Business continuity, risks and financing situation
The restructuring process is proceeding according to plan, which means that all Stockmann’s department store properties have been sold and both the secured restructuring debt and undisputed unsecured restructuring debt have been paid. Other measures and undertakings, as specified in Stockmann plc’s restructuring programme, have already been completed during 2021 and are explained in the annual report 2021.
The Group’s scope for arranging new financing is limited during the execution of the corporate restructuring programme, which can not end until all disputed claims are solved. This may have an effect on the sufficiency of liquidity and on the financial position.
The uncertainties related to the COVID-19 pandemic may 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 government-imposed restrictions, a lack of transport capacity, strikes and political uncertainties.
The current geopolitical situation is increasing inflation which may affect sales negatively due to the level of consumer confidence, as well as increased buying prices and operating costs. Further, it may cause delays in the supply chains due to issues in production and freight. The management and the Board of Directors regularly assess the operational and strategic risks associated with the current situation.
In response to the Russian invasion of Ukraine, Stockmann removed products of Russian and Belarusian origin from sale in February. As a result, about 200 products of Russian origin were removed from Stockmann’s selections. Stockmann also discontinued selling merchandise to the Russian partner Debruss. The impact on Stockmann Group is limited.
The Swedish tax authorities took a negative stance on the taxation of Stockmann’s subsidiary Stockmann Sverige AB regarding its right to deduct interest expenses during the years 2013–2019 for a loan raised for the acquisition of AB Lindex. The processing of the case continued in the Administrative Court of Appeal, from which a decision was received in September 2022. According to the decision, the Administrative Court of Appeal overturned the previous court decisions and approved Stockmann's appeal and confirmed that Stockmann Sverige AB was entitled to a deduction of interest expenses, which corresponds to a lower tax cost of approximately EUR 20 million during the years 2013–2016. According to a decision received in October 2022, the County Administrative Court in Gothenburg approved Stockmann's appeal and confirmed that Stockmann Sverige AB was entitled to a deduction of interest expenses, which corresponds to a lower tax cost of approximately EUR 13 million during the years 2017–2019. Based on the court decision from the Administrative Court of Appeal Stockmann Sverige AB has decreased its tax liability by reducing income taxes with EUR 2.2 million, which corresponds to the interest on the taxes. The capital of the taxes remained still as a tax liability. Both court decisions are open for appeal process and the outcome should be known at year-end.
Stockmann has paid all undisputed external restructuring debt, but still has disputed claims (described below) and undisputed conditional or maximum restructuring debt. At the end of September 2022, the amount from the disputed claims decreased to EUR 45.4 million. The claim amount, mainly related to the termination of long-term premises leases was EUR 89.0 million in the end of June 2022. The administrator of the restructuring programme has disputed the claims and considered it justified to pay 18 months’ rent for the leases instead of all the years left in the lease contract. Two claims will be settled in District Court and one claim by arbitration proceedings. The amount of undisputed conditional or maximum restructuring debt was EUR 8.1 million. Stockmann has made a provision of EUR 14.3 million, which corresponds to the company’s estimate of the probable amount relating to both the disputed claims and the undisputed conditional or maximum restructuring debt. The creditors of such restructuring debt will be entitled to convert their receivables to shares and bonds after their respective receivables have been confirmed.
LähiTapiola Keskustakiinteistöt Ky, the landlord of Stockmann’s Tapiola department store, initiated arbitration proceedings against Stockmann in which the company demanded up to EUR 43.4 million in compensation from Stockmann in accordance with section 27, subsection 1 of the Restructuring Act. The administrator of the restructuring proceedings disputed the demand 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 filed a claim against Stockmann, Stockmann AS and the administrator and/or the supervisor at Helsinki District Court to leave the matter in abeyance. On 31 August 2022, the Arbitration Court in its arbitration decision partially rejected the claims of LähiTapiolan Keskustakiinteistöt Ky and confirmed that the compensation to be paid to LähiTapiolan Keskustakiinteistöt Ky is EUR 19.3 million, of which a previously agreed undisputed amount of EUR 3.4 million was converted to shares and paid. The remaining compensation to be paid is recognised as a provision and will be re-classified as restructuring debt after the confirmation of the court. An arbitration procedure separate from Stockmann plc’s arbitration procedure is in progress between LähiTapiola and Stockmann AS concerning the amount of compensation to be paid to LähiTapiola as part of the restructuring proceedings, as well as a separate dispute in the District Court of Helsinki. In addition, concerning this same amount of compensation, a dispute is in progress between the administrator and LähiTapiola. The supervisor deems LähiTapiola’s receivable to be under dispute until the claims mentioned above have been finally resolved. The supervisor has announced to the company and the District Court of Helsinki that the supervisor will not request the district court to amend the restructuring programme based on the arbitration decision while the receivable is under dispute. It is the supervisor’s view that no payment based on the arbitration decision must be made to LähiTapiola while the amount of the receivable is under dispute, because the company, the supervisor and Stockmann AS consider the arbitration decision to be erroneous.
Nordika II SHQ Oy, the landlord of Stockmann’s Takomotie office space, has filed a claim with Helsinki District Court in which the company demands compensation amounting to a maximum of EUR 14.5 million from Stockmann in accordance with section 27, subsection 1 of the Restructuring Act. This claim has been disputed by the supervisor of the restructuring programme to the extent that it exceeds EUR 1.2 million. The EUR 1.2 million was converted to shares and paid in March 2022, but the difference is still a claim. In the same claim, Nordika II SHQ Oy has named the administrator and Stockmann as respondents.
Mutual Insurance Fund Fennia, the lessor of the Tampere department store, has commenced arbitration proceedings against Stockmann, in which the company demands up to EUR 11.9 million in 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 Helsinki District Court with Stockmann, with the administrator and the supervisor as respondents in the first claim and Stockmann as respondent in the other claim. In the claims to 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.
Tampereen Seudun Osuuspankki, the second lessor of the Tampere department store, has initiated proceedings at Pirkanmaa District Court, in which the company demands 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 million) to the extent that it exceeds EUR 2.0 million.
Pirkanmaan Osuuskauppa, the former subtenant of the Tampere department store, has initiated arbitration proceedings in which it demands 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 regarding the decision of Helsinki District Court on 9 February 2021 to certify the restructuring programme to the extent that 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 into force pursuant to section 32 of the Restructuring Act. The Helsinki Court of Appeal rejected Pirkanmaan Osuuskauppa’s appeal in its court decision on 4 November 2021. The Supreme Court granted Pirkanmaan Osuuskauppa leave to appeal to the extent that the appeal concerns the claim for damages arising from the termination of the sublease agreement are restructuring debt or debt that has arisen during the corporate restructuring proceedings. In its arbitration decision on 25 May 2022, the Arbitration Court mainly rejected the claims of Pirkanmaan Osuuskauppa and ordered Stockmann to compensate Pirkanmaan Osuuskauppa EUR 1.5 million in damages. The above-mentioned court case in the Supreme Court is still pending.
Regarding the other disputed receivables mentioned in the restructuring programme, conciliation negotiations are underway and some of them have already been settled amicably.