Newsroom

28.10.2003

Stock Exchange Release

STOCKMANN GROUP’S INTERIM REPORT JANUARY

STOCKMANN plc STOCK EXCHANGE BULLETIN October 28, 2003, 12.00 noon

STOCKMANN GROUP’S INTERIM REPORT JANUARY 1 – SEPTEMBER 30, 2003

The Stockmann Group’s sales grew by 7.8 per cent to EUR 1,196.1 million
(EUR 1,109.6 million in 2002). Profit before extraordinary items grew by
EUR 5.7 million and was EUR 39.4 million (EUR 33.7 million). Profit on
ordinary operations was slightly down on the previous year. The third-
quarter earnings were better than in the comparison period, especially the
Department Store Division’s earnings developed favourably. The earnings
estimate for 2003 is unchanged.

Sales and result

The Stockmann Group’s sales during the first nine months of 2003 totalled
EUR 1,196.1 million, an increase of EUR 86.5 million and 7.8 per cent on
the sales figure in the comparison period. Net turnover was EUR 994.7
million, increasing by 7.7 per cent on the net turnover in the comparison
period.

The Group’s operating gross margin increased by EUR 13.8 million to EUR
310.1 million. The relative gross margin weakened and was 31.2 per cent
(32.1 per cent). Factors affecting the trend in the gross margin were the
strong growth in the Vehicle Division’s sales and the marked weakening in
Hobby Hall’s relative gross margin. Operating costs increased by EUR 16.4
million. Depreciation diminished by EUR 0.4 million. Other operating
income increased by EUR 6.6 million on the comparison period and amounted
to EUR 15.4 million. Other operating income consisted mainly of a capital
gain on the sale of the Tapiola department store property in Espoo and
goodwill compensation received from the disposal of agency sales of
magazine and newspaper subscriptions. Operating profit increased by EUR
4.4 million on the comparison period and was EUR 33.6 million.

Net financial income increased by EUR 1.3 million from the same period a
year earlier and totalled EUR 5.8 million.

Profit before extraordinary items was EUR 39.4 million, up EUR 5.7 million
on the result a year earlier. Direct taxes were EUR 11.4 million,
increasing by EUR 1.6 million on the year-ago figure. Net profit for the
report period was EUR 28.0 million, compared with EUR 23.9 million a year
earlier. Third-quarter sales were up 6.8 per cent to EUR 394.5 million
(EUR 369.3 million). Profit before extraordinary items in the third
quarter improved by EUR 0.4 million on the previous year and was EUR 11.6
million.

Earnings per share were EUR 0.55 (EUR 0.47). Equity per share was EUR 9.90
(EUR 9.71).

Sales and earnings trend by division

The Department Store Division’s sales grew by 4 per cent to EUR 575.0
million. Sales by the department stores in Finland showed a positive
trend, especially during the third quarter. Although the construction
works at the Kamppi construction site in Helsinki still hampered customer
traffic into the centre of town, the Helsinki department store’s sales
also swung to growth. The Oulu department store reported a particularly
strong increase in sales. International Operations accounted for an
increased proportion of the division’s sales, rising to 15.3 per cent
(14.9 per cent). The Department Store Division’s operating profit grew by
EUR 1.2 million to EUR 13.3 million (EUR 12.1 million). Earnings were
burdened by the pre-opening costs of the Riga department store, which was
opened in mid-October, as well as for the new Stockmann Beauty and Zara
stores. In the third quarter, both sales and operating profit increased on
the comparison period.

The lowering in the car tax from the beginning of January has led to
soaring vehicle sales, which are continuing unabated. The Vehicle
Division’s sales grew by 24 per cent to EUR 365.5 million. Unit sales of
new vehicles grew by 31 per cent and those of used vehicles by 21 per cent
compared with the same period a year ago. Stockmann’s market share in the
motor trade grew in all the localities where it operates. The division’s
operating profit increased by EUR 1.1 million to EUR 5.5 million (EUR 4.4
million). Both sales and operating profit grew in the third quarter
compared with the same period a year ago. Stockmann’s operating area as an
Audi dealer was enlarged as from October 1, 2003, comprising now both the
west and the east sides of the Uusimaa Region, in addition to the Helsinki
metropolitan area. As from the same date the Vehicle Division
discontinued its last Mitsubishi dealership. The Tampere sales outlet will
continue as a Skoda dealer and will develop its servicing operations.

Sales by the Hobby Hall Division declined by 1 per cent to EUR 165.7
million. Because of a change in the product mix, the volume of packages
dispatched nevertheless grew by 6 per cent. At the turn of the year, Hobby
Hall launched a streamlining programme aiming at achieving annual cost
savings of EUR 6 million. The programme had a positive effect on costs in
the second and third quarter. Because the relative gross margin and sales
fell clearly short of targets, Hobby Hall’s profitability was nevertheless
unsatisfactory. In September the store in Helsinki’s Herttoniemi district
was discontinued, and winding-up costs burdened the result. The division’s
operating result diminished by EUR 3.8 million during the report period
and was a loss of EUR 4.3 million. In the third quarter, Hobby Hall’s
sales increased somewhat on the comparison period, but the operating
result was weaker than in the comparison period and in the red. Hobby Hall
is seeking to develop its operations by concentrating more closely on
distance retailing, where logistics and assortment management will be
stepped up. Operations of the stores in Espoo, Tampere and the centre of
Tallinn will be wound up during the coming winter season. The role of the
stores remaining in operation – in Helsinki’s Hämeentie street, in the
Tammisto district of Vantaa and at Rocca al Mare in Tallinn – will be
modified to support distance retailing. The objective of the changes is to
achieve an improvement in earnings of about EUR 7.5-8.5 million annually.
The closing of stores will result in about 80 redundancies in Finland,
part of whom are part-time or fixed-term staff, as well as about 10
redundancies in Estonia.

The Seppälä Division’s sales declined by 4 per cent on the same period a
year ago and were EUR 89.3 million. Seppälä has been striving to improve
its stock turn rate and gross margin, and results began to show up in the
form of improved operating profit in the third quarter compared with the
same period a year earlier. On the other hand, operating with a clearly
lower level of stocks than in the previous year has affected the sales
trend to some extent. In addition, Seppälä’s largest store in Estonia,
which is located in Tallinn’s Viru Centre, was closed in the spring for
refurbishing work on the shopping centre that will take about a year. The
number of stores in Finland was reduced by two: four stores were closed
and two new stores were opened. Operating profit in the report period
diminished by EUR 1.1 million, primarily owing to the sales trend in the
second quarter, and was EUR 3.3 million (EUR 4.4 million). In August-
September, the Seppälä Division opened three stores in Riga, Latvia, and
in October, a fourth store in the premises of the Stockmann department
store in Riga. Sales in Latvia have got off to a better start than
expected.

Financing and invested capital

Liquid assets totalled EUR 70.8 million, compared with EUR 70.5 million at
the end of 2002.

Loan repayments during the first part of the year amounted to EUR 1.0
million. In Latvia a LVL 9.0 million (EUR 13.9 million) loan for the
department store construction project was drawn down. The amount of long-
term loans at the end of September was EUR 49.1 million. The equity ratio
declined to 67.6 per cent from 69.1 per cent in the comparison period. The
equity ratio at the end of 2002 was 69.7 per cent.

The return on investment over the past 12 months increased and, lifted by
the growth in earnings, was 13.1 per cent (12.0 per cent). The Group’s
capital employed increased slightly on the same period a year ago and was
EUR 573 million.

Total contingent liabilities diminished by EUR 2.5 million from the end of
2002 and were EUR 65.9 million.

Property and business-related transactions

In line with its strategy of freeing up capital, at the end of March
Stockmann sold its department store property in Espoo’s Tapiola district
to a wholly-owned subsidiary of the Dutch real-estate investment company
Wereldhave N.V. for just over EUR 36 million. At the same time, Stockmann
leased the divested property from the new owner for the Tapiola department
store’s use under a long-term leaseback agreement.

Stockmann sold Academic Bookstore’s agency sales of magazine and newspaper
subscriptions to Suomalainen Kirjakauppa Oy. The business was transferred
to the new owner as from June 1, 2003. The arrangement fits in with the
Stockmann Group’s strategy, with its focus on the consumer trade. Academic
Bookstore will continue acting as an agent for magazine and newspaper
subscriptions ordered by Stockmann’s Loyal Customers and will still handle
order-based book sales to customers and public-sector organizations.

Capital expenditures

Capital expenditures during the report period totalled EUR 22.3 million
(EUR 22.0 million).

The Department Store Division’s capital expenditures in the report period
came to EUR 10.5 million. The division’s biggest ongoing capital
expenditure was still the Riga department store. During 2003, a total of
about EUR 19.0 million will be invested in the site’s building and
equipment, and Stockmann’s aggregate investment will be about EUR 24.0
million. The department store was opened on October 17.

Moscow’s first Zara store was opened at the end of February in the Mega
Shopping Centre. In April new Zara stores were opened in Finland in
Helsinki’s Itäkeskus Shopping Centre and in Turku’s Hansa Block. New
stores that are part of the Stockmann Beauty cosmetics chain have been
opened during the report period in the Forum Shopping Centre in Helsinki
and in Tampere’s Koskikeskus Shopping Centre. Stockmann Beauty stores were
opened in Seinäjoki and Vaasa in October.

In April Stockmann and IKEA’s Russian subsidiary LLC IKEA MOS entered into
a lease agreement on a Stockmann department store with about 10,000 square
metres of retail space that will be located in the Mega Shopping Centre on
the south side of Moscow. The landlord started construction works on the
site in the spring. The construction works are proceeding according to
plans and the department store will be opened in spring 2004. Stockmann’s
capital expenditure for the site will come to about EUR 20 million.
Established by IKEA, Mega is a 200,000 square metre shopping centre where,
among other retailers, the first Zara in Russia has been in operation
since February.

In the late summer, refurbishing and enlargement works were started in the
Stockmann-owned building that is located in the Suomenoja district of
Espoo and is used by the Vehicle Division. An Audi dealership serving
metropolitan Helsinki and the local area will be opened in the refurbished
premises in spring 2004. The project has a cost estimate of about EUR 3.4
million.

The Hobby Hall Division’s capital expenditures in the report period
totalled EUR 1.2 million. They went for developing the information systems
and starting up mail order sales in Lithuania. Sales in Lithuania have
started up in line with plans.

Seppälä’s capital expenditures in the report period came to EUR 1.0
million.

Investments in real-estate property in the report period amounted to EUR
7.7 million, of which EUR 3.2 million was for the Riga department store.

Other capital expenditures in the report period amounted to EUR 1.9
million.

Current projects

In October, Stockmann signed a lease agreement on opening a department
store with about 11,000 square metres of retail space in leased premises
in the projected enlargement of the Jumbo Shopping Centre in Vantaa.
According to plans, the department store will be completed in 2006.

The preliminary agreement that was signed with ZAO Znamenskaya concerning
a department store in St Petersburg has lapsed because the owner of the
property has not managed to arrange the financing required for
implementing the shopping centre by the deadline specified in the
agreement. Stockmann will explore the possibility of opening a department
store in some alternative location in St Petersburg.

A large-scale project for enlargement and modification works on the
department store in the centre of Helsinki is pending. According to the
plan, the department store’s commercial premises will be expanded by about
10,000 square metres by converting existing premises to commercial use and
by building new retail space. In addition, completely new goods handling
and servicing areas will be built for the department store as well as
access passages to the new customer car park. After the enlargement the
Helsinki department store will have about 50,000 square metres of retail
sales space. The project has a total cost estimate of approximately EUR
115 million. The works will be completed stage by stage by the end of
2007, according to a preliminary estimate. Implementation of the project
will call for modifying the town plan, a process that has already been
started.

In the early autumn, IKEA took a decision on building a Mega 2 Shopping
Centre with about 200,000 square metres of floor space on Moscow’s north
side. In October, Stockmann has signed an agreement on opening an
approximately 10,000 square metre Stockmann department store in leased
premises in this shopping centre too. The department store is to be opened
at the end of 2004. This will be Stockmann’s third full-sized department
store in Moscow. Stockmann’s capital expenditure for the site will come to
about EUR 20 million.

Shares and shareholders

At its meetings held on May 20, 2003 and August 12, 2003, Stockmann’s
Board of Directors approved shareholders’ requests to convert 130,000 of
the company’s shares from Series A into Series B shares in accordance with
Article 3 of the Articles of Association. Share conversions of 40,000
shares were entered in the Trade Register on June 6, 2003, and conversions
of 90,000 shares on September 5, 2003.

A total of 5,580 Stockmann plc Series B shares with a nominal value of 2
euros were subscribed for with Stockmann Loyal Customer share options
during the subscription period from May 2, 2003 to May 31, 2003. The
shares were entered in the Trade Register on June 30, 2003, and they
became available for public trading, together with the existing shares, on
Helsinki Exchanges on July 1, 2003. As a consequence of the subscriptions,
the share capital was increased by EUR 11,160.

After the close of the report period, a total of 127,904 Stockmann plc
Series B shares with a nominal value of 2 euros were subscribed for with
the Stockmann 1997 share options. As a consequence of the subscriptions,
the share capital was increased by EUR 255,808. The shares were entered in
the Trade Register on October 3, 2003, and they became available for
public trading, together with the existing shares, on Helsinki Exchanges
on October 6, 2003.

Following the increases the share capital is 103,035,090 euros. The total
number of Series A shares is 24,738,893 and there are 26,778,652 Series B
shares.

The company’s market capitalization at the end of September was EUR 832.8
million. At the end of 2002, the market capitalization was EUR 710.1
million.

Stockmann’s shares outperformed both the HEX General Index and the HEX
Portfolio Index during the report period. At the end of September the
stock exchange price of the Series A share was EUR 16.21, compared with
EUR 13.84 at the end of 2002, and the Series B share was selling at EUR
16.20, as against EUR 13.80 at the end of 2002.

At the end of September 2003, Stockmann held 163,000 of its own Series A
shares and 250,000 of its own Series B shares. The nominal value of these
shares is a total of EUR 826,000, and they represent 0.8 per cent of all
the shares outstanding as well as 0.7 per cent of the total votes. The
shares were purchased for a total price of EUR 6.2 million.

The company’s Board of Directors does not have valid authorizations to
increase the share capital or to float issues of convertible bonds or
bonds with warrants or to buy back its own shares.

Personnel strength

During the report period the Stockmann Group had an average payroll of
8,548 employees, or 351 more than in the comparison period. The growth in
staff was due mainly to the Department Store Divison’s new Zara and
Stockmann Beauty stores as well as the department store in Riga. Converted
to a full-time basis, the average number of personnel increased by 230
employees and was 6,882.

At the end of September 2003, Stockmann had 1,822 employees working
abroad. At the end of September of last year Stockmann had 1,243 people
working abroad.

Full-year outlook

Despite the uncertain economic situation, the retail trade net of car
sales is estimated to grow further in Finland. Unit volume sales of new
cars are set to grow significantly. The economies of Russia and the Baltic
countries are anticipated to continue growing at a faster rate than
Finland. The Stockmann Group’s sales growth is estimated to outpace the
overall market growth. Sales in 2003 are estimated to top EUR 1.7 billion.

A substantial portion of the Group’s full-year sales and profits is
generated during the last quarter. The Group’s fourth-quarter earnings
are anticipated to improve on the previous year’s figure. The Crazy Days
campaign that has an important bearing on the Department Store Division’s
earnings in the last months of the year was a big success. The division’s
full-year operating profit is estimated be better than it was a year ago.
The Vehicle Division’s operating profit over the full year will also
improve on last year’s figure. The Seppälä Division’s full-year operating
profit is estimated to be at the previous year’s level. Due to the
earnings trend so far and the costs of discontinuing stores, Hobby Hall’s
full-year operating result will be in the red. The Group’s earnings
estimate for the full year is unchanged. The Group reiterates its target
of posting higher profit before extraordinary items than in 2002.

Helsinki, October 28, 2003

STOCKMANN plc

Profit and loss account, Group EUR millions