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Press release 21 August 2008

The S Group’s sales show good growth; earnings lower than a year ago

The S Group’s retail sales grew by 13 per cent in January–June, but higher capital expenditures on business locations, coupled with smaller capital gains on disposals than a year ago, led to a decline in the S Group’s earnings year-on-year. Profit before extraordinary items in January–June was EUR 122 million, compared with EUR 162.9 million a year earlier. In the first half of the year, the cooperative enterprises gained 47,400 new customer-owners. Total bonuses paid to customer-owners grew by 21 per cent on the same period a year earlier, rising to EUR 147 million.

Aggregate profit before taxes of the cooperative enterprises in the first half of the year was EUR 112.8 million (EUR 126.3 million). SOK Corporation posted profit before extraordinary items and taxes of EUR 12.6 million (FIM 47.6 million). The S Group’s aggregate profit was on budget.

“The S Group is carrying out its business idea by making capital expenditures at a record level this year. In this way, we can assure services for our customer-owners in coming years as well. Investments in the first half of the year have been centred on developing neighbourhood store services. Eleven new Sale stores were opened and nineteen service station stores. Our new and revitalised locations as well as our services have been well received by customers,” observes Arto Hiltunen, SOK’s chief executive.
 
The S Group’s retail sales rose by 13 per cent in January–June compared with the same period of last year. The regional cooperative enterprises reported a particularly favourable sales trend, with year-on-year growth of 14.5 per cent.

The S Group’s grocery sales rose by 12.9 per cent on the same period a year earlier, climbing to EUR 2,951 million.

The S Group added 38 locations to its units in Finland, bringing the total number of locations to 1,556 at the end of June. There are eight locations in the Baltic countries, in addition to which the first three locations were opened in Russia.

The S Group’s retail sales by business area

(* includes retail sales in neighbouring countries)

The S Group’s Supermarket Trade includes the grocery and consumer goods sales of the Prismas, S-markets, Sale and Alepa stores as well as the other units in the supermarket trade. The first Prisma Superstore was opened in the heart of St Petersburg in June. There were a total of 795 supermarket locations at the end of June.

The ABC service station stores reported higher customer volumes in the first part of the year. The new ABC service station stores too and the ABC Deli stations that have been converted from Esso stations have also proved their popularity with shoppers. There were 349 locations in the ABC chain at the end of June, and a total of 373, counting all the S Group’s outlets.

The S Group operated 21 department stores at the end of June. The newest one was the Muoti-Sokos that was opened in Lappeenranta in March. The Emotion chain comprised 12 units.

The chains in the Tourism and Hospitality Trade are the Sokos Hotels, Radisson SAS Hotels and Holiday Club Spa Hotels, along with numerous restaurant chains. There are a total of 304 hotel and restaurant locations and, counting all units in the restaurant chains, a total of 714 dining establishments.

The S Group’s Automotive Trade and Accessories Sales business had 44 locations at the turn of June.

“Within the Automotive Trade and Accessories Sales, SOK launched major reorganisation measures, notably by combining Peugeot and Ford retail sales at the Automaa Oy dealerships and by refocusing marketing actions on the S Benefit Car concept. The reorganisation arrangements in the automotive trade weakened sales and earnings in the first half of the year, but at the same time they paved the way for the competitiveness of the S Group’s Automotive Trade and Accessories Sales in future years,” observes CEO Arto Hiltunen.

The Group’s Agricultural Trade business reported strong growth. The chains operating in the agricultural trade are Agrimarket, S-Rautamarket (hardware) and Multasormi (Green Thumb). There were 143 Agricultural Trade locations at the end of the year.

47,400 new customer-owners in the first half

In January–June, 47,400 new customer-owners became members of the cooperative enterprises. The cooperative enterprises belonging to the S Group had a total of 1,746,000 members at the end of June.

In the first half of the year, bonus sales by the S Group increased by 16 per cent on the same period a year ago, to EUR 3,692 million. Bonus sales accounted for 65 per cent of the entire S Group’s sales in Finland (64 per cent).

Total bonuses paid to customer-owners grew by 21 per cent on the same period a year earlier, rising to EUR 147 million.

Operations of SOK Corporation in January–June
(SOK Corporation comprises SOK and its subsidiaries)

SOK Corporation’s revenue in January–June totalled EUR 4,386 million, up 17.5 per cent on the same period of last year.

Profit before taxes was EUR 12.6 million (EUR 47.6 million).

“The lower earnings were due to smaller capital gains on asset disposals than in the previous year, the costs of establishing S-Bank, non-recurring expenses for starting up hotel operations in St Petersburg and the reorganisation measures of the Automotive Trade and Accessories Sales business,” says Arto Hiltunen.

SOK Corporation’s number of personnel rose by 1,399 in the first part of the year, and there were 10,288 employees at the end of June. The main factors that increased the payroll were the launch of S-Bank and the start of operations in St Petersburg.

SOK Corporation’s Retail and Wholesale Business: revenue and operational result

SOK’s business units generated first-half revenue of EUR 976 million, an increase of 6.7 per cent on the comparative figure for the previous year. The aggregate revenue of the procurement business (Inex Group, Intrade Partners Oy and North European Oil Trade Oy) amounted to EUR 2,400 million, up 25.2 per cent.

Supermarket Trade

SOK Corporation’s Supermarket Trade comprises the supermarket trade carried on in the Baltic countries as well as the Prisma Superstore that was opened in the heart of St Petersburg in June. Revenue was up 16.6 per cent on the same period of the previous year, to EUR 72 million. The operational result of the Supermarket Trade was a loss of EUR 0.9 million, slightly down on the figure a year earlier, mainly owing to the start-up costs of the Prisma that was opened in St Petersburg.

Tourism and Hospitality Business

The Tourism and Hospitality business reported a revenue increase of 8.9 per cent to EUR 127 million. The Sokos Hotel Albert was opened in Helsinki in August of last year and the Sokos Hotel Aleksanteri in April of this year. The operational result in January–June was a loss of EUR 4.8 million (profit of EUR 0.3 million). Earnings were burdened by the heavy outlays made on developing the hotel and restaurant business in Russia. Two hotels are already in operation in St Petersburg, and a third will be opened in the autumn.

Automotive Trade and Accessories Sales

Revenue from the Automotive Trade and Accessories Sales business was down 23.6 per cent on the previous year and totalled EUR 182 million. The operational result was a loss of EUR 4.0 million (a loss of EUR 3.6 million). The result was below budget, because the sales trend was weaker than forecast and the structural changes made in the business burdened the result. SOK Corporation will devote significant resources to developing its Automotive Trade and Accessories Sales business.

Agricultural Trade

The Agricultural Trade reported revenue up 19.8 per cent on the same period a year earlier, to EUR 589 million. Aggregate revenue was boosted by the inclusion of Suomen Rehu Oy in the consolidated accounts in June of last year. The operational result was EUR 9.4 million, improving slightly on the previous year. The Agricultural Trade also comprises hardware sales and building supplies wholesaling.

Procurement

Revenue from procurement operations increased by 25.2 per cent to EUR 2.4 billion. The operational results of both the Inex Group and Intrade Partners Oy were lower in January–June than they were a year earlier. The earnings trend was largely attributable to lower gross profit margins. The operational result of the fuel procurement company North European Oil Trade Oy improved somewhat on the previous year thanks to good sales and business performance. The aggregate result of procurement operations was a loss of EUR 0.2 million (profit of EUR 3.9 million).

In June, SOK acquired a 25 per cent stake in the inter-Nordic procurement company Coop trading A/S.

Banking

S-Bank continued to grow strongly in the first half of the year. Total deposits increased to well over EUR 1.4 billion, and the bank obtained nearly 100,000 new customers. At the close of the report period, more than 100,000 customer-owners of the cooperative enterprises had S-Etukortti loyalty cards with a Visa facility.

The outlays made during the start-up stage showed up in S-Bank’s operational result, which was EUR 4.7 million in the red, as forecast (a loss of 2.4 million). Because banking operations started up from the end of 2007, the figures are not comparable with those for the previous year. The largest items burdening the bank’s result were the outlays made on developing customer service and systems. On the other hand, investment activities benefited from the general trend in the level of interest rates.

Outlook for the full year

The new business units will increase the S Group’s sales compared with the previous year. The energetic capital expenditure programme will weigh on earnings, but the operational result of both SOK Corporation and the S Group are expected to rise to nearly the previous year’s level.

“The downgraded economic forecasts over the past months pose a threat, particularly to the sales trend for capital goods. We nevertheless believe that strong employment will maintain consumer confidence and that demand in the retail trade will keep growing in the latter part of the year,” observes CEO Arto Hiltunen.

For additional information, contact:

Arto Hiltunen, CEO, tel. +358 10 76 80200
Jari Annala, Director of the Administrative Division,
tel. +358 50 5665032, +358 10 76 82040
Suso Kolesnik, Senior Vice President, SOK Communications and Publications, tel. + 358 10 76 80350, + 358 50 388 3188

SOK Corporation’s Interim Report is available in its entirety on our website at the address www.s-kanava.fi
The S Group published its retail sales figures for January–June on 7 August 2008
The retail sales figures for January–September will be released on 21 October 2008

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