Axfood — Earnings Release 2017

Jul 14, 2017

Good growth with high level of activity

Second quarter summary

• Consolidated net sales amounted to SEK 11,925 m $(10,901)$ , an increase of 9.4%.
• Operating profit was SEK 487 m (494), corresponding to an operating margin of $4.1\%$ (4.5%).
• Net profit for the period was SEK 379 m (384), and earnings per share were SEK 1.81 (1.83).
• Eurocash Food AB consolidated as from 1 April.
• On 31 May Axfood acquired the pre-packed dinner bag company Middagsfrid.
• Axfood is focusing on growth and new investments, and the forecast is an operating profit for 2017 that is level with the outcome for 2016.

First half summary

• Consolidated net sales amounted to SEK 22,564 m $(21,206)$ , an increase of 6.4%.
• Operating profit was SEK 884 m (902), corresponding to an operating margin of $3.9\%$ $(4.3\%).$
• Net profit for the period was SEK 688 m (700), and earnings per share were SEK 3.28 (3.34).
• On 31 January Axfood completed the offer to acquire all of the shares in Matse Holding AB. Axfood's holding as per 31 March was more than 99% of the shares.

Significant events after the balance sheet date

Effective 1 August, Anders Lexmon has changed over from serving as acting CFO to permanent CFO.

Key ratios

	Q 2	Pro forma		Q 2	6 mos	Pro forma		6 mos	12 mos
SEK m	2017	02 2016 1)	Change 1	2016	2017	6 mos 2016	Change 1	2016	2016
Net sales	11,925	10,901	9.4%	10.991	22.564	21,206	6.4%	21,386	43.355
Operating profit	487	494	$-1.4\%$	494	884	902	$-2.0%$	902	1,902
Operating margin, %	4.1	4.5	$-0.4$	4.5	3.9	4.3	$-0.4$	4.2	4.4
Profit for the period	379	384	$-1.3%$	384	688	700	$-1.7%$	700	1,473
Earnings per share, SEK 2)	1.81	1.83	$-1.1%$	1.83	3.28	3.34	$-1.8%$	3.34	7.02
Cash flow from operating activities per share, SEK	5.1	3.0	70.0%	3.0	5.3	4.9	8.2%	4.9	10.7
Return on capital employed, $\%^{3}$	47.2	46.9	0.3	46.9	47.2	46.9	0.3	46.9	39.5
Return on shareholders' equity, $\%^{3)}$	42.7	41.6	1.1	41.6	42.7	41.6	1.1	41.6	34.1
Shareholders' equity per share, SEK 4	÷.			$\blacksquare$	16.74	15.87	5.5%	15.87	19.62
Equity ratio, %	÷			$\overline{\phantom{a}}$	33.4	34.6	$-1.2$	34.6	39.1
11.777.77.71.7 $\cdots$ $0.1$ $0.1$ $1$	. and the state of the state of the	Contract Contract Contract Contract	$\sim$ $\sim$ $\sim$	0.04H		$\mathbf{1}$ $\mathbf{0}$ $\mathbf{1}$

To reflect the acquisition of the fruit and vegetable warehouse operations as from 1 January 2017, pro forma figures are presented for the comparison periods, see page 9. ²⁾ Before and after dilution. ³⁰ Moving 12-month figures. ⁴⁰ Net asset value per share corresponds to shareholders' equity per share.

For further information, please contact:

Cecilia Ketels, Head of investor Relations, mobile +46-72-236 06 43

The information herein is such that Axfood AB (publ) is
required to make public in accordance with the EU Market
Abuse Regulation and the Swedish Securities Market Act.
The information was submitted for publication, throug

This interim report is an English translation of the Swedish
original. In the event of any discrepancies, the Swedish version shall govern.

CEO's comments - Good growth with high level of activity

Sales growth during the second quarter of 2017.

During the second quarter Axfood had strong sales with good growth across the board. The level of activity was high, owing to the integration of the newly acquired companies and our other future ventures, many of which are tied to our digital growth. Consolidated operating profit was in line with the preceding year and our full-year forecast.

Good growth and high level of activity

During the second quarter Axfood showed a high level of activity in all subsidiaries and in all channels. Sales were strong across the board, entailing good growth for the Group.

We have integrated the cross-border shopping chain Eurocash and have begun creating efficient processes with our new chain. At the same time, we complemented our online business with the acquisition of the pre-packed dinner bag company Middagsfrid, which is now part of mat.se, and continued our work on building our digital offerings.

Operating profit in line with forecast

Operating profit for the quarter was in line with the same quarter a year ago and our full-year forecast. Underlying profitability is stable. The operating margin is slightly lower as a result of our future ventures mainly investments in e-commerce. In addition, Hemköp's earnings were affected by the temporary closure of the Hemköp City store for refurbishment. At the Group level we have also had higher joint-Group costs, including for IT and data protection.

Future ventures in e-commerce

Many of our investments pertain to our omni-channel strategy of enhancing the customer experience across all channels.

The online store mat.se continues to grow and expanded its dark store capacity in both Stockholm and Gothenburg during the quarter. At both Willys and Hemköp we have rolled out e-commerce in an additional nine cities.

We have migrated our websites for Hemköp and Willys to the e-commerce platforms in order to give customers a smoother shopping experience and to create more efficient handling for the companies. The installation of fibre optic cables, which enables us to offer Wifi to customers in all of our stores, is another example of ongoing activities.

For our business customers, we have a new e-commerce platform. We have begun implementing the platform, which will be established in all Axfood Snabbgross stores during the autumn.

Axfood's climate impact

Our climate footprint is an important key ratio in our sustainability work, and our goal is to be climate-neutral by 2020. Much to our satisfaction, we can ascertain that our climate impact decreased by 22% compared with 2015. Since setting our target in 2009 we have lowered our footprint by nearly 80%.

Refrigerants – the substances used to cool our refrigerator and freezer displays account for the largest share of our emissions. As old refrigeration systems gradually need to be upgraded, we are replacing them with more environmentally adapted displays. This is also necessary, since after 2020 it will no longer be allowed to refill refrigeration systems with newly produced refrigerants that have a high environmental impact.

Other future outlooks

We continue to strengthen the respective companies' positions in the market with a high level of activity and investment.

We are seeing outstanding performance at Willys, and through our entry into crossborder shopping we are further expanding our focus in the discount segment. In the most recent brand survey published by the retail magazine Market, Willys advanced considerably and ranked among the retail sector's ten strongest brands, which shows the strength in Willys' position.

Sales continue to develop favourably for the Hemköp chain. Moreover, we are looking forward to opening the doors of our new flagship store, Hemköp City, at the end of August.

We will open five new stores during the second half of the year. In total this represents one fewer store than originally planned due to a delayed construction process.

We stand by our estimate for food inflation of 1%-2% during 2017 and reiterate our forecast for 2017.

Klas Balkow President and CEO, Axfood AB

The Swedish food retail market

According to Statistics Sweden's (SCB) retail trade index for May 2017, accumulated sales for the food retail segment (excl. alcoholic beverages) grew $2.6\%$ in current prices compared with the same period in 2016. In fixed prices, adjusted for price and calendar effects, volume increased by 1.6%.

Axfood's sales growth¹⁾ compared with the food retail market²⁾

$^{\rm D}$ Axfood's consolidated wholesale and retail sales. $^{\rm D}$ Sales for the Swedish food retail market excl. alcoholic beverages, based on the HUL/SCB retail trade index (Dagligyaruhandel, Mest livsmedel). Preliminary data may need to be revised in accordance with HUI/SCB's revision policy

Sales - Axfood Group

Second quarter

Net sales for the Axfood Group amounted to SEK 11,925 m (10,901) during the second quarter, and increase of 9.4%. Sales growth was favourably affected by the acquisition of Eurocash and by Easter falling in the second quarter this year. Store sales for the Axfood Group (wholly owned stores and Hemköp franchises) totalled SEK $9.972$ m ( $9.028$ ), an increase of 10.5%. Sales for Group-owned retail operations increased by 10.2% during the second quarter, with a $5.9\%$ rise in like-for-like sales. A larger number of customer visits contributed to the positive sales development. Sales for Group-owned Hemköp stores were negatively affected by the temporary closure of the Hemköp City store in Stockholm. Sales of private label products accounted for 27.0% (26.8%) of total sales at the end of the quarter.

January-June

Net sales for the Axfood Group amounted to SEK 22,564 m (21,206) during the period, an increase of 6.4%. Store sales for the Axfood Group (Group-owned stores and Hemköp franchises) totalled SEK 18,977 m (17,754), an increase of 6.9%. Sales for Group-owned retail operations increased by 6.0%, with a 3.6% rise in like-for-like sales.

Net sales per segment

SEK m	Q 2 2017	Pro forma 02 2016	$\%^{1}$	Q 2 2016	6 mos 2017	Pro forma 6 mos 2016	$\frac{q}{20}$	6 mos 2016	12 mos 2016
Willys	6,601	5,823	13.4	5,823	12,365	11,466	7.8	11.466	23,164
Hemköp	1.542	1,563	$-1.3$	1.563	3.087	3,108	$-0.7$	3.108	6,171
Axfood Närlivs	789	760	3.8	760	1.444	1.394	3.6	1,394	2,884
Dagab 2)	10,680	9,894	7.9	10.734	20.428	19.206	6.4	20.846	42,319
Joint-Group 2) 3) Internal sales between segments that are eliminated	193	181	6.6	181	383	357	7.3	357	722
Dagab 2)	$-7.698$	$-7.150$	7.7	$-7.900$	$-14.783$	$-13.991$	5.7	$-15.451$	$-31,227$
Axfood Närlivs	$-1$	$-1$	0.0	$-1$	$-3$	$-1$	200.0	$-1$	-4
Joint-Group 2)	$-181$	$-169$	7.1	$-169$	$-357$	$-333$	7.2	$-333$	$-674$
Net sales, total 2)	11.925	10,901	9.4	10.991	22.564	21,206	6.4	21,386	43.355

¹⁾ Percentage change compared with corresponding period a year ago. ²⁾ Pro forma after acquisition of fruit and vegetable warehouse operations. See page 9. ³⁾ Includes head office support functions, such as the Exec

Private label share at the end of the second quarter of 2017.

Store sales - Group-owned and franchise stores²⁾

SEK m	Q2 2017	$\%^{1}$	Like-for-like sales, $\%^{1}$	6 mos 2017	$\%^{1}$	Like-for-like sales, $\%^{1}$
Willys	6.601	13.4	6.7	12,365	7.8	4.0
Hemköp, Group-owned	1,513	$-1.7$	2.6	3.027	$-1.0$	2.3
Hemköp franchises	1,858	11.5	4.6	3.585	11.0	3.9
Hemkop total	3.371	5.2	3.7	6.612	5.2	3.1
Group-owned retail operations	8.114	10.2	5.9	15,392	6.0	3.6
Store sales, Axfood Group	9.972	10.5	5.6	18.977	6.9	3.7

¹⁾ Percentage change compared with corresponding period a year ago.

²⁾See also the table "Store sales. Group-owned and franchise stores" on page 22.

Change in store structure

Number of stores	Dec.	New 2016 establishments Acquisitions		Sales/ closures	Conversions to/from	June 2017
Willvs 1	196		8			205
Hemköp	67	3		-3		67
Total, Group-owned	263	4	8	-3		272
Hemköp franchises	118			- 1		120
Axfood Group total	381	Δ	11	-4		392
1) Of which, Willys Hemma	48				$\sim$	47
Of which, Eurocash			8			8

Earnings – Axfood Group

Second quarter

Operating profit for the second quarter totalled SEK 487 m $(494)$ . The operating margin was $4.1\%$ (4.5%). Operating profit was stable for all subsidiaries except Hemköp, whose earnings were affected by the temporary closure of its Hemköp City store in Stockholm for refurbishment and an expansive e-commerce roll-out. The higher activity level for future ventures had a negative impact on the Group's profitability. The higher activity level also entailed higher joint-Group costs, including for IT projects. Through the end of May, social security costs for young employees were based on a higher percentage rate than in the preceding year, which affected operating profit. As from 1 June 2016 there is no differentiation in employer payroll taxes. Profit after financial items was SEK 486 m (493). Profit after tax was SEK 379 m (384).

January-June

Operating profit for the period totalled SEK 884 m (902). The operating margin was $3.9\%$ $(4.3\%)$ . Net financial items for the period totalled SEK -2 m $(-4)$ , and profit after financial items was SEK 882 m (898). Profit after tax was SEK 688 m (700).

SEK m	Q 2 2017	Q 2 2016	$\%^{1}$	6 mos 2017	6 mos 2016	$\%^{1}$	$12 \text{ mos}$ 2016
Willys	263	245	7.3	464	440	5.5	922
Hemköp	46	71	$-35.2$	105	130	$-19.2$	260
Axfood Närlivs	67	57	17.5	89	79	12.7	202
Dagab	169	160	5.6	346	328	5.5	670
Joint-Group 2)	$-58$	$-39$	48.7	$-120$	$-75$	60.0	$-152$
Operating profit for the period	487	494	$-1.4$	884	902	$-2.0$	1,902
Net financial items 3)	$-1$	$-1$	0.0	$-2$	$-4$	$-50.0$	-8
Profit for the period after financial items	486	493	$-1.4$	882	898	$-1.8$	1.894

Operating profit per segment

¹⁾ Percentage change compared with the corresponding period a year ago.

²⁾ Includes head office support functions, such as the Executive Committee, Finance/Accounting, Communications, Business Development, HR and IT.

³⁰ Net financial items are not distributed per operating segment. Axfood has no significant transactions with related parties other than transactions with subsidiaries.

Capital expenditures, depreciation/amortization. SEK m

Capital expenditures

Total capital expenditures in intangible assets and in property, plant and equipment during the period January–June amounted to SEK 1,420 m (301), of which SEK 1,095 m (0) was attributable to acquisitions of operations. This pertained primarily to the acquisition of Matse Holding AB, but Eurocash Food AB, Saba's warehouse operation, and Middagsfrid AB were also acquired during the period. In addition, SEK 219 m (208) pertained to investments in non-current assets in retail operations, SEK 20 m (13) to non-current assets in wholesale operations, and SEK 84 m (76) to IT.

As per 31 January, 98.8% of the shareholders had accepted Axfood's public offer to acquire all of the shares in Matse Holding AB. Axfood thereafter completed the acquisition, delisted Matse Holding AB from Nasdaq First North, and started compulsory redemption of the outstanding shares. The compulsory redemption process is still in progress. The purchase price for the company was SEK 556 m. As per 30 June Axfood's holding was more than 99% for purchase consideration of SEK 551 m, of which SEK 49 m was paid for shares bought on Nasdaq First North in December 2016. Matse Holding AB is consolidated in the Axfood Group as from 1 February 2017.

For a preliminary purchase price allocation analysis, see Note 5.

Financial position and cash flow

Cash flow from operating activities before paid tax amounted to SEK 1,339 m $(1,240)$ during the year to date. Paid tax amounted to SEK -234 m (-205). Payment of the shareholder dividend affected cash flow by SEK-1,259 m $(-1,889)$ , and net capital expenditures affected cash flow by SEK $-1,208$ m $(-266)$ . The increase is mainly attributable to acquisitions of operations.

Cash and cash equivalents held by the Group amounted to SEK 364 m, compared with SEK 1,726 m in December 2016. Interest-bearing liabilities and provisions totalled SEK 653 m, compared with SEK 498 m in December 2016. Interest-bearing net debt was SEK 267 m at the end of the quarter, compared with an interest-bearing net debt receivable of SEK 1.249 m in December 2016. The change in interest-bearing net debt is mainly due to payment of the dividend, payment of the consideration for Matse Holding AB, and other acquisitions of operations during the first half of the year. Share repurchases associated with LTIP 2017 amounted to SEK 28 $m(0)$ during the period, see Note 8.

The equity ratio was 33.4%, compared with 39.1% in December 2016.

Derivation of total investments and net capital expenditures in cash flow

SEK m	6 mos 2017	6 mos 2016
Total investments	$-1,420$	$-301$
Investments in finance leases	28	26
Divestment of tangible/intangible assets	12	10
Acquisition of financial assets	$-1$	Ω
Acquisition mat.se, other operating items	60
Acquisition other operations, other operating items	113	-2
Divested operations	$\Omega$
Cash flow from investing activities	-1.208	-266

Results per operating segment

Willys

Second quarter

Willys reported sales growth of 13.4% during the second quarter compared with the same period a year ago. Sales amounted to SEK $6,601$ m $(5,823)$ and were favourably affected by Easter falling during the second quarter this year and by good sales for Willys for both the Easter and Midsummer holidays. Willys noted increases in both the number of customer visits and in the average spend. The higher sales are also attributable to sales from Eurocash, which is consolidated in Willys as from 1 April. The plan is that Norges gruppen will acquire 49% of Eurocash. Approval from the European Commission is expected during the third quarter. Like-for-like sales had positive development of 6.7%.

During the second quarter Willys launched e-commerce in an additional five cities (Helsingborg, Oskarshamn, Falun, Kristianstad and Akersberga). The delivery area in Gothenburg was expanded with the stores in Torslanda and Kållered. In the Stockholm area, the Rotebro store now also offers online shopping.

Operating profit totalled SEK 263 m $(245)$ , an increase of 7.3%. The operating margin was level with the comparison period, at $4.0\%$ (4.2%).

No change took place in Willys' store structure during the second quarter; rather, the focus was on adapting more stores to e-commerce. However, eight stores were added through the acquisition of Eurocash. One Willys store will be established during the second half of the year. The other, previously planned establishment will not be ready to open until early 2018 due to a delay in the construction process.

Willys' private label share was 28.7% at the end of the quarter.

January-June

Willys' sales during the period January–June 2017 amounted to SEK 12,365 m (11,466), an increase of 7.8% compared with the same period a year ago. Like-for-like sales increased by 4.0%. Operating profit was SEK 464 m $(440)$ , and the operating margin was 3.8% (3.8%).

SEK m	Q 2 2017	Q2 2016	Change	6 mos 2017	6 mos 2016	Change	12 mos 2016
Net sales	6.601	5.823	13.4%	12,365	11.466	7.8%	23,164
Change in like-for-like sales, %	6.7	$-0.2$	6.9	4.0	2.3	1.7	1.4
Operating profit	263	245	7.3%	464	440	5.5%	922
Operating margin, %	4.0	4.2	$-0.2$	3.8	3.8	0.0	4.0
Number of Group-owned stores	٠		$\blacksquare$	205	196	9	196
Average number of employees during the period	Ξ.		$\blacksquare$	4.752	4.460	6.5%	4,685
Private label share, %	÷		$\overline{\phantom{a}}$	28.7	28.8	$-0.1$	30.1

Hemköp

Second quarter

Hemköp including the franchise stores showed growth of 5.2% during the second quarter. Both the average spend and number of customer visits increased.

Sales for Group-owned Hemköp stores amounted to SEK 1.513 m (1.539), a decrease of 1.7%. New establishments had a positive effect on sales, but the temporary closure for refurbishment of the Hemköp City store in Stockholm – one of Hemköp's largest stores – and the conversion of wholly owned stores to franchises led to lower sales than a year ago. The number of customer visits in Group-owned stores thereby decreased, but the average spend increased during the quarter. The Hemköp City store will re-open at the end of August.

Like-for-like sales rose 2.6% during the period.

Hemköp's net sales (including franchise fees) decreased by 1.3% compared with the same period a year ago.

Sales for franchise stores totalled SEK 1.858 m (1.666), an increase of 11.5%, driven both by higher like-for-like sales, 4.6%, and more franchise stores compared with a year ago.

During the second quarter Hemköp established e-commerce operations in an additional four cities: Malmö, Lund, Linköping and Örebro. Hemköp has been offering online shopping since previously also in Stockholm and Gothenburg.

Sales, SEK bn, and operating margin, %

Operating profit for the second quarter was SEK 46 m $(71)$ , corresponding to an operating margin of $3.0\%$ (4.5%). Operating profit was weighed down by the temporary closure of the Hemköp City store and the e-commerce roll-out.

Hemköp established one new store during the quarter, in Örebro, and plans to open an additional three stores during the second half of the year. On the franchise side, one retailer left the Hemköp chain, and one 91/9 store was converted to retailer-owned. This entails that the number both of Group-owned and retailer-owned stores was unchanged compared with the first quarter. Compared with the second quarter a year ago, the number of Group-owned stores was unchanged, and the franchise store network has grown by five stores. Hemköp's private label share was 22.9% at the end of the quarter.

January-June

Sales for Group-owned stores amounted to SEK 3,027 m (3,058), a decrease of 1.0%. Likefor-like sales for Group-owned stores rose 2.3% during the period. Sales for franchise stores totalled SEK 3,585 m $(3,230)$ , an increase of 11.0%, with a 3.9% rise in like-for-like sales.

Operating profit for the period January–June was SEK 105 m (130). The operating margin for the period was $3.4\%$ (4.2%).

SEK m	Q 2 2017	Q2 2016	Change	6 mos 2017	6 mos 2016	Change	$12 \text{ mos}$ 2016
Net sales	1,542	1,563	$-1.3%$	3,087	3.108	$-0.7%$	6,171
Change in like-for-like sales, %	2.6	5.2	$-2.6$	23	5.7	$-3.4$	4.0
Operating profit	46	71	$-35.2\%$	105	130	$-19.2%$	260
Operating margin, %	3.0	4.5	$-1.5$	3.4	4.2	$-0.8$	4.2
Number of Group-owned stores			۰	67	67	$\Omega$	67
Average number of employees during the period	۰.		۰	1,696	1.738	$-2.4%$	1,817
Private label share, %			۰	22.9	22.3	0.6	22.7

Axfood Närlivs

Second quarter

Axfood Närlivs' sales totalled SEK 789 m (760) during the second quarter, representing growth of 3.8% compared with a year ago. Growth was driven by higher sales for stores that were newly established in the preceding period and by a higher average spend.

Operating profit for the second quarter totalled SEK $67 \text{ m}$ $(57)$ , and the operating margin was $8.5\%$ (7.5%). Profitability increased mainly owing to higher sales for both Axfood Snabbgross and in the wholesale segment.

At the end of June Axfood Snabbgross had 23 (22) stores. Axfood Närlivs plans to establish another store during the second half of the year.

January-June

Axfood Närlivs' sales during the period January–June amounted to SEK 1,444 m (1,394), an increase of 3.6%. Operating profit for the period was SEK 89 m $(79)$ , and the operating margin was $6.2\%$ $(5.7\%)$ .

SEK m	Q 2 2017	Q2 2016	Change	6 mos 2017	6 mos 2016	Change	12 mos 2016
Net sales	789	760	3.8%	1.444	1.394	$3.6\%$	2,884
Operating profit	67	57	17.5%	89	79	12.7%	202
Operating margin, %	8.5	7.5	1.0	6.2	5.7	0.5	7.0
Axfood Snabbgross, no. stores	۰		٠	23	22		22
Average number of employees during the period	٠		٠	465	448	$3.8\%$	476

¹⁾ Due to a reorganisation in January 2015, there are no comparison figures for 2013 and 2014

Sales, SEK bn, and operating margin, %

Dagab

Second quarter

The support company Dagab had favourable growth in sales to both the store chains and in the wholesale business. Sales totalled SEK 10,680 m (9,894), an increase of 7.9%. Sales were adjusted by SEK-840 m for the second quarter of 2016; see the pro forma figures on page 9. The subsidiary mat.se and the newly acquired pre-packed dinner bag company Middagsfrid made a positive contribution to sales.

Operating profit rose $5.6\%$ to SEK 169 m (160). The operating profit improved mainly through higher sales, but was weighed down by the profitability of online sales. The operating margin of $1.6\%$ (1.6%) was maintained due to favourable sales, cost control and high productivity.

In private labels, during the quarter a new brand, Dazzley, was launched for confectionary products, biscuits, sweets and ice cream. The first product to be launched was ice cream, which is now available in stores' freezer displays.

January-June

Dagab's sales during the period totalled SEK 20,428 m (19,206), an increase of 6.4%. For the period January-June 2016, sales were adjusted by SEK -1,640 m; see the pro forma data on page 9. Operating profit was SEK 346 m (328), corresponding to an operating margin of $1.7\%$ $(1.7\%).$

						Pro forma
SEK m	02 2017	Pro forma 022016 1	$\%^{1}$	Q 2 2016	6 mos 2017	6 mos 2016	$\%^{1)}$	6 mos 2016	12 mos 2016
Net sales	10,680	9,894	7.9	10.734	20,428	19,206	6.4	20.846	42,319
Distributed sales	8,305	7.778	6.8	6,962	15,932	15,133	5.3	13.494	27,639
Operating profit	169	160	5.6	160	346	328	5.5	328	670
Operating margin, %	1.6	1.6	0.0	1.5	1.7	1.7	0.0	1.6	1.6
Average number of em- ployees during the period	$\sim$			$\sim$	2,100	1.787	17.5	1,787	1,888
Delivery reliability, % $\sim$	96.7	96.1	0.6	96.1	97.0	96.3	0.7	96.3	96.8

$\frac{D}{D}$ Comparison figures are pro forma to reflect the acquisition of the fruit and vegetable warehouse operations. See page 9.
²⁾ No comparison figures are available for Q2 13–15 due to the acquisition of the fruits and a reorganisation in 2015.

Parent Company

Other operating revenue for the Parent Company amounted to SEK 125 m (116) for the period January–June. After selling and administrative expenses of SEK 197 m (159) and net financial items of SEK 1 m (2), profit after financial items was SEK -71 m (-41). Capital expenditures totalled SEK $2 \text{ m}$ (4) during the period.

The Parent Company's interest-bearing net debt was SEK 279 m at the end of the period, compared with a net debt receivable of SEK 188 m as per December 2016. The Parent Company has no significant transactions with related parties, other than transactions with subsidiaries.

Sales, SEK bn, and operating margin, $\%$ ¹⁾²

12

Pro forma change in fruit and vegetable flow

On 1 January 2017 Dagab Inköp & Logistik AB acquired Saba Logistics AB's warehouse operations in Helsingborg. As a result of this acquisition, pro forma figures are presented for the comparison periods. Previously, sales of fruits and vegetables to Saba were included in Dagab's net sales - sales that were eliminated in the Axfood Group's net sales. Since this business is now conducted under Dagab's management, these sales are excluded.

Compilation of sales, operating margin and cost of goods sold 2016, pro forma

			02 2016
SEK m	Q 2 2016	Adjustment	pro forma	6 mos 2016	Adjustment	6 mos pro forma
Dagab
Net sales	10,734	-840	9.894	20,846	$-1,640$	19,206
Of which, distributed sales	6,962	816	7,778	13.494	1,639	15,133
Internal sales	$-7,900$	750	$-7,150$	$-15.451$	1,460	$-13.991$
Operating margin, %	1.5	0.1	1.6	1.6	0.1	1.7
Group
Net sales	10,991	$-90$	10,901	21,386	$-180$	21,206
Cost of goods sold	$-9,391$	90	$-9,301$	$-18,292$	180	$-18.112$
Operating margin, %	4.5	0.0	4.5	4.2	0.1	4.3
SEK m	O 3 2016	Adjustment	03 2016 pro forma	9 mos 2016	Adjustment	9 mos pro forma
Dagab
Net sales	10,559	$-805$	9,754	31,406	$-2,445$	28,960
Of which, distributed sales	6.865	772	7.637	20,359	2,411	22,770
Intern sales	$-7,690$	698	$-6.992$	$-23,141$	2.158	$-20,983$
Operating margin, %	1.9	0.1	2.0	1.7	0.1	1.8
Group
Net sales	10,853	$-107$	10,746	32,239	$-287$	31,952
Cost of goods sold	$-9,262$	107	$-9,155$	$-27,554$	287	$-27,267$
Operating margin, %	5.5	0.1	5.6	4.7	0.0	4.7
	04		04 2016	Full year		Full year 2016 pro
SEK m	2016	Adjustment	pro forma	2016	Adjustment	forma
Dagab
Net sales	10.914	$-783$	10,131	42,319	$-3,228$	39,091
Of which, distributed sales	7,280	765	8,045	27,639	3,176	30,815
Intern sales	$-8,086$	689	$-7,397$	$-31,227$	2,847	$-28,380$
Operating margin, %	1.3	0.1	1.4	1.6	0.1	1.7
Group
Net sales	11,116	$-94$	11,022	43,355	$-381$	42,974
Cost of goods sold	$-9.597$	94	$-9.503$	$-37,151$	381	$-36.770$
Operating margin, %	3.6	0.0	3.6	4.4	0.0	4.4

Sustainable development

Key ratios - Group

	Q 2 2017	Q 2 2016	6 mos 2017	6 mos 2016	Full year 2016
Organic products as % of total food sales
Axfood	6.7	6.3	7.0	6.7	6.8
Willys	5.9	6.0	6.2	6.1	6.0
Hemköp	9.3	7.8	9.7	8.7	9.3
Growth in vegetarian protein substitutes, $\frac{1}{2}$ %
Axfood	25	40	28	39	37
Willys	30	37	31	39	37
Hemköp	17	46	21	46	40
KRAV-certified meat as % of total meat sales
Axfood	3.9	3.7	4.2	3.9	36
Willys	2.6	2.9	2.8	3.1	2.9
Hemköp	8.8	7.4	9.2	7.1	6.8
Combustible waste 2) (tonnes), share of net sales (SEK m), %
Willys	38	43	38	43	40
Hemköp	n a	n.a.	n a	n.a.	n.a.
Axfood Snabbgross	21	22	21	22	21
Private label product recalls from stores	10	8	20	14	24
Product recalls from stores, other brands	25	23	52	40	76
Number of social audits 3)	18	21	24	27	54
Electricity consumption, kWh/m 2 (stores and warehouses $)$ 4)	312.0	334.4	312.0	334.4	334.0
Electricity consumption (kWh) as share of net sales (SEK), $\%^{5}$	0.58	0.64	0.58	0.64	0.62
$CO2$ , kg/tonne goods 6)	6.4	13.5	6.4	13.5	8.7
Work attendance rate, %	94.3	93.9	93.9	93.6	93.9

$\frac{1}{10}$ Compared with same period a vear ago

²⁾ Moving 12-month figures, with 1 quarter delay.

Wording 12-month in guarant and via the organization Business Social Compliance Initiative (BSCI).
⁴⁾ Moving 12-month figures. Pertains to Group-owned stores and warehouses under joint electricity contracts.

⁵⁾ Inflation-adjusted net sales.

⁶ Moving 12-month figures. Pertains to total volume for transports from warehouses to stores using own delivery fleet.

Sales of organic and vegetarian products

During the first half of 2017 sales of organic products accounted for $7.0\%$ (6.7%) of Axfood's total food sales. Axfood has set a target for organic products to account for 10% of total food sales by 2020.

Sales of vegetarian protein substitutes grew by 25% during the second quarter. Two examples of exciting vegan products launched during the quarter were lupinghurt, a yoghurt alternative made of coconut milk and lupin instead of milk, and sweet potato aioli, which is based on sweet potatoes instead of eggs.

Reduced carbon footprint 2016

Since 2009, all premises in which Axfood is the electricity customer use renewable electricity and thereby have no carbon footprint. For certain stores, the electricity is included in the rent, which is common in shopping centres and in cases where Axfood can only expressly request renewable electricity via the property owner. In 2016 Axfood had 14 stores without renewable electricity. Owing to these stores, it has not been possible to calculate Axfood's total carbon footprint for 2016 until the Swedish Energy Markets Inspectorate now in June has published the residual mix for 2016, which shows the carbon footprint of non-renewable electricity.

Axfood's total carbon footprint for 2016 corresponded to 20,761 tonnes of $CO₂$ equivalents. This represents a decrease of 22% compared with 2015. As in 2015, refrigeration systems accounted for the largest carbon footprint in 2016 (2016: 43%, 2015: 43%). The improvement was greatest for goods transports with the company's own fleet, for which the carbon footprint was nearly halved in 2016 (2016: 26%, 2015: 35%). This success is mainly attributable to the conversion to HVO fuel, which is a synthetic diesel produced through hydrogenation of plant-based fats and/or waste animal fats. Electricity consumption accounted for $26\%$ of the Group's carbon footprint in 2016 $(2015: 18\%)$ , and business travel for 5% $(2015: 4\%)$ .

Axfood's overarching environmental target is to be climate-neutral and to reduce the climate impact from its own operations by 75% by 2020 (base year 2009). Since 2009 through 2016 Axfood has reduced its climate impact by 79%.

Care for Syrian refugees

During 2017 Axfood has looked into whether suppliers of private label product in Turkey are working preventively against exploitation of Syrian refugees in their supply chains. This study entails ensuring that refugees have the conditions that they are entitled to. Axfood is asking suppliers if they have a policy, such as the policy adopted by the organization BSCI¹, and what kind of support employers provide to any refugees that work for them.

The initial responses indicate that no illegal exploitation is taking place of refugees in production, but that there may be risks in growing operations further down in the supply chain. A majority of suppliers have now adopted policies for responsible recruitment of refugees. This investigation is continuing with physical visits during the second half of the year.

Forecast, financial guidance and market outlook 2017

• Axfood is focusing on growth and new investments, and the forecast is for an operating profit in 2017 that is level with the outcome for 2016.
• Axfood's capital expenditures are expected to total SEK 800-900 m excluding acquisitions in 2017.
• Axfood expects food inflation in Sweden to be in the range of $1\% 2\%$ in 2017.

Future reports

The interim report for the period January–September 2017 will be presented at 7 a.m. CET on 19 October 2017.

The year-end report for 2017 will be presented at 7 a.m. CET on 6 February 2018.

Press releases during the second quarter

Axfood Snabbgross moves to new store in Uppsala 3 April 2017

• 20 April 2017 Decision on share repurchases by Axfood's board
• 26 April 2017 Willys first grocery chain to obtain "Good Environmental Choice" ecolabel for all stores
• 28 April 2017 Hemköp accelerates pace of e-commerce with expansion to Malmö and Lund
• 31 May 2017 Axfood acquires Middagsfrid
• 21 June 2017 Jonas Ragnhage appointed as new President of Eurocash Food AB

$1$ The Business Social Compliance Initiative, undergoing a name change to Amfori – Trade with Purpose.

The interim report for the period January-June 2017 gives a fair overview of the Parent Company's and Group's operations, financial position and results of operations, and describes significant risks and uncertainties facing the Parent Company and companies included in the Group.

Stockholm, 14 July 2017

Mia Brunell Livfors Chairman of the Board

Lars Olofsson Vice Chairman of the Board Antonia Ax:son Johnson Director

Fabian Bengtsson Director

Caroline Berg Director

Christer Åberg Director

Ann Carlsson Director

Anders Helsing Director, employee $representation$

Michael Sjörén Director, employee $representation$

Lars Östberg Director, employee $representation$

Klas Balkow President and CEO

This interim report has not been reviewed by the Company's auditors.

Financial statements, Group

Condensed statement of profit or loss and other comprehensive income, Group

SEK m	Q2 2017	Q 2 2016	6 mos 2017	6 mos 2016	12 mos 2016
Net sales	11,925	10,991	22,564	21,386	43,355
Cost of goods sold	$-10,210$	$-9,391$	$-19,299$	$-18,292$	$-37,151$
Gross profit	1,715	1,600	3,265	3,094	6,204
Selling/administrative expenses, etc. Operating profit	$-1,228$ 487	$-1,106$ 494	$-2,381$ 884	$-2,192$ 902	$-4,302$ 1902
Interest income and similar profit/loss items Interest expense and similar profit/loss items Profit after financial items	$\overline{c}$ $-3$ 486	1 $-2$ 493	$\overline{4}$ $-6$ 882	$\overline{c}$ $-6$ 898	5 $-13$ 1,894
Tax	$-107$	$-109$	$-194$	$-198$	$-421$
Profit for the period	379	384	688	700	1,473
Other comprehensive income Items that cannot be reclassified to profit or loss for the period
Revaluation of defined benefit pension plans	$-13$	$-11$	$-11$	$-18$	0
Tax attributable to items that cannot be reclassified to profit or loss for the period Items that will be reclassified to profit or loss for	$\overline{c}$	$\overline{c}$	$\overline{2}$	4	$\circ$
the period
Translation differences in calculation of foreign operations
Change in fair value of forward exchange	0	0	0	0	0
contracts Tax attributable to items that have been reclassified or can be reclassified to profit or	$-1$	5	0	5	4
loss for the period	$\mathbf 0$	$-1$	$\circ$	$-1$	-1
Other comprehensive income for the period	$-12$	-5	-9	$-10$	3
Total comprehensive income for the period	367	379	679	690	1,476
Operating profit includes	186	180	365	357	719
depreciation/amortization of Earnings per share, SEK 1)	1.81	1.83	3.28	3.34	7.02
Profit for the period attributable to
Owners of the parent	379	384	688	700	1,473
Non-controlling interests	$\mathbf 0$	0	$\Omega$	0	$\circ$
Total comprehensive income for the period attributable to
Owners of the parent	367	379	679	690	1,476
Non-controlling interests	$\mathbf 0$	0	$\mathbf 0$	0	0

$^{\rm D}$ The number of shares is the same before and after dilution. The average number of shares is 209,822,218. For an account of Axfood's holdings of treasury shares, see Note 8.

SEK m	30/6/2017	30/6/2016	31/12/2016
Assets
Goodwill	2,666	1,860	1,864
Other intangible assets	740	642	614
Property, plant and equipment	1.911	1.885	1,799
Financial assets 1)	90	89	138
Deferred tax assets	106	64	61
Total non-current assets	5,513	4,540	4,476
Inventories	2,295	2,095	2.191
Accounts receivable - trade	1,055	997	926
Other current assets	1,295	1,186	1,220
Cash and bank balances	364	813	1,726
Total current assets	5,009	5,091	6,063
Total assets	10,522	9,631	10,539
Shareholders' equity and liabilities
Equity attributable to owners of the parent	3,510	3,331	4,117
Equity attributable to non-controlling interests	5	$\mathbf{1}$	1
Total shareholders' equity	3,515	3,332	4,118
Non-current interest-bearing liabilities	532	477	459
Deferred tax liabilities	727	572	674
Other noninterest-bearing non-current liabilities	28	34	27
Total non-current liabilities	1,287	1,083	1,160
Current interest-bearing liabilities	121	41	39
Accounts payable - trade	3,265	3,093	3,224
Other current noninterest-bearing liabilities	2,334	2,082	1,998
Total current liabilities	5,720	5,216	5,261
Total shareholders' equity and liabilities	10,522	9,631	10,539
1) Of which, interest-bearing assets	22	21	21

Condensed statement of financial position, Group

Condensed statement of cash flows, Group

SEK m	6 mos 2017	6 mos 2016	12 mos 2016
Operating activities
Operating profit	884	902	1,902
Adjustments for non-cash items	337	331	668
Interest paid	-6	-6	$-2$
Interest received	4	2	$\overline{4}$
Paid tax	$-234$	$-205$	$-327$
Changes in working capital	120	11	$-4$
Cash flow from operating activities	1,105	1,035	2,241
Investing activities
Acquisitions of operations	$-922$	$-2$	-9
Acquisitions of intangible assets	$-53$	$-45$	$-93$
Acquisitions of property, plant and equipment	$-244$	$-230$	$-435$
Other changes in investing activities	11	11	$-22$
Cash flow from investing activities	$-1,208$	$-266$	$-559$
Financing activities
Loans raised	28
Share repurchases	$-28$
Dividend payout	$-1,259$	$-1,889$	$-1,889$
Cash flow from financing activities	$-1,259$	$-1,889$	$-1,889$
Cash flow for the period	$-1,362$	-1,120	$-207$

Condensed statement of changes in equity, Group

SEK m	30/6/2017	30/6/2016	31/12/2016
Amount at start of year	4,118	4.531	4,531
Total comprehensive income for the period	679	690	1,476
Change in non-controlling interests	$\overline{4}$
Share repurchases	$-28$
Share-based payments
Dividend to shareholders	$-1.259$	$-1.889$	$-1.889$
Amount at end of period 1)	3.515	3.332	4.118

1) Of shareholders' equity, SEK 3,510 m (3,331) is attributable to owners of the parent and SEK 5 m (1) to non-controlling interests. See also Note 8.

Key ratios and other data, Group

	30/6/2017	30/6/2016	12 mos 2016
Operating margin, %	3.9	4.2	4.4
Margin after financial items, %	3.9	4.2	4.4
Equity ratio, %	33.4	34.6	39.1
Net debt-equity ratio (+)/Net debt receivable ratio (-), multiple	0.1	$-0.1$	$-0.3$
Debt-equity ratio, multiple	0.2	0.2	0.1
Interest cover ratio, multiple	148.0	150.7	146.7
Capital employed, SEK m	4,168	3,850	4,616
Return on capital employed, %	47.2	46.9	39.5
Return on shareholders' equity, %	42.7	41.6	34.1
Average number of employees during the period	9.369	8,774	9.211
Capital expenditures, SEK m	1,420	301	580
Number of shares outstanding at the end of the period 1)	209,676,712	209,870,712	209,870,712
Average number of shares outstanding 1)	209,822,218	209,870,712	209,870,712
Key data per share
Earnings per share, SEK 1)	3.28	3.34	7.02
Ordinary dividend per share, SEK			6.00
Shareholders' equity per share, SEK 1), 2)	16.74	15.87	19.62
Cash flow per share, SEK 1)	$-6.5$	$-5.3$	$-1.0$

Quarterly overview

	Q3 2015	Q4 2015	Q1 2016	Q 2 2016	Q3 2016	Q4 2016	Q1 2017	Q 2 2017
Sales	10.412	10.791	10.395	10.991	10.853	11.116	10,639	11,925
Operating profit	552	448	408	494	599	401	397	487
Operating margin, %	5.3	4.2	3.9	4.5	5.5	3.6	3.7	4.1
Earnings per share, SEK 1) Shareholders' equity per share,	2.05	1.63	1.51	1.83	2.22	1.46	1.47	1.81
$SFK1$ , 2)	19.88	21.58	14.07	15.87	18.06	19.62	15.10	16.74
Return on shareholders' equity, %	32.5	31.8	44.7	41.6	37.9	34.1	47.9	42.7
Cash flow from operating activities per share, SEK	3.1	3.3	1.9	3.0	2.5	3.2	0.2	5.1
Capital expenditures	170	209	136	165	107	172	788	632
Share price, SEK	138.00	146.80	150.00	161.40	151.40	143.20	134.60	140.60

¹⁾The number of shares is the same before and after dilution. For an account of Axfood's holdings of treasury shares, see Note 8.
²⁾ Net asset value per share corresponds to shareholders' equity per share.

Financial statements, Parent Company

Condensed income statement, Parent Company

SEK m	Q 2 2017	Q2 2016	6 mos 2017	6 mos 2016	12 mos 2016
Net sales		0		$\Omega$	O
Selling/administrative expenses, etc.	$-34$	$-24$	$-73$	$-43$	-89
Operating profit	$-33$	$-24$	$-72$	$-43$	$-89$
Other net financial items	$\Omega$		1	2	3
Profit after financial items	$-33$	$-23$	$-71$	$-41$	-86
Appropriations, net		$\overline{\phantom{a}}$	$\overline{\phantom{a}}$		1,501
Profit before tax	$-33$	$-23$	$-71$	$-41$	1,415
Tax		5	15	9	$-314$
Net profit for the period	$-26$	$-18$	$-56$	$-32$	1.101
Operating profit includes depreciation/amortization totalling	$\overline{c}$	$\overline{2}$	5	5	10

Profit for the period corresponds to total comprehensive income for the period.

Condensed balance sheet, Parent Company

SEK m	30/6/2017	30/6/2016	31/12/2016
Assets
Property, plant and equipment	17	26	22
Participations in Group companies	4,052	3,136	3,136
Other financial non-current assets	8	7	55
Deferred tax assets	6	5	5
Total non-current assets	4,083	3,174	3,218
Receivables from Group companies 1)	858	861	2,705
Other current assets	151	120	11
Cash and bank balances	25	573	1,303
Total current assets	1,034	1,554	4,019
Total assets	5,117	4,728	7,237
Shareholders' equity and liabilities
Restricted shareholders' equity	287	287	287
Unrestricted shareholders' equity	1,477	1,686	2,819
Total shareholders' equity	1,764	1,973	3,106
Untaxed reserves	2,127	1,653	2,127
Non-current interest-bearing liabilities	25	21	22
Noninterest-bearing non-current liabilities	1	$\circ$	1
Total non-current liabilities	26	21	23
Current interest-bearing liabilities	40
Accounts payable - trade	12	11	19
Liabilities to Group companies 2)	1,088	1,023	1,823
Other current noninterest-bearing liabilities	60	47	139
Total current liabilities	1,200	1,081	1,981
Total shareholders' equity and liabilities	5,117	4,728	7,237
1) Of which, interest-bearing receivables	849	853	725
2) Of which, interest-bearing liabilities	1.088	1.023	1.818

Notes

Note 1 Accounting policies

Axfood applies International Financial Reporting Standards (IFRS) as endorsed by the European Union. This interim report has been prepared for the Group in accordance with IAS 34 Interim Financial Reporting and applicable provisions of the Swedish Annual Accounts Act. For the Parent Company, the interim report has been prepared in accordance with recommendation RFR 2 – Reporting for Legal Entities, issued by the Swedish Financial Reporting Board (RFR), and Ch. 9 – Interim Financial Reporting. of the Swedish Annual Accounts Act.

Preparation of the financial statements in accordance with IFRS requires the Board and company management to make estimations and assumptions that affect the Company's result and position as well as other disclosures in general. These estimations and assumptions are based on historical experience and are reviewed on a regular basis.

The same accounting policies and calculations methods have been used in this interim report as in the most recent annual report.

New accounting policies effective in 2017 and forward

New or amended policies that take effect as from the 2018 financial year and forward are not planned to be applied prospectively. To the extent that anticipated effects on the financial statements of application of new or amended standards and interpretations are not described below, Axfood has concluded that they will not have any material effect on the consolidated financial statements.

IFRS 15 Revenue from Contracts with Customers is the new revenue standard that takes effect on 1 January 2018 and replaces, for Axfood's part, primarily IAS 18 Revenue. Most of Axfood's total sales (approximately 75%) are in stores, and recognition according to current policies is well in compliance with the principles of IFRS 15. An analysis is currently being performed to determine the effect of recognition of variable consideration such as discounts and price concessions for product sales in stores. In addition, a review is being conducted of significant agreements to determine the effect of the changeover regarding the remaining approximately 25% of revenue pertaining to the wholesale and franchise operations. These analyses will be completed in 2017, and the results of these analyses will form the basis for determining the scope of the new, expanded disclosure requirements.

IFRS 9, which replaces IAS 39 Financial Instruments, will according to the current analysis affect Axfood with respect to categorization, but is not considered to have any major effect. The extent to which IFRS 9 affects Axfood's financial reporting will be determined in 2017. The standard takes effect in 2018.

IFRS 16 Leases, the new leasing standard that takes effect in 2019 with 2018 as the comparison year, will affect Axfood. The new standard differs significantly from the current IAS 17. The new standard applies for all lease contracts as well as all subleases. A linear operating lease cost has been replaced with a "top-heavy" cost profile for each individual lease contract. Portfolios with a spread of lease terms are affected less. The disclosures provided in Note 11 in the Annual Report about operating leases provide an indication of the type and scope of the leases that currently exist. An analysis of how financial reports will be affected in terms of amount will continue in 2017 and forward. The choice of transitional method has not yet been made.

Note 2 Operating segments

Axfood's operating segments have been determined based on the information considered by the Group's Executive Committee and which is used to evaluate the result of operations and allocate resources to the segments. The Executive Committee monitors sales and operating profit for each of the business areas, which make up the Group's operating segments. The operating segments that have been identified are Willys, Hemköp, Dagab and Närlivs. For information about Axfood's operating segments, see pages 3–9 of this interim report. For a more detailed description of the segments, please refer to the 2016 Annual Report.

Note 3 Significant risks and uncertainties

In the course of their business the Axfood Group and Parent Company are exposed to operational, strategic and financial risks. Operational and strategic risks include business and liability risks, among others, while financial risks include liquidity risk, interest rate risk and currency risk. Axfood works continuously with risk identification and assessment. One of the most significant business risks that Axfood has identified in its safety analysis work is of a total loss, such as from a fire at one of the central warehouses in Stockholm, Gothenburg or Örebro. Major emphasis is put on preventive work, and the organization for this is well developed, as is the Company's planning to maintain operating continuity in the event of unforeseen events.

For a thorough account of the risks that affect the Group, please refer to the 2016 Annual Report.

Note 4 Seasonal effects

Axfood's sales are affected to some degree by seasonal variations. Sales increase in the quarter in which Easter falls, which is either the first or second quarter. Sales also increase ahead of Midsummer during the second quarter, as well as ahead of the major holiday season during the fourth quarter.

Note 5 Acquired operations

In 2017 Axfood acquired additional shares in Matse Holding AB. The holding as per 30 June 2017 amounts to 99.07%, at a purchase price of SEK 551 m. Control was obtained on 31 January, when Axfood completed its cash public offer. The company is reported in the Dagab segment.

Also during the year, 100% of the shares were acquired in Eurocash Food AB, which comprises eight stores. Control was obtained in connection with the acquisition, and the company is reported in the Willys segment as from 1 April. On 31 May, 100% of the shares were acquired in Middagsfrid AB by the Axfood Group through Matse Holding AB. Control was obtained on the acquisition date. The purchase price allocation analyses that have been prepared are preliminary. In addition, Saba Logistics' warehouse operations were acquired by Dagab Inköp & Logistik on 1 January 2017.

The combined consideration paid during the year for acquisitions in 2017 amounts to SEK 922 m. The consideration has been paid in cash, and no amounts remain to be paid for previous years' acquisitions. Acquired assets and liabilities are reported in Axfood's statement of financial position at fair value.

The following assets and liabilities have been acquired in 2017, SEK m 1)	Fair value recognized in the Group
Intangible assets	155
Property, plant and equipment	139
Deferred tax assets	43
Current assets	236
Interest-bearing non-current liabilities	$-57$
Deferred tax liabilities	$-51$
Current liabilities	$-215$
Total identified net assets	250
Goodwill	802
Purchase price	1,052
Cash and cash equivalents in acquired operations	$-76$
Of which, non-controlling interests, measured at fair value	$-5$
Consideration paid in preceding year	$-49$
Impact on cash and cash equivalents of acquisition of operations since start of year	922

1) The table is based on preliminary purchase price allocation analyses pertaining to Matse Holding AB, Saba, Eurocash Food AB and Middagsfrid AB.

Identified goodwill is entirely attributable to the synergies that become available as a result of the acquisitions. Acquired goodwill amounted to SEK 802 m in 2017. Of intangible assets, trademarks account for SEK 125 m and customer relationships for SEK 25 m.

During the months that followed the business acquisitions, the acquired businesses contributed SEK 516 m to consolidated sales. The businesses have approximate, annual sales of SEK 1,774 m. The earnings effect is difficult to determine as the businesses have initially been charged with one-off costs.

Note 6 Disclosures about financial assets and liabilities

The tables below provide disclosures about how fair value has been determined for the financial instruments that are measured at fair value in the statement of financial position. The breakdown of how fair value is determined is done according to the following three levels:

Level 1: according to prices quoted in an active market for the same instruments.

Level 2: based on direct or indirect observable market data that is not included in level 1. Level 2 includes, among other things, derivatives used in hedge accounting and

available-for-sale financial assets.

Level 3: based on input data that is not observable in the market. Axfood has no financial instruments at this level.

Group, 30 June 2017

Financial assets and liabilities

SEK m	Carrying amount	Fair value	Non-financial assets and liabilities	Total, statement of financial position
Financial assets	74	74	16	90
Accounts receivable - trade	1.055	1.055		1,055
Cash and bank balances	364	364		364
Total assets	1.493	1.493	16	1,509
Non-current interest-bearing liabilities	107	55	425	532
Current interest-bearing liabilities	121	121		121
Other current noninterest-bearing liabilities			2,333	2,334
Accounts payable - trade	3,265	3,265		3,265
Total liabilities	3.494	3.494	2,758	6,252

Group, 30 June 2016

Financial assets and liabilities

SEK m	Carrying amount	Fair value	Non-financial assets and liabilities	Total, statement of financial position
Financial assets	73	73	16	89
Accounts receivable - trade	997	997		997
Other current receivables	5	5	1.181	1,186
Cash and bank balances	813	813		813
Total assets	1,888	1,888	1.197	3,085
Non-current interest-bearing liabilities	40	40	437	477
Current interest-bearing liabilities	41	41		41
Accounts payable - trade	3.093	3.093		3.093
Total liabilities	3.174	3.174	437	3,611

Parent Company, 30 June 2017

Financial assets and liabilities

			Non-financial
SEK m	Carrying amount	Fair value	liabilities	assets and Total, condensed balance sheet
Financial assets	8	14		8
Receivable from Group companies	858	858		858
Cash and bank balances	25	25		25
Total assets	891	897		891
Current interest-bearing liabilities	40	40		40
Accounts payable - trade	12	12		12
Liabilities to Group companies	1,088	1,088		1,088
Total liabilities	1.140	1.140	۰	1.140

Parent Company, 30 June 2016

Financial assets and liabilities

			Non-financial
SEK m	Carrying amount	Fair value	liabilities	assets and Total, condensed balance sheet
Financial assets		13
Receivable from Group companies	861	861		861
Cash and bank balances	573	573		573
Total assets	1.441	1.447	۰	1.441
Accounts payable - trade	11	11		11
Liabilities to Group companies	1,023	1,023		1,023
Total liabilities	1.034	1.034		1.034

Disclosures about fair value of financial instruments

The carrying amount of interest-bearing assets and liabilities in the statement of financial position may deviate from their fair value due to changes in market interest rates, among other things. To establish the fair value of financial assets and liabilities, market value has been used for assets and liabilities as far as possible. Axfood's holdings of tenantowner rights are stated at market value (level 2). Interest-bearing financial assets and liabilities that are not derivative instruments are calculated based on future cash flows of principal amounts and interest, discounted to the current market interest rate while taking into account the risk-free interest rate and risk premium for Axfood on the balance sheet date (level 2). For current financial assets and liabilities with variable interest rates, fair value is considered to be the same as the carrying amount.

The carrying amount of trade receivables, other receivables, cash and cash equivalents, trade payables and other liabilities is a reasonable approximation of fair value.

Axfood uses the market interest rate in effect on the accounting date plus a relevant interest rate spread to discount financial instruments. The interest rate used for interestbearing liabilities as per 30 June 2017 was $0.25\%$ $(0.25\%).$

Note 7 Pledged assets and contingent liabilities

Group, SEK m	30/6/2017	30/6/2016 31/12/2016
Pledged assets	131		0
Contingent liabilities	16	14	14
Parent Company, SEK m	30/6/2017	30/6/2016 31/12/2016
Pledged assets	0		0
Contingent liabilities	299	313	301

Note 8 Long-term share-based incentive programme, LTIP 2017

During the second quarter of 2017 the long-term share-based incentive programme LTIP 2017 was implemented after a resolution by the 2017 Annual General Meeting. The programme stretches over three years, starting in May 2017, and requires that,

during the term of the programme, the participants continue to be employed and that they have purchased and retain a certain number of shares in Axfood ("savings shares"). At the end of the vesting period the savings shares may give the participants the right to matching shares and performance shares according to certain stipulated criteria. As per 30 June 2017, LTIP 2017 includes 59 participants who together held 24,100 savings shares. To secure the Company's undertaking regarding conditional matching and performance shares under LTIP 2017, during the second quarter of 2017 Axfood repurchased 194,000 shares for a total of SEK 28 m at an average price of SEK 143.69 per share. The holding of treasury shares thereby amounts to 194,000 shares and ensures delivery of shares to LTIP 2017. The Group's cost during the second quarter related to the incentive programme was SEK 1 m $(0)$ . According to the calculation model used for the programme, which is based on Monte Carlo simulations, the total cost of LTIP 2017 is estimated to be approximately SEK 17 m assuming a maximum outcome of approximately SEK 49 m.

Note 9 Events after the balance sheet date

Effective 1 August, Anders Lexmon has changed over from serving as acting CFO to permanent CFO.

Financial key ratios

The Axfood Group uses various financial measures in the interim report that are not defined in IFRS. Axfood believes that these key ratios are relevant for readers of Axfood's financial reports as a complement in assessing Axfood's performance. Since not all companies calculate financial measures in the same way, these are not always comparable with measures used by other companies. These financial measures are therefore not to be regarded as a substitute for measures defined in IFRS. The table below includes measures not defined in IFRS, unless indicated otherwise, as well as a reconciliation of these measures.

Definitions of the key ratios are provided below.

Derivation and reconciliation

Store sales for Group-owned and franchise stores, quarterly data

SEK m	Q 2 2017	Q2 2016	$\%^{1}$	Like-for-like sales 02 2017	Like-for-like sales 02 2016	$\%^{1}$
Net sales, Willys	6,601	5.823	13.4
Of which, sales for Group-owned stores 2)	6,601	5.823	13.4	6,189	5.801	6.7
Net sales, Hemköp	1,542	1.563	$-1.3$
Of which, sales for Group-owned stores 2	1,513	1.539	$-1.7$	1,444	1.408	2.6
Store sales, Hemköp franchise stores	1,858	1.666	11.5	1.704	1.629	4.6
Store sales, Hemköp Group- owned and franchise stores	3.371	3.205	5.2	3,148	3,037	3.7
Retail sales, Group-owned stores 2)	8,114	7.362	10.2	7,633	7.209	5.9
Store sales, Axfood Group	9.972	9.028	10.5	9.337	8.838	5.6

Derivation and reconciliation

Store sales for Group-owned and franchise stores, six-month data

SEK m	6 mos 2017	6 mos 2016	$\%^{1}$	Like-for-like sales 6 mos 2017	Like-for-like sales 6 mos 2016	$\%^{1}$
Net sales, Willys	12,365	11.466	7.8	-
Of which, sales for Group-owned stores 2)	12,365	11.466	7.8	11,837	11.383	4.0
Net sales, Hemköp	3.087	3.108	$-0.7$	-
Of which, sales for Group-owned stores 2)	3.027	3.058	$-1.0$	2896	2.832	2.3
Store sales, Hemköp franchise stores	3,585	3.230	11.0	3.292	3.169	3.9
Store sales, Hemköp Group- owned and franchise stores	6,612	6.288	5.2	6.188	6.001	3.1
Retail sales, Group-owned stores 2)	15,392	14.524	6.0	14.733	14.215	3.6
Store sales, Axfood Group	18,977	17.754	6.9	18.025	17.384	3.7

¹⁾ Percentage change compared with corresponding period a year ago.²⁾ Summation of sales for Group-owned stores.

Operating key ratio definitions and glossary

Axfood Group: Group-owned stores and Hemköp franchise stores.

Average number of employees during the year: Total number of hours worked divided by the number of annual full-time equivalents (1,920 hours).

Delivery reliability: The share of delivered goods in relation to the share of ordered goods.

LTIP: Long-Term Incentive Program.

Financial key ratio definitions

Capital employed: Total assets less noninterestbearing liabilities and noninterest-bearing provisions. Average capital employed is calculated as capital employed at end of the period plus capital employed
at the same point in time in the preceding year, divided by two.

Cash flow from operating activities per share: Cash flow from operating activities for the period divided by the weighted average number of shares.

Cash flow per share: Cash flow for the period divided by the weighted average number of shares outstanding.

Debt-equity ratio: Interest-bearing liabilities divided by shareholders' equity including non-controlling interests

Earnings per share: Net profit for the period attributable to owners of the parent divided by a weighted average number of shares outstanding.

Equity ratio: Shareholders' equity including noncontrolling interests as a percentage of total assets.

Interest-bearing net debt receivable/liability: Interestbearing non-current and current receivables and liabilities, including cash and bank balances, and the interest-bearing portion of financial assets.

Interest cover ratio: Profit after financial items plus financial expenses, divided by financial expenses.

Like-for-like sales: Sales for stores that existed and EIRE-101-INE sales. Sales for stores that existed and
generated sales in the comparison period, broken
down into Group-owned and franchise stores.

Margin after financial items: Profit after financial items as a percentage of net sales for the period.

Net asset value per share: Equity attributable to owners of the parent divided by the number of shares outstanding.

Net capital expenditures in cash flow: Total capital expenditures excluding investments pertaining to leasing, less divestments.

Net debt-equity/receivable ratio: Interest-bearing liabilities and provisions less cash and cash equivalents and interest-bearing receivables, divided by shareholders' equity including non-controlling interests.

Operating margin: Operating profit as a percentage of net sales for the period.

Return on capital employed: Profit after financial items, plus financial expenses, as a percentage of average capital employed.

Return on shareholders' equity: Net profit for the period attributable to owners of the parent as a percentage of average equity attributable to owners of the parent. Average equity is calculated as shareholders' equity at the end of the period plus shareholders' equity at the same point in time in the preceding year, divided by two.

Sales, Group-owned retail operations: Sales for Hemköp and Willys stores owned by Axfood.

Sales growth: Percentage increase in sales between two periods.

Sales of private label products: Sales of private label products, excluding meats and fruits & vegetables, as a percentage of store sales including Hemkop franchise stores. The private label share is based on statistical data from external suppliers. Data from a selection of Axfood's stores are calculated statistically to a total sum based on the stores' annual sales. In this selection, sales for Group-owned and franchise stores are weighted according to the actual historical sales.

Store sales, Axfood Group - Sales for Hemköp and Willys stores, including Hemköp franchise stores.

Total capital expenditures: Investments in intangible and tangible non-current assets, including finance leases.

About Axfood

At Axfood we work with passion for food and people. Our strength is in developing and driving successful grocery formats in the Swedish market with responsibility for the environment and sustainable development. Axfood includes the Willys and Hemköp chains as well as Tempo, Handlar'n and Direkten, which are retailer-owned stores and organized within Axfood Närliv with approximately 820 retailer-owned stores. B2B sales are handled through the Axfood Snabbgross chain, and wholesaling is conducted through Dagab. Axfood has an approximate 21% share of the food retail market in Sweden. Axfood is listed on Nasdaq Stockholm (Large Cap), and the principal owner is Axel Johnson AB.

Vision

Through profitable growth and innovative thinking, Axfood will be Sweden's best food retail company.

Mission

Axfood's business mission is to develop and run successful food retail concepts based on clear and attractive customer offerings.

Business model

Axfood's business model is build upon three processes, where every small detail in the process is important for the Company's success. It begins with the choice of suppliers by Axfood's joint-Group assortment and purchasing function for all of the Group's formats (Choice of suppliers, price negotiations, and purchasing). Efficient logistics then create conditions for favourable and profitable growth together with sustainable transports and efficient use of energy (Logistics). A distinct sustainability profile an inspiring in-store experience (stores, customers and passion for food).

Strategy

Axfood's strategy is built upon five cornerstones: customers, growth, profitability, employees and organization, and sustainable development.
Axfood strives to enhance customer benefit and offer the best shopping experienc Through growth Axfood will consolidate its position as the main between the Swedish market and thereby increase its market share.
Through growth Axfood will consolidate its position as the number two player in the Swedish of the monetation of the model of the model of the model of the model of the model of the model of the model of the industry towards being
more sustainable and be a good company and a positive force for change in society.

Investment case – value drivers

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Axfood emphasizes four factors that it believes are important regarding an investment in Axfood:

• . The Swedish food retail industry is relatively insensitive to economic swings, with stable growth that is mainly driven by population growth and inflation.
• Historically Axfood has delivered favourable returns. The dividend policy is to distribute at least 50% of profit after tax.
• Axford's store formats have strong positions in their respective segments. An attractive and sustainable assortment is important for all of the formats, and the value for money and distinct profiles of the Group's privat
• erspective play an important role.
  • Through a focus on profitable growth, Axfood has the opportunity to achieve favourable growth over time. Axfood's distinct sustainability profile today is a competitive advantage.

Axfood AB, SE-107 69 Stockholm Norra Stationsgatan 80 C Tel. +46-8-553 990 00 info@axfood.se, axfood.se Reg. no. 556542-0824