VIN & SPRIT ANNUAL REPORT 1999 The Year in Brief New sales record for ABSOLUT VODKA: 60 million liters Successful launch of ABSOLUT MANDRIN Decision to close down Falkenberg plant Acquisition of the vodka company Dynybyl in the Czech Republic Acquisition of De Danske Spritfabrikker in Denmark Acquisition of the whisky brand Lord Calvert for Nordic markets Consumer service Dryckomaten launched on the Internet Internal future-oriented project, Seize the Future, involving V&S employees Revenue up 17 percent Sales company in Norway established The Year in Brief 1 Comments from the CEO 5 Business Development 10 The Environment 14 The Absolut Company 16 Reimersholms Spirits Group 22 Wine 32 Vin & Sprit Today 40 Our Values 42 Corporate Management 45 Board of Directors and Auditors 46 Board of Directors’ Report 48 Consolidated Income Statement 53 Consolidated Balance Sheet 54 Pledged Assets and Contingent Liabilities 56 Consolidated Statement of Changes in Financial Position 57 Parent Company Income Statement 59 Parent Company Balance Sheet 60 Pledged Assets and Contingent Liabilities 62 Parent Company Statement of Changes in Financial Position 63 Accounting Principles and Notes to the Financial Statements 64 Auditor’s Report 85 Key Ratios 86 Addresses 88 Contents De Danske Spritfabrikker, acquired in December 1999, brought several valuable brands to V&S. Comments from the CEO 6 Comments from the CEO We need to acquire more brands and more companies to bring” balance into our operations and to ensure that they have more than one leg to stand on. This is also key to our vision of becoming ‘a profitable company of world class’. Within five years, we will be one of the 10 biggest alcoholic beverage companies in the world. Comments from the CEO 7 The Seize the Future project involved V&S employees in many activities during the year. TO SEIZE THE FUTURE player in the Swedish market, from The final year of the millennium an international perspective we are was an eventful and a successful still small and would continue to be one for V&S. Thanks to enormous so even if we could increase our commitment and hard work on the market shares in Sweden. part of our employees, we can our vision, business concepts, Our progress with ABSOLUT report the best earnings in the his- strategies and values. These discus- VODKA has made us increasingly tory of the Company. A warm sions have allowed us to build a dependent on a single brand. To “Thank you!” to everyone who common platform for our goals and counter this, we need to expand the worked with so much dedication! strategies. other areas of our business and cre- We have repositioned ourselves in ate balance within the Company. many areas and continue to work Leading the way It was with this in mind that we on becoming a profitable, world- on environmental issues acquired Dynybyl in the Czech class alcoholic beverage company. In addition, we set out an environ- Republic and the Lord Calvert In 1999, a great deal of work mental policy with the objective of whisky brand. The aim of bottling focused on determining the future making the Company a leader in all and selling Kron Vodka in Poland direction of the Company. The areas, including reducing the envi- was similar, as was the acquisition “Seize the future” project, in which ronmental impact of our operations. of De Danske Spritfabrikker. These most employees were involved, For Vin & Sprit to succeed in investments have put us well on the gave rise to lively discussions about becoming one of the world leaders way to achieving our goal. in the spirits industry, we must fur- ther increase volumes and market shares. While V&S is the biggest ––––> 8 Comments from the CEO sales within the EU is also likely to have contributed to leveling off the decline. Spirit sales threatened if exemptions cease The black market now accounts for the same volume as legal imports, in other words around 50 percent of the total Swedish market for spirits. If Sweden does not succeed company of world class”. Within in extending its exemptions to EU Acquisitions create five years, we will be one of the 10 regulations on imports, spirit sales better balance biggest alcoholic beverage compa- in Sweden will virtually stop unless But these are still not enough. We nies in the world. the government and Riksdag decide need to acquire more brands and Legal sales of alcohol in Sweden to cut duties on spirits. The situa- more companies to bring balance have increased, especially sales of tion could deteriorate further if the into our operations and to ensure wine. The sharp decline in spirit EU requires Sweden to reduce its that they have more than one leg to sales since Sweden joined the duties on wine. If this happens, stand on. This is also key to our European Union has slowed, with sales of wine will further increase, vision of becoming “a profitable sales in 1999 more or less unchanged. Likely causes of this are that the black market for alcohol has peaked and that many con- sumers have more disposable income. The abolition of duty-free Comments from the CEO 9 Restructuring of the sector continues, although it taking longer and legal sales of spirits will virtu- than anticipated. There are still ally cease. A major reduction in more than 300 entities who have governmental revenue from duties import licenses and thus can sell to is to be expected if this scenario Systembolaget (the Swedish The prospects for V&S are good, happens. Alcohol Retailing Monopoly) as at least for its international opera- The removal of duty-free sales well as restaurants in Sweden. tions. has not changed the situation On the international scene, con- Our business concept includes much. A major reason for this is sumption of spirits is largely nurturing and developing existing that the ferries between Finland unchanged, although the trend brands as well as creating and and Sweden sail via Åland, where towards clear spirits persists. Wine acquiring new ones. With the acqui- duty-free sales are allowed. consumption is largely unchanged, sitions completed and those too, though red wines have won planned, we are well on the way Consumers choose ground from white wines. towards our objective of being one more expensive products of the leading alcoholic beverage The pattern of consumption in our Players become companies in the world within the country has not changed dramati- fewer and bigger next five years. cally. However, new forms of pack- No big changes are expected in the aging, especially bag-in-box, contin- pattern of consumption this year, ue to expand, and products pack- either in Sweden or internationally. aged in paperboard now account Restructuring will continue, leaving Egon Jacobsson for nearly 20 percent of all wine fewer but bigger players both glob- sales. For both wine and spirits, ally and nationally. there is a clear trend for consumers to demand more costly products. 10 Business Development This acquisition also created the seventh” largest alcoholic beverage company in Europe. The objective is to use this position to achieve efficient distribution and organization. There is also the chance of collaboration with other players to develop business activities in Europe, including eastern Europe. Business Development 12 Business Development On the basis of this vision, an aggressive strategy for growth has been developed to complement the organic growth of the business. The V&S IS PREPARED strategy rests on three principal FOR THE FUTURE objectives: Even before deregulation in 1995, a • a Nordic structure key business objective of V&S was • strong local distribution expansion. The best and most suc- ABSOLUT VODKA, to structural reor- • international brands. cessful result of this was the devel- ganization and cost-savings. This was opment of ABSOLUT VODKA. considered inadequate for long-term Strong Nordic base Alongside this development, the survival, which is why the Board of sharpens competitive edge Company continually adjusted Directors adopted a new vision for The solid balance sheet and earn- operations throughout the 1990s to the Company in 1997: Vin & Sprit ings capacity of V&S allows the accommodate the shrinking domes- will be a profitable, world-class Company to participate in the tic market. This has primarily affec- alcoholic beverage company. ted the market for spirits, where illegal imports and production have stolen an increasing share. At the same time, the number of players in the market has increased signifi- cantly, and possibilities for influ- encing market share are limited under the restrictive legislation that applies to the alcohol market in Sweden. Long-term survival requires aggressive initiatives Opportunities to boost earnings from operations,were previously limited, with the exception of Business Development 13 In addition to the market posi- tion created in the Nordic region, the base centers on the Czech Plymouth Gin, a premium brand with a long Republic and Poland. In May 1999, tradition, joined the V&S acquired Dynybyl, the leading V&S portfolio in vodka producer in the Czech February 2000. Republic. Dynybyl commands a market share of around 20 percent through its largest brand names, Prazska and Silver Ice. Thus the prerequisites are in place reaching a critical mass for local distribution. Small selection of available brands The opportunities for growth in the global alcoholic beverage business repositioning currently taking place are greatest for international brands in the alcoholic beverage industry. development of brands on the basis in the premium segment. However, Each and every Nordic country of qualities such as Nordic tradi- there are only a few brands avail- has an alcoholic beverage company tions. able, and competition for these is with excellent local brands, which intensifying.