10 Rolling Towards 2025

11 Must-win battles

14 Must-win battles stories

15 Our sustainability journey

16 Climate action

17 M&A strategy

19 Three commercial divisions

20 North America Online & Retail

DKK million

INCOME STATEMENT

Net sales

Gross profit before special items

EBITDA before special items

Special items

Net financial items

Profit before tax

Net interest-bearing debt (NIBD)

Investment in property, plant and equipment

Total capital expenditures

CASH FLOW STATEMENT

Cash flow from operating activities

Cash flow from investing activities

Free cash flow

Free cash flow before acquisitions

1. See definition/explanation of financial ratios in note 5.8. The years 2017-2018 are not adjusted in relation to IFRS16.

LETTER FROM CHAIRMAN AND CEO

innovations to the market while improving our overall

safety performance. We would like to thank them and

every other employee in Scandinavian Tobacco Group

for their commitment and valuable work in 2021.

Since the outbreak of the COVID-19 pandemic,

ly strong. At the same time, tobacco consumption

across other markets and categories has proven

resilient. As a consequence, we raised our guidance

On the back of these strong results we continue our

disciplined capital allocation strategy focused on cap-

ital efficiency and shareholder returns. Based on the

2021 results, we propose an ordinary dividend of DKK

7.5 per share. This equals a total payment of about

DKK 0.7 billion to our shareholders and including

share buy-back total capital distribution to our share-

holders in 2021 was more than DKK 1.2 billion - or 12%

of the market value of Scandinavian Tobacco Group at

the beginning of the year.

CONTINUED STRATEGY EXECUTION

In the course of the year, we showed good progress on

our strategy “Rolling Towards 2025” and edged closer

to our vision of becoming the undisputed, global

On the back of extraordinarily strong demand and

to drive growth in the handmade cigar category, we

expanded our footprint in the US in the wholesale and

retail channel. To leverage the strength of our brand

portfolio and strengthen support to retail partners we

established the Forged Cigar Company, an independent

national cigar distribution network with a dedicated

sales force. In addition, we announced plans to open

6-8 cigar super stores under the Cigars International

our Group-wide Scope 1 and 2 emissions as defined

under the Greenhouse Gas Protocol, allowing us to

provide additional transparency and insight into our

energy consumption and CO2 equivalent emissions.

2020

For 2020, Group entities consumed 100,636 megawatt

hours of energy, corresponding to 36.5 thousand tons

of CO

thousand tons were Scope 1 emissions, while 58%, or

21.2 thousand tons, were Scope 2.

appropriate emissions reduction targets and relevant

reduction measures to help us achieve our goals.

In the tobacco business, taking part in industry

consolidation by combining business entities and

taking advantage of economies of scale, has for years

been a proven recipe for maintaining and creating

stronger brands, managing regulatory challenges,

improving profitability and to create shareholder

value. Since the merger with certain Swedish Match

activities in 2010, we have actively taken part in

In 2021, online, catalogue and tele sales comprised

94% of net sales with the retail channel comprising

6%. Handmade cigars accounted for 80% of divisional

net sales, accessories for 11% and machine-rolled ci-

gars and smoking tobacco for 6% and 3% respectively.

The division comprises six brick and mortar cigar

super stores in Pennsylvania (2), Texas (2) and Florida

(2) and five online business units each uniquely po-

sitioned towards a specific consumer group. The five

EBITDA BEFORE SPECIAL ITEMS

In 2021, net sales in the division were split between

North America (56%) and Rest of World (44%) and the

category split was fairly even with 29% net sales from

handmade cigars, 28% from machine-rolled cigars,

EBITDA BEFORE SPECIAL ITEMS

FINANCIAL AMBITIONS AND 2022 GUIDANCE

In the period 2017-2021 total shareholder return (TSR)

increase in the period has been 15% and dividends

have in total accounted for 28%. This implies a CAGR

of 8% over the past five years.

In the past five years from 2017-2021, the CAGR

growth in adjusted Earnings Per Share has been 16%.

In the five years from 2017-2021, the average annual

free cash flow before acquisitions has been DKK 1.1

billion driven by a combination of a strong structural

cash flow generation in the tobacco categories and a

focus on reducing capital tied up in the operation.

In the five years from 2017-2021, the return on in-

vested capital (ROIC) pre tax has been in the range of

6.4%-14.4%. In 2021 the ROIC was 14.5%.

Further, Russia's invasion of Ukraine and the geopo-

litical tension in the area have added further to the

uncertainty negatively impacting the visibility for the

financial performance for the full year. However, signs

of a normalisation have started to materialise for

most product categories and for most markets and we

expect visibility to improve during the year. Currently,

additional price adjustments are expected to compen-

sate for cost inflation and the disruptions in the supply

chain are improving. Given these considerations, our

We expect to generate organic EBITDA growth in the

range of 0-6% for the full year 2022. This expectation

includes the full-year impact of synergies from the

GOVERNANCE

The responsibility for the governance of risks lies

with our Board of Directors. On behalf of the Board of

Directors, the Audit Committee monitors the effective-

ness of the Group's risk management and evaluates

the design annually. The Executive Board manages

The approach is a top-down facilitated process with

the intent to identify risks and support risk manage-

ment throughout the organisation, and ensure consis-

There is a strong regulatory focus on the tobacco industry. Regulatory

initiatives could affect consumer behaviour, discourage use of tobacco

products, control new product development and place significant burdens

complexity, impact the ability to compete and differentiate products, erode

brand values, reduce possibilities to launch new products and cause loss of

sales and profitability.

The Biden administration in the US is working on a significant tax reform

to finance extensive US investments. The negotiations are ongoing and the

outcome of the tax reform is difficult to predict. The most recent draft-bill

does not suggest an increase in corporate income tax and is significantly

modified compared to the initial draft-version of the bill. The outcome of

the final reform will likely still affect companies in general.

regulatory landscape seems more stable than for new tobacco product

categories. Also, we mainly focus on the non-aromatic segment for cigars

which has been less exposed to regulatory focus than the aromatic

segment.

Scandinavian Tobacco Group operates in an environment with cyber

security threats that are growing in number and are becoming more

sophisticated. Successful attacks might result in business disruption,

business disruption and could keep us from fulfilling our engagements

and responsibilities towards customers and other parties.

The Group’s corporate governance is based on the

Danish Companies Act, the Danish Financial State-

ments Act, the International Financial Reporting Stan-

dards (IFRS), the EU Market Abuse Regulation, Nasdaq

Copenhagen A/S’ Rulebook for Issuers of Shares and

its Rules for Issuers of Bonds as well as the company’s

Articles of Association, among others. Further, the

Danish Recommendations on Corporate Governance

are taken into account. The ultimate authority over

the company is held by the shareholders who exercise

their rights at general meetings. The annual report

and amendments to the articles of association are

As a publicly listed company, Scandinavian Tobacco

Group is required by law to report on its compliance

with the Danish Recommendations on Corporate