STOCKMANN plc INTERIM REPORT January 1 - September 30, 2006

10/25/2006, 11:08 AM (Source: GlobeNewswire)



STOCKMANN plc STOCK EXCHANGE RELEASE October 25, 2006, at 12.00

The Stockmann Group's profit before taxes grew by 70 per cent, or EUR
32.6 million, to EUR 78.9 million (EUR 46.3 million in 2005). Profit
from continuing operations before taxes was EUR 49.3 million (EUR
41.9 million). Other operating income amounted to EUR 34.0 million.
As a consequence of disposals, aggregate sales decreased by 15 per
cent to EUR 1 088.2 million (EUR 1 280.8 million in 2005). Sales from
continuing operations increased by 8 per cent. The return on capital
employed was 24.6 per cent (16.7 per cent) and earnings per share
were EUR 1.23 (EUR 0.65). The earnings estimate for 2006 is
unchanged.

Changes in the Group structure

Stockmann sold the entire shares outstanding in its subsidiary
Stockmann Auto Oy Ab for a total debt-free price of EUR 67.9 million.
The capital gain on the transactions was a total of EUR 7.4 million.
Concurrently, Stockmann and Veho Group Oy Ab launched wide-ranging
loyal customer cooperation in the area of vehicle sales and services.

Stockmann sold its subsidiary that carries on the Zara business in
Russia to the owner of the Zara trademark, the Inditex Group of
Spain, under an agreement signed on January 30, 2006. Pursuant to the
agreement that was made, operations in Russia have been carried out
for Inditex's account as from January 1, 2006. The State Antimonopoly
Committee of the Russian Federation approved the sale of shares in
June, and the deal closed at the end of June. The purchase price was
EUR 41.5 million. The capital gain on the sale of shares, EUR 21.9
million, has been booked to the second quarter. Stockmann continues
the Zara business in Finland.

Financial reporting

Stockmann adopted International Financial Reporting Standards (IFRS)
on January 1, 2005. The accounting policies and calculation methods
applied in the Interim Report are the same as those in the 2005
financial statements. In the interim reports for 2006, Stockmann Auto
and the Zara business in Russia are treated as discontinued
operations in accordance with IFRS 5. Contrary to previous
announcements, Stockmann will adopt the accounting standard 'IFRS 7
Financial Instruments: Disclosures' in 2007. The figures are
unaudited.

Sales and result

The Stockmann Group's sales from continuing operations grew by 8 per
cent to EUR 1 013.3 million. Sales from continuing operations grew by
3 per cent in Finland and 28 per cent abroad. Sales generated by
International Operations grew, accounting for 24 per cent of sales
from continuing operations (20 per cent). As a consequence of
disposals, the Group's aggregate sales decreased by 15 per cent to
EUR 1 088.2 million (EUR 1 280.8 million). Similarly, consolidated
revenue diminished by 15 per cent to EUR 911.0 million (EUR 1 066.9
million).

The gross margin on continuing operations improved by EUR 28.2
million to EUR 344.5 million. However, because the divested
businesses were no longer included in the gross margin, the Group's
aggregate gross margin decreased by EUR 8.7 million and was EUR 353.0
million. The relative gross margin was 38.7 per cent (33.9 per cent).
The relative growth margin increased at Hobby Hall and the Department
Store Division, but was down slightly at Seppälä. The change in the
sales mix contributed to improving the Group's relative gross margin
because the low-margin vehicle sales were discontinued from the
beginning of March. Operating costs were down EUR 6.7 million and
depreciation decreased by EUR 1.2 million. Operating profit was up
EUR 33.3 million to EUR 79.0 million (EUR 45.7 million). Operating
profit from continuing operations grew by EUR 7.8 million to EUR 49.4
million.

Other operating income, EUR 34.0 million, came from the capital gains
on the disposals of Stockmann Auto and the Zara business in Russia as
well as from the capital gain on the unbuilt part of a plot of land
in Tallinn. The capital gain on the portion of the plot in Tallinn,
EUR 4.7 million, is included in continuing operations. In the
comparison period there was no other operating income.

Net financial income and expenses decreased by EUR 0.7 million and
were EUR 0.1 million negative (EUR 0.6 million). Capital gains of EUR
0.8 million on sales of shares were included in net financial income
and expenses, as against EUR 0.9 million a year earlier.

Profit before taxes was EUR 78.9 million, up EUR 32.6 million on the
figure a year earlier. Profit from continuing operations before taxes
increased by EUR 7.4 million to EUR 49.3 million. Third-quarter
pre-tax profit on continuing operations was up EUR 2.2 million to EUR
20.4 million (EUR 18.2 million).

Direct taxes were EUR 12.0 million, an increase of EUR 0.2 million on
the previous year. The capital gains on the sale of the shares in
Stockmann Auto Oy Ab and in the company carrying on the Zara business
in Russia, EUR 29.3 million, are tax-free income.

Net profit for the report period was EUR 66.9 million, compared with
EUR 34.5 million a year earlier. Net profit for the report period
from continuing operations increased by EUR 5.1 million to EUR 37.4
million.

Earnings per share were EUR 1.23 (EUR 0.65) and diluted for options
they were EUR 1.22 (EUR 0.64). Earnings per share from continuing
operations were EUR 0.69 (EUR 0.59) and diluted for options they were
EUR 0.68 (EUR 0.58). Equity per share was EUR 9.54 (EUR 8.51).

Sales and earnings trend by business segment

The Department Store Division's sales grew by 11 per cent to EUR
755.6 million (EUR 679.8 million). Sales in Finland were up 6 per
cent. Sales were spurred by the new department store that was opened
in the Jumbo Shopping Centre in Vantaa in October 2005. The extensive
enlargement and renovation work in the Helsinki department store,
causing about 2 000-3 000 square metres of retail space to be
continuously out of use, has not had a substantial effect on the main
department store's sales, though many new shopping centres have been
opened in Helsinki metropolitan area over the same period.
International operations' sales were lifted by the good like-for-like
retail performance by the department stores in Russia and the Baltic
countries as well as by the new Bestseller stores that were opened in
Russia. Sales by International operations grew by 30 per cent and its
share of the division's sales rose to 26 per cent (22 per cent). The
Department Store Division's operating profit increased by EUR 7.6
million to EUR 35.2 million (EUR 27.6 million). Earnings in the
report period were burdened by the start-up costs for the department
store that was opened in the Jumbo Shopping Centre in Vantaa.
Earnings from international operations showed a very positive trend.
In Riga and Moscow in particular, the results of the department
stores that were opened in 2003 and 2004 improved markedly. The
Department Store Division's result was also buoyed by the EUR 4.7
million capital gain on the sale of the unbuilt portion of the
department store plot that was sold in Tallinn and booked to earnings
in the second quarter. The division's operating profit in the third
quarter was EUR 13.1 million, an increase of EUR 1.0 million on the
figure a year earlier.

Because of a development programme aiming at improving profitability,
Hobby Hall's sales were down 2 per cent to EUR 144.3 million (EUR
147.1 million). The decrease in sales came in the first quarter. In
the second and third quarters, sales grew by a total of 6 per cent.
Sales abroad were 17 per cent of aggregate sales (17 per cent).
Online sales continued their robust growth, making up 47 per cent of
Hobby Hall's distance sales in Finland (35 per cent) and 32 per cent
of Hobby Hall's distance sales in Estonia (20 per cent). Thanks to
effective cost management and the increase in the relative gross
margin that was achieved through a revamped product assortment, Hobby
Hall's operating profit improved by EUR 1.9 million to EUR 3.7
million (EUR 1.8 million). The division reported a third-quarter
operating profit of EUR 2.1 million, up EUR 1.2 million on the figure
a year earlier. In autumn 2006, Hobby Hall conducted test marketing
for mail order sales in the Moscow area, during which it tested
factors such as how distance retailing logistics work in Russia. On
the basis of the test marketing, Hobby Hall will take a decision on
follow-up actions by the end of the year.

Seppälä's sales rose by 2 per cent on the same period a year earlier
and were EUR 112.8 million (EUR 110.1 million). Sales grew strongly
in the Baltic countries and Russia, where they were boosted by the
new stores that were opened towards the end of 2005 and in 2006 as
well as by the good like-for-like sales trend. Seppälä's sales abroad
grew by 56 per cent and its share of the division's aggregate sales
rose to 21 per cent (14 per cent). Sales in Finland fell by 6 per
cent. Seppälä's number of stores in Finland was unchanged during a
period when competition hotted up, with new shopping centres and
stores opening both in the Helsinki metropolitan area and in the
smaller regional centres. Furthermore, the exceptionally warm weather
in August-September hampered the start-up of launching the autumn
collections, particularly in Finland. Owing to the effect of larger
price discounts than a year ago, Seppälä's relative gross margin
decreased slightly on the comparison period but remained at a high
level on an international yardstick. Due to the energetic
establishment of new stores in Russia and the Baltic countries, fixed
costs rose more swiftly than sales. Seppälä's operating profit was
EUR 13.8 million (EUR 16.6 million). Seppälä's third-quarter
operating profit was EUR 5.4 million, compared with EUR 6.9 million a
year earlier.

Stockmann Auto's sales in January-February were EUR 74.8 million and
it reported operating profit of EUR 7.7 million. The operating profit
figure includes the EUR 7.4 million capital gain on the disposal of
the Stockmann Auto businesses. Stockmann Auto was transferred to the
new owners on March 1, 2006.

Financing and capital employed

Stockmann's financial position remained strong. Interest-bearing
liabilities at the end of September were EUR 54.1 million (EUR 98.9
million), of which EUR 23.4 million consisted of long-term borrowings
(EUR 13.4 million). EUR 10.0 million of new long-term borrowings was
drawn down during the report period. Liquid assets amounted to EUR
17.0 million at the end of the report period, as against EUR 12.1
million a year earlier and EUR 18.4 million at the end of 2005. Gross
capital expenditures during the report period came to EUR 90.1
million. The proceeds from disposals of businesses and properties
generated a total of EUR 101.7 million in cash. Net working capital
amounted to EUR 239.5 million at the end of September, as against EUR
251.5 million a year earlier and EUR 237.9 million at the end of
2005. Dividend payouts totalled EUR 59.5 million. Subscriptions made
by exercising the 2000 share options added EUR 5.8 million to
shareholders' equity. The equity ratio increased on the comparison
period and was 71.7 per cent (59.6 per cent). The equity ratio at the
end of 2005 was 66.4 per cent.

The return on capital employed over the past 12 months improved as a
result of the higher earnings and was 24.6 per cent (19.6 per cent at
the end of 2005). The Group's capital employed increased by EUR 18.5
million from September of the previous year and stood at EUR 573.4
million towards the end of the report period (EUR 552.5 million at
the end of 2005).

Capital expenditures and current projects

Capital expenditures during the report period totalled EUR 90.1
million (EUR 39.1 million).

The construction works for the major enlargement and transformation
project for the department store in the centre of Helsinki got under
way in the early months of the year. The project involves expanding
the department store's commercial premises by about 10 000 square
metres by converting existing premises to commercial use and by
building new retail space. In addition, completely new goods
handling, servicing and customer parking areas will be built. After
the enlargement the Helsinki department store will have a total of
about 50 000 square metres of retail space. With the progress of the
construction works, the cost estimate for the project has been
specified and is now about EUR 145 million. The works will be carried
out stage by stage and are estimated to reach completion in 2010.
During the report period, the project required an investment of about
EUR 31.2 million.

The twelfth Stockmann Beauty store was opened in Helsinki in March.
During 2006, four Bestseller stores were opened in Russia: two in St
Petersburg and one each in Kazan and Moscow. So far, a total of eight
Bestseller stores have been opened in Russia. Plans call for opening
another five new Bestseller stores in Russia during the last quarter
of 2006.

In February 2007, the Department Store Division will open a fourth
department store in Moscow in the Mega Shopping Centre that is to be
built on the southeast side. The cost estimate for the department
store - to be built in leased premises - is about EUR 16 million for
Stockmann's part of the investment.

Under an agreement signed in 2005, Stockmann purchased a 10 000-odd
square metre commercial plot on Nevsky Prospect, St Petersburg's high
street. The plot is located next to the Vosstaniya Square underground
station, in the immediate vicinity of Moscow Station. On this plot,
Stockmann will erect the Nevsky Centre shopping centre that will have
about 100 000 square metres of gross floor space, of which about 50
000 square metres will be store and office space. A full-scale
Stockmann department store with about 20 000 square metres of retail
space has been planned for the shopping centre, along with other
retail stores, office premises and an underground car park. The
department store and shopping centre investment will have a price tag
of about EUR 120 million. Demolition and other preparatory
construction works have already been carried out at the Nevsky Centre
site, and the main construction works will get started at the end of
October. An agreement on the general contract was signed at the
beginning of October. Stockmann's objective is to open the department
store and commercial centre in autumn 2008. The purchase and
development of the property called for an outlay of EUR 31.0 million
during the report period.

At the beginning of August, Stockmann signed a preliminary agreement
on opening Moscow's fifth Stockmann department store in leased
premises in the Metropolis Shopping Centre that is to be built in the
vicinity of the city's centre. The department store will have a total
of more than 8 000 square metres of retail space, and Stockmann's
investment in the project will be about EUR 12 million. The objective
is to open the department store in 2008.

In August, Stockmann and Nike concluded a franchising agreement on
establishing Stockmann-operated Nike stores in Russia. The objective
is to achieve a substantial increase in sales of Nike sports products
in the area of the Russian Federation. Stockmann is planning to open
a number of new Nike stores in Russia every year. The first
Stockmann-operated Nike store will open in St Petersburg at the
beginning of 2007, and agreements have been signed on opening three
other stores during 2007.

The Department Store Division's capital expenditures totalled EUR
84.4 million.

Hobby Hall's capital expenditures amounted to EUR 2.3 million. Hobby
Hall will begin distributing catalogues and launch online sales in
the Lithuanian market in early 2007. Online sales will get under way
in Latvia before the end of 2006.

Seppälä's capital expenditures came to EUR 2.5 million. In Russia,
Seppälä opened two stores in St Petersburg during the report period
and one in Kazan as well as one store in Riga, Latvia. By the end of
2006, Seppälä intends to open two stores in Finland and altogether
eleven stores in Russia and Lithuania.

Other capital expenditures in the report period amounted to EUR 0.9
million.

Shares and shareholders

The company's market capitalization at the end of September was EUR 1
803.9 million (EUR 1 820.0 million). At the end of 2005 the market
capitalization was EUR 1 761.3 million.

Stockmann's share prices underperformed both the OMX Helsinki index
and the OMX Helsinki Cap index during the report period. At the end
of September the stock exchange price of the Series A share was EUR
32.65, compared with EUR 32.11 at the end of 2005, and the Series B
share was selling at EUR 33.13, as against EUR 32.53 at the end of
2005.

The 23 350 Stockmann shares subscribed for in December 2005 with the
share options for 2000 were entered in the Trade Register on February
28, 2006, and they were admitted to public trading on the Helsinki
Stock Exchange together with existing shares on March 1, 2006.

In the report period, the Year 2000 Stockmann share options were
exercised to subscribe for a total of 404 500 Stockmann plc Series B
shares with a par value of 2 euros, of which 119 350 shares were
subscribed for in the third quarter. As a consequence of the
subscriptions, the share capital was increased by a total of EUR 809
000. Of the shares subscribed for in the third quarter, 36 150 shares
were entered in the Trade Register on August 25, 2006 and 83 200
shares were entered on October 10, 2006. They were admitted to public
trading on the Helsinki Stock Exchange together with the old shares
on August 28, 2006, and October 11, 2006. Following the increases the
share capital is 109 775 084 euros and Stockmann had 24 564 243
Series A shares and 30 323 299 Series B shares. The Year 2000 share
options can still be exercised to subscribe for a total of 1 206 270
Stockmann plc Series B shares.

The 2006 Annual General Meeting approved the Board of Directors'
proposal on the granting of share options to Stockmann's Loyal
Customers. A total maximum of 2 500 000 share options will be granted
without consideration to Stockmann's Loyal Customers in
disapplication of shareholders' pre-emptive subscription rights. The
subscription rights are to be disapplied because by granting the
share options, Stockmann will offer Loyal Customers a benefit that
rewards them for their continued patronage and at the same time
improves Stockmann's competitive position. The stock options will be
granted to Loyal Customers whose purchases during January 1, 2006 -
December 31, 2007, together with purchases made on parallel cards for
the same account, are at least EUR 6 000 in total amount. For
purchases of at least EUR 6 000, a Loyal Customer will receive 20
share options without consideration. In addition, for each full 500
euros by which the purchases exceed EUR 6 000, the Loyal Customer
will receive an additional two share options. Each share option will
entitle its holder to subscribe for one Stockmann plc Series B share.
The subscription price is the volume-weighted average price of the
Series B share on the Helsinki Stock Exchange during the period
February 1 - February 28, 2006, which is EUR 33.35. On the record
date for each dividend payout, the subscription price of a share
subscribed for with the share options will be lowered by the amount
of the dividends that may be declared after March 21, 2006, and prior
to the share subscription. After the dividends paid in 2006, the
subscription price is EUR 32.25. The subscription periods for the
shares are May 2, 2008 - May 31, 2008, May 2, 2009 - May 31, 2009 and
May 2, 2010 - May 31, 2010. As a consequence of the subscriptions,
the company's share capital can be increased by a maximum of EUR 5
000 000.

The Annual General Meeting also passed the Board of Directors'
proposal on the granting of share options to key employees of the
Stockmann Group. A total of 1 500 000 share options will be granted
to key employees belonging to the senior and middle management of the
Stockmann Group and to a wholly-owned subsidiary of Stockmann in
disapplication of shareholders' pre-emptive subscription rights. The
disapplication of the subscription right is made because the share
options are part of the Group's incentive and commitment-building
scheme for key employees and are an important element in maintaining
the company's competitiveness in the international recruitment
market. Of the share options, 375 000 will bear the marking 2006A,
375 000 the marking 2006B, 375 000 the marking 2006C, and 375 000 the
marking 2006D. The subscription period for shares with share option
2006A is March 1, 2008 - March 31, 2010; with share option 2006B,
March 1, 2009 - March 31, 2011; with share option 2006C, March 1,
2010 - March 31, 2012; and with share option 2006D, March 1, 2011 -
March 31, 2013. The subscription period for shares will not, however,
commence with the 2006B and 2006D share options unless the Group's
financial targets criteria as determined separately by the Board of
Directors have been met. Those share options 2006B and 2006D in
respect of which the criteria determined separately by the Board of
Directors have not been met shall lapse in the manner decided by the
Board of Directors. Each share option will entitle its holder to
subscribe for one Stockmann plc Series B share, whereby a total
maximum of 1 500 000 shares can be subscribed for with the share
options. The subscription price for each share through the exercise
of the 2006A and 2006B share options is the volume-weighted average
price of the company's Series B share on the Helsinki Stock Exchange
during the period February 1 - February 28, 2006, plus 10 per cent,
amounting to EUR 36.69 per share. The subscription price with the
2006C and 2006D share options is the volume-weighted average price of
the company's Series B share on the Helsinki Stock Exchange during
the period February 1 - February 29, 2008, plus 10 per cent. On the
record date for each dividend payout, the subscription price of the
shares to be subscribed for with share options will be lowered by the
amount of dividends declared after the commencement of the period for
determining the subscription price and prior to the share
subscription. As a consequence of the subscriptions, the company's
share capital can be increased by a maximum of EUR 3 000 000.

In accordance with the share option programme for key employees that
was passed as a resolution of the Annual General Meeting, Stockmann's
Board of Directors granted 2006A and 2006B share options to key
employees and to Stockmann's wholly-owned subsidiary. Under the terms
and conditions of the share options, Stockmann's Board of Directors
will decide on the distribution of the C and D share options at a
later date.

Stockmann held 382 903 of its own Series B shares (treasury shares)
at the end of September 2006. They comprised 0.7 per cent of all the
shares outstanding and 0.1 per cent of all the votes. The shares were
bought back at a total price of EUR 5.8 million.

The Annual General Meeting in 2006 granted to the Board of Directors
one-year authorizations to decide on the transfer of the company's
treasury shares. The company's Board of Directors does not have valid
authorizations to increase the share capital, to float issues of
convertible bonds or bonds with warrants, or to buy back its own
shares.

Personnel strength

During the report period the Stockmann Group had an average payroll
of 9 897 employees, or 296 less than in the comparison period. The
department store in the Jumbo Shopping Centre and the new Bestseller
and Seppälä stores brought an increase in the number of employees,
but the personnel strength was reduced by the disposals of the Zara
business in Russia at the beginning of 2006 and Stockmann Auto at the
beginning of March. The personnel of Zara in Russia and Stockmann
Auto transferred to the new owners' employ under the terms of their
current employment contracts. Stockmann's average number of
employees, converted to full-time staff, decreased by 322 and was 7
955.

At the end of September 2006 the number of staff working abroad was 3
155 employees. At the end of September of last year Stockmann had 3
533 people working abroad. The proportion of the total personnel who
were working abroad was 33 per cent (34 per cent).

Full-year outlook

Retail sales excluding the motor trade are estimated to increase by
3-4 per cent in Finland in 2006. The markets in Russia and the Baltic
countries are set to continue growing faster than the Finnish market.
Because of the divestment of the vehicle business and the Zara
business in Russia, Stockmann's sales in 2006 will be lower and are
estimated to come in at about EUR 1.6 billion. Sales from continuing
operations are estimated to grow.

In the fourth quarter, earnings from continuing operations are
expected to improve on the previous year. The Department Store
Division's and Hobby Hall's full-year operating profit is estimated
to improve. Seppälä's operating profit, excluding non-recurring
items, will fall slightly short of the previous year's figure but
remains at a high level.

Stockmann's target is for the Group to post markedly higher profit
before taxes in 2006 than it did in 2005.

STOCKMANN plc

Hannu Penttilä
CEO

DISTRIBUTION
Helsinki Stock Exchange
Principal media

A press and analyst conference will be held today, October 25, 2006,
at 14.00 at the World Trade Center, Aleksanterinkatu 17, Helsinki.

The full report including tables can be downloaded from the enclosed
link.


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