Swedish Match: Half Year Report January – June 2009

Swedish Match (STO:SWMA):

CEO Lars Dahlgren comments:

In the second quarter we delivered the strongest sales performance and, excluding one-time items, highest operating profit ever. Compared with the same period last year sales increased for all product lines, and operating profit increased for all product lines except for lights. Snus sales and volumes grew in all Scandinavian markets. In the US we continued to gain market share for snuff, and volumes grew by 21 percent. The strong volume gain was aided by the replenishment of trade inventories following the federal excise tax related destocking at the end of the first quarter. Our US mass market cigar business delivered an unusually strong operating margin, as increased demand for cigars in the new "foil fresh” packaging to a large extent compensated for the expected volume drop following the tax related hoarding in the first quarter. The announced sale of our South African pipe and nasal snus operations should be completed in the second half of the year, with a capital gain in excess of 500 MSEK. For the second half of the year, we expect Group sales and operating profit excluding larger one-time items to exceed prior year.

On July 2, 2009, Swedish Match AB announced the agreement to sell its South African operations, Swedish Match South Africa (Proprietary) Limited. In this half year report, Swedish Match’s South African operations have therefore been reported as discontinued operations. Following this change, 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
			April - June								January - June								Full year
MSEK			2009				2008				2009				2008				2008
Sales			3,666				3,164				7,053				5,857				12,611
Operating profit excl. larger one time items			899				691				1,693				1,186				2,801
Operating profit			899				691				1,693				1,186				2,874
Profit before income tax			791				574				1,478				957				2,433
Profit from continuing operations			624				479				1,151				783				2,091
Profit from discontinued operations, net after tax			41				38				81				80				170
Profit for the period			664				517				1,231				863				2,261
Earnings per share, basic (SEK)			2.51				1.89				4.63				3.09				8.30
Earnings per share incl. discontinued operations, basic (SEK)			2.68				2.04				4.95				3.40				8.98

Sales and results for the second quarter

Sales for the second quarter of 2009 increased by 16 percent to 3,666 MSEK (3,164) compared to the second quarter of 2008. Currency translation has affected the sales comparison positively by 425 MSEK. In local currencies, sales increased by 2 percent.

Sales of snuff in the second quarter increased by 17 percent to 1,087 MSEK (926) and operating profit increased by 15 percent to 463 MSEK (403). Scandinavian snus sales were up 8 percent compared to the second quarter of the prior year while volumes measured in number of cans increased by 6 percent.

In the US, sales of snuff in local currency increased by 13 percent, while operating profit was significantly higher, due in part to unusually strong volumes as federal excise tax (FET) related destocking in the first quarter was reversed. US volumes were up 21 percent in the second quarter and up 8 percent for the year to date period.

The operating margin for the snuff product group was 42.6 percent, up from 40.9 percent in the first quarter, despite lower net sales prices in the US after the absorption of the increased federal excise tax effective April 1^st.

For cigars, sales increased by 25 percent during the second quarter to 1,129 MSEK (905). Operating profit increased to 281 MSEK (183). US cigar sales grew by 3 percent in Dollar terms, with sales basically flat for premium cigars, and up for machine made cigars. The expected volume decline from the FET related hoarding in the first quarter was lower than anticipated for mass market cigars following strong demand for "foil fresh” packaged small cigars. Improved pricing and temporary cost reductions in anticipation of weaker volumes resulted in considerably higher margins in the US. In Europe, sales declined in local currencies, in line with volume declines. Operating margin for cigars was 24.9 percent (20.2).

Group operating profit for the second quarter increased by 30 percent to 899 MSEK (691). Currency translation has affected the operating profit comparison positively by 116 MSEK. In local currencies, operating profit increased by 13 percent.

Operating margin for the second quarter amounted to 24.5 percent compared to 21.8 percent for the second quarter of 2008, the increase being driven by the unusually strong margin in the cigar business, as well as continued growth in the snuff businesses.

Basic earnings per share for the second quarter amounted to 2.51 SEK (1.89). Basic earnings per share including discontinued operations amounted to 2.68 SEK (2.04).

Sales and results for the first six months

Sales for the first six months amounted to 7,053 MSEK (5,857). In local currencies, sales increased by 6 percent. Operating profit amounted to 1,693 MSEK (1,186). Currency translation has affected the operating profit comparison positively by 224 MSEK.

Group operating margin during the first six months was 24.0 percent (20.3).

The reported tax rate for the Group for the first six months was 22 percent (18).

EPS (basic) for the first six months was 4.63 SEK (3.09), while diluted EPS was 4.62 SEK (3.08). EPS (basic) for the first six months including discontinued operations was 4.95 SEK (3.40), while diluted EPS was 4.95 SEK (3.39).

Sales by product area
			April - June								Chg				January - June								Chg				Full year
MSEK			2009				2008				%				2009				2008				%				2008
Snuff			1,087				926				17				2,055				1,727				19				3,725
Cigars			1,129				905				25				2,305				1,659				39				3,644
Chewing tobacco			314				227				39				599				437				37				934
Lights			387				371				4				764				716				7				1,525
Other operations			749				735				2				1,330				1,318				1				2,783
Total			3,666				3,164				16				7,053				5,857				20				12,611

Operating profit by product area
			April - June								Chg				January - June								Chg				Full year
MSEK			2009				2008				%				2009				2008				%				2008
Snuff			463				403				15				860				716				20				1,658
Cigars			281				183				53				567				294				93				686
Chewing tobacco			129				77				67				227				146				56				329
Lights			62				63				-2				125				119				6				275
Other operations			-36				-37								-85				-89								-146
Subtotal			899				691				30				1,693				1,186				43				2,801
Larger one time items
Gain on sale of subsidiary and related assets*			-				-								-				-								73
Total			899				691				30				1,693				1,186				43				2,874

* 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 791 MSEK (574) for the second quarter and 1,478 MSEK (957) for the first half year, the net finance cost of 108 MSEK (117) and 215 MSEK (230) respectively needs to be deducted.

Operating margin by product area*
		April - June						January - June						Full year
Percent		2009		2008				2009		2008				2008
Snuff		42.6		43.6				41.8		41.5				44.5
Cigars		24.9		20.2				24.6		17.7				18.8
Chewing tobacco		41.0		34.1				38.0		33.4				35.2
Lights		16.1		17.1				16.4		16.6				18.0
Group		24.5		21.8				24.0		20.3				22.2

* Excluding larger one time items

EBITDA by product area
			April - June								Chg				January - June								Chg				Full year
MSEK			2009				2008				%				2009				2008				%				2008
Snuff			501				440				14				934				790				18				1,805
Cigars			335				231				45				677				391				73				889
Chewing tobacco			135				82				64				239				156				53				346
Lights			73				73				0				147				139				6				316
Other operations			-34				-34								-79				-82								-134
Group			1,011				793				28				1,919				1,394				38				3,222

EBITDA margin by product area
		April - June						January - June						Full year
Percent		2009		2008				2009		2008				2008
Snuff		46.1		47.6				45.4		45.7				48.4
Cigars		29.7		25.5				29.4		23.6				24.4
Chewing tobacco		42.9		36.3				39.9		35.7				37.1
Lights		19.0		19.7				19.3		19.4				20.7
Group		27.6		25.1				27.2		23.8				25.5

Snuff/Snus

Sweden is the world’s largest snuff market measured by per capita consumption. A substantially larger proportion of the male population uses the Swedish type of moist snuff called snus¹ 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 snuff market measured in number of cans and is approximately six times larger than the Swedish 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 and Grov in Sweden, and Red Man, Timber Wolf and Longhorn in the US.

During the second quarter, sales increased by 17 percent compared to the same quarter of the previous year, to 1,087 MSEK (926), and operating profit increased by 15 percent to 463 MSEK (403). Sales and operating profit improved in Scandinavia as well as in the US. The operating margin for the total product group was 42.6 percent (43.6).

In Scandinavia, sales volumes measured in number of cans, increased by 6 percent during the second quarter compared to the second quarter of the previous year, as volumes increased in all markets (Sweden, Norway and Travel Retail). Sales revenues in Scandinavia grew by 8 percent in the second quarter, while operating profit grew by 5 percent as the production costs increased somewhat more than the net sales price per can. Since February, General White Portion snus has been available throughout Sweden in an upgraded "star formation” packaging, following the successful introduction of this redesign initiative in Norway in 2008. This new packaging has been well received in Sweden, and the product has gained volume during the quarter.

In the US, sales volumes during the second quarter were unusually strong and up by 21 percent compared to the same period in the previous year. Sales volumes toward the end of the first quarter of 2009 declined sharply due to trade destocking related to the US federal excise tax increase. This was reversed in the second quarter. Swedish Match consumer volumes as measured by ACNielsen for the year to date period through June 13 increased by 9.2 percent compared to the same period of the previous year. Market growth in the same period was 2.3 percent according to ACNielsen. The strong shipment volumes were a contributor to the sales and operating profit growth in the US snuff business.

From April 1, excise taxes in the US increased by 91.5 cents per pound (about 7 cents per can for most products). Swedish Match maintained pricing for most of the quarter, thus absorbing the tax increase. On June 23, Swedish Match snuff prices were increased by 7-10 cents per can, thereby compensating for the tax increase going forward and reverting to net prices closer to the levels before the increase.

For the first six months of the year, sales increased to 2,055 MSEK (1,727) and operating profit increased to 860 MSEK (716). Operating margin was 41.8 percent (41.5).

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 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 are France, Benelux, Finland and Spain.

During the second quarter, sales were 1,129 MSEK (905), and operating profit amounted to 281 MSEK (183). In local currencies, sales in the second quarter were flat compared to the same period of the previous year, while operating profit increased by 22 percent. Operating margin was 24.9 percent (20.2).

During the second quarter, US premium cigar sales, which includes Internet and mail order, were down less than 1 percent from the previous year in local currency. During the first quarter of 2009 substantial hoarding of premium cigars occurred in connection with the federal excise tax increases. Much of this hoarding was reversed during the second quarter. Sales of mass market cigars in the US were negatively impacted by the first quarter hoarding as well, but the year on year volume decline of 6 percent in the second quarter was better than expected, mainly as a result of the strong performance of the "foil fresh” packaged small cigars. In anticipation of sharper volume declines, costs were reduced to below normal levels in the second quarter, which in combination with price increases resulted in a sharp increase of the operating profit and margin in this product area. Cigar sales in Europe declined somewhat in local currencies as a result of mix effects and lower volumes, particularly in France, Belgium, and the Netherlands.

For cigars in total, sales for the first six months amounted to 2,305 MSEK (1,659), while operating profit was 567 MSEK (294). In local currencies sales increased by 10 percent versus the previous year, while operating profit increased by 52 percent.

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 second quarter, sales increased by 39 percent, to 314 MSEK (227). In local currency, sales of chewing tobacco increased by 5 percent, as federal excise tax related restocking partially mitigated normal volume declines and price increases took effect. Operating profit increased by 67 percent, to 129 MSEK (77). In local currency, the operating profit increased by 26 percent. Operating margin was 41.0 percent (34.1).

Sales for the first six months amounted to 599 MSEK (437) while operating profit amounted to 227 MSEK (146). In local currency, sales for the first six months were up 3 percent, while operating profit grew by 17 percent. Operating margin was 38.0 percent (33.4).

During the second quarter, the Company began producing chewing tobacco as part of a production agreement with National Tobacco. Production will be fully up and running during the second half of the year.

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, Three Stars, Fiat Lux, and Redheads. The Group’s main brand for disposable lighters is Cricket. Swedish Match’s largest market for lighters is Russia.

During the second quarter sales amounted to 387 MSEK (371). In local currencies, sales declined by 4 percent. Operating profit amounted to 62 MSEK (63). Operating margin was 16.1 percent (17.1).

Sales for the first six months amounted to 764 MSEK (716), while operating profit amounted to 125 MSEK (119). Operating margin was 16.4 percent (16.6).

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 second quarter amounted to 749 MSEK (735). Operating loss for other operations was 36 MSEK (37).

Sales for the first six months amounted to 1,330 MSEK (1,318). Operating loss for the first six months was 85 MSEK (89).

Taxes

In the first half of the year, the reported tax expense amounted to 327 MSEK (173), corresponding to a 22 percent tax rate (18). In Sweden the corporate tax rate was reduced from 28 percent to 26.3 percent as from January 1, 2009.

The increase in the tax rate compared to the full year 2008 (14.5 percent) is mainly attributable to 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 second quarter amounted to 2.51 SEK (1.89). Basic earnings per share including discontinued operations amounted to 2.68 SEK (2.04).

EPS (basic) for the first six months was 4.63 SEK (3.09), while diluted EPS was 4.62 SEK (3.08). EPS (basic) including discontinued operations for the first six months was 4.95 SEK (3.40), while diluted EPS was 4.95 SEK (3.39).

Depreciation and amortization

In the first six months of the year, total depreciation and amortization amounted to 226 MSEK (207), of which depreciation on property, plant and equipment amounted to 164 MSEK (149) and amortization of intangible assets amounted to 61 MSEK (58). Amortization of intangible assets mainly pertains to trademarks.

Financing and cash flow

Cash flow from operations for the first half of the year amounted to 1,300 MSEK compared with 578 MSEK for the same period of the previous year. 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 June 30, 2009, amounted to 7,770 MSEK compared to 7,640 MSEK at December 31, 2008. In the first half of the year, dividend payments of 1,024 MSEK and share repurchases, net, of 447 MSEK were made. Investments in property, plant and equipment in the first six months of the year amounted to 231 MSEK (133).

During the first half of the year new bond loans of 998 MSEK were issued by the Parent Company. In connection with this issuance, 900 MSEK of bond loans with shorter maturities were repurchased. Repayment of other loans during the same period amounted to 440 MSEK. As at June 30, 2009, Swedish Match Group had 9,262 MSEK of interest bearing debt excluding retirement benefit obligations. During the remainder of 2009, 224 MSEK of this debt falls due for repayment.

Cash and cash equivalents amounted to 2,547 MSEK at the end of the period, compared with 3,178 MSEK as of December 31, 2008. As of June 30, 2009, Swedish Match had 3,203 MSEK in unutilized committed credit lines.

Net finance cost for the first six months decreased to 215 MSEK (230).

Average number of employees

The average number of employees in the Group during the first half of 2009 was 11,287 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 second quarter 4.1 million shares were repurchased for 496 MSEK at an average price of 121.45 SEK. Total shares bought back by Swedish Match since the buyback programs started have been repurchased at an average price of 80.39 SEK. During the first half of the year the Company sold 0.6 million treasury shares at an average price of 87.89 SEK as a result of option holders exercising options. As per June 30, 2009 Swedish Match held 5.4 million shares, corresponding to 2.1 percent of the total number of shares. The number of shares outstanding, net after repurchases and after the sale of treasury shares, as per June 30, 2009 amounted to 245.6 million. In addition, the Company has call options outstanding as of June 30, 2009 corresponding to 5.3 million shares exercisable in gradual stages from 2009-2014.

Other events and events following the close of the reporting period

Swedish Match and Philip Morris International announced in February that they have entered into an 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 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 impacts 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. According to the legislation, payments of user fees, certain registrations as well as other requirements will be implemented starting in 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 (PMI) for a purchase price amounting to 1.75 billion ZAR. The transaction is subject to approval by the South African Competition Authority and is expected to be completed during the second half of 2009. In 2008 the South African pipe tobacco and nasal snuff businesses had total sales of 687 million ZAR. SMSA will continue to distribute lighters, matches and cigars for Swedish Match.

Outlook

In 2009, Swedish Match is taking further steps to drive value creation and growth to strengthen its position as a leading smokefree tobacco company while maintaining the strong commitment to profitability in other product categories. For the full year Swedish Match expects both the snuff market in Scandinavia and in the US to grow. For the second half of the year, Swedish Match expects Group sales and operating profit excluding larger one-time items to exceed prior year.

The Group maintains its long term financial strategy and dividend policy, and Swedish Match remains committed to returning cash not needed in operations to shareholders.

The tax rate from continuing operations for 2009, excluding one-time items (such as the tax free capital gain from the sale of the South African business), is estimated to be around 22 percent.

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’s 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’s 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 first six months amounted to 1 MSEK (1). Profit before income tax amounted to 1,596 MSEK (602) and profit for the first six months amounted to 1,799 MSEK (858). 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 2,354 MSEK (1,521).

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 first six months amounted to 0 MSEK (0). The cash flow for the period was negative 2,676 MSEK (negative 743). Cash and bank at the end of the period amounted to 26 MSEK compared with 2,702 MSEK at the beginning of the year. During the first six months the Parent Company made share repurchases, net, of 447 MSEK and paid dividend of 1,024 MSEK.

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 snuff, cigars, chewing tobacco, lights and other operations. The South African operations account 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 has 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 January-September 2009 report will be released on October 27.

The Board of Directors and the CEO declare that the half year report gives a true and fair view of the operations, position and result of the Company and the Group and describes the major risks and uncertainties of the Company and the companies in the Group.

Stockholm, July 17, 2009

Conny Karlsson

Andrew Cripps

Charles A. Blixt

Kenneth Ek

Chairman

Deputy Chairman

Board member

Board member

Karen Guerra

Arne Jurbrant

Eva Larsson

Joakim Lindström

Board member

Board member

Board member

Board member

Kersti Strandqvist

Meg Tiveus

Lars Dahlgren

Board member

Board member

President and CEO

Key data
			January – June								12 months ended				Full year
			2009				2008				June 30, 2009				2008
Continuing operations
Operating margin, %1)			24.0				20.3				24.0				22.2
Operating capital, MSEK			8,734				7,432				8,734				8,841
Return on operating capital, %1)											40.9				34.0
EBITDA, MSEK3)			1,919				1,394				3,747				3,222
EBITA, MSEK4)			1,755				1,245				3,431				2,921
Including discontinued operations
Operating margin, %1)			24.5				21.1				24.5				22.9
Operating capital, MSEK			9,594				8,078				9,594				9,585
Return on operating capital, %1)											40.0				33.5
Net debt, MSEK			7,770				7,833				7,770				7,640
Investments in property, plant and equipment, MSEK2)			236				147				420				331
EBITDA, MSEK3)			2,047				1,506				4,006				3,465
EBITA, MSEK4)			1,878				1,353				3,681				3,156
EBITA interest cover			8.6				6.2				8.8				7.5
Net debt/EBITA											2.1				2.4
Share data
Earnings per share, SEK
Basic			4.95				3.40				10.55				8.98
Diluted			4.95				3.39				10.54				8.96
Number of shares outstanding at end of period			245,630,000				251,530,000				245,630,000				249,160,000
Average number of shares outstanding, basic			248,754,020				253,855,908				249,316,534				251,867,479
Average number of shares outstanding, diluted			248,890,974				254,350,043				249,499,780				252,211,733

1) Excluding a gain of 73 MSEK from sale of subsidiary and related assets during the fourth quarter 2008

2) Includes investments in assets held for sale and forest plantations

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

Consolidated income statement in summary
MSEK			April – June								Chg				January – June								Chg				12 months ended				Full year				Chg
			2009				2008				%				2009				2008				%				Jun 30, 2009				2008				%
Continuing operations
Sales, including tobacco tax			6,648				5,832								12,338				10,618								24,512				22,793
Less tobacco tax			-2,982				-2,668								-5,285				-4,761								-10,706				-10,182
Sales			3,666				3,164				16				7,053				5,857				20				13,807				12,611				9
Cost of goods sold			-1,812				-1,633								-3,436				-3,028								-6,846				-6,437
Gross profit			1,854				1,531				21				3,616				2,829				28				6,960				6,174				13
Sales and administrative expenses			-958				-846								-1,929				-1,645								-3,667				-3,384
Share of profit in equity accounted investees			4				5								6				2								15				11
Gain on sale of subsidiary and related assets			-				-								-				-								73				73
Operating profit			899				691				30				1,693				1,186				43				3,381				2,874				18
Finance income			14				33								41				74								121				154
Finance costs			-122				-150								-256				-303								-548				-595
Net finance cost			-108				-117								-215				-230								-427				-441
Profit before income tax			791				574				38				1,478				957				55				2,954				2,433				21
Income tax expense			-168				-95								-327				-173								-495				-342
Profit for the period from continuing operations			624				479				30				1,151				783				47				2,459				2,091				18
Discontinued operations
Profit from discontinued operations, net after tax			41				38								81				80								171				170
Profit for the period			664				517				29				1,231				863				43				2,630				2,261				16
Attributable to:
Equity holders of the Parent			664				517								1,231				863								2,629				2,261
Minority interests			0				0								0				0								1				1
Profit for the period			664				517				29				1,231				863				43				2,630				2,261				16
Earnings per share, basic, SEK
From continuing operations			2.51				1.89								4.63				3.09								9.86				8.30
Including discontinued operations			2.68				2.04								4.95				3.40								10.55				8.98
Earnings per share, diluted, SEK
From continuing operations			2.51				1.89								4.62				3.08								9.85				8.29
Including discontinued operations			2.67				2.04								4.95				3.39								10.54				8.96

Consolidated statement of comprehensive income
MSEK			April – June								January – June								12 months ended				Full year
			2009				2008				2009				2008				Jun 30, -09				2008
Profit recognized in the income statement			664				517				1,231				863				2,630				2,261
Other comprehensive income
Translation difference in foreign operations			-296				107				-18				-343				1,285				959
Reclassification of pension plan			-				-				-				212				-				212
Effective portion of changes in fair value of cash flow hedges			43				32				66				42				-160				-184
Actuarial gains and losses attributable to pensions, incl. payroll tax*			-2				-				115				-				-838				-952
Tax on items taken to/transferred from equity			4				-9				-47				-72				308				284
Other comprehensive income from discontinued operations			125				33				173				-176				216				-133
Other comprehensive income			-126				163				289				-337				811				186
Total comprehensive income			538				679				1,520				526				3,441				2,447
Attributable to:
Equity holders of the Parent			538				679				1,520				526				3,441				2,446
Minority interest			0				0				0				0				1				1
Total comprehensive income			538				679				1,520				526				3,441				2,447

* During 2008 actuarial gains and losses were calculated only at year end

Consolidated balance sheet in summary
MSEK			June 30, 2009				December 31, 2008
Intangible assets			4,012				4,702
Property, plant and equipment			2,518				2,458
Other non-current financial receivables1)			2,280				2,284
Current operating assets			5,425				5,732
Other current investments			1				1
Cash and cash equivalents			2,547				3,178
Assets held for sale			994				-
Total assets			17,777				18,355
Equity attributable to equity holders of the Parent			1,439				1,377
Minority interest			4				4
Total equity			1,444				1,381
Non-current provisions			1,268				1,281
Non-current loans			9,556				9,975
Other non-current financial liabilities2)			1,328				1,337
Current provisions			99				29
Current loans			703				743
Other current liabilities			3,246				3,609
Liabilities related to assets held for sale			132				-
Total equity and liabilities			17,777				18,355

1) Includes pension assets of 136 MSEK (134) and derivative financial instruments of 1,000 MSEK (1,064) used to hedge the Parent Company’s bond loans denominated in euro

2) Includes pension liabilities of 1,192 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 – June
			2009				2008
Operating activities
Profit before income taxes			1,478				957
Adjustments for non-cash items and other			200				150
Income tax paid			-279				-325
Cash flow from operating activities before changes in working capital			1,399				781
Cash flow from changes in working capital			-100				-203
Net cash from operating activities			1,300				578
Investing activities
Acquisition of property, plant and equipment			-231				-133
Proceeds from sale of property, plant and equipment			11				50
Acquisition of intangible assets			0				-2
Acquisition of subsidiaries, net of cash acquired1)			-47				-6
Divestments of business operations			7				5
Changes in financial receivables etc.			2				-3
Net cash used in investing activities			-258				-90
Financing activities
Changes in loans			-340				105
Dividends paid to equity holders of the Parent			-1,024				-886
Repurchase of own shares			-496				-696
Stock options exercised			49				62
Other			32				-116
Net cash used in financing activities			-1,779				-1,531
Net decrease in cash and cash equivalents			-737				-1,042
Cash flow from discontinued operations
Net cash from operating activities			123				76
Net cash used in investing activities			-4				19
Net cash used in financing activities			-50				-3
Net increase in cash and cash equivalents			68				92
Cash and cash equivalents at the beginning of the period			3,178				3,439
Effect of exchange rate fluctuations on cash and cash equivalents			38				-84
Cash and cash equivalents at the end of the period			2,547				2,404

1) Acquisitions in 2009 pertain to Rocker Production AB acquired from Philip Morris International of 31 MSEK, investment of 8 MSEK in Swedish Match’s 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
Total comprehensive income			525				0				526
Repurchase of own shares			-696				-				-696
Stock options exercised			62				-				62
Share-based payments, IFRS 2			15				-				15
Cancellation of shares			-18				-				-18
Bonus issue			18				-				18
Dividends			-886				-				-886
Equity at June 30, 2008			-260				4				-256
Equity at January 1, 2009			1,377				4				1,381
Total comprehensive income			1,519				1				1,520
Repurchase of own shares			-496				-				-496
Stock options exercised			49				-				49
Share-based payments, IFRS 2			14				-				14
Cancellation of shares			-6				-				-6
Bonus issue			6				-				6
Dividends			-1,024				-				-1,024
Equity at June 30, 2009			1,439				4				1,444

Cumulative translation differences pertaining to discontinued operations as per June 30, 2009 amount to -121 MSEK.

Discontinued operations

The discontinued operations refer to 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.

Assets included in discontinued operations
MSEK			June 30, 2009
Intangible assets			714
Property, plant and equipment			61
Other non-current financial receivables			1
Current operating assets			219
Total assets			994

Liabilities included in discontinued operations
MSEK			June 30, 2009
Non-current provisions			1
Other non-current financial liabilities			2
Current loans			0
Other current liabilities			129
Total liabilities			132

Analysis of the result from discontinued operations
MSEK			January – June
			2009				2008
Sales			328				246
Expenses			-227				-148
Profit before income taxes			101				97
Income taxes			-20				-18
Profit from discontinued operations			81				80

Parent Company income statement in summary
MSEK			January – June
			2009				2008
Sales			1				1
Cost of goods sold			-				-
Gross profit			1				1
Selling and administrative expenses			-160				-168
Operating loss			-159				-167
Income from participation in Group companies			2,354				1,521
Result from participation in joint venture			-2				-
Net finance cost			-597				-752
Profit before income tax			1,596				602
Income tax			203				256
Profit for the period			1,799				858

Parent Company balance sheet in summary
MSEK			June 30, 2009				June 30, 2008
Intangible and tangible fixed assets			2				12
Financial fixed assets			45,143				53,183
Current assets			8,344				4,693
Total assets			53,489				57,888
Equity			22,528				21,554
Untaxed reserves			2				13
Provisions			22				38
Non-current liabilities			27,353				26,798
Current liabilities			3,584				9,485
Total liabilities			30,959				36,321
Total equity and liabilities			53,489				57,888

Quarterly data
MSEK			Q2/09				Q1/09				Q4/08				Q3/08				Q2/08				Q1/08				Q4/07				Q3/07				Q2/07
Continuing operations
Sales, including tobacco tax			6,648				5,690				6,141				6,033				5,832				4,786				6,275				5,724				5,412
Less tobacco tax			-2,982				-2,303				-2,661				-2,759				-2,668				-2,093				-2,916				-2,598				-2,458
Sales			3,666				3,387				3,480				3,274				3,164				2,693				3,359				3,126				2,954
Cost of goods sold			-1,812				-1,624				-1,747				-1,663				-1,633				-1,395				-1,798				-1,641				-1,548
Gross profit			1,854				1,762				1,733				1,611				1,531				1,298				1,561				1,485				1,406
Sales and administrative expenses			-958				-970				-930				-808				-846				-799				-822				-789				-794
Share of profit in equity accounted investees			4				2				4				5				5				-3				-1				0				2
			899				794				807				808				691				496				738				696				614
Larger one time items
Gain on sale of subsidiary and related assets			-				-				73				-				-				-				-				-				-
Gain on sale of real estate			-				-				-				-				-				-				267				-				-
Operating profit			899				794				880				808				691				496				1,005				696				614
Finance income			14				27				41				39				33				40				53				29				34
Finance costs			-122				-135				-137				-154				-150				-153				-138				-133				-116
Net finance cost			-108				-108				-97				-115				-117				-113				-85				-103				-82
Profit before income tax			791				686				784				693				574				383				920				592				532
Income tax expense			-168				-159				-97				-72				-95				-78				-177				-147				-116
Profit for the period from continuing operations			624				527				687				621				479				304				743				445				416
Discontinued operations
Profit from discontinued operations, net after tax			41				40				41				50				38				42				48				46				25
Profit for the period			664				567				728				671				517				346				791				491				441
Attributable to:
Equity holders of the Parent			664				567				728				671				517				346				791				491				441
Minority interest			0				0				0				0				0				0				0				0				0
Profit for the period			664				567				728				671				517				346				791				491				441

Sales by product area
MSEK			Q2/09				Q1/09				Q4/08				Q3/08				Q2/08				Q1/08				Q4/07				Q3/07				Q2/07
Snuff			1,087				969				1,035				964				926				801				949				832				769
Cigars			1,129				1,175				1,052				933				905				754				923				898				843
Chewing tobacco			314				284				260				237				227				210				222				243				253
Lights			387				377				407				401				371				345				402				371				352
Other operations			749				581				726				740				735				583				863				782				738
Total			3,666				3,387				3,480				3,274				3,164				2,693				3,359				3,126				2,954

Operating profit by product area
MSEK			Q2/09				Q1/09				Q4/08				Q3/08				Q2/08				Q1/08				Q4/07				Q3/07				Q2/07
Snuff			463				397				463				479				403				313				435				380				301
Cigars			281				286				205				187				183				111				194				184				191
Chewing tobacco			129				98				96				87				77				69				75				83				82
Lights			62				63				71				85				63				55				67				66				62
Other operations			-36				-50				-27				-30				-37				-52				-33				-17				-23
Subtotal			899				794				807				808				691				496				738				696				614
Larger one time items
Gain on sale of subsidiary and related assets			-				-				73				-				-				-				-				-				-
Gain on sale of real estate			-				-				-				-				-				-				267				-				-
Subtotal			-				-				73				-				-				-				267				-				-
Total			899				794				880				808				691				496				1,005				696				614

Operating margin by product area*
Percent			Q2/09				Q1/09				Q4/08				Q3/08				Q2/08				Q1/08				Q4/07				Q3/07				Q2/07
Snuff			42.6				40.9				44.7				49.7				43.6				39.0				45.8				45.6				39.2
Cigars			24.9				24.3				19.5				20.0				20.2				14.7				21.0				20.5				22.7
Chewing tobacco			41.0				34.6				36.8				36.9				34.1				32.7				34.1				34.3				32.3
Lights			16.1				16.7				17.5				21.2				17.1				16.1				16.7				17.9				17.6
Group			24.5				23.4				23.2				24.7				21.8				18.4				22.0				22.3				20.8

* Excluding larger one time items

____________

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 July 17, 2009 at 08.00 a.m. (CET).