TERRELL, DARRAH AND ELIADES - QUALITY HALLMARK OF CIGAR MAKING
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NOVEMBER 2008 QUALITY HALLMARK OF CIGAR MAKING MODESTA FONDEUR A CIGAR LOVING LADY 7 NEW WONDERS FOCUS ON NORTH AMERICA TERRELL, DARRAH AND ELIADES – ON A MISSION FOR SNUS PLUS! DEDICATION IMPROVES ENVIRONMENTAL HEALTH
Editorial A record-strong quarter O ur recently published results confi rm a Physicians in the UK presented a report indicating strong performance in all our product areas. that smokefree products have a role to play in the Our snus products continue to deliver battle against harmful cigarette smoking. It is parti- strong growth in Scandinavia and the US , and our cularly interesting that another EU country has pre- succesfully launched Red Man moist snuff product sented such fi ndings and demonstrates, once again, is now available throughout the US market. Several how preposterous the EU ban on snus is. Snus plays new products have been launched in Scandinavia, an important role for the Swedish public health, including General Extra Sterk in Norway, a great and personally, I am convinced that snus has played snus experience that has been well received by our a vital role for the exceptionally low incidence of consumers. tobacco-related illnesses among Swedish men com- The cigar segment has held up well despite some pared to other Western countries. This has also been challenging market conditions for European cigars established by the National Swedish Board of Health and for premium cigars in the US. New innovative and Welfare in its public health report of 2005. We products have been launched in these markets, such have every reason to be proud of our Swedish snus! as Macanudo 1968 in the US, a rich tobacco experi- Our North American operations, which account ence. Your can read more about this for approximately 30 percent of the new cigar on page 24. For the other Group’s sales, will be presented in greater product areas, Lights, Chewing Tobacco detail in this issue. We will describe how we and Pipe Tobacco, we have delivered a view our future developments for smoke- solid performance and strong earnings. free products and cigars. You will also Financially, Swedish Match remains meet Modesta Fondeur, Cigar Master in strong despite the prevailing global fi - the Dominican Republic, with 35 years in nancial crisis. We maintain good liquid- the industry. ity and loan maturities are limited this PHOTO: MAGNUS FOND year and next. In these turbulent times it Happy reading! is more important than ever to maintain a solid fi nancial position. Lars Dahlgren In September, the Royal Colleges of President and CEO of Swedish Match NO. 4, 2008 Swedish Match Inside is a magazine for Swedish Match shareholders, Swedish Match is a global Group with a broad offering of employees and other interested parties. A total of 50,000 copies are market-leading brands in smokefree tobacco products, published in Swedish and 6,000 in English. cigars, pipe tobacco and lights products. The Swedish Match share is listed on the OMX Nordic Exchange in Stockholm. PUBLISHER COVER PHOTO Swedish Match AB Chip Mitchell RESPONSIBLE UNDER LAW REPRODUCTION Henrik Brehmer, Swedish Match AB Bildrepro EDITOR-IN-CHIEF PRINTING Annette Kaunitz, Swedish Match AB Intellecta Tryckindustri PHOTO: HÅKAN MOBERG PRODUCTION Swedish Match AB Karoline Hammar, Swedish Match AB S-118 85 Stockholm Tel: +46 8 658 02 00 ART DIRECTOR www.swedishmatch.com Tom Sörhuus, Citat Journalistgruppen AB inside@swedishmatch.com 2 inside | november 2008
NOVEMBER 2008 CONTENT 14 PHOTO: CHIP MITCHELL 08 PHOTO: CHIP MITCHELL 18 19 16 PHOTO: JERRY LINDAHL PHOTO: MAGNUS FOND 06 |SALES DRIVING GROWTH 16 |QUALITY – HALLMARK OF CIGAR MAKING After ten successful years, Swedish Match in North America is To maintain a leading position within the premium cigar continuing to drive sales and focus on innovation. New segments are category, quality is of the utmost importance. Swedish Match has emerging continuously and the American snuff is rapidly gaining ground. cultivated a stellar reputation for quality among retailers and consumers. 08 |INNOVATION IN SNUS AREA Smokefree tobacco is one of the fastest-growing consumer 18 |ENVIRONMENTAL HEALTH categories in the US. Many players have endeavored to Swedish Match North America has a long tradition of working with penetrate the market but few have succeeded. However, environmental issues as an integral part of daily business. Read Swedish Match’s innovativeness is ideally suited for about a continuous development to increase resource expansion in a dynamic market. efficiency and systems for cleaning and reducing emission. 14 |PREMIUM CIGARS SHOW POTENTIAL 19 |NEW PRODUCTS A record-breaking year in terms of the number of launches of new New snus products have been launched. Read about Grovsnus premium cigars – that’s how 2008 can be summarized. However, Svart and the new member of the snus family General: General current market conditions make it more important than ever to work clo- Ekstra Sterk, a stronger original portion-packed snus. The snus has sely with customers in order to find new sales concepts and drive sales. a powerful tobacco taste with elements of citrus and pepper. november 2008 | inside 3
News Tobacco museum ready to reopen In November, the doors will open to a renovated and cultural-historically restored tobacco and match museum. Unscientific snus The inauguration will be performed by Swedish Match President Lars Dahlgren and Johan Brattmyr, Director of the Skansen Open-air debate in Norway Museum, during a ceremony According to Norwegian media, the Public Health Authorities wants to featuring a brass band and a large wants to reintroduce a cancer warning amount of pomp. for Swedish snus. The background is a In addition to renovation of the recently published report indicating that building, the manufacturing plant will Swedish snus can cause cancer in both be in full operation. Museum curator the oesophagus and the pancreas. Patrik Inga Junhem is pleased: Hildingson, Vice President, Swedish “We have reviewed and renewed Match Group Public Affairs, believes our exhibitions and added new that there is no scientific evidence that concepts in which we have placed supports a reintroduction of the cancer warning for snus, a conclusion that the tobacco in the context of enjoyment. EU already reached in 2001. At that time, Coffee, chocolate and tobacco have provide visitors with inspiring taste the cancer warning was replaced by a similar histories. By linking them, experiences. In future, we will also more general warning text. in part through collaboration with have cigar tasting at the museum,” says “This type of disinformation makes the museum restaurant, we hope to Inga Junhem. it difficult for the more than 100 million smokers in the EU who are seeking a Final for General Golf sensible alternative to cigarettes,” says Patrik Hildingson. “The report has been criticized in scientific literature due to its methodological weaknesses. In addition, General Golf is Swedish Match’s golf its assertions are not supported by public tournament in which the Swedish health statistics. The incidence of these sales force invite customers to play cancer types among Swedish men is among the lowest in the world, and they together with professional golfer are the only men in the world who have Fredrik Jacobsson. The tournament used snus on a broader scale over the takes place on five Swedish courses, and past 200 years.” the final was held at Bro Hof Castle, EU’s SCENHIR report 2008, conclu- outside Stockholm. The competition ded that snus has a positive effect on days began with a joint dinner at which Swedish public health. Fredrik Jacobsson spoke about life on Read more at www.swedishmatch.com. the PGA Tour. Swedish Match has had a sponsorship agreement with Fredrik Jacobsson since Contact us! 2004. His tournaments include competitions on both the PGA Tour and the Mail to inside@swedishmatch.com European Tour. During the 2003 European Tour, he won the Omega Hong Kong or write to: Swedish Match AB, Inside, Open, Algarve Open de Portugal and Volvo Masters. SE-118 85 Stockholm, Sweden 4 inside | november 2008
FOCUS. Swedish Match has enjoyed a number of successes over the past year – proving the viability of the Group’s long-term strategies. Swedish Match Inside provides in-depth insight on the strategies for continued growth and profitability. In this issue we take a deeper look at the US market. Swedish Match North America Division has substantial businesses in the strategically important cigar and snuff product areas. Other product areas such as chewing and pipe tobacco provide strong cash flows and support the division’s efforts. PHOTO: MAGNUS FOND >>
Focus North America NEW PRODUCTS AND INCREASED SALES DRIVING GROWTH “We have had ten years of success and when looking at at the financials, we have increased operating income almost four times over the past decade,” says Lennart Freeman, President, Swedish Match North America Division. BY: KAROLINE HAMMAR In the US market, the moist snuff T o be as successful over the next into profitable business opportunities.” ten years there is hard work Freeman nevertheless describes the product Red Man was launched in ahead. Despite a declining market as dynamic and concludes that 2007. As the number one brand of world economy, increasing tobacco new segments are constantly growing. chewing tobacco, Red Man has strong regulations and a tough market recognition among smokefree tobacco environment, Freeman is convinced EXPANDING STRONG BRANDS consumers in the US. Expanding that Swedish Match will continue “The snuff area is growing rapidly,” the brand to include the moist snuff to successfully drive innovation and he says. “Over the past several years category provides access to the strong increase sales in the North American the US moist snuff market has grown brand values that Red Man represents: market. by more than six percent per year. quality, heritage and tradition. There is “With the existing conditions in So far in 2008, ACNielsen estimates also an increased interest in the US for the US, sales of luxury goods, such as market growth to be in the range of Swedish snus. In 2007, test sales of the premium cigars, are not doing as well seven percent with the value-priced Swedish brand General expanded and as before,” he says. “Tobacco regulations and pouch segments delivering the increased its presence in New York, and the ongoing debate about the strongest growth. More consumers are California and Texas. health risks in using tobacco products entering this category, including those “We expect continued growth in are challenges we have to address. This having, or trying to, quit smoking. A the moist snuff area due to smoking tests our innovative and entrepreneurial broad range of brands, products and bans and increased understanding skills, which means we have to find attractive pricing have further fuelled of the concept of harm reduction,” ways to turn tough market challenges the market growth.” Freeman says. “When the message increased its presence across the US. Chewing tobacco: This is North America: Red Man. Pipe Tobacco: Half and Half. Production units: Premium cigars are manufactured in the Geographical scope: The North American market comprises Dominican Republic and Honduras. Machine-made cigars the US and Canada. are produced in Dothan, Alabama. Moist snuff and chewing Product areas: Cigars, moist snuff, chewing tobacco, as well tobacco are manufactured in Owensboro, Kentucky. as pipe tobacco and accessories. The Swedish snus products are manufactured in Scandinavia. Major brands: Premium cigars: Macanudo, Partagas, Punch, Market in figures: About two-thirds of the premium-cigar Hoyo de Monterrey, Cohiba, La Gloria Cubana, Don Tomas production is sold in the US. The US is the world’s largest and Helix. Machine-made cigars: Garcia y Vega, Game by moist-snuff market with a consumption of more than 1.1 billion Garcia y Vega and White Owl. Snuff and snus: The traditional cans during 2007. In the last four years, the moist-snuff market American moist snuff Timber Wolf, Longhorn and Red Man. In has grown more than 6 percent annually. 2007, test sales of the Swedish snus General expanded and it Source: ACNielsen 6 inside | november 2008
Focus North America competition is fierce in this category and makes it harder to compete.” Compared to other large international tobacco companies, Swedish Match is a rather small player on the US market. However, Freeman sees competitive advantages. “It is not as easy for large corporations to have flexible production, marketing, sales and administration as it might be for smaller companies,” he says. “We are innovative and can easily adapt our efforts, including production, which has especially shown in the category of machine-made cigars. We have an organization with efficient decision processes and thanks to our size, we can more easily adapt to the market and its changing consumer demands.” Other important success factors, Freeman says, include having the right people in the right places with passion for the business, and a good leadership. “I am proud to say, we have some “W e a re in no - of the best people in the industry although we are a smaller player in the US market,” he says. vati v e an d c a n Some of the big tobacco companies have entered the snuff market and eas ily a d ap t are showing strong decisiveness in developing the smokefree category. This is one of the reasons for the our efforts” PHOTO: CHIP MITCHELL joint venture with American tobacco company Lorillard. The venture aims to make Swedish Match products more visible to consumers on the market. A new Swedish snus called of relative low health risks associated the premium cigar segment,” Freeman Triumph can now be purchased from with smokeless products is fully says. “The number of new players retailers’ cigarette shelves, which will understood, the market will be entering the markets are increasing, make snus more visible and accessible enormous.” which challenges us to offer a broad to both cigarette consumers and new selection that attracts our consumers. snus consumers. ADAPTABLE ORGANIZATION The cigar category is more of a fashion “To go forward, we have to follow Consumer dynamics are different industry; the consumer appreciates our consumers, stay focused, be in the moist snuff category and different flavors, new packaging and innovative about our strong brands the consumers tend to be more innovative formats.The volume and keep refining our business model conservative than in, for example, the will always be smaller, especially from year to year. That’s how we will cigar category. in the premium segment, it is a drive profitable growth through new “We have a very strong position in lifestyle product of higher value.The offerings,” Freeman concludes. * november 2008 | inside 7
Focus North America From left: Steve Terrell, Clark Darrah and Elliot Eliades agree that as competition evolves Swedish Match is inspired to move forward. INNOVATION AT THE FOREFRONT The United States is the world’s largest market for smoke- less tobacco, with annual consumption of more than 1.1 billion cans. Smokeless tobacco continues to be one of PHOTO: CHIP MITCHELL the fastest growing consumer packaged goods categories in the US with volume growth of more than five percent per year over the past several years. BY: SANDY FOWLER-JONES 8 inside | november 2008
Focus North America “ Consumers get premium taste at an ” affordable price snuff was viewed by many as a product that had a limited growth potential, catering primarily to rural and blue collar consumers. ”Several attempts were made to enter the moist snuff category by many tobacco companies. But due to extremely strong brand T he competitive landscape for moist snuff has changed over the past several years with two of the loyalty, most attempts failed,” Steve Terrell says. largest US cigarette manufacturers, Altria and RJ In 1994, Swedish Match North America launched Timber Reynolds, entering the category. Wolf snuff with a value priced proposition. Consumers Swedish Match is a strong competitor in this fast could finally get a premium taste at a more affordable price. growing market, and has been gaining market share, from eleven percent to be roughly 12 percent* in volume terms ACCELERATED GROWTH since September 2007. The team leading growth and By 2006, the moist snuff category was experiencing product development for the North America Division accelerated growth reaching more than ten percent, led by includes Clark Darrah, Director of Marketing for Smokeless the rapid expansion of the value priced segment. Since 2005 Tobacco, Steve Terrell, Product Development Scientist, and the value price segments have accounted for 89 percent of Elliot Eliades, Director of New Products and Innovation. the total growth in the snuff category. Eliades also notes All three agree that as competition evolves, Swedish Match has the tools in place to effectively move forward in this changing, dynamic marketplace. Prior to 1980, American moist “Smoking bans contribute to growth in the snuff category * Source: ACNielsen november 2008 | inside 9
Focus North America “”Snus presents a great opportunity for us in the US, with several tobacco companies introducing snus or ’snus-like’ products. Snus presents a great opportunity for us,” Eliades says. Terrell agrees: ”No other tobacco company is better poised to capitalize on the US snus market than Swedish Match. There are several that: “A proliferation of smoking bans as well as higher tax key factors for success in terms of development and growth. rates on cigarettes contribute to the growth as cigarette We must challenge ourselves to create innovative snus smokers migrate to the category.” products for the US markets. The product development The growth of moist snuff should continue as consumers groups within North America and North Europe have a look for alternatives to cigarette smoking and have the long and strong relationship and this teamwork is vital to opportunity to enjoy the existing and new products in successful snus products in the US.” the moist snuff category, according to Darrah. “Currently, we have approximately 12 percent of the US snuff INNOVATION TO MEET UNIQUE NEEDS market. Our objective, however, is to see both short-term Swedish Match North America faces strong competition and long-term share growth. We are clearly headed in the by well-financed competitors. However, Terrell and Eliades right direction. In several states we have market shares of 15 agree Swedish Match is the original snus and is the sole percent or more.” reason for the ‘Swedish Experience’ because it is a sensible “The current economic conditions in the US favor alternative to cigarettes and other smoking products, continued growth in the value priced segments and foremost because it does not deliver toxic pyrolysis Swedish Match North America has the momentum. We are products. well positioned to leverage opportunities,” says Darrah. “We will leverage this unique quality in the US,” they say. Over the past two and a half years, Swedish Match share As Swedish Match North America looks to the future the on the North American market has grown by more than major growth drivers will be continued organic growth and two percentage points, achieving new all-time highs. significant new product innovations targeted to meet the unique needs of smokers and current smokeless consumers. SNUS – A GROWING TREND Swedish Match is well positioned to successfully compete. Innovation has always been at the forefront “We have a comprehensive under- of the marketing strategy for Swedish Match. standing of tobacco consumers. This “We have created the value price gives us a clear advantage as we look segment with Timber Wolf, developed the to optimize our snus offerings in the fast growing price brand with Longhorn marketplace. As the manufacturer of and is redefining the premium price snuff snus, we see continued opportunity segment by offering a Red Man moist snuff, a to provide consumers with less premium brand at a respectable price. Most harmful alternative tobacco recently, snus has become a growing trend products,” Eliades says. * 10 inside | november 2008
Focus North America INFORMATION BRINGS ADVANTAGES Gary Poehlmann, Vice President Sales, Swedish Match North America Division, stresses the need of business intelligence: ”The data we have at our disposal provides us with the business intelligence we need to make good decisions in deploying our resources. Moreover it enables us to distinguish ourselves with a competitive advantage when we are working with customers.” BY: KAROLINE HAMMAR M ulitple data sources recently introduced a faster and more store owners is something I’m very provide Poehlmann and efficient version of our trademarked proud of. Add to this our strong his team the ability to category management process, and leadership and excellent brands, and identify specific opportunities by next year we will roll out other new I’m very confident that we are well geography, brand, chain group, and software and hardware to the sales prepared for the future.” * individual stores. team. We also have a new online “Our database includes learning management system which information on 166,000 stores. We know how many cans of snuff each store sells and have developed provides an easy and efficient way to conduct training courses.” Facts a routing system for our sales PREPARED FOR THE FUTURE representatives that target the highest When it comes to the challenges SALES NORTH AMERICA volume stores. From there, we ahead, Poehlmann is very clear about • Four regional offices across the US establish distribution goals for our what he thinks Swedish Match and a national accounts team based in Richmond. brands, and track and measure our biggest advantage and asset is. • The sales organization is divided into progress against those goals. That “Our salespeople are simply the account teams who handle distributors same data serves as the foundation best in the business. All the data in and chain groups such as McLane and for our category management the world won’t get you anywhere 7-Eleven, and retail teams who focus on activities, where we are the without talented and dedicated retail store activities. leader in providing other tobacco employees. The personal relationships • The sales force has 396 employees and products category-expertise to our and trust they have built with our 254 of them are territory representatives. customers.” largest customers and individual INVEST TO ENHANCE LEADING POSITION The competitive nature of the smokefree business in the US is increasing as cigarette consumption continues to decline and consumers are gravitating toward other alternatives. Snuff sales are growing at accelerated rates year on year. “The continued robust growth of the snuff category here has encouraged nearly all tobacco companies to want a piece of the action, including the large cigarette companies. This requires that we Gary Poehlmann thinks PHOTO: CHIP MITCHELL sharpen our skills even further, and Swedish Match sales continue to invest in the technology people are the best in and training needed to stay ahead the industry. of the pack. Toward that end, we november 2008 | inside 11
Focus North America PHOTO: CHIP MITCHELL SMARTER, BETTER AND MORE EFFICIENT Rusty Warnick, Vice President Operations & Supply, Swedish Match North America Division, says factories must constantly re-evaluate processes to find new ways to compete effectively in a powerful dynamic industry. BY: KAROLINE HAMMAR “ We must continuously Efforts in the Owensboro plant produce all the chewing tobacco search for innovative have been made to create a demand for the tobacco company National streamlined processes,” driven manufacturing. Tobacco in a co-packing agreement, he says. “Our ultimate goal is to set “By driving leaner inventory beginning in 2009. This will allow for customer expectations at levels that levels and adopting efficient pull increases to chewing tobacco volumes are difficult for our competitors to manufacturing processes, we are on production lines that have seen meet.” guaranteed to have the right product steady declines over the years. Swedish Match North America has at the right time,” Warnick says. Lower Dothan’s strength is in its versatile three plants: Owensboro in Kentucky, inventory levels also mean lower workforce which is focused on Dothan in Alabama and Santiago in working capital. innovation. A spirit of resourcefulness the Dominican Republic. All three In addition, Owensboro will also exists at the plant which encourages plants have demand driven production creativity. One example is the way and are continuously working to employees reduced costs through improve flexibility. development of special equipment “Each plant has tremendously from concept to implementation. In dedicated workforces who take addition the Dothan plant has been pride in the products they produce. successful with its work on the new However, the industry challenges are Cigarillo foil pouches. immense. Economic fluctuations, “Santiago’s highly motivated the possibility of the US government workforce focuses on becoming more requiring the Food and Drug efficient by learning new ways to Administration to regulate tobacco, improve work processes. We reduce and increased competition with waste, and at the same time we do cigarette manufacturers entering the production quickly and at a lower category are some of the challenges cost. At all of the plants there is a we face. Therefore we are constantly new mindset where we switch from finding ways to improve our being reactive to being responsive and PHOTO: CHIP MITCHELL operations in production, product Packaging is fun when proactive. At the end of the day the management, customer support, the process is smart employees’ commitment to excellence inventory and warehouse procedures, and efficient. is in alignment with our company in order to gain a competitive edge.” values.” * 12 inside | november 2008
Focus North America Facts OWENSBORO FACTORY • The Owensboro factory was built in 1972. • The facility produces products in three major groups: chewing tobacco, snuff and pipe tobacco. • The Quality and Environmental Mana- gement Systems are ISO certified. • The factory has 222 employees. • Owensboro is located 120 miles west of Louisville, Kentucky. DOTHAN FACTORY • The Dothan factory was built in 1939, with additional buildings added in 1953 and 1986. • The facility produces machine made “Each planted cigars. • The Quality and Environmental Mana- gement Systems are ISO certified. has dedicatwho • The factory has 210 employees. • Dothan is located in the south east of the US state of Alabama. work force n SANTIAGO FACTORY t a k e p r i d e i • The Santiago factory manufactures ” small and large natural and homogeni- the p r o d u c t i o n zed wrapper cigars. • The factory has 747 employees. • Santiago is located in the Dominican Republic. november 2008 | inside 13
Focus North America PREMIUM CIGARS SHOW FUTURE POTENTIAL The premium cigar industry in the US is facing some challenges, but, in the face of these challenges, Swedish Match’s business has seen steady growth and positive trends this year, with the potential for sequential growth in the fourth quarter of 2008. BY: KAROLINE HAMMAR D an Carr, Senior Vice investing in our innovation platforms The future potential of premium President Sales & Marketing, are critical components to our strategy cigars is bright as consumers continue Swedish Match North moving forward.” to be open to new product ideas. America Division, describes the New smoking trends stress the Dan says, “We have external challenges confronting the importance of speeding up innovation five new cigar business as a downshifting of the and re-evaluating strategies on how to product economy, inventory readjustments, go to market. launches and increasingly strict legislation activity. “We’ve strategically and aggressively this year, “It’s important to remember the invested within our infrastructure this the most industry has withstood legislative year for both the sales and marketing we’ve and economic threats before. We functions.” supported feel we’ve assessed the situations into the confronting us and we’re well market, positioned for the future,” he says. General Cigar, a subsidiary of Swedish Match, is market leading in the Facts with each initiative designed to premium cigar segment in the US meet a different consumer trend. Our with fully integrated tobacco growing, GENERAL CIGAR CO new Macanudo 1968 with its fuller processing, and manufacturing General Cigar Co, a subsidiary of Swe- bodied taste profile was exceptionally capabilities. dish Match, manufactures and markets well received at the International handcrafted cigars for the premium “We see multiple opportunities to Premium Cigar and Pipe Retailers market. Passionate about delivering expand the premium cigars of the finest quality, General Associations Annual Convention and cigar category. Cigar produces Macanudo, Partagas, Trade Show. The Excalibur Legend Leveraging our Cohiba, Punch, Excalibur, Hoyo de was also designed to meet the full- extensive and unique Monterrey, La Gloria Cubana and seve- bodied taste profile.” quality tobaccos ral other industry leading brands, which Other launches include La Gloria in the marketplace, staying relevant are sold through tobacconists nationwide. Artesanos de Miami, a super premium with each of our brand equities, and limited edition cigar, a new line 14 inside | november 2008
Focus North America Dan Carr and Debo Mukherjee, General Manager business ventures discuss business opportunities. se e m u lt ip le “We e s to oppor tu n iti d th e p r e m - expan a t e g or y” ium ciga r c PHOTO: CHIP MITCHELL extension of Cohiba known as Puro Dominicana, and Havana Honeys, which is designed to establish General Cigar as a major competitor in the premium flavored cigar segment. “When the economic situation influences the sales of luxury items such as premium cigars, it is even more important to work as close as The cigar named Partagas we can with our customers to find is one of many cigars that concepts that will help their business. makes General Cigar a major Bringing in new consumers and competitor in the premium increasing our value to our customers cigar segment. is our number one priority.” * november 2008 | inside 15
Focus North America PHOTO: JERRY LINDAHL i s a n i n t e g r a l “Qu a l i t y w e t o f e v e r y t h i n g pa r o d u c t i o n ” do i n c i g a r p r 16 inside | november 2008
Focus North America QUALITY AND New tobacco plants TRADITION PHOTO: JERRY LINDAHL Jhonys Diaz, General Manager of the Swedish Match tobacco plant in the Dominican Republic, has a lot on his mind at this time of the year. Inside asked him about his commitment to producing high-quality cigars. BY: VICTORIA MCKEE “ During this time of General Cigar. It is an integral for two generations of the same family year, I work to oversee part of everything we do in cigar to have worked in the factory. production of the new production. In my role, I uphold the How do you create new cigars? products we debuted in July at the company’s commitment to quality by “I am a member of General International Premium Cigar and Pipe ensuring the tobacco is properly cared Cigar’s new product-development Retailers Association, which is the for and that the people who handle team. As such, I consult with Cigar annual tradeshow for the premium- it are well trained. I also oversee our Masters Daniel Núñez and Modesta cigar category,” he says. “This effort quality-assurance team to make sure Fondeur by providing my input on entails ensuring that we are fulfilling that every cigar is handcrafted to prototypes developed for the US and shipments of new and established perfection. international markets. We also work to products. I am also working to plan Another way we maintain the develop cigars that will meet the needs production for the remainder of this quality of our products is to retain of our consumers, based on input given year and next year.” employees. Many of the skilled to us by key executives from our sales How is quality maintained year artisans who work in our Dominican and marketing teams. New product after year? factory have been working with us development is an exciting process. I ”Quality is a hallmark of for decades. In fact, it is not unusual truly enjoy creating new cigars together with my colleagues.” How do you stay on top among competitors? “To maintain our leading position within the premium cigar category, quality is of the utmost importance. After all, General Cigar has cultivated a stellar reputation for quality among retailers and consumers. Still, we are never able to rest on our reputation. We are only as good as the cigars we bring to the marketplace.” What inspires you? “The passion that our employees have for our products. I am also filled with pride when I walk through the PHOTO: FRANKLIN FILION Jhonys Diaz oversees that factory and speak with our employees every cigar is handcrafted because their commitment to making to perfection. the best cigars in the market is evident in everything they do.” * november 2008 | inside 17
Focus DEDICATION IMPROVES ENVIRONMENTAL HEALTH With dedication and enthusiasm all employees at the North American facilities work for the development of environmental well-being. Swedish Match has a long tradition of working with these issues as an integral part of daily business. BY: KAROLINE HAMMAR “ The importance of unit. It could include using low on unused land at the tobacco farm environmental issues is energy light bulbs in the factories to in the Dominican Republic, noise increasing in pace with save trees by not printing documents reduction initiatives at the factory more stringent requirements and unless necessary.” in the Dominican Republic, several increased awareness on the part of The production processes and raw water and waste reduction projects at consumers, customers, suppliers and materials being used in the factories the two factories in Honduras, fuel authorities,” says John Danhauer, generally have limited impact on reduction projects in the Dothan Manager Utilities & Machine the environment and approximately Alabama factory and reductions in the Shop at the Owensboro plant 80 percent of Swedish Match’s raw use of chemicals and chemical waste and Environmental Coordinator materials are renewable and production reductions in the Owensboro Kentucky for the Swedish Match North handles environmentally harmful factory, just to mention a few. America Division. “That’s why substances to only a limited extent. “Effective the end of November we continuously have to develop “We have made great efforts in with the registration of the factories processes to increase resource all environmental areas including in Honduras, all manufacturing efficiency and further develop systems reduction of energy, waste reduction, facilities in the North America for cleaning and reducing emission.” reductions in water use and reduction Division will be ISO 14001 registered. “At the same time as we develop of discharges to air, land and water. This would not be possible without our processes it is as much about The manufacturing facilities in the dedication, interest and enthusiasm everyone taking small steps in the North American Division shown by everyone who works at everyday business. The search for have implemented approximately 40 these facilities for the environmental items with negative environmental environmental projects in the past year.” health and well-being of our planet,” impact originates at each business Examples include reforestation says John Danhauer. * 18 inside | november 2008
New products 7 NEW WONDERS Giftbox 2008 is here, the theme is The New 7 Wonders. Over 100 million votes for the New 7 Wonders, were MATCH BOX IN received and revealed during CHRISTMAS DESIGN a spectacular live event in Lis- bon, 2007. Each wonder has We are celebrating Christmas with a trendy its own exciting history, which decorated series. This design is available in all you can read more about on match brands, all over Europe. the back of the box. HOYO DE MONTERREY EXCALIBUR LEGEND HOT SNUS GROVSNUS SVART As the boldest expression of Hoyo de Monterrey Excalibur, Legend begins when spicy Nicaraguan tobacco from the mainland is paired with Grovsnus Svart is a new rough, masculine and black a proprietary tobacco from Nicaragua’s remote volcanic island of Ome- tobacco experience. It is a coarse-grained snus, tepe and blended with a powerful Dominican ligero. The new Legend packed in a black portion. This snus has a full- is in keeping with the growing demand for full-bodied cigars that smoke bodied, intensive tobacco taste with a hint of smoothly and effortlessly. vanilla, leather and aniseed. Behind the hint of the new flavors you find the clear and recogni- zable Grovsnus taste. BETTER AND TASTIER ONICO EXPRESS YOURSELF A new version of Onico, our tobacco- and nicotine-free WITH A CRICKET product, is launched. In cooperation with the Insti- tute of Odontology at the University of Gothen- With this new concept Cricket gives you the burg, we have developed a new recipe based opportunity to customize your own lighter. on oats and cacao fiber. The rare risk of root Each blistercard of three lighters includes six decay that occurred in the past will be nearly fluorescent stickers. Express yourself and write non-existent with the new recipe. The New messages on your lighter. Onico feels slightly richer and the color is darker, making it more similar to ordinary snus. AN EXTRA STRONG GENERAL A new member of the snus family General is born: General Ekstra Sterk, a stronger original portion-packed snus now available in the Norwegian market. This snus has the classic General taste, with a powerful tobacco flavor with elements of citrus and pepper. The box is black with a discreet red stripe and contains 22 portion packages. november 2008 | inside 19
The quarter in brief JULY–SEPTEMBER Results for the third quarter I n local currencies sales for the third quarter of 2008 declined versus prior year in Europe. Operating margin increased by 8 percent compared with the third for cigars reached 20.1 percent (20.5). quarter of 2007. Reported sales for the third quarter Group operating profit for the third quarter increased increased by 5 percent to 3,432 msek (3,272). Currency by 14 percent to 864 msek (759). In local currencies translation has affected the sales comparison negatively by operating profit increased by 18 percent. Currency 99 msek. translation has affected the operating profit comparison Sales of snuff increased by 16 percent during the third negatively by 33 msek. quarter to 992 msek (852) and operating profit increased Operating margin for the third quarter amounted to by 26 percent to 483 msek (383). 25.2 percent compared to 23.2 Scandinavian snus sales were up percent for the third quarter of 20 percent compared to the third 2007. The income tax rate in quarter of the prior year while the isolated third quarter was at volumes measured in number of 11 percent, positively impacted cans declined by 2 percent. Snuff by the reversal of certain tax sales in North America were up provisions. by 13 percent in local currency, Earnings per share (basic) for as a result of both volume growth the third quarter increased by and a higher average price for 39 percent to 2.63 sek (1.89). the portfolio. Operating margin Diluted EPS was 2.63 msek reached 48.7 percent (45.0). (1.88). For cigars, sales increased by 4 percent during the third quarter to 936 msek (902). Operating profit increased to 188 msek (185). Cigar sales grew in the US “In local cur- in dollar terms, as a result of the rencies sales increased by acquired Cigars International business and improved PHOTO: PETER KNUTSON performance for machine made cigars. In Europe, sales declined. 8 percent.” Operating profit increased in Joakim Tilly, CFO Swedish Match the US in local currency and 3 analyst comments 1 2 Anders Hansson, analyst be regarded as temporary. Cigars Stefan Mattsson, analyst SEB: Danske Bank: reported earnings in line with market “The earnings were favorable. “Earnings were better than expectations. The strong cash flow for Positive elements included the expected. Snus excelled with strong the quarter was also positive. Despite margins on snus and snus volumes sales and healthy margins. A positive the financial situation, Swedish Match in Scandinavia, which only declined price mix for snus displayed in the is one of the few companies that were 2 percent. Lighter products reported US for the first time in five years. The able to beat market expectations. surprisingly strong earnings. Cigars positive deviations within chewing Swedish Match is a stable company delivered somewhat weaker results tobacco and lighter products should with strong shares.” than expected. The strengthening of 20 inside | november 2008
Share development Between July 1 and September 30 2008 9 percent. Over the 12 month period to Swedish Match share price declined by the share price of Swedish Match was virtual- September 30, the Swedish Match share 11 percent, demonstrating the defensive ly unchanged, at 120 SEK. During the same has significantly outperformed the OMXS30. characteristics of the Swedish Match share. period, the OMXS30 index of the 30 largest During this 12 month period, the index Swedish listed companies, declined by declined by more than 37 percent, while the Share price and turnover Total return Millions % SEK shares 160 Swedish Match (SEK) 40 120 OMX Stockholm 30 (SEK) 35 Turnover, millions of shares per month 100 120 30 80 25 80 60 20 15 40 40 10 20 5 0 0 2003 2004 2005 2006 2007 2008 2003 2004 2005 2006 2007 * Indexed to the initial Swedish Match share price on this graph. July–Sept July–Sept Full year MSEK 2008 2007 2007 NET SALES JULY–SEPT 2008 OPERATING PROFIT JULY–SEPT 2008* Sales 3 432 3 272 12 551 Other operations 19% Snuff 29% Cigars 21% Snuff 54% Operating profit 864 759 2 997 Lights12% Chewing tobacco10% Profit before income tax 747 655 2 662 Pipe tobacco 6% Lights 9% Net profit for the period 665 491 2 056 & accessories Pipe tobacco Chewing tobacco 7% Cigars 27% 2:63 1:89 7:80 & accessories 6% *excluding Other operations Earnings per share, basic (SEK) 3 the USD will be positive for Swedish Jonathan Fell, analyst market share, although were are Match ahead, although it should Deutsche Bank: a little wary of how competitive be remembered that the margin on “This is a good set of dynamics in the US will develop snus will be negatively impacted by figures; in particular snuff sales and next year. Premium cigars in the the geographic mix. Stability in the margin performance were ahead of US are under pressure, but mass company remains strong and its cash forecasts. The core business seems market is performing well. Overall flow is healthy. Consumers seem to to be moving along very well and Swedish Match looks like a good be relatively indifferent to increased is on track. Sales of Red Man in stock for the current difficult taxes and more expensive snus.” the US are increasing and gaining economic environment.” november 2008 | inside 21
Portrait MODESTA FONDEUR A cigar-loving lady The tobacco industry has traditionally been dominated by men. After almost 35 years in the business Cigar Master Modesta Fondeur has gained a reputation as one of the most valued cigar masters in the world. She says it is more than cigars; it’s a way of life. BY: JERRY LINDAHL “ I was influenced at an office duties, but I was soon given the craftsmanship underlying cigar early age. As long as I can responsibility for managing inventory, manufacturing. It is so much more remember, both of my invoicing, payroll and everything else than just cigars. It’s a way of life.” grandfathers smoked cigars. I enjoyed that goes on in an office.” The tobacco industry is by tradition the smell as a child and was later Modesta takes a puff from her dominated by males, and Modesta had able to smoke them myself. Today, newly lit cigar and continues: all eyes on her from the beginning. few people react, but 20 years ago, “At that time, the company had “Naturally everyone was watching a woman smoking a cigar attracted only a couple of hundred employees. me. They were curious to know attention. Today that may seem a Over time, it grew and my focus whether I would be able to do the little old-fashioned, but that’s the shifted from administrative work to job or not. I have never felt a lack of way it was then,” says Modesta more practical tasks. In 1978, we began acceptance from my male colleagues. with a laugh. to manufacture cigars here. Because If you are motivated and do a good “Today, smoking is part of my job. I I was alone in administration, I was job, you will get help and respect. I need to keep control over production. simply forced to learn everything really appreciate my work and find it It is my responsibility to ensure that about what was happening in the stimulating. There is always so much the cigars that we produce are of high tobacco fields. I found that more happening. Weather and winds are and uniform quality. Test-smoking stimulating and more physical. That constantly changing. Sometimes it our cigars is an important part of my was how I began to learn more about rains a lot and sometimes only a little. work. If the quality and the tobacco cigar manufacturing. I then have to take new decisions and blend meet my quality requirements make adjustments in production.” and thus those of our customers, then A GREAT CHALLENGE So tobacco is one part of the job. everything is as it should be.” “In 1997, I became the head manager The other is all the people. for the cigar plant. A few years later, “This job really is about tobacco WHY GENERAL CIGAR? we bought the plant in Honduras, and and people, which makes it intensive “When I finished my degree in I quickly learned about their culture, and exciting. If you have tobacco but no economics in 1975, my advisor at the other types of tobacco and cigar people who can work with the tobacco, university, who was then also a jurist manufacturing. Quite simply, I liked there will be no cigars. It’s that simple.” at General Cigar, asked me to bring the challenge of the job.” my CV to the office at the plant. My Today, there are nearly 6,000 SOCIAL RESPONSIBILITY employment coincided with General employees in the various stages of When asked about conditions for Cigar’s establishment of its operations cigar production in Honduras and the workers in the cigar manufacturing in the Dominican Republic, and Dominican Republic, which includes plants, Modesta’s eyes light up. I began working the very same everything from cultivation to finished “Here in the Dominican Republic day operations started in earnest. cigars in boxes. and also in Honduras, it should never Initially, my work involved routine “Personally, I have always respected be taken for granted that people 22 inside | november 2008
Portrait PHOTO: JERRY LINDAHL For Modesta test smoking is a natural part of the job. Quality has to meet her requirements. can read and write. Women are is to ensure that the cigars that are often overlooked because they run the household and do not need to be able to read. We want to change produced are of high and uniform quality. She is also a member of the test panel that evaluates the tobacco blends In brief that. We have started a program that that are used. Since a large amount of provides opportunity for our workers cedar wood is used for cigar boxes, a MODESTA FONDEUR to receive financial support to learn replanting program for both cedar and Favorite cigar: Partagas size 42–44 reading, writing and arithmetic. That mahogany trees has been started. rings is the cigar I llike the most and it strengthens their self-confidence and “We try to learn from others’ tastes best when I enjoy it after work in the will to improve their standard of mistakes. We do not want our land to peace and quiet. living. When our computers become become depleted and erode as in our Age: 57. too old, we donate them to the neighboring country Haiti.” Family: Husband Pedro, daughter schools. It’s important to remember Today, after slightly more than 30 Mariel and her husband Luis Baez, and that it is not only the workers here years in the company, Modesta Fondeur Pedro Jose, daughter-in-law Lorena at the plant who depend on General is vice president and, together with and grandson Manuel Enrique. Cigar, but also the family members Daniel Núñez and Ernesto Perez- Residence: Santiago, Dominican who do not work here.” Carrillo, she is one of the few people Republic. Modesta is involved in nearly in the world with unique, cutting-edge Interests: My family. everything, although her primary task expertise in cigar manufacturing. * november 2008 | inside 23
Rich, dark and unexpected – Macanudo 1968 Ever since the first Macanudo cigar was rolled, America has embraced its quality and consistency, making it this country’s favorite premium cigar. To commemorate its origin, General Cigar presents Macanudo 1968 which is named to commemorate the year that General Cigar purchased the Temple Hall factory in Jamaica. BY: VICTORIA MCKEE Cigar Master Daniel Núñez is proud to introduce it tastes like no other cigar I have ever smoked,” Macanudo 1968, a limited edition collection made Núñez says. solely of proprietary tobaccos. This new line is particularly special because “It is with great pleasure that I present this it celebrates Daniel Núñez storied career in the cigar. We developed the seeds used in each of the premium cigar business. He has exceeded all cigar’s components and selected specific growing expectations, having created a new cigar that regions to enrich the blend and its aroma. So is destined to enjoy the success of previously unique are the tobaccos used in Macanudo 1968, released incarnations of Macanudo.
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