Interim Report January – June 2000

• Sales increased 19 percent to 5,265 MSEK (4,440)
• EBITDA increased 6 percent to 1,134 MSEK (1,066)
• Operating income increased to 886 MSEK (884)
• Operating income, excluding divested business, increased 41 percent
• Operating income in the second quarter increased to 471 MSEK (444)
• 1,045 MSEK transferred to shareholders (payment in July) through share redemption program

Swedish Match sales during the first half of 2000 increased by 19 percent, fuelled by continued strong organic growth for its snuff business, along with solid performance from acquired businesses which accounted for 15 percentage points of the sales increase. First half operating income was ahead of year earlier levels in all product categories except matches, where a significant restructuring is underway. For the second quarter 2000, both sales and operating income improved versus the same period last year, for all categories except matches. Strongest operating income growth came from snuff and cigars.

Summary of Consolidated Income Statement

Summary of EBITDA

Sales by product area

Operating income by product area

Smokeless Tobacco
Swedish Match has a broad presence in smokeless tobacco (Snuff and Chewing Tobacco), with significant market positions in the US, the Nordic countries, and South Africa. Smokeless tobacco accounted for 70 percent of Swedish Match operating income in the first half.

Snuff
Swedish Match is the leading manufacturer of snuff in the Nordic markets and in South Africa, and has the largest share of the fast growing value price segment in the United States. Major brands include General, Catch and Ettan in Sweden, Timber Wolf in the US and Taxi in South Africa. Sales in the first half of 2000 increased 27 percent, to 990 MSEK (778). Volume in the US increased 20 percent over the first half of 1999. Volume in the Nordic market increased 8 percent. Sales and operating income in South Africa continued to show a satisfactory development.

Operating income increased 21 percent versus the first half 1999, to 450 MSEK (371). Toward the end of May in the US, Swedish Match announced a price increase on its main brand Timber Wolf of 14 percent.

For the second quarter, sales were 32 percent higher than the same period prior year, while operating income was up 35 percent. Performance was strong in both North America and North Europe.

Swedish Match has decided to appeal the ruling of a local court in Germany not to allow Swedish snuff "snus" to be sold in Germany. Swedish Match will also ask that the question of the legality of the ban on certain smokeless tobacco products be referred to the European Court of Justice.

Chewing Tobacco
Chewing tobacco is sold primarily in the North American market. Major brands include Red Man and Southern Pride. Swedish Match is the leading producer of chewing tobacco in the US. Sales in the first half of 2000 amounted to 600 MSEK (539), an increase of 11 percent. Sales increased 5 percent in local currency. Operating income in the first half was up 18 percent, to 172 MSEK. In the second quarter, sales increased 14 percent, while operating income increased by 17 percent, driven by increased sales and cost synergies with acquired cigar operations.

The chewing tobacco market in the US has declined at an annual rate of 3 to 4 percent over the past several years. Swedish Match share of the market has improved since the same period last year. Swedish Match is seeking to acquire the brands and inventory of National Tobacco (whose primary brand is Beech-nut). This acquisition was not approved by the Federal Trade Commission in USA, and Swedish Match is now taking steps to appeal that decision.

Brown Tobacco
Along with smokeless tobacco, brown tobacco (Cigars and Pipe Tobacco) has been identified as one of the key growth opportunity areas for Swedish Match. Acquisitions, which have been made in this area over the past year, provide a significant portion of sales and operating income growth. Swedish Match is the second largest worldwide cigar company.

Cigars
Swedish Match is one of the world’s largest manufacturers of cigars and cigarillos, and ranks number two in terms of sales value. Its largest markets are North America and Western Europe, where about three quarters of the world cigar market exists. The company markets a broad portfolio of brands worldwide, including La Paz, La Gloria Cubana, Garcia Y Vega, White Owl, Justus van Maurik, and Wings. As from May 9 the recently acquired 64 percent holding in General Cigar, a premium cigar company with the leading market position in the US has been consolidated. Its primary brands are Macanudo, Partagas, and Punch.

Sales in the first half of 2000 amounted to 1,051 MSEK, an increase of 77 percent from 1999 (594), with most of this growth coming from acquired businesses. Operating income grew 45 percent in the first half, to 139 MSEK (96). For the second quarter, sales were up 75 percent, while operating income grew by 53 percent, largely from acquisitions.

Pipe Tobacco and Accessories
Swedish Match is the third largest manufacturer of pipe tobacco in the world, and its products are marketed worldwide. Major brands include Borkum Riff, Boxer, and Half and Half. The main markets for pipe tobacco are Western and North Europe and North America. The company also has a significant presence in South Africa.

Sales for the first half of 2000 increased to 357 MSEK (108) with growth mainly coming from the consolidation of the South African business acquired last year. Operating income improved significantly to 101 MSEK (28). For the second quarter, sales increased to 184 MSEK (53), while operating income increased to 52 MSEK (11), driven primarily from acquisitions.

Lights
Swedish Match is a global producer and marketer of matches and lighters. These products are sold in over 140 countries.

Matches
Swedish Match has the number one worldwide share position. Brands are mostly local, and very strong in their home countries. Major brands include Swan, Three Stars, and Redheads. Sales for the first half of 2000 declined 5 percent versus 1999, to 805 MSEK (849). The European market continued to decline. Operating income declined 32 percent in the first half, to 43 MSEK (63). In the second quarter decision was made to reduce the number of employees in the European Match operation by 190 persons as part of the restructuring program to improve operating margins to 10 percent. Second quarter operating income declined 47 percent on almost flat sales.

Lighters
Swedish Match is the third largest lighter manufacturer in the world, and its main brand is Cricket. Sales in the first half of 2000 grew 2 percent, to 344 MSEK (338). Operating income continued to improve significantly, to 35 MSEK, versus a loss of 6 MSEK in the first half of 1999. Income and margin improvements follow a major restructuring in 1999 and greater focus on the more profitable markets and product lines. For the second quarter, operating income reached 19 MSEK, versus a loss of 8 MSEK a year ago. Sales were on the same level as previous year.

Other Operations
Other operations include, among other things, the distribution of tobacco products on the Swedish market as well as corporate overheads. For the first half, net expenses were reduced to –54 MSEK (-69).

Net financial expense
Net interest expense in the first half amounted to 51 MSEK (69). Other financial items, net, amounted to -8 MSEK (18).

Taxes
Taxes in the first half were 273 MSEK (288) corresponding to a 33 percent tax rate.

Investments
The Group’s direct investments in tangible fixed assets amounted to 102 MSEK (283). In addition, 8 MSEK (1,486) was invested in intangible fixed assets during the period. Total depreciation and amortization amounted to 247 MSEK (182), of which depreciation on tangible assets amounted to 126 MSEK (123) and amortization of intangibles amounted to 121 MSEK (59).

Financing and liquidity
At the end of the period, the Group had a net debt of 1,209 MSEK, as compared with a net cash position of 1,267 MSEK on December 31, 1999. Significant use of cash were the acquisition of 64 percent of General Cigar Holding and dividend payment to the shareholders of Swedish Match in the second quarter.

Cash and bank balances, including short term investments, amounted to 4,811 MSEK at the end of the period, compared with 7,296 MSEK at the beginning of the year. The liquid funds are primarily invested in short-term securities.

Acquisitions
In February Swedish Match acquired the outstanding 40 percent minority in the Turkish subsidiary Swedish Match KAV.

Swedish Match and Gum Tech International Inc. have signed definitive agreements for a joint venture to develop, manufacture, market, and distribute non-tobacco nicotine products.

In the second quarter the acquisition of Brasant Enterprises (PTY) Ltd in South Africa was announced. Brasant is a leading South African Tobacco distributor for Tobacco Speciality, Convenience and Hotel/Restaurant classes of trade and had invoiced sales in 1999 of 60 MSEK.

In June, the Federal Trade Commission voted not to approve the Swedish Match acquisition of National Tobacco’s chewing tobacco brands. Both Swedish Match and National Tobacco will pursue a further review of this transaction in federal courts.

On July 19^th the outstanding minority (5 percent) in Swedish Match Cigars B.V. was acquired from Arnold André.

Tobacco tax
During the past 12 months, total tobacco tax and value-added tax on tobacco tax paid by Swedish Match in Sweden amounted to 9,403 MSEK (8,810).

Average number of Group employees
The average number of employees in the Group during the 12 month period ending June 30 was 12,467, compared with 11,797 for the full year 1999.

Swedish Match share structure
During the second quarter, all shareholders were offered an opportunity to redeem each 14^th share for 35 SEK in cash. The share redemption program was completed in July with a transfer of 1,045 MSEK to shareholders equivalent to 29,869,472 shares redeemed. In conjunction with the redemption the Board of Directors of Swedish Match decided on June 13 to effect a directed new issue of 2,476,200 shares to five of the Company’s principal shareholders and to raise the par value of the shares from 2.20 SEK to 2.40 SEK. These transactions were intended to prevent a decrease in the Company’s share capital.

Following an authorisation by the Annual General Meeting on April 27, 2000 to a share buy-back program of up to 5 percent of the outstanding shares of the Company prior to the next Annual General Meeting in April 2001, the Company has bought 1,181,000 shares at an average price of 26.92 SEK up to June 30^th.

After these transactions, the number of shares outstanding is 402,765,391.

During the first half of the year 2,791,283 call options were granted as part of a management incentive program. These call options can be exercised from March 13, 2003 through March 14, 2005. The exercise price of the options is 35.50 SEK. These options, will, if exercised, use shares obtained through stock repurchase programs.

Additional information
This report has not been reviewed by the Company’s auditors.

The interim report for the first nine months of 2000 will be released October 26, 2000.
Stockholm, July 25, 2000
Lennart Sundén
President and Chief Executive Officer

Key data

* Before items affecting comparability

** Reported net income adjusted for items affecting comparability and amortization (net of taxes), divided by the average

no. of shares outstanding

Consolidated Income Statement in summary

Consolidated Balance Sheet in summary

Consolidated Cash Flow Statement in summary

Quarterly data

Sales by product area

Operating income by product area

The Swedish Match share is listed on the OM Stockholm Stock Exchange (SWMA) and NASDAQ (SWMAY).

For further information please contact:
Lennart Sundén, President & Chief Executive Officer +46 8 658 01 75
Sven Hindrikes, Executive Vice President &
Chief Financial Officer +46 8 658 02 82
Bo Aulin, Senior Vice President, Secretary +46 8 658 03 64
and General Counsel
Emmett B. Harrison, Vice President, Investor Relations +46 8 658 01 73