INTERIM REPORT for the period January 1 June 30, 2007

Transcription

1 Interim report for ICA AB January 1 June 30, 2007

2 INTERIM REPORT for the period January 1 June 30, 2007 Stockholm, August 21, 2007 Continued sales increase but lower operating income in first half year Net sales during the first half year amounted to SEK 39,490 million (32,671), an increase of 20.9 percent. Rimi Baltic s net sales of SEK 5,120 million are consolidated as of this year. Excluding Rimi Baltic, the Group s net sales were SEK 34,370 million, an increase of 5.2 percent. Operating income for the first half year decreased to SEK 941 million (1,249), or by 24.7 percent. Operating income includes capital gains on real estate sales and impairment losses on fixed assets of SEK 333 million (193). Excluding these items, operating income decreased by 42.4 percent. Net income for the first half year amounted to SEK 832 million (1,000), a decrease of 16.8 percent. Net sales during the second quarter amounted to SEK 20,699 million (17,076), an increase of 21.2 percent. Rimi Baltic s net sales of SEK 2,730 million are consolidated as of this year. Excluding Rimi Baltic, the Group s net sales were SEK 17,969 million, an increase of 5.2 percent. Operating income for the second quarter decreased to SEK 595 million (688), or by 13.5 percent. Operating income includes capital gains on real estate sales and impairment losses on fixed assets of SEK 215 million (97). Excluding these items, operating income decreased by 35.7 percent. Net income for the second quarter amounted to SEK 491 million (535), a decrease of 8.2 percent. Key financial ratios SEK million April - June January - June Full-year Restated* Restated* Net sales 20,699 17,076 39,490 32,671 67,395 Operating income ,249 2,297 Operating income excluding capital gains from real estate sales and impairment losses on fixed assets ,056 1,709 Income after tax ,034 Total assets 35,993 32,682 35,506 Cash flow from operating activities 1, ,213 1,805 3,044 Operating margin, % Operating margin excluding capital gains from real estate sales and impairment losses on fixed assets Equity/assets ratio, % Return on equity, % 1) Return on capital employed, % 2) *Restated due to change of accounting principles in ICA Banken. 1) Return on equity = Income after tax as a percentage of average equity. The operations of ICA Banken are excluded from both the income statement and balance sheet in the calculation of return on equity. 2) Return on capital employed = Income after financial income as a percentage of average capital employed. The operations of ICA Banken are excluded from both the income statement and balance sheet in the calculation of return on capital employed. 2

3 Comment by the CEO The ICA Group continues to report a very good sales growth of above 20 percent during the first half year, excluding Rimi Baltic the sales growth was around five percent. Also the store sales have continued to develop well. Sales in comparable have increased in all our countries. This is a good sign we are on the right track in the markets where we are active. The ICA Group s operating income for the first half year was not as strong as the previous year. An important explanation to this is that the first half year has been impacted by large investments for the future. In ICA Sverige this is mainly about higher logistics expenses that has incurred for our new distribution unit in Helsingborg. This investment initially entails higher costs, but also follows the plan we have laid down and is important so that we can further improve cost effectiveness in our logistics. In ICA Norge we have during the first half year worked intensely to institute the plans and activities for the Take Off 2007 program to increase the profitability of our Norwegian operations. We have during the first six months of the year already seen a sales increase in comparable. Since the start of the year Rimi Baltic is a wholly owned company in the ICA Group. The company has during a period of time had a favorable sales growth and continues to develop well. During the second quarter this year, Rimi Baltic has, in accordance with our plan, significantly improved its operating income. At the same time, Rimi Baltic s consolidation has lowered ICA s operating margin because of its still-low earnings. To reduce some of the Group s expense we continue to work with the efficiency improvement program we launched this past spring. During the first half year we have also put our new group structure and organization into place. Following last year s streamlining and the reorganization we underwent this spring, and with the investments made this year, we can now strengthen our competitiveness further. Important events during the second quarter In April ICA Eiendom Norge AS sold Alta Storsenter (Komsa Eiendom AS) to Amfi Eiendom AS. The buyer took over the property on May 2, The underlying property value is NOK 273 million, and the sale positively has impacted operating income by approximately NOK 65 million during the second quarter. In May ICA Fastigheter Sverige AB sold two properties for SEK 237 million to Standard Life Investments European Property Fund (EPGF). The buyer took over the properties on May 31. The agreement has positively impacted ICA s operating income by SEK 140 million during the second quarter this year. On 15 June the Swedish Tax Agency denied interest deductions of approximately SEK 1.8 billion claimed by ICA Finans AB for the period of The Swedish Tax Agency s claim of SEK 705 million includes penalties and interest. ICA will appeal the decision to the County Administrative Court. The Swedish Tax Agency has also give a statement to the County Administrative Court that denies ICA interest deductions of SEK 1.7 billion that has been done during According to ICA, the interest deductions have been handled in accordance with the tax law. ICA will contest the Swedish Tax Agency s claim. In June ICA Fastigheter Sverige AB reached an agreement for the sale of a portfolio consisting of 28 store properties in Sweden for SEK 601 million. The properties will be transferred to the buyer on 1 October The sale will impact ICA s fourth quarter 2007 operating income by approximately SEK 90 million. 3

4 Sales and financial result development during the first half year The Group Consolidated net sales during the first half year amounted to SEK 39,490 million (32,671), an increase of 20.9 percent. Rimi Baltic s net sales of SEK 5,120 million are consolidated as of this year. Excluding Rimi Baltic, consolidated sales were SEK 34,370 million, an increase of 5.2 percent. Operating income for the first half year decreased by SEK 308 million to SEK 941 million (1,249) and includes capital gains on real estate sales and impairment losses on fixed assets of SEK 333 million (193). Operating income excluding these items decreased by SEK 448 million to SEK 608 million (1,056). ICA Sverige ICA Sverige s sales rose by 6.2 percent. Excluding the sales of new Netto in Mälardalen of SEK 181 million, the increase for ICA Sverige is 5.4 percent. Operating income amounted to SEK 843 million (1,177) and comprises capital gains on real estate sales of SEK 155 million (104), including impairment losses on fixed assets. Income was charged with increased logistics expenses of which some of these are due to the opening of the new distribution unit in Helsingborg and some are attributable to increased operational expenses. Part of the logistics expenses will be recovered by adjusting the fee paid by retailers according to ICA's existing business model. Besides increased logistics expenses and operational expenses, including IT, income was charged with costs of approximately SEK 70 million that includes the winding up process of the distribution in Växjö and Netto in Mälardalen. ICA Norge ICA Norge s net sales increased by 0.6 percent. In local currency the increase was 4.4 percent. Operating income amounted to SEK 122 million (217) and comprises capital gains on real estate sales of SEK 185 million (89), including impairment losses on fixed assets. The result has been affected by the takeover of unprofitable franchised which now are wholly owned. As planned in our Take-off program, we are acquiring these to improve their result within the Group to be able to run the profitable, and then again turn them into franchise store. The income decrease was also due to higher administrative expenses and some oneoffs. Rimi Baltic Rimi Baltic s net sales increased by 22.8 percent in local currency. Operating income amounted to SEK 7 million. The comparable operating deficit for the first half year 2006 was SEK 49 million. Sales volume and revenue have increased substantially because of the higher number of during the first half of this year than in the first half of 2006 and an improvement in comparable-store sales. Operating income includes capital gains on real estate sales, including impairment losses on fixed assets, of SEK 7 million (7). ICA Banken ICA Banken s sales rose by 12.0 percent. Operating income improved to SEK 34 million ( 3). Business volume increased by 6 percent July to June. The income improvement is due to higher net interest income, lower depreciation and increased commission income. ICA Group Functions ICA Group Functions operating income amounted to 51 ( 113). The improvement is due to lower Group function expenses that previously among others included costs for our joint ventures, and due to change of allocations. Sales and financial result development during the second quarter The Group Consolidated net sales during the second quarter amounted to SEK 20,699 million (17,076), an increase of 21.2 percent. Rimi Baltic s net sales of SEK 2,730 million are consolidated as of this year. Excluding Rimi Baltic, consolidated sales were SEK 17,969 million, an increase of 5.2 percent. Operating income for the second quarter decreased by SEK 93 million to SEK 595 million (688) and includes capital gains on real estate sales and impairment losses on fixed assets of SEK 215 million (97). Operating income excluding these items decreased by SEK 211 million to SEK 380 million (591). 4

5 ICA Sverige ICA Sverige s sales rose by 6.5 percent. Excluding the sales of new Netto in Mälardalen of SEK 95 million, the increase for ICA Sverige is 5.7 percent. Operating income amounted to SEK 503 million (726) and comprises capital gains on real estate sales of SEK 149 million (99), including impairment losses on fixed assets. Income was charged with increased logistics expenses of which some of these are due to the opening of the new distribution unit in Helsingborg and some are attributable to increased operational expenses. Part of the logistics expenses will be recovered by adjusting the fee paid by retailers according to ICA's existing business model. Besides increased logistics expenses and operational expenses, including IT, income was charged with costs of approximately SEK 65 million that includes the winding up process of the distribution in Växjö and Netto in Mälardalen. ICA Norge ICA Norge s net sales decreased by 0.3 percent. In local currency the increase was 3.7 percent. Operating income amounted to SEK 57 million (97) and comprises capital gains on real estate sales of SEK 71 million ( 2), including impairment losses on fixed assets. Although comparable sales outperformed the previous year, ICA Norge s income was affected by the takeover of unprofitable franchised. As planned in our Take-off program, we are acquiring these to improve their result within the Group to be able to run the profitable, and then again turn them into franchise. Furthermore, the lower income is due to higher administrative expenses and some one-offs. Rimi Baltic Rimi Baltic s net sales increased by 23.4 percent in local currency. Operating income amounted to SEK 29 million. The comparable operating deficit for the second quarter of 2006 was SEK 25 million. Sales volume and revenue have increased substantially because of the higher number of during the second quarter of this year than in the corresponding quarter of 2006 and an improvement in comparable-store sales. Operating income includes capital gains on real estate sales, including impairment losses on fixed assets, of SEK 4 million (0). ICA Banken ICA Banken s sales increased by 9.3 percent. Business volume increased by 6 percent July to June. ICA Banken s operating income improved to SEK 19 million (1). The income improvement is due to higher net interest income and lower depreciation. ICA Group Functions ICA Group Functions operating income amounted to 13 ( 120). The improvement is due to lower Group function expenses that previously among others included costs for our joint ventures, and due to change of allocations. Financial position The Group s total assets have increased by SEK 487 million to SEK 35,506 million since December 31, The increase is due to investments in tangible fixed assets. Cash flow from operating activities amounted to SEK 2,213 million (1,805) during the first half year. During the second quarter cash flow improved substantially due to lower receivables and increased accounts payables. Cash flow from investing activities amounted to SEK 118 million ( 192). The improvement from the previous year is due to increased sales of fixed assets. Cash flow from financing activities amounted to SEK 1,975 million ( 1,362). The improved cash flow has been used for the dividend and to repay loans. The Group s liquid assets totaled SEK 4,073 million (3,190) as of June 30. The equity/assets ratio was 29.3 percent (26.9). The Group's net debt excluding ICA Banken was SEK 3,754 million (4,636). Investments Investments during the first half year amounted to SEK 1,581 million (1,306) and were distributed according to the table below. The largest individual investment was the acquisition of four store properties in Estonia for SEK 459 million during the first quarter. Investments April - June January - June Full-year Retail locations , ,381 Distribution Investment properties Intangibles Other TOTAL ,581 1,306 2,423 5

6 Personnel The Group had an average of 19,854 employees (11,744) during the first half year. Rimi Baltic, which is consolidated as of this year, has 8,174 employees. Parent Company The Parent Company's net sales amounted to SEK 446 million (406) with income after net financial items of SEK 925 million (898). Investments during the period amounted to SEK 54 million (80). Cash, cash equivalents and short-term investments amounted to SEK million 5 (5). Transactions with related parties No transactions have taken place between ICA and related parties that significantly affect the company's financial position and results of operations. Accounting principles This interim report is prepared according to IAS 34. The same accounting principles and calculation methods are applied as in the most recent annual report. Readers of the interim report are presumed to have access to the most recent annual report. The interim report primarily contains information on events and changes that have taken place since the most recent annual report was issued and that are of considerable importance to understanding the changes in the Group s financial position and results of operations. As of January 1, 2007 ICA applies IFRS 7 Financial Instruments: Disclosures and the amendment to IAS 1 Presentation of Financial Statements. IFRS 7 and the amendments to IAS 1 as well as IFRIC 7, 8, 9 and 10 are expected to have little effect on the ICA Group s income statement, balance sheet, statement of cash flow and shareholders equity. URA 43 was revised in March 2007, but the change has no impact on the ICA Group s income statement, balance sheet, statement of cash flow and shareholders equity. On June 16, 2006 ICA AB signed an agreement to sell all the shares in ICA Meny AB. The sale was finalized on September 19, ICA Meny is reported as a discontinued operation in accordance with IFRS 5. ICA Meny s operations and net income are recognized on a separate line in the income statement, Net income from discontinued operations. The preparation of the financial reports in accordance with IFRS requires management to make estimates and assumptions that affect the application of the accounting principles and the carrying amounts in the income statement and balance sheet. Estimates and assumptions are based on historical experience and a number of factors that under current circumstances seem reasonable. The result of these estimates and assumptions is then used to determine the carrying amounts of assets and liabilities that otherwise are not clearly indicated by other sources. Actual outcomes may deviate from these estimates and assumptions. Next reporting date The interim report for January September will be presented on November 13. The interim report has not been reviewed by the company s auditors. Stockholm, August 21, 2007 Kenneth Bengtsson President and CEO, ICA AB About ICA The ICA Group (ICA AB) is one of the Nordic region s leading retail companies, with around 2,300 of its own and retailer-owned in Sweden, Norway and the Baltic states. The Group includes the sales companies ICA Sverige, ICA Norge and Rimi Baltic. ICA also offers financial services to Swedish customers through ICA Banken. ICA AB is a joint venture 40% owned by Hakon Invest AB and 60% by Royal Ahold N.V. of the Netherlands. According to a shareholder agreement, Royal Ahold and Hakon Invest jointly share a controlling influence over ICA AB. Through Royal Ahold, ICA AB is part of an international retail network. For more information, please visit 6

7 Financial reports for the Group Income statement - Group April - June January - June Full-year SEK million Net sales 20,699 17,076 39,490 32,671 67,395 Cost of sales -17,795-14,464-34,015-27,684-57,640 Gross profit 2,904 2,612 5,475 4,987 9,755 Selling and administrative expenses -2,565-2,024-4,947-3,972-8,179 Other operating revenue Share of associated companies net profit (Note 1) Operating income ,249 2,297 Financial income Financial expenses Income after net financial items ,110 2,046 Tax Net income for the period from continuing operations ,034 Net income for the period from discontinued operations a) (Note 2) Net income for the period ,000 2,401 Of which attributable to Parent Company's ,393 shareholders Of which attributable to minority Net sales by segment - Group SEK million April - June January - June Full-year ICA Sverige 13,034 12,237 24,619 23,176 48,301 ICA Norge 4,662 4,675 9,222 9,166 18,361 Rimi Baltic b) 2, , ICA Banken ICA Group Functions ,114 Intra-Group sales Net sales from continuing operations 20,699 17,076 39,490 32,671 67,395 Net sales from - 1, ,291 4,383 discontinued operations a) Net sales, total 20,699 18,807 39,490 35,962 71,778 Operating income by segment - Group SEK million April - June January - June Full-year ICA Sverige ,177 2,557 ICA Norge Rimi Baltic b) ICA Banken ICA Group Functions Operating income from continuing operations ,249 2,297 Operating income from discontinued operations a) Operating income, total ,268 2,335 a) Refers to sales and income from ICA Meny. b) In 2006 Rimi Baltic was a 50% joint venture. 7

8 Condensed balance sheet - Group SEK million June 30, 2007 June 30, 2006 Dec. 31, 2006 Intangible fixed assets 3,541 1,882 3,447 Tangible fixed assets 14,491 12,138 13,232 Financial fixed assets 3,651 4,864 3,959 Deferred tax assets Total fixed assets 21,867 18,928 20,819 Inventory 3,851 2,952 3,550 Accounts receivable 6,157 5,373 6,242 Liquid assets 4,073 3,190 3,749 Assets held for sale 45 2,239 1,146 Total current assets 14,126 13,754 14,687 TOTAL ASSETS 35,993 32,682 35,506 Shareholders equity 10,549 8,774 10,216 Long-term liabilities 7,080 7,435 7,642 Current liabilities 18,364 15,645 17,648 Liabilities associated with assets held for sale TOTAL SHAREHOLDERS EQUITY AND LIABILITIES 35,993 32,682 35,506 Pledged assets Contingent liabilities (Note 3) 1, Condensed statement of cash flows - Group January June January June Fullyear SEK million Cash flow from operating activities before change in working capital 1,050 1,506 2,505 Change in working capital 1, Cash flow from operating activities 2,213 1,805 3,044 Cash flow from investing activities Cash flow from financing activities -1,975-1,362-1,872 Cash flow for the period Liquid assets at beginning of period 3,749 2,920 2,920 Exchange rate differences in liquid assets Liquid assets at end of period 4,073 3,190 3,749 Of which cash flow from discontinued operations a) - Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities Cash flow for the period from discontinued operations a) Refers to cash flows from ICA Meny. 8

9 Change in shareholders equity June 30, Group SEK million Attributable to Parent Company s shareholders Attributable to minority Opening balance Jan. 1, , ,216 Acquisition of minority 1 1 Currency translation difference Net income for the period Total change in net assets excluding transactions with the company s owners 11, ,507 Dividend Closing balance, June 30, , ,549 Change in shareholders equity June 30, Group SEK million Attributable to Parent Company s shareholders Attributable to minority Opening balance Jan. 1, , ,386 Change in accounting principle IAS Change in accounting principle, card fees ICA Banken Opening shareholders equity after introduction of new accounting 8, ,358 principles Acquisition of minority -9-9 Currency translation difference Net income for the period ,000 Total change in net assets excluding transactions with the company s owners 9, ,384 Dividend Closing balance, June 30, , ,774 Note 1 Joint venture Rimi Baltic AB ICA AB and Kesko Livs Ab established a joint venture, Rimi Baltic AB, in early Each owned 50 percent until December 18, 2006, when ICA acquired Kesko Livs Ab s shares and became sole owner. In 2007 the company is reported as a subsidiary, though in 2006 it was reported as a joint venture. Netto Marknad AB In 2002 ICA AB and Dansk Supermarket formed a joint venture, Netto Marknad AB, to manage the Netto discount concept in Sweden. In December 2006 an agreement was signed between the owners whereby ICA reduced its interest to 5 percent. The transaction was approved by competition authorities on February 5, 2007 and finalized on February 15, As part of the agreement, ICA took over 21 and two projects in Mälardalen as of January 1, ICA converted five to ICA Nära during first half year, and another two will be converted during the third quarter. Four have been sold to Lidl. The other have been closed. The operations taken over are consolidated and included in ICA Sverige. In 2006 Netto Marknad AB was reported as a joint venture. Note 2 Discontinued operations On June 16, 2006 ICA AB signed an agreement to sell all the shares in ICA Meny AB. The sale was approved by the EU Commission in September, and the transaction was finalized on September 19, ICA Meny is reported as a discontinued operation in accordance with IFRS 5. ICA Meny s operations and net income from the beginning of the year are recognized on a separate line in the income statement, Net income from discontinued operations. Comparative figures in the income statement are restated. ICA MENY (SEK million) April - June January - June Full-year Net sales - 1,731-3,291 4,383 Operating income Income before tax from discontinued operations Tax on income for the year Result for the period from discontinued operations Capital gain from discontinued operations Result from discontinued operations, net after tax Total Total 9

10 Note 3 Contingent liabilities The Swedish Tax Agency has denied interest deductions claimed by ICA Finans AB, a company in the ICA Group, for interest on borrowings to the Irish subsidiary ICA Ahold Export Unltd of nearly SEK 1.8 billion for the period The Swedish Tax Agency s claim amounts to SEK 705 million, including penalties and interest. The Irish subsidiary s operations were wound up in ICA is convinced that the deductions were in compliance with tax rules. ICA is contesting the added claim and penalties and will appeal the decision to the County Administrative Court. The Swedish Tax Agency has also conducted an audit of the restructuring of the ICA Group s finance operations in July The Swedish Tax Agency has given a statement to the County Administrative Court whether to deny ICA interest deductions of SEK 1.7 billion claimed in ICA is convinced that the deductions were in compliance with tax rules and will contest the Swedish Tax Agency s claim. The sum of taxes, penalties and interest is reported as a contingent liability. The amount is SEK 1,195 million and is included in total contingent liabilities of SEK 1,350 million. Financial reports, Parent Company Income statement Parent Company April - June January - June Full-year SEK million Net sales Cost of sales Gross profit Selling and administrative expenses Operating income Result from shares in Group companies 1,156 1,145 1,156 1,145 1,146 Other financial income Impairment on associated companies Other financial expenses Income after net financial items 1,063 1, Appropriations Income before tax 1,063 1, Tax Net income for the period 1,076 1, Condensed balance sheet - Parent Company SEK million June 30, 2007 June 30, 2006 Dec. 31, 2006 Intangible fixed assets Tangible fixed assets Financial fixed assets 33,891 33,954 33,892 Deferred tax assets Total fixed assets 34,118 34,185 34,113 Accounts receivable 2,189 1,244 2,966 Liquid assets Total current assets 2,194 1,249 2,966 TOTAL ASSETS 36,312 35,434 37,079 Shareholders equity 25,688 25,365 25,671 Untaxed reserves 1,466 1,619 1,466 Provisions Long-term liabilities 8,000 8,000 8,000 Current liabilities ,646 TOTAL SHAREHOLDERS EQUITY AND LIABILITIES 36,312 35,434 37,079 Pledged assets Contingent liabilities 9,945 10,155 9,945 10

11 Appendix ICA and Rimi store sales The following tables refer to store sales to consumers. In Sweden, this includes Swedish retailer-owned ICA store sales. In Norway, franchise store sales are included. Sales for retailer-owned and franchise are not consolidated in the Group. Beginning this year all sales figures are reported excluding VAT. ICA store sales in Sweden Store sales April June 2007 January - June 2007 excl. VAT SEK M SEK M all comparable all comparable Maxi ICA Stormarknad 4, % 2.3% 8, % 2.5% ICA Kvantum 5, % 3.9% 10, % 4.0% ICA Supermarket 7, % 5.0% 13, % 5.2% ICA Nära 3, % 5.3% 6, % 5.3% TOTAL 20, % 4.2% 38, % 4.3% During the first half year the share of private label sales in Sweden rose from 17.0 percent to 17.3 percent yearto-year. ICA and Rimi store sales in Norway Store sales excl. VAT April June 2007 January - June 2007 NOK M all comparable NOK M all comparable ICA Maxi % 1.4% 1, % 1.8% ICA Supermarked 1, % 3.9% 2, % 2.6% ICA Nær 1, % 4.9% 2, % 3.3% Rimi 2, % 4.7% 3, % 3.8% TOTAL 4, % 4.1% 9, % 3.2% During the first half year private label sales in Norway rose from 8.5 percent till 10.5 percent year-to-year. ICA Maxi in Norway has grown at a lower pace than other formats primarily due to rebuilding of four ICA Maxi. Store sales in the Baltic countries Store sales excl. VAT April June 2007 January - June 2007 EUR M all comparable EUR M all comparable Estonia % 1.8% % 3.7% Latvia % 24.1% % 21.4% Lithuania % 22.1% % 20.5% TOTAL % 15.4% % 14.8% During the first half year private label sales in the Baltics rose from 2.4 percent till 4.6 percent year-to-year. 11

12 Number of ICA in Sweden, including retailer-owned Store profile Dec 2006 New Converted Closed June 2007 Maxi ICA Stormarknad ICA Kvantum ICA Supermarket ICA Nära TOTAL 1, ,392 During the first half year two Maxi ICA Stormarknad and twelve ICA Nära (five rebranded) were opened in Sweden. Five of the new ICA Nära were previously Netto in Mälardalen. ICA and Rimi in Norway, including franchised Store profile Dec 2006 New Converted Closed June 2007 ICA Maxi ICA Supermarked ICA Nær Rimi TOTAL In Norway, one new ICA Supermarked and one ICA Naer were opened during the first half year, while three were converted to ICA Naer. Number of in the Baltic countries Country Dec 2006 New Converted Closed June 2007 Estonia Latvia Lithuania TOTAL During the first half year four were opened in Lithuania and one in Estonia. 12

13 ICA AB Corporate identity number Svetsarvägen 16 SE Solna, Sweden Telephone Fax