Pursuant to a resolution adopted by the 2005 Annual General Meeting, compensation to the Board for the period from the 2005 Annual General Meeting up to and including the 2006 Annual General Meeting amounted to 750,000 SEK to the Chairman of the Board and 300,000 SEK to each of the regular Directors. In addition, a total of 400,000 SEK was granted for committee work. Pursuant to a resolution of the 2006 Annual General Meeting, compensation to the Board for the period from the 2006 Annual General Meeting up to and including the 2007 Annual General Meeting would amount to 875,000 SEK to the Chairman of the Board and 330,000 SEK to each of the regular Directors. In addition, a total of 500,000 SEK was to be paid for committee work. In accordance with this resolution, compensation of 540,000 SEK was paid to the Chairman and 205,000 SEK to each of the other Directors elected by General Meetings for the period from the Annual General Meeting in 2006 up to and including the Extraordinary General Meeting on December 4, 2006. In addition to these fees, fees for committee work amounted to a total of 310,000 SEK for the same period.
In view of the increased complexity of the Board’s work, and with the aim of increasing the Board members’ ownership of the Company and of facilitating the recruitment of international talent to the Board, the Nominating Committee has declared that the directors’ fees calculated on a yearly basis should be raised to 1.5 MSEK for the Chairman and 0.6 MSEK for the other directors elected by General Meetings (excluding directors who are employees of Swedish Match) and that these directors should be required to acquire Swedish Match shares for the entire net amount of the fees they receive. Additionally, the Board of Directors should be allotted 875,000 SEK as compensation for committee work. In application of these principles, the Extraordinary General Meeting of December 2006 resolved that directors’ fees for the period from the time of said resolution up to and including the next Annual General Meeting should be paid in a total amount of 575,000 SEK to the Chairman and 230,000 SEK to each of the other directors elected by General Meetings. Compensation for committee work totaling 335,000 SEK should also be paid for the period, of which the chairmen of the Compensation and Audit Committees should each receive 75,000 SEK and the other members serving in these committees 37,000 SEK each. Board directors employed by Swedish Match would not receive any directors’ fees.
In agreement with the Nominating Committee’s statement of principles, the Board of Directors established, in December 2006, principles governing Board directors’ ownership of shares in the Company, from which it follows that all directors who receive directors’ fees following the Extraordinary General Meeting of December 2006 must acquire shares in the Company for an amount corresponding to the fees received following the Extraordinary General Meeting less income tax. Directors must furthermore refrain from divesting these shares for a period of 12 months following their acquisition and, during the period of 13 to 24 months following their acquisition, no more than half of the shares so acquired may be divested.
For more information about Directors’ fees for 2006, see Note 5, page 51.
Group management
President
The President is appointed by the Board of Directors and manages the Company’s operations within the framework established by the Board. The President’s duties include responsibility for ensuring that the Board of Directors receives an information base that is as objective, comprehensive and relevant as possible prior to Board meetings and otherwise, enabling the Board to reach well-founded decisions. The President also reports to the Board and submits reasoned proposals for decisions by the Board. In addition, the President provides Board members, on a monthly basis, with the information required to monitor the position, liquidity and development of the Company and the Group while also providing the Chairman with ongoing information regarding the operations of the Company and the Group.
During 2006, Sven Hindrikes served as President and CEO.
Group Management Team
The Group Management Team of Swedish Match for 2006 consisted of Sven Hindrikes, President and CEO, Bo Aulin, Senior Vice President, Secretary and General Counsel, Corporate Affairs, Lars Dahlgren, Chief Financial Officer and Senior Vice President, Group Finance and IS/IT, Lennart Freeman, Executive Vice President and President of the North America Division, Lars-Olof Löfman, President of the North Europe Division, Göran Streiffert, Senior Vice President, Group Human Resources, and Jarl Uggla, President of the International Division.
Remuneration to Group management
Up until the 2006 Annual General Meeting, the Company lacked general principles or guidelines established by a General Meeting regarding compensation and other terms of employment for Group management. Such principles were established prior to this date by the Board of Directors. The 2006 Annual General Meeting established certain principles regarding compensation and other terms of employment for Group management. These principles were in all essential respects a codification of what had been applied during 2005. For information on the principles established by the Annual General Meeting, see Note 5, page 51.
At the Extraordinary General Meeting of December 4, 2006, new principles were established for determining salary and other compensation to the President and other members of Group management. The principles are to apply to the compensation and other terms of employment of Group management (that is to say, the President, Divisional Presidents and Senior Vice Presidents in charge of Group functions reporting directly to the President) stipulated in agreements entered into as of January 1, 2007. For information on these principles, see Note 5, page 51.
For information concerning the remuneration and other benefits to the President and the Group Management, and the Company’s options program, see Note 5, page 53.
Audit and auditors
The auditors are elected by the General Meeting. According to the Articles of Association, the number of authorized public auditors must be one or two together with a maximum of the same number of deputy auditors or one or two auditing firms. Additionally, the Board of Directors has the right to appoint, in special situations, one or more special auditors or one auditing firm to review the presentations or plans as drawn up by the Board of Directors pursuant to the Swedish Companies Act in such situations.
The accounting firm KPMG Bohlins AB, with Thomas Thiel as auditor in charge, was elected by the General Meeting as the Company’s external auditors for the period from 2004 up to and including the Annual General Meeting in 2008.
In addition to the auditing, KPMG provided consultancy services to the Group, primarily with regard to taxes, during 2006, as they did, to some extent, during the years 2004 and 2005.
For information concerning compensation to Swedish Match’s auditors during 2006, see Note 6, page 54.
Financial reporting
The quality of the Company’s financial reporting is ensured by having the Audit Committee review the financial reports issued by the Company. In connection with the review, the Committee’s members discuss the various accounting issues that may be of relevance to the particular report. In addition, the members of the Audit Committee continuously receive reports concerning the internal control work conducted within the Group.
The tasks of the external auditors include examination of the management of the Board of Directors and President, as well as the Company’s annual report and accounts. The external auditors report continuously to the Audit Committee of the Board of Directors and, in connection with the annual report, the external auditors report their observations from the audit to the Board of Directors.
Disclosure Committee
The President has appointed a Disclosure Committee whose primary responsibility is to ensure that all external reporting, including interim reports, annual reports and press releases whose content could have an impact on the share price or that contains financial information, is prepared in accordance with the Group’s prevailing routines. Members of the Committee during 2006 were the heads of Investor Relations, Internal Control, Corporate Communications and Group Corporate Affairs, with the last mentioned (Bo Aulin) as chairman.
During 2006, seven meetings were held.
Report on internal control
The Board of Directors is responsible pursuant to the Swedish Companies Act and the Swedish Code of Corporate Governance for internal control. This report has been prepared in accordance with the Swedish Code of Corporate Governance, sections 3.7.2 and 3.7.3, and is thereby limited to internal control regarding financial reporting. The report does not constitute a part of the formal annual report documents.
The basis for internal control with regard to financial reporting comprises a control environment with organization, decision-making channels, powers and responsibilities that have been documented and communicated in governing documents such as internal policies, guidelines, manuals and codes (for example the division of duties between the Board of Directors on the one hand and the President and the other entities that the Board establishes, on the other), instructions with regard to attestation rights and auditing and reporting instructions.
The Company applies a risk-evaluation and risk-management method in order to ensure that the risks to which the Company is exposed are managed within the frameworks that have been established. Risks that have been identified in connection with financial reporting are managed via the Company’s control structure as documented in the process and internal control specifications.
The Company monitors compliance with governing documents in the form of internal policies, guidelines, manuals and codes, as well as the effectiveness of the control structures. Since the Company is registered with the U.S. Securities and Exchange Commission (SEC) because of a prior listing on the American NASDAQ stock exchange, it has applied the principles relative to internal control over financial reporting pursuant to the American Sarbanes Oxley Act.
Monitoring of the Company’s information and communication channels is also performed with the aim of ensuring that these are appropriate with regard to financial reporting. The Disclosure Committee follows up the sufficiency of the financial reports with regard to disclosure requirements. The results of the Company’s risk-management process are addressed by the Board of Directors.
The Board receives monthly reports and at every ordinary Board meeting, the financial status of the Company and the Group is discussed. In addition, the Board’s various committees fulfill important functions as part of the Board’s follow-up activities.
The Company has evaluated the need for a special internal auditing function based on the Group’s operations. As a result of the existence of a department for internal control within the Company, the task of which is to ensure the internal control, the Board of Directors is satisfied that there does not presently exist any need for an internal auditing function within the Company.
| Stockholm, February 13, 2007 |
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| The Board of Directors of |
| Swedish Match AB |
Consolidated Income Statement
