Axfood — Earnings Release 2019

Jul 15, 2019

High growth and good profitability

Second quarter summary

• Consolidated net sales amounted to SEK 13,038 m (12,221), an increase of 6.7%.
• Operating profit totalled SEK 601 m (545), an increase of 10.2%. The operating margin was 4.6% (4.5%). The new accounting standard for leasing (IFRS 16) had a positive effect on operating profit of SEK 44 m and on the operating margin of 0.3 percentage points.
• Net profit for the period totalled SEK 429 m (429), and earnings per share before dilution were SEK 2.01 (2.01).
• Axfood signed a cooperation agreement with the store chain Östenssons, which will become a Hemköp franchisee as from 1 September 2019.
• To secure the Company's obligation to provide conditional matching and performance shares under LTIP 2019, Axfood repurchased 196,000 shares for a total of SEK 36 m during the quarter.

First half summary

• Consolidated net sales amounted to SEK 24,969 m (23,665), an increase of 5.5%.
• Operating profit totalled SEK 1,086 m (980), an increase of 10.9%. The operating margin was 4.4% (4.1%). The new accounting standard for leasing (IFRS 16) had a positive effect on operating profit of SEK 87 m and on the operating margin of 0.3 percentage points.
• Net profit for the period totalled SEK 783 m (767), and earnings per share before dilution were SEK 3.69 (3.62).

Significant events after the balance sheet date

• As a step in the development of Axfood's new highly automated logistics centre in Bålsta, in accordance with the previously communicated Declaration of Intent, a long-term lease has been signed with the property owner NREP Logicenters

6.7%

Net sales growth for the Axfood Group during the second quarter of 2019.

7.0%

Growth in store sales for the Axfood Group during the second quarter of 2019.

Key ratios

SEK m	Q2 2019	Q2 2018	Change	6 mos 2019	6 mos 2018	Change	Full year 2018
Net sales	13,038	12,221	6.7%	24,969	23,665	5.5%	48,085
Operating profit	601	545	10.2%	1,086	980	10.9%	2,025
Operating margin, %	4.6	4.5	0.1	4.4	4.1	0.3	4.2
Profit for the period	429	429	0.1%	783	767	2.1%	1,577
Earnings per share before dilution, SEK	2.01	2.01	0.0%	3.69	3.62	1.9%	7.41
Cash flow from operating activities per share, SEK	5.18	2.39	116.7%	8.62	5.45	58.1%	12.89
Return on capital employed, %1)	30.9	47.2	-16.3	30.9	47.2	-16.3	40.4
Return on shareholders' equity, %1)	46.8	43.8	3.0	46.8	43.8	3.0	36.2
Shareholders' equity per share, SEK	-	-	-	15.15	16.83	-10.0%	20.54
Equity ratio, %	-	-	-	19.9	33.8	-13.9	37.0

1) Rolling 12-month figures.

Starting in 2019, leasing is reported in accordance with a new standard, IFRS 16. Comparison figures have not been recalculated.

For further information, please contact:

Elisabet Johansson, Interim Head of IR, tel. +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. The information was submitted for publication, through the agency of the contact person listed above, at 7 a.m. CET on 15 July 2019.

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

Invitation to presentation of interim report for the second quarter 2019

Axfood will present the interim report for the second quarter of 2019 today in a conference call at 9.30 a.m. CET. The report will be presented by Klas Balkow, President and CEO, and Anders Lexmon, CFO. To follow the conference call, visit www.axfood.se or call: Sweden: +46 8 505 583 51, UK: +44 333 300 9261, USA: +1 833 526 8380

Strengthening our position and investing for the future

The second quarter of the year was favourably affected mainly by Willys' continued strong performance as well as by Axfood Snabbgross's profitable growth. We continue to take market shares and delivered better earnings than last year. We did this at the same time that we are making a number of future-oriented investments in the store network, ecommerce and logistics solutions for the future.

Clearly the pace of change is increasing in the food retail sector as a whole, mainly due to sector convergence, growth in e-commerce, and higher demands and greater awareness among consumers. In response, business models are being reassessed, and the need for a high pace of business development is rising. In this context the Axfood family has continued to further strengthen its position and grown more than the market.

Good sales growth both in stores and online

Our sales growth of 6.7% is proof that our various food concepts are consolidating already strong positions in their respective segments. Willys and Axfood Snabbgross in particular are distinguishing themselves in a positive light. We also report an online sales growth of 37%. The store network is growing and being upgraded, and we are happy to see that every new store is welcomed by a constantly growing and loyal customer base.

Earnings that more than amply measure up to last year's record-high second quarter

We delivered an operating profit for the quarter which surpassed last year's strong result even without the effect of IFRS 16. This is gratifying especially in light of the fact that we are at the same time continuing to invest in a number of ambitious future ventures that are weighing down earnings in the short term, but which we are fully confident will contribute to our continued profitable growth over time.

One example during the quarter is that we consolidated the handling of all home deliveries to consumers in Stockholm. We are now summing up the lessons learned so that during the autumn we can further improve efficiency before expanding this measure to Gothenburg.

Another example is our investments in developing the most recent additions to the Axfood family. We have increased our ownership in Urban Deli and are investing in developing the offering while also building up the business and broadening the assortment in the online pharmacy Apohem.

We continue to invest in Hemköp

During the quarter Hemköp grew mainly driven by good performance in retailer-owned stores. However, we would like to have achieved a higher return on the investments we have made in our Group-owned stores. But we are confident that Hemköp's, residential-oriented position is spot-on for the times and that our

investments over time will generate the anticipated effect.

High activity for more sustainable consumption Last summer's record heat has increased our

customers' expectations on the responsibility we take for our operations, the products we offer, and their confidence that we have innovative solutions and offerings for everyone striving for a sustainable lifestyle. We have set high goals in areas such as halving food waste, increasing the share of sustainability-certified products and reducing our CO2 emissions. During the quarter we launched a number of measures, initiatives and innovative solutions that are helping our customers make conscious choices. For example, as a Mat.se customer you can now get help choosing sustainable, smart alternatives throughout the entire shopping process from search function to final placement of your order. After check out you can monitor your purchases based on criteria such as the product's source and climate impact. Another example is Urban Deli, which is innovating sustainable, ready-made meals, such as the legume-based dishes that Hemköp has now brought in to its assortment.

Our future ventures are resulting in satisfied customers

Axfood will continue to capitalize on opportunities in an increasingly complex, transparent and well-informed market. With employees who every day meet our customers and deliver products, good service and high quality, we can also navigate through the priorities we must make as we now continue to further develop our various concepts.

One measure of proof that our responsiveness and our investments in our various concepts are generating results is that our customers are giving us higher scores when we ask them how satisfied they are with our performance. Another proof is that Willys in May was named as the year's best retail chain in competition with the entire Swedish food retail sector.

Have a pleasant summer!

Klas Balkow President and CEO, Axfood AB

"With a store sales of growth of 7.0% in a market that is growing by 4.3%, we are further strengthening our position and taking market shares"

The Swedish food retail market

The food retail industry is generally less sensitive to economic swings than other trade sectors. The industry is mainly affected by population growth and inflation, but also by other megatrends such as digitalization, demographic changes, sector convergence, health and sustainability, and price value.

The share of household expenses that go to groceries has hovered around 12% since the turn of the millennium. At the same time, the market for prepared food has grown strongly, and the share of household expenses spent at cafés and restaurants has increased by 1.5 percentage points. Today's grocery consumers are increasingly conscious about the impact of food on the environment, climate and health. This is leading to growing demand for organic and refined products.

According to the Swedish Food Retailers Federation's (SvDH) food retail index, total sales growth during the second quarter of 2019 was 4.3%, including the 23.9% growth for e-commerce. According to the Swedish retail employers' association Svensk Handel, online sales in the food retail sector are expected to grow from approximately 2% today to a share of 6% by 2025.

Growth in store sales for the Axfood Group1) compared with SvDH's food retail index

1) Willys and Hemköp (Group-owned and franchises)

Net sales

Second quarter

Net sales for the Axfood Group grew 6.7% during the second quarter to SEK 13,038 m (12,221). The calendar effect from Easter is estimated to have contributed approximately 1.5% for the second quarter of this year. Both Willys and Axfood Snabbgross showed continued strong growth of 8.9% and 6.8%, respectively.

Store sales for the Axfood Group (Group-owned stores and Hemköp franchises) amounted to SEK 11,011 m (10,289), an increase of 7.0%. Growth in like-for-like sales was 6.3%.

Online sales to consumers grew 37% during the second quarter, to SEK 322 m (235). Sales of private label products accounted for 29.5% (29.2%) of total store sales during the second quarter.

January–June

Net sales for the Axfood Group amounted to SEK 24,969 m (23,665) during the period, an increase of 5.5%. Store sales for the Axfood Group (Group-owned stores and Hemköp franchises) grew 5.6%, while like-for-like sales increased by 5.2%.

Net sales per segment

SEK m	Q2 2019	Q2 2018	Change	6 mos 2019	6 mos 2018	Change	Full year 2018
Willys	7,423	6,818	8.9%	14,283	13,331	7.1%	27,066
Hemköp	1,614	1,608	0.4%	3,212	3,215	-0.1%	6,403
Axfood Snabbgross	924	866	6.8%	1,654	1,540	7.4%	3,241
Dagab	11,509	10,786	6.7%	22,086	20,899	5.7%	42,456
Joint-Group Internal sales between segments that are eliminated	231	207	11.6%	461	416	10.8%	830
Dagab	-8,446	-7,869	7.3%	-16,296	-15,344	6.2%	-31,130
Axfood Snabbgross	-1	-1	-14.5%	-2	-3	-39.0%	−5
Joint-Group	-216	-193	11.5%	-429	-389	10.4%	-775
Net sales, total	13,038	12,221	6.7%	24,969	23,665	5.5%	48,085

Store sales (including online)

				Change in				Change in
	Q2	Q2		like-for	6 mos	6 mos		like-for-like
SEK m	2019	2018	Change	like sales	2019	2018	Change	sales
Willys	7,423	6,818	8.9%	7.9%	14,282	13,331	7.1%	6.4%
Hemköp, Group-owned	1,579	1,575	0.2%	1.8%	3,142	3,147	-0.2%	1.4%
Hemköp franchises	2,009	1,896	5.9%	4.0%	3,871	3,692	4.8%	3.7%
Hemköp total	3,588	3,471	3.4%	3.0%	7,013	6,839	2.5%	2.7%
Axfood Group store sales	11,011	10,289	7.0%	6.3%	21,295	20,171	5.6%	5.2%
Axfood Snabbgross	924	866	6.8%	6.8%	1,654	1,540	7.4%	7.8%

Change in store structure

Number of stores	31 Dec. 2018	New establish ments/ acquisitions	Sales/ closures	31 March 2019	New establish ments/ acquisitions	Sales/ closures	30 June 2019	30 June 2018
Willys1)	208	1	−	209	3	−	212	208
Hemköp	70	−	-2	68	2	-2	68	69
Axfood Snabbgross	24	−	−	24	−	−	24	24
Total, Group-owned	302	1	-2	301	5	-2	304	301
Hemköp franchises	117	3	−	120	1	−	121	117
Axfood Group total	419	4	-2	421	6	-2	425	418
1) Of which, Willys Hemma	49	1	−	50	−	−	50	49
Of which, Eurocash	8	−	−	8	−	−	8	8

6.3%

Axfood Group's like-for-like sales growth during the second quarter of 2019.

37%

Increase in the Axfood Group's online sales to consumers during second quarter of 2019.

Operating profit

Second quarter

Operating profit for the second quarter improved to SEK 601 m (545), corresponding to an operating margin of 4.6% (4.5%). IFRS 16 had a positive effect on operating profit of SEK 44 m and on the operating margin of 0.3 percentage points.

The positive development of the underlying profit can be credited mainly to the strong sales growth and good cost control. The future investments that are being made to further strengthen Hemköp's position in the market, implementation of Group-wide e-commerce logistics in Stockholm and development of the Group's store network weighed down earnings for the quarter.

Profit after financial items amounted to SEK 571 m (543). IFRS 16 had a negative effect on net financial items of SEK 28 m. Profit after tax was SEK 429 m (429).

January–June

Operating profit for the period was SEK 1,086 m (980), corresponding to an operating margin of 4.4% (4.1%). IFRS 16 had a positive effect on operating profit of SEK 87 m and on the operating margin of 0.3 percentage points.

Net financial items for the period amounted to SEK -59 m (-3), and profit after financial items totalled SEK 1,027 m (977). IFRS 16 had a negative effect on net financial items of SEK 57 m. Profit after tax was SEK 783 m (767).

SEK m Q2 2019 Q2 2018 Change 6 mos 2019 6 mos 2018 Change Full year 2018 Willys 368 307 19.8% 662 549 20.8% 1 197 Hemköp 52 68 -23.7% 111 135 -17.6% 227 Axfood Snabbgross 57 42 35.1% 74 51 45.0% 121 Dagab 179 181 -1.0% 344 346 -0.4% 685 Joint-Group -55 -53 3.5% -106 -101 5.4% −206 Operating profit for the period 601 545 10.2% 1,086 980 10.9% 2,025 Net financial items -30 -2 -59 -3 −9 Profit for the period after financial items 571 543 1,027 977 2,016

Operating profit per segment

Operating margin per segment

%	Q2 2019	Q2 2018	Change, %-pts	6 mos 2019	6 mos 2018	Change, %-pts	Full year 2018
Axfood	4.6	4.5	0.1	4.4	4.1	0.3	4.2
Willys	5.0	4.5	0.5	4.6	4.1	0.5	4.4
Hemköp	3.2	4.2	-1.0	3.5	4.2	-0.7	3.5
Axfood Snabbgross	6.1	4.8	1.3	4.5	3.3	1.2	3.7
Dagab	1.6	1.7	-0.1	1.6	1.7	-0.1	1.6

Operating segment performance

Willys

Second quarter

Willys showed continued strong performance, and net sales for the second quarter grew 8.9% compared with the same period a year ago to SEK 7,423 m (6,818). Aside from a boost from Easter, growth came mainly from strong like-for-like sales, which increased by 7.9% owing to a larger number of customer visits, a higher average ticket value and growth in online. New establishment and reopenings of modernized stores also made a positive contribution to sales performance.

Willys opened three stores during the quarter. Thus at the end of the quarter Willys had 212 stores, of which 204 were Willys and eight were Eurocash, which is four more Willys stores than at the end of the second quarter a year ago. During the second quarter an additional nine Willys stores began offering online shopping. At the end of the second quarter Willys offered online shopping at 70 stores (48) in 38 cities (27), which is 22 more stores and 11 more cities than at the end of the second quarter a year ago. During 2019 the online roll-out is planned to continue to an additional six cities.

Operating profit for the second quarter improved to SEK 368 m (307), corresponding to an operating margin of 5.0% (4.5%). IFRS 16 had a positive effect on operating profit of SEK 26 m and on the operating margin of 0.3 percentage points. The underlying earnings improvement can be credited to the growth in like-for-like sales, and a continued stable gross margin and level of costs.

January–June

Willys' net sales for the period totalled SEK 14,283 m (13,331), an increase of 7.1% compared with the same period a year ago. Like-for-like sales increased by 6.4%. Operating profit was SEK 662 m (549), and the profit margin was 4.6% (4.1%). IFRS 16 had a positive effect on operating profit of SEK 51 m and on the operating margin of 0.4 percentage points.

SEK m	Q2 2019	Q2 2018	Change	6 mos 2019	6 mos 2018	Change	Full year 2018
Net sales	7,423	6,818	8.9%	14,283	13,331	7.1%	27,066
Change in like-for-like sales, %	7.9	2.1	5.8	6.4	4.0	2.4	4.3
Operating profit	368	307	19.8%	662	549	20.8%	1,197
Operating margin, %	5.0	4.5	0.5	4.6	4.1	0.5	4.4
Number of Group-owned stores	-	-	-	212	208	4	208
Average number of employees during the period	-	-	-	5,299	5,061	238	5,337
Private label share, %	-	-	-	31.4	31.1	0.3	30.8

Net sales, SEK bn, and operating margin, %1)

1) 2017 figures are pro forma as a result of reorganization carried out in 2018.

Hemköp

Second quarter

Net sales for Group-owned Hemköp stores (including franchise fees) during the second quarter totalled SEK 1,614 m (1,608).

Growth in store sales including Hemköp franchises and online was 3.4%. Compared with the second quarter a year ago the chain comprised one fewer Group-owned store and four more franchise stores. At the end of the second quarter Hemköp offered online shopping at 18 stores (18) in eight cities (eight). During 2019 Hemköp's focus is on developing online sales at existing locations.

Sales for Group-owned Hemköp stores totalled SEK 1,579 m (1,575). One Group-owned store was converted to a franchise, and two new Group-owned stores opened during the quarter. Like-for-like sales for Group-owned stores increased by 1.8%. Sales for franchise stores grew 5.9% to SEK 2,009 m (1,896). Like-for-like sales increased by 4.0%.

Operating profit for the second quarter totalled SEK 52 m (68), corresponding to an operating margin of 3.2% (4.2%). IFRS 16 had a positive effect on operating profit of SEK 10 m and on the operating margin of 0.6 percentage points. The lower profit is mainly attributable to the market investments and concept development that are being made to further strengthen the chain's position. Profit was also affected by costs associated with the new establishments and store closures that were carried out during the quarter.

In April Axfood informed about a cooperation agreement with the Östenssons grocery store chain in Östergötland. Östenssons is an independent chain with nine stores and annual sales of approximately SEK 600 m. Starting on 1 September the Östenssons stores will operate as Hemköp franchises.

January–June

Net sales during the period for Group-owned stores totalled SEK 3,142 m (3,147), a decrease of 0.2%. Like-for-like sales for Group-owned stores increased by 1.4%. Sales for franchise stores totalled SEK 3,871 m (3,692), an increase of 4.8%, while like-for-like sales increased by 3.7%.

Operating profit for the period was SEK 111 m (135), corresponding to an operating margin of 3.5% (4.2%). IFRS 16 had a positive effect on operating profit of SEK 20 m and on the operating margin of 0.6 percentage points.

SEK m	Q2 2019	Q2 2018	Change	6 mos 2019	6 mos 2018	Change	Full year 2018
Net sales	1,614	1,608	0.4%	3,212	3,215	-0.1%	6,403
Change in like-for-like sales, Group owned stores, %	1.8	-0.2	2.0	1.4	0.8	0.6	1.1
Operating profit	52	68	-23.7%	111	135	-17.6%	227
Operating margin, %	3.2	4.2	-1.0	3.5	4.2	-0.7	3.5
Number of Group-owned stores	-	-	-	68	69	-1	70
Average number of employees during the period	-	-	-	1,695	1,721	-26	1,798
Private label share, %	-	-	-	24.9	24.6	0.3	25.1

Net sales, SEK bn, and operating margin, % 1)

1) 2017 figures are pro forma as a result of reorganization carried out in 2018.

Axfood Snabbgross

Second quarter

Axfood Snabbgross's net sales totalled SEK 924 m (866) during the second quarter, representing growth of 6.8% compared with the same period a year ago. The strong growth was achieved despite a slightly negative Easter effect and can be credited to a strong market, more customer visits and a higher average ticket value. No changes were made in the store structure during the quarter. Axfood Snabbgross had 24 stores (24) at the end of the quarter.

Operating profit for the second quarter improved to SEK 57 m (42), and the operating margin grew to 6.1% (4.8%). IFRS 16 had a positive effect on operating profit of SEK 2 m and on the operating margin of 0.2 percentage points. The improved profit can be credited to strong like-for-like sales and lower campaign intensity.

January–June

Net sales for Axfood Snabbgross totalled SEK 1,654 m (1,540) during the period, an increase of 7.4%. Operating profit for the period was SEK 74 m (51), and the operating margin was 4.5% (3.3%). IFRS 16 had a positive effect on operating profit of SEK 3 m and on the operating margin of 0.2 percentage points.

SEK m	Q2 2019	Q2 2018	Change	6 mos 2019	6 mos 2018	Change	Full year 2018
Net sales	924	866	6.8%	1,654	1,540	7.4%	3,241
Operating profit	57	42	35.1%	74	51	45.0%	121
Operating margin, %	6.1	4.8	1.3	4.5	3.3	1.2	3.7
Number of stores	-	-	-	24	24	0	24
Average number of employees during the period	-	-	-	381	378	3	401

Dagab

Second quarter

Net sales for the second quarter totalled SEK 11,509 m (10,786), an increase of 6.7%. Growth was affected by favourable sales mainly to Willys, Hemköp franchises and Axfood Snabbgross.

Operating profit was SEK 179 m (181), corresponding to a profit margin of 1.6% (1.7%). IFRS 16 had a positive effect on operating profit of SEK 6 m and a marginal effect on the operating margin. During the quarter, implementation of the dark store that now handles the Group's online orders for home delivery in Stockholm led to higher costs. Over time this investment will lead to improved efficiency in the handling of the Group's steadily growing online volumes. Operating profit for the quarter was also weighed down by higher costs for continued development of Apohem and Urban Deli, and by the weak Swedish krona.

Axfood has signed a new cooperation agreement with Direkten under which Dagab will continue to be the supplier for Direkten stores. Axfood has divested its ownership stake in the company. The divestment has not had any material financial effect.

January–June

Dagab's net sales for the period totalled SEK 22,086 m (20,899), an increase of 5.7%. Operating profit was SEK 344 m (346), corresponding to an operating margin of 1.6% (1.7%). IFRS 16 had a positive effect on operating profit of SEK 11 m and a marginal effect on the operating margin.

In March a Letter of Intent was signed with Witron to supply automation for the highly automated logistics centre that will serve stores and online customers, with start of operations planned for 2023. The aim is to strengthen the customer offering and improve delivery quality and service through modern and more efficient warehouse processes. In connection with this, a Letter of Intent was also signed with the property owner NREP Logicenters to locate the logistics centre in Bålsta, outside of Stockholm. For further information, see Note 9.

	Q2	Q2		6 mos	6 mos		Full year
SEK m	2019	2018	Change	2019	2018	Change	2018
Net sales	11,509	10,786	6.7%	22,086	20,899	5.7%	42,456
Operating profit	179	181	-1.0%	344	346	-0.4%	685
Operating margin, %	1.6	1.7	-0.1	1.6	1.7	-0.1	1.6
Average number of employees during the period	-	-	-	2,578	2,216	362	2,301
Delivery reliability, %	-	-	-	96.6	96.3	0.3	96.1

Net sales, SEK bn, and operating margin, % 1)

1) 2017 figures are pro forma as a result of reorganization carried out in 2018. Since comparison figures for 2015 and 2016 are not recalculated, they are not reported.

Net sales, SEK bn, and operating margin, %1)

1) There are no comparison figures for 2015 due to the acquisition of the fruit & vegetable warehouse operation in 2017 and a reorganization in 2015. Figures for 2016 and 2017 are pro forma. 2016 pertains to the acquisition of the fruit & vegetable warehouse operation. 2017 figures are pro forma due to reorganization carried out in 2018.

Capital expenditures

Total capital expenditures during the period January–June amounted to SEK 497 m (421), of which SEK – m (4) pertained to acquisitions of operations, SEK 278 m (217) pertained to investments in non-current assets in retail operations, SEK 62 m (76) pertained to non-current assets in wholesale operations, and SEK 147 m (123) pertained to IT.

Investments in right-of-use assets (mainly premises) amounted to SEK 286 m during the period January–June, of which SEK 230 m pertained to newly acquired assets and SEK 56 m to remeasurement of leases – mainly renewals of existing rental agreements for premises. Of total investments in leases, SEK 244 m were attributable to retail operations, SEK 32 m were attributable to wholesale operations and SEK 10 m pertained to joint-Group operations.

Capital expenditures, depreciation/amortization, SEK m

Financial position and cash flow

Cash flow from operating activities amounted to SEK 1,805 m (1,142) during the period. Paid tax totalled SEK –246 m (–245). Net capital expenditures affected cash flow by SEK –398 m (–490). Net capital expenditures were lower than a year ago, as the current period included a positive effect of SEK 99 m from the divestment of an item that was previously classified as an asset held for sale. Payment of the shareholder dividend affected cash flow by SEK –1,488 m (–1,485), and amortisation of lease liabilities affected cash flow by SEK –716 m (–). Cash flow from financing activities decreased through adoption of the new lease standard, as the amortisation portion is now reported as an outgoing payment in financing activities. Cash flow from operating activities has thereby increased.

Cash and cash equivalents held by the Group amounted to SEK 738 m, compared with SEK 1,571 m in December 2018. Interest-bearing liabilities and provisions totalled SEK 6,187 m, compared with SEK 524 m in December 2018. Interest-bearing net debt amounted to SEK 5,449 m at the end of the period, compared with a net debt receivable of SEK 1,047 m in December 2018. The changes are mainly due to application of the new accounting standard for leases (IFRS 16) and payment of the dividend. Excluding the effect of IFRS 16, the Group had a net debt receivable of SEK 315 m at the end of the period.

The equity ratio was 19.9%, compared with 37.0% in December 2018. The lower equity ratio is mainly due to effects from the transition to IFRS 16, but also to payment of the dividend in March.

Derivation of total investments and net capital expenditures in cash flow

SEK m	6 mos 2019	6 mos 2018
Total investments	−783	-421
Investments in finance leases	−	31
Investments in leases	286	−
Divestment of tangible/intangible assets	2	12
Acquisition of financial assets	−16	-11
Acquisition of operations, other items	−	-3
Divested operations	14	2
Divestment/acquisition of assets held for sale	99	-100
Cash flow from investing activities	−398	-490

Parent Company

The Parent Company's net sales and other operating revenue during the period January–June amounted to SEK 134 m (130). After selling and administrative expenses of SEK 194 m (183) and net financial items of SEK 24 m (20), profit after financial items was SEK –36 m (–33). Capital expenditures during the period totalled SEK 10 m (2).

The Parent Company had an interest-bearing net debt receivable of SEK 400 m at the end of the period, compared with SEK 246 m in December 2018. The Parent Company has no significant transactions with related parties, other than transactions with subsidiaries.

Sustainable development

Key ratios, Group

	Q2 2019	Q2 2018	6 mos 2019	6 mos 2018	2018
Sustainability certified products as % of total sales	19.5	n.a.	20.0	n.a.	20.0
Organic products as % of total grocery sales
Axfood	6.2	6.5	6.5	6.8	6.6
Willys	5.6	5.8	5.8	6.0	5.9
Hemköp	8.8	9.3	9.2	9.6	9.3
Growth in plant-based protein substitutes,1) %
Axfood	14	28	15	27	22
Willys	17	29	18	30	25
Hemköp	8	24	11	21	16
KRAV certified meat as % of total meat sales
Axfood	3.5	3.9	3.6	4.1	3.9
Willys	2.2	2.5	2.3	2.8	2.5
Hemköp	8.3	9.2	8.5	9.3	9.0
Waste for incineration2) (tonnes), share of net sales (SEK m), %
Willys	33	35	33	35	35
Hemköp	n.a.	n.a.	n.a.	n.a.	n.a.
Axfood Snabbgross	21	17	21	17	24
Private label product recalls from stores	13	8	24	17	32
Product recalls from stores, other brands	15	16	36	32	78
Number of social audits3)	31	38	46	51	95
Electricity consumption, kWh/m2 (stores and warehouses)4)	317.4	318.4	317.4	318.4	322.2
Electricity consumption (kWh) as share of net sales (SEK), %5)	0.55	0.59	0.55	0.59	0.57
CO2, kg/tonne goods6)	17.3	12.0	17.3	12.0	16.6
Work attendance rate, %	94.6	94.4	94.1	94.2	94.4

1) Compared with same period a year ago.

2) Rolling 12-month figures, with one quarter delay.

3) Both under own management and via the organization Amfori BSCI.

4) Rolling 12-month figures. Pertains to Group-owned stores and warehouses under joint electricity contracts.

5) Inflation-adjusted net sales.

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

Sustainable sales

Food products account for a large share of the world's greenhouse gas emissions. Mitigating the impact requires the participation of all parties in the value chain, from growers to consumers. One way that Axfood can contribute is to promote sustainable products made with a lower environmental impact, better animal welfare and/or improved social conditions. Starting in 2019 Axfood has updated its strategic target for organic sales to also include sustainability certified products. Axfood's definition of such certifications includes EU organic, KRAV, Rainforest Alliance, Utz, Fair Trade, Fair Trade's ingredient programme, the Nordic Swan, "Good Environmental Choice", FSC, MSC, ASC, "the Green Keyhole", Ecocert Organic, Sigill climate-certified food, Sigill certified pasture-raised meat, and Sigill certified pigs (not base level). During the second quarter of 2019 Axfood's share of sustainability certified products in relation to total sales was 19.5%.

During the second quarter of 2019, Axfood's organic product share of total grocery sales was 6.2% (6.5%), and sales of plant-based alternatives increased by 14% (16%).

Selection of sustainability news from Axfood*

• Axfood is reducing food waste. Willys' "waste-smart" concept is based on closing out items at low prices instead of tossing them in the trash. For Willys' private label bread, the amount thrown out has been cut by more than half. Hemköp offers lunch buffets with dishes made of ingredients that would otherwise be thrown out, and certain stores are cooperating with the Karma food rescue app. In 2018 Axfood donated more than 700 tonnes of surplus food to charities. This summer, the ready to eat packaged carrots sold in Axfood stores also include the smaller carrots that are usually sorted out. If Sweden has a summer like last year, this will result in an estimated reduction in food waste by 100 tonnes.
• Initial results of a unique collaboration on climate-smart solutions between Mat.se and the research institute RISE show that nearly 30% of customers say Yes to switching to alternative products in order to personally contribute to a lower carbon footprint. The products customers are most willing to substitute are minced meat, rice and whipping cream.
• Since April, four Hemköp stores in Stockholm have been offering a lasagne dish, a spaghetti Bolognese and a ready-spiced taco mince developed by Urban Deli. Instead of minced meat, the dishes are based on an innovative mince made from four Swedish-grown legumes.
• Axfood's warehouses have become traceability-certified. This means that fish and shellfish may only be sourced from controlled and certified suppliers.
• Work is under way on reducing the use of eggs from caged hens in ready-prepared products. The goal is that no products sold under the Eldorado and Garant private labels will contain eggs from caged hens by next year. Axfood's stores have for some time not sold eggs from caged hens.
• Axfood's Fixa brand has launched reusable polyester bags for fresh produce in an effort to further reduce the use of plastics.
• At the end of April Middagsfrid added a vegan dish to its vegetarian meal kit.
• Middagsfrid has decided that, starting in August this year, its meals will not include food products transported by air. Urban Deli has decided to stop selling fruits and vegetables that have been transported by air.
• Mat.se has launched Alternativbolaget, a collection of more than 40 non-alcoholic beverages – a simple way to find appealing drinks for meals as well as celebrations.
• Axfood has decided to phase out disposable grills from its assortment. The decision applies for all Willys, Hemköp, Tempo and Axfood Snabbgross stores.
• Since Axfood adopted the goal of installing solar panels on 25% of store and warehouse rooftops where possible, such systems have been installed on numerous store rooftops, most recently at the Willys store in Gränby, Uppsala.

*Communicated during the second quarter of 2019. For more information, visit axfood.se.

to transport by air at Urban Deli

100tonnes of carrots estimated to be saved

from food waste

No. 1

Lasagne made of legume mince became a customer favourite after 10 weeks of sales at four Hemköp stores in Stockholm.

Long-term targets and capital expenditures 2019

• Axfood's long-term financial targets:
• o Grow more than the market
  • o Long-term operating margin of at least 4%
  • o Equity ratio of at least 20% at year-end
• Axfood's dividend policy sets the goal that the shareholder dividend shall be at 50% of profit after tax.
• Axfood's capital expenditures in 2019 are expected to amount to SEK 1,500–1,600 m excluding acquisitions and right-of-use assets.

Future reports

• The interim report for January–September 2019 will be presented on 24 October 2019, at 7 a.m. CET.
• The year-end report for 2019 will be presented on 6 February 2020, at 7 a.m. CET.

Selection of press releases from Axfood during the second quarter

3 April 2019	Hemköp and Östenssons begin cooperation
25 April 2019	Board of Directors decides on share repurchase
29 April 2019	Hemköp takes takeaway to new level at Mall of Scandinavia
29 April 2019	Willys to take over Coop store in Örebro in autumn 2019
3 May 2019	Garant to begin selling ready-made meal solutions
4 June 2019	Mat.se opens Alternativbolaget
5 June 2019	Axfood signs new agreement with Direkten and divests its ownership

The interim report for the period January–June 2019 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 2019

Mia Brunell Livfors Chairman of the Board

Lars Olofsson Vice Chairman of the Board Stina Andersson Director

Fabian Bengtsson Director

Caroline Berg Director

Jesper Lien Director

Christer Åberg Director

Anders Helsing Director, employee representative

Michael Sjörén Director, employee representative

Lars Östberg Director, employee representative

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 2019	Q2 2018	6 mos 2019	6 mos 2018	R12	Full year 2018
Net sales	13,038	12,221	24,969	23,665	49,389	48,085
Cost of goods sold	-11,000	-10,360	-21,056	-20,094	-41,866	−40,904
Gross profit	2,038	1,861	3,913	3,571	7,523	7,181
Selling and administrative expenses, etc.	-1,437	-1,316	-2,827	-2,591	-5,392	−5,156
Operating profit	601	545	1,086	980	2,131	2,025
Interest income and similar profit/loss items	1	2	3	4	5	5
Interest expense and similar profit/loss items	-31	-4	-62	-7	-69	−14
Profit after financial items	571	543	1,027	977	2,067	2,016
Tax	-142	-114	-244	-210	-473	−439
Profit for the period	429	429	783	767	1,594	1,577
Other comprehensive income Items that cannot be reclassified to profit or loss for the period
Revaluation of defined benefit pension plans	-21	-5	-23	-4	-38	−21
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 the period	5	-1	5	-1	6	3
Translation differences in calculation of foreign operations	0	0	0	0	0	0
Change in fair value of forward exchange contracts	-1	4	-2	5	-6	1
Tax attributable to items that have been reclassified or can be reclassified to profit or loss for the period	0	-1	0	-1	1	0
Other comprehensive income for the period	-17	-3	-20	-1	-37	−17
Total comprehensive income for the period	412	426	763	766	1,557	1,560
Operating profit includes depreciation/amortization of	537	190	1,067	381	1,446	760
Earnings per share before dilution, SEK	2.01	2.01	3.69	3.62	−	7.41
Earnings per share after dilution, SEK	2.00	2.01	3.68	3.62	−	7.40
Profit for the period attributable to
Owners of the parent	420	422	773	760	1,566	1,553
Non-controlling interests	9	7	10	7	28	24
Total comprehensive income for the period attributable to
Owners of the parent	403	419	753	759	1,529	1,536
Non-controlling interests	9	7	10	7	28	24

Condensed statement of financial position, Group

SEK m	30/6/2019	30/6/2018	31/12/2018
Assets
Goodwill	2,764	2,673	2,767
Other intangible assets	677	703	682
Property, plant and equipment	2,201	2,078	2,202
Right-of-use assets	5,476	−	−
Financial assets1)	19	66	27
Deferred tax assets	246	127	141
Total non-current assets	11,383	5,647	5,819
Inventories	2,415	2,341	2,340
Accounts receivable – trade	1,205	1,055	1,102
Other current assets	1,248	1,355	1,308
Cash and bank balances	738	513	1,571
Assets held for sale	−	100	104
Total current assets	5,606	5,364	6,425
Total assets	16,989	11,011	12,244
Shareholders' equity and liabilities
Equity attributable to owners of the parent	3,171	3,525	4,304
Equity attributable to non-controlling interests	209	202	224
Total shareholders' equity	3,380	3,727	4,528
Non-current lease liabilities	4,296	−	−
Other non-current interest-bearing liabilities	422	481	472
Deferred tax liabilities	837	776	832
Other noninterest-bearing non-current liabilities	55	28	50
Total non-current liabilities	5,610	1,285	1,354
Current lease liabilities	1,469	−	−
Other current interest-bearing liabilities	−	50	52
Accounts payable – trade	4,114	3,663	3,836
Other current noninterest-bearing liabilities	2,416	2,286	2,474
Total current liabilities	7,999	5,999	6,362
Total shareholders' equity and liabilities	16,989	11,011	12,244
1) Of which, interest-bearing assets	−	24	−

Condensed statement of cash flows, Group

SEK m	Q2 2019	Q2 2018	6 mos 2019	6 mos 2018	Full year 2018
Operating activities
Operating profit	601	545	1,086	980	2,025
Adjustments for non-cash items	540	191	1,073	372	758
Interest paid	-30	-4	−62	-7	−17
Interest received	1	2	3	4	5
Paid tax	-136	-155	−246	-245	−434
Changes in working capital	109	-79	−49	38	365
Cash flow from operating activities	1,085	500	1,805	1,142	2,702
Investing activities
Acquisitions of operations	−	-1	−	-7	−45
Acquisitions of intangible assets	-50	-35	−76	-69	−129
Acquisitions of property, plant and equipment	-202	-180	−421	-317	−711
Other changes in investing activities	7	-110	99	-97	−107
Cash flow from investing activities	-245	-326	−398	-490	−992
Financing activities
Amortization of debt	-549	-169	−716	0	−
Share repurchases	-36	-30	-36	-30	−30
Dividend payout	−	-17	−1,488	-1,485	−1,485
Cash flow from financing activities	-585	-216	−2,240	-1,515	−1,515
Cash flow for the period	255	-42	-833	-863	195

Condensed statement of changes in equity, Group

SEK m	30/6/2019	30/6/2018	31/12/2018
Amount at start of year	4,528	4,478	4,478
Changed accounting policy	-394	-5	−5
Adjusted shareholders' equity at start of year	4,134	4,473	4,473
Total comprehensive income for the period	763	766	1,560
Change in non-controlling interests	0	−	0
Share repurchases	-36	-30	−30
Share-based payments	9	3	10
Translation reserve, divested company	-2	−	−
Dividend to shareholders	-1,488	-1,485	−1,485
Amount at end of period	3,380	3,727	4,528

Key ratios and other data, Group

	30/6/2019	30/6/2018	Full year 2018
Operating margin, %	4.4	4.1	4.2
Margin after financial items, %	4.1	4.1	4.2
Equity ratio, %	19.9	33.8	37.0
Net debt (+)/net receivable (-), SEK m	5,449	-6	−1,047
Net debt (+)/net receivable (-) excluding IFRS 16	-315	-6	−1,047
Net debt-equity ratio (+)/Net receivable equity ratio (-), multiple	1.6	0.0	−0.2
Net debt-equity ratio (+)/Net receivable equity ratio (-), multiple excl. IFRS 16, multiple	-0.1	0.0	−0.2
Capital employed, SEK m	9,567	4,258	5,052
Return on capital employed, %	30.9	47.2	40.4
Return on shareholders' equity, %	46.8	43.8	36.2
Average number of employees during the year	10,341	9,745	10,215
Capital expenditures, SEK m	783	421	1,021
Capital expenditures excluding IFRS 16	497	421	1,021
Number of shares outstanding at the end of the period	209,298,712	209,494,712	209,494,712
Average number of shares outstanding before dilution	209,461,953	209,631,432	209,563,072
Average number of shares outstanding after dilution	209,886,426	209,864,572	209,867,642
Key data per share
Earnings per share before dilution, SEK	3.69	3.62	7.41
Earnings per share after dilution, SEK	3.68	3.62	7.40
Ordinary dividend per share, SEK	-	-	7.00
Shareholders' equity per share, SEK	15.15	16.83	20.54
Cash flow per share, SEK	-3.98	-4.12	0.93

Quarterly overview

SEK m	Q3 2017	Q4 2017	Q1 2018	Q2 2018	Q3 2018	Q4 2018	Q1 2019	Q2 2019
Net sales	11,578	11,826	11,444	12,221	12,050	12,370	11,931	13,038
Operating profit	604	398	435	545	620	425	485	601
Operating margin, %	5.2	3.4	3.8	4.5	5.1	3.4	4.1	4.6
Earnings per share before dilution, SEK	2.23	1.46	1.61	2.01	2.24	1.54	1.68	2.01
Shareholders' equity per share, SEK	18.89	20.35	14.95	16.83	19.06	20.54	13.37	15.15
Return on shareholders' equity, %	37.8	34.9	47.3	43.8	38.7	36.2	52.8	46.8
Cash flow from operating activities per share, SEK	2.85	3.97	3.06	2.39	3.54	3.90	3.44	5.18
Capital expenditures excluding IFRS 16	204	310	189	232	178	422	245	252
Net debt (+)/net receivable (-)	−327	−871	122	−6	−581	−1,047	6,047	5,449
Share price, SEK	139.70	158.10	142.75	172.30	166.40	151.70	173.00	183.75

Financial statements, Parent Company

Condensed income statement, Parent Company

SEK m	Q2 2019	Q2 2018	6 mos 2019	6 mos 2018	Full year 2018
Net sales	1	0	2	1	3
Other operating revenue	68	63	132	129	248
Selling/administrative expenses, etc.	-101	-90	-194	-183	−376
Operating profit	-32	-27	-60	-53	−125
Net financial items	1	19	24	20	21
Profit after financial items	-31	-8	-36	-33	−104
Appropriations, net	-	-	-	-	1,681
Profit before tax	-31	-8	-36	-33	1,577
Tax	8	2	13	6	−353
Net profit for the period	-23	-6	-23	-27	1,224
Operating profit includes depreciation/amortization totalling	1	2	1	5	11

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

Condensed balance sheet, Parent Company

SEK m	30/6/2019	30/6/2018	31/12/2018
Assets
Property, plant and equipment	13	8	5
Participations in Group companies	3,390	3,383	3,386
Other financial non-current assets	0	7	−
Deferred tax assets	9	8	8
Total non-current assets	3,413	3,406	3,399
Receivables from Group companies 1)	842	1,066	2,854
Other current assets	190	159	12
Cash and bank balances	246	75	848
Total current assets	1,278	1,300	3,714
Total assets	4,690	4,706	7,113
Shareholders' equity and liabilities
Restricted shareholders' equity	287	287	287
Unrestricted shareholders' equity	1,013	1,274	2,531
Total shareholders' equity	1,301	1,561	2,818
Untaxed reserves	2,639	2,400	2,639
Non-current interest-bearing liabilities	22	30	24
Noninterest-bearing non-current liabilities	3	1	2
Total non-current liabilities	24	31	26
Accounts payable – trade	12	12	19
Liabilities to Group companies 2)	656	646	1,512
Other current noninterest-bearing liabilities	58	56	99
Total current liabilities	726	714	1,630
Total shareholders' equity and liabilities	4,690	4,706	7,113
1) Of which, interest-bearing liabilities	832	1,035	920
2) Of which, interest-bearing liabilities	656	644	1,498

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. Disclosures in accordance with IAS 34 Interim Financial Reporting are presented in notes as well as in other parts of the interim report. For the Parent Company, the interim report has been prepared in accordance with recommendation RFR 2 – Accounting 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 interim report as in the most recent annual report, except for what is stated below.

All amounts in the interim report are rounded off to the nearest million Swedish kronor (SEK m), unless indicated otherwise, entailing that tables and calculations do not always add up. In text and tables, figures between 0 and 0.5 are reported as 0.

New accounting policies effective in 2019 and later

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.

Starting on 1 January 2019 the Group has begun applying IFRS 16 Leases. IFRS 16 introduced a uniform lease recognition model for lessees. A lessee recognizes a right-of-use asset that represents a right to use the underlying asset and a lease liability that represents an obligation to make lease payments. Exceptions are made for short-term leases and leases of assets with a low value. IFRS 16 replaces the previous standard IAS 17 Leases.

In 2018 a project group was created to work on preparations ahead of adoption of the new standard together with external accounting specialists. The project has involved compiling and reviewing the Group's leases, system updates, and workshops and training for employees affected by IFRS 16.

The Group has opted to apply the modified retrospective method. This entails that the accumulated effect of adoption of IFRS 16 will be recognized in retained earnings in the opening balance as per 1 January 2019 without recalculation of comparative figures. Right-ofuse assets attributable to previous operating leases will mainly be recognized at their depreciated value from the commencement of the lease with the addition of advance payments recognized on the balance sheet as per 31 December 2018.

Leases with a low value are not included in the lease liability, but continue to be recognized with a linear expensing over the lease term. The existence of leases with a maximum lease term of 12 months, so-called short-term leases, is considered to be insignificant in the Group.

The lease term is the non-cancellable contract period where consideration is given to the opportunity to extend or terminate the contract and to how reasonably certain it is that this opportunity will be exercised. If it is not reasonably certain that an extension or termination will be made, the extension is not included in the calculation of the lease liability.

Reconciliation of operating lease obligations (SEK m)

Assumptions for operating leases, 31 December 2018	6,318
Discounting using the Group's incremental borrowing rate	−370
Liabilities for finance leases, 31 December 2018	51
Contracts pertaining to short-term leases that are expensed	−2
Contracts pertaining to leases of assets with a low value that are expensed	−4
Adjustment for extension options or termination clauses	219
Lease liability on 1 January 2019	6,212

Effects on balance sheet at 1 January 2019 (SEK m)

Property, plant and equipment	−115
Right-of-use assets	5,897
Deferred tax asset	103
Prepaid expense	−199
Shareholders' equity	394
Non-current lease liabilities	−4,662
Current lease liabilities	−1,437
Accrued expense	19

The Axfood Group's right-of-use assets consist almost exclusively of premises.

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 Axfood Snabbgross. For information about Axfood's operating segments, see pages 6–8 of this interim report. For a more detailed description of the segments, please refer to the 2018 Annual Report.

Reporting of leases is allocated to the operating segments that use the respective right-ofuse assets. The earnings effect of sub-leasing to franchise stores is recognized in the segment that the store belongs to.

Axfood has no significant transactions with related parties other than transactions with subsidiaries.

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 2018 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

No significant acquisitions were made during the second quarter of 2019.

Note 6 Disclosures about financial assets and liabilities

No significant changes have taken place in financial assets and liabilities regarding fair value measurement since the publication of the 2018 Annual Report. Fair value corresponds in all essential respects to book value.

Note 7 Pledged assets and contingent liabilities

Group, SEK m	30/6/2019	30/6/2018	31/12/2018
Pledged assets	−	6	6
Contingent liabilities	26	18	21
Parent Company, SEK m	30/6/2019	30/6/2018	31/12/2018
Pledged assets	−	0	−

Note 8 Long-term share-based incentive

programmes

The Annual General Meeting resolved to adopt a third long-term share-based incentive programme, LTIP 2019, the principles and scope of which in all essential respects correspond to the previously adopted programmes. For more information about the two earlier incentive programmes, LTIP 2017 and LTIP 2018, see the 2018 Annual Report.

To secure the Company's obligation to provide conditional matching and performance shares under LTIP 2019, during the second quarter of 2019 Axfood repurchased 196,000 shares at an average price of SEK 186.00 per share, for a total of SEK 36 m. Axfood's holding of treasury shares thereby amounts to 572,000 shares, which secure delivery of shares for LTIP 2017, LTIP 2018 and LTIP 2019.

Note 9 Events after the balance sheet date

As a step in the development of Axfood's new highly automated logistics centre in Bålsta, in accordance with the previously communicated Declaration of Intent, a long-term lease has been signed with the property owner NREP Logicenters.

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. Definitions of the key ratios are provided below.

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 (share-based).

Financial key ratio definitions

Capital employed: Total assets less noninterest-bearing 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 outstanding.

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

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.

Growth in store sales: Percentage change in the Axfood Group's store sales between two periods.

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

Joint-Group: Includes head office support functions, such as the Executive Committee, Finance/Accounting, Communications, Business Development, HR and IT.

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 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 non-controlling interests.

Net debt/net receivable: Interest-bearing non-current and current receivables and liabilities including cash and bank balances, plus interest-bearing financial assets.

Net sales growth: Percentage increase in net sales between two periods.

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

Pro forma: Pro forma is a method of 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 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 of private label products: Sales of private label products, excluding meats and fruits & vegetables, as a percentage of store sales including Hemköp 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 Groupowned and franchise stores are weighted according to the actual historical sales.

Share price: Closing share price.

Shareholders' equity per share: Equity attributable to owners of the parent divided by the number of shares before dilution.

Store sales, Axfood Group: Sales for Hemköp and Willys stores, including Hemköp franchises.

Total capital expenditures: Investments in intangible and tangible non-current assets, and in right-of-use assets.

About Axfood

Axfood aspires to be the leader in good and sustainable food. Axfood includes the Willys and Hemköp chains as well as Tempo and Handlar'n. B2B sales are conducted through Axfood Snabbgross, and Dagab is responsible for the Group's product development, purchasing and logistics. The Axfood house of brands also includes Mat.se, Middagsfrid and Urban Deli, and partly owned Apohem and Eurocash. Together they reach more than 4 million customers every week. Axfood's shares have been listed on Nasdaq Stockholm since 1997, and the principal owner is Axel Johnson AB.

Vision

Axfood will be the leader in good and sustainable food.

Mission

Axfood enables a better day 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 built upon three processes, where every 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 concepts. Efficient logistics then create conditions for favourable and profitable growth together with sustainable transports and efficient use of energy. A distinct sustainability profile, attentive customer service and smart store layout are key aspects in creating an inspiring in-store experience.

Long-term financial targets and investments 2019

• Axfood's long-term financial targets:
• Grow more than the market
• Long-term operating margin of at least 4%
• Equity ratio of at least 20% by year-end
• Axfood's dividend policy sets the goal that the shareholder dividend shall be at least 50% of profit after tax.
• Axfood's capital expenditures in 2019 are expected to amount to SEK 1,500–1,600 m excluding acquisitions and right-of-use assets.

Strategy

Axfood's strategy is built upon six strategic areas: the customer offering, the customer meeting, expansion, supply chain, work approach, 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 online. 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 top 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 Axfood it goes without saying that sustainability and community engagement run like a common thread through all our operations.

Investment case – value drivers

Factors that Axfood believes are important regarding an investment in Axfood:

• The food retail industry, which is driven by population growth and inflation, is relatively insensitive to economic swings. Axfood's strategy also addresses drivers such as digitalization, discount retailing and convenience.
• Axfood has a solid balance sheet, and its business model generates stable cash flow. During the last five years the dividend has amounted to 88% of profit after tax.
• With a refined focus on food and distinctive concepts, Axfood is a house of brands that are all strongly positioned in their respective segments. The Group's joint purchasing & logistics operation creates economies of scale and cost efficiency.
• Axfood aspires to be a positive force in society and has clear goals for sustainability. Axfood's private label products gladly lead the charge with respect to sustainability and health.

Our segments

• Willys is Sweden's leading discount grocery chain, featuring a wide and deep assortment in Group-owned stores and online. With Sweden's cheapest bag of groceries, Willys aspires to lead and develop the discount segment of food retail. Willys also includes the cross-border grocery chain Eurocash.
• Hemköp offers an attractively priced, wide and deep assortment of fresh products. Hemköp's Group-owned stores, franchise stores and online business aim to inspire good meals in a simple and painstaking manner. Hemköp also includes Tempo, a mini-mart format comprising retailer-owned stores.
• Axfood Snabbgross is one of Sweden's leading restaurant wholesalers with a customer base of restaurants, fast food operators and cafés. From its stores and online the chain offers personal service, availability and quality.
• Dagab handles the assortment, purchasing and logistics for the entire Axfood house of brands as well as for other B2B customers. Dagab includes the online grocery store Mat.se, the meal kit company Middagsfrid, the online pharmacy Apohem, and Urban Deli, a combined restaurant and market hall concept with own food production.

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