News; Jul 7, 2004 CET

Mr Tobacco bows out

When Klaus Unger resigns from the Board in connection to this year's Annual General Meeting, he will be able to look back on a 46-year career in the Swedish tobacco industry. He has made a substantial contribution to making Swedish Match what it is today, an international company with a clear and consistent strategy focusing on smokeless products. And he is confident about the Company's prospects.

Klaus Unger has lived with the tobacco industry since 1958. He witnessed at first hand how the Swedish Tobacco Monopoly became Svenska Tobaks AB, where, over time, he came to hold positions such as Marketing Manager, Head of Marketing, President and Board Chairman. He has also implemented a number of acquisitions of tobacco companies outside Sweden.

While he was President of Procordia United Brands, the company acquired Swedish Match. Klaus Unger remained as President of the merged operations until 1996, when the company was listed on the Stockholm Exchange and on NASDAQ under the name Swedish Match AB. In the same year, Klaus Unger was elected to the Board of Swedish Match.

Klaus Unger's associates don't call him "Mr Tobacco" for nothing!

IN ACTUAL FACT, IT ALL STARTED out as a consulting assignment. Klaus Unger was a market researcher and the newly formed EC had begun to question the appropriateness of the state monopolies. The Swedish Tobacco Monopoly requested Klaus's services to prepare for deregulation of the market - which took place in 1961, when the monopoly was abolished. A few years later, Klaus Unger was appointed Marketing Manager at Svenska Tobaks AB. At around the same time, cigarette smoking was also gradually called into question. Snuff (snus), which had once been a big seller in Sweden, began to see a revival in the late 1960s, particularly among the male population.

- During this era, the company began to modernize its product philosophy. It invested in research, setting up the Medical Expert Council and an internal research department, relates Klaus Unger.

When Klaus was appointed President of Svenska Tobaks AB, the company still offered a complete range of tobacco products, and this remained the case for several years after the formation of today's Swedish Match.

- However, my predecessors at Svenska Tobaks had interpreted the signs of the times very accurately. Cigarettes increasingly became a burden. The future lay with smokeless products, says Klaus Unger.

DURING HIS YEARS AS PRESIDENT of Swedish Match and in conjunction with the upcoming stock exchange listing, it became increasingly necessary to carefully consider the true raison for the company in the future.

- The conclusion reached by my successor and the Board was unanimous: the company would no longer handle cigarettes.

From the adoption of this standpoint, the strategy that Swedish Match still essentially retains today emerged:

- We shall be a company that focuses on two primary areas. The first is harm reduction, or, in other words, substitute products for smoking that minimize the harmful effects of tobacco. Our second area of focus concerns what I would term "cultural or gourmet products". Such products include cigars and pipe tobacco, but also matches, which are part of Swedish industrial culture. One mustn't lose sight of the fact that tobacco has always existed as a source of pleasure. Enjoying a fine cigar is a pleasurable experience! says Klaus Unger.

ANOTHER STRATEGICALLY important major theme during Klaus Unger's years in leading positions has been internationalization.

- We realized back in the 1970s that we had to expand internationally, since the Swedish market was too small. We also possessed a high level of tobacco expertise in Sweden, which meant that we felt we could hold our own against the competition.

The first step was taken with the international launch of Borkum Riff, which took the US market by storm. The company also began to acquire cigar manufacturers, and when the time came to introduce snuff products, there was only one market worth considering, and that was the US. This gradually led to the acquisition in 1985 of Pinkerton Tobacco Company, which has served as the foundation for the company’s continued success in the US. It is easy to see that the far-sighted decisions taken during the past two decades have given Swedish Match a huge lead
compared with its competitors.

- However, sustaining this market lead requires constant effort. It is therefore pleasing to see that the company is always highly prepared to meet new competition. When Svenska Tobaks merged with Swedish Match in 1992, few understood the problems associated with tobacco. Today, twelve years later, everyone in the Group knows what harm reduction entails. Being able to offer harm reduction is the company's philosophy and major strength - and a condition for also maintaining our lead in the future, says Klaus Unger.

In spite of this, the company constantly faces new challenges. Finding new markets and new products in turn necessitates ongoing marketing development.

- Take the EU as an example. Even if the sales ban on snuff is lifted, we cannot simply rest on our laurels. It will take major efforts to work up worthwhile volumes in the new markets. India is another example. Our sales there are hardly on a massive scale yet, but rather I would refer to our current activities as intensive care of small isolated markets.

DURING HIS MANY YEARS in both operational and Board positions, Klaus Unger has been involved in much public debate regarding business conduct, management and Board responsibility. How does he view Swedish corporate culture today?

- In general, corporate culture in listed companies is highly developed, but it is also needed more than ever. It is important that it doesn't become merely a formality, a section on corporate governance in the annual report. It must be a living and integral part of the Company's soul, otherwise you lose sight of the people. Most people identify themselves strongly with their workplace, which is often the second most important aspect of their life after their family. If you are dishonest, greedy or merely full of hot air, people become very disappointed, which may carry a high price for a company if it loses the trust of its employees.

According to Klaus, Swedish Match has always endeavored to build up and maintain this trust.

- Naturally, the management of a listed company must be visible to the outside world but it is almost more important to be visible internally. It is a matter of showing respect and honesty and of being familiar with all levels within the company. The Board members normally visit two plants each year, in various locations worldwide.
We take the time to go round and show that we appreciate each and every employee.

IN THE RECENT INTENSIVE DEBATE regarding Board responsibilities in Sweden, one newspaper referred to Swedish Match's Board as being weak, a claim that angered Klaus Unger considerably.

- There's no way we have a weak Board! We have extremely skilled colleagues spanning a range of backgrounds and experience. Our meetings are stimulating occasions, where everyone says what they think. The Chairman always makes sure that all the members have a chance to state their opinions, and he always speaks last so as not to suppress debate in any way. Of course, we may have differing opinions, giving rise to very frank discussions. The fact that we then unite behind a unanimous line of decision outwardly does not mean to say that we all simply knuckle
under or agree to everything.

HOW DOES IT FEEL TO LEAVE a company that has been part of his life for so long? What does Klaus Unger think the future holds in store for Swedish Match?

- I feel very secure with the Company's current orientation and with Bernt at the helm. Things will be fine. The signs are written on the wall: our long-term business policy means that we have the answers to pressing needs. We have a mission to fulfill and we do not need to foist our products on people, concludes Klaus Unger, who is about to set off on vacation visiting gardens in Cornwall. At last, he will have time to cultivate his other major interests in life, such as gardening and travel - or a combination of the two.