INFORMATIONinside ABOUT SWEDISH MATCH FOR SHAREHOLDERS AND OTHER STAKEHOLDERS

#3 november 2000 BETH A KEISER/PRESSENS BILD

Draft legislation withdrawn

The draft legislation banning advertising pre- sented by the EU Council of Ministers has been rejected. The European Court of Justice rejected the arguments behind the directive. As a direct consequence of the ruling, the Swedish Government will have to withdraw its proposal for a ban on indirect tobacco advertising. For Swedish Match, this means unchanged conditions for Swedish Match in the European markets. Page 6

“Both life and career are great adventures”

So says Peter Nilsson, whose lea- dership was responsible for rever- sing the trend for the Group’s former problem child, . Meet Peter Nilsson, one of Swedish Match’s young and hungry managers, in a topical profile. Page 2–3 SWEDISH MATCH RIDES OUT MARKET STORM:

Snuff popular in IT companies Stable amid chaos Snuff is gaining ground at the expense of – a consumer trend that benefits Swedish Match. It is inter- Swedish Match is among those companies that coped best with the esting that snuff is proving popular with new user cate- gories, particularly employees in “New Economy” com- autumn’s bull market. While IT shares plunged, Match’s share price panies. Swedish Match Inside reveals the latest figures climbed higher. At a recent seminar in New York, Group management confirming the trend. Page 8 met analysts who monitor the industry. Some of them reveal to

Swedish Match Inside how they scrutinize a company. Page 4–5 and 7

”Snuff ban to be lifted” JOHAN FRICK-MEIJER/LUCKY LOOK The ban on the sale of snuff within the EU is expected to be lifted by 2004. This is the prediction at Swedish Match following recent developments concerning the issue. The EU is in the process of altering the warning texts on snuff cans. The next stage is total removal of New major investment in snuff Surge in sales the ban, which could open up new markets to the highly NOVEMBER MARKS THE LAUNCH of Swedish successful Swedish product. Page 6 and earnings Match GothiaTek as a quality hallmark for Swedish snuff. SWEDISH MATCH REPORTED a strong third “GothiaTek will give consumers a clear quarter. Both sales and earnings advanced signal about the product they are enjoying sharply. Reported earnings of SEK 500 M Buyback program in their mouth – a signal of total quality and approached the quarterly record. The star A special general meeting of Swedish reliability,” says Stefan Gelkner, in charge performer was snuff, but there are several Match has approved the Board’s of the North Europe Division, and the man other positive features in the report, proposal to expand the Group’s behind the New GothiaTek approach. including the operation robust share buyback program. The Group Development and quality programs over recovery. Overall, fiscal 2000 has proved the past 25 years have created a unique very positive for the Group, which is now can now buy back up to 10 percent Swedish snuff – the hallmark of excellence! of its share capital, in addition to the product based on selected raw materials, beginning to reap the benefits of the program just concluded. unique processes and, hence, unique qual- Swedish Match is investing SEK 500 M streamlining strategy implemented under “We currently have more funds in reserve than we ity. Swedish snuff is in fact set to become a in a new snuff plant in Gothenburg. CEO Lennart Sundén. Earnings fulfilled need,” says Group CFO Sven Hindrikes. Page 7 product category in its own right. Page 5 market expectations. Page 2–3 2 | SWEDISH MATCH INSIDE | # 3 2000

SWEDISH MATCH 9 MONTHS 2000: Profits reach Swedish Match had a strong third quarter. “Operating income of SEK 500 M is one of the best results the Group has ever achie- ved for a single quarter”, says CFO Sven Dear shareholder! Hindrikes with satisfaction.

Welcome to our shareholder publication which, Now the effects of the streamlining stra- effective with this number, is appearing under a tegy that was presented at the beginning of new name - Inside - and in a fresh new format. The special effort we are focusing on Inside reflects our last year are becoming increasingly appa- ambition to provide you with pertinent, interesting information about Swedish Match Group opera- rent. The good result will benefit the share- tions, and related issues, on a regular basis. holders of Swedish Match in several ways. The product you are holding in your hands is by Sven Hindrikes is pleased with the earnings trend. no means a small one. Slightly more than 100,000 copies are being printed and the publication is being distributed, in Swedish and English, to all sharehold- cquisitions in the seg- the period. Excluding the results of US and the volume increase, in terms of ers. It is issued four times a year in conjunction with ment combined with or- divested operations, earnings increased the number of cans sold, amounts to 21 our financial reporting. We hope in this way to be ganic growth for snuff by 34 percent. percent. able to offer a good picture of the Group’s financial are the factors underly- “The figures are very gratifying and “Since we are investing more in prod- development, our strategies and the position our ing the good result. The show a healthy stability in both sales and uct development this year, we expect the products occupy in the marketplace. ADingler pipe tobacco company, acquired earnings,” comments Sven Hindrikes. pace of growth to increase still further. Professional communication dealing with our at the end of last year, has also devel- A new snuff product, Catch Eucalyptus, financial development is of strategic value to oped very favorably. SNUFF CONTINUES TO develop favorably, was launched in Northern Europe at the Swedish Match. Our shares are among Sweden’s Earnings per share for the third quar- with a 26-percent increase in sales during beginning of the year, for example.” most widely distributed securities. We are listed on ter amounted to SEK 0.75, compared the first nine months of the year. Snuff is the OM Stockholm Exchange and on the NASDAQ with SEK 0.56 for the corresponding the Group’s real star performer, account- CHEWING TOBACCO IS also showing a exchange in the United States, and the Group is year-earlier period. ing for nearly 20 percent of Group sales healthy 13-percent increase in sales, due analyzed regularly by some of the world’s foremost Combined with the results for the and fully 50 percent of earnings. to the increasing strength of the dollar banks and brokerage firms. As a result we have a first two quarters, the third-quarter fig- “We are particularly pleased with the combined with higher invoicing in local responsibility to keep financial analysts and other ure brings operating income for the first strong increase in volumes in Northern currency. Swedish Match has a strong interested parties informed about Swedish Match nine months of 2000 up to SEK 1,386 Europe – 8 percent for the year to position in the US chewing tobacco in the most professional manner possible within the M, on sales of SEK 8,337 M. The oper- date,” says Hindrikes. “Such a high rate market, spearheaded by Red Man, the frameworks and norms of the various market- ating margin amounts to 17 percent. of increase clearly exceeds the historical leading brand. places. This issue will show how this is being done. Sales increased by 22 percent and trend of 5 percent per year. We have The largest sales gain this year is I hope that you will appreciate the opportunity to operating income by 7 percent during continued to gain market shares in the claimed by , with an impressive read Inside and that you will share management’s pleasure that the business is doing well and that the strategies we have adopted are proving successful. The trend of earnings is continuing to improve. I and my associates in Swedish Match’s man- agement plan to continue the dialog with our share- PETER NILSSON, NEW PRESIDENT FOR CONTINENTAL EUROPE: holders through this publication and in other ways. We welcome questions and viewpoints from all of the readers of Inside. “Difficulties exists Lennart Sundén CEO to be overcome” Swedish Match Inside is a magazine for Swedish Match shareholders and other stakeholders. The print “THE ONLY PROBLEM with advancing in tackles with the same voracious run is 100,000 copies of the Swedish version and your career is that it becomes more dif- appetite that he seems to have for every- 5,000 copies of the English version. ficult to obtain correct information at thing else. His motto is that difficulties PUBLISHER ADRESS an early stage,” observes Peter Nilsson, exist to be overcome. And the bigger the Swedish Match AB Swedish Match President of Swedish Match’s Conti- problem, the better. “Both life and career are great adventures,” says SE-118 85 Stockholm nental Europe Division, into which the Peter Nilsson, new head of the Continental Europe PUBLISHER RESPONSIBLE Tel: +46 8 658 02 00 Division. Bo Aulin www.swedishmatch.com Lighter Division was recently incorpo- IF HE WASN’T SO thoughtful, he might be rated. In all other respects, he is full of seen as a somewhat impulsive person. appears to be another of his passions. EDITORIAL RESPONSIBILITY ARTICLES IN enthusiasm as he faces the challenge of “Everything we do must be based on And one that has served him well during Martin Haag, THIS ISSUE Hallvarsson&Halvarsson AB Martin Haag a double top job. a true interpretation of reality,” he says. his work in the Lighters Division. Lena Olofsdotter, Mats Hallvarsson “But I’ve noticed that the higher up So it is important to ensure that everyone The Division has been turned around Swedish Match AB Gunilla Tengvall the ladder you climb, the more energy realizes that employees with contrary during his time as President, from a loss- you have to spend on simply remaining views do not run the risk of any reprisals. making business into profit. Naturally, PRODUCTION REPRODUCTION Hallvarsson&Halvarsson AB Scarena, Stockholm well informed. Earlier, I could just keep He certainly seems to have succeeded the transformation has not been without my ear to the ground and spend time with this, at least in the Lighters divi- a number of decisions that were unpleas- LAYOUT AND DESIGN PRINTING Peppar Design, VLT, Västerås exchanging ideas with colleagues. It’s sion. At a recent management meeting, ant for those affected. Members of mid- Petter Carnhagen more difficult now. Any theories that I it was impressive to see how rapidly he dle management have had to go. The spin today are taken too seriously.” By took up counter-arguments. The discus- French plant in Lyons has been closed. that he means that fewer people feel sions were to the point and without any “My conviction is that everyone comfortable rejecting what he has to emotionally charged undercurrents. must respect the analysis I made togeth- say. This, an increasingly common Objectivity, the art of differentiating er with the management group; these problem for senior executives, Nilsson between facts and subjective notions, measures were essential. On the other SWEDISH MATCH INSIDE | # 3 2000 | 3

Analyst questions

Earnings for the first nine months of 2000 were in line with market expectations and somewhat better than the average of the forecasts compiled by the share analysts. The average earnings forecast was SEK record level 1,269 M after net financial items, while reported earnings amounted to SEK 1,277 M. Earnings before net financial items amounted to SEK 1,386 M. 85-percent increase by volume. The rise SALES AND OPERATING INCOME, JANUARY–SEPTEMBER During a telephone conference with analysts is primarily attributable to the major shortly after the nine-month report was published, MSEK acquisitions made by Swedish Match in Swedish Match management answered questions 10 000 the US, where the Group purchased from analysts: both the machine-produced and premi- 8 000 um cigar operations from General Cig- MICHAEL SMITH, MORGAN STANLEY: ar. Swedish Match is now the world’s “I would like to know how the legal situation 6 000 second-largest manufacturer of cigars. looks in the US. Do you have any active lawsu- Earnings for cigars rose by 60 percent its under way at present, or any that will come 4 000 during the first nine months of the year. before the courts during the next few years?”

2 000 PIPE TOBACCO ALSO reported a strong BO AULIN, CHIEF LEGAL COUNSEL: increase in sales volumes – up by 170 0 “Yes, there are two cases in which we are named percent – during the nine-month period, as defendant and where we might have to go to tri- 1998 1999 2000 primarily due to the acquisition of the al during the next few years. First in line is a case in South African tobacco company Sales 4 700 6 800 8 300 West Virginia, directed at virtually all tobacco com- Leonard Dingler last year. Earnings have Operating income 720 1 100 1 400 panies in the US, involving more than 1,000 dama- also increased strongly for pipe tobacco. ges claimants, all represented by a single law firm. Another source of satisfaction during The case is almost entirely concerned with cigaret- the period was the continued improve- SALES MSEK OPERATING INCOME MSEK tes and we are affected only concerning a few ment in the Lighter Division. What was claims. We are peripherally involved, so to speak, previously a problem area is now Jan–Sept Jan-Sept Change Jan–Sept Jan–Sept Change and we do not yet know whether we will be invol- 2000 1999 % 2000 1999 % reporting strongly increased earnings ved in the legal proceedings in the end. We expect for the year to date. Snus&Snuff 1 519 1 208 26 704 607 16 to find out during the coming year, but apart from Chewing tobacco 911 809 13 244 224 9 that, there is nothing coming up during 2001 as far THE ONLY AREA within the group that is as we can see now. Another case is pending in not producing satisfactory results is Cigars 1 847 1 001 85 243 151 61 Minnesota but that is even further down the road; it matches. Extensive restructuring is in Pipe Tobacco may reach the courts during 2002.” progress in this area, according to Sven & Accessories 562 208 170 159 50 218 Hindrikes. IAN SCOTT, CSFB: Matches 1 234 1 255 –26793–28 Hindrikes views the future with opti- “I would like to know what is behind the margins mism: Lighters 519 508 2 53 2 trend for snuff. I would also like to know more “With this report we have taken a big about General Cigar’s contribution to earnings.” Other 1 745 1 140 (84) (91) step toward realizing our financial objectives, which include a continuing Subtotal 8 337 6 129 1 386 1 036 34 LENNART SUNDÉN: improvement in earnings and an opti- Divested business 729 255 “Margins were high during the third quarter of last mized balance sheet. The result will year. They are at more normal levels this year. greatly benefit the shareholders,” con- Items aff comp 4 102 Regarding your other question, that is something cludes the Chief Financial Officer. (See Total 8 337 6 858 22 1 386 5 393 –74 we are not prepared to reveal, but it is naturally also article on page 7.) included in the total.”

JOHAN STÅHL, CARNEGIE: “How are sales of pipe tobacco affected by lar- ge individual deliveries? Is it correct to assume that the average quarterly figure is less than hand, I don’t expect anyone to welcome ON THE OTHER HAND, he claims that he this marketing responsibility, with wall SEK 200 M? I also wonder if the legal costs such decisions. In fact, it’s OK to dislike can cope with failure. That is part of clocks, signs and designer ashtrays. But related to the purchase of National Tobacco’s them.” Respect is important to Peter life, of the adventure, as he sees it. it was the product manager who con- chewing-tobacco operations will continue to be Nilsson. Winning the respect of col- Peter Nilsson was born and raised in vinced everyone about the concept. charged against profits in the future.” leagues is what drives him. Gothenburg. His father is an organiza- Armed with a large case on wheels, he “It is also my weakness; I feel it if I tional consultant and economist. His personally visited Stockholm’s restau- LENNART SUNDÉN: don’t gain their respect.” mother is a nurse. rants. The results achieved made an “Yes, it is the case that large individual deliveries As a young man, he was active but not impression on corporate management are sometimes made to our major customers in particularly purposeful. His decisions to and these promotional activities contin- Europe, and these can produce misleading figures LIGHTERS, JANUARY–SEPTEMBER train as a reserve officer and to go to the ued until Swedish Match sold the ciga- in the short term. Several such deliveries occurred during September, but it may turn out that nothing MSEK Stockholm School of Economics and rette division. 50 Business Administration were decided by Before joining Lighters, he found on the same scale happens during October.” 53 pure chance or the influence of friends. time to gain experience within both the SVEN HINDRIKES, CFO: 40 But his military service as a commando snuff and cigar business areas. He has with a brigade in northern Sweden was thus worked with virtually all of the “As far as the costs for legal proceedings are con- cerned, we have already tried to anticipate them. 30 no coincidence. He was there because he Group’s operations. wanted to do something difficult, to No additional legal expenses should arise during the fourth quarter.” 20 respond to a challenge, an adventure. And that is how he continued. He has JONATHAN FELL, MERRILL LYNCH: 10 14 lived and worked in the US, Switzerland FACTS ABOUT PETER NILSSON: “One of your competitors, US Tobacco, has 2 and the Netherlands for Swedish spoken of snuff inventories continuing to grow. 0 Match. Both he and his wife regard Name: Peter Nilsson. They have also announced reduced expenditure 1998 1999 2000 their relocations as an adventure. Title: President of Continental Europe Peter Nilsson’s first job at Swedish on advertising and marketing. What is your Operating income Division. assessment?” Match was as product manager for the Age: 38. The once problematic lighter division has been Blend brand of cigarettes. In this role, he Family: Wife and three children. LENNART SUNDÉN: turned around during Peter Nilsson’s time as Presi- was the brain behind the Blend . Resident: Eindhoven, Netherlands and dent, from a loss-making business into profit. A good “I would rather not speak about competitors’ plans. proof of this development is the division’ s profit the He persuaded the Pripps brewing group Stocksund, outside Stockholm. But it’s true that advertising and marketing are cur- first nine month’s this year, SEK 53 M compared to to distribute 11 million ashtrays as part Leisure interests: Family and nature. En- only SEK 2 M the same period last year. The lighter joys being outdoors as much as possible. rently at a high level and this is a large expense item.” division is now a part of the larger division for Con- of its own range of promotional items. tinental Europe, with Nilsson as its new President. Eventually, Swedish Match assumed 4 | SWEDISH MATCH INSIDE | # 3 2000

here are not so many of them. Around 30 – includ- JOHAN/WINDH ing both men and women ’ – who can exert major BERNT O influence on the price of Tthe Swedish Match share. Some are

RICHARD DREW/PRESSENS BILD active in Stockholm, but most of them are in London or New York. Naturally, we are referring to the financial ana- lysts, the research personnel from pen in the future,” says Martin Feld- major banks, stockbroker firms and man, analyst at investment houses, who closely follow Salomon Smith Barney in New York. the Swedish Match share. He is ranked first among America’s When Swedish Match arranged a tobacco analysts and took part in the Capital Markets Day in New York at Capital Markets Day and in the follow- the end of August, they were of course ing study trip arranged by Swedish in attendance. We hosted analysts from Match to the cigar plants in the Merrill Lynch, Morgan Stanley, Dominican Republic. Paribas, Carnegie, Enskilda, Swedbank and a handful of others. HIS ABILITY TO PREDICT which compa- nies may be ripe for acquisition and THEY COULD BE described as the finan- other structural changes in the industry cial world’s intelligence agents. Their are a specialty that has given him a very goal is to assemble as much publicly solid reputation on Wall Street. available information as Salomon Smith Barney possible about a company, is one of the largest bank- or sector, from which to ing firms in the US and eventually draw their con- Martin Feldman focuses clusions. Does the compa- exclusively on tobacco ny have the right strategy? shares. He has a legal Is management doing a background and finds this good job? Is the share useful in his work. undervalued? Is it the right “You have to love law if time to buy, or should one you are going to follow wait for a while? These are “You have to tobacco shares as an ana- the questions that the ana- love law if you lyst,” he says, referring to lyst has to answer. And are going to the many legal processes those who ask them are follow tobacco in which the American the banks’ and stockbro- shares as an tobacco industry is in- kers’ clients, the potential analyst.” volved. In a European investors, whose buy or perspective, the situation MARTIN FELDMAN, sell orders are the leverage SALOMON SMITH BARNEY is slightly different. The that, in practice, controls law is also important in the share price for a company. Major this area, but the focus is mainly on leg- demand for a share pushes the price up, islation issues, rather than on individual while substantial sales reduce it. Simple claims, as in the US. relationships, yet they continue to steer “Legal claims are not a material issue events in the world of finance. And the for Swedish Match,” says Michael Swedish Match scrutinized in recommendations of the analysts, to buy Smith, analyst at Morgan Stanley Dean or sell, are of major importance for the Witter. Based in London, he analyzes price of a share. the European tobacco companies for his Analysts piece information together firm, which employs half a dozen people in the same way as intelligence agents or to monitor this particular industry on a spies. The difference, of course, is that worldwide basis. In total, there are six the analysts work with open sources, listed European tobacco company New York meaning that the information they shares, of which Swedish Match is one. assemble about a company and its The Swedish Match share is quoted on the Nasdaq markets is generally available. Compa- MICHAEL SMITH, who also attended the ny reports are one of the sources they Swedish Match Capital Markets Day in Stock Exchange in the US. Analysts all over the world use. The analysts’ own assessments of a New York, considers that it is relatively follow the company and its share. Their job is to pick complete sector and conversations with easy to value tobacco companies. They competitors are other sources. have predictable earnings capacity and the best buys on the stock market. “Our goal is to predict what will hap- are relatively insensitive to interest

Nat Sherman – the legendary cigar shop

The exclusive Nat Sher- is an experience to just step inside this ele- like Nat Sherman’s own – are produced gant and enjoyable store, with its mainly in the Dominican Republic. man store in Manattan is a reserved charm that is in such contrast to must for all cigar lovers. the hectic tempo of the surrounding NAT SHERMAN FOUNDED the company in Browse around and enjoy streets. One floor up, you will find the 1930 and the third generation of the impressive humidor, with its fantastic family is running it today. Sherman suc- the special atmosphere. selection of the company’s own and oth- cessfully obtained a license to distribute er cigars. Naturally, Swedish Match’s best Cuban cigars from the original Govern- f you are interested in cigars and cigars are available, such as Macanudo ment and small quantities of pre-Castro happen to be in New York, you and Partagas from General Cigars. The Cuban cigars can still be found today in I can’t afford to miss Nat Sherman, more exclusive Swedish Match cigars can the humidor, but are used primarily as one of the finest cigar stores in the world. cost around USD 5–10 per cigar at Sher- donations to charity auctions. As every- This Mecca for cigar and tobacco man’s, comparable to a glass of good- one knows Cuban cigars brought in lovers is centrally located in the middle of quality wine at one of the bars in the after the prevailing trade embargo can- , on Fifth and 42nd Street. It neighborhood. Today, these cigars – just not be sold in the United States. SWEDISH MATCH INSIDE | # 3 2000 | 5

rates, economic fluctuations and other macroeconomic factors. “Generally, tobacco company shares are undervalued. They are quality investments, which pay high dividend,”

he says. STUART RAMSON/PRESSENS BILD In 1999, there was an exaggerated bull-market boom in IT and telecom shares. A correction has now been made. “Tobacco shares have done bet- ter than technology shares this year,” he points out, and considers there is still good upside potential. The Nasdaq Stock Exchange is a rising star among the world’s exchanges. Many of the most important growth stocks are Michael Smith recently analyzed listed on Nasdaq. But many of them have lost a lot of their Swedish Match and made a clear value this summer and autumn. “strong buy” recommendation. It can be difficult for analysts to assess when the time has come to exit a com- plete sector, such as IT, and invest in Nasdaq as famous engineering or retail trade shares. Such Cecilia Parsmann (left) and Monika Elling (right) follow Swedish Match for Enskilda Securities. as Wall Street a recommendation requires a great deal “To become a good analyst you have to stick your neck out sometimes”, they say. of know-how and intuition. Perhaps that is why an increasing number of updated if and when new information favorable prospects, the stock market In addition to the OM Stockholm Exchange, the women are becoming financial analysts. becomes available. (See box). may already have taken this into Swedish Match share is also quoted on Nasdaq in Monika Elling and Cecilia Parsmann To become a good analyst, you have to account by driving up the price of its the US. The listing there is in the form of an Ameri- follow Swedish Match at Enskilda be prepared to stick your neck out and stock. This means it is not the right time can Depository Receipt (ADR). The company’s Securities in Stockholm. make your own evaluations of the facts. to buy that particular share. Nasdaq listing derives from the fact that Volvo was The chicken-hearted approach is to That’s why it is important to read already listed on this network when Swedish Match THEY WORK TOGETHER and monitor choose a middle way, relying on what through the complete analysis, not just was spun off by the auto company to its sharehold- companies within the retailing and serv- has been said by colleagues in the sec- the bottom line: buy, or sell. The value of ers in 1996. ice sectors, so they alternate their analy- tor. But this doesn’t help our clients,” an analysis lies in the integral stage-by- In recent years, Nasdaq has been a comet in the ses of Swedish Match with research into says Monika Elling. stage process by which it has been built US stock market heavens. Many of the leading such companies as Hennes & Mauritz, Naturally, analysts can get it wrong. up. “Clients understand that the reason- growth companies in the so-called New Economy Securitas, Proffice and Axfood. But this more often than not relates to ing underlying my recommendation is are listed on Nasdaq (for example, Cisco, Intel, Cecilia and Monika also attended the timing rather than the basic analysis. A the most important feature of my analy- Microsoft and Ericsson). But like Swedish Match, Capital Markets Day in New York and company can be right, but the share sis, not the buy or sell recommendation the majority are active in sectors outside the IT or believe that it is of major importance to may be wrong. Even if a company has in itself,” says Martin Feldman. telecom fields. More companies are listed on Nas- become personally acquainted with the daq than on the New York Stock Exchange on Wall companies they analyze. Street, but the combined market value of the com- Cecilia and Monika emphasize the MAKE YOUR OWN ANALYSIS panies listed on Nasdaq is only half that of those on importance of making a thorough, fun- the NYSE for the moment. The complicated Nas- Would you like to make your own analysis of Swedish Match, or another company? These are the damental analysis that can then be daq name is an acronym of the National Associa- basics needed by Enskilda Securities when it wants to analyze a company. tion of Securities Dealers (NASD), the principals, 1 Assess the overall sector trend. In Swedish Match’s case, for example: will consumption of tobac- plus AQ, for Automated Quotations. co products increase or decrease? What political decisions, legislation and/or regulations will The Nasdaq visitors center in New York is locat- affect the sector in future? ed in the middle of Manhattan, in Times Square. 2 Assess the company. Establish its long-term strategy and how this is developing compared with There, a huge electronic sign communicates the competitors. Future earnings and sales are also key figures, but try to also get a general “feel” for message that this is the site of the world’s hottest

KATHY WILLENS/PRESSENS BILD the company. securities exchange. There’s nothing wrong with Nasdaq’s PR exposure. To assure itself of vital 3 Make conclusions based on the earlier stages of the analysis. Will the company you are following be a winner or a loser? space in the business press and on TV, Nasdaq makes part of its premises available free to the 4 Compare your assessment with the valuation assigned the company by the market. Maybe the news departments of Reuters and leading TV chan- company is a winner in its sector, but the share price has already been driven up to an excessive- nels. Nasdaq is investing heavily to become the ly high level. Based on your own evaluations, as compared with those of the market, assign a buy leading securities exchange in the world, with Inter- or sell recommendation to the share. The key is to find a really undervalued share that the market net trading as its foremost tool. There is clear rivalry has not yet identified. between newcomer Nasdaq, which was started in 5 Update your analysis continuously. Each time the company publishes a quarterly report or other 1971, and the 100-year-old NYSE. Nasdaq has important information about, for example, a company acquisition, go back to the earlier stages of your welcomed companies that are still in their infancy analysis and check whether your original assessment has been affected. and which are perhaps unprofitable and need fresh 6 Monitor your company closely. Don’t satisfy yourself with the information that it publishes; try to new capital. This liberal outlook has led to a rush of This autumn has been a turbulent time for share prices. Tobacco shares have generally performed meet with members of its executive management, preferably the CEO, personally. new listed companies each year. better than high-tech shares this year. Of those Swedish companies with a New York listing, most, or about ten, are quoted on Nasdaq. Some of the larger companies, such as AstraZeneca, Pharmacia and Scania, have elected to go on the NYSE. The volume of trading in Swedish Match ADRs Over the years, Nat Sherman has adorn the walls of the upper floor. They on Nasdaq is rather modest. Of the company’s been honored to serve a whole range of have been received from such celebrities around 400 million shares, just 3 million are current- distinguished customers. Framed letters as Humphrey Bogart, Frank Sinatra, ly listed as ADRs on Nasdaq. ordering products from the company Sammy Davis Jr., Jerry Lewis and John Daily trading involves only a few thousand Wayne. At Nat Sherman’s you will eas- shares, compared with nearly a million per day on ily find a present to give a tobacco-lov- the OM Stockholm Exchange. ing friend, no matter whether you are “It is still advantageous to be quoted on Nas- interested in smokes, books or related daq”, says Emmet Harrisson, responsible for merchandise. In this latter department, investor relations at Swedish Match’s head office. you can choose from a range of acces- “Our Nasdaq listing makes us visible in the sories that includes cutters, matches, world’s largest capital market. Furthermore, many lighters and even CD. American investors require that a share is listed in the US before they can consider investing in it”. The Nasdaq listing provides what is virtually a NAT SHERMAN In addition to cigars seal of quality, despite the listing criteria really being Address: 500 Fifth Avenue/42nd Street, NY Nat Sherman carries a quite similar to those applied by the OM Stockholm range of accessories, Exchange. Website: www.natsherman.com including silver- plated lighters. 6 | SWEDISH MATCH INSIDE | # 3 2000

New snus plant The continued emphasis on snus is also behind the decision to build a new snus production GothiaTek – new quality standard plant in the Gothenburg region at a cost of about SEK 500 M. When it is in full operation, product area were approximately SEK the plant will require about 120 employees. Swe- 65 M. Today, snus products generate an dish Match is currently evaluating possible loca- operating income of about SEK 900 M tions and plans to start production in 2003. The on sales of SEK 1.6 billion. plant will be one of the largest investments in As part of the GothiaTek program, western Sweden during the next few years. the Group is investing an additional SEK 50 M in new packaging designs and information aimed at consumers Grovsnus to be op new methods in addition to the con- and retailers. As well as providing a ventional ones, including guidelines to guarantee of quality and reliability for relaunched growers in various parts of the world the consumer, GothiaTek will signify During 1998, Swedish regarding tobacco varieties and cultiva- the international launch of Swedish Match’s brand names for tion, harvesting and storage techniques.” snus as a product category. snus aimed at the Nordic At the same time, Swedish Match “A parallel could be made with the market were examined in a developed unique processing and pro- famous Gore-Tex material, a so-called brand analysis. As a result duction methods at its plant in Gothen- ‘ingredient brand.’ GothiaTek signifies of the analysis, the Ettan, burg, which now operates for 22 hours a a product standard that reflects un- General and Catch brands day. The plant, inaugurated in 1982, rep- matched overall quality,” concludes have been relaunched, with new graphical ima- resented a significant step forward, with Stefan Gelkner. ges and packaging designs. Next in line is the production technology unmatched any- Grovsnus brand, which will be relaunched in a Stefan Gelkner. where else in the world. The snus is pas- similar manner in February 2001. teurized to neutralize bacteria, and food- processing hygiene standards are applied FOUR STEPS TO QUALITY n 1985, when Stefan Gelkner throughout the chain – all the way to the The Swedish Match quality standard New appointments became head of snus operations in refrigerated storage cabinets where the behind the product category Swedish I Sweden, he had a vision: “Our product awaits the consumer. The entire snus can be summarized in four points: ANNA NEIÅS has been appoin- smokeless products shall be perceived by process is computer-controlled, and the • Checking and selection of raw materials. ted as marketing manager for consumers and society as an accepted product remains untouched by human • Unique proprietary technology using snus in the North Europe alternative to cigarettes that does not hand until the moment when the con- computer-controlled processes. Division. Anna has been a cause greater health risks than food sumer inserts it under his lip. • Hygiene at food-processing levels Swedish Match employee since products in general.” Today we are close Swedish Match has invested heavily in throughout the processing chain. 1993 and has worked as pro- to achieving our vision. With GothiaTek, snus during the past 25 years, spending • Total quality control from tobacco seed duct manager for General, Swedish Match is signifying that nearly an estimated SEK 500 M on research, to retail outlet. among other brands. 30 years of research and development development and production methods. The product is totally untouched by human have created a distinct product category. When Stefan Gelkner took over as head hand throughout the production process. MAGNUS HEIMBURG has been The GothiaTek symbol that will begin of snus operations, earnings for the Swedish Match’s finance appearing on cans of snus in November manager since August 11. He stands for a unique standard of quality. previously held the position of “It has been a long and difficult jour- global cash manager in the ney to develop the standard that we are corporate finance department. naming GothiaTek, which designates a “Snus ban to be lifted” Magnus reports to Chief new product category – Swedish snus – Financial Officer Sven Hindrikes. with a unique quality standard,” says IT IS REASONABLE to suppose that it is “We anticipate that the next stage Stefan Gelkner, head of the North only a matter of time before the EU lifts will be the total removal of the ban on FRANS VOGELS has been Europe Division. “At the time of my its controversial ban on the sale of snus. snus,” says Bo Aulin. He believes that appointed President of General appointment, we already had many This was the conclusion reached by Bo this could well happen by 2004. Cigar International and Vice years of highly sophisticated develop- Aulin, General Councel of Swedish Interest in snus is increasing, since it President of General Cigar ment work behind us. Match, following recent developments is regarded as a considerably more heal- Holdings. Frans is responsible “We began by carrying out extensive concerning the issue. thy alternative to . In an inter- for the international expansion research work on tobacco to identify The background is that the EU is in the view for the Swedish Broadcasting Cor- of General Cigar’s brands, pro- those substances that can constitute a process of amending a directive relating poration’s Newsdesk program, Göran duct planning for the Group’s international cigar health risk to develop methods for reduc- to the warning texts on packagings con- Boëthius, Chairman of the organiza- range and coordination of brand strategies. ing or eliminating them. Today, extensive taining tobacco products. The previous tion Doctors against Tobacco, conce- Swedish studies have shown that there is formulation – to the effect that snus cau- ded that snus is gaining ground. LARS LINDQVIST has been nothing to indicate that Swedish snus ses cancer – will now be toned down con- At the same time, he warns against appointed President of increases the risk of cancer. To ensure siderably to say that snus can be harmful taking an unduly casual view of snus, Swedish Match South Africa that we obtained exactly the raw materi- to health and is addictive. This is a step pointing out that young people could Pty Ltd. In his new position, al we wanted, we went so far as to devel- toward a new attitude to snus. be tempted to begin using it. Lars is responsible for all of Swedish Match’s operations in Southern Africa. Lars was pre- viously head of business development in the Overseas Division, where he will continue to be a member of the management group. European Court lifts advertising ban Swedish Match profitable he European Court of Justice in In addition, the proposed cel of Swedish Match. He wel- Swedish business weekly Veckans Affärer, in its Luxembourg has annulled an EU ban conflicts with the consti- comes the Court’s decision, ranking of Sweden’s 500 largest companies (no. T directive from 1998 imposing a tution and basic law in several not least for reasons of princi- 38, September 11), highlights Swedish Match as ban on tobacco advertising. Germany member states. Germany’s ple. one of the most profitable companies. With a and several British tobacco companies appeal against the European As a direct consequence of 56-percent profit margin and a 39-percent re- appealed a decision by the EU Council of Commission’s decision has the Court’s ruling, the Swedish turn on total capital, Swedish Match places fifth Ministers aimed at phasing out all tobac- now been upheld by the Court Government will now be com- in the rankings. The prominent placing is mainly co advertising in the EU. The Council of of Justice. pelled to withdraw its propo- due to the fact that the capital gain (SEK 4.1 bil- Ministers has claimed that the ban is nee- “This course of events sal for a ban on so-called indi- Bo Aulin. lion) on the sale of the company’s ope- ded to secure the internal market. The shows that legal considera- rect advertising of tobacco rations is included in operating income for 1999. Court, however, states that the purpose tions prevail within the EU, so that poli- products – through the marketing of If this figure is excluded, Swedish Match’s profit in reality is to improve public health, ticians cannot set themselves above the other products, such as clothing and margin is 18 percent. which is something the European Union limitations that govern their exercise of shoes, for example, and sponsoring. lacks authority to regulate. power,” says Bo Aulin, General Coun- SWEDISH MATCH INSIDE | # 3 2000 | 7

THE SWEDISH MATCH SHARE

Swedish Match defies market decline

he last quarter was an unsettled period on the stock market. Since SHARE DEVELOPMENT DURING YEAR 2000 Swedish Match submitted its six- T 130 month report on July 25, the OM Stock- holm Exchange’s General Index has fall- en by more than 15 percent. While no 120 sector has remained entirely unscathed, concern has primarily focused on the 110 publicly quoted IT and telecom compa- Cricket lighters on the Net nies – precisely the sectors that previous- 100 ly showed the most spectacular rises. Cricket lighters are the first product launched The trend-setting Nasdaq exchange in by Swedish Match with e-commerce in mind. the US, on which both Swedish Match 90 Since September it has been possible to pur- and many of the leading “growth com- chase the popular lighters from a dedicated panies” are listed, fell by nearly 25 per- 80 website (www.cricketlighters.com). The service cent during the past quarter. 1999 2000 is primarily aimed at retailers. 12-30 01-30 02-2903-30 04-30 05-30 06-30 07-30 08-30 09-30 10-30 The Swedish Match share has shown So far, the e-commerce site is only accessi- ble in the US. The project has been developed considerable stability during this Stockholm Stock Exchange Swedish Match volatile period. Since July 25, the share extremely rapidly, from the concept stage in price has risen by about SEK 2, or 7 per- This figure shows the development of the Swedish Match share compared to an index of the Stockholm Stock spring to the launch a couple of weeks ago. cent (up to October 18, 2000). Exchange (SIX Return Index). The graphs are return adjusted, i e including dividends and redemptions. One explanation could be that con- sumer-oriented companies such as “Buy Swedish Match” Swedish Match are viewed as “safe capacity provide a counterbalance to 4–5 show, many analysts take a positive The Swedish Match share is undervalued, havens” during unsettled periods. companies whose valuation is based view of Swedish Match. according to American investment bankers Companies with stable cash flows and mainly on future expectations. Morgan Stanley Dean Witter (MSDW). In an a sound underlying profit-generating As the articles on this page and pages analysis made during the past summer, the bank assigned the share a target price of SEK 40. The recommendation was “Strong buy.” Following the release of the six-month earnings, MSDW upgraded the earnings forecast for SOFT/ULRIKA LUNDIN 2001 by 4 percent. “Swedish Match is a firm favorite of ours

New share buyback D REDEMPTION among European tobacco shares,” says analyst EN ID DIV Michael Smith. Without exception, all tobacco slims finances shares have enjoyed a strong 2000, but Swedish Match has not been part of the upturn. That is why it is such a good buy now, wedish Match is now implement- ter capital structure”, con- BUY BACK according to this analyst. ing and broadening the program tinues Hindrikes. By slimming Several other stockbrokers have also made S for buying back its own shares. down its cash reserves, the Group positive analyses of Swedish Match lately, all “We are adapting our capital struc- can more easily achieve its with buy or strong-buy recommendations. ture to our needs”, says Chief Financial financial objectives: an equi- Officer Sven Hindrikes. “We are getting ty/assets ratio of not more into a situation where we have more than 30 percent and a net New tobacco-free products cash than we need, so we are streamlin- debt/equity ratio corre- ing the balance sheet”. Part of the sur- sponding to shareholders’ Swedish Match and the publicly quoted US plus liquidity arose last year when we equity. company Gum Tech International have reached sold the cigarette operations to Austria “Given our financial objectives, we agreement on the detailed framework for their Tabak for SEK 4.8 billion, resulting in a are in a position at the end of the third listed Swedish companies to buy back joint-venture company for production and mar- capital gain of SEK 4.1 billion after tax. quarter to increase our indebtedness by their own shares in the stock market. keting of tobacco-free products. Swedish Match Swedish Match is returning money to SEK 3 billion. To this can be added a This means of rapidly adapting a com- is to invest USD 10 M in the joint company and its shareholders in three different ways: positive cash flow of about SEK 450 M pany’s capital structure to its long-term will control 51 percent of the shares. Gum Tech • Via a cash dividend of SEK 1.25 per in the third quarter. We plan to use this financial objectives has existed for will contribute its know-how in the area of che- share financial capacity for a combination of some years in a number of other coun- wing-gum and similar products. Johan Wallin • Via redemption of its own shares, investments, acquisitions and further tries. The new legislation is particularly from Swedish Match will head the company. with a redemption right correspon- share buybacks – all with the aim of welcome in view of Swedish Match’s “We will be able to offer alternative products for ding to a value of about SEK 0.50 per improving earnings per share”. strong balance sheet. smokers, who sometimes cannot, or do not wish share A share buyback is the opposite of a “If, at some time in the future, we to, smoke,” says President Lennart Sundén. • Via a buyback of Group shares. new share issue. While new share issues happen to need more money than we The new products are expected to reach the have been permitted since the introduc- actually generate, we will turn to the market in 2001. UP TO AND INCLUDING September, the tion of the limited-liability company, it shareholders and ask them for money. company had returned approximately was only this year that a law was intro- It’s as simple as that”, concludes Sven SEK 2.2 billion to the stock market by duced in Sweden that enables exchange- Hindrikes. Tobacco found in Pharao these means. Of this amount, redemp- tions accounted for about SEK 1.1 bil- Scientists have found tobacco leaves in the lion, the share buyback program for FACTS ABOUT THE BUYBACK PROGRAM: some SEK 600 M and the dividend for stomach of Pharaoh SEK 539 M. The share buybacks have At a Special General Meeting on October 27, be retained by the company, in part as secu- Ramses II of a decision was made to give the board a man- rity for the ongoing warrants program. an indirect effect: as the number of Egypt. date to buy back up to 10 percent of the com- This will leave some 383 million shares shares outstanding decreases, the finan- It is the oldest pany’s shares. To date, Swedish Match has outstanding in Swedish Match. The new cial key ratios, such as earnings per evidence of

repurchased approximately 5 percent of the mandate stipulates that not more than 10 SOFT/ULRIKA LUNDIN share, improve, since earnings are tobacco use in share capital, in line with the decision made at percent of these – or about 38 million shares spread over fewer shares. A higher EPS the Old World – the Annual General Meeting this spring. – can be bought back by the company on the well before Columbus figure, combined with an unchanged Of the shares already bought back, total- stock market. This corresponds to a value of brought it with him when he price-earnings ratio, ought to have a ing approximately 20 million, slightly more approximately SEK 1.1 billion at the current returned to Europe at the end of the fifteenth positive impact on the share price, all than 17 million are to be canceled in accor- share price. The buybacks are being con- century! other factors being equal, explains Sven dance with the decision made at the Special ducted in accordance with the new Swedish Hindrikes. General Meeting. The remaining shares will law that became effective this spring. “The overall aim is to achieve a bet- “Snus, with an extended range of flavors, appeals to the people who are currently in the process of transforming Sweden into a leader in the New Global Economy.” ULF SVENSSON, SWEDISH MATCH

pursuits. Now the little pouches are seen concerned. More people use snus than among brokers’ desks, computer screens smoke – 15 percent to 14 percent. There is and the office landscape of the Internet still a predominance of male snus users. Of companies – and increasingly they are the men questioned, 21 percent use snus, tucked under lipstick-decorated upper lips. compared with only 4 percent of women. It “Snus is quite simply a product for ra- follows that a larger proportion of women tional, self-assured modern consumers”, than men are smokers – 16 percent com- says Ulf Svensson, head of communications pared with 14 percent. A total of 68 percent for the North Europe division at Swedish do not use tobacco in any form. Men Match. As a general rule, 53 percent of snus abstain to a greater extent than women – 76 users are former smokers who have realized percent to 65 percent. the advantages offered by Swedish snus. “The survey strengthens our understand- The survey is relevant from a scientific ing of the trends that we have been studying viewpoint. The interviews were conducted and encouraging for several years,” says Ulf during July and August by Eyeball Research Svensson. “Through innovative product at the request of Hallvarsson & Halvars- development, we have succeeded in match- son. The target group comprised 213 com- ing, to a large extent, the changes in pat- panies within the so-called “New Econo- terns of consumption. Portion-packaged my” that were listed in the June issue of snus, with an extended range of flavors, Veckans Affärer in the business weekly’s appeals to the self-assured urban elite – the survey of Swedish IS/IT companies. The people who are currently in the process of Snus more popular than smoking in the questionnaire was answered by 152 persons transforming Sweden into a leader in the who work at computer terminals for most New Global Economy”. of their working day. The companies included such well-known Swedish IT and HALLVARSSON & HALVARSSON’S survey also New Economy Internet consultants as WM-data, Icon shows that smoking is forbidden in a very Medialab, Framfab, Mind and Cybercom. high proportion of workplaces in the New The response rate – 75 percent – was Economy. In five out of six workplaces, Swedish snus has changed its image and become an increas- extremely high. smoking is not allowed. Every sixth work- ingly popular alternative to cigarettes, a new survey shows. place provides a special smoking area. AN ANALYSIS OF THE ANSWERS shows that These developments go hand in hand with In modern IT-companies, snus is moving ahead. snus has now moved into the top position the trend toward an increasing number of as far as tobacco usage in the IT sector is snus users.

n modern IT companies, the employees “The figures are interesting”, says survey SNUS MORE POPULAR THAN CIGARETTES IN IT COMPANIES tend to use snus instead of smoking. leader Gabriel Thulin. “They confirm that This was the finding of a recent survey snus is a socially acceptable form of indul- % I 20 conducted by the communications consult- gence in a highly distinct/high-profile occu- 21 ing firm Hallvarsson & Halvarsson at the pational group, whose members tend to be request of Swedish Match Inside. The sur- young and dynamic, and to a large extent 15 16 vey of the tobacco habits of male employ- symbolize the new Sweden, with its IT suc- 14 ees of IT companies revealed that snus is cess stories and entrepreneurial spirit. 10 more popular than cigarettes by a consid- Could this be the mysterious X factor that erable margin within this group, 21 percent explains the Swedish IT miracle?”, he won- 5 being snus users, while only 14 percent ders with a smile. 4 3 smoke. Among women employees of IT 0 Snus Cigarettes Cigars companies, smokers still predominate. In FOR GENERATIONS, snus has been associat- total (men plus women), snus emerges as ed with rural life, outdoor use, manual Men Women the winner by 15 percent to 14 percent. labor, hunting, fishing and other manly

SWEDISH MATCH IN BRIEF KEY FIGURES

Swedish Match is an international group specializing in niche tobacco products, OTP (Other Tobacco Products), as well MSEK 1999 1998 as matches and lighters. The Groups´s products are manufactured in 26 plants located in 15 countries and are sold in Net sales 9 420 8 194 140 countries. During 1999, the average number of employees was 11,797. The Swedish Match share is listed on the Operating income 5 396 1 381 Operating income OM Stockholm Exchange (SWMA) and on NASDAQ (SWMAY) in the form of American Depositary Reciepts. before depreciation 5 777 1 713

Net income 4 656 726

Income per share Smokeless Brown Matches and after tax, SEK 10:79 1:59 tobacco tobacco Lighters Dividend per share, SEK 1:25 1:10 Smokeless tobacco Brown tobacco oper- Operations relating operations include ations include cigars to matches and Return on share- snuff and chewing and pipe tobacco lighters account for holder´s equity, % 115,0 28,3 tobacco and account and account for 22 27 percent of Group for 31 percent of Group sales. percent of Group Sales. sales.

MARKET POSITION MARKET POSITION MARKET POSITION Snuff: Market leader in the Nordic region and Cigars: The world´s second largest cigar company. Matches: The world´s only global match company. South Africa. Third largest player in North America. Pipe tobacco: One of the world´s major players in Lighters: One of the world´s three largest Chewing tobacco: Market leader in North America the pipe tobacco area. producers.