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Product area
Snuff/Snus
Sweden is the world’s largest snuff market measured by per capita consumption. A substantially larger proportion of the male population uses the Swedish type of moist snuff called snus* compared to cigarettes. The Norwegian market is significantly smaller than the Swedish market but in recent years has experienced solid volume growth. The US is the world’s largest snuff market measured in number of cans and is approximately six times larger than the Swedish market. In Sweden and Norway, Swedish Match has a leading position. In the US, the Group is well positioned as the third largest player. Some of the best known brands include General, Ettan, and Grov in Sweden, Timber Wolf and Longhorn in the US. In 2007, the Company launched a snuff line extension under its well known Red Man brand in the US market.
During the second quarter, sales increased by 20 percent compared to the same quarter of the previous year, to 953 MSEK (794), and operating profit increased by 32 percent, to 410 MSEK (311). Currency translation impacts have affected the sales and operating profit comparison negatively. Operating profit improved significantly in the Scandinavian snus business.
The operating margin in Scandinavia improved. In the US, the operating margin was lower than last year’s second quarter due to continued substantial marketing costs related to the national roll-out of Red Man moist snuff. The operating margin for the total product group was 43.0 percent (39.1).
In Scandinavia, sales volumes measured in number of cans, were down by 2 percent during the second quarter compared to the previous year. Excluding hoarding effects in 2007 and 2008, sales volumes are estimated to have declined by somewhat less than 5 percent.
Sales and operating profit in Scandinavia increased as strong volume growth in Norway and tax-free channels and improved price levels more than offset the volume decline in the Swedish market.
In the US, sales volumes during the second quarter were up by 21 percent compared to the same period in the previous year. Volumes for Longhorn and Timber Wolf combined were up by 8 percent. The national roll-out of the Red Man brand continued, which contributed significantly to the volume increase. The Red Man launch is being supported by extensive marketing programs. At the beginning of the year, the Triumph brand of Swedish style snus was launched in a test market in Ohio as part of the joint venture with Lorillard. The product is currently available in most outlets that sell tobacco products in the state.
For the first six months of the year, sales increased to 1,774 MSEK (1,457) and operating profit increased to 728 MSEK (541). Operating margin was 41.1 percent (37.2).
KEY DATA January–June Full year
MSEK 2008 2007 2007
Sales 1,774 1,457 3,289
Operating profit 728 541 1,366
Operating margin, % 41.1 37.2 41.5
* Swedish snus is moist snuff which is produced using a special heat treated process, much like pasteurization, as opposed to other snuff products for which a fermentation process is used.
Product area
Cigars
Swedish Match is one of the world’s largest producers of cigars and cigarillos. Swedish Match offers a full range of different cigars and brands. Well known brands include Macanudo, La Gloria Cubana, White Owl, Garcia y Vega, La Paz, Hajenius, Hollandia, Justus van Maurik, Willem II, and Salsa. The US is the largest cigar market in the world. Swedish Match has a leading position in the premium segment and is well established in the segment for machine made cigars. After the US, the most important cigar markets are in Europe, where Swedish Match is well represented in most countries. The largest markets for Swedish Match in sales terms in Europe are France, Benelux, Finland and Spain.
During the second quarter, sales were 908 MSEK (847), and operating profit amounted to 184 MSEK (193). Currency translation has affected the comparisons for both sales and operating profit negatively. In local currencies, sales in the second quarter increased by 16 percent compared to the same period of the previous year, while operating profit increased by 4 percent. Operating margin was 20.3 percent (22.7).
During the second quarter, US premium cigar volumes started to return to more normal levels, but were still below the level of the previous year (excluding acquisitions). Sales in local currencies (excluding acquisitions) were down approximately 10 percent in part due to the lower shipments, and in part due to mix shifts toward smaller and less expensive cigars. In the US, Cigars International, acquired in September 2007, has shown a strong performance.
Sales of mass market cigars in the US were down approximately 4 percent in local currency during the second quarter versus previous year, while operating income was stable. Volume declines were offset by price increases, some mix improvements and lower costs.
Cigar sales in Europe increased as a result of the Bogaert acquisition in June 2007. Excluding the impact of the Bogaert acquisition, sales and profits were lower due to difficult market conditions in some countries. In the Netherlands a smoking ban in all bars and restaurants was introduced effective July 1 which has impacted shipments during the period. Including the Bogaert acquisition, operating profit remained flat compared to the same period previous year.
For cigars in total, sales for the first six months amounted to 1,665 MSEK (1,581), while operating profit was 296 MSEK (357). In local currencies sales increased by 13 percent versus the previous year, while operating profit declined by 11 percent.
KEY DATA January–June Full year
MSEK 2008 2007 2007
Sales 1,665 1,581 3,411
Operating profit 296 357 737
Operating margin, % 17.8 22.6 21.6