Stockmann Group’s Interim Report 1 January - 31 March 2019

Stockmann Group’s first-quarter adjusted operating result improved

STOCKMANN plc, Interim report 30.4.2019 at 8:00 EET

January–March 2019, continuing operations
- Consolidated revenue was EUR 207.2 million (202.4), up 4.2% in comparable currency rates.
- Gross margin was 53.2% (55.1).
- Adjusted operating result was EUR -20.6 million (-24.8, or -29.3 excluding Nevsky Centre).
- Reported operating result was EUR -21.4 million (-26.9).
- Adjusted earnings per share were EUR -0.46 (-0.42).

The Group’s Q1 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 (updated 24 April 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.

Executive Chairman Lauri Ratia:
Our first-quarter performance was satisfactory and the adjusted operating result improved by EUR 4.2 million. The improvement was due to Lindex’s continuously good performance and the timing of the Crazy Days campaign, which this year took place during the first quarter in Finland.

Lindex’s sales increased by 3%. The online store in particular continued to perform strongly and achieved a sales growth of 41%. Stockmann Retail’s revenue during the first quarter was up by 15% due to the change in the timing of the Crazy Days campaign, but the gross margin declined. Real Estate closed the Nevsky Centre divestment in January as planned. As a result, the amount of the company's debt decreased significantly. In one year the interest-bearing net debt has nearly halved, from EUR 801.8 million to EUR 457.1 million.

Our largest division, Lindex, is estimated to continue its steady performance, but in light of the current earnings trend, it is clear that we need a substantial change in Stockmann’s operating model. We are currently in the process of reworking the strategy for Stockmann Retail and Real Estate. We will strengthen the premium hiqh-quality offering in fashion, beauty and home, and secure excellent customer service. Digital acceleration remains in high focus. The strategic actions aim at returning Stockmann Retail to a growth trajectory by 2021.

To simplify business operations, our plan is to combine the Stockmann Retail and Real Estate divisions, which also would provide our customers a more coherent shopping experience to. We will build a new lean organisational structure and sustainable business model. Our aim is to reduce costs by at least EUR 40 million by spring 2021, of which a major part will be visible already in the 2020 results. With these decisive measures we expect Stockmann Retail to become a healthy and profitable business again.

Stockmann’s customers will start to see the outcome of the rejuvenated strategy gradually. This transformation will be a demanding journey, but I am confident that the personnel of Stockmann will be able to rejuvenate the company over the next two years.

KEY FIGURES

Continuing operations 1–3/
2019
1–3/
2018
1–12/
2018
Revenue, EUR mill. 207.2 202.4 1 018.8
Gross margin, % 53.2 55.1 56.9
EBITDA, EUR mill. 14.0 -12.6 76.0
Adjusted EBITDA, EUR mill. 14.8 -10.6 84.3
Operating result (EBIT), EUR mill. -21.4 -26.9 -5.0
Adjusted operating result (EBIT), EUR mill. -20.6 -24.8 28.4
Net financial items, EUR mill. -13.8 -8.7 -34.6
Result before tax, EUR mill. -35.2 -35.6 -39.6
Result for the period, EUR mill. -32.4 -30.9 -43.7
Earnings per share,
undiluted and diluted, EUR
-0.47 -0.45 -0.68
Personnel, average 6 914 7 074 7 241
Continuing and discontinued operations 1-3/
2019
1-3/
2018
1-12/
2018
Net earnings per share,
undiluted and diluted, EUR
-0.47 -0.45 -0.70
Cash flow from operating activities, EUR mill. -20.1 -58.8 82.9
Capital expenditure, EUR mill. 6.5 7.8 29.3
Equity per share, EUR 11.11 11.78 11.71
Net gearing, % 123.7 94.4 64.4
Equity ratio, % 36.7 41.6 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, % 0.2 -8.9 -0.4

ITEMS AFFECTING COMPARABILITY

EUR million 1-3/
2019
1-3/
2018
1-12/
2018
Adjusted EBITDA 14.8 -10.6 84.3
Adjustments to EBITDA
Restructuring arrangements -2.0 -3.3
Gain on sale of properties -0.8 6.8
Value adjustment to assets held for sale -11.9
Adjustments total -0.8 -2.0 -8.4
EBITDA 14.0 -12.6 76.0
EUR million 1-3/
2019
1-3/
2018
1-12/
2018
Adjusted operating result (EBIT) -20.6 -24.8 28.4
Adjustments to EBIT
Goodwill impairment -25.0
Restructuring arrangements -2.0 -3.3
Gain on sale of properties -0.8 6.8
Value adjustment to assets held for sale -11.9
Adjustments total -0.8 -2.0 -33.4
Operating result (EBIT) -21.4 -26.9 -5.0

IMPACT OF IFRS 16

EUR million Reported
Q1 2019
IFRS 16 items
Q1 2019
Excluding IFRS 16 items
Q1 2019
Reported
Q1 2018
Revenue 207.2 -0.5 207.8 202.4
EBITDA 14.0 25.5 -11.5 -12.6
Adjusted EBITDA 14.8 25.5 -10.7 -10.6
Depreciation 35.4 21.7 13.7 14.2
Operating result (EBIT) -21.4 3.8 -25.2 -26.9
Adjusted operating result (EBIT) -20.6 3.8 -24.4 -24.8
Net financial expenses 13.8 6.7 7.1 8.7
Net result -32.4 -2.2 -30.1 -30.9
Assets 2 186.6 532.1 1 654.5 2 044.0
Interest-bearing net debt 990.4 533.3 457.1 801.8
Cash flow from operating activities -20.1 18.8 -38.9 -58.8

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

Stockmann has reworked its strategy for the Stockmann Retail and Real Estate divisions. The main targets for the rejuvenation have been set and execution of the planned initiatives has started off. The strategic actions aim at returning Stockmann Retail back to a growth trajectory by 2021.

In order to become a healthy business and turn the result into profit, a more sustainable business model and simplified organisational structure will be built. The aim is a cost reduction of at least EUR 40 million by spring 2021, of which a major part would be visible already in the 2020 results. In addition to savings started during the first months of the year, new initiatives will be introduced. As part of the simplified structure, the company is planning to combine its Retail and Real Estate divisions. The plan would also change the Stockmann Group’s reporting segments which would in the future be Lindex and Stockmann.

Further information on the strategy and planned changes is available in a press release published on 30 April 2019.

OUTLOOK FOR 2019

In 2019, the retail growth is estimated to decline somewhat due to economic slowdown in Finland, but the 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 internationalisation.

Stockmann is currently in the process of reworking its strategy with the aim of creating a simple operational structure and 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 already in the 2020 results. Initiatives in the performance improvement programme that was launch in the beginning of 2019 are included in the current savings target.

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, which is less than the estimated depreciation for the year.

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.

Interim report
This company announcement is a summary of the Stockmann's Interim report for 1 January – 31 March 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 30 April 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
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