Outlook and risk factors
Full Year 2020 Outlook
Swedish Match expects that the trend of increased interest from consumers, industry participants and regulators in less harmful alternatives to cigarettes will continue.Our ambition is to create value for both shareholders and society by providing products that are recognized as safer alternatives to cigarettes.
For 2020, Swedish Match expects continued market growth in global markets for smokefree nicotine products, most notably driven by rapid growth of nicotine pouches (both without tobacco and with small amounts of tobacco).
During 2020, Swedish Match expects to increase its investments in marketing, distribution and sales efforts in both existing and new markets to actively participate in growth opportunities. Continued capital investments by Swedish Match to further expand ZYN production capacity are expected to result in capital expenditures in 2020 considerably above the 2019 level.
The effective corporate tax rate in 2020, excluding associated companies and larger one-time items, is expected to be in the 22 percent to 23 percent range.
The Company remains committed to returning cash not needed in operations to shareholders.
Guidance on Second Quarter 2020 with regard to COVID-19
While the COVID-19 effects on a net basis benefited sales and operating profit during the first quarter, at this point, we anticipate several areas that will negatively impact our second quarter financial results. We expect that the hoarding of products in the US market will partially reverse as distributors become more confident of our ability to meet demand. Also, our expectation is that the border and travel retail classes of trade will remain closed for at least a portion of the quarter. We also expect to incur additional manufacturing and operating expenses during the second quarter as we deal with the consequences of the pandemic that, due to the timing of the onset of COVID-19, only minimally impacted our first quarter result. While difficult to estimate with a high degree of confidence, Swedish Match currently estimates that the combined COVID-19 negative consequences on operating profit during the second quarter could exceed the net benefits realized in the first quarter of 2020.
Source: Swedish Match Interim Report January-March 2020.
Swedish Match faces intense competition in all of its markets and for each of its products and such competition may increase in the future. To remain successful, the Group must develop products and brands that resonate with changing consumer trends, and price and promote its brands competitively. Restrictions on advertising and promotion may, however, make it more difficult to counteract any loss of consumer loyalty. Competitors may develop and promote new products which could be successful, and could thereby have an adverse effect on Swedish Match results of operations.
Swedish Match has substantial sales in the US, with products sourced from local US production facilities and imports from Swedish Match’s production facilities in the Dominican Republic and in Sweden. Swedish Match also has operations in Brazil, Denmark, Norway, the Philippines and EMU member countries. Consequently, changes in import duties as well as in exchange rates of the euro, Norwegian krone, Danish krone, Brazilian real, the Dominican peso and in particular the US dollar may adversely affect the Group’s results of operations, cash flow, financial condition or relative price competitiveness in the future. Such effects may occur both in local currencies and when such local currencies are translated into Swedish currency for purposes of financial reporting.
Regulatory developments and fiscal changes related to tobacco and other nicotine products, corporate income and other taxes, as well as to the marketing, sale and consumption of tobacco products and other products containing nicotine in the countries where the Group is operating may have an adverse effect on Swedish Match results of operations.
For a further description of risk factors affecting Swedish Match, see the Report of the Board of Directors in the published Swedish Match annual report for 2019.