Swedish Match - sales up for SNUS in Sweden, Norway and U.S. type SNUFF in the U.S.A...

July 18, 2009 - Snus sales and volumes grew in all Scandinavian markets. In the US we continued to gain market share for snuff, and volumes grew by 21 percent. The strong volume gain was aided by the replenishment of trade inventories following the federal excise tax related destocking at the end of the first quarter. Our US mass market cigar business delivered an unusually strong operating margin, as increased demand for cigars in the new "foil fresh" packaging to a large extent compensated for the expected volume drop following the tax related hoarding in the first quarter.

Last month Swedish Match raised its prizes of snuff with 4 percent on the Swedish and American market.

On July 2, 2009, Swedish Match AB announced the agreement to sell its South African operations, Swedish Match South Africa (Proprietary) Limited. In this half year report, Swedish Match's South African operations have therefore been reported as discontinued operations.

Snuff/Snus Sweden is the world's largest snuff market measured by per capita consumption. A substantially larger proportion of the male population uses the Swedish type of moist snuff called snus compared to cigarettes. The Norwegian market is smaller than the Swedish market but has in recent years experienced strong volume growth. The US is the world's largest snuff market measured in number of cans and is approximately six times larger than the Swedish market. In Sweden and Norway, Swedish Match has a leading position. In the US, the Group is well positioned as the third largest player. Some of the best known brands include General, Ettan and Grov in Sweden, and Red Man, Timber Wolf and Longhorn in the US.

During the second quarter, sales increased by 17 percent compared to the same quarter of the previous and operating profit increased by 15 percent. Sales and operating profit improved in Scandinavia as well as in the US.

In Scandinavia, sales volumes measured in number of cans, increased by 6 percent during the second quarter compared to the second quarter of the previous year, as volumes increased in all markets (Sweden, Norway and Travel Retail). Sales revenues in Scandinavia grew by 8 percent in the second quarter, while operating profit grew by 5 percent as the production costs increased somewhat more than the net sales price per can. Since February, General White Portion snus has been available throughout Sweden in an upgraded "star formation" packaging, following the successful introduction of this redesign initiative in Norway in 2008. This new packaging has been well received in Sweden, and the product has gained volume during the quarter.

In the US, sales volumes during the second quarter were unusually strong and up by 21 percent compared to the same period in the previous year. Sales volumes toward the end of the first quarter of 2009 declined sharply due to trade destocking related to the US federal excise tax increase. This was reversed in the second quarter. Swedish Match consumer volumes as measured by ACNielsen for the year to date period through June 13 increased by 9.2 percent compared to the same period of the previous year. Market growth in the same period was 2.3 percent according to ACNielsen. The strong shipment volumes were a contributor to the sales and operating profit growth in the US snuff business.

From April 1, excise taxes in the US increased by 91.5 cents per pound (about 7 cents per can for most products). Swedish Match maintained pricing for most of the quarter, thus absorbing the tax increase. On June 23, Swedish Match snuff prices were increased by 7-10 cents per can, thereby compensating for the tax increase going forward and reverting to net prices closer to the levels before the increase.

Cigars Swedish Match is one of the world's largest producers of cigars and cigarillos. Swedish Match offers a full range of different cigars and brands. Well known brands include Macanudo, La Gloria Cubana, White Owl, Garcia y Vega, La Paz, Hajenius, Hollandia, Justus van Maurik, Willem II and Salsa. The US is the largest cigar market in the world. Swedish Match has a leading position in the premium segment and is well established in the segment for machine made cigars. After the US, the most important cigar markets are in Europe, where Swedish Match is well represented in most countries. The largest markets for Swedish Match in sales terms in Europe are France, Benelux, Finland and Spain.

During the second quarter, US premium cigar sales, which includes Internet and mail order, were down less than 1 percent from the previous year in local currency. During the first quarter of 2009 substantial hoarding of premium cigars occurred in connection with the federal excise tax increases. Much of this hoarding was reversed during the second quarter. Sales of mass market cigars in the US were negatively impacted by the first quarter hoarding as well, but the year on year volume decline of 6 percent in the second quarter was better than expected, mainly as a result of the strong performance of the "foil fresh" packaged small cigars. In anticipation of sharper volume declines, costs were reduced to below normal levels in the second quarter, which in combination with price increases resulted in a sharp increase of the operating profit and margin in this product area. Cigar sales in Europe declined somewhat in local currencies as a result of mix effects and lower volumes, particularly in France, Belgium, and the Netherlands.

Chewing tobacco Chewing tobacco is sold primarily on the North American market, mainly in the southern US. Swedish Match is the leading producer of chewing tobacco in the US. Well known brands include Red Man and Southern Pride. The chewing tobacco segment shows a declining trend.

During the second quarter, the Company began producing chewing tobacco as part of a production agreement with National Tobacco. Production will be fully up and running during the second half of the year.

Lights Swedish Match is the market leader in a number of markets for matches. The brands are mostly local, with leading positions in their home countries. Larger brands include Solstickan, Three Stars, Fiat Lux, and Redheads. The Group's main brand for disposable lighters is Cricket. Swedish Match's largest market for lighters is Russia.

Reference: Swedish Match's profit up as snuff sales swells, Johan Nylander, The Swedish Wire, 7/17/2009; Swedish Match: Half Year Report January - June 2009, Swedish Match (STO: SWMA): CEO Lars Dahlgren comments: 7/17/2009.