Cigars
New products drive higher sales
Swedish Match is the world’s second largest cigar manufacturer in terms of sales. The US is the most important cigar market for Swedish Match, accounting for two-thirds of the Company’s total cigar sales.
During 2006 Swedish Match reaped the benefits of its efforts to streamline its cigar businesses, while continuing to offer a broad range of new products adapted to local demands. The integration of the General Cigars premium cigar business into the Swedish Match North America structure was completed, and profitability improved significantly. During 2006, cigarillos and little cigars became more popular than in previous years, likely due to market and pricing dynamics, while there was growing interest in aromatic cigars in Europe, and natural leaf cigars in the US mass market segment.
Sales and earnings
Sales for the year increased by 4 percent to 3,407 MSEK (3,283). In local currency, sales increased by 5 percent. Operating profit for the year increased by 22 percent to 747 MSEK (613). The operating margin amounted to 21.9 percent (18.7). Excluding costs of 75 MSEK relating to the integration of General Cigar during 2005, operating profit increased by 9 percent, and the operating margin improved to 21.9 percent (21.0). Strong sales, driven by successful product launches, and lower costs were the main reasons for the increase in underlying operating profit.
Market
Swedish Match estimates the global market at about 15 billion cigars. North America and Western Europe are the two largest markets, accounting for more than 90 percent of global cigar sales, according to industry estimates. Presently, Asia accounts for less than 10 percent of global cigar sales, while Eastern Europe and Africa/ the Middle East account for a limited share of the global market. Handmade cigars account for less than 3 percent of global volume. These premium cigars are produced mainly in Latin America and the Caribbean, and account for more than 25 percent of the global market’s total sales value, according to Swedish Match estimates. Two-thirds of premium cigars are sold in the US. Spain, France and the UK are also important markets. Machine made cigars account for most of the world cigar volume.
The market for machine made cigars in the US is estimated at more than 7 billion cigars, while the European market is estimated to be approximately 6 billion cigars. The premium hand made cigar market in the US is estimated by Swedish Match to be more than 300 million cigars.
Some of the Group’s best known brands are Macanudo, La Paz, Willem II, Garcia y Vega, and White Owl. The US accounted for 63 percent of Swedish Match’s cigar sales in 2006.
Swedish Match produces cigars in Houthalen (Belgium), Pandaan (Indonesia), Santiago (Dominican Republic), Danli and Confradia (Honduras) and Dothan, Alabama (USA).
The Group owns tobacco plantations in the Dominican Republic and in Connecticut, in the US. Swedish Match also owns 40 percent of Arnold André, a German company with production units in Bünde and Königslutter.
North America, premium cigars
The North American market for premium cigars grew modestly during 2006. Swedish Match holds the leading position in the US premium cigar market, with approximately 35 percent market share in volume terms, by Swedish Match estimates. Other major competitors include Altadis, Fuente and Davidoff. Premium cigars accounted for 37 percent of the Group’s total cigar sales in 2006. The leading brand in the US is Macanudo, produced in the Dominican Republic by Swedish Match. This brand family includes a broad range of handmade Dominican cigars in different shapes and sizes, and with various characteristics, often sold in fine tobacconist shops. Other major cigar brands from Honduras and the Dominican Republic include Partagas, Punch, Hoyo de Monterrey, Cohiba, La Gloria Cubana, Don Tomas and Helix. A number of new cigar varieties were introduced under these brands during 2006, including Partagas 160, a collectible celebratory cigar.
North America, machine made cigars
The US market for machine made cigars has grown by 1-3 percent annually over the past decade in terms of volume, corresponding largely with demographic trends. During 2006, the machine made cigar market grew by 6.1 percent*. Flavored cigars have shown the strongest growth during recent years, but growth in this segment has recently been replaced by increased demand for little and natural leaf cigars.
Altadis, Swisher and Middleton are the major competitors to Swedish Match on the US market. Swedish Match’s market share by volume is close to 7 percent*. In the US, manufacturers typically introduce
*Source: ACNielsen
| Production units |
| Belgium, Dominican Republic, Honduras, Indonesia and US. |
| Main brands |
| La Paz, Willem II, Hajenius, Oud Kampen, Bellman, White Owl, Garcia y Vega, Macanudo, Cohiba (US), and Partagas (US). |
| Key data, MSEK |
2006 |
2005 |
2004 |
| Sales |
3,407 |
3,283 |
3,171 |
| Operating profit |
747 |
613 |
567 |
| Operating margin, % |
22 |
19 |
18 |
| Investments in property, |
|
|
|
| plant and equipment |
90 |
90 |
128 |
| Average operating |
|
|
|
| capital |
4,734 |
4,596 |
4,441 |
| Average number of |
|
|
|
| employees |
8,915 |
8,529 |
7,781 |
Consolidated Income Statement
