Focus
What was most positive during 2007?
Sven Hindrikes: There were quite a number of positive activities during the year. Our shareholders can be pleased with an increase of just over 20 percent in the share price. We made two profitable cigar acquisitions and sales of our US snuff increased substantially during the year. In Scandinavia, we were able to increase our profit level, despite significant tax increases for snus, and we divested our office property in Stockholm at a favorable price.
What is Swedish Match’s strategy for the future?
SH: Our goal has been the same for many years and we will continue with the same long-term strategy, which comprises four parts: organic growth, acquisitions/divestments, productivity improvements and financial strategy. Naturally, the importance of, and the investments made in, the various strategic areas have varied over the years. We are currently focusing on organic growth and acquisitions.
What does the strategy imply?
Conny Karlsson: All parts of the strategy are aimed at profitability and growth. With respect to organic growth, it involves building markets and gaining complete control over our own growth. Acquisitions are made to supplement the operations with profitable growth, while the parts of the operations that are no longer important to the business are divested. Productivity improvements mean guaranteeing that deliveries are as efficient as possible and ensuring that the best methods are used at all levels. In short, the financial strategy involves using the balance sheet as efficiently as possible. By minimizing capital costs, we can motivate growth projects and provide the right value to
shareholders, which will increase our competitiveness.
Within which areas is Swedish Match most successful?
CK: The most successful product areas are snus, snuff and cigars. With its strategy for organic growth, Swedish Match has demonstrated a strong ability to attract new snus consumers by developing the market, primarily in Scandinavia. We now need to utilize our strong position in the US snuff market to create market growth in the same way. In the cigar field, we have developed our position as global number two by concentrating on profitable acquisitions.
What are the priorities for 2008?
SH: Activities include continuing the effort that commenced in 2007 to strengthen the sales and marketing organization. This is a prerequisite for creating a better basis for long-
term growth. It is also vital that we maintain a high speed of product development and new product launches. In this area, we will focus on certain selected, strong brands. High on the priority list is also a successful launch of the new Red Man snuff.
What generates growth?
CK: Growth begins here and now, every day, through product development, consumer insight and by defining test markets. In the short term, Swedish Match’s greatest potential for growth is to focus on the market for US snuff. In the medium term, it involves creating new markets for snus and developing the market for premium cigars. And, long term, it is about creating new products and new markets.
Are we a tobacco company or a consumer products company?
SH: What distinguishes us from other
consumer products companies is that we face entirely different regulations and tax issues that other consumer products do not have to contend with. But we have things to learn from companies within fast-moving consumer products: innovativeness, investment in product development, focus on global brands, significant investments in marketing, niche approach, price segmentation and so forth. We must select the best parts and apply them to our tobacco categories.
CK: We decide ourselves how to define Swedish Match as a company. We do have products that are not tobacco products, and I believe that it can be positive to start thinking along different lines, should we decide that Swedish Match is a consumer products company. Swedish Match shares many conditions with other
consumer products companies; for example, our consumers and competitors never stand still. Consequently, we must continuously strive to build and develop our markets, be best in class in terms of product development, understand our consumers better than others and continuously exceed consumer expectations, precisely as with other consumer products companies.
What are Swedish Match’s primary strengths?
CK: Swedish Match has unique knowledge in the field of snus, snuff and cigars. I would also like to emphasize our strong sales culture and excellent ability to understand customers and consumers.
SH: By far our greatest asset is all our competent, focused and loyal employees in all countries. We have a well-defined and planned strategy
SVEN HINDRIKES ON:
ORGANIC GROWTH
Organic growth entails increasing our sales, primarily in our core areas of snus, snuff and cigars. We must also utilize all opportunities to increase sales in other product areas in various markets. Since we have declining volumes in certain markets for some of our tobacco products, organic growth is a key part of the strategy.
ACQUISITION/DIVESTMENT
Acquisition/divestment is the part of the strategy that has generated the most value for our shareholders. It was a major strategic decision when we divested the cigarette operations in 1999. They no longer fitted into the Group structure, considering the demands we placed on profitable growth, and the sale also released capital that was used to acquire cigar operations in the US, in both the premium cigars and the machine-made cigars segments. Our entire US cigar operation is currently based on acquisitions, and the same applies to the pipe tobacco operation in South Africa. During 2007, we acquired two companies, Cigars International in the US and Bogaert Cigars in Belgium, both with operations in product segments that are demonstrating strong growth.
PRODUCTIVITY IMPROVEMENTS
Productivity means that each employee, over the years, must produce more and more. To achieve that goal, the number of employees can be reduced or sales can be increased, or a combination of both. An example of a productivity-enhancing activity was when we closed the cigar plant in Overpelt, Belgium. We have also closed plants for hand-rolled cigars in Florida and Jamaica. Within the match operations, we have closed plants in Spain and Turkey. We have also relocated production units; for example, the production of pipe tobacco in South Africa, where the unit in Rustenburg was integrated into the modern plant in Boksburg.
FINANCIAL STRATEGY
The financial strategy is based on the principle of not utilizing more capital than necessary, and to always optimize the balance sheet. We continuously distribute surplus funds to shareholders in the form of dividends and the repurchase of own shares. Between the years 1998-2007, we repurchased approximately 45 percent of the number of shares outstanding in Swedish Match. The share buyback program is long-term and will continue in the years ahead. In parallel with this, we will reinvest in our operations to create the conditions for continued expansion and organic growth.
We maintain high speed
within product development and new launches.
