Consequences and action programme in response to Vivo Stockholm's change of wholesaler

Consequences and action programme in response to Vivo Stockholm's change of wholesaler ·No earnings impact for Axfood or Dagab in 2004 ·The effect of Vivo Stockholm's decision is being met by an extensive action programme in Dagab's entire area of operation, which is being started immediately and which will ensure that Dagab achieves its previous level of earnings ·Redundancy notices will be served immediately for approximately 90 employees at Dagab's distribution warehouse in Jordbro. Structural costs associated with staff reductions and the phase-out of system and transport solutions are estimated to amount to SEK 20 m Vivo Stockholm announced on 7 September that the Vivo stores in Stockholm intend to switch wholesaler from Dagab (Axfood's wholesale operation) to Bergendahls. This change in wholesale supplier is planned to take place during the first quarter of 2005. These stores account for SEK 1.3 billion of Dagab's total volume of approximately SEK 20 billion. Axfood maintains that the Vivo stores in Stockholm have been offered competitive prices that are comparable with Bergendahls' offering and will therefore legally challenge the Vivo stores' breach of existing contracts. Individual Vivo merchants who have agreements with Axfood have been informed. As a direct result of Vivo Stockholm's actions, Dagab will serve redundancy notices on 90 employees, mainly at its distribution warehouse in Jordbro. The notices have been filed with the County Labour Board. The dismissal of Dagab employees is expected to take effect after year-end 2004. Structural costs for Dagab associated with staff reductions and the phase-out of system and transport solutions are estimated to amount to SEK 20 m. Axfood's underlying earnings and financial position will not be affected after the measures have been implemented. For further information, please contact: Mats Jansson, President and CEO, Axfood AB, +mobile +46-70-569 48 11 Bodil Eriksson, Executive Vice President, Corporate Communications, Axfood AB, +46-8-553 998 17, mobile +46-70-629 66 34 Facts about Axfood and Vivo Stockholm Background Vivo Stockholm consists of 88 stores in Stockholm and Gotland. The stores are operated by private merchants, most of whom acquired their store locations by signing agreements with D-gruppen, which is today Axfood. To secure these store locations, agreements were drawn up between D-gruppen and the merchants. The agreements were transferred to Axfood in connection with the merger in 2000 and were one of the merger's key assets. The Vivo Stockholm merchants participated actively in the formation of Axfood. Vivo Stockholm has refrained from participating in Axfood's central purchasing and private label activity, nor has it had any close cooperation with Axfood regarding product line development, marketing or IT. As a customer of Dagab, Vivo Stockholm's volume amounts to SEK 1.3 billion. Dagab's total volume in 2004 will be approximately SEK 20 billion. Vivo Stockholm has ordered products from Dagab's product range of some 14,000 items and also has its own range of some 400 products. On 7 September, Vivo Stockholm announced after a 40-year business relationship that it intends to switch wholesaler from Dagab (Axfood's wholesale operation) to Bergendahls. This change will take place during the first quarter of 2005. Agreement structure The cooperation agreements that Axfood has with the Vivo stores in Stockholm stipulate that the merchants are obligated to use Dagab as their mainly supplier of retail food products as long as Dagab offers competitive prices and meets the other terms of delivery. In Axfood's opinion, the Vivo stores in Stockholm have been offered competitive prices that are comparable with Bergendahls' offering and will therefore legally challenge the Vivo stores' breach of existing contracts. Axfood's cooperation agreements have been signed with individual merchants/stores. For more than half of the stores, Axfood has a right of first refusal/preferential rights and holds the store lease. Since these store locations originally belonged to D-gruppen and were a key asset in the merger that led to the creation of Axfood, Axfood will assert its contractual right and - over time - acquire stores from the Vivo Stockholm Group. The Vivo brand The Vivo brand is owned by Axfood. The right to use the brand has been given directly to the merchants/stores or to Vivo Stockholm Ekonomisk Förening (a financial association), which has had the right to license the brand to new merchants. Axfood will now rescind this association's right. New stores that wish to use the Vivo brand can turn directly to Axfood. Licences issued directly to stores will continue to apply until further notice. Operational and earnings impact Vivo Stockholm's decision to switch wholesaler will not affect Axfood's or Dagab's earnings in 2004. An extensive action programme in Dagab's entire area of operation will start immediately and will ensure that Dagab achieves its previous level of earnings. As a first measure, redundancy notices will be served to some 90 employees, primarily at Dagab's distribution warehouse in Jordbro, Stockholm. The dismissals are expected to take effect after year-end 2004. Structural costs for staff reductions and the phase-out of system and transport solutions are estimated to amount to SEK 20 m. Axfood's underlying earnings and financial position will not be affected after the measures have been implemented. Axfood AB is a retail food group comprising the wholly owned store chains Hemköp, Willys and Willys hemma and wholesale operations through Dagab and Axfood Närlivs. Additionally, Axfood works with a large number of independent merchants who are tied to Axfood by franchising or other agreements. In all the Group comprises some 500 stores in Sweden, of which about 220 are wholly or partly owned. Consolidated annual sales are approximately SEK 33 billion, with approximately 8,600 employees. Axfood has approximately 290 stores in Finland, of which 80 are wholly owned and the remainder are operated by independent merchants. Axfood has a market share of 18% in Sweden and approximately 8% in Finland, making it one of the largest, listed retail food groups in the Nordic region. The company is listed on the Stockholm Stock Exchange 0-List, Attract 40. Axel Johnson AB is the principal owner with approximately 45% of the shares. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2004/09/24/20040924BIT20070/wkr0001.pdf