ANNUAL REPORT 2006 Swedish Match is a global Group of companies with a broad assortment of market-leading brands in smokeless tobacco products, cigars, pipe tobacco and lights products. Contents Swedish Match 2006 2 This is Swedish Match Swedish Match is a global Group of companies with CEO’s comments 4 The past year a broad assortment of market-leading brands in 6 The business environment smokeless tobacco products, cigars, pipe tobacco and 8 Our strategies 10 Brand strategy lights products.The Swedish Match share is listed on the Product areas Stockholm Stock Exchange. 14 Snuff and snus 18 Cigars 22 Chewing tobacco 24 Pipe tobacco and Accessories • Sales amounted to 12,911 MSEK (13,311). 26 Lights • Operating profit increased by 15 percent, and 28 Social responsibility and the environment amounted to 3,235 MSEK (2,825). 32 Human Resources • Operating profit excluding larger one time 36 Report of the Board of Directors Consolidated Financial items amounted to 3,087 MSEK (2,618). Statements • Operating margin for the Group grew to 40 Income Statement 41 Balance Sheet 23.9 percent (19.7). 42 Changes in Statement of Equity • EPS (basic) was 8.12 SEK (5.61). 43 Cash Flow Statement 44 Notes for the Group • The Board proposes an increased dividend to Parent Company Financial 2.50 SEK (2.10). Statements 68 Income Statement 69 Balance Sheet 70 Changes in Equity 71 Cash Flow Statement Key data, MSEK 2006 2005 2004 72 Notes for the Parent Company Net sales 12,911 13,311 13,007 78 Proposed distribution of earnings EBITDA excluding larger one time items 3,533 3,206 2,916 79 Auditors’ report Operating profit 3,235 2,825 3,593 Corporate Governance Operating margin, % 23.9 19.7 17.8 80 Corporate Governance report Profit for the year 2,331 1,777 2,084 86 Board of Directors Earnings per share, SEK 8.12 5.61 6.18 88 Group management Dividend per share, SEK 2.50* 2.10 1.90 90 Five-year summary Return on shareholders’ equity, % 63.3 36.6 48.2 92 Quarterly data * Board proposal. 93 Definitions 94 The share 96 Annual General Meeting 97 Financial information Net sales by product area, % Other operations 21% Snuff 26% Lights 12% Cigars 26% Pipe tobacco 7% Chewing tobacco 8% Operating profit by product area*, % A certain degree of risk and uncertainty is associated with the forward-looking Lights 8% Snuff 50% statements made in this Annual Report. Pipe tobacco 8% Although Swedish Match believes that Chewing these statements constitute reasonable tobacco 10% assumptions, Swedish Match can not guarantee their fulfillment. Cigars 24% * Excluding Other operations and larger one time items. Some of our product news 2006 Onico A tobacco- and nicotine-free alternative to snus was successfully launched on the Swedish market. These vegetable-fiber pouches are flavored with aromas that imitate tobacco and peppermint taste. Hajenius Hajenius is one of two strong and well- known brands acquired during the year, the other one being Oud Kampen. The products are sold primarily in the Netherlands, Belgium and Germany, with a substantial share of the Dutch market. Game In the US, the natural leaf cigar Game was successfully launched under the well-known Garcia y Vega brand. Game is available in two sizes and five flavors. All are slow burning with a mild and sweet taste. Partagas 160 Partagas 160 Signature Series is produced in a limited quantity. The cigar is extremely rich and well-balanced, created from a rare Cameroon wrapper aged for nearly three decades. Timber Wolf Packs In April, Timber Wolf Packs were launched, the first value-priced moist snuff to offer consumers a premium- quality large pouch. Timber Wolf Packs are available in Wintergreen and Natural flavors. This is Swedish Match Product area Share of Group total Position Brands, production and markets Group Main brands | General, Ettan, Catch, Group sales: 12,911 MSEK. Snuff and snus Swedish Match holds a leading position in Grovsnus, Göteborgs Rapé, Timber Wolf, Average number of employees: 12,465. the Nordic snus market and the snuff Sales, MSEK 3,363 (3,131) Longhorn, Taxi Production in own production facilities market in South Africa. In North America, Operating profit, MSEK 1,604 (1,504) Production units | Sweden, US, South Africa in 11 countries: Swedish Match is one of the major players Operating margin, % 48 (48) Main markets | Sweden, Norway, US, Sales 26% Operating profit 50% in the growing value-price snuff segment. South Africa Belgium Brazil Bulgaria Dominican Republic Honduras Indonesia Netherlands Philippines Cigars Swedish Match is the world’s second Main brands | La Paz, Willem II, Hajenius, Oud South Africa largest producer and distributor of cigars Kampen, Bellman, White Owl, Garcia y Vega, Sweden Sales, MSEK 3,407 (3,283) and cigarillos. The Company has a leading Macanudo, Cohiba (USA), Partagas (USA) US Operating profit, MSEK 747 (613) position in the US market for premium Production units | Belgium, Dominican Sales 26% Operating profit 24% Operating margin, % 22 (19) cigars. Republic, Honduras, Indonesia, US Main markets | US, France, Spain, Benelux, Germany, Australia Organization Chewing tobacco Swedish Match is the largest player in the Main brands | Red Man, Southern Pride, The Swedish Match head office, where US market for chewing tobacco. Granger Select, JD’s Blend the CEO and Group staffs are based, is Sales, MSEK 1,063 (1,079) Production units | US located in Stockholm. Operating profit, MSEK 326 (347) Main markets | US Operations are conducted in three Operating margin, % 31 (32) Sales 8% Operating profit 10% geographic divisions: North Europe Division, North America Division and International Division. Pipe tobacco and Accessories Swedish Match is one of the world’s Main brands | Borkum Riff, Half and Half, largest producers of pipe tobacco. Best Blend, Boxer, Black & White, Nineteen Sales, MSEK 899 (920) O’Four, Greve Gilbert Hamiltons Blandning Operating profit, MSEK 261 (237) Production units | South Africa, US Operating margin, % 29 (26) Sales 7% Operating profit 8% Main markets | South Africa, Europe, US Lights Swedish Match has a strong position in a Main brands | Solstickan, Swan, Three Stars, number of markets for matches. The England’s Glory, Redheads, Fiat Lux, Cricket, Sales, MSEK 1,503 (1,936) brands are mostly local and very strong in Poppell Operating profit, MSEK 247 (58) their respective markets. Swedish Match is Production units | Brazil, Bulgaria, Philippines, Operating profit 8% Operating margin, % 16 (3) Sales 12% a key player in the international market for Netherlands, Sweden disposable lighters. Main markets | Sweden, France, UK, Russia, Brazil, Australia 2 Swedish Match Annual Report 2006 Product area Share of Group total Position Brands, production and markets Group Main brands | General, Ettan, Catch, Group sales: 12,911 MSEK. Snuff and snus Swedish Match holds a leading position in Grovsnus, Göteborgs Rapé, Timber Wolf, Average number of employees: 12,465. the Nordic snus market and the snuff Sales, MSEK 3,363 (3,131) Longhorn, Taxi Production in own production facilities market in South Africa. In North America, Operating profit, MSEK 1,604 (1,504) Production units | Sweden, US, South Africa in 11 countries: Swedish Match is one of the major players Operating margin, % 48 (48) Main markets | Sweden, Norway, US, in the growing value-price snuff segment. South Africa Belgium Brazil Bulgaria Dominican Republic Honduras Indonesia Netherlands Philippines Cigars Swedish Match is the world’s second Main brands | La Paz, Willem II, Hajenius, Oud South Africa largest producer and distributor of cigars Kampen, Bellman, White Owl, Garcia y Vega, Sweden Sales, MSEK 3,407 (3,283) and cigarillos. The Company has a leading Macanudo, Cohiba (USA), Partagas (USA) US Operating profit, MSEK 747 (613) position in the US market for premium Production units | Belgium, Dominican Operating margin, % 22 (19) cigars. Republic, Honduras, Indonesia, US Main markets | US, France, Spain, Benelux, Germany, Australia Organization Chewing tobacco Swedish Match is the largest player in the Main brands | Red Man, Southern Pride, The Swedish Match head office, where US market for chewing tobacco. Granger Select, JD’s Blend the CEO and Group staffs are based, is Sales, MSEK 1,063 (1,079) Production units | US located in Stockholm. Operating profit, MSEK 326 (347) Main markets | US Operations are conducted in three Operating margin, % 31 (32) geographic divisions: North Europe Division, North America Division and International Division. Pipe tobacco and Accessories Swedish Match is one of the world’s Main brands | Borkum Riff, Half and Half, Parent Company largest producers of pipe tobacco. Best Blend, Boxer, Black & White, Nineteen Sales, MSEK 899 (920) O’Four, Greve Gilbert Hamiltons Blandning Operating profit, MSEK 261 (237) Production units | South Africa, US Operating margin, % 29 (26) Main markets | South Africa, Europe, US North North Inter- Europe America national Division Division Division Lights Swedish Match has a strong position in a Main brands | Solstickan, Swan, Three Stars, number of markets for matches. The England’s Glory, Redheads, Fiat Lux, Cricket, Sales, MSEK 1,503 (1,936) brands are mostly local and very strong in Poppell Operating profit, MSEK 247 (58) their respective markets. Swedish Match is Production units | Brazil, Bulgaria, Philippines, Operating margin, % 16 (3) a key player in the international market for Netherlands, Sweden disposable lighters. Main markets | Sweden, France, UK, Russia, Brazil, Australia 2006 Annual Report Swedish Match 3 C E O ´ Sven Hindrikes S C O M M E N T S Creating success through results and trust Sven Hindrikes Our business environment is time, we respect the social demands President and CEO of Swedish Match since 2004. constantly changing. Competition is and expectations imposed on a global increasing in the markets where we company in the tobacco area. Naturally, operate.