind of A special vote of thanks goes to my co-workers in management corporate entity the S Group wants to be in the future is defi ned positions at SOK and the cooperative enterprises for your excellent in the “Your Own Store” concept. Th e vision underscores the twin co-operation. Your work stands out by virtue of its high level of elements of effi ciency and know-how that go into making a coop- competence and the will to reach and exceed the targets that have erative enterprise. Apart from this effi ciency dimension, the Your been set. Own Store vision embodies an emotional trait. Th e customer- In conclusion, I wish to express my best wishes for good luck owner must also feel that an S Group cooperative enterprise is and success to Managing Director Arto Hiltunen, who will take their own store. over as the new CEO on 1 August 2007. Finnish ownership, the regional identity which the cooperative enterprises foster, the values of the cooperative movement, the desire to be a responsible company within Finnish society, demo- Helsinki, 15 February 2007 cratic decision-making and passing on the benefi ts of cooperative operations to customer-owners are the traits and values inherent in the Your Own Store vision. It is these values which the companies in the S Group wish to abide by and respect in every aspect of their activities. We within the S Group believe that the traits and values we have described are the kind which our customer-owners feel are fundamental to a business organisation they can respect. Kari Neilimo

6 The S Group

What is the S Group? tion store and fuel trade; and Sokos and Emotion in the department store and speciality store trade. Th e S Group is a major Finnish cooperative retail and service Sokos Hotels, Radisson SAS Hotels and Holiday Club Spa group. It is made up of Suomen Osuuskauppojen Keskuskunta Hotels comprise the S Group’s nationwide hotel chains. Th e (SOK) with its subsidiaries, 22 independent regional cooperative nationwide restaurant chains are Rosso, Fransmanni, Amarillo, Se- enterprises and 16 local cooperative enterprises. Th e members own villa, Torero, Memphis, New York, Public Corner as well as Night the regional cooperative enterprises, which in turn own the central and Bepop restaurants for nights out. Th e café and fast food chains organisation, SOK. Coff ee House, Coff ee Bar, Presso, Rosso Express and Buff a round Th e purpose of the S Group’s spectrum of operations is to out the range of restaurants. In addition, the Group engages in provide services and benefi ts for its members. Th e backbone of op- extensive co-operation with the Hesburger chain in the hamburger erations is our core values: a customer focus, partnership, renewal, restaurant business. excellence and responsibility. Th e nationwide chains operating in the agricultural trade are Th e S Group’s main strategic goal is to off er its members eve- Agrimarket, S-Rautamarket (hardware) and Multasormi (garden- rywhere in Finland versatile services and an extensive network. In ing store). line with its strategy, the S Group operates effi ciently, working for It was decided to establish the Kodin Terra chain because pilot the benefi t of its members and making the best use of the Group’s testing of the store in Lahti’s Renkomäki district yielded good information, know-how and co-operation networks. results. Kodin Terra is the S Group’s department store for fi tting out the home. Its assortments include product groups connected The S Group’s businesses with home interior decorating, renovation and building as well as for the care of plants and gardening. Th e S Group’s business areas are the supermarket trade, the service In addition to the domestic market, the S Group carries on station store and fuel trade, the department store and speciality international operations in the Baltic countries in the supermarket store trade, tourism and hospitality business (former hotel and trade, the tourism and hospitality business and the automotive restaurant business), automotive trade and accessories sales and trade. In the course of 2007, hotel and restaurant operations will agricultural trade. be started in Russia with the opening in St Petersburg of three Th e S Group’s operations are organised into nationwide chains. hotel units. Joint support and development services are produced on a central- At the end of the year the S Group had 1,475 locations in Fin- ised basis. When chain operations are combined with the regional land, and 13 in the Baltic countries. cooperative enterprises’ good local knowledge of the market and Th e Group had a payroll of 34,045 employees, of whom 25,482 customers, the result is an effi cient business model the S Group were employed by the cooperative enterprises with their subsidiar- way. ies and 8,563 were SOK Corporation staff . Th e S Group’s nationwide chain brands are Prisma, S market, Sale and Alepa in the supermarket trade; ABC in the service sta-

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

Customer-ownership underpins operated in the telecommunications, car rental, furniture sales, our operations tourist trade, optician services as well as insurance and energy sectors. Th e S Group’s cooperative heritage is refl ected today in customer- Another major benefi t is that members have a real say in how ownership. It underpins planning and development in all business their own cooperative society and the S Group are run. areas and is an overriding success factor. At the end of 2006, the S Group had 1,621,060 members. Last The S Group’s earnings in 2006 year 127,352 new members joined. An extensive and versatile service network everywhere in Th e S Group posted aggregate profi t before extraordinary items of Finland, good-quality and aff ordable product and service off er- EUR 341 million (400). Th e lower level of earnings was attribut- ings, and highly skilled staff form the foundation for serving our able to smaller gains on the sale of fi xed assets than a year ago as customer-owners and realising the S Group’s business concept. Th e well as to large investments in development and growth. regional cooperative enterprises are always close to their customer- Th e cooperative enterprises’ aggregate result was EUR 311 mil- owners. lion (331). Th e operational result of the cooperative enterprises Bonus sales to customer-owners accounted for 64 per cent was substantially better than a year ago. All the regional coopera- of the S Group’s sales in Finland. Members were paid purchase tive enterprises reported a profi t. bonuses totalling EUR 232 million for their patronage of the Th e S Group’s capital expenditures totalled EUR 532 million S Group’s and its partners’ locations. (315). Apart from Bonuses, customer-owners benefi t from their mem- SOK Corporation’s profi t before extraordinary items was EUR bership in other ways too. For example, they receive a wide range 29.9 million (69.0). Th e operational result declined on the previ- of constantly changing product and service benefi ts and customer- ous year. Th e decrease in profi t was attributable to lower compa- owner mailings, and Yhteishyvä magazine is delivered to their rable capital gains on fi xed assets as well as to the weaker result of home once a month. certain operating companies, especially of the automotive trade, Th e S Group continually develops the spectrum of services it compared with a year ago. Th is was due in part to the start-up of off ers its customer-owners. Th e Group’s own operations in Finland new businesses that were acquired in the fi rst part of the year. and abroad are rounded out by the off erings of carefully chosen SOK Corporation’s capital expenditures in 2006 amounted to partners in co-operation. In 2006 the S Group’s bonus partners EUR 201.0 million (68.2).

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 Your Own Store concept The S Group’s key ﬁ gures in 2006

In a network-type of company like the S Group, the corporate EUR million Change % vision plays a big role in steering operations. Th e S Group’s vision S Group’s retail sales 9 777 +13.4 is Your Own Store. Th e Your Own Store concept builds on the S Group’s retail sales in Finland 9 587 +13.4 S Group’s previous visions. It deepens the fundamental tenets that S Group’s proﬁ t before have guided cooperative activities across the S Group throughout extraordinary items 341 -14.8 its 100-year history. Th is logical evolution is portrayed in the Cooperative enterprises’ retail sales 8 073 +11.6 triangle diagram below. Cooperative enterprises’ proﬁ t before extraordinary items 311 -6.0 Regional Cooperative Societies of S Group’s investments 532 +68.9 the S Group S Group’s bonus sales 6 121 +15.0 Bonus paid to customer-owners 232 +20.0 Cooperative Society Varuboden, Kirkkonummi Southern Karelia Cooperative Society, Lappeenranta Southern Ostrobothnia Cooperative Society, Seinäjoki Helsinki Cooperative Society Elanto, Helsinki Cooperative Society Jukola, Nurmes S GROUP RETAIL SALES Cooperative Society Keskimaa, Jyväskylä BY BUSINESS AREA 2006 Koillismaa Cooperative Society, Kuusamo Cooperative Society Arina, Oulu Cooperative Society Hämeenmaa, Lahti Cooperative Society Keula, Rauma Cooperative Society KPO, Kokkola Cooperative Society Maakunta, Kajaani Cooperative Society Osla, Porvoo Cooperative Society PeeÄssä, Kuopio Cooperative Society Suur-Savo, Mikkeli Cooperative Society Ympyrä, Hamina Cooperative Society Ympäristö, Kouvola Pirkanmaa Cooperative Society, Tampere Northern Karelia Cooperative Society, Joensuu Satakunta Cooperative Society, Pori Suur-Seutu Cooperative Society SSO, Salo Turku Cooperative Society, Turku

S GROUP’S BONUS SALES MEMBERSHIP S GROUP RETAIL TRADE

9 S-ryhmä

10 The S Group

S Group Key Figures 2002–2006

EUR million 2002 2003 2004 2005 2006 ± %

SOK CORPORATION Net turnover 2 998 3 112 3 781 4 209 6 834 62.3 Depreciation 35 34 40 43 59 38.6 Operating profi t 55 46 53 62 23 -63.0 Financial income and expenses (without value adjustments) -1 2 3 7 7 -0.2 Profi t/loss before extraordinary items, appropriations and taxes 55 52 54 69 30 -39 €M Profi t/loss for the fi nancial year 44 35 40 57 19 -39 €M

Total assets 1 372 1 449 1 609 1 831 2 161 18.0 Fixed assets 496 473 423 399 416 4.2 Stocks 133 135 137 161 296 84.0 Current assets (without stocks) 742 841 1 049 1 271 1 449 14.0 Capital and reserves (incl. capital loan) 457 445 456 501 521 4.0 Minority interest 17 17 17 14 17 22.3 Provisions for liabilities and charges 12 9 6 2 22 806.9 Creditors 887 978 1 130 1 314 1 601 21.9

Interest-bearing creditors 465 495 555 657 695 5.8 Liquid funds 420 503 658 790 818 3.6 Net interest-bearing creditors 45 -8 -102 -133 -123 10 €M

Personnel at 31 Dec. 4 645 4 949 4 790 5 052 8 563 69.5

SOK Sales (excl. VAT) 1 669 1 693 2 194 2 536 4 316 70.2 Sales to cooperative enterprises 1 579 1 597 2 086 2 442 4 191 71.6 Operating profi t before extraordinary items, appropriations and taxes 4 28 25 6 6 1 €M Profi t/loss for the fi nancial year 14 23 30 32 11 -21 €M

Personnel at 31 Dec. 505 538 631 696 761 9.3

COOPERATIVE ENTERPRISES + SUBSIDIARIES Sales 5 640 5 894 6 652 7 244 8 073 11.4 Number of cooperative enterprises 43 43 42 41 39 -4.9 Membership 854 067 1 187 074 1 468 572 1 534 710 1 621 060 5.6

Personnel at 31 Dec. 18 169 18 488 21 563 23 040 25 482 10.6

S GROUP Retail sales 6 858 7 149 7 929 8 464 9 777 15.5 Locations 1 222 1 252 1 371 1 392 1 488 6.9

Personnel at 31 Dec. 22 814 23 437 26 353 28 092 34 045 21.2

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

The S Group’s retail locations The S Group’s retail sales by at 31 December 2006 business area 2006

Number Change EUR million Change Prisma hypermarkets 47 0 Prisma hypermarkets* 2 173 +9.7 S Markets 409 37 S Markets 2 681 +14.4 Sale and Alepa stores 289 29 Sale and Alepa stores 570 +15.6 Supermarket locations 745 66 Supermarket chains* 5 423 +12.6 Kodin Terra stores 1 1 Kodin Terra stores 19 +41.3 Other supermarket locations 20 -3 Other supermarket trade 104 +591.8 Supermarket trade 765 63 Supermarket trade* 5 545 +14.5

ABC service station stores 81 10 ABC service station stores 584 +33.6 ABC unmanned stations 58 4 ABC unmanned stations 411 +22.3 Other service station stores 24 -7 ABC fuel oil service 28 +42.3 Other unmanned stations 3 - Other service station stores 101 -5.1 Service station stores and fuel sales 1) 166 7 Other unmanned stations 10 -13.6 Other service station stores and fuel sales 1 +44.7 Sokos department stores 20 - Service station stores and fuel sales 1 137 +17.8 Emotion speciality stores 12 1 Other speciality stores 15 0 Sokos department stores 333 +6.9 Department stores and speciality stores 47 1 Emotion speciality stores 17 +42.1 Other consumer goods 45 +8.4 Sokos Hotels 38 - Department stores and speciality stores 395 +8.2 Radisson SAS Hotels 7 1 Holiday Club Spa Hotels 6 6 Sokos Hotels* 146 +0.4 Other hotels 3 - Radisson SAS Hotels 42 +8.1 Hotels 54 7 Holiday Club Spa Hotels 19 - Other hotels 4 -1.7 Restaurants catering to diners 74 3 Hotel operations* 210 +11.8 Drinks and socialising restaurants 96 3 Restaurants providing entertainment 11 1 Restaurant catering to diners 211 +14.3 Other restaurants 24 2 Drinks and socialising restaurants 100 +1.1 Cafes 36 2 Restaurants providing entertainment 24 +3.1 Separate restaurants 241 11 Other restaurants 142 +18.1 Cafes 34 +7.3 Hotels and restaurants 295 18 Restaurants in the Baltic countries* 12 - Restaurants* 523 +11.2 Car dealerships 46 - Hotel and restaurant business* 733 +11.4 Agrimarkets 130 -1 Automaa 325 +72.7 Machine Centres 8 - Other car dealerships* 546 -0.6 Other hardware and agricultural locations 9 -4 Automotive trade and accessories sales* 871 +18.8 Hardware and agricultural locations 147 -5 Agrimarkets 787 +3.8 Other locations 9 -1 Machine Centres 130 -0.6 Hardware trade 25 -9.7 S Group locations, total 1 475 83 Grain trade 112 +9.6 Other agricultural trade 26 +2.6 1) Th e number of locations does not include stores or stations that Agricultural trade 1 043 +3.5 operate at other locations. Others 16 +2.7 Total number of ABC service station stores 81 10 Total number of ABC unmanned stations 206 15 S Group retail sales, total 9 777* +13.4 Total number of other service station stores 20 -7 Total number of other unmanned stations 13 -2 Total 320 16 * Figures include sales in Baltic

12 SOK Corporation

SOK Corporation comprises Suomen Osuuskauppojen SOK’s operational scope and Keskuskunta (SOK) and the subsidiaries it owns: strategic positioning – Sokotel Oy, hotel and restaurant business – Maan Auto Group, automotive trade and car accessories SOK’s purpose is to create competitive advantage for the S Group’s – Hankkija Maatalous Oy, agricultural and hardware business businesses. SOK carries out its operational aim by developing and – Tapiolan Sokos Oy, department store and speciality store trade guiding the S Group’s strategies, value chains and chain operations – Intrade Partners Oy, sourcing and logistics for consumer goods in co-operation with the cooperative enterprises. SOK provides – Rainex Yrityspalvelu Oy, hardware and building supplies the joint, competitiveness-enhancing services that the S Group – North European Oil Trade Oy (NEOT), fuel procurement requires and carries on proﬁ tably growing business in line with its company strategy. – the subsidiaries AS Prisma Peremarket, AS Sokotel and Th e S Group sets the framework for the competitive strategies of the Kommest Auto Group operate in the Baltic countries. the S Group’s business areas and deﬁ nes the strategies of SOK Cor- – Spar Finland Ltd became an SOK subsidiary on 12 January poration and the cooperative enterprises. Th e S Group’s strategic 2006, and SOK’s holding rose to 100 per cent on 18 May business areas are the supermarket trade, the service station store 2006. Spar Finland plc changed from a public limited company and fuel trade, the department store and speciality store trade, the to a private limited company, Spar Finland Ltd, on 30 June tourism and hospitality business (previously hotel and restaurant 2006. business), the automotive trade and car accessories, and agricul- – Inex Partners, which provides assortment, sourcing and logistics tural trade. SOK’s chain management functions ensure that the services, became a wholly-owned subsidiary of SOK as from strategies of the S Group’s business areas are carried out in accord- March 2006. On 28 February 2006, SOK purchased from ance with the entire organisation’s objectives. SOK Corporation’s Tradeka (Cooperative Tradeka Corporation) all the shares it strategy sets out the tripartite task described below. owned in Inex Partners Oy. – SOK’s Supervisory Board decided in February 2006 to found Functions and services within SOK’s scope S-Pankki Oy (S-Bank Ltd), which will carry on deposit banking operations. At the same time, the Financial Supervision Within the S Group, the following areas of responsibility are Authority granted S-Bank Ltd a credit institution licence. assigned to SOK: – S-Etuluotto Oy is specialised in managing the S Group’s Joint development and steering functions consumer credits. – Strategic development, decision making and management as – Rekla Oy is a company that is specialised in cash services and well as oversight of the S Group’s operations and best interests sells them to the entire S Group. – Development and steering of the commercial and service value chains and new business concepts – Development and support of customer-ownership and customer relationships

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. 2006 2005 2006 2005 Supermarket trade 375 81 362.3 1.9 2.5 Fuel sales 981 744 31.9 3.3 1.6 Deparment stores and speciality stores 39 36 7.6 -0.7 0.8 Hotel and restaurant business 217 177 22.8 11.5 14.6 Automotive trade and accessories 424 345 22.9 -7.1 4.8 Agricultural trade 856 827 3.5 6.8 8.3 Sourcing 2 374 534 344.7 6.6 0 EDI invoicing 1 619 1 406 15.2 0.1 0.2 Real-estate, rental and other service operations 239 210 14.2 3.2 6.8 Share of associated companies’ proﬁ ts 1.6 2.4 Eliminations -290 -150 93.8 -4.2 20.3 Total 6 834 4 209 62.3 23.1 62.3

13 SOK Corporation

Services for the value chains SOK Corporation’s service functions

Th e business areas are responsible for organising and controlling Th e aim of the service functions provided by SOK Corporation the expertise, sourcing, logistics and other services for their own is to develop operational models and processes that generate the value chains in a way that ensures that the strategic objectives of maximum added value for the S Group’s businesses. Th e task of the value chains are realised. the service functions is to develop and maintain business models Th e S Group’s services and service processes for all the value that increase the competitiveness of the entire S Group, thereby chains jointly are: the customer relationship, human resources, IT, producing cost-eff ective services for the S Group. Th e role speci- real-estate and business location, fi nance, communications and fi ed for joint service functions is to provide for the S Group’s accounting processes. other units the kinds of service functions that can be organised Th e joint services are produced in the most cost-eff ective and centrally to yield cost savings and/or a qualitative improvement high-quality manner: on a decentralised basis, at service centres in operations. SOK strives to carry out the tasks defi ned for it in and as a combination of the two. a customer-oriented, cost-eff ective and competitive manner so as to strengthen the S Group’s operational effi ciency, quality and SOK’s own operations resources. To support the S Group’s off erings, SOK carries on profi table busi- Strategic development and ness operations – which yield synergy and economic value added human resources – in Finland and nearby areas. New business concepts are tried out on a pilot basis in collaboration with the regional cooperative Th e purpose of SOK’s strategic development and human resources enterprises. functions is to generate added value for the business and service functions by supporting the S Group’s management and units in developing and implementing strategies as well as by acquiring and developing the correct know-how and information. Th e strategic development and human resources functions work using a customer-oriented and innovative approach in close co- operation with the S Group’s management, the chains, the regional cooperative enterprises and service functions, making eff ective use of their own internal synergies. Th ese tasks are organised into fi ve diff erent units: Strategic Development, eBusiness, HR Adminis- tration and Development, Occupational Health Services and the Jollas Institute training unit.

Strategic Development Th e task of Strategic Development is to support the S Group’s management and other units in developing and implementing strategies. Th e unit also reports on the achievement of strategic objectives. During the report year, SOK Corporation’s revamped strategy was drafted. Th e strategy deﬁ nes SOK Corporation’s role and tasks in carrying out the Group strategy as well as the overall strategic objectives. Strategic Development took part in overhauling the competitive strategy of the hotel and restaurant business, carried through a development project for the hardware store and gardening trade and also ran a project aiming at developing the speciality store trade. Th e unit furthermore participated in developing project operations and the concepts underlying the Electronic Working Group’s activities. Strategic Development was also responsible for an extensive feasibility project within the service businesses. Th e unit co-ordinates the implementation of, and reporting on, the S Group’s operational model programme. Knowledge management as part of the management system has been deﬁ ned as a strategic success factor for the S Group. Strategic Development worked on putting in place the Lighthouse strategic database to support management’s decision making. Th e database brings together realtime strategic information on the S Group’s

14 SOK-yhtymä

15 SOK Corporation

operating environment. Th e unit furthermore participated in a made up of representatives from the regional cooperative enter- number of development and research projects in co-operation with prises and SOK Corporation. other companies and universities. Th e objective of these is to step Th e S Group’s employer organisation, Työnantajat SOKTA ry, up knowledge management across the S Group. operates as part of SOK’s Human Resources unit. SOKTA’s task is Strategic Development co-ordinated environmental compli- labour market co-operation and the exercise of infl uence at the ance at S Group units. Th e S Group’s environmental policy was S Group level in arriving at labour market settlements in the main updated at the end of 2005. Th e analysis furnished the basis for areas of operations. formulating an environmental compliance model based on value Th e unit’s priority in 2006 was implementing the HR informa- chain management, in which the roles and responsibilities of the tion system across the S Group, pilot testing of it and follow-up diff erent actors are defi ned. Environmental experts took part in planning of actual installations. Th e operational Work Shift Plan- the drafting of environmental legislation both together with the ning System was developed to function as part of the HR system. authorities and in national and European co-operation organisa- Another central project was the integration of Spar Finland Ltd as tions in the retail sector. part of the S Group. Among its many tasks, the Strategic Development unit supports the regional cooperative enterprises’ strategy process, steers the The Jollas Institute development of the cooperative enterprise structure, monitors Th e S Group’s training and career grooming activities are handled the fi nancial state of the cooperative enterprises and the fi nancial centrally through the Jollas Institute, which also carries out part performance achieved through the Group strategy and carries out of the training for SOK Corporation’s staff . Th e Jollas Institute is the necessary measures. Last year the strategic state of the regional a special vocational institute that provides career grooming and cooperative enterprises was assessed for the fi rst time on the basis training services for all the chains and personnel groups of the of the S Group’s benchmarks. Implementation of competition S Group. strategies was evaluated together with the management and con- Its aim is to use competence development as a way of further- troller functions of the business areas. ing implementation of the Group’s business idea and boosting overall competitiveness. Its main focuses are to develop supervisor eBusiness skills and to reinforce concept-driven ways of operating. Training Th e task of the eBusiness unit is to coordinate and develop the courses are designed in co-operation with SOK’s chain manage- S Group’s electronic business operations. Th e unit produces the ment units and customer companies. Th e Jollas Institute further- main jointly used electronic services. It is in charge of controlling more arranges apprenticeship training that prepares entrants for electronic services within the S Group. Th e task of the eBusiness various vocational diplomas. unit is to promote and plan the utilisation of electronic services as part of the S Group’s multichannel operations. In addition, S Occupational Health Services the unit has responsibility for developing the S Channel – the Th e unit is in charge of carrying out occupational healthcare for S Group’s consumer portal (www.s-kanava.fi ) – and the overall the S Group in the Greater Helsinki area and it guides and sup- concept for the S Group’s website. ports the development of occupational healthcare in other locali- Th e S Channel was developed in 2006 to provide improved sup- ties as well. Over the years, the unit’s priority has shifted from the port fro customer-owners in online transactions. In the report year, treatment and prevention of accidents and illnesses to promoting the account balance service was renewed, expansion of its contact and developing health and job well-being. Yet eff ective medical was continued and it was made possible to download information care provided at the general practitioner level and with an empha- on S Group locations to an in-vehicle navigation system. sis on occupational health has gained in interest at the same time. Th e number of visitors to the S Channel website has grown In 2006 the development of job well-being at SOK units was steadily. Th e service reaches over 300,000 customer-owners supported in co-operation with the human resources functions monthly and registers over 700,000 unique visits monthly. In an and the Jollas Institute. Active eff orts were made to improve job Online Brand Equity study conducted in 2006 by Taloustutkimus, well-being. Th ree working groups received Job Verve diplomas and a market research consultancy, the S Channel rose to 25th place. merit awards. Start-up of occupational healthcare at the S Group’s new units was a key task. HR Administration and Development Th e Unit’s task is to develop operational models and tools in line Administrative Division with the human resources strategy for use by the S Group’s units. Th e unit furthermore serves as SOK’s personnel department, and it Accounting coordinates and issues guidelines for managing SOK Corporation’s SOK Accounting operates as a chain management unit for the S HR aff airs. Group’s accounting functions and provides basic accounting and Human resources development is guided by the S Group’s HR payroll administration services to SOK Corporation and the co- strategy, which is based on the S Group’s strategic objectives. operative enterprises. In addition, the unit produces and develops Human resources management is organised in accordance with the fi nancial administration support services needed in decision the principles of the chain management model used in running making for the S Group’s businesses. the businesses. Th e S Group’s human resources work is guided Under the Accounting unit’s direction, a Development Pro- and overseen by an HR Board and HR Steering Group, which are gramme for Financial and Accounting Processes (TALKE) has

16 SOK Corporation

been carried out for a number of years now within the S Group. SOK Takaus Oy grants guarantees on behalf of the S Group Its objective is to harmonise processes and systems so as to improve companies. During the fi rst part of the year, SOK Takaus Oy’s cost-eff ectiveness and support operational decision making. counter-guarantee arrangement was overhauled to be better in line Renewal of the S Group’s accounting system architecture in line with the guarantee requirements at the present time. with the new operational model was seen to completion during Rekla Oy is a company that is specialised in cash services and the report year. Th e architecture is based on a centralised SAP sells them to the entire S Group. Rekla Oy’s operations expanded system and a tied-in array of integrated systems that provide other to Turku from the beginning of the year, and at present, it provides fi nancial administration services. Th is revamp marks the imple- cash counting services in Vantaa, Turku, Kuopio and Oulu. mentation within the S Group of unifi ed fi nancial administration information systems and operational processes. Real Estate A central element of the new operational model is the eff ective Th e overhaul of the S Group’s property and business location strat- production of services for fi nancial administration processes. An egy that was started in 2005 was completed in 2006. Th e objective individual service centre provides fi nancial administration services of the strategy is to deploy chain management as a more eff ective for SOK Corporation’s companies. Last year, some of the coopera- operational model for the entire S Group’s property business. To tive enterprises also became clients of the service centre. Helsinki this end, modelling of diff erent key processes in a property’s life Cooperative Society Elanto and SOK decided on a form of service cycle was started in conjunction with the regional cooperative centre co-operation in which Helsinki Cooperative Society Elanto enterprises and the real-estate functions. will become a client of the service centre operated by the SOK Ac- In the developer business, the priorities were the expansion of counting unit. It has been decided to start operations of the greatly operations to the Baltic countries and Russia as well as the steering expanded service centre in Espoo’s Kilo district in spring 2007. and information processes for construction at the Group level. Th e Towards the end of 2006, the organisation of the Accounting Real Estate functions were running several dozen diff erent types of unit was brought into line with the new operational model. Th e construction projects within the S Group. Property maintenance objective is to support, as effi ciently as possible, the introduction and upkeep services began to be produced with our own person- of the new fi nancial administration operational model and the nel. In the initial stage, operations got started at the beginning achievement of the targets set across the entire S Group. of April at 12 hotels in the Greater Helsinki area. Operations are expanding to cover the entire organisation. Th e ”Realist” Property Financing Information System is in use at nearly all the regional cooperative Th e Finance unit is made up of SOK’s Finance Department along enterprises. with SOK’s wholly-owned subsidiaries SOK-Takaus Oy, S-Etu- Th e planning and feasibility study of diff erent alternatives for luotto Oy and Rekla Oy, the last of which went into operation on the new Head Offi ce project that was started a year ago continued 1 September 2003. Th e task of the Finance unit is to ensure that in 2006. SOK Corporation has access to adequately balanced and aff ordable fi nancing in all conditions and to off er the S Group high-quality Legal Affairs and competitive services in the area of fi nancing, customer fi nance Th e task of the Legal Aff airs unit is to attend to SOK Corpora- and the commodities markets. tion’s legal aff airs to the highest standards and to maintain good SOK’s Finance unit exercises a central responsibility for funding contractual practices and procedures. Th e Legal Aff airs unit assists and relationships with fi nancial institutions, optimising fi nancing and guides SOK Corporation’s units and cooperative enterprises in costs as well as managing liquidity and fi nancial risks. Th e unit tasks requiring legal expertise, among other things, by taking part also manages and develops the S Group’s gift cards. Electricity in negotiations and business unit arrangements. procurement and related risk management are centralised within Various agreements connected with business operations fi gure SOK’s Finance unit. Th e objective of electricity market trading prominently in the Legal Aff airs unit’s activities. Agreements pre- is to obtain the electrical power required by the S Group cost-ef- pared in the report year included those for the purchase of shares fectively from the lowest cost procurement source and to even out in Oy Esso Ab, the Spar Finland Ltd acquisition, the purchase of cost impacts due to price fl uctuations in the electricity market. At the business operations of the Holiday Club Spa Hotels and the the end of 2006, delivery agreements currently in eff ect accounted businesses in the Baltic countries and St Petersburg. Amendments for about two thirds of the S Group’s electricity consumption. to SOK’s Statutes were made during the report year. Apart from SOK Corporation, the service was used by 14 cooperative enterprises. Information Systems SOK’s Supervisory Board decided in February 2006 to found Th e objective of Information Systems’ work across the S Group S-Pankki Oy (S-Bank Ltd), which will carry on deposit banking is to help the businesses make the best use of information and operations. At the same time, the Financial Supervision Author- to manage processes. Th e IT strategy links Information Systems’ ity granted S-Bank Ltd a credit institution licence. During 2006, work to business plans and development. Systems projects focus product specifi cations were worked out further, information systems on working out solutions that are needed in handling day-to-day built and tested, and customer service, training and marketing were business tasks and supporting management. planned. S-Bank will begin operations by the end of 2007. At SOK Corporation, information systems are both centralised S-Etuluotto Oy is is specialised in managing the S Group’s within the Information Systems unit and are spread across the dif- consumer credits. ferent business and service units. Th e needs of the entire

17 SOK Corporation

S Group are taken into account in carrying out these activi- and security management were expanded and business continuity ties. Th e task of the centralised unit is not only to coordinate all planning was carried forward at the regional cooperative societies. information systems, but also to provide a shared IT infrastructure for the diff erent areas. Th e sourcing companies and service units Customer-owner and Marketing Services provide solutions for their own areas of responsibility. Th e chain management units develop and maintain systems and standards for Th e task of the Customer-owner and Marketing Services unit is their own business areas, making use of solutions provided by the to see to it that customer-ownership develops and strengthens as a support units and deriving from the infrastructure. central driver of the S Group’s success. Th e unit’s task is to see to Disturbance-free operation of essential systems round the clock it that the mission is realised in the operations of the cooperative is an important condition for smoothly running customer service. enterprises and the chains, and its strategic objective is to produce Th e top priority for information systems work was thus again in for the businesses a decisive competitive advantage through supe- 2006 to ensure disturbance-free and continuous operations. A rior customer relationship management know-how and an eff ective main emphasis has been projects required in connection with SOK marketing planning and implementation process. Corporation’s acquisitions and the good development of business In 2006, the unit devoted most of its development resources to operations. Important system projects for the infrastructure have a project for revamping the S Group’s fi nancing services, in which been a new communications system that became operational in the unit participated by implementing the information system time for Christmas sales at the locations as well as a new shared project and coordinating future changes in the customer-owner platform for network services. Th e positive trend in operations, concept. preparations for launching S-Bank’s activities a well as develop- Stepping up the process for marketing design and implementa- ment of the rest of the system equipment led to an overhaul tion was continued by adding centralised production of chain- and beefi ng up of the computational and storage capacity of wide advertising. During the year, the capability of the chains the Group’s infrastructure. Th e continuous maintenance of data and the cooperative enterprises for using information in business security and a signifi cant worsening of the pervasive spam problem development was also strengthened. called for an increase in inputs into solutions for the management During the year, progress was made in developing the unity of of information networks and workstations. the customer-owner concept. Our long-term work on customer- ownership won recognition when the S-Benefi t Card was chosen Administrative Services as Finland’s most highly respected service brand in the survey Administrative Services provides, develops and controls centralised which Markkinointi ja Mainonta (Marketing and Advertising) offi ce, business premises and consumables purchasing services at Magazine commissioned from Taloustutkimus, a market research both the Ässäkeskus and at other S Group operating units. consultancy. Th e service activities cover the following areas: leasing and administration of offi ce and guest entertainment premises, Communications and Publications security and access monitoring, the purchase of offi ce furnishings and supplies, services for meeting areas and video negotiations, SOK’s Communications and Publications unit supports the art purchases, telephone switchboard services, the purchase of S Group’s operations and the achievement of its objectives both mobile phone equipment and supplies, reception and information strategically and operationally. Th e unit’s objective is to incorpo- services, mailing and duplication services, working hours control, rate communications in all business processes. archiving services, personnel canteen lunch, entertainment and Major challenges in 2006 were mobilising the S Group’s new guest services as well as cleaning services. communications strategy and supporting the Your Own Store vision through issuing strategic communications materials. In Corporate Security and Risk Management order to mobilise the vision, training materials were also produced Th e unit operates as a chain management unit for the S Group’s for long-term courses at the Jollas Institute, and the For You, Our risk management. Th e purpose of operations is to support imple- Customer 2007 training programme was planned in association mentation of the S Group’s business objectives and the continuity with the Institute. Th e national media service came into use in the of operations whilst promoting competitiveness by employing the spring, and it was piloted with the regional cooperative enterprises. means and methods of integrated risk management. International communications were also launched during the year. Th e unit seeks to provide the S Group with a unifi ed way of Communications theme days and a number of training sessions measuring and managing risks as well as identifying new business for company management and experts put the chain management opportunities in a cost-eff ective manner. Th e main task of the dimension of communications on an even fi rmer footing. Th e unit is to develop and defi ne the principles, rules of the game and conceptualisation of communications services also made progress objectives of integrated risk management and corporate security during the fi nancial year. At the end of the year, a preliminary as well as to support, manage and monitor their application and study in preparation for research into the S Brand and S Employer implementation within the S Group. Brand was conducted with HR functions. Th e actual study is to be Important development projects in 2006 included making inte- carried out in 2007, when the starting level for the research-based grated risk management a seamless part of the S Group’s manage- development of the S Brand is ascertained. ment process as well as the defi nition and decision making related Communications concerning company acquisitions that took to the S Group’s risk management policy and strategy. Th e func- place throughout the year also posed explicit challenges for the tionality and use of the information systems for risk management unit.

18 SOK Corporation

SOK Corporation organisation at 1 January 2007

19 Review of Business Areas

Supermarket trade the opening of the fi rst Prisma in Riga. Sales by the chain came to EUR 2,173 million, representing an increase of 9.7 per cent. Gro- Th e S Group operates within the supermarket trade under four cery sales in Finland amounted to EUR 2,056 million, an increase store concepts: hypermarkets (Prisma), supermarkets (S Market), of 9.4 per cent on the previous year. grocery stores (Sale and Alepa) and the home and DIY store Th e fi gure does not include restaurant and fuel sales or other (Kodin Terra). additional services. At the end of 2006, the supermarket chains comprised a total of Th e Sale and Alepa chains had aggregate sales of EUR 570 mil- 765 locations in Finland, 5 in Estonia and 1 in Latvia. AS Prisma lion, a rise of 15.6 per cent. Th e number of locations increased by Peremarket, a subsidiary of SOK Corporation, is engaged in the 29 to total 289 at the end of the year. supermarket trade in Estonia and AS Prisma Latvija in Latvia. Th e decision was made to establish a chain of Kodin Terra stores based on the positive feedback received from the pilot store in Operating environment in 2006 Renkomäki, Lahti. Several regional cooperative enterprises have Th e competitive situation in the sector remained tough. Th e fol- plans to open Kodin Terra stores. Th e next store is to open in low-up measures taken by the sector as an outcome of the previous Palokka, the Rural Municipality of Jyväskylä. Kodin Terra is the year’s mergers and acquisitions to adjust to the new situation had S Group’s home and DIY store, and its assortments focus on plants an impact on the structures of the retail trade and sourcing. and home gardening, interior decorating, home renovations and Price infl ation within the grocery trade remained low on a building. par with previous years. Demand clearly refl ected the improved Th e projects within the supermarket trade that got underway in consumer potential of households. Th is was particularly visible in 2006 aim to more eff ectively support loyal customers by generat- sales of electronic entertainment, interior decorating and leisure ing assortment and pricing models, improving cost effi ciency and products as well as in the increase of the proportion of higher-end fi ne-tuning the future needs of the network. A study of applicable products sold. information systems also got underway. Sourcing and logistics planning for the operational model for 2006 in the S Group’s supermarket trade the 2010s also made headway during the fi nancial year. Th is Th e S Group’s supermarket chains continued to press ahead with process was aff ected by the transfer of Inex Partners Oy to full developing operational models that enable and bolster overall ownership of SOK. Th e year also saw the start of work to boost thrift. Th is resulted in good price competitiveness and a good the Prisma hypermarkets’ consumer goods trade; this work will competitive performance. continue through 2007. Th e objective is to appreciably strengthen Retail sales by the S Group’s supermarkets in the 2006 fi nancial the S Group’s position within the supermarket trade through the year amounted to EUR 5,542 million, an increase of 14.5 per cent Prisma and Kodin Terra chains. on the previous year. Grocery sales in Finland amounted to EUR 5,428 million, an increase of 14.4 per cent on the previous year. Sales by all the supermarket chains outpaced the general trend in the market. Th e growth in sales of high-end products within various product groups drove the sound trend in sales within the grocery trade. S GROUP’S MARKET SHARE OF THE SUPERMARKET TRADE Th is was borne out by, for instance, a strong market position in sales of new products and by a successful performance in the structural change within the grocery trade. Th e S Group’s market share of the grocery trade was 39.9 per cent at the end of the year. Th e S Group further consolidated its position as the market leader within the grocery trade. Sales of consumer goods by the S Group’s supermarkets outstripped the market average. Th e market position of the consumer goods trade has undeniably strengthened over a period of several years. In serving its customer-owners, the supermarket trade occupies a key position within the S Group. Members’ purchases during the fi nancial year accounted for 81 per cent of total purchases within the supermarket trade. Bonus sales rose by 14 per cent. Th e S Market chain is the S Group’s largest chain of grocery stores. At the end of 2006, it had 409 locations, an increase of 37 units over the preceding year. Th e chain’s aggregate sales, excluding fuels, amounted to EUR 2,681 million, an increase of 14.4 per cent on the previous year. Th ere were 47 Prisma hypermarkets in Finland at year-end. A fi fth Prisma unit opened in Tallinn in October and November saw

20 21 Review of Business Areas

Market Chain Management Service station store and fuel sales Market Chain Management is the S Group’s management and development unit for the supermarket business. Its main task is In 2006, the S Group continued its programme of substantial out- to develop business area strategy and chain operation concepts as lays into the development and extension of its network of service well as to assist the regional cooperative enterprises and to provide station stores and fuel sales. guidance in developing the business area. Th e main services off ered by the chain of ABC service station stores are versatile and moderately priced café, restaurant and su- Spar Finland Ltd permarket services as well as fuels. A signifi cant factor for customers is that ABCs are open for service every day of the year, always Spar Finland Ltd is engaged in retail activities within the grocery holding to their own agreed opening hours, which are either 24h trade, and it serves retailers operating under the Spar banner by or 6:00 am-midnight. On a single stop, customers can eat a meal, providing wholesale grocery supplies and leasing business premises, do some shopping and fi ll up with fuel. furnishings and fi ttings as well as by providing marketing, real At the end of 2006, the chain comprised 81 ABC service station estate and other support services. stores located along traffi c arteries and in urban areas and 206 On 12 January 2006, Spar Finland Plc became a subsidiary of ABC unmanned stations that operate primarily at the Prismas, SOK. Spar Finland’s Series A and K shares were de-listed from S Markets and Sale grocery stores. Th e ABC chain of unmanned the I List of the Helsinki Stock Exchange on 19 May 2006. In an stations specialises in selling fuels. amendment to the Articles of Association registered on 30 June Th e ABC network operates in the areas of all the 22 regional 2006, Spar Finland Plc was changed from a publicly listed com- cooperative enterprises as well as 4 local cooperative enterprises. pany to a private limited company, Spar Finland Ltd. Th e S Group’s cooperative enterprises had a total of 320 fuel-sell- SOK and some of the regional cooperative enterprises are co- ing units at the end of the year. Of these, 102 were service station operating in the corporate restructuring under the terms of which stores and the remaining 219 units were predominantly unmanned some Spar stores, either owned by Spar Finland or operated by petrol stations. Th e net increase on the previous year was 16 units. independent shopkeepers through a co-operation agreement, will Th e ABC chain is the fi rst company in the service station sector gradually be integrated into the supermarket trade of the S Group’s in Finland to have been awarded the right to use the Key Flag regional cooperative enterprises. Spar Finland will sell the stores standard by the Association for Finnish Work. not included in the merger to other parties or their business operations will be wound up. Operating environment Th e Finnish Competition Authority approved with conditions Despite the positive start to the year, the national trend in the the acquisition arrangement concerning Spar Finland on 4 January volume of petrol consumption sank into the red following the fi rst 2006. In its decision, the Competition Authority imposed certain months of 2006. In contrast, the volume of diesel oil rose sharply. restrictions, which included the exclusion from the merger of 30 Th is was partially attributable to industrial disputes in the forest Spar stores that were to be off ered for sale to suitable competitors industry in 2005, which adversely aff ected deliveries. Consump- in the grocery trade. tion was held in check by high consumer prices and by the lower According to the merger plan, 81 of the 262 Spar stores were to fuel consumption of new vehicles. be transferred to the supermarket network of the regional coopera- In summer the international oil markets were dogged by tive enterprises. By the end of 2006, altogether 63 stores had controversy over the nuclear programme in Iran and uncertainty transferred to regional cooperative enterprises. about its implications on the country’s oil industry. Th e price for As the fi nancial year ended, there were 41 (262) Spar stores, crude oil on the world market leapt to a record-breaking level in 8 (94) of which were owned by Spar Finland. On 31 December the spring-summer as a result of the dispute and buoyant forecasts 2006, nine of the stores designated by the Competition Authority for growth in demand. Consumer prices in Finland rose consider- to be divested had not been sold. ably in the fi rst part of the year. However, it was possible to lower Tuko Logistics Oy was responsible for handling the company’s consumer prices in the latter part of the year along with the fall in material fl ows until 31 October 2006 when goods deliveries to the the price for crude oil. Spar stores were transferred to Inex Partners Oy. Fierce competition for market shares pushed up the number Th e transfers of the stores to the regional cooperative enterprises of service stations. Despite weakened profi tability in the sec- and other parties in accordance with the acquisition arrangement tor, market shares were at times sought through unhealthy price are to continue according to the schedule dictated by the expira- competition. tion of the shopkeepers’ co-operation agreements. Th e majority of In summer the Government approved a Bill on the promo- these agreements will expire in 2009 and 2010. tion of the use of biofuels for transportation. Th e ABC chain and Spar Finland had net turnover in 2006 of EUR 275,8 (529.9) the fuel procurement company North European Oil Trade Oy million. On 31 December 2006, the company had a payroll of (NEOT) are proceeding with their study on biofuels and their 167 (1,004) people. introduction on to the market. Despite high petrol prices, leisure mobility and vehicle mileage continued to rise. Th e increase in services located along traffi c arteries is one factor that has contributed to this trend. Consum-

22 Review of Business Areas

ers have relatively high expectations of the services and products million cups of coff ee were consumed at ABC service station stores available to them and they expect them to deliver enriched, new in 2006. experiences. Eating out has become increasingly popular, particu- In order to promote healthier eating for professional drivers, larly in the low-end price segment of fast casual dining, in which the Ylipainosta tasapainoon (From overweight to fi nding the bal- category ABC is included. Th e signifi cance of price as a criterion ance) project was launched in the autumn in mutual co-operation when choosing a service gained strength in the face of toughening between the Finnish Heart Association, the Rahtarit Union of competition. Th e sale of Shell’s Simpukka restaurants to Restel Oy Professional Drivers, Finnish Transport and Logistics (SKAL), the was one factor that brought about change in competition. Transport Workers’ Union AKT r.a. and ABC. Th e project will run Buying behaviour varies according to the situation. Th e versatil- until April 2007. ity off ered by ABC has responded to customer’s needs, which vary On 12 December 2006, SOK announced it was purchasing throughout the year, by providing services for people on business from ExxonMobil Corporation the shares in oy Esso ab, the corpo- trips or holidays as well as for local residents. ration’s fuel sales subsidiary in Finland. Th e Finnish Competition Shopping at service station supermarkets and convenience stores Authority approved the transaction arrangements for Oy Esso increased because ABC with its diverse assortment, permanently Ab on 17 January 2007. Th e decisions apply both to the sale of moderate prices and long opening hours was in a position to Oy Esso Ab shares to SOK and to the follow-up deal relating to respond to the demand generated for neighbourhood stores. No the shares, as agreed between SOK and St1 Holding Oy on 18 new decisions concerning shop-opening hours were handed down December 2006. As part of the transaction, Esso’s 44 service sta- during the year. tions and unmanned stations will be transferred to the S-Group’s Th e Finnish Road Administration launched a study on the regional cooperative enterprises, and oy Esso ab’s fuel procurement impact of service stations on municipalities, the inhabitants in the operations will be sold to SOK’s subsidiary North European Oil vicinity and road users. Several municipalities have taken the view Trade Oy (NEOT). that service stations revive sparsely populated areas, create jobs and Th e transaction will be instrumental in enhancing the service of- services and get passing traffi c to stop in the locality. fering for customer-owners, particularly those in southern Finland. Environmental requirements have made fi nding business locations more of a challenge, and permit application processes have become lengthier. ABC employs the latest safety technology in setting up its units.

2006 in the S Group’s service station store and fuel trade Th e service station stores and fuel stations reported retail sales across the S Group of EUR 1 137 million, which represents growth of 17.8 per cent on the previous year. Sales passed the one billion euro mark in November. Th e fi gure includes sales by unmanned petrol pumps at supermarket units. Th e S Group’s market S GROUP’S MARKET SHARE OF PETROL SALES share within petrol sales rose by 9.1 per cent to stand at 19.1 per cent, up 1.6 percentage points on the previous year. Th e growth was attributable to the nationwide expansion of the ABC network and the fact that members made more of their fuel purchases through the S Group’s units. Bonus sales rose at a good rate as in previous years. Th e fuel procurement company North European Oil Trade Oy (NEOT) supplied fuels to the cooperative enterprises. Th e ABC chain expanded with new units in diff erent parts of Finland. In addition to the setting up of new units, old ones were refurbished. Major refurbishments and extensions were carried out on six ABC service station stores to bring them in line with current needs. Th e good trend in sales by the cafés and restaurants was attributable to increased dining and such factors as the wide popularity of the buff et. Th e increased importance placed on ethical and healthy consumption was behind measures taken towards the end of the year. In October the decision was made to go over to serving Meira Reilu Fair Trade coff ee at all ABC service station stores by the beginning of 2007. In December the Association for Promoting Fair Trade in Finland granted the ABC service station stores the Fair Trade Award 2006 for having made this move. More than 20

23 Review of Business Areas

Th e trend in sales and sales structure at ABC service station stores, Department store and speciality store trade and studies conducted during the year, indicate that ABC has become a familiar concept to consumers. Half of the sales came Th e S Group has 20 Sokos department stores and 12 Emotion from fuel sales, and the other half was divided between café and stores that are specialised in cosmetics and ladies’ lingerie. In addi- restaurant and supermarket sales. While the trend in all catego- tion, seven Pukumies men’s apparel stores and eight other special- ries was healthy, sales by ABC supermarkets showed the most ity stores owned by Osuuskauppa Arina round out the S Group’s robust growth. During the year, 11 service station stores and 15 speciality palette. Cooperative enterprise-owned Sokos department unmanned stations were opened. Th e business unit’s strategy is to stores serve members and other customers in 15 regional coopera- push ahead with its vigorous expansion of the network. tive enterprise areas as do speciality stores in six regional cooperative enterprise areas. ABC Chain Management Retail sales by the S Group’s department stores and speciality ABC Chain Management is the development unit for the S stores in 2006 totalled EUR 395 million, representing growth of Group’s service station store business and fuel trade. Its pivotal task 8.2 per cent on the previous year. Whereas price levels fell for the is to develop the strategy and chain business ideas for the ABC main product sectors, the volume of overall sales increased. Cus- business as well as to assist and provide guidance for the regional tomer-owners are by far the largest consumer group of the Sokos cooperative enterprises in developing the business area. department stores and the S Group’s speciality stores. Purchases Chain Management operations centred on concept-driven plan- made by members accounted for more than 80 per cent of Sokos ning, implementation and operations control for the ABC service department store sales. station stores and ABC unmanned stations and furthermore, it Th e regional cooperative enterprises own all of the S Group’s was in charge of acquiring new business locations. Th irteen people speciality stores and 17 of the Sokos department stores. SOK is worked at ABC Chain Management. responsible for operating the Tapiola Sokos and Helsinki Coop- erative Society Elanto is responsible for managing its business operations. In Turku, SOK and Turku Cooperative Society were engaged in Sokos business operations in the jointly owned Turun Sokos Oy. SOK had a 90 per cent holding in the above-mentioned company. Turun Sokos Oy’s business operations were transferred to Turku Cooperative Society as from the beginning of 2007. Th e profi tability of the speciality stores and the Sokos department stores that operated for the full year remained on a par with the previous year. Profi tability rose in the majority of stores whereas it declined briefl y in some outlets due to inconveniences resulting from their refurbishment. Customer satisfaction strengthened. Customers felt that price levels in the department stores were better suited to their budgets. Th ey also felt that they received more expert customer service.

Operating environment in 2006 Th e overall economic trend was favourable throughout the country. Consumer conﬁ dence remained largely positive and healthy. Th e re-openings and expansions of the large shopping centres in the Greater Helsinki area and Pirkanmaa paved the way for the arrival in Finland of new international chains, such as in the sport- ing goods, cosmetics and toy trades. Th e arrival of new players on the market will continue, as will the trend in re-opening and extending shopping centres. New technology featured prominently last year in new products and novel approaches to shopping. Th e household appliances and electronics trade grew in particular when new technology was taken into widespread use in televisions and stereos and players. Customers made full use of information networks when pre-select- ing and purchasing goods. Advances in technology will continue to forge ahead. Th e changing trend that started in 2005 continued through 2006. Increasing numbers of players and diversifying ways of doing things are continuing to vie with each other for consumers’ interest, time and money.

24 Review of Business Areas

2006 in the S Group’s department store and speciality store trade Hotel and restaurant trade (Tourism and Hospitality Business as from 1 January 2007) Sokos department stores Sales of consumer goods by the Sokos department stores (20) Th e S Group’s hotel and restaurant business comprises a compre- totalled EUR 333 million, representing growth of 6.9 per cent hensive network of 54 hotels and 545 restaurants located around compared with the previous year. Finland. Like-for-like growth in the consumer goods trade in the Sokos Of the hotels, 38 belong to the Sokos Hotels chain in Finland, department stores reported a substantially better performance than seven to the Radisson SAS chain and six to the Holiday Club Spa the rate of nationwide growth in trade by department stores and Hotels chain. In addition to these, the S Group has three smaller hypermarkets compared with a year earlier. hotels that operate outside a chain concept. Th e footwear and bag, home interior decorating, giftware and Of the restaurants, 404 operate as stand-alone restaurants, 141 household electrical products trades recorded the best sales trends. in hotels. In addition to these, the S Group also carries on restau- Th e cosmetics and women’s apparel trades also turned in healthy rant operations at the ABC service station stores. Of the restaurant performances. units, 238 belong to nationwide chains. Th e Sokos department store in Kotka was completely transferred Outside Finland, the S Group carries on hotel and restaurant to new premises in the Kauppakeskus Pasaati Shopping Centre. operations in Estonia, where hospitality customers are served by Th e Sokos department store in Salo was refurbished, allocated Sokos Hotel Viru with its restaurants, and a food court that oper- additional fl oor space and incorporated into the newly extended ates at the Prisma hypermarket in the Sikupilli Shopping Centre. Kauppakeskus Plaza Shopping Centre. Th e second fl oor of the During the course of 2007, the opening of three hotels in St Helsinki Sokos underwent extensive refurbishment and it was Petersburg will launch the start of hotel and restaurant operations made over into the women’s apparel fl oor. Revamps to depart- in Russia. ments and to product displays were carried out in all the other Th e S Group’s nationwide restaurant chains are Rosso, Frans- Sokos department stores to stimulate and attract customers and manni, Amarillo, Sevilla, Torero, Memphis, New York, the Night make shopping at our locations more convenient. and Bepop nightclubs, Public Corner and in-house licensed Th e Sokos chain posted an operating profi t on sales of consumer restaurant chains. Regionally operating restaurant chains include goods, more or less on a par with 2005. Th e Sokos locations were Chico’s, Mr. Pickwick and Ale-Pub. similarly in the black (consumer goods + grocery trade) and their Th e café and fast food chains Coff ee House, Coff ee Bar, Presso, result was at the previous year’s good level. Rosso Express and Buff a round out the range of restaurants and in addition, the Group engages in extensive co-operation with the Emotion chain Hesburger chain in the hamburger restaurant business. Th e units in the Emotion chain are speciality stores that are locat- Ownership of the S Group’s hotel and restaurant business is ed in large shopping centres and the larger town centres and off er divided between SOK Corporation and the regional cooperative cosmetics and ladies’ lingerie. Th e stores round out the S Group’s enterprises. SOK Corporation’s Hotel and Restaurant Division palette of consumer goods in their localities. Th ere were 12 units at comprises SOK’s operating subsidiaries Sokotel Oy, the Estonian- year-end. Aggregate sales by the Emotion stores amounted to EUR based AS Sokotel, Sokos Hotels St Petersburg in Russia as well as 17 million, representing an increase of 42.1 per cent. the S Group’s hotel and restaurant management, development and support unit. Th e regional cooperative enterprises own hotel and Trend in the operations of the Sokos companies restaurant operations in several diff erent companies. Th e hotel and owned by SOK Corporation restaurant units that are owned by the regional cooperative enter- Th e Sokos companies operated three Sokos department stores for prises account for about 70 per cent of the S Group’s aggregate net the full fi nancial year: Wiklund in Turku, Mylly in Raisio and turnover in the sector. Tapiola in Espoo. Net turnover by the Sokos companies amounted to EUR 39 million, representing an increase of 7.7 per cent on the Objectives of the hotel and restaurant trade previous year. In 2006, the Sokos companies reported an operating Th e objective of the business area is good profi tability, which guar- loss of EUR 0.6 million (+0.8). Th e companies had an average antees the resources for the development and controlled growth of payroll of 297 people (250). operations. Adequate fi nancial resources provide the wherewithal to secure the best business sites, and they in turn will provide ex- Sokos Chain Management tensive demand-oriented market coverage both in Finland and to Th e tasks of the Sokos Chain Management unit are to defi ne the an increasing extent, in neighbouring countries in the years ahead. category structure and sales assortment of the Sokos department Within hotel operations, the S Group’s objective is to ensure stores and the Emotion speciality stores as well as to develop and that customers continue to receive the highest quality products maintain the chains’ business ideas, concepts and information sys- and services, to deliver off erings for the growing leisure sector and tems. Chain Management provides the agreed marketing, logistics to maintain clear market leadership in Finland. Outstanding mar- and information system services and it prepares policy proposals ket leadership in accommodation operations in Finland will call guiding the operations of the chains for presentation to their deci- for expanding the network in line with the neighbouring country sion-making bodies. strategy in the years immediately ahead. In 2006, Chain Management pressed ahead with developing Th e objective for restaurant operations is to further enhance the and mobilising the business ideas and concepts for various product service spectrum through diverse product and chain concepts and areas as well as with developing the composition of the range of thereby to boost market shares in each region. products and its management systems. 25 Review of Business Areas

Paying due attention to safety factors and responsibility in all tion to develop their effi ciency, work productivity and capacity to activities will continue to be a major part of the S Group’s hotel respond to changes are poised to continue outperforming the rest. and restaurant business. Th e value of competent staff is of prime importance so therefore, the S Group puts a good deal of eff ort 2006 in the S Group’s hotel and restaurant trade into fostering staff well-being and initiating training across the Retail sales by the S Group’s hotel and restaurant trade totalled business. Th e S Group aims to be the most attractive and desired EUR 733 million, an increase of 11.4 per cent on the fi gure a year employer in the sector. earlier. Retail sales in Finland amounted to EUR 709 million, an Th e business has several projects underway to secure new increase of 11.8 per cent on the previous year. business sites in urban areas, leisure centres and the neighbour- Accommodation sales came to EUR 210 million, representing ing countries. Processes are being developed to enhance cus- growth of 11.8 per cent on the previous year. Accommodation tomer convenience. New online services and information system sales in Finland amounted to EUR 191 million, up by 8.8 per cent projects that underpin operations have been introduced alongside on the year before. traditional channels. All the chains are stepping up the quality of Restaurant sales amounted to EUR 523 million, up by 11.2 per service and management in keeping with their business concepts cent on the year before. Sales in Finland amounted to EUR 510 through training programmes that span several years. million, an increase of 11.4 per cent on the fi gure a year earlier. Th e S Group’s market share measured in terms of net turnover Operating environment by hotels was 26 per cent, making the S Group Finland’s largest Th e hotel sector in Finland is characterised by internationalisation; individual hotel operator. off erings are on the increase, customer companies are interna- Along with the leisure units that became part of the Sokos tionalising and international business travel and the demand for Hotels chain as well as increased demand, the proportion of sales the leisure sector are on the up. Th e expanding EU is bringing of leisure services to members showed an increase. Th e occupancy to the sector competitors who must be taken seriously, but it is rate of the S Group’s hotels was up on the previous year at 66.2 per also bringing new customers. People have higher expectations of cent (64.5%), whereas occupancy rates reported by other players leisure, and short weekend breaks are becoming commonplace. throughout Finland remained at around 51.4 per cent. Customers are demanding greater individuality. Along with Th e 19 per cent market share of the S Group’s restaurant advances in technology, online purchasing is becoming more business was also the largest in Finland. Within its restaurant widespread and technology is also adding a new slant to business operations, the S Group increased its market share in the beverage, travel. Th e changes in the operating environment pose considera- socialising and restaurant meal sectors. Th ere are large diff erences ble challenges for the players in the sector: the growth in off erings, between cooperative enterprises in the control of regional and city- emergence of chains and networking will further heighten price specifi c market shares. Th e capacity utilisation of the S Group’s competition and generate a more diversifi ed spectrum of services. restaurants (sales/customer place) is continuing at a considerably Professional buying is on the rise and a command of the end-to- higher rate than the levels reported by competitors. Th e rising end process is gaining prominence. market share and building closer-knit network coverage has kept Due to the general economic climate, several international cooperative enterprises busy in their search for business sites in the events and Finland’s term of EU presidency, demand in the hotel face of toughening competition. business rose favourably in 2006. In terms of demand, 2007 looks Despite substantial investments, the fi nancial performance by set to be more diffi cult than the previous year. the S Group’s hotel and restaurant business maintained an excel- Within restaurant operations, changes are taking place in lent level of 5 per cent of net turnover. legislation, consumer behaviour and the competitive situation. Th e Th e year 2006 saw the opening of the Marina Palace in Turku demand for food noticeably outpaced sales of alcoholic beverages as part of the Radisson SAS chain, and Holiday Club’s six spa along the lines of recent years. Th e fl at trend in sales of alcoholic hotels transferred to ownership of Sokotel Oy in April. Moreover, beverages and the high rate of value added tax on restaurant meals considerable renovations and extensions were carried out last year (22%) constitute explicit challenges for the ability of restaurants to on some of the units within the S Group’s hotel network, includ- make a profi t. Th e tobacco legislation that will enter into force on ing the Sokos Hotels Helsinki and Torni in Helsinki and Ilves in 1 June 2007 will have particular implications on nightclubs and Tampere. As for the Radisson SAS hotels, sizeable investments dance restaurants. Th e sector fears the spread of the grey economy. were made on Seaside in Helsinki and the unit in Oulu. Competition is tightening and demand is becoming increasingly Th e S Group opened about 29 new chain restaurants. In ad- fragmented, thus the players in the sector need to either select their dition, several dozen old restaurants were refurbished. Th e way target groups or operate across an ever-broadening spectrum. forward to generating an increase in market share is through large Restaurant operations represent about 70 per cent of the total units that combine several concepts. volume of the hotel and restaurant business. Consequently, and Several cooperative enterprises developed fast food Food Courts also due to the size of the markets, the S Group will be focusing featuring varied concept combinations in their areas. Th e Rosso increasingly on large, mid-range price units in all four categories Express and café chains chalked up the fastest growth in the past - beverages, socialising, restaurant meals and fast foods. Th e aim is year. to achieve local market leadership through a sound regional struc- Capital expenditure amounting to approximately EUR 40 mil- ture. Volume within the restaurant and hotel businesses is expected lion was allocated for restaurants. to grow in the foreseeable future. Th ose players who are in a posi-

26 Review of Business Areas

Restaurant and Hotel Chain Management and restaurant. Th e spa hotel, which is also being built on Vasily Th e S Group’s Restaurant and Hotel Chain Management is re- Island, is due to be ready in June-September 2007 and it is the sponsible for the development of the competitive strategy, business S Group’s third hotel project in the city. ideas, concepts and chain brands for the Group’s hotel and restaurant business. Furthermore, it manages logistics and the develop- Sokotel Oy ment of information systems and it monitors the profi tability and Within SOK Corporation, Sokotel Oy in Finland and AS Sokotel competitiveness of the chains. Chain management of the Radisson in Estonia operated hotels and restaurants in 2006. SOK Corpo- SAS hotels is handled from the chain’s headquarters in Brussels. ration’s hotel business operates under the Sokos Hotels, Radisson In 2006, Chain Management activities put emphasis on drawing SAS and Holiday Club brands. At the end of 2006, the company up a new competitive strategy, expanding the network, increasing comprised 12 Sokos Hotels, 7 Radisson SAS hotels and 6 Holiday market shares, securing sales and profi tability and on developing Club Spa Hotels. quality. All of the chains launched or continued service training Th e hotel network underwent change when Radisson SAS courses specifi c to their business concepts and development pro- Marina Palace opened on the banks of the Aurajoki river in Turku grammes for the day-to-day management of the concepts. on 28 February 2006. During 2006, the concept for the Coff ee Bar café was devel- Sokotel Oy acquired the business operations of six spa hotels oped and piloted, and several new restaurant and product concept from Holiday Club Resorts Oy on 28 April 2006. Th e transaction projects got underway ready for their launch in 2007. An internal involved the business operations of Holiday Clubs Katinkulta, chain operating model was refi ned and implemented in the restau- Kuusamo, Saariselkä, Oulu, Turku and Tampere. rant meal, beverage and nightclub concepts. Th e business operations of Sokos Hotel Vaakuna in Rovaniemi Th e most challenging step within support service processes and were sold to Cooperative Society Arina in June. systems development has been the adoption and distribution of A new 95-roomed Sokos Hotel will open on the corner of the Tuhti DW programme and the groundwork for a new hotel Albertinkatu and Uudenmaankatu in Helsinki at the beginning of system project. August 2007. Sokotel Oy’s net turnover rose by 24.7 per cent on the fi gure SOK Holding Oy and Sokos Hotels St Petersburg a year earlier. Like-for-like net turnover grew by 2.5 per cent. SOK Holding Oy was established by SOK in January 2006. In Th e trend in company sales remained favourable in spite of large June, SOK Holding Oy set up Sokos Hotels St Petersburg LLC, investments, which disrupted operations in some of the Sokos which is engaged in hotel business operations in St Petersburg. Hotels and Radisson SAS hotels. Th e occupancy ratio and average Th ree hotel projects are currently underway. Sokos Hotel Olympic room rate rose compared with a year ago thus increasing room Garden being built alongside Moskovskii Prospekt is scheduled yield, which was markedly better than the national average. to be ready in autumn 2007. Sokos Hotel Vasilievsky, the second Th e operating profi t posted by Sokotel Oy, which carries on the hotel to be located in the city centre, will open for business on hotel and restaurant business in Finland, exceeded the budgeted Vasily Island at the end of 2007 or in early 2008. Sokos Hotels St level, but fell short of the previous year’s earnings owing to major Petersburg LLC acquired the business operations of Holiday Club investments. On a like-for-like basis, the result remained on a par St Petersburg from Holiday Club Resorts Oy in January 2007. with the previous year. Th e transaction involved the business operations of the hotel, spa

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

27 Review of Business Areas

Automotive trade and accessories The Maan Auto Group Th e Maan Auto Group is a wholly-owned subsidiary of SOK. Within the S Group, vehicle sales are carried on by SOK Corpora- Maan Auto Oy and Oy Motortrans Ab import Peugeot passenger tion and 11 regional cooperative enterprises. Th e services provided and utility vehicles as well as their spare parts and accessories. Th e by the regional cooperative enterprises are supplemented by SOK Group’s retail sales companies, Automaa Oy and Auto-Kivitila Oy, Corporation’s Maan Auto Group in Finland and by AS Kommest are engaged in sales of and provide repair services for passenger Auto Group in the Baltic countries. At the end of the year, the and utility vehicles. S Group had a total of 46 (46) car dealerships in Finland. S Group dealerships represented 14 (13) diff erent makes of vehicles, of Imports which Peugeot is the S Group’s own imported marque. Maan Auto Oy imports and markets Peugeot vehicles, spare parts and accessories through its own network of subsidiaries, Automaa Operating environment in 2006 Oy and Auto-Kivitila Oy, and the rest of its nationwide dealer Th e positive trend in the passenger car trade continued for the network. fourth consecutive year. In 2006, altogether 145,700 new pas- Maan Auto’s distributor network comprised 37 full-service car senger vehicles were registered, which represented a decline of 1.7 dealerships, 8 of which were owned and operated by the Maan per cent compared with the previous year. Th e year was the sixth Auto Group itself, 15 by the regional cooperative enterprises and all-time best in the automotive trade. Th e number of new vans 14 were owned by private entrepreneurs. Furthermore, in order to registered in 2006 was 15,268, which represents an increase of ensure service coverage, authorised Peugeot services were addition- 8.4 per cent on the previous year. A total of 27,625 used cars were ally provided in branch outlets and vehicle service support units imported into Finland, which was 7.1 per cent less than the year that operate under the auspices of the above-mentioned dealer- before. ships. Th e company has a payroll of around 65 people. Th e popularity of diesel passenger cars rose in that last year, one A total of 8,049 Peugeot passenger cars were registered, repre- in every fi ve new passenger cars was a diesel vehicle. Although the senting a decline of 8.3 per cent on the previous year. Th e market proportion of diesel vehicles in Finland has risen marginally in share fell from 5.9 per cent to 5.5 per cent. Peugeot’s market share recent years, we are still far short of the average levels in the EU, declined for the second consecutive year. However, in a compari- which come to almost 50 per cent. A major factor in the low sales son conducted between marques, Peugeot retained its position of fi gures for diesel vehicles in Finland is the heavy taxation levied on sixth. Registration of Peugeot utility vehicles fell by 21 per cent them. and came to 763 vehicles. Th e market share of utility vehicles fell In the years immediately ahead, the possible shift from taxation from 4.5 per cent to 3.7 per cent. on the purchase of a vehicle to usage taxation that puts stress on Oy Motortrans Ab is responsible for the warehousing and in- environmental factors will generate uncertainty within the auto- spections of Peugeot passenger cars at the Hanko Free Port as well motive trade. Th e possible changeover may have a momentary ef- as for import vehicle servicing and vehicle accessory installations, fect on the volume of the automotive trade as consumers postpone vehicle storage and deliveries to Peugeot car dealerships. Last year, vehicle purchases in anticipation of a drop in prices. Volume with- the company performed import vehicle servicing on 9,261 Peugeot in the automotive trade will subsequently rise because purchase vehicles; Peugeot vehicles accounted for 90.5 per cent of all the prices for vehicles will be more reasonable than at present. Th is import vehicle servicing performed by the company. Th e company will consequently result in our vehicle population, which currently employs around 60 people. averages more than ten years of age, becoming newer, thus making it possible to mitigate their environmental impacts. Retail sales Th e good sales trend for new vehicles, which has held for four Automaa Oy has 7 car dealerships in Helsinki (2), Espoo, Vantaa, years, has also boosted the trade-in vehicle business. Price levels Raisio, Tampere and Hämeenlinna. Automaa units operate as car for trade-in vehicles have dropped over several years and this dealerships and as authorised repair shops for Peugeot passenger has underlined the value of the trade-in vehicle business for the and utility vehicles. Automaa’s Konala outlet also operates as a profi tability of all vehicle dealerships. Appropriate purchase pricing Ford passenger and utility vehicle dealership and an authorised ensures rapid turnaround of trade-in vehicle stocks and the overall repair shop. Furthermore, Automaa dealerships sell and service profi tability of the trade-in vehicle business. quality Leijona Vaihtoautot trade-in vehicles, which are given a one-year guarantee and are all inspected by an external party. 2006 in the S Group’s automotive trade An S Benefi t Service, which provides wear-part change services Th e S Group’s retail sales in the automotive trade and accessories and conducts services on all car makes, also operates at the Konala amounted to EUR 872 million, which is 18.8 per cent up on the outlet. previous year. In Finland retail sales amounted to EUR 822 mil- Th e overall market in Automaa’s business area rose by 0.5 per lion, which is 19.4 per cent up on the previous year cent on the previous year. However, Peugeot registrations fell by SOK Corporation’s net turnover from vehicle sales was EUR 3.7 per cent and came to 4,046 vehicles. Th e number of trade-in 424 million (345), which represented an increase of 23.1 per cent vehicles sold came to 5,427. on the previous year. Operating loss amounted to EUR 7.1 million Automaa employs around 350 people. (4.8). Th e average number of employees in the automotive trade Auto-Kivitila Oy has 4 car dealerships in Espoo, Tampere, was 1,022 (645). Turku and Lahti. Th e dealerships also operate under Automaa’s

28 Liiketoimintakatsaus

29 Review of Business Areas

marketing name. Auto-Kivitila’s outlets serve as car dealerships and Agricultural trade authorised repair shops for Ford passenger and utility vehicles. Th e Lahti unit also serves as a car dealership and an authorised repair Th e S Group’s agricultural trade business area comprises agricul- shop for Peugeot passenger and utility vehicles. Auto-Kivitila tural trade, machinery sales, hardware sales and the gardening/hor- dealerships also sell and service vehicles in the Henry trade-in ve- ticultural trade. hicle programme, which are given a one-year or 20,000-kilometre Th e S Group’s agricultural trade is conducted by 132 Agrima- guarantee. Th e company has a payroll of around 300 employees. rkets, 8 Agrimarket Machine Centres and 1 John Deere Centre. Th e nation-wide Agrimarket chain comprises Hankkija-Maatal- Financial performance ous Oy, Southern Ostrobothnia Cooperative Society, Suur-Seutu Th e ﬁ nancial performance of the Maan Auto Group did not Cooperative Society SSO and Kymenlaakson Agrimarket Oy. Th e come up to expectations. Th is was attributable to the overall poor Agrimarket chain has 32,000 loyal Agribonus customers. performance of Peugeot and Ford on the Finnish car market. Fur- thermore, the result was burdened by sizeable investments in new Operating environment in 2006 business operations and two new business locations. Total demand in the agricultural trade held steady at the EUR Members were paid Bonuses of EUR 0.9 million from vehicle 1,900 million mark, the level prevalent in Finland for several years. sales, service and spare parts operations. Trade in production inputs used on farms remained more or less Maan Auto Group’s net turnover amounted to EUR 370 mil- unchanged. Th e overall market for tractors declined by 7 per cent lion. Th e Group employed 770 people. but sales of farm machinery remained on a par with previous years. Th e grain harvest throughout the country came in at 3.8 billion kilos, around 7 per cent down on the previous year. Grain quality was by and large good. Total demand in the retail hardware trade rose by a good 6 per cent, and gardening/horticultural supplies recorded growth of 11 per cent.

2006 in the S Group’s agricultural trade In 2006 the S Group retained its market leader position within the agricultural trade, with a share of 42 per cent of the market. Agri- cultural tax-inclusive retail sales, including the grain trade, totalled EUR 1,080 million, representing an increase of 3.5 per cent on the previous year. Sales by the Agrimarket chain came to EUR 787 million, an increase of 3.8 per cent on the previous year. Th e Machine Centres reported sales of EUR 130 million, and the grain trade amounted to EUR 112 million. Th e Agrimarket chain’s sales of hardware and interior decorating supplies rose by around 11 per cent and gardening/horticultural sales were also up by 11 per cent on the year before. Th e hardware and gardening/horticultural assortments and ways of working were developed to become more customer-focused and in particular to respond to the needs of the S Group’s members.

Hankkija-Maatalous Oy Hankkija-Maatalous Oy provides agricultural, machine, hardware and gardening/horticultural services and beneﬁ ts for loyal customers in the agricultural sector as well as for the S Group’s members. In April, Kemira GrowHow Oyj acquired a 19 per cent minority shareholding in Hankkija-Maatalous Oy from SOK. Further- more, Kemira GrowHow Oyj and Hankkija-Maatalous Oy agreed to combine their forces to develop a new Growth programme aimed at developing and deploying novel solutions to assist crop growers increase their yields through better expertise and at lower unit costs than at present. In 2006, sales by Hankkija-Maatalous Oy amounted to EUR 777.2 million, representing growth of 4 per cent on the previous year. Hankkija-Maatalous Oy accounted for about 81 per cent of sales by the Agrimarket chain. Th e company’s market position rose slightly in the agricultural

30 Sourcing and Logistics

production inputs trade, such as plant nutrients, crop protection Inex Group substances, feeds and seeds. Within the farm machinery sector, sales of heavy contracting machinery in particular continued to At the end of 2006, the Inex Group comprised the parent com- rise. pany Inex Partners Oy (which provides purchasing and logistics Th e overall market for tractors fell by 7 per cent from the previ- services for grocery supplies and logistics services for special- ous year to 4,172 tractors sold. Th e market share of Hankkija- ity products for retail chains), Meira Nova Oy (which provides Maatalous Oy’s John Deere tractors rose by 3.1 percentage points purchasing and logistics services for grocery supplies for locations on the previous year, to its current position of 20.7 per cent. Some in the HoReCa sector) and Canelokiinteistöt Oy (which handles 320 new combine harvesters were supplied throughout the coun- leasing activities for the land and premises it owns). try for the 2006 threshing season, of these around 60 per cent were Th e associated company Finnfrost Oy specialises in purchasing Sampo Rosenlew and John Deere combine harvesters supplied by and logistics services for frozen foods for units in the retail trade the Agrimarket chain. and the HoReCa sector. Inex Partners Oy has a 50 per cent stake Capital expenditures in the store and service network in 2006 in the company. amounted to EUR 5.1 million. Th e single largest outlay was the Inex Partners Oy became a wholly-owned subsidiary of SOK Hyvinkää Agricentre. It opened at the beginning of March and as from March 2006. is the site for an Agrimarket, S Rautamarket, Machine Centre, Th e Inex Group’s operations developed well last year. Sales Multasormi gardening store and the John Deere Centre which by the Inex Group increased by 3 per cent on the previous year, was relocated from Vantaa. Th e personnel from Hankkija-Maatal- amounting to EUR 2,128.5 million. Th is was attributable to the ous Oy’s head offi ce, which had formerly operated out of the S Group’s good performance and to the Inex Group’s own profi t- Ässäkeskus in Vallila, Helsinki, also moved to the site. able operations. Th e added value generated by its operations has Stores in the S Rautamarket chain, which supplies a wide range had a direct impact on strengthening the competitiveness of the of hardware and gardening/horticultural products, were opened in customer chains. conjunction with the Eura, Hyvinkää, Hamina, Jyväskylä, Kemiö, Th e fi nancial year was characterised by major changes that took Kuopio, Nummela and Närpiö Agrimarkets. place in the client structure of Inex Partners Oy. During the fi nan- Th e Agrimarkets in Suonenjoki, Kuusamo, Sysmä, Liminka and cial year, Tradeka Oy’s locations were gradually phased out of the Teuva were relocated in new premises. Th e Loimaa, Pihtiputaa, purchasing and logistics services for grocery supplies for which the Kyrönmaa, Virkkala and Alavus Agrimarkets were revamped. company was responsible. Co-operation within logistics services Th e agricultural trade of Malax Handelslag and Kvevlax Han- for speciality products will draw to a close at the end of February delslag transferred to Hankkija-Maatalous Oy at year-end. 2007. Spar Finland Ltd became a customer of Inex Partners Oy at Th e Agrimarkets in Nurmijärvi and Riihimäki were closed the beginning of November 2006. during the year and integrated into the Hyvinkää Agricentre. Th e Several development projects to improve cost effi ciency and Punkalaidun store was integrated into the Agrimarket in Huit- enhance competitiveness were implemented by Inex Partners Oy tinen. during the report year. Hankkija-Maatalous Oy’s profi t before extraordinary items was Th e voice-controlled order picking system at the Kilo logistics EUR 6.5 million. In 2006, the company employed an average of centre was expanded, and a new fi nancial information system 960 people. was adopted in March. Other noteworthy projects included the development of a management system, deepening international procurement know-how and the development of supplier relations Rainex Yrityspalvelu Oy management models. A new version of the operational management system was adopted at the end of the year and a project to Rainex Yrityspalvelu Oy is a wholly-owned subsidiary of SOK. develop a new fi nancial control model was launched in the sum- Rainex Yrityspalvelu is a hardware and building wholesaler that mer. also deals in civil defence, security, work clothes, catering products When the Inex Group became a subsidiary of SOK, the opera- and textiles. tional models for administration, bookkeeping and the planning Th e company has six sales outlets in Helsinki, Jyväskylä, process as well as schedules were revised to bring them in line with Kuopio, Oulu, Tampere and Turku. Its head offi ce and administra- SOK Corporation. Th e most signifi cant change was to centralise tion are in Pukinmäki, Helsinki, and its warehouses are located in the Inex Group’s fi nance and fi nancial risk management in SOK’s Vantaa (Hakkila and Maantiekylä), Jyväskylä, Oulu, Turku and Finance unit in conformity with SOK Corporation’s principles. Kuopio, where a new warehouse reached completion in 2006. In 2006, Inex Partners Oy decided to come in line with the Th e use of eInvoicing has risen considerably, and the fi nancial Business Social Compliance Initiative (BSCI), the European year saw the start of pilot ordering systems. Th e company will con- responsible importer model. tinue to invest in developing its warehouses and electronic trading. Sales by Inex Partners Oy were up on the previous year, despite In 2006, the company’s net turnover came to EUR 82.7 million the change in client structure. Company sales came to EUR 1,890 (80.9), up by 2.2 per cent on the previous year. Operating profi t million, an increase of 2 per cent on the previous year. was EUR 0.9 million (1.1). Meira Nova Oy’s extremely healthy trend continued. Sales At the end of the fi nancial year, the company employed 48 totalled EUR 245 million, up by 10 per cent on the previous year. people (46). Meira Nova’s share of the delivery wholesale trade in the HoReCa

31 Sourcing and Logistics

sector is in excess of 30 per cent. Construction of the company’s In 2006 the company had net turnover of EUR 599.6 million, logistics centre in Hyrylä got underway during the report year, and representing growth of 12.3 per cent on the previous year. Operat- the new centre will come into use in the latter part of 2007. ing profi t was EUR 1.0 million (0.0). Th e company employed an Finnfrost Oy also reported excellent sales fi gures of EUR 223 average of 241 people (237). million, up by 9 per cent. Th e healthy trend of the Inex Group and its client chains North European Oil Trade Oy will continue predominantly on a sound footing in 2007. Th e importance of price competitiveness, cost eff ectiveness, delivery North European Oil Trade Oy (NEOT) is a fuel procurement reliability and the effi ciency of the value chain as cutting edge company that is jointly owned by SOK and Greeni Oy. Net factors will be highlighted. Owing to the change in Inex Partners turnover in its second full year of operations amounted to EUR Oy’s ownership and client structure, sales of goods by the company 981 million, of which the company recorded a profi t of EUR 2.8 in early 2007 will likely fall short of the fi gures in the previous million. Th e growth in net turnover compared with the previous year. Nevertheless, sales for the entire year will achieve the levels of year was attributable to the rise in market prices and to increased 2006. sales by customer chains. Meira Nova’s operations will remain unaff ected by the changes Th e company aims to create a relative competitive edge for its in the ownership structure of the Inex Group, and the company is customer chains (the S Group’s ABC chain and Greeni Oy’s St1 set to increase its sales. Th e introduction of the new logistics centre chain). In 2006, joint procurements raised the market share of at the end of 2007 will enhance the quality, smooth fl ow and ef- the fuels NEOT Oy delivers to service stations to approximately fi ciency of operations. 27 per cent of the entire Finnish retail fuel market. Th is puts the Inex Group had a payroll of 2,185 employees at the end of the company in a strong position to negotiate procurement prices for year, a reduction of 226 people on the previous year. fuels. Centralising procurements results in signifi cant logistical advantages for customer chains and keeps the percentage of fi xed Intrade Partners Oy costs for procurement and deliveries at highly competitive rates. Intrade Partners Oy is the S Group chains’ procurement and Building up NEOT Oy’s organisational structure proceeded logistics company whose primary responsibility is the apparel, according to plan. Th e company’s management of its international cosmetics, leisure and household product areas. Intrade Partners oil trade is at a good level but broadening its knowledge base is Oy is a wholly-owned subsidiary of SOK. nevertheless one of the company’s prime objectives. Th is objective Th e company’s largest customer chains are the Prisma, Sokos, will be achieved through constant training, recruitment and close S Market and Agrimarket chains. Other customers include the co-operation with SOK Finance. Sale, Alepa, Emotion and ABC chains. In addition to consumer At the end of the fi nancial year, the company employed seven goods, Intrade Partners Oy supplies store furnishings and fi ttings people. to the S Group’s locations. Th e task of Intrade Partners Oy is to bring added value to its customer chains through an appropriate product range in line with their business idea, cost-eff ective operational processes that are integrated into the customer chains and by achieving high-volume advantages through centralised purchases. In 2005 cost-effi ciency made considerable headway in tune with more effi cient operations and increased volume. Several projects to optimise operational processes were implemented during the report year. Signifi cant progress was made with respect to supplier integration in particular as well as information interchange and in the areas of monitoring the quality of suppliers’ operations and reporting. In addition to providing a competitive range, co-operation between suppliers emphasised availability and improving other operational quality as well as assessing suppliers from the perspective of operational quality. Intrade Partners Oy energetically implemented the European responsible importer model, the Busi- ness Social Compliance Initiative (BSCI). BSCI sets out common social requirements and provides a monitoring system to verify and improve the social conditions of goods suppliers. Th e outlook for 2007 is positive, and Intrade Partners Oy’s procurement volume is expected to show further growth in the coming fi nancial period.

32 Neighbouring Countries

Th e S Group operates in the Baltic countries within the supermar- AS Kommest Auto Group ket, hotel and restaurant and automotive trades. Th e Baltic region saw the continuance of the investment plan AS Kommest Auto is SOK’s wholly-owned subsidiary that has in the supermarket, hotel and restaurant and automotive trades. dealership rights for Peugeot vehicles in Estonia and Latvia. AS Agreements were made in 2006 concerning the opening of the Kommest Auto’s subsidiary Oü Kommest Autokeskused operates fi rst Prisma hypermarket in the Lithuanian capital of Vilnius in as a sales company in Estonia. AS Lauva Auto is the importer in 2008 and the opening of a second Prisma hypermarket in Riga in Latvia and SIA Lauva Autocentrs is the sales company. autumn 2008. Th e overall market for vehicles in Estonia in 2006 was 28,757 Business operations in the Baltic countries achieved the objec- new cars and vans, representing growth of 30.6 per cent on the tives set for them in the fi nancial year and showed a profi table previous year. Latvia’s total market was 28,119 cars and vans, an result. increase of 70.3 per cent compared with the previous year. Kommest Auto sold a total of 1,698 Peugeot vehicles in Estonia AS Prisma Peremarket and 817 in Latvia. Th e market share of Peugeot passenger cars in Estonia was 4.9 per cent and in Latvia 2.5 per cent. AS Prisma Peremarket, a wholly-owned subsidiary of SOK, is In 2006, the Kommest Auto Group’s net turnover came to EUR engaged in the retail trade in Tallinn at Prisma hypermarkets in 53.9 million (61.5) and it posted operating profi t of EUR 0.6 the Sikupilli, Kristiine, Mustamäe and Haabersti town districts. million (0.8). Tallinn’s fi fth Prisma opened for business in the Lasnamäe town At the end of 2006, the company had a payroll of 250 people district in October 2006. Developments during the fi nancial (236). year 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 2006, the net turnover for AS Prisma Peremarket came to EUR 96.9 million (81.1) and it reported operating profi t of EUR 3.3 million (2.5). At the end of 2006, the company had a payroll of 664 employees.

AS Prisma Latvija Prisma hypermarket operations spread to Latvia in 2006 with the opening of the ﬁ rst Prisma in the capital Riga in November 2006. Th e Prisma is located in the attractive Domina Shopping Centre two kilometres from the centre of the city. At the end of 2006, the company had a payroll of 120 employees.

AS Sokotel AS Sokotel is SOK’s wholly-owned subsidiary that operates Sokos Hotel Viru in Tallinn. Th e largest hotel in Estonia, Viru and its restaurants serve the S Group’s members, business travellers and other customers. Th e hotel has 516 rooms, six restaurants and modern conference facilities. Th e hotel’s suites and lobby areas were revamped during the ﬁ nancial year, and a street-level Public Corner restaurant opened for business in the hotel. In addition, joint beneﬁ ts with AS Prisma Peremarket were sought by transferring AS Sokotel’s bookkeeping functions to SOK Baltic’s service centre. AS Sokotel’s net turnover in 2006 amounted to EUR 19.3 million (18.4) and its operating result was EUR 3.2 million (3.1). At the end of 2006, the company had a payroll of 242 employees.

33 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 Central cooperative enterprise and less than 65 years of age. Th e Coopera- Chamber of Commerce and the Confederation of Finnish Indus- tive Meeting decides the emoluments of the chairman, vice chair- try and Employers. Owing to the form of the cooperative enter- men and members as well as the auditors’ fees. prise and the structure of the Group, not all the recommendations Th e Supervisory Board had 22 members in 2006 as well as two have been 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 2006 came to EUR 1,500 per month and the monthly remuneration for the vice chairmen amounted to EUR 470. Th e Cooperative Meeting is SOK’s highest decision-making body. In 2006, 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 was EUR 360. 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 2007 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 building society 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 the co-operation for the S Group’s operations and on long-term plans. cooperative enterprise or exercises a position of trust within one Th e Supervisory Board has duly confi rmed rules of procedure. does not participate in the preparation of decisions concerning the Th e chairman and two vice chairmen of the Supervisory Board audit and auditors of cooperative enterprises or in decision mak- form a Committee of Presiding Offi cers which assists the Super- ing or in monitoring the cooperative enterprises’ building society visory Board with its tasks. Th e chief executive participates in the activities.

34 Corporate Governance within SOK Corporation

Meetings of the Executive Board Th e Chain Boards are made up of the managing directors and Th e Executive Board met 21 times during 2006 and the rate business area directors of the cooperative enterprises as well as of attendance by its members was 94.6 per cent. Th e Executive members of the Executive Board or Management Team who are Board of SOK annually appraises its activities using a system of employed by SOK. SOK’s Executive Board decides on the compo- self-evaluation. Th e members of the Executive Board were paid sition of the Chain Boards. emoluments totalling EUR 79,200 in 2006. Th ose members of the Executive Board who are employed by SOK received no compen- Profi t-related bonus scheme sation for working on the Executive Board. for management Chief Executive Offi cer All staff within SOK Corporation come under a profi t-related bonus scheme. Th e principles of the profi t-related bonus scheme Th e duty of the chief executive offi cer is to direct the activities of for management (Management Team) are approved annually by the Executive Board and the cooperative enterprise in accordance the Supervisory Board. Th e criteria for the bonus scheme include with the relevant acts, SOK’s Statutes and the decisions of the profi t, process effi ciency, and customer and personnel satisfaction. governing bodies. Th e chief executive offi cer of SOK is Professor Profi t-related bonus gauges are defi ned from the perspective of Kari Neilimo, D.Sc. (Econ.). one’s own unit as well as from the wider perspective of SOK and the S Group as a whole. Management Team Th e Supervisory Board has set up a Compensation Committee to determine the principles of the bonus scheme. Th e task of the Management Team is to assist the chief executive offi cer and the Executive Board in accordance with the framework General and administrative audit determined by the Executive Board. Th e Management Team prepares matters for presentation to the Executive Board which re- General audit quire co-ordination, such as the S Group’s and SOK Corporation’s Th e Annual Cooperative Meeting elects a minimum of one and business strategies, target levels, operational plans and budgets. a maximum of three auditors and two deputy auditors to audit Th e Management Team met ten times in 2006. In 2006, the the fi nancial statements of the cooperative enterprise and the members of the SOK Management Team were paid salaries and Corporation as well as the accounting records and administration. profi t-related bonuses amounting to EUR 2,795,945. Th e sum Th e auditors and deputy auditors must have the legally required includes remuneration in kind. qualifi cation.

Executive Boards of the subsidiaries Administrative audit, Audit Committee Th e aim of establishing an Audit Committee and electing Man- Th e chairman of the Executive Board of a subsidiary is, as a rule, agement Auditors is to facilitate the participation in the audit of a member of the Executive Board or Management Team who is persons who exercise a position of trust within the cooperative responsible for the subsidiary’s operations and is employed by enterprises that own SOK Corporation. Th e Audit Committee SOK. Th e subsidiary’s Executive Board decides on the compa- is part of corporate owner-oversight. Th e Committee comprises ny’s strategy, operational plans and budget as well as the hiring, two Management Auditors and the SOK auditors elected by the terms of employment and dismissal of the managing director. Th e Cooperative Meeting. decisions of the Executive Board take into account the Corpora- Th e Audit Committee is an oversight body and a link between tion-wide principles and the decisions of SOK’s Executive Board the auditors and the owners. A special task of the Committee and concerning the company’s objectives, operational plans and alloca- of the Management Auditors is to bring the point of view of the tion of resources. owner administration and basic membership into the audit. Th e Audit Committee compiles a report for the Annual Cooperative Chain Management Meeting. Th e report is submitted to the Supervisory Board chairman and the Executive Board and is entered as received and at- Th e business area-speciﬁ c Chain Management organisation man- tached as an appendix to the minutes of the Cooperative Meeting. ages and co-ordinates chain operations under the supervision of Th e Audit Committee’s report is distributed to the Supervisory SOK’s Executive Board. Th e Chain Management organisation Board, the Executive Board and to other units as necessary. comprises the Chain Board, the Chain Management unit and the Th e Management Auditors are paid an emolument according Steering Group that assists it. Th e Chain Management organisa- to the same principles as apply to the members of the Supervisory tion is the central commercial joint organisation of the cooperative Board. Th e emolument paid to the chairman is raised by 50 per enterprises and SOK Corporation. cent. Th e Chain Management organisation is independently responsible for managing, developing and monitoring strategic and tactical 2006 chain operations within its own business area. It functions in co- Th e Cooperative Meeting held on 26 April 2006 elected as SOK’s operation with the cooperative enterprises and various professional regular auditors for 2007 Tomi Englund M.Sc. (Econ.), LL.M., organisations. Th e Chain Board makes the central decisions con- Authorised Public Accountant (APA), of Helsinki, Tapani Ro- cerning its own business area and chains within the framework of tola-Pukkila, Managing Director, APA, of Kauhajoki and Juhani its authority. Its decisions are binding under the Chain Agreement.

35 Corporate Governance within SOK Corporation

Heiskanen D.Sc. (Econ.), APA, of Huittinen. Th e deputy auditors SOK Supervisory Board 2006 elected were Ernst & Young Oy and Eero Huusko M.Sc. (Econ.), APA, of Kajaani. Th e Management Auditors elected to the Audit Committee for 2007 were Matti Suokas, M.Sc. (Econ.), Approved Otto Mikkonen (born 1949) Jouko Härkönen (born 1939) Auditor, of Kotka, Pekka Kantanen, Managing Director of Kuopio Joensuu Kajaani and their deputies, Risto Tuori, lawyer, of Vammala and Seppo Titular Industrial Counsellor Farmer Ehanti, Senior Consultant, of Porvoo. M.Sc. (Tech.) Chairman, Supervisory Board, Auditing fees for SOK Corporation companies amounting to Chairman 2002– Cooperative Society Maakunta Former Managing Director, KM- Member of the Supervisory Board EUR 917,875 and fees for consultancy services amounting to Yhtymä Oy from 2003 to 26 April 2006 EUR 380,018 were paid in Finland and the Baltic countries in Chairman, Supervisory Board, North 2006. Th e Management Auditors received payment totalling EUR Karelia Cooperative Society Heikki Ikonen (born 1943) 20,280 for their work. Member of the Supervisory Board Nurmes 2001– Honorary Counsellor Retiring in 2007 Farmer Internal control, internal audit and Chairman, Supervisory Board, risk management Jouko Vehmas (born 1956) Cooperative Society Jukola SOK’s Executive Board is responsible for organising operations in Kouvola Member of the Supervisory Board an appropriate manner, corporate management and for the legal- M.Sc. (Econ.) 1985– First Vice Chairman 2004– Retiring in 2008 ity and reliability of the accounting records, fi nance and routine Managing Director, Cooperative management. In addition, the chief executive offi cer, SOK’s unit Society Ympäristö Jorma Ipatti (born 1948) directors and the Executive Boards of the subsidiaries and their Member of the SOK Executive Board Kajaani managing directors carry out the management and control of busi- 2001–2003 LL.M. ness activities in day-to-day operations within their own areas of Member of the Supervisory Board Attorney-at-Law responsibility. 1994–2000, 2004– Asianajotoimisto Jorma Ipatti Tmi SOK Corporation’s Controller functions constitute the strategic Retiring in 2007 Member of the Executive Board, body which is responsible for implementing the internal audit Cooperative Society Maakunta of the Corporation and for assessing strategic profi tability. Th eir Max van der Pals (born 1945) Member of the Supervisory Board 26 activities cover all business operations and support services within Lohja April 2006– Farmer Retiring in 2009 the Corporation. SOK’s Executive Board annually deliberates on Second Vice Chairman 2003– the focal points of internal control and the Controller functions Chairman, Supervisory Board, Suur- Aarto Jalava (born 1947) perform an assessment of the functionality and adequacy of inter- Seutu Cooperative Society SSO Rauma nal auditing as well as internal control within a set framework. Member of the Supervisory Board M.Soc.Sc Th e Controller functions report regularly to the CEO, the 2001– Financial Manager Executive Board and to the Committee of Presiding Offi cers of the Retiring in 2007 City of Rauma Supervisory Board on matters concerning risk management. Th e Chairman, Supervisory Board, Corporation has adopted an integrated risk management model. Jorma Bergholm (born 1954) Cooperative Society Keula Based on the results, the most signifi cant risks with respect to Helsinki Member of the Supervisory Board the Corporation’s operations and the achievement of its strategic Managing Director 2005– Helsingin Työväenyhdistys ry Retiring in 2008 objectives have been identifi ed. In addition to the integrated risk Chairman, Supervisory Board, management model, selected functions employ more detailed risk Helsinki Cooperative Society Elanto Simo Kutinlahti (born 1957) management models (including fi nance and the accountancy func- Member of the Supervisory Board Keuruu tion). Insurance policies have been taken out in order to address 2005– Farmer the risks concerning assets, disruption of operations and business Retiring in 2008 Chairman, Supervisory Board, liability. Cooperative Society Keskimaa Marcus H. Borgström (born 1946) Member of the Supervisory Board Financial reporting Sipoo 1998– SOK Corporation and the S Group use a wide-ranging method of Titular Agricultural Counsellor Retiring in 2007 reporting on fi nancial key fi gures, trends and forecasts to monitor M.Sc. (Agr. and For.) Farmer fi nancial objectives. In addition to comprehensive internal report- Chairman, Supervisory Board, ing, the Corporation regularly publishes information on fi nancial Cooperative Society Varuboden performance and the trend in net turnover. Member of the Supervisory Board 2004– Information Retiring in 2007 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.

36 Corporate Governance within SOK Corporation

Leo Laukkanen (born 1947) Arto Piela (born 1960) Juha Vuorenhela (born 1944) Mikkeli Porvoo Pori Titular Commercial Counsellor LL.M. LL.M. Managing Director, Cooperative Society Managing Director, Cooperative Society Lakiasiaintoimisto Juha Vuorenhela Ky Suur-Savo Osla Chairman, Supervisory Board, Satakunta Member of the SOK Executive Board Member of the Supervisory Board 2005– Cooperative Society 1998–2002 Retiring in 2009 Member of the Supervisory Board 2004– Member of the Supervisory Board Retiring in 2009 1987–97, 2003– Matti Pikkarainen (born 1953) Retiring in 2009 Oulu Personnel Representatives Th .D. Maija-Liisa Lindqvist (born 1951) Director of Christian Education Tapani Tikkala (born 1947) Lahti Oulu Evangelical Lutheran Parishes Helsinki Member of Parliament Chairman, Supervisory Board, Project Manager, SOK Member Services Chairman, Supervisory Board, Cooperative Cooperative Society Arina Member of the Supervisory Board 2001– Society Hämeenmaa Member of the Supervisory Board 2004– Retiring in 2007 Member of the Supervisory Board 1997– Retiring in 2007 Retiring in 2008 Annikki Heikkinen (born 1942) Timo Sonninen (born 1948) Helsinki Seppo Linjakumpu (born 1958) Iisalmi Assistant, SOK Real Estate Maintenance Kuusamo Entrepreneur Member of the Supervisory Board 1997– Agronomist Chairman, Supervisory Board, Retiring in 2007 Secretary General Cooperative Society PeeÄssä Kuusamon Eräveikot Member of the Supervisory Board 1985– Chairman, Supervisory Board, Cooperative Retiring in 2008 Society Koillismaa Member of the Supervisory Board 2001– Antero Taanila (born 1941) Retiring in 2009 Kokkola Provincial Counsellor Ahti Manninen (born 1950) Former Administrative Director, Lappeenranta Boliden Kokkola Oy Titular Commercial Counsellor Chairman, Supervisory Board, Managing Director, South Karelia Cooperative Cooperative Society KPO Society Member of the Supervisory Board 1991– Member of the Supervisory Board Retiring in 2008 1989–91, 2000– Retiring in 2009 Hanna Valtari (born 1949) Seinäjoki Jorma Niiniaho (born 1945) Training Director Hamina Seinäjoki Vocational Education Titular Commercial Counsellor Centre – Sedu M.Sc. (Econ.) Chairman, Supervisory Board, South Managing Director, Cooperative Society Ostrobothnia Cooperative Society Ympyrä Member of the Supervisory Board Member of the Supervisory Board 2001–03, 26 April 2006– 1991–97, 2002– Retiring in 2007 Retiring in 2009 Matti Vanto (born 1945) Klaus Pentti (born 1943) Raisio Hämeenkyrö Senior Judge Titular Agricultural Counsellor LL.M. Member of Parliament Lawyer, City of Naantali Chairman, Supervisory Board, Pirkanmaa Chairman, Supervisory Board, Turku Cooperative Society Cooperative Society Member of the Supervisory Board 2005– Member of the Supervisory Board 1998– Retiring in 2008 Retiring in 2007

37 Corporate Governance within SOK Corporation

SOK Executive Board 2006–2007

Kari Neilimo (born 1944) Esko Hakala (born 1952) Taavi Heikkilä (born 1962) Arto Hiltunen (born 1958) Chief Executive Oﬃ cer 1 August Titular Commercial Counsellor M.Sc. (Econ.) M.Sc. (Econ.) 2002–31 July 2007 Managing Director, Managing Director, Cooperative Managing Director, Helsinki D.Sc. (Econ.) Cooperative Society Maakunta Society Hämeenmaa Cooperative Society Elanto Professor of Business Member of the Executive Board Member of the Executive Board 2007– Member of the Executive Board Administration, University of 2003– With the S Group since 1987 2000–2001, 2003– Tampere With the S Group since 1975 With the S Group since 1980 University of Lapland and SOK’s Chief Executive Oﬃ cer Lappeenranta University of as from 1 August 2007 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 SOK’s Supervisory Board, 1991–2002 With the S Group since 1988

Kuisma Niemelä (born 1958) Veli-Matti Puutio (born 1961) Jukka Salminen (born 1947) M.A. M.Sc. (Econ.) M.Sc. (Econ.) Managing Director, Cooperative Managing Director, Cooperative Titular Commercial Counsellor Society Keskimaa Osk Society Arina Executive Vice President, Member of the Executive Board Member of the Executive Board SOK Administrative Division 2002– 2004– 1993– With the S Group since 1983 With the S Group since 1986 Member of the Executive Board 1988– With the S Group since 1974

Kimmo Simberg (born 1959) Ulla-Maija Tolonen (born 1951) Bachelor of Hospitality Management M. Sc. (Econ.), Titular Commercial Managing Director, Southern Counsellor Managing Director, Pirkanmaa Ostrobothnia Cooperative Society Cooperative Society (up to 7 February 2007) Member of the Executive Board Member of the Executive Board 2005–2006 2006– With the S Group from 1974 With the S Group since 1986 to 7 February 2007

38 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 up to Managing Director, Senior Vice President, Senior Vice President, 31 July 2007 Hankkija-Maatalous Oy SOK Customer-ownership and SOK Communications and D.Sc. (Econ.) Licentiate in Agriculture and Specialty Store Division Publications M.Sc. (Econ.), University of Forestry B.Sc. (Econ.) M.Soc.Sc Tampere Titular Agricultural Counsellor Member of the Management Team Member of the Management Member of SOK’s Executive Member of the Management from 2002 to 30 April 2007 Team 2003– Board 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– Tapiola Mutual Pension Insurance Company, member of the Supervisory Board 2003– Central Chamber of Commerce 2003– Luottokunta, Vice Chairman of the Executive Board 2003– Federation of Finnish Commerce, Harri Miettinen (born 1962) Matti Pulkki (born 1947 Jukka Salminen (born 1947) member of the Board 2004–, Senior Vice President, Senior Vice President, Executive Vice President, Chairman of the Board 2005– SOK Strategic Development SOK Tourism and Hospitality SOK Administrative Division University of Tampere, member of and Human Resources Business M.Sc. (Econ.) the University Governing Board M.Sc. (Econ.) B.Sc. (Econ.), MBA Titular Commercial Counsellor 2004– Member of the Management Titular Tourism Counsellor Member of SOK’s Executive Team 2004– Member of the Management Team Board 1988– 2002– Member of the Management Team 1998–, Deputy CEO

Antti Sippola (born 1955) Heikki Strandén (born 1954) Markku Viljanen (born 1948) Reino Ylä-Autio (born 1948) Senior Vice President, Senior Vice President Senior Vice President Managing Director SOK Supermarket Trade SOK ABC Service Station Store SOK Legal Aﬀ airs Maan Auto Oy M.Sc. (Econ.) Business and Fuel Trade General Secretary M.Sc. (Agriculture) Member of the Management Member of the Management Team Member of the Management Team Member of the Management Team 2003– 2003– 2006– Team 2006–

39 Accountability

Accountability is one of the fundamental values of the S Group. Th e observance of international agreements, legislation as well as Th e scope of accountability within the S Group is wide-rang- regulations and guidelines sets the standard within the S Group ing due to the Group’s broadly based business. For the S Group and this is supplemented with inter-company agreements and accountability means that members can rely on the quality of the good business practices. Responsible business is furthered by products they purchase and that they can be equally confi dent taking the initiative and being at the forefront in line with the that employees are content in their jobs and that fuel sales cause principle of continuous improvement. no harm to the local environment. Th e accountability of corporate Result-oriented operations ensure long-term profi tability and activities is viewed as a natural part of the S Group’s operations suffi cient resources to develop responsible business practices. and of a people-fi rst market economy. Th e aim is to provide added Th e S Group makes innovative use of the best available tech- value for the S Group’s business operations and in turn for its nology and expertise on the market. Th is enables the Group to members by developing economic, social and environmental data minimise hazardous and adverse situations and the risks they cause management. to people and the environment. Matters related to customers’ In November 2002, SOK’s Executive Board endorsed the prin- health and safety as well as to ethical product procurement play a ciples of social responsibility for the S Group that had been drafted prominent role in planning product and service assortments. on the basis of the S Group’s environmental policy, which was Th e S Group communicates openly about the eff ect of its approved in 1999 and amended in December 2005. Th e principles operations on the economy, the environment and people as well as encompass the economic, social and environmental dimensions of regional vitality. To this end, the S Group draws up indicators for accountability. measuring, describing and comparing the results of the develop- A synopsis of data concerning S Group-wide accountability will ment work carried out in the various sub-areas. be published on the S Group’s website (S-kanava) at the end of Th e Group strives for interactive corporate communications spring 2007. with diff erent stakeholders. It is the task of the management of the S Group’s business units Principles of the S Group’s to ensure that employees are familiar with these principles and social responsibility committed to observing them in their daily work. Social responsibility is viewed as a natural part of the S Group’s Th e S Group provides services and benefi ts for its committed set of core values, and the principles are applied in practice by members, responsibly and in accordance with the principles of sus- means of action plans carried out by the operating units. Th e aim tainable development. Responsibility means regionally, economi- is to provide added value for the S Group’s business operations cally, ecologically and socially responsible business operations over and in turn for its members by developing economic, social and the long term. environmental data management. 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.

SOK CORPORATION’S PERSONNEL PER BUSINESS UNIT

40 Accountability

Personnel delineated and guidelines for reward practices were issued during the fi nancial year. Th e staff are managed in accordance with the S Group’s core Within SOK Corporation, an employee’s salary is determined values and a common personnel strategy. Th e personnel strategy by the nature of the task and task qualifi cation as well as the was revised in 2006 in response to current and future challenges. person’s experience, competence, training and performance of the Personnel work will continue to concentrate on four focal points: task. Th e criteria for evaluating job qualifi cation apply equally to – Th e S Group’s competitiveness as an employer and ensuring all employees. the availability and permanence of a labour force Bonus schemes within SOK Corporation have applied to all – Strategic leadership and quality management that generate staff since 2004. Th e aggregate amount of incentives and perform- cutting-edge business operations ance-related bonuses on the basis of operations in 2006 amounted – Th e development of core competence to boost the competitive- to EUR 4,813,000 (excluding the Inex Group). ness of business operations – Business-oriented and effi cient HR processes Co-operation with educational establishments and recruitment SOK Corporation’s personnel Th e year 2006 saw the establishment by the Finnish Chamber of Commerce of the Kaupan Koulutuksen Kehittämiskeskus (Train- At the end of 2006, a total of 8,563 people (5,052) were in the ing Development Centre for Trade and Commerce), which aims employ of SOK Corporation, of whom 761 (8.9%) worked within at furthering commercial training to be able to respond to the SOK and 7,802 (91.1%) were employed by subsidiaries. Alto- growing need for a labour force. Th e S Group is an active member gether 1,282 people (15.0%) worked abroad. of the network. Th e number of SOK Corporation staff rose by 3,511 people Tw o fi eld training groups were recruited during the fi nancial (69.5%) on the previous year due to several company acquisi- year. Twenty-three trainees were recruited for the university-level tions, such as the transfer to SOK Corporation of Inex Partners commercial fi eld training group that started out in February 2006 Oy and the spa business operations of Holiday Club Resorts Oy and twenty-two trainees started in the polytechnic group launched in Finland. in April. Th e personnel structures shown here were calculated based on Field training groups are the S Group’s approach to ensuring people in active employment relationships in Finland. Th e number suffi cient future key resources for managerial and specialist tasks in of staff does not include people on unpaid leave or holiday or diff erent sectors and units. people who are called in to work when necessary. Excellence Compensation and reward Good leadership and management ensure profi table operations, Th e idea behind comprehensive reward is that within the organisa- where social relations between personnel groups work with ease. tions, the focus is on the co-ordination of work and development Leadership and management are rooted in profi table activities, while ensuring that fi nancial reward is in the right ratio to the by people and with people. work accomplished and profi t achieved. Reward practices were

AGE BREAKDOWN DISTRIBUTION OF MALE AND FEMALE EMPLOYEES

41 Vastuullisuus

42 Accountability

Th e Jollas Institute is where supervisors receive training; numerous that serve a preventative purpose and promote occupational well- supervisors from SOK Corporation and from across the S Group being. Over the years, the emphasis of occupational healthcare has attended its courses. Th e courses on off er ranged from day-to-day shifted from treating accidents and illnesses and preventative care supervisor work to management in the future. An extensive course to promoting and sustaining health and well-being. was also arranged for the S Group’s senior management under the Th e results of the annual workplace survey conducted among theme Th e Success of the S Group in the 2010s. Th emes included SOK Corporation’s personnel were for the most part relatively changes in the operational environment, strategic thinking, suc- positive. Staff are satisfi ed with their jobs, they cope well in their cessful management in the 2010s and increasing internationalisa- work and they are able to put their competence to good use. Th e tion. Th e course is continuing in 2007. atmosphere in the workplace is good and they are satisfi ed with the way in which equality is achieved. However, staff expressed the Well-being at work wish for improvements in the way work is organised, more eff ec- In 2006, the principles of the S Group’s job well-being activities tive co-operation and fl ow of information. were worked out. Th ese principles aim at highlighting the importance of developing job well-being and the various forms it can Training and development take as part of the S Group’s management culture and day-to-day Th e continual development of personnel ensures that SOK supervisor work. Applying the principles in practice and incorpo- Corporation’s staff are equipped with adequate tools to give them rating them in training courses will get underway in 2007. the competence to do their work both now and in the future. Th e Th e background to the principles is the concept of job well-be- Jollas Institute provides the majority of training courses within the ing as a changing phenomenon, which requires the constant atten- S Group. tion of management and supervisors. Above all, a constructive ap- As an outcome of the expansion of the retail group, the Jollas proach to working generates job well-being. Th e clear organisation Institute enjoyed a brisk and eventful year. Th e Institute chalked of work and the delineation of responsibilities are the cornerstones up around 1,650 training days (15 per cent more than in 2005), for experiencing that work is controllable and that objectives are which were attended by about 18,200 students. Long-term achievable. Th e Jollas Institute is responsible for providing courses supervisor training programmes continued to gain in popularity. along the theme of personnel and supervisor job well-being. During the fi nancial year, the Institute arranged courses for senior Appraisal discussions within the S Group constitute an essential and fi nancial management and launched workplace instructor aspect of the management system. Engaging in appraisal discus- training funded by the European Social Fund, and an HR course sions is the agreed approach to supporting and developing supervi- to support the implementation of the S Group’s personnel strategy. sor work and personnel. Appraisal discussions mutually delineate Online training and courses to promote the use of information responsibilities, expectations and objectives as well as the factors systems were also taken a stage further. relating to reward. Within the S Group, particular attention has Th e S Group’s Shopkeeper Days in September were the single been focused on appraisal discussions, especially their quality. major event arranged at the Jollas Institute. Th e gathering was at- Occupational health, which is primarily arranged through tended by nearly 1,500 S Group supervisors. SOK’s own and joint company occupational health units, serves as A key aspect of co-ordinating personnel resources is to ensure SOK Corporation’s key support function in promoting well-be- that correct and adequate resources are in the right place at the ing at work. Activities comprise general practitioner care, with the right time. Th is calls for meticulous expertise on the part of the emphasis on occupational health, alongside Job Verve activities people who are responsible for personnel aff airs as well as supervi-

PERMANENT EMPLOYEES / TEMPORARY EMPLOYEES FULL-TIME EMPLOYEES / PART-TIME EMPLOYEES

43 Accountability

sors. Autumn 2006 saw the start-up of HR courses on themes out at the Sokos hotels owned by the regional cooperative enter- related to the new personnel strategy, which aim to update comprises. petence in the S Group’s HR network and the outlook in order to Safety Passport courses were arranged in collaboration with respond to future challenges. the Red Cross, the Jollas Institute, SOK’s Corporate Security and Work on developing the electronic tools to support supervisors Risk Management unit and the fi re and police authorities. Th ese in handling personnel aff airs proceeded a stage further during the courses aim at enhancing the safety of customers and personnel fi nancial year. Piloting the new HR system got underway in the at the S Group’s locations. By the end of 2006, altogether 4,325 autumn, after which the introduction of the system continued S Group employees had completed the Safety Passport training. according to schedule. SOK is to get the system up and running as Other security training was arranged as part of the Jollas Institute’s from the beginning of 2007. Th e HR system serves as a person- basic and store opening courses as well as on security courses nel data bank that supplies supervisors with up-to-the-minute arranged at the initiative of staff within the organisation. A total information and facilitates performing basic personnel procedures of 3,358 students had completed the E-jollas online induction electronically. security module by the end of the year. During the report year, the Th e system that supports work shift planning was further Corporate Security and Risk Management unit arranged security developed during the fi nancial year, and courses on themes such as training totalling 329 hours for S Group staff . “Supervisor Competence in Employment Relations” were arranged SOK’s Corporate Security and Risk Management unit and the in regional cooperative enterprises and SOK Corporation units insurer Tapiola Group commissioned an inspection of the security with particular attention focused on supervisor competence with levels at 140 of the S Group’s locations. regard to employment relations. Th e S Group continued co-operation with G4S Security Services Oy (Falck Security Oy) by pilot-testing a bonus partner Corporate security and risk management agreement on home protection and security systems at Coopera- Integrated risk management supports the implementation of the S tive Society Keskimaa. Group’s business concept. Th e aim is to safeguard the achievement As part of the Safety-Protected campaign organised by the Fed- of objectives and continuity of operations. Competitiveness is eration of Finnish Commerce, locations were being reviewed with improved through systematic and cost-eff ective risk management. the aim of stepping up their security level. By the end of the year, Risk management assists in providing customers with correctly- 365 locations had been approved. priced products and services that are safe and of high-quality. Continuous eff orts are devoted to making the locations safe and Outlook for the future comfortable. Th e systematic implementation of the personnel strategy is set to Th e S Group pays particular attention to the occupational safety continue in 2007. Development projects include formulating the and well-being of its own and its stakeholders’ personnel. Th is personnel policy that applies across SOK Corporation, processing is done by identifying the risks in the work environment and by HR aff airs related to internationalisation, and putting co-operation implementing the agreed risk management measures. Risk man- with educational establishments on a fi rmer footing. agement is made a part of daily business through ensuring that New courses at the Jollas Institute will include the For You, Our everyone working with the S Group recognises his or her part in it. Customer 2007 programme, which applies to all the S Group’s Th e S Group identifi es and prevents risks jeopardising its cus- personnel and focuses on putting the Your Own Store vision into tomers’ or its personnel’s health as thoroughly as possible. practice. Th e beginning of the year also heralds the start of training Th e company has prepared for unexpected situations threaten- courses in readiness for the S Bank as well as courses in prepara- ing its operations by developing crisis management and making tion for the adoption of the HR information system. A key aspect plans for ensuring the continuity of operations. of the courses in 2007 is to meet the mounting need for S Group Developing integrated risk management was continued in supervisors by providing a varied supervisor training programme. 2006. In December 2006, SOK’s Executive Board approved a risk management policy and strategy for the S Group. Identifying strategic business risks and defi ning the measures for managing them were made part of the SOK Corporation’s management process. Identifying and analysing operational risks as well as defi ning the measures for managing them were carried out in connection with the bank project. Crisis management and crisis communications training was arranged for the managers of the regional cooperative enterprises in order to secure unhindered continuity of business operations. In addition, contingency plans were drawn up to prepare for bird fl u and a possible pandemic, and procedures related to them were rehearsed. Data security reviews of the key suppliers of goods and services were continued and drawing up data system continuity and recovery plans were started. Data security audits were carried

44 Accountability

Environment tions has taken on new dimensions with each passing year. SOK is actively involved in pioneering programmes in the property and Fundamentals construction fi eld. Th e PromisE system, which is used for classify- Th is report focuses on SOK Corporation’s environmental manage- ing and comparing the environmental characteristics of properties, ment, the environmental competence of employees, real estate, has been in pilot use since 2002. Th e year 2005 saw the launch of energy and water consumption, sourcing and logistics, ecolabelling the Kiinteistö-PromisE Prisma Project, which is examining for the and Fair Trade products, packaging, waste management, recycling fi rst time the environmental characteristics and energy effi ciency services for customers, environmental communications and co- at all the Prisma hypermarkets; the work will reach conclusion in operation with interest groups. 2007. Detailed information about the environment will be presented Developer construction across the S Group has progressively in the S Group’s Accountability Report that is to be published in adopted technical environmental targets that serve as a design late spring 2007 on the S Group’s website at www.s-kanava.net/ac- tool in planning. Targets are defi ned for a construction site, the countability. building itself and for the operations planned for that building. Scheduled to open for business in autumn 2007, Suur-Seutu Co- Environmental management operative Society SSO’s Prisma in Lohja is a pilot for supermarket Th e most important objective of environmental management construction. is to apply in practice the S Group’s environmental policy. An Radisson SAS Seaside Hotel was the fi rst hotel in Helsinki to operational model for the S Group’s environmental compliance, receive the Nordic Swan ecolabel in recognition of good environ- which serves to implement value chain management approved mental management. In Finland, the Swan ecolabel is granted across the S Group, was devised for this purpose in 2006. From by SFS-Ympäristömerkintä. Th ere are 122 hotels with the Swan the perspective of management across the entire value chain, chain ecolabel in the Nordic countries, fi ve of them in Finland. A hotel management plays a key role in incorporating practical aspects with Swan ecolabelling operates systematically in order to reduce into business processes. Th e steering group appointed by SOK’s environmental loading. Executive Board is responsible for the overall development of environmental compliance. Energy and water consumption Knowledge-based management, which made strides in 2006, is Extending joint electricity procurement, or bulk electricity, for closely linked to the operational model. Indicators and com- use by the entire retail group calls for monitoring consumption parative data are indispensable as the basis for decision making. readings at individual sites. Providing information on electricity Consequently, the S Group employs environmental indicators to consumption on a centralised basis directly from the S Group’s monitor environmental performance in the fi eld. Development locations serves not only joint procurement objectives but also the work on environmental auditing concentrated on the introduction use and maintenance of real estate and the requirements of the en- of indicators of environmental responsibility and integrated audit- ergy effi ciency directive. Bulk electricity accounts for approximate- ing rules as well as on automating access to data from numerous ly half the S Group’s annual electricity consumption. Th e S Group source systems. uses around one per cent of Finland’s entire annual electricity. As part of the renovation carried out on Sokos Hotel Ilves in Environmental competence of employees Tampere, all the hotel rooms were fi tted out with their own cool- Increasing and maintaining the environmental skills of personnel ing systems, which utilise the Tammerkoski rapids that fl ow past is an important part of day-to-day environmental work. Informa- the hotel. tion was supplied to employees through training, communications, Th e S Group’s fi rst natural gas distribution station opened in reporting and pilot projects. Training in environmental compli- conjunction with the ABC Amiraali service station store in Kotka ance is carried out in co-operation between the Jollas Institute and in June 2006. the S Group’s units. Th e Jollas Institute includes environmental Th e S Group held its fi rst energy seminar in October 2006. Th e compliance in store opening training, management training days, seminar dealt extensively with topics relating to energy production, commercial fi eld training and in vocational degrees in sales and procurement and usage. Emphasis was placed on measures con- service station store sales. cerning energy effi ciency as part of cost eff ectiveness management. Th e units have also carried out their own internal training Drawing up the S Group’s energy policy in 2007 rose to the fore. with, for instance, goods suppliers and other interest groups. Th e SOK is involved in the project to draw up guidelines for the environmental message is put across to employees in the S Group’s internal control of energy and waste launched by the Finnish Food Ässä professional magazine and on the Internet. Trade magazines, Marketing Association. Th e work will reach completion by the end guidebooks, brochures, concepts, fairs and working groups also of 2007. serve as important sources of information. Sourcing and logistics Real estate Finland is a sparsely populated country with long distances Th e prominence given to environmental compliance at new build- between towns and cities; it is both economically and environ- ing and renovation sites set up by the S Group’s real-estate arm as mentally sound to deliver goods to consumers in as rational a well as in the development of maintenance and servicing func- manner as possible, avoiding unnecessary transport, packaging and

45 Accountability

unloading. Co-operation between trade and industry enhances from the obligations arising from the Animal By-products regula- information management and provides improved opportunities for tion. Th e EU directive on batteries and accumulators and waste planning logistics functions. batteries and accumulators was approved in autumn 2006; it Over half of the grocery products sold by the S Group’s chains obliges stores to accept used batteries and accumulators returned are transported to stores by means of the sourcing, warehousing by customers. A government decree based on the directive will and distribution services provided by Inex Partners Oy. Environ- enter into force in autumn 2008. mental co-operation between the S Group and Inex Partners is an important aspect of the entire logistics chain. Recycling services for customers Intrade Partners Oy acts as the S Group chains’ procurement Th e bottle and can recycling system is the best-known recy- and logistics company for consumer goods. In the fi nancial year, cling service for customers. Collection is mainly handled using 78 per cent of the consumer goods sourced by Intrade Partners for automated bottle and can collection machines. Over 95 per cent the S Group were delivered via centralised distribution. of glass and plastic deposit bottles and more than 90 per cent of Packaging requirements stress the need to avoid excess packag- aluminium cans are returned. Th e S Group has also made provi- ing and the importance of using packaging materials that can be sions in preparation for the abolishment of the environmental tax recycled or utilised in other ways. Packaging materials and their on beverage containers. Th is will call for investments to modify recyclability must be marked in accordance with EU practices. automated bottle and can collection machines. Th e environmental Products that place a lower burden on the environment must tax on disposable plastic bottles and metal cans will be abolished at feature a nationally or internationally approved ecolabel. Th e com- the start of 2008. Th e S Group’s other recycling services are related pany’s instructions specify environmental and ethical requirements to recyclable waste collection points, end-of-life vehicle and tyre for goods suppliers. Th ese guidelines are taken into consideration recycling. when evaluating a new supplier. Th e S Group’s procurement companies are responsible for en- Environmental communications suring that purchased goods and the information provided about Environmental information targeted at interest groups has been them comply with environmental legislation and requirements. disseminated through the environmental pages of SOK Corpora- Both Inex Partners Oy and Intrade Partners Oy are involved in the tion’s Annual Report and on the S Group’s website through the S Business Social Compliance Initiative (BSCI) co-operation model Group’s Accountability Report. Th e Yhteishyvä magazine’s website that seeks to streamline and standardise monitoring the working is also a valuable source of current environmental information for conditions and social responsibility of goods suppliers. In addition, consumers. the procurement companies are both active members of the Re- Th e Yhteishyvä magazine has also been a channel for conveying sponsible Importer network, which is co-ordinated by the Central the environmental message to households. Th e regional coopera- Chamber of Commerce. tive enterprises have disseminated environmental information through operational reviews, accountability reports, brochures, Ecolabelling and Fair Trade products ecological experts, bulletin boards and various events. Th e S Group’s At the end of 2006, supermarket stores stocked more than 600 internal communications tools are the Ässä magazine and the organic products and 31 Fair Trade products. S Intranet. Ecolabelled non-food consumer goods comprise products marked with the Nordic Swan (189), the EU Flower (16) and the Co-operation with interest groups FSC Forest Certifi cate (25). In 2006, around 400 products in the SOK has continued actively to contribute to the dialogue relating textile assortments bore the “Confi dence in Textiles: tested for to international environmental co-operation within Euro Coop’s harmful substances” product safety label in accordance with the Environmental Working Group. Central themes have been mat- Oeko-Tex Standard 100. It has been common practice for building ters concerning the EU chemicals legislation, Fair Trade, organic materials to display the relevant environmental specifi cations. production and energy effi ciency. SOK has actively headed the Fair Trade products have featured in supermarket store assort- Environmental Committee of the Federation of Finnish Com- ments since 1999. Sales of Fair Trade products have soared in the merce and it has participated in the work of both the Logistics S Group’s supermarket trade; the S Group was a leading trader in and Purchasing Division of the Finnish Food Marketing Associa- Fair Trade products in Finland in 2006. tion as well as the environmental committee of the Confederation Th e Fair Trade Award 2006 was granted to the ABC chain of of Finnish Industries EK. SOK has also been represented in the service station stores. In October 2006, the chain decided to go following working groups: the Ministry of the Environment’s over to serving Fair Trade coff ee in all of its cafés and restaurants. Co-operation Group of the Waste Branch, the Ministry of Trade As an outcome of this decision, the consumption of Fair Trade and Industry’s environmental labelling steering group, the steering coff ee in Finland is expected to double in 2007. group for the Finnish Oil and Gas Federation’s SOILI soil-reme- diation programme and Finfood’s organic food strategy working Waste management group. Changes in waste disposal legislation mean stricter local regulations and therefore new challenges for the S Group. During last year, the S Group’s grocery sector prepared to assess the impacts

46 Vastuullisuus

47 Accountability

Sponsorship and international contacts and thus gain additional resources for helping at the local level. Th e patron project of the co-operation between the S Group and Sponsorship the Finnish Red Cross is drumming up membership. Th e number Sponsorship and other co-operation with interest groups are con- of Finnish Red Cross members has risen steadily throughout the ducted in line with a sponsorship strategy throughout SOK Cor- period of co-operation. Moreover, Finnish Red Cross products poration and the S Group. Th e strategy ensures that investments are sold in the S Group’s chains. Th e agreement includes extensive are allocated to appropriate targets in a co-ordinated manner. It local co-operation between Red Cross districts and local branches is important that sponsorship investments are made in line with and the S Group’s regional cooperative enterprises. objectives. Sponsorship is one of the ways in which the S Group Th e S Group’s nationwide co-operation with the Mannerheim seeks to build and maintain its image as a responsible actor. Th e League for Child Welfare got underway in 2000. Prior to this, aim is to allocate investments to targets that support the S Group’s the regional cooperative enterprises had already co-operated with values, that in one way or another touch on the life of each and local associations within the framework of projects such as the ”A every member and produce distinct benefi ts for members. Good Start to Schooldays” campaign. In honour of SOK’s centen- Th e priorities of SOK’s sponsorship and fi nancial support have nial, the S Group presented the Mannerheim League for Child shifted towards endorsing children’s and young people’s sports Welfare with EUR 200,000 in January 2004. Th e sum covers the activities. One such example are the S Group’s Freestyle schools, years 2004-2006 and it has been allocated for the development of which are gaining in popularity from year to year. Youngsters have an Internet service to support parents and for arranging regional risen through the ranks of the Freestyle schools right up to the ”Parents Together” events. Th ese events, which have achieved national team. Th e investments traditionally made in top sports tremendous popularity, have been arranged in the regional coop- have in turn been reduced. Th e scope of cultural sponsorship has erative enterprises’ areas up and down the country and they have also widened to embrace diff erent target groups. Overall, there has covered a number of themes relating to parenthood. Th e events been a considerable shift across the S Group to giving prominence have been well attended and, due to pressure of demand, more of to activities that support children and young people. these gatherings have been arranged than was originally planned. SOK Corporation’s sponsorship co-operation in 2006 strongly Th ey are to continue through spring 2007. emphasised social responsibility and targets suited to families with children, as directed by the sponsorship strategy. Th e major agree- The Finnish Cooperative Union, SOKL r.y. ments concluded with the Finnish Red Cross and the Manner- Th e Executive Board of the Finnish Cooperative Union, SOKL heim League for Child Welfare serve as good illustrations of our r.y., focuses its activities on developing and examining the mission, sponsorship policies. Co-operation also continued with the Finn- values and vision of the S Group. Th e Board analyses, puts forward ish Freestyle national team, Raumanmeri Midsummer Festival, and presents policies and views related to the implementation of Svenska Teatern, the Helsinki Festival, Circus Finlandia, Art Cen- cooperative principles and values to the various decision-making tre Salmela, Pori Jazz, Moominworld and the Kuhmo Chamber bodies of the S Group and it oversees their practical implementa- Music Festival. Th e Espoo Museum of Modern Art EMMA, which tion. Th e Union does not participate in the management and opened to the public in October and surpassed all its goals set for decision making of business operations. numbers of visitors, came on board as a new partner in 2006. At the end of 2005, SOKL’s Executive Board launched a project Circus Finlandia, our partner of many years, celebrated its 30th that seeks to clarify SOKL’s position, role and tasks, particularly anniversary. More than 160,000 members attended the celebration with regard to decision-making across the S Group. Th e work shows. culminated in the completion of SOKL’s service strategy, which Besides focused Group-wide activities, regional cooperative was approved by the Board in February 2007. enterprises have actively engaged in co-operation with local organi- SOKL is the S Group’s representative in international coopera- sations, associations and events. tive activities, especially in the International Cooperative Alliance (ICA) and Euro Coop. The Finnish Red Cross and the Mannerheim SOK’s Strategic Development unit is responsible for the practi- League for Child Welfare – a true partnership cal activities of SOKL. Th e Union has no clerical staff of its own. Th e S Group is continuing its programme of co-operation with the Th e members of the Union are all of the S Group’s cooperative Finnish Red Cross and the Mannerheim League for Child Welfare. enterprises and SOK. Th e national agreements cover nationwide co-operation and the SOKL’s Executive Board comprised representatives of regional regional cooperative enterprises co-operate with local organisa- cooperatives with Jukka Huiskonen, LL.M., Senior Judge, as tions. chairman, Raili Palmi, offi ce manager, as vice chairman as well as Th e S Group has brought to the table its network of regional members Ulla Karvo, LL.M., Simo Kutinlahti, farmer, Professor cooperative enterprises, grocery markets and department stores, Kauko Mikkonen, Jorma Niiniaho, Titular Commercial Counsel- hotels and restaurants, service station stores, car dealerships and lor, Leena Pelkonen, Chief Financial Offi cer, Jorma Sieviläinen, hardware and agricultural outlets. Th rough its co-operation, the Managing Director, Hanna Valtari, Training Director, and S Group aims to bring the Red Cross into closer touch with its Juha Vuorenhela, LL.M., as well as SOK representatives Jorma member families and its personnel. Th is provides the opportunity Koistinen, Director of Strategic Development and Kari Neilimo, for the Finnish Red Cross to reach out to over 2 million Finns Chairman and CEO.

48 Accountability

National-level training for management personnel took place Th e name of the new organisation is Cooperatives Europe and its in co-operation with the Jollas Institute. A good 50 participants activities were ratifi ed at the organisation’s General Meeting held from cooperative enterprises who are members of the Supervisory in Manchester in November 2006. Th e organisation’s headquarters Board or Executive Board attended the management training are in Brussels. programmes Cooperatives Europe is the largest organisation in Europe with Elections of representatives were arranged in three cooperative members in 37 countries. It represents 267,000 cooperative busi- enterprises. Voter turnout averaged about 18 per cent; the cus- nesses. It has 163 million citizens as members and it provides jobs tomer-owners of Cooperative Society Keula were the most active. for 5.4 million employees. Th e cooperative enterprises received assistance in conducting the Cooperatives Europe’s task is to promote and strengthen the elections, and all of them arranged a training and induction event position of cooperative enterprises, to create a strong cooperative for the new representatives. identity and image in Brussels as well as to increase membership In response to the plans to expand the S Group’s fi nance ser- throughout the European region. vices, the local cooperative enterprises that belong to the customer- Founded in 1957, the goal of Euro Coop’s activities is to sustain owner system and which are engaged in building society activities and nurture the intensity and values of consumer cooperative modifi ed the regulations governing their building society activities activities in a changing Europe. Actively functioning work- at their cooperative meetings held in the autumn. Th e regional ing groups, who work in close association with the European cooperative enterprises carried out corresponding amendments in Commission, are one of the most important tools for fulfi lling 2005. As in previous years, the cooperative enterprises received this goal. Th e working groups get to grips with the up-to-the- assistance in matters connected with the amendments to Statutes minute changes that have a bearing on consumers and consumer and Trade Register fi lings. Furthermore, clerical staff from the Stra- cooperatives. Working groups have been set up for product safety, tegic Development unit took part in a variety of sessions that were foodstuff s safety and environmental matters. One of Euro Coop’s arranged by the cooperative enterprises for administrative staff and primary objectives is to infl uence legislation at EU level to ensure stakeholders. that the interests of consumers and consumer cooperatives are safeguarded and taken into due consideration when new legislation Cooperative Advisory Board is being drafted. Th e S Group is a party to the Cooperative Advisory Board Th e consumer cooperative enterprises of 17 European countries established by cooperative companies. Its purpose is to act as the are members of Euro Coop. Th ey represent 3,200 cooperative body of co-operation for Finnish cooperative organisations and societies and their 22 million members. companies. Th e Advisory Board acts as the overall lobbyist and Euro Coop has EU status, and it carries signifi cant prestige as a discussion forum for cooperative activities, and it co-ordinates and body that issues statements and exercises infl uence in Brussels. implements projects that improve the common conditions for the Anne Santamäki, SOK’s director for contacts with organisa- activities of cooperative companies. In 2006, the Board’s activities tions, was elected as chairman of Euro Coop at its General Meet- focused on issues related to researching cooperative activities. ing in Brussels on 1 June 2006. Th e members of the Advisory Board are the Pellervo Confedera- tion of Finnish Cooperatives, the Cooperative Tradeka Corpora- www.ica.coop tion, the Finnish Cooperative Union, SOKL r.y., and the OP Bank www.eurocoop.org Group Central Cooperative. Jukka Huiskonen, Senior Judge, Otto www.coopseurope.coop Mikkonen, Titular Industrial Counsellor, Managing Director, and Professor Kauko Mikkonen serve on the Advisory Board as representatives of the S Group.

International contacts SOK Corporation’s contacts with international cooperative organisations are handled in the name of SOKL r.y., the Finnish Cooperative Union. Th e Union is a member of the International Cooperative Alliance (ICA) and Euro Coop, a Brussels-based lobby organisation for consumer cooperatives. Th e ICA is an impartial independent organisation, which brings together, represents and serves its member cooperatives throughout the world. ICA has 223 member societies in 89 countries and the member societies have a total membership of over 800 million. It is the world’s second largest such body immediately after the United Nations. ICA’s European regional organisation has reinforced its operations by combining its resources with the Coordination Commit- tee of European Cooperative Associations (CCACE).

49 Executive Board Report on Operations

Retail operating environment in 2006 Th e European Central Bank continued raising the main lending rate last year. A move was made from a stimulatory level of interest Th e global economy has grown rapidly for four straight years. rates to a neutral 3.5 per cent level by the end of the year. A slight Total output has increased at an annual rate of 4–5 per cent. In the further rise in rates is expected during the current year. Interest United States, growth remained at the previous year’s level. Asia’s rate hikes are set to end some time this year and the level of inter- emerging economies, led by China, have nevertheless become the est rates will probably fall next year. Although interest rates are still real engine of global economic growth. Th e robust growth of the relatively low compared with the last decade, the change is fairly Chinese economy will spur the expansion of the world’s economy large for households, who have got used to the exceptionally low over the next few years as well. level of interest rates prevailing during the fi rst half of this decade. In the eurozone, growth last year was markedly better than the However, the level of interest rates does not stand in the way of previous year and also beat expectations. Th ere was strong growth Finland’s economic growth. in Finland’s nearby areas last year. Of the Baltic countries, Estonia According to advance information released by Statistics Finland, and Latvia reported growth of over ten per cent, and Lithuania too the value of retail sales, excluding the automotive trade, grew by reached growth of nearly eight per cent. Th e Russian economy has 5.3 per cent in 2006, increasing at a stronger pace than a year ago. grown by 6–7 per cent in 2006. Ongoing growth in these nearby Growth in automotive sales by the end of November was 8.2 per areas also off ers scope for the Finnish economy to expand. cent. Nonetheless, 1.7 per cent fewer new cars were registered than Finland’s gross domestic product showed exceptionally buoyant a year earlier. Th e good momentum of the economy was refl ected growth last year, up by over fi ve per cent. To be sure, part of the by the strong growth in all segments of the retail trade, except for increase stems from the previous year’s comparative fi gures, which sales of drugs and photographic supplies. Th e diff erences in growth were weakened by the stoppage of work in the paper industry. Th e from segment to segment were also smaller than previously. Th e very high rate of growth is also attributable in part to the reformed fastest growth was seen, just as last year, in sales of home appli- method of calculation used in the System of National Accounts. ances and consumer electronics, where sales were up 12.5 per Yet even considering these factors, Finland’s growth is still faster cent in value by the end of October. Th e price level in the sector than the average in the eurozone. Th e stronger-than-forecast continued to decline, and in volume terms, sales growth was a growth was fuelled by higher exports, increased investments and whopping 18.0 per cent. In the hardware trade, prices were on an also the good trend in private consumption. ascending curve, and the value of sales increased by 8.0 per cent, Consumer confi dence was quite fi rm all year long. In the early with volume growth coming in at 3.1 per cent. Grocery sales by spring 2006, news of large redundancies weakened confi dence the member companies of the Finnish Food Marketing Association in the direction of the Finnish economy and at the same time increased by 4.1 per cent last year. According to Statistics Finland, jolted expectations of receding unemployment. Th e good trend in the grocery trade grew by 5.3 per cent by the end of November. employment nonetheless quickly restored consumer confi dence. Statistics Finland reported that department stores registered sales Consumer sentiment underwent a change in regard to spending. growth of over fi ve per cent in the same period. Th e exception- Towards the end of the year, saving was felt to be clearly more ally warm weather late in the year hampered sales in December, advantageous than making a purchase or taking out a loan. In especially for apparel. Department stores boasted full-year growth the early part of the year, saving was the least favoured of these of 4.7 per cent, according to the Finnish Food Marketing Associa- alternatives. Th e change in the attitude to spending did not, how- tion. ever, feed through into consumption intensions. Major projected Total demand in the agricultural trade remained at the EUR 1.9 outlays remained for the most part above the long-term average. billion level of previous years. Th e grain harvest was 3.8 billion Consumer confi dence and consumption intensions created a good kilos, down seven per cent on the previous year owing to the dry foundation for growth in the retail trade in 2006. growth season. Total unit demand in tractor sales declined by Consumer prices rose by 1.6 per cent. Th e biggest rise in the seven per cent. price level came from the higher cost of housing and related items, Th e number of overnight stays at hotels in Finland reached 13.5 which was due to a number of factors including higher mortgage million by the end of November, up 5.7 per cent. Th e hotel oc- interest in line with the general level of interest rates and a further cupancy ratio rose by 2.4 per centage points to 52.1 per cent. Sales rise in house prices. A rise in the price of electricity and rent by licensed restaurants increased by about fi ve per cent by the end increases also aff ected general housing costs. Food prices, after a of September, registering a marked increase in meal sales. long period of declining prices, headed upwards slightly in 2006. Th e number of people employed in the retail trade remained at Th e rise in consumer prices was damped most by the cheaper price the previous year’s level during the fi rst three quarters of the year. of consumer electronics, computers, clothing and reimbursable In the hospitality sector, employment improved somewhat. In prescription drugs compared with a year ago. both the hotel and restaurant segment, the wage bill rose by about fi ve per cent.

50 Financial Statements

Changes in the Group structure the Sokos Hotel Vaakuna business in Rovaniemi to Cooperative Society Arina. Changes during the fi nancial year In April, SOK sold to Kemira GrowHow Oyj a 19 per cent At the beginning of 2006, SOK purchased all the shares in stake in Hankkija-Maatalous Oy. Following the transaction, SOK’s Suomen Spar Oyj that were owned by Axfood AB along with other holding in Hankkija-Maatalous Oy is 81 per cent. Hankkija- shares, whereby SOK’s holding of Suomen Spar shares and the vot- Maatalous Oy’s subsidiary Agribalt Oy was dissolved in August. ing rights conferred by all the shares rose to over 90 per cent. Th e company’s operations had ended. In January SOK’s subsidiary Maan Auto Oy purchased the A number of real-estate deals were completed in 2006. In Janu- entire shares outstanding in the Ford dealerships Auto-Kivitila ary, SOK sold the shares in Kiinteistö Oy Imatran Koskenhelmi, Oy and Auto-Kivitila Metro Oy. During 2006, Maan Auto and which is located in Imatra, to HS-Välitys Oy. SOK sold the shares its subsidiaries purchased a number of Ford dealerships: those of in Kiinteistö Oy Tullintori in Tampere to Citycon Oyj in February. Stockmann Auto Oy Ab in Espoo and Turku, the dealerships of In March, SOK sold the entire shares outstanding in the real-estate Etelä-Suomen Autotalo Oy and Etelä-Suomen Autoleasing Oy company Kiinteistö Oy Hämeenlinnan Paroistentie to Cooperative in the Päijät-Häme economic area and those of Vaunula Oy in Society Hämeenmaa. In May, SOK sold the entire shares outstand- Vantaa. At the beginning of 2006, Automaa Oy opened a Peugeot ing in Kiinteistö Oy Savonlinnan City to Cooperative Society outlet in Helsinki in the former premises of Laakkosen Autotalo, Suur-Savo. In August, Kiinteistö Oy Turun Brahenkatu 8 and and the Lahti outlet of Hämeen Leijona Auto Oy was transferred Kiinteistö Oy Taikarumpu merged into SOK. In December, SOK to Auto-Kivitila in September through a sale of business opera- sold the shares in the company’s Kiinteistö Oy Päiväläisentie 1–6, tions. At the end of 2006, Hämeen Leijona Auto Oy merged into which it had founded (the property was purchased from Veljekset Automaa Oy, and Auto-Kivitila Metro Oy merged into Auto- Laakkonen at the beginning of the year and served as a car dealer- Kivitila Oy. In addition, in April, SOK purchased a ten per cent ship for the Corporation) and Kiinteistö Oy Peltokuumolantie 4 minority stake in AS Kommest Auto, which operates in Estonia. to Nordisk Renting Oy. Kiinteistö Oy Peltokuumolantie 4 is the In January, SOK established the company A/S Prisma Latvija to site of an Agrimarket Centre in Hyvinkää, where Hankkija-Maata- carry on the Prisma business in Latvia. Th e fi rst Prisma unit was lous Oy moved its premises in the early part of 2006. opened in Riga in November in the Domina Shopping Centre, In January 2006, SOK’s subsidiary S-Bank Ltd purchased shares and another hypermarket will be completed in 2008. In Janu- in S-Crosskey Ab. Th e company is an associate in which S-Bank ary, SOK established SOK Holding Oy as well as the real-estate Ltd has a 40 per cent holding. Th e company’s operations are con- company Kiinteistö Oy Tampereen Tornihotelli. In June, SOK nected with the arranging of fi nancing services provided by S-Bank Holding Oy and SOK founded Sokos Hotels St. Petersburg Ltd for customer-owners. S-Bank Ltd will start operations at the LLC to carry on hotel operations in St Petersburg. Sokos Hotel end of 2007. Olympic Garden, which is to be built along Moskovsky Prospect, On 12 December 2006, SOK announced it was purchasing will be completed in autumn 2007, and a second hotel to be sited from ExxonMobil Corporation the shares in oy Esso ab, the corpo- in the heart of town, Sokos Hotel Vasilyevsky on Vasily Island will ration’s fuel sales subsidiary in Finland. Th e Finnish Competition be opened towards the end of 2007 or the beginning of 2008. Th e Authority approved the transaction arrangements for oy Esso spa hotel that is to be completed stage by stage in June-September ab on 17 January 2007. Th e decisions apply both to the sale of in accordance with the agreement on the purchase of hotel, spa oy Esso ab shares to SOK and to the follow-up deal relating to and restaurant operations that was made with Holiday Club Re- the shares, as agreed between SOK and St1 Holding Oy on 18 sorts Oy in January 2007 will be the third of the S Group’s hotel December 2006. As part of the transaction, Esso’s 44 service sta- projects in St Petersburg. tions and unmanned stations will be transferred to the S Group’s In February, SOK purchased from Tradeka Oy all the shares it regional cooperative enterprises, and oy Esso ab’s fuel procurement owned in Inex Partners Oy. After the deal closed, Inex Partners operations will be sold to SOK’s subsidiary North European Oil Oy became a wholly-owned subsidiary of SOK. As part of the Trade Oy (NEOT). deal, the Inex Partners Oy subsidiaries Meira Nova Oy and the Canelokiinteistöt Oy property operations will also become a part Changes after the close of the report period of SOK Corporation. SOK sold the business operations of Turun Sokos Oy in Turku SOK’s subsidiary Sokotel Oy purchased from Holiday Club and the shares in the real-estate company Kiinteistö Oy Turun Finland Oy in March the businesses of six Holiday Club spa hotels Valtakulma to Turku Cooperative Society on 1 January 2007. (Turun Caribia, Vuokatin Katinkulta, Kuusamon Tropiikki, Oulun In January, Sokos Hotels St. Petersburg LLC purchased the busi- Eeden, Tampereen Kylpylä and Saariselkä). Th e Sokotel spas will ness operations of the Holiday St. Petersburg Hotel that is to be continue to operate as part of the Holiday Club brand and form a built in St Petersburg from Holiday Club Resorts Oy. Th e transac- chain named Holiday Club Spa Hotels. In June, Sokotel Oy sold tion relates to hotel, spa and restaurant operations. Th e spa hotel,

51 Financial Statements

which is to be completed stage by stage in June-September 2007 increased and was clearly better than the average for the country as will be the S Group’s third hotel project in St Petersburg. a whole. AS Sokotel, which carries on the Sokos Hotel Viru hotel On 19 January 2007, SOK’s subsidiary Hankkija-Maatalous and restaurant operations in Tallinn, Estonia, generated net turno- Oy signed an agreement with Lännen Tehtaat Oyj under which ver of EUR 19.3 million, clearly exceeding both the targets set and 51 per cent of the shares in Suomen Rehu Oy and Avena Nordic the fi gure realised a year ago. Th e good trend in net turnover was Grain Oy will be transferred to Hankkija-Maatalous Oy. Th e deal attributable to strong restaurant and conference sales and to the encompasses Suomen Rehu Oy and Avena Nordic Grain Oy with growth in accommodation sales. their subsidiaries. In addition, as part of the deal it was agreed on Net turnover derived from the automotive trade and accessories sale and purchase options according to which Lännen Tehtaat Oyj business increased by 22.9 per cent compared with the level in has the right to elect to sell the remaining 49 per cent of its shares 2005, rising to EUR 424 million. Net turnover generated by the in Suomen Rehu Oy and Avena Nordic Grain Oy to Hankkija- Maan Auto Group, which operates in Finland, grew substantially Maatalous Oy after the purchase of the majority stake has been owing to acquisitions, rising to EUR 370 million. Net turnover completed. Hankkija-Maatalous Oy, in turn, has the right to generated by the Kommest Auto Group, which operates in Estonia purchase the remaining shares no earlier than 15 months after the and Latvia, was down on the previous year, at EUR 54 million. completion of the majority stake transaction. Final completion of Th e market share of Peugeot cars in Finland declined from 5.9 per the deal calls for approval by the Finnish Competition Authority, cent to 5.5 per cent and the market share of vans fell from 5.1 per and is expected during spring 2007. cent to 4.1 per cent. Th e market share of Peugeot cars declined from 6.0 per cent to 4.3 per cent in the Baltic countries. Net turnover Net turnover from the agricultural trade, including hardware sales, increased by 3.5 per cent. Hankkija-Maatalous Oy had net SOK Corporation had net turnover of EUR 6,834 million, up turnover in 2006 of EUR 773.7 million, representing growth of 62.3 per cent on the previous year. Th e growth in net turnover 3.6 per cent on the previous year. Hardware and gardening sales by EUR 2,625 million was attributable mainly to the purchase of developed favourably in step with store enlargements. Sales of the shares in Inex Partners Oy, as a consequence of which the Inex grain and agricultural supplies likewise grew. Demand for seed Group has been consolidated as an SOK subsidiary as from declined owing to the good grain harvest in autumn 2005, and 1 March 2006 (Jan.–Feb. 2006: an SOK associated company). pesticide sales diminished slightly as a result of the dry summer in International operations accounted for 3.1 per cent of net turno- 2006. ver, or EUR 213 million. Sourcing consists of the assortment, sourcing and logistics serv- Th e supermarket trade includes the Spar Group’s net turnover in ices for groceries and speciality goods carried on by the Inex Group addition to the net turnover from the supermarket trade in Tallinn along with Intrade Partners Oy’s sourcing and logistics services for and Latvia. Net turnover from the supermarket trade has been consumer goods. Th e Inex Group’s net turnover increased by 3.4 increased through the acquisition of Suomen Spar in January. Th e per cent on the previous year, to EUR 2,097 million, despite the purpose of acquiring the Spar Group is to develop the S Group’s stage-by-stage removal during the report period of Tradeka Oy’s lo- operations and competitiveness by strengthening the service net- cations from the scope of Inex Partners Oy’s grocery deliveries. Th e work. In line with plans, the acquired business has been transferred growth in the Inex Group’s sales was spurred by the S Group’s mar- for the most part to the S Group’s regional cooperative enterprises. ket share gains and by increased loyal customer purchases. Intrade Net turnover for fuel sales by the procurement company North Partners Oy’s net turnover was up 12.3 per cent on the previous European Oil Trade Oy soared 32.6 per cent on the previous year, year. All the customer chains delivered growth fairly evenly. and was attributable to the rise in market prices and higher sales EDI invoicing for the cooperative enterprises’ procurement of by the customer chains. goods increased by EUR 213 million on the previous year, prima- SOK Corporation ran Sokos operations through the companies rily because of the growth in sales by the cooperative enterprises. which it owns jointly with the regional cooperative enterprises, EDI invoicing does not comprise intra-group EDI invoicing of these being located in Espoo, Turku and Raisio. Th e companies EUR 2,486 million (EUR 956 million in 2005). had net turnover of EUR 39.0 million, an increase of 7.6 per cent on the previous year. Th e trend in net turnover was above budget. Profi t In 2006, hotels and restaurants within SOK Corporation were operated by Sokotel Oy in Finland and AS Sokotel in Estonia. SOK Corporation’s profi t before extraordinary items and taxes was SOK Corporation’s hotel business operates under the brands Sokos EUR 29.9 million. Th e corresponding profi t in the previous year Hotels, Radisson SAS and Holiday Club. At the end of 2006, was EUR 69.0 million. Profi t before extraordinary items includes the company owned 12 Sokos Hotels, 7 Radisson SAS Hotels other operating income, a share of the associated companies’ prof- and 6 Holiday Club Spa Hotels. Th e trend in the company’s sales its, write-downs on non-current assets and investments, including was positive. Th e occupancy ratio and average room rate rose reversals on them, and the change in obligatory provisions. Th e de- compared with a year ago. Th is meant that the room yield also crease in profi t was attributable to lower comparable capital gains

52 Financial Statements

on fi xed assets as well as to the weaker result of certain operating operating profi t did not reach the budgeted fi gure or the level of companies, especially of the automotive trade, compared with a earnings achieved in 2005. year ago. Th e decrease was also due in part to the start-up of new Hankkija-Maatalous Oy’s operating profi t from the agricultural businesses that were acquired. trade came in below both budget and the previous year’s fi gure, Th e Corporation’s return on investment, including wholesale owing mainly to the fall in the tractor and thresher market that has operations that serve the cooperative enterprises and are part of persisted for several years now. fi nancing and sourcing operations, was 4.2 per cent (7.6%). Th e Th e Inex Group’s operating profi t came in ahead of budget and return on investment from SOK’s ordinary operations was 7.5 the previous year’s fi gure. Th e good earnings trend was attributable per cent (17.0 %). Th e decrease in the return on investment was to better-than-planned sales growth and to good cost control as attributable mainly to the growth in total assets in step with invest- well as to systematic development activities. Intrade Partners Oy ments and other resource allocations and to the weakening in the posted operating profi t that was above budget and higher than the operational result. previous year. Write-downs of EUR 7.2 million were made on non-current Th e property business and other service units reported operating assets. Th ese were primarily write-downs on machinery and equip- profi t that was above budget but weaker than a year ago. Th is was ment as well as impairment of goodwill. due in particular to the projects connected with preparations for SOK Corporation’s net fi nancial income and expenses resulted the start-up of the S-Bank as well as other development projects in a gain of EUR 6.9 million and were up EUR 0.1 million on the for service functions. year-ago fi gure. Eliminations had a negative eff ect on earnings, owing mainly Th e supermarket trade includes the supermarkets in Tallinn and to the eliminations of minority interests related to the Hankkija- those of Suomen Spar Oy. Th e fi nancial eff ects of the acquisi- Maatalous Oy shares that were sold. In the previous year, elimination and ownership of the Spar Group were transferred under tions had a marked positive eff ect on earnings, largely due to the agreements to the regional cooperative enterprises that took over unrecorded capital gains within the Group, which were realised the businesses. SOK will receive interest income on the capital when the fi xed assets were sold outside the Group. invested in carrying out the arrangement. Th is income is stated in fi nancial income. Th e Spar Oy arrangements will have no other Operations of SOK impact on SOK Corporation’s profi t and loss. Th e still unpaid portion of the transfers of operations and other liabilities as well SOK is the parent company of SOK Corporation. In accordance as the adjustment of SOK Corporation’s earnings for the result of with its Statutes, SOK acts as the central organisation of the S the Spar Group have been stated as a long-term receivable from Group, promoting and developing the operations of the coopera- the regional cooperative enterprises. Operating profi t generated tive enterprises and other organisations belonging to the S Group by the supermarket trade was above budget but weaker than the and attending to the management and supervision of the Group’s previous year, owing to the start-up costs of the new Prisma that overall resources for maximum effi ciency, whilst also monitoring was opened in Latvia. the operations and seeing to the interests of the S Group and its Th anks to the good growth in operations, operating profi t from diff erent constituent organisations. fuel trade was both considerably above budget and better than SOK is in charge of the S Group’s strategic management. Its the fi gure a year ago. Th e operating profi t reported by the Sokos tasks are to provide the S Group’s companies with services related companies, which are engaged in the department store and special- to chain management, customer-ownership and marketing along ity trade, weakened compared with the previous year owing to the with general chain and corporate services, including development price adjustments that were required to cope with the change in activities connected with these services and the S Group’s other op- the competitive situation. Th e operating profi t posted by Sokotel erations. Other important services for the S Group’s operations are Oy, which carries on hotel and restaurant business in Finland, was purchasing, rental services and assortment and invoicing services ahead of budget, but fell slightly short of the previous year’s earn- for goods delivered directly from manufacturers to the chain units. ings owing to large investments. On a like-for-like basis, profi ts Via its nationwide and regional subsidiaries, SOK is able to off er were on a par with the previous year. AS Sokotel, which carries its members a wider spectrum of services in accordance with the on hotel and restaurant operations in Tallinn, Estonia, generated decisions taken within the S Group. In addition, in the Baltic area operating profi t that exceeded both the target and the previous SOK, via its subsidiaries, operates in the supermarket and automo- year’s fi gure. tive trade as well as the hotel business. Th e automotive trade and accessories dealer Maan Auto Group SOK had net turnover of EUR 4,284 million, up 69.6 per reported operating profi t that was below budget and weaker than a cent on the previous year. Th e increase in net turnover was due year ago. Th e weak earnings trend was attributable to the generally mainly to the above-mentioned inclusion in SOK’s net turnover poor sales of both Peugeot and Ford in the Finnish vehicle market. of EDI invoicing by Inex Partners Oy via SOK to the cooperative In addition, earnings were burdened by large investments in enterprises. When Inex Partners Oy was an affi liate, EDI invoicing new businesses and in two new locations. Th e Kommest Group’s through SOK was not included in SOK’s net turnover.

53 PääjohtajanFinancial Statements katsaus

SOK reported an operating loss of EUR 8.9 million, as against a cilities. In June, SOK signed a new EUR 200.0 million syndicated loss in the previous year of EUR 4.6 million. Th e greater operat- credit facility. ing loss was due, among other things, to the expansion of service Cash fl ow before fi nancial items according to SOK Corpora- operations and to the outlays for development projects. Because of tion’s cash fl ow statement was EUR 42.0 million. At the turn of the higher gain on net fi nancial income and expenses, SOK’s profi t the fi nancial year, fi nancial assets exceeded interest-bearing liabili- before extraordinary items was EUR 6.3 million, whereas it was ties by EUR 121.8 million, a decrease on the previous year of EUR EUR 5.6 million a year earlier. 11.5 million. Net gearing at 31 December 2006 was -22.8. SOK Th e rents included in other operating expenses consist primarily Corporation’s fi nancial income and expenses, excluding write- of the rental expenses of SOK Corporation or are for premises that downs on non-current investments were at nearly the previous have been sublet to other S Group companies. year’s level, representing a net gain of EUR 6.9 million. SOK Corporation’s equity ratio fell to 25.5 per cent from 28.8 Extraordinary expenses per cent in the previous fi nancial period. Th e decline in the equity ratio was due mainly to the increase in total assets of EUR 330 Extraordinary expenses of EUR 5.1 million consist of the interest million. expenses and court costs on the basis of the judgement delivered by the Helsinki Court of Appeal on 14 February 2006. Th e Personnel judgement concerns a dispute arising from a contract agreement concluded by SOK and YIT Corporation in 1998 in connection Th e average number of SOK Corporation employees, converted to with construction works on SOK’s old head offi ce located on full-time staff , was 7,096 during the fi nancial year (4,346). Vilhonkatu in Helsinki. Th e Court of Appeal assessed the evidence SOK Corporation had a payroll of 8,563 employees at the end presented in the case in a substantially diff erent way than did the of 2006 (5,052), of whom 761, or 8.9 per cent were SOK person- Helsinki District Court, which delivered a judgement that was nel (696 and 13.8%) and 7,802, or 91.1 per cent, were employed partly in favour of SOK. Th e Court of Appeal ruled that YIT by the subsidiaries (4,356 and 86.2%). Th e increase in the number Corporation has the right to receive compensation for part of the of employees compared with the previous year was 3,511 people demands for additional and conversion works which it presented or 69.5 per cent. Th e total number of employees abroad was 1,282 as well as compensation for additional costs incurred. SOK has people. During the year the number of employees was increased by appealed the judgement of the Helsinki Court of Appeal to the a number of acquisitions, such as that of Inex Partners Oy and the Supreme Administrative Court. transfer of Holiday Club Finland Oy’s spa operations in Finland to SOK Corporation’s ownership. Particular attention has been Capital expenditures and disposals of fi xed directed at integrating the personnel into the S Group. assets SOK’s management and auditors SOK Corporation’s purchases booked in non-current assets, i.e. capital expenditures on fi xed assets, amounted to EUR 201.0 mil- CEO Kari Neilimo has served as chairman of SOK’s Executive lion in 2006. Th e most important outlays were for the purchases Board. In addition to the CEO, the other members of the Execu- of shares in Suomen Spar Oy and Inex Partners Oy. Considerable tive Board in 2006 were Managing Director Esko Hakala, Manag- investments were also made in the hotel and restaurant business, ing Director Arto Hiltunen, Managing Director Kuisma Niemelä, most importantly through the purchase of the business operations Managing Director Veli-Matti Puutio, Jukka Salminen, Director in Finland of the Holiday Club chain. In the automotive trade, of SOK’s Administrative Division, Managing Director Kimmo SOK Corporation purchased the shares in Auto-Kivitila Oy and Simberg and Managing Director Ulla-Maija Tolonen. acquired Stockmann Auto’s locations in Turku and Espoo as well Th e Corporation’s auditors in 2006 were the Authorised Public as the Ford businesses of Etelä-Suomen Autotalo Oy and Vaunula Accountants Tomi Englund, Juhani Heiskanen and Tapani Rotola- Oy. Pukkila. By contrast, disposals of non-current assets and businesses to- SOK’s Supervisory Board appointed to seats on SOK’s Execu- talled EUR 137.8 million. Th e most important asset disposals were tive Board for the term of offi ce beginning on 1 January 2007 the divestments of the Spar business operations to the cooperative the following directors: CEO Kari Neilimo, chairman, Managing enterprises, the sale of a minority stake in Hankkija-Maatalous Oy Director Esko Hakala, Managing Director Taavi Heikkilä (new and disposals of real estate, the largest of which was the sale of the member), Managing Director Arto Hiltunen, Manager Director shares outstanding in the condominiums KOy Päiväläisentie 1–6 Kuisma Niemelä, Managing Director Veli-Matti Puutio, Jukka and Peltokuumolantie 4 to Nordisk Renting Oy. Salminen, Director of SOK’s Administrative Division and Manag- ing Director Kimmo Simberg. Financing SOK’s Chief Executive has been assisted in the strategic management of SOK Corporation and the S Group by SOK’s Manage- SOK Corporation’s liquidity remained good throughout 2006. ment Team, whose members during 2006 were Managing Director Liquid cash assets and money market investments totalled EUR Ensio Hytönen; Reijo Kaltea, Senior Vice President, Customer- 817.9 million at the end of the year. In addition, the Corporation ownership and Speciality Stores Division; Suso Kolesnik, Director had EUR 327.5 million of undrawn long-term binding credit fa- of Corporate Communications; Harri Miettinen, Vice President,

54 FinancialFinancial Statements Statements

Strategic Development and Human Resources; Matti Pulkki, Outlook for the current fi nancial year Senior Vice President, Hotels and restaurants; Jukka Salminen, Director of SOK’s Administrative Division; Antti Sippola, Vice Th e outlook for the Finnish economy in the current year is good. President, Retail; Heikki Strandén, Director, ABC Service Station Growth will be more subdued but will remain clearly better than Store Business and Fuel Trade; Markku Viljanen, SOK’s General the eurozone average. Infl ation will remain moderate. It is forecast Counsel (as from 1 June 2006) and Managing Director Reino Ylä- that the good employment trend will continue in the current year. Autio (as from 1 June 2006). Th e growth in real income will slow slightly, as it did last year, SOK’s Chief Executive, Professor Kari Neilimo, will retire on but the wage bill will continue to grow in step with improving 31 July 2007. On 7 November 2006, SOK’s Supervisory Board employment. Consumer confi dence is at a good level at the start appointed Mr Arto Hiltunen, Managing Director of Helsinki Co- of the year, but is likely to falter somewhat as a consequence of operative Society Elanto, as his successor, eff ective 1 August 2007. dismissals announced in January. According to forecasts, growth in the retail trade will continue Risks and factors of uncertainty in the current year, but at a slower rate than a year ago. Th e biggest slowdown will be in the consumer durables owing to the higher SOK Corporation is fully cognisant of the need for strategy-driven level of interest rates, which are still on a gently ascending curve, and integrated risk management. Particular attention has been a factor that will dampen credit demand. Th e growth in private paid to managing risks to the achievement of strategic objec- consumption expenditure will slow further from the previous year tives. Within SOK Corporation, risk management is viewed as a and come in at slightly under three per cent. strategic competitive factor. Risk management has been made an Net turnover generated by SOK Corporation’s business units is integral part of the management process. Th e steering and control estimated to continue outpacing the overall growth in the retail of integrated risk management is carried out by the Corporation’s trade this year. Th e largest growth expectations are for automotive Corporate Security and Risk Management unit. sales in Finland and for supermarket sales in the Baltic countries. SOK’s Finance unit has central responsibility for managing SOK In addition, three hotel units will be opened in St Petersburg in Corporation’s treasury operations and fi nancial risks. Th e SOK the latter half of the year. Th e growth in the domestic hotel and Executive Board has confi rmed SOK Corporation’s guidelines for restaurant trade as well as the hardware and agricultural trade is fi nancial policy, strategy and the management of fi nancial risks. expected to be close to the general trend. Net turnover derived Th ese guidelines defi ne the principles of managing fi nancial risks from the agricultural trade will nevertheless increase signifi cantly, and the maximum amounts of fi nancial risks. Furthermore, nu- provided the Finnish Competition Authority approves the transac- merical targets have been set for the diff erent subareas of treasury tions for acquiring a majority holding in Suomen Rehu Oy and operations in order to assure the adequacy, balance and aff ordabil- Avena Nordic Grain Oy. In the department store trade, net turno- ity of fi nancing under all circumstances. Th e company’s manage- ver will decline, following the transfer of the operations of Turun ment of price, credit, liquidity and cash fl ow risks is described in Sokos to Turun Osuuskauppa from the beginning of the year. Th e the accounting policies applied in the fi nancial statements. operational result of SOK Corporation’s operating companies will Environmental risks connected with SOK Corporation’s busi- be burdened by the start-up of the hotel business in St Petersburg. ness operations are identifi ed and analysed annually as part of Th e volume of the S Group’s sourcing, chain management and the analysis of business risk. Th e most important environmental service activities for which SOK has overall responsibility, will in- aspects and the measures connected with them are described in the crease in 2007. Th is year SOK will again continue making strong environment section of SOK Corporation’s Annual Report. In ad- inputs into development projects that boost the effi ciency of the dition, an Accountability Report covering the entire S Group will S Group’s processes and services. SOK Corporation’s operational be published on the Internet in spring 2007. Th e main key ratios result is estimated to be lower than in the previous year. describing SOK Corporation’s business operations, fi nancial position and result are presented in the key ratios table in the Notes to SOK Corporation’s Annual Report. Helsinki Adoption of IFRS 15 February 2007 SOK made the transition from Finnish Accounting Standards (FAS) to IFRS as from the beginning of 2007. Th e account- SUOMEN OSUUSKAUPPOJEN KESKUSKUNTA ing policies in compliance with IFRS as well as the comparative information and reconciliations with Finnish fi nancial statement Executive Board practice for 2006 will be published before the release of the fi gures in accordance with IFRS. Th e most important eff ects of the adoption of IFRS are related to the treatment of fi nance leases, the treatment of lease and hire purchase agreements in the automotive trade and agricultural trade, the recording of fi nancial instruments and segment reporting.

55 55 Financial Statements

PROFIT BEFORE EXTRA- SOK CORPORATION NET TURNOVER ORDINARY ITEMS PERSONNEL AT 31 DEC. 2002–2006 RETURN ON INVESTMENT, % 2002–2006

OPERATING PROFIT NET INTEREST PAYABLE 2002–2006 GROSS INVESTMENT IN FIXED 2002–2006 (% of net turnover) ASSETS 2002–2006

INTEREST-BEARING NET LIABILITIES CAPITAL AND RESERVES* AT 31 DEC. GEARING, % AT 31 DEC. 2002–2006 2002–2006 (equity ratio, %) 2002–2006

* Excluding capital loan

56 Financial Statements

Consolidated Income Statement

EUR million Ref. 1.1.–31.12.2006 1.1.–31.12.2005

Net turnover (1) 6 834.0 4 209.4 Other operating income (2) 48.6 36.2

Materials and services Raw materials and consumables (3) 6 081.8 3 702.7 External services 150.0 6 231.7 98.1 3 800.8

Staﬀ costs Wages and salaries 224.0 125.1 Social security costs (4) 54.2 278.2 30.5 155.6

Depreciation and value adjustments (5) 59.4 42.8

Other operating expenses Rents 123.4 68.0 Other expenses (6) 168.4 291.8 118.6 186.6 Share of associated companies’ proﬁ ts (+/-) 1.6 2.4

Operating proﬁ t (1) 23.1 62.3

Share of associated companies’ proﬁ ts (+/-) -0.1 -0.0 Financial income and expenses (+/-) (8) 6.9 6.8

Proﬁ t before extraordinary items 29.9 69.0

Extraordinary items (+/-) (9) -5.1

Proﬁ t before taxes 24.8 69.0

Direct taxes (+/-) (11) -3.5 -11.3 Minority interest (+/-) -2.4 -0.3

Proﬁ t for the ﬁ nancial year 18.9 57.4

57 Financial Statements

Consolidated Balance Sheet

ASSETS EUR million Ref. 31.12.2006 31.12.2005

NON-CURRENT ASSETS Intangible assets (12) 98.0 63.6 Group goodwill (12) 5.1 Tangible assets (12) 252.0 239.2 Shares in associated companies (13) 20.6 52.6 Other investments (13) 39.9 415.7 43.4 398.9

CURRENT ASSETS Stocks (15) 295.7 160.7 Long-term debtors (16) 40.0 0.3 Deferred tax assets (17) 17.3 6.4 Short-term debtors (18) 574.3 474.6 Securities (19) 697.5 688.8 Cash in hand and at bank 120.3 1 745.2 101.0 1 431.7

2 160.9 1 830.6

LIABILITIES EUR million 31.12.2006 31.12.2005

CAPITAL AND RESERVES (20) Cooperative capital 95.0 86.9 Supplementary cooperative capital 16.8 16.8 Fair value reserve 0.8 0.5 Legal reserve 16.9 15.3 Supervisory Board’s disposal fund 0.1 0.1 Profi t brought forward 372.6 323.9 Profi t for the fi nancial year 18.9 521.1 57.4 500.8

MINORITY INTEREST 16.7 13.7 PROVISIONS (22) 22.2 2.5

CREDITORS Long-term creditors (23) 43.0 30.9 Deferred tax liability (24) 17.0 8.8 Short-term creditors (25) 1 540.8 1 600.8 1 273.9 1 313.6

2 160.9 1 830.6

58 Financial Statements

Consolidated Cash Flow Statement

EUR million Ref. 1.1.–31.12.2006 1.1.–31.12.2005

BUSINESS OPERATIONS Operating profi t 23.1 62.3 Adjustments to operating profi t (1) 34.4 2.4 Change in working capital (2) -27.2 -25.6 Cash fl ow from business operations before fi nancing and taxes 30.3 39.1 Interest paid and other fi nancial expenses -9.9 -13.6 Interest received and other fi nancial income 25.1 16.8 Dividends received from business operations 0.2 1.1 Direct taxes paid -7.7 -13.3 Cash fl ow before extraordinary items 38.1 30.1 Cash fl ow from the extraordinary items of business operations -5.1 Cash fl ow from business operations 33.0 30.1

INVESTMENTS Subsidiary shares purchased -89.4 -6.1 Acquisition of other fi xed assets -114.8 -62.1 Subsidiary shares sold 54.1 18.1 Sale of other fi xed assets 83.7 38.8 Change in other long-term investments -0.4 -0.3 Adjustment of items booked on accrual basis 0.0 0.0 Liquid assets of divested and acquired subsidiaries 74.2 1.1 Dividends received from investments 1.6 1.2 Cash fl ow from investments 9.0 -9.2

FINANCING Increase in long-term creditors 10.1 8.7 Decrease in long-term creditors -7.3 -6.5 Increase (+) / decrease (-) in short-term creditors 15.1 103.6 Increase (-) / decrease (+) in short-term debtors -36.6 0.8 Change in short-term investments -41.0 3.1 Minority interests in subsidiaries 0.0 -0.3 Increase in cooperative capital and supplementary cooperative capital 8.2 15.8 Interest paid on the cooperative capital and supplementary cooperative capital -7.0 -10.8 Decrease in capital and reserves -0.1 -0.1 Cash ﬂ ow from ﬁ nancing -58.6 114.3

Increase (+) / decrease (-) in liquid funds -16.7 135.1

Liquid funds at the beginning of the year 768.4 633.3 Liquid funds at the end of the year 751.8 768.4

Adjustments to operating profi t (1) Gains (-) and losses (+) from the sale of fi xed assets -43.8 -34.9 Depreciation and value adjustments 59.4 42.8 Income and expenses which do not involve payment 18.8 -5.5 34.4 2.4 Change in working capital (2) Change in trade debtors -8.2 -86.5 Change in stocks -45.7 -23.3 Change in short-term interest-free creditors 26.7 84.2 -27.2 -25.6 Th e change in cash and cash equivalents diff ers from the change in cash and cash equivalents calculated from the change in the balance sheet such that measurement gains and losses due to the measurement at fair value of marketable securities have been eliminated from the change in cash and cash equivalents in the Cash Flow Statement. 59 Financial Statements

SOK Income Statement

EUR million Ref. 1.1.–31.12.2006 1.1.–31.12.2005

Net turnover (1) 4 283.7 2 525.7 Other operating income (2) 17.3 6.0

Materials and services Raw materials and consumables (3) 4 112.3 2 361.5 External services 44.9 4 157.3 43.0 2 404.6

Staﬀ costs Wages and salaries 33.8 29.9 Social security costs (4) 9.8 43.6 8.5 38.4

Depreciation and value adjustments (5) 2.9 7.5

Other operating expenses Rents 56.6 52.2 Other expenses (6) 49.5 106.1 33.5 85.7

Operating proﬁ t (loss) (1) -8.9 -4.6

Financial income and expenses (+/-) (8) 15.2 10.2

Proﬁ t before extraordinary items 6.3 5.6

Extraordinary items (+/-) (9) 3.9 29.2

Proﬁ t before appropriations and taxes 10.2 34.8

Appropriations (+/-) (10) 0.2 3.5 Direct taxes (+/-) (11) 0.2 -6.3

Proﬁ t for the ﬁ nancial year 10.7 32.0

60 Financial Statements

SOK Balance Sheet

ASSETS EUR million Ref. 31.12.2006 31.12.2005

NON-CURRENT ASSETS Intangible assets (12) 9.0 10.4 Tangible assets (12) 11.5 19.3 Shares in Group companies (13) 343.6 243.1 Other investments (13) 221.2 585.4 233.8 506.6

CURRENT ASSETS Stocks (15) 0.3 2.4 Long-term debtors (16) 1.7 0.2 Short-term debtors (18) 482.3 398.0 Securities (19) 678.1 688.8 Cash in hand and at bank 92.1 1 254.6 84.6 1 174.0

1 840.0 1 680.6

LIABILITIES EUR million 31.12.2006 31.12.2005

CAPITAL AND RESERVES (20) Cooperative capital 95.0 86.9 Supplementary cooperative capital 16.8 16.8 Fair value reserve 1.1 0.7 Legal reserve 16.9 15.3 Supervisory Board’s disposal fund 0.1 0.1 Profi t brought forward 362.2 338.9 Profi t for the fi nancial year 10.7 502.8 32.0 490.6

ACCUMULATED APPROPRIATIONS (21) 1.6 1.8 PROVISIONS (22) 1.9 1.7

CREDITORS Long-term creditors (23) 24.0 15.4 Short-term creditors (25) 1 309.6 1 333.6 1 171.0 1 186.5

1 840.0 1 680.6

61 Financial Statements

SOK Cash Flow Statement

EUR million Ref. 1.1.–31.12.2006 1.1.–31.12.2005

BUSINESS OPERATIONS Operating profi t -8.9 -4.6 Adjustments to operating profi t (1) -9.3 -0.1 Change in working capital (2) 8.7 1.3 Cash fl ow from business operations before fi nancing and taxes -9.5 -3.4 Interest paid and other fi nancial expenses -19.5 -13.5 Interest received and other fi nancial income 37.1 22.7 Dividends received from business operations 1.0 Direct taxes paid -2.9 -9.5 Cash fl ow before extraordinary items 5.2 -2.5

INVESTMENTS Acquisition of fi xed assets -116.5 -50.3 Sale of fi xed assets 58.7 41.4 Change in other long-term investments -3.6 4.9 Dividends received from investments 3.9 1.3 Cash fl ow from investments -57.5 -2.8

FINANCING Increase in long-term creditors 10.0 8.7 Decrease in long-term creditors -3.0 Increase (+) / decrease (-) in short-term creditors 46.8 106.3 Increase (-) / decrease (+) in short-term debtors -27.4 4.2 Change in short-term investments -41.0 3.1 Increase in cooperative capital and supplementary cooperative capital 8.2 15.8 Interest paid on the cooperative capital and supplementary cooperative capital -7.0 -10.8 Other decrease in capital and reserves -0.1 -0.1 Group contributions received 20.0 33.7 Group contributions paid -2.0 -22.1 Liquid funds from merger 0.0 0.5 Cash ﬂ ow from ﬁ nancing 4.4 139.3

Increase (+) / decrease (-) in liquid funds -47.9 134.0

Liquid funds at the beginning of the year 751.7 617.7 Liquid funds at the end of the year 703.8 751.7

Adjustments to operating profi t (1) Gains (-) and losses (+) from the sale of fi xed assets -15.6 -5.8 Depreciation and value adjustments 2.9 7.5 Income and expenses which do not involve payment 3.4 -1.8 -9.3 -0.1 Change in working capital (2) Change in trade debtors -73.7 -82.2 Change in stocks 0.8 0.0 Change in short-term interest-free creditors 81.6 83.5 8.7 1.3 Th e change in cash and cash equivalents diff ers from the change in cash and cash equivalents calculated from the change in the balance sheet such that measurement gains and losses due to the measurement at fair value of marketable securities have been eliminated from the change in cash and cash equivalents in the Cash Flow Statement.

62 Financial Statements

Notes to the Income Statement and Balance Sheet

Accounting Policies

In accordance with SOK’s Statutes, the name SOK Corporation sponding to the Group’s holding in them. Th e shareholders’ equity is used for the SOK Group. SOK Corporation comprises Suomen of subsidiaries acquired also includes accelerated depreciation less Osuuskauppojen Keskuskunta (SOK) and its subsidiaries. the deferred tax liability as well as voluntary provisions. Diff er- SOK’s fi nancial statements and consolidated fi nancial state- ences arising in the eliminations, to the extent that they are due to ments have been prepared in the manner prescribed by Finnish diff erences between the current and book values of properties, have legislation governing the preparation of fi nancial statements (Finn- been allocated to the relevant fi xed assets and the remaining part is ish Accounting Act). Th e cash fl ow statement has been prepared stated as Group goodwill in the balance sheet. in accordance with the general recommendations of the Finnish Group goodwill attributable to buildings has been amortised in Accounting Standards Board, applying the indirect form of cash line with the depreciation plan for the building in question. Group fl ow statement. goodwill is amortised over a period of 5 years on a straight-line basis. Scope of the consolidated fi nancial statements Intra-Group transactions and margins When preparing the consolidated fi nancial statements, all intra- Th e consolidated fi nancial statements include the parent coopera- Group income and expenses, distribution of profi ts, receivables tive and all the companies in which the parent cooperative held, at and liabilities as well as unrealised profi t margins from intra-Group the close of the fi nancial year, either directly or through its subsidi- transactions have been eliminated. aries, more than half of the voting rights conferred by the shares. Of the above-mentioned companies, four subsidiaries operate in Minority interests Estonia, two in Latvia and one in Russia. Minority interests in the profi t for the fi nancial year is shown as Th e fi nancial statement information of the associated compa- a separate item in the income statement. Th e minority interest in nies (voting rights of 20–50%) are included in the consolidated capital and reserves is also shown as a separate item in the consoli- fi nancial statements. dated balance sheet. Of the subsidiaries, one dormant company has been excluded from the consolidated fi nancial statements. In addition, fi ve as- Translation diff erences sociated companies whose area of operations is the leasing and pos- Th e fi nancial statements of foreign subsidiaries have been trans- session of properties have been left unconsolidated. Th e exclusion lated into euros at the exchange rate on the balance sheet date. of the above-mentioned subsidiary and associated companies does Translation diff erences arising from the elimination of sharehold- not have a material eff ect on the Group’s result and shareholders’ ers’ equity have been entered under profi t brought forward in the equity. consolidated balance sheet.

Principles of consolidation Associated companies Th e consolidated fi nancial statements have been prepared by Associated companies have been consolidated using the equity combining the Group companies’ income statements and balance method. Th e Group’s share of the associated companies’ profi t for sheets as well as the notes to them. Th e fi nancial statements of the the fi nancial year, in accordance with the Group’s proportional Group companies are for the period 1 January – 31 December holdings and adjusted for any amortisation of goodwill and 2006. Companies acquired or formed during the fi nancial year dividends received, is shown in the consolidated income statement have been consolidated from the date of acquisition or formation. after operating profi t. By contrast, the result of the associated com- Divested subsidiaries or associated companies have been consoli- panies that carry on the Group’s mainline business are included in dated up to the date of sale. the operating profi t calculations and stated on the previous line. In the consolidated balance sheet, the acquisition cost of as- Intra-Group holdings sociated companies and the Group’s shareholders’ equity includes Intra-Group holdings in subsidiaries have been eliminated using the Group’s post-acquisition share of an associated company’s the acquisition cost method. Th e intra-Group shareholding has accumulated net assets, inclusive of total appropriations less the been eliminated by subtracting their acquisition cost as well as, deferred tax liability. from the shareholders’ equity of the subsidiaries, an amount corre-

63 PääjohtajanFinancial Statements katsaus

Intra-Group profi t margins arising in transactions between Group Bonds and notes as well as other domestic and foreign securities companies and associated companies have been eliminated in that are traded actively and have been acquired for short-term gain proportion to each party’s holdings. Such margins have been sub- as well as all derivative contracts regardless of their usage purpose tracted from the Group’s profi t brought forward and from the cost are recorded in fi nancial assets and liabilities held for trading. of acquiring the shares in associated companies. Eliminated capital Financial assets and liabilities held for trading are measured at gains are recognised as income in step with depreciation. their fair value. Th e change in fair value is entered in the income statement, whereby the diff erence between the carrying amount at Financial instruments the balance sheet date and previous balance sheet dates of fi nancial instruments recorded at fair value in the income statement is en- SOK Corporation applies settlement date practice in entering tered as revenue or expense for the fi nancial period. If the fi nancial fi nancial assets in the balance sheet. Transactions in foreign cur- instrument to be recorded at fair value has been purchased during rency are recorded at the exchange rate quoted by the European the fi nancial period, the diff erence between the value of the fi nan- Central Bank (ECB) on the settlement date. Foreign currency cial instrument at the balance sheet date and its cost is entered as receivables and liabilities that are open at the end of the fi nancial revenue or expense for the fi nancial period. year have been translated into euros at the exchange rate quoted Bonds and notes as well as shares and participations which are by the European Central Bank on the closing day of the fi nan- not held for trading or to maturity are recorded in available-for- cial year, and the exchange rate diff erences have been booked as sale fi nancial assets. Financial assets held for trading are measured a credit or charge to income. Interest income and expenses have at their fair value. Th e change in fair value is recorded directly in been calculated on the basis of eff ective interest for the maturity of equity in the Fair value reserve. When the fi nancial instrument the contract. is sold, the cumulative change in fair value is recorded in equity As from 1 January 2006, fi nancial instruments have been together with accrued interest and capital gains or losses through measured at fair value in compliance with the alternative method profi t and loss. Any impairment loss is nevertheless recorded im- permitted under the Accounting Act, Chapter 5, Section 2a. As mediately through profi t and loss, at the same time adjusting the a result of the change in accounting policies, the changes in the Fair value reserve. fair values of fi nancial assets and liabilities held for trading which Bonds and notes and other non-derivative fi nancial assets that have accrued by 31 December 2005, less deferred taxes, to a total are held to maturity are recorded in held-to-maturity investments. amount of EUR 2.3 million, have been entered in equity under Held-to-maturity investments are measured at amortised cost us- the heading Profi t brought forward. Similarly, owing to the change ing the eff ective interest method. Any impairment loss is recorded in accounting policies, the changes in the fair values of avail- through profi t and loss, and the accrual of interest is continued able-for-sale fi nancial assets, which have accrued by 31 December on the lowered balance at the original eff ective interest rate of the 2005, less deferred taxes, to a total amount of EUR 0.5 million, contract. have been entered in the Fair value reserve. Th e 2005 balance sheet Financial assets and liabilities that do not belong to the previ- has been adjusted to a comparable basis. ously mentioned classes are recorded in other fi nancial assets and Th e fair value of a fi nancial instrument is determined on the liabilities. Th ey are measured at amortised cost using the eff ective basis of prices quoted in active markets or using measurement interest method. Any impairment loss is recorded through profi t methods that are generally used in the markets. Financial assets and loss, and the accrual of interest is continued on the lowered and liabilities at fair value include certifi cates of deposit, corporate balance at the original eff ective interest rate of the contract. paper and interest rate swaps, the fair value of which has been determined by discounting future cash fl ows to the present value Fixed assets and depreciation using the market interest rates at the balance sheet date. Th e fair value of forward contracts has been calculated by discounting In the balance sheet, fi xed assets have been valued at cost less ac- future cash fl ows to the present value and translating the foreign cumulated planned depreciation. currency amounts thus obtained into euros using the foreign Depreciation according to plan has been calculated on the exchange rates quoted by the ECB at the balance sheet date. Th e original acquisition cost of the fi xed assets in accordance with an fair value of interest rate options is determined on the basis of advance schedule and on a straight-line basis. Depreciation has the Black-Scholes pricing model. Bonds and notes, mutual funds been calculated from the beginning of the month after the asset and stock exchange shares have been measured at market prices. was placed in use. Depreciation periods, which are based on the Financial assets and liabilities at fair value have been measured expected useful life of the assets, are shown in the notes to the using middle rates. income statement under “Depreciation.” Derivative contracts are taken out primarily for hedging, but hedge accounting is not applied to them. Owing to these changes, Stocks the fi nancial result includes items which previously did not appear in it: measurement gains and losses on hedging derivatives as well Stocks are entered in the balance sheet on a FIFO basis at the as measurement gains on the trading portfolio. acquisition cost or repurchase price or probable market price, whichever is the lowest.

64 FinancialPääjohtajan Statements katsaus

Leasing deferred tax assets as the estimated and probable amount. Th e deferred tax liabilities and assets were calculated applying the Leasing payments are shown as rent expenses in the income state- confi rmed tax rate, which is 26%. ment. A deferred tax liability or tax asset is not presented in the income statements and balance sheets of SOK and its subsidiaries, Future expenses and losses but instead, a deferred tax liability or tax asset that is material in amount is presented in the Notes to the Financial Statements of Future expenses and losses representing a commitment of the the company in question in connection with the itemisation company or which are likely to materialise are charged as expenses of taxes. under the relevant expense item. In the balance sheet these provisions for expenses are stated in the item “Compulsory provisions” Pension arrangements or “Accruals and deferred income”. Th e statutory and voluntary pension security for SOK Corpora- Deferred taxes tion’s employees is handled through external pension insurance companies. Deferred taxes are recorded in accordance with the general guidelines issued by the Accounting Board on 12 September 2006. As a new item in accordance with the general guidelines, a tax asset has been recorded on write-downs on shares and capital loans as well as land areas that have been made but not deducted in taxes, to the extent that the corresponding tax eff ect can be considered probable. In connection with intra-Group capital gains on the sale of property, plant and equipment, a tax asset has been recorded on its probable materialisation to the extent that a part of the acquisition cost corresponding to the original taxable capital gain has not been depreciated or amortised. Deferred taxes have been recorded on write-downs made on shares in Group and associated companies and capital loans that have been deducted in tax fi lings but have been reversed in the consolidated accounts. Deferred taxes have been recorded on undistributed profi ts of foreign subsidiaries and associated companies insofar as a resolution on leaving the profi ts in said country has not been made. Th e deferred taxes for the above-mentioned items as well as for depreciation on buildings, which have not been deducted in taxation by 31 December 2005, to a total of EUR 5.9 million, have been recorded in equity owing to the change in accounting policies. In the consolidated balance sheet, the accumulated appropriations shown in individual fi nancial statements have been divided into a deferred tax liability, shareholders’ equity and minority interest, and changes in them are shown in the consolidated income statement. Depreciation not deducted in taxation has been taken into account as a reducing factor in calculating the above-mentioned deferred tax liability. Deferred tax assets arising from Group companies’ compulsory provisions and confi rmed losses are shown in the balance sheet, whereas the change in the deferred tax assets is shown in the consolidated income statement. Deferred taxes have been recorded on the temporary diff erences resulting from the measurement at fair value of fi nancial instruments. Th e deferred tax liabilities and assets arising on consolidation are included in the deferred tax liabilities and assets shown in the consolidated balance sheet, and any change therein is included in the change in deferred tax liabilities and assets shown in the consolidated income statement. In line with conservative accounting practice, the consolidated balance sheet shows the deferred tax liability in its entirety and

65 PääjohtajanFinancial Statements katsaus

Management of ﬁ nancial risks and electricity price risk in 2006

SOK’s Finance unit has central responsibility for managing SOK Credit risk Corporation’s treasury operations and fi nancial risks. Th e SOK Th e management of credit risks connected with commercial Executive Board has confi rmed SOK Corporation’s guidelines for activities is part of the business units’ operations. Investments and fi nancial policy, strategy and the management of fi nancial risks. trade in derivatives can only be undertaken with counterparties Th ese guidelines defi ne the principles of managing fi nancial risks approved by SOK’s Executive Board, within the limits approved by and the maximum amounts of fi nancial risks. Furthermore, nu- the Executive Board. merical targets have been set for the diff erent subareas of treasury operations in order to assure the adequacy, balance and aff ordabil- Electricity price risk ity of fi nancing under all circumstances. Th e objective of electricity market trading is to obtain the electrical Derivatives are used mainly to hedge the Corporation’s fi nancial power required by the S Group cost-eff ectively from the lowest risks and the price risks associated with commodities. Th e Corpo- cost procurement source and to even out cost impacts due to price ration engages in non-hedging derivatives trading only within the fl uctuations in the electricity market. At the end of 2006, delivery risk limits approved by SOK’s Executive Board. In the accounts, agreements currently in eff ect accounted for about two thirds of all derivatives are measured at fair value, and changes in value are the S Group’s electricity consumption. Apart from SOK Corpo- recorded through profi t and loss. ration, the service was used by 14 cooperative enterprises. SOK Corporation evaluates the price risks of electricity for a fi ve-year Liquidity risk period. Th e minimum hedging degrees for the following years are SOK Corporation seeks to minimise liquidity and refi nancing risks defi ned in the guidelines for managing electricity price risk, which by means of a balanced distribution of loan maturities and suf- have been approved by SOK’s Executive Board. At 31 December fi cient fi nancial reserves. Adequate liquidity is maintained through 2006, 100 per cent of the estimated consumption and binding cash, overdraft accounts, liquid money-market investments and electricity deliveries for 2007 had been hedged as well as 59.0 per long-term binding credit facilities. In accordance with its fi nancing cent for 2008, 41.4 per cent for 2009 and 25.3 per cent for 2010. strategy, SOK Corporation strives to maintain an amount of liquid Th e hedging instruments that can be used are fi xed-price delivery funds and undrawn long-term binding credit facilities that is at contracts, futures, forward contracts, options or other similar least 10% of its total assets plus the amount of the undrawn credit electricity derivatives. facilities. Liquid funds at the end of the year totalled EUR 817.9 million and undrawn long-term binding credit facilities amounted Price risk in fuel trading to EUR 327.5 million, for a total of 46.0 per cent. Th e quick ratio Th e S Group’s fuel procurements are handled by SOK’s subsidiary target has been set at more than 1, including long-term undrawn North European Oil Trade Oy (NEOT). In procuring fuels, the credit facilities. At the end of the year the quick ratio calculated in company incurs price risk for its fuel stocks, and this is managed the above manner was 1.19. in the manner defi ned in the company’s risk management policy. To manage price risk, the company makes use of hedging instru- Interest rate risk ments such as futures and options that are traded on the London SOK Corporation’s interest rate risk is reviewed over 12-month and New York oil exchanges as well as swaps made on the OTC and three-year periods. A linear change of one percentage point market. in the level of market interest rates must not cause an increase of more than 0.5 percentage point in the interest rate level of SOK Price risk in grain trading Corporation’s average interest-bearing net liabilities. To hedge the price risk of oats-based trading, SOK’s subsidiary Hankkija-Maatalous Oy employs oats-related derivatives as well as Foreign exchange risk oilseed derivatives to hedge the price risks of rapeseed trading. SOK Corporation’s net turnover is still generated largely in Finland. Th e Group’s commercial foreign exchange risks are the responsibility of the unit closing the business deal. Th e extent of the foreign exchange risk for the balance sheets of the Baltic subsidiaries is examined on the basis of balance sheet source-application analysis. Th e foreign exchange risk is reduced by fi nancing the companies’ operations in the same currency in which the money is spent and by means of derivatives. At the end of the fi nancial year, SOK and its Finnish subsidiaries did not have loans in foreign currency outside the Corporation.

66 Financial Statements

Notes to the Accounts

SOK CORPORATION SOK EUR million 2006 2005 2006 2005

NOTES CONCERNING THE INCOME STATEMENTS

1a. Net turnover by business area Supermarket trade *) 375.1 81.1 Fuel sales 981.0 743.6 Deparment stores and speciality stores 39.0 36.3 Hotel and restaurant business 217.0 176.7 Automotive trade and accessories 423.8 344.9 Agricultural trade 856.5 827.5 Sourcing 2 373.5 533.7 EDI invoicing **) 4 105.4 2 362.0 4 105.4 2 362.0 Real-estate, rental and other service operations 239.4 209.7 178.3 163.6 Eliminations **) -2 776.6 -1 106.1 Total 6 834.0 4 209.4 4 283.7 2 525.7

*) Includes net turnover generated by supermarket sales in Tallinn as well as the net turnover of the Spar Group **) includes EUR 2 486 million of intra-Group EDI invoicing (prev. year EUR 956 million)

Domestic business operations constitute 96.9 % of turnover.

1b. Operating proﬁ t by business area Supermarket trade 1.9 2.5 Fuel sales 3.3 1.6 Deparment stores and speciality stores -0.7 0.8 Hotel and restaurant business 11.5 14.6 Automotive trade and accessories -7.1 4.8 Agricultural trade 6.8 8.3 Sourcing 6.6 -0.0 EDI invoicing 0.1 0.2 0.1 0.2 Real-estate, rental and other service operations 3.2 6.8 -9.0 -4.8 Share of associated companies’ proﬁ ts 1.6 2.4 Eliminations -4.2 20.3 Total 23.1 62.3 -8.9 -4.6

2. Other operating income Proﬁ ts on sale of ﬁ xed assets 17.4 30.9 17.2 5.8 Goodwill income 30.1 4.1 Other operating income 1.1 1.2 0.0 0.2 Total 48.6 36.2 17.3 6.0

3. Raw materials and consumables Purchases during the ﬁ nancial year 6 141.3 3 725.0 4 110.2 2 361.5 Change in stocks (+/-) -59.5 -22.3 2.1 0.0 Total 6 081.8 3 702.7 4 112.3 2 361.5

4. Staﬀ costs Wages and salaries 224.0 125.1 33.8 29.9 Pension costs 37.4 21.1 6.9 6.0 Other social security costs 16.9 9.5 2.9 2.5 Total 278.2 155.6 43.6 38.4

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

67 Financial Statements

SOK CORPORATION SOK EUR million 2006 2005 2006 2005

5. Depreciation and value adjustments Depreciation according to plan 52.2 37.9 2.9 7.5 Value adjustments on non-current assets 7.2 4.9 0.0 0.0 Total 59.4 42.8 2.9 7.5

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 3.7 0.1 1.6 0.0 Other operating expenses 164.7 118.5 47.8 33.5 Total 168.4 118.6 49.5 33.5

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 -18.1 Decreases related to partially vacant premises 1.8 1.7 1.2 1.7 Increase in other future expenses and losses -2.9 -0.3 -1.5 Decrease in other future expenses and losses 1.0 1.7 0.0 0.2 Total -18.2 3.1 -0.2 1.8

8. Financial income and expenses Dividend income from Group companies 2.4 0.1 Dividend income from participating interest companies 1.0 Dividend income from others 1.6 1.2 1.5 1.2 Total dividend income from investments in non-current assets 1.6 1.2 3.9 2.3

Interest income from other non-current assets From Group companies 8.1 8.6 From others 1.1 1.0 1.0 0.8

Other interest and ﬁ nancial income From Group companies 3.5 2.4 From others 24.8 18.9 19.4 13.9 Total interest and ﬁ nancial income 25.8 20.0 32.0 25.7

Value adjustments of investments in non-current assets 0.0 3.1 Value adjustments of other securities held in current assets 0.1 0.1

Interest and other ﬁ nancial expenses To Group companies 3.9 2.5 To others 20.5 14.2 16.7 12.1 Total interest and other ﬁ nancial expenses 20.5 14.2 20.7 14.6

Total ﬁ nancial income and expenses 6.9 6.8 15.2 10.2

68 Financial Statements

SOK CORPORATION SOK EUR million 2006 2005 2006 2005

9. Extraordinary items Extraordinary income Group contributions received Proﬁ t on merger 4.1 25.0 Other 11.3 Total 4.1 36.2

Extraordinary expenses Group contributions given 6.9 Loss on merger 0.2 0.1 Other 5.1 Total 5.1 0.2 7.0

Total extraordinary items -5.1 3.9 29.2

10. Appropriations Increase (-) / decrease (+) in accelerated depreciation 0.2 3.5

11. Direct taxes Income taxes on ordinary operations for the year 6.0 11.0 -1.1 1.7 Income taxes on ordinary operations for the previous year -0.1 -0.3 -0.2 -0.1 Income taxes on extraordinary items -1.3 -0.0 1.1 4.7 Eﬀ ect of consolidation 0.8 -0.0 Change in deferred tax liability / assets -1.9 0.7 Total 3.5 11.3 -0.2 6.3

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 1.1.2006 64,6 29,9 37,1 8,3 140,0 19,9 1,6 Increase 23,6 20,2 22,2 27,1 93,0 19,4 0,3 Decrease -1,1 -0,6 -6,3 -5,5 -13,5 -11,5 Transfers 5,7 6,5 -12,6 -0,4 Acquisition cost at 31.12.2006 92,8 49,5 59,4 17,3 219,1 27,8 1,9

Accumulated depreciation at 1.1.2006 33,6 20,0 22,7 76,3 19,9 Companies acquired 15,8 0,0 11,4 27,2 7,8 Accumulated depreciation on decreases and transfers -0,7 0,0 -4,8 -5,5 -9,8 Depreciation for the ﬁ nancial year 12,1 4,4 5,6 22,1 1,3 Value adjustments 0,2 0,8 1,0 3,5 Accumulated depreciation at 31.12.2006 61,0 24,4 35,6 121,1 22,6

Accumulated income entries at 1.1.2006 1,6 Accumulated income entries for the ﬁ nancial year 0,3 Accumulated income entries at 31.12.2006 1,9

Book value at 31.12.2006 31,8 25,1 23,8 17,3 98,0 5,1 0,0

Book value at 31.12.2005 31,0 9,9 14,4 8,3 63,6 0,0 0,0

69 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 1.1.2006 29.3 271.4 82.1 4.1 18.7 405.5 Increase 11.9 43.0 113.9 0.6 30.0 199.5 Decrease -8.5 -77.2 -44.1 -0.6 -16.1 -146.7 Transfers 0.2 12.1 9.7 -0.6 -20.9 0.4 Acquisition cost at 31.12.2006 32.8 249.2 161.5 3.4 11.6 458.7

Accumulated depreciation and value adjustments at 1.1.2006 2.4 111.1 50.9 1.8 166.3 Companies acquired 11.5 61.5 0.3 73.3 Accumulated depreciation on decreases and transfers -0.6 -33.2 -29.9 -1.0 -64.7 Depreciation for the ﬁ nancial year 10.0 18.9 0.2 29.1 Value adjustments 0.4 2.2 2.7 Accumulated depreciation at 31.12.2006 1.8 99.8 103.6 1.4 206.6

Book value at 31.12.2006 31.0 149.4 57.9 2.1 11.6 252.0

Book value at 31.12.2005 26.9 160.3 31.2 2.3 18.7 239.2

Share of machinery in the book value of machinery and equipment: EUR 0.3 million (prev. year 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 1.1.2006 55.9 9.3 65.2 Increase 10.5 3.3 13.9 Decrease -37.1 -0.4 -37.5 Change in the fair value 0.4 0.4 Transfers -6.7 -6.7 Acquisition cost at 31.12.2006 22.6 12.6 35.2

Accumulated value adjustments at 1.1.2006 3.4 0.0 3.4 Accumulated value adjustments on decreases and transfers -1.3 -1.3 Value adjustments 0.6 0.6 Accumulated value adjustments at 31.12.2006 2.1 0.6 2.7

Book value at 31.12.2006 20.6 11.9 32.5

Book value at 31.12.2005 52.6 9.3 61.8

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

70 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 1.1.2006 0.8 0.7 0.9 31.8 34.2 Increase 1.0 1.0 Decrease -0.6 -0.1 -6.6 -7.2 Transfers 0.0 0.0 Amount at 31.12.2006 0.3 0.6 0.9 26.2 28.0

Accumulated value adjustments at 1.1.2006 0.0 0.0 Accumulated value adjustments at 31.12.2006 0.0 0.0

Book value at 31.12.2006 0.3 0.6 0.9 26.2 28.0

Book value at 31.12.2005 0.8 0.7 0.9 31.8 34.2

Total ﬁ nancial assets of SOK Corporation at 31.12.2006 60.5 Total ﬁ nancial assets of SOK Corporation at 31.12.2005 96.0

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

Intangible assets Intangible Other Advance Total rights capitalised payments intangible expenditure assets Acquisition cost at 1.1.2006 17.5 6.6 3.8 27.9 Increase 0.6 0.0 5.6 6.3 Decrease -5.5 -5.5 Transfers 0.9 0.6 -1.7 -0.1 Acquisition cost at 31.12.2006 19.1 7.2 2.3 28.6

Accumulated depreciation at 1.1.2006 12.6 5.0 17.5 Accumulated depreciation on decreases and transfers 0.0 Depreciation for the ﬁ nancial year 1.8 0.3 2.0 Accumulated depreciation at 31.12.2006 14.3 5.2 19.6

Book value at 31.12.2006 4.8 2.0 2.3 9.0

Book value at 31.12.2005 5.0 1.6 3.8 10.4

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 1.1.2006 2.6 10.5 12.0 0.4 11.2 36.7 Merged companies 2.9 5.2 8.1 Increase 0.0 0.3 0.1 5.4 5.7 Decrease 0.0 -0.1 -16.1 -16.2 Transfers 0.2 0.0 0.1 Acquisition cost at 31.12.2006 5.5 15.9 12.2 0.5 0.5 34.5

Accumulated depreciation and value adjustments at 1.1.2006 0.1 7.5 9.8 0.0 17.4 Merged companies 1.2 3.6 4.8 Accumulated depreciation on decreases and transfers 0.0 -0.1 -0.1 Depreciation for the ﬁ nancial year 0.3 0.5 0.8 Value adjustments 0.0 0.0 Accumulated depreciation at 31.12.2006 1.3 11.4 10.3 0.0 22.9

Book value at 31.12.2006 4.2 4.5 1.9 0.5 0.5 11.5

Book value at 31.12.2005 2.5 3.0 2.2 0.4 11.2 19.3

71 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 1.1.2006 264.0 43.9 10.8 318.7 Merged companies 0.0 0.0 Increase 107.3 0.5 0.0 107.8 Decrease -20.4 -11.2 -0.4 -32.0 Change in the fair value 0.4 0.4 Transfers 6.7 -6.7 0.0 Acquisition cost at 31.12.2006 357.7 26.4 10.8 394.9

Accumulated value adjustments at 1.1.2006 20.9 9.8 0.0 30.7 Merged companies 0.0 0.0 Accumulated value adjustments on decreases and transfers -6.8 -1.3 -8.1 Accumulated value adjustments at 31.12.2006 14.1 8.6 0.0 22.6

Book value at 31.12.2006 343.6 17.9 10.8 0.0 372.3

Book value at 31.12.2005 243.1 34.1 10.8 288.0

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 1.1.2006 5.6 152.5 0.8 0.7 0.9 30.2 190.7 Increase 31.7 1.0 32.7 Decrease -21.9 -0.6 -6.6 -29.0 Amount at 31.12.2006 5.6 162.3 0.3 0.7 0.9 24.7 194.4

Accumulated value adjustments at 1.1.2006 1.8 0.0 1.8 Accumulated value adjustments at 31.12.2006 1.8 0.0 1.8

Book value at 31.12.2006 3.8 162.3 0.3 0.7 0.9 24.7 192.6

Book value at 31.12.2005 3.8 152.5 0.8 0.7 0.9 30.2 188.9

Total ﬁ nancial assets of SOK at 31.12.2006 564.9 Total ﬁ nancial assets of SOK at 31.12.2005 476.9

Liabilities to secure Group companies loans: EUR 17.8 million

72 Financial Statements

14. Companies owned by SOK Corporation and SOK at 31.12.2006 Corporation’s SOK’s Registered share- voting share- Group companies oﬃ ce holding % rates % holding %

Commercial AS Kommest Auto Group Estonia 100.0 100.0 100.0 AS Prisma Latvija Latvia 100.0 100.0 100.0 AS Sokotel Estonia 100.0 100.0 100.0 Hankkija-Maatalous Oy Group Helsinki 81.0 81.0 81.0 Inex Partners 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-Bank Ltd Helsinki 100.0 100.0 100.0 SOK-Business Oy Helsinki 100.0 100.0 100.0 SOK-Holding Oy Helsinki 100.0 100.0 100.0 SOK-Invest Oy Helsinki 100.0 100.0 100.0 Sokos Hotels St Petersburg LLC St Petersburg 100.0 100.0 1.0 Sokotel Oy Group Helsinki 100.0 100.0 100.0 SOK-Takaus Oy Helsinki 99.9 99.9 99.9 Suomen Spar Oy Group Helsinki 100.0 100.0 100.0 Tapiolan Sokos Oy Helsinki 100.0 100.0 100.0 Turun Sokos Oy Turku 90.0 90.0 90.0 Real-estate companies (18 companies) Real-estate companies under stock (5 companies) Total Group companies: 55 companies

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 Finnfrost Oy Helsinki 50.0 50.0 Hotelli Joensuun Kimmel Oy Joensuu 33.0 33.0 Hotellipankki Oy Helsinki 33.3 33.3 Kauppakeskus Mylly Oy Turku 50.0 50.0 50.0 Keskuskorttelin Huolto Oy Vaasa 31.5 31.5 31.5 Movere Oy Lahti 33.3 33.3 Oy Realinvest Ab Group Helsinki 21.9 21.9 21.9 S-Crosskey Ab Maarianhamina 40.0 40.0 Total associated companies: 10 companies

Other shares owned by the parent company

Sato-Yhtymä Oyj Helsinki 8.7 8.7

73 Financial Statements

SOK CORPORATION SOK EUR million 2006 2005 2006 2005

15. Stocks Goods 294.5 158.9 Other stocks 0.2 0.3 0.3 2.4 Advance payments 1.0 1.4 Total 295.7 160.7 0.3 2.4

16. Long-term debtors Trade debtors 0.1 0.0 0.0 Loan receivables 38.0 0.2 0.2 0.2 Other receivables 0.5 0.0 Prepayments and accrued income 1.5 0.1 1.5 Total long-term debtors 40.0 0.3 1.7 0.2

17. Deferred tax assets Temporary diﬀ erences 7.9 2.8 From consolidation 3.8 3.6 Included in Group companies’ own balance sheets 5.6 Total 17.3 6.4

At 31 December 2006, the Group had a deferred tax asset of EUR 5.3 million that relates to the internal margins on ﬁ xed assets and has not been recorded in the consolidated ﬁ nancial statements as its realisation is improbable.

18. Short-term debtors

Trade debtors 492.0 395.4 361.9 315.1

Amounts owed by Group companies Trade debtors 10.6 3.3 Loan receivables 24.1 8.3 Other receivables 34.6 26.0 Prepayments and accrued income 22.3 9.6 Total 91.5 47.2

Amounts owed by participating interest companies Trade debtors 3.8 0.6 0.2 0.4 Loan receivables 0.0 0.0 Prepayments and accrued income 0.0 15.2 15.1 Total 3.9 15.8 0.2 15.5

Loan receivables 19.2 17.0 Other receivables 24.3 15.5 8.8 1.5 Prepayments and accrued income 35.0 30.9 19.9 18.6 Total short-term debtors 574.3 474.6 482.3 398.0

Speciﬁ cation of prepayments and accrued income Financial items 7.1 7.9 6.8 7.7 Other 29.4 38.3 36.9 35.6 Total prepayments and accrued income 36.5 46.2 43.7 43.3

19. Securities Other shares and participations 63.8 21.3 63.8 21.3 Money market securities 633.7 667.5 614.3 667.5 Total 697.5 688.8 678.1 688.8

A fair value speciﬁ cation by ﬁ nancial instrument group is given in a separate table.

74 Financial Statements

SOK CORPORATION

Fair value by fi nancial instrument group and changes in value entered directly in the income statement as well as changes entered in the Fair value reserve, EUR million Fair value at Cumulative change Change in value Cumulative change 31 Dec. 2006 in value entered in the entered in the in value entered income statement and income statement for in the Fair value reserve profi t brought forward the past fi nancial year

Available-for-sale ﬁ nancial assets 15.7 1.1 Deferred tax liabilities -0.3 Total, including deferred tax liability 0.8

Financial assets held for trading 682.8 4.4 1.7

Financial liabilities held for trading 4.4 -3.3 -1.4

Th e change in value of available-for-sale ﬁ nancial assets has been entered in the Fair value reserve less deferred taxes. Th e changes in value recorded in the income statement and proﬁ t brought forward include only the changes in fair value due to changes in market prices, whereas accumulated interest is periodised in the income statement.

SOK

Available-for-sale ﬁ nancial assets 1.7 0.0 0.0 1.1

Financial assets held for trading 683.1 4.7 1.6

Financial liabilities held for trading 4.5 -3.4 -1.4

75 Financial Statements

NOTES CONCERNING LIABILITIES IN THE BALANCE SHEETS

SOK CORPORATION SOK EUR million 2006 2005 2006 2005

20. Capital and reserves Cooperative capital at 1 Jan. 86.9 71.1 86.9 71.1 Increase 8.2 15.8 8.2 15.8 Decrease -0.0 -0.0 Cooperative capital at 31 Dec. 95.0 86.9 95.0 86.9

Cooperative capital consists of the cooperative payments which the cooperative enterprises make to Suomen Osuuskauppojen Keskuskunta (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 16.8 16.8 16.8 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 Keskuskunta (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 Decrease -25.4 Revaluation reserve at 31 Dec. 0.0

All of SOK Corporation’s revaluations were reversed in 2005 when going over to the principle of measurement of property, plant and equipment at cost.

Fair value reserve at 1 January 0.5 0.7 Changes in accounting policies *) 0.5 0.7 Change in value **) 0.3 0.4 Fair value reserve at 31 December 0.8 0.5 1.1 0.7

*) Owing to the change in accounting policies, the amount entered in the Fair value reserve less deferred taxes, to a total of EUR 0.5 million is due to the changeover to the measurement at fair value of ﬁ nancial instruments as from 1 January 2006. **) Deferred taxes or tax assets are not as a rule presented in the income statements and balance sheets of SOK Corporation’s subsidiaries but only as a Note to the Financial Statements if the item is material in amount.

Legal reserve at 1 Jan. 15.3 14.8 15.3 14.8 Increase 1.6 0.5 1.6 0.5 Legal reserve at 31 Dec. 16.9 15.3 16.9 15.3

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

Profi t brought forward at 1 Jan. 381.3 327.9 370.9 347.6 Changes in accounting policies *) 8.2 2.8 Transfer to legal reserve -1.6 -0.5 -1.6 -0.5 Transfer to Supervisory Board’s disposal fund -0.1 -0.1 -0.1 -0.1 Interest on cooperative capital and supplementary cooperative capital -7.0 -10.8 -7.0 -10.8 Revaluations: reversal from profi t brought forward -0.8 Translation diff erence -0.0 0.0 Profi t brought forward at 31 Dec. 372.6 323.9 362.2 338.9

Proﬁ t for the ﬁ nancial year 18.9 57.4 10.7 32.0 Total capital and reserves 521.1 500.8 502.8 490.6

*) Owing to the change in accounting policies, the amount entered directly in equity, to a total of EUR 8.2 million, is due to the changeover of recording deferred taxes in accordance with the Accountg Board’s general guidelines at 12 September 2006 as well as to the measurement at fair value of ﬁ nancial instruments as from 1 January 2006.

76 Financial Statements

SOK CORPORATION SOK EUR million 2006 2005 2006 2005

Distributable funds at 31 Dec. Profi t brought forward 372.6 315.7 362.2 336.2 Profi t for the fi nancial year 18.9 57.4 10.7 32.0 Minimum amount to be transferred to the reserve fund in accordance with the company statutes -1.5 -1.5 -1.5 -1.5 Proportion transferred to shareholders’ equity from accumulated appropriations -35.3 -31.2 Total 354.7 340.4 371.3 366.6

21. Accumulated appropriations Accelerated depreciation Intangible rights 1.1 1.0 Other capitalised expenditure 0.3 0.3 Buildings and constructions 0.2 0.3 Machinery and equipment -0.0 0.2 Total 1.6 1.8

22. Provisions Includes EUR 1.6 million of compulsory provisions incurred in purchases of subsidiaries. Partially vacant premises 18.6 1.6 0.4 1.6 Other future expenses 3.7 0.9 1.6 0.1 Total 22.2 2.5 1.9 1.7

23. Long-term creditors Loans from ﬁ nancial institutions 17.9 15.2 Trade creditors 0.4 0.3 0.0 Other long-term creditors 24.7 15.4 24.0 15.4 Accruals and deferred income 0.0 Total long-term creditors 43.0 30.9 24.0 15.4

24. Deferred tax liability Appropriations 11.7 9.7 Temporary diﬀ erences 0.6 -2.6 Arising on consolidation 2.7 1.7 Included in Group companies’ own balance sheets 2.0 Total 17.0 8.8

25. Short-term creditors

Loans from ﬁ nancial institutions 9.7 3.3 0.4 0.3 Advances received 48.5 46.1 9.8 7.9 Trade creditors 605.8 344.4 192.3 155.0

Amounts owed to Group companies Trade creditors 190.0 61.1 Other short-term creditors 179.0 149.4 Accruals and deferred income 11.9 4.6 Total 380.9 215.2

Amounts owed to participating interest companies Trade creditors 12.5 103.9 0.8 101.2 Other short-term creditors 0.3 1.8 0.3 1.8 Accruals and deferred income 0.0 Total 12.8 105.7 1.0 103.0

77 Financial Statements

SOK CORPORATION SOK EUR million 2006 2005 2006 2005

Other short-term creditors 707.1 662.7 654.8 632.3 Accruals and deferred income 156.9 111.6 70.5 57.3 Total short-term creditors 1 540.8 1 273.9 1 309.6 1 171.0

Speciﬁ cation of accruals and deferred income Staﬀ costs 48.8 26.5 8.5 8.3 Financial items 20.4 5.8 19.2 4.3 Other 87.7 79.3 54.7 49.4 Total accruals and deferred income 156.9 111.6 82.4 61.9

NOTES CONCERNING INCOME TAXES

See Note 11 above.

NOTES CONCERNING THE STAFF AND BOARD MEMBERS

26a. Average staﬀ numbers by group

Supermarket trade 882 578 Fuel sales 20 17 Deparment stores and speciality stores 361 336 Hotel and restaurant business 2 182 1 583 Automotive trade and accessories 1 008 642 Agricultural trade 936 933 Sourcing 2 474 247 Real-estate, rental and other service operations 707 592 Divested and discontinued operations 0 0 Total 8 570 4 928

SOK 760 681 Subsidiaries 7 810 4 247 Total 8 570 4 928

Th e average number of employees has been calculated as the average of the number of personnel counted at the end of each month. Th e number of staﬀ at sites abroad at 31 Dec. 2006 was 1,282.

26b. Salaries and remuneration: CEO and members of the Executive Board 4.9 3.0 1.0 0.7 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 pledges

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

78 Financial Statements

SOK CORPORATION SOK EUR million 2006 2005 2006 2005

Loans secured by guarantees

Loans from ﬁ nancial institutions 8.5 11.1 Guarantees given 8.5 11.1 Guarantees given, total 8.5 11.1

General security for liabilities Mortgages 34.4 18.9

Other security given Pledges 4.4 0.8 4.4 0.8 Mortgages 13.8 0.3 Guarantees 96.5 87.0 Total 101.0 101.6 4.4 1.2

Security given on behalf of Group companies Guarantees 75.8 83.6

Security given on behalf of others’ liabilities Guarantees given on behalf of associated companies’ liabilities 1.7 Guarantees given on behalf of cooperative enterprises’ liabilities 4.1 5.8 Guarantees given on behalf of others’ liabilities 2.2 0.2 0.2 0.2 Total 6.3 7.6 0.2 0.2

Security given on behalf of others Guarantees for liabilities of the cooperative enterprises 0.8 0.1

Other contingent liabilities

Repurchasing liabilities: Hire purchase repurchasing liabilities 104.9 101.4 Other repurchasing liabilities 67.6 69.3 32.4 32.4 Total 172.6 170.7 32.4 32.4

Leasing liabilities: Payable next year 12.4 5.7 1.5 1.4 Payable in more than one year 13.5 12.2 0.9 0.8 Total 25.9 17.9 2.5 2.3

In addition, SOK has provided supporting letters for the guarantees granted by SOK-Takaus Oy to an amount of EUR 28,602,259.10 at December 2006.

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.

79 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 31.12.2006 31.12.2006 31.12.2005 31.12.2005 Interest rate derivatives Forward contracts 40.0 40.0 Option contracts Purchased 86.2 75.2 Written 86.2 75.2 Interest rate swaps 195.1 30.5 246.8 101.0

Currency derivatives Forward contracts 55.1 49.0 30.3 25.8

Electricity derivatives Forward contracts 81.2 40.7 22.6 11.4 Option contracts Purchased 9.3 9.3 Written 3.7 3.7

Oil product derivatives Future contracts 40.9 35.5 24.3 24.3 Option contracts Written 2.9 2.9 3.1 3.1

Oat derivatives Future contracts 0.1 0.1 1.1 1.1

Liability under derivative contracts, fair value, EUR million Fair value Fair value of open of open Fair value agreements Fair value agreements 31.12.2006 31.12.2006 31.12.2005 31.12.2005

Interest rate derivatives Forward contracts -0.0 -0.0 Option contracts Purchased 0.2 0.1 Written -0.2 -0.1 Interest rate swaps -0.1 -0.1 -1.0 -1.0

Currency derivatives Forward contracts -0.3 -0.3 0.2 0.1

Electricity derivatives Forward contracts -0.0 -2.8 2.9 2.2 Option contracts Purchased 0.1 0.1 Written -0.0 -0.0

Oil product derivatives Future contracts 1.0 1.0 0.4 0.4 Option contracts Written -0.0 -0.0 -0.1 -0.1

Oat derivatives Future contracts -0.0 -0.0 0.1 0.1

80 Financial Statements

SOK

Currency derivatives Forward contracts 105.4 4.7 59.2 1.3

Electricity derivatives Forward contracts 80.8 40.3 22.6 11.4 Option contracts Purchased 9.3 9.3 Written 3.7 3.7

Liability under derivative contracts, fair value, EUR million Fair value Fair value of open of open Fair value agreements Fair value agreements 31.12.2006 31.12.2006 31.12.2005 31.12.2005 Interest rate derivatives Forward contracts -0.0 -0.0 Option contracts Purchased 0.2 0.1 Written -0.2 -0.1 Interest rate swaps -0.1 -0.1 -1.0 -1.0

Currency derivatives Forward contracts -0.0 -0.0 0.0 -0.0

Electricity derivatives Forward contracts -0.1 -3.0 2.9 2.2 Option contracts Purchased 0.1 0.1 Written -0.0 -0.0

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 changes in value of all derivatives have been recorded through proﬁ t and loss since hedge accounting is not applied.

Th e open interest rate swaps are from one month to eight years in length. Open foreign currency and electricity forwards will fall due within the next four 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.

81 Financial Statements

SOK Corporation Key Ratios 2002– 2006

2002 2003 2004 2005 2006

Net turnover 2 998 3 112 3 781 4 209 6 834

Operating proﬁ t EUR million 55 46 53 62 23 % of net turnover 1,8 1,5 1,4 1,5 0,3

Proﬁ t/loss before extraordinary items EUR million 55 52 54 69 30 % of net turnover 1,8 1,7 1,4 1,6 0,4

Proﬁ t/loss before appropriations and taxes EUR million 55 52 54 69 25 % of net turnover 1,8 1,7 1,4 1,6 0,4

Return on equity, % 9,9 7,0 9,0 11,7 5,0

Return on investment, % 8,4 6,9 7,2 7,6 4,2

Equity ratio, % 34,1 32,9 30,2 28,8 25,5

Gross investment in ﬁ xed assets EUR million 43 56 53 68 204 % of net turnover 1,4 1,8 1,4 1,6 3,0

Gearing, % 10 -2 -22 -26 -23

Th e average number of employees during the ﬁ nancial year converted to full-time staﬀ 4 126 4 557 4 494 4 346 7 096

CALCULATION OF KEY RATIOS

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

2002 2003 2004 2005 2006 Non-interest-bearing liabilities, EUR million 442 483 575 656 906

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

82 FinancialPääjohtajan Statements katsaus

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

Surplus indicated in the income statement EUR 10,655,436.41 Surplus from the previous ﬁ nancial years EUR 362,217,609.13 Total EUR 372,873,045.54

Th e Executive Board proposes that the proﬁ t for the ﬁ nancial year of EUR 10 655 436,41 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 798,284.90

– distributed as interest on cooperative contributions paid by the cooperative enterprises by the beginning of the ﬁ nancial period EUR 7,816,725.00

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

– left in the retained earnings account EUR 390,426.51

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

Cooperative capital EUR 95,049,500.00 Supplementary cooperative capital EUR 16,830,000.00 Legal reserve EUR 18,473,154.85 Supervisory Board’s disposal fund EUR 117,634.97 Retained earnings account EUR 362,608,034.64 Total EUR 493,078,325.46

Helsinki, 15 February 2007

Kari Neilimo

Jukka Salminen Esko Hakala Taavi Heikkilä

Arto HiltunenKuisma Niemelä Veli-Matti Puutio

Kimmo Simberg

83 Financial Statements

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 2006. 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, 8 March 2007

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 SOK, the Su- expires are Marcus H. Borgström, Simo Kutinlahti, Otto Mik- pervisory Board has today examined the fi nancial statements and konen, Matti Pikkarainen, Hanna Valtari, Max van der Pals, Matti consolidated fi nancial statements prepared by the Executive Board Vanto and Jouko Vehmas. In place of the above-listed persons, it is for the 2006 fi nancial year and acquainted itself with the Auditors’ proposed that at the Annual Cooperative Meeting a corresponding Report. number of members be elected for the next three-year term of of- Th e Supervisory Board proposes as its statement to the Annual fi ce. In addition, Leo Laukkanen has requested to resign from the Cooperative Meeting that the fi nancial statements and consolidat- membership of the Supervisory Board. ed fi nancial statements be adopted and that the Executive Board’s proposal concerning the profi t for the fi nancial year and shareholders’ equity be approved.

Helsinki, 16 March 2007

SUOMEN OSUUSKAUPPOJEN KESKUSKUNTA

For the Supervisory Board

Otto Mikkonen Chairman Markku Viljanen Secretary

84 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 2007