“Our employees have an exceptional ability
to embrace change and promote a culture of
openness and trust”.
Swedish Match competes in a dynamic and ever changing environment, and continually works to adjust and adapt in order to better position itself for the future. Our vision is clear – Swedish Match, as the global smokefree leader, will proactively adapt changing conditions in the marketplace, delivering outstanding value and quality, with trusted and well known brands, delivering products that consumers desire. As a leading manufacturer of Other tobacco products (mass market cigars and chewing tobacco) on the US market, we will continue to drive operational excellence, and explore and develop new varieties and products to meet the changes in consumer demand. For Lights, we will continue to search for ways to deliver high quality in the most efficient and sustainable ways possible. The Swedish Match that ended the year was a leaner and more efficient organization, better adapted to grow and develop in line with its vision. Swedish Match has strong partnerships and excellent prospects ahead.
We have built on our strengths, and improved our likelihood of success, by partnering up with two world class organizations. Through our joint venture with Philip Morris International (PMI), we will now be able to more effectively explore opportunities for snus outside of Scandinavia and the US. While this should be viewed as a long term process, the joint venture has begun tests and small launches of snus products in both Taiwan and Canada. Swedish Match has, since October 2010, held a 49 percent ownership of Scandinavian Tobacco Group (STG) as a result of Swedish Match contributing its US premium cigars, machine made cigars outside of the US, and its pipe tobacco businesses to the new STG. The old STG contributed its tobacco products businesses (machine made cigars, pipe tobacco, and fine cut tobacco). The resulting business has world leading positions in pipe tobacco and cigars.
These arrangements provide us with greater opportunities for growth of our smokefree and other tobacco products throughout the world.
The year in brief
During the year, much focus and effort were devoted to the completion of the STG transaction on October 1. With the creation of the new STG, approximately 6,500 former Swedish Match employees engaged in the manufacturing, selling and marketing of premium cigars, machine made cigars and pipe tobacco left Swedish Match to join a truly global and leading player in pipe tobacco and cigars.
At the same time, we stayed close to our remaining businesses and excluding the business transferred to STG, sales grew in both local currency terms and in Swedish kronor for all product areas. Operating profit growth was also solid, growing by 12 percent in local currency and 9 percent in Swedish kronor. At the new STG, integration work has come off to a quick start with several structural measures already implemented. With restructuring charges the reported share of net loss from STG for the period October to December when Swedish Match owned 49 percent was 60 MSEK.
Basic earnings per share reached 13.12 SEK, up 36 percent from the previous year. For 2010 the proposed dividend will be 5.50 SEK, an increase of 16 percent. The Company bought back 17.0 million shares as part of its ongoing share repurchase program.
During 2010 the two most important markets for snus and snuff, Scandinavia and the US, were going through very different competitive dynamics. In Scandinavia, the overall market continued to grow, while Swedish Match market shares in those markets were relatively stable, an improvement from previous years when share declines were more pronounced. The Norwegian market grew by approximately 8 percent in volume terms during the year, while on the more mature Swedish market growth was lower. In the US, taxation, new FDA regulation, and new low priced competition caused disruption in traditional trends, but the result was that the US moist snuff market grew at a faster rate, and consumption of Swedish Match products increased.1) For snus outside of Scandinavia, we have established a good platform for future growth of our snus products under the General brand, a brand recognized for its quality and authenticity. In the US, while still available in a relatively limited number of stores, the number continues to grow, and the General brand sells well wherever it is available. Outside of Scandinavia and the US, the joint venture SMPM International began to conduct tests and small launches of its concepts in Taiwan and Canada.
For Other tobacco products, we successfully converted almost our entire portfolio of US mass market cigars to have FoilFreshTM packaging, ensuring highest quality freshness for our products. This, combined with the launch of White Owl Sweets cigars, enabled the Company to significantly improve its competitive position in the marketplace. The chewing tobacco category continued to decline but manufacturing efficiencies aided by our co-pack agreement with National Tobacco, pricing and market share gains allowed us to sustain strong profitability.
Our lights businesses are highly efficient, continue to generate solid results, and are highly cash generative.
During the year, a great deal of emphasis has been made on improving our dialogue with our major stakeholders, and working to better communicate on issues relevant to them. With this year’s annual report, we begin the process of reporting along the guidelines of the GRI (Global Reporting Initiative), which helps to provide structure and clarity in communication of our sustainability efforts.
What the future brings
Today, Swedish Match has the people, products, and systems in place which will allow the Company to continue to grow and develop along with the trends and desires of adult tobacco consumers. Our employees have an exceptional ability to embrace change and promote a culture of openness and trust. Swedish Match will continue to leverage its leadership in snus and effectively compete in the snus and moist snuff markets in Scandinavia and the US, while exploring opportunities in other markets through the SMPM International joint venture. We will work to build on recent successes in US machine made cigars and leverage the strong platform in chewing tobacco by focusing on productivity and sound pricing strategies. We will continue to strive for ongoing operational excellence in our Lights businesses, developing our brands and constantly focus on productivity. We will actively manage our minority holding of STG to realize the full potential of the new company. We will continue to return cash not needed by the business to our shareholders through share repurchases and dividends. At the upcoming Annual General Meeting of shareholders, the Board of Directors will propose both an increased dividend, to 5.50 per share, and a continuation of the Swedish Match share repurchase program.
To all the former Swedish Match employees who joined the new STG on October 1, I would like to express my sincere gratitude for the dedication, hard work, and outstanding contribution to Swedish Match throughout the years. To all remaining employees, the 3,900 men and women, who are the heart and soul of Swedish Match, I would like to extend my deepest admiration for their devotion and hard work, day in and day out to deliver some of the best products available anywhere. I am convinced that their continued work and devotion will be the driving force in delivering value to our customers, our consumers, and to you, our shareholders.
Stockholm, March, 2011
Lars Dahlgren
President and CEO
1) Source: Nielsen YTD December 25, 2010.
Source: Swedish Match Annual report 2010