Financial statements for 2003: Profit before extraordinary items EUR 162 million, a growth of 47.3%

In 2003 the Group’s net sales were EUR 7,070 million, which is 9.3% more than in the previous year (EUR 6,466 million). The Group’s profit before extraordinary items was EUR 161.6 million (EUR 109.7 million). Earnings per share were EUR 1.05 (EUR 0.75). Equity per share was EUR 15.07 (EUR 15.02). The figures are unaudited. The Board of Directors proposes to the Annual General Meeting that EUR 2.00 per share be distributed as dividends for the year 2003.

Market review
According to advance information, the volume of Finnish wholesale sales, adjusted for the number of trading days, increased by 3.1% during January-November compared with the corresponding period in the previous year, while the volume of retail sales increased by 4.0% (Statistics Finland).

The whole year’s growth in 2003 exceeded the expectations of the first months of the year. According to estimates, the retail trade volume increased by about 4% during the year. In 2004 both wholesale and retail trade are expected to grow by 2.5-3.0% (Research Institute of the Finnish Economy).

Signs of acceleration in the growth rate of the Finnish economy became visible during the latter half of the year. According to the estimate of the Research Institute of the Finnish Economy, GDP grew by 1.3% in 2003 and the growth is forecast to reach a rate of 2.7% in 2004. It is estimated that in 2003, the increase in private consumption even slightly exceeded expectations and was about 3%. In 2004 private consumption is forecast to grow by 2.7%. The real purchasing power of consumers is estimated to have increased in 2003 by slightly less than 3%. Private investment declined in 2003 but is forecast to pick up gradually this year. In 2003 the average inflation was 0.9% and is likely to remain at around 1% in 2004 (Research Institute of the Finnish Economy).

Statistics Finland’s consumer survey of January shows that consumers are confident about their own financial situation and the future of the Finnish economy.

Strong economic growth in the Baltic countries is continuing. According to estimate, the Estonian economy grew in 2003 by about 5% and the Latvian and Lithuanian economies by 6-7%. The GDP growth forecast for 2004 for Estonia is 5-6% and 6-7% for Latvia and Lithuania (BOFIT). Heavy domestic demand in all Baltic states maintains the relatively brisk retail trade growth in all of them.

According to estimate, the Swedish GDP grew in 2003 by 1.5%, private consumption by about 2% and consumer prices also by about 2%. In 2004 the GDP growth rate is estimated to be slightly over 2%. Building investments dropped in 2003 and are forecast to continue a slight decline this year. Construction markets are expected to begin to grow in 2005 (Konjunkturinstitutet).

Net sales and profit

Net sales in 2003
The Group’s net sales in 2003 were EUR 7,070 million, which is 9.3% more than in the previous year (EUR 6,466 million). The increase was attributable mostly to foreign operations and Rautakesko’s and VV-Auto’s domestic operations. The Group’s net sales increased by 5.2% in Finland and by 54.7% abroad.

* Exports and net sales abroad

In 2003 exports and foreign operations accounted for 11.7% (8.3%) of net sales. Rautakesko’s subsidiary, UAB Senuku Prekybos centras (Senukai), acquired from Lithuania is included in the figures starting from 13 March 2003 and its impact on Rautakesko’s growth was 23.3 percentage points.

Profit in 2003
The Group’s profit before extraordinary items and taxes was EUR 161.6 million (EUR 109.7 million), representing 2.3% of net sales (1.7%). Operating profit was EUR 157.6 million (EUR 98.8 million). Kesko Food’s profit dropped because of major investments in marketing, information systems and store sites made during the first half of the year. Non-recurring costs totalled about EUR 9.1 million. The other divisions, except for Kaukomarkkinat and Kesko Agro, increased their profits.

The operating profit includes profits and losses from sales of fixed assets and business operations and value adjustments to a total net value of EUR 20.8 million (EUR 8.1 million).

The Group’s financial income and expenses were EUR 4.0 million (EUR 10.9 million).

Earnings per share (adjusted for the dilution effect of warrants) were EUR 1.05 (EUR 0.75). Equity per share was EUR 15.07 (EUR 15.02).

The operating profit from real estate is included in the operating profit of common operations. It also includes the net expenses or income of other common operations, as well as Group items such as corporate management expenses and amortisation of goodwill on consolidation. Senukai’s contribution to Rautakesko’s operating profit was EUR 16.5 million for about nine and a half months.

Net sales and profit in October-December
During the fourth quarter, the Group’s net sales were EUR 1,878 million, which is 10.8% more than in the previous year (EUR 1,695 million). In October-December, the Group’s profit before extraordinary items was EUR 45.5 million (EUR 24.9 million). The Group’s operating profit was EUR 45.5 million (EUR 23.7 million). During the fourth quarter, earnings per share were EUR 0.31 (EUR 0.11). Other indicators by quarter are given in the attached table.

Investments
The Group’s investments totalled EUR 259.0 million (EUR 185.1 million), which is 3.7% (2.9%) of net sales. Investments in retail stores and acquisitions amounted to EUR 205.5 million. The Group’s other investments were EUR 53.5 million. Investments in foreign business operations represented 30.2% of total investments.

Finance
Cash flow from operating activities was EUR 164.5 million (EUR 145.8 million), while cash flow from investing activities was EUR -120.5 million (EUR -110.4 million). At the end of the period, the equity ratio was 51.7% (53.3%). Interest-bearing net debt was EUR 229.0 million (EUR 192.8 million). Liquid funds totalled EUR 85.6 million (EUR 173.2 million).

Personnel
The Group’s average number of employees in 2003 was 15,219 (12,217) (converted into full-time employees), distributed by business division as follows:

* total number of personnel including part-time employees

The expansion of Kesko Food’s, Rautakesko’s and Kesko Agro’s operations in the Baltic countries increased the number of Kesko’s personnel in these countries. The biggest increase took place in Lithuania in March, when Rautakesko acquired a majority in the hardware and building supplies company, Senukai, which employs 2,753 persons. The impact on the average figures for the whole year is 2,044 persons. The establishment of new K-citymarket department stores and the conversion of two Anttila department stores into K-citymarkets increased the number of Kesko Food’s employees in Finland. At the end of December, the Group employed 6,815 persons abroad (3,060).

A co-operation procedure was carried out in Citymarket Oy in the autumn, as a result of which the personnel was reduced by 143 employees, 78 of whom had to be made redundant. The negotiations were necessitated by the introduction of a new operating system. The home and speciality goods business was re-organised into three product lines instead of the former five.

Divisions

Kesko Food
Kesko Food’s net sales amounted to EUR 3,766 million, an increase of 3.8%. The net sales from Baltic operations totalled EUR 245 million and accounted for 6.5% of net sales. Kesko Food’s operating profit was EUR 56.3 million (EUR 60.5 million). The operating profit for the fourth quarter was EUR 21.1 million (EUR 12.3 million). The main factors contributing to the decrease in the whole year’s operating profit were an increase in marketing investments in domestic business operations, the costs of building new systems for operations control and investments in store sites. Kesko Food’s total investments were EUR 75.5 million, of which investments in retail stores accounted for EUR 54.0 million. About 31% of all investments were made in Baltic operations.

Growth slowed down in the Finnish grocery trade in 2003. The Finnish grocery market is estimated to have grown by about 3%, although the sales of traditional chains did not increase by more than 1.3%, according to the Finnish Food Marketing Association. The slowdown was mainly attributable to intensifying price competition and growth in the sales share of retail operators’ own brands. According to Statistics Finland, product prices in food store selections rose by an average of 0.8% in 2003. During the year, the retail sales of the K-food stores in Finland grew by 2.0%, amounting to EUR 4,557 million. Owing to the differing local and regional markets and competitive situations, there were great differences in the retail sales growth of the chains and individual K-food stores. In terms of euros, the K-citymarket chain’s sales increase of EUR 140 million represented the biggest growth, by 10.0%, of which 9.7% was generated by grocery sales. The big growth percentages in the sales of the K-extra and the K-market chains are attributable to changes in chains and the opening of new stores in the K-pikkolo chain.

Kesko Food continued to invest in the development of the K-food store network. In 2003 K-citymarkets were opened at Leppävaara (Espoo), Malmi, (Helsinki) and Kaakkuri (Oulu), and K-supermarkets were opened at Vuoksenniska (Imatra), Kurikka, Laitila, Hirvensalo (Turku), Nikkilä (Sipoo), Kittilä, Hyrylä (Tuusula) and Mäntsälä. Store type changes were implemented in 192 outlets. 1,110 K-food stores were operating at the end of the year.

Pikoil Oy, a joint venture of Kesko Food Ltd and Neste Marketing Ltd (a Fortum Corporation subsidiary operating in the service station store market), started operations at the beginning of July. The business is running according to plan. By the end of the year, there were a total of 46 K-pikkolo neighbourhood stores and K-pikkolo services station stores and the company had a total of 134 store sites. In the future all of the chain’s food stores will operate under the K-pikkolo sign, while the service stations will continue selling their oil products under the Neste sign.

In spring 2004 Kesko Food will start testing dicounter stores in Finland. The objective is to improve the K-Alliance’s competitive base by testing a new concept in different parts of the country.

Kesko Food’s grocery trade grew much more in the Baltic countries than in Finland, by a total of 38.2%. In Estonia net sales increased by 31.0% and in Latvia by 105.4%. In 2003 two new Citymarkets were opened in Estonia and three in Latvia. The expansion of the SuperNetto discounter chain in Latvia was assisted by a long-term rental agreement with the Latvian SIA Ilga-Sigulda according to which the six stores of the Globuss chain will be converted into SupernNetto discounters. At the end of the year the Säästumarket chain in Estonia included 44 discounters and there were 11 SuperNetto stores in Latvia.

On 19 December 2003 Kesko Food Ltd and the Swedish ICA AB signed a letter of intent to establish a joint venture for the Baltic food market. The aim is to combine the parties’ current operations in Estonia, Latvia and Lithuania. Kesko Food Ltd and ICA AB would both have a 50% ownership in the joint venture.

The net sales of Kespro Ltd, which provides services for the catering, kiosk, service station and restaurant trade, were EUR 771 million (EUR 756 million). The total market in this sector remained at the level of the previous year. The sales of service stations, kiosks and other similar retailing customers decreased.

According to estimates for 2004, the total Finnish food trade market will grow by less than 0.5%. The total Baltic market is estimated to grow by about 5%. In 2004 Kesko Food’s net sales and operating profit are estimated to grow in comparison with the year 2003.

Rautakesko
In 2003 Rautakesko’s net sales amounted to EUR 995 million, an increase of 35.4%. In Finland, the net sales were EUR 674 million, an increase of 11.6%. The net sales of foreign subsidiaries were EUR 319.0 million, an increase of 147.0%. About 32% of Rautakesko’s net sales came from foreign countries. During the last quarter of the year, the net sales in Finland grew by 19.9% and by 200.4% abroad.

Rautakesko’s operating profit in 2003 was EUR 28.0 million (EUR 9.0 million). In Finland, the operating profit increased due to sales growth and more efficient chain operations. The performance was affected by costs related to the implementation of a new information system. The operating profit of foreign subsidiaries was boosted mostly by Senukai’s operating profit of EUR 16.5 million for about nine and a half months’ period. The operating profit of Swedish operations turned positive.

Rautakesko’s investments totalled EUR 37.4 million, of which store site investments were EUR 33.6 million and 96% were abroad.

In Finland the volume of new construction dropped by 6% over the previous year (Statistics Finland 1-10/2003). A high proportion of households continue to have plans for home renovations and repairs with about one third planning a renovation or a major overhaul within the next six months.

At the end of the year 2003, the K-rauta chain included 46 stores, while the Rautia chain included 101 outlets in Finland. The sales of the K-rauta stores grew by 8.3% and the sales of the Rautia stores by 11.4%. Building supplies and house sales recorded the biggest growth. The sales of Rautakesko’s Industrial and Constructor Sales unit increased by 18.1%. The sales of Rautakesko’s chains in Finland clearly exceeded competitors’ sales growth.

In Finland new K-rauta stores were opened in Järvenpää and Lielahti, Tampere. One of the foreign subsidiaries opened a new K-rauta in Pärnu, Estonia.

Since March 2003, Rautakesko has held a majority in Lithuanian’s biggest hardware and building supplies company UAB Senuku prekybos centras. The acquisition made Rautakesko the market leader in the Baltic countries. The company has exceeded the set targets. Senukai’s net sales are included in Rautakesko's figures as of 13 March 2003. There are 10 K-rauta stores in Sweden, 4 in Estonia and 1 in Latvia.

The total hardware and builders’ supplies market is expected to grow in Finland and Sweden in 2004 by about 3-4% and in the Baltic countries by about 6-7%. Rautakesko’s net sales are anticipated to increase in 2004 and its operating profit to remain at a good level.

Kesko Agro
In 2003 Kesko Agro’s net sales were EUR 768 million, an increase of 7.5%. The net sales of foreign subsidiaries totalled EUR 118.4 million, which was 15.4% of total net sales. Kesko Agro Group’s operating profit was EUR 7.4 million (EUR 7.4 million) despite the costs arising from information systems development, the expansion of operations in Lithuania and the opening of new or refurbished stores. Investments totalled EUR 11.2 million, about 23% of which were in foreign projects.

Kesko Agro Ltd’s net sales were EUR 462.0 million. Towards the end of the year the sales of agricultural trade in Finland remained lower than expected. This was mainly due to prolonged negotiations on agricultural subsidies, which is why Finnish farmers were cautious in their investment decisions. Grain trade was affected by the postponement of export deliveries of grain to 2004 as a result of delayed export subsidies. Kesko Agro’s market share in the Finnish tractor trade increased by 5.0 percentage points to 15.8%. K-maatalousyhtiöt Oy is planned to merge with its parent company Kesko Agro Ltd at the beginning of July 2004. At the end of the year there were 100 K-agricultural stores of which 21 are operated by K-maatalousyhtiöt Oy.

Kesko Machinery Ltd’s net sales were EUR 161.2 million, an increase of 1.2% over the previous year. Kesko Machinery’s product selection concentrates on heavy machinery and recreational machinery. In accordance with this strategy Kesko Machinery acquired the Yamaha business operations of Oy Arwidson Ab. Kesko Machinery’s garden machine trade was transferred to Rautakesko. A new MAN lorry centre will be opened in spring 2004 in Espoo.

Agricultural and machinery sales in the Baltic countries have progressed better than expected and the operating profit was clearly positive. Kesko Agro is the biggest company engaged in agricultural trade in the Baltics. In 2003 new stores were opened in Tartu, Estonia and Kaunas, Lithuania.

The total agricultural market is estimated to grow in Finland by 1.5% in 2004. The Baltic market is anticipated to grow by 5-10%. Kesko Agro’s net sales and operating profit are anticipated to increase in 2004.

Keswell
In 2003 Keswell’s net sales totalled EUR 726 million, an increase of 5.7%. The net sales of foreign operations amounted to EUR 22.7 million, representing 3.1% of net sales. During October-December Keswell’s net sales increased by 8.8%. In 2003 Keswell’s operating profit was EUR 3.5 million, which was EUR 6.4 million bigger than in the previous year. Operating profit in October-December was EUR 16.5 million (EUR 12.3 million). Investments totalled EUR 5.3 million.

The net sales of the Anttila Group totalled EUR 458.4 million, an increase of 4.8%. In October-December the net sales grew by 7.8%. In 2003 the sales of the Kodin Ykkönen department stores for home goods and interior decoration increased by 6.2%, while the sales of the Anttila department stores grew by 4.3%. Anttila’s distance trade sales (mail order and NetAnttila) increased by 6.0% to EUR 77.8 million. The operating profit of Anttila and related Group items was EUR 9.0 million, a growth of EUR 7.2 million over the previous year.

The net sales of Kesko Sports amounted to EUR 117.2 million, an increase of 7.5%. The retail sales of the Intersport store chain grew by 2.4%. The sales of sports clothes and exercise equipment registered the biggest increases. The sales of the Kesport stores grew by 6.3% owing to an increase in the number of stores. The total sports retail trade sales dropped by an estimated 3% on the previous year.

The net sales of Kesko Musta Pörssi amounted to EUR 121.0 million, up by 19.0%. The retail sales of the Musta Pörssi chain increased by 12.5%. The increase was partly due to the higher number of stores and partly to the high level of sales in wide screen televisions, digital and information technology products. The retail sales of home technology were up by an estimated 9% over the previous year.

The net sales of Kesko Shoes decreased by 9.0%, totalling EUR 24.5 million. The retail sales of the Andiamo chain remained at the level of the previous year, while the retail sales of the K-kenkä chain dropped by 1.2%. The sales of the Kenkäexpertti stores increased by 1.2%. The whole of shoe retail sales in Finland decreased by an estimated 2% over the previous year.

The total Finnish home and speciality goods market is estimated to grow by 2-3% in 2004. Keswell’s net sales and operating profit are anticipated to increase.

VV-Auto
In 2003, the net sales of the VV-Auto Group totalled EUR 558 million, representing an increase of 24.0%. The operating profit was EUR 22.3 million (EUR 14.4 million). Investments totalled EUR 8.3 million.

The trade in new cars was brisk in Finland in 2003. Registrations of new cars increased by 26.0% over the previous year, but registrations of new vans remain at the same level.

The market share of the cars imported in 2003 by the VV-Auto Group was 15.3%. The registrations of Volkswagen and Audi cars reached an all-time record. The number of Volkswagens registered grew by 39% and the market share was 11.5%. The number of Audis registered increased by 31% and the market share was 2.5%. The increase in Seat registrations was 24% and the market share was 1.3%. Volkswagen’s market share in the van trade was 15.0%.

At the end of September, a soon-to-be-established subsidiary of VV-Auto acquired the business operations of the Volkswagen-Audi dealer in Turku. The new company, Turun VV-Auto Oy, started operations at the beginning of November.

The general positive mood in the Finnish car trade is expected to continue in 2004. VV-Auto’s net sales and operating profit are estimated to remain at a good level.

Kaukomarkkinat
In 2003 the Kaukomarkkinat Group’s net sales amounted to EUR 285 million, which is the same as in the previous year. The operating profit was EUR 6.0 million (EUR 7.7 million), a decrease of 21.5% over the previous year. Investments totalled EUR 3.6 million.

The net sales of Consumer Electronics and Telko registered the biggest increases. Exports of telecommunications products dropped from the previous year and the deliveries scheduled for the end of last year in trading with China were postponed to this year because of the danger of the SARS epidemic.

In June, Kaukomarkkinat acquired ASM Sweden AB of Sweden. The deal expands the sales of Telko’s packaging technology and tapes to cover all the Nordic countries.

In 2004, the net sales of Kaukomarkkinat are anticipated to remain at the current level and the operating profit to decrease slightly.

Decisions by the Annual General Meeting
Kesko Corporation’s Annual General Meeting held on 31 March 2003 adopted the financial statements for 2002, discharged those accountable from their responsibilities, decided to pay a dividend of EUR 1.00 per share and approved the Board of Directors’ proposal of a stock option programme for the management. Pentti Kalliala, Eero Kasanen, Matti Kavetvuo, Maarit Näkyvä, Keijo Suila, Heikki Takamäki, Jukka Toivakka and Matti Honkala were elected as members of the Board of Directors.

In its first meeting, the Board of Directors elected Heikki Takamäki as the Chairman and Matti Kavetvuo as the Deputy Chairman of the Board. According to the Articles of Association, the term of each Board member is three years, with the term starting at the close of the General Meeting electing the member and expiring at the close of the third Annual General Meeting after the election (2006).

Shares and equities market
Kesko Corporation’s share capital is EUR 182,381,000, with 34.8% of the share capital consisting of A shares and 65.2% of B shares.

The price of the company’s A share was EUR 16.40 at the end of 2002 and EUR 18.20 at the end of 2003, an increase of 11.0%. The price of the company’s B share was EUR 12.10 at the end of 2002 and EUR 13.88 at the end of 2003, an increase of 14.7%.

During the period under review, the HEX general index increased by 4.4% and the HEX portfolio index by 16.2%, while the trading sector price index increased by 20.2% during the year.

At the end of the year 2003, the market capitalisation of A shares was EUR 578 million and that of B shares EUR 825 million; i.e. the total market capitalisation of all shares was EUR 1,403 million.

In 2003, 1.3 million A shares with a total value of EUR 21.9 million and 30.7 million B shares with a total value of EUR 349.1 million were traded on the Helsinki Exchanges.

B warrants included in the year 2000 stock option scheme were listed on the Helsinki Exchanges on 1 November 2002 and C warrants on 3 November 2002. During the year 2003, by 10 December, 22,800 B shares were subscribed with B warrants and 47,300 with C warrants, a total of 70,100 shares. The corresponding increase of EUR 140,200 in share capital was entered in the Trade Register on 19 December 2003 and the new B shares have been traded on the main list of the Helsinki Exchanges with the old B shares as from 22 December 2003.

In addition, a total of 24,300 Kesko’s B shares were subscribed with C warrants under the year 2000 stock option scheme between 11 and 31 December 2003. The corresponding increase in share capital will be entered in the Trade Register according to plan on 6 February 2004.

At the end of 2003, Jättipörssi Oy, a Kesko Corporation subsidiary, held 33,400 Kesko Corporation’s A shares with a total counter value of EUR 66,800 representing less than 0.04% of all shares and 0.1% of all voting rights.

Flagging notifications
On 30 January 2003, Kesko Corporation received a notification stating that the proportion of Kesko Corporation's share capital administered by Silchester International Investors Limited had dropped on 23 January 2003 to 3.17% and the proportion of all voting rights to 0.77%.

Adoption of the IAS/IFRS standards
The groundwork for preparing the financial statements according to the IFRS standards was started at Kesko in 2002. During 2003, the impacts of the changes in accounting practices were surveyed, and the Group’s accounting and reporting instructions were revised. Training of the organisation has been begun and other preparations for the new accounting standards are being implemented so that comparative data for the 2005 Group reporting can be produced for each quarter of 2004.

Kesko will prepare its first complete IFRS financial statements for the year 2005. According to current knowledge, the main changes in accounting principles concern the treatment of finance leases (IAS 17) and retirement benefit plans (IAS 19). With regard to the opening IFRS balance sheet prepared for the transition day of 1 January 2004, Kesko will provide information on the most important effects that the changes in accounting principles will have on the financial figures. This information will be given in the interim report for the first quarter of 2004.

Main events
On 7 February 2003, Kesko Food sold the business operations and property of its subsidiary, Viking Coffee Ltd, to Gustav Paulig Ltd. The deal did not include Kesko Food's own brands, the most important of which is the Costa Rica coffee brand.

On 18 February 2003, Kesko Corporation sold the site of its main office building located in Katajanokka at Satamakatu 3 to Kiinteistö Oy Ankkurikatu 5, a real estate company owned by Kesko Pension Fund. The selling price was EUR 14.5 million and the recorded book gain amounted to EUR 13.4 million.

On 29 April 2003, Kesko Corporation was notified of a claim for damages by Kapiteeli Oy in a dispute concerning the rental agreement of the Ruoholahti shopping centre in Helsinki. Kapiteeli Oy demands that Kesko Corporation pay for additional costs of the building project and unpaid rent totalling approximately EUR 3.4 million. The company also demands that Kesko Corporation pay, from February 2003, an additional rent per year for the remaining 9 years of the lease, the amount of which will be specified by them later on. The claim includes all damages and legal expenses with the legal amount of interest. Kesko Corporation contests all of Kapiteeli’s demands as groundless.

On 7 May 2003, Kesko Corporation’s Board decided to distribute warrants issued by the Annual General Meeting to the members of Kesko Group’s management and to Sincera Oy, a subsidiary wholly owned by Kesko Corporation.

On 21 May 2003, Kesko published its third corporate responsibility report. It is presented, as previously, in accordance with the guidelines of the Global Reporting Initiative (GRI). For the first time, the report has been given an assurance by an independent outside party. The assurance provider was the Sustainability Services unit of PricewaterhouseCoopers Oy, Kesko’s auditors.

On 3 June 2003, Kesko Corporation and four former Musta Pörssi retailers signed conciliation agreements to the effect that the retailers abandon their actions against Kesko. The Musta Pörssi retailers, who had been given notice by Kesko in 2001, had primarily demanded that Kesko be obliged to pay a total of about EUR 1.66 million in compensation for the notices they claimed were contrary to their contracts, and for related matters.

Interwell Oy, a subsidiary of Keswell Ltd, acquired the sports business operations of Rea Rintamäki Oy. As a result of the deal, Interwell took over Rintamäki’s stores in Oulu, Seinäjoki and Lapua as of 1 August 2003. The employees of Rea Rintamäki Oy were transferred under their previous conditions to Interwell Oy. The annual sales of the three Rintamäki Oy stores total about 17 million euros and the company employs about 100 persons.

By decisions made on 12 September 2003, the Tax Office for Major Corporations imposed income taxes, a tax increase and additional taxes on Kesko Corporation, totalling EUR 11.1 million. These residual tax decisions relate to the taxation years 1997-2000. The residual taxes were included in the income statement for the 2003 financial year. Kesko Corporation has lodged an appeal with the rectification committee of the Tax Office for Major Corporations against the residual tax decisions.

The K-Alliance’s customer loyalty programme Plussa transferred all its customer service operations to Elisa as from 19 September 2003 in consequence of a service agreement signed between K-Plus Oy and ElisaCom Oy. The 20 employees of K-Plus Oy were transferred under their previous conditions to Elisa.

On 26 September 2003, the bank account of SIA Kesko Agro Latvia, a subsidiary of Kesko Agro Ltd, revealed unauthorised transfers of assets outside the company to the value of about EUR 2.9 million. The account is in a/s Latvijas Unibanka, a subsidiary of Skandinaviska Enskilda Banken AB. Approximately EUR 1.3 million of the unauthorised asset transfers, which had remained in the possession of the bank, were returned to the company. The Latvian police are investigating the matter. The company has also started its own investigation of the matter.

The co-operation procedure initiated in August in Citymarket Oy, a Kesko Food subsidiary, ended on 15 October 2003. The personnel were reduced by a total of 143, of which 78 had to be given notice. The co-operation procedure was initiated because the home and speciality goods business was organised in three product lines instead of the former five.

On 31 October 2003, Kesko Corporation, its subsidiary K-Plus Oy and Nordea Rahoitus Suomi Oy signed an agreement which aims at long-term co-operation in the production and development of payment and credit card services related to the K-Alliance’s Plussa customer loyalty programme. Related to this co-operation, Kesko Corporation sold its subsidiary K-Luotto Oy to Nordea Rahoitus Suomi Oy.

On 3 November 2003, a total of 2,015,000 Kesko Corporation’s C warrants issued under the year 2000 stock option scheme were included on the main list of the Helsinki Exchanges. Each C warrant entitles its holder to subscribe for one B share of Kesko Corporation during the period 1.11.2003-31.3.2006 at a subscription price corresponding to the trade volume weighted average price of Kesko’s B share on the Helsinki Exchanges during March 2001 with an addition of fifteen (15) per cent and, on the other hand, with a deduction of the amount of the dividend per share distributed and distributable after 31 March 2001. At present, the share subscription price with a C warrant is EUR 10.11 per share.

On 11 November 2003, Kesko Corporation and its subsidiaries Center-yhtiöt Oy and Hämeenkylän Kauppa Oy sold on the stock exchange all the shares they owned in property investment company Citycon Oyj. Together they held 18.8% of Citycon Oyj’s share capital before the disposal. The selling price was about 30 million euros. The transaction has no essential effect on Kesko’s profit for the year 2003.

During the year 2003, Kesko’s division parent companies adopted new systems for operations control. The new division-specific information systems were implemented as replacements of the old Kesko-level system.

Future outlook
International competition in trading is continuing to intensify in Finland in most product lines. The chain operations of Kesko and the K-retailers will be developed further, particularly in purchasing, information management and marketing.

Kesko Food is continuing its active price marketing in Finland and is testing the discounter format. Price marketing will become increasingly important in the food trade and several home and speciality goods lines in 2004.

The net sales growth of the Group’s divisions in Finland is forecast to at least match the market growth presented in the market review. Thanks to business acquisitions and the expansion of operations, international sales are expected to grow by about 40% during the first half-year, especially in the Baltic countries.

The Group’s steady profit performance will continue during the first half-year although strained by heavy investments in information systems, the retail store network and the development of retailing concepts. Kesko Group’s operating profit excluding non-recurring items for the first half-year is estimated to be at the level of the previous year.

Proposal for the distribution of profit
The Group’s distributable reserves are EUR 867,416,172.04
The parent company’s distributable reserves are EUR 794,340,359.40
of which the net profit for the financial year is EUR 122,639,021.39

The Board of Directors proposes to the Annual General Meeting that the distributable reserves be used as follows:
To be paid to shareholders as dividends
EUR 2.00 per share EUR 182 429 600,00

To be reserved for charitable donations at the discretion
of the Board of Directors EUR 250 000,00

To be carried forward as retained earnings EUR 611 660 759,40

Annual General Meeting
The Board of Directors decided to convene the Annual General Meeting to the Helsinki Fair Centre on 29 March 2004 at 13.00 hrs.

Helsinki, 4 February 2004
Kesko Corporation
Board of Directors

Further information is available from CFO Juhani Järvi, telephone +358 1053 22209 or Corporate Controller Arja Talma, telephone +358 1053 22113. A web conference about the financial results for 2003 will be held in English at 2.30 p.m. (Finnish time). Registration for the web conference is via Kesko’s Internet pages at www.kesko.fi.

KESKO CORPORATION
Corporate Communications

Erkki Heikkinen
Senior Vice President

ATTACHMENTS
Group’s net sales by division
Consolidated income statement and balance sheet
Group’s key indicators
Group’s cash flow
Group’s contingent liabilities
Group’s key indicators by quarter
Divisions’ net sales and operating profits by quarter
K-Alliance’s retail sales in Finland

Kesko Corporation’s interim report for the first 3 months of 2004 will be published on 29 April 2004, for the first 6 months on 30 July 2004 and for the first 9 months on 29 October 2004. In addition, Kesko Group’s sales figures and K-Alliance’s retail sales are published each month. News releases and other company information are available on Kesko’s Internet pages at www.kesko.fi

DISTRIBUTION
HEX Helsinki Exchanges
Main news media

ATTACHMENTS:

K-Alliance’s retail sales in Finland in 2003 (advance information)