Swedish Match, Interim Report january - june

Interim Report January - June 2001 · Sales increased 25 percent to 6,564 MSEK (5,265) · Operating income increased 18 percent to 1,046 MSEK (886) · Profit before tax was 930 MSEK (827) · EPS increased to 1.69 (1.24), an increase of 36 percent · EBITDA increased to 1,357 MSEK (1,134) · Total shares outstanding as of June 30, 2001 amounted to 358.5 million compared with 362.9 million as of March, 2001 Swedish Match sales increased by 25 percent, of which acquisitions accounted for 11 percentage points, in the first half of 2001 versus the same period last year. Higher currency rates, primarily a higher dollar rate, has effected sales positively by 6 percentage points. Organic sales growth amounted to 8 percent. All product areas exhibited sales gains. Cigars, pipe tobacco, lighters, and snuff show the largest increases. Operating income grew by 18 percent to 1,046 MSEK, with gains primarily from cigars, matches, pipe tobacco, and lighters. Snuff margins have been impacted by increased costs due to product development and launches of new products, primarily in the US and India. Net financial expenses increased to -116 MSEK (-59) mainly due to the redemption program, repurchase of shares, and the acquisitions of General Cigar, and the pipe tobacco business in South Africa. Earnings per share during the first six months increased to 1.69 SEK (1.24). Earnings per share during the second quarter increased by 37 percent to 0.89 (0.65). At the General Meeting of Shareholders on April 24, 2001 a prolonging of the mandate to repurchase up to 10 percent of the total amount of outstanding shares was resolved. It was also resolved that the share capital be reduced by 36 MSEK through the cancellation of 15,000,000 shares. The reduction of the share capital of the company is expected to be completed prior to year end. Number of outstanding shares as per June 30 was 358.5 million. Summary of Consolidated Income Statement January - June MSEK 2001 2000 Sales 6,564 5,265 Operating income 1,046 886 Net income for the period 621 548 Sales by product area 12 April - June January - Chan months Full Chan June ge ended year ge MSEK 2001 2000 2001 2000 % June 30, 2000 % 2001 Snuff 642 531 1,170 990 18 2,251 2,071 9 Chewing 365 318 679 600 13 1,305 1,227 6 Tobacco Cigars 892 646 1,642 1,051 56 3,282 2,690 22 Pipe 245 184 450 357 26 856 762 12 Tobacco & Accessorie s Matches 408 414 833 805 3 1,740 1,712 2 Lighters 203 169 423 344 23 798 720 11 Other 740 609 1,367 1,118 22 2,600 2,351 11 operations Total 3,495 2,871 6,564 5,265 25 12,832 11,533 11 Operating income by product area 12 April - January - Chan months Full Chan June June ge ended year ge MSEK 2001 2000 2001 2000 % June 30, 2000 % 2001 Snuff 235 241 449 450 0 953 954 0 Chewing Tobacco 99 83 188 172 9 347 331 5 Cigars 124 87 225 139 62 433 347 25 Pipe Tobacco & 64 52 123 101 22 234 213 10 Accessories Matches 44 18 88 43 105 136 90 51 Lighters 26 19 51 35 46 91 74 23 Other operations (78) (148) (37) (29) (54) (123) Total 555 471 1,046 886 18 2,046 1,886 8 Smokeless Tobacco (Snuff and Chewing Tobacco) Snuff Swedish Match is the only global snuff manufacturer, and has leading positions in the Nordic Market and South Africa. In the United States the company has the largest share of the fast growing value price segment. Major brands include General, Catch and Ettan in Sweden, Timber Wolf in the US, and Taxi in South Africa. Sales in the first six months increased 18 percent, to 1,170 MSEK (990). Volume in the US increased 15 percent during the first six months and the market share was approximately 8 percent. Volume in the Nordic market increased by more than 4 percent. Operating income was at the same level versus the same period last year, 449 MSEK (450). Costs for product launches has strongly affected the profit. During the second quarter the new premium snuff Sequoia was launched in the US and Click was launched in Bombay, India. Chewing Tobacco Chewing tobacco is sold primarily in the North American market. Major brands include Red Man and Southern Pride. Swedish Match is the leading producer of chewing tobacco in the US. Sales in the first six months amounted to 679 MSEK (600), an increase of 13 percent, mainly due to a stronger US dollar. Operating income in the first six months was 188 MSEK (172). The chewing tobacco market in the US has declined at an annual rate of approximately 4 percent over the past several years. Swedish Match share of market has improved since the same period last year and amounts to slightly more than 42 percent. Brown Tobacco (Cigars and Pipe Tobacco) Cigars Swedish Match is one of the world's largest manufacturers of cigars and cigarillos, and ranks number two in terms of sales value. Its largest markets are North America and Western Europe. These two markets represent 75 percent of the world cigar market. Swedish Match markets its broad portfolio of brands worldwide, with both premium and machine made cigars. Major brands include Macanudo, Garcia Y Vega, La Gloria Cubana, La Paz, Justus van Maurik, and Wings. Sales in the first six months amounted to 1,642 MSEK (1,051), an increase of 56 percent over the same period last year. The increase is primarily attributable to recent acquisitions in North America. The cigar market grew in both North America and Western Europe, with the strongest gains coming from machine made cigars in the US. Operating income for cigars grew by 62 percent to 225 MSEK (139) in the first half of 2001. Pipe Tobacco and Accessories Swedish Match is the third largest manufacturer of pipe tobacco in the world, and its products are marketed worldwide. Major brands include Borkum Riff, Boxer, and Half and Half. The main markets for pipe tobacco are in North America, North Europe and Western Europe. The company also has a significant presence in South Africa. Sales for the first six months increased to 450 MSEK (357). Operating income increased to 123 MSEK (101). Lights (Matches and Lighters) Matches Swedish Match has the number one worldwide share position. Brands are mostly local, and very strong in their home countries. Major brands include Swan, Solstickan, Three Stars, and Redheads. Sales for the first six months grew 3 percent versus same period last year, to 833 MSEK (805). Operating income grew to 88 MSEK (43). Operating margin increased to 10.6 percent (5.3) primarily due to positive effects of the ongoing restructuring program. Lighters Swedish Match is the third largest lighter manufacturer in the world, and its main brand is Cricket. Sales in the first six months grew 23 percent, to 423 MSEK (344). Operating income grew by 46 percent, to 51 MSEK (35) and operating margin was 12.1 percent. Other Operations Other operations include, among other things, the distribution of tobacco products on the Swedish market, sales of advertising products, as well as corporate overheads and expenses for business development. Expenses for business development have increased versus same period last year. For the first half of 2001, net expenses grew to -78 MSEK (-54). Net financial expense Net financial expense in the first six months amounted to -116 MSEK (- 59). Net interest expense amounted to -137 MSEK (-51). Other financial items, net, amounted to 21 MSEK (-8). Taxes Taxes for the first six months were 298 MSEK (277) corresponding to a 32% tax rate. Acquisitions In January a small advertising product company in Belgium was acquired. On February 1st the final agreement with British American Tobacco concerning acquisition of its pipe tobacco business in South Africa was concluded. The acquisition includes production facilities, stock and brands. The annual sales amount to approximately 200 MSEK. A final agreement has also been concluded with the previous owner of Leonard Dingler in South Africa regarding the earn-out on the purchase price. After the end of the period an agreement has been entered to purchase the tobacco business of Maga s.p.a., one of the leading independent distributors of niche tobacco products in Italy. The acquisition allows Swedish Match to establish its own marketing and sales organization in the important Italian market. The yearly turnover is approximately 35 MSEK. The transaction is expected to be completed in the beginning of September 2001. Investments The Group's direct investments in tangible fixed assets amounted to 259 MSEK (102). Total depreciation and amortization amounted to 311 MSEK (247), of which depreciation on tangible assets amounted to 153 MSEK (126) and amortization of intangibles amounted to 158 MSEK (121). Financing and liquidity At the end of the period, the Group had a net debt of 4,535 MSEK, as compared with 2,739 MSEK at December 31, 2000. Cash and bank balances, including short term investments, amounted to 1,225 MSEK at the end of the period, compared with 2,960 MSEK at the beginning of the year. The liquid funds are primarily invested in short- term marketable interest-bearing securities. Tobacco tax During the past 12 months, total tobacco tax and value-added tax on tobacco tax paid by Swedish Match in Sweden amounted to 9,805 MSEK (9,403). Average number of Group employees The average number of employees in the Group during the 12 month period ending June 30 was 13,750, compared with 13,672 for the full year 2000. Redemption of shares and share repurchase program After the reduction of share capital due to cancellation of 17,350,210 shares, according to the resolution by the Extra Meeting of Shareholders in October 2000, was registered in March 2001, the company's share capital amounts to 927.8 MSEK. The share capital is spread over 386,596,181 shares with a par value of 2.40 SEK. Through repurchase Swedish Match holds 28,120,000 in its treasury which means the number of outstanding shares amounts to 358,476,181. At the General Meeting of Shareholders on April 24th 2001 the Board of Directors suggests reduction of share capital with 36 MSEK through cancellation of 15,000,000 shares with transfer to unrestricted reserve. The reduction of the share capital of the company is expected to be completed prior to year end. The Board of Directors also proposes renewed authorization to acquire a maximum of 10 percent of all shares in the company. After reduction of share capital, and if the mandate to repurchase will be fully utilized, the number of outstanding shares in the company will be, net after repurchase, 334.4 million shares. Options program During the first half of the year, as part of a bonus program for Senior Management, 1,812,309 call options were issued by the company. The call options can be exercised from March 13, 2004 until March 14, 2006. Every option entitles the holder to buy one share at a price of 44.50 SEK per share. Accounting principles This interim report has been prepared in accordance with the recommendation RR 20 Interim Reports from the Swedish Financial Accounting Standards Council. Swedish Match applies the Swedish Financial Accounting Standards Council's new recommendation RR 9 Income Taxes. The financial data for 2000 has been restated according to the new principles. Additional information This report has not been reviewed by the company's auditors. The interim report for the first nine months of 2001 will be released on October 23, 2001. Stockholm, July 24, 2001 Lennart Sundén President and Chief Executive Officer ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2001/07/24/20010724BIT00130/bit0002.doc http://www.waymaker.net/bitonline/2001/07/24/20010724BIT00130/bit0002.pdf