Restoring Matches to Profitability Is an Important Short

INFORMATIONinside ABOUT SWEDISH MATCH FOR SHAREHOLDERS AND OTHER STAKEHOLDERS

#3 july 2004 STIG-GÖRAN NILSSON Strategic focus lifts proﬁts The first six months of 2004 produced excellent results in most of Swedish Match’s business areas. Sales increased somewhat, compared with last year, and amounted to SEK 6,377 M. In local currency, the increase was 5 percent. Operating income also increased and amounted to SEK 1,148 M, excluding restructuring costs. Page 2-3

Lars Dahgren new Chief Financial Officer Lars Dahlgren took over as CFO for Swedish Match on July 1. Previously, he held a position in which he worked with analyses, company acquisitions and divestments for Group management. Major tasks for the new CFO include the transition to the new International Financial Reporting Standards (IFRS) that take effect on January 1, 2005. Page 2-3

Top names in sailing on hand in Marstrand

Australian Peter Gilmour was among the top sailors visiting Marstrand and the Swedish Match Cup. Although already the winner of the 2003-2004 Swedish Match Tour, Gilmour is a perfectionist who prepares meticulously for each race. In this year’s race, however, he had to settle for second place after a collision with another finalist. Page 6 Hindrikes Match king to retire at the helm

After 25 years in Swedish Match management, Restoring matches to proﬁtability is an important short-term Massimo Rossi is a powerful symbol of the company’s identity with his roots in matches and not least goal for Sven Hendrikes, as he now takes over the helm of the Swedish Match brand. As he now retires, Massimo would like to be remembered for his work Swedish Match. The new CEO will focus on defending and to save the Swedish Match brand and his contribu- strengthening the company’s position in existing markets with tions to the Solstickan foundation. Page 8 strengthening the company’s position in existing markets with attractive brands and constant product renewal. PagePage 4-54-5 JANUARY – JUNE 2004: Financials stronger tha

“We had a strong second quarter, and the outcome for Swedish snus is also being launched on a trial basis in some 150 stores, pri- the first quarter was also very favorable. This shows marily in large cities. once again that our strategic focus produces profits. “This will be exciting to follow. We are not only targeting Swedes in areas Financially, Swedish Match is stronger than ever, which with a high Swedish population. Although there seems to be consider- provides an excellent foundation for the future,” says able interest, we expect many chal- Chief Financial Officer Lars Dahlgren in his comments lenges and hardly foresee an explosion in sales,” says Lars Dahgren. Praise for cigar on the figures for the first six months. Sales and operat- In Scandinavia, snus sales increased ing income increased, as did earnings per share. The by 2 percent. operations “That is a lower rate of growth than recovery in cigar operations was further strengthened we have been accustomed to. At the THE INTERIM REPORT for the first six months of the same time, I believe there is still growth year shows once again the ability of the Swedish during the second quarter. potential, particularly among female Match Group to create value. Excluding substan- smokers in Sweden. In Norway, on the tial nonrecurring revenues in conjunction with the he first six months of 2004 relative to the US dollar. The negative other hand, where a ban on smoking in UST settlement and restructuring costs, the produced excellent results in currency effect in translating foreign restaurants was introduced on June 1, increase in sales and profits was excellent. most of Swedish Match’s subsidiaries amounted to SEK 49 M we see continued growth.” Successful sales of snuff continue to show business areas. Sales in- during the period. steady organic growth resulting in a doubling of T creased somewhat, compared with last CIGAR OPERATIONS REPORTED sales over five years. very strong After these first six months, however, I wish to year, and amounted to SEK 6,377 M. SNUFF SALES INCREASED by 8 percent to results for the period, with sales in- direct special praise to the cigar product area, In local currency, the increase was 5 SEK 1,565 M. In Scandinavia, volumes creasing by 10 percent to SEK 1,533 M. which after some years of adversity succeeded in percent. Snuff showed increased increased by 2 percent, and in the US In local currency, the increase was 18 reversing the trend, particularly in the US, through organic growth in all major markets, market, Swedish Match’s volumes percent. Operating income increased its persevering efforts in the change program and and the successes for the new machine- increased by 6 percent. The operating by a full 41 percent to SEK 235 M. It in product renewal. made cigars continued in the US, con- margin remained strong at 45.8 per- should be noted, however, that the In recent years, a change has been noted in tributing to significant increases in cent for the entire period, despite costs comparison is with a relatively weak consumer demand in North America with respect sales volumes in that market. for expansion if the new value-price first half of last year. to machine-made cigars. Increasingly, consumers Operating income also improved brand Longhorn in the US. “Above all, machine-made cigars want flavored cigars, a trend now spreading to and amounted to SEK 1,148 M, “The value-price segment has grown are increasing in the North American Europe. Increased demand for handmade cigars excluding restructuring costs. The sec- strongly recently in the US market. We market, although premium cigars are has also been noted in North America. ond quarter was strong, with an 11- foresaw this trend and developed the also gaining. For machine-made cigars, Over the past few years, our cigar experts have percent improvement of operating new Longhorn product. During the the product adjustments with new vari- been working to expand and renew the product income to SEK 613 M, excluding non- second quarter, we increased sales in ants and flavored cigars are showing portfolio. In the US, a broad range of product vari- recurring effects. The settlement with several states,” reveals Lars Dahlgren. results. Nearly half of all sales consist- ants have been launched under the White Owl UST that was completed during the The success for Longhorn more ed of new variants that were launched brand, and in Europe, the Wings brand, as well as second quarter and resulted in revenue than offset the decline in volumes for over the past 18 months,” notes Lars products from our jointly owned company Arnold of SEK 1,521 M, was reported as an the Timber Wolf brand, which is being Dahlgren. André, have been able to successfully satisfy con- item affecting comparability. Restruc- subjected to fierce competition. sumer demand. In Europe, the trend was mixed, turing costs during the period amount- “This development shows how Swedish Match is now taking the lead and although total sales increased some- reaping the fruits of its century-old cigar expertise ed to SEK 160 M. important it is to work continuously what in certain markets, such as in new incarnation. The combination of this cus- Earnings per share increased to SEK with the product portfolio. The North France, where growth of the total mar- tomer and market orientation and the constant 4.39, to which the settlement with UST American division has successfully fol- ket was strong in certain segments. striving to further rationalize operations has contributed SEK 2.68. lowed trends and was right on target in Increased tobacco taxes in certain improved profitability. In local currencies, cigar The Group’s profits continued to be the market,” says Lars Dahgren, who countries, for example, resulted in sales increased by 16 percent during the first six somewhat depressed by the strong SEK remains optimistic about the US market. market fluctuations. The rationalization months, while operating income increased by 41 percent. At present, snuff and cigars are the two growth areas. Long-term profitability and excellent cash flow in other product areas, together with continued share repurchases and dividends, create an New CFO focused on high return excellent foundation for a stable share value.

Sven Hindrikes, President and CEO and new accounting rules Lars Dahlgren was appoint- “You have been working at Swedish don. That job placed me at the centre of Match since 1996. Tell us a little bit the Group’s strategic development Swedish Match Inside is a magazine for Swedish Match’s ed as new Chief Financial shareholders. The print run is 83,000 copies of the about your career with the company.” toward smokeless products. From Swedish version and 3,600 copies of the English version. Officer of Swedish Match on “Before I started working at Swedish there, I returned to the head office to Match, I was a stock market analyst at work directly under Group manage- PUBLISHER ADDRESS July 1. He succeeds Sven an international bank. At Swedish ment with analyses, company acquisi- Swedish Match AB Swedish Match Hindrikes, who was appoint- Match, I began working with Group tions and divestments.” 118 85 Stockholm accounting. Putting the theory I had “What are your priorities in your PUBLISHER RESPONSIBLE Tel: +46 8 658 02 00 ed President and CEO on learned at the Stockholm School of Eco- new position?” Bo Aulin www.swedishmatch.com June 1. Inside asked the new nomics into practice was a valuable “My first priority is to ensure that experience. My first international Swedish Match can continue to gener- EDITORIAL PRODUCTION CFO to present himself. Lena Olofsdotter, Hallvarsson&Halvarsson AB assignment was as finance manager at ate a high return for our owners. At the Swedish Match AB the lighter factory in the Philippines. It same time, we will have to meet new “Congratulations on your new job as was a period during which I learned a demands in our accounting. Because chief financial officer!” great deal about how to run a business Swedish Match is also listed on the US “Thank you. I’m very excited. in a culture that is very different from NASDAQ exchange, we need to build PHOTO REPRODUCTION Swedish Match has made fantastic Swedish society. Working in lighter up a system for internal controls Stig-Göran Nilsson Scarena, Stockholm progress since the exchange listing in operations was also very valuable, since according to the regulations in the new PRINTING 1996. The company has proven to be you really learn about cost controls all Sarbanes Oxley Act in the US. This is a Ljungbergs, Klippan very successful in creating value for along the chain from production to the very substantial undertaking in which shareholders. The company’s successful market. we will have to document all the strategy remains firm, and I am taking After the Philippines, I spent an processes underlying the figures pre- on a very exciting and interesting job.” interesting period at Vasatek in Lon- sented in our final accounts and ensure SWEDISH MATCH INSIDE | #3 2004 | 3 Analysts’ questions Swedish Match’s interim report for the first han ever six months of 2004 was presented on July 21. Publication was followed by a telephone program for the European cigar opera- SALES AND OPERATING INCOME*, JANUARY–MARCH, MSEK conference during which Group manage- tions continued during the period, resulting in costs of SEK 11 M. ment answered questions from analysts 8,000 Chewing tobacco and pipe tobacco from banks and brokerages. continued to show a stable earnings trend, with operating margins of 6,850 6,000 JONAS PÅLSSON, ABG SECURITIES: 29 percent and 23 percent, respective- 6,280 6,377 ly. In Tokyo, the test launch continued “Given the decline for Timber Wolf in the US of Firebreak tobacco chewing gum, 4,000 and the slower growth for snus in the Nordic which is now sold in some 700 stores. market, how do you view the margin for snuff during the rest of the year?” “MATCH SALES CONTINUED to show a gen- 2,000 erally declining trend, and profitability SVEN HINDRIKES, CEO: was not satisfactory. At the same time, 1,245 1,069 988* “The US snuff market continues to grow. It is 0 there are still several market with stable only Timber Wolf that has declined slightly due to 2002 2003 2004 profitability. Matches are an important very stiff competition in that market segment. We product that creates distribution syner- Sales Operating income naturally hope to be able to achieve a turnaround gies for our sales force,” says Lars for Timber Wolf and expect continued volume Dahlgren. growth for Longhorn. At present, the operating “We have now implemented a num- margin is 46 percent. For the full year, a margin of ber of necessary rationalization meas- SALES, MSEK OPERATING INCOME, MSEK 45 or 46 percent is probably the best indication ures to improve our competitive posi- that we can provide at the moment.” tion. It is our hope that it will be possi- Jan–Jun Jan–Jun Change Jan–Jun Jan–Jun Change ble to achieve satisfactory profitability 2004 2003 % 2004 2003 % FRANS HOYER, CHEVREUX DE VIRIEU: in these operations in time, but further Snuff 1,565 1,447 8 717 655 9 “What is your reaction to the slower growth in rationalization measures cannot be the Nordic market? Has it surprised you? Is it ruled out. We also see increased inter- Chew. tobacco 536 589 –9 154 170 –9 a result of new competition?” est for such newly launched product as Cigars 1,533 1,395 10 235 167 41 grill bags and fire starters.” EMMET HARRISON, INVESTOR RELATIONS: Match operations also face a market Pipe tobacco/ “Sales in the Nordic market have increased by that remains harsh due to low-price Accessoires 425 428 –1 96 91 5 two percent thus far this year, and we expect competition and the weak USD. Matches 664 691 –4 –81 69 about the same increase for the full year. We do Nonetheless, operating income not believe that competition has had more than a increased to SEK 14 M, which Lars Lighters 292 305 –4 14 9 56 marginal effect in the weaker sales. There are Dahgren regards as acceptable, given three serious competitors in the market. During Other 1,362 1,425 –4 –147 –92 market conditions. the past three years, they have attained a market Total 6,377 6,280 2 988 1,069 –8 share of about three percent, corresponding to CONSOLIDATED NET FINANCIAL ITEMS for one percent each year. The weakening in sales is the period amounted to an expense of probably a reflection of the fact that we have such SEK 73 M, compare with income of a high penetration among Swedish men. There is SEK 50 M for the year-earlier period. little potential for much greater growth. In Norway, However, the comparison is distorted the period, with operations generating SEK 568 M during the period. however, we have seen strong growth.” by the realization of gains on two inter- slightly more than SEK 2 billion. Dur- “In summary, we are financially est swaps that resulted in net financial ing the period, a loan of SEK 673 M stronger than ever. This gives us a sol- FREDRIK LILJEWALL, UBS WARBURG: income in 2003. Net debt decreased to was amortized, and SEK 558 M was id financial foundation to continue cre- “Can we expect more restructuring measures SEK 1,489 M, compared with SEK paid to the shareholders as a dividend. ating value for our shareholders in the in match operations?” 2,715 M on December 31, 2003. Investments amounted to SEK 131 M. future,” concludes Lars Dahgren. Cash flow remained strong during Despite this, liquid funds increased by SVEN HINDRIKES: “Even when we exclude the costs that we have incurred for the restructuring program that has now been completed, the underlying earnings for that the necessary controls are in place accordance with IFRS, rather than matches are not satisfactory. However, we have and operate as they should. Swedish accounting principles as previ- no new measures to announce at present.” Another task facing us is that ously. Swedish Match like other Swedish Many figures must therefore be JOHAN SIVANDER, NORDEA: exchange listed companies must make a recalculated according to the new prin- “Can we also expect restructuring costs for transition to the new international ciples as early as this year, so we are the cigar operations that you took over from accounting principles IFRS as of Janu- already busy making preparations. UST?” ary 1, 2005. This is part of an interna- When we publish interim reports and tional harmonization, and the same the year-end report next year, compar- SVEN HINDRIKES: rules will apply for all exchange-listed ison figures must be published for this “We do not see any such need. We have now companies in the EU. One objective is year in accordance with the new princi- integrated these operations into General Cigar also that the new rules should be more ples. and naturally believe that there will be synergies similar to those applied in the US, thus It is also our ambition to further from which we will gain.” facilitating comparisons in an interna- enhance the contribution of finance to tional perspective. For Swedish Match, the company’s business. By being able VIRGINIA HÉÉRIBOUT, CDS IXIS SECURITIES: this will primarily mean changing the to quickly produce accurate and appro- “What is your goals with respect to the margin way we report pension costs, goodwill priate financial analyses, we can con- on cigars? What can be done to improve it?” amortization, options programs, finan- tribute to sound and profitable growth cial instruments and biological assets. in all business areas.” SVEN HINDRIKES: The latter refers to our poplar planta- “What Swedish Match products do tions, which are intended to ensure a you use?” “Our goal is an operating margin of 18 to 20 per- reliable supply of raw materials for “I use General portion snus. Occa- cent within two to three years. Greater efficiency, match manufacturing in certain mar- sionally I also enjoy a cigar. At home, new, attractive products and perhaps a better kets.’ we use many match products. We have price situation will contribute to an improvement.” The transition to IFRS will entail a utility lighter for our grill, and when considerable work for all economists in the autumn comes, we also use many the Group. The change will mean that fire logs in our fireplace.” all subsidiaries must prepare reports in 4 | SWEDISH MATCH INSIDE | #3 2004

SVEN HINDRIKES, NEW CEO OF SWEDISH MATCH “Restoring matches to proﬁtability most important right now” Reversing the negative trend in the match product area is one of the most important task for newly appointed Chief Executive Officer Sven Hindrikes over the coming year. Defending and developing the most important existing markets is also a high priority. New acquisition opportunities are always being considered, but at the moment there are no prospects in sight, according to Sven Hindrikes.

hen Sven Hindrikes was therefore sees restoring the match prod- operations due to the distribution syn- appointed as new president uct area to profitability as his most ergies that they create in some mar- W of Swedish Match, both he important task over the short term. kets,” says Sven Hindrikes, who envi- and Bernt Magnusson, Chairman of the sions a slimmed down but profitable Board of Directors, emphasized that the THE NEW CEO thus also dismisses an issue match product area. long-established strategy for the com- that is often raised as to whether the That Sven Hindrikes is now at the pany would be retained. Sven Hindrikes match product area will be divested. helm will undoubtedly be evident in sees this as self-evident. Nonetheless, he does not rule out part- other ways, as well. He is perhaps more “I have taken an active part over nerships or alliances intended to inclined to place emphasis on the most many years in developing the company strengthen Swedish Match’s market important existing markets, which are in the direction that we have estab- position. North America and Scandinavia. Given lished. I would not have done so, if I “The action program now in a company with Swedish Match’s took a different view or wished to pursue progress is intended to restore prof- strength, journalists and analysts natu- a different approach,” says Hindrikes. itability in matches. We are convinced rally tend to show greater interest for On the other hand, priorities may that it is possible to reverse the trend, possible acquisitions and the opening of certainly change, depending on competi- despite tough market conditions. new markets than the core business tion and market trends. Sven Hindrikes Matches are an important part of our itself. SWEDISH MATCH INSIDE | #3 2004 | 5

“However, we must not forget that “If we consider snus sales in Russia, company,” observes Hindrikes. “Fur- Lars Olof Löfman new head the major portion of the company’s the trend is excellent, but from a low thermore, it is a very strong perform- profits derives from established mar- level. The introduction of Swedish snus ance culture that makes tough demands of Division North Europe kets and that they still hold the greatest in the US is also in a phase of test sales, but which welcomes individual initia- “Our division has made an incredible journey dur- potential going forward,” emphasizes making it too early to talk about tives. Being able to retain skilled ing Stefan Gelkner’s period at the helm. I am Hindrikes. “These are also the markets trends,” says Hindrikes, adding that he employees is also essential for our busi- assuming control of an extremely well-tended that generate organic growth. We must believes that the same will apply in ness, and very few people leave the com- operation,” says Lars Olof Löfman. therefore constantly ensure that we have Europe if the EU court lifts the ban on pany. For me, it is extremely stimulating On July 1, Lars Olof Löfman assumed the posi- attractive brands and that we are recep- the sale of snus. to have the privilege of leading a com- tion of head of Division North Europe after Stefan tive to consumer preferences. Over the “As a matter of principle, it is pany with such competent, high-per- Gelkner, who is retiring. Lars Olof Löfman was past two years, we have been successful extremely important that the ban is forming and dedicated employees.” employed by Swedish Match in 1987 as produc- in doing so. We expanded and renewed removed, since it is completely illogical. tion manager and has most recently been our product range and are now begin- I cannot understand how cigarettes can HIS OWN LEADERSHIP STYLE is very hands- employed as head of Development & Production ning to see the effects in the form of be sold freely while snus, which is sig- on. “I am genuinely interested in the within the division. increased sales volumes. It is particular- nificantly less harmful to health, is business and feel strongly committed to Like his predecessor, Lars Olof has extensive ly gratifying to note the strong recovery banned. I therefore hope that the court finding solutions to all the tasks that we experience of production. for machine-made cigars in the US, will rule in our favor, and if not that face,” says Sven Hindrikes. “I look “I have been a member of the division’s man- which was the result of innovative prod- politicians will see reason and remove more at the results that have been agement group for many years. uct development that was right on tar- the ban within the not too distant achieved, and I am less impressed by Naturally, this means sharing get in the market.” future,” he says. what managers and other employees the overall responsibility for This is not to say that Sven Hin- say they are going to do. It is what you business. It is not only ORGANIC GROWTH is one of the pillars in drikes believes that there will be a snus do – and what you have done – that about technology and Swedish Match’s strategy. The other is boom in the EU. “I do not want to cre- count, not what you say you are going production but also acquisitions, an area where the estab- ate false expectations. There is a tradi- to do. I am not impressed by words, everything from person- lished strategy once again remains firm. tion of using snuff in some countries only solid achievements.” nel matters to market- Although the company has substantial that I believe will enable us to achieve ing. cash funds, growth by acquisition is not long term growth in those markets. FOR A HANDS-ON MANAGER, being out in How will you make your the easiest path. Otherwise, it will take time for Euro- the organization as much as possible is mark on operations? “When we consider possible acquisi- pean consumers to change their habits. also important. “We are an internation- “The division has enjoyed a tion targets, we are very strict as to the lengthy period of splendid develop- criteria that they must fulfill. The most ment. Now, as I take over, it is in a situation important criteria are that we must where the external conditions are, to some have the management resources to han- extent, new, mainly because a number of new dle the acquisition, that there are syner- competitors have entered the market, backed by gies to be gained and that the price is players with extensive resources. right. There are some candidates, but “However, since I am a typically competitive the selection becomes limited when our person, this is nothing that frightens me. I like criteria are strictly applied,” notes Sven challenges of this kind. In addition, I have a great Hindrikes. deal of faith in our solid and competent organiza- “In recent years, we have nonethe- tion. I have tremendous trust in all of our employ- less acquired three cigar manufacturers ees and I am convinced we will continue to be in the US and two pipe tobacco manu- able to uphold our position in the future.” facturers in South Africa, all of which have proven to be profitable,” he adds. “We remain open for whatever oppor- EU proposal expected on tunities that may arise, for example in September 7 conjunction with structural transac- tions in the industry. Primarily, it would On June 8, the EU court accepted two cases per- be cigars, I believe. We are already num- taining to the ban on snuff. One case is from the ber two in the world in cigars, but we High Court of Great Britain, while the other is from are certainly interested in supplemen- a regional administrative court in Minden, Ger- tary acquisitions that can strengthen many. Both cases were referred to the EU court that position. It’s just that there are no for a ruling on the legality of article 8 of the EU prospects in sight right now.” directive prohibiting the sale of snuff. Questions are sometimes raised as to Following the court’s hearing on June 8, the whether Swedish Match is too restric- Advocate-General, who is associated with the tive with respect to acquisitions and too court, will present his proposal on September 7. eager to satisfy shareholders with gen- Thereafter, the court will issue a final ruling on the erous dividends and share repurchase issue. This ruling is expected to be issued some programs. Sven Hindrikes, however, time around the first of next year. does not feel that the one is at the Repeating the Swedish Experience in al company with 93 percent of our expense of the other. new markets will entail a long journey.” employees outside Sweden. A strong Swedish Match in Poland “We have an extremely strong posi- Sven Hindrikes is naturally well company culture is therefore important tion that does not rule out the possibil- qualified to describe the company cul- to instill unity throughout the organi- Swedish Match has acquired Jem Trading, a dis- ity of acquisitions. Our earnings capac- ture in the organization that he will now zation,” says Sven Hindrikes. tribution company in Poland. The company has ity means that we are able to be gener- lead. “I would say that it is a culture Owners are also a prioritized group been a distributor of Swedish Match products in ous to shareholders, while keeping permeated by very open communica- for Sven Hindrikes, who spends an esti- Poland. The previous owner, Daniel Shamail, will opportunities open for acquisitions tion and strong loyalty towards the mated four to five weeks each year in remain as president of the company, which will whenever the occasion may arise. There meetings with investors to ensure that change its name to Swedish Match Polska. In is no contradiction there,” he asserts. there is no uncertainty regarding the 2003, the company's sales amounted to about company’s strategy. EUR 2.7 million. WITH RESPECT TO THE CHOICE BETWEEN FACTS/SVEN HINDRIKES dividends and share repurchases, it “WE NATURALLY STRIVE to strengthen our Longhorn now sold is important to achieve the correct Born: 1950 positions in all markets that we priori- balance based on tax considerations, tize. That demands working constantly throughout the US Family: Wife and two sons particularly for foreign investors. to renew and enhance the product port- Following test sales in eight states beginning in Repurchase of shares, in comparison Employed at Swedish Match: 1998 folio,” says Sven Hindrikes in describ- August 2003, The Longhorn snuff brand has now with redemption, is also the best and Previous employment: ABB in Mexico, ing Swedish Match’s s future prospects. been launched throughout the US. Longhorn is a simplest alternative for all shareholders. executive vice president of ABB Canada “I believe that this is the right strate- value price segment brand. Demand in this seg- “Since the exchange listing, we have and of Linjebuss. gy and that it will lead to concrete ment continues to increase and, to date, sales of therefore reduced the number of shares in results. Over the long term, I am strong- Longhorn have exceeded expectations. Con- Education: M.Sc. in Economics from the the company by 30 percent. For our long- ly convinced that our smokeless prod- sumer acceptance has been extremely high and Stockholm School of Economics term shareholders, the result has been a ucts will become an increasingly accept- Longhorn represents an important complement very good return,” notes Sven Hindrikes. Interests: Has completed nine Vasalopp ed alternative to cigarette smoking. The to the Group’s snuff portfolio. Longhorn is mar- cross-country ski races and plays golf in future also looks bright for cigars. We keted in two product variants, Fine Cut Natural WHAT DOES SVEN HINDRIKES expect from the summer see very attractive opportunities in new and Longhorn Cut Wintergreen. the new markets in which the company markets in Europe and Asia. This is a Likes: A good cigar after a good dinner. has primarily introduced its smokeless potential that will persist for many years products? to come,” concludes Sven Hindrikes. Swedish Match Cup with world star Peter Gilmore

With its 150,000 spectators Gilmour participated in all races during need to learn about. There may be small check. Race days end with a well-attended the 2003 – 2004 Swedish Match Tour. details, such as the spinnaker halyard being press conference at which attendance is during the first week in July, the These included the opening event in on the port rather than the starboard side obligatory for the helmsmen. This is fol- Swedish Match Cup in match Copenhagen in August 2003 and the of the mast, and the pattern of movements lowed by a debriefing with the umpires. At autumn’s races in Bermuda and Japan, as on the boat needs to be adjusted to take the this meeting, the day’s events are reviewed, race sailing is one of Sweden’s well as competitions off the Italian change into account,” continues Gilmour. and a detailed analysis is conducted of the largest public events. The Mediterranean island Elba, in Croatia, on Test sailing also provides a valuable umpires’ rulings. The day ends with dinner the Lake Constance and finally in opportunity to get a feel for the water and at one of Marstrand’s many restaurants, world’s best sailors from the Marstrand. Despite having participating in local conditions. Everything must be stud- which take turns inviting the different prestigious America’s Cup most of the races many times, Gilmour is ied to minimize mistakes when the race is teams to sample local specialties served in always careful to arrive in good time and to underway. Gilmour is methodical and in generous sailor portions. come to the west coast of Swe- make meticulous preparations before the fact a perfectionist. “It is really nice of the organizers to let den to participate in the event start of each race. All organizers offer an us try different restaurants during the opportunity to test the match racing boats IN THE MIDDLE OF the race week, there is a week, to get out and meet not only the great that all other organizers on the for at least a few hours, since different Pro Am day when the sponsors and their people of Sweden but guests from all over global Swedish Match Tour try boats are used in the different events. guests are given an opportunity to partici- the world” says Gilmour. Although the Swedish Match Tour in col- pate in a special race. Mats Rosenqvist, to match. laboration with Pelle Pettersson and who normally works in Swedish Match’s IN THIS YEAR’S Swedish Match Cup, the Gothenburg-based Maxi Nimbus has Group Human Resources, was one of the popular Australian had to settle for second ne of the most well-known and developed a match race boat that will be chosen few who had a chance to join place after having collided with another merited sailors on the tour is standard on the tour, it has thus far only Gilmour in this year’s race. Mats was finalist, the New Zealander Russell Coutts, the Australian Peter Gilmour. been purchased for the newly started event assigned a position next to the Australian in the final sailing. It was a hard collision OThis summer, when he arrived in Portugal. Every opportunity to test the by the mainsail and was clearly enthralled that knocked Coutts down in his boat. for the final race at Marstrand with his advanced competition equipment is thus by the experience. Japanese Pizza-La sailing team, he was welcome. “It was absolutely fantastic! We gave it already the clear winner of the 2003-2004 “Although we recognize most of the everything we had, and at times there was Swedish Match Tour. In addition, he came boats from previous years, considerable less than half a meter between the boats. to the island as a five-time winner during time has passed, so we need to refresh our Gilmour gave me instructions the whole his ten years with the Swedish Match Cup knowledge and practice various maneuvers time as to how I should adjust the main- and was naturally hungry for yet another again,” explains Gilmour. “The boats in sail,” relates Mats. victory. Marstrand also have fine new rigs that we “Being part of the Swedish Match Cup is important for both employees and cus- Peter Gilmore, five-time winner during ten years with the Swedish Match Cup. tomers. Here we have a unique opportunity to make closer contact and to create val- ues and culture,” adds Mats.

Huge drama as Gilmor and Coutts collide EACH RACE DAY STARTS with an early morning meeting for all skippers during which “My sight was blocked for just a sec- lots are drawn for placement of the boats ond. The margins are so small that it was before the start of the day’s race. The race enough for us to crash,” says Gilmour managers and the chief umpire also partic- apologetically. “Winning in sport is not ipate in these meetings, so there is an dissimilar to business, it is not always opportunity to ask questions about every- about being first it is about striving to be thing from interpretations of the rules to your best all the time and learning from the the finer points of sailing instructions and small mistakes you make so that you may the notice of race. Gilmour is experienced, be better next time” reflected Gilmour. well-prepared and knowledgeable. He Gilmour promises to return next year to nods knowingly during the short briefing compete for yet another victory at and asks only a few curt questions as a Marstrand. We look forward to his visit. SWEDISH MATCH INSIDE | #3 2004 | 7 Stable share price during most recent quarter TOTAL RETURN he Swedish Match share price has court regarding the legality of the EU’s ban consequences for the stock market. The increased by 4.1 percent since the on snus. The case was taken up by the economic recovery in the US is gaining Total return, % beginning of the year (as of July 7). court in the beginning of June, and a rul- strength. At the same time, increasing oil T Jan 1–Jul 7, 2004 6 If the dividend received by the sharehold- ing is expected toward the end of the year, prices, a weak USD and a tendency ers is included, the total return for the or soon thereafter. This case is being close- towards interest-rate increases makes the 2003 11 share increased by 6.3 percent. Measured ly monitored by market analysts who are economic outlook difficult to judge. Clear over the most recent 12-month period, the trying to assess market potential in trends are lacking, 2002 25 share price has increased by 30 percent, Europe. According to Swedish Match’s Continued development of the stock 2001 56 which is somewhat more than the market assessment, even if the ban on snus were to market will be greatly affected by the inter- 2000 32 average. During the most recent quarter, be lifted, it would take time before snus im reports for the first six months that will the share price was largely unchanged. The becomes a major product in Europe. begin to be published during the summer 1999 4 increase occurred earlier during the year, a The Stockholm Exchange as a whole months. Expectations are that corporate period when the news flow on the compa- (SAX) has risen 7.6 percent during the profits will remain strong. Swedish Match ny was quite active, i.e. regarding the set- year. The interest rate increase that the US published its interim report on July 21. tlement between Swedish Match and US Federal Reserve implemented in June was KEY FIGURES Tobacco and the negotiations in the EU expected and did not result in any negative Earnings per share, SEK

SHARE PRICE AND TURNOVER 2003 4.68 SEK MSEK 2002 4.10 120 3,000

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

40 1,000 Jan 1–Jul 7, 2004, %

Swedish Match 4

20 500 SAX 8

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

Swedish Match to sponsor Fredrik Jacobson Pediatrician Sweden’s best golfer Staffan Jansson

Swedish Match is exapanding its sponsor- receives ship program to support Sweden’s best golfer, Fredrik Jacobson. Solstickan Award Fredrik is ranked number 12 on the prestigious world ranking list. After nine The 2004 Solstickan Award was granted years on the European Tour, he has taken to pediatrician Staffan Jansson for his the step over to the US PGA Tour. And “forceful and unselfish commitment to what a start! He has already guaranteed helping underprivileged children.” his card and right to play for the 2005 sea- For each box of matches sold under the son with one top three and four top ten fin- Solstickan brand, a percentage of the sale ishes. is donated to the Solstickan Foundation. Fredrik is 30 years old and has been Over a period of 68 years, just over SEK playing professional golf for ten years. The 100 million has been received by the Foun- Swedish Match sponsorship program is dation. In conjunction with the award cer- particularly suited to him, since he uses emony for this year’s prize, Swedish Match General snus. president and CEO Sven Hindrikes announced that the company had decided to donate an additional SEK 5 million as a Double tie-breaker finals one-time grant for 2004. At the Foundation’s annual general meeting, it was reported that the thou- in Swedish Open sands of small donations plus dividends, The Swedish Open is a 55-year old classic played on center court when French Open interest and gifts had amounted to more Swedish tennis tournament. Swedish Match champion Gaston Gaudio faced Mariano than SEK 2.1 million. has been one of the main sponsors since Zabaleta, his best friend and the defending 1993. champion in Båstad. The match went to a The tournament has grown to become decisive tie break in which Zabaleta came one of the most prestigious clay-court away with a 7-4 victory. The win was the tournaments in Europe in which most of third in Zabeleta’s career and his second in the world’s top players have participated Båstad. on some occasion. Shortly after the men’s singles final, Two exciting finals decided the 2004 Jonas Björkman/Mahesh Bhupathi secured Synsam Swedish Open at the beginning of the doubled victory after a heart-wrench- July. Argentinean Mariano Zabaleta, won ing final with two tie-break sets against the men’s singles, while the double cham- Simon Aspelin and Todd Perry. The victory pionship went to Jonas Björkman/ Mahesh was Björkman’s 36th and Bhupathi’s 35th Bhupathi. of their carets. Björkman has also won in Bernt Magnusson, Chairman of Swedish Match, congratulates Mariano Zabaleta, this year’s Swedish The first-ever all-Argentinean final in Båstad four times, thus tying Järryd’s Pediatrician Staffan Jansson receives the Solsticke Open winner. the Synsam Swedish Open’s history was record. Award from Princess Christina. 25 years that gave Swedish Match an identity and continuity Anyone who chooses to browse through Swedish Match’s annual reports since the beginning of the 1980s will observe a long cavalcade of management figures and Board members who appear in pictures only to disappear again after a year or two. However, one generally smiling face can be seen year in and year out – Massimo Rossi. During his 25 years with Swedish Match, the baker’s son from Italy has represented continuity and identity with the Group’s core match operations and the name Swedish Match, a brand that he also reinstated to Sweden.

t the age of 62, the time has Swedish, so no one understood me. I the Group’s current Board Chairman, “No, not really. My life path has been come for Massimo Rossi to picked it up quickly, though.” Bernt Magnusson. very individual and I am extremely grateful sum up his lifetime achieve- By now, it was 1968. Massimo applied “I am eternally grateful that he placed to Sweden and the many Swedes who have ment ahead of his retire- for a student loan (which he has now paid his confidence in me,” says Massimo Rossi. believed in me. Of course, I have worked ment. Employed in 1975, he back!) and graduated with a degree in eco- “I worked for him in Nyon in Switzerland, hard and been successful. But this is noth- Awas rapidly promoted to President of the nomics from Stockholm University. where the head office of the Consumer ing unique. In certain respects, I have been then Consumer Division (including Match- “Your first real job is always critical and Division was located. After a turbulent lucky, when you think of how I started out. es) and has spent most of his professional I was lucky enough to gain employment at period, Bernt appointed me President of You could say that I have been in the right career in corporate management, most the major Scanraff project on the Swedish this division, which specialized in matches.” place at the right time. There were certain- recently as Senior Executive Advisor, spe- west coast despite being both an immigrant The 1980s were characterized by major ly others who maybe were even better qual- cializing in acquisitions and divestments. and slightly older graduate.” deals and restructuring and Swedish Match ified than myself, but they weren’t there With interesting experience, good Eng- was taken over by Stora in 1989. Massimo when the opportunity arose. THE CAREER SEED WAS PLANTED one dreary lish and driving ambition, he went on to Rossi was placed in charge of selling his “Perhaps a clue to my success is my morning when Massimo, a teenager at the apply to Swedish Match, or Svenska Tänd- favorite division – matches, lighters and social skills,” he says without sentimental- time, got up at four a.m. to help his father, sticks AB (STAB), as it was called at the shaving products. However, the solution ity or self-praise. “I like people, am inter- a baker in the small fishing village of Leri- time. He was recruited by the executive instead was a leveraged buyout, which ested in them as individuals and I show it. ci near La Spezia. At eight o’ clock, he set vice president Sten Rystedt, who first Rossi himself organized. This was fol- I think that this characteristic has given me off for school. checked him over to see if he “fitted in”. lowed by a further deal, in which Rossi an advantage in negotiations and relation- became a shareholder together with a ships with buyers and sellers in all the deals British private equity firm and various Ital- in which I have been involved.” ian investors. “I became the Match King,” he laughs. TODAY, HE INTENDS TO slow down a little. He will still be kept busy, however, traveling THE TURBULENCE CONTINUED. In 1992, Pro- between various Board engagements in sev- cordia, a Volvo company, acquired the eral funds in EQT, Sweden’s largest private operations, which were now also comple- equity company, and in Finnpower Oy, a mented with tobacco. “I fought to get the Finnish company. He is also Chairman of name Swedish Match back to Sweden. And the Board of the Danish insurance compa- we succeeded.” After further organization- ny International Health Insurance. Rossi al turns, Swedish Match was listed on the owns properties in Geneva, Rome and stock exchange in 1996, with Göran Stockholm. However, “home” these days is Lindén as president and Bernt Magnusson Italy, where his wife and two children live. as Board Chairman. His daughter is studying law and his son Massimo Rossi’s flair for business recently started his own company. became very apparent during this ten-year What would Massimo Rossi want to be period characterized by intense restructur- remembered for? “Two things – for sal- He fought to get the name Swedish Match back to Sweden. And he succeeded. ing with constant acquisitions and divest- vaging the name Swedish Match and bring- After taking his bookkeeping exams, “Evidently, I fitted in so well that I was giv- ments. Since Swedish Match became a listing it back to Sweden and for my donation his dream of another life took him to en a room next to the large boardroom in ed company, Massimo Rossi’s main area of to Solstickan. When I had the financial Stockholm in Sweden, where he arrived the magnificent former ‘Match Palace’ responsibility in corporate management means to do so, I set up a foundation and one morning on the night train from premises,” relates Massimo. has been acquisitions and divestments. “I donated a sum of money. I have been very Copenhagen. An hour later, he had a job as have divested and acquired about 80 com- much involved in Solstickan’s work and I a dishwasher at Café Nord at the Central BY NOW, SWEDISH MATCH WAS an expansive panies during my time at Swedish Match,” sit on the foundation’s Board of Directors. Station. international conglomerate whose opera- he says. My wife and I are more than happy to pay “Yes, I had studied some Swedish, tions were based in the match industry. It Is there a red thread running through his back some of our debt of gratitude and bought a grammar book and a dictionary. was also a breeding ground for a series of professional career? He hesitates before make life a little easier for those who have But I had never heard anyone speak prominent business executives, including responding… not had the same opportunities as myself.”