Axfood — Interim / Quarterly Report 2020

Jul 15, 2020

Continued growth in a turbulent time

Second quarter summary

• Consolidated net sales totalled SEK 13,570 m (13,038), an increase of 4.1%.
• Operating profit totalled SEK 605 m (601), an increase of 0.7%. The operating margin was 4.5% (4.6%).
• Net profit for the period totalled SEK 446 m (429), and earnings per share before dilution were SEK 2.22 (2.01).
• The quarter was characterized by changed shopping behaviour among consumers due to the spread of the coronavirus, Covid-19. An increase in consumption of food at home had a favourable impact on sales growth. However, certain businesses with exposure to cafés and restaurants as well as cross-border shopping and locations where customer traffic has decreased significantly were negatively impacted.
• To secure the company's obligation to provide conditional matching and performance shares under LTIP 2020, during the quarter Axfood repurchased 258,000 shares for a total of SEK 53 m.

First half summary

• Consolidated net sales totalled SEK 26,636 m (24,969), an increase of 6.7%.
• Operating profit totalled SEK 1,148 m (1,086), an increase of 5.7%. The operating margin was 4.3% (4.4%).
• Net profit for the period totalled SEK 848 m (783), and earnings per share before dilution were SEK 4.15 (3.69).

4.1% Net sales growth for the Axfood Group during the second quarter of

8.3%

2020.

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

Key ratios

SEK m	Q2 2020	Q2 2019	Change	6 mos 2020	6 mos 2019	Change	R12	Full year 2019
Net sales	13,570	13,038	4.1%	26,636	24,969	6.7%	52,407	50,740
Operating profit (EBIT)	605	601	0.7%	1,148	1,086	5.7%	2,350	2,288
Operating margin, %	4.5	4.6	-0.2	4.3	4.4	0.0	4.5	4.5
Profit for the period	446	429	4.1%	848	783	8.3%	1,744	1,679
Earnings per share before dilution, SEK	2.22	2.01	10.4%	4.15	3.69	12.5%	−	7.87
Cash flow from operating activities per share, SEK	4.10	5.18	-20.8%	10.48	8.62	21.6%	18.84	16.98
Return on capital employed, %1)	24.5	30.9	-6.4	24.5	30.9	-6.4	24.5	30.1
Return on shareholders' equity, %1)	53.6	46.8	6.8	53.6	46.8	6.8	53.6	39.6
Shareholders' equity per share, SEK	−	−	−	15.95	15.15	5.3%	−	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 15 July 2020.

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

Axfood will present the interim report for the second 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 54, UK: +44 333 300 9035, USA: +1 833 823 0590

Strong performance despite major challenges in parts of the business

The Axfood Group continues to perform and grow more than the market. The very strong development within certain parts of the company, where the accelerated growth rate for the Willys stores is particularly noteworthy, have compensated for those parts of the company that to a large extent have been negatively affected by the corona pandemic. Despite these challenges, we summarize a quarter of strong growth and maintained profitability.

Following exceptionally high pressure in the food retail sector during the latter part of the first quarter, demand during the second quarter stabilized at an overall higher level than before the corona pandemic broke out – both in stores but especially online. At the same time, demand has dropped significantly in the café and restaurant market, in crossborder shopping on the border to Norway, and at central urban locations.

High rate of growth for Willys stores

In the second quarter Axfood reported higher sales and once again grew faster than the market, with 8.3% growth in store sales. Very strong like-for-like growth for Willys' stores, which in a time of great economic uncertainty benefits from the position as Sweden's leading discount chain, compensated for the parts of our business that have been negatively impacted during the pandemic.

However, the strong growth and profitability for the Willys segment as a whole were dampened by Eurocash, whose sales have essentially ceased, as cross-border shopping has come to a halt following Norway's imposition of travel restrictions to Sweden. While the retailer-owned Hemköp stores grew more than the market, the quarter was challenging for certain Groupowned stores in central urban locations where customer traffic has decreased considerably.

Axfood Snabbgross was negatively affected by considerably lower demand in the café and restaurant market, largely owing to a greater preference among people to prepare and eat their meals at home. To mitigate the impact of this and at the same time increase accessibility during the pandemic, Axfood Snabbgross has now opened up half of its stores for sales directly to consumers.

Accelerated e-commerce growth

It is clear that the pandemic has affected digitalization of society in general, and also our industry. During the quarter we continued to work hard to ramp up our digital offering and ways of working, and as a result, we also continued to grow faster than the market online with growth of a full 128%. Willys is expanding its online sales to more stores and cities, and is at the same time testing new solutions to increase accessibility for customers, such as mobile click-and-collect lockers at service stations. Hemköp has accelerated the roll-out of its online business

and is now expanding its capacity earlier than planned. Urban Deli has opened an online store to find new ways to reach its customers in a time when it is no longer as natural to meet at a physical location. We have also launched co-deliveries of grocery and pharmacy products via Mat.se, which simplifies and adds value for customers.

The pandemic has prompted more and more people to shop online, and we are seeing a steady stream of new customers, not least in the older age groups. During the quarter, nearly a fourth of orders in Willys' and Hemköp's customer programmes came from customers older than 70, compared with just 4% during the first quarter of the year.

Continued progress for a sustainable future At the same time that we have devoted efforts to meeting new needs and behaviours, during the quarter we continued working with sustainability and with taking steps toward developing our business for the future.

Recently we announced that this autumn, we will be first in Sweden to offer eggs from free-range hens outside that are fed soy-free feed. We have continued our work on reducing the use of plastics and recently communicated initiatives that will reduce our use of plastic by 25 tonnes yearly. We are also working continuously with food innovation, and during the quarter Garant launched three unique ready-made meal solutions based on Swedish grown legume mince.

In Bålsta, work is in full swing on our highly automated logistics centre, which will be ready in 2023, and the first posts that will support the building have now been raised.

Employee engagement makes the difference The safety and well-being of our employees and customers always come first, and during this very unusual spring our employees have demonstrated a great sense of engagement and ability to adjust. In addition to our chains, which have worked hard to keep pace with customers' changed shopping behaviours, Dagab has also shown exceptional resolve in supporting the chains with improved delivery reliability compared with the first quarter of the year. I am very proud of what we together have achieved during this very trying time.

Klas Balkow President and CEO, Axfood AB

"We are reporting a strong second quarter under the prevailing circumstances. Sales in our stores grew by more than 8%, where performance for the Willys chain was particularly noteworthy."

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 spent 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 half of 2020. However, e-commerce still accounts for a very small share of the food retail market – three per cent 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 second quarter of 2020 was 8.1%, including 113.5% growth for online. Food price inflation during the period April–June was 3.3%, according to preliminary data from Statistics Sweden.

Covid-19

During the second quarter, the Swedish food retail market continued to be impacted by changed shopping behaviours among consumers as a result of the spread of the coronavirus/Covid-19, albeit in a different scope and character than during the first quarter of the year. The market has benefited from greater consumption at home, as many people have chosen to stay away from cafés and restaurants. Growth for e-commerce was exceptionally high, with a large inflow of new consumers. Since many have chosen to eat at home instead of out, performance for the café and restaurant market was weak. Sales for cross-border shopping have remained at very low levels, as Norway's travel restrictions to Sweden, which were implemented in mid-March, remain in effect.

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

Second quarter

Consolidated net sales grew 4.1% during the second quarter to SEK 13,570 m (13,038). Higher net sales for Willys were partly offset by lower net sales for Hemköp and Axfood Snabbgross.

Store sales for the Axfood Group (Group-owned stores and Hemköp franchises) amounted to SEK 11,928 m (11,011), an increase of 8.3%. Like-for-like growth was 6.3%. High and accelerated growth for Willys stores compared with the first quarter was offset in large part by a sharp drop in cross-border sales for Eurocash. Hemköp's Group-owned stores grew at a slower rate than the market, which is explained by conversions to retailer-owned stores, but also by greater exposure to central locations in larger cities, where customer traffic has decreased significantly. 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. Sales for Axfood Snabbgross decreased as a result of lower demand in the café and restaurant market.

In online sales to consumers, demand grew considerably during the second quarter, and Axfood once again grew more than the market. Net sales totalled SEK 734 m (322), an increase of 128%. 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 30.9% (30.0%) of the Axfood Group's total stores sales during the second quarter.

January–June

Consolidated net sales for the period totalled SEK 26,636 m (24,969), an increase of 6.7%. Store sales for the Axfood Group (Group-owned stores and Hemköp franchises) grew 9.9%, and likefor-like sales grew 7.8%.

Net sales per segment

SEK m	Q2 2020	Q2 2019	Change	6 mos 2020	6 mos 2019	Change	Full year 2019
Willys	8,068	7,423	8.7%	15,809	14,283	10.7%	29,029
Hemköp	1,591	1,614	-1.4%	3,216	3,212	0.1%	6,378
Axfood Snabbgross	859	924	-7.1%	1,636	1,654	-1.1%	3,443
Dagab	12,152	11,509	5.6%	23,787	22,086	7.7%	44,895
Joint-Group	246	231	6.4%	494	461	7.3%	928
Internal sales between segments that are eliminated
Dagab	-9,117	-8,446	7.9%	-17,844	-16,296	9.5%	-33,068
Joint-Group/other	-229	-216	5.9%	-461	-431	7.0%	-865
Net sales, total	13,570	13,038	4.1%	26,636	24,969	6.7%	50,740

Store sales (including online)

SEK m	Q2 2020	Q2 2019	Change	Change, like-for like stores	6 mos 2020	6 mos 2019	Change	Change, like-for like stores
Willys	8,068	7,423	8.7%	7.2%	15,808	14,282	10.7%	9.1%
Hemköp, Group-owned	1,552	1,579	-1.7%	2.0%	3,139	3,142	-0.1%	3.3%
Hemköp franchises	2,308	2,009	14.9%	6.1%	4,464	3,871	15.3%	6.4%
Hemköp total	3,860	3,588	7.6%	4.3%	7,603	7,013	8.4%	5.1%
Axfood Group store sales	11,928	11,011	8.3%	6.3%	23,411	21,295	9.9%	7.8%
Axfood Snabbgross	859	924	-7.1%	-8.3%	1,636	1,654	-1.1%	-2.0%

Change in store structure

		New establish
Number of stores	Dec. 2019	ments/ acquisitions	Sales/ closures	Conversions	June 2020	June 2019
Willys1)	213	3	-1	1	216	212
Hemköp	67	1	−	-3	65	68
Axfood Snabbgross	24	1	−	−	25	24
Total, Group-owned	304	5	-1	-2	306	304
Hemköp franchises	129	1	−	2	132	121
Tempo franchises	127	−	-1	−	126	130
Axfood Group total	560	6	-2	−	564	555
1)Willys	156	2	−	1	159	154
1)Willys Hemma	50	1	−1	−	50	50
1)Eurocash	7	−	−	−	7	8

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

128%

Increase in the Axfood Group's online B2C sales during the second quarter of 2020.

Operating profit

Second quarter

Consolidated operating profit for the second quarter increased slightly to SEK 605 m (601), corresponding to an operating margin of 4.5% (4.6%).

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 by a negative result for Eurocash in cross-border shopping, lower earnings for Axfood Snabbgross and costs for handling higher e-commerce volumes such as higher personnel and logistics costs. The increase in operating profit for Dagab can be credited mainly to the positive sales performance, but also to high efficiency and good cost control. However, Dagab's operating profit was weighed down by lower earnings for Urban Deli due to the decrease in demand in the restaurant market and continued investments in driving growth for Apohem.

Profit after financial items amounted to SEK 569 m (571). Profit after tax was SEK 446 m (429).

January–June

Operating profit for the period was SEK 1,148 m (1,086), corresponding to an operating margin of 4.3% (4.4%).

Net financial items for the period amounted to SEK -63 m (-59), and profit after financial items totalled SEK 1,085 m (1,027). Profit after tax was SEK 848 m (783).

Operating profit per segment

SEK m	Q2 2020	Q2 2019	Change	6 mos 2020	6 mos 2019	Change	Full year 2019
Willys	390	368	6.0%	738	662	11.5%	1,429
Hemköp	53	52	1.7%	114	111	2.3%	243
Axfood Snabbgross	34	57	-39.2%	58	74	-22.1%	167
Dagab	189	179	5.4%	353	344	2.6%	678
Joint-Group	-62	-55	11.8%	-115	-106	8.4%	-229
Operating profit (EBIT)	605	601	0.7%	1,148	1,086	5.7%	2,288
Net financial items	-35	-30		-63	-59		-115
Profit after financial items	569	571		1,085	1,027		2,173

Operating margin per segment

%	Q2 2020	Q2 2019	Change %-pts	6 mos 2020	6 mos 2019	Change %-pts	Full year 2019
Axfood	4.5	4.6	-0.2	4.3	4.4	0.0	4.5
Willys	4.8	5.0	-0.1	4.7	4.6	0.0	4.9
Hemköp	3.3	3.2	0.1	3.5	3.5	0.1	3.8
Axfood Snabbgross	4.0	6.1	-2.1	3.5	4.5	-1.0	4.8
Dagab	1.6	1.6	0.0	1.5	1.6	-0.1	1.5

Operating segment performance

Willys

Second quarter

During the second quarter, net sales for the Willys segment grew 8.7% over the same period a year ago to SEK 8,068 m (7,423). Like-for-like net sales increased by 7.2%. Growth for Willys stores accelerated compared with the first quarter of this year, but lower sales for Eurocash, as cross-border shopping has essentially come to a halt following Norway's imposition of travel restrictions to Sweden, significantly dampened growth for the segment as a whole. Sales for Eurocash fell by more than 80% compared with the same period a year ago. Higher consumption at home as a result of the corona pandemic had a positive impact on sales for Willys stores, and a higher average ticket value and e-commerce expansion contributed to the positive sales performance.

At the end of the second quarter the Willys segment had 216 stores (212), including 209 Willys and seven Eurocash. Online shopping expanded during the second quarter, and at the end of the quarter Willys offered online shopping at 93 stores (70) in 57 cities (38).

Operating profit for the second quarter increased to SEK 390 m (368), corresponding to an operating margin of 4.8% (5.0%). Strong growth in like-for-like sales at Willys stores was significantly offset by a negative result for Eurocash. Operating profit was also negatively affected by higher personnel costs, which is largely related to the higher share of online sales.

January–June

Net sales for Willys for the period totalled SEK 15,809 m (14,283), an increase of 10.7% compared with the same period a year ago. Like-for-like sales increased by 9.1%. Operating profit was SEK 738 m (662), and the operating margin was 4.7% (4.6%).

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.

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

	Q2	Q2		6 mos	6 mos			Full year
SEK m	2020	2019	Change	2020	2019	Change	R12	2019
Net sales	8,068	7,423	8.7%	15,809	14,283	10.7%	30,555	29,029
Change in like-for-like sales, %	7.2	7.9	-0.7	9.1	6.4	2.7	−	6.2
Operating profit (EBIT)	390	368	6.0%	738	662	11.5%	1,505	1,429
Operating margin, %	4.8	5.0	-0.1	4.7	4.6	0.0	4.9	4.9
Number of Group-owned stores	−	−	−	216	212	4	−	213
Average number of employees during the period	−	−	−	5,703	5,299	404	−	5,603
Private label share, %	32.7	31.4	1.3	32.7	31.8	0.9	−	31.6
Share of sustainability-labelled products, %	30.5	30.3	0.2	30.6	30.5	0.1	29.8	29.4
Share of organic sales, %	5.7	5.6	0.1	5.9	5.8	0.1	5.6	5.6
Growth for plant-based protein substitutes, %	20	17	3	23	15	8	19	17
Share of KRAV-labelled meat, %	2.2	2.2	0.0	2.3	2.3	0.0	2.2	2.3

Hemköp

Second quarter

Net sales for Group-owned Hemköp stores (including franchise fees) during the second quarter totalled SEK 1,591 m (1,614). Growth in store sales including Hemköp franchises and online was 7.6%.

The number of Group-owned stores decreased by three stores, net, compared with the second quarter a year ago. Since the second quarter of 2019, 11 new franchise stores have been added, net, largely owing to the inclusion of the nine stores in the Östenssons chain since 1 September. Hemköp accelerated the pace of its e-commerce roll-out, and at the end of the second quarter offered online shopping at 30 stores (18) in 16 cities (8).

Sales for Group-owned Hemköp stores totalled SEK 1,552 m (1,579). Like-for-like sales for Group-owned stores increased by 2.0%. Sales for franchise stores grew 14.9% to SEK 2,308 m (2,009). Like-for-like sales increased by 6.1%. More consumption at home during the corona pandemic had a positive effect on sales, especially for stores in residential areas. During the period, our mini-mart stores in the Tempo chain had very strong growth. Sales for Group-owned Hemköp stores were negatively affected by a dramatic decrease in customer traffic at certain stores in central urban locations.

Operating profit for the second quarter totalled SEK 53 m (52), corresponding to an operating margin of 3.3% (3.2%). Earnings were positively affected mainly by higher like-for-like sales in Group-owned stores. Operating profit was weighed down by costs for handling the e-commerce expansion and higher personnel costs related to the higher share of sales coming from e-commerce.

January–June

Net sales for Group-owned Hemköp stores (including franchise fees) during the period totalled SEK 3,216 m (3,212). Growth in store sales including Hemköp franchises and online was 8.4%.

Net sales for Group-owned stores totalled SEK 3,139 m (3,142) during the period, a decrease of 0.1%. Like-for-like sales for Group-owned stores increased by 3.3%. Sales for franchise stores totalled SEK 4,464 m (3,871), an increase of 15.3%, with a 6.4% increase in like-for-like sales.

Operating profit for the period was SEK 114 m (111), corresponding to an operating margin of 3.5% (3.5%).

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	Q2 2020	Q2 2019	Change	6 mos 2020	6 mos 2019	Change	R12	Full year 2019
Net sales	1,591	1,614	-1.4%	3,216	3,212	0.1%	6,381	6,378
Change in like-for-like sales, Group-owned stores, %	2.0	1.8	0.2	3.3	1.4	1.9	−	1.3
Operating profit (EBIT)	53	52	1.7%	114	111	2.3%	246	243
Operating margin, %	3.3	3.2	0.1	3.5	3.5	0.1	3.9	3.8
Number of Group-owned stores	−	−	−	65	68	-3	−	67
Average number of employees during the period	−	−	−	1,620	1,695	-75	−	1,739
Private label share, %	26.2	25.9	0.3	26.6	26.1	0.5	−	26.0
Share of sustainability-labelled products, %	29.2	28.4	0.8	29.2	28.6	0.6	28.2	27.6
Share of organic sales, %	8.8	8.8	0.0	9.2	9.2	0.0	9.2	8.9
Growth for plant-based protein substitutes, %	8	8	0	11	11	0	8	8
Share of KRAV-labelled meat, %	7.3	8.3	-1.0	7.5	8.5	-1.0	7.3	7.8

Axfood Snabbgross

Second quarter

Axfood Snabbgross's net sales totalled SEK 859 m (924) during the second quarter, a decrease of 7.1% compared with the same period a year ago. Axfood Snabbgross was negatively affected by the weak performance for the café and restaurant market, as more people chose to eat at home instead of at cafés and restaurants during the corona pandemic. A gradual improvement was noted during the second half of the quarter. The assessment is that performance was considerably better than for the market as a whole. At the end of the quarter Axfood Snabbgross had 25 stores (24). To provide a further alternative for grocery shopping during the corona pandemic, during the quarter Axfood Snabbgross opened stores for sales to end consumers.

Operating profit for the second quarter decreased to SEK 34 m (57). The lower earnings are mainly attributable to the negative development in like-for-like sales. The operating margin decreased to 4.0% (6.1%).

January–June

Net sales for Axfood Snabbgross totalled SEK 1,636 m (1,654) during the period, a decrease of 1.1%. Operating profit for the period was SEK 58 m (74), and the operating margin was 3.5% (4.5%).

SEK m	Q2 2020	Q2 2019	Change	6 mos 2020	6 mos 2019	Change	R12	Full year 2019
Net sales	859	924	-7.1%	1,636	1,654	-1.1%	3,425	3,443
Change in sales, like-for-like stores, %	-8.3	6.8	-15.1	-2.0	7.8	-9.8	−	6.4
Operating profit (EBIT)	34	57	-39.2%	58	74	-22.1%	150	167
Operating margin, %	4.0	6.1	-2.1	3.5	4.5	-1.0	4.4	4.8
Number of stores	−	−	−	25	24	1	−	24
Average number of employees during the period	−	−	−	401	381	20	−	411
Share of sustainability-labelled products, %	18.6	18.8	-0.2	18.8	18.9	-0.1	18.6	18.6

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.

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

Dagab

Second quarter

Net sales for the second quarter totalled SEK 12,152 m (11,509), an increase of 5.6%. Growth was mainly affected by strong sales to Willys and Hemköp. Dagab's sales to convenience retailers were negatively affected by lower sales to mini-marts and service stations, for example, as many people opted to stay home during the corona pandemic. 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 189 m (179), corresponding to an operating margin of 1.6% (1.6%). The increase is mainly attributable to the positive sales performance, but also by high efficiency and good cost control. Dagab's earnings were negatively affected by costs associated with e-commerce logistics. In addition, earnings for the quarter were weighed down by investments in driving growth for Apohem and lower earnings for Urban Deli attributable to the sharp drop in demand in the restaurant market. Work on improving the joint-Group dark stores has contributed to higher productivity and more positive performance for Mat.se.

January–June

Dagab's net sales during the period totalled SEK 23,787 m (22,086), an increase of 7.7%. Operating profit was SEK 353 m (344), corresponding to an operating margin of 1.5% (1.6%).

SEK m	Q2 2020	Q2 2019	Change	6 mos 2020	6 mos 2019	Change	R12	Full year 2019
Net sales	12,152	11,509	5.6%	23,787	22,086	7.7%	46,596	44,895
Operating profit (EBIT)	189	179	5.4%	353	344	2.6%	687	678
Operating margin, %	1.6	1.6	0.0	1.5	1.6	-0.1	1.5	1.5
Average number of employees during the period	−	−	−	2,653	2,578	75	−	2,699
Delivery reliability, %	−	−	−	93.1	96.6	-3.5	−	96.8

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–June amounted to SEK 494 m (497), of which SEK 292 m (278) pertained to investments in non-current assets in the retail operations, SEK 37 m (62) pertained to non-current assets in wholesale operations, and SEK 164 m (147) pertained to IT.

Investments in right-of-use assets (mainly premises) amounted to SEK 935 m (286) during the period January–June, of which SEK 305 m (230) pertained to newly acquired assets and SEK 630 m (56) pertained mainly to renewals of existing rental agreements for premises and upward indexing of rents. Of total investments in leases, SEK 801 m (244) pertained to retail operations, SEK 120 m (32) pertained to wholesale operations, and SEK 14 m (10) pertained to joint-Group operations.

Logistics of the future

Establishment of automated logistics centre

Work on Axfood's new, highly automated logistics centre in Bålsta, outside Stockholm, is continuing according to plan. During the second quarter the first posts were raised that will support the construction, and the groundwork entered its final phase. The logistics centre is planned to be fully operational in 2023.

Efficiency improvement in dark stores

As previously communicated, in April an agreement was signed with the property owner of Dagab's dark store in Årsta on an expansion of the warehouse's area. The warehouse area will be doubled from 5,000 sq. m. to 10,000 sq. m., and the expansion is planned to be completed at the end of 2020. The larger area will provide more capacity for Axfood's e-commerce concepts. The online pharmacy Apohem, which is partly owned by Axfood, will move to the expanded warehouse area, giving the company space for continued growth and potential for synergies with Axfood's food retail concepts.

Other

Government support related to Covid-19

Despite challenges in parts of our operations, the Axfood Group has thus far opted to refrain from applying for state reorientation and furlough support. However, in accordance with the rules, Axfood has received government support as compensation for the increased sicknessrelated absences through sick pay compensation and reduced payroll taxes. In the financial statements this is reported in accordance with IAS 20 Accounting for Government Grants and Disclosure of Government Assistance.

Capital expenditures, depreciation/amortization, SEK m

Financial position and cash flow

Cash flow from operating activities amounted to SEK 2,194 m (1,805) during the period January– June. Paid tax totalled SEK -225 m (-246). Net capital expenditures affected cash flow by SEK -517 (-398). Payment of shareholder dividends affected cash flow by SEK -785 m (-1,488), and amortization of lease liabilities affected cash flow by SEK -754 m (-716).

Cash and cash equivalents held by the Group amounted to SEK 883 m, compared with SEK 798 m in December 2019. Interest-bearing liabilities and provisions totalled SEK 6,102 m, compared with SEK 5,929 m in December 2019. Interest-bearing net debt amounted to SEK 5,218 m at the end of the period, compared with SEK 5,131 m in December 2019.

The equity ratio was 19.5%, compared with 24.6% in December 2019. The lower equity ratio is attributable to the dividend paid out in March.

Net debt/EBITDA was 1.1, compared with 1.2 in December 2019. Net debt/EBITDA excluding IFRS 16 was -0.2, compared with -0.1 in December 2019.

Derivation of total investments and net capital expenditures in cash flow

SEK m	6 mos 2020	6 mos 2019
Total investments	-1,429	-783
Investments in leases	935	286
Divestment of tangible/intangible assets	2	2
Acquisition of financial assets	-21	-16
Acquisition of operations, other items	-3	−
Divested operations	-1	14
Divestment/acquisition of assets held for sale	−	99
Cash flow from investing activities	-517	-398

Net debt/EBITDA

Parent Company

The Parent Company's net sales and other operating revenue during the period January–June amounted to SEK 144 m (134). After operating expenses of SEK 210 m (194) and net financial items of SEK -1 m (24), profit after financial items was SEK -67 m (-36). Capital expenditures during the period totalled SEK 2 m (10).

The Parent Company had an interest-bearing net debt receivable of SEK 1,119 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.

Sustainable development

Axfood's vision is to be the leader in good and sustainable food. Sustainability work is therefore extensive and permeates the entire business. The company's growth will be underpinned by long-term sustainable decisions aimed at creating new business opportunities and profitable growth.

The food, environment and people

For Axfood, sustainable action is a matter of seeing the entire picture. Considerable work is therefore being done to achieve sustainability across all parts of the value chain, by safeguarding the environment in which we work, the food that is produced and sold in our stores, and the people who produce and consume it. Axfood's sustainability programme is extensive, comprising some 70 policies and targets in these three areas, and is updated yearly. Work is currently being conducted on a new materiality analysis which is planned to be completed in the coming months.

Food – more good proteins and sustainability-labelled products

Axfood strives to make it easier for consumers to make sustainable choices by offering a broad assortment of sustainably produced products. Green proteins are one area in which Axfood is developing its offering. During the quarter Garant launched three ready-made meal solutions based on Swedish-grown protein crops as a step towards meeting the growing demand for locally produced, sustainable, plant-based prepared foods and vegetarian alternatives without soy. Another example of sustainable assortment development are the recently launched eggs from free range hens outside that are fed a newly developed soy-free feed where the soy has been replaced by two locally grown protein sources. Soy is problematic from a sustainability perspective since its widespread use is leading to expanded growing areas that pose a risk to biodiversity. For several years Axfood has therefore required that the soy used by its private label suppliers for food products or feed is third-party certified.

During the second quarter the number of sustainability-labelled products increased to 29.2% (28.2%), the share of organic products increased slightly to 6.3% (6.2%), and growth for plantbased protein substitutes was 14%.

The environment – reduced use of plastics and tax on plastic bags

Axfood is working to ensure food production that has as little environmental impact as possible. During the second quarter, the Haga Initiative presented its 2019 GHG Emissions Disclosure, which reports that Axfood, which is one of the initiative-takers behind the company network, reduced GHG emissions in its own operations by 20% compared with the preceding year. Axfood has thereby achieved its goal to reduce its own emissions by at least 75% by 2020 (base year 2009).

Other important goals in the environmental area include that the packages for Axfood's private label products are to be environmentally adapted and made of recycled or renewable material, and that the use of plastics in own operations will be cut by 25% by 2025. Toward this end, during the second quarter the packaging material for three organic fresh herb products from Garant was changed from plastic to natural fibre forms, paper cones and paper-based trays; paper towels and toilet paper from Fixa and Eldorado now use thinner plastic packaging film; the plastic fork that was previously provided with Eldorado ramen cups has been eliminated; and the plastic bottles used for Garant juices and concentrated lime juice have been replaced with a thinner variant. Together these measures will result in a yearly reduction in the use of plastic by approximately 25 tonnes.

As a measure to reduce the use of plastic in the Swedish food retail industry as a whole, on 1 May a new tax was instituted on plastic bags that covers both the larger grocery bags used at checkout and the smaller plastic bags used for fruits and vegetables. In connection with this, Axfood expanded its offering of bags in stores in addition to the existing plastic grocery bags made of renewable or recycled material to give customers the best selection of bags possible. Since introduction of the tax, sales of plastic grocery bags at Willys and Hemköp have decreased by approximately 70% and have been largely been replaced by paper bags. Sales of Axfood's fruit and vegetable bags made of sugar cane have been low since introduction of the tax, as customers have largely gone over to the use of paper bags.

In addition to plastics and packaging material, another important and prioritized area is water. During the second quarter, the water routine developed by Axfood to measure and follow up water use in existing supply chains was tested with selected suppliers, mainly of fruits and vegetables. The next step is to include the water issue in the existing sustainability routine for purchasing, with support from the conclusions drawn from the practical trials.

In May, Garant launched three new vegetarian meal solutions based on Swedish-grown protein crops. The products cater to both the growing interest in more sustainable consumption and sharply higher demand for locally produced and plant-based products as well as for vegetarian and vegan products without soy.

People – social audits and new memberships

Axfood aspires to be a positive force in society and is working in various ways to improve working conditions throughout the food supply chain.

Axfood conducts social audits on a regular basis of compliance with the company's Code of Conduct for suppliers in risk countries, and during the second quarter – with assistance from the Business Social Compliance Initiative (BSCI) – conducted 33 audits. Also, during the quarter, Axfood became a member of the Ethical Trading Initiative (ETI), which advocates for responsible supply chains through sector-wide collaboration. As a step in improving work with anticorruption, a GAP analysis has been conducted according to ISO 37001:2017 (Anti-bribery management systems) to assess and identify potential improvement areas in the work with sustainable supply chains. In addition, during the quarter, in cooperation with Quizrr, a company that works to increase knowledge among employees of suppliers in Asia about their rights, Axfood drew up a proposal to integrate information about migrant workers' rights and Covid-19 in existing Quizrr training programmes in Thailand.

Axfood strives for diversity in its own operations, based on the conviction that a mix of competences and perspectives yields better results. Axfood's goal is to achieve a long-term even gender balance in senior positions, i.e., that men and women will be represented within a range of 40%-60%. During the first half of 2020 the share of women in senior positions was 31.9% (29.9%). Additionally, during the second quarter Axfood joined Integrationspakten ("The Integration Pact"), a network that brings together representatives from the business community, civil society and the public sector to help shorten the paths to language fluency and careers, meet employers' competency needs and strengthen integration.

Another important and prioritized area involves increasing the work attendance rate among Axfood's employees, where the Group's target is to achieve a work attendance rate of at least 95%. During the second quarter the work attendance rate decreased to 91.8% (94.5%) as a result of the corona pandemic.

Key ratios, Group

	Q2 2020	Q2 2019	6 mos 2020	6 mos 2019	R12	Full year 2019
Share of sustainability-labelled products, %	29.2	28.2	29.1	28.5	28.1	26.9
Share of organic sales, %	6.3	6.2	6.6	6.5	6.5	6.2
Growth in plant-based protein substitutes, %	13.7	14.0	18.3	15.0	15.2	13.0
Share of KRAV-labelled meat, %	3.2	3.9	3.4	3.6	3.3	3.4
Number of social audits	33	31	44	46	-	96
Electricity consumption, kWh/m2 (stores and warehouses)	-	-	-	-	305.9	313.1
Electricity consumption (kWh) as share of net sales (SEK), %	-	-	-	-	0.51	0.53
CO2, kg/tonne goods	14.6	16.5	15.3	17.1	16.2	17.2
Gender equality, share of women in senior positions, %	-	-	31.9	29.9	31.0	30.0
Work attendance rate, %	91.8	94.5	92.8	94.1	93.8	94.4

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.

Future reports

• The interim report for the third quarter of 2020 will be presented on 22 October 2020, at 7 a.m. CET
• The year-end report for 2020 will be presented on 4 February 2021, at 7 a.m. CET

Selection of press releases from Axfood during the second quarter

17 April 2020	Many local food producers interested in Axfood's fast track to stores
5 May 2020	Axfood Snabbgross opens more stores for sales directly to consumers
11 May 2020	Garant launches three vegetarian dishes made of Swedish legume mince
12 May 2020	Hemköp opens new store in Uppsala – creates 30 new jobs
12 May 2020	Axfood Snabbgross opens in new premises in Visby
26 May 2020	Surge in pick-up of online orders – Willys now offering click-and-collect stations at Circle K stores
28 May 2020	Apohem growing, moves to new warehouse in Årsta and doubles staffing
29 May 2020	Willys opens store in Väsby Centrum
2 June 2020	Mat.se and Apohem test co-deliveries of food and pharmacy products
3 June 2020	Willys moves to new site in Linköping
9 June 2020	Garant first to offer eggs from hens fed with soy-free feed
16 June 2020	Hemköp's e-commerce expanding

The interim report for the period January–June 2020 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 2020

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

Christian Luiga 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 2020	Q2 2019	6 mos 2020	6 mos 2019	R12	Full year 2019
Net sales	13,570	13,038	26,636	24,969	52,407	50,740
Cost of goods sold	-11,420	-11,000	-22,448	-21,056	-44,190	-42,797
Gross profit	2,150	2,038	4,189	3,913	8,218	7,942
Operating expenses	-1,545	-1,437	-3,040	-2,827	-5,867	-5,654
Operating profit (EBIT)	605	601	1,148	1,086	2,350	2,288
Interest income and similar profit/loss items	1	1	4	3	6	5
Interest expense and similar profit/loss items	-36	-31	-67	-62	-125	-120
Profit after financial items	569	571	1,085	1,027	2,231	2,173
Tax	-123	-142	-237	-244	-487	-494
Profit for the period	446	429	848	783	1,744	1,679
Other comprehensive income Items that cannot be reclassified to profit or loss for the period
Revaluation of defined benefit pension plans	8	-21	7	-23	-6	-37
Tax Items that can be reclassified to profit or loss for the period	-2	5	-2	5	1	8
Change in hedging reserve	-68	-1	1	-2	-38	-41
Tax	15	0	-0	0	8	9
Other comprehensive income for the period	-47	-17	7	-20	-35	-61
Total comprehensive income for the period	399	412	855	763	1,709	1,617
Profit for the period attributable to
Owners of the parent	465	420	868	773	1,744	1,648
Non-controlling interests	-19	9	-20	10	0	30
Total comprehensive income for the period attributable to
Owners of the parent	418	403	875	753	1,708	1,587
Non-controlling interests	-19	9	-20	10	0	30
Earnings per share before dilution, SEK	2.22	2.01	4.15	3.69	−	7.87
Earnings per share after dilution, SEK	2.21	2.00	4.14	3.68	−	7.85

EBITDA

SEK m	Q2 2020	Q2 2019	6 mos 2020	6 mos 2019	R12	Full year 2019
Operating profit (EBIT)	605	601	1,148	1,086	2,350	2,288
Depreciation/amortisation and impairment losses	563	537	1,125	1,067	2,204	2,146
EBITDA	1,167	1,137	2,274	2,153	4,554	4,434
IFRS 16 Leasing costs	-403	-389	-811	-777	-1,588	-1,554
EBITDA excl. IFRS 16	764	748	1,463	1,376	2,967	2,880

Condensed statement of financial position, Group

SEK m	30/6/2020	30/6/2019	31/12/2019
Assets
Goodwill	2,769	2,764	2,767
Other intangible assets	726	677	705
Property, plant and equipment	2,815	2,201	2,744
Right-of-use assets	5,611	5,476	5,407
Financial assets1)	24	19	22
Deferred tax assets	233	246	237
Total non-current assets	12,179	11,383	11,882
Inventories	2,559	2,415	2,387
Accounts receivable – trade	1,258	1,205	1,062
Other current assets	1,280	1,248	1,165
Cash and bank balances	883	738	798
Total current assets	5,980	5,606	5,411
Total assets	18,159	16,989	17,293
Shareholders' equity and liabilities
Equity attributable to owners of the parent	3,338	3,171	4,020
Equity attributable to non-controlling interests	209	209	229
Total shareholders' equity	3,547	3,380	4,249
Non-current lease liabilities	4,532	4,296	4,131
Other interest-bearing liabilities	405	422	421
Deferred tax liabilities	906	837	902
Other non-current liabilities	78	55	100
Total non-current liabilities	5,921	5,610	5,554
Current lease liabilities	1,164	1,469	1,377
Accounts payable – trade	4,239	4,114	3,832
Other current liabilities	3,288	2,416	2,280
Total current liabilities	8,692	7,999	7,490
Total shareholders' equity and liabilities	18,159	16,989	17,293
1) Of which, interest-bearing assets	−	−	−

Condensed statement of cash flows, Group

	Q2	Q2	6 mos	6 mos		Full year
SEK m	2020	2019	2020	2019	R12	2019
Operating activities
Operating profit (EBIT)	605	601	1,148	1,086	2,350	2,288
Adjustments for non-cash items	575	540	1,142	1,073	2,229	2,160
Interest paid	-36	-30	-67	-62	-128	-123
Interest received	1	1	4	3	6	5
Paid tax	-111	-136	-225	-246	-456	-477
Changes in working capital	-175	109	192	-49	-57	-298
Cash flow from operating activities	859	1,085	2,194	1,805	3,944	3,555
Investing activities
Acquisitions of operations	−	−	-5	−	-7	-2
Acquisitions of intangible assets	-53	-50	-103	-76	-202	-175
Acquisitions of property, plant and equipment	-166	-202	-389	-421	-1,272	-1,304
Other changes in investing activities	-7	7	-20	99	-24	95
Cash flow from investing activities	-226	-245	-517	-398	-1,505	-1,386
Financing activities
Amortization of debt	-575	-549	-754	-716	-1,457	-1,419
Share repurchases	-53	-36	-53	-36	-53	-36
Dividend payout	−	−	-785	-1,488	-785	-1,488
Cash flow from financing activities	-628	-585	-1,592	-2,240	-2,295	-2,943
Cash flow for the period	5	255	85	-833	144	-774

Condensed statement of changes in equity, Group

SEK m	30/6/2020	30/6/2019	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	855	763	1,617
Share repurchases	-53	-36	-36
Share-based payments	13	9	21
Dividend to shareholders	-1,517	-1,488	-1,488
Amount at end of period	3,547	3,380	4,249

Key ratios and other data, Group

	30/6/2020	30/6/2019	Full year 2019
Operating margin, %	4.3	4.4	4.5
Margin after financial items, %	4.1	4.1	4.3
Equity ratio, %	19.5	19.9	24.6
Net debt (+)/net receivable (-), SEK m	5,218	5,449	5,131
Net debt (+)/net receivable (-) excl. IFRS 16	-478	-315	-377
Net debt/EBITDA, multiple	1.1	-	1.2
Net debt/EBITDA excl. IFRS 16, multiple	-0.2	-0.1	-0.1
Net debt-equity ratio (+)/Net receivable equity ratio (-), multiple	1.5	1.6	1.2
Net debt-equity ratio (+)/Net receivable equity ratio (-) excl. IFRS 16, multiple	-0.1	-0.1	-0.1
Capital employed, SEK m	9,648	9,567	10,178
Return on capital employed, %	24.5	30.9	30.1
Return on shareholders' equity, %	53.6	46.8	39.6
Average number of employees during the period	10,785	10,341	10,854
Capital expenditures, SEK m	1,429	783	2,452
Investments in intangible non-current assets and in property, plant and equipment, SEK m	494	497	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	209,308,876	209,461,953	209,380,332
Average number of shares outstanding after dilution	209,883,486	209,886,426	209,878,569
Key data per share
Earnings per share before dilution, SEK	4.15	3.69	7.87
Earnings per share after dilution, SEK	4.14	3.68	7.85
Ordinary dividend per share, SEK	−	−	7.251)
Shareholders' equity per share, SEK	15.95	15.15	19.21
Cash flow per share, SEK	0.41	-3.98	-3.70

1) Paid out on two occasions in 2020.

Quarterly overview

	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2
SEK m	2018	2018	2019	2019	2019	2019	2020	2020
Net sales	12,050	12,370	11,931	13,038	12,731	13,040	13,067	13,570
Operating profit (EBIT)	620	425	485	601	715	487	544	605
Operating margin, %	5.1	3.4	4.1	4.6	5.6	3.7	4.2	4.5
Earnings per share before dilution, SEK	2.24	1.54	1.68	2.01	2.50	1.68	1.93	2.22
Shareholders' equity per share, SEK	19.06	20.54	13.37	15.15	17.64	19.21	14.17	15.95
Return on shareholders' equity, %	38.7	36.2	52.8	46.8	42.1	39.6	58.9	53.6
Cash flow from operating activities per share, SEK	3.54	3.90	3.44	5.18	3.10	5.26	6.38	4.10
Investments in intangible non-current assets and in property, plant and equipment	178	422	245	252	192	792	276	218
Net debt (+)/net receivable (-)	−581	−1,047	6,047	5,449	5,082	5,131	5,454	5,218
Share price, SEK	166.40	151.70	173.00	183.75	209.10	208.40	202.20	203.40

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

Financial statements, Parent Company

Condensed income statement, Parent Company

SEK m	Q2 2020	Q2 2019	6 mos 2020	6 mos 2019	Full year 2019
Net sales	1	1	3	2	4
Operating expenses	-110	-101	-210	-194	-402
Other operating revenue	73	68	142	132	261
Operating profit (EBIT)	-36	-32	-65	-60	-136
Net financial items	-1	1	-1	24	25
Profit after financial items	-36	-31	-67	-36	-111
Appropriations, net	−	−	−	−	1,825
Profit before tax	-36	-31	-67	-36	1 714
Tax	7	8	12	13	-364
Net profit for the period	-29	-23	-54	-23	1,350
Operating profit includes depreciation/amortization totalling	1	1	2	1	3

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

Condensed balance sheet, Parent Company

SEK m	30/6/2020	30/6/2019	31/12/2019
Assets
Property, plant and equipment	17	13	17
Participations in Group companies	3,401	3,390	3,397
Other financial non-current assets	0	0	0
Deferred tax assets	7	9	8
Total non-current assets	3,425	3,413	3,421
Receivables from Group companies 1)	1,383	842	3,360
Other current assets	232	190	33
Cash and bank balances	652	246	373
Total current assets	2,267	1,278	3,765
Total assets	5,693	4,690	7,187
Shareholders' equity and liabilities
Restricted shareholders' equity	287	287	287
Unrestricted shareholders' equity	787	1,013	2,399
Total shareholders' equity	1,074	1,301	2,686
Untaxed reserves	2,907	2,639	2,907
Provisions	17	22	20
Non-current liabilities	3	3	3
Accounts payable – trade	7	12	18
Liabilities to Group companies 2)	887	656	1,482
Other current liabilities	797	58	71
Total current liabilities	1,691	726	1,571
Total shareholders' equity and liabilities	5,693	4,690	7,187
1) Of which, interest-bearing receivables	1,371	832	1,180
2) Of which, interest-bearing liabilities	887	656	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 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 each business follows and works continuously with handling the effects from 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 carrying amount of the Group's assets is regularly tested to determine any need to recognize impairment. The carrying amount is also tested when an indication of a decrease in value has been identified. A review of the Group's reported values has been conducted in the light of the corona pandemic and there are no indications of any decrease in value.

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 about 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	1
Realized changes	4
Amount at end of period	-41

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 has been recognized in operating profit.

Note 7 Pledged assets and contingent liabilities

Group, SEK m	30/6/2020	30/6/2019	31/12/2019
Pledged assets	−	−	−
Contingent liabilities	20	26	21
Parent Company, SEK m	30/6/2020	30/6/2019	31/12/2019
Pledged assets	−	−	−

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 thereby 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

No significant events have taken place after the balance sheet date.

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 before dilution.

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 and 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 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: Interest-bearing liabilities and provisions less cash and cash equivalents and interest-bearing receivables, 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 including 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, 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.

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 on a rolling 12-month basis, as a percentage of average capital employed.

Return on shareholders' equity: Profit for the period on a rolling 12-month basis 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

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 Axfood Snabbgross chains. In December 2019 the definition of the key ratio was changed, and thus comparison figures have been recalculated.

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 Axfood Snabbgross chains.

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 Axfood Snabbgross chains.

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 Axfood 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.

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 272 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 (SEK). Reported data is presented on a rolling 12 month basis.

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 six months accumulated are presented with a one-month lag.

Gender equality: The share of women in senior positions. Senior positions refers to employees, including members of the Executive Committee, who are defined as managers with employee responsibility.

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 second quarter pertains to time worked during the period March–May.

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 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 & 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.
• 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