Annual Report 2017 Contents This is ICA Gruppen 1 2017 in brief 2 B CEO’s comments 4 ICA 100 years 6 Strategy for sustainable value creation 8 Investment case 10 Value creation 12 B Business model 14 B Markets and trends 16 B Targets and strategy 22 B S Sustainability 28 S Group performance 42 B ICA Gruppen’s segments 44 B Risks and risk management 53 B S Corporate Governance Report 58 B Board of Directors 64 B Executive Management 68 B Shares and shareholders 72 B Financial information 75 F Key ratios and definitions 76 F Alternative performance measures 77 B Five-year financial summary 78 F Group 79 F Group notes 84 F Parent Company 105 F Parent Company notes 110 F Proposed appropriation of earnings 116 B F Auditor’s report 117 Sustainability information ICA Gruppen’s vision About the Sustainability Report 120 S Sustainability data 124 S Measurement and calculation methods 129 S We make every day GRI Index, Global Compact 131 S Assurance report 134 Annual General Meeting a little easier and financial calendar 135 Glossary 136 All sections marked B and F in the table of contents have been audited. Sections marked S refer to ICA Gruppen AB’s Sustainability Report, which is also the statutory sustainability report of ICA Gruppen AB (publ). The Sustainability Report has been reviewed by the Company’s auditors. B Board of Directors’ report S Sustainability Report F Financial statements This is a translation of ICA Gruppen’s Swedish Annual Report 2017, which is the original. A focus on food and health ICA Gruppen AB is a leading retail company with a focus on food and health. The Group includes ICA Sweden and Rimi Baltic, which are primarily grocery retail opera- tions, Apotek Hjärtat, which conducts pharmacy operations, ICA Real Estate, which owns and manages properties, and ICA Bank, which offers financial services. The Group also includes the home furnishing chain Hemtex. ICA Gruppen has around 22,000 employees. The shared vision for all operations within ICA Gruppen is to make every day a little easier. Working in cooperation and making good use of economies of scale benefits ICA Gruppen’s customers, the individual businesses and ICA Gruppen as a whole. ICA Gruppen’s shares are listed on Nasdaq Stockholm, Large Cap segment. The largest shareholder at year-end 2017 was ICA-handlarnas Förbund (the Association of ICA Retailers). Performance 2013–2017 Sales 2017 Net sales, SEK m and operating margin*, % SEK 106.5 bn 106,455 101,221 103,655 82,993 87,174 Operating profit* 2017 4.5 4.5 4.5 4.4 4.1 SEK 4.6 bn 2013 2014 2015 2016 2017 Operating margin* 2017 The 3.1% like-for-like increase in sales for the year was mainly price-driven, but within ICA Sweden, Apotek Hjärtat and ICA Bank volumes also developed well. 4.4% The operating margin was somewhat lower, mainly due to a lower profit share from ICA stores and the divestment of ICA Eiendom in Norway. * Excluding items affecting comparability. ICA GRUPPEN ANNUAL REPORT 2017 1 2017 in brief Divestment of ICA Eiendom Divestment of properties to Launch of ICAx Norge completed Secore Fastigheter In August the innovation hub, Q1 In January ICA Real Estate Q2 In May ICA Real Estate divested Q3 ICAx, was launched to completed the divestment of ICA Eiendom twelve store properties to Secore Fastigheter, improve ICA Gruppen’s ability to use digital Norge AS. The purchase price was SEK 1.9 which is owned jointly by Första AP-fonden and technology to enhance the customer offerings billion with a capital gain of around SEK 400 ICA Real Estate. The underlying property value in and among the Group’s various companies. million. Altogether the sale involved a property was SEK 1,047 million. The net capital gain for the The objective is to be able to more quickly port folio of 58 properties as well as the exist- full divested building stock amounted to around develop digital services within ICA Gruppen. ing organisation. SEK 150 million. Reinforcement in IT and digitalisation Expansion of insurance offering Initiative to reduce the number of plastic expertise in the Management Team In February ICA Insurance expanded its offer- bags used In August a decision was made to appoint a ing to include dog and cat insurance. This gives In May Apotek Hjärtat became the first pharmacy Chief Information Officer (CIO) to the Man- pet owners more options in a market with few chain in Sweden to start charging for plastic agement Team. actors. There are also bonus points to earn and bags. At the same time the crude oil based bags discounts on pet products in ICA stores and being used were replaced with plastic bags New portal increases locally produced range within Apotek Hjärtat. made from renewable materials. By the end of products in ICA stores of 2017 the use of plastic bags had gone down To increase the locally produced range of Construction begins on Rimi Baltic’s new by 44%. products and increase sales of Swedish food, central warehouse and head office ICA Sweden launched a new ordering portal In March construction began on Rimi Baltic’s Presentation of ICA Gruppen’s forward- during the quarter to enable ICA stores to new, expanded central warehouse and head looking report work directly with local suppliers. The portal office in Riga. When the central warehouse is As part of ICA’s 100th anniversary ICA published is available to independent ICA retailers and expanded, warehousing operations in Latvia a forward-looking report in the second quarter suppliers throughout the country. will be consolidated to the facility in Riga, and called 100 years and onwards. The report, which the central warehousing department for the is based on interviews with trend experts and Baltic countries will be expanded. The total future consumers, presented five possible future investment is EUR 75 million. scenarios for the year 2040, and their conse- quences for society and for food production. 100 years and onwards In 2017 it was 100 years since the ICA Idea was created. The ICA Idea, which is based on cooperation between independent retailers, is one of ICA Gruppen’s main success factors and is still the foundation for ICA Gruppen’s business model. The 100th anniversary was celebrated and recognised in a variety of ways in 2017. Under the vignette ICA 100 years and onwards a number of initiatives in health, integration and sustainability have been implemented. There is a strong focus on looking to the future and recognising the opportunities and chal- lenges that exist in a world that is changing at an ever increasing pace. Read more on page 6 2 ICA GRUPPEN ANNUAL REPORT 2017 2017 IN BRIEF Acquisition of IKI approved – Financial key ratios subject to certain conditions For further information and definitions, see page 76. Q4 In October the Lithuanian competition authority approved Rimi Lithuania’s acquisition of UAB Palink which operates the Group, SEK m 2017 2016 2015 IKI grocery retail chain. The transaction was approved subject to the divestment of 17 desig- Net sales 106,455 103,655 101,221 nated stores prior its completion. Operating profit before depreciation/amortisation (EBITDA) 6,756 6,238 6,191 Taking over properties Operating profit (EBIT) excluding In December ICA Real Estate acquired eight items affecting comparability 4,642 4,669 4,138 store properties for an underlying property Operating profit (EBIT) 5,220 4,518 4,594 value of SEK 234 million and Secore Fastigheter acquired 15 store properties for an underlying Profit before tax 4,853 4,154 4,225 property value of SEK 291 million. The properties Profit from continuing operations 4,145 3,397 3,721 have ICA stores as their main tenants and pos- Profit for the year 4,145 3,418 4,913 session was transferred on 1 February 2018. Cash flow from remaining operating activities 4,601 5,422 5,723 Cash flow from operating activities 4,601 5,422 5,845 Operating margin excl. items affecting comparability, % 4.4 4.5 4.1 Operating margin, % 4.9 4.4 4.5 Return on capital employed, % 12.3 10.5 9.8 Return on equity, % 13.4 11.9 16.6 Earnings per share, SEK 20.53 16.97 24.14 Earnings per share, continuing operations, SEK 20.53 16.87 18.21 Dividend per share, SEK* 11.00 10.50 10.00 *Board’s proposal. Key sustainability indicators Events after year-end Group 2017 2016 2015 ICA Gruppen’s operations will be climate-neutral by 2020 In the beginning of 2018, a decision was taken Reduction in emissions compared with 2006, % –52 –33 –22 to establish a central warehouse for online gro- Socially audited corporate brand suppliers cery sales in Stockholm at the latest by the third (in high-risk countries), % 98 98 98 quarter of 2018. The warehouse will speed up Quality certified corporate brand suppliers, % 88 87 87 the process for home delivery customers and will improve service to ICA stores. Once fully In accordance with Chapter 6 Section 11 of the Annual Accounts Act, ICA Gruppen AB (publ) has chosen to prepare the Statutory Sustainability Report as a separate document staffed, the warehouse will be able to deliver to to the Annual Report. The Sustainability Report, the content of which is indicated in the most of the Mälardalen area. table of contents, can be found on pages (23–41, 53–57, 63, 120–133) of this document. ICA GRUPPEN ANNUAL REPORT 2017 3 CEO´S comments Strengthening our leading position 2017 was another good year for ICA Gruppen – a year in which we continued to strengthen our positions in both the grocery retail and pharmacy markets in Sweden.