Axfood — Earnings Release 2020

Oct 22, 2020

Increased market shares and strong earnings

Third quarter summary

• Consolidated net sales totalled SEK 13,426 m (12,731), an increase of 5.5%.
• Operating profit totalled SEK 796 m (715), an increase of 11.3%. The operating margin was 5.9% (5.6%).
• Net profit for the period totalled SEK 605 m (536), and earnings per share before dilution were SEK 2.95 (2.50).
• Payment of SEK 3.50 per share was made in September – the second portion of the total shareholder dividend of SEK 7.25 (7.00) per share.
• The quarter was characterized by changed shopping behaviour among consumers due to the coronavirus/Covid-19. An increase in consumption of food at home had a favourable impact on sales. However, certain businesses with exposure to cafés and restaurants as well as cross-border shopping and in locations where customer traffic has decreased significantly were negatively impacted, although to a lesser extent than during the second quarter.
• A decision was made that Snabbgross will launch a new B2C store concept, Snabbgross Club, towards the end of the year.

Summary January–September

• Consolidated net sales totalled SEK 40,062 m (37,700), an increase of 6.3%.
• Operating profit totalled SEK 1,944 m (1,801), an increase of 7.9%. The operating margin was 4.9% (4.8%).
• Net profit for the period totalled SEK 1,454 m (1,319), and earnings per share before dilution were SEK 7.10 (6.19).

Significant events after the balance sheet date

• On 1 October Axfood's new Head of IT Karin Hedlund began her introduction period with the Company prior to assuming her position in November.

7.6%

Growth in store sales for the Axfood Group during the third quarter of 2020

5.5%

Net sales growth for the Axfood Group during the third quarter of 2020

11.3% Operating profit growth for the Axfood Group during the third quarter of 2020

Key ratios

SEK m	Q3 2020	Q3 2019	Change	9 mos 2020	9 mos 2019	Change	R12	Full year 2019
Net sales	13,426	12,731	5.5%	40,062	37,700	6.3%	53,102	50,740
Operating profit (EBIT)	796	715	11.3%	1,944	1,801	7.9%	2,431	2,288
Operating margin, %	5.9	5.6	0.3	4.9	4.8	0.1	4.6	4.5
Profit for the period	605	536	12.9%	1,454	1,319	10.2%	1,813	1,679
Earnings per share before dilution, SEK	2.95	2.50	18.0%	7.10	6.19	14.7%	−	7.87
Cash flow from operating activities per share, SEK	5.58	3.10	80.0%	16.06	11.72	37.0%	21.32	16.98
Return on capital employed, %1)	24.5	30.6	-6.2	24.5	30.6	-6.2	24.5	30.1
Return on shareholders' equity, %1)	47.9	42.1	5.8	47.9	42.1	5.8	47.9	39.6
Shareholders' equity per share, SEK	−	−	−	18.99	17.64	7.7%	−	19.21

1) Rolling 12-month figures.

For further information, please contact:

Alexander Bergendorf, Head of Investor Relations, tel. + 46 73 049 18 44

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 22 October 2020.

Invitation to presentation of the interim report for the third quarter of 2020

Axfood will present the interim report for the third quarter of 2020 in a conference call at 9.30 a.m. (CET) today. The report will be presented by Klas Balkow, President and CEO, and Anders Lexmon, CFO. To follow the presentation, visit www.axfood.se or ring:

Sweden: +46 8 505 583 69, UK: +44 333 300 9260, USA: +1 833 526 8347.

Continued high growth and improved profitability

Axfood sums up a strong quarter with growth that once again exceeded the market and improved profitability. An impressive performance for the Willys stores and a recovery for Snabbgross more than compensated for the businesses that continue to be challenged by the ongoing pandemic. Despite the pandemic, that is very much in our focus, we continue to maintain a high pace of development in our investments for the future.

Consumption of food at home remained high during the third quarter, which contributed positively to growth for the food retail market. Axfood continues to gain market shares, and particularly noteworthy was growth for Willys, which is strengthening its position as Sweden's leading discount grocery chain. We are reporting growth in store sales for Willys as a whole of 8.3%, which is higher than the market's growth despite the weak performance for the crossborder shopping chain Eurocash, whose sales once again were down sharply on account of Norway's restrictions on travel to Sweden.

Hemköp's growth was in line with the market. The retailer-owned Hemköp stores grew at a higher rate than the market but the Group-owned stores were negatively affected by a continued challenging situation for large stores at central, urban locations, where customer traffic is still at a low level. The wholesale operation Snabbgross, with exposure to the café and restaurant market, has recovered faster than expected.

Strong earnings

Profit for the third quarter was strong, and despite challenges for parts of our operations we improved our profitability. The 11.3% earnings growth is mainly explained by the favourable store sales growth and efficient logistics, which amply compensated for the negative effects from Eurocash and certain Hemköp stores.

Omnichannel focus for future growth

The ability to shop where and how one wants – in a store or online – is highly appreciated by our customers. Our broad store network offers customers a high degree of accessibility, both in terms of sales and inspiration in stores, but also for pick-up of orders placed online. During the pandemic, interest in online grocery shopping has risen sharply – a trend that continued during the third quarter, during which Axfood outperformed the market with a full 120% growth in online sales. Particularly noteworthy is growth for the store pick-up alternative, which is growing considerably faster than home delivery sales both for the market as a whole and for Axfood.

High pace of development

The pandemic is putting demands on our operations, which entails a strong focus on adapting to meet changed customer needs and behaviours. Despite this we continue to develop our business at a fast pace within many areas.

Work on our new logistics centre in Bålsta is on track, and in a long-term partnership with Scania we are developing new solutions to electrify heavy transports and thereby work for a green transition. We are also working to further optimize our transports, and toward the end of the year a pilot test of our new transport system will be initiated.

We also continue to test various solutions for how we can create a more seamless and relevant shopping experience, and recently a new functionality was introduced that enables self-scanning and payment via mobile phones in a number of stores.

We have identified a consumer need to be able to buy groceries, food products and household goods of high quality in bulk packages and at attractive prices. In late November we are therefore launching Snabbgross Club, an entirely new store concept that gives consumers the opportunity to shop for the same food products as restaurants and cafés. Snabbgross Club will be among the first in the country to open a membership-based grocery store that gives members access to an entire new concept with a unique and affordable assortment of bulk products.

A positive force for change

As a leading player in Sweden's food retail sector we have an opportunity to make a difference and to make bold decisions that benefit today's as well as future consumers. Toward this end, we recently published our Mat 2030 ("Food 2030") report, which lays out Axfood's proposals for a more sustainable food strategy for Sweden. Hemköp is first out in the industry to reward sustainable choices that are positive for the climate as well as people's own health with its new, innovative and favourable loyalty programme, Klubb Hemköp. We see it as our duty to be a positive force for change and to continue driving development towards a more sustainable food value chain.

Klas Balkow President and CEO, Axfood AB

"Axfood continues to gain market shares, and particularly noteworthy is the growth for Willys, which is strengthening its position as Sweden's leading discount grocery chain."

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 megatrends such as digitalization, demographic changes, sector convergence, health and sustainability, and price value.

During the first two decades of the 2000s the share of household expenses spent on groceries hovered around 12%. At the same time, the market for prepared food has grown, and the share of household expenses consumed at cafés and restaurants has neared 6%, an increase from around 4% at the start of the millennium.

In recent years, food retail sales online have grown rapidly, and this growth accelerated during the first nine months of 2020. E-commerce still accounts for a small share of the food retail market, however – roughly 4% by certain estimates. In the online segment, growth is considerably stronger for the store pick-up alternative than home delivery.

According to the Swedish Food Retailers Federation's (SvDH) food retail index, total sales growth during the third quarter of 2020 was 5.8%, including 100.9% growth for online. Food price inflation during the period July–September was 1.5%, according to preliminary data from Statistics Sweden.

Covid-19

During the third quarter, the Swedish food retail market continued to be impacted by changed shopping behaviours among consumers as a result of the coronavirus/Covid-19, although in a different scope than during the first half of the year. The food retail market has continued to benefit from greater consumption at home, as many people have chosen to stay away from cafés and restaurants. Growth for e-commerce was once again exceptionally high. Since many have chosen to eat at home instead of out, performance for the café and restaurant market has remained weak, but a slight improvement was noted compared with the second quarter. Sales for cross-border shopping remained at very low levels after Norway kept its quarantine requirement for travel from significant cross-border shopping regions in Sweden during parts or all of the third quarter.

See Note 3 for further information on risks related to impacts from Covid-19.

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

1) Axfood began reporting e-commerce sales starting with the first quarter of 2019.

Net sales

Third quarter

Consolidated net sales grew 5.5% during the third quarter to SEK 13,426 m (12,731). Higher net sales for Willys and Snabbgross were partly countered by lower net sales for Hemköp.

Store sales for the Axfood Group (Group-owned stores and Hemköp franchises) amounted to SEK 11,503 m (10,689), an increase of 7.6%. Like-for-like growth was 5.9%. High growth for Willys stores was countered in large part by a roughly 60% reduction in sales for Eurocash in crossborder shopping, which had a negative effect of approximately 2.5 percentage points on store sales growth for the Axfood Group. Hemköp's Group-owned stores grew at a slower rate than the market, which is explained by greater exposure to central locations in larger cities but also by conversions. The retailer-owned Hemköp stores, which have lower exposure to central locations in larger cities, once again grew faster than the market. The addition of the nine Östenssons stores as from 1 September 2019 contributed to the positive development. Snabbgross showed very strong development in the prevailing situation and strengthened its position in the market.

In online B2C sales, demand grew considerably during the third quarter, and Axfood once again grew more than the market. Net sales online totalled SEK 669 m (304), an increase of 120%. The increase is attributable to strong like-for-like sales growth and by Willys' and Hemköp's online roll-out to new cities and more stores.

Sales of private label products accounted for 30.6% (30.2%) of the Axfood Group's total stores sales during the third quarter.

January–September

Consolidated net sales for the period totalled SEK 40,062 m (37,700), an increase of 6.3%. Store sales for the Axfood Group (Group-owned stores and Hemköp franchises) grew 9.2%, and likefor-like sales grew 7.2%. Net sales online totalled SEK 1,871 m (960), an increase of 95%.

7.6% Growth in store sales for the Axfood Group during the

5.9%

third quarter of 2020

Axfood Group's like-for-like store sales growth during the third quarter of 2020

120% Increase in the Axfood Group's online B2C sales during the third quarter of 2020

Net sales per segment

SEK m	Q3 2020	Q3 2019	Change	9 mos 2020	9 mos 2019	Change	Full year 2019
Willys	7,862	7,259	8.3%	23,670	21,541	9.9%	29,029
Hemköp	1,483	1,514	-2.0%	4,699	4,726	-0.6%	6,378
Snabbgross	990	944	4.9%	2,626	2,598	1.1%	3,443
Dagab	11,995	11,152	7.6%	35,781	33,238	7.7%	44,895
Joint-Group Internal sales between segments that are eliminated	247	230	7.1%	741	691	7.2%	928
Dagab	-8,920	-8,152	9.4%	-26,764	-24,448	9.5%	-33,068
Joint-Group/other	-230	-215	6.7%	-691	-646	6.9%	-865
Net sales, total	13,426	12,731	5.5%	40,062	37,700	6.3%	50,740

Store sales (including online)

SEK m	Q3 2020	Q3 2019	Change	Change, like-for like stores	9 mos 2020	9 mos 2019	Change	Change, like-for like stores
Willys	7,861	7,259	8.3%	6.9%	23,669	21,541	9.9%	8.3%
Hemköp, Group-owned	1,445	1,479	-2.2%	1.9%	4,585	4,621	-0.8%	2.9%
Hemköp franchises	2,197	1,951	12.6%	5.3%	6,661	5,823	14.4%	6.1%
Hemköp total	3,642	3,430	6.2%	3.9%	11,246	10,443	7.7%	4.7%
Axfood Group store sales	11,503	10,689	7.6%	5.9%	34,915	31,985	9.2%	7.2%
Snabbgross	990	944	4.9%	3.2%	2,626	2,598	1.1%	-0.1%

Change in store structure

	Dec.	ments/	Sales/		Sept.	Sept.
Number of stores	2019	acquisitions	closures	Conversions	2020	2019
Willys1)	213	3	-1	2	217	213
Hemköp	67	1 2)	−	-4	64	68
Snabbgross	24	1	−	−	25	24
Total, Group-owned	304	5	-1	-2	306	305
Hemköp franchises	129	1	−	2	132	128
Tempo franchises	127	−	-1	−	126	131
Axfood Group total	560	6	-2	−	564	564
1)Willys	156	2	−	1	159	155
1)Willys Hemma	50	1	-1	1	51	50
1)Eurocash	7	−	−	−	7	8

2)Refers to acquisition of a Tempo store.

Operating profit

Third quarter

Consolidated operating profit for the third quarter increased to SEK 796 m (715), corresponding to an operating margin of 5.9% (5.6%).

The increase in operating profit is mainly attributable to strong growth in like-for-like sales and a higher operating profit for Dagab. The positive effects were countered mainly by a loss for Eurocash in cross-border shopping, losses for certain Hemköp stores at central, urban locations, and costs for handling higher e-commerce volumes. The increase in operating profit for Dagab is mainly explained by the favourable sales performance, high efficiency, a favourable currency effect from a strong Swedish krona as well as by the fact that the comparison period was charged with costs associated with e-commerce logistics in Stockholm.

Profit after financial items amounted to SEK 774 m (686). Profit after tax was SEK 605 m (536).

January–September

Operating profit for the period was SEK 1,944 m (1,801), corresponding to an operating margin of 4.9% (4.8%).

Net financial items for the period amounted to SEK -85 m (-88), and profit after financial items totalled SEK 1,859 m (1,713). Profit after tax totalled SEK 1,454 m (1,319).

Operating profit per segment

SEK m	Q3 2020	Q3 2019	Change	9 mos 2020	9 mos 2019	Change	Full year 2019
Willys	474	455	4.3%	1,212	1,117	8.5%	1,429
Hemköp	62	67	-8.0%	176	178	-1.6%	243
Snabbgross	64	58	10.4%	122	133	-7.9%	167
Dagab	246	182	34.9%	599	526	13.8%	678
Joint-Group	-51	-48	6.3%	-165	-154	7.7%	-229
Operating profit (EBIT)	796	715	11.3%	1,944	1,801	7.9%	2,288
Net financial items	-22	-29		-85	-88		-115
Profit after financial items	774	686		1,859	1,713		2,173

Operating margin per segment

%	Q3 2020	Q3 2019	Change %-pts	9 mos 2020	9 mos 2019	Change %-pts	Full year 2019
Axfood	5.9	5.6	0.3	4.9	4.8	0.1	4.5
Willys	6.0	6.3	-0.2	5.1	5.2	-0.1	4.9
Hemköp	4.2	4.4	-0.3	3.7	3.8	0.0	3.8
Snabbgross	6.5	6.2	0.3	4.7	5.1	-0.5	4.8
Dagab	2.1	1.6	0.4	1.7	1.6	0.1	1.5

Operating segment performance

Willys

Third quarter

Net sales for the Willys segment grew 8.3% during the third quarter compared with the same period a year ago, to SEK 7,862 m (7,259). Like-for-like sales increased by 6.9%. Growth for Willys stores remained at a high level. Willys continues to develop its offering and concept in a high pace by expanding to new stores and online as well as modernizing its current store base. In addition, the higher consumption at home as a result of the pandemic also had a positive effect on sales for Willys, and a higher average ticket value and e-commerce expansion contributed to the favourable sales performance. Lower sales for partly-owned Eurocash owing to an essential halt to cross-border shopping in the regions that have continued to be covered by Norway's quarantine requirement for travel from Sweden significantly dampened growth for the segment as a whole. Sales for Eurocash fell by approximately 60% compared with the same period a year ago.

At the end of the third quarter the Willys segment had 217 stores (213), including 210 Willys and seven Eurocash. Online shopping expanded during the third quarter, and at the end of the third quarter Willys offered online shopping at 96 stores (75) in 59 cities (38).

Operating profit for the third quarter increased to SEK 474 m (455), corresponding to an operating margin of 6.0% (6.3%). Strong growth in like-for-like sales at Willys stores was countered by a loss for Eurocash and higher personnel costs associated with online sales.

January–September

Net sales for Willys for the period totalled SEK 23,670 m (21,541), an increase of 9.9% compared with the same period a year ago. Like-for-like sales increased by 8.3%. Operating profit was SEK 1,212 m (1,117), and the operating margin was 5.1% (5.2%).

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

1) IFRS 16 is applied as from 2019. Comparison figures are not restated.

SEK m	Q3 2020	Q3 2019	Change	9 mos 2020	9 mos 2019	Change	R12	Full year 2019
Net sales	7,862	7,259	8.3%	23,670	21,541	9.9%	31,158	29,029
Change in like-for-like sales, %	6.9	7.0	-0.1	8.3	6.6	1.7	−	6.2
Operating profit (EBIT)	474	455	4.3%	1,212	1,117	8.5%	1,525	1,429
Operating margin, %	6.0	6.3	-0.2	5.1	5.2	-0.1	4.9	4.9
Number of Group-owned stores	−	−	−	217	213	4	−	213
Average number of employees during the period	−	−	−	6,124	5,647	477	−	5,603
Private label share, %	32.4	31.9	0.5	32.6	31.8	0.8	−	31.6
Sustainability-labelled products as % of total sales	28.9	29.2	-0.4	30.0	30.1	-0.0	29.7	29.4
Sales of organic products as % of total food sales	5.3	5.3	0.0	5.6	5.6	0.0	5.5	5.6
Growth in plant-based protein substitutes, %	20.8	18.5	2.3	23.7	17.9	5.8	21.0	17.0
KRAV-labelled meat as % of total meat sales	2.1	2.3	-0.2	2.2	2.3	-0.1	2.2	2.3

Hemköp

Third quarter

Net sales for Group-owned Hemköp stores (including franchise fees) during the third quarter totalled SEK 1,483 m (1,514). Growth in store sales including Hemköp franchises and online was 6.2%. A higher average ticket value and e-commerce expansion contributed to the favourable sales performance.

The number of Group-owned stores decreased by four, net, compared with the end of the third quarter a year ago. Since the third quarter of 2019, four new Hemköp franchise stores have been added, net. The nine stores in the Östenssons chain are included since 1 September 2019. Hemköp accelerated the pace of its e-commerce roll-out and at the end of the third quarter offered online shopping at 37 stores (18) in 23 cities (8).

Sales for Group-owned Hemköp stores totalled SEK 1,445 m (1,479). Like-for-like sales for Group-owned stores increased by 1.9%. Sales for franchise stores grew 12.6% to SEK 2,197 m (1,951). Like-for-like sales increased by 5.3%. More consumption at home during the pandemic had a positive effect on sales, especially for stores near residential areas. The Group-owned Hemköp stores have a higher share of stores at central urban locations, which have been negatively affected by a sharp reduction in customer traffic, compared with the retailer-owned Hemköp stores, the majority of which are located near residential areas. Our mini-mart stores in the Tempo chain continued to show very strong growth.

Operating profit for the third quarter totalled SEK 62 m (67), corresponding to an operating margin of 4.2% (4.4%). The decrease in operating profit was mainly driven by a sharp decline in sales for a number of stores at central urban locations.

January–September

Net sales for Group-owned Hemköp stores (including franchise fees) during the period totalled SEK 4,699 m (4,726). Growth in store sales including Hemköp franchises and online was 7.7%.

Net sales for Group-owned stores totalled SEK 4,585 m (4,621) during the period, a decrease of 0.8%. Like-for-like sales for Group-owned stores increased by 2.9%. Sales for franchise stores totalled SEK 6,661 m (5,823), an increase of 14.4%, with a 6.1% increase in like-for-like sales.

Operating profit for the period was SEK 176 m (178), corresponding to an operating margin of 3.7% (3.8%).

Hemköp offers an attractively priced wide assortment with a rich offering 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.

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

1) IFRS 16 is applied as from 2019. Comparison figures are not restated.

SEK m	Q3 2020	Q3 2019	Change	9 mos 2020	9 mos 2019	Change	R12	Full year 2019
Net sales	1,483	1,514	-2.0%	4,699	4,726	-0.6%	6,351	6,378
Change in like-for-like sales, Group-owned stores, %	1.9	0.7	1.2	2.9	1.1	1.8	−	1.3
Operating profit (EBIT)	62	67	-8.0%	176	178	-1.6%	241	243
Operating margin, %	4.2	4.4	-0.3	3.7	3.8	0.0	3.8	3.8
Number of Group-owned stores	−	−	−	64	68	-4	−	67
Average number of employees during the period	−	−	−	1,673	1,754	-81	−	1,739
Private label share, %	25.6	25.4	0.2	26.2	25.9	0.3	−	26.0
Sustainability-labelled products as % of total sales	27.7	27.6	0.1	28.7	28.2	0.4	28.1	27.6
Sales of organic products as % of total food sales	8.3	8.6	-0.3	8.7	9.0	-0.3	8.7	8.9
Growth in plant-based protein substitutes, %	6.4	4.3	2.1	9.9	8.6	1.2	8.6	8.0
KRAV-labelled meat as % of total meat sales	6.8	7.4	-0.5	7.3	8.1	-0.8	7.2	7.8

Snabbgross

Third quarter

Snabbgross's net sales totalled SEK 990 m (944) during the third quarter, an increase of 4.9% compared with the same period a year ago. Sales performance for Snabbgross showed a distinct rebound compared with performance during the second quarter of this year. Performance for Snabbgross is estimated to again have been considerably better than for the market overall. Snabbgross' availability through its store network and attractive customer offering has resulted in an increase in the number of customers, many of which have appreciated the flexibility of being able to shop in a store. To offer additional alternatives for grocery shopping during the ongoing pandemic, Snabbgross continued to keep more than half of its stores open for sales to consumers. At the end of the quarter Snabbgross had 25 stores (24).

Operating profit for the third quarter increased to SEK 64 m (58), largely attributable to growth in like-for-like sales. The operating margin increased to 6.5% (6.2%).

January–September

Net sales for Snabbgross totalled SEK 2,626 m (2,598) during the period, an increase of 1.1%. Operating profit for the period was SEK 122 m (133), and the operating margin was 4.7% (5.1%).

SEK m	Q3 2020	Q3 2019	Change	9 mos 2020	9 mos 2019	Change	R12	Full year 2019
Net sales	990	944	4.9%	2,626	2,598	1.1%	3,471	3,443
Change in sales, like-for-like stores, %	3.2	4.2	-1.0	-0.1	6.5	-6.6	−	6.4
Operating profit (EBIT)	64	58	10.4%	122	133	-7.9%	156	167
Operating margin, %	6.5	6.2	0.3	4.7	5.1	-0.5	4.5	4.8
Number of stores	−	−	−	25	24	1	−	24
Average number of employees during the period	−	−	−	431	414	17	−	411
Share of sustainability-labelled products, %	18.2	18.5	-0.4	18.6	18.8	-0.2	18.5	18.6

Dagab

Third quarter

Net sales for the third quarter totalled SEK 11,995 m (11,152), an increase of 7.6%. The favourable growth was mainly attributable to strong sales to Willys, Hemköp and Snabbgross. Dagab's sales to convenience retailers decreased compared with the same period a year ago, as many people have opted to stay home during the pandemic, but a gradual improvement was noted during the quarter. Lower sales to Eurocash and a decrease in sales for Urban Deli also had a negative impact on Dagab's net sales.

Operating profit was SEK 246 m (182), corresponding to an operating margin of 2.1% (1.6%). The increase is mainly attributable to the favourable sales performance, but also to high efficiency and a favourable currency effect from a strong Swedish krona. Dagab's earnings for the third quarter a year ago were charged with certain costs related to implementation of the Group-wide e-commerce logistics for home deliveries in Stockholm. Profit for the quarter was negatively affected by investments to drive growth for Apohem and by poorer earnings for Urban Deli attributable to the weak demand in the restaurant market. Work on improving efficiency in the joint-Group dark stores has contributed to higher productivity and more positive performance for Mat.se.

January–September

Dagab's net sales during the period totalled SEK 35,781 m (33,238), an increase of 7.7%. Operating profit was SEK 599 m (526), corresponding to an operating margin of 1.7% (1.6%).

	Q3	Q3		9 mos	9 mos			Full year
SEK m	2020	2019	Change	2020	2019	Change	R12	2019
Net sales	11,995	11,152	7.6%	35,781	33,238	7.7%	47,439	44,895
Operating profit (EBIT)	246	182	34.9%	599	526	13.8%	751	678
Operating margin, %	2.1	1.6	0.4	1.7	1.6	0.1	1.6	1.5
Average number of employees during the period	−	−	−	2,763	2,674	89	−	2,699
Delivery reliability, %	−	−	−	94.0	96.7	-2.7	−	96.8

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.

1) IFRS 16 is applied as from 2019. Comparison figures are not restated.

Dagab handles the assortment, purchasing and logistics for the entire Axfood house of brands as well as for other B2B customers. The Dagab segment 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.

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

1) IFRS 16 is applied as from 2019. Comparison figures are not restated.

Capital expenditures

Total capital expenditures during the period January–September amounted to SEK 713 m (688), of which SEK 407 m (381) pertained to investments in non-current assets in the retail operations, SEK 83 m (92) pertained to non-current assets in wholesale operations, and SEK 214 m (203) pertained to IT.

Investments in right-of-use assets (mainly premises) amounted to SEK 1,157 m (372) during the period January–September, of which SEK 359 m (263) pertained to newly acquired assets and SEK 798 m (109) pertained mainly to renewals of existing rental agreements for premises and upward indexing of rents. Of total investments in leases, SEK 966 m (303) pertained to retail operations, SEK 176 m (58) pertained to wholesale operations, and SEK 15 m (11) pertained to joint-Group operations.

Investments in the future

Establishment of automated logistics centre

Work on the new, highly automated logistics centre in Bålsta, outside Stockholm, is continuing according to plan. The logistics centre, which is planned to be fully operational in 2023, will be one of the largest and most modern in Europe for distribution of groceries to stores as well as online customers. During the third quarter, work continued on raising the posts that will support the construction, and walls and the ceiling for the first part of the total frame were installed.

New Transport Management System

As a step toward a more sustainable and efficient transport model, collaboration is under way with Descartes on delivery of a new Transport Management System (TMS). The new system will improve transport optimization, provide a greater overview of transport flows, and will manage flows to stores and to online customers. The system also offers consumers improved order tracking. Toward the end of 2020 a pilot test of the transport system will be initiated.

Efficiency improvement of dark store

Work on expansion of the dark store in Årsta, Stockholm, is on schedule. The warehouse area will be doubled from 5,000 sq. m. to 10,000 sq. m., and the expansion is planned to be completed by the end of 2020. The larger area will provide more capacity for Axfood's e-commerce concepts. The online pharmacy Apohem continues to grow at a fast pace, and with its move to the expanded warehouse, the company will have space for continued growth and potential for synergies with Axfood's food retail concepts.

Klubb Hemköp

In early October Hemköp's new loyalty programme, Klubb Hemköp, was launched. Hemköp is working ambitiously with sustainability issues, and through the new customer club Hemköp is inspiring its 1.7 million members to make more sustainable and healthy choices. Points are earned for all purchases as previously, but one new feature is that extra points are awarded for sustainable choices, such as buying fresh fruits and vegetables or going over to digital receipts. Awareness about the impact of food on the climate and health is rising, especially among young consumers, and with the new customer club Hemköp is strengthening its position in the market.

Snabbgross Club

At the end of November, Snabbgross will be launching an entirely new store concept in Stockholm that gives consumers the opportunity to buy the same food products as restaurants and cafés. Through membership in Snabbgross Club and a brand new store, customers will be able to buy groceries, food products and household goods and gain access to a unique and attractively priced assortment in bulk packages along with personalized special offers.

The digital customer meeting

Through its various concepts Axfood strives to meet customers' diverse needs, no matter where, when or how the customer interacts with us. One of the Group's priorities is to strengthen the digital customer meeting. Recently self-scanning and payment via mobile phones were launched in a number of Willys and Hemköp stores. Mat.se aspires to simplify daily life for people, and in September it was first out in Sweden with voice-controlled, personalized grocery shopping in a pilot with Google Nest Hub. In our stores, the roll-out of new payment terminals has begun. The new terminals streamline the shopping process and allow for additional payment methods.

Capital expenditures, depreciation/amortization, SEK m1)

¹⁾ Of capital expenditures during the fourth quarter of 2019, SEK 510 m pertain to partial payment for automation solution.

Other

Government support related to Covid-19

Despite challenges in parts of our operations, the Axfood Group has continued to refrain from applying for so-called state reorientation and furlough support. However, in accordance with the rules, Axfood has accepted government assistance as compensation for the increased sicknessrelated absences through sick pay compensation. In the financial statements this is reported in accordance with IAS 20 Accounting for Government Grants and Disclosure of Government Assistance.

Financial position and cash flow

Cash flow from operating activities amounted to SEK 3,361 m (2,454) during the period January– September. Paid tax totalled SEK -318 m (-365). Net capital expenditures affected cash flow by SEK -760 (-597). Payment of shareholder dividends affected cash flow by SEK -1,517 m (-1,488), and amortization of lease liabilities affected cash flow by SEK -1,133 m (-1,075).

Cash and cash equivalents held by the Group amounted to SEK 746 m, compared with SEK 798 m in December 2019. Interest-bearing liabilities and provisions totalled SEK 5,931 m, compared with SEK 5,929 m in December 2019. Interest-bearing net debt amounted to SEK 5,185 m at the end of the period, compared with SEK 5,131 m in December 2019.

The equity ratio was 24.0%, compared with 24.6% in December 2019.

Net debt/EBITDA was 1.1, compared with 1.2 in December 2019. Net debt/EBITDA excluding IFRS 16 was -0.1, compared with -0.1 in December 2019.

Derivation of total investments and net capital expenditures in cash flow

SEK m	9 mos 2020	9 mos 2019
Total investments	-1,870	-1,059
Investments in leases	1,157	372
Divestment of tangible/intangible assets	2	3
Acquisition of financial assets	-42	-26
Acquisition of operations, other items	-6	−
Divested operations	-1	14
Divestment/acquisition of assets held for sale	−	99
Cash flow from investing activities	-760	-597

Parent Company

The Parent Company's net sales and other operating revenue during the period January– September amounted to SEK 209 m (199). After operating expenses of SEK 309 m (288) and net financial items of SEK -2 m (25), profit after financial items was SEK -103 m (-64). Capital expenditures during the period totalled SEK 9 m (12).

The Parent Company had an interest-bearing net debt receivable of SEK 193 m at the end of the period, compared with SEK 141 m in December 2019. The Parent Company has no significant transactions with related parties, other than transactions with subsidiaries.

Net debt/EBITDA

Sustainable development

Axfood's vision to be the leader in good and sustainable food. Sustainability work is extensive and permeates the entire operations. Long-term sustainable decisions will enable the Company to grow faster than the market and create new business opportunities and profitable growth.

Food, the environment and people

For Axfood, sustainable development entails seeing the entire picture and the constant pursuit of improvements. Sustainability is ensured in all parts of the value chain by safeguarding the environment, the food that is produced and sold in stores, and the people who produce, sell and consume it. Our sustainability programme is extensive and includes a sustainability policy along with more than 70 targets that are updated yearly. It also lays out various guidelines, such as for the requirements that are set for production of the Group's private label products. A new analysis that builds upon stakeholders' views of what the Company should prioritize in the sustainability area is currently being produced. During the autumn the Executive Committee and sustainability department are conducting a materiality analysis of a number of larger environmental issues.

Food – 86 sustainable recommendations and soy-free eggs

Axfood strives to make it easier for consumers to make sustainable choices by offering a broad assortment of products that are produced in a sustainable way.

In September the report Mat 2030 ("Food 2030") was published with 86 recommendations for politicians and the business sector for a more sustainable and competitive food strategy for Sweden. Seventeen of the recommendations are entirely new and pertain to everything from eliminating the diesel tax deduction for agriculture and the need for a more environmentally oriented action plan in the food strategy to investments in green proteins. When the first edition of the predecessor to the Mat 2030 report was published in 2016, a modern Swedish food strategy was lacking. During the external launch event for Mat 2030, Sweden's Minister for Rural Affairs Jennie Nilsson and a panel of representatives from Swedish Parliament, the Swedish Society for Nature Conservation and Sweden Food Arena participated.

During the third quarter the new Garant eggs from free range outdoor hens reached our store shelves. The hens are fed a newly developed Swedish soy-free feed where the soy has been replaced by two locally grown protein sources. Soy is used to a great extent in animal feed and presents a challenge from a sustainability perspective since expanding growing areas risk contributing to rain forest depletion, which has a negative impact both on the climate and biodiversity. For some time we have put demands on our suppliers of private label products that the soy used in products or feed must be third-party certified.

Food that is discarded accounts for a significant environmental impact and unnecessary consumption of energy, and therefore the entire Axfood family is striving toward the goal of cutting its food waste in half by 2025. In connection with this year's International Day of Awareness of Food Loss and Waste, Tempo began conducting clearance sales of fruits and vegetables that otherwise would be tossed out – an initiative that for Willys and Hemköp together has rescued more than 630 tonnes of fruit and vegetables thus far this year. In Willys and Hemköp stores, handheld computers are now programmed with a date control function to more easily identify products with short best-before dates, and during the autumn this functionality has also begun to be used in the Tempo chain.

During the quarter, promotion of organic and vegetarian products continued, such as through special store offers. A number of new, organic products from Garant and Eldorado were launched, including protein bars, coconut milk, apple sauce, raisins and ginger juice. Vegan pizza, veggie bowls, plant-based nuggets and organic tofu are a few of the new vegetable-based products launched during the quarter.

The environment – electrification and less plastic

The share of the world's total greenhouse gas emissions from food production needs to be decreased, and toward this end Axfood is working in a number of areas to contribute to production that has the smallest environmental impact as possible. During the quarter, the climate efforts being conducted by the Company's 50 largest suppliers of private label products were mapped, which is an important step in the work on being able to set specific demands for partners in the supply chain.

Recently a partnership was begun with truck maker Scania to develop new solutions for electrifying heavy transports. Scania will provide advisory services in areas such as fleet planning and assessing suitable routes for electrification. The initial step in the partnership will be the delivery of Scania's new-generation electric truck and plug-in hybrid vehicle to Dagab. Operation and experiences from the partnership will be instrumental in assessing the prerequisites for further expansion of an electrified fleet. The partnership is part of our work to make the entire delivery fleet fossil-free through a mix of various fuel and vehicle solutions.

In September, the report Mat 2030 ("Food 2030") was published, which lays out Axfood's recommendations for a more sustainable food strategy for Sweden. This year's edition includes 86 recommendations for politicians and the business sector for more sustainable food production.

Axfood purchases only green electricity and has the ambition to install solar panel systems on the rooftops of stores and warehouses where feasible. During the third quarter, solar panel systems were put in operation at Willys stores in Simrishamn and Falun.

Since the new tax on plastic shopping bags was introduced earlier this year, the offering of various types of bags in stores has been expanded to give customers more options. In September Hemköp and Tempo launched a new reusable cloth bag made of scrapped hotel sheets.

An important target in the environmental area is that packaging of Axfood's private label products will be environmentally adapted and made of recycled or renewable material. By 2025 the use of plastic in the Group's own operations is to be reduced by 25%. During the third quarter, analysis of plastic use continued to identify packaging in which plastic material can be replaced or improved.

People – more collaboration and diversity

Axfood aspires to be a positive force in society and is therefore working in various ways to improve the work environment and social conditions throughout the food supply chain. The Group's own employees as well as customers and workers in production and farming are covered by this work.

Axfood is striving for greater diversity based on the conviction that a mix of competencies and perspectives yields better results. During the quarter the company participated in Jobbsprånget, an internship programme aimed at helping newcomers with degrees in engineering, architecture, business/finance or science gain an entry to the job market. The Group's first internship began at Hemköp in October. In addition, the Group was recently recognized by the AllBright foundation for equality among senior executives.

During the autumn Axfood continued to provide funding to the organization God Hjälp, an initiative started by the GoodCause foundation during the spring to help at-risk people for Covid-19 with shopping of groceries and pharmacy products. During the summer Willys partnered with Save the Children to support families that are struggling financially from the ongoing pandemic.

One prioritized area is to increase the work attendance rate among the Group's employees, where the target is to achieve a work attendance rate of at least 95%. During the third quarter the work attendance rate was 94.6% (95.2%), which is a marked improvement over the second quarter, when the work attendance rate was hurt significantly by the ongoing pandemic.

	Q3	Q3	9 mos	9 mos		Full year
	2020	2019	2020	2019	R12	2019
Sustainability-labelled products as % of total sales	27.4	27.2	28.6	28.0	28.1	26.9
Sales of organic products as % of total food sales	5.8	5.9	6.2	6.3	6.2	6.2
Growth in plant-based protein substitutes, %	14.2	13.9	16.9	14.7	15.2	13.0
KRAV-labelled meat as % of total meat sales	2.9	3.2	3.2	3.5	3.2	3.4
Number of social audits	35	21	85	65	110	96
Electricity consumption, kWh/m2 (stores and warehouses)	−	−	−	−	303.3	313.1
Electricity consumption (kWh) as share of net sales (SEK), %	−	−	−	−	0.50	0.53
CO2, kg/tonne goods	16.0	17.6	15.5	17.3	15.9	17.2
Gender equality, share of women in senior positions, %	-	-	32.7	29.1	−	30.0
Work attendance rate, %	94.6	95.2	93.5	94.5	93.6	94.4

Key ratios, Group

For more information on these key ratios, see Axfood's 2019 Annual and Sustainability Report.

Other information

Long-term targets and capital expenditures 2020

• 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 least 50% of profit after tax. The dividend is to be paid out on two occasions.
• Axfood's capital expenditures in 2020 are expected to amount to SEK 900–1,000 excluding acquisitions and right-of-use assets.

Nominating Committee

Ahead of the 2021 Annual General Meeting and in accordance with the instructions that apply for Axfood's Nominating Committee, the following Nominating Committee has been appointed. The Nominating Committee consists of Caroline Berg (Axel Johnson AB), Joachim Spetz (Swedbank Robur Fonder) and Jan Särlvik (Nordea Funds). Caroline Berg is committee chair. Axfood's Chairman, Mia Brunell Livfors, is a co-opted member of the Nominating Committee. Altogether the Nominating Committee represents approximately 53.6% of the votes and capital in Axfood as per 31 August 2020. Shareholders who wish to submit proposals to the Nominating Committee ahead of Axfood's Annual General Meeting on 24 March 2021 can do so by email at valberedning@axfood.se by 31 December 2020 the latest.

Annual General Meeting 2021

Axfood's 2021 Annual General Meeting (AGM) is planned to be held at 5 p.m. on 24 March 2021. As there is great uncertainty concerning progression of the ongoing pandemic, a decision will be made at a later date on the necessary safety measures that need to be taken so that the AGM can be conducted with the smallest possible risk for shareholders, employees and other attendees. All AGM documents including the Group's Annual and Sustainability Report will be made available on the Company's website not later than three weeks before the AGM. Documents will also be kept on hand at the Company's head offices and can be sent by post to shareholders, upon request, who provide their postal address.

Stockholm, 22 October 2020

Klas Balkow President and CEO

Future reports and 2021 Annual General Meeting

• The year-end report for 2020 will be presented on 4 February 2021, at 7 a.m. CET
• The Annual and Sustainability Report for 2020 will be published in February 2021
• The 2021 Annual General Meeting will be held on 24 March 2021
• The interim report for the first quarter of 2021 will be presented on 22 April 2021, at 7 a.m. CET
• The interim report for the second quarter of 2021 will be presented on 15 July 2021, at 7 a.m. CET
• The interim report for the third quarter of 2021 will be presented on 21 October 2021, at 7 a.m. CET

Selection of press releases from Axfood during the third quarter

25 Aug. 2020	Snabbgross launches B2C store concept – Snabbgross Club
1 Sept. 2020	Mat.se first out with voice-controlled personalized grocery shopping
2 Sept. 2020	New Willys store in Habo
4 Sept. 2020	Karin Hedlund new Head of IT at Axfood
11 Sept. 2020	Nominating Committee ahead of Axfood's 2021 Annual General Meeting
18 Sept. 2020	Axfood partners with Scania in transitioning to sustainable transport
23 Sept. 2020	Mat 2030, Axfood's proposal for sustainable food strategy for Sweden
23 Sept. 2020	New Willys store in Umeå
29 Sept. 2020	Mat.se's climate labelling helps customers reduce their climate impact

Auditors' review report

To the Board of Directors of Axfood AB (publ) Reg. no. 556542-0824

Introduction

We have reviewed the interim report for Axfood AB (publ) for the period 1 January–30 September 2020. The Board of Directors and the President are responsible for the preparation and presentation of this interim report in accordance with IAS 34 and the Annual Accounts Act. Our responsibility is to express a conclusion on this interim report based on our review.

Scope of review

We conducted our review in accordance with the International Standard on Review Engagements ISRE 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review has a different focus and is substantially less in scope than an audit conducted in accordance with ISA and other generally accepted auditing practices. The procedures performed in a review do not enable us to obtain a level of assurance that would make us aware of all significant matters that might be identified in an audit. Therefore, the conclusion expressed based on a review does not give the same level of assurance as a conclusion expressed based on an audit.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the interim report is not, in all material respects, prepared for the Group in accordance with IAS 34 and the Annual Accounts Act, and for the Parent Company in accordance with the Annual Accounts Act.

Stockholm, 22 October 2020 Deloitte AB

Hans Warén Authorized Public Accountant

Financial statements, Group

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

SEK m	Q3 2020	Q3 2019	9 mos 2020	9 mos 2019	R12	Full year 2019
Net sales	13,426	12,731	40,062	37,700	53,102	50,740
Cost of goods sold	-11,219	-10,665	-33,666	-31,721	-44,743	-42,797
Gross profit	2,207	2,066	6,396	5,980	8,359	7,942
Operating expenses
Operating profit (EBIT)	-1,412	-1,352	-4,452	-4,179	-5,927	-5,654
	796	715	1,944	1,801	2,431	2,288
Interest income and similar profit/loss items
Interest expense and similar profit/loss items	9	1	13	4	14	5
Profit after financial items	-30	-29	-98	-92	-126	-120
	774	686	1,859	1,713	2,319	2,173
Tax	-168	-150	-405	-394	-506	-494
Cost of goods sold	605	536	1,454	1,319	1,813	1,679
Other comprehensive income Items that cannot be reclassified to profit or loss for the period
Revaluation of defined benefit pension plans	4	-12	11	-35	9	-37
Tax	-1	2	-2	7	-2	8
Items that can be reclassified to profit or loss for the period
Change in hedging reserve	8	0	9	-1	-30	-41
Tax	-2	0	-2	0	6	9
Other comprehensive income for the period	9	-9	16	-28	-17	-61
Total comprehensive income for the period	615	527	1,469	1,291	1,796	1,617
Profit for the period attributable to
Owners of the parent	618	524	1,486	1,296	1,838	1,648
Non-controlling interests	-12	12	-32	23	-25	30
Total comprehensive income for the period attributable to
Owners of the parent	627	515	1,502	1,268	1,821	1,587
Non-controlling interests	-12	12	-32	23	-25	30
Earnings per share before dilution, SEK	2.95	2.50	7.10	6.19	−	7.87
Earnings per share after dilution, SEK	2.94	2.49	7.08	6.18	−	7.85

EBITDA

SEK m	Q3 2020	Q3 2019	9 mos 2020	9 mos 2019	R12	Full year 2019
Operating profit (EBIT)	796	715	1,944	1,801	2,431	2,288
Depreciation/amortization and impairment losses	556	536	1,681	1,603	2,224	2,146
EBITDA	1,351	1,251	3,625	3,404	4,655	4,434
IFRS 16 Leasing costs	-397	-386	-1,208	-1,163	-1,599	-1,554
EBITDA excl. IFRS 16	954	865	2,417	2241	3,056	2,880

Condensed statement of financial position, Group

SEK m	30/9/2020	30/9/2019	31/12/2019
Assets
Goodwill	2,769	2,767	2,767
Other intangible assets	734	711	705
Property, plant and equipment	2,822	2,163	2,744
Right-of-use assets	5,465	5,212	5,407
Financial assets1)	36	24	22
Deferred tax assets	231	243	237
Total non-current assets	12,057	11,119	11,882
Inventories	2,502	2,442	2,387
Accounts receivable – trade	1,141	1,033	1,062
Other current assets	1,132	1,157	1,165
Cash and bank balances	746	829	798
Total current assets	5,521	5,461	5,411
Total assets	17,579	16,580	17,293
Shareholders' equity and liabilities
Equity attributable to owners of the parent	3,973	3,693	4,020
Equity attributable to non-controlling interests	246	222	229
Total shareholders' equity	4,218	3,914	4,249
Non-current lease liabilities	4,364	4,043	4,131
Other interest-bearing liabilities	396	425	421
Deferred tax liabilities	908	838	902
Other non-current liabilities	71	57	100
Total non-current liabilities	5,738	5,363	5,554
Current lease liabilities	1,171	1,443	1,377
Accounts payable – trade	4,149	3,683	3,832
Other current liabilities	2,302	2,177	2,280
Total current liabilities	7,622	7,303	7,490
Total shareholders' equity and liabilities	17,579	16,580	17,293
1) Of which, interest-bearing assets	−	−	−

Condensed statement of cash flows, Group

	Q3	Q3	9 mos	9 mos		Full year
SEK m	2020	2019	2020	2019	R12	2019
Operating activities
Operating profit (EBIT)	796	715	1,944	1,801	2,431	2,288
Adjustments for non-cash items	579	538	1,721	1,611	2,270	2,160
Interest paid	-27	-30	-94	-92	-125	-123
Interest received	5	1	9	4	10	5
Paid tax	-93	-119	-318	-365	-430	-477
Changes in working capital	-93	-456	99	-505	306	-298
Cash flow from operating activities	1,167	649	3,361	2,454	4,462	3,555
Investing activities
Acquisitions of operations	-4	-2	-9	-2	-9	-2
Acquisitions of intangible assets	-50	-62	-153	-138	-190	-175
Acquisitions of property, plant and equipment	-168	-126	-557	-547	-1,314	-1,304
Other changes in investing activities	-21	-9	-41	90	-36	95
Cash flow from investing activities	-243	-199	-760	-597	-1,549	-1,386
Financing activities
Amortization of debt	-379	-359	-1,133	-1,075	-1,477	-1,419
Shareholder contribution from minority owner	49	−	49	−	49	−
Share repurchases	−	−	-53	-36	-53	-36
Dividend payout	-732	−	-1,517	-1,488	-1,517	-1,488
Cash flow from financing activities	-1,062	-359	-2,654	-2,599	-2,998	-2,943
Cash flow for the period	-138	91	-53	-742	-85	-774

Condensed statement of changes in equity, Group

SEK m	30/9/2020	30/9/2019	31/12/2019
Amount at start of year	4,249	4,528	4,528
Effect of changed accounting policy	−	-394	-394
Adjusted shareholders' equity at start of year	4,249	4,134	4,134
Total comprehensive income for the period	1,469	1,291	1,617
Share repurchases	-53	-36	-36
Share-based payments	20	15	21
Shareholder contribution from minority owner	49	−	−
Dividend to shareholders	-1,517	-1,488	-1,488
Amount at end of period	4,218	3,914	4,249

Key ratios and other data, Group

	30/9/2020	30/9/2019	Full year 2019
Operating margin, %	4.9	4.8	4.5
Margin profit after financial items, %	4.6	4.5	4.3
Equity ratio, %	24.0	23.6	24.6
Net debt (+)/net receivable (-), SEK m	5,185	5,082	5,131
Net debt (+)/net receivable (-) excl. IFRS 16	-350	-404	-377
Net debt/EBITDA, multiple	1.1	−	1.2
Net debt/EBITDA excl. IFRS 16, multiple	-0.1	-0.1	-0.1
Net debt-equity ratio (+)/Net receivable equity ratio (-), multiple	1.2	1.3	1.2
Net debt-equity ratio (+)/Net receivable equity ratio (-) excl. IFRS 16, multiple	-0.1	-0.1	-0.1
Capital employed, SEK m	10,149	9,825	10,178
Return on capital employed, %	24.5	30.6	30.1
Return on shareholders' equity, %	47.9	42.1	39.6
Average number of employees during the period	11,406	10,878	10,854
Capital expenditures, SEK m	1,870	1,060	2,452
Investments in intangible non-current assets and in property, plant and equipment, SEK m	713	689	1,481
Number of shares outstanding at the end of the period	209,198,604	209,298,712	209,298,712
Average number of shares outstanding before dilution	209,272,119	209,407,539	209,380,332
Average number of shares outstanding after dilution	209,879,228	209,881,188	209,878,569
Key data per share
Earnings per share before dilution, SEK	7.10	6.19	7.87
Earnings per share after dilution, SEK	7.08	6.18	7.85
Ordinary dividend per share, SEK	−	−	7.251)
Shareholders' equity per share, SEK	18.99	17.64	19.21
Cash flow per share, SEK	-0.25	-3.54	-3.70

1) Paid out on two occasions in 2020.

Quarterly overview

	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3
SEK m	2018	2019	2019	2019	2019	2020	2020	2020
Net sales	12,370	11,931	13,038	12,731	13,040	13,067	13,570	13,426
Operating profit (EBIT)	425	485	601	715	487	544	605	796
Operating margin, %	3.4	4.1	4.6	5.6	3.7	4.2	4.5	5.9
Earnings per share before dilution, SEK	1.54	1.68	2.01	2.50	1.68	1.93	2.22	2.95
Shareholders' equity per share, SEK	20.54	13.37	15.15	17.64	19.21	14.17	15.95	18.99
Return on shareholders' equity, %	36.2	52.8	46.8	42.1	39.6	58.9	53.6	47.9
Cash flow from operating activities per share, SEK	3.90	3.44	5.18	3.10	5.26	6.38	4.10	5.58
Investments in intangible non-current assets and in property, plant and equipment	422	245	252	192	792	276	218	219
Net debt (+)/net receivable (-)	-1,047	6,047	5,449	5,082	5,131	5,454	5,218	5,185
Share price, SEK	151.70	173.00	183.75	209.10	208.40	202.20	203.40	205.40

IFRS 16 is applied as from 2019. Comparison figures are not restated.

Financial statements, Parent Company

Condensed income statement, Parent Company

SEK m	Q3 2020	Q3 2019	9 mos 2020	9 mos 2019	Full year 2019
Net sales	1	1	4	3	4
Operating expenses	-100	-94	-309	-288	-402
Other operating revenue	63	64	205	196	261
Operating profit (EBIT)	-36	-29	-101	-89	-136
Net financial items	0	1	-2	25	25
Profit after financial items	-36	-28	-103	-64	-111
Appropriations, net	−	−	−	−	1,825
Profit before tax	-36	-28	-103	-64	1,714
Tax	7	5	19	19	-364
Net profit for the period	-29	-23	-83	-46	1,350
Operating profit includes depreciation/amortization totalling	1	1	3	2	3

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

Condensed balance sheet, Parent Company

SEK m	30/9/2020	30/9/2019	31/12/2019
Assets
Property, plant and equipment	20	15	17
Participations in Group companies	3,456	3,394	3,397
Other financial non-current assets	7	0	0
Deferred tax assets	7	8	8
Total non-current assets	3,490	3,416	3,421
Receivables from Group companies 1)	1,388	903	3,360
Other current assets	325	295	33
Cash and bank balances	545	602	373
Total current assets	2,258	1,800	3,765
Total assets	5,748	5,216	7,187
Shareholders' equity and liabilities
Restricted shareholders' equity	287	287	287
Unrestricted shareholders' equity	766	997	2,399
Total shareholders' equity	1,053	1,285	2,686
Untaxed reserves	2,907	2,639	2,907
Provisions	16	21	20
Non-current liabilities	3	3	3
Accounts payable – trade	10	10	18
Liabilities to Group companies 2)	1,691	1,200	1,482
Other current liabilities	68	58	71
Total current liabilities	1,769	1,268	1,571
Total shareholders' equity and liabilities	5,748	5,216	7,187
1) Of which, interest-bearing receivables	1,355	890	1,180
2) Of which, interest-bearing liabilities	1,691	1,200	1,392

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 2020 and later

Axfood has determined that new or amended standards and interpretations will not have any material effect on the consolidated financial statements.

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 Snabbgross (previously called 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 2019 Annual and Sustainability Report.

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.

The spread of Covid-19 in society has exposed Axfood's business to a new dimension of risk management. The risks that Covid-19 has given rise to, including the risk for disruptions in the logistics chain, supplier risks and employee risks, have been successfully managed within existing crisis response organizations without any significant disruptions for our operations. The work on minimizing disruptions over the longer term is ongoing, and the respective operations are monitoring and continuously working to handle the effects of the corona pandemic. Covid-19 may have long-term impacts, with the risk for a rise in unemployment and recession, which represents an uncertainty regarding the general level of consumption that may affect the Axfood Group on top of the clear impact that we are already seeing on cross-border shopping and the restaurant market. The reported values of the Group's assets are tested continuously to determine if there is a need to recognize any impairment. Reported values are also tested when there is an indication that a decline in value has been identified. Against the background of the corona pandemic, a review has been performed of the Group's reported values, and there are no indications of impaired values.

For a thorough account of the risks that affect the Group, please refer to the 2019 Annual and Sustainability 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 have been made during the year.

Note 6 Disclosures of financial assets and liabilities

Changes in currency forward contracts measured at fair value (SEK m)

Amount at start of year	-46
Change recognized in other comprehensive income	9
Realized changes	12
Amount at end of period	-25

In addition to the change in currency forward contracts measured at fair value, the contingent consideration that was measured at fair value according to Level 3 as per 31 December 2019 was dissolved in its entirety during the period, based on an assessment of the future sales and earnings performance of the Urban Deli group. The change in value was recognized in operating profit during the first quarter.

Note 7 Pledged assets and contingent liabilities

Group, SEK m	30/9/2020	30/9/2019	31/12/2019
Pledged assets	−	−	−
Contingent liabilities	19	22	21
Parent Company, SEK m	30/9/2020	30/9/2019	31/12/2019
Pledged assets	−	−	−
Contingent liabilities	267	309	302

Note 8 Long-term share-based incentive

programmes

The 2020 Annual General Meeting resolved to adopt a fourth long-term share-based incentive programme, LTIP 2020, the principles and scope of which in all essential respects correspond to the previously adopted programmes. Full grants were made under LTIP 2017 in April 2020 using treasury shares. For more information about the three earlier incentive programmes, see Axfood's 2019 Annual and Sustainability Report.

To secure the Company's obligation to provide conditional matching and performance shares under LTIP 2020, during the second quarter of 2020 Axfood repurchased 258,000 shares at an average price of SEK 206.46 per share, for a total of SEK 53 m. Axfood's holding of treasury shares thereafter amounts to 672,108 shares, which secure delivery of shares for all of the Company's incentive programmes.

Note 9 Events after the balance sheet date

On 1 October Axfood's new Head of IT Karin Hedlund began her introduction period with the Company prior to assuming her position in November.

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.

EBITDA: Operating profit before depreciation, amortization an impairment losses.

EBITDA excluding IFRS 16: EBITDA excluding effects of reporting in accordance with IFRS 16.

Equity ratio: Shareholders' equity including non-controlling 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 profit 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/EBITDA: Net debt divided by EBITDA on a rolling 12-month basis.

Net debt/EBITDA excluding IFRS 16: Net debt excluding lease liabilities divided by EBITDA excluding effects of reporting in accordance with IFRS 16 on a rolling 12-month basis.

Net debt-equity ratio/net receivable-equity ratio: Net debt/net receviable divided by shareholders' equity including non-controlling interests.

Net debt-equity ratio/net receivable-equity ratio excluding IFRS 16: Net debt/net debt receivable excluding IFRS 16 divided by shareholders' equity including noncontrolling interests.

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

Net debt/net receivable excluding IFRS 16: Interestbearing non-current and current receivables and liabilities excluding lease liabilities, less 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.

Operating profit (EBIT): Profit before net financial items and tax.

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.

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.

Key ratio definitions for sustainability

Emissions from own transports: Total emissions (CO² kg) from purchased fuel (litres) in relation to total transported goods (tonnes) between warehouses and stores. Reported data pertains only to goods delivered by own transports. Reported data for the quarter and nine months accumulated are presented with a one-month lag.

Electricity consumption in stores and warehouses:

Reported as the number of used kilowatt hours (KWh) of purchased electricity per square metre (sq. m.). The selection includes electricity consumption under joint contracts for a total of 274 of Axfood's Group-owned stores and six of Dagab's warehouses. The number of square metres pertains to the total sales area for all stores/warehouses. Reported data is presented on a rolling 12-month basis.

Energy intensity: Electricity consumption (KWh) under joint contracts as a percentage of the Axfood Group's total net sales. Reported data is presented on a rolling 12-month basis.

Gender equality: The share of women in senior positions. Senior positions refer to employees, including members of the Executive Committee, who are defined as managers with employee responsibility. Reported data is presented on an accumulated basis for the current year.

Growth for plant-based protein substitutes: Growth is calculated by comparing sales of plant-based protein substitutes with sales during the corresponding period a year earlier. Plant-based protein substitutes pertain to all items included in the main categories refrigerated vegetarian and the presentation category frozen vegetarian. The selection includes Group-owned stores in the Willys, Eurocash, Hemköp and Snabbgross chains.

Number of social audits: Pertains to performed site visits and inspections to gain an assurance that our suppliers are in compliance with Axfood's Code of Conduct. The selection includes site visits conducted under own management as well as site visits performed by the organization Amfori BSCI.

Share of KRAV-labelled meat: Sales of KRAV-labelled meat (both fresh and frozen) as a percentage of the Axfood Group's total sales of meat products. The selection includes Group-owned stores in the Willys, Hemköp and Snabbgross chains.

Share of organic sales: Sales of organically labelled products with an accredited country of origin label as a percentage of the Axfood Group's total food sales. The selection includes Group-owned stores in the Willys, Eurocash, Hemköp and Snabbgross chains.

Share of sustainability-labelled products: Sales of sustainability-labelled products with an accredited country of origin label as a percentage of the Axfood Group's total store sales. The selection includes Group-owned stores in the Willys, Eurocash, Hemköp and Snabbgross chains. In December 2019 the definition of the key ratio was changed, and thus comparison figures have been recalculated.

Work attendance rate: The number reported hours of sick leave in relation to scheduled work time. The selection includes active employees in the Axfood Group. Active employees refers to all employees in the Group except for employees of Urban Deli AB and Hall Miba AB. Internal consultants and persons on parental leave/leaves of absence are not included. Sickness-related absences for the third quarter pertains to time worked during the period June–August.

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 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 are listed on Nasdaq Stockholm, 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 2020

• 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% at year-end • Axfood's dividend policy sets the goal that the
• shareholder dividend shall be at least 50% of profit after tax. The dividend amount is to be paid on two occasions.
• Axfood's capital expenditures in 2020 are expected to amount to SEK 900–1,000 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

• The food retail industry is relatively insensitive to economic swings and is driven largely by population growth and inflation.
• Axfood has a clear strategy in which it addresses trends in the market through concrete priorities in six focus areas. With a focused expansion plan, focus on developing the customer meeting regardless of channel and development of sustainable and convenient meal solutions, Axfood is addressing changes in customer behaviours resulting from trends in the food retail market.
• 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 and logistics operation contributes to economies of scale and cost efficiency.
• Axfood has a solid balance sheet, and its business model generates stable cash flows. During the last five years the dividend has amounted to 90% of profit after tax.
• Axfood aspires to be a positive force in society and has clear goals for its sustainability work. Axfood's private label products eagerly 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 and wide assortment with a rich offering 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.
• 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