Stockmann Group’s Half year financial report 1 January – 30 June 2019

Stockmann Group’s strategic transformation progressing as planned

STOCKMANN plc, Half year financial report 9.8.2019 at 8:00 EET

April–June 2019, continuing operations
- Consolidated revenue was EUR 242.3 million (279.4), down 12.1% in comparable currency rates mostly due to timing of the Crazy Days campaign.
- Gross margin was 58.6% (58.2).
- Adjusted operating result was EUR 16.2 million (23.8, or 19.3 excluding Nevsky Centre).
- Reported operating result was EUR 10.2 million (29.6).
- Adjusted earnings per share were EUR -0.01 (0.01).

January–June 2019, continuing operations
- Consolidated revenue was EUR 449.5 million (481.8), down 5.5% in comparable currency rates.
- Gross margin was 56.1% (56.9).
- Adjusted operating result was EUR -4.4 million (-1.0, or -10.0 excluding Nevsky Centre).
- Reported operating result was EUR -11.2 million (2.7).
- Adjusted earnings per share were EUR -0.47 (-0.41) and reported earnings per share were EUR
-0.56 (-0.35).

The Group’s 2019 figures include changes due to IFRS 16. Comparison figures for 2018 are not restated. The IFRS 16 items are presented in the table “Impact of IFRS 16”.

Guidance for 2019 remains unchanged
Stockmann expects the Group’s adjusted operating profit, excluding Nevsky Centre but including the impact of IFRS 16, to be on a par with 2018.

Executive Chairman Lauri Ratia:
We have continued to work on Stockmann’s strategy during the spring and summer in order to return our retail business to a sustainable level by 2021. We are in the process of renewing our fashion, beauty and home selections and rejuvenating our stores. We are currently renovating our food store in Tallinn, and in June we announced our plan to renew the entire Jumbo department store in 2020.

The transformation programme with a target to reduce costs by at least EUR 40 million by 2021 is proceeding as planned. We expect that the savings and other measures will start to be visible towards the end of 2019.

In the second quarter, the Stockmann Group’s revenue declined mainly due to the timing of the Crazy Day’s campaign which this year was held in March in Finland. Our performance has improved towards the summer. Gross margin increased in Stockmann Retail. The online sales growth continued positively, up 22%, in the first half of the year. Our digital marketplace was opened in June, and several new Online Exclusive brands were introduced to customers at stockmann.com.

Lindex had strong growth of 30% in the online store in the first half of 2019. Gross margin improved further due to better management of inventory and markdowns. Lindex continued its digital expansion and started cooperation with the popular Nordic fashion platform boozt.com. We see great potential in Lindex, and therefore the Board of Directors has decided to investigate strategic alternatives for its ownership.

I am very happy to announce that later this month our new CEO and new CFO will start at Stockmann. They will bring a wealth of experience both in consumer business and demanding transformation processes. I am sure that we will move ahead as planned under the leadership of Jari Latvanen and Pekka Vähähyyppä. After these appointments Stockmann will have a strong Management Team who together with the whole personnel will develop Stockmann to the leading fashion and style authority.

KEY FIGURES

Continuing operations 4–6/
2019
4–6/
2018
1–6/
2019
1–6/
2018
1–12/
2018
Revenue, EUR mill. 242.3 279.4 449.5 481.8 1 018.8
Gross margin, % 58.6 58.2 56.1 56.9 56.9
EBITDA, EUR mill. 45.6 43.5 59.5 30.8 76.0
Adjusted EBITDA, EUR mill. 51.6 37.7 66.3 27.1 84.3
Operating result (EBIT), EUR mill. 10.2 29.6 -11.2 2.7 -5.0
Adjusted operating result (EBIT), EUR mill. 16.2 23.8 -4.4 -1.0 28.4
Net financial items, EUR mill. -13.6 -8.8 -27.3 -17.5 -34.6
Result before tax, EUR mill. -3.3 20.8 -38.5 -14.8 -39.6
Result for the period, EUR mill. -5.5 8.0 -37.9 -22.9 -43.7
Earnings per share,
undiluted and diluted, EUR
-0.10 0.09 -0.56 -0.35 -0.68
Personnel, average 7 007 7 214 6 961 7 144 7 241
Continuing and discontinued operations 4-6/
2019
4-6/
2018
1-6/
2019
1-6/
2018
1-12/
2018
Net earnings per share,
undiluted and diluted, EUR
-0.10 0.09 -0.56 -0.35 -0.70
Cash flow from operating activities, EUR mill. 48.0 62.7 27.9 3.9 82.9
Capital expenditure, EUR mill. 9.3 7.4 15.8 15.1 29.3
Equity per share, EUR 10.96 11.92 11.71
Net gearing, % 121.7 72.6 64.4
Equity ratio, % 37.2 45.7 46.2
Number of shares, undiluted and diluted, weighted average, 1 000 pc 72 049 72 049 72 049
Return on capital employed, rolling 12 months, excl IFRS 16 items, % -1.0 -8.3 -0.4

ITEMS AFFECTING COMPARABILITY

EUR million 4–6/
2019
4–6/
2018
1-6/
2019
1-6/
2018
1-12/
2018
Adjusted EBITDA 51.6 37.7 66.3 27.1 84.3
Adjustments to EBITDA
Restructuring and transformation measures -6.1 -1.2 -6.1 -3.3 -3.3
Gain or loss on sale of properties 0.1 7.0 -0.7 7.0 6.8
Value adjustment to assets held for sale -11.9
Adjustments total -6.0 5.7 -6.8 3.7 -8.4
EBITDA 45.6 43.5 59.5 30.8 76.0
EUR million 4–6/
2019
4–6/
2018
1-6/
2019
1-6/
2018
1-12/
2018
Adjusted operating result (EBIT) 16.2 23.8 -4.4 -1.0 28.4
Adjustments to EBIT
Goodwill impairment -25.0
Restructuring and transformation measures -6.1 -1.2 -6.1 -3.3 -3.3
Gain or loss on sale of properties 0.1 7.0 -0.7 7.0 6.8
Value adjustment to assets held for sale -11.9
Adjustments total -6.0 5.7 -6.8 3.7 -33.4
Operating result (EBIT) 10.2 29.6 -11.2 2.7 -5.0

IMPACT OF IFRS 16

EUR million, quarterly Reported IFRS 16 items Excluding IFRS 16 items Reported
4–6/2019 4–6/2019 4–6/2019 4–6/2018
Revenue 242.3 -0.5 242.8 279.4
EBITDA 45.6 25.5 20.0 43.5
Adjusted EBITDA 51.6 25.5 26.0 37.7
Depreciation 35.3 21.7 13.6 13.9
Operating result (EBIT) 10.2 3.8 6.4 29.6
Adjusted operating result (EBIT) 16.2 3.8 12.4 23.8
Net financial items -13.6 -6.8 -6.8 -8.8
Net result -5.5 -2.5 -3.1 8.0
Cash flow from operating activities 48.0 18.7 29.3 62.7


EUR million, YTD Reported1–6/2019 IFRS 16 items
1–6/2019
Excluding IFRS 16 items
1–6/2019
Reported 1–6/2018
Revenue 449.5 -1.1 450.6 481.8
EBITDA 59.5 51.0 8.5 30.8
Adjusted EBITDA 66.3 51.0 15.3 27.1
Depreciation 70.7 43.4 27.3 28.1
Operating result (EBIT) -11.2 7.6 -18.8 2.7
Adjusted operating result (EBIT) -4.4 7.6 -12.0 -1.0
Net financial items -27.3 -13.5 -13.9 -17.5
Net result -37.9 -4.7 -33.2 -22.9
Assets 2 121.8 541.3 1 580.5 1 881.6
Interest-bearing net debt 961.0 529.3 431.6 623.3
Cash flow from operating activities 27.9 37.6 -9.6 3.9

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 the operating result excluding depreciation, amortisation and impairment losses. Adjusted EBITDA and adjusted operating result (EBIT) are measures which exclude non-recurring items and other adjustments affecting comparability from the reported EBITDA and the reported operating result (EBIT).

STRATEGY PROCESS

As of 1 July 2019, the Stockmann Group introduced a simplified organisational structure, where the Stockmann Retail and Real Estate divisions as well as the shared functions were combined into a new Stockmann division. From this date onwards Stockmann Group’s reporting segments are Lindex and Stockmann. The half year financial report uses the earlier structure of three segments.

Lindex’s updated strategy for 2019–2023 has been approved. The aim is to further strengthen international growth and in particular digital transformation. Lindex has a strong market position in the Nordics, with rapidly growing e-commerce business, well-performing flexible store network, and improving profitability. The Board of Directors sees great potential in Lindex, and has therefore decided to investigate strategic alternatives for the company’s ownership.

For the combined Stockmann Retail and Real Estate, a two-year transformation process has started which aims to position Stockmann as a fashion and style authority. As the next step, the company will position itself for growth in the Baltics, both in the fashion and grocery businesses.

To turn Stockmann’s result into profit, the business requires significant renewal and reduction of costs, with a savings target of at least EUR 40 million by spring 2021. Savings will start to be visible towards the end of 2019, and will be clearly evident in the 2020 results. The reduction in personnel costs will be less than one third of the total target and over two thirds of the total will come from other savings.

OUTLOOK FOR 2019

In 2019, the retail growth is estimated to decline somewhat due to economic slowdown in Finland, but modest growth is expected to continue in Sweden (source: Federation of Finnish Commerce, HUI Research). In the Baltic countries, the outlook for the retail trade is expected to be better than that for the Stockmann Group’s other main market areas (source: OECD).

Purchasing behaviour is changing due to digitalisation and increasing competition. E-commerce is expected to grow steadily, but the development in brick and mortar continues to be challenging. The retail industry is facing major structural challenges through digitalisation and further globalisation.

Stockmann has reworked its strategy with the aim of creating a sustainable business model that enables profitable growth and strengthens the company’s position and competitiveness. The aim is a cost reduction of at least EUR 40 million by spring 2021, of which a major part would be visible as soon as in the 2020 results.

Reported EBITDA and the operating profit will also improve due to a change in accounting principles when the new IFRS 16 Leases standard was taken into use as of 1 January 2019. The Group applies the standard using the modified retrospective approach, which means that the comparative figures for 2018 are not restated.

Capital expenditure for 2019 is estimated to be approximately EUR 35 million.

GUIDANCE FOR 2019

Stockmann expects the Group’s adjusted operating profit, excluding Nevsky Centre but including the impact of IFRS 16, to be on a par with 2018.

Half year financial report
This company announcement is a summary of the Stockmann's Half year financial report for 1 January – 30 June 2019 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 and webcast
A press and analyst briefing will be held today, on 9 August 2019 at 10:00 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. The event can be followed as a live webcast by this link or on the address stockmanngroup.com. The recording and presentation material are available on the company's website after the event.

Further information:
Lauri Ratia, Chairman of the Board of Directors, tel. +358 50 2922
Kai Laitinen, CFO, tel. +358 9 121 5800

www.stockmanngroup.com

STOCKMANN plc

Lauri Ratia
Chairman of the Board of Directors

Distribution:
Nasdaq Helsinki
Principal media