Swedish Match Interim Report January-September 2001

Interim Report January - September 2001 · Sales increased 21 percent to 10,105 MSEK (8,337) · Operating income increased 16 percent to 1,608 MSEK (1,386) 1) · Profit before tax was 1,411 MSEK (1,277) 1) · EPS increased to 2.57 (1.97), an increase of 30 percent 1) · EBITDA increased to 2,095 MSEK (1,785) · Total shares outstanding as of September 30, 2001 amounted to 357.0 million compared with 358,5 million as of June, 2001 1) before items affecting comparability of 80 MSEK Swedish Match sales increased by 21 percent, of which acquisitions accounted for 6 percentage points, in the first nine months 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 9 percent. All product areas exhibited sales gains. Cigars, pipe tobacco, lighters, and snuff show the largest increases. Primarily cigars, matches, pipe tobacco, and lighters account for the better result. Snuff margins have been impacted by costs of product development and launches of new products, primarily in the US and India. A one-time charge of 80 MSEK for restructuring of cigar operations is included in Items affecting comparability. Operating income before items affecting comparability grew by 16 percent to 1,608 MSEK. Net financial expenses increased to -197 MSEK (-109) mainly due to the redemption program, repurchase of shares, and acquisitions. Earnings per share before items affecting comparability, during the first nine months, increased to 2.57 SEK (1.97). Earnings per share during the third quarter increased to 0.88 (0.73). 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 was registered in October. Summary of Consolidated Income Statement January - September MSEK 2001 2000 Sales 10,105 8,337 Operating income before items affecting 1,608 1,386 comparability Net income for the period 886 844 Sales by product area July - January - 12 September September Chan months Full Chan ge ended year ge MSEK 2001 2000 2001 2000 % Sept 30, 2000 % 2001 Snuff 629 529 1,799 1,519 18 2,351 2,071 14 Chewing Tobacco 349 311 1,028 911 13 1,344 1,227 10 Cigars 944 796 2,586 1,847 40 3,429 2,690 27 Pipe Tobacco & 247 205 697 562 24 897 762 18 Accessories Matches 421 429 1,254 1,234 2 1,732 1,712 1 Lighters 190 175 613 519 18 814 720 13 Other 761 627 2,128 1,745 22 2,734 2,351 16 operations Total 3,541 3,072 10,105 8,337 21 13,301 11,533 15 Operating income by product area July - January - 12 September September Chan months Full Chan ge ended year ge MSEK 2001 2000 2001 2000 % Sept 30, 2000 % 2001 Snuff 242 254 691 704 (2) 941 954 (1) Chewing Tobacco 90 72 278 244 14 365 331 10 Cigars 137 104 362 243 49 466 347 34 Pipe Tobacco & 62 58 185 159 16 239 213 12 Accessories Matches 46 24 134 67 100 157 90 74 Lighters 23 18 74 53 40 95 74 28 Other operations (116) (84) (155) (38) (30) (123) Subtotal 562 500 1,608 1,386 16 2,108 1,886 12 Items affecting (80) - (80) - - (80) - - comparability Total 482 500 1,528 1,386 10 2,028 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 nine months increased 18 percent, to 1,799 MSEK (1,519). Volume in the US increased 11 percent during the first nine months and the market share was approximately 8 percent. Volume in the Nordic market increased by 4 percent. Operating income was down versus the same period last year, 691 MSEK (704). Costs for product launches, specially for the premium snuff Sequoia in the US, has strongly affected the profit. 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 nine months amounted to 1,028 MSEK (911), an increase of 13 percent, mainly due to a stronger US dollar. Operating income in the first nine months was 278 MSEK (244). 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 nine months amounted to 2,586 MSEK (1,847), an increase of 40 percent over the same period last year. The increase is primarily attributable to acquisitions but also to strong organic growth in the machine made cigar segment in the US. Sales of premium cigars had slightly lower volume versus same period last year. The Western European market increased slightly. Operating income for cigars grew by 49 percent to 362 MSEK (243) in the first nine months 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 nine months increased to 697 MSEK (562). Operating income increased to 185 MSEK (159). 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 nine months grew 2 percent versus same period last year, to 1,254 MSEK (1,234). Operating income grew to 134 MSEK (67). In the third quarter, operating margin increased to 10.9 percent (5.6) primarily due to positive effects of the previously announced restructuring program, but also due to increased volumes in certain markets. Lighters Swedish Match is the third largest lighter manufacturer in the world, and its main brand is Cricket. Sales in the first nine months grew 18 percent, to 613 MSEK (519). Operating income grew by 40 percent, to 74 MSEK (53), due to increased volume and improved productivity. Other Operations Other operations include, among other things, the distribution of tobacco products on the Swedish market, sales of advertising products, certain real estate operation, as well as corporate overheads and expenses for business development. Expenses for business development have increased versus same period last year. For the first nine months of 2001, net expenses grew to -116 MSEK (-84). Net financial expense Net financial expense in the first nine months amounted to -197 MSEK (- 109). Net interest expense amounted to -218 MSEK (-108). Other financial items, net, amounted to 21 MSEK (-1). Taxes Taxes for the first nine months were 426 MSEK (428) 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. By the end of August the European dry snuff operation of the Burger company was acquired. In September, the company purchased 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 Italian market. The yearly turnover is approximately 35 MSEK. Investments The Group's direct investments in tangible fixed assets amounted to 422 MSEK (219). Included in this figure is the ongoing investment in a new snuff factory outside Gothenburg and increased investments within the cigar operation. Total depreciation and amortization amounted to 487 MSEK (399), of which depreciation on tangible assets amounted to 235 MSEK (200) and amortization of intangibles amounted to 252 MSEK (199). Financing and liquidity At the end of the period, the Group had a net debt of 4,259 MSEK, as compared with 2,739 MSEK at December 31, 2000. During the third quarter net debt decreased by 276 MSEK. Cash and bank balances, including short term investments, amounted to 1,947 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 9,964 MSEK (9,363). Average number of Group employees The average number of employees in the Group during the 12 month period ending June 30 was 14,014, compared with 13,672 for the full year 2000. Cancellation of shares and share buy back program The General Meeting of shareholders on April 24, 2001 resolved to reduce the share capital by 36 MSEK through cancellation of 15,000,000 shares previously bought back for provisions to a fund to be utilized in accordance with resolutions approved by the Annual General Meeting. The reduction was registered on October 16, 2001 after which the company's share capital amounts to 891.8 MSEK. The share capital is spread over 371,596,181 shares with a par value of 2.40 SEK. Through buy back Swedish Match holds 14,577,000 shares in its treasury which means that the net number of shares outstanding amounts to 357,019,181. By authorization by the Annual General Meeting the company can acquire a maximum of 10 percent of all shares in the company. 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 full year 2001 report will be released on February 12, 2002. Stockholm, October 23, 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/2001/10/23/20011023BIT00610/bit0001.doc The full report http://www.waymaker.net/bitonline/2001/10/23/20011023BIT00610/bit0001.pdf The full report