Ica Norway

ICA NORWAY

Questions:

1. What are the main strategic and operational causes for ICA Norway’s current situation?

• In 2003, ICA Norway has one third of market share, however due to poor management, the share drops to 14.1%
• ICA Norway has established five different store concepts: ICA Nær, ICA Supermarket, Matkroken, ICA Maxi and Rimi. But there has been some changes in the market and in consumer habits. Even if the management team has good strategies but they were unable to communicate to headquarter. The poor structure of company results in ineffectiveness to adjust to the change.
• ICA Norway decided to sell the stores that were not profitable. By selling those properties, ICA Norway improved in a short run.
• The competitors bought the stores and made them profitable. It is possible that there is a problem in ICA Norway strategic planning.
• ICA Group did not consider differences in the Norwegian market (Any research done). ICA Group thought of an expansion strategy because of previous success in other Nordic countries. This affected the health of the ICA Norway operation.
• ICA Norway enters the Norwegian market, which market is already governed by well-and-deep-established company, Norgesgruppen. This forced them into price war, hence they were unable to reach high margin.
• The Norwegian protection policy of national agricultural products is a problem for ICA Norway. Tariffs to import goods are high. They need to buy agricultural products locally which results in lower margins.

1. From the case, is it anything suggesting a misleading positive interpretation of 2007 results, not necessarily coming from good performance?

The year of 2007 was the last year the company managed to get a profitable net income but since then the numbers have gone from bad. By selling some stores, ICA Norway got a positive result that year, but not in long run. The competitors bought the stores and made them profitable; ICA Norway on the other hand faced weaker results the following years. It is possible that they might perform bad but correct the profit figure with a single sale of equity.

1. Analyze the balance sheets, profit & loss accounts and ratios in order to identify strengths and weaknesses of the company.

It is interesting to see how ICA Norway performance was wholly contrasting and opposite with the performance of the other retail companies of the ICA group.

In particular, ICA Norway shown a critical and weak economic performance from 2007 onward, year of the last accounted profit. If we look more in detail, even if operating revenues increase over the years considered (2007 - 2011), ICA Norway kept going to produce losses. The profit and loss account shows how the proportion of material cost of operating revenue decreased but, in contrast, costs of employees increased significantly, doubling their cost in 2009. This figures appear contradicting with the restructuring plan implemented in which they declared to have decreased department and therefore employees. This could likely be explained by a radical increase of the managements salary or by the remain workers as a whole.

As far as the depreciation is concerned, it increased by six times in 2009 and this is due by a huge increase in assets (from 25 thousand - over 213 thousand), as the balance sheet displays This investment was not offset by increasing in sales, as the ratio sales/to tangible assets demonstrates (42.86 in year 2008 - that means a great return over the investment on assets made vs. a poor efficiency result of about 9.61 in year 2009). The investment which the company was undertaking was not profitable.

Another important part in the profit and loss account that influenced significantly the net income were the operating expenses. In fact, they almost doubled in 2009. We have little information about the source or the reason of this expenses, but from now on the losses have been greater than the past years: the management and the strategy cost are inefficient and they are leading to a critical economic situation for ICA Norway.

In year 2009 changed also significantly the capital structure of the company.  Equity decreases to 33% and current liabilities were accounted for the 66% of the total assets, exposing the company to a high risk of liquidity. In fact if we look at the Current ratio, it dropped from 2.22 to 0.61, as well as the liquidity ratio that decreased to 0.51. This in terms means that the company would have encountered problems to meet the short term debt if it was not under the umbrella of the ICA group. Even if the liquidity ratio is aligned with the main competitors, the debt quality ratio shows that compared to them, ICA Norway is more vulnerable in the short term due to the high current liabilities.