Business continuity, risks and financing situation
Total cash as at 31 December 2021 was EUR 213.8 million. Due to normal business seasonality, the figure declined during the first quarter and amounted to EUR 130.8 million at 31 March 2022. During the first quarter, some Covid-19-related extended terms of payment for certain governmental payment in Sweden expired, which had negative impact on cash.
Most of the measures and undertakings, as specified in Stockmann plc’s restructuring programme, had already been completed during 2021, and they are explained in the annual report 2021.
The sale and leaseback agreement for Stockmann’s Riga department store property was signed in December 2021, but the closing took place in January 2022. The proceeds from the sale of the property were used, according to the restructuring programme, in full to reduce the secured restructuring debts.
The sale and leaseback agreement for Stockmann’s Helsinki department store property was signed in March 2022, but the closing took place in April 2022. The proceeds from the sale of the property were used, according to the restructuring programme, to repay in full the secured restructuring debts and the undisputed restructuring debts in April 2022.
Lindex opened foreign exchange hedging limits in September 2021 and has increased the hedging levels to the normal level. The Group’s scope for arranging new financing is limited during the execution of the corporate restructuring programme. This may have an effect on the sufficiency of liquidity and on the financial position.
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 government-imposed restrictions, a lack of transport capacity, strikes and political uncertainties.
The current geopolitical situation may cause inflation which can affect sales negatively due to the consumer confidence level, as well as increased buying prices and operating costs. Further it might 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 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 have taken 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. In their reply, the Swedish tax authorities concluded that Stockmann does 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 is of no significance regarding Stockmann’s right to deduct these interest expenses. The processing of the case continues in the Court of Appeal (Stock Exchange Release, 14 May 2021).
Stockmann has paid all undisputed external restructuring debt, but still has disputed claims (described below). At the end of December 2021, the amount of disputed claims was EUR 103 million, mainly related to the termination of long-term leases with premises. 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. Most of the claims will be settled by arbitration proceedings. Stockmann has made a provision of EUR 16.3 million, which corresponds to the company’s estimate of the probable amount relating to the claims. The creditors of such restructuring debt will be entitled to convert 20% of their receivables to shares and bonds after their respective receivables have been confirmed.
LähiTapiola Keskustakiinteistöt Ky, the landlord of Stockmann’s Tapiola department store, has initiated arbitration proceedings against Stockmann in which the company demands 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 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 has filed a claim against Stockmann, Stockmann AS and the administrator and/or the supervisor at Helsinki District Court to leave the matter in abeyance.
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 has been converted to shares 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. Helsinki Court of Appeal rejected Pirkanmaan Osuuskauppa’s appeal in its court decision on 4 November 2021. The Supreme Court has 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.
Regarding the other disputed receivables mentioned in the restructuring programme, conciliation negotiations are underway and some of them have already been settled amicably.