Interim Report January - June 1999
- Sales increased 16 percent, to SEK 4,440 M
- Operating income rose 36 percent, to SEK 884 M
- Net income rose 53 percent , to SEK 543 M
- Continued strong organic growth for Snuff and Cigars
- Clearly apparent and lasting cost reductions
- Agreement to sell the cigarette business for SEK 4,800 M
- Swedish Match number two in the world in Cigars, after acquisition in the US
Swedish Match's sales during the first half of 1999 increased by 16 percent, to SEK 4,440 M (3,814), of which acquisitions accounted for 10 percent. Operating income rose by 36 percent, from SEK 650 M to SEK 884 M, and Net income increased from SEK 356 M to SEK 543 M or 53 percent.
Snuff continued to show a strong increase in volume of business, notably in the North American market. Snuff's operating income rose 23 percent, to SEK 371 M (301).
Cigars reported a sharp increase in both sales (44%) and operating income (52%) based on organic growth, primarily in Western Europe and on an acquisition in the United States.
The ongoing cost-savings program has resulted in lasting reductions in expenses.
In line with the new strategy, which involves a sharper focus on product areas with good growth potentials such as smokeless tobacco (primarily snuff) and brown tobacco (cigars and pipe tobacco), acquisitions and divestments were made by Swedish Match. An agreement was reached covering the sale of the cigarette business to Austria Tabak for SEK 4,800 M. The cigarette operations were included in Swedish Match´s accounts up to and including June 30, 1999. A significant part of General Cigar's business in the U.S., with annual sales of SEK 800 M, was acquired during the first half of 1999. This business was consolidated effective May 1. Swedish Match then made a supplementary acquisition of premium cigars in the U.S. The latter operation is expected to be consolidated as of September 1.
Summary of Consolidated Income Statement
| MSEK | First six months | |
| 1999 | 1998 | |
| Sales | 4,440 | 3,814 |
| Operating income | 884 | 650 |
| Income after financial items | 833 | 560 |
| Net income | 543 | 356 |
Sales by product area
| MSEK | First six months | Percent change | 12 months ended | Full year | |
| 1999 | 1998 | % | June 30, 1999 | 1998 | |
| Chewing Tobacco | 539 | 532 | 1 | 1,075 | 1,068 |
| Cigarettes | 729 | 690 | 6 | 1,507 | 1,468 |
| Cigars | 594 | 412 | 44 | 1,084 | 902 |
| Lighters | 338 | 380 | -11 | 693 | 735 |
| Matches | 849 | 667 | 27 | 1,755 | 1,573 |
| Pipe Tobacco | 108 | 105 | 3 | 221 | 218 |
| Snuff | 778 | 625 | 24 | 1,490 | 1,337 |
| Other operations | 505 | 403 | 25 | 995 | 893 |
| Total | 4,440 | 3,814 | 16 | 8,820 | 8,194 |
Operating income by product area
| MSEK | First six months | Percent change | 12 months ended | Full year | |
| 1999 | 1998 | % | June 30, 1999 | 1998 | |
| Chewing Tobacco | 146 | 180 | -19 | 297 | 331 |
| Cigarettes | 255 | 184 | 39 | 509 | 438 |
| Cigars | 96 | 63 | 52 | 150 | 117 |
| Lighters | -6 | 17 | -5 | 18 | |
| Matches | 63 | 65 | -3 | 132 | 134 |
| Pipe Tobacco | 28 | 21 | 33 | 45 | 38 |
| Snuff | 371 | 301 | 23 | 711 | 641 |
| Other operations | -69 | -133 | -164 | -228 | |
| Subtotal | 884 | 698 | 27 | 1,675 | 1,489 |
| Items affecting comparability | - | -48 | - | -60 | -108 |
| Total | 884 | 650 | 36 | 1,615 | 1,381 |
Chewing Tobacco
Chewing tobacco operations are conducted in the North American
market, primarily in the U.S.
Sales in the first half of 1999 amounted to SEK 539 M (532). Stated in local currency, sales declined by 2 percent. Sales in the second quarter rose by 5 percent, to SEK 278 M (265). The total market for chewing tobacco is continuing to decline.
Operating income fell by 19 percent, to SEK 146 M (180). Operating income in the second quarter of 1999 amounted to SEK 71 M (94).
Cigarettes
Cigarettes are sold in the Swedish and Estonian markets and in
the tax-free market.
During the second quarter an agreement was reached covering the sale of Swedish Match's cigarette business to Austria Tabak for SEK 4,800 M. The operation was sold as of July 1, 1999.
Sales in the first half of the year increased by 6 percent, to SEK 729 M (690). Sales in the second quarter rose 5 percent, to SEK 379 M (362).
The increase was attributable to larger volumes of sales of cigarettes, primarily in the Swedish market.
Operating income for the six-month period increased by 39 percent, to SEK 255 M (184), and income in the second quarter rose to SEK 128 M (92). The increases were attributable to the larger volumes of business and cost reductions.
Cigars
Swedish Match is one of the world's largest producers of cigars.
The Group's largest markets are Western Europe and the U.S.
During the first quarter of 1999 an agreement was concluded
covering the acquisition of a substantial portion of General
Cigar's operations in the U.S. The acquired business comprises
two production plants, machinery and equipment, plus inventories,
and brand names, together with a sales force of approximately 70
persons and a total of about 1,000 employees. The business was
consolidated effective May 1. As a result of the acquisition,
Swedish Match is gaining annual SEK 800 M in annual sales and the
increase in the Group's profit per share is expected to amount to
between SEK 0.15 and SEK 0.20 beginning in the year 2000. Garcia
y Vega, White Owl, Tiparillo and Tijuana Smalls are among the
brands included in the acquisition.
Cigar sales in the first half of 1999 amounted to SEK 594 M (412), an increase of 44 percent. The acquired operation contributed sales of SEK 143 M during the period. The organic growth is primarily the result of increases in volumes of business in Western Europe and Australia. Sales in the second quarter increased to SEK 370 M (225).
Operating income during the six-month period increased by 52 percent, to SEK 96 M (63), and to SEK 57 M (32) in the second quarter, mainly the result of acquisitions and larger volumes of business.
Lighters
Swedish Match is one of the world's largest manufacturers of
disposable lighters. Its largest markets are Europe, parts of
Asia, and the U.S.
Sales declined to SEK 338 M (380) in the first half of the year and to SEK 173 M (184) in the second quarter.
Lighters incurred an operating loss of SEK 6 M (17) for the first half of the year and a loss of SEK 8 M (3) in the second quarter. Losses in efficiency as a result of the closing of the plant in Lyon, France, had a negative impact on results.
Matches
Swedish Match is the world's only global manufacturer of matches.
The Group's principal markets are Europe, South America and Asia.
Operations include Swedish Match Arenco, which produces machinery
used in the manufacture of matches.
In the beginning of 1999 Swedish Match concluded an agreement to acquire 40 percent of Indonesia's largest match producer, P. T. Java Match Factory.
Sales increased by 27 percent, to SEK 849 M (667), in the first half of the year and to SEK 401 M (343) in the second quarter. The increase in sales was attributable primarily to acquisitions and consolidations of new units.
Operating income in the six-month period declined to SEK 63 M (65), and to SEK 34 M (35) in the second quarter. The devaluation of the Brazilian real affected operating income negatively in the amount of SEK 10 M compared with income in the first half of 1998.
Pipe Tobacco
Swedish Match is one of the world's largest manufacturers of pipe
tobacco. The principal markets are North America and Northern and
Western Europe.
Sales for the six-month period amounted to SEK 108 M (105) and to SEK 53 M (57) in the second quarter.
Operating income for the six-month period rose by 33 percent, to SEK 28 M (21), and to SEK 11 M (9) in the second quarter.
Snuff
Swedish Match is the leading producer of snuff in the Swedish and
Norwegian markets, and one of four leading manufacturers in the
U.S.
Sales in the first half of 1999 increased by 24 percent, to SEK 778 M (625), and by 22 percent, to SEK 402 M (330) in the second quarter. The volume of business in the U.S. rose by 51 percent, compared with first-half 1998 operations.
The increase in volume in the Nordic market, including tax-free sales, amounted to 7 percent.
Operating income in the six-month period increased by 23 percent, to SEK 371 M (301), and by 17 percent, to SEK 178 M (152) in the second quarter.
Other Operations
The net of Other Operations was a loss of SEK 69 M (-133 M) in
the first half of 1999. Sustained cost savings were achieved.
Net financial expense
Net financial expense in the first half of the year amounted to
SEK 69 M (-17). The increase was attributable primarily to
increased borrowing in connection with the SEK 1,216 M share
redemption program implemented in 1998, and to acquisitions.
Other financial items amounted to net income of SEK 18 M (-13).
Investments
The Group's direct investments in tangible fixed assets amounted
to SEK 283 M (154). The investments pertained mainly to
replacement and rationalization expenditures and to the take over
of fixed assets amounting to SEK 130 M in connection with
acquisitions of assets and liabilities. In addition, SEK 1,486 M
(133) was invested in long-term intangible assets during the
period. These investments pertained mainly to brand names and
goodwill related to the acquisition of General Cigar's business
in the U.S. Depreciation according to plan totaled SEK 182 M
(159).
Investments in associated companies amounted to SEK 50 M.
Financing and liquidity
Net debt at the end of the period amounted to SEK 3,079 M, an
increase of SEK 1,624 M since December 1998. Cash and bank
deposits, including short-term investments, amounted to SEK 858 M
at the end of the period, compared with SEK 2,876 M at the
beginning of the year. Liquid funds are placed with banks in
short-term negotiable Government securities.
Tobacco tax
During the past 12 months, total tobacco tax and value-added tax
for tobacco products paid by Swedish Match in Sweden amounted to
SEK 8,810 M (9,812).
Acquisitions and divestments
Swedish Match sold its cigarette operations to Austria Tabak for
SEK 4,800 M. The deal was approved by the Swedish Competition
Authority July 21, 1999. Part of the total purchase price SEK
1,000 M was paid at the end of July. The deal is expected to be
finally closed August 31, 1999. The capital gain is estimated to
SEK 4,200 M and the tax on the purchase price is estimated to 1
percent. The cigarette operations will be transferred to Austria
Tabak effective July 1, 1999.
On July 2, 1999 Swedish Match concluded an agreement to acquire El Credito Cigars in the U.S.; the company manufactures and markets premium cigars, mainly for the American market. Its largest-selling brand is La Gloria Cubana. The acquisition includes production units with 350 employees in the Dominican Republic and in Miami, Florida. The company had sales of USD 11 M in 1998. With this company and the earlier acquisition of the "mass market" cigar operations of General Cigar, all price segments in the North American market are now being covered. El Credito is expected to be consolidated as of September 1, 1999.
New organization
Swedish Match has had a new organization and a new Group
management since February 1, 1999. The Group has been reorganized
in six divisions: North Europe, Continental Europe, North
America, Overseas, Matches and Lighters.
The division managers report directly to the president and are members of the Group Executive Committee. The reorganization is designed to provide a more market-oriented organization with clearly defined responsibility for results, and to link Group management directly to the operating units.
The number of Group offices has been reviewed and, among other measures, it has been decided to close Swedish Match's office in Nyon, Switzerland.
Average number of Group
employees
The Group had an average of 11,752 employees during the period,
compared with 7,057 during the first half of 1998. The number
during the first half of 1999 includes Wimco in India, with 4,487
employees. The average number of employees in Sweden was 1,404,
compared with 1,467 a year earlier.
Preparation for the year 2000
Swedish Match has worked since the beginning of 1997 to ensure
that the Group's computer systems will be able to handle the
transition to the new millennium without problems. A seven-step
examination of slightly more than 250 systems is being conducted.
As of June 30, 1999, more than 95 percent of the systems had
undergone the greater part of the examination. Plans call for all
systems to be tested and in production during September 1999. The
view is that the Group is well prepared for the millennium.
Additional information
Swedish Match auditors have not reviewed this report.
The interim report covering operations during the nine months ended September 30, 1999 will be released October 29, 1999.
Lennart Sundén
President and Chief Executive Officer
Key data
| 12 months ended June 30, 1999 | Full year 1998 | |
| Operating margin, %* | 19,0 | 18,2 |
| Return on operating capital, %* | 34,5 | 33,2 |
| Return on shareholders´ equity, % | 38,7 | 28,3 |
| Interest coverage ratio, times | 6,6 | 7,6 |
| Debt/equity ratio, % | 147,8 | 63,0 |
| Equity/assets ratio, % | 20,8 | 21,9 |
| Investments in tangible assets, MSEK | 522 | 393 |
| Average number of employees | 11,752 | 10,314 |
| Share data | ||
| Income per share after full tax | ||
| Before items affecting comparability, SEK | 2:32 | 1:96 |
| After items affecting comparability, SEK | 2:10 | 1:59 |
| Shareholders´ equity per share, SEK | 4:48 | 5:00 |
| Number of shares outstanding | 431 339 663 | 431 339 663 |
| Income per
share after full tax during the first half of 1999, 1:26 SEK (0:75) |
* Before items affecting comparability
Consolidated Income Statement in summery
| MSEK | First six months | Percent change | 12 months ended | Full year | |
| 1999 | 1998 | % | June 30, 1999 | 1998 | |
| Sales, incl. tobacco tax | 8,005 | 7,719 | 4 | 16,201 | 15,915 |
| Less tobacco tax | -3,565 | -3,905 | -9 | -7,381 | -7,721 |
| Sales | 4,440 | 3,814 | 16 | 8,820 | 8,194 |
| Cost of goods sold | -2,282 | -1,886 | 21 | -4,492 | -4,096 |
| Gross profit | 2,158 | 1,928 | 12 | 4,328 | 4,098 |
| Sales and administrations costs, etc. | -1,279 | -1,236 | 4 | -2,663 | -2,620 |
| Shares in earnings of associated companies | 5 | 6 | -19 | 10 | 11 |
| 884 | 698 | 27 | 1,675 | 1,489 | |
| Items affecting comparability | - | -48 | - | -60 | -108 |
| Operating income | 884 | 650 | 36 | 1,615 | 1,381 |
| Net interest expense | -69 | -17 | -134 | -82 | |
| Other financial items, net | 18 | -13 | -10 | -41 | |
| Items affecting comparability | - | -60 | - | -60 | |
| Net financial items | -51 | -90 | -144 | -183 | |
| Income after financial items | 833 | 560 | 49 | 1,471 | 1,198 |
| Taxes | -288 | -206 | 40 | -564 | -482 |
| Minority interests | -2 | 2 | 6 | 10 | |
| Net profit for the period | 543 | 356 | 53 | 913 | 726 |
Consolidated Balance Sheet in summary
| MSEK | ||
| June 30, 1999 | Dec. 31, 1998 | |
| Intangible fixed assets | 2,363 | 895 |
| Tangible fixed assets | 2,263 | 2,239 |
| Participation in associated companies etc. | 227 | 184 |
| Financial fixed assets | 187 | 279 |
| Current operating assets | 3,971 | 3,774 |
| Current financial receivables | 152 | 315 |
| Current investments | 12 | 1,386 |
| Cash and bank balances | 846 | 1,490 |
| Total assets | 10,021 | 10,562 |
| Shareholders´ equity | 1,932 | 2,160 |
| Minority interests | 151 | 148 |
| Provisions | 1,116 | 1,165 |
| Long-term loans | 3,028 | 2,098 |
| Other long-term liabilities | 128 | 26 |
| Short-term borrowings | 909 | 2,233 |
| Other current liabilities | 414 | 340 |
| Current operating liabilities | 2,343 | 2,392 |
| Total
shareholders´ equity, provisions and liabilities |
10,021 | 10,562 |
| Operating capital | 6,481 | 4,700 |
| Net debt | 3,079 | 1,455 |
Consolidated Cash Flow Analysis in summary
| MSEK | Jan-June 1999 | Jan-June 1998 |
| Cash flow from operations | 706 | 355 |
| Investments | ||
| Investments in property, plant and equipment | -283 | -154 |
| Sales of property, plant and equipment | 33 | 12 |
| Investments in intangibles | -1,486 | -133 |
| Investments in associated companies and acquisition of companies | -50 | -126 |
| Changes in financial receivables etc. | 189 | 16 |
| Cash flow from investments | -1,597 | -385 |
| Financing | ||
| Changes in loans | -613 | 840 |
| Dividend to shareholders | -474 | -510 |
| Cash flow from financing | -1,087 | 330 |
| Translation differences attributable to cash and bank balances | -40 | -1 |
| Change in liquid funds | -2,018 | 299 |
| Liquid funds at January 1 | 2,876 | 563 |
| Liquid funds at the end of the period | 858 | 862 |
Quarterly data
| MSEK | |||||||
| Q4/97 | Q1/98 | Q2/98 | Q3/98 | Q4/98 | Q1/99 | Q2/99 | |
| Sales, incl. tobacco tax | 3,883 | 3,741 | 3,978 | 4,155 | 4,041 | 3,838 | 4,167 |
| Less tobacco tax | -1,998 | -1,902 | -2,003 | -1,932 | -1,884 | -1,716 | -1,849 |
| Sales | 1,885 | 1,839 | 1,975 | 2,223 | 2,157 | 2,122 | 2,318 |
| Cost of goods sold | -881 | -894 | -992 | -1,162 | -1,048 | -1,076 | -1,206 |
| Gross income | 1,004 | 945 | 983 | 1,061 | 1,109 | 1,046 | 1,112 |
| Sales and administrations costs, etc. | -622 | -596 | -640 | -669 | -715 | -609 | -670 |
| Shares in earnings of associated companies | 3 | 3 | 3 | 3 | 2 | 3 | 2 |
| 385 | 352 | 346 | 395 | 396 | 440 | 444 | |
| Items affecting comparability | - | - | -48 | - | -60 | - | - |
| Operating income | 385 | 352 | 298 | 395 | 336 | 440 | 444 |
| Net interest expense | -4 | -4 | -13 | -39 | -26 | -24 | -45 |
| Other financial items, net | -18 | -7 | -6 | -22 | -6 | 13 | 5 |
| Items affecting comparability | - | - | -60 | - | - | - | - |
| Net financial items | -22 | -11 | -79 | -61 | -32 | -11 | -40 |
| Income after financial items | 363 | 341 | 219 | 334 | 304 | 429 | 404 |
| Income taxes | -131 | -111 | -95 | -118 | -158 | -143 | -145 |
| Minority interests | 1 | 0 | 2 | 6 | 2 | 4 | -6 |
| Net income for the period | 233 | 230 | 126 | 222 | 148 | 290 | 253 |
Sales by product area
| MSEK | |||||||||||||||||
| Q3/97 | Q4/97 | Q1/98 | Q2/98 | Q3/98 | Q4/98 | Q1/99 | Q2/99 | ||||||||||
| Chewing Tobacco | 312 | 281 | 267 | 265 | 280 | 256 | 261 | 278 | |||||||||
| Cigarettes | 414 | 353 | 328 | 362 | 401 | 377 | 350 | 379 | |||||||||
| Cigars | 161 | 193 | 187 | 225 | 230 | 260 | 224 | 370 | |||||||||
| Lighters | 210 | 187 | 196 | 184 | 177 | 178 | 165 | 173 | |||||||||
| Matches | 297 | 350 | 324 | 343 | 473 | 433 | 448 | 401 | |||||||||
| Pipe Tobacco | 44 | 44 | 48 | 57 | 55 | 58 | 55 | 53 | |||||||||
| Snuff | 281 | 293 | 295 | 330 | 346 | 366 | 376 | 402 | |||||||||
| Other operations | 235 | 184 | 194 | 209 | 261 | 229 | 243 | 262 | |||||||||
| Total | 1,954 | 1,885 | 1,839 | 1,975 | 2,223 | 2,157 | 2,122 | 2,318 | |||||||||
Operating income by product area
| MSEK | ||||||||
| Q3/97 | Q4/97 | Q1/98 | Q2/98 | Q3/98 | Q4/98 | Q1/99 | Q2/99 | |
| Chewing Tobacco | 123 | 100 | 86 | 94 | 73 | 78 | 75 | 71 |
| Cigarettes | 175 | 124 | 92 | 92 | 141 | 113 | 127 | 128 |
| Cigars | 39 | 35 | 31 | 32 | 32 | 22 | 39 | 57 |
| Lighters | 16 | 14 | 14 | 3 | -3 | 4 | 2 | -8 |
| Matches | 40 | 38 | 30 | 35 | 28 | 41 | 29 | 34 |
| Pipe Tobacco | 9 | 5 | 12 | 9 | 8 | 9 | 17 | 11 |
| Snuff | 138 | 152 | 149 | 152 | 182 | 158 | 193 | 178 |
| Other operations | -80 | -83 | -62 | -71 | -66 | -29 | -42 | -27 |
| Subtotal | 460 | 385 | 352 | 346 | 395 | 396 | 440 | 444 |
| Items affecting comparability | - | - | - | -48 | - | -60 | - | - |
| Total | 460 | 385 | 352 | 298 | 395 | 336 | 440 | 444 |
Swedish Match is an international group with its head office in Stockholm. The company produces an extensive range of tobacco products, matches and disposable lighters. The products are sold in 140 countries. The company’s total sales during 1998 amounted to approximately MSEK 8,200. The Swedish Match share is listed on the Stockholm Stock Exchange (SWMA) and Nasdaq (SWMAY).
For further information please contact:
Lennart Sundén, President & Chief Executive Officer Office +46 8 658 01 75
Sven Hindrikes, Senior Vice President & Chief Financial Officer Office +46 8 658 02 82
Bo Aulin, Senior Vice President, Corporate Affairs Office +46 8 658 03 64
