INFORMATIONinside ABOUT SWEDISH MATCH FOR SHAREHOLDERS AND OTHER STAKEHOLDERS

#1 februari 2001

Record year for VICTOR BROTT/FOTOJOURNALISTEN AB Swedish Match share… While 2000 was a relatively dismal year for the OM Stockholm Exchange and NASDAQ, it was the best year for the Swedish Match share since it was first listed in May 1996. The share price rose 25 per- cent during the year, from SEK 29.70 to SEK 36.50. During the same period, the OM Stockholm Exchange’s General Index declined by than 13 percent. Page 7

…and praise in the media Swedish Match’s successful reorientation prompted a highly positive reaction in the media during 2000. While the successful focus on snuff, particularly in the US, made the greatest impact, the Group’s investments and ambitions in the high-quality segment also drew favorable comment. Page 2

More than a match for the media DOMINICAN REPUBLIC: »I enjoy being the company’s public representative on issues. It’s an intel- lectual challenge,« says Bo Aulin, Swedish Match’s Senior Vice President, Corporate Realm of the cigar Affairs, Secretary and General Counsel. He has also faced The Dominican Republic is a Mecca for cigar-lovers, and the inhabi- challenges internally, notably in connection with the Global Challenge program, launched in 1997. »The tants maintain that the country was the original home of the cigar. program has now been successfully implemented,« says Bo Aulin. Page 6 Today, more than half of the luxury on the US market come from the Republic, which has become a cornerstone of Swedish

New acquisition Match’s cigar strategy. Page 4–5 in South Africa At the beginning of this year, Swedish Match purcha- sed British American Tobacco’s pipe tobacco opera- tions in South Africa, with annual sales of about 200 MSEK. The acquisition was the third in South Africa within less than one and a half years. Page 6 Another strong year for Swedish Match

Declaring redemption rights YEAR 2000 WAS ANOTHER strong year for the a clear indication that we have geared up gram for buying back the Group’s own Swedish Match Group. Both sales and the rate of increase,« notes the Group’s shares, creates favorable conditions for a During May 2000, Swedish Match implemented a earnings reached record levels and the net Chief Financial Officer, Sven Hindrikes. continued increase in earnings per share, redemption program whereby 14 shares entitled the profit figures show a considerable »This means that we have built up a Group management believes. Against this holder to redeem one share at a price of SEK 35. strengthening of snuff sales, with growth unique position in the industry’s growth background, Group management pro- Now that tax-return time is upon us, many share- figures that no other tobacco product can segments.« poses that the Board increase the dividend holders who are Swedish taxpayers are doubtless match. Cigar sales also increased strong- The positive results provide a solid from SEK 1.25 to SEK 1.35. wondering how to declare the redemption rights in ly – by 87 percent – mainly due to acqui- platform for further improvements in their returns. Inside uses a simple model to explain sitions. sales and operating income during 2001, Page 2–3 how to proceed. Page 7 »Both sales and the earnings trend give and this, together with the expanded pro- NEW RECORD FIGURES Earnings bode

The conditions for a continued improvement in sales and operating income during 2001 are favourable after the strong performance in 2000, according to Swedish Match’s Chief Financial Officer Sven Hindrikes. Dear shareholder!

In this issue you can read about our recently re- he Group plans to further trend give a clear indication that we leased year-end report for 2000, which presented intensify its focus on have geared up the rate of increase,« new record figures for Group sales and income. product development and notes Hindrikes. »We were already in a We are well on the way to realizing the strategies product launches in order world-leading position in smokeless Sven Hindrikes. adopted at the beginning of 1999. A »new« to strengthen long-term products, snuff and , Swedish Match is emerging – the unique, global Torganic growth. »All in all, if we in- and now, through acquisitions, we are tobacco company that focuses on world-leading clude the ongoing program to buy back the world number two in cigars. market. Volumes increased by 19 per- brands and niche products in growth markets. our own shares, there are favourable »This means we have built a unique cent during the year. Overall, operating Today, we are the only company in the world conditions for a continued increase in position in the industry in the segments income for snuff operations increased that sells snuff in three continents, Northern earnings per share,« says Hindrikes. that are growing, and which give the by 15 percent to 954 MSEK. Europe, North America and southern Africa. Our Swedish Match maintained its consumer quality and pleasure coupled income figures show that snuff is a product that is momentum through the last quarter of with lower health risk as regards the CIGAR SALES INCREASED by 87 percent going from strength to strength, with growth fig- 2000, with a 25-percent increase in negative health effects of tobacco,« Hin- during 2000, mainly as a result of ures that far surpass those of any other tobacco sales and a 26-percent rise in operating drikes continues. »We are the only glob- acquisitions. Operating income in- product. Both sales and income reached new income before items affecting compa- al company that markets snuff in three creased by 68 percent to 347 MSEK. highs in our growth markets in North America and rability. For the full year, the Group continents – Europe, North America The trend for machine-produced cigars Northern Europe. achieved new record figures, with sales and Africa – and we believe that snuff is in the US was particularly pleasing, In our new role as the world’s second largest amounting to 11,533 MSEK and earn- the best product for consumers who are with a 10-percent increase in volume in cigar company, we can now mount a global offen- ings amounting to 1,710 MSEK before looking for an alternative to smoking.« terms of numbers sold. sive based on a comprehensive product range in tax and items affecting comparability. »It is worth pointing out that we are all market segments. The acquisitions we have This means that Swedish Match has SNUFF WAS ONE OF THE YEAR’S success now also seeing the positive synergy made during the past 18 months have created succeeded in carrying through its strat- stories, with record figures. In northern effects of our acquisitions in the US, substantial synergy effects. All our tobacco prod- egy of accelerating the pace of growth Europe, volumes increased by 8 per- where we have a larger sales force with ucts reported increased sales and operating within the Group. The main focus dur- cent, which is more than the average better coverage. This has benefited income in 2000. ing the year was on: growth rate of 5 percent during the sales of both chewing tobacco and In regard to lighters and matches, the former • Creating growth and strengthening past few years. snuff,« says Hindrikes. product area reported a strong improvement in its market shares through acquisitions »The strong growth is due to the Pipe tobacco also showed strong operating margin after a radical restructuring pro- • Laying the foundations for increased fact that more consumers are now full-year figures, with sales increasing gram, while the only product area reporting a organic growth through business- using snuff instead of smoking. We strongly and operating income more decline in its operating margin was matches, development and product-develop- have also launched a number of new than doubling. The improved figures which is now scheduled for restructuring. ment initiatives products,« says Hindrikes. resulted mainly from the acquisition of Against this background, we propose that the • Improving the balance-sheet struc- The strong breakthrough in the US Leonard Dingler in South Africa. This Board increase the dividend from SEK 1.25 to ture by buying back shares. continued, with the Group’s market transaction has made South Africa one SEK 1.35. Based on an extended share buy back share increasing from 6 percent in 1999 of the Group’s major markets. Its sig- program and the prospects for continued prof- »Both the sales figures and the earnings to 8 percent last year in a growing total nificance will increase even more fol- itable growth, we shall do our utmost to once again achieve an increased return for our share- holders in 2001.

Lennart Sundén, CEO SWEDISH MATCH – THE YEAR IN THE MEDIA

Swedish Match Inside is a magazine for Swedish Match shareholders. The print run is 100,000 copies of the Snuff impresses journalists and Swedish version and 5,000 copies of the English version.

PUBLISHER ADRESS Both on the stock market and in the media, 2000 was a »How long will the market Swedish Match AB Swedish Match 118 85 Stockholm successful year for the Swedish Match Group. In particular, ignore a company as PUBLISHER RESPONSIBLE Tel: 08-658 02 00 shareholder-friendly as Bo Aulin www.swedishmatch.com attention was focused on the triumphal progress of snuff Swedish Match?« outside the product’s traditional markets in the Nordic region. EDITORIAL ARTICLES IN Birgitta Gunnarsson, THIS ISSUE This was the question addressed by Hallvarsson&Halvarsson AB Martin Haag Johan Wettergren in a column in the Lena Olofsdotter, Mats Hallvarsson Swedish business daily Finanstidningen Swedish Match AB Birgitta Gunnarsson Swedish Match presence in new growth markets. on July 26, 2000. »Who would not successfully transforms Today, the company has abandoned wish to own shares in a company that is PRODUCTION REPRODUCTION to become a world leader in trading at a multiple of earnings below Hallvarsson&Halvarsson AB Scarena, Stockholm French business magazine L’Usine Nou- the cigar and snuff segments. The 10, based on current-year forecasts, LAYOUT AND DESIGN PRINTING velle commented on Swedish Match’s Group penetrated the US market aided while at the same time exhibiting such a Peppar Design, VLT, Västerås successful transformation. Previously, by acquisitions that increased sales by rapid growth rate … and which always Petter Carnhagen writes the magazine, Swedish Match several times. The Group also mounted manages to make sure that capital was a small European cigar manufac- a radical drive to reduce costs, notes the winds up with its shareholders?« the turer that used its match and lighter magazine. (L’Usine Nouvelle, number paper wonders. operations to establish an international 2758/2000) SWEDISH MATCH INSIDE | #1 2001 | 3

Analyst questions

Swedish Match’s earnings for full-year 2000 were at almost exactly the level forecast by market analysts. Pre-tax earnings amounted to 1,710 MSEK, compared with an average earnings fore- well for 2001 cast of 1,744 MSEK from the analysts. Shortly after the publication of the year-end report, Group management held its customary lowing the acquisition – after year-end meeting, via a telephone conference, with the 2000 – of BAT’s pipe tobacco opera- SALES AND OPERATING INCOME, 12 MONTHS MSEK analysts. Here are some of the questions and tions, with annual sales of 200 MSEK. answers from the meeting: Sven Hindrikes continues by noting 15 000 that the impressive upturn in lighter operations is now well established: 12 000 MICHAEL SMITH, MORGAN STANLEY: »We achieved an unprecedented level »You announced a proposal to increase the of earnings, underpinned primarily by 9 000 dividend, but the amount in question will still a successful restructuring program that be substantially below earnings per share. Do you have a specific dividend policy?« substantially reduced costs. But we can 6 000 also discern an increased demand – for example from Eastern Europe, which is LENNART SUNDÉN, PRESIDENT: 3 000 an important market region for us.« »Yes, we have a written policy which states that the dividend should correspond to around 40-50 0 OPERATING INCOME INCREASED during the percent of net income. If the proposal to raise the year for all product areas except match- 1998 1999 2000 dividend is accepted, it will place us in the upper

es. A restructuring program is going on Sales 8 194 9 420 11 533 part of this range. But as you know, we have also in this area, with the aim of improving been considering other possible ways of satisfying Operating income 1 489 1 689 1 886 the operating margin. before items the shareholders. We intend to carry through our »The restructuring program in affecting comparability buyback program to bring us up to 10 percent of Europe is proceeding according to the number of shares outstanding, which was the plan. At the same time we have noted a original aim of the program.« decline in sales volumes, which means SALES MSEK OPERATING INCOME MSEK that we face a demanding and long- JONATHAN FELL, MERRIL LYNCH: term task, which will require pati- 12 months 12 months Change 12 months 12 months Change »I have a question about snuff. You said that ence,« says Hindrikes. 2000 1999 % 2000 1999 % you intend to focus increasingly on this area Swedish Match has already increased – on product development for example. the focus on product development and Snus & Snuff 2 071 1 688 23 954 828 15 I assume that you would also like to enter new product launches. »This will be a Chewing tobacco 1 227 1 068 15 331 297 11 new markets. But won’t you also be forced key theme in 2001,« continues Sven to intensify your efforts in the US?« Hindrikes. »The costs for developing Cigars 2 690 1 438 87 347 206 68 and launching products are set to SVEN HINDRIKES, CHIEF FINANCIAL OFFICER: increase. Our aim is to create a higher Pipe Tobacco & Accessories 762 420 81 213 109 95 »A recent measurement showed our market rate of organic growth in the long term.« share in the US to be 8 percent, so growth is con- Matches 1 712 1 673 2 90 107 –16 tinuing there. However, price competition was ALL THINGS CONSIDERED, Sven Hindrikes very tough during the fourth quarter of 2000 and Lighters 720 662 9 74 14 429 feels that there are favourable condi- has continued to be so during the first quarter of tions for further increases in sales and Other 2 351 1 742 –123 –127 this year. Accordingly, we take the view that we operating income in 2001. »We have must focus more on both product development also expanded the share buyback pro- Subtotal 11 533 8 691 33 1 866 1 434 32 and other projects«. gram to apply to up to 10 percent of the Divested business 729 255 »But since the initiatives taken during this year company’s outstanding shares. Since will also apply to other markets, we will incur extra we can reasonably expect to fulfill this Items aff comp 3 707 costs for a number of launches during the year. objective, I would venture to anticipate Thereafter, we expect to return to normal margins Total 11 533 9 420 22 1 886 5 396 a good return for shareholders, with a for snuff operations.« possible improvement in earnings per share,« concludes Hindrikes. FRANZ HOYER, CHEVREUX DE VIRIEU: »I have two questions. The first concerns match operations, to which 395 MSEK was allocated last year for restructuring. Have these funds been used up, and when will the task of restructuring be completed?« tions last year, the company has »My second question relates to future increasingly come to be regarded as acquisitions: You have been very active in this having an undeservedly low valuation, area to date; will this pattern continue?« analysts considering its favorable profitability, insensitivity to changes in economic SVEN HINDRIKES: conditions and the growth potential in »A small portion of the allocated funds remains Investors find Swedish mer and Robur Fonder, which is the its remaining operations – snuff and unused. We expect to complete the restructuring Match snuff to their taste largest Swedish shareholder in the com- cigars,« writes Veckans Affärer. (VA, program by the end of 2002. Among the reasons pany. (DI, November 27, 2000) number 50/2000) why it is taking so long is the fact that extensive As everyone knows, things were hap- relocations – and some closures – of production pening with the Swedish Match share Pinch with potential Snuff: healthy alternative plants will be required. As everyone knows, such after the summer, and the turn of events measures can take a considerable amount of was reflected in the news coverage. Swedish business weekly Veckans »The attention paid internationally to time.« Swedish business daily Dagens Industri, Affärer was also among those who Swedish moist snuff is increasing,« says for example, noted that »the previously noticed the upturn. Under the above the magazine in the introduction to an LENNART SUNDÉN: overlooked share broke its price record headline, Veckans Affärer notes that article. The author, focusing primarily on »As regards new acquisitions, there will probably seven times during November.« The »snuff and cigars pick up the slack the successes achieved by Swedish Match be more, but that is all I can say at present. It is article identifies several large investors when the smokers butt out.« At the in the US market, states his view that »… difficult to make any predictions, since it is not who bought Swedish Match shares for same time as -smoking has fall- the way (should) be open for Swedish always possible to plan when opportunities will the first time or increased their holding en out of favor, it is still fully acceptable Match to continue to take market arise. But we will continue to apply the guidelines in the company during the year, includ- to use snuff or puff on a cigar. »It took shares.« While it undoubtedly takes time as before – with the aim of continuing to grow in ing the investment companies Investor, a long time, but the market finally to outcompete established brands, those segments where we see growth potential.« Lundbergs and Latour. Other major opened up its eyes to one of the most »Swedish Match’s low-price strategy has shareholders are the Zenit mutual fund stable publicly traded companies. Fol- already proved highly successful.« run by Swedish financier Patrik Brum- lowing the sale of its cigarette opera- (Affärsvärlden, number 4, 2001) 4 | SWEDISH MATCH INSIDE | #1 2001

the first outsiders to see the local inhabi- tants roll their tobacco leaves, light them and inhale the smoke.

THANKS TO THE US embargo against Castro’s Cuba in 1961 and the cigar-smoking boom in the US during the 1990s, the VICTOR BROTT/FOTOJOURNALISTEN AB Dominican Republic has developed during the space of just 25 years to challenge Cuba for its world-leading position as a producer of hand-rolled luxury cigars. After a tentative start in the 1960s, the Dominican industry has made rapid and substantial progress. General Cigar was one of the first major producers of quality cigars to establish operations in Santiago, the second largest city of the Republic and the heart of its cigar district, in 1978. Gen- eral Cigar helped to build the prerequisites for an efficient industry by investing in training, quality control processes and marketing channels. Several other major producers did the same and when the boom took off in the US at the beginning of the 1990s, the Domini- DOMINICAN REPUBLIC: can cigars secured a dominant position in the US, with a 50-percent market share, which has subsequently been maintained and consolidated. At the beginning of the A Mecca for decade, some 50 million quality cigars were shipped annually to the United States. Deliveries peaked in 1997, when more than 250 million cigars were delivered.

TOBACCO HAS BECOME a vital commodity in c gar lovers the country. Around 10 percent of the pop- ulation of 9 million rely on the tobacco industry for their livelihood, most of them living around the city of Santiago, which has some 1 million inhabitants. Other tra- he flight approach to Santia- ditional local products are sugar, rice, fruit Accounting for more than half of the US go Airport, at the northern and vegetables, which are exported to oth- end of the Dominican Repub- er Caribbean countries. During the 1990s, market for prestige cigars, the Domini- lic, gives visitors a pretty tourism also became a mainstay of the can Republic is an important base in good idea that they will soon economy. Tbe landing at one of the world’s cigar Mec- Like many other producers, General cas. The lush tropical vegetation soon Cigar constructed its plant in a tax-free Swedish Match’s cigar strategy. Here, gives way to endless rows of neat tobacco zone on the outskirts of the city. Only plants. Christopher Columbus stepped export companies are exempt from tax in the Group employs almost 4,000 people ashore not far from here in 1492, which the republic. The plant has around 3,000 signaled the start of tobacco’s conquest of production employees and a further on its plantations and particularly in the world markets, initially as a medicinal approximately 500 work in the plantations. plant and later as a pleasurable diversion. »Quality and professional expertise are production of quality cigars. Not unnaturally, Dominicans claim that decisive factors as we embark on a global this is the global home of the cigar. The offensive with our premium cigars,« says Spanish seamen (under Columbus) were Edgar Cullman Jr., President of General

Global expansion of PRESTIGE CIGARS

The world’s most-sold pres- focused on building up sales. Our objective the help of representatives of Swedish is to build up our premium cigars into as Match’s North Europe, Continental Europe tige cigar, the Macanudo, will big a success in Europe as they have been and Overseas divisions. Vogels comments: spearhead this year’s interna- in the US,« says Edgar Cullman Jr., Presi- »Our strategy is for the Swedish Match dent of General Cigar. sales organizations to focus their efforts tional launch of the Swedish initially on the well-developed cigar mar- Match range of premium cigars. THE CAMPAIGN WILL BE LED by Macanudo, kets in Spain and France and the somewhat which every third smoker of prestige cigars less-developed markets in Sweden and the in the US ranks as one of their favorites. Benelux countries. The exact way in which hanks to the acquisition of the US »This is a cigar that appeals to the modern we plan to launch the products must companies, General Cigar and El cigar lover. It has a round, smooth and full remain confidential at this stage. The cigars Credito, last year, the Group is flavor and is produced in the classic Cuban will command high prices – after all, we’re today one of the world’s largest manner dating from the country’s ‘golden talking about a luxury-class cigar. Several T age’ of cigar production. Macanudo has the different versions will be introduced, producers of exclusive cigars. The plan is for the top American brands, backed by potential to become the market namely Robustos, Maduros, Café General Cigar’s distributors and Swedish leader in many other countries and Vintage.« Match’s strong global distribution network, besides the US within the next five to capture positions in Europe, Asia and years,« adds Cullman. HE ALSO REPORTS that the marketing other markets during the next few years. The executives who will mainly channels will be as exclusive as the »Spearheaded by Macanudo, we com- be responsible for the expansion cigars themselves. »Distribution menced our international expansion about are Frans Vogels, President of Gen- will be handled through profession- five years ago and today have sales in 85 eral Cigar International, Richard al cigar specialists and via exclusive countries. To date, we have successfully Laing and David Danziger, with Edgar Cullman Jr. restaurants, bars and hotel chains. SWEDISH MATCH INSIDE | #1 2001 | 5

need resources in the form of time and and feeling the leaves. They bury their faces money. Since tobacco is a living product in the big bouquets of leaves almost as if that is exposed to wind and weather, it is they were kissing them, listen to the rustle essential to maintain large inventories of of the leaves and carefully check their col- quality tobacco in order to constantly or and shape – all with the aim of sorting select and use only the prime grades. out the very best leaves. Tobacco for our top-of-the-range cigars Using a few simple tools – a cutter, var- has matured in our warehouses for two to ious shaping molds and vegetable glue – three years after harvesting.« the hand-rollers fashion some 20 different models of premium cigars. The rollers are WE TAKE A TOUR THROUGH the enormous predominantly women, the best of whom

Every single leaf is processed by hand in the approxi- warehouse area and follow the process from produce more than 300 cigars a day. mately 20 different process stages. the fresh green leaves to the wonderfully The packing room is an impressive aromatic, slightly oily and smooth – almost sight. Tens of thousands of prestige cigars, elastic – leaves being worked by the quick arranged in neat stacks of 50 cigars and hands of the rollers. The craft of producing worth millions, are being carefully packed, »Quality and profes- premium cigars is a 100-percent manual one by one, in beautiful cedarwood boxes process. Every single leaf is processed by from General Cigar’s own plant. »The Crafting a sional expertise are hand in the approximately 20 different cedar comes from Mexico and provides yet decisive as we embark process stages (see accompanying article). another complementary aroma. We have premium cigar on a global offensive.« Consequently, the tobacco accounts for 65 stressed the tobacco during the process, so percent of the cost of making a cigar. it is now important to allow the cigars to EDGAR CULLMAN JR THE HIGH-QUALITY craftsmanship under- Modesta de Fondeur, another executive rest in storage for a few months before we lying the production of General Cigar’s at General Cigar, explains that skilled per- ship them out.« cigar range in the Dominican Republic sonnel became a key competitive factor dur- can mean that a tobacco leaf is handled Cigar, in which Swedish Match has a 64- ing the cigar boom. »We have made sub- TODAY, THINGS ARE somewhat less hectic in up to 40 times in various manual percent stake. stantial investments in the training of our Santiago. During the wild days of the cigar processes before a cigar is complete. 3,500 employees, who handle the process boom in the 1990s, speculators came here Briefly, the process stages are as follows: GENERAL CIGAR’S PRODUCTS occupy a front- from plant leaf to finished cigar. Their train- in droves to establish makeshift cigar line position in the Dominican Republic’s ing takes around six months and focuses a plants. Around 100 of them have been CULTIVATION AND MATURING PROCESS quality offensive. This is where Macanudo great deal on training the senses – tobacco eliminated during the past three years. cigars are produced, among others. must be experienced and assessed by a per- »This has benefited both the country and It takes six weeks to cultivate tobacco Macanudo is today the most-smoked qual- son’s nose, eyes, ears and hands. It is an the industry in general,« comments Edgar seedlings before they are planted out, a ity cigar in the US. Partagas, Punch and incredibly sensual type of work!« Cullman Jr. »since it confirms that a long- further six weeks to grow the plants on Hoyo de Monterrey are other General Cig- We soon find out what she means. term quality approach pays off. to maturity, and yet another six weeks ar products that can normally be found in Wherever we look in the processing area, before the harvest is completed. Then the top-five list of cigars in the US market. men and women are engaged in smelling follow two months of storage, to raise What is the secret behind all this success? the moisture content from around 10 »Tradition, competence, trade skills and percent to 25–30 percent. resources,« responds Daniel Nunez, an Then comes the important Executive Vice President at General Cigar. fermentation process, dur- »Our strength lies in our tobacco tradi- ing which the leaves are tions. Top cigars are made by combining stored in large bales, with various blends of different . Take temperatures reaching up Macanudo as an example. This is a blend of to 45–50 C°. The ferment- Dominican and Mexican tobaccos with a ed tobacco is subsequent- wrapper – ‘Connecticut Shade Wrapper’ – ly packed in bales and from the US state of the same name, and matured for two to three years. Certain offers an exquisite medium-strength flavor types are matured for even longer peri- that appeals to American consumers. Parta- ods for special production. gas features a wrapper from Cameroon. Before the actual cigar production Since the wrapper accounts for two thirds process is started, the leaves are sort- of the cigar’s flavor, it’s important to find ed into four different sizes and three exactly the right balance in the blend.« Using a few simple tools different main colors. Then they are the hand-rollers fashion bound into bunches, aired and packed But that’s still not enough, he continues. some 20 different models »To achieve the ultimate in quality, you of premium cigars. in boxes in a number of batches during a six-week period.

PRODUCTION PROCESS The cigar itself consists of a mix of tobacco leaves. First, there is the actual filler, then the binder that keeps the filler We intend to create a broader international in place, and finally the wrapper, which market for his unique quality cigars togeth- A FAMILY WITH TRADITIONS provides the cigar with an elegant, er with other top brands. Moreover, we are smooth surface. It is this combination of currently launching his new cigar series Built up by the well-known Cullman family, leaves of various ages and origins that called ‘R,’ which will be positioned at the General Cigar is deeply rooted in the US cigar makes up the ›secret recipe‹ through apex of the segment’s quality pyramid.« tradition. Following Castro’s takeover of Cuba, which a producer competes in the General Cigar has been one of the leading areas of quality and flavor. FINALLY, WHAT DOES Edgar Cullman Jr. players behind the »Caribbean cigar revolu- The roller takes the filler leaves, press- think about all this – can a cigar like the tion,« with an important base in the es them together by hand and rolls them Macanudo, produced in the Dominican Dominican Republic. The company’s original into a cigar shape before binding them Republic, really gain a following among portfolio of brands has been complemented by with a wrapper leaf. The elliptical bundle Havana-loving European smokers? such prestigious names as Punch, Partagas, of leaves is then placed in a shaping mold »Yes, I believe it can. One of the reasons Hoyo de Monterrey and . Macanudo, and pressed together for approximately for the huge cigar boom in the US in the which was purchased in 1969, has developed one hour. Thereafter, it is time for the 1990s was the greater variety of cigars on from modest beginnings to become the most- cigar to receive its final elegant wrapper Distribution will be handled via exclusive restau- offer in that market. The Caribbean pro- sold prestige brand in the US and is currently leaf, which is sealed with a tiny amount of rants and bars, such as Club Macanudo in New York. ducers enriched the market and provided the largest brand in the world. vegetable glue at the tip where the cigar consumers with greater opportunities to Swedish Match acquired General Cigar’s will be clipped before smoking. »But we should not forget the El Credi- enjoy and learn more about cigars. It is an machine-produced cigar operations in 1999. The quality of each individual cigar is to brands, such as La Gloria Cubana, La established fact that for many years cigars Subsequently, a 64-percent ownership stake checked by hand. The cigars are then Gloria Dominicana and La Hoja Selecta,« from the Dominican Republic have shown was acquired in General Cigar, which pro- stored in another maturing process, for says Vogels. the greatest quality development and, even duces several of the world’s largest prestige between 25 and 180 days, depending »We are very pleased that Ernesto Perez- more importantly, have been able to main- brands. One of the main driving forces on grade. A final quality check involves Carillo, the living cigar legend who found- tain their quality at a consistently high lev- behind the partnership was the opportunity to selecting and matching individual cigars ed El Credito, is on our team. He is a el while still retaining the soul of the old use the distribution synergies generated for for color and appearance before pack- unique creator of great cigars and one of Cuban craftmanship, which is rarely found an international expansion program. ing them in cedarwood boxes. the most respected names in our industry. these days.« 6 | SWEDISH MATCH INSIDE | #1 2001 NAMES & NEWS

Cigar news plentiful in 2000… The man who likes mikes The year 2000 was an intensive one for the into one entity. And all of them were to cigar operations of Swedish Match’s »I enjoy representing the be called Swedish Match. Continental Europe division. Several new prod- company in tobacco issues. ucts were launched, including: Corona Superior BO AULIN HAS AN OUTGOING, enthusiastic and Gran Panatella from La Paz, the Group’s I am not envied by many, but personality. He would rather try out a largest brand name in Europe for machine-made I like it. It’s an intellectual new proposal than reject it. Even so, he cigars. Corona Superior is the largest cigar in has often been perceived internally as the range, which has also been extended with challenge.« obstructive and negative, particularly the new Diablo cigarillo. during the period when the company Tropical Delights (with a pipe-tobacco flavor) was still involved with cigarettes. It is and Cool Breeze (menthol-flavored) are two o Aulin explains his enjoyment of part of his role to reject marketing and new products under the Wings brand name. his role as defense counsel for Swedish Match. sales ideas that may be fun and creative, Clubmaster and Iindependence from Arnold B but are not sufficiently responsible. André have launched new filter cigars in several »Many people perceive an out- »Selling tobacco is different from any markets. stretched microphone as a threat. I see it as an opportunity – a chance to other trade. It demands a strictly ethical explain our side of the issue. I always approach. The most important thing is speak the truth, have nothing to hide, that we hold fast to our policy that ...and a new cigar room and therefore nothing to fear. An inter- tobacco is a product for adults – Under on the Internet view is like a game of tennis. I know 18, No Tobacco. But it also requires a how I want to play the game. The big Bo Aulin. high degree of sensitivity and intuition in Cigarroom.net is the name of the virtual cigar question then is whether my opponent everything we do.« And according to Bo room that Swedish Match launched in will let me.« The opponent in question managed to successfully defend a friend Aulin’s colleagues, these are exactly the December 2000. On display are various types is, of course, a journalist. And journal- who was charged with drunkenness characteristics he possesses: of cigars, a cigar school and tips on cigar litera- ists, according to Bo Aulin, are usually while doing military service. »He’s a generalist. He can see the ture. Initially, cigarroom.net is in Swedish, but just as well-prepared as he is. »It gave me a kick – ›Maybe I have a whole picture and understand what is an English version is also scheduled to appear »Most journalists have a thesis they talent in this area after all,‹ I thought.« practicable in a frequently hostile during spring 2001. want to prove. Therefore, they rarely And so he continued to study law, and world.« listen, unfortunately. I have great was able to invest his study funds in the respect for the media, and the role of student-union pubs instead of in course media in society, but I am surprised by books. the uncritical attitude of Swedish jour- ABOUT BO AULIN: nalists toward the public health estab- HIS INTERNAL WORK at Swedish Match has lishment. It’s remarkable,« says Bo in fact been concerned with the creation Name: Bo Aulin. Aulin, whose preferred medium is tele- of identity. The Global Challenge team- Age: 52 år. vision, even though he does not believe building program was launched in 1997 Job: Senior vice president, Corporate

ULRIKA LUNDIN/SOFT that viewers remember what he says. with the Whitbread round-the-world Affairs, Secretary and General Counsel. »But it’s an opportunity to make an sailing competition at its core. The plan Family: Wife and two children. impression, hopefully a good impres- was to quickly fuse some thirty interna- Residence: Stockholm. sion.« tional companies, with different names Hobbies: Family, golf, skiing. Swedish Match and history, and separate operations, BEING GENERAL COUNSEL and responsible has secure potential for corporate communications is an The Swedish Match share received a clear unusual combination. But given Bo »Buy« recommendation in an analysis published Aulin’s background, it was a natural in the Swedish Finanstidningen newspaper in development. Before he joined Swedish WHO considers the status of moist snuff mid-January. Match, he was chief legal counsel for the »There are many indications that the Federation of Swedish Commerce and »IF ONE BELIEVES THAT all types of tobac- the Framework Convention on Tobac- Swedish Match share will continue to rise,« Trade, where his duties included repre- co usage in the world can be eradicated co Control (FCTC). Swedish Match has says the newspaper, which believes the share senting member companies – such as within a few years, perhaps moist snuff also supplied the WHO with a substan- may appreciate a further 15 to 25 percent tobacco companies – in issues related to is less attractive as a substitute for tial dossier of studies showing that above SEK 36, its price at the time when the commercial policy. The step from there smoking. On the other hand, if one moist snuff plays a key role in reducing analysis was made. to his current position was a logical one. acknowledges that a tobacco-free smoking and that the health hazards of Bo Aulin’s father was a lawyer. world is not a realistic goal within the moist snuff are considerably less than There were four children in the family foreseeable future, the need for an those associated with cigarettes. and Bo was the youngest. alternative strategy to minimize tobac- »We do not go so far as to claim that Captain of the Industry Actually, he never wanted to study co-related injury becomes clear. Moist moist snuff cannot adversely affect Lennart Freeman, President of Swedish Match law. Following in the footsteps of his snuff can play an important and con- users’ health. Our point is that it is a North America, has received the prestigious father and two older brothers seemed structive role in such a strategy.« much less risky alternative for people »Captain of the Industry« award. The prize is unimaginative and predictable. But The quotation is from a presentation who have difficulty abstaining from awarded annually by the things turned out that way. The given last autumn to the World Health tobacco and ,« says Bo Aulin. Pennsylvania Distributors’ prospect of reusing his brothers’ text- Organization by Swedish Match Senior The WHO has yet to show whether Association. The Association books rather than having to spend his Vice President and General Counsel, Bo it was influenced by the arguments pre- explained its choice of student grant money on course materi- Aulin. On this occasion, the WHO had sented. Lennart Freeman by referring als was financially attractive. And he arranged a hearing in connection with to the Swedish Match focus on being a service-oriented

partner to the retail sector. In Lennart Freeman. addition to a broad range, the company supplies retailers with the market information necessary to enable them to offer appropriate selections in their stores. New acquisition in South Africa

wedish Match has purchased fits in well with the previously 360 MSEK and a market-leading posi- No acquisition in the US British American Tobacco’s announced plans for international ex- tion in the South African pipe-tobacco Swedish Match has withdrawn its bid for S South African pipe-tobacco oper- pansion, involving a continued focus on and moist-snuff markets. In May 2000, National Tobacco’s chewing-tobacco opera- ations, with annual net sales of approx- brown tobacco (cigars and pipe tobac- Swedish Match acquired the country’s tions in the US after a federal district court in imately 200 MSEK. The purchase, co) and smokeless tobacco products. leading tobacco distributor, Brasant Washington D.C. ruled in favor of the decision which was carried out at the beginning The BAT purchase is Swedish Enterprises Ltd, with annual sales of of the FTC competition authority not to of the year, is expected to already have a Match’s third South African acquisition approximately 60 MSEK. approve the transaction. positive effect on Group net earnings in in less than one-and-a-half years. In late For Swedish Match, the three opera- the first year following the purchase. 1999, the Group acquired 80 percent of tions can generate clear synergistic ben- For Swedish Match, the acquisition Leonard Dingler Ltd, with net sales of efits regarding sales and distribution. SWEDISH MATCH INSIDE | #1 2001 | 7 NAMES & NEWS

Record year for Swedish Match share New on the job RICH FLAHERTY is the new vice president business control and he year 2000 was a good one chief financial officer for Swedish SHARE DEVELOPMENT 1999-12-30–2001-01-26 SEK for the Swedish Match share, Match North America division. which defied the downward Before joining Swedish Match, T 40 trend of the world’s stock exchanges. Flaherty worked for Bumble Bee In Stockholm, the Swedish Match share Seafoods, Inc. where he served rose 25 percent during 2000, from SEK as senior vice president fand CFO. Prior to 35 29.70 to SEK 36.50. During the same Bumble Bee, Flaherty worked for Lipton and period, the OM Stockholm Exchange Unilever. general index declined by more than 13 30 percent. The American NASDAQ KRISHNA GHAG is the new legal, and company exchange, on which Swedish Match is secretary at WIMCO Ltd. in Mumbai, India. also listed, fell a full 40 percent during Ghag has previously served as legal company 25 the year. secretary with Cyanamid Agro, Knoll Pharma- While this made the year 2000 one ceuticals, FDC and Voltas. WIMCO, a public of the worst of the decade for the OM company listed on the Bombay exchange, is Stockholm Exchange and for NAS- 20 74-percent-owned by Swedish Match. DAQ, it was one of the best for the 1999 2000 12-30 01-30 02-2903-30 04-30 05-30 06-30 07-30 08-30 09-30 10-3011-30 12-30 Swedish Match share since the compa- MAIIKE OOMEN Continental ny was listed in May 1996. Swedish Match Stockholm Stock Exchange Europe division, has been The stock-market slump is largely appointed marketing director due to weakened confidence in tech- for cigars. Oomen reports to nology shares. Compared with many ommended the share in their analyses. tax consequences of which are Roland Schmid, marketing IT companies, Swedish Match is con- Particularly after the six-month report described in more detail in another manager in the Continental sidered a stable company with strong and the strong nine-month interim report article) also played a role in the share Europe division. earnings, positive cash flow and a high that followed it, many analysts reinforced price upswing. Including the proposed dividend-paying capacity. their ›Buy‹ recommendations. dividend of SEK 1.35 per share, the PATRIK HILDINGSSON and CHES- A heightened interest in Swedish The value of the redemption right – Swedish Match share achieved a total TER ANDERSON have taken up Match shares was noted last year among approximately SEK 0.50 per share – return of approximately 29 percent duties as project managers/ banks and brokerage houses, which rec- received by shareholders in 2000 (the during 2000. developers at the New Busi- ness Development unit within the North Europe division. Their duties will include developing a platform for Svenskt Snus (Swedish moist snuff) that will Declaring redemption rights in tax returns serve as a basis for expansion into new markets. It will soon be income-tax CALCULATE YOUR OWN TAX Own figures Example returns time once again, and no doubt many Swedish Match Acquisition value for one Swedish Match share (in this example, SEK 20) ..……… SEK 20.00 Websites for moist snuff too New acquisition value (97% of old value): 0.97 x SEK 20 ..……… SEK 19:40 shareholders will be wondering New websites devoted to the General and Ettan Acquisition value for one redemption right moist snuff brands will appear on the Internet how to declare the redemption (3% of previous acquisition value: 0.03 x SEK 20) ..……… SEK 0.60 early in the year. The sites are aimed primarily at rights received during 2000. consumers, the media and the general public. Inside explains what to do: Alternative 1: Sale of redemption right »There is a great demand for information,« ex- Selling price per right (in this example, SEK 0.65) 1 ..……… SEK 0.65 plains Anna Neiås, marketing manager for moist snuff within the North Europe division. »Many Less acquisition value (see above) 2 – ..……… SEK 0.60 people have questions about cigar history and uring May 2000, Swedish Less any overheads incurred (brokerage) For taxation 3 ..……… SEK 0.05 manufacture, for example, and such questions Match implemented a redemp- are easily answered via the Internet,« she says. tion program. Every 14 Swedish D Alternative 2: Redemption of one Swedish Match share Match shares held entitled the holder to redeem one share at a price of SEK 35. Redemption amount ..……… SEK 35.00 Moist snuff helps smokers Each share in Swedish Match carried Acquisition value, one share 4 – ..……… SEK 19.40 one redemption right, which meant that Fourteen (14) redemption rights (14 x SEK .60) 5 – ..……… SEK 8.40 who want to quit 14 shares were required in order to Personal motivation and will-power are the redeem one share. The redemption For taxation 6 ..……… SEK 7.20 strongest success factors for someone who rights could either be sold in the open has quit smoking. Next comes moist snuff – market or used in conjunction with the COMMENTS according to a survey carried out by the Temo company’s redemption of shares. market research company for the North Europe In both cases, the shareholder in- Alternative 1: Sale of redemption rights 3 The difference between the acquisition division of Swedish Match. Of people who have curred either a capital gain or a capital value and the selling price is a gain that is quit smoking for a sustained period (more than loss, depending on the opening value of 1 The payment per redemption right will taxed in accordance with the normal rules one year), 17 percent quit with the help of moist the shareholding. The lower the open- vary depending on when it was sold. for capital gains. In the above example, the snuff, 4 percent with nicotine chewing gum, 2 ing value, the higher the capital gain – 2 The acquisition value of each redemption taxable gain was SEK 0.05 per redemption percent with nicotine patches and 3 percent and hence the amount of tax payable. right is given as 3% of the share’s opening right. A higher opening value (more than SEK with other aids (acupuncture, chewing tobacco, The National Tax Board of Sweden has value. In the above example: 3% of SEK 20 20) would have resulted in a correspondingly etc.) Seventy-four percent, however, claim to issued a recommendation* explaining = SEK 0.60. smaller capital gain, or a capital loss. have quit smoking without any aids at all. how these redemption transactions will be taxed. The recommendation, based on a percentage split of the total share value be- Alternative 2: Redemption of shares 6 The selling price is the price Swedish tween the shares and the spun-off redemp- Match paid for the redeemed shares: SEK 4 The acquisition value of each share is given tion rights, states that 3 percent of the 35. The difference between these amounts is as 97% of the share’s opening value. In the original acquisition value, calculated treated as a gain (or a loss) for tax purposes. above example: 97% of SEK 20 = SEK 19.40. using the average method, will be assigned In the above example the gain amounted to to the redemption right, while the remain- 5 Add to this figure the value of the fourteen SEK 7.20 per share (35 – 27.80 = 7.20). ULRIKA LUNDIN/SOFT redemption rights required for each redeemed ing 97 percent is the acquisition value of After redemption, the remaining shares have share – in the above example: 14 x SEK 0.60 the share excluding the redemption right. an acquisition value corresponding to 97% = SEK 8.40. In the above example, these two It is a simple matter to calculate your of the previous average acquisition value. tax basis by following Inside’s own amounts together give an acquisition value, for model, below. Note that the calculation tax purposes, of 19.40 + 8.40 = SEK 27.80. shown is only one possible example: *RSV S 2000:64 PURVEYORS TO KINGS AND CELEBRITIES KING of the cigar merchants It has traded at the same address since 1787 and aspires to the title the worlds oldest cigar merchant. However, demands have changed with the years. Today the cus- tomers are asking for the really exclusive brands.

ondon 1963: »I am writing to con- cigar store to hold a royal world warrant. firm my telephoned order for a Other famous customers included the trag- box of 25 cigars for my Grand- ic Oscar Wilde. This latter ordered and son’s birthday on October 10, smoked his own, specially made cigarettes, 1963. They must be cigars of a »Gold Tip AA«. He left an unpaid debt Lgood quality but not necessarily as good as amounting to 37 pounds. those that I usually purchase for myself.« »That was a shame, but on the other Churchill’s love of cigars is a hand it must have been a pleasure to do busi- main feature of the marketing conducted ness with such a genius,« says Tim Cox, for the cigar retailing establishment of who manages the store and who readily ush- James J. Fox & Robert Lewis at 19, St. ers customers into a special room at the James Street in London’s End. This is back, which houses a small cigar museum. the store where Winston’s mother opened HERE YOU CAN FIND CIGARS, his first cigar account – in her own name – boxes, labels, pro- »Customers generally prefer to enjoy a moderate, medium-sized cigar. They are also asking for the really exclusive in 1888. He was to take over the account in duction tools, accessories and other tobacco- brands«, says Tim Cox who manages the store. his own name two years later, in 1900. related items, some dating back 200 years or Thousands of cigars a year were purchased more, all affectionately arranged and dis- through this account, the last delivery being played. And, if you are really nice, Tim can creatively with its snuff products, produc- made on December 23, 1964. Lady Ran- sometimes be persuaded to show visitors the ing proprietary blends and flavors. Orange dolph Churchill also smoked, but preferred basement, a 100 square-meter storage area and mint are currently popular. cigarettes of the Alexandra Balkan brand. for cigars belonging to the firm’s 3,000 cus- tomers, many of them expensive pre-Castro BUSINESS IS BOOMING, he reports. »The hys- THE STORE HAS TRADED at the same address specials from Cuba’s golden era. The aroma teria from the middle and end of the 1990s since 1787 and aspires to the title, »the is intoxicatingly good! has settled down. The really serious buyers world’s oldest cigar merchant.« Kings and The firm is the result of a merger between remain, however. We have noted a big dif- other celebrities are included among the two of the industry’s elite players, Fox and ference in the pattern of demand. There is major customers of the past. It is the only Lewis. Today, the firm is also responsible for less demand for the really large cigars – the operating the well-stocked and managed long and fat models. It seems as if cus- cigar departments at both Harrods and Sel- tomers generally prefer to enjoy a moder- fridges in London, a specialist store in ate, medium-sized cigar with a milder and Dublin and the agency for all cigar distribu- somewhat softer flavor. They are also ask- tion on Jersey in the Channel Islands. ing for the really exclusive brands. Our The range is not restricted to cigars. own cigar brands, made from Dominican Here, you can also find proprietary brands tobacco and rolled in the plant in Santiago, of pipe tobacco and cigarettes and, inter- have a dedicated following.« estingly, snuff. Around 150 kg of dry snuff And, finally, what was Churchill’s are delivered to many of London’s old- favorite cigar? The same address since 1787, but the firm is also established gentlemen’s clubs each year. »A 17-cm long Romeo y Julietta«, says responsible for operating the cigar departments at A special room houses a small cigar museum. James J. Fox & Robert Lewis also works Tim Cox. Harrods and Selfridge’s.

SWEDISH MATCH IN BRIEF KEY FIGURES

Swedish Match is an international group specializing in niche tobacco products, OTP (Other Tobacco Products), as well as MSEK 2000 1999

matches and lighters. The Groups´s products are manufactured in 26 plants located in 15 countries and are sold in 180 Net sales 11 533 9 420

countries. During 1999, the average number of employees was 11,797. The Swedish Match share is listed on the OM Operating income 1 886 1 689 Stockholm Exchange (SWMA) and on NASDAQ (SWMAY) in the form of American Depositary Reciepts. Operating income before depreciation 2 429 5 777*

Net income 1 153 4 656 Smokeless Brown Matches and Income per share tobacco tobacco Lighters after tax, SEK 2:78 2:26

Smokeless tobacco Brown tobacco oper- Operations relating Dividend per operations include ations include cigars to matches and share, SEK 1:35** 1:25 snuff and chewing and pipe tobacco lighters account for Return on share- tobacco and account and account for 22 27 percent of Group holder´s equity, % 21,8 115,0 for 31 percent of Group sales. percent of Group Sales. sales.

* Includes 3,707 MSEK in capital gain etc. ** Proposed dividend MARKET POSITION MARKET POSITION MARKET POSITION Snuff: Leader in the Nordic region and South Cigars: The world´s second largest cigar Matches: The world´s only global match Africa. Third largest player in North America. company. company. Chewing tobacco: Leader in North America Pipe tobacco: One of the world´s major players Lighters: One of the world´s three largest in the pipe tobacco area. producers.