ArticleMar 7, 2007
2006 our best year to date - Interview with Sven Hindrikes, President
2006 was the best ever for
Swedish Match. Earnings reached
a record level, and the Group
strengthened its market position
as one of the leading companies
in niche tobacco products. This
success reflects the strength of
our strategy. We enhance our
competitiveness by focusing on
organic growth for snuff and
cigars, and we work actively with
acquisitions and productivity
improvements. The long-term
outlook for Swedish Match
continues to be positive.
Which area of operations have been most successful?
All areas of operation showed strong results
during the year. The highly favorable margins
we achieved in the lights (matches and lighters)
product area were especially pleasing. Historically,
this product area has shown weak
profitability. We now see the positive effect of
the extensive restructuring we have carried out
during the past two years, with rationalizations
in production and divestments.
How has the doubling of the tobacco tax affected operations?
During December, we noted active hoarding
on the part of both the retail sector and
consumers, which increased our sales of snus
for the quarter. We naturally expect to see a
corresponding decline in sales during the first
quarter of 2007. The tax increase will probably
also lead to a slowdown of consumption
during the first half of the year. Thereafter, we
believe that consumption will recover to the
volume figures that we had prior to the tax
increase.
Why do you distribute so much money to shareholders through share buybacks?
Our strong cash flow has enabled us to focus
strongly on repurchasing shares during the
year. If we include the dividend, we transferred
approximately 4.3 billion SEK to shareholders
during the year. Our share buyback program
is a means to ensure an efficient capital structure
with reasonably large loans in the balance
sheet. Moreover, as the number of shares decreases, earnings per share increase, which
in turn can lead to a higher share price. We
have a clearly defined financial strategy that
ensures that no more capital than necessary is
used in operations.
Do you have any money for acquisitions?
Of course. We maintain a balance whereby
we always have the financial capacity to make
profitable acquisitions that complement our
operations. During the year, we acquired
two well-known brands, Hajenius and Oud
Kampen, that both have strong positions in
the Dutch market. In 2005, we acquired the
remaining minority share in General Cigar
for 155 MUSD. This operation has now been
integrated into Swedish Match, resulting in
substantial cost synergies, which were fully
realized during the second half of 2006.
Where will the company´s future growth come from?
Our potential for growth lies in the product
areas moist snuff and cigars, which currently
account for 75 percent of consolidated earnings.
Our strategy in these areas is to actively
work with product development, new product
launches, new flavors and new formats, as well
as various forms of brand expansion.
But let us not forget other product areas,
which are expected to generate favorable
profit and cash flow for many years to come.
These products are positioned in product categories
that are not growing. I am thinking, for
example, of chewing tobacco in the US, where
volumes are declining by 5-7 percent annually,
but where our market share is 44 percent, enabling
us to continue making a healthy profit
despite the absence of growth.
What are your priorities for 2007?
We are currently making a number of changes
in the organization with the aim of creating
better conditions for organic growth. We plan
to strengthen our organization with more
competence and increased resources, while
simultaneously directing a more focused effort
to creating growth.
The aim for moist snuff is to increase our
market share in the US during the next few
years. In Sweden, it is a matter of defending
our market share, which is currently around
90 percent.
In addition, as the market leader, we aim to
work actively to ensure that the total market
for snus in Sweden continues to grow. At the
same time, we intend to gain a foothold in a
number of new markets.
We also propose to implement one or two
complementary cigar acquisitions during the year.
We plan to divest the head-office property
in Stockholm, which will release funds that we
can invest in operations.
Continuous improvements in productivity
and cost-efficiency are activities that run like a
thread through all of Swedish Match’s operations,
and this will continue during 2007. We
will also continue to relocate some production
to Asia.