STOCKMANN'S FINANCIAL STATEMENT BULLETIN 2005
STOCKMANN plc STOCK EXCHANGE RELEASE February 8, 2006, at 13.00
STOCKMANN'S FINANCIAL STATEMENT BULLETIN 2005
The Stockmann Group's sales grew by 7 per cent to EUR 1 851.3 million (EUR 1 735.0 million in 2004). Profit before taxes increased by EUR 23.9 million and was EUR 102.8 million. Other operating income amounted to EUR 7.0 million (EUR 2.4). The Group, Seppälä and the Department Store Division turned in their best-ever results. Hobby Hall's earnings improved significantly and moved into the black. Stockmann Auto's earnings fell. Return on capital employed climbed by 4.8 percentage points to 19.6 per cent. Earnings per share increased to EUR 1.44, as against EUR 1.13 a year ago. The Board of Directors will propose the payment of a dividend of EUR 1.10 per share. In addition, the Board of Directors will propose a new share option programme for the company's Loyal Customers and key employees.
IFRS reporting
Stockmann adopted International Financial Reporting Standards (IFRS) on January 1, 2005. The comparative information used in the financial statements is the 2004 figures according to IFRS, which were published at the annual level on February 15, 2005, and at the quarterly level on April 18, 2005.
Sales and result
Stockmann's consolidated sales during the report period were EUR 1 851.3 million, up EUR 116.3 million and 6.7 per cent on the previous year's sales. Revenue was EUR 1 542.6 million, increasing by EUR 97.6 million and 6.7 per cent on revenue a year ago. International operations accounted for an increased share of consolidated sales, rising from 14 per cent to 18 per cent.
The Group's operating gross margin increased by EUR 53.6 million to EUR 547.1 million. The relative gross margin improved further and was 35.5 per cent (34.2 per cent). The relative gross margin improved in Seppälä and Hobby Hall and it was at the level of last year in the Department Store Division and Stockmann Auto. The Group had hedged against a weakening in the value of the Russian rouble. When the rouble strengthened against all expectations, hedging dampened the positive effect on earnings by around EUR 6 million in 2005. The growth in the Group's relative gross margin was also attributable to the change in the sales mix: the proportion of low-margin Stockmann Auto's sales within consolidated sales decreased on the previous year.
Other operating income was EUR 7.0 million (EUR 2.4 million) and resulted from the capital gain on the sale of Seppälä's head office property. Operating costs increased by EUR 30.0 million. Depreciation rose by EUR 4.2 million.
Consolidated operating profit was up EUR 23.9 million on the previous year, and was EUR 103.7 million, or 6.7 per cent of revenue. The corresponding figure a year ago was 5.5 per cent. Net financial expenses were EUR 0.9 million or at the level of last year. Profit before taxes rose by EUR 23.9 million to EUR 102.8 million (EUR 78.9 million).
Direct taxes were EUR 26.0 million, an increase of EUR 6.3 million on the previous year. The deferred taxes portion of taxes for 2004 diminished due to the lowering of Finland's corporate tax rate from 29 per cent to 26 per cent from the beginning of 2005. The lowering of the tax rate reduced the deferred tax liability for 2004 by EUR 2.6 million.
Net profit for the financial year was EUR 76.9 million, compared with EUR 59.3 million a year earlier.
Earnings per share were EUR 1.44 (EUR 1.13) and diluted for options they were EUR 1.42 (EUR 1.11). The above-mentioned change in the deferred tax liability improved earnings per share in 2004 by EUR 0.05. Equity per share was EUR 9.34 (EUR 8.83).
Sales and earnings trend by operating unit
The Department Store Division's sales grew by 14 per cent to EUR 1 070.6 million. Sales in Finland were up 7 per cent, clearly outstripping growth in the sector. Factors that contributed to the growth of sales in Finland were the Stockmann department store and Zara store that were opened in the Jumbo Shopping Centre in Vantaa in October as well as the new Stockmann Beauty stores that were opened during the year. Sales by international operations were boosted by the new department stores that were opened in Moscow in April and December 2004, the new Zara and Bestseller stores as well as by good same-store sales growth in all market areas. Sales by the Department Store Division's international operations grew by 42 per cent and their share of the division's sales rose to 26 per cent (21 per cent). The Department Store Division's operating profit increased by EUR 6.6 million to EUR 70.3 million (EUR 63.7 million). The Department Store Division posted its best-ever operating profit. Operating profit includes EUR 1.4 million of other operating income. The return on capital employed was 19.7 per cent (18.9 per cent).
Stockmann Auto's sales fell by 5 per cent to EUR 414.1 million. The unit's operating profit was EUR 3.1 million, down EUR 3.9 million on the previous year (EUR 7.0 million). Operating profit for 2004 included an EUR 2.3 million payment that was received on the sale of the VW-Audi dealership business in Helsinki's Herttoniemi district. A major factor behind the drop in both sales and operating profit was the transfer of the VW-Audi dealership in Herttoniemi to the importer as from 1 July 2004. The return on capital employed was 4.8 per cent (12.4 per cent).
Hobby Hall's profitability improved significantly, and its operating result increased by EUR 9.0 million. Sales declined by 2 per cent and were EUR 210.5 million. Sales in Finland diminished by 4 per cent owing to the cutback in the store network and the different timing of the mail order catalogues, compared with the previous year. Finland's online sales continued their robust growth. Hobby Hall's sales in the Baltic countries were at the level of last year even though operations in Lithuania were wound up during the first part of the year. Hobby Hall's result swung to profit. Operating profit was EUR 6.1 million (a loss of EUR 2.9 million in 2004). The positive earnings trend was achieved through cost-efficient operations and by effective execution in carrying through the programme aiming at improving the gross margin. The return on capital employed was 7.0 per cent.
Seppälä's sales increased by 8 per cent and were EUR 155.2 million. Sales grew buoyantly abroad, where they were lifted by the stores opened in the Baltic countries and Russia in 2004 and 2005 as well as by the good trend in like-for- like sales. In Finland, sales grew by 3 per cent. Seppälä's operating profit increased by EUR 14.0 million to EUR 31.1 million (EUR 17.1 million). The good sales growth, coupled with a higher relative gross margin, lifted the profit on ordinary operations by EUR 8.4 million, in addition to which operating profit includes a capital gain of EUR 5.6 million on the sale of Seppälä's head office property in November. The return on capital employed increased from 81 per cent to 156 per cent.
Financing and capital employed
Liquid assets at the end of the year were EUR 18.4 million, as against EUR 41.4 million at the end of 2004.
Loan repayments amounted to EUR 36.6 million, and no new long-term loans were raised. Interest-bearing liabilities at the end of the year were EUR 47.2 million (EUR 67.8 million), of which EUR 13.7 million consisted of long-term borrowings. Share subscriptions made through the exercise of Loyal Customer share options and the options for the year 2000 added EUR 7.9 million to shareholders' equity. Capital expenditures amounted to EUR 57.0 million. Net working capital was EUR 237.9 million, and it increased by EUR 24.7 million from the end of the previous year. The equity ratio was 66.4 per cent, as against 62.5 per cent at the end of 2004.
Return on capital employed improved in line with higher earnings and was 19.6 per cent (14.8 per cent at the end of 2004). The Group's capital employed increased by EUR 17.0 million from the end of the previous year and stood at EUR 552.5 million towards the end of the report period (EUR 535.9 million at the end of 2004).
New long-term financial targets
In 2005 the Group achieved the long-term financial targets that were set in 2001: a 15 per cent return on capital employed and an operating profit margin of at least 5 per cent. In June the Board of Directors confirmed the Group's new financial targets up to 2010. The objective is for the Group's return on capital employed to reach 20 per cent in 2010, with an operating profit margin of at least 8 per cent. The target for Group sales is to outpace the market. The equity ratio target has been set at a level of at least 50 per cent. The dividend policy will remain unchanged, the objective being to pay dividends of at least 50 per cent of the profit on ordinary operations, nevertheless taking into account the financing required to grow the business.
Dividends
For 2004, in accordance with the resolution of the Annual General Meeting, a dividend of EUR 1.00 per share was paid, or a total of EUR 53.0 million. The Board of Directors will propose to the Annual General Meeting that a dividend of EUR 1.10 per share be paid for the 2005 financial year. The proposed dividend is 76.4 per cent of earnings per share.
Organizational changes
On June 17, 2005, Stockmann's Board of Directors appointed Seppälä Oy's managing director, Heikki Väänänen, M.Sc. (Econ.), as director of the Department Store Division and Group executive vice president, effective November 1, 2005. Heikki Väänänen also acts as the alternate to CEO Hannu Penttilä. The Department Store Division's previous head, Jukka Hienonen, Stockmann's executive vice president, resigned from Stockmann's employ to become president and CEO of Finnair.
On August 11, 2005, Stockmann's Board of Directors appointed the sales director of Stockmann's Helsinki department store, Terhi Okkonen, eMBA, as managing director of Seppälä Oy and a member of the Stockmann Group's Management Committee, effective November 1, 2005. Jussi Kuutsa, M.Sc. (Econ.), head of the Department Store Division's international operations, was appointed the Group's development director for international operations and a member of the Management Committee effective January 10, 2006. Mr Kuutsa is responsible for acquiring the Group's commercial locations outside Finland and implementing projects as well as for administrative functions abroad and the franchising chain businesses. Stockmann's company lawyer and member of the Management Committee, Jukka Naulapää, LL.M., was appointed the Group's director, legal affairs, effective February 8, 2006.
Capital expenditures
Capital expenditures during the report period totalled EUR 57.0 million (EUR 59.0 million).
The Department Store Division's most important investment was the department store that was opened in leased premises in the new extension to the Jumbo Shopping Centre in Vantaa towards the end of October. The department store has about 11 000 square metres of retail space and it has had good sales performance. Stockmann's share of the total costs for the project came to about EUR 6 million.
The large-scale enlargement and transformation project for the department store in the centre of Helsinki got started. The town plan change required for it was approved by the Helsinki City Council in June. The project involves enlarging the department store's commercial premises 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 as well as a new customer car park. After the enlargement the Helsinki department store will have a total of about 50 000 square metres of retail space. The total cost estimate for the project is approximately EUR 125 million. It is estimated that the works will be completed stage by stage by 2010.
New Stockmann Beauty stores were opened in Jyväskylä as well as at the Iso Omena Shopping Centre and the Sello Shopping Centre in Espoo. Finland's fourth Zara store opened for business at the Jumbo Shopping Centre in Vantaa in October. In early 2006, a Stockmann Beauty store will be opened in the Kamppi shopping mall in Helsinki.
The first Bestseller stores operating on the franchising principle were opened in Russia in 2005: three stores in Moscow and one in St Petersburg. The flagship Zara store in Russia was opened in the heart of Moscow in June and, in addition, three other Zara stores were opened in Moscow. The number of Zara stores in Moscow rose to seven by the end of 2005.
The Department Store Division's capital expenditures came to EUR 47.3 million.
Stockmann Auto's capital expenditures amounted to EUR 2.7 million, of which an outlay of EUR 1.5 million was made on vehicles included in property, plant and equipment. Stockmann Auto expanded its operations at its current site in Tampere in October with the launch of a Ford dealership there in addition to the previous ?koda dealership. In Espoo's Niittykumpu district, ?koda was added as a new marque along with Ford. An opportunity for expanding the range of marques opened up at these outlets when the location clause of the Block Exemption Decree governing the motor trade at the EU level was abolished on October 1, 2005.
Hobby Hall's capital expenditures amounted to EUR 1.3 million.
Seppälä's capital expenditures came to EUR 3.4 million. It expanded its operations to Lithuania and opened three stores there during 2005. Both in Finland and in Latvia Seppälä opened two new stores. In Russia, a fourth store was opened in Moscow, and operations were also extended to St Petersburg, where two stores were opened.
Other capital expenditures in the report period amounted to EUR 2.3 million.
Current projects
In 2005 Stockmann signed an agreement on the purchase of a 10 000-odd square metre commercial plot on Nevsky Prospect, St Petersburg's high street. The plot is located next to the Vosstaniya Square underground station, in the immediate vicinity of the Moscow Station. Stockmann will erect on the plot a shopping centre with about 50 000 square metres of gross floor space. According to plans, this will be the site of a full-scale Stockmann department store with about 20 000 square metres of retail space, other retail stores, a hotel and an underground car-park. The department store and shopping centre investment will have a price tag of about EUR 80-110 million, depending on the final floor space to be built. Plans call for opening the department store and shopping centre in autumn 2008.
In early 2006, Stockmann signed an agreement with IKEA on leasing space in the Mega Shopping Centre, which is to be built on Moscow's southeast side. This will be the site of the fourth full-scale Stockmann department store in Moscow, and Seppälä and Bestseller stores will also be opened there. Plans call for starting up operations around the turn of the year 2006-2007. Stockmann's total capital expenditure for the site will be about EUR 16 million.
Shares and shareholders
The company's market capitalization increased by EUR 620.5 million during the year and stood at EUR 1 761.3 million at the end of the year (EUR 1 140.8 million).
Stockmann's shares outperformed both the OMX Helsinki Index (the former HEX General Index) and the OMX Helsinki Cap Index (the former HEX Portfolio Index) during the report period. At the end of the year the stock exchange price of the Series A share was EUR 32.11, compared with EUR 21.10 at the end of 2004, and the Series B share was selling at EUR 32.53, as against EUR 21.70 at the end of 2004.
The Helsinki Stock Exchange decided on reducing the round lot for Stockmann shares from 50 shares to 20 as from 1 July 2005.
The 4 900 Stockmann plc Series B shares with a par value of 2 euros which were subscribed for in December 2004 with the share options for 2000 were entered in the Trade Register on March 16, 2005, and they were admitted for public trading on the Helsinki Stock Exchange together with existing shares on March 17, 2005.
The Year 2000 Stockmann share options were exercised to subscribe for a total of 690 830 Stockmann plc Series B shares with a par value of 2 euros, of which 279 900 shares were subscribed for in the last quarter. As a consequence of the subscriptions, the share capital was increased by a total of EUR 1 381 660. Of the shares subscribed for in the fourth quarter, 90 450 shares were entered in the Trade Register on November 18, 2005, and 189 450 shares were entered on December 29, 2005. They were admitted to public trading on the Helsinki Stock Exchange together with the old shares on November 21, 2005, and December 30, 2005.
At the end of December, the Year 2000 Stockmann share options were exercised to subscribe for another 23 350 Stockmann Series B shares with a par value of 2 euros. As a consequence of the subscriptions the share capital was increased by EUR 46 700 million. Stockmann's Board of Directors approved the subscription in its meeting held on 8 February 2005.
By exercising the A, B and C share options for 2000, which are quoted on the Helsinki Stock Exchange, further subscriptions can be made for a total of 1 610 770 new Series B shares with a par value of 2 euros. The subscription price for shares to be subscribed for by exercising the A options, after the dividend to be paid out for 2005, is EUR 12.85; the price through exercise of the B options is EUR 13.85), and the price through exercise of the C options is EUR 14.85 per share. The subscription period for shares to be subscribed for by exercising the share options for 2000 ends on April 1, 2007.
A total of 343 902 Stockmann plc Series B shares with a par value of 2 euros were subscribed for with Stockmann Loyal Customer share options during the subscription period from May 2, 2005, to May 31, 2005. The subscription rights were exercised by 12 851 Stockmann Loyal Customers. As a consequence of the subscriptions, the share capital was increased by EUR 687 804. The subscription price was EUR 8.81 per share. The shares were entered in the Trade Register on June 29, 2005. They were admitted to public trading on the Helsinki Stock Exchange together with the old shares on June 30, 2005. A total of 950 835 Stockmann Series B shares have been subscribed for with Loyal Customer options during 2001-2005. The subscription period ended on May 31, 2005.
Following the above-mentioned increases, the share capital is 108 966 084 euros and the total number of Series B shares is 29 918 799.
Stockmann held 396 876 of its own Series B shares (treasury shares) at the end of 2005, and they represented 0.7 per cent of all the shares outstanding and 0.1 per cent of all the votes. The shares were bought back at a total price of EUR 6.0 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.
Board of Directors' proposal for a share option programme for Loyal Customers and key employees, and proposal for an authorization to transfer treasury shares
The Board of Directors will propose to the Annual General Meeting that a total maximum of 2.5 million share options be granted without consideration to Stockmann's Loyal Customers in disapplication of shareholders' pre-emptive subscription rights. The purpose of granting the share options is to offer Loyal Customers a significant benefit that rewards them for patronage and at the same time improves Stockmann's competitive position.
Share options will be granted to Loyal Customers whose purchases during January 1, 2006 - December 31, 2007, together with purchases made on parallel cards for the same account are at least EUR 6 000 in total amount. For purchases of at least EUR 6 000, a Loyal Customer will receive 20 share options without consideration. In addition, for each full 500 euros by which the purchases exceed EUR 6 000, the Loyal Customer will receive an additional two share options. Each share option entitles its holder to subscribe for one of the company's Series B shares. It will be proposed that the subscription price per share be the volume- weighted average price of the Series B share on the Helsinki Stock Exchange during the period February 1 - February 28, 2006. The subscription price of a share subscribed for with the share options will be lowered by the amount of the dividends declared prior to the share subscription, on the record date for each dividend payout. The subscription period for the shares is in May in the years 2008-2010. As a consequence of the subscriptions, the company's share capital can be increased by a maximum of EUR 5.0 million.
The Board of Directors will propose to the Annual General Meeting that a share option programme be targeted at key employees belonging to the senior and middle management of Stockmann and its subsidiaries as part of the incentive and commitment-building scheme for management. A total maximum of 1.5 million share options will be granted and they will entitle their holders to subscribe for a total maximum of 1.5 million of the company's Series B shares. Of the share options, 750 000 will be granted only if the criteria linked to the Group's financial targets as determined by the Board of Directors prior to the distribution of these share options have been met. Otherwise they will lapse. The subscription prices of the shares to be subscribed for on the basis of the share options will be the volume-weighted average price of the company's share on the Helsinki Stock Exchange during February 1 - February 28, 2006, plus 10 per cent, and the volume-weighted average price of the company's share on the Helsinki Stock Exchange during February 1 - February 29, 2008, plus 10 per cent. The subscription price of the shares to be subscribed for with share options will be lowered, by the amount of dividends declared after the commencement of the period for determining the subscription price and prior to the share subscription, on the record date for each dividend payout. The subscription period for the shares to be subscribed for on the basis of the share options will be stepwise during 2008-2013. As a consequence of the subscriptions, the company's share capital can be increased by a maximum of three million euros.
In addition, the Board of Directors will request the Annual General Meeting to grant authorizations for a period of one year to decide on the transfer of the company's treasury shares.
Personnel strength During the report period the Stockmann Group had an average payroll of 10 558 employees, or 967 more than in the comparison period. The growth in the number of employees was attributable mainly to the new speciality and department stores in Moscow as well as to the new department store in the Jumbo Shopping Centre in Vantaa. Converted to a full-time basis, the average number of personnel increased by 725 employees and was 8 537.
At the end of 2005, Stockmann had 3 737 employees working abroad. At the end of the previous year Stockmann had 3 391 people working abroad. The proportion of the total personnel who were working abroad was at the same level as in the previous year or 32 per cent.
Risk factors
The level of business risk in the Stockmann Group's areas of operations varies. The level of business risk in the Baltic countries has diminished significantly after these countries became members of the European Union, nor do the risks differ in any material respect from business risks in Finland.
Business risks in Russia are higher than in Finland and the Baltic countries, and the operating environment is less stable owing to factors such as the business culture and the undeveloped state of the country's infrastructure. The pervasiveness of the grey economy, particularly in the importation of consumer goods, is still large and plays a part in distorting properly functioning competition. Over the past years, the operating environment and legislation pertaining to business activities have nevertheless improved rapidly. The country's economic growth has been robust thanks to the strong impetus from export revenues in the energy sector. Stockmann has more than 16 years of experience of operating in the Russian market, and during this time the Group has succeeded in carrying on its business in an operating environment that was considerably worse than the present one. Accordingly, even large changes in the operating environment in Russia are not estimated to result in a material increase in the entire Stockmann Group's business risk.
The Group's revenue and earnings are affected by changes in foreign exchange rates between the Group's reporting currency, the euro, and the Russian rouble, the United States dollar as well as certain other currencies.
Stockmann Auto divested
On January 19, 2006, Stockmann sold the entire shares outstanding in its subsidiary Stockmann Auto Oy Ab to Veho Group Oy Ab, the Ford businesses in Turku and Espoo to SOK as well as Stockmann Auto's VW-Audi business to Kesko Corporation's subsidiary Helsingin VV-Auto Oy for a total price of about EUR 70 million. The transaction is contingent on approval by the competition authorities and it is scheduled to enter into force on March 1, 2006. Stockmann will offer its loyal customers Veho's entire range of marques and has launched wide-ranging loyal customer cooperation together with Veho.
Klaus Sundström, managing director of Stockmann Auto Oy Ab and a member of the Stockmann Group's Management Committee, will oversee implementation of the company and business transactions of the vehicle business. After the transactions are completed, Mr. Sundström will take up special duties with Stockmann plc and resign from the company's employ six months after the transactions have been finalized.
Stockmann sells its Zara franchise subsidiary in Russia
Stockmann sold its subsidiary that is engaged in the Zara business in Russia to the brand's owner, the Inditex company of Spain, and will focus on expanding its own operations in Russia. In Finland, Stockmann will continue the Zara business. In 2002 Stockmann and Inditex concluded an agreement on the basis of which Stockmann received, up to 2010, franchising rights to trade under the Zara brand in Russia. By the end of 2005, Stockmann opened in Russia seven Zara stores, whose operations got off to a good start. Sales by Stockmann's Zara stores in Russia were about EUR 46 million in 2005. In step with the strong growth of the economy, the Russian market has become ever more interesting as an operating environment for retailers. Accordingly, Inditex and Stockmann decided by mutual agreement to cancel their previous contractual arrangements and concentrate henceforth on expanding their own business operations in Russia. As a consequence of the agreement that was made, operations in Russia have been carried out for Inditex's account as from January 1, 2006 and the final agreement, the coming into force of which is contingent on approval by the Russian Anti-monopoly Committee, will be made on May 31, 2006, at the latest. The purchase price was about EUR 41.5 million. The capital gain will improve the Group's earnings substantially in 2006.
Outlook for 2006
Retail sales, excluding the motor trade, are estimated to increase by about 2-3 per cent in Finland in 2006. It is estimated that the markets in Russia and the Baltic countries will continue growing faster than the Finnish market. Because of the divestment of the vehicle business and the Zara business in Russia, sales in 2006 will diminish, and they are estimated to come in at about EUR 1.6 billion. Sales, excluding the divested businesses, are estimated to increase.
Operating profit of the Department Store Division and Hobby Hall is estimated to improve further from the level achieved in 2005. Seppälä's operating profit on ordinary operations is estimated to remain at the level reported in 2005. The capital gain on the sale of the vehicle business and the company that was engaged in the Zara business in Russia will improve the Group's earnings significantly in 2006. Stockmann's target is for the Group to post markedly higher profit before taxes in 2006 than it did in 2005.
Helsinki, February 8, 2006
STOCKMANN plc
CONSOLIDATED BALANCE SHEET 31.12.2005 31.12.2004 EUR mill. EUR mill. ASSETS NON-CURRENT ASSETS Intangible assets
| Intangible rights | 7.1 | 9.1 |
| Goodwill | 0.5 | 0.5 |
| Intangible assets, total | 7.6 | 9.6 |
| Land and water | 21.8 | 22.5 |
| Buildings and constructions | 145.6 | 143.3 |
| Machinery and equipment | 63.0 | 59.7 |
| Modification and renovation expenses for leased premises | 57.6 | 50.0 |
| Advance payments and construction in progress | 15.0 | 8.2 |
| Property, plant and equipment, total | 303.1 | 283.7 |
| Available-for-sale investments | 6.0 | 6.6 |
| Non-current receivables, interest-bearing | 4.3 | 8.5 |
| Deferred tax assets | 3.5 | 2.0 |
| NON-CURRENT ASSETS, TOTAL | 324.5 | 310.3 |
| Receivables, interest-bearing | 107.5 | 108.1 |
| Receivables, non-interest-bearing | 99.2 | 94.1 |
| Income tax receivable | 0.1 | |
| Available-for-sale investments | 0.0 | |
| Current receivables, total | 206.6 | 202.4 |
| Cash and cash equivalents | 18.4 | 41.4 |
| CURRENT ASSETS, TOTAL | 437.0 | 438.7 |
| ASSETS, TOTAL | 761.5 | 749.0 |
STOCKMANN GROUP CONSOLIDATED BALANCE SHEET 31.12.2005 31.12.2004 EUR mill. EUR mill. EQUITY AND LIABILITIES EQUITY
| Share capital | 109.0 | 106.8 |
| Share premium fund | 166.5 | 154.8 |
| Other funds | 44.1 | 44.6 |
| Translation difference | 0.0 | -0.1 |
| Retained earnings | 185.7 | 161.9 |
| Equity attributable to equity holders of the parent | 505.3 | 467.8 |
| Minority interest | 0.0 | 0.0 |
| EQUITY, TOTAL | 505.3 | 467.9 |
| Deferred taxes | 28.2 | 29.2 |
| Non-current liabilities, interest-bearing | 13.7 | 15.3 |
| NON-CURRENT LIABILITIES, TOTAL | 41.9 | 44.5 |
| Repayments of long-term loans in one year | 35.0 | |
| Current liabilities | 33.6 | 17.7 |
| Current liabilities, interest-bearing, total | 33.6 | 52.7 |
| Trade payables and other current liabilities | 175.5 | 175.9 |
| Income tax liability | 5.2 | 8.0 |
| Current liabilities, non-interest-bearing, total | 180.7 | 183.8 |
| CURRENT LIABILITIES, TOTAL | 214.3 | 236.6 |
| LIABILITIES, TOTAL | 256.2 | 281.1 |
| EQUITY AND LIABILITIES, TOTAL | 761.5 | 749.0 |
STATEMENT OF CHANGES IN EQUITY
| Share | Treasury | ||||
| Share | premium | share | Legal | Other | |
| EUR mill. | capital | fund | fund | reserve | funds* |
| Equity December 31, | 105.3 | 147.1 | 6.2 | 0.2 | 43.7 |
| Own shares | -6.2 | ||||
| Financial instruments | 0.3 | ||||
| Adjusted equity | 105.3 | 147.1 | 0.0 | 0.2 | 44.1 |
| Options exercised | 1.6 | 7.9 |
| Transfer to other | -0.2 |
| Cash flow hedges | -0.3 |
| Financial instruments | 0.6 |
| Options exercised | 2.1 | 11.7 |
| Share bonus | 0.1 | |
| Transfer to other | 0.1 |
| Costs of share issue | -0.1 |
| Cash flow hedges | -0.6 |
STATEMENT OF CHANGES IN EQUITY
| Share | Treasury | ||||
| Share | premium | share | Legal | Other | |
| EUR mill. | capital | fund | fund | reserve | funds* |
| Equity December 31, | -0.1 | 244.7 | 547.1 | 0.0 | 547.1 |
| Depreciation | -10.8 | -10.8 | -10.8 | ||
| Own shares | -6.2 | -6.2 | |||
| Financial instruments | -0.9 | -0.6 | -0.6 | ||
| Adjusted equity | 0.0 | 225.4 | 522.0 | 0.0 | 522.0 |
| Options exercised | 9.5 | 9.5 | |
| Transfer to other | 0.2 | 0.0 | 0.0 |
| Cash flow hedges | 0.2 | -0.1 | -0.1 |
| Financial instruments | 0.6 | 0.6 | |
| Dividends | -123.3 | -123.3 | -123.3 |
| Translation | -0.1 | -0.1 | -0.1 |
| Profit for the period | 59.3 | 59.3 | 0.0 | 59.3 | |
| Equity December 31, | -0.1 | 161.9 | 467.9 | 0.0 | 467.9 |
| Options exercised | 13.9 | 13.9 | |
| Share bonus | 0.1 | 0.1 | |
| Transfer to other | 0.2 | 0.3 | 0.3 |
| Costs of share issue | -0.1 | -0.1 | ||
| Cash flow hedges | -0.6 | -0.6 | ||
| Financial instruments | 0.0 | 0.0 | ||
| Dividends | -53.0 | -53.0 | -53.0 | |
| Translation | 0.2 | -0.2 | 0.0 | 0.0 |
| Profit for the period | 76.9 | 76.9 | 0.0 | 76.9 | |
| Equity December 31, | 0.0 | 185.7 | 505.3 | 0.0 | 505.3 |
| NET TURNOVER | 1-12/2005 | 1-12/2004 | change | change |
| EUR mill. | EUR mill. | EUR mill. | % | |
| Department Store Division, | 666.7 | 624.5 | 42.2 | 6.8 |
| Stockmann Auto | 338.3 | 358.0 | -19.6 | -5.5 |
| Hobby Hall, Finland | 145.8 | 148.6 | -2.9 | -1.9 |
| Hobby Hall, international | 28.9 | 29.3 | -0.4 | -1.4 |
| Hobby Hall, total | 174.7 | 177.9 | -3.3 | -1.8 |
| Seppälä, Finland | 108.7 | 105.3 | 3.3 | 3.1 |
| Seppälä, international | 19.4 | 13.0 | 6.4 | 49.1 |
| Seppälä, total | 128.1 | 118.4 | 9.7 | 8.2 |
| Eliminations | 2.1 | 1.5 | 0.6 | |
| Operations in Finland, total | 1 261.5 | 1 237.9 | 23.6 | 1.9 |
| International operations, | 281.0 | 207.1 | 73.9 | 35.7 |
INCOME STATEMENT 1-12/2005 1-12/2004 REVENUE 1 542.6 1 445.0
| Other operating income | 7.0 | 2.4 |
| Raw material and consumables used, total | 995.5 | 951.5 |
| Wages, saleries and employee benefits expense | 218.0 | 202.2 |
| Depreciation and impairment losses | 35.8 | 31.5 |
| Other operating expenses | 196.7 | 182.5 |
| OPERATING PROFIT | 103.7 | 79.8 |
| Financial income and costs | -0.9 | -0.9 |
| PROFIT BEFORE TAXES | 102.8 | 79.0 |
| Income taxes | 26.0 | 19.6 |
| PROFIT FOR THE PERIOD | 76.9 | 59.3 |
| Investments, gross | 57.0 | 58.9 |
| Share of revenue | 3.7 | 4.1 |
Key figures
| 2005 | 2004 | |
| Equity ratio | 66.4 | 62.5 |
| Gearing | 5.7 | 5.7 |
| Cash flow from operations per share, EUR | 1.5 | 1.62 |
| Interest-bearing net debt, EUR mill. | -83.3 | -89.9 |
| Number of shares at Sept. 30, 2005, thousands | 54 483 | 53 420 |
| Number of shares, thousands | 53 350 | 52 544 |
| Weighted average number of shares, diluted, thousands | 54 129 | 53 509 |
| Earnings per share, EUR | 1.44 | 1.13 |
| Earnings per share, diluted, EUR | 1.42 | 1.11 |
| Operating profit, per cent | 6.7 | 5.5 |
| Equity per share, EUR | 9.34 | 8.83 |
| Return on equity, per cent, moving 12 months | 15.8 | 12.2 |
| Return on capital employed, per cent, movin 12 months | 19.6 | 14.8 |
| Average number of employees, converted to full-time staff | 8 537 | 7 812 |
Income statement, Group, EUR Q4 Q3 Q2 Q1 millions quarterly, EUR millions
| 2005 | 2005 | 2005 | 2005 | |
| REVENUE | 475.7 | 351.8 | 380.9 | 334.1 |
| Other operating income | 7.0 | 0.0 | 0.0 | 0.0 |
| Raw material and consumables | -290.2 | -229.9 | -247.3 | -228.1 |
| Other operating expenses | -59.4 | -45.0 | -47.3 | -45.0 |
| OPERATING PROFIT | 58.0 | 19.5 | 24.6 | 1.6 |
| Financial income and costs | -1.4 | 0.9 | -0.5 | 0.1 |
| PROFIT BEFORE TAXES | 56.6 | 20.4 | 24.2 | 1.7 |
| Income taxes | -14.2 | -5.0 | -6.3 | -0.5 |
| PROFIT FOR THE PERIOD | 42.4 | 15.4 | 17.9 | 1.2 |
| Minority interest | 0.0 | 0.0 | 0.0 | 0.0 |
| PROFIT FOR THE PERIOD | 42.4 | 15.4 | 17.9 | 1.2 |
SEGMENT INFORMATION Segments
| Sales, EUR millions | 1-12.2005 | 1-12/2004 | ||
| Department Store Division | 1 070.6 | 938.8 | 14 | 938.8 |
| Stockmann Auto | 414.1 | 437.1 | -5 | 437.1 |
| Hobby Hall | 210.5 | 214.4 | -2 | 214.4 |
| Seppälä | 155.2 | 143.7 | 8 | 143.7 |
| Eliminations + shared | 0.9 | 0.9 | 0.9 | |
| Group | 1 851.3 | 1 735.0 | 7 | 1 735.0 |
| Department Store Division | 899.4 | 789.3 | 14 | 789.3 |
| Stockmann Auto | 338.3 | 358.0 | -5 | 358.0 |
| Hobby Hall | 174.7 | 177.9 | -2 | 177.9 |
| Seppälä | 128.1 | 118.4 | 8 | 118.4 |
| Eliminations + shared | 2.1 | 1.5 | 1.5 | |
| Group | 1 542.6 | 1 445.0 | 7 | 1 445.0 |
| Department Store Division | 70.3 | 63.7 | 10 | 63.7 |
| Stockmann Auto | 3.1 | 7.0 | -55 | 7.0 |
| Hobby Hall | 6.1 | -2.9 | -2.9 | |
| Seppälä | 31.1 | 17.1 | 81 | 17.1 |
| Eliminations | -7.3 | -1.7 | -1.7 | |
| Shared | 0.3 | -3.5 | -3.5 | |
| Group | 103.7 | 79.8 | 30 | 79.8 |
| Department Store Division | 47.3 | 48.8 | -3 | 48.8 |
| Stockmann Auto | 2.7 | 4.4 | -38 | 4.4 |
| Hobby Hall | 1.3 | 1.2 | 9 | 1.2 |
| Seppälä | 3.4 | 1.2 | 176 | 1.2 |
| Shared | 2.3 | 3.3 | -30 | 3.3 |
| Group | 57.0 | 59.0 | -3 | 59.0 |
| Assets, EUR millions | 31/12/05 | 31/12/04 | Change |
| Department Store Division | 486.5 | 443.1 | 10 | 443.1 |
| Stockmann Auto | 98.2 | 113.1 | -13 | 113.1 |
| Hobby Hall | 106.3 | 102.2 | 4 | 102.2 |
| Seppälä | 31.2 | 29.2 | 7 | 29.2 |
| Shared | 39.3 | 61.3 | -36 | 61.3 |
| Group | 761.5 | 749.0 | 2 | 749.0 |
| Non-interest-bearing | 31/12/05 | 31/12/04 | Change |
| liabilities, EUR millions | per cent | |||
| Department Store Division | 113.0 | 96.5 | 17 | 96.5 |
| Stockmann Auto | 36.9 | 45.1 | -18 | 45.1 |
| Hobby Hall | 15.3 | 17.0 | -10 | 17.0 |
| Seppälä | 10.9 | 10.4 | 5 | 10.4 |
| Shared | 32.9 | 44.1 | -25 | 44.1 |
| Group | 209.0 | 213.1 | -2 | 213.1 |
| Finland 1) | 1 520.9 | 1 492.9 | 2 | 1 492.9 |
| Baltic states 2) | 140.8 | 119.5 | 18 | 119.5 |
| Russia 3) | 189.6 | 122.5 | 55 | 122.5 |
| Group | 1 851.3 | 1 735.0 | 7 | 1 735.0 |
| Finland, per cent | 82.2 | 86.0 | 86.0 | |
| International operations, per | 17.8 | 14.0 | 14.0 |
| Finland 1) | 1 261.5 | 1 237.9 | 2 | 1 237.9 |
| Baltic states 2) | 119.7 | 102.0 | 17 | 102.0 |
| Russia 3) | 161.4 | 105.1 | 54 | 105.1 |
| Group | 1 542.6 | 1 445.0 | 7 | 1 445.0 |
| Finland, per cent | 81.8 | 85.7 | 85.7 | |
| International operations, per | 18.2 | 14.3 | 14.3 |
| Finland 1) | 95.4 | 76.9 | 24 | 76.9 |
| Baltic states 2) | 7.4 | 0.2 | 0.2 | |
| Russia 3) | 1.0 | 2.7 | 2.7 | |
| Group | 103.8 | 79.8 | 30 | 79.8 |
| Finland 1) | 34.6 | 22.3 | 55 | 22.3 |
| Baltic states 2) | 1.7 | 3.1 | -46 | 3.1 |
| Russia 3) | 20.7 | 33.5 | -38 | 33.5 |
| Group | 57.0 | 59.0 | -3 | 59.0 |
| Finland, per cent | 60.7 | 37.8 | 37.8 | |
| International operations, per | 39.3 | 62.2 | 62.2 |
| Finland 1) | 587.4 | 602.2 | -2 | 602.2 |
| Baltic states 2) | 72.2 | 70.9 | 2 | 70.9 |
| Russia 3) | 101.9 | 75.9 | 34 | 75.9 |
| Group | 761.5 | 749.0 | 2 | 749.0 |
| Finland, per cent | 77.1 | 80.4 | 80.4 | |
| International operations, per | 22.9 | 19.6 | 19.6 |
CONTINGENT LIABILITIES EUR millions 2005 2004 Security pledged on behalf of the company
| Mortgages given | 1.7 | 1.7 |
| Securities pledged | 0.1 | 0.2 |
| Total | 1.7 | 1.9 |
| Within one year | 1.7 | 3.0 |
| Within 1-5 years | 0.6 | 0.8 |
| Total | 2.3 | 3.9 |
| Mortgages | 1.7 | 1.7 |
| Pledges | 0.1 | 0.2 |
| Other liabilities | 15.5 | 24.4 |
| Total | 17.3 | 26.3 |
| EUR mill | 2005 | 2004 |
| Within one year | 62.8 | 59.3 |
| Within 1-5 years | 189.2 | 201.6 |
| In five years more | 146.8 | 195.9 |
| Total | 398.8 | 456.8 |
| Currency forwards !9 | 10.4 | 86.9 |
| Interest rate swaps | 0.0 | 35.0 |
| Total | 10.4 | 121.9 |
CONSOLITATED CASH FLOW STATEMENT STOCKMANN GROUP
| 2005 | 2004 | |
| EUR mill. | EUR |
| Depreciation | 35.8 | 31.5 |
| Other operating income | -7.0 | |
| Interest paid and other financial expenses | 3.7 | 4.4 |
| Interest received | -2.8 | -3.6 |
| Taxes paid | 28.2 | 25.2 |
| Change in trade and other receivables | -2.6 | -5.5 |
| Changes in inventories | -17.1 | -3.7 |
| Change in trade payables and other liabilities | 0.9 | 5.9 |
| Interest paid | -3.9 | -4.3 |
| Interest received | 1.2 | 1.1 |
| Taxes paid | 31.3 | 23.9 |
| NET CASH FROM OPERATING ACTIVITIES | 81.9 | 88.3 |
| Investments in property, plant and equipment | -58.1 | -57.1 |
| Proceeds from sale of property, plant and equipment | 11.7 | 0.5 |
| Capital expenditures on other investments | 0.0 | 0.0 |
| Cash from other investments | 1.5 | 1.2 |
| Dividens received | 0.2 | 0.6 |
| NET CASH FROM INVESTING ACTIVITIES | -44.7 | -54.7 |
| Change in loans granted, increase (-), decrease (+) | 0.0 | 0.0 |
| Proceeds from issue of share capital | 13.9 | 9.5 |
| Change in short-term loans, increase (-), decrease (+) | 15.8 | |
| Repayments of long-term borrowings | -36.6 | 0.0 |
| Dividens paid | -53.3 | -123.0 |
| NET CASH USED IN FINANCING ACTIVITIES | -60.2 | -113.5 |
| Change in cash flows | -23.0 | -79.9 |
| Cash and cash equivalents at beginning of period | 41.4 | 121.3 |
| Cash and cash equivalents at end of period | 18.4 | 41.4 |
AVERAGE NUMBER OF EMPLOYEES 2001 2002 2003 2004 2005 CONVERTED TO FULL-TIME STAFF
| Department Store Division | 4 263 | 4 459 | 4 782 | 5 601 | 6 401 |
| Stockmann Auto | 790 | 741 | 776 | 740 | 690 |
| Hobby Hall | 688 | 755 | 704 | 608 | 537 |
| Seppälä | 749 | 705 | 709 | 759 | 809 |
| Management and administration | 91 | 92 | 97 | 104 | 100 |
| Total | 6 581 | 6 752 | 7 068 | 7 812 | 8 537 |
STOCKMANN plc
Hannu Penttilä CEO
SUPPLEMENT Notice of Annual General Meeting
DISTRIBUTION Helsinki Stock Exchange Principal media
A press and analyst conference will be held today, February 8, 2006, at 14.00 at the World Trade Center, Aleksanterinkatu 17, Helsinki.
SUPPLEMENT
NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given to the shareholders of Stockmann plc that the Company's Annual General Meeing of Shareholders will be held on Tuesday, 21 March 2006, beginning at 4.00 p.m. at the Finlandia Hall at the address Karamzininkatu 4, Helsinki. In addition to an advance registration, shareholders must register at the meeting venue as of 2.30 p.m. Registration for the meeting is requested to be made no later than 3.45 p.m. Free parking will be provided for attendees in the parking lot of the Finlandia Hall.
The following items are on the agenda:
1. The matters belonging to the competence of the Annual General Meeting under Article 14 of the Articles of Association
2. The proposal by the Board of Directors to issue option rights to the Loyal Customers of Stockmann
The Board of Directors proposes to the Annual General Meeting of Shareholders to issue without payment, in deviation from the shareholders' pre-emption right to subscription, to the loyal customers (holding loyal customer card) of Stockmann a maximum of 2,500,000 option rights. It is proposed to deviate from the shareholders' pre-emption right to subscription because the option rights are intended to be issued in order to offer loyal customers a benefit that rewards the purchase loyalty of the loyal customers while simultaneously strengthening the competitive position of Stockmann. Options will be issued to loyal customers, whose purchases together with purchases originating from parallel cards directed to the same account during the time period 1 January 2006 - 31 December 2007 amounts to a total of at least EUR 6,000. For purchases of at least EUR 6,000, the loyal customers shall without payment receive 20 options. In addition, for every full EUR 500, with which the purchases exceed EUR 6,000, the loyal customer shall receive an addition of 2 options. Each option right entitles its holder to subscribe for one share of the Company's Series B shares. The subscription price for the shares shall be the trading-volume weighted average price for the Company's Series B shares on the Helsinki Exchanges during the time period of 1 February - 28 February 2006. The subscription price for a share subscribed for based on the option rights shall at each record date of the dividend distribution be decreased with the amount of possible dividends decided upon after 21 March 2006 and before the share subscription. The subscription periods for the shares shall be 2 May 2008 - 31 May 2008, 2 May 2009 - 31 May 2009 and 2 May 2010 - 31 May 2010. The share capital of the Company may increase by a maximum of EUR 5,000,000 as a result of the subscriptions.
3. The proposal by the Board of Directors to issue option rights to key persons of the Stockmann Group
The Board of Directors proposes to the Annual General Meeting of Shareholders to issue, in deviation from the shareholders' pre-emption right to subscription, to key persons of the management or middle management of Stockmann and its subsidiaries and to fully owned subsidiaries of Stockmann a total of 1,500,000 option rights. It is proposed to deviate from the shareholders' pre-emption right to subscription because the option rights are part of the incentive and commitment scheme of the group and constitutes an important element in preserving the Company's competitive advantage on the international recruitment markets.
Of the option rights, a total of 375,000 shall be marked with the symbol 2006A, a total of 375,000 with the symbol 2006B, a total of 375,000 with the symbol 2006C, and a total of 375,000 with the symbol 2006D. The subscription period for shares shall with the option rights 2006A be 1 March 2008 - 31 March 2010, with the option rights 2006B 1 March 2009 - 31 March 2011, with the option rights 2006C 1 March 2010 - 31 March 2012 and with the option rights 2006D 1 March 2011 - 31 March 2013. The subscription period for the option rights 2006B and 2006D shall, however, not commence if the criteria tied to the economical targets of the group and established by the Board of Directors prior to the distribution of the option rights have not been fulfilled. The option rights 2006B and 2006D for which the criteria established by the Board of Directors have not been fulfilled, will expire as determined by the Board of Directors. Each option right entitles its holder to subscribe for one share of the Stockmann plc's Series B shares, which means that as a result of the subscriptions based on the option rights a maximum of 1,500,000 shares may be subscribed for. The subscription price for shares based on the option rights 2006A and 2006B shall be the trading-volume weighted average price for the Company's Series B shares on the Helsinki Exchanges during the time period 1 February - 28 February 2006 increased with 10 percent and for shares subscribed for based on the option rights 2006C and 2006D the trading- volume weighted average price for the Company's Series B shares on the Helsinki Exchanges during the time period 1 February - 29 February 2008 increased with 10 percent. The subscription price for a share subscribed for based on the option rights shall be decreased with the amount of possible dividends decided upon after the commencement of the determination period for the subscription price and before the share subscription at each record date of the dividend distribution. The share capital of the Company may increase by a maximum of EUR 3,000,000 as a result of the subscriptions.
4. Proposal for the authorization of the Board of Directors to decide on the conveyance of the Company's own shares
The Board of Directors proposes that the Annual General Meeting of Shareholders authorizes the Board of Directors to decide on the conveyance of a maximum of 396,876 of the Company's own Series B shares. The authorization includes the right to decided on the conveyance of shares in one or several lots in deviation of the shareholders' pre-emption right. The shares can be conveyed as compensation in possible business acquisitions or other structural arrangements, to be used as part of the Company's incentive and bonus scheme, to be used for the payment of the share compensation of the Board of Directors or to be sold through public trading. The shares shall be conveyed to the prevailing market value of the public trading. The authorization shall be in force for one year after the Annual General Meeting deciding upon the granting of the authorization.
Financial statement documents and proposals by the Board of Directors
The financial statement documents and the above-mentioned proposals by the Board of Directors are available for inspection by the shareholders as of 13 March 2006 at the Company's Head Office, Aleksanterinkatu 52 B, 8th floor, Helsinki (Christina Harjunpää). Copies of the documents will be sent to shareholders upon request.
Participation in the Annual General Meeting
Entitled to participate in the Annual General Meeting of Shareholders are each shareholder, who on Friday 10 March 2006 is entered as a shareholder in the shareholder register kept by the Finnish Central Securities Depository Ltd and who has registered for the meeting no later than on Wednesday, 15 March 2006.
Also a shareholder whose shares have not been transferred to the book-entry system has the right to participate in the Annual General Meeting of Shareholders provided that the shareholder has been registered in the Company's share register prior to 28 September 1994. In this case the shareholder must present at the Annual General Meeting his share certificates or other documentation indicating that the title to the shares has not been transferred to the book-entry system.
A shareholder wishing to participate in the Annual General Meeting of Shareholders must notify the Company of his intention to participate no later than on Wednesday 15 March 2006, by 4.00 p.m. by telephone on the number +358 9 121 4020 or via the Company's internet pages www.stockmann.fi. If a participant at the meeting represents a shareholder by proxy, we kindly request that proxy forms for a designated person be delivered to the Company no later than by 17 March 2006 at the address Stockmann plc, Heini Köpsi, P.O. Box 147, FI-00381 Helsinki.
Payment of dividend
The Board of Directors proposes to the Annual General Meeting of Shareholders that a dividend of EUR 1.10 per share be distributed for the financial year 2005. It is proposed that the dividend for the financial year 2005 be paid on 31 March 2006 to the shareholders entered as shareholders in the shareholder register kept by the Finnish Central Securities Depository Ltd. on the record date for dividend payment 24 March 2006.
To the shareholders who have not transferred their share certificates to the book- entry system by the record date, the dividend will be paid after a transfer of the shares to the book-entry system.
Composition of the Board of Directors
The Appointments and Compensation Committee of the Board of Directors proposes to the Annual General Meeting of Shareholders that seven members be elected as members of the Board of Directors and that the present members of the Board of Directors, Lasse Koivu, Managing Director, Erkki Etola, Managing Director, Professor Eva Liljeblom, Kari Niemistö, Managing Director, Minister Christoffer Taxell, Carola Teir-Lehtinen, Senior Vice President, Corporate Communications and kammarrådet Henry Wiklund having given their consent, be re-elected, for a period of office continuing until the end of the next Annual General Meeting.
Auditors
The Board of Directors proposes that as auditors for the year 2006 be elected Wilhelm Holmberg, CPA and Henrik Holmbom, CPA in accordance with their consents. As deputy auditor is proposed to be elected KPMG Oy Ab, an auditing entity authorized by the Central Chamber of Commerce.
Helsinki, 8 February 2006
The Board of Directors
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