Swedish Match: Report on Operations Full Year 2006

Business Wire, Feb 14, 2007

STOCKHOLM, Sweden -- Swedish Match (STO:SWMA):

* Net sales for the fourth quarter amounted to 3,457 MSEK (3,500), and 12,911 MSEK (13,311) for the full year

* Operating income increased by 18% to 799 MSEK (678) for the fourth quarter and by 15% to 3,235 MSEK (2,825) for the full year

* Net income for the fourth quarter amounted to 602 MSEK (456), and 2,331 MSEK (1,777) for the full year

* EPS for the fourth quarter was up 48% to 2.18 SEK (1.47), and up 45% to 8.12 SEK (5.61) for the full year

* The Board proposes an increased dividend to 2.50 SEK (2.10)

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Sales and results for the fourth quarter

In local currencies and excluding divested businesses sales for the fourth quarter 2006 increased by 10 percent compared with the fourth quarter 2005. Reported sales for the fourth quarter decreased by 1 percent to 3,457 MSEK (3,500). Currency translation has affected the sales comparison negatively by 197 MSEK.

For snuff, sales increased by 18 percent during the fourth quarter, to 963 MSEK (819) and operating income increased by 17 percent to 460 MSEK (392). North European snuff sales were up 25 percent, stemming from higher than normal volumes due to hoarding in anticipation of an excise tax increase on snuff in Sweden effective January 1, 2007. North American snuff sales were flat, but were up 11 percent in local currency terms. The operating margin reached 47.8 percent (47.8).

Sales of cigars in the fourth quarter increased to 857 MSEK (834), while operating income declined by 8 percent, to 163 MSEK (176). Sales and operating income for cigars grew in the US. Sales grew in Europe, but operating income declined, due to a less profitable product mix and some restructuring costs. Operating margin for cigars declined to 19.0 percent (21.1).

Group operating income for the fourth quarter increased by 18 percent to 799 MSEK (678). Currency translation has affected the operating income comparison negatively by 53 MSEK.

Operating margin for the fourth quarter amounted to 23.1 percent compared to 19.4 percent for the fourth quarter 2005.

In the fourth quarter financial income was favorably impacted by a gain on a sale of securities with an amount of 111 MSEK before tax.

EPS (basic) for the fourth quarter was 2.18 SEK (1.47). Diluted EPS amounted to 2.18 SEK (1.46).

Sales and results full year 2006

Sales for the year amounted to 12,911 MSEK (13,311). In local currencies sales increased by 3 percent, excluding divested businesses. Currency translation has affected the sales comparison negatively by 67 MSEK. Operating income increased by 15 percent, and amounted to 3,235 MSEK (2,825). Last year's operating income included a 206 MSEK income from the sale of the General Cigars headquarters building. This year's operating income was positively affected by a pension plan curtailment gain of 148 MSEK. Operating income excluding these larger one time items amounted to 3,087 MSEK (2,618).

Operating margin for the Group grew to 23.9 percent (19.7) excluding the pension plan curtailment gain in 2006 and the income from the sale of the real estate in 2005.

EPS (basic) for the year was 8.12 SEK (5.61). Diluted EPS amounted to 8.09 SEK (5.59).

The Board proposes an increased dividend to 2.50 SEK (2.10).

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(a) Excluding larger one time items

Snuff / Snus

Sweden is the world's largest snuff market measured by per capita consumption. In Sweden, a substantially larger proportion of the male population uses the Swedish type of snuff called snus(*) compared to cigarettes. The Norwegian market, which is significantly smaller than the Swedish market, is at present showing strong growth. The US is the world's largest snuff market measured in number of cans and is approximately five times larger than the Swedish market. In Sweden and Norway, Swedish Match has a leading position. In the US, the Company is well positioned as number three on the market. Some of the best known brands include General, Ettan, and Grov in Sweden, Timber Wolf and Longhorn in the US and Taxi in South Africa.

During the fourth quarter, sales increased by 18 percent versus the previous year, to 963 MSEK (819), and operating income increased by 17 percent, to 460 MSEK (392). Currency translation impacts have affected the sales and operating income comparison negatively. Volumes increased in Scandinavia by 27 percent, mainly as a result of the trade load effect in anticipation of the weight based tax increase effective January 1, 2007 for snus in Sweden. Volumes in the US increased by 10 percent, measured in number of cans. Operating margin was 47.8 percent (47.8).

(*) 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.

Sales for the year amounted to 3,363 MSEK (3,131), an increase of 7 percent. In Scandinavia sales volumes increased by 9 percent measured in number of cans. In Sweden the increase was 8 percent. Volumes in Norway and tax free sales also increased. Sales volume of both loose and pouched snuff increased. Of Swedish Match snuff volume sold in Sweden, the proportion of pouched snuff for the year was 59 percent compared to 58 percent in 2005.