KESKO’S INTERIM REPORT 1.1.-30.9.2001

The Group’s net sales for January-September 2001 totalled EUR4,553 million, which is 2.7% less than during the corresponding period in the previous year (EUR 4,680 million). The Group’s profit before extraordinary items was EUR 56.0 million (EUR 90.4 million). Earnings per share were EUR 0.47 (EUR 0.71). Equity per share was EUR 14.79 (EUR 15.01). The figures are unaudited.

Market review
According to advance information, the volume of the Finnish wholesale trade increased by 3.1% in January-August compared with the previous year. The increase in the retail trade was 4.7%.

According to the survey of the Federation of Finnish Commerce and Trade, the wholesale trade (car trade excluded) is expected to grow this year by 3% and the retail trade by 4.5%.

Consumer prices are expected to rise by about 2.6% in 2001. In September, the annual change in consumer prices was 2.2%. Private consumption is expected to grow by 2.5% and private investments by about 4% this year. According to Statistics Finland’s consumer survey, Finnish consumers continue to feel confident about their own finances, although their confidence in the Finnish economy is low.

Favourable economic development has continued in the Baltic countries. The gross domestic product is forecast to grow this year by about 5%. Structural change is progressing rapidly in the trading sector and those retail stores that operate in chains are increasing their share of total sales. The value of the total grocery market is forecast to increase to nearly EUR 4.5 billion this year.

The Swedish construction market is estimated to expand by about 5% in 2001. Private consumption is expected to grow by about 2.5%. The volume of housing production is expected to grow at the same rate as private consumption.

Net sales and profit

Net sales in January-September
The Group’s net sales during 1.1.-30.9.2001 totalled EUR 4,553 million, which is 2.7% less than in the previous year (EUR 4,680 million). The decline resulted partly from a change in pricing practice. As part of the chain reform, Kesko decreased its wholesale prices to the K-retailers from the beginning of 2001. The new pricing system is estimated to have a decreasing effect of about two percentage points on net sales at an annual level in the whole Group and over three percentage points in Kesko Food. However, the change does not weaken the profit of business operations, because the services previously included in wholesale prices are now separately charged to retailers.

Profit in January-September
The Group’s profit before extraordinary items and taxes was EUR 56.0 million (EUR 90.4 million), which is 1.2% of net sales (1.9%). The operating profit was EUR 49.0 million (EUR 80.8 million). The operating profit includes profits and losses from sales of fixed assets and value adjustments to a total value of EUR 10.1 million (EUR 2.5 million). The drop in the Group’s operating profit was attributable to the decline in sales and to the additional costs of about EUR 6.7 million relating to the chain reform.

Pension costs were EUR 18.6 million higher than during the comparison period in 2000, at which time the investment income of the Kesko Pension Fund had decreased pension costs. The operating result of Sincera Oy, a company carrying on investment operations, was EUR 5.4 million lower than in the previous year. The expense structure has changed along with the Group’s structural changes and the outsourcing of some operations. As a result, other operating expenses have increased.

The Group’s net financial income was EUR 7.0 million (EUR 9.6 million).

Earnings per share were EUR 0.47 (EUR 0.71). Equity per share was EUR 14.79 (EUR 15.01).

The method used to disclose the divisions’ operating profit was changed at the beginning of 2001. The rents charged by the real estate function for the Group’s premises are stated as rent expenses of other divisions. The operating profit from real estate is included in the operating profit of ’common operations’. Common operations also include the net expenses or income of other common operations, as well as Group items such as corporate management expenses and amortisation on consolidation that have not been allocated to the divisions.

*) The figures for 2000 have been converted to comparable ones to correspond to the changed practice.

Net sales and profit for July-September
The Group’s net sales for the third quarter were EUR 1,536 million, which is 2.2% less than in the previous year (EUR 1,570 million). The Group’s profit before extraordinary items in July-September was EUR 20.4 million (EUR 35.4 million). The Group’s operating profit was EUR 20.4 million (EUR 35.0 million). Earnings per share were EUR 0.19 (EUR 0.28). Other key figures by quarter are presented in an attached table.

Capital expenditure
The Group’s capital expenditure totalled EUR 154.0 million (EUR 205.9 million), which is 3.4% (4.4%) of net sales. Investments in the buildings, fixtures and information technology of retail stores amounted to EUR 121.2 million, while investments in the real estate, fixtures and information technology used by Kesko and its subsidiaries for wholesale operations amounted to EUR 32.8 million.

Finance
Cash flow from operations was EUR 118.0 million and from investing activities EUR –96.5 million. At the end of the period, the equity ratio was 52.1% (54.2%). The interest-bearing net debt was EUR 249.7 million (EUR 243.4 million). The liquid assets were EUR 141.8 million (EUR 62.0 million).

Group structure
Kesko Corporation’s commercial business operations were transferred to the subsidiaries established. The business operations of foods were transferred to Kesko Food Ltd and those of home and speciality goods to Keswell Ltd, starting from 1 April 2001. Starting from 1 October 2001, the business operations of hardware and builders’ supplies were transferred to Rautakesko Ltd, those of agricultural products to Kesko Agro Ltd and those of machinery to Kesko Machinery Ltd, which operates as Kesko Agro Ltd’s subsidiary.

Personnel
The Group’s average number of employees was 11,393 (11,063), divided by division as follows:

(The comparable figures have been adjusted to correspond to the new organisation. In calculating the average number of employees, part-time employees have been converted to full-time employees in relation to their working hours.)

The number was increased by the expansion of Kesko Food in Estonia and of Rautakesko in Estonia and Sweden. On the other hand, the number was decreased by the outsourcing of service and support activities. The majority shareholding (80%) of the Group’s IT company, Tietokesko Oy, was sold to TietoEnator Corporation in the spring. This decreased the Group’s number of employees by 171. The Group employed 1,425 persons (888) abroad.

The Divisions

Kesko Food
Kesko Food’s net sales for January-September amounted to EUR 2,494 million, a decrease of 2.2% compared with the corresponding period in 2000. The operating profit was EUR 15.8 million (EUR 25.4 million). Investments totalled EUR 75.3 million. The main factors contributing to the decreased profit were the costs of starting the new chain operations, and investments in the retail store network. Expansion of business operations in the Baltic countries also decreased the operating profit.

The transfer to a pricing system and payment structure based on the new chain operating system decreases Kesko Food’s net sales by over three percentage points annually. As a whole, the chain operations have started almost as planned. There are great differences between Kesko Food’s sales to the different chains and stores. In the retail trade, sales progressed best in the K-extra and K-neighbourhood stores.

The Sunday opening of urban stores with less than 400 square metres’ floor area, which occurred at the end of January, has increased their sales significantly and changed the sales structure. 50 of Kesko Food’s customer stores mainly operating in the Neighbourhood Chain Unit were closed down, which decreased Kesko’s wholesale sales by about EUR 10 million during the period under review. No larger stores were closed. Total food sales have increased by about 4-5% in Finland this year.

The operating loss of Citymarket Oy, that carries on non-food trade in the Citymarket hypermarkets, was EUR 5.7million (operating profit EUR 0.3 million).

The expansion of Kesko Food’s operations in the Baltic countries is progressing according to plan. Estonia’s largest hard discounter chain, Säästumarket, purchased by Kesko Food in May had 24 retail stores in Estonia at the end of the period under review. The number is expected to increase to around 30 stores by the end of the year. The chain’s net sales are forecast to reach about EEK 1 billion (over EUR 64 million) this year, compared with EEK 323 million (about EUR 21 million) in 2000. Latvia’s first Citymarket was opened in Riga at the end of September and another Citymarket is now under construction. Kesko Food’s overall target in the Baltic countries is to gain a share of about 20-25% of their total grocery market, which is currently about EUR 4.0 billion.

The comparable net sales of Kespro, which provides services to catering customers, decreased by 3.1%. A new type of wholesale outlet, based on a new concept has been opened this year at Tammisto in Vantaa, and in Lahti. They differ from conventional wholesale and cash & carry outlets with respect to opening hours, range of goods, Internet services and fast deliveries.

Kesko Food’s operating profit for the whole year is forecast to fell short of that achieved in 2000.

Rautakesko
Rautakesko’s net sales for January-September amounted to EUR 584 million, a decline of 3.8%. In Finland, the decrease in housing construction reduced the sales of the Industrial and Constructor Sales unit to construction firms and industry in particular. Foreign subsidiaries’ share of net sales grew to about 13%. The operating profit was EUR 5.8 million (EUR 10.2 million). The decrease is accounted for by the costs arising from the expansion of foreign operations, particularly in Sweden, and by the initiation of the chain operating system in Finland. Investments amounted to EUR 6.2 million.

By the end of the period under review, 46 stores were included in the K-rauta chain and 102 stores in the Rautia chain. The sales volumes of these chains were almost equally large. As a result of the chain operations reform, five stores started to operate outside the K-Alliance. These stores’ effect on sales for the period amounted to about EUR 6.7 million.

The net sales of K-rauta AB in Sweden were EUR 36.5 million, a growth of 14.5%. A new K-rauta store will be opened in Göteborg at the beginning of 2002. The net sales of Fanaal AS, a subsidiary operating in Estonia, were EUR 26.6 million and those of Fanaal A/S, a subsidiary operating in Latvia, were EUR 11.5 million. There are four stores operating in Estonia and one in Latvia. The construction of the first K-rauta store in Riga, Latvia was started in late summer.

Rautakesko’s operating profit for the whole year is forecast to fall short of the level of the previous year.

Keswell
Keswell’s net sales for January-September were EUR 471 million, a drop of 6.3%. The decrease in comparable figures was 4.5%, when the speciality clothing trade included in the figures is taken into account. The operating loss was EUR 21.0 million (EUR 15.3 million). The increased operating loss was attributable to the tightened competition in household appliances and the structural changes made in the shoe business. In connection with the chain operations reform, nine Musta Pörssi stores started to operate outside the K-Alliance. This decreased the sales of Kesko Musta Pörssi by EUR 3.4 million during the period under review. Investments were EUR 13.5 million.

The net sales of the Anttila Group were EUR 307.5 million, an increase of 1.8%. The mail order business grew by 15.4% and increased its market share in Estonia and Latvia in particular. The sales of Kodin Ykkönen department stores for interior decoration and home goods increased by 29.0%, partly due to the two new department stores opened in the previous year. The sales of the Anttila department stores decreased by 5.6%. The Anttila Group’s operating loss was EUR 15.5 million, which was a little lower than in the previous year. The result was affected by the initiation costs of the three department stores opened at the end of the previous year. The result for the whole year is expected to be better than in 2000.

In the sports trade, retail sales have developed better than in the previous year. The sales of the Intersport chain rose by 5.9%. The net sales of Kesko Sports grew by 7.6%.

The net sales of Kesko Musta Pörssi were 19.8% lower than in the previous year. The retail sales of the Musta Pörssi chain decreased clearly compared with 2000, mainly due to diminished TV and mobile phone sales.

The net sales of Kesko Shoes went down by 14.7%. Some of the K-kenkä chain’s stores were reorganised into the new Kenkäexpertti group. At the end of the period, there were 32 stores operating in the K-kenkä chain, 25 stores in the Andiamo chain and 48 stores in the Kenkäexpertti group.

Several new stores have been opened since the end of the review period. They are a Musta Pörssi Maailma store in Lappeenranta, an Intersport store and an Andiamo store in the Mylly shopping centre in Raisio, an Andiamo store in Pori and a K-kenkä store in Espoo. Intersport and Musta Pörssi will also start operations in the shopping centre due to be opened in Forssa in late 2001.

Keswell’s loss for the whole year is forecast to be smaller than in the previous year.

Kesko Agriculture and Machinery
The net sales of Kesko Agriculture and Machinery for January-September were EUR 526 million, an increase of 11.9%, which was better than expected. The operating profit was EUR 7.8 million (EUR 7.4 million). Investments totalled EUR 1.2 million.

Kesko Agriculture’s net sales developed a little better than expected and increased by 5.5%. This was attributable to increased grain sales, thanks to the good harvest in 2000. On the other hand, as the amount and quality of the crop harvested in the autumn of 2001 were poorer than expected, the volume of the grain trade is expected to decrease. Kesko Agriculture started the import and marketing of German Deutz-Fahr tractors in May.

The net sales of Kesko Machinery were better than expected and grew by 11.5%. However, as the market for Kesko Machinery’s products started to contract, sales are expected to slow down towards the end of the year.

The agricultural and machinery business in Estonia and Latvia has progressed according to plan. A subsidiary, UAB Kesko Agro Lietuva, was established in Lithuania and it will start operating at the turn of the year. An agricultural and machinery store was opened in Riga, Latvia in May.

The operating profit of Kesko Agriculture and Machinery for the whole year is forecast to increase from the previous year.

VV-Auto
The VV-Auto Group’s net sales for January-September were EUR 307 million, a drop of 22.7%. The operating profit was EUR 12.4 million (EUR 16.0 million). Investments totalled EUR 5.8 million.

The overall car trade in Finland dropped sharply. The number of new cars registered was 19.8% lower and the number of commercial vehicles 2.6% lower than in the corresponding period in 2000. There is uncertainty in the car market, which has been caused by the prevailing economic conditions and the current debate about the taxation of imported cars.

The cars imported by the VV-Auto Group had a 13.5% market share. Concerning commercial vehicles, Volkswagen’s market share was 19.3%, making it the market leader.

The VV-Auto Group’s net sales and operating profit are estimated to decrease from the previous year, due to the diminished overall car market, but the operating profit is expected to remain at a good level.

Kaukomarkkinat
The Kaukomarkkinat Group’s net sales for January-September were EUR 216 million, which was 4.9% more than during the corresponding period in 2000. The Group’s operating profit was EUR 5.6 million (EUR 3.8 million). Investments were EUR 4.9 million.

The increase in net sales was mostly attributable to the Telko business operations that were purchased in autumn 2000. Kaukomarkkinat purchased the whole share capital of Intotel Oy in September. The company’s net sales for 2000 were EUR 5.8 million.

The Kaukomarkkinat Group’s operating profit for the whole year is expected to exceed the level of the previous year.

Shares and equities market
Kesko Corporation’s share capital is EUR 180,426,800, with 35.2% of the share capital consisting of A shares and 64.8% of B shares.

The price of the company’s A share was EUR 16.95 at the end of 2000 and EUR 12.50 on 30 September 2001, a drop of 26.0%. The price of the B share was EUR 10.75 at the end of 2000 and EUR 8.95 on 30 September 2001, a decrease of 16.7%. The HEX general index dropped by 52.9% and the HEX portfolio index by 36.8%. The trading sector price index dropped by 3.6%.

At the end of the period under review, the market capitalisation of A shares was EUR 397 million and that of B shares EUR 523 million, i.e. the total market capitalisation for all shares was EUR 920 million.

During the period under review, 1.1 million of Kesko’s A shares with a total value of EUR 18.4 million and 11.0 million B shares with a total value of EUR 109.5 million were traded on the Helsinki Exchanges.

Kesko and the euro
According to its transition plan, Kesko will prepare its financial statements for 2001 in markkas and convert them into euros by using the conversion rate. Euro coins and notes will be brought into use at the turn of the year according to the plans made in each sector, and the transfer from markkas to euros is expected to occur in a controlled way.

Events during the period under review
A new chain operating system was adopted between Kesko and about 1,450 K-retailers, starting at the beginning of 2001. The new chain or customer agreement was approved by over 98% of all K-retailers. Co-operation will be intensified in the control of the whole operating chain.

On 10 April 2001, Kesko Corporation was served a summons by nine Citymarket retailers to whom Kesko had given notice. One of the retailers cancelled the summons on 17 August 2001. The Citymarket retailers primarily demanded that Kesko pay damages amounting to approximately EUR 13.8 million for serving notice, which they claim to be contrary to contract. Kesko contests all the claims presented against it on the ground that they are unjustified and considers that it has sufficient legal grounds to serve notice to terminate the agreements. On 6 September 2001, Kesko was served a summons by four Andiamo retailers to whom Kesko had given notice. These retailers primarily demanded that Kesko pay damages amounting to approximately EUR 0.9 million for serving notice, which they claim to be contrary to contract.

Kesko Corporation sold the majority shareholding (80%) of its IT subsidiary, Tietokesko Oy, to TietoEnator Corporation. The company has continued to produce information technology services for the Group as an associated company, starting from 1 June 2001.

On 4 May 2001, Kesko published its first report on corporate responsibility. It is based on the recommendations of the international Global Reporting Initiative organisation. In October, after the review period, Kesko was awarded as Finland’s best reporter on issues relating to the environment and corporate responsibility.

On 5 October 2001, after the review period, Rautakesko Ltd and the Finland Post Corporation signed an agreement on logistical co-operation. Together they will establish a company which will provide, from 1 January 2002, central warehousing and related services to the K-rauta and Rautia chains and the Industrial and Constructor Sales unit of Rautakesko. Finland Post will own 60% and Rautakesko 40% of the joint venture.

On 15 October 2001, after the review period, Kesko opened a new Internet portal for consumers, www.plussa.com. The K-Alliance’s former K-netti.com-service and Pirkka.fi pages were combined to form the new portal.

After the review period, the excessive amount of value added tax paid by K-Plus Oy, a Group company, has been refunded to it with a decision made on 13 November 2001. The amount refunded, including interest, exceeds by EUR 7.7 million the amount of the residual and additional taxes earlier imposed on some Group companies.

Outlook for the remainder of the year
Kesko Group's net sales for the whole year are expected to decrease by 2-3 percent, and its operating profit, excluding one-off items, is expected to decline clearly compared with the previous year. One-off incomes are also expected to be clearly lower than in 2000.

Helsinki, 14 November 2001
Kesko
Board of Directors

Further information: Executive Vice President and CFO Juhani Järvi, telephone +358 1053 22209, and Vice President Paavo Rönkkö, telephone +358 1053 22569. In addition, Juhani Järvi answers the questions sent by Internet at www.kesko.fi (Interim report 3/2001 discussion) on 14 November 2001 at 13.00-14.00 hrs.

KESKO CORPORATION
Corporate Communications

Erkki Heikkinen
Senior Vice President

ATTACHMENTS
Group net sales by division
Consolidated income statement and balance sheet
Group key indicators
Group contingent liabilities
Group key indicators by quarter
Net sales and operating profit of divisions by quarter

Kesko Corporation’s financial statements for 2001 will be published on 13 February 2002 at 8.00 a.m.. In addition, Kesko Group’s sales figures are published monthly. News releases and other company information are available on Kesko’s Internet pages at Investor information, www.kesko.fi/investor information.

DISTRIBUTION
HEX Helsinki Exchanges
Main news media

ATTACHMENTS:

The figures are unaudited. The figures for 2000 have been converted to comparable ones. The figures in this report are based on markka-denominated accounting, and the euro-denominated figures have been calculated by using the conversion rate 5.94573. The Finnish interim report with markka figures is available from Kesko Corporate Communications.