Business continuity, risks and financing situation

Total cash as per 31 December 2020 was EUR 152.5 million. Due to normal business seasonality, the figure declined during the first quarter of the year but improved during the second quarter and amounted to EUR 155.6 million at the end of Q2 2021. Both divisions have taken and will take actions to improve the cash and net working capital position. The restructuring proceedings caused uncertainty among suppliers, but business relations are gradually returning to normal. The measures to adjust the cost structure and product intake due to the still continuing coronavirus situation have been implemented from the second quarter of 2020 onwards. During the restructuring proceedings, Stockmann plc renegotiated all department store lease agreements and office lease agreements. Thereby, lease costs and store sizes were adjusted downwards. These measures support the cash flow from 2021 onwards.

The Helsinki District Court approved the restructuring programme on 9 February 2021. The restructuring programme is based on the continuation of Stockmann’s department store operations, the sale and lease-back of the department store properties located in Helsinki, Tallinn and Riga and the continuation of Lindex’s business operations as a fixed part of the Stockmann Group. The proceeds from the sale and lease-back of the department store properties will mostly be used for repayment of the secured restructuring debt at the latest by 31 December 2022.

Efforts have been made to build some flexibility into the restructuring programme by converting some of the unsecured debts into the company’s shares or cutting them. Half of the hybrid bond was cut during Q1 2021 and the other half was mostly converted to equity in July 2021 and partly cut.  In addition 20% of the other un-disputed restructuring debt was mostly converted into equity in July and partly cut.

A repayment schedule in accordance with the Restructuring Act has been prepared for the remaining part of the unsecured debt. The repayments will begin in April 2022. An unsecured creditor was entitled to exchange the payment described in the repayment schedule for a secured bond issued by the company with a five year bullet principal repayment. The conversions were completed in July and the size of the bond is EUR 66.1 million.  (Stock Exchange Release on 5.7.2021).

Stockmann plc has pledged Stockmann Sverige Ab´s (SSAB) shares and it´s receivables from SSAB as a security for the bond. The different maturity profile of the secured bond brings flexibility for the company for the first years of the restructuring programme. The programme enables Stockmann to make up a EUR 50 million tap-issue on the abovementioned secured bond. This tap-on issue can be used to cover short term liquidity needs.

As a part of the restructuring programme, the company’s A and B share series were combined as per 12 April 2021 so that each one (1) A share was entitled to receive 1.1 B shares. The combination is aimed to improve the liquidity of the share and the company’s ability to secure financing from the market.

The Group does not currently hedge against risks arising from fluctuations in foreign exchange rates or interest rate risks. The Group’s possibilities to arrange new financing are limited during the execution of the corporate restructuring programme. This may have an effect on sufficiency of liquidity and on the financial position. Failure to meet the requirements, sale and lease-back of properties and repayment of restructuring debt according to Stockmann plc’s corporate restructuring programme may lead to the termination of the restructuring or bankruptcy.

The prolonged effects of the COVID-19 pandemic will have an impact on Stockmann’s liquidity and financial position and the value of its assets. Risks related to production and supply may arise from unusual situations such as an escalation in the COVID-19 pandemic or a new epidemic leading to governmental restrictions, strikes, political uncertainties or conflicts, which may stop or cause delays in production or supply of merchandise, which in turn may affect business negatively. The management and the Board of Directors regularly assess the operational and strategic risks associated with the situation.

The Swedish tax authorities have taken a negative stance on the taxation of Stockmann’s subsidiary Stockmann Sverige AB’s right to deduct interest expenses during the years 2013–2019 for a loan raised for the acquisition of AB Lindex. In its reply, the Swedish tax authorities have considered that Stockmann would not have the right to appeal to the European Court of Justice to gain the rejected interest deductions and that the decision of the European Court of Justice of 20 January 2021 would not have any significance regarding Stockmann’s right to deduct these interests. The processing of the case continues in the Court of Appeal. (Stock Exchange Release 14.5.2021)

LähiTapiola Keskustakiinteistöt Ky, the landlord of Stockmann’s Tapiola department store, has initiated arbitration proceedings against Stockmann, in which the company claims up to EUR 43.4 million compensation from Stockmann in accordance with section 27, subsection 1 of the Restructuring Act. The administrator of the restructuring proceedings has disputed the claim of LähiTapiola Keskustakiinteistöt Ky in the restructuring programme to the extent that it exceeds EUR 3.5 million. In connection with the same, LähiTapiola Keskustakiinteistöt Ky has filed a claim against Stockmann, Stockmann AS and the administrator and/or the supervisor at the Helsinki District Court to leave the matter in abeyance. In addition, LähiTapiola Keskustakiinteistöt Ky has appealed to the Court of Appeal regarding the decision of the Helsinki District Court to certify the Restructuring Programme on 9 February 2021 to the extent that the Helsinki District Court has investigated a claim by Stockmann AS instead of rejecting the claim and instructing LähiTapiola Keskustakiinteistöt Ky to deliver its claim to be reviewed in a different process. In addition, Nordika II SHQ Oy, the landlord of Stockmann’s Takomotie office space, has filed a claim with the Helsinki District Court, in which the company claims compensation amounting to EUR 14.5 million at maximum from Stockmann in accordance with section 27, subsection 1 of the Restructuring Act. This claim has been disputed by the supervisor in the restructuring programme to the extent that it exceeds EUR 1.2 million. In the same claim, Nordika II SHQ Oy has named the administrator and Stockmann AS respondents.

The lessor of the Tampere department store, Mutual Insurance Fund Fennia, has commenced arbitration proceedings against Stockmann, in which the company claims up to EUR 11.9 million compensation from Stockmann in accordance with Section 27, subsection 1 of the Restructuring Act. The administrator of the restructuring proceedings has disputed the claim to the extent that it exceeds EUR 2.8 million. In addition, Mutual Insurance Fund Fennia has filed two claims with the Helsinki District Court with Stockmann and the administrator and the supervisor as respondents in the first claim and Stockmann AS respondent in the other claim. In the claims to the Helsinki District Court, Mutual Insurance Fund Fennia requests the court to confirm that the damages payable to Fennia are the maximum amount of EUR 12 million. Moreover, the second lessor of the Tampere department store, Tampereen Seudun Osuuspankki, has initiated proceedings at the Pirkanmaa District Court, in which the company claims up to EUR 20.3 million compensation from Stockmann in accordance with section 27, subsection 1 of the Restructuring Act. In the restructuring programme, the supervisor has disputed the claim presented by Tampereen Seudun Osuuspankki during the restructuring proceedings (at which time the maximum amount of the claim was EUR 17.7) to the extent that it exceeds EUR 2.0 million.

In addition to the above claims, the former subtenant of the Tampere department store, Pirkanmaan Osuuskauppa, has initiated arbitration proceedings in which it claims up to EUR 5.4 million compensation from Stockmann in accordance with, among others, section 27, subsection 1 of the Restructuring Act. The supervisor of the restructuring proceedings has disputed the claim for the most part. Pirkanmaan Osuuskauppa has also appealed on the decision of the Helsinki District Court on 9 February 2021 to certify the restructuring programme to the extent that the Helsinki District Court viewed that the damages payable to Pirkanmaan Osuuskauppa are restructuring debt instead of debt that has arisen after the application for restructuring proceedings came in force pursuant to section 32 of the Restructuring Act. Further, ECR Finland Investment I Oy, i.e. the owner of ‘Kirjatalo’ has appealed the decision by Helsinki District Court on 9 February 2021 to certify the restructuring programme. ECR Finland Investment I Oy has requested that the Appeal Court confirm that its claim is based on an obligation in accordance with section 15 of the Restructuring Act and thus, such claim would be considered debt that has arisen after the application for restructuring proceedings came in force. Alternatively, if the court considers that the claim of ECR Finland Investment I Oy would be restructuring debt within the meaning of section 3 of the Restructuring Act, ECR Finland Investment I Oy requests that it would in any case be entitled to receive a payment for its receivable despite the payment block in accordance with section 17 of the Restructuring Act.

With regard to the other disputed receivables mentioned in the restructuring programme, conciliation negotiations are underway and some of them have already been settled amicably. The disputes mentioned in the corporate restructuring programme concerning HOK-Elanto Liiketoiminta Oy and the landlord of the Jumbo department store have been settled.