Annual Report 2016 Contents This is ICA Gruppen 1 This is The year in summary 2 B CEO’s comments 4 Investment case 6 ICA Gruppen Business model 8 B Group performance 10 B Targets and strategy Trends 12 B Strategy 14 B S Targets and outcomes 16 B S Strategic themes and priorities 18 B S Employees 20 B S ICA’s Good Business 22 B S We make ICA – 100 years 24 Sustainability every day a Framework for sustainability work 26 S This is how ICA Gruppen can have 30 S an impact little easier Focus areas and key issues 32 S ICA Gruppen’s vision ICA Gruppen’s sustainability work 34 S ICA Gruppen’s segments 42 B Risks and risk management 52 B S Corporate Governance Report 58 B Board of Directors 62 B Executive Management 66 B Shares and shareholders 72 B Financial information 74 F Five-year financial summary 76 F Group 77 F Group notes 82 F Parent Company 105 F Parent Company notes 110 F Proposed appropriation of earnings 116 F B Auditor’s report 117 Simplicity Sustainability information About the Sustainability Report 120 S – we think simply first Sustainability data 124 S Measurement and calculation 130 S methods GRI Index, Global Compact 132 S Entrepreneurship Assurance report 135 – we create opportunities Annual General Meeting and 136 financial calendar Glossary 137 Commitment All sections with a red marking in the table of contents have been audited. Those sections with an orange marking have been reviewed by the Company’s auditors. On page 132 is a GRI Index to clarify what is – we make a difference included in the sustainability reporting. B Board of Directors’ report F Financial statements S Sustainability work This is a translation of ICA Gruppen´s Swedish Annual Report 2016, which is the original. DetFood här and är health ICAare keyGruppen ICA Gruppen AB is a leading retail company with Number of stores and pharmacies Sales by a focus on food and health. The Group includes segment 31 December 2016 ICA Sweden and Rimi Baltic, which mainly conduct grocery retail, Apotek Hjärtat, which 2,103 conducts pharmacy operations, ICA Real Estate, which owns and manages properties, and ICA Sales 2016 Bank, which offers financial services. The Group also includes the home furnishings chain Hemtex. SEK 103.7 bn ICA Gruppen’s shares are listed on Nasdaq Stockholm, Large Cap segment. The largest Operating profit* 2016 shareholder at year-end 2016 was ICA-handlarnas Förbund (the Association of ICA Retailers). SEK 4.7 bn ICA Sweden Rimi Baltic Apotek Hjärtat The leading grocery retailer in Sweden. Strong position in grocery retail in Estonia, Sweden’s second largest pharmacy chain. Latvia and Lithuania. Sales, SEK m 74,050 Sales, SEK m 13,571 Sales, SEK m 12,531 Operating profit*, SEK m 3,504 Operating profit*, SEK m 526 Operating profit*, SEK m 436 ICA Real Estate ICA Bank Other segments One of the largest commercial real estate The bank with a strong mobile offering. Hemtex – a leading home furnishings companies in the Nordic region, focusing chain in the Nordic region. on retail properties. Sales, SEK m 2,372 Sales, SEK m 863 Sales, SEK m 1,316 Operating profit*, SEK m 493 Operating profit*, SEK m 51 Operating profit*, SEK m 24 * Excluding non-recurring items. ICA Gruppen Annual Report 2016 1 The year in summary 2016 in summary Net sales Operating profit SEK m excluding non-recurring items, SEK m Strengthened 4,669 positions 101,221 103,655 3,937 4,138 87,174 and divestments contributed to a stronger ICA Gruppen 2014 2015 2016 2014 2015 2016 Conversion of C shares to ICA Gruppen sells inkClub ordinary shares In June ICA Gruppen signed an Q1 On 20 January 2016 all C shares Q2 agreement to sell its subsidiary in ICA Gruppen – which were all held by ICA- inkClub. The purchase price was SEK 322 million. handlarnas Förbund (the Association of ICA Retailers) – were converted to ordinary shares Apotek Hjärtat and Kronans Apotek agree to in accordance with the Articles of Association. buy and sell pharmacies Following the conversion ICA Gruppen has only In May Apotek Hjärtat and Kronans Apotek one class of share, in the form of ordinary shares entered into an agreement involving the acquisi- with equal dividend entitlement. tion and sale of a total of eight pharmacies. Acquisition and sale of pharmacies ICA Real Estate acquires land leasehold rights During the quarter Apotek Hjärtat signed an for Bromma Blocks agreement with Apoteket AB for the acquisition In April ICA Real Estate acquired a land leasehold and sale of a total of 12 pharmacies. In parallel, right for Bromma Blocks. The future aim is to two pharmacies were sold to Kronans Apotek. establish a Maxi ICA Stormarknad, Apotek Hjärtat and other businesses. Investment in easily accessible healthcare services ICA first to provide climate-guided recipes As part of Apotek Hjärtat’s efforts to increase ICA is the first grocery retailer to provide climate its range of services, in March three new “Minute guidance in its recipes. The recipes are marked Clinics” were opened for vaccinations and the with one, two or three leaves depending on how treatment of acute but mild illnesses. good they are from a climate perspective. The calculations are based on a scientific method ICA turns food waste into fruit drinks and jam developed in partnership with Chalmers Univer- A partnership was initiated with Helsingborg- sity of Technology. based Rescued Fruits in which fruit that would otherwise have been thrown out is instead turned into ICA private label fruit drinks and jam. 2 ICA Gruppen Annual Report 2016 The year in summary Key figures Further information and definitions, see page 75. Group, SEK m 2016 2015 2014 Net sales 103,655 101,221 87 174 Operating profit before depreciation/amortisation (EBITDA) 6,238 6,191 5,819 Operating profit (EBIT) excluding non-recurring items 4,669 4,138 3,937 Operating profit (EBIT) 4,518 4,594 4,097 Profit before tax 4,154 4,225 3,727 Profit from continuing operations 3,397 3,721 3,105 Profit for the year 3,418 4,913 2,667 Cash flow from operating activities for continuing operations 5,422 5,723 3,794 Cash flow from operating activities 5,422 5,845 3,612 Operating margin excl. non-recurring items, % 4.5 4.1 4.5 Key sustainability indicators Operating margin, % 4.4 4.5 4.7 Return on capital employed, % 10.5 9.8 10.1 Group 2016 2015 2014 Return on equity, % 11.9 16.6 9.3 ICA Gruppen’s operations will be climate neutral by 2020 Earnings per ordinary share, SEK 16.97 24.14 12.53 Reduction in emissions compared with 2006, % –33 –22 –27 Earnings per share, continuing operations, SEK 16.87 18.21 14.71 Socially audited corporate brand suppliers, % 98 98 90 Dividend per ordinary share, SEK* 10.50 10.00 9.50 Quality certified corporate brand suppliers, % 87 87 84 * Board’s proposal UN award for climate ICA Real Estate sells ICA Events after project Eiendom Norge AS year-end Q3 In September the UN Q4 In early December ICA Real announced that ICA had won an award for its Estate sold ICA Eiendom Norge AS, with an underly- “Klimaträtt” (Climate-right) project, cited as ing property value of SEK 2.2 billion, to UNION Real Divestment of ICA Eiendom Norge one of the most innovative and scalable global Estate Fund II. The deal provides ICA Gruppen with completed examples of what companies can do to a positive cash flow of around SEK 1.9 billion and On 1 February 2017 ICA Real Estate’s divest- address and create solutions for reduced envi- generates a capital gain of just over SEK 400 million. ment of ICA Eiendom Norge AS to UNION Real ronmental impact. The project helped and Estate Fund II, was finalized. inspired the residents of an apartment building New IT solution for product sourcing in Uppsala to reduce their climate impact by – resulting in impairment loss of SEK 148 million simple means. ICA Sweden is conducting a large IT project, the aims of which include modernising and improving Greater focus on sustainability among the efficiency of product sourcing. After evaluating ICA Gruppen’s Management Team and Board a previously chosen solution, in December ICA During the quarter ICA Gruppen’s Chief Corpo- Sweden decided to switch to a different IT solution rate Responsibility Officer joined the Manage- with better functionality and a more favourable ment Team. At the same time, ICA Gruppen’s investment calculation. The decision resulted in an Board of Directors established a Sustainability impairment loss of SEK 148 million. Committee in order to focus on these matters further. Acquisition of Lithuanian grocery chain IKI In December ICA Gruppen signed an agreement to acquire UAB Palink, which operates the gro- cery retail chain IKI in Lithuania, for EUR 213 mil- lion on a cash and debt free basis. Completion is subject to competition authorities approval, which is expected to be received no later than the fourth quarter 2017. IKI has a nationwide store network of approximately 230 stores. ICA Gruppen Annual Report 2016 3 CEO’s comments Strong position in a changing market 2016 was a good year for ICA Gruppen. We strengthened our positions in grocery The improvement in earnings is partly due retail and continued to grow in the pharmacy market. By divesting our real estate to strong performance by ICA Sweden and Apotek Hjärtat, and a substantial improvement assets in Norway and the former subsidiary inkClub, we also completed the in results for Rimi Baltic.