STOCKHOLM (Reuters) - The tobacco group Swedish Match (SWMA.ST) will increase production capacity again for its new and fast-growing tobacco-free nicotine pouch product, it said on Wednesday, as it reported an unexpected drop in fourth-quarter earnings.
Operating profit was 1.1 billion crowns ($114 million) against 1.2 billion a year earlier. Adjusted for an impairment charge related to Swedish Match’s European chewing tobacco business, profit did, however, grow slightly more than expected, as did turnover.
The group, whose biggest businesses are its moist snuff “snus” in Scandinavia and cigars in the United States, last year started rolling out its non-tobacco pouch product “ZYN” across the United States, to around 67,000 retailers by year-end.
Sales of the product, which like snus is placed under the upper lip, have soared and Swedish Match is building a factory in the United States for it. It said on Thursday it had decided to expand the plant beyond its latest projection to support sales growth.
CEO Lars Dahlgren told Reuters he expected nicotine pouch production capacity to remain “clearly strained” in 2020, forcing Swedish Match to hold back somewhat on the distribution rollout.
Swedish Match’s shares were up 4% at 1030 GMT, taking gains over the past year to 43%.
Under the new plan, the factory will be able to produce more than 200 million cans of pouches per year from 2022.
“We have decided that it’s more important not to risk a capacity crunch than to perhaps risk sit with some excess capacity for a while,” Dahlgren said in an interview.
Dahlgren said capital expenditure in 2020 would be “hundreds of millions” above last year’s 720 million crowns, as the firm battles for long-term leadership in the new segment.
Swedish Match proposed to raise its dividend by 19% from the year before.
Reporting by Anna Ringstrom; editing by Niklas Pollard and Kevin Liffey