##### Table of Contents

As filed with the Securities and Exchange Commission on June 30, 2003



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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, 2002



OR



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



For the period fromto



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)



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 |  | 361,596,181
|---------------------------------------- |  | -----------



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                                                                                              |  | 3   
|                                      |  | ITEM 4.  |  |      |  | INFORMATION ON THE COMPANY                                                                                |  | 7   
|                                      |  |          |  | 4.A  |  | History and Development                                                                                   |  | 7   
|                                      |  |          |  | 4.B  |  | Business Overview                                                                                         |  | 8   
|                                      |  |          |  | 4.C  |  | Organizational Structure                                                                                  |  | 26  
|                                      |  |          |  | 4.D  |  | Property, Plants and Equipment                                                                            |  | 26  
|                                      |  | ITEM 5.  |  |      |  | OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                                              |  | 27  
|                                      |  |          |  | 5.A  |  | Operating Results                                                                                         |  | 27  
|                                      |  |          |  | 5.B  |  | Liquidity and Capital Resources                                                                           |  | 39  
|                                      |  |          |  | 5.C  |  | Research and Development, Patents and Licenses, etc.                                                      |  | 41  
|                                      |  |          |  | 5.D  |  | Trend Information                                                                                         |  | 41  
|                                      |  | ITEM 6.  |  |      |  | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                                                |  | 42  
|                                      |  |          |  | 6.A  |  | Directors and Senior Management                                                                           |  | 42  
|                                      |  |          |  | 6.B  |  | Compensation                                                                                              |  | 46  
|                                      |  |          |  | 6.C  |  | Board Practices                                                                                           |  | 47  
|                                      |  |          |  | 6.D  |  | Employees                                                                                                 |  | 48  
|                                      |  |          |  | 6.E  |  | Share Ownership                                                                                           |  | 49  
|                                      |  | ITEM 7.  |  |      |  | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                                                         |  | 50  
|                                      |  |          |  | 7.A  |  | Major shareholders                                                                                        |  | 50  
|                                      |  |          |  | 7.B  |  | Related Party Transactions                                                                                |  | 51  
|                                      |  |          |  | 7.C  |  | Interests of Experts and Counsel                                                                          |  | 51  
|                                      |  | ITEM 8.  |  |      |  | FINANCIAL INFORMATION                                                                                     |  | 51  
|                                      |  |          |  | 8.A  |  | Consolidated Statements and Other Financial Information                                                   |  | 51  
|                                      |  |          |  | 8.B  |  | Significant Changes                                                                                       |  | 54  
|                                      |  | ITEM 9.  |  |      |  | THE OFFER AND LISTING                                                                                     |  | 55  
|                                      |  |          |  | 9.A  |  | Offer and Listing Details                                                                                 |  | 55  
|                                      |  |          |  | 9.B  |  | Plan of Distribution                                                                                      |  | 55  
|                                      |  |          |  | 9.C  |  | Market                                                                                                    |  | 56  
|                                      |  |          |  | 9.D  |  | Selling Shareholders                                                                                      |  | 56  
|                                      |  |          |  | 9.E  |  | Dilution                                                                                                  |  | 56  
|                                      |  |          |  | 9.F  |  | Expenses of the issue                                                                                     |  | 56  
|                                      |  | ITEM 10. |  |      |  | ADDITIONAL INFORMATION                                                                                    |  | 56  
|                                      |  |          |  | 10.A |  | Share Capital                                                                                             |  | 56  
|                                      |  |          |  | 10.B |  | Memorandum and Articles of Association                                                                    |  | 57  
|                                      |  |          |  | 10.C |  | Material contracts                                                                                        |  | 59  
|                                      |  |          |  | 10.D |  | Exchange controls                                                                                         |  | 59  
|                                      |  |          |  | 10.E |  | Taxation                                                                                                  |  | 59  
|                                      |  |          |  | 10.F |  | Dividends and Paying Agents                                                                               |  | 62  
|                                      |  |          |  | 10.G |  | Statements by Experts                                                                                     |  | 62  
|                                      |  |          |  | 10.H |  | Documents on Display                                                                                      |  | 62  
|                                      |  |          |  | 10.I |  | Subsidiary Information                                                                                    |  | 62  
|                                      |  | ITEM 11. |  |      |  | QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK ON DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS |  | 62  
|                                      |  | ITEM 12. |  |      |  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                                                    |  | 65  
|PART II                               |  | 66      
|                                      |  | ITEM 13. |  |      |  | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                                                           |  | 66  
|                                      |  | ITEM 14. |  |      |  | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS                              |  | 66  
|                                      |  | ITEM 15. |  |      |  | DISCLOSURE CONTROL AND PROCEDURES                                                                         |  | 66  
|                                      |  | ITEM 16. |  |      |  | [RESERVED]                                                                                                |  | 66  
|PART III                              |  | 67      
|                                      |  | ITEM 17. |  |      |  | FINANCIAL STATEMENTS                                                                                      |  | 67  
|                                      |  | ITEM 18. |  |      |  | FINANCIAL STATEMENTS                                                                                      |  | 67  
|                                      |  | ITEM 19. |  |      |  | EXHIBITS                                                                                                  |  | 67  



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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 are to the currency of India and references to U.S. dollars or USD are to the currency of the United States. On December 31, 2002, 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 8.6950. The Federal Reserve Noon Buying Rate on June 23, 2003, was USD 1.00 = SEK 7.8920.



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 United States (U.S. GAAP). For a narrative discussion of the principal differences between Swedish GAAP as currently in effect and U.S.
GAAP, see Note 24 of the Notes to the Consolidated Financial Statements.



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 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;
| | - |  | ----------------------------------------------------------------------------



| |  |  | the commencement of litigation against us;
| | - |  | ------------------------------------------



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



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



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



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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, 2002 have been derived from the Consolidated Financial
Statements of Swedish Match that have been audited by Öhrlings PricewaterhouseCoopers. 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 24 of the Notes to Consolidated Financial Statements.



|                                                                     |  | 1998                                                                     |  | 1999    |  | 2000    |  | 2001    |  | 2002    |  | 2002  
|-------------------------------------------------------------------- |  | ------------------------------------------------------------------------ |  | ------- |  | ------- |  | ------- |  | ------- |  | ------
|                                                                     |  | SEK                                                                      |  | SEK     |  | SEK     |  | SEK     |  | SEK     |  | USD(1)
|                                                                     |  | Millions unless otherwise stated Amounts in accordance with Swedish GAAP
|Income statement data                                                |  |                                                                          |  |         |  |         |  |         |  |         |  |       
|Net sales                                                            |  | 8,194                                                                    |  | 9,420   |  | 11,533  |  | 13,635  |  | 13,643  |  | 1,569 
|Operating income                                                     |  | 1,381                                                                    |  | 5,396   |  | 1,886   |  | 2,113   |  | 2,371   |  | 273   
|Net income                                                           |  | 726                                                                      |  | 4,656   |  | 1,144   |  | 1,228   |  | 1,429   |  | 164   
|                                                                     |  |                                                                          |  |         |  |        
|Balance sheet data                                                   |  |                                                                          |  |         |  |         |  |         |  |         |  |       
|Total assets                                                         |  | 10,562                                                                   |  | 16,670  |  | 16,281  |  | 16,623  |  | 15,447  |  | 1,777 
|Share capital                                                        |  | 949                                                                      |  | 949     |  | 969     |  | 892     |  | 868     |  | 100   
|Shareholders equity                                                 |  | 2,160                                                                    |  | 5,898   |  | 4,584   |  | 4,105   |  | 4,007   |  | 461   
|Bond loans, long-  and short-term liabilities to credit institutions |  | 4,331                                                                    |  | 6,029   |  | 5,699   |  | 6,016   |  | 5,508   |  | 633   
|                                                                     |  |                                                                          |  |         |  |        
|Per share data                                                       |  |                                                                          |  |         |  |         |  |         |  |         |  |       
|Basic net income per share, SEK(2)                                   |  | 1.56                                                                     |  | 10.56   |  | 2.76    |  | 3.40    |  | 4.10    |  | 0.47  
|Diluted net income per share, SEK(2)                                 |  | 1.56                                                                     |  | 10.56   |  | 2.76    |  | 3.38    |  | 4.07    |  | 0.47  
|Basic weighted average shares, in thousands                          |  | 450,134                                                                  |  | 431,340 |  | 410,177 |  | 361,506 |  | 348,295 |  |       
|Diluted weighted average shares, in thousands                        |  | 450,134                                                                  |  | 431,340 |  | 410,177 |  | 363,016 |  | 350,894 |  |       
|Cash dividend declared per share, SEK(2)                             |  | 1.08                                                                     |  | 1.22    |  | 1.35    |  | 1.45    |  | 1.60    |  | 0.18  



|                                  |  | 1998                                                                     |  | 1999  |  | 2000  |  | 2001  |  | 2002  |  | 2002  
|--------------------------------- |  | ------------------------------------------------------------------------ |  | ----- |  | ----- |  | ----- |  | ----- |  | ------
|                                  |  | SEK                                                                      |  | SEK   |  | SEK   |  | SEK   |  | SEK   |  | USD(1)
|                                  |  | Millions unless otherwise stated Amounts in accordance with U.S. GAAP(3)
|Net income                        |  | 386                                                                      |  | 1,701 |  | 915   |  | 981   |  | 1,461 |  | 168   
|Shareholders equity              |  | 7,044                                                                    |  | 7,838 |  | 6,319 |  | 5,587 |  | 5,391 |  | 620   
|Basic net income per share, SEK   |  | 0.83                                                                     |  | 3.86  |  | 2.21  |  | 2.71  |  | 4.19  |  | 0.48  
|Diluted net income per share, SEK |  | 0.83                                                                     |  | 3.86  |  | 2.21  |  | 2.70  |  | 4.16  |  | 0.48  

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Notes to Selected Consolidated Financial Data



|(1) |  | Translated, solely for the convenience of the reader, at the Noon Buying Rate on December 31, 2002 of USD 1.00 = SEK 8.6950. The Noon Buying Rate as of June 23, 2003, was USD 1.00 =
SEK 7.8920.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(2) |  | Since the redemption price per share exceeded the stock market price at the time of redemption in 2000, net income per share for previous periods have been adjusted for comparative
purposes. The correction factor is 0.97831 for 1998 and 1999.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | See Note 24 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 buy backs. 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 optimize 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 buy back 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. 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 Board proposed the amounts available for disposition at the Annual General Meeting in April 2003 be allocated as follows: shareholders shall receive a dividend
of SEK 1.60 per share, for a total amount of approximately SEK 547 million (compared with net income for the year of SEK 1,429 million), and the balance shall be retained in the business.



The Annual General Meeting held on April 25, 2003 decided in accordance with the Boards proposal and established April
30, 2003 as the record date for payment of dividends to shareholders registered at VPC (Swedish Securities Register Center).



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.



|     |  | SEK per Share |  | U.S. dollars per ADS
|---- |  | ------------- |  | --------------------
|1998 |  | 1.1           |  | 1.1                 
|1999 |  | 1.25          |  | 1.5                 
|2000 |  | 1.35          |  | 1.3                 
|2001 |  | 1.45          |  | 1.4                 
|2002 |  | 1.60          |  | 1.4                 



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



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##### Table of Contents

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 in effect on June 23, 2003 was SEK 7.8920 = USD 1.00.



|Year ended December 31,     |  | Period End |  | Average(1) |  | High    |  | Low   
|--------------------------- |  | ---------- |  | ---------- |  | ------- |  | ------
|1998                        |  | 8.1030     |  | 7.9658     |  | 8.3350  |  | 7.5800
|1999                        |  | 8.5050     |  | 8.2469     |  | 8.6140  |  | 7.7060
|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
|December 2002               |  |           |  |           |  | 9.0750  |  | 8.6950
|January 2003                |  |           |  |           |  | 8.7920  |  | 8.4750
|February 2003               |  |           |  |           |  | 8.5650  |  | 8.4100
|March 2003                  |  |           |  |           |  | 8.7030  |  | 8.3650
|April 2003                  |  |           |  |           |  | 8.6425  |  | 8.1700
|May 2003                    |  |           |  |           |  | 8.1470  |  | 7.7479
|June 2003 (through June 23) |  |           |  |           |  | 7.8920  |  | 7.6710

---

|(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.D    Risk Factors



The
Company is subject to legislation relating to tobacco, labeling, marketing and advertising and trade barriers



The products manufactured and sold by Swedish Match are subject to tobacco, marketing and advertising regulations as well as restrictions on smoking in
public places in most countries where its products are sold. Advertising of tobacco products and smoking in public places is restricted in many countries, including Sweden and the United States, two of the Companys largest markets, and a trend
towards increasingly severe restrictions on advertising and smoking in public places is evident in most countries where the Group sells its products. The European Council has adopted a new directive restricting advertisements and sponsorships
relating to tobacco products and a recommendation on sales promotion for tobacco products. The European Unions directive on labeling of tobacco products, including a ban on snus, is being implemented in the member states, including new member
states entering the European Union. The regulations and restrictions regarding marketing, consumption and labeling of tobacco products are becoming more stringentboth on a European and on a national levelwhich could have a negative
impact on consumption of the Companys products and on the Companys results of operations.



In addition, regulations related to matches and lighters may change, which may reduce the operating margins in certain countries where the Company is
selling such products.



Increased excise taxes may reduce the Companys
sales



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. Increased excise taxes may result in declines in overall sales volume that in turn could adversely affect Swedish
Matchs operating income.



3



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Loss of brand loyalty could harm the Company



Brands are a very significant element in a tobacco companys value. Brand loyalty for tobacco products is high, and a
consumers brand loyalty normally endures for a long time. Swedish Match believes it has a strong brand portfolio of smokeless products, cigars and pipe tobacco as a well as large number of what it believes are strong match and lighter brands.
The Companys continued success depends in part on the ability to continuously protect and improve the brands of the Group and on the ability to preserve the consumers loyalty to these brands. 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 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.



Volume decline and price increases



The Group has generally been able to effect price increases that compensate or occasionally more than compensate for volume declines. There can be no
assurance that the Group will be able to continue to offset volume declines through price increases as it has in the past.



The Company faces competitive pressure from other snuff producers in Northern Europe



The increasing market for snuff in Northern Europe and profitability in the snuff market have attracted other companies to
start competing production of snuff. A number of companies have started manufacturing and marketing of snuff in Sweden or has announced that they will start such activities. Competition in the snuff market could in the future adversely affect the
Companys sales of snuff in northern Europe as well as the Companys results of operations.



The Company faces competitive pressure and lower volumes in its lighters and matches businesses



The Company is faced with downward pricing pressure in its lighters business mainly due to low price competition, which may affect sales volume negatively
and lower volumes in its matches business. The Company may have to adjust its production capacity to meet declining sales volumes.



The Company could face price pressure or competition in its distribution business in Sweden



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.



The Company faces litigation in the course of its business



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. The Company believes, after having consulted with counsels representing the Company with respect to these
matters, that it has a number of meritorious defenses to all such pending litigation. However, there can be no assurance that those defenses will be successful in trial. 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 Securities and Exchange Board of India (SEBI) 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 15 percent annual interest from January 27,



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##### Table of Contents

2001 until the date of purchase. The total amount is INR 364 million which approximates SEK 60 million plus interest at an exchange rate of SEK 0.16381 = INR
1.00. The ruling was appealed to the Securities Appellate Tribunal, which upheld the order. Swedish Match has appealed this decision to the Supreme Court in India, which has decided to hear the case. A hearing date is set for July 15th 2003. The
Supreme Court could order Swedish Match to sell shares in Wimco or uphold SEBIs order to Swedish Match. There is a risk that shares bought in Wimco pursuant to such order are bought at a cost substantially higher than previously written down
cost of Swedish Matchs shares in Wimco.



Country risks



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 future results of operations and financial condition will be influenced by the economic, regulatory and political situations in
these countries, which are generally unpredictable and outside the control of the Group. There can be no assurance that political, legal, economic, social or other developments will not have an adverse impact on the Companys investments and
businesses in these countries or on the Companys consolidated results of operations.



Lack of 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 does not have full coverage
against certain natural disasters for some of its production facilities and may not be able to obtain certain types of insurance in the future.



Environmental risks



The Company endeavors to meet all local environmental controls and regulations. In the event of changes to local regulations or of the legal environment,
the Company may have to incur additional costs for compliance or legal related expenses.



Potential oversight by the FDA or other regulatory agencies could affect the manufacture and distribution of the Companys products



In 1996, the U.S. Food and Drug Administration (the FDA) promulgated regulations asserting jurisdiction over
smokeless tobacco products. These regulations, among other things, included severe restrictions on the manufacture, distribution and sale of smokeless tobacco products and would have required the Company to comply with a wide range of labeling,
reporting record keeping, manufacturing and other requirements. In March 2000, the U.S. Supreme Court ruled that the FDA does not have the authority to regulate tobacco products without more explicit direction from Congress. If Congress enacts
legislation granting such authority, the FDAs exercise of jurisdiction could lead to more expansive FDA-imposed restrictions on tobacco operations than those set forth in the regulations and could materially and adversely affect the
Companys tobacco business.



The Company is subject to commodity risks



The raw materials used in the Groups business,
primarily tobacco and splintwood, 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
incomes.



The company maintains raw materials inventory related
to anticipated demand for finished goods. With respect to the Companys cigar business, unanticipated or extreme fluctuations in demand require relatively high



5



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levels of raw tobacco leaf inventory. In some cases inventory for specific grades or types may be several years supply. In the event of an
unanticipated sharp 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 extreme circumstances, some of this inventory may need to be
sold at prices below purchase prices.



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. Management actively
monitors these risks. To reduce these exposures, 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 productions operations and sales in EU member countries, South Africa, Brazil and the United States.
Consequently, changes in exchanges rates of EUR, South African Rand, Brazilian real 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 subsidiaries within the Group cover part of the risk exposure in future currency flows
with assistance provided by the Companys treasury department. The treasury department, accordingly, assumes foreign exchange risk exposure, mainly through forward contracts and loans raised in foreign currencies.



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. The financing risk is limited by the Companys policy to take up loans with differentiated maturities and with different credit
sources.



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 to investing exclusively in instruments with high liquidity and credit worthiness. In addition to bank
deposits, investments are mainly concentrated in government treasury bills and bonds. 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 has recently shown an increased variability in cash flows due to a changing product portfolio and differing needs for leaf-tobacco, work-in process inventories and finished goods.



The Company could face goodwill impairment



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 the Company 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.



Key personnel



The Company employs a number of highly experienced and/or long standing employees with a detailed knowledge of tobacco and other product related issues.
The Company has a management succession plan.



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Unanticipated departures from this group of key employees could result in a substantial loss of expertise, which could negatively affect short to medium term
activities and operating performance.



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 United States is Swedish Match North America, Inc. and its
telephone number is +1-804-302-1700.



At the Annual General
Meeting on April 25, 2003, shareholders of the Company approved the cancellation of 10 million shares repurchased by the Company under previous share buyback programs. Shareholders at the meeting approved the proposal that the Companys
holdings of its own shares may not exceed 10 percent of the total shares outstanding. Repurchased shares may be used to acquire companies and to cover options issued within the framework of the Companys options program.



A number of measures were implemented during 2000, 2001 and 2002 as part of
the Companys effort to optimize its balance sheet. A special General Meeting in 2000 approved a reduction in the share capital by cancelling 17,350,210 shares through a transfer to unrestricted reserves. The reduction was registered in March
2001. During 2000 the Company also redeemed 29,869,472 shares after having made an offer to the shareholders to redeem one in every 14 shares for a cash settlement of SEK 35 per share. In conjunction with the redemption the Company also issued
2,476,200 shares to the five largest shareholders in the company. At the Annual General Meeting on April 24, 2001, approval was given for a further reduction of the share capital in an amount of SEK 36 million by cancelling 15 million shares through
a transfer to unrestricted reserves. This reduction was registered in October 2001. The Annual General Meeting in 2002 approved a reduction of the share capital in the amount of SEK 24 million by canceling 10 million shares through a transfer to
restricted reserves. This reduction was registered in October 2002. Following these reductions the share capital of the Company amounts to SEK 867.8 million, represented by 361,596,181 shares, each with a par value of SEK 2.40. During 2002,
7,995,000 shares were repurchased at an average price of SEK 69 per share. As a result of the repurchase and after the cancellations, Swedish Match held 19,591,000 shares, equal to 5.4 percent of the Companys total outstanding shares at
December 31, 2002. The total number of shares outstanding, net after buybacks, amounted to 342,005,181, a decrease of 2.3 percent during the year. Buy back of shares has continued in 2003. As of June 12, 2003 Swedish Match held 30,433,000 shares,
equal to 8.4 percent of the Companys total outstanding shares.



In January 2001 Swedish Match acquired a small sales company for advertising products in Belgium. Swedish Match finalized its acquisition of British American Tobaccos pipe tobacco operations in South Africa, effective February 1,
2001. The acquisition includes a production plant, inventories and brand names.



An agreement was also finalized with the former owners of Leonard Dingler in South Africa on February 26, 2001 and El Credito in the United States on January 1, 2001, covering additional amounts to be paid as
performance based compensation for the companies.



Swedish
Match acquired brand names pertaining to smokeless tobacco from Premium Tobacco Traders Ltd in August 2001. As a result of this acquisition, Swedish Match will market dry snuff in Germany, Switzerland and France.



In September 2001 Swedish Match acquired Maga S.p.a., one of the leading
independent distributors of tobacco products in Italy. Maga S.p.a. sells primarily cigars, pipe tobacco and accessories. The acquisition gives Swedish Match its own marketing and sales organization in the Italian market.



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In March 2003 Swedish Match acquired CYAN d.o.o., the leading distributor of tobacco products other than
cigarettes in Slovenia.



In May 2003 Swedish Match acquired
Packovation AB, a producer of packaging machinery located in Halmstad, Sweden.



Capital Expenditures



Swedish Matchs capital expenditures amounted to SEK 751 million in 2002 and were equal to approximately 5 percent of sales. Capital expenditures amounted to SEK 633 million in 2001 and SEK 331 million in 2000. Depreciation of fixed
assets amounted to SEK 324 million compared with 329 million in 2001 and SEK 262 million in 2000. Total capital expenditures over the period 1997-2001 were equal to 4.5 percent of total sales during the period.



Swedish Match operates primarily in mature markets with limited capital
expenditure requirements. Total capital expenditure for the last three years amounted to SEK 1,715 million. 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 continued increase in snuff sales, particularly sales of portion-packed snuff in Sweden, a new production plant has
been built in Kungälv, Sweden, near Gothenburg. The total investment in the plant is expected to amount to SEK 600 million. The plant is scheduled to begin production in 2003.



As a result of the investment in the new plant for snuff, capital expenditure for 2003 is expected to remain above the 2001
level. Capital expenditure is expected to be funded primarily through internally generated cash flow. Acquisitions, if any, may be financed through debt financing.



Since Swedish Match manufactures high-turnover consumer products, the Company maintains relatively small inventories of
finished 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 and as well as matches and disposable lighters. Swedish Match products are sold in approximately 140
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). Therefore, distribution and marketing are key factors to the Companys development.



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



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 United States.



| |  |  | 2000: SEK 3,837 million
| | - |  | -----------------------



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##### Table of Contents

| |  |  | 2001: SEK 4,935 million
| | - |  | -----------------------



| |  |  | 2002: SEK 4,671 million
| | - |  | -----------------------



Sweden.    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.



| |  |  | 2000: SEK 4,058 million
| | - |  | -----------------------



| |  |  | 2001: SEK 4,405 million
| | - |  | -----------------------



| |  |  | 2002: SEK 4,814 million
| | - |  | -----------------------



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



| |  |  | 2000: SEK 2,089 million
| | - |  | -----------------------



| |  |  | 2001: SEK 2,426 million
| | - |  | -----------------------



| |  |  | 2002: SEK 2,472 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.



| |  |  | 2000: SEK 1,549 million
| | - |  | -----------------------



| |  |  | 2001: SEK 1,869 million
| | - |  | -----------------------



| |  |  | 2002: SEK 1,686 million
| | - |  | -----------------------



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.



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.



The Swedish Match business structure is composed of five Divisions having
clearly defined operating responsibility: North Europe, Continental Europe, North America, Overseas and Matches. General Cigar is operated as an independent division with its own production and sale of premium cigars. In 1999 the Company divested
its cigarette operations.



Marketing, sales and production of
tobacco products are organized in the North Europe, Continental Europe, North America and Overseas Divisions. The Matches Division sells its products through the four geographical Divisions and through its own networks. Lighter sales are coordinated
through the Continental Europe 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 and Lighters.



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##### Table of Contents

BusinessSnuff



Key data



|                                                      |  | 2000                                |  | 2001  |  | 2002 
|----------------------------------------------------- |  | ----------------------------------- |  | ----- |  | -----
|                                                      |  | SEK millions unlessotherwise stated
|Sales                                                 |  | 2,071                               |  | 2,457 |  | 2,788
|Operating income before items affecting comparability |  | 954                                 |  | 950   |  | 1,233
|Operating margin, %                                   |  | 46.1                                |  | 38.7  |  | 44.2 



Capital expenditures and personnel



|                                              |  | 2000                                |  | 2001 |  | 2002
|--------------------------------------------- |  | ----------------------------------- |  | ---- |  | ----
|                                              |  | SEK millions unlessotherwise stated
|Capital expenditures in tangible fixed assets |  | 58                                  |  | 238  |  | 424 
|Average number of employees                   |  | 842                                 |  | 846  |  | 825 



Snuff is Swedish
Matchs driving segment for organic growth. With restrictions on tobacco smoking and growing health concerns relating to cigarettes, smokeless alternatives are gaining a greater market potential. Swedish Match is the leading manufacturer of
snuff in the Swedish and Norwegian markets and one of the three leading producers in the United States. Sales in 2002 amounted to SEK 2,788 million (2001: 2,457). Operating income for the year was SEK 1,233 million (2001: 950), corresponding to an
operating margin of 44 percent (2001: 39).



Well-known brands
in the Swedish and Norwegian markets are Generalsnus, Ettan, Grovsnus, and Catch, which together account for more than 80 percent of all snuff sales in Sweden and Norway.



The production for the Nordic market takes place at the factory located in Gothenburg, Sweden. The production for the
American market takes place in Owensboro, Kentucky. A new factory expected to be operational in 2003 is under construction near Gothenburg, Sweden.



In the United States, Swedish Match continued to increase its market share, reaching 9.1 percent at year-end 2002, an improvement of 0.6 percentage points
over the preceding year. Timber Wolf is the best selling Swedish Match brand in the United States. It is also the leading U.S. brand in the growing value-priced segment of the moist snuff category.



U.S. volume grew by approximately 10 percent, while North Europe volume grew
by 6 percent. Overall sales of the Groups snuff business increased 13 percent during 2002 compared to 2001.



Snuff market



Sweden and Nordic countries



Snuff is a traditional product that has become increasingly socially acceptable. Since snuff can be consumed discreetly in portioned packs, it is becoming
an increasingly popular alternative to cigarettes for both men and women. Approximately 210 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 more than 15 percent of snuff consumers.



Consumption of snuff is rising most rapidly in metropolitan areas, where population growth is highest and restrictions on smoking are more stringent.
Portion-packed snuffs share of the total market is approximately 50 percent, and still rising.



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In order to further capitalize the General brand and to strengthen brand image, the General brand was
relaunched in 2000, also with new graphics and packaging design. The company also launched a new Catch Eucalyptus snuff in 2000. In 2001, a loose-packed line extension of the Probe brand was launched. In 2002, the company launched Catch dry Lychee,
a further Catch line extension.



Swedish Match has a 90 percent
market share of the limited but growing Norwegian market. Consumption is increasing, with particular emphasis on portion-packed snuff. There are also some sales in other parts of the Nordic region at cross-border and tax-free outlets.



United States



Approximately 835 million cans of snuff are consumed annually in North
America. Consumption has been growing by about 2 to 3 percent annually for a number of years. Swedish Matchs largest competitor is UST.



Swedish Matchs share of the market is approximately 9 percent. Continued growth was achieved with Timber Wolf, a leading brand in the low-price
segment in spite of an extremely competitive market environment. The U.S. product range also includes Renegades, a portion-packed snuff, and Sequoia, a premium-priced snuff.



Other markets



In the South African market, snuff is the dominant smokeless tobacco product. Swedish Match established operations in the South African market in 1999
through its acquisition of Dingler, whose Taxi brand is a market leader. The acquisition provides a platform in southern Africa, one of the worlds most important markets for smokeless tobacco outside the Nordic countries and North America.



Swedish Match has limited test market and selling activity
relating to snuff in India and Russia, among other markets. Swedish Match is prohibited from selling snuff in the EU (except for Sweden).



General



The Company expects that Sweden and North America will continue to be the primary markets for Swedish Matchs snuff products.



In many parts of the world, tobacco is used in a manner that resembles snuff
consumption. Comprehensive studies have been conducted to identify potential markets for future geographic expansion.



The sale of 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 in Sweden
for smokeless tobacco, including snuff. The prohibition on the sale of snuff throughout the rest of the EU remains however but is the subject of review by the European Court of Justice.



The table below shows the size of the Snuff Business in relation to the Swedish Match Group in 2002.



|                                                                    |  | Snuff |  | SwedishMatch |  | Percent
|------------------------------------------------------------------- |  | ----- |  | ------------ |  | -------
|Sales, SEK millions                                                 |  | 2,788 |  | 13,643       |  | 20     
|Operating income before items affecting comparability, SEK millions |  | 1,233 |  | 2,439        |  | 51     
|Capital expenditures in tangible fixed assets, SEK millions         |  | 424   |  | 751          |  | 56     
|Average number of employees                                         |  | 825   |  | 14,795       |  | 6      



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##### Table of Contents

BusinessChewing Tobacco



Key data



|                                                      |  | 2000                                |  | 2001  |  | 2002 
|----------------------------------------------------- |  | ----------------------------------- |  | ----- |  | -----
|                                                      |  | SEK millions unlessotherwise stated
|Sales                                                 |  | 1,227                               |  | 1,377 |  | 1,333
|Operating income before items affecting comparability |  | 331                                 |  | 372   |  | 406  
|Operating margin, %                                   |  | 27.0                                |  | 27.0  |  | 30.4 



Capital expenditures and personnel



|                                              |  | 2000                                |  | 2001 |  | 2002
|--------------------------------------------- |  | ----------------------------------- |  | ---- |  | ----
|                                              |  | SEK millions unlessotherwise stated
|Capital expenditures in tangible fixed assets |  | 35                                  |  | 36   |  | 42  
|Average number of employees                   |  | 293                                 |  | 309  |  | 347 



Swedish Match is a
market leader in the chewing tobacco business in the United States. Sales amounted to SEK 1,333 million (2001: 1,377). Operating income amounted to SEK 406 million (2001: 372), an increase of 9 percent. Operating margin was 30 percent (2001: 27).



Chewing Tobacco operations are conducted in the North American
market, mainly in the United States. Well known Swedish Match brands include the Red Man family and Southern Pride. In total, Swedish Match held a market share of approximately 42 percent of consumption volume in 2002.



Swedish Match purchases its tobacco requirements for all its products in
markets around the world. The Company seeks to find tobacco that meets its quality standards at an acceptable price. The tobacco is then transported to the Companys various manufacturing facilities for processing and distribution.



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



Chewing tobacco
market



United States



The use of chewing tobacco is an old custom in the United States.
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 United
States. 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 3,500 million. Consumption of chewing tobacco has been declining by an
average of 4 percent per year over the past three years, continuing a long-term trend. 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, but profitability remains
strong. Swedish Matchs goal is to maintain its market position and profitability and to improve capacity utilization in order to control costs.



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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 exposure.



The table below shows the size of
the Chewing Tobacco Business in relation to the Swedish Match Group in 2002.



|                                                                    |  | ChewingTobacco |  | SwedishMatch |  | Percent
|------------------------------------------------------------------- |  | -------------- |  | ------------ |  | -------
|Sales, SEK millions                                                 |  | 1,333          |  | 13,643       |  | 9.8    
|Operating income before items affecting comparability, SEK millions |  | 406            |  | 2,439        |  | 16.6   
|Capital expenditure in tangible fixed assets, SEK millions          |  | 42             |  | 751          |  | 5.6    
|Average number of employees                                         |  | 347            |  | 14,795       |  | 2.3    



BusinessCigars



Key data



|                                                         |  | 2000                                |  | 2001  |  | 2002 
|-------------------------------------------------------- |  | ----------------------------------- |  | ----- |  | -----
|                                                         |  | SEK millions unlessotherwise stated
|Sales                                                    |  | 2,690                               |  | 3,481 |  | 3,318
|Operating income before items affecting comparability(1) |  | 347                                 |  | 500   |  | 522  
|Operating margin, %                                      |  | 12.9                                |  | 14.4  |  | 15.7 

---

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



Capital expenditures and personnel



|                                              |  | 2000                                |  | 2001  |  | 2002 
|--------------------------------------------- |  | ----------------------------------- |  | ----- |  | -----
|                                              |  | SEK millions unlessotherwise stated
|Capital expenditures in tangible fixed assets |  | 101                                 |  | 239   |  | 169  
|Average number of employees                   |  | 4,997                               |  | 5,922 |  | 6,504



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 2002 fell 5 percent to SEK 3,318 million (2001: 3,481). Swedish Match sales are primarily in the European mass market, in the US machine made mass market, and in the US premium cigars market. The decline in
sales is primarily attributable to declining volumes and weaker market share in the US machine made mass market. Operating income increased to SEK 522 million (2001: 500). The operating margin was 15.7 percent (2001: 14.4).



The companys main brands include La Paz, Willem II, Garcia Y Vega and
La Gloria Cubana. On May 8, 2000, the company acquired 64% of the shares of General Cigar Holdings, Inc. The remaining 36% of the shares are privately held by the Cullman family, who continue to manage General Cigar Holdings. General Cigar Holdings
is the leading manufacturer of premium cigars in the United States 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 United States.



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Swedish Match manufactures more than 30 cigar brands that are marketed in more than 90 countries
worldwide. The largest markets are Western and Northern Europe, and the United States. 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 Valkenswaard (The Netherlands),
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
and Dothan, Alabama in the United States. The German company Arnold André with production plants in Bünde and Königslutter (Germany) is 40 percent owned by Swedish Match. The company Lareka in Valkenswaard (The Netherlands), with
operations consisting of reconditioning of machines for the tobacco industry, is also part of the business.



General Cigar has production plants situated in Santiago, Dominican Republic and San Pedro, Honduras.



Cigar market



During 2002, the world market for cigars was more than 15 billion cigars, with an estimated sales value of SEK 35 billion.
Of this number, about 6.6 billion were sold in Europe (44 percent), and the North America market accounted for about 6.2 billion cigars (41 percent).



Europe



Consumption of cigars in Europe showed a slight increase in 2002.



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. A number of wholesalers and small manufacturers merged in late 1997 and early 1998, and the merger trend continued in 1999 with two major competitors combining to form a new company. The players are becoming
fewer and larger although merger activity since 2000 has been limited.



Swedish Matchs market share in Europe amounts to approximately 15 percent, and has been stable in recent years.



United States



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, and large excess inventories of product in the commercial
chain reduced somewhat, negatively affecting manufacturers sales despite stable consumption. In 2000, consumption of machine made 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 U.S. machine made mass market cigar market continued to increase slightly, and Swedish Match mass market volumes improved by
11 percent, primarily due to distribution gains. In 2002, the US machine made mass marked continued to grow modestly. However, Swedish Match volumes declined, as did the companys share of market. The growth in the US market in 2002 came
primarily from sweet and flavoured cigars, which was not part of Swedish Matchs portfolio of products, at the expense of larger, natural cigars, which are part of the core portfolio of the company.



In 2000, Swedish Match acquired a 64 percent ownership stake in General Cigar
Holdings, Inc., a manufacturer and distributor of premium cigars, for USD 170 million.



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##### Table of Contents

Asia/Australia



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



General



The world market for cigars is
continuing to grow, but with considerable differences between markets. Rapid growth in the North American market leveled off in 1998 and was stable in 1999 and 2000. The overall U.S. market grew somewhat in 2002, with stable demand for premium
cigars and modest growth in the mass market. Growth of 0 to 2 percent in volume terms is expected to continue in Europe.



The cigar business is an important growth area for Swedish Match. The Company aims to participate in cigar growth in various markets.



The table below shows the size of the Cigar Business in relation to Swedish
Match Group in 2002.



|                                                                    |  | Cigars |  | SwedishMatch |  | Percent
|------------------------------------------------------------------- |  | ------ |  | ------------ |  | -------
|Sales, SEK millions                                                 |  | 3,318  |  | 13,643       |  | 24.3   
|Operating income before items affecting comparability, SEK millions |  | 522    |  | 2,439        |  | 21.4   
|Capital expenditures in tangible fixed assets, SEK millions         |  | 169    |  | 751          |  | 22.5   
|Average number of employees                                         |  | 6,504  |  | 14,795       |  | 44.0   



BusinessPipe
Tobacco and Accessories



Key data



|                                                      |  | 2000                                |  | 2001 |  | 2002
|----------------------------------------------------- |  | ----------------------------------- |  | ---- |  | ----
|                                                      |  | SEK millions unlessotherwise stated
|Sales                                                 |  | 762                                 |  | 933  |  | 843 
|Operating income before items affecting comparability |  | 213                                 |  | 236  |  | 164 
|Operating margin, %                                   |  | 28.0                                |  | 25.3 |  | 19.5



Capital expenditures and personnel



|                                              |  | 2000                                |  | 2001 |  | 2002
|--------------------------------------------- |  | ----------------------------------- |  | ---- |  | ----
|                                              |  | SEK millions unlessotherwise stated
|Capital expenditures in tangible fixed assets |  | 35                                  |  | 9    |  | 20  
|Average number of employees                   |  | 357                                 |  | 578  |  | 558 



Swedish Match is one
of the worlds largest manufacturers of pipe tobacco. In 2002 sales fell by 10 percent to SEK 843 million (2001: 933) with the drop primarily attributable to currency effects, namely the drop in the value of the South African Rand and US dollar
versus the Swedish Crown, as well as lower volumes in most markets. Operating income fell 31 percent to SEK 164 million (2001: 236).



Swedish Matchs largest brands are Borkum Riff, Half and Half, Boxer, Best Blend and Velvet. Borkum Riff is one of the worlds few global brands
of pipe tobacco. The main markets are North America, Northern/Western Europe, and Southern Africa.



Pipe tobacco is manufactured in Owensboro, Kentucky, U.S., and in Boxburg and Rustenburg, South Africa. During 2002, Swedish Match initiated a
subcontracting of production of certain brands to MacBaren, a Danish company.



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Pipe tobacco market



The world market for pipe tobacco is declining by 7 to 9 percent annually in volume terms, with North American and Western European market declines of 8
to 10 percent. The main reason is demographicthe increasing average age of consumers and the weak influx of new buyers. Demand in premium, moderate and value price segments is declining.



The players in the pipe tobacco industry are mainly large companies, with
many other tobacco products in their lines. Nine manufacturers account for 75 percent of the global market. This number has been relatively constant during the past two decades. From 1998 to 2000, however, there was a certain amount of consolidation
in the industry. Most manufacturers employ a defensive strategy, with high sales prices and limited marketing activity.



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



Consumers are showing a growing interest in the geographical
origin of tobacco and in mixtures and flavors. Premium brands have, in recent years, been taking an increasing share of this declining market.



North America



Consumption of pipe tobacco in the North American market has been declining by approximately 8 to 10 percent a year. Swedish Match is the fourth largest
manufacturer in North America, with a market share of about 20 percent and a leading position in the premium segment with Borkum Riff. It is also strong in the mass market segment with Half and Half, Velvet and Paladin.



Western and Northern Europe



Consumption in Europe has been declining by roughly 8 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 Switzerland and Spain. Swedish Matchs market share in Western Europe
is approximately 3 percent, and approximately 15 percent in Northern Europe.



South Africa



The
market in South Africa has grown during recent years. A marginal decline in demand was noted in 2000 following a sharp increase in tobacco tax. With its acquisitions of Leonard Dingler and Brasant, Swedish Match has created a solid platform for
continued expansion in South Africa and neighboring countries. 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
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 has 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 US dollar and
the Swedish kronor in the second half of 2002, and both sales and volume have experienced better results in the fourth quarter of 2002.



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Other markets



Swedish Match has taken early steps to establish operations in Latin America, where there is considered to be growth
potential for pipe tobacco.



General



Swedish Match is one of the major players in the market for pipe tobacco.
The business is global and operating margins in 2002 were 19 percent.



Swedish Match intends to strengthen its position in this profitable market.



The table below shows the size of the Pipe Tobacco business in relation to the Swedish Match Group in 2002.



|                                                                    |  | PipeTobacco |  | SwedishMatch |  | Percent
|------------------------------------------------------------------- |  | ----------- |  | ------------ |  | -------
|Sales, SEK millions                                                 |  | 843         |  | 13,643       |  | 6.2    
|Operating income before items affecting comparability, SEK millions |  | 164         |  | 2,439        |  | 6.7    
|Capital expenditures in tangible fixed assets, SEK millions         |  | 20          |  | 751          |  | 2.7    
|Average number of employees                                         |  | 558         |  | 14,795       |  | 3.8    



BusinessMatches



Key data



|                                                      |  | 2000                                |  | 2001  |  | 2002 
|----------------------------------------------------- |  | ----------------------------------- |  | ----- |  | -----
|                                                      |  | SEK millions unlessotherwise stated
|Sales                                                 |  | 1,712                               |  | 1,690 |  | 1,648
|Operating income before items affecting comparability |  | 90                                  |  | 183   |  | 221  
|Operating margin, %                                   |  | 5.3                                 |  | 10.8  |  | 13.4 



Capital expenditures and personnel



|                                              |  | 2000                                |  | 2001  |  | 2002 
|--------------------------------------------- |  | ----------------------------------- |  | ----- |  | -----
|                                              |  | SEK millions unlessotherwise stated
|Capital expenditures in tangible fixed assets |  | 70                                  |  | 68    |  | 58   
|Average number of employees                   |  | 6,333                               |  | 5,893 |  | 5,743



Swedish Match is a
global manufacturer of matches. In 2002, the Match business had sales of SEK 1,648 million (2001: 1,690). Operating income amounted to SEK 221 million (2001: 183). The operating margin increased significantly during 2002, to 13.4 percent (2001:
10.8).



The companys plants provide consumers in nearly
140 countries with matches in the volume and quality segments, under a large number of local brand names. Swedish Matchs main markets are Europe, South America and Asia. Substantial volumes are also exported to other countries. Operations
include Swedish Match Arenco, which manufactures match production machinery.



The match business head office is in High Wycombe (United Kingdom). Match factories are located in Tidaholm and Vetlanda (Sweden), Curitiba and Pirai (Brazil), Valencia (Spain), Szeged (Hungary) and Orhangazi
(Turkey). The Companys consolidated subsidiaries also own factories in Bulgaria and India. Swedish Matchs holding in the Indian company Wimco Ltd. amounts currently to 74 percent.



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##### Table of Contents

Match market



Western and Northern Europe



The long-term consumption trend in Western and Northern Europe is downward. Consumption appears to have stabilized in much of the market, however. Swedish
Match is the largest manufacturer and the market leader in Europe. In Europe, the market shows a trend toward increased consumption of specialty matches, even as overall match consumption is flat or declining.



Asia



Swedish Match estimates that it has approximately a 50 percent market share in Turkey.



The Indian market is increasing slightly year by year, mainly as a result of
population growth. Due to a long tradition of smoking, high import taxes on lighters and a large number of households in which food is cooked on gas stoves or open fires, continued market growth is likely. Increased interest in premium products and
growing acceptance of higher prices by consumers in higher income brackets favor manufacturers of Western-oriented products.



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, Wimco was active in a number of industries. In 2001 Wimcos operations were concentrated on its core business, matches.



Latin America



Brazil, where the Group has established operations under well-known brand names, 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 slight downward 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 slowly 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, the worlds only integrated match manufacturer, intends
to consolidate and strengthen its global position 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.



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 2002.



|                                                                    |  | Matches |  | SwedishMatch |  | Percent
|------------------------------------------------------------------- |  | ------- |  | ------------ |  | -------
|Sales, SEK millions                                                 |  | 1,648   |  | 13,643       |  | 12.1   
|Operating income before items affecting comparability, SEK millions |  | 221     |  | 2,439        |  | 9.1    
|Capital expenditures in tangible fixed assets, SEK millions         |  | 58      |  | 751          |  | 7.7    
|Average number of employees                                         |  | 5,743   |  | 14,795       |  | 38.8   



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BusinessLighters



Key data



|                                                      |  | 2000                                |  | 2001 |  | 2002
|----------------------------------------------------- |  | ----------------------------------- |  | ---- |  | ----
|                                                      |  | SEK millions unlessotherwise stated
|Sales                                                 |  | 720                                 |  | 809  |  | 700 
|Operating income before items affecting comparability |  | 74                                  |  | 101  |  | 74  
|Operating margin, %                                   |  | 10.3                                |  | 12.5 |  | 10.6



Capital expenditures and personnel



|                                              |  | 2000                                |  | 2001 |  | 2002
|--------------------------------------------- |  | ----------------------------------- |  | ---- |  | ----
|                                              |  | SEK millions unlessotherwise stated
|Capital expenditures in tangible fixed assets |  | 22                                  |  | 27   |  | 21  
|Average number of employees                   |  | 625                                 |  | 570  |  | 533 



Swedish Match is the
worlds third largest manufacturer of disposable lighters. Its operations are global, with the largest markets being Western Europe, parts of Asia, and the United States. The Cricket lighter is the main brand for Swedish Match. Sales in 2002
amounted to SEK 700 million (2001: 809). Operating income fell to SEK 74 million (2001: 101). The operating margin was 10.6 percent (2001: 12.5).



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



Lighter market



The
world market for disposable lighters is growing by 1 to 2 percent a year in volume terms. The rate of growth is much higher in many developing countries, where the number of smokers and income per capita are both rising. The market in Western Europe
and the United States is declining slightly, 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.



The market is dominated by three large players, Bic, Tokai and Swedish Match. Altogether, these three participants hold approximately a 50 percent share
of the world market.



Western Europe



The market for lighters in Western Europe is decreasing by as much as 2
percent a year. Swedish Match market share was stable. The Western European markets are fully developed, with higher quality value added products, such as those produced by Swedish Match and the other two large competitors, making up the majority of
sales. EU legislation has approved a new lighter standard for EU member states for disposable lighters incorporating Child Resistant (CR) features. The legislation is due to come into effect mid 2004. Swedish Match is committed to adherence to the
standard.



United States



The American market for lighters has decreased in volume terms by 1 to 2
percent in recent years. Swedish Matchs share of the market rose slightly in 2002, and is almost 5 percent. Disposable lighters sold in the United States are required to meet industry standards to be child resistant.



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Eastern Europe



Swedish Match has a strong position in Eastern Europe, with a market share in excess of 20 percent. Total sales in Russia
had declined substantially, however, as purchasing power deteriorated, following the collapse of the Ruble in 1998. In 2002, the market size and Swedish Match volume in the Eastern Europe market have rebounded to mid-1998 levels. Russia, one of the
more important markets for Swedish Match, has experienced a strong rebound, with Swedish Match volume now back to the higher historical level. Cricket is the leading brand in the Russian market.



Asia



Swedish Match has less than 10 percent of the Asian market for lighters. Due to financial turbulence and the decline in the
regions purchasing power, overall demand weakened substantially in 1999 and 2000. Many Asian markets have recovered somewhat from their low point, however, and lighter volumes improved during 2001. In 2002, the Groups sales volume declined 33
percent in virtually all the regions markets in which it is active. A key reason is the increasingly tough competition from cheap Chinese lighters. The declining market for promotional lighters in Japan also had a significant impact on Swedish
Match earnings during 2002.



General



The table below shows the size of the Lighter Business in relation to the
Swedish Match Group in 2002.



|                                                                    |  | Lighters |  | SwedishMatch |  | Percent
|------------------------------------------------------------------- |  | -------- |  | ------------ |  | -------
|Sales, SEK millions                                                 |  | 700      |  | 13,643       |  | 5.1    
|Operating income before items affecting comparability, SEK millions |  | 74       |  | 2,439        |  | 3.0    
|Capital expenditures in tangible fixed assets, SEK millions         |  | 21       |  | 751          |  | 2.8    
|Average number of employees                                         |  | 533      |  | 14,795       |  | 3.6    



Competition



Tobacco



A few large multinational companies dominate the global tobacco market. The
largest multinational tobacco companies are Philip Morris, BAT, RJ Reynolds, and Japan Tobacco, among others. All of these manufacturers are heavily dependent on the sale of cigarettes. A number of these companies have operations in fields other
than tobacco.



The large tobacco companies compete with Swedish
Match in different product areas in different geographic markets. Altadis not only directly competes with Swedish Match but, since this company is largely responsible for the import and distribution of tobacco products in its French and Spanish
domestic markets, Altadis is also one of Swedish Matchs most important cigar distributors.



The worlds largest smokeless tobacco producer is UST of the United States (with its Skoal and Copenhagen brands of moist snuff). Conwood and Swedish
Match follow in size, producing both moist snuff and chewing tobacco, followed by National Tobacco. Swedish Matchs moist snuff business in the United States is growing but is still relatively small. In Sweden, which is Swedish Matchs
primary moist snuff market, the Company dominates the market. During 2001 and 2002, a number of companies have started or have announced that they will start manufacturing and marketing of snuff products in Sweden.



Lighters and Matches



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



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The global market for disposable lighters is dominated by three major participants that together account
for over 50 percent of world sales volume. The remaining participants comprise a growing number of producers, primarily in China and other Asian countries, which produce low-grade copies of quality disposable lighters.



The largest producer of disposable lighters is Bic. The Bic brand name is
used for a family of products consisting of disposable lighters, pens and razors. Because their lighters are generally similarly priced, Bic and Swedish Match compete mainly on the basis of quality and design. Another large producer is Tokai, a
Japanese company. The Japanese market is Tokais largest.



Production



Swedish Match manufactures its products at 26 production
facilities located in 15 countries.



Swedish Match has one
chewing tobacco production facility located in Owensboro, Kentucky, United States.



The Cigar product group has production facilities located in Valkenswaard, the Netherlands; Houthalen, Belgium; and Pandaan, Indonesia. The product group also has production units in Santiago, the Dominican Republic
and Dothan, Alabama in the United States. Arnold André, a German company with production facilities in Bünde and Königslutter, is 40% owned by Swedish Match. The company Lareka in Valkenswaard, with operations consisting of
reconditioning of machines for the tobacco industry, is also part of the product group. General Cigar has production plants situated in Santiago, Dominican Republic and San Pedro, Honduras.



The lighter production group has production facilities located in Assen, the
Netherlands; Manila, Philippines; and Manaus, Brazil. There is a partly owned company in Malaysia with assembly plants for semi-finished products.



Match production facilities are located in Tidaholm and Vetlanda, Sweden; Curitiba, and Pirai, Brazil; Valencia, Spain; Orhangazi, Turkey; and Szeged,
Hungary. The Companys consolidated subsidiaries also own factories in Bulgaria and India. In addition, the Division owns a manufacturer of match-making machinery, Arenco, with plants in Kalmar and Halmstad, Sweden and Shanghai, China.



Swedish Match produces pipe tobacco products in Boxburg and
Rustenburg, South Africa and Owensboro, Kentucky, United States. 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, Sweden, Owensboro, Kentucky, United States 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 on sustainable forests and purchased on the open market. Tobacco is primarily purchased on the open market, although the company, through its 64 percent holding of
General Cigar Holdings, Inc., is the largest producer of Connecticut shade wrapper, a premium quality tobacco leaf used in the production of premium cigars. 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.



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), United States, and South African markets are given below.Approximately 86 percent of Swedish Matchs revenues



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originate in the European Union, South Africa and the United States. 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 Companys future activities is that the number of restrictions will be increased or that new or higher taxes will be introduced.



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, and includes regulations governing smoking in workplaces, prescribes warning messages and a declaration of contents in products in accordance with EU directives, prohibits advertising in the media and regulates
strict product control. The Tobacco Act bans all television, radio and print advertising to consumers of tobacco products in Sweden and stipulates that particular restraint should be exercised in all marketing of tobacco products. New warning labels
and declarations of contents have and will been imposed to adhere to EU regulations. Texts, names, trademarks and figures or other signs suggesting that a particular tobacco product is less harmful than others may not be used on the packaging of
tobacco products. The Tobacco Act, further, contains an age limit of 18 years for purchases of tobacco products in Sweden.



The Swedish Board for Consumer Policies (KOVFS 1998:7).    This ordinance sets forth the particular requirements on marketing
of tobacco products. It contains, for example, a catalogue of non-acceptable marketing activities under the concept of particular restraint.



The National Institute on Public Health (FHIFS 2001:2).    This ordinance sets forth the 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 moist snuff to EU countries that have introduced bans on the sale of moist snuff.



Tobacco Tax Act (SFS 1994:1563).    The Tobacco
Tax Act regulates Swedish tobacco taxes including tax rates.



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



Act on Excise Duties and Price Regulation Fees (SFS 1984:151).    This Act regulates payment conditions for tobacco excise
taxes.



Act on taxation of individual import of
alcoholic beverages and tobacco products from countries that are members of the EU (SFS 1994:1565).    An EU directive generally imposes limits on the import by individual consumers of alcohol and tobacco for private
consumption. However, Sweden has lowered these limits below EU requirements. Sweden has been granted a time limited exemption from the EU directive and is able to maintain the present restrictions beyond EU requirements.



European Union



Council Directive 98/43/EC.    Council Directive
98/43/EC of the European Parliament and of the Council related to the Advertising and Sponsorship of Tobacco Products. This directive was adopted in 1998. Under this directive, no advertising of any product should be pursued provided such product
carried a trademark also used



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for tobacco products. The directive also prohibited sponsoring by tobacco producers. On October 5, 2000, the European Court of Justice annulled this
directive for reasons connected with its legal base. Many EU Member States have nevertheless introduced bans on tobacco advertising on a national level.



In June, 2001, the European Commission presented a new proposal banning tobacco advertising and sponsorship. On March 27-28, 2003 the Council adopted in
first reading a new Directive concerning the advertising and sponsorship of tobacco products. The directive was adopted with two amendments introduced by the European Parliament. The new directive is aimed at harmonizing national regulations on
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. Moreover, it aims at banning, with a few limited
exceptions, advertising and sponsorship of tobacco products in the sectors and cases mentioned above. It is intended to replace the annulled Directive 98/43/EC. It builds on the relevant provisions, with regard to television advertising and
sponsorship of tobacco products, of Directive 97/36/EC concerning the pursuit of television broadcasting activities (so-called Television without frontiers Directive).



Council Recommendation 2003/54/EC of December 2, 2002 on the prevention of smoking and on initiatives to improve tobacco
control. This text recommends a number of restrictions that are to be adopted by the Member States, e.g. that vendors verify the age of youngsters when purchasing tobacco products, that tobacco products are removed from self-service displays,
restricted access to vending machines, a prohibition on the sale of cigarettes in packages of less than 19 cigarettes, 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, use of advertising in cinemas, etc.



Council Directive 89/522/EECprovides for a complete ban on tobacco advertising and tobacco sponsorship on television.



Council Directive 2001/37/EC set forth the labeling requirements for all tobacco products sold in the European Union. This directive repeals
directives 89/622/EEC and 90/239/EEC. Member states had to implement directive 2001/37/EC into their national legislation by September 30, 2002. The new directive changes the strong warning for oral tobacco causes cancer to the more
general warning text This product can damage your health and is addictive.This warning shall be printed on the most visible surface of the unit packet and on any outside packaging, with the exception of additional transparent
wrappers, used in the retail sale of the product.



For other
tobacco products there will be two new general warnings: Smoking kills/smoking can kill and Smoking seriously harms you and others around you and a list of additional warnings, which include the following:
Smokers die younger, Smoking clogs the arteries and causes heart attacks and strokes, Smoking causes fatal lung cancer, Smoking when pregnant harms your baby, Protect children: dont make
them breathe your smoke, Your doctor or your pharmacist can help you stop smoking, Smoking is highly addictive, dont start, Stopping smoking reduces the risk of fatal heart and lung diseases,
Smoking can cause a slow and painful death, Get help to stop smoking: (telephone/postal address/internet address/consult your doctor/pharmacist), Smoking may reduce the blood flow and causes impotence,
Smoking causes aging of the skin, Smoking can damage the sperm and decreases fertility, Smoke contains benzene, nitrosamines, formaldehyde and hydrogen cyanide. The warnings must be printed on a white background
with a black border around them. The size for the general warnings and the warning for smokeless tobacco will also be increased to 30 percent and 32 percent (2 languages) and 35 percent (three languages). For certain boxes, such as cigar boxes
special conditions as to the size of the health warning will prevail. The new directive requires a batch number on the tobacco product for proper identification. Member states shall 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 shall be submitted on a yearly basis. By December 31, 2004, the Commission shall propose a common
list of ingredients to be used in tobacco products.



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Effective September 30, 2003, texts, names, trademarks and figurative or other signs suggesting that a
particular tobacco product is less harmful than others will be 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 Commission will not later than December 31, 2002 adopt the rules for the use of color photographs or other illustrations on tobacco packages. The marketing of certain forms of tobacco
for oral use 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 shall 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 shall 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 will be made of tobacco products which may have the potential to reduce harm.



Council Directive 92/80/EC of October 1992 deals with the approximation of taxes on manufactured tobacco other than cigarettes. Since February 12,
2002 there is a new Council Directive (Council Directive 2002/10/EEC) that regulates the structure and rates of excise duties that are applied on manufactured tobacco products, it amends 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.



Council Directive 2002/10/EEC (the Tobacco Tax Directive) stipulates that in the interests of uniform and
fair taxation, 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.



United States



The U.S. Federal Trade
Commission (the FTC) and the Department of Justice regulate the U.S. 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 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 four states plus the District of Columbia to a high of 129 percent in the State of Washington. Otherwise, excise taxes
are on average in the range of 20-35 percent.



In 1996, the FDA
proposed rules that, among other things, would have established 18 years of age as the federal minimum age of purchase for smokeless tobacco products and would prohibit free samples, mail order sales and self-service displays. The proposed rules
also would have limited certain advertising and labeling to a



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text only format and would have banned 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. These rules ultimately were declared unlawful by the United States Supreme Court, when it found that the U.S. Congress had not granted the FDA the authority to regulate tobacco products. There
is uncertainty as to whether the U.S. Congress will pass legislation in the future to permit the FDA to regulate tobacco and thereby propose rules similar to those described above.



As opposed to the strict regulatory regimes in which the other divisions operate, legislation requiring that lighters sold
in the United States 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 what health messages 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 package 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 50% of the manufacturers suggested retail price.



Seasonality



There is little seasonality in consumption for Swedish Match products. There are some small quarterly variations in shipments, especially for premium
quality 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 or 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 future patents will be
sufficiently broad to protect its technology. Any patents that are granted to the Company may be challenged, invalidated or circumvented, and any right granted under the Companys patents may not provide competitive advantages for the Company.



25



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##### Table of Contents

|4.C    Organizational |  | Structure
|--------------------- |  | ---------



The following is a list of the Companys significant subsidiaries:



|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           |  | 63.52                              |  | 63.52                           
|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 SA                          |  | 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            |  | 80                                 |  | 80                              
|Swedish Match Philippines Inc.                   |  | Philippines             |  | 100                                |  | 100                             



|4.D    Property, |  | Plants and Equipment
|---------------- |  | --------------------



Swedish Match manufactures its products at 26 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, United States.



The Cigar product group has production facilities located in Valkenswaard, the Netherlands; Houthalen, Belgium; and Pandaan, Indonesia. The product group also has production units in Santiago, the Dominican Republic
and in Dothan, Alabama. Arnold André, a German company with production facilities in Bünde and Königslutter, is 40% owned by Swedish Match. The company Lareka in Valkenswaard with operations consisting of reconditioning of machines
for the tobacco industry, is also part of the product group. General Cigar has production plants situated in Santiago, Dominican Republic and San Pedro, Honduras.



The Lighter Division has production facilities located in Assen, the Netherlands; Manila, Philippines; and Manaus, Brazil.
There is a partly owned company in Malaysia with assembly plants for semi-finished products.



The Match Division has production facilities located in Tidaholm and Vetlanda, Sweden; Curitiba and Pirai, Brazil; Valencia, Spain; Orhangazi, Turkey; and Szeged, Hungary. The Companys consolidated subsidiaries
also own factories in Bulgaria and India. In addition, the Division owns a manufacturer of match-making machinery, Arenco, with plants in Kalmar and Halmstad, Sweden and Shanghai, China.



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The Pipe Tobacco product group products are produced under contract with Mac Baren Tobacco Company A/S
and manufactured in their factory outside Odense in Denmark and in the Swedish Match production facilities in Boxburg and Rustenburg, South Africa and in Owensboro, Kentucky, United States.



The Snuff product group has production facilities located in Gothenburg,
Sweden. The production for the American market takes place in Owensboro, Kentucky, United States. With the acquisition of Leonard Dingler, the group now has production facilities in South Africa. Construction of a new production plant in
Kungälv, Sweden, near Gothenburg commenced in early 2001. The new plant will commence operation in 2003.



|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 Consolidated 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 differ in certain respects from generally
accepted accounting principles applied in the United States. 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, 2001 and 2002 and net income
for the years ended December 31, 2000, 2001, and 2002, see Note 24 of the Notes to 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 approximately 140 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 2002 reached SEK 13,643 million compared with SEK 13,635 million in 2001. Sales increases in the snuff product area offset primarily currency related declines in other product areas. Income after financial items
increased to SEK 2,126 million in 2002 from SEK 1,840 million in 2001, or by 16 percent, while operating income before items affecting comparability increased to SEK 2,439 million in 2002, from SEK 2,193 million in 2001, or by 26 percent. There was
a charge of SEK 68 million in items affecting comparability in 2002 compared with SEK 80 million in 2001.



In 2002 net income per share amounted to SEK 4.07 from which a dividend payment of SEK 1.60 was paid in May 2003.



Business environment



The Groups smoking and chewing tobacco businesses have generally been
characterized by declining volumes over recent years due in part to regulations and health concerns in the industrialized countries that comprise the Groups primary markets. 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.



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##### Table of Contents

In response to the declining demand for cigarettes, the Company as of July 1, 1999 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 smoking 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 cigar
production in particular, developing more highly automated production.



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. There can be no assurance that the Group will be able to continue to effect price increases as it has in the past. See Tobacco taxes.



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 significant growth as cigarette consumption declines.



In most of the markets in which the Match Division operates, there has also been a general decline in the volumes of matches sold due, in industrialized countries, to declining volumes of smoking products, to the substitution of disposable
lighters for matches and to increased electrification worldwide. Again, management has sought to introduce price increases and to rationalize operations while also seeking new markets both in Western Europe (Italy and Spain) and in newly developing
markets in Central and Eastern Europe (Hungary and Turkey) and elsewhere. Rationalization measures have included consolidating operations and reducing the number of product variants. In the Lighters Division one of the Companys plants has been
closed due to reduced sales caused by severe price competition.



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.



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 when the local results of operations are
translated into Swedish kronor.



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In the Lighters product area approximately 40 percent of Cricket lighters sales are invoiced in
U.S. dollars, with results affected by changes in the U.S. dollar against the European 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 operating facilities in
Brazil and throughout Europe. 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 partially a function of 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,
we have 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 24 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 expected 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 could 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 represent 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 24 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 us 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 4,145 million in 2002 compared with SEK 4,769 million in 2001. Amortization in 2002 amounted to SEK 327 million compared with SEK 341 million in 2001 under Swedish GAAP. Under U.S.
GAAP, the Companys intangible assets amounted to SEK 5,454 million in 2002 compared with SEK 6,270 million in 2001. Amortization under U.S. GAAP amounted to SEK 119 million in 2002 compared with SEK 466 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 the U.S. accounting recommendation FAS 142, Goodwill and Other Intangible Assets, which applies from January 1, 2002, goodwill and
intangible assets that have a indefinite useful lives may no longer be subject to amortization. Instead, an impairment test shall



29



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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, in
accordance with Swedish accounting principles, SEK 208 million, 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 has been 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, other than goodwill, with an indefinite
life.



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 255 million in 2002. 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.



Legal proceedings



As discussed in Item 8 and Note 20 of the Notes to the Consolidated
Financial Statements, Swedish Match is currently involved in certain legal proceedings. 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. Management is unable to make a meaningful estimate of the amount or range of loss that could result from an unfavorable outcome of pending or future
tobacco-related litigation, and the Company has not provided any amounts in the consolidated financial statements for unfavorable outcomes, if any. 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



Under Swedish GAAP, pensions are accounted for as an expense by each of the Swedish Match entities, where suitable, based on the principles deemed appropriate for local statutory purposes. As from January 1, 2004 the company will adopt 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 company is in the process of assessing the impact of adopting RR 29 on its consolidated financial statements. It is expected that the benefit obligations of the
companys defined benefit plans will exceed the fair value of plan assets. The deficit will be charged to opening equity on January 1, 2004 in accordance with RR 29. 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 US 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 are being applied.



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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,    
|----------------------------------------------------- |  | ------------------------------------
|                                                      |  | 2000                                
|                                                      |  | SEK millions unless otherwise stated
|Snuff                                                 |  |                                     
|Sales                                                 |  | 2,071                               
|Operating income before items affecting comparability |  | 954                                 
|Operating margin, %                                   |  | 46.1                                
|                                                      |  |                                     
|Chewing Tobacco                                       |  |                                     
|Sales                                                 |  | 1,227                               
|Operating income before items affecting comparability |  | 331                                 
|Operating margin, %                                   |  | 27.0                                
|                                                      |  |                                     
|Cigars                                                |  |                                     
|Sales                                                 |  | 2,690                               
|Operating income before items affecting comparability |  | 347                                 
|Operating margin, %                                   |  | 12.9                                
|                                                      |  |                                     
|Pipe Tobacco & Accessories                            |  |                                     
|Sales                                                 |  | 762                                 
|Operating income before items affecting comparability |  | 213                                 
|Operating margin, %                                   |  | 28.0                                
|                                                      |  |                                     
|Matches                                               |  |                                     
|Sales                                                 |  | 1,712                               
|Operating income before items affecting comparability |  | 90                                  
|Operating margin, %                                   |  | 5.3                                 
|                                                      |  |                                     
|Lighters                                              |  |                                     
|Sales                                                 |  | 720                                 
|Operating income before items affecting comparability |  | 74                                  
|Operating margin, %                                   |  | 10.3                                
|                                                      |  |                                     
|Other operations                                      |  |                                     
|Sales                                                 |  | 2,351                               
|Operating income before items affecting comparability |  | -123                                
|                                                      |  |                                     
|Items affecting comparability                         |  |                                    
|                                                      |  |                                     
|Group Total                                           |  |                                     
|Sales                                                 |  | 11,533                              
|Operating income                                      |  | 1,886                               
|Operating margin, %                                   |  | 16.4                                



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The following table reconciles operating income before items affecting comparability to operating income
by product area



|                                                                |  | For the years ended December 31,
|--------------------------------------------------------------- |  | --------------------------------
|                                                                |  | 2000                            
|                                                                |  | SEK millions                    
|Snuff, operating income                                         |  | 954                             
|                                                                |  |                                 
|Chewing Tobacco, operating income                               |  | 331                             
|                                                                |  |                                 
|Cigars, operating income before items affecting comparability   |  | 347                             
|Cigars, items affecting comparability                           |  |                                
|Cigars, Operating income                                        |  | 347                             
|                                                                |  |                                 
|Pipe Tobacco & Accessories, operating income                    |  | 213                             
|                                                                |  |                                 
|Matches, operating income                                       |  | 90                              
|                                                                |  |                                 
|Lighters, operating income before items affecting comparability |  | 74                              
|Lighters, items affecting comparability                         |  |                                
|Lighters, Operating income                                      |  | 74                              
|                                                                |  |                                 
|Other operations, operating income                              |  | -123                            
|                                                                |  |                                 
|Group, operating income                                         |  | 1,886                           



2002 compared with 2001



Sales



Group net sales amounted to SEK 13,643 million in 2001 compared with SEK
13,635 million in 2002. Growth in the snuff product area was offset by primarily currency related declines in other product areas. Currency translation impact compared to prior year reduced reported sales by 4 percentage points.



Sales in the Snuff product area increased by 13 percent to SEK 2,788 million
in 2002 from SEK 2,457 million in 2001. Sales increased in both of its main marketsthe Nordic market and North America. In the Nordic market, volume grew by 6 percent. In the United States, volume grew by 10 percent. The Company continued to
improve its market position in the United States. At year end the market share in the United States had increased by 1 percentage point to slightly more than 9 percent.



Sales in the Chewing Tobacco product area decreased by 3 percent to SEK 1,333 million in 2002 compared with SEK 1,377
million in 2001. In local currency sales increased by 3 percent. The chewing tobacco segment in the US is characterized by annual volume declines of approximately 4 percent. In 2002, the volume in this segment declined somewhat less than 4 percent.



In the Cigar product area sales decreased by 5 percent from
SEK 3.481 million in 2001 to SEK 3,318 million in 2002. In local currency sales were flat. Swedish Match North American mass market cigar volume declined, while European cigar volume and US premium business were stable.



Sales by the Pipe Tobacco & Accessories product area decreased by 10
percent to SEK843 million in 2002 compared with SEK 933 million in 2001. Sales were negatively impacted by a significant decline in the value of the South African Rand versus the year ago period, as well as weaker volumes in several markets.



Sales by the Matches product area decreased by 2 percent to
SEK 1,648 million in 2002 from SEK 1,690 million in 2001.



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##### Table of Contents

Sales by the Lighters product area decreased by 13 percent to SEK 700 million in 2002 from SEK 809
million in 2001. The lighter business is faced with an increasingly competitive situation due to low price competition, which has affected sales volume negatively.



Operating income before items affecting comparability



Operating income before items affecting comparability increased in 2002 to SEK 2,439 million from SEK 2,193 million 2001.
Operating income improved in the snuff, chewing tobacco, cigars and matches product areas and decreased in the pipe tobacco & accessories and lighters product areas.



The Snuff product areas operating income before items affecting comparability was SEK 1,233 million in 2002 compared
with SEK 950 million in 2001. The increased operating income is mainly due to improved volumes but also due to positive price/mix effects, as well as somewhat lower marketing spending.



Operating income before items affecting comparability for the Chewing Tobacco product area increased to SEK 406 million in
2002 from SEK 372 million in 2001. Operating income improvement is a result of price increases and lower expenses.



Operating income before items affecting comparability from the Cigar product area increased from SEK 500 million in 2001 to SEK 522 million in 2002. The
increase was primarily attributable to somewhat lower operating costs.



Operating income before items affecting comparability from the Pipe Tobacco and Accessories product area decreased by 31 percent to SEK 164 million in 2002 compared with SEK 236 million in 2001. The decrease was primarily attributable to
the decline in value of the South African Rand as well as lower volumes.



Operating income before items affecting comparability from the Matches product area increased to SEK 221 million in 2002 from SEK 183 million in 2001. The improvement in operating income is attributable to strong
volumes in certain non-European markets.



Operating income
before items affecting comparability from the Lighters product area decreased to SEK 74 million in 2002 compared with SEK 101 million in 2001. 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
before items affecting comparability in 2002 amounted to a deficit of SEK 181 million compared with a deficit of SEK 149 million in 2001.



2001 compared with 2000



Sales



Group net sales increased by 18 percent and amounted to SEK 13,635 million in 2001 compared with SEK 11,533 million in 2000. Recently acquired operations
accounted for 5 percent of this 18 percent increase. All product areas reported increased sales, with the exception of matches, which was down marginally.



Sales in the Snuff product area increased by 19 percent to SEK 2,457 million in 2001 from SEK 2,071 million in 2000. 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 United States, volume grew by 13 percent. The Company continued to improve its market position in the United States. At year end the market
share in the United States had increased to more than 8.5 percent compared with 7.6 percent a year earlier.



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Sales in the Chewing Tobacco product area increased by 12 percent to SEK 1,377 million in 2001 compared
with SEK 1,227 million in 2000. This sales improvement is the result of positive currency effects and price increases. Sales volumes decreased.



The Cigar product area increased sales by 29 percent from SEK 2,690 million in 2000 to SEK 3,481 million in 2001 with growth coming from acquired
businesses and from volume growth in the mass market business in the United States. In May 2000, the Company acquired a 64 percent stake of General Cigar Holdings, Inc. General Cigar produces Macanudo, the best-selling premium brand in the United
States, and several other premium cigars, including Partagas, Punch, Hoyo de Monterrey and Cohiba.



Sales by the Pipe Tobacco & Accessories product area increased by 22 percent to SEK 933 million in 2001 compared with SEK 762 million in 2000, with
growth coming from acquisitions. In early 2001 Swedish Match acquired the South African pipe tobacco operations of British American Tobacco.



Sales by the Matches product area decreased by 1 percent to SEK 1,690 million in 2001 from SEK 1,712 million in 2000.



Sales by the Lighters product area increased by 12 percent to SEK 809 million
in 2001 from SEK 720 million in 2000. The product area regained most of the volumes lost in prior years due to the financial downturn in Russia and Southeast Asia.



Operating income before items affecting comparability



Operating income before items affecting comparability increased in 2001 to SEK 2,193 million from SEK 1,886 million 2000.
Operating income improved in all product areas, except Snuff, which was flat.



The Snuff product areas operating income before items affecting comparability was SEK 950 million in 2001 compared with SEK 954 million in 2000. Higher spending levels for new product launches offset the
improved operating income derived from continued higher volumes in the Nordic markets and the United States.



Operating income before items affecting comparability for the Chewing Tobacco product area increased to SEK 372 million in 2001 from SEK 331 million in
2000. The earnings of chewing tobacco operations were favorably affected by the strong U.S. dollar in comparison to the Swedish Crown. In local currency terms, income was flat.



Operating income before items affecting comparability from the Cigar product area increased from SEK 347 million in 2000 to
SEK 500 million in 2001. The increase was attributable to strong volume growth in the machine-made cigar business in the U.S. mass market, the full-year effects of acquisitions made in 2000 and the strong U.S. dollar.



Operating income before items affecting comparability from the Pipe Tobacco
and Accessories product area increased by SEK 23 million to SEK 236 million in 2001 compared with SEK 213 million in 2000. The increase was primarily attributable to acquisitions.



Operating income before items affecting comparability from the Matches product area increased to SEK 183 million in 2001
from SEK 90 million in 2000. The improvement in operating income is attributable to improved operating margins resulting from a restructuring of its Match operations in Europe as well as improvements in India, and strong volume in Brazil.



Operating income before items affecting comparability from the
Lighters product area increased to SEK 101 million in 2001 compared with SEK 74 million in 2000. Income improvement is a result of continued cost savings in production, along with improved volumes, particularly in Russia.



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Other activities include the distribution of tobacco products in the Swedish market, corporate overhead
costs and costs for business development. Operating income before items affecting comparability in 2001 amounted to a deficit of SEK 149 million compared with a deficit of SEK 123 million in 2000.



Items affecting comparability



Swedish Match records non-recurring items in connection with major
restructurings, significant employee reductions, reorganizations of production structure and good-will write-offs as items affecting comparability. In addition, Swedish Match has recorded certain one-time gains as items affecting comparability.



In 2002 the Company recorded SEK 68 million as items affecting
comparability pertaining to a rationalization program in Continental Europe, both within sales and production of cigars and lighters.



A provision of SEK 80 million pertaining to restructuring of cigar operations in Belgium and the U.S. was entered as an item affecting comparability in
2001.



Swedish Match did not record any items affecting
comparability in 2000.



Net financial expense



Net interest expense amounted to SEK 229 million in 2002 compared with SEK
286 million in 2001. Interest income decreased to SEK 108 million in 2002 from SEK 121 million in 2001. Interest expense decreased to SEK 337 million in 2002 compared with SEK 407 million in 2001. The decrease in net interest expense is due to a
positive impact from a favorable premium on an equity hedge pertaining to the equity in the North American operation. Other financial items, net, amounted to an expense of SEK 16 million in 2002 compared with an income of SEK 13 million in 2001.
Other financial expense in 2002 includes currency exchange differences.



Net interest expense amounted to SEK 286 million in 2001 compared with SEK 175 million in 2000. Interest income decreased to SEK 121 million in 2001 from SEK 252 million in 2000. Interest expense decreased to SEK 407 million in 2001
compared with SEK 427 million in 2000. The increase in net interest expense is due to large payments pertaining to repurchase of shares and acquisition of the pipe tobacco operations in South Africa in 2001. Other financial items, net, amounted to
an income of SEK 13 million in 2001 compared with an expense of SEK 1 million in 2000. Other financial income in 2001 includes currency exchange differences



Income taxes



Income taxes in 2002 amounted to SEK 648 million corresponding to an effective tax rate of 30 percent. The tax rate of the group is higher than the
Swedish tax rate of 28 percent due to the influence of foreign tax rates, which are usually higher than the Swedish tax rate, and non-deductible goodwill. 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.



Income taxes in 2001 amounted to SEK 589 million.



The
possibility of utilizing tax loss carryforwards and allocations such as accelerated depreciation affects the Companys tax expense. As of December 31, 2002, unutilized tax-loss carryforwards amounted to SEK 779 million. Unutilized tax-loss
carryforwards are attributable to operations outside Sweden, and it is estimated that only approximately SEK 519 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 tax on this amount has been included as a deferred tax asset in the Consolidated Financial Statements. See Note 6 to the Consolidated Financial Statements.



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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 1,429 million in 2002 from SEK 1,228 million in
2001 due to the factors described above.



Recently issued accounting
pronouncements



FASB Statement No. 143 Accounting
for Obligations Associated with the Retirement of Long-Lived Assets (FAS 143) was issued in August 2001. FAS 143 addresses financial accounting and reporting for the retirement obligation of an asset and states that companies should recognize
the asset retirement cost, at its fair value, as part of the cost of the asset and classify the accrued amount as a liability in the consolidated balance sheet. The asset retirement liability is then accreted to the ultimate payout as interest
expense. The initial measurement of the liability would be subsequently updated for revised estimates of the discounted cash outflows. FAS 143 will be effective for fiscal years beginning after June 15, 2002. Swedish Match does not expect the
application of FAS 143 to have a material effect on its US GAAP earnings and financial position.



FASB Statement No. 145 Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections (FAS
145) was issued on April 2002. FAS 145 rescinds FAS 4 Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that statement, FAS 64 Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. FAS
145 also rescinds FAS 44 Accounting for Intangible Assets of Motor Carriers. FAS 145 amends FAS 13 Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the
required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. FAS 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings,
or describe their applicability under changed conditions. The provision of FAS 145 related to the rescission of FAS 4 shall be applied in fiscal years beginning after May 15, 2002. Two provisions related to FAS 13 became effective for transactions
occurring after May 15, 2002. All other provisions of FAS 145 shall be effective for financial statements issued on or after May 15, 2002. The application of FAS 145 has not had a significant impact on our earnings and financial position.



In July 2002, FASB Statement No. 146  Accounting for
Costs Associated with Exit or Disposal Activities (FAS 146) was issued. FAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). The principal difference between FAS 146 and EITF 94-3 relates to FAS 146s requirements for recognition of a
liability for a cost associated with an exit or disposal activity. FAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3, a liability for an exit cost
as generally defined in EITF 94-3 was recognized at the date of an entitys commitment to an exit plan. FAS 146 states that an entitys commitment to a plan, by itself, does not create an obligation that meets the definition of a
liability. Therefore, FAS 146 eliminates the definition and requirements for recognition of exit costs in EITF 94-3. It also establishes that fair value is the objective for initial measurement of the liability. FAS 146 is to be applied
prospectively to exit or disposal activities initiated after December 31, 2002. Swedish Match does not expect the application of FAS 146 to have a material effect on its US GAAP earnings and financial position.



In December 2002, FASB Statement No. 148 Accounting for Stock-Based
CompensationTransition and Disclosure (FAS 148) was issued. FAS 148 amends FASB Statement No. 123 Accounting for Stock-Based Compensation, to provide alternative methods of transition to FAS 123s fair value method of
accounting for stock-based employee compensation. FAS 148 also amends the disclosure provisions of FAS 123 and APB Opinion No. 28 Interim Financial Reporting, to require disclosure in the summary of significant accounting



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policies of the effects of an entitys accounting policy with respect to stock-based employee compensation on reported net income and earnings per share
in annual and interim financial statements. FAS 148s amendment of the transition and annual disclosure requirements of FAS 123 are effective for fiscal years ending after December 15, 2002, while the amendment of the disclosure requirements
for Opinion 28 is effective for financial reports containing condensed consolidated financial statements for interim periods beginning after December 15, 2002. The company has no current plan to change to the fair value method of accounting for
stock-based compensation under FAS 123 and does not expect FAS 148 to impact its financial statements.



In November 2002, FASB Interpretation No. 45 Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees
of Indebtedness of Others (FIN 45) was issued. Guarantees meeting the characteristics described in FIN 45, which are not included in a long list of exceptions, are required to be initially recorded at fair value, which is different from the
general current practice of recording a liability only when a loss is probable and reasonably estimable, as those terms are defined in FASB Statement No. 5 Accounting for Contingencies. FIN 45 also requires a guarantor to make
significant new disclosures for virtually all guarantees even if the likelihood of the guarantors having to make payments under the guarantee is remote. FIN 45s disclosure requirements are effective for financial statements of interim or
annual periods ending after December 15, 2002. The initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. Swedish Match does not expect the application
of FIN 45 to have a material effect on its US GAAP earnings and financial position.



In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46 or the Interpretation), Consolidation of Variable Interest Entities, an interpretation of ARB 51. FIN 46 addresses the
consolidation of entities for which control is achieved through means other than through voting rights (variable interest entities or VIE) by clarifying the application of Accounting Research Bulletin No. 51,
Consolidated Financial Statements to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 provides guidance on how to determine when and which business enterprise (the primary beneficiary) should consolidate the VIE. In addition, FIN 46 requires that both
the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures. The disclosure provisions of FIN 46 are effective in all financial statements initially issued after January 31, 2003. FIN
46 is required to be immediately applied by all entities with a variable interest in a VIE created after January 31, 2003. A public entity with a variable interest in a VIE created before February 1, 2003 is required to apply FIN 46 to that entity
no later than the beginning of the first interim or annual reporting period beginning after June 15, 2003. The Company is in the process of assessing its potential VIEs and the impact of adopting FIN 46 in its financial statements. Swedish Match
holds 64 percent of the American company General Cigar. The Cullman family holds the remaining 36 percent. General Cigar is consolidated by Swedish Match for purposes of Swedish GAAP. In accordance with the shareholder agreement between Swedish
Match and the Cullman family, the Cullman family are afforded substantive participating rights, which entitles them to actively participate in significant issues pertaining to daily operations of General Cigar. Accordingly, under U.S. GAAP, General
Cigar is accounted for under the equity method. Swedish Match is evaluating whether General Cigar should be consolidated according to FIN 46. A consolidation of General Cigar would not have had any effect on net income or shareholders equity.
However, total assets as of December 31, 2002 would have increased by SEK 1,619 million, total liabilities would have increased by SEK 974 million and minority interest would have increased by SEK 645 million. In 1998, Swedish Match sold property
and is now leasing the same property in accordance with a leasing agreement, which according to Swedish accounting principles is classified as an operating lease. As Swedish Match has an option to repurchase this property, the sales are, in
accordance with U.S. GAAP, considered financing arrangements, with the result that income recognition is postponed and the sale proceeds are booked as a liability. Under U.S. GAAP, the property remains in the books of the company and depreciation
continues to be recorded. The lease arrangement is with a leasing company that has established a company for the purpose of owning the property and leasing it back to Swedish Match. Swedish Match has paid SEK 10 million of capital into this entity
and has no further obligation but for the quarterly leasing costs. The leasing company has 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 currently evaluating the classification of this entity under FIN 46. Swedish Match does not expect a consolidation of the leasing entity to have
a material effect on its U.S. GAAP earnings and financial position.



Swedish
GAAP



Swedish Match adopted RR 22, RR 24, RR 25, RR 26, RR
27 and RR 28 as of January 1, 2003. The company will adopt RR 29 as of January 1, 2004.



RR 22Presentation of financial statements.    The objective of this standard is to prescribe the basis for presentation of general purpose financial statements, in order to ensure
comparability both with enterprises own financial statements of previous periods and with the financial statements of other enterprises. To achieve this objective, this standard sets out overall considerations for the presentation of financial
content of financial statements.



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RR 24Investment property.    RR 24 prescribes the accounting treatment
for investment property and related disclosure requirements. Investment property should be measured at depreciated cost (less any accumulated impairment losses). The effect of implementing RR 24 is not expected to have a material effect on the
result of operations and financial position of the company.



RR 25Segment reporting.    The objective of this standard is to establish principles for reporting financial information by segment to help users of financial statements to better understand different types
of products and services a company produces and in which geographical areas it operates. The effect of implementing RR25 is not expected to have a material effect on the presentation of segment information.



RR 26Events after the balance sheet
date.    This statement prescribes when a company should adjust its financial statements for events after the balance sheet date and the disclosures that a company should give about the date when the statements were
authorized for issue and about events after the balance sheet date. The effect of implementing RR26 is not expected to have a material effect on the business, results of operations, and financial position of the company.



RR 27Financial instruments. Disclosures and
presentation.    The objective of this standard is to enhance financial statement users understanding of the significance of on-balance-sheet and off-balance-sheet financial instruments to a companys business,
results of operations, and financial position. The standard prescribes certain requirements for presentation of on-balance-sheet (recognized) and off-balance-sheet (unrecognized) financial instruments. The effect of implementing RR27 is not expected
to have material impact on the business, results of operations, and financial position of the company.



RR 28Accounting for Government Grants.    This standard applies for financial reporting and disclosures of government
grants and other forms of government assistance. The effect of implementing RR 28 is not expected to have material impact on the business, results of operations, and financial position of the company.



RR 29Employee benefits.    The objective of
this standard is to prescribe the accounting and disclosure for employee benefits. The standard 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 an
expense when the enterprise consumers the economic benefit arising from service provided by an employee in exchange for employee benefits. The company is in the process of assessing the impact of adopting RR 29 on its consolidated financial
statements. It is expected that the benefit obligations of the companys defined benefit plans will exceed the fair value of plan assets. The deficit will be charged to opening equity on January 1, 2004 in accordance with RR 29.



Share structure



During the second quarter of 2000, an offer was extended to all shareholders to redeem one in every 14 shares in the company
for a cash settlement of SEK 35 per share. The redemption was completed in July 2000 through a transfer to shareholders totaling SEK 1,045 million, corresponding to 29,869,472 redeemed shares. In conjunction with the redemption program, the Board of
Directors of Swedish Match resolved on June 13, 2000 to approve a direct issue of 2,476,200 shares to five of the largest shareholders in the company. A decision was also made to increase the par value of all shares from SEK 2.20 to SEK 2.40 through
a bonus issue. These measures were implemented to prevent a reduction in the companys share capital and, as a result, support more rapid implementation of the redemption procedure. After implementation of these measures, the number of shares
in the company was 403,946,391.



In accordance with a mandate
approved by the Annual General Meeting on April 27, 2000 to implement a share buyback program comprising not more than five percent of the companys shares, which was increased to a maximum of 10 percent at a Special General Meeting on October
27, the company had repurchased 28,799,500 shares at December 31, 2000, corresponding to 7.13 percent of the companys total shares. The average price paid for the repurchased shares was SEK 31.39. Shareholders at the Special General Meeting
also approved a



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proposal to reduce the share capital through cancellations of 17,350,210 shares, without refunds to shareholders, for provisions to a fund to be utilized in
accordance with resolutions approved by the Annual General Meeting. The reduction of the share capital was registered in March 2001. After the reduction, the number of shares outstanding was 386,596,181. The repurchased shares, in accordance with a
decision by the Annual General Meeting, can be used to finance acquisitions and the companys options program.



At the Annual General Meeting on April 24, 2001, shareholders of the Company approved the cancellation of a further 15 million shares repurchased by the
Company under previous share buyback programs. The reduction was registered in October 2001. Following these reductions, the share capital of the Company amounted to SEK 891.8 million, represented by 371,596,181 shares, each with a par value of SEK
2.40. During 2001 25,146,710 shares were repurchased at an average price of SEK 46.49. As a result of the repurchase and after cancellations, Swedish Match held 21,596,000 shares, equal to 5.8 percent of the Companys shares at year-end 2001.



At the Annual General Meeting on April 23, 2002 shareholders
approved the cancellation of 10 million shares. The reduction was registered in October, 2002. Following these reductions, the share capital of the Company amounts to 361,596,181 shares, each with a par value of SEK 2.40. Shareholders at the meeting
approved the proposal that the Companys holdings of its own shares may not exceed 10 percent of the total shares outstanding. Repurchased shares may be used to acquire companies and to cover options issued within the framework of the
companys options program. A total of 1,684,500 shares have been repurchased during 2002. As a result of these repurchases, Swedish Match held 23,280,500 shares on December 31, 2002.



At the Annual General Meeting on April 25, 2003 shareholders approved the cancellation of 10 million shares. An application
to reduce the share capital has been made. Shareholders at the meeting approved the proposal that the Companys holdings of its own shares may not exceed 10 percent of the total shares outstanding. Repurchased shares may be used to acquire
companies and to cover options issued within the framework of the companys options program. As of June 12, 2003 a total of 12,421,227 shares have been repurchased during 2003. As a result of these repurchases, Swedish Match held 30,433,000
shares on June 12, 2003.



|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 1,761 million outstanding as of December 31, 2002 with the following
maturities.



|Amount          |  | Maturity, year |  | Interest rate, percent(1)
|--------------- |  | -------------- |  | -------------------------
|SEK 730 million |  | 2003           |  | 3.91-4.72                
|SEK 60 million  |  | 2004           |  | 4.51-4.91                
|SEK 500 million |  | 2005           |  | 4.40-4.66                
|SEK 299 million |  | 2007           |  | 3.89                     
|SEK 172 million |  | 2008           |  | 3.64-5.27                

---

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



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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 in 2001. The Company had debt securities of euro 375 million, equivalent to SEK 3,204 million, outstanding as of December 31, 2002 and with the following maturities.



|Amount            |  | Maturity, year |  | Interest rate, percent(1)
|----------------- |  | -------------- |  | -------------------------
|SEK 535 million   |  | 2004           |  | 4.18-4.78                
|SEK 137 million   |  | 2005           |  | 3.65                     
|SEK 2,532 million |  | 2006           |  | 4.00-4.43                

---

|(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 leasing the same property in accordance with a leasing agreement, which according to Swedish accounting principles 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 leasing it back to Swedish Match. Swedish Match has paid SEK 10 million of capital into this entity and has no further obligation but for the quarterly leasing costs. The leasing
company has put SEK 5 million of capital into the entity, has arranged with external financing, and has unlimited liability for the liabilities of the entity.



The following summarizes the Companys contractual obligations at December 31, 2002, 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
|----------------------------------- |  | ----- |  | -------- |  | --------- |  | --------- |  | -------------
|Medium-term note programs           |  | 4,965 |  | 730      |  | 1,232     |  | 2,831     |  | 172          
|Other borrowings                    |  | 541   |  | 260      |  | 281       |  | 0         |  | 0            
|Non cancellable operating leases(1) |  | 585   |  | 116      |  | 196       |  | 167       |  | 106          
|                                    |  |       |  |          |  |           |  |           |  |              
|Total                               |  | 6,091 |  | 1,106    |  | 1,709     |  | 2,998     |  | 278          
|                                    |  |       |  |          |  |           |  |           |  |              

---

|(1) |  | Included in these amounts are payments totaling SEK 408 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 758 million is recorded on the balance sheet related to the leasing arrangement.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Swedish Match is in compliance with all covenants or other requirements set forth in its credit agreements. Further, 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 potential bond offerings and secured lending. Swedish Match has SEK 1,5 00 million in committed 364 days credit facilities as of December 31, 2002 and has also the ability to draw upon its
euro 225 million revolving credit facility prior to its commitment termination in April 2004. This facility requires the Company to have a ratio of interest after financial items plus interest expense divided by interest expense of at least 3.



The Company has an agreement with the minority shareholders of
General Cigar concerning put and call options with regard to the minoritys shareholding. The options can 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. The value of the minority shareholders total holdings cannot be less than USD 97 million.



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At the end of 2002, liquid funds amounted to SEK 2,016 million, compared with SEK 1,606 million at the
beginning of the year.



At year-end 2002, SEK 959 million of
the Groups liquid funds were deposited in bank accounts, SEK 30 million in investment loans in banks and SEK 1,027 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 2002 sales of SEK 13,643 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 2002 amounted to
SEK 8,956 million. Tobacco tax and VAT on tobacco tax in the Swedish operation amounted to SEK 10,352 million during 2002.



Cash provided by operations and investing and financing activities



Cash flow from operations, as set forth in the Consolidated Statements of Cash Flows, during 2002 amounted to SEK 2,585
million, compared with SEK 1,609 million in 2001 and SEK 945 million in 2000. The increase in 2002 compared with 2001 is primarily attributed to a higher profit before depreciation and amortization in 2002, lower amount of taxes paid and a decrease
in operating capital. The increase in 2001 compared with 2000 was primarily due to higher profit before depreciation and amortization and a sharp increase in operating capital in 2000.



Cash flow from investing activities totaled SEK 717 million in 2002 compared with SEK 1,520 million in 2001 and SEK 1,967
million in 2000. The change between 2002 and 2001 is primarily due to a lower amount spent on acquisitions in 2002 compared with 2001. The change between 2001 and 2000 was primarily due to a lower amount spent on acquisitions in 2001 offset by
higher capital expenditure.



Cash flow from financing
activities during 2002 was an outflow of SEK 1,366 million compared with an outflow of SEK 1,453 million in 2001 and an outflow of SEK 3,273 million in 2000. The change between 2002 and 2001 is due to long-term borrowing and a higher amount of share
buy-backs in 2001. The change between 2001 and 2000 is due to amortization of long-term loans and share redemption in 2000.



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



Swedish Match has research and development activities in Sweden and the United States for its Tobacco operations, focusing on properties of the tobacco
plant. Included in selling expenses are expenses for Research and Development and similar expenses amounting to SEK 105 million, SEK 100 million and SEK 99 million for the years ended December 31, 2000, 2001 and 2002 respectively. For a discussion
on the Company patents, trademarks and licenses, see Item 4.B. Business Overview.



5.D    Trend Information



Product areas



Snuff



Snuff is Swedish Matchs driving segment for organic growth. 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.



Chewing Tobacco



Consumption of chewing tobacco has been declining by an average of 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.



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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, and large excess inventories of product in the commercial
chain reduced somewhat, negatively affecting manufacturers sales despite stable consumption. In 2000, consumption of machine made 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 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. The European market remained relatively stable.



Pipe Tobacco



The world market for pipe tobacco is declining by more than 8 percent annually in volume terms. The main reason is demographicthe increasing average
age of consumers and the weak influx of new buyers. Current trends show a slight increase in demand for pipe tobacco in the premium and value price segments, with weaker demand in the moderate price segment.



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. The world market for Lighters is
estimated growing by 1 to 2 percent a year in volume terms.



Regulation



The manufacture, marketing and sale of tobacco are highly
regulated. Approximately 86 percent of Swedish Matchs turnover originates in the European Union, South Africa and the United States. 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), United States, and South
African tobacco markets, see Item 4.B. Business OverviewRegulation.



|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 has ultimate responsibility for the organization of the Company and the management of the Companys affairs. 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 (two directors if the Company is active in only one industry) 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. All directors, other than union appointees, are elected by resolution of a General Meeting of Shareholders. 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



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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 remuneration 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.



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 April 25, 2002, the
Directors of the Company were:



|Name              |  | Born |  | Position       
|----------------- |  | ---- |  | ---------------
|                  |  |     
|Bernt Magnusson   |  | 1941 |  | Chairman       
|                  |  |     
|Jan Blomberg      |  | 1939 |  | Director       
|                  |  |     
|Tuve Johannesson  |  | 1942 |  | Director       
|                  |  |     
|Arne Jurbrant     |  | 1942 |  | Director       
|                  |  |     
|Lennart Sundén    |  | 1952 |  | Director       
|                  |  |     
|Meg Tivéus        |  | 1943 |  | Director       
|                  |  |     
|Klaus Unger       |  | 1934 |  | Director       
|                  |  |     
|Kenneth Ek        |  | 1953 |  | Director       
|                  |  |     
|Eva Larsson       |  | 1958 |  | Director       
|                  |  |     
|Joakim Lindström  |  | 1965 |  | Director       
|                  |  |     
|Lennart Johansson |  | 1951 |  | Deputy Director
|                  |  |     
|Stig Karlsson     |  | 1941 |  | Deputy Director
|                  |  |     
|Christer Hylen    |  | 1965 |  | Deputy Director



Bernt Magnusson.    Chairman since 1995. Director since 1993. Chairman of Dyno Nobel ASA. Other Board assignments: Member of the Board of Volvo Car Corp., Nordea AB, Höganäs AB and Pharmadule AB and Net Insight AB. Advisor to the
European Bank for Reconstruction and Development.



Jan
Blomberg.    Director since 1996. Chairman of Handelsbanken Regionbank City, Stockholm. Other Board assignments: Member of the Board of Skandia Investment, Capio AB, Svenska Spel AB and H & B Capital.



Tuve Johannesson.    Director since 2002. Chairman
of EcoLean International A/S. Vice Chairman of Volvo Car Corporation. Member of the Board of SEB AB, IFS AB, Cardo AB, Chumak, Royal Scandinavia A/S. Advisor to J. C Banford Excavators Ltd.



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Arne Jurbrant.    Director since 2002. Member of the Board of IFL/MTC AB.



Lennart Sundén.    Director
since 1999. President and Chief Executive Officer of Swedish Match AB since November 1, 1998. Other Board assignments: Member of the Board of FöreningsSparbanken AB, J M AB and Arnold André GmbH & Co KG.



Meg Tivéus.    Director since 1999. Other
assignments: President and CEO of Svenska Spel AB. Member of the Board of Cloetta Fazer AB, the Swedish Royal Opera, Billerud AB and Danderyd Hospital.



Klaus Unger.    Director since 1984. Other Board Assignments: Member of the Board of Arnold André GmbH & Co KG.



Employee representatives



Kenneth Ek.    Director 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 Swedish Matchs snuff factory in Gothenburg, Sweden.



Eva Larsson.    Director since
1999. Appointed by the Swedish Trade Union Confederation (LO) of Swedish Match Industries AB. Shop steward at the match factory in Tidaholm, Sweden.



Joakim Lindström.    Director since 2001. Appointed by the Swedish Trade Union Confederation (LO) within Swedish Match AB.
Vice President of the Swedish Food Workers Association (Livs) in Solna, Stockholm, Sweden.



Deputy employee representatives



Lennart Johansson.    Deputy Director since 1999. Appointed by the Federation of Salaried Employees in Industry and Services
(PTK) within Swedish Match. Chairman of the Association Graduate Engineers at Swedish Match.



Stig Karlsson.    Deputy Director since 1999. Appointed by the Federation of Salaried Employees in Industry and Services (PTK) within Swedish Match. Shop steward for the Swedish Industrial
Salaried Employees Association (SIF) at Swedish Match Arenco AB in Kalmar, Sweden.



Christer Hylén.    Deputy Director since 2001. Appointed by the Swedish Trade Union Confederation (LO) within Swedish Match.



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Executive officers



As of June 23, 2003, Swedish Matchs executive officers included the following individuals:



|Name              |  | Born |  | Position                                                              
|----------------- |  | ---- |  | ----------------------------------------------------------------------
|                  |  |     
|Lennart Sundén    |  | 1952 |  | President and Chief Executive Officer                                 
|                  |  |     
|Sven Hindrikes    |  | 1950 |  | Executive Vice President and ChiefFinancial Officer                   
|                  |  |     
|Massimo Rossi     |  | 1942 |  | Senior Executive Advisor                                              
|                  |  |     
|Bo Aulin          |  | 1948 |  | Senior Vice President, Corporate Affairs,Secretary and General Counsel
|                  |  |     
|Lennart Freeman   |  | 1951 |  | President, North America Division                                     
|                  |  |     
|Stefan Gelkner    |  | 1944 |  | President, North Europe Division                                      
|                  |  |     
|Graham Jones      |  | 1949 |  | President, Match Division                                             
|                  |  |     
|Peter Nilsson     |  | 1962 |  | Senior Vice President, Group BusinessDevelopment                      
|                  |  |     
|Ingemar Olsson    |  | 1953 |  | President, Overseas Division                                          
|                  |  |     
|Göran Streiffert  |  | 1946 |  | Senior Vice President, Group HumanResources and IS/IT                 
|                  |  |     
|René den Admirant |  | 1956 |  | President, Continental Europe Division                                



Lennart
Sundén.    President and Chief Executive Officer of Swedish Match AB since 1998.



Sven Hindrikes.    Executive Vice President and Chief Financial Officer. Employed and member of Group Management since
1998.



Massimo Rossi.    Senior Executive Advisor. Member of Group Management since 1992.



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



Lennart Freeman.    President, North America
Division. Employed in 1975. Member of Group Management since 1999.



Stefan Gelkner.    President, North Europe Division. Employed in 1977. Member of Group Management since 1999.



Graham Jones.    President, Match Division. Employed in 1978. Member of Group Management since 1999.



Peter Nilsson.    Senior Vice President, Group
Business Development. Employed in 1987. Member of Group Management since 1999.



Ingemar Olsson.    President, Overseas Division. Employed in 1983. Member of Group Management since 1999.



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



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René den Admirant.    President, Continental Europe Division. Employed
and member of the Group Management since 2003.



|6.B    Compensation |  | 
|------------------- |  | 



Executive Compensation



Bernt Magnusson, Chairman of the Board of Directors of Swedish Match AB, was paid a fee of SEK 550,000 in 2002. The other Board members elected by the Annual General Meeting were each paid SEK 225,000, with the
exception that no fees were paid to Board members being employed within the Swedish Match Group.



Lennart Sundén, President and CEO, received salary and benefits totaling SEK 6,000,000 in 2002, including a bonus of SEK 1,400,000. Lennart
Sundén has a bonus agreement entitling him to a bonus of up to 35 percent of base salary. In addition, Lennart Sundén received taxable benefits amounting to SEK 188,000 and other remuneration of SEK 183,000. In accordance with the 1999
options program, determined by the Board, he was allotted options in 2002 at a gross cost of SEK 924,000 plus social charges. He is entitled to retirement pension from the age of 60. From age 60 to 65, a pension is paid at 70 percent of pensionable
salary (final base salary plus the average of bonus paid over the last three years). As from the age of 65, a pension is paid at 45 percent of pensionable salary. In case Lennart Sundén wants to resign before age 60 he must give six months
notice, while the Company must give 12 months notice of termination. A severance payment corresponding to two years salary is payable if the Company terminates the employment contract. However, severance pay will be reduced by 50 percent of
any other employment income, up to maximum of half the contracted severance pay.



Wages, salaries, and remuneration for the President and Executive Vice President in 2002 amounted to approximately SEK 11.5 million, including option allotments amounting to SEK 1.95 million. Pension costs in regard
to the President and Executive Vice President amounted to SEK 1.1 million. Total amount of compensation to the other members of the Executive Group Management was approximately SEK 24 million including option allotments amounting to SEK 5.2 million.



Other members of the Executive Group Management are entitled
to pension at the normal pension age between 60-65. Between 60-65 years of age pension is paid at 50 to 70 percent of pensionable salary. From age 65, pension is paid at 32.5 to 70 percent of pensionable salary. Pensionable salary is in most cases
(may vary depending on country of service) defined as base salary plus the average of the bonuses paid during the three years immediately preceding retirement. In no case will bonus amount to more than 35 percent of the base salary.



A mutual six-months notice period of intent to terminate employment applies
for all members of the Executive Group Management, other than Lennart Sundén. Severance pay corresponding to 18 months base salary is payable if the Company gives notice of termination of employment.



Social welfare costs for the Executive Group Management were approximately
equivalent to SEK 10.3 million, of which pension expenses were approximately SEK 4.5 million.



Incentive Programs



In 1999, the Board of Directors of Swedish Match decided to launch an ongoing options program to further increase senior managements commitment and
participation in the ownership of Swedish Match. For 2002, the options program included 55 executives. Under the terms of the program, the allocation of options in a specific year is subject to the following requirements: (1) the total return on the
Companys shares must be positive and better than the return on the shares of a selection of companies in the industry (with a maximum allocation at a return figure that is 20 percent higher then the average of the other companies
returns); and (2) the Companys earnings must be increasing and higher than the average for the three most recent years (with a maximum allocation at a per share earnings figure that is 20 percent higher than the preceding three years). Both of
these



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requirements (a positive total return that is higher than competitors and increased earnings per share) are equal in value. If the conditions related
to earnings have been met, the eligible executives are granted options. The options are assigned a market value in accordance with the Black-Scholes model and are issued without cost to the recipient. The value of the allotted options amounts to a
maximum of 30 percent of the base salary amount of the executives included in the program. The exercise price for the options amounts to 120 percent of the average price for the Companys shares during a period after the publication of the
year-end results.



As part of the program, 1,518,770 call
options pertaining to 2001 were issued during the first half of 2002. These options may be exercised during the period from March 15, 2005 to March 15, 2007. Each option entitles the holder to purchase one share at an exercise price of SEK 77.50. In
2003, 1,428,490 options have been issued pertaining to 2002 results. These options may be exercised during the period from March 1, 2006 to February 28, 2008. Each option entitles the holder to purchase one share at an exercise price of SEK 74.00.



After the option allotment in 2003 the Company has issued call
options against shares held in Treasury corresponding to 7,606,677 shares as detailed below.



|Number of shares |  | Exerciseprice, SEK |  | Exercise period                  
|---------------- |  | ------------------ |  | ---------------------------------
|2,847,108        |  | 34.70              |  | March 13, 2003  March 14, 2005  
|1,812,309        |  | 44.50              |  | March 13, 2004  March 14, 2006  
|1,518,770        |  | 77.50              |  | March 15, 2005  March 15, 2007  
|1,428,490        |  | 74.00              |  | March 1, 2006  February 28, 2008



|6.C    Board |  | Practices
|------------ |  | ---------



The chart below shows the terms of office of the Companys Board of Directors:



|Name                       |  | Start ofTerm |  | End of Term                       
|-------------------------- |  | ------------ |  | ----------------------------------
|Bernt Magnusson (Chairman) |  | 1995         |  | 2004                              
|Jan Blomberg               |  | 1996         |  | 2004                              
|Tuve Johannesson           |  | 2002         |  | 2004                              
|Arne Jurbrant              |  | 2002         |  | 2004                              
|Lennart Sundén             |  | 1999         |  | 2004                              
|Meg Tivéus                 |  | 1999         |  | 2004                              
|Klaus Unger                |  | 1984         |  | 2004                              
|Kenneth Ek                 |  | 1999         |  | Member until further notice       
|Eva Larsson                |  | 1999         |  | Member until further notice       
|Joakim Lindström           |  | 2001         |  | Member until further notice       
|Lennart Johansson          |  | 1999         |  | Deputy member until further notice
|Stig Karlsson              |  | 1999         |  | Deputy member until further notice
|Christer Hylén             |  | 2001         |  | Deputy member until further notice



The Board members of
Swedish Match elected by the Annual General Meeting are elected until the next Annual General Meeting. A Director may serve any number of consecutive terms. The following current Board members are elected by the Annual General Meeting: Bernt
Magnusson, Jan Blomberg, Tuve Johannesson, Arne Jurbrant, Lennart Sundén, Meg Tivéus and Klaus Unger. The other Board Members and the Deputy Members are appointed by their respective employee union.



Committees



The Remuneration Committee of the Board of Directors discusses and resolves
questions concerning salaries and other terms of employment, pension benefits and bonus systems for the president and the



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management personnel who report directly to the president. The Committee also discusses and resolves other remuneration issues that involve matters of
principle or carry considerable importance in other respects, for example option programs and profit-sharing programs.



The Nominating Committee is elected by the General Meeting. It proposes, to the Annual General Meeting, the members of the Board of Directors for the
following period. In addition, it proposes the fees to be paid to the Board of Directors. Chairman of the Nominating Committee is Bernt Magnusson. Other members are Björn Franzon, Marianne Nilsson and Staffan Grefbäck.



The Audit Committee is established by the Board of Directors for the purpose
of overseeing the accounting and financial reporting processes of the Company and the audits of the financial statements of the Company. Chairman of the Audit Committee is Jan Blomberg. Other members are Arne Jurbrant and Meg Tiveus. It proposes
auditors of the Company and their fees, to the Annual General Meeting and shall pre-approve non-auditing services provided by the auditors. Further the Audit Committee shall review and pre-approve related party transactions.



|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, 2002, 2001 and 2000.



|Product area                 |  | 2002   |  | 2001   |  | 2000  
|---------------------------- |  | ------ |  | ------ |  | ------
|Chewing Tobacco              |  | 347    |  | 309    |  | 293   
|Cigars                       |  | 6,504  |  | 5,922  |  | 4,997 
|Lighters                     |  | 533    |  | 570    |  | 625   
|Match                        |  | 5,743  |  | 5,893  |  | 6,333 
|Pipe Tobacco and Accessories |  | 558    |  | 578    |  | 357   
|Snuff                        |  | 825    |  | 846    |  | 842   
|Other operations             |  | 285    |  | 225    |  | 225   
|                             |  |        |  |        |  |       
|Total                        |  | 14,795 |  | 14,343 |  | 13,672
|                             |  |        |  |        |  |       



The table below shows
the average number of employees for the period by geographical area for each of the past 3 financial years, 2002, 2001 and 2000.



|Geographic area         |  | 2002   |  | 2001   |  | 2000  
|----------------------- |  | ------ |  | ------ |  | ------
|Sweden                  |  | 969    |  | 966    |  | 958   
|Europe excluding Sweden |  | 1,954  |  | 1,995  |  | 2,243 
|North America           |  | 1,250  |  | 1,323  |  | 1,404 
|Latin America           |  | 4,706  |  | 4,497  |  | 3,562 
|Other Areas             |  | 5,916  |  | 5,562  |  | 5,505 
|                        |  |        |  |        |  |       
|Total                   |  | 14,795 |  | 14,343 |  | 13,672
|                        |  |        |  |        |  |       



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|6.E    Share |  | Ownership
|------------ |  | ---------



As of May 16, 2003, the shareholdings and holdings of call options of the 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          
|Tuve Johannesson                  |  | 6,000          
|Arne Jurbrant                     |  | 1,500          
|Lennart Sundén                    |  | 60,000         
|Meg Tivéus                        |  | 500            
|Klaus Unger                       |  | 6,614          
|Kenneth Ek                        |  | 210            
|Eva Larsson                       |  | 0              
|Joakim Lindström                  |  | 0              
|Lennart Johansson (Deputy member) |  | 0              
|Stig Karlsson (Deputy member)     |  | 249            
|Christer Hylén (Deputy member)    |  | 0              



All shares of Swedish
Match are of the same class and represent one vote each. Each member of the Board owns less than 1 percent of the share capital.



Mr. Lennart Sundén is the only member of the Board with call options, 379,387 in total. Except as otherwise described, each call option refers to
one share. The terms of the call options of Lennart Sundén are as follows: 42,947 call options (each representing 1.02 shares) can be used to buy shares during the period March 13, 2003 to March 14, 2005 at a redemption price of SEK 34.70.
146,341 call options can be used to buy shares during the period March 15, 2004 to March 15, 2006 at a redemption price of SEK 44.50. 80,099 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 and 110,000 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.



As of May 16, 2003, 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
|----------------- |  | --------------- |  | ---------------------
|Lennart Sundén    |  | 60,000          |  | 379,387              
|Sven Hindrikes    |  | 5,000           |  | 82,786               
|Massimo Rossi     |  | 101,400         |  | 192,527              
|Bo Aulin          |  | 4,700           |  | 82,786               
|Lennart Freeman   |  | 300             |  | 192,527              
|Stefan Gelkner    |  | 1,000           |  | 114,096              
|Graham Jones      |  | 6,000           |  | 353,579              
|Peter Nilsson     |  | 6,086           |  | 158,065              
|Ingemar Olsson    |  | 19,500          |  | 303,579              
|Göran Streiffert  |  | 20,400          |  | 82,786               
|René den Admirant |  | 10,000          |  |                     



All shares in Swedish
Match are of the same class and represent one vote each. Each executive officer owns less than 1 percent of the share capital. The number of options granted to the Companys executive officers in 2000 was 1,302,107. Each option entitles the
holder to buy 1.02 shares at a price of SEK 34.70 per share. These



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options can be exercised from March 13, 2003 through March 14, 2005. The number of options granted to the Companys executive officers in 2001 was
638,048. Each option entitles the holder to buy 1 share at a price of SEK 44.50 per share. These options can be exercised from March 13, 2004 through March 14, 2006. The number of options granted to the Companys executive officers in 2002 was
509,459. Each option entitles the holder to buy 1 share at a price of SEK 77.50 per share. These options can be exercised from March 15, 2005 through March 15, 2007. The number of options granted to the Companys executive officers in 2003 was
479,560. Each option entitles the holder to buy 1 share at a price of SEK 74.00 per share. These options can be exercised from March 1, 2006 through February 28, 2008.



|ITEM 7.    MAJOR |  | SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|---------------- |  | -------------------------------------------



|7.A    Major |  | shareholders
|------------ |  | ------------



As of March 31, 2003, the only persons or groups known to the Company to hold 5 percent or more of the voting securities of the Company were:



|Title of Class                          |  | Identity of Persons orGroup |  | Amount Owned      |  | Percent of Class Notified
|--------------------------------------- |  | --------------------------- |  | ----------------- |  | -------------------------
|Shares nominal value SEK 2.40 per share |  | Fidelity Funds              |  | 33,986,137 shares |  | 9.4%                     



As of December 31,
2002, the only persons or groups known to the Company to hold 5 percent or more of the voting securities of the Company (registered direct ownership according to VPC (Securities Register Center)) were:



|Title of Class                          |  | Identity of Persons orGroup |  | Amount Owned      |  | Percent of Class Notified |  
|--------------------------------------- |  | --------------------------- |  | ----------------- |  | ------------------------- | -
|Shares nominal value SEK 2.40 per share |  | Fidelity Funds              |  | 52,480,819 shares |  | 15.3                      | %



As of December 31,
2001, the only persons or groups known to the Company to hold 5 percent or more of the voting securities of the Company (registered direct ownership according to VPC (Securities Register Center)) were:



|Title of Class                          |  | Identity of Persons orGroup       |  | Amount Owned      |  | Percent of Class Notified |  
|--------------------------------------- |  | --------------------------------- |  | ----------------- |  | ------------------------- | -
|Shares nominal value SEK 2.40 per share |  | Fidelity Funds                    |  | 47,930,225 shares |  | 13.7                      | %
|                                        |  |                                   | 
|Shares nominal value SEK 2.40 per share |  | FöreningsSparbankernasAktiefonder |  | 22,750,143 shares |  | 6.5                       | %
|                                        |  |                                   | 
|Shares nominal value SEK 2.40 per share |  | Capital Group                     |  | 18,258,699 shares |  | 5.2                       | %



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As of December 31, 2000, the only persons or groups known to the Company to hold 5 percent or more of the
voting securities of the Company were:



|Title of Class                          |  | Identity of Persons orGroup       |  | Amount Owned      |  | Percent of Class Notified |  
|--------------------------------------- |  | --------------------------------- |  | ----------------- |  | ------------------------- | -
|Shares nominal value SEK 2.40 per share |  | FöreningsSparbankernasAktiefonder |  | 45,394,343 shares |  | 12.1                      | %
|                                        |  |                                   | 
|Shares nominal value SEK 2.40 per share |  | Fidelity Funds                    |  | 42,171,069 shares |  | 11.2                      | %
|                                        |  |                                   | 
|Shares nominal value SEK 2.40 per share |  | Harbor Funds                      |  | 18,818,974 shares |  | 5                         | %



As of May 16, 2003 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 orGroup                    |  | Amount Owned   |  | Percent of Class Notified
|--------------------------------------- |  | ---------------------------------------------- |  | -------------- |  | -------------------------
|Shares nominal value SEK 2.40 per share |  | Directors and officers as a group (22 persons) |  | 268,955 shares |  | 0.08%                    



As at March 31, 2002,
the Company had 782 ADS holders of record.



|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.



|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 for the audit report of the Companys accountants, entitled Report of Independent
Accountants.



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.



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8.A.7.    Legal disputes



The Company is involved in a number of legal proceedings in the normal course
of its business.



In New York State, there are proceedings
against General Cigar, where Cubatobaco is claiming that General Cigar does not have the right to use the Cohiba brand. Hearing of the case began in May 2003. Subsidiaries of Swedish Match in Brazil and France are subject to claims concerning
alleged unfair dismissal of employees. In Brazil there are six such cases, while in France 120 employees have instigated proceedings as a result of the closure of the factory in Lyon. Although the outcomes of these proceedings cannot be predicted
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.



Claims for damages against subsidiaries of Swedish Match for
injuries that allegedly were caused by Swedish Match lighter products have been filed in Brazil and the U.S. Swedish Match has insurance protection to cover the claims made.



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 one of the defendants in a case in Minnesota in which the plaintiff is asserting that use of chewing tobacco caused her husbands
death. The court dismissed the case from any further proceedings on March 3, 2003. Although the plaintiff has pursued an appeal of the dismissal, the Company is confident that Pinkerton ultimately will be granted a final dismissal. Pinkerton is also
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 unclear whether any of the plaintiffs intends to pursue their demands separately against Pinkerton. Finally, 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 American smokeless tobacco market and their joint interest associations. It is unclear whether the state court or federal court will hear the case and no schedule has been
announced to date. 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 Securities and Exchange Board of
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 15 percent
annual interest from January 27, 2001. The total amount is approximately SEK 60 million plus interest. The ruling was appealed to the Securities Appellate Tribunal, which upheld the order. Swedish Match has appealed this decision to the Supreme
Court in India which has decided to hear the case. The hearing date is set for July 15, 2003. The Supreme Court of India could order Swedish Match to sell shares in Wimco or uphold SEBIs order to Swedish Match. There is a risk that shares
bought in Wimco pursuant to such order would be bought at a cost substantially higher than the previously written down cost of Swedish matchs share in Wimco.



Swedish Match North America, Inc. has filed a federal civil antitrust action against U.S. Smokeless Tobacco Company
(USST) and other companies within the UST group in the United States District Court for the Western district of Kentucky. Swedish Match North America, Inc. is seeking a permanent injunction against USST, to stop the use of illegal
methods aimed at suppressing competition in the American snuff market, and substantial damages. USST is denying the allegations. Trial is scheduled for September 2004.



The administrative court in Minden, Westfahlen, Germany, has decided to refer the question of the legality of the EUs
snuff prohibition to the European Court in Luxemburg. In its decision the Court decided to stay the initiated proceedings pending a ruling from the European Court of Justice concerning the following question: Is



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the snus prohibition in accordance with imperative law of the European Community? Swedish Matchs distributor in Germany, Arnold André GmbH
is claiming that the ban on the sales of snus is discriminating, disproportionate, and that the EU has exceeded its legislative competence when the prohibition was enacted. A similar case has also been referred to the European Court of Justice by
the High Court of Justice in London, UK. The process in Luxemburg is expected to take two years.



A purported class action was filed on or about May 8, 2000 in the Delaware Chancery Court, Orman vs Cullman, et al., naming as defendants Edgar M. Cullman
Sr., Edgar M. Cullman Jr., Susan P. Cullman, John L. Ernest, Peter J. Solomon, Bruce A. Barnet, John L. Bernbach, Thomas C. Israel, Dan W. Lufkin, Graham V. Sherren, Frances T. Vincent Jr. and General Cigar Holdings Inc. Plaintiff purports to bring
this action on behalf of a class of all unaffiliated holders of General Cigars Class A common stock. Plaintiff alleged that General Cigar and its directors breached their fiduciary duties to General Cigars shareholders by approving a
transaction by which a subsidiary of Swedish Match AB would purchase the publicly owned shares of General Cigar while Edgar M. Cullman Sr., Edgar M. Cullman Jr., Susan P. Cullman and John L. Ernest retained certain equity interests in General Cigar.



In addition, plaintiffs asserted that a proxy statement that
disclosed the terms of this transaction contained untrue statements and/or omissions of material facts. Plaintiffs seek an unspecified amount of compensatory damages, prejudgment interest, and attorneys fees and other costs. On July 28, 2000,
defendants filed a motion to dismiss the complaint in its entirety. On February 26, 2002, the Court granted in part and denied in part defendants motion to dismiss. The Court dismissed all but one of Plaintiffs claims alleging breach of
the directors disclosure obligations: namely, their claim that the proxy materials did not disclose the fair market value of the Companys headquarters building. The Court also ruled that Plaintiff had adequately alleged, for purposes of
surviving a motion to dismiss, that a majority of the board of directors was either interested in the merger transaction or lacked independence with respect to that transaction. On April 12, 2002, defendants filed an answer to the complaint, denying
its material allegations.



On April 8, 2002, defendants filed a
motion for summary judgment. Defendants filed a brief and affidavits in support of that motion on April 15, 2002. Plaintiffs subsequently agreed to withdraw their remaining disclosure claim regarding the Companys headquarter building.
Plaintiffs filed an opposition to defendants motion for summary judgment on May 24, 2002. Defendants reply brief was filed on June 14, 2002.



Defendants argued in their summary judgment motion that because the public shareholders had overwhelmingly approved the merger transaction, and because
there was no longer any claim regarding the sufficiency of the disclosure, the shareholders vote operated to ratify any alleged breach of the directors fiduciary duties. At the hearing on defendants motion, Plaintiff argued, for
the first time, that the shareholders vote had been coerced based on the existence of a voting agreement between members of the Cullman family and Swedish Match, pursuant to which the Cullman family agreed to vote their shares
against any alternative transaction, for a period of 18 months, if the Swedish Match transaction was not approved. Because there was no evidence in the record concerning this new argument, the Court denied Defendants motion. Defendants
subsequently filed, on September 11, 2002 a renewed motion for summary judgment, arguing that Plaintiffs coercion argument was legally and factually unsupported. Defendants simultaneously moved to limit discovery to the issues raised in
Defendants motion. Plaintiff opposed, arguing that they were entitled to full discovery in order to respond to Defendants motion. On November 13, 2002 the Court entered an order denying Defendants motion to limit discovery, ruling
that Plaintiff would be entitled to full discovery in preparing its response to Defendants motion for summary judgment.



On March 11, 2003, Defendants produced documents in response to Plaintiffs request for production. No depositions have been taken or scheduled, and
no other discovery is pending. No other deadlines have been set.



A purported class action was filed on or about May 10, 2000, in the Delaware Chancery Court naming as defendants Edgar M. Cullman Sr., Edgar M. Cullman Jr., Susan P. Cullman, John L. Ernest, Peter J. Solomon, Bruce A. Barnet, John L.
Bernbach, Thomas C. Israel, Dan W. Lufkin, Graham V. Sherren, Frances T. Vincent



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Jr. and General Cigar. This complaint is similar in all material respects to the complaint filed in Orman vs Cullman, et al. General Cigar has not received
any notice that this lawsuit has been served yet on any of the defendants. General Cigar intends to defend both of these cases vigorously.



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 United States. The business is being conducted as it has
been in the past.



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 25, 2003, shareholders of the Company approved the cancellation of 10 million shares repurchased by the Company
under previous share buyback programs. An application to reduce the share capital was made. As at June 12, 2003, the Company holds 30,433,000 repurchased shares.



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|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
the Stockholm Stock Exchange and the highest and lowest sales price of the ADSs:



|                                               |  | (Stockholm)            |  | (Nasdaq)           
|---------------------------------------------- |  | ---------------------- |  | -------------------
|                                               |  | SEK per Ordinary Share |  | U.S. dollarsper ADS
|                                               |  | High                   |  | Low                
|                                               |  |                        |  |                    
|Annual information for the past five years     |  |                        |  |                    
|                                               |  |                        |  |                    
|2002                                           |  | 86.0                   |  | 54.0               
|                                               |  |                        |  |                    
|2001                                           |  | 58.0                   |  | 34.9               
|                                               |  |                        |  |                    
|2000                                           |  | 37.0                   |  | 25.1               
|                                               |  |                        |  |                    
|1999                                           |  | 34.0                   |  | 24.8               
|                                               |  |                        |  |                    
|1998                                           |  | 31.0                   |  | 21.5               
|                                               |  |                        |  |                    
|Quarterly information for the past two years   |  |                        |  |                    
|2002                                           |  |                        |  |                    
|First Quarter                                  |  | 70.0                   |  | 54.0               
|                                               |  |                        |  |                    
|Second Quarter                                 |  | 86.0                   |  | 67.0               
|                                               |  |                        |  |                    
|Third Quarter                                  |  | 80.0                   |  | 65.0               
|                                               |  |                        |  |                    
|Fourth Quarter                                 |  | 72.0                   |  | 59.5               
|                                               |  |                        |  |                    
|2001                                           |  |                        |  |                    
|First Quarter                                  |  | 44.6                   |  | 34.9               
|                                               |  |                        |  |                    
|Second Quarter                                 |  | 54.0                   |  | 38.5               
|                                               |  |                        |  |                    
|Third Quarter                                  |  | 56.0                   |  | 45.0               
|                                               |  |                        |  |                    
|Fourth Quarter                                 |  | 58.0                   |  | 49.8               
|                                               |  |                        |  |                    
|Monthly information for most recent six months |  |                        |  |                    
|December 2002                                  |  | 70.0                   |  | 61.0               
|                                               |  |                        |  |                    
|January 2003                                   |  | 70.0                   |  | 58.5               
|                                               |  |                        |  |                    
|February 2003                                  |  | 65.0                   |  | 57.5               
|                                               |  |                        |  |                    
|March 2003                                     |  | 68.0                   |  | 61.5               
|                                               |  |                        |  |                    
|April 2003                                     |  | 66.0                   |  | 58.5               
|                                               |  |                        |  |                    
|May 2003                                       |  | 63.5                   |  | 55.5               



|9.B    Plan |  | of Distribution
|----------- |  | ---------------



Not applicable.



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|9.C    Market |  | 
|------------- |  | 



The principal market for the Companys shares is the Stockholm Exchange (Stockholmsbörsen). The Companys ADSs (each ADS representing ten shares) are traded in the United States and are listed on the
Nasdaq National Market under the symbol SWMAY. The Bank of New York is the Companys depositary for its ADS facility.



The Stockholm Exchange (Stockholmsbörsen) is a fully electronic marketplace in which all shares are held by book-entry. Trading in the Stockholm
Automated Exchange (SAX) comprises all 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 (Stockholmsbörsen) 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
(Stockholmsbörsen) begins each morning at 9:30 a.m. (Stockholm time) at an opening price determined by the SAX system and based on orders entered by Stockholm Exchange (Stockholmsbörsen) members, and continues at prices based on market
demand until 5:30 p.m. (Stockholm time). 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 (Stockholmbörsen), there is also trading off the Stockholm
Exchange (Stockholmsbörsen) during and after official trading hours. Trading on the Stockholm Exchange (Stockholmsbörsen) tends to involve a higher percentage of retail clients, while trading off the Stockholm Exchange
(Stockholmsbörsen) 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 (Stockholmsbörsen) 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 (Stockholmsbörsen) reviews
off-exchange trading based on reports of transactions by the member firms.



|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.



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|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.



Directors Voting Powers



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
consists of ten ordinary members 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.



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, 2002
was SEK 1.60 per share. The record date for entitlement to receive the dividend was April 30, 2003. The dividend was paid by the Swedish Securities Register, VPC, on May 6, 2003.



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 2003 took place on April 25. 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 and in case of parity of votes, the chairman of the meeting has a casting vote. 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 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



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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, 33 1/3, or 66 2/3 percent 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 on 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 inter alia 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 5 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 at 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 shareholding in the own company 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 2000, 2001, 2002 and 2003 acquired shares in Swedish Match.



Besides the restrictions for Swedish Match to own 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, the parent company is under Swedish law entitled to purchase the remaining shares in the subsidiary. A person whose shares are subject to such a right of
purchase



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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 on 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 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 Swedish and United States federal income tax consequences to U.S. Holders (as defined below) of the ownership and disposition of ADSs or shares. This summary is based upon United States tax laws, including the
United States 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
United States 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. In addition, the summary is based in part the representations of the Depositary and assumes that each obligation provided for in or
otherwise contemplated by the Deposit Agreement or any other related document pursuant to which the ADSs have been issued will be performed in accordance with its terms.



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A.    U.S. Holder is a beneficial owner of ADSs or shares who holds the
ADSs or shares as capital assets and is (i) a citizen or individual resident of the United States for U.S. federal income tax purposes, (ii) a corporation or certain other entities created or organized under the laws of the United States or any
State thereof (including the District of Columbia), (iii) an estate whose income is subject to U.S. federal income tax regardless of its source, or (iv) a trust if a court within the United States 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, financial institutions, insurance companies, tax-exempt entities, persons subject to the alternative minimum tax, persons holding the ADSs or shares as part of a hedge or conversion transaction. U.S.
expatriates, or taxpayers who own, directly, indirectly or by attribution 10% or more of the share capital or voting stock of Swedish Match or whose functional currency is not the U.S. dollar), U.S. Holders of ADSs or shares who are subject to
taxation in the United States are advised to consult their own tax advisors to satisfy themselves 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 ADSs or shares.



If a partnership holds ADSs or shares, the
tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. If a U.S. Holder is a partner in a partnership that holds ADSs or shares, the Holder is urged to consult its own tax advisor
regarding the specific tax consequences of owning and disposing of the ADSs or shares.



For purposes of the Income Tax Treaty, the Estate Tax Treaty and the Code, U.S. Holders of ADSs will be treated as the owners of shares represented thereby.



Holders of ADSs or 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 ADSs or 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 ADSs or
shares will be treated as a dividend and taxed as ordinary income to such U.S. Holders on the date of receipt by the holder of shares (or, in the case of ADSs, by the Depositary) to the extent paid out of the current or accumulated earnings and
profits of Swedish Match as determined for U.S. federal income tax purposes. Distributions in excess of the Companys current and accumulated earnings and profits will be treated first as a tax-free return of capital to the extent of the U.S.
Holders tax basis in the ADSs or shares, and to the extent in excess of such tax basis, will be treated as a gain from a sale or exchange of such ADSs or shares. 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. Any gain recognized by
a U.S. Holder on a sale or other disposition of Swedish kronor or other foreign currency received will generally be 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 in Sweden will generally be subject to Swedish withholding tax at a reduced rate of 15 percent. U.S. Holders of ADSs or 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 Depositary or 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.



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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 ADSs or shares will generally be treated as passive income or, in the case of certain U.S. Holders, financial services
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.



The United States Treasury has expressed concern that parties to whom ADSs
are released may be taking actions that are inconsistent with the claiming of foreign tax credits for U.S. Holders of ADSs. Accordingly, the analysis of the creditability of Swedish withholding taxes could be affected by future actions that may be
taken by the United States Treasury.



Tax on sale or
exchange



In general, upon a sale, exchange or other
disposition of ADSs or 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 the amount realized on the sale or other disposition, and the U.S. Holders
adjusted tax basis in the ADSs or 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 exchange the ADSs or 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.





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The deposit or withdrawal of shares in exchange for ADSs by a U.S. Holder under the Deposit Agreement
will not be subject to U.S. federal income tax.



In general,
under the Income Tax Treaty, a U.S. Holder who does not have a permanent establishment or fixed base in Sweden will not be subject to Swedish tax on any capital gain derived from the sale or exchange of ADSs or shares. Sweden
is, however, allowed under the Income Tax Treaty to tax an individual resident of the United States 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.



Recent U.S. Tax Law Changes Applicable
to Individuals



Recent U.S. tax legislation generally has
reduced the rates of tax payable by individuals (as well as certain trusts and estates) on many items of income. Under the Jobs and Growth Tax Relief Reconciliation Act of 2003 (the 2003 Act), the marginal tax rates applicable to
ordinary income generally have been lowered effective January 1, 2003. Furthermore, for capital assets held for over one year and sold or exchanged on or after May 6, 2003 but in taxable years beginning before January 1, 2009, the maximum rate of
tax generally will be 15 percent (rather than the higher rates of tax generally applicable to items of ordinary income). Finally, qualified dividend income received in taxable years beginning after December 31, 2002 and beginning before
January 1, 2009, generally will be taxed at the rates applicable to these capital gains (i.e., a maximum rate of 15 percent) rather than the rates applicable to other items of ordinary income. For this purpose, qualified dividend income
generally includes dividends received from U.S. corporations as well as from certain non-U.S. corporations. The exact extent to which dividends paid by non-U.S. corporations will constitute qualified dividend income and the effect of
such status on the ability of a taxpayer to utilize associated foreign tax credits is not entirely clear at present, but it is anticipated that a number of uncertainties will be clarified through administrative pronouncements in the future. In the
meantime, investors are urged to consult their own tax advisors regarding the impact on their particular situations of the provisions of the 2003 Act.



Swedish estate and gift taxes



A transfer of an ADS or a share by gift or by reason of the death of the owner may be subject to Swedish gift or inheritance tax, respectively, with the
applicable progressive rates varying from 10 percent to 30 percent on the taxable amount (determined after certain deductions), depending on the relationship of the donee or beneficiary to the donor or decedent.



Transfer of an ADS or a share would be subject to Swedish inheritance tax if
the decedent was a Swedish citizen or domiciled in Sweden or was married to a Swedish citizen and had emigrated from Sweden within 10 years before death.



Transfers of an ADS or a share would be subject to gift tax if the donor or donee was a Swedish citizen or the donor was domiciled in Sweden or married to
a Swedish citizen and had emigrated from Sweden within 10 years before the gift. Gifts made by legal entities are also subject to gift tax.



Under the Estate Tax Treaty, the transfer of an ADS or a share by a citizen or domiciliary of the United States who is not a Swedish citizen or
domiciliary, as defined in the Estate Tax Treaty, by gift or by reason of the death of the owner is generally not subject to Swedish gift or inheritance tax unless such an ADS or share (1) forms part of the business property of a permanent
establishment situated in Sweden or (2) pertains to a fixed base situated in Sweden and is used for the performance of independent personal services. In cases where the transfer of an ADS or a share by a U.S. citizen or domiciliary who is not a
Swedish citizen by gift or by reason of the death of the owner is subject to both Swedish and U.S. estate or gift tax, the Estate Tax Treaty generally provides that the United States will allow as a credit (subject to limitations) against U.S. tax
imposed with respect to the transfer an amount equal to the tax paid to Sweden with respect to such transfer. In cases where a transfer is subject to estate or gift tax in the United States by reason of the transferors domicile, and subject to
Swedish gift or inheritance tax by reason of the transferors citizenship, the Estate Tax Treaty requires Sweden to allow a credit for United States tax paid in respect of such transfer.



Swedish transfer and property 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 ADSs or shares who is a U.S. Holder will normally not be subject to Swedish property tax unless such ADSs or shares are included in a business carried on in Sweden.



United States information reporting and backup withholding



Dividend payments with respect to ADSs or shares and
proceeds from the sale, exchange or redemption of ADSs or shares may be subject to information reporting to the Internal Revenue Service (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 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



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subject to U.S. information reporting or backup withholding. However, such holders may be required to provide certification of non-U.S. status in connection
with payments received in the United States or through U.S.-related financial intermediaries. Back-up 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 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, and at their regional offices located at 233 Broadway, New York, 10279 and the Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois, 60661-2511.



|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. With the exception of Group operations in Sweden, Swedish Match has a substantial part of its production operations and sales in Euro countries and the U.S. As a result, a balance has been created between payments received and disbursed in
EUR and USD, which limits the



63



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##### Table of Contents

Groups transaction exposure. Swedish Match uses forward exchange contracts to hedge 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, 2002 was SEK (0.7) million, compared to SEK (0.5) million
net as of December 31, 2001.



At December 31, 2002, the book
value of all forward contracts pertaining to commercial exposure hedging was SEK 0.1 million lower than the market value. At December 31, 2001, the book value was SEK 0.2 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 4 million compared with SEK 9 million as of December 31, 2001. 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 effect of financial exchange gains or losses on Swedish Matchs income would not 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, 2002, net assets (shareholders equity) in foreign subsidiaries was not hedged with the exception for two U.S. subsidiaries. At year-end 2002, net assets in foreign
subsidiaries and associated companies outside Sweden amounted to SEK 3,538 million net after hedge, compared with SEK 5,151 million as of December 31, 2001.



Of the Groups shareholders equity in foreign currency at year-end, 40 percent consisted of Euro , 28 percent consisted of South African Rand
and 32 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 354 million compared with SEK 515 million as of December 31, 2001. 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. The market value of these contracts as of December 31, 2002 amounted to SEK 13 million compared with SEK 2 million for 2001. The book value as of
December 31, 2002 amounted to SEK 13 million compared with SEK 2 million in 2001. If there were an instantaneous strengthening or weakening of the SEK versus all other currencies the effect on financial exchange gains or losses on Swedish
Matchs income would not be material. Actual foreign currency exchange rates rarely move instantaneously in



64



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##### Table of Contents

the same direction and the actual impact of exchange rate changes may thus differ materially from the above sensitivity analysis.



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 61 days at December 31, 2002 compared with 49 days at
December 31, 2001. The average fixed interest term for interest-bearing liabilities amounted to 77 days at December 31, 2002 compared with 85 days at December 31, 2001. The average rate of interest on the Groups interest-bearing liabilities
was 5.2 percent at December 31, 2002 compared with 4.8 percent at December 31, 2001. The Company had interest rate swaps with an estimated value of SEK 386 million as of December 31, 2002.



If there were an instantaneous 1 percent (100 basis points) increase in
interest rates of all currencies from their levels at December 31, 2002, with all other variables held constant, Swedish Matchs pre-tax income over a 12 month period would increase by SEK 27 million compared with an increase of SEK 36 million
as of December 31, 2001. 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, 2002 and 2001
respectively, and does not take into account movements in the net debt during 2003 and 2002 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.



65



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##### Table of Contents

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
|-------- |  | ---------------------------------



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 Exchange Act Rule 13a-14(c)) within 90 days of the date of this annual report on Form 20-F (the Annual Report), have concluded that, as of such date, the Companys disclosure controls and
procedures were effective to ensure that material information relating to the Company was made known to them by others within the Company, particularly during the period in which the Annual Report was being prepared. Management necessarily applied
its judgment in assessing the costs and benefits of such controls and procedures, which by their nature, can provide only reasonable assurance regarding managements control objectives.



There were no significant changes in the Companys internal controls or
in other factors that could significantly affect these controls subsequent to the date the Companys principal executive officer and its principal financial officer completed their evaluation, nor were there any significant deficiencies or
material weaknesses in the Companys internal controls requiring corrective actions.



|ITEM 16. |  | [RESERVED]
|-------- |  | ----------



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.



|                                                                                           | 
|------------------------------------------------------------------------------------------ | 
|Report of Independent Accountants                                                          | 
|                                                                                           | 
|Consolidated Statements of Income for the Years Ended December 31, 1999, 2000 and 2001     | 
|                                                                                           | 
|Consolidated Balance Sheets as of December 31, 2000 and 2001                               | 
|                                                                                           | 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 2000 and 2001 | 
|                                                                                           | 
|Notes to Consolidated Financial Statements                                                 | 



ITEM 18.    FINANCIAL STATEMENTS



Not applicable.



ITEM 19.    EXHIBITS



|1.* |  | Articles of Association of the Registrant as amended to date (in English translation).
|--- |  | --------------------------------------------------------------------------------------



|8. |  | For a list of our material subsidiaries, see Item 4.C. Organizational Structure.
|-- |  | ----------------------------------------------------------------------------------



|10.1 |  | Certification of Lennart Sundén, President and Chief Executive Officer of Swedish Match AB (publ) and Sven Hindrikes, Executive Vice President and Chief Financial Officer of
Swedish Match AB (publ) pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|* |  | Previously filed as exhibits to the Annual Report on Form 20-F for the fiscal year ended December 31, 2000 and incorporated herein by reference
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------



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)By:

/s/    LENNART
SUNDÉNName:

Lennart SundénTitle:

President and Chief Executive Officer


Dated:   June 30, 2003



68



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##### Table of Contents

I, Lennart Sundén, certify that:



| | 1. |  | I have reviewed this annual report on Form 20-F of Swedish Match AB (publ);
| | -- |  | ---------------------------------------------------------------------------



| | 2. |  | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. |  | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14
and 15d-14) for the registrant and have:
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this annual report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the
Evaluation Date); and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of
registrants board of directors (or persons performing the equivalent function):
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6. |  | The registrants other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Date:  June 30, 2003



/s/    LENNART
SUNDÉNName:

Lennart SundénTitle:

President and Chief Executive Officer




69



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##### Table of Contents

I, Sven Hindrikes, certify that:



| | 1. |  | I have reviewed this annual report on Form 20-F of Swedish Match AB (publ);
| | -- |  | ---------------------------------------------------------------------------



| | 2. |  | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. |  | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14
and 15d-14) for the registrant and have:
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this annual report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the
Evaluation Date); and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of
registrants board of directors (or persons performing the equivalent function):
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6. |  | The registrants other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Date:  June 30, 2003



/s/    SVEN
HINDRIKESName:

Sven HindrikesTitle:

Executive Vice President and Chief Financial Officer




70



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##### Table of Contents

The Swedish Match Group



Index to Consolidated Financial Statements



|                                                                                           |  | Page
|------------------------------------------------------------------------------------------ |  | ----
|Report of Independent Accountants                                                          |  | F-2 
|                                                                                           | 
|Consolidated Financial Statements:                                                         |  |     
|                                                                                           | 
|Consolidated Statements of Income for the Years Ended December 31, 2000, 2001 and 2002     |  | F-3 
|                                                                                           | 
|Consolidated Balance Sheets as of December 31, 2001 and 2002                               |  | F-4 
|                                                                                           | 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 2001 and 2002 |  | F-6 
|                                                                                           | 
|Notes to Consolidated Financial Statements                                                 |  | F-7 



F-1



---

##### Table of Contents



LOGO



Report of Independent Accountants



To the Board
of Directors and Shareholders of Swedish Match AB (publ)



We have audited
the consolidated balance sheets of Swedish Match AB and its subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of income and cash flows for each of the three years in the period ended December 31, 2002, all
expressed in Swedish Kronor. 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 auditing standards generally
accepted in the United States of America and Sweden. 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, 2002 and 2001, and the
results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in Sweden.



Accounting principles generally accepted in Sweden vary in certain important respects from accounting principles generally
accepted in the United States of America. The application of the latter would have affected the determination of consolidated net income expressed in Swedish Kronor for each of the three years in the period ended December 31, 2002 and the
determination of consolidated shareholders ́ equity also expressed in Swedish Kronor at December 31, 2002, 2001 and 2000 to the extent summarized in Note 24 to the consolidated financial statements.



Stockholm, Sweden

March 3, 2003



|                                                                              
|------------------------------------------------------------------------------
|/s/    ÅKE
DANIELSSON                                                         
|                                                                              
|Åke Danielsson Authorized Public Accountant ÖHRLINGS PRICEWATERHOUSECOOPERS AB



F-2



---

##### Table of Contents

The Swedish Match Group



Consolidated Statements of Income

for the years ended December 31, 2000, 2001 and 2002



|                                                            |  | 2000        |   |  | 2001        |   |  | 2002        |   |  | 20021) |  
|----------------------------------------------------------- |  | ----------- | - |  | ----------- | - |  | ----------- | - |  | ------ | -
|                                                            |  | SEK         |   |  | SEK         |   |  | SEK         |   |  | USD    |  
|                                                            |  |             |   |  | Unaudited   |  
|                                                            |  | In millions |  
|Net sales                                                   |  | 11,533      |   |  | 13,635      |   |  | 13,643      |   |  | 1,569  |  
|Cost of goods sold (Note 8)                                 |  | (6,647      | ) |  | (7,627      | ) |  | (7,451      | ) |  | (857   | )
|                                                            |  |             |   |  |             |   |  |             |   |  |        |  
|Gross profit                                                |  | 4,886       |   |  | 6,008       |   |  | 6,192       |   |  | 712    |  
|Selling expenses (Note 2, 8)                                |  | (1,925      | ) |  | (2,475      | ) |  | (2,362      | ) |  | (272   | )
|Administrative expenses (Note 2, 8)                         |  | (836        | ) |  | (1,027      | ) |  | (1,125      | ) |  | (129   | )
|Other operating income (Note 3)                             |  | 26          |   |  | 19          |   |  | 52          |   |  | 6      |  
|Other operating expenses (Note 3)                           |  | (1          | ) |  | (19         | ) |  | (13         | ) |  | (1     | )
|Share of earnings in associated companies                   |  | 17          |   |  | 28          |   |  | 22          |   |  | 3      |  
|Amortization of intangibles (Note 7)                        |  | (281        | ) |  | (341        | ) |  | (327        | ) |  | (38    | )
|Items affecting comparability (Note 4)                      |  |            |   |  | (80         | ) |  | (68         | ) |  | (8     | )
|                                                            |  |             |   |  |             |   |  |             |   |  |        |  
|Operating income                                            |  | 1,886       |   |  | 2,113       |   |  | 2,371       |   |  | 273    |  
|Interest income                                             |  | 252         |   |  | 121         |   |  | 108         |   |  | 12     |  
|Interest expense                                            |  | (427        | ) |  | (407        | ) |  | (337        | ) |  | (39    | )
|Exchange rate differences and other fin. items (Note 5)     |  | (1          | ) |  | 13          |   |  | (16         | ) |  | (2     | )
|                                                            |  |             |   |  |             |   |  |             |   |  |        |  
|Profit after financial items                                |  | 1,710       |   |  | 1,840       |   |  | 2,126       |   |  | 245    |  
|Taxes (Note 6)                                              |  | (556        | ) |  | (589        | ) |  | (648        | ) |  | (75    | )
|Minority interests                                          |  | (10         | ) |  | (23         | ) |  | (49         | ) |  | (6     | )
|                                                            |  |             |   |  |             |   |  |             |   |  |        |  
|NET INCOME                                                  |  | 1,144       |   |  | 1,228       |   |  | 1,429       |   |  | 164    |  
|                                                            |  |             |   |  |             |   |  |             |   |  |        |  
|Average number of shares outstanding during period, basic   |  | 410,177,322 |   |  | 361,506,184 |   |  | 348,295,163 |   |  |        |  
|Average number of shares outstanding during period, diluted |  | 410,177,322 |   |  | 363,016,335 |   |  | 350,894,438 |   |  |        |  
|Earnings per share, basic, SEK                              |  | 2.76        |   |  | 3.40        |   |  | 4.10        |   |  | 0,47   |  
|Earnings per share, diluted, SEK                            |  | 2.76        |   |  | 3.38        |   |  | 4.07        |   |  | 0,47   |  
|                                                            |  |             |   |  |             |   |  |             |   |  |        |  

---

|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, 2002 of USD 1.00 = SEK 8.695. The Noon Buying Rate as of June 23, 2003, was USD 1.00 = SEK 7.8920.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



See Notes to Consolidated Financial Statements.



F-3



---

##### Table of Contents

The Swedish Match Group



Consolidated Balance Sheets

as of December 31, 2001 and 2002



|                                    |  | 2001        |  | 2002   |  | 20021)   
|----------------------------------- |  | ----------- |  | ------ |  | ---------
|                                    |  | SEK         |  | SEK    |  | USD      
|                                    |  |             |  |        |  | Unaudited
|                                    |  | In millions
|ASSETS                              |  |             |  |        |  |          
|Fixed assets                        |  |             |  |        |  |          
|Intangible assets (Note 7)          |  | 4,769       |  | 4,145  |  | 477      
|Tangible assets (Note 8)            |  | 2,970       |  | 2,938  |  | 338      
|Financial assets (Note 9)           |  | 691         |  | 606    |  | 70       
|                                    |  |             |  |        |  |          
|Total fixed assets                  |  | 8,430       |  | 7,689  |  | 884      
|Current assets                      |  |             |  |        |  |          
|Inventories (Note 10)               |  | 3,753       |  | 3,154  |  | 363      
|Accounts receivable (Note 11)       |  | 2,143       |  | 1,931  |  | 222      
|Other receivables                   |  | 513         |  | 492    |  | 57       
|Prepaid expenses and accrued income |  | 178         |  | 165    |  | 19       
|Liquid funds                        |  |             |  |        |  |          
|Short-term investments (Note 12)    |  | 760         |  | 1,027  |  | 118      
|Cash and bank (Note 12)             |  | 846         |  | 989    |  | 114      
|                                    |  |             |  |        |  |          
|Total current assets                |  | 8,193       |  | 7,758  |  | 892      
|TOTAL ASSETS                        |  | 16,623      |  | 15,447 |  | 1,777    
|                                    |  |             |  |        |  |          

---

|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, 2002 of USD 1.00 = SEK 8.695. The Noon Buying Rate as of June 23, 2003, was USD 1.00 = SEK 7.8920.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







See Notes to Consolidated Financial Statements.



F-4



---

##### Table of Contents

The Swedish Match Group



Consolidated Balance Sheets

as of December 31, 2001 and 2002

|                                                          |  | 2001        |  | 2002   |  | 20021)   
|--------------------------------------------------------- |  | ----------- |  | ------ |  | ---------
|                                                          |  | SEK         |  | SEK    |  | USD      
|                                                          |  |             |  |        |  | Unaudited
|                                                          |  | In millions
|SHAREHOLDERS EQUITY AND LIABILITIES                      |  |             |  |        |  |          
|                                                          |  |             | 
|Shareholders equity(Note 13)                             |  |             |  |        |  |          
|Restricted equity                                         |  |             |  |        |  |          
|Share capital                                             |  | 892         |  | 868    |  | 100      
|Restricted reserves                                       |  | 1,625       |  | 1,575  |  | 181      
|Unrestricted equity                                       |  |             |  |        |  |          
|Unrestricted reserves                                     |  | 360         |  | 135    |  | 16       
|Net income for the year                                   |  | 1,228       |  | 1,429  |  | 164      
|                                                          |  |             |  |        |  |          
|Total shareholders equity                                |  | 4,105       |  | 4,007  |  | 461      
|                                                          |  |             | 
|Minority interests                                        |  | 767         |  | 686    |  | 79       
|                                                          |  |             | 
|Provisions                                                |  |             |  |        |  |          
|Provisions for pensions and similar commitments (Note 14) |  | 457         |  | 362    |  | 42       
|Provisions for taxation (Note 6)                          |  | 891         |  | 1,031  |  | 119      
|Other provisions (Note 15)                                |  | 963         |  | 808    |  | 93       
|                                                          |  |             |  |        |  |          
|Total provisions                                          |  | 2,311       |  | 2,201  |  | 253      
|                                                          |  |             | 
|Long-term liabilities                                     |  |             |  |        |  |          
|Bond loans (Note 16)                                      |  | 4,984       |  | 4,485  |  | 516      
|Liabilities to credit institutions (Note 16)              |  | 88          |  | 33     |  | 4        
|Other long-term liabilities                               |  | 78          |  | 85     |  | 10       
|                                                          |  |             |  |        |  |          
|Total long-term liabilities                               |  | 5,150       |  | 4,603  |  | 529      
|                                                          |  |             | 
|Current liabilities                                       |  |             |  |        |  |          
|Liabilities to credit institutions (Note 16)              |  | 944         |  | 990    |  | 114      
|Accounts payable                                          |  | 775         |  | 715    |  | 82       
|Other current liabilities (Note 17)                       |  | 1,584       |  | 1,392  |  | 160      
|Accrued expenses and deferred income (Note 18)            |  | 987         |  | 853    |  | 98       
|                                                          |  |             |  |        |  |          
|Total current liabilities                                 |  | 4,290       |  | 3,950  |  | 454      
|                                                          |  |             |  |        |  |          
|TOTAL SHAREHOLDERS EQUITY AND LIABILITIES                |  | 16,623      |  | 15,447 |  | 1,777    
|                                                          |  |             |  |        |  |          
|                                                          |  |             | 
|COMMITMENTS AND CONTINGENT LIABILITIES                    |  |             |  |        |  |          
|Pledged assets (Note 19)                                  |  | 144         |  | 92     |  | 11       
|Contingent liabilities (Note 20)                          |  | 530         |  | 429    |  | 49       

---

|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, 2002 of USD 1.00 = SEK 8.695. The Noon Buying Rate as of June 23, 2003, was USD 1.00 = SEK 7.8920.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





See Notes to Consolidated Financial Statements.



F-5



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##### Table of Contents

The Swedish Match Group



Consolidated Statements of Cash Flows

for the years ended December 31, 2000, 2001 and 2002



|                                                               |  | 2000        |   |  | 2001   |   |  | 2002   |   |  | 20021)    |  
|-------------------------------------------------------------- |  | ----------- | - |  | ------ | - |  | ------ | - |  | --------- | -
|                                                               |  | SEK         |   |  | SEK    |   |  | SEK    |   |  | USD       |  
|                                                               |  |             |   |  |        |   |  |        |   |  | Unaudited |  
|                                                               |  | In millions |  
|Operations                                                     |  |             |   |  |        |   |  |        |   |  |           |  
|Income after financial items                                   |  | 1,710       |   |  | 1,840  |   |  | 2,126  |   |  | 245       |  
|Depreciation and amortization                                  |  | 543         |   |  | 670    |   |  | 651    |   |  | 75        |  
|Other                                                          |  | 51          |   |  | 78     |   |  | (53    | ) |  | (6        | )
|                                                               |  |             |   |  |        |   |  |        |   |  |           |  
|                                                               |  | 2,304       |   |  | 2,588  |   |  | 2,724  |   |  | 313       |  
|Taxes paid                                                     |  | (590        | ) |  | (634   | ) |  | (241   | ) |  | (28       | )
|                                                               |  |             |   |  |        |   |  |        |   |  |           |  
|Cash flow from operations before changes in operating capital  |  | 1,714       |   |  | 1,954  |   |  | 2,483  |   |  | 286       |  
|Cash flow from changes in operating capital                    |  |             |   |  |        |   |  |        |   |  |           |  
|Accounts receivable                                            |  | (87         | ) |  | (182   | ) |  | 56     |   |  | 6         |  
|Inventories                                                    |  | (219        | ) |  | (127   | ) |  | 86     |   |  | 10        |  
|Other assets                                                   |  | (65         | ) |  | 75     |   |  | 1      |   |  | 0         |  
|Accounts payable                                               |  | 17          |   |  | (28    | ) |  | 0      |   |  | 0         |  
|Accrued expenses and other current liabilities                 |  | (415        | ) |  | (83    | ) |  | (41    | ) |  | (5        | )
|                                                               |  |             |   |  |        |   |  |        |   |  |           |  
|Cash flow from operations                                      |  | 945         |   |  | 1,609  |   |  | 2,585  |   |  | 297       |  
|Investment activities                                          |  |             |   |  |        |   |  |        |   |  |           |  
|Investments in property, plant and equipment                   |  | (331        | ) |  | (633   | ) |  | (751   | ) |  | (86       | )
|Sales of property, plant and equipment                         |  | 83          |   |  | 72     |   |  | 106    |   |  | 12        |  
|Acquisition of subsidiaries and associated companies (Note 21) |  | (1,660      | ) |  | (962   | ) |  | (53    | ) |  | (6        | )
|Acquisition of intangible assets                               |  | (11         | ) |  | (12    | ) |  | (18    | ) |  | (2        | )
|Change in financial receivables                                |  | (48         | ) |  | 15     |   |  | (1     | ) |  | 0         |  
|                                                               |  |             |   |  |        |   |  |        |   |  |           |  
|Cash flow from investment activities                           |  | (1,967      | ) |  | (1,520 | ) |  | (717   | ) |  | (82       | )
|Financing activities                                           |  |             |   |  |        |   |  |        |   |  |           |  
|Change in short-term loans                                     |  | (48         | ) |  | 58     |   |  | (339   | ) |  | (39       | )
|Long-term loans entered into                                   |  |            |   |  | 1,407  |   |  | 670    |   |  | 77        |  
|Repayment of long-term loans                                   |  | (785        | ) |  | (1,181 | ) |  | (832   | ) |  | (96       | )
|Dividends paid                                                 |  | (539        | ) |  | (490   | ) |  | (508   | ) |  | (58       | )
|New share issue                                                |  | 66          |   |  |       |   |  |       |   |  |          |  
|Capital redemption                                             |  | (1,061      | ) |  |       |   |  |       |   |  |           |  
|Buy back of shares                                             |  | (906        | ) |  | (1,169 | ) |  | (499   | ) |  | (57       | )
|Other                                                          |  |            |   |  | (78    | ) |  | 142    |   |  | 16        |  
|                                                               |  |             |   |  |        |   |  |        |   |  |           |  
|Cash flow from financing activities                            |  | (3,273      | ) |  | (1,453 | ) |  | (1,366 | ) |  | (157      | )
|Cash flow for the year                                         |  | (4,295      | ) |  | (1,364 | ) |  | 502    |   |  | 58        |  
|Liquid funds at the beginning of the year                      |  | 7,296       |   |  | 2,960  |   |  | 1,606  |   |  | 185       |  
|Translation differences attributable to liquid funds           |  | (41         | ) |  | 10     |   |  | (92    | ) |  | (11       | )
|                                                               |  |             |   |  |        |   |  |        |   |  |           |  
|Liquid funds at the end of the year (Note 12)                  |  | 2,960       |   |  | 1,606  |   |  | 2,016  |   |  | 232       |  
|                                                               |  |             |   |  |        |   |  |        |   |  |           |  



Additional disclosures(Note
21)



---

|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, 2002 of USD 1.00 = SEK 8.695. The Noon Buying Rate as of June 23, 2003, was USD 1.00 = SEK 7.8920.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



See Notes to Consolidated Financial Statements.



F-6



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##### Table of Contents

The Swedish Match Group



Notes To Consolidated Financial Statements

(Amounts in millions of Swedish kronor (SEK) unless otherwise
specified)



|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 24.



Principles of consolidation



The Consolidated
Financial Statements include the Parent Company, all subsidiaries and associated companies. Subsidiaries refer to 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 has long-term holdings equivalent to at least 20 percent, but not more than 50 percent, of the votes. Holdings in associated companies are reported in
accordance with the equity method. The Groups share of the reported profit of associated companies is reported as a proportion of operating profit and income taxes.



All acquisitions of companies have been 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.



The Minority participation in Swedish Matchs profit is reported after
income taxes.



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



Foreign currencies



Translation of financial statements of foreign
subsidiaries



The balance sheets of foreign subsidiaries,
except for those subsidiaries in highly inflationary economies, are translated to Swedish kronor according to the Current Method. Balance sheets, accordingly are translated at year-end rates. Income statements are translated at the average rate for
the period. Translation differences arising from translation of income statements and balance sheets are recorded directly to shareholders equity.



The accounts of subsidiaries in countries with high inflation are translated first into the functional currency (normally USD) in accordance with the
monetary method. Non-monetary assets, accordingly, are reported in the functional currency at historical exchange rates and any resulting exchange rate differences are reported in the income statement. The accounts are then translated into Swedish
kronor in accordance with the Current Method.



Receivables
and liabilities in foreign currencies



Receivables and
liabilities denominated in foreign currencies have been translated at year-end exchange rates, with the exception of hedged balances which are translated at the respective forward contract rate. Exchange gains and losses are reported in operating
income to the extent they relate to operating balance dealings and otherwise in net financial items.



F-7



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##### Table of Contents

The Swedish Match Group



Notes to Consolidated Financial Statements(Continued)

(Amounts in millions of Swedish kronor (SEK) unless otherwise specified)



Derivative 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.



Interest-rate swaps



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



Intangible assets



Goodwill is included in intangible assets and amortized on a straight-line basis over 5 to 20 years. Goodwill in larger
subsidiaries with more than 20 years of operations, strong trademarks and a good market position is amortized over 20 years. Acquired trademarks are amortized over 20 years, if similar conditions exist.



Goodwill and other intangibles are evaluated as events or circumstances may
indicate a possible inability to recover their carrying amount. These evaluations necessarily involve significant management judgment regarding the capacity of an acquired business to perform as expected.



Property, plant and equipment



Depreciation on property, plant and equipment is based on the historical
costs and estimated useful lives of the assets. Buildings and land improvements are generally depreciated over periods ranging from 20 to 50 years. The estimated useful life for vehicles is normally 5 years and machinery is 5 to 10 years.



Additions and significant renewals are capitalized whereas
expenditures for maintenance and repairs are charged to income as incurred. When assets are sold or retired, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in income.



Inventories



Inventories are reported at the lower of cost or market and in all significant aspects in accordance with the FIFO
(first-in, first-out) method after deduction for obsolescence. Non-realized intercompany profits are eliminated in their entirety.



F-8



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##### Table of Contents

The Swedish Match Group



Notes to Consolidated Financial Statements(Continued)

(Amounts in millions of Swedish kronor (SEK) unless otherwise specified)



Revenue recognition



Revenues are recognized upon shipment of goods to customers, at which time title passes to the customers.



Advertising costs



Advertising costs are expensed as incurred.



Items affecting comparability



The net of significant income or expense entries, which are not expected to occur frequently, are classified net as items affecting
comparability and reported separately in the income statement. Items affecting comparability include restructuring expenses and revenues of a nonrecurring nature resulting from the sale of operations and shares which were previously reported
as operating assets.



Income taxes



Reported income taxes include taxes to be paid or refunded with regard to
the current year, adjustments concerning prior years taxes, changes in deferred tax, 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 likely that the deduction can be offset against any surplus at time of future taxation.



Concentrations of Credit Risk



Financial instruments, which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments and accounts receivable. In accordance with Swedish Matchs finance policy, investments, with the exception of bank account deposits, may only be made in Swedish
government treasury bills and national bonds, and in securities issued by certain counter parties specified in a list of counter parties approved by management. All counter parties on this list have a Standard & Poors long rating of at
least A. Concentrations of credit risk with respect to accounts receivable are limited, due to the large number of customers comprising the Companys customer base and their dispersion across many different geographies. The Company generally
does not require collateral or other security to support customer receivables.



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.



Convenience translation to US dollars



The Consolidated Financial Statements as of and for the year ended December 31, 2002 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 8.695, the Noon Buying Rate on December 31, 2002 of the US Federal Reserve Bank of New York.



F-9



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##### Table of Contents

The Swedish Match Group



Notes to Consolidated Financial Statements(Continued)

(Amounts in millions of Swedish kronor (SEK) unless otherwise specified)



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 as of June 23, 2003, was USD 1.00 = SEK 7.8920.



|2. |  | Selling and administrative expenses
|-- |  | -----------------------------------



Selling expenses include expenses for Research and Development and similar expenses amounting to SEK 105, 100 and 99 million for the years ended December
31, 2000, 2001 and 2002 respectively.



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



|                                         |  | 2000 |  | 2001 |  | 2002
|---------------------------------------- |  | ---- |  | ---- |  | ----
|Auditing assignments                     |  | 12   |  | 16   |  | 14  
|Other assignments                        |  | 17   |  | 8    |  | 8   
|                                         |  |      |  |      |  |     
|PricewaterhouseCoopers                   |  | 19   |  | 24   |  | 22  
|Other accountants (auditing assignments) |  | 1    |  | 1    |  | 1   



|3. |  | Other operating income and other operating expenses
|-- |  | ---------------------------------------------------



Included in other operating income are exchange rate gains of SEK 18, 15 and 12 million for the years ended December 31, 2000, 2001 and 2002 respectively.



Included in other operating expenses are exchange rate losses
of SEK 4, 14 and 13 million for the years ended December 31, 2000, 2001 and 2002 respectively.



|4. |  | Items affecting comparability
|-- |  | -----------------------------



During the third quarter of 2002, a cost of SEK 68 million was charged to a rationalization program in Continental Europe, both within sales and
production of cigars and lighters.



A provision of SEK 80
million for the restructuring of cigar operations in Belgium and the US is entered as an item affecting comparability for 2001.



|5. |  | Exchange rate differences and other financial items
|-- |  | ---------------------------------------------------



|                         |  | 2000 |   |  | 2001 |   |  | 2002 |  
|------------------------ |  | ---- | - |  | ---- | - |  | ---- | -
|Exchange rate difference |  | 16   |   |  | 43   |   |  | 4    |  
|Other financial items    |  | (17  | ) |  | (30  | ) |  | (20  | )
|                         |  |      |   |  |      |   |  |      |  
|Total                    |  | (1   | ) |  | 13   |   |  | (16  | )
|                         |  |      |   |  |      |   |  |      |  



|6. |  | Taxes
|-- |  | -----



|Income |  | taxes in 2000, 2001 and 2002 were distributed as follows:
|------ |  | ---------------------------------------------------------



|                      |  | 2000 |   |  | 2001 |   |  | 2002 |  
|--------------------- |  | ---- | - |  | ---- | - |  | ---- | -
|Current income taxes  |  | (378 | ) |  | (399 | ) |  | (453 | )
|Deferred income taxes |  | (171 | ) |  | (181 | ) |  | (190 | )
|Other taxes           |  | (7   | ) |  | (9   | ) |  | (5   | )
|                      |  |      |   |  |      |   |  |      |  
|Total                 |  | (556 | ) |  | (589 | ) |  | (648 | )
|                      |  |      |   |  |      |   |  |      |  



F-10



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##### Table of Contents

The Swedish Match Group



Notes to Consolidated Financial Statements(Continued)

(Amounts in millions of Swedish kronor (SEK) unless otherwise specified)



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, 2001 and 2002 are summarized below.



|                                      |  | 2001 |   |  | 2002   |  
|------------------------------------- |  | ---- | - |  | ------ | -
|Losses carried forward                |  | 342  |   |  | 255    |  
|Restructuring reserves                |  | 35   |   |  | 36     |  
|Pension and healthcare benefits       |  | 102  |   |  | 95     |  
|Tax allocation reserves               |  | (344 | ) |  | (378   | )
|Depreciation in excess of plan        |  | (317 | ) |  | (358   | )
|Inventory reserves                    |  | (63  | ) |  | (63    | )
|Other                                 |  | (229 | ) |  | (218   | )
|Valuation reserves                    |  | (187 | ) |  | (194   | )
|                                      |  |      |   |  |        |  
|Net deferred income tax liability     |  | (661 | ) |  | (825   | )
|                                      |  |      |   |  |        |  
|Classified per balance sheet category |  |      |   |  |        |  
|Financial fixed assets                |  | 230  |   |  | 206    |  
|Less: Provisions for taxation         |  | (891 | ) |  | (1,031 | )
|                                      |  |      |   |  |        |  
|Net deferred income tax liability     |  | (661 | ) |  | (825   | )
|                                      |  |      |   |  |        |  



The valuation reserve
amounting to SEK 194 million pertains to loss carryforwards not assigned value in the amount of SEK 85 million, restructuring costs in the amount of SEK 29 million and other temporary deductible differences not assigned value in the amount of SEK 80
million.



At December 31, 2002 the Group had deductible losses
carried forward equivalent to SEK 779 million.



The
Groups deductible tax losses carried forward expire as follows:



|Year                                        |  | Amount
|------------------------------------------- |  | ------
|2003                                        |  | 11    
|2004                                        |  | 30    
|2005                                        |  | 46    
|2006                                        |  | 15    
|2007                                        |  | 10    
|2008                                        |  | 9     
|Thereafter                                  |  | 658   
|                                            |  |       
|Total deductible tax losses carried forward |  | 779   
|                                            |  |       



The Groups net
earnings were charged with tax of 32.0 per cent in 2000, 32.0 per cent in 2001 and 30.5 per cent in 2002. The difference between the Groups tax expense and application of the statutory tax rate in Sweden of 28 per cent is attributable to the
items shown in the following table:



|                                        |  | 2000 |   |  | 2001 |   |  | 2002 |  
|--------------------------------------- |  | ---- | - |  | ---- | - |  | ---- | -
|Swedish tax rate                        |  | 28.0 |   |  | 28.0 |   |  | 28.0 |  
|Adjustments for foreign tax rates       |  | 4.4  |   |  | 2.5  |   |  | 2.2  |  
|Losses that could not be utilized       |  | 1.6  |   |  | 2.1  |   |  | 0.7  |  
|Non-taxable items                       |  | (2.1 | ) |  | (5.2 | ) |  | (2.4 | )
|Non-deductible amortization on goodwill |  | 2.0  |   |  | 2.6  |   |  | 2.0  |  
|Adjustments for taxes in prior years    |  | (3.2 | ) |  | (0.7 | ) |  | (1.2 | )
|Non-deductible expenses                 |  | 1.2  |   |  | 2.6  |   |  | 2.3  |  
|Other                                   |  | 0.1  |   |  | 0.1  |   |  | (1.1 | )
|                                        |  |      |   |  |      |   |  |      |  
|Total                                   |  | 32.0 |   |  | 32.0 |   |  | 30.5 |  
|                                        |  |      |   |  |      |   |  |      |  



F-11



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##### Table of Contents

The Swedish Match Group



Notes to Consolidated Financial Statements(Continued)

(Amounts in millions of Swedish kronor (SEK) unless otherwise specified)



|7. |  | Intangible fixed assets
|-- |  | -----------------------



Intangible assets as of December 31 included the following:



|                                              |  | Trademarks |   |  | Goodwill |   |  | Other intangiblesassets |   |  | Total  |  
|--------------------------------------------- |  | ---------- | - |  | -------- | - |  | ----------------------- | - |  | ------ | -
|                                              |  | 2001       |   |  | 2002     |   |  | 2001                    |   |  | 2002   |  
|Acquisition value brought forward             |  | 1,708      |   |  | 1,964    |   |  | 3,712                   |   |  | 4,375  |  
|Purchases/Investments                         |  | 0          |   |  |         |   |  |                        |   |  |       |  
|Companies acquired                            |  | 118        |   |  |         |   |  | 749                     |   |  | 14     |  
|Reclassifications                             |  | 225        |   |  | 125      |   |  | (204                    | ) |  | (125   | )
|Exchange differences, etc.                    |  | (87        | ) |  | (36      | ) |  | 118                     |   |  | (481   | )
|                                              |  |            |   |  |          |   |  |                         |   |  |        |  
|Accumulated acquisition value carried forward |  | 1,964      |   |  | 2,053    |   |  | 4,375                   |   |  | 3,783  |  
|Amortization brought forward                  |  | (181       | ) |  | (313     | ) |  | (1,015                  | ) |  | (1,298 | )
|Amortization for the year                     |  | (111       | ) |  | (115     | ) |  | (227                    | ) |  | (208   | )
|Write-downs                                   |  |           |   |  |         |   |  |                        |   |  |       |  
|Reclassifications                             |  | (45        | ) |  | (5       | ) |  | 24                      |   |  | 5      |  
|Exchange differences                          |  | 4          |   |  | 28       |   |  | (80                     | ) |  | 163    |  
|                                              |  |            |   |  |          |   |  |                         |   |  |        |  
|Accumulated amortization carried forward      |  | (313       | ) |  | (405     | ) |  | (1,298                  | ) |  | (1,338 | )
|                                              |  |            |   |  |          |   |  |                         |   |  |        |  
|Book value carried forward                    |  | 1,651      |   |  | 1,648    |   |  | 3,077                   |   |  | 2,445  |  
|                                              |  |            |   |  |          |   |  |                         |   |  |        |  



F-12



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##### Table of Contents

The Swedish Match Group



Notes to Consolidated Financial Statements(Continued)

(Amounts in millions of Swedish kronor (SEK) unless otherwise specified)



|8. |  | Tangible fixed assets
|-- |  | ---------------------



Tangible fixed assets as of December 31 included the following:



|                                              |  | Buildingand land* |   |  | Machinery andother plant |   |  | Equipment, tools andinstallations |   |  | Current newconstruction |   |  | Total |  
|--------------------------------------------- |  | ----------------- | - |  | ------------------------ | - |  | --------------------------------- | - |  | ----------------------- | - |  | ----- | -
|                                              |  | 2001              |   |  | 2002                     |   |  | 2001                              |   |  | 2002                    |   |  | 2001  |  
|Acquisition value brought forward             |  | 2,054             |   |  | 2,192                    |   |  | 3,004                             |   |  | 3,117                   |   |  | 301   |  
|Purchases/Investments                         |  | 104               |   |  | 33                       |   |  | 135                               |   |  | 169                     |   |  | 69    |  
|Companies acquired                            |  | 2                 |   |  | 17                       |   |  | 6                                 |   |  | 2                       |   |  |      |  
|Sales/scrapping                               |  | (78               | ) |  | (96                      | ) |  | (87                               | ) |  | (39                     | ) |  | (25   | )
|Reclassifications                             |  | (19               | ) |  | 36                       |   |  | 192                               |   |  | 195                     |   |  | 8     |  
|Exchange differences                          |  | 129               |   |  | (367                     | ) |  | (133                              | ) |  | (433                    | ) |  | 27    |  
|                                              |  |                   |   |  |                          |   |  |                                   |   |  |                         |   |  |       |  
|Accumulated acquisition value carried forward |  | 2,192             |   |  | 1,815                    |   |  | 3,117                             |   |  | 3,011                   |   |  | 380   |  
|                                              |  |                   |   |  |                          |   |  |                                   |   |  |                         |   |  |       |  
|Depreciation brought forward                  |  | (721              | ) |  | (787                     | ) |  | (2,082                            | ) |  | (2,064                  | ) |  | (190  | )
|Depreciation for the year                     |  | (64               | ) |  | (43                      | ) |  | (220                              | ) |  | (233                    | ) |  | (44   | )
|Companies acquired                            |  |                  |   |  | (2                       | ) |  |                                  |   |  | (2                      | ) |  |      |  
|Sales/scrapping                               |  | 24                |   |  | 26                       |   |  | 66                                |   |  | 32                      |   |  | 22    |  
|Write-downs                                   |  | (17               | ) |  | (13                      | ) |  | (27                               | ) |  | (7                      | ) |  |      |  
|Reclassifications                             |  |                  |   |  | (6                       | ) |  | (2                                | ) |  | 10                      |   |  | 2     |  
|Exchange differences                          |  | (9                | ) |  | 122                      |   |  | 201                               |   |  | 297                     |   |  | (15   | )
|                                              |  |                   |   |  |                          |   |  |                                   |   |  |                         |   |  |       |  
|Accumulated depreciation carried forward      |  | (787              | ) |  | (703                     | ) |  | (2,064                            | ) |  | (1,967                  | ) |  | (225  | )
|                                              |  |                   |   |  |                          |   |  |                                   |   |  |                         |   |  |       |  
|Book value carried forward                    |  | 1,405             |   |  | 1,112                    |   |  | 1,053                             |   |  | 1,044                   |   |  | 155   |  
|                                              |  |                   |   |  |                          |   |  |                                   |   |  |                         |   |  |       |  

---

|* |  | Buildings and land includes land at a book value of SEK 502 million as of December 31, 2001 and SEK 387 million as of December 31, 2002.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------



At fiscal year-end, the Company has commitments to acquire tangible fixed
assets at a value of SEK 193 million.



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



|                                                |  | 2001 |  | 2002
|----------------------------------------------- |  | ---- |  | ----
|Buildings                                       |  | 65   |  | 124 
|Land                                            |  | 11   |  | 16  
|                                                |  |      |  |     
|Total assessed tax value for property in Sweden |  | 76   |  | 140 
|                                                |  |      |  |     



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##### Table of Contents

The Swedish Match Group



Notes to Consolidated Financial Statements(Continued)

(Amounts in millions of Swedish kronor (SEK) unless otherwise specified)



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



|                        |  | 2000 |   |  | 2001 |   |  | 2002 |  
|----------------------- |  | ---- | - |  | ---- | - |  | ---- | -
|Cost of goods sold      |  | (183 | ) |  | (220 | ) |  | (208 | )
|Selling expenses        |  | (18  | ) |  | (19  | ) |  | (32  | )
|Administrative expenses |  | (61  | ) |  | (90  | ) |  | (84  | )
|                        |  |      |   |  |      |   |  |      |  
|Total                   |  | (262 | ) |  | (329 | ) |  | (324 | )
|                        |  |      |   |  |      |   |  |      |  



|9. |  | Financial fixed assets
|-- |  | ----------------------



Financial fixed assets consist of the following items:



|                                       |  | 2001 |  | 2002
|-------------------------------------- |  | ---- |  | ----
|Participations in associated companies |  | 130  |  | 135 
|Participations in other companies      |  | 14   |  | 13  
|Deferred tax assets                    |  | 230  |  | 206 
|Long-term receivables                  |  | 317  |  | 252 
|                                       |  |      |  |     
|Total                                  |  | 691  |  | 606 
|                                       |  |      |  |     



The following
movements in financial fixed assets occurred in 2001 and 2002, respectively:



|                                                         |  | 2001 |   |  | 2002 |  
|-------------------------------------------------------- |  | ---- | - |  | ---- | -
|Amount brought forward from preceding year               |  | 727  |   |  | 691  |  
|Change in deferred tax assets                            |  | (72  | ) |  | 22   |  
|Change in long-term financial receivables                |  | (5   | ) |  | (22  | )
|Acquisition of shares in other companies                 |  | (9   | ) |  |     |  
|Share in earnings of associated companies, net after tax |  | 9    |   |  | 16   |  
|Dividends from associated companies                      |  | (11  | ) |  | (8   | )
|Exchange differences                                     |  | 52   |   |  | (93  | )
|                                                         |  |      |   |  |      |  
|Value carried forward                                    |  | 691  |   |  | 606  |  
|                                                         |  |      |   |  |      |  



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



|                                     |  | 2001              |  | 2002     
|------------------------------------ |  | ----------------- |  | ---------
|                                     |  | Ownershipvalue, % |  | Bookvalue
|Arnold André GmbH & Co. KG           |  | 40                |  | 77       
|P.T. Jamafac                         |  | 40                |  | 44       
|Other associated companies           |  |                   |  | 9        
|                                     |  |                   |  |          
|Total shares in associated companies |  |                   |  | 130      
|Other shares and participations      |  |                   |  | 14       
|                                     |  |                   |  |          
|Total shares and participations      |  |                   |  | 144      
|                                     |  |                   |  |          



Within the framework
of normal business, Swedish Match carries out transactions with associated companies. Receivables from these companies totaled SEK 36 million as of December 31, 2001 and SEK 54



F-14



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##### Table of Contents

The Swedish Match Group



Notes to Consolidated Financial Statements(Continued)

(Amounts in millions of Swedish kronor (SEK) unless otherwise specified)



million as of December 31, 2002. Total sales to associated companies amounted to SEK 106, 121 and 133 million for the years ended December 31, 2000, 2001 and
2002 respectively.



|10. |  | Inventories
|--- |  | -----------



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



|                                 |  | 2001  |   |  | 2002  |  
|-------------------------------- |  | ----- | - |  | ----- | -
|Finished goods                   |  | 868   |   |  | 787   |  
|Work in process                  |  | 212   |   |  | 141   |  
|Leaf tobacco                     |  | 2,523 |   |  | 2,086 |  
|Other raw materials and supplies |  | 293   |   |  | 248   |  
|Reserve for obsolescence         |  | (143  | ) |  | (108  | )
|                                 |  |       |   |  |       |  
|Total inventories                |  | 3,753 |   |  | 3,154 |  
|                                 |  |       |   |  |       |  
|                                 |  |      
|Reserve for obsolescence         |  |       |   |  |       |  
|Balance brought forward          |  |       |   |  | (143  | )
|Provision during the year        |  |       |   |  | (22   | )
|Withdrawal during the year       |  |       |   |  | 39    |  
|Write-off and other              |  |       |   |  | 18    |  
|                                 |  |       |   |  |       |  
|Closing balance                  |  |       |   |  | (108  | )
|                                 |  |       |   |  |       |  



|11. |  | Reserve for bad debts
|--- |  | ---------------------



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



|                          |  | 2002 |  
|------------------------- |  | ---- | -
|Balance brought forward   |  | (146 | )
|Provision during the year |  | (10  | )
|Recovery during the year  |  | 12   |  
|Write-off during the year |  | 15   |  
|Exchange rate difference  |  | 18   |  
|                          |  |      |  
|Closing balance           |  | (111 | )
|                          |  |      |  



|12. |  | 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:



|                                    |  | 2001  |  | 2002 
|----------------------------------- |  | ----- |  | -----
|Short-term investments              |  |       |  |      
|Government bonds and treasury bills |  |      |  | 492  
|Corporate bonds/commercial paper    |  |      |  | 518  
|Other financial investments         |  | 760   |  | 17   
|                                    |  |       |  |      
|                                    |  | 760   |  | 1,027
|Cash and bank                       |  |       |  |      
|Bank accounts and cash              |  | 772   |  | 959  
|Investment loans in banks           |  | 74    |  | 30   
|                                    |  |       |  |      
|                                    |  | 846   |  | 989  
|                                    |  |       |  |      
|Total liquid funds                  |  | 1,606 |  | 2,016
|                                    |  |       |  |      



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##### Table of Contents

The Swedish Match Group



Notes to Consolidated Financial Statements(Continued)

(Amounts in millions of Swedish kronor (SEK) unless otherwise specified)



Short-term investments include instruments where maturity dates exceed 3 months. Cash and bank
include cash and short-term deposits with original maturities of 3 months or less.



|13. |  | Shareholders equity
|--- |  | --------------------



In April 27, 2000 the Annual General Meeting approved a redemption program which led to a redemption of 29,869,472 shares in July 2000. In connection with
the redemption a new issue of 2,476,200 shares was effected. After these transactions the number of shares amounted to 403,946,391. The par value of the share increased from SEK 2.20 to SEK 2.40 in 2000 through a bonus issue.



Following an authorization by the Annual General Meeting on April 27, 2000 to
a share buy-back program of up to 5 percent of the outstanding shares (which was increased to a 10 percent authorization at an extraordinary meeting with the shareholders on October 27, 2000), the Company has, as of December 31, 2000 bought
28,799,500 shares, equivalent to 7.13 percent of the shares of the Company. The average price of the shares repurchased is 31.39 SEK. At the extraordinary shareholders meeting it was further resolved that the share capital be reduced by
canceling 17,350,210 of the shares repurchased. The reduction was registered in March 2001.



At the Annual General Meeting on April 24, 2001, approval was given for a further reduction of the share capital in an amount of SEK 36 million by canceling 15,000,000 shares through a transfer to unrestricted
reserves. This reduction was registered in October. Following these reductions, the share capital of the Company amount to SEK 891.8 million, represented by 371,596,181 shares, each with a par value of SEK 2.40.



During the year of 2001 25,146,710 shares were repurchased at an average
price of SEK 46.49. As a result of the repurchase and after cancellations, Swedish Match held 21,596,000 shares, equal to 5.8 percent of the Companys shares. At December 31, 2001, the total number of shares outstanding, net after buybacks,
amounted to 350,000,181, a decrease of 7 percent during the year.



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 canceling 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. 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 buybacks, amounted to 342,005,181, a decrease of
2.3 percent during the year.



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##### Table of Contents

The Swedish Match Group



Notes to Consolidated Financial Statements(Continued)

(Amounts in millions of Swedish kronor (SEK) unless otherwise specified)



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.



|                                                                       |  | 2000  |   |  | 2001   |   |  | 2002  |  
|---------------------------------------------------------------------- |  | ----- | - |  | ------ | - |  | ----- | -
|Share capital opening balance                                          |  | 949   |   |  | 969    |   |  | 892   |  
|Redemption of shares                                                   |  | (67   | ) |  |       |   |  |      |  
|Cancellation of shares                                                 |  |      |   |  | (77    | ) |  | (24   | )
|New issue                                                              |  | 5     |   |  |       |   |  |      |  
|Bonus issue                                                            |  | 82    |   |  |       |   |  |      |  
|                                                                       |  |       |   |  |        |   |  |       |  
|Total share capital                                                    |  | 969   |   |  | 892    |   |  | 868   |  
|                                                                       |  |       |  
|Restricted reserves opening balance                                    |  | 1,020 |   |  | 1,291  |   |  | 1,625 |  
|Premium on new issue                                                   |  | 61    |   |  |       |   |  |      |  
|Bonus issue                                                            |  | (82   | ) |  |       |   |  |      |  
|Transfer between unrestricted and restricted shareholders equity      |  | 292   |   |  | 334    |   |  | (50   | )
|                                                                       |  |       |   |  |        |   |  |       |  
|Total restricted reserves                                              |  | 1,291 |   |  | 1,625  |   |  | 1,575 |  
|                                                                       |  |       |  
|Unrestricted reserves opening balance                                  |  | 3,929 |   |  | 2,324  |   |  | 1,588 |  
|Redemption of shares                                                   |  | (995  | ) |  |       |   |  |       |  
|Allocation to unrestricted reserves through the cancellation of shares |  |      |   |  | 77     |   |  | 24    |  
|Transfer between unrestricted and restricted shareholders equity      |  | (292  | ) |  | (334   | ) |  | 50    |  
|Dividends                                                              |  | (539  | ) |  | (490   | ) |  | (508  | )
|Buy back of shares                                                     |  | (905  | ) |  | (1,169 | ) |  | (552  | )
|Translation difference*                                                |  | (18   | ) |  | (48    | ) |  | (467  | )
|Net income for the year                                                |  | 1,144 |   |  | 1,228  |   |  | 1,429 |  
|                                                                       |  |       |   |  |        |   |  |       |  
|Total unrestricted shareholders equity                                |  | 2,324 |   |  | 1,588  |   |  | 1,564 |  
|                                                                       |  |       |   |  |        |   |  |       |  
|Total shareholders equity                                             |  | 4,584 |   |  | 4,105  |   |  | 4,007 |  
|                                                                       |  |       |   |  |        |   |  |       |  
|Accumulated translation difference                                     |  |       |   |  |        |   |  |       |  
|Opening balance                                                        |  | (212  | ) |  | (230   | ) |  | (278  | )
|Translation differences                                                |  | (18   | ) |  | (48    | ) |  | (467  | )
|                                                                       |  |       |   |  |        |   |  |       |  
|Closing balance                                                        |  | (230  | ) |  | (278   | ) |  | (745  | )
|                                                                       |  |       |   |  |        |   |  |       |  

---

|* |  | The translation difference was reduced by currency hedging of shareholders equity amounting to SEK (280), 238 and 283 million in 2002, 2001 and 2000 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.



|14. |  | Pensions and similar commitments
|--- |  | --------------------------------



The Company applies various pension plans for its employees all over the world. Pension provisions are calculated in accordance with actuarial principles
in each country. Most of the Companys pension plans are defined as benefit pension obligations, which are covered either by insurance, funded or unfunded pension plans.



F-17



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##### Table of Contents

The Swedish Match Group



Notes to Consolidated Financial Statements(Continued)

(Amounts in millions of Swedish kronor (SEK) unless otherwise specified)



The pension benefits offered to employees of the Groups Swedish operations are covered mainly
by two fully independent super-annuation funds. These funds also provide pension benefits for the employees of a former subsidiary. At December 31, 2002, the market value of assets of the funds taken together exceeded the actuarial value of the
pension obligations. Fund surplus can be used only after approval by the Boards of these funds. In 2002, no contributions were made from these funds to Group companies in Sweden. In 2001, the funds contributed SEK 53 million. The Company has
initiated a review of the pension funds operations.



The
Group also has foundations or similar arrangements for a number of defined benefit pension obligations, primarily in the US, Sweden and Great Britain.



Some of the Groups defined benefit plans are unfunded, primarily local and national general plans are covered by the Company. The current value of
these future pension benefits is reported as a liability in the consolidated balance sheet and totals SEK 88 million (74).



In addition to pension plans, the Groups US subsidiaries employ unfunded plans for healthcare and other benefits for retired employees who fulfill
the requirements for minimum age and years of service. These plans generally involve a cost contribution, for which the retired employees share of cost is adjusted regularly and includes other components such as deductible amounts and
co-insurance. The estimated cost of future benefit payments for healthcare is entered as a liability, in accordance with US accounting principles. This liability in the consolidated balance sheet amounts to SEK 319 million (383).



|15. |  | Other provisions
|--- |  | ----------------



Other provisions consist of the following:



|                        |  | 2002            |  
|----------------------- |  | --------------- | -
|                        |  | Totalprovisions |  
|Opening balance         |  | 963             |  
|Provisions              |  | 152             |  
|Utilization             |  | (157            | )
|Translation differences |  | (150            | )
|                        |  |                 |  
|Closing balance         |  | 808             |  



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 three years.



The tax-related provisions arise mainly due to reserves for taxes in foreign
subsidiaries in regard to previous income years.





|16. |  | Bond loans and liabilities to credit institutions
|--- |  | -------------------------------------------------



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



|Year           |  | Amount
|-------------- |  | ------
|2004           |  | 596   
|2005           |  | 919   
|2006           |  | 2,532 
|2007           |  | 299   
|2008 and later |  | 172   
|               |  |       
|               |  | 4,518 



F-18



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##### Table of Contents

The Swedish Match Group



Notes to Consolidated Financial Statements(Continued)

(Amounts in millions of Swedish kronor (SEK) unless otherwise specified)



Current interest-bearing liabilities



|                                            |  | 2001 |  | 2002
|------------------------------------------- |  | ---- |  | ----
|Next years amortization of long-term loans |  | 360  |  | 730 
|Bank overdraft facility utilized            |  | 51   |  | 35  
|Other current liabilities                   |  | 533  |  | 225 
|                                            |  |      |  |     
|Total current interest-bearing liabilities  |  | 944  |  | 990 
|                                            |  |      |  |     



|17. |  | Other current liabilities
|--- |  | -------------------------



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



|                          |  | 2001  |  | 2002 
|------------------------- |  | ----- |  | -----
|Tobacco taxes             |  | 753   |  | 798  
|Value Added Tax liability |  | 231   |  | 231  
|Income tax liability      |  | 97    |  | 69   
|Other                     |  | 503   |  | 294  
|                          |  |       |  |      
|Total                     |  | 1,584 |  | 1,392
|                          |  |       |  |      



|18. |  | Accrued expenses and deferred income
|--- |  | ------------------------------------



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



|                                     |  | 2001 |  | 2002
|------------------------------------ |  | ---- |  | ----
|Accrued wage/salary-related expenses |  | 216  |  | 155 
|Accrued vacation pay                 |  | 55   |  | 67  
|Accrued social security charges      |  | 55   |  | 61  
|Other                                |  | 661  |  | 570 
|                                     |  |      |  |     
|Total                                |  | 987  |  | 853 
|                                     |  |      |  |     



|19. |  | Guarantees provided
|--- |  | -------------------



For the Groups own long-term liabilities:



|             |  | 2001 |  | 2002
|------------ |  | ---- |  | ----
|Inventories  |  | 49   |  | 36  
|Receivables  |  | 15   |  | 18  
|Liquid funds |  | 73   |  | 30  
|             |  |      |  |     
|Total        |  | 137  |  | 84  
|             |  |      |  |     



Other collateral
pledged:



|                               |  | 2001 |  | 2002
|------------------------------ |  | ---- |  | ----
|Liquid funds                   |  | 7    |  | 8   
|                               |  |      |  |     
|Total other collateral pledged |  | 7    |  | 8   
|                               |  |      |  |     



Of the above SEK 30
(73) million was provided for the benefit of subsidiaries.





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##### Table of Contents

The Swedish Match Group



Notes to Consolidated Financial Statements(Continued)

(Amounts in millions of Swedish kronor (SEK) unless otherwise specified)



|20. |  | Commitments and contingent liabilities
|--- |  | --------------------------------------



Operating leasing agreements



Future annual minimum charges under the terms of irrevocable operating leasing agreements with initial or remaining terms of one year or more consisted of
the following at December 31, 2002:



|Year                  |  | Annualminimumcharges
|--------------------- |  | --------------------
|2003                  |  | 116                 
|2004                  |  | 106                 
|2005                  |  | 90                  
|2006                  |  | 86                  
|2007 and thereafter   |  | 187                 
|                      |  |                     
|Total minimum charges |  | 585                 
|                      |  |                     



The Groups
leasing expenses for operating leasing agreements amounted to SEK 98 million in 2000, SEK 108 million in 2001 and SEK 118 million in 2002.



Future irrevocable minimum leasing income is distributed in accordance with expiration dates as follows:



|Expiration                                  |  |    
|------------------------------------------- |  | ---
|Within one year                             |  | 64 
|More than one year but less than five years |  | 88 
|More than five years                        |  | 39 
|                                            |  |    
|Total minimum lease income                  |  | 191
|                                            |  |    



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 |  | 496  |  
|---------------------------------------------- |  | ---- | -
|Accumulated depreciation, closing balance      |  | (148 | )
|                                               |  |      |  
|Book value, carried forward                    |  | 348  |  
|                                               |  |      |  



Depreciation for the
year amounts to SEK 14 million.



Future irrevocable minimum
leasing income is distributed in accordance with expiration dates as follows:



|Expiration                                  |  |    
|------------------------------------------- |  | ---
|Within one year                             |  | 46 
|More than one year but less than five years |  | 121
|More than five years                        |  | 199
|                                            |  |    
|Total minimum lease income                  |  | 366
|                                            |  |    





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##### Table of Contents

The Swedish Match Group



Notes to Consolidated Financial Statements(Continued)

(Amounts in millions of Swedish kronor (SEK) unless otherwise specified)



The Groups rental revenues from own properties in 2002 amounted to SEK 37 million.



Contingent liabilities



|                                            |  | 2001 |  | 2002
|------------------------------------------- |  | ---- |  | ----
|Guarantees to subsidiaries                  |  | 176  |  | 194 
|Guarantees to external companies            |  | 6    |  | 6   
|Other guarantees and contingent liabilities |  | 348  |  | 229 
|                                            |  |      |  |     
|Total contingent liabilities                |  | 530  |  | 429 
|                                            |  |      |  |     



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 guarantees and contingent liabilities pertain in part to guarantees placed vis-à-vis
state authorities for Group companies proper fulfillment of undertakings in connection with import and payment of tobacco taxes.



Swap agreements for certain bond loans in euros



Contingent liabilities include an amount of SEK 130 (206) million that constitutes the difference between certain bond loans in euros valued at year-end
in the swapped currency, and the same loans valued at closing day rate in euros in accordance with the recommendations of the Swedish Institute of Authorized Public Accountants concerning currency and interest swaps. The counterparties in interest
swaps are banks.



Performance-based adjustment of acquisition values



In the case of some of Swedish Matchs acquisitions
there are agreements with the seller concerning a supplement to the purchase price if the profit of the acquired company reaches a certain pre-specified level. The maximum amount to which this can give rise is SEK 49 million.



There is an agreement with the minority shareholders of General Cigar
concerning selling and buying options with regard to the minoritys holdings. The options can be exercised over the period 2004-2006. Valuation of the shares in connection with the exercising of sales options is determined on the basis of the
companys earnings, at certain minimum levels. The value of the minority shareholders total holdings, can not be less that USD 97 million.



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. Among others, there are proceedings against
General Cigar, where Cubatobacco is claiming that General Cigar does not have the right to use the Cohiba brand. Subsidiaries of Swedish Match in Brazil and France are subject to claims concerning alleged unfair dismissal of employees. In Brazil
there are six such cases, while in France 120 employees have instigated proceedings as a result of the closure of the factory in Lyon. Although the outcomes of these proceeding can not 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.



F-21



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##### Table of Contents

The Swedish Match Group



Notes to Consolidated Financial Statements(Continued)

(Amounts in millions of Swedish kronor (SEK) unless otherwise specified)



Claims for damages against subsidiaries of Swedish Match for injuries that allegedly were caused by
Swedish Match lighter products have been filed in Brazil and the US. In addition, subsidiaries of Swedish Match in the US are the defendant in cases where it is claimed that the use of tobacco products has caused health problems. Pinkerton Tobacco
Company (subsidiary of Swedish Match North America, Inc.) is one of the defendants in a case in Minnesota in which the plaintiff is affirming that use of chewing tobacco caused her husbands death. However, the court dismissed the case from any
further proceedings on March 3, 2003. Pinkerton is also 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 unclear whether any of the plaintiffs intends to pursue their demands separately against Pinkerton. Finally, 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 American market for smokeless tobacco and their joint interest association. It is unclear whether the
state court or federal court will hear the case and no schedule has been announced to date. 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. With regard to the claims related to the lighter products, Swedish Match has insurance protection to cover the claims made.



The Securities and Exchange Board of India (SEBI) has ordered Swedish Match
AB and certain of its subsidiaries to make a public offer to acquire the shares outstanding (10,400,000) in Wimco Ltd. In accordance with the ruling, the price per share shall be not less than 35 INR plus 15 percent annual interest from January 27,
2001 or approximately SEK 60 million plus interest at an exchange rate of SEK 0.16381 = INR 1.00. The ruling was appealed to the Securities Appellate Tribunal, which decided, however, not to change the ruling. Swedish Match has appealed this
decision to the Supreme Court in India.



Swedish Match North
America, Inc. has filed a federal civil antitrust action against U.S. Smokeless Tobacco Company (USST) and other companies within the UST group in the United States District Court for the Western district of Kentucky. Swedish Match North America,
Inc. is seeking a permanent injunction against USST, to stop the use of illegal methods aimed as suppressing competition in the American snuff market, and substantial damages. USST is denying the allegations. The main proceedings are scheduled for
September 2004.



The administrative court in Minden,
Westfahlen, Germany, has decided to refer the question of the legality of the EUs snuff prohibition to the European Court in Luxemburg. In its decision the Court decided to stay the initiated proceedings pending a ruling from the European
Court of Justice concerning the following question: Is the snuff prohibition in accordance with imperative law of the European Union? Swedish Matchs distributor in Germany, Arnold André GmbH is claiming that the ban on the sales of
snuff is discriminating, disproportionate, and that the EU has exceeded its legislative competence when the prohibition was enacted. Swedish Match has made similar claims in a case before the High Court of Justice in the UK and this case has been
referred to the European Court of Justice in Luxemburg. The process in Luxemburg is expected to take two years.



F-22



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##### Table of Contents

The Swedish Match Group



Notes to Consolidated Financial Statements(Continued)

(Amounts in millions of Swedish kronor (SEK) unless otherwise specified)



|21. |  | Notes to the cash-flow statements
|--- |  | ---------------------------------



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 |  
|                                             |  |    |  



Acquisitions of subsidiaries in
2001



In 2001, companies were acquired for a total of SEK
962 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                        |  | 8   |  
|-------------------------------------------- |  | --- | -
|Intangible fixed assets                      |  | 875 |  
|Inventories                                  |  | 108 |  
|Accounts receivable, trade                   |  | 14  |  
|Accounts payable, trade                      |  | (22 | )
|Other assets/liabilities, net                |  | (21 | )
|                                             |  |     |  
|Purchase price paid                          |  | 962 |  
|Cash and bank balances in acquired companies |  |    |  
|                                             |  |     |  
|Effect on the Groups liquid funds           |  | 962 |  
|                                             |  |     |  



Acquisitions of subsidiaries in
2000



In 2000, companies were acquired for a total of SEK
1,624 million. Liquid funds in the acquired companies totaled SEK 199 million. As a result of these acquisitions, the Group acquired net assets as shown in the presentation below. In addition to acquisitions of these subsidiaries, SEK 235 million
was invested in acquisitions of minority interests in previously consolidated companies. Goodwill acquired in conjunction with the acquisitions of minority interests amounted to SEK 58 million. The purchase price for 64 percent of the shares in
General Cigar accounted for SEK 1,573 million of the total cost for acquisitions as stated above of SEK 1,624 million.



F-23



---

##### Table of Contents

The Swedish Match Group



Notes to Consolidated Financial Statements(Continued)

(Amounts in millions of Swedish kronor (SEK) unless otherwise specified)



Assets and liabilities of the acquired companies are presented in the following table:



|Tangible fixed assets                                                      |  | 623    |  
|-------------------------------------------------------------------------- |  | ------ | -
|Intangible fixed assets                                                    |  | 1,127  |  
|Inventories                                                                |  | 1,163  |  
|Accounts receivable                                                        |  | 241    |  
|Change in liabilities to minority interests                                |  | (561   | )
|Accounts payable                                                           |  | (107   | )
|Loans in acquired operations                                               |  | (312   | )
|Other assets/liabilities, net                                              |  | (550   | )
|                                                                           |  |        |  
|Purchase price paid                                                        |  | (1,624 | )
|                                                                           | 
|Cash and bank balances in acquired companies                               |  | (199   | )
|Purchase price for minority interests in previously consolidated companies |  | 235    |  
|                                                                           |  |        |  
|Effect on the Groups liquid funds                                         |  | 1,660  |  
|                                                                           |  |        |  



Liquid funds



See Note 12.



Interest paid and dividends



Interest payments amounted to SEK 531 million in 2000, SEK 399 million in 2001 and SEK 330 million in 2002. Dividends received from associated companies
amounted to SEK 8 million for 2002.



|22. |  | Derivative instruments
|--- |  | ----------------------



The Group is active internationally, which gives rise to risk exposure due to currency fluctuations. The Group employs forward contracts in order to
reduce the risks.



As of December 31, the Group had outstanding
currency forward contracts in the following nominal values, net:



|                  |  | 2001 |  | 2002
|----------------- |  | ---- |  | ----
|Forward contracts |  | 68   |  | 96  



The book values and
estimated market values of the Groups derivative instruments as of December 31 are shown below:



|                    |  | 2001       |   |  | 2002                 
|------------------- |  | ---------- | - |  | ---------------------
|                    |  | Book value |   |  | Estimatedmarket value
|Currency forwards   |  | (1         | ) |  | 0                    
|Currency swaps      |  | (8         | ) |  | (7                   
|Interest-rate swaps |  | 303        |   |  | 319                  
|                    |  |            |   |  |                      
|Total               |  | 294        |   |  | 312                  
|                    |  |            |   |  |                      



F-24



---

##### Table of Contents

The Swedish Match Group



Notes to Consolidated Financial Statements(Continued)

(Amounts in millions of Swedish kronor (SEK) unless otherwise specified)



|23. |  | Geographical information
|--- |  | ------------------------



Certain information by geographical area has been summarized in the table below:



|                              |  | 2000   |  | 2001   |  | 2002  
|----------------------------- |  | ------ |  | ------ |  | ------
|Sales outside the Group:      |  |        |  |        |  |       
|Sweden                        |  | 4,058  |  | 4,405  |  | 4,814 
|Europe excluding Sweden       |  | 2,089  |  | 2,426  |  | 2,472 
|North America                 |  | 3,837  |  | 4,935  |  | 4,671 
|Latin America                 |  | 403    |  | 452    |  | 461   
|Other areas                   |  | 1,146  |  | 1,417  |  | 1,225 
|                              |  |        |  |        |  |       
|Total sales outside the Group |  | 11,533 |  | 13,635 |  | 13,643
|                              |  |        |  |        |  |       
|Assets                        |  |        |  |        |  |       
|Sweden                        |  | 4,908  |  | 4,180  |  | 4,755 
|Europe excluding Sweden       |  | 2,247  |  | 2,381  |  | 2,308 
|North America                 |  | 6,458  |  | 7,129  |  | 5,671 
|Latin America                 |  | 585    |  | 558    |  | 371   
|Other areas                   |  | 2,083  |  | 2,375  |  | 2,342 
|                              |  |        |  |        |  |       
|Total assets                  |  | 16,281 |  | 16,623 |  | 15,447
|                              |  |        |  |        |  |       



|24. |  | Net income and shareholders equity according to United States Generally Accepted Accounting Principles
|--- |  | -------------------------------------------------------------------------------------------------------



The accounts of Swedish Match are prepared according to Swedish accounting
principles (Swedish GAAP). In conjunction with the listing of Swedish Match on NASDAQ in the US, the Group issues certain financial information prepared in accordance with generally accepted accounting principles in the United States
(US GAAP). Swedish Match also submits a report each year (Form 20-F) to the United States Securities and Exchange Commission (SEC), which includes further information about Swedish Matchs business activities.



F-25



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##### Table of Contents

The Swedish Match Group



Notes to Consolidated Financial Statements(Continued)

(Amounts in millions of Swedish kronor (SEK) unless otherwise specified)



A summary of the effects on the Groups net income and shareholders equity of the
application of US GAAP is presented in the tables below:



For the years
ended December 31

|                                                                                     |  | Note        |  | 2000 SEK |   |  | 2001 SEK |   |  | 2002 SEK |   |  | 20021) USD |  
|------------------------------------------------------------------------------------ |  | ----------- |  | -------- | - |  | -------- | - |  | -------- | - |  | ---------- | -
|                                                                                     |  |             |  |          |   |  |          |   |  |          |   |  | Unaudited  |  
|                                                                                     |  | In millions | 
|Reconciliation of net income                                                         |  |             |  |          |   |  |          |   |  |          |   |  |            |  
|                                                                                     |  |             |  |          |  
|Net income in accordance with Swedish GAAP                                           |  |             |  | 1,144    |   |  | 1,228    |   |  | 1,429    |   |  | 164        |  
|Items that increase or reduce net income                                             |  |             |  |          |   |  |          |   |  |          |   |  |            |  
|Change in accounting principle                                                       |  |             |  | 9        |   |  | (51      | ) |  |         |   |  |           |  
|Reporting of goodwill, etc.                                                          |  | a           |  | (129     | ) |  | (146     | ) |  | 191      |   |  | 22         |  
|Restructuring expenses                                                               |  | b           |  | (140     | ) |  | (47      | ) |  | (29      | ) |  | (3         | )
|Sale-leaseback of property                                                           |  | c           |  | 1        |   |  | 4        |   |  | (24      | ) |  | (3         | )
|Derivative financial instruments                                                     |  | d           |  | 23       |   |  | (29      | ) |  | 126      |   |  | 15         |  
|Pensions                                                                             |  | e           |  | 12       |   |  | 17       |   |  | (9       | ) |  | (1         | )
|Other                                                                                |  | f           |  | (5       | ) |  | 3        |   |  | 21       |   |  | 2          |  
|Tax effects of the above US GAAP adjustments                                         |  |             |  |         |   |  | 2        |   |  | (38      | ) |  | (4         | )
|                                                                                     |  |             |  |          |   |  |          |   |  |          |   |  |            |  
|Net income in accordance with US GAAP, before cumulative effect of accounting change |  |             |  | 915      |   |  | 981      |   |  | 1,667    |   |  | 192        |  
|Cumulative effect of accounting change                                               |  | a           |  |         |   |  |         |   |  | (206     | ) |  | (24        | )
|                                                                                     |  |             |  |          |   |  |          |   |  |          |   |  |            |  
|Net income in accordance with US GAAP                                                |  |             |  | 915      |   |  | 981      |   |  | 1,461    |   |  | 168        |  
|                                                                                     |  |             |  |          |  
|Earnings per share under US GAAP before cumulative effect of accounting change       |  |             |  |          |   |  |          |   |  |          |   |  |            |  
|Basic                                                                                |  |             |  | 2.21     |   |  | 2.71     |   |  | 4.79     |   |  | 0.55       |  
|Diluted                                                                              |  |             |  | 2.21     |   |  | 2.70     |   |  | 4.75     |   |  | 0.55       |  
|                                                                                     |  |             |  |          |  
|Cumulative effect per share of accounting change                                     |  |             |  |          |   |  |          |   |  |          |   |  |            |  
|Basic                                                                                |  |             |  |         |   |  |         |   |  | (0.60    | ) |  | (0.07      | )
|Diluted                                                                              |  |             |  |         |   |  |         |   |  | (0.59    | ) |  | (0.07      | )
|                                                                                     |  |             |  |          |  
|Earnings per share under US GAAP                                                     |  |             |  |          |   |  |          |   |  |          |   |  |            |  
|Basic                                                                                |  |             |  | 2.21     |   |  | 2.71     |   |  | 4.19     |   |  | 0.48       |  
|Diluted                                                                              |  |             |  | 2.21     |   |  | 2.70     |   |  | 4.16     |   |  | 0.48       |  

---

|1) |  | Translation of amounts from Swedish kronor (SEK) into US dollars (USD) has been made only for the convenience of the reader at the Federal Reserve Bank of New York Noon Buying Rate
on December 31, 2002 of USD 1.00 = SEK 8.695. The Noon Buying Rate as of June 23, 2003, was USD 1.00 = SEK 7.8920.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-26



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##### Table of Contents

The Swedish Match Group



Notes to Consolidated Financial Statements(Continued)

(Amounts in millions of Swedish kronor (SEK) unless otherwise specified)



|                                                                |  |             |  | As of December 31 |  
|--------------------------------------------------------------- |  | ----------- |  | ----------------- | -
|                                                                |  |             |  | 2000              |  
|                                                                |  | Note        |  | SEK               |  
|                                                                |  | In millions | 
|Reconciliation of shareholders equity                          |  |             |  |                   |  
|Shareholders equity according to Swedish accounting principles |  |             |  | 4,584             |  
|                                                                |  |             |  |                   |  
|Items that increase or reduce equity                            |  |             |  |                   |  
|Change in accounting principle                                  |  |             |  | 51                |  
|Reporting of goodwill, etc.                                     |  | a           |  | 1,754             |  
|Restructuring expenses                                          |  | b           |  | 32                |  
|Sale-leaseback of property                                      |  | c           |  | (270              | )
|Derivative financial instruments                                |  | d           |  | 29                |  
|Pensions                                                        |  | e           |  | 116               |  
|Other                                                           |  | f           |  | 12                |  
|Tax effects of the above US GAAP adjustments                    |  |             |  | 11                |  
|                                                                |  |             |  |                   |  
|Shareholders equity according to US GAAP                       |  |             |  | 6,319             |  
|                                                                |  |             |  |                   |  

---

|1) |  | Translation of amounts from Swedish kronor (SEK) into US dollars (USD) has been made only for the convenience of the reader at the Federal Reserve Bank of New York Noon Buying Rate
on December 31, 2002 of USD 1.00 = SEK 8.695. The Noon Buying Rate as of June 23, 2003, was USD 1.00 = SEK 7.8920.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|a) |  | Reporting of goodwill, etc.
|-- |  | ---------------------------



At December 31, 1995, Swedish Match was owned by the Volvo Group, which acquired the Parent Company in two stages, November 1993 and June
1994, whereby the purchase method was applied in the reporting the transactions.



US GAAP requires that push down accounting be applied for the independent annual reports of wholly owned subsidiaries if the
share of ownership is 95 per cent or more, which was the case in Volvos acquisition in 1994. 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. The goodwill thereby calculated has subsequently been further adjusted since US GAAP requires that the acquisition price shall be set on the basis of the payment amount at the time the transaction was
completed and not the date the transaction was announced, as required by Swedish GAAP. 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.



F-27



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##### Table of Contents

The Swedish Match Group



Notes to Consolidated Financial Statements(Continued)

(Amounts in millions of Swedish kronor (SEK) unless otherwise specified)



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 US accounting recommendation FAS 142, Goodwill and Other Intangible Assets, which applies from January 1, 2002, goodwill and
intangible assets that have a 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. 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 during 2002, in accordance with Swedish accounting principles, SEK 208 million, 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 has been calculated as the present value of the estimated future payments which the operations can be expected
to give rise to. This write-down has, in accordance with US GAAP, been reported as a cumulative effect of accounting changes, and thus is charged to income for the year. Reported income in accordance with US GAAP for 2001 and 2000 was not affected
by FAS 142. Had the Company applied FAS 142 beginning in January 2000, reported net income and earnings per share in accordance with US GAAP would have been as follows:



|                                               |  | 2000  |  | 2001 
|---------------------------------------------- |  | ----- |  | -----
|Reported net income in accordance with US GAAP |  | 915   |  | 981  
|Reversal of goodwill amortization              |  | 295   |  | 324  
|                                               |  |       |  |      
|Adjusted net income in accordance with US GAAP |  | 1,210 |  | 1,305
|                                               |  |       |  |      
|                                               |  |      
|                                               |  | 2000  |  | 2001 
|Earnings per share, basic                      |  |       |  |      
|Reported net income in accordance with US GAAP |  | 2.21  |  | 2.71 
|Goodwill amortization                          |  | 0.72  |  | 0.90 
|                                               |  |       |  |      
|Adjusted net income in accordance with US GAAP |  | 2.93  |  | 3.61 
|                                               |  |       |  |      
|                                               |  |      
|                                               |  | 2000  |  | 2001 
|Earnings per share, diluted                    |  |       |  |      
|Reported net income in accordance with US GAAP |  | 2.21  |  | 2.70 
|Goodwill amortization                          |  | 0.72  |  | 0.89 
|                                               |  |       |  |      
|Adjusted net income in accordance with US GAAP |  | 2.93  |  | 3.59 
|                                               |  |       |  |      



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 and SEK 17 million was expensed under US GAAP in 2002 and 2001 respectively.



|b) |  | Restructuring expenses
|-- |  | ----------------------



Prior to 2002, Swedish accounting practice was less restrictive, permitting in certain cases an earlier reporting than that allowed in
accordance with US GAAP. According to US GAAP, costs for restructuring measures are reported only on the condition that a sufficiently detailed implementation plan has been formulated at the close of the accounting period, and that the measures are
made public and the conditions are known for those employees who will be affected prior to the balance sheet date. Provisions have been



F-28



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##### Table of Contents

The Swedish Match Group



Notes to Consolidated Financial Statements(Continued)

(Amounts in millions of Swedish kronor (SEK) unless otherwise specified)



reversed under US GAAP to the extent that the aforementioned requirements have not been met. Beginning in 2002, Swedish accounting principles are in
substantial agreement with US GAAP.



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 property
|-- |  | --------------------------



In 1998 and 2002, the Group sold property and is now leasing 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:

|                              |  | 2001 |   |  | 2002 |  
|----------------------------- |  | ---- | - |  | ---- | -
|Buildings                     |  | 540  |   |  | 611  |  
|Less accumulated depreciation |  | (99  | ) |  | (129 | )
|Buildings, net                |  | 441  |   |  | 482  |  
|                              |  |     
|Prepaid expenses              |  | (11  | ) |  | (13  | )
|Finance obligation            |  | 696  |   |  | 758  |  
|Equity adjustment             |  | (266 | ) |  | (290 | )



|d) |  | Derivative financial instruments
|-- |  | --------------------------------



Under Swedish GAAP, the company has applied hedge accounting. From January 1, 2001, FAS 133 Accounting for derivative instruments
and hedging instruments applies. Since the company does not fulfill the requirements of FAS 133 for hedge accounting, changes in the fair value of the derivative instruments are reported in the income statement under US GAAP. In accordance
with the transitional rules, there was a positive effect related to the change in accounting principles under US GAAP of SEK 19 million after tax.



|e) |  | Pensions
|-- |  | --------



Under Swedish GAAP, pensions are accounted for by each of the Swedish Match entities, where suitable, based on the principles deemed
appropriate for local statutory purposes, pursuant to such principles resulting in earned pension rights being reported as an expense.





Under US GAAP, pensions are accounted for in accordance with
SFAS No. 87 Employers Accounting for Pensions. The Group has estimated the effect on net income and shareholders equity assuming the application SFAS No. 87 provisions are being applied.





Alecta, the Swedish insurance company, announced its decision in April 2000 to repay pension fund contributions to its policyholders, including Swedish Match. The refunds comprise two components, a cash refund to be
paid immediately and a receivable against which Swedish Match will be able to offset future



F-29



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##### Table of Contents

The Swedish Match Group



Notes to Consolidated Financial Statements(Continued)

(Amounts in millions of Swedish kronor (SEK) unless otherwise specified)



premium payments. 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 utilized.



|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, SEK
16 million was 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 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 inaccordance withSwedish GAAP |  | Restated values inaccordancewith US GAAP
|------------------------------------------ |  | -------------------------------------- |  | ----------------------------------------
|                                           |  | 2001                                   |  | 2002                                    
|Fixed assets                               |  | 8,430                                  |  | 7,689                                   
|Current assets                             |  | 8,193                                  |  | 7,758                                   
|                                           |  |                                        |  |                                         
|Total assets                               |  | 16,623                                 |  | 15,447                                  
|                                           |  |                                        |  |                                         
|Shareholders equity                       |  | 4,105                                  |  | 4,007                                   
|Minority interests                         |  | 767                                    |  | 686                                     
|Provisions                                 |  | 2,311                                  |  | 2,201                                   
|Long-term liabilities                      |  | 5,150                                  |  | 4,603                                   
|Current liabilities                        |  | 4,290                                  |  | 3,950                                   
|                                           |  |                                        |  |                                         
|Total liabilities and shareholders equity |  | 16,623                                 |  | 15,447                                  



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##### Table of Contents

The Swedish Match Group



Notes to Consolidated Financial Statements(Continued)

(Amounts in millions of Swedish kronor (SEK) unless otherwise specified)



Supplementary US GAAP information



Consolidated Statement of Comprehensive Income



Components of comprehensive income consist of the following:



|                                        |  | 2000  |   |  | 2001  |   |  | 2002  |  
|--------------------------------------- |  | ----- | - |  | ----- | - |  | ----- | -
|Net income under Swedish GAAP           |  | 1,144 |   |  | 1,228 |   |  | 1,429 |  
|Other comprehensive income              |  |       |   |  |       |   |  |       |  
|Currency translation differences        |  | (18   | ) |  | (48   | ) |  | (467  | )
|                                        |  |       |   |  |       |   |  |       |  
|Comprehensive income under Swedish GAAP |  | 1,126 |   |  | 1,180 |   |  | 962   |  



|Statement |  | of Cash Flows
|--------- |  | -------------



According to SFAS No. 95 Statement of Cash Flows, cash and cash equivalents comprise only funds with a maturity of three months or
less. A portion of Swedish Matchs liquid funds (see Note 12) do not meet this requirement. As a consequence, changes in this portion of liquid funds should be reported as investment activities according to SFAS No. 95.



SFAS No. 95 requires changes in short-term loans to be reported gross showing
proceeds and principal payments, whereas Swedish Match presents a net amount.



Change in short-term loans comprises the following:



|                                                                |  | 2000 |   |  | 2001 |   |  | 2002 |  
|--------------------------------------------------------------- |  | ---- | - |  | ---- | - |  | ---- | -
|Short-term loans, borrowings                                    |  | 0    |   |  | 224  |   |  | 152  |  
|Short-term loans, repayments                                    |  | 0    |   |  | (166 | ) |  | (457 | )
|Net change in short-term loans maturing within 3 months or less |  | (48  | ) |  | 0    |   |  | (34  | )
|                                                                |  |      |   |  |      |   |  |      |  
|                                                                |  | (48  | ) |  | 58   |   |  | (339 | )



Recently issued accounting
pronouncements



FAS 143



FASB Statement No. 143 Accounting for Obligations Associated with the
Retirement of Long-Lived Assets (FAS 143) was issued in August 2001. FAS 143 addresses financial accounting and reporting for the retirement obligation of an asset and states that companies should recognize the asset retirement cost, at its
fair value, as part of the cost of the asset and classify the accrued amount as a liability in the consolidated balance sheet. The asset retirement liability is then accreted to the ultimate payout as interest expense. The initial measurement of the
liability would be subsequently updated for revised estimates of the discounted cash outflows. FAS 143 will be effective for fiscal years beginning after June 15, 2002. Swedish Match does not expect the application of FAS 143 to have a material
effect on its US GAAP earnings and financial position.



FAS
145



FASB Statement No. 145 Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections (FAS 145) was issued on April 2002. FAS 145 rescinds FAS 4



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##### Table of Contents

The Swedish Match Group



Notes to Consolidated Financial Statements(Continued)

(Amounts in millions of Swedish kronor (SEK) unless otherwise specified)



Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that statement, FAS 64 Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements. FAS 145 also rescinds FAS 44 Accounting for Intangible Assets of Motor Carriers. FAS 145 amends FAS 13 Accounting for Leases, to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. FAS 145 also amends other existing authoritative pronouncements to make various
technical corrections, clarify meanings, or describe their applicability under changed conditions. The provision of FAS 145 related to the rescission of FAS 4 shall be applied in fiscal years beginning after May 15, 2002 Two provisions related to
FAS 13 became effective for transactions occurring after May 15, 2002. All other provisions of FAS 145 shall be effective for financial statements issued on or after May 15, 2002 The application of FAS 145 has not a significant impact on our
earnings and financial position.



FAS 146



In July 2002, FASB Statement No. 146  Accounting for Costs Associated
with Exit or Disposal Activities (FAS 146) was issued. FAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). The principal difference between FAS 146 and EITF 94-3 relates to FAS 146s requirements for recognition of a liability for a
cost associated with an exit or disposal activity. FAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3, a liability for an exit cost as generally
defined in EITF 94-3 was recognized at the date of an entitys commitment to an exit plan. FAS 146 states that an entitys commitment to a plan, by itself, does not create an obligation that meets the definition of a liability. Therefore,
FAS 146 eliminates the definition and requirements for recognition of exit costs in EITF 94-3. It also establishes that fair value is the objective for initial measurement of the liability. FAS 146 is to be applied prospectively to exit or disposal
activities initiated after December 31, 2002. Swedish Match does not expect the application of FAS 146 to have a material effect on its US GAAP earnings and financial position.



FAS 148



In December 2002, FASB Statement No. 148 Accounting for Stock-Based CompensationTransition and Disclosure (FAS 148) was issued. FAS 148
amends FASB Statement No. 123 Accounting for Stock-Based Compensation, to provide alternative methods of transition to FAS 123s fair value method of accounting for stock-based employee compensation. FAS 148 also amends the
disclosure provisions of FAS 123 and APB Opinion No. 28 Interim Financial Reporting, to require disclosure in the summary of significant accounting policies of the effects of an entitys accounting policy with respect to stock-based
employee compensation on reported net income and earnings per share in annual and interim financial statements. FAS 148s amendment of the transition and annual disclosure requirements of FAS 123 are effective for fiscal years ending after
December 15, 2002, while the amendment of the disclosure requirements for Opinion 28 is effective for financial reports containing condensed consolidated financial statements for interim periods beginning after December 15, 2002. The company has no
current plan to change to the fair value method of accounting for stock-based compensation under FAS 123 and does not expect FAS 148 to impact its financial statements.



FIN 45



In November 2002, FASB Interpretation No. 45 Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees
of Indebtedness of Others (FIN 45) was issued. Guarantees meeting



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The Swedish Match Group



Notes to Consolidated Financial Statements(Continued)

(Amounts in millions of Swedish kronor (SEK) unless otherwise specified)



the characteristics described in FIN 45, which are not included in a long list of exceptions, are required to be initially recorded at fair value, which is
different from the general current practice of recording a liability only when a loss is probable and reasonably estimable, as those terms are defined in FASB Statement No. 5 Accounting for Contingencies. FIN 45 also requires a guarantor
to make significant new disclosures for virtually all guarantees even if the likelihood of the guarantors having to make payments under the guarantee is remote. FIN 45s disclosure requirements are effective for financial statements of
interim or annual periods ending after December 15, 2002. The initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. Swedish Match does not expect the
application of FIN 45 to have a material effect on its US GAAP earnings and financial position.



FIN 46



In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46 or the Interpretation), Consolidation of Variable Interest Entities,
an interpretation of ARB 51. FIN 46 addresses the consolidation of entities for which control is achieved through means other than through voting rights (variable interest entities or VIE) by clarifying the application
of Accounting Research Bulletin No. 51, Consolidated Financial Statements to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial support from other parties. FIN 46 provides guidance on how to determine when and which business enterprise (the primary beneficiary) should consolidate the VIE.
In addition, FIN 46 requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures. The disclosure provisions of FIN 46 are effective in all financial statements
initially issued after January 31, 2003. FIN 46 is required to be immediately applied by all entities with a variable interest in a VIE created after January 31, 2003. A public entity with a variable interest in a VIE created before February 1, 2003
is required to apply FIN 46 to that entity no later than the beginning of the first interim or annual reporting period beginning after June 15, 2003. The Company is in the process of assessing its potential VIEs and the impact of adopting FIN 46 in
its financial statements. Swedish Match holds 64 percent of the American company General Cigar. The Cullman family holds the remaining 36 percent. General Cigar is consolidated by Swedish Match for purposes of Swedish GAAP. In accordance with the
shareholder agreement between Swedish Match and the Cullman family, the Cullman family are afforded substantive participating rights, which entitles them to actively participate in significant issues pertaining to daily operations of General Cigar.
Accordingly, under U.S.GAAP, General Cigar is accounted for under the equity method. Swedish Match is evaluating whether General Cigar should be consolidated according to FIN 46. A consolidation of General Cigar would not have had any effect on net
income or shareholders equity. However, total assets as of December 31, 2002 would have increased by SEK 1,619 million, total liabilities would have increased by SEK 974 million and minority interest would have increased by SEK 645 million. In
1998, Swedish Match sold property and is now leasing the same property in accordance with a leasing agreement, which according to Swedish accounting principles is classified as an operating lease. 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. Under US GAAP, the property remains in the books of the
company and depreciation continues to be recorded. The lease arrangement is with a leasing company that has established a company for the purpose of owning the property and leasing it back to Swedish Match. Swedish Match has paid SEK 10 million of
capital into this entity and has no further obligation but for the quarterly leasing costs. The leasing company has 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 currently evaluating the classification of this entity under FIN 46. Swedish Match does not expect a consolidation of the leasing entity to have a material effect on its U.S. GAAP earnings and financial position.



Swedish GAAP



Swedish Match adopted RR 22, RR 24, RR 25, RR 26, RR 27 and RR 28 as of
January 1, 2003. The company will adopt RR 29 as of January 1, 2004.



RR 22Presentation of financial statements.    The objective of this standard is to prescribe the basis for presentation of general purpose financial statements, in order to ensure comparability both with
enterprises own financial statements of previous periods and with the financial statements of other enterprises. To achieve this objective, this standard sets out overall considerations for the presentation of financial content of financial
statements.



RR 24Investment
property.     RR24 prescribes the accounting treatment for investment property and related disclosure requirements. Investment property should be measured at depreciated cost (less any accumulated impairment losses). The
effect of implementing RR24 is not expected to have a material effect on the result of operations and financial position of the company.



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##### Table of Contents

The Swedish Match Group



Notes to Consolidated Financial Statements(Continued)

(Amounts in millions of Swedish kronor (SEK) unless otherwise specified)



RR 25Segment reporting.    The objective of this standard is to
establish principles for reporting financial information by segment to help users of financial statements to better understand different types of products and services a company produces and in which geographical areas it operates. The effect of
implementing RR25 is not expected to have a material effect on the presentation of segment information.



RR 26Events after the balance sheet date.    This statement prescribes when a company should adjust its financial
statements for events after the balance sheet date and the disclosures that a company should give about the date when the statements were authorized for issue and about events after the balance sheet date. The effect of implementing RR26 is not
expected to have a material effect on the business, results of operations, and financial position of the company.



RR 27Financial instruments.    Disclosures and presentation.    The objective of this standard is to
enhance financial statement users understanding of the significance of on-balance-sheet and off-balance-sheet financial instruments to a companys business, results of operations, and financial position. The standard prescribes certain
requirements for presentation of on-balance-sheet (recognized) and off-balance-sheet (unrecognized) financial instruments. The effect of implementing RR27 is not expected to have material impact on the business, results of operations, and financial
position of the company.



RR 28Accounting for
Government Grants.    This standard applies for financial reporting and disclosures of government grants and other forms of government assistance. The effect of implementing RR28 is not expected to have material impact on the
business, results of operations, and financial position of the company.



RR 29Employee benefits.     The objective of this standard is to prescribe the accounting and disclosure for employee benefits. The standard 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 an expense when the enterprise consumers the economic benefit arising from service provided by an employee in exchange for employee
benefits. The company is in the process of assessing the impact of adopting RR 29 on its consolidated financial statements. It is expected that pension obligations will exceed the fair value of plan assets. The deficit will be charged to opening
equity on January 1, 2004 in accordance with RR 29.



|25. |  | Personnel
|--- |  | ---------



The average number of employees in 2001 was 42 for the Parent Company and 14,343 for the Group. For 2002 was the numbers 40 respectively 14,795.



Wages, salaries, other remuneration and social welfare
expenses are summarized below:



|               |  | 2001                           |  | 2002                                       
|-------------- |  | ------------------------------ |  | -------------------------------------------
|               |  | Salaries andother compensation |  | Social welfarecosts (of whichpension costs)
|Parent Company |  | 38                             |  | 16(4)                                      
|Subsidiaries   |  | 1,744                          |  | 600(85)                                    
|               |  |                                |  |                                            
|The Group      |  | 1,782                          |  | 616(89)                                    
|               |  |                                |  |                                            



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The Swedish Match Group



Notes to Consolidated Financial Statements(Continued)

(Amounts in millions of Swedish kronor (SEK) unless otherwise specified)



Wages, salaries and other remuneration by country and between members of the Board, etc., and other
employees are summarized below:



|                      |  | 2001                                            |  | 2002          
|--------------------- |  | ----------------------------------------------- |  | --------------
|                      |  | Board and CEO(of which bonuses etc.and similar) |  | Otheremployees
|The Parent Company    |  |                                                 |  |               
|Sweden                |  | 11(2)                                           |  | 27            
|Subsidiaries          |  |                                                 |  |               
|Australia             |  | 1                                               |  | 13            
|Belgium               |  | 1                                               |  | 112           
|Brazil                |  | 4(0)                                            |  | 42            
|Bulgaria              |  | (0)(1)                                          |  | 2             
|Dominican Republic    |  |                                                |  | 133           
|Philippines           |  | 1(0)                                            |  | 11            
|France                |  |                                                |  | 20            
|Germany               |  | 2(0)                                            |  | 17            
|Honduras              |  |                                                |  | 21            
|Hong Kong             |  | 1                                               |  | 2             
|Hungary               |  | (0)                                             |  | 15            
|India                 |  | 2                                               |  | 74            
|Indonesia             |  |                                                |  | 1             
|Ireland               |  | 1(0)                                            |  | 14            
|China                 |  | (0)                                             |  | 10            
|Netherlands           |  | 11(2)                                           |  | 130           
|Portugal              |  |                                                |  | 4             
|South Africa          |  | 1(0)                                            |  | 52            
|Switzerland           |  | (0)                                             |  | 11            
|Spain                 |  |                                                |  | 44            
|United Kingdom        |  | 6(1)                                            |  | 52            
|Sweden                |  | 4(0)                                            |  | 288           
|Turkey                |  | 2(0)                                            |  | 19            
|United States         |  | 14(5)                                           |  | 599           
|Other countries       |  | 1(0)                                            |  | 6             
|                      |  |                                                 |  |               
|Total in subsidiaries |  | 52(9)                                           |  | 1,692         
|                      |  |                                                 |  |               
|Group total           |  | 63(11)                                          |  | 1,719         
|                      |  |                                                 |  |               



During year 2002, SEK 13.7 (7.5)
million was paid into the profit sharing fund for Group employees in Sweden.



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##### Table of Contents

The Swedish Match Group



Notes to Consolidated Financial Statements(Continued)

(Amounts in millions of Swedish kronor (SEK) unless otherwise specified)



Employees of the Group distributed by country are summarized below:



|                   |  | Average number of employees
|------------------ |  | ---------------------------
|                   |  | 2001                       
|Parent Company     |  |                            
|Sweden             |  | 42                         
|Subsidiaries       |  |                            
|Australia          |  | 50                         
|Belgium            |  | 511                        
|Brazil             |  | 776                        
|Bulgaria           |  | 121                        
|Dominican Republic |  | 2,869                      
|Philippines        |  | 196                        
|France             |  | 67                         
|Germany            |  | 55                         
|Honduras           |  | 852                        
|Hong Kong          |  | 13                         
|Hungary            |  | 231                        
|India              |  | 3,778                      
|Indonesia          |  | 730                        
|Ireland            |  | 48                         
|China              |  | 226                        
|Netherlands        |  | 440                        
|Portugal           |  | 24                         
|South Africa       |  | 551                        
|Spain              |  | 161                        
|Sweden             |  | 924                        
|Switzerland        |  | 15                         
|Turkey             |  | 232                        
|United Kingdom     |  | 90                         
|United States      |  | 1,323                      
|Other countries    |  | 18                         
|                   |  |                            
|Group total        |  | 14,343                     
|                   |  |                            



Compensation to senior
executives



Compensation to Board



To the Chairman of the Board of Directors and Board members are paid fees in
accordance with Annual General Meeting decision. No particular fee is paid for committee work.



The Chairman of the Board received a Board fee of SEK 550,000 during 2002. Other Annual General Meeting-elected members received SEK 225,000 each.



Principles



Compensation to the President and other senior executives is comprised of base salary, variable compensation (bonus), share-related instruments (options)
and other benefits. By senior executives is meant the nine persons who, together with the President, comprise the Group management staff.



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##### Table of Contents

The Swedish Match Group



Notes to Consolidated Financial Statements(Continued)

(Amounts in millions of Swedish kronor (SEK) unless otherwise specified)



The break-down between base salary, bonus and options is weighted with respect to the
executives responsibility and authority. For the President and Executive Vice President the bonus is maximized to 35 per cent of base salary, and for other senior executives, 30 to 35 per cent of base salary.



Compensations and other benefits during the year (SEK 000s):



|                        |  | Basesalary |  | Bonus |  | Options |  | Othercompensation |  | Otherbenefits |  | Pensioncost |  | Total 
|----------------------- |  | ---------- |  | ----- |  | ------- |  | ----------------- |  | ------------- |  | ----------- |  | ------
|President               |  | 4,600      |  | 1,400 |  | 1,300   |  | 183               |  | 188           |  | 398         |  | 8,069 
|Other senior executives |  | 20,730     |  | 6,842 |  | 5,850   |  | 0                 |  | 1,564         |  | 5,844       |  | 40,830
|                        |  |            |  |       |  |         |  |                   |  |               |  |             |  |       
|Total                   |  | 25,330     |  | 8,242 |  | 7,150   |  | 183               |  | 1,752         |  | 6,242       |  | 48,899



Comments to the table



| |  |  | Bonus pertains, during the year, to bonus paid based on 2001 income. The expensed bonus for fiscal 2002, which is paid during 2003, amounts to SEK 1,610,000 for the President and a
combined SEK 6,454,000 for the rest of the management staff.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other benefits pertain to automobile benefits, housing benefit and other taxable benefits.
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | The Group has both defined benefit and defined contribution pension plans. Pension cost pertains to the cost which affects income for the year. A certain part of the
Presidents and Group managements Swedish members pensions are secured in a pension foundation. The foundations debt increase in 2002 for these commitments on behalf of the President was SEK 4,085,000, and for the others, SEK
5,436,000. No contribution was made to the foundation. For additional pension information, see below.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Options. Reported here are gross amounts, excluding social costs, which are disposable for allocation of options. Unless the employee personally pays income tax on the received
options, the amount is decreased in the amount of the calculated income tax, and the allocation is based on the net amount.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other compensation to the President pertains to bonuses derived from associated companies.
| | - |  | ------------------------------------------------------------------------------------------



Bonus



For the President and staff managers, the bonus is based on the income per share trend, and for the division managers, on the operating income trend
within the division and income per share.



Options



Number of shares corresponding received or acquired options.



|                        |  | Programs from previous years |  | Program of 2001
|----------------------- |  | ---------------------------- |  | ---------------
|                        |  | Optionsreceived              |  | Ownacquisitions
|President               |  | 216,432                      |  | 140,256        
|Other senior executives |  | 1,461,501                    |  | 63,658         
|                        |  |                              |  |                
|Total                   |  | 1,677,933                    |  | 203,914        



Comments to the table



| |  |  | Programs from previous years refer to the 1998, 1999 and 2000 option programs.
| | - |  | ------------------------------------------------------------------------------



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##### Table of Contents

The Swedish Match Group



Notes To Consolidated Financial Statements(continued)

(Amounts in millions of Swedish kronor (SEK) unless otherwise specified)



| |  |  | Own acquisitions refer to such options as may have been acquired by the employee in connection with the allocation of options in any of the respective years. The acquisitions took
place at market value.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The allocation in this years program is based on income for 2001. The duration of the options is 2002-2007.
| | - |  | ------------------------------------------------------------------------------------------------------------



Pensions



The President is entitled to a pension from age 60. From age 60 to 65, a pension is paid at 70 per cent of pensionable
salary. From age 65, a pension is paid at 45 per cent of pensionable salary. Other members of Group management are entitled to pensions at the normal pension ages of 60-65.





Between 60 and 65 years of age, pensions are
paid at 50-70 per cent of pensionable salary. From age 65, pensions are paid at 32.5-70 per cent of pensionable salary. Pensionable salary (which can vary depending on country of service) is defined as cash salary plus the average of bonus payments
received during the three years immediately prior to retirement, which may in no case amount to more than 35 per cent of the cash salary.



All pension benefits are irrevocable.



Severance pay, etc.



For the President, a six-month mutual notice of intent to terminate employment applies, and 12 months if initiated by the Company. Severance pay is a
maximum of two years salary if initiated by the Company. A maximum severance payment of two years salary is payable if the Company terminates the employment contract. However, severance pay will be reduced by a maximum of 50 per cent 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 all members of the Group management. If the Company terminates employment, severance pay is payable in an amount equivalent to 18 months of cash salary.



Bonus and option program



In addition to their basic remuneration, senior executives within the Group
have both a short-term incentive program (via bonuses) and a long-term incentive program (via options). Both incentive programs are performance-based, and the cost of the programs has a fixed upper limit. The amount of the bonus is based on the
increase in earnings per share. In addition, for divisions presidents, part of the bonus amount is based on operating income in their respective areas of responsibility. The allocation of options is based partly on the increase in earnings per share
and partly on the return on the share compared with the return on the shares of a selection of other companies in the industry. This reflects the view of the Board of Directors that the Groups incentive program for senior executives should be
based on measurable increases in shareholder value.



The bonus
program can give a maximum of 35 percent of the basic salary. For the maximum allocation to be paid, the criterion for those whose entire bonus is based on this is that earnings per share must increase by at least 20 percent. For division presidents
to receive the maximum bonus, there is an additional requirement that operating income improves in their respective area of responsibility, compared with the preceding year. For 2002, the program gave maximum yield in relation to earnings per share.



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The Swedish Match Group



Notes To Consolidated Financial Statements(continued)

(Amounts in millions of Swedish kronor (SEK) unless otherwise specified)



The long-term program comprises an options program, whereby the options allocated have a lifetime of
three to five years. During 2002, 56 executives were participating in the options program. Under the terms of the program, the requirements for the allocation of options in a given year are that the total return on Swedish Match shares is positive,
and better than the return on the shares of a selection of other companies in the industry (with a maximum allocation at a return that is 20 percent higher than the average of the returns on the other companies shares), and that the
Companys earnings per share are increasing and are higher than the average for the three most recent years (with a maximum allocation at per-share earnings figure that is 20 percent higher than the average over the preceding three years). Both
of these requirements (a positive total return that is higher than competitors returns and increased earnings per share) are equal in value. If the conditions relating to earnings have been met, the eligible executives are granted options. The
options are assigned a market value in accordance with the Black-Scholes model and are issued without cost to the recipient. The options are irrevocable at the time of allocation. The value of the options allocated amounts to not more than 30
percent of the basic remuneration amount for the executives participating in the program. The exercise price for the options amounts to 120 percent of the average price for the Companys shares during a period close to the date of allocation
following publication of the accounts for the year.



As part of
the options program, 1,518,770 call options were issued during the first half of the year. They may be exercised during the period from March 15, 2005 to March 15, 2007. Each option entitles the holder to purchase one share at an exercise price per
share of SEK 77.50. Using the Black-Scholes model, the true value of these options was calculated to be SEK 10.10 per option, or a combined total of SEK 15.3 million. Since the options were issued by Swedish Match AB, the amount in question was not
expensed. The preliminary income tax and social security expenses that are paid at the time of allocation if applicable are expensed within the Group. This sum amounted to SEK 7 million for 2002.



At December 31, 2002, including 4,659,417 options issued earlier, the total
number of call options issued, on the Companys own holding, corresponded to 6,178,187 shares, as shown below:



|Number of shares |  | Exercise price |  | Exercise period                
|---------------- |  | -------------- |  | -------------------------------
|2,847,108        |  | 34.70          |  | March 13, 2003  March 14, 2005
|1,812,309        |  | 44.50          |  | March 13, 2004  March 14, 2006
|1,518,770        |  | 77.50          |  | March 15, 2005  March 15, 2007



F-39