Swedish Match: Full Year Report 2009

Regulatory News:

Swedish Match AB (STO:SWMA):

• Sales for the full year increased by 13 percent to 14,204 MSEK (12,611) and for the fourth quarter by 2 percent to 3,545 MSEK (3,480)
• In local currencies, sales for the full year increased by 5 percent and for the fourth quarter by 4 percent
• Operating profit excluding larger one time items for the full year increased by 22 percent to 3,417 MSEK (2,801) and for the fourth quarter by 5 percent to 850 MSEK (807)¹⁾
• In local currencies, operating profit excluding larger one time items for the full year increased by 13 percent and for the fourth quarter by 9 percent¹⁾
• EPS (basic) for the full year amounted to 9.67 SEK (8.30) and for the fourth quarter to 2.52 SEK (2.75)²⁾
• EPS (basic) for the full year, including discontinued operations and one time gains, amounted to 12.88 SEK (8.98)²⁾
• The Board proposes an increased dividend to 4.75 SEK (4.10)

¹⁾ Excluding the one time gain of 73 MSEK from sale of subsidiary and related assets in Q4 2008 but including restructuring charges for cigars of 45 MSEK in Q3 2009 and 29 MSEK in Q4 2009

²⁾ Including the one time gain of 73 MSEK from sale of subsidiary and related assets in Q4 2008 and restructuring charges for cigars of 45 MSEK in Q3 2009 and 29 MSEK in Q4 2009

CEO Lars Dahlgren comments:
During 2009 Swedish Match delivered excellent financial results and a record cash flow from operations while undergoing an extensive transformation process. Having clearly established a vision of being the global smokefree leader, best in class in cigars, and maintaining operational excellence in lights and pipe tobacco, a number of changes were put into place. At the same time, we stayed focused on the business evidenced by the very strong results. During the year, total company sales grew in both local currencies and in Swedish kronor, with increased sales reported for all product areas. The snus and snuff product area led the way with strong growth, with sales exceeding 4 billion SEK for the first time. Operating profit growth was also strong, with snus and snuff growing at double digits. Earnings per share reached 9.67 SEK per share, up 16 percent from the previous year. We divested our South African business, which was primarily pipe tobacco, making us even more focused on our smokefree and cigar businesses. Our smokefree joint venture with Philip Morris International has laid the foundation to explore new market opportunities, and will enter an exciting new phase in 2010 as SMPM International plans include conducting its first test launch. In January, 2010, we announced that Swedish Match had signed a letter of intent with Scandinavian Tobacco Group (STG) to form a new company, combining the cigar and pipe tobacco businesses of Swedish Match (excluding US mass market cigars) with the tobacco business of STG. The new company would create a stronger and more competitive cigar, pipe tobacco, and fine cut tobacco company, 49 percent owned by Swedish Match and 51 percent owned by STG. The transaction is subject to due diligence by both parties, final agreements and regulatory approvals. These strategic partnerships, as well as the outstanding performance from our employees, demonstrate our continued efforts to develop Swedish Match.

On July 2, 2009, Swedish Match AB announced the agreement to sell its South African operations, Swedish Match South Africa (Proprietary) Limited, and the transaction was subsequently closed in September. Following this announcement, Swedish Match South African operations as well as the gain on the sale of the South African operations of 628 MSEK are reported as discontinued operations. Furthermore, the segments have been reclassified with the remainder of the former pipe tobacco and accessories segment now being reported in Other operations. Financial commentary and tables do not include the discontinued operations unless explicitly stated.

Summary of consolidated income statement
		October - December				Full year
MSEK		2009		2008		2009		2008
Sales		3,545		3,480		14,204		12,611
Operating profit excl. larger one time items		850		807		3,417		2,801
Operating profit		850		880		3,417		2,874
Profit before income tax		739		784		2,974		2,433
Profit from continuing operations		595		687		2,361		2,091
Profit from discontinued operations, net after tax		-		41		785		170
Profit for the period, incl. discontinued operations		595		728		3,146		2,261
Earnings per share, basic (SEK)		2.52		2.75		9.67		8.30
Earnings per share, incl. discontinued operations, basic (SEK)		2.52		2.91		12.88		8.98

Sales and results for the fourth quarter
Sales for the fourth quarter of 2009 increased by 2 percent to 3,545 MSEK (3,480) compared to the fourth quarter of 2008. Currency translation has affected the sales comparison negatively by 82 MSEK. In local currencies, sales increased by 4 percent.

Sales of Scandinavian snus (pasteurized) and US snuff (fermented) in the fourth quarter increased by 6 percent to 1,101 MSEK (1,035) and operating profit increased by 13 percent to 523 MSEK (463). Scandinavian snus sales were up 13 percent compared to the fourth quarter of the prior year while volumes measured in number of cans increased by 3 percent.

In the US, sales of snuff in local currency declined by less than 1 percent, and operating profit also declined. US volumes were flat year on year in the fourth quarter.

The operating margin for the snus and snuff product area was 47.5 percent (44.7).

For cigars, sales in the fourth quarter were 1,056 MSEK (1,052). Operating profit was 179 MSEK (205). During the fourth quarter a restructuring charge pertaining to the cigar factory in Belgium has affected operating profit negatively by 29 MSEK. Sales increased in local currencies in both the US machine made and premium businesses, as well as in Europe. Operating margin for cigars was 16.9 percent (19.5). Excluding the restructuring charge, the operating margin was 19.7 percent.

Fourth quarter Group operating profit, excluding larger one time items, but including the restructuring charge related to cigars, increased by 5 percent to 850 MSEK (807). Currency translation has affected the operating profit comparison negatively by 30 MSEK. In local currencies, operating profit increased by 9 percent.

Operating margin for the fourth quarter improved to 24.0 percent, compared to 23.2 percent for the fourth quarter of 2008, mainly as a result of continued growth and improved profitability in snus and snuff.

Basic earnings per share for the fourth quarter amounted to 2.52 SEK (2.75). Fourth quarter basic earnings per share includes a cigar restructuring charge of 29 MSEK before tax in 2009, and a gain on the sale of a subsidiary of 73 MSEK in 2008.

Sales and results for the year
Sales for the year increased by 13 percent to 14,204 MSEK (12,611). In local currencies, sales increased by 5 percent. Operating profit increased to 3,417 MSEK (2,874). Currency translation has affected the operating profit comparison positively by 239 MSEK. For the full year operating profit has been negatively affected by restructuring charges of 73 MSEK, including the restructuring charge of 45 MSEK recorded in the third quarter pertaining to US machine made cigars, and a cigar restructuring charge of 29 MSEK recorded in the fourth quarter pertaining to European cigars.

Group operating margin during the year was 24.1 percent (22.2). Excluding the cigar restructuring charges, the operating margin during the year was 24.6 percent.

The reported tax rate for the Group for the year was 20.6 percent (14.1).

EPS (basic) for the year was 9.67 SEK (8.30), while diluted EPS was 9.66 SEK (8.29). EPS (basic) for the full year including discontinued operations was 12.88 SEK (8.98), while diluted EPS was 12.87 SEK (8.96).

Sales by product area
		October - December				Chg		Full year				Chg
MSEK		2009		2008		%		2009		2008		%
Snus and snuff		1,101		1,035		6		4,250		3,725		14
Cigars		1,056		1,052		0		4,426		3,644		21
Chewing tobacco		233		260		-10		1,112		934		19
Lights		422		407		4		1,574		1,525		3
Other operations		732		726		1		2,843		2,783		2
Total		3,545		3,480		2		14,204		12,611		13

Operating profit by product area
		October - December				Chg		Full year				Chg
MSEK		2009		2008		%		2009		2008		%
Snus and snuff		523		463		13		1,916		1,658		16
Cigars		179		205		-13		935		686		36
Chewing tobacco		76		96		-21		411		329		25
Lights		92		71		29		279		275		1
Other operations		-19		-27				-123		-146
Subtotal		850		807		5		3,417		2,801		22
Larger one time items
Gain on sale of subsidiary and related assets*		-		73				-		73
Total		850		880		-3		3,417		2,874		19
* The capital gain is attributable to the product area Other operations

Total sales and operating profit of the Group’s reportable segments reconcile to the Group’s total sales and operating profit for the periods. In order to arrive at the profit before tax of 739 MSEK (784) for the fourth quarter and 2,974 MSEK (2,433) for the full year, the net finance costs of 111 MSEK (97) and 443 MSEK (441) respectively need to be deducted.

Operating margin by product area*
		October - December				Full year
Percent		2009		2008		2009		2008
Snus and snuff		47.5		44.7		45.1		44.5
Cigars		16.9		19.5		21.1		18.8
Chewing tobacco		32.5		36.8		36.9		35.2
Lights		21.8		17.5		17.7		18.0
Group		24.0		23.2		24.1		22.2
* Excluding larger one time items, but including restructuring charges for the product area cigars of 45 MSEK in Q3 2009 and 29 MSEK in Q4 2009

EBITDA by product area
		October - December				Chg		Full year				Chg
MSEK		2009		2008		%		2009		2008		%
Snus and snuff		559		498		12		2,066		1,805		15
Cigars		222		263		-15		1,176		889		32
Chewing tobacco		79		98		-19		431		346		25
Lights		103		82		26		323		316		2
Other operations		-17		-24				-113		-134
Group		947		917		3		3,885		3,222		21

EBITDA margin by product area
		October - December				Full year
Percent		2009		2008		2009		2008
Snus and snuff		50.8		48.2		48.6		48.4
Cigars		21.0		25.0		26.6		24.4
Chewing tobacco		34.0		37.5		38.8		37.1
Lights		24.4		20.1		20.5		20.7
Group		26.7		26.3		27.4		25.5

Snus and snuff
Sweden is the world’s largest snus market measured by per capita consumption. A substantially larger proportion of the male population uses the Swedish type of moist snuff called snus^* compared to cigarettes. The Norwegian market is smaller than the Swedish market but has in recent years experienced strong volume growth. The US is the world’s largest moist snuff market measured in number of cans and is approximately six times larger than the Swedish snus market. In Sweden and Norway, Swedish Match has a leading position. In the US, the Group is well positioned as the third largest player. Some of the best known brands include General, Ettan, Grovsnus and Göteborgs Rapé in Sweden, and Red Man, Timber Wolf and Longhorn in the US.

During the fourth quarter, sales increased by 6 percent compared to the same quarter of the previous year, to 1,101 MSEK (1,035), and operating profit increased by 13 percent to 523 MSEK (463). Sales and operating profit improved in Scandinavia, and in the US sales were flat while operating profit declined. The operating margin for the total product area was 47.5 percent (44.7).

In Scandinavia, sales volumes measured in number of cans, increased by 3 percent during the fourth quarter compared to the fourth quarter of the previous year, with volume growth in Sweden, Norway, and Travel Retail. Sales revenues in Scandinavia grew by 13 percent in the fourth quarter, and operating margin improved. During the quarter the launch of Lab Series 01 and 02 continued in Norway, a full national rollout is now underway.

In the US, sales declined by less than 1 percent in local currency during the fourth quarter versus previous year. US volumes measured in number of cans were virtually unchanged versus prior year, as volume growth for the Longhorn brand offset declines for the Timber Wolf brand. Flat average sales prices and somewhat higher cost per can were, together with increased marketing spending, most notably for Swedish snus brands on the US market, the reasons for the decline in operating profit. Swedish Match consumer volumes as measured by Nielsen for the year to date period through December 26 increased by 5.9 percent compared to the same period of the previous year. This resulted in further growth in market share as the growth of the total market in the same period was 1.6 percent according to Nielsen.

For the full year, sales increased to 4,250 MSEK (3,725) and operating profit increased to 1,916 MSEK (1,658). Operating margin was 45.1 percent (44.5). Sales, volumes and operating profit increased in Scandinavia as well as in the US.

^* Swedish snus is moist snuff which is produced using a special heat treated process, much like pasteurization, as opposed to other moist snuff products for which a fermentation process is used.

Cigars
Swedish Match is one of the world’s largest producers of cigars and cigarillos. 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, Hollandia, Justus van Maurik, Willem II, and Salsa. The US is the largest cigar market in the world. 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. The largest markets for Swedish Match in sales terms in Europe include France, Benelux, Finland, and Spain.

During the fourth quarter, sales were 1,056 MSEK (1,052), and operating profit amounted to 179 MSEK (205). Excluding the restructuring charge relating to the rationalization of cigar manufacturing in Europe, operating profit was 208 MSEK. In local currencies, sales in the fourth quarter were up 6 percent compared to the same period of the previous year, while operating profit declined by 2 percent. Operating margin was 16.9 percent (19.5). Excluding the restructuring charge, operating margin was 19.7 percent and operating profit increased by 11 percent in local currencies.

During the fourth quarter, US mass market cigar sales grew by 8 percent in local currency compared to the same period in the previous year.

US premium cigar sales, which include Internet and mail order sales, were up 6 percent in local currency. US premium cigar volumes were flat, with increased volumes to mail order and Internet retailers offsetting declines for traditional retailers.

Cigar sales in Europe grew as a result of higher volumes in a number of markets, most notably in France, Portugal, Finland, and Spain – more than offsetting continued volume declines in the Netherlands.

For cigars in total, sales for the full year amounted to 4,426 MSEK (3,644), while operating profit was 935 MSEK (686). In local currencies sales increased by 7 percent versus the previous year, while operating profit increased by 20 percent. Excluding the restructuring charges made in the third and fourth quarters, operating profit was 1,008 MSEK (686), and increased by 30 percent in local currencies.

Chewing tobacco
Chewing tobacco is sold primarily on the North American market, mainly in the southern US. Swedish Match is the leading producer of chewing tobacco in the US. Well known brands include Red Man and Southern Pride. The chewing tobacco segment shows a declining trend.

During the fourth quarter, sales increased in local currency by 2 percent, while decreasing by 10 percent in Swedish kronor to 233 MSEK (260). In local currency, the operating profit declined by 7 percent, due in part to volume declines in Texas and Florida following significant tax increases. Operating profit decreased by 21 percent in Swedish kronor to 76 MSEK (96). Operating margin was 32.5 percent (36.8).

Sales for the full year amounted to 1,112 MSEK (934) while operating profit amounted to 411 MSEK (329). In local currency, sales for the year were up 2 percent, while operating profit grew by 7 percent. Operating margin was 36.9 percent (35.2).

Since the second quarter, 2009, Swedish Match has been producing chewing tobacco as part of a production agreement with National Tobacco. Production has been fully up and running since the third quarter.

Lights
Swedish Match is the market leader in a number of markets for matches. The brands are mostly local, with leading positions in their home countries. Larger brands include Solstickan, Tres Estrellas, Fiat Lux, and Redheads. The Group’s main brand for disposable lighters is Cricket. Swedish Match largest market for lighters is Russia.

During the fourth quarter sales amounted to 422 MSEK (407). In local currencies, sales declined by 2 percent. Operating profit amounted to 92 MSEK (71). Operating margin was 21.8 percent (17.5). Volumes for lighters declined, but volumes for matches increased compared to the same period prior year.

Sales for the full year amounted to 1,574 MSEK (1,525), while operating profit amounted to 279 MSEK (275). Operating margin was 17.7 percent (18.0).

Other operations
Other operations primarily include the distribution of tobacco products on the Swedish market, some sales of pipe tobacco and accessories, and corporate overhead costs.

Sales in Other operations for the fourth quarter amounted to 732 MSEK (726). Operating loss for Other operations was 19 MSEK (27), positively affected by various one time items.

Sales for the full year amounted to 2,843 MSEK (2,783). Operating loss for the year was 123 MSEK (146).

Taxes
For the full year, the reported tax expense amounted to 613 MSEK (342), corresponding to a tax rate of 20.6 percent (14.1). The tax rate includes one time items, and excluding those the underlying tax rate was around 22 percent for the full year. In Sweden the corporate tax rate was reduced from 28 percent to 26.3 percent as from January 1, 2009.

The change to the tax rate compared to the full year 2008 is mainly explained by the significant positive one-time reversals of tax provisions in 2008 and a tax exempt gain from the sale of the UK subsidiary in 2008. Currency movements also impact the tax rate as a large portion of profits are generated in the US where the Group’s average tax rate is approximately 38 percent.

Earnings per share
Basic earnings per share for the fourth quarter amounted to 2.52 SEK (2.75). For the full year basic earnings per share was 9.67 SEK (8.30), while diluted EPS was 9.66 SEK (8.29). EPS (basic) including discontinued operations for the year was 12.88 SEK (8.98), while diluted EPS was 12.87 SEK (8.96).

Proposed dividend per share
The Board of Directors proposes an increased dividend to 4.75 SEK (4.10), equivalent to 49 percent (46) of the earnings per share for the year. The proposed dividend amounts to 1,099 MSEK based on the 231.3 million shares outstanding at the end of the year.

Depreciation, amortization and write-downs
In the fourth quarter, total depreciation, amortization and write-downs amounted to 97 MSEK (109), of which depreciation and write-down on property, plant and equipment amounted to 69 MSEK (77) and amortization of intangible assets amounted to 28 MSEK (32).

During the year, total depreciation, amortization and write-downs amounted to 468 MSEK (420), of which depreciation and write-down on property, plant and equipment amounted to 350 MSEK (300) and amortization of intangible assets amounted to 118 MSEK (120). Amortization of intangible assets mainly pertains to trademarks.

Financing and cash flow
Cash flow from operations for the year amounted to 2,911 MSEK compared with 1,838 MSEK in 2008. Cash flow from operations in the first quarter of 2008 was negatively affected by timing differences in working capital and excise tax payments from the hoarding in the Swedish market at the end of 2007.

The net debt as per December 31, 2009 amounted to 7,188 MSEK compared to 7,640 MSEK at December 31, 2008. During the year new bond loans of 998 MSEK were issued. Repayment of loans for the same period amounted to 2,018 MSEK including repurchase of 900 MSEK of bond loans with shorter maturities. As at December 31, 2009 Swedish Match had 8,578 MSEK of interest bearing debt excluding retirement benefit obligations. During 2010, 1,002 MSEK of this debt falls due for repayment.

In the year, dividend payments of 1,024 MSEK and share repurchases, net, of 2,547 MSEK were made. Investments in property, plant and equipment in the year amounted to 471 MSEK (319).

Cash and cash equivalents amounted to 2,530 MSEK at the end of the period, compared with 3,178 MSEK at the beginning of 2009. As of December 31, 2009, Swedish Match had 2,559 MSEK in unutilized committed credit lines. In the beginning of 2010 a syndicated loan has been renegotiated and certain bi-lateral credit lines have matured. Following this change, the amount of unutilized committed credit lines is 160 MEUR.

Net finance cost for the year increased to 443 MSEK (441).

Average number of employees
The average number of employees in the Group during the year was 11,037 compared with 11,483 for the full year 2008.

Share structure
The Annual General Meeting on April 28, 2009 approved a mandate to repurchase shares for a maximum amount of 3,000 MSEK until the next Annual General Meeting with the condition that the Company at any time does not hold more than 10 percent of all shares of the Company. In addition, in accordance with the resolution at the Annual General Meeting, 4.0 million shares held in treasury have been cancelled. The total number of registered shares in the Company after the cancellation of shares is 251,000,000.

After Annual General Meeting approval, the Company issued 1,716,948 call options to senior Company officials and key employees for the stock option program for 2008. These call options can be exercised from March 2012 to February 2014. The strike price is 141.24 SEK.

During the year 18.4 million shares were repurchased for 2,598 MSEK at an average price of 140.94 SEK. Total shares bought back by Swedish Match since the buyback programs started have been repurchased at an average price of 85.62 SEK. During the year the Company sold 0.6 million treasury shares at an average price of 88.22 SEK as a result of option holders exercising options. As per December 31, 2009 Swedish Match held 19.7 million shares in treasury, corresponding to 7.8 percent of the total number of shares. The number of shares outstanding, net after repurchases and after the sale of treasury shares, as per December 31, 2009 amounted to 231.3 million. In addition, the Company has call options outstanding as of December 31, 2009 corresponding to 5.3 million shares exercisable in gradual stages from 2010 to 2014.

In January 2010, a further 2.3 million shares have been repurchased for 357 MSEK at an average price of 155.41 SEK.

The Board will propose to the Annual General Meeting in April 2010 a renewed mandate to repurchase shares up to a total holding in treasury not exceeding 10 percent of the number of registered shares in the Company until the next Annual Meeting in 2011. In addition a proposal will be made to cancel 20 million shares held in treasury with a contemporaneous bonus issue without issuing new shares of an amount equivalent to the reduction of share capital through the cancellation of shares.

Other events
Swedish Match and Philip Morris International announced in February 2009 the agreement to establish an exclusive joint venture company to commercialize Swedish snus and other smokefree tobacco products worldwide, outside of Scandinavia and the United States. The joint venture, SMPM International, is based in Stockholm and the board of directors consists of six members, with three nominated by each company.

In February 2009, legislation was signed in the US to fund the State Childrens’ Health Care Insurance Programs (SCHIP) through tobacco tax revenues (federal excise tax increases). The new federal excise tax rates became effective on April 1, 2009, and impacted both shipment volumes and consumption during 2009.

On June 22, 2009 a new law was signed in the US which grants the Food and Drug Administration (FDA) authority to regulate tobacco products. In accordance with the legislation, payments of user fees, certain registrations as well as other requirements began implementation from the second half of 2009.

On July 2, 2009, Swedish Match AB announced that it has reached an agreement to sell its South African operations, Swedish Match South Africa (Proprietary) Limited (SMSA) to Philip Morris International for a purchase price amounting to 1.7 billion ZAR. The transaction was completed during the month of September. In 2008 the South African operations had total sales of 688 MZAR. SMSA will continue to distribute lighters, matches and cigars for Swedish Match.

In October 2009, and in accordance with the instructions adopted by the Annual General Meeting 2009, a Nominating Committee was formed. In addition to Conny Karlsson (Chairman of the Board), Andy Brown (Cedar Rock Capital), Mads Eg Gensmann (Parvus Asset Management), KG Lindvall (Swedbank Robur funds), and William Lock (Morgan Stanley Investment Management) have been appointed members of the Nominating Committee.

At the end of 2009, Swedish Match and Lorillard agreed to end their joint venture testing of snus in the US. Swedish Match will continue to market snus, primarily using the General brand. Swedish Match snus is now available in more than 600 tobacconist stores.

Cubatabaco has been seeking to cancel General Cigar’s registration for the Cohiba trademark in the US in a proceeding that started in 1997. A District Court ruled in favor of Cubatobaco in 2004. A US Court of Appeals reversed the District Court’s ruling and concluded that General Cigar is the rightful owner of the trademark in the US. The matter was appealed to the Supreme Court which denied review of the case. Despite this the case was reopened by the District Court in 2008 on the basis that there had been a change in New York State law and the District Court again ruled in favor of Cubatabaco in December 2009. General Cigar has filed an appeal and has asked the US Court of Appeals to again reverse the ruling of the District Court. Pending the outcome of this appeal Swedish Match can continue selling products under the Cohiba brand in the US. In the opinion of management there are good defenses against Cubatabaco’s claims and the case will continue to be vigorously defended.

Events following the close of the reporting period
On January 15, 2010, Swedish Match AB announced that it had signed a letter of intent with Scandinavian Tobacco Group (STG) which would, if an agreement is reached, combine the cigar and pipe tobacco businesses of Swedish Match (with the exception of the US machine made cigar business) with the cigar, pipe tobacco, and fine cut tobacco businesses of STG. The new company would have annual sales in the range of 670 MEUR. Swedish Match would own 49 percent of the new company, while STG would own 51 percent. On February 15, Swedish Match received the necessary consent from bondholders. Completion of the transaction is still subject to due diligence by both parties, final transaction agreements, and regulatory approvals. Signing is expected to take place during the first half of 2010 with completion as soon as possible thereafter.

Outlook
During 2010 Swedish Match will take further steps to strengthen our position as a leading smokefree tobacco company while maintaining our commitment to profitability in other product categories. For 2010 we expect both the snus market in Scandinavia and the snuff market in the US to grow.

The Company maintains its long term financial strategy and dividend policy, and we remain committed to returning cash not needed in operations to shareholders.

The tax rate from continuing operations for 2009, excluding one time items, was around 22 percent, and is expected to be at a similar level in 2010.

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 consumer 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 results of operations.

Swedish Match has a substantial part of its production and sales in EMU member countries as well as in Brazil and the US. Consequently, changes in exchange rates of euro, 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 and fiscal changes related to tobacco and other taxes, as well as to the marketing, sale and consumption of tobacco products, in the countries where the Group is operating may have an adverse effect on Swedish Match results of operations.

For a further description of risk factors affecting Swedish Match, see the Report of the Board of Directors in the published Swedish Match Annual Report for 2008.

Swedish Match AB (publ)
Swedish Match AB (publ) is the Parent Company of the Swedish Match Group.

Sales in the Parent Company for the full year amounted to 2 MSEK (1). Profit before income tax amounted to 4,742 MSEK (1,907) and net profit for the year amounted to 4,578 MSEK (1,914). The main sources of income for the Parent Company are dividends and group contributions from subsidiaries. During the period the Parent Company received dividends amounting to 4,235 MSEK (4,673).

Part of the Group’s treasury operations are included in the operations of the Parent Company and include the major part of the Group’s external borrowings. Some of these loans have variable interest rates and a change of interest rates could impact the result of the Parent Company.

Capital expenditures during the year amounted to 0 MSEK (1). The cash flow for the period was negative 2,702 MSEK (negative 106). During the year new bond loans of 998 MSEK were issued. Repayment of loans for the same period amounted to 1,485 MSEK including repurchase of 900 MSEK of bond loans with shorter maturities. During the period the Parent Company made share repurchases, net, of 2,547 MSEK (934) and paid dividend of 1,024 MSEK (886). Cash and bank at the end of the period amounted to 0 MSEK compared with 2,702 MSEK at the beginning of the year, which is an effect of a changed treasury set-up for the Group.

Accounting principles
This report is prepared in accordance with the Accounting Standard IAS 34 Interim Financial Reporting. The Annual Account Act and the Securities Markets Act have also been applied. The report of the Parent Company is prepared in accordance with the Annual Account Act and the Securities Markets Act which is in accordance with the rules of RFR 2.2 Accounting for Legal Entities issued by the Swedish Financial Reporting Board.

New accounting standards, changes of standards and interpretations applicable from January 1, 2009 as detailed below have been applied in this report:

IFRS 8 operating segments sets out the definition of operating segments and requirements for disclosure in the financial reports. Swedish Match monitors and makes decisions about operating matters based on product areas. The reportable segments for Swedish Match are Snus and snuff, Cigars, Chewing tobacco, Lights and Other operations. The South African operations accounted for the major part of the total Swedish Match pipe tobacco and accessories business and following the reporting of the South African operations as discontinued, the classification of segments was changed. The continuing pipe tobacco and accessories operations are no longer reported in a separate segment but instead included in Other operations and the discontinued operations are excluded from the segment reporting. Due to the changed classification of operating segments, prior periods have been restated. There are no internal sales between operating segments and the Group’s financial costs as well as taxes are not allocated to product areas. Operating assets are not monitored on a segment basis.

Amendments to IAS 1 Presentation of financial statements set out a revised presentation of owner changes in equity and of comprehensive income. The revision does not change the recognition, measurement or disclosure of specific transactions.

Amendments to IAS 23 Borrowing costs set out that borrowing costs directly pertaining to acquisition, construction or production of an asset that takes a substantial time to complete shall be capitalized. The amendment has not had a material impact on the financial report.

In all other respects the accounting principles are the same as in the 2008 Annual Report.

Forward-looking information
This report contains forward-looking information based on the current expectation of the Swedish Match Group’s management. Although management deems that the expectations presented by such forward-looking information are reasonable, no guarantee can be given that these expectations will prove correct. Accordingly, the actual future outcome could vary considerably compared to what is stated in the forward-looking information, due to such factors as changed conditions regarding business cycles, market and competition, changes in legal requirements and other political measures, and fluctuation in exchange rates.

Additional information
This report has not been reviewed by the Company’s auditors. The annual report for 2009 is expected to be released end of March and distributed in early April. The Annual General Meeting will be held on April 27, 2010 in Stockholm, Sweden. The January-March 2010 report will be released on April 29, 2010.

Stockholm, February 25, 2010

Lars Dahlgren
President and CEO

Key data
			Full year
		2009		2008
Continuing operations
Operating margin, %1)		24.1		22.2
Operating capital, MSEK		8,494		8,841
Return on operating capital, %1)		39.4		34.0
EBITDA, MSEK2)		3,885		3,222
EBITA, MSEK3)		3,535		2,921
Net debt, MSEK		7,188		7,640
Net debt/EBITA		2.0		2.6
Investments in property, plant and equipment, MSEK4)		471		319
EBITA interest cover		8.4		7.0
Share data
Earnings per share, basic, SEK
From continuing operations		9.67		8.30
Including discontinued operations		12.88		8.98
Earnings per share, diluted, SEK
From continuing operations		9.66		8.29
Including discontinued operations		12.87		8.96
Number of shares outstanding at end of period		231,300,000		249,160,000
Average number of shares outstanding, basic		244,259,880		251,867,479
Average number of shares outstanding, diluted		244,440,057		252,211,733

1) Excluding a gain of 73 MSEK from sale of subsidiary and related assets during 2008, but including restructuring charges of 73 MSEK in 2009

2) Operating profit excluding larger one time items adjusted for depreciation, amortization and writedowns of tangible and intangible assets

3) Operating profit excluding larger one time items adjusted for amortization and writedowns of intangible assets

4) Includes investments in forest plantations of 22 MSEK (19)

Consolidated income statement in summary
MSEK		October - December				Chg		Full year				Chg
		2009		2008		%		2009		2008		%
Continuing operations
Sales, including tobacco tax		6,409		6,141				25,483		22,793
Less tobacco tax		-2,864		-2,661				-11,279		-10,182
Sales		3,545		3,480		2		14,204		12,611		13
Cost of goods sold		-1,835		-1,747				-7,114		-6,437
Gross profit		1,710		1,733		-1		7,089		6,174		15
Sales and administrative expenses		-860		-930				-3,681		-3,384
Share of profit in equity accounted investees		0		4				10		11
Gain on sale of subsidiary and related assets		-		73				-		73
Operating profit		850		880		-3		3,417		2,874		19
Finance income		10		41				86		154
Finance costs		-121		-137				-529		-595
Net finance cost		-111		-97				-443		-441
Profit before income tax		739		784		-6		2,974		2,433		22
Income tax expense		-143		-97				-613		-342
Profit for the period from continuing operations		595		687		-13		2,361		2,091		13
Discontinued operations
Profit from discontinued operations, net after tax		-		41				785		170
Profit for the period		595		728		-18		3,146		2,261		39
Attributable to:
Equity holders of the Parent		595		728				3,146		2,261
Minority interests		0		0				1		1
Profit for the period		595		728		-18		3,146		2,261		39
Earnings per share, basic, SEK
From continuing operations		2.52		2.75				9.67		8.30
Including discontinued operations		2.52		2.91				12.88		8.98
Earnings per share, diluted, SEK
From continuing operations		2.51		2.75				9.66		8.29
Including discontinued operations		2.51		2.91				12.87		8.96

Consolidated statement of comprehensive income
MSEK		October - December				Full year
		2009		2008		2009		2008
Profit recognized in the income statement		595		728		3,146		2,261
Other comprehensive income
Translation differences related to foreign operations		165		733		-222		820
Translation differences included in profit and loss		2		6		163		6
Effective portion of changes in fair value of cash flow hedges		-24		-161		41		-184
Reclassification adjustments for gains/losses on cash flow hedges included in profit and loss		-		-		25		-
Actuarial gains and losses attributable to pensions, incl. payroll tax1)		-48		-952		-115		-952
Income tax relating to components of other comprehensive income		12		337		38		344
Total comprehensive income, net of tax		107		-38		-70		34
Total comprehensive income		703		690		3,076		2,296
Attributable to:
Equity holders of the Parent		703		690		3,075		2,295
Minority interest		0		0		1		1
Total comprehensive income		703		690		3,076		2,296
1) During 2008 actuarial gains and losses were calculated only at year end

Consolidated balance sheet in summary
MSEK		December 31, 2009		December 31, 2008
Intangible assets		3,792		4,702
Property, plant and equipment		2,525		2,458
Other non-current financial receivables1)		2,193		2,284
Current operating assets		5,296		5,732
Other current investments		1		1
Cash and cash equivalents		2,530		3,178
Total assets		16,337		18,355
Equity attributable to equity holders of the Parent		899		1,377
Minority interest		4		4
Total equity		903		1,381
Non-current provisions		1,301		1,281
Non-current loans		8,252		9,975
Other non-current financial liabilities2)		1,440		1,337
Current provisions		125		29
Current loans		1,002		743
Other current liabilities		3,313		3,609
Total equity and liabilities		16,337		18,355

1) Includes pension assets of 150 MSEK (134) and derivative financial instruments of 679 MSEK (1,064) used to hedge the Parent Company’s bond loans denominated in euro

2) Includes pension liabilities of 1,291 MSEK (1,298) and derivative financial instruments of 3 MSEK (-) used to hedge the Parent Company’s bond loans denominated in euro

Consolidated cash flow statement in summary
MSEK		January		–		December
		2009				2008
Operating activities
Profit before income taxes		2,974				2,433
Adjustments for non-cash items and other		511				213
Income tax paid		-507				-488
Cash flow from operating activities before changes in working capital		2,978				2,158
Cash flow from changes in working capital		-67				-320
Net cash from operating activities		2,911				1,838
Investing activities
Purchase of property, plant and equipment		-471				-319
Proceeds from sale of property, plant and equipment		3				109
Purchase of intangible assets		-16				-8
Acquisition of subsidiaries, net of cash acquired1)		-63				-7
Proceeds from sale of subsidiaries, net of cash disposed of		1,577				155
Changes in financial receivables etc.		12				4
Changes in other current investments		0				5
Net cash used in investing activities		1,043				-61
Financing activities
Changes in loans		-1,020				-483
Dividends paid to equity holders of the Parent		-1,024				-886
Repurchase of own shares		-2,598				-996
Stock options exercised		51				62
Other		-115				35
Net cash used in financing activities		-4,707				-2,267
Net decrease in cash and cash equivalents		-753				-491
Cash flow from discontinued operations
Net cash from operating activities		219				142
Net cash used in investing activities		-6				13
Net cash used in financing activities		-51				42
Net increase in cash and cash equivalents		162				196
Cash and cash equivalents at the beginning of the period		3,178				3,439
Effect of exchange rate fluctuations on cash and cash equivalents		-58				34
Cash and cash equivalents at the end of the period		2,530				3,178

1) Acquisitions in 2009 pertain to Rocker Production AB acquired from Philip Morris International of 31 MSEK, investment of 23 MSEK in Swedish Match and Philip Morris International’s joint venture company and final payment for the acquisition of Havana Honeys’ assets of 8 MSEK. At the date of the acquisition of Rocker Production AB, the acquired company’s net assets amounted to 31 MSEK. Of the company’s assets, tangible assets accounted for 21 MSEK, inventories for 12 MSEK and other assets for 3 MSEK. Acquired liabilities amounted to 5 MSEK. If the acquisition had occurred on January 1, 2009, the Group estimates that net sales for the Group would have increased by 1 MSEK and net profit would have decreased by 2 MSEK

Change in shareholders’ equity
MSEK		Equity attributable to holders of the Parent		Minority interest		Total equity
Equity at January 1, 2008		720		4		724
Adjustment for reclassification of pension plan IAS 19, net after tax		152		-		152
Adjusted equity at January 1, 2008		872		4		876
Total comprehensive income		2,295		1		2,296
Dividends		-886		-1		-886
Repurchase of own shares		-996		-		-996
Stock options exercised		62		-		62
Cancellation of shares		-18		-		-18
Bonus issue		18		-		18
Share-based payments, IFRS 2		28		-		28
Equity at December 31, 2008		1,377		4		1,381
Equity at January 1, 2009		1,377		4		1,381
Total comprehensive income		3,075		1		3,076
Dividends		-1,024		0		-1,024
Repurchase of own shares		-2,598		-		-2,598
Stock options exercised		51		-		51
Cancellation of shares		-6		-		-6
Bonus issue		6		-		6
Share-based payments, IFRS 2		18		-		18
Equity at December 31, 2009		899		4		903

Discontinued operations

In the third quarter Swedish Match discontinued Swedish Match South African operations. The South African operations primarily manufacture and sell pipe tobacco and nasal snuff and accounted for approximately 70 percent of the sales of the former pipe tobacco and accessories segment.

Analysis of the result from discontinued operations
MSEK		January		–		December
		2009				2008
Sales		489				551
Expenses		-319				-338
Income taxes		-13				-43
Capital gain from sale of discontinued operations		628				-
Profit from discontinued operations, net after tax		785				170

Parent Company income statement in summary
MSEK		Full year
		2009		2008
Sales		2		1
Gross profit		2		1
Selling and administrative expenses		-251		-285
Operating loss		-249		-284
Result from participation in Group companies		6,006		3,651
Result from participation in joint venture		-9		-
Net finance cost		-1,008		-1,471
Profit after financial items		4,740		1,896
Appropriations		2		11
Profit before income tax		4,742		1,907
Income tax		-164		7
Profit for the period		4,578		1,914

Parent Company statement of comprehensive income
MSEK		Full year
		2009		2008
Profit for the year		4,578		1,914
Other comprehensive income
Effective portion of changes in fair value of cash flow hedges		41		-184
Reclassification adjustment for gains/losses on cash flow hedges in profit and loss		25		-
Income tax relating to changes in fair value of cash flow hedges		-17		49
Other comprehensive income		48		-135
Total comprehensive income		4,627		1,779

Parent Company balance sheet in summary
MSEK		Dec 31, 2009		Dec 31, 2008
Intangible and tangible fixed assets		2		6
Non-current financial assets		51,190		51,528
Current assets		6,462		5,112
Total assets		57,654		56,646
Equity		23,229		22,148
Untaxed reserves		0		2
Provisions		25		16
Non-current liabilities		26,462		27,614
Current liabilities		7,937		6,866
Total liabilities		34,424		34,496
Total equity and liabilities		57,654		56,646

Quarterly data
MSEK		Q4/09		Q3/09		Q2/09		Q1/09		Q4/08		Q3/08		Q2/08		Q1/08		Q4/07
Continuing operations
Sales, including tobacco tax		6,409		6,737		6,648		5,690		6,141		6,033		5,832		4,786		6,275
Less tobacco tax		-2,864		-3,130		-2,982		-2,303		-2,661		-2,759		-2,668		-2,093		-2,916
Sales		3,545		3,606		3,666		3,387		3,480		3,274		3,164		2,693		3,359
Cost of goods sold		-1,835		-1,843		-1,812		-1,624		-1,747		-1,663		-1,633		-1,395		-1,798
Gross profit		1,710		1,764		1,854		1,762		1,733		1,611		1,531		1,298		1,561
Sales and administrative expenses		-860		-892		-958		-970		-930		-808		-846		-799		-822
Share of profit in equity accounted investees		0		3		4		2		4		5		5		-3		-1
		850		874		899		794		807		808		691		496		738
Larger one time items
Gain on sale of subsidiary and related assets		-		-		-		-		73		-		-		-		-
Gain on sale of real estate		-		-		-		-		-		-		-		-		267
Operating profit		850		874		899		794		880		808		691		496		1,005
Finance income		10		35		14		27		41		39		33		40		53
Finance costs		-121		-152		-122		-135		-137		-154		-150		-153		-138
Net finance cost		-111		-117		-108		-108		-97		-115		-117		-113		-85
Profit before income tax		739		757		791		686		784		693		574		383		920
Income tax expense		-143		-142		-168		-159		-97		-72		-95		-78		-177
Profit for the period from continuing operations		595		615		624		527		687		621		479		304		743
Discontinued operations
Profit from discontinued operations, net after tax		0		705		41		40		41		50		38		42		48
Profit for the period		595		1,319		664		567		728		671		517		346		791
Attributable to:
Equity holders of the Parent		595		1,319		664		567		728		671		517		346		791
Minority interest		0		0		0		0		0		0		0		0		0
Profit for the period		595		1,319		664		567		728		671		517		346		791

Sales by product area
MSEK		Q4/09		Q3/09		Q2/09		Q1/09		Q4/08		Q3/08		Q2/08		Q1/08		Q4/07
Snus and snuff		1,101		1,093		1,087		969		1,035		964		926		801		949
Cigars		1,056		1,065		1,129		1,175		1,052		933		905		754		923
Chewing tobacco		233		280		314		284		260		237		227		210		222
Lights		422		388		387		377		407		401		371		345		402
Other operations		732		781		749		581		726		740		735		583		863
Total		3,545		3,606		3,666		3,387		3,480		3,274		3,164		2,693		3,359

Operating profit by product area
MSEK		Q4/09		Q3/09		Q2/09		Q1/09		Q4/08		Q3/08		Q2/08		Q1/08		Q4/07
Snus and snuff		523		534		463		397		463		479		403		313		435
Cigars		179		190		281		286		205		187		183		111		194
Chewing tobacco		76		107		129		98		96		87		77		69		75
Lights		92		62		62		63		71		85		63		55		67
Other operations		-19		-19		-36		-50		-27		-30		-37		-52		-33
Subtotal		850		874		899		794		807		808		691		496		738
Larger one time items
Gain on sale of subsidiary and related assets		-		-		-		-		73		-		-		-		-
Gain on sale of real estate		-		-		-		-		-		-		-		-		267
Subtotal		-		-		-		-		73		-		-		-		267
Total		850		874		899		794		880		808		691		496		1,005

Operating margin by product area*
Percent		Q4/09		Q3/09		Q2/09		Q1/09		Q4/08		Q3/08		Q2/08		Q1/08		Q4/07
Snus and snuff		47.5		48.8		42.6		40.9		44.7		49.7		43.6		39.0		45.8
Cigars		16.9		17.9		24.9		24.3		19.5		20.0		20.2		14.7		21.0
Chewing tobacco		32.5		38.4		41.0		34.6		36.8		36.9		34.1		32.7		34.1
Lights		21.8		15.9		16.1		16.7		17.5		21.2		17.1		16.1		16.7
Group		24.0		24.2		24.5		23.4		23.2		24.7		21.8		18.4		22.0

* Excluding larger one time items, but including restructuring charges for cigars of 45 MSEK in Q3 2009 and 29 MSEK in Q4 2009

____________

Swedish Match AB (publ), SE-118 85 Stockholm
Visiting address: Rosenlundsgatan 36, Telephone: +46 8 658 02 00
Corporate Identity Number: 556015-0756
www.swedishmatch.com

____________

The character of the information in this report is such that it shall be disclosed by Swedish Match AB (publ) in accordance with the Swedish Securities Markets Act. The information was disclosed to the media on February 25, 2010 at 08.00 a.m. (CET).