News; Mar 7, 2008 CET

The future as we see it

President and CEO, Sven Hindrikes, and Chairman of the Board, Conny Karlsson, discuss the past year and the strategy for the future.

What was most positive during 2007?

Sven Hindrikes: There were quite a number of positive activities during the year. Our shareholders can be pleased with an increase of just over 20 percent in the share price. We made two profitable cigar acquisitions and sales of our US snuff increased substantially during the year. In Scandinavia, we were able to increase our profit level, despite significant tax increases for snus, and we divested our office property in Stockholm at a favorable price.

What is Swedish Match’s strategy for the future?

Sven Hindrikes: Our goal has been the same for many years and we will continue with the same long-term strategy, which comprises four parts: organic growth, acquisitions/divestments, productivity improvements and financial strategy. Naturally, the importance of, and the investments made in, the various strategic areas have varied over the years. We are currently focusing on organic growth and acquisitions.

What does the strategy imply?

Conny Karlsson: All parts of the strategy are aimed at profitability and growth. With respect to organic growth, it involves building markets and gaining complete control over our own growth. Acquisitions are made to supplement the operations with profitable growth, while the parts of the operations that are no longer important to the business are divested. Productivity improvements mean guaranteeing that deliveries are as efficient as possible and ensuring that the best methods are used at all levels. In short, the financial strategy involves using the balance sheet as efficiently as possible. By minimizing capital costs, we can motivate growth projects and provide the right value to shareholders, which will increase our competitiveness.

Within which areas is Swedish Match most successful?

Conny Karlsson: The most successful product areas are snus, snuff and cigars. With its strategy for organic growth, Swedish Match has demonstrated a strong ability to attract new snus consumers by developing the market, primarily in Scandinavia. We now need to utilize our strong position in the US snuff market to create market growth in the same way. In the cigar field, we have developed our position as global number two by concentrating on profitable acquisitions.

What are the priorities for 2008?

Sven Hindrikes: Activities include continuing the effort that commenced in 2007 to strengthen the sales and marketing organization. This is a prerequisite for creating a better basis for long-term growth. It is also vital that we maintain a high speed of product development and new product launches. In this area, we will focus on certain selected, strong brands. High on the priority list is also a successful launch of the new Red Man snuff.

What generates growth?

Conny Karlsson: Growth begins here and now, every day, through product development, consumer insight and by defining test markets. In the short term, Swedish Match’s greatest potential for growth is to focus on the market for US snuff. In the medium term, it involves creating new markets for snus and developing the market for premium cigars. And, long term, it is about creating new products and new markets.

Are we a tobacco company or a consumer products company?

Sven Hindrikes: What distinguishes us from other consumer products companies is that we face entirely different regulations and tax issues that other consumer products do not have to contend with. But we have things to learn from companies within fast-moving consumer products: innovativeness, investment in product development, focus on global brands, significant investments in marketing, niche approach, price segmentation and so forth. We must select the best parts and apply them to our tobacco categories.

Conny Karlsson: We decide ourselves how to define Swedish Match as a company. We do have products that are not tobacco products, and I believe that it can be positive to start thinking along different lines, should we decide that Swedish Match is a consumer products company. Swedish Match shares many conditions with other consumer products companies; for example, our consumers and competitors never stand still. Consequently, we must continuously strive to build and develop our markets, be best in class in terms of product development, understand our consumers better than others and continuously exceed consumer expectations, precisely as with other consumer products companies.

What are Swedish Match’s primary strengths?

Conny Karlsson: Swedish Match has unique knowledge in the field of snus, snuff and cigars. I would also like to emphasize our strong sales culture and excellent ability to understand customers and consumers.

Sven Hindrikes: By far our greatest asset is all our competent, focused and loyal employees in all countries. We have a well-defined and planned strategy for each product area. Everyone in the organization is focused on implementing the action plans that are connected to the strategy. We can maintain a high speed, due to our employees' skills and their willingness to change and drive development.

What does Swedish Match need to improve?

Conny Karlsson: We need to continuously take major steps forward and there is always potential to do more, do better and set new goals. To capitalize on the Group's size, we need to improve on documenting, quantifying and analyzing our work so that we can learn from our successes and failures.

Sven Hindrikes: It is important to realize that everything we do can be done more efficiently, that we can improve in all areas. I do not want to highlight any particular area that has more improvement potential than others.

What is Swedish Match's greatest challenge for the coming years?

Sven Hindrikes: We must utilize all business opportunities in all product areas. The biggest potential for growth is in the US snuff market and we expect to continue capturing market shares there. We are not aware of any major threats to our operations other than political intervention in the form of regulations, bans and tax increases that can impact negatively on the operations, but this is a factor in our business environment that we have learned to handle.

Conny Karlsson: In addition to continuing working in current markets, the greatest challenge is creating new markets for snus and cigars. We must also be best in class in our core areas and succeed through our own efforts and skills.