News; Jun 24, 2002 CET

Successful start to 2002

Swedish Match had a good start in 2002. Despite continued weak economic conditions, sales during the first three months of the year rose 8 percent to 3,317 MSEK. Operating income increased even more sharply, rising 23 percent to 605 MSEK, and earnings per share were up a full 28 percent to SEK 1.02. »We are pleased with the strong increase in volumes for snuff in Northern Europe and the US, and improved margins for both smokeless tobacco and cigars,« notes Sven Hindrikes, Group CFO.

Historically, the first quarter is not usually one of Swedish Match stronger periods of the year. In addition, the expected turnaround in the economy has been pushed further into the future. Against this background, the Group continued to perform successfully during the first quarter of 2002. And the stock market has clearly shown its appreciation of the Group?s strategies and performance. The Swedish Match share has been the strongest performer among the most heavily traded shares on Stockholmsbn (the Stockholm Exchange). The increase in the share price during the current year up to April 20 was 37 percent.

»The first quarter was good in many ways,« says Sven Hindrikes. »Organic growth has remained strong in a total tobacco market otherwise characterized by stagnation. Growth of 6 percent is somewhat lower than growth in 2001, but still unusual for most sectors of industry in these difficult times. In addition, we were also able to improve the Group?s operating margin by more than two percentage points to 18.2 percent, the highest margin we have reported since 1998.«

ONE OF THE MAIN DRIVING forces behind the continued positive trend has been the strong expansion of snuff operations. The operating margin increased sharply after a period of decline, and has now reached 43.2 percent. Operating income also rose sharply, up 36 percent. The strong improvement is attributable to better volumes, price and mix changes and slightly lower marketing costs.

Sales of snuff rose in both main markets. Sales in Northern Europe increased by 10 percent and sales in the US rose 15 percent, calculated in the number of cans sold.

»In the US, we have gone from zero to a market share of 9 percent over a period of seven years,« notes Sven Hindrikes. »Our market share increased by 0.9 percent during 2001. The figures reflect our success with the Timber Wolf brand and prove that a long-term business approach generates rewards. Our investment in Sequoia, a quality snuff for the premium market, is continuing.

THE GROUP'S OTHER LARGE product area is cigars. Swedish Match markets a broad product portfolio in all parts of the world and, in terms of sales value, the Group is the second largest cigar manufacturing company in the world. During the first quarter of 2002, sales rose 4 percent to 778 MSEK as a result of favorable currency effects. Operating income increased 21 percent to 122 MSEK.

»After a period of relatively strong growth in demand for machine-made cigars, particularly in the US, we are now experiencing a slowdown. Premium cigars showed a slightly lower volume, compared with the first quarter of 2001, probably an effect of tougher times for consumers. However, as a result of continued cost reductions and certain price increases, we were able to report a favorable trend in terms of profit and margins, « explains Sven Hindrikes.

MATCHES WERE THE GROUP'S trump card during the first quarter of 2002. After a few years of weak growth, Matches underwent a restructuring and efficiency- enhancement program during the period 1999?2001 that has led to a strong improvement in earnings. A sharp increase in sales in some foreign markets during the first three months of the year and continued effects of restructuring contributed to a strong improvement in the operating margin - an increase of four percentage points to 14.1 percent.

Lighters had a relatively weak quarter, with lower sales and a modest decline in operating margin. Chewing tobacco operations continue to show strong and steady development, with higher sales and a 19-percent increase in operating income, which rose to 106 MSEK.
For shareholders in Swedish Match, overall operations during the first three months of 2002 generated a substantial increase in earnings per share, up 28 percent to SEK 1.02. After amortization of goodwill and brands, adjusted earnings per share amounted to SEK 1.22, an increase of 24 percent.

»The buyback programs we have implemented have proved to be a highly appreciated and effective method to transfer profits to shareholders. It has also strengthened our key ratios and, in turn, enhanced the attractiveness of the Swedish Match share in the market.

During the first quarter of the year, however, we did not repurchase any shares,« notes Sven Hindrikes in conclusion.