ICA Gruppen AB (publ) has corporate registration number 556048-2837 and its registered office is in Stockholm municipality, Sweden. The head office address is ICA Gruppen AB, SE-171 93 Solna, Sweden, the visiting address is Svetsarvägen 16, Solna, and the website is www.icagruppen.se. ICA Gruppen AB is a subsidiary of ICA-handlarnas Förbund, corporate registration number 802001-5577.
ICA Gruppen AB (publ) is the Parent Company for ICA Gruppen, which is one of the Nordic region’s leading retail companies with its own and retailer-owned stores in Sweden, Estonia, Latvia, Lithuania and Finland. The Group includes ICA Sweden and Rimi Baltic which mainly conduct grocery retail operations, Apotek Hjärtat which operates pharmacies, ICA Real Estate which owns and manages properties, and ICA Bank which offers financial services and insurance policies to the Swedish customers. The Group also includes the Hemtex which sells homewares. The company inkClub was divested in June. For more information see www.icagruppen.se.
The Company is listed on Nasdaq Stockholm in the Large Cap segment.
The annual financial statements and consolidated financial statements were approved for publication by the Board of Directors on 7 February 2017. A decision will be made at the Annual General Meeting on 7 April 2017 on the adoption of the consolidated statement of comprehensive income, consolidated statement of financial position and the Parent Company’s income statement and balance sheet.
The consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Commission and the interpretations of the IFRS Interpretations Committee. RFR 1 Supplementary Accounting Rules for Groups, issued by the Swedish Financial Reporting Board, is applied as well. This recommendation contains supplementary standardisations based on the provisions in the Swedish Annual Accounts Act.
New standards and statements applied from the beginning of 2016
For 2016 only minor amendments have been published by IASB and IFRIC. These amendments will only have a minor impact on ICA Gruppen’s financial statements.
New accounting principles in 2017
For 2017 only minor amendments have been published by IASB and IFRIC. These amendments have not had any impact on ICA Gruppen’s financial statements.
New standards from IASB adopted by the EU that are relevant to ICA Gruppen
IFRS 9 Financial Instruments published in July 2014. The standard will replace IAS 39, Financial Instruments: Recognition and Measurement. This will go into effect for the financial year beginning on 1 January 2018. IFRS 9 was adopted by the EU in November 2016. It contains rules on the classification and measurement of financial assets and liabilities, impairment of financial instruments and hedge accounting. ICA Gruppen has performed an analysis of what effects introducing the standard is expected to have on the financial statements. The determination is that the potentially most significant effect will relate to the valuation of ICA Bank’s credit losses.
IFRS 15 Revenues from Contracts with Customers was published in May 2014 and an amendment to IFRS 15 was published by IASB in April 2016. The amendment to IFRS 15 clarifies, among other things, the definition of principal and agent. IFRS 15 will be applied starting with the financial year beginning on 1 January 2018. IFRS 15 was adopted by the EU in October 2016 and the amendment to IFRS 15 is expected to be adopted by the EU in the second quarter of 2017. During the year ICA Gruppen analysed which effects the introduction of IFRS 15 could have on the financial statements. ICA Gruppen’s main source of revenue is from the sale of goods. IFRS 15 will in most cases not involve any change compared to reporting of revenue under the existing IAS 18 Revenue. In terms of the rules on agents and principal in IFRS 15, and IASB’s proposed amendment to IFRS 15 in the same area, an analysis has been performed to determine if ICA Gruppen’s role in any agreement is as principal or agent. The preliminary conclusion is that ICA Gruppen has a role as principal instead of agent, as was determined under IAS 18 Revenue. The effect of the preliminary determination according to IFRS 15 as adopted by the EU, and the amendment to IFRS 15 which is proposed but not yet approved by the EU, is that the net sales will increase, while the operating income will remain unchanged and the operating margin will be marginally lower.
New standards from IASB not adopted by the EU that are relevant to ICA Gruppen
IFRS 16 Leases was published in January 2016. The standard will take effect in 2019. The EU is expected to approve IFRS 16 in the second half of 2017. IFRS 16 mainly contains new rules for lessee accounting. Lessee accounting corresponds to the rules that apply under IAS 17 Leases, except in cases where an asset is leased to be subsequently subleased. In subleasing the classification as operating or finance lease is to be determined based on the leased asset and not on the underlying asset as is the case under IAS 17. IFRS 16 requires lessees to recognise assets and liabilities for all leases in the balance sheet unless the lease term is 12 months or less or the underlying asset has a low value. The asset is depreciated over the term of the lease. The lease payments are to be split between interest and repayment of the debt. ICA Gruppen has a large number of leases. The main leases in terms of value relate to properties that ICA Gruppen leases both for own use and to rent out to non-consolidated ICA retailers. ICA Gruppen is in the process of analysing the effects of the introduction of IFRS 16. This process includes interpreting the rules in IFRS 16, and gathering data and making an assessment of which agreements constitute leases, assigning a value to lease agreements and evaluating the need for new system support. It is too early to quantify the effects of the introduction of IFRS 16, but its introduction will have a substantial effect on ICA Gruppen’s financial statements.
Accounting principles applied
Basis of accounting
The consolidated financial statements are based on historical acquisition costs, with the exception of financial derivatives and available-for-sale financial assets, which are recognised at fair value. The Parent Company’s functional currency is Swedish kronor (SEK) and this is also the reporting currency for the Parent Company and the Group. All amounts in the financial statements are in millions of Swedish kronor unless indicated otherwise.
Non-current assets and non-current liabilities are expected to be recovered or paid more than twelve months after the balance sheet date. Current assets and current liabilities are expected to be recovered or paid within twelve months of the balance sheet date.
Consolidated financial statements
The consolidated financial statements cover the Parent Company, ICA Gruppen AB, and its subsidiaries. A subsidiary is a company in which ICA Gruppen has a controlling interest. A controlling interest can be exercised either through ownership or an agreement. The majority of ICA stores are owned and operated by independent retailers. These retailers make independent decisions on activities that are relevant for their store operations in areas such as purchasing, pricing, investment and personnel. ICA Gruppen thus has no controlling influence over these operations and they are not consolidated in ICA Gruppen.
The purchase accounting method is applied in the acquisition of subsidiaries. The purchase price for the acquisitions is measured at fair value on the acquisition date, calculated as the sum of the fair values on the acquisition date of assets received, liabilities accrued or assumed and equity interests issued in exchange for control over the acquired entity. Acquisition-related expenses are recognised in profit or loss as they arise.
In business combinations where the sum of the purchase price, any non-controlling interests and the fair value on the acquisition date of previous shareholdings exceeds the fair value of acquired identifiable net assets on the acquisition date, the difference is recognised as goodwill in the statement of financial position. If the difference is negative, it is recognised as a gain on a low-price acquisition directly in profit or loss after the difference is reassessed.
ICA Bank’s profit before tax is consolidated into the Group within operating income.
Holdings in joint arrangements
A determination is made as to whether the joint arrangement constitutes a joint operation or a joint venture. If the joint arrangement is a joint venture, it is reported according to the equity method.
Investments in associated companies
Holdings in associated companies are reported according to the equity method.
Foreign currency
Transactions in foreign currencies are translated within the respective entity to the entity’s functional currency based on the exchange rates that apply on the transaction date. On each balance sheet date, monetary items in foreign currencies are translated at the exchange rate on the balance sheet date. Non-monetary items measured at historical cost in a foreign currency are not translated.
Exchange differences are recognised in profit or loss for the period in which they arise. In the case of transactions that meet the criteria for hedge accounting of cash flows, gains and losses are recognised in other comprehensive income.
In the consolidated financial statements, all Group companies are translated to SEK. The exchange differences thereby arising are recognised in other comprehensive income. When foreign operations are divested, the accumulated exchange differences are recognised in profit or loss upon divestment.
Revenue
Wholesale sales are recognised as revenue upon delivery of the goods and retail sales are recognised when the customer pays at the store. In the case of online sales, revenue is recognised when the goods have been delivered to the customer. Where ICA Gruppen acts as agent in a contract, only the commission or equivalent received is reported as revenue.
In cases where a sale is made with a commitment that the customer will receive a future bonus, or where some other commitment remains for ICA Gruppen, the revenue for the bonus portion or other commitment is not recognised until the bonus or commitment is delivered to the customer.
Revenues from consulting services and franchise fees, royalties and dividends from ICA retailers are recognised as the service is delivered or the rights are provided.
Rental income is recognised as the asset is provided.
Profit or loss on property sales is recognised when the main risks and benefits associated with the property are transferred to the buyer, which is usually on the day of taking possession. In cases where ICA Gruppen sells a property which is then leased back for use within the Group, or subleased to a non-consolidated ICA retailer, a collective assessment is made of the entire arrangement to determine if the main risks and bene ts have been transferred to the buyer.
Dividends are recognised in profit or loss when the right to receive payment has been established.
Leases
The Group’s leases are classified as either operating or finance leases. ICA Gruppen leases buildings and equipment for its own use within the Group, but store premises are also leased in order to be rented out to non-consolidated ICA retailers. Neither the term of the lease in relation to the underlying asset’s economic life, the present value of the lease payments in relation to the underlying asset’s fair value, nor other factors indicate that the economic risks or benefits have essentially accrued to ICA Gruppen. The economic substance of these arrangements thus means that these leases are classified as operating leases – both when ICA Gruppen is the lessee and the lessor of the assets.
ICA Gruppen as lessee
Lease fees for operating leases are treated as an expense and distributed over the life of the lease on a straight-line basis.
ICA Gruppen as lessor
Lease fees for operating leases are treated as revenue and distributed over the life of the lease on a straight-line basis.
Income tax
Income taxes are recognised through profit or loss. If the underlying transaction is recognised in other comprehensive income or in equity, the associated tax is recognised in the same way.
Deferred tax is recognised in accordance with the balance sheet method. Deferred tax assets are recognised for all deductible temporary differences and unutilised tax loss carryforwards to the extent it is likely that future taxable gains will be available. The value of deferred tax assets is tested on each balance sheet date.
Goodwill
Goodwill arising from company acquisitions is attributed to the cash-generating units that benefit from the acquisition. Their useful life is inde nite. Goodwill is not amortised.
Other intangible assets
Intangible assets are recognised at cost. Amortisation takes place over the useful life in cases where this can be determined. In cases where the useful life is indeterminate, no amortisation takes place but an impairment test is performed annually.
Property, plant and equipment
Property, plant and equipment are recognised at cost less accumulated depreciation and impairment.
Investment properties
Investment properties are properties which are leased to third parties, unlike operating properties which are used within the Group or leased to non-consolidated ICA retailers. Investment properties are recognised according to the same principles as other property, plant and equipment.
Assets and liabilities held for sale and discontinued operations
Assets and liabilities are classified as assets and liabilities held for sale if they are available for immediate sale, a decision on their sale has been taken and it is likely that they will be sold within 12 months. Assets held for sale are measured at either their book value or an assessed sale value, whichever is lower, less selling expenses.
Discontinued operations are part of a company that has either been divested or been classified as held for sale and normally constitutes at least one segment.
Depreciation and amortisation
Depreciation and amortisation are calculated on the asset’s cost, estimated useful life and residual value. Estimates are reassessed annually.
Impairment
The carrying amount of non-current assets is tested for impairment by comparing the carrying amount with the higher of the asset’s fair value less selling expenses and value in use. The value in use calculation of future net cash ows uses a discounting factor before tax that reflects the market’s current estimate of the time value of money and the risks associated with the asset.
Goodwill, assets with an indefinite useful life and intangible assets that are not yet in use are tested for impairment at least once a year. Other non-current assets are tested for impairment if there is an indication of a reduction in value.
Inventories
Inventories are valued at the lower of cost and net realisable value. Cost consists of all purchase costs after deducting supplier bonuses received relating to products in stock.
Financial instruments
Financial instruments are initially recognised at cost. The subsequent recognition depends on which category the financial instrument belongs to. The categories are: financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables, available-for-sale financial assets, financial liabilities measured at fair value through profit or loss and other financial liabilities.
Purchases and sales of financial assets are recognised on the date of the trade, i.e. the date on which ICA Gruppen commits to buy or sell the asset.
The fair values of financial assets and liabilities have been determined in accordance with descriptions in Note 20 in the annual report 2016.
Liabilities to credit institutions and other loan liabilities
All loan liabilities belong to the category “Other financial liabilities” and are recognised at amortised cost according to the effective interest method. Initially loans are recognised at the amount of the loan received less borrowing expenses. Borrowing expenses accrue over the lifetime of the loan.
Derivatives
All derivatives are recognised at fair value in the balance sheet. The derivative instruments for which ICA Gruppen does not use hedge accounting are categorised as “Fair value through profit or loss” in the subcategory “Held for trading” and changes in value are recognised through profit or loss.
For derivative instruments that meet the criteria for cash flow hedging, the effective portion of the value change is recognised in other comprehensive income until the hedged item is recognised through profit or loss. The ineffective portion of the changes in value is recognised through profit or loss.
ICA Bank’s receivables and liabilities
ICA Bank’s lending in the form of credit card balances and unsecured credit extended to consumers belongs to the category “Loan receivables and accounts receivable” and is recognised at amortised cost on the settlement date and subsequently after taking into account established and likely credit losses. ICA Bank’s deposits are recognised at amortised cost. Investment of ICA Bank’s surplus liquidity is recognised at amortised cost or at fair value with changes in value in other comprehensive income, depending on the type of investment.
Interest
Interest income is recognised as it is earned. The interest expense for assets that take at least a year to complete is capitalised as part of the cost of the asset.
Cash and cash equivalents
Cash and cash equivalents comprise cash, bank balances and other short-term investments with an original maturity of no more than three months. Cash and bank balances are categorised as “Loan receivables and trade receivables” and are therefore measured at amortised cost. Short-term investments are categorised as “Fair value through profit or loss” in the subcategory “Held for trading” and changes in value are recognised through profit or loss.
Provisions and contingent liabilities
A provision for onerous contracts is recognised when the anticipated benefits the Group expects to receive from a contract are lower than the unavoidable costs according to the contract.
If the Group is involved in a dispute, an assessment is made of the most likely outcome. If the collective assessment is that there is more than a 50% likelihood that ICA Gruppen will lose the dispute, a provision is made in the amount considered to be the most likely outcome.
Contingent liabilities include obligations originating from events that have occurred, but which are not reported as a liability or provision because it is unlikely that an outflow of resources will be required, or where the amount cannot be reliably calculated.
Pensions and other undertakings for post-employment benefits
The Group has both defined contribution and defined benefit pension plans. Calculation of the present value of the defined benefit pension plans is based on a number of assumptions. The fair value of the plan assets is deducted from the present value of the pension obligations. The discount rate is the interest rate for first-class corporate bonds with a maturity corresponding to that of the obligation. Housing bonds are considered by ICA Gruppen to be corporate bonds in accordance with IAS 19, Employee Benefits. In cases where it is not possible to establish the interest based on readable data corresponding to the term of the obligation, an extrapolation is made of the interest curve based on observations of interest rates for shorter terms. Revaluations are recognised in other comprehensive income when they arise.
Important assumptions and estimates
The preparation of the financial statements in accordance with IFRS requires management to make assessments, estimates and assumptions that affect the application of the accounting principles and the carrying amounts in the financial statements. Estimates and assumptions are based on historical experience and a number of factors that are considered reasonable based on the circumstances. The results of these estimates and assumptions are used to assess the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results may differ from the estimates and assessments. The assumptions and estimates that management considers the most important are the following:
Sale and leaseback transactions with subleases
When ICA sells a property and at the same time leases back and subleases the property to a non-consolidated ICA retailer, an assessment is first made of whether or not the property is sold. If the significant risks and benefits associated with the property have been transferred to the buyer, the property is reported as sold. The assessment considers the leaseback and sublease of the property and whether these arrangements affect the transfer of risks and benefits to the buyer. If the outcome of the assessment is that the property is considered sold, a determination is made of the leases and whether they are operating or finance leases. The leaseback or sublease agreements are assessed together as they are drawn up at the same time. Determining whether or not a property is sold according to IAS 18 Revenue, and then classifying the lease according to IAS 17 Leases in cases where the property is considered sold, involves a complex and comprehensive assessment of the implications of various factors, circumstances and lease and contractual terms. It has been determined for the properties that have been sold that ICA Gruppen has limited risk and involvement in these properties, and accordingly they have been reported as sold. Leaseback and sublease agreements are classified as operating leases based on the fact that the most material financial risks and benefits belong to the property owner and ICA Gruppen’s tenant, the ICA retailer.
Valuation of goodwill and trademarks
Assessments are made on an ongoing basis to ensure that the book value of goodwill and trademarks does not exceed their recoverable amount. A calculation is made of the recoverable amount to assess whether impairment of goodwill and trademarks is indicated. The recoverable amount is calculated using a present value calculation of cash flows based on the anticipated future outcomes of a number of factors. Since fair value is calculated based on assumptions about the future, a downgraded assessment of these assumptions could indicate impairment.
Defined benefit pension plans
On average, defined benefit pension plans have a long maturity until such time as they are paid out. To calculate the present value of ICA Gruppen’s pension liabilities, a number of assumptions must be made concerning, for example, life expectancy, salary increases, inflation and discount rates. These assumptions are assessed over the same period as the maturity of the liability. The assumptions are based on external and internal assessments of future events and past experience. A small change in an assumption may have a significant effect on the liability.
Revenue
Contracts exist that require expert assessment of whether ICA Gruppen is acting as principal or agent according to IAS 18 Revenue. This assessment covers many different factors, an overall appraisal being made of all the facts and circumstances in order to determine what ICA Gruppen’s role is in the agreement. If ICA Gruppen is the principal then revenue and expenses are reported gross, while only commission received or the equivalent is recognised as revenue if ICA Gruppen is an agent.
