Annual Report 2020 Clickable PDF A world without cigarettes can be a reality LONGSTANDING COMMITMENT, A CLEAR DIRECTION Since 2014, Swedish Match has communicated its vision of a world without cigarettes. The road that led us to that vision began decades ago as we responded to consumer trends with the launch of snus in pouch format in 1973, thus reinvigorating the snus category. We took a further step down the road when we divested the cigarette business in 1999. This journey has continued more recently through our focus on smokefree alternatives in new formats, new categories and in new geographies. Swedish Match continues to adapt and raise the benchmark, in quality, performance, and consumer satisfaction for its smokefree products. MILESTONES 1973 1999 2000 THE POUCH DIVESTS GOTHIATEK® The first portion snus product, CIGARETTE QUALITY in an easy to use pouch format, was launched in Sweden. OPERATIONS STANDARD FOR SNUS Swedish Match took the bold move to divest its cigarette business. The Swedish Match’s quality standard for the sale reinforced our longstanding commitment to harm reduction, and Company’s snus products is based on was an important step toward concentrating on growing categories, decades of research and development. in line with consumer trends. Swedish Match devoted resources Produced according to this standard and product development into other areas, such as snus and other the high quality of our snus products is cigarette alternatives. ensured, with extremely low levels of undesired compounds, and resulting in a dramatically reduced health risk versus smoking. 2014 2016 2019 A WORLD WITHOUT ZYN NICOTINE POUCHES GAINS MRTP STATUS IN THE US CIGARETTES A FOOTHOLD IN THE US Swedish Match became the first tobacco company to be granted Modified Risk Swedish Match has a clear and In 2016, when Swedish Match began expanding Tobacco Product (MRTP) designations focused vision. By providing the availability of ZYN nicotine pouches in the by the FDA for eight General snus products that are recognized as US, the brand was available in approximately products, permitting Swedish Match to safer alternatives to cigarettes, 4,000 stores in the western United States. more accurately communicate to adult we can contribute significantly By the end of 2020, ZYN was available in consumers the relative health attributes to improved public health. about 100,000 stores nationwide, and the of the General snus products compared clear market leader for nicotine pouches in the to cigarettes. US – the world’s largest nicotine pouch market. Swedish Match 2020 / ii Portfolio shifts ZYN – THE WORLD’S #1 NICOTINE POUCH BRAND Swedish Match is proud of its innovation work, continually striving to provide consumers with top quality products in line with consumer trends, helping us to move ever closer to our vision of a world without cigarettes. ZYN is the most sold brand of nicotine pouches in the US. In 2020, Swedish Match shipped nearly 130 million cans of nicotine pouches worldwide, primarily under the ZYN brand, making Swedish Match the world’s largest producer of nicotine pouches. RAPIDLY CHANGING CONDITIONS #1 64% ZYN, NICOTINE SMOKEFREE PERCENT POUCHES IN THE US OF GROUP SALES Market shifts The global nicotine market is undergoing a shift away nicotine pouches. The nicotine pouch category is one of the from traditional cigarettes toward products that have the fastest growing categories in alternative nicotine products, potential of delivering substantial public health benefits with their appeal to a wide audience of adult nicotine versus cigarettes. Along with snus, Swedish Match offers consumers. WE ARE WELL POSITIONED FOR THIS CHANGING WORLD ZYN is the world’s leading brand for nicotine pouches. The brand is available in the US and Sweden and has more recently been introduced in a number of European countries with the potential to expand into more geographies. The fact that General snus in the US has been designated MRTP status provides us with opportunities to communicate with adult consumers on harm reduction. Swedish Match 2020 / 1 The Group / Our business Sustainability Shareholder information Financial reports Corporate Governance This is Swedish Match Living our core values CEO comment Vision and strategy Organization Our business Introduction to BoD report THE GROUP AND OUR BUSINESS Swedish Match 2020 / 2 The Group / Our business Sustainability Shareholder information Financial reports Corporate Governance This is Swedish Match Living our core values CEO comment Vision and strategy Organization Our business Introduction to BoD report CONTENT This is 2–29 3 This is Swedish Match The Group and 5 Living our core values our business 6 CEO comment Swedish Match 8 Vision and strategy 8 Operational strategy 9 Financial strategy 9 Sustainability strategy Swedish Match develops, manufactures, and sells 10 Organization quality products with market leading brands. 11 Our business 11 Market The Group’s product segments are Smokefree, 12 Smokefree product segment Cigars, and Lights. With its vision of a world 19 Cigars product segment 22 Lights product segment without cigarettes, the Group is dedicated to the 24 Trends improvement of public health by offering attractive 25 Regulatory engagement 26 Risks and risk management alternatives to cigarettes with its smokefree 29 Introduction to the Board of Directors Report products. 30–62 31 CEO comment Sustainability 33 Our materiality assessment Swedish Match provides consumers with the best quality 37 Our contribution to the UN SDGs products with well-known brands. Some of Swedish 39 Management approach 40 Code of Conduct Match’s brands include: General (snus), ZYN (nicotine 41 Our value chain pouches), Longhorn (moist snuff),Onico (pouch products 43 Sustainable Tobacco Program with neither tobacco nor nicotine), Red Man (chewing 44 Our focus areas tobacco), Thunder (chew bags), Oliver Twist (tobacco 44 Improve public health bits), White Owl (HTL, homogenized tobacco leaf cigars), 47 Ensure ethical business practices Game (natural leaf cigars), Fiat Lux (matches), and 50 Reduce environmental impact Cricket (lighters). 55 Human rights in our supply chain Production is located in seven countries with the 59 Equal opportunity majority of Group sales coming from the US and Scandinavia. 63–67 64 Shareholder communication Shareholder information 66 The share Group sales for 2020 amounted to 16,698 MSEK and the average number of employees was 6,733. 68–130 69 CFO comment Swedish Match’s head office is located in Stockholm, Financial reports 70 Content Sweden. The Swedish Match share is listed on Nasdaq 71 Financial overview Stockholm (SWMA). 75 Proposed distribution of earnings 76 Consolidated financial statements 112 Parent Company financial statements 123 Auditor’s report 126 Five year summary 2016–2020 HIGHLIGHTS 128 Quarterly data 2019–2020 129 Definitions SALES, MSEK 131–145 132 Chairman’s comment Corporate Governance 133 Governance report 139 Internal control over financial reporting 140 Board of Directors 16,698 142 Group Management 144 Remuneration report OPERATING LOCATIONS 11 AVERAGE NO OF EMPLOYEES The Board of Directors Report and the formal audited part of this document comprises the following sections: financial strategy on page 9, risk management on pages 26–28, share information and dividends on pages 66–67, financial overview and consolidated financial accounts and disclosures, including proposed distribution of earnings are presented on pages 71–122. Definitions are presented on pages 129–130. Sustainability information is found on pages 30–62. The Corporate Governance report is found on 6,733 pages 131–143. 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 2020 / 3 The Group / Our business Sustainability Shareholder information Financial reports Corporate Governance This is Swedish Match Living our core values CEO comment Vision and strategy Organization Our business Introduction to BoD report PRODUCTS AND BRANDS 2020 IN BRIEF SMOKEFREE • Record sales and operating profit were driven by strong traction for ZYN nicotine pouches in the US. Double-digit operating profit growth in local currencies was achieved for the Smokefree and Cigar product segments. • COVID-19 related effects are estimated to have elevated sales and operating profit. • In local currencies, sales increased by 17 percent. Reported sales increased by 13 percent to 16,698 MSEK (14,739) despite significant strengthening of the Swedish krona during the year In the US, the Company is the biggest participant in the nicotine versus the US dollar, the Norwegian krona and the Brazilian real. pouch market with its ZYN brand, as well as the largest producer of 1) chewing tobacco. The Company also holds the third largest position • In local currencies, operating profit from product segments in the moist snuff category, and has a longstanding presence with its increased by 28 percent. Reported operating profit from product General snus. segments increased by 23 percent to 7,160 MSEK (5,812). In Scandinavia, Swedish Match enjoys the market leading position • Operating profit amounted to 6,991 MSEK (5,307). for its snus products, as well as holding the number two position in the Scandinavian market for its nicotine pouches1). • Profit after tax amounted to 4,888 MSEK (3,896). In Europe, Swedish Match has introduced nicotine pouches in a • Adjusted earnings per share increased by 27 percent to 32.16 number of countries. The Company is also present with its niche SEK (25.41). Earnings per share amounted to 30.38 SEK (23.22). chewing tobacco products of chew bags and tobacco bits, as well as with snus in Switzerland. • Proposed dividend of 15.00 SEK per share.2) Production of nicotine pouches takes place in the US, Sweden, and Denmark. Production of snus occurs in Sweden and Denmark, 1) Excludes Other operations and larger one-time items. 2) Board proposal. while moist snuff is produced in the US.