Swedish Match Interim Report January-September 2001

10/23/2001 6:28 AM EST

Interim Report
January - September 2001

· Sales increased 21 percent to 10,105 MSEK (8,337)
· Operating income increased 16 percent to 1,608 MSEK (1,386) 1)
· Profit before tax was 1,411 MSEK (1,277) 1)
· EPS increased to 2.57 (1.97), an increase of 30 percent 1)
· EBITDA increased to 2,095 MSEK (1,785)
· Total shares outstanding as of September 30, 2001 amounted to
357.0 million compared with 358,5 million as of June, 2001
1) before items affecting comparability of 80 MSEK

Swedish Match sales increased by 21 percent, of which acquisitions
accounted for 6 percentage points, in the first nine months of 2001
versus the same period last year. Higher currency rates, primarily a
higher dollar rate, has effected sales positively by 6 percentage
points. Organic sales growth amounted to 9 percent. All product areas
exhibited sales gains. Cigars, pipe tobacco, lighters, and snuff show
the largest increases.

Primarily cigars, matches, pipe tobacco, and lighters account for the
better result. Snuff margins have been impacted by costs of product
development and launches of new products, primarily in the US and India.
A one-time charge of 80 MSEK for restructuring of cigar operations is
included in Items affecting comparability. Operating income before items
affecting comparability grew by 16 percent to 1,608 MSEK.

Net financial expenses increased to -197 MSEK (-109) mainly due to the
redemption program, repurchase of shares, and acquisitions.

Earnings per share before items affecting comparability, during the
first nine months, increased to 2.57 SEK (1.97). Earnings per share
during the third quarter increased to 0.88 (0.73).

At the General Meeting of Shareholders on April 24, 2001 a prolonging of
the mandate to repurchase up to 10 percent of the total amount of
outstanding shares was resolved. It was also resolved that the share
capital be reduced by 36 MSEK through the cancellation of 15,000,000
shares. The reduction of the share capital of the company was registered
in October.


Summary of Consolidated Income Statement
January - September
MSEK 2001 2000

Sales 10,105 8,337
Operating income before items affecting 1,608 1,386
comparability
Net income for the period 886 844


Sales by product area
July - January - 12
September September Chan months Full Chan
ge ended year ge
MSEK 2001 2000 2001 2000 % Sept 30, 2000 %
2001

Snuff 629 529 1,799 1,519 18 2,351 2,071 14
Chewing Tobacco 349 311 1,028 911 13 1,344 1,227 10
Cigars 944 796 2,586 1,847 40 3,429 2,690 27
Pipe Tobacco & 247 205 697 562 24 897 762 18
Accessories
Matches 421 429 1,254 1,234 2 1,732 1,712 1
Lighters 190 175 613 519 18 814 720 13
Other 761 627 2,128 1,745 22 2,734 2,351 16
operations
Total 3,541 3,072 10,105 8,337 21 13,301 11,533 15


Operating income by product area
July - January - 12
September September Chan months Full Chan
ge ended year ge
MSEK 2001 2000 2001 2000 % Sept 30, 2000 %
2001

Snuff 242 254 691 704 (2) 941 954 (1)
Chewing Tobacco 90 72 278 244 14 365 331 10
Cigars 137 104 362 243 49 466 347 34
Pipe Tobacco & 62 58 185 159 16 239 213 12
Accessories
Matches 46 24 134 67 100 157 90 74
Lighters 23 18 74 53 40 95 74 28
Other operations (116) (84) (155)
(38) (30) (123)
Subtotal 562 500 1,608 1,386 16 2,108 1,886 12
Items affecting (80) - (80) - - (80) - -
comparability
Total 482 500 1,528 1,386 10 2,028 1,886 8


Smokeless Tobacco (Snuff and Chewing Tobacco)

Snuff
Swedish Match is the only global snuff manufacturer, and has leading
positions in the Nordic Market and South Africa. In the United States
the company has the largest share of the fast growing value price
segment. Major brands include General, Catch and Ettan in Sweden, Timber
Wolf in the US, and Taxi in South Africa. Sales in the first nine months
increased 18 percent, to 1,799 MSEK (1,519). Volume in the US increased
11 percent during the first nine months and the market share was
approximately 8 percent. Volume in the Nordic market increased by 4
percent.

Operating income was down versus the same period last year, 691 MSEK
(704). Costs for product launches, specially for the premium snuff
Sequoia in the US, has strongly affected the profit.

Chewing Tobacco
Chewing tobacco is sold primarily in the North American market. Major
brands include Red Man and Southern Pride. Swedish Match is the leading
producer of chewing tobacco in the US. Sales in the first nine months
amounted to 1,028 MSEK (911), an increase of 13 percent, mainly due to a
stronger US dollar.

Operating income in the first nine months was 278 MSEK (244).

The chewing tobacco market in the US has declined at an annual rate of
approximately 4 percent over the past several years. Swedish Match share
of market has improved since the same period last year and amounts to
slightly more than 42 percent.

Brown Tobacco (Cigars and Pipe Tobacco)

Cigars
Swedish Match is one of the world's largest manufacturers of cigars and
cigarillos, and ranks number two in terms of sales value. Its largest
markets are North America and Western Europe. These two markets
represent 75 percent of the world cigar market. Swedish Match markets
its broad portfolio of brands worldwide, with both premium and machine
made cigars. Major brands include Macanudo, Garcia Y Vega, La Gloria
Cubana, La Paz, Justus van Maurik, and Wings.

Sales in the first nine months amounted to 2,586 MSEK (1,847), an
increase of 40 percent over the same period last year. The increase is
primarily attributable to acquisitions but also to strong organic growth
in the machine made cigar segment in the US. Sales of premium cigars had
slightly lower volume versus same period last year. The Western European
market increased slightly. Operating income for cigars grew by 49
percent to 362 MSEK (243) in the first nine months of 2001.

Pipe Tobacco and Accessories
Swedish Match is the third largest manufacturer of pipe tobacco in the
world, and its products are marketed worldwide. Major brands include
Borkum Riff, Boxer, and Half and Half. The main markets for pipe tobacco
are in North America, North Europe and Western Europe. The company also
has a significant presence in South Africa.

Sales for the first nine months increased to 697 MSEK (562). Operating
income increased to 185 MSEK (159).


Lights (Matches and Lighters)

Matches
Swedish Match has the number one worldwide share position. Brands are
mostly local, and very strong in their home countries. Major brands
include Swan, Solstickan, Three Stars, and Redheads. Sales for the first
nine months grew 2 percent versus same period last year, to 1,254 MSEK
(1,234).

Operating income grew to 134 MSEK (67). In the third quarter, operating
margin increased to 10.9 percent (5.6) primarily due to positive effects
of the previously announced restructuring program, but also due to
increased volumes in certain markets.

Lighters
Swedish Match is the third largest lighter manufacturer in the world,
and its main brand is Cricket. Sales in the first nine months grew 18
percent, to 613 MSEK (519). Operating income grew by 40 percent, to 74
MSEK (53), due to increased volume and improved productivity.

Other Operations

Other operations include, among other things, the distribution of
tobacco products on the Swedish market, sales of advertising products,
certain real estate operation, as well as corporate overheads and
expenses for business development. Expenses for business development
have increased versus same period last year.

For the first nine months of 2001, net expenses grew to -116 MSEK (-84).

Net financial expense
Net financial expense in the first nine months amounted to -197 MSEK (-
109). Net interest expense amounted to -218 MSEK (-108). Other financial
items, net, amounted to 21 MSEK (-1).

Taxes
Taxes for the first nine months were 426 MSEK (428) corresponding to a
32% tax rate.

Acquisitions
In January a small advertising product company in Belgium was acquired.

On February 1st the final agreement with British American Tobacco
concerning acquisition of its pipe tobacco business in South Africa was
concluded. The acquisition includes production facilities, stock and
brands. The annual sales amount to approximately 200 MSEK.

A final agreement has also been concluded with the previous owner of
Leonard Dingler in South Africa regarding the earn-out on the purchase
price.

By the end of August the European dry snuff operation of the Burger
company was acquired.

In September, the company purchased the tobacco business of Maga S.p.a.,
one of the leading independent distributors of niche tobacco products in
Italy. The acquisition allows Swedish Match to establish its own
marketing and sales organization in the Italian market. The yearly
turnover is approximately 35 MSEK.

Investments
The Group's direct investments in tangible fixed assets amounted to 422
MSEK (219). Included in this figure is the ongoing investment in a new
snuff factory outside Gothenburg and increased investments within the
cigar operation.

Total depreciation and amortization amounted to 487 MSEK (399), of which
depreciation on tangible assets amounted to 235 MSEK (200) and
amortization of intangibles amounted to 252 MSEK (199).

Financing and liquidity
At the end of the period, the Group had a net debt of 4,259 MSEK, as
compared with 2,739 MSEK at December 31, 2000. During the third quarter
net debt decreased by 276 MSEK.

Cash and bank balances, including short term investments, amounted to
1,947 MSEK at the end of the period, compared with 2,960 MSEK at the
beginning of the year. The liquid funds are primarily invested in short-
term marketable interest-bearing securities.

Tobacco tax
During the past 12 months, total tobacco tax and value-added tax on
tobacco tax paid by Swedish Match in Sweden amounted to 9,964 MSEK
(9,363).

Average number of Group employees
The average number of employees in the Group during the 12 month period
ending June 30 was 14,014, compared with 13,672 for the full year 2000.

Cancellation of shares and share buy back program
The General Meeting of shareholders on April 24, 2001 resolved to reduce
the share capital by 36 MSEK through cancellation of 15,000,000 shares
previously bought back for provisions to a fund to be utilized in
accordance with resolutions approved by the Annual General Meeting. The
reduction was registered on October 16, 2001 after which the company's
share capital amounts to 891.8 MSEK. The share capital is spread over
371,596,181 shares with a par value of 2.40 SEK. Through buy back
Swedish Match holds 14,577,000 shares in its treasury which means that
the net number of shares outstanding amounts to 357,019,181.

By authorization by the Annual General Meeting the company can acquire a
maximum of 10 percent of all shares in the company. If the mandate to
repurchase will be fully utilized, the number of outstanding shares in
the company will be, net after repurchase, 334.4 million shares.

Options program
During the first half of the year, as part of a bonus program for Senior
Management, 1,812,309 call options were issued by the company. The call
options can be exercised from March 13, 2004 until March 14, 2006. Every
option entitles the holder to buy one share at a price of 44.50 SEK per
share.

Accounting principles
This interim report has been prepared in accordance with the
recommendation RR 20 Interim Reports from the Swedish Financial
Accounting Standards Council.

Swedish Match applies the Swedish Financial Accounting Standards
Council's new recommendation RR 9 Income Taxes. The financial data for
2000 has been restated according to the new principles.

Additional information
This report has not been reviewed by the company's auditors.

The full year 2001 report will be released on February 12, 2002.

Stockholm, October 23, 2001

Lennart Sundén
President and Chief Executive Officer