Improved operating result despite decline in revenue
STOCKMANN plc, Interim Report 28.4.2016 at 8:00 EET
January-March 2016:
Consolidated revenue was EUR 273.1 million (EUR 345.8 million)
Revenue in continuing product areas and businesses was down 12.5 per cent,
mostly due to the timing of the Crazy Days campaign.
Gross margin was up, to 50.2 per cent (46.8 per cent).
Operating result was EUR -30.3 million (EUR -42.0 million).
Result for the period was EUR -31.6 million (EUR -47.2 million).
Earnings per share were EUR -0.46 (EUR -0.66).
Divestment of the Russian department store business was completed on 1 February
2016. The business is reported as a discontinued operation.
Per Thelin stepped down as the CEO and Lauri Veijalainen was appointed interim
CEO on 4 April 2016.
An agreement has been signed to sell the Hobby Hall distance retailing business
to SGN Group. The transaction will take place on 31 December 2016.
Outlook for 2016 remains unchanged: Stockmann expects the Group’s revenue for
2016 to be down on 2015 due to ongoing strategic actions in order to improve
profitability. The operating result excluding non-recurring items is expected to
be slightly positive in 2016.
Interim CEO Lauri Veijalainen:
Stockmann’s strategy implementation is proceeding in accordance with the
direction and plan, which were accepted by the Board in late 2014. Achieving a
comprehensive turnaround will take time, but already during the first quarter of
the year, we were able to cut the Group’s operating losses. The strategic
actions are expected to improve our operating result so that it will be slightly
positive in 2016.
We have divested several loss-making operations, including the Russian retail
business, which took place in February as planned. Stockmann Retail has also
withdrawn from several loss-making product areas, Real Estate has introduced
several new tenants to our properties and Lindex has continued its stable
growth. We can also now announce that we have found a new owner for Hobby Hall,
and this divestment completes Stockmann’s strategic aim to withdraw from the non
-core businesses.
Stockmann’s revenue was down in the first quarter, due to the timing of the
Crazy Days campaign in the department stores. The campaign, which took place
after the reporting period, and which celebrated its 30thanniversary, achieved a
reasonable result with sales growth in fashion and cosmetics.
We will continue to make determined efforts to achieve the turnaround, with
special emphasis on ensuring that we are working actively to change our cost
structure to match the scope of our operations. The results of the efficiency
programme launched in 2015 are gradually becoming visible in our results for the
current year. Lindex is already benefiting from the efficiency actions made
during 2015 and improved its operating result during the first quarter. I am
confident that the ongoing and planned actions will take us towards a more
efficient and customer-oriented Stockmann.
Key figures
Continuing operations 1-3/ 1-3/ 1-12/
2016 2015 2015
Revenue, EUR mill. 273.1 345.8 1 434.8
Gross margin, per cent 50.2 46.8 50.6
Operating result before -16.2 -24.5 43.4*
depreciation (EBITDA), EUR
mill.
Operating result, EUR mill. -30.3 -42.0 -28.5*
Net financial costs, EUR 4.3 4.1 21.2
mill.
Result before tax, EUR mill. -34.6 -46.2 -46.4*
Result for the period, EUR -31.6 -47.2 -43.0*
mill.
Earnings per share, -0.46 -0.66 -1.24
undiluted, EUR
Personnel, average 9 299 11 702 10 763
Continuing and discontinued 1-3/ 1-3/ 1-12/
operations 2016 2015 2015
Net earnings per share, -0.31 -0.78 -2.43
undiluted, EUR
Cash flow from operating -75.3 -65.2 17.2
activities, EUR mill.
Capital expenditure, EUR 5.9 16.5 53.4
mill.
Equity per share, EUR 14.20 14.65 14.53
Net gearing, per cent 81.6 84.6 72.1
Equity ratio, per cent 44.8 43.9 46.1
Number of shares, undiluted, 72 049 72 049 72 049
weighted average, 1 000 pc
Return on capital employed, -5.3 -4.6 -7.6
rolling 12 months, per cent
* Excluding non-recurring items of EUR 45.8 million, of which EUR 24.0 million
affected the operating result. No non-recurring items were booked in the first
quarter.
Strategy
In the first quarter of 2016, Stockmann continued to focus on the comprehensive
turnaround of its business according to the strategy. Stockmann withdrew from
its department store business in Russia by selling its Russian subsidiary AO
Stockmann, to Reviva Holdings Limited on 1 February 2016. The business has been
classified as a discontinued operation. All major structural changes in the non
-core units have now been made, and the company will focus on developing its
three divisions: Stockmann Retail, Real Estate and Lindex.
Stockmann Retail will fully concentrate on the development of the selected focus
areas, i.e. fashion, cosmetics, food and home products, in its department and
online stores in Finland and in the Baltic countries. Stockmann will invest in
the renewal of its department stores in order to offer even better customer
experiences. The largest investments will be made in the department stores in
Tapiola and Helsinki city centre. Stockmann will open an entirely new department
store in Tapiola in March 2017 with a new, omnichannel store concept. In
Helsinki, the city centre department store is undergoing a significant
refurbishment, which includes renewals of several entire departments such as
women’s accessories, cosmetics, and home products.
In addition, Stockmann is investing in omnichannel commerce. The new Stockmann
online store is expected to be launched in the second half of 2016. New digital
tools are being developed for store staff and customers, in order to improve the
shopping experience. A pilot for B-2-B digital service was launched during the
first quarter of 2016. Stockmann will open a new, more efficient distribution
centre in May 2016, which will combine the existing warehouses into one and
improve the omnichannel operations by speeding up delivery times, among other
things. The current warehouses in Finland will be moved in stages to the new
centre in 2016 and from Riga in 2017.
Real Estate concentrates on developing and completing the offering in the
department stores with attractive products and services from external tenants.
During the first quarter, XS Toys opened its toy store in the department store
in Riga and will open its store in the Tallinn department store in August. The
cooperation will also expand to Finland, as XS Toys will open stores in the
Turku, Tampere, Jumbo and Itis department stores before the Christmas season in
2016. In addition, agreements were signed for the Gastrobar in the Helsinki
flagship store, Isku home decoration store in the Book House building in
Helsinki, and Scandinavian Outdoor and Halti outdoor stores in Tampere and Turku
department stores.
Lindex continued its successful growth with good development in its main markets
in the Nordic countries. Seven stores in Russia were closed during the first
quarter, and the remaining three stores will be closed by mid May 2016.
As an important part of the turnaround, Stockmann launched an efficiency
programme in February 2015 with an annual cost savings target of EUR 50 million,
which will be reflected in the result mainly from 2016 onwards. The renewal of
the processes and structure in Stockmann’s support functions is a substantial
part of the efficiency programme. In 2015, the renewal led to a reduction of
nearly 200 employees in Finland, and since the start of the year, to further
reductions of around 35 employees. Other actions include renegotiated terms and
conditions with suppliers, which will be visible in lower costs of goods sold
and for indirect procurement in other operating costs. The release of store
space from own retail operations to external tenants will result in lower rental
costs. In addition, with the new distribution centre Stockmann is targeting an
annual cost saving of approximately EUR 5.5 million compared with 2014, or EUR
3.5 million including the increased depreciation, to be achieved in full from
2018 onwards.
Events after the reporting period
Per Thelin and the Board of Directors jointly agreed that Per Thelin would leave
his position as Chief Executive Officer of Stockmann plc on 4 April 2016. Thelin
had been the CEO of Stockmann since November 2014. The Board of Directors has
initiated a process to find a new CEO. Lauri Veijalainen, Chief Financial
Officer, was appointed the interim CEO of Stockmann as of 4 April 2016.
The Annual General Meeting of Lindex decided in April to elect Susanne Najafi as
a new member to the Lindex Board of Directors. She will replace Per Thelin in
the Board. Per Sjödell will continue as the Chairman of the Lindex Board of
Directors. Stockmann’s Board of Directors has also reassessed the independence
of its members in accordance with Recommendation 15 in the Finnish Corporate
Governance Code. According to the assessment those Board members (Najafi,
Sjödell), who are paid an additional remuneration for their duties in the Lindex
Board of Directors, are not considered independent of Stockmann.
Stockmann signed an agreement on 27 April 2016 to sell the Hobby Hall business
to SGN Group. The closing of the transaction will take place on 31 December 2016
and the transfer of business will take place on 1 January 2017. The purchase
price is not expected to have a significant effect on Stockmann’s earnings. The
transaction includes Hobby Hall’s entire assets and liabilities. Sales and
support operations, excluding logistics, and the related personnel will move to
SGN Group when the transaction takes place. As of 1 May 2016, Hobby Hall’s
logistics operations and all warehouse personnel will move to Posti Group. In
the 2016 financial reporting, Hobby Hall will continue to be reported as a part
of the Stockmann Retail segment, but its assets will be reported as assets held
for sale in the balance sheet.
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 and changing purchasing trends.
Rapid and unexpected movements in markets may influence the behaviour of both
the financial markets and consumers. A weak operating environment may also
affect operations of Stockmann’s tenants and consequently may have a negative
impact on rental income and the occupancy rate of Stockmann’s properties. These
may have an effect on the fair value of the real estate. Uncertainties related
to the general economic situation, and particularly those related to consumers’
purchasing power are considered to be the principal risks that will continue to
affect Stockmann during 2016.
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. Delays and disturbances in the flow of goods and information can have a
temporary 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 a significant effect on
the Group’s business operations. Financial risks, including risks arising from
interest rate fluctuations, are managed in accordance with the risk policy
confirmed by the Board of Directors.
Outlook for 2016
In the Stockmann Group’s main operating country, Finland, the general economic
situation remains uncertain and only slow GDP growth is estimated. Consumers’
purchasing power is expected to remain low, and the development of the non-food
retail market is likely to continue being weak.
The GDP growths for Sweden, Norway and the Baltic countries are estimated to be
somewhat higher than in Finland. The affordable fashion market in Sweden is
expected to remain relatively stable. In the Baltic countries, more competition
is expected in the retail market.
Stockmann will continue operating its shopping centre in St Petersburg. Economic
development in Russia is expected to remain weak in 2016. This may have a
negative impact on the rental income from tenants in Stockmann’s real estate
business.
Stockmann’s strategy aims at improving the Group’s long-term competitiveness and
profitability through a comprehensive turnaround of its business. An efficiency
programme was launched in February 2015 with an annual cost savings target of
EUR 50 million. The programme is progressing according to plan, and its main
effects will be reflected in Stockmann’s performance from 2016 onwards.
Capital expenditure for 2016 is estimated to be approximately EUR 60-65 million
which is on a par with the estimated depreciation for 2016.
Stockmann expects the Group’s revenue for 2016 to be down on 2015 due to on
-going strategic actions in order to improve profitability. The operating result
excluding non-recurring items is expected to be slightly positive in 2016.
Press and analyst briefing
A press and analyst briefing will be held today, on 28 April 2016 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. In addition to Stockmann’s
management, Sam Nieminen, the CEO of SGN Group which will be the new owner of
Hobby Hall, will be present in the briefing.
Webcast
Interim CEO Lauri Veijalainen will host a webcast in English today, on 28 April
2016, at 11:15 a.m. EET presenting the Interim 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 (http://cloud.magneetto.com/stockmann/2016_0428_q1/view) or on the address
stockmanngroup.com. (http://www.stockmanngroup.com) The recording and
presentation material are available on the company's website after the event.
Finland: +358 9 2310 1619
Sweden: +46 8 5065 3933
United Kingdom: +44 20 3427 1934
United States of America: +1646 254 3376
Confirmation code: 1161458
Further information:
Lauri Veijalainen, Interim CEO, tel. +358 9 121 5062
Nora Malin, Director, Corporate Communications, tel. +358 9 121 3558
www.stockmanngroup.com
STOCKMANN plc
Lauri Veijalainen
Interim CEO
Distribution:
Nasdaq Helsinki
Principal media
