Pipe tobacco and Accessories
Improved profitability
Swedish Match is one of the world’s largest producers of pipe tobacco, with strong local and international brands in many countries.
While consumption of pipe tobacco is declining in most markets, this trend is most pronounced in Europe and the US. The South African market, a very important market for Swedish Match, is also declining somewhat. In other parts of the world, consumption of pipe tobacco is relatively stable.
Sales and earnings
Sales for the year amounted to 899 MSEK (920). Lower volumes were offset by improved price levels. Operating profit amounted to 261 MSEK (237) and the operating margin was 29.0 percent (25.8).
Market
Global consumption of pipe tobacco is declining, in terms of both volumes and sales. The largest markets for pipe tobacco are North America and Europe, where consumption typically declines at low double digit levels. South Africa, where Swedish Match holds a leading position, is an important market for Swedish Match. In Asia and parts of Eastern Europe, where the use of pipe tobacco is relatively limited, growth in consumer purchasing power and product availability has resulted in steady or increasing volumes.
Nine producers account for about three-fourths of global pipe tobacco production. Many manufacturers also produce other tobacco products for the local or international markets. Competitors include MacBaren, Middleton, Lane (Reynolds American), Imperial and Altadis. Most of Swedish Match’s brands are local, including Boxer, and Best Blend in South Africa, and Half and Half in the US. In Europe and many other markets, Borkum Riff is one of the leading brands.
Europe
Swedish Match markets its pipe tobacco products throughout Europe, with its strongest positions in Sweden, Austria, Spain and Switzerland. Consumption in Europe typically declines by 10 percent or more per year. The Group outsources its production for the European market to MacBaren, a Danish company that also produces other tobacco products. Pipe tobacco is sold mainly through tobacconists’ stores, as well as convenience stores and supermarkets. Borkum Riff is one of the Company’s best known brands in Europe. In the accessories segment in the UK, Swedish Match has a leading position in cigarette filters.
North America
Consumption of pipe tobacco in North America declined by an estimated 13 percent* during 2006. Swedish Match’s market share in terms of volume is stable at about 16 percent. Pipe tobacco for the US market is mainly produced at the Owensboro plant in Kentucky, with some pipe tobacco imported from Europe. Competitors include Lane (Reynolds American), Middleton and Altadis. The largest manufacturers account for a combined market share of about 75 percent*. Half and Half and Borkum Riff are two of the Company’s best selling pipe tobacco brands. Pipe tobacco is sold mainly through drugstores, supermarkets, convenience stores, low-price outlets and specialty tobacco stores in the US.
* Source: ACNielsen
| Production units |
| South Africa and US. |
| Main brands |
| Borkum Riff, Half and Half, Best Blend, Boxer, Black & White, Nineteen O’Four and Greve Gilbert Hamiltons Blandning. |
| Key data, MSEK |
2006 |
2005 |
2004 |
| Sales |
899 |
920 |
901 |
| Operating profit |
261 |
237 |
254 |
| Operating margin, % |
29 |
26 |
28 |
| Investments in property, |
|
|
|
| plant and equipment |
23 |
20 |
28 |
| Average operating capital |
950 |
1,013 |
1,043 |
| Average number of |
|
|
|
| employees |
457 |
524 |
527 |
South Africa
Swedish Match is the largest player and distributor in South Africa, and brands sold by the Group include Boxer, Best Blend, Nineteen O’Four, Black and White, and Giraffe. Pipe tobacco is available in most outlets that sell tobacco products. Consumption of pipe tobacco in South Africa declined by approximately 4 percent in volume during 2006, following a decline of about 10 percent in 2005.
Other markets
Swedish Match has only a marginal presence in pipe tobacco outside its main markets. Australia and Asia are two of these markets, and Borkum Riff is the leading pipe tobacco brand in Australia.
Outlook
The market for pipe tobacco is expected to continue to decline. However, profitability for the product area is strong, and cash flow from pipe tobacco operations is expected to remain strong in the years ahead.
Consolidated Income Statement
