case solution_A New Financial Policy at Swedish Match_ANI

Copyright ANew Fi nanci alPol i cyatSwedi shMa Mat ch Ha r v a r dBu s i n e s sSc h o ol Ca s e92 1 20 1 7 Co u r s e wa r e9 2 1 27 0 5

Th i sc ou r s e wa r e wa spr e pa r eds ol e l ya st h eb as i sf o rc l a s sdi s c us s i o n.Ca se sar eno ti n t e nd edt os er v ease nd or s eme nt s , s our c esofpr i mar yda t a,ori l l us t r at i o nsofeff ec t i v eori n eff ec t i v emana gement .Cop yr i ght©2012,2013Pr es i d enta ndFe l l o wsof Har v ar dCol l ege.T oor de rc opi eso rr eq ues tper mi s s i ont or epr oduc ema ma t er i al s ,c al l1 8 005457 685,wr i t eHar v ar dBus i nes s Sc ho olPu bl i s hi n g,Bo s t o n,MA 0 21 63 ,o rg ot o www. h bs p. h ar v a r d . e du / e du ca t o r s .Th i spu bl i c at i o n ma yn otb ed i g i t i z ed , pho t oc opi ed,oro t her wi s er e pr oduc ed,pos t ed ,ort r ans mi mi t t ed,wi t ho utt hepe r mi s s i onofHa r v a r dBus i n es sSc hoo l .

1

Particulars Interest Payment Saving each year

Tax Shield(assuming 10 year bond

SEK millions

180 50.4 !"8.80

Post-Recap, Swedish Match will have an additional SEK 4 illion in det and have  &he pre and post recap alance sheets as o' ())4*-

#alance Sheet Pre Post $ash and Short%term Investments !00& !00& b $urrent *ssets 4884 4884 PP' &)1& &)1& c -ther *ssets 4!00 4!00 Total *ssets 148"8 148"8 $urrent iabilitiesd Total Interest%#earing ,ebt - /hich ong%term ,ebt -ther iabilitiese 2uity3 including minority interes Total iabilities and 2uity

!))+ !5&" &55" &5!! 50+0 148"8

!))+ )5&" +55" &5!! 10+0 148"8

SEK 4!" illion less in oo$ value e%uity!

 &otal +etE.&+/ )5&" &!44 !.&1&0!

Part * .mmediately a'ter announcing the leverage recap, Swedish Match0s mar$et value o' e%ui assuming that the oo$ values o' all tangile assets are e%ual to their mar$et values Balance Sheet Cash & Short Term Investments Current Assets PP&E Other Assets Intan!"#e Assets Total Assets

Pre 3002.00 4884.00 2712.00 4300.00 2334.00 38292.00

Po $3, $4, $2, $4, $23, $38,

Current %!a"!#!t!es Tota# Interest 'ear!n (e"t Of Which: Long-Term Debt Other %!a"!#!t!es E*u!t+ & !nor!t+ Interests Total Liabilities & Equit

$3,77 $3,)2 $2,559 $2,)33 2(3,4"4 $38,292

$3, $3, $2, $2, $28, $38,

Part # /'ter it completes the det issuance, the total interest earing det gure will increase  Balance Sheet Cash & Short Term Investments Current Assets PP&E Other Assets Intan!"#e Assets Total Assets

Pre $3,002 $4,884 $2,712 $4,300 $23,73 $38,691

Po $7, $4, $2, $4, $23, $!2,

Current %!a"!#!t!es Tota# Interest 'ear!n (e"t Of Which: Long-Term Debt Other %!a"!#!t!es E*u!t+ & !nor!t+ Interests Total Liabilities & Equit

$3,77 $3,)2 $2,559 $2,)33

$3, $7, $6, $2, $28, $38,

$28, 853

$38,691

Part $ /'ter it completes the share repurchase, the cash gure will decrease y SEK 4 illion an Balance Sheet

"#e

"

Cash & Short Term Investments Current Assets PP&E Other Assets Intan!"#e Assets Total Assets

$7,002 $4,884 $2,712 $4,300 $23,73 $!2,691

$3, $4, $2, $4, $23, $38,

Current %!a"!#!t!es Tota# Interest 'ear!n (e"t Of Which: Long-Term Debt Other %!a"!#!t!es E*u!t+ !n-#u!n !nor!t+ Interests Total Liabilities & Equit

$3,77 $7,)2 $6,559 $2,)33 $28,8)3 $!2,691

$3, $7, $6, $2, $24, $38,

ty will increase y the value o' the ta shield

st 02 84 12 00 73 691

7 2 59 33 8)3 691

y SEK 4 illion and the cash gure will increase y SEK 4 illion!

st 02 84 12 00 73 691

7 2 59 33 8)3 691

d the mar$et value o' e%uity will decrease y SEK 4 illion!

st

02 84 12 00 73 691 7 2 59 33 8)3 691

5rom Ehiit 6 and Ehiit "*

#IT Interest $overage

#IT,* Interest $overage

*ltadis #*T Im6erial Tobacco 7allaher

"!4 7!3 4!4 8!9

7!4 6!6 "!3 4!"

*verage ### rm *verage ## rm

4!6 (!"

7!" 8!"

4!13

"!(7

irm

S/edish 9atch

Thus the credit rating o S/edish 9atch /il all rom S/edish 9atch may ta:e this ne/ 6olicy. ;o/ever3 it s and retain some
evera Total ge ? ,ebt>#IT,* 9ar:et @alues (!9 (!" 8!( 4!8

(4: (3: (3: 87:

=ating

/;  

(!( 8!"

(4!"):  8"!"): 

8!(1

(8!8): 

% to ### /hich /ill increase urther costs in the uture. hould not raise more debt to maintain a ### rating at least n becoming cash%stra66ed due to interest 6ayments alone.

xhibit &

Swedish Match, Selected 5inancial +ata, 199"<())4 =in SEK millions, ecept where noted> 1""5

1""+

1"")

1""8

1"""

&000

&001

Summary Operating Data Revenue

7,435

7,416

7,465

8,194

9,420

11,533

13,635

 ; Cost o
3,900

3,653

3,615

4,096

5,138

6,647

7,627

 ; ther +erat&n' "+enses

2,062

2,179

2,281

2,620

2,639

3,035

3,843

1,473

1,584

1,569

1,478

1,643

1,851

2,165

  EBITDA  ; (e+rec&at&on and mort&:at&on EBIT  ; Interest "+ense = ther Items a EBT  ; Income #a "+ense et In!"me

294

270

268

332

381

543

670

1,179

1,314

1,301

1,146

1,262

1,308

1,495

107

178

65

182

323

427

407

504

394

322

234

4,341

829

752

1,576

1,530

1,558

1,198

5,280

1,710

1,840

473

439

512

482

638

556

589

1,103

1,091

1,046

716

4,642

1,154

1,251

1,606

Ba#an!e S$eet Cash and Short-term Investments

804

942

563

2,876

7,296

2,960

Current ssets b

3,099

3,108

3,278

4,089

3,808

5,730

6,587

!"

2,002

1,939

2,050

2,239

1,866

2,576

2,970

ther ssets c T"ta# A%%et% Current &ab&$&t&esd #ota$ Interest-%ear&n' (ebt Of which: Long-term Debt ther &ab&$&t&ese ")u&t*, &nc$ud&n' m&nor&t* &nterest T"ta# &ia'i#itie% an( E)uity *a%$ +#" Data an( St"!- .ri!e Ca+&ta$ "+end&tures

741

888

1,241

1,358

3,700

5,015

5,460

6,646

6,877

7,132

10,562

16,670

16,281

16,623

4,566

2,798

3,248

2,732

3,290

3,253

3,879

129

1,019

209

4,331

5,873

5,699

5,483 5,072  

9

4

209

2,098

5,093

4,638

289

692

683

1,191

1,405

2,125

2,389

1,662

2,368

2,992

2,308

6,102

5,204

4,872

6,646

6,877

7,132

10,562

16,670

16,281

16,623

302

217

292

393

452

331

633

Cash c)u&s&t&ons, net   (&v&dends a&d Share Re+urchases Shares utstand&n', . /ear "nd Share r&ce ronashare .aret a$ue o ")u&t*

0 1,072 0 431 297 12,801

0 300 0 464 266 12,331

60 510 0 464 2628 12,192

157 510 1,147 431 2552 10,999

-2,259 474 0 431 2862 12,336

1,660 539 1,967 375 4252 15,944

962 490 1,169 350 69 24,150

Se#e!te( /r"t$ ate% an( ati"% "%I#( .ar'&n "%I# .ar'&n %oo evera'e debtdebt +$us e)u&t*  .aret evera'e debtdebt +$us maret ca+&ta$&:at&on  %oo ")u&t*  ssets

198 159 72 10 250

214 177 301 76 344

210 174 65 17 420

180 140 652 283 219

174 134 490 323 366

160 113 523 263 320

159 110 530 185 293

Source* Capital .?, accessed Septemer ()11, and annual reports! a

@ther items include .nvestment .ncome, .ncome 'rom /Aliates, Currency Echange Bains, Restructuring Charges, Bain on Sale o' /ssets, /sset rite-downs,



 Current /ssetsF includes /ccounts Receivale, .nventory, and Prepaid Epenses!

c

 @ther /ssetsF includes Gong-term .nvestments, Boodwill, @ther .ntangiles, and @ther Gong-&erm /ssets!

d

 Current GiailitiesF includes /ccounts Payale, /ccrued Epenses, Current .ncome &aes Payale, +e'erred &a Giailities, and @ther Current Giailities!

e

 @ther GiailitiesF includes Pension and @ther Post-Retirement enets, +e'erred &a Giailities, Hon-Current, and @ther Hon-Current Giailities!

'

Cash used 'or purchasing usinesses and susidiaries, minus net proceeds 'rom the divestiture and sale o' usinesses and susidiaries!

Source* Capital .?, accessed Septemer ()11, and annual reports! a

@ther items include .nvestment .ncome, .ncome 'rom /Aliates, Currency Echange Bains, Restructuring Charges, Bain on Sale o' /ssets, /sset rite-downs,



 Current /ssetsF includes /ccounts Receivale, .nventory, and Prepaid Epenses!

c

 @ther /ssetsF includes Gong-term .nvestments, Boodwill, @ther .ntangiles, and @ther Gong-&erm /ssets!

d

 Current GiailitiesF includes /ccounts Payale, /ccrued Epenses, Current .ncome &aes Payale, +e'erred &a Giailities, and @ther Current Giailities!

e

 @ther GiailitiesF includes Pension and @ther Post-Retirement enets, +e'erred &a Giailities, Hon-Current, and @ther Hon-Current Giailities!

'

Cash used 'or purchasing usinesses and susidiaries, minus net proceeds 'rom the divestiture and sale o' usinesses and susidiaries!

&00&

&00!

&005

&004

13,643

13,036

13,007

7,451

7,103

7,027

3,842

3,722

3,636

2,350

2,211

2,344

651

665

479

1,699

1,546

1,865

337

283

266

764

911

1,829

2,126

2,174

3,428

648

572

1,345

1,478

1,602

2,083

2,016

2,666

3,002

5,742

5,310

4,884

2,938

2,862

2,712

4,751

4,264

4,300

15,447

15,102

14,898

3,093

2,929

3,776

5,283

5,381

3,529

4,518

4,535

2,559

2,378

2,185

2,533

4,693

4,607

5,060

&!44 5.&55+05 18+5 44+ 4.181+14

&00&

&00!

&005

&004

13,643

13,036

13,007

7,451

7,103

7,027

3,842

3,722

3,636

2,350

2,211

2,344

651

665

479

1,699

1,546

1,865

337

283

266

764

911

1,829

2,126

2,174

3,428

648

572

1,345

1,478

1,602

2,083

2,016

2,666

3,002

5,742

5,310

4,884

2,938

2,862

2,712

4,751

4,264

4,300

15,447

15,102

14,898

3,093

2,929

3,776

5,283

5,381

3,529

4,518

4,535

2,559

2,378

2,185

2,533

4,693

4,607

5,060

15,447

15,102

14,898

751

551

486

53 508 499 334 6195 20,691

78 535 1,012 3285 7871 25,856

-64 558 658 3221 8834 (3,4"4

172 125 530 203 304

170 119 539 172 305

182 143 411 110 340

 and @ther Dnusual .tems!

&!44 5.&55+05 18+5 44+ 4.181+14

 and @ther Dnusual .tems!

xhibit )

Comparale Company +ata, 1(81())4 =in SEK millions,a ecept as noted>

S/edish 9atch

Im6erial Tobacco

AST

#*T

Summary Operating Data >et Sa$es "%I#( "%I# Interest "+ense >et Income (&v&dend a*out Rat&o 

13,007 2,344 1,865 266 2,083 28

11,888 6,377 6,060 551 3,527 65

36,447 15,915 12,189 2,741 5,349 73

137,096 36,528 31,982 4,723 35,993 30

Ba#an!e S$eet an( *a%$ +#" Data Cash and Short-term Investments #ota$ ssets

3,002 14,898

3,390 11,027

4,010 77,282

24,662 226,308

3,529 6,309 5,060

8,238 2,726 64

50,549 23,664 3,069

91,353 57,074 77,881

#ota$ (ebt >on-Interest %ear&n' &ab&$&t&es #ota$ ")u&t* St"!- .ri!e Data

xhibit )

Comparale Company +ata, 1(81())4 =in SEK millions,a ecept as noted>

S/edish 9atch

Im6erial Tobacco

AST

#*T

Summary Operating Data >et Sa$es "%I#( "%I# Interest "+ense >et Income (&v&dend a*out Rat&o 

13,007 2,344 1,865 266 2,083 28

11,888 6,377 6,060 551 3,527 65

36,447 15,915 12,189 2,741 5,349 73

137,096 36,528 31,982 4,723 35,993 30

Ba#an!e S$eet an( *a%$ +#" Data Cash and Short-term Investments #ota$ ssets

3,002 14,898

3,390 11,027

4,010 77,282

24,662 226,308

3,529 6,309 5,060

8,238 2,726 64

50,549 23,664 3,069

91,353 57,074 77,881

142 28,454

150 52,823

234 131,484

176 233,667

-02 18

53 54

-53 44

18 27

evera'e at %oo a$ues debtdebt +$us e)u&t* ca+, 

41

99

94

54

evera'e at .aret a$ues debtdebt +$us maret ca+,  "%I# Interest Covera'e  "%I#( Interest Covera'e  #ota$ (ebt"%I#( 

11 70 88 15

13 110 116 13

28 44 58 32

28 68 77 25

A

A

BBB

BBB

#ota$ (ebt >on-Interest %ear&n' &ab&$&t&es #ota$ ")u&t* St"!- .ri!e Data r&ce"arn&n's Rat&o ")u&t* .aret a$ue Se#e!t ati"% Sa$es
*re(it ating

Source* &homson Reuters, ecept credit rating data 'rom Standard I Poor0s Ratings +irectJ accessed Septe a

 &he year-end echange rate was 7!74" SEK per DS2!

7allaher

*ltadis

32,428 8,811 7,677 1,974 4,558 55

86,469 9,624 8,112 1,496 4,852 45

9,689 55,154

9,954 96,446

37,831 18,087 -764

27,720 55,893 12,833

179 65,865

231 86,425

-15 27

25 11

102

68

36 39 45 43

24 54 64 29

BBB

A

er ()11!

xhibit 5

D!S! .ndustrial 5irms, /ggregate /verage 5inancial Ratios y Credit Rating, ())(<()

***

**

*

$redit =ating ###

##

"%I# &nterest covera'e 

238

195

8

47

25

"%I#( &nterest covera'e 

255

246

102

65

35

04

09

16

22

35

72

161

245

355

#ota$ debt"%I#(  .aret $evera'e debtdebt +$us maret ca+&ta$&:at&on 

31

Source* Compiled 'rom Standard I Poor0s Ratings+irect, CreditStats /dusted Key D!S! .ndustrial 5inan ())", pp! 8-4, accessed Septemer ()11!

4

#

$$$

12

04 19

09

53

79

535

782

cial Ratios,F /ugust 11,

xhibit 4

European Corporate onds, Constant Maturity Lields y Credit Rating, anu 9aturity

*re(it       %%% %enchmara

!%month

+%month

1%year

5%year

10%year

2179 2246 2284 2463

2218 2262 2336 2484

2348 2389 2474 2688

315 3269 3349 3819

3762 3918 4024 4541

2065

2119

2225

3028

3695

Source* loomerg, accessed Septemer ()11! a

enchmar$ interest rate re'ers to the average o' euro-area ///-rated government det =sover Bermany>!

ary ())"

&0%year

!0%year

4394 4612 4624 5151

> 4539 497 5077

4293

4383

ign onds issued y 5rance and