The operations

The Board of Directors and the President of Systembolaget AB, corporate ID number 556059-9473, hereby present the annual accounts, including the Corporate Governance Report, for the 2015 financial year.

The Company’s mandate

Systembolaget AB is a limited company that is wholly-owned by the Swedish State and which has a monopoly on retail sales of strong beer, wine and spirituous drinks in Sweden. Systembolaget’s mandate is to sell responsibly, to offer a high quality service, and to provide information on the risks associated with alcohol. It’s objective is to help improve public health by limiting the harmful effects of alcohol.

Systembolaget’s operations are primarily governed by the Swedish Alcohol Act, Systembolaget’s agreement with the State, and the State’s ownership policy. Systembolaget is responsible, on the basis of these steering documents, for ensuring: that sales are made in a responsible way through clear selling rules and by not encouraging additional sales, that a high standard of service and expertise on how to make informed choices are provided in the context of the customer interaction, and that we offer a broad range of products. Systembolaget shall be strictly brand- and competition-neutral and may not favour any one producer over another.

Systembolaget’s operations are based on a clearly defined social mandate and the purpose is hence not to maximise the company’s profits. This constitutes an important difference between Systembolaget and other retail sector companies, whose goal is often to maximise their profits wherever possible. Systembolaget shall, however, operate in a cost-conscious and commercially sound way. Limiting the availability of alcohol by controlling the number of retail outlets and opening hours and maintaining a generally restrictive approach is another important component of countering the harm caused by alcohol. Opening hours in the various local authority areas are determined by Parliament.

As a State-owned company, Systembolaget has a responsibility to act as a role model in the field of sustainable enterprise.

Organisation

The operations are conducted by 436 retail outlets in Sweden, which were visited by 120.5 (119.8) million customers during the year. Five new stores were opened in 2015 – three in the Stockholm region and two in eastern central Sweden. In June, Systembolaget’s Board decided to open four new stores in 2016 and thereafter. There are also, in addition to the stores, 471 agents throughout Sweden from whom the customers can order goods for collection. Systembolaget also offers home delivery in a number of areas throughout Sweden.

The operations are conducted by Systembolaget AB and the wholly-owned subsidiary companies, IQ-initiativet AB and AB K14 Näckströmsgatan. IQ-initiativet works to provide information in order to prevent and reduce alcohol-related harm. K14 Näckströmsgatan manages Systembolaget’s operating properties.

Systembolaget AB is wholly-owned by the Swedish State and there are a total of 360,000 shares.

Significant events, 2015

Systembolaget’s long-term strategic programmes continued to yield results. The OPI and CSI values achieved their highest annual levels since measurements began and, for the third year in succession, Systembolaget was rated as Sweden’s best service company and best retail sector company in the ServiceScore20 survey. The awards were based on the responses of 3,500 people aged between 18 and 79. Systembolaget also received the highest rating for service in Markets’21 annual survey of the Swedish retail sector.

Systembolaget has continued to focus strongly on developing both our customer interaction and our offering. October saw the opening of a trial store for a new store concept in Gränby, Uppsala. The goal is to create a store concept that feels knowledgeable, inspirational and considerate – without promoting additional sales. The store milieu is muted with a neutral palate and the focus on products and know-how. Tastes and food and drink combinations are highlighted in a variety of ways using images and informational signage. The Gränby trial will run for six months, and then be evaluated.

Systembolaget is continuing to prioritise its sustainability improvement work. Systembolaget’s inclusiveness (equal opportunities) plan was updated during the year as part of this work with the aim of increasing diversity in conjunction with the new recruitment of Systembolaget employees. Ensuring a diversity of skills and experience is important in enabling us to continue interacting professionally with our customers with regard both to our service and to our offering. It is also important to our future talent pool in terms of our ability to attract, recruit and develop people from different backgrounds and with different life experiences.

In September, Swedwatch published a follow-up report15 on the previous review of working conditions in vineyards in Argentina, Chile and South Africa. The report shows that progress has been made, but that some challenges still exist. Swedwatch recommended, amongst other things, that Systembolaget boost local dialogues, evaluate the potential for a global trade union framework agreement, and follow up more closely on Swedish suppliers’ sustainability work.

Systembolaget has carried out two sustainability trips during the year in order to learn more about working conditions and to convey to our suppliers just how important sustainability issues are for Systembolaget. The first trip was to Argentina and was a joint trip with the other Nordic alcohol retail monopolies, while the second trip was to Sicily.

On 1 January 2015, the alcohol tax on wine, strong beer and mixed drinks was raised by 9 per cent, while the tax on spirits increased by 1 per cent. The tax increase was expected to reduce consumption to some extent, but no clear effect on volumes sold resulting from the tax increase has been apparent during the year.

In June, the Supreme Court ruled that the arbitration ruling dating from February 2012 in the case between Systembolaget and The Absolut Company, formerly Vin & Sprit, would be upheld and that Systembolaget is consequently obliged to compensate Vin & Sprit for its legal costs. The background to the dispute is that Systembolaget had terminated the purchasing agreement with Vin & Sprit in conjunction with the earlier bribery scandal revealed in 2003. Vin & Sprit elected to initiate arbitration proceedings. It should be noted, however, that the arbitration proceedings of November 2012 in the case between the supplier company, Philipson Söderberg, and Systembolaget entailed the same kind of issues and the ruling went completely in Systembolaget’s favour.

The summer of 2015 saw the publication of a Government report entitled Privat införsel av alkoholdrycker24 [Private imports of alcoholic drinks], based on a commission to evaluate, firstly, the types of actions that are currently permitted or prohibited in conjunction with e-commerce and home deliveries involving alcoholic drinks, and secondly, the types of actions that should or should not be currently permitted, with reference to Swedish alcohol policy and the obligations imposed by EU membership. The principles on which the report was based, that is that operators with commercial interests should be excluded from the retail trade in alcoholic beverages, is in line with the foundations on which the Swedish alcohol policy is based. Systembolaget is, however, of the opinion that some of the report’s proposals should be adjusted slightly. In the so-called Alkotaxi case 27 the Finnish regulations in this area were reviewed in the European Court, which issued a ruling on 12 November 2015 confirming that the member states are permitted to implement alcohol policy measures designed to protect public health, including the imposition of bans on distance selling of alcoholic drinks. The Swedish government has stated that it now intends to examine the proposals presented in the report and the comments by the bodies that have submitted position papers.

In April 2014, a media services supplier submitted an application for a re-examination to the Administrative Court in Stockholm, requesting that Systembolaget re-conduct a procurement process and apply the provisions of the Swedish Public Procurement Act (LOU). Systembolaget has contested the application with reference, primarily, to the fact that LOU does not apply to Systembolaget. Systembolaget has cited, inter alia, in support of its claim a ruling by the European Commission, dated 9 July 2003, in which the Commission found that Systembolaget was not subject to the provisions of LOU. In a ruling dated 16 October 2014, the Administrative Court rejected the application for a re-examination, finding that Systembolaget is not obliged to conduct procurements in accordance with LOU. The ruling was appealed to the Administrative Court of Appeal in Stockholm which, in a ruling dated 19 February 2016, confirmed the ruling by the Administrative Court. The ruling by the Administrative Court of Appeal means that Systembolaget is not obliged to apply the provisions of LOU when buying in goods and services. The ruling has been appealed to the Supreme Administrative Court which will now rule on whether a licence to review should be granted.

Sales per product group, litres

Million litres

Strong beer

234.4

Wine

197.5

Spirits

18.8

Cider and mixed drinks

16.9

Alcohol-free

3.1

Sales

Systembolaget’s sales in 2015 totalled SEK 27,645 million (26,431), corresponding to a year-on-year increase of 4.6 per cent. Sales of wine increased by 4.3 per cent and totalled SEK 14,476 million, while sales of string beer increased by 5.4 per cent to SEK 6,610 million. Sales of spirituous drinks increased by 3.9 per cent, totalling SEK 5,545 million, while sales of cider and mixed drinks increased by 1.5 per cent to a total of SEK 702 million. The increase in revenues exceeded the increase in sales by volume, due to the increase in alcohol tax and a continued shift within the range towards more expensive products.

Recalculated as pure alcohol, sales volumes totalled 46.4 million litres in 2015, corresponding to a year-on-year increase of 0.1 per cent.

Sales of organic products increased by 60.4 per cent to SEK 2,867 million and comprised 10.4 per cent of total sales in SEK million. There were a total of 289 (202) organic products in Systembolaget’s fixed range out of a total number of products in the fixed range of just over 2,400.

Interest in the alcohol-free range continues to increase, with sales of alcohol-free products rising by 14.8 per cent and totalling SEK 148 million. This is a trend that Systembolaget is keen to promote and we are now able to offer a total of 53 (51) alcohol-free items in our fixed range.

Operating profit

Systembolaget posted an operating profit of SEK 179 million (370). The fall in the operating profit was due, in part, to the fact that Systembolaget now, unlike in 2014, has a higher percentage of defined contribution pensions, which have been charged to the profit. Systembolaget’s pension fund continues to be over-consolidated and conservative management of the surplus has resulted in reimbursements only been made for costs in conjunction with changes to safeguards recognised for the purposes of taxation in which the pension periods of pensioners and paid-up policyholders previously secured by the fund have expired.   Selling costs increased to SEK 2,662 million (2,449) due, in part, to the increase in pension costs. Other factors affecting selling costs included costs attributable to the operation of five new stores, investments in a good customer interaction, and IT projects in relation to commercial and checkout systems. Administrative costs increased to SEK 652 million (569) with the increase due not only to pension costs but to strategic investments in campaigns designed to increase informed alcohol consumption and increased financial support for alcohol research. The operating margin, excluding alcohol tax, fell to 1.1 per cent (2.3).

Net financial items and pre-tax profit

The pre-tax profit totalled SEK 256 million (324). Net financial items totalled SEK -3 million (56), SEK 31 million (42) of which comprised interest income, while SEK -32 million (10) refers to unrealised changes in value and SEK -2 million (4) to realised changes in value. Financial market turbulence reduces the market valuation of financial investments.

Cash flow

The cash flow from operating activities totalled SEK 480 million (632) with the year-on-year difference primarily attributable to the decrease of SEK 68 million in the net profit. The cash flow from investment activities totalled SEK -117 million (-416) and comprised net investments in financial assets of SEK 32 million (-457) and net investments in tangible fixed assets of SEK -149 million (-130). The investment in tangible fixed assets primarily referred to the renovation of existing stores and the construction of new ones. Systembolaget also received a dividend of SEK 171 million in 2014 from AB K14 Näckströmsgatan, which in 2013, sold a property in Jordbro.

Financial position

Shareholders’ equity on 31 December 2015 totalled SEK 1,521 million , corresponding to a decrease since 31 December 2014 of SEK 53 million. The change was caused by the reduction in the net profit resulting from the dividend payment to the owner which, in 2015, totalled SEK 251 million.

The owner’s goals and strategic key performance indicators

The Owner’s Directive, adopted by the Annual General Meeting held on 23 April 2015, specify mandate goals and economic goals for Systembolaget’s operations. The mandate goals are the CSI, Alcohol Index, and Alcohol consumption in Sweden (including the percentage of this volume acquired through Systembolaget). Systembolaget is also tasked with commissioning an external party to conduct control purchases in order to check that the sales staff check that purchasers are at least 20 years of age, as required by law. The economic goals are the Equity/assets ratio, the Return on shareholders’ equity, and Cost effectiveness, the third of which is new for 2015. The dividend should also, according to the Owner’s Directive and provided that this is in accordance with the dividend regulations of the Swedish Companies Act, total an amount corresponding to 80-100 per cent of the net profit for the year after tax, with due consideration for the equity/assets goal.

Cost effectiveness is measured by calculating the ratio between total overheads and quantities sold, and the goal is for this key performance indicator’s trend over time to be positive. Systembolaget does not, as a company, attempt to maximise its profits or to actively promote sales and the effectiveness metric is, therefore, intended exclusively to measure cost effectiveness, that is to ensure that overheads are, at any given point, adjusted in line with changes in the quantity of goods sold in a sound way, based on our mandate. The effectiveness metric was developed in 2015 and takes 2015 as its base year, and evaluation will hence only be possible in subsequent years.

The owner’s goals are concretised as strategic key performance indicators for the operations, but Systembolaget has introduced other strategic key performance indicators over and above those mandated by the owner’s goals. Results are reported quarterly in a balanced scorecard in which key performance indicator monitoring forms part of the combined reporting. The strategic key performance indicators are determined annually by the Board of Directors. The owner’s goals are incorporated into the operations’ strategic key performance indicators.

Systembolaget is, as a state-owned company, required by its owner to report on its sustainability work in accordance with GRI (the Global Reporting Initiative). The basis of this work is a materiality analysis in which the most important sustainability areas are identified and for which goals are then set. Systembolaget’s strategic sustainability goals are Reduced climate impact and the Alcohol Index.

Strategic key performance indicators1

Goal, 2015

Result, 2015

Goal, 2016

CSI

83

84

84.5

Proof of age checks (%)

96

96

96

Reduced climate impact2

1.000 tonnes CO2e

+2.081 tonnes CO2e

-3.000 tonnes CO2e

Alcohol index

66

65

66

Total alcohol consumption in Sweden3

<9.2

Systembolaget’s share of consumption, volume4

OPI (%)

75

77

77

Performance culture

78

77

78

Total sick leave (%)5

4

5.1

4.6

Quality supplier index

93

95

94.5

Equity/assets ratio (%)

20.0-30.0

28.3

20.0-30.0

Return on shareholders’ equity6

8.5-9.57

11.6

8-9

Cost effectiveness8

7.2

1See glossary for definitions
2Reported as of 2015 in Systembolaget’s Responsibility Report, based on the starting value of 165,144 tonnes of CO2e after updating the previous starting value of 171,090 tonnes of CO2e (see also Climate impact).
3New goal in Owner’s Directive as of 2015. The results will be published by CAN (the Swedish Council for Information on Alcohol and Other Drugs) in 2016.
4The results will be published by CAN (the Swedish Council for Information on Alcohol and Other Drugs) in 2016. No goal set.
5Results refer to rolling 12-month periods with one month’s delay.
6Results refer to rolling 12-month periods.
7Based on estimated level of government bond interest rate.
8New goal in Owner’s Directive, as of 2015. 2015 is the base year.

Outlook

Strategy

Systembolaget’s current strategic plan runs from 2014 to 2017. Prioritised areas during this period include an ongoing focus on the customer in the form of proactivity, quality in the customer interaction, and breadth and depth in the range. Increasing individuals’ awareness and thinking about their own alcohol consumption and investments in alcohol research are other priority areas. Systembolaget will also, over the next few years, be focusing on the development of its sustainability work and on simplifying and enhancing the efficiency of its operations.

Sales

The trend indicates a gentle increase in sales volumes over the next few years, and we believe that the sales trend is primarily being influenced by population growth2627 as Systembolaget’s sales show that total alcohol consumption per capita, recalculated as litres of pure spirits, is declining. Sales volumes are relatively insensitive to economic fluctuations. The trend towards more expensive products is expected to continue over the next few years. The beer category has developed slightly during the year and is expected to continue showing greater growth than that explicable by population growth. Wine sales per capita are expected to remain unchanged and only to grow in line with population growth. Spirit sales are expected to fall over the next few years although sales in some categories, particularly malt whiskies, are expected to either remain unchanged or increase slightly. Organically labelled products have experienced very substantial growth28 during the year and this growth is expected to continue unabated in the years ahead.

Limiting the harmful effects of alcohol

There is a trend towards an increased marketing of alcoholic beverages and an increase in the exposure of young children and young people to alcohol, which is worrying. Systembolaget’s hope is, therefore, that the measures being proposed to improve supervisory functionality put forward by the Government Committee, En route to increased supervision: marketing and e-commerce for alcohol and tobacco29, will be translated into legislative measures as quickly as possible. The Committee’s mapping of the situation shows that further measures are needed to limit the opportunities for marketing alcoholic beverages and to maintain a unified alcohol policy.

The outside world

There are a number of trends in the outside world that will affect expectations of Systembolaget’s future development. Urbanisation, demographic trends, our customers’ increased use of digital tools, and their increased interest in organic products are just four of these trends.

The growth of major conurbations in Sweden has been a trend for a number of years now, and it has principally involved relocation to the cities from other parts of Sweden30. This growth looks likely to continue, although it is now mainly due to immigration and increases in the birth rate,3132 and one of its consequences will be the increasing depopulation of certain geographical areas3326. This will pose a challenge for Systembolaget in terms of its ability to continue offering a high quality service, both in the big city areas and for those living in areas where distances to service centres are becoming increasingly long34.

Another trend at macro level in the next few years is that of Sweden’s ageing population. At the beginning of the year, almost half of Systembolaget’s potential customers were aged 50 or above, and just over one quarter were aged over 65. Over the next five years, just over half a million people will join the over 65s age group and just over half a million will be over 80 years old353627. This will probably give rise to new expectations of Systembolaget, for example in terms of the ways in which the stores are laid out and how information and other services are provided34.

The rapid increase in the use of smartphones and tablets creates new opportunities to reach out to people37 in ways that can quickly initiate a purchasing process, irrespective of location. More and more operators are consequently focusing on interacting with their customers via a combination of physical and digital interfaces and on making customers’ everyday lives easier through a variety of new tools3839. This will probably give rise to expectations in terms of Systembolaget’s interaction with its customers, and of our expertise and responsibility, irrespective of the channel chosen by the customer at that time.

2013 saw an increase in the intensity of the debate on food quality, which helped generate a successively growing interest in organic and locally produced goods. Interest has continued to grow ever since and Systembolaget, in common with other operators in the Swedish grocery retail trade, is now seeing successively increased expectations that we will offer a range that shows a model approach in the sustainability sphere2840.