Swedish Match: Interim Report January - September 2007

Swedish Match AB (STO:SWMA): Net sales for the third quarter amounted to 3,272 MSEK (3,261) and 9,024 MSEK (9,454) for the first nine months Operating profit for the third quarter amounted to 759 MSEK (808) and 1,935 MSEK (2,326)1 for the first nine months Currency translation differences in the third quarter negatively affected sales and operating profit comparisons by 75 MSEK and 27 MSEK respectively Net profit for the third quarter amounted to 491 MSEK (627), and 1,264 MSEK (1,732) for the first nine months EPS for the third quarter amounted to 1.89 SEK (2.23) and 4.78 SEK (5.94) for the first nine months Cigars International Inc., a US based cigar business with annual sales of 400 MSEK, was acquired in September 1 Excluding pension plan curtailment gain of 148 MSEK before tax in 2006 Summary of Consolidated Income Statement   July – Sep   Jan – Sep   Full year MSEK 2007   2006 2007   2006 2006   Sales 3,272 3,261 9,024 9,454 12,911 Operating profit excl. larger one time items 759 808 1,935 2,326 3,137 Operating profit 759 808 1,935 2,474 3,285 Profit before income tax 655 741 1,686 2,319 3,173 Net profit for the period 491 627 1,264 1,732 2,335 Earnings per share (SEK) 1.89 2.23 4.78 5.94 8.13 Sales and results for the third quarter In local currencies, sales increased by 3 percent. Reported sales for the third quarter increased to 3,272 MSEK (3,261) with currency translation negatively affecting the sales comparison by 75 MSEK. For snuff, reported sales increased by 8 percent during the third quarter to 852 MSEK (785) and operating profit declined by less than 1 percent to 383 MSEK (385). Operating margin was 45.0 percent (49.1). North European Division snus sales increased by 7 percent. North American snuff sales increased by 24 percent in local currency. Sales of cigars in the third quarter were 902 MSEK (903), while operating profit was 185 MSEK (231). In local currencies sales increased by 4 percent, while operating profit declined in both the US and in Europe. Operating margin for cigars was 20.5 percent (25.6). Group operating profit for the third quarter amounted to 759 MSEK (808). Currency translation has affected the operating profit comparison negatively by 27 MSEK. Operating margin for the third quarter continued to recover and amounted to 23.2 percent compared to 24.8 percent for the third quarter 2006. EPS (basic) for the third quarter was 1.89 SEK (2.23). EPS (diluted) for the third quarter was 1.88 SEK (2.22). The decline is mainly attributable to the reversal of a tax provision for withholding tax on unremitted earnings from the US subsidiaries in 2006. Sales and results for the first nine months Sales for the first nine months amounted to 9,024 MSEK (9,454). In local currencies sales decreased by 1 percent. Operating profit* amounted to 1,935 MSEK (2,326). The lower operating profit is mainly due to lower Scandinavian snuff volumes in the beginning of the year, as well as higher marketing investment. Currency translation has affected the operating profit comparison negatively by 96 MSEK. Group operating margin during the first nine months was 21.4 percent (24.6)1. The reported tax rate for the Group for the first nine months was 25 percent (25). EPS (basic) for the first nine months was 4.78 SEK (5.94). Diluted EPS amounted to 4.77 SEK (5.92). 1 Excluding pension plan curtailment gain of 148 MSEK before tax in 2006 Sales by product area   July – Sep   Chg   Jan - Sep   Chg   Oct 2006-   Full year MSEK 2007   2006 % 2007   2006 % Sep 2007 2006   Snuff 852 785 8 2,308 2,400 -4 3,271 3,363 Cigars 902 903 0 2,483 2,550 -3 3,340 3,407 Chewing tobacco 243 273 -11 734 823 -11 974 1,063 Pipe tobacco & Accessories 220 217 2 628 673 -7 854 899 Lights 374 360 4 1,068 1,115 -4 1,455 1,503 Other operations 682 723 -6 1,803 1,892 -5 2,587 2,677 Total 3,272 3,261 0 9,024 9,454 -5 12,481 12,911 Operating profit by product area   July – Sep   Chg   Jan - Sep   Chg   Oct 2006-   Full year MSEK 2007   2006 % 2007   2006 % Sep 2007 2006   Snuff 383 385 -1 925 1,151 -20 1,387 1,614 Cigars 185 231 -20 542 602 -10 710 770 Chewing tobacco 83 95 -12 237 262 -10 313 338 Pipe tobacco & Accessories 64 68 -7 143 202 -29 206 265 Lights 67 64 5 186 198 -6 237 249 Other operations -22 -35   -96 -89   -106 -99 Subtotal 759 808 -6 1,935 2,326 -17 2,747 3,137 Larger one time items Pension curtailment gain - -   - 148   - 148 Total 759 808 -6 1,935 2,474 -22 2,747 3,285 Operating margin by product area   July - Sep       Jan - Sep       Oct 2006-   Full year Percent 2007   2006   2007   2006   Sep 2007 2006   Snuff 45.0 49.1 40.1 48.0 42.4 48.0 Cigars 20.5 25.6 21.8 23.6 21.3 22.6 Chewing tobacco 34.3 34.7 32.2 31.8 32.1 31.8 Pipe tobacco & Accessories 28.9 31.5 22.7 30.0 24.1 29.5 Lights 17.8 17.7   17.4 17.8   16.3 16.6 Group1 23.2 24.8   21.4 24.6   22.0 24.3 1 Excluding larger one time items Snuff /Snus Sweden is the world’s largest snuff market measured by per capita consumption. In Sweden, a substantially larger proportion of the male population uses the Swedish type of moist snuff called snus1 compared to cigarettes. The Norwegian market, which is significantly smaller than the Swedish market, is at present showing strong growth. The US is the world’s largest snuff market measured in number of cans and is approximately five times larger than the Swedish market. In Sweden and Norway, Swedish Match has a leading position. In the US, the Company is well positioned as number three on the market. Some of the best known brands include General, Ettan, and Grov in Sweden, Timber Wolf and Longhorn in the US and Taxi in South Africa. During the third quarter, sales revenues increased by 8 percent compared to the same quarter previous year, to 852 MSEK (785), and operating profit decreased by less than 1 percent, to 383 MSEK (385). Currency translation impacts have affected the sales and operating profit comparison negatively. Operating profit improved in the Scandinavian snus business. The Company has increased spending (including launch related costs for Red Man moist snuff) which has resulted in a somewhat lower operating profit in the US snuff business. During the year, the Company has increased its marketing and product development spending overall in the snuff product category for both the US and Scandinavian markets. Operating margin was 45.0 percent (49.1). In Scandinavia, shipment volume in cans, during the third quarter were down less than 1 percent compared to the same period previous year. The destocking effects from a hoarding in Sweden in the fourth quarter of 2006 have ended. Increased volumes in Norway and Duty free offset Swedish volume declines. In the US, overall shipment volumes in cans during the third quarter were up by 34 percent compared to the same period previous year. Volumes for Longhorn and Timber Wolf combined were up by 28 percent. Shipment volumes for the launch of Red Man moist snuff contributed to the overall volume increase. The Red Man launch was supported by extensive marketing efforts. For the first nine months of the year, sales amounted to 2,308 MSEK (2,400) while operating profit amounted to 925 MSEK (1,151). Operating margin was 40.1 percent (48.0). The lower operating margin results from a combination of factors including lower volumes in the first half of the year in Scandinavia, a mix shift toward value price products, and higher marketing expenses for product launches. 1 Swedish snus is moist snuff which is produced using a special heat treated process, much like pasteurization as opposed to other snuff products for which a fermentation process is used. Cigars Swedish Match is the world’s second largest producer of cigars and cigarillos in sales value. Swedish Match offers a full range of different cigars and brands. Well known brands include Macanudo, La Gloria Cubana, White Owl, Garcia y Vega, La Paz, Hajenius, Justus van Maurik, Willem II, Salsa, and Wings. The US is the largest cigar market in the world where Swedish Match has a leading position in the premium segment and is well established in the segment for machine made cigars. After the US, the most important cigar markets are in Europe, where Swedish Match is well represented in most countries, with an especially good market position in the Netherlands and in the Nordic area. During the third quarter, sales revenues were 902 MSEK (903), while operating profit was 185 MSEK (231). Operating profit in the third quarter 2006 was positively impacted by the successful launch of the Garcia y Vega Game product on the US mass market. Currency translation has affected the comparisons for both sales and operating profit negatively. In local currencies, sales in the third quarter increased by 4 percent compared to the same period previous year, while operating profit declined. Operating margin decreased to 20.5 percent (25.6). Excluding the impact of acquisitions, sales in local currencies were either unchanged or declined in all cigar segments compared to the third quarter previous year. Mix changes and higher marketing costs had a negative impact on the operating margins. The acquired businesses contributed positively to the result. In mid June, Swedish Match acquired Bogaert Cigars, a privately held cigar company headquartered in Belgium with production facilities in Belgium and Indonesia. The Bogaert Cigars portfolio consists of machine-made cigars/cigarillos of own-brands (Bogart and Hollandia) as well as private label. In September, the Company acquired Cigars International Inc., a US based distributor of premium cigars specializing in mail order and internet sales. This fast growing company has annual sales of approximately 400 MSEK, with its assortment including both General Cigar products and those from other manufacturers. Group sales for the first nine months were 2,483 MSEK (2,550), while operating profit was 542 MSEK (602). In local currencies, sales increased by 3 percent, while operating profit declined by 5 percent, primarily attributable to a weaker performance in premium cigars. Chewing tobacco Chewing tobacco is sold primarily on the North American market, mainly in the southern US. Well known brands include Red Man and Southern Pride. Swedish Match is the leading producer of chewing tobacco in the US. The chewing tobacco segment shows a declining trend. During the third quarter, sales revenues declined by 11 percent, to 243 MSEK (273). Operating profit declined by 12 percent, to 83 MSEK (95). Operating margin was 34.3 percent (34.7). Lower volumes and negative currency translation effects were the main factors behind the decline in operating profit. Sales for the first nine months amounted to 734 MSEK (823) while operating profit amounted to 237 MSEK (262). In the US, sales for the first nine months were down 2 percent, while operating profit grew by 3 percent in local currency. Operating margin was 32.2 percent (31.8). Pipe tobacco and Accessories Swedish Match is one of the largest pipe tobacco companies in the world and its products are marketed worldwide. The Borkum Riff brand is sold in over 60 countries. The Company has its most significant presence in South Africa, where local production takes place. Best Blend and Boxer are the most important brands in South Africa. Accessories include the sales of papers, filters, and other smoking related items, primarily in the UK and Australia. Pipe tobacco consumption is declining on most established markets. During the third quarter, sales revenues increased by 2 percent to 220 MSEK (217) and the operating profit declined to 64 MSEK (68). The sales and operating profit comparisons are affected by the depreciation of the South African Rand. Operating margin was 28.9 percent (31.5). Sales for the first nine months amounted to 628 MSEK (673), while operating profit amounted to 143 MSEK (202). Operating profit during the nine month period was negatively affected by costs related to the closure of a redundant pipe tobacco factory in South Africa during the second quarter. Operating margin was 22.7 percent (30.0). Lights Swedish Match is the market leader in a number of markets for matches. The brands are mostly local, and have leading positions in their home countries. Larger brands include Solstickan, Three Stars, Fiat Lux, and Redheads. The Company produces and distributes disposable lighters and the main brand is Cricket. Swedish Match’s largest market for lighters is Russia. During the third quarter sales revenues amounted to 374 MSEK (360), while operating profit amounted to 67 MSEK (64). Operating margin was 17.8 percent (17.7). Sales for the first nine months amounted to 1,068 MSEK (1,115), while operating profit amounted to 186 MSEK (198). Operating margin was 17.4 percent (17.8). Other operations Other operations include primarily the distribution of tobacco products on the Swedish market, as well as corporate overheads. Sales in Other operations for the third quarter was 682 MSEK (723). Operating profit for Other operations was a negative 22 MSEK (negative 35). During the first nine months, sales in Other operations was 1,803 MSEK (1,892), while operating profit was a negative 96 MSEK (negative 89). Sales in the Swedish distribution of tobacco products was unusually low in the beginning of the year as a consequence of high retailer inventories in anticipation of the sharply raised tobacco excise taxes effective January 1, 2007 and an overall decline in sales of tobacco products. Taxes The Group tax expense for the first nine months amounted to 421 MSEK (587), corresponding to a tax rate of 25 percent (25). In 2007 a realignment of the operational and legal structures have resulted in a more effective capital structure and lowered tax rate. In 2006 the tax expense was favourably impacted by the reversal of a provision for withholding tax on unremitted earnings from US subsidiaries. Depreciation and amortization Total depreciation and amortization for the first nine months amounted to 333 MSEK (332), of which depreciation on property, plant and equipment amounted to 232 MSEK (234) and amortization of intangible assets amounted to 101 MSEK (97). Financing and cash flow Cash flow from operations for the first nine months of the year increased to 1,394 MSEK compared with 464 MSEK for the same period previous year. Tax payments during the first nine months of the year were 454 MSEK, compared with unusually high 1,498 MSEK in the first nine months of 2006. The net debt as per September 30, 2007 amounted to 8,707 MSEK compared to 5,658 MSEK at December 31, 2006. The increase of 3,049 MSEK results from share repurchases, net, of 2,152 MSEK, payment of dividends of 664 MSEK and investments of 1,500 MSEK including the acquisitions of Bogaert Cigars and Cigars International and investments in property, plant and equipment. During the first nine months of the year new bond loans of 1,558 MSEK have been issued. Repayments of bond loans for the same period amounted to 310 MSEK. Cash and cash equivalents amounted to 1,281 MSEK at the end of the period, compared with 3,042 MSEK at the beginning of the year. Net finance cost for the first nine months increased to 250 MSEK (155) as a result of higher net debt and increased interest rates. Revised dividend and financial policy As part of the strategic process the Board has reviewed the dividend policy and the overall capital structure of the Company. During the year the Scandinavian snuff business has recovered significantly from the downturn caused by the doubling of the excise duty on snuff in Sweden effective January 1. In the US, the snuff business continues to demonstrate strong growth. Two important cigar acquisitions have been completed during the year. These acquisitions have resulted in an increased debt level in the Company, but are expected to contribute positively to the profit and cash flow going forward. The current dividend policy stipulates that the dividend follows the trend of the net profit and is in the range of 30 to 50 percent of the profit for the year. For the year 2006 the dividend amounted to 2.50 SEK or 31 percent of the earnings per share. The Board has concluded that the strategic position of Swedish Match supports a modified dividend policy going forward. The new dividend policy is that the dividend will be in the range of 40 to 60 percent of the earnings per share for the year, subject to adjustments for larger one-time items. Following the completion of the Bogaert Cigars and Cigars International acquisitions and share repurchases of 2.27 billion SEK during the first nine months of 2007, the Company’s net debt exceeds the previously communicated long term target of two times EBITA. As per September 30, 2007, the net debt amounted to three times the EBITA for the twelve months period ending September 30, 2007. In view of the good and stable prospects for the business and the additional contribution that the recently acquired companies are expected to generate, the Board is of the view that the current level of debt is well balanced and has resulted in an efficient balance sheet. Hence, the financial policy has been revised and the Company will strive to maintain a net debt that does not exceed three times EBITA going forward. The Board continually reviews the financial position of the Company, and the actual level of net debt will be assessed against anticipated future profitability and cash flow, investment and expansion plans, acquisition opportunities as well as the development of interest rates and credit markets. The Board remains committed to maintain an investment grade credit rating. Tobacco tax During the first nine months of 2007 Swedish Match’s payments of tobacco tax in Sweden have increased to 6.6 billion SEK (5.8). Average number of Group employees The average number of employees in the Group during the first nine months of 2007 was 12,077 compared with 12,465 for the full year 2006. Share structure The Annual General Meeting on April 23, 2007 renewed the mandate to repurchase shares up to 10 percent of the shares of the Company until the next Annual General Meeting for a maximum amount of 3,000 MSEK. In addition, a decision was made to cancel 13.0 million shares held in treasury, with a contemporaneous bonus issue of an amount equivalent the amount represented by the cancelled shares or 18.1 MSEK. With the latter transaction the Company’s share capital did not decrease through the cancellation of shares. The total amount of registered shares in the Company after the cancellation of shares is 267,000,000 shares with a quotient value of 1.4589 SEK. In June, after Annual General Meeting approval, the Company issued 931,702 call options to senior Company officials and key employees for the stock option program for 2006. These call options can be exercised from March 1, 2010 to February 29, 2012. The exercise price is 145.50 SEK. During the first nine months 18.1 million shares were repurchased for 2,274 MSEK representing an average price of 125.62 SEK. As at September 30, 2007 Swedish Match held 9.1 million shares in its treasury, corresponding to 3.4 percent of the total number of shares. Total shares bought back by Swedish Match since the buyback programs started have been repurchased at an average price of 75.82 SEK. During the first nine months the Company also sold 1.6 million treasury shares for 122 MSEK representing an average price of 75.95 SEK as a result of option holders exercising their options. The number of shares outstanding, net after repurchase and after the sale of treasury shares, as per September 30, 2007 amounted to 257.9 million. In addition, the Company has call options outstanding as of September 30, 2007 corresponding to 3.4 million shares exercisable in gradual stages from 2007-2012. Other events On July 6, 2007, the Company announced that it had reached an agreement to sell a real estate company which is the owner of two buildings belonging to the Tobaksmonopolet property in Stockholm. Swedish Match will remain as one of the tenants in the divested buildings. The purchaser of the real estate was Aberdeen Property Fund Pan-Nordic and the purchase price was 995 MSEK. The closing date of the sale was October 1, 2007. In addition to the buildings involved in this transaction, two adjacent parcels of land have been agreed to be sold to NCC, a Swedish construction company. The capital gain on these sales will exceed 250 MSEK and will be recorded during the fourth quarter 2007. Due to a prior listing on the American Nasdaq stock exchange, Swedish Match has been registered with the U.S. Securities and Exchange Commission (SEC). On June 5, 2007 Swedish Match filed a deregistration with SEC and therefore does not have any further reporting obligations to SEC. Accounting principles The financial information in this interim report has been prepared in accordance with the International Financial Reporting Standards (IFRS) approved by the European Commission for application within the EU. The report is prepared in accordance with the Accounting Standard IAS 34 Interim Financial Reporting. The accounting principles are the same as in the 2006 Annual Report except for the accounting for pensions and other retirement benefits in accordance with IAS 19, Employee Benefits, as described below. New accounting principle In order to enhance transparency Swedish Match has changed the principle for reporting of actuarial gains and losses in the Group’s various defined benefit plans. These actuarial gains and losses are now recognized directly in equity in the period in which they occur. The net of plan surpluses and deficits is included in the calculation of net debt. The total cost relating to defined benefit plans which previously was charged to personnel costs is now divided between personnel costs and financial income and expenses. Financial income and expenses are calculated from the net value of each plan at the beginning of the year. For surplus plans financial income is calculated using the expected return on plan assets and for deficit plans financial expenses is calculated using the discount factor decided for each plan. The new method of accounting for actuarial gains and losses is a change of accounting principles and 2006 has been restated. The effect of the restatement on Swedish Match’s opening equity 2006 amounts to a negative 284 MSEK and an increased net liability for retirement benefits of 397 MSEK. The effect on the closing equity 2006 compared with previously reported numbers amounts to a negative 250 MSEK and an increased net liability for retirement benefits of 304 MSEK. The restated operating profit for 2006 increases by 50 MSEK, finance net is charged with 44 MSEK and tax is charged with 2 MSEK. Risk factors Swedish Match faces intense competition in all of its markets and for each of its products and such competition may increase in the future. In order to be successful the Group must promote its brands successfully and anticipate and respond to new customer trends. Restrictions on advertising and promotion may, however, make it more difficult to counteract loss of consumer loyalty. Competitors may develop and promote new products which could be successful, and could thereby have an adverse effect on Swedish Match’s results of operations. Changes in the regulatory landscape might affect the demand for Swedish Match products in the market place. Swedish Match has a substantial part of its production and sales in EMU member countries as well as South Africa, Brazil and the US. Consequently, changes in exchange rates of euro, South African rand, Brazilian real and the US Dollar in particular may adversely affect the Group’s results of operations, cash flow, financial condition or relative price competitiveness in the future. Such effects may occur both in local currencies and when such local currencies are translated into Swedish currency for purposes of financial reporting. Regulatory changes in the countries where the Group is operating related to tobacco taxes as well as to the marketing, sale and consumption of tobacco products may have an adverse effect on Swedish Match’s results of operations. For a further description of risk factors affecting Swedish Match see Report of the Board of Directors in the published Swedish Match Annual Report for 2006. Outlook As previously announced, the operating margin for snuff in the first quarter 2007, and to a lesser extent in the second quarter, was significantly impacted by a sharp decline in volumes on the Swedish market due to the doubling of the excise tax for snus effective January 1, 2007. Sales volumes in tax-free channels and in Norway have grown during the year, and in Scandinavia as a whole, sales volumes reverted toward prior levels during the third quarter. With the announcement of a proposed further increase in the Swedish excise tax in January, 2008, it is expected that hoarding and destocking effects, similar to that experienced between the fourth quarter 2006 and second quarter 2007, will be experienced over the coming quarters. In view of the new proposed excise tax increase, Swedish Match will take necessary actions to protect and improve the profitability in the Swedish snus market. Our outlook for the US snuff market remains firm, and we expect a continued strong growth in the fourth quarter. During the third quarter the cigar businesses of Bogaert Cigars and Cigars International were consolidated. Acquisition related costs, including amortization on acquired intangibles, and somewhat weaker prospects for the rest of the cigar business imply that the operating margin for cigars in the fourth quarter 2007 could be lower than the average for the year. The tax rate for 2007 is estimated to be 25 percent excluding the non taxable capital gain on the sale of the Stockholm real estate. For 2008 and onwards the tax rate is expected to be around 20 percent. Additional information This report has not been reviewed by the Company’s auditors. The January-December 2007 report will be released on February 20, 2008. The Annual General Meeting will be held on April 22, 2008 in Stockholm, Sweden. Stockholm, October 25, 2007 Sven HindrikesPresident and Chief Executive Officer Key dataa       January – September Oct 2006-   Full year 2007   2006 Sep 2007 2006 Operating margin, %1 21.4 24.6 22.0 24.3 Operating capital, MSEK 9,553 8,316 9,553 8,059 Return on operating capital, %1 30.7 38.1 Return on shareholders’ equity, % 189.1 68.3   Net debt, MSEK 8,707 5,900 8,707 5,658 Net debt/equity ratio, % 3,066.4 347.6 3,066.4 277.3 Equity/assets ratio, % 1.9 10.2 1.9 13.0 Investments in property, plant and equipment, MSEK2 421 189 537 304 EBITDA, MSEK3 2,268 2,661 3,191 3,583 EBITA, MSEK4 2,037 2,423 2,883 3,269 EBITA interest cover 8.6 16.4 9.7 15.7 Net debt/EBITA 3.0 1.7 Share data5 Earnings per share, SEK Basic 4.78 5.94 7.00 8.13 Diluted 4.77 5.92 6.97 8.10 Shareholders’ equity per share, SEK 1.09 6.17 1.09 7.43 Number of shares outstanding at end of period 257,874,800 274,367,981 257,874,800 274,367,981 Average number of shares outstanding 264,327,185 291,293,799 266,837,384 287,062,345 Average number of shares outstanding, diluted 265,225,215 292,382,084 267,631,850 288,161,247 1 Excluding a pension curtailment gain of 148 MSEK during the second quarter 2006 2 Includes investments in assets held for sale and biological assets 3 Operating profit excluding larger one time items adjusted for depreciation, amortization and writedowns of tangible and intangible assets 4 Operating profit excluding larger one time items adjusted for amortization and writedowns of intangible assets 5 Profit attributable to equity holders of the Parent a The definitions are in accordance with the published Annual Report 2006 except for the definition of net debt, which now includes net pension liabilities as described in the section New accounting principles in this report Consolidated Income Statement in summary       July - Sep   Chg   Jan - Sep   Chg   12 months ended   Full year   Chg MSEK 2007   2006 % 2007   2006 % Sep 30, 07 2006 %   Sales, including tobacco tax 5,984 5,595 16,252 15,894 22,349 21,991 Less tobacco tax -2,713 -2,335   -7,228 -6,441   -9,868 -9,080   Sales 3,272 3,261 0 9,024 9,454 -5 12,481 12,911 -3 Cost of sales -1,702 -1,675   -4,698 -4,797   -6,576 -6,674   Gross profit 1,570 1,585 -1 4,326 4,657 -7 5,906 6,237 -5 Sales and administrative expenses1 -810 -780 -2,393 -2,191 -3,164 -2,963 Share of profit in equity accounted investees   0 3   3 8   5 11   Operating profit 759 808 -6 1,935 2,474 -22 2,747 3,285 -16   Financial income2 33 36 109 90 257 239 Financial expenses -137 -103   -358 -245   -464 -351   Net finance cost -105 -68   -250 -155   -207 -112     Profit before income taxes 655 741 -12 1,686 2,319 -27 2,540 3,173 -20 Income tax expense -164 -113   -421 -587   -672 -838   Net profit for the period 491 627 -22 1,264 1,732 -27 1,867 2,335 -20 Attributable to: Equity holders of the Parent 491 627 1,264 1,732 1,867 2,335 Minority interests 0 0   1 1   1 1   Net profit for the period 491 627 -22 1,264 1,732 -27 1,867 2,335 -20                     Earnings per share, basic, SEK 1.89 2.23 4.78 5.94 7.00 8.13 Earnings per share, diluted, SEK 1.88 2.22   4.77 5.92   6.97 8.10   1 Including a pension curtailment gain of 148 MSEK during the second quarter 2006 2 Including a gain on sale of securities of 111 MSEK in the fourth quarter 2006 Consolidated Balance Sheet in summary MSEK     Sep 30, 2007 Dec 31, 2006   Intangible fixed assets1 4,593 3,469 Property, plant and equipment 2,361 2,221 Financial fixed assets 997 1,055 Current operating assets2 5,885 5,827 Other current investments 5 56 Cash and cash equivalents 1,281 3,042 Total assets 15,121 15,670   Equity attributable to equity holders of the Parent 281 2,037 Minority interests 3 3 Total equity 284 2,041   Non-current provisions 1,431 1,192 Non-current loans 8,216 7,815 Other non-current liabilities 611 657 Current provisions 40 61 Current loans 1,212 409 Other current liabilities 3,327 3,495 Total equity and liabilities 15,121 15,670 1 A preliminary split has been made of the excess values of the acquisitions of Bogaert Cigars in Q2 2007 and Cigars International in Q3 2007 which have been allocated mainly to intangible assets 2 Includes assets held for sale amounting to 819 MSEK, mainly attributable to the head office in Stockholm Consolidated Cash Flow Statement in summary MSEK   January - September 2007   2006   Profit before income taxes 1,686 2,319 Adjustments for non-cash items and other 347 185 Income tax paid -454 -1,498 Cash flow from operating activities before changes in working capital 1,579 1,007 Cash flow from changes in working capital -185 -543 Net cash from operating activities 1,394 464 Investing activities Acquisition of property, plant and equipment1 -422 -189 Proceeds from sale of property, plant and equipment 29 92 Acquisition of intangible assets -67 -270 Acquisition of subsidiaries, net of cash acquired -1,168 -19 Divestment of business operations - 31 Changes in financial receivables etc. 78 -234 Changes in current investments 51 -457 Net cash used in investing activities -1,500 -1,045 Financing activities Changes in loans 1,207 4,840 Dividends -664 -627 Repurchase of own shares -2,274 -3,674 Sale of treasury shares 122 94 Other -45 -32 Net cash used in financing activities -1,653 601 Net decrease in cash and cash equivalents -1,759 21 Cash and cash equivalents at the beginning of the period 3,042 3,325 Effect of exchange rate fluctuations on cash and cash equivalents -3 -137 Cash and cash equivalents at the end of the period 1,281 3,209 1 Includes investments held for sale and biological assets Statement of recognized income and expense MSEK   January - September 2007   2006   Available-for-sale financial assets 0 10 Cash flow hedges 44 - Translation difference in foreign operations -259 -640 Tax on items taken to/transferred from equity -12 -4 Total transactions taken to equity -227 -634 Net profit for the period recognized in the income statement 1,264 1,732 Total income and expense recognized for the period 1,037 1,098 Attributable to: Equity holders of the Parent 1,037 1,098 Minority interests 0 0 Total income and expense recognized for the period 1,037 1,098 Actuarial gains and losses are calculated at the end of the fourth quarter Change in Shareholders’ equity MSEK   January – September 2007   2006   Opening balance as per January 1 2,040 5,083 Total income and expense recognized for the period 1,037 1,098 Changed accounting principle IAS 19, net after tax 0 -284 Acquisition of own shares -2,274 -3,674 Stock options exercised 122 94 Share-based payments, IFRS 2 22 7 Dividends -664 -627 Closing balance as per September 30 284 1,697 Quarterly data1 MSEK   Q3/05   Q4/05   Q1/06   Q2/06   Q3/06   Q4/06   Q1/07   Q2/07   Q3/07   Sales, including tobacco tax 5,754 5,876 4,797 5,502 5,595 6,097 4,623 5,645 5,984 Less tobacco tax -2,294 -2,376 -1,846 -2,260 -2,335 -2,640 -1,961 -2,555 -2,713 Sales 3,461 3,500 2,951 3,242 3,261 3,457 2,663 3,090 3,272 Cost of sales -1,848 -1,959 -1,456 -1,657 -1,675 -1,877 -1,368 -1,629 -1,702 Gross profit 1,612 1,540 1,495 1,584 1,586 1,581 1,295 1,461 1,570   Sales and administrative expenses -860 -869 -763 -805 -780 -772 -762 -821 -810 Share of profit in equity accounted investees 4 5 1 5 3 3 0 2 0 756 678 733 785 809 811 534 642 759 Larger one time items Pension curtailment gain - - - 148 - - - - - Income from sale of real estate 206 - - - - - - - - Operating profit 962 678 733 933 809 811 534 642 759   Financial income 15 31 32 26 34 39 36 40 33 Financial expenses -55 -67 -68 -77 -101 -107 -102 -119 -137 -40 -36 -36 -51 -67 -68 -66 -79 -105 Larger one time items Gain on sale of securities - - - - - 111 - - - Net finance cost -40 -36 -36 -51 -67 43 -66 -79 -105   Profit before income taxes 922 642 697 882 742 854 468 563 655 Income tax expense -353 -186 -209 -264 -113 -251 -136 -122 -164 Net profit for the period 569 456 488 617 628 603 332 441 491 Attributable to: Equity holders of the Parent 569 456 488 617 628 603 332 441 491 Minority interests 0 0 0 0 0 0 0 0 0 Net profit for the period 569 456 488 617 628 603 332 441 491 1 The 2005 quarters have not been restated for the changed accounting principle for pensions Sales by product area MSEK                   Q3/05 Q4/05 Q1/06 Q2/06 Q3/06 Q4/06 Q1/07 Q2/07 Q3/07   Snuff 809 819 785 831 785 963 662 794 852 Cigars 874 834 759 888 903 857 735 847 902 Chewing tobacco 290 280 273 277 273 240 238 253 243 Pipe tobacco & Accessories 241 245 238 218 217 226 205 203 220 Lights 454 521 387 368 360 388 340 354 374 Other operations 792 800 510 659 723 784 483 638 682 Total 3,461 3,500 2,951 3,242 3,261 3,457 2,663 3,090 3,272 Operating profit by product area1 MSEK                   Q3/05 Q4/05 Q1/06 Q2/06 Q3/06 Q4/06 Q1/07 Q2/07 Q3/07   Snuff 401 392 383 383 385 462 231 311 383 Cigars 188 176 163 207 231 168 164 193 185 Chewing tobacco 94 100 86 81 95 76 72 82 83 Pipe tobacco & Accessories 62 60 76 58 68 63 56 24 64 Lights 47 -31 63 72 64 51 57 62 67 Other operations -37 -20 -38 -17 -35 -9 -45 -29 -22 Subtotal 756 678 733 784 808 811 534 642 759 Larger one time items Pension curtailment gain - - - 148 - - - - - Income from real estate sale 206 - - - - - - - - Subtotal 206 - - 148 - - - - - Total 962 678 733 932 808 811 534 642 759 1 The 2005 quarters have not been restated for the changed accounting principle for pensions Operating margin by product area1 Percent                   Q3/05 Q4/05 Q1/06 Q2/06 Q3/06 Q4/06 Q1/07 Q2/07 Q3/07   Snuff 49.5 47.8 48.8 46.1 49.1 48.0 34.9 39.1 45.0 Cigars 21.5 21.1 21.5 23.4 25.6 19.6 22.3 22.7 20.5 Chewing tobacco 32.5 35.6 31.5 29.3 34.7 31.7 30.1 32.3 34.3 Pipe tobacco & Accessories 25.7 24.4 31.8 26.5 31.5 28.0 27.1 11.7 28.9 Lights 10.5 -5.9 16.2 19.5 17.7 13.1 16.8 17.5 17.8 Group2 21.9 19.4 24.8 24.2 24.8 23.5 20.0 20.8 23.2 1 The 2005 quarters have not been restated for the changed accounting principle for pensions 2 Excluding larger one time items Swedish Match AB (publ), SE-118 85 StockholmVisiting address: Rosenlundsgatan 36, Telephone: +46 8 658 02 00Corporate Identity Number: 556015-0756www.swedishmatch.com The character of the information is such that it shall be disclosed by Swedish Match AB (publ) in accordance with the Swedish Securities and Clearing Operations Act and/or the Swedish Financial Instruments Act. The information was disclosed to the media on October 25, 2007 at 08.00 a.m. (CET).