##### Table of Contents

As filed with the Securities and Exchange Commission on June 23, 2005

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 20-F



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| ̈ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



OR



|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------



For the fiscal year ended December 31, 2004



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the period from  to



Commission file number 0-28038



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Swedish Match AB (publ)

(Exact name of Registrant as specified in its charter)



Swedish Match Corporation

(Translation of Registrants name into English)



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Kingdom of Sweden

(Jurisdiction of incorporation or organization)



Rosenlundsgatan 36

S-118 85 Stockholm, Sweden

(Address of principal executive offices)



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Securities registered pursuant to Section 12(b) of the Act:

None



Securities registered or to be registered pursuant to
Section 12(g) of the Act:

Shares, nominal value SEK 2.40 per share

(Title of Class)



Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None



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Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period
covered by the annual report:



Shares, nominal value SEK 2.40
per share 336,596,181



Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.    Yes  x    No ̈



Indicate by check mark which financial
statement item the registrant has elected to follow.    Item 17  x    Item 18 ̈



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##### Table of Contents

TABLE OF CONTENTS



Page



|                                      |  |          |  |      |  |                                                         |  |   
|------------------------------------- |  | -------- |  | ---- |  | ------------------------------------------------------- |  | --
|INTRODUCTION AND USE OF CERTAIN TERMS |  | i       
|                                      | 
|FORWARD-LOOKING STATEMENTS            |  | i       
|                                      | 
|PART I                                |  | 1       
|                                      |  |          |  |     
|                                      |  | ITEM 1.  |  |      |  | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS   |  | 1 
|                                      |  |          |  |     
|                                      |  | ITEM 2.  |  |      |  | OFFER STATISTICS AND EXPECTED TIMETABLE                 |  | 1 
|                                      |  |          |  |     
|                                      |  | ITEM 3.  |  |      |  | KEY INFORMATION                                         |  | 1 
|                                      |  |          |  | 3.A  |  | Selected Financial Data                                 |  | 1 
|                                      |  |          |  | 3.B  |  | Capitalization and Indebtedness                         |  | 3 
|                                      |  |          |  | 3.C  |  | Reasons for the Offer and Use of Proceeds               |  | 3 
|                                      |  |          |  | 3.D  |  | Risk Factors                                            |  | 4 
|                                      |  |          |  |     
|                                      |  | ITEM 4.  |  |      |  | INFORMATION ON THE COMPANY                              |  | 7 
|                                      |  |          |  | 4.A  |  | History and Development                                 |  | 7 
|                                      |  |          |  | 4.B  |  | Business Overview                                       |  | 8 
|                                      |  |          |  | 4.C  |  | Organizational Structure                                |  | 25
|                                      |  |          |  | 4.D  |  | Property, Plants and Equipment                          |  | 25
|                                      |  |          |  |     
|                                      |  | ITEM 5.  |  |      |  | OPERATING AND FINANCIAL REVIEW AND PROSPECTS            |  | 26
|                                      |  |          |  | 5.A  |  | Operating Results                                       |  | 26
|                                      |  |          |  | 5.B  |  | Liquidity and Capital Resources                         |  | 39
|                                      |  |          |  | 5.C  |  | Research and Development, Patents and Licenses, etc.    |  | 40
|                                      |  |          |  | 5.D  |  | Trend Information                                       |  | 41
|                                      |  |          |  | 5.E  |  | Off-Balance Sheet Arrangements                          |  | 42
|                                      |  |          |  | 5.F  |  | Tabular Disclosure of Contractual Obligations           |  | 42
|                                      |  |          |  |     
|                                      |  | ITEM 6.  |  |      |  | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES              |  | 42
|                                      |  |          |  | 6.A  |  | Directors and Senior Management                         |  | 42
|                                      |  |          |  | 6.B  |  | Compensation                                            |  | 44
|                                      |  |          |  | 6.C  |  | Board Practices                                         |  | 47
|                                      |  |          |  | 6.D  |  | Employees                                               |  | 49
|                                      |  |          |  | 6.E  |  | Share Ownership                                         |  | 50
|                                      |  |          |  |     
|                                      |  | ITEM 7.  |  |      |  | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS       |  | 51
|                                      |  |          |  | 7.A  |  | Major shareholders                                      |  | 51
|                                      |  |          |  | 7.B  |  | Related Party Transactions                              |  | 51
|                                      |  |          |  | 7.C  |  | Interests of Experts and Counsel                        |  | 52
|                                      |  |          |  |     
|                                      |  | ITEM 8.  |  |      |  | FINANCIAL INFORMATION                                   |  | 52
|                                      |  |          |  | 8.A  |  | Consolidated Statements and Other Financial Information |  | 52
|                                      |  |          |  | 8.B  |  | Significant Changes                                     |  | 53
|                                      |  |          |  |     
|                                      |  | ITEM 9.  |  |      |  | THE OFFER AND LISTING                                   |  | 53
|                                      |  |          |  | 9.A  |  | Offer and Listing Details                               |  | 53
|                                      |  |          |  | 9.B  |  | Plan of Distribution                                    |  | 55
|                                      |  |          |  | 9.C  |  | Market                                                  |  | 55
|                                      |  |          |  | 9.D  |  | Selling Shareholders                                    |  | 55
|                                      |  |          |  | 9.E  |  | Dilution                                                |  | 55
|                                      |  |          |  | 9.F  |  | Expenses of the issue                                   |  | 55
|                                      |  |          |  |     
|                                      |  | ITEM 10. |  |      |  | ADDITIONAL INFORMATION                                  |  | 55
|                                      |  |          |  | 10.A |  | Share Capital                                           |  | 55
|                                      |  |          |  | 10.B |  | Memorandum and Articles of Association                  |  | 55
|                                      |  |          |  | 10.C |  | Material contracts                                      |  | 58
|                                      |  |          |  | 10.D |  | Exchange controls                                       |  | 58
|                                      |  |          |  | 10.E |  | Taxation                                                |  | 58
|                                      |  |          |  | 10.F |  | Dividends and Paying Agents                             |  | 61
|                                      |  |          |  | 10.G |  | Statements by Experts                                   |  | 61
|                                      |  |          |  | 10.H |  | Documents on Display                                    |  | 61
|                                      |  |          |  | 10.I |  | Subsidiary Information                                  |  | 61



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##### Table of Contents

|           |  |           |  |                                                                                                           |  |   
|---------- |  | --------- |  | --------------------------------------------------------------------------------------------------------- |  | --
|           |  | ITEM 11.  |  | QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK ON DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS |  | 61
|           |  |           | 
|           |  | ITEM 12.  |  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                                                    |  | 63
|           | 
|PART II    |  | 63       
|           |  |           | 
|           |  | ITEM 13.  |  | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                                                           |  | 63
|           |  |           | 
|           |  | ITEM 14.  |  | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS                              |  | 63
|           |  |           | 
|           |  | ITEM 15.  |  | DISCLOSURE CONTROL AND PROCEDURES                                                                         |  | 63
|           |  |           | 
|           |  | ITEM 16A. |  | AUDIT COMMITTEE FINANCIAL EXPERT                                                                          |  | 64
|           |  |           | 
|           |  | ITEM 16B. |  | CODE OF BUSINESS CONDUCT AND ETHICS                                                                       |  | 64
|           |  |           | 
|           |  | ITEM 16C. |  | ACCOUNTANTS FEES AND SERVICES                                                                            |  | 64
|           |  |           | 
|           |  | ITEM 16D. |  | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                                                |  | 65
|           |  |           | 
|           |  | ITEM 16E. |  | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS                                    |  | 66
|           |  |           | 
|           |  | ITEM 16E. |  | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS                                    |  | 66
|           | 
|PART III   |  | 67       
|           |  |           | 
|           |  | ITEM 17.  |  | FINANCIAL STATEMENTS                                                                                      |  | 67
|           |  |           | 
|           |  | ITEM 18.  |  | FINANCIAL STATEMENTS                                                                                      |  | 67
|           |  |           | 
|           |  | ITEM 19.  |  | EXHIBITS                                                                                                  |  | 67
|           | 
|SIGNATURES |  | 68       



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##### Table of Contents

INTRODUCTION AND USE OF CERTAIN TERMS



Swedish Match AB (publ) is a public limited liability company incorporated under the laws of the Kingdom of Sweden (Sweden). References in this Annual Report on Form 20-F (this Annual Report) to Swedish Match
AB are to Swedish Match AB and its predecessors, and references to Swedish Match, the Group, the Registrant or the Company are to Swedish Match AB and its subsidiaries, unless the context
requires otherwise. Swedish Match publishes its consolidated financial statements in Swedish kronor. In this Annual Report, references to SEK or Swedish kronor are to the currency of Sweden, references to EUR or euro are to
the currency of the European Monetary Union, references to INR or Indian rupees are to the currency of India and references to U.S. dollars, USD or US$ are to the currency of the United States (U.S.). On December
31, 2004, the exchange rate between Swedish kronor and U.S. dollars based on the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York (the Noon
Buying Rate) was USD 1.00 = SEK 6.6687. The Noon Buying Rate on June 17, 2005, was USD 1.00 = SEK 7.5270.



The Companys consolidated financial statements are prepared in accordance with generally accepted accounting principles in Sweden (Swedish
GAAP), which differ in certain respects from generally accepted accounting principles in the U.S. (U.S. GAAP). For a narrative discussion of the principal differences between Swedish GAAP as currently in effect and U.S. GAAP, see
Note 26 of the Notes to the Consolidated Financial Statements. In 2005, Swedish Match will be required to prepare its financial statements in accordance with International Financial Reporting Standards (IFRS).



In 2004, the Company delisted its American Depository Shares (ADS) from the
Nasdaq National Market and cancelled its ADS facility program.



Except where otherwise indicated, all references to tobacco, matches and lighters market sizes and market shares are based on Swedish Match management estimates.



The Company is incorporated in Sweden. Its principal executive offices are located at Rosenlundsgatan 36, S-118 85
Stockholm, Sweden, telephone +46-8-658-0200.



FORWARD-LOOKING STATEMENTS



Some of
the statements in this document that are not historical facts are forward-looking statements, including, without limitation those regarding:



| |  |  | the timing of product deliveries;
| | - |  | ---------------------------------



| |  |  | the Companys ability to develop new products and technologies;
| | - |  | ---------------------------------------------------------------



| |  |  | expectations regarding market growth and developments;
| | - |  | ------------------------------------------------------



| |  |  | expectations for growth and profitability; and
| | - |  | ----------------------------------------------



| |  |  | statements preceded by believes, expects, anticipates, foresees, hold the view or similar expressions.
| | - |  | ----------------------------------------------------------------------------------------------------------------



Because these statements involve risks and
uncertainties, actual results may differ materially from the results that the Company currently expects. Factors that could cause these differences include, but are not limited to:



| |  |  | general economic conditions, such as the rate of economic growth in the Companys principal geographic markets or fluctuation in exchange rates;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | industry conditions, such as the strength of product demand, the intensity of competition, pricing pressures, the acceptability of new product introductions;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the availability and pricing of raw materials, and of tobacco in particular;
| | - |  | ----------------------------------------------------------------------------



| |  |  | currency fluctuations;
| | - |  | ----------------------



| |  |  | the commencement or unfavorable outcome of litigation against the Company;
| | - |  | --------------------------------------------------------------------------



| |  |  | political and economic instability, especially in emerging and developing markets;
| | - |  | ----------------------------------------------------------------------------------



i



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| |  |  | changes in the regulatory environment for tobacco products, including changes in taxes imposed on tobacco products; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | the transition from Swedish GAAP to IFRS
| | - |  | ----------------------------------------



as well as the risk factors specified in this document, including under Item 3.D. Risk Factors.



ii



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##### Table of Contents

PART I



ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS



Not applicable.



ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE



Not applicable.



ITEM 3. KEY INFORMATION



3.A Selected Financial Data



The
financial data set forth below for each of the years in the five-year period ended December 31, 2004 have been derived from the Consolidated Financial Statements of Swedish Match that have been audited by Öhrlings PricewaterhouseCoopers for the
four years ended December 31, 2003 and by KPMG Bohlins for the year ended December 31, 2004. Consolidated balance sheets at December 31, 2004 and 2003 and the related consolidated statements of income and of cash flows for the three years ended
December 31, 2004 and notes thereto appear elsewhere in this annual report. The Consolidated Financial Statements from which the financial data below were derived were prepared in accordance with Swedish GAAP, which differ in certain respects from
U.S. GAAP. See Note 26 of the Notes to Consolidated Financial Statements.



|                                                                     |     |         |     |         |     |         |     |         |     |         |        |      
|-------------------------------------------------------------------- | --- | ------- | --- | ------- | --- | ------- | --- | ------- | --- | ------- | ------ | -----
|Millions unless otherwise stated                                     |     | 2000    |     | 2001    |     | 2002    |     | 2003    |     | 2004    |        | 2004 
|                                                                     | SEK |         | SEK |         | SEK |         | SEK |         | SEK |         | USD(1)
|Amounts in accordance with Swedish GAAP                              |     |         |     |         |     |         |     |         |     |         |        |      
|Income statement data                                                |     |         |     |         |     |         |     |         |     |         |        |      
|Net sales                                                            |     | 11,533  |     | 13,635  |     | 13,643  |     | 13,036  |     | 13,007  |        | 1,950
|Operating income                                                     |     | 1,886   |     | 2,113   |     | 2,371   |     | 2,224   |     | 3,370   |        | 505  
|Net income                                                           |     | 1,144   |     | 1,228   |     | 1,429   |     | 1,558   |     | 1,828   |        | 274  
|                                                                     |     |         |     |         |     |        
|Balance sheet data                                                   |     |         |     |         |     |         |     |         |     |         |        |      
|Total assets                                                         |     | 16,281  |     | 16,623  |     | 15,447  |     | 15,102  |     | 14,621  |        | 2,192
|Share capital                                                        |     | 969     |     | 892     |     | 868     |     | 844     |     | 808     |        | 121  
|Shareholders equity                                                 |     | 4,584   |     | 4,105   |     | 4,007   |     | 4,010   |     | 4,358   |        | 654  
|Bond loans, long - and short-term liabilities to credit institutions |     | 5,699   |     | 6,016   |     | 5,508   |     | 5,381   |     | 3,529   |        | 529  
|                                                                     |     |         |     |         |     |        
|Per share data                                                       |     |         |     |         |     |         |     |         |     |         |        |      
|Basic net income per share, SEK                                      |     | 2.76    |     | 3.40    |     | 4.10    |     | 4.68    |     | 5.61    |        | 0.84 
|Diluted net income per share, SEK                                    |     | 2.76    |     | 3.38    |     | 4.07    |     | 4.66    |     | 5.59    |        | 0.84 
|Basic weighted average shares, in thousands                          |     | 410,177 |     | 361,506 |     | 348,295 |     | 332,679 |     | 325,709 |        |      
|Diluted weighted average shares, in thousands                        |     | 410,177 |     | 363,016 |     | 350,894 |     | 334,162 |     | 327,014 |        |      
|Cash dividend declared per share, SEK                                |     | 1.35    |     | 1.45    |     | 1.60    |     | 1.70    |     | 1.90    |        | 0.28 



1



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##### Table of Contents

|                                        |     |       |     |       |     |       |     |       |     |       |        |     
|--------------------------------------- | --- | ----- | --- | ----- | --- | ----- | --- | ----- | --- | ----- | ------ | ----
|Millions unless otherwise stated        |     | 2000  |     | 2001  |     | 2002  |     | 2003  |     | 2004  |        | 2004
|                                        | SEK |       | SEK |       | SEK |       | SEK |       | SEK |       | USD(1)
|Amounts in accordance with U.S. GAAP(2) |     |       |     |       |     |       |     |       |     |       |        |     
|Net income                              |     | 915   |     | 981   |     | 1,461 |     | 1,680 |     | 1,965 |        | 295 
|Shareholders equity                    |     | 6,319 |     | 5,587 |     | 5,391 |     | 5,521 |     | 6,231 |        | 934 
|Basic net income per share, SEK         |     | 2.21  |     | 2.71  |     | 4.19  |     | 5.05  |     | 6.03  |        | 0.90
|Diluted net income per share, SEK       |     | 2.21  |     | 2.70  |     | 4.16  |     | 5.03  |     | 6.01  |        | 0.90

---

Notes to Selected Consolidated
Financial Data

|(1) | Translated, solely for the convenience of the reader, at the Noon Buying Rate on December 31, 2004 of USD 1.00 = SEK 6.6687.
|--- | ----------------------------------------------------------------------------------------------------------------------------

|(2) | See Note 26 of the Notes to Consolidated Financial Statements for a reconciliation of net income and shareholders equity reported under Swedish GAAP to the corresponding
amounts under U.S. GAAP and for a discussion of certain differences between U.S. GAAP and Swedish GAAP.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Dividends



The Company considers it desirable that funds not vital for the expansion and consolidation of the Group be transferred to the shareholders in the form of
dividends and other forms, such as a share buybacks. Swedish Match policy is that the amount of a dividend should largely follow the trend of the Companys net profit. When establishing a dividend, the size of planned repurchases of shares is
also taken into account. It is estimated that the dividend amount will be between 30 percent and 50 percent of net profit. A buyback of shares is, in principle, a reverse new share issue and makes it possible to work continuously to manage the
capital structure in the balance sheet. In view of Swedish Matchs stable and positive cash flow, the Board of Directors position with regard to buyback of shares is positive. The size and scope of share buybacks depends on the same
factors as the size and the scope of the dividend, namely on Swedish Matchs financial position, net profit, anticipated future cash flow, as well as investments and expansion plans and also availability of non-restricted equity. Other factors
that affect a repurchase are the price of the shares and the Companys interest and tax expenses.



Dividends are expected to be paid following the end of the relevant financial year, if proposed by the Board and approved by the Companys
shareholders at the relevant Annual General Meeting. Subject to the foregoing, and consistent with Swedish practice, the Board would expect to propose only one dividend per year. The Annual General Meeting in April 2005 resolved that shareholders
shall receive a dividend of SEK 1.90 per share, for a total amount of approximately SEK 612 million (compared with net income for the year of SEK 1,828 million), and the balance shall be retained in the business.



At the level of dividends proposed in the Boards policy, the Company
believes it will have adequate cash flow to fund future anticipated capital expenditures.



The table below shows the amount of dividends paid on each share in respect of each fiscal year indicated, translated into U.S. dollars per ADS on the basis of one ADS for every ten shares and at the Noon Buying Rate
on each of the respective payment dates and, in the case of ADSs, after deduction of withholding taxes referred to below and under Item 10.E. TaxationTaxation of Dividends. No information per ADS is given for dividends for the year
2004 as the ADS program was cancelled prior to the date of payment of dividends.



2



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##### Table of Contents

|       |  |               |  |                     
|------ |  | ------------- |  | --------------------
|       |  | SEK per Share |  | U.S. dollars per ADS
|2000   |  | 1.35          |  | 1.3                 
|2001   |  | 1.45          |  | 1.4                 
|2002   |  | 1.60          |  | 1.4                 
|2003   |  | 1.70          |  | 1.9                 
|20041) |  | 1.90          |  |                    

---

|1) | The ADS program was cancelled in 2004
|-- | -------------------------------------



Certain holders of shares may be subject to U.S. federal income tax consequences on dividends paid in respect of shares See Item 10.E.
Taxation.



Exchange Rate Data



The following table sets forth, for the years and dates indicated, certain
information concerning the rate of exchange of the Swedish kronor to the U.S. dollar based on the Noon Buying Rate. The Noon Buying Rate on June 17, 2005, was USD 1.00 = SEK 7.5270.



|                            |  |            |  |            |  |         |  |       
|--------------------------- |  | ---------- |  | ---------- |  | ------- |  | ------
|Year ended December 31,     |  | Period End |  | Average(1) |  | High    |  | Low   
|2000                        |  | 9.4440     |  | 9.2251     |  | 10.3600 |  | 8.3530
|2001                        |  | 10.4571    |  | 10.4328    |  | 11.0270 |  | 9.3250
|2002                        |  | 8.6950     |  | 9.6570     |  | 10.7290 |  | 8.6950
|2003                        |  | 7.1950     |  | 8.0351     |  | 8.7920  |  | 7.1950
|2004                        |  | 6.6687     |  | 7.3320     |  | 7.7725  |  | 6.5935
|December 2004               |  |           |  |           |  | 6.8043  |  | 6.5939
|January 2005                |  |           |  |           |  | 7.0069  |  | 6.6855
|February 2005               |  |           |  |           |  | 7.1114  |  | 6.8275
|March 2005                  |  |           |  |           |  | 7.0716  |  | 6.7312
|April 2005                  |  |           |  |           |  | 7.1627  |  | 7.0118
|May 2005                    |  |           |  |           |  | 7.4108  |  | 7.0850
|June 2005 (through June 17) |  |           |  |           |  | 7.7112  |  | 7.4373

---

|(1) | Represents the average of the exchange rates on the last day of each full month during the year.
|--- | ------------------------------------------------------------------------------------------------



3.B Capitalization and Indebtedness



Not applicable.



3.C Reasons for the Offer and Use of Proceeds



Not applicable.



3



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##### Table of Contents

3.D Risk Factors



Set forth below
is a description of certain risks that may effect the Companys business, financial condition and results of operations from time to time.



See Item 4.B. Business Overview-Regulation.



The Company is affected by legislation relating to tobacco, package labeling, marketing and advertising, smoking bans and trade barriers



Increasing health concerns related to tobacco smoking
followed by increasingly severe restrictions on smoking in public places and in the workplace is evident in most countries where the Group sells its products. For example, countries such as Ireland, Norway, Sweden, Italy and several major U.S.
cities and towns have passed laws banning smoking in bars, restaurants and other premises where food or drinks are served. Such bans could have a negative impact on consumption of products that the Company manufactures or distributes and on the
Companys results of operations. Furthermore, there is a trend towards increasingly severe regulations related to marketing and advertising of tobacco products, permissible ingredients in tobacco products and the reporting on such ingredients.
These restrictions could also have a negative impact on consumption of the Companys products and on its results of operations.



Changes in excise taxes and rules on collection of tobacco tax may reduce the Companys sales and cash flow



Tobacco products are subject to substantial taxes in most countries where
Swedish Match has significant sales. In many of those countries, the taxes on tobacco are generally increasing but the rate of increase varies between different types of tobacco products. Increased excise taxes or changes in relative tax rates for
different tobacco products may result in decline in overall sales volume for the Companys products that in turn could adversely affect Swedish Matchs results of operations. Changes in rules on the collection of tobacco taxes could
negatively affect the Companys cash flow.



The markets
for the Companys products are highly competitive



Swedish Match faces intense competition in each of its geographical markets and for each of its products. In order to be successful it must promote brand equity successfully and anticipate and respond to new customer trends. Restrictions on
advertising and promotion may, however, make it more difficult to counteract loss of consumer loyalty to any particular brand or product. There can be no assurance that branding or new product launches by the Companys competitors will not be
successful in persuading consumers of the Companys products to switch to competitors products, which could have a material adverse effect on the Companys results of operations. See Item 4.B Business
Overview-Competition.



Some of the Companys
businesses are subject to volume decline and price pressure



Developed markets for many tobacco products, have been generally declining in the past decades. This adverse trend is a result of consistent and substantial increases in the excise duty on tobacco products, increasing governmental
regulation, government-funded anti-smoking campaigns and heightened public awareness of smoking-related health concerns. Any future substantial decline in demand could have a materially adverse effect on the Companys operating profits.



The Company is faced with lower volumes and downward pricing
pressure in many of its businesses. The lighters and matches businesses in particular are characterized by volume declines, excess production capacity and fierce price competition in many markets. The Company may have to adjust its production
capacity to meet declining sales volumes. There can be no assurance that the Company will be able to partly offset volume declines in the future through price increases if at all.



The Company is distributing tobacco products in Sweden for a number of other companies, primarily manufacturers of
cigarettes. Three companies account for over 97 percent of tobacco products distributed for third parties. The Company may face downward price pressure for its distribution services or loss of volumes to competing distributors in the future. In
addition, the potential decrease in consumption of cigarettes due to laws enacted in certain countries banning smoking in public places and in the workplace may also result in reduction in the volume of products distributed, which could have an
adverse impact on the Companys revenues.



4



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##### Table of Contents

Changes in import restrictions could effect the Companys sales negatively



The Company is selling products in countries where potential competition is
barred from entering through import restrictions or import bans. Changes in import or export regulations can negatively affect the Companys sales volumes and prices for its products.



Retailer consolidation could cause a decline in the Companys sales
and operating results



In many markets the grocery trade
continues to consolidate and as retailers grow larger and become more sophisticated, they demand lower pricing and increased promotional programs. Furthermore, these customers are reducing their inventories and increasing their emphasis on private
label products in many product categories. These trends can have an adverse effect on the Companys results of operations.



The Company faces litigation in the course of its business



The Company is involved in a number of legal and regulatory proceedings including pending lawsuits related to intellectual
property rights and alleged injuries caused by tobacco products. There can be no assurance that the Companys defenses will be successful in trial and substantial costs may be incurred in defending lawsuits. Although management cannot in any
meaningful way estimate the damages that might be awarded, if any, in any ongoing or anticipated disputes these lawsuits individually or in the aggregate, could have an adverse effect on the Companys results of operations.



Swedish Match is not a party to the Master Settlement Agreement or the
Smokeless Tobacco Master Settlement Agreement between various U.S. states and certain tobacco companies. To date, neither these settlements nor the legislation enacted as a result of them has had any material effect upon the business activities of
Swedish Match in the U.S. The business is being conducted as it has been in the past but there can be no assurance that Swedish Match will not in the future enter into similar agreements that could have material adverse impact on the Companys
business.



The Companys operations in certain
developing countries are susceptible to such countries political and economic stability



Swedish Match has substantial operations in emerging or developing markets such as Brazil, the Dominican Republic, India, Indonesia, the Philippines and
South Africa. Swedish Matchs results of operations and financial condition are influenced by the economic, regulatory and political situations in the countries in which it have operations, which are generally unpredictable and outside the
control of the Group. There can be no assurance that political, legal, economic or other developments such as social unrest or terrorism will not have an adverse impact on the Companys investments and businesses or on the Companys
consolidated results of operations.



The Company may not
have adequate insurance



Each of Swedish Matchs
insurance programs have limitations in coverage and there can be no assurance that any insurable damage caused is covered by insurance. Swedish Match has substantial operations in geographic areas where full insurance coverage against property
damage resulting from storm and certain other natural disasters may not be obtainable. Swedish Match may not be able to obtain certain types of insurance or extend its existing insurance programs in the in the future.



Loss of production capacity could cause a decline in the Companys
sales and results of operations



For product categories
where the Company does not have over capacity or where substitution between different production plants is not possible, it may lose market shares and profit in the event of loss of production capacity needed to supply its products.



Environmental cost and liabilities could adversely effect the
Companys financial condition



The Company cannot
guarantee that it can meet all local environmental controls and regulations or that all such controls and regulations have been met in the past. In the event of changes to local regulations or of the legal environment or in case of accidental
environmental pollution, the Company may have to incur additional costs for compliance.



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The Company is subject to commodity risks



The raw materials used in the Groups business, primarily tobacco,
splintwood and raw material in various packaging material are commodities that experience price volatility caused by factors including weather conditions, growing conditions, local planting decisions, market fluctuations and changes in agricultural
regulations. Commodity price changes beyond the Companys control may result in unexpected increases in raw materials and packaging costs and the Company may be unable to increase its prices to offset these increased costs without suffering
reduced volume and revenues.



With respect to the
Companys cigar business, unanticipated fluctuations in demand and changes between different years in the quality of tobacco grown require relatively high levels of raw tobacco leaf inventory. In some cases inventory for specific grades or
types may be several years supply. In the event of a drop in final demand for finished goods, this inventory may be substantially higher than appropriate levels and lower income due to higher capital costs may result. In some circumstances,
some of this inventory may need to be sold at prices below purchase prices or may have to be destroyed which would have a negative impact on the Companys results of operations and cash flows.



The Company is exposed to market rate, exchange rate and interest risks



In the normal course of its business, Swedish Match is
exposed to market risk, primarily in the forms of risk associated with changes in foreign exchange rates and interest risk but also in the form of financing, liquidity and credit risk. Swedish Match enters into a variety of financial instruments to
the extent judged necessary by management to achieve a desired level of exposure, although the Company cannot assure that these exposures will be reduced to a desired level, if at all.



The Company manages its exposure to changes in interest rates through a mix of fixed rate debt and variable rate debt in its
total debt portfolio. To manage this mix, the Company may enter into interest rate swap agreements. There can be no assurance, however, that existing or future swap agreements will manage the interest rate risk successfully, if at all.



Swedish Match has a substantial part of its production and sales in EU
member countries, South Africa, Brazil, India and the U.S. Consequently, changes in exchange rates of EUR, South African Rand, Brazilian real, Indian rupees and the U.S. dollar in particular may adversely affect the Company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 reporting. The financing
risk comprises risk arising from large borrowing requirements under austere credit market conditions where the Company may be refused to take up new loans or prolong its loans.



Liquidity and credit risks expose the Company to shortages of cash when such cash is needed in the Companys
operations. The Company aims to limit these risks by the Companys policy of investing in instruments with high liquidity and credit worthiness. In addition to bank deposits, investments are mainly concentrated in government treasury bills and
bonds with counter parties who have high credit ratings. However, the Company cannot assure that it will successfully invest in such instruments in the future, or that the failure to invest successfully will not have a material adverse effect on the
Companys liquidity and credit position.



Furthermore,
Swedish Match may show variability in cash flows, due to among others, a changing product portfolio and differing needs for leaf-tobacco, work-in process inventories and finished goods as well as changes in rules on tobacco tax collection.



The Company could face impairment of goodwill and other
fixed assets.



The value of goodwill and other intangible
assets as well as other fixed assets is evaluated regularly to determine whether events or circumstances indicate that the value of the fixed assets are impaired. These evaluations include significant judgments made by management. Future events
could cause the Company to conclude that impairment indicators exist and that a fixed asset is impaired. Any resulting impairment loss could have a material adverse impact on the Companys financial condition and results of operations.



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Loss of key personnel could have a negative impact on the Companys performance



The Company relies on a number of highly experienced and/or long standing
employees with a detailed knowledge of tobacco and other business related issues. Unanticipated losses of key employees could result in a substantial loss of expertise, which would negatively affect activities and operating performance.



There are risks inherent in calculating the Companys provision
for pensions and similar obligations



As of December 31,
2004 the Company had provision for pensions and similar obligations of SEK 739 million. Calculating pension and similar obligations require management to make assumptions on discount rate, expected return on plan assets and rate of compensation
increase. Actual results could differ from the assumptions made. The Company may be required to contribute additional amounts to its pension schemes which would have a negative effect on the Companys results of operations. See Item 5.A.
Operating Results  Critical Accounting Policies  Accounting for pensions.



The existence of counterfeit products in the marketplace could adversely effect the Companys sales



Counterfeit products of Swedish Match branded products may be difficult to curb. Sales by others of counterfeit products could have a negative effect on
the Companys sales, volumes and brand goodwill.



ITEM 4. INFORMATION ON THE COMPANY



4.A History and Development



Swedish Match AB (publ) was incorporated in 1917 as a limited liability company. In 1995 the Company changed to a public limited liability company with an indefinite duration under the laws of the Kingdom of Sweden. The Companys
principal executive office is located at Rosenlundsgatan 36, S-118 85 Stockholm, Sweden and its telephone number is +46-8-658-0200. The agent for the Company in the U.S. is Swedish Match North America, Inc. and its telephone number is
+1-804-302-1700.



Swedish Matchs two main businesses,
tobacco products and lights in the form of matches and disposable lighters, were separately established at the beginning of the century. After a number of transactions the business was acquired by Volvo and since 1994 Swedish Match operated as an
independent company within the Volvo Group. In 1996, in line with a new strategic plan at Volvo to concentrate on automotive and transport equipment, Volvo divested the Swedish Match operation by way of a dividend to the Volvo shareholders and in
May 1996, after the dividend, Swedish Matchs shares were listed on the OMX Stockholmsbörsen, Sweden (the Stockholm Exchange) and its American Depository Shares (ADS) on the Nasdaq National Market (NASDAQ). In 2004
due to the low liquidity of the ADSs these were delisted from NASDAQ. The last day of trading of the ADSs was on October 15, 2004. The Company also cancelled its American Depository Receipts program.



Swedish Match is a company producing and selling a broad range of market
leading brands in the product areas snuff, chewing tobacco, cigars and pipe tobacco  niche tobacco products  as well as matches and lighters. The Groups global operations generated sales of SEK 13,007 million in more than 150
countries in 2004. Production facilities are located in 15 countries. The average number of employees during 2004 was 15,039.



In January 2004 Swedish Match sold all its advertising textiles business.



In March 2004 Swedish Match settled its claim in Swedish Match North America, Inc. v. UST in which the Company was seeking
injunction against UST to stop methods aimed at suppressing competition in the American snuff market and compensation for damages. In accordance with the settlement, UST has paid US$ 200 million to Swedish Match. Furthermore, UST agreed to cause the
transfer of its cigar business to Swedish Match, including but not limited to brands, other intellectual property and inventory. Annual sales of the cigar business that was transferred amount to an average of approximately US$ 11 million.



On March 19, 2004 Lennart Sundén left his position as
President and CEO. The Companys Executive Vice President Sven Hindrikes was appointed acting President and CEO and on June 1, 2004 he was appointed President and CEO. Lennart Sundén also resigned from the Board of Directors of Swedish
Match as well as all Group companies. Lennart Sundén is entitled to a termination period of 12 months, since the employment was terminated by the Company. Furthermore, Lennart Sundén is entitled to a severance payment corresponding to
24 months salary. The severance pay may be partly reduced by other employment income.



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In April 2005 Swedish Match acquired all of the remaining shares in General Cigars Holdings Inc. General
Cigar is the market leader in premium cigars in USA, with well known brands such as Macanudo, Partagas and Punch.



Capital Expenditures



Swedish Match operates primarily in mature markets with limited capital expenditure requirements. Swedish Matchs capital expenditures amounted to
SEK 486 million in 2004 and were equal to approximately 4 percent of sales. Capital expenditures amounted to SEK 551 million in 2003 and SEK 751 million in 2002. Depreciation of fixed assets amounted to SEK 332 million compared with 346 million in
2003 and SEK 324 million in 2002. Total capital expenditures over the period 2000-2004 were equal to 4.2 percent of total sales during the period.



Apart from necessary investments for replacement purposes, most of the Companys investments involved rationalization measures, such as moving
production among the Companys facilities in order to maximize efficiencies and create economies of scale. As a result of increases in snuff sales, particularly sales of portion-packed snuff in Sweden, a new production plant was built in
Kungälv, Sweden, near to Gothenburg. The total investment in the plant amounted to SEK 604 million. The plant started production in mid 2003.



Capital expenditure for 2005 is expected to be on the same level or somewhat below 2004. Capital expenditure is expected to be funded primarily through
internally generated cash flow. Acquisitions, if any, may be financed through internally generated cash flow or debt financing.



Since Swedish Match manufactures high-turnover consumer products, the Company maintains relatively small inventories of finished products for many of its
products.



For more discussion of the Companys principal
capital expenditure and divestitures, see Item 5.A. Operating Results.



4.B Business Overview



General



Swedish Match is a Swedish-based international group that
produces a broad range of other tobacco products including snuff, chewing tobacco, cigars, and pipe tobacco as well as matches and disposable lighters. Swedish Match products are sold in more than 150 countries. Within the Companys
product offering, there are products characterized by strong brand loyalty among consumers (for example, snuff and cigars), as well as products whose trademarks are of lesser importance to the consumer (for example lighters).



By tradition, Swedish Match has its greatest strengths in the Nordic region
(primarily Sweden) and the U.S. The Company also has significant cigar and lights (i.e. matches and lighters) operations in Europe, pipe and snuff operations in South Africa and significant lights operations in parts of Asia and Latin
America (Brazil).



Sales by Region



A breakdown of total revenues by principal geographic market is as follows:



North America. Most of the revenues in this region
arise from smokeless tobacco and cigar sales in the U.S.



| |  |  | 2002: SEK 4,688 million
| | - |  | -----------------------



| |  |  | 2003: SEK 4,135 million
| | - |  | -----------------------



| |  |  | 2004: SEK 4,036 million
| | - |  | -----------------------



Nordic region. Most of the revenues in this region arise from smokeless tobacco sales in Sweden, as well as distribution activities for all tobacco
products on the Swedish Market.



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##### Table of Contents

| |  |  | 2002: SEK 4,683 million
| | - |  | -----------------------



| |  |  | 2003: SEK 4,874 million
| | - |  | -----------------------



| |  |  | 2004: SEK 5,087 million
| | - |  | -----------------------



Europe, excluding Nordic region. Revenues in this region arise primarily from the sales of cigars, matches, lighters, and pipe tobacco.



| |  |  | 2002: SEK 2,214 million
| | - |  | -----------------------



| |  |  | 2003: SEK 2,076 million
| | - |  | -----------------------



| |  |  | 2004: SEK 1,912 million
| | - |  | -----------------------



Latin America and Other Geographies. The single largest source of revenues in this region comes from sales of lighters and matches in Brazil and
snuff and pipe tobacco in South Africa.



| |  |  | 2002: SEK 2,058 million
| | - |  | -----------------------



| |  |  | 2003: SEK 1,951 million
| | - |  | -----------------------



| |  |  | 2004: SEK 1,972 million
| | - |  | -----------------------



Raw Materials



Raw materials consist primarily of tobacco leaf, which is sourced worldwide with purchase cycle times ranging from several months to several years.
Although prices and availability for individual grades of tobacco from individual markets may vary considerably, the volatility is substantially mitigated by the nature of tobacco purchases and the wide geographic availability.



Marketing Channels



Swedish Match products are largely intended for individual consumers and are
therefore distributed in marketing channels that cater to the local needs of tobacco consumers. The primary classes of trade include but are not limited to (as applicable and allowed by law): food stores, gas stations and convenience stores, mass
merchandisers, discount retailers, drug stores, tobacconists, kiosks, hotels and restaurants. Sales methods are standard for the industry and conform to local market norms in the countries where the products are sold.



General



During 2004, the Swedish Match business structure was composed of four divisions having defined operating responsibility:
North Europe, Continental Europe, North America, and Overseas Divisions. General Cigar has been operated as an independent division with its own production and sale of premium cigars. From April 2005, when Swedish Match acquired the remaining 36
percent of General Cigar that it did not own, steps have been taken to further integrate the administration of this business into Swedish Match North America. In 1999 the Company divested its cigarette operations.



Marketing, sales and production of tobacco and lights products are organized
in the North Europe, Continental Europe, North America and Overseas Divisions. Lighter sales are coordinated through the Continental Europe Division, while match sales are coordinated through the Overseas Division. General Cigar sells its premium
cigars primarily in the U.S. market.



Swedish Matchs
financial reporting structure follows the six different product areas, Snuff, Chewing Tobacco, Cigars, Pipe Tobacco and Accessories, Matches, Lighters and Other operations.



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##### Table of Contents

Business - Snuff



Key data



|                                       |  |       |  |       |  |      
|-------------------------------------- |  | ----- |  | ----- |  | -----
|(SEK millions unless otherwise stated) |  | 2002  |  | 2003  |  | 2004 
|Sales                                  |  | 2,788 |  | 2,995 |  | 3,081
|Operating income                       |  | 1,233 |  | 1,386 |  | 1,373
|Operating margin, %                    |  | 44.2  |  | 46.3  |  | 44.6 



Capital expenditures and personnel



|                                              |  |      |  |      |  |     
|--------------------------------------------- |  | ---- |  | ---- |  | ----
|(SEK millions unless otherwise stated)        |  | 2002 |  | 2003 |  | 2004
|Capital expenditures in tangible fixed assets |  | 424  |  | 219  |  | 242 
|Average number of employees                   |  | 825  |  | 908  |  | 924 



With restrictions on
tobacco smoking and growing health concerns relating to cigarettes, smokeless alternatives have been gaining a greater market potential. Swedish Match is the leading manufacturer of snuff in the Swedish and Norwegian markets and the third largest
player in terms of market share in the U.S. Sales in 2004 amounted to SEK 3,081 million (2003: 2,995). Operating income for the year was SEK 1,373 million (2003: 1,386), corresponding to an operating margin of 44.6 percent (2003: 46.3).



Production for the Nordic market takes place at two factories in Sweden,
in Gothenburg and in Kungalv (opened in 2003). The production for the American market takes place in Owensboro, Kentucky. Products for the South African market are primarily produced in Johannesburg, South Africa.



Volume in the U.S. grew by approximately 3 percent in 2004, while volume in
the Nordic countries grew by slightly more than 1 percent. Overall sales of the Groups snuff business grew by 3 percent during 2004 compared to 2003.



Snuff market



Sweden and other Nordic countries



Snuff is a traditional product that has become increasingly socially acceptable. Since snuff can be consumed discreetly in portioned packs, it has become
an increasingly popular alternative to cigarettes for both men and women. Approximately 225 million cans of moist snuff are sold annually in the Nordic countries. In Sweden, the largest market, there are more than one million snuff consumers,
corresponding to just over 10 percent of the population. Women account for some 20 percent of snuff consumers. Swedish Match has established its own quality standard called GOTHIATEK® for all of its snuff brands in the Nordic region. Well-known brands in the Swedish and
Norwegian markets are Generalsnus, Ettan, Grovsnus, and Catch, which together account for approximately 80 percent of all snuff sales in Sweden and Norway.



Swedish Match has approximately 95 percent of the Swedish snuff market, with a number of smaller competitors, some competing in local or limited markets.
The largest competitors are Gallaher, and Fiedler&Lundgren, both with production in Sweden.



Consumption of snuff has been rising most rapidly in metropolitan areas, where population growth is highest and restrictions on smoking are more
stringent. Market growth has slowed considerably in Sweden in 2004, and the market is now growing at a rate of 1 - 3 percent per year. Portion-packed snuffs share of the total snuff market is 57 percent, and rising.



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In 2002, the Company launched line extensions to its Catch brand. In April 2003, the Company launched a
new range of portion-packed products with a new more appealing appearance and a distinctive functional can lid. In 2004 further line extensions were introduced.



Swedish Match has the largest market share of the limited but growing Norwegian market. Consumption is increasing, with particular emphasis on
portion-packed snuff, and was up by more than 20 percent in the Norwegian market in volume terms in 2004.



United States



Approximately 940 million cans of snuff were consumed in the United States in 2004. Consumption has increased at a higher pace in the past two years,
after having been growing by about 2 to 3 percent annually for a number of years. The market is estimated to have grown by close to 6 percent, measured in cans, in 2003, and by nearly 7 percent in 2004. Swedish Matchs largest competitor is US
Smokeless Tobacco Company and its subsidiaries (UST).



Swedish
Matchs share of the market was for the full year 2004 approximately 8.9 percent down from 9.1 percent, according to AC Nielsen. Consumption volume declined for Timber Wolf, the best selling Swedish Match brand in the U.S. and a leading brand
in the low-price segment in an extremely competitive market environment. Offsetting these volume declines, volume grew for a second Swedish Match value priced brand, Longhorn, which was launched in August 2003. The U.S. product range also includes
Renegades, a portion-packed snuff. The Company has a limited test launch of a Swedish type of snuff, which is a smokeless tobacco product using the GOTHIATEK® process.



Other markets



In the South African market, nasal snuff is the dominant smokeless tobacco product. Swedish Match established operations in the South African market in
1999 through its acquisition of Dingler, with its Taxi brand.



Swedish Match has limited test market and selling activity relating to snuff in Russia, among other markets. At the end of 2004, the Company discontinued its test market activity for snuff in India.



The sale of moist snuff was prohibited in the EU in 1992, mainly because it
was assumed that the product was carcinogenic. Sweden was exempted from the ban when entering the EU in 1995. Several studies in Sweden have shown that the assumed carcinogenic effects is lacking in scientific support. Against this background, the
European Commission has decided to change the warning labels on packaging for smokeless tobacco, including moist snuff sold in Sweden. The prohibition on the sale of moist snuff throughout the rest of the EU remains in place following the decision
by the European Court of Justice in December 2004, that the current ban on the sale of this type of product is not in breach of fundamental EU-law.



Within the EU, Swedish Match sells nasal snuff, under the brands Singletons, Kensingtons, and Rumneys. Nasal snuff accounts for a small
portion of total Swedish Match smokeless tobacco sales.



General



The Company expects that Sweden,
Norway and the U.S. will continue to be the primary markets for Swedish Matchs snuff products.



The table below shows the size of the Snuff Business in relation to the Swedish Match Group in 2004.



|                                                            |  |       |  |              |  |        
|----------------------------------------------------------- |  | ----- |  | ------------ |  | -------
|                                                            |  | Snuff |  | SwedishMatch |  | Percent
|Sales, SEK millions                                         |  | 3,081 |  | 13,007       |  | 24     
|Operating income, SEK millions                              |  | 1,373 |  | 3,370        |  | 41     
|Capital expenditures in tangible fixed assets, SEK millions |  | 242   |  | 486          |  | 50     
|Average number of employees                                 |  | 924   |  | 15,039       |  | 6      



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##### Table of Contents

Business - Chewing Tobacco



Key data



|                                       |  |       |  |       |  |      
|-------------------------------------- |  | ----- |  | ----- |  | -----
|(SEK millions unless otherwise stated) |  | 2002  |  | 2003  |  | 2004 
|Sales                                  |  | 1,333 |  | 1,146 |  | 1,058
|Operating income                       |  | 406   |  | 336   |  | 304  
|Operating margin, %                    |  | 30.4  |  | 29.3  |  | 28.7 



Capital expenditures and personnel



|                                              |  |      |  |      |  |     
|--------------------------------------------- |  | ---- |  | ---- |  | ----
|(SEK millions unless otherwise stated)        |  | 2002 |  | 2003 |  | 2004
|Capital expenditures in tangible fixed assets |  | 42   |  | 23   |  | 18  
|Average number of employees                   |  | 347  |  | 346  |  | 346 



Swedish Match is the
market leader in the chewing tobacco business in the U.S. Sales amounted to SEK 1,058 million (2003: 1,146). Operating income amounted to SEK 304 million (2003: 336), a decrease of 10 percent, as measured in Swedish kronor. In local currency (USD)
terms, sales and operating income improved versus the previous year. Operating margin was 28.7 percent (2003: 29.3).



Chewing tobacco operations are conducted in the North American market, mainly in the U.S. Well known Swedish Match brands include the Red Man family and
Southern Pride. In total, Swedish Match held a market share of approximately 44 percent of consumption volume in 2004.



The headquarters for the chewing tobacco operations are in Richmond, Virginia. Production is carried out in Owensboro, Kentucky.



During the fourth quarter of 2003, Swedish Match launched a new chewing
tobacco product into test market in Japan in the Tokyo area. This product, branded Firebreak®, is a chewing tobacco in a gum base. The test market continued during 2004.



Chewing tobacco market



United States



The use of chewing tobacco is an old custom in the U.S. Consumption is mainly concentrated in a region comprising the southeastern states. Chewing tobacco
is usually associated with outdoor and recreational activities, such as hunting and fishing.



Four major producers dominate the chewing tobacco industry in the U.S. Swedish Match is the market leader with its Red Man family of brands (Red Man, Red Man Golden Blend and Red Man Select). Swedish Matchs
major competitor is Conwood.



The total U.S. market amounts to
approximately SEK 2.6 billion. Consumption of chewing tobacco has been declining by more than 4 percent per year over the past three years, continuing a long-term trend. In 2003 and 2004, the market declined by approximately 5 percent, measured by
weight. The reason is primarily demographic, as a result of the increasingly higher average age of consumers and fewer jobs in farming and other outdoor sectors.



General



The market for chewing tobacco is declining in the U.S., but profitability remains strong. Swedish Matchs goal is to maintain its market position
and to manage capacity utilization in order to control costs and secure profitability.



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##### Table of Contents

The partnership with the retail sector is expanding, with training and support regarding the product
range and product merchandising.



The table below shows the
size of the Chewing Tobacco Business in relation to the Swedish Match Group in 2004.



|                                                            |  |                |  |              |  |        
|----------------------------------------------------------- |  | -------------- |  | ------------ |  | -------
|                                                            |  | ChewingTobacco |  | SwedishMatch |  | Percent
|Sales, SEK millions                                         |  | 1,058          |  | 13,007       |  | 8      
|Operating income, SEK millions                              |  | 304            |  | 3,370        |  | 9      
|Capital expenditures in tangible fixed assets, SEK millions |  | 18             |  | 486          |  | 4      
|Average number of employees                                 |  | 346            |  | 15,039       |  | 2      



Business 
Cigars



Key data



|                                       |  |       |  |       |  |      
|-------------------------------------- |  | ----- |  | ----- |  | -----
|(SEK millions unless otherwise stated) |  | 2002  |  | 2003  |  | 2004 
|Sales                                  |  | 3,318 |  | 3,008 |  | 3,171
|Operating income(1)                    |  | 472   |  | 393   |  | 466  
|Operating margin, %                    |  | 14.2  |  | 13.1  |  | 14.7 

---

|(1) | Includes Swedish Matchs 40 percent holding in Arnold André which is reported in accordance with the equity method.
|--- | -------------------------------------------------------------------------------------------------------------------



Capital expenditures and personnel



|                                              |  |       |  |       |  |      
|--------------------------------------------- |  | ----- |  | ----- |  | -----
|(SEK millions unless otherwise stated)        |  | 2002  |  | 2003  |  | 2004 
|Capital expenditures in tangible fixed assets |  | 169   |  | 193   |  | 128  
|Average number of employees                   |  | 6,504 |  | 7,148 |  | 7,781



Swedish Match is one
of the worlds largest manufacturers and distributors of cigars and cigarillos, and ranks second in terms of sales in the world cigar market. Including the jointly owned German company, Arnold André (in which Swedish Match holds a 40
percent interest), production amounts to more than one billion cigars per year.



Sales in 2004 grew 5 percent to SEK 3,171 million (2003: 3,008). Swedish Match sales are primarily in the European and in the U.S. mass market and in the U.S. premium cigars market. The growth in sales is primarily
attributable to volume gains in the US market. Roughly 62 percent of Swedish Match cigar sales are in the U.S. Operating income was SEK 466 million (2003: 393). The operating margin was 14.7 percent (2003: 13.1).



The Companys main brands include La Paz, Willem II, Garcia Y Vega, La
Gloria Cubana, White Owl and Macanudo. In 2000, the Company acquired 64 percent of the shares of General Cigar Holdings, Inc. The remaining 36 percent of the shares were acquired in April 2005. General Cigar is the leading manufacturer of premium
cigars in the U.S. and produces the best selling premium cigar brand, Macanudo. As a result of the acquisition, Swedish Match strengthened its position as a leading global cigar company and as a leader in Other Tobacco Products (OTP)
(cigars, snuff, pipe tobacco and chewing tobacco) in the U.S.



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##### Table of Contents

Swedish Match manufactures many of the worlds best known brands of cigars. The largest markets are
Western and Northern Europe, and the U.S. The product range includes all types of cigars and cigarillos, from hand-rolled premium cigars to machine-made cigarillos.



The production plants are located in Houthalen (Belgium) and Pandaan (Indonesia). In 2002 Swedish Matchs production in
the plant in Overpelt (Belgium) was closed down and moved to other existing Swedish Match plants. Cigars are also produced in Santiago, the Dominican Republic, Danli and Confradia, Honduras, and Dothan, Alabama in the U.S. The Company also has
tobacco farms in Jima and Mao in the Dominican Republic and in Connecticut in the U.S. The German company Arnold André with production plants in Bünde and Königslutter (Germany) is 40 percent owned by Swedish Match.



Cigar market



During 2004, the world market for cigars was more than 15 billion cigars
with an estimated sales value of SEK 27 billion. More than three-quarters of cigars are sold in North America and Europe.



Europe



Consumption of cigars was relatively unchanged in Europe during 2004. The strongest market growth was noted in countries such as Spain, France, and Italy,
while demand in Germany, Belgium, and the Netherlands was unchanged or lower.



There are a large number of players in the market, with many small local companies operating in parallel with major manufacturers. Production and wholesaling are both being restructured. The players are becoming fewer
and larger although merger activity since 2000 has been limited. Swedish Matchs market share in Europe is difficult to measure, but roughly amounts to between 10 and 15 percent. Europe accounts for approximately 25 percent of Swedish
Matchs Cigar Business total sales. The La Paz brand is one of the best selling brands in Europe.



United States



Until 1997, the U.S. cigar market was characterized by strong growth in the premium segment. In 1998, the very sharp market growth for cigars weakened.
Excess inventories had been built up by manufacturers and distributors, and this led to price competition in the premium segment. In 1999 total consumption of cigars stabilized, and large excess inventories of product in the commercial chain reduced
somewhat, negatively affecting manufacturers sales despite stable consumption. In 2000, consumption of mass market cigars increased slightly, while consumption of premium cigars remained flat. There was a substantial reduction of excess
inventories of premium cigars in 2000, as a number of lesser-known brands left the market. In 2001, the market for mass market cigars continued to increase slightly, and Swedish Match mass market volumes improved by 11 percent, primarily due to
distribution gains. In 2002, the market for mass market cigars continued to grow modestly. However, Swedish Match volumes declined, as did the Companys share of market. The growth in the U.S. market in 2002 came primarily from sweet and
flavored cigars, which was not part of Swedish Matchs portfolio of products, at the expense of larger, natural cigars. Late in 2002, and during 2003, Swedish Match introduced new flavored cigars, primarily under the White Owl brand, on the U.S
market in order to more fully participate in the growth of the sweet and flavored segment. The market continued to grow in units in 2003, and Swedish Match stabilized its shipment volumes in large part due to flavored product introductions. This
trend in market growth, and the trend toward flavored cigars, continued in 2004. Machine-made cigars sold in the U.S. market contributed to approximately 28 percent of Swedish Matchs total sales of cigars in 2004, and Swedish Match has a
volume market share in the US machine-made cigar market of approximately 7 percent, with growth above market rates.



With General Cigar, Swedish Match is the biggest player in the hand rolled premium cigar segment, with an estimated market share of between 25 and 30
percent. The U.S. premium cigar market is stable. U.S. premium cigars account for approximately 36 percent of total cigar sales for Swedish Match.



Asia/Australia



Asia and Australia continue to be characterized as growth markets for cigars. In Asia, Swedish Match uses its base in Hong Kong to develop contacts with
mainland China.



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General



The world market for cigars has been growing, but with considerable differences between markets. The cigar business has been an important growth area
for Swedish Match. The Company aims to capitalize on the growth in cigar consumption in various markets. The Company is continuing efforts to develop its premium cigar business outside of the U.S.



The table below shows the size of the Cigar Business in relation to Swedish
Match Group in 2004.



|                                                            |  |        |  |              |  |        
|----------------------------------------------------------- |  | ------ |  | ------------ |  | -------
|                                                            |  | Cigars |  | SwedishMatch |  | Percent
|Sales, SEK millions                                         |  | 3,171  |  | 13,007       |  | 24     
|Operating income, SEK millions                              |  | 466    |  | 3,370        |  | 14     
|Capital expenditures in tangible fixed assets, SEK millions |  | 128    |  | 486          |  | 26     
|Average number of employees                                 |  | 7,781  |  | 15,039       |  | 52     



Business - Pipe
Tobacco and Accessories



Key data



|                                       |  |      |  |      |  |     
|-------------------------------------- |  | ---- |  | ---- |  | ----
|(SEK millions unless otherwise stated) |  | 2002 |  | 2003 |  | 2004
|Sales                                  |  | 843  |  | 909  |  | 901 
|Operating income                       |  | 164  |  | 201  |  | 220 
|Operating margin, %                    |  | 19.5 |  | 22.1 |  | 24.4



Capital expenditures and personnel



|                                              |  |      |  |      |  |     
|--------------------------------------------- |  | ---- |  | ---- |  | ----
|(SEK millions unless otherwise stated)        |  | 2002 |  | 2003 |  | 2004
|Capital expenditures in tangible fixed assets |  | 20   |  | 15   |  | 28  
|Average number of employees                   |  | 558  |  | 553  |  | 527 



Swedish Match is a
large manufacturer of pipe tobacco. In 2004 sales declined by 1 percent to SEK 901 million (2003: 909) with currency effects, namely the increase in the value of the South African Rand versus the Swedish krona, substantially offsetting declines in
most markets. Operating income grew 9 percent to SEK 220 million (2003: 201) largely as an effect of currency fluctuation between the Swedish krona and the South African Rand, as well as by productivity improvements and pricing.



Swedish Matchs best known brands are Borkum Riff, Half and Half, Boxer,
Best Blend and Velvet. Borkum Riff is one of the few brands of pipe tobacco sold globally. The main markets are North America, Northern/Western Europe, Southern Africa, and Australia/Japan.



Pipe tobacco is manufactured in Owensboro, Kentucky, and in Boxburg and
Rustenburg, South Africa. Part of Swedish Matchs pipe tobacco production is subcontracted to MacBaren, a Danish company.



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Pipe tobacco market



The market for pipe tobacco has been declining, by some 10 percent in Europe, and by more than 10 percent annually in volume
terms, in North America. The main reason is demographic  the increasing average age of consumers and the weak influx of new buyers. In South Africa, the market in volume terms is also declining in the range of 8 percent per year.



The players in the pipe tobacco industry are mainly large companies, with
many other tobacco products in their lines. Most manufacturers employ a defensive strategy, with high sales prices and limited marketing activity.



The largest single market for pipe tobacco is the U.S. Other large markets are Europe, Australia, Japan, Canada, and South Africa.



North America



Consumption of pipe tobacco in the North American market has been declining
by approximately 8 to 12 percent a year for the past several years. This rate of decline is expected to continue over the next several years. Swedish Match is the fourth largest manufacturer in North America, with a market share of approximately 15
percent and a leading position in the premium segment with Borkum Riff. Swedish Match is also strong in the mass-market segment with Half and Half, Velvet and Paladin. The Companys largest competitors are Lane, Middleton, and Altadis.



Western and Northern Europe



Consumption in Europe has been declining by 6 to 10 percent a year over the
past several years. There is a trend toward greater concentration in the retail chain. The competitive situation varies considerably between markets, with few large manufacturers. The exception is Germany, where there are a number of local and
international manufacturers. Germany is one of the largest and most profitable markets in Western Europe. Swedish Match has strong positions in Sweden and Finland, as well as in Switzerland and Spain. Swedish Matchs market share in Western
Europe is under 10 percent, and has been stable.



South
Africa



A marginal decline in demand in South Africa was
noted in 2000 following a sharp increase in tobacco tax. With its acquisitions of Leonard Dingler and Brasant, Swedish Match created a solid platform in South Africa. Dinglers brands include Boxer, Nineteen O Four, Black and White, and
Giraffe. In February 2001, the Company acquired the South Africa pipe tobacco operations of BAT Rothmans with its Best Blend brand following BATs merger with Rothmans. In the second half of 2001, the South African Rand depreciated
significantly versus most of the worlds major currencies. This depreciation accelerated in the final three months of the year, causing commodity prices to increase significantly late in 2001, and especially during the first three months of
2002. This had a negative impact on purchasing power among consumers. Early in 2002 the government of South Africa announced double-digit increases on tobacco taxes. Sales turnover, volume, and earnings were negatively affected in both the final
three months of 2001 and for most of 2002. The South African currency began to significantly strengthen versus both the U.S. dollar and the Swedish kronor in the second half of 2002. This improved currency effect more than offset modest volume
declines of between 3 and 5 percent. During 2003, the South African market declined. However, the strengthening value in the South African Rand provided positive support to both sales and operating income for the business overall. In 2004, the pipe
tobacco market declined by approximately 8 percent, and Swedish Match shipment volume declined at similar levels.



Other markets



Swedish Match considers that there may be market potential in Asia, some parts of Eastern Europe and Latin America.



General



Swedish Match is one of the major players in the market for pipe tobacco. The business is global and operating margins in
2004 were 24 percent.



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##### Table of Contents

The table below shows the size of the Pipe Tobacco Business in relation to the Swedish Match Group in
2004.



|                                                            |  |             |  |              |  |        
|----------------------------------------------------------- |  | ----------- |  | ------------ |  | -------
|                                                            |  | PipeTobacco |  | SwedishMatch |  | Percent
|Sales, SEK millions                                         |  | 901         |  | 13,007       |  | 7      
|Operating income, SEK millions                              |  | 220         |  | 3,370        |  | 7      
|Capital expenditures in tangible fixed assets, SEK millions |  | 28          |  | 486          |  | 6      
|Average number of employees                                 |  | 527         |  | 15,039       |  | 4      



Business 
Matches



Key data



|                                       |  |       |  |       |  |       |  
|-------------------------------------- |  | ----- |  | ----- |  | ----- | -
|(SEK millions unless otherwise stated) |  | 2002  |  | 2003  |  | 2004  |  
|Sales                                  |  | 1,648 |  | 1,395 |  | 1,378 |  
|Operating income                       |  | 221   |  | 83    |  | (297  | )
|Operating margin, %                    |  | 13.4  |  | 5.9   |  | neg   |  



Capital expenditures and personnel



|                                              |  |       |  |       |  |      
|--------------------------------------------- |  | ----- |  | ----- |  | -----
|(SEK millions unless otherwise stated)        |  | 2002  |  | 2003  |  | 2004 
|Capital expenditures in tangible fixed assets |  | 58    |  | 81    |  | 36   
|Average number of employees                   |  | 5,743 |  | 5,388 |  | 4,746



Swedish Match is a
global manufacturer of matches. In 2004, the Match Business had sales of SEK 1,378 million (2003: 1,395). Operating income amounted to SEK -297 million (2003: 83). Operating income includes an impairment charge of SEK 150 million and a provision of
SEK 90 million for acquisition for shares in Wimco Ltd. in India.



The Company sells matches to consumers in more than 100 countries under a large number of local brand names. Swedish Matchs main markets are Europe, South America (Brazil), and Asia (Indonesia and India, among others). Substantial
volumes are also exported to other countries. Operations include Swedish Match Arenco, which manufactures match production and packaging machinery.



Match factories are located in Tidaholm and Vetlanda (Sweden), Curitiba and Pirai (Brazil), Szeged (Hungary) and Orhangazi (Turkey), Bulgaria and India.
Swedish Matchs holding in the Indian company Wimco Ltd. amounts currently to 74 percent. At the beginning of 2004, the Match Business became part of the Overseas Division, whose head office is in Rio de Janeiro, Brazil. In December 2004, the
Company announced closure of the Valencia, Spain match factory.



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##### Table of Contents

Match market



Europe



The long-term consumption trend in Western and Northern Europe is declining. This downward trend appears to have continued in Western Europe in 2004. In
Europe, the market shows a trend toward increased consumption of specialty and high value products (such as barbeque items), even as overall match consumption is flat or declining.



Asia



The Indian market is stable, as population growth substantially offsets a modest shift away from matches toward utility lighters for cooking, as well as
declining smoking rates. The Indian market has become increasingly competitive, and Swedish Match has experienced volume declines in this market.



Swedish Match has a 74 percent interest in Wimco Ltd., one of the worlds largest manufacturers of matches, with four production units in India. At
the time of the acquisition in 2000, Wimco was active in a number of industries. Since 2001 Wimcos operations have been concentrated to its core business, matches. See Item 8.A Consolidated Statements and other Financial
Information for a discussion regarding the Companys requirement to purchase additional shares of Wimco Ltd.



Latin America



Brazil, where the Group has established operations under well-known brand names such as FIAT LUX, is the focal point for operations in Latin America. The
market share in Brazil is approximately 50 percent. In volume terms, the Brazilian market is approximately the same size as Europe, and shows a declining trend. Following the closure of a production plant in São Laurenco, production was
concentrated to the plant in Curitiba in Southern Brazil. Locally, prices have increased during the past few years in Brazil, where the product is used mainly for household applications. Part of the output from Swedish Matchs plants is
exported to neighboring countries.



General



Swedish Match intends to further consolidate its position in the Match
Business by shifting production capabilities among manufacturing facilities in order to maximize Group efficiency and to create economies of scale.



The Groups product strategy includes repositioning brands, updating the product range in some markets, and obtaining better exposure in stores. The
Company will continue its efforts in developing higher margin value-added products, such as firelogs and grill and barbeque products.



Production operations will be further rationalized; however, local production may be required for a presence in certain markets.



The table below shows the size of the Matches Business in relation to the
Swedish Match Group in 2004.



|                                                            |  |         |   |  |              |  |         |  
|----------------------------------------------------------- |  | ------- | - |  | ------------ |  | ------- | -
|                                                            |  | Matches |   |  | SwedishMatch |  | Percent |  
|Sales, SEK millions                                         |  | 1,378   |   |  | 13,007       |  | 11      |  
|Operating income, SEK millions                              |  | (297    | ) |  | 3,370        |  | (9      | )
|Capital expenditures in tangible fixed assets, SEK millions |  | 36      |   |  | 486          |  | 7       |  
|Average number of employees                                 |  | 4,746   |   |  | 15,039       |  | 32      |  



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Business  Lighters



Key data



|                                       |  |      |  |      |  |     
|-------------------------------------- |  | ---- |  | ---- |  | ----
|(SEK millions unless otherwise stated) |  | 2002 |  | 2003 |  | 2004
|Sales                                  |  | 700  |  | 599  |  | 582 
|Operating income                       |  | 56   |  | 14   |  | 7   
|Operating margin, %                    |  | 8.0  |  | 2.3  |  | 1.2 



Capital expenditures and personnel



|                                              |  |      |  |      |  |     
|--------------------------------------------- |  | ---- |  | ---- |  | ----
|(SEK millions unless otherwise stated)        |  | 2002 |  | 2003 |  | 2004
|Capital expenditures in tangible fixed assets |  | 21   |  | 11   |  | 17  
|Average number of employees                   |  | 533  |  | 470  |  | 460 



Swedish Match
manufactures disposable lighters, with Cricket as its main brand. Its operations are global, with the largest markets being Europe, parts of Asia, and the U.S. The Cricket lighter is the main brand for Swedish Match. Sales in 2004 amounted to SEK
582 million (2003: 599). Operating income fell to SEK 7 million (2003: 14). The operating margin was 1.2 percent (2003: 2.3).



Production plants are located in Assen (The Netherlands), Manila (Philippines) and Manaus (Brazil). Swedish Match owns 31.9 percent of a company in
Malaysia with an assembly plant for semi-finished products.



Lighter market



The world market for
disposable lighters is relatively stable in volume terms. The rate of growth is higher in many developing countries, where the number of smokers and income per capita are both rising. The market in Europe and the U.S. is declining moderately, in
parallel with cigarette consumption. Consumer brand loyalty is low. In most markets, there is increasing competition from lighters made in countries with relatively lower average labor costs, including China and other parts of Asia. Cost-effective
production and distribution are thus becoming increasingly important competitive tools.



Bic and Tokai are the Companys largest competitors for branded lighters.



Western Europe



Western Europe is a mature market characterized by declining cigarette smoking and growing competition from manufacturers of low-cost lighters in Asia,
which has led to declining volumes for higher quality lighters. Swedish Match has noted declining volumes in most Western European countries during recent years.



Latin America and North America



The largest markets in the two regions are Brazil and the US. The American market for lighters has decreased in volume terms
by 1 to 2 percent in recent years and declines appear to be accelerating, perhaps reaching 5 percent. Swedish Matchs share of the market was below 5 percent.



Eastern Europe



Swedish Match has a strong position in Eastern Europe. Russia is, one of the more important markets for Swedish Match. Cricket is the leading brand in the
Russian market. Much of the Swedish Match lighter volume supplied to Russia is produced in the Assen factory in the Netherlands. As lighters sold into Russia have traditionally been priced in dollars, the business has been hurt by currency
transaction effects, and has had difficulty



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in raising local prices to match the increasing value of the Euro versus the U.S. dollar. In 2003, the Eastern European
lighter market continued to expand, with Swedish Match, as well as other lighter manufacturers, growing volume. During 2004, volumes for Swedish Match continued to grow in Russia.



Asia



Although Swedish Match produces lighters and sources lighter components from Asia, its presence in the Asian market in terms of market share is minimal
due to the lack of presence in the substantial Chinese market.



General



The table below shows the size of the
Lighter Business in relation to the Swedish Match Group in 2004.



|                                                            |  |          |  |              |  |        
|----------------------------------------------------------- |  | -------- |  | ------------ |  | -------
|                                                            |  | Lighters |  | SwedishMatch |  | Percent
|Sales, SEK millions                                         |  | 582      |  | 13,007       |  | 4      
|Operating income, SEK millions                              |  | 7        |  | 3,370        |  | 0      
|Capital expenditures in tangible fixed assets, SEK millions |  | 17       |  | 486          |  | 3      
|Average number of employees                                 |  | 460      |  | 15,039       |  | 3      



Competition



Tobacco



A few large multinational companies dominate the global tobacco market. The
largest multinational tobacco companies include Altria Group, British American Tobacco (BAT), RJ Reynolds, Japan Tobacco and Altadis. All of these manufacturers are heavily dependent on the sale of cigarettes but they also have operations in other
fields.



The large tobacco companies compete with Swedish Match
in different product areas in different geographic markets, Altadis perhaps being the main competitor in the global cigar business.



The worlds largest smokeless tobacco producer is UST of the U.S. (with its Skoal and Copenhagen brands of moist snuff). Swedish Match and Conwood
follow in size, producing both moist snuff and chewing tobacco, followed by National Tobacco. Swedish Matchs moist snuff business in the U.S. is growing over time but is still relatively small. In Sweden, which is Swedish Matchs primary
moist snuff market, the Company dominates the market. During the past few years, a number of companies have started manufacturing and marketing snuff products in Sweden.



Competition in the global tobacco market is primarily based on price, quality, distribution and brands



Lighters and Matches



Swedish Match is a global manufacturer of matches. Generally, the global
match industry is fragmented, consisting of local companies that in some cases also have substantial exports.



Bic and Tokai are the Companys largest competitors for branded lighters. In most markets, there is increasing competition from lighters made in
countries with relatively lower average labor costs, including China and other parts of Asia.



Competition in the matches and lights markets are primarily based on price, quality and distribution although brands are important for certain products and certain markets.



Production



Swedish Match manufactures its products at 28 production facilities located
in 15 countries.



Swedish Matchs chewing tobacco
production is located in its production facility in Owensboro, Kentucky and the U.S.



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The production plants are located in Houthalen (Belgium) and Pandaan (Indonesia). In 2002 Swedish
Matchs production in the plant in Overpelt (Belgium) was closed down and moved to other existing Swedish Match plants. Cigars are also produced in Santiago, the Dominican Republic, Danli and Confradia, Honduras, and Dothan, Alabama in the U.S.
The Company also has tobacco farms in Jima and Mao in the Dominican Republic and in Connecticut in the U.S. The German company Arnold André with production plants in Bünde and Königslutter (Germany) is 40 percent owned by Swedish
Match.



The Lighter production group has production facilities
located in Assen, the Netherlands; Manila, Philippines; and Manaus, Brazil.



Match production facilities are located in Tidaholm and Vetlanda, Sweden; Curitiba, and Pirai, Brazil; Orhangazi, Turkey; and Szeged, Hungary. Production also takes place in Bulgaria and India. In addition, the
Company owns a manufacturer of match-making machinery, Swedish Match Arenco, with plants in Kalmar and Halmstad, Sweden and Shanghai, China.



Swedish Match produces pipe tobacco products in Boxburg and Rustenburg, South Africa and in its plant in Owensboro, Kentucky. Further, Swedish Match has a
contract manufacturing agreement for pipe tobacco with the Danish company MacBaren.



The snuff product group has production facilities located in Gothenburg and Kungälv, Sweden, Owensboro, Kentucky and Boxburg, South Africa.



Swedish Match is both a producer and a purchaser of raw materials, with matches produced from timber grown by Swedish Match
in sustainable forests or purchased on the open market. Tobacco is primarily purchased on the open market. Purchases of raw materials are subject to market supply and demand, and, as such, volatility exists in both tobacco and timber pricing.
Swedish Match is also affected by volatility in pricing for cardboard, plastic (used in packaging), nylon (for lighters), and gasoline (for transport/distribution). In the vast majority of cases, Swedish Match does not depend on any single source
for tobacco, its main raw material requirement, and tobacco can be bought worldwide and over varying time periods, both reducing pricing volatility. Swedish Match tobacco purchases are almost exclusively made through one or more of the largest
tobacco buying groups, which also purchase tobacco for other tobacco companies.



Regulation



The manufacture, marketing and sale of tobacco are highly regulated. A brief summary of the most important legislation that affects the Company in the Swedish, European Union (including Sweden), U.S., and South African markets is given
below.Approximately 87 percent of Swedish Matchs revenues originate in the European Union, South Africa and the U.S. In these markets, the business in the tobacco segment is subject to a diverse number of restrictions and excise
duties. A major risk to the Companys future activities is that the number of restrictions will be increased or that new or higher taxes will be introduced on the Companys products.



Sweden



Marketing Act (SFS 1995:450).The Marketing Act regulates the marketing of all types of products and includes a
catalogue of requirements regarding marketing activities. The Marketing Act gives the Consumer Ombudsman (KO) considerable power in his/her role as regulator, including the power of prohibition and information requirements for enterprises.



Tobacco Act (SFS 1993:581).The Tobacco Act prohibits
smoking in certain areas. From the 1stof June 2005 a ban on smoking in restaurants and other premises where food or
drinks are served will come into force. Further the Tobacco Act prescribes warning labels and prohibits the use of names, trademarks and figures or other signs suggesting that a particular tobacco product is less harmful than others on the packaging
of tobacco products. The Tobacco Act also contains rules on declaration of contents in products in accordance with EU directives and an age limit of 18 years for purchases of tobacco products. Due to the implementation of the WHO Convention for
Tobacco Control and EU regulations, amendments to the Tobacco Act will be introduced on the 1stof July 2005
resulting in a general ban on advertising and marketing of tobacco products to consumers. This ban covers all kinds of advertising and marketing of tobacco products to consumers in Sweden, except for (i) marketing which is not considered commercial
advertising in medias protected by the Swedish Constitution, (ii) the mere sale of tobacco products and (iii) moderate commercial messages at points of sale. Moreover, the amended legislation contains a prohibition for manufacturers, wholesale
traders and importers of tobacco products to sponsor events or activities that are open to the general public or which may have cross border effects, if the sponsoring could be considered to have the direct or indirect effect of promoting tobacco
products.





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The Swedish Board for Consumer Policies (KOVFS 1998:7). This ordinance sets forth the particular
requirements on marketing of tobacco products under the present legislation.



The National Institute on Public Health (FHIFS 2001:2). This ordinance sets forth the specific labeling requirements on tobacco products in Sweden.



Ordinance covering the banning of exports of moist snuff (SFS 1994:1266).This ordinance implements the EU directive
prohibiting the export of certain oral tobacco products (including snus) to EU countries that have introduced bans on the sale of such products.



Tobacco Tax Act (SFS 1994:1563).The Tobacco Tax Act regulates Swedish tobacco taxes including tax rates. This act also provides that individual
consumers may only import to Sweden quantities of alcohol and tobacco for their own and their familys private consumption.



Tobacco Tax Ordinance (SFS 1994:1613).The Tobacco Tax Ordinance contains definitions of the various tobacco products.



Tax Payment Act (SFS 1997:483). This act regulates payment conditions
for tobacco excise taxes.



European Union



Council Directive 89/552/EEC. This directive provides for a complete
ban on tobacco advertising and tobacco sponsorship on television. This directive was amended by Directive 97/35/EC of the European Parliament and of the Council of June 30, 1997 on the coordination of certain provisions laid down by law, regulation
or administrative action in Member States concerning the pursuit of television broadcasting activities.



Council Directive 2003/33/EC. This directive provides for a ban, with few limited exceptions, of tobacco advertising in printed media, radio
broadcasting and information society services, as well as on sponsorship of events with cross-border effects with the aim of promoting tobacco products. The directive came into force in June 2003 and must be implemented by the Member States by July
31, 2005.



Council Directive 2001/37/EC. This directive
sets forth the labelling requirements for all tobacco products sold in the European Union. Through the directive the strong warning for smokeless tobacco causes cancer was changed to the more general warning text This product can
damage your health and is addictive. For other tobacco products there are two new general warnings: Smoking kills/Smoking can kill and Smoking seriously harms you and others around you and a list of
additional warnings. The size for the general warnings and the warning for smokeless tobacco at the respective surface of the pack is now required to be 30 percent and 32 percent (2 languages) and 35 percent (three languages). For certain products,
such as cigar boxes there are special conditions as to the size of the health warning. The directive requires a batch number on the tobacco product for proper identification. Member states will require manufacturers and importers of tobacco products
to submit to them a list of all ingredients, and quantities thereof, used in the manufacture of those tobacco products by brand name and type. This information will be submitted on a yearly basis. By December 31, 2004, the Commission should propose
a common list of ingredients to be used in tobacco products but no such proposal has been made yet. Effective September 30, 2003, texts, names, trademarks and figurative or other signs suggesting that a particular tobacco product is less harmful
than others are forbidden on the packaging of tobacco products (descriptors, such as light and mild). The Commission will regularly report on any new scientific and technological developments to the Member States with a view to keep the Directive up
to date. The marketing of certain forms of tobacco for oral use (including moist snuff) is still prohibited, without prejudice to article 151 of the Act of Accession of Austria, Finland and Sweden. No later than December 31, 2004, and every two
years thereafter, the Commission should submit to the European Parliament, the Council and the Economic and Social Committee a report on the application of this Directive. On submission of the first report, the Commission should indicate in
particular the features, which should be reviewed or developed in the light of developments in scientific and technical knowledge. In this report an evaluation should be made of tobacco products which may have the potential to reduce harm. So far
the Commission still has not published this report.



Council
Recommendation 2003/54/EC recommends a number of restrictions to be adopted by the Member States. Such restrictions include that vendors will be obliged to verify the age of consumers purchasing tobacco products, that tobacco products will be
removed from self-service displays, that access to vending machines shall be



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restricted and that sale of cigarettes in packages of less than 19 cigarettes will be prohibited. Furthermore the
recommendation includes restrictions on tobacco distance sales for general retail (including sales via the Internet) to adults by using adequate technical means, a prohibition against selling sweets and toys resembling a tobacco product, a
prohibition on the use of tobacco brand names on non-tobacco products and services, as well as on the use of promotional items, free gifts, indoor and outdoor billboards and posters and use of advertising in cinemas. The recommendation is intended
to supplement a number of Community measures on tobacco control, notably the tobacco labelling Directive and the Directive on tobacco advertising and sponsorship, by addressing aspects of tobacco control which are the responsibility of the Member
States. Member States must inform the Commission every two years of action taken in response to this recommendation.



Commission Decision (2003/641/EC) on the use of colour photographs or other illustrations as health warnings on tobacco packages. Member States can
decide whether these kind of graphic health warnings or photographs are required. The Decision establishes rules for the use of colour photographs/graphic warnings on tobacco packages. By September 30, 2004 at the latest, the Commission will provide
a library of pre-tested source documents in order to make available a choice of several photographs or other illustrations for each of the additional warnings listed in Annex I to Directive 2001/37/EC. The Commission will make the source documents
available on request. Where Member States require health warnings in the form of colour photographs or other illustrations, tobacco packages for which such photographs are required must carry a combined warning taken exclusively from the source
documents provided by the Commission, without any changes to any of its components. Member States may choose the source document best adapted to consumers in their countries. This decision does not apply to smokeless tobacco products.



Council Directive 2002/10/EEC regulates the structure and rates of
excise duties that are applied on manufactured tobacco products, amending directives 92/79/EEC, 92/80/EEC and 95/59/EEC. The EUs Member States were required to implement this directive by July 1, 2002 at the latest, but derogations from this
deadline were given to Germany, Spain and Greece. The Directive stipulates that the definition of cigars and cigarillos as set out in Council Directive 95/59/EC on taxes other than turnover taxes which affect the consumption of manufactured tobacco
should be adapted so that a type of cigar which is similar to a cigarette is treated as a cigarette for excise purposes.



International Framework Convention on Tobacco Control On June 16, 2003, the EU signed the WHOs International Framework Convention on Tobacco Control.
On May 3, 2005, 169 countries had signed and 63 had ratified the Treaty.



United States



The U.S.
Federal Trade Commission (the FTC) and the Department of Justice regulate the US. tobacco industry. The smokeless portion of the U.S. tobacco market is regulated by the Comprehensive Smokeless Tobacco Health Education Act of 1986, which
is enforced by the FTC. This legislation requires that, among other things, warning texts be prominently displayed on products, packaging, advertising and advertising articles. Advertising smokeless tobacco products via electronic media (radio and
television) is prohibited. Swedish Match North America is also subject to an FTC Order that is aimed at television and radio transmissions of events sponsored by the Company.



In addition, the FTC, by consent decree, regulates the packaging and advertising of cigars, requiring that warning texts
must be prominently displayed on all cigar product packaging and marketing materials. The federal authorities have not adopted any packaging or advertising regulations covering pipe tobacco, although packaging and advertising regulations are
currently under consideration by the FTC. Many states have adopted stricter legislation covering advertising, coupon offers and sampling of smokeless tobacco products. In addition, the minimum age for the purchase and use of the divisions
products, such as chewing tobacco, is 18 years in most states.



Chewing tobacco, moist snuff, cigars and pipe tobacco are all subject to excise taxes at the federal and state levels. Federal excise taxes are based on weight whereas state excise taxes are generally expressed as a percentage of the
manufacturers list or wholesale prices. State excise taxes vary from state to state and from product to product. These taxes vary from a low of zero in one state plus the District of Columbia to a high of 75 percent in Alaska and the State of
Washington. Otherwise, excise taxes are on average in the range of 25-35 percent.



In the Fall of 2004, the U.S. Senate considered legislation that would grant the FDA authority to regulate tobacco products. Among other things, the legislation called for the prohibition of free samples and
self-service displays. The proposed legislation also limited certain advertising and labeling to a text only format and called for a



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ban on the sale or distribution of non-tobacco items that bear tobacco brand names, such as hats and t-shirts, and would
have restricted sponsorship of events to corporate name only. In addition, the FDA was to be empowered to adopt rules regarding the manufacture, ingredient content, and pre-approval of tobacco products. The proposed legislation passed the US Senate,
but failed to garner sufficient support in the House of Representatives and was not enacted into law. There remains uncertainty as to whether the U.S. Congress can gain passage of legislation in the future to permit the FDA to regulate tobacco as
outlined above or to permit the FDA to regulate tobacco in a different manner.



In 2004, Congress passed legislation to eliminate the federal price support system for tobacco farmers and, in its place, provided an estimated US$10.1 billion buy out of tobacco farmers over the next 10 years. The
buy out will be funded by quarterly assessments on tobacco manufacturers. Cigarette manufacturers will pay 96.331 percent of the buy out; cigar manufacturers will pay 2.783 percent; moist snuff manufacturers will pay 0.539 percent; roll-your-own
manufacturers will pay 0.171 percent; chewing tobacco manufacturers will pay 0.111 percent; and, manufacturers of pipe tobacco will pay .0.66 percent. Within each category, an individual companys assessment is based upon its market share. The
2005 payments will be based upon 2004 market shares, 2006 payments will be based upon 2005 market shares, etc. It is estimated that SMNAs share will be approximately US$3 million per year.



As opposed to the strict regulatory regimes for tobacco products, legislation
requiring that lighters sold in the U.S. be child-resistant is the only special legislation affecting the match and lighter business.



South Africa



In South Africa the consumption and promotion of tobacco products is regulated and controlled by Parliament (the Supreme Authority) in terms of
legislative enactment known as the Tobacco Products Control Act No. 83 of 1993 (as amended), and the regulations promulgated thereunder. The main thrust of the legislation prohibits or restricts smoking in public places, regulates the
sale and advertising of tobacco products and prescribes the health messages that are to be reflected on packages. Highlights from the Tobacco Products Control Act include: the prohibition of smoking tobacco products in any public place, the complete
ban on the advertising and promotion of tobacco products, the restriction of the sale of tobacco products except in packages bearing the prescribed health warning, the prohibition of the sale of tobacco products to persons under the age of 16 years
and the prohibition on the distribution and supply of tobacco products for free, or at a reduced price, or coupled to any reward, such as gifts, cash rebates or rights to participate in contests.



Regulations made in terms of the Act deal with maximum tar and nicotine
yield, permissible public smoking areas, point of sale of tobacco products (e.g. signage), exemption from unintended consequences of the legislation and the phasing out of existing sponsorship and contractual obligations. Excise duties including VAT
on smoking pipe tobacco products in South Africa are levied at the current uniform rate of 52 percent of the manufacturers suggested retail price.



The South African Minister of Health has proposed a bill of amendment of the Act. The bill has not yet been enacted by the Parliament. The proposed
changes would restrict further the way tobacco business may be undertaken in South Africa mainly by restricting the display of tobacco products at sale, requiring extensive warning labels to be borne by tobacco products, limiting the means of
distribution of tobacco products, increasing tax rates and penalties for breaches of the act and prohibiting tax- and duty-free tobacco products.



Seasonality



There is no material seasonality in the consumption of Swedish Match products. There are some quarterly variations in shipments, especially for premium
cigars, with heavier purchases by wholesalers and retailers in anticipation of the Christmas/New Year selling season.



Patents and licenses



Swedish Match holds or licenses a number of significant trademarks and other intellectual property rights to the products marketed by the Group wherever
such protection is available. In view of the significance of tobacco and lights brand awareness among consumers, it is managements opinion that the Groups trademark and other intellectual property rights must have sufficient protection.
Despite the steps that the Company has taken to protect its intellectual property rights, the Company cannot be certain that any rights or pending applications will be granted or that the rights granted in connection with any current or future
patents or trademarks are sufficiently broad to protect its technology and trademarks. Any patents and trademarks that are granted to the Company may be challenged, invalidated or circumvented, and any right granted under the Companys patents
or trademarks may not provide competitive advantages for the Company.



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4.C Organizational Structure



The
following is a list of the Companys significant subsidiaries as of June 1, 2005:



|                                                 |  |                         |  |                                    |  |                                 
|------------------------------------------------ |  | ----------------------- |  | ---------------------------------- |  | --------------------------------
|Company                                          |  | Country ofIncorporation |  | Swedish MatchOwnershipInterest (%) |  | Swedish MatchVoting Interest (%)
|Swedish Match North Europe AB                    |  | Sweden                  |  | 100                                |  | 100                             
|Swedish Match Distribution AB                    |  | Sweden                  |  | 100                                |  | 100                             
|Intermatch Sweden AB                             |  | Sweden                  |  | 100                                |  | 100                             
|Swedish Match Industries AB                      |  | Sweden                  |  | 100                                |  | 100                             
|Swedish Match Arenco AB                          |  | Sweden                  |  | 100                                |  | 100                             
|Svenska tändsticksbolaget försäljningsaktiebolag |  | Sweden                  |  | 100                                |  | 100                             
|Swedish Match North America Inc.                 |  | United States           |  | 100                                |  | 100                             
|General Cigar Holdings, Inc.                     |  | United States           |  | 100                                |  | 100                             
|Swedish Match Group BV                           |  | The Netherlands         |  | 100                                |  | 100                             
|Swedish Match Cigars BV                          |  | The Netherlands         |  | 100                                |  | 100                             
|Swedish Match Cigars NV                          |  | Belgium                 |  | 100                                |  | 100                             
|Swedish Match Lighters BV                        |  | The Netherlands         |  | 100                                |  | 100                             
|Swedish Match UK Ltd                             |  | United Kingdom          |  | 100                                |  | 100                             
|Swedish Match Nederland BV                       |  | The Netherlands         |  | 100                                |  | 100                             
|Swedish Match France SARL                        |  | France                  |  | 100                                |  | 100                             
|Swedish Match Ireland Ltd                        |  | Ireland                 |  | 100                                |  | 100                             
|Swedish Match Fosforos Espana SA                 |  | Spain                   |  | 100                                |  | 100                             
|Swedish Match Kibrit ve Cakmak ve Endustri AS    |  | Turkey                  |  | 100                                |  | 100                             
|Swedish Match do Brazil SA                       |  | Brazil                  |  | 98                                 |  | 98                              
|Wimco Ltd                                        |  | India                   |  | 74                                 |  | 74                              
|Leonard Dingler (Pty) Ltd                        |  | South Africa            |  | 100                                |  | 100                             
|Best Blend (Pty) Ltd                             |  | South Africa            |  | 100                                |  | 100                             
|Swedish Match Philippines Inc.                   |  | Philippines             |  | 100                                |  | 100                             



4.D Property, Plants and Equipment



Swedish Match manufactures its products at 28 production facilities located in 15 countries. The output of a number of the Companys plants is limited by the environment permits issued.



The Chewing Tobacco product group has one production facility located in
Owensboro, Kentucky.



The production plants are located in
Houthalen (Belgium) and Pandaan (Indonesia). In 2002 Swedish Matchs production in the plant in Overpelt (Belgium) was closed down and moved to other existing Swedish Match plants. Cigars are also produced in Santiago, the Dominican Republic,
Danli and Confradia, Honduras, and Dothan, Alabama in the U.S. The Company also has tobacco farms in Jima and Mao in the Dominican Republic and in Connecticut in the U.S.



The Lighter Product group has production facilities located in Assen, the Netherlands; Manila, Philippines; and Manaus,
Brazil.



The Match Product group has production facilities
located in Tidaholm and Vetlanda, Sweden; Curitiba and Pirai, Brazil; Orhangazi, Turkey; Szeged, Hungary and also in Bulgaria and India. In addition, the Company owns a manufacturer of match-making and packaging machinery, Swedish Match Arenco, with
plants in Kalmar and Halmstad, Sweden and Shanghai, China.



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Swedish Match produces pipe tobacco products in Boxburg and Rustenburg, South Africa and Owensboro,
Kentucky. Further, Swedish Match has a contract manufacturing agreement for pipe tobacco with the Danish company MacBaren.



The Snuff product group has production facilities located in Gothenburg and Kungälv, Sweden. The production for the American market takes place in
Owensboro, Kentucky. With the acquisition of Leonard Dingler, the group has production facilities in South Africa.



ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS



5.A Operating Results



The
discussion and analysis by management of the financial condition and results of operations of the Group that follows should be read together with the Selected Financial Data, the Consolidated Financial Statements and the Notes thereto that appear
elsewhere herein.



The Groups Consolidated Financial
Statements have been prepared in accordance with Swedish GAAP, which differs in certain respects from generally accepted accounting principles applied in the U.S. For a discussion of certain differences between Swedish GAAP and U.S. GAAP and a
reconciliation of the Groups shareholders equity at December 31, 2003 and 2004 and net income for the years ended December 31, 2002, 2003, and 2004, see Note 26 of the Notes to the Consolidated Financial Statements.



Overview



Swedish Match is a Swedish-based international group that produces a broad
range of other tobacco products including snuff, chewing tobacco, cigars and pipe tobacco as well as matches and disposable lighters. Swedish Match products are sold in more than 150 countries. Within the Companys product offering,
there are products characterized by very strong brand loyalty among consumers (for example, snuff and cigars), as well as products whose trademarks are of lesser importance to the consumer (for example lighters). A common characteristic of these
products is that the consumer demands a high degree of accessibility to the products.



Several general factors, as discussed below, have affected the Groups results during the periods under review.



Consolidated sales for 2004 reached SEK 13,007 million compared with SEK 13,036 million in 2003. Sales increased in the snuff and cigars product areas
whereas sales decreased in all other product areas. Income after financial items increased to SEK 3,206 million in 2004 from SEK 2,174 million in 2003. Operating income in 2004 was positively affected by a settlement with UST of SEK 1,521 million
between Swedish Match North America and UST. According to the settlement, Swedish Match received a cash payment of USD 200 million and UST transferred its cigar operations to Swedish Match. Operating income also includes an impairment charge of SEK
150 million relating to the match operations and provisions for the acquisition of shares in Wimco Ltd. in India of SEK 90 million. Excluding these items operating income decreased by 6 percent.



In 2004 net income per share amounted to SEK 5.61 from which a dividend
payment of SEK 1.90 was paid in May 2005.



Business
environment



The Groups pipe- and chewing tobacco
businesses have generally been characterized by declining volumes over recent years due in part to demographic changes and in part to regulations and health concerns in the industrialized countries that comprise the Groups primary markets.
Snuff and cigars have increased in volume. Regulations have limited the consumption of smoking products by imposing bans on smoking in public areas and in the workplace. Taxes have made smoking products increasingly expensive. Individuals have given
up smoking due to health concerns or generally changing habits.



In response to the declining demand for cigarettes, as of July 1, 1999 the Company sold its cigarette business to Austria Tabak. In addition, management has had three other principal responses to operating in an environment of declining
volumes for certain smoking products and chewing tobacco with a view to maintaining or increasing profitability.



First, as the tobacco industry, including Swedish Match, has generally been characterized by overcapacity, management has continued to implement
cost-saving measures through consolidating production, closing plants, reducing personnel, developing more efficient manufacturing processes and, in relation to the cigar business with certain acquisitions and has developed more highly automated
production.



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Second, the Group has generally been able to effect price increases that compensate or occasionally more
than compensate for volume declines. Price increases are aided by the fact that the price charged by a manufacturer is a relatively small percentage of the consumer price due to high taxes. However, there can be no assurance that the Group will be
able to continue to effect price increases as it has in the past.



Third, the Group has introduced new brands and product variants, and to some extent, expanded its markets geographically, as well as increased sales of certain existing products. The Companys most important product category 
moist snuff  often serves as a cigarette alternative product in some markets and thus enjoys a growth potential as cigarette consumers opt to switch to moist snuff.



In most of the important markets in which the Company sells matches there has also been a general decline in the volumes of
matches sold due to declining volumes of smoking products in industrialized countries, to the substitution of matches by disposable lighters and to increased electrification worldwide. The match and lighter markets are characterized by production
overcapacity. Management has sought to introduce price increases and to rationalize operations while also seeking new markets in Europe and elsewhere. Rationalization measures have included consolidating operations through reduction of production
capacity and reducing the number of product variants.



Tobacco taxes



Taxes generally represent a
significant percentage of the consumer price of tobacco products and have been steadily increased by governments in many of Swedish Matchs markets.



Currency



Certain of the Groups product areas are significantly affected by fluctuations in foreign currency exchange rates.



In the Chewing Tobacco product area and the U.S. part of the Snuff and Cigar
product areas, changes in the U.S. dollar against the Swedish krona exchange rate have a translation impact on net income.



In the Swedish part of the Snuff product area, currency movements have had a fairly limited effect on results and are mainly restricted to the U.S. dollar
exposure on purchases of leaf tobacco.



In the Cigar product
area, the plants in Belgium, Holland and Germany export to other countries outside the European Monetary Union countries, including Sweden and Australia. Hence, changes in the exchange rate between the invoicing currency and the currency used in the
financial statements of the producing company will have a transaction effect. Additionally, changes between the reporting currency of the local company and the Swedish krona will have a translation effect on net income when the local results of
operations are translated into Swedish kronor.



In the Lighters
product area approximately 40 percent of Swedish Matchs lighters sales are invoiced in U.S. dollars, with results affected by changes in the U.S. dollar against the euro and the Philippine peso, the two currencies in which the major part
of production costs are incurred.



In the Match product area,
Swedish Match operates production facilities in Brazil, throughout Europe and in India. Results are affected by movements between the Swedish krona and local currencies.



Country risks



The Company maintains a large global presence, primarily through its matches and lighters operations, and these operations can be significantly and
adversely affected by political and economic instability in developing world countries. The Company believes that its future results of operations and financial condition will be affected by the economic, regulatory and political situations in the
countries in which it conducts its operations, which situations are generally unpredictable and outside the control of the Company. For further information concerning the Companys trend information see Item 5. D Trend Information.



Critical Accounting Policies



Swedish Matchs consolidated financial statements are prepared in
accordance with Swedish GAAP, which requires management to make estimates and assumptions that affect amounts reported in the financial statements and related notes. Swedish GAAP differs in certain significant respects from U.S. GAAP. Accordingly,
the Company



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has prepared a description of the significant differences and a reconciliation of consolidated net income and stockholders equity from Swedish GAAP to
U.S. GAAP in Note 26 of the Notes to the Consolidated Financial Statements. In preparing these financial statements, the Companys management has made its best estimates and judgments of certain amounts, giving due consideration to materiality.
Swedish GAAP is to adopt the accounting principles issued by the International Accounting Standards Board in full as from January 1, 2005. The adoption of new accounting standards will have a significant impact on the Companys financial
statements in the year of change as well as in future years.



Management believes the following represents Swedish Matchs critical accounting policies under Swedish GAAP and U.S. GAAP. For a further discussion of the application of these and other accounting policies, see Note 1 and Note 26 of
the Notes to the Consolidated Financial Statements.



Intangible assets



Goodwill is normally
amortized on a straight-line basis over 5 to 20 years. Goodwill in larger subsidiaries that have been operating for more than 20 years and have strong brands and a good market position is amortized over 20 years. Acquired trademarks are amortized
over 20 years if similar conditions exist. The value of goodwill and other intangible assets is evaluated regularly to determine whether events or circumstances indicate that the value of the intangible asset is impaired. These evaluations
necessarily include significant judgments made by management. Future events could cause management to conclude that impairment indicators exist and that an intangible asset is impaired. Any resulting impairment loss could have a material adverse
impact on the financial condition and results of operations. Under Swedish GAAP, the Companys intangible assets amounted to SEK 3,285 million in 2004 compared with SEK 3,648 million in 2003. Amortization in 2004 amounted to SEK 322 million
compared with SEK 319 million in 2003 under Swedish GAAP. Under U.S. GAAP, the Companys intangible assets amounted to SEK 5,147 million in 2004 compared with SEK 5,352 million in 2003. Amortization under U.S. GAAP amounted to SEK 147 million
in 2004 compared with SEK 107 million in 2003. The higher amount for goodwill under U.S. GAAP is due to goodwill not having been amortized during 2002, 2003 and 2004 in accordance with FAS 142 and push down goodwill from Volvos
acquisition of Swedish Match in 1994. U.S. GAAP requires that push down accounting be applied for independent annual reports of wholly owned subsidiaries if the ownership is 95 percent or more, which was the case of Volvos
acquisition in 1994. Consequently, the adjustment made in accordance with the purchase method by Volvo, pertaining to Swedish Match, began being reported for U.S. GAAP purposes by Swedish Match in June 1994.



According to Swedish accounting principles, goodwill is to be amortized in a
systematic manner over its useful life. The useful life for goodwill is always limited. In accordance with the U.S. accounting principles FAS 142, Goodwill and Other Intangible Assets, which applies from January 1, 2002, goodwill and
intangible assets that have a indefinite useful lives are no longer amortized. Instead, an impairment test shall be made in connection with the transition to FAS 142, and then on an annual basis. As a consequence, the goodwill amortizations made
during 2002, 2003 and 2004 in accordance with Swedish accounting principles, SEK 208 million, SEK 212 million and SEK 175 million respectively, were reversed for U.S. GAAP purposes. According to FAS 142, potential impairment arises if the book value
of a reporting unit exceeds its fair value. The implied value of goodwill shall be determined in the same manner as the amount of goodwill recognized in a business combination is determined. The excess of the fair value of a reporting
unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. With the transition to FAS 142, an impairment test of goodwill was made January 1, 2002. This resulted in a goodwill write-down in accordance with
U.S. GAAP of SEK 206 million in pipe tobacco operations in northern Europe. The fair value of the operations was calculated as the present value of the estimated future payments which the operations can be expected to give rise to. The Group does
not have any intangible assets with an indefinite life other than goodwill.



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Deferred taxes



Deferred taxes are recognized for temporary differences which arise between the tax and book value of assets and liabilities
as well as for unutilized tax losses carry-forwards to the extent that it is probable that future taxable profits will be available against which the unused tax losses can be utilized. Deferred tax assets for unutilized tax losses amounted to SEK 13
million in 2004. Uncertainty in the future outlook for the economy or other failure to estimate future profit accurately could result in lower taxable income in the future in the subsidiaries where deferred tax assets for tax losses are at hand. As
a consequence the actual utilization of deferred tax assets may differ from expected utilization and therefore may affect future earnings.



Under U.S. GAAP deferred taxes are recognized for virtually temporary differences and a valuation allowance is established to the extent that it is more
likely than not that a deferred tax asset will not be realized. The accounting policies under Swedish GAAP and U.S. GAAP have not given rise to any GAAP differences related to deferred tax assets.



Legal proceedings



As discussed in Item 8 and Note 22 of the Notes to the Consolidated
Financial Statements, Swedish Match is currently involved in certain legal proceedings. Management holds the view that there are good defenses against all the claims and each case will be defended vigorously, and the Company has not provided any
amounts in the Consolidated Financial Statements for unfavorable outcomes. It is possible that the Companys business, results of operations, cash flows or financial position could be materially affected by an unfavorable outcome of certain
pending litigation.



Accounting for pensions



As from January 1, 2004 the Company has adopted a new accounting
standard, RR 29, which requires an enterprise to recognize a liability when an employee has provided service in exchange for employee benefits to be paid in the future, and expense when the enterprise consumes the economic benefit arising from
service provided by an employee in exchange for employee benefits. The benefit obligations of the Companys defined benefit plans were estimated to exceed the fair value of plan assets with SEK 257 million net after taxes. The deficit was
charged to opening equity on January 1, 2004 in accordance with RR 29. In accordance with the transition rules for the standard no restatements for prior years were made. Calculating pension obligations require management to make assumptions on
discount rate, expected return on plan assets and rate of compensation increase. Actual results could differ from the assumptions made.



Under U.S. GAAP, pensions are accounted for in accordance with FAS No. 87 Employers Accounting for Pensions. The Group has estimated the
effect on net income and shareholders equity assuming FAS No. 87 provisions would be applied as set forth in Note 26 to the Consolidated Financial Statements.



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Results of Operations



The following table sets forth the net sales and operating profit by product for the periods indicated.



|                                |  |                                        |   |  |        |   |  |        |   
|------------------------------- |  | -------------------------------------- | - |  | ------ | - |  | ------ | --
|                                |  | For the years ended December 31,       |  
|                                |  | 2002                                   |   |  | 2003   |   |  | 2004   |   
|                                |  | (SEK millions unless otherwise stated) |  
|Snuff                           |  |                                        |   |  |        |   |  |        |   
|Sales                           |  | 2,788                                  |   |  | 2,995  |   |  | 3,081  |   
|Operating income                |  | 1,233                                  |   |  | 1,386  |   |  | 1,373  |   
|Operating margin, %             |  | 44.2                                   |   |  | 46.3   |   |  | 44.6   |   
|                                |  |                                        |  
|Chewing Tobacco                 |  |                                        |   |  |        |   |  |        |   
|Sales                           |  | 1,333                                  |   |  | 1,146  |   |  | 1,058  |   
|Operating income                |  | 406                                    |   |  | 336    |   |  | 304    |   
|Operating margin, %             |  | 30.5                                   |   |  | 29.3   |   |  | 28.7   |   
|                                |  |                                        |  
|Cigars                          |  |                                        |   |  |        |   |  |        |   
|Sales                           |  | 3,318                                  |   |  | 3,008  |   |  | 3,171  |   
|Operating income                |  | 472                                    |   |  | 393    |   |  | 466    |   
|Operating margin, %             |  | 14.2                                   |   |  | 13.1   |   |  | 14.7   |   
|                                |  |                                        |  
|Pipe Tobacco & Accessories      |  |                                        |   |  |        |   |  |        |   
|Sales                           |  | 843                                    |   |  | 909    |   |  | 901    |   
|Operating income                |  | 164                                    |   |  | 201    |   |  | 220    |   
|Operating margin, %             |  | 19.5                                   |   |  | 22.1   |   |  | 24.4   |   
|                                |  |                                        |  
|Matches                         |  |                                        |   |  |        |   |  |        |   
|Sales                           |  | 1,648                                  |   |  | 1,395  |   |  | 1,378  |   
|Operating income                |  | 221                                    |   |  | 83     |   |  | (297   | )1
|Operating margin, %             |  | 13.4                                   |   |  | 5.9    |   |  | (4.1   | ) 
|                                |  |                                        |  
|Lighters                        |  |                                        |   |  |        |   |  |        |   
|Sales                           |  | 700                                    |   |  | 599    |   |  | 582    |   
|Operating income                |  | 56                                     |   |  | 14     |   |  | 7      |   
|Operating margin, %             |  | 8.0                                    |   |  | 2.3    |   |  | 1.2    |   
|                                |  |                                        |  
|Other operations                |  |                                        |   |  |        |   |  |        |   
|Sales                           |  | 3,013                                  |   |  | 2,984  |   |  | 2,836  |   
|Operating income                |  | (181                                   | ) |  | (189   | ) |  | (224   | ) 
|Income from settlement with UST |  |                                       |   |  |       |   |  | 1,521  |   
|                                |  |                                        |  
|Group Total                     |  |                                        |   |  |        |   |  |        |   
|Sales                           |  | 13,643                                 |   |  | 13,036 |   |  | 13,007 |   
|Operating income                |  | 2,371                                  |   |  | 2,224  |   |  | 3,370  |   
|Operating margin, %             |  | 17.4                                   |   |  | 17.1   |   |  | 25.9   |   

---

|1) | Including an impairment charge of SEK 150 million and provisions for acquisitions of shares in Wimco Ltd of SEK 90 million.
|-- | ---------------------------------------------------------------------------------------------------------------------------



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2004 compared with 2003



Sales



Group net sales amounted to SEK 13,007 million in 2004 compared with SEK 13,036 million in 2003. Sales in local currency increased by 3 percent. Sales in
the Snuff and Cigars product areas increased while other product areas decreased.



Sales in the Snuff product area increased by 3 percent to SEK 3,081 million in 2004 from SEK 2,995 million in 2002. Sales in local currency increased by 6 percent. Volumes in northern Europe increased by 1 percent,
measured in the number of cans sold. In the Swedish market, volume growth during 2004 was weaker than previous years due to a slowdown in total market growth and increased competition. In the U.S., volume grew by 3 percent. In the U.S., Swedish
Match total market share amounted to 8.9 percent compared with 9.1 percent year ago according to Nielsen data.



Sales in the Chewing Tobacco product area decreased by 8 percent to SEK 1,058 million in 2004 compared with SEK 1,146 million in 2003. Sales in local
currency increased. The Chewing Tobacco segment in the U.S. has been characterized by annual volume declines of approximately 4 to 6 percent annually. In 2004 the market decreased by 6 percent according to Nielsen data.



In the Cigar product area sales increased by 5 percent from SEK 3,008 million
in 2003 to SEK 3,171 million in 2004. In local currency sales increased by 13 percent. Volumes from machine made cigars in the U.S. increased as a result of a broader and renewed product portfolio, primarily in flavored cigars, and a growing market.
Volume sales of premium cigars in the North American market also increased. In the European market, volume growth varied between different countries, with total volume slightly higher than the preceding year.



Sales by the Pipe Tobacco & Accessories product area was down slightly at
SEK 901 million in 2004 compared with SEK 909 million in 2003. Sales volume declined in 2004 but was favorably impacted by an increase in the value of the South African Rand versus the prior year period.



Sales by the Matches product area decreased by 1 percent to SEK 1,378 million
in 2004 from SEK 1,395 million in 2003. Sales volume declined in all significant markets.



Sales by the Lighters product area decreased by 3 percent to SEK 582 million in 2004 from SEK 599 million in 2003. The lighter business is faced with an increasingly competitive situation due to low price competition,
which has affected sales volume negatively.



Operating
income



Operating income increased in 2004 to SEK 3,370
million from SEK 2,224 million in 2003. Operating income in 2004 includes an income of SEK 1,521 from a settlement with UST and expense of SEK 240 million for a write down in match operations and provisions for acquisition of shares in Wimco Ltd in
India. Excluding these items, operating income in 2004 amounted to SEK 2,089 million compared with SEK 2,224 million in 2003, a decrease of 6 percent. The decrease was due to extensive restructuring measures in Europe, which generated costs of SEK
235 million and a one time effect on operating income for snuff operations deriving from the Companys repositioning of American Timber Wolf snuff, which totaled SEK 50 million. Operating income was also affected by negative translation effects
totaling SEK 94 million when earning of foreign subsidiaries were translated into SEK, primarily because of the weaker USD.



The Snuff product areas operating income was SEK 1,373 million in 2004 compared with SEK 1,386 million in 2003, a decline of 1 percent compared with
2003. In local currencies operating income increased by 1 percent.



Operating income for the Chewing Tobacco product area decreased to SEK 304 million in 2004 from SEK 336 million in 2003. The decrease in operating income is primarily a result of the weaker U.S. dollar against the Swedish Krona.



Operating income from the Cigar product area increased from SEK 393
million in 2003 to SEK 466 million in 2004 an increase of 19 percent attributable mainly to stronger sales in the U.S. The product area was adversely affected by charges for restructuring of the European operations and the weakening of the USD.



Operating income from the Pipe Tobacco & Accessories
product area increased by 9 percent to SEK 220 million in 2004 compared with SEK 201 million in 2003. Operating income was favorably affected by improved productivity, better price levels and a strengthening of the South African Rand, which was
partially offset, however, by declining volumes in all major markets.



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Operating income from the Matches product area decreased to a loss of SEK 297 million in 2004 compared to
a profit of SEK 83 million in 2003. The operating loss in 2004 includes restructuring provisions of SEK 125 million for match operations in Europe, an impairment charge of SEK 150 million and provisions of SEK 90 million for the acquisition of
shares in Wimco Ltd. in India.



Operating income from the
Lighters product area decreased to SEK 7 million in 2004 compared with SEK 14 million in 2003. The lower operating income is due to lower average prices due to the intense price competition, costs for personnel cutbacks and currency effects arising
from translations of foreign subsidiaries results.



Other
activities include, among other things, the distribution of tobacco products in the Swedish market, sales of advertising products, as well as corporate overheads and costs for business development and legal expenses. Operating income in 2004
amounted to a deficit of SEK 224 million compared with a deficit of SEK 189 million in 2003. Earnings were charged with SEK 29 million for provisions related to severance pay and other items for the former Chief Executive Officer plus expenses of
SEK 15 million for the closure of a distribution center in Malmö, Sweden.



2003 compared with 2002



Sales



Group net sales amounted to SEK 13,036
million in 2003 compared with SEK 13,643 million in 2002 a decrease by 4 percent. Group net sales in local currency increased by 3 percent. Sales in the Snuff product area increased while other product areas decreased.



Sales in the Snuff product area increased by 7 percent to SEK 2,995 million
in 2003 from SEK 2,788 million in 2002. Sales in local currency increased by 12 percent. Sales increased in both of its main markets  the Nordic market and North America. In the Nordic market, volume grew by 4 percent. In the U.S., volume grew
by 5 percent. At year end the market share in the U.S. was slightly more than 9 percent according to Nielsen data.



Sales in the Chewing Tobacco product area decreased by 14 percent to SEK 1,146 million in 2003 compared with SEK 1,333 million in 2002. Sales increased by
3 percent in local currency. The chewing tobacco segment in the U.S. has been characterized by annual volume declines of approximately 3 to 5 percent. In 2003 the market decreased by 5 percent.



In the Cigar product area sales decreased by 9 percent from SEK 3,318 million
in 2002 to SEK 3,008 million in 2003, mostly due to currency translation impact compared to the prior year. In local currency sales increased in the North American market for both mass market and premium cigars. Sales of cigars in Europe declined.



Sales by the Pipe Tobacco & Accessories product area
increased by 8 percent to SEK 909 million in 2003 compared with SEK 843 million in 2002. Sales volume declined in 2003 but was favorably impacted by an increase in the value of the South African Rand versus the prior year period.



Sales by the Matches product area decreased by 15 percent to SEK 1,395
million in 2003 from SEK 1,648 million in 2002, due to significant volume reductions on several of the large markets. Currency translation impact compared to the prior year reduced sales by 11 percent.



Sales by the Lighters product area decreased by 14 percent to SEK 599 million
in 2003 from SEK 700 million in 2002. The lighter business is faced with an increasingly competitive situation due to low price competition, which has affected sales volume negatively.



Operating income



Operating income decreased in 2003 to SEK 2,224 million from SEK 2,371
million in 2002. Operating income has been negatively impacted by currency translations of an amount of SEK 202 million. Operating income improved in the Snuff and Pipe tobacco and Accessories product areas and decreased in the Chewing Tobacco,
Cigars, Matches and Lighters product areas.



The Snuff product
areas operating income was SEK 1,386 million in 2003 compared with SEK 1,233 million in 2002. The increased operating income is mainly due to improved volumes and a better operating margin. Operating income was negatively affected by
translation effects when translating foreign subsidiaries into Swedish kronor.



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Operating income for the Chewing Tobacco product area decreased to SEK 336 million in 2003 from SEK 406
million in 2002. The decrease in operating income is primarily a result of the weaker U.S. dollar against the Swedish Krona.



Operating income from the Cigar product area decreased from SEK 472 million in 2002 to SEK 393 million in 2003. The decline was partly due to currency
effects after translating results in North America into Swedish kronor amounting to SEK 58 million. Significant legal expenses in the premium cigar operation related to the dispute between General Cigar and Cubatabaco over the Cohiba brand as well
as costs of SEK 30 million for restructuring in Europe have affected operating results negatively.



Operating income from the Pipe Tobacco and Accessories product area increased by 23 percent to SEK 201 million in 2003 compared with SEK 164 million in
2002. The increase was primarily attributable to improved margins in South Africa. The currency translation between the South African Rand and the Swedish Krona also impacted results favorably.



Operating income from the Matches product area decreased to SEK 83 million in
2003 from SEK 221 million in 2002. The lower operating income is attributable to lower volumes in several markets and negative impact from currency translation. Costs of SEK 30 million for restructuring in Europe during the fourth quarter 2003 was
incurred.



Operating income from the Lighters product area
decreased to SEK 14 million in 2003 compared with SEK 56 million in 2002. The lower operating income is due to intense price competition and a decrease in operating margin for export of lighters produced in Europe as a result of the strong Euro.



Other activities include, among other things, the distribution
of tobacco products in the Swedish market, sales of advertising products, as well as corporate overheads and costs for business development and legal expenses. Operating income in 2003 amounted to a deficit of SEK 189 million compared with a deficit
of SEK 181 million in 2002.



Net financial expense



Net interest expense amounted to SEK 163 million in 2004
compared with SEK 54 million in 2003. Interest income decreased to SEK 103 million in 2004 from SEK 229 million in 2003. Interest expense decreased to SEK 266 million in 2004 compared with SEK 283 million in 2003. The increase in net interest
expense is due to items in 2003 pertaining to the cancellation of a swap agreement and a favorable premium on an equity hedge pertaining to the North American operations. Other financial items, net, amounted to an expense of SEK one million in 2004
compared with an income of SEK 4 million in 2003. Other financial income and expense include currency exchange differences.



Net interest expense amounted to SEK 54 million in 2003 compared with SEK 229 million in 2002. Interest income increased to SEK 229 million in 2003 from
SEK 108 million in 2002. Interest expense decreased to SEK 283 million in 2003 compared with SEK 337 million in 2002. The decrease in net interest expense is due to a profitable cancellation of interest swap agreements of SEK 120 million and
positive impact from a favorable premium of SEK 61 million on an equity hedge pertaining to the equity in the North American operation. Other financial items, net, amounted to an income of SEK 4 million in 2003 compared with an expense of SEK 16
million in 2002. Other financial income and expense in 2003 include currency exchange differences and a gain on sales of certain investments, amounting to SEK 17 million.



Depreciation and amortization



Total depreciation on tangible fixed assets in 2004 amounted to SEK 332 million compared with SEK 346 million in 2003 and
SEK 324 million in 2002. Amortization on intangible assets relating to trademarks etc. amounted to SEK 147 million in 2004, SEK 107 million in 2003 and SEK 119 million in 2002. Amortization on goodwill amounted to SEK 175 million in 2004, SEK 212
million in 2003 and SEK 208 million in 2002.



33



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Income taxes



Income taxes in 2004 amounted to SEK 1,314 million corresponding to an effective tax rate of 41 percent. The tax rate of the
Group is generally higher than the Swedish tax rate of 28 percent due to the impact of foreign tax rates, which are usually higher than the Swedish tax rate, and non-deductible goodwill. However, in 2004 the tax rate was temporarily increased as a
result of a 42 percent tax charge on the settlement income received from UST, and because the provision for acquiring shares in Wimco Ltd., in India, the impairment charge on match assets and certain restructuring costs are not expected to be
tax-deductible.



Income taxes in 2003 amounted to SEK 572
million corresponding to an effective tax rate of 26 percent. In 2003 the tax rate was favorably impacted from certain one-time items.



Income taxes in 2002 amounted to SEK 648 million. The effective tax rate in 2002 of 30 percent was lower than the effective tax rate of 32 percent in 2001
due to the utilization of tax losses in 2002.



The possibility
of utilizing tax loss carryforwards affects the Companys tax expense. As of December 31, 2004, unutilized tax-loss carryforwards amounted to SEK 362 million. Unutilized tax-loss carryforwards are attributable to operations outside Sweden, and
it is estimated that only approximately SEK 50 million of these will be utilized in future years although the amount ultimately utilized will depend upon the Companys geographic distribution of income. The estimated taxes on this amount has
been included as a deferred tax asset in the Consolidated Financial Statements. See Note 6 to the Consolidated Financial Statements.



The Group is not involved in any tax litigation that could materially affect its results of operations or financial condition.



Net Income



Net income increased to SEK 1,828 million in 2004 from SEK 1,558 million in
2003 and SEK 1,429 million in 2002 due to the factors described above. Earnings per share increased in 2004 to SEK 5.61 from SEK 4.68 in 2003 and SEK 4.10 in 2002.



Recently issued accounting pronouncements



In December 2004, the FASB issued FASB Statement No. 123 (revised 2004), Share-Based Payment, which addresses the accounting
for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. This Statement is a revision to
Statement 123 and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. Incremental compensation costs arising from subsequent modifications of awards after the grant date must be
recognized. This Statement will be effective for the Company as of January 1, 2006.



SFAS 123R provides two tentative adoption methods. The first method is a modified prospective transition method whereby a company would recognize share-based employee costs from the beginning of the fiscal period in
which the recognition provisions are first applied as if the fair-value-based accounting method had been used to account for all employee awards granted, modified, or settled after the effective date and to any awards that were not fully vested as
of the effective date. Measurement and attribution of compensation cost for awards that are unvested as of the effective date of SFAS 123R would be based on the same estimate of the grant-dates fair value and the same attribution method used
previously under SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123). The second adoption method is a modified retrospective transition method whereby a company would recognize employee compensation cost for
periods presented prior to the adoption of SFAS 123R in accordance with the original provisions of SFAS 123. Swedish Match does not expect this standard to have a material impact on its financial statements.



In December 2004, the FASB issued FASB Statement No.151, Inventory Costs,
which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Under this Statement, such items will be recognized as current-period charges. In addition, the Statement requires
that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This Statement will be effective for the Company for inventory costs incurred on or after January 1, 2006.



In December 2004, the FASB issued FASB Statement No. 153,
Exchanges of Nonmonetary Assets, which eliminates an exception in APB 29 for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. This
Statement will be effective for the Company for nonmonetary asset exchanges occurring on or after January 1, 2006.



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In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154, Accounting
Changes and Error Correctionsa replacement of APB Opinion No. 20 and FASB Statement No. 3 (SFAS 154). SFAS 154 requires retrospective application to prior periods financial statements of changes in accounting principle
and corrections of errors. SFAS 154 is effective for fiscal years beginning after December 15, 2005.



Swedish GAAP



As from January 1, 2004 the Company has adopted a new accounting standard, RR 29, which requires an enterprise to recognize a liability when an employee
has provided service in exchange for employee benefits to be paid in the future, and expense when the enterprise consumes the economic benefit arising from service provided by an employee in exchange for employee benefits. The benefit obligations of
the Companys defined benefit plans were estimated to exceed the fair value of plan assets with SEK 257 million net after taxes. The deficit was charged to opening equity on January 1, 2004 in accordance with RR 29. In accordance with the
transition rules for the standard no restatements for prior years were made.



Transition to International Financial Reporting Standards (IFRS)



The financial statements for fiscal year 2004 are prepared in accordance with Swedish GAAP whereas the financial statements for fiscal year 2005 will be
prepared in accordance with International Financial Reporting Standards (IFRS). The transition to IFRS is due to a regulation by the European Union stating that all publicly traded companies within the European Union shall prepare consolidated
financial statements fully in compliance with IFRS from and including fiscal year 2005.



According to the rules, IFRS has to be applied retrospectively for fiscal year 2004 for comparison reasons and restated figures for 2004 has to be included in the financial reports for 2005. However, the accounting of
financial instruments (IAS 32 and IAS 39) and of share-based options (IFRS 2) is exempt from retrospective application and will not be restated by Swedish Match.



For Swedish Match, the transition to IFRS will change the accounting of biological assets (IAS 41), goodwill (IFRS 3 and IAS
38), financial instruments (IAS 32 and IAS 39) and share-based options (IFRS 2). The accounting principles for employee benefits (IAS 19) was already adopted on January 1, 2004, under Swedish GAAP whereas Swedish Matchs financial statements
already comply with IAS 19.



Changes in financial
statements due to transition to IFRS



Special
treatment will apply for biological assets under IFRS, whereas these assets are treated according to the same rules as for other fixed assets under Swedish GAAP. The special treatment of biological assets is outlined in IAS 41 
Agriculture. According to IAS 41, biological assets shall be reported at its fair value at each reporting date. The change in fair value may be attributable to physical changes or changes in market prices of biological assets. Increments or
decrements in the fair value of a biological asset shall be recognized in the income statement as gains or losses. This implies that the income statement will reflect an assessed net growth in addition to actual harvest or felling. The new rules
also affect the accounting of inventory as the initial measurement of agricultural produce shall be reported at its fair value. Swedish Matchs biological assets consist of forestry and leaf tobacco plants. The restated book value of biological
assets amounts to SEK 98 million which compares to the book value according to Swedish GAAP of SEK 76 million.



The accounting for goodwill will change in two respects; the criteria for recognizing goodwill in a business combination has been determined in more
detail and the rules for amortization have changed. The new rules for accounting of goodwill are mainly outlined in IFRS 3  Business combinations and IAS 38  Intangible assets. The way of performing a purchase price
allocation is made more rigorous in IFRS 3 compared to Swedish GAAP and requires more intangible assets to be identified prior to the recognition of goodwill. The useful lives of the intangible assets will be determined as finite or indefinite.
Finite lived intangible assets will be amortized according to plan whereas amortization according to plan will cease for indefinite lived intangible assets. Indefinite lived intangible assets will instead be tested for impairment annually. Goodwill
will by definition always have an indefinite useful life. Under present Swedish GAAP, all intangible assets, including goodwill, are determined to have finite useful lives and are amortized according to plan. For Swedish Match, the restated 2004
financial statements will not amortize goodwill whereas the book value of goodwill will increase by SEK 167 million and operating income by SEK 175 million.



35



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The rules for reporting of share-based payments (such as Swedish Matchs option program), IFRS 2,
imply that an assessed fair value of the options shall be expensed at grant date.



The rules for reporting of financial instruments, IAS 39, mainly imply that financial instruments shall be reported at fair value at each reporting date.



The changes due to the application of IFRS 2 and IAS 39 will effect Swedish Matchs financial reporting for 2005.
Comparative figures for 2004 will not be prepared as retrospective application is not required according to the transition rules.



Comparison of financial statements according to Swedish GAAP and IFRS



In the tables below, the financial statements according to Swedish GAAP is
accompanied with the restated financial statements according to IFRS as well as the reconciliation between the two.



Consolidated adjusted opening balance per January 1, 2004 in summary

(SEK millions unless otherwise stated)



|                                                       |  |                     |  |                        |  |               |   |  |               
|------------------------------------------------------ |  | ------------------- |  | ---------------------- |  | ------------- | - |  | --------------
|                                                       |  | ReportedDec 31,2003 |  | BiologicalassetsIAS 41 |  | PensionIAS 19 |   |  | IFRSJan 1,2004
|Intangible fixed assets                                |  | 3,648               |  |                        |  |               |   |  | 3,648         
|Tangible fixed assets                                  |  | 2,862               |  | 8                      |  |               |   |  | 2,869         
|Financial fixed assets                                 |  | 616                 |  |                        |  | 108           |   |  | 724           
|Current operating assets                               |  | 5,310               |  |                        |  |               |   |  | 5,310         
|Liquid Funds1)                                         |  | 2,666               |  |                        |  |               |   |  | 2,666         
|                                                       |  |                     |  |                        |  |               |   |  |               
|Total assets                                           |  | 15,102              |  | 8                      |  | 108           |   |  | 15,218        
|                                                       |  |                     |  |                        |  |               |   |  |               
|Shareholders equity                                   |  | 4,010               |  | 5                      |  | (257          | ) |  | 3,758         
|Minority interests                                     |  | 597                 |  | 0                      |  | 7             |   |  | 604           
|                                                       |  |                     |  |                       
|Provisions                                             |  | 2,119               |  | 2                      |  | 357           |   |  | 2,478         
|Long-term loans                                        |  | 4,535               |  |                        |  |               |   |  | 4,535         
|Other long-term liabilities                            |  | 66                  |  |                        |  |               |   |  | 66            
|Short-term loans                                       |  | 846                 |  |                        |  |               |   |  | 846           
|Other current liabilities                              |  | 2,929               |  |                        |  | 0             |   |  | 2,930         
|                                                       |  |                     |  |                        |  |               |   |  |               
|Total shareholders equity, provisions and liabilities |  | 15,102              |  | 8                      |  | 108           |   |  | 15,218        
|                                                       |  |                     |  |                        |  |               |   |  |               

---

|1) | Liquid funds consists of short-term investments in the form of interest-bearing securities and cash and bank balances. See Note 14 to the Consolidated Financial Statements
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Consolidated adjusted closing balance per December 31, 2004 in summary

SEK millions unless otherwise stated



|                                                       |  |                     |  |                |  |                        |  |                
|------------------------------------------------------ |  | ------------------- |  | -------------- |  | ---------------------- |  | ---------------
|                                                       |  | ReportedDec 31,2004 |  | GoodwillIAS 38 |  | BiologicalassetsIAS 41 |  | IFRSDec 31,2004
|Intangible fixed assets                                |  | 3,285               |  | 167            |  |                        |  | 3,452          
|Tangible fixed assets                                  |  | 2,690               |  |                |  | 22                     |  | 2,712          
|Financial fixed assets                                 |  | 760                 |  |                |  |                        |  | 760            
|Current operating assets                               |  | 4,884               |  |                |  |                        |  | 4,884          
|Liquid Funds1)                                         |  | 3,002               |  |                |  |                        |  | 3,002          
|                                                       |  |                     |  |                |  |                        |  |                
|Total assets                                           |  | 14,621              |  | 167            |  | 22                     |  | 14,809         
|                                                       |  |                     |  |                |  |                        |  |                
|Shareholders equity                                   |  | 4,358               |  | 143            |  | 15                     |  | 4,516          
|Minority interests                                     |  | 473                 |  | 7              |  | 1                      |  | 481            
|                                                       |  |                     |  |               
|Provisions                                             |  | 3,111               |  | 16             |  | 6                      |  | 3,134          
|Long-term loans                                        |  | 2,559               |  |                |  |                        |  | 2,559          
|Other long-term liabilities                            |  | 21                  |  |                |  |                        |  | 21             
|Short-term loans                                       |  | 970                 |  |                |  |                        |  | 970            
|Other current liabilities                              |  | 3,129               |  |                |  |                        |  | 3,129          
|                                                       |  |                     |  |                |  |                        |  |                
|Total shareholders equity, provisions and liabilities |  | 14,621              |  | 167            |  | 22                     |  | 14,809         
|                                                       |  |                     |  |                |  |                        |  |                

---

|1) | Liquid funds consist of short-term investments in the form of interest-bearing securities and cash and bank balances. See Note 14 to the Consolidated Financial Statements
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Consolidated Income Statement in summary

SEK million unless otherwise stated



|                                           |  |                       |   |  |                |   |  |                        |   |  |                   |  
|------------------------------------------ |  | --------------------- | - |  | -------------- | - |  | ---------------------- | - |  | ----------------- | -
|                                           |  | ReportedJan - Dec2004 |   |  | GoodwillIAS 38 |   |  | BiologicalassetsIAS 41 |   |  | IFRSJan - Dec2004 |  
|Sales, including tobacco tax               |  | 21,705                |   |  |                |   |  |                        |   |  | 21,705            |  
|Less tobacco tax                           |  | (8,698                | ) |  |                |   |  |                        |   |  | (8,698            | )
|                                           |  |                       |   |  |                |   |  |                        |   |  |                   |  
|Sales                                      |  | 13,007                |   |  |                |   |  |                        |   |  | 13,007            |  
|Cost of goods sold*                        |  | (7,262                | ) |  |                |   |  | 15                     |   |  | (7,247            | )
|                                           |  |                       |   |  |                |   |  |                        |   |  |                   |  
|Gross profit                               |  | 5,745                 |   |  |                |   |  | 15                     |   |  | 5,760             |  
|                                           |  |                       |   | 
|Sales and administrative expenses**        |  | (3,575                | ) |  |                |   |  |                        |   |  | (3,575            | )
|Amortization                               |  | (322                  | ) |  | 175            |   |  |                        |   |  | (147              | )
|Shares in earnings of associated companies |  | 1                     |   |  |                |   |  |                        |   |  | 1                 |  
|                                           |  |                       |   |  |                |   |  |                        |   |  |                   |  
|                                           |  | 1,849                 |   |  | 175            |   |  | 15                     |   |  | 2,040             |  
|Settlement income                          |  | 1,521                 |   |  |                |   |  |                        |   |  | 1,521             |  
|                                           |  |                       |   |  |                |   |  |                        |   |  |                   |  
|Operating income                           |  | 3,370                 |   |  | 175            |   |  | 15                     |   |  | 3,561             |  
|                                           |  |                       |   | 
|Net interest expense                       |  | (163                  | ) |  |                |   |  |                        |   |  | (163              | )
|Other financial items, net                 |  | (1                    | ) |  |                |   |  |                        |   |  | (1                | )
|                                           |  |                       |   |  |                |   |  |                        |   |  |                   |  
|Net financial items                        |  | (164                  | ) |  |                |   |  |                        |   |  | (164              | )
|                                           |  |                       |   | 
|Income before taxes and minority interests |  | 3,206                 |   |  | 175            |   |  | 15                     |   |  | 3,396             |  
|Taxes                                      |  | (1,314                | ) |  | (18            | ) |  | (4                     | ) |  | (1,336            | )
|Minority interests                         |  | (64                   | ) |  | (8             | ) |  | (1                     | ) |  | (72               | )
|                                           |  |                       |   |  |                |   |  |                        |   |  |                   |  
|Net income for the period                  |  | 1,828                 |   |  | 149            |   |  | 10                     |   |  | 1,988             |  
|                                           |  |                       |   |  |                |   |  |                        |   |  |                   |  
|Earnings per share, basic, SEK             |  | 5.61                  |   |  |                |   |  |                        |   |  | 6.10              |  
|Earnings per share, diluted, SEK           |  | 5.59                  |   |  |                |   |  |                        |   |  | 6.08              |  
|                                           |  |                       |   |  |                |   |  |                        |   |  |                   |  

---

|* | Including writedowns in match operations of SEK 150 millions
|- | ------------------------------------------------------------

|** | Including provision for acquisition of shares in Wimco Ltd. of SEK 90 millions
|-- | ------------------------------------------------------------------------------



Share structure



A number of measures were implemented during 2002, 2003 and 2004 as part of the Companys effort to optimize its balance sheet. During 2002 8 million
shares were repurchased at an average price of SEK 69.04 under the Companys buy-back program. During 2003 15.3 million shares were repurchased at an average price of SEK 62.83 and during 2004 8.8 million shares were repurchased at an average
price of SEK 74.52. During the same period the Annual General Meetings have approved reductions of the share capital by cancellation of repurchased shares. In 2002 the share capital was reduced by an amount of SEK 24 million by canceling 10 million
shares. In 2002 the share capital was reduced by another SEK 24 million by canceling 10 million shares and in 2004, the share capital was reduced by SEK 36 million by canceling a further 15 million shares. All reductions of the share capital were
made through a transfer from share capital to unrestricted reserves. Following the reductions, the share capital of the Company as at December 31, 2004 amounted to SEK 807.8 million, represented by 336.6 million shares, each with a par value of SEK
2.40. During 2004 the Company also sold 2.0 million treasury shares a result of option holders exercising their call rights. As a result of the repurchase, selling of treasury shares and after the cancellations, Swedish Match held 15.1 million
shares, equal to 4.5 percent of the Companys total outstanding shares at December 31, 2004. The total number of shares outstanding, net after buybacks, amounted to 321.5 million. In addition, the Company had issued call options on its treasury
shares corresponding to 6 million shares. Share buybacks have continued in 2005 after the Annual General Meeting on April 27, 2005. From April 27, 2005 through June 17, 2005 the Company has repurchased a further 10.4 million shares and from January
1, 2005 through June 17, 2005 the Company has sold 0.6 million treasury shares as a result of options holders redeeming their options. As of June 17, 2005 Swedish Match held 24.8 million shares, equal to 7.4 percent of the Companys total



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outstanding shares and has issued call options on its treasury shares corresponding to 4.2 million shares. The call
options can be exercised successively from 2005 to 2009. At the Annual General Meeting on April 27, 2005 shareholders approved the cancellation of 12 million shares repurchased under previous buyback programs. Shareholders at the meeting also
approved the proposal that the Companys holdings of its own shares may not exceed 10 percent of the total shares outstanding. The shareholders at the Annual General Meeting also approved a proposal to reduce the par value of the shares from
SEK 2.40 to SEK 1.20 and to transfer SEK 114 million from the restricted reserve of the parent company to unrestricted reserves. By these measures unrestricted equity will increase by SEK 532 million. An application to the Municipal Court of
Stockholm to effect these shareholders resolutions has been made. Permission is expected in October 2005.



5.B Liquidity and Capital Resources



At present, the principal sources of liquidity for Swedish Matchs business and operating needs are internally generated funds from its operations and available borrowings from credit institutions. In the Companys opinion,
working capital is sufficient for the Companys present requirements. There are no major restrictions on the ability of subsidiaries to transfer funds to the Company in the form of cash dividends.



Debt structure and liquid funds



In 1998 Swedish Match established a medium-term notes program for issuance
of debt securities of SEK 2,000 million which program was increased to SEK 4,000 million in 2001. The Company had debt securities of SEK 1,423 million outstanding as of December 31, 2004 with the following maturities.



|                |  |                |  |                           
|--------------- |  | -------------- |  | --------------------------
|Amount          |  | Maturity, year |  | Interest rate, percent (1)
|SEK 500 million |  | 2005           |  | 2.78                      
|SEK 300 million |  | 2007           |  | 4.83                      
|SEK 623 million |  | 2008           |  | 2.79                      

---

|(1) | Most interest rates have been swapped to a variable three-month rate.
|--- | ---------------------------------------------------------------------



In 1999 the Company established a medium-term notes program for issuance of debt securities of euro 500 million, which program was increased to euro 1,000
million in 2001. The Company had debt securities of euro 215 million, equivalent to SEK 1,763 million, outstanding as of December 31, 2004 and with the following maturities.



|                  |  |                |  |                           
|----------------- |  | -------------- |  | --------------------------
|Amount            |  | Maturity, year |  | Interest rate, percent (1)
|SEK 129 million   |  | 2005           |  | 2.77                      
|SEK 1,454 million |  | 2006           |  | 2.93-5.96                 
|SEK 90 million    |  | 2008           |  | 2.82                      
|SEK 90 million    |  | 2010           |  | 2.95                      

---

|(1) | Interest rates have been swapped to variable three-month rate
|--- | -------------------------------------------------------------



The net proceeds from the sale of the unsecured debt from the two medium-term programs were used for general corporate purposes including investments in
acquisitions of subsidiaries and buyback of shares.



In 1998,
the Company sold a property and is now renting the same property in accordance with a leasing agreement, which according to Swedish GAAP is classified as an operating lease. The lease arrangement is with a leasing company that has established a
company for the purpose of owning the property and renting it back to Swedish Match. Swedish Match paid SEK 10 million of capital into this entity and has no further obligation but for the quarterly renting costs. The leasing company put SEK 5
million of capital into the entity, arranged with external financing, and has unlimited liability for the liabilities of the entity.



Swedish Match is in compliance with all covenants or other requirements set forth in its credit agreements. Furthermore, Swedish Match does not have any
rating downgrade triggers that would accelerate the maturity dates of its debt. However, a downgrade in the Companys credit rating could adversely affect Swedish Matchs ability to renew existing, or obtain access to new, credit
facilities in the future and could increase the cost of such facilities. For example, a downgrade in credit rating could preclude Swedish Matchs ability to issue debt securities under its current programs. Should this occur, Swedish Match
would seek alternative sources of funding including other



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potential bond offerings and secured lending. Swedish Match has the ability to draw upon its euro 250 million revolving
credit facility prior to its commitment termination in December 2008. This facility requires the Company to have a ratio of income after financial items plus interest expense divided by interest expense of at least 3.



At December 31, 2004 Swedish Match had the following credit ratings from
Standard & Poors and Moodys Investor Service:



|                 |  |                   |  |        
|---------------- |  | ----------------- |  | -------
|                 |  | Standard & Poors |  | Moodys
|Long-term rating |  | A-                |  | A3     
|Outlook          |  | Stable            |  | Stable 



The Company had an
agreement with the minority shareholders of General Cigar concerning put and call options with regard to the minoritys shareholding. The options could be exercised over the period 2004 to 2006. Valuation of the shares in connection with the
exercising of the put option is determined on the basis of the earnings of General Cigar for the most recent eight-quarter-ending period prior to exercise, at certain minimum levels. In April 2005, after giving notice of its intention to exercise
some of the call options, Swedish Match reached an agreement with the minority shareholders to acquire all minority shares of General Cigar for USD 155 million for the minoritys shares.



At year end 2004, liquid funds amounted to SEK 3,002 million, compared with
SEK 2,666 million at the beginning of the year.



At year-end
2004, SEK 1,187 million of the Groups liquid funds were deposited in bank accounts and SEK 1,815 million in other financial investments. The SEK 1,815 million of other financial investments is made up of SEK 392 million in treasury bills, SEK
429 million in bank certificates, SEK 755 million in mortgage certificates, SEK 166 million in mortgage bonds, SEK 61 million in government bonds and SEK 12 million in other financial investments. Investment of the liquidity surplus is made in
accordance with the finance policy determined by the Board.



Swedish Matchs liquidity flows are considerably greater than the 2004 net sales of SEK 13,007 million. This is because Swedish Match also charges tobacco taxes and VAT on the tobacco tax portion of the sales prices for sales to
customers. Tobacco tax for the Group in 2004 amounted to SEK 8,698 million. Tobacco tax and VAT on tobacco tax in the Swedish operation amounted to SEK 9,852 million during 2004.



Cash provided by operations and investing and financing activities



Cash flow from operations, as set forth in the Consolidated Statements of
Cash Flows, during 2004 amounted to SEK 3,626 million during 2004, compared with SEK 2,638 million in 2003 and SEK 2,585 million in 2002. The increase in 2004 compared with 2003 is attributed to the settlement income from UST offset by higher taxes
paid. The increase in 2003 compared with 2002 is primarily attributed to a decrease in operating capital offset by higher taxes paid in 2003.



Cash flow from investing activities totaled SEK 471 million in 2004 compared with SEK 625 million in 2003 and SEK 717 million in 2002. The decrease in
2004 compared with 2003 is primarily due to lower capital expenditure and proceeds from divesting of the advertising textiles operations. The decrease in 2003 compared with 2002 is primarily due to lower capital expenditure.



Cash flow from financing activities in 2004 was an outflow of SEK 2,779
million in 2004 compared with an outflow of SEK 1,327 million in 2003 and an outflow of SEK 1,366 million in 2002. The change between 2004 and 2003 is due to an increase in amortization of loans offset by decreased buy-backs of shares.



5.C Research and Development, Patents and Licenses, etc.



Swedish Match has research and development activities in Sweden and the U.S. for its Tobacco operations, focusing on properties of the tobacco plant. The Company also has limited research and development activities in
other countries, notably in Europe. Included in selling expenses are expenses for research and development and similar expenses amounting to SEK 99 million, SEK 100 million and SEK 113 million for the years ended December 31, 2002, 2003 and 2004,
respectively. For a discussion on the Companys patents, trademarks and licenses, see Item 4.B. Business Overview.



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5.D Trend Information



The
following discussion includes statements that are forward-looking in nature. Whether such statements ultimately prove to be accurate depends upon a variety of factors that may affect the Companys business and operations. Certain of these
factors are discussed in Forward-Looking Statements. Historical trends are not necessarily indicative of the results that may be expected for any future period.



Product areas



Snuff



Snuff has been Swedish Matchs driving segment for organic growth for a number of years. The Company believes that with restrictions on tobacco
smoking, smokeless alternatives are gaining a greater market potential. In addition, snuff is a traditional product that has become increasingly socially acceptable. Market volume growth has recently been between 2 and 3 percent per year for North
Europe and more than 5 percent in North America and the volumes are expected to continue to grow.



Chewing Tobacco



Consumption of chewing tobacco has been declining by more than 4 percent per year over the past three years, continuing a long-term trend. The reason is
primarily demographic  the increasingly higher average age of consumers and fewer jobs in farming and other outdoor sectors. Swedish Match expects consumption volume to continue to decline.



Cigars



Until 1997, the American cigar market was characterized by strong growth in the premium segment. In 1998, the very sharp
market growth for cigars weakened. Excess inventories had been built up by manufacturers and distributors, and this led to price competition in the premium segment. In 1999 total consumption of cigars stabilized in the U.S. and large excess
inventories of product in the commercial chain reduced somewhat, negatively affecting manufacturers sales despite stable consumption. In 2000, consumption of mass market cigars increased slightly in the U.S., while consumption of premium
cigars remained flat. There was a substantial reduction of excess inventories of premium cigars in 2000, as a number of lesser-known brands left the market. In the second half of 2001, the premium tobacco market in the U.S. experienced some
weakness, most likely tied to general economic weakness in the U.S. economy. The market for premiums cigars in the U.S. improved slightly during 2002 and the European market remained relatively stable. In 2003 the total U.S. mass market cigar
segment grew approximately 3 percent, while market growth in the U.S. premium and European cigars was relatively flat. In 2004 the European market was essentially flat to slightly larger, while the U.S. premium and U.S. machine-made cigar segments
both grew. In 2003 and 2004 the most significant trend was in the increasing size of the flavored cigar subsegment of the market in the U.S. The world market for cigars has been growing over the last years, but with considerable differences between
markets. Swedish Match expects the world market for cigars to continue to grow.



Pipe Tobacco



The world
market for pipe tobacco has been declining by some 10 percent annually in volume terms. The main reason is demographic  the increasing average age of consumers and the weak influx of new buyers. Swedish Match expects market volume for pipe
tobacco to continue to decline, the slight increase in demand for pipe tobacco in the premium and value price segments to continue to increase and the demand in the moderate price segment to continue to decrease.



Matches and Lighters



In most of the markets where Swedish Match operates there has been a general
decline in the volumes of matches sold due, in industrialized countries, to declining volumes of smoking products, to substitution of disposable lighters for matches and to increased electrification worldwide. Market volume for lighters in the U.S.
and Europe has been declining by up to 5 percent per year. Swedish Match expects market volume for matches and lighters to continue to decline.



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Regulation



The manufacture, marketing and sale of tobacco are highly regulated. Approximately 87 percent of Swedish Matchs
turnover originates in the European Union, South Africa and the U.S. In these markets, the business in the tobacco segment is subject to a great number of restrictions and excise duties. A major risk to the future activities is that the number of
restrictions will be increased or that new or higher taxes will be introduced.



For a brief summary of the most important legislation that affects the Company in the Swedish, European Union (including Sweden), U.S., and South African tobacco markets, see Item 4.B. Business Overview 
Regulation.



5.E Off-Balance Sheet Arrangements



There are no off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on the Companys financial condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources.



5.F Tabular Disclosure of Contractual Obligations



The following summarizes the Companys contractual obligations at December 31, 2004, and the effect such obligations are expected to have on its liquidity and cash flow in future periods.



|                                    |  |       |  |          |  |           |  |           |  |              
|----------------------------------- |  | ----- |  | -------- |  | --------- |  | --------- |  | -------------
|Maturity profile in SEK millions    |  | Total |  | < 1 year |  | 1-3 years |  | 4-5 years |  | After 5 years
|Long term debt obligations          |  | 3,529 |  | 970      |  | 1,756     |  | 713       |  | 90           
|Capital (finance) lease obligations |  | 0     |  | 0        |  | 0         |  | 0         |  | 0            
|Non cancelable operating leases(1)  |  | 948   |  | 98       |  | 172       |  | 630       |  | 48           
|Purchase obligations                |  | 176   |  | 176      |  | 0         |  | 0         |  | 0            
|Other liabilities                   |  | 21    |  | 0        |  | 21        |  | 0         |  | 0            
|                                    |  |       |  |          |  |           |  |           |  |              
|Total                               |  | 4,674 |  | 1,244    |  | 1,949     |  | 1,343     |  | 138          
|                                    |  |       |  |          |  |           |  |           |  |              

---

|(1) | Included in these amounts are payments totaling SEK 749 million which are treated as an operating lease under Swedish GAAP but are treated as a financing arrangement under U.S.
GAAP. Under U.S. GAAP debt of SEK 713 million is recorded on the balance sheet related to the leasing arrangement.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES



6.A Directors and Senior Management



General



Under the Swedish Companies Act of
(1975:1385), the Board of Directors shall be charged with the organization of the company and the management of the companys operations. The Board of Directors shall ensure that the company organization in respect of accounting,
management of funds, and the companys financial position in general includes satisfactory controls. The Board of Directors liability and duty to supervise cannot be delegated to any other party. The Companys Articles of Association
(the Articles) provide for a Board of Directors elected by its shareholders of not fewer than five nor more than ten directors. Swedish law provides for the appointment of three additional directors and the same number of deputy
directors by the unions representing the Companys employees. Under Swedish law, the managing director and at least one-half of the Board members must be resident in a European Economic Area country unless the Swedish government or an authority
appointed by the government in a particular case grants an exemption. The term of office of a director elected by the Annual General Meeting is until the following Annual General Meeting, but a director may serve any number of consecutive terms.
Directors may be removed from office by a General Meeting of Shareholders at any time, and vacancies on the Board of Directors, except when filled by a deputy director, may only be filled by shareholder resolution. The compensation of the directors
elected by the shareholders is decided at each Annual General Meeting.



The Chairman of the Board of Directors is appointed by the directors unless otherwise resolved by the general meeting of shareholders or provided for in the Articles.



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Deputy employee representatives are entitled to be present and express their opinions at meetings of the
Board of Directors even when the employee representatives are present. Deputy directors may only vote in substitution for absent directors.



Under Swedish law, a director or a managing director may not deal with matters relating to agreements between him and the company, nor may he deal with
matters relating to agreements between the company and third parties if he has a considerable interest in the matter that may be contrary to that of the company.



Board of Directors



As of June 17, 2005, the Directors of the Company were:



Bernt Magnusson.Chairman since 1995. Board member since 1993. Chairman of the Compensation Committee and member of the Nominating Committee. Other
Board assignments: Chairman of Försäkringsaktiebolaget Skandia (publ) and Dyno Nobel ASA. Board member of Volvo Car Corp., Höganäs AB, Pharmadule AB and Net Insight AB. Advisor to the European Bank for Reconstruction and
Development. Born on August 28, 1941.



Jan Blomberg.
Board member since 1996. Chairman of the Audit Committee and member of the Compensation Committee. Other Board assignments: Chairman of Handelsbanken Regionbank City, Stockholm. Board member of Skandia Investment and Svenska Spel AB. Born on March
18, 1939.



Sven Hindrikes, CEO and President since 2004.
Board member since 2005. Other Board Assignments: Board member of Arnold André GmbH. Born on April 21, 1950.



Tuve Johannesson.Board member since 2002. Other Board assignments: Chairman of EcoLean International A/S, Arctic Islands Ltd, Findus AB, and Ainax
AB. Board member of SEB, Cardo and Chumak. Advisor to J.C. Bamford Excavators Ltd. Born on January 7, 1943.



Arne Jurbrant.Board member since 2002. Member of the Compensation Committee. Other Board assignments: Board member of IFL/MTC Foundation. Born on
March 24, 1942.



Karsten Slotte,Board member since
2004. Member of the Audit Committee. President and CEO of Cloetta Fazer AB. Other Board assignments: Oy Onninen, Finnish Association of Convenience Goods Suppliers, Finnish-Swedish Chamber of Commerce. Born on August 10, 1953.



Kersti Strandqvist, Board member since 2005, Member of the Audit
Committee, Segment Manager for Baby Care at SCA Personal Care. Born on May 4, 1963.



Meg Tivéus. Board member since 1999. Member of the Audit Committee. Other Board assignments: Board member of Cloetta Fazer AB, The Royal Swedish Opera AB, Billerud AB, SNS AB, Orrefors Kosta Boda AB and
Danderyd Hospital AB. Born on December 17, 1943.



Employee
representatives



Kenneth Ek.Board member since
1999. Appointed by the Federation of Salaried Employees in Industry and Services (PTK) within Swedish Match. Board member of the Swedish Association of Management and Professional Staff (Ledarna) at the snuff plant in Gothenburg, Sweden. Born on
September 23, 1953.



Eva Larsson.Board member
since 1999. Appointed by the Swedish Trade Union Confederation (LO) within Swedish Match Industries AB. Chairman of the trade union association at the match plant in Tidaholm, Sweden. Born on May 20, 1958.



Joakim Lindström. Board member since 1999. Appointed by the
Swedish Trade Union Confederation (LO) within Swedish Match AB. Chairman of the Swedish Food Workers Association (Livs) in Solna, Stockholm, Sweden. Born on March 20, 1965.



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Deputy employee representatives



Håkan Johansson.Deputy member since 2004. Appointed by the Swedish Trade Union Confederation (LO) within
Swedish Match AB. Born on February 21, 1963.



Stig
Karlsson. Deputy member since 1999. Appointed by the Federation of Salaried Employees in Industry and Service (PTK) within Swedish Match Industries AB. Shop Steward for the Swedish Industrial Salaried Employees Association (SIF) at Swedish Match
Arenco AB in Kalmar, Sweden. Born on September 27, 1941.



Eeva Kazemi-Vala. Deputy member since 2004. Appointed by the Federation of Salaried Employees in Industry and Services (PTK) within Swedish Match. Born on December 19, 1949.



Executive officers



As of June 17, 2005, Swedish Matchs executive officers included the
following individuals:



Sven Hindrikes. President and
Chief Executive Officer. Employed and member of Group Management since 1998. Born on April 21, 1950.



Lennart Freeman. Executive Vice President and President North America Division. Employed in 1975. Member of Group Management since 1999. Born on
October 7, 1951.



Bo Aulin. Senior Vice
President, Corporate Affairs, Secretary and General Counsel. Employed 1990. Member of Group Management since 1996. Born on May 12, 1948.



Lars Dahlgren. Chief Financial Officer. Employed in 1996. Member of the Group Management since 2004. Born on November 7, 1970.



Peter Hedlund. President, Overseas Division. Employed in 1981. Member
of Group Management since 2004. Born on March 19, 1953.



Graham Jones. Senior Vice President, Mergers and Acquisitions. Employed in 1978. Member of Group Management since 1999. Born on March 8, 1949.



Lars-Olof Löfman. President, North Europe Division. Employed in 1987. Member of Group Management since 2004. Born on September 30, 1956.



Göran Streiffert. Senior Vice President, Human
Resources and IS/IT. Employed and member of Group Management since 1997. Born on December 1, 1946.



Jarl Uggla. President Continental Europe Division. Employed in 2002. Member of the Group Management since 2004. Born on September 19, 1955.



6.B Compensation



Compensation
to Swedish Match ABs Board members



Fees are paid to
the Chairman of the Board and Board members in accordance with decisions of the Annual General Meeting. No Board fee is paid to the President. In 2004 a study fee in an amount of SEK 42,250 was paid to each of the three employee representatives on
the Board, and in an amount of SEK 31,689 to each of the three deputy members. The fees paid to Board members elected by the Annual General Meeting for Board work during 2004 are shown in the table below:



|                 |  |           |  |                       |  |                |  |                                  
|---------------- |  | --------- |  | --------------------- |  | -------------- |  | ---------------------------------
|(SEK)            |  | Board fee |  | CompensationCommittee |  | AuditCommittee |  | Total fees forBoard Committeework
|Bernt Magnusson  |  | 687,500   |  | 80,000                |  |                |  | 767,500                          
|Jan Blomberg     |  | 293,750   |  | 50,625                |  | 86,250         |  | 430,625                          
|Tuve Johannesson |  | 293,750   |  |                       |  |                |  | 293,750                          
|Arne Jurbrant    |  | 293,750   |  | 36,667                |  | 17,083         |  | 347,500                          
|Meg Tivéus       |  | 293,750   |  |                       |  | 53,750         |  | 347,500                          
|Klaus Unger      |  | 93,750    |  | 13,958                |  |                |  | 107,708                          
|Karsten Slotte   |  | 200,000   |  |                       |  | 36,667         |  | 236,667                          
|                 |  |           |  |                       |  |                |  |                                  
|Total            |  | 2,156,250 |  | 181,250               |  | 193,750        |  | 2,531,250                        
|                 |  |           |  |                       |  |                |  |                                  



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In 2003, The Annual General Meeting decided that remuneration to the Board Chairman up until the end of
the 2004 Annual General Meeting would be SEK 650,000 and SEK 275,000 each to the other Board members elected by the AGM and to give the Board SEK 300,000 as compensation for committee work, to be distributed within the Board as it decides. The
Annual General Meeting in 2004 decided that compensation for the Board Chairman until the end of the next AGM was to be SEK 700,000 and SEK 300,000 to each of the other Board members elected by the AGM and to give the Board SEK 400,000 as
compensation for committee work, to be distributed within the Board as it decides. The Annual General Meeting in 2005 decided that compensation for the Board Chairman until the end of the next AGM was to be SEK 750,000 and SEK 300,000 to each of the
other Board members elected by the AGM and to give the Board SEK 400,000 as compensation for committee work, to be distributed within the Board as it decides.



Compensation to Group Management



The following table sets forth the compensation and other benefits to Group Management during 2002-2004.



|                        |  |      |    |  |            |  |          |  |            |  |                  |  |                          |  |       
|----------------------- |  | ---- | -- |  | ---------- |  | -------- |  | ---------- |  | ---------------- |  | ------------------------ |  | ------
|(SEK in thousands)      |  |      |    |  | BaseSalary |  | Bonus 3) |  | Options 4) |  | OtherBenefits 5) |  | PensionBenefitsCosts* 6) |  | Total 
|President1)             |  | 2004 | 2) |  | 5,452      |  | 1,855    |  | 700        |  | 209              |  | 2,256                    |  | 10,471
|                        |  | 2003 |    |  | 5,300      |  | 1,610    |  | 924        |  | 319              |  | 463                      |  | 8,616 
|                        |  | 2002 |    |  | 4,600      |  | 1,400    |  | 1,300      |  | 371              |  | 398                      |  | 8,069 
|Other senior executives |  | 2004 |    |  | 20,464     |  | 6,879    |  | 3,850      |  | 1,781            |  | 5,031                    |  | 38,005
|                        |  | 2003 |    |  | 22,435     |  | 5,482    |  | 4,158      |  | 1,391            |  | 6,936                    |  | 40,402
|                        |  | 2002 |    |  | 20,730     |  | 6,842    |  | 5,850      |  | 1,564            |  | 5,844                    |  | 40,830
|                        |  |      |    |  |            |  |          |  |            |  |                  |  |                          |  |       
|Total                   |  | 2004 |    |  | 25,915     |  | 8,732    |  | 4,550      |  | 1,990            |  | 7,287                    |  | 48,476
|                        |  |      |    |  |            |  |          |  |            |  |                  |  |                          |  |       
|                        |  | 2003 |    |  | 27,735     |  | 7,092    |  | 5,082      |  | 1,710            |  | 7,399                    |  | 49,018
|                        |  |      |    |  |            |  |          |  |            |  |                  |  |                          |  |       
|                        |  | 2002 |    |  | 25,330     |  | 8,242    |  | 7,150      |  | 1,935            |  | 6,242                    |  | 48,899
|                        |  |      |    |  |            |  |          |  |            |  |                  |  |                          |  |       

---

|* | Pertains to expensed pensions.
|- | ------------------------------



Comments on the table



|1) | The compensation paid to the President in 2004 relates to remuneration for Lennart Sundén for the period through March 19, 2004, when he resigned, and to Sven Hindrikes for
the subsequent period.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2) | The terms and conditions for Sven Hindrikes compensation as President in 2004 were as follows: Fixed annual salary of 5,500,000 SEK; a maximum bonus of 35 percent and a pension on
salary income up to 30 income base amounts according to the ITP plan and on income above 30 income base amounts a provision of 40 percent is paid to a defined-contribution pension plan. Pension according to the ITP plan is to be fully paid at the
age of 60.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3) | Bonus pertains to incentive payments made during the year.
|-- | ----------------------------------------------------------

|4) | Options are gross amounts disposable for allocation of options.
|-- | ---------------------------------------------------------------

|5) | Other benefits pertain to company car and other benefits.
|-- | ---------------------------------------------------------

|6) | The reported pension costs are cost that affects the result for defined-contribution pensions and service cost according to IAS for defined-benefit pensions. These accounting
principles apply to pension costs as of 2004.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Bonus



Group management is covered by an
annual incentive program (bonus), which in 2004 could provide a maximum 35 percent of the base salary. The outcome of the incentive program is based on the increase in earnings per share for the President and staff managers. For division Presidents,
50 percent of the incentive program is based on the increase in earnings per share, while the remaining 50 percent is based on the increase in operating income in the division. Maximum payment in the case of the portion based on earnings per share
requires that earnings per share increase 20 percent or more compared with the preceding year. For division managers, payment based on the incentive program also requires that operating income improves compared with the preceding year for the
particular division, with maximum payment requiring the fulfilment of the set targets.



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In addition to the annual incentive program, one Division President in a non-Swedish division is
encompassed by a local incentive program. The local program extends over three years and a new program commences every second year. Payment from the local program may thus occur every second year if the set earnings targets are met. The maximum
outcome for the Division President is approximately one years base salary every second year.



Options



The Group has an ongoing options program that may provide an allocation of call options on shares in Swedish Match AB. The options are allotted to
participants when certain targets have been fulfilled. The options have a lifetime of five years and may be exercised during the fourth and fifth year. In 2004, the options program covered 58 executives. The allotment of options in any year is based
on the outcome for two criteria:



| |  |  | The total share return on the Swedish Match share must be positive and superior to the total share return on shares in a selected number of companies in the industry. A maximum
allotment is made if the return is 20 percentage points or more than the return on the shares of the other companies.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Earnings per share must increase and be higher than an average of the past three years. A maximum allotment is made if earnings per share are 20 percent higher than the average over
the past three years.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



These criteria have the
same value. If the conditions for earnings are fulfilled, the particular executive is allotted options at no cost. The allotment of options constitutes a taxable income for participants resident in Sweden. The options are assigned a market value in
accordance with the Black & Scholes model. They are irrevocable once allotted. The total value of the allotment may be a maximum 30 percent of the base salary amount for the executives included in the program. The options carry an exercise price
of 120 percent of the average share price over a ten-day period after the published year-end report.



Based on the targets attained in 2004, 661,871 options will be issued in 2005. Exercise may be made between March 3, 2008 through March 1, 2010. Each
option entitles the holder to purchase one share in Swedish Match AB at a price per share of 99.75 SEK. The market value, computed using the Black & Scholes model, is 10.80 SEK per option or a total of SEK 7.1 million. Since Swedish Match AB has
issued the options, no expensing is involved. However, preliminary taxes and social security charges are expensed, which in the particular cases occurred directly on issue.



Excluding the 661,871 options that will be issued in 2005 the Company has 4.2 million options outstanding as per the table
below.



|                        |  |          |  |                  |  |           |  |                
|----------------------- |  | -------- |  | ---------------- |  | --------- |  | ---------------
|Exercise Period         |  | Exercise |  | Number of Shares |  | Exercised |  | Net Outstanding
|2004-03-13  2006-03-14 |  | 44.50    |  | 1,812,309        |  | 1,390,185 |  | 422,124        
|2005-03-15  2007-03-15 |  | 77.50    |  | 1,518,770        |  |           |  | 1,518,770      
|2006-03-01  2008-02-28 |  | 74.00    |  | 1,428,490        |  |           |  | 1,428,490      
|2007-03-01  2009-02-27 |  | 84.80    |  | 865,259          |  |           |  | 865,259        
|                        |  |          |  |                  |  |           |  |                
|                        |  |          |  | 5,624,828        |  | 1,390,185 |  | 4,234,643      
|                        |  |          |  |                  |  |           |  |                



Pensions



Introduction



During 2004, new principles were introduced for Group management pensions.
This means that Group management executives resident in Sweden are to be recovered by the ITP plan for salary of up to 30 salary base amounts and a defined-contribution pension on salary exceeding this amount. For members of Group management
stationed abroad, the new principles primarily entail defined-contribution solutions and the base salary constitutes the pensionable salary. The retirement age for members of Group management is 62.



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President



According to the employment contract, the retirement age for Sven Hindrikes is 62 and he is encompassed by the ITP plan for
salary up to 30 salary base amounts. Pension according to the ITP plan is to be fully paid at the age of 60. In addition, the Company pays a pension premium of 40 percent of the fixed salary exceeding 30 salary base amounts.



Other members of Group management



Other members of Group management are eight persons who are subject to the
following pension terms and conditions. In the case of the four members of Group management resident in Sweden, two of them have terms and conditions in accordance with the previously named new pension principles. For the other two, the terms and
conditions have been renegotiated with the result that the defined-benefit pension remains in place, but that the pensionable salary has been locked at the 2005 level. For both of these the retirement age is 60. In the case of the four members of
Group management resident abroad, two of them are encompassed by defined-benefit pension solutions with a retirement age of 60 and 65, respectively. The other two are covered by contribution-based pension solutions with a retirement age of 65
according to the employment contract. Funding of pension commitments in Sweden, pensions on salary portions of up to 30 salary base amounts are funded in Swedish Matchs pension fund, PSF. The commitment for defined-benefit pensions for salary
portions exceeding 30 salary base amounts is funded in Swedish Match Pensionstiftelse (pension foundation). For members of Group management resident outside Sweden, defined-benefit pension commitments are funded in local pension foundations. All
pension benefits are irrevocable.



Other employment terms



Severance pay, etc.



For the President, a joint six-month period of notice applies. A maximum
severance payment of 18 months salary is payable if the Company terminates the employment contract. Severance pay will be reduced by a maximum of 50 percent of any other employment income, but not to less than half of the contracted severance
pay. A six-month mutual notice of intent to terminate employment applies for other members of Group management. If the Company terminates employment, severance pay is payable in an amount equivalent to 18 months of cash salary.



6.C Board Practices



The Board
members of Swedish Match elected by the Annual General Meeting are elected until the next Annual General Meeting. The other Board Members and the Deputy Members are appointed by their respective employee union. A Director may serve any number of
consecutive terms. The Annual General Meeting of 2005 elected the Board of Directors proposed by the Nomination Committee. Board members Bernt Magnusson, Jan Blomberg, Tuve Johannesson, Arne Jurbrant, Karsten Slotte and Meg Tivéus were
reelected and Kersti Strandqvist and Sven Hindrikes was newly elected by the Annual General Meeting. The employee organizations has appointed Kenneth Ek, Eva Larsson and Joakim Lindström as representatives, and Eeva Kazemi-Vala, Håkan
Johansson and Stig Karlsson as deputies. All members of the Board of Directors of Swedish Match AB, except the President, are independent of the Company according to the rules of the Stockholm Exchange.



Board of Directors



The Board of Directors of Swedish Match AB has established an agenda that
includes instructions for the allocation of duties between the Board and the President, as well as instructions for financial reporting. The Board convenes annually for the statutory meeting and five ordinary meetings. Three of the ordinary meetings
are scheduled to coincide with the publication dates for the first and third quarter interim reports and the year-end report. In addition, the Board holds meetings in August and December when the short-term budget as well as the long-term plan for
operations are reviewed. The Companys auditors attend the meeting at which the year-end financial report is presented in order to inform the Board of points noted during the audit. In addition to the ordinary meetings, the Board is called to
other meetings when the situation requires.



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The Board of Directors monitors the Presidents performance of his obligations, is responsible for
ensuring that the Companys organization fulfils its purpose, and conducts continuous evaluations of the Companys procedures and guidelines for management and investment of the Companys funds. The Board also approves the strategic
plan, the budget and the year-end financial report for the parent company and the Group, and continuously monitors the development of operations during the year. The Board of Directors makes decisions on major investments and divestments. In
connection with meetings, the Board visits some of the Companys major plants at regular intervals.



The Board of Directors held its statutory meeting for 2004 on the same day as the Annual General Meeting. The statutory meeting passed its ordinary
resolutions concerning election of the Chairman (Bernt Magnusson), the secretary (Bo Aulin) and signatory rights. Two members of the Board may sign jointly on behalf of the Company, as well as a limited number of senior Company employees, two of
whom may sign jointly. The President is always authorized to sign on behalf of the Company in matters related to day-to-day management of the Companys operations.



The number of Board meetings held during 2004 was 13, including six by telephone and two per capsulam. In
addition to monitoring business operations in relation to budget and strategic plans, and strengthening the Companys systems for management and control, the Board also devoted a significant amount of time to consideration of the Companys
incentive and benefits structure, strategic orientation, structural issues, social and market issues, followup of acquisitions and distribution of surplus funds. During 2004, the Board approved the Code of Business Conduct and Ethics, and Group
Treasury Policy and Policy on Related Party Transactions.



Chairman



The Chairman leads the work of the
Board and ensures that other Board members at all times receive all the information required to ensure that the quality of Board work is maintained and that the Board is exercising its duties as stipulated in the Swedish Companies Act. The Chairman
represents the company in matters regarding ownership.



Compensation Committee



The Compensation
Committee of the Board of Directors is appointed from within the Board and is charged with discussing and resolving issues concerning salaries and other terms of employment, pension benefits and bonus systems for Group management, excluding the
President, whose terms are set by the Board based on the proposal from the Compensation Committee, and other remuneration issues that involve matters of principle. The Board decides in corpore (excluding the President) on committee proposals
concerning remuneration for the President, as well as certain other remuneration issues that involve matters of principle or are otherwise especially important, for example option programs and profit-sharing systems. The Committee meets as often as
required, but at least twice a year. During 2004, 16 meetings were held. The Chairman of the Compensation Committee is Board Chairman, Bernt Magnusson. Other members during 2004 were Jan Blomberg, Klaus Unger (through April 26, 2004) and Arne
Jurbrandt (from April 26, 2004). It is incumbent on the Chairman of the Compensation Committee to periodically update the Board of Directors on the progress of its work and the decisions taken. The Committee carried out its tasks with the support of
external expertise regarding the issue of remuneration levels and structures.



Audit Committee



The
duty of the Boards Audit Committee is to supervise the routines for accounting, financial reporting and audit within the Group. The Audit Committee scrutinizes the quality and accuracy of the Groups financial accounts and related
reports, the procedures for internal financial controls within the Group, the work, qualifications and independence of the auditors, and  should the occasion arise  transactions between the Group and related parties. The Committee also
discusses other significant issues related to the companys financial reporting, and submits its observations to the Board of Directors. The Committee is required to meet at least six times a year. Seven meetings were held during 2004, of which
one was per capsulam. Audit Committee members during 2004 were Jan Blomberg (Chairman), Meg Tivéus, Arne Jurbrant (through April 26, 2004) and Karsten Slotte (from April 26, 2004) and Kersti Strandqvist (from April 27, 2005).



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6.D Employees



The table below
shows the average number of employees for the period by product area for each of the past 3 financial years, 2004, 2003 and 2002.



|                           |  |        |  |        |  |       
|-------------------------- |  | ------ |  | ------ |  | ------
|Product area               |  | 2004   |  | 2003   |  | 2002  
|Chewing Tobacco            |  | 346    |  | 346    |  | 347   
|Cigars                     |  | 7,781  |  | 7,148  |  | 6,504 
|Lighters                   |  | 460    |  | 470    |  | 533   
|Match                      |  | 4,746  |  | 5,388  |  | 5,743 
|Pipe Tobacco & Accessories |  | 527    |  | 553    |  | 558   
|Snuff                      |  | 924    |  | 908    |  | 825   
|Other operations           |  | 255    |  | 302    |  | 285   
|                           |  |        |  |        |  |       
|Total                      |  | 15,039 |  | 15,115 |  | 14,795



The table below shows
the average number of employees for the period by geographical area for each of the past 3 financial years, 2004, 2003 and 2002.



|                        |  |        |  |        |  |       
|----------------------- |  | ------ |  | ------ |  | ------
|Geographic area         |  | 2004   |  | 2003   |  | 2002  
|Sweden                  |  | 1,097  |  | 1,041  |  | 969   
|Europe excluding Sweden |  | 1,621  |  | 1,742  |  | 1,954 
|North America           |  | 1,273  |  | 1,264  |  | 1,250 
|Latin America           |  | 5,703  |  | 5,157  |  | 4,706 
|Asia                    |  | 4,782  |  | 5,251  |  | 5,269 
|Other Areas             |  | 563    |  | 660    |  | 647   
|                        |  |        |  |        |  |       
|Total                   |  | 15,039 |  | 15,115 |  | 14,795



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6.E Share Ownership



As of June
17, 2005, the shareholdings and holdings of call options of present members of the Board (including holdings of other members of their families and closely related companies) are as follows:



|                                 |  |                
|-------------------------------- |  | ---------------
|Name                             |  | Number ofshares
|Bernt Magnusson (Chairman)       |  | 15,858         
|Jan Blomberg                     |  | 3,638          
|Sven Hindrikes                   |  | 5,000          
|Tuve Johannesson                 |  | 6,000          
|Arne Jurbrant                    |  | 1,500          
|Kersti Strandqvist               |  | 500            
|Karsten Slotte                   |  | 3,000          
|Meg Tivéus                       |  | 500            
|Kenneth Ek                       |  | 210            
|Eva Larsson                      |  | 0              
|Joakim Lindström                 |  | 0              
|Håkan Johansson (Deputy member)  |  | 0              
|Stig Karlsson (Deputy member)    |  | 249            
|Eeva Kazemi-Vala (Deputy member) |  | 500            



All shares of Swedish
Match are of the same class and represent one vote each. Each member of the Board owns less than one percent of the share capital.



Mr. Sven Hindrikes is the only member of the Board with call options, 66,373 in total on June 17, 2005. Each call option refers to one share. The terms of
the call options of Sven Hindrikes are as follows: 27,673 call options can be used to buy shares during the period March 15, 2005 to March 15, 2007 at a redemption price of SEK 77.50. 23,650 call options can be used to buy shares during the period
March 1, 2006 to February 28, 2008 at a redemption price of SEK 74.00, 15,050 call options can be used to buy shares during the period March 1, 2007 to February 27, 2009 at a redemption price of SEK 84.80.



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As of June 17, 2005, the shareholdings and holdings of call options of the Companys executive
officers (including holdings of other members of their families and closely related companies) are as follows:



|                 |  |                 |  |                      
|---------------- |  | --------------- |  | ---------------------
|Name             |  | Number ofshares |  | Number of calloptions
|Sven Hindrikes   |  | 5,000           |  | 66,373               
|Lennart Freeman  |  | 300             |  | 154,356              
|Bo Aulin         |  | 4,200           |  | 66,373               
|Lars Dahlgren    |  | 1,000           |  | 0                    
|Peter Hedlund    |  | 0               |  | 88,763               
|Graham Jones     |  | 6,000           |  | 227,527              
|Lars-Olof Löfman |  | 1,400           |  | 33,186               
|Jarl Uggla       |  | 3,000           |  | 45,000               
|Göran Streiffert |  | 30,400          |  | 66,373               



All shares in Swedish
Match are of the same class and represent one vote each. Each executive officer owns less than one percent of the share capital.



ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS



7.A Major shareholders



As of
June 17, 2005, according to the available records of the Company no persons or groups were known to the Company to hold 5 percent or more of the voting securities of the Company.



As of June 17, 2005 the total amount of the voting securities of the Company beneficially held by Directors (including
deputy members of the Board) and executive officers of the Company as a group was:



|                                        |  |                                                |  |               |  |                          
|--------------------------------------- |  | ---------------------------------------------- |  | ------------- |  | -------------------------
|Title of Class                          |  | Identity of Persons or Group                   |  | Amount Owned  |  | Percent of Class Notified
|Shares nominal value SEK 2.40 per share |  | Directors and officers as a group (22
persons) |  | 88,255 shares |  | 0,03 %                   



7.B Related Party Transactions



No member of the Board of Directors or any of its executive officers has had any direct or indirect participation in a business transaction that is or was unusual in character or with respect to its terms, and which occurred during the
current or preceding financial year. This also applies to transactions during earlier financial years, and which are in any respect unsettled or incomplete. The auditors have also not been party to any such transactions of the type referred to
above.



The Company has not granted loans, guarantees or
sureties to, or on behalf of, members of the Board of Directors, its executive officers or the Companys auditors.



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Within the framework of normal business, Swedish Match conducts various transactions with associated
companies. Receivables from these companies totaled SEK 24 million at December 31, 2004 and SEK 30 million at December 31, 2003. Total sales to associated companies amounted to SEK 141 million, SEK 147 million and SEK 133 million in 2004, 2003 and
2002, respectively.



7.C Interests of Experts and Counsel



Not applicable.



ITEM 8. FINANCIAL INFORMATION



8.A Consolidated Statements and Other Financial Information



|       |  |                                                                                                                                                                                                                                                                            
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|8.A.1  |  | See Item 17.                                                                                                                                                                                                                                                               
|       | 
|8.A.2  |  | See Item 17.                                                                                                                                                                                                                                                               
|       | 
|8.A.3  |  | See page F-2 and F-3 for the audit reports of the Companys accountants, entitled  Report of Independent Registered Public Accounting Firm, KPMG Bohlins AB and  Report
of Independent Registered Public Accounting Firm, Öhrlings PricewaterhouseCoopers respectively.
|       | 
|8.A.4  |  | Not applicable.                                                                                                                                                                                                                                                            
|       | 
|8.A.5  |  | Not applicable.                                                                                                                                                                                                                                                            
|       | 
|8.A.6  |  | For a breakdown of the Companys export sales, see Item 5.A. Operating Results.                                                                                                                                                                                          
|       | 
|8.A.7. |  | Legal disputes                                                                                                                                                                                                                                                             



The Company is
involved in a number of routine legal and regulatory proceedings, as well as a number of pending lawsuits related to intellectual property rights and alleged injuries caused by tobacco products.



In New York State, there are proceedings against General Cigar, where
Cubatabaco is claiming that General Cigar does not have the right to use the Cohiba brand. General Cigar received its first registration of the Cohiba trademark in the U.S. in 1981, and obtained an updated registration in 1995. Hearing of the case
began in May 2003. In March 2004 the court ruled in favor of Cubatabaco. General Cigar appealed the ruling and in February 2005 the Court of Appeals ruled in favor of General Cigar. Cubatabaco has been denied an en banc hearing in the Court of
Appeals and has until August 30, 2005 to file a petition for certiorari to the U.S. Supreme Court.



During the year, the Delaware Chancery Court ruled in favor of the defendants including General Cigar Holding Inc. in Orman vs Cullman et al., a purported
class action relating to the transaction by which a subsidiary of Swedish Match AB purchased the publicly owned shares of General Cigar. The ruling was not appealed.



Subsidiaries of Swedish Match in the U.S. are the defendants in cases where it is claimed that the use of tobacco products
has caused health problems. Pinkerton Tobacco Company (a subsidiary of Swedish Match North America, Inc.) is named as a defendant in some of the more than 1,200 cases against cigarette manufacturers and other tobacco companies that have been
initiated in state courts in West Virginia. Pinkerton, however, has been severed out of the consolidated process in these cases and it is currently unclear whether any of the plaintiffs intend to pursue their demands separately against Pinkerton.
Further, Pinkerton Tobacco Company and Swedish Match North America, Inc. are named as defendants in a class-action suit filed in Florida in November 2002 against several different companies active in the U.S. smokeless tobacco market and their joint
interest associations. The plaintiffs are asking for medical monitoring and injunctive and equitable relief as well as compensatory damages. In October 2003 the plaintiffs counsel agreed to an indefinite extension of time to respond to the
complaint. During the year, a final decision was served in favor of Pinkerton Tobacco Company and other defendants in a case in Minnesota in which the plaintiff was asserting that use of chewing tobacco caused her husbands death. Although
management cannot in any meaningful way estimate the damages that might be awarded, if any, in any ongoing or anticipated disputes, it holds the view, after having consulted with counsels representing the Company with respect to these matters, that
there are good defenses against all the claim. Each case will be defended vigorously. However, there can be no assurance that those defenses will be successful in trial.



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The Supreme Court in India has ordered Swedish Match AB and certain of its subsidiaries to make a public
offer to acquire 20 percent of the shares outstanding in Wimco Ltd. In accordance with the ruling, the price per share shall be not less than 35 INR plus annual interest from January 27, 2001. Swedish Match has requested the Supreme Court to clarify
the rate of interest to be applied and which shareholders are entitled to interest. Swedish Match has made provision of SEK 90 million to cover a write-down of the value of the shares that will be acquired according to the order and expenses in
connection with the acquisition.



In December 2004, the
European Court in Luxemburg ruled that Article 8 of Directive 2001/37, which prohibits the putting on the market of products defined as oral tobacco, is not invalid by reason of infringement of the EC Treaty or general principles of Community law.



8.A.8.See Item 3.A Selected Financial Data
 Dividends for a discussion of Swedish Matchs dividend policy.



8.B Significant Changes



At the
Annual General Meeting on April 27, 2005, shareholders of the Company approved the cancellation of 12 million shares repurchased by the Company under previous share buyback programs. An application to reduce the share capital was made. As at April
27, 2005, the Company held 14,465,386 repurchased shares.



The
Annual General Meeting also approved the Boards proposal to reduce the par value of the shares from SEK 2.40 to SEK 1.20 and to transfer SEK 114 million from the restricted reserve of the parent company to unrestricted reserves. By these
transactions SEK 532 million will be transferred from restricted equity to unrestricted equity. An application to the Municipal Court of Stockholm to effect these board resolutions has been made. Permission is expected in October 2005. The amounts
released are to be used for share buybacks.





ITEM 9. THE OFFER AND LISTING



9.A Offer and Listing Details



The following table shows, for the fiscal quarters indicated, the reported highest and lowest middle market quotations for the Companys shares on Stockholmsbörsen and the highest and lowest sales price of the ADSs:



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|                                               |  |                                    |  |                               |  |        |     |  |       |    
|---------------------------------------------- |  | ---------------------------------- |  | ----------------------------- |  | ------ | --- |  | ----- | ---
|                                               |  | (Stockholm) SEK per Ordinary Share |  | (Nasdaq) U.S. dollars per ADS | 
|                                               |  | High                               |  | Low                           |  | High   |     |  | Low   |    
|Annual information for the past five years     |  |                                    |  |                               |  |        |     |  |       |    
|                                               |  |                                    |  |                              
|2004                                           |  | 81.50                              |  | 69.00                         |  |        | (1) |  |       | (1)
|2003                                           |  | 74.50                              |  | 54.50                         |  | 102.53 |     |  | 67.40 |    
|2002                                           |  | 86.00                              |  | 54.00                         |  | 85.75  |     |  | 53.15 |    
|2001                                           |  | 58.00                              |  | 34.90                         |  | 53.50  |     |  | 37.00 |    
|2000                                           |  | 37.00                              |  | 25.10                         |  | 37.75  |     |  | 28.13 |    
|                                               |  |                                    |  |                              
|Quarterly information for the past two years   |  |                                    |  |                               |  |        |     |  |       |    
|                                               |  |                                    |  |                              
|2004                                           |  |                                    |  |                               |  |        |     |  |       |    
|First Quarter                                  |  | 75.00                              |  | 69.00                         |  | 104.14 |     |  | 93.79 |    
|Second Quarter                                 |  | 81.50                              |  | 76.50                         |  | 107.40 |     |  | 97.06 |    
|Third Quarter                                  |  | 79.75                              |  | 72.750                        |  | 106.76 |     |  | 95.71 |    
|Fourth Quarter                                 |  | 81.25                              |  | 75.00                         |  |        | (1) |  |       | (1)
|                                               |  |                                    |  |                              
|2003                                           |  |                                    |  |                               |  |        |     |  |       |    
|First Quarter                                  |  | 69.50                              |  | 59.00                         |  | 79.19  |     |  | 69.51 |    
|Second Quarter                                 |  | 65.00                              |  | 57.00                         |  | 80.67  |     |  | 72.25 |    
|Third Quarter                                  |  | 62.00                              |  | 54.50                         |  | 77.70  |     |  | 67.40 |    
|Fourth Quarter                                 |  | 74.50                              |  | 58.50                         |  | 102.53 |     |  | 76.78 |    
|                                               |  |                                    |  |                              
|Monthly information for most recent six months |  |                                    |  |                               |  |        |     |  |       |    
|                                               |  |                                    |  |                              
|December 2004                                  |  | 79.50                              |  | 75.00                         |  |        |     |  |       |    
|January 2005                                   |  | 84.75                              |  | 77.00                         |  |        |     |  |       |    
|February 2005                                  |  | 87.25                              |  | 81.00                         |  |        |     |  |       |    
|March 2005                                     |  | 85.50                              |  | 80.25                         |  |        |     |  |       |    
|April 2005                                     |  | 90.25                              |  | 83.75                         |  |        |     |  |       |    
|May 2005                                       |  | 87.75                              |  | 83.00                         |  |        |     |  |       |    

---

|(1) | The ADSs were delisted from Nasdaq in 2004
|--- | ------------------------------------------



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9.B Plan of Distribution



Not
applicable.



9.C Market



The Companys
shares are traded on the Stockholm Exchange.



The Stockholm
Exchange is a fully electronic marketplace in which all shares are held by book-entry. Trading in the Stockholm Automated Exchange (SAX) comprises all publicly traded Swedish stocks, and trading is settled via a paperless account-based
security system, administered by the VPC.



All normal
transactions must be carried out via the SAX order book. Large orders can be made outside SAX and reported to SAX. All transactions that are made outside SAX during the opening hours of the Stockholm Exchange must be reported within five minutes.
Other transactions must be reported, at the latest, 30 minutes before trade opens the following trading day.



Trading on the Stockholm Exchange begins each morning at 9:00 a.m. (CET) at an opening price determined by the SAX system and based on orders entered by
Stockholm Exchange members, and continues at prices based on market demand until 5:30 p.m. (CET). Buy and sell orders are registered on the system in round lots and odd lots are matched separately at the last price for round lots.



In addition to official trading on the Stockholm Exchange, there is also
trading off the Stockholm Exchange during and after official trading hours. Trading on the Stockholm Exchange tends to involve a higher percentage of retail clients, while trading off the Stockholm Exchange often involves Swedish institutions, banks
arbitraging between the Swedish market and foreign markets, and foreign buyers and sellers purchasing shares from or selling shares to Swedish institutions.



The Stockholm Exchange maintains a market surveillance staff that reviews trading data during the day on a real time basis for indications of
unusual market activity or trading behavior. The market surveillance staff of the Stockholm Exchange reviews off-exchange trading based on reports of transactions by the member firms.



In 2004 due to the low liquidity of the ADSs these were delisted from NASDAQ. The last day of trading was on October 15,
2004. The Company also cancelled its American Depository Receipts program.



9.D Selling Shareholders



Not
applicable.



9.E Dilution



Not applicable.



9.F Expenses of the issue



Not
applicable.



ITEM 10. ADDITIONAL INFORMATION



10.A Share Capital



Not
applicable.



10.B Memorandum and Articles of Association



Registration



Swedish
Matchs Swedish corporate identity number is 556015-0756. The object of Swedish Matchs operations under Article 3 of its Articles of Association is to directly or indirectly conduct operations relating to the development and manufacture
of and trade in tobacco products, matchsticks, and lighters, and to conduct other activities that are related to the said operations.



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Nominal value of shares



The nominal value of the Shares of the Company is SEK 2.40. At the Annual General Meeting on April 27, 2005 it was decided
to reduce the nominal value of the shares to SEK 1.20. The Company has applied for the reduction of the nominal vale to be approved by the Municipal Court of Stockholm but approval has not yet been obtained.



Election of Board of Directors



The Board members of Swedish Match elected by the Annual General Meeting are
elected until the next Annual General Meeting. The other Board Members and the Deputy Members are appointed by their respective employee union. A Director may serve any number of consecutive terms.



Directors Voting Powers and fees



Each director has one vote on the Board of Directors. However, under Swedish
law, a director or the managing director may not deal with matters relating to agreements between him and the company, nor may he deal with matters relating to agreements between the company and third parties if he has a considerable interest in the
matter that may be contrary to that of the company. Article 9 in the Articles of Association states that the Annual General Meeting shall determine the fees to be paid to the Board of Directors. Thus, the Board of Directors is not authorized to vote
compensation to themselves. The Board of Directors shall consist of 5 to 10 directors appointed by the Annual General Meeting and three directors appointed by the employee organizations with three deputy directors appointed for the directors
appointed by the employee organizations. The Board of Directors consist of 11 ordinary members (including 3 appointed by the employee organizations) and three deputy members. Each deputy member replaces one of the three employee representatives in
the Board in case that employee representative is absent from a board meeting. There are no requirements under Swedish law or the Companys Articles of Association in respect of the Board members age or amount of shareholdings. At the Annual
General Meeting in 2005, the articles of association were amended to specify that the decision on the fee for the board of directors shall include the fee to the chairman, the fee to other members of the board of directors and the combined fee for
committee work.



Share rights, Preferences and Restrictions



All shares in the Company are of the same class and have
equal right to dividends. The dividend to the shareholders for the year ending December 31, 2004 was SEK 1.90 per share. The record date for entitlement to receive the dividend was May 2, 2005. The dividend was paid by the Swedish Securities
Register, VPC, on May 6, 2005. The nominal value is SEK 2.40 per share. At the Annual General Meeting in 2005, it was decided to decrease the nominal value of each share to SEK 1.20.



Each share confers the right to one vote at general meetings. The general meetings are called by the Board of Directors. The
Board is obliged to call a general meeting at the request of shareholders representing a minimum of one tenth of all outstanding shares. Since Swedish Matchs fiscal year follows the calendar year, the Annual General Meeting must take place no
later than June 30 each year. The Annual General Meeting of 2005 took place on April 27. The members of the Board of Directors are elected until the next Annual General Meeting.



Under Swedish law, the main rule is that resolutions of the general meeting
are adopted by a simple majority of the votes cast. Certain resolutions require a larger majority. For example, a resolution to amend the Articles of Association is not adopted unless at least owners of shares with two-thirds of the votes cast as
well as two-thirds of the shares represented at the meeting are in favor thereof.



Notice of an Annual General Meeting of shareholders is to be given not less than four nor more than six weeks prior to the meeting. In order to be entitled to attend and vote at a general meeting of shareholders, a
shareholder must be recorded in the share register on the tenth day prior to the date of the meeting. The Companys Articles of Association provide that the shareholder must give notice to the Company of his/her intention to attend the meeting
not later than 4:00 p.m. on the date specified in the notice convening the meeting (a date not being a Saturday, Sunday, nor any other Swedish public holiday, Midsummer Eve, Christmas Eve or New Years Eve, and it must not be earlier than the
fifth day (not including Sundays or legal holidays) preceding the meeting). A shareholder may attend and vote at a meeting in person or by proxy. A person designated on the register as a nominee (förvaltare) is not entitled to vote at a
general meeting; nor is a beneficial owner whose shares are registered in the name of a nominee entitled to vote at a general meeting, unless the beneficial owner first arranges



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to have such owners own name registered in the register of stockholders. Under Swedish law, unless a companys
Articles of Association provide otherwise, at any general meeting a shareholder or proxy for one or more shareholders, may vote for all shares he/she owns or represents at the meeting. The Companys Articles permit each shareholder or proxy to
cast the full number of votes represented by the shares.



Disclosure of shareholder ownership



The
Financial Instruments Trading Act (1991:980) contains provisions concerning the disclosure of the purchase and sale of shares. Any person who has acquired or transferred shares in Swedish Match shall within seven days thereafter notify the
acquisition or transfer in writing to the Company and to the Stockholm Exchange (Stockholmsbörsen) where the acquisition results in the purchasers percentage of the voting capital of all the shares in the Company reaching or exceeding any
of the limits of 10, 20, 331/3, or 662/3percent or where the transfer results in the transferors percentage of the voting capital of all the shares in the company being reduced to less than these limits.



The Swedish Industry and Commerce Stock Exchange
Committee (Näringslivets Börskommitté) has issued recommendations concerning the disclosure of acquisitions and transfers of shares. The recommendations are not legally binding but it is considered good practice in the stock
market to comply with the recommendations. In general, these recommendations are more severe than the Financial Instruments Trading Act for any purchaser or transferor of shares in Swedish Match. The recommendations apply ,among others, when
any natural person or legal entity, Swedish or foreign, acquires or transfers shares in Swedish Match. An acquisition, transfer or expiry of call options is considered to be equivalent to the acquisition and transfer of shares. Pursuant to the
recommendations, a person or entity shall disclose the transaction and his holding if the transaction causes the holding to attain or exceed a five percent threshold and any subsequent percentage which is a multiple of five, up to and including 90
percent of the total number of shares or votes in the company or if the transaction causes the holding to decline and thus fall below any of these thresholds. The disclosure shall take place no later than 9.00 a.m. on the next stock exchange day
after the date of transaction, by means of a statement to an established news agency and at least one daily Swedish newspaper with national coverage.



Natural persons deemed to hold an insider position in Swedish Match are covered by the Reporting Obligations Act (2000:1087) and must submit a written
report of their holdings, or any changes of their holdings, of financial instruments in Swedish Match to the Swedish Financial Supervisory Authority (Finansinspektionen) within five days.



Under the Swedish Companies Act, a listed company may own its own shares. The
total amount of treasury shareholding may at no point exceed 10 percent of the total number of shares in the company. Shareholdings in the own company do not give the company a right to represent itself or vote on general meetings, do not give a
right to dividends and do not give any right to share in surplus in the event of liquidation. In addition, such shares owned by the company are excluded when determining whether a certain required majority of votes cast or shares represented is
fulfilled. The shares of Swedish Match have no redemption provisions, sinking fund provisions and no liability to further calls by the company. Swedish Match has during the years of 2002 - 2005 acquired shares in Swedish Match.



Except for the restrictions for Swedish Match owning its own shares, there
are no restrictions on ownership of shares in Swedish Match. However, as mentioned above, a person designated on the register as a nominee is not entitled to vote at a general meeting; nor is a beneficial owner whose shares are registered in the
name of a nominee entitled to vote at a general meeting, unless the beneficial owner first arranges to have such owners own name registered in the register of shareholders.



Purchase Obligation



Where a parent company directly or indirectly owns more than nine-tenths of all the shares in a subsidiary and these shares represent more than
nine-tenths of the votes, under Swedish law the parent company is entitled to purchase the remaining shares in the subsidiary. A person whose shares are subject to such a right of purchase may require the parent company to purchase his shares. A
dispute whether there is a right or obligation to purchase as well as a dispute regarding the price shall be submitted to arbitration.



The Industry and Commerce Stock Exchange Committee has issued recommendations regarding takeovers and mandatory offers. The recommendations are not
legally binding but it is considered good practice in the stock market to comply with the recommendations. Pursuant to the recommendations, anyone who has less than 40 percent of the total number of votes in a company, and who obtains 40 percent or
more of the total number of votes in the company as a result of purchase, subscription, conversion or any other form of acquisition of shares in the



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company, either alone or together with a party to whom the buyer is related, must make a public offer for the acquisition
of all the remaining shares issued by the target company. This offer must also be addressed to holders of securities other than shares issued by the company, if the securities may be substantially affected if listing of shares covered by the offer
were to cease. The obligation no longer applies if the buyer divests shares within four weeks of acquisition so that his shareholding amounts to less than 40 percent of the votes in the company.



Pre-emptive Rights



In connection with any offering of shares, the existing shareholders have a
pre-emptive right to subscribe for shares offered in proportion to the amount of shares in their possession. However, the shareholders may by a resolution on a general meeting deviate from their pre-emptive right. Such a resolution is valid where at
least owners of shares with two-thirds of the votes cast as well as two-thirds of the votes represented at the meeting were in favor thereof.



10.C Material contracts



The
Company is not a party to any material contract other than those entered into in the ordinary course of business.



10.D Exchange controls



There are
no Swedish governmental laws, decrees or regulations that restrict the export or import of capital, including any foreign exchange controls, or that affect the remittance of dividends or other payments to non-residents or non-citizens of Sweden who
hold the Companys shares. In addition, since January 1, 1993 there have been no limitations imposed by Swedish law on the right of non-residents or non-citizens of Sweden to hold or vote a Swedish companys shares.



10.E Taxation



General



The following is a general summary of the material U.S.
federal income and Swedish tax consequences to U.S. Holders (as defined below) of the ownership and disposition of shares. This summary is based upon U.S. tax laws, including the U.S. Internal Revenue Code of 1986, as amended (the Code),
final, temporary and proposed Treasury Regulations, rulings, judicial decisions, administrative pronouncements, Swedish tax law, and the current conventions between the U.S. and Sweden for the avoidance of double taxation in the case of income and
property taxes (the Income Tax Treaty) and in the case of estate, inheritance and gift taxes (the Estate Tax Treaty), all as currently in effect, and all of which are subject to change or changes in interpretation, possibly
with retroactive effect



A. U.S. Holder is a
beneficial owner of shares who holds the shares as capital assets and is (i) a citizen or individual resident of the U.S. for U.S. federal income tax purposes, (ii) a corporation (or other entity taxable as a corporation for U.S. federal income tax
purposes) created or organized in or under the laws of the U.S. or any State thereof (including the District of Columbia), (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust if a
court within the U.S. is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of the substantial decisions of the trust. Because this summary is not exhaustive of all possible
tax considerations (such as situations involving taxpayers who are dealers in securities or commodities, banks, financial institutions, traders in securities who elect to apply a mark-to-method method of accounting, regulated investment companies,
insurance companies, tax-exempt entities, persons subject to the federal alternative minimum tax, persons holding the shares as part of a straddle, hedging or conversion transaction, U.S. expatriates, or persons who (directly, indirectly or by
attribution) own 10 percent or more of the share capital or voting stock of Swedish Match, persons who acquired their shares pursuant to the exercise of employee stock options or otherwise as compensation, or persons whose functional currency is not
the U.S. dollar). U.S. Holders of shares who are subject to taxation in the U.S. are advised to consult their own tax advisors as to the overall U.S. federal, state and local tax consequences, as well as to the overall Swedish tax consequences, of
their ownership or disposition of shares.



If a partnership
(including for this purpose any entity treated as a partnership for U.S. federal income tax purposes) holds shares, the tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. A partner
in a partnership that holds shares is urged to consult its own tax advisor regarding the specific tax consequences of owning and disposing of the shares.



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Holders of shares should consult their own tax advisors concerning the specific Swedish and U.S.
federal, state and local tax consequences of the ownership and disposition of shares in light of their particular situations as well as any consequences arising under the laws of any other taxing jurisdiction. In particular, U.S. Holders are urged
to consult their own tax advisors concerning whether they are eligible for benefits under the Treaties.



Taxation of dividends



For U.S. federal income tax purposes, the gross amount of any distribution (including any Swedish withholding tax thereon) paid to U.S. Holders of shares
generally will be treated as a dividend and taxed as ordinary income to the U.S. Holders on the date of actual constructive receipt by a U.S. Holder. Dividends paid by the Company will not be eligible for the dividends received deduction generally
allowed to U.S. corporations with respect to dividends received from other U.S. corporations. The amount of any distribution that will be included in the gross income of a U.S. Holder will be the U.S. dollar value of the distribution (including the
amount of any Swedish taxes withheld therefrom), calculated by reference to the spot rate in effect on the date of receipt, regardless of whether the payment is in fact converted into U.S. dollars. A U.S. Holder who converts the Swedish kronor into
U.S. dollars on the date of receipt generally should not recognize any exchange gain or less. A U.S. Holder who does not convert Swedish kronor into U.S. dollars on the date of receipt generally will have a tax basis in the Swedish kronor equal to
its U.S. dollar value on such date. Any gain recognized by the U.S. Holder on a subsequent conversion or other disposition of Swedish kronor or other foreign currency received generally will be treated as U.S. source ordinary income or loss.



In general, under Swedish tax law, dividends paid by a Swedish
corporation such as the Company to nonresidents of Sweden are subject to Swedish withholding tax at a rate of 30 percent. However, pursuant to the Income Tax Treaty, dividends paid by the Company to a U.S. Holder who is entitled to the benefits of
the Income Tax Treaty under its Limitation on Benefits provisions and who does not have a permanent establishment or fixed base situated in Sweden (or in the case of an individual U.S. Holder who does not perform
or has not performed independent personal services in Sweden) generally will be subject to Swedish withholding tax at a reduced rate of 15 percent. A U.S. Holder of shares may be required to provide documentary evidence that such Holder is entitled
to the reduced 15 percent withholding tax rate under the Income Tax Treaty. The Custodian will, to the extent practicable, facilitate reasonable administrative actions necessary to obtain the reduced 15 percent Swedish withholding tax rate or obtain
refunds of Swedish withholding taxes.



If a U.S. Holder is an
accrual method taxpayer, for taxable years beginning before 2005, it must translate Swedish taxes into U.S. dollars at a rate equal to the average exchange rate for the taxable year in which the taxes accrue, but must translate taxable dividend into
U.S. dollars at the spot rate on the date received. The difference in exchange rates may reduce the dollar value of the credits for Swedish taxes relative to the U.S. federal income tax liability attributable to a dividend. However, for taxable
years beginning after 2004, an accrual method U.S. Holder may elect to translate Swedish taxes into U.S. dollars using the exchange rate in effect at the time the taxes were paid. Any such election will apply for the taxable year in which it is made
and all subsequent years, unless revoked with the consent of Internal Revenue Service (the IRS)



Subject to complex conditions and limitations, the 15 percent Swedish tax withheld in accordance with the Income Tax Treaty will be treated as a foreign
tax eligible for credit against a U.S. Holders U.S. federal income tax liability. Under the Code, the limitation on foreign taxes eligible for credit is calculated separately with respect to the various categories of the U.S. Holders
income. For this purpose, dividends distributed to U.S. Holders of shares generally will be treated as passive income or, in the case of certain U.S. Holders, financial services income. Under recently enacted legislation, for
taxable years beginning January 1, 2007, dividend income generally will constitute passive category income or, in the case of certain U.S. Holders, general category income. The consequences of the separate limitation
calculation will depend in general on the nature and sources of the U.S. Holders income and deductions. The rules governing the foreign tax credit are complex. U.S. Holders are urged to consult their tax advisors regarding the availability of
the foreign tax credit in their particular circumstances. In lieu of claiming such a credit, a U.S. Holder who itemizes deductions may elect to deduct all of such Holders foreign taxes in a particular taxable year. A deduction does not reduce
taxes on a dollar-for-dollar basis like a credit, but the deduction for foreign taxes paid is not subject to the same limitations as those applicable to the foreign tax credit.



Certain U.S. Holders (including individuals) are eligible for reduced rates of U.S. federal income tax (currently of a
maximum rate of 15 percent) in respect of qualified dividend income received in taxable years



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beginning before January 1, 2009. For this purpose, qualified dividend income generally includes dividends paid by
non-U.S. corporations if, amongst other things, the U.S. Holders meet certain minimum holding periods and the non U.S. corporation satisfies certain requirements, including that either (i) the shares with respect to which the dividend has been
paid are readily tradable on an established securities market in the U.S. or (ii) the non-U.S. corporation is eligible for the benefits of a comprehensive U.S. income tax treaty (such as the Income Tax Treaty) which provides for the exchange of
information. Swedish Match currently believes that dividends paid with respect to its shares should constitute qualified dividend income for U.S. federal income tax purposes, but this is a factual matter that is subject to change. The United States
Treasury and the IRS have announced their intention to promulgate rules pursuant to which holders of shares, among others, will be permitted to rely on certification from issuers to establish that dividends are treated as qualified dividend income.
Each individual U.S. Holder of shares is urged to consult his own tax advisor regarding the availability to him of the reduced tax rate in light of his own particular situation and regarding the computations of his foreign tax credit limitation with
respect to any qualified dividend income paid by the Company to him, as applicable.



Tax on sale or other disposition



In general, upon a sale or other disposition of shares, a U.S. Holder will recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference between U.S. dollar value of the
amount realized on the sale or other disposition and the U.S. Holders adjusted tax basis (determined in U.S. dollars) in the shares. Such gain or loss will be U.S. source gain or loss, and will be treated as long-term capital gain or loss if
at the time of the sale or other disposition the shares have been held for more than one year. In the case of a U.S. Holder who is an individual, any capital gain generally will be subject to U.S. federal income tax at preferential rates if
specified minimum holding periods are met. The deductibility of capital losses is subject to significant limitations.



In general, under the Income Tax Treaty, a U.S. Holder who does not have a permanent establishment or fixed base situated in
Sweden or does not perform or has not performed independent personal services in Sweden will not be subject to Swedish tax on any capital gain derived from the sale or exchange of shares. Sweden is, however, allowed under the Income Tax Treaty to
tax an individual resident of the U.S. that has been a resident of Sweden on such gains realized within a period of ten years following the date on which the individual ceased to be a resident of Sweden.



Passive foreign investment company status



A non-U.S. corporation will be classified as a Passive Foreign Investment
Company (a PFIC) for any taxable year if a least 75 percent of its gross income consists of passive income (such as dividends, interest, rents or royalties (other than rents or royalties derived in the active conduct of a trade or
business and received from an unrelated person), or gains on the disposition of certain minority interests), or at least 50 percent of the average value of its assets consist of assets that produce, or are held for the production of, passive income.
Swedish Match currently believes that it did not qualify as a PFIC for the taxable year ended December 31, 2004 for U.S. federal income tax purposes. If Swedish Match were to become a PFIC in any taxable year, the tax on distributions on its shares
and on any gains realized upon the disposition of shares may be less favorable than as described herein. Furthermore, dividends paid by the Company would not be qualified dividend income and would be taxed at the higher rates applicable
to other items of ordinary income. U.S. Holders should consult their own tax advisors regarding the application of the PFIC rules to their ownership shares.



Swedish estate and gift taxes



Effective December 17, 2004 Swedish estate and gift tax has been abolished and has not been replaced by any other tax on transfers by gift or by reason of
death of the owner.



Swedish transfer and net wealth tax



Currently there is no transfer tax or similar tax on
trading in shares and certain other equity-related securities in Sweden. In general, a holder of shares who is a U.S. Holder will normally not be subject to Swedish net wealth tax unless such shares are included in a business carried on in Sweden.



United States information reporting and backup withholding



Dividend payments with respect to shares and proceeds
from the sale, exchange or other disposition of shares may be subject to information reporting to the IRS and possible U.S. backup withholding at a current rate of 28 percent. Backup withholding will not apply, however, to a Holder who furnishes a
correct taxpayer identification number or provides under penalties of perjury a certificate of foreign status and makes any other required



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certification or who is otherwise exempt from backup withholding. U.S. persons who are required to establish their exempt
status generally must provide such certification on IRS Form W-9 (Request for Taxpayer Identification Number and Certification). Non-U.S. Holders generally are not subject to U.S. information reporting or backup withholding. However, such Holders
may be required to provide certification of non-U.S. status (generally on IRS Form W-8BEN) in connection with payments received in the U.S. or through U.S.-related financial intermediaries. Backup withholding is not an additional tax. Any amounts
withheld as backup withholding may be credited against a Holders federal income tax liability, and a Holder may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing the appropriate claim for refund
with the IRS and furnishing any required information.



10.F Dividends and Paying Agents



Not applicable.



10.G Statements by Experts



Not
applicable.



10.H Documents on Display



The
documents referred to in this report can be read at the Securities and Exchange Commissions public reference facilities at Room 1024, 450 Fifth Street, N.W., Washington, D.C., 20549.



10.I Subsidiary Information



Not
applicable.



ITEM 11. QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK ON DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS



In the course of its operations Swedish Match is exposed to various types of financial risks. Swedish Match Corporate Treasury is responsible for
optimizing the return on financial assets and managing the Groups financial risks. This is accomplished through centralized borrowing, investment of surplus liquidity, coordinating cash flows, managing cash pools in various currencies and
minimizing the effects of foreign currency movements on the consolidated income statement. Corporate Treasury serves as an in-house bank and offers advisory and other financial services to the subsidiaries. Corporate Treasury conducts its operations
as part of the parent company and within the framework of the financial policy for the Swedish Match Group set by the Board of Directors. The Company does not hold derivative financial instruments for trading or speculative purposes other than on a
limited scale.



Foreign exchange risks



Swedish Matchs currency risk is related to changes
in contracted and projected flows of payments (commercial exposure), to payment flows related to loans (financial exposure) and to the revaluation of assets and liabilities in foreign subsidiaries (equity exposure). In addition Swedish Match may
enter into derivative financial instruments for trading purposes on a limited scale.



Commercial exposure



Foreign exchange exposure in commercial transactions is concentrated mainly in the exporting companies within the Lighter, Cigar and Matches product areas and to imports of tobacco into Sweden. With the exception of Group operations in
Sweden, Swedish Match has a substantial part of its production operations and sales in the EU and the U.S. As a result, a balance has been created between payments received and disbursed in EUR and USD, which limits the Groups transaction
exposure. Swedish Match uses forward exchange contracts to hedge part of the value of future commercial flows. Contracts related to hedging of anticipated sales and purchases of foreign currencies normally do not exceed twelve months. The market
value of all forward contracts for hedging of commercial exposure as of December 31, 2004 was SEK 0.6 million, compared to SEK 5.2 million net as of December 31, 2003.



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At December 31, 2004, the book value of all forward contracts pertaining to commercial exposure hedging
was SEK 0.8 million higher than the market value. At December 31, 2003, the book value was SEK 0.8 million lower than the market value. If there were an instantaneous 10 percent strengthening of SEK versus all other currencies, the market value of
these forward contracts would increase by SEK 1.3 million compared with a decrease of SEK 7.9 million as of December 31, 2003. If there were an instantaneous 10 percent weakening of SEK versus all other currencies, the market value of the forward
contracts outstanding as of December 31, 2004 would decrease by SEK 1.3 million compared with an increase of SEK 7.9 million as of December 31, 2003. Actual foreign currency exchange rates rarely move instantaneously in the same direction, and the
actual impact of exchange rate changes may thus differ materially from the above sensitivity analysis. According to Swedish GAAP, movements in value of contracts that hedge future flows of commercial payments will not result in any immediate change
to the Groups financial statements. Gains and losses pertaining to the hedge contracts are reported at the same time as gains and losses from the items hedged.



Financial exposure



Currency flows that occur in connection with borrowing and investments in currencies other than the domestic currency of the subsidiary concerned give
rise to financial transaction exposure. In accordance with the Companys finance policy, the financing of subsidiaries must be achieved in a manner that avoids foreign exchange risks as far as possible. This is achieved by borrowing in the
local currency of the subsidiary concerned. Borrowing is only undertaken in another currency if it is not possible to finance the subsidiary in local currency due to foreign exchange regulations or for other reasons.



If assuming an instantaneous strengthening or weakening of the SEK versus all
other currencies, the Company does not expect the effect of financial exchange gains or losses on Swedish Matchs income to be material.



Equity exposure



In conjunction with translation of the Groups assets and liabilities of foreign subsidiaries to Swedish kronor, a risk arises that the currency rate
will have an effect on the consolidated balance sheet. As at December 31, 2004, net assets (shareholders equity) in foreign subsidiaries was not hedged. At year-end 2004, net assets in foreign subsidiaries and associated companies outside
Sweden amounted to SEK 4,656 million compared with SEK 4,272 million as of December 31, 2003.



Of the Groups shareholders equity in foreign currency at year-end, 35 percent consisted of euro, 30 percent consisted of South African Rand, 19 percent consisted of USD and 16 percent of other currencies.



If there were an instantaneous 10 percent strengthening of the
SEK versus all other currencies, shareholders equity would decrease by SEK 466 million compared with SEK 427 million as of December 31, 2003. If there were an instantaneous 10 percent weakening of the SEK versus all other currencies,
shareholders equity would increase by SEK 466 million as of December 31, 2004 compared with an increase of 427 million as of December 31, 2003. Actual foreign currency exchange rates rarely move instantaneously in the same directions and the actual
impact of exchange rate changes may thus differ materially from the above sensitivity analysis.



Trading exposure



Corporate Treasury may enter into forward exchange contracts and other derivative financial instruments for trading purposes on a limited scale, in
accordance with a risk mandate set by the Board of Directors in the financial policy for Swedish Match. As of December 2004 and 2003 Swedish Match did not hold any forward exchange contracts or other financial instruments for trading purposes.



Interest rate risks



Interest-rate risk relates to the risk that changes in interest-rate levels
affect the Groups earnings. Swedish Matchs interest bearing assets consisted mainly of cash and bank and marketable securities. Marketable securities were to a large extent invested in interest-bearing securities with short maturity.



The time that elapses before a lasting change in the interest
rate has an impact on the Groups net interest depends on the fixed interest term of the loan or the investment. The average fixed interest term for the Groups interest-bearing assets amounted to 78 days at December 31, 2004 compared with
47 days at December 31, 2003.



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The average fixed interest term for interest-bearing liabilities amounted to 72 days at December 31, 2004 compared with
74 days at December 31, 2003. The average rate of interest on the Groups interest-bearing liabilities was 4.4 percent at December 31, 2004 compared with 4.7 percent at December 31, 2003. The Company had interest rate swaps with an estimated
value of SEK 225 million as of December 31, 2004.



If there
were an instantaneous 1 percent (100 basis points) increase in interest rates of all currencies from their levels at December 31, 2004, with all other variables held constant, Swedish Matchs pre-tax income over a 12 month period would decrease
by SEK 9 million compared with a decrease of SEK 20 million as of December 31, 2003. It should be noted that the assumptions upon which this sensitivity analysis is based rarely occur in reality. Actual interest rates rarely move instantaneously.
Also, the sensitivity analysis assumes a parallel shift of the yield curve and that both assets and liabilities react correspondingly to changes in market interest rates. Further, the analysis does not take into account the time which elapses before
a lasting change in interest rates has an impact on net interest expense, due to the set terms during which fixed interest rates are payable on the loans or the investments discussed above. In addition, the sensitivity analysis is based on the net
debt outstanding as of December 31, 2004 and 2003 respectively, and does not take into account movements in the net debt during 2005 and 2004 respectively. The impact from actual interest rate movements may thus differ from the analysis above.



The above discussion and the estimated amounts generated from
the sensitivity analyses referred to above include forward looking statements of market risk which assume for analytical purposes that certain market conditions may occur. Actual future market conditions may differ materially from such assumptions
because the amounts noted previously are the result of analyses used for the purpose of assessing possible risks and the mitigation thereof. Accordingly, the forward-looking statements should not be considered projections by Swedish Match of future
events or losses.



ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES



Not applicable.



PART II



ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES



None.



ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS



None.



ITEM 15. DISCLOSURE CONTROL AND PROCEDURES



Disclosure Controls and Procedures



The Companys principal executive officer and its principal financial officer, after evaluating the effectiveness of the Companys disclosure controls and procedures (as defined in U.S. Securities Exchange
Act of 1934 Rule 13a-15(e)) as of the end of the period covered by this Form 20-F (the Annual Report), have concluded that, as of such date, the Companys disclosure controls and procedures were effective.



Internal Control Over Financial Reporting



There were no changes in the Companys internal control over financial
reporting that occurred during the year ended December 31, 2004 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting. The Company is currently in the process of
reviewing and implementing additional measures relating to its internal control procedures over financial reporting in preparation for the additional requirements of the rules adopted under Section 404 of the Sarbanes-Oxley Act of 2002.



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ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT



The Board of Directors has determined that Jan Blomberg qualifies as an audit committee financial expert as defined in Item 16A of Form 20-F. Jan Blomberg and each of the other members of the Audit
Committee is an independent director as defined in Nasdaq Rule 4200.



ITEM 16B. CODE OF BUSINESS CONDUCT AND ETHICS



The Company has adopted a Code of Business Conduct and Ethics that applies to the Companys senior management, including the Chief Executive Officer and Chief Financial Officer. The Code of Business Conduct and
Ethics is filed as Exhibit hereto. Copies of the Code of Business Conduct and Ethics will be provided upon request without charge to any party or person so requesting.



ITEM 16C. ACCOUNTANTS FEES AND SERVICES



KPMG Bohlins AB has served as the Companys independent public accountant for the financial year ended December 31, 2004 and Öhrlings PricewaterhouseCoopers has served as the Companys independent
public accountants for the financial years ended December 31, 2003 and 2002 for which audited financial statements appear in this annual report on Form 20-F. KPMG has been elected to audit the four years ending December 31, 2004  December 31,
2007.



The following table presents the aggregate fees for
professional services and other services rendered by KPMG Bohlins AB in 2004 and Öhrlings PricewaterhouseCoopers to the Company in 2003.



Accountants fees



|                       |  |      |  |     
|---------------------- |  | ---- |  | ----
|(SEK in millions)      |  | 2004 |  | 2003
|Audit Fees (1)         |  | 13   |  | 13  
|Audit-related Fees (2) |  | 0    |  | 2   
|Tax Fees (3)           |  | 0    |  | 4   
|All Other Fees (4)     |  | 0    |  | 1   
|                       |  |     
|Total                  |  | 13   |  | 20  



In
addition to the fees set out in the table above, the Company paid auditing fees to auditing firms other than PricewaterhouseCoopers in an amount of SEK 1 million in 2003 and other auditing firms other than KPMG in 2004 in an amount of SEK 3 million.



---

|(1) | Audit Fees consist of fees billed for the annual audit services engagement and other audit services, which are those services that only the external auditor reasonably can provide,
and include the Companys audit; statutory audits; comfort letters and consents; attest services; and assistance with and review of documents filed with the SEC.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Audit-related Fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the Companys financial
statements or that are traditionally performed by the external auditor, and include consultations concerning financial accounting and reporting standards; internal control reviews of new systems, programs and projects; review of security controls
and operational effectiveness of systems; review of plans and controls for shared service centers; due diligence related to acquisitions; accounting assistance and audits in connection with proposed or completed acquisitions; and employee benefit
plan audits.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(3) | Tax Fees include fees billed for tax compliance services, including the preparation of original and amended tax returns and claims for refund; tax consultations, such as assistance
and representation in connection with tax audits and appeals, tax advice related to mergers and acquisitions, transfer pricing, and requests for rulings or technical advice from taxing authorities; tax planning services; and expatriate tax planning
and services.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | All Other Fees include fees billed for training; forensic accounting; data security reviews; treasury control reviews and process improvement and advice; and environmental,
sustainability and corporate social responsibility advisory services.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Audit Committee Pre-approval Policies and Procedures



The Audit Committee has established pre-approval policies and procedures for non-audit services performed by the external auditors. Under these policies and procedures, proposed audit-related, tax and other non-audit
services, may be pre-approved by the Audit Committee without consideration of specific case-by-case services, provided that the fee for a specific project or service does not exceed USD 50,000 (general pre-approval) and provided the
proposed project or service comes within those specifically enumerated in the pre-approval policies and procedures. If the Company or one of its affiliates determines that it would like to engage the external auditors to perform a service not
subject to general pre-approval or a service where the fee may exceed USD 50,000, the affiliate should submit their request to the Chief Financial Officer, and if the service fits within the independence guidelines, the Chief Financial Officer will
arrange for a discussion of the service to be included on the agenda for the next regularly scheduled Audit Committee meeting so that specific approval can be obtained. If the timing of the project is important and the project needs to commence
before the regularly scheduled meeting, the specific pre-approval by the Chairman of the Audit Committee must be obtained before any services are provided.



ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES



Not applicable.



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ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS



|                         |  |                                    |  |                             |  |                                                                              |  |                                                                              
|------------------------ |  | ---------------------------------- |  | --------------------------- |  | ---------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------
|Period                   |  | Total Number ofShares Purchased(1) |  | Average Price Paidper Share |  | Total Number ofShares Purchasedas Part of PubliclyAnnounced Plansor Programs |  | Maximum Numberof Shares that MayYet Be PurchasedUnder the Plans orPrograms(2)
|2004-01-01 to 2004-01-31 |  | 0                                  |  | 0                           |  | 0                                                                            |  | 11,896,618                                                                   
|2004-02-01 to 2004-02-29 |  | 0                                  |  | 0                           |  | 0                                                                            |  | 11,896,618                                                                   
|2004-03-01 to 2004-03-31 |  | 1,466,500                          |  | SEK 72.38                   |  | 1,466,500                                                                    |  | 12,013,440                                                                   
|2004-04-01 to 2004-04-30 |  | 0                                  |  | 0                           |  | 0                                                                            |  | 12,032,566                                                                   
|2004-05-01 to 2004-05-31 |  | 0                                  |  | 0                           |  | 0                                                                            |  | 12,032,566                                                                   
|2004-06-01 to 2004-06-30 |  | 1,000,000                          |  | SEK 77.82                   |  | 1,000,000                                                                    |  | 11,032,566                                                                   
|2004-07-01 to 2004-07-31 |  | 2,506,500                          |  | SEK 74.27                   |  | 2,506,500                                                                    |  | 8,526,066                                                                    
|2004-08-01 to 2004-08-31 |  | 1,340,500                          |  | SEK 74.54                   |  | 1,340,500                                                                    |  | 7,185,566                                                                    
|2004-09-01 to 2004-09-30 |  | 2,521,448                          |  | SEK 74.70                   |  | 2,521,448                                                                    |  | 4,664,118                                                                    
|2004-10-01 to 2004-10-31 |  | 0                                  |  | 0                           |  | 0                                                                            |  | 18,543,745                                                                   
|2004-11-01 to 2004-11-30 |  | 0                                  |  | 0                           |  | 0                                                                            |  | 18,580,745                                                                   
|2004-12-01 to 2004-12-31 |  | 0                                  |  | 0                           |  | 0                                                                            |  | 18,580,330                                                                   
|                         |  |                                    |  |                             |  |                                                                              |  |                                                                              
|Total                    |  | 8,834,948                          |  | SEK 74.52                   |  | 8,834,948                                                                    |  |                                                                              

---

|(1) | Each year, Swedish Matchs board of directors receives shareholder authorization at the annual general meeting to repurchase an amount of shares in the open market not to
exceed 10% of its issued and outstanding shares (as permitted under the Swedish Companies Act). Such authorization is valid until the following years annual general meeting. At the 2003 annual general meeting held on April 25, 2003, Swedish
Matchs shareholders authorized such repurchase which expired at the 2004 annual general meeting on April 26, 2004. The repurchase of Swedish Matchs shares was re-authorized expired at the 2004 annual general meeting and at the 2005
annual meeting held on April 27, 2005.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The number of shares that may yet be purchased is equal to 10 percent of the number of shares of the Company less what is held in treasury plus shares sold as holders of call
options exercise their right to buy shares from treasury shares. The increased number of shares in October 2004 pertains to the cancellation of 15 million treasury shares.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



66



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##### Table of Contents

PART III



ITEM 17. FINANCIAL STATEMENTS



The following financial statements are filed as part of this Annual Report on Form 20-F.



|                                                                                                               |  |     
|-------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                               |  | Page
|Report of Independent Registered Public Accounting Firm, KPMG Bohlins AB                                       |  | F-2 
|Report of Independent Registered Public Accounting Firm, Öhrlings PricewaterhouseCoopers                       |  | F-3 
|                                                                                                               | 
|Consolidated Financial Statements:                                                                             |  |     
|Consolidated Statements of Income for the Years Ended December 31, 2002, 2003 and 2004                         |  | F-4 
|                                                                                                               | 
|Consolidated Balance Sheets as of December 31, 2003 and 2004                                                   |  | F-5 
|                                                                                                               | 
|Consolidated Statement of Changes in Shareholders equity for the Years Ended December 31, 2002, 2003 and 2004 |  | F-7 
|                                                                                                               | 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2003 and 2004                     |  | F-8 
|                                                                                                               | 
|Notes to Consolidated Financial Statements                                                                     |  | F-9 



ITEM 18. FINANCIAL STATEMENTS



Not applicable.



ITEM 19. EXHIBITS

|     |  |                                                                                                                                                                                                                                                                                            
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|1.1  |  | Articles of Association of the Registrant as amended to date (in English translation).                                                                                                                                                                                                     
|     | 
|8.1  |  | For a list of our material subsidiaries, see Item 4.C. Organizational Structure.                                                                                                                                                                                                         
|     | 
|11.1 |  | Code of Business Conduct and Ethics (filed as Exhibit 11.1 to Swedish Match ABs annual report on Form 20-F for the year ended December 31, 2003 (File No. 0-28038) and incorporated by
reference hereto).                                                                                 
|     | 
|12.1 |  | Certification of Sven Hindrikes, President and Chief Executive Officer of Swedish Match AB (publ) pursuant to Rule 13a  14(a) under the Exchange Act-.                                                                                                                                    
|     | 
|12.2 |  | Certification of Lars Dahlgren, Chief Financial Officer of Swedish Match AB (publ) pursuant to Rule 13a  14(a) under the Exchange Act-.                                                                                                                                                   
|     | 
|13.1 |  | Certification of Sven Hindrikes President and Chief Executive Officer of Swedish Match AB (publ) and Lars Dahlgren Chief Financial Officer of Swedish Match AB (publ) pursuant to Rule 13a
 14(b) under the Exchange Act section 1350 of Chapter 63 of Title 18 of the United States Code.



67



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##### Table of Contents

SIGNATURES



Pursuant to the
requirements of Section 12 of the Securities Exchange Act of 1934, the registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this annual report to be signed on its behalf by the undersigned thereunto
duly authorized.



Swedish Match AB (publ)



|                     |  |        |  |                                      
|-------------------- |  | ------ |  | -------------------------------------
|Dated: June 22, 2005 |  | By:    |  | /s/ Sven Hindrikes                   
|                     |  | Name:  |  | Sven Hindrikes                       
|                     |  | Title: |  | President and Chief Executive Officer



68



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##### Table of Contents

Index to Consolidated Financial Statements



The Swedish Match Group



|                                                                                                               |  |     
|-------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                               |  | Page
|Report of Independent Registered Public Accounting Firm  KPMG Bohlins AB                                      |  | F-2 
|Report of Independent Registered Public Accounting Firm  Öhrlings PricewaterhouseCoopers AB                   |  | F-3 
|                                                                                                               | 
|Consolidated Financial Statements:                                                                             |  |     
|Consolidated Statements of Income for the Years Ended December 31, 2002, 2003 and 2004                         |  | F-4 
|                                                                                                               | 
|Consolidated Balance Sheets as of December 31, 2003 and 2004                                                   |  | F-5 
|                                                                                                               | 
|Consolidated Statement of Changes in Shareholders equity for the Years Ended December 31, 2002, 2003 and 2004 |  | F-7 
|                                                                                                               | 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2003 and 2004                     |  | F-8 
|                                                                                                               | 
|Notes to Consolidated Financial Statements                                                                     |  | F-9 





F-1



---

##### Table of Contents

Report of Independent Registered Public Accounting Firm



The Board of Directors and Shareholders

Swedish Match AB (publ)



We have audited the consolidated balance sheet of Swedish Match AB (publ) and subsidiaries as of December 31, 2004, and the related
consolidated statements of income, cash flows and changes in shareholders equity for the year then ended. These consolidated financial statements are the responsibility of the management of Swedish Match AB (publ). Our responsibility is to
express an opinion on these consolidated financial statements based on our audits.



We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
Swedish Match AB (publ) and subsidiaries as of December 31, 2004, and the result of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles in Sweden.



As discussed in Note 1 to the consolidated financial statements, effective January 1, 2004,
Swedish Match AB (publ). prospectively adopted the Swedish Financial Accounting Standards Councils Recommendation  RR 29 Employee benefits.



Generally accepted accounting principles in Sweden vary in certain significant respects from generally accepted accounting principles in the United States of America.
Information relating to the nature and effect of such differences is summarized in Note 26 to the consolidated financial statements.



Stockholm, Sweden

March 3, 2005, except for the third and fourth paragraph

of note 28 for which the date is April 27, 2005



KPMG Bohlins AB



/s/ Thomas Thiel

---

Thomas Thiel

Authorized Public Accountant



F-2



---

##### Table of Contents

Report of Independent Accountants



To the Board of
Directors and Shareholders of Swedish Match AB



We have audited the
accompanying consolidated balance sheets of Swedish Match AB and its subsidiaries as of December 31, 2003, and the related consolidated statements of income, cash flows and changes in shareholders equity for each of the two years in the period
ended December 31, 2003. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Swedish Match AB and its subsidiaries at December 31, 2003, and the results of their operations and
their cash flows for each of the two years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in Sweden.



Accounting principles generally accepted in Sweden vary in certain significant respects from accounting principles generally accepted in the United States of America.
Information relating to the nature and effect of such differences is presented in Note 26 to the consolidated financial statements.



|                                  
|----------------------------------
|Stockholm, Sweden                 
|March 3, 2004                     
|                                  
|/s/ Åke Danielsson                
|Åke Danielsson                    
|Authorized Public Accountant      
|Öhrlings PricewaterhouseCoopers AB





F-3



---

##### Table of Contents

The Swedish Match Group

Consolidated Statements of Income

for the years ended December 31, 2002, 2003 and 2004



|                                                             |  |             |   |  |             |   |  |             |   |  |                      |  
|------------------------------------------------------------ |  | ----------- | - |  | ----------- | - |  | ----------- | - |  | -------------------- | -
|In millions                                                  |  | 2002 SEK    |   |  | 2003 SEK    |   |  | 2004 SEK    |   |  | 20041) USD Unaudited |  
|Net sales, including tobacco tax                             |  | 22,599      |   |  | 21,841      |   |  | 21,705      |   |  | 3,255                |  
|Less tobacco tax                                             |  | (8,956      | ) |  | (8,805      | ) |  | (8,698      | ) |  | (1,304               | )
|Net sales                                                    |  | 13,643      |   |  | 13,036      |   |  | 13,007      |   |  | 1,950                |  
|Cost of goods sold                                           |  | (7,451      | ) |  | (7,103      | ) |  | (7,262      | ) |  | (1,089               | )
|                                                             |  |             |   |  |             |   |  |             |   |  |                      |  
|Gross profit                                                 |  | 6,192       |   |  | 5,933       |   |  | 5,745       |   |  | 861                  |  
|                                                             |  |             |   | 
|Selling expenses (Note 2)                                    |  | (2,362      | ) |  | (2,258      | ) |  | (2,238      | ) |  | (336                 | )
|Administrative expenses (Note 2)                             |  | (1,520      | ) |  | (1,475      | ) |  | (1,678      | ) |  | (252                 | )
|Other operating income (Note 3)                              |  | 52          |   |  | 23          |   |  | 24          |   |  | 4                    |  
|Other operating expenses (Note 3)                            |  | (13         | ) |  | (19         | ) |  | (5          | ) |  | (1                   | )
|Share of earnings in associated companies                    |  | 22          |   |  | 20          |   |  | 1           |   |  | 0                    |  
|Settlement income UST (Note 4)                               |  |            |   |  |            |   |  | 1,521       |   |  | 228                  |  
|                                                             |  |             |   |  |             |   |  |             |   |  |                      |  
|Operating income                                             |  | 2,371       |   |  | 2,224       |   |  | 3,370       |   |  | 505                  |  
|Interest income                                              |  | 108         |   |  | 229         |   |  | 103         |   |  | 15                   |  
|Interest expense                                             |  | (337        | ) |  | (283        | ) |  | (266        | ) |  | (40                  | )
|Exchange rate differences and other fin. items (Note 5)      |  | (16         | ) |  | 4           |   |  | (1          | ) |  | (0                   | )
|                                                             |  |             |   |  |             |   |  |             |   |  |                      |  
|Income after financial items                                 |  | 2,126       |   |  | 2,174       |   |  | 3,206       |   |  | 481                  |  
|Taxes (Note 6)                                               |  | (648        | ) |  | (572        | ) |  | (1,314      | ) |  | (197                 | )
|Minority interests                                           |  | (49         | ) |  | (44         | ) |  | (64         | ) |  | (10                  | )
|                                                             |  |             |   |  |             |   |  |             |   |  |                      |  
|NET INCOME                                                   |  | 1,429       |   |  | 1,558       |   |  | 1,828       |   |  | 274                  |  
|                                                             |  |             |   |  |             |   |  |             |   |  |                      |  
|Average number of shares outstanding during period, basic    |  | 348,295,163 |   |  | 332,679,210 |   |  | 325,708,645 |   |  | 325,708,645          |  
|Average number of shares outstanding during period, diluted* |  | 350,894,438 |   |  | 334,162,492 |   |  | 327,013,542 |   |  | 327,013,542          |  
|                                                             |  |             |   | 
|Earnings per share, basic, SEK                               |  | 4.10        |   |  | 4.68        |   |  | 5.61        |   |  | 0.84                 |  
|Earnings per share, diluted, SEK                             |  | 4.07        |   |  | 4.66        |   |  | 5.59        |   |  | 0.84                 |  

---

|* | Dilution attributable to the effect of options issued.
|- | ------------------------------------------------------

|1) | Translation of amounts from Swedish kronor (SEK) into US dollars (USD) has been made solely for the convenience of the reader at the Federal Reserve Bank of New York Noon Buying
Rate on December 31, 2004 of USD 1.00 = SEK 6.6687. The Noon Buying Rate on June 17, 2005, was USD 1.00 = SEK 7.5270.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



See Notes to Consolidated Financial Statements.



F-4



---

##### Table of Contents

The Swedish Match Group

Consolidated Balance Sheets

as of December 31, 2003 and 2004



|                                    |  |          |  |          |  |                     
|----------------------------------- |  | -------- |  | -------- |  | --------------------
|In millions                         |  | 2003 SEK |  | 2004 SEK |  | 20041) USD Unaudited
|ASSETS                              |  |          |  |          |  |                     
|Fixed assets                        |  |          |  |          |  |                     
|Intangible assets (Note 7)          |  | 3,648    |  | 3,285    |  | 493                 
|Tangible assets (Note 8)            |  | 2,862    |  | 2,690    |  | 403                 
|Financial assets                    |  |          |  |          |  |                     
|Shares and participations (Note 9)  |  | 145      |  | 135      |  | 20                  
|Deferred tax assets (Note 6, 10)    |  | 245      |  | 397      |  | 60                  
|Long-term receivables (Note 11)     |  | 226      |  | 228      |  | 34                  
|                                    |  |          |  |          |  |                     
|Total fixed assets                  |  | 7,126    |  | 6,735    |  | 1,010               
|                                    |  |          | 
|Current assets                      |  |          |  |          |  |                     
|Inventories (Note 12)               |  | 2,676    |  | 2,476    |  | 371                 
|Current operating receivables       |  |          |  |          |  |                     
|Trade receivables (Note 13)         |  | 1,880    |  | 1,662    |  | 249                 
|Other receivables                   |  | 562      |  | 561      |  | 84                  
|Prepaid expenses and accrued income |  | 192      |  | 185      |  | 28                  
|Liquid funds                        |  |          |  |          |  |                     
|Short-term investments (Note 14)    |  | 1,169    |  | 1,815    |  | 272                 
|Cash and bank (Note 14)             |  | 1,497    |  | 1,187    |  | 178                 
|Total liquid funds                  |  | 2,666    |  | 3,002    |  | 450                 
|                                    |  |          |  |          |  |                     
|Total current assets                |  | 7,976    |  | 7,886    |  | 1,183               
|                                    |  |          | 
|TOTAL ASSETS                        |  | 15,102   |  | 14,621   |  | 2,192               
|                                    |  |          |  |          |  |                     

---

|1) | Translation of amounts from Swedish kronor (SEK) into US dollars (USD) has been made solely for the convenience of the reader at the Federal Reserve Bank of New York Noon Buying
Rate on December 31, 2004 of USD 1.00 = SEK 6.6687. The Noon Buying Rate on June 17, 2005, was USD 1.00 = SEK 7.5270.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



See Notes to Consolidated Financial Statements.



F-5



---

##### Table of Contents

The Swedish Match Group

Consolidated Balance Sheets

as of December 31, 2003 and 2004



|                                                              |  |          |   |  |          |   |  |                      |  
|------------------------------------------------------------- |  | -------- | - |  | -------- | - |  | -------------------- | -
|In millions                                                   |  | 2003 SEK |   |  | 2004 SEK |   |  | 20041) USD Unaudited |  
|SHAREHOLDERS EQUITY AND LIABILITIES                          |  |          |   |  |          |   |  |                      |  
|Shareholders equity (Note 15)                                |  |          |   |  |          |   |  |                      |  
|Restricted equity                                             |  |          |   |  |          |   |  |                      |  
|Share capital                                                 |  | 844      |   |  | 808      |   |  | 121                  |  
|Restricted reserves                                           |  | 2,006    |   |  | 2,053    |   |  | 308                  |  
|Unrestricted equity                                           |  |          |   |  |          |   |  |                      |  
|Unrestricted reserves                                         |  | (398     | ) |  | (331     | ) |  | (50                  | )
|Net income for the year                                       |  | 1,558    |   |  | 1,828    |   |  | 274                  |  
|                                                              |  |          |   |  |          |   |  |                      |  
|Total shareholders equity                                    |  | 4,010    |   |  | 4,358    |   |  | 654                  |  
|                                                              |  |          |  
|Minority interests                                            |  | 597      |   |  | 473      |   |  | 71                   |  
|                                                              |  |          |  
|Provisions                                                    |  |          |   |  |          |   |  |                      |  
|Provisions for pensions and similar commitments (Note 16)     |  | 372      |   |  | 739      |   |  | 111                  |  
|Provisions for taxation (Note 6)                              |  | 1,083    |   |  | 1,195    |   |  | 179                  |  
|Other provisions (Note 17)                                    |  | 664      |   |  | 1,177    |   |  | 176                  |  
|                                                              |  |          |   |  |          |   |  |                      |  
|Total provisions                                              |  | 2,119    |   |  | 3,111    |   |  | 467                  |  
|                                                              |  |          |  
|Long-term liabilities                                         |  |          |   |  |          |   |  |                      |  
|Interest-bearing bond loans (Note 18)                         |  | 4,508    |   |  | 2,557    |   |  | 383                  |  
|Interest-bearing liabilities to credit institutions (Note 18) |  | 27       |   |  | 2        |   |  | 0                    |  
|Other long-term liabilities                                   |  | 66       |   |  | 21       |   |  | 3                    |  
|                                                              |  |          |   |  |          |   |  |                      |  
|Total long-term liabilities                                   |  | 4,601    |   |  | 2,580    |   |  | 387                  |  
|                                                              |  |          |  
|Current liabilities                                           |  |          |   |  |          |   |  |                      |  
|Interest-bearing liabilities to credit institutions (Note 18) |  | 846      |   |  | 970      |   |  | 145                  |  
|Accounts payable                                              |  | 719      |   |  | 708      |   |  | 106                  |  
|Tax liability                                                 |  | 91       |   |  | 168      |   |  | 25                   |  
|Other current liabilities (Note 19)                           |  | 1,329    |   |  | 1,408    |   |  | 211                  |  
|Accrued expenses and deferred income (Note 20)                |  | 790      |   |  | 845      |   |  | 127                  |  
|                                                              |  |          |   |  |          |   |  |                      |  
|Total current liabilities                                     |  | 3,775    |   |  | 4,099    |   |  | 615                  |  
|                                                              |  |          |   |  |          |   |  |                      |  
|TOTAL SHAREHOLDERS EQUITY AND LIABILITIES                    |  | 15,102   |   |  | 14,621   |   |  | 2,192                |  
|                                                              |  |          |   |  |          |   |  |                      |  
|Pledged assets (Note 21)                                      |  | 154      |   |  | 143      |   |  | 21                   |  
|Contingent liabilities (Note 22)                              |  | 441      |   |  | 411      |   |  | 62                   |  

---

|1) | Translation of amounts from Swedish kronor (SEK) into US dollars (USD) has been made solely for the convenience of the reader at the Federal Reserve Bank of New York Noon Buying
Rate on December 31, 2004 of USD 1.00 = SEK 6.6687. The Noon Buying Rate on June 17, 2005, was USD 1.00 = SEK 7.5270.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



See Notes to Consolidated Financial Statements.



F-6



---

##### Table of Contents

The Swedish Match Group

Consolidated Statement of Changes in Shareholders equity

for the years ended December 31, 2002, 2003 and 2004



|                                                                   |  |              |   |  |                    |   |  |                    |   |  |             |   |  |                             |  
|------------------------------------------------------------------ |  | ------------ | - |  | ------------------ | - |  | ------------------ | - |  | ----------- | - |  | --------------------------- | -
|In millions                                                        |  | Sharecapital |   |  | Restrictedreserves |   |  | Unrestrictedequity |   |  | Totalequity |   |  | Total equityUSD1) Unaudited |  
|Shareholders equity at December 31, 2001                          |  | 892          |   |  | 1,625              |   |  | 1,588              |   |  | 4,105       |   |  | 616                         |  
|                                                                   |  |              |   |  |                   
|Allocation to unrestricted reserves through cancellation of shares |  | (24          | ) |  |                    |   |  | 24                 |   |  |            |   |  |                            |  
|Transfers between restricted and unrestricted equity               |  |              |   |  | (50                | ) |  | 50                 |   |  |            |   |  |                            |  
|Dividend paid                                                      |  |              |   |  |                    |   |  | (508               | ) |  | (508        | ) |  | (76                         | )
|Repurchase of own shares                                           |  |              |   |  |                    |   |  | (552               | ) |  | (552        | ) |  | (83                         | )
|Translation differences for the year                               |  |              |   |  |                    |   |  | (467               | ) |  | (467        | ) |  | (70                         | )
|Net income                                                         |  |              |   |  |                    |   |  | 1,429              |   |  | 1,429       |   |  | 214                         |  
|                                                                   |  |              |   |  |                    |   |  |                    |   |  |             |   |  |                             |  
|Shareholders equity at December 31, 2002                          |  | 868          |   |  | 1,575              |   |  | 1,564              |   |  | 4,007       |   |  | 601                         |  
|                                                                   |  |              |   |  |                   
|Allocation to unrestricted reserves through cancellation of shares |  | (24          | ) |  |                    |   |  | 24                 |   |  |            |   |  |                            |  
|Transfers between restricted and unrestricted equity               |  |              |   |  | 431                |   |  | (431               | ) |  |            |   |  |                            |  
|Dividend paid                                                      |  |              |   |  |                    |   |  | (535               | ) |  | (535        | ) |  | (80                         | )
|Repurchase of own shares                                           |  |              |   |  |                    |   |  | (959               | ) |  | (959        | ) |  | (144                        | )
|Sale of own shares                                                 |  |              |   |  |                    |   |  | 55                 |   |  | 55          |   |  | 8                           |  
|Translation differences for the year                               |  |              |   |  |                    |   |  | (116               | ) |  | (116        | ) |  | (17                         | )
|Net income                                                         |  |              |   |  |                    |   |  | 1,558              |   |  | 1,558       |   |  | 234                         |  
|                                                                   |  |              |   |  |                    |   |  |                    |   |  |             |   |  |                             |  
|Shareholders equity at December 31, 2003                          |  | 844          |   |  | 2,006              |   |  | 1,160              |   |  | 4,010       |   |  | 601                         |  
|                                                                   |  |              |   |  |                   
|Effect due to changes in accounting principles                     |  |              |   |  |                    |   |  | (257               | ) |  | (257        | ) |  | (39                         | )
|Allocation to unrestricted reserves through cancellation of shares |  | (36          | ) |  |                    |   |  | 36                 |   |  |            |   |  |                            |  
|Transfers between restricted and unrestricted equity               |  |              |   |  | 47                 |   |  | (47                | ) |  |            |   |  |                            |  
|Dividend paid                                                      |  |              |   |  |                    |   |  | (558               | ) |  | (558        | ) |  | (84                         | )
|Repurchase of own shares                                           |  |              |   |  |                    |   |  | (658               | ) |  | (658        | ) |  | (99                         | )
|Sale of own shares                                                 |  |              |   |  |                    |   |  | 82                 |   |  | 82          |   |  | 12                          |  
|Translation differences for the year                               |  |              |   |  |                    |   |  | (89                | ) |  | (89         | ) |  | (13                         | )
|Net income                                                         |  |              |   |  |                    |   |  | 1,828              |   |  | 1,828       |   |  | 274                         |  
|                                                                   |  |              |   |  |                    |   |  |                    |   |  |             |   |  |                             |  
|Shareholders equity at December 31, 2004 (Note 15)                |  | 808          |   |  | 2,053              |   |  | 1,497              |   |  | 4,358       |   |  | 654                         |  
|                                                                   |  |              |   |  |                    |   |  |                    |   |  |             |   |  |                             |  

---

|1) | Translation of amounts from Swedish kronor (SEK) into US dollars (USD) has been made solely for the convenience of the reader at the Federal Reserve Bank of New York Noon Buying
Rate on December 31, 2004 of USD 1.00 = SEK 6.6687. The Noon Buying Rate on June 17, 2005, was USD 1.00 = SEK 7.5270.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



See Notes to Consolidated Financial Statements.



F-7



---

##### Table of Contents

2) The Swedish Match Group

Consolidated Statements of Cash Flows

for the years ended December 31, 2002, 2003 and 2004



|                                                               |  |          |   |  |          |   |  |          |   |  |                      |  
|-------------------------------------------------------------- |  | -------- | - |  | -------- | - |  | -------- | - |  | -------------------- | -
|In millions                                                    |  | 2002 SEK |   |  | 2003 SEK |   |  | 2004 SEK |   |  | 20041) USD Unaudited |  
|Operations                                                     |  |          |   |  |          |   |  |          |   |  |                      |  
|Income after financial items                                   |  | 2,126    |   |  | 2,174    |   |  | 3,206    |   |  | 481                  |  
|Depreciation and amortization                                  |  | 651      |   |  | 665      |   |  | 932      |   |  | 140                  |  
|Other                                                          |  | (53      | ) |  | 49       |   |  | (31      | ) |  | (5                   | )
|                                                               |  |          |   |  |          |   |  |          |   |  |                      |  
|                                                               |  | 2,724    |   |  | 2,888    |   |  | 4,107    |   |  | 616                  |  
|Taxes paid                                                     |  | (241     | ) |  | (515     | ) |  | (819     | ) |  | (123                 | )
|                                                               |  |          |   |  |          |   |  |          |   |  |                      |  
|Cash flow from operations before changes in operating capital  |  | 2,483    |   |  | 2,373    |   |  | 3,288    |   |  | 493                  |  
|                                                               |  |          |   | 
|Cash flow from changes in operating capital                    |  |          |   |  |          |   |  |          |   |  |                      |  
|Trade receivables                                              |  | 56       |   |  | (34      | ) |  | 151      |   |  | 23                   |  
|Inventories                                                    |  | 86       |   |  | 169      |   |  | 54       |   |  | 8                    |  
|Other assets                                                   |  | 1        |   |  | (32      | ) |  | (15      | ) |  | (2                   | )
|Accounts payable                                               |  | 0        |   |  | 38       |   |  | 6        |   |  | 1                    |  
|Accrued expenses and other current liabilities                 |  | (41      | ) |  | 124      |   |  | 142      |   |  | 21                   |  
|                                                               |  |          |   |  |          |   |  |          |   |  |                      |  
|Cash flow from operations                                      |  | 2,585    |   |  | 2,638    |   |  | 3,626    |   |  | 544                  |  
|                                                               |  |          |   | 
|Investment activities                                          |  |          |   |  |          |   |  |          |   |  |                      |  
|Investments in property, plant and equipment                   |  | (751     | ) |  | (551     | ) |  | (486     | ) |  | (73                  | )
|Sales of property, plant and equipment                         |  | 106      |   |  | 26       |   |  | 42       |   |  | 6                    |  
|Acquisition of subsidiaries and associated companies (Note 23) |  | (53      | ) |  | (78      | ) |  | (53      | ) |  | (8                   | )
|Acquisition of intangible assets                               |  | (18      | ) |  | (27      | ) |  | (34      | ) |  | (5                   | )
|Investment in other companies                                  |  |         |   |  |         |   |  | (10      | ) |  | (1                   | )
|Divestment of business operations (Note 23)                    |  |         |   |  |         |   |  | 117      |   |  | 18                   |  
|Change in financial receivables                                |  | (1       | ) |  | 5        |   |  | (47      | ) |  | (7                   | )
|                                                               |  |          |   |  |          |   |  |          |   |  |                      |  
|Cash flow from investment activities                           |  | (717     | ) |  | (625     | ) |  | (471     | ) |  | (71                  | )
|                                                               |  |          |   | 
|Financing activities                                           |  |          |   |  |          |   |  |          |   |  |                      |  
|Change in short-term loans                                     |  | (339     | ) |  | (35      | ) |  | 118      |   |  | 18                   |  
|Long-term loans                                                |  | 670      |   |  | 635      |   |  |         |   |  |                     |  
|Repayment of long-term loans                                   |  | (832     | ) |  | (731     | ) |  | (1,937   | ) |  | (290                 | )
|Dividends paid                                                 |  | (508     | ) |  | (535     | ) |  | (558     | ) |  | (84                  | )
|Dividend to minority in subsidiaries                           |  |         |   |  |         |   |  | (121     | ) |  | (18                  | )
|Repurchase of shares                                           |  | (499     | ) |  | (1,012   | ) |  | (658     | ) |  | (99                  | )
|Sale of shares                                                 |  |         |   |  | 55       |   |  | 82       |   |  | 12                   |  
|Realized effect of hedge of foreign exchange rates             |  | 264      |   |  | 296      |   |  | 295      |   |  | 44                   |  
|Other                                                          |  | (122     | ) |  |         |   |  |         |   |  |                     |  
|                                                               |  |          |   |  |          |   |  |          |   |  |                      |  
|Cash flow from financing activities                            |  | (1,366   | ) |  | (1,327   | ) |  | (2,779   | ) |  | (417                 | )
|                                                               |  |          |   | 
|Cash flow for the year                                         |  | 502      |   |  | 686      |   |  | 376      |   |  | 56                   |  
|                                                               |  |          |   | 
|Liquid funds at the beginning of the year                      |  | 1,606    |   |  | 2,016    |   |  | 2,666    |   |  | 400                  |  
|                                                               |  |          |   | 
|Translation differences attributable to liquid funds           |  | (92      | ) |  | (36      | ) |  | (40      | ) |  | (6                   | )
|                                                               |  |          |   |  |          |   |  |          |   |  |                      |  
|Liquid funds at the end of the year(Note 14)                   |  | 2,016    |   |  | 2,666    |   |  | 3,002    |   |  | 450                  |  
|                                                               |  |          |   |  |          |   |  |          |   |  |                      |  
|Supplementary information (Note 23)                            |  |          |   |  |          |   |  |          |   |  |                      |  

---

|1) | Translation of amounts from Swedish kronor (SEK) into US dollars (USD) has been made solely for the convenience of the reader at the Federal Reserve Bank of New York Noon Buying
Rate on December 31, 2004 of USD 1.00 = SEK 6.6687. The Noon Buying Rate on June 17, 2005, was USD 1.00 = SEK 7.5270.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



See Notes to Consolidated Financial Statements.



F-8



---

##### Table of Contents

1. Significant accounting policies



Business



Swedish Match is a Swedish-based international group that
produces a broad range of tobacco products, matches and disposable lighters. Tobacco products are sold primarily in the United States and Europe. Matches and disposable lighters are sold worldwide.



Basis of presentation



The consolidated financial statements of the Swedish Match Group have been prepared in accordance with accounting principles
generally accepted in Sweden. These accounting principles differ in certain respects from accounting principles generally accepted in the United States, as explained in Note 26.



Recently issued accounting pronouncements



As of January 1, 2004, Swedish Match changed the principles for reporting pensions, etc. to conform to the Financial Accounting Standards
Councils recommendation RR 29 Employee Benefits. One implication of this recommendation is that all deficits or surpluses in funded defined-benefit pension plans are to be reported in the consolidated balance sheet as liabilities or assets.
The transition to RR 29 as during the first quarter of 2004 resulted in an increased liability in the consolidated balance sheet of 257 MSEK, net after adjustment for deferred taxes, with a corresponding reduction in shareholders equity. In
accordance with the transition rules of the recommendation, previous years have not been recalculated.



Principles of consolidation



The consolidated financial statements include the Parent Company, all subsidiaries and associated companies. Subsidiaries are defined as companies in which Swedish Match holds shares vested with more than 50 percent of the votes or in which
Swedish Match has a decisive influence in some other way. Associated companies are defined as companies in which Swedish Match exercises a significant long-term influence without the jointly owned company being a subsidiary. This normally means that
the Group holds 20-50 percent of total voting rights. Holdings in associated companies are reported in accordance with the equity method. The Groups share of the reported income of associated companies is reported as a proportion of operating
income and income taxes.



All acquisitions of companies are
reported in accordance with the purchase method. Companies divested during the year are included in the consolidated financial statements up to the date of sale. Companies acquired during the year are included in the consolidated financial
statements from the date of acquisition.



Minority interests in
Swedish Matchs income are reported after income taxes.



Other shareholdings are reported at acquisition value; dividends received are reported as income.



Foreign currencies



Translation of
financial statements of foreign subsidiaries



The accounts
of foreign subsidiaries are translated to Swedish kronor using the current method. Balance sheets, accordingly, are translated at year-end exchange rates and income statements are translated at average exchange rates for the year. Translation
differences arising from translations of income statements and balance sheets are entered directly under equity.





F-9



---

##### Table of Contents

The exchange rates used for the Groups most significant currencies are shown in the table below.



|             |  |          |      |                                 |      |                              |      |      |      |      |      |      |      |     
|------------ |  | -------- | ---- | ------------------------------- | ---- | ---------------------------- | ---- | ---- | ---- | ---- | ---- | ---- | ---- | ----
|             |  | Currency |      | Average exchange rate Jan - Dec |      | Exchange rate at December 31
|Country      |  |          | 2002 |                                 | 2003 |                              | 2004 |      | 2002 |      | 2003 |      | 2004
|USA          |  | USD      |      | 9,72                            |      | 8,09                         |      | 7,35 |      | 8,78 |      | 7,25 |      | 6,61
|Euro         |  | EUR      |      | 9,16                            |      | 9,12                         |      | 9,13 |      | 9,15 |      | 9,07 |      | 9,00
|Brazil       |  | BRL      |      | 3,47                            |      | 2,64                         |      | 2,51 |      | 2,46 |      | 2,52 |      | 2,48
|South Africa |  | ZAR      |      | 0,92                            |      | 1,07                         |      | 1,14 |      | 1,02 |      | 1,10 |      | 1,17



Receivables and liabilities in
foreign currencies



Receivables and liabilities in foreign
currency are translated at the closing day rate, with the exception of hedged items, which are translated at the respective rate of the associated forward contract. Exchange gains and losses are reported in operating income to the extent they amount
to operating balance dealings and otherwise in net financial items.



Derivate Instruments



Currency forward contracts



The Group enters into forward exchange contracts in order to
hedge foreign currency risk associated with certain financial liabilities and anticipated but not yet committed sales and purchases denominated in foreign currencies. Forward exchange contracts entered to hedge future transactions are not recorded
until the respective transactions being hedged are recorded. Balances in foreign currencies which have been hedged are translated using the related forward contract rate with realized and unrealized gains and losses being recorded in income.



To some extent, Swedish Match hedges currency exposure to
investments in foreign net assets, including goodwill. Hedging is achieved by entering into forward exchange contracts that are valued at the closing day rate. Translation differences in hedging transactions are eliminated from the income statement
and, as with differences from the translation of net assets, are taken directly to shareholders equity in the balance sheet.



Interest-rate swaps



The Company uses interest-rate swaps to adjust the relationship between borrowing at fixed and variable interest rates. An interest swap involves the
exchange of fixed interest rates on a loan or investment for variable interest, or vice versa. Since interest swaps are linked to the underlying loan or investment in terms of the amount and maturity period, interest swaps are reported at amounts
corresponding to the accrued interest.



Currency swaps



The Company enters into currency swaps, with the intent of hedging currency
risks in borrowing in another currency than the local currency. A currency swap involves the exchange of payments of interest and amortization in one currency for payment of interest and amortization in another currency. Since the swap is linked to
the underlying loan with regard to the currency, amount and term, the swaps held are reported in the amount of the interest accrued as well as unrealized exchange-rate differences.



Revenue reporting



Revenue from the sale of goods is recognized when an agreement exists with the customer, delivery has taken place and all significant risks have been
transferred to the customer.



F-10



---

##### Table of Contents

Income taxes



Reported income taxes include tax to be paid or refunded with regard to the current year, adjustments concerning prior years taxes, changes in
deferred taxes, and shares in the taxes of associated companies. Valuation of all tax liabilities/receivables takes place in nominal amounts, and is performed in accordance with the tax rules and tax rates that have been enacted. In the case of
items reported in the income statement, related tax effects are also reported within the income statement. Tax effects of items that are entered directly against shareholders equity are recorded against shareholders equity. Deferred
taxes are calculated according to the liability method on all temporary differences that arise between the reported and taxation values of assets and liabilities. Deferred tax assets with regard to loss carryforwards or other future tax-related
deductions are reported to the extent that it is probable that the deduction can be offset against any surplus at time of future taxation. Due to the relationship between reporting and taxation, the Parent Company reports the deferred tax liability
on untaxed reserves as a part of the untaxed reserves.



Intangible fixed
assets



Intangible fixed assets are amortized on a
straight-line basis over 520 years. Goodwill in major subsidiaries with long-term documented operations, strong brands and good market positions, is amortized over 20 years. Acquired brands are amortized over 20 years if similar conditions
prevail.



If the book value of an asset is higher than the
expected recoverable value, the asset is written down to the latter value.



Tangible fixed assets



Tangible assets are
reported after deduction for accumulated depreciation according to plan and after any accumulated write-downs. Depreciation of property, machinery and equipment is based on the acquisition cost of the asset and its estimated useful life. Plant
buildings and related land improvements are generally depreciated over periods of 2050 years, while office properties are generally depreciated over 40-50 years. The estimated useful life for vehicles is normally 5 years and 515 years
for machinery and equipment.



New acquisitions and replacements
are capitalized, while repair and maintenance costs are expensed as incurred. When assets are sold or discarded, the acquisition cost is written off, and the associated accumulated depreciation and any gain or loss is entered in the income
statement. Any interest expenses are not added to the acquisition cost of the asset but are expensed as they arise. The straight-line depreciation method is used for all types of assets.



If the book value of an asset is higher than the expected recoverable value, the asset is written down to the latter value.



Inventories



Inventories are reported at the lower of cost or market and in all
significant respects in accordance with the FIFO (first-in, first-out) method after deductions for obsolescence. Unrealized inter-company gains are eliminated in their entirety.



Pensions



Pension liabilities are calculated in accordance with recommendation RR29, Employee Benefits, of the Swedish Financial Accounting Standards Council, which
is obligatory as of 2004. This complies with the prevailing international accounting recommendation (IAS 19, Employee benefits). This means that the pension liability is calculated on the basis of such factors as the expected future pay increase and
inflation.



Within the Group there are a number of
defined-contribution and defined-benefit pension plans, some of them with managed assets in special foundations or similar institutions. The pension plans are financed primarily by payments from the particular Group company and the employees.
Independent actuaries compute the magnitude of the commitments attached to each plan and reevaluate the pension plan assumptions each year.



F-11



---

##### Table of Contents

As regards defined-benefit plans, the pension expense is calculated using the Projected Unit Credit
Method in a manner that distributes the cost over the employees active working life. These assumptions are valued to their present value of the expected future disbursements using a discount rate that corresponds to the interest rate on first
class corporate bonds or government bonds with a remaining maturity that approximates the particular commitments. In the Swedish Match consolidated balance sheet, for funded plans, the pension commitments are reported in net form, after deductions
for the plans managed assets. Funded plans with net assets, that is, assets in excess of commitments, are reported as financial fixed assets. Actuarial gains and losses, outside a 10-percent corridor, are distributed over the employees
estimated average remaining employment period.



The
Groups payments for defined-contribution plans are reported as a cost during the period during which employees perform the services covered by the fees.



Leases



Leases of fixed assets, whereby the Group is essentially subject to the same risks and benefits as with direct ownership, are classified as finance
leases. Leases of assets where the lessor essentially retains ownership of the assets is classified as operating lease. Lease charges are charged to the income statement on a straight-line basis over the lease term.



Provisions



Provisions are defined as obligations that pertain to the fiscal year or previous fiscal years, and which, on the closing
day, are deemed certain or probable to occur, but for which the amounts or the time when they will be fulfilled are uncertain. In the balance sheet, pensions, deferred tax liabilities, restructuring reserves, guarantee commitments and similar items
are reported as provisions.



Research and development



The Group has ongoing costs for product development. The applicable
recommendation imposes stringent requirements as to when a product development project can be reported as an intangible asset in the balance sheet. In practice, these requirements resulted in all product development costs being expensed as they
occurred. Research costs are expensed continuously as they occur.



Segment
reporting



Swedish Matchs operations comprise seven
business segments: snuff, chewing tobacco, cigars, pipe tobacco and accessories, matches, lighters and other operations. Geographic areas constitute secondary segments and cover the following market regions: the Nordic region, Europe excluding the
Nordic region, North America and Rest of the World.



Use of estimates



The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.



F-12



---

##### Table of Contents

Convenience translation to US dollars



The Consolidated Financial Statements as of and for the year ended December 31, 2004 are also presented in US dollars. These
amounts are unaudited and presented solely for the convenience of the reader at the rate of USD 1.00 = SEK 6.6687, the Noon Buying Rate on December 31, 2004 of the US Federal Reserve Bank of New York. Such translations should not be construed as
representations that the Swedish kronor amounts represent, or have been or could be converted into, US dollars at that or any other rate. The Noon Buying Rate on June 17, 2005, was USD 1.00 = SEK 7.5270.



2. Selling and administrative expenses



Selling expenses include expenses for Research and Development and similar
expenses amounting to SEK 99, 100 and 113 million for the years ended December 31, 2002, 2003 and 2004 respectively.



Administrative expenses include costs for auditors fees in accordance with the table below:



|                                         |  |      |  |      |  |     
|---------------------------------------- |  | ---- |  | ---- |  | ----
|                                         |  | 2002 |  | 2003 |  | 2004
|Auditing assignments                     |  | 14   |  | 13   |  | 13  
|Other assignments                        |  | 8    |  | 7    |  | 0   
|                                         |  |      |  |      |  |     
|Total                                    |  | 22   |  | 20   |  | 13  
|Other accountants (auditing assignments) |  | 1    |  | 1    |  | 3   

---

|* | Swedish Matchs auditors during 2004 were KPMG, and 2003 and 2002 PriceWaterhouseCoopers.
|- | -----------------------------------------------------------------------------------------



3. Other operating income and other operating expenses



Included in other operating income are exchange rate gains of SEK 12, 12 and 6 million for the years ended December 31,
2002, 2003 and 2004 respectively.



Included in other operating
expenses are exchange rate losses of SEK 13, 19 and 5 million for the years ended December 31, 2002, 2003 and 2004 respectively.



4. Settlement income, UST



The amount pertains to income following settlement with UST, through which Swedish Match received USD 200 million and UST transferred its cigar operation
to Swedish Match.



5. Exchange rate differences and other financial items



|                         |  |      |   |  |      |  |      |  
|------------------------ |  | ---- | - |  | ---- |  | ---- | -
|                         |  | 2002 |   |  | 2003 |  | 2004 |  
|Exchange rate difference |  | 4    |   |  | 1    |  | 3    |  
|Other financial items    |  | (20  | ) |  | 3    |  | (4   | )
|                         |  |      |   |  |      |  |      |  
|Total                    |  | (16  | ) |  | 4    |  | (1   | )
|                         |  |      |   |  |      |  |      |  



6. Taxes



Income taxes in 2002, 2003 and 2004 were distributed as follows:



|                      |  |      |   |  |      |   |  |        |  
|--------------------- |  | ---- | - |  | ---- | - |  | ------ | -
|                      |  | 2002 |   |  | 2003 |   |  | 2004   |  
|Current income taxes  |  | (453 | ) |  | (524 | ) |  | (1,196 | )
|Deferred income taxes |  | (190 | ) |  | (30  | ) |  | (45    | )
|Other taxes           |  | (5   | ) |  | (18  | ) |  | (73    | )
|                      |  |      |   |  |      |   |  |        |  
|Total                 |  | (648 | ) |  | (572 | ) |  | (1,314 | )
|                      |  |      |   |  |      |   |  |        |  



F-13



---

##### Table of Contents

The tax effects of temporary differences which resulted in assets and liabilities in the form of deferred
tax for the years as of December 31, 2003 and 2004 are summarized below.



|                                      |  |        |   |  |        |  
|------------------------------------- |  | ------ | - |  | ------ | -
|                                      |  | 2003   |   |  | 2004   |  
|Loss carryforwards                    |  | 268    |   |  | 96     |  
|Reserve for doubtful receivables      |  | 6      |   |  | 11     |  
|Restructuring reserves                |  | 34     |   |  | 13     |  
|Pension and healthcare benefits       |  | 79     |   |  | 247    |  
|Tax allocation reserves               |  | (397   | ) |  | (421   | )
|Depreciation in excess of plan        |  | (417   | ) |  | (417   | )
|Inventory reserves                    |  | (60    | ) |  | (36    | )
|Other                                 |  | (215   | ) |  | (167   | )
|Valuation reserves                    |  | (136   | ) |  | (125   | )
|                                      |  |        |   |  |        |  
|Net deferred income tax liabilities   |  | (838   | ) |  | (799   | )
|                                      |  |        |   |  |        |  
|Classified per balance sheet category |  |        |   |  |        |  
|Deferred tax assets                   |  | 245    |   |  | 397    |  
|Less tax provisions                   |  | (1,083 | ) |  | (1,196 | )
|                                      |  |        |   |  |        |  
|Net deferred income tax liabilities   |  | (838   | ) |  | (799   | )
|                                      |  |        |   |  |        |  



The valuation reserve
amounting to SEK 125 million pertains to loss carryforwards not assigned value in the amount of SEK 82 million and other temporary deductible differences not assigned value in the amount of SEK 43 million.



At December 31, 2004 the Group had deductible loss carryforwards
corresponding to SEK 362 million.



The Groups deductible
tax loss carryforwards expire as follows:



|                                        |  |       
|--------------------------------------- |  | ------
|Year                                    |  | Amount
|2005                                    |  | 75    
|2006                                    |  | 23    
|2007                                    |  | 14    
|2008                                    |  | 26    
|2009                                    |  | 18    
|2010                                    |  | 10    
|Thereafter                              |  | 196   
|                                        |  |       
|Total deductible tax loss carryforwards |  | 362   
|                                        |  |       



The Groups net
earnings were charged with tax of 30.5 percent in 2002, 26.4 percent in 2003 and 41.0 percent in 2004. The difference between the Groups tax expense and application of the statutory tax rate in Sweden of 28.0 percent is attributable to the
items shown in the following table:



|                                        |  |      |   |  |      |   |  |      |  
|--------------------------------------- |  | ---- | - |  | ---- | - |  | ---- | -
|                                        |  | 2002 |   |  | 2003 |   |  | 2004 |  
|Swedish tax rate                        |  | 28.0 |   |  | 28.0 |   |  | 28.0 |  
|Adjustments for foreign tax rates       |  | 2.2  |   |  | 1.1  |   |  | 8.2  |  
|Losses that could not be utilized       |  | 0.7  |   |  | 1.4  |   |  | 0.8  |  
|Non-taxable items                       |  | (2.4 | ) |  | (2.3 | ) |  | (1.9 | )
|Non-deductible amortization on goodwill |  | 2.0  |   |  | 2.1  |   |  | 1.3  |  
|Adjustments for taxes in prior years    |  | (1.2 | ) |  | (3.6 | ) |  | 0.1  |  
|Non-deductible expenses                 |  | 2.3  |   |  | 0.7  |   |  | 4.3  |  
|Other items                             |  | (1.1 | ) |  | (1.0 | ) |  | 0.2  |  
|                                        |  |      |   |  |      |   |  |      |  
|Total                                   |  | 30.5 |   |  | 26.4 |   |  | 41.0 |  
|                                        |  |      |   |  |      |   |  |      |  



The tax rate for 2004
was adversely affected by major one time items, while major one time items had positive effect on the tax rate for 2003. The major one time item in 2004 was the settlement income from UST, the tax effect with respect to which is included in the
adjustment for foreign tax rates above.





F-14



---

##### Table of Contents

7. Intangible fixed assets



Intangible assets as of December 31 included the following:



|                                              |  |            |   |  |          |   |  |                         |   |  |        |   |  |      |   |  |      |   |  |        |   |  |        |  
|--------------------------------------------- |  | ---------- | - |  | -------- | - |  | ----------------------- | - |  | ------ | - |  | ---- | - |  | ---- | - |  | ------ | - |  | ------ | -
|                                              |  | Trademarks |   |  | Goodwill |   |  | Other intangiblesassets |   |  | Total  |  
|                                              |  | 2003       |   |  | 2004     |   |  | 2003                    |   |  | 2004   |   |  | 2003 |   |  | 2004 |   |  | 2003   |   |  | 2004   |  
|Acquisition value brought forward             |  | 2,053      |   |  | 2,026    |   |  | 3,783                   |   |  | 3,447  |   |  | 79   |   |  | 120  |   |  | 5,915  |   |  | 5,593  |  
|Purchases/Investments                         |  |           |   |  |         |   |  |                        |   |  |       |   |  | 27   |   |  | 34   |   |  | 27     |   |  | 34     |  
|Companies acquired                            |  |           |   |  | 4        |   |  | 54                      |   |  | 44     |   |  |     |   |  |     |   |  | 54     |   |  | 48     |  
|Sales/disposals                               |  |           |   |  |         |   |  |                        |   |  |       |   |  |     |   |  | (1   | ) |  |       |   |  | (1     | )
|Reclassifications                             |  |           |   |  |         |   |  |                        |   |  | 4      |   |  | 18   |   |  | (3   | ) |  | 18     |   |  | 1      |  
|Exchange differences, etc.                    |  | (27        | ) |  | 1        |   |  | (390                    | ) |  | (145   | ) |  | (4   | ) |  | (1   | ) |  | (421   | ) |  | (145   | )
|                                              |  |            |   |  |          |   |  |                         |   |  |        |   |  |      |   |  |      |   |  |        |   |  |        |  
|Accumulated acquisition value carried forward |  | 2,026      |   |  | 2,031    |   |  | 3,447                   |   |  | 3,350  |   |  | 120  |   |  | 149  |   |  | 5,593  |   |  | 5,530  |  
|Amortization brought forward                  |  | (405       | ) |  | (495     | ) |  | (1,338                  | ) |  | (1,401 | ) |  | (27  | ) |  | (49  | ) |  | (1,770 | ) |  | (1,945 | )
|Amortization for the year                     |  | (100       | ) |  | (136     | ) |  | (212                    | ) |  | (175   | ) |  | (7   | ) |  | (11  | ) |  | (319   | ) |  | (322   | )
|Sales/disposals                               |  |           |   |  |         |   |  |                        |   |  |       |   |  |     |   |  | 1    |   |  |       |   |  | 1      |  
|Reclassifications                             |  |           |   |  |         |   |  |                        |   |  | 0      |   |  |     |   |  | (1   | ) |  |       |   |  | (1     | )
|Exchange differences                          |  | 10         |   |  | 4        |   |  | 149                     |   |  | 71     |   |  | (15  | ) |  | 1    |   |  | 144    |   |  | 76     |  
|                                              |  |            |   |  |          |   |  |                         |   |  |        |   |  |      |   |  |      |   |  |        |   |  |        |  
|Accumulated amortization brought forward      |  | (495       | ) |  | (627     | ) |  | (1,401                  | ) |  | (1,505 | ) |  | (49  | ) |  | (59  | ) |  | (1,945 | ) |  | (2,191 | )
|Write-downs brought forward                   |  |           |   |  |         |   |  |                        |   |  |       |   |  |     |   |  |     |   |  |       |   |  |       |  
|Write-downs for the year                      |  |           |   |  |         |   |  |                        |   |  | (9     | ) |  |     |   |  | (46  | ) |  |       |   |  | (55    | )
|Reclassifications                             |  |           |   |  |         |   |  |                        |   |  | (2     | ) |  |     |   |  | 2    |   |  |       |   |  |       |  
|Exchange differences                          |  |           |   |  |         |   |  |                        |   |  |       |   |  |     |   |  | 1    |   |  |       |   |  | 1      |  
|                                              |  |            |   |  |          |   |  |                         |   |  |        |   |  |      |   |  |      |   |  |        |   |  |        |  
|Write-downs carried forward                   |  |           |   |  |         |   |  |                        |   |  | (11    | ) |  |     |   |  | (43  | ) |  |       |   |  | (54    | )
|                                              |  |            |   |  |          |   |  |                         |   |  |        |   |  |      |   |  |      |   |  |        |   |  |        |  
|Book value carried forward                    |  | 1,531      |   |  | 1,404    |   |  | 2,046                   |   |  | 1,834  |   |  | 71   |   |  | 47   |   |  | 3,648  |   |  | 3,285  |  
|                                              |  |            |   |  |          |   |  |                         |   |  |        |   |  |      |   |  |      |   |  |        |   |  |        |  



Amortization of
intangible fixed assets were charged against administrative expenses in the income statement.



As a result of restructuring and based on the earnings trend in certain areas, asset values were reviewed during 2004. Values in use were computed using a pre-tax discount rate of between 1016 percent, depending
on local risk and interest-rate levels, among other factors. Total write-downs of intangible assets of SEK 55 million were taken in 2004. These write-downs were charged to cost of goods sold in the income statement. The write-downs are not expected
to be deductible for tax purposes.



F-15



---

##### Table of Contents

8. Tangible fixed assets



Tangible fixed assets as of December 31 included the following:



|                                              |  |                   |   |  |                          |   |  |                                   |   |  |                         |   |  |       |   |  |      |   |  |      |   |  |      |   |  |        |   |  |        |  
|--------------------------------------------- |  | ----------------- | - |  | ------------------------ | - |  | --------------------------------- | - |  | ----------------------- | - |  | ----- | - |  | ---- | - |  | ---- | - |  | ---- | - |  | ------ | - |  | ------ | -
|                                              |  | Building andland* |   |  | Machinery and otherplant |   |  | Equipment, toolsand installations |   |  | Current newconstruction |   |  | Total |  
|                                              |  | 2003              |   |  | 2004                     |   |  | 2003                              |   |  | 2004                    |   |  | 2003  |   |  | 2004 |   |  | 2003 |   |  | 2004 |   |  | 2003   |   |  | 2004   |  
|Acquisition value brought forward             |  | 1,815             |   |  | 1,920                    |   |  | 3,011                             |   |  | 3,174                   |   |  | 439   |   |  | 524  |   |  | 599  |   |  | 143  |   |  | 5,864  |   |  | 5,761  |  
|Purchases/ Investments                        |  | 62                |   |  | 91                       |   |  | 274                               |   |  | 111                     |   |  | 53    |   |  | 95   |   |  | 162  |   |  | 189  |   |  | 551    |   |  | 486    |  
|Companies acquired                            |  | 3                 |   |  | 18                       |   |  |                                  |   |  | 3                       |   |  | 2     |   |  |     |   |  |     |   |  |     |   |  | 5      |   |  | 21     |  
|Sales/disposals                               |  | (17               | ) |  | (42                      | ) |  | (56                               | ) |  | (63                     | ) |  | (27   | ) |  | (29  | ) |  |     |   |  | (2   | ) |  | (100   | ) |  | (136   | )
|Reclassifications                             |  | 284               |   |  | 3                        |   |  | 225                               |   |  | 119                     |   |  | 62    |   |  | (36  | ) |  | (589 | ) |  | (87  | ) |  | (18    | ) |  | (1     | )
|Exchange differences                          |  | (227              | ) |  | (98                      | ) |  | (280                              | ) |  | (100                    | ) |  | (5    | ) |  | (16  | ) |  | (29  | ) |  | (20  | ) |  | (541   | ) |  | (234   | )
|                                              |  |                   |   |  |                          |   |  |                                   |   |  |                         |   |  |       |   |  |      |   |  |      |   |  |      |   |  |        |   |  |        |  
|Accumulated acquisition value carried forward |  | 1,920             |   |  | 1,892                    |   |  | 3,174                             |   |  | 3,244                   |   |  | 524   |   |  | 538  |   |  | 143  |   |  | 223  |   |  | 5,761  |   |  | 5,897  |  
|                                              |  |                   |   |  |                          |   |  |                                   |   |  |                         |   |  |       |   |  |      |   |  |      |   |  |      |   |  |        |   |  |        |  
|Depreciation brought forward                  |  | (690              | ) |  | (673                     | ) |  | (1,960                            | ) |  | (1,941                  | ) |  | (253  | ) |  | (279 | ) |  | (3   | ) |  | 11   |   |  | (2,906 | ) |  | (2,882 | )
|Depreciation for the year                     |  | (77               | ) |  | (46                      | ) |  | (214                              | ) |  | (228                    | ) |  | (55   | ) |  | (58  | ) |  |     |   |  |     |   |  | (346   | ) |  | (332   | )
|Companies acquired                            |  |                  |   |  |                         |   |  |                                  |   |  |                        |   |  | (1    | ) |  |     |   |  |     |   |  |     |   |  | (1     | ) |  |       |  
|Sales/disposals                               |  | 6                 |   |  | 24                       |   |  | 55                                |   |  | 60                      |   |  | 25    |   |  | 26   |   |  |     |   |  |     |   |  | 86     |   |  | 110    |  
|Reclassifications                             |  | (1                | ) |  |                         |   |  |                                  |   |  | (25                     | ) |  |      |   |  | 26   |   |  |     |   |  |     |   |  | (1     | ) |  | 1      |  
|Exchange differences                          |  | 89                |   |  | 41                       |   |  | 178                               |   |  | 61                      |   |  | 5     |   |  | 7    |   |  | 14   |   |  | 12   |   |  | 286    |   |  | 121    |  
|                                              |  |                   |   |  |                          |   |  |                                   |   |  |                         |   |  |       |   |  |      |   |  |      |   |  |      |   |  |        |   |  |        |  
|Accumulated depreciation carried forward      |  | (673              | ) |  | (654                     | ) |  | (1,941                            | ) |  | (2,073                  | ) |  | (279  | ) |  | (278 | ) |  | 11   |   |  | 23   |   |  | (2,882 | ) |  | (2,982 | )
|Write-downs brought forward                   |  | (13               | ) |  | (11                      | ) |  | (7                                | ) |  | (6                      | ) |  |      |   |  |     |   |  |     |   |  |     |   |  | (20    | ) |  | (17    | )
|Write-downs for the year                      |  |                  |   |  | (131                     | ) |  |                                  |   |  | (84                     | ) |  |      |   |  | (4   | ) |  |     |   |  | (1   | ) |  |       |   |  | (219   | )
|Sales/disposals                               |  |                  |   |  |                         |   |  |                                  |   |  | (6                      | ) |  |      |   |  |     |   |  |     |   |  |     |   |  |       |   |  | (6     | )
|Exchange differences                          |  | 2                 |   |  | 11                       |   |  | 1                                 |   |  | 6                       |   |  |      |   |  |     |   |  |     |   |  |     |   |  | 3      |   |  | 17     |  
|                                              |  |                   |   |  |                          |   |  |                                   |   |  |                         |   |  |       |   |  |      |   |  |      |   |  |      |   |  |        |   |  |        |  
|Accumulated write-downs carried forward       |  | (11               | ) |  | (131                     | ) |  | (6                                | ) |  | (90                     | ) |  |      |   |  | (4   | ) |  | 0    |   |  | (1   | ) |  | (17    | ) |  | (225   | )
|                                              |  |                   |   |  |                          |   |  |                                   |   |  |                         |   |  |       |   |  |      |   |  |      |   |  |      |   |  |        |   |  |        |  
|Book value carried forward                    |  | 1,236             |   |  | 1,107                    |   |  | 1,227                             |   |  | 1,081                   |   |  | 245   |   |  | 256  |   |  | 154  |   |  | 246  |   |  | 2,862  |   |  | 2,690  |  
|                                              |  |                   |   |  |                          |   |  |                                   |   |  |                         |   |  |       |   |  |      |   |  |      |   |  |      |   |  |        |   |  |        |  

---

|* | Buildings and land includes land at a book value of SEK 361 million as of December 31, 2003 and SEK 329 million as of December 31, 2004.
|- | ----------------------------------------------------------------------------------------------------------------------------------------



At fiscal year-end, the Company has commitments to acquire tangible fixed assets at a value
of SEK 4 million. Based on the earnings trend in certain areas, asset values were reviewed during 2004. Values in use were computed using a pre-tax discount rate between 10-16 percent, depending on local risk and interest-rate levels, among other
factors, write-downs of tangible assets of SEK 219 million were taken in 2004. These write-downs were charged to cost of goods sold in the income statement. The write-downs are not expected to be deductable for tax purposes.



The tax assessment value as of December 31 for property estate in Sweden is
indicated below:



|                                                |  |      |  |     
|----------------------------------------------- |  | ---- |  | ----
|                                                |  | 2003 |  | 2004
|Buildings                                       |  | 302  |  | 274 
|Land                                            |  | 16   |  | 20  
|                                                |  |      |  |     
|Total assessed tax value for property in Sweden |  | 318  |  | 294 
|                                                |  |      |  |     



Depreciation on
tangible assets has been allocated under the following headings in the income statement:



|                        |  |      |   |  |      |   |  |      |  
|----------------------- |  | ---- | - |  | ---- | - |  | ---- | -
|                        |  | 2002 |   |  | 2003 |   |  | 2004 |  
|Cost of goods sold      |  | (208 | ) |  | (233 | ) |  | (224 | )
|Selling expenses        |  | (32  | ) |  | (35  | ) |  | (38  | )
|Administrative expenses |  | (84  | ) |  | (78  | ) |  | (70  | )
|                        |  |      |   |  |      |   |  |      |  
|Total                   |  | (324 | ) |  | (346 | ) |  | (332 | )
|                        |  |      |   |  |      |   |  |      |  



F-16



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##### Table of Contents

9. Shares and participations



Participations in associated companies and other shares included in financial fixed assets as of December 31 are in
accordance with the following:



|                                     |  |                   |  |           |  |                   |  |          
|------------------------------------ |  | ----------------- |  | --------- |  | ----------------- |  | ---------
|                                     |  | 2003              |  | 2004     
|                                     |  | Ownershipvalue, % |  | Bookvalue |  | Ownershipvalue, % |  | Bookvalue
|Arnold André GmbH & Co. KG           |  | 40                |  | 79        |  | 40                |  | 75       
|P.T. Jamafac                         |  | 40                |  | 48        |  | 40                |  | 42       
|Other associated companies           |  |                   |  | 7         |  |                   |  | 8        
|                                     |  |                   |  |           |  |                   |  |          
|Total shares in associated companies |  |                   |  | 134       |  |                   |  | 125      
|Other shares and participations      |  |                   |  | 11        |  |                   |  | 10       
|                                     |  |                   |  |           |  |                   |  |          
|Total shares and participations      |  |                   |  | 145       |  |                   |  | 135      
|                                     |  |                   |  |           |  |                   |  |          



Within the framework
of normal business, Swedish Match carries out transactions with associated companies. Receivables from these companies totaled SEK 54 million as of December 31, 2002, SEK 30 million as of December 31, 2003 and SEK 24 million as of December 31, 2004.
Total sales to associated companies amounted to SEK 133, 147 and 141 million for the years ended December 31, 2002, 2003 and 2004 respectively.



The following movements in shares in associated companies and other shares occurred in 2003 and 2004, respectively:



|                                                         |  |      |   |  |      |  
|-------------------------------------------------------- |  | ---- | - |  | ---- | -
|                                                         |  | 2003 |   |  | 2004 |  
|Amount brought forward from preceding year               |  | 148  |   |  | 145  |  
|Writedowns of shares in other companies                  |  | (2   | ) |  | 0    |  
|Share in earnings of associated companies, net after tax |  | 18   |   |  | 3    |  
|Dividends from associated companies                      |  | (16  | ) |  | (12  | )
|Exchange rate differences                                |  | (3   | ) |  | (1   | )
|                                                         |  |      |   |  |      |  
|Closing balance                                          |  | 145  |   |  | 135  |  
|                                                         |  |      |   |  |      |  



10. Deferred tax assets



Deferred tax assets changed during 2003 and 2004 as shown
in the table below:



|                                    |  |      |   |  |      |  
|----------------------------------- |  | ---- | - |  | ---- | -
|                                    |  | 2003 |   |  | 2004 |  
|Opening balance from preceding year |  | 206  |   |  | 245  |  
|Changes in deferred tax assets      |  | 69   |   |  | 165  |  
|Exchange rate differences           |  | (30  | ) |  | (13  | )
|                                    |  |      |   |  |      |  
|Closing balance                     |  | 245  |   |  | 397  |  
|                                    |  |      |   |  |      |  



11. Long-term receivables



Long-term receivables changed during 2003 and 2004 as
shown in the table below:



|                                    |  |      |   |  |      |  
|----------------------------------- |  | ---- | - |  | ---- | -
|                                    |  | 2003 |   |  | 2004 |  
|Opening balance from preceding year |  | 252  |   |  | 226  |  
|Changes in long-term receivables    |  | 12   |   |  | (36  | )
|Change in pension receivables       |  |     |   |  | 53   |  
|Exchange rate differences           |  | (38  | ) |  | (15  | )
|                                    |  |      |   |  |      |  
|Closing balance                     |  | 226  |   |  | 228  |  
|                                    |  |      |   |  |      |  



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##### Table of Contents

12. Inventories



Inventories as of December 31 consist of the following items after deductions for obsolescence:



|                                      |  |       |   |  |       |  
|------------------------------------- |  | ----- | - |  | ----- | -
|                                      |  | 2003  |   |  | 2004  |  
|Finished goods                        |  | 800   |   |  | 766   |  
|Work in progress                      |  | 124   |   |  | 144   |  
|Leaf tobacco                          |  | 1,610 |   |  | 1,399 |  
|Other input and consumable materials  |  | 254   |   |  | 245   |  
|Reserve for obsolescence              |  | (112  | ) |  | (78   | )
|                                      |  |       |   |  |       |  
|Total inventories                     |  | 2,676 |   |  | 2,476 |  
|                                      |  |       |   |  |       |  
|Of which, reported at net sales value |  |       |   |  | 78    |  



The reserve for
obsolescence changed during the year as shown below:



|                           |  |      |   |  |      |  
|-------------------------- |  | ---- | - |  | ---- | -
|Reserve for obsolescence   |  | 2003 |   |  | 2004 |  
|Balance brought forward    |  | (108 | ) |  | (112 | )
|Provision during the year  |  | (50  | ) |  | (41  | )
|Withdrawal during the year |  | 25   |   |  | 52   |  
|Write-off and other        |  | 21   |   |  | 23   |  
|                           |  |      |   |  |      |  
|Closing balance            |  | (112 | ) |  | (78  | )
|                           |  |      |   |  |      |  



13. Reserve for bad debts



Reserve for bad debts as of December 31 consists of the
following:



|                          |  |      |   |  |      |  
|------------------------- |  | ---- | - |  | ---- | -
|                          |  | 2003 |   |  | 2004 |  
|Balance brought forward   |  | (111 | ) |  | (111 | )
|Provision during the year |  | (42  | ) |  | (29  | )
|Recovery during the year  |  | 24   |   |  | 19   |  
|Write-off during the year |  | 10   |   |  | 19   |  
|Exchange rate difference  |  | 8    |   |  | 3    |  
|                          |  |      |   |  |      |  
|Closing balance           |  | (111 | ) |  | (99  | )
|                          |  |      |   |  |      |  



14. Liquid funds



Liquid funds consist of short-term investments in the form of
interest-bearing securities and cash and bank balances in accordance with the following:



|                            |  |       |  |      
|--------------------------- |  | ----- |  | -----
|                            |  | 2003  |  | 2004 
|Short-term investments      |  |       |  |      
|Treasury bills              |  | 616   |  | 392  
|Bank certificates           |  | 149   |  | 429  
|Mortgages certificates      |  | 398   |  | 755  
|Mortgages bonds             |  |      |  | 166  
|Government bonds            |  |      |  | 61   
|Other financial investments |  | 6     |  | 12   
|                            |  |       |  |      
|                            |  | 1,169 |  | 1,815
|                            |  |      
|Cash and bank               |  |       |  |      
|Bank accounts and cash      |  | 1,412 |  | 1,102
|Investment loans in banks   |  | 85    |  | 85   
|                            |  |       |  |      
|                            |  | 1,497 |  | 1,187
|                            |  |       |  |      
|Total liquid funds          |  | 2,666 |  | 3,002
|                            |  |       |  |      



The Group includes in
liquid funds short-term financial investments that are traded in the open market and for which the risk of fluctuations in value is insignificant.



F-18



---

##### Table of Contents

15. Shareholders equity



At the Annual General Meeting on April 23, 2002, approval was given for a further reduction of the share capital in an
amount of SEK 24 million by cancelling 10,000,000 shares through a transfer to unrestricted reserves. This reduction was registered in October. Following the reduction, the share capital of the Company amount to SEK 868 million, represented by
361,596,181 shares, each with a par value of SEK 2.40.



During
the year of 2002 7,995,000 shares were repurchased at an average price of SEK 69.00. As a result of the repurchase and after cancellations, Swedish Match held 19,591,000 shares at year end 2002, equal to 5.4 percent of the Companys shares. At
December 31, 2002, the total number of shares outstanding, net after repurchase, amounted to 342,005,181, a decrease of 2.3 percent during the year.



During the year of 2003 15,276,727 shares were repurchased at an average price of SEK 62.83. As a result of the repurchase and after cancellations,
Swedish Match held 23,263,000 shares at year end 2003, equal to 6.6 percent of the Companys shares. At December 31, 2003, the total number of shares outstanding, net after repurchase, amounted to 328,333,181, a decrease of 4.0 percent during
the year.



As approved by the shareholders at the Annual
General Meeting, the Company may hold 10 percent of the Companys shares at any given time. Repurchased shares may be used to acquire companies and to cover options issued within the framework of the Companys options program.



Swedish Matchs share capital as of December 31, 2003 is distributed
among 351,596,181 shares with a par value of SEK 2.40 per share. Each share carries one vote. Through repurchases and after share cancellations, the Company owns 23,263,000 shares, and the net total of shares outstanding, accordingly, amounts to
328,333,181.



At the Annual General Meeting in April 2004
approval was given that a dividend of SEK 1.70 (1.60) be distributed to shareholders, which corresponds to a total of SEK 558 (535) million based on the number of shares outstanding at year-end.



Swedish Matchs share capital as of December 31, 2004 is distributed
among 336,596,181 shares with a par value of SEK 2.40 per share. Each share carries one vote. Through repurchases and after share cancellations, the Company owns 15,079,288 shares, and the net total of shares outstanding, accordingly, amounts to
321,516,893.



At the Annual General Meeting in April 2005
approval was given that a dividend of SEK 1.90 (1.70) be distributed to shareholders, which corresponds to a total of SEK 612 (558) million based on the number of shares outstanding at year-end.



Shareholders equity includes accumulated translation differences as
follows:



|                        |  |      |   |  |      |   |  |      |  
|----------------------- |  | ---- | - |  | ---- | - |  | ---- | -
|                        |  | 2002 |   |  | 2003 |   |  | 2004 |  
|Opening balance         |  | (278 | ) |  | (745 | ) |  | (861 | )
|Translation differences |  | (467 | ) |  | (116 | ) |  | (89  | )
|                        |  |      |   |  |      |   |  |      |  
|Closing balance         |  | (745 | ) |  | (861 | ) |  | (950 | )
|                        |  |      |   |  |      |   |  |      |  



The translation
difference was reduced by currency hedging of shareholders equity amounting to SEK (280), (61) and 22 million in 2002, 2003 and 2004 respectively.



According to the Swedish Companies Act, dividends are limited to the lower of unrestricted equity according to the consolidated balance sheet and the
parent companys balance sheet after recommended appropriations to restricted equity.



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##### Table of Contents

16. Pensions and similar commitments



Obligations relating to employee benefits after the termination of employment as of December 31, 2004 in the balance sheet
consist of the following:



|                                                |  |    
|----------------------------------------------- |  | ---
|Net liabilities                                 |  |    
|Defined-benefit plans                           |  | 313
|Post-employment medical benefits                |  | 327
|Other long-term benefits                        |  | 99 
|                                                |  |    
|Provisions for pensions and similar obligations |  | 739
|                                                |  |    



The Group has
defined-benefit pension plans in a number of subsidiaries through which the employees are entitled to benefits following the termination of employment based on their pensionable income and the number of service years. The largest plans are in the
U.S., U.K., Netherlands, Belgium, Ireland and Sweden. The Groups plans represent a supplement to each countrys social security system. Healthcare plans primarily cover salaried employees and workers covered by collective agreement in the
U.S. These plans provide certain healthcare and life insurance benefits for pensioned personnel.



The table below specifies the net value of defined benefit pension obligations.



|                                      |  |                               |   |  |                                |  
|------------------------------------- |  | ----------------------------- | - |  | ------------------------------ | -
|                                      |  | Defined-benefitpensions plans |   |  | Post-employmentmedicalbenefits |  
|Present value of funded obligations   |  | 2,087                         |   |  |                               |  
|Fair value of plan assets             |  | (1,858                        | ) |  |                               |  
|                                      |  |                               |   |  |                                |  
|Deficit, net                          |  | 229                           |   |  |                               |  
|                                      |  |                              
|Present value of unfunded obligations |  | 47                            |   |  | 339                            |  
|Unrecognized actuarial losses, net    |  | (12                           | ) |  | (16                            | )
|Unrecognized service cost             |  | 0                             |   |  | 4                              |  
|                                      |  |                               |   |  |                                |  
|Net liability in the balance sheet    |  | 264                           |   |  | 327                            |  
|                                      |  |                              
|Amounts in the balance sheet          |  |                               |   |  |                                |  
|Liabilities                           |  | 313                           |   |  | 327                            |  
|Assets                                |  | (49                           | ) |  |                               |  
|                                      |  |                               |   |  |                                |  
|Net liability in the balance sheet    |  | 264                           |   |  | 327                            |  
|                                      |  |                               |   |  |                                |  



The amounts reported
in the income statement or in notes for the year ended December 31, 2004, consist of the following:



|                                                        |  |                               |   |  |                                |  
|------------------------------------------------------- |  | ----------------------------- | - |  | ------------------------------ | -
|                                                        |  | Defined-benefitpensions plans |   |  | Post-employmentmedicalbenefits |  
|Current service costs                                   |  | 57                            |   |  | 12                             |  
|Interest on obligation                                  |  | 113                           |   |  | 17                             |  
|Expected return on plan assets                          |  | (128                          | ) |  |                               |  
|Past service costs                                      |  | (1                            | ) |  | (1                             | )
|Losses (+) or gains (-) on curtailments and settlements |  | 4                             |   |  |                               |  
|                                                        |  |                               |   |  |                                |  
|Net expense reported in the income statement            |  | 45                            |   |  | 28                             |  
|                                                        |  |                               |   |  |                                |  



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##### Table of Contents

The expenses for defined benefit plans are reported for the year ended December 31, 2004, under the following headings in
the income statement:



|                                             |  |                               |  |                               
|-------------------------------------------- |  | ----------------------------- |  | ------------------------------
|                                             |  | Defined-benefitpensions plans |  | Post-employmentmedicalbenefits
|Cost of goods sold                           |  | 14                            |  | 8                             
|Administrative expenses                      |  | 18                            |  | 13                            
|Selling expenses                             |  | 13                            |  | 7                             
|                                             |  |                               |  |                               
|Net expense reported in the income statement |  | 45                            |  | 28                            
|                                             |  |                               |  |                               



The changes in the net liability
reported in the balance sheet as of December 31, 2004, consist of the following:



|                                           |  |                               |   |  |                                |  
|------------------------------------------ |  | ----------------------------- | - |  | ------------------------------ | -
|                                           |  | Defined-benefitpensions plans |   |  | Post-employmentmedicalbenefits |  
|Net liability, Jan 1                       |  | (75                           | ) |  | 276                            |  
|Effects of changes in accounting principle |  | 325                           |   |  | 68                             |  
|                                           |  |                               |   |  |                                |  
|Net liability, Jan 1 restated              |  | 250                           |   |  | 344                            |  
|Net expense reported in income statement   |  | 45                            |   |  | 28                             |  
|Payment of benefits to employees           |  | (4                            | ) |  | (4                             | )
|Employer contributions to plans            |  | (19                           | ) |  | (11                            | )
|Employee contributions to plans            |  | (1                            | ) |  |                               |  
|Translation differences                    |  | (7                            | ) |  | (30                            | )
|                                           |  |                               |   |  |                                |  
|Net liability, Dec 31                      |  | 264                           |   |  | 327                            |  
|                                           |  |                               |   |  |                                |  



|                                                                                       |  |                               |  |                               
|-------------------------------------------------------------------------------------- |  | ----------------------------- |  | ------------------------------
|Significant actuarial assumptions on the closing date (expressed as weighted averages) |  | Defined-benefitpensions plans |  | Post-employmentmedicalbenefits
|Discount rate, %                                                                       |  | 5.6                           |  | 6.2                           
|Expected return on plan assets under management, %                                     |  | 7.3                           |  |                              
|Future annual pay increases, %                                                         |  | 4.5                           |  | 5.0                           
|Future annual pension increases, %                                                     |  | 2.5                           |  |                              
|Annual increase in medical care expenses, %                                            |  |                              |  | 9.0                           



The actual return on plan assets in
2004 was SEK 162 million.



Gains and losses resulting from
actuarial assumptions, as well as results other than anticipated value changes in plan assets, are computed and distributed over the employees remaining employment period when the total gain or loss lies outside the corridor corresponding to
10 percent of the higher of assumed pension obligations or the fair value of plan assets.



Obligations for retirement pension and family pension for salaried personnel and workers covered by a collective agreement in Sweden is secured through insurance in two superannuation funds, PSF and PSA. These funds
also cover other employers outside the Swedish Match Group. For the 2004 fiscal year, the company has not had access to the requisite information to report these plans as defined-benefit plans. Thus, the pension plans secured in superannuation funds
are reported as defined-contribution plans. As of December 31, both funds reported a minor surplus.



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##### Table of Contents

17. Other provisions



Other provisions at December 31, 2004 consist of the following:



|                        |  |                 |   |  |                         |   |  |                      |   |  |                 |  
|----------------------- |  | --------------- | - |  | ----------------------- | - |  | -------------------- | - |  | --------------- | -
|                        |  | Totalprovisions |   |  | Restructuringprovisions |   |  | Income taxprovisions |   |  | Otherprovisions |  
|Opening balance         |  | 664             |   |  | 18                      |   |  | 453                  |   |  | 193             |  
|Provisions              |  | 619             |   |  | 4                       |   |  | 565                  |   |  | 80              |  
|Utilization             |  | (75             | ) |  | (7                      | ) |  | (4                   | ) |  | (68             | )
|Reversals for the year  |  | (4              | ) |  | (3                      | ) |  |                     |   |  | (1              | )
|Reclassifications       |  | 79              |   |  |                        |   |  |                     |   |  | 53              |  
|Translation differences |  | (106            | ) |  |                        |   |  | (94                  | ) |  | (12             | )
|                        |  |                 |   |  |                         |   |  |                      |   |  |                 |  
|Closing balance         |  | 1,177           |   |  | 12                      |   |  | 920                  |   |  | 245             |  



The restructuring
reserves pertain mainly to the non-performing part of the past two years restructuring of the Groups cigar operations in regard to severance pay, etc. Most of these provisions will be paid during the next two years.



The tax-related provisions mainly pertain to reserves for taxes in foreign
subsidiaries. The timing of outflows of resources is difficult to predict.



Other provisions include allocations for issued discount coupons and for tobacco tax disputes in Sweden.



18. Interest-bearing bond loans/liabilities to credit institutions



The maturity structure of the Groups long-term interest-bearing liabilities is presented below:



|               |  |       
|-------------- |  | ------
|Year           |  | Amount
|2006           |  | 1,456 
|2007           |  | 300   
|2008           |  | 713   
|2009           |  |      
|2010 and later |  | 90    
|               |  |       
|Total          |  | 2,559 
|               |  |       



|                                            |  |      |  |     
|------------------------------------------- |  | ---- |  | ----
|Current interest-bearing liabilities        |  | 2003 |  | 2004
|Next years amortization of long-term loans |  | 601  |  | 879 
|Bank overdraft facility utilized            |  | 36   |  | 40  
|Other current liabilities                   |  | 209  |  | 51  
|                                            |  |      |  |     
|Total current interest-bearing liabilities  |  | 846  |  | 970 
|                                            |  |      |  |     



19. Other current liabilities



Other current liabilities as of December 31 consist of
the following:



|                          |  |       |  |      
|------------------------- |  | ----- |  | -----
|                          |  | 2003  |  | 2004 
|Tobacco taxes             |  | 840   |  | 827  
|Value Added Tax liability |  | 263   |  | 249  
|Other                     |  | 226   |  | 332  
|                          |  |       |  |      
|Total                     |  | 1,329 |  | 1,408
|                          |  |       |  |      



F-22



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##### Table of Contents

20. Accrued expenses and deferred income



Accrued expenses and deferred income as of December 31 consist of the following:



|                                     |  |      |  |     
|------------------------------------ |  | ---- |  | ----
|                                     |  | 2003 |  | 2004
|Accrued wage/salary-related expenses |  | 183  |  | 139 
|Accrued vacation pay                 |  | 72   |  | 69  
|Accrued social security charges      |  | 66   |  | 77  
|Other                                |  | 469  |  | 560 
|                                     |  |      |  |     
|Total                                |  | 790  |  | 845 
|                                     |  |      |  |     



21. Pledged assets



For the Groups own long-term liabilities:



|                                |  |      |  |     
|------------------------------- |  | ---- |  | ----
|                                |  | 2003 |  | 2004
|Property mortgages              |  | 1    |  | 1   
|Inventories                     |  | 35   |  | 33  
|Receivables                     |  | 25   |  | 22  
|                                |  |      |  |     
|Total own long-term liabilities |  | 61   |  | 56  
|                                |  |      |  |     



Other collateral
pledged:



|                               |  |      |  |     
|------------------------------ |  | ---- |  | ----
|                               |  | 2003 |  | 2004
|Liquid funds                   |  | 93   |  | 87  
|                               |  |      |  |     
|Total other collateral pledged |  | 93   |  | 87  
|                               |  |      |  |     



22. Commitments and contingent
liabilities



Operating lease agreements



Future annual minimum charges under the terms of irrevocable operating lease
agreements with initial or remaining terms of one year or more consisted of the following at December 31, 2004:



|                                          |  |    
|----------------------------------------- |  | ---
|Within one year                           |  | 98 
|Later than one year but within five years |  | 802
|Later than five years                     |  | 48 
|                                          |  |    
|Total minimum lease charges               |  | 948
|                                          |  |    



The Groups
leasing expenses for operating lease agreements amounted to SEK 118 million in 2002, SEK 117 million in 2003 and SEK 111 million in 2004.



Future irrevocable minimum lease income for properties that are sublet is distributed in accordance with expiration dates as follows:



|                                          |  |   
|----------------------------------------- |  | --
|Within one year                           |  | 35
|Later than one year but within five years |  | 53
|Later than five years                     |  | 0 
|                                          |  |   
|Total minimum lease income                |  | 88
|                                          |  |   



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##### Table of Contents

Rental revenues, own properties



Within the Group are properties which in part are rented externally. At year-end, the properties being rented externally
consist of the following:



|                                               |  |      |  
|---------------------------------------------- |  | ---- | -
|Accumulated acquisition value, closing balance |  | 373  |  
|Accumulated depreciation, closing balance      |  | (136 | )
|                                               |  |      |  
|Book value, carried forward                    |  | 237  |  
|                                               |  |      |  



Depreciation for the
year amounts to SEK 13 million.



Future irrevocable minimum
lease income for own properties that are leased externally is distributed in accordance with expiration dates as follows:



|                                          |  |    
|----------------------------------------- |  | ---
|Within one year                           |  | 33 
|Later than one year but within five years |  | 115
|Later than five years                     |  | 131
|                                          |  |    
|Total minimum lease income                |  | 279
|                                          |  |    



The Groups
rental revenues from own properties in 2004 amounted to SEK 36 million.



Contingent liabilities



|                                            |  |      |  |     
|------------------------------------------- |  | ---- |  | ----
|                                            |  | 2003 |  | 2004
|Guarantees to subsidiaries                  |  | 158  |  | 224 
|Guarantees to external companies            |  | 3    |  | 2   
|Other guarantees and contingent liabilities |  | 280  |  | 185 
|                                            |  |      |  |     
|Total contingent liabilities                |  | 441  |  | 411 
|                                            |  |      |  |     



Guarantees to
subsidiaries pertain to undertakings on behalf of the companies above and beyond the amounts utilized and entered as liabilities in the companies. Other contingent liabilities pertain in part to guarantees placed vis-à-vis government
authorities for Group companies fulfillment of undertakings in connection with import and payment of tobacco taxes.



Option on minority shares in General Cigar



There is an agreement with the minority shareholders of General Cigar concerning put and call options on the minoritys holdings. The options can be
exercised over the period 20042006. Valuation of the shares in connection with the exercise of put options is determined on the basis of the companys earnings, at certain minimum levels.



Leaf tobacco purchases



Some subsidiaries have entered contractual commitments with tobacco growers regarding future purchases of leaf tobacco.



Legal disputes



The Company is involved in a number of legal proceedings of a routine
character. Although the outcomes of these proceedings cannot be anticipated with any certainty, and accordingly no guarantees can be made, the view of management is that liabilities attributable to these disputes, if any, should not have any
significant negative impact on the earnings or financial position of Swedish Match.



During the year, a final decision was served in favor of Pinkerton Tobacco Company and other defendants in legal proceedings in Minnesota, in which the plaintiff claimed that chewing tobacco caused the death of her
husband. In addition, subsidiaries in Swedish Match in the U.S. are defendants in cases in which it is claimed that the use of tobacco products caused health problems. Pinkerton Tobacco Company (subsidiary of Swedish Match North America, Inc.) is
named as a defendant in some of the more than 1,200 cases against cigarette manufacturers and other tobacco



F-24



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##### Table of Contents

companies that have been initiated in state courts in West Virginia. Pinkerton, however, has been severed out of the
consolidated process in these cases and it is unclear whether any of the plaintiffs intends to pursue their claims separately against Pinkerton. Swedish Match North America Inc. and Pinkerton Tobacco Company are named as defendants in a class-action
suit filed in Florida in November 2002 against several different companies active in the American market for smokeless tobacco and their joint interest association. Swedish Match has been granted an unlimited time extension for its reply. Although
management cannot in any meaningful way estimate the damages that might be awarded, if any, in any ongoing or anticipated disputes, it holds the view that there are good defenses against all the claims and each case will be defended vigorously.



The Supreme Court in India has ordered Swedish Match AB and
certain of its subsidiaries to make a public offer to acquire 20 percent of the shares outstanding in Wimco Ltd. In accordance with the ruling, the price per share shall be not less than 35 INR plus annual interest from January 27, 2001. Swedish
Match has requested the Supreme Court to clarify the rate of interest to be applied and which shareholders are entitled to interest. Swedish Match has made provision of SEK 90 million to cover a write-down of the value of the shares that will be
acquired according to the order and expenses in connection with the acquisition.



23. Supplementary information to Cash Flow Statement



The cash flow statement is prepared using the indirect method. The cash flow reported only covers transactions involving payments received or made. For foreign subsidiaries, all transactions are translated at the average exchange rate for
the year. Acquisitions or divestments by subsidiaries are included net under investment activities and do not affect cash flow in operations. Liquid assets comprise cash and bank balances. See note 14.



Acquisitions of subsidiaries in 2004



In 2004, subsidiaries were acquired for a total of SEK 53 million, including
minority shares in already partly owned subsidiaries. For these companies taken as a whole, the total value of acquired assets and liabilities, purchase sums, and the impact on the Groups liquid funds were as follows:



|                                             |  |    |  
|-------------------------------------------- |  | -- | -
|Tangible fixed assets                        |  | 1  |  
|Intangible fixed assets                      |  | 44 |  
|Inventories                                  |  | 7  |  
|Trade receivables                            |  | 1  |  
|Change in liability to minorities            |  | 17 |  
|Accounts payable                             |  | (3 | )
|Loans in acquired operations                 |  | (5 | )
|Other assets/liabilities, net                |  | (9 | )
|                                             |  |    |  
|Purchase price paid                          |  | 53 |  
|                                             | 
|Cash and bank balances in acquired companies |  | 0  |  
|                                             |  |    |  
|Effect on the Groups liquid funds           |  | 53 |  
|                                             |  |    |  



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##### Table of Contents

Divestment of subsidiaries in 2004



In 2004, subsidiaries were divested for a total of SEK 117 million and the impact on the Groups liquid funds were as
follows:



|                                             |  |     |  
|-------------------------------------------- |  | --- | -
|Tangible fixed assets                        |  | 6   |  
|Inventories                                  |  | 80  |  
|Trade receivables                            |  | 36  |  
|Accounts payable                             |  | (9  | )
|Other assets/liabilities, net                |  | 4   |  
|                                             |  |     |  
|Purchase price received                      |  | 117 |  
|                                             | 
|Cash and bank balances in divested companies |  | 0   |  
|                                             |  |     |  
|Effect on the Groups liquid funds           |  | 117 |  
|                                             |  |     |  



Acquisitions of subsidiaries in
2003



In 2003, subsidiaries were acquired for a total of
SEK 78 million, including minority shares in already partly owned subsidiaries. For these companies taken as a whole, the total value of acquired assets and liabilities, purchase sums, and the impact on the Groups liquid funds were as follows:



|                                             |  |   
|-------------------------------------------- |  | --
|Tangible fixed assets                        |  | 4 
|Intangible fixed assets                      |  | 54
|Inventories                                  |  | 14
|Other assets/liabilities, net                |  | 6 
|                                             |  |   
|Purchase price paid                          |  | 78
|Cash and bank balances in acquired companies |  | 0 
|                                             |  |   
|Effect on the Groups liquid funds           |  | 78
|                                             |  |   



Acquisitions of subsidiaries in
2002



In 2002, companies were acquired for a total of SEK
53 million. For these companies taken as a whole, the total value of acquired assets and liabilities, purchase sums, and the impact on the Groups liquid funds were as follows:



|                                             |  |    |  
|-------------------------------------------- |  | -- | -
|Tangible fixed assets                        |  | 15 |  
|Intangible fixed assets                      |  | 46 |  
|Other assets/liabilities, net                |  | (8 | )
|                                             |  |    |  
|Purchase price paid                          |  | 53 |  
|                                             | 
|Cash and bank balances in acquired companies |  |   |  
|                                             |  |    |  
|Effect on the Groups liquid funds           |  | 53 |  
|                                             |  |    |  



Interest paid and dividends



Interest payments amounted to SEK 330 million in 2002,
SEK 283 million in 2003 and SEK 283 million in 2004. Interest received amounted to SEK 95 million in 2002, SEK 249 million in 2003 and SEK 85 million in 2004.



Dividends received from associated companies amounted to SEK 8 million in 2002, SEK 16 million in 2003 and SEK 12 million in 2004.



F-26



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##### Table of Contents

24. Financial instruments



Operations



As a result of its international operations, Swedish Match is exposed to financial risks. The term financial risks refers to fluctuations in
Swedish Matchs cash flow caused by changes in foreign exchange rates and interest rates, and to risks associated with refinancing and credit.



To manage its financial risks, Swedish Match has a finance policy established by the Board of Directors. The Groups finance policy comprises a
framework of guidelines and rules governing the management of financial risks and finance operations in general. Responsibility for the Groups financing, financial risk management and other finance-related matters is mainly centered in the
Parent Companys Treasury Department. The Swedish Match Groups financial operations are centralized to exploit advantages of scale and synergy effects and to minimize operating risks.



Financial instruments



Swedish Match uses various types of financial instruments to hedge the Groups financial exposure that arises in
business operations and from the Groups financing and asset and debt management activities. In addition to loans, investments and spot instruments, derivative instruments are also used to reduce Swedish Matchs financial exposure. The
most frequently used derivative instruments are currency forwards, currency swaps and interest rate swaps.



Currency risks



Exchange rate fluctuations affect Group earnings and shareholders equity in various ways:



| |  |  | Earnings  when sales revenues and production costs are denominated in different currencies (transaction exposure)
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | Earnings  when the earnings of foreign subsidiaries are translated to SEK (translation exposure)
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | Shareholders equity  when the net assets of foreign subsidiaries are translated to SEK (translation exposure)
| | - |  | ---------------------------------------------------------------------------------------------------------------



Transaction exposure



For the Group as a whole, there is a balance between inflows and outflows in the major currencies EUR and USD, which limits
the Groups transaction exposure.



Such transaction
exposure as exists arises when certain of the Groups production units in South Africa and Europe make purchases of raw tobacco in USD, and through the European operations exports of lighters and matches in USD.



The anticipated commercial currency flow after net calculation of the reverse
flows in the same currencies (transaction exposure) amounts to approximately SEK 391 million on an annualized basis.



Swedish Matchs policy for managing the Groups transaction exposure is to hedge inward and outward flows in foreign currency within certain
frameworks. The hedging transactions are initiated via currency forward contracts with durations of up to 12 months and related to projected currency flows. On December 31, 2004, approximately 15 percent of net exposure for 2005 was currency hedged
as follows:



|            |  |         |  |          |  |                    
|----------- |  | ------- |  | -------- |  | -------------------
|Bought/Sold |  | Amount* |  | Currency |  | Countervalue in SEK
|Sold        |  | 4       |  | EUR      |  | 40                 
|Sold        |  | 1       |  | GBP      |  | 13                 
|            |  |         |  |          |  |                    
|            |  |         |  | Total    |  | 53                 

---

|* | Currency in millions
|- | --------------------





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##### Table of Contents

Translation exposure



The most significant effect of currency movements on consolidated earnings arises from the translation of subsidiaries earnings. Earnings in Group
companies are translated into average exchange rates. Significant effects mainly pertain to USD, EUR, the Brazilian real (BRL) and the South African rand (ZAR). The single most important currency is the USD.



When the net assets of foreign subsidiaries are translated to SEK,
translation differences arise that are entered directly under shareholders equity. Swedish Match does not, as a rule, hedge shareholders equity in foreign subsidiaries. During the year, however, most of the shareholders equity in
one of the Groups US units was hedged.



Interest-rate risk



The Swedish Match Groups sources of financing
mainly comprise shareholders equity, cash-flow from current operations and borrowing. Interest-bearing loans result in the Group being exposed to interest-rate risk. Changes in interest rates have a direct impact on Swedish Matchs net
interest expense.



Swedish Matchs policy is that the
average maturity period should not exceed 12 months. The major portion of the Groups borrowing was originally assumed at a fixed interest rate but subsequently converted to a floating rate by means of interest rate swaps. How rapidly a
permanent change of interest rate impacts on net interest expense depends on the interest maturity periods of the loans. On December 31, 2004, the average interest maturity period for Group loans was 2.4 months, with interest rate swaps taken into
account.



Refinancing risk and liquidity



Refinancing risk is defined as the risk of not being able to make regular
payments as a consequence of inadequate liquidity or difficulty in raising external loans. Swedish Match tries to create both financial stability and flexibility in connection with its borrowing, and not to be dependent on individual sources of
financing.



Swedish Match has a syndicated bank credit facility
of EUR 250 million, with final maturity in 2008. This was unutilized at year-end. The credit facility includes a borrowing restriction  or covenant  that operating income after financial items plus interest expense, divided by interest
expense (interest coverage ratio) must amount to at least 3.0. At December 31, 2004, the interest coverage ratio was 13.1.



At year-end 2004, available cash funds and committed credits amounted to SEK 5,253 million. Of this amount, confirmed credit lines amounted to SEK 2,251
million and the remaining SEK 3,002 million consisted of liquid funds.



Most of Swedish Matchs medium-term financing consists of a Swedish medium term note program with a limit of SEK 4,000 million, and a global medium-term note program with a limit amount of EUR 1,000 million. The programs are
uncommitted borrowing programs and their availability could be limited by the Groups creditworthiness and prevailing market conditions. At December 31, 2004, a total of SEK 1,423 million of the Swedish program and SEK 1,763 million of the
global program had been utilized.



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##### Table of Contents

The average maturity structure of the Groups borrowing at December 31, 2004 amounted to 1.9 years.
Swedish Matchs sources of loans and their maturity profiles are distributed as follows:



|      |  |             |  |            |  |             |  |      
|----- |  | ----------- |  | ---------- |  | ----------- |  | -----
|      |  | Swedish MTN |  | Global MTN |  | Other loans |  | Total
|2005  |  | 500         |  | 129        |  | 341         |  | 970  
|2006  |  | 0           |  | 1,454      |  | 2           |  | 1,456
|2007  |  | 300         |  | 0          |  | 0           |  | 300  
|2008  |  | 623         |  | 90         |  | 0           |  | 713  
|2009  |  | 0           |  | 0          |  | 0           |  | 0    
|2010- |  | 0           |  | 90         |  | 0           |  | 90   
|      |  |             |  |            |  |             |  |      
|Total |  | 1,423       |  | 1,763      |  | 343         |  | 3,529
|      |  |             |  |            |  |             |  |      



Under the Swedish bond
program, Swedish Match issued bonds in SEK, and under the global program, in EUR. During 2004, Swedish Match repurchased bonds for EUR 120 million under the global bond program. Borrowing in EUR is currency hedged through currency swaps and currency
interest rate swaps. The average interest rates for outstanding borrowing (including derivative instruments) on December 31, 2004 amounted to:



|             |  |      |  |     
|------------ |  | ---- |  | ----
|Percent      |  | 2003 |  | 2004
|Swedish MTN  |  | 3.9  |  | 3.2 
|Global MTN   |  | 4.9  |  | 5.4 
|Öther loans* |  | 7.3  |  | 5.1 

---

|* | Apart from loans in the Parent Company, relates mainly to loans in India and Turkey.
|- | ------------------------------------------------------------------------------------



Liquidity risks and credit risks



To limit liquidity and credit risks, investments and transactions in derivative instruments may be made only in instruments with high liquidity and with
counterparties who have high credit ratings. In addition to bank accounts, Swedish Match invests surplus funds mainly in government bonds, treasury bills and bank and mortgages certificates, as well as in certain approved securities with approved
counterparties. At December 31, 2004, the average fixed-interest term for Group investments was approximately 2.6 months.



The Groups finance policy regulates the maximum credit exposure to various counterparties. The aim is that counterparties to Swedish Match in
financial transactions should have a credit rating of at least A from Standard & Poors or Moodys.



To reduce the credit risk in receivables that arise at banks via derivative instruments, Swedish Match has entered into netting agreements, known as ISDA
Master Agreements, with all of its counterparties. At December 31, 2004, credit exposure in derivative instruments amounted to SEK 199 million.



Swedish Match has no concentration of credit risks in accounts receivable.



Credit ratings



At December 31, 2004, Swedish Match had the following credit ratings from Standard & Poors and Moodys Investor Service



|                  |  |                   |  |        
|----------------- |  | ----------------- |  | -------
|                  |  | Standard & Poors |  | Moodys
|Long-term rating: |  | A-                |  | A3     
|Outlook:          |  | Stable            |  | Stable 



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##### Table of Contents

Fair value



The table below shows book value (incl. accrued interest) and fair value for each type of interest-bearing financial instrument at December 31, 2004.
Trade receivables and accounts payable are reported at fair value and have not been included in the table. The estimated fair value is based on market prices on the closing date. Loans have a market value based on the current interest on remaining
time to maturity, original credit spread and present value computation of future cash flow. The values presented are indicative and may not necessarily be realized.



|                            |  |            |   |  |                     |   |  |            |   |  |                     |  
|--------------------------- |  | ---------- | - |  | ------------------- | - |  | ---------- | - |  | ------------------- | -
|                            |  | 2003       |   |  | 2004                |  
|                            |  | Book value |   |  | Estimated fairvalue |   |  | Book value |   |  | Estimated fairvalue |  
|Short-term investments      |  |            |   |  |                     |   |  |            |   |  |                     |  
|Treasury bills              |  | 621        |   |  | 622                 |   |  | 394        |   |  | 394                 |  
|Bank certificates           |  | 150        |   |  | 150                 |   |  | 429        |   |  | 429                 |  
|Mortgages certificates      |  | 399        |   |  | 399                 |   |  | 759        |   |  | 759                 |  
|Mortgages bonds             |  |           |   |  |                    |   |  | 170        |   |  | 169                 |  
|Government bonds            |  |           |   |  |                    |   |  | 62         |   |  | 62                  |  
|Other financial investments |  | 6          |   |  | 6                   |   |  | 12         |   |  | 12                  |  
|                            |  |            |   |  |                     |   |  |            |   |  |                     |  
|Total                       |  | 1,176      |   |  | 1,177               |   |  | 1,826      |   |  | 1,825               |  
|                            |  |            |   |  |                     |   |  |            |   |  |                     |  
|Long-term loans             |  |            |   |  |                     |   |  |            |   |  |                     |  
|Fixed interest              |  | (3,763     | ) |  | (3,984              | ) |  | (2,327     | ) |  | (2,471              | )
|Floating interest           |  | (1,022     | ) |  | (1,021              | ) |  | (438       | ) |  | (439                | )
|                            |  |            |   |  |                     |   |  |            |   |  |                     |  
|Total                       |  | (4,785     | ) |  | (5,005              | ) |  | (2,765     | ) |  | (2,910              | )
|                            |  |            |   |  |                     |   |  |            |   |  |                     |  
|Short-term loans            |  |            |   |  |                     |   |  |            |   |  |                     |  
|Fixed interest              |  | (560       | ) |  | (565                | ) |  | (309       | ) |  | (314                | )
|Floating interest           |  | (308       | ) |  | (307                | ) |  | (672       | ) |  | (672                | )
|                            |  |            |   |  |                     |   |  |            |   |  |                     |  
|Total                       |  | (868       | ) |  | (872                | ) |  | (981       | ) |  | (986                | )
|                            |  |            |   |  |                     |   |  |            |   |  |                     |  
|Derivative instruments      |  |            |   |  |                     |   |  |            |   |  |                     |  
|Currency forwards           |  | 4          |   |  | 5                   |   |  | 1          |   |  | 0                   |  
|Currency swaps              |  | 239        |   |  | 263                 |   |  | (15        | ) |  | (16                 | )
|Interest rate swaps         |  | 234        |   |  | 252                 |   |  | 198        |   |  | 225                 |  
|                            |  |            |   |  |                     |   |  |            |   |  |                     |  
|Total                       |  | 477        |   |  | 520                 |   |  | 184        |   |  | 209                 |  
|                            |  |            |   |  |                     |   |  |            |   |  |                     |  



25. Segment reporting



Primary segments  product areas



The Group is organized in seven main product areas. Other operations
include, inter alia, distribution of tobacco products in the Swedish market, sales of advertising products, Groupwide costs and costs for business development and legal fees.



The product area assets consist primarily of tangible and intangible fixed assets, inventories and operating receivables.
Product area liabilities comprise operating liabilities. Non-allocated assets and liabilities mainly consist of financial items and taxes.



No sales are transacted between the different product areas.



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---

##### Table of Contents

The tables below summarize selected information by product area:



|                                                   |  |        |   |  |        |   |  |        |  
|-------------------------------------------------- |  | ------ | - |  | ------ | - |  | ------ | -
|External sales                                     |  | 2002   |   |  | 2003   |   |  | 2004   |  
|Snuff                                              |  | 2,788  |   |  | 2,995  |   |  | 3,081  |  
|Chewing tobacco                                    |  | 1,333  |   |  | 1,146  |   |  | 1,058  |  
|Cigars                                             |  | 3,318  |   |  | 3,008  |   |  | 3,171  |  
|Pipe tobacco and accessories                       |  | 843    |   |  | 909    |   |  | 901    |  
|Matches                                            |  | 1,648  |   |  | 1,395  |   |  | 1,378  |  
|Lighters                                           |  | 700    |   |  | 599    |   |  | 582    |  
|Other operations                                   |  | 3,013  |   |  | 2,984  |   |  | 2,836  |  
|                                                   |  |        |   |  |        |   |  |        |  
|Total                                              |  | 13,643 |   |  | 13,036 |   |  | 13,007 |  
|                                                   |  |        |   |  |        |   |  |        |  
|                                                   |  |        |  
|Income                                             |  | 2002   |   |  | 2003   |   |  | 2004   |  
|Snuff                                              |  | 1,233  |   |  | 1,386  |   |  | 1,373  |  
|Chewing tobacco                                    |  | 406    |   |  | 336    |   |  | 304    |  
|Cigars                                             |  | 472    |   |  | 393    |   |  | 466    |  
|Pipe tobacco and accessories                       |  | 164    |   |  | 201    |   |  | 220    |  
|Matches                                            |  | 221    |   |  | 83     |   |  | (57    | )
|Lighters                                           |  | 56     |   |  | 14     |   |  | 7      |  
|Other operations                                   |  | (181   | ) |  | (189   | ) |  | (224   | )
|                                                   |  |        |   |  |        |   |  |        |  
|Subtotal                                           |  | 2,371  |   |  | 2,224  |   |  | 2,089  |  
|Settlement income*                                 |  |       |   |  |       |   |  | 1,521  |  
|Match impairment charges**                         |  |       |   |  |       |   |  | (150   | )
|Provision for acquisition of shares in Wimco Ltd** |  |       |   |  |       |   |  | (90    | )
|                                                   |  |        |   |  |        |   |  |        |  
|Operating income                                   |  | 2,371  |   |  | 2,224  |   |  | 3,370  |  
|                                                   |  |        |   |  |        |   |  |        |  
|Non-allocated costs and revenues                   |  |        |   |  |        |   |  |        |  
|Interest income                                    |  | 108    |   |  | 229    |   |  | 103    |  
|Interest expense                                   |  | (337   | ) |  | (283   | ) |  | (266   | )
|Other financial items                              |  | (16    | ) |  | 4      |   |  | (1     | )
|Taxes                                              |  | (648   | ) |  | (572   | ) |  | (1,314 | )
|Minority shares                                    |  | (49    | ) |  | (44    | ) |  | (64    | )
|                                                   |  |        |   |  |        |   |  |        |  
|Net income                                         |  | 1,429  |   |  | 1,558  |   |  | 1,828  |  
|                                                   |  |        |   |  |        |   |  |        |  

---

|* | In 2004, the Groups operating income was affected by settlement income from UST of SEK 1,521 million.
|- | ------------------------------------------------------------------------------------------------------

|** | In 2004, operating income for Matches was affected by the impairment charges of SEK 150 million and provision for the acquisition of shares in Wimco Ltd of SEK 90 million.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Profit participations in associated companies
for the year amounted to SEK 11, 7 and (3) million for the years ended December 31, 2002, 2003 and 2004 respectively for Cigars and SEK 11, 13 and 2 million for the years ended December 31, 2002, 2003 and 2004 respectively for Matches and SEK 0, 0
and 1 million for the years ended December 31, 2002, 2003 and 2004 respectively for Snuff and SEK 0, 0 and 1 million for the years ended December 31, 2002, 2003 and 2004 respectively for Lighters.



|                                            |  |        |  |                                                         |  |        |  |       
|------------------------------------------- |  | ------ |  | ------------------------------------------------------- |  | ------ |  | ------
|                                            |  | Assets |  | Liabilities, shareholdersequity and minority interests
|Assets and liabilities                      |  | 2003   |  | 2004                                                    |  | 2003   |  | 2004  
|Snuff                                       |  | 1,558  |  | 1,642                                                   |  | 401    |  | 513   
|Chewing tobacco                             |  | 398    |  | 396                                                     |  | 88     |  | 235   
|Cigars                                      |  | 5,391  |  | 5,045                                                   |  | 560    |  | 927   
|Pipe tobacco and accessories                |  | 1,244  |  | 1,227                                                   |  | 139    |  | 281   
|Matches                                     |  | 1,466  |  | 1,197                                                   |  | 294    |  | 410   
|Lighters                                    |  | 483    |  | 459                                                     |  | 137    |  | 202   
|Other operations                            |  | 1,116  |  | 823                                                     |  | 1,219  |  | 1,167 
|Non-allocated assets/liabilities            |  | 3,446  |  | 3,832                                                   |  | 7,657  |  | 6,055 
|Minority interests and shareholders equity |  |       |  |                                                        |  | 4,607  |  | 4,831 
|                                            |  |        |  |                                                         |  |        |  |       
|Total                                       |  | 15,102 |  | 14,621                                                  |  | 15,102 |  | 14,621
|                                            |  |        |  |                                                         |  |        |  |       



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##### Table of Contents

Equity shares in associated companies amounted to SEK 79 and 75 million per December 31, 2003 and 2004
respectively for Cigars. Equity shares in associated companies amounted to SEK 48 and 42 million per December 31, 2003 and 2004 respectively for Matches. Equity shares in associated companies amounted to SEK 7 and 7 million per December 31, 2003 and
2004 respectively for Lighters.



|                              |  |                       |  |                         |  |      |  |      |  |      |  |     
|----------------------------- |  | --------------------- |  | ----------------------- |  | ---- |  | ---- |  | ---- |  | ----
|                              |  | Tangible fixed assets |  | Intangible fixed assets
|Investments                   |  | 2002                  |  | 2003                    |  | 2004 |  | 2002 |  | 2003 |  | 2004
|Snuff                         |  | 424                   |  | 219                     |  | 242  |  | 1    |  | 3    |  |    
|Chewing tobacco               |  | 42                    |  | 23                      |  | 18   |  |     |  |     |  |    
|Cigars                        |  | 169                   |  | 193                     |  | 128  |  | 13   |  | 49   |  | 45  
|Pipe tobacco and accessories  |  | 20                    |  | 15                      |  | 28   |  |     |  | 20   |  |    
|Matches                       |  | 58                    |  | 81                      |  | 36   |  | 10   |  | 3    |  | 18  
|Lighters                      |  | 21                    |  | 11                      |  | 17   |  |     |  |     |  | 14  
|Other operations              |  | 17                    |  | 9                       |  | 18   |  | 8    |  | 6    |  | 1   
|                              |  |                       |  |                         |  |      |  |      |  |      |  |     
|Total                         |  | 751                   |  | 551                     |  | 487  |  | 32   |  | 81   |  | 78  
|                              |  |                       |  |                         |  |      |  |      |  |      |  |     
|                              |  |                      
|                              |  | Tangible fixed assets |  | Intangible fixed assets
|Depreciation and amortization |  | 2002                  |  | 2003                    |  | 2004 |  | 2002 |  | 2003 |  | 2004
|Snuff                         |  | 56                    |  | 71                      |  | 95   |  | 17   |  | 18   |  | 46  
|Chewing tobacco               |  | 41                    |  | 29                      |  | 24   |  |     |  |     |  |    
|Cigars                        |  | 111                   |  | 111                     |  | 113  |  | 203  |  | 177  |  | 169 
|Pipe tobacco and accessories  |  | 9                     |  | 13                      |  | 15   |  | 53   |  | 58   |  | 58  
|Matches                       |  | 60                    |  | 80                      |  | 51   |  | 34   |  | 39   |  | 35  
|Lighters                      |  | 35                    |  | 29                      |  | 26   |  | 6    |  | 11   |  | 7   
|Other operations              |  | 12                    |  | 13                      |  | 8    |  | 14   |  | 16   |  | 7   
|                              |  |                       |  |                         |  |      |  |      |  |      |  |     
|Total                         |  | 324                   |  | 346                     |  | 332  |  | 327  |  | 319  |  | 322 
|                              |  |                       |  |                         |  |      |  |      |  |      |  |     



Secondary segments 
geographic areas



The Groups operations are
primarily conducted in four geographic areas. The sales figures relate to the geographic area where the customer is domiciled. Assets and investments are reported where the asset in question is located. Non-allocated assets and liabilities are
mainly assigned to financial items and taxes.



|                               |  |        |  |        |  |       
|------------------------------ |  | ------ |  | ------ |  | ------
|Sales outside the Group        |  | 2002   |  | 2003   |  | 2004  
|Nordic region                  |  | 4,683  |  | 4,874  |  | 5,087 
|Europe excluding Nordic region |  | 2,214  |  | 2,076  |  | 1,912 
|North America                  |  | 4,688  |  | 4,135  |  | 4,036 
|Other areas                    |  | 2,058  |  | 1,951  |  | 1,972 
|                               |  |        |  |        |  |       
|Total sales outside the Group  |  | 13,643 |  | 13,036 |  | 13,007
|                               |  |        |  |        |  |       



|                               |  |        |  |       
|------------------------------ |  | ------ |  | ------
|Assets                         |  | 2003   |  | 2004  
|Nordic region                  |  | 3,321  |  | 3,282 
|Europe excluding Nordic region |  | 2,065  |  | 1,844 
|North America                  |  | 4,224  |  | 3,878 
|Other areas                    |  | 2,046  |  | 1,785 
|Undivided assets               |  | 3,446  |  | 3,832 
|                               |  |        |  |       
|Total assets                   |  | 15,102 |  | 14,621
|                               |  |        |  |       



|                               |  |                       |  |                         |  |      |  |      |  |      |  |     
|------------------------------ |  | --------------------- |  | ----------------------- |  | ---- |  | ---- |  | ---- |  | ----
|                               |  | Tangible fixed assets |  | Intangible fixed assets
|Investments                    |  | 2002                  |  | 2003                    |  | 2004 |  | 2002 |  | 2003 |  | 2004
|Nordic region                  |  | 420                   |  | 253                     |  | 245  |  | 17   |  | 5    |  | 19  
|Europe excluding Nordic region |  | 124                   |  | 68                      |  | 84   |  | 2    |  | 42   |  | 58  
|North America                  |  | 136                   |  | 172                     |  | 112  |  |     |  |     |  |    
|Other areas                    |  | 71                    |  | 58                      |  | 46   |  | 13   |  | 34   |  | 1   
|                               |  |                       |  |                         |  |      |  |      |  |      |  |     
|Total investments              |  | 751                   |  | 551                     |  | 487  |  | 32   |  | 81   |  | 78  
|                               |  |                       |  |                         |  |      |  |      |  |      |  |     



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26. Net income and shareholders equity according to United States Generally Accepted Accounting Principles



The accounts of Swedish Match are prepared in accordance
with Swedish accounting principles (Swedish GAAP). Swedish Match issues certain financial information prepared in accordance with American accounting principles (US GAAP) and files a report each year (Form 20-F) with the US Securities
and Exchange Commission (SEC), which includes additional information about Swedish Matchs business activities in accordance with established rules.



A summary of the effects on the Groups income and shareholders equity due to the application of US GAAP is presented in the tables below:



For the years ended December 31



|                                                                                                |  |      |  |          |   |  |          |   |  |          |  
|----------------------------------------------------------------------------------------------- |  | ---- |  | -------- | - |  | -------- | - |  | -------- | -
|In millions                                                                                     |  | Note |  | 2002 SEK |   |  | 2003 SEK |   |  | 2004 SEK |  
|Reconciliation of net income                                                                    |  |      |  |          |   |  |          |   |  |          |  
|                                                                                                |  |      |  |         
|Net income in accordance with Swedish GAAP                                                      |  |      |  | 1,429    |   |  | 1,558    |   |  | 1,828    |  
|Items that increase or reduce net income                                                        |  |      |  |          |   |  |          |   |  |          |  
|Reporting of goodwill, etc.                                                                     |  | a    |  | 191      |   |  | 211      |   |  | 174      |  
|Restructuring expenses                                                                          |  | b    |  | (29      | ) |  |         |   |  |         |  
|Sale-leaseback of properties                                                                    |  | c    |  | (24      | ) |  | 6        |   |  | 7        |  
|Derivative instruments                                                                          |  | d    |  | 126      |   |  | (99      | ) |  | (2       | )
|Pensions                                                                                        |  | e    |  | (9       | ) |  | (25      | ) |  | (36      | )
|Other                                                                                           |  | f    |  | 21       |   |  | 22       |   |  | 2        |  
|Tax effects of the above US GAAP adjustments                                                    |  |      |  | (38      | ) |  | 7        |   |  | (8       | )
|                                                                                                |  |      |  |          |   |  |          |   |  |          |  
|Net income in accordance with US GAAP, before cumulative effect of revised accounting principle |  |      |  | 1,667    |   |  | 1,680    |   |  | 1,965    |  
|Cumulative effect of revised accounting principle                                               |  | a    |  | (206     | ) |  |         |   |  |         |  
|                                                                                                |  |      |  |          |   |  |          |   |  |          |  
|Net income in accordance with US GAAP                                                           |  |      |  | 1,461    |   |  | 1,680    |   |  | 1,965    |  
|                                                                                                |  |      |  |         
|Earnings per share under US GAAP before cumulative effect of revised accounting principle       |  |      |  |          |   |  |          |   |  |          |  
|Basic                                                                                           |  |      |  | 4.79     |   |  | 5.05     |   |  | 6.03     |  
|Diluted                                                                                         |  |      |  | 4.75     |   |  | 5.03     |   |  | 6.01     |  
|                                                                                                |  |      |  |         
|Cumulative effect per share of revised accounting principle                                     |  |      |  |          |   |  |          |   |  |          |  
|Basic                                                                                           |  |      |  | (0.60    | ) |  |         |   |  |         |  
|Diluted                                                                                         |  |      |  | (0.59    | ) |  |         |   |  |         |  
|                                                                                                |  |      |  |         
|Earnings per share in accordance with US GAAP                                                   |  |      |  |          |   |  |          |   |  |          |  
|Basic                                                                                           |  |      |  | 4.19     |   |  | 5.05     |   |  | 6.03     |  
|Diluted                                                                                         |  |      |  | 4.16     |   |  | 5.03     |   |  | 6.01     |  





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##### Table of Contents

As of December 31



|                                                     |  |      |  |          |   |  |          |  
|---------------------------------------------------- |  | ---- |  | -------- | - |  | -------- | -
|In millions                                          |  | Note |  | 2003 SEK |   |  | 2004 SEK |  
|Reconciliation of shareholders equity               |  |      |  |          |   |  |          |  
|Shareholders equity in accordance with Swedish GAAP |  |      |  | 4,010    |   |  | 4,358    |  
|                                                     |  |      | 
|Items that increase/reduce shareholders equity      |  |      |  |          |   |  |          |  
|Reporting of goodwill, etc.                          |  | a    |  | 1,776    |   |  | 1,929    |  
|Restructuring expenses                               |  | b    |  | (34      | ) |  | (31      | )
|Sale-leaseback of properties                         |  | c    |  | (284     | ) |  | (277     | )
|Derivative instruments                               |  | d    |  | 27       |   |  | 25       |  
|Pensions                                             |  | e    |  | (81      | ) |  | 231      |  
|Other                                                |  | f    |  | 64       |   |  | 62       |  
|Tax effects of the above US GAAP adjustments         |  |      |  | 43       |   |  | (66      | )
|                                                     |  |      |  |          |   |  |          |  
|Shareholders equity in accordance with US GAAP      |  |      |  | 5,521    |   |  | 6,231    |  
|                                                     |  |      |  |          |   |  |          |  



|a) | Reporting of goodwill, etc.
|-- | ---------------------------



At December 31, 1995, Swedish Match was owned by the Volvo Group, which acquired Swedish Match AB in two stages, November 1993 and June 1994, whereby the
purchase method was applied in reporting the transactions.



US
GAAP requires that push down accounting be applied for the independent annual reports of wholly owned subsidiaries if more than 95 percent of the voting securities are acquired in a purchase transaction. Consequently, the adjustments
made in accordance with the purchase method by Volvo, pertaining to Swedish Match, began being reported for US GAAP purposes by Swedish Match in June 1994. Total gross value of goodwill which, according to the above, was transferred to Swedish Match
in 1994 amounted to SEK 6,158 million. Adjustments for property, machinery and equipment amounted to SEK 119 million.



In 1999, Swedish Match divested its cigarette operations. This has resulted in a reduction in the goodwill value that was transferred from Volvo to the
extent it was applicable to cigarette operations. The original gross value attributable to the cigarette operation amounted to SEK 3,605 million. The net book value of this goodwill amount has, consequently, been netted against the capital gains
that arose in the sale of the cigarette operations. The remaining acquisition value for goodwill pertaining to the remaining operations within Swedish Match amounts to SEK 2,553 million. The corresponding amount for properties, machinery and
equipment is SEK 49 million. Amortization of the above goodwill amounted to SEK 128 million in 2001.



According to Swedish accounting principles, goodwill is to be amortized in a systematic manner over its useful life. The useful life for goodwill is
always limited. In accordance with US accounting principles FAS 142, Goodwill and Other Intangible Assets, which applies from January 1, 2002, goodwill and intangible assets that have indefinite useful lives may no longer be subject to
amortization. Instead, an impairment test shall be made in connection with the transition to FAS 142, and then on an annual basis. The company has determined that trademarks and other intangible assets in the company have thereby been deemed to have
a definite useful life. As a consequence, the goodwill amortizations made since 2002, in accordance with Swedish accounting principles, for 2002 SEK 208 million, for 2003 SEK 212 million and for 2004 175 MSEK were reversed for US GAAP purposes.
According to FAS 142, potential impairment arises if the book value of a reporting unit exceeds its fair value. With the transition to FAS 142, an impairment test of goodwill was made January 1, 2002. This resulted in a goodwill
write-down in accordance with US GAAP of SEK 206 million in pipe tobacco operations in northern Europe. The fair value of the operations was calculated as the present value of the estimated future cash flows that the operations were expected to give
rise to. This write-down was, in accordance with US GAAP, reported as a cumulative effect of accounting changes, and thus was charged to income for 2002. The goodwill



F-34



---

##### Table of Contents

impairment test performed during 2003 did not result in any impairment write-down. In 2004, an impairment
charge of SEK 9 million was recorded for US GAAP as well as Swedish GAAP. According to Swedish accounting principles, performance-based contingent purchase price consideration is recorded as additional purchase price. According to US GAAP such
contingent consideration in some cases shall be expensed as compensation for services performed. Contingent consideration of SEK 16 million was expensed under US GAAP in 2002.



|b) | Restructuring expenses
|-- | ----------------------



Up until December 31, 2002 the recognition of restructuring cost under US GAAP, as specified in EITF 94-3, was deferred until a commitment date was
established. This was usually the date on which management, having appropriate level of authority, committed the Group to the restructuring plan, identified all significant actions, including the method of disposition and the expected date of
completion, and, in the case of employee terminations, specified the severance arrangements and communicated them to employees. Prior to 2002, the guidance under Swedish GAAP was not as prescriptive and, in certain circumstances, allowed for earlier
recognition. Additionally, US GAAP was more prescriptive than Swedish GAAP regarding the types of costs which were allowed to be classified as restructuring cost, specifically those which were a direct result of the restructuring and which were not
associated with the ongoing activities of the Group. As from 2002 Swedish GAAP was in all material aspects in line with EITF 94-3.



In January 2003 SFAS 146 was adopted under US GAAP. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred rather than at the date of an entitys commitment to an exit plan. The timing of recognition and related measurement of liability for one-time termination benefits in relation to employees who are to be
involuntarily terminated depends on whether the employees are required to render service until they are terminated in order to receive the termination benefits and, if so, whether employees will be retained to render service beyond a minimum
retention period.



SFAS 146 nullifies EITF 94-3 and is to be
applied prospectively to exit or disposal activities initiated after December 31, 2002. All restructuring activities initiated prior to January 2003 continue to be accounted for in accordance with EITF 94-3 under US GAAP. In 2003 the company did not
have any restructuring charges.



Certain costs for
reorganization reserves, related to acquisitions prior to 2002, which pertain to the acquiring company are included in the goodwill amount in the consolidated balance sheet in accordance with Swedish accounting principles. In accordance with US
GAAP, these costs have been expensed since they were not associated with the acquired company.



|c) | Sale-leaseback of properties
|-- | ----------------------------



In 1998 and 2002, the Group sold property and is now leasing back the same property in accordance with leasing agreements, which according to Swedish
accounting principles is classified as operating leases. As Swedish Match has an option to repurchase this property, the sales are, in accordance with US GAAP, considered financing arrangements, with the result that income recognition is postponed
and the sale proceeds are booked as a liability. The capital gain that arose in 2002 amounted to SEK 27 million, and the capital gain in 1998, under Swedish GAAP, was SEK 266 million. Under US GAAP, the property remains in the books of the company
and depreciation continues to be recorded.



This adjustment
comprises the following components as of December 31:



|                              |  |      |   |  |      |  
|----------------------------- |  | ---- | - |  | ---- | -
|                              |  | 2003 |   |  | 2004 |  
|Buildings                     |  | 610  |   |  | 610  |  
|Less accumulated depreciation |  | (144 | ) |  | (160 | )
|Buildings, net                |  | 466  |   |  | 450  |  
|                              |  |     
|Prepaid expenses              |  | (14  | ) |  | (14  | )
|                              |  |     
|Finance obligation            |  | 737  |   |  | 713  |  
|Equity adjustment             |  | (284 | ) |  | (277 | )



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|d) | Derivative instruments
|-- | ----------------------



Under Swedish GAAP, the company has applied hedge accounting. Since the company does not fulfil the requirements under US GAAP for hedge accounting,
changes in the fair value of the derivative instruments are reported in the income statement.



|e) | Provisions for post-employment benefits
|-- | ---------------------------------------



Effective January 1, 2004, pensions and post-retirement benefits are accounted for by the Group in accordance with RR 29, Employee benefits, which in all
material respects is similar to International Accounting Standard 19. Prior to 2004, the Group calculated periodic pension cost and liability and post-retirement cost and liability using the local laws and accounting principles of each country.
Under US GAAP, pensions and post-retirement benefits are accounted for in accordance with SFAS 87, Employers Accounting for Pensions and SFAS 106 Employers Accounting for Post-retirement Benefits Other than Pensions. Under RR 29, defined benefit
post-employment obligations and expenses are actuarially determined in the same manner as US GAAP SFAS 87 and SFAS 106, using the projected unit credit method. However, some significant differences exist between Swedish and US GAAP:



| |  |  | Swedish GAAP, RR 29, was implemented effective January 1, 2004 with a transition amount taken directly to equity in accordance with Swedish accounting principles. SFAS 87 and SFAS
106 was implemented much earlier. The difference in implementation dates causes a significant difference in accumulated actuarial gains and losses, where the accumulated actuarial gains and losses under Swedish GAAP were set to zero as of the
implementation date of RR 29, whereas under US GAAP the accumulated actuarial gains and losses have been accumulating since the implementation dates for those standards.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Under US GAAP an additional liability (minimum liability) should be recognised when the accumulated benefit obligation exceeds the fair value of the plan assets, and this excess is
not covered by the liability recognised in the balance sheet. If a minimum liability is recognized an equal amount is recognized as an intangible asset, provided that the asset recognized shall not exceed the amount of unrecognized prior service
cost, any excess shall be reported in other comprehensive income. Such minimum liability is not required under Swedish GAAP.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Under Swedish GAAP, the past service costs resulting from plan amendments are recognised immediately if vested or amortised until vested. Under US GAAP, past service costs are
generally recognised over the average remaining service life of the plan participants.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Under Swedish GAAP the expected return on plan assets is based on actual market values while US GAAP allows an expected return on assets based on market-related values.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Alecta, the Swedish insurance company, announced its decision in 2000 to repay pension contributions to its policyholders, including Swedish Match. In accordance with Swedish GAAP,
the cash payments and discounted present values of future premium reductions were booked as income during 2000. In accordance with US GAAP, only cash payments are recorded as income, while future premium reductions will be recorded as income when
they are utilised.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The adjustments in the US
GAAP reconciliation represents a combination of the above differences.



|f) | Other
|-- | -----



Borrowing costs which are directly attributable to purchases, construction or production of an asset which requires considerable time to complete for its
intended use, shall, in accordance with US GAAP, be included as part of the assets acquisition value. In accordance with Swedish accounting principles, these borrowing costs are expensed on an ongoing basis. During 2002 and 2003, SEK 16
million and SEK 24 million respectively were included in the acquisition value of buildings and land.



The Board of Directors decided in 1999 to introduce an options program for Senior Management. In accordance with Swedish GAAP, the Company makes
provisions for social fees and withholding tax on the options in the year to which the grant relates. In accordance with US GAAP employer



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payroll taxes on employee stock compensation are recognized on the date of the event triggering the
measurement and payment of the tax to the taxing authority, which normally occurs when the options are issued.



Under Swedish GAAP, short-term investments are reported at the lower of cost or market value. In accordance with US GAAP, Swedish Matchs short-term
investments are classified as available for sale. According to US GAAP, such assets must be carried at fair value in the balance sheet. Unrealized gains and losses, net of deferred taxes, are recognized in other comprehensive income
until realized.



|g) | Deconsolidation of General Cigar
|-- | --------------------------------



Swedish Match acquired 64 percent of the American company General Cigar in May 2000. The Cullman family holds the remaining 36 percent. In accordance with
the shareholder agreement between Swedish Match and the Cullman family, the minority shareholders are afforded substantive participating rights, which entitles the minority shareholders to actively participate in significant issues pertaining to the
daily operations of General Cigar. Accordingly, under US GAAP, General Cigar is not consolidated by Swedish Match; the investment in General Cigar is accounted for under the equity method. This does not result in any net effect on the reconciliation
of net income or shareholders equity between Swedish GAAP and US GAAP. However, the balance sheet is affected by this difference. The following table presents a condensed consolidated balance sheet in accordance with Swedish GAAP and US GAAP,
whereby all US GAAP adjustments described in this section are taken into account.



|                                           |  |                                         |  |                                           |  |        |  |       
|------------------------------------------ |  | --------------------------------------- |  | ----------------------------------------- |  | ------ |  | ------
|                                           |  | Reported in accordance withSwedish GAAP |  | Restated values inaccordance with US GAAP
|                                           |  | 2003                                    |  | 2004                                      |  | 2003   |  | 2004  
|Fixed assets                               |  | 7,126                                   |  | 6,735                                     |  | 9,660  |  | 9,297 
|Current assets                             |  | 7,976                                   |  | 7,886                                     |  | 6,531  |  | 6,515 
|                                           |  |                                         |  |                                           |  |        |  |       
|Total assets                               |  | 15,102                                  |  | 14,621                                    |  | 16,191 |  | 15,812
|                                           |  |                                         |  |                                          
|Shareholders equity                       |  | 4,010                                   |  | 4,358                                     |  | 5,521  |  | 6,231 
|Minority interests                         |  | 597                                     |  | 473                                       |  | 27     |  | 7     
|Provisions                                 |  | 2,119                                   |  | 3,111                                     |  | 1,745  |  | 2,397 
|Long-term liabilities                      |  | 4,601                                   |  | 2,580                                     |  | 5,207  |  | 3,213 
|Current liabilities                        |  | 3,775                                   |  | 4,099                                     |  | 3,691  |  | 3,964 
|                                           |  |                                         |  |                                           |  |        |  |       
|Total liabilities and shareholders equity |  | 15,102                                  |  | 14,621                                    |  | 16,191 |  | 15,812
|                                           |  |                                         |  |                                           |  |        |  |       



Supplementary US GAAP information



Consolidated Statement of Comprehensive Income



Components of comprehensive income consist of the following:



|                                        |  |       |   |  |       |   |  |       |  
|--------------------------------------- |  | ----- | - |  | ----- | - |  | ----- | -
|                                        |  | 2002  |   |  | 2003  |   |  | 2004  |  
|Net income under Swedish GAAP           |  | 1,429 |   |  | 1,558 |   |  | 1,828 |  
|Other comprehensive income              |  |       |   |  |       |   |  |       |  
|Currency translation differences        |  | (467  | ) |  | (116  | ) |  | (89   | )
|                                        |  |       |   |  |       |   |  |       |  
|Comprehensive income under Swedish GAAP |  | 962   |   |  | 1,442 |   |  | 1,739 |  
|                                        |  |       |   |  |       |   |  |       |  



Statement of Cash Flows



According to SFAS 95, cash and cash equivalents
only cover funds with terms of three months or less. Some of Swedish Matchs liquid funds (see Note 14) do not meet this requirement. As a result, changes in this segment of liquid funds are reported as investments, as defined by SFAS 95.



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Also, in accordance with Swedish accounting principles, changes in short-term borrowing, where the term
is twelve months or less, are reported net. In accordance with SFAS 95, there is a three-month limit for such net reporting.



Change in short-term loans comprises the following:



|                                                                |  |      |   |  |      |   |  |      |  
|--------------------------------------------------------------- |  | ---- | - |  | ---- | - |  | ---- | -
|                                                                |  | 2002 |   |  | 2003 |   |  | 2004 |  
|Short-term loans, borrowings                                    |  | 152  |   |  | 57   |   |  | 60   |  
|Short-term loans, repayments                                    |  | (457 | ) |  | (76  | ) |  | 61   |  
|Net change in short-term loans maturing within 3 months or less |  | (34  | ) |  | (16  | ) |  | (3   | )
|                                                                |  |      |   |  |      |   |  |      |  
|                                                                |  | (339 | ) |  | (35  | ) |  | 118  |  
|                                                                |  |      |   |  |      |   |  |      |  



Recently issued accounting
pronouncements



In December 2004, the FASB issued FASB
Statement No. 123R (revised 2004), Share-Based Payment, which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains
employee services in share-based payment transactions. This Statement is a revision to Statement 123 and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. Incremental
compensation costs arising from subsequent modifications of awards after the grant date must be recognized. This Statement will be effective for the Company as of January 1, 2006. Swedish Match does not expect this standard to have a material impact
on its financial statements.



SFAS 123R provides two tentative
adoption methods. The first method is a modified prospective transition method whereby a company would recognize share-based employee costs from the beginning of the fiscal period in which the recognition provisions are first applied as if the
fair-value-based accounting method had been used to account for all employee awards granted, modified, or settled after the effective date and to any awards that were not fully vested as of the effective date. Measurement and attribution of
compensation cost for awards that are unvested as of the effective date of SFAS 123R would be based on the same estimate of the grant-dates fair value and the same attribution method used previously under SFAS No. 123, Accounting for
Stock-Based Compensation (SFAS 123). The second adoption method is a modified retrospective transition method whereby a company would recognize employee compensation cost for periods presented prior to the adoption of SFAS 123R in
accordance with the original provisions of SFAS 123. Swedish Match does not expect this standard to have a material impact on its financial statements.



In November 2004, the FASB issued FASB Statement No.151, Inventory Costs, which clarifies the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material (spoilage). Under this Statement, such items will be recognized as current-period charges. In addition, the Statement requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. This Statement will be effective for the Company for inventory costs incurred on or after January 1, 2006. Swedish Match does not expect this standard to have a material impact
on its financial statements.



In December 2004, the FASB issued
FASB Statement No. 153, Exchanges of Nonmonetary Assets, which eliminates an exception in APB 29 for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not
have commercial substance. This Statement will be effective for the Company for nonmonetary asset exchanges occurring on or after January 1, 2006. Swedish Match does not expect this standard to have a material impact on its financial statements.



In March 2005, the FASB issued FASB Interpretation No.47,
Accounting for Conditional Asset retirement Obligations (FIN 47). FIN 47 requires an entity to recognize a liability for a legal obligation to perform an asset retirement activity in which the timing and (or) method of the settlement are conditional
on a future event. The liability must be recognized if the fair value of the liability can be reasonably estimated. This interpretation of SFAS No. 143, Accounting for Asset Retirement Obligation, is effective no later than the end of fiscal years
ending after December 15, 2005. Swedish Match is evaluating FIN 47 for any impact on its financial statements from the original 2003 adoption of SFAS No. 143.



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In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154, Accounting
Changes and Error Correctionsa replacement of APB Opinion No. 20 and FASB Statement No. 3 (SFAS 154). SFAS 154 requires retrospective application to prior periods financial statements of changes in accounting principle
and corrections of errors. SFAS 154 is effective for fiscal years beginning after December 15, 2005.



27. Personnel



The
average number of employees in 2003 was 45 for the Parent Company and 15,115 for the Group. For 2004 the numbers were 47 and 15,039 respectively.



Wages, salaries, other remuneration and social welfare expenses are summarized below:



|               |  |                                |  |                                             |      |      |                                |  |                                              |  |     |  |      |  
|-------------- |  | ------------------------------ |  | ------------------------------------------- | ---- | ---- | ------------------------------ |  | -------------------------------------------- |  | --- |  | ---- | -
|               |  | 2003                           |  |                                             | 2004 |     
|               |  | Salaries andother compensation |  | Social welfarecosts (of whichpension costs) |      |      | Salaries andother compensation |  | Social welfarecosts (of whichpensions costs) | 
|Parent Company |  | 46                             |  | 25                                          |      | (8   | )                              |  | 55                                           |  | 34  |  | (13  | )
|Subsidiaries   |  | 1,725                          |  | 620                                         |      | (104 | )                              |  | 1,671                                        |  | 583 |  | (104 | )
|               |  |                                |  |                                             |      |      |                                |  |                                              |  |     |  |      |  
|The Group      |  | 1,771                          |  | 645                                         |      | (112 | )                              |  | 1,726                                        |  | 617 |  | (117 | )
|               |  |                                |  |                                             |      |      |                                |  |                                              |  |     |  |      |  



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Wages, salaries and other remuneration by country and between members of the Board, etc., and other
employees are summarized below:



|                      |  |                                                 |  |      |                |  |                                                 |  |    |                |     |   |  |      
|--------------------- |  | ----------------------------------------------- |  | ---- | -------------- |  | ----------------------------------------------- |  | -- | -------------- | --- | - |  | -----
|                      |  | 2003                                            |  | 2004
|                      |  | Board and CEO(of which bonuses etc.and similar) |  |      | Otheremployees |  | Board and CEO(of which bonuses etc.and similar) |  |    | Otheremployees
|The Parent Company    |  |                                                 |  |      |                |  |                                                 |  |    |                |     |   |  |      
|                      |  |                                                 |  |      |                | 
|Sweden                |  | 14                                              |  | (2   | )              |  | 32                                              |  | 22 |                | (4  | ) |  | 33   
|                      |  |                                                 |  |      |                | 
|Subsidiaries          |  |                                                 |  |      |                |  |                                                 |  |    |                |     |   |  |      
|                      |  |                                                 |  |      |                | 
|Australia             |  | 3                                               |  | (0   | )              |  | 15                                              |  |    |                |    |   |  | 17   
|Belgium               |  |                                                 |  | 1    |                |  | 91                                              |  |    |                |    |   |  | 84   
|Brazil                |  | 3                                               |  | (1   | )              |  | 32                                              |  | 4  |                | (1  | ) |  | 32   
|Bulgaria              |  |                                                 |  |     |                |  | 3                                               |  |    |                |    |   |  | 3    
|China                 |  |                                                 |  |     |                |  | 13                                              |  |    |                | 1   |   |  | 13   
|Dominican Republic    |  |                                                 |  |     |                |  | 121                                             |  |    |                |    |   |  | 99   
|France                |  |                                                 |  |     |                |  | 29                                              |  |    |                |    |   |  | 30   
|Germany               |  |                                                 |  | 1    |                |  | 20                                              |  |    |                | 1   |   |  | 17   
|Honduras              |  |                                                 |  |     |                |  | 33                                              |  |    |                |    |   |  | 43   
|Hungary               |  |                                                 |  |     |                |  | 14                                              |  |    |                |    |   |  | 12   
|India                 |  |                                                 |  | 1    |                |  | 55                                              |  |    |                | 1   |   |  | 53   
|Indonesia             |  |                                                 |  |     |                |  | 13                                              |  |    |                |    |   |  | 14   
|Ireland               |  |                                                 |  | 1    |                |  | 12                                              |  |    |                | 1   |   |  | 13   
|Netherlands           |  |                                                 |  | 4    |                |  | 172                                             |  |    |                | 4   |   |  | 150  
|Philippines           |  |                                                 |  |     |                |  | 7                                               |  |    |                |    |   |  | 7    
|Portugal              |  |                                                 |  |     |                |  | 5                                               |  |    |                |    |   |  | 5    
|South Africa          |  |                                                 |  |     |                |  | 62                                              |  |    |                |    |   |  | 65   
|Spain                 |  |                                                 |  |     |                |  | 47                                              |  |    |                |    |   |  | 36   
|Sweden                |  | 4                                               |  | (1   | )              |  | 357                                             |  | 4  |                | (0  | ) |  | 361  
|Switzerland           |  |                                                 |  | 2    |                |  | 3                                               |  | 5  |                | (1  | ) |  | 2    
|Turkey                |  |                                                 |  |     |                |  | 22                                              |  |    |                |    |   |  | 20   
|United Kingdom        |  |                                                 |  | 3    |                |  | 43                                              |  |    |                |    |   |  | 38   
|United States         |  | 11                                              |  | (4   | )              |  | 504                                             |  | 11 |                | (5  | ) |  | 497  
|Other countries       |  | 3                                               |  | (0   | )              |  | 15                                              |  | 2  |                | (0  | ) |  | 26   
|                      |  |                                                 |  |      |                |  |                                                 |  |    |                |     |   |  |      
|Total in subsidiaries |  | 37                                              |  | (6   | )              |  | 1,688                                           |  | 34 |                | (7  | ) |  | 1,637
|                      |  |                                                 |  |      |                |  |                                                 |  |    |                |     |   |  |      
|Group total           |  | 51                                              |  | (8   | )              |  | 1,720                                           |  | 56 |                | (11 | ) |  | 1,670
|                      |  |                                                 |  |      |                |  |                                                 |  |    |                |     |   |  |      



During year 2004, SEK
11,7 (14.6) million was paid into the profit sharing fund for Group employees in Sweden.



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##### Table of Contents

Employees of the Group distributed by country are summarized below:



|                   |  |                             |  |        |  |                
|------------------ |  | --------------------------- |  | ------ |  | ---------------
|                   |  | Average number of employees
|                   |  | 2003                        |  | 2004   |  | of which men, %
|Parent Company     |  |                             |  |        |  |                
|Sweden             |  | 45                          |  | 47     |  | 49             
|Subsidiaries       |  |                             |  |        |  |                
|Australia          |  | 50                          |  | 49     |  | 57             
|Austria            |  | 15                          |  | 15     |  | 67             
|Belgium            |  | 378                         |  | 317    |  | 29             
|Brazil             |  | 800                         |  | 741    |  | 71             
|Bulgaria           |  | 115                         |  | 107    |  | 43             
|China              |  | 292                         |  | 265    |  | 65             
|Dominican Republic |  | 3,270                       |  | 3,339  |  | 41             
|France             |  | 66                          |  | 66     |  | 56             
|Germany            |  | 60                          |  | 40     |  | 63             
|Honduras           |  | 1,087                       |  | 1,623  |  | 41             
|Hungary            |  | 188                         |  | 172    |  | 36             
|India              |  | 3,364                       |  | 2,877  |  | 99             
|Indonesia          |  | 1,466                       |  | 1,512  |  | 15             
|Ireland            |  | 38                          |  | 37     |  | 73             
|Netherlands        |  | 414                         |  | 419    |  | 80             
|Norway             |  | 10                          |  | 27     |  | 63             
|Philippines        |  | 129                         |  | 128    |  | 51             
|Poland             |  |                            |  | 17     |  | 71             
|Portugal           |  | 30                          |  | 22     |  | 73             
|Slovenia           |  | 10                          |  | 14     |  | 93             
|South Africa       |  | 553                         |  | 493    |  | 91             
|Spain              |  | 167                         |  | 123    |  | 78             
|Sweden             |  | 996                         |  | 1,050  |  | 59             
|Switzerland        |  | 6                           |  | 6      |  | 67             
|Turkey             |  | 208                         |  | 180    |  | 87             
|United Kingdom     |  | 72                          |  | 59     |  | 61             
|United States      |  | 1,264                       |  | 1,273  |  | 59             
|Other countries    |  | 22                          |  | 21     |  | 71             
|                   |  |                             |  |        |  |                
|Group total        |  | 15,115                      |  | 15,039 |  | 58             
|                   |  |                             |  |        |  |                



Leading executives,
gender distribution:



|                         |  |                 |  |                 |  |                 |  |                
|------------------------ |  | --------------- |  | --------------- |  | --------------- |  | ---------------
|                         |  | 2003            |  | 2004           
|                         |  | At end ofperiod |  | (of whommen, %) |  | At end ofperiod |  | (of whommen, %)
|The Parent Company       |  |                 |  |                 |  |                 |  |                
|Board members            |  | 10              |  | 80              |  | 9               |  | 78             
|CEO and other management |  | 11              |  | 100             |  | 10              |  | 100            
|                         |  |                 |  |                
|Group                    |  |                 |  |                 |  |                 |  |                
|Board members            |  | 130             |  | 95              |  | 136             |  | 93             
|CEO and other management |  | 137             |  | 96              |  | 126             |  | 94             



Compensation to senior executives



Compensation to Swedish Match ABs Board members



Fees are paid to the Chairman of the Board and Board members in
accordance with decisions of the Annual General Meeting. No Board fee is paid to the President. A study fee in an amount of SEK 42,250 was paid to each of the three employee representatives on the Board, and in an amount



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##### Table of Contents

of SEK 31,689 to each of the three deputy members. The fees paid to Board members elected by the Annual General Meeting for Board work during 2004 are shown
in the table below:



Board fees to Board members elected by AGM in 2004



|                 |  |           |  |                       |  |                |  |                         
|---------------- |  | --------- |  | --------------------- |  | -------------- |  | ------------------------
|(SEK)            |  | Board fee |  | CompensationCommittee |  | AuditCommittee |  | Total fees forBoard work
|Bernt Magnusson  |  | 687,500   |  | 80,000                |  |                |  | 767,500                 
|Jan Blomberg     |  | 293,750   |  | 50,625                |  | 86,250         |  | 430,625                 
|Tuve Johannesson |  | 293,750   |  |                       |  |                |  | 293,750                 
|Arne Jurbrant    |  | 293,750   |  | 36,667                |  | 17,083         |  | 347,500                 
|Meg Tivéus       |  | 293,750   |  |                       |  | 53,750         |  | 347,500                 
|Klaus Unger      |  | 93,750    |  | 13,958                |  |                |  | 107,708                 
|Karsten Slotte   |  | 200,000   |  |                       |  | 36,667         |  | 236,667                 
|                 |  |           |  |                       |  |                |  |                         
|Total            |  | 2,156,250 |  | 181,250               |  | 193,750        |  | 2,531,250               
|                 |  |           |  |                       |  |                |  |                         



In 2003, The Annual
General Meeting decided that remuneration to the Board Chairman up until the end of the 2004 Annual General Meeting would be SEK 650,000 and SEK 275,000 each to the other Board members elected by the AGM and to give the Board SEK 300,000 as
compensation for committee work, to be distributed within the Board as it decides.



The Annual General Meeting in 2004 decided that compensation for the Board Chairman until the end of the next AGM was to be SEK 700,000 and SEK 300,000 to each of the other Board members elected by the AGM and to give
the Board SEK 400,000 as compensation for committee work, to be distributed within the Board as it decides.



Compensation and other benefits to Group management during 2004



|                        |  |              |  |                    |  |                 |  |                 |  |                 |  |                 |  |                   
|----------------------- |  | ------------ |  | ------------------ |  | --------------- |  | --------------- |  | --------------- |  | --------------- |  | ------------------
|(SEK 000s)              |  |              |  | Basesalary         |  | Bonus           |  | Options         |  | Otherbenefits   |  | Pensioncosts 1) |  | Total             
|President               |  | 200420032002 |  | 5,4525,3004,600    |  | 1,8551,6101,400 |  | 7009241,300     |  | 209319371       |  | 2,256463398     |  | 10,4718,6168,069  
|                        |  |              |  |                    |  |                 | 
|Other senior executives |  | 200420032002 |  | 20,46422,43520,730 |  | 6,8795,4826,842 |  | 3,8504,1585,850 |  | 1,7811,3911,564 |  | 5,0316,9365,844 |  | 38,00540,40240,830
|                        |  |              |  |                    |  |                 | 
|Total                   |  | 200420032002 |  | 25,91527,73525,330 |  | 8,7347,0928,242 |  | 4,5505,0827,150 |  | 1,9901,7101,935 |  | 7,2877,3996,242 |  | 48,47649,01848,899

---

|1) | Pertains to expensed pensions
|-- | -----------------------------



Comments on the table



| |  | The compensation paid to the President in 2004 relates to remuneration for Lennart Sundén for the period through March 19, 2004, when he resigned, and to Sven Hindrikes for
the subsequent period.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The terms and conditions for Sven Hindrikes compensation as President in 2004 were as follows: Fixed annual salary of SEK 5,500,000; a maximum bonus of 35 percent and a pension on
salary income up to 30 income base amounts according to the ITP plan and on income above 30 income base amounts a provision of 40 percent is paid to a defined-contribution pension plan. Pension according to the ITP plan is to be fully paid at the
age of 60.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Bonus pertains to incentive payments made during the year.
|- |  | ----------------------------------------------------------



| |  | Options are gross amounts disposable for allocation of options.
|- |  | ---------------------------------------------------------------



| |  | Other benefits pertain to company car and other benefits.
|- |  | ---------------------------------------------------------



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| |  | The reported pension costs are cost that affects the result for defined-contribution pensions and service cost according to IAS for defined-benefit pensions. These accounting
principles apply to pension costs as of 2004.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Bonus



Group management is covered by an annual incentive
program (bonus), which in 2004 could provide a maximum 35 percent of the base salary. The outcome of the incentive program is based on the increase in earnings per share for the President and staff managers. For division Presidents, 50 percent of
the incentive program is based on the increase in earnings per share, while the remaining 50 percent is based on the increase in operating income in the division. Maximum payment in the case of the portion based on earnings per share requires that
earnings per share increase 20 percent or more compared with the preceding year. For division managers, payment based on the incentive program also requires that operating income improves compared with the preceding year for the particular division,
with maximum payment requiring the fulfillment of the set targets.



In addition to the annual incentive program, one Division President in a non-Swedish division are encompassed by a local incentive program. The local program extends over three years and a new program commences every second year. Payment
from the local program may thus occur every second year if the set earnings targets are met. The maximum outcome for the Division President is approximately one years base salary every second year.



Options



The Group has an ongoing options program that may provide an allocation of call options on shares in Swedish Match AB. The
options are allotted to participants when certain targets have been fulfilled. The options have a lifetime of five years and may be exercised during the fourth and fifth year. In 2004, the options program covered 58 executives.



The allotment of options in any year is based on the outcome for two criteria:



| |  | The total share return on the Swedish Match share must be positive and superior to the total share return on shares in a selected number of companies in the industry. A maximum
allotment is made if the return is 20 percentage points or more than the return on the shares of the other companies.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Earnings per share must increase and be higher than an average of the past three years. A maximum allotment is made if earnings per share are 20 percent higher than the average over
the past three years.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



These criteria have the
same value. If the conditions for earnings are fulfilled, the particular executive is allotted options at no cost. The allotment of options constitutes a taxable income for participants resident in Sweden. The options are assigned a market value in
accordance with the Black & Scholes model. They are irrevocable once allotted. The total value of the allotment may be a maximum 30 percent of the base salary amount for the executives included in the program. The options carry an exercise price
of 120 percent of the average share price over a ten-day period after the published year-end report.



Based on the targets attained in 2003, 865,259 options were issued in 2004. Exercise may be made between March 1, 2007 through February 27, 2009. Each
option entitles the holder to purchase one share in Swedish Match AB at a price per share of SEK 84.80. The market value, computed using the Black & Scholes model, is SEK 10.00 per option or a total of 8,652,590. Since Swedish Match AB has
issued the options, no expensing is involved. However, preliminary taxes and social security charges are expensed, which in the particular cases occurred directly on issue.



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|                      |  |               |  |                 |  |           |  |               
|--------------------- |  | ------------- |  | --------------- |  | --------- |  | --------------
|Exercise period       |  | Exerciseprice |  | Number ofshares |  | Exercised |  | Netoutstanding
|2003-03-132005-03-14 |  | 34.70         |  | 2,847,108       |  | 2,426,275 |  | 420,833       
|2004-03-132006-03-14 |  | 44.50         |  | 1,812,309       |  | 1,197,112 |  | 615,197       
|2005-03-152007-03-15 |  | 77.50         |  | 1,518,770       |  |           |  | 1,518,770     
|2006-03-012008-02-28 |  | 74.00         |  | 1,428,490       |  |           |  | 1,428,490     
|2007-03-012009-02-27 |  | 84.80         |  | 865,259         |  |           |  | 865,259       
|                      |  |               |  |                 |  |           |  |               
|                      |  |               |  | 8,471,936       |  | 3,623,387 |  | 4,848,549     
|                      |  |               |  |                 |  |           |  |               



Pensions



Introduction



During 2004, new principles were introduced for Group management pensions.
This means that Group management executives resident in Sweden are to be recovered by the ITP plan for salary of up to 30 salary base amounts and a defined-contribution pension on salary exceeding this amount. For members of Group management
stationed abroad, the new principles primarily entail defined-contribution solutions and the base salary constitutes the pensionable salary.



The retirement age for members of Group management is 62.



President



According to the employment contract, the retirement age for Sven Hindrikes is 62 and he is encompassed by the ITP plan for salary up to 30 salary base
amounts. Pension according to the ITP plan is to be fully paid at the age of 60. In addition, the company pays a pension premium of 40 percent of the fixed salary exceeding 30 salary base amounts.



Other members of Group management



Other members of Group management are eight persons who are subject to the
following pension terms and conditions.



In the case of the
four members of Group management resident in Sweden, two of them have terms and conditions in accordance with the previously named new pension principles. For the other two, the terms and conditions have been renegotiated with the result that the
defined-benefit pension remains in place, but that the pensionable salary has been locked at the 2005 level. For both of these the retirement age is 60.



In the case of the four members of Group management resident abroad, two of them are encompassed by defined-benefit pension solutions with a retirement
age of 60 and 65, respectively. The other two are covered by contribution-based pension solutions with a retirement age of 65 according to the employment contract.



Funding of pension commitments



In Sweden, pensions on salary portions of up to 30 salary base amounts are funded in PSF, Swedish Match Pensionskassa. The
commitment for defined-benefit pensions for salary portions exceeding 30 salary base amounts is funded in Swedish Match Pensionstiftelse (pension foundation). For members of Group management resident outside Sweden, defined-benefit pension
commitments are funded in local pension foundations.



All
pension benefits are irrevocable.



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Other employment terms



Severance pay, etc.



For the President, a joint six-month period of notice applies. A maximum severance payment of 18 months salary is payable if the company terminates
the employment contract. Severance pay will be reduced by a maximum of 50 percent of any other income, but not to less than half of the contracted severance pay.



A six-month mutual notice of intent to terminate employment applies for other members of Group management. If the Company
terminates employment, severance pay is payable in an amount equivalent to 18 months of cash salary.



Preparation and decision-making process



Swedish Match ABs Board has appointed a Compensation Committee. The Committees task is to prepare decisions for the Board in issues involving the principles underlying management salaries and other
employment terms, pension benefits and bonus systems as well as other issues of a principle significance or of major importance for the company.



As of 2004, the Board of Directors acting in corpore will determine the Presidents salary, bonus and other terms of employment. The Compensation
Committee approved the 2004 salary, bonus and other employment terms for other members of group management following proposals from the president. The Compensation Committee decided on criteria for the incentive programs encompassing Group
management. In addition, the Compensation Committee presented proposals to the Board regarding the groups options program and profit-sharing system, following which the Board has made decisions based on the recommendation of the Compensation
Committee.



28. Subsequent events



On January 20, 2005, the decision to cease production and close the Valencia
match factory in Spain was announced. This decision was due to operating losses and declining match volumes in Europe. The closure is expected to be completed in the first half of 2005 and will result in charges for severance pay etc. in the
magnitude of SEK 30 million.



In February 2005, an agreement in
principle was concluded relating to the acquisition of the minority shareholding in General Cigar. The acquisition is taking place against the background of strong performance by the premium cigar operations in the US and the opportunity to achieve
synergies between the North America division and General Cigar.



The acquisition of General Cigar was consummated on April 22, 2005, and the total payment for the shares amounted to SEK 1,094 million.



At the Annual Shareholders meeting on April 27, 2005, the shareholders decided to give the Board of Directors a mandate to repurchase shares but not
exceeding 10 percent of outstanding shares. It was also decided to cancel 12,000,000 shares that were previously repurchased. Furthermore, at the Annual General Meeting the shareholders approved a reduction in share capital by decreasing the par
value of shares from SEK 2.40 to SEK 1.20 and a reduction of SEK 114 million in the statutory reserve. As a result of the reduction, SEK 532 million will be transferred from restricted shareholders equity to non-restricted shareholders
equity.



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