promotion may, however, make it more difficult to counteract loss of consumer loyalty. Competitors may develop and promote new products which could be successful, and could thereby have an adverse effect on Swedish Match’s results of operations.
Swedish Match has a substantial part of its production and sales in EMU member countries as well as 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.
Regulatory and fiscal changes in the countries where the Group is operating related to tobacco and other taxes as well as to the marketing, sale and consumption of tobacco products may have an adverse effect on Swedish Match’s results of operations.
For a further description of risk factors affecting Swedish Match, see Report of the Board of Directors in the published Swedish Match Annual Report for 2007.
Outlook for 2008
The outlook presented in the interim report for the first quarter of 2008 remains valid with the exception of the tax rate.
For the full year we expect both sales and underlying operating profit to exceed the levels in 2007, driven primarily by a strong performance in the snuff/snus product area. We expect the Scandinavian snus business to continue to deliver strong results for the remainder of the year, and in the US we expect further market share gains and volume growth.
As expected, the cigar business performed better in the second quarter than in the first, and in the US we see room for some further improvement for the remainder of the year.
The revised estimate for the full year tax rate is 18 percent (previous guidance around 20 percent), due to a number of factors including items of temporary nature and a weak USD exchange rate.
Potential change to the Swedish income tax legislation
On June 24, 2008 the Swedish Ministry of Finance submitted for comments a proposal from the tax authorities that would severely limit the tax deductibility of interest expenses on intra-group loans in Sweden effective 2009. In the proposal the tax authorities also mentioned that the resulting additional tax revenue could be used to finance a general lowering of the Swedish corporate income tax rate, currently at 28 percent. Most initial comments in the media to the proposal have been negative as the proposal affects normal business transactions.
If the tax legislation were to be changed based on the proposal from the tax authorities, Swedish Match estimates that the tax rate may rise to around 25 percent in 2009. This estimate is uncertain both with respect to the amount of additional income tax Swedish Match would have to pay as well as the timing of a possible change to the legislation.
Accounting principles
The financial information in this 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 are the same as in the 2007 Annual Report. The financial reporting of the Parent company has been prepared in accordance with the Annual Accounts Act and RFR 2.1 Reporting for legal entities.
Forward-looking information
This report contains forward-looking information based on the current expectation of the Swedish Match Group’s management. Although management deems that the expectations presented by such forward-looking information are reasonable, no guarantee can be given that these expectations will prove correct. Accordingly, the actual future outcome could vary considerably compared to what is stated in the forward-looking information, due to such factors as changed conditions regarding business cycles, market and competition, changes in legal requirements and other political measures, and fluctuation in exchange rates.
Additional information
This report has not been reviewed by the Company’s auditors. The January-September 2008 report will be released on October 29.
The Board of Directors and the CEO declare that 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.
| Stockholm, July 18, 2008 |
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| Conny Karlsson |
Andrew Cripps |
Charles A. Blixt |
Kenneth Ek |
| Chairman |
Deputy Chairman |
Board member |
Board member |
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| Karen Guerra |
Arne Jurbrant |
Eva Larsson |
Joakim Lindström |
| Board member |
Board member |
Board member |
Board member |
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| Kersti Strandqvist |
Meg Tiveus |
Lars Dahlgren |
| Board member |
Board member |
President and CEO |
| The character of the information in this report is such that it shall be disclosed by Swedish Match AB (publ) in accordance with |
| the Swedish Securities Markets Act. The information was disclosed to the media on July 18, 2008 at 08.00 a.m (CET). |
Consolidated Income Statement in summary
