SUOMEN OSUUSKAUPPOJEN KESKUSKUNTA SOK CORPORATION

Transcription

1 SUOMEN OSUUSKAUPPOJEN KESKUSKUNTA SOK CORPORATION 2000 ANNUAL REPORT

2 CONTENTS Liber mundi (2000), by Timo Sarpaneva. Ässäkeskus head office building, 8th floor lobby. 3 Purpose of the S Group...4 CEO s Review...5 SOK Corporation in brief...6 Financial Statements for the year 2000 Report of the Executive Board...7 Consolidated Income Statement...10 Consolidated Balance Sheet...11 Consolidated Cash Flow Statement...12 SOK Income Statement...14 SOK Balance Sheet...15 SOK Cash Flow Statement...16 Accounting Principles...17 Notes to the Consolidated and SOK Income Statement and Balance Sheet...20 Key ratios and their method of calculation...34 Proposal of the Executive Board concerning the use of SOK s profit for the year...35 Auditors Report...36 Statement of the Supervisory Board...36 Field Division...38 Specialty Stores Division...41 Hotel and Restaurant Division...44 Administrative Division...46 Corporate Development and Planning...49 Human Resources and Communications...51 SOK Corporation s personnel in Associated Companies...54 The S Group...55 The S Group and the environment...56 SOK Supervisory Board...60 Executive Board...61 Supervisory system...62 SOK Organisation 1 Jan Description of the S Group...64 S Group Key Figures...65 Statistics...66

3 PURPOSE OF THE S GROUP 4 THE PURPOSE OF THE S GROUP IS TO PROVIDE SERVICES AND BENEFITS FOR COMMITTED CUSTOMER- OWNERS. The S Group consists of the cooperative societies and SOK with their subsidiaries. The SOK Corporation consists of SOK and its subsidiaries. As a central organisation for the S Group, it is the SOK Corporation s mission to promote and improve the operations of the cooperative societies and other member organisations of the S Group, to manage and supervise the Group to ensure efficient use of its overall resources, and to supervise the operations and protect the interests of the S Group and its different units. SUOMEN OSUUSKAUPPOJEN KESKUSKUNTA (SOK) Established 1904

4 CEO S REVIEW The basic conditions for the retail sector in 2000 were still good. The overall production in Finland continued to grow as estimated, on a strong level of 5.7 per cent. The export industry continued to grow forcibly, reaching a growth of 26 per cent. At the same time, Finland ran trade and current account deficits. The overall retail sales grew by 5.7 per cent but the development of commerce varied between business groups. The indicator that measures the consumer confidence in the future fell during the year, but rose to 12 points in November-December. A noteworthy fact is that consumers continued to believe in the good status of their personal finances, but were not convinced of favourable economic development. The indicator, measuring consumers intention to spend on durable goods at the time of the survey, fell considerably during the year. Although the stock market does not affect consumer behaviour in Finland to the same extent as in the USA, the fluctuating and falling share prices have had some effect on the behaviour of Finnish consumers. The retail sales of the S Group in 2000 amounted to FIM 36.2 billion. This means a growth of 6.5 per cent from the previous year, which is 0.8 per cent more than the growth rate of retail sales in the entire country. The S Group grocery sales reached 6.8 per cent growth. When the overall development in the country was approximately 3 per cent, our market share rose to 28.9 per cent. Net sales of the SOK Corporation were FIM 16.4 billion, showing an increase of 8 per cent. The combined result of the S Group before extraordinary items showed a profit of FIM 1,200 million, that is, FIM 100 million higher than the year before. The profit of the SOK Corporation was FIM 323 million. In competition between various bonus systems, the S Group succeeded well with the bonus system developed for customer-owners. The Bonus sales grew 19 per cent and the amount of the customer-owners accumulated bonus was FIM 489 million, showing an increase of FIM 97 million in comparison with the previous year. The year 2001 began well from the viewpoint of commerce. Despite the economic insecurities in the USA and Japan, and the dispirited stock markets, commerce was satisfactory, except for car and some other durable goods sales. Economic prospects are showing a more modest growth rate than last year, but the figures are still at a satisfactory level. The declining rate of inflation and interest combined with moderate income policies and tax reliefs are expected to ensure that the real spending power of households will rise to a level of 5.5 per cent. Unless consumer confidence is disturbed by the price of oil or other factors, commerce should face another year of growth. The S Group will continue to develop its operation by enriching the idea of partnership with the customer-owners, suppliers and other interest groups. I would like to express my warmest thanks to our customer-owners for their confidence in the S Group. I would also like to thank our administration for excellent cooperation. The personnel of cooperative societies and the SOK Corporation deserve a warm thank for their good performance and for their successful efforts to the benefit of our customer-owners. I also wish you all the best for work in Helsinki 14 March 2001 Jere Lahti 5

5 SOK CORPORATION IN BRIEF Net turnover, FIM million Operating profit, FIM million Profit before extraordinary items, FIM million Investments, FIM million Total assets, FIM million Return on investment % Equity ratio % Personnel

6 REPORT OF THE EXECUTIVE BOARD The trading environment Finland s economy continued to grow during the year According to the preliminary data of Statistics Finland, GDP growth reached approximately 5.5 per cent. During the past year, the sectors showing the strongest increase in production were the metal industry (22 per cent) and the electronics and electrical industry (38 per cent). These industries are largely behind the strong growth in exports. The annual total production growth will exceed 5 per cent. The growth rate of consumer spending remained at a high level. During the period from January to September, the statistics show a growth of volume of 4.5 per cent. The growth in durable goods was very strong at the beginning of the year but slowed down towards the end of the year; the growth during the period January - September reached about seven per cent. The number of cars registered decreased 1.1 per cent during the year Semidurable goods showed a growth of over 5.5 per cent, and spending on non-durable goods (groceries, fuel, and energy) grew by 2.6 per cent. According to the preliminary data, the increase in the consumption of services was 2.5 per cent. Consumer confidence strengthened during the latter half of the year after a slight fall in the autumn. The development of prices was very unstable during As the price of oil rose strongly, the rate of inflation increased but towards the year-end, the price of oil started to decrease. The average increase in consumer prices amounted to 3.4 per cent. Foodstuffs and non-alcoholic beverages increased slightly over one per cent. In the commodities group, the rate of inflation was mainly accelerated by the cost of living (+5.4 per cent) and traffic (+5.8 per cent). Retail sales rose by an annual 5.5 per cent. One per cent of the growth can be accounted for the rise in prices but 4.5 per cent of it is due to the increase in volume. Department store volume grew approximately 5.5 per cent by the end of November and the sales of groceries by 3.8 per cent. The sales of licensed bars and restaurants increased by approximately 6 per cent in Hotel accommodation sales increased by four per cent on the basis of the number of rooms booked. Owing to the growth in the supply of accommodation, the room occupancy rate remained at approximately 50 per cent. Changes in the structure of the Corporation The operation of the Sokos Hotel Kimmel was transferred to the Hotel Joensuun Kimmel Oy, which was co-founded by North Karelia Cooperative Society and Sokos Hotels. Sokos Hotels owns a 33 per cent share. Thus, the new company is an associated company of SOK. The real estate company Joensuun Kimmel sold the land and building of the Sokos Hotel Kimmel at the beginning of February. At the same time, a long lease was agreed with the buyer. At the beginning of April, the whole share capital of the real estate subsidiary in Kajaani was sold to the Cooperative Society Maakunta that carries on business on the premises. Respectively, at the beginning of February, the shares of the associated real estate company in Hämeenlinna were sold to the Cooperative Society Hämeenmaa that practices grocery trade in the building. In Tampere, the whole share capital of the real estate subsidiary was sold to the Cooperative Society Pirkanmaa that carries on business on the premises at the end of July. SOK sold the share capital of the Kiinteistö Oy Oulun Valtakulma to Cooperative Society Arina in October. At the beginning of June, SOK bought Foodbaltic Oy shares owned by co-op Schleswig-Holstein, which made Foodbaltic Oy a fully owned SOK subsidiary. The subsidiary of Foodbaltic Oy, Hansafood AS, opened a Prisma hypermarket in Tallinn in October. Foodbaltic Oy founded a chain management company Hansacoop Oü in co-operation with Eesti Tarbijateühistute Keskühistu (ETK, Estonian central firm for cooperative societies) for the benefit of the Prisma -markets. Sonera Plaza Oy became a shareholder in S-Kanava Oy with a 50 per cent share. S-Kanava Oy was a SOK subsidiary engaged in and developing consumer goods sales on the Internet. Royal Hotels Oy bought the business of the Rivoli Hotel Espoo at the beginning of October. In Raisio, the real estate company Kuloisten Kauppakeskus, equally owned by SOK and Turku Cooperative Society, was sold to the investment company Nordisk Renting Oy, from which both SOK and Turku Cooperative Society leased the space for their business. Two companies were founded with the Turku Cooperative Society in October, one for the managing and administration of the Shopping centre Mylly and the other for the possible future needs of the business. The share capital of the real estate company owning the former Anttila real estate in the city centre of Turku was bought for future development projects. At the end of the year, approximately twenty real estate subsidiaries were merged into the SOK or subsidiaries owned by SOK in order to simplify the structure of the real estate companies. At the end of the year, the Royal Hotels Oy was merged into the Sokos Hotels Oy in order to boost the hotel and restaurant business. At the same time, the name of the Sokos Hotels Oy was changed into Sokotel Oy. Jollas Opisto Oy was divided into two units; a training company and a company owning the real estate at the end of the year. During the year, there were some minor sales and purchases of shares and real estates. Changes after the period At the beginning of 2001, the business operations of Etelä- Suomen Huoltamot Oy were sold to Hämeenmaan Huoltamot Oy, a subsidiary of the Cooperative Society Hämeenmaa. According to the reorganisation programme of the Sokos business, the Sokos business operations were sold to the companies owned by SOK and the respective cooperative societies in Helsinki and Tapiola as well as in Tampere, Turku and Pori on 1 January The aforementioned companies are SOK owned by 90 per cent. Oy Sokos Ab will continue to operate in Kouvola and Oulu until its outlets are closed down in the spring In other towns, the businesses were sold to the respective cooperative societies on 1 January 2001 and in Seinäjoki and Lappeenranta in the autumn

7 8 Net turnover Net turnover of the SOK Corporation amounted to FIM 16,375 million, which showed an increase of 8.4 per cent in comparison with the previous year. Factors particularly contributing to the growth of net turnover were the invoicing of goods delivered to the chain units directly from industry (EDI) and the good sales development of the Hankkija Agriculture Ltd and Intrade Partners Oy, a supply company for consumer goods, and the car dealership. The favourable sales development was due to the car dealerships in Estonia and Latvia. SOK bought the majority holding in the dealerships at the end of The combined net turnover of agricultural and hardware stores increased by 7.1 per cent. The sales of Agrimarkets grew by eight per cent, whereas the overall market of agricultural equipment in Finland grew approximately 5 per cent. Therefore, Hankkija Agriculture Ltd reached better results than the general trend in the sector suggested. The sales of seed and working machinery decreased from the previous year, fertiliser sales were at the same level as last year, and the sales of heavy machinery, fodder, grain and hardware trade increased. The net turnover of the companies operating in the hotel and restaurant business were at the previous year s level. Comparatively however, the growth in net sales amounted to 5.4 per cent, when the growth of the overall market was approximately 4 per cent. Profitability remained high and the operating profit of the companies was clearly better than last year. The growth in the occupancy of hotel rooms reached the industry average and the level of the previous year. The growth in the utilisation rate of the SOK hotel companies exceeded the national average. The number of the hotels remained the same when the Sokos Hotel Kimmel was sold to the company co-owned by North Karelia Cooperative Society and Sokos Hotels Oy, and a new hotel unit was acquired in Espoo. It will be opened as a new unit of the Radisson SAS chain at the beginning of Net turnover in the corporation s car business grew by 21.9 per cent. The market share of Peugeot, imported by Oy Maan Auto Ab, remained at the level of the previous year, at 5.6 per cent and the market share of Peugeot commercial vehicles grew from 5.5 per cent to 6.2 per cent. The strong demand for Peugeot cars in the European market resulted in a limited supply, which in turn restricted sales. The factors contributing to the growth in net sales were the car dealerships in Estonia and Latvia. Their business started in the SOK Corporation at the end of the year 1999 and their turnover during 2000 amounted to FIM 181 million. Net turnover of the SOK Corporation s Sokos Department Stores and special shops for clothing were slightly reduced from the previous year. Net sales of Oy Sokos Ab diminished by 0.6 per cent, a lower figure than the national average in the industry. The development of clothing sales in Finland was weaker than expected. Net turnover of the SOK Corporation s consumer goods sourcing grew by 10.8 per cent. The strong growth was supported by the expansion of the Prisma chain and its success in commodity sales. Result The surplus of the SOK Corporation before extraordinary items was FIM 323 million. In the previous year, the corresponding result was FIM 292 million. The result includes other income from business operations, a proportion of the result of associated companies, value adjustments of fixed assets and investments, as well as their reversal and the change in obligatory provisions. Return on invested capital amounted to 9.2 per cent (8.9 per cent the year before). The largest item in income from other business operations was the sale of the Joensuun Kimmel Hotel and real estate, which generated a FIM 67 million profit. Other relatively significant sources of income were the sales of the Sokos real estate in Oulu to the Cooperative Society Arina and the Sarankulma real estate in Tampere to the Pirkanmaa Cooperative Society. Personnel costs remained at the level of the previous year, which resulted from the sale of the business operations of Hämeenlinnan Automarket Oy in October Value adjustments of fixed assets included machinery and equipment and other long term assets. The item includes the reversals of the depreciations of previous years. The decrease in rents is mostly due to the increase in obligatory provisions during the previous year and to their use during the accounting period. The difference between interest and other financing expenses and interest and other income was FIM 24.8 million smaller than in the previous year, which was the result of the reduction of net indebtedness and the control of the interest rate, as well as of the reversal of the value adjustment of the subordinated loan given to the Cooperative Society Hämeenmaa. In financing income and expenses, value adjustments of investments in fixed assets amounted to FIM 3.7 million, whereas the corresponding amount in the previous year was FIM 1.9 million. Due to the negative development of HOT Hometechnics Ltd, an obligatory reserve of FIM 14 million for extraordinary items has been made in preparation for the possible reorganisations in the future. The combined result of business groups was better than anticipated and also better than the year before. The result of agricultural and hardware sales achieved the anticipated level, but remained lower than the year before. The result in the hotel and restaurant business operations achieved the anticipated level and was better than the year before. The result in the car sales business achieved the anticipated level but remained at the last year s level. The result of the business operations of Sokos showed a loss but was better than the year before The result of the real estate operations was better than anticipated and also better than the year before. Operations of SOK SOK is the parent association of the SOK Corporation. According to its regulations as the central association of the S Group, its function is to promote and develop the activities of cooperative societies and other associations belonging to the S Group, to manage and supervise the efficient use of the Group s overall resources, and to monitor the activities and the interests of the S Group and its different units. The business operations of SOK consist of the provision of chain management, customer-owner and marketing services and other unit and Group services for the companies belonging to the S Group. Services with relevance to other S Group business operations include supply services, rental services, and the product category and invoicing services for goods delivered directly from industry to the chain units. Through its nation-wide subsidiaries, SOK diversifies the selection of services available for the customer-owners. In order to enhance the Sokos business operations, a restructing programme was launched in the spring The programme consisted of sharpening the business content, developing chain management and procurement services, and business sales to regional cooperative societies and to the companies co-owned by SOK and cooperative societies. The

8 programme was carried out according to plan and the sharpened chain management and procurement service operation was launched in co-operation with the Inex Partners Oy in autumn. The business sales were realised mainly on 1 January The operational requirements of the e-commerce company S-Kanava Oy were boosted by entering into co-operation with Sonera Corporation. At the same time, S-Kanava Oy became an equally owned associated company of SOK and Sonera Plaza Oy. Net turnover of SOK was FIM 7,273 million showing an increase of 10.7 per cent in comparison with the previous year. Surplus before extraordinary items was FIM 59 million, whereas the year before the corresponding figure was FIM 37 million. Income from other business operations fell considerably while other business expenses dropped. The reduction in other business expenses was largely due to the increase in obligatory provisions during the previous year. Rental costs included in other business expenses mainly consist of rent for facilities rented for the SOK Corporation or other companies of the S Group. The decrease in SOK s rental costs is caused by the aforementioned increase in the obligatory provisions during the previous year. Investments and divestments Acquisitions included in the SOK Corporation s fixed assets, i.e. investments in fixed assets amounted to FIM 361 million. The major investment was the purchase of the business operation of the Rivoli Hotel in Espoo. The improvement in the operational requirements of the units has been in focus in the hotel and restaurant business group, where the Sokos Hotel Pasila was the most significant object. Other central investments included the acquisition of the former Anttila real estate in Turku, the expansion and renovation of the logistics centre located in Kilo, Espoo, and the expansion of Intrade Partners Oy logistics centre in Hakkila, and the investments required by the building of the new information system project. Other investments consisted of purchases of furniture, interior design and IT systems in different sectors. The sale of the SOK Corporation s fixed assets amounted to FIM 190 million. Major items included therein were the sale of the business operation and real estate of the Sokos Hotel Joensuun Kimmel for the total of FIM 109 million. Other sale of fixed assets has been described in chapter Changes in the structure of the Corporation. Financing Short-term interests within the Euro area rose significantly during the year. The rise in long-term interests, started last year, levelled and the decreased towards the end of the year. The net financing expenses of the SOK Corporation before the value adjustments of the fixed asset investments were FIM 31 million, which showed a decrease of FIM 8 million from the previous year. The cash flow before extraordinary items, according to the SOK Corporation s sources and application of funds, showed a surplus of FIM 165 million. The indebtedness of the Corporation continued to reduce during the financial year, which is reflected by the change of gearing from 49 to 36. At the end of the financial year, interest-bearing net liabilities amounted to FIM 864 million, which shows a decrease of FIM 177 million from the previous year. Liquid assets at the end of the year amounted to FIM 2,004 million. In addition, the Corporation had a reserve of FIM 1,129 million in unused long-term credit limits. Personnel The average number of permanent personnel during the financial year was 4,500. The number of personnel in the SOK Corporation at the end of 2000 was 5,062, of which 401 (7.9 per cent) were SOK s personnel and 4,661 (92.1 per cent) subsidiary employees. The number of personnel grew by 15 (0.3 per cents) from the previous year. Foodbaltic Oy, that started the Prisma business in Tallinn and transferred into a subsidiary of SOK, its subsidiary Hansafood AS and the newly founded restaurant subsidiary Foodcourt AS in Tallinn have influenced the increase in personnel. On the other hand, the number of personnel was reduced by the closures of the Sokos Hotel Raumanlinna in Rauma and the Sokos Hotel Vaakuna in Kokkola and the business transfer of the Sokos Hotel Kimmel from the SOK Corporation. Preparations for the introduction of the euro As the Year 2000 project of the SOK Corporation and the entire S Group ended, the S Group could concentrate on the introduction of the euro. Consumers will have euro-denominated banknotes and coins from the beginning of 2002 and during the transition period of two months the euro and the Finnish markka will be used side by side. Until the end of 2001, the accounting currency of the SOK Corporation and the cooperative societies will be the Finnish markka. Financing however, has been carried out in euro since 1 January 1999 and the financial administration has been capable of handling euro-denominated invoices, the amount of which has been low for the time being. The customer interfaces will be kept in markka form until the end of 2001, i.e. until the end of the period when retail operations are conducted in markka. Euro-prices have been visible to customers along with the markka prices since the spring This concerns the price tags in shelves, price stickers on products and in advertising. In addition, receipts include the total price in euro. In the spring 2000, the Board of Directors appointed the organisation for the euro project. At the same time, the principles of the euro transition for the S Group were outlined. The focus is on customers perspective and reliability. Prospects for the current year The positive operating conditions of the retail sector are estimated to continue during the year The spending power of households will grow owing to increases in salaries, income tax decisions, improvement in employment grow and the slowing rate of inflation. In addition, consumer confidence is expected to strengthen. Consumer prices are estimated to rise approximately 2 per cent during the year, which is considerably less than last year. Growth in retail sales is expected to reach 4.5 per cent, which would be at the same level as in the previous year. The operating result of the SOK Corporation is estimated to decrease compared to The restructuring of the Sokos business operations will have a positive impact on the operating result of the corporation but the combined result of the founded companies will be negative. The result of the hotel and restaurant sector is expected to fall due to the investments but car sales are expected to show improvement when the supply increases, whereas the result of agricultural sales are estimated to remain at the same level as in

9 CONSOLIDATED INCOME STATEMENT FIM million Ref Net turnover (1) Other operating income (2) Materials and services Raw materials and consumables (3) External services Staff costs Wages and salaries Social security costs (4) Depreciation and value adjustments (5) Other operating expenses Rents Other expenses (6) Share of associated companies profits (+/ ) Operating profit (1) Share of associated companies profits (+/-) Financial income and expenses (+/-) (8) Profit before extraordinary items Extraordinary items (+/-) (9) Profit before taxes Income taxes (+/-) (11) Minority interest (+/-) Profit for the financial year

10 CONSOLIDATED BALANCE SHEET ASSETS FIM million Ref FIXED ASSETS Intangible assets (12) Group goodwill (12) Tangible assets (12) Shares in associated companies (13) Other financial assets (13) CURRENT ASSETS Stocks (15) Long-term debtors (16) Deferred tax assets (17) Short-term debtors (18) Investments (19) Cash at bank and in hand LIABILITIES FIM million CAPITAL AND RESERVES (20) Cooperative capital Supplementary cooperative capital Revaluation reserve Legal reserve Supervisory Board s disposal fund Profit brought forward Profit for the financial year MINORITY INTEREST PROVISIONS (22) CREDITORS Capital loan (23) Long-term creditors (24) Deferred tax liability (25) Short-term creditors (26)

11 CONSOLIDATED CASH FLOW STATEMENT FIM million BUSINESS OPERATIONS Operating profit Adjustments to operating profit (1) Change in working capital (2) Cash flow from business operations before financing and taxes Interest paid and other financial expenses Interest received and other financial income Dividends received from business operations Direct taxes paid Cash flow from business operations INVESTMENTS Subsidiary shares purchased Acquisition of other fixed assets Subsidiary shares sold Sale of other fixed assets Change in other long-term investments Adjustment of items booked on accrual basis Liquid assets of subsidiaries sold and acquired Dividends received from investments Cash flow from investments FINANCING Increase in long-term creditors Decrease in long-term creditors Increase (+)/decrease (-) in short-term creditors Increase (-)/decrease (+) in short-term debtors Change in short-term investments Minority interest in group companies Increase in cooperative capital and supplementary cooperative capital Interest paid on the cooperative capital and supplementary cooperative capital Decrease in capital and reserves Cash flow from financing Increase (+)/decrease (-) in liquid funds Liquid funds at the beginning of the year Liquid funds at the end of the year Adjustments to operating profit (1) Gains (-) and losses (+) from the sale of fixed assets Depreciation and value adjustments Income and expenses which do not involve payment Change in working capital (2) Change in trade debtors Change in stocks Change in short-term interest-free creditors

12 SOK CORPORATION NET TURNOVER PROFIT BEFORE EXTRAORDINARY ITEMS RETURN ON INVESTMENT % PERSONNEL AT FIM million FIM million % OPERATING PROFIT NET INTEREST PAYABLE (% of net turnover) GROSS INVESTMENT IN FIXED ASSETS FIM million FIM million FIM million % 0.5 % 0.5 % % 0.2 % NET INTEREST-BEARING CREDITORS AT CAPITAL AND RESERVES* AT (Equity ratio, %) GEARING,% FIM million FIM million % % % % % * including minority interest and accumulated appropriations 1996

13 SOK INCOME STATEMENT FIM million Ref Net turnover (1) Other operating income (2) Materials and services Raw materials and consumables (3) External services Staff costs Wages and salaries Social security costs (4) Depreciation and value adjustments (5) Other operating expenses Rents Other expenses (6) Operating profit (loss) (1) Financial income and expenses (+/-) (8) Profit before extaordinary items Extraordinary items (+/-) (9) Profit before appropriations and taxes Appropriations (+/-) (10) Income taxes (+/-) (11) Profit for the financial year

14 SOK BALANCE SHEET ASSETS FIM million Ref FIXED ASSETS Intangible assets (12) Tangible assets (12) Financial assets (13) CURRENT ASSETS Stocks (15) Short-term debtors (18) Investments (19) Cash at bank and in hand LIABILITIES FIM million CAPITAL AND RESERVES (20) Cooperative capital Supplementary cooperative capital Legal reserve Supervisory Board s disposal fund Profit brought forward Profit for the financial year ACCUMULATED APPROPRIATIONS (21) PROVISIONS (22) CREDITORS Capital loan (23) Long-term creditors (24) Short-term creditors (26)

15 SOK CASH FLOW STATEMENT FIM million Ref BUSINESS OPERATIONS Operating profit Adjustments to operating profit (1) Change in working capital (2) Cash flow from business operations before financing and taxes Interest paid and other financial expenses Interest received and other financial income Dividends received from business operations Direct taxes paid Cash flow before extraordinary items Cash flow from the extraordinary items of business operations Cash flow from business operations INVESTMENTS Acquisition of fixed assets Sale of fixed assets Change in other long-term investments Adjustment of items booked on accrual basis Dividends received from investments Cash flow from investments FINANCING Increase in long-term creditors Decrease in long-term creditors Increase (+)/decrease (-) in short-term creditors Increase (-)/decrease (+) in short-term debtors Change in short-term investments Increase in cooperative capital and supplementary cooperative capital Interest paid on the cooperative capital and supplementary cooperative capital Decrease in capital and reserves Group contributions received Liquid funds from merger Cash flow from financing Increase (+)/decrease (-) in liquid funds Liquid funds at the beginning of the year Liquid funds at the end of the year Adjustments to operating surplus (1) Gains (-) and losses (+) from the sale of fixed assets Depreciation and value adjustments Income and expenses which do not involve payment Change in working capital (2) Change in trade debtors Change in stocks Change in short-term interest-free creditors

16 NOTES TO THE FINANCIAL STATEMENTS ACCOUNTING PRINCIPLES In accordance with SOK's rules and regulations, the name SOK Corporation is used for the SOK Group. The SOK Corporation consists of SOK (Suomen Osuuskauppojen Keskuskunta) and its subsidiaries. SOK's financial statements and consolidated financial statements have been prepared in accordance with the Finnish Accounting Act. The cash flow statement has been prepared in accordance with the general recommendation of the Finnish Accounting Standards Board, issued on 9 November 1999, applying the indirect form of cash flow statement. The cash flow statement data from the previous year have been rearranged into groups. Financial statements for the Parent Cooperative and all Finnish subsidiaries have been expressed in Finnish marks. Scope of the consolidated financial statements The consolidated financial statements cover the parent cooperative and all companies in which the parent cooperative held, either directly or through its subsidiaries, more than half of the voting rights at the end of the year. Four subsidiaries of the above-mentioned companies operate in Estonia and one in Latvia. The financial statements of associated companies (voting rights 20 50%) have been included in the consolidated financial statements. One of these associated companies operates in Estonia and one in Latvia. The consolidated financial statements do not include nine subsidiaries that were not engaged in business activities. Furthermore, eight housing companies, of which seven are governed by the State Housing Board regulations, have not been consolidated. The omission of these subsidiaries and associated companies has no relevant impact on the Group's result and shareholders' equity. Principles of consolidation The consolidated financial statements have been prepared by combining the Group companies' income statements and balance sheets and notes thereto. The financial statements of the Group companies cover the period from 1 January to 31 December Companies acquired or formed in the course of the financial year have been consolidated from the date of acquisition or formation. Subsidiaries or associated companies sold have been consolidated up to the date of sale. Intra-group holdings Intra-group holdings in subsidiaries have been eliminated using the acquisition cost method of accounting. Intra-group shareholding was eliminated by deducting the acquisition cost of shares as well as by deducting the amount equivalent to the holding of the Group from the subsidiaries' shareholders' equity. The shareholders' equity of the subsidiaries acquired after the beginning of the financial year 1998 also includes accelerated depreciation and voluntary provisions less deferred tax liability. Differences arising from eliminations, for the part that they have been caused by the differences between the current and book values of properties, have been allocated to the relevant fixed assets and the remaining part is shown as the Group goodwill in the balance sheet. The Group goodwill included in buildings has been depreciated in line with the depreciation plan for the building in question. Group goodwill is depreciated over a period of five years on a straight-line basis. Intra-group transactions and profit margins When preparing the consolidated financial statements, all intra-group income and expenses, distribution of profits, receivables and debts as well as non-realised profit margins from intra-group transactions have been eliminated. Minority interests Minority interest in the financial year's profit is shown as a separate item in the income statement. Minority interest in capital and reserves is also shown as a separate item in the consolidated balance sheet. Conversion differences Financial statements of foreign subsidiaries have been converted into Finnish marks at the average exchange rate of the Bank of Finland on the balance sheet date. Conversion differences arising from the elimination of shareholders' equity have been entered under profit brought forward in the consolidated balance sheet. Associated companies The equity method has been used to consolidate associated companies into the consolidated financial statements. The Group's share of the associated companies' profit for the financial year, which is proportional to the Group's holdings, adjusted with any depreciation of goodwill and dividends received, has been shown on the consolidated income statement after the operating profit. In turn, the result of associated companies serving the Group's actual business operations have been included in the operating profit. In the consolidated balance sheet, the Group's share of the net capital of an associated company accumulated after the acquisition, also inclusive of accumulated appropriations less deferred tax liability, has been added to the acquisition cost of associated companies and the Group's shareholders' equity. Intra-Group profit margins created in transactions between the Group companies and associated companies have been eliminated in proportion to each party's holdings. Margins were deducted from the Group's profit brought forward and the share acquisition cost of associated companies. Eliminated sales proceeds are recognised as income in keeping with depreciation. 17

17 18 Items denominated in foreign currencies and derivative contracts The business transactions denominated in foreign currencies have been entered at the exchange rate of the transaction date. Receivables and liabilities in foreign currencies outstanding on the balance sheet date have been converted into Finnish marks at the rate of the Bank of Finland on the date of the financial statements, and the translation differences have been entered as affecting income. Contracts signed for hedging purposes Currency forwards Interest gains and losses associated with currency forwards have been distributed over the contract period as interest income or expenses or adjustments thereto. Exchange rate differences of currency forwards signed for hedging purposes have been entered as affecting income or expense against the exchange rate difference arising from the hedged item in the course of the financial year during which the exchange rate difference of the hedged item was entered. The unrealised exchange rate gains or losses on future cash flows hedged with currency forwards after the balance sheet date have been entered in the balance sheet. Forward rate agreements and interest rate swaps The unrealised changes in the value of forward rate agreements have not been entered, and the realised changes of value have been distributed over the period of the agreement. The interests of interest rate swaps have been distributed over the contract period to adjust interest income or expense. Changes in the values of interest rate swaps used for hedging have not been entered. Share forwards The valuation profit for share forwards has been recognised as income in the amount of a loss charged as expense of the hedged item at most. Of negative changes of value, the share exceeding the non-registered valuation profit for the hedged item has been recorded. Interest rate, foreign currency, share and share index options Paid and received option premiums have been entered under advances received and paid. Premiums for interest rate options have been periodised over the contract period to adjust entered, hedged interests. Realised changes of value have been periodised over the contract period. Unrealised changes of value have not been entered. Exchange rate differences of foreign currency options have been entered as items affecting the result against the exchange rate difference caused by the hedged item in the course of the financial year during which the exchange rate difference of the hedged item was incurred. The maximum amount of valuation profit for share and share index options entered corresponds to the loss recorded for the hedged item. Of negative changes of value, the share exceeding the non-recorded valuation profit has been registered. Electricity derivatives The SOK Corporation evaluates the price risks of electricity for a two-year period. Electricity derivatives are mainly used for hedging from the price risks of electricity. The premiums of the electricity option contracts made for hedging purposes have been entered as advances paid and subsequently periodised over the contract period to adjust electricity purchases entered. Unrealised gains and losses from electricity options, forwards and futures have not been entered and the realised changes in value have been spread over the contract period. Derivative contracts for purposes other than hedging Derivative contracts are mainly made for hedging purposes. Derivative contracts other than those made for hedging purposes may only be made within the risk limits specified in the Corporation's risk management regulations approved by the Board of Directors of SOK. The negative changes in value of positions of derivative contracts made for purposes other than hedging outstanding on the date of the financial statements have been charged as expenses. Valuation profits for outstanding positions have only been recognised as income for an amount corresponding to the losses entered earlier for the contracts included in the position. Changes in the values of closed positions have been entered as affecting income on 31 December The current value of outstanding contracts made for purposes other than hedging on 31 December 2000 was FIM 0.3 million. Fixed assets and depreciation In the balance sheet, fixed assets have been valued at cost less accumulated planned depreciation. Furthermore, certain land areas and buildings include non-depreciated revaluations made in previous years. The revaluation reserve in the consolidated balance sheet is FIM 621 million. Planned depreciation was calculated in accordance with a depreciation plan drawn up in advance and on a straight-line basis from the original acquisition cost of fixed assets. Depreciation has been calculated from the beginning of the month after the asset was put into use. Depreciation periods, which are based on the expected useful life of the assets, are shown in Notes to the Income Statement under Depreciation. Stocks Stocks are entered in the balance sheet on the FIFO basis at the acquisition cost, or repurchase price, or probable selling price, whichever is the lowest. Investments Investments have been valued at the acquisition costs or at market price, whichever is the lowest.

18 Leasing Leasing payments are shown as rent expenses in the income statement. Future expenses and losses Future expenses and losses to which the company has committed to or that are likely to materialise are charged as expenses under the relevant expense item. In the balance sheet, these expenses and losses are included in provisions for liabilities and charges. Deferred taxes In the consolidated balance sheet, accumulated appropriations shown on individual financial statements have been divided into deferred tax liability, shareholders' equity, and minority interest. Any changes in these items are shown in the consolidated income statement. In the calculation of deferred tax liability, the depreciation not deducted in taxation has been taken into account as a reducing factor. Deferred tax assets arising from the Group companies' provisions for liabilities and charges and confirmed losses are shown only on the consolidated balance sheet, while the change in deferred tax assets is shown in the consolidated income statement. The deferred tax liabilities and assets arising from 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 the prudence concept, the consolidated balance sheet shows the deferred tax liability in its entirety and deferred tax assets in the estimated and probable amount. The deferred tax liabilities and assets were calculated using the confirmed tax base for the next year, which is 29 per cent. Pension arrangements In addition to the statutory pension insurance scheme, the SOK Corporation and companies in the S Group have made voluntary pension arrangements with the Eläkekassa Elonvara pension fund. Additional pension insurance has been taken out for former members of the Elonvara pension fund who were employed by the SOK Corporation to secure their current and future retirement benefits compliant with the regulations of the pension fund. 19 MANAGEMENT OF FINANCIAL RISKS SOK's Finance unit is responsible for managing the SOK Corporation's financing and financial risks. The SOK Board of Directors has confirmed the SOK Corporation's regulations for financial policy, strategy, and the management of financial risks. These regulations define the principles for the management of financial risks and the maximum rates of financial risks. Furthermore, numerical targets have been set for the different sectors of financing in order to secure the adequacy, balance and affordability of financing under all circumstances. Liquidity risk The SOK Corporation aims at minimising liquidity and refinancing risks through a balance maturity distribution of loans and sufficient funding reserves. Sufficient liquidity is maintained with cash, credit accounts, liquid investments in the money market, and binding long-term credits. In accordance with its financial strategy, the SOK Corporation aims at maintaining the amount of its liquid funds and binding long-term credits not in use at the minimum level of 10 per cent of the balance sheet total of the SOK Corporation. The target set for the quick ratio is over 1, including long-term credits not in use. Liquid assets on 31 December 2000 amounted to FIM 2,003.7 million, and binding credits not in use were FIM 1,129.2, totalling 39.7 per cent of the balance sheet total. With attention to the above-mentioned credits, the quick ratio of 31 December 2000 was 1.1. Interest rate risk The SOK Corporation manages interest rate risks by distributing loans between fixed and variable instruments and by using interest rate derivatives. Of the SOK Corporation's anticipated net loans with variable interest rate, 100 per cent were hedged for the year 2001 on 31 December 2000, and the majority for the year 2002, using interest rate forwards, options and interest rate swaps. Foreign exchange risk The turnover of the SOK Corporation is generated almost exclusively in Finland. Commercial foreign exchange risks in the SOK Corporation are the responsibility of the unit closing the business deal. On 31 December 2000, the foreign exchange risks of the foreign exchange loans of the SOK Corporation and its Finnish subsidiaries were fully hedged with currency swaps. The extent of the foreign exchange risk related to the balance sheets of the Baltic subsidiaries is examined on the basis of the balance sheet source analysis. The foreign exchange risk is reduced primarily by financing the companies' operations in the same currency as they use and, second, by using derivatives. Credit risk The management of credit risks involved in commercial activity forms a part of the business units' ordinary activities. Investments and trade on derivatives may only be conducted with parties approved by the Board of Directors of SOK, within the limits approved by the Board of Directors.

19 NOTES TO THE ACCOUNTS FIM million SOK CORPORATION SOK NOTES CONCERNING THE INCOME STATEMENTS 1a. Net turnover by sector Agricultural and hardware trade Hotel and restaurant business Car trade Sokos department stores and special clothing shops Service stations and petrol business Grocery trade Consumer goods sourcing EDI invoicing Real estate and property leasing and other services Operations sold Eliminations Total Domestic business operations contstitute 98.5% of the turnover b. Operating profit by business area Agricultural and hardware trade Hotel and restaurant business Car trade Sokos department stores and special clothing shops Service stations and petrol business Grocery trade Consumer goods sourcing EDI invoicing Real estate and property leasing and other services Operations sold Other operating income + inter-group transactions Total 2. Other operating income Profits on sale of fixed assets Goodwill income Other operating income Total 3. Raw materials and consumables Purchases during the financial year Change in stocks (+/-) Total 4. Staff costs Wages and salaries Pension costs Other social security costs Total Informaton concerning the staff and members of the boards is contained under item

20 FIM million 5. Depreciation and value adjustments Depreciation according to plan Value adjustments of group goodwill intangible and tangible fixed assets Reserved value adjustments Total SOK CORPORATION SOK The itemised specifications of the change in depreciation and accelerated depreciation are included under fixed assets and accumulated appropriations in the balance sheet notes. Planned depreciation is calculated on a straight-line basis so as to write off the cost of fixed assets over their expected useful lives. Value adjustments have not been depreciated. Planned depreciation is as follows: Years Buildings Light constructions and building equipment Office and warehouse fixtures 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 Other tangible and intangible assets as permitted by taxation laws The write-off period for the goodwill of Royal Hotels Oy (merged into Sokos Hotels Oy on 31 December 2000) is ten years as an exception to the regular 5-year write-off period. These goodwill arise from the business operations transactions conducted in order to created the Radisson SAS hotel brand and network, whose yield expectations extend to a period of ten years at least. 6. Other operating expenses Other operating expenses Losses on sale of fixed assets Total Rents are presented as a separate item in the income statement. 7. Increase(-)/decrease(+) in provisions for liabilities and charges Increase in rent expenses against empty business premises Decrease in rent expenses against empty business premises Increase in other future expenses and losses Decrese in other future expenses and losses Total 8. Financial income and expenses Dividend income from group companies Dividend income from participating interest companies Dividend income from others Total dividend income on financial assets Interest income on other financial assets From group companies From others Other interest and financial income From group companies From others Total interest and other financial income Value adjustments of financial assets Reversed value adjustments of fixed assets Interest and other financial expenses To group companies To others Total interest and other financial expenses Total financial income and expenses