Stockmann Group's Half year financial report 1 January - 30 June 2016


Operating result continued to improve and was positive in Q2
STOCKMANN plc, Half year financial report 12.8.2016 at 8:00 EET

April-June 2016:
- Consolidated revenue was EUR 352.7 million (EUR 351.0 million).
- Revenue in continuing product areas and businesses was up by 6.8 per cent.
- Gross margin was up, to 54.5 per cent (52.7 per cent).
- Operating result was EUR 11.1 million (EUR -4.1 million).

January-June 2016:
- Consolidated revenue was EUR 625.9 million (EUR 696.8 million).
- Revenue in continuing product areas and businesses was down by 1.8 per cent.
- Gross margin was up, to 52.6 per cent (49.8 per cent).
- Operating result was EUR -19.2 million (EUR -46.2 million).
- Result for the period was EUR -33.3 million (EUR -59.3 million).
- Earnings per share were EUR -0.50 (EUR -0.82).

- Lindex achieved its all-time high second quarter revenue and result: operating
profit up EUR 9.5 million, to EUR 28.1 million (EUR 18.6 million).
- Efficiency programme speeding up: a leaner organisation with a reduced
headcount to be introduced, targeting EUR 20 million further savings in 2017. A
provision of EUR 5.8 million booked for Q2 due to the organisational
restructuring measures.
- Department store operations in Russia have been classified as discontinued
operations. The comparison figures in the income statement and related items
have been restated accordingly. The comments in the half year report refer only
to continuing operations.

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 adjusted operating
result is expected to be slightly positive in 2016.
- The term “adjusted operating result” has replaced the previously used term
“operating result excluding non-recurring items”, due to the new guidelines of
the European Securities and Market Authority ESMA for Alternative Performance
Measures.

Interim CEO Lauri Veijalainen:
Stockmann is continuing its persistent actions to implement the comprehensive
turnaround of its retail business. The operating result for the second quarter
was back to profit and improved by EUR 15.3 million compared to the previous
year. Especially pleasing is that Lindex reached its best ever second quarter
result by improving its operating profit by EUR 9.5 million. Lindex’s
performance, together with the earlier divestments of non-core businesses
resulted in a good improvement in the Group’s earnings. In fact, this was the
fifth consecutive quarter when the Stockmann Group's operating result improved.

Our strategy work focusing on core strengths is proceeding well and Stockmann
signed an agreement in April to sell the Hobby Hall business to the SGN Group.
The business will be transferred to the new owner at the beginning of 2017. All
major structural changes in the non-core units have been made, and we will
concentrate fully on our core businesses, Stockmann Retail, Real Estate and
Lindex.

Stockmann continued to implement cost savings in line with the efficiency
programme which will enable savings of EUR 50 million for 2016. As the sales
performance of our department stores has fallen short of expectations, we need
to further speed up the turnaround by applying additional cost savings.
Stockmann has therefore conducted codetermination negotiations during the summer
to bring the cost level more into line with the scope of current operations.
Personnel reductions are unfortunately a necessary step to ensure that Stockmann
Retail achieves a positive EBIT in 2018.

We are slowly, but surely, moving towards better performance. After streamlining
our organisation and operational model, all the conditions are now in place to
fully and further develop our selected focus areas (fashion, beauty, food and
home products), invest in the renewal of our stores, develop online and digital
tools, and fully utilize our new distribution centre – just to mention some of
the on-going actions to improve the customer experience and increase sales.

Key figures

Continuing operations              4-6/    4-6/    1-6/    1-6/    1-12/
                                   2016    2015    2016    2015     2015
Revenue, EUR mill.                352.7   351.0   625.9   696.8  1 434.8
Gross margin, per cent             54.5    52.7    52.6    49.8     50.6
Operating result, EUR mill.        11.1    -4.1   -19.2   -46.2    -52.5
Adjustments to operating            0.0     6.6     0.0     6.6     24.0
result*, EUR mill.
Adjusted operating result          11.1     2.5   -19.2   -39.6    -28.5
(EBIT), EUR mill.
Adjusted operating result before   26.1    19.9    10.0    -4.6     43.4
depreciation (EBITDA), EUR mill.
Net financial costs, EUR mill.      4.7     5.0     8.9     9.1     21.2
Result before tax, EUR mill.        6.5    -9.1   -28.1   -55.3    -73.7
Result for the period, EUR mill.   -1.7   -12.1   -33.3   -59.3    -88.9
Earnings per share, undiluted,    -0.04   -0.17   -0.50   -0.82    -1.24
EUR
Personnel, average                9 158  10 417   9 229  11 066   10 763

Continuing and discontinued        4-6/    4-6/    1-6/    1-6/    1-12/
operations                         2016    2015    2016    2015     2015
Net earnings per share,           -0.04   -0.16   -0.35   -0.94    -2.43
undiluted, EUR
Cash flow from operating           54.4    17.2   -20.9   -48.0     17.2
activities, EUR mill.
Capital expenditure, EUR mill.     13.6     9.7    19.5    26.2     53.4
Equity per share, EUR                             14.19   14.42    14.53
Net gearing, per cent                              76.2    85.3     72.1
Equity ratio, per cent                             46.0    44.6     46.1
Number of shares, undiluted,                     72 049  72 049   72 049
weighted average, 1 000 pc
Return on capital employed,                        -4.6    -5.2     -7.6
rolling 12 months, per cent

*Adjustments in 2015 were related to Academic Bookstore, Oulu store, Seppälä and
other Group’s restructuring costs.

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 by the term “adjusted”, and, as a
consequence, “operating profit (EBIT) excluding non-recurring items” has been
replaced by 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.

Events after the reporting period
Stockmann’s target is to considerably flatten its organisational structure,
eliminate overlaps and simplify its processes. A new lean organisation, that
will adjust the number of Stockmann’s employees in line with the scope of
current operations, was discussed with the personnel during the codetermination
negotiations which started in June and were concluded at the beginning of
August.

As a result, approximately 300 positions will be ended, most of them through lay
-offs. In addition, around 80 people from the support functions will be offered
a new position as a sales assistant and around 60 people are offered a position
in the support functions with new employment conditions. The number of
department store sales assistants will not be reduced to ensure excellent
customer service. The final number of reductions will be confirmed when all the
personal discussions have been carried out. At the start of the negotiations,
which concerned around 3 000 persons, the reduction need was estimated to be
about 380 employees. The goal is annual cost savings of approximately EUR 20
million, which will be achieved during 2017. A provision of EUR 5.8 million
related to these organisational restructuring measures was booked in the second
quarter.

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. A weak
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 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 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. Financial risks 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. At the same time, competition is
increasing.

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 to operate its shopping centre in St Petersburg.
Economic development in Russia is expected to remain weak in 2016. This will
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. The new
organisational model which is currently being taken into use, will reduce costs
by approximately EUR 20 million during 2017.

Capital expenditure for 2016 is re-estimated to be approximately EUR 40-45
million which is approximately EUR 20 million less than 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 adjusted
operating result is expected to be slightly positive in 2016.

Press and analyst briefing
A press and analyst briefing will be held today, on 12 August 2016 at 9:15 a.m.
EET in Fazer's premises on the 8th floor of Stockmann’s Helsinki city centre
department store, Aleksanterinkatu 52 B.

Webcast
Interim CEO Lauri Veijalainen will host a webcast in English today, on 12 August
2016, at 14:15 a.m. EET presenting the Half year finacial 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 (https://stockmann.videosync.fi/2016-08-12-q2) 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 3932
United Kingdom: +44 20 3427 1929
United States of America: +1646 254 3375

Confirmation code: 4470496

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

Attachments

08118750.pdf