Clickable PDF Clickable Annual Report 2019 A LONG TRADITION OF Our journey HIGH QUALITY PRODUCTS Drawing from our Scandinavian heritage, strong brands, and our talented organization, we will engage to address consumer needs on an ongoing basis. Through consumer engagement and product innovation, we can work to deliver products that meet consumer desires. Success will come from working closely together in building upon our strong brand portfolio and maintaining as well as advancing technological leadership. We create shareholder value by offering consumers enjoyable nicotine- OUR VISION: containing products of superior quality in a responsible way. By providing products that are recognized as safer alternatives to cigarettes, we can A WORLD contribute significantly to improved public health. WITHOUT CIGARETTES A CLEAR AND CONSISTENT STRATEGY OF BRAND LEADERSHIP, DELIVERING SOLID RETURNS STRONG PROFITABILITY AND CASH FLOWS SHAREHOLDER RETURN Swedish Match maintains a portfolio of high quality brands Swedish Match has consistently delivered strong returns which provide a solid foundation for operating profit, with to its shareholders, through solid earnings per share strong margins, generating solid cash flows. and dividend growth. Excess cash is passed on to our shareholders, according to our financial strategy of returning excess funds, both through the payment of dividends and through share repurchases. #1 Snus, Sweden STRONG MARKET POSITIONS, #1 Snus, Norway ROBUST CATEGORY MANAGEMENT #3 Moist snuff, US Swedish Match is a global company, with well-known local brands. #2 Cigars, US Swedish Match also has international brands, such as General, ZYN, #1 Chewing tobacco, US and Cricket. The Company’s largest markets are in Scandinavia and the US. Swedish Match 2019 / ii MILESTONES IN OUR JOURNEY Since the Company’s listing in 1996, Swedish Match has led the journey away from cigarettes and today the smokefree portfolio generates more than 70 percent of Group operating profit. Divestment of pipe tobacco, A clear and Divestment GOTHIATEK® premium cigars, focused vision: First expansion Broad smokefree of cigarette quality standard and cigars A world without of ZYN on portfolio, fast pace operation for snus in Europe cigarettes the US market of innovation 1999 2000 2010 2014 2016 TODAY THE INDUSTRY IS RAPIDLY NICOTINE CHANGING POUCHES, US #1 The global nicotine market is undergoing a shift away participates with its nicotine pouches. The nicotine pouch from traditional cigarettes toward products that have the category is one of the fastest growing areas in alternative potential of delivering substantial public health benefits nicotine products, with their appeal to a wide audience of versus cigarettes. Along with snus, Swedish Match actively adult nicotine consumers. WE ARE WELL POSITIONED FOR THIS CHANGING WORLD ZYN is the world leading brand for enjoyment of nicotine pouches. In recent years the product has been available in the US and Sweden and Swedish Match has now introduced ZYN into a number of European countries with the potential to expand into more geographies. For snus, General has now been authorized by the FDA in the US to be designated as a Modified Risk Tobacco Product, further supporting our efforts in communicating the message of harm reduction. Swedish Match 2019 / 1 The Group / Our business Strategy and risks Sustainability Shareholder information Financial reports Corporate Governance CONTENT 2–27 2 This is Swedish Match The Group and 5 CEO comment our business 7 Organization 9 Market 14 Our business This is 14 Snus and moist snuff 19 Other tobacco products 22 Lights 24 Regulatory engagement Swedish 26 Harm reduction 27 Introduction to the Board of Directors Report 28–33 29 Vision Strategy and risks 29 Operational strategy 30 Financial strategy Match 30 Sustainability strategy 31 Risks and risk management 34–59 35 CEO comment Sustainability 36 Our approach to sustainability 37 Our contribution to the UN SDGs 38 Our Code of Conduct Swedish Match develops, manufactures, and 39 Our value chain sells quality products with market-leading 41 Our focus areas 41 Improve public health brands. The Group’s product segments 44 Ensure ethical business practices in 2019 were Snus and moist snuff, Other 46 Equal opportunity tobacco products, and Lights. With its vision 49 Reduce greenhouse gases 51 Reduce waste of a world without cigarettes, the Group 53 Eliminate child labor is dedicated to the improvement of public 56 Governance 58 Employer of choice health by offering attractive alternatives to 60–64 61 Shareholder communication cigarettes with its smokefree products. Shareholder information 63 The share 65–129 66 CFO comment Swedish Match provides consumers with the best quality Financial reports 67 Content products with well-known brands. Some of Swedish 68 Financial overview Match’s brands include: General (snus), Longhorn 73 Guidelines for executive remuneration (moist snuff), ZYN (nicotine pouches), Onico (pouch 75 Proposed distribution of earnings products with neither tobacco nor nicotine), White Owl 76 Consolidated financial statements (homogenized tobacco leaf cigars), Game (natural leaf 111 Parent Company financial statements cigars), Red Man (chewing tobacco), Thunder (chew bags), 122 Auditor’s report Oliver Twist (tobacco bits), Fiat Lux (matches), and Cricket 126 Five year summary 2015–2019 (lighters). 128 Quarterly data 2018–2019 Production is located in seven countries with the 129 Definitions majority of Group sales coming from Scandinavia and the US. 130–142 131 Chairman’s comment Group sales for 2019 amounted to 14,739 MSEK and the Corporate Governance 132 Governance report average number of employees was 6,270. 139 Board of Directors Swedish Match’s head office is located in Stockholm, 141 Group Management Sweden. The Swedish Match share is listed on Nasdaq Stockholm (SWMA). The Board of Directors Report and the formal audited part of this document comprises the following sections: Financial strategy on page 30, Risk management on pages 31–33, Share information and dividends on pages 63–64, Financial overview and consolidated financial accounts and disclosures, including proposed distribution of earnings and guidelines for executive remuneration are presented on pages 68–121. Definitions are presented on page 129. Sustainability information is found on pages 34–59. The Corporate Governance report is found on pages 130–142. The sustainability and corporate governance reports have been reviewed by the auditors. The sections which form part of the Board of Directors Report are highlighted in grey in the table of contents above and on the respective page. Swedish Match 2019 / 2 The Group / Our business Strategy and risks Sustainability Shareholder information Financial reports Corporate Governance PRODUCTS AND BRANDS 2019 IN BRIEF SNUS AND MOIST SNUFF • In local currencies, sales increased by 8 percent. Reported sales increased by 14 percent to 14,739 MSEK (12,966). Swedish Match has a market leading position in the • In local currencies, operating profit from product segments1) increased by Scandinavian snus market and is the number two 13 percent. Reported operating profit from product segments increased by player for nicotine pouches1). In European countries 18 percent to 5,828 MSEK (4,936). outside of Scandinavia, Swedish Match has a small but growing presence in several markets for its • Operating profit2) amounted to 5,307 MSEK (4,812). nicotine pouches. At the end of May 2019, snus was • Profit after tax amounted to to 3,896 MSEK (3,578). also allowed to be sold in Switzerland, and Swedish • Earnings per share amounted to 23.22 SEK (20.63). Adjusted earnings per Match has started to sell snus on this market. In the share increased by 23 percent to 25.41 SEK (20.63). US, Swedish Match is well positioned as the third • ZYN available in approximately 67,000 stores in the US, and average sales largest snus and moist snuff company and is the per store continued to increase sequentially. clear market leader in the nicotine pouch segment. Production of 1) Excludes Other operations and larger one-time items. 2) Includes a non-cash impairment charge of 367 MSEK related to the European chewing tobacco business. snus takes place in Sweden and Denmark and moist snuff is produced in the US. Nicotine pouches are produced in both the US and Sweden. >> Read more on page 14. SALES OPERATING PROFIT BY PRODUCT SEGMENT BY PRODUCT SEGMENT 4% 8% OTHER TOBACCO PRODUCTS Swedish Match is a major player in the US 36% 60% market for mass market cigars and the largest 40% 52% manufacturer of US chewing tobacco. Swedish Match is one of the largest manufacturers in the niche chewing tobacco categories of chew bags and tobacco bits, produced Snus and moist snuff Snus and moist snuff in Denmark and sold mostly in Europe. Other tobacco products Other tobacco products Lights Lights Production of US chewing tobacco takes place in the US while cigars are produced in the US and the Dominican Republic. >> Read more on page 19. KEY DATA MSEK 2019 2018 20171) Sales 14,739 12,966 11,751 Sales from product segments 14,363 12,612 11,410 LIGHTS Operating profit from product segments 5,828 4,936 4,345 Operating profit, excluding larger one-time items 5,675 4,812 4,219 Swedish Match is the market leader for matches Operating profit 5,307 4,812 4,592 in many markets throughout the world, with Operating margin from product segments, % 40.6 39.1 38.1 well-known local brands. For lighters, the Group Operating margin, %2) 38.5 37.1 35.9 has strong market positions in many countries. EBITDA from product segments 6,312 5,301 4,673 EBITDA 6,222 5,227 4,600 Production of matches takes place in Sweden and Profit for the year 3,896 3,578 3,400 Brazil. Lighters are produced in the Netherlands, Earnings per share, basic and diluted, SEK 23.22 20.63 18.88 the Philippines and Brazil.