Swedish food retailing giant Axfood has posted a report on its Q4 and FY 2001.
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During the Q4, the company wound up its e-commerce operation, taking a one-time charge of SEK28m (US$2.65m), and restructured its store network, with a one-time charge of SEK27m (reported among other items).
During the year as a whole, it merged discount chains Willys, Exet/Matex and HP Billigt & Nära to form a single nationwide company operating under the joint name of Willys.
Axfood wrote down its involvement in Baltic Food, for a total cost of SEK46m, of which SEK21m was in the Q4. The involvement is now terminated and the holding has been completely written off.
Approximately 150 private grocers decided to affiliate themselves with Spar, Axfood’s new franchise concept, and the company turned a loss at Spar Finland Abp into profit. Axfood increased its holding in Spar Finland, bringing its ownership at year-end to 69.3% of the capital and 75.3% of the votes.
Axfood reported a 7.3% increase in consolidated sales to 32,428 m (30,230) for 2001. Operating profit was meanwhile posted as SEK653m and adjusted before items affecting comparability and restructuring costs in the store network, totalling SEK106m, profit was SEK759m (274). Profit after net financial items was SEK527m (0). Adjusted for items affecting comparability and restructuring costs, profit after net financial items was SEK633m (162). The Board proposed a dividend of SEK2.50 per share (0).
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By GlobalDataMats Jansson, company president and CEO, commented: “The Q4 entailed favourable development for the group as a whole. We noted particular success in our discount chain, which posted a 49% increase in sales for the year. Competition in the discount segment is expected to intensify further as new retailers establish operations in Sweden in the years ahead.
“To maintain our leading position in this segment, in February 2002 we are launching “Willys Hemma,” a new hard-discount store chain. This new chain will be built upon some 30 small stores (formerly run under the HP Billigt & Nära name) at neighbourhood locations.
“The Hemköp chain is currently carrying out an ambitious plan designed to improve efficiency, lower prices and revitalize its customer offering. A review of the store structure is another important element in Hemköp’s strategy work, which is expected to yield positive effects by the fourth quarter of 2002 at the latest.
“Axfood’s wholesaling operations, Dagab and Axfood Närlivs, posted a strong finish to the year. Higher volumes at Dagab, combined with sharp cost-cutting, led to a near doubling in profit for the year. During the year, Axfood Närlivs centralized and streamlined its distribution structure, which can be credited for most of the earnings improvement.”
“Spar Finland’s favourable growth during the year continued into the fourth quarter.
“In December, Axfood’s board of directors decided to close the Group’s e-commerce business. Given the inadequate customer inflow, despite an intensified marketing effort, we could see no signs that the market was ready for an online grocery store alternative. Wind-up costs totalled SEK28m.
“Profit for 2001, with an adjusted operating margin of 2.3%, shows that we have made good progress toward achieving our long-term target of a 3% margin. As I see it, we have good chances of achieving a profit for 2002 that is better than that reported for 2001.
Market development
Volume growth for the retail food sector in 2001 is estimated to have amounted to 2.1% in Sweden and 1.5% in Finland. Food prices in rose 2.9% in Sweden and 4.3% in Finland.
Sales and earnings of the Axfood Group
Consolidated sales of the Axfood Group for the full year totalled SEK32,428m (30,230).
The Axfood Group’s sales in Sweden for the full year (in own and collaborating stores), including VAT, amounted to SEK35,017m (33,354), an increase of 5%.
Operating profit for the period amounted to SEK653m (112). The operating margin was 2% (0.4). The operating margin before items affecting comparability and restructuring costs in the store network, totalling SEK106m, was 2.3% (0.9). Items affecting comparability during the year amounted to SEK–79m (–162) and pertained primarily to the closure of the Group’s e-commerce operation, totalling SEK–28m, and the write-down of Axfood’s involvement in Baltic Food, totalling SEK–46m. In addition, one-time costs for restructuring of the Group’s store network, totalled SEK–27m and are reported under other costs. Profit after financial items was SEK527m (0). The margin after financial items was 1.6% (0.0).
Store operations
The Axfood Group’s store operations are conducted via the wholly owned retail chains Hemköp, Willys, and starting in 2002, Willys Hemma. Collaboration with independent grocers is conducted via the Spar and Tempo franchise concepts. Vivo Stockholm is run via a separate economic association. The grocers in this chain are customers of Axfood’s wholesaling operation. The Vivo brand is owned by Axfood.
Hemköp
2001 was a year of transition. The newly installed management is gradually carrying out an action programme which will result in lower store overheads, lower consumer prices, clearer customer offerings and a more modern store structure. The new strategy is expected to yield effects by the fourth quarter of 2002 at the latest.
Sales during the year totalled SEK6,536m (6,562). Operating profit before goodwill (EBITG) was SEK130m (172). The operating margin for 2001 was 2.0% (2.6).
During the year, three stores were converted to other concepts in the Group, two stores were closed, and five stores were added to the chain.
Axfood Lågpris (Willys, with effect from 2002)
Axfood’s discount businesses operated under three brands during the year, Willys, Exet/Matex, and HP Billigt & Nära. During the year the decision was made that the some 60 large stores run by Axfood Lågpris will be launched in a nationwide chain, called Willys. Conversion of some 30 Exet/Matex stores was begun during the first quarter of 2002. Administrative services, product-line work and business control during the year have been conducted in a single legal entity, Axfood Lågpris AB, resulting in lower costs and improved efficiency.
In Sweden the discount segment had the strongest growth in the retail food market in 2001, growing 15.1%. Axfood is the market leader, with 49% of the market (wholly owned store sales).
Axfood Lågpris posted a strong fourth quarter, with higher volumes and earnings. Sales during the year by wholly owned stores totalled SEK 7,924 m (5,333). Profit for 2001 (EBITG) totalled SEK 300 m (133). The operating margin was 3.8% (2.5).
During the year four stores were closed and five were converted to Willys units. Six stores were acquired.
During the Q4 Axfood developed a new chain of small discount stores, Willys Hemma, which was launched in February 2002 with the goal of having nationwide coverage by 2005. This new, hard-discount concept is based on a slim, carefully selected range of slightly more than 2,000 items, prices that are among the lowest in the market, and streamlined and cost effective operation. The stores will be located primarily in residential areas to meet the needs of a customer category that has not had access to discount stores. The base of the chain will be the some 30 stores that are currently operated under the HP Billigt & Nära name, with sales in 2001 of SEK981m. Profit for HP Billigt & Nära in 2001 totalled SEK27m, with an operating margin of 2.8%. The goal is to expand to approximately 50 units in 2002 and thereafter to grow the chain to approximately 120 stores by year-end 2005, with sales in the range of SEK3-4bn.
Axfood Franchise
Axfood’s collaboration with independent grocers is coordinated in Axfood Franchise and the two store concepts Spar and Tempo. The Spar chain was started in 2001 in connection with the decision by the former Vivo retailers outside the Stockholm area to be included in the new chain. At year-end 2001, 107 stores had been converted to Spar units, and a total of some 150 units will be included in the Spar chain. The conversion process has gone well, with the stores reporting average sales growth of 4-5%.
Small stores have come under fierce competitive pressure in recent years through the establishment of hypermarkets and discount stores. Opportunities for small stores lie in offering an attractive, complementary range of products and finished meal solutions. This is Tempo’s business concept. The Tempo chain has approximately 100 units.
Through these retail concepts, the independent grocers are customers of Dagab’s wholesale business and account for about half of sales. It is estimated that about half of these stores’ sales consist of products supplied by Dagab.
Axfood Franchise is reported under joint-Group items. Profit (EBITG) for 2001 totalled SEK26m (12).
Axfood Partihandel (wholesaling – Dagab and Axfood Närlivs)
Dagab is the wholesaler for the Group’s wholly owned chains and the large stores run by independent grocers. Dagab strives to optimize and refine product-, information- and capital flows between suppliers and retailers.
In 2001 Dagab streamlined its subsidiary structure, resulting in lower internal costs and improved efficiency. Two meat- and processed meat companies were merged into a single company. Two plants were closed, and logistics and administration were coordinated. The warehouse activities were also overhauled, and a small warehouse was closed. A major restructuring of the warehouse and terminal operations in southern Sweden was started in 2001.
These activities, together with higher volumes and a price adjustment carried out in January, led to a strong increase in earnings compared with the preceding year, especially for Axfood Lågpris.
Axfood Närlivs is a wholesale business for convenience stores. It has contracted customers such as the OK/Q8, Shell and Preem service stations, small convenience store chains, and small store operations. Axfood Närlivs also has a cash-and-carry operation with 25 outlets.
In 2001 Axfood Närlivs streamlined and restructured its operation, resulting in substantial cost reductions. In addition, volumes increased during the year as a result of new customers and new agreements.
Axfood’s wholesale business had sales of SEK18,613m (17,313) during the period. Of this total, Dagab’s sales were SEK15,054m (13,078) and Axfood Närlivs’ were SEK4,618m (4,335). Profit for the year (EBITG) was SEK381m (222), and the operating margin was 2% (1.7). Dagab’s profit was SEK308m (193) and Axfood Närlivs’ was SEK73m (29).
Spar Finland
Spar Finland Abp has 77 wholly owned stores and 227 collaborating stores. The Spar Group has an approximate 9% share of the Finnish retail food market. Spar Finland is responsible for the flow of goods in the Spar Group and also provides support services to the Spar Group’s independent grocers. Spar Finland Abp owns 35% of the logistics company Tuku Logistics Oy, which handles logistics and transport within the Spar Group.
In 2001 Axfood increased its ownership in Spar Finland, and by year-end it owned 69.3% of the capital and 75.3% of the votes.
During the year spar Finland centralized key functions such as purchasing and marketing, and carried out major cost reductions within the Group. The number of store chains will be reduced from five to two (Eurospar and Spar). A review of the store structure resulted in the closure of 23 units during the year. Preparations for the transition to the euro were made during the year, particularly through training programmes. As a result of these measures, Spar Finland strongly improved its earnings during the year.
Spar Finland had a relatively even trend during the fourth quarter. Sales in 2001 amounted to SEK5,683m, and profit was SEK37m. The operating margin for 2001 was 0.7%.
January sales
Axfood has also posted sales of €283m (US$248) for January 2002, up 6.1% year-on-year. The Swedish outlets accounted for €239m and the Finnish stores for €44.4m of the total sales.
Sales at Spar Finland for January 2002 fell by 0.2% compared to January 2001.
Axfood’s Annual General Meeting will be held on Thursday, 25 April 2002, in Stockholm.
