Baugur Group hf. Financial Statements For the year ended February 28, 2003 Baugur Group hf. Túngata 6 101 Reykjavik Reg. no. 480798-2289 Contents Endorsement by the Board of Directors and the President ............................................. 3 Balance Sheet ..................................................... 7 Auditors’ Report ................................................ 5 Statement of Cash Flows .................................... 9 Statement of Earnings and Comprehensive Income .......................................................... 6 Notes to the Financial Statements ...................... 10 Financial Statements of Baugur Group hf. February 28, 2003 _____________________________________________ 2 _____________________________________________ Endorsement by the Board of Directors and the President The Financial Statements of Baugur Group hf. include the Parent Company’s Financial Statements and the Consolidated Financial Statements for the Parent Company and its subsidiaries, which were 17 at the end of the fiscal year. The Consolidated Financial Statements of Baugur Group hf. for the year ended February 28, 2003 have been prepared in accordance with the Icelandic Financial Statements Act and the Regulation on the Presentation and Contents of Financial Statements and have in all main respects been prepared in accordance with the same accounting principles as the Group’s Financial Statements for the previous year, except that now shares in listed companies are recorded at their market value and unrealized gain there on is entered as a separate item in the Statement of Earnings and Comprehensive Income and among Stockholders’ Equity in the Balance Sheet. Furthermore, expenses relating to stock option agreements are now expensed when they are incurred. Changes are further explained in the Notes to the Financial Statements. According to the Statement of Earnings and Comprehensive Income, the Group’s sales amounted to ISK 51,990 million for the year ended February 28, 2003 and the Parent Company’s sales amounted to ISK 29,611 million. Net earnings amounted to ISK 6,329 million. When unrealised gain on shares, in the amount of ISK 1,111 million is accounted for, the Company’s comprehensive income amounted to ISK 7,440 million. According to the Balance Sheet, the Group’s assets amounted to ISK 46,092 million and the Parent Company's assets amounted to ISK 33,081 million. At the end of the fiscal year Stockholders’ Equity amounted to ISK 17,099 million. The Group’s equity ratio at the end of the fiscal year was 37% and the Parent Company’s equity ratio was 52%. Included in the Financial Statements is information regarding valuation of the Group’s principal assets. At the annual shareholders’ meeting held on May 30, 2002, it was agreed to change the name of the Company to Baugur Group hf. Changes were also made to the Company’s Articles of Association relating to the purpose of the Company. The Company’s purpose is now retail operation, asset management, real estate operation, investment in shares and securities and in companies with related operations, lending activities, the buying and selling of assets and other related activities. In relation to those changes the Company’s organizational structure was also changed. The Company is now divided into three independent profit centers. Further information about key figures for each profit center are to be found in the notes to the Financial Statements. The annual shareholders’ meeting of the company held in May 2002 approved an increase in the Company's capital stock, of a nominal value of ISK 700 million with the issue of stock split. In the beginning of September 2002 A Holding S.A., a subsidiary of Baugur Group hf., sold its 20.1% share in Arcadia Group Plc. for GBP 155 million or ISK 21,400 million. The shares are fully paid by the buyer. The original purchase price and costs relating to the purchase amounted to approximately ISK 12,000 million. At the time of sale, the book value of the shares, which were capitalized according to the equity method, and goodwill relating to them was ISK 14,000 million. The capital gains amounting to ISK 7,400 million, are entered as income in the Consolidated Financial Statements. A Holding S.A.’s share of Arcadia Group Plc.’s earnings for the period March to August 2002, amounts to ISK 1,200 million, and is entered in the Statment of Earnings and Comprehensive Income. Financial Statements of Baugur Group hf. February 28, 2003 _____________________________________________ 3 _____________________________________________ In the period October 2002 until February 2003, a subsidary of Baugur Group hf., A Holding S.A., invested in shares in Britsh retail companies for an amount of GBP 61 million or ISK 8,200 million. The shares are capitalised at their market value. Shareholders in Baugur Group hf. were 1,651 at the end of the fiscal year, down from a number of 1,898 at the beginning of the fiscal year, a decrease of 247 during the year. At the end of the fiscal year two shareholders held more then 10% of the capital stock. They are: Fjárfestingarfélagið Gaumur ehf. and related parties ..................................................................... 37.2% Reitan Handel A/S .......................................................................................................................... 11.8% At a shareholders meeting held on November 20, 2002, it was agreed to pay a special 15% dividend to shareholders. The dividends were paid to shareholders on December 10, 2002. The Board of Directors proposes that a dividend of 12% be paid to shareholders in the year 2003. Reference is made to the Financial Statements regarding distribution of earnings and other changes in the book value of stockholders’ equity within the year. The Board of Directors and the President of Baugur Group hf. hereby confirm the Company’s Financial Statements for the year ended February 28, 2003 by means of their signatures. Reykjavik, May 9, 2003. Board of Directors Hreinn Loftsson Jóhannes Jónsson Hans Kristian Hustad Kristín Jóhannesdóttir President Jón Ásgeir Jóhannesson Financial Statements of Baugur Group hf. February 28, 2003 _____________________________________________ 4 _____________________________________________ Auditors’ Report Board of Directors and Shareholders of Baugur Group hf. We have audited the accompanying Balance Sheet and consolidated Balance Sheet of Baugur Group hf. as of February 28, 2003, and the related Income Statement and Statement of Cash Flows for the year then ended. These Financial Statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these Financial Statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Financial Statements are free of material misstatemens. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Consolidated Financial Statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall Financial Statements presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the Financial Statements give a true and fair view of the financial position of Baugur Group hf. as of February 28, 2003, and the results of its operations and its cash flows for the year then ended, in accordance with the law and generally accepted accounting principles in Iceland. Reykjavik, May 9, 2003. Stefán Hilmarsson Anna Thordardóttir KPMG Endurskoðun hf. Financial Statements of Baugur Group hf. February 28, 2003 _____________________________________________ 5 _____________________________________________ Statement of Earnings and Comprehensive Income, for the year ended February 28, 2003 Group Parent Company Notes 12 months 14 months 12 months 14 months 2002 / 2003 2001 / 2002 2002 / 2003 2001 / 2002 Operating income less operating expenses: Sales .......................................................................... 17 51,990 47,215 29,611 31,080 Cost of goods sold ..................................................... ( 39,235) ( 35,174) ( 22,696) ( 23,678) Gross profit ............................................................... 12,755 12,041 6,915 7,402 Other operating income ............................................. 220 472 110 82 Salaries and salary-related expenses ......................... 19 ( 7,840) ( 6,458) ( 3,505) ( 3,560) Other operating expenses .......................................... ( 6,574) ( 4,730) ( 3,221) ( 3,041) Operating (loss) profit before depreciation and financial expenses ........................... ( 1,439) 1,325 299 883 Depreciation of property and equipment ................... 25 ( 1,057) ( 1,031) ( 686) ( 722) Amortization of goodwill .......................................... 23 ( 198) ( 254) ( 86) ( 107) Operating (loss) profit before financial expenses ................................ ( 2,694) 40 ( 473) 54 Net financial (expenses) income .................................. 20 ( 492) ( 833) 137 ( 558) Gain on the sale of shares in associated company ........ 30 7,594 0 172 0 Income from subsidiaries ............................................. 0 0 6,183 1,944 Income (loss) from associated companies .................... 30 2,008 2,352 396 ( 10) Pre-tax profit ...............................................................