Stockmann Group's Half year financial report 1 January - 30 June 2017

Improved operating result for Stockmann Retail and Real Estate – a challenging quarter for Lindex

STOCKMANN plc, Half year financial report 16.8.2017 at 8:00 EET

April-June 2017, continuing operations:
- Consolidated revenue was EUR 281.3 million (320.7).
- Revenue in comparable businesses was down by 4.0%.
- Gross margin was 56.1% (57.3).
- Operating result was EUR 14.6 million (17.5).

January-June 2017, continuing operations:
- Consolidated revenue was EUR 498.1 million (563.9).
- Revenue in comparable businesses was down by 2.9%.
- Gross margin was 54.9% (55.4).
- Operating result was EUR -10.5 million (-8.9).

- Earnings per share were EUR -0.42 (-0.36).

- In June, Stockmann signed an agreement on the sale of the Stockmann Delicatessen operations in Finland to S Group’s regional cooperatives. If approval is granted by the Finnish Competition and Consumer Authority during 2017, the transaction can be completed at the end of 2017.
- The food operations in Finland have been classified as an asset held for sale and reported as discontinued operations. The comparison figures in the Group and Stockmann Retail income statement and related items have been restated accordingly. The comments in the half year financial report refer only to continuing operations.
- Stockmann Delicatessen in the Baltic countries will remain with Stockmann and is reported as a part of Stockmann Retail’s continuing operations.

Guidance for 2017 remains unchanged:
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.

CEO LAURI VEIJALAINEN:

Stockmann’s strategic journey progressed in the second quarter. As the most visible step, we announced the sale of Stockmann Delicatessen in Finland to S Group. In the quarter, I am particularly satisfied that both Stockmann Retail and Real Estate clearly improved their operating profit, by over EUR 10 million in total. However, due to the weakened profitability of Lindex in Sweden, the Group’s operating result in the quarter was down on the previous year.

Stockmann Retail delivered a good second quarter. Comparable revenue has now stabilised and we achieved slight sales growth in fashion and cosmetics. The decisions and actions taken are starting to be visible. As a result, Retail’s operating result improved significantly. A lot remains to be done, but our direction is definitely the correct one.

Real Estate continued its stable performance, supported by the strengthened Russian rouble which boosted rental income from the Nevsky shopping centre. An investigation into the possible divestment of the property is ongoing according to plan.

For Lindex, revenue and subsequently the result was adversely impacted by the weakening market in Sweden and intensive campaigning. Outside the Nordic countries, Lindex continued to grow its revenue but this was not enough to retain the highest ever operating profit, which Lindex achieved a year ago. Action will be taken to improve sales and profitability. We will also continue to invest in digitalisation and strong campaigns, to succeed during the important autumn season.

We continue to focus on our key businesses and improving profitability in all three divisions. I am confident that we now have the capabilities to drive growth again in our Stockmann Retail business and to make this division profitable in 2018.

KEY FIGURES

Continuing operations 4-6/
2017
Restated
4-6/
2016
Restated
1-6/
2017
Restated
1-6/
2016
Restated
1-12/
2016
Revenue, EUR mill. 281.3 320.7 498.1 563.9 1 175.7
Gross margin, % 56.1 57.3 54.9 55.4 55.8
EBITDA, EUR mill. 29.5 32.0 19.4 19.1 85.6
Adjusted EBITDA*, EUR mill. 29.5 32.0 19.4 19.1 88.2
Operating result (EBIT), EUR mill. 14.6 17.5 -10.5 -8.9 28.3
Adjusted operating result (EBIT)*, EUR mill. 14.6 17.5 -10.5 -8.9 30.9
Net financial items**, EUR mill. -10.8 -4.7 -15.4 -8.9 -23.1
Result before tax, EUR mill. 3.8 12.8 -25.9 -17.8 5.2
Result for the period, EUR mill. -1.1 4.6 -28.0 -23.0 -7.5
Earnings per share,
undiluted and diluted, EUR
-0.03 0.05 -0.42 -0.36 -0.18
Personnel, average 7 224 8 273 7 217 8 343 8 151
Continuing and discontinued operations*** 4-6/
2017
4-6/
2016
1-6/
2017
1-6/
2016
1-12/
2016
Net earnings per share,
undiluted and diluted, EUR
-0.09 -0.04 -0.52 -0.35 -0.12
Cash flow from operating activities, EUR mill. 48.2 54.4 -29.9 -20.9 41.5
Capital expenditure, EUR mill. 7.9 13.6 15.7 19.5 44.2
Equity per share, EUR 14.32 14.19 14.99
Net gearing, % 76.5 76.2 68.3
Equity ratio, % 46.9 46.0 48.3
Number of shares, undiluted and diluted, weighted average, 1 000 pc 72 049 72 049 72 049
Return on capital employed, rolling 12 months, % 1.3 -4.6 1.8

* There were no adjustments made in the second quarter, neither in 2017 nor in 2016. For full-year 2016, adjustments affecting operating result were EUR 2.6 million and they were mostly related to ICT outsourcing.
** Includes a write-off of EUR 3.8 million related to Stockmann’s investment in Tuko Logistics Cooperative.
*** Discontinued operations include department store operations in Russia which were sold in the first quarter of 2016, and Stockmann Delicatessen food operations in Finland which are expected to be divested at the end of 2017.

Stockmann uses Alternative Performance Measures according to the guidelines of the European Securities and Market Authority (ESMA) to better reflect the operational business performance and to facilitate comparisons between financial periods. 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. EBITDA is calculated from operating result excluding depreciation. Adjusted EBITDA and adjusted operating result (EBIT) are measures which exclude non-recurring items affecting comparability from the reported EBITDA and reported operating result (EBIT). Stockmann also uses the term “revenue in comparable businesses” which refers to revenue excluding Hobby Hall, which was divested on 31 December 2016, the Oulu department store, which was closed on 31 January 2017, and the Lindex stores in Russia, which were closed in 2016.

OUTLOOK FOR 2017

In the Stockmann Group’s largest operating country, Finland, the economy has begun to recover. GDP and the retail market are expected to grow 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 market is expected to decline 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 the purchasing power of Russian consumers remains low.

Stockmann will continue improving the Group’s long-term competitiveness and profitability. The efficiency measures launched in summer 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 Real Estate is expected to continue its stable profitable performance. Lindex’s operating profit in 2017 will be clearly down on the previous year’s record-high earnings. The planned sale of the Delicatessen business in Finland is expected to improve the Group’s profitability from 2018 onwards.

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

GUIDANCE 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.

Half year financial report 2017
This company announcement is a summary of the Stockmann's Half year financial report 2017 and includes the most relevant information of the report. The complete report is attached to this release as a pdf file and is also available on the company's website at stockmanngroup.com.

Press and analyst briefing
A press and analyst briefing will be held today, on 16 August 2017 at 9:15 a.m. EET in the Fazer À la Carte restaurant on the 8th floor of Stockmann’s Helsinki city centre department store, Aleksanterinkatu 52 B.

Webcast
CEO Lauri Veijalainen will host a webcast in English today, on 16 August 2017, at 11:15 a.m. EET presenting the Half year financial report. 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 (0)9 7479 0404
Sweden: +46 (0)8 5065 3942
United Kingdom: +44 (0)330 336 9411
United States of America: +1 719 457 1063

Confirmation code: 8630953

Further information:
Lauri Veijalainen, CEO, 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

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