Newsroom

26.10.2004

Stock Exchange Release

STOCKMANN plc INTERIM REPORT JANUARY 1 – SEPTEMBER 30, 2004

STOCKMANN plc STOCK EXCHANGE RELEASE October 26, 2004, at 12.00

STOCKMANN plc INTERIM REPORT JANUARY 1 – SEPTEMBER 30, 2004

The Stockmann Group’s sales grew by 1.9 per cent to EUR 1 219.2 million
(EUR 1 196.1 million in Jan.-Sep. 2003). Profit on ordinary operations
before extraordinary items improved by EUR 10.4 million on the comparison
period. The Department Store Division and Seppälä Division improved their
operating profit significantly, the operating result of the Hobby Hall
Division was at the year-ago level and the Vehicle Division’s operating
profit decreased. Profit before extraordinary items was EUR 36.7 million.
The corresponding figure a year earlier, EUR 39.4 million, included EUR
15.4 million of other operating income. Other operating income in the
report period amounted to EUR 2.3 million. Third-quarter operating profit
was EUR 12.7, up EUR 2.7 million year on year. The earnings estimate for
2004 is unchanged.

Sales and result

Stockmann’s consolidated sales during the report period were EUR 1 219.2
million, up EUR 23.1 million and 1.9 per cent on same-period sales. Sales
by international operations within consolidated sales grew from 10.5 per
cent in the comparison period to 13.2 per cent. Net turnover was EUR 1
015.4 million, increasing by EUR 20.7 million and 2.1 per cent on the same
period a year ago.

The Group’s gross operating margin grew by EUR 20.3 million to EUR 330.5
million. The relative gross margin improved and was 32.5 per cent (31.2
per cent). An improved relative gross margin was reported by the
Department Store Division, Seppälä and the Hobby Hall Division. The
Vehicle Division’s relative gross margin was at the level of the
comparison period. Operating costs were up EUR 9.2 million. Depreciation
increased by EUR 1.3 million. Profit on ordinary operations improved by
EUR 9.8 million. In addition, net financial income increased by EUR 0.7
million. These factors improved the Group’s profit on ordinary operations
before extraordinary items by EUR 10.4 million.

Other operating income came from the consideration received from the sale
of the VW-Audi car dealership in Helsinki’s Herttoniemi district and
amounted to EUR 2.3 million, whereby other operating income decreased by
EUR 13.1 million on the comparison period. Consolidated operating profit
fell by EUR 3.3 million on the comparison period and was EUR 30.3 million.

Net financial income increased by EUR 0.7 million from the same period a
year earlier and totalled EUR 6.4 million.

Profit before extraordinary items was EUR 36.7 million, down EUR 2.7
million on the result a year earlier.

Direct taxes were EUR 8.0 million, decreasing by EUR 3.4 million on the
figure a year earlier. Taxes on earnings amounted to EUR 10.6 million (EUR
11.4 million) and the change in the deferred tax liability was a decrease
of EUR 2.6 million. The change in the deferred tax liability takes into
account the lowering of Finland’s corporate tax rate from 29 per cent to
26 per cent as from the beginning of 2005.

Net profit for the report period was EUR 28.7 million, compared with EUR
28.0 million a year earlier.

Earnings per share, diluted for the effect of share options, were EUR 0.54
(EUR 0.54). The undiluted figures are EUR 0.55 in both years. Equity per
share was EUR 9.58 (EUR 9.86).

Sales and earnings trend by division

The Department Store Division’s sales grew by 9 per cent to EUR 628.7
million. Sales in Finland rose by 3 per cent and sales abroad by 42 per
cent. Sales in Finland were reduced by the divestment of the Academic
Bookstore magazine business in June 2003. In Russia, the Mega South
department store was opened in Moscow in April, and June saw the opening
of the Zara store that is located in the Marina Roscha Shopping Centre.
These units together with the Riga department store that was opened in
October 2003 in Latvia spurred the growth in International Operations’
sales. Sales in Estonia also grew. International Operations accounted for
20 per cent of the division’s sales (15 per cent). The Department Store
Division’s operating profit increased by EUR 5.1 million year on year to
EUR 18.5 million (EUR 13.3 million). Earnings were burdened by the costs
of starting up the department stores in Moscow (Mega South) and Riga. The
division’s third-quarter operating profit was EUR 1.8 million higher than
a year ago.

Following the exceptionally strong growth in vehicle sales in 2003 after
the car tax was lowered, the growth in vehicle sales in Finland has evened
out. The Vehicle Division’s sales were down 7 per cent to EUR 339.8
million. The decrease in sales was attributable to the transfer of the
Volkswagen-Audi dealership in Helsinki’s Herttoniemi district to a Kesko
Corporation subsidiary as from July 1, 2004. The transferred car
dealership had sales in 2003 accounting for about 22 per cent of the
Stockmann Vehicle Division’s entire sales. Unit sales of new vehicles were
down 17 per cent and those of used vehicles fell by 3 per cent. The
division’s operating profit diminished year on year and was EUR 3.9
million (EUR 5.5 million). Third-quarter operating profit declined by EUR
1.2 million, primarily because of the divestment of the Volkswagen-Audi
car dealership in Herttoniemi. Stockmann is continuing to devote energetic
efforts to developing VW-Audi sales in the Helsinki metropolitan area.
Finland’s first car dealership in line with the Audi car plant’s
recommendations was opened in Espoo’s Suomenoja district at the beginning
of July and will serve the Helsinki metropolitan area and its environs.

The Hobby Hall Division’s sales declined by 10 per cent on the same period
a year earlier and were EUR 149.8 million. Sales in Finland fell 9 per
cent short of the previous year’s figure, primarily owing to the effect of
the closure of stores after the end of the comparison period. Online sales
continued to enjoy strong growth and already accounted for just over 25
per cent of Hobby Hall’s distance retailing in Finland. The division’s
sales abroad were down 18 per cent on the same period of last year. This
was attributable to tightened-up credit policy as well as the closing of
one store in Estonia in the first part of 2004. During the report period
the division has stepped up its inventory management, and the level of
stocks was 36 per cent below the comparison period at the close of the
review period. A non-recurring cost item of EUR 2.1 million was booked on
stocks in the third quarter. Despite this, the relative gross margin
improved on the comparison period. The division’s operating result
diminished slightly and was EUR 4.5 million negative (EUR 4.3 million
negative). The third-quarter operating result was down EUR 0.2 million
year on year. Hobby Hall nevertheless posted an improved result in both
August and September. The Hobby Hall Division reduced its personnel by 171
employees during the report period.

The Seppälä Division’s sales increased by 12 per cent on the same period
of last year and were EUR 100.2 million. Seppälä’s sales grew both in
Finland and the Baltic countries, where sales were lifted by the five
stores opened in Latvia towards the end of 2003 and May 2004. Moreover, in
April 2004 Seppälä opened the first of its stores in Russia in Moscow.
Thanks to higher sales and a considerably improved relative gross margin,
Seppälä’s operating profit increased by a hefty EUR 5.2 million and was
EUR 8.5 million (EUR 3.3 million). Seppälä’s third-quarter operating
profit was EUR 2.5 million higher than a year ago.

Financing and capital employed

Loan repayments were not made during the report period, nor have new long-
term loans been drawn down. Long-term loans at the end of September stood
at EUR 48.7 million. Capital expenditures came to a total of EUR 40.4
million. The increase in working capital from the beginning of the year to
the end of September was EUR 14.4 million. This increase was attributable
primarily to larger stocks and trade debtors for the new department stores
in Riga and Moscow. EUR 0.3 million was added to shareholders’ equity
through share subscriptions made on the basis of the 1997 share options
and EUR 6.5 million was added through the exercise of Loyal Customer share
options. The Group’s restricted shareholders’ equity increased by EUR 2.7
million from the end of the comparison period and stood at EUR 577.8
million.

The equity ratio was 66.8 per cent (67.6 per cent). The equity ratio at
the end of 2003 was 68.3 per cent.

The return on capital employed over the past 12 months was 12.8 per cent
(13.1 per cent). The trend in the return on capital employed was affected
by both the decrease in earnings and the growth in restricted
shareholders’ equity.

Fine-tuning strategy

In its discussion of strategy in June 2004, the Stockmann Group’s Board of
Directors reconfirmed the company’s strategy, according to which the Group
will grow energetically over the next few years, particularly in the
Russian market. The objective is that by the end of 2008 about a third of
sales and at least the same proportion of earnings will come from the
markets in the Baltic countries and Russia.

Growth abroad will be spearheaded by the department stores, Seppälä and
expansion of the franchising-based Zara chain in Russia. A new possibility
that is being explored for augmenting business operations is to expand
franchising activities also for international brands that have indicated
expressions of interest in utilizing Stockmann’s acquired knowledge of
trading in Russia. As part of the implementation of this strategy, in
October Stockmann signed a cooperation agreement with the Bestseller Group
of Denmark, on the basis of which Stockmann will receive exclusive rights
to retail Bestseller’s brands in Russia. The Bestseller brands include
Vero Moda, Only, Jack & Jones, Exit and Selected. The first store selling
Bestseller brands will be opened in the Mega North Shopping Centre in
February 2005.

Consolidation is rolling ahead in the distance retailing market in Europe.
As a part of this trend, a number of international industrial players in
the field and private equity investors have expressed interest in the
Stockmann Group’s Hobby Hall, which is the market leader in distance
retailing in Finland and the Baltic countries. Accordingly, the Board of
Directors decided in June to initiate a process whereby different
alternatives for developing Hobby Hall will be explored, one of which is
to exit the business. The alternatives for developing Hobby Hall in the
years ahead will be ascertained during November, when the outcome of this
process is determined.

The Vehicle Division’s operations will be developed as part of Stockmann,
with a special emphasis on exploiting the synergies arising via Loyal
Customer marketing in concert with department store operations as well as
the possibilities for business development offered by the amendment of the
Block Exemption regulation. In line with this policy, Stockmann and the
owners of the car dealership Autotalo Jurvakainen Oy in Oulu, Finland,
signed a bill of sale whereby Stockmann will acquire the company’s entire
share capital on 1 November 2004. Autotalo Jurvakainen is a BMW-Mini
dealer in Oulu. The company has sales of about EUR 10 million and employs
11 people. The company’s present managing director, Juha Jurvakainen, will
stay on as head of the business. As a consequence of this deal, Stockmann
will be able to serve its customers, in car sales too, in all its
department store localities in Finland.

Developing the Group structure

With a view to streamlining Stockmann’s group structure and enhancing
business efficiency and transparency when making the transition to IFRS
reporting, the Board of Directors has taken a decision on the following
structural business arrangements.

The Board of Directors has decided to incorporate Stockmann’s Vehicle
Division as an independent company. The spin-off will be carried out as a
transfer of business operations to a new subsidiary that is wholly-owned
by the parent company. The Vehicle Division’s dealership agreements will
be transferred to the new company, and the Vehicle Division’s personnel
will transfer to its employ under their current terms of employment. The
spin-off is to be implemented by the end of the year.

The Board of Directors has decided to transfer the subsidiaries operating
in Russia to the parent company’s wholly-owned Finnish holding company.
Plans call for transferring the shares to the new holding company by the
end of November 2004. In addition, the Board of Directors has decided to
establish a Finnish finance company that is wholly-owned by the parent
company by the end of November 2004. The finance company will procure all
the fixed-asset goods required by the Group’s subsidiaries in Russia and
make them available to the Russian companies in the Stockmann Group on
leasing or rental agreements.

Capital expenditures

Capital expenditures during the report period totalled EUR 40.4 million
(EUR 22.3 million).

The Department Store Division’s capital expenditures during the report
period came to EUR 28.0 million. The division’s most important investment
outlay was for the new Mega South department store in Moscow that was
opened in April in premises leased from Ikea. During the report period the
site required an outlay of EUR 13.3 million. The department store has
approximately 10 000 square metres of retail space, and Stockmann’s
capital expenditure for the site came to EUR 16.0 million. In Moscow,
construction works are in progress on another department store in the same
size class, Mega North. According to plans, it will be opened in December
in premises owned by Ikea. During the report period the site required an
outlay of EUR 8.3 million. Stockmann’s investment in this department store
will be about EUR 18 million. In Russia a new Zara store was also opened
at the beginning of June in the Marina Roscha Shopping Centre near the
centre of Moscow. A third Zara store in Moscow will be opened in the Mega
North Shopping Centre in December. A lease agreement on opening a flagship
Zara store at a centrally located business site right in the heart of
Moscow was signed in October. According to plans, the store will be opened
in March 2005. Furthermore, agreements have been signed on opening three
new Zara stores in Moscow in the first half of 2005. In Finland, two new
stores belonging to the Stockmann Beauty cosmetics chain were opened,
bringing the total number of stores to eight.

The Hobby Hall Division’s capital expenditures in January-September
totalled EUR 0.9 million. They went mainly for the development of
information systems.

The Seppälä Division’s capital expenditures during the report period
amounted to EUR 1.0 million. Seppälä opened its first store in Russia at
the Stockmann department store in Moscow’s Mega South Shopping Centre in
April. Seppälä will open its second store in Russia in the Marino Shopping
Centre on the southeast side of Moscow in November 2004, and a third store
at the Stockmann department store in Moscow’s Mega North shopping centre
in December. In addition, Seppälä will open a new store in Liepaja,
Latvia, in November.

Property investments during the report period totalled EUR 9.2 million, of
which EUR 2.0 million went for the Audi car dealership in Espoo’s
Suomenoja district and EUR 4.7 million was for the preparatory works for
the enlargement of the Helsinki department store. As part of these
preparatory works, new escalators were installed in the department store
and a complete refurbishment of the central lifts was started. The Audi
car dealership was realized as an extension to the Stockmann-owned
building that is used by the Vehicle Division, and it went into use at the
beginning of July.

Other capital expenditures in the report period amounted to EUR 1.3
million.

Current projects

Stockmann will open a department store with about 11 000 square metres of
retail space in leased premises in the new section of the Jumbo Shopping
Centre in Vantaa. The objective is to open the department store in autumn
2005. Stockmann’s share of the cost estimate for the project is about EUR
10 million.

A large-scale project for enlargement and modification works on the
department store in the centre of Helsinki is pending, and its
implementation will call for a change in the town plan. According to
plans, 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 maintenance 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 a total of 50 000
square metres of retail space. The cost estimate for the project is a
total of about EUR 115 million. It is estimated that the works will be
completed stage by stage by the end of 2009.

Shares and shareholders

The company’s market capitalization at the end of September was EUR 1
073.8 million (EUR 832.8 million). At the end of 2003 the market
capitalization was EUR 955.6 million.

Stockmann shares outperformed the HEX All-share Index in the report period
but trailed the HEX Portfolio Index. At the end of September the stock
exchange price of the Series A share was EUR 20.30, compared with EUR
18.00 at the end of 2003, and the Series B share was selling at EUR 20.05,
as against EUR 18.30 at the end of 2003.

The 1997 Stockmann share options were exercised to subscribe for a total
of 20 300 Stockmann plc Series B shares with a par value of 2 euros in
January. As a consequence of the subscriptions the share capital was
increased by EUR 40 600. The shares were entered in the Trade Register on
February 20, 2004, and they became available for public trading, together
with the existing shares, on Helsinki Exchanges on April 5, 2004.

At its meeting held on February 12, 2004, Stockmann’s plc’s Board of
Directors approved a shareholder’s request to convert 163 000 of the
company’s shares from Series A into Series B shares in accordance with
Article 3 of the Articles of Association. The share conversion was entered
in the Trade Register on February 20, 2004. The converted shares became
eligible for public trading together with the existing shares as from
February 23, 2004.

A total of 600 269 Stockmann plc Series B shares with a par value of 2
euros were subscribed for with Stockmann Loyal Customer share options in
May. As a consequence of the subscriptions the share capital was increased
by EUR 1 200 538. Following the increase, the share capital is EUR 106 499
820. Of the shares, 597 118 were entered in the Trade Register on June 30,
2004, and 3 151 shares were entered on August 30, 2004, and became
available for public trading, together with the existing shares, on
Helsinki Exchanges on July 1, 2004, and August 31, 2004, respectively.
Following the share conversion and the share option subscriptions, the
total number of Series A shares is 24 575 893 and the number of Series B
shares is 28 674 017.

In spring 2000, a total of 1 382 524 Stockmann plc Loyal Customer share
options were subscribed for. On the basis of the unexercised Loyal
Customer share options, a further total of 775 591 new Series B shares
with a par value of 2 euros can be subscribed for in disapplication of
shareholders’ pre-emptive right to subscribe for shares. On the basis of
the subscriptions, the company’s share capital can rise by a further
maximum of EUR 1 551 182 to a maximum of EUR 108 051 002. The subscription
price is EUR 15.70 less the amount of the per-share dividend distributed
after April 1, 1999. This year the subscription price was EUR 10.81 per
share. The remaining subscription period for the Loyal Customer share
options is from May 2, 2005, to May 31, 2005.

Stockmann held 406 939 of its own Series B shares (treasury shares) at the
end of September 2004. The par value of these shares is a total of EUR 813
878, and they represent 0.8 per cent of all the shares outstanding as well
as 0.1 per cent of the total votes. The shares were bought back at a total
price of EUR 6.1 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. The Board of Directors
has valid authorizations to transfer 406 939 company-owned Series B
treasury shares up to March 30, 2005.

Personnel strength

During the report period the Stockmann Group had an average payroll of 9
283 employees, or 735 more than in the comparison period. The growth in
the number of employees is attributable mainly to the new department
stores in Riga and Moscow. Converted to full-time staff, the average
number of employees increased by 677 and was 7 559.

At the end of September 2004 the number of staff working abroad was 2 463
employees. At the end of September of last year Stockmann had 1 822 people
working abroad. The proportion of the total personnel who were working
abroad increased from 21 per cent in the comparison period to 27 per cent.

Full-year outlook

Retail sales are estimated to grow further in Finland. In the latter part
of the year, vehicle sales are expected to fall short of the previous
year’s level. The economies of Russia and the Baltic countries are
anticipated to continue growing at a faster rate than Finland. The
Stockmann Group’s sales in 2004 are expected to come in at about EUR 1.75
billion.

Of the Group’s divisions, the Department Store Division and Seppälä
performed excellently during the report period. Although earnings,
especially for these divisions, are generated substantially during the
last quarter of the year, the trend on the basis of third-quarter results
points to a marked improvement in the full-year earnings of both the
Department Store Division and Seppälä. Measures to restore Hobby Hall’s
profitability are on track and their effects will show up particularly
during the last quarter. Hobby Hall’s full-year result will improve but
still fall short of the target. Within the Vehicle Division, the transfer
of the profitable unit in Herttoniemi to Kesko Group six months earlier
than planned will mean that the unit’s full-year earnings come in somewhat
below the figure a year ago.

The Group’s fourth-quarter earnings are anticipated to improve on the
previous year’s figure.

The earnings estimate for 2004, which was stated in the Annual Report, is
unchanged. Stockmann’s target is for profit before extraordinary items in
2004 to be higher than the figure reported for 2003.

Helsinki, October 26, 2004

STOCKMANN plc

Profit and loss account, Group EUR millions