Capital expenditures during the first six months amounted to 1 MSEK (0). The cash flow for the period was 1,282 MSEK (104). Cash and bank at the end of the period amounted to 401 MSEK (2,923). During the first half of the year the parent company made share repurchases, net, of 1,853 MSEK and paid dividends of 664 MSEK.
Accounting principles
The financial information in this interim report has been prepared in accordance with the International Financial Reporting Standards (IFRS) approved by the European Commission for application within the EU. The report is prepared in accordance with the Accounting Standard IAS 34 Interim Financial Reporting.
| The accounting principles for the parent company are in accordance with the Annual Accounts Acts (1995:1554) and the Swedish Financial Accounting Standard Council’s recommendation RR 32:05. |
| The accounting principles are the same as in the 2006 Annual Report except for the accounting for pensions and other retirement benefits in accordance with IAS 19, Employee Benefits, as described below. |
New accounting principle
In order to enhance transparency Swedish Match has changed the principle for reporting of actuarial gains and losses in the Group’s various defined benefit plans. These actuarial gains and losses are now recognized directly in equity in the period in which they occur.
The net of plan surpluses and deficits is included in the calculation of net debt. The total cost relating to defined benefit plans which previously was charged to personnel costs is now divided between personnel costs and financial income and expenses. Financial income and expenses are calculated from the net value of each plan at the beginning of the year. For surplus plans financial income is calculated using the expected return on plan assets and for deficit plans financial expenses is calculated using the discount factor decided for each plan.
The new method of accounting for actuarial gains and losses is a change of accounting principles and 2006 has been restated. The effect of the restatement on Swedish Match’s opening equity 2006 amounts to a negative 284 MSEK and an increased net liability for retirement benefits of 397 MSEK. The effect on the closing equity 2006 compared with previously reported numbers amounts to a negative 250 MSEK and an increased net liability for retirement benefits of 304 MSEK. The restated operating profit for 2006 increases by 50 MSEK, finance net is charged with 44 MSEK and tax is charged with 2 MSEK.
Risk factors
Swedish Match faces intense competition in all of its markets and for each of its products and such competition may increase in the future. In order to be successful the Group must promote brand equity successfully and anticipate and respond to new customer trends. Restrictions on advertising and promotion may, however, make it more difficult to counteract loss of consumer loyalty. There can be no assurance that branding or new products launches by Swedish Match’s competitors will not be successful in persuading consumers of the Group’s products to switch to competitor’s products, which could have an adverse effect on Swedish Match’s results of operations.
In some markets where the Group is operating, some competitors are for regulatory reasons prohibited to market certain of its products. Should these regulations change and these products be allowed, the competitive landscape may change.
Swedish Match has a substantial part of its production and sales in EMU member countries, South Africa, Brazil and the US. Consequently, changes in exchange rates of euro, South African rand, Brazilian real and the US dollar in particular may adversely affect the Group’s results of operations, cash flow, financial condition or relative price competitiveness in the future. Such effects may occur both in local currencies and when such local currencies are translated into Swedish currency for purposes of financial reporting.
For a further description of risk factors affecting Swedish Match see Report of the Board of Directors in the Swedish Match Annual Report for 2006.
Outlook
As previously announced, the operating margin for snuff in Q1, and to a lesser extent in Q2, was significantly impacted by a sharp decline in volumes on the Swedish market due to the doubling of the excise tax for snuff effective January 1. Sales volumes improved toward the end of the period and the Company believes that volumes will continue to revert to normal levels over the remainder of the year. Despite a continued increased level of spending to drive organic growth in snuff, including new product launches, we expect operating margin for snuff in the second half to improve from the Q2 level.
| Our outlook for the US snuff market remains firm and we target solid double digit volume growth for the full year. |
| The Company is continuing to pursue potential cigar acquisitions. |
| The tax rate for 2007 is estimated to be 25 percent excluding the non taxable capital gain on the sale of the Stockholm real estate. For 2008 and onwards the tax rate is expected to be around 20 percent. |
Additional information
This report has not been reviewed by the Company’s auditors. The January– September 2007 report will be released on October 25.
The half year report gives a true and fair view of the operations, position and result of the Company and the Group and describes the major risks and uncertainties of the Company and the companies in the Group.
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Stockholm, July 20, 2007 |
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| Conny Karlsson |
Charles A. Blixt |
John P. Bridendall |
Andrew Cripps |
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| Kenneth Ek |
Arne Jurbrant |
Eva Larsson |
Joakim Lindström |
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| Kersti Strandqvist |
Meg Tivéus |
Sven Hindrikes |
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President |
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Consolidated Income Statement in summary
