Financial statements for the period 1 January-31 December 2005

The Group's net sales in the year 2005 were EUR 8,321.7 million, up 10.8% on the the previous year (EUR 7,508.5 million). The operating profit was EUR 249.3 million (EUR 250.8 million). Non-recurring items excluded, the operating profit was EUR 212.5 million (EUR 201.1 million). The Group's profit before taxes was EUR 238.6 million (EUR 241.3 million). Non-recurring items excluded, the profit before taxes was EUR 201.8 million (EUR 191.7 million). Earnings per share were EUR 1.87 (EUR 1.89). Equity per share was EUR 15.35 (EUR 14.73).

Net sales and profit

Net sales in 2005
The Group’s net sales in 2005 were EUR 8,322 million, which is 10.8% up on the previous year (EUR 7,509 million). The Group’s net sales increased by 3.7% in Finland and by 52.8% in other countries.

* exports and net sales in countries other than Finland.

Exports and foreign operations accounted for 20.0% (14.5%) of net sales. The net sales of Indoor Group Ltd, acquired by Keswell Ltd, are included in the figures as of 22 January 2005 and its impact on Keswell’s growth was 20.7 percentage points. The net sales of Norgros AS and those of the Stroymaster chain acquired by Rautakesko Ltd in July are included in the figures as of 7 July 2005 and 28 July 2005 respectively. Norgros' impact on Rautakesko's growth was 23.4 percentage points and Stroymaster's 3.1 percentage points.

Profit for 2005
The Group’s profit before taxes for the review period was EUR 238.6 million (EUR 241 million), representing 2.9% of net sales (3.2%). Operating profit was EUR 249.3 million (EUR 251 million).

The operating profit has been increased by a net total of EUR 36.8 million (EUR 49.6 million) in gains and losses from disposal of fixed assets and operations, and impairment charges. In the previous year, an income amount of EUR 41.2 million was included in non-recurring items relating to the amendment of the IFRS interpretation of disability pension benefits under the Employees' Pensions Act (TEL), and the decrease of Kesko Pension Fund's pension liabilities as a result of the reform of the Finnish TEL system. Profit expectations relating to Kaukomarkkinat for the next few years will remain at a lower level than in the previous years. Consequently a non-recurring amount of EUR 16.9 million in impairment loss on the goodwill of its operations, EUR 32.9 million, has been included in the financial statements. The gains from disposal of fixed assets include EUR 45.5 million from the disposal of real estate by Kesko to Nordisk Renting Oy in January.

Consequently, the operating profit excluding non-recurring items was EUR 11.4 million higher than in the previous year. VV-Auto and Rautakesko in particular improved their profits, excluding non-recurring items, whereas the profits of Kesko Food and Kaukomarkkinat were smaller than in the previous year. In addition to VV-Auto's and Rautakesko's good organic growth, the profit increase is attributable to acquisitions realised during the accounting period, contributing to the operating profit excluding non-recurring items by EUR 21.4 million. The profit was negatively affected by costs of EUR 7.6 million from changes carried out in Kesko Food's store network, a lease cancellation cost of EUR 5.1 million related to the development of Keswell's store network, and by a cost of EUR 4.7 million arising from pension arrangements made at rationalisation negotiations in Kesko Food completed in May. In addition, the home and speciality goods selection of Citymarket Oy was revised and the valuation principles of its inventories were specified.

Earnings per share (diluted) were EUR 1.87 (EUR 1.89). Equity per share was EUR 15.35 (EUR 14.73)

The primary segments presented in the IFRS financial statements are the Kesko Group divisions, namely Kesko Food, Rautakesko, Kesko Agro, Keswell, VV-Auto and Kaukomarkkinat. In deviation from the figures reported during 2004, the operating profit from real estate operations, organised as an intra-Group service unit, has been allocated to those divisions to which it is directly attributable. This change in reporting practice is part of the transfer of profit responsibility for real estate to the division parent companies throughout the lifecycle of the real estate. After this change, common operations include the costs of the corporate management and centralised support functions.

Net sales and profit in October-December
The Group's net sales in the fourth quarter of the year were EUR 2,242.2 million, which is 14.7% up on the corresponding period of the previous year (EUR 1,955.0 million). The net sales of foreign operations continued to grow fast, and the domestic sales of Kesko Agro, VV-Auto and Rautakesko, in particular, developed well. Norgros AS and Stroymaster, acquired in July, contributed net sales growth of 10.2 percentage points.

The Group's profit before taxes in October-December was EUR 39.0 million (EUR 88.9 million). The Group's operating profit was EUR 41.6 million (EUR 94.2 million). The operating profit included non-recurring gains and losses from disposal of fixed assets and operations, and impairment charges to a total net value of EUR -14.6 million (EUR 43.4 million). Profit expectations relating to Kaukomarkkinat for the next few years will remain at a lower level than in the previous years. Consequently a non-recurring amount of EUR 16.9 million in impairment loss on the goodwill of its operations, EUR 32.9 million, has been recognised.In the previous year, an income amount of EUR 41.2 million was included in non-recurring items relating to the amendment of the IFRS interpretation of disability pension benefits under the Employees' Pensions Act (TEL), and the decrease of Kesko Pension Fund's pension liabilities as a result of the reform of the Finnish TEL system. Consequently, the operating profit excluding non-recurring items was EUR 11.6 million higher than in the corresponding period of the previous year. It was negatively affected by costs of EUR 7.1 million from changes carried out in Kesko Food's store network and the revision of Citymarket Oy's home and speciality goods selection. Earnings per share during the fourth quarter were EUR 0.27 (EUR 0.67). Other indicators by quarter are given in the attached table.

Investments
The Group’s investments totalled EUR 453.5 million (EUR 192.3 million), which is 5.4% (2.6%) of net sales. Investments in retail store sites amounted to EUR 141 million. Investments in acquisitions were EUR 261 million, of which EUR 70.0 million was used to acquire Rimi Baltic AB shares, EUR 41.8 million to acquire Indoor Group Ltd shares, EUR 122.2 million to acquire Norgros AS shares and EUR 20.1 million to acquire the Stroymaster chain. The Group’s other investments were EUR 52 million. Investments in foreign operations represented 59.7% of total investments.

Finance
Cash flow from operating activities developed strongly to EUR 298.0 million (EUR 213.2 million), while cash flow from investing activities totalled EUR -194.0 million (EUR -106.0 million).

At the end of the period, the equity ratio was 42.3% (44.2%). Interest-bearing net debt was EUR 640 million (EUR 521 million). Liquid funds totalled EUR 114.6 million (EUR 148.5 million).

The Group’s net financial expenses were EUR 12.2 million (EUR 11.2 million). They included net interest from finance leases amounting to EUR -7.9 million (EUR -8.6 million). The increase in financial expenses was due to an increase in debt resulting from dividend payments in the previous year and acquisitions in 2005. The increase was slowed by the good cash flow from operating activities.

Personnel
During the period under review, the average number of personnel in Kesko Group, including joint ventures, was 21,603 (17,528) converted into full-time employees. There was an increase of 4,075 employees over the corresponding period of the previous year. In Finland, the average increase was 945 employees, while outside Finland it was 3,130.

Rimi Baltic AB, a joint venture of Kesko Food and Sweden's ICA AB, started operating at the beginning of 2005. The reduction in the average number of Kesko Food's personnel (by -2,050) was mainly due to transfers to Rimi Baltic. As of the beginning of 2005, 50% (4,104) of Rimi Baltic AB's employees are included in the number of Kesko Group's personnel. The whole of Pikoil Oy personnel was included in the average number of Kesko Food employees as of 1 November 2005.

Rautakesko continued an intensive expansion of operations outside Finland. The biggest increase in the number of personnel was registered in Lithuania where the average number of employees of Rautakesko's Senukai increased by 761 compared with the previous year. Operations in Sweden and Latvia also continued to expand. Business acquisitions expanded Rautakesko's operations to Norway (Norgros, average personnel 258) and Russia (Stroymaster, average personnel 93).

Keswell's personnel increased mainly as a result of the acquisition of Indoor Group Ltd. Its impact is 690 persons on average. The average number of VV-Auto employees increased by nearly 100 due to the acquisition of Helsingin VV-Auto Oy.

The number of personnel was distributed by business division as follows:

At the end of December 2005, the total number of personnel was 26,978 (22,146), of whom 14,707 (13,602) worked in Finland and 12,271 (8,544) in other countries. Compared with the end of December 2004, there was an increase of 1,105 employees in Finland, and 3,727 in other countries.

* total number of employees, including part-time employees

Market review
In 2006, the growth of the Finnish economy will be accelerated by consumption, increased investment activity and positive export development. The Finnish economy is expected to grow by approximately 3.6% in 2006. It is forecast that private consumption expenditure will increase by 2.7% and investments by 4.5%. House building investment is estimated to grow by 3.5%. The increase in consumer prices is forecast to reach 1.5% (ETLA, The Research Institute of the Finnish Economy).

ETLA forecasts that the volume of Finnish retail trade will grow by 3.5% and the volume of wholesale trade by about 4% in 2006.

According to the preliminary data of Statistics Finland, in January-November 2005 the volume of Finnish retail trade increased by 4.9% over the corresponding period of the previous year. The increase in wholesale trade was also 4.9% over the same period.

Statistics Finland’s consumer survey of January 2006 shows that the growth of Finnish consumers' confidence which started in October 2005 levelled off in January. Consumers' estimates of the development of Finland's economy improved, their expectations concerning their own financial situation and saving possibilities remained unchanged, but their views on unemployment turned slightly pessimistic.

The strong growth of the Baltic economies will continue in 2006. According to forecast, they will grow by 6-7% during the year. Private consumption is estimated to grow by 4.5% in Estonia, by about 4% in Latvia and by about 5% in Lithuania. Consumer prices are forecast to increase by 2.7% in Estonia, by 4% in Latvia and by 2.3% in Lithuania (Nordea). The Baltic retail trade is forecast to continue its strong growth in 2006.

This year the Swedish economy is forecast to grow by 3.2% and private consumption by about 3%. The increase in consumer prices is anticipated to settle at 1.2% (Nordea). Total building investments are forecast to continue increasing at a rate of about 4% this year (Sveriges Byggindustrier).

The Norwegian economy is forecast to grow by 2.5% and private consumption by about 2.3% in 2006. Consumer price inflation is anticipated to be 1.4% (Nordea). Good growth in the market for building supplies is expected to continue.

In Russia, the growth of national economy, consumption and investment activity is forecast to be quite brisk in 2006. Retail trade will grow rapidly, especially in St. Petersburg and Moscow, but also in other big cities. Households will have more money to spend on the maintenance of homes, gardens and countryside houses.

The market and outlook for each of Kesko's business divisions are discussed in the business area reviews of this financial statements release.

Divisions

Kesko Food

In January-December, Kesko Food Group's net sales amounted to EUR 3,830 million, an increase of 0.5%. Kesko's share of the net sales of the joint venture, Rimi Baltic AB, was EUR 404 million, representing 10.5% of Kesko Food's net sales. Kesko Food's fourth quarter net sales were EUR 1,012 million, up 0.6% over the corresponding period of the previous year.

Kesko Food’s operating profit was EUR 133.8 million (EUR 130.8 million). The operating profit was increased by a net total of EUR 43.5 million (EUR 21.5 million) in gains and losses from disposal of fixed assets and operations mainly relating to the sale of the central warehouse and some retail store premises in January. In the previous year, an income amount of EUR 17.7 million was included in non-recurring items relating to the amendment of the IFRS interpretation of disability pension benefits under the Employees' Pensions Act (TEL), and the decrease of Kesko Pension Fund's pension liabilities as a result of the reform of the Finnish TEL system.The operating profit excluding non-recurring items was EUR 18.9 million less than in the previous year. The result of the year was negatively affected by the costs of changes in the store network, by a cost arising from pension arrangements made at rationalisation negotiations in Kesko Food completed in May, by the revision of Citymarket Oy's home and speciality goods selection, and by the specification of the valuation principles of its inventories. On the other hand, the result was improved by savings in IT management costs achieved by renewing the enterprise resource planning system. Kesko Food's investments totalled EUR 165.4 million, of which investments in store sites and acquisitions accounted for EUR 103.7 million. Investments outside Finland accounted for 52.6% of all investments.

According to the Finnish Food Marketing Association, the retail sales of its member companies increased by 0.3% in January-November. The total Finnish grocery market is estimated to have grown by about 2.0% during 2005. Grocery prices remained unchanged during 2005 (Statistics Finland).

During the year, the total retail sales of the K-food stores in Finland dropped by 2.1%, totalling EUR 4,443 million (incl. VAT). The retail sales of the K-citymarket chain increased by 0.2% to EUR 1,610 million (incl. VAT) and those of the K-supermarket declined by 0.9% to EUR 1,336 million (incl. VAT). The retail sales of other K-food stores declined by 5.3% to EUR 1,497 million (incl. VAT). Owing to the differing local and regional markets and competitive situations, there are major differences between the retail sales trends of the chains and individual K-food stores. There were 1,087 K-food stores at the end of the year 2005.

The net sales of Kespro Ltd, which provides services for the catering, kiosk, service station and restaurant trade, were EUR 707 million (EUR 742 million), a decrease of
4.6%. The total market in Finland in this sector is estimated to have remained unchanged.

Kesko Food acquired Neste Marketing's 50% holding in Pikoil Oy. As a result of the transaction, Kesko Food became the sole owner and manager of Pikoil as of the beginning of November. The purpose of the transaction is to improve Pikoil's operating conditions. It has been operating at a loss. Pikoil, established in 2003 to operate in the liquid fuel and grocery retail market, was previously owned on a fifty-fifty basis by Kesko Food Ltd and Neste Marketing Ltd.

In order to improve the K-food stores' customer satisfaction and competitiveness, Kesko Food announced in October that it will reform its operations and organisation. The aim of the reform is to offer K-food store customers better service and quality at affordable prices. In the future, there will be a retailer in every K-food store, which means that 100 new K-retailers will be needed. All Cassa and K-pikkolo stores will also be run by retailers.

The management of the K-food stores has now been concentrated into three units from the previous six. They are K-citymarket (53 stores), K-supermarket (150 stores) and K-market (incl. K-extra, K-pikkolo and Cassa stores, 884 in all). In addition there is a unit for the chains' joint operations.

Logistical improvements will mainly focus on enhancing the operational conditions for logistics control as a whole. As of the beginning of 2006, Kesko Food's warehouse production was transferred to Kesped Ltd, the company responsible for Kesko Corporation's transport and terminal operations. In the same context, Kesped was transferred to Kesko Food's operational control and renamed Keslog Ltd. This arrangement did not have any immediate effects on personnel.

Rationalisation negotiations were completed and other measures aimed at enhancing operations were launched in the spring. They are expected to generate annual savings of approximately EUR 20 million for Kesko Food. As a result of the negotiations, the personnel was reduced by nearly 80 employees through pension solutions and other arrangements. In addition, notice had to be served to 73 employees.

Capital will be used more efficiently by selling store sites while making significant investments in the retail store network and improving its sales performance. The most important new retail stores that were opened in 2005 include K-citymarkets in Raahe and Nokia and a K-supermarket in Oulunsalo, at Runosmäki in Turku and at Kamppi and Lauttasaari in Helsinki.

As a replacement for the current chain agreement, Kesko Food has offered retailers new agreements in which the store site fee is based on the store's gross profit instead of net sales as in the earlier agreements. By the end of January 2006, about 90% of retailers had signed the new agreement.

At the beginning of 2005, Rimi Baltic AB, a joint venture owned 50/50 by Kesko Food Ltd and ICA Baltic AB, a company belonging to the Swedish ICA Group, started operating. Operations have proceeded according to plan. The owner parties transferred their grocery operations in Estonia, Latvia and Lithuania to the joint venture. Rimi Baltic operates hypermarket, supermarket and discounter concepts. The company currently runs 177 stores and intends to develop and expand the store network in all operating countries. The objective is to achieve leadership in the Baltic food market.

It is estimated that in 2006 the total food trade market will remain at the previous year's level in Finland. The total Baltic grocery market is anticipated to increase by over 5%.

Kesko Food’s net sales and operating profit excluding non-recurring items are anticipated to grow slightly in 2006.

Rautakesko

In January-December, Rautakesko Group’s net sales amounted to EUR 1,610.3 million, an increase of 40.0%. In Finland, the net sales were EUR 780.0 million, an increase of 6.8%. The net sales of foreign subsidiaries were EUR 829.0 million, an increase of 98.1%. About 51.8% of Rautakesko Group’s net sales came from foreign subsidiaries. Rautakesko Group’s net sales in the fourth quarter were EUR 475.5 million, an increase of 73.1%.

Rautakesko Group’s operating profit for January-December was EUR 61.7 million (EUR 49.1 million) and included EUR 0.2 million (EUR 3.0 million) in non-recurring items. The result was improved by the incorporation of Norgros and Stroymaster in the Rautakesko Group. The result was weakened by the initiation costs of store sites in countries outside Finland. Rautakesko’s investments totalled EUR 191.5 million, of which 91.6% was outside Finland.

At the end of 2005, the K-rauta chain in Finland comprised 40 stores and the Rautia chain 105 stores. The sales of the K-rauta chain increased by 5.8% to EUR 561 million (incl. VAT) and those of the Rautia chain by 10.2% to EUR 464 million (incl. VAT). The biggest sales growth was recorded from wood, interior decoration and house technology products, and small machinery. The total sales growth of the K-rauta and Rautia chains in Finland is estimated to have exceeded that of competitors (Finnish Hardware Association, Statistics Finland). The sales of Rautakesko B-to-B Service increased by 7.9%.

Rautakesko operates 13 K-rauta stores in Sweden, 4 outlets in Estonia and 3 in Latvia. In Lithuania, UAB Senuku Prekybos centras (Senukai), in which Rautakesko is the majority owner, operates 13 Senukai stores and 76 Partnershops.

On 28 July 2005, Rautakesko Ltd acquired the St. Petersburg DIY store chain Stroymaster. The chain includes five DIY stores in the St. Petersburg city area. Kesko published stock exchange releases concerning the Stroymaster project on 30 July 2004, 17 March 2005 and 28 July 2005.

On 7 July 2005, Rautakesko Ltd acquired 98% of Norway's Norgros AS, a company managing the Byggmakker chain of hardware and building materials stores. The chain comprises 133 stores, 20 of which are owned by Norgros. The other stores of the chain are owned by retailer-entrepreneurs who have signed a chain agreement with Norgros. Kesko published stock exchange releases about the matter on 6 June 2005, 15 June 2005 and 7 July 2005. In December 2005, Kesko's ownership interest increased to 99%, because Norgros AS obtained treasury shares through lien.

The hardware and builders' supplies market is anticipated to grow in all countries in which Rautakesko operates. In 2006, the growth in the Nordic countries will be 5%, and 5-15% in the Baltic countries. Growth expectation in the St. Petersburg is about 15%.

It is expected that Rautakesko's net sales and operating profit excluding non-recurring items will grow markedly in 2006.

Kesko Agro

In 2005, Kesko Agro Group’s net sales were EUR 939.7 million, an increase of 15.6%. The net sales of foreign subsidiaries totalled EUR 236.3 million, which was 25.5% of total net sales. Kesko Agro Group’s operating profit was EUR 12.7 million. The profitability of operations in Finland was at the year 2004 level with improvement recorded in Konekesko and deterioration in Kesko Agro. The operating profit of Baltic operations increased compared to the level of the previous year. Investments totalled EUR 7.2 million, 37.3% of which was in foreign projects.

Kesko Agro Ltd’s net sales were EUR 495.7 million, up 4.5%, despite the price level of grain and animal feed being lower than in the previous year. Tractor sales developed favourably and the market share strengthened. Kesko Agro started marketing Multiva soil cultivators and trailers and Lemken soil cultivators in Finland.

The net sales of Konekesko Ltd were EUR 198.1 million, an increase of 17.4% over the previous year. The total market has developed positively. Konekesko started marketing New Holland construction machinery in Finland and the Baltic countries, and signed an agreement to start marketing Ponsse forest machines in the Baltic countries. Konekesko Ltd's profitability has remained good.

Konekesko Ltd has signed an agreement to sell its warehouse technology operations in Finland and the Baltic countries to Sweden's BT Industries AB, which will establish a subsidiary in Finland with Konekesko holding a minority interest. The transaction was completed on 1 January 2006.

It is estimated that Finland’s total agricultural trade market will remain at the level of 2005. The total Baltic market is anticipated to grow by about 5-10%.

It is expected that Kesko Agro’s net sales will decrease as a result of the disposal of warehouse technology business and that the operating profit excluding non-recurring items will drop in 2006.

Keswell

Keswell Group’s net sales totalled EUR 975.0 million, an increase of 23.0%. The net sales of foreign operations amounted to EUR 41.2 million, representing 4.2% of total net sales. The main reason for net sales growth was the acquisition of Indoor Group Ltd on 21 January 2005. Its impact on the growth in Keswell's net sales was 20.7 percentage points. Keswell’s operating profit was EUR 35.8 million, which included EUR 5.2 million in gains from the disposal of fixed assets. The operating profit excluding non-recurring items increased by EUR 6.2 million over the previous year mainly as a result of the acquisition of Indoor and Anttila's profit increase. It was negatively affected by a lease cancellation cost of EUR 5.1 million related to the development of the Anttila store network. Investments totalled EUR 55.1 million.

The net sales of Anttila Group totalled EUR 516 million, an increase of 3.4%. The sales of the Kodin Ykkönen department stores for home goods and interior decoration increased by 4.3%, and those of the Anttila department stores by 2.6%. Anttila’s distance sales were up by 6.0%, due to the good performance of NetAnttila.

Indoor Group Ltd's net sales, starting from 22 January 2005, were EUR 164 million. The sales of the Asko furniture store chain in Finland totalled EUR 89 million (incl. VAT), while those of the Sotka furniture store chain totalled EUR 103 million (incl. VAT). The net sales of the furniture trade in the Baltic countries and Sweden totalled EUR 27 million.

The net sales of Kesko Sports amounted to EUR 126.0 million, a decrease of 3.4%. The retail sales of the Intersport store chain were EUR 221 million (incl. VAT), an increase of 1.3%. The sales of Kesport stores rose by 3.9% to EUR 26 million (incl. VAT).

The net sales of Kesko Musta Pörssi amounted to EUR 137.3 million, up 2.7%. The retail sales of the Musta Pörssi chain increased by 4.5% to EUR 185 million (incl. VAT).

The net sales of Kesko Shoes increased by 1.9%, totalling EUR 25.1 million. The retail sales of the Andiamo and K-kenkä chains increased by 1.3% to EUR 48 million (incl. VAT). The sales of Kenkäexpertti stores dropped by 4.3% to EUR 15 million (incl. VAT).

Keswell's major store site investments included the opening of new Asko and Sotka stores at Lommila, Espoo and Roihupelto, Helsinki, an Anttila department store, Intersport Megastore, K-kenkä and Musta Pörssi store in the Sello shopping centre at Leppävaara, Espoo, and an Anttila department store and a Musta Pörssi store at Kamppi, Helsinki.

It is estimated that the total home and speciality goods trade market in Finland will grow by 2-3% in 2006. It is expected that Keswell’s net sales will increase and that its operating profit excluding non-recurring items will grow.

VV-Auto
VV-Auto Group's net sales totalled EUR 688.9 million, up by 9.0%. The operating profit was EUR 38.7 million (EUR 27.3 million), an increase of EUR 11.4 million over the corresponding period of the previous year, which is mainly attributable to improved gross profit and an increase in the group’s own retailing. Investments totalled EUR 26.0 million.

Registrations of new passenger cars totalled 148,164 in Finland, an increase of 3.9% from the previous year. Registrations of new vans were down by 10.6% compared with the previous year, totalling 14,090. The drop in the registrations of new vans was partly due to the fact that in 2004 some passenger cars were registered as vans (as so-called dual-use cars) because of a significant tax benefit gained.

There were 14,902 registrations of Volkswagen passenger cars, equivalent to a market share of 10.1%. The new models introduced towards the end of the year increased the market share. The number of Volkswagen vans registered was 2,318 and the market share was 16.5%. Registrations of Audis increased to 4,563, which was 6.2% more than in the comparison period, and the market share was 3.1%. The registrations of new Seat passenger cars totalled 1,311 and the market share was 0.9%.

It is estimated that Finland’s total market for passenger cars will increase slightly in 2006 compared with the previous year, whereas the total market for vans is expected to remain at the year 2005 level. In 2006, VV-Auto Group’s net sales are forecast to increase mainly due to the structural change in sales and the Group's own Audi and Volkswagen retail outlets. The operating profit excluding non-recurring items is expected to remain at a good, although lower level than in 2005.

Kaukomarkkinat
Kaukomarkkinat Group’s net sales for January-December amounted to EUR 290.4 million, down 3.9% on the previous year (EUR 302.1 million). Net sales in Finland were EUR 192 million. Net sales in foreign countries were EUR 98 million, representing 34% of total net sales. Total invoicing including commission-based agency operations was EUR 443 million.

Kaukomarkkinat's operating profit in January-December was EUR -11.1 million (EUR 14.8 million). It was down by a net result of EUR 14.3 million in gains from the disposal of real estate, and impairment charges. The impairment charges include a non-recurring amount of EUR 16.9 million in impairment loss on the goodwill of Kaukomarkkinat's operations. The impairment has been recognised because profit expectations relating to Kaukomarkkinat for the next few years will remain at a lower level than in the previous years. Operating profit excluding non-recurring items was EUR 2.8 million (EUR 9.9 million). The decline was mainly due to losses from the raw materials trade with China, the loss-making consumer electronics trade in Finland and costs of discontinuing operations. Investments totalled EUR 5.8 million, EUR 1.9 million of which, or 33% in foreign operations.

In January, Kaukomarkkinat sold the share capital of KM-Kello Oy and the watch business of Kauko Time AB. The representation of Pioneer consumer electronics was also disposed of at the beginning of the year. In March, Kaukomarkkinat acquired NMT Prekyba UAB, a Lithuanian specialist wholesaler for the bakery industry. In the autumn, the representation of Yamaha consumer electronics, and the Tähti Optikko chain as from 1 January 2006 were transferred to Keswell. In addition, it has been agreed that the representation of Panasonic consumer electronics will be discontinued as from 1 April 2006, and the operations of Kauko-Wines will be sold on 1 April 2006.

In 2006, the market in the Nordic countries will grow moderately, at a rate of some 3%, but a rapid growth (over 6%) is expected to continue in Russia and China. Kaukomarkkinat's net sales are anticipated to decline and operating profit excluding non-recurring items to increase in 2006.

Changes in Group structure
Rimi Baltic AB, a joint venture of Kesko Food Ltd and ICA Baltic AB, started operating at the beginning of 2005. More information about this was given in the interim report for the first 3 months. The arrangement has no material impact on the Group's profit for the review period.

On 21 January 2005, Keswell Ltd acquired the whole stock of Indoor Group Ltd. Indoor Group engages in the furniture trade in Finland, Sweden, Estonia and Latvia. Indoor Group's share of Keswell's net sales was EUR 164 million. Indoor Group contributed operating profit of EUR 8.7 million to Keswell for the accounting period.

On 7 July 2005, Rautakesko Ltd acquired a 98% interest in Norgros AS, the owner of the Norwegian Byggmakker chain of hardware and building materials stores. The acquisition price is NOK 952 million (EUR 120 million) at the maximum, of which the part depending on the success of Norgros' operations in 2005-2008 is NOK 236 million (EUR 30 million) at the maximum. Norgros accounted for EUR 269 million of Rautakesko's net sales and for EUR 10.5 million of its operating profit.

On 28 July 2005, Rautakesko Ltd acquired Stroymaster chain's share capital from the St. Petersburg Teks group. The price is EUR 19.6 million at the maximum, of which the part tied to the results for the first 12 months is EUR 6.9 million at the maximum. The chain accounted for EUR 36 million of Rautakesko's net sales and for EUR 2.2 million of its operating profit.

On 1 November 2005, Kesko Food acquired Neste Marketing's 50% holding in Pikoil Oy, in which it already held a 50% interest. Pikoil engages in liquid fuel and grocery retailing. The additional 50% interest contributed net sales of EUR 10.8 million and operating profit excluding non-recurring items of EUR -0.6 million to Kesko Food.

For all business acquisitions made during the review period, the cost of acquired balance sheet items to be allocated in compliance with the IFRS3 has been completely recognised.

Annual General Meeting
Kesko Corporation’s Annual General Meeting held on 30 March 2005 adopted the financial statements for 2004, discharged those accountable from liability, decided to distribute a dividend of EUR 1.00 per share and to approve the Board's proposal on amendment of the terms and conditions of the year 2000 stock option scheme. The meeting also elected Kari Salminen as a new Board member to replace Matti Honkala and Jukka Toivakka who had resigned from the Board. More information about the decisions of the Annual General Meeting was published in a stock exchange release on the same day and in the interim report for the first 3 months.

A total of EUR 95,168,792.00 was paid to shareholders as dividends on 11 April 2005.

Corporate governance
Matti Halmesmäki, M.Sc. (Econ.), LL.M., took office as Kesko Corporation's Managing Director and Kesko Group's President and CEO on 1 March 2005.

Many changes have taken place in the management of the parent companies of the major sub-groups fully owned by Kesko Group. The changes were announced in stock exchange releases on 9 February 2005, 28 February 2005, 17 March 2005, 24 March 2005, 28 July 2005, 9 September 2005 and 11 October 2005.

On 17 March 2005, Kesko Corporation’s Board of Directors established a Compensation Committee, in addition to the Audit Committee, which had been established on 29 April 2004. This was announced in a stock exchange release on 17 March 2005. Matti Kavetvuo acts as the Chairman of the Audit Committee with Eero Kasanen and Maarit Näkyvä as its members. Heikki Takamäki acts as the Chairman of the Compensation Committee with Pentti Kalliala and Keijo Suila as its members. These appointments of the Committee members, made by the Board of Directors at its organisational meeting after the Annual General Meeting, were announced in a stock exchange release on 30 March 2005.

As a result of the changes that have taken place in the management of Kesko Group and its major sub-group parent companies, Kesko Group's Management Board has comprised, since 13 October 2005, Chairman Matti Halmesmäki, Managing Director of Kesko Corporation and President and CEO of Kesko Group, and the other members Juhani Järvi, Deputy to the President and CEO and Corporate Executive Vice President; Terho Kalliokoski, President of Kesko Food Ltd; Matti Laamanen, President of Keswell Ltd; Jari Lind, President of Rautakesko Ltd; Pekka Lahti, President of VV-Auto Oy; Riitta Laitasalo, Senior Vice President, Human Resources; Arja Talma, Senior Vice President, CFO and Paavo Moilanen, Senior Vice President, Corporate Communications. The changes in the Corporate Management Board were announced in stock exchange releases on 9 February 2005, 17 March 2005 and 11 October 2005.

Shares and the securities market
At the end of the year 2005, Kesko Corporation's share capital totalled EUR 192,967,852. The number of A shares was 31,737,007, i.e. 32.9% of all shares, and the number of B shares was 64,746,919, i.e. 67.1% of all shares. The total number of shares was 96,483,926.

In 2005, the share capital was increased seven times with an aggregate amount of EUR 5,286,768 as a result of 2,643,384 shares subscribed for pursuant to share options. The increases were entered in the Trade Register on 15 February, 4 May, 8 June, 3 August, 28 September, 2 November and 20 December 2005.

The price of a Kesko A share was EUR 18.90 at the end of 2004 and EUR 24.19 at the end of 2005, an increase of 28.0%. The price of a Kesko B share was EUR 17.95 at the end of 2004 and EUR 23.95 at the end of 2005, an increase of 33.4%. During the year 2005, the Helsinki Stock Exchange All Share index (OMX Helsinki) rose by 31.3%, the weighted OMX Helsinki CAP index by 30.1%, and the Consumer Staples Index by 28.6%.

At the end of 2005, the market capitalisation of A shares was EUR 767.7 million, while that of B shares was EUR 1,550.7 million. Their combined market capitalisation was EUR 2,318.4 million, an increase of EUR 603.8 million from the beginning of the year. During the review period, 1.3 million A shares were traded on the Helsinki Stock Exchange at a total value of EUR 28.5 million, while 65.7 million B shares were traded at a total value of EUR 1,382.7 million.

During the period, 0.8 million listed year 2000 B share options were traded at a total value of EUR 10.1 million, while 0.4 million year 2000 C share options were traded at a total value of EUR 5.5 million and 0.2 million symbol 2003D share options of the year 2003 share option plan at a total value of EUR 3.6 million. The 2003D share options were included on the main list of the Helsinki Stock Exchange for public trading on 1 April 2005.

Flagging notifications
Kesko Corporation did not receive any flagging notifications during the review period.

Main events

At the beginning of 2005, Rimi Baltic AB, a joint venture owned 50/50 by Kesko Food Ltd and ICA Baltic AB, part of Sweden's ICA Group, started operating (stock exchange release on 3 January 2005).

On 21 January 2005, Keswell Ltd acquired Indoor Group Ltd. The Market Court dismissed the appeal made by Piscina Oy (stock exchange releases on 21 January and 21 December 2005).

On 25 January 2005, Kesko sold its central food warehouse property at Hakkila, Vantaa, the main office building of Kaukomarkkinat at Kilo, Espoo, and 16 food store properties in different parts of Finland to Nordisk Renting Oy (stock exchange release on 25 January 2005).

On 9 February 2005, the Finnish Competition Authority petitioned the Market Court for a sanction of EUR 100,000 to be imposed on Kesko Corporation. The proposal by the Finnish Competition Authority is related to the maximum pricing of groceries in the horizontal K-market and K-neighbourhood store chains belonging to the K-Grocers' Club in 1997-2000, and in the K-extra chain in 1999-2000. The matter is pending in the Market Court (stock exchange release on 9 February 2005).

On 17 March 2005, Kesko Corporation's Board of Directors approved an agreement by which Rautakesko Ltd, a Kesko Corporation subsidiary, acquired the total share capital of the company that owned Stroymaster, a St. Petersburg DIY store chain. Kesko received the approval of the Russian competition authorities for the transaction at the end of July. The exchange was completed on 28 July 2005 (stock exchange releases on 17 March 2005 and 28 July 2005).

In April Kesko Food Ltd decided to improve its operational efficiency with the aim of increasing the competitiveness of the K-food stores. Due to these arrangements, rationalisation negotiations were carried out. These activities aim at annual savings of over EUR 20 million. This year, as part of the process Kesko Food offers retailers new agreements to enhance chain co-operation. In October it was decided that chain operation will be intensified and co-operation between chains in purchasing, marketing and logistics will be increased markedly. The management of the K-food stores is concentrated into three units from the previous six, namely K-citymarket, K-supermarket and K-market (all the other K-food stores incl. K-extra, K-pikkolo and Cassa stores). In addition, the K-food stores' service and price competitiveness will be markedly improved as a result of Kesko Food's more efficient control of the operations chain from customers to suppliers (stock exchange releases on 6 April 2005, 25 May 2005 and 12 October 2005).

On 7 July 2005, Kesko Corporation's subsidiary Rautakesko Ltd received the approval of the Norwegian competition authorities for the acquisition of Norgros AS, the owner of the Norwegian Byggmakker chain of hardware and building materials stores. The other conditions of the transaction have also been fulfilled. The exchange was implemented on 7 July 2005. After bidding, Rautakesko gained a holding of 98% of the company. The acquisition price is NOK 952 million (EUR 120 million) at the maximum, of which the part depending on the success of Norgros' operations in 2005-2008 is NOK 236 million (EUR 30 million) at the maximum (stock exchange release on 7 July 2005).

On 20 July 2005, Kesko received a notification that Kiinteistö Oy Lahden Lyhytkatu 1 in the City of Lahti has requested arbitration on its demand that Kesko Corporation should adjust the annual interest rate of 13% in the loan agreement signed between the real estate company and Kesko in 1991 to correspond with the average 3-month Euribor interest rate. The adjustment is demanded retroactively for the previous 10 years and also for the remaining loan period. Kesko contests the real estate company’s demand as totally groundless (stock exchange release on 20 July 2005).

On 17 August 2005, the court of arbitration ruled that Kesko Corporation must pay retroactive additional rents, penalty interests and legal expenses to Kapiteeli Plc plus part of the expenses and fees of the court of arbitration totalling approximately EUR 3.8 million in the case concerning the dispute over the rental agreement of the Ruoholahti shopping centre in Helsinki (stock exchange releases on 29 April 2005 and on 17 August 2005).

In September, for the third year in succession, Kesko was included in the Dow Jones sustainability indexes. This year the work done by Kesko for corporate responsibility was rated the best in the sector (retailing) both in the European (DJSI STOXX) and the world (DJSI World) indexes. Previously, Kesko had not been included in the world index. Kesko's performance has improved in all areas of responsibility (press release on 7 September 2005).

In October Kesko Corporation was awarded for the fourth time for the best overall reporting of environmental and corporate responsibility in Finland. Previously Kesko ranked first in 2001, 2002 and 2004. In 2003 Kesko came in second (press release on 12 October 2005).

In December, Kesko Group announced that it had initiated negotiations about the sale and leaseback of some 100 real estate properties located in Finland. The premises are currently used by Kesko's division parent companies and their total area is about 200,000 m². The sale is aimed at enhancing the Group's capital spending. The transaction is planned for conclusion during 2006 (stock exchange release on 5 December 2005) and negotiations are in progress. The real estate to be sold has been specified to include nearly 80 properties owned by Kesko Group in addition to mainly grocery and hardware and builders' supplies store properties owned by the Kesko Pension Fund, which are intended to be leased back for Kesko's division parent companies.

In January 2006, a Kesko Corporation subsidiary, VV-Auto Oy and its retailing company Helsingin VV-Auto Oy agreed to acquire the Volkswagen and Audi businesses from Stockmann Auto Oy Ab starting from 1 March 2006. The implementation of the deal is subject to the approval by the Finnish Competition Authority. The acquisition will strengthen VV-Auto's position in car retailing (stock exchange release on 21 January 2006).

Adoption of the IAS/IFRS
Kesko Corporation adopted the International Financial Reporting Standards (IFRSs) on 1 January 2005. Kesko has prepared its first complete IFRS financial statements for the year 2005. On 6 April 2005, Kesko published a stock exchange release presenting the comparative information for 2004 in compliance with the IFRSs. The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRSs) and International Accounting Standards (IASs) approved for adoption by the European Union and valid at 31 December 2005, together with their respective IFRIC and SIC Interpretations.

The transition to IFRS improved Kesko's profit for the 2004 financial year by EUR 58 million compared with that based on Finnish Accounting Standards (FAS). The operating profit increased by EUR 75 million, which includes a non-recurring item of EUR 41 million relating to retirement benefit plans included in the result for the fourth quarter of 2004. Total non-recurring items in 2004 were EUR 44.4 million higher under IFRS than under FAS. The consolidated balance sheet total increased by EUR 342 million following the adoption of IFRS.

Kesko Corporation's financial targets and dividend policy

As a result of the adoption of IFRS, Kesko Corporation revised its financial targets and dividend policy to take account of the changes in financial indicators due to the new reporting standards. The targets were announced on a separate stock exchange release on 6 April 2005.

Outlook for the future

The aim is that Kesko Group's total net sales for the first six months of 2006 will grow by over 10%. Due to the expansion of operations and business re-arrangements, the Group's sales will grow more strongly in other countries than in Finland.

During the first six months of the year, Kesko Food's sales growth is estimated to exceed last year's growth, while the sales growth of Rautakesko, Keswell and VV-Auto is expected to exceed market growth. The development of machinery and technical trade will decelerate due to the divestment of certain operations decided upon.

Kesko Group’s profitability will remain good. It is expected that its operating profit for the first six months of the year excluding non-recurring items will attain the level of the previous year.

Proposal for profit distribution

Group's distributable earnings are EUR 942,088,509.60

Parent's distributable earnings are EUR 683,038,003.09

of which net profit for the period is EUR 129,042,536.39

The Board of Directors proposes to the Annual General Meeting that the distributable earnings be used as follows:

to be paid to shareholders as dividends

EUR 1.10 per share EUR 106,484,593.60

to be reserved for charitable donations

at the discretion of the Board of Directors EUR 300,000.00

to be carried forward as retained earnings EUR 576,253,409.49

Annual General Meeting
The Board of Directors decided to convene the Annual General Meeting to the Helsinki Fair Centre on 27 March 2006 at 13.00 hrs.

Helsinki, 7 February 2006
Kesko Corporation
Board of Directors

The figures in this financial statements release are unaudited.

Further information is available from Arja Talma, Senior Vice President, CFO, telephone +358 1053 22113, and Juhani Järvi, Corporate Executive Vice President, Deputy to the President and CEO, telephone +358 1053 22209. A Finnish-language webcast on the announcement of the annual financial statements can be viewed at 13.00 (Finnish time) at www.kesko.fi. An English-language web conference on the annual financial statements will be held today at 14.30 (Finnish time). A link to the web conference is available at www.kesko.fi.

KESKO CORPORATION

Paavo Moilanen

Senior Vice President, Corporate Communications

ATTACHMENTS
Group net sales by division
Consolidated income statement and balance sheet
Group indicators
Group cash flow
Changes in Group equity
Group contingent liabilities
Group indicators by quarter
Divisions’ net sales and operating profits by quarter
K-Alliance’s retail sales

Kesko Corporation's annual report and audited financial statements will be published on 3 March 2006. The interim financial report for the first 3 months of 2006 will be published on 27 April 2006, for the first 6 months on 1 August 2006 and for the first 9 months on 26 October 2006, at around 11 hrs (Finnish time) respectively. In addition, Kesko Group's sales figures will be published each month. News releases and other company information are available at www.kesko.fi.

DISTRIBUTION
Helsinki Stock Exchange
Main news media

ATTACHMENTS:

Group net sales by division

* change over 100%

* change over 100%

* change over 100%

Statement of changes in Group equity

* change over 100%

*comparative year 2003 net sales in compliance with FAS

K-Alliance's retail sales (incl. VAT) in January-December 2005, EUR

(advance information):

*Rimi Baltic AB is a 50/50 joint venture between Kesko Food Ltd ICA Baltic AB.
**Sales for the period 22 Jan.-31 Dec. 2005.

1 K-rauta store and 44 Rautia stores also operate as K-maatalous stores. Their sales are partly included in the sales of hardware and builders' supplies stores and partly in the sales of agricultural stores.