INFORMATIONinside ABOUT SWEDISH MATCH FOR SHAREHOLDERS AND OTHER STAKEHOLDERS

# march 2002 1 STIG-GÖRAN NILSSON

Strong earnings and positive organic growth Swedish Match reports strong earnings and 8-per- cent organic growth, despite the weakening world economy. Operating income improved further dur- ing the fourth quarter, resulting in full-year increase of 16 percent. Earnings per share increased by a full 28 percent to SEK 3.54. Page 2

Success for in North America Swedish Match increased both its sales volumes and its market shares for machine-made cigars in North America. The explanations for this success include a efficient sales force and improved marketing. »This is an extremely dynamic market. You can’t afford to sit still for a single minute,« says David Price, head of marketing. Page 2–3

2001 best year ever for shareholders LENNART SUNDÉN: For Swedish Match shareholders, 2001 was the best year since the company’s stock market introduction in 1996. The share price rose 51 percent and the total return to shareholders was in excess of 53 percent, making the Swedish Match share the best- »We are a performing of the most actively traded shares on the Stockholm Exchange. The factors behind the share’s surge include the company’s strong finances, stable and positive cash flow and underlying sales growth, despite a declining economy. Page 7 unique company«

Danish paradise for »We have turned the industry’s problems into an opportunity. We focus on Nordic lovers those niche areas that are growing and where profitability is high, with smoke- The Nordic region’s most prestigious tobacco store, W.Ø. Larsen, is located in the Ströget pedestrian less alternatives leading the way. This makes us a unique company in our shopping district in Copenhagen. Here, genuine industry,« says Swedish Match’s President Lennart Sundén in an interview. Page 4–5 craftsmanship is combined with modern marketing methods. Page 4

Register for the Annual General Meeting Easier to quit via the Internet with »« The Annual General Meeting of Swedish Match will be held on April 23. For the third Sweden is pioneering a new way to save lives by steering consumption successive year, shareholders can register via the Internet, as well as by telephone and from to snuff (»snus«), according to New Scientist maga- fax. »Registration via the Internet is simpler zine. Karl-Olov Fagerström, an expert on quitting smoking, agrees for both shareholders and the company,« says Annette Kaunitz, project manager and believes that snuff can be a highly effective aid for people who responsible for the website. The address is: wish to quit smoking. »I am quite prepared to recommend snuff www.swedishmatch.se/stamman when nicotine substitutes are not sufficiently effective,« he says. Page 4–7 Karl-Olov Fagerström. Analysts’ questions

Swedish Match’s earnings for 2001 were slightly Continued positive higher than the average forecasts by financial analysts. Many questions were asked when Group management met analysts in a telephone conference call shortly after the year-end financial report was released. despite weakening

JONAS PÅLSSON, CAZENOVE & CO: »I would like to know what is behind the Operating income improved for Swedish Match during growth figures for snuff. Did the introduction of Sequoia in the US contribute to the the fourth quarter at a comparable rate to previous increase? What is Sequoia’s market share quarters, and the operating margin strengthened to 16.6 today, and how large do you anticipate that it could become long-term?« percent. As a result, operating income for the full year rose 16 percent to SEK 2,193 M (1,886). Earnings per LENNART SUNDÉN, CEO: »Sequoia did in fact make a contribution. Overall, share, excluding items affecting comparability, increased during its introductory year, the new brand’s mar- by a full 28 percent to SEK 3.54. Earnings per share ket share amounted to 0.22 percent. However, Sequoia has only been introduced in about 15 during the fourth quarter amounted to SEK 0.97, a 24- states to date, and market shares vary between the different states from 0.2 to 1.0 percent. We percent increase compared with the year-earlier period. know the introduction will be a long, drawn-out »Swedish Match continues to demonstrate its qualities as process but so far it has proceeded according to Sven Hindrikes. plan. Timber Wolf also advanced strongly in the a stable company that can achieve organic growth of 8 US during the fourth quarter, a trend that we con- sider highly promising.« percent in a weakening world economy,« comments CFO based on continued gains in market Sven Hindrikes. »Our strategies are producing results, and shares in the US, despite tough competi- ROBERT GÄRTNER, HANDELSBANKEN: we are continuing to generate shareholder value.« tion,« notes CFO Sven Hindrikes. »Vol- »Is it possible that the sharp increase in snuff ume increased by 13 percent during the sales during the fourth quarter was attributa- year in the US, measured in terms of the ble to inventory build-ups?« number of cans sold, and our market share in this growing market improved LENNART SUNDÉN: roup sales for the year ing growth during the year, higher on average from 7.6 to 8.5 percent dur- rose 18 percent to SEK exchange rates – especially against the ing the year. In Northern Europe, vol- »No, there is no such factor in our fourth-quarter 13,635 M (11,533). The US dollar – and acquired operations each ume was up 4 percent.« figures, so we believe that the sales volume will be rate of increase during accounted for five percentage points.« While sales of and matches sustained in the future.« the fourth quarter was Tobacco products showed contin- declined, this was due to the fact that a G10 percent, largely in the form of organ- ued market strength. sales rose certain portion of sales was transferred AN ANALYST: ic growth, since the positive effects of 29 percent to SEK 3,481 M, due in part from Matches to Other Operations, »My question concerns your cash flow. Do you exchange-rate movements and earlier to the full-year effect of acquisitions primarily advertising products. »We still have tobacco inventories and, if so, will acquisitions are now diminishing. and in part to a strong increase for are pleased to note a strong improve- you continue to sell from the inventories? I »In addition to being a stable compa- machine-produced cigars in the US, ment in operating income and operat- also wonder what can be done regarding the ny, Swedish Match is also a growing which showed an 11-percent volume ing margins in these two product areas, situation for pipe tobacco in South Africa.« company. This was the second consecu- increase. Chewing tobacco and pipe thanks to our successful program of tive year in which we have had a high rate tobacco also showed healthy sales efficiency-enhancement and restruc- SVEN HINDRIKES, CFO: of organic growth, as a result of being increases, thanks to positive exchange- turing measures,« says Sven Hindrikes. »Yes, it is correct that we still have inventories of correctly positioned in expanding prod- rate effects and the acquisition of the Group operating income for the full raw tobacco, which we will also continue to uct segments and also taking market pipe tobacco operations of British year rose 16 percent to SEK 2,193 M. deplete during the next four years. With regard to shares,« comments CFO Sven Hind- American Tobacco in South Africa. Earnings before depreciation, interest pipe tobacco, our earnings were adversely affect- rikes. »Organic growth of 8 percent is payments and tax, which increased 18 ed by the fall of the South African rand, particular- unique in the industry and unusual com- »SALES OF SNUFF increased by 19 percent percent to SEK 2,863 M, provide a meas- ly against the US dollar. We are now working to pared with many other mature industri- during the full year and by the same ure of the capacity of operations to gen- improve margins there in different ways, including al companies, particularly considering amount during the fourth quarter. This erate cash flow. All product areas except higher prices.« the economic downturn. Of the remain- increase deserves emphasis, since it is snuff increased their full-year operating

Swedish Match Inside is a magazine for Swedish Match shareholders. The print run is 100,000 copies of the Success for cigars in North America Swedish version and 5,000 copies of the English version.

PUBLISHER ADDRESS Increased sales, market share gains and production Swedish Match AB Swedish Match 118 85 Stockholm efficiencies – that sums up the success achieved by the PUBLISHER RESPONSIBLE Tel: +46 8 658 02 00 Bo Aulin www.swedishmatch.com personnel in charge of machine made cigars in the U.S. during 2001. Among the explanations are a more efficient EDITORIAL REPORTERS Lena Forsman, Birgitta Gunnarsson, sales force and improved marketing. Hallvarsson&Halvarsson AB Martin Haag, Lena Olofsdotter, Mats Hallvarsson, Swedish Match AB Herbert Rock ne of several factors underly- through a variety of training initiatives ing these successes is the fact and realized synergies. PRODUCTION REPRODUCTION that the sales force became This in turn improved contacts with Hallvarsson&Halvarsson AB Scarena, Stockholm larger and more efficient. retail outlets, since a larger number of Sales. »White-Owl, one of our lower LAYOUT AND DESIGN PRINTING O The process had already begun in 1999 sales personnel can naturally reach a price brands was extremely successful Peppar Design, Ljungbergs, Klippan when Swedish Match acquired the greater number of retailers. »We are in 2001. While Garcia y Vega, the lead- Petter Carnhagen operations for machine made cigars one of the few producers that cover the ing natural leaf cigar, increased sales from General Cigar. With the acquisi- entire spectrum from inexpensive to while maintaining its market position,« tion, Swedish Match’s existing sales exclusive machine made cigars,« notes Carr. force became larger and more efficient explains Dan Carr, Vice President, At the same time, an exhaustive SWEDISH MATCH INSIDE | #1 2002 | 3 organic growth world economy

income. The Group-wide improvement for the fourth quarter was 17 percent. SALES AND OPERATING INCOME, JANUARY–DECEMBER, SEK M »Snuff ended up with the same oper- ating income as last year,« says Sven 16 000 Hindrikes. »But it is important to 13 635 remember that we very substantially increased the level of investment in the 12 000 11 533 snuff product area. We intensified our 9 420 Our basic focus on product development and we 8 000 launched a number of new products and brands, with particular emphasis on principle marketing and sales. We are continuing 4 000 our efforts to break into the premium is openness segment in the US with Sequoia, and this 1 689 1 886 2 193 campaign is proceeding according to 0 plan. We are launching snuff in India and 1999 2000 2001 have also broadened the product spec- Sales Operating income before items affecting comparability AS CAN BE SEEN from the recently presented year- trum with new flavors, both in North end report for last year, 2001 was a good year for America and in Northern Europe.« Swedish Match. A year-end report contains a mass of information about our sales, earnings, SWEDISH MATCH’S POSITIVE cash flow and SALES, SEK M OPERATING INCOME, SEK M markets and products. Group policy is to be as strong balance sheet have provided the open as possible in our corporate communica- resources for continued buybacks of Jan–Dec Jan–Dec Change Jan–Dec Jan–Dec Change tions. shares in accordance with the program 2001 2000 % 2001 2000 % The only restriction relates to competition. We approved by the Annual General Meet- Snuff 2 457 2 071 19 950 954 — cannot jeopardize our operations – and ultimately ing. In total, 25 million shares were harm both our employees and our shareholders – repurchased during the year, leaving Chew. tobacco 1 377 1 227 12 372 331 12 by revealing in detail to our competitors every- 350 million shares outstanding in the thing we have done and are planning to do. Cigars 3 481 2 690 29 500 347 44 market at year-end. For purposes of Our successes are not something that can be comparison, it is worth noting that Pipe tobacco/ taken for granted, but are the result of the diligent when the Group was reintroduced on Accessories 933 762 22 236 213 11 efforts made on a daily basis by the Group’s the stock market in 1996, the total num- thousands of employees – a resource we intend ber of shares was 463 million. During Matches 1 690 1 712 –1 183 90 103 to safeguard. year 2000, the number of shares out- Lighters 809 720 12 101 74 36 But our basic principle is openness. standing decreased by 7 percent. The stock market’s appetite for information, in The buyback program has im- Other 2 888 2 351 23 –149 –123 –21 particular, can sometimes seem insatiable. Ana- proved the Group’s key ratios, particu- lysts process and reprocess our data and figures Subtotal 13 635 11 533 18 2 193 1 886 14 larly earnings per share, which rose 28 in their efforts to forecast our future development percent to SEK 3.54 – an improvement Items affecting and assess our position in relation to our com- that very few major Swedish compa- comparibility –80 petitors. We endeavor to provide as helpful an nies could match. information base as possible. Total 13 635 11 533 18 2 113 1 886 12 »The buyback program benefits the The information we provide is not exclusively long-term shareholders – those who the concern of the stock market. We are a com- stay the course and can reap the gains pany operating in an exposed sector. Our prod- of better key ratios and a higher share increasing growth and improving earn- tioning well. We are correctly positioned ucts are subjected to debate and critical examina- price. This philosophy is a key factor in ings,« says Sven Hindrikes. with good products, are experiencing tion. creating shareholder value, combined Sven Hindrikes’ forecast for 2002: positive growth and continuing to fine- Our own aim is to contribute to increased with our operative strategies for »All parts of the Group are now func- tune our successful strategies. knowledge about the effects of tobacco use by being open about our own research results, which we also have never attempted to conceal. On the contrary, our researchers have regularly published their findings in scientific publications. Among other objectives, we will endeavor to review of all costs from production the more expensive price segment led by adds David Price, Director of Market- reduce the harmful effects of tobacco use by plants to sales organization was imple- Garcia y Vega. The brand has consider- ing for Cigars. developing and marketing smokeless products mented. able equity and there is the opportunity »This is an extremely dynamic mar- that carry significantly lower health risks than cig- »We will continue our focus on cost to solidify the brand position and its ket. You cannot afford to sit still for s arettes. »Snus by GothiaTek« is an example, and reductions and efficiencies in 2002 leadership in the natural-leaf segment. single minute,« underscores David we are proud of what we have achieved in this which also includes a continuing exam- »New packaging, to be launched in the Price. »We must be able to spot trends product area in Sweden. ination of our product range: we con- second-half of 2002, will be the key and react to changes in the market at an Shareholders, employees and society in general tinually look to eliminate slow moving marketing initiative for the brand,« early stage.« are all entitled to place rigorous demands on the inefficient items and replace them with information we provide, and we will try to meet new products to satisfy emerging con- these expectations. sumer trends,« says Ed Golden, Vice Feel free to ask us questions, and we will President, Marketing. answer as best we can. The foundation for continued Annual General Meeting of improvement is driven by a thorough Swedish Match AB April 23, 2002, 4.30 p.m. understanding f the consumer and the Remember to reregister trustee-registered shares before April 12 in pre- category. »We have conducted exten- Bo Aulin, General Counsel and paration for the Annual General Meeting. sive consumer research and this has giv- Senior Vice President, Corporate Affairs en us an in-depth understanding of the An invitation to attend the Annual General Meeting and a reply card will category, perceptual brand map, con- be inserted in the Annual Report, which will be distributed during the week sumer motivations and what influences beginning April 1. You can also register by telephone, +46 10–61 00 10 brand position,« continues Ed Golden. (between 1.00 p.m. and 4.00 p.m.), fax, +46 8-720 76 56, after March 18, Looking forward, a major task is to or via the Internet, www.swedishmatch.se/stamman. strengthen the company’s position in 4 | SWEDISH MATCH INSIDE | #1 2002

CEO LENNART SUNDÉN’S WATCHWORDS FOR THE FUTURE: Organic growth, cost-efficiency

During the past three years we have established a unique position in the industry, which means that we are now working with social trends rather than against them. We believe there is still abundant scope for creating shareholder value during the next few years by pursuing the current strategic direction. This is a sample of the views expressed by Lennart Sundén in this interview, in which he recaps his three years as CEO of Swedish Match and presents the Group’s future work agenda. Organic growth combined with cost efficiency and effective use of capital remain key concepts for the future.

ou have now been CEO for izing in Other Tobacco Products. So we are slightly more than three years a different tobacco company. – have the work involved and the results achieved been But unique? roughly what you envisioned »Yes, Swedish Match’s ›snus‹ (moist Ywhen you accepted the job? snuff) is unique. We have invested more than »Yes, to a large extent. It has been a peri- 20 years of research and development in our od of major changes for the Group and all our snus products. We have unique methods for employees. We have been able to consistently eliminating, or radically reducing, the sub- implement the strategies we adopted in spring stances that are considered hazardous to 1999, thanks to the high degree of profes- health, and the result is a product that sionalism throughout the Group, and we have increasingly stands out as a realistic and achieved our objectives in most areas«. effective alternative to smoking. The Goth- iaTek quality standard guarantees this Today you assert that the Group is unique unique quality. Scientific studies are unani- and different. These are big claims. How do mous in identifying our snus as one of the you justify them? main reasons why Sweden is the only coun- Internationally, the is try in the world that achieved the World not showing any substantial growth. Aware- Health Organization’s objective of reducing ness of the danger to health from the proportion of smokers in the adult pop- smoking is increasing. What we have done – ulation to less than 20 percent.« in a nutshell – is to turn the industry’s prob- lems into an opportunity. We focus on those Sales have increased by 50 percent and earn- niche areas that are growing and where prof- ings per share even more, and all key ratios itability is high, with smokeless alternatives have improved. Was this what you and the leading the way. We are the only internation- Board of Directors had in mind three years al tobacco company that has this focus as its ago? basic strategy, and as a result we have »We conducted an exhaustive strategic become the leading OTP company – special- analysis of the situation and potential. It soon

A tobacco lover’s paradise

»W.Ø. LARSEN, BY APPOINTMENT to arrived at the Nordic region’s ed through the acquisition of sev- the Danish Royal Family – importer most prestigious tobacco store, eral small tobacco processing of English shag, Dutch tobacco, W.Ø. Larsen. plants and the establishment of Havana cigars and Egyptian ciga- For four generations – since the company’s own cigar and pipe rettes.« The words are embla- 1864 – the male descendants of tobacco production, followed in zoned in elegant, old-fashioned Wilhelm Øckenholt Larsen have due course by pipe manufacture. gold lettering on the store-front at been involved in retail sales of Amagertorv 9 in the middle of tobacco products and have built TODAY THE COMPANY is headed by Copenhagen’s centrally located up an operation that has no paral- Ole and Nils Larsen, both of pedestrian shopping district, lel in the Nordic region, with royalty whom also bear the customary Ströget. The tobacco-lover who and many prominent celebrities as family name, Wilhelm Øckenholt, sees this sign knows that he has customers. The operation expand- thus ensuring that they have the SWEDISH MATCH INSIDE | #1 2002 | 5 and effective use of capital

became clear to us that cigarettes had a bet- ership qualities, until in the end you have ter future in the hands of another player. The such a mass of assertions and verbiage that Lennart Sundén’s five sale of our cigarette operations provided the the messages become contradictory and resources for expansion and specialization in meaningless. If you want me to try to encap- top priorities for the the OTP area. However, strong expansion sulate in a few words something meaningful needs to be underpinned by a profitable basic about leadership work, I would like to place next few years: operation, which made it important to imple- special emphasis on the following attributes: ment fairly radical restructuring and ration- a resolute formulation of goals, clear com- ORGANIC GROWTH alization programs in those product areas munication, and making sure – through To continue promoting organic growth, particu- where margins and profitability were weak. effective follow-up – that decisions are larly in the smokeless product areas. This will We decided to focus on cost-control and effi- implemented rapidly. I would like to add one naturally involve product launches and market- ciency-enhancement programs in parallel more item to the list – a large measure of per- ing campaigns, but also ongoing research and with a major expansion program based on sonal energy and enthusiasm.« development aimed at further improving quality acquisitions, and we tried to exploit the buy- and developing smokeless alternatives. ing opportunities that exist in an industry What do you find the most fun in your job?

going through a consolidation phase.« »One of the most enjoyable aspects is to IMPROVED MARGINS see results and feel stimulated to go on, and Increased efforts to further reduce costs and How important is the strategy? also seeing other people in the company increase efficiency in everything we do. »Strategy is extremely important. We achieving good results.« Swedish Match has the potential to improve devote considerable energy to developing margins in most areas. strategies and then following them consis- The strategy adopted by Swedish Match in

tently. It is a matter of making as accurate a 1999 has now remained unchanged for MORE EFFECTIVE ASSET MANAGEMENT survey as possible of the current situation three years. What is the lifespan of a sound With the same aim, we pursue programs to and endeavoring to pinpoint trends in the strategy? make our asset management more effective. business environment, then applying a cre- »That’s a difficult question to answer We must increase the rate of capital turnover. ative business approach to the establishment simply. Strategies must be formulated in

of a development process within which you accordance with developments in the busi- ACQUISITIONS can control as many parameters as possible ness environment, and business environ- Profitable acquisitions in those areas where the and achieve as favorable a position as possi- ments and their pace of change vary consid- Group has the expertise required to be among ble. It is not enough to be ›just another good erably from market to market and from sec- the market-leading companies. company.‹ Differentiation – being different tor to sector. It is important to always look

from all the other companies – can be one of for the unique and unrepeatable opportuni- OPTIMAL CAPITAL STRUCTURE the keys to success, enabling you to create ties for a company.« Continued focus on optimizing the capital greater value for your shareholders than structure of the balance sheet, raising the your competitors can. If you find the right When will it be time for a change of strate- possibility of further share buybacks. formula directly from the start, you can gies at Swedish Match? avoid expensive and time-consuming correc- »Strategies operate at different levels. tions as the journey proceeds.« Swedish Match now has a well-functioning basic strategy that I described earlier. We can Do you think being a corporate leader is a verify that the present strategies provide the »Swedish Match’s profession and a talent in itself? scope for continuing to create substantial Lennart Sundén ›snus‹ is unique. We There are several aspects to the question. shareholder value over the next few years. We have invested more Industry knowledge is very valuable, and its expect to make minor shifts of emphasis, but Lennart Sundén, age 49, B.Sc. Engineering and importance varies from one segment to the main outlines are clear. (See box). We MBA than 20 years of another. Perhaps I could summarize my own work largely in product niches where we can Lennart was born in Gnosjö in southern research and develop- experience in this way: I estimate that 80–90 be the best and possibly the largest, and have Sweden. The harsh landscape in this part of percent of the problems and issues I the best products and the strongest brands.« ment in our snuff Sweden has fostered an unusually strong encounter at Swedish Match are ones that I products. We have entrepreneurial spirit, and Gnosjö in fact has have faced before. The remainder are spe- What will be the balance between organic one of the highest percentages of self- unique methods for cial, industry-specific issues about which I growth and acquisitions? employed entrepreneurs in Sweden. eliminating, or radical- have had to learn subsequently. During the past three years we have made ly reducing, the a number of acquisitions, including several »It was clear to me from an early age that I substances that are The demands on corporate leaders are con- large ones. During the next few years, the wanted to go into business,« says Lennart stantly becoming more severe and the job emphasis will be more on organic growth. Sundén, who holds degrees from both the considered hazardous just gets tougher. What leadership qualities But the strategy by no means excludes acqui- Royal Institute of Technology in Stockholm and to health.« do you think people should focus on today? sitions, and if the right opportunity presents the Stockholm School of Economics. LENNART SUNDSUNDÉNÉ N »One can talk at great length, as many itself we are prepared – and have the people do, about leadership styles and lead- resources – to make major acquisitions.

correct initials to match the cor- bined with modern marketing was merged with Skandinaviska world, as well as around 1,000 porate logotype. They continue to methods, is the foundation of the Tobakskompagniet’s collections. pipes to choose from, including of offer a broad, high-quality range family-run operation. W.Ø. The lower floors at Amagertorv 9 course W.Ø. Larsen’s own range. of all the products a smoker could Larsen’s tobacco blends are sold were remodeled to provide addi- The remodeling was also a require, with a typically Danish in unusually attractive jars, that tional space for the store and for boon to cigar lovers, since it cre- focus on the needs of the pipe- often have a long lifespan as con- a professionally run tobacco ated space for a proper, climate- smoker. Each morning, one or tainers for other family members’ museum in the semi-basement, controlled cigar room. The range other of the brothers can be seen bits and pieces. Quality control, which is now accessed via a on offer focuses on Cuban cigars, working at the tobacco-blending packaging and distribution are all stairway from the store area. with all the famous classic brands table to replenish the jars contain- state-of-the-art. represented: Bolivar, Montecristo, ing the pipe-smokers’ favorite Over the years, the family built HOWEVER, THE STORE HAS retained Partagas, Punsch, Romeo y Juli- blends. Many customers have up an exceptionally fine collection its cozy and intimate atmosphere eta and Upmann. But there is also their own individual blends, which of artifacts associated with the that harks back to the 19th centu- a large selection of Dominican W.Ø. Larsen also has a collection of tobac- are sometimes passed down tobacco culture, which grew to ry. The wall shelves are packed cigars, including the complete co-related artifacts. The aim is to create a living and active museum. On certain days, from father to son. become a small in-store museum. with every conceivable type of ranges of , Juan a master cigar-maker demonstrates the art Genuine craftsmanship, com- In the mid-1990s the collection tobacco from all corners of the Clemente, Griffin’s and . of hand-rolling a cigar. 6 | SWEDISH MATCH INSIDE | #1 2002

NAMES & NEWS

Swedish Match Board Snus an effective aid actively involved to giving up smoking IN SWEDISH BUSINESS WEEKLY Affärsvärlden’s annual ranking of the work performed by the Boards of Directors of major Swedish compa- ow price, ready availability and tially harmful substances in snus, such nies, the Swedish Match Board receives a high positive associations as a tobac- as nitrosamines and heavy metals, that grade for its active involvement. In the survey, co product all make moist snuff are not present in nicotine substitutes. which looks at 28 listed companies, Boards are L an effective aid to giving up smoking. »But clinical studies don’t seem to ranked according to the parameters of quality This is the view of Karl-Olov Fager- show any harmful effects to speak of and involvement. The Swedish Match Board ström, an expert on the subject of quit- from these substances,« counters showed the highest degree of involvement of all ting smoking, who sometimes recom- Fagerström. of the companies surveyed. The magazine mends Swedish-style moist snuff explains that the Swedish Match Board earned (»snus«) to his patients. THE FACT THAT THE PROPORTION of people its high grade due to the large number of Board Fagerström sees four significant who smoke in Sweden is relatively low in meetings held, dealing with matters that includ- advantages in the use of snus in com- an international context is attributable ed the restructuring of match production, as parison with nicotine substitutes as an both to the extensive amount of infor- described in issue 4/2001 of Inside. aid to quitting smoking: mation available about the dangers of • Availability. It is essentially as easy to smoking and to the popularity of snus. obtain snus as cigarettes. While the level of nicotine consumption In the media • The price is considerably lower than is roughly equal in Sweden, Norway and for other nicotine substitutes. Denmark, snus accounts for a relatively »SWEDISH MATCH SHARE REMAINS A SAFE BET IN • Snus is not perceived as a medicine. Karl-Olov Fagerström. far larger proportion of total consump- 2002« • Users have a positive attitude to snus, tion in Sweden. One of the effects of this The Swedish Match share performed strongly since it is a tobacco product. »While it is clear that snus could be a disparity is that mortality from lung in 2001 and look like being a safe bet in 2002 Combined, these factors are suffi- first step in tobacco use, how common cancer is substantially lower in Sweden as well. Cecilia Lannebo, an analyst at Enskilda cient to convince Fagerström that in this progression becomes is strongly than in the neighboring countries. Securities, believes that the company’s stable many cases snus can be a highly effec- influenced by the manner in which snus »There are no other factors, other trend will continue. tive way to cut down on smoking. is marketed,« Fagerström points out. than the lower level of smoking, that »We think that the share price will develop at »I am quite prepared to recommend »There is currently a major difference could explain this difference,« con- least in pace with the rest of the market,« she snus when nicotine substitutes are not between Sweden and the US in this cludes Karl-Olov Fagerström. says. sufficiently effective,« he says. regard. In Sweden, snus is marketed (THE WALL STREET JOURNAL, EUROPE, NOVEMBER 27, 2001) using the argument that it reduces the Karl-Olov Fagerström is an associate profes- SKEPTICS USUALLY OBJECT that a danger need to smoke, as well as being a form sor of medical psychology and works as a »GERMAN TOBACCO GIANT TO BE SOLD AT AUCTION« associated with increased use of snus is of tobacco use that shows consideration consultant on the medical aspects of tobacco that young people could be tempted to for other people. In the US, on the other The world’s fourth largest tobacco company, use. The results of his research in this area start using tobacco and may then pro- hand, marketing is targeted at young include more than 100 articles in international of Germany, is to be sold at auc- ceed to more harmful forms of tobac- people to a considerably greater extent.« medical journals. He also runs a clinic for tion. The company is valued at approximately co use, such as cigarette smoking. There are also a number of poten- people trying to give up smoking. SEK 50 billion. The principal owner, German coffee and food chain Tchibo, wants to sell and the company has for a long time been viewed as an acquisition target. (DAGENS INDUSTRI, NOVEMBER 27, 2001) NEW SCIENTIST: INCREASED EXPORTS OF HAVANA CIGARS Cuba reports that it exported 153 million of its Snus instead of cigarettes saves lives world-famous Havana cigars in 2001, which represents an increase of 25 percent compared with 2000. The state news agency, AIN, reports weden is showing us a new way Health Organization’s target that less that production totaled 303 million cigars. Cig- to save lives. This is the conclu- than 20 percent of the population ars are Cuba’s third largest product. sion drawn by the respected mag- should be smokers by the year 2000. (REUTERS, JANUARY 4, 2002) S azine, New Scientist, in an analysis of The magazine wonders why Sweden possible methods to reduce smoking. has succeeded so well, the article goes COUNTERFEIT HAVANA CIGARS IN DENMARK Where moist snuff (»snus«) accounts on, and concludes that the reason is for a large proportion of tobacco con- snus. Snus provides consumers with an Customs officers in the Danish province of sumption, a substantial reduction in opportunity to use tobacco while Jutland have uncovered a new form of crime: health-damaging effects is observed. avoiding the health-damaging effects counterfeit Havana cigars. The customs Global cigarette consumption is associated with cigarette smoking, authority does not know how many of the increasing by approximately 1 percent which essentially are linked to the sub- cigars have entered Denmark but believes that annually. While it is true that smoking stances formed when tobacco is the imports are organized. Tobacco merchant has decreased somewhat in a few - burned. Scientific evidence suggests Hans Rehmier, from the city of Århus, is often ern countries, this is counterbalanced by that the nicotine itself is relatively »Ettan« brand. Snuff produced by offered cheap cigars. However, he estimates increases in the rest of the world. Today, harmless compared with the smoke. Swedish Match in the US, such as Tim- that 98 percent of these are fakes. there are approximately 1.1 billion Among Swedish men, snus is more ber Wolf, also demonstrated levels far »They have often been rolled so firmly that it is smokers in the world. By 2025, that fig- popular than smoking; 17 percent below those found in competing brands. almost impossible to draw air through them and ure is expected to rise to 1.6 billion. smoke and 19 percent use snus. This is The unusually low levels of what are the tobacco resembles hay,« he says. »The only According to the magazine, tradi- by far the lowest propor- considered to be health-endan- thing they have in common with genuine Cuban tional methods for reducing smoking tion of smokers in Europe gering substances in the Swedish cigars is that they were produced in Cuba.« are ineffective. Of those who use nico- and is also reflected in the snus are explained by the fact (RITZAU, NOVEMBER 2001) tine substitutes to try and quit smok- fact that Swedish men have the lowest that Swedish Match’s manufacturing ing, 90 percent begin smoking again incidence of lung cancer in Europe. process involves a heating process and within a year. Several scientific studies have failed the manufactured product is then stored New appointments to show any links between snus use and in a refrigerator. All this largely elimi- JOHN F. DOHERTY has been ACCORDING TO THE NEW SCIENTIST, it may cancer. nates the growth of bacteria in the snus. appointed managing director be time to think the unthinkable and The fact that snuff can function as a of WIMCO Ltd., effective Janu- accept that a tobacco-free world is not THE AMOUNTS OF HARMFUL substances nicotine substitute has caused several ary 1, 2002. Doherty replaces possible, and instead focus to a greater present in Swedish snus are also sub- international health experts to recom- Sieb Flapper, who has taken a extent on trying to get consumers to use stantially lower compared with snuff mend a so-called »harm reduction« position as senior advisor with- less harmful forms of tobacco. produced in the US. According to a strategy, whereby smoking is reduced in the Match Division, reporting In this context, Sweden is presented study commissioned by the Massachu- by steering consumption from ciga- directly to Graham Jones. as an example of the effects such a strat- setts Department of Public Health, US rettes to other . This egy can have. Sweden was the only coun- snuff contains up to 45 times more approach is entirely in line with try that managed to achieve the World nitrosamines than Swedish Match’s Swedish Match’s philosophy. SWEDISH MATCH INSIDE | #1 2002 | 7

NAMES & NEWS 2001 the best year ever for Swedish Match shareholders

or Swedish Match shareholders, Exchange fell by 17 percent during the The factors behind the surge of the 2001 was the best year since the year. The sharpest decline occurred in Swedish Match share include the com- F company’s stock market intro- September following the attacks in the pany’s strong financial position, stable duction in 1996. The share price rose 51 US, but prices recovered somewhat and positive cash flow and underlying percent, from SEK 36.50 at the begin- toward the end of the year. sales growth, even during a period of ning of the year to SEK 55.50 at year- World stock markets also fell by 17 economic decline. Investors also bene- end. To this share price increase must be percent last year, measured as a weight- fit from improved earnings per share added the dividend for the year of SEK ed average in US dollars. following a continuing share buy-back 1.35 per share, which means that the This can be compared with a 15- program. total return to shareholders during the percent decline during the preceding The current year also began with a year was in excess of 53 percent. This year. It is unusual for share prices to decline in share prices on the stock One of the best in Sweden makes Swedish Match the best-per- fall in two successive years – the previ- markets, with the Stockholm Exchange THE SWEDISH MATCH WEBSITE is one of the forming of the most actively traded ous occasion this happened was at the recording a 10-percent fall during Jan- absolute best in Sweden. In an annual ranking shares on the Stockholm Exchange. time of the oil crisis in 1973–1974. uary. The Swedish Match share has of 331 Swedish, market-listed company web- During the preceding year, 2000, the The US Nasdaq Exchange, on which also gone against the stream during the sites, Swedish Match’s website placed fourth. share rose by more than 20 percent. Swedish Match’s American Depository early part of 2002, with continuing The survey results are based on a question- For Swedish shareholders, 2001 Receipts are listed, fell slightly more positive share price development. naire submitted mostly to financial analysts, was a depressing year. The Stockholm than 20 percent during 2001. but also to a large number of amateur investors. The questions asked respondents about SHARE PRICE AND TURNOVER DURING FIVE-YEAR PERIOD their use of the Internet today, their desires

SEK SEK M and demands for company websites, and 80 2000 what they think about technology in the future. The questionnaire contained 83 checkpoints. The questions addressed primarily financial 60 1500 information – information needed to analyze a company or serve as reference material – but 40 1000 also contained general information about the company. The questionnaire asked for quan- tifiable facts about content and function in an 20 500 effort to avoid subjective conclusions. Respondents especially appreciated the 0 0 structure, layout, and good navigation of the Swedish Match website. They especially 1997 1998 1999 2000 2001 appreciated the fact that analytic material can Swedish Match Stockholm Exchange, SAX Average turnover per day, SEK M be downloaded, and is presented in an Excel format. »This achievement is incredibly satisfying considering that the Internet has become the TOTAL RETURN KEY FIGURES SHARE PERFORMANCE, % primary source of information for the financial Total return, % Earnings per share, SEK Sep 28, 2001–Feb 11, 2002 market, which is the website’s main target group. With these rankings, we can measure Jan 1–Feb 13, 2002 10 2001 3,54 Swedish Match 11,1 how well we communicate in comparison with 2001 56 2000 2,76 SAX 15,8 other market-listed companies,« says Annette Kaunitz, website manager. 2000 32 Shareholders’ equity per share The website is subject to continuous 1999 4 improvement. Kaunitz says the website will 31 dec 2001 11,73 soon contain some new exciting sections. 1998 19 31 dec 2000 12,22 Among these is a news page that will create a 1997 15 living website, which will feel more up-to-the- minute than before. Another project is a press- May 15–Dec 31, 1996 9 room to better meet the specific demands (24% annual return) placed on Swedish Match by the media. Visit the Swedish Match website at www.swedishmatch.com

New products Smooth transition to the euro from Arnold André TWO NEW PRODUCTS of the Vasco da Gama he start of 2002 saw the transi- to shop where prices are most favorable. been observed in connection with the range are now available for export, Capa de tion to the euro as the new cur- The euro will therefore have an change of currency,« he points out. Cuba and Light Taste cigarillos. T rency for 12 of the EU member evening-out effect on consumer prices. How the combined effect of salaries Handelsgold has introduced cherry tip-cigaril- states. For Swedish Match products, For Swedish Match, however, the and prices in euros will turn out los, available for export, based on the populari- which are sold in the retail sector, this picture is partly different. The prices remains to be seen. ty of its vanilla tip-cigarillos, and Clubmaster is means that prices are now set in euros paid by retailers were already largely »In the long-term, however, it should introducing a vanilla , characterized by instead of local currencies in the major- harmonized prior to the introduction stimulate consumption. The euro cre- a mild, light taste, available in four formats. ity of European markets. of the euro. On the other hand, the ates a more transparent and competitive »The transition to the euro certain- prices paid by consumers for tobacco market,« explains Peter Nilsson. ly went smoothly and far better than products vary substantially due to the This means extensive changes in the we ever could have envisaged,« says different levels of taxation in the vari- retail sector, to which Swedish Match Peter Nilsson, head of the Continental ous countries. will have to adapt its sales organization. Europe Division, which is headquar- »Consumer prices vary by up to 60 »We are moving towards large, tered in the Netherlands. percent due to different rates of taxation. international chains of stores with uni- For consumers, the euro means that »Because prices are determined by form prices, complemented by a multi- it has become much easier to compare taxes, no tendency towards hidden tude of small, local niche players,« he prices between different countries and price rises for tobacco products have concludes. Web pages increase consumer contacts

From about 20 consumer contacts a month to nearly 1,000! This dramatic increase is the result of two new snus brand websites for General (www.generalsnus.com) and Ettan (www.ettansnus.com). The websites were opened in August of this year and have quickly become a huge success.

he »new« contacts consist increased by a factor of 30, we have mainly of e-mails; in the remained receptive to the opinions of our past, consumers generally customers,« says Anna Neiås. »And the established contact through fact that we do not have websites for all our telephone calls. The nature brands does not mean we do not maintain Tof consumer contacts has also changed. contacts with consumers of these other »Before the websites were established, products. We conduct regular surveys, for most contacts with customers – but not all example, to monitor consumer opinions – were complaints, while consumer con- and preferences, and we are constantly in tacts today are dominated by questions and contact with our retailers, since they are the comments concerning our products.« ones who receive the most feedback and comments about our products.« »WE HAVE A CREATED a principle whereby we try to ensure that all consumers who send THE COMMENTS AND OPINIONS received by the e-mails receive a reply within three days. In marketing department have resulted in a a best-case scenario, we are able to answer number of new product launches. These their questions immediately, while in other include the launch of CatchDry, for exam- cases the answer may need to be discussed ple, a less moist portion-packaged snuff internally before it is sent to the consumer. available in different flavors, and the intro- In the latter case, we notify the consumers duction this summer of Probe loose-weight and tell them when they can expect to snus, a moist snus with a whisky flavor. receive a reply,« says Anna Neiås. The establishment of www.generalsnus.com Swedish Match’s decision to open and www.ettansnus.com was also a result brand-name websites, instead of a general of wishes expressed by consumers. snus site, was based on the fact that con- Although most of the questions and sumers tend to be more interested in »their« comments sent to the websites are focused brands than snus products in general. The on General and Ettan, they also indirectly websites also include information about the affect other brands, particularly in terms of brand’s history and the products it includes. packaging and product availability. The only general snus website operated by »The new input from consumers is Swedish Match is www.gothiatek.com, quickly becoming possibly our most FACTS ABOUT SWEDISH MATCH SNUFF (Figures from year 2001) which, among other information, describes important source of information for prod- Sales: 2,457 MSEK Major brands: General, Catch, Ettan, Grovsnus, our quality standard for Swedish moist uct development. Finding out the views of Göteborgs Rapé, Timber Wolf, Renegades and Operating income: 950 MSEK snuff (»snus«) and presents summaries of consumers from day to day is incredibly Taxi scientific findings concerning the Swedish valuable.« Production plants: Sweden, USA, South Africa *Through partly owned company Tobacco Rette. product. and Zimbabwe* »Although the number of contacts has

SWEDISH MATCH IN BRIEF KEY FIGURES Swedish Match is a unique company with a complete range of market leading snuff and chewing tobacco, MSEK 2001 2000 cigars and pipe tobacco – tobacco’s niche products – as well as matches and lighters. The Group’s global Net sales 13 635 11 533 operations generated sales of SEK 13,635 M in 140 countries in 2000. The Group has 14,343 employees. Operating income before items affecting comparability 2 193 1886 Swedish Match shares are listed on the Stockholm Exchange (SWMA) and NASDAQ (SWMAY). Operating income before depreciation 2 863 2 429 Smokeless Cigars and Matches Net income 1 228 1 144 Tobacco Pipe Tobacco and Lighters Income per share after tax, SEK 3:54 2:78 Swedish Match has Along with smoke- Swedish Match Dividend per a broad presence in less tobacco, cigars manufactures and share, SEK 1:45 * 1:35 the global market for and pipe tobacco markets matches and smokeless tobacco have been identified lighters globally. Return on share- (snuff and chewing tobacco), with prominent as a growth sector for Swedish Match. The The products are sold in more than 140 coun- holder´s equity, % 28,3 21,8 market positions in the Nordic countries, products are sold in large parts of the world, tries. * Proposed by the board North America and South Africa. with particular emphasis on North America, Europe and South Africa. MARKET POSITION MARKET POSITION Matches: World’s leading manufacturer of Snuff: Market leader in the Nordic countries MARKET POSITION matches and the only company with match and South Africa and the third largest player in Cigars: World’s largest cigar company, with a production and sales operations in all parts of North America. product range that covers all price segments. the world. Chewing Tobacco: Market leader in North Pipe tobacco: One of the world’s oldest and Lighters: One of the world’s three largest America largest producers of pipe tobacco. manufacturers.