Interim Report, Axfood AB

Interim Report, Axfood AB (publ.) For the period January 1 - September 30, 2001 · Consolidated sales totaled SEK 23,872 m (22,166), an increase of 7.7 percent. · Operating income amounted to SEK 498 m (106), with an operating margin of 2.0 percent (0.5). Income adjusted for items affecting comparability totaled SEK 531 m (232). · Income after net financial items amounted to SEK 403 m (20). Adjusted for items affecting comparability, income after net financial items was SEK 436 m (146). · Continued strong total earnings during the third quarter, especially for Axfood Lågpris, Spar Finland, and the wholesaling operations - Dagab and Axfood Närlivs. · Axfood AB has made a cash offer to the shareholders of Spar Finland Abp for the outstanding shares of Spar Finland. The offer, EUR 27 per share, is in effect from October 1 - November 1. · Axfood is acquiring a store chain in western Sweden with annual sales of approximately SEK 350 m. · Axfood is terminating its involvement in Baltic Food, entailing a one-time cost of SEK 25 m. SEK m July-Sept. Jan.-Sept. Jan.- Dec. 2001 2000 2001 2000 2000 Sales 8,134 7,448 23,872 22,166 30,230 Operating income before 282 207 857 434 550 depreciation Operating income 160 88 498 106 112 Operating margin, percent 2.0% 1.2% 2.0% 0.5% 0.4% Operating income before items affecting 186 86 531 232 274 comparability Operating margin before items affecting 2.3% 1.2% 2.2% 1.0% 0.9% comparability Income after financial 130 58 403 20 0 items Income after tax 80 29 257 0 -34 Earnings per share, SEK 1.50 0.54 4.83 0 -0.64 Equity ratio, % - - 17.2% 14.7% 13.7% Return on capital employed, - - 13.5% 4.5% 3.8% percent Return on shareholders' - - 22.1% 0.0% Neg. equity after tax, % CEO's comments During the third quarter Axfood showed stable earnings growth, most notably at Axfood Lågpris, Dagab, Axfood Närlivs and Spar Finland. Axfood Lågpris's volume growth is coming from comparable units as well as from newly established stores, which shows that the concept is appreciated by new and old customer groups alike. The wholesale operations - Dagab and Axfood Närlivs - are showing good earnings, mainly due to lower costs in the companies. Hemköp's earnings were weak during the third quarter. The new management team is successively carrying out an action program aimed at cutting costs, modernizing the store structure, lowering prices, and lifting forth Hemköp's unique values. Our judgement is that the negative trend at Hemköp will be broken during the second half of 2002 at the latest. Hemköp's store structure is being strengthened through the acquisition of three stores in the Gothenburg area. The stores were acquired in October and have total sales of approximately SEK 350 m. After seven months in the black we can see a definite turnaround at Spar Finland. In order to achieve maximum synergies in purchasing, IT and administration, we have made an offer for the outstanding shares in Spar Finland. Mats Jansson Market development The trend for the retail sector remained positive during the third quarter of 2001, according to data released by the Swedish Research Institute of Trade (HUI). Sales growth in current prices was 3.9 percent in September and 4.0 percent for the first nine months of the year. Sales and earnings of the Axfood Group Consolidated sales of the Axfood Group, including Spar Finland Abp, amounted to SEK 23,872 m (22,166) during the period. The Axfood Group's sales in Sweden during the period (in own and collaborating stores) amounted to SEK 24,797 m, including VAT, an increase of 1.7 percent in volume, or 4 percent in current prices, compared with the preceding year. Operating income for the period amounted to SEK 498 m (108). The operating margin was 2.0 percent (0.5). The operating margin before items affecting comparability and goodwill was 2.6 percent (1.4). Items affecting comparability amounted to SEK -33 m (-126) for the period and pertain mainly to the SEK 25 m write-down of Axfood's involvement in Baltic Food. Net financial items amounted to SEK -95 m (-86). Income after financial items thus totaled SEK 403 m (20). The margin after financial items was 1.7 percent (0.1). Store operations The store operations are conducted through wholly owned chain concepts (Hemköp, Axfood Lågpris and Axfood Direkt - comprising the Group's e- commerce business) and in collaboration with private merchants in established store concepts (Spar, Tempo and Vivo). Hemköp has a total of 104 stores nationwide. The concept emphasizes the environment, health and quality, and is based on breadth and depth in the product assortment, especially of fresh products. The Hemköp Group also includes Billhäll's nine stores in the Gothenburg area. The weak trend for Hemköp during the year is being countered by a sweeping process of change. This work is concentrated on reducing costs, modernizing the store structure and further enhancing Hemköp´s profile. Sales during the period totaled SEK 4,741 m (4,742). Operating income before goodwill (EBITG) amounted to SEK 98 m (141), and the operating margin for the period was 2.1 percent (3.0). During the third quarter one store was converted to a Willy's and one store was closed. Axfood Lågpris is the market leader in Sweden's discount segment. Business is conducted under three consumer brands: Willy's, Matex/Exet and HP Billigt & Nära, totaling 89 stores. Axfood Lågpris collaborates with a number of private merchants - 25 stores in all - through franchising agreements. Conversion to the new Willy's concept will begin during the first quarter of 2002. Some 70 stores in all will be affected. The smaller Axfood Lågpris units will continue to operate under the HP Billigt & Nära name. During the third quarter, one store was established, one was acquired, one was closed and one was converted to Willy's. Axfood Lågpris has had very strong volume growth throughout 2001, and this continued during the third quarter. Sales by wholly owned stores during the period totaled SEK 5,746 m (3,964). Income for the period (EBITG) amounted to SEK 217 m (120), and the operating margin was 3.8 percent (3.0). Axfood Direkt conducts the Group's e-commerce retail business, offering three online shopping sites: hemkop.nu (in Stockholm), and willys.nu and billhalls.se (in Gothenburg). Following a normally weak summer, sales for Axfood Direkt have risen somewhat, however, the rate of growth is unsatisfactory. Renewed marketing efforts have been made and are continuing in the fourth quarter. Sales during the period totaled SEK 56 m (62). Income (EBITG) amounted to SEK -30 m (-18). Axfood Franchise collaborates with private merchants in Sweden through three concepts: Spar, Tempo and Vivo. The approximately 500 stores in this segment are customers of Axfood's wholesale operation. Conversion of the some 170 Vivo stores outside Stockholm to the Spar chain is proceeding according to plan. As per the end of September there were 41 Spar stores. 110 stores are expected to be converted by year- end. Altogether the 170 stores have sales of approximately SEK 6 billion. Axfood Franchise is reported under joint-Group items. Income (EBITG) for the period amounted to SEK 22 m (9). Change of store structure during the period - Group-owned stores in Sweden New Store establi acquisitions Closures Sales Conversions TOTAL shments CHANGE to from Lågpris 3 30 4 0 4 0 33 (incl. HP) Hemköp 0 2 2 0 1 2 -1 Franchise 0 0 1 2 0 3 -6 TOTAL 3 32 7 2 5 5 26 Axfood Partihandel (wholesaling) - Sweden Axfood's wholesaling operation consists of Dagab, which supplies goods to Axfood's wholly owned chains and to collaborating merchants, and Axfood Närlivs, which supplies goods to convenience stores, mini-grocery stores and service stations, such as OK/Q8 and Shell Select. Axfood Närlivs also has a cash-and-carry operation comprising some twenty wholesale outlets, where restaurant and store proprietors can make purchases themselves and pay in cash. The positive trend for Axfood's wholesaling operation continued during the third quarter. Dagab showed good volume growth, which was enhanced by strong sales at Willy's, among other things. Axfood Närlivs also had favorable growth in volume, which together with the rationalization measures that have been carried out, contributed to a favorable earnings trend for the period. Axfood's wholesale operation posted sales of SEK 13,462 m (12,635) during the period. Of this amount, Dagab accounted for SEK 10,766 m and Axfood Närlivs for SEK 3,428 m. Income (EBITG) amounted to SEK 256 m (140), and the operating margin was 1.9 percent (1.1). Of this total, Dagab accounted for SEK 198 m and Axfood Närlivs for SEK 58 m. Spar Finland Axfood's long-term strategy is to expand in the Nordic region and establish a strong market position in each country. The subsidiary Spar Finland Abp has approximately 9 percent of the Finnish market. Following additional stock purchases, Axfood owned 62 percent of the capital and 69 percent of the votes in Spar Finland at the end of the period. Axfood has made a cash offer for the outstanding shares in Spar Finland (EUR 27 per share), which remains in effect through November 1. Spar Finland has a jointly owned wholesale operation and a store network comprising 305 stores, of which 78 are wholly owned. Spar Finland has been working intensively in 2001 on reversing the preceding year's losses and has shown a positive volume and earnings trend since February. The store structure is being converted to two concepts, Spar and Eurospar, with the Eurospar concept accounting for 11 stores. The growth of these stores has had a favorable impact on sales. Sales during the period amounted to SEK 4,233 m (3,813), and income (EBITG) totaled SEK 32 m (-14). Baltic Food In 1998, the former Dagab established a wholesale operation in Estonia in a joint venture with Norwegian interests. The operation also included a store chain in the Baltic region. In connection with Axfood's formation in May 2000, it was decided that Axfood's expansion would take place in the Nordic countries. Consequently, Axfood has worked actively to divest its stake in Baltic Food. In 2001, operations performed worse and the company developed acute financial problems. The former management of Baltic Food has on repeated occasions provided false information to the Board, and an investigation has been initiated to determine whether legal action can be taken. The Norwegian principal owners have injected new capital into Baltic Food, and Axfood's ownership stake is now 5 percent. Axfood is writing down its total involvement in Baltic Food, entailing a one-time cost of SEK 25 m. Capital expenditures Capital expenditures during the period amounted to SEK 382 m. Of these, investments in fixed assets in the wholesaling operation and in the store network in Sweden accounted for SEK 273 m, and investments in fixed assets by Spar Finland accounted for SEK 41 m. During the period, shares in Spar Finland worth SEK 68 m were acquired. After the acquisition, Axfood has 69 percent of the votes and 62 percent of the capital in Spar Finland. Financial position Cash flow from continuing operations amounted to SEK 677 m during the period (291). Lending from Handelskredit decreased during the period by SEK 98 m and amounted to SEK 359 m at the close of the period. The Group's liquid assets amounted to SEK 281 m. Interest-bearing assets amounted to SEK 677 m (753), and interest-bearing net debt was SEK 1,847 m (2,165). The equity ratio was 17.2 percent (14.7), while the debt-equity ratio, net, was 1.5 (2.0). Restructuring reserve During the period under review, costs of SEK 65 m were charged against the restructuring reserve, which amounted to SEK 100 m on December 31, 2001. The closing restructuring reserve amounted to SEK 35 m. Employees The Axfood Group had an average of 8,455 full-year employees during the first nine months of the year (8,100). Parent Company The Parent Company's sales during the period amounted to SEK 18 m. After SEK 52 m in administrative expenses and net financial items of SEK -19 m, income after financial items amounted to SEK -53 m (-27). Capital expenditures totaled SEK 1 m. Accounting principles In this interim report, the Group has applied the new accounting recommendations that took effect on January 1, 2001. In other respects the same accounting principles and calculation methods as in the 2000 Annual Report have been applied. The next reporting date will by Monday, February 11, 2002. Stockholm, Sweden, October 26, 2001 Axfood AB (publ.) The Board of Directors We have conducted a limited review of the accompanying interim report in accordance with the recommendation issued by the Swedish Institute of Authorized Public Accountants (FAR). A limited review is considerably less in scope than an audit. Nothing has come to our attention that indicates that the interim report does not fulfill the requirements of the Swedish Stock Exchange Act and the Swedish Annual Accounts Act. Stockholm, Sweden, October 26, 2001 Caj Nackstad Per Bergman Authorized Public Accountant Authorized Public Accountant Sales per business unit and market, SEK m July-Sept. Jan.-Sept. Jan.- Dec. 2001 2000 2001 2000 2000 Hemköp 1,531 1,526 4,741 4,742 6,562 Axfood Lågpris 2,068 1,402 5,746 3,964 5,333 Axfood Direkt 16 19 56 62 84 Spar Finland 1,473 1,310 4,233 3,813 5,139 Axfood wholesaling 4,585 4,278 13,462 12,635 17,313 Other1 577 333 1,679 1,238 1,896 Internal sales - - - 6,045 - 4,288 - 2,116 1,420 6,097 Total 8,134 7,448 23,872 22,166 30,230 1) Includes joint-Group functions and the support companies IT, Fastigheter, Handelskredit, Egna Märkesvaror and Franchise. Operating income for the period before goodwill amortization (EBITG) is broken down as follows: SEK m July-Sept. Jan.-Sept. Jan.- Dec. 2001 2000 2001 2000 2000 Hemköp 22 56 98 141 172 Axfood Lågpris 73 50 217 120 133 Axfood Direkt - 12 - 7 - 30 - 18 -20 Spar Finland 26 5 32 - 14 -25 Axfood wholesaling 90 40 256 140 222 Other1 17 -28 47 - 51 -97 Total 216 116 620 318 385 Items affecting - 26 2 -33 - 126 - 162 comparability Operating result before goodwill amortization 190 118 587 192 223 Goodwill amortization - 30 - 30 -89 - 86 - 111 Operating income for the 160 88 498 106 112 period 1) Includes joint-Group functions and the support companies IT, Fastigheter, Handelskredit, Egna Märkesvaror and Franchise. Condensed income statement SEK m July-Sept. Jan.-Sept. Jan.-Dec. 2001 2000 2001 2000 2000 Net sales 8,134 7,448 23,872 22,166 30,230 Cost of goods sold - 7,026 - - 20,724 - -27,372 6,538 19,739 Gross income 1,108 910 3,148 2,427 2,858 Selling/administrative - 826 - 703 -2,291 - 1,993 - 2,308 expenses Operating income 282 207 857 434 550 before deprecation Depreciation - 92 - 89 - 270 - 242 - 327 Operating income before goodwill 190 118 587 192 223 amortization Goodwill amortization - 30 - 30 - 89 - 86 - 111 Operating income 160 88 498 106 112 Net financial items - 30 - 30 - 95 - 86 - 112 Income after financial 130 58 403 20 0 items Taxes - 45 - 16 - 140 - 19 - 24 Minority share - 5 - 13 - 6 - 1 - 10 Income for the period 80 29 257 0 - 34 Earnings per share, 1.50 0.54 4.83 0 -0.64 SEK Earnings per share 1.48 0.54 4.76 0 -0.64 after dilution, SEK1) 1) After taking into account outstanding convertible and warrant programs. Condensed balance sheet SEK m 9/30/2001 9/30/2000 12/31/2000 Assets Goodwill 1,139 1,136 1,195 Financial fixed assets 604 714 681 Other fixed assets 2,214 2,016 2,206 Inventories, etc. 1,501 1,352 1,518 Other current assets 1,613 1,762 1,707 Cash and bank balances 281 268 278 Total assets 7,352 7,248 7,585 Shareholders' equity and liabilities Shareholders' equity1) 1,136 884 855 Minority interests 127 178 181 Provisions1) 609 524 544 Interest-bearing liabilities 2,159 2,559 2,610 Noninterest-bearing 3,321 3,103 3,395 liabilities Total shareholders' equity and 7,352 7,248 7,585 liabilities 1) A change in accounting principles has been made. Booking of taxes has been adapted to Swedish Financial Accounting Standards Council recommendation no. 9. Cash flow statement SEK m Jan.-Sept. Jan.- Jan.- Sept. Dec. 2001 2000 2000 Cash flow from operating activities 677 291 445 Investing activities: - Company acquisitions, net - 107 - 239 - 212 - Purchase of fixed assets, net - 231 - 422 - 612 - Reduction of financial fixed 105 175 134 assets Cash flow from investing activities - 233 - 486 - 690 Financing activities - New issue - 180 180 - Change in interest-bearing - 441 166 226 liabilities - Dividend - - 75 - 75 Cash flow from financing activities - 441 271 331 Cash flow for the period 3 76 86 Change in shareholders' equity SEK m 9/30/2001 9/30/2000 Amount at start of year 820 368 Changed accounting 35 29 principle1) New issue - 553 Dividend - -65 Convertibles 10 - Translation difference 14 -1 Income for the period 257 0 Amount at end of period 1,136 884 1) A change of accounting principles to RR9 has been made as from January 1, 2001. Reported information for the preceding year has been calculated to show comparability. The reason for this accounting method is the new Group structure that was established in the preceding year. Key ratios and other data 9/30/2001 9/30/2000 12/31/2000 Operating margin (%) 2.0% 0.5% 0.4% Marginal after financial items 1.7% 0.1% - (%) Equity ratio (%) 17.2% 14.7% 13.7% Debt-equity ratio, net (multiple) 1.5 2.1 2.1 Debt-equity ratio (multiple) 2.00 2.75 2.86 Interest coverage (multiple) 4.8 1.2 1.0 Capital employed (SEK m) 3,787 3,980 4,003 Return on capital employed (%) 13.5% 4.5% 3.8% Return on shareholders' equity 22.1% 0 Neg. (%) Capital expenditures (SEK m) 382 661 579 Earnings per share (SEK) 4.83 0.0 - 0.64 Earnings per share after 4.76 - - 0.64 dilution, (SEK) Number of shares outstanding 53,229,028 53,229,028 53,229,028 Number of full-year employees 8,455 8,100 8,146 For further information, please contact: Mats Jansson, President and CEO, +46-8-553 998 10, mobile +46-70-569 48 11 Lars Nilsson, Executive Vice President and CFO, +46-8-553 998 11, mobile +46-70-569 66 33 Bodil Eriksson, Executive Vice President, Corporate Communications, +46-8-553 998 17, mobile +46-70-629 66 34 ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2001/10/26/20011026BIT00800/bit0001.doc http://www.waymaker.net/bitonline/2001/10/26/20011026BIT00800/bit0001.pdf