JoK-Inside nr 2-04 eng 04-06-10 10.32 Sida 1

INFORMATIONinside ABOUT SWEDISH FOR SHAREHOLDERS AND OTHER STAKEHOLDERS

#2 june 2004 STIG-GÖRAN NILSSON Good start to 2004 Snuff continued to perform well, with sales and Strong show operating income increasing in all major markets during the first quarter. The recovery of , with increased sales and a strong improvement in oper- ating income, was also positive. Group sales for the first three months amounted to 3,002 MSEK – of shareholder on par with the year-earlier period. Page 2-3 commitment at Sven Hindrikes appointed CEO Sven Hindrikes was appointed President and CEO of Swedish Match, replacing Lennart Sundén, who has left the company. Lars Dahlgren was AGM appointed CFO. Page 2

European Court to hear ban case In June, the European Court will begin hearings regarding the ban on snus sales in the EU. Swedish Match takes the view that the snus ban violates several fundamental principles within the EU and is hopeful that the Court will lift the sales ban. Page 3

Tobacco veteran takes his leave After 46 years in the Swedish industry, Klaus Unger can call himself “Mr. Tobacco” without blushing. He made a strong contribution to the company’s strategy of internationalization and focusing on smokeless products. At the AGM, he Attendance at Swedish Match’s Annual General left the Swedish Match Board. Page 10 Meeting earlier this year broke all records. The meeting offered several new features compared Corporate Governance in shareholders’ interests with prior years. For example, shareholders had Swedish Match is in the forefront among Swedish companies in realizing the aim of enhancing open- the opportunity to listen to reports on the work of ness and clarity in corporate governance issues. Among the incentives are the tough and extremely the Board of Directors and its committees. The detailed new regulations in the US covering the entire control chain from the company’s sharehold- meeting approved an increased dividend and ers to the Board of Directors and President and on elected Karsten Slotte, President of Cloetta Fazer, down to financial management and reporting. Page 4 as a new Board member. Page 6-86-6 JoK-Inside nr 2-04 eng 04-06-10 10.33 Sida 2

LARS DAHLGREN COMMENTS ON THE FIRST QUARTER OF 2004: A good start to the yea “Swedish Match has enjoyed a good start to the new year and I am confident about the outlook for the rest of the year,” says CFO Lars Dahlgren, following the presentation of the first-quarter results. Snuff continued to perform well, with increased sales and operating income in all major markets. The strong recovery of operations Our strategies was also positive, with a sharp increase in sales and a stand firm strong improvement in operating income. THE FAVORABLE OUTCOME OF OPERATIONS during the he first quarter of 2004 “OUR NORMAL EARNINGS show an couple of years of stagnating demand, first quarter of 2004 shows that Swedish Match’s started out well for increase of 4 percent to 535 MSEK, a the business area developed and strategies are continuing to bear fruit, with further Swedish shareholders and pleasing result in view of the negative launched a number of new products, profitable growth and increased value for share- Swedish companies in gen- currency effects . The sizeable payment mainly in the machine-made cigar seg- holders. Teral, with an upturn in the economy, a from UST has further strengthened our ment. The results of these efforts are It is important for me to emphasize that the general rise in sales and growing prof- balance sheet and enhances our capac- now being seen in the form of strong Group’s strategies stand firm. We are a unique its. Swedish Match – which is relatively ity to carry out share buybacks in the volume growth in the US. tobacco company, a world leader in those niches unaffected by economic cycles – is no longer term,” says Lars Dahlgren. “The market is growing again and that are growing in our industry. We are focusing exception. Sales during the first three After financial items and tax, the we are in an ideal position, with the on developing a broad product portfolio, with months of the year were about the same Group’s earnings per share amounted launch of our new flavored cigar prod- strong positions in markets where our products as during the corresponding year-earlier to SEK 3.32, of which SEK 2.50 ucts within the White Owl brand have current or future potential to achieve prof- period, at 3,002 MSEK. In local curren- derived from the UST settlement. strengthening our market share. Addi- itable volumes. cies, however, sales rose by 5 percent. Snuff sales continue to be positive, tionally, we have been able to imple- We have a strong competitive advantage in that “The US dollar continues to be weak with further success in Northern ment certain price increases,” contin- our strategies are formulated in harmony with against the Swedish krona, thus reducing Europe and the US. Total sales rose by ues Lars Dahlgren. “After a period of social trends. Greater restrictions are being our overall earnings when we translate 9 percent to 751 MSEK. Volumes – stagnation, demand is also now imposed on smoking in a growing number of the earnings from our North American measured as the number of cans sold – increasing for our premium cigars – countries. Our expertise within snuff and smoke- operations,” explains Lars Dahlgren. increased slightly more in the US (+5 exclusive hand-rolled cigars – in the less products makes us a global leader in terms of providing effective alternatives for the many Operating income also increased. percent) than in the Nordic region (+3 US, where we are the number one play- people who wish to give up smoking. During the first quarter of the year, a percent). Swedish Match’s share of the er, with products including the leading In recent years, we have also launched long- settlement payment was received from total US market amounted to 9 percent Macanudo brand. In Europe, on the term initiatives to develop new smokeless prod- the US competitor US Smokeless during the period. other hand, volume growth is still fair- ucts and conquer new markets. We plan to fur- Tobacco (UST). Last year, Swedish During last year we launched a new ly unevenly spread between the various ther develop our leading position in the global Match took legal action against UST snuff brand, Longhorn, in the North markets. Overall, volumes in Europe cigar market as living standards improve in East- for “disturbing” Swedish Match’s mar- American market to a favorable recep- were on par with those for the corre- ern Europe and Asia. Similarly, we intend to take keting and sales of snuff in the US. In tion from both retailers and consumers. sponding period last year.” advantage of the profitable opportunities opening March, a settlement was reached, The strong sales trend combined Cigar sales during the first quarter up in the future. During the year, we are expecting whereby UST agreed to pay 200 with price increases and productivity increased in total by 7 percent to 687 a ruling by the European Court of Justice regard- MUSD and to transfer its cigar opera- improvements meant that operating MSEK, and by 15 percent in local cur- ing the legality of snuff in the EU. tions to Swedish Match. After deduc- income rose by 16 percent to 353 rencies. Operating income rose by 30 The purpose of our strategies is to provide our tion of legal expenses, this gave rise to MSEK, in spite of the negative currency percent to 104 MSEK, but was affect- shareholders with a long-term and competitive an income item affecting comparabili- effects resulting from translation to SEK. ed by negative currency effects. increase in the value of their investment in ty of 1,417 MSEK in the first-quarter “We are especially pleased that the The other two tobacco product Swedish Match. This primarily involves continu- accounts, resulting in operating income operating margin was restored to 47 areas, and pipe ously managing and developing our ongoing oper- of 1,877 MSEK for the first three percent,” says Lars Dahlgren. tobacco plus accessories, are continu- ations. We will complement this ongoing task with months of the year. UST’s cigar opera- ing to perform well. The market for dividends and buyback programs; capital that is tions will be transferred to Swedish CIGAR OPERATIONS SHOWED a highly posi- chewing tobacco is in steady decline. not needed in operations will be restored to Match during the second quarter. tive trend during the quarter. After a However, the lower sales in this prod- shareholders. Including this year’s dividend, we will have transferred SEK 7.2 billion to the share- holders through dividends, buybacks and redemp- tion programs during the period 1999–2003.

Sven Hindrikes, President and CEO Changes in Group management

SVEN HINDRIKES has been appointed Swedish Match Inside is a magazine for Swedish Match’s shareholders. The print run is 83,000 copies of the President and CEO of Swedish Match. Swedish version and 3,600 copies of the English version. Hindrikes served as Chief Financial Officer (CFO) for nearly six years and PUBLISHER ADDRESS is thoroughly familiar with the Group Swedish Match AB Swedish Match and its operations. Positions held by 118 85 Sven Hindrikes before joining Swedish PUBLISHER RESPONSIBLE Tel: +46 8 658 02 00 Match included working for ABB in Bo Aulin www.swedishmatch.com Canada and Mexico. He returned to in 1994 and joined Swedish EDITORIAL PRODUCTION Lena Olofsdotter, Hallvarsson&Halvarsson AB Match in 1998. Swedish Match AB Lars Dahlgren has been appointed CFO. Lars Dahlgren has worked at Swedish Match since 1996. Having served in various positions internation- PHOTO REPRODUCTION ally within the Group, he has extensive Stig-Göran Nilsson Scarena, Stockholm experience of working at management PRINTING level. Lars has worked in Group Ljungbergs, Klippan Finance since May 2002, reporting directly to the CFO and focusing pri- marily on business analysis and follow- up, as well as company acquisitions and divestments. Lars Dahlgren CFO and Sven Hindrikes President and CEO at the Annual General Meeting JoK-Inside nr 2-04 eng 04-06-14 16.22 Sida 3

SWEDISH MATCH INSIDE | #2 2004 | 3 Analysts’ questions Swedish Match presented its Q4 interim ear report on April 26. In conjunction with this, a telephone conference was held, during uct area were offset by price increases. which Group management answered ques-

Operating income declined by SALES AND OPERATING INCOME*, JANUARY–MARCH, MSEK tions submitted by analysts from banks and 13 percent to 73 MSEK, but was unchanged in local currency. Pipe 4,000 brokerages. tobacco is displaying a similar trend, with lower volumes during the quarter. MICHAEL SMITH, J P MORGAN: 3,000 3,317 However, operating income was 3,006 3,002 “Snuff sales in the Nordic markets rose by raised by 13 percent to 52 MSEK only 2-3 percent this quarter. What was the through higher prices and improved 2,000 reason for this? Does it mean that you are los- productivity. Both product areas con- ing market share to competitors?” tinue to be characterized by strong cash flow and strong margins. 1,000 SVEN HINDRIKES, CEO: “No, we have been exposed to competition in the AND are struggling 605 516 535 Swedish market for the past three years, so this 0 with a decline in demand and fierce isn’t the reason, but rather the fact that the histor- 2002 2003 2004 international competition from low- ical growth rate of 4-5 percent is difficult to main- price producers. “These are areas Sales Operating income * EXCLUDING ITEMS DISTURBING COMPARABILITY tain in a limited market with limited population where we have significant market growth.” shares, valuable brands and global dis- tribution, providing us with synergies GORM THOMASSEN, CAZENOVE: SALES, MSEK OPERATING INCOME, MSEK for the entire Group,” continues Lars “Sales of Timber Wolf in the US market seem Dahlgren. “We are not satisfied with Jan–Mar Jan–Mar Change Jan–Mar Jan–Mar Change to have declined slightly. What is the reason the current trend, and we will continue 2004 2003 % 2004 2003 % for this?” to structure and streamline our pro- Snuff 751 689 9 353 305 16 duction and distribution to achieve SVEN HINDRIKES: acceptable margins. Our European Chew. tobacco 254 295 –14 73 84 –13 “The competition is intensifying, making it more match operations are currently under- difficult to maintain the enormous growth that going a restructuring program, and we Cigars 687 644 7 104 80 30 Timber Wolf has enjoyed up until now. However, are reviewing our structure and costs we will continue to invest in strengthening the globally.” Pipe tobacco/ Timber Wolf brand and its market position. In The matches product area reported Accessoires 211 214 –1 52 46 13 terms of US sales of moist snuff in general, the an operating loss of 30 MSEK, after a Matches 324 348 –7 –30 38 marginal decline for Timber Wolf was offset by our provision of 46 MSEK was made for new brand in the value price segment, which has rationalization of European match Lighters 147 151 –3 7 9 –22 proved to be a success.” operations. In the case of lighters, we Other 628 665 –6 –99 –46 succeeded in increasing volumes in a VIRGINIA HÉÉRIBOUT, CDS IXIS SECURITIES: number of markets despite the compe- Total 3,002 3,006 0 460 516 –11 tition, but pressure on prices combined “What is the outlook for cigar operations, pri- with the strength of the EUR against marily in the US but also in Europe?” the USD continued to depress earnings, which amounted to 7 MSEK. improvement was primarily attributa- long-term financial stability. During SVEN HINDRIKES: The first quarter of the year leaves ble to the settlement with UST, the the first quarter, we bought back “We had an excellent start to the year in the US Swedish Match financially stronger underlying cash flow from operations approximately 1.5 million shares for an for our machine-rolled cigars, not least thanks to than ever. Net debt amounts to 830 was also strong during the quarter. average price of SEK 72.38 per share. the launch of a number of flavored products. We MSEK, compared with 2,715 MSEK We have every opportunity to continue assess that the outlook will continue to be posi- on December 31, 2003. Cash flow “FOR THE PAST FEW YEARS, our policy has to restore value to the shareholders in tive, although it is uncertain whether the growth from operations amounted to 1,905 been to create value for shareholders by this manner,” says Lars Dahlgren. The rate during the first quarter can be sustained for MSEK, compared with 402 MSEK for buying back shares when the Group Annual General Meeting on April 26, the rest of the year. Premium cigars have also the year-earlier period. Liquid funds, has funds available that are not imme- 2004 renewed the mandate to buy back shown a positive trend in the US. With regard to including current investments, totaled diately needed in operations, and pro- up to 10 percent of the total shares. the European markets, the situation is mixed, nearly SEK 4 billion. While the vided we do not jeopardize the Group’s partly due to increases in tobacco tax in some countries. For the year as a whole, however, we assess that volumes will be at least on par with last year.”

Hearings in the European Court GORM THOMASSEN: “The EU tobacco directive is currently being on the snuff ban case revised at the same time as your case is about to be heard by the European Court of Justice. Will the two legal processes be coordinated in ON JUNE 8, THE EUROPEAN COURT OF JUSTICE that the ban should be lifted against the consumption. The study* maintains any way?” heard two cases concerning the ban on background of the scientific support that the lower level of smoking-related the sale of snuff within the EU. that exists for products with lower mortality in Swedish men is linked to BO AULIN, LEGAL COUNSEL: The two cases originate, respective- health risks, such as Swedish snuff, as the use of snuff. “I have also heard speculation of this kind but I ly, from the High Court in the UK and an alternative to . Ola Wiklund, Professor of European can’t see how such coordination would take the regional administrative court in “However, a judicial process always Community Law at Stockholm Univer- place. I believe that the two processes are entirely Minden, Germany. Both cases were involves a degree of uncertainty,” con- sity, commented on the hearing in the separate, even though both the revised directive referred to the European Court for tinues Bo Aulin. “But even if the Euro- Aftonbladet newspaper on March 30: is expected at the end of the year, when we also adjudication of the legality of Article 8 pean Court rules that the ban is not “The issue to be examined is hope the court will give its ruling.” of the relevant EU directive, which bans unlawful, we are convinced that it will whether the ban is necessary to protect the sale of snuff. Since both cases relate still be removed within a few years, public health. It is contrary to the prin- DAVID IRELAND, ABN AMRO: to the same matter, they were addressed since it is so obvious that it does not ciple of the free movement of goods – a at the same time by the European benefit public health or serve any other principle that carries a lot of weight. I “You have taken legal action against Gus- Court. social purpose.” will not be surprised if Sweden is soon tavus, a competitor in Sweden. What is this “We take the view that the snuff ban In a recently published scientific able to begin exporting snuff.” about? violates several fundamental principles study in the European Journal of Epi- of EU law, including, but not restricted demiology, it was estimated that some BO AULIN: to, the principle of the free movement of 200,000 of the 500,000 smoking-relat- “We believe that they are guilty of misleading * “The burden of mortality from smoking: Comparing Sweden advertising and that they are sponging off our goods within the EU countries,” says ed deaths each year in the EU could be with other countries in the European Union,” Brad Rodu and Bo Aulin, Chief Legal Counsel at avoided if other countries in Europe Phil Cole. brands. All our other competitors have their own Swedish Match. “But we also consider adopted a Swedish pattern of tobacco packaging and own design, but Gustavus has, among others, chosen to exactly copy the form of our cans and imitate our brand designs.” JoK-Inside nr 2-04 eng 04-06-09 18.46 Sida 4

4 | SWEDISH MATCH INSIDE | #2 2004 Corporate Governanc

“Taking care of our shareholders” has always been a strategic ments on US companies – and in impor- The most striking changes relate to tant respects also foreign companies the Board. Since Swedish Match is a priority at Swedish Match. In recent years, however, require- listed on US exchanges – regarding the company that focuses on its sharehold- ments have been tightened with regard to how companies entire chain of control from the compa- ers, the Board set up a Nomination ny’s shareholders to the Board and Pres- Committee and a Remuneration Com- organize and report their entire chain of oversight and control ident and down to those responsible for mittee back in 1996. These committees routines, particularly from the point of view of shareholders. accounts and reporting in subsidiary companies. New policies and additional supervisory bodies have been “With our shares listed on the US introduced and procedures have been rigorously formalized. Nasdaq exchange and with almost 5,000 US shareholders, we have had to For Swedish Match, the company’s listing on the US Nasdaq adapt to the new US regulations,” exchange has been an incentive to act, and it has responded explains Bo Aulin, Senior Vice Presi- dent, Corporate Affairs, and Chief by implementing Corporate Governance – “The Mid-Atlantic Legal Counsel, who is responsible for Way.” much of the practical work. Suppress- ing a good-natured sigh, he continues: bservant readers of Swedish “It has been a huge task: Swedish cul- Match’s annual reports in the ture, traditions, attitudes and corporate Opast few years will have noticed life are very different from business in a section on Corporate Governance. We were virtually unique in Sweden in this Bo Aulin respect until last year, 2003, when a “Taking care of our number of large Swedish companies have gradually been assigned clearer followed suit. shareholders” has always mandates and duties. This coincided with a number of been a strategic priority at “Perhaps the most significant conse- major financial scandals in the US, quence of the Sarbanes Oxley Act for when Enron and WorldCom suddenly Swedish Match.” our part is the Board’s Audit Commit- became global household names. In tee, which was set up last year to pro- rapid response to the scandals, the US vide extended support for the entire introduced a new law, the Sarbanes- the US. But basically, we now have sev- Board. We also set up a Disclosure Oxley Act, the most important financial eral new functions that improve over- Committee, consisting of senior execu- legislation since the 1930s. sight and control and we have formal- tives in the company who examine all The stringent and very detailed new ized existing procedures that were financial information,” continues Bo regulations imposed tighter require- already working well.” Aulin.

CONTROL AND SCRUTINY COMMITTEES

THE NOMINATION COMMITTEE THE REMUNERATION COMMITTEE THE AUDIT COMMITTEE THE DISCLOSURE COMMITTEE

is appointed annually by the Annual General is appointed internally within the Board of – a new element in Swedish businesses – has is a fairly typical element of Corporate Meeting. It comprises Bernt Magnusson, Björn Directors. The Chairman of the Remuneration been the subject of much debate in Sweden. Governance in the US, and one that Swedish Franzon, Staffan Grefbäck and Marianne Committee is Bernt Magnusson, who is also Legislation clearly stipulates that the Board in companies will have to adapt to. Its members Nilsson. The Committee is tasked with prepar- Chairman of the Board. Other members are Jan its entirety is responsible for all inspection and comprise various executives within the Group ing and submitting proposals to the Annual Blomberg and Arne Jurbrant. The Committee supervision of the company’s organization and who are responsible for producing financial General Meeting for the election of Board mem- discusses and resolves remuneration issues management. What happens then when these reports: Bo Aulin (Chairman) and the heads of bers and the size of the fees paid to members that involve matters of principle or that are tasks are “delegated” to an Audit Committee? Investor Relations, Corporate Control and of the Board of Swedish Match. The Committee otherwise of significant importance, such as In Bo Aulin’s opinion, the Board of Swedish Corporate Communications. Pursuant to the meets as often as necessary, normally 2-3 options programs and profit-sharing systems. Match is aware that it “can only delegate pow- requirements of the US Sarbanes-Oxley Act, the times each year, but at least once a year. The It also prepares questions for decisions by the ers and never responsibility. It is the Board of Committee is required to secure and inspect all Nomination Committee naturally comprises rep- Board concerning salary, terms of employment, Directors that is ultimately responsible for the external reports, such as annual reports, year- resentatives of some of the largest Swedish pension benefits and bonus systems for the company’s internal control systems, which in end financial statements, interim reports and owners but will recommend Board members President, and approves the corresponding turn are intended to safeguard shareholders’ press releases. who represent knowledge, experience, impar- benefits and terms for management personnel investments and the Group’s assets.” This may not sound so onerous, but the tiality and integrity and who supply the Board who report directly to the President. The The Audit Committee, whose members are Committee also has a formal responsibility, with the strength and expertise to represent all President may not participate in discussions elected internally within the Board of Directors, whereby the President and CFO are personally shareholders in an equal manner. relating to his own terms of employment. The currently comprises Jan Blomberg (Chairman), accountable and must solemnly attest in writing Committee meets as often as needed, but at Karsten Slotte and Meg Tivéus. The Committee the accuracy of the contents of the company’s least twice a year. It often seeks advice from supervises the routines for accounting, financial US accounts in accordance with Form 20-F. external consultants, for example to obtain reporting and auditing within the Group. “The Swedish Match has thus come a long way in its knowledge about levels of remuneration in the Committee primarily scrutinizes the quality, Corporate Governance work. However, further industry and in other large companies. accuracy and reporting of the financial measures lie ahead. The US regulations are Remuneration committees of boards of direc- accounts in addition to inspecting internal finan- becoming increasingly refined, with detailed tors have faced a delicate and demanding task cial controls and supervising the work of the guidelines and rules regarding relations with in recent years since remuneration levels and auditors. This entails that the Committee makes financial consultants at corporate finance firms, terms of employment in Sweden and abroad preparations for the procurement of audit serv- analysts and brokers, journalists and fund man- have been the subject of heated debate and agers. We can expect these developments to fierce criticism. ices and checks that the auditors possess the right qualifications and are impartial. The audi- spill over to Europe. tors are then elected by the Annual General The Swedish Government has also appointed a Meeting. Public Confidence Commission that has pro- posed various new rules to strengthen confi- The audit procurement process prior to the dence in companies. The Commission has 2004 Annual General Meeting has been com- worked together with representatives of the pleted and four auditing firms were invited to Swedish business sector to prepare a Code of submit tenders and made presentations to the Conduct containing further guidelines on how to Committee. The Annual General Meeting elect- improve Board procedures and increase the ed KPMG as the new auditors for Swedish transparency of financial reporting. Match, in accordance with the Audit Committee’s proposal. JoK-Inside nr 2-04 eng 04-06-09 18.46 Sida 5 nce at Swedish Match Management and control chain What is Corporate Governance?

THE ANGLO-SAXON CONCEPT of Corporate Employees who invest their knowl- Governance refers to oversight and edge and experience, customers and control of companies, although it is suppliers who buy and deliver goods now also used in the same context with and possibly issue credit, and the local reference to countries. community and society at large which There is no simple definition of the also have a close relationship with the concept. However, most people agree company. Proponents of expanding the that Corporate Governance involves notion of Corporate Governance often “the mechanisms – laws, rules, stan- refer to corporate social responsibility dards, bodies and behavior – between (CSR). They mean that companies shareholders, the Board and the com- today must assume far greater respon- pany management designed to secure sibility, covering not only shareholders for shareholders and lenders their fair and investors but also the environment share of the company’s wealth and and a broad social responsibility. returns.” In the past 20 years, Corporate Gov- This definition only covers those ernance has become an increasingly parties who have “taken a risk in the clear and important element of corpo- company,” that is, invested capital in rate life. Developments have often the company in the form of shares or accelerated following corporate scan- loans. In recent years, however, there dals, such as the recent Enron and has been a tendency among certain WorldCom scandals in the US and the groups to expand the concept of Cor- Skandia scandal in Sweden. porate Governance to include more or less all parties with an interest in the company, such as:

THE OECD, THE ORGANIZATION FOR ECONOMIC CO- OPERATION AND DEVELOPMENT, whose members include the world’s richest countries, has had Corporate Governance on its agenda since the mid-1990s and has prepared five main principles that member countries should adopt. These provide slightly more detailed definitions. Corporate Governance must: • protect shareholders’ rights

• ensure the equitable treatment of all shareholders, including minority and foreign shareholders. All shareholders should have the opportunity to obtain effective redress for violation of their rights

• recognize the rights of stakeholders as established by law and encourage active cooperation between corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises

• ensure that timely and accurate disclosure is made on all material matters regarding the corporation, including the financial situation, performance, ownership, and governance of the company

• ensure the strategic guidance of the company, the effective monitoring of management by the Board, and the Board’s accountability to the company and the shareholders. JoK-Inside nr 2-04 eng 04-06-09 18.47 Sida 6

6 | SWEDISH MATCH INSIDE | #2 2004 Record attendance a

Attendance at Swedish Match’s Annual General Meeting earlier this year broke all records. More than 600 shareholders had regis- tered to attend and, as usual, demonstrated their strong commit- ment to the company and its operations. They were to hear about yet another year of outstanding share performance and an average annual increase of 20 percent in earnings per share over the past five years, which in turn ensured that the proposed increase in the dividend to SEK 1.70 was approved. “Not a bad piggy bank,” as one shareholder representative expressed it.

This year’s AGM contained additional new elements compared with previous years. On this occasion, the shareholders had the opportunity to listen to reports, not only on the work of the Board of Directors, but also on the activities of the Audit Commit- tee, Remuneration Committee and Nomi- Journalist and author Harald Norbelie is one of the foremost experts on the City of Stockholm and its history. He has written several books describing the city and its streets, buildings and inhabitants, and the changes it has nation Committee – a consequence of the undergone. In conjunction with the Meeting, he entertained an interested audience with an illustrated talk on the desire for increased openness and clarity in history of tobacco in Stockholm – a segment of history that includes extensive tobacco plantations and leg- issues concerning corporate governance, endary snus and cigar producers. auditing and controls, and remuneration policies. “Our programs must be designed so as tion, only favorable returns and earnings I registreringsdisken rådde fullt tryck. The incentive programs in exchange- to combine the interests of management per share will be rewarded.” listed companies in Sweden have been the and shareholders,” he noted. According to Swedish Match’s options subject of animated debate during the past “Moreover, they must be communicat- program, for the maximum allotment of year, and Board Chairman Bernt Magnus- ed with the greatest possible openness, options to occur, the return on shares must son informed the Meeting about the basic must be simple to understand, measurable be 20 percent better than an index com- principles that apply within Swedish Match. and reasonable, and have a ceiling. In addi- prising a number of comparable tobacco- JoK-Inside nr 2-04 eng 04-06-14 10.36 Sida 7

SWEDISH MATCH INSIDE | #2 2004 | 7 at AGM

The options system prompted a certain Tore Lidholm, from the Swedish Share- amount of discussion at the Meeting, and holders’ Association, was critical of how some delegates were of the opinion that the little is happening in the company. options program should be scrapped alto- “It is an excellent and financially suc- gether. However, an overwhelming major- cessful company, but I see no clear devel- ity of votes were in favor of the program, opment, no vision,” he said. which was described by several major Bernt Magnusson countered that it was shareholders as the best in the Swedish a deliberate policy on the part of the Board market. to be cautious with the shareholders’ mon- “I have been a Swedish Match share- ey: holder for four years and directly or indi- “We have consciously refrained from rectly control 32.7 million shares – and am high-risk empire-building and focused pri- very pleased about it. It is an extremely marily on organic growth. As a general well-managed company with an admirable rule, there are few acquisition targets that focus,” commented Nick Booth, Board are worth considering, and they are often Nick Booth, Board Chairman of Boston-based Chairman of Boston-based Wellington extremely costly. We do not want to risk the Wellington Asset Management has had Swedish Asset Management. “Based on an interna- shareholders’ money through excessively Match in his stock portfolio for four years, and has no regrets. tional comparison, I do not therefore large-scale expansion.” believe that the Swedish Match manage- The Meeting reelected Jan Blomberg, company shares, and earnings per share ment is adequately compensated.” Tuve Johannesson, Arne Jurbrant, Bernt must be 20 percent higher than the average Bernt Magnusson agreed that the Magnusson and Meg Tivéus to the Board. over the past three years. amounts were low in an international per- Karsten Slotte, President of Cloetta Fazer, The Board of Directors had proposed to spective. was newly elected to the Board. Klaus the Annual General Meeting a new pur- “But we must view this issue from a Unger, who had declined reelection, was chase option program for 2004 with essen- Swedish viewpoint, and in that context warmly applauded for his services (see also tially the same conditions that had applied they are reasonable,” he said. “However, I separate article). Chief Legal Counsel Bo previously. According to the proposal, the also wish to emphasize that the require- Aulin also received enthusiastic applause program will cover 58 senior executives ments for receiving the full allotment are for the settlement reached with UST, Douglas Sagell purchased his first Swedish Match very stringent – I have never seen anything whereby Swedish Match will receive 200 shares last year and does not regret the decision. He and not exceed a ceiling of 24,150,000 likened the Swedish Match share to the boar Särimn- SEK, which corresponds to 30 percent of comparable in any other company – and MUSD in compensation. er of Norse myth, which could be slaughtered and the total remuneration payable to the per- this accounted for the fact that the allotment eaten every day, since it was reborn each evening. sons in question. last year was only half the maximum amount.” Sven Hindrikes’ address to shareholders

Distinguished shareholders, historically shown a strong volume favorably received by consumers. our brands, Southern Pride, which we increase. Sales during the past year In South Africa, we sell nasal snuff introduced in 1998, has shown a favorable You own a unique company in the tobacco amounted to SEK 3 billion. under the Taxi brand, following our acqui- volume trend. industry. During the past few years, the Swedish Match is the only company that sition of the family company Leonard Din- industry has undergone major structural has international operations in the main gler in 1999. PIPE TOBACCO changes through acquisitions and mergers. markets for snuff. We are the market leader We are a leading player in pipe tobacco. Swedish Match has succeeded in turning in the Nordic region and number two in CIGARS Borkum Riff is one of the world’s best- these challenges into a business opportuni- South Africa. We are number three in the As a result of our acquisitions in the US, known brands, with which we have ty that has provided the platform for our US market, where we have been increasing Swedish Match is today the world’s second achieved export successes in Asia and oth- present and future strength, particularly in our market share for a number of years. largest cigar company, with some 30 er regions. Other strong brands are Boxer smokeless products and cigars. Over a five-year period, sales have brands that are sold in more than 90 coun- and Best Blend in South Africa and Half Swedish Match generates a strong cash increased by an average of 18 percent per tries. Annual sales amount to SEK 3 billion. and Half in the US. South Africa is the flow, which we have used for profitable year, while operating income has increased Production of cigars takes place at largest single market. Together, these prod- acquisitions in the cigar and pipe tobacco by 17 percent per year. plants in Belgium, Germany, Indonesia, uct areas account for a sales value of SEK 2 product areas. Surplus funds have been dis- In Sweden, snuff production takes place Alabama in the US, Honduras and the billion. tributed to shareholders through share at our plants in Gothenburg and Kungälv. Dominican Republic. buybacks and dividends. In addition, we We produce snuff for the North American Swedish Match sells and markets a MATCHES AND LIGHTERS can report excellent growth in the snuff market in Owensboro, Kentucky, and for broad range of cigars in the US. Demand We supply consumers in 140 countries with product area, in terms of both sales and the South African market in Boksburg, on for flavored cigars is increasing, and for our matches and products. We have earnings. In combination, these strategies the outskirts of Johannesburg. this reason we have launched a number of major production facilities in a number of have produced high returns for you as In Sweden, snuff, or snus as it is called new product variants with considerable countries. shareholders. in Sweden, has undergone a unique change success within the framework of the White The brands for matches, while often Permit me to continue by presenting a of status – after once having lagged far Owl brand. Volumes are increasing – a local, are very strong. Some examples are more detailed picture of today’s Swedish behind cigarettes in sales terms, the prod- trend that has strengthened during the first Solstickan in Sweden and Three Stars in a Match, after which I will comment on the uct has staged a fantastic comeback and quarter of this year. number of other countries. past year, briefly touch on developments more than doubled its sales volumes since In the exclusive market for hand-rolled In the lighters product area, Cricket is during the first quarter and conclude with 1970. Today, snus is accepted in all social cigars, Swedish Match is the largest in the the best-known brand. The combined sales some thoughts about the future. classes and is used by both men and US, with a market share of approximately value for matches and lighters amounts to Sales during the past year amounted to women. About half of the roughly 1 mil- 25 percent. Our main brand is Macanudo, SEK 2 billion. SEK 13 billion. Today Swedish Match is an lion users are former smokers, and women the world’s top-selling premium cigar. But international company whose brands and make up a substantial proportion – num- we also have a number of other classic THE SHARE products are distributed to millions of con- bering nearly 200,000. brands, such as Partagas, La Gloria Permit me to say a few words now about sumers in 140 countries. The company has The US is the world’s largest snuff mar- Cubana and Hoyo de Monterrey. the Swedish Match share. Earnings per approximately 15,000 employees. ket – about four times the size of the Scan- Cigar sales in Europe are dominated by share increased from SEK 2.26 in 1999 to We have concentrated on building a dinavian market. The total market is grow- machine-made products, and Swedish SEK 4.68 in 2003, which is an average broad portfolio with leading and strong ing and currently amounts to approximate- Match’s market share is about 15 percent. growth rate of 20 percent per year. This positions in many markets. Many of our ly 880 million cans. Our sales and share of La Paz is one of the better-known cigar increase in earnings has contributed to a brands occupy niches that are growing the total market have increased each year, brands in Europe. highly favorable price trend for the share. within the industry. Thanks to our interna- and our market share is currently around 9 The percentage increase in the share price tional reach, we can exploit market poten- percent. CHEWING TOBACCO has shown a considerably more favorable tial on a global scale, which is a significant Timber Wolf is a strong brand that has With our strong Red Man brand, we are trend than an index for Stockholmsbörsen. future competitive advantage. been on the market for nine years. Long- among the leaders in the North American During the past five-year period, from Our main growth product, snuff, has horn, a new brand launched last year, was market for chewing tobacco. Another of April 1999 to April 2004, an investment in JoK-Inside nr 2-04 eng 04-06-09 18.48 Sida 8

8 | SWEDISH MATCH INSIDE | #2 2004

Swedish Match has generated a price year combined with negative currency large European and North American The AGM in a gain of 190 percent. No other company effects and costs for restructuring in cigar markets are also showing favor- in Stockholmsbörsen’s list of the most Europe. able growth, and we therefore plan to actively traded shares has matched this Although consumption of chewing intensify our efforts to launch new nutshell performance. tobacco and pipe tobacco is declining products in these segments. he Annual General Meeting is the highest Today, Swedish Match has nearly every year, these product areas still gen- Within the framework of our strate- decision-making body in a limited liability 95,000 shareholders. Among our erate favorable earnings and strong gy regarding smokeless products, we Tcompany, pursuant to the following key largest shareholders are the Swedish cash flows thanks to the strength of the are cultivating new markets for snuff in wording of the Swedish Companies Act: “the mutual fund companies Alecta and brands. The figures for chewing tobac- Russia and India. Last autumn, we ini- shareholders’ right to resolve on the company’s Robur and three of the AP funds. co were adversely affected by the weak- tiated a consumer test in Tokyo of a new affairs shall be exercised at the General Meeting Among the fund managers outside Swe- ness of the dollar, while the strengthen- tobacco chewing gum, Firebreak, of Shareholders.” den we find Wellington Fidelity, and ing of the rand in South Africa had a which is an attractive alternative for cig- To participate in the Annual General Meeting, Janus in the US. Foreign ownership is positive effect on pipe tobacco. arette smokers. After conducting a test a person must be registered in the share regis- concentrated to the US and the UK and Both match and lighter operations launch for a few months, we see posi- ter as a shareholder on the date of the Annual currently amounts to 63 percent. are exposed to tough price competition, tive trends and plan to expand our General Meeting, and must have notified the Dividends and share buybacks are and volumes declined in a number of efforts in this area during the year. company of his/her intention to attend the Meet- key elements in our strategy for creating markets. The product areas are current- Our strategy has been formulated in ing no later than the date specified in the Notice shareholder value. We have a clearly ly undergoing a restructuring program harmony with trends in society. In var- of Annual General Meeting. The shareholder is stated philosophy to the effect that capi- and profit margins have come under ious countries, smoking in public prem- not obliged to attend the Meeting in person, but tal not required for operations should pressure – a trend that is expected to ises and workplaces is subject to may be represented by a proxy with a written, be returned to shareholders through continue for some more quarters. We increasing restrictions. In Sweden, we dated letter of attorney. A few years ago, a reg- buybacks and dividends. are not satisfied with this trend and in- are the world leaders at reducing smok- ulation was also introduced entailing that com- panies owning proprietary shares are not per- Including this year’s dividend, a tend to work hard to increase margins. ing, as well as having the lowest fre- mitted to utilize these shares to vote at the total of SEK 7.2 billion has been trans- Today we can present developments quency of tobacco-related illness – and Annual General Meeting. ferred to shareholders in the form of during the first quarter of the current this in spite of the fact that tobacco use The Annual General Meeting must be held dividends, share redemption programs year as a whole is as extensive here as in most within six months from the end of the fiscal year, and buybacks during the period from Sales amounted to 3,002 MSEK, on other developed countries. Researchers when the Board of Directors must submit the 1999 up to and including 2003. If we par with last year. In local currencies, call this phenomenon “The Swedish Annual Report and the Audit Report. also include the increase in market value, sales rose 5 percent. The first quarter Experience.” Swedish Match is playing a total of SEK 21 billion was distributed includes a number of nonrecurring a key role in this trend, since snus is the The Annual General Meeting always resolves to shareholders during this period. items, such as: main alternative for smokers on the following four matters: Dividends have steadily increased. who want to quit. • revenue of 200 MUSD resulting 1. Adoption of the income statements and An increase of SEK 0.10 to SEK 1.70 is At present, the sale of snus is pro- from a settlement in a claim for balance sheets proposed for 2003. hibited in the EU, with the exception of damages against the American snuff 2. Treatment of the company’s unappropriated Following this review, I would like to Sweden. The European Court of Justice producer US Tobacco, profit or loss as stated on the adopted comment briefly on developments dur- is to begin an examination of the legal- • costs of 46 MSEK for restructuring balance sheet ing the past year: ity of the ban on June 8 this year, and its match operations in Europe. 3. Discharge from liability of the Board ruling is expected before year-end. If • Sales declined by 4 percent to members and the President Excluding nonrecurring items, oper- the ban is lifted, as we believe it will be, 4. Other business that the Board is responsible 13,036 MSEK, but increased by ating income improved by 535 MSEK – this will open up considerable potential for deciding on in accordance with the 3 percent in local currencies. an increase of 19 MSEK compared with for Swedish Match. But we will also Companies Act or the Articles of Association • Operating income declined by the year-earlier period. So we have had have to deal with trends and patterns of 6 percent to 2,224 MSEK, All shareholders have the right to take initia- a good start to the current year, and I consumption that will take a long time but increased by 3 percent in local tive at the Annual General Meeting. However, feel highly confident about develop- to change, so it is important not to have currencies. any shareholder who wishes for a matter to be ments during the remainder of the year. unrealistically high expectations of rap- • Net income rose 9 percent to discussed at the Annual General Meeting must Now I would like to say a few words id results. 1,558 MSEK. submit a written request to the Board in good about the future of Swedish Match • Earnings per share rose 14 percent to time so that the item can be included in the The major portion of Swedish NOW LET ME SUM UP. You are the owners SEK 4.68, which is a good increase Notice of Annual General Meeting. This is an Match’s earnings derives from sales in of a unique company in the tobacco important document which must include a pro- considering the negative currency markets where we hold leading posi- industry. Through our focus on posed agenda with clearly defined and num- effects during the year. tions, meaning the Nordic countries, the bered agenda items. For public limited liability • organic growth NOW I WOULD LIKE TO COMMENT briefly on US, South Africa and Brazil, to name companies, it is sufficient to publish the Notice • profitable acquisitions the different product areas: the most important of these markets. In of Annual General Meeting in a national newspa- • ongoing efficiency-enhancement Snuff continued to show favorable the future, we plan to orient our strate- per. Shareholders must receive the financial measures in our operations, and growth. In Sweden and the US, volumes gy toward strengthening our positions statements and the audit report two weeks prior • share buybacks to the Meeting, in accordance with current prac- increased by 4 percent and 5 percent in these countries. tice in most larger companies. However, the law respectively, in terms of numbers of We are also constantly on the look- we have secured an extremely high states that it is in fact sufficient if these docu- cans sold. Sales rose 7 percent to 2,995 out for new business opportunities. return for you, our shareholders. ments are available at the company and copies MSEK. Both operating income and the Since cigars are a classic luxury prod- With our well balanced and diversi- are sent to shareholders who request them. operating margin improved. uct, consumption tends to increase as fied product portfolio, and with contin- The Annual General Meeting appoints a Sales of cigars declined by 9 percent, living standards rise. This means that ued support from you, our sharehold- Chairman of the Meeting, unless stipulated oth- mainly due to negative currency effects. there is long-term potential in many ers, I am convinced that in the long term erwise in the Articles of Association. A voting list Operating income was down 25 per- markets, especially in Eastern Europe we will continue to see positive devel- is prepared containing the names of all the cent, largely due to a weak start to the and Asia. But certain segments of the opments for Swedish Match. shareholders present. The voting list and the agenda must be approved by the Annual Gener- al Meeting. The Board and the President are required by law to disclose the following: 1. Any circumstances that may affect assessment of an item on the agenda, and 2. Any circumstances that may affect assessment of the company’s financial situation. If the company is a parent company, this dis- closure requirement applies to the entire Group. In listed companies, the disclosure requirement is met through the President’s address and the ensuing question session. An item may always be put to the vote if this is requested by a shareholder. However, the law describes in detail when and how voting is to take place as well as the required majority for various decisions. Minutes from the Annual General Meeting must be available from the company not later than two weeks after the Meeting. A copy of the minutes shall be sent to all shareholders who request it. JoK-Inside nr 2-04 eng 04-06-14 10.38 Sida 9

SWEDISH MATCH INSIDE | #2 2004 | 9 Profile of Swedish Match shareholders The average Swedish Match shareholder is male, 53.4 years of age and owns 100 shares (median). Slightly more than half of the company’s shareholders live in the three metropolitan regions of Stock- holm, Gothenburg and Malmö. Gothenburg is clearly overrepresented, probably a legacy from the spin-off from in 1996. One in four private shareholders have their shares in a custody account.

he above information is what 15 companies with the most shareholders, can be gathered from Swedish Swedish Match ranks in 10th place, with Match’s computerized share the percentage of females among private PRIVATE OWNERSHIP OF SWEDISH MATCH T register. We know nothing shareholders at 39 percent, which is slight- SHARE SPREAD THROUGHOUT SWEDEN, percent about shareholders’ incomes or wealth, ly higher than for Volvo and , but car ownership, tobacco habits or how lower than the banks. Swedish Match has often they light a fire using a lighter or to a large extent inherited Volvo’s share- match from Swedish Match. holder structure following the spin-off in Shares in Swedish Match are owned by 1996. 94,800 Swedish private individuals. The On average, men hold 10 percent more total shares held by private individuals shares than women, which is why the per- 3.1% only amount to slightly more than 10 per- centage of shares held by women only cent of the share capital. In terms of num- accounts for 36 percent of the total value. bers, private shareholders dominate in the Shareholders represent a mature seg- share register and at Annual General Meet- ment of the population. The average ings, and also in terms of the number of (median) age of the Swedish population is copies of Inside and financial reports dis- 40, while the median shareholder is 51.6 tributed. years old and the median Swedish Match However, many more Swedes have a shareholder is 55.7 years of age. This is indirect interest in Swedish Match through clearly older than for companies such as funds. Alecta owned 4,2 percent and Framfab and Ericsson, but lower than for 4.1% Robur 3,7 percent in the end of March. the banks. For companies with many new Further six percent is held jointly by the shareholders, the average age is normally National Pension Funds. Consequently, lower. millions of Swedes have an indirect interest Older shareholders own more shares. in the company’s performance. The average (median) privately owned Swedish Match shares are slightly more share is held by a person aged 57.7 years. ‘male’ than the average share. Among the Share ownership in general is spread evenly throughout Sweden, with slight overrepresentation in the Stockholm 9.8% PERCENTAGE OF WOMEN AMONG PRIVATE region and underrepresentation in the INDIVIDUALS, DECEMBER 31, 2003 Mälardalen area, the area surrounding % 12.1% Lake Vänern and the Bergslagen area. 22.2% 60 Ownership of Swedish Match shares is also spread throughout the country, but 50.5 50 with considerable overrepresentation of 5.4% the Gothenburg area and, to some extent, 40.5 also Stockholm, Skåne and the area sur- 40 38.5 19.0% 36.1 rounding Lake Vänern. There is a clear underrepresentation of shareholders in 30 Östergötland, Mälardalen and Norrland 0.7% (northern Sweden). 20 9,1%

10

14.4% 0

Swedish value (VPC) Swedish Match, Swedishnumber Match, of All shareholders population shareholders

AGE STRUCTURE, Swedish Match is one of Sweden’s most popular shares. Only 10 Swedish-based companies have more shareholders. DECEMBER 31, 2003 In terms of market capitalization, Swedish Match is ranked in 21st position. % Swedish listed companies with the most shareholders. Source: VPC 100

Rank Company Total shareholders, Dec. 31, 2003 Market cap, SEKM, Feb. 29, 2004

80 1 Ericsson 961,646 351 2 TeliaSonera 869,962 157 3 503,000 151 60 4 FöreningsSparbanken 395,141 74 5 SEB 325,709 78 40 6 Volvo 208,540 102 7 H&M 188,390 145 66+ years 20 8 Billerud 170,108 7 46-65 years 9 Investor 133,299 60 26-45 years 0-25 years 10 Skandia 121,916 34 0 11 Swedish Match 98,418 25 Swedish All shareholders Swedish Match population shareholders JoK-Inside nr 2-04 eng 04-06-09 18.49 Sida 10

10 | SWEDISH MATCH INSIDE | #2 2004

In spite of this, the company constantly faces new challenges. Finding new markets and new products in turn necessitates ongoing marketing development. ”Take the EU as an example. Even if the sales ban on snuff is lifted, we cannot sim- ply rest on our laurels. It will take major efforts to work up worthwhile volumes in the new markets. India is another exam- ple. Our sales there are hardly on a massive scale yet, but rather I would refer to our current activities as intensive care of small isolated markets.”

DURING HIS MANY YEARS in both operational and Board positions, Klaus Unger has been involved in much public debate regarding business conduct, management and Board responsibility. How does he view Swedish corporate culture today? ”In general, corporate culture in listed companies is highly developed, but it is also needed more than ever. It is important that it doesn’t become merely a formality, KLAUS UNGER LEAVES SWEDISH MATCH a section on corporate governance in the annual report. It must be a living and inte- gral part of the company’s soul, otherwise you lose sight of the people. Most people identify themselves strongly with their “Mr Tobacco” workplace, which is often the second most important aspect of their life after their family. If you are dishonest, greedy or merely full of hot air, people become very bows out disappointed, which may carry a high price for a company if it loses the trust of its employees.” According to Klaus, Swedish Match has always endeavored to build up and main- tain this trust. When Klaus Unger resigns from the Board in connection to this year’s Annual General ”Naturally, the management of a listed Meeting, he will be able to look back on a 46-year career in the Swedish . company must be visible to the outside world but it is almost more important to He has made a substantial contribution to making Swedish Match what it is today, an inter- be visible internally. It is a matter of show- national company with a clear and consistent strategy focusing on smokeless products. ing respect and honesty and of being famil- iar with all levels within the company. The And he is confident about the company’s prospects: “Things will go well as we have the Board members normally visit two plants each year, in various locations worldwide. answers to pressing needs, namely to offer alternatives to cigarette smoking.” We take the time to go round and show that we appreciate each and every employee.” lausUnger has lived with the modernize its product philosophy. It pleasurable experience!” says Klaus Unger. tobacco industry since 1958. He invested in research, setting up the Medical IN THE RECENT INTENSIVE DEBATE regarding witnessed at first hand how the Expert Council and an internal research ANOTHER STRATEGICALLY important major Board responsibilities in Sweden, one K Swedish Tobacco Monopoly department,” relates Klaus Unger. theme during Klaus Unger’s years in lead- newspaper referred to Swedish Match’s became Svenska Tobaks AB, where, over When Klaus was appointed President of ing positions has been internationalization. Board as being ‘weak,’ a claim that time, he came to hold positions such as Svenska Tobaks AB, the company still ”We realized back in the 1970s that we angered Klaus Unger considerably. Marketing Manager, Head of Marketing, offered a complete range of tobacco prod- had to expand internationally, since the ”There’s no way we have a weak Board! President and Board Chairman. He has ucts, and this remained the case for several Swedish market was too small. We also We have extremely skilled colleagues span- also implemented a number of acquisitions years after the formation of today’s possessed a high level of tobacco expertise ning a range of backgrounds and experi- of tobacco companies outside Sweden. Swedish Match. in Sweden, which meant that we felt we ence. Our meetings are stimulating occa- While he was President of Procordia Unit- ”However, my predecessors at Svenska could hold our own against the competi- sions, where everyone says what they ed Brands, the company acquired Swedish Tobaks had interpreted the signs of the tion.” think. The Chairman always makes sure Match. Klaus Unger remained as President times very accurately. Cigarettes increas- The first step was taken with the inter- that all the members have a chance to state of the merged operations until 1996, when ingly became a burden. The future lay with national launch of Borkum Riff, which their opinions, and he always speaks last the company was listed on the Stockholm smokeless products,” says Klaus Unger. took the US market by storm. The compa- so as not to suppress debate in any way. Of Exchange and on NASDAQ under the ny also began to acquire cigar manufactur- course, we may have differing opinions, name Swedish Match AB. In the same year, DURING HIS YEARS AS PRESIDENT of Swedish ers, and when the time came to introduce giving rise to very frank discussions. The Klaus Unger was elected to the Board of Match and in conjunction with the upcom- snuff products, there was only one market fact that we then unite behind a unani- Swedish Match. ing stock exchange listing, it became worth considering, and that was the US. mous line of decision outwardly does not Klaus Unger’s associates don’t call him increasingly necessary to carefully consid- This gradually led to the acquisition in mean to say that we all simply knuckle “Mr Tobacco” for nothing! er the true raison d´être for the company in 1985 of Pinkerton Tobacco Company, under or agree to everything.” the future. which has served as the foundation for the IN ACTUAL FACT, IT ALL STARTED out as a con- ”The conclusion reached by my successor company’s continued success in the US. HOW DOES IT FEEL TO LEAVE a company that sulting assignment. Klaus Unger was a and the Board was unanimous: the com- It is easy to see that the far-sighted deci- has been part of his life for so long? What market researcher and the newly formed pany would no longer handle cigarettes.” sions taken during the past two decades does Klaus Unger think the future holds in EC had begun to question the appropriate- From the adoption of this standpoint, have given Swedish Match a huge lead store for Swedish Match? ness of the state monopolies. The Swedish the strategy that Swedish Match still essen- compared with its competitors. “I feel very secure with the company’s Tobacco Monopoly requested Klaus’s serv- tially retains today emerged: ”However, sustaining this market lead current orientation and with Bernt at the ices to prepare for deregulation of the mar- ”We shall be a company that focuses on requires constant effort. It is therefore helm. Things will be fine. The signs are ket – which took place in 1961, when the two primary areas. The first is harm reduc- pleasing to see that the company is always written on the wall: our long-term busi- monopoly was abolished. A few years lat- tion, or, in other words, substitute prod- highly prepared to meet new competition. ness policy means that we have the answers er, Klaus Unger was appointed Marketing ucts for smoking that minimize the harm- When Svenska Tobaks merged with to pressing needs. We have a mission to ful- Manager at Svenska Tobaks AB. ful effects of tobacco. Our second area of Swedish Match in 1992, few understood fill and we do not need to foist our prod- At around the same time, cigarette focus concerns what I would term ‘cultur- the problems associated with tobacco. To- ucts on people,” concludes Klaus Unger, smoking was also gradually called into al or gourmet products’. Such products day, twelve years later, everyone in the who is about to set off on vacation visiting question. Snuff (snus), which had once include cigars and pipe tobacco, but also Group knows what harm reduction entails. gardens in Cornwall. At last, he will have been a big seller in Sweden, began to see a matches, which are part of Swedish indus- Being able to offer harm reduction is the time to cultivate his other major interests revival in the late 1960s, particularly trial culture. One mustn’t lose sight of the company’s philosophy and major strength in life, such as gardening and travel – or a among the male population. fact that tobacco has always existed as a – and a condition for also maintaining our combination of the two. ”During this era, the company began to source of pleasure. Enjoying a fine cigar is a lead in the future,” says Klaus Unger. JoK-Inside nr 2-04 eng 04-06-09 18.51 Sida 11

SWEDISH MATCH INSIDE | #2 2004 | 11 Positive start to 2004 he Swedish Match share started the March regarding the sale of moist snuff in price but is outside the company’s control TOTAL RETURN year on a positive trend. Since Jan- the US gives the company approximately concerns movements in the USD exchange Total return, % T uary 1, 2004, the share price has SEK 1.5 billion (USD 200 M). The stock rate. A weak dollar means that Swedish risen about 7 percent, from 73.50 SEK to market expects this capital contribution to Match reports lower revenues in SEK from 2004 (Jan 1 - May 31) 9.0 78,50 SEK (31 May), which means that facilitate further share buybacks during US operations. 2003 11 the share price has almost reached the high 2005. There has also been subsequent Several large international investment levels achieved at the beginning of 2002. debate regarding a possible lifting of the banks, such as Morgan Stanley and 2002 25 After fluctuating around the 70 SEK EU ban on moist snuff since the European Lehman Brothers, have raised their target 2001 56 level at the beginning of the year, the share Court of Justice announced at the end of price for the share during the spring, and a price increased sharply at the end of March that the matter will be brought growing number of banks and finance 2000 32 March, approaching the 80 SEK level. before the Court in June. The Court will companies are now continuously monitor- 1999 4 Subsequently, a minor setback occurred rule whether the current ban on moist ing the company and its shares. during the unsettled period on world stock snuff is in violation of the EU Treaty and Since 2000, the Swedish Match share markets during April and May. However, acts of law. has risen steadily from SEK 30. This rep- the Swedish Match share lost less ground The market, and in particular the ana- resents a rise of more than 150 percent KEY FIGURES than the market average. lysts, will monitor the case very closely and during this period, compared with a The rise is linked to the positive news attempt to assess how this will affect the decline of more than 40 percent for the Earnings per share, SEK relating to Swedish Match during the peri- market outlook for moist snuff products. Stockholm Exchange as a whole. od. The settlement with US Tobacco in Another factor that affects the share 2003 4.68 2002 4.10

SHARE PRICE AND TURNOVER SEK MSEK Shareholders’ equity per share, SEK 100 2,500 Dec 31, 2003 12.21

Dec 31, 2002 11.72 80 2,000

60 1,500 SHARE PERFORMANCE

Jan 1, 2004–May 31, 2004, % 40 1,000 Swedish Match 6.8

SAX 6.2 20 500

0 0 1999 2000 2001 2002 2003 2004 Swedish Match Exchange, SAX Average turnover per month, MSEK

Maxi-pouch – Comments on Klaus Unger twice as large

Swedish Match’s consumer surveys show that there is demand from users of both portion-packed snus and loose-packed snus for a portion pouch in a larger format. Now it is here – the Maxi-pouch that is twice the size of the standard pouch. The launch in convenience stores began at the beginning of March and in supermarkets in May. The full name of the product is Grovsnus Original Portion Maxi. Each portion pouch weighs two grams and a can contains 12 portion pouches (24 grams). The brand is, Sören Gyll, Chairman of the Confederation of Bernt Magnusson, Board Chairman, Bo Forslund, First Deputy Chairman of to say the least, well established Swedish Enterprise: Swedish Match: Föreningssparbanken, former MP – Grovsnus has been on the market “My acquaintance with Klaus began as early as “I know Klaus as a very discerning person. “I got to know Klaus when I was on the Board of since 1915. 1984, when I became President of Procordia and Furthermore, his knowledge of the industry is Svenska Tobaks AB and, later on, Swedish Match. “This is a he was President of Svenska Tobaks AB. He later unparalleled. He is also very loyal to the company At that time, Klaus was the president of the com- product for became President of Procordia United Brands and and has been an extremely strong presence in the pany, and I had been elected to the Board as I was which there is was a member of our management group. Board. a member of the government’s Standing Committee strong demand on Taxation. This was in the mid-1980s and early I came to know him as a highly competent person Klaus’s contribution to making Swedish Match among users of 1990s, when there was a lot of turbulence sur- with the capacity to create an extremely positive what it is today cannot be emphasized enough. He portion-packed snus, rounding tobacco issues and the industry was atmosphere around him. He never seemed to feel a is a living bearer of the Swedish Match tobacco but users of loose snus in particular have influenced by strong political forces. need to be in the spotlight himself, apart from concept as it has been developed over the years. been looking for a larger portion pouch to when this was necessary, but always functioned in Now, as we thank him for his service, we do so As a native of northern Sweden, I would describe which they can switch when they wish – in an unassertive way. He can sometimes appear to with a little more festivity than usual. He more than Klaus as a ‘real man.’ He was one of the most a social context for example. Some people be rather formal, but that has the advantage that deserves it! congenial and likeable people I have ever met. I had have adopted the solution of inserting two he is always surrounded by orderliness and all of tremendous confidence in him, as did many others. Klaus is leaving a void behind him in the boardroom portion pouches at a time; now they no his actions are consistent. In fact, he commanded respect from everyone he and I will miss him very much. No doubt, however, longer need to do so. The Maxi-pouch is met. We still socialize privately from time to time, I shall continue to call him on the phone when I twice the size of an ordinary portion although not as often as we used to. The relation- need some good advice about the tobacco industry.” The strategic shift that was initiated during this pouch,” says Jan-Erik Knutsen, head of ship has persisted since the Procordia days, when time was also largely his doing, and we all know marketing in Swedish Match’s North the management team established a social group now that the decision to focus on snus was an Europe Division. that also included our families. Today we get intelligent and wise one. Grovsnus is now available in four brand together occasionally to go hunting. variants, all characterized by a pure tobac- Klaus is not a person who seeks the limelight, but I co flavor. In private, Klaus is an open and sociable person was impressed by him as a fantastic team leader. “A long tradition, a large and loyal cus- with a lively sense of humor. I also see him as a And to succeed in this respect, you can’t dominate tomer base, and a tremendously strong multifaceted person with broad cultural interests. It the scene all by yourself. However, this meant that brand. We are confident that Grov Maxi will has been a long and consistently positive friendship things always went smoothly when Klaus was soon be claiming its place in snus coolers that I value highly.” involved. He inspired confidence in people without throughout Sweden,” says Jan-Erik Knut- needing to make himself the center of attention.” sen. JoK-Inside nr 2-04 eng 04-06-10 10.33 Sida 12

HONDURAS Settlement with UST adds new cigar range

Swedish Match North America and U.S. Tobacco have reached a settlement whereby UST will make a one-off payment of 200 MUSD (approximately 1,540 MSEK) to Swedish Match. Under the terms of the settlement, Swedish Match will also take over all of UST’s cigar opera- tions, with annual sales of about 11 MUSD (approximately 85 MSEK). The settlement marks the end of a legal dispute that began in July 2002.

nder the terms of the settle- tobacco in the nearby Talanga Valley. sum in damages from UST. The process has the result, and we have also reached an ment, Swedish Match will Among the best-known cigar families pro- been under way since then, but in the agreement with which we are pleased,” he take over the brands for the duced by the company in Honduras are meantime discussions concerning a settle- adds. cigars produced by UST’s Don Tomás and Astral. Connoisseurs rate ment were initiated. subsidiary U.S. Cigar Sales Astral Talanga Valley Selection among the “This was because it was in the interests THE SETTLEMENT ALSO REMOVES a major UInc. Other assets, such as plants, tobacco finest cigars produced in Honduras. of both parties to put the affair behind obstacle that has prevented Swedish Match plantations, inventories of finished prod- It has yet to be decided how the new them. It is expensive to conduct legal pro- and U.S. Tobacco from cooperating on ucts and tobacco stocks, will also pass into operation will be integrated with Swedish ceedings, as well as diverting much time other, industry-wide issues. Both compa- Swedish Match’s ownership. The transfer Match. The agreement is expected to and energy from normal operations,” nies share the same view regarding smoke- will strengthen Swedish Match’s position, become effective in June this year. explains Fredrik Peyron, corporate attor- less products and harm reduction, and particularly in the US market for premium Swedish Match brought its action ney at Swedish Match. there is much instructional and informa- cigars. against UST under the US antitrust legisla- “In addition, legal disputes always tional work to be done in this area. U.S. Cigar’s plant is located in Danlí, tion before a court in Kentucky in July involve an element of uncertainty, given Honduras, close to one of General Cigar’s 2002. The lawsuit followed a court judg- that you can never be 100-percent certain plants. The company also grows its own ment awarding another competitor a large what the outcome will be. Now we know

SWEDISH MATCH IN BRIEF KEY FIGURES

Swedish Match is a unique company with a full range of market-leading brands within the snuff, cigar and pipe MSEK 2003 2002

tobacco product areas – niche tobacco products – as well as matches and lighters. The Group’s operations Net sales 13,036 13,643

span the globe and its products are sold in 140 countries. The average number of employees during 2003 was Operating income 1) 2,224 2,439

15,115. The Swedish Match share is listed on Stockholmsbörsen (the Stockholm Exchange) (SWMA) and the EBITDA 1) 2,889 3,090 Nasdaq Exchange (SWMAY). Net income 1,558 1,429 Income per share Smokeless Cigars and Matches after tax, SEK 4:68 4:10

Tobacco Pipe Tobacco and Lighters Dividend per share, SEK 1:70 1:60 Swedish Match has Along with smoke- Swedish Match a broad presence in less tobacco, cigars manufactures and Return on share- the global market for and pipe tobacco markets matches and holder’s equity, % 38.9 35.2 smokeless tobacco have been identified lighters globally. (snuff and chewing tobacco), with prominent as a growth sector for Swedish Match. The The products are sold

market positions in the Nordic countries, products are sold in large parts of the world, in more than 140 countries. 1) Excluding items affecting comparability North America and South Africa. with particular emphasis on North America, Europe and South Africa. MARKET POSITION MARKET POSITION Matches: World’s leading manufacturer of Snuff: Market leader in the Nordic countries MARKET POSITION matches and the only company with match and South Africa and the third largest player in Cigars: World’s largest cigar company, with a production and sales operations in all parts of North America. product range that covers all price segments. the world. Chewing Tobacco: Market leader in North Pipe tobacco: One of the world’s oldest and Lighters: One of the world’s three largest America largest producers of pipe tobacco. manufacturers.