SWEDISH MATCH RESULTS PRESENTATION Q1 2018
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SWEDISH MATCH RESULTS PRESENTATION
Q1 2018
DISCLAIMER
The information contained in this presentation has not been independently verified and is subject to change without notice and neither Swedish
Match, nor an affiliate thereof or any other party is under any obligation to update or keep current the information contained herein. Accordingly,
no representation or warranty, express or implied, is made or given by or on behalf of Swedish Match or any other party (or any of their
respective members, directors, officers, employees or any other person) as to the accuracy, completeness or fairness of the information or
opinions contained in this presentation, and any reliance you place on such information or opinions will be at your sole risk. Neither Swedish
Match nor any other party (or any of their respective members, directors, officers, employees or any other person) accepts any liability
whatsoever for any loss howsoever arising from any use of this presentation or its contents or otherwise arising directly or indirectly in
connection therewith.
By attending a meeting where this presentation is presented, or by reading the presentation, you acknowledge that you will be solely
responsible for your own assessment of the potential investment, the market and market position of Swedish Match and that you will conduct
your own analysis and be solely responsible for forming your own view of the potential future performance of Swedish Match and its business.
This presentation may contain certain forward-looking statements that reflect Swedish Match’s current views or expectations with respect to
future events and financial and operational performance. Although Swedish Match believes that these statements are based on reasonable
assumptions and expectations, Swedish Match cannot give any assurances that such statements will materialize. Because these forward-
looking statements involve known and unknown risks and uncertainties, the outcome could differ materially from those set out in the forward-
looking statement. The forward-looking statements speak only as at the date of the presentation and Swedish Match undertakes no obligation
to update such forward-looking statements.
This presentation contains market data and industry forecasts, including information related to the sizes of the markets in which Swedish Match
and its subsidiaries participates. The information has been extracted from a number of sources. Although Swedish Match regards these sources
as reliable, the information contained in them has not been independently verified and therefore no assurance can be given that this information
is accurate and complete. In addition to the above, certain data in the presentation is also derived from estimates made by Swedish Match. The
information and opinions contained in this presentation are provided as at the date of this presentation and are subject to change without notice.
2
Q1 – HEADLINE BULLETS
o In local currencies, sales increased by 10 percent for the first quarter.
- Reported sales increased by 4 percent to 2,941 MSEK (2,833).
o In local currencies, operating profit from product segments1) increased
by 11 percent for the first quarter.
- Reported operating profit from product segments increased by 6 percent to
1,079 MSEK (1,021).
o Operating profit2) amounted to 1,047 MSEK (1,235) for the first quarter.
The first quarter 2017 included larger one-time items of 238 MSEK relating
to capital gains from the sale of STG shares and from the sale of a parcel
of land.
o Profit after tax amounted to 766 MSEK (932) for the first quarter.
o Earnings per share amounted to 4.36 SEK (5.07) for the first quarter.
Adjusted earnings per share3) increased by 15 percent to 4.36 SEK (3.78).
o Implemented IFRS 15 effective January 1st . Changes to reported sales
and reportable segments reflected in the interim report.
1) Operating profit for Swedish Match product segments, which excludes Other operations and larger one-time items.
2) Operating profit for the Group, which includes Other operations and larger one-time items.
3) Earnings per share adjusted to exclude income from Scandinavian Tobacco Group (STG) and larger one-time items.
3
HIGHLIGHTS IN THE QUARTER
o Sales were higher in local currencies, led by the OTP and Snus & moist snuff product segments
- Scandinavian snus volumes up by 9% (7% excluding V2), underlying organic volumes up by more than 2%.
- Shipment volumes benefitted from calendar effects; average pricing up in both Sweden and Norway.
- Sales essentially flat in local currencies for US moist snuff, up for international snus/ZYN.
- Other tobacco products (OTP) sales growth driven by US cigars and the V2 acquisition (acquired August 31, 2017).
- US chewing tobacco sales marginally down in local currencies.
- Lower sales for Lights, most notably from lighters, on lower volumes.
o Operating profits were up in local currencies for the product segments Snus & moist snuff and OTP,
but down for Lights
- Improved result in Scandinavia on an underlying basis on higher gross profit and lower operating expenses.
- US moist snuff operating profit marginally up in local currencies.
- Significantly improved operating result from international snus/ZYN outside Scandinavia; -3 MSEK (-42).
- Continued strong volume growth for ZYN in the US, and growth also for snus in the US; improved pricing.
- ZYN capacity project: Construction in the US according to plan (capital expenditures to exceed 60 MUSD).
- Result from international snus/ZYN expected to be negative for the full year, but noticeably improved from 2017.
- OTP operating profit up in local currencies for cigars, US chewing tobacco, and acquired V2 business.
- Lights burdened by poor volume developments and restructuring costs.
4
SNUS AND MOIST SNUFF: Q1 COMMENTARY
Growth in both sales and operating profit
o Underlying organic Scandinavian volumes estimated to be up by more than 2%
- Volumes up in both Sweden and Norway, positive impact from calendar effects.
- Market growth estimated to be slightly higher than 4%.
- Market share in Norway stable year on year; market share decline in Sweden.
o Scandinavia sales and operating profit up
- Average selling prices somewhat higher than prior year with price increases being offset by
negative mix effects and negative currency effects.
- Lower operating expenses due in part to phasing of marketing and trade activities.
o US moist snuff volumes down slightly, pouch growth partially offsetting loose declines
- Slight improvement in average sales per can equivalent.
- Operating profit up in local currency, aided by lower marketing spending.
o Lower operating loss for snus and nicotine pouches outside Scandinavia
- Snus/ZYN sales (primarily in the US) up on higher volumes and higher realized pricing.
- Volume growth for ZYN in the US on increased velocity and store expansion (10,000 stores).
- Lower marketing spend for snus, partially offset by higher marketing spend for ZYN.
Q1-2018 Q1-2017 chg April 2017-March 2018 Full year 2017 chg
Sales, MSEK 1,386 1,296 7 5,574 5,484 2
Operating profit, MSEK 623 534 17 2,447 2,358 4
Operating margin, % 45.0 41.2 43.9 43.0
5
SCANDINAVIA – UNDERLYING VOLUMES AND SWEDISH MATCH PRICE/MIX EFFECT
Total Scandinavian snus by quarter versus same quarter prior year
Industry volume growth* SM volume growth* SM price/mix effect**
+6.1%
+5.0% +4.9%
+4.1% +4.3% +4.3%
+3.9% +3.9%
+3.5%
+2.9% +3.1%
+2.8% +2.5% +2.8%
+2.2% +2.5%
+1.8%
+1.2% +1.3%
+0.8%
+0.2% +0.5% +0.5% +0.4%
-0.3%
-1.7%
-3.4%
Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18
2016 2017 2018
* Based on Nielsen and Swedish Match estimates (adjusted for hoarding).
** Not adjusted for currency effects.
6
SWEDEN – CATEGORY DEVELOPMENT
Volume and retail value y-o-y growth (Nielsen)
Volume Retail value
7%
6%
5%
4%
3%
2%
1%
0%
-1%
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016 2017 2017 2017 2017 2018
2014 2015 2016 2017 2018
Source: Nielsen, DVH+SVH excl. tobacconists (including nicotine free).
7
SWEDEN – MARKET SHARE DYNAMICS – VOLUME SHARES
92.0% 90.5%
95.0% 92.4% 91.5% 90.7%
89.3%
90.0%
65.8% 65.1%
66.6% 65.0%
65.6%
65.0% 64.1%
60.0%
46.7%
55.0% 47.5% 46.6%
50.0% 47.0% 47.3% 46.6%
45.0% 36.8% 36.0%
35.6%
40.0% 37.4% 36.7% 35.2%
35.0%
5.0%
0.0%
VP Segment SoM Swedish Match VP share Swedish Match Premium share Swedish Match Market Share
Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018
Source: Nielsen, DVH+SVH excl. tobacconists (including nicotine free).
8
NORWAY – CATEGORY DEVELOPMENT
Volume and retail value year-on-year growth (Nielsen)
Volume Retail value
14%
12%
10%
8%
6%
4%
2%
0%
2014 2015 2016 2017 Q1 2018
Source: Nielsen, DVH+KBS.
9
NORWAY – MARKET SHARE DYNAMICS – VOLUME SHARES
91.8%
90.9% 92.0% 91.8%
95.0% 90.4% 90.8% 92.0% 91.9%
90.7% 91.4% 91.4%
89.8%
90.0%
85.0%
80.0%
75.0%
70.0%
65.0%
60.0%
52.3% 52.1% 52.6%
55.0% 48.1% 48.0% 48.7% 52.8% 51.5% 52.2%
50.0% 48.3% 47.4% 48.5%
45.0%
0.0%
Portion segment share of market Swedish Match share Swedish Match share Swedish Match Market Share
of portion segment of loose segment
Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018
Source: Nielsen, DVH+KBS.
10SCANDINAVIAN NEW PRODUCT ACTIVITY
Sweden
o ZYN Slim - three new additions to the
ZYN portfolio, in full distribution early
May.
o Limited editions: Small Batch #2 in
February and Small Batch #3 in April.
o General Kardus Spring 2018 in February
(Swedish Match stores and e-com).
Norway
o G.3 Load Super Strong in stores from
early March. First product in plain
packaging.
o G.4 Fu:zn, limited sales during summer
2017 in Oslo, available in stores from
February.
11US – MOIST SNUFF POUCHES
Swedish Match’s pouch volumes have outperformed the category
Market Swedish Match Q1 2018
Million cans Million cans growth rates (%)
Volume
CAGR 11.5% CAGR 15.5%
248 17 12.5%
237
214 15
10.1%
190 13
169 12
144 10
8
2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 Market Swedish
Match
Source: RAI and Altria quarterly reports, Swedish Match direct sales, and CMPP.
12SNUS AND NICOTINE POUCH VOLUMES OUTSIDE SCANDINAVIA
Swedish Match’s shipments of snus and nicotine pouches outside of Scandinavia by rolling four quarters
Million cans
Snus ZYN
18
16
14
12
10
8
6
4
2
0
13OTHER TOBACCO PRODUCTS (OTP): Q1 COMMENTARY
Continued strong volume growth for cigars, US chewing volumes down
o In local currencies, sales up by 16% and operating profit up by 9%
o Higher volumes, sales and operating profit for US cigars in USD
- Cigar volumes grew by 8%, (11% in constant trading days) driven by growth for natural leaf
cigars (particularly rolled leaf). HTL volumes down from an unusually strong Q1 2017.
- Mix effects favorably impacted sales but had a negative effect on the operating margin.
- Operating profit also impacted by FDA related packaging costs.
o Sales for US chewing tobacco down slightly in local currency
- Shipment volumes for premium varieties declined, while they grew for value brands.
- Price increases partially offset by negative mix effects.
- The market volume development for Swedish Match outperformed the overall category.
- Slight improvement in operating profit in local currency.
o Chew bags contributed positively to both sales and operating profit
- Includes V2 (acquired on August 31, 2017).
- Continued volume growth in niche chew bag segment in Europe.
Q1-2018 Q1-2017 chg April 2017-March 2018 Full year 2017 chg
Sales, MSEK 1,190 1,120 6 4,704 4,634 2
Operating profit, MSEK 425 427 0 1,774 1,776 0
Operating margin, % 35.7 38.1 37.7 38.3
14US – SWEDISH MATCH’S CIGAR VOLUMES
Mass market cigar shipments by quarter and format
Million sticks
Natural leaf (ex. rolled leaf) Natural rolled leaf HTL
500
450
400
350
300
250
200
150
100
50
0
2014 2015 2016 2017 2018
1882 brand launched in 2014, Game rolled leaf brand launched in 2015.
15LIGHTS: Q1 COMMENTARY
Lower volumes, restructuring costs hurt performance
o Lower sales, primarily due to weak lighter volumes
- Lighter volumes down 23%, match volumes down 11%.
- Lighter volumes down most notably in Russia and Asia (partly due to temporary factors).
- Sales for matches and complementary products down, primarily from currency effects
(mainly BRL weakness).
o Operating profit down on lower sales and volumes, restructuring costs
- Higher prices and positive mix were not enough to offset the negative impacts of lower
volumes and currency effects.
- Higher costs including restructuring costs in Brazil amounted to approximately 12 MSEK.
o Operating margin down (partly of a temporary nature due to restructuring
impacts)
Q1-2018 Q1-2017 chg April 2017-March 2018 Full year 2017 chg
Sales, MSEK 285 340 -16 1,236 1,291 -4
Operating profit, MSEK 31 60 -49 182 211 -14
Operating margin, % 10.9 17.7 14.7 16.4
16REGULATORY / SCIENTIFIC NEWS
o Advocate General recommendation published April 12, does not recommend the ECJ to declare the snus
ban invalid
o A proposal for a new tobacco law was put forward to the parliament on March 9, voting expected in May
- Smoking ban in restaurants and certain public places (including e-cigarettes).
- Prohibition of all marketing of tobacco products at point of sale (e-cigarettes exempted). Display of products and price
lists allowed.
- Self-service ban for all tobacco products (e-cigarettes exempted).
- Online stores; marketing prohibition. No pictures of product. Only price lists allowed.
- A can of snus must not carry less than 20 pouches.
- Nicotine containing products not included in proposal.
- Licensing requirements for retailers.
o Norway – plain packaging
- Effective July 1, 2017 for all new products launched after that date and for all other products from July 1, 2018.
- Swedish Match request for preliminary injunction rejected by court of first instance in November 2017. Swedish Match
lost the suspension proceedings in second instance in February 2018.
o New warning labels for cigars in the US applicable from August 10, 2018
o FDA issued ANPRMs on nicotine content in cigarettes, flavors in tobacco products, and regulation of
premium cigars
17FINANCE NET AND EPS
XX XX
Development of the finance net Maturity profile of interest bearing liabilities
By quarter Debt as of March 31, 2018
MSEK Net finance cost Net interest expense MSEK Fixed Float
0 3 000
-20
2 000
-40
-60
1 000
-80
-100 0
Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 2018 2019 2020 2021 2022 2023 2024 2025 2028
EPS bridge Net debt/EBITA
Q1 2018 vs Q1 2017 (SEK) By quarter
EPS Q1 2017 5.07 Net debt/EBITA Proforma after April dividend
3,0
Larger one-time items -1.30
2,5
Adjusted EPS Q1 2017 3.78
Operating profit 0.20 2,0
Financial items 0.03 1,5
15%
Tax rate 0.17
1,0 1,9
Chg in number of shares 0.19 1,7
Adjusted EPS Q1 2018 4.36 0,5
EPS Q1 2018 4.36 0,0
FY 2017 12M ended March 31, 2018
18OUTLOOK STATEMENT
Swedish Match expects that the trend of increased interest from consumers, industry players and regulators in less
harmful alternatives to cigarettes will continue. Swedish Match takes pride in paving the way with its vision of a
world without cigarettes. By providing products that are recognized as safer alternatives to cigarettes, our ambition
is to create value for both shareholders and the society.
For 2018, on a full year basis, Swedish Match expects the Scandinavian snus market to continue to grow and to
remain highly competitive. In the US moist snuff market, we expect continued good growth for pouches. Swedish
Match also expects the US snus/nicotine pouch market to grow. For US chewing tobacco we expect continued
market declines, while for chew bags in Europe we expect continued market growth.
We will continue to invest in growth for snus and nicotine pouches outside Scandinavia. We will also increase the
availability of nicotine pouches to Swedish consumers and explore new market opportunities for chew bags. The
operating loss for snus and nicotine pouches outside Scandinavia is expected to be noticeably lower in 2018 than in
2017. The decision to invest in ZYN production capacity in the US will predominantly affect capital expenditures in
2018.
For the full year, Swedish Match expects continued growth in the US cigar market. Swedish Match expects the US
cigar market to remain highly competitive.
The effective corporate tax rate in 2018, excluding associated companies and any non-taxable larger one-time items,
is expected to be around 21.5 percent (23.8). The expected reduction in tax rate is a consequence of the US
corporate income tax reform effective January 1, 2018.
The Company remains committed to returning cash not needed in operations to shareholders.
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