The move marks the company's exit from the manufacturing of combustible tobacco as it shifts its focus to smoke-free products.
RICHMOND, Va. — After conducting a thorough strategic review of its businesses, Swedish Match is planning to separate its cigar business as the company looks to exit the manufacturing of combustible tobacco products, enabling it to focus on smoke-free products such as nicotine pouches and snus.
Over the past 20-plus years, Swedish Match has transformed its business model away from combustible tobacco, starting with the divestiture of its cigarette business in 1999, and later with its divestitures of pipe tobacco, premium cigars, and its non-U.S. machine-made cigar business.
Swedish Match's cigar business will be spun off to shareholders. The company has initiated preparations for a separation and a subsequent listing on a major U.S. securities exchange, with a final decision on execution subject to various considerations. The separation is expected to be completed during the second half of 2022.
"The intended separation of the cigar business provides even greater focus on building Swedish Match's presence in the growing modern oral category, while also providing opportunities and greater flexibility for the stand-alone cigar business to execute its own strategic plans toward delivering strong value as an independent company," Swedish Match said in a press release. "As a stand-alone company, the cigar business will be able to explore a broader scope of growth opportunities, and to optimize its operational set-up and capital structure, among other benefits."
Following the potential separation of the cigar business into a new stand-alone company, Swedish Match expects to provide commercial and administrative support to the new stand-alone entity during a transitional period.
The cigar business has solid positions in both the natural leaf and homogenized tobacco leaf (HTL) segments of the U.S. market and holds the No. 2 market position with approximately 23 percent of the market measured by number of sticks.
Since 2015, volumes have grown at a compounded annual rate of close to 10 percent from more than 1.2 billion sticks to more than 1.9 billion sticks in 2020, driven by robust growth for natural leaf varieties. During the same period, revenues have also grown by close to 10 percent on a compounded annual basis, while operating profit has grown by 54 percent.
During the first six months of 2021, compared to the same period of 2020, sales grew by 25 percent as a result of improved pricing and double-digit volume growth, and operating profit increased by 44 percent.
Swedish Match's natural leaf cigar portfolio includes such iconic brands as Garcia y Vega, Game and 1882, while its White Owl brand of HTL cigars is recognized nationwide for its quality and heritage. The business has efficient and modern manufacturing presence in both the United States and in the Dominican Republic.
In addition to its cigar business, Swedish Match operates smoke-free and lights product segments. Sales and operating profit for these segments combined grew by 21 and 32 percent, respectively, for the full year 2020.
Growth continued to be driven by the strong momentum for nicotine pouches, according to Swedish Match. In the U.S., the ZYN brand of nicotine pouches has experienced tremendous growth, with volumes exceeding 140 million cans for the 12-month period ending June 30, 2021.
"This announcement is another milestone toward achievement of our aspiration to become an entirely smokefree organization with a clear leadership position in oral reduced risk products, including ZYN, the largest modern oral brand in the U.S. and globally. The cigar business continues to perform very well and is seeing positive industry dynamics, which we believe will make it an attractive stand-alone company, balancing strong cash flow generation with attractive growth," Swedish Match President and CEO Lars Dahlgren said. "The new cigar company will have the ability to explore a wider scope of growth opportunities within its autonomous and focused strategic agenda and to establish efficient and tailored operational and legal structures, geared for long-term value creation.
"Subject to market conditions, we expect that the new stand-alone cigar business, with its strong cash flow profile, could be capitalized at a higher level of leverage than has been the case for Swedish Match historically, which would create the opportunity for Swedish Match to use financing proceeds upon separation to further enhance shareholder returns," he added. "Until a separation is complete, Swedish Match will continue to operate as a single company and will continue business as usual for our customers and employees."
Goldman Sachs is acting as exclusive financial advisor to Swedish Match on the intended spin-off of its cigar business.
Swedish Match AB is based in Stockholm, with U.S. headquarters in Richmond. Production is located in seven countries, with the majority of the group sales coming from the United States and Scandinavia.