Stockmann Group's Financial Statement Bulletin 2016

Operating result back to profit – adjusted EBIT improved by EUR 48.7 million in 2016

STOCKMANN plc, Financial Statement Release 15.2.2017 at 8:00 EET

October-December 2016:
- Consolidated revenue was EUR 388.4 million (EUR 420.0 million).
- Revenue in continuing product areas and businesses was down by 6.5 per cent.
- Gross margin was up, to 53.5 per cent (51.0 per cent).
- Adjusted operating profit was EUR 36.5 million (EUR 18.5 million).
- Reported operating profit was EUR 33.8 million (EUR 4.3 million).

January-December 2016:
- Consolidated revenue was EUR 1 303.2 million (EUR 1 434.8 million).
- Revenue in continuing product areas and businesses was down by 4.1 per cent.
- Gross margin was up, to 53.4 per cent (50.6 per cent).
- Adjusted operating profit was EUR 20.2 million (EUR -28.5 million).
- Reported operating profit was EUR 17.6 million (EUR -52.5 million).
- Reported earnings per share were EUR -0.33 (EUR -1.24).

- Hobby Hall, which was divested on 31 December 2016, is included in the 2016 income statement in the Stockmann Retail segment.
- Department store operations in Russia have been classified as discontinued operations. The comments in the report refer only to continuing operations.

The Board of Directors will propose no dividend to be paid on the 2016 result.

Outlook for 2017:
Stockmann expects the Group’s revenue for 2017 to decline due to changes in the store network and product mix. Adjusted operating profit is expected to improve, compared with 2016. Due to normal seasonal variation, the first-quarter operating result will be negative.

CEO Lauri Veijalainen
I’m encouraged by the financial development achieved in 2016. The Group’s adjusted operating result improved by nearly EUR 50 million, producing a positive operating result after two years of heavy losses. Our improved profitability has reinforced our confidence that we are on the right path. The department stores’ offering is now focused on fashion, beauty, food and home products, and complemented by cafés, products and services from numerous attractive partners.

Lindex continued to be the Group’s most profitable division in 2016. Its operating profit was up by EUR 10 million to EUR 55 million and it achieved its best ever sales for the first half of the year. Real Estate continued its positive development and increased its operating profit and also the fair value of Stockmann’s properties improved. Also, Stockmann Retail’s operating result improved significantly, by around EUR 20 million, but was still negative. The department stores improved their results, particularly in the last quarter of the year which ended up with a solid operating profit of EUR 14 million. Operating costs were down significantly due to the efficiency programme, and the improved gross margin. There is still a lot of work to be done to make the department store business profitable by the end of 2018, but I am confident that this target can be reached as planned.

Stockmann will open a totally new department store in Tapiola in March. We will focus on offering inspirational customer experiences, appealing high-quality selections with dozens of new brands and excellent customer service. The speed will be increased further to achieve the turnaround and to redeem our promises to our customers, as well as to provide more reasons to visit our stores.

Key figures

Continuing operations 10-12/
2016
10-12/
2015
1-12/
2016
1-12/
2015
Revenue, EUR mill. 388.4 420.0 1 303.2 1 434.8
Gross margin, per cent 53.5 51.0 53.4 50.6
Operating result, EUR mill. 33.8 4.3 17.6 -52.5
Adjustments to operating result*, EUR mill. 2.6 14.2 2.6 24.0
Adjusted operating result (EBIT), EUR mill. 36.5 18.5 20.2 -28.5
Adjusted operating result before depreciation (EBITDA), EUR mill. 51.9 37.9 79.4 43.4
Net financial costs, EUR mill. 9.1 7.2 23.1 21.2
Result before tax, EUR mill. 24.7 -2.9 -5.5 -73.7
Result for the period, EUR mill. 22.4 -19.1 -18.2 -88.9
Earnings per share, undiluted, EUR 0.29 -0.27 -0.33 -1.24
Personnel, average 8 422 10 151 9 006 10 763
Continuing and discontinued operations 1-12/
2015
Net earnings per share, undiluted, EUR 0.36 -1.26 -0.12 -2.43
Cash flow from operating activities, EUR mill. 96.1 97.0 41.5 17.2
Capital expenditure, EUR mill. 14.7 16.5 44.2 53.4
Equity per share, EUR 14.99 14.53
Net gearing, per cent 68.3 72.1
Equity ratio, per cent 48.3 46.1
Number of shares, undiluted, weighted average, 1 000 pc 72 049 72 049
Return on capital employed, rolling 12 months, per cent 1.8 -7.6

* Adjustments affecting operating result were EUR 2.6 million in 2016 and they were mostly related to ICT outsourcing (2015: EUR 24.0 million, relating to Academic Bookstore, Seppälä, Oulu store closing and other restructuring costs). Adjustments affecting tax and financial costs were EUR 9.7 million (EUR 21.8 million).

Stockmann has revised the terminology used in its reporting due to the new guidelines of the European Securities and Market Authority (ESMA). Alternative Performance Measures are used to better reflect the operational business performance and to facilitate comparisons between financial periods. Starting from the second quarter of 2016, the previously used term “excluding non-recurring items” has been replaced with the term “adjusted”, and, as a consequence, “operating profit (EBIT) excluding non-recurring items” has been replaced with the term “adjusted operating profit (EBIT)”. Correspondingly, “adjusted EBITDA” is calculated from adjusted operating profit excluding depreciation.

Stockmann uses the term “continuing product areas and businesses” which refers to operations excluding Russian retail operations (Stockmann and Lindex), Seppälä, Hobby Hall, Stockmann Beauty, the airport store and the product areas the company has withdrawn from in department stores (electronics, books, sports equipment, toys and pet supplies). Gross profit and gross margin are also used as alternative performance measures. Gross profit is calculated by deducting the costs of goods sold from the revenue, and gross margin is calculated by dividing gross profit by the revenue as a percentage.

Strategy
The Stockmann Group is focusing on developing retail operations and real estate business in its department store properties in Finland and the Baltic countries, as well as the development and expansion of the Lindex fashion chain. The Stockmann Retail and Real Estate divisions cooperate closely, while Lindex is being developed as an independent part of the Group.

In line with its strategy, Stockmann withdrew from several unprofitable business operations and merchandise areas during 2016 and reduced its department store network and retail space. The divestment of the Russian department store business was completed in February and Hobby Hall at year-end. Stockmann is considering divesting the Nevsky Centre shopping centre in St Petersburg. Investigation of this possibility is in progress.

Stockmann is updating its selection that is focused on fashion, beauty, food and home products, improving services and investing in the renewal of its department store premises, in order to offer an improved customer experience. A new department store in rental premises in Tapiola, Finland, will be opened in March 2017.

The new Stockmann online store was launched in the fourth quarter of 2016. The online store operates on a new platform and will gradually gain several new features, such as online availability of the goods in the brick-and-mortar stores and new delivery points. A new Crazy Days online store was launched in October 2016 when the campaign was taking place. Transition to more digital marketing based on customer data and development of digital services to support omnichannel shopping continued during the year.

Risk factors
Stockmann is exposed to risks that arise from the operating environment, risks related to the company’s own operations and financial risks.

The general economic situation is affecting consumers’ purchasing behaviour and purchasing power in all of the Group’s market areas. Consumers’ purchasing behaviour is also influenced by digitalisation, increasing competition and changing purchasing trends. Rapid and unexpected movements in markets may influence the behaviour of both the financial markets and consumers. Uncertainties related to purchasing power and behaviour are considered to be the principal risks that could affect Stockmann during 2017.

The operating environment may also affect the operations of Stockmann’s tenants and consequently may have a negative impact on rental income and the occupancy rate of Stockmann’s properties. These, particularly if related to the biggest tenants of the properties, may have an effect on the fair value of the real estate

Fashion accounts for over two thirds of the Group’s revenue. An inherent feature of the fashion trade is the short lifecycle of products and their dependence on trends, the seasonality of sales and the susceptibility to abnormal changes in weather conditions. Responsible management of the supply chain is important for the Group’s brands in order to retain customer confidence in Stockmann. The Group addresses these factors as part of its day-to-day management of operations.

The Group’s operations are based on flexible logistics and efficient flows of goods and information. Delays and disturbances in logistic and information systems as well as uncertainties related to the logistics partners can have an adverse effect on operations. Every effort is made to manage these operational risks by developing appropriate back-up systems and alternative ways of operating, and by seeking to minimise disturbances to information systems. Operational risks are also met by taking out insurance cover.

The Group’s revenue, earnings and balance sheet are affected by changes in exchange rates between the Group’s reporting currency, which is the euro, and the Swedish krona, the Norwegian krone, the US dollar, the Russian rouble and certain other currencies. Currency fluctuations may have an effect on the Group’s business operations. Financial risks, mainly risks arising from interest rate fluctuations due to the Group’s high level of debt may have an effect on the financial costs and the financial position. Interest rate fluctuations may also impact the yield related to the properties owned by the Group, and thus to the fair value of these assets. Financial risks are managed in accordance with the risk policy confirmed by the Board of Directors.

Outlook for 2017
In the Stockmann Group’s largest operating country, Finland, the economy has slowly begun to recover. GDP and retail market are expected to grow slightly in 2017. Consumers’ purchasing power is, however, not expected to increase and purchasing behaviour is changing due to digitalisation and increasing competition.

The Swedish economy remained stable in 2016 and the GDP growth estimate for 2017 remains on a higher level than in Finland. The steady growth in the fashion market stagnated in 2016, and the growth rate is expected to remain at the same level in 2017.

In the Baltic countries, GDP growth is estimated to continue. The outlook for these countries is expected to be better than that for the Stockmann Group’s other market areas.

The Russian economy is expected to recover gradually, but purchasing power of Russian consumers remains low.

Stockmann will continue its turnaround by improving the Group’s long-term competitiveness and profitability. The efficiency programmes, launched in 2015 and continued in 2016, will be fully visible in the 2017 operating costs. Improvements in the operating result in 2017 are estimated to come mainly from the Stockmann Retail division, which is still loss-making, while Lindex and Real Estate are expected to continue their stable performance.

Capital expenditure for 2017 is estimated to be approximately EUR 45-50 million, which is less than the estimated depreciation for the year.

Stockmann expects the Group’s revenue for 2017 to decline due to changes in the store network and product mix. Adjusted operating profit is expected to improve, compared with 2016. Due to normal seasonal variation, the first-quarter operating result will be negative.

Financial Statements Bulletin 2016
This company announcement is a summary of the Stockmann Financial Statements Bulletin 2016 and includes the most relevant information of the bulletin. The complete bulletin is attached to this release as a pdf file and is also available on the company's website at stockmanngroup.com .

Annual General Meeting 2017
The Annual General Meeting of Stockmann plc will be held on Thursday 23 March 2016 at 2 p.m. at Finlandia Hall in Helsinki, Finland (address: Mannerheimintie 13). Notice of the Annual General Meeting which includes proposals to the meeting is published as a separate stock exchange release on 15 February 2017.

Financial releases in 2017
Stockmann's report by the Board of Directors, financial statements, audit report, CSR review, Corporate Governance Statement and an electronic version of the Annual Review will be published in the week starting on 27 February 2017.

The 2017 interim reports will be released on 28 April 2017, 16 August 2017, and 27 October 2017.

Stockmann will not publish monthly sales releases of its merchandise sales in 2017.

Press and analyst briefing
A press and analyst briefing in Finnish will be held today, on 15 February 2017 at 9:15 a.m. in Fazer’s À la Carte restaurant on the 8th floor of Stockmann's Helsinki city centre department store, Aleksanterinkatu 52.

Webcast
CEO Lauri Veijalainen will host a webcast in English today, on 15 February 2017, at 11:00 a.m. EET presenting the financial statements. To participate in the webcast, please dial one of the numbers below 5–10 minutes before the webcast begins. The presentation can be followed by this link or on the address stockmanngroup.com. The recording and presentation material are available on the company's website after the event.

Finland: +358 9 7479 0361
Sweden: +46 8 5033 6574
United Kingdom: +44 330 336 9105
United States of America: +1 719 457 1036

Confirmation code: 9962578

Further information:
Lauri Veijalainen, CFO, tel. +358 9 121 5062
Nora Malin, Director, Corporate Communications, tel. +358 9 121 3558

www.stockmanngroup.com

STOCKMANN plc

Lauri Veijalainen
CEO

Distribution:
Nasdaq Helsinki
Principal media