Axfood AB (publ)

Good morning, everyone, and welcome to the Axfood second quarter 2026 earnings presentation. My name is Alexander Weindorf, head of IR here at Axfood. With me today are Simon Margulis, president and CEO, and Anders Lexborn, CFO. In the investor section of our Axfood.com website, you will find the presentation material for today's call. We encourage you to have that presentation at hand as you listen to our prepared commentary. After the presentation, we will be taking questions. A recording of this call will be made available on our website. With that, I will now hand over the word to Simon. So please go to page number two.

Thank you, Alex. Axo maintained a high level of activity during this second quarter with focus on further strengthening presence, competitiveness and efficiency. We delivered positive growth and increased earnings against high comparison figures in a market characterized by food price deflation. We are well positioned for the future and continue to pursue our long-term strategic plan, while we at the same time implement targeted tactical measures to strengthen our growth also in the short term. Turning to page three, with that very brief introduction, let me now take you through recent market development and Axwood's second quarter performance. So let's move on to page four. Market growth amounted to 3.7% during the quarter, which was a somewhat lower level on a sequential basis. However, compared to the first quarter this year, there was deflation in food prices that impacted market growth negatively. As you all probably know, the VAT on food was reduced on April 1st from 12 to 6%, and this was fully reflected in the price development on the market. But also excluding that effect, there was deflation, mainly driven by lower prices in the dairy category. In total, the annual rate of deflation was minus 6.2%, including VAT, according to Statistics Sweden. And excluding VAT, the deflation is estimated at minus 0.9%. Adjusting for the deflation and the negative Calloran effect of minus 0.3%, market growth was strong at 4.9%. It is, of course, still early days to determine how the reduced VAT has affected consumer purchasing behaviors. But that said, the second quarter development of the market clearly shows an improved volume trend. At the same time, the world around us remains uncertain, and it's also clear that consumers continue to focus on price value. Next slide, please. Number five. Axwell's retail sales increased 2.1% in the second quarter, also driven by higher volumes. We faced high comps from last year and we really outperformed the market then, by quite a large extent, and this is evident if you analyze the development over a two-year period. This is shown in the chart to the right on this slide. Last year we also had contribution from Citigrass. Despite the strong sales increase last year, deflationation and the negative calendar effect, growth did not reflect our ambitions. We are now on page 6. Consolidated net sales for Axos grew just below 1% in the quarter. And as I just mentioned, this was mainly driven by higher volumes. The development varied between our various retail chains. Hampshire really stands out this quarter with continued very strong growth. As for Citigros, as a reminder, total growth continues to be impacted by store closures. So please go to the next page, number seven. In all, we report increased earnings in the quarter despite the lower growth. Group operating profit increased to 964 million SEK and the operating margin was higher at 4.2%. Operating profit included items affecting comparability of minus 8 million SEK related to city growth. Last year, items affecting comparability also related to city growth and amounted to minus 25 million SEK. On an adjusted basis, operating profit increased to 972 million SEK and the margin was flat year over year amounting to 4.2%. The improved profit was primarily driven by higher sales volumes, a stable gross margin trend and effective cost control. Earnings were negatively impacted by deflationation and also costs of SEK 40 million due to higher fuel prices. Joint group reported a narrowed operating loss, partly due to cost savings from our measures to improve efficiency within and between the group's support functions, including workforce reductions. Let's now turn to Willis and page 8. The high comps we faced this quarter was mainly in Willis. Last year, Willys really outperformed the market as growth in the period amounted to 10.2% compared to 6.1% of the market. In addition, Willys growth this quarter was negatively impacted by deflation. In all, Willys grew 1% in total and minus 1% on a comparable basis. With the negative growth in life-for-life sales, earnings declined to 524 million SEK corresponding to an operating margin of 4.2%. The gross margin development was stable. I will get back to Ville's development and strategic agenda later on this presentation, but for now, let's turn to page 9 and Hemshöp. As I mentioned, Hemshöp continued to demonstrate a very strong performance in the second quarter and clearly increased its market share once again, delivering retail sales growth of more than 7%. Growth WAS DRIVEN BY HIGHER VOLUMES WITH AN INCREASE IN CUSTOMER TRAFFIC AND IN ADDITION A HIGHER AVERAGE TICKET VALUE CONTRIBUTED POSITIVELY. ON THE OTHER HAND DEFLATION IMPACTED GROWTH NEGATIVELY. LACK FOR LACK GROWTH WAS ALSO VERY STRONG. IN TOTAL OPERATING PROFIT INCREASED TO 123 MILLION SEK AND THE OPERATING MARGIN WAS ALSO HIGHER AT 5.4%. The development was mainly driven by the increased sales volumes, a stable gross margin and solid cost control. Turning to page 10. With the Citigrass acquisition, we have taken position in the attractive hypermarket segment and worked to develop the chain so that it can become a long term competitive player is ongoing. This quarter Citigrass once again delivered a positive profit development with a narrowed operating loss. In total, the loss amounted to minus 11 million SEK on an adjusted basis, corresponding to an operating margin of minus 0.5%. Citigrass reported somewhat weaker growth this quarter, so the improvement was mainly due to effects from structural measures as well as efforts to streamline operations. On a reported basis, the operating loss amounted to minus 3 million SEK, which corresponds to an operating margin of minus 0.1%. This included the items affecting comparability I mentioned, which refers to structure measures for stores. In late May, Citygross closed its store in Länna, Stockholm, its fourth store closure so far. Later this summer, Citygross will be closing down its Helsingborg store, which will be converted to villas during the fall. We are now on page 11. Snabgross' sales were unchanged compared with the corresponding quarter last year. both in total and on like-for-like basis. Earnings were just slightly below last year. The gross margin trend was stable, but the weak sales development could not offset the cost inflation. In total, operating profit amounted to SEK 93 million, corresponding to an operating margin of 5.8%. Next, page number 12. DAGAP's second quarter net sales increased by approximately 1%. As for the development in our retail chains, growth was negatively impacted by deflation, so also here the development was driven by higher volumes, mainly to DAGAP's food retail customers and especially Hemshöp. Operating profit amounted to 280 M SEK and the operating margin was 1.3%. Earnings were negatively impacted by deflation, market investments and increased costs due to higher fuel prices, which I mentioned earlier. Improvements in productivity from our new logistics structure had a positive impact on the profit development. Dagab continues to optimize the flow of goods to further improve efficiency and productivity. Dagab also continues to invest in transports with ambitions of electrifying 50% of its vehicle fleet by 2030. In addition to investments in logistics, the company maintains a high pace of assortment development, launching 60 new products under a private label grant during the quarter. That concludes the first part of today's presentation. Now it's time for me to hand over to our CFO, Anders, to take you through the financials. And we are now on page 13, but please go to the next page, number 14. And Anders, please go ahead.

Thank you, Simon. During the first half of the year, net sales for the group increased 1.7% to almost 45 billion SEK. Retail sales increased 2.9%, which was lower than the market in total, where growth amounted to 4%. Adjusted operating profit increased 4% to almost 1.8 billion SEK. The adjusted operating margin increased by 0.1 percentage points to 4%. Next page number 15. During the second quarter, the cash flow was minus 47 million SEK, 86 million SEK lower compared to last year. Cash flow from operating activities and networking capital was negatively impacted by the VAT cut on food from 12% to 6% as of the 1st of April. The negative cash flow from investment activities of minus 376 million SEK in Q2 was somewhat lower compared to last year, mainly driven by lower investments in warehouses and IT. Investments in our retail operations were in line with last year. The increased cash flow from financing activities was explained by lower amortization of credit facilities compared to Q2 last year, By the end of Q2, EX would utilize approximately 2.8 billion SEK of our credit facilities compared to 3.1 billion SEK by the end of Q1. Please turn to the next page, page number 16. Net debt increased compared to year-end 2025 due to higher leasehold debt, utilization of credit facilities and lower level of cash. The net debt to EBITDA improved compared to Q1 thanks to a strong EBITDA development and the lower net debt. The equity ratio amounted to 19.1% which was lower than in December 2025 due to the dividend. The Q2 equity ratio was however 0.9 percentage points higher compared to Q2 last year. Investments excluding leasehold debt and acquisitions amounted to 927 million SEK during the first six months. Year-to-date, we have established seven new Groupon stores, which was in line with last year. Compared to last year, investments in store establishments and warehouse automation has increased, while investments in IT and trucks has decreased. Please turn to next page, page number 17. Exxon has a solid negative net working capital. The recent VAT cut has however had a negative impact and consequently the 12-month rolling KPI was negatively impacted in the first six months. Capital employed has increased in recent years mainly due to the acquisitions of Bergendalsfjord and Citygross as well as investments in our Båstad Logistics Center. The level of capital employed has however decreased slightly slightly since year end, as equity was reduced not only by dividend paid, but also the dividend to be paid in Q3. This effect was partly offset by higher leasehold debt. Thanks to improved earnings and reduced capital employed, ROC improved by 0.9 percentage points compared to 2025. And with that, Simon, I am finished with my presentation, so I hand over to you again.

Thank you, Anders. We are now on page 18, and it's time for me to give you a more detailed update on our strategic agenda and priorities. So let's turn to page 19. We have a clear house of brand strategy in our group, and this makes us unique in Swedish food retail. We aim to deliver the strongest customer experiences, and we are present in all segments of the market with our different concepts. So please, next page, number 20. With a continuous strong position, Willys is the store chain most recommended among households. Willys continues to develop its customer meeting and upgrades the store network to the latest Willys 5.0 store concept. By the end of the year, 70 of Willys stores in total will be according to the Willys 5.0 concept. At the same time, new Willys stores are being opened at a rapid rate to reach even more consumers. And the total store count is now 254. We're seeing strong growth in both newly established and refurbished stores. Just recently, Willys passed the milestone of 4 million members in its Willys Plus loyalty program. So it clearly has a very wide reach, which it can build on. Willys also focuses on increasing the growth rate in the short term through targeted tactical measures. We're now on page 21. With prime store locations and an attractive, affordable assortment, focused on inspiration and sustainability, Hemshop's momentum continued to be strong and its growth was double the rate of the market in the second quarter. This really reflects the long-term work to strengthen the store's chain market position. Hemshop also continued to invest in modernizations of existing stores to further improve the customer experience. In total, Hemköp has 2.2 million members in its Club Hemköp loyalty program. Turning to page 22. For Citygross, a highlight of the quarter was the launch of its new store concept at the Pilot Store in Linköping. Citygross has been working on this for some time, and the concept is developed based on a new strategy to revitalizing the brand. The goal here is to create a vibrant food market with a relevant assortment and fresh produce in focus. When developing the concept, scalability has also been key, as well as creating conditions for efficiency in store operations and sales management processes. It is positive that Citigrosis now has this pilot in place. Going forward, we will evaluate the concept and make necessary adjustments where we see it fits. We are now on page 23. To create the right conditions for retail concepts to be able to succeed on the market, we leverage our strengths as a group and focus on six strategic development areas. We have shown you this before, and I covered selection last year. Now I want to focus a little bit on two of these, operational efficiency and sustainability. So please turn to page 24. Working cost-effectively is part of our business model and is particularly important now as we work to mitigate the effects of food price deflation. Above all, we are continuing to optimize the productivity and cost efficiency of our new logistics structure by also developing new ways of working using new technology and scaling up our use of data and AI. Our efforts to streamline the group's support functions are also continuing to enable cost savings. Next page, number 25. We aim to be a positive force in society, taking the lead in promoting a sustainable food system and contributing to better public health, not least through assortment development and research collaborations. During the quarter, we launch new innovative products that promote sustainable and healthy consumption, including light meals made with hydrothermally treated whole grain rye that enables the body to absorb essential minerals. We also launched hybrid products combining meat with vegetables. In the quarter, we had a good volume development in fruit and vegetables, which contributed to an increased share of sales from sustainability labeled products. We are also continuing to see positive effects from our transition to renewable fuels and electricity through reduced transport emissions. During the quarter, the share of electricity in the fuel mix increased significantly to almost 14%, up from just below 5% a year ago. In late spring, our new ambitious climate targets were validated by design space target initiatives, making an important milestone in our efforts to reduce our negative impact on the climate and biodiversity. I would also like to highlight the group's focus on diversity and inclusion. One example is that we contribute to helping young people in vulnerable areas enter the workforce by providing them with paid jobs under a studiemotiverande arbetslivsorientering, which is a combined school and work experience program. which we now are expanding and through the newly established form for inclusion. Moving on from our strategic agenda and we are now on page 26. Our outlook for the year is unchanged and it covers investments, new store establishments and items affecting comparability. With regards to the new establishments, in total we opened up three new group-owned stores in the quarter all of which are Willys. And as Anders mentioned, for the year we have seven new store establishments. So please now turn to page 27. So let me conclude. I can now summarize a quarter marked by a high activity level and increased earnings. We have strong market positions, clear strategic priorities and several ongoing initiatives to strengthen our presence, competitiveness and efficiency. With distinctive concepts and shared culture and focus on execution, we are well equipped to continue to develop and create value over time. And that was all for today. So now, please turn to page 28, and I hand over to the operator to open up the line for questions. Thank you very much.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Frederick Iverson from ABG Sundal Collier. Please go ahead.

Thank you. Good morning. Hope you can hear me. First, regarding the growth in village maybe. So last quarter, I remember you mentioned that it was impacted by a few things like temporary store closures and some store modernizations. Would you call out any... similar, let's call it one-offs, impacting the market share in Q2?

Regarding the growth of Willys, I would say Willys has really, really high comparison figures, growing more than 10% last year. That together with the price deflation make them have a weaker growth this quarter. However, we wish to see a stronger growth, and that's why we're also taking some tactical measures now, so in the short term, improve the growth also for Willis.

Okay, so no similar impacts as we saw in Q1. And on those tactical measures, what's that, and what's your assessment of the price positioning versus the market at the moment? Do you need to widen the gap, or is it anything else you talk about?

To start with, we don't comment exactly the strategy. However, for us, the most important is to have the cheapest bag of groceries, and we continue to have that where we live. And regarding the tactical measures, it's measures to increase traffic to the stores on a short term.

Okay. Okay, fair enough. And on the higher fuel cost, 40 million, obviously, I guess, difficult to say where the HVO prices are heading, but at the current level of, I think it's around 30 sec per liter, the headwind should become slightly lower in the back half of the year. Is that your view as well?

Yeah, Fredrik, we have to come back to that, but obviously it's depending how the situation in the Middle East is developing and how the prices are developing. So we have to come back to that.

Okay.

And last from me before I jump back into the queue, you didn't call out any impacts from the temporary cut in employer tax for young workers this quarter. Was this not significant? And will it impact rather Q3?

It's of course it's positive whether as I said they reduce tax for employees which has the positive effect It's not as we see significant since we also have the I say the normal inflation in salaries that is much much bigger and And it's since we single out the fuel. This is obviously not in line with that How say that that amount?

Okay, good, that's that's all thank you

Thank you.

The next question comes from Nicholas Ekman from DNB Carnegie. Please go ahead.

Thank you. Can I ask about Citygross, where you're seeing reduced losses now, but both like-for-like and store sales here are negative. OBVIOUSLY PARTLY RELATED TO STORE CLOSURES BUT CAN YOU TALK ABOUT ANY EFFORTS HERE TO REVERSE THE SALES TREND OR DO YOU THINK FOCUS STILL IN THE SHORT TERM IS MAINLY ON IMPROVING THE PROFITABILITY I MEAN FOR US I THINK I SAID IT BEFORE TO CREATE PROFITABILITY OF COURSE YOU HAVE TO DO IT THROUGH ATTRACTING CUSTOMERS AND DRIVE VOLUME AND THEN YOU GET THE PROFITABLE GROWTH AND

AS YOU SAID, THE SALES IN CITYGROSS ON TOTAL IS AFFECTED BY STORE CLOSURES AND WE HAVE A NEGATIVE LIKE-FOR-LIKE SALES IN CITYGROSS AND OF COURSE WE WOULD LIKE TO SEE STRONGER GROWTH IN LIKE-FOR-LIKE FOR CITYGROSS THEY ARE AFFECTED A LOT OF THE PRICE DEFLATION I WOULD SAY SO FOR US IT'S TO HAVE THE BALANCE BETWEEN ALL THE PARAMETERS HOWEVER WE SEE A GOOD WE'RE FOLLOWING OUR PLAN AND WE SEE THE INCREASE IN THE IN THE the loss is lower and we're following our plan. So that's why we also reiterate the goal to be profitable sometime in the second half of this year. And we have to be that together with growth in Like for Like sales. So we said before, and that's what we're working towards to create a healthy core where we have both sales growth in Like for Like and also making good development in both the brand and also the customer meeting.

Can I just ask how is Citygross impacted by deflationation? I can see why Willys would lose some of its attractiveness when price is not the key focus area. I think for Citigrass, you shouldn't see that impact. They should be able to drive traffic even with lower prices. Or did I miss something there?

Maybe I was unclear. The deflation, since we do not single out volume or mix or deflation, the deflation decrease the top line.

Okay. Okay. Fair enough. And also, just in general here, if you look at the industry, it's been impacted. There's been quite significant margin pressure in the last two, three years, quite significant price pressure. Are you seeing any signs of this easing now, and particularly since we saw the VAT cut, or are you seeing still very tough price competition among your competitors?

No, I can confirm that it's still a very high competition in the market. I would say it's unchanged. It's been a high competition for a couple of months or a couple of years now. So that is the market climate, high competition. We have the VAT reduction and then we also have deflation on top of the VAT cuts. And also on that, I think it's important to single out that we have really, really high comps from last year. The highest comps in the market. And that's also why we're really, I'm glad that we still continue to have a very stable margin and increase our profitability. Because in this climate where we have increased costs for salaries and for fuels that we single out, and with not, of course, we wish some high growth, but still we can continue to increase our profitability and have a stable margin, which is important for us, of course.

Very good. And just some details here on store openings. Can you quantify how many store openings you're looking for in Q3? And also, you mentioned another Citigrass conversion here later this year. Are you happy then? Is this kind of the last of the initially planned store conversions? Or do you think that there could be room for additional Citigrass stores to be converted?

So we made seven new stores this first period, and we are aiming towards the 10 to 15 new stores for the year. And those are incremental 10 to 15. And for Citigrass, we are continuing in the structural changes we're doing, so it can be more.

Okay, very clear. Thank you for taking my questions.

Thank you.

The next question comes from Daniel Schmidt from Danske Bank. Please go ahead.

Yes, good morning, guys. A couple of questions from me. And you talk about sort of price being at the top of the agenda still for consumers. Is there any sort of change in consumer preference at all, you think, given the performance of Willis? And I hear you clearly when it comes to the comp base and so on. But is there any sort of feeling that location is back a bit higher on the agenda again and inspirational assortment and all that for the consumer in Sweden?

It's still a little bit early to do any large conclusions since we also in the quarter have Easter and we have midsummer. But we see in the market as a whole a stronger volume growth since the reduced VT. And we also see increased growth in sustainability of labelled products and also fruit and vegetable, which we haven't seen for now a couple of years. So that's really, we're happy to see that. So we have some mix. AFFECTS REGARDING SUSTAINABLY LABELED AND ALSO FRUIT AND VEGETABLE. HOWEVER, WE SEE STILL A VERY STRONG FOCUS IN PRICE AWARENESS AND THAT COMES TOGETHER ALSO FROM THE CONSUMER BUT ALSO IN THE HIGH COMPETITION IN THE MARKET, I WOULD SAY.

OKAY. BUT GIVEN THE FIRST THING YOU'RE SAYING HERE, IS THAT ALSO WHY YOU FEEL THAT 5.0 CONVERTED Are they surprising you positively, or did you expect a good sort of outcome of those conversions?

Sorry, the outcome of this is Vilis 5.0, you asked, no?

Yeah. Yeah, which is bringing more inspirational shopping experience.

Yeah, so we work very systematically with our development on new store concepts. So we start with making a store concept, we test it, we do pilots, and we do changes until we think it's 100%, and then we escalate the scaling up of them. So regarding the Village 5.0, we did this last year, and so we feel pretty sure now that they are really delivering. So we see now when we modernize store, we get really good results of that. And also when we establish new stores, we do them in the new store concept, and they take really good market share from very good start. And one other thing that is within Willys, they have high comparison figures this quarter. However, we see that we continue to attract new customers. So we reached the milestone of over 4 million customers in the Willys plus loyalty program, which is a good receipt that the customers continue to like Willys.

Yeah. And of course, when you talk about short to strengthen the growth in Vili's targeted tactical measures. It sounds more like increased promotional activity rather than converting Vili Store to 5.0 in a faster pace, so maybe that's not doable. Is that the right interpretation?

Willis has a really, really strong position and we continue to invest strategically in, as you said, modernizing the stores and also establishing new stores. For us, it's more about the short-term tactical measures that we are addressing now. So we feel really secure in the Willys concept, the new stores that we're establishing, the new concept, and we will continue to invest in that. And then we do some tactical measures now in the short term.

And is there any way to mitigate the fuel price hit that you took in Q2 and just looking at H3O? prices there about the same level now as they were in Q2 and you talk about converting to electricity driven transport and you've done a lot in the past year. Is there any way to speed that up?

I think we have a plan on how to invest in transport and we have the goal of reaching 50% of our fleet, electricity rate of 50% of our fleet to 2030. So we continue to work according to that plan actually. And then I would say that the margin that we continue to have a stable margin in this market where we have deflation and also increased, food price deflation increased costs I think that's a good proof of how we work with cost efficiency within and how also our new logistics platform actually is delivering.

And on costs, finally, group costs surprised positively far below last year and far below what I expected at least. What is the true baseline here? What is sort of what is the right modeling going forward?

It's quite hard to give you an exact baseline here, Daniel, and as you know, it can differ from quarter to quarter, but it's clear that we now are on a new level compared to previous years, and we see effects on the efficiency programs that we did last year.

Okay. So it's a good indication of what to expect in the coming quarters, what you did in Q2.

Yeah, it's not far away, I would say. Okay, thank you.

That's all for me. Thank you.

The next question comes from Magnus Rahman from SB1 Markets. Please go ahead.

Thank you. Most topics have been discussed here, but maybe I could just ask again about these tactical measures that have been discussed. Do you see that competition have been implementing these tactical measures and that you want to follow those or is it more proprietary measures?

I always think that we have distinctive concepts and each of our concepts has their own way of doing things. So it's not about just copying what others doing. So it's about taking tactical measures. regarding customer insights that we have for the Willys customers, and addressing them very targeted to drive more traffic.

Right. Then on the price competition that has been discussed as well, and you mentioned it remaining high, still isn't it fair to or haven't we been living with an extraordinary circumstance in Q2 given the freezing of prices amid the halving of the VAT and do you think that this sort of frozen price picture will remain in the second half of 26 or would that be unfrozen so to speak now going forward?

I would just like to clarify, we didn't freeze any prices. We froze them just the week when we changed the prices in store, and that was a systematic freeze just to be able to handle over 8 million different price changes in our systems. So as we said, we have had a food price deflation during this period, which shows that we haven't frozen any prices. I would say this quarter is a little bit different. Willis has performed very strong in many years. But however, they have had also some extra boost during last year when we had some inflation. And the same way we had a boost during the years in 2022 when we had a large inflation. That's why we think it's important to look on Willis in a little bit longer perspective. So for the Q2, we meet these comparison figures of over 10% and also the food price deflation. So that's also why we wanted to show the two-year stack growth since we know that we'll just get some extra push when the inflation is. However, they've been growing a lot over the years, both good economies and weaker economies. So I think that in total makes it a little bit weaker for Willis. And also, we would like to see more growth in wheelies, and that's why we do these tactical measures.

But the tactical measures, are they expected to weigh on the profitability?

I mean, we drive profitable growth in balance. So first we drive traffic loyalty, and then that's how also we grow profitability. So I think it's easy, you can see, when we do not as we did this quarter in Vilis, had a positive like-for-like growth, it's difficult also to get the profitability with us. So that's why it goes hand-in-hand.

But it didn't when you did the tactical price investments in halving the VAT two days or a few days in advance. So how do you think about it in that perspective?

There are different tactical measures you can take, aren't there?

Yes, but you alluded to these being price cuts, as I read you.

I said it's about driving traffic to the stores.

Okay, thank you very much.

Thank you very much.

The next question comes from Erik Sandstedt from Kepler Shoebrew. Please go ahead.

Thanks. Just to follow up on Billy's here, did you observe any changes in terms of customer shopping behavior in the quarter, like fewer shopping occasions, lower basket values, or increased cross-shopping with competitors that help explain the weaker performance?

As I said, it's a little bit early to today draw any larger conclusions since we have calorie defects also in and we have Easter that was in the beginning of this quarter and not in March as last year. However, we see some increases in fruit and vegetable sales and also the share of sustainability labeled products that we can see.

Yeah, fair enough. And then moving topic, in terms of the cash flow, you highlighted VAT as a headwind to networking capital, but what was actually the impact and the mechanics behind it and is this a timing effect that should reverse over the coming quarters?

Yeah, if you look at the negative impact in the first six months, of a little more than 700 million in net working capital, I would say approximately 50% of that is according to the VAT cut. And obviously, when this reduced tax is reversed, we will see the opposite effect and the positive effect for us when we come to that moment.

Okay, so it's only if the VAT is reversed that you will get that benefit back.

Yeah.

Yeah, okay, I understand. Good, and then just finally in terms of your online business, it's continuing to grow quite fast. What have you said in terms of profitability there if you compare it to the store network? Is it diluting margins or where are you?

As you said, we have a strong position in the online sales and the new Bålsta warehouse is to make the handling for home delivery more efficient in our online sales. I don't think we go into details on how reporting about our margins in our online sales.

Okay, but could you say whether it has been on an improving trend lately?

It's pretty much the same, I would say. And if you wonder if that is diluting the margin in Willys, that is not the case this quarter. The case this quarter is a negative sales in like for like in Willys that is diluting the margin.

This is Alexander. Just on that, I mean, obviously, I mean, profitability in terms of the online sales is obviously lower than store sales. So, you know, when online grow faster than our total growth or store sales growth, obviously that has diluted effect on our margins, but it's small. I mean, there are other effects that impact the margin development more than that, obviously.

Perfect. Thank you very much. Thank you very much. Thank you.

The next question comes from Richard Traynor from Bernstein. Please go ahead.

Hello there. I'm interested in Hemshop's outperformance. I'm wondering, can you share anything about the drivers behind that? In particular, I'm wondering if there's any impact of newer and refurbished Hemshop stores versus older stores, and also whether you're seeing any trading up from Willys to Hemshop.

I'm very happy to get that question about Hemsjö. Of course, we're really glad to see the development in Hemsjö. This quarter, they grew double the pace of the market, and it's the result, I would say, of a long-term job that they've been doing for a couple of years now by starting to revitalize the brand also, and also developing new store concepts, having a high pace in modernizing stores, and also a high pace in developing the both price awareness and priceworthiness and also the assortment. And I would say we've seen a good growth for HempShop for a couple of years now. So I think it's the result of a long-term job that they've been doing now for quite some time. And what's happening is that the consumers are actually finding HempShop stores and also recognizing the changes that's been made. So I think it's the result of all these different things, both that we had new modern stores with a new attractive store concept, folks and inspiration, meal solutions and sustainability, and also price value.

Great, thank you. And my other question is on city growth, if I may. I'd be interested in hearing what some of the elements are in the trial store and how that will position city growth to win on customer proposition versus competitors. And I guess second part of that is, if the trial store concept is a success, does that mean that another wave of capital expenditure will be needed to roll that out to the other city growth stores?

So the concept is in the store in Linköping and we've done a job in this turnaround plan to also set a new brand proposition and now this new concept is to demonstrate the new brand with a focus on fresh produce, inspiration food, and create a really inspiring food market, and also how to do that in a cost-efficient way in creating operational efficiency also in the store. If this, of course, as always, you have to do a lot of changes when you do a pilot store until it's 100%. So now it's up for us to evaluate it and do changes if there's needed. And when we think it's 100% correct, we will modernize stores. But that would be as a part of our total expenditures. So it's a natural part in driving retails to modernize stores. So when we modernize the Citigroup stores, we will then do it by this new store concept.

I see. So not necessarily a fast additional rollout program for the new concept of Citigroup?

No, no.

Thank you very much. Thank you very much.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. The next question comes from Robert Joyce from BNPP Paribas. Please go ahead.

Hi, thanks very much for taking the questions. The first one, just back to those tactical measures, I guess Slight concern if we look back to 3Q24 when we saw that kind of 100 basis point margin decline that we kind of weren't anticipating. Should we expect margins to be down in the third quarter again, even if we see a bit of like for like up, until they start to recover with volumes after that? Or how are we thinking about margins in the third quarter at Willys, please?

We don't do any guidance on margins per concept. And of course, over time, we have a long term goal for our group to reach 4.5%. And Willis, of course, is to be part of that. The tactical short term initiatives is not the same as we did in the Autumn 2024, it's not the same thing we did you mentioned during the VAT cut. So now it's more about targeted customer data inside driven measures.

Okay, which don't I guess the question is why are they not ongoing those type of measures if they're going to drive the top line and not the margin hit?

I tried to explain the first quarter. The VAT reduction in Sweden is a huge change for the market. All the logics in how pricing, campaign mechanics changes overnight. So just to give you an example, if you have a good price for Salomon campaigns one day, then the prices cut 5.4% because of the VAT. So then the mechanics, both what is a good price, how is the campaign mechanics to work, two, four, three, four, the day after, and that is what has changed when we meet today from when we met after first quarter. So now it's more about calibrating and finding these tactics and to see that they become efficient. So there's been a huge change in the market when you cut the prices by 5.4% and to create new attractive mechanics in the market. So that is actually what's happening now. Got you. Okay.

Understood. Okay, understood. So you kind of have to evolve with the way the market's moved. That makes sense. The second one is just in terms of that sort of volume, I guess the number X inflation we see, is it more mix-driven or more unit-driven, the sort of volume growth you think in the market right now?

You mean if you take away the deflationation, if it's volume or mix, no?

Yeah, yeah, exactly.

If it's units or mix. It's a mix of it. I think it's primarily driven by volume.

Okay, that's helpful. And in terms of anything you can say on exit rates, are we seeing anything, any differences? And obviously Easter distorts things, but by the back end of the quarter, are we seeing better trends?

We do not really comment month by month, so it's the quarterly performance we report. And of course this quarter we have some calendar effects also with the Easter beginning and so we do not really comment on monthly development.

Okay, thank you. And then the final one. Sorry, yeah, understood. Thank you. And final one, just on the working capital impact from VAT, is it going to be slightly higher at year-end? Are we thinking sort of 500 million? I just take sort of 6% of the payables balance. I'm getting to a 500 million SEC impact at year-end.

Is that about right? No, the one that we took now, that's not going to be higher in the rest of the year.

Okay. Thank you very much. Thank you.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

So thank you all for joining us today and for all the good questions, and I wish you a good summer and see you next quarter.