Interim report 1.1.-30.9.2004: Profit before extraordinary items EUR 133.8 million

The Group’s net sales in January-September 2004 were EUR 5,561 million, which is 7.1% more than in the corresponding period of the previous year (EUR 5,192 million). The Group’s profit before extraordinary items and taxes was EUR 133.8 million (EUR 116.1 million). Non-recurring items excluded, the profit grew by EUR 34.9 million. Earnings per share were EUR 1.02 (EUR 0.74). Equity per share was EUR 14.08 (EUR 14.76).

Market review
According to advance information, the volume of the Finnish wholesale trade in January-August 2004 increased by 7.2% over the corresponding period of the previous year. The increase in retail trade was 5.2% (Statistics Finland).

The Research Institute of the Finnish Economy (ETLA) forecasts that the volume of retail trade will increase in Finland this year by about 4% and the volume of wholesale trade by about 5%.

The growth of the Finnish economy is expected to accelerate towards the end of the year as a result of increased exports. The Finnish GDP is estimated to grow this year by 3.2% and private consumption by 3.6%. It is estimated that investments will pick up to reach a growth rate of 2.5%. According to forecasts, the annual increase in consumer prices will remain at 0.2% (ETLA). Price development in the food trade may be slightly negative owing to decreased alcohol prices, the Baltic states’ admission to the EU and price competition.

Statistics Finland’s consumer survey of October shows that Finnish consumers’ confidence about the future of the Finnish economy weakened but that nevertheless they remain confident about the future of their own economies.

The Estonian economy is forecast to grow in 2004 by 5.5%, and the Latvian and Lithuanian economies by about 7%. Private consumption is estimated to grow by about 5-8% in all of the Baltic states. In Estonia, consumer prices are forecast to increase by about 3%, in Latvia, by about 5% and in Lithuania, by 1.3% (Nordea). Retail trade is forecast to experience good growth in the Baltic countries.

The Swedish economy is forecast to increase by 3.5% in 2004 and private consumption is estimated to grow by 2.4%. The growth of consumer prices is anticipated to remain below 1% (Konjunkturinstitutet). Building investments are forecast to experience a slow upturn this year. Residential construction, in particular, is forecast to increase markedly this year compared with the previous year (Sveriges Byggindustrier).

Net sales and profit

Net sales in January-September

The Group’s net sales in January-September 2004 were EUR 5,561 million, which is 7.1% up on the corresponding period of the previous year (EUR 5,192 million). The increase was attributable mostly to domestic hardware and builders’ supplies, home and speciality goods and car trade operations and to the Baltic trade. The Group’s net sales increased by 3.4% in Finland and by 36.3% abroad.

*Exports and net sales abroad

During the period under review, exports and foreign operations accounted for 14.5% (11.4%) 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 7.5 percentage points.

Profit in January-September
During the period under review, the Group’s profit before extraordinary items and taxes was EUR 133.8 million (EUR 116.1 million), representing 2.4% of net sales (2.2%). Operating profit was EUR 133.4 million (EUR 112.1 million). The biggest increases in profits were registered by Keswell and Rautakesko.

The operating profit has been increased by a net total of EUR 3.2 million (EUR 20.4 million) in profits and losses from sales of fixed assets and business operations, and value adjustments. Consequently the operating profit excluding non-recurring items was EUR 38.5 million bigger than in the corresponding period of the previous year.

The Group’s financial income and expenses were EUR 0.4 million (EUR 4.0 million). The decrease is mainly attributable to reduced dividend yield after Kesko sold listed shares during the latter half of 2003.

The Finnish corporation tax rate will drop to 26% at the beginning of 2005. Deferred tax liabilities and assets have been calculated on the basis of the 26% rate to the extent they will be realised in 2005 and thereafter. The tax rate change decreases the amount of deferred tax liabilities by EUR 6.0 million. The effect of the change has been recognised in the income statement and balance sheet of the second quarter.

Earnings per share (adjusted for the dilution effect of stock options) were EUR 1.02 (EUR 0.74). Equity per share was EUR 14.08 (EUR 14.76).

The operating profit of common operations includes an operating profit of EUR 42.0 million (EUR 43.5 million) from real estate operations, which are organised in an intra-Group service unit. This figure includes non-recurring sales profits and losses to the amount of EUR 2.0 million (EUR 13.4 million). The operating profit of common operations 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.

Net sales and profit in July-September
The Group’s net sales in the third quarter of the year were EUR 1,873 million, which is 3.1% up on the corresponding period of the previous year (EUR 1,816 million). Net sales in Finland settled at the level of the previous year, due to the decline of Kesko Food’s net sales. Particularly the net sales of Rautakesko, Keswell and VV-Auto in Finland continued growing in the third quarter.

The Group’s profit before extraordinary items and taxes in July-September was EUR 53.5 million (EUR 45.7 million). The Group’s operating profit was EUR 55.0 million (EUR 48.0 million). The operating profit included non-recurring profits and losses from sales of fixed assets and business operations and value adjustments to a total net value of EUR -0.3 million (EUR 2.5 million). Consequently the operating profit excluding non-recurring items was EUR 9.8 million bigger than in the corresponding period of the previous year. Earnings per share during the third quarter were EUR 0.38 (EUR 0.27). Other indicators by quarter are given in the attached table.

Investments
The Group’s investments totalled EUR 124.7 million (EUR 184.2 million), which is 2.2% (3.6%) of net sales. Investments in retail stores and company acquisitions amounted to EUR 97.0 million. The Group’s other investments were EUR 27.7 million. Investments in foreign business operations represented about 26.1% of total investments.

Finance
Cash flow from operating activities was EUR 102.7 million (EUR 88.8 million), while cash flow from investing activities was EUR -102.0 million (EUR -97.1 million). At the end of the period, the equity ratio was 47.0% (49.8%). Interest-bearing net debt was EUR 406.1 million (EUR 322.5 million). Liquid funds totalled EUR 71.5 million (EUR 105.6 million).

On 10 June, Kesko Corporation issued a U.S. private placement of USD 120 million. The arrangement consists of three bullet loans: a 10-year loan (USD 60 million), a 12-year loan (USD 36 million) and a 15-year loan (USD 24 million). Kesko has hedged the loan by currency and interest rate swap agreements, as a result of which the loan capital totals EUR 100.4 million and the fixed capital-weighted average interest rate is 5.4%. The proceeds of the loan offering will be used for general corporate purposes, including repayment of short-term loans.

Personnel
During the period under review, the average number of Kesko Group’s personnel was 17,007 (14,872) converted into full-time employees. There was an increase of 2,135 persons over the corresponding period in the previous year. In Finland, the increase was 194 persons on average and 1,941 outside Finland.

At the end of September 2004, the total number of personnel was 20,131 (18,227), of whom 12,039 (11,836) worked in Finland and 8,092 (6,391) worked outside Finland. Compared with the figure for the end of September 2003, there was an increase of 203 persons in the figure for Finland and 1,701 outside Finland, distributed by business division as follows:

* Total number of employees, including part-time employees

The biggest increases were registered in the Baltic countries where Kesko Food, Rautakesko and Kesko Agro increased their operations. The biggest increase took place in Lithuania, where Rautakesko acquired in March 2003 a majority in the hardware and building supplies company, Senukai, which employs a total of 3,457 persons. The impact on the average figures for nine months is 1,069 persons.

Kesko Food’s personnel increased in Finland as a result of testing the Cassa discounter concept among other things. Keswell Ltd’s personnel increase was mainly attributable to the growth in the number of stores operated by Interwell and Jättipörssi. The number of VV-Auto employees increased as a result of the acquisition of two subsidiaries engaged in car retailing, Turun VV-Auto Oy and Helsingin VV-Auto Oy.

Divisions

Kesko Food
In January-September, Kesko Food’s net sales amounted to EUR 2,807 million, an increase of 2.1%. Net sales from Baltic operations totalled EUR 241.7 million and accounted for 8.6% of total net sales. Kesko Food’s operating profit was EUR 35.7 million. In the previous year, the operating profit for the corresponding period was EUR 35.3 million, which included the profit from the divestiture of Viking Coffee Ltd’s business operations. The main factors contributing to the decrease in profit for the period under review were the costs of building and implementing new systems for operations control and costs effected in expanding the K-pikkolo chain and in testing the Cassa discounter concept. Kesko Food’s total investments were EUR 28.4 million, of which investments in retail stores accounted for EUR 23.1 million. About 27% of all investments were made in Baltic operations.

According to the Finnish Food Marketing Association, the retail sales of its member companies increased in January-August by 0.3%. The total Finnish grocery market is estimated to have grown by about 1.5%. During this year, grocery prices have decreased by 0.5% owing to intensive price competition, decreased alcohol prices and growth in the sales share of retail operators’ own-brand products (Statistics Finland). The cold and rainy weather in the summer reduced the sales of seasonal and home and speciality goods.

In January-September, the retail sales of the K-food stores in Finland grew by 0.5%, amounting to EUR 3,415 million (incl. VAT). Owing to the differing local and regional markets and competitive situations, there are great differences between the retail sales growth of the chains and individual K-food stores. In terms of euros, the sales of the K-citymarket chain recorded the biggest growth, about EUR 65 million, or an increase of 6.0%. Grocery sales growth accounted for 8.4% of this. The sales figures of the neighbourhood store chains are affected by chain modifications among other things. There were 1,104 K-food stores operating at the end of the review period. The sales of Kesko Food’s own-brand products (Pirkka, Euro Shopper) increased by 21.1%.

At the end of the period under review, Pikoil Oy, a joint venture of Kesko Food Ltd and a Fortum subsidiary, Neste Marketing Ltd operating in the neighbourhood and service station store markets, had 138 store sites, 68 of which were K-pikkolo neighbourhood and service station stores. In the future, all of the chain’s food stores (Quick Shops among others) will operate under the K-pikkolo sign, whereas the service stations will continue selling oil products under the Neste sign.

In February, Kesko Food started testing discounters in Finland. There are currently 11 Cassa stores in operation. The objective is to improve the competitive base of the K-Alliance by testing the new concept in various parts of the country.

Kesko Food’s grocery trade grew much more in the Baltic countries than in Finland, by a total of 39.1%. Net sales grew by 21.0% in Estonia and by 170.4% in Latvia. The growth in these countries was boosted by the opening of new Citymarket stores at the end of the year 2003 and by the expansion of the SuperNetto discounter chain by 11 new outlets. At the end of the review period, the Säästumarket chain in Estonia included a total of 45 discount stores and there were 22 SuperNetto stores in Latvia.

On 8 June 2004, Kesko Food Ltd and ICA Baltic AB, a company belonging to the Swedish ICA Group, signed an agreement to set up a 50/50 joint venture for the Baltic food market. According to the agreement, the companies’ current operations in Estonia, Latvia and Lithuania will be combined. The plan is for the joint venture to start operating by the end of 2004, subject to the approval of the competition authorities and the completion of other conditions precedent. The aim is to reach food market leadership in the Baltic countries.

The net sales of Kespro Ltd, which provides services for the catering, kiosk, service station and restaurant trade, were EUR 560 million (EUR 571 million), an decrease of 1.9%. The total market in Finland in this sector has decreased this year due to the decrease of alcohol prices among other things.

In 2004, the total food trade market in Finland is estimated to grow more slowly than in the previous year. The total Baltic market is anticipated to increase by about 5%. Kesko Food’s net sales are expected to match the market growth in Finland and to exceed market growth in the Baltic countries. The operating profit of 2004 is expected to remain at the level of the previous year.

Rautakesko
In January-September, Rautakesko’s net sales amounted to EUR 875.7 million, an increase of 18.0%. In Finland, the net sales were EUR 570.2 million, an increase of 9.8%. The net sales of foreign subsidiaries were EUR 304.6 million, an increase of 37.5%. About 35% of Rautakesko’s net sales came from foreign countries. In January-September, Rautakesko’s operating profit was EUR 30.6 million (EUR 23.5 million). Rautakesko’s investments totalled EUR 6.2 million. 66% of investments were abroad.

In Finland, the outlook for construction activity continues to be positive. The construction of business premises is anticipated to take an upturn in 2005. Repair construction will continue strong during the rest of the year and in 2005 (Ministry of Finance).

In April, a new K-rauta hardware and builders’ supplies store was opened in Vantaa. At the end of September, the K-rauta chain included 43 stores, while the Rautia chain included 102 stores in Finland. The sales of the K-rauta stores grew by 9.5% and the sales of the Rautia stores by 7.2%. Building supplies categories, house sales and interior decoration items recorded the biggest sales growth. The sales growth of Rautakesko’s chains in Finland is estimated to have exceeded that of the competition (Finnish Hardware Association). The sales of Rautakesko’s Industrial and Constructor Sales unit increased by 6.5%.

In Sweden, Rautakesko currently operates 12 K-rauta stores. A new K-rauta was opened in Sundsvall in March and in Täby, Stockholm in September. There are 4 stores in Estonia and 1 in Latvia. In Lithuania, UAB Senuku Prekybos centras (Senukai), in which Rautakesko holds a majority, operates 12 Senukai stores and 66 partner stores. Its net sales are included in Rautakesko's figures as from 13 March 2003.

In July, Rautakesko signed a letter of intent to acquire a majority holding (55%) in the St. Petersburg company which owns the Stroymaster DIY (Do-It-Yourself) store chain. Stroymaster is one of the major DIY store chains in the St. Petersburg area. At present, the Stroymaster chain includes 4 DIY stores in the St. Petersburg city area, with a fifth under construction. It is planned that the share transaction will be effected immediately after due diligence has been completed and the necessary approvals have been obtained from authorities, and at the latest by 15 March 2005.

The construction trends survey group forecasts that housing construction will increase in Finland this year by 4%. The total hardware and builders’ supplies market is estimated to grow by equal proportions in Finland and Sweden. Construction activity will increase by some 6-8% in the Baltic countries. In 2004, Rautakesko’s net sales are expected to exceed market growth and its operating profit to improve on the previous year.

Kesko Agro
In January-September, Kesko Agro’s net sales were EUR 623 million, an increase of 6.4%. Net sales of foreign subsidiaries totalled EUR 127.5 million, which was 20.5% of total net sales. The Kesko Agro Group’s operating profit was EUR 11.2 million (EUR 11.1 million). Profit performance was affected by costs arising from information systems development. Investments totalled EUR 5.9 million, 46% of which were in foreign projects.

Kesko Agro Ltd’s net sales were EUR 343.5 million. Delayed agricultural EU subsidies have slowed down the investments of Finnish farmers in production buildings. Heavy rains prolonged the harvesting season, and the harvest was of poor quality.

K-maatalousyhtiöt Oy merged with its parent company, Kesko Agro Ltd, on 1 July 2004. The first stage of Kesko Agro Ltd’s operations control system was put into service at the beginning of July and the second stage will be implemented at the beginning of November.

Kesko Machinery Ltd’s net sales were EUR 133.1 million, an increase of 2.8% over the corresponding period in the previous year. The company’s profitability has remained good. Poor industry investment has affected the sales of warehouse technology products.

A new MAN truck centre opened in Espoo in June.

Agricultural and machinery sales in the Baltic countries have progressed better than expected. Business operations in Lithuania, in particular, have clearly increased. The biggest net sales growth has been registered in the grain trade. The profit performance of the Baltic operations has been in line with expectations.

The Baltic countries were admitted to the EU in May 2004. Delayed EU subsidies have postponed agricultural investment decisions to the last quarter of the year. In July, a new agricultural and machinery trade centre opened in Kaunas, Lithuania.

In 2004, the total agricultural trade market is estimated to remain at the level of 2003 in Finland. The Baltic market is anticipated to grow by 5-10%. Increasing steel prices are causing a slowdown in industrial investment in both Finland and the Baltic countries. In 2004, Kesko Agro’s net sales in Finland are expected to remain at the level of the previous year and to exceed market growth in the Baltic countries. The 2004 operating profit is expected to remain at the level of the previous year.

Keswell
In January-September,Keswell’s net sales totalled EUR 534.4 million, an increase of 10.4%. The net sales of foreign operations amounted to EUR 17.2 million, representing 3.2% of total net sales. Keswell’s operating loss was EUR 1.0 million. The profit was EUR 12.0 million bigger than during the corresponding period of the previous year. Owing to the nature of home and speciality goods trading, Keswell’s profit is mainly generated during the last quarter. Investments totalled EUR 3.0 million.

The net sales of the Anttila Group totalled EUR 330.1 million, an increase of 10.2%. The sales of the Anttila department stores grew by 9.8% and the sales of Kodin Ykkönen department stores for home goods and interior decoration increased by 10.0%. Sales increased in all product lines. The biggest growth was recorded by entertainment products sales. Anttila’s distance sales (mail order sales and NetAnttila) grew by 11.1%, which was particularly attributable to NetAnttila. The operating loss of the Anttila Group was EUR 0.8 million. The profit was EUR 10.8 million bigger than in the corresponding period of the previous year.

The net sales of Kesko Sports amounted to EUR 91.5 million, an increase of 11.5%. The retail sales of the Intersport store chain grew by 12.7% thanks to a successful winter season in particular. In January-September, the chain’s retail sales growth is estimated to have exceeded the average growth in the sports goods trade. The sales of the Kesport stores rose by 17.1%.

The net sales of Kesko Musta Pörssi amounted to EUR 90.6 million, up by 13.4%. The retail sales of the Musta Pörssi chain increased by 11.6%. The increase was partly due to the higher number of stores and partly to the increase of sales in digital and information technology products and household appliances. In January-September, the Musta Pörssi chain’s retail sales growth is estimated to have exceeded the average growth in the sector.

The net sales of Kesko Shoes decreased by 0.2%, totalling EUR 18.9 million. The retail sales of the K-kenkä chain increased by 3.3%, while those of the Andiamo chain decreased by 2.7%. In January-September, the retail sales in the whole shoe trade are estimated to have remained at the level of the previous year.

In 2004, the total home and speciality goods trade market in Finland is estimated to grow by about 3-4%. Keswell’s net sales growth is estimated to exceed market growth in 2004. The 2004 operating profit is expected to markedly improve on the previous year.

VV-Auto
In January-September, the net sales of the VV-Auto Group totalled EUR 494.4 million, representing an increase of 11.1%. The operating profit was EUR 21.2 million (EUR 17.4 million). Investments totalled EUR 13.4 million.

The growth of the overall market for new cars in Finland has come to a halt. In January-September, registrations of new cars totalled 115,463, representing a decrease of 1.4% over the corresponding period of the previous year. Registrations of new vans were up by 26.8%, totalling 12,174.

Helsingin VV-Auto Oy operating in Herttoniemi, Helsinki, started retail operations on 1 July 2004. VV-Auto also owns Turun VV-Auto Oy engaged in retailing in Turku.

In 2004, the total car market is estimated to remain at a slightly lower level than in the previous year, whereas the total van market is anticipated to grow. The VV-Auto Group’s net sales are estimated to increase partly thanks to its own dealer network. The 2004 operating profit is expected to improve on the previous year.

Kaukomarkkinat
In January-September, the Kaukomarkkinat Group’s total sales, which include the value of commission-based trade in addition to net sales, amounted to EUR 345.1 million, an increase of 24.4%. Net sales were EUR 234.9 million, representing an increase of 12.4%. The Group’s operating profit was EUR 8.5 million (EUR 4.3 million). Investments totalled EUR 1.5 million.

Among the technical trade units, the biggest net sales growth was registered in trading with China and in Telko. The growth of the sales of the Consumer electronics unit exceeded market growth. Operating profit grew in several profit units owing to increased sales revenue and efficient cost control with the biggest increase registered in trading with China.

In August, Kaukomarkkinat acquired Näkörata Oy, which operates three Tähti Optikko outlets in Espoo. The Tähti Optikko chain now includes 125 stores, 28 owned by Kaukomarkkinat.

Kaukomarkkinat is expected to increase its whole year’s net sales and operating profit markedly over the previous year.

Annual General Meeting
Kesko Corporation’s Annual General Meeting was held on 29 March 2004. The decisions made by the Annual General Meeting were published in a stock exchange release on the same day and in the interim report for the first quarter.

On 21 September 2004, the company’s Board of Directors decided to call an Extraordinary General Meeting to discuss the Board’s proposal for the payment of an additional dividend. The Board of Directors proposes that an additional dividend of EUR 1.00 per A share and old B share be distributed on the basis of the balance sheet adopted for the financial year ended on 31 December 2003. The meeting will be held at the Helsinki Fair Centre’s congress wing, Rautatieläisenkatu 3, Helsinki, on Tuesday, 9 November 2004 at 13.00 hrs. The notice of the Extraordinary General Meeting was published in Helsingin Sanomat, Hufvudstadsbladet and Kauppalehti, and in a stock exchange release on 11 October 2004.

The Group’s corporate governance system
The parent companies of the major sub-groups fully owned by the Kesko Group elected the members of their Boards of Directors at their Annual General Meetings held on 26 March 2004. The compositions of the respective Boards were published in a stock exchange release on 26 March 2004.

On 29 April 2004, Kesko Corporation’s Board of Directors established an audit committee, selecting Matti Kavetvuo as its Chairman and Eero Kasanen and Maarit Näkyvä as its members. The audit committee prepares matters for the Board of Directors relating to the monitoring of the financial position, the supervision and control of reporting, and the risk management of the Kesko Group.

Through the establishment of the audit committee Kesko’s Board of Directors enhances the preparation of the matters under the Board’s responsibility. In compliance with the Corporate Governance Recommendation of the Helsinki Stock Exchange, the Central Chamber of Commerce and the Confederation of Finnish Industry and Employers, which entered into force on 1 July 2004, Kesko’s Board of Directors has evaluated the independence of the Board members. The evaluation showed that all members of the audit committee are independent of the company.

Kesko Corporation complies with the Corporate Governance Recommendation for listed companies which entered into force on 1 July 2004. In accordance with the Recommendation’s provision for implementation, those matters that require a decision by a General Meeting can be settled at the 2005 Annual General Meeting. Such decisions include amendment of the term of office of Board members stipulated in the Articles of Association, or the election of Board members. Kesko’s corporate governance statement can be read at www.kesko.fi/investorinformation.

Shares and the stock market
At the end of the period under review, Kesko Corporation’s share capital totalled EUR 183,658,180. The number of A shares is 31,737,007, i.e. 34.6% of all shares, and the number of B shares is 60,092,083, i.e. 65.4% of all shares.

During the review period, the share capital was raised three times corresponding to the subscriptions for shares with stock options under the year 2000 stock option scheme. The increases were effected on 6 February 2004 (EUR 48,600), on 4 May 2004 (EUR 1,072,380) and on 4 August 2004 (EUR 156,200). In the latter two subscriptions, the shares were included in the stock exchange list as a new share series (Kesko B uudet) because they were subscribed for and paid during 2004. Shares subscribed for with options during each year entitle to dividends for that financial year during which they were subscribed for and paid. The increases were announced in stock exchange notifications on 6 February 2004, 4 May 2004 and 4 August 2004.

In addition, during 1-30 September 2004, a total of 4,100 new B shares were subscribed for with stock options but the corresponding increase in share capital has not yet been registered in the Trade Register. The subscriptions were announced in a stock exchange notification on 1 October 2004. The terms and conditions of the year 2000 stock option scheme were published in a stock exchange release on 10 April 2000.

The price of a Kesko A share was EUR 18.20 at the end of 2003, and EUR 19.80 at the end of the review period, an increase of 8.8%. The price of a B share was EUR 13.88 at the end of 2003 and EUR 17.62 at the end of the review period, a rise of 26.9%. During the period under review, the HEX all-share index rose by 3.1%, the HEX portfolio index rose by 16.7% and the trading sector index rose by 26.6%.

At the end of the review period, the market capitalisation of A shares and B shares was EUR 628 million and EUR 1,048 million respectively, with the combined market capitalisation being EUR 1,676 million. During the review period, 1.0 million A shares were traded on the Helsinki Exchanges at a total value of EUR 18.7 million, while 54.2 million B shares were traded at a total value of EUR 861.5 million. 65,900 shares listed in the ‘Kesko B uudet’ series were traded in a single transaction at a price of 16.25 euros each.

Flagging notifications
On 16 February 2004, Kesko Corporation was notified that, on 13 February 2004, the share of Kesko Corporation’s voting rights held jointly by the K-Retailers' Association, its branch clubs and the Foundation for Vocational Training in the Retail Trade had increased to 10.08%. At the end of 2003 they held a total of 9.76% of Kesko Corporation's voting rights.

Adoption of the IAS/IFRS standards
Kesko will prepare its first complete IFRS financial statements for 2005. The opening IFRS balance sheet prepared for the transition day of 1 January 2004 has been prepared in accordance with standards in force in April 2004. The effects of IFRS standards on Kesko’s balance sheet and shareholders’ equity at 1.1.2004 were discussed in the interim report for the first quarter of the year.

Before the first interim report for 2005, Kesko will publish a separate stock exchange release including the IFRS accounting policies, comparison figures and reconciliation calculations for 2004 with respect to the Finnish Accounting Standards.

Main events in July-September
In June, VV-Auto Oy acquired Stockmann’s Volkswagen and Audi retail operations in Herttoniemi, Helsinki. VV-Auto’s subsidiary, Helsingin VV-Auto Oy, started operations on 1 July 2004. The Volkswagen and Audi outlet in Herttoniemi is the biggest in Finland for these makes. It is estimated that annual sales will exceed EUR 100 million in the future. The plan is to further develop the outlet and services so that it will sell close to 3,000 new cars each year.

On 15 July 2004, Kesko Agro’s Lithuanian subsidiary opened a new agricultural and machinery trading centre near Kaunas, the second biggest city in Lithuania. The new unit is the largest agricultural trading and service centre in Lithuania.

On 30 July 2004, Rautakesko signed a letter of intent to acquire a majority holding (55%) in the St. Petersburg company which owns the Stroymaster DIY store chain. More details are given under the heading Rautakesko and in a stock exchange release dated 30 July 2004.

Kesko Corporation received from the Finnish Competition Authority a proposal draft concerning Kesko Corporation’s involvement in the maximum pricing of groceries in the K-Grocers’ Club affiliated horizontal K-market and K-neighbourhood store chains in 1997-2000 and in the K-extra chain in 1999-2000. The Finnish Competition Authority requested a response in the matter. A stock exchange release in this matter was published on 9 August 2004.

From the beginning of 2001, the K-food store chains adopted a vertically managed system between Kesko Corporation’s subsidiary Kesko Food Ltd and the retailers. Since 2001, Kesko Food has had exemptions granted by the Finnish Competition Authority for the maximum pricing of groceries. A stock exchange release concerning the present exemption was published on 16 April 2004. Kesko Corporation will issue its own response to the proposal draft to the Finnish Competition Authority. The matter is pending.

On 2 September 2004, Kesko was selected, for the second year in succession, for inclusion in the Dow Jones sustainability index for European companies (STOXX Sustainability Index. This year the work done by Kesko to promote corporate responsibility was rated the best in the sector (Non-Cyclical Goods and Services).

At a meeting held on 10 September 2004, Kesko Corporation’s Board of Directors appointed Rautakesko Ltd’s and Kesko Agro Ltd’s President Matti Halmesmäki, M.Sc. (Econ.), LL.M. (b. 1952), as Kesko Corporation’s Managing Director and the Kesko Group’s President and Chief Executive Officer with effect from 1 March 2005. Kesko’s present President and CEO Matti Honkala will retire on 28 February 2005.

On 19 October 2004, Kesko Corporation received an award, for the third time, for the best overall reporting of environmental and corporate responsibility in Finland. Kesko has previously ranked first in 2001 and 2002.

On 28 October 2004, Anttila Oy won the Finnish Quality Award. According to the jury, the Award was an acknowledgement of the business expertise that has helped Anttila to achieve excellent results and sustainable competitiveness in its sector. Anttila Oy gained nearly 550 points in the competition.

The outlook
Among the Group’s divisions, hardware and builders’ supplies trade and home and speciality goods trade are expected to exceed market growth in Finland during the latter part of the year and the other divisions to at least match the market growth, specified in the market review. Thanks to the expansion of operations, sales will continue to grow vigorously in the Baltic countries. The Group’s net sales are expected to exceed EUR 7.5 billion in 2004.

It is estimated that Kesko Group’s operating profit excluding non-recurring items will be clearly in excess of the previous year's level (EUR 137 million). The Group’s profit performance will remain stable through the first few months of next year.

Helsinki, 29 October 2004
Kesko Corporation
Board of Directors

The figures of this interim report are unaudited.

For further information, please contact Juhani Järvi, Executive Vice President, CFO, telephone +358 1053 22209, or Arja Talma, Vice President, Corporate Controller, telephone +358 1053 22113. A web conference about the interim report will be held in English at 14.30 hrs (Finnish time). Link to the web conference is available 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

Kesko Corporation’s financial statements for 2004 will be published on 9 February 2005. In addition, Kesko Group’s sales figures and the K-Alliance’s retail sales figures are published each month. News releases and other company information are available on Kesko’s Internet pages at www.kesko.fi.

DISTRIBUTION
Helsinki Stock Exchange

Main news media

ATTACHMENTS:

Group’s net sales by division

* Change over 100%, ** Comparable change (1.1.-30.9.2004) 31.1%

* Change over 100%

K-Alliance’s retail sales in euros (incl. VAT) in January-September 2004

(advance information):

* Change over 100%

2 K-rauta stores and 45 Rautia stores also operate as K-agricultural stores. Their sales are partly included in the sales of the hardware and builders’ supplies stores and partly in the sales of agricultural stores.