Scandinavian Integrates Agio, Trims Workforce

Scandinavian Tobacco Group (STG) has completed the plan for the integration of Agio Cigars, following the acquisition of Agio Cigars on Jan. 2, 2020.

The combination of STG and Agio Cigars is expected to deliver substantial cost synergies within sales and marketing, production and back office functions. When full integration has been completed by the end of 2022, it is assumed that Agio Cigars will contribute to an increase in STG’s EBITDA margin before special items of more than 2 percentage points based on estimates of net synergies at the level of DKK225 million ($32.4 million).

In reaching the synergies, special costs are estimated at the level of DKK450 million with cash impact and another DKK175 million in the form of noncash impairments related to factory closures, including write-down of buildings. Any amounts from the sale of property and buildings from closed-down factories are not included due to uncertainty about timing and sales prices.

STG is changing its organizational structure as part of the integration. The company is moving from four to three commercial divisions and intends to close three production sites and upgrade two others. Financial reporting reflecting the new structure will begin from the second quarter of 2020.

STG will close production facilities in Eersel and Duizel in the Netherlands and move the production to its other production facilities over the next nine months to 18 months. The production facilities in Moca in the Dominican Republic will be closed in the near future. Following the changes, around 800 employees are expected to be laid off. STG has approximately 11,000 employees.

“The changes we announce today are a step further in our transformation of Scandinavian Tobacco Group,” said 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 every one of them for their efforts and dedication over the years.”

STG expects to provide an update on the financial guidance for 2020, including Agio Cigars, as soon as the negative impact of Covid-19 on the business can be properly assessed.