ANNUAL REPORT 2002 CONTENTS

Stockmann Group’s core values ...... 3 Stockmann in 2002 ...... 4 Divisions in short ...... 5 Major events in 2002 ...... 6 Information for shareholders ...... 7 CEO’s review ...... 8 Board of Directors and auditors ...... 10 Corporate management ...... 11

REVIEW OF OPERATIONS Department Store Division ...... 12 Vehicle Division...... 18 Hobby Hall ...... 22 Seppälä ...... 26

Corporate governance...... 30 Financing and management of financial risks .... 31 Personnel ...... 32 Environment and social responsibility ...... 34

REPORT AND ACCOUNTS, DECEMBER 31, 2002 Board report on operations ...... 36 Shares and share capital ...... 41 Key figures ...... 45 Per-share data ...... 46 Profit and loss account ...... 47 Balance sheet ...... 48 Funds statement ...... 50 Notes to the accounts ...... 51 Proposal for the distribution of parent company profit ...... 61

Auditors’ report ...... 62

Contact information ...... 63

Printed in an environmentally friendly process on EMAS certified paper. Frenckellin Kirjapaino Oy, Espoo 2003

1 Business is always about understanding customers. The success stories of the future in retail will be companies who don’t just offer goods and services, but really listen to customers: understand them, take their problems seriously, are able to predict their wishes and in addition to all this produce memorable experiences. That’s what we focus on at Stockmann. At Stockmann we hear the customer’s voice.

2 STOCKMANN IN BRIEF

Stockmann is a Finnish listed company which was established in 1862 and is engaged in the retail trade. It now has about 14 000 shareholders. Customer satisfaction is the central objective of Stockmann’s trading in all its areas of business. Stockmann’s four divisions are the Department Store Division, the Vehicle Division, the Hobby Hall Division, which is specialized in mail order sales and e-commerce, and Seppälä, a chain of fashion stores. Stockmann operates in Finland, Russia, Estonia, Latvia and Lithuania.

Stockmann Group’s core values

PROFIT ORIENTATION EFFICIENCY We are in business to make money; all By performing better than our competi- our operations should support this goal. tors, we boost sales, secure high cost- Healthy earnings mean a good return for effectiveness and use capital efficiently. investors and latitude of movement and risk-taking ability for the company. For COMMITMENT good people who are committed to our In all our activities, success calls for an common goals, it means a highly respec- understanding of the importance of Stock- ted job and an opportunity for self- mann’s company-wide success factors development. and the role of our own unit in achieving them as well as a commitment to the CUSTOMER ORIENTATION goals we all share together. We earn money only by offering benefits which the customer perceives as real and RESPECT better than those of our competitors. The FOR OUR PEOPLE sum total of these benefits is high cus- We respect and value people’s capacity for tomer satisfaction and loyalty. Com- commitment, taking calculated risks and petitive pricing, reliable quality and good producing results. We reward success. customer service are vital elements in achieving these goals.

3 STOCKMANN IN 2002

KEY FIGURES

SALES BY QUARTER 2001–2002, EUR mill.

OPERATING PROFIT BY QUARTER 2001–2002, EUR mill.

Sales Profit before extraordinary items by quarter 2001-2002 by quarter 2001-2002 EUR mill. EUR mill. 500 35 30 400 25 300 20

200 15 10 100 5

0 0 1-3 4-6 7-9 10-12 1-3 4-6 7-9 10-12

2002 2002

4 2001 2001 DIVISIONS IN SHORT

DIVISIONS AND OFFERINGS LOCATIONS SHARE OF THEIR MANAGEMENT STOCKMANN’S SALES

DEPARTMENT Offers customers a knowledgeable • 6 department stores, 5 Academic EUR 811.1 mill. STORE DIVISION shopping environment and good Bookstores, a Zara store and 2 Jukka Hienonen service in a congenial atmosphere. Stockmann Beauty stores in Finland The key to Stockmann’s success is • A department store in Tallinn, Estonia a unique and broad assortment of • A department store in Moscow, Russia good products at competitive • A speciality store in Moscow and 51 % prices. 2 speciality stores in St Petersburg, Russia

VEHICLE DIVISION Offers a very wide range of high • 11 outlets in the Helsinki metropolitan EUR 398.9 mill. Esa Mäkinen quality car makes and models. area: Ford, Volkswagen and Audi Reliable quality and customer cars, a wide selection of trade-in service are especially important vehicles as well as vehicle servicing advantages within servicing, and repair centres repair and spare parts for • An outlet in Turku: Ford dealership, 25 % customers’ vehicles. vehicle servicing and repair centre • An outlet in Tampere: Mitsubishi and Skoda dealerships, a wide selection of trade-in vehicles as well as vehicle servicing and repair centre

HOBBY HALL DIVISION Hobby Hall offers an easy, reliable • Finland’s largest mail order sales EUR 237.1 mill. Henri Bucht and pleasant alternative for buying company and leading online store. quality products at affordable 5 stores in Finland: in Helsinki, prices. Its offerings consist Espoo, Vantaa and Tampere primarily of household and • Estonia’s largest mail order sales leisure articles. company, an online store, 2 stores 15 % in Tallinn • Latvia’s largest mail order sales company • A mail order sales company in Lithuania

SEPPÄLÄ DIVISION Offers customers women’s, men’s • Finland’s and Estonia’s largest chain EUR 132.7 mill. Heikki Väänänen and children’s apparel as well as of fashion stores cosmetics at reasonable prices. • 128 stores in Finland The collections are based on • 14 stores in Estonia Seppälä’s own product design and own brands. Seppälä’s expertise 9 % rests on the correct combination of basic and trendy products.

Distribution of operating profit Sales by division by market Sales by sector

71 % Department Store Division 89 % Finland 33 % Fashion 10 % Vehicle Division 5 % Russia 25 % Motor vehicles 1 % Hobby Hall 5 % Estonia 15 % Home 18 % Seppälä 1 % Latvia 12 % Food 5 % Leisure 10 % Books, publications, stationery 5 MAJOR EVENTS IN 2002

JANUARY JUNE 50 000 square metres of retail space. The • Stockmann opened a new full-service • The cornerstone of the Riga department project, which is planned for completion in Ford dealership and tyre service outlet store was laid. 2007, has been dubbed the “All-time along Ringroad III in the Tikkurila district • Hobby Hall celebrated its 40th birthday. Stockmann”. of Vantaa as well as an Outlet oddment • In line with Stockmann’s strategy of free- • The enlargement of the Delicatessen of store for the department stores. ing up capital, the company sold its logis- the Itäkeskus department store was com- tics buildings in Vantaa, which were used pleted. An Alko wines and spirits shop was FEBRUARY by Hobby Hall, to Nordea Life Assurance opened in connection with the Delicatessen. • Stockmann celebrated its 140th birthday Finland Ltd. Stockmann rented the properties • When Stockmann’s Mitsubishi-Skoda on February 1st by putting in a good day’s sold for Hobby Hall’s operations by signing dealership was wound up in the premises work. a long-term lease with the new owner. in Lauttasaari in June, a servicing outlet and • The Stockmann Exclusive card was tyre service for Audi, Volkswagen and Ford launched for key loyal customers. To be JULY vehicles was opened in the same premises eligible to receive an Exclusive card that • The enlargement of the Academic Book- in September. offers a host of special benefits, one must store in the centre of Helsinki was com- have annual purchases above a certain pleted. It comprises an additional floor that OCTOBER level, which is 2 000 euros at present. provides about 500 square metres of new • Stockmann and the Inditex Group of Spain • Construction works on the Riga depart- retail space. signed an agreement according to which ment store got under way in the centre Stockmann received the Zara fashion store of town. The building will have a total of AUGUST chain’s franchise rights in the territory of the 32 000 square metres of floor space, of • Stockmann signed a Letter of Intent with entire Russian Federation. Russia’s first Zara which the retail sales space of the Polar Real Estate Corporation and Mutual store, with about 1 800 square metres of Stockmann department store will come to Insurance Company Pension-Fennia on the floor space, will be opened in the Mega 11 000 square metres. The building, which leasing of space in the planned extension Shopping Centre in Moscow in spring 2003. also houses – among other attractions – a of the Jumbo Shopping Centre in Vantaa to • Stockmann announced that in spring 14-cinema film centre, will be completed a Stockmann department store. According 2003 it would open new Zara stores in on schedule in autumn 2003. to plans, the department store will have Helsinki’s Itäkeskus shopping centre and at about 11 000 square metres of retail sales the Hansa Block shopping centre in the MARCH space. The project is estimated to be com- centre of Turku. • The Moscow department store was pleted in 2005. • Hobby Hall launched a programme of expanded by 1 500 square metres, bringing • Stockmann signed a preliminary agree- measures with the aim of improving prof- its retail sales space to a total of about ment with ZAO Znamenskaya, the Russian itability by achieving cost savings of about 6 500 square metres. subsidiary of SPAG of Germany, on the 6 million euros. opening of a department store in a modern APRIL shopping centre right in the heart of St NOVEMBER • The Stockmann Account Card became an Petersburg. The department store will be • The first stores of the Stockmann Beauty accepted means of payment at all Alko located along Nevsky Prospect, the town’s cosmetics chain were opened at the Trio wines and spirits shops. main street. According to plans, it will have shopping centre in downtown Lahti and at about 8 000 square metres of floor space the Jumbo Shopping Centre in Vantaa. • In Helsinki’s Aleksanterinkatu, Stock- and will be completed in 2005. • Hobby Hall’s pilot marketing of mail mann opened Finland’s first Zara store, order sales was launched in Lithuania. which has about 1 600 square metres of SEPTEMBER • Stockmann’s Board of Directors approved retail space. • Stockmann’s Board of Directors approved the Group’s new environmental policy. a major remake plan for enlargement and MAY modification works on the Helsinki depart- DECEMBER • Hobby Hall opened a new store with ment store. According to the plan, the • Mr Jukka Hienonen, M.Sc. (Econ.), direc- approx. 1 400 square metres of sales space department store’s commercial facilities will tor of the Department Store Division was in Helsinki’s Herttoniemi district. be expanded by about 10 000 square appointed Group Executive Vice President • Hobby Hall opened a new store with metres of retail space both by converting effective January 1, 2003. Hienonen’s opera- more than 1 000 square metres of retail present areas that are in other use to com- tional area of responsibility as the director of sales space in the Rocca al Mare Shopping mercial use and by building new space. the Department Store Division remained Centre in Tallinn. Completely new goods handling and main- unchanged. The managing director of • The Hobby Hall store in Vantaa’s tenance areas will be built for the depart- Hobby Hall, Mr Henri Bucht, M.Sc. (Econ.), Tammisto district was expanded by 650 ment store as well as access passages to the continues his post as the other of Stock- square metres, bringing the retail sales new customer car-park. After the enlarge- mann’s two executive vice presidents and as space to 2 000 square metres. ment, the department store will have about the CEO’s alternate.

6 INFORMATION FOR SHAREHOLDERS

ANNUAL GENERAL MEETING PAYMENT FINANCIAL INFORMATION The 2003 Annual General Meeting of the OF DIVIDEND ON STOCKMANN shareholders of Stockmann plc will be held The Board of Directors proposes to the Stockmann will publish the following fi- on Tuesday, March 25, 2003, at 4.00 p.m. in Annual General Meeting that a dividend of nancial reports in 2003: the Concert Hall of Finlandia Hall at the EUR 0.70 per share and a bonus dividend • January-March Interim Report address Karamzininkatu 4, Helsinki. of EUR 0.20 per share in honour of the April 24, 2003 Registrations for the meeting must be re- company’s 140th jubilee year or a total of • January-June Interim Report ceived no later than on March 20, 2003, at EUR 0.90 per share be paid for the 2002 August 12, 2003 4.00 p.m., telephone +358 9 121 3955 or e- financial year. The dividends decided by • January-September Interim Report October 28, 2003 mail [email protected]. the Annual General Meeting will be paid to In addition to these reports, we will release Those shareholders are entitled to partic- a shareholder who on the record date for a monthly report on the sales of the units. ipate in the Annual General Meeting, who dividend payment, March 28, 2003, has Financial reports and bulletins are pub- have been entered, no later than on March been entered in the Shareholder Register lished in Finnish, Swedish and English. 14, 2003, as shareholders in the kept by Finnish Central Securities All of Stockmann’s stock exchange bul- Shareholder Register kept by Finnish Depository Ltd. The Board proposes to the letins will be available on the Internet on Central Securities Depository Ltd. Annual General Meeting that the dividends their date of publication. Address: Also a shareholder whose shares have be paid on April 4, 2003, upon termination http://www.stockmann.fi. not been transferred to the book-entry sys- of the record period. tem has the right to participate in the INVESTOR RELATIONS: CHANGES IN NAME Annual General Meeting if that sharehold- e-mail [email protected] er has been registered in the company’s AND ADDRESS Share Register before September 28, 1994. We kindly request shareholders to report REPORT AND BULLETIN REQUESTS: Stockmann, Corporate Communications, In this case the shareholder must present, changes of address to the bank or to P.O. Box 220, FIN-00101 Helsinki, Finland Finnish Central Securities Depository Ltd in at the Annual General Meeting, his share(s) Telephone +358 9 121 3089 or other documentation indicating that title accordance with the place where the share- Fax +358 9 121 3153 to the shares has not been transferred to holder’s book-entry account is kept. e-mail [email protected] the book-entry system.

INFORMATION ON STOCKMANN FOR INVESTORS

According to information we have received, the analysts mentioned below follow Stockmann on their own initiative. The list may be incomplete. Stockmann does not assume responsibility for analysts’ assessments.

AKTIA SECURITIES DEUTSCHE BANK HANDELSBANKEN Sabah Samaletdin GLOBAL EQUITIES CAPITAL MARKETS Kalevankatu 4, 00100 Helsinki Mattias Karlkjell Tom Skogman Tel. +358 10 247 5000 Stureplan 4 A Aleksanterinkatu 11 114 87 Stockholm 00100 Helsinki ALFRED BERG/ABN AMRO Tel. +46 8 463 5519 Tel. +358 10 444 2752 Kluuvikatu 3, 00100 Helsinki Tel. +358 9 228 321 ENSKILDA SECURITIES AB MANDATUM Mika Mikkola STOCKBROKERS LTD D.CARNEGIE AB FINLAND BRANCH Eteläesplanadi 12 Pia Maljanen Kim Nummelin 00130 Helsinki Eteläesplanadi 8 Eteläesplanadi 12, 00130 Helsinki Tel. +358 9 616 289 00 00130 Helsinki Tel. +358 9 61 87 11 Tel. +358 10 236 4707 EVLI BANK PLC CONVENTUM SECURITIES Mika Karppinen NORDEA SECURITIES Ritva Karling Aleksanterinkatu 19 A Juha Iso-Herttua Kaivokatu 12 A, 00100 Helsinki 00100 Helsinki Fabianinkatu 29 B Tel. +358 9 231 231 Tel. +358 9 476 690 00100 Helsinki Tel. +358 9 12341 CREDIT AGRICOLE INDOSUEZ FIM SECURITIES LTD CHEUVREUX Jari Westerberg OPSTOCK SECURITIES Frans Hoyer Pohjoisesplanadi 33 A Jari Räisänen St Helen’s, 1 Undershaft 00100 Helsinki Teollisuuskatu 1 B London EC3P3DQ Tel. +358 9 6134 6217 00510 Helsinki Tel. +44 (0) 207 621 5100 Tel. +358 9 404 739

7 CEO’S REVIEW

Earnings improve in line with strategy

Economic growth in Finland in 2002 return on investment and a 5 per cent The aggregate new car market grew was slower than forecast. Consumers’ operating profit margin, the direction is by about 7 per cent. The clear-cut confidence in the outlook for their own right. Reaching our targets in 2004 in objective of Stockmann’s Vehicle Di- finances nevertheless remained high, line with the original timetable is thus a vision was to get its profitability heading though it did falter a bit during the realistic goal. upward. It accomplished this splendidly. autumn. Economic growth in the Baltic The Stockmann Group’s sales last Although the Vehicle Division discontin- countries and Russia was clearly faster year totalled EUR 1.58 billion. Sales ued four outlets, and its aggregate sales than in Finland. grew by EUR 44.7 million, or 3 per cent, came in slightly below the previous Despite the general trend in the although Seppälä’s operations in year’s, it reported the best operating domestic market, the Stockmann Group Sweden were wound up by February profit in its history. The return on achieved all its main objectives. All the and four of the Vehicle Division’s investment improved and rose to 13.5 divisions except Hobby Hall improved Mitsubishi-Skoda dealerships were per cent. Order bookings for new vehi- their operational result significantly. divested in the latter part of 2001 and in cles grew strongly in the latter part of Implementation of the real-estate strate- spring 2002. the year and this will pave the way for gy aiming at peeling off non-strategic good financial performance in 2003. properties was continued, principally ENGINES OF PROFIT: THE Unit-volume deliveries in the aggre- by selling the logistics buildings that DEPARTMENT STORE DIVISION, gate distance retail market contracted are used by Hobby Hall, thereby THE VEHICLE DIVISION AND SEPPÄLÄ by 7.5 per cent in Finland during the adding to other operating income. The Department Store Division contin- year. A similar trend was also evident in Consolidated profit before extraordinary ued its impressive performance in spite Estonia and a number of other items was EUR 68.6 million, improving of the burden of establishing new retail European countries. Although Hobby by more than a third on the previous units. The division’s sales grew substan- Hall’s sales outpaced the market by a year. The return on investment grew tially, and the record profits posted in good margin, they fell markedly below from 9.8 per cent to 12.6 per cent and the previous year rose by 17 per cent. previous forecasts. This meant that the operating profit increased from 3.6 per Operations developed favourably both division’s result was clearly below cent to 4.7 per cent. Although the fig- in Finland and abroad. International budget and smaller than the earnings ures were still below the long-term Operations now rose to a 15 per cent reported a year earlier. Hobby Hall has financial targets, which are a 15 per cent share of the division’s sales. become the market leader in distance

8 retailing in three countries already, and The accession of the Baltic countries as the Helsinki Exchanges’ HEX Portfolio its webstore is Finland’s largest in terms to membership of the EU in 2004 and Index fell by nearly 17 per cent over of sales. The growing proportion of the favourable development of the the same period. There was increased online sales nevertheless largely repre- Russian economy mean that these mar- interest in the company’s share, which sents a migration from traditional mail ket areas will gain increasing weight was evidenced by the fact that 23.2 per order sales. This means that the compa- within the Stockmann Group. The cent of all the Series B shares changed ny’s cost structure is too heavy, and ener- Department Store Division has received owners during the year. The proportion getic efficiency boosting will be needed Zara franchising rights in the territory of of foreign shareholders also grew to remedy the situation. Hobby Hall has the entire Russian Federation, and the markedly, though it still remained at a accordingly launched a programme first Zara store will be opened in modest level. One of the Group’s with the objective of achieving cost sav- Moscow in late February or early March. objectives for the future is a positive ings of 6 million euros during 2003. As plans now stand, a Stockmann trend in shareholder value. The Group’s biggest bright spot dur- department store will be opened in St ing the year was the buoyant upswing Petersburg in 2005. In the Russian mar- TARGETING HIGHER in Seppälä’s earnings, as the company ket there is potential for opening quite EARNINGS IN 2003 regained its position among Finland’s a few department stores, particularly in Over the past two years the Stockmann most profitable retailers. Sales in Moscow. Of Stockmann’s divisions, Group’s earnings have improved by a Finland and Estonia grew, and thanks only the Vehicle Division’s strategy total of nearly 70 per cent. Although the to the overhauled purchasing and does not aim for expansion abroad. By economic outlook remains uncertain, assortment strategy, the gross margin contrast, Hobby Hall is the market our objective is to improve earnings improved considerably. Since costs leader in distance retailing not only in further in accordance with the strategy were also kept well under control and Finland but also in Estonia and Latvia, we have adopted. In particular, Hobby the discontinued operations in Sweden and it has started operations in Hall’s profits are expected to rebound no longer burdened the result, operat- Lithuania. Seppälä is Estonia’s largest strongly as a consequence of its cost- ing profit rose six-fold and the return chain of clothing stores, and it plans to cutting and restructuring programme. on investment soared to 52.4 per cent. launch operations in Latvia during the The Group’s objective is to post profit current year. For both Hobby Hall and before extraordinary items in 2003 that OUR STRATEGY HINGES Seppälä, Russia is a prominent strategic exceeds the previous year’s result. ON PROFITABLE GROWTH opportunity for expansion. According For my own part and on behalf of The Group’s strategy over the next few to our strategy, in five years’ time about Stockmann’s entire management, I wish years is to grow profitably both in a third of the Group’s sales will come to thank our customers for the confi- Finland and in the Baltic countries as from abroad. dence they have shown in us and the well as Russia. Growth in Finland will fine staff of all the Group’s units for an be achieved mainly through the A BONUS DIVIDEND excellent performance during 2002. Department Store Division’s operations. FOR THE JUBILEE YEAR The enlargement and modification pro- Notwithstanding the future capital ject in the Helsinki department store, expenditures that will be made, the Helsinki, February 12, 2003 which has been christened “The All- Group’s positive earnings trend, strong time Stockmann” project, will add balance sheet structure and good cash about 10 000 square metres of new flow enable Stockmann to continue its commercial space as well as new logis- policy of paying a good dividend. A tics and parking areas. With its estimat- dividend payout of EUR 0.70 and a Hannu Penttilä ed 90 million euro price tag, it is the bonus dividend of EUR 0.20 to com- company’s biggest-ever single invest- memorate the company’s 140th jubilee ment since the original department year, in accordance with the Board of store was built. The fourth Stockmann Directors’ proposal, are a concrete indi- department store in the Helsinki metro- cation of this. politan area will open in the extension Despite the difficult year on the equi- to the Jumbo Shopping Centre in 2005. ty market, the company’s market capi- The expansion of the Zara and talization grew by about two per cent Stockmann Beauty chains will also during the year and stood at EUR 710.1 bring additional volumes in Finland. million at the close of the year, where-

9 BOARD OF DIRECTORS AND AUDITORS

Lasse Koivu Erkki Etola Erik Anderson

Eva Liljeblom Kari Niemistö Christoffer Taxell

Henry Wiklund Jan Nordqvist Lea Musone

BOARD OF DIRECTORS CHAIRMAN Kari Niemistö Lea Musone Lasse Koivu (b. 1962), M.Sc.(Econ.), managing (b. 1942), salesperson, Itäkeskus (b. 1943), B.Sc.(Econ.), managing director, Selective Investor Oy Ab. department store. Personnel represen- director, Föreningen Konstsamfundet rf. Member of the Board since 1998, tative on the Board, elected by the Member of the Board since 1991, due due to resign in the spring 2004. Group Council. to resign in the spring 2003. Shares A 2 546 622, B 1 131 075 Shares B 1 675 AUDITORS Christoffer Taxell VICE CHAIRMAN (b. 1948), LL.M., ministeri*. Member Krister Hamberg Erkki Etola of the Board since 1985, due to resign (b. 1943), B.Sc.(Econ.), Authorized (b. 1945), M.Sc.(Eng.), managing direc- in the spring 2003. Public Accountant. Stockmann’s deputy tor, Oy Etola Ab. Member of the Board Shares A 2 250, B 2 255 auditor since 1988 and regular auditor since 1981, due to resign in the spring since 1995. 2005. Henry Wiklund Shares A 1 841 676, B 991 587 (b. 1948), kamarineuvos*, managing Wilhelm Holmberg director, Svenska litteratursällskapet i (b. 1950), M.Sc.(Econ.). Stockmann’s Erik Anderson Finland rf. Member of the Board since regular auditor since 2000. (s. 1943), LL.M., Member of the Board 1993, due to resign in the spring 2005. since 2001, due to resign in the spring Shares A 720, B 2 107 DEPUTY AUDITOR 2004. KPMG Wideri Oy Ab Shares B 5 067 PERSONNEL REPRESENTATIVES ON THE BOARD APRIL 1, 2002 – MARCH 31, 2003 Eva Liljeblom Jan Nordqvist (b. 1958), D.Sc.(Econ.), professor, (b. 1969), M.Sc.(Econ.), system Svenska Handelshögskolan. Member of manager, financial administration. the Board since 2000, due to resign in Personnel representative on the the spring 2003. Board, elected by Stockmann’s Shares A 243, B 832 10 senior salaried employees. * a Finnish title CORPORATE MANAGEMENT

Hannu Penttilä Henri Bucht Jukka Hienonen

Pekka Vähähyyppä Esa Mäkinen Heikki Väänänen

Jukka Naulapää

MANAGEMENT COMMITTEE Hannu Penttilä Esa Mäkinen The Stockmann plc shares and options (b. 1953), LL.M., CEO. (b. 1959), M.Sc.(Econ.), director with in the personal ownership of the mem- Shares A 105, B 124 responsibility for the Vehicle Division. bers of the Board of Directors and the Options 1997: 26 858, 2000: 150 000 Options 1997: 3 856, 2000: 80 000 Management Committee as well as in the ownership of institutions under Henri Bucht Heikki Väänänen their control and persons under their (b. 1951), M.Sc.(Econ.), executive (b. 1958), M.Sc.(Econ.), managing guardianship at December 31, 2002, are vice president with responsibility for director, Seppälä Oy. reported exclusive of the 1999 Loyal the Hobby Hall Division. Shares B 2000 Customer options, a total number of Shares A 130, B 66 Options 1997: 3 856, 2000: 80 000 973 of which were in the ownership of Options 1997: 12 000, 2000: 100 000 the members of the Board and a total Jukka Naulapää number of 727 in the ownership of the Jukka Hienonen (b. 1966), LL.M., company lawyer, sec- members of the Management (b. 1961), M.Sc.(Econ.), executive retary of the Management Committee. Committee. Information on Stockmann vice president with responsibility for Options 1997: 6 170, 2000: 20 000 plc shares and options on page 41 of the Department Store Division. the Annual Report. Shares A 1 600, B 4 500 Options 1997: 11 768, 2000: 100 000

Pekka Vähähyyppä (b. 1960), M.Sc.(Econ.), CFO. Shares B 1 000 Options 1997: 6 000, 2000: 80 000

11 “We were pals all the way back in nursery school and we’ve sworn that when we’re grannies we’ll still be friends and we’ll go downtown together every day. We’ll do our hair properly and get our makeup right, then meet under the clock at Stockmann’s, clown around, hang out for hours and hours in the café, tell each other secrets. All those little moments of friendship we’ll never give up!”

12 DEPARTMENT STORE DIVISION

The department stores report steady growth

The Department Store Division’s sales in- strongest growth at the annual level (7 per increase in the Tallinn department store’s clusive of VAT were EUR 811.1 million, up cent) was racked up by the department sales was 9 per cent. 7 per cent on the previous year. The divi- store in Helsinki’s Itäkeskus Shopping sion had net turnover of EUR 679.3 million. Centre. The construction works in MANAGING Compared with the prospects for the progress nearby the department stores in STOCKS AND COSTS world economy that are looking ever the centre of Helsinki as well as Tapiola Because market growth was slow due to gloomier, consumer demand held up well and Turku hampered sales somewhat, and the general economic trend, the focus of in the Department Store Division’s market the sales figures fell short of targets. operations was on controlling margins and areas in Finland, Russia and the Baltic Sales by the International Operations costs. The relative gross margin of the de- countries. Finns’ belief in the sustainability units grew by 14 per cent to EUR 122.5 partment stores improved further and was of their own finances was clearly better million, rising to 15 per cent of the entire now 39.4 per cent. This was achieved large- than in the EU area on average. The low Department Store Division’s sales. In ly thanks to stock management efficiency: and stable level of interest rates ushered in Russia consumers’ disposable income in- through judicious purchasing Stockmann by the euro coupled with a continued fair- creased by 10 per cent and especially in St succeeded in keeping stocks in check, with ly even level of employment made the Petersburg, growth outpaced this clearly only a reasonable amount of goods left economy more predictable, thereby prop- owing to the low initial level. The over for discount sales. Aided by forward ping up the positive economic trend in the Department Store Division’s sales in Russia exchange contracts, the effects of the fall in domestic market. totalled EUR 80.3 million, up 16 per cent. the dollar on earnings generated by Sales by the department stores in Measured in US dollars, which are used as International Operations remained minor. Finland and the Academic Bookstores the pricing currency in Russia, growth was The increase in costs in Finland was were EUR 680.9 million, an increase of 18 per cent. In Estonia consumers’ dispos- reined in through more precise work-shift EUR 33.4 million, or 5 per cent. The able income grew by 7 per cent, and the planning by adjusting working hours to be

Stockmann’s department stores Development of the Department Store Development of the Department Store in the centre of Helsinki and in Division's sales 1998-2002 Division's operating profit 1998-2002 EUR mill. EUR mill. % the Itäkeskus Shopping Centre 800 40 12 in eastern Helsinki, Tapiola in Espoo, Oulu, Tampere and 600 30 9 Turku along with five Academic

Bookstores in the department 400 20 6 store localities offer customers a knowledgeable shopping 200 10 3 environment and good service 0 0 0 in a congenial atmosphere. The 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 key to Stockmann’s success is Operating profit a unique and broad assortment % of net turnover of good products at competitive KEY FIGURES prices. The International Operations units comprise department stores in Tallinn and Moscow together with one speciality store in Moscow and two in St Petersburg. The Department Store Division has broken new ground with the launch of the Stockmann Beauty cosmetics chain and the Zara stores that feature top world-class fashion. 13 DEPARTMENT STORE DIVISION

The enlargement of the Helsinki The platinum-coloured Stockmann Exclusive Card Premium customers capita- department store’s commercial had an enthusiastic reception. lized on the advantageous space via the “All-time Stock- Exclusive shopping days mann” project will include beyond expectations, and per- a glazed atrium that forms a day sales jumped many-fold. vertically rising court.

in line with customer volumes. Other fixed low the level of profitability. For many of sonal attire. Not even the rise in the stan- costs and capital expenditures too were ad- them this has meant a reassessment of their dard of living over the past decade has justed to meet the conditions of slower expansion plans, and some have even made much of a change in Finns’ attitude growth in the market. Since the increase in withdrawn from the Finnish market. Keener towards clothing and fashion. On the other expenses was held to 7 per cent and kept competition is a challenge for all the com- hand, population ageing and the overall below the growth in the gross margin (9 per panies in the industry, but it is a particular trend towards grooming and well-being cent) the division’s operating profit rose to problem for those whose concept and prof- have made cosmetics sales one of the EUR 39.7 million. The record earnings post- it-generating ability are not in good shape. fastest growing retail areas in Finland. ed in 2001, EUR 34.1 million, were thus Compared with past years, we are likely to topped by EUR 5.6 million and 17 per cent. see increased M&A activity in the form of REFURBISHMENT OF The Department Store Division’s operat- acquisitions, divestments, closures and THE DEPARTMENT STORE ing profit improved both in Finland and changes of business locations. CHAIN REACHES COMPLETION abroad. Of the division’s units, only the Since the retail space of nearly all the de- newest ones, i.e. the Oulu department FASHION’S HEADIER BEAT partment stores remained on a par with last store, Stockmann Beauty and the Zara Product life cycles in the retail trade have year, the sales growth figures were fairly store, had a negative operating result ow- shortened. This is especially true of fashion. moderate. Sales by the department stores in ing to the fact that their operations were Customers want first grabs on new items the centre of Helsinki and in Tapiola were still getting under way. All the International and they are also ready to pay a decent at the previous year’s level. In part this was Operations units were in the black. price for them, providing the goods are just attributable to the extensive construction right and offered in the right place at the works that were going on in the immediate HEFTY SIZE AND right time. In this process, the entire supply vicinity of both sites. In the Helsinki metro- FOREIGN CHAINS chain must be capable of much faster re- politan area the building of new retail ca- In recent years, the consolidation in the re- sponse times and also be able to forecast fu- pacity has had the biggest effect on the tail trade has been marked by two domi- ture needs. There must be an open and fast sales of these two largest department stores nant trends. Retailers and customers have exchange of information between retailers in Finland. By contrast, the Itäkeskus de- gravitated towards bigger unit sizes, and at and industry. The sharing of risks across the partment store increased its sales by 7 per the same time the number of foreign com- players in the supply chain has also taken cent. The Tampere and Turku department panies has increased significantly. A num- on new forms, and logistics has become an stores both grew at a rate of 4 per cent. ber of the chains have the backing of a ever more central means of competing in Sales by the Oulu department store during strong international parent company that the fashion arena, as elsewhere. its first full year of operation came to only has both a well-functioning operational Retailers have expected volume growth EUR 36.6 million, which was clearly below concept and the readiness to absorb the as a consequence of the increase in and the target set when the investment was de- costs of going after new markets. Amongst greater variety of fashion offerings. In the cided upon. During the last quarter of 2002 the newcomers, there are companies that EU area, Finland brings up the rear in con- the Oulu department store performed the have achieved profitable business opera- sumption of fashion products per house- fastest growth in the chain; the sales were tions very quickly. During 2002 it neverthe- hold. Young people’s purchasing habits are up a hefty 15 per cent. This strengthens our less became increasingly apparent that the now changing towards the European mod- belief in reaching the original sales target – earnings of many companies who had el, but the adult population still spends a albeit with a lag of a few years. come to Finland’s shores had fallen far be- fairly small amount of its income on per- The completion in August of the refur-

14 The Riga department store will be completed The Itäkeskus department on schedule in autumn 2003. store’s own new delicacy kitchen serves up meal portions, salads and other delicious fare that delight customers.

bishment of the Delicatessen in the This arrangement is a way of achieving very and timely special offers that bring them Itäkeskus department store, the opening of good cost-effectiveness, and furthermore, significant added value. This has boosted av- an Alko wines and spirits shop in connec- customer communications contribute to a erage purchases further and improved pur- tion with it as well as the signing in clearly identifiable Stockmann image that is chasing loyalty. Holders of the Stockmann December of a lease agreement on the built for the long term. This is best reflect- Exclusive card that was launched in opening of an Alko adjacent to the ed in the regular Loyal Customer marketing February will be offered a special shopping Delicatessen in the Tapiola department store and in successful campaigns that are car- day twice a year, entitling them to a 10 per created the final underpinnings of a unified ried out from one year to the next. cent discount on nearly the entire depart- chain in which all the high quality ingredi- The total number of Loyal Customers at ment store’s assortments. ents for culinary enjoyment can be found the end of the year was 850 000, of whom The best means of spawning new cus- under the same roof. Thanks to its unique 725 000 were in Finland. The Department tomer relationships is via the now legendary Delicatessen concept and its professionally Store Division registered a new field by Crazy Days. During these four days, sales skilled staff, Stockmann has succeeded in adding to the Stockmann Account Card a roughly quadruple from their normal level. increasing further its sales of convenience feature which makes it the only retailers’ In 2002 all previous records were beaten goods clearly faster than the market trend. own card that is accepted for payment at again. The autumn Crazy Days registered a The 10 per cent annual growth in the sales Alko wines and spirits shops. The devel- whopping 11 per cent growth on the previ- of Stockmann’s Delicatessens was excep- opment of the Loyal Customer concept re- ous year. Beyond a doubt, the Crazy Days tional in this otherwise fairly stable field. inforced the customer relationship with have become known as Finland’s most im- Stockmann intends to continue the devel- nearly 90 000 cardholders in Estonia and portant single retail campaign, whose opment of high-calibre food sales by 35 000 in Russia. Towards the end of 2001 growth only seems to be reinforced by the adopting further new ideas from around a new type of mobile services package, emergence of numerous copies. the world and by offering them to meet the Stockmann Dial, was started together with Finnish consumers’ everyday and festive Radiolinja and offered to Stockmann’s THE ALL-TIME STOCKMANN needs. The entire enterprise resource plan- Loyal Customers. Demand for the package In September the company’s Board of ning (ERP) system of the Delicatessens was met the expectations that were set for it, Directors decided to begin implementing renewed during the year and the first con- and Dial customers were able to benefit an enlargement project for the Helsinki de- crete benefits of this are expected to show from special offers that were beamed sole- partment store that has been planned for up during 2003 in the form of improved ly at them. In future Stockmann wants to years now. It submitted an application for goods turnover and profitability. be in the vanguard in developing products a change in the town plan to the city au- and services in which mobile technology thorities. The cost estimate for the project, MARKETING IN OWN HANDS and the retail trade find each other in a which has been dubbed “The All-time The Stockmann department stores’ market- way that benefits customers. Stockmann”, is 90 million euros and when ing communications have been developed Stockmann has consciously avoided de- it is carried out, the Helsinki department further by deploying the resources of an in- veloping its own bonus points systems be- store’s retail space will be increased by a house advertising agency. The Department cause it does not believe they have a hefty 10 000 square metres. With its pres- Store Division feels that marketing commu- mentionable effect in leading customers to ent 40 500 square metres of retail space nications are such an integral part of its own consolidate their purchases, and the costs and annual sales of EUR 393 million (incl. core expertise that it has not entrusted this of the system inevitably end up being high. tenants), the Helsinki Stockmann is already function to any outside advertising agency. Instead, Loyal Customers enjoy selected Europe’s sixth largest department store. Its

15 DEPARTMENT STORE DIVISION

A stylish and attractive store is an Customers have taken a shine to the new 3rd essential part of the Zara concept. floor of the Academic Bookstore in the centre of Helsinki. The premises were refurbished for retail use in the spirit of the building’s design- er, Alvar Aalto.

worst bottlenecks are obsolescent logistics of uninterrupted operations have given contribution in enabling the department stores areas, the cramped Delicatessen depart- Stockmann a significant lead in Russia: to reach their gross margin targets. ment, insufficient parking capacity and nar- among other things, two thirds of the ag- row aisles. The massive capital expenditure gregate 15 million population in Moscow ZARA ON THE MARCH programme for the “All-time Stockmann” and St Petersburg recognize the company. IN FINLAND AND RUSSIA project will provide solutions to all these The economic and political integration In June 2001 Stockmann signed with problems. If the town plan modification of Estonia with the west has continued Spain’s Inditex Group a franchising agree- process can be carried out in about a year, ahead energetically and the country is one ment on bringing the Zara chain to it will be possible to start up the construc- of the Baltic and east European states that Finland. The first 1 600 square metre Zara tion works in early 2004. By staggering the will accede to membership of the EU in fashion store was opened in April 2002 in construction works, the inconveniences May 2004. Liberal economic policy has Aleksanterinkatu in the centre of Helsinki, caused to commercial operations can be made Estonia an attractive investment tar- right across from Stockmann’s main en- minimized, but to accomplish this the actu- get and, significantly, this has transformed trance. Although it is one of the Zara al construction period will have to stretch Tallinn’s street scene thoroughly in the chain’s principles not to advertise at all, the out over about three years. space of a few years. Competition in the re- store got off to a very strong start, and tail trade has hotted up surprisingly fast Finnish customers quickly found Zara’s GOING FOR GROWTH BY GOING and, especially for Finnish retailers, it has trendy fashions with their fast turnover INTERNATIONAL been easy to expand into Estonia thanks rates. During the year the chain was devel- The growth in operations abroad accel- both to the short distance and the coun- oped further when agreements were erated compared with the previous year tries’ cultural and linguistic kinship. signed on the opening of Zara stores in and again clearly outstripped the rate in Helsinki’s Itäkeskus Shopping Centre and Finland. The low initial level of the nation- NEW UNITS OPEN in Turku’s Hansa Block. In October 2002 al economies in Russia and the Baltic coun- In November Stockmann opened the first Stockmann also signed a franchise agree- tries will for years ahead make possible Stockmann Beauty cosmetics boutiques in the ment on implanting Zara stores in Russia. faster sales growth than in the domestic Jumbo Shopping Centre in Vantaa and the Trio The country’s first Zara store will be market. Russia’s economy has received a Shopping Centre in Lahti. The aim is to devel- opened in the Mega Shopping Centre in boost from the high price of oil, but an op Stockmann Beauty into a successful nation- Moscow in late February or early March even greater growth impulse is expected wide chain of speciality stores in the 2003. Zara has good growth potential in when Russian capital gradually begins to fast-growing cosmetics market. Finland’s largest cities as well as in Moscow move back into domestic investments. The At the beginning of 2002 Stockmann estab- and St Petersburg. operating environment in Russia has lished along Ring Road III in Vantaa a separate shown some signs of stabilizing and, no- Outlet oddment store whose main purpose is SITES ABROAD FOR THE NEXT tably, in taxation matters there appears to to sell products that are left over from the as- DEPARTMENT STORE PROJECTS be a willingness to change procedures in a sortments of the department stores at discount- The competitive advantage of Stockmann more rational direction. Although the coun- ed prices. The store’s “Go Hunting” slogan was department stores is based on superior as- try is still in every respect a high-risk area highly effective in getting customers to go out sortments and high-quality service in a and there is a considerable amount of extra shopping, and Outlet’s sales clearly exceeded congenial shopping environment. In order causes of friction in day-to-day operations, the budget for the first year. With its lean cost for a department store meeting this de- Russia is nevertheless the largest potential structure, Outlet has peeled off post-season scription to operate profitably, there must growth area for Stockmann. Thirteen years stocks efficiently and thereby made a significant be sufficient purchasing power in the sur-

16 Stockmann’s St Petersburg department The appealing look and professional store will be in a handsome, centrally service of the Stockmann Beauty shops located building. offer good potential for developing the new cosmetics chain.

rounding area, preferably with the cus- in progress between the German owner Distribution of the Department tomer potential of a quarter-million popu- company SPAG and international financial Store Division's sales by unit in 2002 lation, and the department store must institutions. After this project too, reach annual sales of about 50 million eu- Stockmann will still need to find high-cali- ros. The last gap in Finland meeting these bre retail locations, particularly in Moscow, requirements has been in the northern part whose market of 10 million people and of the metropolitan Helsinki area. Under compact town structure offer growth op- the terms of a Letter of Intent signed in portunities for department store operations August 2002, this gap will be filled by a for years to come. Stockmann department store to be located in the Jumbo Shopping Centre in Vantaa. OUTLOOK As plans now stand, its opening will be in FOR 2003 44 % Helsinki department store autumn 2005. Thereafter it will be difficult During the past three years the Department 41 % Other units in Finland to find in Finland a large enough concen- Store Division’s profits have grown by 85.7 10 % Russia tration of customer potential for opening a per cent. Following the completion of the 5 % Estonia new Stockmann department store in accor- enlargement of the Helsinki department sto- dance with the present business concept. re and the opening of the Jumbo department In Finland’s nearby areas in the Baltic store, Stockmann’s department store network Rim and in Russia the development of the in its present form will be fully built out. The retail trade had been at a standstill for greatest challenges lie in the area of creating Distribution of the Department decades until in the 1990s the formation of an international presence in Russia and the Store Division's sales by sector in 2002 a market economy set in motion, in quick Baltic countries. By developing further its succession, unprecedentedly intensive in- strong brand as well as the service reputation vestments in the retail trade. Stockmann that has been forged in daily retail work, has seen in this trend a great strategic op- Stockmann can produce for its customers portunity and has been amongst the first to and partners in co-operation added value set up speciality stores and department that knits an ever stronger relationship with stores in the region’s largest cities: them. By setting ambitious targets and moti- Moscow, St Petersburg and Tallinn. The vating our staff to exceed their previous per- next new Stockmann department store will formance, the Department Store Division open its doors to customers in Riga, believes that also in conditions of slow mar- 43 % Fashion Latvia’s capital city, in autumn 2003. ket growth it will be able to improve ear- 11 % Home A preliminary agreement has been nings and rank in terms of profitability 23 % Food signed on opening an 8 000 square metre amongst top companies in the retail trade in 11 % Leisure Stockmann department store that will be Finland as well as in the department store 12 % Books, publications, stationery located in the shopping centre to be built sector in Europe. Although the division’s ear- along Nevsky Prospect in the centre of St nings have in recent years risen rapidly and Petersburg. The department store is to achieved a record level for two years run- open towards the end of 2005. Negotiations ning, the objective is to improve operating on financing for the real-estate project are profit further in 2003.

17 “A t this stage of life the pace only seems to accelerate. Staying active with sports, getting together with friends and spending weekends at the summer house – the calendar fills up quickly. And of course there are the grandchildren, who have already been promised that next summer we’ll drive to Legoland in Denmark by way of Sweden’s Kolmården Zoo. It’s a good time now when we can do things we’ve always wanted to do and have the chance to concentrate on the quality of life.” 18 VEHICLE DIVISION

Development – on profitability’s terms

The motor trade expected unit sales of ure points to the pent-up demand among cent. The fact that sales of company cars about 100 000 cars in 2002. This would car buyers. Registrations of vans were at were strongly centred on the Helsinki have been markedly less than in the pre- the previous year’s level, as expected: metropolitan area was reflected in a more vious year, when 109 428 new cars were 12 891 new vans were registered, or 0.2 subdued market trend than in other parts sold. Underlying these expectations was per cent more than in 2001. In particular, of the country. concern over major changes to the tax the readiness of private customers to buy Stockmann’s Vehicle Division, with its structure applicable to new cars, the taxa- a car improved. Registrations of cars in the roughly 24 per cent share of new car tion of imported used vehicles as well as Helsinki metropolitan area were at a low- sales, was the clear market leader in the the EU’s Block Exemption for the motor er level than in 2001 up to August, but Helsinki metropolitan area. Of the mar- trade. Actual sales amounted to 117 034 growth in the latter part of the year was so ques which the Division deals in, vehicles, up 7 per cent on the figure a strong that the number of registrations Volkswagen showed the second-biggest year earlier. This was a positive surprise over the full year was 4.4 per cent higher increase in sales, in unit-volume terms, in for the motor trade, because the tax dis- than in 2001. The number of company car the metropolitan area. Audi reached its cussion had gone on all autumn, and the registrations in the Helsinki metropolitan best-ever sales volume. Ford sales fell Cabinet did not make a proposal on area was down 6 per cent on the previous slightly short of the previous year’s figures changes to the vehicle tax structures until year. As for private customers, the number and it ranked right after Volkswagen as the last days of the year. The growth fig- of registrations grew by a hefty 16 per the third most popular make of car in the

Stockmann’s Vehicle Division Development of the Vehicle Division's Development of the Vehicle Division's operating profit 1998-2002 serves its customers in the sales 1998-2002 EUR mill. EUR mill. % Helsinki metropolitan area 400 6 6 through eleven Audi, Ford 5 5 and Volkswagen sales 300 outlets. In the Turku 4 4 economic area the Vehicle 200 3 3

Division operates a Ford 2 2 dealership and in Tampere it 100 1 1 has a Mitsubishi and Skoda 0 0 0 dealership. The Vehicle 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002

Division’s strengths are an Operating profit organization staffed by ser- % of net turnover vice-minded professionals, high-quality products and KEY FIGURES versatile services. The division’s success is based on reliable operations and good customer relation- ships that have been built up over the years.

19 VEHICLE DIVISION

The sporty Audi S4’s power gets Volkswagen is extending its line into off- The Ford Transit Connect is a grip on the road thanks to its road vehicles. The Volkswagen Touareg Van of the Year in 2003. quattro 4-wheel drive. The Audi excels in the off-road class. S4 comes in a sedan model and a sleek Avant version.

metropolitan area. In Turku, Ford main- ployed improved from the previous year’s developed actively in line with the re- tained its position as the area’s second 5.4 per cent to 13.5 per cent. Despite the quirements of the times. Each vehicle most popular marque. In used car sales, challenging market situation and reduced sales outlet is going after profitable the Tampere outlet turned in a hefty 64 sales, the division managed to improve growth. per cent increase, though sales of new ve- operating profit from the previous year’s hicles remained at the previous year’s lev- EUR 3.2 million to EUR 5.4 million. In DEVELOPMENT WORK TO el. After the Lauttasaari outlet’s vehicle euro terms, the operating profit figure was ENSURE GROWTH sales were wound up in June, the the Vehicle Division’s all-time best. In November the Vehicle Division Tampere dealership is now the launched a new and up-to-date website. It Stockmann Vehicle Division’s only outlet SUCCESSFUL LOYAL CUSTOMER makes a special point of providing flexi- that markets Mitsubishi and Skoda vehi- CAMPAIGNS ble possibilities for booking a servicing cles. During the year, month-long Loyal time and it has enhanced trade-in car The Vehicle Division delivered a total of Customer offers for new cars were held pages. The wide range of trade-in vehicles 8 965 new vehicles, down 7.7 per cent on six times. In addition, in the autumn the can be viewed in four colours in real time. 2001. The number of trade-in vehicles Vehicle Division participated for the first Prospective buyers can give information sold was 7 917 (down 8.6 per cent). The time in a one-day bonus offer campaign on the kind of vehicle they are looking for Ford product line delivered 4 327 (down that was beamed at Exclusive Customers to a separate Lookout Service that sends 13 per cent), the Volkswagen product line and turned out to be a big success. Three them an email as soon as the car that 3 554 (up 14.8 per cent), the Audi product trade-in vehicle campaigns were beamed meets their requirements turns up. The re- line 819 (up 19 per cent) and the at Loyal Customers. In addition, there newed website saw an increase in the av- Mitsubishi-Skoda product line 265 (down were monthly Loyal Customer offers of ac- erage number of daily visitors to 2 000. 72 per cent) new vehicles. The Vehicle cessories and supplies for motorists and To support sales of company cars, in Division had euro-denominated sales of car use. the autumn the Vehicle Division launched EUR 398.9 million, down EUR 10.5 million, The Vehicle Division took part in the Stockmann Leasing, which leverages the or 3 per cent. The biggest factor affecting Crazy Days in both the spring and the au- strengths of its strong product brands and the fall in sales was the discontinuance of tumn. total service concept. Stockmann’s service the Mitsubishi-Skoda product line in the product differs from other similar con- Helsinki metropolitan area and in Turku. ORGANIZATIONAL CHANGES TO BOOST cepts in that it always includes a courtesy The division reported net turnover of EUR EFFICIENCY car during servicing as well as a tyre stor- 328.3 million, compared with EUR 337.2 Following the organizational changes that age service. In addition, together with the million a year earlier. were made during 2002, the Vehicle other member dealers of the Helsinki The division succeeded in improving Division now has one organizational layer Motor Trade Association the Vehicle profitability through measures such as less, and most practical decision making Division established an “Yritysautot.com” stepping up the used car functions. has been transferred to the outlets. As the (Company cars website) service, which of- Particular attention was paid to the size competition gets tougher, the objective is fers companies in the Helsinki metropoli- and age structure of inventories. The re- to ensure that decisions are taken with the tan area an electronic service channel turn on the Vehicle Division’s capital em- necessary speed and that all the sites are covering all makes of vehicle.

20 The big new Superb model continues Mitsubishi’s restyled medium-class Space Skoda’s tradition as a manufacturer of Star station wagon fills a variety of needs luxury cars, going back six decades. – without compromising on safety, economy and design.

it. Sales of vans are estimated to reach the Distribution of the INCREASED SERVICING CAPACITY previous year’s level. Vehicle Division's sales 2002 Since 1996 the servicing capacity has been A record number of used cars will be im- increased every year. Thanks to the in- ported into Finland during 2003. creased capacity the normal time for book- Presumably, the imports will be weighted ing a servicing slot during 2002 was on towards vehicles more than five years old. average under a week. This aids The reduction in the prices of new cars that Stockmann’s competitiveness, especially in was made at the turn of the year will low- the Helsinki metropolitan area. er the price level of used cars across the The start of 2002 saw the completion at board, and this will be a factor lessening the Tikkurila Ford outlet of a body shop the importation of fairly new used vehicles. 61 % New vehicles and tyre service for all makes of vehicle. In The new Block Exemption that will 24 % Trade-in vehicles the autumn the Lauttasaari outlet in the come into force from the beginning of vicinity of the fast-growing Ruoholahti dis- October will lead to increased competition 15 % Service functions trict came out with a similar concept also in car and van servicing as well as in beamed at customers requiring servicing the importation of spare parts. In order to for all the marques which the Vehicle meet this competition successfully, a car Distribution of the Vehicle Division's Division deals in. At the end of the year dealer must be able to provide adequate sales by make 2002 plans were confirmed for a body shop and servicing capacity that customers feel is expanded servicing facility that will be lo- sited in the correct geographical locations. cated at the Ford dealership in Turku. The Furthermore, various servicing-related add- enlarged facility will become operational in ons, such as a courtesy car, servicing for the later spring 2003. flyers, pick-up servicing, etc. will play an Tyre storage was the ancillary service important role when customers choose that saw the fastest growth within mainte- where they take their car in for servicing. nance in 2002. At the end of the year the The Vehicle Division’s priorities for 2003 tyres of nearly 1 500 vehicles were in stor- are unchanged, efficient use of capital and age. quality in all its customer service processes. 48 % Ford In 2003 the Vehicle Division is going af- 40 % Volkswagen TARGETING PROFITABLE GROWTH ter increased market shares in its areas of 9 % Audi The total market for new cars is estimated operations. A special objective is to gain 2 % Skoda to exceed the 2002 level by a clear margin market share for all the makes of vehicle in 1 % Mitsubishi in 2003, providing that right from the start Stockmann’s line-up within the company of the year Parliament passes the bill which car segment. The objective is to improve the Cabinet proposed at the end of further both the Vehicle Division’s return December concerning a change in the on capital employed and operating profit structure of the vehicle tax and lowering of in 2003.

21 “For us, home is the centre of everything: it’s the number one place where we spend free time, where daily life flows in a restful way and we can easily create a special atmosphere. Our home is also a hobby: a project that we’re always making more and more a reflection of us. With just little tricks and new elements it’s surprisingly easy to refresh the look of our home. All you need is a stunning idea – and you’re sure to find such ideas, if you know where to look for them.” 22 HOBBY HALL

A difficult earnings year for the leading distance retailer

The Hobby Hall Division’s sales were EUR a result of efforts to acquire new customers. European countries. Their share of Finland’s 237.1 million, on a par with the previous The Hobby Hall Division carried out a total retail trade has remained modest, at year. Net turnover was EUR 198.1 million. step-by-step organizational change which least for the time being. It is believed that The volume of packages dispatched to mail came into effect as from the beginning of the market trend of distance retailing in order customers was 2.5 million, a decrease October. The objective of it was to move Finland will be stable over the next few of 4 per cent on the previous year. from an organization based on sales chan- years and that Internet stores will gain a lar- The division’s operating profit, EUR 0.5 nels to a structure in which operations are ger share of the overall distance retail market. million, fell markedly short of the target and developed more closely as a single business last year’s figure. The operating profit for the entity. The new operational structure em- STRONGER MARKET LEADERSHIP IN previous year also includes a return on val- phasizes the business’s customer-oriented FINLAND ue added tax in 1998-2000, to a total amount multichannel offerings, which also con- The Hobby Hall Division’s sales in Finland of EUR 2.6 million, which was included in tributed to improving marketing efficiency were EUR 195.8 million, down 3 per cent on the interest income on credit sales. right from the latter part of the year. the figure a year earlier. Despite this, Hobby The main reason for the poor result of the Hall strengthened its position as the market Hobby Hall Division was that despite the SHARP FALL IN THE OVERALL DISTANCE leader in distance retailing in Finland. substantial outputs made over the past years RETAIL MARKET The product areas that performed best with the aim of spurring business growth, Finland’s total distance retail market de- were products connected with fitness and sales were below budget. The sales trend in clined by 7.5 per cent in 2002 as measured outdoor activities, whereas sales of house- the first part of the year was especially lack- by the volume of packages shipped. The un- hold goods and textiles for the home lustre, but in the second half of the year it forecast drop was exceptionally steep in the showed the biggest drop compared with last nevertheless grew by 6 per cent on the pre- first half of the year. year. vious year. Full-year earnings were also bur- The shakeout in the overall distance retail The main catalogue in early autumn was dened by the costs of starting up the stores trade continued, with online stores increas- the best autumn catalogue ever. On the oth- in Helsinki’s Herttoniemi district and at ing further their share of the aggregate mar- er hand, the smaller-format price-driven spe- Rocca al Mare in Tallinn as well as by the in- ket. In Finland, however, the e-commerce cial offer catalogues were an outright crease in credit losses in all market areas as has not grown as fast as in many other West disappointment all year long. Hobby Hall is

Hobby Hall offers its Development of Hobby Hall's Development of Hobby Hall's customers products and sales 1998-2002 operating profit 1998-2002 EUR mill. EUR mill. % services via catalogues, 250 12 12 an online store and its 10 10 own stores. Its offerings 200 consist primarily of 8 8 150 household and leisure 6 6 articles. The market 100 4 4 leader in Finland, Estonia 50 2 2 and Latvia offers its more 0 0 0 than 1.3 million customers 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 an easy, reliable and Operating profit pleasant alternative for % of net turnover buying quality products KEY FIGURES at affordable prices. Operations in Lithuania got started at the begin- ning of 2003.

23 HOBBY HALL

Hobby Hall is now the market A new store in the Rocca al Mare Lithuania is the newest country where leader within distance retail- Shopping Centre in Tallinn opened Hobby Hall has operations. Pilot mar- ing not only in Finland and its doors in May. keting got under way in Lithuania in Estonia but also in Latvia. November 2002 and operations started at the beginning of 2003.

seeking to develop its catalogues so that in chase was nearly double that of telephone Outlet offers discounted prices on products future years too it will be able to offer cus- and coupon orders – about 155 euros. left over from catalogue campaigns and tomers the most attractive alternative on Because Levari music sales site and the goods returned by customers. the market in each product group: striving Meklari auction site did not meet their ob- to make good selections together with our jectives, it was decided to discontinue them SALES IN ESTONIA DECLINED customers. in their present form as from the first part The Hobby Hall Division’s sales in Estonia During the best days of the Christmas of 2003. were EUR 25.9 million, down 12 per cent sales season, the Helsinki Customer Service Digital television has not yet gained the on the figure a year earlier. Faced with a Centre and the Kuopio Customer Service kind of foothold in Finland that would of- sharp drop in Estonia’s total distance retail Centre that was opened in November 2001 fer economic grounds for investments in market, Hobby Hall held on to its position handled a total of about 10 000 calls a day. commercial system solutions connected as the out-and-out market leader despite In the autumn Customer Service placed in with it. The online store and possibly new the contraction in sales. use a new personnel planning system that electronic commercial solutions will be de- A Hobby Hall store with about 1 000 will make operations more customer-ori- veloped and marketed in future as part of square metres of retail space was opened ented and cost-effective. the Hobby Hall Division’s multichannel of- in Tallinn’s Rocca al Mare Shopping Christmas sales saw a strong thrust ferings. Centre in May. The store in Tallinn’s aimed at marketing home deliveries as a Toompuiestee was closed, and the space nationwide form of service. About 20 per INCREASED IN-STORE SALES IN FINLAND was used to expand the servicing and re- cent of all the telephone and Internet or- Aggregate sales by the Hobby Hall turns department. ders placed in November–December was Division’s stores in Finland were EUR 43.3 Towards the end of the year a decision delivered right to the customer’s home. It is million, up 9 per cent on the previous year. was taken on converting the store in believed that the home delivery service will The figure includes the sales of the ap- Tallinn’s Maakri Street into an Outlet odd- improve the competitive position of dis- proximately 1 400 square metre new store ment store in January 2003, along the lines tance retailing significantly. The cost-effec- that was opened in Helsinki’s Herttoniemi of the store in Helsinki’s Hämeentie. The tiveness of package traffic was improved district in May. Sales by the stores account- Outlet store in Tallinn will also sell pro- by streamlining operations at the Viinikkala ed for 22 per cent of the Hobby Hall ducts that are returned by customers in and Tammisto logistics centres and by de- Division’s sales in Finland. Latvia. veloping cooperation with Finland Post. In May the store in the Tammisto district of Vantaa was enlarged and refurbished, THE MARKET LEADER IN LATVIA ONLINE SALES DEVELOPED giving it retail space of about 2 000 square Mail order sales in Latvia, which were FAVOURABLY metres. At the same time, the division’s launched in March 2001, developed quite The volume of orders placed via the servicing functions were centralized at the favourably during 2002. Sales in Latvia Internet notched up further and was EUR Tammisto site. Sales by the Tampere store amounted to EUR 15.3 million, clearly ex- 24.4 million. The online store grew by 15 that was opened at the beginning of 2001 ceeding both the previous year’s sales and per cent on the previous year and it ac- showed an excellent development, increas- the targets that had been set. Hobby Hall is counted for 12 per cent of sales in Finland. ing by 24 per cent on the figure a year ear- now also the market leader in distance re- In particular, growth was spurred by an in- lier. tailing in Latvia. crease in the number of customers. During In October a decision was taken on con- During the year six catalogue campaigns 2002 about 100 000 purchasing customers verting the store in Helsinki’s Hämeentie were carried out in Latvia. The marketing visited the online store. The average pur- into an Outlet oddment store in early 2003. emphasis was again on increasing the

24 The expanded retail space of the store In cooperation with Finland Post in Vantaa will provide better scope for Corporation, Hobby Hall started a new product merchandising. nationwide home delivery service that will improve the competitiveness of distance retailing. number of customers. At the end of the is about 9 per cent of the division’s total and the return on capital employed. year the operation in Latvia had acquired costs. The programme involved cutting 80 A further objective is to maintain the more than 100 000 customers. employees from the payroll, 59 of whom position as the uncontested market had to be made redundant. In addition, leader in distance retailing in Finland MAIL ORDER SALES GET UNDER WAY the employment contract of 34 employ- and the Baltic countries. IN LITHUANIA ees was converted to a part-time basis. The cost-effectiveness of operations Pilot marketing was carried out in The staff downsizing was carried out for will be improved in accordance with the Lithuania in the latter part of 2002 in co- the most part at the beginning of 2003. savings measures that were launched at operation with the Lithuanian Post Office. Cost savings will also be realized by the end of 2002. Furthermore, the infor- Actual operations started up in February stepping up marketing as well as by mation technology investment pro- 2003 with a nationwide customer acquisi- streamlining operations as a whole. gramme will have an effect on tion catalogue that was supported by tele- Hobby Hall has sought to focus the improving the efficiency of the division’s vision advertising. savings measures in a way that enables operations in the years ahead. the division to maintain the high level of Hobby Hall has set in motion a study FAR-REACHING SAVINGS PROGRAMME customer service and other functions. of the possibility and alternatives for TO IMPROVE EARNINGS starting up mail order sales in Russia In October a decision was taken at CHALLENGES OF THE FUTURE during the next few years. Hobby Hall to launch a programme of The central objective of the Hobby Hall The division’s operating profit in 2003 measures with the aim of achieving an- Division in 2003 is to achieve a signifi- is estimated to improve markedly on nual cost savings of 6 million euros. This cant improvement in operating profit 2002.

Distribution of Hobby Hall's Distribution of Hobby Hall's sales Distribution of Hobby Hall's sales by market in 2002 by merchandise sector in 2002 sales by channel in 2002

83 % Finland 20 % Household textiles 82 % Distance retailing 11 % Estonia 20 % Household appliances 18 % Stores 6 % Latvia 23 % Electronics 12 % Garments 9 % Fitness and leisure 16 % Other

25 “It was love at first sight! And love lasted, even in everyday life – perhaps because we’re so similar and interested in the same things: we flip through the same magazines, fancy the same kind of fashions and music, go for the same sports. And we even go shopping together – my girlfriends are envious! ”

26 SEPPÄLÄ

A return to excellent profitability

The trend of the Seppälä Division’s sales er. The return on capital employed was proving the gross margin. The third and in Finland and Estonia was favourable, 52.4 per cent. by no means smallest factor was the staff’s rising to EUR 132.7 million. Aggregate The good trend in Seppälä’s earnings enthusiasm and willingness to work for sales nevertheless fell below the previous was due to a number of different factors. improved profitability and financial per- year’s figure because sales by the loss- The most important reason was of course formance. making units in Sweden that were wound that customers found the collections ap- up in February 2002 are included in the pealing. Seppälä has speeded up the way CUSTOMER-DRIVEN OPERATIONS comparison figure. The division’s net it puts together its collections, with the Seppälä strives continuously to improve turnover was EUR 109.2 million. result that customers now feel that its ability to understand movements in The programme of measures that was Seppälä’s fashion offerings are in tune customers’ requirements and in the mar- started in 2001 with aim of improving with the times and that its level of fash- ket so that it can offer them an interesting profitability was seen to completion. ionability has risen. Supply and demand collection. Customers must always be able Operating profit improved substantially were also brought into better alignment. to find something to buy in Seppälä’s ex- and was EUR 10.4 million, an increase of Accordingly, a reduced share of products tensive collections, whether the customer EUR 8.6 million on the figure a year earli- was sold at discounted prices, thereby im- is interested in the latest new fashions or

Seppälä is Finland’s largest Development of Seppälä's Development of Seppälä's chain of fashion stores sales 1998-2002 operating profit 1998-2002 EUR mill. EUR mill. % offering customers reason- 150 12 12 ably priced women’s, men’s and children’s apparel as 120 9 9 well as cosmetics. The col- 90 lections feature Seppälä’s 6 6 own product design and 60 3 3 proprietary brands. 30 Seppälä’s expertise rests on 0 0 0 the correct combination of 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 basic and trendy products. Operating profit Centralized chain-store % of net turnover operations guarantee affordable prices together KEY FIGURES with reliable quality. In addi- tion to 128 stores in Finland, Seppälä has 14 stores in Estonia.

27 SEPPÄLÄ

Display windows are an important Men are showing a growing interest Fashion accessories are one of part of Seppälä’s media mix. in their apparel and appearance. Seppälä’s main strong points.

in good basic products. Furthermore, one in the Seppälä localities, the retail space jacking up rents. This also sets for of Seppälä’s guiding principles is that the of the chain’s stores varies from 250 Seppälä the challenge of attending to its customer must feel that price and quality square metres up to 1 200 square metres. own cost effectiveness. are in sync. Thanks to its wide and dense network In Estonia the retail trade is undergo- Seppälä’s store collection comprises 16 of stores, the reachability of Seppälä ing a shift from individual stores to shop- different product concepts. This enables stores in Finland is very good. In 2002 ping centres. In the Tallinn and Tartu the chain to offer a wide range of prod- three new stores were opened, two areas this trend has been quite pro- ucts meeting different needs – for stores moved to better commercial loca- nounced and it is destined to unfold fur- women, men, youth and children. tions and four stores were discontinued. ther in coming years. Because Seppälä With the aid of several customer sur- Seppälä thus had 128 stores in Finland at wants to be in places where customers veys carried out in 2002, Seppälä’s long- the end of the financial year, or one less come and go, it has stressed these shop- term action plan was sharpened so that it than a year earlier. ping centres in making its siting deci- meets customers’ expectations regarding In Estonia, Seppälä strengthened its sions. In gauging future possibilities, it is Seppälä better than ever before. position in Tallinn, which is clearly the important to strive to see when enough centre of the country’s retail trade. Three shopping centres have been built bearing FITTING OUT THE STORES new stores were opened in Tallinn at in mind the available purchasing power. Product merchandising is a primary focus new shopping centres. At the end of in Seppälä stores. The task of in-store dis- 2002 Seppälä had 14 stores in Estonia. STRENGTHENING plays is to tell the customer in an inter- The country’s largest Seppälä store, locat- THE SEPPÄLÄ BRAND esting way what is happening in the ed in the Viru Centre, Tallinn, will be Critical success factors for the kind of world of fashion and to enrich the shop- closed in March 2003 owing to refurbish- business which Seppälä represents are ping ambience by highlighting the many ing works that will be started in the pricing, product assortments, product de- dimensions of Seppälä’s assortments in building. sign and marketing. As international an attractive and clearly-stated way. competition increases, bringing with it The store interior is another important THE CHANGING STRUCTURE OF the building out of chains that character- element of Seppälä’s visual identity. As THE CLOTHES MARKET IN FINLAND izes the entire industry, the customers’ the market leader in its home market, AND ESTONIA relationship to the retailer has become an Seppälä faces the challenging task of Over the past decade a large number of increasingly important success factor. A keeping its extensive chain of stores in foreign clothes retailers have come to central element within this process is step with the times and appealing. Finland. The market has not grown in what the clothing chain represents, not During 2002 twelve stores were refur- step with the arrival of new companies, just what kinds of clothes it offers and at bished in line with the new furnishing which means that all of them have not what price. concept, whereby they were given a new been able to increase their sales and Internationalization has also brought lighter-toned look. maintain their profitability. The out-and- changes in consumers’ purchasing be- Seppälä wants to be close to the cus- out losers have been stores that do not haviour: planning has decreased in im- tomer. This is why its stores are sited in belong to chains. In 2002 foreign chains portance as impulsive purchases have central commercial locations in an envi- pursued fairly aggressive growth in grown; similarly, the importance of price ronment that is frequented by customers. Finland. At the same time, business has been de-emphasized as product ap- Depending on the numbers of customers premises were in scarce supply, thereby peal has gained in prominence, nor does

28 Seppälä opened three new stores in In the autumn Seppälä launched two Tallinn. All of them are located in new new brands for teenagers, Lil’Missy for shopping centres. girls and Kil’Baz for boys.

it any longer seem to matter whether the ations: the store concept and presenta- Seppälä's sales by merchant is “home-grown”. For this rea- tion of products in the store are renewed merchandise sector in 2002 son too, entering the customers’ shop- step by step. New products come to the ping cycle will henceforth be much more stores almost daily. Seppälä is making a challenging. concerted effort to speed up the entire Owing to changes in the trends of in- logistics chain for its products – from ternational competition and consumer idea to on-the-rack product. The aim of behaviour, 2003 will see the launch of a all these measures is to ensure that the programme of measures aiming to customer can feel that she or he is buy- strengthen the Seppälä brand. Seppälä’s ing reasonably priced, modern fashion in good company profile and long history an inspiring store environment. 57 % Ladies' fashion mean that development of the brand is In the Seppälä image the product itself particularly challenging. The programme plays a central role. This means that ever 18 % Men's fashion of measures will cover all the subareas of closer attention will be paid to the con- 20 % Children's fashion marketing: products, distribution, the tent of the product concepts and the 5 % Cosmetics store concept, service and marketing points highlighted in them so that cus- communications. The objective is to tomers feel that they are getting interest- weave all the subareas into an integrated ing products when they buy at Seppälä – whole in which the different factors sup- so that they keep coming back time and Distribution of Seppälä's port each other with the result that the again. sales by market in 2002 customer perceives Seppälä as a place that brings shopping pleasure. OUTLOOK FOR 2003 2003 will see greater inputs into cosmet- FUTURE PROSPECTS ics, an effort that is believed to bring in- A number of international companies are creased sales in 2004. The testing of shoe operating in Finland and Estonia with the sales that was started in 2002 in a few same basic business idea: fashionable stores came up to expectations and shoe clothing at a reasonable price. This sales will be stepped up in 2003. Seppälä means that Seppälä must have a strong shoe departments will be opened in all 93 % Finland brand and a clearly defined concept, and the largest cities during the spring. 7 % Estonia that its marketing must be distinctive. Entering new markets is one of the It is of prime importance for the future challenges of the future. In the latter that Seppälä knows how to create collec- months of the year the division intends to tions that are appealing to customers and test the Latvian market and to open its that when working out its store and me- first stores in Riga. dia programmes it knows how to During 2002 Seppälä succeeded in strengthen customers’ perception of the restoring its profitability to an excellent value its brand stands for. level. The objective in 2003 is to improve Seppälä continually develops its oper- operating profit further.

29 CORPORATE GOVERNANCE

The corporate bodies of the parent com- of nine members. The members of the ny’s line operations in accordance with the pany Stockmann plc which are responsi- Board of Directors shall be elected to a instructions and regulations issued by the ble for the Group’s administration and three-year term of office such that, as far Board of Directors. Hannu Penttilä has been operations are the general meeting of as possible, one third of them will be due the company’s CEO since March 1, 2001. shareholders, the Board of Directors and to retire each year. To arrive at a distribu- the Chief Executive Officer. tion of this type, part of the members can THE GROUP’S be elected for one or two years. A person LINE ORGANIZATION ANNUAL GENERAL MEETING who has reached the age of 65 years can- Apart from the CEO, the Board of Directors The highest decision-making body of not be elected a member of the Board of appoints the executive vice presidents, the Stockmann plc is the general meeting of Directors. At present, the Board of CFO and the directors of the divisions. shareholders. The Annual General Meeting Directors has seven members, none of Henri Bucht, managing director of Hobby shall be held each year before the end of whom are full-time members. Hall, has also acted as executive vice pres- June. Stockmann has two series of shares, of The Board of Directors shall elect from ident and the CEO’s alternate as from which each Series A share confers ten votes amongst its number a chairman and a vice February 1, 2001. Jukka Hienonen, director at a general meeting and each Series B chairman for one year at a time. of the Department Store Division, acts as share one vote. No one, however, can cast The company’s officers who participate the other of the company’s two executive more than one fifth of the votes represent- regularly in meetings of the Board of vice presidents as from January 1, 2003. ed at the general meeting except in situa- Directors are the chief executive officer, Corporate Administration oversees the tions in which the Companies Act calls for the executive vice presidents, the chief fi- entire Stockmann Group. Commercial op- passing a resolution with a majority of the nancial officer and the company lawyer, erations are organized into four divisions, votes cast. Information on share ownership all of whom are not members of the Board which are the Department Store Division, is given on page 42 of the Annual Report. of Directors. The company lawyer acts as the Vehicle Division, the Hobby Hall A Series A share can be converted to a secretary to the Board of Directors. Two Division and the Seppälä Division. Series B share upon a demand of a share- employee representatives also participate holder provided that the conversion can in meetings of the Board of Directors, and MANAGEMENT COMMITTEE take place within the limits of the minimum they likewise are not members of the The Group’s Management Committee and maximum amounts of the share series. Board of Directors. One of the employee comprises the CEO, the executive vice A two-tier provision concerning the ob- representatives is elected by Stockmann’s presidents and the other directors of the ligation to exercise a pre-emptive pur- Group Council and the other by the asso- divisions, the CFO as well as the company chase of shares is written into the Articles ciation representing Stockmann’s senior lawyer, who acts as secretary to the of Association. A shareholder whose pro- salaried employees. Management Committee. portion of all the Company’s shares or the The Board of Directors attends to the Headed by the CEO, the Management number of votes conferred by the shares due organization of the company’s admin- Committee is responsible for directing line reaches or exceeds 33 1/3 per cent is li- istration and operations. In addition to the operations and for preparing strategic and able, at the demand of the other share- duties defined separately in law and in the financial plans. holders, to purchase their shares and the Articles of Association, the Board of securities which according to the Compa- Directors, among other things, confirms OVERSIGHT nies Act give title to them. If a previous the company’s long-term strategic and fi- The Internal Audit, which reports to the pre-emptive purchase offer has not led to nancial objectives, approves the budget company’s CEO, supports the manage- the pre-emptive purchase of all the com- and decides on major individual capital ment in the control of operations and risk pany’s shares, the shareholder shall make a expenditures, acquisitions, divestments management. The Internal Audit examines new pre-emptive purchase offer when the and real-estate deals and other projects of and assesses the adequacy and effective- shareholder’s proportion of all the compa- strategic importance. The Board of ness of the risk management and the inter- ny’s shares or the votes conferred by the Directors furthermore approves the guide- nal control system and produces shares reaches or exceeds 50 per cent. lines setting forth the principles of finan- information, analyses and recommenda- The business of the Annual General cial risk management. tions for the management for improving the Meeting includes approval of the compa- In recent years the Board of Directors efficiency of the operations and control. ny’s annual financial statements and the has met 8 to 9 times a year. The company has a minimum of one passing of resolutions on the dividend and and a maximum of three auditors, who the election of members of the Board of CHIEF EXECUTIVE OFFICER have a minimum of one and a maximum Directors. The Board of Directors appoints the com- of three deputies. At present the company pany’s CEO and decides on the terms and has two auditors and a deputy auditor BOARD OF DIRECTORS conditions of his employment relationship, which is a firm of independent public ac- The Company’s Board of Directors shall which are set forth in a written CEO agree- countants authorized by the Central have a minimum of five and a maximum ment. The CEO is in charge of the compa- Chamber of Commerce.

30 MANAGEMENT’S REMUNERATION tion schemes for key employees, which the Central Chamber of Commerce and the AND OTHER BENEFITS were approved through resolutions passed Confederation of Finnish Industry and The Annual General Meeting passes reso- at the Annual General Meetings in 1997 Employers. lutions on the remuneration paid to the and 2000. Information on these share op- Counted as permanent insiders of members of the Board of Directors. tion schemes is given on page 41 of the Stockmann plc are the members of the According to the resolution passed by the Annual Report. Board of Directors, the CEO, the executive Annual General Meeting held on April 2, The Group makes use of annual per- vice presidents and the auditors. In addi- 2002, part of the remuneration was in 2002 formance-based systems of rewards and tion, permanent insiders include persons paid in the company’s shares. The amount incentives to promote the achievement of who act in occupations defined by the of salaries and emoluments as well as short-term objectives. The basis of deter- CEO, said persons including the members fringe benefits paid to the members of the mining the performance-based bonuses of the Group’s Management Committee. Board of Directors, the CEO and the exec- paid to the CEO and the other members of The company makes use of the Insider utive vice president who acts as the CEO’s the Management Committee are confirmed Register service kept by Finnish Central alternate totalled EUR 0.5 million in 2002. annually by the Board of Directors. Securities Depository Ltd, which makes available for public scrutiny the up-to-date INCENTIVE SYSTEMS INSIDERS share and share option ownership data on Achievement of the company’s long-term Stockmann complies with the insider insiders. objectives is supported by two share op- guidelines approved by Helsinki Exchanges,

FINANCING AND MANAGEMENT OF FINANCIAL RISKS

Financing and the management of finan- Swedish krona, as well as sales denomi- financing. A dual approach is employed in cial risks are handled on a centralized nated in the Russian rouble, Estonian managing interest rate risk. The Group’s basis within Group Administration in kroon and Latvian lat. Purchases made in borrowings and investments are diversi- accordance with the Treasury Guidelines foreign currencies account for 9.5 per cent fied across different maturities and, fur- that are approved by the Board of of the Group’s purchases, whereas sales thermore, floating rate and fixed-interest Directors. Group Treasury has more denominated in foreign currencies make instruments are used. The management of detailed operational instructions concern- up 9.4 per cent of the Group’s aggregate interest rate risk also involves the use of ing financial risks as well as cash manage- sales, whereby the Group’s foreign forward rate agreements and futures, ment and securities. The divisions have exchange risk is not major in amount. In interest rate options and interest rate separate instructions for hedging foreign addition, the fast turnover rate of retail swaps. The average interest rate period exchange exposure and a security policy. products reduces foreign exchange risk. of the loan and investment portfolio is a The objectives of the Treasury function The management of foreign exchange maximum of five years. are the appropriate hedging of foreign risk is based on active monitoring of the exchange exposure in cooperation with 12-month cash flow in foreign currencies, LIQUIDITY RISK the divisions (foreign exchange risk), division by division and currency by cur- The aim of managing liquidity risk is to financing operations at a reasonable price rency, and managing the Group’s foreign ensure that Stockmann is able to meet its in all conditions and investing liquid funds exchange risk via these flows. financial obligations at any time. The trend productively and safely (liquidity, interest The foreign exchange risk related to in liquidity is monitored by cash flow fore- rate and credit risk). The Group Treasury balance sheet items derives from foreign casts. Liquidity risk is managed by ensuring Department also has an internal bank func- currency-denominated investments made the availability of sources of funds at a rea- tion and is furthermore responsible for in units abroad. Balance sheet risk is mon- sonable price and by allocating part of the managing Group accounts and securities. itored and hedged separately. investments in liquid financial instruments. Forward rate agreements and options FOREIGN are the primary instruments used in hedg- CREDIT RISK EXCHANGE RISK ing foreign exchange risk. Financial instruments involve the risk that Stockmann’s foreign exchange risk derives the counterparty to an agreement does not from purchases made in foreign currency, INTEREST RATE RISK fulfil its obligations. Credit risk is managed for which the most important purchasing Stockmann’s interest rate exposure arises by means of counterparty limits. The currencies are the United States dollar, from the cash flows from the Group’s counterparty limits are reviewed and British pound, Hong Kong dollar and operations, capital expenditures and approved semi-annually.

31 PERSONNEL

The Stockmann Group had a payroll of Stockmann’s representatives visited edu- ment is strongly geared towards service, 8 917 employees at the end of 2002, or cational institutions during a number of sales skills, product knowledge and sys- 134 more than a year earlier. The increase school functions, and on-the-job learning tem training for employees who work in in the headcount was due, among other and trainee periods were arranged for the customer service areas. A total of 232 things, to the opening of the Zara store students. For years now the Vehicle development programmes and courses and to the enlargement of the Moscow Division has also had an apprentice repair dealing with these subjects were arranged department store. The number of shop and training contract with two poly- at the different divisions, and a total of employees on a monthly salary was technics. Hobby Hall too took steps to 4 317 employees participated in them. 4 508, an increase of 85 people, and there engage in closer cooperation with educa- During the year 34 department store were 4 409 hourly wage-earners, an tional institutions. employees started work on a vocational increase of 49 employees. Women far The Stockmann Group traditionally degree, and 15 people completed their outnumbered men within the Group’s takes on ninth-graders all year round, studies leading to such a degree. The personnel: 72 per cent to 28 per cent. enabling them to get acquainted with Vehicle Division and Hobby Hall updated Women accounted for 70 per cent of the working life. This orientation period their human resources development senior salaried employees and men for 30 often marks the start of getting to know plans during the year. per cent. The average age of the person- the Group as a future employer. Seppälä has an ongoing Seppälä Spirit nel was 36 years. training programme covering its entire Further information on the numbers of JOB ORIENTATION staff. The objective of the programme is personnel is given in the Board Report on The customer service staff are in an espe- to develop sales and other functions, and Operations under the section “Personnel cially important position in building the to support it there are 20 tutors or strength” on pages 39-40 of the Annual company’s service image. Owing to the “Spiritors,” as they are known, who are Report and in the accompanying table. comparatively large number of part-time picked from amongst the employees and employees, orientation at the department given special training. STOCKMANN IS stores must come to grips with special Within the department stores’ organiza- A SOUGHT-AFTER EMPLOYER challenges. Each new employee takes tion, the heads of the sales teams play an Stockmann is a sought-after place to part in a two-stage course for new Stock- important role. Their tasks include moti- work in the retail sector in all the locali- mann recruits. This provides essential vating and providing incentives for the ties where it operates. A good number of training that is needed in assimilating team members, work task organization, students, after a stint of part-time work Stockmann’s customer-service standards. product briefings, visual merchandizing with the Stockmann Group while they are Specially trained supervisors and instruc- and restocking. studying, go on to more demanding posi- tors lead the courses by turns. Supervisors have participated in special tions within the company after they grad- After the general start-up orientation, training in their own area of competence. uate. This motivates students to strive for the new department store employees go A Group-wide training programme aim- a long-term employment relationship on to a more specialized introduction to ing at developing and maintaining super- with Stockmann. their job tasks and workplace under the visor skills is in the pipeline. Stockmann has attracted an enviable guidance of an orientation instructor des- A requirement of customer service at number of applicants also for positions ignated by their own team or sales group. the department stores is that the employ- requiring vocational or professional skills The instructors too go through training to ees are proficient in languages, and these and years of work experience. This develop their competence and to main- skills are also needed in the Department ensures that the personnel’s high profes- tain the skills and knowledge needed Store Division’s international dealings. A sional skill is maintained and in line with during orientation. good command of both of Finland’s offi- ever-changing challenges. In the other divisions, supervisors are cial languages, Finnish and Swedish, is Each year about 30 000 job applica- primarily in charge of orientation. At sites particularly important in customer ser- tions come in to Stockmann in Finland. having a large number of employees and vice. To highlight this, the division pays a To process and analyze them, Internet- fairly high staff turnover, a person is language supplement of 7 per cent of based recruitment software was placed in appointed to be in charge of orientation, salary or wages for full proficiency in use in the beginning of the year to aid in as in the Department Store Division. both Finnish and Swedish and a 5 per filling the Department Store Division’s To handle the orientation of store man- cent supplement for good language skills vacancies in the Helsinki metropolitan agers, Seppälä has a mentor system. The in customer service. The supplement paid area. mentors are a group of professionally for other languages that are important for In 2002 the Department Store Division skilled, experienced store managers. customer service is either 5 per cent or and the Vehicle Division continued their 2.5 per cent, depending on the level of close cooperation with vocational educa- HUMAN RESOURCES DEVELOPMENT proficiency. The Department Store tional institutions as in previous years. The Group’s human resources develop- Division pays its customer service

32 employees in Finland better language tively good picture of Stockmann’s work- supplements than are stipulated in the place atmosphere. On the basis of the CODETERMINATION retail trade’s collective bargaining agree- survey, special development targets were Stockmann has a long tradition of coop- ment. Language skills are often devel- chosen for the department stores as a eration between management and the oped on language courses arranged by whole and at the team level. personnel. This partnership got started Stockmann. In 2002 language training back in 1924 when the first Employees’ was arranged in Swedish, English and INCENTIVE SYSTEMS Council was established. Today, codeter- Russian. The customer service staff wear The purpose of incentive systems is to mination at the Group level is carried out badges displaying flag symbols indicating motivate the personnel to work together in Finland by convening, twice a year, a the languages they are proficient in. in achieving the targets set. The aim in Group Council that is made up of constructing them has been to give as Employees’ Council representatives from DEVELOPING many employees as possible a chance to the different business units. The FEEDBACK influence their own incentive bonus and Employees’ Councils of the business units Stockmann’s annual performance app- that of their team. The Group paid a total consist of representatives of the unit’s dif- raisal discussions have for the most part of about 4 million euros in various incen- ferent employee groups, and the repre- covered supervisors. tive bonuses in 2002. sentatives meet several times a year. During 2001 the department stores Ever since 1987 the meetings of completed a series of systematic perfor- OCCUPATIONAL Stockmann’s Board of Directors have mance appraisal discussions with all HEALTH CARE been attended by two personnel repre- permanently employed staff in Finland. In 2002 Stockmann’s own Occupational sentatives, one of whom is elected by the This was followed up when the depart- Health unit continued, within the parent Group Council and the other by the asso- ment stores introduced on a test basis, company, a survey focusing on working ciation that represents Stockmann’s se- in autumn 2002, a personal assessment of ability indexes and resources to deter- nior salaried employees. customer service quality in certain sales mine how employees cope with job pres- The Management Committee of each of groups. The purpose of this trial is to sur- sures in those areas that had not yet been the department stores in Finland has had vey the personal customer service skills measured. Further assessment work will personnel representation since 1986. of each person engaged in customer ser- be done in coming years. The target From the latter part of the year Hobby vice activities and to give them feedback groups this time were the Vehicle Hall engaged in extensive codetermina- at regular intervals after the trial period. Division, the department store in tion negotiations in connection with its The marks for personal skills will also Helsinki’s Itäkeskus Shopping Centre and restructuring programme. As a result of serve as the basis for benchmarks used part of the staff of the Department Store these talks, the staff was downsized by 80 by the teams and sales groups. Division’s common functions. The aver- employees and 34 employees went over Last year the Vehicle Division’s super- age for the working ability index was to a part-time employment relationship. visory staff took part in performance dis- good: 40.6 points out of a maximum of cussion training that equipped them for 49. After the survey was completed, fol- PERSONNEL ABROAD starting regular performance appraisal dis- low-up discussions in which the employ- The Group’s personnel who work cussions. During 2003 the discussions will ees agreed jointly on development mea- abroad consist nearly entirely of citizens be extended to all employee groups at sures were held on a department or team of the country in which the unit is locat- either an individual or small group level. basis. After these feedback discussions, ed. In 2002 Stockmann had seven At Hobby Hall and Seppälä too, steps the Vehicle Division singled out informa- Finnish employees who were posted were taken last year to extend develop- tion flow, leadership and cooperation as abroad. The total number of employees ment discussions to each employee its development targets. Clear-cut initia- abroad was 1 387 people, of whom 921 group during 2003. tives were launched straightaway in 2002. had full-time jobs and 466 were part- The Department Store Division orga- The Occupational Health unit gives timers. nized a workplace atmosphere study cen- supervisors general information on The Group’s human resources policy tring on the Finnish staff. The survey employee health within the business is applied to the personnel of its interna- questionnaires elicited opinions on job units and puts forth proposals for improv- tional units as such unless the country’s content, supervisors and management ing and developing working conditions. laws or other justifiable causes call for style, the way instructors and service Together with Stockmann’s pension other provisions. Representatives of the managers work, team leaders and their insurance company and human resources personnel abroad participate annually in ways of working, the internal procedures management, efforts have been made to various training and cooperation events of teams and departments, and the over- promote job try-outs and reassignment that are held in Finland, and training pro- all workplace atmosphere. The results of for incapacitated employees in order to grammes that have proved their useful- the survey gave on average a compara- optimize their active working time. ness in Finland are also run abroad.

33 ENVIRONMENT AND SOCIAL RESPONSIBILITY

The Stockmann Group’s formed about the realization of environ- RECYCLING AND environmental policy mental compliance. Stockmann complies SORTING OF WASTES with the environmental legislation that is The primary objective is to reduce the di- STOCKMANN in force and demands that its cooperation rect environmental impacts of Stock- AND THE ENVIRONMENT partners do so as well. mann’s operations. Cutting down on Stockmann is aware of its environmental wastes and the sorting and recycling of responsibilities and seeks to operate in STOCKMANN’S ENVIRONMENTAL resulting wastes comprise an essential line with the principles of sustainable de- MANAGEMENT part of this effort. Fundamentally, envi- velopment, taking into account its core Stockmann hones and manages its busi- ronmental legislation primarily seeks to values (profit orientation, customer orien- ness operations in such a manner that en- prevent the creation of wastes; the sorting tation, efficiency, commitment and re- vironmental perspectives are also taken and recycling of wastes is a secondary spect for people). Stockmann identifies into consideration. The Group’s consis- consideration. Stockmann strives to pre- the environmental impacts of its opera- tent environmental management substan- vent waste generation and thereby mini- tions. The company seeks to adapt its op- tially improves the scope for monitoring mize the resulting waste volume. Steps erations to be in line with sustainable and reporting, and its shared environ- are taken to upgrade the effectiveness of development and to prevent their adverse mental policy provides uniform operating recycling and sorting by means of reports impacts. instructions for the environmental efforts and statistics on waste volumes and the All business activities place a burden of its commercial divisions. The environ- quality of these wastes. on the environment, but it is essential to mental policy is ratified by the company’s find means of minimizing this burden. In Board of Directors, and environmental ENERGY CONSUMPTION accordance with its customers’ wishes, management has been organized to be Energy consumption is tracked with sta- Stockmann favours environmentally part of the management of the divisions. tistics and reports, and efforts are made friendly solutions. Stockmann’s goal is to to upgrade consumption efficiency by take environmental factors into consider- THE IMPACTS OF STOCKMANN’S means of equipment investments, issuing ation in its investments and the planning OPERATIONS ON THE ENVIRONMENT guidelines and automatization. The com- of functions and procedures. Stockmann The retail sector’s largest direct environ- pany seeks to make full use of the avail- seeks to favour products whose packag- mental impacts are related to fuel con- able technology during repair and ing is appropriate and whose packaging sumption and emissions during transport, renovation works and to replace old sys- materials can be sorted and recycled. packaging wastes and the energy con- tems with more efficient systems and When outsourcing its own brands, sumption of stores and storage facilities. equipment that conserve energy. The ma- Stockmann is involved in the creation of The construction of new premises, re- chinery and equipment that is currently new environmentally sound operating pairs and both the operations and main- in use is serviced regularly to ensure de- methods and their development in asso- tenance of properties and stores have an fect-free operation. Efforts are made to ciation with its cooperation partners. effect on the usage of materials, energy prepare in advance for temperature vari- Stockmann continuously improves its consumption and waste management. ations and heat loads, along with the re- quality and environmental systems, tak- sulting energy consumption, due to the ing its customers’ needs into considera- TRANSPORT weather, campaigns and so on. tion. Stockmann encourages its staff to In its operations, Stockmann seeks to work in such a way that each and every achieve cost-effectiveness to save energy PRODUCT ASSORTMENTS employee shoulders his or her responsi- in transport and storage as well as the se- AND PROCUREMENTS bility for the environment; the company lection and maintenance of equipment Stockmann offers its customers a safe also develops the environmental compli- and properties. The company strives to shopping environment and safe products. ance of its organization by means such as transport goods in such a manner that all When procuring products, Stockmann re- communications and training. transport vehicles are filled to optimal ca- lies on well-known and reliable goods Environmentally responsible operations pacity. Stockmann favours cooperation suppliers. Stockmann favours environ- are supported and encouraged. partners that have a reputation for being mentally friendly products in line with Stockmann keeps its stakeholders in- environmentally sound. consumer demand and its emphasis on

34 consumer-oriented operations. Stockmann ees have been upgraded and beefed up. Responsibility in Importing”, under which fosters the environmental awareness of its Stockmann’s Board of Directors ap- a goods supplier commits itself to oppos- employees. In addition, the company proved the Group’s new environmental ing the use of child and forced labour meets and tries to anticipate its customers’ policy on November 7, 2002. and discrimination as well as to ensuring wishes for environmentally friendly prod- The department store in Helsinki has a that employees enjoy safe working con- ucts and packaging. For example, its ex- comprehensive environmental system ditions and sufficient wages. The commit- tensive product assortment features that is geared towards developing the ment is based on the UN’s and ILO’s organic and green products. operations of the store to achieve even international recommendations, declara- Stockmann promotes the principles of better environmental soundness and pre- tions and conventions. the responsible importing network coor- vent environmental impacts arising from In October 2002, Stockmann became a dinated by the Central Chamber of operations. In autumn 2002, Stockmann signatory of the International Association Commerce. Stockmann has signed a doc- began to develop this environmental sys- of Department Stores’ principles of re- ument in which it commits itself to coop- tem in line with the requirements of the sponsible importing. These principles are erating in the promotion of the use of ISO 14001 standard. An ISO 14001 certifi- largely the same as those of the responsi- responsible importing principles. cate was granted to the environmental ble importing network coordinated by Stockmann bears its responsibility for the system in February 2003. the Central Chamber of Commerce. origins of its products and when making The Vehicle Division has committed it- procurements complies with the self to the environmental programme of Objectives “Commitment to Social Responsibility in The Central Organisation for Motor Trade for 2003 Importing”, which is based on interna- and Repairs (AKL) and it is in use at all The divisions’ environmental compliance tional recommendations, declarations and the outlets. When carrying out the envi- objectives for 2003 include starting up conventions. Among other things, the ronmental project, the Group assessed and developing the operations of the agreement aims to prevent discrimination the development focuses of environmen- Group’s new environmental organization, and the use of child labour as well as to tal operations at the Vehicle Division and setting up environmental systems at all of ensure that employees enjoy safe work- drafted a development measures plan. Stockmann’s department stores in Finland ing conditions and sufficient wages. Measures were stepped up at Hobby Hall in line with the ISO 14001 standard, de- with the aim of achieving greater efficiency veloping the environmental operations of Measures in the sorting and recycling of packaging the Vehicle Division in accordance with in 2002 wastes generated by the logistics centres. the environmental programmes of the At the end of spring 2002, the Stockmann Finland Post Corporation became Hobby Group and AKL and stepping up the en- Group started up a social responsibility Hall’s new cooperation partner in recycling vironmental responsibilities of Seppälä and environmental project to integrate services for electrical and electronics prod- and Hobby Hall stores. environmental protection more systemat- ucts in the Helsinki metropolitan area. The Group’s environmental soundness ically into Stockmann’s business opera- Environmental soundness was im- is developed by means of an environ- tions and to develop the Group’s social proved at Seppälä by means of a waste mental organization and outlays are responsibility solutions in other respects sorting and recycling project for the head made on the environmental compliance as well. The outcome of the project was office and central warehouse property. of the divisions. Opportunities for the a consistent, Group-wide environmental This also involved personnel training. All monitoring and reporting of environmen- organization that is led by Stockmann’s of Seppälä’s goods suppliers have signed tal considerations will be assessed and CFO, who is in charge of the Group’s en- the responsible importing commitment. developed to utilize environmental infor- vironmental compliance. Environmental Stockmann has committed itself to co- mation further in operations and to dis- operations in the Department Store operating in the promotion of the use of seminate information to interest groups. Division, the Vehicle Division, Hobby responsible importing principles by being Efforts to promote responsible import- Hall and Seppälä have been organized as part of the responsible importing com- ing and the large-scale implementation of part of ordinary management in line with mittee coordinated by the Central this commitment will be continued. The the Group’s environmental policy. Chamber of Commerce. The divisions ad- aim is for all of the goods suppliers of the Environmental communications to employ- here to the “Commitment to Social Stockmann Group to sign the commitment.

35 BOARD REPORT ON OPERATIONS

The Stockmann Group’s sales and was 33.4 per cent. The Group’s aggre- SALES AND PROFITABILITY grew by 2.9 per cent to EUR gate gross margin on operations was EUR TREND OF THE DIVISIONS 1 582.3 million. Profit before 438.9 million, an increase of EUR 27.0 mil- The Department Store Division’s sales lion on the previous year. Operating grew by 7 per cent to EUR 811.1 million. extraordinary items grew by expenses grew by EUR 12.9 million and International Operations accounted for 15 34.0 per cent and was EUR depreciation by EUR 0.4 million. per cent of the division’s sales. Factors 68.6 million. The Seppälä Operating profit was up EUR 15.6 mil- contributing to the increase in sales were Division, Vehicle Division and lion to EUR 61.9 million. Operating profit the Oulu department store that was Department Store Division represented 4.7 per cent of net turnover, opened in September 2001 and the Zara improved their earnings sig- as against 3.6 per cent of net turnover a store that opened in Helsinki in April year ago. 2002. The further improvement in the rel- nificantly. The Hobby Hall Other operating income consisted of ative gross margin coupled with good cost Division’s result was down on capital gains on the sale of real estate and management increased the Department the previous year. Earnings shares amounting to EUR 8.8 million. The Store Division’s earnings both in Finland per share were EUR 0.97, as figure a year ago was EUR 7.0 million. and abroad. Operating profit grew by a against EUR 0.68 a year ago. Net financial income grew by EUR 1.8 total of EUR 5.6 million and was EUR 39.7 Return on capital employed million from the previous year and was million. The result was again the division’s EUR 6.7 million. grew by 2.8 percentage all-time best. The return on capital Profit before extraordinary items grew by employed was 21.0 per cent, an improve- points to 12.6 per cent. The EUR 17.4 million and was EUR 68.6 million. ment of 2.0 percentage points on the fig- Board of Directors is pro- Because there were no extraordinary items, ure a year earlier. posing the payment of a pre-tax profit was the same in amount. The Vehicle Division too reported its dividend of EUR 0.70 per Higher profits meant that direct taxes best-ever profits. The Vehicle Division’s share for the 2002 financial increased by EUR 2.5 million to EUR 18.9 operating profit increased by EUR 2.1 mil- million. year and additionally a 140- lion on the previous year and was EUR 5.4 Net profit for the financial year was EUR million, though sales diminished by 3 per year jubilee dividend of EUR 49.7 million, compared with EUR 34.8 mil- cent to EUR 398.9 million. The decrease in 0.20 per share, or a total of lion a year earlier. sales was attributable to the disposal of EUR 0.90 per share. Earnings per share increased by 43 per the Mitsubishi-Skoda units in Turku and cent and were EUR 0.97. The figure a year the Helsinki metropolitan area in 2001 and SALES UP 2.9 PER CENT ago was EUR 0.68. 2002. The increase in operating profit was The Stockmann Group’s sales grew by 2.9 Thanks to a quickening in the capital driven by the good trend in the gross mar- per cent, or EUR 44.7 million, to EUR turnover rate and the improvement in net gin and by reduced costs. The return on 1 582.3 million. Net turnover increased by profit, the return on capital employed capital employed was 13.5 per cent, up 8.1 EUR 33.4 million, or 2.6 per cent, to EUR increased by 2.8 percentage points to 12.6 percentage points on the figure a year ear- 1 315.3 million. The net turnover figures per cent and the return on equity was up lier. by division are shown in the accompany- 2.7 percentage points to 9.6 per cent. The Hobby Hall Division’s sales totalled ing table. Equity per share was EUR 10.21, com- EUR 237.1 million, on a par with the fig- pared with EUR 9.85 a year earlier. ure a year earlier. The division’s operating EARNINGS IMPROVE The company’s market capitalization profit fell by EUR 3.9 million to EUR 0.5 The relative gross margin on Stockmann’s grew by EUR 14.1 million from the previ- million. The decrease in operating profit operations grew by 1.3 percentage points ous year and was EUR 710.1 million. was attributable mainly to the EUR 2.6 mil- lion retroactive VAT refund that was included in the previous year’s operating profit. Thanks to the change in the com- position of sales, the comparable gross margin improved. Although credit losses increased markedly, the growth in total costs was moderate. The return on capital employed was 0.5 per cent, against 4.7 per cent a year earlier. In October 2002 the Hobby Hall Division launched a cost savings pro- gramme with the objective of improving its profitability by achieving cost savings

36 Net turnover 1998-2002 EUR mill. of about 6 million euros during 2003. To Two properties occupied by Hobby 1500 accomplish this, operations will be Hall were sold in June to Nordea Life streamlined and efficiency stepped up. In Assurance Finland Ltd for EUR 32.2 mil- 1200 accordance with the savings programme, lion. Stockmann-owned shares in the 900 the staff was downsized by 80 employ- real-estate management company ees, involving 59 redundancies. In addi- Pitäjänmäen Kiinteistöt Oy, representing 600 tion, the employment status of 34 19.5 per cent of the company’s entire employees was changed to a part-time shares outstanding, were sold to Varma- 300 basis. The measures concerning the per- Sampo Mutual Pension Insurance 0 sonnel were carried out for the most part Company for EUR 10.8 million in 1998 1999 2000 2001 2002 at the beginning of 2003. December. Hobby Hall and Stockmann The Seppälä Division’s sales grew both are continuing operations as tenants in in Finland and Estonia. As a consequence the sold premises. The capital freed up Operating profit 1998-2002 of winding up operations in Sweden, from the disposal was used to pay down EUR mill. aggregate sales nevertheless fell by 2 per both short-term and long-term liabilities. cent on the previous year and totalled Dividend payouts total EUR 30.6 million. 100 EUR 132.7 million. The division’s operat- The equity ratio at the end of the year 80 ing profit grew by EUR 8.6 million to EUR was 69.7 per cent (69.5 per cent at the 10.4 million. The relative gross margin end of 2001). 60 improved significantly. The operating Total contingent liabilities grew by EUR profit figure a year earlier included EUR 3.7 million from the end of 2001 and 40 5.2 million of losses on operations in were EUR 68.4 million. 20 Sweden, which were wound up in February 2002. The return on capital CHANGES IN GROUP MANAGEMENT 0 1998 1999 2000 2001 2002 employed was 52.4 per cent, an improve- The director of the Department Store ment of 44.9 percentage points on the Division, Jukka Hienonen, M.Sc. (Econ.), Other operating income figure a year earlier. was appointed Group Executive Vice The trend in operating profit and President effective January 1, 2003. Mr return on capital employed by division Hienonen’s operational responsibility as Profit before extraordinary items are shown in the accompanying table. director of the Department Store Division 1998-2002 remained unchanged. EUR mill. FINANCIAL POSITION The other of Stockmann’s two execu- 100 The amount of liquid funds at the end of tive vice presidents and the CEO’s alter- the financial year was EUR 70.5 million, nate under the Companies Act is Henri 80 as against EUR 25.6 million a year earlier. Bucht, M.Sc. (Econ.), who will continue During the year loan repayments in his previous position as managing 60 totalled EUR 7.9 million. No new long- director of Hobby Hall. 40 term loans were drawn down. The amount of long-term loans at the end of DIVIDENDS 20 the year was EUR 35.8 million. Gross cap- A dividend of EUR 0.60 per share was 0 ital expenditures during the year came to paid for the 2001 financial year, or a total 1998 1999 2000 2001 2002 EUR 25.8 million. of EUR 30.6 million. Other operating income

37 BOARD REPORT ON OPERATIONS

Operating profit, % of net turnover 1998-2002 % 7 The Board of Directors is proposing They went for developing the informa- 6 to the Annual General Meeting that a tion systems, the new stores in dividend of EUR 0.70 per share be paid Helsinki’s Herttoniemi district and Rocca * 5 for the 2002 financial year as well as a al Mare in Tallinn, Estonia, as well as for 4 bonus dividend of EUR 0.20 per share in expanding the store in Vantaa’s 3 honour of the company’s 140-year Tammisto district. 2 jubilee, or a total of EUR 0.90 per share. The Seppälä Division invested a total 1 The aggregate amount of these divi- of EUR 0.6 million, which went mostly 0 dends is 92.8 per cent of Stockmann’s for refurbishing the store network. 1998 1999 2000 2001 2002 earnings per share. CURRENT PROJECTS * Long-term minimum target CAPITAL EXPENDITURES In August, Stockmann signed a Letter of Capital expenditures amounted to EUR Intent on opening a department store 25.8 million, or EUR 5.3 million less than with about 11 000 square metres of retail in the previous year. space in rented premises in the new sec- Dividends for the financial years 1998-2002 The most important expenditure item tion of the Jumbo Shopping Centre in EUR mill. % in 2002 was the Riga department store, Vantaa. According to plans, the depart- 50 125 for which construction works got under ment store will be completed in 2005.

way in the spring. The site required an Likewise, in August Stockmann signed 40 100 outlay during the year of EUR 4.9 million a preliminary agreement on opening a and Stockmann’s total capital expendi- full-size department store with about 30 75 ture will be about 24.0 million euros. 8 000 square metres of floor space in 20 50 The building will be completed on rented premises in the centre of St

schedule in autumn 2003. Petersburg in 2005. 10 25 The Department Store Division’s In September Stockmann’s Board of capital expenditures came to EUR 10.1 Directors approved a plan for enlarge- 0 0 1998 1999 2000 2001 2002* million. ment and modification works on the The Moscow department store was Helsinki department store. According to Bonus dividend

enlarged in the spring by 1 500 square the plan, the department store’s com- Dividend % of earnings metres of retail space by leasing one mercial premises will be expanded by * Board proposal to the AGM additional floor in the department store about 10 000 square metres by convert- building. After the enlargement the ing existing premises to commercial use department store had a total of 6 500 and by building new retail space. In square metres of retail space. The addition, completely new goods han- Investments and depreciation Academic Bookstore in the centre of dling and servicing areas will be built for 1998-2002 Helsinki was enlarged in the summer. the department store as well as access EUR mill. The enlargement comprises one addi- passages to the new customer car park. 100 tional floor, adding about 500 square After the enlargement the Helsinki metres of new retail space. department store will have about 50 000 80 A Zara franchise store was opened in square metres of retail space. The capi- 60 Helsinki in leased premises at the begin- tal expenditure will amount to about 90 ning of April. The first stores of the million euros. According to a prelimi- 40 Stockmann Beauty cosmetics chain were nary estimate, the works are scheduled opened in October in the Jumbo for completion in their entirety in 2007. 20 Shopping Centre in Vantaa and in the The plan is part of a more extensive 0 Trio Shopping Centre in Lahti. development project for the centre of 1998 1999 2000 2001 2002 The Vehicle Division’s capital expen- Helsinki. Among the project’s aims is to Investments in real estate ditures amounted to EUR 0.6 million. convert Keskuskatu into a pedestrian Other investments The Hobby Hall Division’s capital precinct. Carrying out the project calls expenditures totalled EUR 3.2 million. for a town-plan modification, which has Depreciation

38 Capital employed and ROCE % 1998-2002 EUR mill. % 600 18 already been initiated. In 2003 the out- of EUR 826 000, and they represent 0.8 lays for the project will consist mainly of per cent of all the shares outstanding as 500 15 * planning and design expenses totalling well as 0.7 per cent of the total votes. 400 12 about 2 million euros. The shares were purchased during 2000. 300 9 In October 2002 the Inditex Group of The Board of Directors does not have Spain and Stockmann signed an agree- valid authorizations to increase the share 200 6 ment whereby Stockmann obtained Zara capital or to float issues of convertible 100 3 franchising rights in the territory of the bonds or bonds with warrants or to buy Russian Federation. back its own shares. 0 0 1998 1999 2000 2001 2002 The Riga department store remains Stockmann’s 1997 Series C share the most important capital expenditure options, totalling 180 000 options, were Capital employed in 2003. Construction works at the site admitted to the Main List of Helsinki ROCE % got under way in spring 2002. The pro- Exchanges as from April 11, 2002. * Long-term minimum target ject will require an outlay of about EUR A total of 1 084 Stockmann plc Series 15 million during 2003. B shares with a nominal value of EUR Return on equity 1998-2002 Other capital expenditures by the 2.00 was subscribed for with Stockmann % Department Store Division include the Loyal Customer share options during the opening, during the spring, of Zara subscription period from May 2, 2002, to 12 stores at the Mega Shopping Centre in May 31, 2002. As a consequence of the Moscow, Helsinki’s Itäkeskus Shopping subscriptions the share capital was 9 Centre and adjacent to the Turku depart- increased by EUR 2 168. Following the ment store as well as the opening of increase the share capital is EUR 6 new Stockmann Beauty stores. 102 768 122. The shares were entered in Towards the end of 2002 Hobby Hall the Trade Register on June 18, 2002 and 3 carried out pilot marketing for mail order they became available for trading on sales in Lithuania, and operations in the Helsinki Exchanges on June 19, 2002. 0 1998 1999 2000 2001 2002 country got started in February 2003. Seppälä’s first stores in Latvia will be PERSONNEL STRENGTH opened in autumn 2003. Stockmann’s payroll at the end of Equity ratio 1998-2002 Capital expenditures in 2003 will total December 2002 was 8 917 employees, EUR mill. % about EUR 43 million. or 134 employees more than at the end 800 100 of the previous year. SHARE CAPITAL In 2002 Stockmann employed an 600 75 AND SHARES average of 8 313 people, or 229 more The number of the company’s shares than in the previous year, when the 400 50 outstanding at the end of 2002 was average payroll was 8 084. Converted to 51 384 061, of which 24 868 893 were full-time staff, the average number of 200 25 Series A shares and 26 515 168 were employees increased by 171 and was Series B shares. 6 752. In the parent company, the aver- 0 0 At the end of 2002 Stockmann held age number of employees converted to 1998 1999 2000 2001 2002 163 000 of its own Series A shares and full-time staff increased by 52 and was Liabilities 250 000 of its own Series B shares. The 4 256. nominal value of these shares is a total At the end of 2002 the number of staff Shareholder's equity Equity ratio, %

39 BOARD REPORT ON OPERATIONS

working at units abroad was 1 387 Average number of staff Staff costs 1998-2002, employees, or 16 per cent of the 1998-2002 % of net turnover entire personnel. At the end of the % previous year, 1 281 employees, or 15 10000 15 per cent of the personnel, were employed at units abroad. 8000 12

6000 9 OUTLOOK FOR 2003 Retail sales excluding the motor trade 4000 6 are estimated to increase by about 3 per cent in Finland in 2003. Sales by 2000 3 the motor trade are also expected to 0 0 grow as a consequence of the tax 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 reduction decisions that have been taken. It is estimated that the markets in Russia and the Baltic countries will grow faster than the Finnish market. Operating profit according to Capital employed Stockmann’s consolidated sales are management accounting 2001-2002 2001-2002 estimated to grow faster than the EUR mill. EUR mill. market average. 40 200 Sales in 2003 are estimated to top EUR 1.7 billion. Stockmann’s target is 30 150 for profit before extraordinary items in 2003 to be higher than the figure 20 100 reported for 2002.

BOARD PROPOSAL FOR 10 50 THE DISTRIBUTION OF PROFITS 0 0 The Board of Directors’ proposal for Department Vehicle Hobby Seppälä Real Department Vehicle Hobby Seppälä Real the parent company’s dividend is on Store Div. Div. Hall Estate Store Div. Div. Hall Estate page 61 of the Annual Report. 2002 2002 2001 2001

ROCE %* 2001-2002 % 50

25 Operating profit shown in management accounting 20 In calculating operating profit for manage- ment accounting purposes, the divisions are 15 charged an internal rent for their own busi- ness premises in accordance with the pre- 10 vailing market rent and they are also charged for centrally produced services. The divisions’ 5 operating profit includes the account servicing 0 charges for the Stockmann account as well Department Vehicle Hobby Seppälä Real as the interest share of hire purchase and Store Div. Div. Hall Estate leasing income. Other operating income is not 2002 allocated to the divisions. 2001 Capital employed Capital employed has been calculated as *Operating profit according to management a 12-month moving average. accounting as a ratio of capital employed

40 SHARES AND SHARE CAPITAL

The share capital of Stockmann plc is divided into Series A and Series B 1997 options shares. Series A shares carry ten votes and Series B shares one vote. The The 1997 options are quoted on the Helsinki Exchanges Main List. The total num- par value of both series of shares is EUR 2.00 and the shares of both series ber of options is 360 000. Each option entitles its holder to subscribe for 3.5 Series entitle their holders to an equal dividend. B shares in Stockmann plc. In the aggregate, the options entitle holders to sub- scribe for 1 260 000 Series B shares. The subscription period for the shares will The company’s shares are in the book-entry system. The number of registered continue up to January 31, 2004. shareholders at December 31, 2002, was 13 999 (13 399 shareholders at December The share subscription price on the basis of the options is EUR 13.21 per share 31, 2001) representing 99.9 per cent of the company’s shares outstanding. after the 2002 dividend payout proposed by the Board of Directors. By the end of SHARES 2002, subscriptions on the basis of the options have not been made. The trade in the 1997 options on the Helsinki Exchanges in 2002 totalled 69 644 options and General price trend EUR 212 928. Share prices fell by 34.4 per cent during the financial year as measured by the The trading lot is 100 options. HEX General Index of Helsinki Exchanges and by 16.7 per cent as measured by the HEX Portfolio Index. The retail industry index rose by 8.4 per cent. Key employee share options 2000 In 2000, a total of 2 500 000 share options were granted to key employees be- longing to the senior and middle management of Stockmann or its subsidiaries. Option A can be exercised to subscribe for 625 000 Stockmann Series B shares at a price of EUR 20 per share, option B to subscribe for 625 000 Series B shares at a price of EUR 21 per share and option C to subscribe for 1 250 000 Series B shares at a price of EUR 22 per share. The subscription price of the share will be reduced by the amount of the cash dividend payout per share after April 11, 2000, and before the share subscription as determined on the record date for each divi- dend payout. The subscription periods for the shares are as follows: AApril 1, 2003 - April 1, 2007, B April 1, 2004 - April 1, 2007, and C April 1, 2005 - April 1, 2007. Loyal Customer share options 1 382 524 Loyal Customer share options were subscribed for. During the share subscription period in 2002 a total of 1 084 Series B shares at a price of EUR 13.06 per share were subscribed for on the basis of the subscribed options. As a conse- quence of the subscriptions, the share capital increased by 2 168 euros to EUR 102 768 122. The future subscription periods for shares with the Loyal Customer share options are May 2-May 31, 2003, May 2-May 31, 2004 and May 2-May 31, 2005. The divi- dends payable annually are deducted from the subscription price. The subscription price after the 2002 dividend payout proposed by the Board of Directors is EUR 12.16. The total value of the Stockmann shares traded was 0.04 per cent of the share Own shares turnover on the Helsinki Exchanges. The market capitalization of the company at At the end of 2002 the company held 163 000 of its own Series A shares and December 31, 2002, was EUR 710.1 million. The market capitalization at December 250 000 of its own Series B shares. The Series A shares owned by the company 31, 2001, was EUR 696 million. represent 0.3 per cent of the share capital and 0.6 per cent of all the voting rights. The trading lot for both the Series A and Series B share is 50 shares. The Series B shares owned by the company represent 0.5 per cent of the share capital and 0.1 per cent of all the voting rights. The shares in the company’s pos- SHARE CAPITAL session do not confer voting rights at the Annual General Meetings.

Taxation values of shares in Finland in 2002 The taxation value of the Series A share in 2002 was EUR 9.52 and the taxation value of the Series B share was EUR 9.70.

41 SHARES AND SHARE CAPITAL

SHAREHOLDERS

The holdings in the personal ownership of the members of the company’s Board of Directors, CEO and the executive vice president who acts as the CEO’s alternate, as well as the ownership of institutions under their control and persons under their guardianship at December 31, 2002 was a total of 6 526 534 shares, which represents a total of 12.7 per cent of the shares outstanding and 16.9 per cent of the voting rights (December 31, 2001: 6 690 751 shares, representing 13.0 per cent of the shares and 16.9 per cent of the voting rights) and 289 831 share options. The share options entitle their holders to subscribe for 386 976 Stockmann plc Series B shares, which would have been 0.8 per cent of the total shares outstanding and 0.1 per cent of all voting rights at December 31, 2002.

42 Distribution of shares Distribution of votes

53 % Foundations and others 57 % Foundations and others 20 % Households 19 % Households 17 % Private and public corporations 18 % Private and public corporations 7 % Banks and insurance companies 4 % Banks and insurance companies 3 % Foreign shareholders 2 % Foreign shareholders (incl. nominee registrations) (incl. nominee registrations)

Turnover and price trend Turnover and price trend of Series A shares in 2002 of Series B shares in 2002 thousands EUR thousands EUR 1000 25 1000 25

800 20 800 20

600 15 600 15

400 10 400 10

200 5 200 5

0 0 0 0 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12

Number of shares traded Number of shares traded

Monthly closing price Monthly closing price

Price trend of Series A and Series B shares (share-issue adjusted) compared with HEX Portfolio Index 1998-2002 EUR 40

35

30

25

20

15

10

5 1/98 1/99 1/00 1/01 1/02 12/02

HEX Portfolio Index *

Stockmann A

Stockmann B

* The weighting of each company in the index is limited to a maximum of 10 per cent.

43 SHARES AND SHARE CAPITAL

Earnings per share and Earnings per share and P/E ratio dividend per share 1998-2002 1998-2002 (share-issue adjusted) EUR EUR P/E 1.2 1.2 28

1.0 0.9 21 0.8

0.6 0.6 14

0.4 0.3 7 0.2

0.0 0.0 0 1998 1999 2000 2001 2002 * 1998 1999 2000 2001 2002

Earnings per share Earnings per share

Dividend per share Profit coefficient (A)

* Dividend according to the Board proposal Profit coefficient (B)

Equity per share 1998-2002 EUR 10

8

6

4

2

0 1998 1999 2000 2001 2002

Effective yield of shares 1998-2002 Market capitalization 1998-2002 % EUR mill. 7 1000 6 800 5 4 600

3 400 2 200 1

0 0 1998 1999 2000 2001 2002 * 1998 1999 2000 2001 2002

Stockmann A

Stockmann B

* Dividend according to the Board proposal

44 KEY FIGURES

45 PER-SHARE DATA

46 PROFIT AND LOSS ACCOUNT

47 BALANCE SHEET

48 Assets 2002 Financing 2002

40 % Non-current assets 70 % Capital and reserves 25 % Stocks 8 % Non-current creditors 35 % Financial assets 22 % Current creditors

49 FUNDS STATEMENT

50 NOTES TO THE ACCOUNTS

ACCOUNTING POLICY

General principles assets, stocks and equity are translated into euros tion. The balance sheet values furthermore include Stockmann’s annual accounts have been prepared at the rates prevailing at the time of acquisition and revaluations of land areas and buildings. in accordance with the regulations of the Finnish the other balance sheet items at the rates prevailing Revaluations have been made during the period Accounting Act which came into force on December on the balance sheet date and, furthermore, the from 1950 to 1984 and are based on then esti- 31, 1997. profit and loss account is translated at the average mates of real-estate valuers. Revaluations are not Scope of monthly rate on a month-by-month basis. depreciated. the consolidated accounts Planned depreciation is based on the original The consolidated accounts cover the parent com- Transactions in foreign currencies cost and the estimated economically useful life of pany Stockmann plc and those companies in which At the end of accounting period foreign currency intangible and tangible assets as follows: the parent company controls, directly or indirectly, debtors and creditors in the balance sheet are • Intangible assets: 5 years more than 50 per cent of the voting rights conferred translated at the rates prevailing on the balance • Goodwill and goodwill arising on consolidation: by the shares as well as those property manage- sheet date. Gains and losses on foreign exchange 5 years ment companies in which the parent company con- in financial operations are entered as net amounts • Other capitalized long-term expenses: 5-20 years trols, either directly or indirectly, at least 80 per cent of under other financial income or other financial • Buildings: 20-50 years the voting rights conferred by the shares. The com- expenses. • Machinery and equipment: 4-12 years panies acquired during the year have been includ- • Lightweight store furnishings, motor vehicles and ed in the consolidation from the time of acquisition. Net turnover data processing equipment: 4-5 years Mutual real-estate management companies in Net turnover comprises sales income excluding Securities included in non-current assets are which the Group has an interest of more than 20 indirect taxes, discounts granted and foreign valued at acquisition cost or, if their market value per cent have not been treated as associated exchange differences. has decreased permanently, at this lower value. undertakings, nor do other associated undertakings belong to the Group. Other operating income Current assets The items stated as other operating income are cap- Securities included in financial assets are valued at Internal transactions ital gains on the sale of non-current assets connect- acquisition cost or, if their value is lower, at this Transactions as well as debtors and creditors ed with business operations, compensation obtained lower value. between Group companies have been eliminated. from the sale of businesses as well as charges for In the valuation of stocks the principle of lowest services rendered to foreign subsidiaries. value has been used, i.e. the stocks have been Shares in subsidiaries entered in the balance sheet at the lowest of acqui- Shareholdings between Group companies have Extraordinary income sition cost or a lower repurchase price or the prob- been eliminated by the purchase cost method. In and expenses able market price. The acquisition cost of stocks carrying out eliminations, the acquired company’s The items stated as extraordinary income and has been defined applying the variable expenses provisions at the time of acquisition excluding expenses are non-recurring income and expenses incurred in making the purchase in accordance with deferred tax liability are also considered to consti- that are not a part of ordinary operations. the FiFo principle. tute the company’s capital and reserves. The difference between the purchase price of Taxes Obligatory subsidiary shares and equity has been allocated in The direct taxes entered in the profit and loss provisions part to fixed assets. The proportion exceeding account are the taxes corresponding to Group com- Expenditure to which the company has committed going values is shown as a separate goodwill item panies’ net profits for the financial year as well as but which has not yet been realized, for example which is amortized on a straight-line basis over a rectifications of taxes for previous financial years. restructuring cost, is shown as obligatory provisions period of five years. In the consolidated accounts the deferred tax lia- in the balance sheet. Expenses corresponding to bility is calculated for all the periodization differ- the obligatory provisions are included in the income Subsidiaries abroad ences between the annual accounts and taxation, statement in a relevant group of expenses. The consolidated accounts figures of foreign sub- applying the tax base for the next year, which has sidiaries have been translated into euros at the been confirmed at the balance sheet date. Appropriations exchange rates prevailing on the balance sheet Deferred tax liability is included in its entirety in The parent company’s appropriations comprise the date. The translation differences arising on the the consolidated balance sheet. depreciation difference. The change in deferred tax elimination of the capital and reserves of sub- liability resulting from the change in appropriations sidiaries have been entered in capital and reserves. Tangible and intangible assets has been stated in taxes in the consolidated The annual account figures for Russian subsidiaries and depreciation on them accounts. Accumulated appropriations in the consol- have been translated into euros using the monetary- Tangible and intangible assets are valued accord- idated accounts are divided into a portion in deferred non-monetary method according to which fixed ing to the original cost excluding planned deprecia- tax liability and a portion in capital and reserves.

51 NOTES TO THE ACCOUNTS

52 53 NOTES TO THE ACCOUNTS

54 55 NOTES TO THE ACCOUNTS

56 57 NOTES TO THE ACCOUNTS

58 59 NOTES TO THE ACCOUNTS

60 PROPOSAL FOR THE DISTRIBUTION OF PARENT COMPANY PROFIT

According to the Consolidated Balance Sheet, the distributable funds at December 31, 2002, were EUR 227.5 million. The parent company’s distributable funds according to the balance sheet at December 31, 2002, were EUR 169.8 million. According to the Parent Company Balance Sheet at December 31, 2002, the following amounts are at the disposal of the Annual General Meeting:

• retained earnings, including the Contingency fund EUR 103 185 000.96 • net profit for the financial year EUR 66 658 182.31 EUR 169 843 183.27

The Board of Directors proposes that this amount be distributed as follows: on the 50 971 061 shares owned by external parties be paid • a dividend of EUR 0.70 per share for the 2002 financial year EUR 35 679 742.70 • a 140-year jubilee dividend of EUR 0.20 per share EUR 10 194 212.20 • to be carried forward to the Contingency fund and Retained earnings EUR 123 969 228.37 EUR 169 843 183.27

Helsinki, February 12, 2003

BOARD OF DIRECTORS

Lasse Koivu Erik Anderson Erkki Etola Eva Liljeblom Kari Niemistö Christoffer Taxell Henry Wiklund

CEO

Hannu Penttilä

61 AUDITORS’ REPORT

To the shareholders of Stockmann plc

We have audited the accounting records and the financial statements, as well as the administration by the Board of Directors and the CEO of Stockmann plc for the year ended 31 December 2002. The financial statements, which include the report of the Board of Directors, consolidated and parent company income statements, balance sheets, cash flow statements and notes to the financial statements, have been prepared by the Board of Directors and the CEO. Based on our audit we ex- press an opinion on these financial statements and the company’s administration. We have conducted our audit in accordance with Finnish Generally Accepted Auditing Standards. Those standards require that we plan and perform the audit in order to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. The purpose of our audit of the administration has been to examine that the Board of Directors and the CEO have complied with the rules of the Finnish Companies Act. In our opinion, the financial statements have been prepared in accordance with the Finnish Accounting Act and other rules and regulations governing the preparation of financial statements in Finland. The financial statements give a true and fair view, as defined in the Accounting Act, of both the consolidated and parent company result of operations, as well as of the financial position. The financial statements with the consolidated financial statements can be adopted and the mem- bers of the Board of Directors and the CEO of the parent company can be discharged from liability for the period audited by us. The proposal made by the Board of Directors on how to deal with the distributable funds is in compliance with the Finnish Companies Act.

Helsinki, 14 February 2003

Wilhelm Holmberg Krister Hamberg Authorized Public Accountant Authorized Public Accountant

62 CONTACT INFORMATION

CORPORATE MANAGEMENT ITÄKESKUS DEPARTMENT STORE INTERNATIONAL OPERATIONS AND ADMINISTRATION Itäkatu 1-5 C 124, FIN-00930 HELSINKI Joint Operations Tel. +358 9 121 461 Kutomotie 1 C Aleksanterinkatu 52 B Fax +358 9 121 4655 P.O. BOX 147, FIN-00381 HELSINKI P.O. BOX 220 Pirjo Pyykkö, Director Tel. +358 9 121 51 FIN-00101 HELSINKI Fax +358 9 121 5250 Tel. +358 9 1211 OULU DEPARTMENT STORE Jussi Kuutsa, Director Fax +358 9 121 3101 Kirkkokatu 14 www.stockmann.fi P.O. BOX 230, FIN-90101 OULU Russia E-mail: first [email protected] Tel. +358 8 317 9411 Fax +358 8 317 9433 Moscow Office Chief Executive Officer Hannu Penttilä Pentti Korhonen, Director ZAO Kalinka-Stockmann Executive Vice President Henri Bucht, Proezd Olminskogo 3 a responsible for the Hobby Hall Division TAMPERE DEPARTMENT STORE 129085 MOSCOW, Russia Executive Vice President Jukka Hienonen, Hämeenkatu 4 Tel. +7 095 974 0122 responsible for the Department Store P.O. BOX 291, FIN-33101 TAMPERE Fax +7 095 282 0189 Division Tel. +358 3 248 0111 Petri Anttila, Region Director for Russia Fax +358 3 213 3573 Chief Financial Officer Pekka Vähähyyppä Eija Vartila, Director ZAO Kalinka-Stockmann Company Lawyer Jukka Naulapää Smolenskaya Department Store TAPIOLA DEPARTMENT STORE Corporate Communications, Manager Smolenskaya Ploshad, 3/5 Länsituulentie 5, FIN-02100 ESPOO Juhana Häme 121099 MOSCOW, Russia Tel. +358 9 121 21 Finance Manager Eva Mansikka-Mikkola Tel. +7 095 785 2500 Fax +358 9 121 2269 Group Controller Eija Herttuainen Fax +7 095 785 2505 Anja Taina, Director Information Technology, Director Jussi Tuisku, Director Päivi Hokkanen TURKU DEPARTMENT STORE Leninsky boutique Internal Audit, Manager Tapio Helle Yliopistonkatu 22 Leninsky Prospect 73/8 Personnel Director P.O. BOX 626, FIN-20101 TURKU 117296 MOSCOW, Russia Merja Lönnroth-Laaksonen Tel. +358 2 265 6611 Tel. +7 095 134 3546 Technical Director Thomas Lönnberg Fax +358 2 265 6714 Fax +7 095 134 3546 Treasurer Pirkko Salminen Juha Oksanen, Director Fashion Store STOCKMANN OUTLET Nevsky Prospect 25 DEPARTMENT STORE DIVISION Kuriiritie 17 191186 ST. PETERSBURG, Russia FIN-01370 VANTAA Kutomotie 1 C Tel. +7 812 326 2638 Tel. +358 9 121 6551 Fax +7 812 326 2647 P.O. BOX 147 Fax +358 9 121 6549 FIN-00381 HELSINKI Rimma Romanova, Region Manager Tel. +358 9 121 51 STOCKMANN BEAUTY Kutomotie 1 C Supermarket Fax +358 9 121 5812 Finlandsky Prospect 1 E-mail: first [email protected] P.O. BOX 147, FIN-00381 HELSINKI Tel. +358 9 121 51 194175 ST. PETERSBURG, Russia LOYAL CUSTOMER SERVICE Fax +358 9 121 5812 Tel. +7 812 542 2297 Tel. +358 203 50203 Raija-Leena Söderholm, Director Fax +7 812 542 8866 E-mail: [email protected] Stores ZARA PURCHASING Mega Shopping Centre Fax +358 9 121 5960 women’s fashion, Jumbo Shopping Centre Leninsky District +358 9 121 5665 men’s fashion, Vantaanportinkatu 3 142704 MOSCOW, Russia +358 9 121 5839 women’s accessories and FIN-01510 VANTAA Tel. +7 095 797 6838 cosmetics, +358 9 121 5299 children’s and Tel. +358 10 850 1020 youth’s fashion, home interior and house- Fax +358 9 694 4763 Estonia Stockmann AS hold, sports and hobbies, +358 9 121 5671 Trio Shopping Centre food, +358 9 121 5995 consumer electronics Tallinn Department Store Aleksanterinkatu 18 Liivalaia 53 MARKETING FIN-15140 LAHTI 10145 TALLINN, Estonia Fax +358 9 121 5512 Tel. +358 10 850 1023 Tel. +372 6 339 500 Fax +358 3 733 4011 Fax +372 6 339 556 MANAGEMENT Maisa Romanainen, Director Jukka Hienonen, Director of the ZARA Department Store Division Z-Fashion Finland Oy ACADEMIC BOOKSTORE Aleksanterinkatu 52 Karl Stockmann, Helsinki Department Keskuskatu 1 FIN-00100 HELSINKI Store and Department Stores in Finland P.O. BOX 128, FIN-00101 HELSINKI Tel. +358 9 121 4409 Jussi Kuutsa, International Operations Tel. +358 9 121 41 Fax +358 9 121 3632 Maaret Kuisma, Marketing Fax +358 9 121 4245 Niina Nenonen, Chain Manager Leena Lassila, Purchasing: Fashion www.akateeminen.com Lars Eklundh, Purchasing: Non-fashion Stores Stig-Björn Nyberg, Director Goods, International Operations Risto Penttilä, Administration Aleksanterinkatu 19 Bookstores FIN-00100 HELSINKI Helsinki centre, Itäkeskus, Tapiola, HELSINKI DEPARTMENT STORE Tel. +358 9 253 00300 Tampere, Turku Aleksanterinkatu 52 Fax +358 9 253 00321 P.O. BOX 220, FIN-00101 HELSINKI Itäkeskus, Itäkatu 1-5 Tel. +358 9 1211 FIN-00930 HELSINKI VEHICLE DIVISION Fax +358 9 121 3632 Tel. +358 10 850 1120 Kutomotie 1 A Terhi Okkonen, Sales Director (Opening in April 2003) P.O. BOX 157, Export and Shopping Service Yliopistonkatu 20 FIN-00381 HELSINKI Fax +358 9 121 3267 FIN-20100 TURKU Tel. +358 9 121 51 Business to Business Service Tel. +358 10 850 1130 Fax +358 9 121 5401 Fax +358 9 121 3782 (Opening in April 2003) E-mail: first [email protected]

63 CONTACT INFORMATION

MANAGEMENT Vantaa, Veromies Sammon valtatie 2, FIN-33530 TAMPERE Esa Mäkinen, Director Kiitoradantie 2, FIN-01530 VANTAA Tel. +358 3 3123 2000 Eero Lemberg, After Sales Development Tel. +358 9 825 991 Fax +358 3 3123 2010 Tuija Ylinen, Financial Administration Fax +358 9 821 280 Pasi Järvinen, Unit Manager Estonia FORD Customer Service Stockmann Auto Helsinki, Lauttasaari (Servicing) Tel. +372 6 339 600 Vattuniemenkatu 27, FIN-00210 HELSINKI Helsinki, Herttoniemi Fax +372 6 339 603 Tel. +358 9 673 261 www.hobbyhall.com Valurinkatu 1, FIN-00880 HELSINKI Fax +358 9 673 016 Tel. +358 9 121 481 Riitta Kinnunen, Manager, Fax +358 9 121 4848 MULTI-MAKE REPAIRSHOP operations in Estonia Mikko Koivunen, Stockmann, Tyre service and small repairs Stores Sales Director, Ford Vantaa, Tikkurila, Kuriiritie 17 FIN-01510 VANTAA Maakri 25 Helsinki, Pitäjänmäki Tel. +358 9 121 6524 10145 TALLINN, Estonia Kutomotie 1 A Fax +358 9 121 6521 Tel. +372 6 339 623 P.O. BOX 157, FIN-00381 HELSINKI Tel. +358 9 121 51 INSTITUTIONAL SALES OF SPARE PARTS Paldiski maantee 102 Fax +358 9 121 5401 (all product lines) Helsinki, Pitäjänmäki Rocca al Mare kaubanduskeskus Juha Sandell, Sales Manager Takkatie 7 a, FIN-00370 HELSINKI 10149 TALLINN, Estonia Tel. +358 9 121 6405 Tel. +372 6 659 065 Espoo, Niittykumpu Fax +358 9 121 6400 Kotitontuntie 2, FIN-02200 ESPOO Latvia MITSUBISHI, SKODA Tel. +358 9 525 9300 Customer Service AutoCenter Stockmann Fax +358 9 412 3225 Tel. +371 7073 200 Tom Mörck, Unit Manager Tampere, Hatanpää Fax +371 7073 215 Vantaa, Tikkurila Lahdenperänkatu 3, FIN-33900 TAMPERE Heidi Ruippo, Manager, operations in Latvia Kuriiritie 19, FIN-01510 VANTAA Tel. +358 3 3123 4111 Lithuania Tel. +358 9 121 6500 Fax +358 3 3123 4129 Customer Service Fax +358 9 121 6505 Martti Ilonen, Unit Director Harri Kalliola, Unit Manager Tel. +370 5 210 2555 Fax +370 5 210 2550 Helsinki, Lauttasaari (Servicing) Reetta von Knorring, Manager, Vattuniemenkatu 27, FIN-00210 HELSINKI operations in Lithuania Tel. +358 9 673 261 HOBBY HALL DIVISION Fax +358 9 673 016 Hämeentie 157 Turku FIN-00560 HELSINKI Satakunnantie 164, FIN-20320 TURKU Tel. +358 9 777 611 SEPPÄLÄ Tel. +358 2 273 6900 Fax +358 9 7776 1381 Tikkurilantie 146 Fax +358 2 273 6940 www.hobbyhall.fi P.O. BOX 234, FIN-01531 VANTAA Matti Ristimäki, Unit Director E-mail: first [email protected] Tel. +358 9 825 981 VOLKSWAGEN, AUDI Fax +358 9 825 1100 Stockmann MANAGEMENT Henri Bucht, Managing Director MANAGEMENT Helsinki, Herttoniemi Veikko Syvänen, International Operations Heikki Väänänen, Managing Director Mekaanikonkatu 10, FIN-00810 HELSINKI Pekka Polvinen, Commercial Operations Jussi Kumpulainen, Financial Tel. +358 9 121 721 Seppo Jurvainen, Information Technology Administration Fax +358 9 121 7300 Vesa Tuuri, Logistics Nina Laine-Haaja, Stores Functions Juha Hirvonen, Sales Director, Volkswagen Tuomas Sahi, Service, stores in Finland Sinikka Salminen, Logistics Tiina Kuusisto, Marketing Helsinki, Kruununhaka (Servicing) Outi Kuisma, Customership Development Teija Niemi, Finance Memme Ilmakunnas, Children’s and Mariankatu 22, FIN-00170 HELSINKI Men’s Wear, Cosmetics Tel. +358 9 121 5648 CUSTOMER SERVICE Anja Rissanen, Ladies’ Wear Fax +358 9 121 5637 Tel. +358 106 7722 E-mail: [email protected] STORES IN FINLAND Helsinki, Pitäjänmäki Alajärvi, Espoo (4), Forssa, Hamina, Hauki- Kutomotie 1 A LOGISTICS CENTRES pudas, Heinola, Helsinki (8), Hollola, Huit- P.O. BOX 157, FIN-00381 HELSINKI Tahkotie 2, FIN-01740 VANTAA tinen, Hyvinkää, Hämeenlinna (2), Iisalmi, Tel. +358 9 121 51 Tel. +358 9 777 611 Imatra (2), Joensuu (2), Jyväskylä (3), Jämsä, Fax +358 9 121 5281 Fax +358 9 7776 1481 Järvenpää, Kaarina, Kajaani, Kangasala, Jaakko Juvakka, Sales Manager Kankaanpää, Karhula (2), Kauhajoki, Kau- Valimotie 11, FIN-01510 VANTAA Helsinki, Pitäjänmäki hava, Kemi, Kemijärvi, Kempele, Kerava, Tel. +358 9 777 611 (Servicing and body repairshop) Keuruu, Kirkkonummi, Klaukkala, Kokkola Fax +358 9 7776 1597 (2), Kotka, Kouvola (3), Kuopio (3), Kurik- Takkatie 7 a, FIN-00370 HELSINKI ka, Kuusamo, Kuusankoski, Lahti (3), Tel. +358 9 121 645 STORES IN FINLAND Lappeenranta (2), Lapua, Laukaa, Lempäälä, Fax +358 9 121 6400 Hämeentie 157, FIN-00560 HELSINKI Lieksa, Lohja, Loimaa, Loviisa, Mikkeli, Espoo, Suomenoja Tel. +358 9 7776 1286 Muurame, Mäntsälä, Naantali, Nastola, Ni- Isonniitynkuja 2, FIN-02270 ESPOO Fax +358 9 7776 1290 vala, Nokia, Orimattila, Oulu (3), Palokka, Tel. +358 9 804 601 Parainen, Pello, Pieksämäki, Pietarsaari, Fax +358 9 8046 0222 Mekaanikonkatu 17, FIN-00810 HELSINKI Pirkkala, Pori (3), Porvoo, Raahe, Raisio, Markku Lönnqvist, Unit Director Tel. +358 9 7776 1900 Rauma, Riihimäki, Rovaniemi, Salo, Savon- Fax +358 9 7776 1912 linna, Seinäjoki (2), Siilinjärvi, Sodankylä, Espoo, Suomenoja (Servicing) Tammisaari, Tampere (5), Tornio, Turku Martinkuja 6, FIN-02270 ESPOO Kuitinmäentie 27, FIN-02240 ESPOO (5), Uusikaupunki, Vaasa, Valkeakoski, Tel. +358 9 8046 0321 Tel. +358 9 7776 1606 Vammala, Vantaa (4), Varkaus, Ylivieska, Fax +358 9 8046 0320 Fax +358 9 7776 1657 Ylöjärvi, Äänekoski. VOLKSWAGEN Valimotie 11, FIN-01510 VANTAA Estonia Stockmann Tel. +358 9 7776 1425 Haapsalu, Kohtla-Järve, Narva, Pärnu, (Servicing incl. AUDI) Fax +358 9 7776 1614 Tallinn (7), Tartu (2), Viljandi

64 STOCKMANN VUOSIKERTOMUS 2002 P.O.BOX 220 P.O.BOX PUH. +358 9 1211 FIN-00101 HELSINKI WWW.STOCKMANN.FI ALEKSANTERINKATU 52 B ALEKSANTERINKATU