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 cigars 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 more 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 tobacco 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 smoking via the Internet with »snus« 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 cigarettes 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 lighters 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. Cigar 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.