Offering to acquire shares in Hakon Invest AB (publ)

Transcription

1 This document is a translation of the Swedish original prospectus. In the event of any differences between this translation and the Swedish original, the latter shall prevail. Offering to acquire shares in Hakon Invest AB (publ)

2 Contents Terms and conditions in brief 1 Hakon Invest in brief 5 Offering to acquire shares in Hakon Invest 6 Terms, conditions and instructions 9 Background and reasons 10 President s message 12 Hakon Invest 23 Hakon Invest s holdings and financial management 24 ICA AB 32 ICA Sverige 37 ICA Norge 40 ICA Meny 42 ICA Banken 44 Etos 46 Netto 48 Rimi Baltic 51 Financial overview ICA AB 54 Forma Publishing Group AB 58 Financial overview Forma 59 Financial Management 63 Financial overview Hakon Invest 68 Comments on financial development 80 Supplementary information 86 Risk factors 90 Board of Directors, Group Management, auditors 98 Share capital and ownership structure 102 Tax considerations in Sweden 105 Articles of Association 107 Interim Report, January September Financial Statements 133 Consolidated financial statements in accordance with IFRS for the 2004 fiscal year 156 Audit report SELLING PRICE Expected to be set in the interval SEK per share. The selling price to the public will not exceed SEK 77 per share. Application period for the public November 23 December 2, 2005 Application period for institutional investors November 23 December 5, 2005 Setting of selling price On or about December 6, 2005 Payment date for the public December 8, 2005 Expected first day for trading on Stockholm Stock Exchange O-List On or about December 8, 2005 FINANCIAL INFORMATION FROM HAKON INVEST Year-end report January December 2005 February 27, 2006 Annual General Meeting May 10, 2006 OTHER ISIN code Trading symbol Stockholm Stock Exchange Trading post SE HAKN 200 shares NOTE Note that the notice of allotment to the general public is made through forwarding of transactions notes, which is expected to occur on December 6, After payment for the allotted shares is received by Handelsbanken Capital Markets, the paid shares will be transferred to the securities account or VP-account specified by the buyer. The time required by Sweden Post to deliver the sent transactions notes and the time to transfer payments and the paid shares to buyers in the general public could result in certain of these buyers will not have acquired shares available in the specified securities account or VP-account before trading in Hakon Invest s common shares has begun on the Stockholm Stock Exchange O-List. Refer to the chapter Terms, conditions and instructions, section Offering to the public, under the headline Payment and receipt of shares. In this prospectus, Hakon Invest, the Company or the Group refers to Hakon Invest AB or the group in which Hakon Invest AB is the parent company, depending on context. In this prospectus ICA AB refers to ICA AB or the group in which ICA AB is the parent company, depending on the context. Forma Publishing Group or Forma in this prospectus refers to Forma Publishing Group AB or the group in which Forma Publishing Group AB is the parent company, depending on context. The shares in this offering in accordance with this prospectus ( the Offering ) have not been and will not be registered in accordance with the United States Securities Act of 1933 in its present form, nor in accordance with any securities legislation in any state in the US nor in accordance with any securities legislation in any province in Canada, and may not, other than in cases that do not require registration, be offered for sale or transfer in the US or Canada to persons domiciled there. Neither is the Offering directed to persons whose participation would require additional prospectuses, registration or other measures than those pursuant to Swedish law. The prospectus may not be distributed in any country in which distribution or the Offering requires measures pursuant to the preceding sentence or would be in conflict with any law or regulations in such country. Application for the acquisition of shares contrary to the above may be deemed invalid. In conjunction with the Offering, the principal owner in Hakon Invest ICA-handlarnas Förbund (ICA-handlarnas Förbund, the Association or the Seller ) issued an option ( Over-allotment option ) to Handelsbanken Capital Markets. The Over-allotment option, which can be exercised up to and including the date 30 days after the first day of trading, gives Handelsbanken Capital Markets the right to request that the seller sells another maximum of 1,300,000 shares in Hakon Invest, with the aim of covering any over-allotment. In conjunction with the Offering, Handelsbanken Capital Markets can carry out transactions on the Stockholm Stock Exchange and in a potential, unofficial trading that stabilizes the shares market price or supports this price at a level that would vary from what would otherwise apply. Such measures, at any given time without warning, can be discontinued and can be taken up to and including 30 days from the earlier of the day when the selling price in the Offering is made public and the first day of trading on the Stockholm Stock Exchange. Any guarantee that stabilization measures will be taken up cannot be given. Statements in this prospectus about future outlook and other forward-looking statements are based on current market conditions and in other respects prevailing external factors. The reader is advised that these statements, as well as all forward-looking assessments, are related to risks. Disputes relating to the Offering pursuant to this prospectus shall be settled exclusively in accordance with Swedish law and by a Swedish court. This prospectus has been registered by the Swedish Financial Supervisory Authority pursuant to the provisions of Chap 2, Section 4 of the Financial Instruments Trading Act (1991:980). Note that such registration does not constitute a guarantee from the Swedish Financial Supervisory Authority that the factual content of the prospectus is accurate or complete.

3 Hakon Invest in brief Hakon Invest conducts active and long-term investment operations in retail-oriented companies in the Nordic region. Hakon Invest owns 40% of ICA AB, the leading retail company with focus on food. The remaining 60% is owned by the Dutch company Royal Ahold ( Ahold ). Through the shareholders agreement between Hakon Invest and Ahold, and which is valid through and including 2040, the two owners have equal influence in ICA AB. ICA AB is a central holding for Hakon Invest. Through being an active owner with significant influence, Hakon Invest shall contribute to the development and strengthening of the ICA concept and create value growth for ICA AB. 1) In addition to the holding in ICA AB, Hakon Invest owns 100% of the shares in Forma Publishing Group, which is one of Sweden s largest publishers. Forma also conducts operations in Finland and the Baltic States. OWNERS, SHARE STRUCTURE AND DIVIDENDS Prior to the Offering, Hakon Invest is 75% owned by ICA-handlarnas Förbund, a non-profit association that is the member organization of the ICA retailers in Sweden, and about 25% owned by about 3,400 private shareholders, of which most are ICA retailers or former ICA retailers. In conjunction with the listing, Hakon Invest s share structure will change to comprise 49% common shares and 51% Series-C shares. All C shares will be owned by ICA-handlarnas Förbund and will not be listed. Prior to the listing of the Company s common shares, ICA-handlarnas Förbund intends to offer investors the opportunity to acquire about 8 percentage points of Hakon Invest s existing common shares. After the sale, ICA-handlarnas Förbund will own at least a total of 67% of the shares in Hakon Invest, distributed among 16 percentage points of common shares and 51 percentage points of C shares, of which the latter are not entitled to dividends. 2) This means that the total cash dividend each year is only distributed among 49% of the shares. OPERATIONS Hakon Invest is debt-free and has financial assets amounting to about SEK 2.8 billion as of September 30, These financial assets are for use for investments, mainly in unlisted companies in the Nordic retail sector. Hakon Invest has substantial expertise, experience as well as access to a comprehensive network within retail and retailrelated businesses. The Company has established an investment organization that works actively with existing holdings as well as evaluation of new, attractive investment objects. Based on a substantial and active ownership, Hakon Invest shall contribute to the company having the conditions and resources to develop and grow profitably. Hakon Invest s investment strategy builds on a tradition of entrepreneurship and a long-term focus. Investment shall be made mainly in companies that have an existing market position, with a distinct concept, stable, favourable cash flow and a strong and motivated management. In addition, the company shall have favorable growth and return potential that can be realized by an active, committed and long-term owner. In total, this means that Hakon Invest offers the parties in the equity market a unique possibility to invest in unlisted retail-oriented companies in the Nordic region, with ownership in ICA AB as a strong foundation. Overview of ownership and operations structure 40% 1) ICA AB 2) Hakon Invest AB 1) According to the shareholders agreement with Ahold, Hakon Invest has a common controlling interest in ICA AB in that it stipulates unity in decisions at the Annual General Meeting and in the Board of Directors. 2) See section about ICA AB under Hakon Invest s holdings and financial management for an overview of the company s organization. Portfolio companies Forma Publishing Group Future Investment 100% 1) See section about Hakon Invest for description of the ICA concept. 2) See section Articles of Association for a description of the possibility for ICA-handlarnas Förbund to convert Series C shares to common shares. This can be done in 2016 at the earliest. 1

4 GOALS The dividend payout ratio for Hakon Invest shall normally amount to at least 50% of the Parent Company s profit after taxes. The Hakon Invest Group strives for an equity/assets ratio over time that is not less than 70%. The goals set for ICA AB are: to be the market leader in those countries in which ICA AB is represented, to over the long term to increase sales faster than the total market increases in each submarket, an operating margin (EBIT-margin) of %, that return on equity over a business cycle shall be at least 14 16%, that the equity ratio long term shall be 30 35%. In accordance with the shareholders agreement between the parties, Hakon Invest and Ahold have undertaken to ensure that ICA AB distributes at least 40% of the ICA group s profit after taxes. However, a condition, among others, is that this is not in conflict with good business practice and that due consideration is taken with regard to the ICA group s investment plans and operational needs. The average total return on Hakon s own invested capital, for Forma and future investments in portfolio companies, shall exceed 15% over the holding period for each specific holding. HOLDINGS ICA AB ICA AB is the Nordic regions leading retail company with focus on food and meals. ICA AB comprises ICA Sverige, ICA Norge, Etos and the partly owned companies Rimi Baltic and Netto, which combined have a large network of stores in Sweden, Norway and the Baltic States. It also includes ICA Meny AB, which specializes in distribution to restaurants, caterers and convenience stores. ICA AB also offers financial services to Swedish customers through ICA Banken AB. The ICA group originated in the ICA concept, where individual retailers join together in areas such as sourcing, IT and logistics to achieve the same economies of scale as wholly owned chains. Local retailers and ICA AB s various areas of operation serve customers in their own markets through locally adapted stores and offerings, while the group coordinates functions that customers do not see. The ICA concept is ICA AB s greatest strength in meeting the challenges and opportunities currently facing the company. The key is to utilize economies of scale combined with local adaptations as close to customers as possible. ICA AB s operations include the management of sourcing and logistics, the development of strategies for various store concepts and marketing, the management of communications and human resources issues, as well as the development of sales, operations and store establishment. Sales development should stimulate sales to consumers. ICA AB s activity takes place in cooperation with the ICA retailers, who often own and operate the stores. ICA AB s efforts in these areas are aimed at increasing sales to consumers and, hence, to the stores, as well as increasing the profitability of the stores and of ICA AB in order to ensure that the operations will be successful in the long-term. Sales in 2004 amounted to about SEK 72 billion, with profit after tax of SEK 1.5 billion. Some of the most important areas of operations are described in general below. 2 Hakon Invest in brief

5 Overview ICA AB 1) SALES NO. OF EMPLOYEES PARENT COMPANY (SEK M) (AVERAGE) 2) ICA AB 3) The operations of the parent company are described below: Finance Finance includes financial control, accounting, shared services, treasury & tax, legal, internal audit and strategic projects. Retail Retail includes marketing, business development, market analysis, corporate communications, human resources, etc. Supply Chain Supply Chain includes sourcing, logistics development and IT. WHOLLY OWNED OPERATIONS ICA Sverige 4) ICA Norge 4) ICA Meny ICA Banken ICA Sverige is one of the leading retail companies in the country with focus on food and meals. ICA Sverige s operations comprise sales, operations and new establishments 5) 43,373 4,407 ICA Norge is one of the leading retail companies in the country with focus on food and meals with stores operated on a proprietary basis or as franchises. ICA Norge s operations comprise sales, operations and new establishments 5) 19,896 5,540 ICA Meny is one of Sweden s leading food-, beverage- and kitchen equipment suppliers to restaurants, caterers and convenience stores. 4, ICA Banken shall make it easier for the ICA stores customers to manage their economy and as a result strengthen customer loyalty PARTLY OWNED OPERATIONS Rimi Baltic (ICA Baltic) 6) Netto 7) As of 2005, Rimi Baltic is equally owned by ICA AB and Kesko Livs, who jointly are developing one of the most modern retail chains in the Baltic with wholly owned stores. 3,307 5,286 Netto is equally owned by ICA AB and Dansk Supermarked A/S. Netto operates on a hard discount basis. The concept was developed in Denmark, where Dansk Supermarked A/S manages the chain. 1, ) Figures in the table pertain to ) Refers to the average number of employees calculated based on 1,800 hours of working time. 3) Includes the specialty retail chain Etos with sales of about SEK 31 million and 23 employees. Etos has wholly owned stores and combines products for health and beauty. Also includes some subsidiaries within importing and finance. 4) Within each national operations area, the consumer goods operations are reported integrated with property management. 5) Sales refer to ICA Sverige and ICA Norway shall help to stimulate sales to consumers. Operations means providing the stores with advise and measures to achieve efficient store operations. Establishments involves identifying and developing new store locations and to participate in the development of existing stores through renovation and expansion. 6) Figures in the table refer to the wholly owned operations ICA Baltic developed by ICA AB during Rimi Baltic is a joint venture with Kesko Livs (50/50) formed in ) ICA AB s share amounts to 50%. FINANCIAL OVERVIEW, ICA AB ADJUSTMENT IFRS IFRS JAN SEP JAN SEP Net sales, SEK M 70,908 71,980 71,811 1,720 73,531 53,996 52,514 Operating profit (EBIT), SEK M 2,535 2,120 1, ,977 1,621 1,341 Profit/loss for the year, SEK M 1,710 1,777 1, ,515 1,221 1,068 Total assets, SEK M 34,071 31,554 29,683 1,405 31,088 29,820 32,257 Equity, SEK M 11,939 12,169 7, ,094 12,293 7,937 Dividend, SEK M ,228 6,228 Operating margin (EBIT-margin) 3.6% 2.9% 2.6% 2.7% 3.0% 2.6% Equity ratio 35.8% 38.7% 25.0% 22.8% 41.2% 24.6% Interest-bearing net debt excluding ICA Banken, SEK M 6,323 3,188 7,161 7,161 1,602 7,032 Net debt/equity ratio, excluding ICA Banken, multiple Hakon Invest in brief 3

6 Facts about Forma Publishing Group BUSINESS CONCEPT To provide people with knowledge and inspiration in their private and professional lives through publishing operations in the Nordic and Baltic markets JAN SEP 2005 Sales (SEK M) Operating profit/loss (SEK M) No. of employees (average) FORMA PUBLISHING GROUP AB Forma Publishing Group AB is a wholly owned subsidiary of Hakon Invest and one of Sweden s largest publishers focusing on production and distribution of consumer periodicals, trade magazines and books. The predominant topics are food, the home, recreation and retailing. Among other periodicals, Forma s consumer magazine operations publish Sweden s largest weekly magazine, ICA-kuriren, and Sweden s largest monthly magazine, Hus & Hem. Forma also conducts operations in Finland (including Kotivinki, the country s largest home magazine), in Estonia (the country s largest monthly magazine) and in Latvia (the country s largest monthly magazine). Forma also produces customer magazines and assignments include some of Sweden s largest customer magazines. Among others, Forma produces the food magazine Buffé, which is sent to ICA AB s 2.3 million active regular customers. Forma has leading-edge expertise in food and retailing gathered within the leading trade magazines in the field. Forma works after a new strategy with a focus on profitability and growth, organically as well as through acquisitions. In 2004, the company reported sales of SEK 596 million, with an operating profit of SEK 59 million. FINANCIAL OVERVIEW, HAKON INVEST ADJUSTMENT IFRS JAN SEP JAN SEP Net sales, SEK M Result from participation in associated companies, gross, SEK M Share in profits from companies reported according to the equity method, SEK M Operating profit/loss (EBIT), SEK M Profit/loss for the year, SEK M 1, Total assets, SEK M 8, , , , , , , ,077.6 Equity, SEK M 7, , , , , , , ,682.5 Minority interests, SEK M 5.0 Interest-bearing net debt, average, SEK M 4, , , , , , ,049.9 Net debt/equity ratio, average, multiple Earnings per share in the Group, SEK Equity per common share in the Group according to IFRS, SEK 1) 2.38 Equity per share, SEK ) Earnings per preference share in the Group according to IFRS: SEK Hakon Invest in brief

7 Offering to acquire shares in Hakon Invest Hakon Invest s principal owner, ICA-handlarnas Förbund, has decided that in conjunction with the common shares in the Company being listed on the Stockholm Stock Exchange s O-List to carry out a further broadening of ownership in the Company in addition to the Company s approximately 3,400 shareholders. The broadening will be effected through an offering from the Seller for acquisition of at maximum of 11,700,000 existing common shares, each at a par value of SEK The Offering is being made to the public in Sweden and institutional investors in Sweden and internationally. Hakon Invest s common shares have been approved by the Stockholm Stock Exchange for listing on the O-List of the Exchange. The first day for trading in the Company s common shares is expected to be on or about December 8, ICA-handlarnas Förbund has undertaken, at the request of Handelsbanken Capital Market, up to the date that is 30 days after the first day of trading, to sell an additional maximum of 1,300,000 common shares to cover any over-allotment ( Overallotment option ) in conjunction with the Offering. At full acceptance of the Offering, the Seller s remaining holding will represent about 68.1% of the shares and votes outstanding in Hakon Invest. If the Over-allotment option is exercised in full, the Seller s remaining holding will represent about 67.3% of the shares and votes outstanding in Hakon Invest. In addition, when the Offering is made, there are about 3,400 other owners who hold slightly less than 25% of the shares in the Company. The Seller has undertaken, without the approval of Handelsbanken Capital Markets, not to divest additional shares in the Company for at least 300 days after the first day of trading. The Board of Directors and senior executives in Hakon Invest as well as the Board of Directors and senior executives in the principal owner ICA-handlarnas Förbund, have agreed to a similar undertaking. An offering is hereby made to acquire a maximum of 11,700,000 common shares in Hakon Invest in accordance with the terms and conditions in this prospectus, corresponding to a maximum of 7.3% of the capital and votes, if the Offering is fully subscribed. If the Over-allotment option is exercised in full, the Offering comprises a maximum of 13,000,000 common shares, corresponding to a maximum of slightly more than 8% of the capital and votes in Hakon Invest. The selling price for all common shares in the Offering will be determined through a book-building process among institutional investors within the interval SEK per share. The selling price to the general public will not exceed SEK 77 per share. Assuming that the Offering is accepted in its entirety and that the Over-allotment option is exercised in full, the value of the Offering will amount to between SEK 884 and 1,001 million. In other respects, reference is made to the presentation in this prospectus, which has been prepared by the Board of Directors of Hakon Invest in conjunction with the Offering and the listing of the Company s common shares on the O-List of the Stockholm Stock Exchange. Stockholm, November 17, 2005 Hakon Invest AB (publ) Board of Directors ICA-handlarnas Förbund Board of Directors 5

8 Terms, conditions and instructions THE OFFERING The Offering covers a maximum total of 11,700,000 shares of common shares 1), corresponding to about 7.3 % of the total number of shares in Hakon Invest. The Offering is divided into two parts. The first part is directed towards institutional investors in Sweden and abroad; the second part is focused on the public in Sweden, including members of the ICA-handlarnas Förbund and certain employees in companies in which the ICA-handlarnas Förbund directly or indirectly holds shares 2). The price at which the shares of common shares are offered is referred to as the selling price. OVER-ALLOTMENT OPTION The Offering will include an additional maximum 1,300,000 shares of common shares, if the Over-allotment option is utilized (refer to Offering to acquire shares in Hakon Invest for a more detailed description). If the over-allotment option is fully exercised, the Offering will encompass a total of 13,000,000 shares. DISTRIBUTION OF SHARES The Offering to institutional investors is intended to involve 5,850,000 shares of common shares and the Offering to the public 5,850,000 shares. In the Offering to the public, certain employees in companies whose shares are owned directly or indirectly by ICA-handlarnas Förbund are entitled to acquire common shares in multiples of 100 shares, with, however, a maximum of the number of shares that is equivalent to SEK 30,000, based on the final price of common shares and members of ICA-handlarnas Förbund have preferential rights to acquire a maximum of 1,400 shares of common shares in the Company. Members may make application to subscribe for additional shares within the framework of their preferential rights, whereby such application will be taken into account in the manner described in the section Allotment. Members who are partners have similar preferential rights to subscribe for up to 1,400 shares of common shares. In such cases, members may elect to utilize the Offering through the company operating the member store. Otherwise, the aforementioned employees and members may not transfer their rights to buy shares. If the rights of employees and members are fully utilized, these rights will encompass a total of 2,340,000 shares or 20% of the common shares covered by the Offering, or almost 1.5% of the shares in the Company. Retailers and employees may also acquire shares in the Offering to the public without preferential rights. The distribution of common shares to each part of the Offering will be performed on the basis of demand and, thus, redistribution may be conducted. SELLING PRICE The selling price in the Offering is expected to be set within the interval of SEK per share. The selling price is determined in the bidding procedure described below and is planned to be announced on or about December 6, The selling price to the public will not exceed SEK 77 per share. Commission will not be charged. ALLOTMENT A decision regarding the allotment of shares will be made by the Seller in consultation with Handelsbanken Capital Markets. The objective of the allotment is to attain a solid institutional ownership base and a broad spread of shares among the public as parts of efforts to permit regular and liquid trading in the shares in Hakon Invest on the Stockholm Stock Exchange. OFFERING TO THE PUBLIC Applications Applications from the public to acquire shares shall cover at least 200 shares. Application for purchase may be made only for round lots of 200 shares. Application is to be made using the printed application form and must be undertaken during the period November 23 December 2, 2005 and submitted to any of Handelsbanken s offices. Customers of Handelsbanken who are connected to Internet services may apply for the purchase of shares via the Internet in accordance with instructions on the bank s website, Applications must be received by a Handelsbanken office not later than December 2, 2005 before closing hours. Application via Handelsbanken s Internet services can be made from 12:00 p.m. midnight, Sunday December 4. Application via the Internet requires that the person submitting the application has a VP-account in any Swedish account-handling institution of choice or a securities account in Handelsbanken. The application is binding. Late applications may be disregarded without any further action. Applications via telefax will not be approved. No amendments or addendums may be made to the printed text. Incomplete or incorrectly filled in application forms may be disregarded without further action. Application forms and prospectuses are available from all Handelsbanken offices and via Internet; or aktuellaerbjudanden. Those making application to purchase shares must have a securities (VP) account or a securities depot at a Swedish account-handling institution. Those who do not have a securities account or securities depot must open one prior to submitting the application. Note that the opening of a securities account or securities depot can take time. A securities account with restricted utilization rights, such as a pledge account or reconfiguration (so called VKI-account) may not be used. Applications from members of the ICA-handlarnas Förbund and certain employees Application from members of ICA-handlarnas Förbund and employees of companies whose shares are held directly or indirectly by the ICA-handlarnas Förbund are to be made using the form designed for this purpose, which are to be made available to Hakon Invest not later than November 30 in accordance with special instructions. Applications are binding. Late applications may be disregarded without further action. Applications via telefax will not be approved. No amendments or addendums may be made to the printed text. Incomplete or incorrectly filled in application forms may be disregarded without further action. Application forms for the aforementioned employees and members of ICA-handlarnas 1) Excluding the shares that may be sold in connection with over-allotment. 2) All employees in Hakon Invest AB and ICA-handlarnas Medlemsservice AB and executive management groups in Forma Publishing Group and ICA AB. 6

9 Förbund will be posted to them. Additional application forms may be received from ICA-handlarnas Förbund. Prospectuses are available from all Handelsbanken offices and via Internet; or Those making application to purchase shares must have a securities (VP) account or a securities depot at a Swedish account-handling institution. Those who do not have a securities account or securities depot must open one ahead prior to submitting the application. Note that the opening of a securities account or securities depot can take time. A securities account with restricted utilization rights, such as a pledge account or reconfiguration (so called VKI-account) may not be used. Allotment Allotment is not dependent on when during the application period the application is received. Only one application per person will be considered. Allotment will be made only in round lots of 200 shares. Allotment to certain employees in companies in which ICAhandlarnas Förbund directly or indirectly owns shares will, however, be done in round lots of 100 shares. In the event of over-allotment, allotment may not be conducted (for other than members) or may be performed with a lower number of shares than that requested in the application, as a result of which allotment may be done fully or partly by lottery. Allotment to those who receive shares will be initially to the aforementioned employees and to members up to the number of shares indicated above under Distribution of shares. If, using preferential rights, members apply for amounts above the stated amount of 1,400 common shares while other members have applied for fewer, redistribution among members will be made within the total of 2,340,000 common shares. Such redistribution will be conducted so that a certain number of shares are allotted per application. In the event of over-subscription by the public, allotment will primarily be conducted so that a certain number of shares are allotted per application and subsequently primarily with a similar percentage share of the excess number of shares covered by the application, rounded off to the nearest multiples of 200 shares. In addition, certain customers of Handelsbanken will be given special consideration. Allotment may also be made to certain employees in Handelsbanken, although these will not have priority. Allotment in these cases will be performed in accordance with the rules of the Swedish Securities Dealers Association and the instructions of the Swedish Financial Supervisory Authority 1). Notice of allotment Following the allotment of shares, a transactions note will be mailed to those receiving allotment. This is expected to occur on or around December 6, Those who have not been allotted shares will not be notified. Payment and receipt of shares Full payment for allotted shares is to be made in cash not later than December 8, 2005 in accordance with the instructions in the mailed transactions note. In conjunction with application, those wishing to pay via the debiting of their account in Handelsbanken should indicate the account number on the application form. Buyers from the general public who have specified a securities account in Handelsbanken are expected to have their allotted, but unpaid, shares available in the securities account on Wednesday, December 7, Buyers from the general public who have specified a debiting account in Handelsbanken and have a VP-account in Handelsbanken or other Swedish account-handling institution, and had funds available in the debiting account not later than 12:00 midnight on Thursday, December 8, are expected to have the acquired Hakon Invest common shares available in the specified VP-account on Thursday, December 8, however, not earlier than 10:00 a.m. Buyers from the general public who have specified a debiting account in Handelsbanken and have specified a securities account at another trustee and had funds available in the debiting account not later than 12:00 midnight on Thursday, December 8, are expected to have the acquired Hakon Invest common shares available in the specified VP-account on Thursday, December 8, however, not earlier than 10:00 a.m. Each trustee will then registers the shares in the respective customer s securities account in accordance with each trustee s routines. Buyers from the general public who pay for allotted shares in accordance with the instructions on the transactions note, that is, have not specified a debiting account in Handelsbanken, will have allotted and paid shares transferred to the specified VP account or securities account, when payment has been received by Handelsbanken Capital Markets. Depending on where, how and at what time of the day payment is made, this may take two to three bank days from the payment date. If full payment is not made within the prescribed time or funds are not available in the indicated account, the allotted shares may be re-allotted and sold to another party. If the selling price in conjunction with such sale is less than the price according to the Offering, the party who first received the allotment may be compelled to pay the difference. After payment has been made and registered, a securities (VP) note will be mailed showing that the paid-up shares are available in the buyer s securities account. Although certain buyers will have paid shares available on December 8, no buyer, however, will have received a VP-notice on December 8 that shows that paid shares are available in the buyer s VP-account since the shares are booked in the VP-account not earlier than December 8. OFFERING TO INSTITUTIONAL INVESTORS Bidding procedure As part of efforts to attain a market-based pricing of the shares encompassed by the Offering, institutional investors will be given the opportunity to participate in a bidding procedure based on their expression of interest. The bidding procedure will extend from November 23 to December 5, The selling price will be fixed within the framework of this procedure. The bidding procedure may be suspended earlier. Notification of any such suspension of the procedure will be provide via one or several news agencies. Bids are to be presented to Handelsbanken Capital Markets in accordance with special instructions. Allotment The intention is that expressions of interest, which are essentially deemed to be equal, will be treated equally. Expressions of interest by institutional investors who are deemed to be long-term shareholders in Hakon Invest will be given priority. No guarantee of allotment is provided for certain institutional investors. Notification of allotment Institutional investors are expected to be notified of allotment on or about December 6, 2005, following which a transactions note will be mailed. 1) The Seller, ICA-handlarnas Förbund, approves the participation of employees of Handelsbanken on these conditions. 7

10 Payment Full payment for allotted shares is to be made in cash not later than December 9, Special routines, terms and conditions governing notification of allotment, payment and delivery may apply. If full payment is not made within the prescribed time or if funds are not available in the indicated account, the allotted shares may be re-allotted to and sold to another party. If the selling price in conjunction with such transfer is less than the selling price according to the Offering, the party first receiving allotment may be compelled to pay the difference. DIVIDEND RIGHTS Shares acquired via the Offering carry rights to participation in Hakon Invest s earnings as of the 2005 fiscal year. Any dividend for the 2005 fiscal year will be set at the 2006 Annual General Meeting of shareholders and will be distributed by VPC (Swedish Central Securities Depository & Clearing Organization). TERMS AND CONDITIONS FOR FULFILLMENT The Offering is conditional on the non-emergence of circumstances that may entail that the date for the completion of the Offering is deemed inappropriate. Such circumstances may be of an economic, financial or political nature and may pertain to circumstances in Sweden as well as abroad, or that interest in participation in the Offering is viewed by the Seller as being insufficient. Accordingly, the Offering may be partly or fully revoked. Notification in this respect will be provided as soon as possible via a press release. MARKET LISTING AND CONDITIONAL UNOFFICIAL TRADING A listing of the common shares in Hakon Invest on the O-List of the Stockholm Stock Exchange will take place when required registrations have been made with Bolagsverket and VPC. This is expected to take place on Wednesday, December 7. Therefore, trading on the Stockholm Stock Exchange is estimated to start on Thursday, December 8, A trading lot consist of 200 shares. However, the purchase and sale of shares will also be possible in smaller lots. With normal post, it is expected that most persons who received an allotment will have received notification about the allotment prior to when trading in Hakon Invest s common shares begins on the Stockholm Stock Exchange. For some persons, depending on when and how payment for allotted shares is made and where the shares are to be delivered, the acquired shares may be available after trading on the Stockholm Stock Exchange begins see section Offering to the public, under the headline Payment and receipt of shares earlier in this chapter. Before trading in Hakon Invest s common shares commences on the Stockholm Stock Exchange, which is expected to happen on Thursday, December 8, an unofficial trading may start with Handelsbanken Capital Markets or another securities institution. Such unofficial trading will be conditional upon the required registrations being made with Bolagsverket and VPC. This is expected to happen on Wednesday, December 7. If the required registrations do not take place, any shares delivered shall be returned and any payments shall be returned. SHARE PRICE STABILIZATION In conjunction with the Offering, Handelsbanken Capital Markets may conduct transactions in a potential, unofficial trading and on the Stockholm Stock Exchange that stabilize, support or in some other manner affect the share price of the Hakon Invest share. Such commenced measures may be suspended at any time without notice and may not extend beyond 30 days following the earlier of the day when the selling price in the Offering is announced and the first trading day on the Stockholm Stock Exchange. No guarantee is provided that these stabilization measures will be undertaken. SUMMARY DESCRIPTION OF THE EFFECT OF THE OFFERING AND MARKETING LISTING ON THE SHARE OWNERSHIP AND SHAREHOLDER STRUCTURE Share ownership and shareholder structure prior to the Offering Share ownership and shareholder structure after the Offering Hakon Invest is made up of shares of common shares ICA-handlarnas Förbund holds slightly more than 75% All shares confer equal rights in the Company Other shareholders, 25% Hakon Invest is made up of shares of common shares and Series-C shares Series-C shares may be issued in an amount representing a maximum 51% of all shares ICA-handlarnas Förbund has transformed common shares, representing almost 51% of the total number of shares in the Company, to Series-C shares All Series-C shares are held by ICA-handlarnas Förbund Series-C shares do not confer entitlement to cash dividends Other shareholders, 25% 75% 25% ICA-handlarnas Förbund is entitled to reclassify Series-C shares to common shares and thereby receive a cash dividend no earlier than However, ICA-handlarnas Förbund has refrained from taking a dividend over a protracted period and there are currently no plans to reclassify Series-C shares to common shares and thus receive a cash dividend after 2016 The common shares are listed on the O-List of the Stockholm Stock Exchange. Series-C shares are not listed 51% 25% 8% 16% New shareholders, 8% ICA-handlarnas Förbund, 75% Common shares Pursuant to the Offering, ICA-handlarnas Förbund has sold about 8% (corresponding to 13,000,000 shares) of its common shares and thus it is assumed that the over-allotment option is utilized Both the public and institutional investors have acquired these shares 1) Requires that ICA-handlarnas Förbund sells about 8% of its holding. ICA-handlarnas Förbund, 67% 1) Series-C Common shares 8 Terms, conditions and instructions

11 Background and reasons Hakon Invest is one of two principal owners in ICA AB. Over the years, ICA AB has developed favorably and is one of the Nordic region s leading retail companies with focus on food and meals. Hakon Invest s holding of 40% of the shares in ICA AB will continue to be a central holding for Hakon Invest who shall be a strong owner with significant influence through which to safeguard, strengthen and develop the ICA concept 1) and thereby increase ICA AB s value. In addition to the holding in ICA AB, Hakon Invest owns 100% of the shares in Forma Publishing Group (formerly ICA Förlaget AB). Moreover, Hakon Invest has a substantial liquidity management amounting to about SEK 2.8 billion as of September 30, Management of these assets has previously been focused on having a good liquidity as preparedness prior to any ownership change in ICA AB. The reason for this was that Hakon Invest needed to have the possibility to take action due to the as of 2004 earliest expected sale of Canica AS s 20% holding in ICA AB. In May 2004 Canica announced that the company wished to sell their shares in ICA AB. After concluding an agreement with Ahold, which in accordance with the shareholders agreement acquired Canica s shareholding, to acquire half off the shareholding, Hakon Invest increased its ownership in ICA AB in 2004 by 10% to 40% of the shares in ICA AB. The remaining 60% is owned by Ahold. However, as the result of a shareholders agreement, the owners have equal influence over ICA AB. After Hakon Invest s and Ahold s acquisition of Canica s shareholding, a stable ownership situation is foreseen in ICA AB. Against this background, Hakon Invest s principal owner and Board of Directors during the past year reviewed the Company s future direction. With the aim of securing a long-term favorable ownership structure in the Company, it was decided in the spring of 2005 to prepare for a listing of Hakon Invest on the Stockholm Stock Exchange O-List. Furthermore, it was decided that Hakon Invest s operations shall be broadened and move in a partly new direction based on the expertise and the network the Company has in retailing. In the future, Hakon Invest shall, while retaining a significant owner influence in ICA AB and with the successful ICA concept as a base, conduct an active and long-term investment operation with a focus on retailoriented companies. The Company s financial assets shall be used for investment primarily in unlisted retail companies in the Nordic region. Based on a significant and active ownership, Hakon Invest shall contribute to ensuring that the companies in which it invests are provided the conditions and resources to develop and grow profitably. In total, this means that Hakon Invest is offering the parties on the stock market a unique opportunity to invest in unlisted retail-oriented companies in the Nordic region, with ICA AB as a strong base. Prior to the Offering, Hakon Invest is about 75.4% owned by of the ICA-handlarnas Förbund, a non-profit association that is the member organization for the ICA retailers in Sweden, and by slightly less than 25% by about 3,400 private shareholders, of which most are ICA retailers or former ICA retailers. Until the listing, the Hakon Invest share is covered by a preemptive clause and has until September 30, 2005 been traded between shareholders through ICA-handlarnas Förbund. At the Annual General Meeting in ICA-handlarnas Förbund on May 10, 2005, and at Hakon Invest s Annual General Meeting on May 11, 2005, the required decisions were made to facilitate an application for listing of the Hakon Invest common share on the O-List of the Stockholm Stock Exchange as well as a concurrent broadening of ownership of the shares in the Company. The ownership broadening will be effected through the principal owner, ICA-handlarnas Förbund, selling a maximum of about 8%, corresponding to 13,000,000 common shares including the over-allotment option, so that ICA-handlarnas Förbund s ownership thereafter is not less than 67%. The purpose of the Offering and the listing of common shares in the Company on the O-List of the Stockholm Stock Exchange is to stimulate trading in the Hakon Invest share, to make the share more liquid, and to obtain a distinct market price determination of the share and that the Company gains access to capital markets. In addition, the Board of Hakon Invest assesses that a market listing of the Company s common shares will result in increased awareness from the capital markets, mass media and the general public, which in turn will further increase knowledge about and interest in Hakon Invest and its investments and thereby have a positive impact on Hakon Invest s operations and conditions for future development. This prospectus has been prepared in conjunction with the listing of the Hakon Invest share on the O-List of the Stockholm Stock Exchange and the sale of Hakon Invest shares that ICA-handlarnas Förbund is effecting in conjunction herewith. The Board of Directors of Hakon Invest is responsible for the content of the prospectus. The Board of Hakon Invest hereby assures that, to the knowledge of the Board, the information in the prospectus complies with the factual circumstances and that nothing of material significance has been omitted that could influence the image of the Company as conveyed by the prospectus. 1) See section Hakon Invest for a description of the ICA concept. Stockholm, November 17, 2005 Hakon Invest AB (publ) Board of Directors 9

12 President s message ACTIVE OWNERSHIP AND ENTREPRENEURSHIP CREATE VALUE In conjunction with Ahold s entry as owner in ICA AB in 2000, Hakon Invest was established to insure a significant and long-term influence in ICA AB. In that it was possible together with Ahold to create an ownership structure in ICA AB during 2004 that we consider stable over the long term, prerequisites were created for developing Hakon Invest s operations. Against this background, we are now working with a partially new business focus and strategy. Hakon Invest is today a company for investors who with indirect ownership ICA AB as the foundation wish to invest in Nordic retail operations. We will continue to be a significant owner in ICA AB with the objective of strengthening the ICA concept. However, we will now become more aggressive in investing the Company s financial assets, currently amounting to about SEK 2.8 billion, and in leveraging the substantial expertise and extensive network that the Company possesses in the retail sector. I am very enthusiastic about leading the development of our business. I strongly believe in retail as a sector for investment, as well as in our capacity to create value in this area. During the past year, we have built up an organization that is well prepared for the task, and we have a Board of Directors with a background, knowledge and a contact network that will open many doors. Owner responsibility and long-term commitment A significant component in Hakon Invest s investment philosophy is a belief in owner responsibility and long-term commitment. The companies in which we invest should be able to feel secure in the knowledge that we are in for the long term and that we will take active part in development of the business. The fact that Hakon Invest has a strong financial position and that we in turn are supported by a clearly identifiable, long-term and responsible owner in the form of ICA-handlarnas Förbund further increases credibility. Another important component is the approach to entrepreneurship. We see clear links between exercising and leveraging entrepreneurship and the dynamics thus arising. We therefore consider it an advantage in future investments that those who have built up the business continue to be its owners. Stable foundation in ICA AB with substantial opportunities At the same time as I am enthusiastic about an exciting future with new investments, I also wish to emphasize the value and the opportunities inherent in our existing holdings in ICA AB and Forma Publishing Group. With a 40% ownership share, Hakon Invest is one of two principal owners of ICA AB. As a long-term and active owner, we have contributed to developing ICA AB into one of the Nordic region s leading retail companies with focus on food and meals. ICA AB currently has a strong position in Sweden and Norway, as well as in the Baltic countries through joint-venture stores in all countries. At the same time, ICA AB, in part through its 50% ownership share in the Netto chain and the introduction of a new, cost-effective organization, has taken a position that allows it to meet the increased competition from low-price chains. The major successes noted by ICA AB during the year with its broad price-reduction campaigns are further proof of this. Given the company s Nordic strategy, there is also scope for geographic expansion, and the goal is to be the market leader in all markets in which the company is active. We see substantial opportunities for continued creation of value within ICA AB. The ICA concept entrepreneurship and collaboration An important underlying reason for ICA AB s success lies in what we call the ICA concept in which local retailers operate their own stores but collaborate in the areas of logistics, sourcing and administration, thus achieving economies of scale. Through combining the driving force of entrepreneurship and collaboration with others, opportunities are increased for achieving both short- and long-term profits for individual stores, as well as the ICA group. ICA-handlar- 10

13 nas Förbund, Hakon Invest and ICA AB therefore have a strong common interest in strengthening and continuing to enhance the ICA concept. Successful retailers benefit ICA AB and thereby also create increased value for Hakon Invest. The ICA concept thus reflects a belief in the individual and what committed individuals can accomplish both on their own and through cooperation. This also implies a belief that ownership, responsibility and involvement in daily operations provide the best foundation for a successful business. This approach will also characterize Hakon Invest s work with new investments. Stable and aggressive Forma We also see excellent prospects for growth and value creation in Forma, in which Hakon Invest is the sole owner. With publications that include ICA-kuriren, Hus & Hem and such customer magazines as Stadium Magazine, Tiebreak etc. Forma is one of Sweden s largest magazine publishers. In addition, Forma is the leader in specialist books. The company is also active in Finland with several leading publications. We view media as an attractive sector in which the restructuring now in progress will create future opportunities. Today, Forma is a stable company with sound finances that has excellent prospects for playing an active role in creating new structural solutions in this sector. Creating value for existing and new owners With the spreading of ownership now about to take place and the exchange listing of the share being planned, we are at a milestone in the development of Hakon Invest. I see many advantages with this. Up until now, the share has only been traded within a closed group of current or former ICA retailers. With the listing, Hakon Invest will achieve a broader and more varied shareholder structure. In previous trading of the share, the price has always been determined by a technical model, but I see a great advantage in that the share will now have a market price. New owners, as well as trading on the Stockholm Stock Exchange, will ensure a more liquid share. An additional positive consequence of the listing is that Hakon Invest will gain access to the capital market. At present, however, we see no need for new capital, since our existing funds are more than adequate. The Company is also debt-free. As a listed company, we will create clear added value for our shareholders, and we will do so in several ways. One way will be through our collective expertise and capacity to create growth in value in the retail sector both in existing and future investments. Another way will be through pursuing a policy of a high and stable dividend level based on Hakon Invest s strong financial position and the fact that our principal owner has elected to refrain from cash dividends for the major share of its holding. I see much that indicates that Hakon Invest will be an attractive addition to the Stockholm Stock Exchange and welcome both existing and new investors to be a part of our future development. Claes-Göran Sylvén President 11

14 Hakon Invest The name Hakon Invest, which was adopted by the 2005 Annual General Meeting, derives from Hakonbolaget, which was founded by Hakon Swenson in 1917 and which constitutes the foundation for today s ICA AB. BACKGROUND AND HISTORY Hakon Swenson founded Hakonbolaget in 1917 in Västerås, Sweden. His idea was that individual store owners could join together in purchasing centers to achieve economies of scale via joint purchases, store establishments and joint marketing. ICA AB Inköpscentralernas Aktiebolag) then developed from the purchasing centers that had adopted Hakon Swenson s ideas. ICA-handlarnas Förbund, the non-profit members organization for Sweden s ICA retailers, was established in Through an organizational change in 1972, ICA-handlarnas Förbund became the principal owner of ICA AB, with about 60% of the capital and about 70% of the voting rights. In other respects, there were a large number of passive owners in ICA AB at that time. One of ICA-handlarnas Förbund s tasks was and remains to exercise owner influence in ICA AB, thus ensuring the company s long-term development through refinement of the ICA concept. The ICA concept is defined as voluntary cooperation of individual retailers between their share (the store) and the whole (the ICA group). This means that local businessmen operate the stores but that they realize that cooperation increases their ability to achieve short- and long-term profitability both for the stores and for the ICA group. With ICA-handlarnas Förbund as principal owner, ICA AB developed into one of the Nordic region s leading retail companies with a focus on food and meals. In 1992, ICA AB acquired a minority share of the Norwegian company that owned and operated the Rimi stores in Norway and later also in Latvia. On January 1, 1999, the remaining shares in the Norwegian company were acquired from Stein Erik Hagen s family-owned company Canica AS. Payment was effected through newly issued shares in ICA AB. ICA-handlarnas Förbund remained as principal owner in ICA AB with about 38% of the shares and about 55% of the voting rights. Canica AS received about 26% of the shares and 19% of the voting rights. Other owners at that time were ICA retailers and former ICA retailers. During 1999, ICA-handlarnas Förbund and the Dutch food retailer Ahold began discussions on ownership in ICA AB, with the result that the plans then current for a listing of ICA AB were discontinued. Instead, the ICA group in 2000 underwent the greatest change in ownership up until that date when Ahold entered as owner. After the transaction, which was effected formally as a purchase of ICA AB as it existed then by a newly established company, the owners of the ICA group were Ahold with a 50% share, Hakon Hakon Invest Rimi Baltic Netto 50% 50% 40% 1) ICA AB Portfolio companies ICA Sverige ICA Norge ICA Meny ICA Banken Etos Forma Publishing Group 100% 1) According to the shareholder agreement with Ahold, Hakon Invest has a common controlling interest in ICA AB in that it stipulates unity in decisions at the Annual General Meeting and in the Board of Directors. Future Investment 12

15 Invest 1) with a 30% share and Canica with a 20% share. Prior to the change in ownership in 2000, Hakon Invest received as assignment from ICA-handlarnas Förbund to exercise an active ownership role in ICA AB and to strengthen and develop the ICA concept. In conjunction with the ownership change, a target new share issue in Hakon Invest was implemented such that shares were issued to former owners of ICA AB. Following that share issue, ICA-handlarnas Förbund owned some 75% of the shares in Hakon Invest, while other owners, primarily ICA retailers and former ICA retailers, owned about 25%. As a result of the change in ownership of the ICA group, a shareholders agreement was established in 2000 between Hakon Invest, Canica and Ahold. The agreement, which extends until yearend 2040, contains clear rules for when and how changes in the parties ownership may take place. Among other restrictions, the agreement prevented the parties from transferring shares during the first four years after the agreement was signed. After April 24, 2004, any party that so wished could reduce or completely divest its ownership, whereby the remaining owners had the right, and in certain cases, the obligation to acquire the offered shares subject to certain conditions. With the support of the ownership agreement, Canica extended an offer to Hakon Invest in May 2004 to acquire its 20% of the shares in ICA AB. Hakon Invest decided to decline the offer. Canica then extended an offer to Ahold to acquire the shares in accordance with the shareholders agreement. Ahold and Hakon Invest entered an agreement in which Hakon Invest pledged to purchase half of the shares that Canica offered. On October 25, 2004, Ahold and Canica finally agreed on the terms for the transaction, and Hakon Invest acquired half of the shares that Ahold acquired from Canica. After these transactions, Ahold owns 60% and Hakon Invest 40% of the shares in ICA AB. The shareholders agreement from 2000 still applies between Hakon Invest and Ahold with a number of supplements and amendments from According to the agreement, as long as each party s ownership amounts to between 30% and 70%, the parties have equal influence in ICA AB through a stipulation in the agreement that decisions by the Annual General Meeting and the Board of Directors must be in unity. Neither Hakon Invest s nor Ahold s influence in ICA AB was thus changed through the share transaction during See Supplementary information for further information regarding the shareholders agreement. In addition to the 40% holding in ICA AB, Hakon Invest currently also includes the wholly owned subsidiary Forma (formerly ICA Förlaget AB). Forma was previously included in ICA AB but was acquired by ICA-handlarnas Förbund in 1999 in anticipation of the planned exchange listing of ICA AB, which thus focused its operations on food retailing. Hakon Invest s assets also include a securities portfolio consisting of short-term investments in interest-bearing securities and shares. The management of these assets was previously focused on maintaining high liquidity as a contingency in the event of possible changes in ownership in ICA AB. The value of managed financial assets, which are without pledges, amounted to some SEK 2.8 billion at September 30, FUTURE ORIENTATION Following the acquisition of Canica s shareholding by Hakon Invest and Ahold, a stable ownership structure is anticipated in ICA AB. Against this background, Hakon Invest s principal owner and the Board of Directors reviewed the Company s future direction during the past year. In order to ensure a favorable ownership structure over the long term, a decision was taken during the spring of 2005 to prepare for a listing of Hakon Invest on the O-List of the Stockholm Stock Exchange. Furthermore, it was decided that Hakon Invest s operations should be expanded and given a partially new focus based on the expertise and the contact network that the Company possesses in the retail sector. In future, Hakon Invest shall pursue an active and long-term investment strategy based on the successful ICA concept and with a focus on retail-oriented companies while continuing to exercise significant ownership influence in ICA AB. The Company s financial assets shall be used for investments primarily in unlisted companies in the Nordic region. With significant and active ownership as the starting point, Hakon Invest will contribute to providing the conditions and resources for the operations in which the Company invests to develop and grow profitably. In summary, this means that Hakon Invest offers stock market players a unique opportunity to invest in unlisted retail companies in the Nordic region, with ownership in ICA AB as a strong foundation. The name change to Hakon Invest, which was formally implemented in May 2005, is a step towards clarifying the new direction in which the Company is working, as well as contributing to emphasizing that its operations are separate from ICA AB. Vision Hakon Invest, with ownership in ICA AB as a foundation, shall be one of the Nordic region s leading companies investing in the retail 1) Hakon Invest at this time was named ICA Förbundet Invest AB. 13

16 sector. Hakon Invest shall be the natural partner for retail companies that wish to develop their business. Mission Hakon Invest, with its origins and ideals in the ICA concept and through its financial capacity, shall create prerequisites for entrepreneurship, growth and profitability in retailing. Business concept Hakon Invest shall make long-term investments, primarily in the retail sector in the Nordic region, with a sound spreading of risk and shall secure the ICA concept over the long term. Added value for shareholders will be created through growth in value in the investments and favorable direct returns achieved through being an active and responsible owner. Goals The dividend level for Hakon Invest shall normally amount to at least 50% of the Parent Company s profit after tax. The Hakon Invest Group strives to maintain an equity/assets ratio of at least 70% over time. The goals established for ICA AB are: to be the market leader in the countries in which ICA AB is represented to increase sales over the long term faster than the total market is increasing in each sub-market to achieve an operating margin (EBIT) of 3.5% to 4.0% to achieve a return on shareholders equity of at least 14% to 16% over a business cycle to maintain an equity/assets ratio of 30% to 35% over the long term Hakon Invest and Ahold have pledged in the shareholders agreement to ensure that at least 40% of the ICA group s earnings after tax will be paid as a dividend. A prerequisite among other, however, is that this does not contradict sound business practice and that due consideration is taken to the ICA group s investment plans and operational requirements. The average total return on Hakon s own invested capital, for Forma and future investments in portfolio companies, shall exceed 15% over the holding period for each specific holding. Investment focus Hakon Invest s investment strategy is based on a tradition of familyowned businesses, entrepreneurship and a long-term perspective. Investments will primarily be made in unlisted Nordic retail companies that are characterized by an existing market position with a clear concept, stable and sound cash flows and strong and motivated management. Investments will be made in companies that have favorable growth and return potential that can be realized by an active and committed long-term owner. The following guidelines apply for Hakon Invest s investments: Type of holding Hakon Invest will primarily invest in unlisted companies, in part as new investments and in part as supplementary acquisitions to existing investments. Industrial sector Hakon Invest will primarily invest in retail-oriented companies, which is the sector in which the Company has the best prerequisites for being able to contribute to value-generating growth. Investment size Hakon Invest indends to build a portfolio of 8 10 companies, where the initial equity investment is estimated to amount to around SEK million. Geographical focus Hakon Invest will primarily invest in the Nordic and Baltic countries. Investment phase Hakon Invest prioritizes investments in companies that require external capital, expertise and networks for continued expansion, in companies that need to implement structural changes or in companies that need a change of ownership, for example in conjunction with a change in generations. Company characteristics Hakon Invest will invest in companies with a clear concept, stable positive cash flows, favorable growth opportunities and strong and motivated management. Furthermore, it is important that the companies have an entrepreneurial culture or that the introduction of such a culture is deemed to be able to create such values. Investment horizon Hakon Invest will work with its investments over the long term. Consequently, there is no established time period within which an investment must be divested. Divestments will take place when the time is considered right. Unlisted Retail-oriented Nordic and Baltic countries Positive cash flow INVESTMENT CRITERIA Favorable growth prospects Clear concept Entrepreneurship Strong and motivated management/owner 14 Hakon Invest

17 Ownership role Hakon Invest will exercise clear owner control, thereby being a responsible and active owner. This demands that Hakon Invest has a significant ownership share, normally between 20 and 49%. Hakon Invest also sees it as an advantage if previous owners remain in the company in some way. Being a long-term, responsible and active owner is an important part of Hakon Invest s investment strategy. Other criteria that Hakon invest takes into consideration are strategy, previous performance, the organization s competence, company culture, entrepreneurial drive and financial and operative risks. With a scope for investment of SEK 2.8 billion, Hakon Invest s portfolio will consist of and be focused on primarily unlisted holdings of varying sizes. The ambition is to keep financial risk at a low level through low borrowing and high liquid capacity. Hakon Invest s long-term perspective on ownership will enable portfolio companies and their management to work over the long term to develop market positions and competitiveness. BUSINESS STRUCTURE, ORGANIZATION AND PERSONNEL The Group consists of the Parent Company and the wholly owned subsidiary Forma plus the holding in ICA AB, which is a joint-venture company owned together with Ahold. The companies operate independently with responsibility for earnings and profits and with Hakon Invest as an active and responsible owner with representation on the companies boards of directors. At September 30, 2005, the Parent Company had an organization consisting of 11 employees, of whom four constitute Group management. In the new investment organization that was established in line with Hakon Invest s new focus, there are four employees (two investment managers and two controllers) reporting to the Chief Financial Officer. Three persons work with accounting and finance plus administration. All employees in the Parent Company work in the head office in Solna, Sweden. During 2004, the Parent Company had an average of 15 employees. However, as part of the preparations for exchange listing, the new investment organization was built up and the organization was strengthened, while service operations for members of ICA-handlarnas Förbund were transferred as of July 1, 2005 to the independent company ICA-handlarnas Medlemsservice AB. Hakon Invest considers that the Company at present has sufficient personnel. If Hakon Invest at some future date should require additional personnel, the Company expects to be able to recruit suitable personnel without difficulty. Hakon Invest is managed by the President, who is responsible for ensuring that daily administration of the Group takes place in accordance with the guidelines and instructions established by the Board of Directors. Furthermore, it is the President s responsibility to ensure that the Group s accounts are maintained in accordance Overview of ownership and operations structure AGE DISTRIBUTION IN THE PARENT COMPANY (SEPTEMBER 30, 2005) Hakon Invest AB % 1) 2 Portfolio companies ICA AB 2) Forma Publishing Group 100% GENDER DISTRIBUTION IN THE PARENT COMPANY (SEPTEMBER 30, 2005) 1) According to the shareholders agreement with Ahold, Hakon Invest has a common controlling interest in ICA AB in that it stipulates unity in decisions at the Annual General Meeting and in the Board of Directors. 2) See section about ICA AB under Hakon Invest s holdings and financial management for an overview of the company s organization. Future Investment Women 3 persons Men 8 persons Översiktlig ägar och verksamhetsstruktur Hakon Invest 15

18 with laws and recommendations and to ensure that there is a well functioning accounting and reporting system. The President is also responsible for personnel matters. The President is the chairman of the management group, which meets regularly with minutes recorded for each meeting. Hakon Invest s investment organization consists as described above of four persons reporting to the Chief Financial Officer. The Company s investment managers have strong industrial and financial expertise. These persons work actively with existing holdings while continuously evaluating attractive new investment objects. In addition, external financial and legal counsel will be engaged as required. The Finance and Accounting function consists of two persons reporting to the Chief Financial Officer. The function s personnel are responsible for preparing the Group s accounts, forecasts and budgets, for central finance operations and for rationalization and increasing the efficiency of finance and accounting work within the Group. The Finance and Accounting function is also responsible for management of financial assets, which at September 30, 2005 were valued at SEK 2.8 billion. The Legal function consists of the Chief Legal Officer, who is responsible for matters of a legal nature. The Chief Legal Officer assists associated companies with legal services as required on market terms. The Information function consists of the information manager, who is responsible for the Group s external and internal communication. In addition, Hakon Invest has employed an IR manager who will be responsible for investor relations and similar issues. Hakon Invest assesses that the Parent Company s ongoing expenses, excluding transaction costs, amount to about SEK 35 million on an annual basis. INVESTMENT PROCESS AND OWNERSHIP ROLE Investment process Hakon Invest works actively to identify potential investment objects. Work with investments follows a structured process. Selection: Hakon Invest will work actively to identify investment objects in line with the above strategy and investment mandate. The network that exists in and around Hakon Invest offers excellent opportunities for identifying investment objects. Developing its own initiatives and business flows are strategically important for Hakon Invest. Evaluation: New investments are preceded by an intensive examination of the investment object. The evaluation includes company visits, interviews with the management group and a review of their qualifications, estimation of potential market growth, analysis and valuation of the company s strategy, positioning and concept. In addition, an analysis of the company s financial position is performed that provides the basis for the investment calculation and its assumptions regarding such factors as future sales growth, margins, working capital and cash flow. When a basic scenario has been established, the opportunities for creating added value through operational improvements, structural changes and financial measures are analyzed. This analysis constitutes an important part of Hakon Invest s investment plan and its role as owner. Persons in Hakon Invest s broad network with the appropriate expertise and experience are included in the evaluation phase. The result of the evaluation phase together with an analysis of legal commitments, the company s financial reporting and social responsibility, provide the foundation for the final investment decision. Investment: If the company is deemed attractive, a more thorough analysis is performed with respect to certain factors. After this analysis, supporting materials are compiled for an investment decision and decision is taken. If the decision is positive, the financial structure and circumstances are adjusted in each individual case to allow an active and committed ownership role on the part of Hakon Invest. Owner control: To achieve favorable long-term growth in value, Hakon Invest focuses on each individual holding, stimulates entre- INVESTMENT PROCESS Selection Evaluation Investment Owner control Divestment 16 Hakon Invest

19 preneurial thinking, uses and develops the network and contributes capital. Active ownership is primarily exercised through work on the board of directors and is adapted to the company s specific requirements and challenges. Together with any other owners and company management, Hakon Invest develops a strategy and business plan that includes specific measures and milestones intended to improve the company s strategic position, growth and profitability. This plan will then be followed up continuously and adapted to prevailing market conditions. Companies in which Hakon Invest invests should feel secure in having Hakon Invest as an owner. As a result, the company and its management should be able to focus all energy and resources on further development of operations. Divestment: Divestment of companies will take place when the time is deemed appropriate and take place in a responsible manner that takes the company s long-term development into consideration. The sale should always take place with the objective of generating as great a return as possible for Hakon Invest s shareholders. Owner control in ICA AB and Forma In all work with its holdings, Hakon Invest will strive to leverage its experience and industrial networks and to contribute to the sharing of knowledge, ideas and methods among the portfolio companies. Hakon Invest s owner role in ICA AB is primarily exercised through active work on the Board of Directors, where Hakon Invest s President Claes-Göran Sylvén is the Board Chairman and its Chief Legal Officer Fredrik Hägglund is a Board member. Ahold and Hakon Invest each appoint four of the eight members of the Board of Directors of ICA reserved for the owners. In addition to Claes-Göran Sylvén and Fredrik Hägglund, Hakon Invest appointed the ICA retailers Peter Berlin and Per-Anders Olofsson as Board members. Ahold appointed Anders Moberg, CEO and President of Ahold, Dirk Anbeek and Arthur Brouwer as Board members in ICA AB. Previously, Hannu Ryöppönen was also a member of the Board of Directors of ICA AB, but this assignment was terminated when he resigned his employment in Ahold. There is thus at present on position vacant on the Board. Hakon Invest monitors ICA AB s financial and operational development carefully through established reporting routines for ICA AB and frequent meetings with ICA AB s group management. The Board of Directors of ICA AB appointed Chairman Claes-Göran Sylvén, Vice Chairman Anders Moberg and President Kenneth Bengtsson as an Executive Committee. This committee meets more frequently than the Board of Directors and monitors the ongoing operations of ICA AB and its various business areas, in part with the support of a special reporting package. The committee has been formed with the purpose to prepare items to be discussed and decided by the Board of Directors and to support the CEO of the Group to carry out the decisions made by the Board. The Board may delegate to the committee to take action or decide on certain issues. The committee has received mandate from the Board to decide on investments and divestments of a maximum of SEK 100 million and of financial positions beyond ICA AB s financial policy. The committee has not received any other decision mandate. The committee prepares minutes on the decisions taken and reports regularly to the Board. The Board has the overall responsibility and exclusive competence to decide in more important matters affecting the Company. Board members nominated by Hakon Invest also participate in the work of the Board s Remuneration Committee and its Audit Committee. Forma has also shown strong growth with Hakon Invest as owner. Hakon Invest s owner role in Forma is actively exercised through work on the Board of Directors and through support in strategic matters. Claes-Göran Sylvén is the Board Chairman and Göran Hesseborn is a Board member. The Board actively works with strategic questions and business development. Hakon Invest also carefully monitors Forma s financial and operative development through well-established reporting routines. In addition to work on the Board of Directors and meetings, Claes-Göran Sylvén and Göran Hesseborn both work together with the President and management on major issues. Shareholders agreement with Ahold During 1999, ICA-handlarnas Förbund and the Dutch food retail group Ahold initiated discussions regarding ownership in ICA AB. As a result of these discussions, the plans for an exchange listing of ICA, which were being considered at the time, were terminated. Instead, the ICA group underwent the most extensive change in its ownership to date, when Ahold became an owner in The transaction was formally implemented as an acquisition of the then ICA AB via a company that was newly formed by the owners and which directed an offering to shareholders of ICA AB at that time through a targeted share issue, whereupon the newly established company called for compulsory redemption of outstanding shares and obtained preferential rights to them. After the transaction, 50% Hakon Invest 17

20 of the ICA group was owned by Ahold, 30% by Hakon Invest 1), the company through which ICA-handlarnas Förbund s ownership of ICA AB was exercised, and 20% by Canica. In conjunction with this, a private placement in Hakon Invest was implemented, which resulted in preference shares being issued to the former owners of ICA AB, who mainly consisted of ICA retailers and former ICA retailers. The newly established company and the former ICA AB were merged in 2002 and comprise the company that is currently ICA AB. As a result of the ICA group s ownership change, Hakon Invest, Canica and Ahold formulated ashareholders agreement in Among other points, the agreement, which expires at the end of 2040, contains clear-cut rules for when and how changes in any of the parties ownership may be conducted. The agreement prevented the parties from transferring their shares during the first four years after the agreement was signed. After April 27, 2004, any party who so desired was permitted to reduce or completely terminate its ownership, whereby the remaining owners were entitled, and in certain cases obliged, to acquire the shares on offer, subject to certain conditions. In May 2004, supported by a provision in the shareholders agreement, Canica offered Hakon Invest the opportunity to acquire Canica s 20% interest in ICA AB. Hakon Invest decided not to accept this offer. Canica subsequently invited Ahold, in accordance with the shareholders agreement, to acquire the shares. Ahold and Hakon Invest entered into an agreement pursuant to which Hakon Invest undertook to acquire half of the ICA AB shares offered by Canica. By October 25, 2004, Ahold and Canica had finally agreed on the terms and conditions for the transaction, and Hakon Invest acquired half of the shares that Ahold had acquired from Canica. Following these transactions, Ahold owns 60% and Hakon Invest 40% of ICA AB. The shareholders agreement from 2000 is still in effect, subject to a number of supplements and revisions agreed during According to the agreement, as long as both of the parties ownership amounts to between 30% and 70%, the parties retain equal influence over ICA AB through a contractual requirement of consensus on resolutions made by the Annual General Meeting and by the Board of Directors. Accordingly, neither Hakon Invest s nor Ahold s influence over ICA AB was changed by the share transaction implemented in In other respects, the shareholders agreement, with the supplements and revisions agreed during 2004, has the following main implications: ICA AB s operations shall be further developed in the Nordic and Baltic region, with the exception of Denmark, which since 2004 is no longer included in the agreed geographical area of activity. ICA AB s Board of Directors shall consist of eight members elected by the Annual General Meeting and four deputy members. Of these, Hakon Invest and Ahold each have the right to nominate four members and two deputy members. The Board shall also include representatives of the employees. The parties are subject to a right-of-first-refusal clause permitting them to acquire shares at market price in connection with the transfer of shares. Shares may only be transferred to a party who signs the shareholders agreement. Hakon Invest may exercise its right of first refusal for all shares or for a portion of the shares, so that the Company s holding would amount to 50% of the shares in ICA AB. Since 2004, Hakon Invest no longer has an option to sell its shares to Ahold. The parties may not directly or indirectly engage in operations that compete with ICA AB in the geographical markets covered by the agreement. The term operations that compete with ICA AB is not intended to include operations that to a material extent (in terms of more than 95% of profits or sales) pertain to activities other than food wholesale or retail operations. If a party s ownership falls below 30%, the requirement for consensus in respect of all resolutions made by the Annual General Meeting and the Board of Directors no longer applies and only applies to certain typical intervention decisions. If a party s ownership falls below 20%, the agreement ceases to apply. The earliest date that notice may be served terminating the agreement is at the end of If ICA-handlarnas Förbund should sell additional shares in Hakon Invest, or if the Förbund s ownership interest is reduced in any another manner and another party secures an ownership interest that exceeds 50% of the shares or votes in Hakon Invest, this would be a breach of the shareholders agreement. In the event of such a breach of agreement, Ahold would be entitled to acquire Hakon Invest s shares in ICA AB. ICA-handlarnas Förbund s Articles of Association state that the Förbund shall own a minimum of 51% of the shares in Hakon Invest. 1) Hakon Invest was at this time named ICA Förbundet Invest AB. 18 Hakon Invest

21 From the end of 2004 and during a subsequent maximum period of five years, the parties are obliged, at the request of either party and in certain agreed situations relating to company acquisitions and in the event of a serious financial situation for the ICA Group, to contribute, to an extent proportional to their shareholding in ICA AB, a total of not more than SEK 1.8 billion through the issue of new shares. For Hakon Invest, the conditional undertaking corresponds to a maximum of SEK 720 million. Neither of the parties has raised the matter of such a new issue of shares and nor is such a matter the subject of discussion between the parties or in ICA AB s Board of Directors. The probability of this conditional undertaking actually being realized is deemed to be very unlikely, but is under continual review. Since 2004, each party has the right to initiate the matter of an exchange listing of shares in ICA AB, including the sale of all or part of such a party s shares. Since 2004, the parties have contributed to ensuring that ICA AB s internal control and financial reporting are adapted to Ahold s obligations in accordance with US Sarbanes-Oxley legislation pertaining to Ahold s ownership in ICA and to Hakon Invest s obligations in accordance with generally accepted accounting practice. Purchase guarantee in accordance with Framework Agreement on behalf of Ahold In the agreement, named the Framework Agreement, which regulated the terms and conditions for Ahold s acquisition of shares in the ICA Group in 2000, Hakon Invest made certain guarantees, including guarantees pertaining to certain relationships concerning ICA s dealings with Ahold. With respect to most of these guarantees and special undertakings, the period within which Ahold is to forward any such claims has now expired without any such claims having been made. Claims may possibly be made up to May 2010 with respect to a certain environmental matter in the US related to a company in the former Hakon Gruppen AS Group. There is also a possibility that claims relating to the right of ownership to the transferred shares in ICA AB or to ICA AB s subsidiaries may still be made. Hakon Invest s liability is formally limited to SEK 1,340 million. Hakon Invest is not aware of any circumstance that entails a significant risk that Ahold could make a claim for which the Company would be responsible. SECTOR FOCUS With its roots in the ICA sphere, Hakon Invest possesses substantial retail expertise and has an extensive network. This core competence means that Hakon Invest is primarily focused on Nordic unlisted retail companies. The Nordic retail sector market trends The market for retail sales and infrequently purchased goods shows stable and favorable growth over the entire Nordic region driven by the increase in private consumption in recent years. The positive trend is expected to continue, primarily as a result of low interest rates, anticipated tax reductions and somewhat lower unemployment. Nordic retail sector today There is a tradition in the Nordic countries of developing new, successful retail companies. An important reason for the success of these players is that they have built a business on a clear and uniquely formulated concept that appeals to many consumers and that has proven to be sustainable over a longer period. Many Nordic retail companies have also been successful in establishing their concepts outside their home countries. Examples include IKEA; H&M, Jysk, Elkjöp, Clas Ohlsson, K-Rauta and Mekonomen. Retail sales in the Nordic region are still to a high degree a local phenomenon, however. The presence of international retail chains is low, compared with the rest of Europe. One reason for this is that the Nordic countries, with their small populations and large distances between population centers, have not been prioritized by retail companies in international expansion. The presence of international retailers is increasing constantly, however, particularly through Nordic companies expanding in the Nordic region. In these cases, Sweden is particularly attractive, given its geographic location and its large population relative to its Nordic neighbors. What is also characteristic of Nordic retailing is the geographic concentration to major cities, a trend that has accelerated with the strong growth of shopping centers and hypermarkets over the past 15 years. This is most evident in Sweden and Norway. In the other countries, the number of shopping centers is lower due to geographic prerequisites and legal restrictions with regard to localization and size. The market is also influenced by the fact that a few players have gained a strong position in various segments where low prices are often a significant factor. Hakon Invest 19

22 Trends There are many indications that the presence of international players will continue to increase, as will the concentration of retail sales to population centers and their shopping centers. Consumers are increasingly price conscious, and many retail companies will continue to build successful businesses on clear concepts with price as the primary means of competition. To be able to offer lower prices to the consumer, companies must continue their work to reduce purchasing costs, centralize such functions as purchasing, marketing and product development and utilize sales space and personnel more effectively. The concept-driven retail companies are expected to continue taking market shares from specialty retailers. Apart from these general trends in the Nordic retail market, there are a number of more or less evident trends. The following are some examples: Standardization of the major retail companies stores is expected to continue, with an increasingly uniform image, store layout, location, etc. Clarity of concept is strengthened to achieve greater recognition and a more similar experience for the consumer, which is assumed to increase customer loyalty. Individual stores tend to be larger but fewer in number. Vertical integration in the retail value chain is increasing. Suppliers strive for forward integration and to take control over the customer relation, at the same time as retailers integrate backwards and to an increasing degree market products under their own brands. Retail companies use of customer loyalty systems, such as customer cards and membership cards linked to bonus systems is also expected to increase. This phenomenon is for the time being most prevalent in Sweden. At the same time, the increasingly uniform offering, in which the same stores are found in more and more cities and in the same shopping centers, creates opportunities for innovative new players with new concepts. There is always room for new concepts that are developed in pace with changes in people s life styles and preferences. Notable examples are the increasing number of single-person households and the trend towards a 24x7 society in which consumers want to be able to make their purchases at different times during the day and in the week. When many of the major retailers concepts are based on price as the primary competitive factor, at the cost of location, quality, product selection and service level, scope is also created for players who place the primary emphasis on an attractive shopping environment for the consumer. This may mean offering a more personal relation, for example, or investing in store fittings and products design and attracting customers with store activities. The Internet s share of total retail sales remains limited but is expected to continue to increase. Internet retailing is most prevalent in Sweden, and the most popular goods sold on the Internet are CDs/music, books, electronics and travel. Here there are also substantial opportunities for new players with innovative, clear and economically viable concepts. HAKON INVEST AND THE MARKET FOR INVESTMENTS IN UNLISTED COMPANIES Since Hakon Invest will invest primarily in unlisted companies in the Nordic retail sector, this means that Hakon Invest will be active in the market for unlisted companies, which is called the private equity market. Public Equity Venture capital for listed companies Business Angles Investments by private persons Risk capital Risk capital Venture Capital Investments in seed or start-up companies or expansion phases Source: Swedish Private Equity & Venture Capital Association. Private Equity Venture capital for unlisted companies Buyout Buyout deals supplemented by loan financing 20 Hakon Invest

23 Market for investments in unlisted companies What characterizes a private-equity company is that it works with risk capital investments in unlisted companies. The private equity concept is usually considered to include investment both in the earlier and later phases of a company s development. Private-equity companies can be divided into two types, which are private-equity companies that manage private-equity funds and private-equity companies that use funds available in operations for investments in various companies. Characteristic of private-equity funds is that they are owned by several different investors (such as banks, pension funds and insurance companies) and a management company. Usually the fund is limited both in its amount and its duration. The management company is then responsible for managing the fund, which includes acquisitions of portfolio companies, their development and in the final stage divestment. Examples of private-equity companies responsible for private-equity funds are Altor, EQT, Industri Kapital, Nordic Capital, Procuritas, Segulah and Priveq. Characteristic of the second type of private-equity companies is that they are often limited liability companies that obtain capital for investments via share capital from the owners or borrowed capital from credit institutions. Some examples of companies of this type is Ratos, 3i, Stena Adactum and Novax. This is also the structure that is most comparable with the structure that Hakon Invest will have. However, Hakon Invest differs from private-equity companies in general in that Hakon Invest will have a more long-term perspective on its investments and work without any established time limit for divestments and that it will have a clear sector focus for its investments. Hakon Invest considers that likely competitors are found both among the privat-equity funds and among the limited liability companies. Development of market for investments in unlisted companies The private-equity market has shown variable growth over the past six years, both in Europe and in Sweden. The average increase in investments between the years 1999 to 2004 amounted to 8% per year in Europe, while the corresponding figure for Sweden was 9%. In 2004, capital managed by private-equity companies in Sweden amounted to about SEK 215 billion, of which some SEK 115 billion was invested. During that year, about SEK 17 billion Cash flow Seed and start-up Venture Capital EUR billion Expansion Source: Swedish Private Equity & Venture Capital Association Buyout Maturity AMOUNT INVESTED IN EUROPEAN UNLISTED COMPANIES 2004 Source: EVCA/Thomson Venture Economics/PriceWaterhouseCoopers. Decline Time AMOUNT INVESTED IN SWEDISH UNLISTED COMPANIES SEK billion Source: Swedish Private Equity & Venture Capital Association. Hakon Invest 21

24 was invested in unlisted companies, corresponding to 0.58% of GDP. This put Sweden in second place in Europe after the UK. The figure above left shows the ten European countries with the highest share of venture capital investments. The figure also shows the European average. The buyout segment, meaning investments in more mature and established companies, accounts for the largest share of the invested capital. The fact that the buyout segment is larger than the venture-capital segment in which capital is invested in companies in early stages of development is natural, since buyout investments often take place in companies that have had time to build up substantial value in comparison with newly started companies. With respect to the number of players active in the Swedish private-equity market, the number has increased sharply in recent years. Although buyout players account for the major share of the total invested capital, most players are active in the venture capital segment. The venture capital market and private-equity companies are an important source of financing for many companies and thus for both growth and development of industry. The availability of venture capital, however, is not the only thing that private-equity companies contribute. What characterizes private-equity companies is that they contribute to a company s development in other ways. Private-equity companies are often active in their portfolio companies, particularly with respect to strategic and financial issues and recruitment. Characteristic of companies supported by a private-equity company is that they often make significant investments and show rapid growth, which naturally creates jobs. In this way, private-equity companies also perform an important social function. RISK CAPITAL INVESTMENTS AS % OF GDP 2004 % Portugal Finland Norge Tyskland Danmark Europa Spaniengenomsnitt Holland Frankrike Sverige Storbritannien No Portugal Finland Norway Germany Denmark Spain European average Netherlands France Sweden UK Source: EVCA/Thomson Venture Economics/PriceWaterhouseCoopers. DISTRIBUTION OF THE NUMBER OF INVESTMENT IN DIFFERENT PHASES, UNLISTED COMPANIES 2004 Phases Sådd Start-up Expansion Replacement Buyout Fas okändtotalt Seed Start-up Expansion Replacement Buyout Unknown phase Source: Swedish Private Equity & Venture Capital Association. Total DISTRIBUTION OF CAPITAL INVESTED IN UNLISTED COMPANIES, SEK M 2004 SEK M 20,000 15,000 10,000 5,000 0 Phases Sådd Start-up Expansion Replacement Buyout Fas okändtotalt Seed Start-up Expansion Replacement Buyout Unknown phase Source: Swedish Private Equity & Venture Capital Association. Total 22 Hakon Invest

25 Hakon Invest s holdings and financial management 23

26 Hakon Invest has holdings in ICA AB and the Forma Publishing Group, as well as financial investments to manage the Company s cash flow. ICA AB Hakon Invest s holding in ICA AB is a joint-venture company with Ahold. The description of ICA AB is based on information published by ICA AB and information provided by ICA AB at the request of Hakon Invest. After consultation with ICA AB, Hakon Invest has decided how the information would be presented in the prospectus. Hakon Invest s Board of Directors is responsible for the contents of this prospectus. 1) As a part of the Stockholm Stock Exchange s review process prior to the exchange listing of Hakon Invest, a legal review of ICA AB has been conducted. ICA AB is one of the Nordic region s leading retail companies with focus on food and meals, with slightly more than 2,600 of its own and associated stores in Sweden, Norway and the Baltic countries. The company has net sales of more than SEK 71 billion and is 40% owned by Hakon Invest and 60% by Ahold. However, by agreement, the owners have equal influence over ICA AB. ICA AB comprises ICA Sverige, ICA Norge, Etos and the partly owned companies Rimi Baltic and Netto Marknad, which combined have a large network of stores in Sweden, Norway and the Baltic countries. It also includes ICA Meny, which specializes in distribution to restaurants, caterers and convenience stores. ICA AB also offers financial services to Swedish customers through ICA Banken. Hakon Invest Rimi Baltic Netto 50% 50% 40% 1) ICA AB Portfolio companies ICA Sverige ICA Norge ICA Meny ICA Banken Etos Forma Publishing Group 100% 1) According to the shareholders agreement with Ahold, Hakon Invest has a common controlling interest in ICA AB in that it stipulates unity in decisions at the Annual General Meeting and in the Board of Directors. Future Investment About ICA AB HAKON INVEST AHOLD Ownership share 40% 60% Influence 1) 50% 50% BOARD MEMBERS APPOINTED BY: HAKON INVEST AHOLD Claes-Göran Sylvén (President, Hakon Invest) Anders Moberg (President and CEO, Ahold) Fredrik Hägglund Dirk Anbeek (Chief Legal Officer Hakon Invest) (Senior Vice President Business Control, Ahold) Peter Berlin (ICA retailer) Arthur Brouwer (Chief Business Support Officer, Ahold) Per-Anders Olofsson (ICA retailer) Vacant ) ) ) 2004 (IFRS) 2) JAN SEP 2005 (IFRS) Sales (SEK M) 70,908 71,980 71,811 73,531 52,514 Operating profit (SEK M) 2,535 2,120 1,866 1,977 1,341 Number of employees (average) 3) 15,732 16,836 17,206 18,781 12,295 Number of stores (at year-end) 4) 2,955 2,829 2,628 2,628 2,581 1) According to the shareholders agreement with Ahold, Hakon Invest has a common controlling interest in ICA AB in that it stipulates unity in decisions at the Annual General Meeting and in the Board of Directors. 2) The figures include business areas that were divested during the year. 3) Refers to the average number of employees calculated on the basis of 1,800 annual working hours. 4) Also includes joint venture stores (Netto and Rimi Baltic). 1) See section Background and reasons. 24 Hakon Invest s holdings and financial management

27 ICA AB s geographic market and operations ICA AB views the Nordic region and Baltic countries as its primary geographic market. ICA AB is currently represented in Sweden, Norway, Estonia, Latvia and Lithuania. The goal is to be the market leader in the countries where ICA AB is represented. The following table provides a general description of ICA AB and its various areas of operation. The areas of operation are described in more detail later in this prospectus. Overview of ICA AB 1) SALES NO. OF EMPLOYEES PARENT COMPANY (SEK M) (AVERAGE) 2) ICA AB 3) The operations of the parent company are described below: Finance Finance includes financial control, accounting, shared services, treasury & tax, legal, internal audit and strategic projects. Retail Retail includes market, business development, market analysis, corporate communications, human resources, etc. Supply Chain Includes sourcing, logistics development and IT. WHOLLY OWNED OPERATIONS ICA Sverige 4) ICA Norge 4) ICA Meny ICA Banken ICA Sverige is one of the leading retail companies with focus on food and meals. ICA Sverige s operations comprise sales, operations and new establishments. 5) 43,373 4,407 ICA Norge is one of the leading retail companies with focus on food and meals with stores operated on a proprietary basis or as franchises. ICA Norge s operations comprise sales, operations and new establishments. 5) 19,896 5,540 ICA Meny is one of Sweden s leading food, beverage and kitchen equipment suppliers to restaurants, caterers and convenience stores. 4, ICA Banken shall make it easier for Swedish ICA stores customers to manage their economy and as a result strengthen customer loyalty PARTLY OWNED OPERATIONS Rimi Baltic (ICA Baltic) 6) Netto 7) As of 2005, Rimi Baltic is equally owned by ICA AB and Kesko Livs, who jointly are developing one of the most modern retail chains in the Baltic with wholly owned stores. 3,307 5,286 Netto is equally owned by ICA AB and Dansk Supermarked A/S. Netto operates on a hard discount basis. The concept was developed in Denmark, where Dansk Supermarked A/S manages the chain. 1, ) Figures in the table refers to ) Refers to the average number of employees calculated based on 1,800 hours of working time. 3) Includes the specialty retain chain Etos with sales of about SEK 31 million and 23 employees. Etos has wholly owned stores and combines products for health and beauty. Also includes some subsidiaries within importing and finance. 4) Within each national operations area, the consumer goods operations are reported integrated with property management (see more information under Finance group function below). 5) Sales refer to ICA Sverige and ICA Norway shall help to stimulate sales to consumers. Operations means providing the stores with advise and measures to achieve efficient store operations. Establishments involves identifying and developing new store locations and to participate in the development of existing stores through renovation and expansion. 6) Figures in the table refer to the by ICA AB during 2004 wholly owned operations ICA Baltic. Rimi Baltic is a joint venture with Kesko Livs (50/50) formed in ) ICA AB s share amounts to 50%. Hakon Invest s holdings and financial management 25

28 Business model The ICA group originated in the ICA concept, where individual retailers join together in areas such as sourcing, IT and logistics to achieve the same economies of scale as wholly owned chains. Local retailers and ICA AB s various areas of operation serve customers in their own markets through locally adapted stores and offerings, while the group coordinates functions that customers do not see. The ICA concept is ICA AB s greatest strength in meeting the challenges and opportunities currently facing the company from new competitors, the growing popularity of eating out and increased consolidation among suppliers. The key is to utilize economies of scale combined with local adaptations as close to customers as possible. ICA AB s operations include the management of sourcing and logistics, the development of strategies for various store concepts and marketing, the management of communications and human resources issues, as well as the development of sales, operations and store establishment. Sales development should stimulate sales to consumers. In developing its operations, ICA AB aims to assist the stores by providing advice and undertaking specific measures to achieve more efficient store operations. In conjunction with store establishment, ICA AB will identify and develop entirely new store locations and help develop existing store locations through refurbishment, modernization and additions. ICA AB s activity takes place in cooperation with the ICA retailers, who often own and operate the stores. ICA AB s efforts in these areas are aimed at increasing sales to consumers and, hence, to the stores, as well as increasing the profitability of the stores and of ICA AB in order to ensure that the operations will be successful in the long-term. Revenue sources ICA AB s main revenue sources can be divided into retail sales, product supply, ICA agreements/franchising and property, services and bank as shown in the following table. Retailing. Through certain of its areas of operation, ICA AB conducts retailing operations that is, sales to consumers. ICA Sverige receives revenue from the consumer by operating Maxi Special. Maxi Special is a special department of the Maxi stores that sells home and leisure articles. As of 2005, revenues are also consolidated from the retail companies in which ICA AB during the start-up period following the store establishment owns more than 50% of the shares. Retail sales are also a key area in Norway, where ICA AB owns many of the stores, as well as in Rimi Baltic and Netto, in which the stores are owned by the particular company. As regards Etos, ICA AB owns all stores and consequently consolidates all retail sales. Product supply. ICA AB functions both as a purchaser and product coordinator that purchases goods and coordinates logistics and distribution and then sells these goods and services to the company s customers, which are the ICA stores in Sweden and Norway. Goods are also supplied via ICA Meny to restaurants, caterers and convenience stores. According to prevailing business terms, sale of consumer goods takes place from ICA Sverige to the stores with a fixed, specific markup on the goods with the exception of private label goods that the stores may only purchase from ICA AB and for which the markup varies among different items. In Norway, the markup occurs at the item level. Sources of revenue ICA SVERIGE ICA NORGE ICA MENY ICA BANKEN ETOS RIMI BALTIC NETTO Retail sales From Maxi Special From wholly From From From and stores where owned stores wholly wholly wholly ICA Sverige owns more owned owned owned than 50% of the shares stores stores stores Product supply From deliveries to From wholly From ICA stores and owned franchise restaurants, Maxi Special and associated catering and stores service sales ICA Agreement/ From royalties From Franchising and/or profit franchise sharing fees Real estate From rental From rental income and income and real estate sales real estate sales Services From sales of such services as advertising production, training and store technology Banking From sales of financial services 26 Hakon Invest s holdings and financial management

29 Stores in Sweden also pay a sales-based fee to ICA Sverige to cover the costs of joint resources and development of ICA s operations. In Norway, the corresponding fee is included in the franchise fee described below. ICA agreements/franchise. One source of revenue is the royalty and/or portion of profit or franchise fee that ICA AB receives from the stores that are not wholly owned by ICA Sweden or Norway. The stores pay for using ICA AB s brand name and store locations. The royalty and the franchise fee are sales-based which implies that it is in ICA AB s interests that these stores perform as well as possible. In Sweden, the stores pay a royalty and/or a portion of their profit, whereas the stores in Norway pay a franchise fee. Properties. ICA AB s property operations own the franchise stores in many cases or hold leases on the store premises. For using the store premises, the individual retailers in both Sweden and Norway thus pay rent on market terms. The sale of properties is another source of revenue for ICA AB. Services. ICA AB sells services to those retailers who so desire. ICA AB offers such services as advertising production, training and store technology. Most of the services currently offered are only available in the Swedish market. Bank. The sale of financial services is ICA Banken s source of revenue. Financial targets ICA AB s long-term goal is to increase sales faster than the total market is growing in each sector. The profitability goal is an operating margin (EBIT) of %. The return on equity over a business cycle should be at least 14 16% and the long-term equity/assets ratio 30 35%. According to the shareholders agreement, Hakon Invest and Ahold have pledged to ensure that ICA AB will pay a dividend of at least 40% of the ICA group s profit after tax. This assumes, however, that the dividend does not contradict sound business practice and that due consideration is taken to the ICA group s investment plans and operational requirements. Vision ICA AB s aim is to make every day a little easier. Mission ICA AB s mission is to be the leading retail company focusing on food and meals. Strategies ICA AB should be a farsighted, dynamic company with solid finances and a commitment to the environment and social issues. The keys to ICA AB s approach are prioritization, coordination, simplicity and cost reduction. In specific terms, this means the group has formulated the following strategies for its operations: Utilize ICA AB s economies of scale by coordinating central functions and concepts ICA AB will increase coordination of central functions and concepts at the Nordic level to take advantage of synergies between companies. These efficiencies will be largely reinvested in lower prices, to strengthen ICA AB s profitability and position in the Nordic food retail market. Locally adapted concepts At the same time that it uses its scale to coordinate and benefit from synergies, ICA AB will continue to adapt its local offerings to consumers wishes. These local adjustments can be made by the individual retailer or through concepts designed for various geographic markets. Cost efficiency The ICA group is working to improve the efficiency of its operations and reduce costs. Common format strategy The ICA group has adopted a format strategy for its operations in Sweden and Norway consisting of concepts for hypermarkets, supermarkets, convenience stores and discount stores. Price and assortment ICA AB will increasingly focus on cutting prices while developing its product range and improving efficiencies. ICA s private labels One of the ICA group s strategies is to increase the share of its own labels. The range of ICA privatelabel (PL) products should offer customers quality products at low prices while strengthening customer loyalty. ICA is the umbrella brand and should be associated with the core values simple, personal, safe, inspiring and modern. The products are sold in ICA stores in Sweden and Norway. Euroshopper is ICA AB s low-price assortment. Euroshopper was developed in cooperation with nine European companies in 15 countries, including Kesko, Albert Heijn, Dansk Supermarked and ICA AB. Hakon Invest s holdings and financial management 27

30 Adapt to changing consumer buying habits By improving its stores and offerings, ICA will adapt to changing consumer buying habits. Offer an attractive product range focused on private labels, fresh foods and non-food items ICA AB will continue to emphasize fresh foods, non-food items and private label (PL) products. The group s range of PL products gives consumers greater choice, high quality and lower prices. These measures will increase sales and profitability for the ICA group and the retailers. The products profile ICA AB by representing quality and value for money. Many of the products also have added value that other products lack. ICA AB has ecological and fairly labeled products, for example, as well as alternatives for persons with allergies. The share of sales continues to increase. In Sweden, it amounts to about 12% and in Norway to 6.5%. Social responsibility The ICA group contributes to a sustainable society by minimizing the negative impact of its operations on the environment and taking responsibility for the conditions under which its own products are produced. ICA AB also promotes the health of its customers and employees by offering safe and nutritious products and through continuous improvements in its working environments. Organization The ICA group s goal is to be the market leader in the areas in which it competes. To meet the increasingly challenging competition, ICA AB is focusing even more on sales-enhancing measures and cost effectiveness in all operations. Coordination within and between the group s different operations is a top priority. A joint venture in the Baltic region with Finnish Kesko Livs was established in a bid to attain market leadership in this region more quickly. ICA Sverige and ICA Norge are strictly sales companies with responsibility for operations, sales and new establishments. ICA Meny is also focused on sales. The underlying operations Finance, Retail Sales and Supply Chain function as support functions for the sales companies. ICA AB is the parent company of the ICA group. The parent company, including the wholly-owned Etos and certain import and finance-oriented subsidiaries that comprise the ICA AB operations segment, have net sales of SEK 547 million, of which external net sales account for SEK 202 million and internal net sales for SEK 345 million. The external net sales consist of IT services and sales in Etos. The internal net sales consist of fruit import. The internal net sales are eliminated in conjunction with the preparation of consolidated accounts. The parent company also includes several cost items. These are mainly costs for personnel and external services. Otherwise, revenues and expenses that arise in ICA AB are distributed among the subsidiaries. ICA AB includes three overall group functions: Finance, Retail and Supply Chain. These functions support the sales companies ICA Sverige, ICA Norge and ICA Meny, as well as the individual stores, in various matters. The three overall group functions are described in further detail below. Detailed descriptions of the other areas of operation are provided in subsequent sections. Finance group function The group s Finance function includes Financial Control, Accounting, Shared Services, Treasury & Tax, Legal, Internal Audit and Strategic Projects. The Finance unit is a group support function but it is also a support function that individual retailers can take advantage of, for a fee. Financial Control s areas of responsibility cover all parts of the ICA group that is, the Finance, Retail and Supply Chain group functions, as well as the sales companies. The Accounting unit includes all employees involved in the preparation of reports to management and the Board of Directors. The Shared Services unit handles accounting, payments, and payroll administration, and the unit s services are purchased by a large proportion of the individual retailers. The Treasury & Tax unit handles borrowing, cash flow and tax issues, whereas Legal is responsible for legal issues. The Internal Audit unit reports directly to the ICA AB s audit committee, so indirectly it reports to the Board as well. The Strategic Projects unit evaluates acquisitions and sales of various operations. During 2004, the group completed a major restructuring of the internal bank function. This function, which was previously provided through ICA Finans and to a certain extent in ICA AB, now operates as a Swedish branch of one of the group s Dutch subsidiaries. Several treasury functions are handled by employees in this branch. The branch office has in turn acquired ICA Finans AB from a Dutch subsidiary with the objective of managing group lending through this subsidiary. The branch office and ICA Finans together comprise the group s entire internal banking function. See also the heading ICA AB s organization ICA AB CEO and President Rimi Baltic AB 50% Netto Marknad AB 50% Supply Chain 28 Hakon Invest s holdings and financial management Finance ICA Fastigheter AB ICA Sverige AB Retail Etos AB ICA Banken AB ICA Norge AS ICA Meny AB

31 PRICE Convenience stores Discount stores Positioning of store concept Supermarkets Hypermarkets RANGE Supply chain group function where sourcing operations in the Dutch subsidiary are described. The ICA group s real estate operations report to the Finance function. Real estate operations are an integral part of ICA AB s business model and provide important support for retail operations in which success is essential for ICA AB s long-term success. The purpose of the real estate operations is to provide serviceable premises and strategically located business locations for the ICA group and the ICA retailers by developing, buying, selling and actively managing properties. Attractive store locations provide an important basis on which to achieve strong store profitability, so the real estate operations play a key role in the group. Real estate operations follow ICA AB s store-opening plans, meaning that the real estate portfolio increases when the rate of store openings is greater than property divestments and vice versa. In conjunction with store openings, it is the real estate operations that handle the actual acquisition of the site and the construction of the property, whereas the store-opening unit finds an appropriate location. Negotiations with the municipality and property owner are handled by ICA AB s store-opening unit or the real estate unit, depending on which unit has the best prerequisites in the individual case. Accordingly, there is a clear division of roles between the real estate operations and the other units of the ICA group even though in terms of their operations they are very dependent upon one another. The real estate operations are conducted under market-level return requirements, which implies that all stores pay market-level rent and that new store establishments or renovations are never carried out if the store cannot subsequently carry market-level rent, which results in an acceptable return on the real estate operations. The real estate operations supporting business operations are conducted in Sweden through ICA Fastigheter Sverige AB and in Norway through ICA Eiendom Norge AS. ICA AB owns a large proportion of the store properties through its real estate operations, or holds the leases on the store premises in Sweden and Norway. These premises are then leased out at market terms to individual ICA stores and to Maxi Special AB in Sweden, which is one of the wholly owned subsidiaries of ICA AB that is in charge of the special product range sold in the Maxi stores. There are also a small number of tenants that are not ICA retailers. The total proportion of rent revenue that derives from ICA retailers accounts for approximately 93%. Rental revenue is reported under ICA Sverige and ICA Norge. On September 30, 2005, ICA Fastigheter Sverige AB owned approximately 264 properties 1) occupying a total of approximately 606,000 square meters of store floor space, and leased approximately 480,000 square meters of office and warehouse space and approximately 822,000 square meters of store space distributed among approximately 535 stores. The rental revenue from the owned properties amounts to approximately SEK 680 million annually. Over the next three years, ICA Fastigheter Sverige AB as part of ICA Sverige s business plan intends to continue its extensive investments in opening and building new stores. On September 30, 2005, ICA Eiendom Norge AS owned approximately 120 properties 2) occupying a total of approximately 372,000 square meters and leased approximately 600,000 square meters of store floor place, distributed among approximately 540 properties throughout Norway. The rental revenue from the owned properties amounts to approximately SEK 360 million annually. In accordance with ICA Norge s business plan, ICA Eiendom plans to continue its extensive investments over the next three years in the opening and building of new stores as well as in modernizing existing stores. The investments are integral part of ICA Norge s restructuring of its store holdings and store profiling, which will also involve property divestments. Retail group function The purpose of the group Retail function is to create profitability in the ICA group by leading and developing customer-driven offerings. In specific terms, this implies that Retail deals with business development developing store layouts and formats, as well as marketing. As regards store format, Retail is in charge of developing strategies for the market positioning of the stores and store profiles in a manner that is optimal for the group (see figure to the left) and assisting the other operations in, for example, streamlining and more clearly positioning store concepts. ICA Sverige has four store formats: ICA Nära, ICA Supermarket, ICA Kvantum and Maxi ICA Stormarknad. ICA Norge also has four store profiles ICA Nær, ICA Supermarked, ICA Maxi and Rimi. The different store formats meet customer needs in different ways. In addition to business development, the Retail group function is responsible for market communications in Sweden and Norway, market analysis, consumer and quality issues, corporate information (including various forms of communication strategies, and the devel- 1) On September 30, 2005, the book value of these properties amounted to SEK 5,431 million. 2) On September 30, 2005, the book value of these properties amounted to SEK 4,648 million. Hakon Invest s holdings and financial management 29

32 opment of an intranet), as well as human resources issues (such as skills development and the identification of potential future executives). ICA AB s customer card base consists of some 3.1 million active customers. Of the active customers, 1.4 million pay with cards, while the remainder only register bonus points. The customer card database is a significant asset for ICA AB that contributes to customer loyalty. It allows offers to be specially matched to customers while providing overall knowledge of buying patterns. The customer database provides important support for decisions in all of ICA AB s business areas. In terms of corporate structure, Etos AB and ICA Banken AB are also part of the Retail group function. ICA Banken, however, does not report to the group function, but instead to ICA Banken s Board of Directors. The bank s operations are under the supervision of the Swedish Financial Supervisory Authority. Both Etos AB and ICA Banked are described in more detail further on in the prospectus. Supply Chain group function The group s Supply Chain function includes sourcing, logistics and IT. The purpose of the Supply Chain function is to achieve coordination and economies of scale in the group in these areas. An important area for coordination within the group is sourcing, where it is estimated that additional major savings can be achieved. By consolidating purchasing volumes for ICA Sverige and ICA Norge as a first step, ICA AB will become a stronger negotiating partner, and thus obtaining better terms. ICA AB believes there is considerable potential for more efficient purchases and product range since a relatively small proportion of the products, both within food and non-food, account for a large percentage of the retail sales volume. Supply Chain will therefore focus on creating a more customer-oriented product range, whereby purchases are steered more by customer preferences than today instead of by what suppliers can offer. In conjunction with this, Supply Chain will also improve the efficiency of the product range to save costs. A key component in this respect involves assessing how deep and broad the range must be in order for consumers to be satisfied. To succeed in this task, the sourcing organization will TODAY Suppliers 2008 Suppliers New distribution network ICA warehouse ICA warehouse ICA stores ICA stores be strengthened so that the Supply Chain function can accumulate in-depth knowledge about the value chain for each specific product and product group, thereby enabling greater efficiency in terms of production and logistics chains from producer to store. This, in turn, is expected to reduce sourcing costs for ICA AB, thereby enhancing the ICA system s competitiveness. Operations in PL products, produce, goods not for resale (e.g. store fixtures) and home & leisure are currently managed jointly within ICA AB at the Nordic level. However, there is further potential for cooperation with other companies in the supply chain. In PL products, for example, synergies can be achieved by consolidating purchases with each supplier and coordinating package design, while the products themselves can be sold under different brand names in different countries. Another example is the Euroshopper brand, which is the result of cooperation between nine European companies in 15 countries, including Kesko, Albert Heijn, Dansk Supermarked A/S and ICA AB. Euroshopper is the ICA group s discount product brand and is available in Sweden, Norway and the Baltic countries. The brand is also used by other companies involved in the cooperation. Supply Chain devotes considerable efforts to developing private labels since these strengthen the group s negotiating power with brand suppliers, and also provide the stores with an opportunity to offer good value alternatives while at the same time also generating considerable revenue for ICA AB and the stores. In 2004, private labels accounted for about 12% of retail sales in Sweden. This figure is low compared with many international players, implying that there is still considerable potential in this area. Through its companies in the Netherlands (ICA Sourcing and Services BV and ICA International Services BV), ICA AB also cooperates with Ahold, to facilitate sourcing of fresh goods with an emphasis on fruit, vegetables, fish, shellfish, meat and flowers as well as sourcing of private label items. As part of this cooperation, a number of sourcing agreements have been negotiated with various suppliers that can be utilized by all subsidiaries and companies associated with Ahold. These contracts normally extend for one year with certain rights with respect to extension and termination period. Furthermore, the company s cooperation with the Aholdowned chain Albert Heijn includes the development of IT systems for retail stores. Investments in IT systems are often substantial. By cooperating with other companies, ICA AB is able to considerably reduce its portion of these investments. In addition to sourcing and IT, Supply Chain is responsible for the entire logistics flow and works actively with logistics development, an area in which ICA AB has gained firmer control by setting up a new distribution network in Sweden. The new distribution network is expected to lead to cost savings and reduced environmental impact and will improve ICA AB s standing with suppliers. With its new distribution network, ICA AB takes responsibility for a larger share of shipments. Goods that individual suppliers previously drove directly to stores will now be shipped to a greater extent via ICA AB s warehouses. From there, ICA AB will coordinate goods from 30 Hakon Invest s holdings and financial management

33 various suppliers on route to its stores, leading to more efficient transportation, fewer emissions and thereby less harm to the environment. The change is also positive for the stores. The number of deliveries is reduced for the same amount of goods, and stores can work more efficiently with the reception of goods when these are delivered more collectively. To make its distribution network more efficient, ICA AB will keep more goods in stock. As a result, five warehouses (Helsingborg, Malmö, Växjö and two in Stockholm) will be shut down and four others (Borlänge, Kungälv, Umeå and Västerås) will be rebuilt to handle larger volumes. The Board of Directors also approved an investment of SEK one billion for a new automated warehouse in Helsingborg. Furthermore, there are plans for a new warehouse in the Mälardal region for which the investment will be the same SEK one billion for full automation. Market Conditions in the Nordic food retail market are changing at an ever faster pace. Competition is growing and customer behavior is becoming more difficult to predict. Increased competition in the Nordic region Discounters continue to expand in the food retail market and also in other sectors. The German discount chain Lidl has established operations in Sweden, Norway and Finland, and Germany s Aldi has stores in Denmark. Together with Dansk Supermarked A/S, ICA AB operates the discount chain Netto in Sweden. In the longer term, other global market leaders may make a move to the Nordic region as well. More people are eating out It is also becoming more common to eat out at restaurants and fast food chains instead of at home, and many restaurants directly target families. In the Nordic region, restaurants account for 26% of the total value of food consumption, a figure that is expected to continue to rise. In the rest of Europe, the corresponding figure is 35% and in the US it is 51%. Food retailers have long had a tendency to underestimate the competition from restaurants, but ICA AB has taken up the fight, in part by expanding its range of prepared foods. Food is becoming less expensive Since 1995, Swedish food prices have risen by only 0.4% per year, while the annual inflation rate during the same period is 1.2%. Swedes are spending less of their disposable income on food. The same trend is evident in Norway, where food prices have risen by 1.6% annually since 1995, while inflation has averaged 2.2%. A basket of groceries costs no more today than it did ten years ago. A growing share of private label products has contributed to lower prices, as has the increased competition. Customers are less loyal Due to these changes in the market, customers are no longer as loyal to a particular chain of stores or brand. Instead they have become much more flexible. Consumer habits even differ depending on the day of the week. One day a customer might go to a hypermarket or discounter for a major shop, then the next day stop at a local store for fresh deli items. Customers want shopping to be easy, which is why location and convenience are still important factors that determine where people choose to shop. The highly successful ICA customer card is one example of a measure introduced to increase customer loyalty at ICA stores. Purchasing negotiations Suppliers are also affected by growth among discounters and in retailers PL offerings. To meet the rising price pressures and be more competitive, many food suppliers are merging forces. Several suppliers in the Nordic region have been acquired by larger international groups. In some product categories, two or three suppliers account for % of the ICA group s purchases. As ICA AB increases its share of PL products, however, the brand suppliers bargaining power is reduced, as is ICA AB s dependence on these suppliers. This is also one reason why many suppliers have also begun to produce PL products for retailers. For small suppliers, this can offer a way to survive the competition and slow the trend toward consolidation. ICA AB cuts prices to strengthen its market position The emergence of new discount players in recent years has intensified competition in the Nordic food retail market. This trend has led to an increased focus on price. One measure taken by ICA AB in response to this change involves implementing extensive strategic price cuts in Norway and Sweden. In Sweden, ICA AB and the individual ICA stores reduced the prices on two occasions, in March and August, on between 3,000 and 4,000 items, depending on the store size. Since ICA retailers own their own business, they set their own prices and determine their own assortment. Price reductions at the store level were mainly possible through offering the stores lower purchasing prices from ICA AB. The total value of the price cuts in the ICA stores in Sweden was on the order of SEK one billion on an annual basis. In Norway, ICA AB and the Rimi stores lowered the prices of about 300 items in May The total value of the retail price cuts in Norway amounted to NOK 350 million on an annual basis. The price reductions were financed retroactively through increased cost efficiency in the individual stores, cost rationalization within the ICA group and more favorable purchase prices from suppliers. This had an initially negative effect on ICA AB s earnings during the first half of The initially negative effect on earnings for ICA AB will gradually improve as the gains from negotiations with suppliers are realized and cost reductions produce effects. Since the price reductions in Sweden began in March, sales in the ICA stores increased each month by more than the industry average 1). 1) This applies to the period until September 30, Hakon Invest s holdings and financial management 31

34 ICA SVERIGE ICA Sverige is one of the country s leading retail companies, with a focus on food and consumables. ICA Sverige is the main supplier to the ICA retailers. All ICA retailers own and manage their stores as independent businesses. Annual sales in the more than 1,500 stores amount to around SEK 79 billion, including VAT. Sales revenues for ICA Sverige total approximately SEK 43 billion. ICA Sverige is in an aggressive development phase and is continuing its successful focus on private label products, non-food items and fresh foods. ICA Sverige will continue its efforts to reduce retail prices and lower costs, making the ICA stores more competitive and improving ICA Sverige s sales. The rate of new store openings will remain high. Hakon Invest 40% 1) Rimi Baltic Netto 50% 50% ICA AB Portfolio companies ICA Sverige ICA Norge ICA Meny ICA Banken Etos Forma Publishing Group 100% 1) According to the shareholders agreement with Ahold, Hakon Invest has a common controlling interest in ICA AB in that it stipulates unity in decisions at the Annual General Meeting and in the Board of Directors. Future Investment ICA Sverige in brief BUSINESS CONCEPT ICA Sverige will be the leading retail chain in Sweden with a focus on food and meals. Market share 2) 36.3% (IFRS) JAN SEP 2005 (IFRS) Sales (SEK M) 42,505 43,086 43,373 45,039 34,333 Operating profit (SEK M) 1,884 2,794 1,892 1,774 1,054 Number of employees (average) 1) 4,189 4,384 4,407 5,982 5,768 Number of stores (year-end) 1,764 1,668 1,506 1,506 1,421 1) Refers to average number of employees based on 1,800 annual working hours. 2) Based on the ICA stores share of retail sales of food and consumables. 32 Hakon Invest s holdings and financial management

35 Operations The food retailer ICA Sverige operates throughout Sweden, together with the independent retailers who own and manage their stores. ICA Sverige s activities include sales, operations and new establishments. Sales means that ICA Sverige shall stimulate sales to consumers. Operations entails that ICA Sverige shall assist the stores with advice and tangible measures to help them operate more efficiently. New establishments involves researching and developing new store locations and helping to develop existing stores through modernization or store enlargement. ICA retailers in Sweden undertake on average 70% of their purchases directly or indirectly via ICA Sverige. The remaining 30% mainly comprises fresh produce, fruit and vegetables, colonial produce and bread, which in many cases come from local producers or suppliers. Since there is no requirement for independent retailers purchases from ICA AB, the group has always been exposed to competition from other suppliers. The fact that ICA retailers in Sweden purchase as much as 70% from ICA Sverige serves as proof that the economies of scale and efficiency that have been achieved over time satisfy the earnings targets of ICA AB and the independent retailers, as well as customers wishes in terms of product range, quality and price. The fact that ICA AB competes with other suppliers means that it is always in ICA AB s best interests to develop competitive prices and provide consumers with an attractive produce range. It is also in individual ICA retailers best interests to make their purchases via ICA Sverige and thereby help ICA AB achieve a high level of efficiency and lower costs. It is this cooperation, the entrepreneurial spirit of ICA retailers and the mutual understanding that both parties ultimate aim is to make money, that forms the core of the entire ICA concept and that has made the system so successful. Dealings between ICA AB and the independent retailers Ever since the inception of Inköpscentralernas AB (now ICA AB) in 1939, the importance of the retailer s role has been emphasized in the dealings between retailer and the product supply. Through their awareness of consumer demand, the retailers possess important knowledge that can improve the efficiency of product supply operations. The interplay between ICA Sverige AB and the retailers is an important success factor in the Swedish operations. A Sweden committee has been set up to provide support for ICA Sverige AB s overall strategic efforts. The committee is made up of the chairmen from each of the store profile areas. The Sweden committee acts as an advisor and a sounding board for ICA Sverige AB with regard to overall strategic issues. There are four store profiles within ICA Sverige AB: Nära, Supermarket, Kvantum and Maxi. Each profile area has a profile committee of elected retailer representatives. These committees act as advisors for important issues relating to their particular store profile. Neither the committees nor the independent ICA retailers who are members of committees within the ICA group have been issued with any decision-making authority from ICA AB or ICA Sverige. The role of the committees and their ICA retailers is advisory and therefore provides ICA AB with valuable information. Neither are the ICA retailers permitted to disclose matters with binding effect discussed in the committees to other ICA retailers. Business model ICA Sverige s operations are based on ICA agreements with ICA retailers. This is complemented by profiling agreements with ICA retailers, through which the stores join forces under the ICA name to secure better purchasing terms and create a clearer image in the marketplace. ICA agreements Many of the approximately 1,500 Swedish ICA stores have an ICA agreement, which is a shareholder and financing agreement whereby ICA AB retains the rights to the store location while the retailer either by himself or jointly with ICA AB owns and runs the store through a limited company. ICA Fastigheter Sverige owns a large proportion of the store properties or holds leases for the store premises, meaning that the stores also pay rent to the ICA group. Normally, all stores with sales exceeding SEK 20 million or that are considered to have a strategic location have an ICA agreement. The ICA agreement contains a clause on right of first refusal if the ICA retailer wishes to sell the business and specifies the annual compensation that the store must pay to ICA Sverige, in the form of royalty and/or profit sharing. The agreements are entered on market terms. New stores are usually established by ICA Sverige which in conjunction with the establishment offers the retailer financing for taking the store into operation. Since the individual retailer often cannot afford to acquire the entire store at the time of establishment, the retailer initially owns only a small portion of the limited company through which the store is operated, while ICA Sverige owns the remainder. As cash flows from the store improve, the retailer can then acquire all shares but one of the limited company from ICA Sverige. Pursuant to the terms of the ICA agreement, the retailer then pays a royalty and in some cases a profit share to ICA Sverige, related to the store s size and annual sales. As of 2005, the store is consolidated by ICA Sverige as long as the ownership share exceeds 50%. This however does not affect ICA Sverige s reported profit after tax. Maxi agreements ICA Maxi is ICA AB s hypermarket concept, comprising 37 stores at the end of An ICA Maxi hypermarket consists of two legal entities: a subsidiary that is wholly owned by ICA Sverige AB ( the subsidiary ) and that sells specialty/non-food items, and a contractual company that is owned and operated by an independent ICA retailer and that sells food retail and convenience goods ( the contractual company ). The consumer, however, perceives ICA Maxi as being one company with a comprehensive customer offering. Hakon Invest s holdings and financial management 33

36 The ICA Sverige subsidiary ICA Maxi Special AB ( Maxi Special ) is responsible for all non-food operations in ICA Maxi stores. For example, the subsidiary has its own lease agreement with the store owner for the shop floor space that is at the subsidiary s disposal. The contractual company assumes responsibility for joint services, such as checkouts and customer services, and the subsidiary compensates the contractual company at market rates for its share of these joint services. This is regulated in detail through a partnership agreement (Maxi agreement). The contractual company s ICA agreement with ICA Sverige AB contains a pre-emption clause for the event that the ICA retailer wishes to sell his business. The agreement also states the annual compensation that the contractual company must pay ICA Sverige for the right to use the shop location. This compensation takes the form of a royalty based on a pre-determined percentage of the contractual company s net sales. Sources of revenue ICA Sverige s earnings are derived from retail sales, product supply, royalty and/or profit sharing, property, and the sale of services. Retail earnings derive from Maxi Special, which sells home and nonfood items in the Maxi stores. In addition, some retail revenue is attributable to the Swedish stores in which ICA Sverige during the start-up period after establishment owns more than 50% of the shares. Revenues from the supply chain derive from ICA Sverige s wholesale operations, in which ICA Sverige purchases goods and then sells these goods to the independent ICA retailers in Sweden. The stores in Sweden also pay a sales-based fee to ICA Sverige to cover the costs for joint resources and the development of ICA s operations. Another source of income is the royalty payments and/or profit share that ICA Sverige receives from the independent retailers. The stores pay for the right to use the ICA brand and for use of the store location. In many cases, ICA AB s property operations either own the store properties or hold the leases on them. The independent retailers pay rent at market prices for use of shop premises. Another source of revenue is the property operations sale of properties. In addition, ICA Sverige also certain optional services for retailers, which are charged at a fee. Store concepts ICA Sverige has four store concepts ICA Nära, ICA Supermarket, ICA Kvantum and Maxi ICA Stormarknad that meet customer demand in different ways. During 2004, ICA stores in Sweden decreased their share of the Swedish food retail market to 36,3%, compared with 36,6% the preceding year. The number of customers rose by 2%, as did the number of goods sold. However, the average sales amount dropped. This is a general trend affecting all players in the Swedish market. The ICA Nära convenience stores increased their sales by 3.7% in During the year, 75 new ICA Nära stores were added as a result of many previously non-profiled ICA stores becoming computerized and being profiled as ICA Nära. ICA Supermarket noted a sales decrease in 2004 of 3.0%, compared with This was in large part due to the number of ICA Supermarket stores declining by 19 stores in 2004 from 532 to 513. The ICA Kvantum stores increased sales by 1.9% in ICA Sverige s hypermarket concept Maxi ICA Stormarknad has continued to develop positively, with sales rising by more than 11% in This is partly the result of the one-stop shopping trend, where ICA Sverige s store profiles NO. OF STORES, SALES INCL. VAT NO. OF ITEMS STORE PROFILE DESCRIPTION DEC. 31, 2004 (SEK M), ) PER STORE ICA Nära are smaller and easily accessible food stores with good service, a limited selection and good fresh foods Many ICA Nära stores function as agents for Apoteket, Systembolaget and ATG ,623 3,000 5,000 At ICA Supermarket, customers can do most of their shopping for both daily needs and parties. There is a high level of personal sevice, and the stores have a wide range of fresh foods ,878 6,000 10,000 ICA Kvantum are larger food stores with both daily food, products for people with allergies, environmental products and delicacies from the whole world. ICA Kvantum also offers nearly everything in beauty, health and media ,003 15,000 Maxi ICA Stormarknad offers everything in a single location at low prices. In addition to the wide range of food procucts, Food: there are books, clothes, household items, sporting goods and 12,000 18,000 articles everything for gardening. The stores have generous opening Special: hours and are easily accessible for shoppers with cars ,192 20,000 25,000 articles 1) Total store sales (including specialty items). 34 Hakon Invest s holdings and financial management

37 customers prefer to buy everything in one place. Maxi ICA hypermarkets were Sweden s leading hypermarket chain in the beginning of Brand and customer relations According to independent and internal surveys, ICA Sverige has the industry s highest ranking in terms of customer satisfaction. In the latest Swedish Quality Index survey, for example, ICA ranked higher than both Axfood and Coop as has been case since the surveys were first begun. The 2004 Confidence Barometer compiled by the Media Academy at Göteborg University showed that seven out of ten Swedes have great confidence in ICA AB. Internal customer satisfaction surveys also prove year after year the strong competitive strength of ICA stores compared with the industry in general. To find out what customers think about their ICA stores, ICA Sverige launched a survey in 2004 called the Customer Compass. ICA AB s card customers are asked to award grades for price, product selection and service in their local store. Their responses are fed back to ICA Sverige centrally and to the store, which can resolve any issues right away. In 2004, for the third consecutive year, ICA Sverige won the prestigious Golden Egg Award presented by the Swedish advertising industry for the best ad of the year. In terms of brand recognition, nearly 100% of viewers recognized the company behind the ads. ICA AB also received a prize for its consistent long-term branding in the 100 Wattaren contest arranged by the business daily Dagens Industri in cooperation with the Association of Swedish Advertisers and the Advertising Association of Sweden. ICA Sverige s website, is Sweden s largest food site, containing more than 5,000 recipes. The site attracts around 1.3 million visitors each month, ranking it among Sweden s most popular sites overall. Customers of ICA Banken can also perform bank transactions via the site. Market The Swedish food retail market is dominated by three nationwide chains ICA AB, Coop and Axfood while a fourth, BergendahlsGruppen, is mainly active in southern Sweden. However, BergendahlsGruppen recently opened a store in the Stockholm region and signed a wholesale agreement with VI-handlarna. Overview of the Swedish convenience goods market 2004 No. of stores 4,500 (plus a number of smaller stores) Total market, conveniece goods, including VAT (SEK M) 207,160 Growth 2.7% Store structure* proportion of sales in different store sizes <400m % m % 1,000 2,499m % >2,500m % Low-price retailers (soft and hard discount) 9% (soft) 2% (hard) Proportion own brands* 12.9% Source: ICA AB and AC Nielsen/Nordic Grocery Market Insight 2005 figures marked with *). ICA Sverige and the largest competitors ICA SVERIGE COOP SVERIGE AXFOOD BERGENDAHLS LIDL SVERIGE NETTO SVERIGE Owner ICA AB (100%) Coop Norden Exchange-listed, Bergendahl Lidl Schwarz Stiftung Dansk (100%) of which principal owner family (100%) Supermarked AB, KF owns 42% Axel Johnson AB (100%) ICA AB (50/50%) (45%) No. of stores (Dec. 31, 2004) 1, Store profiles ICA Nära Coop Nära Hemköp AG:s Lidl Netto ICA Supermarket Coop Konsum Willys City Gross ICA Kvantum Coop Extra Willys Hemma Eko Maxi ICA Stormarknad Coop Forum Vivo (up until 2004) Vi (as of 2005) Market share (2004) 36.3% 1) 17.1% 16.7% 2.9% 0.8% 0.6% Source: ICA AB. 1) Based on the ICA stores share of retail sales of food and consumables. Hakon Invest s holdings and financial management 35

38 MARKET SHARES, SWEDISH FOOD MARKET, 2004 Other 25% Netto 1% Lidl 1% Bergendahl 3% Axfood 17% Coop 17% ICA 1) 36% Source: ICA AB. 1) Based on the ICA stores share of retail sales of food and consumables. The Swedish food retail sector grew 2.7% in 2004, compared with 2.6% in Sales in 2004 amounted to slightly more than SEK 207 billion, including VAT. The favorable growth was achieved despite many companies cutting their prices to counter competition from discounters. Increased PL sales are also contributing to lower food prices. Consumer goods prices were 0.5% lower at year-end 2004 than at the beginning of the year. Pure discount stores, known as hard discount, are increasing their presence in Sweden. Typically these stores offer prices below what are regarded as the standard level in the food retail sector and usually carry a more limited product range. They are also distinguished by their very low costs. Axfood s discount chain, Willys, currently has some 90 stores. In the discount segment, Axfood has also developed another concept, Willys Hemma, with 45 wholly owned stores as its base. The Willys Hemma concept is based on a limited product range. The German chain Lidl, which started operations in Sweden in September 2003, continues to gain ground and now has around 80 stores that generally carry a narrow range of about a thousand items at very low prices. ICA AB s discount chain Netto, which is jointly owned with Dansk Supermarked A/S, was launched in Sweden in 2002 and had grown to 72 stores at September 30, Ongoing efforts within ICA Sverige ICA Sverige s strategy for tackling the competition from discounters is to focus on fresh foods, private labels and non-foods. Fresh foods accounted for about 54% of ICA Sverige s sales in 2004, while private labels contributed about 12% and non-food about 6%. It was also decided to launch a price offensive together the ICA retailers. In Sweden, this initiative was initiated in March The aim is to reduce prices on a large number of common products by squeezing costs at every level and negotiating lower purchasing prices. Higher demand for prepared and healthy foods Another of ICA AB s focuses is prepared meals, which are becoming increasingly popular among customers. In connection with the launch of its own fresh meats, ICA Sverige reorganized its infrastructure to better handle refrigerated products. This also makes it easier to provide customers prepared foods of consistently high quality. The increasing health consciousness of consumers has spurred interest in healthy foods. To meet this demand, ICA launched a special line of products, ICA Gott Liv, in Sweden in 2005 to make it easier and less expensive to eat nutritiously. Establishment policy ICA Sverige is always looking for opportunities to open new stores and expand its presence in the market. The new store department has been strengthened and is working to find new locations and prepare the necessary documentation for building permits. A number of new permits have been received and ICA Sverige is expected to expand substantially in the near future. The focus will remain on new stores in growth areas and near large cities. Stores in rural and sparsely populated areas ICA stores account for the largest share of grocery stores in rural areas. In communities with only one grocery store, about 40% are run by ICA. Many of these stores also provide other services to their communities, including pick-ups for Systembolaget and Apoteket, the state-run alcohol and pharmacy monopolies, and postal services. To strengthen its smallest stores, ICA invested approximately SEK 30 million in 2003 in computerization, among other things. Technology helps small stores to work more efficiently and fully utilize the support available centrally from ICA Sverige. These measures have helped to stabilize the situation for stores in rural communities and reduce the number of stores that have been forced to close. Outlook ICA Sverige will continue its focus on private labels, non-foods and fresh foods. The company will also continue to work with cost rationalization and measures to reduce price levels in the stores. In late 2004, a savings program was presented that entails cutting the number of employees in ICA Sverige in This is part of an effort to reduce costs and create an efficient organization focused on higher sales and more satisfied retail customers. The rate of new store openings is high. Three new Maxi ICA hypermarkets, one ICA Kvantum, one ICA Supermarket and two ICA Nära were opened during the period December 31, 2004 until September 30, 2005, and a further two Maxi ICA hypermarkets, two ICA Kvantum, one ICA Supermarket and two ICA Nära are scheduled to open during the year. As of September 2005, the sales area had increased by 35,000 square meters since the end of The ambition is to maintain the rate of new store openings at the same level during Hakon Invest s holdings and financial management

39 ICA NORGE ICA Norge is one of Norway s leading retailers, with a focus on food and consumables and nearly 1,000 stores. The stores are operated as wholly owned subsidiaries or as franchises. Store sales amount to approximately NOK 22 billion, excluding VAT. ICA Norge s sales were more than NOK 18 billion in ICA Norge will focus actively on generating cost savings and improving efficiency. In addition, a large number of existing stores will be updated and several new stores opened. Hakon Invest 40% 1) Rimi Baltic Netto 50% 50% ICA AB Portfolio companies ICA Sverige ICA Norge ICA Meny ICA Banken Etos Forma Publishing Group 100% 1) According to the shareholders agreement with Ahold, Hakon Invest has a common controlling interest in ICA AB in that it stipulates unity in decisions at the Annual General Meeting and in the Board of Directors. Future Investment ICA Norge in brief BUSINESS CONCEPT ICA Norge will be the leading retail chain in Norway with a focus on food and meals. Market share 22.4% 2) (IFRS) JAN SEP 2005 (IFRS) Sales (SEK M) 20,930 20,740 19,896 19,896 13,836 Operating profit (SEK M) Number of employees (average) 1) 5,545 5,465 5,540 5,540 4,234 Number of stores (year-end) 1,079 1, ) Refers to average number of employees based on 1,800 annual working hours. 2) Based on the share of ICA Norge s wholly owned stores, franchise stores and associated stores of all types of sales in Norway s food stores. Operations ICA Norge s activities include sales, operations and new establishments. Sales means that ICA Norge shall stimulate sales to consumers. Operations entails that ICA Norge shall assist the stores with advice and tangible measures to help them operate more efficiently. New establishments involves researching and developing new store locations and helping to develop existing stores through modernization or store enlargement. All stores are supported by an integrated system for sourcing, product range, product supply, administration and marketing. Business model Ownership and operation of ICA Norge s stores is divided into two main models: wholly owned branch stores and retailer-owned franchises. There are also associated stores. Wholly owned stores The stores that are wholly owned by ICA Norge comprise approximately one third of the Rimi stores and nearly all ICA Supermarked and ICA Maxi stores. Hakon Invest s holdings and financial management 37

40 Stores with franchise agreements In this form, the retailers operate their stores as independent franchises and pay a fee based on a percentage of sales to ICA Norge. ICA Norge provides the ICA and Rimi brands, as well as a number of central services including marketing, concept development and administration. ICA Norge owns or holds leases on most of the franchise properties. Franchise stores are operated within ICA Nær, which is primarily a franchise chain, and within Rimi. At the end of 2004, approximately 60% of Rimi stores were operated as franchises. Associated stores There are also associated store chains that ICA Norge assists primarily with sourcing and distribution. Examples of associated stores include Livi and Servicemat. Sources of revenue ICA Norge s revenues are derived from retail sales, product supply, franchise operations and properties. Retail earnings derive from the wholly owned stores. Revenues from goods supply derive from ICA Norge s wholesale operations, in which ICA Norge buys in goods, and then sells these goods and services to the stores in Norway. Another source of income is the franchise fees that ICA Norge receives from the franchise holders as payment for the right to use the ICA brand. In most cases, ICA AB s property operations either own the store properties or hold the leases on them. The retailers pay rent at market prices for the use of the shop premises. Another source of revenue is the property operations sale of properties. Store concepts ICA Norge has a format strategy consisting of hypermarkets, supermarkets, convenience stores and discount stores. In recent years, ICA Norge has worked to streamline and more clearly position its store concepts ICA Maxi, ICA Supermarked, ICA Nær and Rimi and build a strong store structure for the future. At the same time as consumers are becoming more price conscious, many are also asking for larger stores and a wider range of prepared and fresh foods. With its four store concepts, ICA Norge tries to meet these needs and cover every position in the market. ICA Norge is working on the introduction of a long-term pricing strategy that will make Rimi competitive in the discount segment, while ICA-branded stores will remain competitive in their segments. ICA Norge is also raising the number of franchise stores (currently more than 500), since it sees entrepreneurship as an important driving force. In 2004, the share of Rimi franchises rose from 40% to 60% of Rimi stores. The goal is to increase that figure to 75% by year-end A growing number of ICA-branded stores are also being operated as franchises, including both the small and medium-sized store formats. Market The Norwegian food retail market (excluding convenience stores and gas stations) increased by about 4% in 2004 compared with the preceding year. Total sales exceeded NOK 100 billion (excluding VAT). ICA Norge s market share declined slightly in 2004 to 22.4%, compared with 23.6% the preceding year. ICA Norge and its largest competitors Coop Norge, NorgesGruppen and Rema together account for practically all the sales in the market in Norway, a market where about half of sales take place via discount chains. In 2004, the German chain Lidl opened its first discount stores in Norway and at year-end had around twenty stores around the country. Ongoing efforts within ICA Norge Cost adjustments and efficiency improvements ICA Norge has been working to adjust its cost level in order to maintain and develop a strong competitive position. This work has involved every function in administration and the stores. The number of employees in ICA Norge decreased in 2004 by around 120, mainly in Rimi. The former regional offices have been replaced by five local sales offices and the store profile areas now have joint management and staff and support functions. The efforts to adjust costs and improve efficiency will continue for some time. ICA Norge s store profiles NO. OF STORES, SALES INCL. VAT NO. OF ITEMS STORE PROFILE DESCRIPTION DEC. 31, ) (NOK M), ) PER STORE ICA Nær are smaller and easily accessible food stores with good service, an adapted selection and local suppliers ,572 3,000 6,000 ICA Supermarked stores are designed for customers who appreciate good food and a wide variety. Personal service is high, and there is a wide range of fresh foods, including deli counters offering the latest in food trends. 70 2,010 about 10,000 Maxi ICA Stormarknad offers everything in a single location at affordable prices. In addition to the wide range of food procucts, there are books, clothes, household items and media items. Conveniently located for customers traveling by car. 16 2,046 20,000 24,000 Rimi is a discount chain that makes it easy and convenient for customers to do their daily shopping. With modern, conveniently laid out stores, Rimi offers customers what they need at affordable prices ,918 about 3,000 1) In addition, there were 161 associated stores as of December 31, Sales were about NOK 894 million in ) Total store sales. 38 Hakon Invest s holdings and financial management

41 Overview of the Norwegian convenience goods market 2004 No. of stores 4600 (increasing) Total market, convenience goods, including VAT (NOK M) 101,000 Growth 4% Store structure* proportion of sales <400 m % in different store sizes m % 1,000 2,499 m % >2,500 m % Low-price retailers (soft and hard discount) 51.5% (soft) 0.5% (hard) Proportion own brands* 8.5% Source: ICA AB and AC Nielsen/Nordic Grocery Market Insight 2005 figures marked with *). Source: ICA AB. MARKET SHARES, NORWEGIAN FOOD MARKET, 2004 Rema 17% ICA 22% Other 1% Coop 25% NorgesGruppen 35% Store network ICA Norge is working to optimize the store network. Several stores are too small and many stores need modernizing (see also Outlook ). The opening of ICA Maxi Sjølyst, ICA Norge s first Nordic compact hypermarket, in 2004 was part of this modernization strategy. The store concept is based on a platform developed by ICA in the Baltic countries, where it has proven very successful. It offers a diverse product range with an emphasis on fresh foods, complemented by a well-balanced assortment of non-foods. The new store is an expression of ICA Norge s long-term aim to become the market leader by offering value. Investments in product assortment ICA Norge is also working with a number of projects that will create a better range of fresh and prepared foods. For instance, it is looking into opportunities to offer a larger selection of prepackaged meals, including better solutions for fresh fish. Outlook ICA Norge expects strong growth and is planning to invest NOK billion in the next few years. There are plans to renovate a large number of Rimi stores and modernize several ICA Supermarked and ICA Nær stores. Many new stores will therefore be opened in the near future and several smaller stores will be shut down or sold. Despite the fact that the net total number of stores is expected to decline, the sales area, on the other hand, is intended to increase. At September 30, 2005, sales floor space had increased by 9,745 square meters since December 31, It is also the company s ambition to increase sales floor space at a significantly higher rate during 2006 than in Three ICA Maxi stores, two ICA Nær stores and four Rimi stores have been opened to date in 2005 (as per September 30) and there are plans to open an additional ICA Maxi store, one ICA Supermarked and five Rimi stores during the year. With a clearer store concept, ICA Norge has a good platform to meet the competition from new and established players. ICA Norge and the largest competitors ICA NORGE COOP NORGE NORGESGRUPPEN REMA 1000 LIDL NORGE Owner ICA AB (100%) Members Johan Johannson AS Odd Reitan Lidl Schwarz Stiftung Wholly owned stores, franchise (approx. 900,000), (78%) and and family (100%) stores and associated stores 241 cooperatives three smaller chains (100%) No. of stores (Dec. 31, 2004) , Store profiles ICA Naer Coop Marked Bunnpris + other smaller chains REMA 1000 Lidl ICA Supermarked Coop Mega Joker ICA Maxi Coop OBS! Kiwi RIMI Coop Prix Meny/Meny Champion Spar Ultra/Centra Market share (2004) 22.4% 24.6% 34.8% 17.5% 0.1% Source: ICA AB & AC Nielsen. Hakon Invest s holdings and financial management 39

42 ICA MENY ICA Meny is one of the Nordic region s leading suppliers to restaurants, caterers and convenience stores and has sales exceeding SEK 5.2 billion. ICA Meny will focus on increasing its share of private labels and improving operational efficiency. Hakon Invest Rimi Baltic Netto 50% 50% 40% 1) ICA AB Portfolio companies ICA Sverige ICA Norge ICA Meny ICA Banken Etos Forma Publishing Group 100% 1) According to the shareholders agreement with Ahold, Hakon Invest has a common controlling interest in ICA AB in that it stipulates unity in decisions at the Annual General Meeting and in the Board of Directors. Future Investment ICA Meny in brief BUSINESS CONCEPT ICA Meny shall provide customers with increased profitability and growth through a broad product range and a portfolio of value-added products and services (IFRS) JAN SEP 2005 (IFRS) Sales (SEK M) 4,042 4,030 4,355 4,355 4,353 Operating profit/loss (SEK M) Number of employees (average) 1) ,016 1) Refers to average number of employees based on 1,800 annual working hours Operations ICA Meny is one of the Nordic region s leading suppliers to restaurants, caterers and convenience stores. Restaurants and caterers account for more than 80% of sales, and convenience stores for the remainder. In recent years, ICA Meny has worked to increase the focus on operational efficiency and assets to support increased efficiency, primarily IT, logistics and premises, as well as pricing, cost levels and controls, which have not functioned satisfactorily given the demands placed on ICA Meny by its complex customer and logistics environment. In parallel with these efforts and in accordance with a decision in 2002 to expand operations through acquisitions, ICA Meny acquired the companies Restaurangpartner with sales of about SEK 40 Hakon Invest s holdings and financial management

43 200 million in 2002 and Arvid Nordqvist with sales of about SEK 300 million in Neither of these companies contributed positively to ICA Meny s earnings at the time of the acquisitions. In 2004, ICA Meny Norge with sales of about NOK 809 million was transferred to ICA Meny. ICA Meny Norge was previously a part of ICA Norge but is consolidated as of January 1, 2005 in ICA Meny. The objective was to coordinate operations, thus achieving economies of scale. During 2004, a two-year contract valued at more than SEK 300 million was signed with Compass Group, the world s largest catering company. The company acquisitions and the transfer of ICA Meny Norge has affected the internal efficiency work and required resources and resulted in costs for integration and restructuring of operations. The loss-generating acquired operations also had a direct negative effect on ICA Meny s earnings. ICA Meny continues to have a need to focus efforts on improving profitability, but the work completed to date, the measures already implemented and investments during 2005 have begun to show effect. Restaurants and caterers ICA Meny supplies food, spirits and restaurant equipment to restaurants and catering firms. ICA Meny is distinguished from the competition by its nationwide presence and one-stop offering of food, beverages and equipment. Other competitive advantages include ICA s Meny s competence in wine and spirits and in delicatessen products. Low operating costs and ICA AB s purchasing power are the cornerstones of its strategy. Much of the development in the culinary arts takes place in restaurants. The trends make their way to the retail sector over time. Through ICA Meny, ICA AB s has insight into the restaurant industry, picking up on new trends that can be transferred to the stores. Convenience stores ICA Meny is also one of the leading suppliers to convenience stores, including service stations and other local shops. ICA Meny Convenience focuses on small stores. Low operating costs, competitive prices and a range of services make it an attractive partner to both individual stores and chains. In addition, ICA Meny serves as a supplier of specialty/non-food items to certain ICA stores. ICA Meny has two service concepts: Nära Dej and TIME, both of which are available for independent retailers with smaller stores. Sources of revenue ICA Meny s derives its income entirely from product supply operations, since the company acts as a wholesaler, buying in food and alcoholic beverages for resale to restaurants, caterers and convenience stores. Market The Swedish and Norwegian market for supplies to restaurants, caterers and convenience stores amounts jointly to approximately SEK 63 billion. The market is fragmented and consists partly of large companies that also have retail operations and partly of small wholesalers and food producers at the local level. In 2004, the Swedish restaurant and catering market was relatively stable. ICA Meny raised its volume in this segment by 15% in Other suppliers to the restaurant and catering sector in Sweden include Servera, Martin Olsson and Servicegrossisterna. The Swedish market for convenience stores was stable in 2004, while ICA Meny s sales in this segment dropped 9%. Other major suppliers to this sector include Axfood, Servicegrossisterna, Svensk Snabbmat and Privab. The Norwegian catering market was stable in However, ICA Meny increased its volumes by as much as 25%. Also in 2004, ICA Meny commenced deliveries to convenience stores, and now has a market share of about 25%. The convenience market is judged to be stable. Three main players dominate the Norwegian catering and convenience market. These are ICA Meny, NorgesGruppen and Servicegrossisterna. Outlook Lower costs and an increased share of private labels, an improved pricing model, more efficient IT systems and a changed customer mix are important components for developing ICA Meny and achieving stable profit. However, operational efficiency will continue to remain in focus. Rationalization of the warehouse structure will continue and the number of warehousing units in Stockholm will be reduced. ICA Meny Norge will be integrated with the Swedish operations and a joint Nordic offering will be developed. In addition, ICA Meny will work to develop synergies with other companies in ICA AB s, mainly in the supply chain, sourcing and administrative systems. Business model ICA Meny is one of Nordic region s leading suppliers to restaurants, caterers and convenience stores. ICA Meny not only offers goods, but also logistics matched to customer needs, consumption statistics for individual customers and other services related to ICA Meny s delivery of goods. ICA Meny is what is called a Food Service Provider in the industry. Hakon Invest s holdings and financial management 41

44 ICA BANKEN ICA Banken offers financial services that make life a little easier for ICA AB s customers and in the process strengthen their loyalty to ICA AB and ICA retailers. As a result of various marketing initiatives in the past years, ICA Banken experienced a very strong flow of customers. ICA Banken will continue its marketing activities, with the goal of further raising business volume. Hakon Invest Rimi Baltic Netto 50% 50% 40% 1) ICA AB Portfolio companies ICA Sverige ICA Norge ICA Meny ICA Banken Etos Forma Publishing Group 100% 1) According to the shareholders agreement with Ahold, Hakon Invest has a common controlling interest in ICA AB in that it stipulates unity in decisions at the Annual General Meeting and in the Board of Directors. Future Investment ICA Banken in brief BUSINESS CONCEPT To make life a little easier for ICA s customers through its financial services and to increase their loyalty to ICA and to reduce transaction costs for ICA stores and ICA AB from customers who use other bank and credit cards (IFRS) JAN SEP 2005 (IFRS) Business volume (deposits + lending incl. mortgage loans), SEK M 4,480 6,288 9,672 9,672 11,885 Deposits, SEK M 3,789 4,451 5,219 5,219 5,958 Operating profit/loss, SEK M Number of employees, average 1) Equity, SEK M 604 Total assets, SEK M 5,925 Risk-weighted assets, SEK M 3,605 Tier 1 capital, SEK M 425 Return on equity, % 18.3 Capital coverage, % ) Refers to average number of employees based on 1,800 annual working hours. 42 Hakon Invest s holdings and financial management

45 Operations A fair interest rate on current accounts, unambiguous terms and low fees are the philosophy at ICA Banken. The bank offers the simplified services customers want and which increase their loyalty to ICA s Swedish stores. When customers use their ICA AB card, it also reduces the processing fees paid by ICA retailers and ICA AB. ICA Banken began its operations in As one of the first measures, the deposit limit for the previous deposit card was eliminated. In 2002, other bank services were offered after basic investments in systems and operations were completed. Over the past few years, ICA Banken has focused on market communications, which has resulted in a significant increase in both business volume and the number of bank cards. For example, in 2004 lending by ICA Banken grew by 300% and total business volume increased by 54% during the same period. In terms of earnings, ICA Banken reported a loss during its first years of operation while its operations were being built up. The change during 2005 of the model for credit management together with a continued positive trend for lending contributed to continued improvements in earnings. To this will be added accounting effects as a result of the final write-offs of the major share of implemented investments being completed by year-end 2006 and year-end 2007, respectively. The rage of depreciation of investments that will be completely written off by year-end 2006 amounts to about SEK 40 million per year, while depreciation on investments to be written off by year-end 2007 is about SEK 17 million per year. Source of revenue The sale of financial services is ICA Banken s source of revenues. Bank cards As of December 31, 2004 ICA AB had a base of about 3.1 million active card customers. Of them, 1.4 million pay with their ICA cards; the rest use them to accumulate bonus points. The number of banking customers those who utilize ICA Banken s banking services is nearly 200,000. The customer database is a significant asset for ICA AB and contributes to loyal customers. It allows offers to be specially matched to customers, while providing overall knowledge of buying patterns. The customer database provides important support for decisions in all of ICA AB s business areas. In 2004, ICA Banken increased its number of bank cards in issue by 61,500, to nearly 142,000. The category of customers who have an ICA Banken bank card shop an average of 30% more at ICA stores than the average regular ICA-card customers. In 2004, ICA-Banken received an award for Bank Card of the Year from the magazine Privata Affärer. The award was given to ICA Bankkort Plus in part because it does not charge fees, including exchange fees, on purchases in foreign currency. Internet bank ICA Banken continued to improve its Internet bank, which now includes functionalities such as e-giro, autogiro and mortgage loans with quick loan decisions. Loans ICA Banken provides customers with unsecured loans and through its cooperation with SBAB, mortgage loans. The bank has also started offering second mortgages as an alternative, which is likely to further increase mortgage sales. ICA Banken experienced unsatisfactory levels of credit losses on unsecured lending in 2003 and As a result, ICA Banken has adjusted the criteria for this type of lending, thus also adapting its product portfolio. However, there is some delay before these measures are expected to achieve full effect. ATMs ICA Banken in collaboration with ICA retailers has established ATMs adjacent to stores. By the end of 2005, some 40 ATMs are expected to be in operation. Cooperation with Nordea and FöreningsSparbanken In late 2003, ICA Banken signed a cooperation agreement with Nordea whereby Nordea s customers can withdraw cash in around 1,500 ICA stores that provide banking services. In 2004, ICA Banken signed a similar agreement with FöreningsSparbanken. Market Traditionally, customers in Sweden tend to stick with the same bank. The four major banks SEB, Handelsbanken, FöreningsSparbanken and Nordea account for about 80% of the market. Smaller niche banks such as ICA Banken, Skandiabanken and Länsförsäkringar Bank continue to slowly but surely capture market share from the bigger four in specific product segments. More transparent pricing of banking services is putting pressure on the major established banks. Through its product offering and pricing, ICA Banken has helped to improve terms for many customers of other banks as well. Outlook To make its services more accessible, ICA Banken will continue to install ATM s in selected ICA stores. ICA Banken will also continue its marketing activities, with the goal of further raising business volume. Hakon Invest s holdings and financial management 43

46 ETOS The specialty retail chain Etos has eight stores that bring health and beauty products together under one roof. Etos is also a strategic development company that provides its experience to other parts of the ICA group. In the past year, the company continued to prepare for the expected deregulation of the market for non-prescription medications. The company can in many respects be regarded as ICA AB s development unit for a deregulated pharmaceuticals market Hakon Invest Rimi Baltic Netto 50% 50% 40% 1) ICA AB Portfolio companies ICA Sverige ICA Norge ICA Meny ICA Banken Etos Forma Publishing Group 100% 1) According to the shareholders agreement with Ahold, Hakon Invest has a common controlling interest in ICA AB in that it stipulates unity in decisions at the Annual General Meeting and in the Board of Directors. Future Investment Etos in brief BUSINESS CONCEPT Etos shall be the customer s natural choice with regard to well-being and rejuvenation (IFRS) JAN SEP 2005 (IFRS) Sales (SEK M) Operating profit/loss (SEK M) Number of employees (average) 1) Number of stores (year-end) ) Refers to average number of employees based on 1,800 annual working hours. 44 Hakon Invest s holdings and financial management

47 Operations Etos is the first company in Sweden to clearly offer health and beauty products as part of a unified concept. The concept comes from the Netherlands, where there are around 430 Etos stores today. In Sweden, Etos is a subsidiary of ICA AB and its stores are operated as an integrated specially chain. Within the ICA group, Etos serves as a development company specialized in health and beauty. This means that Etos symbolizes knowledge, new sales solutions, range development and relationships in the field that can and must be used in other parts of the group. In addition to product synergies, Etos is cooperating closely with other companies in the ICA group to find common solutions in logistics, IT and human resources, among other areas. Business model Etos is a specialty retail chain that operates eight stores that combine products in the areas of health and beauty. Sources of revenue Etos revenues are entirely attributable to the stores in the area of its operations that is, to retail sales. Store concept Etos was launched in Sweden in 2002 and operates eight stores in greater Stockholm, Linköping and Västerås. Stores have been opened in attractive locations in city centers or popular shopping centers. Etos stores are inspired by the drugstore concept popular in other countries. The product range is divided into four segments: beauty, body, health and gifts. The stores sell products under the Etos label as well as products from the leading suppliers in the market. Etos also holds the sole right to sell products from British drugstore chain Boots in Sweden. Market The health trend is growing stronger. In 2004 the Swedish market for health and beauty products generated sales of approximately SEK 14 billion 1) including VAT. Etos is alone in offering health and beauty products as part of the same concept and has no clear-cut competitor. In health products, the closest competitors are the staterun pharmacy chain Apoteket and health food chains such as Hälsa För Alla Sverige AB and Naturapoteket. In beauty products, the main competitors are Kicks, Åhléns, H&M and Body Shop. Outlook The focus is on working with the current stores, getting them to grow and testing new concepts. At the same time, there is considerable development potential for ICA in the area of Health & Beauty, which means Etos is well placed to contribute to many internal projects and earnings in this area. Non-prescription medications may be part of this area in the future. 1) Source: Chemical-Technical Suppliers Association and the Health Food Council. Hakon Invest s holdings and financial management 45

48 NETTO ICA AB s joint venture with Dansk Supermarked A/S for the discount segment is Netto, which offers customers high-quality goods at a low price. Netto has recently undergone sharp expansion and will continue to expand the Swedish operations by adding another stores per year in southern Sweden and Mälardalen in central Sweden. Hakon Invest Rimi Baltic Netto 50% 50% 40% 1) ICA AB Portfolio companies ICA Sverige ICA Norge ICA Meny ICA Banken Etos Forma Publishing Group 100% 1) According to the shareholders agreement with Ahold, Hakon Invest has a common controlling interest in ICA AB in that it stipulates unity in decisions at the Annual General Meeting and in the Board of Directors. Future Investment Facts Netto BUSINESS CONCEPT Netto offers customers high-quality products at low price. The stores are simple and rationally organized for fast and efficient daily shopping. SEP 2001 SEP 2002 AUG 2002 DEC (IFRS) JAN SEP 2005 (IFRS) Sales (SEK M) ,194 1,194 Not public Operating profit/loss (SEK M) Not public Number of employees (average) 1) Not public Number of stores (year-end) ) Refers to average number of employees based on 1,800 annual working hours. 46 Hakon Invest s holdings and financial management

49 Operations The discount chain is jointly owned by ICA AB and Dansk Supermarket A/S in Sweden. Netto maintains a strictly hard discount profile in Sweden and offers high-quality products at the lowest food prices in the market. The concept, which comes from Denmark, where Dansk Supermarket A/S operates the chain, is to offer quality products at low prices close to where customers live. Because of its locations, Netto serves as the convenience store for many of its consumers, making it easy for them to shop inexpensively every day. In contrast to other discounters, Netto prefers to be close to residential areas, although it also prioritizes stores that are easy to reach by car or in city centers by mass transit. The typical Netto store is about 1,000 square meters in size, of which 750 square meters is sales area. This is in addition to parking spaces a requirement that does not apply to city centers. Netto prefers to build new, but will move into an existing property if the location and logistics are right. Netto acts independently in relation to the owners since the lowprice concept places other demands on purchasing, logistics and distribution. Today, while there is some cooperation on purchasing to achieve volume advantages, these functions are not coordinated with ICA AB. Netto also compares itself with Netto in Denmark, to develop and optimize its operations. Business model Netto is a food retail chain that through its stores offers customers goods of high quality at a low price. Sources of revenue ICA AB s revenue from Netto is attributable to retail. Since Netto s operations are conducted as a joint venture with Dansk Supermarked A/S, ICA AB receives 50% of the company s earnings. Store concept Netto s concept is based on self-service and its stores are very simply and efficiently designed. The product range is limited to popular products, which is one reason why prices can be kept so low. It is believed that the approximately 1,000 articles in Netto s range cover approximately 90% of consumers requirements. Netto offers a mix of private label and brand name products familiar to Swedish consumers. Since the strategy is to always offer low prices, there are no discounts. Each week, however, new products are purchased in lots and sold under the Bargain of the week banner. Market In 2004, discounters continued to gain a larger share of the food retail market. Price pressure is coming mainly from new discounters, one of which is Netto. Netto expects that the price pressure in the market will continue and the discounters market share will increase. Lidl and Willy s are the main competitors here. Outlook The falling price trend is expected to continue in Netto sees no indications of a slowdown in sales and expects a further increase in revenues. Netto will expand its Swedish operations by a further stores a year in southern Sweden and Mälardalen. Hakon Invest s holdings and financial management 47

50 RIMI BALTIC In January 2005, ICA AB and the Finnish company Kesko Livs AB formed a joint venture that combines both companies operations in the region, creating one of the leading and most modern food chains in the Baltic regions. The name of the new company is Rimi Baltic AB. ICA AB and Kesko Livs AB each own 50% of the combined operations. The near-term focus will be on developing Rimi Baltic and establishing new stores throughout the region. Hakon Invest Rimi Baltic Netto 50% 50% 40% 1) ICA AB Portfolio companies ICA Sverige ICA Norge ICA Meny ICA Banken Etos Forma Publishing Group 100% 1) According to the shareholders agreement with Ahold, Hakon Invest has a common controlling interest in ICA AB in that it stipulates unity in decisions at the Annual General Meeting and in the Board of Directors. Future Investment Operations The purpose of the formation of Rimi Baltic is to achieve strong growth and profitability and eventually to become the market leader in the region with a combined market share of 25% within three years. Synergies will be gained mainly in sourcing, logistics and new store openings. At present Rimi Baltic has a market share of approximately 13% and a strong second-place position in the Baltic food retail market. The two companies complement each other in the region, with Kesko being the strongest in Estonia while ICA the strongest presence in Latvia, creating an excellent foundation for cooperation through Rimi Baltic. The Baltic region is ICA AB s fastest growing geographic market within food retail. The majority of Rimi Baltic s customers are families with average to high incomes that demand and appreciate a wide range of fresh foods and high quality. Business model Rimi Baltic owns all stores and operates a coordinated supply chain for them. Sources of revenue Revenue in the Baltic region is attributable to retail operations. Since Rimi Baltic s operations are conducted as a joint venture with Kesko Livs, ICA AB receives 50% of the company s earnings. 48 Hakon Invest s holdings and financial management

51 RIMI Baltic in brief 1) BUSINESS CONCEPT Rimi Baltic s stores should be the customer s first choice in the fast growing markets in Estonia, Latvia and Lithuania. Together with Kesko Livs, ICA AB aims to make Rimi Baltic the leading retail food chain in the Baltic countries. JAN SEP 2005 (IFRS) Sales (EUR M) 581 Operating profit/loss (EUR M) 4 Number of employees (average) 2) 8,584 Number of stores (year-end) 169 1) Rimi Baltic was established in 2005 as a joint venture between ICA AB and Kesko Livs AB, meaning that there are no historical figures for the company. 2) Refers to the average number of employees based on 1,800 annual working hours. Store concept ICA Baltic introduced the store concepts Rimi Supermarket and Rimi Hypermarket to the cooperation with Kesko Livs. Rimi originated with the Norwegian Rimi stores but has been locally adapted to the Baltics. In the supermarket concept, the focus is on fresh foods and good service, and the stores have deli, meat, hot and cold meal solutions and fresh fish counters. Several hypermarkets were converted in 2004 to the new Compact Hypermarket concept, which was launched in The stores focus on fresh foods and non-food products, with an emphasis on atmosphere, comfort and efficient use of space. The new concept has been successful, and new Compact Hypermarkets have also been opened in Tallinn (Estonia), Daugavpils and Liepaja (Latvia) and Kaunas (Lithuania). Expansion of the concept will continue. At the time of the formation of the joint venture with ICA Baltic, Kesko Livs had a total of eleven Citymarket stores located in Estonia and Latvia. In Estonia, Kesko Livs also owned Säästumarket, the country s largest low-price chain with 47 stores. Kesko Livs also had 25 SuperNetto stores some in Estonia, but most in Latvia. The new company Rimi Baltic operates in six formats. Rimi Baltic NO. OF STORES, NO. OF PRODUCTS STORE PROFILE DESCRIPTION DEC. 31, 2004 PER STORE Customers do their daily shopping at Rimi Supermarket, where they can find high-quality fresh food. These stores are conveniently located close to where customers live and work. 68 8,000 10,000 At Rimi Compact Hypermarket and Rimi Hypermarket, customers can find everything RIMI COMPACT HYPERMARKET at reasonable price in a single location. In addition to food, these stores sell apparel, 5 20,000 25,000 housewares, multimedia, toys, sporting goods and cosmetics. The stores are conveniently RIMI HYPERMARKET located for customers traveling by car and have extended opening hours. 5 35,000 Super Netto is a discount chain in Latvia. 25 1,200 Säästumarket is the first discount chain in the Estonia retail sector. The first store opened in 1999 to give customers an opportunity to save money. Strong price focus with limited range and acceptable quality. 47 1,200 Citymarket In this hypermarket concept, the customer should be able to find everything under one roof. A wide range of food products is mixed with a non-food assortment with the focus on apparel, textiles and shoes. The concept is used in Estonia and Latvia ,000 30,000 Cash & Carry The Cash and Carry concept is focused on smaller restaurants and companies. 1 Hakon Invest s holdings and financial management 49

52 Market Approximately 7.5 million people live in the three Baltic countries: Estonia, Latvia and Lithuania. Lithuania, with a population of nearly 3.5 million, is the largest geographic market, followed by Latvia with 2.5 million inhabitants and Estonia with 1.5 million inhabitants. The Baltic countries became full-fledged members of the EU on May 1, Membership has led to higher inflation in all three countries due to the inflow of goods from other EU member states. The economic growth rate in the countries is high, ranging between 6 and 8%. The Baltic market for consumer goods grew by just over 9% in 2004, to approximately SEK 47 billion including VAT. The discount market continued to develop strongly. Households spend about 35% of their disposable income on food, compared with Sweden, for example, where the corresponding figure is 15%. As incomes rise, there is also a growing interest in more sophisticated products and international brands in all areas. In Latvia, in 2004 ICA Baltic had sales corresponding to approximately 14% of the total market. Kesko Livs s share of the market in 2004 amounted to approximately 6%, so Rimi Baltic s total market share amounted pro forma to approximately 20%. Its largest competitor is Lithuania-based Vilnius Prekyba, with approximately 16% of the market, followed by Mego and Elvi with approximately 4% of the market each. In 2004, ICA Baltic was the fourth largest player in Lithuania, with approximately 6% of the market. Kesko Livs, on the other hand, had no operations in Lithuania. Vilnius Prekyba was clearly dominant, with approximately 37% of the market, followed by the domestic chain IKI, with 14% and Norfa with approximately 11%. In Estonia, ICA Baltic had a limited market share in 2004, while Kesko was the market leader, with a market share of approximately 26%. Cooperative ETKs were the second-largest player in the Estonian market, with a market share amounting to approximately 23%. The Selver chain had a market share of 7%, while the Finnish Prisma company had a market share of approximately 6%. As a whole, Vilnius Prekyba was the market leader in the region in 2004, with around 20%, followed by ICA Baltic with approximately 7%, Kesko Livs with slightly more than 6% and IKI with slightly more than 5%. Outlook In the near future, the focus will be on developing Rimi Baltic together with Kesko Livs. Expansion efforts will continue and new stores will be opened throughout the region. Expansion focus will be placed in the fastest growing formats of hard-discount and Compact Hypermarkets. The German hard-discount chain Lidl is expected to establish operations in the Baltic region in 2005/2006. Source: ICA AB. Source: ICA AB. Source: ICA AB. MARKET SHARES, LATVIAN RETAIL FOOD MARKET, 2004 Other 56% Other 32% Rimi Baltic 6% Rimi Baltic 20% Elvi 4% MARKET SHARES, Norfa 11% Vilnius Prekyba 16% Mego 4% LITHUANIA RETAIL FOOD MARKET, 2004 Other 38% Prisma 6% Selver 7% Vilnius Prekyba 37% IKI 14% MARKET SHARES, ESTONIAN RETAIL FOOD MARKET, 2004 Rimi Baltic 26% ETKs 23% 50 Hakon Invest s holdings and financial management

53 FINANCIAL OVERVIEW ICA AB 1) INCOME STATEMENT IFRS ACCORDING TO IFRS ADJUST SEK M MENT 2004 JAN SEP JAN SEP Net sales 70,908 71,980 71,811 1,720 2) 73,531 53,996 52,514 Cost of goods sold 61,988 63,130 62,810 1,295 2) 64,105 47,095 45,812 Gross profit 8,920 8,850 9, ,426 6,901 6,702 Selling- and administration expense 6,652 7,430 7, ) 7,929 5,753 5,620 Other operating income 435 1, ) Result from participation in associated companies Goodwill amortization and write-down ) Operating profit (EBIT) 6) 2,535 2,120 1, ,977 1,621 1,341 Financial income Financial expenses ) Profit before tax (EBT) 2,084 1,808 1, ,741 1,442 1,158 Tax on income for the year ) Minority interests NET PROFIT FOR THE YEAR 1,710 1,777 1, ,515 1,221 1,068 BALANCE SHEET IFRS ACCORDING TO IFRS ADJUST SEK M MENT 2004 JAN SEP JAN SEP Goodwill 2,422 2,009 1, ) 1,765 1,695 1,609 Other intangible non-current assets Tangible non-current assets 14,469 11,639 12,118 1,067 7) 13,185 13,081 13,125 Financial non-current assets 4,047 3,936 1, ) 1,565 1,731 2,384 Total non-current assets 21,278 17,863 15,623 1,143 16,765 16,838 17,483 Inventory and current receivables 7,120 7,502 9, ) 9,749 8,517 11,339 Cash, bank and other current investments 3,967 4,476 3, ) 3,227 3,318 3,079 Other current assets 1,706 1,713 1, ,346 1, Total current assets 12,793 13,691 14, ,323 12,982 14,774 TOTAL ASSETS 34,071 31,554 29,683 1,405 31,088 29,820 32,257 Equity 11,939 12,169 7, ) 7,094 12,293 7,937 Minority interests Interest-bearing provisions Non-interest bearing provisions 1, Interest-bearing liabilities 11,387 8,855 13,005 1,231 11) 14,236 8,245 15,378 Non-interest bearing liabilities 8,833 8,940 7, ) 8,221 7,733 7,418 TOTAL EQUITY AND LIABILITIES 34,071 31,554 29,683 1,405 31,088 29,820 32,257 1) Due to rounding off, some of the columns may not total exactly. 2) Consolidation of stores. 3) Consolidation of stores, goodwill and sale/lease-back of properties. 4) Sale lease-back of properties. 5) Reversal of goodwill. 6) Net items of non-recurring nature amounted to around SEK +160 million in 2004 and around SEK +230 million in In 2002 the net effect was around SEK +250 million. 7) Consolidation of stores and sale/lease-back of properties. 8) Tax on reported adjustments. 9) Reversal of goodwill amortization. 10) Sale/lease-back of properties and reporting of financial instruments. 11) Sale/lease-back of properties. SUMMARY OF EFFECTS OF IFRS 2004 INCOME STATEMENT SEK M IFRS IFRS 5 8 IFRS IFRS 27 5 IFRS 39 2 BALANCE SHEET SEK M IFRS IFRS 5 3 IFRS IFRS IFRS Hakon Invest s holdings and financial management 51

54 CASH-FLOW STATEMENT IFRS ACCORDING TO IFRS ADJUST SEK M MENT 2004 JAN SEP JAN SEP Cash flow from operating activities before working capital changes 2,969 2,968 2, ,561 1,935 1,873 Working capital changes , ,776 1,715 1,010 Cash flow from operating activities 2,702 2, Investments in non-current assets 3,287 2,676 2, ,622 2,119 1,829 Divestments of non-current assets 1,263 3,742 1,138 1, Other items from investing activities , ,435 2, Cash flow from investing activities 2, , ,259 Changes in loans 828 2,369 4,199 4,199 1,475 1,074 Shareholder contributions 73 Dividend ,228 6, Other items from financing activities Cash flow from financing activities 40 3,359 1, ,999 2, CASH FLOW FOR THE YEAR , ) 1,263 1, KEY DATA IFRS ACCORDING TO IFRS ADJUST MENT 2004 JAN SEP JAN SEP Operating profit before depreciation and write-downs (EBITDA) 4,103 4,437 3, ,267 2,671 2,159 Operating profit before amortization of goodwill (EBITA) 2,827 2,742 2, ,977 1,883 1,341 Operating margin before depreciation and write-downs (EBITDA margin) 5.8% 6.2% 5.0% 4.4% 4.9% 4.1% Operating margin before amortization of goodwill (EBITA margin) 4.0% 3.8% 3.3% 2.7% 3.5% 2.6% Operating margin (EBIT margin) 3.6% 2.9% 2.6% 2.7% 3.0% 2.6% Profit margin (EBT margin) 2.9% 2.5% 2.4% 2.4% 2.7% 2.2% Return on shareholders equity, excluding ICA Banken 2) 16.5% 15.7% 16.5% 16.9% 14.1% Return on capital employed, excluding ICA Banken 2) 15.6% 13.1% 12.8% 12.9% 11.0% Equiry/assets ratio 35.8% 38.7% 25.0% 22.8% 41.2% 24.6% Interest-bearing net debt, excluding ICA Banken 3), SEK M 6,323 3,188 7,161 7,161 1,602 7,032 Net debt/equity ratio, excluding ICA Banken, multiple Proportion of risk-bearing capital 38.4% 41.0% 27.4% 25.1% 43.7% 26.5% Interest coverage ratio, multiple Untaxed reserves in the parent company, SEK M 1,492 1,573 1,671 1,573 1,671 Average number of employees 15,732 16,836 17,206 18,781 4) 12,295 Dividend, SEK M 5) ,228 Dividend ratio 34.4% 37.4% 410.3% 411.1% ICA AB S OPERATING MARGIN (EBIT) COMPARED WITH TARGET OF % ICA AB S RETURN ON EQUITY COMPARED WITH TARGET OF % ICA AB S EQUITY/ASSETS RATIO COMPARED WITH TARGET OF % % % % Target interval EBIT margin Target interval Return on equity Target interval Equity/assets ratio 04 1) Consolidation of stores. 2) For quarterly figures, the key data are calculated on a rolling twelve-month basis. 3) Interest-bearing liabilities (excluding pensions and interestbearing provisions) minus interest-bearing liabilities from real estate transactions reported as financing (sale-lease back with sublease to ICA retailers) minus cash, bank and short-term investments. Everything excluding ICA Banken. 4) Not available. 5) Dividend refers to dividend paid during the year. In 2004, the dividend included an extraordinary dividend of SEK 5,500 million. 52 Hakon Invest s holdings and financial management

55 Note to the financial overview of ICA AB In conjunction with the changed ownership structure of the ICA group in 2000, ICA Ahold AB was established and acquired all shares of ICA AB (publ). During 2002 ICA AB (publ) and ICA Ahold AB were merged and during 2003 the company changed name to ICA AB. Neither Swedish nor international accounting recommendations have previously provided guidelines for how this transaction should be reported. The company has previously elected to treat this transaction as a company acquisition in accordance with Swedish accounting practice. In March 2004, a new international recommendation regarding reporting of company acquisitions was issued (IFRS 3 and IAS22). As a result of international guidance becoming available, the company elected in 2004 to change the reporting of ICA Ahold s acquisition of ICA AB (publ). The change entailed the elimination of goodwill in the consolidated balance sheet which affected goodwill, amortization on goodwill, and equity, but had no effect on consolidated cash flow. The years 2002 and 2003 were also recalculated retroactively. Comments on adjustments attributable to IFRS The accounts according to IFRS for 2004 and the periods from January to September 2004 and 2005 were prepared in accordance with the IFRS principles expected to apply as of December 31, IFRS is subject to ongoing review and interpretation by the EU, whereby changes may arise that affect the accounts for the specified periods. The company has provided long-term financing or guarantees to a number of ICA retailer and franchisees. The company does not consider that it controls the operations in these stores. In accordance with IFRS (IAS 27 and SIC 12), however, the determination is that ICA has control over about ICA retailers and franchisees, which, accordingly, should be consolidated by ICA. A consolidation of these ICA retailers and franchisees would result in an increase in net sales, gross profit and total assets, but not significantly affect earnings for the period and equity. The company plans to divest the financing operations during the fourth quarter of 2005, which means that the consolidation requirement ceases for most of these ICA retailers and franchisees. Accordingly, the company assesses that a consolidation of these ICA retailers and franchisees for 2004 and part of 2005 would not provide a correct view of the company s operations. Consequently, the company has decided not to consolidate them. Hakon Invest s holdings and financial management 53

56 Forma Publishing Group AB Hakon Invest Rimi Baltic Netto 50% 50% 40% 1) ICA AB Portfolio companies ICA Sverige ICA Norge ICA Meny ICA Banken Etos Forma Publishing Group 100% 1) According to the shareholders agreement with Ahold, Hakon Invest has a common controlling interest in ICA AB in that it stipulates unity in decisions at the Annual General Meeting and in the Board of Directors. Future Investment Forma Publishing Group in brief BUSINESS CONCEPT Through publishing operations in the Nordic and Baltic markets, to give people knowledge and inspiration in their private and working lives JAN SEP 2005 Sales (SEK M) Operating profit/loss (SEK M) Number of employees (average) Forma Publishing Group AB (Forma) is one of Sweden s largest publishers focused on production and distribution of consumer periodicals, trade magazines and books. The dominant subject areas are food, home, recreation and retailing. Forma s consumer magazine operations produce such publications as Sweden s largest weekly magazine ICA-kuriren and Sweden s largest monthly magazine Hus&Hem. The editorial staff of Hus&Hem also produces Sweden s largest home buyer s magazine Metro Hus&Hem in collaboration with the free newspaper Metro. Forma also produces customer magazines, with assignments that include Sweden s largest customer magazines. These include Sweden s largest food magazine Buffé, which is sent to ICA s 2.3 million active customers. Forma has leading expertise in food and retail, which is focused in the leading trade magazines. Operations are currently conducted in Sweden, Finland, Estonia and Latvia. In recent years, the company has undergone an extensive change program with favorable results. In addition to a positive financial trend, the company has won a number of awards, such as Magazine of the Year and the Year s One-shot from the industry magazine Resumé. Forma was then also nominated as Publisher of the year. The company has also been nominated as Sweden s best workplace by the Alecta insurance company. 54 Hakon Invest s holdings and financial management

57 Background and history Hakon Invest s subsidiary Forma (formerly ICA Förlaget AB) was previously included in ICA AB, but in conjunction with the preparations for the planned exchange listing of ICA AB in 2000, ICA decided to focus operations on food retailing. This resulted in ICA AB decided to divest Forma. Hakon Invest acquired Forma in 1999 and has since developed the company so that it now generates a profit. Forma changed its name in 2004, but since ICA has a strong and well-established brand, the company decided to continue using it in its operations (i.e. ICA-kuriren, ICA Bokförlag) with the support of ICA-handlarnas Förbund s agreement with ICA AB which regulates the use of the brand. The agreement also includes ICAhandlarnas Förbund s subsidiaries and their subsidiaries. Forma is not dependent on ICA AB in other respects. In 2004, for example, sales to ICA AB comprised less than 15% of Forma s sales. Business concept and strategy To provide people with knowledge and inspiration in their private and professional lives through publishing operations in the Nordic and Baltic markets. This means that Forma s primary arena in the media industry is printed materials. Forma s strategy consists of developing existing and new business. The positive earnings trend in recent years was possible by focusing on profitable core operations. Extensive development work is in progress both in trade magazine publishing and in consumer magazines, which has resulted in completely new magazines, as well as more efficient use of the brands that already exist. Furthermore, Forma will grow by implementing acquisitions in the areas in which Forma is currently active. Financial targets Forma has established the following targets: Sales shall amount to SEK 1,000 million by Profit before tax shall amount to SEK 100 million by Growth over time shall be 10% per year. Organization Forma conducts operations in Sweden, Finland, Estonia and Latvia with around 300 employees. The major share of operations are conducted in Västerås. The company s business areas are: Consumer magazines Specialty magazines Customer magazines ICA Bokförlag Finland and Baltic countries Magazine operations are organized in a matrix in which each magazine is built up around three functions: Editorial Board, Marketing and Advertising. The Editorial Board delivers the journalistic content. Marketing and Advertising are central functions that exploit economies of scale within the organization. The Advertising department s sales staff are thus integrated, meaning that advertisement sales personnel represent Forma as a whole, not an particular magazine or publication. The Marketing department is organized in the same manner and is responsible for subscriptions and singlecopy sales. In addition, the company has staff functions for Personnel, Accounting and IT and purchasing. Forma places great emphasis on its employees and was recently nominated by Alecta as Sweden s best workplace. In recent year, Forma has sharply improved profitability, reduced absence due to illness and increased employee satisfaction. Business areas Consumer magazines ICA-kuriren Forma publishes Sweden s largest weekly magazine, ICA-kuriren, which is a broad magazine focused on food and leisure. ICAkuriren has a circulation of 272,300 copies and is read each week by some 861,000 readers. 1) During 2004, Forma published a number of special editions of its ordinary magazines. The editors of ICA-kuriren published the travel magazine Columbus, the dog magazine Vovve and the food magazine Smak, which will be published twice during 2005 and is planned for publication five times next year. The magazine Vovve will be published four times during 2005, and eight issues are planned for The launch form one-shot titles as a method for live tests of a magazine with low financial risk will be increasingly common for Forma over the coming years. Hus&Hem Hus&Hem is Sweden s largest monthly magazine with a circulation of 142,100 2) and a focus on good living and home decoration. The magazine, which is intended to inspire, provide tips and illustrate current topics, has some 625,000 readers 1). Hus&Hem also produces Sweden s largest home buyer s magazine, Metro Hus&Hem, in collaboration with the newspaper Metro. The editorial board of Hus&Hem produces all editorial material, and it is hoped that it will be possible to expand the partnership with more magazines in additional markets. In competition with 117 new magazines, Metro Hus&Hem received the award as the Best Magazine of 2004 from the industry magazine Resumé. During 2005, the editorial board of Hus&Hem will also test three new one-shot titles: Antik nu, Bohem and December. 1) Source: Orvesto. 2) Source: TS. Hakon Invest s holdings and financial management 55

58 Specialty magazines Within the framework of Forma s operations, specialty magazines in the areas of food and retail are also published. Knowledge of retailing in general and food retailing in particular are utilized for development in a broader perspective. New products emerge and existing media are enriched with supplementary distribution channels. Forma s specialty magazines are Snabba köp, Praktiskt butiksarbete, ICA-nyheter, Restaurang & Storhushåll and Supermarket. Specialty trade magazine operations also publish books and guides linked to food and retailing. Customer magazines Forma s customer magazine operations, Idé & Media, are the market leader in assignments towards consumers. Together with customers, the unit works to develop solutions that are customized for different reader groups. This includes editorial work, advertising sales, purchasing of printing services, distribution and Internet solutions. In addition, analyses and effectiveness measures are performed for the product. These operations even include production on assignment focused on business-to-business, primarily in retail and food sales. Customers include Stadium, Swedish Houseowners Association, the Swedish Tennis Association, the Swedish Equestrian Federation and ABB. On assignment from ICA AB, Forma also publishes Buffé, Sweden s largest food magazine, which is distributed to ICA s 2.3 million active regular customers. Buffé is ICA s most important medium for promoting the joy of cooking. The magazine should strengthen the ICA brand while rewarding customer loyalty, but also encourage retailers to implement loyalty-enhancing measures. ICA Bokförlag Forma includes ICA Bokförlag, which is one of Sweden s largest specialty book publishers with more than 450 titles in its catalogue. Publication is very broad and comprises primarily practical handbooks in the areas of cooking, home decoration, gardening, health and leisure. Among the unit s successes is the baking book Sju sorters kakor, which is Sweden s best-selling book after the Bible. Finland and Baltic countries Three successful magazines are published in Finland: Kotivinki, Trendi and Talo & Koti. These all have strong positions with substantial circulation. In Estonia, the magazines Kodu & Aed and Trend are published. In Latvia, Forma only publishes Majas & Därtz. Revenue model Some 33% of Forma s revenues in Sweden derive from advertising, while 47% come from readers through subscription fees and newsstand sales. The remaining 20% includes revenues from book sales and customer magazine operations. START OF COUNTRY PUBLICATION CIRCULATION DESCRIPTION CONSUMER MAGAZINES ICA Kuriren Sweden ,300 Sweden s largest weekly Hus & Hem Sweden ,100 Sweden s largest monthly Vovve Sweden ,000 Sweden s first life-style magazine for dog owners Kotivinki Finland ,000 Finland s largest magazine for the home Trendi Finland ,000 Magazine for young women Talo & Koti Finland ,000 Finland s Hus & Hem Kodu & Aed Estonia ,000 Estonia s largest monthly Trend Estonia ,000 Magazine for young women Majas & Därtz Lettland ,000 Latvia s largest monthly TRADE MAGAZINES ICA-nyheter Sweden ,600 News magazine for food retailers Snabba köp Sweden ,300 Magazine for convenience stores Praktiskt Butiksarbete Sweden ,300 Magazine for store employees Restaurang & Storhushåll Sweden ,900 Magazine for the hotel and restaurant sector Supermarket Sweden ,600 Magazine for retailing decision makers Source: Forma Publishing Group. 56 Hakon Invest s holdings and financial management

59 Market and outlook 1) Advertising is an important source of revenue for Forma. Growth in this market is driven by generic and cyclical factors. The generic factors drive develop over the long term and consist of structural changes in the market, such as the emergence of new media, product development in existing media and changes in competition. The market for media and publishing is currently undergoing structural change. In addition to changing consumer patterns as a result of new media, a consolidation is in progress in which the players are becoming larger and fewer in number. Growth through acquisitions is therefore a prioritized area for Forma, and its future competitiveness and profitability will depend on the company s growth capacity. The cyclical factors dominate growth in a shorter perspective and are in turn dependent on general economic conditions. Growth, particularly in private consumption, and business profitability are important factors in the advertising market. The cyclical prerequisites are expected to remain stable during 2006 with a growth rate of 5.2% for total advertising investments. The market for advertising investments in specialty magazines amounted to SEK 1,435 million during 2004, with growth expected to amount to 4.5% due to a strengthening of the economy. The popular press market amounted to SEK 678 million in The influx of new titles, which has been great in recent years, as well as a large number of one-shot titles, has probably saturated the market and made greater discounts necessary. In addition, competition is fierce from free newspapers and the evening newspapers supplements, which in large part have the same editorial content as the popular press. The strengthening of private consumption, however, should provide prerequisites for anticipated growth in the market for advertising investments in the popular press of 2.9% during The launch of Metro Hus&Hem in the beginning of 2004 contributed strongly to a redistribution of advertising revenues from primarily metropolitan dailies to free newspapers during the year. Advertising in free newspapers and magazines amounted to SEK 2,153 million and is expected to continue to show stronger growth than the average for the media market, amounting to some 7%. The free publication segment also includes customer and company magazines. During 2004, advertising revenues in this segment declined by 0.8% to SEK 450 million due to price pressures. During the first quarter of 2005, however, advertising revenues increased by 4.2%. Customer and company magazines benefit from the advertisers desire to profile their brands by starting their own customer magazines. Many companies also start magazines for the purpose of creating relations. Customer magazine production thus gains from this regrouping of advertisers marketing efforts and constitute a method for Forma to increase its exposure to the traditional advertising market. Forma has excellent prospect for taking additional market shares in the segment for customer and company magazines, and the trend towards increased demand is expected to continue with growth in 2006 anticipated to amount to 2.4%. Forma s share of the advertising market is 10.6% in the popular press, 5% in the consumer magazine segment and 2.4% in the specialty press 2). Other major players in the customer magazine market are Hachette Filipacchi Sverige AB and OTW. Hachette Customer Publishing produces customer magazines for external business partners and is part of the magazine publishing company Hachette Filipacchi Sverige AB, with sales of some SEK 164 million in ) OTW is an associated company to Forma and has sales of about SEK 75 million. 4) The largest competitors in the publishing market are Prisma (within the KF Media Group) and Bonnier. The KF Media Group is owned by Kooperativa Förbundet (KF) and has five main business areas: book stores, book publishing, magazines, interactive media and Internet book sales. The group has sales of some SEK 2 billion with about 1,000 employees. 5) Bonnier AB is a family-owned media group with its base in Sweden. The company s business areas Bonnier Magazine Group and Bonnier Books had sales of SEK 3,248 million and SEK 4,573 million, respectively, in ) Forma has a strong market position with several products that are the market leaders in their respective area and customer segments. Customer magazine operations within the Idé & Media business area lead the market for contracted magazines towards consumers. ICA Bokförlag is the leader in the segment for practical handbooks for consumers. Forma works continuously to retain and enhance its competitive position in the market. Forma s management and its Board of Directors conducted a comprehensive review of the company s business strategy, assignments, business concept, vision, values, goals and strategy during Forma will strive to pursue the new direction and strategy for developing existing operations while making acquisitions and developing new business. The company will also continue to develop work methods and increase efficiency in the organization. Opportunities still remain for improving financial control, for example, and increase sales of publications and advertising. 1) Source for information in this section is unless otherwise specified: Institute for Advertising and Media Statistics, Advertising and Media Forecast, June ) Source: IRM. 3) Source: Hachette Filipacchi Sverige AB s Annual Report. 4) Ownership share 12.5%. Source: Forma Publishing Group. 5) Source: 6) Source: Bonnier s 2004 Annual Report. Hakon Invest s holdings and financial management 57

60 FINANCIAL OVERVIEW FORMA 1) INCOME STATEMENT SEK M JAN SEP JAN SEP Net sales Cost of goods sold Gross profit Selling expense Administration expense Other operating income Operating profit (EBIT) Result from participation in associated companies Income from other securities and receivables 10.5 Interest income and similar items Interest expense and similar items Profit before tax (EBT) Tax on profit for the year Minority interests 0.5 NET PROFIT FOR THE YEAR BALANCE SHEET SEK M JAN SEP JAN SEP Goodwill 0.1 Tangible non-current assets Financial non-current assets Total non-current assets Inventory and current receivables Cash, bank and other current investments Total current assets TOTAL ASSETS Equity Interest-bearing provisions Non-interest bearing provisions Interest-bearing liabilities 27.9 Non-interest bearing liabilities TOTAL EQUITY AND LIABILITIES ) Due to rounding off, some of the columns may not total exactly. 2) Changed definition in the 2003 Annual Report meaning that current investments totaling SEK 11.6 million were excluded from liquid funds in ) For quarterly figures, the key data are calculated on a rolling twelve-month basis. 4) Not available. CASH-FLOW STATEMENT SEK M JAN SEP JAN SEP Cash flow from operating activities before working capital changes Working capital changes Cash flow from operating activities Investments Divestments Cash flow from investing activities Changes in long-term liabilities Changes in long-term receivables Group contributions and other cash flow items Cash flow from financing activities Cash flow for the year Cash equivalents on the opening date ) CASH EQUIVALENTS AT YEAR-END KEY DATA JAN SEP JAN SEP Operating profit before depreciation and write-downs (EBITDA) Operating profit before amortization of goodwill (EBITA) Gross margin 45.7% 45.1% 49.5% 55.8% 46.9% Operating margin before depreciation and write-downs (EBITDA margin) 0.5% 7.2% 11.6% 6.4% 3.3% Operating margin before amortization of goodwill (EBITA margin) 0.7% 5.8% 9.9% 8.6% 5.4% Operating margin (EBIT margin) 0.7% 5.8% 9.9% 8.6% 5.4% Profit margin before tax (EBT margin) 4.5% 6.2% 10.0% 8.7% 6.5% Return on equity 3) 50.0% 56.4% 61.2% 42.2% 31.8% Return on capital employed 3) 3.2% 27.2% 35.7% 27.3% 20.5% Equity/assets ratio 10.5% 14.7% 21.6% 23.3% 26.1% Interest-bearing net debt, SEK M Net debt/equity ratio, multiple Proportion of risk-bearing capital 11.1% 15.4% 22.6% 26.9% 29.0% Interest coverage ratio, multiple Average number of employees ) Hakon Invest s holdings and financial management

61 Financial Management Hakon Invest Rimi Baltic Netto 50% 50% 40% 1) ICA AB Portfolio companies ICA Sverige ICA Norge ICA Meny ICA Banken Etos Forma Publishing Group 100% 1) According to the shareholders agreement with Ahold, Hakon Invest has a common controlling interest in ICA AB in that it stipulates unity in decisions at the Annual General Meeting and in the Board of Directors. Future Investment Hakon Invest AB has a substantial liquidity management, which at September 30, 2005 amounted to about SEK 2.8 billion including cash and bank balances of around SEK106 million used in the daily operations. Liquid funds not used in current operations are managed externally and internally. External management is handled by Carlson Investment Management. Proprietary management is carried out in accordance with the Company s existing investment policy and financial policy. The aim of proprietary management is to handle the Company s holding in Ahold shares as well as cash and bank balances. As a consequence of Hakon Invest via Ahold acquiring half of Canica AS s 20% interest in ICA AB in 2004, a stable ownership situation in ICA AB is foreseen. This means that Hakon Invest no longer needs to hold as high a liquidity position as previously, when the Company wanted to have the possibility to acquired Canica s shareholding that was expected to be divested in In turn, this means that the liquidity in financial management can now be reduced, which increases the conditions for achieving a higher return. As a result, Carlson Investment Management s assignment was realigned in January Previously, the management was evaluated against index, but now an absolute target is applied. The goal is as a minimum to achieve a return that corresponds to the change in the CPI (Consumer Price Index) plus 4 percentage points. The rules for financial management are set in a financial policy and attest procedure adopted by the Board of Directors. The Board s Audit Committee monitors compliance. Trading in equities is carried out within the framework of the management. In total, around 78% of the management of the liquid funds not used in operations is managed externally, while around 20% is handled internally. The funds invested under external and internal management, including the funds used in the daily operations, shall be distributed within the following framework: Cash and bank balances >5% of total funds under management Proprietary management <25% External management < 80% The aim is an average return of 5% annually. 30 SEP SEK M Result from financial management 1, Return on financial management 44% 5% 3% 11% Value of total capital under management (end of period) 3,314 3,114 2,567 2,716 of which, value under external management 2,152 2,631 1,974 2,195 of which, value under proprietary management 1, PROPRIETARY FINANCIAL MANAGEMENT Financial situation and structure At September 30, 2005, proprietary financial management amounted to SEK 521 million. Investments were distributed 94% in equities and 6% in hedge funds. Return goal The goal is a return of 5% annually. Hakon Invest s holdings and financial management 59

62 Equities The equities holding is largely in shares in Ahold (8,341,326 shares). The shares in Ahold are a financial investment. The value of the Ahold shares at September 30, 2005 amounted to SEK 490 million, which is 17% of the financial management at that date. Hedge funds The hedge fund holdings are entirely in the Amplus hedge fund. The value at September 30, 2005 was SEK 31 million. Other During the first half of 2005, the Company divested its interest in the Skandia Investment venture capital fund. The investment in Skandia Investment has yielded a positive return since In addition, there are smaller investments in Swedish equities funds in the Forma subsidiary. The value of the fund units at September 30, 2005 amounted to SEK 14 million. These units were transferred to the Parent Company in the third quarter. Investment rules Permitted asset types The portfolio s funds may be invested in the following asset categories: a) Fixed-income securities denominated in Swedish and foreign currencies. b) Swedish and foreign equities, certificates of deposit and equityrelated instruments. Mutual funds including hedge funds may be used in the management of so-called structured products. Derivatives May only be used to hedge exchange rates in foreign currencies. Single-party undertakings The market value of directly owned shares, bonds and other financial instruments attributable to a single issuer, or issuers in the same group, may only amount to a maximum of 10% of the portfolio s total market value, with the exception of the current investment in Ahold shares. Exceptions to this limit are issuer categories 1, 2 and 3 in the table below (see column Maximum share of portfolio per issuer, % ). Fixed-income securities The limits in the table below apply for directly owned fixed-income securities in Swedish and foreign currencies. The percentages in the table refer to the share of the assets (proprietary management) total market value. Interest risk The portfolio s fixed-income securities, both directly owned and through fixed-income funds, may have a duration of not more than five years. Equities At least 90% of the portfolio s investments in Swedish and foreign shares, certificates of deposit and equity-related instruments must be exchange listed, that is, subject to regular trading on a marketplace open to the public and which is supervised by an authority or other regulatory body. A maximum of 50% of the assets under proprietary management must be invested in shares, of which 50% in foreign shares (corresponding to 25% of the assets under proprietary management, with the exception of the investment in the Ahold shares). Issuer category ISSUER MAX. SHARE OF PORTFOLIO MAX. SHARE OF CATEGORY ISSUER/SECURITY 1) PER ISSUER CATEGORY % PORTFOLIO PER ISSUER, % 1. Securities issued by the Swedish State or guaranteed by Swedish State; securities with rating AAA / Aaa Swedish mortgage institutions Swedish municipalities and counties securities with rating AA / Aa Securities with rating A / A ) Rating according to Standard & Poor s and/or Moody s. As appropriate, issuers/securities should be rated by at least one of this institutes. In the event of a split rating, the lowest rating shall be applied. 60 Hakon Invest s holdings and financial management

63 Liquidity risk Liquidity risk is managed through specifying that 90% must be in listed securities. Currency risk Ahold shares at a value of EUR 55 million as of September 12, 2005, are hedged at a rate of SEK/EUR 9.26 through to January 13, Evaluation Evaluation of management is carried out continuously against the goal of 5% that applies to the return on proprietary management. This is carried out by the CFO, who reports to the Board at each Board meeting. EXTERNAL FINANCIAL MANAGEMENT External financial management, which as of 2005 is carried out Carlson Investment Management, amounted at September 30, 2005 to SEK 2,196 million. Distribution of the investments was 37% equities, 23% hedge funds, fixed-income securities 39% and bank funds 1%. Return goal The management goal is to achieve an annual average real return over a rolling five-year period of 4% on the portfolio s assets. Real return is defined as nominal return adjusted for inflation in Sweden, measured as the change in CPI. The managements benchmark return is CPI plus 4% per year. Investment rules Permitted asset types The portfolio s funds may be invested in the following asset categories: a) Fixed-income securities denominated in Swedish and foreign currencies. b) Swedish and foreign equities, certificates of deposit and equityrelated instruments, Mutual funds including hedge funds may be used in the management as well as so-called structured products. Derivatives With the aim of enhancing the efficiency of management and for the purpose of increasing returns or hedging an investment, the portfolio s manager may use derivatives, that is, options, futures, swaps and FRAs (Forward Rate Agreement), related to currencies and securities in which the manager is permitted to invest funds, or indexes related to such securities. The manager may also enter into repo agreements pertaining to fixed-income securities. There is no limit on how much that may be invested in derivative instruments in accordance with the above. Single-party undertakings The market value of directly owned shares, bonds and other financial instruments attributable to a single issuer, or issuers in the same group, may only amount to a maximum of 10% of the portfolio s total market value. Exceptions to this limit are issuer categories 1, 2 and 3 in the table below (see column Maximum share of portfolio per issuer, % ). Fixed-income securities The limits in the table below apply for directly owned fixed-income securities in Swedish and foreign currencies. The percentages in the table refer to the share of the assets (external management) total market value. Issuer categories ISSUER MAX. SHARE OF PORTFOLIO MAX. SHARE OF CATEGORY ISSUER/SECURITY 1) PER ISSUER CATEGORY % PORTFOLIO PER ISSUER, % 1. Securities issued by the Swedish State or guaranteed by Swedish State; securities with rating AAA / Aaa Swedish mortgage institutions Swedish municipalities and counties securities with rating AA / Aa Securities with rating A / A Securities with rating BBB / Baa Securities with rating BB / Ba; issuers without a rating but with a assessed creditworthiness corresponding to at least BB / Ba ) Rating according to Standard & Poor s and/or Moody s. As appropriate, issuers/securities should be rated by at least one of this institutes. In the event of a split rating, the lowest rating shall be applied. Hakon Invest s holdings and financial management 61

64 Interest risk The portfolio s fixed-income securities, both directly owned and through fixed-income funds, may have a duration of not more than ten years. Equities At least 90% of the portfolio s investments in Swedish and foreign shares, certificates of deposit and equity-related instruments must be exchange listed, that is, subject to regular trading on a marketplace open to the public and which is supervised by an authority or other regulatory body. Risk in the portfolio The risk in the fixed-income securities is measured continuously and defined as the value risk in the event of a one (1) percentage unit change. At September 30, 2005, the value risk was SEK 20 million. Investments in hedge funds have been made in which the goal for the standard deviation is 4%. Investments in Swedish and foreign equities is carried out with at least 90% in exchange-listed shares and with a favorable spread. Accordingly, the risk in this part of management is not less the exchange in general. Liquidity risk All funds under external management are available to Hakon Invest within a maximum of five days. Currency risk The table below presents the portion of the portfolio that is exposed against various currencies at September 30, All currencies that represent more than 1% of the portfolio are shown in the table. CURRENCY AMOUNT (SEK M) SHARE OF PORTFOLIO SEK 1, % USD % EUR % GBP % YEN % Other % Total 2, % Evaluation Evaluation of management is carried out continuously against the goal that applies to the portfolio s return in the form of the change in the CPI plus 4 percentage points per year. This is carried out by the CFO, who reports to the Board at each Board meeting. 62 Hakon Invest s holdings and financial management

65 Financial overview Hakon Invest

66 Financial overview Hakon Invest INCOME STATEMENT 1) ACCORDING TO IFRS ADJUSTMENT 2) SEK M IFRS 2004 JAN SEP JAN SEP Net sales Cost of goods sold Gross profit Selling expenses Administrative expenses ) Result from participation in associated companies, gross 4) Share in profit from companies reported according to the equity method 4) Other operating income Other operating expenses Items affecting comparability Operating profit (EBIT) ) Financial income ) ) Result from the sale of associated companies 6) 1,794.3 Change in value due to fair valuation Financial expense , ) ) Result from financial investments 1, , ) Profit before tax (EBT) 2, Tax on profit for the year ) Minority interests NET PROFIT FOR THE YEAR 1, ) Due to rounding off, some of the columns may not total exactly. 2) IFRS accounts for full-year 2004 and the interim periods January September 2004 and 2005 have been prepared in accordance with the IFRS principles expected to apply on December 31, Since IFRS is subject to continual review and interpretation as well as EU approval, changes may occur that affect the accounting for the above-stated periods. For comments regarding adjustments attributable to IFRS, refer to the section entitled 2004 accounts in accordance with IFRS. 3) Differences in net present value and pension costs in accordance with defined benefit pension plans. Net present value and pension cost pertaining to pension commitments not reported previously. Goodwill adjustment for acquisitions. 4) Share in profit from associated companies are reported above in operating profit, while in the annual reports for they were included in result from financial investments. Result from participation in associated companies are reported gross for the years , but net in accordance with IFRS ) See note 3 above and Goodwill amortization for investments in companies reported according to the equity method. Regrouping of tax expense in companies reported according to the equity method. 6) After estimated standard tax, the net gain regarding the sold shares in ICA AB amounted to SEK 1,464 million. 7) Includes change in value due to fair valuation. 8) Change in the fair value of financial instruments. 9) Deferred tax on pension expenses. Regrouping of tax expense in companies reported according to the equity method. 64

67 BALANCE SHEET ACCORDING TO IFRS ADJUSTMENT 1) SEK M IFRS 2004 JAN SEP JAN SEP Goodwill ) Tangible and other intangible non-current assets Participations in companies reported according to the equity method 2, , , , , ) 4, , ,828.6 Other financial assets ) Total non-current assets 3, , , , , , , ,980.1 Inventories Current receivables Securities under special management 5) 2, , , , , ) 1, , ,231.8 Other shares 7) 2, , , Cash and bank balances/cash equivalents ) Total current assets 5, , , , , , , ,097.4 TOTAL ASSETS 8, , , , , , , ,077.6 Equity 7, , , , , , , ,682.5 Minority interests 5.0 Interest-bearing provisions ) Interest-free provisions ) Interest-bearing liabilities Interest-free liabilities TOTAL EQUITY AND LIABILITIES 8, , , , , , , ,077.6 CASH-FLOW STATEMENT ACCORDING TO IFRS ADJUSTMENT 1) SEK M IFRS 2004 JAN SEP JAN SEP Cash flow from operating activities before working capital changes , , Working capital changes Cash flow from operating activities , , Investments in non-current assets 2, , , Sale of non-current assets and other items 2, , , Change in current investments Cash flow from investing activities , , Change in long-term liabilities and provisions Change in current investments 9) 2, Dividend paid and shareholders contribution 2, Other items from financing activities Cash flow from financing activities Cash flow for the year Cash and cash equivalents at January CASH AND CASH EQUIVALENTS AT DECEMBER ) ) ) IFRS accounts for the full year 2004 and the interim periods January September 2004 and 2005 have been prepared in accordance with the IFRS principles expected to apply on December 31, Since IFRS is subject to continual review and interpretation as well as EU approval, changes may occur that affect the accounting for the above-stated periods. For comments regarding adjustments attributable to IFRS, refer to the section entitled 2004 accounts in accordance with IFRS. 2) Reversed goodwill amortization. 3) Recalculation for companies reported according to the equity method. 4) Change in the fair value of financial instruments. 5) Market values: SEK 2,020.6 million (2004), SEK 2,644.9 million (2003). 6) Reclassification of current investments with an original maturity of less than 3 months. 7) Refers to shares in Ahold reported at market value on the closing date. 2004: 8,341,376 shares at EUR 5.66; 2003: 8,341,376 shares at EUR 6.04; 2002: 10,004,826 shares at EUR 11.93; 2001: 10,004,826 shares at EUR ) Differences in net present value and pension costs in accordance with defined benefit pension plan. 9) Changed definition in the 2001 annual report entails that current investments of SEK 2,695 million were excluded from cash and cash equivalents from year ) Includes reclassification to cash and cash equivalents in an amount of SEK million. 11) Includes reclassification to cash and cash equivalents in an amount of SEK million. 65

68 KEY DATA ACCORDING TO IFRS ADJUSTMENT 1) SEK M IFRS 2004 JAN SEP JAN SEP Gross margin 26.3% 33.0% 45.7% 45.1% 51.6% 51.6% 57.7% 48.4% Operating margin before depreciation and write-downs (EBITDA margin) 57.9% 58.3% 87.2% 85.8% 82.1% 79.3% 73.9% 90.1% Operating margin before goodwill amortization (EBITA margin) 54.7% 54.6% 86.1% 84.4% 80.5% 78.0% 72.2% 88.0% Operating margin (EBIT margin) 54.0% 53.8% 85.5% 83.7% 79.8% 78.0% 72.2% 88.0% Profit margin (EBT margin) 244.1% 48.0% 136.5% 58.1% 90.2% 95.5% 75.0% 151.7% Return on equity 2) 21.9% 3) 3.5% 13.1% 5.0% 7.0% 8.2% 11.6% Return on capital employed 2) 30.0% 3) 7.1% 9.7% 17.7% 9.1% 9.4% 17.3% Capital employed, SEK M 7, , , , , , , ,802.5 Equity/assets ratio 94.4% 92.1% 94.7% 95.2% 95.3% 95.7% 95.3% 95.1% Average interest-bearing net debt, SEK M 4) 4, , , , , , ,049.9 Net debt/equity ratio, average 4) Proportion of risk-bearing capital 95.3% 92.8% 94.8% 95.3% 95.3% 95.8% 95.3% 95.4% Interest coverage ratio, multiple Average number of employees ) 237 Earnings per share in the Group, SEK Earnings per common share in the Group according to IFRS, SEK 6) 2.38 Earnings per share in the Parent Company, SEK Equity per share, SEK Dividend, SEK M Dividend per preference share, SEK 7) Dividend ratio 1.2% 20.0% 121.3% 39.9% n.m. 8) Dividend received from ICA AB, SEK M n.m. 9) , JAN SEP JAN SEP Number of preference shares on closing date 40,917,436 40,917,436 39,599,936 39,599,936 39,599,936 39,599,936 Total number of shares on closing date 160,917, ,917, ,917, ,917, ,917, ,917, ,917,436 Average total number of shares 141,117, ,917, ,917, ,917, ,917, ,917, ,917,436 Sale price, SEK P/E ratio calculated on sale price, multiple 10) Sale price/equity per share, % ) IFRS accounts for the full year 2004 and the interim periods January September 2004 and 2005 have been prepared in accordance with the IFRS principles expected to apply on December 31, Since IFRS is subject to continual review and interpretation as well as EU approval, changes may occur that affect the accounting for the above-stated periods. For comments regarding adjustments attributable to IFRS, refer to the section entitled 2004 accounts in accordance with IFRS. 2) For quarterly figures, the key data are calculated on a rolling twelve-month basis. 3) Calculated on basis of closing balance in ) Net debt and equity are calculated as the average of the opening and closing balances. Calculated on basis of closing balance for ) Not available. 6) Earnings per preference share in the Group according to IFRS: SEK ) Based on other dividend criteria than those applicable today. The dividend criteria were established in an older Articles of Association. The share structure during those years was also different from the structure that will be implemented in conjunction with the market listing. 8) Not measurable. No information on net profit according to IFRS ) Not measurable. Reorganization took place in IFAB s (current Hakon Invest) annual report does not report any dividend but only profit share. 10) Refers to the period September 30, 2004 September 30, Financial overview Hakon Invest

69 KEY DATA DEFINITIONS The definitions apply to Hakon Invest, Forma, and ICA unless otherwise specified. Gross margin Gross profit/loss as a percentage of sales. Operating margin before depreciation and write-downs (EBITDA margin) Operating profit before depreciation and write-downs as a percentage of sales. Operating margin before goodwill amortization (EBITA margin) Operating profit before goodwill amortization as a percentage of sales. Operating margin (EBIT margin) Operating profit as a percentage of sales. Profit margin (EBT margin) Profit before tax as a percentage of sales. Return on equity (ROE) Net profit calculated on a rolling 12-month basis, as a percentage of average equity during the same period. Equity does not include minority shares in subsidiaries. Return on capital employed (ROCE) Profit after net financial items plus financial expense, calculated on a rolling 12-month basis, as a percentage of average capital employed during the same period. Capital employed Total assets reduced by non interest-bearing liabilities and non interest-bearing provisions. Equity/assets ratio Equity including minority shares, as a percentage of total assets. Interest-bearing net debt Interest-bearing provisions and liabilities reduced by financial assets and liquid funds. Calculated on the closing date unless otherwise specified. Net debt/equity ratio Interest-bearing net debt as defined above divided by equity including minority interests. Calculated on the closing date unless otherwise specified. Proportion of risk-bearing capital The total of equity including minority interests and deferred tax liability divided by total assets. Interest coverage ratio Profit before tax plus financial expense divided by financial expense. Average number of employees New employees, part-time employees, etc. are restated as full-time positions based on total working time of 1,800 hours per year. Earnings per share Profit after tax divided by the average number of shares. Equity per share Equity divided by the number of shares on the closing date. Dividend ratio Dividend as a percentage of net profit for the year. P/E ratio calculated on sale price Sale price divided by earnings per share. Financial overview Hakon Invest 67

70 Comments on financial development OVERVIEW Hakon Invest owns 40% of the shares 1) in ICA AB and 100% of the shares in Forma and had assets under management totaling some SEK 2.8 billion at September 30, ICA AB is one the leading retail companies in the Nordic region focusing on food and meals, with operations in Sweden and Norway, as well as in the Baltic region through its 50% holding in Rimi Baltic with operations in Estonia, Latvia and Lithuania. The wholly owned subsidiary Forma is consolidated in the Hakon Invest Group. Forma is a publishing company with operations in Sweden, Finland, Estonia and Latvia. Financial management has historically been handled by external asset managers but is now also conducted under the company s own auspices. Hakon Invest conducts active and long-term investment operations in retail-oriented companies in the Nordic region. Hakon Invest is also one of two principal owners in ICA AB and currently has an extensive financial management. Conducting trading in securities is also included in the scope of these operations. Up until June 30, 2005, Hakon Invest was also responsible for certain service operations for members of ICA-handlarnas Förbund. The Group s sales and operating profit thus include the operations of Forma and the Parent Company. From 2000 to 2004, ICA AB was reported as an associated company according to the equity method and was reported together with results from financial management under the heading Income from financial investments. As of 2005, income from shares in ICA AB is reported on a separate line in Hakon Invest s income statement. In the Financial Overview Hakon Invest and The consolidated financial statements in accordance with IFRS for the 2004 fiscal year, income from shares in ICA AB is reported on a separate line in Hakon Invest s income statement with the purpose of making comparisons over time easier. ACQUISITION OF 10% OF ICA AB On November 4, 2004, Ahold acquired 20% of the shares in ICA AB from Canica AS for SEK 7.35 billion, whereupon Hakon Invest acquired 10% of the shares in ICA AB from Ahold for SEK 2.89 billion. Prior to these transactions, Ahold owned 50% of the shares in ICA AB, Hakon Invest 30% and Canica AS the remaining 20%. After the transactions, Ahold owns 60% and Hakon Invest 40% of the shares in ICA AB. A shareholders agreement between Ahold and Hakon Invest dating from 2000 still applies, however. See also the Supplementary information section. This agreement stipulates that for a shareholding of 30 70% between Hakon Invest and Ahold, each party has equal influence in ICA AB, meaning that neither party currently consolidates ICA AB. Influence in ICA AB was thus not changed by the share transactions. In conjunction with the above transaction, ICA AB granted an extra dividend of SEK 5,500 million, of which Hakon Invest received SEK 2,200 million. Pro forma accounts as a result of Hakon Invest s increased ownership in ICA AB have not been prepared. FACTORS AFFECTING HAKON INVEST S NET SALES Hakon Invest s consolidated sales for comprised primarily Forma s sales, as well as the Parent Company s now separate service operations for members of ICA-handlarnas Förbund. Sales in the service operations in the form of membership and service fees amounted to SEK 25.7 million in 2004 and SEK 15.8 million in The service operations were separated from Hakon Invest on July 1, 2005 and placed in a subsidiary wholly owned by ICA-handlarnas Förbund. Forma Hakon Invest s consolidated sales consist primarily of Forma s publishing activities in consumer magazines, trade magazines, customer magazines and book publishing. Of Forma s revenues in 2004, 33% were attributable to advertising sales and 47% to revenues from subscriptions and newsstand sales. The remaining 20% derived from publishing operations and customer magazines. Forma s sales depend primarily on the advertising market, subscription demand, single-copy sales of consumer and trade magazines, and demand for specialist books. Advertising market The advertising market is largely driven by general economic conditions, which in turn affect private consumption as well as profitability among the companies that are the largest advertisers. In addition, Forma s advertising revenues are affected by the share of the total advertising market occupied by various media, since Forma is only active in certain segments of the total market, which includes daily, weekly and monthly publications, TV, radio, outdoor advertising and other advertising channels. Demand for subscriptions and single-copy sales of consumer and trade magazines Demand in Forma s Consumer Magazines and Trade Magazines business areas is affected by the general economic trend, which influences private consumption, and also by magazine consumption trends and earnings trends in the segments that Forma s trade magazines target, primarily the food retail, hotel and restaurant sectors. Demand for specialist books Demand for the products of Forma s subsidiary ICA Bokförlag AB is primarily steered by general economic conditions and private consumption, as well as trends in demand for books, particularly hand- 1) According to the shareholders agreement with Ahold, Hakon Invest has a common controlling interest in ICA AB in that it stipulates unity in decisions at the Annual General Meeting and by the 68 Board.

71 books. ICA Bokförlag primarily publishes practical handbooks in a large number of areas, with leisure, food, home furnishing and gardening as important subject areas. FACTOR S AFFECTING HAKON INVEST S OPERATING EXPENSES Hakon Invest s primary costs are attributable to Forma s operations and costs for operating the Parent Company. Forma Forma s costs primarily comprise cost of goods sold, selling expenses and administrative expenses. Cost of goods sold Cost of goods sold primarily comprises costs relating to personnel, IT, printing and distribution. Cost of goods sold is the largest cost item, amounting to 50.5% of net sales in Selling expenses Selling expenses consist primarily of costs for personnel and the cost of advertising directed toward readers and the advertising market. Selling expenses amounted to 25.8% of net sales in Administrative expenses Administrative expenses consist mainly of personnel and IT costs, as well as direct costs for infrastructure. Administrative expenses amounted to 14.7% of net sales in Depreciation/amortization Depreciation of non-current assets is distributed among the above cost items. Depreciation relates to depreciation of buildings and land, machinery and equipment (including IT systems) and new construction in progress. In 2004, depreciation corresponded to 1.6% of net sales. Computer equipment is depreciated over three years and other equipment over five to ten years. Intangible assets are amortized over five years and industrial buildings are depreciated over 33 years. Parent Company The Parent Company s costs consist primarily of personnel costs for management and operation of the Parent Company and costs for external consultants. The Parent Company s administrative expenses amounted to SEK 96.1 million in 2004, SEK 64.6 million in 2003 and SEK 71.0 million in The normal cost level on the administrative costs of the companies is SEK million per year. Goodwill Hakon Invest s goodwill is attributable to the acquisition of Forma from ICA AB in 1999 and amounted to SEK 57.6 million on December 31. Goodwill is amortized over 20 years with respect to the acquisition of Forma, since it was an acquisition of well-established operations of strategic value. Goodwill amortization for the period from 2002 to 2004 amounted to around SEK 4.1 million net per year. Gross amortization amounted to SEK 5.9 million per year. Since Hakon Invest owned 30% of ICA AB on the date of the transaction relating to Forma, an internal gain arose that reduced the annual goodwill amortization for Forma by SEK 1.8 million. As previously, goodwill is reported in 2005 as an intangible asset in the balance sheet. According to IFRS, goodwill is not amortized, but instead the value is impairment tested each year to establish possible write-down needs. The value of goodwill is also tested with respect to write-down requirements when events or changed circumstances indicate that it may not be possible to recover the reported value. Goodwill was not recalculated as per January 1, 2004, but is instead reported on the opening date at the value as per December 31, OTHER FACTORS AFFECTING HAKON INVEST S OPERATING PROFIT Result from participation in ICA AB The earnings level in the ICA group depends on many factors, including the general economic situation, development of the ICA group s market position, price trends in the convenience goods industry, ICA AB s ability through the initiated cost-reduction program and negotiations with suppliers to further increase their competitiveness and in appropriate cases profit sharing and/or royalties in accordance with the ICA agreement. Hakon Invest s result from participation in ICA AB amounts to 40% of ICA AB s profit after taxes. This 40% after amortization of surplus values comprises ICA AB s contribution to Hakon Invest s consolidated earnings. Hakon Invest s earnings in the Parent Company as well as cash flow in the Parent Company and the Group regarding earnings attributable to ICA AB comprise dividends received. In accordance with the shareholders agreement between parties, Hakon Invest and ICA AB s profit after taxes Hakon Invest s consolidated earnings Hakon Invest s earnings in the Parent Company 100 and cash flow in the Parent Company and Group Hakon Invest s share 40% 40 Normally at least 16 less amortization of surplus values 1) Ahold s share 60% 1) These amount to around SEK 15 million after taxes on a yearly basis in Hakon Invest. 69

72 Ahold have undertaken to ensure that ICA AB distributes at least 40% of the ICA group s profit after taxes. However, a condition, among others, is that this is not in conflict with good business practice and that due consideration is taken with regard to the ICA group s investment plans and operational needs. As a result of Hakon Invest s share in ICA AB of 40%, Hakon Invest receives 16% of ICA AB s profit after taxes in dividend. The correlation between ICA AB s profit after taxes and Hakon Invest s consolidated earnings, earnings in Hakon Invest s Parent Company and cash flow in the Parent Company and the Group is illustrated on the preceding page. Non-recurring items Several items of a non-recurring nature are included in ICA AB s earnings during Such items include property write-downs, capital gains from property sales and divestments of associated companies. The net effect of such items in 2004 amounted to around SEK +160 million and around SEK +230 million in In 2002, the approximate net effect was SEK +250 million. FACTORS AFFECTING RESULT FROM FINANCIAL INVESTMENTS Hakon Invest s income from financial investments consists foremost of result from financial management. Result from financial management Result from financial management are linked both to interest-rate and share-price trends and to Hakon Invest s ability to successfully direct the management of capital for that part of asset management that is handled by external managers. Dividends, interest income, capital gains from sales and the reversal of previously made write-downs of securities as a result of the sale of the written-down securities are all reported under the heading Financial income. The Financial expense heading primarily includes capital losses on sales but also interest expense and exchange-rate differences. Capital losses are reported gross when the entire capital loss is reported under Financial expense and the previously made writedown is reversed and reported under Financial income. Result from the sale of associated companies in 2000 primarily refer to the sale of shares in ICA AB. TAX Hakon Invest s tax expense derives both from the Hakon Invest Group and ICA AB, since Hakon Invest reports its share of ICA AB s tax expense. Tax consists primarily of Swedish corporate taxes, but also of corporate taxes in Finland, Estonia and Latvia through Hakon Invest. ICA AB conducts operations in Sweden, Norway, the Netherlands (see section entitled Group function Supply Chain under the description of ICA AB) and through Rimi Baltic, in Estonia, Latvia and Lithuania. From 2005 the result from participation in ICA AB, including the tax portion, is reported on a separate line in Hakon Invest s operating profit. Result from participation in 2004 according to IFRS and in the financial overview is reported according to the same principle. Hakon s tax rate amounted to 11.4% in 2004, 3.8% in 2003 and 8.5% in Please refer to section Consolidated financial statements in accordance with IFRS for the 2004 fiscal year, footnote 10 for more information. This is partly because Hakon Invest AB s subsidiaries and joint ventures conduct operations in several European countries with different national tax rates. In addition, non-taxable revenue both of a recurring and non-recurring nature has arisen. Hakon Invest s current assessment is that the Company s effective tax rate is not temporary. Unutilized tax loss carryforwards in Hakon Invest at September 30, 2005 amounted to SEK 0 million. Hakon Invest does not have a tax status as an investment company. Hakon Invest s current assessment is that there is probably no possibility to obtain tax status as an investment company. Hakon Invest assesses that the Company s securities trading activities are not of such a nature that permits tax deductions for write-downs. CURRENCY EFFECTS Hakon Invest Currency risk is defined as the risk of unfavorable exchange-rate movements affecting the Group s earnings and equity in SEK. Transaction exposure arises when expenses and revenues for a product or service are not matched. Hakon Invest s net cash flows in foreign currency amounted in 2004 to SEK 21 million, of which SEK 9 million was in EUR, SEK 5 million in NOK, SEK 2 million in DKK and SEK 5 million in other currencies. Net foreign currency exposure in 2004 amounted to SEK 14 million, nearly all of which pertained to EUR. Normally, cash flows in foreign currency are not to be hedged. The Company could, however, decide to deviate from this policy. The currency distribution within financial management at September 30, 2005 entailed foreign currency exposure of SEK 286 million. Balance-sheet exposure arises when Hakon Invest has net assets and liabilities in foreign currency and these are translated to SEK. The Company hedges balance-sheet exposure by using forward contracts, loans and options. On the reporting date, income statements and balance sheets are translated from foreign currencies to SEK, which means that Hakon Invest s earnings and financial position are affected by fluctuations among the above currencies. Assets and liabilities are translated at the closing rate, while revenues and expenses are based on average exchange rates for the period. Ahold shares valued at EUR 55 million at September 12, 2005 are hedged at a SEK/EUR rate of 9.26 until January 13, During 2004, 75% of the Group s revenues were in SEK, 23% in EUR and 2% in other currencies. 70 Comments on financial development

73 ICA AB Of ICA AB s sales of SEK 71,811 million in 2004, 66% were generated in SEK, 28% in NOK and 6% were distributed among sales in Denmark, Estonia, Latvia and Lithuania. ICA AB s Danish operations were sold, however, and as a result of the establishment of a joint venture, Rimi Baltic, with the Finnish company Kesko Livs, the Baltic operations are no longer consolidated. The currency risk arising as a result of a portion of ICA AB s equity being invested in foreign subsidiaries, which constitutes translation exposure, is not hedged with financial instruments. There are natural hedges, however, since assets and liabilities are matched in the various currencies. The ICA group is thus exposed to the various interest-rate levels in the countries in which operations are conducted. Transaction exposure in foreign currency arises when a selling price is stated in a currency different from the purchase currency. The risk norm stipulated in ICA AB s financial policy is that 100% of the outstanding currency risk shall be hedged, although the finance department has the authority to deviate from this norm, depending on cost and currency trends. Approved instruments for currency hedging are spot, currency forward and currency swap contracts. JANUARY SEPTEMBER 2005 COMPARED WITH JANUARY SEPTEMBER 2004 (IFRS) Sales Hakon Invest posted sales of SEK million in January September 2005, compared with SEK million for the corresponding period in 2004, a decline of SEK 13.3 million or 3%. Forma Forma had sales of SEK million in January September 2005, compared with SEK million in the corresponding period a year earlier, a decline of SEK 6.6 million or 2%. The decline was due mainly to lower subscription rates on consumer publications as well as lower advertising revenues. Parent Company The Parent Company had sales of SEK 12 million in January September 2005, compared with SEK 19 million for the corresponding period in the preceding year. The Parent Company s lower sales were due to the transfer of service operations for ICA-handlarnas Förbund members to one of ICA-handlarnas Förbund s whollyowned subsidiaries on July 1, Operating profit (EBIT) Operating profit at Hakon Invest amounted to SEK million for the period January September 2005, compared with SEK million for the period January September 2004, an increase of SEK 60.6 million, or 18%. Forma Operating profit at Forma amounted to SEK 23.3 million for the period January September 2005, compared with SEK 37.7 million for the corresponding period in 2004, a decline of SEK 14.4 million, or 38%. The decline in profit was due to previous expenses for subscription campaigns, shutdown of unprofitable publications and investments in new products. Parent Company Operating profit at the Parent Company amounted to SEK 190 million for the period January September 2005, compared with SEK 163 million for the corresponding period the preceding year, an increase of SEK 27 million or 17%. The dividend from ICA AB is included in the Parent Company s operating profit according to IFRS. The Parent Company s administrative expenses remained at the same level as the preceding year, however, earnings in both years were charged with non-recurring expenses. The normal cost level for the Parent Company s administrative expenses is SEK million per year. Hakon Invest s result from participation in ICA AB Hakon Invest s result from participation in ICA AB amounted to SEK million for the period January September 2005, compared with SEK million for the corresponding period in the preceding year, an increase of SEK 67.1 million, or 19%. Hakon Invest s ownership interest as of September 30, 2005 amounted to 40%, compared with 30% on the corresponding date in Information about ICA AB FINANCIAL DATA ICA AB SEK M JAN SEPT 2004 JAN SEPT 2005 Net sales 53,996 52,514 Operating profit before depreciation and write-downs (EBITDA) 2,671 2,159 Operating profit (EBIT) 1,621 1) 1,341 Profit before tax (EBT) 1,442 1) 1,158 Net profit 1,221 1) 1,068 Total capital employed 29,820 32,257 Operating margin, % Equity/assets ratio, % ) Including gain on the sale of Statoil Detaljhandel AB. Sales January September ICA AB had sales of SEK 52,514 million during the period January September 2005, compared with SEK 53,996 million for the corresponding period in 2004, a decline of SEK 1,482 million, or 2.7%. The decline is attributable to ICA Baltic no longer being consolidated since ICA Baltic s operations were transferred in January 2005 to a joint venture with Finnish Kesko Livs Ab, as well as the sale of the Danish operation in August Adjusted for these transactions, revenues rose by 3.7% for the period. ICA Banken, ICA Meny and ICA Sverige experienced better sales trends compared with their competitors, thereby increasing their market shares. ICA Norge had lower sales due to increased competition and the conversion of wholly-owned stores into franchises, as well as the disposal of stores. Comments on financial development 71

74 Third quarter For the period July September 2005, ICA AB had sales of SEK 18,029 million, compared with SEK 18,189 million for the corresponding period in 2004, a decline of SEK 160 million, or 1%. Adjusted for the changes mentioned above regarding ICA Baltic and ICA Danmark, revenues increased by 5.2% during the third quarter of 2005, compared with the corresponding quarter the preceding year. The price offensive that was initiated in Sweden s ICA stores in March and in Norway s Rimi stores in May has been a success. ICA s volumes in the Swedish market have been growing faster, on average, than its competitors, since March. In Norway, price differences between Rimi and Rema have diminished and market share stabilized. Operating profit/loss (EBIT) OPERATING PROFIT/LOSS SEK M JAN SEP 2004 JAN SEP 2005 ICA Sverige 1,238 1,054 ICA Norge ICA Baltic ICA Danmark ICA Meny 26 1 ICA Banken ICA AB 441 1) 26 1,621 1,341 1) Including gain on the sale of Statoil Detaljhandel AB. January September ICA AB s operating profit for the period January September 2005 amounted to SEK 1,341 million, compared with SEK 1,621 million for the corresponding period in 2004, a decline of SEK 280 million, or 17%. Earnings in 2004 included earnings participations and the gain on the sale of ICA AB s 50% ownership interest in Statoil Detaljhandel AB of SEK 457 million, as well as a write-down to market value of ISO ICA A/S. ICA Sverige and ICA Norge reported lower earnings due to the implementation of price reductions. ICA Baltic earnings for 2004 included the wholly-owned ICA Baltic AB operation. In January 2005, it was transferred, together with Kesko s Baltic operations, to the jointly owned company Rimi Baltic, which is accounted for applying the equity method. Rimi Baltic s sales during the period January-September 2005 amounted to EUR 581 million, an increase of 21.5% compared with the corresponding period in the preceding year. ICA Meny and ICA Banken had considerably improved earnings compared with the preceding year. Those earnings improvements were the result of increased volume. Net profit for the year was impacted by expenses relating to the implementation of the new Nordic organization. Due to organizational changes, the number of employees will drop by approximately 500 fulltime positions through the end of 2006, 300 of which will be achieved by the end of third quarter Third quarter For the period July September 2005, ICA AB s operating profit amounted to SEK 683 million, compared with SEK 470 million for the corresponding period in 2004, an increase of SEK 213 million, or 45%. The operating margin increased to 3.8% during July September 2005, compared with 2.6% for the corresponding period in Improvements during the third quarter were made according to plan and were achieved through increased sales volumes and cost reductions in Sweden and Norway, improved earnings from property management and increased volumes at ICA Banken. ICA Baltic improved its earnings both through lower losses in Rimi Baltic and through gains on the sale of remaining ICA Baltic AB properties. During the third quarter of 2005, revenues were received by ICA Norge related to supplier negotiations that are partly attributable to prior quarters in Since these effects lack significance for the period January-September 2005, this period is more representative for the underlying margin pertaining to ICA Norge. It is assessed that the effects of the above time lag of revenues in ICA Norge is not significantly important to an evaluation of ICA AB s margin during the third quarter Profit after tax ICA AB s profit after tax for the period January September 2005 amounted to SEK 1,068 million, compared with SEK 1,221 million for the corresponding period the preceding year, a decline of SEK 153 million, or 13%. For the third quarter of 2005, profit after tax increased by SEK 104 million, or 27%, to SEK 492 million, up from SEK 388 million for the corresponding period in Result from financial investments Result from financial investments for the period January September 2005 amounted to SEK million, compared with SEK 12.6 million for the corresponding period in 2004, an increase of SEK million. Financial investments under own management as of September 30, 2005, amounted to SEK 521 million. Return for the period January September was 11%, or SEK 59 million. Investment distribution as of September 30, 2005, was 94% equities and 6% hedge funds. During the second quarter, the Company divested its investments within the framework of Skandia Investment. Earnings refer to positive development of Ahold shares, compared with a sharp downturn during the period January September Financial investments under external management as of September 30, 2005, amounted to SEK 2,195 million. Return for the period was 11%, or SEK 222 million. Investment allocation as of September 30, 2005, was 37% equities, 23% hedge funds, 39% fixed-income securities and 1% cash equivalents. Development on both the Swedish and international exchanges positively affected earnings. Other financial revenues totaled SEK 3 million. 72 Comments on financial development

75 Profit before tax (EBT) Profit before tax for the period January September 2005 amounted to SEK million, compared with SEK million for the corresponding period in 2004, an increase of SEK million, or 96%. The increase is attributable mainly to a larger share in profits from ICA AB amounting to SEK 67.1 million, as well an improved result from financial investments amounting to SEK million COMPARED WITH 2003 (NOT ACCORDING TO IFRS) Sales Hakon Invest generated sales of SEK million in 2004, compared with SEK million in 2003, a decline of SEK 8.9 million or 1%. Forma Forma had sales of SEK million in 2004, compared with SEK million in This represents a decline of SEK 34.6 million or 5% compared to the preceding year, attributable primarily to discontinuation of unprofitable products and lower advertising revenues. Parent Company The Parent Company reported sales of SEK 25.7 million in 2004, which consisted primarily of membership and service fees for members of ICA-handlarnas Förbund. In 2003, service fees amounted to SEK 15.8 million but were reported under the heading Other income and were therefore not included in net sales. The increase between sales for 2004 and other income for 2003 was primarily the result of the introduction from July 1, 2003 of a service charge for service operations provided to ICA-handlarnas Förbund members. The service charge is calculated based on store sales. Service fees were received throughout Operating profit (EBIT) Hakon Invest reported an operating profit of SEK million in 2004, compared with SEK million in Goodwill amortization amounting to a net of around SEK 4.1 million per year was charged against the Hakon Invest Group s operating profit in 2004 and Forma Operating profit in Forma amounted to SEK 59.3 million during 2004, compared with SEK 36.4 million in 2003, an increase of SEK 22.9 million or 63%. The improvement was primarily attributable to a comprehensive action program implemented during 2003 and 2004 entailing personnel reductions, discontinuation of unprofitable products, investments in IT systems and more efficient premises. Actions taken during 2004 included new systems for subscriptions, sales support, booking of advertising and payroll. The investment in these systems totaled SEK 5 million, which will be amortized over five years. Parent Company The Parent Company generated an operating loss of SEK 70.4 million in 2004, compared with a loss of SEK 48.8 million in The SEK 21.6 million deterioration compared with the preceding year was primarily attributable to non-recurring pension costs, but also to costs in conjunction with the acquisition of 10% of ICA AB from Ahold. Hakon Invest s result from participation in ICA AB Hakon Invest s result from participation in ICA AB amounted to SEK million in 2004, compared with SEK million in 2003, a decrease of SEK 32.9 million or 6.0%. Hakon Invest s participating interest was 40% at December 31, 2004, compared with 30% at December 31, Information about ICA AB FINANCIAL DATA, ICA AB SEK M Net sales 71,980 71,811 Operating profit before depreciation and write-downs (EBITDA) 4,437 3,570 Operating profit (EBIT) 2,120 1,866 Profit before tax (EBT) 1,808 1,729 Net profit for the year 1,777 1,518 Total assets 31,554 29,683 Operating margin, % Equity/assets ratio, % Sales ICA AB s net sales in 2004 amounted to SEK 71,811 million, a decline of SEK 169 million or 0.2% compared with the sales of SEK 71,980 million reported in The decline was due to lost sales during a transport worker conflict in Norway, the sale of Danish operations on August 31, 2004 and a stronger Swedish currency. Adjusted for these factors, sales increased by 1.7% during Operating profit (EBIT) OPERATING PROFIT, SEK M ICA Sverige 2,794 1,892 ICA Norge ICA Baltic ICA Danmark ICA Meny ICA Banken ICA AB ,120 1,866 Comments on financial development 73

76 ICA AB reported operating profit of SEK 1,866 million in 2004, compared with SEK 2,120 million in 2003, a reduction of SEK 254 million or 12.0%. The decline in earnings for ICA Sverige compared with 2003 was largely attributable to significant capital gains from the sale of 14 distribution properties and three shopping centers being included in earnings for ICA Norge reported an improvement in earnings. The five-week long transport worker strike had a negative impact on earnings for 2004, but profit was nonetheless higher than in 2003, when write-downs of properties were charged against earnings. The earnings improvement for ICA Baltic was largely attributable to write-downs of properties, goodwill and stores being charged against earnings in ICA Banken reduced its loss compared with the preceding year, while ICA Meny showed somewhat poorer earnings. In addition, profit for ICA AB for 2004 was affected positively by a capital gain from the sale of the ownership stake in Statoil Retail Stores to Statoil and negatively by a capital loss from the sale of ISO-ICA A/S to the Danish company Dagrofa A/S. Development of ICA AB s subsidiaries ICA Sverige s operating profit for 2004 amounted to SEK 1,892 million, compared with SEK 2,794 million in 2003, a decline of SEK 902 million or 32%. During 2004, two new ICA Maxi hypermarkets, two ICA Kvantum stores and two ICA Nära stores were opened. In addition, intensive work was devoted to the re-profiling and development of stores. During the year, ICA Sverige laid the groundwork for an intensive year of new establishments during In 2004, ICA Sverige decided that the new central warehouse for southern Sweden would be located in Helsingborg. For ICA Norge, 2004 was a year during which the store concept was streamlined and cost adjustments were made in all operative functions. Of the largest and smallest Rimi stores, 240 were converted to ICA Supermarkets and ICA Nær stores. Three new ICA Maxi were opened during the year. ICA Norge was negatively affected, as were other major competitors except Coop Norway, by the transport worker conflict during the spring, when distribution to the stores stood still for five weeks. In spite of this, profit improved compared with 2003, when earnings were charged with property write-downs. Operating profit increased by SEK 14 million or 7.0%, from SEK 200 million in 2003 to SEK 214 million in ICA Baltic s operating result improved by SEK 359 million to an operating loss of SEK 112 million in 2004, compared with an operating loss of SEK 471 million for 2003, when earnings were negatively affected by write-downs of property, goodwill and stores. During 2004, the company completed all preparations for starting a joint venture, Rimi Baltic, together with Kesko Livs AB in January At the start, Rimi Baltic had 160 stores and some 8,300 employees. ICA Meny achieved sales successes in the Restaurant and Catering business area and a strong increase was noted in the number of stores adopting the Nära Dej service concept. Market share increased in the restaurant and catering sector, but declined in services. Operating earnings deteriorated by SEK 18 million to a loss of SEK 37 million in 2004, compared with a loss of SEK 19 million in The deterioration was primarily due to a combination of weaker margins, increased distribution costs and restructuring costs. ICA Banken experienced a strong inflow of customers, with some 61,000 newly issued bank cards and a 54% increase in the total business volume. Operating earnings improved by SEK 43 million to a loss of SEK 123 million, compared with a loss of SEK 166 million in ICA Banken received the Banking Card of the Year award from Swedish business magazine Privata Affärer. The specialty retail chain Etos with eight stores in the Stockholm area, Västerås and Linköping prepared for a possible deregulation of the sale of non-prescription drugs. Netto, a joint venture between ICA AB and Dansk Supermarked A/S, opened 30 stores in 2004 and had 58 stores in Sweden at the end of the year. Particularly in Stockholm, the stores were very well received by customers. Profit after tax Profit after tax amounted to SEK 1,518 million in 2004, compared with SEK 1,777 million in 2003, a decline of SEK 259 million or 14.6%. Result from financial investments Result from financial investments amounted to a profit of SEK 64.7 million in 2004, compared with a loss of SEK million in 2003, an improvement of SEK million The SEK 64.7 million in result from financial investments for 2004 is the net of financial income of SEK million and financial expense of SEK 94.3 million. Financial income primarily comprised dividends, interest income and capital gains on the sale of securities, at a combined total of SEK million, as well as an adjustment of SEK 37.9 million in previously made write-downs of securities. The adjustment in the previously made write-down should be linked to the capital loss reported under Financial expense. Financial expense primarily consisted of a capital loss of SEK 84.9 million on the sale of securities. Interest expense and exchange-rate differences totaled SEK 9.4 million Income from financial investments in 2003 amounted to a loss of SEK million. This is the net of financial income of SEK million and financial expense of SEK million. Financial income primarily comprised dividends, interest income and capital gains on the sale of securities, at a combined total of SEK million, as well as an adjustment of SEK million in previously made write-downs, notably the Ahold shares. The adjustment in previously made write-downs should be linked to the capital loss reported under Financial expense. After the estimated stan- 74 Comments on financial development

77 dard tax, the net loss regarding the Ahold shares amounted to SEK 289 million. Financial expense primarily consisted of a capital loss of SEK million on the sale of securities. Interest expenses totaled SEK 8.9 million. Change between the years The largest change between the years is attributable to capital losses and the adjustment in previously made write-downs in 2003 that arose upon the sale of 5, shares in Ahold for SEK 392 million. In addition, Ahold implemented a new share issue, in which Hakon Invest subscribed for shares for SEK 145 million. The above changes, combined with a sharp price drop for the Ahold share, led to a write-down of SEK 433 million in the year-end accounts for At December 31, 2003, the value of the Ahold shareholding amounted to SEK 456 million. Financial management At December 31, 2004, cash and bank balances accounted for SEK million of the Company s liquid funds, compared with SEK million at December 31, The value of the Ahold shareholding (8,341,376 shares) at December 31, 2004 amounted to SEK million, compared with SEK 456 million at year-end Other liquid funds amounted to SEK 1,986.4 million at December 31, 2004, compared with SEK 2,644.9 million at year-end The decline of SEK million is attributable to the acquisition of 10% of the shares in ICA AB from Ahold for SEK 2,887.2 million and the extra dividend of SEK 2,200 million from ICA B, giving a net negative effect of SEK million. The Company has no established management organization for other liquidity, which was instead handled by Carlson Investment Management and Handelsbanken during By purchasing management services, the Company gained access to professional management processes and expertise that would have been difficult to maintain in its own organization, which has relatively limited assets under management. Investments were made in the Group s own name according to guidelines that were identical for each manager. The guidelines for asset types during 2004 were 50% fixedincome, 25% Swedish equities and 25% foreign equities. Asset liquidity increased gradually during the year, in anticipation of Canica s sale of ICA AB shares. The stock market developed positively during The Stockholm Stock Exchange index, for example, rose by about 18%. Profit before tax (EBT) Profit before tax amounted to SEK million in 2004, compared with SEK million in 2003, an increase of SEK million or 53%. The increase is primarily attributable to improved result from financial management 2004, where a profit of SEK 64.7 million was reported for 2004, compared with a loss of SEK million in 2003, an improvement of SEK million. The operating profit 2004 of SEK million means a decrease of SEK 31.6 million compared to COMPARED WITH 2002 (NOT ACCORDING TO IFRS) Sales Hakon Invest reported sales of SEK million in 2003, compared with SEK million in 2002, a decline of SEK 28.1 million or 4%. Sales were attributable in their entirety to Forma. Forma Forma reported sales of SEK million, compared with SEK million in 2002, a decline of SEK 28.1 million or 4%. The decline was a consequence of the structural program that was established during the year and that comprised personnel reductions, discontinuation of unprofitable products, investments in IT systems and more efficient premises. Parent Company The Parent Company s revenues in the form of member fees for service operations for members of ICA-handlarnas Förbund amounted to SEK 15.8 million in 2003 and were reported under Other operating income in The Parent Company had no sales in Operating profit (EBIT) Operating profit in Hakon Invest amounted to SEK million in 2003, a decrease of SEK 35.3 million, or 6%, from SEK million in Net goodwill amortization of around SEK 4.1 million per year was charged against Hakon Invest s earnings in 2003 and Forma Forma reported operating profit of SEK 36.4 million in 2003, compared with a loss of SEK 4.3 million in This represented an earnings improvement of SEK 40.7 million, primarily as a result of the extensive action program that was initiated in 2003 and that comprised personnel reductions, discontinuation of unprofitable products, investments in IT systems and more efficient premises. Parent Company The Parent Company s operating loss in 2003 amounted to SEK 48.8 million, compared with a loss of SEK 63.8 million in The earnings improvement in the Parent Company was primarily attributable to the introduction of a service fee for services targeting members of ICA-handlarnas Förbund. Hakon Invest s result from participation in ICA AB Hakon Invest s result from participation in the gross earnings of ICA AB amounted to SEK million in 2003, compared with SEK million in the preceding year, a decline of SEK 91,1 million or 14.3%. At December 31, 2003, Hakon Invest s participating interest in ICA AB was 30%, which was unchanged from December 31, Comments on financial development 75

78 Information about ICA AB FINANCIAL DATA, ICA AB SEK M Net sales 70,908 71,980 Operating profit before depreciation and write-downs (EBITDA) 4,103 4,437 Operating profit (EBIT) 2,535 2,120 Profit before tax (EBT) 2,084 1,808 Net profit for the year 1,710 1,777 Total assets 34,071 31,554 Operating margin, % Equity/assets ratio, % Sales ICA AB s net sales in 2003 amounted to SEK 71,980 million, an increase of SEK 1,072 million or 1.5% compared with 2002, when sales amounted to SEK 70,908 million. Adjusted for exchange-rate movements, sales increased by 4.5%, despite price reductions in Sweden. ICA Banken and the new operations in Etos showed the greatest percentage increases. In the Baltic region, sales developed favorably in Estonia and Latvia but declined somewhat in Lithuania. In calculating sales growth for ICA Baltic, Rimi Lithuania s sales for the whole of 2002 were included. Sales in Norway developed favorably. Operating profit (EBIT) OPERATING PROFIT, SEK M ICA Sverige 1,884 2,794 ICA Norge ICA Baltic ICA Danmark ICA Meny ICA Banken ICA AB ,535 2,120 ICA AB s operating profit before goodwill amortization related to the acquisition of ICA AB in 2003 amounted to SEK 2,120 million, compared with SEK 2,535 million in 2002, a decline of SEK 415 million or 16.4%. During the year, properties with 14 distribution centers and three ICA Maxi hypermarkets were sold. These sales resulted in capital gains of SEK 1.1 billion. According to Swedish and international accounting principles, a comparison is made each year between the fair value and the book value of all assets. These comparisons resulted in consolidated earnings in 2003 being charged with SEK 0.9 billion in write-downs related to goodwill, properties and stores in the Baltic countries, Denmark and Norway. The substantial improvement in earnings in ICA Sverige was predominantly attributable to capital gains from property sales. Most of the decline in earnings in ICA Norge, ICA Baltic and ICA Denmark was an effect of write-downs. ICA Meny and ICA Banken improved their earnings in comparison with the preceding year. Developments in ICA AB s subsidiaries ICA Sverige noted greater sales increases than its main competitors Axfood and Coop. During the year, eight new ICA stores were opened. ICA Sverige also presented plans for a new distribution network that will be completed by The distribution network will entail an investment of slightly less than SEK 2 billion. Operating profit in 2003 amounted to SEK 2,794 million, compared with SEK 1,884 million in 2002, an increase of SEK 910 million or 48.3%. Operating profit included a capital gain of SEK 845 million deriving from property sales. During 2003, ICA Norge continued its intensive repositioning work. Operating profit amounted to SEK 200 million after property write-downs of SEK 346 million. Compared with operating profit of SEK 782 million in 2002, this was a decrease of SEK 582 million or 74.4%. The name change was the first step toward relaunching the ICA brand in Norway. ICA Norge s new store platform strategy was scheduled for presentation during the spring of ICA Baltic reported an operating loss of SEK 471 million after write-downs of SEK 349 million pertaining to properties, goodwill and stores. This compares with a loss of SEK 36 million for During the year, a successful new compact hypermarket concept was launched under the Rimi brand. In December 2003, ICA AB and Kesko Livs AB signed a letter of intent to form a joint venture for the Baltic consumables markets. ICA Meny reported an operating loss of SEK 19 million in 2003, compared with a loss of SEK 46 million in 2002, continuing the positive trend, and gained several new customers such as Scandic Hotels Sverige AB and O Leary s Trademark AB. During the year, ICA Meny acquired Arvid Nordquist s restaurant division. During 2003, ICA Banken focused on cost control and efficiency improvements, as well as on increasing sales. An operating loss of SEK 166 million was reported, compared with a loss of SEK 174 million in ICA Banken was named Bank of 2003 by the Swedish magazine Privata Affärer. During 2003, Etos opened three stores in Haninge, Linköping and Västerås, bringing the chain s total number of stores in Sweden to nine. In November, ICA Danmark A/S became a wholly owned subsidiary of ICA AB. ICA AB stated in 2003 that it intended to sell the company.netto, in which Dansk Supermarked A/S owns 50%, opened ten stores in Sweden during 2003, bringing the total number of stores to 28. Most Netto stores in Stockholm were scheduled to open after the summer of Statoil Detaljhandel Skandinavia AS continued to establish ICA Express stores (convenience stores at Statoil s gasoline stations). ICA AB announced that it intended to sell its 50% share in Statoil Detaljhandel Skandinavia AS. ICA AB and Statoil negotiated a sale 76 Comments on financial development

79 of shares and a partnership agreement regarding product sales and concept development for the ICA Express stores. Profit after tax In 2002, profit after tax amounted to SEK 1,777 million, compared with SEK 1,710 million in 2002, an increase of SEK 67 million or 4%. Result from financial investments Financial investments in 2003 generated a loss of SEK million, compared with a loss of SEK 1,462.7 million in 2002, corresponding to an improvement in earnings of SEK 1,301.4 million Financial investments in 2003 generated a loss of SEK million, the net of financial income of SEK million and financial expense of SEK million. Financial income primarily comprised dividends, interest income and capital gains on the sale of securities, in a combined total of SEK million, as well as an adjustment of SEK million of the previously made write-down of Ahold shares. The adjustment in the previously made write-down should be linked to the capital loss reported under Financial expense. After the estimated standard tax, the net loss regarding the Ahold shares amounted to SEK 289 million. Financial expense primarily consisted of a capital loss of SEK million on the sale of securities. Interest expense amounted to SEK 8.9 million Financial investments in 2002 generated a loss of SEK 1,462.7 million, the net of financial income of SEK million and financial expense of SEK 1,633.5 million. Financial income primarily comprised dividends, interest income and capital gains in a combined total of SEK million, as well as an adjustment of SEK 14.9 million of the previously made writedown. The adjustment of the previously made write-down should be linked to the capital loss reported under Financial expense. Financial expense primarily consisted of write-downs of securities holdings in an amount of SEK 1,352.8 million, a capital loss of SEK million on the sale of securities and interest expense amounting to SEK 25.8 million. The write-down of SEK 1,352.8 million was mainly attributable to the decline in the value of the Ahold holding. After the estimated standard tax, the net loss regarding the Ahold shares amounted to SEK 1,007 million. The capital loss of SEK million derived from sale of other shares. Change between the years In 2003, substantial capital losses arose as well as a significant adjustment in the previously made write-down as a result of the sale of Ahold shares. In addition, a sharp price drop for Ahold shares led to a write-down of SEK 433 million being included in the year-end accounts for At December 31, 2003, the value of the Ahold shareholding amounted to SEK 456 million. Also in 2002, the value of the Ahold shareholding fell sharply, resulting in a write-down of SEK 1,007.3 million being made. This write-down was partly reversed in 2003 in conjunction with the sale of 5,000,000 Ahold shares. In addition, the securities portfolio was written down by SEK million in 2002 and a capital loss of SEK million arose on the sale of securities in the portfolio. Financial management Liquid assets under management at December 31, 2003 amounted to SEK 2,644.9 million, compared with SEK 2,163.9 million at yearend In 2002 and 2003, liquidity management was handled by Carlson Investment Management and Handelsbanken, giving the Company access to professional management processes and expertise that would have been difficult to maintain in its own organization, given the relatively limited assets under management. Investments were made in the Company s own name according to guidelines that were identical for each manager. The guidelines for asset types were 50% fixed-income, 25% Swedish equities and 25% foreign equities. The stock market had developed negatively for several years, but the markets rose during 2003 when the Stockholm Stock Exchange climbed around 30%. At the end of 2003, however, the stock exchange index was half the value of March 2000, despite the sharp upturn. Profit before tax (EBT) Profit before tax improved by SEK 1,266.0 million, from a loss of SEK million in 2002 to a profit of SEK million in The improvement was primarily attributable to an improved result from financial management, where the loss of SEK 1,462.7 million posted in 2002 was reduced by SEK 1,301.4 million to a loss of SEK million in The operating loss of SEK million was a decrease of SEK 35.3 million compared to the operating profit of SEK million in SENSITIVITY ANALYSIS Hakon Invest s earnings are affected by a number of factors. Reported effects should only be seen as an indication and do not include any effect of the compensating measures that could be taken if certain events were to occur. The table on the following page is based on the revised accounts for 2004 and shows the hypothetical effect of changes in a number of factors. A corresponding table based on 2004 according to IFRS would give an equivalent outcome. The table should be interpreted cautiously, since it is improbable that any individual factor would change in isolation or that no compensatory measures would be taken. With regard to most fresh goods within ICA AB, full compensation is for instance normally obtained through adjustment of prices for end consumers. Comments on financial development 77

80 FINANCIAL SEK M FORMA ICA AB 1) MANAGEMENT Effect on earnings of: +/ 1% change in sales +/ 3 +/ 25 2) +/ 1% change in cost of goods sold /+ 3 / / 1% change in personnel costs /+ 2 /+ 53 +/ 1% change in transport costs /+ 14 +/ 1% change in SEK +/ <1 +/ 2 3) +/ 7 +/ 1% change in interest rates +/ 4 +/ 1% change in share index +/ 5 1) The above figures relate to ICA AB. Hakon Invest owns 40% of ICA AB. 2) Not including royalty and profit share from stores. 3) Pertains to SEK/NOK. Hakon Invest s sensitivity with respect to interest-rate and exchangerate movements is considered limited, since the Company s borrowing is low and the Group s revenues are predominantly denominated in SEK. However, ICA AB has significant exposure to NOK, since 28% of ICA AB s sales in 2004 were in NOK. FINANCING AND FINANCIAL POSITION Hakon Invest has a strong financial position, with assets in the form of financial investments and shares in Ahold with a total value of SEK 490 million at September 30, On the same date, Hakon Invest had a bank credit facility of SEK 300 million, of which SEK 0 million was utilized. The company s total interest-bearing liabilities and provisions at the same date amounted to SEK million, resulting in a net debt of 2,844.4 million on the closing date. ICA AB s net debt at the same date amounted to SEK 7,032 million. CREDIT FACILITIES The company has an overdraft facility of SEK 300 million, of which SEK 0 million had been utilized at September 30, Pledged assets amount to less than SEK 3 million and primarily pertain to pension commitments. INVESTMENTS Hakon Invest Acquisitions and supplementary investments Historically, Hakon Invest s acquisitions and supplementary investments have primarily consisted of the acquisition of Forma for SEK 200 million in 1999 and the supplementary investment in ICA AB of SEK 2,887.2 million in Non-current assets excluding acquisitions During the period January to September 2005, Hakon Invest invested SEK 10.0 million in non-current assets. Investments in noncurrent assets in 2004 amounted to SEK 19.9 million. Depreciation of non-current assets, excluding goodwill amortization in the Hakon Group, amounted to SEK 9.8 million in 2004 and SEK 9.2 million during January to September Hakon Invest is of the opinion that, above and beyond investing activities, investments in non-current assets over the next three years will consist of replacement investments for existing assets in an amount of SEK 2 3 million per year and investments in a new accounting system and changes in terms of premises in Stockholm for an additional SEK 1 2 million per year. ICA AB During January to September 2005, ICA AB invested SEK 1,829 million. Investments comprised mainly store properties and store fittings in Norway and Sweden. In 2004, ICA AB invested SEK 2,500 million in non-current assets, mainly related to store properties and store interiors in Norway and Sweden. Over the most recent four-year period, ICA AB has invested an average of SEK 3,100 million in non-current assets annually. Future major investments during the coming three-year period within ICA AB, in addition to the normal replacement investments that are currently known, will consist primarily of the establishment of a new distribution network in Sweden, modernization of the store network in Norway and the establishment of new stores in Sweden and Norway. New distribution network Two new warehouse facilities with a high degree of automation will be built in Helsingborg and the Stockholm area. The new distribution network is expected to be completed by 2008, with the investment totaling nearly SEK 2 billion. In addition to the two new warehouses, five warehouses will be closed and four facilities will be expanded to handle larger volumes. These investments are intended to make it possible to meet increased demand for fresh goods and frozen foods. 78 Comments on financial development

81 Modernization of the store network in Norway Large portions of the store network will be renewed over the coming years. This will include renewal of all Rimi stores over a two-year period, and a large number of ICA Supermarked and ICA Nær stores will also be modernized. In total, the modernization of the store network is expected to require investments of about SEK 500 million. Establishment of new stores in Sweden and Norway In Sweden, the focus will be on establishing new stores in growth areas close to major cities. In Norway, new establishments will primarily be ICA Maxi and Rimi stores. New store establishment is expected to require investments averaging SEK 1,000 million per year over the coming years. ICA AB currently intends to finance these investments through internally generated cash flows. CASH FLOW Hakon Invest Cash flow from operating activities before working capital changes Cash flow during the period January through September 2005 amounted to SEK million and SEK million in the corresponding period of Cash flow from operating activities before working capital changes amounted to SEK 1,918.2 million in 2004, compared with SEK 39.0 million in 2003 and a negative cash flow of SEK 13.8 million in Working capital changes The working capital changes during the period January through September 2005 amounted to SEK 32.9 million and in the corresponding period in 2004 SEK 60.4 million. The working capital changes during 2004 amounted to SEK 16.1 million. The reduction in working capital was primarily attributable to decreased sales in Forma. This can be compared with a reduction of SEK 1.3 million in 2003, another year in which Forma s sales declined. The working capital changes in 2002 amounted to SEK 99.0 million and was mainly due to the transfer of funds from current investments to bank accounts. Cash flow from investing activities During January through September 2005 the cash flow from investing activities was a negative SEK 310 million and in the corresponding period in 2004 a negative SEK 62.5 million. During 2004, an additional 10 percentage points of the shares in ICA AB were acquired from Ahold for SEK 2,887.2 million. This, together with sales of non-current assets and other items, resulted in a negative cash flow of SEK 2,398.5 million, compared with a negative figure of SEK 12.9 million for 2003 and a positive cash flow of SEK 47.3 million for No major investments were implemented during 2002 and Financing activities Cash flow from financing activities January through September 2005 amounted to a negative SEK million and in the corresponding period in 2004 a negative SEK million. Cash flow from financing activities for 2004 amounted to SEK million and was primarily attributable to changes in current investments. A dividend to shareholders totaling SEK million was paid in In 2003, cash flow from financing activities amounted to SEK 5.4 million, since the dividend to shareholders of SEK 166,3 million largely corresponded to net changes in current investments, long-term liabilities and provisions. In 2002, cash flow from financing activities was a negative SEK 34.5 million, mainly as a consequence of debt repayment. Cash flow for the year Cash flow during the January September 2005 period amounted to a negative SEK million and in the corresponding period a year earlier to a negative SEK 1.4 million. The cash flow for 2004 amounted to SEK 58.7 million, compared with SEK 30.1 million in 2003 and SEK 98.0 million in CASH AND BANK BALANCES Hakon Invest s cash and bank balances amounted to SEK million at December 31, 2004, compared with SEK million at December 31, At September 30, 2005, cash and bank balances amounted to SEK million and at September 30, 2004 to SEK million. Comments on financial development 79

82 Supplementary information HAKON INVEST RELATIONSHIP BETWEEN HAKON INVEST AND ICA-HANDLARNAS FÖRBUND Hakon Invest s largest owner is ICA-handlarnas Förbund, a nonprofit organization with some 1,580 ICA retailers as members. As with other non-profit organizations, ICA-handlarnas Förbund is governed by its Articles of Association. These Articles of Association contain provisions, inter alia, stipulating that ICA-handlarnas Förbund must own at least 51% of the share capital and voting rights in Hakon Invest and that the Förbund shall propose Board members for ICA-handlarnas Förbund s subsidiaries and ICA AB, which is a joint venture with Ahold. Against this background, the formal work plan for Hakon Invest s Board of Directors contains a provision stipulating that nomination of members to the Board of ICA AB shall take place after consultation with ICA-handlarnas Förbund. By the provisions of the agreement with ICA Sverige AB (see the section below entitled ICA agreements ), the ICA retailers are obligated to be members of ICA-handlarnas Förbund. ICA-handlarnas Förbund has, both independently and through the subsidiary company ICA-handlarnas Medlemsservice AB, also entered into a number of agreements, including agreements with Hakon Invest and Forma, as described below under the headings Agreements with related parties, etc. and Intellectual rights. From 2000 to the spring of 2005, the Boards of Directors and the management of Hakon Invest and ICA-handlarnas Förbund consisted of the same persons. As part of the preparations for an exchange listing, the composition of Hakon Invest s Board was changed during the spring of 2005, and company management was gradually supplemented and strengthened. For both Hakon Invest AB and ICA-handlarnas Förbund, the Company s shareholding in ICA AB is particularly important, both from a purely financial standpoint, since it is by far the largest asset, and as a means of maintaining and developing the ICA concept, particularly in the Swedish operations. As described in greater detail in the section Hakon Invest s holdings and financial management, the basic premise in this concept is to combine the ICA store owner s local knowledge and commitment with the ICA group s collective resources. Higher sales in the stores result in increased sales and revenues for ICA Sverige, which in turn results in greater profit for ICA AB, thus providing favorable dividend capacity for the benefit of Hakon Invest and its dividend-entitled owners. The ICA concept and the ICA group s business models have proven successful for both the group and the stores for several decades. Within the framework of its basic objective of generating profit for shareholders in accordance with the Articles of Association and, in part, through its shareholding in ICA AB, Hakon Invest will maintain, develop and strengthen the ICA concept. This matter is also specifically regulated in the shareholders agreement between Hakon Invest and Ahold. HAKON INVEST S POSITION IN RELATION TO THE MAJORITY OWNER, ICA-HANDLARNAS FÖRBUND Prior to the implementation of the Offering, ICA-handlarnas Förbund, the non-profit organization for Sweden s ICA retailers, owns about 75% of the capital and votes in Hakon Invest. Hakon Invest is therefore consolidated in ICA-handlarnas Förbund s consolidated accounts. One of ICA-handlarnas Förbund s main tasks is to exercise ownership influence in ICA AB and thereby ensure the company s development by developing the ICA concept. In addition to its holding in Hakon Invest, ICA-handlarnas Förbund has a wholly owned subsidiary, ICA-handlarnas Medlemsservice AB, which has 10 employees. These were earlier employed by the Company but as a preparation for the listing these are now following an agreement between the Company and ICA-handlarnas Medlemsservice AB, employed by ICA-handlarnas Medlemsservice AB. ICA-handlarnas Medlemsservice AB conducts operations targeting members of ICA-handlarnas Förbund and finances these operations through a service fee payed by the members. Net sales for the Parent Association, ICA-handlarnas Förbund, amounted to some SEK 2.7 million in 2004 and total assets amounted to approximately SEK million. The major portion of assets comprised the holding in Hakon Invest and liquid funds of approximately SEK 36.6 million. DISPUTES AND OTHER LEGAL ISSUES Hakon Invest, its subsidiaries and joint ventures are involved in various legal disputes that occasionally arise within operations. None of the disputes individually or the disputes as a whole are of material importance to the Hakon Invest Group. TAX MATTERS Correspondence has taken place between the National Tax Board and Hakon Invest regarding the right to deduct input VAT attributable to certain services for financial and strategic counseling and service fees for services provided to ICA stores. The National Tax Board has decided that it will not grant Hakon Invest the right to deduct approximately SEK 1.3 million of VAT. The Company intends to appeal against this decision. SIGNIFICANT AGREEMENTS Hakon Invest s current operations consist mainly of the management of the holdings in ICA AB and Forma and the management of the Com- 80

83 pany s financial investments. The Company s operations depend on the shareholders agreement entered into with Ahold, which regulates the Company s ownership in ICA AB. This shareholders agreement is described under the heading Shareholders agreement with Ahold. Apart from this agreement, Hakon Invest does not significantly depend on any individual commercial agreement. However, the most important agreements are summarized below. Shareholders agreement with Ahold For more information please refer to section Hakon Invest under the heading Agreements with Ahold. Guarantee in accordance with purchase law on behalf of Royal Ahold For more information please refer to section Hakon Invest under the heading Agreements with Ahold. Agreement with B. Carlson Investment Management AB The Company has entered into an agreement regarding the discretionary management of financial assets with an initial value of approximately SEK 2 billion with B. Carlson Investment Management AB as manager. The agreement applies from January 2005 until further notice, with a mutual right for both parties to give notice of immediate termination of the agreement. For these management services, the Company pays B. Carlson Investment Management AB a fee depending on the volume of assets managed. OBLIGATIONS AND OTHER COMMITMENTS Apart from investment commitments and issued surety and guarantees, the Group has no obligations that could have a material negative financial impact on the Group. INSURANCE Hakon Invest has commercial insurance covering the companies and operations included in the Hakon Invest Group. The insurance was arranged by the subsidiary, Forma. The insurance covers assets/property, consequential loss, liability for pure damage to property, crime against property, personal liability of the managing director and board, global liability and legal protection. In the opinion of Hakon Invest, the Company is adequately insured to cover the liabilities resulting from its ordinary operations. PROPERTIES In August 2005, Hakon Invest relocated to a new head office in Solna, which is in the same building as ICA AB s head office. The premises are leased by ICA Fastigheter Sverige AB from the property owner, Fastighets AB Alrum. In turn, Hakon Invest subleases certain premises in part of the property from ICA Fastigheter Sverige AB. In addition, agreements concerning additional services related to the lease exist with ICA AB. Terms and conditions are strictly commercial. Hakon Invest has not accounted for any investment related to the new property. Hakon Invest assesses that the property is in good condition and is well suited for the Company s operations. There is room for expansion, although there is currently no need for any comprehensive expansion. Forma Publishing Group is the owner of the Linaberg 11 property in Stockholm city. The property is currently for sale. Previous valuations have shown that the market value does not materially deviate from the book value. This is also the assessment of the company. IMMATERIAL PROPERTY RIGHTS Hakon Invest has Swedish and international trademark applications regarding the Hi Hakon Invest logotype. The application refers to the classes 35 (services regarding business management, organizational development, etc.) and 36 (financial affairs, etc.). The registered trademark HAKON, however, is owned by ICA AB. Hakon Invest s applications refer, however, to classes other than those included in ICA AB s registration. Forma has the necessary publication authorization for the magazines that the company issues. In addition, Forma has trademark protection for the Forma Publishing Group trademark. Forma also has the right to use the ICA trademark under an agreement entered into between ICA-handlarnas Förbund and ICA AB (see description under ICA AB and Agreements with related parties, etc. below.) USE OF THE SALES PROCEEDS Hakon Invest will not receive any portion of the sales proceeds for the common shares sold by ICA-handlarnas Förbund in accordance with this prospectus. AGREEMENTS WITH RELATED PARTIES, ETC. The Company has entered into an agreement with ICA-handlarnas Medlemsservice AB, a wholly owned subsidiary of ICA-handlarnas Förbund, according to which the parties have agreed to purchase legal, financial and information services from each other. Each party is entitled to charge the opposite party a certain number of hours per year. The Company assesses that the agreement is based on strictly commercial terms. Agreement between Forma and ICA AB Forma has entered into a number of agreements with different companies within the ICA AB group. Such agreements include an agreement between Forma and ICA Sverige AB concerning editorial and technical production of the Buffé magazine and an agreement between Forma and ICA AB concerning the procurement of printing and distribution suppliers and associated services. All of these agreements are on strictly commercial terms. 81

84 SIGNIFICANT DIVESTMENTS AND ACQUISITIONS, ETC. During the current year and the three most recent fiscal years, Hakon Invest completed the following significant divestments and acquisitions of companies. All of the transactions were implemented on strictly commercial terms. In November 2004, the Company acquired an additional 10% of the shares in ICA AB from Ahold, which had in turn acquired the shares from Canica AS. This acquisition is described in more detail under the heading Shareholders agreement with Ahold. In April 2005, Hakon Invest divested its holding in Skandia Investment Fond II, a venture capital fund in which investments were made in part through Skandia Investment KB and in part through Skandia Investment I AB, to Pulsen Fastighets AB. The total final purchase price for the Company s shareholdings and commitments in Skandia Investment Fond II amounted to approximately SEK 60 million. The Company s guarantee commitments are limited. Any guarantee claims must be issued in writing not later than December 30, The Company is not aware of any circumstance that could give rise to a guarantee claim. ICA AB DISPUTES AND OTHER LEGAL ISSUES Sweden In connection with a comprehensive organizational change within the former ICA AB (publ) group, shareholders of the three regional companies ICA Eol AB, ICA Essve AB and ICA Hakon AB were offered an opportunity to divest their shares in the regional companies in exchange for either becoming shareholders of ICA AB (publ) or for cash. In November 1989, ICA AB (publ) called for compulsory redemption of the shares and was granted advance access to the shares in the regional companies in May The arbitration rulings in these three cases were announced in June 1997 after a protracted process, following which the claim made by ICA AB (publ) with respect to the size of the redemption amount was accepted in full. However, the trustee representing the minority shareholders of the three regional companies appealed the arbitration rulings to the district court. In April 2004, the district court announced its verdict, reaching the same conclusion as the arbitration boards. The trustee has appealed the district court s ruling to the court of appeal. The hearing in the court of appeal has yet to take place. If the trustee s claim for the redemption amount is approved in full, this would mean that ICA AB may be forced to pay up to approximately SEK 85 million. Interest will be added to this amount and may exceed the amount itself. Norway A discussion is underway between ICA Detalj AS and an alliance of retailers in Møre, Norway, concerning the calculation of the bonus to which these retailers are entitled. The parties have agreed that Deloitte & Touche will investigate the matter further, but no agreement has been reached regarding the formal aspects of the investigation. SIGNIFICANT AGREEMENTS ICA agreements A large number of the approximately 1,500 Swedish ICA stores have entered into ICA agreements. These agreements are shareholder and financing agreements, the terms of which among other things entail that ICA AB owns the rights to the store s location but that the retailer, either alone or jointly with ICA Sverige AB during a transition period, owns and operates the store through a limited liability company. Stores with sales exceeding SEK 20 million or which are deemed as having strategic locations normally have an ICA agreement. The terms of agreement require the ICA retailer to be a member of ICA-handlarnas Förbund. In addition to the rights and obligations following from the ICA agreement, the ICA retailer is also obligated to follow the Articles of Association of ICA-handlarnas Förbund applying at any given time. See also the section Hakon Invest s holdings and financial management in the ICA Sverige section. Joint venture in the Baltic countries In the Baltic countries, ICA Baltic AB ( ICA Baltic ) a wholly owned subsidiary of ICA AB has entered into a joint venture agreement with Ruokakesko Oy ( Kesko Livs ) pertaining to ICA s operations in the Baltic countries. The agreement became effective on January 3, 2005, following approval by the competition authorities. Via a joint venture agreement, ICA Baltic and Kesko Livs formed RIMI Baltic AB ( RIMI Baltic ), a jointly owned company. Kesko Livs and ICA Baltic each own 50% of the shares and voting rights in RIMI Baltic and neither of the parties has a controlling influence. A shareholders agreement regulates how the operations of the jointly owned company are to be conducted, how the company shall be managed and how a sale of the shares in the company or the issue of new shares should be conducted. The shareholders agreement also specifies the financial commitments of each shareholder. A shareholder may not, without the consent of the other party, transfer the shares to anyone outside his own group. According to the shareholders agreement, the parties, or companies related to the parties (including Hakon Invest), may not conduct operations that compete with RIMI Baltic s operations in the Baltic countries or own more than 5% of the share capital in companies that directly or indirectly compete with RIMI Baltic s operations. Joint venture agreement pertaining to Netto Marknad, ICA & DSG AB In August 2001, ICA AB entered into a joint venture agreement with the Danish company Dansk Supermarked A/S ( DSG ). DSG is a retail trading company that operates food retail operations in Den- 82 Supplementary information

85 mark through the Netto discount chain. Through the joint venture agreement, ICA AB and DSG formed the joint venture company Netto Marknad, ICA & DSG AB ( Netto Marknad ). The aim of the partnership is to spread and develop the Netto discount chain. ICA AB and DSG each own 50% of the shares and voting rights in Netto Marknad and neither of the parties has a controlling influence. The agreement regulates how the company is to be managed and how a sale of the shares in the company or the issue of new shares should be implemented. The agreement also specifies the financial commitments of each shareholder. If a shareholder wishes to transfer its shares to a third party outside of its own group, the shareholder must first offer the other party an opportunity to acquire the shares. DSG owns the intellectual property rights to the Netto trademark. However, the joint venture company Netto Marknad and its subsidiaries are legally entitled through a licensing agreement to use and market the trademark in their operations. Agreements with suppliers ICA AB has entered into agreements with a large number of different suppliers. These are generally agreements with relatively short contractual periods or which are valid until further notice based on a short mutual period of termination. The agreements apply generally to both groceries and fresh products and to private label and non-food products. The supplier agreements are generally based on certain standard agreements and general delivery terms formulated by ICA AB. Prices are generally renegotiated on an annual basis. Since 2003, ICA Sverige AB has an agreement with Hilton Food Group relating to deliveries of meat from the Hilton Food Group s meat refinement facility in Västerås. The agreement, which runs initially for a period of ten years, gives ICA Sverige AB some influence over operations both with respect to purchasing and other meat processing. The agreement also contains certain exclusivity obligations for each party, as well as the right to terminate the agreement prematurely under certain conditions. The agreement can be terminated prematurely in the event that ICA Sverige AB does not attain certain agreed volumes. This would lead to certain costs for ICA Sverige AB. Financing agreements ICA AB manages the financing of the group through its subsidiary ICA Finans AB, which in April 2005 entered into an agreement with a bank syndicate concerning a credit limit of SEK 5 billion. Certain regulations in the agreement pertain to the bank syndicate s right to premature repayment in connection with a change in ownership/control corresponding to more than 50% of the voting rights in the borrower (ICA Finans AB) or the guarantor (ICA AB). A number of financial covenants also exist as well as certain restrictions on further increases in indebtedness. In addition, ICA Finans has arranged five different credit facilities with five different banks for a total SEK 3.75 billion. IMMATERIAL RIGHTS To a material extent, ICA AB s operations depend on the right to use the ICA trademark, which is owned by the company. ICA AB has granted ICA-handlarnas Förbund the license to use the ICA trademark. The license agreement is described below under the heading Agreements with related parties, etc. ICA AB s operations also depend to a material extent on the right to use trademarks in which the ICA trademark is included, such as ICA Nära, ICA Supermarket, ICA Kvantum, ICA Maxi and Maxi ICA Stormarknad. These trademarks are owned and held by ICA AB. Otherwise, ICA AB s operations do not, to any material extent, depend on any individual immaterial property right. However, ICA AB s immaterial property rights are, when considered as a whole, of material importance to ICA AB s operations. ICA AB owns or alternatively holds the license on the use of the intellectual property rights that the company considers necessary for its operations. The Euroshopper brand represents the ICA AB group s lowprice range. Euroshopper has been developed in cooperation with nine European companies in 15 countries. These companies include Kesko, Albert Heijn, Dansk Supermarked A/S and the ICA group. The Euroshopper trademark is owned by AMS Marketing Service AG. The Etos trademark is owned by Ahold. SWEDISH COMPETITION AUTHORITY S INVESTIGA- TION OF THE CONTRACTUAL RELATIONSHIP BETWEEN ICA AB AND THE ICA RETAILERS The Swedish Competition Authority is currently investigating whether the ICA cooperation is compatible with competition regulations. The investigation started in December 2003 and the Competition Authority has not indicated when the investigation might be expected to be completed nor has it specified in detail what the Authority is investigating. Judging from the questions being asked by the Competition Authority, the investigation appears primarily to be an assessment of whether the cooperation between the ICA group and the individual ICA retailers is in compliance with competition regulations. The Authority s questions have concerned pricing, including price profiles and maximum prices, purchasing activities, control of the ICA stores product range and the right of first refusal upon the sale of the company s stores. ICA AB and ICA-handlarnas Förbund have expressed the view that the ICA cooperation cannot be considered to violate competition regulations. Hakon Invest shares this view and also makes the assessment that the ICA cooperation is in compliance with competition regulations. (See also the section on Risk factors ). Supplementary information 83

86 AGREEMENTS WITH RELATED PARTIES, ETC. Licensing agreement between ICA AB and ICA-handlarnas Förbund pertaining to licensing of the ICA trademark In April 2000, ICA AB and ICA-handlarnas Förbund entered into a licensing agreement under which ICA AB grants ICA-handlarnas Förbund a non-exclusive right to use, free of charge, all trademarks containing the word ICA ( the Trademarks ) in Sweden, Denmark, Norway, Finland, Iceland, Estonia, Latvia and Lithuania. ICA-handlarnas Förbund is entitled to grant sublicenses to its subsidiaries and members. Each sublicensee and the terms and conditions that are to apply for each sublicense must be approved in advance by ICA AB. Use of the Trademarks is limited to the operations that ICAhandlarnas Förbund and the ICA retailers conduct and may not deviate from the ICA Concept. The license agreement applies without any time limitations. ICA AB may terminate the agreement with immediate effect if Hakon Invest ceases to be a shareholder of ICA AB. Hakon Invest s subsidiary, Forma, uses various combinations of the Trademarks in its operations, supported by this licensing agreement. Leasing contracts in Norway ICA Norge AS s head office in Norway was previously leased from a party that was associated with ICA AB at the time the leases were signed. The leases were concluded on relatively long durations; the lease with the longest duration expires on December 31, Under these leases, ICA Norge AS is subject to obligations in excess of normal obligations according to the Norwegian Rental Act and the rent can to a certain extent be considered to exceed market rents. The property in question was acquired during 2005 by a Norwegian syndicate of private investors. The leasing contract remains unchanged, however. There are additional leasing contracts pertaining to store premises, warehouses and offices which were signed with parties associated with ICA AB at the time when the leases were signed. These also contain aspects that could be argued deviate from conditions on the market. SIGNIFICANT DIVESTMENTS AND ACQUISITIONS From time to time, ICA AB completes acquisitions and divestments as part of its operations. The most significant divestments and acquisitions of companies and operations are presented below. All of these divestments and acquisitions took place on market terms. Sale of shares in Statoil Detaljhandel Skandinavia AS to Statoil ASA ICA AB sold all of its shares in Statoil Detaljhandel Skandinavia AS ( SDS ), corresponding to 50% of the total number of shares, to Statoil ASA ( Statoil ) in May Cooperation between ICA and Statoil was initiated in 1999 and Statoil owned the remaining 50% of the shares in SDS. The EU s competition authorities approved the transfer on July 1, 2004 and ICA AB received payment for the shares on July 8, The agreement contains customary guarantees from ICA AB. ICA AB also undertakes not to own, purchase or develop, either in its own name or through a related company, a proprietary gasoline/fuel-station network in Scandinavia during a period of four years after the transaction. However, ICA AB will be entitled to invest in the fuel-related operations required to be able to compete efficiently in the markets in which the ICA group is active. As part of the divestment of the SDS shares, ICA AB and Statoil also entered into a cooperation agreement and a number of related agreements. The agreements were mainly concluded in order to regulate ICA AB s continued supply of products to Statoil s retailing operations in Norway and Sweden. The cooperation is conducted on a non-exclusive basis, meaning that Statoil is not obliged to order products from ICA AB. The cooperation agreement has an initial duration of three years. ICA Sverige AB undertakes not to grant to any party other than Statoil the right to establish gasoline stations at hypermarket locations without the consent of Statoil. Divestment of ISO-ICA A/S In July 2004, ICA Danmark A/S sold all of the shares in ISO-ICA A/S to Dagrofa A/S. ISO-ICA A/S had constituted ICA AB s store operation in Denmark and, following this divestment, ICA AB does 84 Supplementary information

87 not conduct any operations in Denmark. The transfer amount was approximately DKK 250 million, of which some DKK 70 million constituted the purchase price and the remaining amount was the company s cash balance. ICA Danmark A/S s liability for damage resulting from non-fulfillment of guarantees is limited to the purchase price. The agreement includes customary guarantees and ICA AB has entered into a surety for ICA Danmark A/S for the fulfillment of its guarantees. ICA Fastigheter Sverige AB ICA AB s property operations are an integral part of ICA AB s business model and provide important support for retail operations. As a result of this, property operations follow ICA AB s store-opening plan. Ownership of properties is not regarded as strategically important, as long as store operation can be assured through longterm leases. The property unit thus divests properties when attractive terms are achieved. As a result, the property portfolio increases when the rate of store openings is greater than the rate of divestments and decreases when the opposite situation applies. ICA Fastigheter Sverige AB ( ICA Fastigheter ) has continuously divested a large number of incorporated properties in order to finance investments in new properties intended for ICA stores. ICA Fastigheter, or alternatively ICA Sverige AB, thereafter concludes leases with the companies concerned pertaining to the current ICAstore premises at the particular property. In turn, ICA Fastigheter or ICA Sverige AB subleases the existing ICA-store premises to the retailers who operate the actual ICA store at the particular property. In the past three years, ICA Fastigheter has divested a large number of companies containing properties. An account of the most significant divestments is presented below. In July 2003, ICA Fastigheter sold all of the shares in a number of subsidiaries to a joint venture formed between LR Swedish Properties AB and GE Capital Real Estate (Sweden) AB. The transferred companies contained 11 properties, which were transferred to the companies concerned from various companies in the ICA group. The purchase price for the total shares amounted to approximately SEK 1.6 billion. The existing leases have an average remaining duration of approximately 11 years. In September 2003, ICA Fastigheter sold three subsidiaries containing three properties to Eurocommercial Properties Sweden AB. The total purchase price for the shares was approximately SEK 320 million. The existing leases have an average remaining duration of approximately 15 years. In June 2004, ICA Fastigheter sold two subsidiaries containing three properties to Alecta Retail Holding AB. The total purchase price for the shares was approximately SEK 285 million. ICA Fastigheter provided customary guarantees for the sale. The guarantees expire in January 2006, with the exception of guarantees for taxes and fees. The existing leases have an average remaining duration of approximately 12 years. In May 2005, ICA Fastigheter sold all of the shares in Fastic Holding AB, including the shares in its 20 subsidiaries, to Kungsleden Lövet AB. All of the transferred companies contained one or more properties or leaseholds. The total purchase price for the shares was approximately SEK 437 million. ICA Fastigheter provided customary guarantees for the sale. The guarantees expire in May 2006, with the exception of guarantees for taxes and fees. The existing leases have an average remaining duration of approximately 7 years. Divestment of holding in Linstow Senterutvikling During February 2004, the ICA AB s wholly owned subsidiary, ICA Baltic AB, sold its 25% shareholding in Linstow Senterutvikling AS to Linstow International AS and Varner-gruppen AS. The sales price for the shares was approximately NOK 135 million. Divestment of Åsane Holding AS In October 2002, ICA Detalj AS sold its shares in Åsane Holding AS to Nordea Liv Norge AS for approximately NOK 330 million. ICA has undertaken not to establish store operations or a shopping center on the site covered by the agreement for a period of ten years from the date of the sale. Supplementary information 85

88 Risk factors All securities investments are associated with risk, which means that an invested amount could increase or decrease in value or be lost entirely. Accordingly, prior to investing in securities in Hakon Invest, the following risk factors should be carefully considered, together with all the other information in this prospectus. The list of risk factors below is not intended to be complete, nor are the risk factors and considerations described listed in any particular order of priority. Due to differences between the operations of ICA AB and Forma, the risk factors associated with these companies differ. A comprehensive evaluation of the Offering and Hakon Invest should include other information in this prospectus along with an overall analysis of external factors. HAKON INVEST RISKS RELATED TO BUSINESS OPERATIONS Dependency on company management and other key persons Hakon Invest s future development depends on the knowledge, experience and commitment of management and other key persons. Hakon Invest could be negatively affected if one or more of these key persons leave the Group. If Hakon Invest is unable to recruit new qualified employees, this could affect Hakon Invest s ability to develop the business. Hakon Invest s new investment organization Two experienced and skilled investment managers have been recruited to the newly established organization for investments in unlisted companies. This organization already contains personnel from Hakon Invest. Although each of these persons has a solid background and extensive experience, the organization is as yet unproven in that no investments have yet been made. If the organization does not function as expected, the return on Hakon Invest s investments in unlisted companies may be negatively affected. Hakon Invest s investments and sales All investments are associated with uncertainty. Prior to an investment, an evaluation will be performed that is intended to identify and, if possible, reduce the risks that may be associated with the investment. Among other measures, Hakon Invest will carefully evaluate the company s development with respect to personnel, business concept and customer relations, as well as administrative and legal issues. However, performing such an evaluation prior to an investment is not always sufficient to ensure success. In conjunction with the sale of an investment, Hakon Invest may undertake guarantees in its capacity as the seller. Future divestments will be preceded by careful analyses to determine the scope of future guarantee commitments. Such guarantees may vary in scope with respect to both their amount and duration. Any possible need to fulfill such guarantees could affect Hakon Invest negatively. Financing of future investments At present, Hakon Invest has significant liquid assets. In addition, current investments and holdings are unencumbered. However, external financing may be needed in the future to finance investments. At present, Hakon Invest has significant potential for obtaining loans from credit institutions. The Company may also elect to implement new cash issues or to use its own shares to finance in full or in part business operations or new investments, which could lead to dilution of existing shareholdings. This also applies to investors who invest in Hakon Invest s shares within the framework of the Offering. Implementation of new share issues requires a decision by a General Meeting of shareholders. However, the ability to finance investment cannot be guaranteed, and depending on the terms for an investment, investments may be limited by conditions in the loan agreement or the market s view and assessment of the Hakon Invest share. In addition, it is possible that the sellers of potential investment objects will not be willing to accept shares in the Company as payment. If liquid funds are insufficient and the Company cannot use its own shares as payment, investment opportunities may be limited or prevented. Operations in several countries Since Hakon Invest and its subsidiaries and associated companies are active in several countries, the operations are exposed to the type of risks to which international business operations are associated. Hakon Invest is subjected to different regulatory systems within different jurisdictions and is exposed to changes in such regulations. The regulations pertain to such matters as trading restrictions, such as import duties and tariffs, requirements for import and export licenses and other trading impediments, restrictions affecting capital mobility, withholding tax on transfers and payments made by subsidiaries, the potentially negative effect of changes in tax regulations and, in certain countries or regions, political and economic conditions. These changes could have a materially adverse impact on Hakon Invest s operations, earnings and financial position. RISKS RELATED TO HOLDINGS AND INVESTMENTS Stock exchange trends and interest rates Negative stock market trends could affect the estimated value of both Hakon Invest s listed shareholdings and the value of Hakon 86

89 Invest s unlisted holdings. Interest rates are another factor that could affect the estimated value of holdings. Interest rates also affect the cost of loan financing. Decrease in the value of financial portfolio and shareholdings Adjustments are made to the book value of Ahold s financial portfolio and shareholding, which had a combined value of SEK 2,670 million on September 30, 2005, to reflect changed share prices and exchange rates, which could have a negative impact on Hakon Invest. Factors related to holdings Hakon Invest s earnings are affected significantly by its portion of the earnings of its holdings. Consequently, factors that could negatively affect the operations, financial position or earnings of a subsidiary or associated company would therefore affect, to a not insignificant degree, Hakon Invest. The future trend for unlisted holdings and/or changes in external factors could affect assessments of the value of these holdings and in those instances when an assessment leads to an estimate of a reduction in value could require impairments of the book values. Operational risk associated with holdings ICA AB and Forma have different specific operational risks, just as other future holdings will have. Since ICA AB currently comprises such a large portion of Hakon Invest s assets, ICA AB s development and operational risks are especially important when assessing Hakon Invest. Consequently, operational risks related to ICA AB are described in greater detail below. ICA AB Operational risks Greater competition results in downward price pressure In recent years, discounters in the food retail sector have made advances in the Swedish and Norwegian food retail markets. New competitors such as Lidl and Netto have established a presence, and have been singled out as one of the causes for falling real prices for food and convenience goods in recent years. The trend towards a greater focus on price could result in further price reductions and thus to lower margins in the retail food industry if no measures are taken to compensate for those falling price levels, which, however, ICA AB is doing. Swedish and Norwegian consumers are spending increasingly less of their disposable income on consumables. The food retail industry in the Baltic countries is relatively unconsolidated and immature. Consumers spend a relatively high proportion of their disposable income on consumables, approximately 35% compared with about 15% in Sweden which could change as the industry consolidates and new discounters establish themselves in the marketplace, resulting in lower prices. Review of ICA cooperation by the Swedish Competition Authority As mentioned under the section Supplementary information, the Swedish Competition Authority is currently investigating whether collaboration between the ICA group and ICA retailers violates competition regulations. Should the Swedish Competition Authority conclude that this collaboration violates competition regulations, the Authority could act against the ICA group. In such a case, the matter would be definitively determined in a court of law. The most farreaching consequence of a negative outcome from such a process would be that the form of cooperation between the ICA group and ICA retailers would have to be changed significantly and, in the event that the transgression is regarded as serious, that the ICA group would be forced to pay damages for restricting competition. According to the Swedish Competition Authority, the damages for restricting competition could be as low as SEK 5,000 or as high as SEK 5 million or a higher amount not exceeding 10% of the company s sales. In that case, Hakon Invest s operations, earnings and financial position would be negatively affected to a material degree. Economic trends and taxes Developments within the food retail industry are closely linked to general economic trends, the GDP trend and real wage trends. Political factors such as taxes (VAT) are also important to the economic development of the food retail industry. A downward economic trend and higher taxes (VAT) could negatively affect ICA AB s sales and earnings. In a June 2005 progress report Uniform or differentiated value added tax SOU 2005:57 the Value Added Tax Commission proposed lowering the normal VAT rate from 25% to 21.7%, financing the change through the elimination of the current system of reduced tax rates. Among other proposed changes, VAT would be increased from the current 12% to the proposed 21.7%. According to the Commission s calculations, food prices would increase by 8.4% over the long term and demand would drop by just under 3.5% on average. Differences would arise between various categories of products, however. The Commission s proposal will now be circulated for consideration. Reactions from various political parties to this proposal have been mixed and the Company currently believes that, over the short or medium term, it would be unlikely that the proposal in its entirety would serve as the basis for new legislation. 87

90 Customers ICA retailers in Sweden decide independently about which suppliers they choose to use. In those instances where ICA AB does not offer competitive terms, the company risks losing its customers to competitors. Currently, however, ICA retailers in Sweden make an average of 70% of their overall purchases directly or indirectly via ICA AB. The remaining 30% consist primarily of perishable items fruits and vegetables, produce and bread that, in many instances, originate from local producers and suppliers. Suppliers Structural changes are under way among ICA AB s suppliers, whereby increased consolidation has occurred in recent years and is anticipated to continue into the future as well. In the event that the suppliers negotiating strength vis-à-vis ICA AB increases, this could result in less favorable purchase terms and higher purchase prices, which could have a negative impact on ICA AB s earnings. However, ICA AB occupies a very strong position in those markets where the company is active, and suppliers in turn are therefore dependent on being able to sell their goods in ICA stores. With respect to meat supplies, ICA Sverige AB is relatively significantly dependent on deliveries from Hilton Food Group s meat-processing plant in Västerås. If problems were to arise at this plant, whereby no deliveries were received for a protracted period of time, this could have a negative impact on ICA Sverige s earnings. Risks associated with acquisitions Historically, ICA AB has implemented a number of acquisitions and could also be expected to do so in the future. As a result, ICA AB could be exposed to acquisition-related risks, such as the integration of acquired companies, which, in some instances, could be costly and time-consuming. Often, this could also require management resources that could otherwise be focused on current operations. There is also the risk that an acquired company might not develop according to plan in terms of growth and margins, and that anticipated synergies would not be achieved. Potential acquisitions could also require external financing. There is no guarantee that it will be possible to receive such financing in the future. Key individuals ICA AB depends on a number of key individuals continuing to make strong contributions. ICA AB could be adversely affected should any of these key individuals leave the company. Financing of investments and future expansion Historically, ICA AB has invested significant sums in opening new stores and has recently decided to modernize its distribution network by, among other measures, building new, centralized warehouses in Helsingborg and Stockholm. In order to maintain and strengthen ICA AB s position in its respective markets, significant investments will continue to be made in the above areas. OTHER RISKS RELATED TO THE OFFERING Previously, the shares have only been traded through the agency of ICA-handlarnas Förbund Prior to the Offering, there was no general trading in the shares of Hakon Invest. The previous unofficial share turnover may have taken place at prices that are no longer representative. Although the shares have been approved for listing on the Stockholm Stock Exchange s O List, no undertakings can be given regarding the future trend of trading in the share, or the share price. Liquidity in the share may turn out to be limited and the share price could fall below the selling price in the Offering. There is no guarantee that investors will recoup their invested capital. ICA-handlarnas Förbund a controlling shareholder There are 160,917,436 shares in the Company, of which the Seller will hold at least 109,617,500 shares after the Offering, corresponding to at least around 68.1% of the shares outstanding (at least around 67.3% if the Over-allotment option is fully utilized). This means that, at General Meetings, the Seller will be able to secure the passage of most of the resolutions that require approval from the Company s shareholders. Present shareholders future sale of shares If a large number of shares are offered in the market after the Offering, or if the market perception is that a comprehensive sell-off could occur, this could have a materially adverse impact on the share price. Apart from the direct negative impact that a lower share price has for a shareholder, such a price decline could have a negative impact on Hakon Invest s ability to procure capital or acquire other assets through additional issues of shares or securities. However, a fall in the share price resulting from these factors would probably only be temporary. 88 Risk factors

91 It is important to note that by being a major shareholder in Hakon Invest, ICA-handlarnas Förbund s main purpose is to have a major influence over ICA AB and thus be in a position to preserve, develop and strengthen the ICA concept. A shareholding in Hakon Invest is thus strategically important for ICA-handlarnas Förbund. Furthermore, ICA-handlarnas Förbund does not anticipate, within the foreseeable future and following the divestment of shares in Hakon Invest in accordance with the terms of this prospectus, having any additional need for liquid funds. The Seller has undertaken not to divest any additional shares in the Company, without the consent of Handelsbanken Capital Markets, until at least 300 days after the first day of trading. The Board of Directors and senior executives of Hakon Invest and the Board of Directors and senior executives of the principal shareholder ICAhandlarnas Förbund, have made a corresponding undertaking. For further information regarding the shares in Hakon Invest, see also Share capital and ownership structure. SPECIAL CONSIDERATIONS Limited value of historical financial information Hakon Invest s operations and structure have recently undergone substantial changes, mainly as a result of the formation of an investment organization. The financial information given in this prospectus does not reflect the financial situation as it would have been if this organization had existed historically. Accordingly, Hakon Invest s historical audited consolidated financial reports and the financial information given in this prospectus are not necessarily a reliable guide regarding Hakon Invest s future earnings trend and financial position. Market statistics subject to uncertainty Market statistics are inherently subject to uncertainty and do not necessarily reflect actual market conditions. The value of comparisons of statistics for different markets is limited for several reasons for example, due to the fact that markets are defined differently, and that data is gathered using different methods and based on different assumptions. Some of the statistics in this prospectus were compiled by Hakon Invest, with a number of assumptions made by the Company in the process. While Hakon Invest maintains that the compilation method and assumptions are reasonable, it has been possible only to a limited extent to secure from independent sources confirmation or verification of the assertions made. Against this background, the reader s attention is drawn to the fact that the market statistics presented in this prospectus are subject to uncertainty, and that no guarantee of their accuracy can be given. Forward-looking information Hakon Invest and, in certain instances, the Seller provide forwardlooking information in this prospectus. Any statement that does not consist exclusively of historical facts constitutes such forward-looking information. Forward-looking information comprises assertions about what Hakon Invest believes, expects, anticipates or intends to happen in the future. Against this background, any such statements should be regarded as currently applicable judgments as to what is expected to happen in the future, with full awareness that such expectations may not be fulfilled and that intentions can change. Neither Hakon Invest, the Seller, nor any other party participating in the Offering gives any undertakings or provides any guarantee that the anticipated market conditions, transactions (including acquisitions and divestments), results (including operational and financial targets), decisions (including notice and payment of dividends), or other future events and circumstances that may be inferred from the forward-looking information in this prospectus, will take place as described or will take place at all. It is hereby brought to the attention of potential investors that actual future results may diverge from what is explicitly or indirectly stated in the forward-looking information in this prospectus. With the exception of what is required by law or by the terms of the listing agreement with the Stockholm Stock Exchange, neither Hakon Invest, the Seller, nor any other party intends to update the forwardlooking information, even if the business relations between Hakon Invest and the Seller should change in the future. Risk factors 89

92 Board of Directors, Group Management, auditors Lars Otterbeck BOARD OF DIRECTORS HOLDING BEFORE THE OFFERING NAME YEAR OF BIRTH POSITION SHARES 1) Lars Otterbeck 1942 Chairman Anders Fredriksson 1954 Deputy Chairman 350,000 Cecilia Daun Wennborg 1963 Board Member Jan-Olle Folkesson 1939 Board Member Stig Lundström 1948 Board Member 64,380 Olle Nyberg 1956 Board Member 14,172 Jan Olofsson 1948 Board Member 1) Including holdings of relatives and companies. Anders Fredriksson Lars Otterbeck, born 1942, Chairman of the Board Lars is Chairman of the Swedish Industry and Commerce Stock Exchange Committee, Deputy Chairman of the Corporate Governance Council and the Third AP Fund and Member of the Board of Lindex AB, Aberdeen Property Investors AB and Kaupthing Bank Sverige. Formerly, Lars was President and Chief Executive Officer of D & D Dagligvaror AB (currently Axfood). Lars has also been President and Chief Executive Officer of Alecta Pensionsförsäkring. Lars was elected Member of the Hakon Invest Board at the 2005 Annual General Meeting. Cecilia Daun Wennborg Anders Fredriksson, born 1954, Deputy Chairman of the Board Anders is Chairman of the Board of ICA-handlarnas Förbund and ICA retailer in ICA Kvantum Hjertbergs in Lidköping. Anders was elected Member of the Hakon Invest Board at the 1997 Annual General Meeting. Jan-Olle Folkesson Cecilia Daun Wennborg, born 1963 Cecilia is a Board Member of companies including Skandiabanken AB and Nefab AB. Until April 2005, Cecilia was Acting President of Skandiabanken and previously she was in charge of Skandia s Swedish operations, President of SkandiaLink Livförsäkrings AB and Financial and Administrative Director of SkandiaLink Livförsäkrings AB. Cecilia was elected Member of the Hakon Invest Board at the 2005 Annual General Meeting. Stig Lundström Jan-Olle Folkesson, born 1939 Jan-Olle is Chairman of the Board of the Sixth AP Fund, CBN AB, Sporthaus Mexter AB and a number of other companies. He is also a Board Member of Lennart Wallenstam Byggnads AB. Jan-Olle has extensive experience of ICA s operations, gained in the capacity of President of ICA EOL in and President of ICA Företagen in Jan-Olle was elected Member of the Hakon Invest Board at the 2005 Annual General Meeting. Olle Nyberg Stig Lundström, born 1948 Stig is Deputy Chairman of ICA-handlarnas Förbund and ICA retailer in MAXI ICA Stormarknad Torslanda, Gothenburg. Formerly, Stig was Chairman of AB Lindex and Affärshälsan i Göteborg AB, Deputy Chairman of Ellos and Member of the Board of Stena Line. Stig was elected Member of the Hakon Invest Board at the 1999 Annual General Meeting. Jan Olofsson Olle Nyberg, born 1956 Olle is Member of the Board of ICA-handlarnas Förbund and ICA retailer in ICA Kvantum in Söderhamn. Olle was elected Member of the Hakon Invest Board at the 2000 Annual General Meeting. 90 Jan Olofsson, born 1948 Jan is a bank director and Senior Advisor at Handelsbanken Capital Markets. Between Jan was Head of Mergers & Acquisitions within Handelsbanken. Prior to that he held a number of leading positions within Esselte AB, including Deputy CEO between Jan is Chairman of Silva Sweden AB and Init AB. Jan was elected Member of the Hakon Invest Board at the 2005 Annual General Meeting.

93 WORKING PROCEDURES FOR THE BOARD OF DIRECTORS In preparation for Hakon Invest s market listing, the Board of Directors has undergone major changes since the end of the 2004 fiscal year (see also the Supplementary information section). In 2004, Hakon Invest s Board of Directors consisted of 19 members and held 15 Board meetings at which minutes were kept; 11 physical meetings and four telephone meetings. In addition, an Extraordinary General Meeting was held. The Board also held a joint Board conference with ICA-handlarnas Förbund, at which ICA AB s areas of operation were studied in-depth and a review was made of the competitors that are active or may become active in the market in the future. The two overall issues addressed by Hakon Invest s Board during 2004 were the change in ICA AB s ownership and the market listing of the Hakon Invest share. The working climate within the Board of Directors was good during 2004, unanimity concerning major issues addressed was great and cooperation with Hakon Invest s Group Management was excellent. According to a resolution made at the 2005 Annual General Meeting, Hakon Invest s Board currently comprises seven regular members. The Board s statutory meeting was held after the Annual General Meeting. The Board must hold at least five meetings a year, one of which must be devoted to the budget and to long-term planning issues. In the future, the timing of Board meetings will coincide with the dates announced for release of financial information. When necessary, extraordinary meetings will be held to address specific issues. The rules of procedure for the Board, which are adopted for one year at a time, govern such matters as the division of responsibilities among the Board of Directors, the Chairman of the Board, the President and the Board s Remuneration Committee, Investment Committee and Audit Committee. According to the rules of procedure, the Board of Directors shall resolve upon issues that do not concern the ongoing management and also issues of major importance, such as significant financial undertakings and agreements and significant organizational changes. The Company s finance and investment policies are adopted by the Board. Hakon Invest s scheduled Board meetings address such matters as the business status, financial reporting, personnel matters and legal issues. They also address matters including the annual accounts, interim reports, budget, raising of loans, acquisitions and investments, as well as such overall matters as strategy and business-intelligence analyses. At the Board meeting that addresses the annual report, the Company s auditors present the observations made from their examination of Hakon Invest s internal controls and annual accounts. Strategic and operational matters are presented by the Chief Executive Officer and accounting and financial matters by the Chief Financial Officer. Hakon Invest intends to comply with the Swedish Code of Corporate Governance. 91

94 GROUP MANAGEMENT HOLDING BEFORE EMPLOYEE OF COMPLETION OF HAKON INVEST YEAR OF THE OFFERING NAME SINCE BIRTH POSITION SHARES Claes-Göran Sylvén President and CEO 317,196 Göran Hesseborn CFO 1,500 Fredrik Hägglund Senior Legal Counsel 2,000 Anders Hallgren Vice President Corporate Communications 3,000 Claes-Göran Sylvén Claes-Göran Sylvén, born 1959, President and Chief Executive Officer Claes-Göran has been employed since Claes-Göran is President of ICA-handlarnas Förbund and ICA-handlarnas Medlemsservice AB. He is Chairman of the Board of ICA AB and Forma Publishing Group AB and Member of the Board of Svensk Handels and UGAL. Claes-Göran was originally an ICA retailer, and together with his family he owns ICA Kvantum Flygfyren in Norrtälje. Göran Hesseborn Göran Hesseborn, born 1960, Chief Financial Officer Göran has been employed since He joined Hakon Invest from Spendrups AB, where he was Deputy President and CFO in From 1995 to 2001, Göran was Deputy President and CFO of Servera R&S. Göran is a Member of the Board of Forma Publishing Group AB. Fredrik Hägglund, born 1967, Senior Legal Counsel Fredrik has been employed since He has a Bachelor of Law degree and worked as a lawyer at Clifford Chance, Brussels ( ) and assistant lawyer at Linklaters ( ). Fredrik was also a trainee within Anita Gradin s cabinet for the European Commission. Since 2004, he has been a Member of the ICA AB Board and of the Board of Directors of Eurocommerce and Institutet Mot Mutor (Anti-bribery Institute). Anders Hallgren, born 1952, Vice President Corporate Communications Anders has been employed since Anders was previously information manager at ICA ( ) and was previously a journalist at VLT and ICA Nyheter ( ). Fredrik Hägglund Anders Hallgren 92 Board of Directors, Group Management, auditors

95 President and Chief Executive Officer Claes-Göran Sylvén has been employed as President of Hakon Invest since As a result of his position within Hakon Invest, Sylvén is also Chairman of the Board of ICA AB and Forma Publishing Group, and Member of the Board of the Swedish Federation of Trade (Svensk Handel) and UGAL. Since 2003, Sylvén has also been President of ICA-handlarnas Förbund and its subsidiary ICA-handlarnas Medlemsservice AB, which conducts the business operations related to the provision of services to ICA-handlarnas Förbund s members, their stores and store companies. During 2005, Göran Nygren was appointed Chief Operating Officer of ICA-handlarnas Medlemsservice AB. Management of ICA-handlarnas Förbund s assets, apart from the shares in Hakon Invest, is conducted by external managers (also refer to the Supplementary information section). Sylvén s assignment for ICA-handlarnas Förbund s and Medlemsservice mainly entails managing the head of operations and participation by conducting representative duties at member meetings and other internal meetings and through external contacts. Sylvén is remunerated by ICA-handlarnas Förbund for these duties. Hakon Invest s significant holdings in ICA AB and the financial importance of the continued development of business operations based on the ICA concept and the commercial links with the ICA retailers warrant a close relationship between Hakon Invest and ICA-handlarnas Förbund. Accordingly, holding the position of President of ICAhandlarnas Förbund/ICA-handlarnas Medlemsservice AB in parallel with the employment as President of Hakon Invest has been regarded as beneficial to Hakon Invest and its shareholders, as part of efforts to develop the strategic holding in ICA AB. In addition, following the stock-exchange listing, Hakon Invest will need to uphold the confidence of the members of ICA-handlarnas Förbund. For more detailed information, refer to the section Supplementary Information under Relationship between Hakon Invest and ICA-handlarnas Förbund. Claes-Göran Sylvén and his family own all of the shares in the Sycava AB Group. Sycava has two subsidiaries: (i) Varuhuset Flygfyren AB, which is owned to 99.7%, engages in grocery retailing through ICA Kvantum Flygfyren in Norrtälje. The other shares in Flygfyren are owned, according to contract, by ICA Sverige AB and by the ICA retailer Conny Holmlund. Sylvén is not actively engaged in the store operation but is a Member of the Board; (ii) SYFA AB, which is 100% owned, engages in property leasing but is currently dormant. Sycava also has two associated companies: (i) Centrumfastigheter i Norrtälje AB, which is owned to 20%, and engages in real estate management; and (ii) Grand Arctic Sweden AB, which is owned to 33.3%, and conducts hotel operations in Överkalix. Sylvén is not actively engaged in the associated companies; nor is he a Member of the Board of these companies. Finally, Sylvén is a partner of Grand Arctic Stockholm HB investors club. Sylvén was formerly partner and Chairman of the Board of Skärgårdsupplevelser på Lidö AB but has terminated both his ownership and involvement in this company. The Hakon Invest shareholding reported in the table above is owned personally by Sylvén. Hakon Invest s Board of Directors has approved Sylvén s significant assignments and financial involvement outside the Company. The Board of Directors rules of procedure and working instructions for the President and Chief Executive Officer particularly regulate the handling of and decisions regarding agreements and other transactions between Hakon Invest and ICA-handlarnas Förbund. REMUNERATION TO THE BOARD OF DIRECTORS AND SENIOR EXECUTIVES The Chairman and Board Members receive director fees resolved by the Annual General Meeting. The remuneration paid to the President and other senior executives consists of a fixed basic salary, other benefits and remuneration and pensions. Other senior executives are defined as those employees who, together with the President, comprise Group Management; see Group Management. Board of Directors, Group Management, auditors 93

96 Remuneration and other benefits The table below contains a specification of remuneration and other benefits pertaining to the 2004 fiscal year. Since the Board of Directors and Hakon Invest s Group Management have changed during the current year, the table below also shows the estimated payments that will be made to the Board of Directors, President and other senior executives during No director fees are paid to Hakon Invest personnel representing the Company on the Boards of Directors of companies owned by Hakon Invest. Principles for remuneration paid to the President, as of 2005 Remuneration The President will be remunerated in accordance with the amounts shown in the table. An agreement has been reached with the President regarding a gross salary framework of SEK 4.5 million for The framework includes vacation payments, social security fees, pension costs and other overheads in the form of cars and so forth. The President will not receive any variable payment in The President is entitled to freely dispose of amounts within the framework in a manner that is cost-neutral for the Company. Termination notice and severance pay The President is entitled to termination notice of six months both if his employment is terminated by the Company and by himself, during which time the aforementioned gross salary framework may be disposed of by 1/12 per month. The President is not entitled to severance pay. Pensions The Company and the President have a mutual right to request that the President retires at age of 65. Within the aforementioned gross salary framework, the President decides the size of the pension provisions to be made. Principles for remuneration to other senior executives Remuneration For other senior executives, remuneration will be paid in accordance with the table. No variable remuneration will be paid in Termination notice and severance pay The Company and other senior executives within the Hakon Invest Group have a mutual six months period notice. In addition, the other senior executives are under certain circumstances entitled to severance pay corresponding to 18 monthly salaries if notice is served by the Company. The severance pay is not deductible against other income. If notice is served by the executive, entitlement to compensation arises in certain cases, due to a ban on engaging in competitive activities for a period of six months from FIXED ANNUAL SALARY/ PENSION OTHER 2004 (SEK THOUSANDS) 1) DIRECTOR FEES BENEFITS 2) COST REMUNERATION TOTAL Chairman of the Board Other Members of the Board (total) 3) 1,447 1,447 President 4) 1, , ,281 Other senior executives (total) 5) 8, , ,683 11, , ,661 1) Remuneration, excluding social security fees. 2) Pertains to company car benefit. 3) In 2004, the Board had 18 members (apart from the Chairman of the Board) up to the Annual General Meeting. Subsequently, it had six members. 4) The President disposes of a gross salary framework totaling SEK 4.4 million, including vacation payment, social security fees, pension costs and other overheads in the form of a free car, etc. 5) There were five other senior executives in FIXED ANNUAL SALARY/ PENSION OTHER 2005 (SEK THOUSANDS) 1) DIRECTOR FEES BENEFITS 2) COST REMUNERATION TOTAL Chairman of the Board Other Members of the Board (total) 3) 1,300 1,300 President 4) 1,200 2,279 3,479 Other senior executives (total) 5) 4, , ,259 1) Remuneration, excluding social security fees. 2) Pertains to company car benefit. 3) In 2005, the Board had six members (apart from the Chairman of the Board). 7, , ,538 4) The President disposes of a gross salary framework totaling SEK 4.5 million, including vacation payment, social security fees, pension costs and other overheads in the form of a free car, etc. 5) The other senior executives are Göran Hesseborn (employed since April), Ulf Nyström (employed up to March), Fredrik Hägglund and Anders Hallgren. 94 Board of Directors, Group Management, auditors

97 the date upon which employment is terminated. The maximum amount of such compensation is 60% of fixed cash salary and it is only payable during the period when the ban on competitive activities is applicable. Pensions The other senior executives are covered by a defined-contribution pension plan, under which the Company today pays a maximum of 35% of the pensionable salary, or not more than 10 price base amounts annually. The pensionable salary is calculated in accordance with the rules for the ITP plan. In addition, the other senior executives are entitled to retire at the age of 62. If they retire at the age of 62, 75% of the senior executives salary immediately prior to retirement is payable for the period that remains until normal retirement age. Pension for the period after normal retirement age is payable in the amount the executives would have received had they continued to work until the age of 65. Pension benefits are vested, which means they are not conditional upon future employment. TRANSACTIONS WITH RELATED PARTIES Apart from what is stated in the Supplementary information section above, there are no contractual relationships or transactions between Hakon Invest and related parties. No Board Member or senior executive has, or has had, any direct or indirect participation in any business transaction with the Company or the Group during the current or preceding fiscal year that is or was unusual by nature or with respect to terms and conditions, and which in any respect remains unsettled or incomplete. Nor have the auditors been involved in the type of business transaction described above. Nor has the Company granted any loans, issued guarantees or entered into sureties with, or on behalf of, any Board Member, senior executive or auditor of the Company. INCENTIVE PROGRAM As soon as the exchange-listing of Hakon Invest has been completed, ICA-handlarnas Förbund has decided to implement an incentive program aimed at all employees of the Parent Company Hakon Invest AB and ICA-handlarnas Medlemsservice AB. The incentive program will comprise an offer to acquire a total of 480,000 call options, corresponding to 0.3% of the share capital and voting rights in the Company, assuming full acceptance of the offer and full exercise of the call options, which will carry entitlement to the purchase of common shares in Hakon Invest. Each call option will carry entitlement to the purchase of one common share during the period July 1, 2008 to December 31, 2008 at an exercise price corresponding to 110% of the average stock-exchange price of the Hakon Invest share during a period of five trading days that begins six trading days after the listing and up to and including the tenth trading day after the listing ( the measurement period ). The financial outcome of the call options will be limited by a cap, meaning that if the share price on redemption exceeds 200% of the share price during the measurement period ( the cap ), the option holder will receive only half of the value appreciation exceeding the cap. ICA-handlarnas Förbund intends to subsidize the offer. Hakon Invest will not participate in the incentive program. ICA-handlarnas Förbund will make the payments and ultimately bears the cost for the program. According to IFRS 2, however, amounts will also be reported within Hakon Invest, by means of a cost in the income statement corresponding to an increase in equity. BOARD COMMITTEES Remuneration Committee The role of the Remuneration Committee is to formulate and propose principles for remuneration to the Company s management team, in terms of, for example, salary structure, pension plans, incentive programs and other terms and conditions of employment etc. The proposed remuneration principles will be presented by the Board of Directors to the Annual General Meeting for approval. The principles will include the relationship between fixed and variable remuneration and the relationship between performance and remuneration, the main terms for bonus and incentive programs, the main terms for nonmonetary benefits, pensions, employment termination and severance pay, as well as which circle of senior executives that is covered. The Committee will be viewed as a subcommittee of the Board of Directors and will not assume any responsibility assigned to the Board as a whole with respect to remuneration, etc. The Remuneration Committee will comprise the number of members thought fit by the Board, but never fewer than two. Committee members will comprise Board Members and may not comprise Company employees. At least one Committee member must be independent of the Company s major shareholders. The chairman will be appointed by the Board and shall, in consultation with the other members, establish the number of Committee meetings to be held and the times of these meetings. However, the number of meetings must not be less than two per year (of which, one must be held in December). If necessary, the HR manager or the person assigned responsibility for HR matters will be invited to attend meetings. The Remuneration Committee must issue regular reports to the Board on the progress of its activities and the decisions it has made, and must issue the minutes of the Committee s meetings to all Board Members and to the Board s secretary. The Remuneration Committee will consist of Lars Otterbeck and Anders Fredriksson. Lars Otterbeck is Chairman. Investment Committee The Investment Committee is appointed annually by the Board, primarily to, on behalf of the Board, examine the decision-making basis for acquisition matters, recommend decisions and monitor compliance with the Company s investment policy. Board of Directors, Group Management, auditors 95

98 The Committee shall be viewed as a subcommittee of the Board and will not assume any responsibility assigned to the Board as a whole with respect to investment decisions or the management of portfolio companies. The Investment Committee s duties are to: examine the decision-making basis for acquisitions, supplementary investments and the divestment of portfolio companies recommend decisions about investments, acquisitions and the financing of acquisitions and divestments review the terms and conditions for agreements regarding acquisitions or divestments assess compliance with the Company s investment policy quality assure the Company s decision-making basis and the work conducted on investment operations. The Investment Committee will comprise the number of members as deemed appropriate by the Board, but never fewer than four. Committee members will comprise Board Members and may not comprise Company employees. At least two members of the Committee must be independent of the Company s major shareholders. The chairman will be appointed by the Board and will convene meetings when investment decisions need to be addressed. The number of meetings must never be less than one per year, at which working instructions and the Company s investment policy will be revised. The Investment Committee must issue regular reports to the Board on the progress of its activities and the decisions it has made, and must issue the minutes of the Committee s meetings to all Board Members and to the Board s secretary. The Board has decided that the Investment Committee will consist of the entire Board at present. Lars Otterbeck is chairman. Audit Committee The Audit Committee is appointed annually by the Board, primarily to, on behalf of the Board, monitor the accounting and reporting of financial information and obtain information about the audit of the Group. The Committee shall also monitor risk analyses within the Company. The Committee shall be viewed as a subcommittee of the Board and will not assume responsibility assigned to the Board as a whole with respect to reporting matters and internal controls, nor will it reduce the requirement regarding the auditor s communication with the Board as a whole, which must take place at least once annually. The Committee s duties are to: be responsible for preparing the Board s work on quality assuring the Company s financial reporting and formulating proposals for the Board s annual report on the evaluation of internal control over financial reporting. obtain information about the Company s risk situation and evaluate the President s (where applicable, Group Management s) risk assessment and risk management systems. engage in in-depth discussions with the President and the legal affairs unit, or other concerned personnel, regarding the design of internal controls and follow up observations made by auditors and others. annually assess compliance with the Group s finance policy, investment policy and the overall management of policies. monitor and assess the handling of complex accounting issues and the choice of accounting principles, and in this context to take the auditors opinions into account. establish guidelines for services other than the audit that may be procured from the Company s auditors. estimate whether the total information provided to the market suitably reflects the Company s operations and risk situation, and in this context to take the auditors opinions into account. annually discuss the auditing input proposed by the auditors, the scope of their work, coordination between the external and internal audits and views on the Company s risks. annually evaluate the auditors work and inform the Company s Nomination Committee of the results of such evaluation. assist the Nomination Committee in proposing auditors and audit fees, based on proposals from the auditors. obtain and review the written assignment letter from the auditors, which clarifies the division of responsibility between the auditors and company units, etc. be responsible for the procurement process for the audit, if this is decided. inform the Board and propose the measures to be decided by the Board as a result of the duties described above. 96 Board of Directors, Group Management, auditors

99 The Audit Committee will comprise the number of members as deemed appropriate by the Board, but never fewer than two. Since ICA AB has its own Audit Committee on which the Company is represented, it is estimated that two members will suffice. Committee members will comprise Board Members and may not comprise Company employees. At least one member must be independent of the Company s major shareholders. The chairman will be appointed by the Board and shall, in consultation with the other members, establish the number of Committee meetings to be held and the times of these meetings. However, the number of meetings must never be less than three per year. The Audit Committee must issue regular reports to the Board on the progress of its activities and the decisions it has made, and must issue the minutes of the Committee s meetings to all Board Members and to the Board s secretary. The Audit Committee comprises Cecilia Daun Wennborg and Stig Lundström. Cecilia Daun Wennborg is chairman. NOMINATION COMMITTEE The role of the Nomination Committee is to formulate proposals regarding the following matters prior to their presentation for resolution at the Annual General Meeting: motion concerning chairman of the meeting. motion concerning Members of the Board. motion concerning Chairman of the Board. motion concerning the fees to be paid to Members of the Board (divided among the Chairman of the Board, Deputy Chairman and other members, and any remuneration to be paid for the Nomination Committee s work, plus other remuneration for Board work). where applicable, motion concerning the election of an auditor or auditors, or motion concerning the fees to be paid to the Company s auditors. The Nomination Committee s proposals must be presented in the notice convening the meeting and on the Company s website. The Nomination Committee shall comprise four members representing the Company s shareholders. Two members are to be nominated by the largest shareholder, ICA-handlarnas Förbund, and two members are to be nominated by the two next largest shareholders. In the event that any of the three largest shareholders decides to abstain from its right to appoint a representative to the Nomination Committee, this right reverts to the shareholder who following the aforementioned shareholder has the largest shareholding. Members of the Board shall not constitute a majority of the Nomination Committee. The President or any other member of Company Management must not be a member of the Nomination Committee. The Chairman or another Member of the Board must not be chairman of the Nomination Committee. Unless the members agree on another course of action, the chairman of the Nomination Committee shall be one of the members representing the shareholder with the greatest number of voting rights, ICA-handlarnas Förbund. The chairman shall have the casting vote. The Nomination Committee shall have a term of office extending until a new Nomination Committee has been appointed. The names of the shareholder representatives and the names of the shareholders they represent must be disclosed no later than six months prior to the Annual General Meeting. Ahead of the 2006 Annual General Meeting, these names must be disclosed no later than three months before the Meeting. AUDITORS Ire Lindstrand, born 1943, and Authorized Public Accountant from SET Revisionsbyrå AB, is the Company s auditor. Ire Lindstrand has been auditor of the Company since At the 2005 Annual General Meeting, Erik Åström, born 1957 and Authorized Public Accountant from Ernst & Young AB, and Ire Lindstrand were elected Hakon Invest s joint auditors until the 2007 Annual General Meeting. In 2004, the Company s auditors received payment of SEK 0.7 million for auditing the Parent Company. No consultation payment was made by the Parent Company to the auditors in For the Group, total payment to the Company s auditors amounted to SEK 1.2 million, of which SEK 1.0 million was for the audit and SEK 0.2 million for consultation. Board of Directors, Group Management, auditors 97

100 Share capital and ownership structure GENERAL Hakon Invest is a public limited liability company. The Company s corporate registration number is Hakon Invest was registered at the Swedish Companies Registration Office on September 23, 1946 under the registered name of AB Hakonett and has conducted its current operations since The current registered name was registered June 23, 2005, following a Annual General Meeting resolution made on May 11, The Company s legal form of business identity is governed by the Swedish Companies Act (1975:1385). The Company is a VPC company whose share register is maintained by VPC (the Swedish Securities Register Center). According to the Articles of Association, the Company s share capital must amount to not less than SEK 300,000,000 and not more than SEK 1,200,000,000. Hakon Invest s share capital amounts to SEK 402,293,590, represented by 160,917,436 shares, each with a par value of SEK At General Shareholder Meetings, all shareholders can vote for the full number of shares owned or represented, without any restrictions in terms of voting rights. In connection with votes, each share carries entitlement to one vote. SHARE CAPITAL The table below describes the changes in the Company s share capital that have occurred since Hakon Invest s formation and that will occur up to the listing of the Company s shares. Hakon Invest s Board resolved on May 24, 2005 to convert all the preference shares issued in 2000 into common shares. The resolution was registered by the Swedish Companies Registration Office on June 23, Subsequently, all Company shares are common shares. Also see under Types of shares and Conversion of shares between classes of share below. TYPES OF SHARES Assuming that all of the criteria are in place for a listing on the Stockholm Stock Exchange s O List, the Annual General Meeting held on May 11, 2005 resolved to amend the Company s Articles of Association, which will result in the following share capital structure. Shares may be issued in two series, common shares and Series- C shares. Common shares may be issued in a number not exceeding 100% of all of the shares in the Company and Series-C shares in a number not exceeding 51% of all of the shares in the Company. The intention is that the Articles of Association will be submit- CHANGE CHANGE CHANGE CHANGE CHANGE IN NUMBER OF IN NUMBER OF IN NUMBER OF IN NUMBER OF IN NUMBER OF PREFERRED PREFERRED SERIES SERIES SERIES SHARES SERIES SHARES SERIES TIME TRANSACTION A SHARES (COMMON) B SHARES C SHARES A SHARES B SHARES Before New issue Bonus issue 2: Restamping New issue 1,199, New issue (preference shares A) 13, Split 100:1 118,800,000 1,304, New issue (preference shares B) 39,599, Conversion (preference shares A) 1,317,500 1,317, Conversion (preference shares B) 39,599,936 39,599, Conversion (common shares) 1) 82,067,892 82,067,892 1) Subject to the condition that all of the criteria for a listing on Stockholm Stock Exchange s O List are satisfied. 98

101 ted to the Swedish Companies Registration Office for registration as soon as the said conditions have been met. RIGHT TO PROFIT DISTRIBUTION AND SHARES IN THE COMPANY S ASSETS Series-C shares do not carry entitlement to cash profit distribution. However, Series-C shares carry the same rights as common shares to profit distribution that takes the form of a distribution in kind of dividend of shares or other participations in ICA AB (Corp. Reg. No ) or in the current or future subsidiaries or associated companies of the ICA AB group or in companies that may take over the operations conducted or that may be conducted in the future by the ICA AB group. In the event of the Company s liquidation, Series-C shares carry the same rights as common shares to participation in the Company s assets. If the Company s restricted equity is reduced through payment to the Company s shareholders or by means of the repurchase of shares, Series-C shares only carry entitlement to payment or compensation in accordance with the regulations for profit distribution described in the preceding paragraph. CONVERSION OF SHARES BETWEEN CLASSES OF SHARES Holders of common shares are entitled to request conversion of their common shares to Series-C shares by making a written request to this effect to the Company s Board. The Board must address matters involving the conversion of shares in the order in which the requests are received. Decisions regarding conversions must be announced without delay. ICA-handlarnas Förbund has requested the conversion of a number of its Hakon Invest common shares, corresponding to 51% of the shares in Hakon Invest, to Series-C shares. The conversion will be effected prior to the listing and after the application period for the Offering expires. Since the number of Series-C shares may not exceed 51% of all the shares in Hakon Invest, this means that subsequently there will not be any scope remaining for conversions. As of 2011, holders of Series-C shares are entitled to request conversion of their Series-C shares into common shares by making a written request to this effect to the Company s Board. The Board of Directors must make a decision regarding conversion as soon as possible during the month of January in the fifth year after the conversion request was received, meaning not earlier than in January TOTAL TOTAL TOTAL TOTAL NUMBER OF CHANGE IN INCREASE IN NUMBER OF NUMBER OF NUMBER OF PREFERRED TOTAL TOTAL NUMBER OF SHARE CAPITAL, COMMON SERIES SERIES SHARES SERIES A NUMBER OF PAR SHARE CAPITAL, SHARES SEK SHARES B SHARES C SHARES AND B SHARES SHARES VALUE, SEK SEK , , , , , ,000 1,199, ,835,000 1,200,000 1,200, ,000,000 13,175 3,293,750 1,200,000 13,175 1,213, ,293, ,104, ,000,000 1,317, ,317, ,293,750 39,599,936 98,999, ,000,000 40,917, ,917, ,293, ,317,500 39,599, ,917, ,293, ,917, ,917, ,293,590 78,849,544 82,067, ,917, ,293,590 99

102 PREFERENTIAL RIGHTS IN CONNECTION WITH SHARE ISSUES Preferential rights in connection with future share issues are regulated in the Articles of Association; see Paragraph 5 under the Articles of Association section. SHAREHOLDER STRUCTURE ICA-handlarnas Förbund is the principal owner of Hakon Invest, holding approximately 75.4% of the shares prior to the Offering. The remaining nearly 25% of the shares are held by about 3,400 individual shareholders, most of them current or former ICA retailers. The table below is a specification of major shareholders prior to completion of the Offering. As a result of completion of the Offering, which comprises 13,000,000 common shares corresponding to slightly more than 8 percentage points of all of the shares in Hakon Invest, assuming that the Over-allotment option is utilized in full, ICA-handlarnas Förbund s holding will be reduced to a total of 108,317,500 common shares, corresponding to approximately 67.3 percentage points of all of the shares in Hakon Invest. If the Over-allotment option is not utilized, ICAhandlarnas Förbund s holding will be reduced to a total of 109,617,500 common shares, corresponding to approximately 68.1 percentage points of all of the shares in Hakon Invest. ICA- Handlarnas Förbund has decided to implement an incentive program as soon as possible after the exchange-listing of Hakon Invest, which will be directed to all employees of Hakon Invest and ICA-handlarnas Medlemsservice AB and will correspond to 0.3% of the Company s share capital and voting rights. Also refer to the Incentive program section. Series-C shares are not included in the Offering. The table below shows how Hakon Invest s ownership structure prior to the completion of the Offering is distributed among the various size categories, based on the Company s share register on September 30, (AT SEPTEMBER 30, 2005) NUMBER NUMBER OF SIZE CATEGORIES OF SHARES % SHAREHOLDERS % , , , ,001 10,000 5,956, , ,001 50,000 14,377, , ,000 7,493, , ,000 3,211, , ,000 1,862, , ,000 1,110, , , , , ,508, ,917, , SHAREHOLDER NUMBER OF PORTION OF NUMBER OF PORTION OF TOTAL PORTION OF COMMON CAPITAL AND SHARES OF CAPITAL AND NUMBER OF CAPITAL AND (ON SEPTEMBER 30, 2005) 1) SHARES VOTES, % 2) SERIES C 3) VOTES, % 2) SHARES VOTES, % 2) ICA-handlarnas Förbund, Solna 39,249, ,067, ,317, Samuelsson, Tomas, Stockholm 745, , Jönsson, Leif, Stockholm 538, , Ottosson, David, Sigtuna 416, , Andersson, Lars & Mats, Tyresö 404, , Persson, Sverker, Eskilstuna 400, , Olofsson, Håkan, Boden 398, , Ehn, Karl-Gustav, Jönköping 366, , Carlson, Rolf, Uppsala 354, , Davidson, Ulf, Danderyd 350, , Fredriksson, Anders & Doris, Lidköping 350, , Lönnroth, Markus, Ekerö 325, , Sylvén, Claes-Göran, Sollentuna 317, , Öhlander, Lars, Stockholm 304, , Hero, Lennart, Gothenburg 290, , Johansson, Mai, Gothenburg 290, , Others 33,748, ,748, Total 78,849, ,067, ,917, ) Including related parties and companies. 2) Series-C shares do not carry entitlement to cash dividends; also refer to Entitlement to cash dividends and participation in the Company s assets. 3) Conversion of certain of ICA-handlarnas Förbund s common shares to Series-C shares is subject to the condition that all of the criteria for a listing on Stockholm Stock Exchange s O List are satisfied. 100 Share capital and ownership structure

103 SHAREHOLDERS AGREEMENTS AND SHAREHOLDER ASSOCIATIONS As far as the Board of Directors of Hakon Invest is aware, there are no shareholders agreements or shareholder associations involving Hakon Invest. THE SHARE Hakon Invest s share has not previously been listed officially, although it has been possible for the shareholders to sell their holdings through ICA-handlarnas Förbund, whereby ICA-handlarnas Förbund s subsidiary, ICA-handlarnas Medlemsservice AB, has functioned as an intermediary. Previously, the value of the share has not been set continuously on the basis of changes in the value of the assets of Hakon Invest (ICA AB, Forma Publishing Group and other financial assets). The largest asset, ICA AB, is not listed and, in order obtain a continuous valuation of ICA AB, an index was designed and applied, which was based on the share performance of six listed publicly traded European food retail groups, following which ICA AB s earnings during the most recently reported fiscal year was related to this index. Subsequently, the estimated value of the shares in the subsidiary Forma and the daily market value of the financial assets was added to the value obtained. Accordingly, the value of the share was formerly established with the help of a predetermined valuation model and not on the basis of supply and demand. In other words, historical share trading and price setting cannot be used as a guide to share trading and price setting involving the Hakon Invest share. During 2004, 433 transactions involving the share were completed. In total, 1,629,891 shares were traded. Trading in the share was suspended on September 30, During 2005, 182 transactions were completed. In total, 280,772 shares were traded. CONVERTIBLE DEBENTURES AND OPTIONS No convertible debentures or options related to the Hakon Invest share have been issued by Hakon Invest. Nor are there currently any plans to issue such financial instruments. Share capital and ownership structure 101

104 Tax considerations in Sweden This is a summary of the primary tax implications that may rise in conjunction with the ownership of common Hakon Invest shares listed on the Stockholm Stock Exchange s O List or as a result of the Offering. The summary is not designed as an exhaustive account covering all tax implications arising from the holding of shares, but is instead meant as general information on current tax rules for holders of common shares in Hakon Invest who are subject to unlimited tax liability in Sweden, unless otherwise stated. The summary does not cover situations in which shares are held as inventory in business operations or by a partnership. Also, the rules governing tax exemption for capital gains and dividends on shares in business-related shares in the corporate sector and the accompanying prohibition of deductions for capital losses are dealt with only summarily 1). The tax implications for individual shareholders may also depend on special circumstances in individual cases. Each shareholders or other interested party is thus advised to consult a tax advisor regarding the tax implications that the Offering may entail for them. INDIVIDUALS: INCOME FROM CAPITAL In the case of individuals (and the estates of deceased persons) who have unlimited tax liability in Sweden, income from capital, such as interest, dividends and capital gains, is taxed as income from capital at a tax rate of 30%. What are referred to as exemption rules, which primarily apply to holdings in unlisted companies and which entail that dividends and capital gains to a certain extent and subject to certain detailed conditions are not reported as income are commented on below. Capital gains and capital losses are calculated as the difference between the sales proceeds after deductions for selling expenses, and the acquisition cost. The acquisition cost for shares acquired through purchases consists of the purchase payment and any purchase expenses, such as commission. The acquisition cost for all shares of the same type and class is aggregated and calculated jointly using the average method. This means that the average acquisition cost for the shares held is normally affected through the acquisition of additional shares of the same type and class. Common shares and shares of Serie C are not considered to be of the same type and class. As an alternative to the average method, the standard rule may be used for listed shares. This rule entails that the acquisition cost if the tax subject so desires may be calculated as 20% of the sales price, after deductions for selling expenses. The standard rule may be applied to the sale of listed common shares in Hakon Invest. Capital losses on shares and other listed ownership rights are fully deductible against capital gains in the same year on shares and other listed ownership rights, except for units in Swedish fixed income funds. Capital gains that cannot be offset in this manner are deductible in an amount of 70% against other income from capital. If a loss arises in income from capital, a reduction of tax on income from employment and business operations and property tax is permitted. This tax reduction is granted in an amount of 30% of the deductible loss that does not exceed SEK 100,000 and in an amount of 21% of any subsequent loss. The loss may not be saved for later fiscal years. In the case of individuals who have unlimited tax liability in Sweden, preliminary tax of 30% on dividends is withheld. The preliminary tax is normally withheld by VPC or, in the case of shares held by a trustee, by the trustee. EXEMPTION RULES For individuals (and the estates of deceased persons), there are provisions that entail a certain limit on the reporting for tax purposes of dividends and capital gains on shares in unlisted companies. If a company s shares are listed, the exemption rules apply through the tenth calendar year after the company has been listed. After listing, the rules apply only to shares that were distributed prior to the listing date or prior to the announcement of a prospectus and which, after listing, have not been transferred to a new owner through purchases, exchange or in some similar manner. The exemption rules thus continue to be applicable to the shares that are not acquired after listing. However, the rules also apply to shares acquired by means of shares distributed prior to listing, such as through a rights issue or a bonus issue. The rules cease to apply if Hakon Invest is deemed an investment company. According to the exemption rules, dividend distribution is to be reported only when it exceeds a certain exemption amount, which consists of the total base for the exemption amount multiplied by 70% of the interest rate on government loans at the end of November in the year preceding the taxation year (on November 30, 2004, this rate was, for example, 3.95 % and 70% of this is 2.77%) and any saved scope for exemption. The basis for the exemption amount is the total of the acquisition cost that the owners would have used if their shares had been sold, any saved exemption scope and a payroll amount made up of the payroll expensebased pay and other remuneration in the Hakon Invest Group during the year prior to the taxation year, distributed among all shares in the Company. In recent years, Hakon Invest has paid dividends to such an extent that there are no saved dividends. 1) Listed shares are viewed as being related to business operations if, among other considerations, the holding represents a capital asset for certain types of legal entities and the holding either amounts to 10% of the voting rights or the shareholding is required by the operations pursued by the owner or if another company can be viewed as being closely related to the holding company. 102

105 On October 27, 2005, the Swedish Government referred to a Law Council proposal involving a reform of taxation rules for owners of closely held companies. The proposal also suggests the removal of exemption rules for the taxation of dividends and capital gains from unlisted shares. The proposal is planned to come into effect on January 1, MEMBERS OF ICA-HANDLARNAS FÖRBUND Presuming that application is completed at the right time and in the correct manner, members of ICA-handlarnas Förbund have preferential rights to acquire 1,400 shares in Hakon Invest on the same terms and conditions that apply to the public or otherwise according to the Offering. Preferential rights may be used either by the member personally or through the store that is a member of the ICAhandlarnas Förbund. However, members are not entitled to transfer the preferential rights to another party. According to Chapter 42, Section 18 of the Income Tax Act, any distribution above and beyond membership fees paid made to members on the dissolution of a non-profit association or when a member leaves the association or in similar cases should be taxed as a dividend. In view of the limited scope and purpose of the preferential rights, Hakon Invest does not expect any special tax consequences to arise for members who use their preferential rights or who refrain from them, pursuant to the aforementioned provision. Furthermore, there is possibly a question as to whether the tax legislation includes a general basis for taxing members who utilize the preferential rights for any positive difference between the market value of the acquired shares and the purchase price of the shares pursuant to the Offering. Hakon Invest believes that the risk of such taxation is relatively low. EMPLOYEES The main rule is that not only salary but also benefits and all other income received through employment must be reported as a taxable income. This also applies if the benefit is received from, or is paid by a party other than, the employer. However, Chapter 11, Section 15 of the Income Tax Act includes a provision that exempts certain acquisitions of shares from taxation. The provision means that for closely held companies, benefits are not to be taxed if the employee acquires shares in the company or in another company in the same group on the same conditions as those applying to the public or otherwise pursuant to the Offering, if the employees and the shareholders in the company with preferential rights do not acquire more than 20% of the shares on offer and the employee does not acquire shares for more than SEK 30,000. In view of the extent of the preferential rights for members of the Förbund, who are also largely shareholders in the Company, and for the employees, Hakon Invest believes that there is a basis for applying the exemption from special tax consequences for employed members of the Hakon Invest and in its subsidiary Forma Publishing Group who acquire shares in Hakon Invest from the Förbund based on preferential right or who refrain from doing so. However, ICA AB is not part of the Hakon Invest Group. The special exemption rule is thus not directly applicable to the employed members of ICA AB who acquire shares based on preferential rights. Neither is the exemption rule directly applicable to members who are employed in ICA-handlarnas Medlemsservice AB, a wholly owned subsidiary of the Förbund. However, the preferential rights for these members are also limited and the acquisition of shares is effected at the same price and on the same conditions that apply to the public and for employed members of Hakon Invest Group. In addition, those employees who are encompassed by the Offering have not been able to affect the scope of the Offering or the conditions. In view of this and supported by certain older legal practices, Hakon Invest is of the opinion that the members of ICA AB s group management and the employees of ICA-handlarnas Medlemsservice who use or refrain from using the Offering of preferential rights and acquire shares in Hakon Invest should not be taxed for benefits. LEGAL ENTITIES INCOME FROM CAPITAL For limited liability companies and other legal entities, except for the estates of deceased people, interest, dividends and capital gains are taxable and capital losses are deductible. The capital gains and capital loses are essentially calculated in the same manner as that for individuals. Taxation of income from capital for legal entities is calculated as income from business operations and is subject to a tax rate of 28%. Certain rules apply to shares that are viewed as being related to business operations. Capital gains and dividends on such shares are tax-exempt if certain other conditions are fulfilled, such as a holding period of at last one year in the case of listed shares. Capital losses on business-related shares are not deductible. For limited liability companies, deductions are granted for capital losses on shares and subscription rights only against taxable capital gains on shares and other participating rights. If certain conditions are fulfilled, a capital loss may be offset against such capital gains in companies within the same group, provided that group contributions are permitted among the companies. Capital losses that cannot be utilized in any year may be saved and deducted from taxable capital gains on shares and other participating rights during subsequent taxation years, with no limits in terms of time. For certain corporate categories, such as investment companies, securities funds and limited partnerships, special rules apply. CONVERSION OF PREFERENCE SHARES AS COMMON SHARES The Board of Hakon Invest decided on May 24, 2005 to convert the preference shares issued in 2000 as common shares. The deci- 103

106 sion was registered by the Swedish Companies Registration Office on June 23, 2005 and VPC AB shortly thereafter reregistered the shares as common shares. A conversion of this type is deemed to have been completed when the conversion is registered by the Companies Registration Office. According to a preliminary decision from the Revenue Law Commission in February 2005, regarding a request from a shareholder in Hakon Invest, this conversion of preference shares to common shares is to be viewed as a sale. Three of the seven members differed and did not believe that the conversion of the shares should be viewed as a taxable transaction. The preliminary decision has been appealed to Supreme Administrative Court and is ready for a decision, but a final decision is not expected before the second half of 2005 or during For those shareholders who are individuals (or estates of deceased people) the preliminary decision, if it gains legal force, means that taxable income, or in certain cases essentially a deductible capital loss, may have arisen. The payment for the converted shares is regarded as the market value of the common shares at the time of the conversion. Any capital gain or capital loss should be calculated as the difference between the market value and the acquisition cost. If such taxation is applied, the acquisition expense for the acquired shares will be the amount used for providing the basis for taxation. At the time of the decision concerning the conversion, ICA-handlarnas Förbund bought and sold common shares in Hakon Invest for SEK per share and ICA-handlarnas Förbund and Hakon Invest are of the opinion that this amount should be viewed as the market value of the shares. However, the valuation question has not been examined by the Swedish Tax Board or by a court. For the many previous owners of preference shares who acquired these in the share issue of 2000, this entails that a taxable gain of about SEK 7.85 arose per share. The actual acquisition cost of the preference shares must be used, however. For shareholders who are limited liability companies, preference shares normally represent so called business-related shares and no taxable capital gain (or deductible capital loss) arises as a result of the conversion. NON-SWEDISH SHAREHOLDERS Shareholders with limited tax liability in Sweden and who do not conduct operations from a permanent location in Sweden are not normally taxed for capital gains on the sale of shares. However, these shareholders may be subject to tax in their country of domicile. According to a special rule, individuals with limited tax liability in Sweden can be subject to capital gains tax in Sweden from the sale of, for example, Swedish shares if they at any time during the year of sale or the ten calendar years preceding that year had been residing or permanently domiciled in Sweden. The applicability of the rule is, however, in most cases limited through double taxation agreements concluded by Sweden with other countries. In the case of shareholders who are not domiciled in Sweden for tax purposes, Swedish withholding tax is normally paid on dividends from Swedish limited liability companies. However, the tax rate of 30% is largely reduced via double taxation agreement concluded by Sweden with other countries for the purpose of avoiding or reducing double taxation. Deductions for withholding tax are normally made by VPC, or by the trustee in the case of shares lodged with a trustee. In the event that 30% withholding tax is withheld on dividends to a person who is entitled to be taxed according to a lower rate, repayment of the excess amount can be requested from the Swedish Tax Board before the end of the fifth year after the dividend. WEALTH TAX The intention is that the common shares in Hakon Invest be listed on the Stockholm Stock Exchange s O List and, based on current rules, shares listed on this list are exempt from wealth tax, with certain exemptions that Hakon Invest does not regard as applicable to shareholders in Hakon Invest. Wealth tax of 1.5% is levied on part of the taxable estate that exceeds a tax liability threshold, which is SEK 1.5 million for individuals and the estate of deceased persons. Spouses and co-habitants with the joint custody of children are taxed jointly and as of the 2006 tax year have a tax liability threshold of SEK 3 million. Children living at home and under the age of 18 are taxed jointly with their parents. INHERITANCE AND GIFT TAX Inheritance and gift tax ceased as of December 17, Tax considerations in Sweden

107 Articles of Association Hakon Invest would like to emphasize that the Articles of Association entail that all of the shares, both common shares and Series-C shares, carry the same voting rights. While the common shares carry unlimited dividend entitlement, Series-C shares carry no right to cash dividends. Such a right may accrue to Series-C shares in 2016 at the earliest. However, Series-C shares carry entitlement to dividends in kind. See below for more detailed information. The Annual General Meeting on May 11, 2005 passed the resolution adopting this wording of the Articles of Association. The resolution concerning an amendment of Article 5, regarding the share capital structure (introduction of Series-C shares) and the removal of the right-of-first-refusal clause are subject to the condition that all of the criteria for a listing on Stockholm Stock Exchange s O List are satisfied. The revised Articles of Association presented below will have been registered before the Offering has been completed and before trading in the common shares commences. ARTICLE 1 The registered name of the Company is Hakon Invest Aktiebolag. The Company is a public limited liability company. ARTICLE 2 The object of the Company is to purchase, manage and sell fixed property and chattels and to engage in other associated activities. Within the framework of the fundamental objective of generating profits for the shareholders, the Company shall also, either directly or through shareholdings in ICA AB or interests in other companies, maintain, develop and strengthen the ICA concept, which entails that retailers own and operate stores that have access to economies of scale and intangible rights through the ICA AB Group or through other companies. ARTICLE 3 The registered office of the Board of Directors shall be in Stockholm Municipality, Sweden. ARTICLE 4 The Company s share capital shall not be less than three hundred million Swedish kronor (SEK 300,000,000) and not more than twelve hundred million Swedish kronor (SEK 1,200,000,000). ARTICLE 5 The par value of the shares shall be SEK 2.50 each. The shares may be issued in two series, designated common shares and Series-C shares. Common shares may be issued in a number not exceeding 100% of all of the shares in the Company and Series-C shares in a number not exceeding 51% of all of the shares in the Company. Common shares may be converted into Series-C shares. Owners of common shares are entitled to have them converted into Series-C shares following a written request to the Company s Board. The request shall stipulate the number of shares to be converted and, if the request does not pertain to the entire shareholding, exactly which shares are to be converted. The Board shall address matters pertaining to the conversion of shares in the order in which the requests arrive. Conversion decisions shall be announced without delay. Conversions shall be reported to the Companies Registration Office for registration without delay and conversion is effective as soon as registration in the Companies Register has been completed and a notation has been made in the VPC Register. In connection with votes, each share entitles the holder to one vote. Series-C shares do not carry entitlement to cash profit distribution. However, Series-C shares carry the same rights as common shares to profit distribution that takes the form of a cash-in-kind dividend of shares or other participations in ICA AB (Corp. Reg. No ) or in the current or future subsidiaries or associated companies of the ICA AB group or in companies that may take over the operations conducted or that may be conducted in the future by the ICA AB group. In the event of the Company s liquidation, Series- C shares carry the same rights as common shares to participation in the Company s assets. If the Company s restricted equity is reduced through payment to the Company s shareholders or by means of the repurchase of shares, Series-C shares only carry entitlement to payment or compensation in accordance with the regulations for profit distribution described in the preceding paragraph. Series-C shares may be converted into common shares in the following manner: As of 2011, holders of Series-C shares are entitled to request conversion of their Series-C shares into common shares by making a written request to this effect to the Company s Board. The request shall stipulate the number of shares to be converted and, if the request does not pertain to the entire shareholding, exactly which shares are to be converted. The Board must make a decision regarding conversion as soon as possible during the month of January in the fifth year after the conversion request was received, meaning not earlier than in January Conversions shall be reported to the Companies Registration Office for registration without delay and conversion is effective as soon as registration in the Companies Register has been completed and a notation has been made in the VPC Register. In the event that the Company decides to issue new common shares and Series-C shares through a cash issue, owners of both share classes shall have preferential rights to the subscription of new shares of the same type in relation to the number of shares already held (primary preferential right). Shares not subscribed for on the basis of primary preferential rights shall be offered for subscription to all shareholders (subsidiary preferential right). If the number of shares offered in this manner is insufficient for subscription based on subsidiary preferential rights, the shares shall be distributed in relation to the number of shares already held and, to the extent that this is not possible, by lottery. 105

108 In the event that the Company decides that new common shares or new Series-C shares alone shall be issued through a cash issue, all shareholders, irrespective of whether they own common shares or Series-C shares, shall have preferential rights to the subscription of new shares in relation to the number of shares already held. The aforementioned stipulation shall not constitute any infringement on the possibility to make a decision regarding a cash issue in which the preferential rights of shareholders are disapplied. Notwithstanding the regulations pertaining to dividends, in the event of an increase in share capital through a bonus issue, new shares of each series shall be issued in relation to the number of shares of the same series already held. In such cases, shares of a specific series carry entitlement to new shares of the same series. The aforementioned stipulation shall not constitute any infringement on the possibility, following the requisite amendment in the Articles of Association, to issues shares of a new series through a bonus issue. ARTICLE 6 In addition to the members who, according to law, are to be elected by a body other than a General Shareholder Meeting, the Board of Directors shall consist of not fewer than five (5) and not more than nine (9) members. The Board members are elected annually at the Annual General Meeting for the period extending to the close of the following Annual General Meeting. ARTICLE 7 For the purpose of examining the Company s annual report and financial accounts and the administration of the Board of Directors and the President, the Annual General Meeting shall elect at least one and not more than two auditors, or one or two authorized firm of accountants, for the period extending to the close of the Annual General Meeting held during the fourth fiscal year after the election of auditors. ARTICLE 8 The Company s fiscal year shall extend from January 1 to December 31. ARTICLE 9 The Annual General Meeting shall be held once a year in Stockholm, Nacka, Sigtuna, Sollentuna or Solna. At the Annual General Meeting, the following items of business shall be addressed: 1. Election of Chairman of the Meeting; 2. Preparation and approval of the list of shareholders entitled to vote at the Meeting; 3. Approval of the agenda; 4. Election of the secretary and two minute-checkers who, in addition to the Chairman, are to sign the minutes; 5. Determination of whether the Meeting has been duly convened; 6. Presentation of the annual report and the auditors report and of the consolidated financial accounts and the auditor s report on the consolidated financial accounts; 7. Motions concerning the adoption of the income statement and balance sheet and, where applicable, of the consolidated income statement and consolidated balance sheet; 8. Motions concerning the disposition to be made of the Company s profits or losses as shown in the balance sheet adopted by the Meeting and, where applicable, taking into account profits or losses shown in the consolidated balance sheet; 9. Motions concerning the discharge of the members of the Board of Directors and of the President from personal liability; 10. Determination of the number of Board Members and, where applicable, the number of auditors; 11. Determination of the fees to be paid to the Board members and, where applicable, to the auditors; 12. Election of Board Members and, where applicable, the auditors. 13. Other business to be addressed by the Meeting in accordance with the Swedish Companies Act or the Articles of Association. ARTICLE 10 At a General Meeting, each person is entitled to exercise unlimited voting rights on the full number of shares that he or she owns or represents. ARTICLE 11 Those persons registered in the share register, or the type of list specified in Chapter 3, Section 12 of the Swedish Companies Act (1975:1385), on the stipulated record date shall be deemed to be entitled to receive dividends and, in connection with bonus issues, new shares to which the shareholder is entitled, and to exercise shareholder s preferential right to participate in the issue. ARTICLE 12 Notice of a General Meeting of Shareholders shall be made in the form of an announcement in an advertisement in the Official Gazette (Post och Inrikes Tidningar), and in Dagens Nyheter, Svenska Dagbladet or another national Swedish newspaper. Notice of the Annual General Meeting and of Extraordinary General Meetings convened to address amendments to the Articles of Association shall be issued not earlier than six weeks and not later than four weeks prior to the Meeting. Notice of other General Meetings shall be issued not earlier than six weeks and not later than two weeks prior to the Meeting To be entitled to participate in the business of a General Meeting, shareholders shall, firstly, be registered in the transcript of the entire share register pertaining to the conditions prevailing ten days prior to the Meeting and, secondly, notify the Company of their intention to attend the Meeting not later than the day stipulated in the notice convening the General Meeting. The latter mentioned day must not be a Sunday, any other public holiday, a Saturday, Midsummer s Eve, Christmas Eve or New Year s Eve and must not be more than the five weekdays before the Meeting. Shareholders are only entitled to be accompanied by assistants if the shareholder notifies the Company of the number of assistants, not more than two, in the manner stated in the preceding paragraph. 106 Articles of Association

109 Interim report January September 2005

110 Hakon Invest AB, Interim report, January September 2005 Net sales amounted to SEK 446 million (459) Profit after tax amounted to SEK 608 million (333) Earnings per share amounted to SEK 3.78 (2.07) Work on exchange listing continuing according to plan ICA increases market share ICA AB s sales increased by 3.7% for comparable units This interim report relates to the period from January through September Overview, operating structure Hakon Invest AB 40% Portfolio companies HAKON INVEST IN BRIEF Hakon Invest AB (formerly ICA Förbundet Invest AB) conducts active and long-term investment activities with a focus on retail-oriented companies in the Nordic region. Hakon Invest owns 40% of ICA AB, the Nordic region s leading retail company with a focus on food. The remaining 60% is owned by the Dutch company Royal Ahold. Through the shareholders agreement between Hakon Invest and Ahold that extends through the year 2040, the two owners have joint influence in ICA. The Hakon Invest Group also includes the wholly owned subsidiary Forma Publishing Group. In addition, Hakon Invest s assets include securities consisting of current investments in interest-bearing commercial paper and shares. ICA AB is a central investment for Hakon Invest. By being an active owner with significant influence, Hakon Invest will contribute to strengthening and enhancing the ICA concept and creating value in ICA AB. In addition to being a strong owner of ICA AB, Hakon Invest will strive to create value for shareholders by making long-term investments, primarily in unlisted companies in the Nordic retail sector. Hakon Invest has significant expertise and experience, as well as access to an extensive network in retail and associated operations. Hakon Invest is 75% owned by ICA-handlarnas Förbund, a non-profit organization for Sweden s ICA retailers. The remaining shares are owned individually by current and former ICA retailers. ICA-handlarnas Förbund has decided to sell shares, thus reducing its ownership in Hakon Invest to 67% and thereby spreading ownership in the Company. For this reason, the Annual General Meeting on May 11 decided to change the name from ICA Förbundet Invest AB to Hakon Invest, ICA AB Forma Publishing Group Future investments Översiktlig ägar- och verksamhetsstruktur 25% efter marknadsnoteringen distributed among slightly more than 3,400 shareholders 75% ICA-handlarnas Förbund 100% OWNERSHIP STRUCTURE HAKON INVEST AB (SEP. 30, 2005) to adopt new Articles of Association that create prerequisites for a listing of the share on the O-List of the Stockholm Stock Exchange, to elect a new Board of Directors with broader competence, and to change the Company s share capital structure. Against the background of the planned listing of the Hakon Invest share on the O-List of the Stockholm Stock Exchange, operations in the Company during the year were characterized by work to meet the requirements and expectations on the Company from the stock exchange and the market. Work with the exchange listing continues to proceed according to plan. 108 Interim report January September 2005

111 For the core holding in ICA AB, positive effects are now evident from the major price initiative started during the spring. During the third quarter, ICA captured market shares in the Swedish market and increased both sales and earnings. During the period from January through September, ICA AB increased sales by 3.7%, after adjustment for the sale of operations in Denmark and the fact that operations in the Baltic countries are no longer consolidated. The reported net sales declined. Operating profit increased during the third quarter to SEK 683 million (470), an increase of 45%. The participation in ICA AB s earnings amounted to SEK 415 million (348). The capital share increased from 30% to 40%. Forma s sales during the period declined somewhat by SEK 7 million due to the discontinuation of unprofitable magazines and a lower subscription rate for consumer magazines. Operating income was also adversely affected by lower advertising revenues. Financial management was positively affected by generally favorable stock market trends and reported a profit of SEK 284 million (13). SIGNIFICANT EVENTS DURING THE THIRD QUARTER Work with the planned exchange listing continued. The Company strengthened its organization during the autumn through recruitment of a number of employees, particularly with a focus on investment operations. CONSOLIDATED SALES AND EARNINGS DURING THE PERIOD Consolidated revenues declined during the period to SEK 446 million from SEK 459 million for the corresponding period in the preceding year. The decline was due to lower advertising and subscription revenues for Forma s consumer magazines and the discontinuation of unprofitable specialty magazines. In addition, no service fee was received from member service operations during the third quarter, since these operations were separated. Hakon Invest s profit for the period was SEK 608 million (333) after tax. The share of ICA AB s income increased to SEK 415 million (348) on the closing date, due to rising stock market prices and an increasing EUR/SEK exchange rate. During September, the holding was hedged at SEK/EUR 9.26 until January The value of the shares in Ahold has during 2005 increased from SEK 425 million by year-end 2004 to SEK 490 million at the end of the period thanks to a rising stock price and a rising euro. The holding was hedged from declines in the exchange rate to 9.26 SEK/EUR until January ICA-handlarnas Förbund has an important mission to support and stimulate ICA retailers as independent business owners and to utilize ICA s expertise and resources with respect to both sourcing and specialist support functions. This assignment was performed by Hakon Invest during the first six months of 2005 and financed by the ICA stores paying a service fee that during the first half of the year amounted to SEK 12 million (13). As of July 1, 2005, this assignment and the associated revenues and costs were transferred to Hakon Invest s associated company ICA-handlarnas Medlemsservice AB. The effect of this change on earnings is negligible. The Parent Company Hakon Invest s administrative expenses were at the same level as last year, although there were additional non-recurring costs during the period of SEK 18 million related to the forthcoming exchange listing. During the first six months of the year, the Group conducted operations in two segments, service operations and publishing operations, while operations in the third quarter consisted entirely of publishing. In addition, there were holdings in ICA AB and the financial management. The trends in publishing operations and in ICA AB are described under the heading Holdings. FINANCIAL POSITION The current value of the Group s liquid funds and short-term investments amounted to SEK 2,949 million at September 30, 2005, compared with SEK 2,729 million at January 1. Liquid funds declined to SEK 228 million. The Group and the Parent Company have a strong financial position. The Company had no long-term liabilities, SEK 0 million (0). The equity/assets ratio was 95.1% (95.3) at September 30, There were no changes in contingent liabilities during the quarter. CASH FLOW The change in liquid funds during the period was a deficit of SEK 277 million. Cash flow was primarily affected by the dividend totaling SEK 8.20 per share, which amounted to SEK 325 million and was paid during May Interim report January September

112 FINANCIAL ACCOUNTS Condensed consolidated income statement FULL-YEAR (SEK 000s) Q1 Q Q1 Q Q Q Revenue 445, , , , ,945 Cost of sales 230, ,297 66,771 28, ,850 Gross profit 215, ,696 69, , ,095 Other income 1,520 3, ,149 5,279 Selling expenses 110, ,726 41,520 64, ,822 Administrative expenses 130, ,300 35,802 70, ,400 Shares in companies reported in accordance with the equity method 416, , ,953 98, ,167 Operating profit 392, , ,732 73, ,319 Net financial items 283,954 12,564 22, , ,571 Profit after financial items 676, , ,032 50, ,890 Income tax expense 68,001 10,838 59,310 3,107 15,285 Profit for the period 608, , ,722 47, ,605 Profit for the year attributable to equity holders in the Parent Company 608, , ,722 47, ,605 Earnings per share (SEK) Basic Diluted Interim report January September 2005

113 Condensed consolidated balance sheet (SEK 000s) SEPT. 30, 2005 SEPT. 30, 2004 DEC. 31, 2004 ASSETS Fixed assets Goodwill 61,666 61,666 61,666 Participation in earnings of companies reported according to equity method 4,828,580 3,666,249 4,501,033 Other non-current assets 89, , ,444 Total non-current assets 4,980,146 3,869,818 4,728,143 Current assets Other current assets 147, , ,286 Current investments 2,721,902 2,920,500 2,224,023 Cash equivalents 227, , ,952 Total current assets 3,097,411 3,486,096 2,837,261 TOTAL ASSETS 8,077,557 7,355,914 7,565,404 EQUITY AND LIABILITIES Equity 7,682,450 7,007,413 7,243,642 Long-term liabilities and provisions 143, , ,581 Current liabilities 251, , ,181 TOTAL EQUITY AND LIABILITIES 8,077,557 7,355,914 7,565,404 CHANGES IN CONSOLIDATED EQUITY FULL-YEAR (SEK 000S) Q1 Q Q1 Q Opening equity 7,243,642 6,848,479 6,848,479 Translation differences 2, Items booked directly under equity from companies reported in accordance with the equity method 152,764 33,801 42,742 Dividend 324, , ,580 Profit for the period 608, , ,605 Closing equity 7,682,450 7,007,413 7,243,642 Condensed consolidated cash flow statement FULL-YEAR (SEK 000S) Q1 Q Q1 Q Cash flow from operating activities 356, , ,628 Cash flow from investment activities 310,067 62,488 44,396 Cash flow from financing activities 323, , ,580 Cash flow for the period 277,398 1,432 58,652 Cash and cash equivalents at January 1 504, , ,875 Reclassification of cash and cash equivalents 213, ,425 Cash and cash equivalents at September , , ,952 Interim report January September

114 ACCOUNTING PRINCIPLES Hakon Invest s financial reports up to and including 2004 were prepared according to the Annual Accounts Act and the general recommendations issued by the Swedish Financial Accounting Standards Council. These principles also apply for the Parent Company for As of 2005, the consolidated accounts were prepared according to the International Financial Reporting Standards (IFRS). How the transition to IFRS should be reported is described in IFRS 1 First-Time Adoption of IFRS. The basic rule is that the new principles must be applied retroactively and that comparison figures must be recalculated. The most significant effects for the Group of the transition to IFRS relate to the reporting of goodwill, pensions and financial instruments. These effects are presented according to the new accounting principles in restated consolidated accounts for 2004 in which the new principles are also described. There the valuation methods and the additional information that should be provided according to IFRS is also described. For more complete information, see Consolidated accounting for the 2004 fiscal year on the Company s website. The application of IFRS for the 2005 accounts means that the accounts must be prepared in accordance with the standards that applied as of December 31, 2005 and which were approved by the EU. The effects of the transition to IFRS that are described in the consolidated accounts mentioned above and in this interim report are based on the prevailing standards and their interpretation. These may change with subsequent effects on the reported figures, which are thus preliminary. Certain adjustments were made in the presentation of effects in the documents for 2004 mentioned above in relation to the published six-month report. This interim report was prepared in accordance with the Annual Accounts Act and IAS 34 Interim Financial Reporting, which is in agreement with the Swedish Financial Accounting Standards Council s recommendation RR 31 Interim Reporting for Corporate Groups. The accounting principles applied are those described in the recalculated consolidated accounts for During 2004, no interim report was prepared for the period from January to September, meaning that there is no reconciliation against previous principles in this report. THE COMPANY S SHARE According to the Articles of Association, the Company s share capital shall amount to not less than SEK 300 million and not more than SEK 1,200 million. Hakon Invest s share capital amounts to SEK 402,293,590 distributed among 160,917,436 shares, each with a par value of SEK On May 24, 2005, the Board of Directors of Hakon Invest decided to convert all preferential shares issued in 2000 to common shares. After implementation of this decision, the Company has only common shares. The total number of outstanding shares amounts to 160,917,436 (160,917,436), of which ICA-handlarnas Förbund owns 75%. Hakon Invest s share has not been officially listed, but ICA Förbundet Intressenter AB has conducted unofficial trading. During the period from January to September 2005, 182 (335) trades were implemented involving 280,772 (1,299,988) shares. The bid and ask prices were based on a technical valuation model. At September 30, 2005, the bid price was SEK (68.45). During the second quarter, a dividend of SEK 8.20 per share was paid. ICA-handlarnas Förbund declined the dividend on its 121,317,500 common shares. This was not subject to any conditions. Unofficial trading ceased on October 1, Earnings per share amounted to SEK 3.78 (2.07). ICA-handlarnas Förbund has taken a decision to implement an incentives program targeted to all employees in the Parent Company Hakon Invest and ICA-handlarnas Medlemsservice AB directly after the exchange listing. The incentives program includes an offer to acquire a total of 480,000 call options, corresponding to 0.3% of the share capital and voting rights in the Company, assuming full subscription and full exercise of the call options entitling the holder to purchase of common shares in Hakon Invest. As of September 30, 2005, there is only one type of share. The preferential shares that were converted to common shares carried preferential rights to dividends. Earnings per share for previous periods were based on outstanding shares at the 30th September 2005, meaning as if conversion had taken place before the beginning of Interim report January September 2005

115 PARENT COMPANY The Parent Company s revenues amounted to SEK 12 million (19) during the period and SEK 0 (5) during the quarter following the transfer of service operations. Profit after tax amounted to SEK 410 million (172). The current value of the Parent Company s liquid funds and current investments amounted to SEK 2,821 million at September 30, 2005, compared with SEK 2,597 million at January 1. No investments were made except within financial management. Holdings ICA AB Revenues increased by 3.7% for comparable units during the period and by 5.2% during the quarter. Operating profit declined to SEK 1,341 million (1,621) during the period but increased during the third quarter to SEK 683 million (470), an increase of 45%. Total assets amounted to SEK 32,257 million (29,820). Market share increased in the Swedish market. Ownership share Hakon Invest AB s ownership share amounts to 40% of the shares. The remaining 60% are owned by Royal Ahold. Through a shareholders agreement, the parties have joint influence over the company and equal voting rights. Operations ICA AB is the parent company of the ICA group. Within ICA AB, there are three joint corporate functions for Finance, Retail and Supply Chain. ICA Sverige and ICA Norge are exclusively sales companies with responsibility for operations, sales and establishment. ICA Meny is today exclusively a sales company for restaurants, caterers and convenience stores. ICA Banken offers financial services for Swedish customers. ICA AB has two joint ventures. One is Netto Marknad AB, which is owned jointly with Dansk Supermarked A/S and offers a network of discount stores in Sweden. In the Baltic countries, ICA has a joint venture, Rimi Baltic AB, together with the Finnish company Kesko Livs AB. Market The Nordic retail market for consumer goods has been characterized by increasingly fierce competition in recent years, both in the form of new players and through intensified marketing price reductions from established players. In Sweden, the ICA stores launched a price campaign in which prices were reduced on two occasions during the period in March and August. These price reductions were made possible by ICA AB reducing prices to the stores, while implementing rationalization measures at both the group and store levels. The effect of the price reductions in Sweden thus far has been that the ICA stores have attracted more customers and increased sales by more than the industry average. Overall, the ICA stores increased their market share in the Swedish retail market. The price campaign had positive effects on all ICA store profiles and on ICA Supermarket and ICA Nära in particular. Price cuts were also implemented in Norway in ICA and Rimi stores during the period which have had a positive effect on sales thus far. Above all, however, price levels in the Rimi stores moved closer as planned to those of the Rema 1000 stores, which are the nearest competitor, and market shares were stabilized. Important events during the period The price cuts begun in March in the Swedish stores and in May in Norwegian Rimi stores were successful. ICA s volumes in the Swedish market increased more rapidly than the industry average since March. Additional price cuts were implemented in August. ICA s new organization took effect on June 1. The organizational changes affected both the Swedish and Norwegian organizations and were intended to simplify daily work while improving coordi- SALES TREND SALES TREND, ICA S PROFILES % Jan Feb March Apr May June July Industry ICA Retailers Aug Sep % Jan Feb March Apr May June July ICA Retailers Maxi Supermarket Aug Sep Kvantum Nära Interim report January September

116 nation within the Group. Against the background of the organizational changes, the number of employees will be reduced by some 500 full-time positions by the end of As of September 30, 2005, a level of about 300 had been attained. In January, the subsidiary ICA Baltic s operations were transferred to a joint venture with Finland s Kesko Livs AB. During the period, three Maxi ICA Hypermarkets, one ICA Kvantum, one ICA Supermarket and two ICA Nära stores were opened in Sweden. In Norway, three ICA Maxi, two ICA Nær and four Rimi stores were opened during the same period. Sales and earnings The ICA group s sales declined to SEK 1,482 million or by 2.7% during the period to SEK 52,514 million (53,996). The decline was due to the fact that ICA Baltic was no longer consolidated and to the sale of Danish operations in August Adjusted for these changes, sales increased by 3.7% during the period. ICA Banken, ICA Meny and ICA Sverige reported higher sales growth than their competitors and thus increased market share. Sales in ICA Norge declined due to stiffer competition, as well as the conversion of wholly owned stores to franchise stores and the sale of stores. Operating profit for the period declined by SEK 280 million or 17.3% to SEK 1,341 million (1,621). Income for the comparison period included an earnings share and a capital gain from the sales of the 50% owned company Statoil Detaljhandel amounting to SEK 457 million and an impairment of the market value of ISO- ICA A/S. ICA Sverige and ICA Norge reported lower earnings as a result of price cuts. ICA Baltic included the wholly owned company ICA Baltic AB in On January 1, 2005, these operations were transferred together with Kesko s Baltic operations to the jointly owned company Rimi Baltic, which is reported according to the equity method. Rimi Baltic s sales during the period amounted to EUR million, an increase of 21.5%, compared with the corresponding period in the preceding year. ICA Meny and ICA Banken reported sharply improved earnings, compared with the preceding year. The earnings improvement was the result of increased volumes. Costs for implementation of the new organization were charged against the year s earnings. During the quarter, sales declined by SEK 160 million or 0.9%. However, after correction for ICA Baltic and ICA Denmark (see above), sales increased by 5.2% during the third quarter. Operating profit for the third quarter increased by SEK 213 million and was primarily due to increased sales volumes and cost reductions in Sweden and Norway, improved income from property management, increased volumes in ICA Banken and improved earnings in the Baltic countries, all of which was according to plan. Summary of ICA AB s income statement (SEK M) Q1 Q Q1 Q Revenue 52,514 53,996 Cost of sales 45,812 47,095 Gross profit 6,702 6,901 Other operating income Selling and administrative expenses 5,620 6,015 Participation in earnings of companies reported according to equity method ) Operating profit 1,341 1,621 Net financial items Profit after financial items 1,158 1,442 Income tax expense Profit for the period 1,068 1,221 1) Includes a capital gain from the sale of the 50% share in Statoil Detaljhandel AB, as well as an impairment of ISO A/S. 114 Interim report January September 2005

117 ICA s sales and operating profit/loss by segment January September 2005 SALES OPERATING PROFIT/LOSS (SEK M) Q1 Q Q1 Q Q1 Q Q1 Q ICA Sverige 34,333 33,092 1, ICA Norge 13,836 13, ICA Baltic 15 2, ICA Danmark 0 1, ICA Meny 4,353 3, ICA Banken ICA AB ) Internal sales Total 52,514 53,996 1, ) Includes a capital gain from the sale of the 50% share in Statoil Detaljhandel AB, as well as an impairment of ISO A/S. Summary of ICA AB s balance sheet SEPT. 30, SEPT. 30, DEC. 31, (SEK M) ASSETS Intangible non-current assets 1,974 2,026 2,015 Tangible non-current assets 13,125 13,081 13,185 Financial non-current assets 2,384 1,731 1,565 Total non-current assets 17,483 16,838 16,765 Other current assets 11,695 9,664 11,095 Current investments 2,527 3,019 2,705 Cash and cash equivalents Total current assets 14,774 12,982 14,323 TOTAL ASSETS 32,257 29,820 31,088 Summary of ICA AB s cash flow statement (SEK 000s) Q1 Q Q1 Q Cash flow from operating activities Cash flow from investment activities 1, Cash flow from financing activities 467 2,203 Cash flow for the period 71 1,123 Cash and cash equivalents at January 1 3,228 4,571 Translation differences Cash and cash equivalents at September 30 3,079 3,318 Cash flow during the 2004 fiscal year includes non-recurring effects from the sale of operations and redemption of loans. EQUITY AND LIABILITIES Equity 7,937 12,293 7,094 Long-term liabilities and provisions 7,175 3,073 3,205 Current liabilities 17,145 14,454 20,789 TOTAL EQUITY AND LIABILITIES 32,257 29,820 31,088 Interim report January September

118 FORMA PUBLISHING GROUP Sales were stable and amounted to SEK 433 million (440). Operating profit amounted to SEK 23 million (38). Total assets increased by SEK 20 million to SEK 390 million (370). Several new assignments were received by Idé and Media. The magazine Vovve was introduced as a periodical. Ownership share Hakon Invest AB s ownership share in Forma Publishing Group AB amounts to 100% of the capital and voting rights. Operations Forma Publishing Group is the parent company of a group consisting of wholly and partially owned subsidiaries in Sweden, Finland, Estonia and Latvia. In addition, there are associated companies in Sweden and Norway. The group s business areas comprise consumer magazines, specialty magazines, customer magazines, books and test kitchens. ICA Bokförlag is a specialty book publisher with a catalogue of some 450 titles that publishes around 80 new titles each year. Consumer magazines include ICA-kuriren and Hus&Hem, which are the most prominent and largest products. Among specialty magazines, ICA-Nyheter is the largest and targets the owners of food stores. Idé & Media works on assignment from external customers and produces primarily customer and employee magazines. During the spring of 2005, the consumer magazine Vovve was started as a periodical for dog owners. In addition, a number of consumer-oriented special edition editions were published in Sweden and Finland. Operations within Idé & Media were developed through new assignments from the Swedish Lawn Tennis Association, the Swedish Equestrian Federation, ABB and other customers. During the period, Forma received considerable publicity as a result of several nominations and awards, including Magazine of the Year, the Year s One-shot, Publisher of the Year and Sweden s Best Workplace. Sales and earnings Sales declined from SEK 440 million to SEK 433 million, compared with the period from January to September in This was largely due to a lower subscription rate for consumer publications and lower advertising revenues. Forma therefore decided to intensify its efforts to develop additional new magazines and new concepts for magazine supplements. Operating profit amounted to SEK 23 million (38). The decline in earnings was due to earlier booking of costs for subscription campaigns, costs for the discontinuation of unprofitable magazines and costs for investments in new products, such as Vovve. Other business areas, as well as central units, reported an earnings improvement, compared with the preceding year. Net financial items amounted to SEK 5 million (0). Tax expenses declined during the period to SEK 8 million ( 11). Total assets increased by SEK 20 million, primarily through an increase in liquid funds. Summary of Forma s income statement (SEK M) Q1 Q Q1 Q Revenue Cost of sales Gross profit Other operating income 1 4 Selling and administrative expenses Operating profit Net financial items 5 0 Profit after financial items Income tax 7 11 Profit for the period Summary of Forma s balance sheet SEPT. 30, SEPT. 30, FULL-YEAR (SEK M) ASSETS Tangible non-current assets Financial non-current assets Total non-current assets Other current assets Current investments Cash and cash equivalents Total current assets TOTAL ASSETS EQUITY AND LIABILITIES Equity Long-term liabilities and provisions Current liabilities TOTAL EQUITY AND LIABILITIES Summary of Forma s cash flow statement (SEK M) Q1 Q Q1 Q Cash flow from operating activities 5 24 Cash flow from investment activities Cash flow from financing activities 0 82 Cash flow for the period Cash and cash equivalents at January Cash and cash equivalents at September Interim report January September 2005

119 Financial management in Hakon Invest Financial investments under own management amounted to SEK 521 million at September 30, Return for the period from January through September was 11% (SEK 59 million). At September 30, 2005, the investments were distributed among shares (94%) and hedge funds (6%). During the second quarter, the Company s investments within the framework of Skandia Investment were divested. The earnings were attributable to a positive trend for the Ahold share, compared with a sharp decline during the period from January September Financial investments under external management amounted to SEK 2,195 million at September 30, The investment return for the period January to September 2005 amounted to 11% (SEK 222 million). At that date, these investments were distributed among equities (37%), hedge funds (23%), fixed-income securities (39%) and liquid funds (1%). Development of the Swedish and foreign stock markets has a positive effect on earnings. Other financial income was SEK 3 million. Key data FULL-YEAR (SEK M) Q1 Q Q1 Q Revenues Operating profit Operating margin, % Profit after financial items Profit after tax Earnings per share, SEK Total assets 8,078 7,356 7,565 Equity/assets ratio, % Return on capital employed, % Return on shareholders equity, % Equity per share, SEK Number of shares 160,917, ,917, ,917,436 Dividend per preferential share Reporting by segment PUBLISHING SERVICE OTHER JAN.-SEPT OPERATIONS OPERATIONS (INCL. ELIMINATIONS) TOTAL (SEK 000s) External revenues 433,288 12, ,695 Operating profit/loss 23,254 1, , ,186 Profit after financial items 28,676 1, , ,140 Profit after tax 20,912 1, , ,139 Assets 390, ,687,227 8,077,557 Liabilities 288, , ,106 Investments 10, ,011 Depreciation 9, ,267 PUBLISHING SERVICE OTHER JAN.-SEPT OPERATIONS OPERATIONS (INCL. ELIMINATIONS) TOTAL (SEK 000s) External revenues 439,858 19, ,993 Operating profit/loss 37,686 10, , ,589 Profit after financial items 38,060 10, , ,153 Profit after tax 27,339 10, , ,315 Assets 370, ,985,406 7,355,914 Liabilities 284,167 10,603 53, ,501 Investments 24, ,525 19,076 Depreciation 7, ,726 Interim report January September

120 DEFINITIONS Equity/assets ratio Shareholders equity including minority interests as a percentage or total assets Return on shareholders equity Net profit based on rolling 12- month figures as a percentage of average shareholders equity during the same period. Shareholders equity does not include minority interests in subsidiaries REPORTING DATES Hakon Invest s year-end report for 2005 will be published on February 27, The Annual General Meeting will be held in Solna, Sweden on May 10, Solna, October 27, 2005 Return on capital employed Profit after financial items plus financial expenses calculated on a rolling 12-month basis as a percentage of average capital employed during the same period Capital employed Total assets reduced by non-interest bearing liabilities including deferred tax Earnings per share Profit after tax divided by the average number of shares SIGNIFICANT EVENTS AFTER THE CLOSING DATE The Board of Directors of ICA-handlarnas Förbund decided that the unofficial trading of Hakon Invest shares would cease as of October 1 pending the exchange listing. Claes-Göran Sylvén President REVIEW REPORT We have reviewed this interim report in accordance with the recommendations issued by FAR, the Institute for the Accounting Profession in Sweden. A review is considerably limited in scope compared with an audit. Nothing has come to our attention that causes us to believe that the interim report does not comply with the requirements of the Exchange and Clearing Operations Act and the Annual Accounts Act. Solna, October 27, 2005 Erik Åström Authorized Public Accountant Ernst & Young AB Ire Lindstrand Authorized Public Accountant SET Revisionsbyrå AB 118 Interim report January September 2005

121 Financial Statements

122 Income Statements PARENT GROUP COMPANY SEK 000s NOTE Net sales 2, 3 621, , ,856 25,734 Cost of goods sold 4 300, , ,641 Gross profit 321, , ,215 Selling expense 4, 6 153, , ,321 Administrative expenses 5 187, , ,384 96,086 Other operating income 5,279 18,911 13,776 Other operating expenses 142 Items affecting comparability 25,375 Operating loss 2 15,144 16,558 72,231 70,352 INCOME FROM FINANCIAL INVESTMENTS Result from participation in associated companies 7, , , ,569 1,868,520 Income from other securities and receivables classed as non-current assets 8 1,229 8,258 14,729 1,229 Other interest income and similar items 9 160, , , ,670 Interest expense and similar items 10 94, , ,534 90,653 Total income from financial investments 576, , ,111 1,933,308 Profit/loss after financial items 561, , ,342 1,862,956 Profit/loss before tax 561, , ,342 1,862,956 Tax on profit for the year 11 63,831 14,020 76,838 9,699 Minority share 487 Net profit/loss for the year 497, , ,693 1,872,655 The financial statements for were prepared in accordance with the accounting principles that applied previously. As of 2005, Hakon Invest reports in accordance with IFRS. The consolidated accounts for 2004 were recalculated in accordance with IFRS on pages Financial Statements

123 Cash flow statements PARENT GROUP COMPANY SEK 000s NOTE OPERATING ACTIVITIES Profit/loss after financial items 561, , ,342 1,862,956 Depreciation charged against earnings 13,871 13,413 11, Profit/loss from other non-current assets 10,012 Changes in write-downs 11,408 4,796 1,367,823 11,408 Adjustment for items not affecting cash flow 3,137 Profit/loss from other non-current assets 10,012 Cash flow from operating activities 576, , ,935 1,864,414 Share in profit from associated companies not paid as dividend 335, ,009 Dividend in addition to income from associated companies 1,356,950 Income tax paid 15,117 4, ,738 8,072 Cash flow from operating activities before working capital changes 1,918,226 38,966 13,812 1,856,342 Working capital changes Inventories, etc ,633 8,811 Receivables 15,175 19, ,219 27,813 Liabilities 30,596 28,300 11,986 88,721 Cash flow from operating activities 1,902,084 37,627 85,232 1,972,876 INVESTMENT ACTIVITIES Investment in non-current assets* 2,419,162 20,720 30,060 2,394,561 Divestment of non-current assets 20,615 7,788 77,322 15,004 Cash flow from investment activities 2,398,547 12,932 47,262 2,379,557 FINANCING ACTIVITIES Change in minority share of capital 487 Change in long-term receivables 37, ,567 37,658 Change in long-term liabilities and provisions 43,033 27, ,757 38,179 Change in current investments 689, , , ,556 Adjustment of deferred tax 2,462 Translation difference 357 Shareholder contribution received 366,320 Dividend paid 140, , , ,580 Cash flow from financing activities 555,115 5,387 34, ,497 Cash flow for the year 58,652 30,082 98, ,816 Cash and cash equivalents at Jan , , ,765 27,008 Cash and cash equivalents at Dec , , , ,824 * of which investment in ICA AB 2,376,608 The financial statements for were prepared in accordance with the accounting principles that applied previously. As of 2005, Hakon Invest reports in accordance with IFRS. The consolidated accounts for 2004 were recalculated in accordance with IFRS on pages Financial Statements 121

124 Balance sheets ASSETS PARENT GROUP COMPANY SEK 000s NOTE NON-CURRENT ASSETS Intangible non-current assets Goodwill 12 57,555 61,666 65,883 Tangible non-current assets Buildings and land 13 40,574 41,462 41,872 Equipment 14 25,047 16,764 20, Construction in progress 15 9,576 4,835 1,019 Total tangible non-current assets 75,197 63,061 63, Financial non-current assets Participations in Group companies ,000 Participations in associated companies 17 4,592,719 3,657,460 3,619,650 2,959,608 Other securities held as non-current assets 18 57,260 58,238 42,572 48,863 Deferred tax asset 9,371 9,371 Other long-term receivables 19 38,430 1,310 1,477 38,358 Total financial non-current assets 4,697,780 3,717,008 3,663,699 3,256,200 Total non-current assets 4,830,532 3,841,735 3,793,083 3,256,231 CURRENT ASSETS Inventories, etc. 22,463 21,742 29,375 Current receivables Accounts receivable trade 45,921 51,773 53,220 Receivables from Group companies 3,827 7, ,827 Receivables from associated companies 1,142 1,142 Other current receivables 12,453 17,194 32,902 2,117 Prepaid expenses and accrued income 20 22,480 24,611 34, Total current receivables 85, , ,312 7,813 Current investments Securities under separate management 21 1,986,376 2,644,938 2,163,851 1,974,014 Other shares , ,460 1,137, ,240 Total current investments 2,411,616 3,101,398 3,300,851 2,399,254 Cash and bank balances 288, , , ,824 Total current assets 2,808,429 3,454,013 3,650,331 2,575,891 Total assets 7,638,961 7,295,748 7,443,414 5,832,122 The financial statements for were prepared in accordance with the accounting principles that applied previously. As of 2005, Hakon Invest reports in accordance with IFRS. The consolidated accounts for 2004 were recalculated in accordance with IFRS on pages Financial Statements

125 EQUITY AND LIABILITIES PARENT GROUP COMPANY SEK 000s NOTE EQUITY 24 Restricted equity Share capital 402, , , ,294 Share premium reserve 2,689,402 Statutory reserve 83,202 Restricted reserves 4,400,645 5,841,660 5,794,816 Total restricted equity 4,802,939 6,243,954 6,197,110 3,174,898 Non-restricted equity Profit/loss brought forward 1,977, ,078 1,828, ,619 Profit/loss for the year 497, , ,693 1,872,655 Total non-restricted equity 2,474, , ,180 2,536,274 Total equity 7,277,377 6,947,688 7,050,290 5,711,172 Provisions Provisions for pensions and similar commitments , , ,686 52,277 Provision for deferred tax liability 3,686 2,599 2,462 Total provisions 171, , ,148 52,277 Long-term liabilities Liabilities to credit institutions 27,913 Liabilities to Group companies Total long-term liabilities 27,913 Current liabilities Advance payments from customers 88,821 88, ,475 Liabilities to associated companies 224 Accounts payable trade 35,085 41,909 34,989 2,482 Liabilities to Group companies 52,350 Liabilities to associated companies 223 Tax liability 7,052 6,408 Other current liabilities 13,238 38,906 68,872 1,355 Accrued expenses and deferred income 26 45,761 51,905 35,727 5,855 Total current liabilities 190, , ,063 68,673 Total equity and liabilities 7,638,961 7,295,748 7,443,414 5,832,122 Pledged assets 27 37,708 None 30,000 37,708 Contingent liabilities 28 2,923 2,451 2, ,504 The financial statements for were prepared in accordance with the accounting principles that applied previously. As of 2005, Hakon Invest reports in accordance with IFRS. The consolidated accounts for 2004 were recalculated in accordance with IFRS on pages Financial Statements 123

126 Notes and accounting principles INTRODUCTION The annual accounts were prepared in accordance with the Annual Accounts Act and the general recommendations issued by the Swedish Accounting Standards Board, unless otherwise indicated. The principles were unchanged from previous years. Amounts are in SEK 000s, unless otherwise indicated. NOTE 1 Accounting and valuation principles GROUP COMPOSITION The principal owner of the Parent Company, ICA Förbundet Invest AB, is ICA-handlarnas Förbund, Corporate Registration No , Stockholm, which owns 75%. As of December 31, 2004, ICA Förbundet Invest AB has a wholly owned subsidiary, Forma Publishing Group AB (the former ICA Förlaget AB). Forma Publishing Group AB, in turn, has 14 subsidiaries and two associated companies. The consolidated accounts include companies in which the shareholding directly or indirectly amounts to more than 50% of the voting rights or in which there is otherwise a controlling influence. ICA Förbundet Invest s 40% holding in ICA AB is reported as an associated company, in accordance with the equity method. CONSOLIDATED ACCOUNTS The consolidated accounts include subsidiaries in which at the close of the fiscal year the Parent Company directly or indirectly held over 50% of the voting rights or otherwise had a controlling interest. Acquired companies are consolidated from the date of their acquisition and divested companies are consolidated up to and including the date of their divestment. The consolidated accounts were prepared in accordance with the acquisition method. This method implies that the assets and liabilities that the acquired company owns at the time of acquisition are valued at market value that is, the consolidated acquisition values. Any differences between the purchase price of the shares and the consolidated acquisition value are reported as consolidated goodwill. Only the portion of the subsidiary s non-restricted equity that can be distributed to the Parent Company without requiring a writedown are included in the consolidated non-restricted equity. Untaxed reserves are not reported as such on the consolidated balance sheet, but rather subdivided into deferred tax liability and restricted equity. Consequently, the consolidated accounts do not include appropriations that imply a change in untaxed reserves. The tax portion of this change is reported as a part of the year s net tax expense, whereas the equity portion is included in the net profit/loss for the year. FOREIGN SUBSIDIARIES The foreign subsidiaries are classified as independent or integrated. This classification determines the translation method to be applied. All subsidiaries are classified as independent. The income statements and balance sheets of independent subsidiaries are translated in accordance with the current method. This implies that assets and liabilities are translated at the closing rate. Equity items are translated at the rates that applied at the time of acquisition. Income statement items are translated at the average rate during the year. The translation difference is reported under consolidated equity. REPORTING OF ASSOCIATED COMPANIES Shares in associated companies are reported in accordance with the equity method for the companies in which ICA Förbundet Invest AB has significant influence, meaning a shareholding considered as long-term and consisting of not less than 20% and not more than 50% of the voting rights. The equity method implies that the consolidated book value of the shares in the associated company corresponds to the Group s share of the associated company s equity, consolidated surplus or deficit values, and the owned share of unrealized internal gains. The Group s share of the associated company s profit after financial income and expenses and adjusted for depreciation/reversal of acquired surplus or deficit values is reported under Income from shares in associated companies in the consolidated income statement. The Group s share in the associated company s reported tax expenses in included in consolidated tax expenses. GENERAL ACCOUNTING PRINCIPLES The Group s inventories, etc., are valued at the lower of acquisition value reduced by obsolescence and fair value. Receivables are reported in the amounts in which they are expected to be received after individual assessment. Financial assets are reported at their acquisition value, unless otherwise indicated. Liabilities are reported at their acquisition value, with the customary provisions for accrued expenses. Provisions are made for known or anticipated risks after individual assessment. The financial statements for were prepared in accordance with the accounting principles that applied previously. As of 2005, Hakon Invest reports in accordance with IFRS. The consolidated accounts for 2004 were recalculated in accordance with IFRS on pages Financial Statements

127 DEPRECIATION/AMORTIZATION ACCORDING TO PLAN Depreciation/amortization according to plan is based on the assets acquisition value. The depreciation period is based on the estimated useful life. Goodwill Buildings Computer equipment Other equipment 5 20 years years 3 years 5 10 years Goodwill relating to Forma Publishing Group AB, as well as the additional investment in ICA AB, are amortized over 20 years, since the acquisitions in question are well-established operations of strategic value. NOTE 2 Net sales and operating profit/loss distributed by operating areas and geographic markets The subsidiary Forma Publishing Group has one area of operation, which is media production. ICA Förbundet Invest s net sales and operating profit/loss are distributed among geographic markets as follows: NET SALES OPERATING PROFIT/LOSS Sweden 461, , ,665 23,920 17,809 76,558 Denmark 3,463 4,128 4, Finland 145, , ,035 7, ,262 Norway 4,726 6,443 8,166 1, Other countries 5,952 6,221 7, Total 621, , ,856 15,144 16,558 72,231 NOTE 3 Sales to affiliated companies Of net sales, SEK 5,800 (5,924) pertains to revenues from the other Group companies. Of other operating revenue in 2002, SEK 7,120 pertains to revenues from the other Group companies. NOTE 4 Average number of employees, salaries, other compensation and social fees The number of employees is calculated based on the Group s measure of normal working time, which is 1,800 hours. GROUP PARENT COMPANY GROUP Sweden Women Men Total Finland Women Men Total Norway Women 1 Men Total 1 Total number of women Total number of men Total number of employees The financial statements for were prepared in accordance with the accounting principles that applied previously. As of 2005, Hakon Invest reports in accordance with IFRS. The consolidated accounts for 2004 were recalculated in accordance with IFRS on pages Financial Statements 125

128 GROUP PARENT COMPANY WAGES, SALARIES AND OTHER REMUNERATION Board of Directors, President and Vice President Sweden 10,334 9,089 7,404 8,274 Finland 2,083 1,203 1,452 Norway 347 Total 12,417 10,292 9,203 8,274 Other employees Sweden 98, , ,503 8,790 Finland 20,436 18,549 16,607 Total wages, salaries and other compensation, Group 131, , ,313 17,064 Statutory and negotiated social fees 52,605 48,305 39,119 16,252 Pension expenses 40,428 25,096 40,781 24,618 Total social fees and pension expenses 93,033 73,401 79,900 40,870 BENEFITS FOR SENIOR EXECUTIVES During the year, a fee of SEK 250 was paid to the Chairman of the Board of Directors. In 2003, this fee amounted to SEK 253 and in 2002, to SEK 201. Of the pension amount, SEK 22,770 was paid to the Group s Board of Directors, the President and the Vice President of the Parent Company, and SEK 22,936 to the Group. The corresponding amounts were and in 2003 and and in Salary to the Company s President amounted to during the year. A yearly gross salary of SEK 4,4 M has been contracted with the President. The benefits package includes holiday pay, social fees, pension expenses and other overhead expenses in the form of a company car, etc. The retirement age is 65. The required period of notice is six months, during which time the employee is entitled to 1/12 of his or her gross salary package per month. No bonuses were paid. PARENT COMPANY, 2004 NUMBER ON OF WHOM MEN, CLOSING DAY % BOARD MEMBERS AND SENIOR EXECUTIVES Board members President and other senior executives % 2004 ABSENCE DUE TO ILLNESS Long-term absence due to illness 0 Absence due to illness, men 1.54 Absence due to illness, women 1.15 Employees under 29 0 Employees aged Employees over Total absence due to illness 1.47 NOTE 5 Fees to auditors GROUP PARENT COMPANY SET audit assignments 1,024 1, Other, audit assignments Total 1,179 1,429 1, The financial statements for were prepared in accordance with the accounting principles that applied previously. As of 2005, Hakon Invest reports in accordance with IFRS. The consolidated accounts for 2004 were recalculated in accordance with IFRS on pages Financial Statements

129 NOTE 6 Depreciation GROUP PARENT COMPANY Cost of goods sold 8,103 7,784 5,593 Selling expenses Administrative expenses 5,566 5,498 5, Total 13,871 13,413 11, NOTE 7 Result from participation in associated companies PARENT COMPANY 2004 Dividends 1,868,520 1,868,520 NOTE 8 Income from other securities and receivables classed as non-current assets GROUP PARENT COMPANY Dividends Capital gains from sales 10,013 3,025 10,013 Change in write-down 11,408 4,796 14,975 11,408 Total 1,229 8,258 14,729 1,229 NOTE 9 Other interest income and similar items GROUP PARENT COMPANY Dividends 22,322 30,744 76,162 22,322 Interest income 36,826 42,086 70,639 33,803 Capital gains from sales 51,822 25,669 38,782 51,822 Change in write-down of current investments 49, ,573 48,723 Total 160, , , ,670 NOTE 10 Interest expense and similar items GROUP PARENT COMPANY Interest expense 6,853 8,910 13, Interest expense to Group companies 11,966 2,350 Exchange-rate differences 2,516 2,516 Change in write-down of current investments 345,565 Write-down of other shares 1,007,283 Capital gains from sale of securities 84, , ,857 84,938 Total 94, ,633 1,633,534 90,653 NOTE 11 Tax on profit for the year GROUP PARENT COMPANY Current tax for the year 15,117 4, ,072 Share of tax in associated companies 56,998 9, ,832 Deferred tax 8, ,823 9,371 Tax effect of Group contributions 8,400 Total 63,831 14,020 76,838 9,699 The financial statements for were prepared in accordance with the accounting principles that applied previously. As of 2005, Hakon Invest reports in accordance with IFRS. The consolidated accounts for 2004 were recalculated in accordance with IFRS on pages Financial Statements 127

130 NOTE 12 Goodwill GROUP Acquisition value on opening date 91,149 91, ,457 Changes during the year Sales and scrappings 49,308 Accumulated acquisition value on closing date 91,149 91,149 91,149 Depreciation on opening date 29,483 25,266 68,170 Changes during the year Sales and scrappings 47,180 Depreciation 4,111 4,217 4,276 Accumulated depreciation on closing date 33,594 29,483 25,266 Residual value according to plan on closing date 57,555 61,666 65,883 NOTE 13 Buildings and land GROUP Acquisition value on opening date 43,929 43,770 43,152 Changes during the year Purchases Accumulated acquisition value on closing date 43,929 43,929 43,770 Depreciation on opening date 2,822 1,898 1,036 Changes during the year Sales and scrappings 60 Depreciation Translation differences Accumulated depreciation value on closing date 3,710 2,822 1,898 Write-ups on opening date 355 Changes during the year Write-ups 355 Accumulated write-ups on closing date Residual value according to plan on closing date 40,574 41,462 41,872 Value for tax purposes of buildings in Sweden 12,400 29,440 30,590 Value for tax purposes of land in Sweden 6,051 9,681 10,059 18,451 39,121 40,649 NOTE 14 Equipment GROUP PARENT COMPANY EQUIPMENT Acquisition value on opening date 102,058 98, , Changes during the year Purchases 19,864 5,442 10, New facilities 3,090 Sales and scrappings 42,677 1, ,501 Translation differences 137 Accumulated acquisition value on closing date 79, ,058 98, The financial statements for were prepared in accordance with the accounting principles that applied previously. As of 2005, Hakon Invest reports in accordance with IFRS. The consolidated accounts for 2004 were recalculated in accordance with IFRS on pages Financial Statements

131 Depreciation on opening date 85,294 77, , Changes during the year Sales and scrappings 40, ,827 Depreciation 8,899 8,295 6, Translation differences Accumulated depreciation on closing date 54,198 85,294 77, Residual value according to plan on closing date 25,047 16,764 20, NOTE 15 Construction in progress GROUP Acquisition value on opening date 4,835 1,019 3,090 Changes during the year Purchases 4,741 3,816 1,019 Transferred to Machinery and equipment 3,090 Accrued expenses on closing date 9,576 4,835 1,019 NOTE 16 Participations in Group companies CAPITAL AND BOOK BOOK BOOK VOTING PAR VALUE VALUE VALUE CORP. REG. NO. DOMICILE NUMBER RIGHTS, % VALUE 12/31/04 12/31/03 12/31/02 Forma Publishing Group AB Västerås 30, , , , ,000 Subsidiaries to Forma Publishing Group AB Idé-förlaget i Västerås AB Västerås 100 HB Tapplina Stockholm 100 Tidskriften Hus o Hem AB Västerås 100 Idé & Mediaproduktion i Västerås AB Västerås 100 ICA Kuriren AB Västerås 100 ICA Förlaget Annonsservice AB Västerås 100 ICA Facktidningar AB Västerås 100 ICA Bokförlag AB Västerås 100 Hemma Bäst AB Västerås 100 Bokklubben Hemma AB Västerås 100 Kustannus OY Forma Helsinki 100 Forma Publishing International OY Helsinki 70 ICA Media A/S Tallinn 70 ICA Media S/A Riga Acquisition value on opening date 200, , ,000 Accumulated acquisition value on closing date 200, , ,000 NOTE 17 Participations in associated companies GROUP PARENT COMPANY Acquisition value on opening date 3,657,460 3,619,650 3,119, ,000 Changes during the year Purchases 2,376,608 2,376,608 Sales Net income from associated companies not paid as dividend 1,413, , ,009 Exchange-rate differences 26, , ,423 Reclassifications 307 Accumulated acquisition value on closing date 4,592,719 3,657,460 3,619,650 2,959,608 The financial statements for were prepared in accordance with the accounting principles that applied previously. As of 2005, Hakon Invest reports in accordance with IFRS. The consolidated accounts for 2004 were recalculated in accordance with IFRS on pages Financial Statements 129

132 BOOK BOOK BOOK PAR SHARE VALUE VALUE VALUE PROFIT NUMBER VALUE % 12/31/04 12/31/03 12/31/02 SHARE GROUP ICA AB 2,000, , ,587,649 3,652,056 3,605, ,409 (30.0) Bra Förlag AB Radio 106,1 KB 1,267 Kruunuhaan Mediatehtas OY 5,375 Västerås Reklamradio AB 33 Elektronikkforlaget AS Trade Press AS ,320 4,320 5,040 Svenska Internetbokhandeln AB 1,478 Total 4,592,719 3,657,460 3,619, ,570 PARENT COMPANY ICA AB 2,000, , ,959,608 1,500, , , ,000 Ownership share above refers to voting rights and is in all cases also the same as the equity share. CORP. REG. NO. REG. OFFICE ICA AB Stockholm Bra Förlag AB Stockholm Elektronikkforlaget AS Norway, Oslo Trade Press AS Norway, Oslo NOTE 18 Other long-term security holdings GROUP PARENT COMPANY Acquisition value on opening date 94,324 83,376 65,204 72,867 Change during the year Investment 17,950 10,948 18,172 17,937 Divestments 4,992 4,992 Accumulated acquisition value on closing date 107,282 94,324 83,376 85,812 Write-downs on opening date 36,086 40,804 25,907 25,541 Change during the year Write-down 13,936 4,796 14,975 11,408 Reclassifications Accumulated write-downs on closing date 50,022 36,086 40,804 36,949 Book value on closing date 57,260 58,238 42,572 48,863 The Parent Company s holdings consist mainly of investments within the framework of Skandia Investment. The book value for Skandia Investment is SEK 47,333 (45,796), while the estimated market value is SEK 70,226 (53,652). In 2002, the book value was , which corresponded to the market value. NOTE 19 Other long-term receivables GROUP PARENT COMPANY Acquisition value on opening date 1,310 1,477 10, Changes during the year Investment 37, ,708 Sales Transferred to current receivables 9 9 9,099 Amortization Accumulated acquisition value on closing date 38,430 1,310 1,477 38,358 Reported value on closing date 38,430 1,310 1,477 38,358 Of which pledged endowment assurance policies amounting to SEK 37,708. The financial statements for were prepared in accordance with the accounting principles that applied previously. As of 2005, Hakon Invest reports in accordance with IFRS. The consolidated accounts for 2004 were recalculated in accordance with IFRS on pages Financial Statements

133 NOTE 20 Prepaid expenses and accrued income GROUP PARENT COMPANY Production and distribution expenses 13,737 14,139 22,068 Other prepaid expenses 727 1, Other accrued income 8,016 9,372 11,158 22,480 24,611 34, NOTE 21 Securities under separate management GROUP PARENT COMPANY Shares 514,366 1,370,296 1,101, ,004 Hedge funds 395, ,181 Interest-bearing securities 1,076,829 1,274,642 1,062,517 1,076,829 Book value 1,986,376 2,644,938 2,163,851 1,974,014 Market value 2,020,555 2,644,938 2,163,851 2,007,983 NOTE 22 Change in Parent Company equity SHARE PREMIUM STATUTORY ACCUMULATED YEAR S NET TOTAL CAPITAL RESERVE RESERVE PROFIT/LOSS PROFIT/LOSS EQUITY Amounts at Jan ,294 2,689,402 83, ,773 9,174 3,957,497 Allocation of earnings of the preceding year 9,174 9,174 Dividend 140, ,580 Group contribution 30,000 30,000 Tax effect of Group contribution 8,400 8,400 Net profit/loss for the year 1,872,655 1,872,655 Amounts at Dec ,294 2,689,402 83, ,619 1,872,655 5,711,172 The share capital consists of 121,317,500 common shares with a par value of SEK 2.50 and 39,599,936 preference shares with a par value of SEK All classes of shares carry the same number of voting rights. NOTE 23 Other shares Other shares consisted in 2004 of 8,341,376 shares in Royal Ahold at the price of EUR 5.66, SEK/EUR In 2003, the holding was 8,341,376 shares at the price of EUR 6.04, SEK/EUR In 2002, the holding was 10,004,826 shares at the price of EUR 11.93, SEK/EUR NOTE 24 Change in consolidated equity NON- SHARE RESTRICTED SHARE OF RESTRICTED YEAR S NET TOTAL 2002 CAPITAL RESERVES EQUITY RESERVES PROFIT/LOSS EQUITY Amounts at Jan ,294 2,908,436 2,517,365 1,751, ,313 7,853,985 Transfer between restricted and non-restricted equity 135, ,293 45, ,313 0 Exchange-rate difference 140, ,780 Deferred tax liability 2,462 2,462 Dividend 332, ,640 Shareholder contribution received 366, ,320 Net profit/loss for the year 975, ,693 Amounts at Dec ,294 2,772,604 3,022,212 1,828, ,693 7,050,290 1) 1) Due to rounding off a difference in equity has arisen between Jan. 1 and Dec. 31. The financial statements for were prepared in accordance with the accounting principles that applied previously. As of 2005, Hakon Invest reports in accordance with IFRS. The consolidated accounts for 2004 were recalculated in accordance with IFRS on pages Financial Statements 131

134 NON- SHARE RESTRICTED SHARE OF RESTRICTED YEAR S NET TOTAL 2003 CAPITAL RESERVES EQUITY RESERVES PROFIT/LOSS EQUITY Amounts at Jan ,294 2,772,604 3,022,210 1,828, ,693 7,050,288 1) Appropriation of profits 975, ,693 Dividend 166, ,320 Transfer between restricted and non-restricted equity , ,416 Exchange-rate difference 286,925 2, ,291 Write-up of property Net profit/loss for the year 352, ,656 Amounts at Dec ,294 2,772,604 3,069, , ,656 6,947,688 1) Due to rounding off a difference in equity has arisen between Jan. 1 and Dec. 31. NON- SHARE RESTRICTED SHARE OF RESTRICTED YEAR S NET TOTAL 2004 CAPITAL RESERVES EQUITY RESERVES PROFIT/LOSS EQUITY Amounts at Jan ,294 2,772,604 3,069, , ,656 6,947,688 Appropriation of profits 352, ,656 Dividend 140, ,580 Transfer between restricted and non-restricted equity 1,414,109 1,414,109 Exchange-rate difference 26, ,026 Net profit/loss for the year 497, ,295 Amounts at Dec ,294 2,772,604 1,628,041 1,977, ,295 7,277,377 NOTE 25 Provision for pensions and similar commitments GROUP PARENT COMPANY Provision, PRI pensions 116, , ,694 3,192 Provision, other pensions 51,183 11,207 9,992 49,085 Total 167, , ,686 52,277 NOTE 26 Accrued expenses and prepaid income GROUP PARENT COMPANY Accrued vacation pay 14,407 13,237 13,846 1,610 Accrued social fees 4,979 4,492 6, Other accrued expenses 26,375 34,176 15,128 3,719 Total 45,761 51,905 35,727 5,855 NOTE 27 Pledged assets GROUP PARENT COMPANY Pledged endowment insurance as security for pension commitments 37,708 37,708 Real-estate credits 30,000 37,708 30,000 37,708 NOTE 28 Contingent liabilities GROUP PARENT COMPANY Guarantees for subsidiaries 115,440 Guarantees and contingent liabilities 2,923 2,451 2, Total 2,923 2,451 2, ,504 The financial statements for were prepared in accordance with the accounting principles that applied previously. As of 2005, Hakon Invest reports in accordance with IFRS. The consolidated accounts for 2004 were recalculated in accordance with IFRS on pages Financial Statements

135 Consolidated financial statements in accordance with IFRS for the 2004 fiscal year