Axfood 2015 Annual report Axfood 2015 AxfoodAnnual Report 2015 Increased market share Matmissionen – reducing food waste and social Profitability exclusion target reached 7.2% growth Contents Business review 1 Axfood at a glance 2 CEO’s message 4 Market and trends 11 Vision, mission and values 12 Business model 14 Strategy 14 Customers 19 Growth 20 Profitability 22 Employees and organization 26 Sustainable development 28 Targets and target achievement Our strategy is about 30 Group overview creating profitable 30 Willys WHEN YOU GROW growth through 32 Hemköp long-term commit- 34 Axfood Närlivs 36 ment, customer focus Dagab 38 Investment case and responsibility WE GROW for the environment Annual Report and sustainable 39 CFO’s message AS A COMPANY development. 40 Detailed table of contents 41 Administration report 42 Financial statements, Group 54 Financial statements, Parent Company 56 Risks and risk management 60 Corporate Governance Report 61 Chairman’s message 69 The Board’s report on internal control 72 Board of Directors 74 Executive Committee Consumers continue to feel that health 76 Notes 97 Audit report is important and are increasingly choo- 98 Several-year overview sing healthier food and organic pro- 100 Definitions and glossary ducts that offer value for money. For information on the 2016 Annual Axfood is a Swedish company governed by Swedish law. All monetary General Meeting, see page 53. amounts stated herein are in Swedish kronor (SEK). Millions of kronor are abbreviated as SEK m, billions as SEK bn and thousands as KSEK. Figures in parentheses pertain to 2014, unless otherwise stated. Market About this annual report and competitive data are Axfood’s own estimates, unless reference is The Annual Report describes Axfood’s operations, finan- made to a specific source. These estimations are based on the best and cial results and position in 2015, and includes the Corpo- most recent data available from published sources in the public sector, rate Governance Report. Sustainability matters are inte- the consumer goods industry and competitors. grated in the operations and in this annual report. A com- plete sustainability report produced in accordance with the This Annual Report is an English translation of the Swedish original. Global Reporting Initiative’s (GRI) guidelines, G4 Core, In the event of any discrepancies, the Swedish version shall govern. can be downloaded from axfood.se/en/sustainability. Axfood at a glance Axfood works with passion for food and people. Our strength is developing and driving successful food concepts in the Swedish market. Through commitment and responsibility for the environ- ment and sustainable development, we create profitable growth. WE WORK The Axfood Group includes the store chains Willys and Hemköp. Hemköp also includes proprietor-run stores, and Axfood Närlivs collaborates with the Tempo, Handlar’n and WITH PASSION Direkten formats. In addition, Axfood Närlivs serves conve- nience retailers. B2B sales are conducted through the Axfood Snabbgross chain. Dagab is responsible for the Group’s assort- ment development, purchasing and logistics. In all, Axfood has 262 wholly owned stores and FÖR FOOD AND approximately 820 collaborating stores. FOR Axfood is number two in the Swedish food retail market, with a market share of approximately 20%. #2 PEOPLE 50.1% The principal owner is Axel Johnson AB, with 50.1% of the shares. Key ratios 2015 2014 Net sales, SEK m 41,247 38,484 Operating profit, SEK m 1,760 1,447 Operating margin, % 4.3 3.8 Profit after tax, SEK m 1,361 1,104 Earnings per share, SEK 6.48 5.221) Equity ratio, % 43.0 41.9 Ordinary dividend per share, SEK 5.002) 4.251) Extra dividend per share, SEK 4.002) – Average number of employees 8,803 8,481 Electricity consumption, kWh/sq.m.3) 331.6 368.7 4) CO2,kg/tonne goods 16.9 20.0 1) During the second quarter Axfood carried out a 4:1 stock split. The number of shares after the split is 209,870,712. The comparison figures have been adjusted. 2) Proposed by the Board of Directors. 3) Pertains to Group-owned stores and warehouses. 4) Pertains to total volume for transports from warehouses to stores with own delivery vehicles. Net sales and operating margin Total return, Axfood shares, 2011–2015, index 50,000 10 350 40,000 8 300 250 30,000 6 200 4.3 20,000 4 150 3.6 3.8 3.3 3.5 100 10,000 2 50 0 0 0 11 12 13 14 15 11 12 13 14 15 Net sales, SEK m Operating margin, % NET SALES OPERATING PROFIT Willys is Sweden’s leading discount grocery chain, offering a wide assortment at 194 stores. Willys’ business concept is to develop the discount grocery segment by offering not only Sweden’s cheapest bag of groceries, but also the cheapest bag 22,320 SEK m 896 SEK m of organic groceries. Hemköp offers a wide assortment that gives customers value for money and a rich selection of fresh products. With 68 Group-owned stores and 111 franchise stores, Hemköp aims to inspire passion for food and make it easy 5,883 SEK m 221 SEK m for customers to find good meal solutions. Excl. franchise stores Axfood Närlivs is a leading wholesaler serving independent 2,730 SEK m grocers and convenience retailers. Through 21 cash and External carry stores, Axfood Snabbgross supplies restaurants, fast SEK m food vendors, cafés and pre-packed grocery suppliers. 2,734 SEK m 200 Total 10,269 SEK m Dagab is the Group’s supply chain organization and is respon- External sible for ensuring an efficient product flow, from assortment development and purchasing to warehousing and distribution. 39,756 SEK m 600 SEK m Warehousing is conducted at seven distribution centres. Total CEO'S MESSAGE CEO’s message Excellent sales growth led to achievement of profitability target Axfood had excellent sales growth in 2015. All companies contributed to our good performance. Thanks to this sales growth, we achieved an operating margin in excess of 4%. Our successes in 2015 can be credited to our strategy and the strong commitment of all of Axfood’s employees. Matmissionen Long-term effort and commitment All companies contributed behind successes to the sales growth As part of efforts to reduce food Axfood’s performance in 2015 was excellent, Willys had favourable sales performance in waste, during the year Axfood partnered with Stockholms Stads- with all companies contributing to the positive 2015, both overall and especially on a like-for- mission to establish Matmissionen, development. While it is out in the stores where like basis. The average spend and the number the first social supermarket in the customers make their choices and drive sales, of customers continued to rise. Nordic countries. all of Axfood’s supporting units play an impor- Hemköp grew its sales both in wholly owned tant role in the value chain and contributed to and franchise stores. Through modernization, the year’s success. These successes were the well run stores and attractive customer offer- result of a long-term effort in accordance with ings, more customers have been drawn to our strategy and the strong commitment of all Hemköp’s stores. our employees. Axfood Snabbgross, in the Axfood Närlivs Quarter after quarter we grew more than business area, reported outstanding sales dur- the market and thereby gained market shares. ing the year owing to higher demand from café As a result of our strong sales, we managed to and restaurant customers. 7.2% report an operating margin that reached our Dagab’s sales were affected mainly by high sales growth for Axfood in 2015. long-term profitability target of 4%. demand from the Group’s stores. In addition, its strong earnings can be credited to greater effi- ciency in the logistics operations and favourable development for private label products. Sustainability is profitable Axfood was early in taking responsibility for being a driver of sustainable development in the areas that we can influence. As early as 2009 we took the decision to become climate-neutral by 2020. Thus in the most relevant environmen- tal aspects, during the year we reduced our electricity consumption as well as our CO2 emissions. We have a responsibility to make it easy for customers to make conscious and well informed choices. Apart from continued work with food waste, animal welfare, sustainable production processes and country of origin labelling, in 2016 we will be introducing the Product of Sweden label that the industry has now agreed on. Our growth shows that it is profitable to invest in sustainable development. We are active in driving the industry in this direction, but it is also important that we have the right external environment and political policies that promote sustainability. 2 | AXFOOD ANNUAL REPORT 2015 CEO'S MESSAGE Our sales growth is proof of our success at offering customers Market outlook products that give them value Indications point to a continuation of the Swed- ish economy’s favourable development in 2016, for money and inspire passion driven by strong private consumption. With continued favourable growth and the right con- for food. ditions in the labour market, we are happy to do our part to create more work opportunities that can be important entry jobs for many. We expect food inflation in 2016 to be in the range of 1%–2%. Axfood going forward – continued profitable growth We aim to continue managing our customers’ and shareholders’ trust, and to build further upon the year’s success by focusing on profitable growth. We are maintaining our high pace of establishment and plan to open ten new stores in 2016 at the same time that we launch e-com- merce to consumers in Stockholm and Gothen- burg.