Axfood — Earnings Release 2017

Feb 6, 2018

Stable earnings with investments in the future

Fourth quarter summary

• Consolidated net sales amounted to SEK 11,826 m $(11, 116)$ , an increase of 6.4%. On a pro forma¹⁾ basis, the increase was 7.3%.
• Operating profit was SEK 398 m (401). corresponding to an operating margin of $3.4\%$ $(3.6\%)$
• Net profit for the period was SEK 310 m (307), and earnings per share were SEK 1.46 (1.46).
• Axfood took the decision to reorganize Axfood Närlivs effective at the start of 2018, entailing the transfer of customer responsibility for Tempo to Hemköp, the reporting of Axfood Snabbgross as its own segment, and the transfer of other Axfood Närlivs customers to Dagab.

Summary of full year 2017

Consolidated net sales amounted to SEK 45,968 m $(43.355)$ , an increase of 6.0%. On a pro forma¹⁾ basis, the increase was 7.0%.

• Operating profit was SEK 1,886 m (1,902), corresponding to an operating margin of $4.1\%$ (4.4%).
• Net profit for the year was SEK 1,467 m $(1,473)$ , and earnings per share were SEK 6.98 (7.02).
• During the year Axfood acquired Saba's fruit and vegetable warehouse operation, mat.se, Eurocash and Middagsfrid.

Significant events after the balance sheet date

• The Board of Directors proposes an ordinary dividend of SEK 7.00 per share (6.00).
• In addition to the current, long-term financial targets, the Board has added a growth target, entailing that Axfood shall grow more than the market.
• Carl Stenbeck, currently Global Head of Digital Development for the H&M brand, will be Axfood's new Head of Strategy and Business Development, and will be a member of the Executive Committee.

9L10 $\sim$

SEK m	Q4 2017	Pro forma 04 20161)	Change 1	Q4 2016	12 mos 2017	Pro forma 12 mos 2016 1)	Change 1	12 mos 2016
Net sales	11,826	11,022	7.3%	11,116	45,968	42.974	7.0%	43,355
Operating profit	398	401	$-0.7%$	401	1,886	1,902	$-0.8%$	1,902
Operating margin, %	3.4	3.6	$-0.2$	3.6	4.1	4.4	$-0.3$	4.4
Profit for the period	310	307	1.0%	307	1,467	1.473	$-0.4\%$	1,473
Earnings per share, SEK 2)	1.46	1.46	$0.0\%$	1.46	6.98	7.02	$-0.6%$	7.02
Cash flow from operating activities per share, SEK	3.97	3.20	24.1%	3.20	12.08	10.68	13.1%	10.68
Return on capital employed, $\%^{3}$	39.4	39.5	$-0.1$	39.5	39.4	39.5	$-0.1$	39.5
Return on shareholders' equity, $\%^{3)}$	34.9	34.1	0.8	34.1	34.9	34.1	0.8	34.1
Shareholders' equity per share, SEK 4	Ξ.			$\sim$	20.35	19.62	3.7%	19.62
Equity ratio, %	٠			$\sim$	39.0	39.1	$-0.1$	39.1

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 10.²⁾ Before and after dilution. ³ Moving 12

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

CEO's comments - Stable earnings with investments in the future

$7.0%$ Sales growth in 2017 (pro forma).

With the fourth quarter now behind us we have closed the books for an eventful and in terms of sales successful 2017. As for the full year, sales were strong during the fourth quarter. Operating profit for the quarter was level with the preceding year, and for 2017 it was in line with our forecast and the Group's long-term 4% target. We had a historically high level of investment in 2017 and will continue to invest in our various food concepts and develop them in concert with customers' shopping behaviours and the digital opportunities of tomorrow.

Strong Q4, especially for Willys

In terms of sales the fourth quarter was very strong. Willys performed well during the entire quarter and concluded the year with strong Christmas sales. This contributed to improved profitability despite significant growth for e-commerce, which had a negative effect on earnings.

Hemköp showed good progress. Sales for Group-owned stores were dampened by the shift to more franchise stores, but the expansion of e-commerce and new stores compensated for the drop. New and modernized stores, together with online sales, continued to weigh down Hemköp's margin.

The expansion of Axfood Snabbgross is strategically important given the strong growth in the café and restaurant market. Our ambitions for Axfood Snabbgross are high, and as part of these, the chain formed its own segment at the start of 2018. However, investments in new stores are initially impacting profitability. In addition, during the fourth quarter earnings were weighed down by a one-time cost for structural changes.

Successful year of expansion

During 2017 Axfood's growth considerably outpaced the market as a whole. Our clearly stronger position in Sweden's food retail market can be credited both to company acquisitions and high organic sales growth. We are showing favourable growth in all segments, most notably Willys, which even without the acquisition of Eurocash had very strong performance. E-commerce accelerated during the year, in part through the acquisition of mat.se and in part through the rollout at Willys and Hemköp.

This strong growth had a positive effect on operating profit which, however, was slightly lower than a year ago, as expected. The decrease in profitability is mainly due to future ventures in e-commerce, aggressive expansion for Hemköp and Närlivs, and store refurbishment in Hemköp. Willys and Dagab, which includes mat.se, succeeded in maintaining their profitability despite strong digital growth.

A family of compelling food concepts

Axfood's effectiveness and strength are based on our business concept of having distinctive food

concepts in close collaboration. During the year we strengthened and broadened our portfolio. Through mat.se we can be fast and flexible in the rapidly growing e-commerce channel. Through Eurocash we have gained a strong position in cross-border shopping, and we have shortened a link in the value chain through our acquisition of Saba's fruit and vegetable warehousing operation.

The path forward

Through our various chains we are well positioned in the growing discount, close-tohome and e-commerce segments. Going forward we will continue to develop our sales channels. We plan to establish four to eight new stores in 2018. We will roll out e-commerce in more locations at the same time that we continue with our sustainability work, which includes everything from the introduction of digital receipts to reduced use of energy.

Developments in automation and robotics are creating new conditions, not least in warehousing, where they are opening up for new. future logistics solutions. We have already begun construction of our first automated fresh food warehouse.

Dividend and future outlook

Based on the Axfood Group's strong financial position and good cash flow, the Board of Directors has proposed an ordinary dividend of SEK 7 per share, which is an increase of approximately 17%.

In a changing market characterized by fierce competition. Axfood has a unique foundation to build upon. Serving tomorrow's customers will require that we develop and invest in the future. For 2018 we expect capital expenditures to be in the range of SEK 900-1,000 m.

We are standing by our long-term targets and have added a growth target that calls for Axfood to grow more than the market. With this, we are changing over from providing a yearly forecast to steering towards our longterm targets.

Klas Balkow President and CEO, Axfood AB

The Swedish food retail market

According to Statistics Sweden's (SCB) preliminary retail trade index for 2017, accumulated sales for the food retail segment (excl. alcoholic beverages) grew 2.3% in current prices compared with 2016. In fixed prices, adjusted for price and calendar effects, volume increased by 0.6%.

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

$^{\rm 1)}$ Axfood's consolidated wholesale and retail sales.

²⁾ Sales for the Swedish food retail market excl. alcoholic beverages, based on the HUI/SCB retail trade index (Dagligvaruhandel, Mest livsmedel). Preliminary data may need to be revised in accordance with HUI/SCB's revision policy.

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

Sales - Axfood Group

Fourth quarter

Net sales for the Axfood Group amounted to SEK 11,826 m (11,022¹) during the fourth quarter, an increase of 7.3%.¹ Store sales for the Axfood Group (wholly owned stores and Hemköp franchises) totalled SEK 10,092 m (9,308), an increase of 8.4%. Sales for Groupowned retail operations increased by 9.1% during the fourth quarter, with a 3.6% rise in like-for-like sales. More customer visits, a higher average ticket value and companies acquired during the year contributed to the positive sales development.

Sales of private label products accounted for 28.2% (27.9%) of total sales at the end of the quarter.

January-December

Net sales for the Axfood Group amounted to SEK 45,968 m (42,974¹) during the period, an increase of 7.0%.¹ Store sales for the Axfood Group (Group-owned stores and Hemköp franchises) totalled SEK 38,706 m (35,865), an increase of 7.9%. The increase can be credited to strong like-for-like sales growth, particularly for Willys and Hemköp franchises, together with sales from acquired businesses. Sales for Group-owned Hemköp stores were negatively affected by changes in the structure and the refurbishing of larger stores – particularly the Hemkön City store in Stockholm, which was closed for four months during the year. Sales for Group-owned retail operations increased by 7.7%, with a 3.8% rise in like-for-like sales.

Net sales per segment

		Pro forma				Pro forma
SEK m	Q4 2017	$O(4^{1})$ 2016	$\frac{9}{20}$ 2)	04 2016	12 mos 2017	$12 \text{ mos}^{1}$ 2016	$\frac{9}{20}$ 2)	12 mos 2016
Willys	6.633	5978	11.0	5978	25,415	23,164	9.7	23.164
Hemköp	1,635	1,599	2.3	1.599	6,189	6,171	0.3	6.171
Axfood Närlivs	727	701	37	701	2.984	2884	3.5	2.884
Dagab 1)	10,530	10,131	39	10.914	41.139	39,091	5.2	42,319
Joint-Group 3)	198	185	7.0	185	770	722	6.6	722
Internal sales between seg- ments that are eliminated
Dagab 1)	$-7,710$	$-7.397$	4.2	$-8.086$	$-29,802$	$-28.380$	5.0	$-31,227$
Axfood Närlivs	$-2$	$-2$	0.0	$-2$	$-7$	$-4$	75.0	$-4$
Joint-Group 3)	$-185$	$-173$	69	$-173$	$-720$	$-674$	6.8	$-674$
Net sales, total $1$ )	11.826	11.022	7.3	11.116	45.968	42.974	7.0	43.355

¹⁾ Pro forma after acquisition of fruit and vegetable warehouse operations. See page 10.²⁾ Percentage change compared with To folim and a contract of a pear ago.³⁰ Includes head office support functions, such as the Executive Committee, Finance/Accounting, Communications, Business Development, HR and IT.

Store sales - Group-owned and franchise stores²⁾

SEK m	Q4 2017	$\%^{1)}$	Like-for-like sales, $\%^{1}$	12 mos 2017	$\%^{1)}$	Like-for-like sales, $\%$ 1)
Willys	6.633	11.0	4.3	25.415	9.7	4.3
Hemköp, Group-owned	1,606	2.0	1.1	6.071	0.0	2.1
Hemköp franchises	1.853	5.6	3.8	7.220	8.9	3.9
Hemkop total	3.459	39	2.5	13.291	4.6	3.1
Group-owned retail operations	8.239	9.1	3.6	31.486	7.7	3.8
Store sales, Axfood Group	10.092	8.4	3.7	38,706	7.9	3.9

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

$2$ ²See also the table "Store sales – Group-owned and franchise stores" on page 23.

Change in store structure

Number of stores	Dec. 2016	New establishments	Acquisition s	Sales/ closures	Conversions to/from	Dec. 2017
Willvs 1	196		9			207
Hemköp	67	5		-5		67
Total, Group-owned	263		9	-5		274
Hemköp franchises	118		4	-3		120
Axfood Group total	381	8	13	-8		394
1) Of which, Willys Hemma	48				-1	48
Of which, Eurocash			8			8

Earnings – Axfood Group

Fourth quarter

Operating profit for the fourth quarter totalled SEK 398 m $(401)$ . The operating margin was $3.4\%$ (3.6%). The drop in earnings is mainly attributable to e-commerce investments, store expansion and structural costs in Axfood Närlivs, and to the repayment of insurance costs during the comparison period.

Profit after financial items was SEK 397 m (399). Profit after tax was SEK 310 m (307).

January-December

Operating profit for 2017 totalled SEK 1,886 m $(1,902)$ , with an operating margin of 4.1% $(4.4%)$ . Earnings performance was strong for Willys, owing both to good sales growth and the addition of earnings from Eurocash. Dagab improved its operating profit through higher sales and increased efficiency, despite a weight on earnings from the pure play online store mat.se. Operating profit for Hemköp and Axfood Närlivs decreased. Hemköp's profitability was affected by store refurbishment, newly established stores and an expansive e-commerce rollout. The drop in earnings for Axfood Närlivs is mainly attributable to newly established stores and a structural cost for reorganization of the segment.

Net financial items for the year totalled SEK $-5$ m $(-8)$ , and profit after financial items was SEK 1,881 m (1,894). Profit after tax was SEK 1,467 m (1,473).

Operating profit per segment

SEK m	04 2017	04 2016	$\frac{9}{20}$ 1	12 mos 2017	12 mos 2016	$\%^{1}$
Willys	233	205	13.7	1.020	922	10.6
Hemköp	49	62	$-21.0$	196	260	$-24.6$
Axfood Närlivs	21	45	$-53.3$	189	202	$-6.4$
Dagab	154	146	5.5	697	670	4.0
Joint-Group 2)	$-59$	$-57$	3.5	$-216$	$-152$	42.1
Operating profit for the period	398	401	$-0.7$	1,886	1.902	$-0.8$
Net financial items 3)	$-1$	$-2$	$-50.0$	$-5$	-8	$-37.5$
Profit for the period after financial items	397	399	$-0.5$	1,881	1.894	$-0.7$

$^{\rm 1)}$ 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.

³⁾ Net financial items are not distributed per operating segment. Axfood has no significant transactions with related parties other than transactions with subsidiaries.

Capital expenditures

Total capital expenditures during 2017 amounted to SEK 1.934 m (580), of which SEK $1,106$ m $(6)$ pertained 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 year. In addition, SEK 479 m (349) pertained to investments in non-current assets in retail operations, SEK 138 m (85) to non-current assets in wholesale operations, and SEK $203 \text{ m}$ (135) to IT.

As per 23 January 2017, shareholders representing 98.8% of the shares in Matse Holding AB had accepted Axfood's public offer to acquire all of the shares in Matse Holding AB. Axfood thereby completed the acquisition, Matse Holding AB's shares were delisted from Nasdaq First North, and Axfood initiated compulsory redemption of the remaining shares. Axfood subsequently gained advance possession of the remaining shares, and its holding amounted to 100% as per 31 December 2017. The purchase price for the company was SEK 556 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 purchase price allocation analysis, see Note 5.

Capital expenditures, depreciation/amortization, SEK_m

Equity ratio, %

Financial position and cash flow

Cash flow from operating activities before paid tax amounted to SEK 2,916 m $(2,568)$ during the year. Paid tax amounted to SEK-382 m (-327). Payment of the shareholder dividend affected cash flow by SEK-1,259 m (-1,889), and net capital expenditures affected cash flow by SEK-1,500 m (-559). The increase is mainly attributable to acquisitions of operations.

Cash and cash equivalents held by the Group amounted to SEK 1,376 m, compared with SEK 1,726 m in December 2016. Interest-bearing liabilities and provisions totalled SEK 528 m, compared with SEK 498 m in December 2016. The interest-bearing net debt receivable was SEK 871 m at year-end, compared with an interest-bearing net debt receivable of SEK 1,249 m in December 2016. The change in the net debt receivable is mainly due to payment of the dividend, payment of the consideration for Matse Holding AB, and other acquisitions of operations during the year. Share repurchases associated with LTIP 2017 amounted to SEK 28 m (0) during the year, see Note 8.

The equity ratio was 39.0%, compared with 39.1% in December 2016.

Derivation of total investments and net capital expenditures in cash flow

SEK m	12 mos 2017	12 mos 2016
Total investments	$-1.934$	-580
Investments in finance leases	63	46
Divestment of tangible/intangible assets	17	20
Acquisition of financial assets	-6	$-49$
Acquisition of mat.se	55	0
Acquisition of other operations	305	-3
Divested operations	$\Omega$
Cash flow from investing activities	-1.500

Results per operating segment

Willys

Fourth quarter

Willys reported sales growth of 11.0% during the fourth quarter compared with the same period a year ago. Sales totalled SEK 6,633 m (5,978) and were favourably affected by a higher average ticket value, more customer visits and e-commerce. Eurocash contributed to the strong growth during the quarter. Like-for-like sales had positive development of $4.3\%$ .

Operating profit totalled SEK 233 m (205), an increase of 13.7%. The earnings increase is mainly attributable to the strong sales growth and the profit contribution from Eurocash. The operating margin grew to $3.5\%$ (3.4%).

During the fourth quarter Willys rolled out e-commerce to an additional six cities, and at year-end 2017 Willys thereby offered online shopping at 34 stores in 19 cities or towns. The rollout continues thus far into 2018, and the plan is to offer e-commerce at an additional some 25 stores in ten new cities or towns by year-end 2018.

No new Willys stores were added during the fourth quarter. At year-end 2017 Willys had three more stores than a year ago and eight Eurocash stores, for a total of 207 stores. Willys' private label share was 29.7% at the end of the quarter (30.1%).

January-December

Willys' sales in 2017 totalled SEK 25,415 m (23,164), an increase of 9.7% compared with the preceding year. The strong performance can be credited mainly to strong like-for-like sales growth driven by more customer visits and a higher average ticket value, and to sales from Eurocash. Willys' sales excluding Eurocash increased by 5.0% compared with the preceding year. Like-for-like sales increased by 4.3%. Operating profit was SEK 1,020 m (922), an increase of 10.6%. The operating margin of $4.0\%$ from the preceding year was maintained despite investments in e-commerce, mainly owing to strong sales growth.

SEK m	04 2017	04 2016	Change	$12 \text{ mos}$ 2017	$12 \text{ mos}$ 2016	Change
Net sales	6.633	5.978	11.0%	25,415	23,164	9.7%
Change in like-for-like sales, %	4.3	1.1	3.2	4.3	1.4	29
Operating profit	233	205	13.7%	1,020	922	10.6%
Operating margin, %	3.5	3.4	0.1	4.0	4.0	0.0
Number of Group-owned stores	۰.			207	196	11
Average number of employees during the period	-		$\overline{\phantom{0}}$	5.070	4.685	8.2%
Private label share, %	۰.		۰	29.7	30.1	$-0.4$

Hemköp

Fourth quarter

Hemköp including franchise stores posted growth of 3.9% during the fourth quarter. Sales for Group-owned Hemköp stores totalled SEK 1.606 m (1.575), an increase of 2.0%. New store establishment, a higher average ticket value and more customer visits had a positive impact in sales. Like-for-like sales for Group-owned stores rose 1.1% during the quarter compared with the same quarter a year ago. Hemköp's net sales (including franchise fees) increased by $2.3\%$ .

Sales for franchise stores totalled SEK 1.853 m (1.755), an increase of 5.6%, driven both by higher like-for-like sales, 3.8%, and more franchise stores compared with a vear ago.

Operating profit for the fourth quarter was SEK 49 $m$ (62), corresponding to an operating margin of $3.0\%$ ( $3.9\%$ ). The drop in earnings is mainly attributable to investments in e-commerce and newly established stores.

During the fourth quarter Hemköp rolled out e-commerce in an additional two cities, and at year-end Hemköp thereby offered online shopping at 19 stores in nine cities or towns. In 2018 Hemköp will focus on developing its online operations at existing locations.

Hemköp established one new store during the quarter, in Jönköping. One new Hemköp franchise store was added during the quarter, which was previously a Tempo store. Even though Hemköp established five Group-owned stores during 2017, the number of stores at

year-end was the same as a year earlier, since four stores were sold to retailers and one was closed. Three franchise stores were sold and one was converted from Tempo during the year. The number of franchise stores thereby increased by two, net, during the year.

Hemköp's private label share was $24.7\%$ (22.7%) at the end of the quarter.

January-December

Hemköp including franchise stores posted growth of 4.6% for the year.

Hemköp's net sales (including franchise fees) increased by 0.3% compared with the preceding year. Sales for Group-owned stores were essentially unchanged compared with the preceding year and amounted to SEK $6.071$ m $(6.072)$ . Like-for-like sales for Groupowned stores increased by 2.1%. Sales were negatively affected primarily by refurbishment of a number of large, Group-owned stores, particularly the Stockholm City store, which was closed for four months. Conversions of stores to Hemköp franchises and one store closure also had a negative effect, which was compensated by newly established stores.

Sales for franchise stores totalled SEK 7,220 m (6,629) in 2017, an increase of 8.9%, where like-for-like sales contributed 3.9%.

Operating profit for 2017 was SEK 196 m (260), and the operating margin was $3.2\%$ (4.2%). The decrease is mainly attributable to e-commerce investments, but also to newly established stores and refurbishment of several large stores.

	operating margin, $\%$
		1.5	1.6	1.6	1.6	6	SEK m
1.6	1.4						Net sales
1.2						5	Change in like-for-like sales, %
						$\overline{4}$	Operating profit
0.8		3.8	3.6	3.9			Operating margin, %
					3.0	$\mathcal{S}$	Number of Group-owned stores
0.4	2.4					$\mathcal{D}$	Average number of employees during the period
							Private label share, %
0.0	Q4 13	Q4 14	Q4 15	Q4 16	Q4 17

Net sales, SEK bn, and

Sales

$\rightarrow$ Operating margin

SEK m	Q4 2017	Q4 2016	Change	$12 \text{ mos}$ 2017	12 mos 2016	Change
Net sales	1,635	1599	2.3%	6.189	6 1 7 1	0.3%
Change in like-for-like sales, %	11	2.3	$-1.2$	2.1	4.0	$-1.9$
Operating profit	49	62	$-21.0%$	196	260	$-24.6\%$
Operating margin, %	30	39	$-0.9$	3.2	4.2	$-1.0$
Number of Group-owned stores	-	$\blacksquare$	$\overline{\phantom{a}}$	67	67	∩
Average number of employees during the period		$\overline{\phantom{a}}$	$\blacksquare$	1,790	1,817	$-1.5%$
Private label share, %	-	$\overline{\phantom{a}}$	$\sim$	24.7	22.7	2.0

Axfood Närlivs

Fourth quarter

Axfood Närlivs' sales totalled SEK 727 m (701) during the fourth quarter, representing growth of 3.7% compared with a year ago. Sales were driven by more customer visits and the two newly established Snabbgross stores in Helsingborg and Gothenburg.

Operating profit for the fourth quarter totalled SEK 21 $m(45)$ , and the operating margin was 2.9% (6.4%). Profitability decreased compared with a year ago, mainly owing to structural costs for the reorganization of Axfood Närlivs and the effect of newly established stores.

Axfood Snabbgross established two new stores in 2017 and had 24 (22) stores at yearend.

January-December

Axfood Närlivs' sales in 2017 totalled SEK 2,984 m (2,884), an increase of 3.5%. Growth was strong among restaurant, café and fast food customers. During the year Axfood Snabbgross saw an increase both in the number of customer visits and the average ticket value. Operating profit for the period was SEK 189 m $(202)$ , representing an operating margin of $6.3\%$ (7.0%). The lower profit is mainly attributable to costs for recent new store establishment and to restructuring costs for Axfood Närlivs.

Reorganization of Axfood Närlivs

Effective 1 January 2018, Axfood carried out a reorganization of Axfood Närlivs, entailing the reporting of Axfood Snabbgross as a new segment. Customer responsibility for Tempo has changed over to Hemköp, and other operations in Axfood Närlivs have been transferred to Dagab. In connection with this, Dagab made a price adjustment based on the updated cost structure. The effect of this was a slight adjustment of earnings between the Group's segments. The segment reporting for 2017 will be recalculated to reflect the changes described above starting with the first quarter interim report for 2018.

Net sales, SEK bn, and operating margin, $\%$ ¹

SEK m	Q4 2017	Q4 2016	Change	12 mos 2017	12 mos 2016	Change
Net sales	727	701	3.7%	2.984	2.884	3.5%
Operating profit	21	45	$-53.3%$	189	202	$-6.4%$
Operating margin, %	2.9	6.4	$-3.5$	6.3	7.0	$-0.7$
Axfood Snabbgross, no. stores			$\overline{\phantom{0}}$	24	22	2
Average number of employees during the period			$\overline{\phantom{0}}$	494	476	3.8%

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

Dagab

Fourth quarter

Sales totalled SEK 10,530 m $(10,131^1)$ , an increase of 3.9%. Growth for the support company Dagab was driven by favourable sales to the store chains, the addition of sales from the acquired company mat.se, and by Axfood Närlivs' business customers. Sales were negatively affected by the decision by Mathem to change suppliers. Sales to Mathem gradually declined during the autumn and were concluded in November.

Operating profit grew $5.5\%$ to SEK 154 m (146). Strong sales, high inventory efficiency, and strategically chosen foreign exchange losses on private label products during the comparison period had a positive effect on earnings for the quarter. Online sales weighed down Dagab's operating profit. The operating margin was $1.5\%$ (1.4¹).

January-December

Dagab's sales in 2017 totalled SEK 41,139 m (39,091¹), an increase of 5.2%. Growth was based on higher sales to the store chains and favourable wholesale demand, but also to sales to mat.se. Operating profit totalled SEK 697 m (670), corresponding to an operating margin of 1.7% $(1.7\%)$ . Operating profit was negatively affected by mat.se, but increased mainly owing to higher volume, improved efficiency and the vertical integration of fruit and vegetable warehousing.

operating margin, $\%$ ¹⁾² $12$ 10.5 $10.1$

$3.0$

Net sales, SEK bn, and

SEK m	Q4 2017	Pro forma Q4 $2016^{1}$	Change 1	Q4 2016	12 mos 2017	Pro forma 12 mos $2016^{1}$	Change 1	12 mos 2016
Net sales	10,530	10,131	3.9%	10,91 4	41,139	39.091	$5.2\%$	42,319
Distributed sales	8.165	8.045	1.5%	7,280	31,986	30,815	$3.8\%$	27,639
Operating profit	154	146	5.5%	146	697	670	4.0%	670
Operating margin, % Average number of	1.5	1.4	0.1	1.3	1.7	1.7	0.0	1.6
employees during the period	٠			$\overline{\phantom{0}}$	2,178	1,888	15.4%	1,888
Delivery reliability, %	97.1	97.5	$-0.4$	97.5	96.9	96.8	0.1	96.8

1) Comparison figures are pro forma to reflect the acquisition of the fruit and vegetable warehouse operations. See page 10

2) No comparison figures are available for Q4 2013-2015 due to the acquisition of the fruits & vegetables warehouse operations in 2017 and a reorganization in 2015.

Parent Company

Other operating revenue for the Parent Company amounted to SEK 241 m (228) in 2017. After selling and administrative expenses of SEK 364 m (317) and net financial items of SEK 3 m (3), profit after financial items was SEK-119 m (-86). Capital expenditures during the year totalled SEK $3 \text{ m} (5)$ .

The Parent Company's interest-bearing net debt receivable was SEK 241 m at yearend, compared with SEK 188 m as per December 2016. The Parent Company has no significant transactions with related parties, other than transactions with subsidiaries.

Pro forma

Dagab Inköp & Logistik AB acquired Saba Logistics AB's warehouse operation in Helsingborg on 1 January 2017. The previous contractual arrangement with Saba entailed that fruits and vegetables were first sold by Dagab to Saba and then bought back again. As a result of the acquisition, these transactions ended, and to reflect this, pro forma figures are provided for the comparison periods.

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

SEK m	04 2016	Adjustment	04 2016 pro forma	Full year	2016 Adjustment	Full year 2016 pro 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
Internal 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

	Q4 2017	04 2016	12 mos 2017	12 mos 2016
Organic products as % of total food sales
Axfood	6.7	6.6	6.8	6.8
Willys	5.9	5.8	6.0	6.0
Hemköp	93	9.2	9.5	9.3
Growth in vegetarian protein substitutes, 1) $%$
Axfood	31	30	29	37
Willys	36	29	33	37
Hemköp	23	31	23	40
KRAV-certified meat as % of total meat sales
Axfood	3.7	3.4	39	3.6
Willys	2.6	2.7	2.7	2.9
Hemköp	7.5	6.3	85	6.8
Combustible waste 2 (tonnes), share of net sales (SEK m), %
Willys	37	40	37	40
Hemköp	n.a.	n.a.	n.a.	n.a.
Axfood Snabbgross	18	21	18	21
Private label product recalls from stores	$\overline{7}$	$\mathbf{1}$	29	24
Product recalls from stores, other brands	29	20	107	76
Number of social audits 3)	31	8	77	54
Electricity consumption, kWh/m 2 (stores and warehouses) 4)	319.9	334.0	319.9	334.0
Electricity consumption (kWh) as share of net sales (SEK), % 5)	0.59	062	059	0.62
CO 2 , kg/tonne goods 6)	7.3	8.7	7.3	8.7
Work attendance rate, %	94.2	93.6	94.3	93.9

$\overline{^{1)}$ Compared with same period a year ago.
$^{2)}$ Moving 12-month figures, with 1 quarter delay.

between the management 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

Sales of organic products accounted for 6.8% (6.8%) of Axfood's total food sales in 2017. Axfood has set a target for organic products to account for 10% of total food sales by 2020.

Axfood's customers showed continued demand for vegetarian products, i.e., refrigerated and frozen plant-based protein substitutes. Sales of vegetarian alternatives grew 29% in 2017.

Diversity, gender equality and work attendance rate

Axfood's employees are to reflect the diversity of its customers and society in general. In 2017, 22% (21%) of Axfood's employees had an international background. The diversity target is that 20% of all managers will have an international background by 2020. In 2017 this share was $13\%$ (11%).

In addition to diversity, gender equality is important for developing the business and meeting everyone's needs in society. The balance between women and men in management positions is to be within the range of 40%–60%. The share of women on the Executive Committee is $30\%$ (40%). In staff and company managements, $36\%$ (37%) are women, and one in three store managers is a woman. In total the share of women in management positions in 2017 was $30\%$ (32%).

Another important strategic target is to maintain a high work attendance rate. In 2017 this was $94.3\%$ (93.9%), which is slightly below the 95% target but reflects the trend in society in general.

Apprentice programme for newcomers

Axfood is starting a paid apprentice programme for newcomers. To begin with this entails a pilot project for ten newcomers at five Willys stores and five Hemköp stores in Stockholm, which began at the start of the year. Over time the hopes are that the apprentice programme will be expanded to all stores throughout Sweden. The 12-month long programme consists both of practical experience in stores and training. Owing to the training component, a unique collective agreement has been reached.

• •
• •
• •

• •

• • −
• −
• −
• −

• •

• •

• •
• •
• •

9 October 2017	Axfood starts apprentice programme for newcomers
17 October 2017	Axfood Snabbgross opens second store in Gothenburg
17 October 2017	Axfood first – eliminates 170 million fresh produce bags made of
	plastic
18 October 2017	New online pharmacy to be called Apohem
1 November 2017	Axfood invests in climate-smart packaging
	16 November 2017 No "ugly fish" in Axfood's stores
	12 December 2017 Hemköp to compensate for home deliveries through carbon offsets

Financial statements, Group

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

SEK m	Q4 2017	04 2016	12 mos 2017	12 mos 2016
Net sales	11,826	11,116	45,968	43,355
Cost of goods sold	$-10,165$	$-9,597$	$-39,306$	$-37,151$
Gross profit	1,661	1,519	6,662	6,204
Selling and administrative expenses, etc.	$-1,263$	$-1,118$	$-4,776$	$-4,302$
Operating profit	398	401	1,886	1,902
Interest income and similar profit/loss items	$\overline{c}$	$\mathbf{1}$	8	5
Interest expense and similar profit/loss items	$-3$	$-3$	$-13$	$-13$
Profit after financial items	397	399	1,881	1,894
Tax	$-87$	$-92$	$-414$	-421
Profit for the period	310	307	1,467	1.473
Other comprehensive income
Items that cannot be reclassified to profit or loss
for the period
Revaluation of defined benefit pension plans	$\overline{2}$	27	$-15$	0
Tax attributable to items that cannot be
reclassified to profit or loss for the period	$-1$	$-6$	3	0
Items that will be reclassified to profit or loss for the period
Translation differences in calculation of foreign
operations	$\circ$	$\circ$	$\circ$	0
Change in fair value of forward exchange contracts	$\mathbf{1}$	$-1$	$\mathbf 0$	4
Change in fair value of available-for-sale	-6		-6
financial assets Tax attributable to items that have been
reclassified or can be reclassified to profit or
loss for the period	1	$\circ$	1	-1
Other comprehensive income for the period	-3	20	$-17$	3
Total comprehensive income for the period	307	327	1,450	1,476
Operating profit includes depreciation/amortization of	192	182	744	719
Earnings per share, SEK 1)	1.46	1.46	6.98	7.02
Profit for the period attributable to
Owners of the parent	307	307	1,463	1,473
Non-controlling interests	3	$\Omega$	4	0
Total comprehensive income for the period
attributable to
Owners of the parent	304 3	327 $\Omega$	1,446 4	1,476 0
Non-controlling interests

$^{\rm D}$ The number of shares is the same before and after dilution. The average number of shares is 209,748,468. For Axfood's holdings of treasury shares, see Note 8.

SEK m	31/12/2017	31/12/2016
Assets
Goodwill	2,671	1,864
Other intangible assets	717	614
Property, plant and equipment	2,032	1,799
Financial assets 1)	84	138
Deferred tax assets	131	61
Total non-current assets	5,635	4,476
Inventories	2,263	2,191
Accounts receivable - trade	954	926
Other current assets	1,241	1,220
Cash and bank balances	1,376	1,726
Total current assets	5,834	6,063
Total assets	11,469	10,539
Shareholders' equity and liabilities
Equity attributable to owners of the parent	4,266	4,117
Equity attributable to non-controlling interests	212	$\mathbf{1}$
Total shareholders' equity	4,478	4.118
Non-current interest-bearing liabilities	479	459
Deferred tax liabilities	784	674
Other noninterest-bearing non-current liabilities	29	27
Total non-current liabilities	1,292	1,160
Current interest-bearing liabilities	49	39
Accounts payable - trade	3,458	3,224
Other current noninterest-bearing liabilities	2,192	1,998
Total current liabilities	5,699	5,261
Total shareholders' equity and liabilities	11,469	10,539
1) Of which, interest-bearing assets	23	21

Condensed statement of financial position, Group

Condensed statement of cash flows, Group

SEK m	12 mos 2017	12 mos 2016
Operating activities
Operating profit	1,886	1,902
Adjustments for non-cash items	707	668
Interest paid	$-5$	$-2$
Interest received	6	4
Paid tax	$-382$	$-327$
Changes in working capital	322	$-4$
Cash flow from operating activities	2,534	2,241
Investing activities
Acquisitions of operations	$-746$	-9
Acquisitions of intangible assets	$-114$	$-93$
Acquisitions of property, plant and equipment	$-651$	$-435$
Other changes in investing activities	11	$-22$
Cash flow from investing activities	$-1,500$	$-559$
Financing activities
Loans raised	$\Omega$
Amortization of debt	$-97$
Repurchase of own shares	$-28$
Dividend payout	$-1,259$	$-1,889$
Cash flow from financing activities	$-1,384$	$-1,889$
Cash flow for the period	$-350$	-207

SEK m	31/12/2017	31/12/2016
Amount at start of year	4,118	4,531
Total comprehensive income for the period	1,450	1,476
Change in non-controlling interests	193
Share repurchases	$-28$
Share-based payments	$\overline{4}$
Dividend to shareholders	$-1.259$	$-1,889$
Amount at end of period 1)	4,478	4,118

Condensed statement of changes in equity, Group

1) Of shareholders' equity, SEK 4,266 m $(4,117)$ is attributable to owners of the parent and SEK 212 m (1) to non-controlling interests. See also Note 8.

Key ratios and other data, Group

	12 mos 2017	12 mos 2016
Operating margin, %	4.1	4.4
Margin after financial items, %	4.1	4.4
Equity ratio, %	39.0	39.1
Net debt-equity ratio (+)/Net receivable-equity ratio (-), multiple	$-0.2$	$-0.3$
Debt-equity ratio, multiple	0.1	0.1
Interest cover ratio, multiple	145.7	146.7
Capital employed, SEK m	5,006	4,616
Return on capital employed, %	39.4	39.5
Return on shareholders' equity, %	34.9	34.1
Average number of employees during the period	9,903	9.211
Capital expenditures, SEK m	1,934	580
Number of shares outstanding at the end of the period 1)	209,676,712	209,870,712
Average number of shares outstanding 1)	209,748,468	209,870,712
Key data per share
Earnings per share, SEK 1)	6.98	7.02
Ordinary dividend per share, SEK	$7.00^{3}$	6.00
Shareholders' equity per share, SEK 1), 2)	20.35	19.62
Cash flow per share, SEK 1)	$-1.67$	$-0.99$

Quarterly overview

	Q1 2016	Q2 2016	Q3 2016	Q4 2016	Q1 2017	Q2 2017	Q3 2017	Q4 2017
Sales	10,395		10,991 10,853	11,116	10,639 11,925		11,578	11,826
Operating profit	408	494	599	401	397	487	604	398
Operating margin, %	3.9	4.5	5.5	3.6	3.7	4.1	5.2	34
Earnings per share, SEK 1)	1.51	1.83	2.22	1.46	1.47	1.81	2.23	1.46
Shareholders' equity per share, $SEK^{1, 2}$	14.07	15.87	18.06	19.62	15.10	16.74	18.89	20.35
Return on shareholders' equity, %	44.7	41.6	37.9	34.1	47.9	42.7	37.8	34.9
Cash flow from operating
activities per share, SEK	1.92	3.01	2.54	3.20	0.18	5.09	2.85	3.97
Capital expenditures	136	165	107	172	788	632	204	310
Share price, SEK	150.00	161.40 151.40		143.20	134.60 140.60		139.70	158.10

The number of shares is the same before and after dilution. For Axfood's holdings of treasury shares, see Note 8.
²⁾ Net asset value per share corresponds to shareholders' equity per share.
³⁾ Proposed by the Board of

Financial statements, Parent Company

$\frac{\mathsf{Q4}}{\mathsf{2017}}$ $\begin{array}{c} \text{Q4} \ \text{2016} \end{array}$ 12 mos 12 mos SEK_m 2017 2016 $\overline{0}$ $\overline{0}$ $\overline{\circ}$ $\overline{1}$ Net sales $-34$ $-32$ $-123$ $-89$ Selling/administrative expenses, etc. $-34$ $-32$ $-122$ $-89$ Operating profit $\circ$ $\mathbf{3}$ $\mathbf{3}$ Other net financial items $\mathbf{1}$ $-34$ $-31$ $-119$ $-86$ Profit after financial items 1,737 1,501 1,737 1,501 Appropriations, net 1,703 1,470 1,618 1,415 Profit before tax $-377$ $-326$ $-359$ $-314$ Tax Net profit for the period 1,326 $-1,144$ 1,259 1,101 Operating profit includes
depreciation/amortization totalling $\overline{c}$ $\overline{c}$ 10 10

Condensed income statement, Parent Company

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

Condensed balance sheet, Parent Company

SEK m	31/12/2017	31/12/2016
Assets
Property, plant and equipment	12	22
Participations in Group companies	3,338	3,136
Other financial non-current assets	9	55
Deferred tax assets	7	5
Total non-current assets	3,366	3,218
Receivables from Group companies 1)	3,076	2,705
Other current assets	13	11
Cash and bank balances	804	1,303
Total current assets	3,893	4,019
Total assets	7,259	7,237
Shareholders' equity and liabilities
Restricted shareholders' equity	287	287
Unrestricted shareholders' equity	2,795	2,819
Total shareholders' equity	3,082	3,106
Untaxed reserves	2,400	2,127
Non-current interest-bearing liabilities	28	22
Noninterest-bearing non-current liabilities	2	$\mathbf{1}$
Total non-current liabilities	30	23
Accounts payable - trade	20	19
Liabilities to Group companies 2)	1,594	1,823
Other current noninterest-bearing liabilities	133	139
Total current liabilities	1,747	1,981
Total shareholders' equity and liabilities	7,259	7,237
1) Of which, interest-bearing receivables	1,019	725
2) Of which, interest-bearing liabilities	1,554	1,818

Notes

Note 1 Accounting policies

Axfood applies International Financial Reporting Standards (IFRS) as endorsed by the European Union. This year-end report has been prepared for the Group in accordance with IAS 34 Interim Financial Reporting and applicable provisions of the Swedish Annual Accounts Act. Disclosures in accordance with IAS 34 Interim Financial Reporting are presented in notes as well as in other parts of the year-end report. For the Parent Company, the year-end 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 calculation methods have been used in this year-end report as in the most recent annual report.

New accounting policies effective in 2018 and forward

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, the new revenue standard, took effect on 1 January 2018 and replaces, for Axfood's part, IAS 18 Revenue and IFRIC 13-Customer Loyalty Programmes. Most of Axfood's total sales, approximately 75%, are in stores. Recognition of store sales according to current policies is well in compliance with the principles of IFRS 15, which stipulate that revenue is recognized when control of a product has been transferred to the customer. Variable consideration attributable to sales in stores, such as discounts and price reductions, is not affected by application of the new standard. With respect to the remaining approximately 25% of revenue that pertains to wholesale and franchise business, application of the new standard will not affect revenue recognition. Work is currently being conducted on formulating additional disclosures in accordance with IFRS 15

IFRS 9 Financial Instruments, the new standard for financial instruments, took effect on 1 January 2018 and replaces IAS 39. The standard is expected to affect Axfood with respect to classification and the measurement method used to determine impairment losses. The Group has determined that the estimated effect of the changeover to IFRS 9 on the consolidated financial statements will be not significant.

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 2016 Annual Report about operating leases provide an indication of the type and scope of the leases that currently exist. A project has been started to determine how the consolidated financial statements will be affected by the changeover to IFRS 16. The choice of transitional method has not yet been made, and the standard will not be applied prospectively.

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 year-end 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 31 December 2017 amounts to 100%, for a purchase price of SEK 556 m. Control was obtained on 31 January 2017, when Axfood completed its cash public offer. At the acquisition date, non-controlling interests amounted to approximately SEK 5 m, stated at fair value. These shares were repurchased through a compulsory redemption process in 2017. The company is reported in the Dagab segment.

The consideration paid amounts to SEK 556 m, of which SEK 49 m was paid during 2016. Acquired assets and liabilities are reported in Axfood's statement of financial position at fair value.

Assets and liabilities acquired in Matse Holding AB, SEK m	Fair value recognized in the Group
Intangible assets	83
Property, plant and equipment	25
Deferred tax assets	40
Current assets	52
Interest-bearing non-current liabilities	$-14$
Deferred tax liabilities	$-18$
Current liabilities	$-41$
Total identified net assets	127
Goodwill	429
Purchase price	556
Cash and cash equivalents in acquired operations	$-25$
Consideration paid in preceding year	-49
Impact on cash and cash equivalents of acquisition of operations since start of year	482

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. During the third quarter Norgesgruppen acquired 49% of Eurocash. 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. In addition, Saba Logistics' warehouse operation was acquired by Dagab Inköp & Logistik on 1 January 2017.

Consideration paid for other acquisitions amounted to SEK 508 m. Acquired assets and liabilities are reported in Axfood's statement of financial position at fair value.

	Fair value recognized in
Other acquisitions – the following assets and liabilities were acquired in 2017, SEK $\mathsf{m}^\mathbf{1)}$	the Group
Intangible assets	73
Property, plant and equipment	118
Deferred tax assets	$\overline{4}$
Current assets	186
Interest-bearing non-current liabilities	$-43$
Deferred tax liabilities	$-33$
Current liabilities	$-175$
Total identified net assets	130
Goodwill	378
Purchase price	508
Cash and cash equivalents in acquired operations	$-51$
Of which, non-controlling interests	$-193$
Impact on cash and cash equivalents of acquisition of operations since start of year	264

$\frac{1}{1}$ The table is based on preliminary purchase price allocation analyses, since the acquisition of Eurocash was not completed until 2018. No significant uncertainties existed as per the balance sheet date.

Identified goodwill is entirely attributable to the synergies that become available as a result of the acquisitions. Acquired goodwill amounted to SEK 429 m with respect to Matse Holding AB and SEK 378 m with respect to other acquired operations. Of acquired goodwill, approximately SEK 81 m is expected to be tax-deductible. Of acquired intangible assets in Matse Holding AB, SEK 55 m pertains to trademarks and SEK 25 m to customer relationships. In other acquired operations, acquired trademarks amount to SEK 71 m.

During the months that followed the business acquisitions, the acquired operations contributed approximately SEK 1,462 m to consolidated sales. If the acquisitions had been made as per 1 January 2017, consolidated sales would have been approximately SEK 395 m higher. The earnings effect is difficult to determine as the operations have initially been charged with one-off costs.

The consideration has been paid in cash, and no amounts remain to be paid for previous years' acquisitions.

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, 31 December 2017

Financial assets and liabilities

SEK m	Carrying amount	Fair value	assets and liabilities	Non-financial Total, statement of financial position
Financial assets	65	65	19	84
Accounts receivable - trade	954	954		954
Cash and bank balances	1.376	1.376		1,376
Total assets	2.395	2.395	19	2.414
Non-current interest-bearing liabilities	61	61	418	479
Current interest-bearing liabilities	49	49		49
Other current noninterest-bearing liabilities	0	0	2,192	2,192
Accounts payable - trade	3.458	3,458		3.458
Total liabilities	3.568	3.568	2.610	6.178

Group, 31 December 2016

Financial assets and liabilities

SEK m	Carrying amount	Fair value	assets and liabilities	Non-financial Total, statement of financial position
Financial assets	120	120	18	138
Accounts receivable - trade	926	926		926
Cash and bank balances	1,726	1.726		1,726
Total assets	2.772	2,772	18	2.790
Non-current interest-bearing liabilities	41	41	418	459
Current interest-bearing liabilities	39	39		39
Other current noninterest-bearing liabilities			1.991	1,998
Accounts payable - trade	3,224	3,224		3,224
Total liabilities	3.311	3.311	2.409	5,720

Parent Company, 31 December 2017

Financial assets and liabilities

SEK m	Carrying amount	Fair value	Non-financial assets and liabilities	Total, condensed balance sheet
Financial assets	9	15		9
Receivable from Group companies	1,032	1,032	2.044	3.076
Other current assets	2	2	11	13
Cash and bank balances	804	804		804
Total assets	1.847	1,853	2.055	3,902
Accounts payable - trade	20	20		20
Liabilities to Group companies	1,560	1,560	34	1,594
Total liabilities	1,580	1,580	34	1.614

Parent Company, 31 December 2016

Financial assets and liabilities

SEK m	Carrying amount	Fair value	Non-financial assets and liabilities	Total, condensed balance sheet
Financial assets	55	61		55
Receivable from Group companies	730	730	1975	2.705
Cash and bank balances	1,303	1,303		1,303
Total assets	2.088	2.094	1.975	4,063
Accounts payable - trade	19	19		19
Liabilities to Group companies	1,823	1,823		1,823
Total liabilities	1.842	1.842	$\blacksquare$	1,842

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.

Group, SEK m		31/12/2017 31/12/2016
Pledged assets	6	O
Contingent liabilities	17	14
Parent Company, SEK m		31/12/2017 31/12/2016
Pledged assets	0	O
Contingent liabilities	287	301

Note 7 Pledged assets and contingent liabilities

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 pursuant to a resolution by the 2017 Annual General Meeting. The programme covers a three-year period, 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 31 December 2017, LTIP 2017 includes 58 participants who together held 23,850 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 period January–December related to the incentive programme was SEK $5 \text{ m}$ (-). According to the calculation model used for the programme, which is based on Monte Carlo simulations, the total cost of LTIP 2017 during the three-year period is estimated to be approximately SEK 22 m assuming a maximum outcome of approximately SEK 50 m.

Note 9 Events after the balance sheet date

In addition to the long-term financial targets, the Board of Directors has added a growth target, entailing that Axfood shall grow more than the market.

Carl Stenbeck, currently Global Head of Digital Development for the H&M brand, will be Axfood's new Head of Strategy and Business Development, and will be a member of the Executive Committee.

Financial key ratios

The Axfood Group uses various financial measures in its interim reports 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 - Group-owned and franchise stores, quarterly data

SEK m	04 2017	Q4 2016	$\frac{q}{20}$	sales 04 2017	Like-for-like Like-for-like sales 04 2016	$\%^{1}$
Net sales, Willys	6,633	5,978	11.0
Of which, sales for Group-owned stores 2)	6,633	5.978	11.0	6.229	5.974	4.3
Net sales, Hemköp	1,635	1.599	2.3
Of which, sales for Group-owned stores $^{2)}$	1,606	1,575	2.0	1,543	1,526	1.1
Store sales, Hemköp franchise stores	1.853	1.755	5.6	1.794	1.729	3.8
Store sales, Hemköp Group- owned and franchise stores	3,459	3,330	3.9	3,337	3,255	2.5
Retail sales, Group-owned stores 2)	8.239	7.553	9.1	7.772	7.500	3.6
Store sales, Axfood Group	10.092	9.308	8.4	9.566	9.229	3.7

Derivation and reconciliation

Store sales - Group-owned and franchise stores, 12-month data

SEK m	$12 \text{ mos}$ 2017	12 mos 2016	$\frac{q}{20}$	Like-for-like 12 mos 2017	Like-for-like sales sales 12 mos 2016	$\%^{1}$
Net sales, Willys	25,415	23.164	9.7
Of which, sales for Group-owned stores 2)	25,415	23.164	9.7	24.058	23.071	4.3
Net sales, Hemköp	6,189	6,171	0.3
Of which, sales for Group-owned stores 2)	6,071	6,072	0.0	5.795	5,676	2.1
Store sales, Hemköp franchise stores	7.220	6.629	8.9	6.770	6.513	3.9
Store sales, Hemköp Group- owned and franchise stores	13.291	12.701	4.6	12.565	12.189	3.1
Retail sales, Group-owned stores 2)	31.486	29.236	7.7	29.853	28.747	3.8
Store sales, Axfood Group	38,706	35,865	7.9	36.623	35.260	3.9

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 Programme.

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 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 ratio/net receivable-equity ratio:

Interest-bearing liabilities and provisions less cash and cash equivalents and interest-bearing receivables, divided by shareholders' equity including noncontrolling interests.

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

Pro forma: Pro forma is a method for reporting changed historical figures that describe financial effects after a change in order to be able to compare with current figures.

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 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. Food that is good and sustainable. Axfood includes the Willys and Hemköp chains as well as Tempo, Handlar'n and Direkten, which are retailer-owned stores. Axfood has 274 Group-owned stores. In all, Axfood collaborates with approximately 820 retailer-owned stores. B2B sales are handled through Axfood Snabbgross, and wholesaling is conducted through Dagab. Axfood is listed on Nasdaq Stockholm (Large Cap), and the principal owner is Axel Johnson AB.

Vision

Axfood will be the leader in good and sustainable food.

Mission

Axfood contributes to better everyday life where everyone can enjoy affordable, good and sustainable food.

Business concept

A family of successful and distinctive food concepts in close collaboration.

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, attentive customer service and smart store layout are key aspects in creating an inspiring in-store experience (Stores, customers and joy of food).

Strategy

Axfood's strategy is built upon six strategic areas: the customer offering, the customer interface, expansion, the product's path, our way of working, and our people. Axfood will offer an affordable and wide product range of good and sustainable food that is a mix of own and popular brands. With sustainable and efficient product supply, customers will be served wherever they may be at any time of the day or night - both in physical stores and via e-commerce. Through new sales channels featuring new and innovative services and segments we will meet our customers' needs. Aside from these areas it is essential that we attract and develop the industry's best talent as part of our efforts to also have a customer-centric and dynamic organization in which efficiency and cost control are in focus. For

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.
• Axfood's store formats have strong positions in their respective segments. An attractive and sustainable assortment is central to all of the formats, and the affordability and distinct profiles of the Group's private label products - including sustainability aspects - play an important role
• Through a focus on profitable growth, Axfood has the opportunity to deliver favourable growth in value over time. Axfood's distinct sustainability profile 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