OCTOBER - DECEMBER
Interim report
SALES AND RESULTS FOR THE FOURTH QUARTER
In local currencies and excluding divested businesses sales for the fourth quarter 2006 increased by 10 percent compared with the fourth quarter 2005. Reported sales for the fourth quarter decreased by 1 percent to 3,457 MSEK (3,500). Currency translation has affected the sales comparison negatively by 197 MSEK.
For snuff, sales increased by 18 percent during the fourth quarter, to 963 MSEK (819) and operating income increased by 17 percent to 460 MSEK (392). North European snuff sales were up 25 percent, stemming from higher than normal volumes due to hoarding in anticipation of an excise tax increase on snuff in Sweden effective January 1, 2007. North American snuff sales were flat, but were up 11 percent in local currency terms. The operating margin reached 47.8 percent (47.8).
Sales of cigars in the fourth quarter increased to 857 MSEK (834), while operating income declined by 8 percent, to 163 MSEK (176). Sales and operating income for cigars grew in the US. Sales grew in Europe, but operating income declined, due to a less profitable product mix and some restructuring costs. Operating margin for cigars declined to 19.0 percent (21.1).
Group operating income for the fourth quarter increased by 18 percent to 799 MSEK (678). Currency translation has affected the operating income comparison negatively by 53 MSEK.
Operating margin for the fourth quarter amounted to 23.1 percent compared to 19.4 percent for the fourth quarter 2005.
In the fourth quarter financial income was favorably impacted by a gain on a sale of securities with an amount of 111 MSEK before tax.
EPS (basic) for the fourth quarter was 2.18 SEK (1.47). Diluted EPS amounted to 2.18 SEK (1.46).
| |
Oct-Dec Oct-Dec Full-year Full-year |
| MSEK |
2006 |
2005 |
2006 |
2005 |
| Sales |
3,457 |
3,500 12,911 13,311 |
| Operating income |
799 |
678 |
3,235 |
2,825 |
| Income before tax |
853 |
642 |
3 167 |
2 696 |
| Net income incl. |
|
|
|
|
| minority interest |
602 |
456 |
2,331 |
1,777 |
| Earnings per share, SEK 2.18 |
1.47 |
8.12 |
5.61 |
SHARE COMMENTS
Board proposes increased dividend
SWEDISH MATCH EXPERIENCED A STRONG YEAR
in 2006. The share price rose 37 percent, which the Stockholm Stock Exchange OMX All Share Index was up 24 percent. Swedish Match’s industry index, consumer staples, rose 33 percent in 2006.
To date, the beginning of 2007 has resulted in a somewhat weaker performance of the Swedish Match share. At the close of the stock exchange on February 14, the trend was a negative 5 percent since year-end. The Stockholm Stock Exchange OMX All Shares Index posted a gain of 5 percent during the same period. In contrast, the consumer staples index fell slightly, with a decline of 1 percent for the period December 31, 2006 through February 14, 2007.
In the year-end report published on February 14, the Board announced that it is proposing that the dividend for 2006 be raised to 2.50 SEK per share, from 2.10 SEK per share of the 2005 fiscal year, corresponding to an increase of 19 percent. The Swedish Match Annual General Meeting, which will decide on the dividend, will be held this year on April 23.
| KEY FIGURES |
|
| Earnings per share, SEK |
|
| 2006 |
8.12 |
| 2005 |
5.61 |
| Equity per share, SEK |
|
| 31 Dec 2006 |
8.34 |
| 31 Dec 2005 |
16.60 |
The Swedish Match share price rose by 37 percent during 2006 and the OMXS rose by 24 percent. Between January 1 and February 14, 2007, the share price declined 5 percent while OMXS rose by 5 percent.
Annual General Meeting, April 23, 2007
The Swedish Match Annual General Meeting will be held on Monday, April 23, 2007 at the Stockholm International Fairs, Älvsjö, in Stockholm. The notice convening the Meeting will be published in the daily newspapers and sent to the company’s shareholders as in prior years. Registration to attend can be made on our website, by telephone, mail or telefax.
As announced earlier, the current Chairman of Swedish Match, Bernt Magnusson, has informed the Board of Directors that he will not seek re-election. The Nominating Committee has proposed that Conny Karlsson succeed Bernt Magnusson as Chairman of the Board of Directors. In addition, Karsten Slotte has announced that he declines re-election.
The Nominating Committee of Swedish Match AB will propose the election of Charles A. Blixt and John P. Bridendall to the Swedish Match Board of Directors. In its proposal to the Annual General Meeting, the Nominating Committee has made particular note of Charles A. Blixt’s extensive experience of the tobacco industry, as well as John P. Bridendall’s vast experience of the US fast-moving consumer goods market, international profile and financial background.
| Questions and answers |
| Swedish Match’s earnings for full-year 2006 were presented on February 14. At a subsequent telephone conference, Group Management answered questions from bank and brokerage analysts who track the company. |
ELISE BADDOIR, GOLDMAN SACHS:
Please comment on the rising costs for cigars during the quarter? |
SVEN HINDRIKES, CEO:
There was a shift toward smaller and less expensive cigars with lower margins in Europe. In addition, we had restructuring expenses of 2 MEUR and somewhat higher marketing costs. However, we expect that the earnings in the past quarter will not be repeated in 2007, but retain our outlook announced earlier of an operating margin of 21-23 percent for full-year 2007. |
HENRIK FRÖJD, KAUPTHING BANK:
You state that you will increase the marketing and selling expenses for snuff. Can you give us any figures for these cost increases? |
SVEN HINDRIKES:
That was a more general comment. We intend to be somewhat more aggressive on our existing snuff markets in Sweden and the US, mainly to grow in the US, as well as to retain our market share and volumes on the Swedish market. |
ERIK BLOOMQUIST, JP MORGAN:
Will the tax increase have varying sales effects on different types of snus? |
LARS DAHLGREN, CFO:
It is too early to draw any conclusions for specific snus products, but we know that sales of loose snus are being hit harder than portion-packed. We are not seeing any decline in low-price snus as a result of the tax hike. |
DAVID IRELAND, ABN AMRO:
Can you comment on what type of cigar acquisition you are seeking? |
SVEN HINDRIKES:
We are looking for operations complementing our existing cigar business in the US and Europe. We are reviewing different projects of varying size. |
ROGERIO FUJIMORI, CREDIT SUISSE:
”What was the trend for the operating margin for cigars in the US in the fourth quarter and for the year? I would like to know more about the growth for snus in Norway.” |
LARS DAHLGREN:
Operating margin in total rose somewhat in 2006 compared with 2005, due partly to changes in product mix and savings attributable to the integration of General Cigar. The margin decline during the fourth quarter is attributable solely to the European market. Norway posted continued solid growth for snus, with volume increase exceeding 10 percent. |
