Scandinavian Tobacco Group (STG) has announced the completion of its integration of Royal Agio Cigars and now it’s talking about the rest of its plan moving forward.
In a press release, STG stated that the integration of Royal Agio Cigars is expected to “deliver substantial cost synergies within sales and marketing, production and back office functions.” The full integration is expected to be completed by the end of 2022, at which point STG expects Royal Agio Cigars will contribute to an increase in STG’s EBITDA margin before special items of more than 2 percent points, based on estimates of net synergies at the level of DKK 255 million. For the 2019 financial year, Royal Agio Cigars delivered DKK 1,023 million in net sales and DKK 203 million in EBITDA before special times. For the first quarter of 2020, Royal Agio Cigars has delivered according to expectations while experiencing a negative impact on sales during April 2020.
STG is also making changes to its organizational structure based on the integration plan with Royal Agio Cigars. It announced that it will be moving from four to three commercial divisions and that it will optimize its operational footprint by closing three production sites and upgrading two others. STG will integrate its current Smoking Tobacco and Accessories division into the North America Branded Division (NAB) and the Region Machine-Made Cigar division (MMC). NAB will change its name to the Division North America Branded & RoW (Rest of World) and MMC will be known as the Division Europe Branded. The North America Online & Retail Division (NAOR) will remain unchanged except for a move of its cigar wholesale business to the Division North America Branded & RoW. This division will be headed by senior vice president Regis Broersma (NAB) [read more here], senior vice president Jurjan Klep (MMC) and senior Vice president Sarah Santos (NAOR).
Over the next 9-18 months, STG will close production facilities in Eersel and Duizel in the Netherlands and move production to its other facilities. Also, production facilities in Moca, Dominican Republic, will be closed in the near future. While these moves could improve STG’s overall capacity utilization and reduce unit costs across its production footprint, it also acknowledges that these moves will result in an estimated 800 layoffs.
“The changes we announce today are a step further in our transformation of Scandinavian Tobacco Group,” commented Niels Frederiksen, CEO of STG. “They impact most parts of our organization as we build a more competitive and profitable business with a powerful brand portfolio, strong market positions and robust supply chains. It is an investment in our future and addresses the need for continuous optimization to remain competitive and succeed in tough market conditions. Regrettably, the changes also necessitate that we part ways with a number of hard-working and valued colleagues. I would like to thank everyone of them for their efforts and dedication over the years.”
Due to the COVID-19 pandemic, STG has suspended its financial guidance for the year due to the uncertainty and lack of predictability brought on by the coronavirus. STG has said that it will provide an update on the financial guidance for 2020, including Royal Agio Cigars, as soon as the negative impact of COVID-19 on its business can be properly looked at.