Interim report ICA AB January 1 September 30, 2007

Transcription

1 Interim report ICA AB January 1 September 30, 2007

2 INTERIM REPORT for the period January 1 September 30, 2007 Stockholm, November 13, 2007 Increased sales and improved operating income in the third quarter Net sales during the third quarter amounted to SEK 20,697 million (17,093), an increase of 21.1 percent. Rimi Baltic s net sales are consolidated as of this year. Excluding Rimi Baltic, the Group s net sales were SEK 18,077 million, an increase of 5.8 percent. Operating income for the third quarter increased to SEK 899 million (690), an increase of 30.3 percent. Net income for the third quarter from continuing operations amounted to SEK 736 million (583), an increase of 26.2 percent. Net sales during the nine-month period amounted to SEK 60,187 million (49,764), an increase of 20.9 percent. Rimi Baltic s net sales are consolidated as of this year. Excluding Rimi Baltic, the Group s net sales were SEK 52,447 million, an increase of 5.4 percent. Operating income for the nine-month period decreased to SEK 1,840 million (1,939), a decrease of 5.1 percent. Net income for the nine-month period from continuing operations amounted to SEK 1,568 million (1,575), a decrease of 0.4 percent. Key financial ratios SEK million July - September January - September Full-year Restated* Restated * Net sales 20,697 17,093 60,187 49,764 67,395 Operating income ,840 1,939 2,297 Operating income excluding capital gains from real estate sales and impairment losses on fixed assets ,344 1,728 1,709 Net income for the period from continuing operations ,568 1,575 2,034 Total assets 36,508 31,243 35,506 Cash flow from operating activities 303 1,145 2,516 2,950 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 the amended accounting principles applied by 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 s sales continue to rise. During the first nine months of 2007 the increase exceeded 20 percent an increase largely due to the fact that we are consolidating our Baltic operations since the start of the year. Excluding sales in the Baltic countries, the increase was 5.4 percent, which we are very satisfied with. Sales for comparable also continue to rise in all markets. The ICA Group s operating income for the first nine months was slightly lower than the same period of 2006 despite a strong third quarter. The lower income is mainly due to ICA Sverige s higher expenses for logistics, which is mainly due to start-up costs our new distribution unit in Helsingborg. As previously mentioned, this investment will initially mean higher expenses, but we are following the plan we have laid down and this investment will gradually improve efficiency in our logistics operations. The third quarter is stronger than the first and second quarter of the year. The improvements are largely attributable to ICA Sverige, mostly due to increased sales, increased income in the logistic operations and due to seasonal fluctuations between the quarters. In Norway, work continues on the Take Off program to increase sales and improve profitability. Comparable-store sales in Norway are increasing among others due to the activities of Take Off Rimi Baltic s sales continue to trend higher, although third quarter growth was slightly lower than previous quarters this year. The company is now in an expansive stage and in the last year has opened 12 new in the Baltic countries. Rimi Baltic is also developing very positively in terms of income. We have decided to reduce the ICA Group s greenhouse gas emissions by at least 30 percent by 2020 compared with ICA will work progressively and seriously to lessen its climate impact. This will be reflected in investment decisions and day-to-day operations by using energy, transports and refrigerants efficiently. The earnings we have generated this year are partly the result of progress in areas we decided to prioritize at the beginning of 2007: ICA Norge, employee development, product selection and maintaining a high rate of new store openings. With a streamlined organization and a strong financial position to support us, we have an excellent opportunity to work for the future and continue to create profitable growth. IMPORTANT EVENTS AFTER THE CONCLUSION OF THE THIRD QUARTER ICA Banken launched new savings products in cooperation with Nordnet Bank in October. 3

4 SALES AND FINANCIAL RESULTS DURING THE THIRD QUARTER THE GROUP Consolidated net sales during the third quarter amounted to SEK 20,697 million (17,093), an increase of 21.1 percent. Rimi Baltic s net sales of SEK 2,620 million are consolidated as of this year. Excluding Rimi Baltic, consolidated sales were SEK 18,077 million, an increase of 5.8 percent. Operating income for the third quarter increased by SEK 209 million to SEK 899 million (690) and includes capital gains on real estate sales and impairment losses on fixed assets of SEK 163 million (18). Operating income excluding these items increased by SEK 64 million to SEK 736 million (672). ICA SVERIGE ICA Sverige s sales rose by 5.5 percent. Operating income amounted to SEK 727 million (664) and includes capital gains on real estate sales and impairment losses on fixed assets of SEK 36 million (2). Operating income has improved as the result of a continued positive sales trend. Logistics expenses were higher in the third quarter year-to-year. Part of the operating expenses for logistics are however compensated by an increase in the fee for logistics services charged to ICA retailers. ICA NORGE ICA Norge s net sales increased by 5.1 percent. In local currency the increase was 2.9 percent. Operating income amounted to SEK 120 million (111) and includes capital gains on real estate sales and impairment losses on fixed assets of SEK 119 million (16). Operating income excluding these items has decreased mainly because unprofitable franchised have been consolidated in the Group and newly opened are not yet profitable. RIMI BALTIC Rimi Baltic s net sales increased by 15.4 percent in local currency. Sales volume and revenue have increased substantially because of the higher number of year-to-year. Estonia has had a weaker sales development than Latvia and Lithuania due to increased competition and less tourism. Operating income amounted to SEK 36 million. Comparable operating income for the third quarter 2006 was SEK 2 million. Operating income includes capital gains on real estate sales and impairment losses on fixed assets of SEK 8 million (0). The higher operating income is due to an improvement in comparable-store sales. ICA BANKEN ICA Banken s revenues rose by 8.7 percent. ICA Banken s operating income improved to SEK 25 million (8). The income improvement is due to lower depreciation, increased commission income and higher net interest income. ICA GROUP FUNCTIONS The operating deficit for ICA Group Functions was SEK 9 ( 94). The lower deficit is due to a reduction in shared Group expenses, which previously included joint ventures, among other things. SALES AND FINANCIAL RESULTS DURING THE NINE-MONTH PERIOD THE GROUP Consolidated net sales during the nine-month period amounted to SEK 60,187 million (49,764), an increase of 20.9 percent. Rimi Baltic s net sales of SEK 7,740 million are consolidated as of this year. Excluding Rimi Baltic, consolidated sales were SEK 52,447 million, an increase of 5.4 percent. Operating income for the nine-month period decreased by SEK 99 million to SEK 1,840 million (1,939) and includes capital gains on real estate sales and impairment losses on fixed assets of SEK 496 million (211). Operating income excluding these items decreased by SEK 384 million to SEK 1,344 million (1,728). ICA SVERIGE ICA Sverige s sales rose by 6.0 percent. Excluding sales by the new Netto in Mälardalen of SEK 181 million, the increase was 5.5 percent. Operating income amounted to SEK 1,570 million (1,841) and includes capital gains on real estate sales and impairment losses on fixed assets of SEK 191 million (107). Income was charged with higher logistics expenses due to the opening of the new distribution unit in Helsingborg as well as higher operating expenses. Part of the operating expenses for logistics are compensated by an increase in the fee for logistics services charged to ICA retailers. Higher IT expenses have also contributed to the lower operating income. ICA NORGE ICA Norge s net sales increased by 2.1 percent. In local currency the increase was 3.9 percent. 4

5 Operating income amounted to SEK 242 million (328) and includes capital gains on real estate sales and impairment losses on fixed assets of SEK 304 million (104). Operating income has decreased mainly because more unprofitable franchised have been consolidated in the Group and newly opened are not yet profitable. Income was also charged with higher administrative and IT expenses. RIMI BALTIC Rimi Baltic s net sales increased by 20.2 percent in local currency. Sales volume and revenue have increased substantially because of the higher number of during the nine-month period compared with the same period of Operating income amounted to SEK 29 million. The comparable operating deficit for the nine-month period of 2006 amounted to SEK 40 million. Operating income includes capital gains on real estate sales and impairment losses on fixed assets of SEK 1 million (7). The higher operating income is due to an improvement in comparable-store sales. ICA BANKEN ICA Banken s revenues rose by 10.9 percent. Operating income improved to SEK 59 million (5). Business volume increased by 6.1 percent from October 2006 to September The income improvement is due to lower depreciation, higher net interest income and increased commission income. ICA GROUP FUNCTIONS The operating deficit for ICA Group Functions was SEK 60 ( 207). The lower deficit is due to a reduction in shared Group expenses, which previously included joint ventures, among other things. FINANCIAL POSITION The Group s total assets have increased by SEK 1,002 million to SEK 36,508 million since December 31, The increase is due to investments in tangible fixed assets. Cash flow from operating activities amounted to SEK 2,516 million (2,950) during the nine-month period. The difference is mainly due to lower operating income, higher inventories, increased deposits in ICA Banken and the sale of ICA Meny in Cash flow from investing activities amounted to SEK 102 million (27). Cash flow from financing activities was SEK 2,059 million ( 2,549). The positive cash flow from operating activities and from investing activities has been used for the dividend and to repay loans. The Group s liquid assets totaled SEK 4,305 million (3,340) as of September 30. The equity/assets ratio was 31.4 percent (30.4). The Group's net debt excluding ICA Banken was SEK 3,866 million (3,496). INVESTMENTS Investments during the nine-month period amounted to SEK 2,145 million (1,689) and were distributed according to the table below. The largest single investment was the acquisition of four store properties in Estonia for SEK 459 million during the first quarter. Investments July - September January - September Full-year Retail locations , ,381 Distribution Investment properties Intangibles Other TOTAL ,145 1,689 2,423 PERSONNEL The Group had an average of 19,945 employees (11,611) during the first nine months of the year. Rimi Baltic, which is consolidated as of this year, has 8,174 employees. PARENT COMPANY The Parent Company's net sales during the nine-month period amounted to SEK 649 million (579) with income after net financial items of SEK 839 million (715). Investments during the period amounted to SEK 63 million (128). Cash, cash equivalents and short-term investments amounted to SEK 5 million (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. 5

6 ACCOUNTING PRINCIPLES This interim report is prepared according to IAS 34 and RR31. 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 year-end report for 2007 will be presented on February 20, Stockholm, November 13, 2007 Kenneth Bengtsson President and CEO, ICA AB REVIEW REPORT Introduction We have reviewed the interim report for ICA AB for the period January 1, 2007 to September 30, The Board of Directors and the CEO are responsible for the preparation and presentation of this interim report in accordance with IAS 34 and the Annual Accounts Act. Our responsibility is to express a conclusion on this interim financial information based on our review. Focus and scope of the review We conducted our review in accordance with the Standard on Review Engagements SÖG 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity, issued by FAR. A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review has a different focus and is substantially less in scope than an audit conducted in accordance with Standards on Auditing in Sweden, RS, and other generally accepted auditing practices in Sweden. The procedures performed in a review do not enable us to obtain a level of assurance that would make us aware of all significant matters that might be identified in an audit. Therefore, the conclusion expressed based on a review does not give the same level of assurance as a conclusion expressed on the basis of an audit. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the interim report is not, in all material respects, prepared in accordance with IAS 34 and the Annual Accounts Act for the Group and in accordance with the Annual Accounts Act for the Parent Company. Stockholm, November 13, 2007 Deloitte AB Jan Berntsson Authorized Public Accountant About ICA The ICA Group (ICA AB) is one of the Nordic region s leading retail companies, with around 2,250 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 July - September January - September Full-year SEK million Net sales 20,697 17,093 60,187 49,764 67,395 Cost of sales -17,731-14,542-51,746-42,226-57,640 Gross profit 2,966 2,551 8,441 7,538 9,755 Selling and administrative expenses -2,258-1,912-7,205-5,884-8,179 Other operating revenue Share of associated companies net profit (Note 1) Operating income ,840 1,939 2,297 Financial income Financial expenses Income after net financial items ,611 1,756 2,046 Tax Net income for the period from continuing operations ,568 1,575 2,034 Net income for the period from discontinued operations a) (Note 2) Net income for the period ,568 1,941 2,401 Of which attributable to Parent Company's ,574 1,941 2,393 shareholders Of which attributable to minority Net sales by segment - Group SEK million July - September January - September Full-year ICA Sverige 13,081 12,396 37,700 35,572 48,301 ICA Norge 4,739 4,507 13,961 13,673 18,361 Rimi Baltic b) 2, , ICA Banken ICA Group Functions ,114 Intra-Group sales Net sales from continuing operations 20,697 17,093 60,187 49,764 67,395 Net sales from discontinued operations a) - 1,092-4,383 4,383 Net sales, total 20,697 18,185 60,187 54,147 71,778 Operating income by segment - Group SEK million July - September January - September Full-year ICA Sverige ,570 1,841 2,557 ICA Norge Rimi Baltic b) ICA Banken ICA Group Functions Operating income from continuing operations ,840 1,939 2,297 Operating income from discontinued operations a) Operating income, total ,840 1,977 2,335 a) Refers to sales and income from ICA Meny. b) In 2006 Rimi Baltic was a 50% joint venture. 7

8 FINANCIAL REPORTS FOR THE GROUP (cont.) Condensed balance sheet - Group SEK million Sept. 30, 2007 Sept. 30, 2006 Dec. 31, 2006 Intangible fixed assets 3,573 1,826 3,447 Tangible fixed assets 14,769 12,026 13,232 Financial fixed assets 3,439 4,822 3,959 Deferred tax assets Total fixed assets 21,976 18,718 20,819 Inventory 3,963 2,853 3,550 Accounts receivable 6,193 5,414 6,242 Liquid assets 4,305 3,340 3,749 Assets held for sale ,146 Total current assets 14,532 12,525 14,687 TOTAL ASSETS 36,508 31,243 35,506 Shareholders equity 11,451 9,485 10,216 Long-term liabilities 6,703 6,638 7,642 Current liabilities 18,354 15,120 17,648 TOTAL SHAREHOLDERS EQUITY AND LIABILITIES 36,508 31,243 35,506 Pledged assets Contingent liabilities (Note 3) 1, Condensed statement of cash flows - Group January January Full-year September September SEK million Cash flow from operating activities before change in working capital 2,103 2,393 2,505 Change in working capital Cash flow from operating activities 2,516 2,950 3,044 Cash flow from investing activities Cash flow from financing activities -2,059-2,549-1,872 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 4,305 3,340 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 FINANCIAL REPORTS FOR THE GROUP (cont.) Change in shareholders equity September 30, Group SEK million Attributable to Parent Company s shareholders Attributable to minority Opening balance January 1, , ,216 Acquisition of minority 2 2 Currency translation difference Net income for the period 1, ,568 Total change in net assets excluding transactions with the company s owners 12, ,409 Dividend Closing balance, September 30, , ,451 Change in shareholders equity September 30, Group SEK million Attributable to Parent Company s shareholders Attributable to minority Opening balance January 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 1, ,941 Total change in net assets excluding transactions with the company s owners 10, ,095 Dividend Closing balance, September 30, , ,485 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 2 projects in Mälardalen as of January 1, ICA has converted six to ICA Nära during the nine-month period, and another will be converted during the fourth quarter. Four and one property 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 July - September January - September Full-year (SEK million) Net sales - 1,092-4,383 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 has appealed 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 issued a statement to the County Administrative Court that ICA should be denied interest deductions of SEK 1.7 billion claimed in ICA is convinced that the deductions were made in compliance with the tax rules and has contested the Swedish Tax Agency s claim. The Swedish Tax Agency has also informed ICA that it intends to issue a statement to the County Administrative Court regarding 2006, where the interest deductions in question amounted to SEK 1.1 billion. The sum of taxes, penalties and interest is reported as a contingent liability. The amount is SEK 1,539 million and is included in total contingent liabilities of SEK 1,804 million. FINANCIAL REPORTS FOR THE PARENT COMPANY Income statement Parent Company July - September January - September Full-year SEK million Net sales Cost of sales Gross profit Selling and administrative expenses Operating income Result from shares in Group companies 0 1 1,156 1,146 1,146 Other financial income Impairment on associated companies Other financial expenses Income after net financial items Appropriations Income before tax Tax Net income for the period Condensed balance sheet - Parent Company SEK million Sept. 30, 2007 Sept. 30, 2006 Dec. 31, 2006 Intangible fixed assets Tangible fixed assets Financial fixed assets 33,891 33,982 33,892 Deferred tax assets Total fixed assets 34,099 34,204 34,113 Accounts receivable 2,162 1,073 2,966 Liquid assets Total current assets 2,167 1,078 2,966 TOTAL ASSETS 36,266 35,282 37,079 Shareholders equity 25,622 25,228 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 36,266 35,282 37,079 Pledged assets Contingent liabilities 10,449 10,155 9,945 10

11 APPENDIX Store sales and number of 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 July - September 2007 January - September 2007 SEK Change, all Change, SEK Change, all comparable million million Change, comparable Maxi ICA Stormarknad 4, % 3.1% 14, % 2.5% ICA Kvantum 5, % 4.2% 15, % 4.2% ICA Supermarket 7, % 3.5% 20, % 4.6% ICA Nära 3, % 2.3% 9, % 4.2% TOTAL 20, % 3.4% 59, % 4.0% During the nine-month period the share of private label sales in Sweden rose from 16.9 percent to 17.4 percent. ICA and Rimi store sales in Norway Store sales July - September 2007 January - September 2007 NOK Change, Change, NOK Change, all all comparable million million Change, comparable ICA Maxi % 4.1% 2, % 4.8% ICA Supermarked 1, % 1.7% 3, % 2.3% ICA Nær 1, % 1.5% 3, % 2.7% Rimi 1, % -0.3% 5, % 2.4% TOTAL 4, % 1.1% 14, % 2.7% During the nine-month period private label sales in Norway rose from 8.2 percent to 10.1 percent. Rimi Baltic s sales in the Baltic countries Store sales July - September 2007 January - September 2007 EUR Change, Change, EUR Change, all all comparable million million Change, comparable Estonia % 0.4% % 1.4% Latvia % 14.6% % 18.4% Lithuania % 14.3% % 18.4% TOTAL % 9.4% % 12.2% During the nine-month period private label sales in the Baltics rose from 2.7 percent to 5.0 percent. ICA in Sweden, including retailer-owned Store profile December 2006 New Converted Closed September 2007 Maxi ICA Stormarknad ICA Kvantum ICA Supermarket ICA Nära TOTAL 1, ,385 ICA and Rimi in Norway, including franchised Store profile December 2006 New Converted Closed September 2007 ICA Maxi ICA Supermarked ICA Nær Rimi TOTAL Number of in Baltic countries Country December 2006 New Converted Closed September 2007 Estonia Latvia Lithuania TOTAL

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