Focus on growth potential at 2006 AGM
Swedish Match´s Annual General Meeting opened to music from Dalarna accompanied by a slide presentation portraying Swedish Match products in appealing environments. For Dalarna native Sven Hindrikes, this year´s AGM was his third as President, related Board Chairman Bernt Magnusson from the podium. Ingemar Mundebo, former Finance Minister and Director General of the National Audit Bureau, was elected as Chairman of the Meeting for the tenth and last consecutive year, since he now plans to reduce his AGM involvement.
As usual, the Meeting was well-attended. More than 300 shareholders had gathered to listen to the President´s annual AGM address and to express their views on the proposals presented to the Meeting by the Board.
Bernt Magnusson delivered a report on the Board´s work during 2005 and its tasks. He noted that parts of the Board´s work are delegated to committees, but that the Board is always responsible for the work performed and the decisions made in committees. He also referred to the increased governance and supervisory function exercised by the Board.
"While it is a good thing to tighten up governance and supervision of the company, this function should not be allowed to distract too much attention from the company´s development issues," he said.
Jan Blomberg, Chairman of the Audit Committee, reported on the Committee´s work. The head auditor for 2005, Thomas Thiel from KPMG, proposed that the Meeting discharge the Board members and the President from liability for fiscal year 2005, and the motion was passed. He also reported on the new IFRS reporting standards adopted by the European Commission.
"With the introduction of IFRS, all 7,000 listed companies in the EU are subject to the same rules, resulting in better comparability and a better basis for investment decisions," said Blomberg.
The Meeting approved all the motions proposed by the Board, including raising the dividend from 1.90 SEK to 2.10 SEK, extending the mandate to buy back up to 10 percent of the shares outstanding, and the cancellation of 24 million repurchased shares. The shares to be canceled were repurchased by the company in accordance with mandates from previous AGMs.
Lars-Erik Forsgårdh, President of the Swedish Association of Share Investors, congratulated Swedish Match and its employees on the excellent results for 2005, while also directing questions to the Board of Directors on two points: Swedish Match´s growth strategy and its strategy for returning funds to shareholders.
He was critical of the company´s lack of sales growth over the past five years and wondered what growth strategies the Board actually has and what strategies have already been abandoned. Forsgårdh also expressed dissatisfaction regarding the company´s dividend, maintaining that the Board prioritizes share buybacks at the expense of the dividend to favor the large institutional shareholders.
In response to the question about growth strategy, Bernt Magnusson conceded that the lack of growth is by far the company´s most serious problem and is attributable to external factors. He pointed out that Swedish Match operates in a hostile world and that sales of lighters and matches are dependent on cigarette consumption, which is declining, and that the company essentially has two product groups that are growing - moist snuff and cigars. Furthermore, the market is highly consolidated, with fewer companies controlling large market shares, with the result that mergers and acquisitions are often blocked by the authorities to prevent individual companies from gaining a dominant position in the market.
"The Board continuously assesses whether it is better to implement acquisitions or buybacks, and we do not intend to acquire companies at all costs. Few acquisition opportunities arise, but those that do are examined on an ongoing basis," said Magnusson.
Sven Hindrikes replied to the criticism regarding share buybacks.
"Swedish Match has always had a generous attitude to the transfer of funds to shareholders. We listen to our shareholders and heed their wishes. Foreign shareholders, in particular, favor buybacks, partly for tax reasons. But this does not exclude the possibility of higher dividends in the future."
The Meeting reelected Board members Bernt Magnusson (Chairman), Tuve Johannesson, Arne Jurbrant, Meg Tivéus, Karsten Slotte, Kersti Strandqvist and Sven Hindrikes, and newly elected Andrew Cripps and Conny Karlsson. Jan Blomberg, who had decided to leave the Board after serving on it for ten years, was thanked for his contribution by the Chairman during the Meeting. The Board was enlarged by one person, given that two persons were newly elected while one member vacated his seat.
Shareholder Bengt Wernersson wondered whether the operating margin for snus could be expected to remain at the same high level in the future, in view of the competitive situation in Sweden, and whether the company would be continuing its efforts to get the EU’s oral-snuff ban lifted. Bo Aulin, General Counsel and Head of Corporate Affairs, explained that the EU snuff ban can now only be removed by political means, and that the company is naturally trying to steer developments in that direction.
Sven Hindrikes confirmed that competition had increased and said the company was working to retain and defend its market position, partly by launching new products.
Bernt Magnusson is also Chairman of the Board´s Remuneration Committee, which handles issues relating to the remuneration paid to the President and his closest colleagues, as well as more general pay issues. Magnusson noted that the Committee had held six meetings during the year and had had extensive informal contact between meetings. He presented the Committee´s proposal, which was adopted by the Meeting. The Meeting resolved to permit the company to issue a maximum of 723,333 call options, to a total value of not more than 9.5 MSEK, which corresponds to the value of the options allotted via the company’s options program for 2005. The Meeting also resolved to introduce an options program for senior executives for 2006. Lars-Erik Forsgårdh maintained that options programs and share buybacks were an unfortunate combination, since buybacks drive up the share price. Magnusson responded that this drawback was partly eliminated by the fact that the requirements attached to allotment had been changed for the 2006 options program. The requirement for an increase in earnings per share had been replaced by the requirement that the Group´s net earnings should have increased and be higher than the preceding year´s earnings.
The Meeting also resolved that shareholders with fewer than 200 shares should be offered the chance to sell their entire holdings in the company without a brokerage fee, and that the Board should be assigned the task of formulating the detailed conditions for such an offer. The background to this decision is that there are 56,000 shareholders with fewer than 200 shares, and that it costs the company more than 14 MSEK per year to provide these shareholders with information. Sven Hindrikes emphasized that any sales of shares through such a scheme would naturally be voluntary and represent a service to shareholders.