Report on Operations 1999
- Sales increased 15 percent to MSEK 9,420
- Operating income, before items affecting comparability, increased 13 percent to MSEK 1,689 (1,489)
- Operating income, including capital gain of MSEK 4,102 and a provision for restructuring of Matches of MSEK 395, rose to MSEK 5,396 (1,381)
- Strong sales and earnings improvement for Cigars, Snuff and Pipe Tobacco
- Revised business strategy: Cigarettes divested and clear focus on Smokeless Tobacco (snuff, chewing tobacco) and Brown Tobacco (cigars, pipe tobacco)
- The Board proposes an increased dividend to SEK 1.25 (1.10)
- The Board proposes a share redemption program of approximately MSEK 1,000 and the launch of a long term share repurchase program
Summary of Consolidated Income Statement
| October – December | Full year | ||||
| MSEK | 1999 | 1998 | 1999 | 1998 | |
| Sales | 2,562 | 2,157 | 9,420 | 8,194 | |
| Operating income before divested business | 398 | 283 | 1,434 | 1,051 | |
| Divested business | - | 113 | 255 | 438 | |
| Income before items affecting comparability | 398 | 396 | 1,689 | 1,489 | |
| Items affecting comparability | -395 | -60 | 3,707 | -108 | |
| Operating income | 3 | 336 | 5,396 | 1,381 | |
| Net profit for the period | -186 | 148 | 4,656 | 726 | |
After thoroughly reviewing the Group’s strategic orientation and the value of different product areas, actions were taken in 1999 to put a sharper focus on, and increased investments in, product areas where prospects for growth and profitability are viewed to be best.
The Group is clearly focused on smokeless tobacco, (snuff and chewing tobacco), and brown tobacco (cigars and pipe tobacco). In the smokeless tobacco area, Swedish Match has market leadership positions. In the cigar industry, which has changed considerably over the past year, Swedish Match has consolidated its number two position in the world.
In line with the new strategic orientation, the Group has been restructured.
- The cigarette business was sold for MSEK 4,800, resulting in a capital gain of MSEK 4,102.
- Cigar operations in both the mass-market and premium segments have been acquired in the United States, with annual sales of MSEK 850.
- The snuff and pipe-tobacco company Leonard Dingler in South Africa, with annual sales of MSEK 360, was acquired.
- Following the close of the report period, an agreement was signed to acquire 64 percent of the shares of General Cigar Holdings (premium cigars), with annual sales of MSEK 1,200.
The Group balance sheet has been strengthened substantially during the year.
The equity/assets ratio has increased to 37 percent. Cash and short term investments exceed interest bearing liabilities with MSEK 1,267, thus the Group has substantial freedom of action with the financial capacity to make both additional acquisitions and redeem or repurchase shares.
Sales for the year increased by 15 percent, to MSEK 9,420 (8,194), of which acquisitions accounted for 9 percent. In the fourth quarter, sales increased to MSEK 2,562 (2,157), an increase of 19 percent.
Operating income continued to improve in focus product areas, including Snuff (+29%), Cigars (+76%) and Pipe Tobacco (+187%). Improvements for snuff come from continued growth in both the Nordic market and the US, while Cigar and Pipe Tobacco growth comes primarily through 1999 acquisitions. Other product areas, including Chewing Tobacco, Lighters and Matches, showed declines, primarily due to market conditions.
Operating income for the year, before items affecting comparability, increased to MSEK 1,689 (1,489), or 13 percent.
For the fourth quarter, operating income before items affecting comparability amounted to MSEK 398 (396).
Sales by product area
| October – December | Change | Full year | Full year | Change | |||
| MSEK | 1999 | 1998 | % | 1999 | 1998 | % | |
| Chewing Tobacco | 259 | 256 | 1 | 1,068 | 1,068 | 0 | |
| Cigars | 437 | 260 | 68 | 1,438 | 902 | 59 | |
| Lighters | 154 | 178 | -13 | 662 | 735 | -10 | |
| Matches | 418 | 433 | -3 | 1,673 | 1,573 | 6 | |
| Pipe Tobacco & Accessories | 212 | 58 | 266 | 420 | 218 | 93 | |
| Snuff | 480 | 366 | 31 | 1,688 | 1,337 | 26 | |
| Other operations | 602 | 229 | - | 1,742 | 893 | - | |
| Subtotal | 2,562 | 1,780 | 44 | 8,691 | 6,726 | 29 | |
| Divested business | - | 377 | 729 | 1,468 | - | ||
| Total | 2,562 | 2,157 | 19 | 9,420 | 8,194 | 15 | |
Operating income by product area
| October – December | Change | Full year | Full year | Change | ||
| MSEK | 1999 | 1998 | % | 1999 | 1998 | % |
| Chewing Tobacco | 73 | 78 | -6 | 297 | 331 | -10 |
| Cigars | 55 | 22 | 150 | 206 | 117 | 76 |
| Lighters | 12 | 4 | 200 | 14 | 18 | -22 |
| Matches | 14 | 41 | -66 | 107 | 134 | -20 |
| Pipe Tobacco & Accessories | 59 | 9 | 556 | 109 | 38 | 187 |
| Snuff | 221 | 158 | 40 | 828 | 641 | 29 |
| Other operations | -36 | -29 | - | -127 | -228 | - |
| Subtotal | 398 | 283 | 41 | 1,434 | 1,051 | 36 |
| Divested business | - | 113 | - | 255 | 438 | - |
| Items affecting comparability | -395 | -60 | - | 3,707 | -108 | - |
| Total | 3 | 336 | 5,396 | 1,381 | ||
Chewing Tobacco
Chewing tobacco is a longtime tradition in North America, and
particularly the US. In terms of market share, Swedish Match
ranks number one in the US chewing tobacco market, and has the
number one selling brand, Red Man. The chewing tobacco category
has declined an average of 4 percent per year over the past three
years. During 1999 Swedish Match increased its share of the
market through a number of marketing and promotional activities.
Sales for the year amounted to MSEK 1,068 (1,068). Stated in local currency, sales declined somewhat. Sales in the fourth quarter were MSEK 259 (256). Operating income for the year fell by 10 percent, to MSEK 297 (331). Operating income in the fourth quarter declined to MSEK 73 (78).
Cigars
Swedish Match is one of the world’s largest manufacturers
and distributors of cigars and cigarillos, and ranks second in
terms of sales value in the world cigar market. The largest
markets are Western Europe and the US. In 1999, sales amounted to
MSEK 1,438 (902), an increase of 59 percent, with growth coming
primarily from acquired businesses. Fourth quarter sales reached
MSEK 437 (260).
Operating income in 1999 reached
MSEK 206 (117), an increase of 76 percent due mainly to
acquisitions. For the fourth quarter, operating income reached
MSEK 55(22).
In May 1999, Swedish Match acquired the mass market cigar business from General Cigar for MUSD 200. The acquired business includes a sales force, two production units, inventories and brand names. With this acquisition, Swedish Match obtained a US market share of 11 percent in value terms. During the fourth quarter the integration of the sales force into the existing Swedish Match structure was completed. In September, the Company acquired El Credito, which produces the La Gloria Cubana brand, giving the Company a strong branded presence in the premium cigar segment in the US.
Following the close of the report period Swedish Match signed an agreement to acquire a 64 percent interest in General Cigar Holdings, Inc. General Cigar produces the number one selling premium cigar in the United States, Macanudo, and several other strong premium brands.
Lighters
Swedish Match is the third largest manufacturer of disposable
lighters in the world. The largest Swedish Match markets are
Europe, parts of Asia, and the US. Sales for the year declined by
10 percent, to MSEK 662 (735) and declined by 13 percent during
the fourth quarter, to MSEK 154 (178). Operating income in 1999
fell to MSEK 14 (18), but improved to MSEK 12 (4) in the fourth
quarter.
In the third quarter of 1998 sales volumes declined substantially due to the economic downturn in Asia and East Europe. To bring production in line with demand, and to reduce fixed costs, the Lyon production facility was closed in July, 1999. This has improved capacity utilization in the remaining factories, and has contributed to the profit improvement in the second half of the year.
Matches
Swedish Match is the world’s leading producer of matches,
and is the only global manufacturer. The Group’s main
markets are in Europe, South America, and Asia. Swedish Match
also produces machinery for match manufacturing. In 1999, sales
increased by 6 percent, to MSEK 1,673 (1,573), with the increase
coming primarily from the full year impact of 1998 acquisitions.
Sales in the fourth quarter declined to MSEK 418 (433).
Operating income for the year was MSEK 107 (134), and for the fourth quarter was MSEK 14 (41).
In view of lower sales volumes in some markets, and low capacity utilization, a major restructuring program will be launched. The objective of this program is to lift the operating margin to 10 percent within three years. Restructuring charges of MSEK 395 were provided for in the fourth quarter. This restructuring charge is intended to cover the cost of reducing the installed production capacity, and to write down fixed assets in India.
Pipe Tobacco and Accessories
Swedish Match is one of the world’s largest producers of
pipe tobacco. The principal markets are North America, Europe and
South Africa. The South African market has been growing by 2-3
percent per year over the past several years. The purchase of
Leonard Dingler in South Africa has created a platform for
continued growth in that market and neighbouring countries. The
business is included in the Swedish Match results from the fourth
quarter.
Sales for 1999 amounted to MSEK 420 (218), an increase of 93 percent. Sales in the fourth quarter increased to MSEK 212 (58). Operating income rose to MSEK 109 (38) for the year and to MSEK 59 (9) in the fourth quarter.
Snuff
Swedish Match is the leading manufacturer of snuff in the Nordic
market and South Africa, and one of the leading producers in the
United States. The snuff category continues to grow in both
volume and value in all of these markets.
Sales in 1999 increased 26 percent, to MSEK 1,688 (1,337). Overall Swedish Match volume increased by 16 percent, of which the Nordic market volume increased by 6 percent and US volume increased by 44 percent. In the United States, the Swedish Match market share was 6.6 percent at year-end, an improvement of 1.6 points over prior year, led by Timber Wolf, the number one brand in the growing value-priced segment. Sales in the fourth quarter increased to MSEK 480 (366).
Operating income for the year increased 29 percent, to MSEK 828 (641) and by 40 percent in the fourth quarter to MSEK 221 (158).
Other Operations
Other operations include among other things the distribution of
tobacco products on the Swedish market as well as corporate
overheads. For the year, net expenses for other operations were
reduced to MSEK -127 (-228).
Items affecting comparability
As of July 1, 1999, the Company's cigarette business was sold for
MSEK 4,800. After deduction of the net book value, the capital
gain for Swedish Match amounted to MSEK 4,102. The transaction
was completed on August 19, 1999. In the fourth quarter, a
restructuring charge of MSEK 395 for the Match division was
provided. The net amount of these two items, MSEK 3,707, has been
reported in items affecting comparability.
Net financial expense
Net financial expense amounted to MSEK -116 (-183). Other
financial items amounted to MSEK 15 (-41).
Taxes
Total tax for 1999 amounted to MSEK 638 (482) corresponding to
12.1 percent of income before taxes. The tax rate decreased due
to the fact that the capital gain on the sale of the Cigarette
operation was only nominally taxed. The rate increased since it
was not deemed possible to claim the costs of the restructuring
provision for the match division for tax purposes.
Investments
The Group's direct investments in tangible fixed assets amounted
to MSEK 452 (393). Of this amount, MSEK 144 consisted of fixed
assets in connection with acquisitions and the remaining MSEK 308
pertained to efficiency-improvement and capacity-increasing
investments. In addition, MSEK 2,488 (213) was invested in
long-term intangible assets during the period. These investments
pertained mainly to brand names and goodwill related to
acquisitions made during the year.
Total depreciation and amortisation charges amounted to MSEK 381 (332), of which depreciation on tangible assets amounted to MSEK 222 (248) and amortisation of intangibles amounted to MSEK 159 (84).
Investments in associated companies amounted to MSEK 50 during 1999.
Financing and liquidity
Cash and bank balances and current investments (liquid funds)
less interest-bearing liabilities amounted to MSEK 1,267 at the
end of the period. Liquid funds, which amounted to MSEK 7,296
(2,876) are primarily invested in short-term securities.
Tobacco tax
*In Sweden during the past year, the Company has paid tobacco
taxes, plus value-added taxes on tobacco taxes, amounting to MSEK
9,016 (9,266).
Average number of Group
employees
The average number of employees in the Group during the year was
11,797, compared with 10,314 in the 1998. The average number of
employees in Sweden was 1,183, compared with 1,430 previous year.
Board of Directors’ dividend proposal
Profit per share was SEK 10.79 (1.59). The Board of Directors has
decided to propose that the Annual General Meeting approve
payment of a dividend of SEK 1.25 per share (1.10), or a total of
MSEK 539 (474), to the shareholders.
Redemption of shares and share
repurchase program
Considering the strong financial position of Swedish Match, and
in line with Swedish Match shareholder friendly policy, the Board
of Directors has decided to propose the redemption of Swedish
Match shares to the Annual General Meeting in April. This is in
addition to the ordinary dividend in fiscal year 1999. Through
the redemption, capital which is no longer required in operations
is transferred to the shareholders. The proposed redemption
amount in the range of MSEK 1,000. This amount is expected to be
paid prior to the end of July.
The Board of Directors of Swedish Match has decided to propose to the Annual General Meeting to give the Board of Directors authorization to decide on repurchase of Swedish Match shares. The authorization is proposed to be valid until the next Annual General Meeting with regard to the repurchase of up to 5 percent of the number of outstanding shares.
The execution of the repurchase of shares is conditional on the passage of pending legislation in the Swedish Parliament.
Additional information
The Annual General Meeting will be held in Stockholm on April 27,
2000. The 1999 Annual Report is expected to be released and
distributed during the week beginning Monday, March 20, 2000. The
interim report covering operations during the first three months
of 2000 will be released April 27.
Stockholm, February 9, 2000
Board of Directors
Key data
| 1999 | 1998 | |
| Operating margin, %* | 17.9 | 18.2 |
| Return on operating capital, %* | 30.6 | 33.2 |
| Return on shareholders´ equity, % | 115.0 | 28.3 |
| Net debt/equity ratio, % | Positive | 63.0 |
| Equity/assets ratio, % | 36.6 | 21.9 |
| Investments in tangible assets, MSEK | 452 | 393 |
| EBITDA (before items affecting comparability) | 2,070 | 1,821 |
| EBITDA (after items affecting comparability) | 5,777 | 1,713 |
| Average number of employees | 11,797 | 10,314 |
| Share data | ||
| Income per share after full tax | ||
| Before items affecting comparability, SEK | 2.31 | 1.96 |
| After items affecting comparability, SEK | 10.79 | 1.59 |
| Shareholders´ equity per share, SEK | 13.77 | 5.00 |
| Number of shares outstanding at end of period | 431 339 663 | 431 339 663 |
| Income per share after full tax during the fourth quarter was -0.44 SEK (0.35) |
* Before items affecting comparability
Consolidated Income Statement in summary
| October – December | Change | Full year | Full year | Change | ||
| MSEK | 1999 | 1998 | % | 1999 | 1998 | % |
| Sales, including tobacco tax | 4,403 | 4,041 | 9 | 16,953 | 15,915 | 7 |
| Less tobacco tax | -1,841 | -1,884 | -2 | -7,533 | -7,721 | -2 |
| Sales | 2,562 | 2,157 | 19 | 9,420 | 8,194 | 15 |
| Cost of goods sold | -1,443 | -1,048 | 38 | -5,138 | -4,096 | 25 |
| Gross profit | 1,119 | 1,109 | 1 | 4,282 | 4,098 | 4 |
| Sales and administrations costs, etc. | -748 | -715 | 5 | -2,636 | -2,620 | 1 |
| Shares in earnings of associated co. | 27 | 2 | 43 | 11 | ||
| 398 | 396 | 1 | 1,689 | 1,489 | 13 | |
| Items affecting comparability | -395 | -60 | 3,707 | -108 | ||
| Operating income | 3 | 336 | 5,396 | 1,381 | ||
| Net interest expense | -38 | -26 | -131 | -82 | ||
| Other financial items, net | -15 | -6 | 15 | -41 | ||
| Items affecting comparability | -60 | |||||
| Net financial items | -53 | -32 | -116 | -183 | ||
| Income before taxes and minority interests | -50 | 304 | 5,280 | 1,198 | ||
| Taxes | -149 | -158 | -638 | -482 | ||
| Minority interests | 13 | 2 | 14 | 10 | ||
| Net profit for the period | -186 | 148 | 4,656 | 726 | ||
Consolidated Balance Sheet in summary
| MSEK | ||
| Dec. 31, 1999 | Dec. 31, 1998 | |
| Intangible fixed assets | 3,268 | 895 |
| Tangible fixed assets | 1,866 | 2,239 |
| Financial fixed assets | 432 | 463 |
| Current operating assets | 3,808 | 4,089 |
| Current investments | 6,756 | 1,386 |
| Cash and bank balances | 540 | 1,490 |
| Total assets | 16,670 | 10,562 |
| Shareholders´ equity | 5,940 | 2,160 |
| Minority interests | 162 | 148 |
| Provisions | 1,195 | 1,165 |
| Long-term loans | 5,093 | 2,098 |
| Other long-term liabilities | 210 | 26 |
| Short-term loans | 936 | 2,233 |
| Other current liabilities | 3,134 | 2,732 |
| Total shareholders´ equity, provisions and liabilities | 16,670 | 10,562 |
| Operating capital | 6,352 | 4,700 |
| Net debt | -1,267 | 1,455 |
Consolidated Cash Flow Statement in summary
| MSEK | 1999 | 1998 |
| Cash flow from operations | 1,329 | 794 |
| Investments | ||
| Investments in property, plant and equipment | -452 | -393 |
| Sales of property, plant and equipment | 83 | 849 |
| Sales of cigarette operations | 4,798 | |
| Investments in intangibles | -2,488 | -213 |
| Investments in associated companies and acquisition of co. | -51 | -168 |
| Changes in financial receivables etc. | 115 | 7 |
| Cash flow from investments | 2,005 | 82 |
| Financing | ||
| Changes in loans | 1,655 | 3,084 |
| Dividend to shareholders | -474 | -510 |
| Share redemption | - | -1,147 |
| Cash flow from financing | 1,181 | 1,427 |
| Cash flow for the year | 4,515 | 2,303 |
| Liquid funds at January 1 | 2,876 | 563 |
| Translation differences attributable to liquid funds | -95 | 10 |
| Liquid funds at the end of the period | 7,296 | 2,876 |
Quarterly data
| MSEK | ||||||||
| Q1/98 | Q2/98 | Q3/98 | Q4/98 | Q1/99 | Q2/99 | Q3/99 | Q4/99 | |
| Sales, including tobacco tax | 3,741 | 3,978 | 4,155 | 4,041 | 3,838 | 4,167 | 4,545 | 4,403 |
| Less tobacco tax | -1,902 | -2,003 | -1,932 | -1,884 | -1,716 | -1,849 | -2,127 | -1,841 |
| Sales | 1,839 | 1,975 | 2,223 | 2,157 | 2,122 | 2,318 | 2,418 | 2,562 |
| Cost of goods sold | -894 | -992 | -1,162 | -1,048 | -1,076 | -1,206 | -1,413 | -1,443 |
| Gross profit | 945 | 983 | 1,061 | 1,109 | 1,046 | 1,112 | 1,005 | 1,119 |
| Sales and administrations costs, etc. | -596 | -640 | -669 | -715 | -609 | -670 | -609 | -748 |
| Shares in earnings of associated co. | 3 | 3 | 3 | 2 | 3 | 2 | 11 | 27 |
| 352 | 346 | 395 | 396 | 440 | 444 | 407 | 398 | |
| Items affecting comparability | - | -48 | - | -60 | - | - | 4,102 | -395 |
| Operating income | 352 | 298 | 395 | 336 | 440 | 444 | 4,509 | 3 |
| Net interest expense | -4 | -13 | -39 | -26 | -24 | -45 | -24 | -38 |
| Other financial items, net | -7 | -6 | -22 | -6 | 13 | 5 | 12 | -15 |
| Items affecting comparability | - | -60 | - | - | - | - | - | - |
| Net financial items | -11 | -79 | -61 | -32 | -11 | -40 | -12 | -53 |
| Income after financial items | 341 | 219 | 334 | 304 | 429 | 404 | 4,497 | -50 |
| Income taxes | -111 | -95 | -118 | -158 | -143 | -145 | -201 | -149 |
| Minority interests | 0 | 2 | 6 | 2 | 4 | -6 | 3 | 13 |
| Net income for the period | 230 | 126 | 222 | 148 | 290 | 253 | 4,299 | -186 |
Sales by product area
| MSEK | |||||||||
| Q4/97 | Q1/98 | Q2/98 | Q3/98 | Q4/98 | Q1/99 | Q2/99 | Q3/99 | Q4/99 | |
| Chewing Tobacco | 281 | 267 | 265 | 280 | 256 | 261 | 278 | 270 | 259 |
| Cigars | 193 | 187 | 225 | 230 | 260 | 224 | 370 | 407 | 437 |
| Lighters | 187 | 196 | 184 | 177 | 178 | 165 | 173 | 170 | 154 |
| Matches | 350 | 324 | 343 | 473 | 433 | 448 | 401 | 406 | 418 |
| Pipe Tobacco & Accessories | 44 | 48 | 57 | 55 | 58 | 55 | 53 | 100 | 212 |
| Snuff | 293 | 295 | 330 | 346 | 366 | 376 | 402 | 430 | 480 |
| Other operations | 184 | 194 | 209 | 261 | 229 | 243 | 262 | 635 | 602 |
| Subtotal | 1,532 | 1,511 | 1,613 | 1,822 | 1,780 | 1,772 | 1,939 | 2,418 | 2,562 |
| Divested business | 353 | 328 | 362 | 401 | 377 | 350 | 379 | - | - |
| Total | 1,885 | 1,839 | 1,975 | 2,223 | 2,157 | 2,122 | 2,318 | 2,418 | 2,562 |
Operating income by product area
| MSEK | |||||||||
| Q4/97 | Q1/98 | Q2/98 | Q3/98 | Q4/98 | Q1/99 | Q2/99 | Q3/99 | Q4/99 | |
| Chewing Tobacco | 100 | 86 | 94 | 73 | 78 | 75 | 71 | 78 | 73 |
| Cigars | 35 | 31 | 32 | 32 | 22 | 39 | 57 | 55 | 55 |
| Lighters | 14 | 14 | 3 | -3 | 4 | 2 | -8 | 8 | 12 |
| Matches | 38 | 30 | 35 | 28 | 41 | 29 | 34 | 30 | 14 |
| Pipe Tobacco & Accessories | 5 | 12 | 9 | 8 | 9 | 17 | 11 | 22 | 59 |
| Snuff | 152 | 149 | 152 | 182 | 158 | 193 | 178 | 236 | 221 |
| Other operations | -83 | -62 | -71 | -66 | -29 | -42 | -27 | -22 | -36 |
| Subtotal | 261 | 260 | 254 | 254 | 283 | 313 | 316 | 407 | 398 |
| Divested business | 124 | 92 | 92 | 141 | 113 | 127 | 128 | - | - |
| Items affecting comparability | - | - | -48 | - | -60 | - | - | 4 102 | -395 |
| Total | 385 | 352 | 298 | 395 | 336 | 440 | 444 | 4 509 | 3 |
The Swedish Match share is listed on the Stockholm Stock Exchange (SWMA) and NASDAQ (SWMAY).
For further information please contact:
Lennart Sund? President &
Chief Executive Officer Office +46 8 658 01 75
Sven Hindrikes, Executive Vice President & Chief Financial
Officer Office +46 8 658 02 82
Bo Aulin, Senior Vice President, Corporate Affairs Office +46 8
658 03 64
Lin McKinnie, Vice President, Strategic and Financial Planning
Office +46 8 658 02 99
Emmett B. Harrison, Vice President, Investor Relations Office +46
8 658 01 73
