Scandinavian Tobacco A/S : Financial Reportinmg Document

Company Announcement

No. 34/2022

Copenhagen, 19 May 2022

Interim report, 1 January - 31 March 2022

Scandinavian Tobacco Group A/S reports Q1 results, maintains guidance for 2022 and presents revised Sustainability Strategy

For the first quarter of 2022 Scandinavian Tobacco Group delivered 2% negative organic net sales growth and 3% negative organic EBITDA growth in line with the previously communicated expectations for the quarter. The guidance for the full year of an organic EBITDA growth in the range of 0-6% is maintained. The uncertainty related to key assumptions like consumer behaviour, cost inflation and supply-chain stability remains high. The current share buy-back programme is increased by DKK 300 million to reach up to DKK 1,000 million reflecting the strong financial position of Scandinavian Tobacco Group.

Consumer demand for handmade cigars in the US remained robust in the quarter though with signs at the end of the quarter of a return to the structural declining volume trend. Price increases across most product categories almost offset increasing cost inflation and supported the financial performance compared with a strong first quarter of 2021.

Q1 Highlights

• Net sales were DKK 1,938 million (DKK 1,883 million) with -1.7% organic growth.
• EBITDA before special items was DKK 532 million (DKK 527 million) with -2.7% organic growth. The EBITDA margin was 27.4% (28.0%).
• Adjusted Earnings Per Share (EPS) were DKK 3.6 (DKK 3.4).
• Free cash flow before acquisitions was DKK 129 million (DKK 89 million).
• Return on Invested Capital was 14.4% (10.7%).

CEO Niels Frederiksen: "We deliver a satisfactory first quarter result in line with our expectations with negative organic EBITDA growth against a very strong first quarter last year and a continued strong cash flow. We continue the execution of our strategy "Rolling Towards 2025" and today we are very excited to present a revised, more ambitious sustainability strategy which anchors our environmental and social commitment in the company's culture".

Launch of updated Sustainability strategy

Today, we launch an updated, more ambitious, and comprehensive sustainability strategy. In line with our intention to invest further in sustainability as announced in March, we have now established two strategic pillars to address climate change and enhance our social commitment in the communities where we operate. The two pillars are: Net Zero along the Journey of the Leaf and Sustainable Community Pioneers. We will continue our focus and efforts within Diversity, Equity and Inclusion and Corporate Ethics. Our commitment to the updated Sustainability Strategy is reflected in our revised vision

"Be the undisputed and sustainable global leader in cigars" and an estimated investment in 2022 of up to DKK 20 million.

Financial Guidance 2022 unchanged

• EBITDA: Organic growth in the range 0-6%
• Free cash flow before acquisitions in the range DKK 1.1-1.4 billion
• Adjusted EPS >5% increase

For the second quarter we still expect organic net sales and organic EBITDA growth to be negative, whereas we expect growth to resume in the second half of the year.

For further information, please contact:

Torben Sand, Head of Investor Relations, phone [phone] or [e-mail]

A conference call will be held on 20 May 2022 at 10.00 CEST. Dial-in information and an accompanying presentation will be available at investor.st-group.com around 09:00 CEST.

2

Key Figures

DKK million	3M 2022	3M 2021	FY 2021
INCOME STATEMENT
Net sales	1,938	1,883	8,233
Gross profit before special items	1,019	955	4,113
EBITDA before special items	532	527	2,233
Special items	-18	-17	-55
EBIT	427	419	1,814
Net financial items1	-14	-12	-77
Profit before tax	423	414	1,769
Income taxes	-95	-90	-378
Net profit	328	324	1,391
BALANCE SHEET
Total assets	15,057	14,547	14,584
Equity	9,281	8,799	8,968
Net interest-bearing debt (NIBD)	3,446	3,390	3,266
Investment in property, plant and equipment	54	42	212
Total capital expenditures	67	46	240
CASH FLOW STATEMENT
Cash flow from operating activities	190	132	1,567
Cash flow from investing activities	-61	-43	-178
Free cash flow	129	89	1,389
Free cash flow before acquisitions	129	89	1,393
KEY RATIOS2
Net sales growth	2.9%	7.2%	2.8%
Gross margin before special items	52.6%	50.7%	50.0%
EBITDA margin before special items	27.4%	28.0%	27.1%
Effective tax percentage	22.5%	21.7%	21.4%
Equity ratio	61.6%	60.5%	61.5%
Cash conversion	51.1%	46.3%	108.6%
Organic net sales growth	-1.7%	12.5%	4.5%
Organic EBITDA growth	-2.7%	49.1%	18.4%
NIBD / EBITDA before special items	1.5	1.7	1.5
ROIC	14.4%	10.7%	14.5%
ROIC ex. Goodwill	24.0%	17.7%	24.3%
Adjusted earnings per share (DKK)	3.6	3.4	14.8
Basic earnings per share (DKK)	3.5	3.3	14.6
Diluted earnings per share (DKK)	3.5	3.3	14.5
Number of shares issued ('000)	97,500	100,000	97,500
Number of treasury shares ('000)	5,231	3,647	4,526
Number of outstanding shares ('000)3	92,638	97,367	95,689
Share price at balance date (DKK)	143.80	121.70	137.30
Dividend per share (DKK)			7.5
Pay-out ratio			52.6%

1. Excl. share of profit of associated companies.
2. See definition/explanation of financial ratios in note 5.8 in the Annual Report 2021.
3. Average number of shares outstanding, including dilutive effect of PSUs.

3

Business overview Q1 2022

In the first quarter of 2022, the Group delivered a financial performance in line with the expectations communicated in March. Reported net sales increased by 3% to DKK 1,938 million and organic net sales decreased by 2%. Exchange rates developments impacted positively by DKK 78 million. The performance was driven by positive organic net sales growth in North America Branded & Rest of World and a negative organic net sales growth in Europe Branded and North America Online & Retail on the back of the very strong performance in 2020 and 2021. The demand for handmade cigars in the US remained robust in the quarter, though signs of a return to a slightly declining demand has occurred in the beginning of the second quarter. Pricing remains a key driver across our product categories to off-set volume declines and an increasing cost pressure.

The gross margin improved compared with the same quarter last year primarily driven by pricing. North America Branded & RoW and Europe Branded delivered improved gross margins whereas North America Online & Retail delivered a decreasing gross margin. EBITDA before special items was DKK 532 million with 3% negative organic growth resulting in an EBITDA margin before special items of 27.4%. Special items were DKK -18 million (DKK -17 million) comprising costs for the production footprint of DKK 9 million, the ERP project OneProcess of DKK 6 million and the integration of Agio Cigars of DKK 3 million. See also note 3.

The Group's free cash flow before acquisitions was DKK 129 million (DKK 89 million) driven by the operational performance. Changes in working capital were negative at DKK -269 million (DKK -280 million) and special items impacted the cash flow by DKK -40 million (DKK -53 million). The Group's leverage ratio was 1.5x.

		Divisional split Q1 2022
Net sales			EBITDA before special items
				13%
29%
+2.9%	40%	NA Branded & RoW		+0.9%
	Europe Branded
			28%	59%
DKK 1,938m			DKK 532m
	NA Online & Retail

31%

Group net sales and EBITDA Q1 2022

Table 1: Net sales

	Q1	Q1	Change
DKK million	2022	2021	in %
Net sales	1,938	1,883	2.9%
Acquisitions		9
Currency development	-78
Organic net sales	1,860	1,892	-1.7%

Table 2: EBITDA before special items

	Q1	Q1	Change
DKK million	2022	2021	in %
EBITDA	532	527	0.9%
Acquisitions		0
Currency development	-19
Organic EBITDA	513	527	-2.7%

4

Sustainability

Net-zero in our value chain by 2050

Our sustainability journey continues. In 2021, we launched our first sustainability strategy (originally our CSR strategy) and took the first steps to advance our environmental commitment as we began measuring our Scope 1 and 2 emissions under the Greenhouse Gas Protocol. In line with our intention to invest further in sustainability we now launch an updated, more ambitious, and comprehensive sustainability strategy. The sustainability strategy is built into the corporate strategy Rolling Towards 2025. It is our ambition with the sustainability strategy to craft a better tomorrow by elevating our communities and anchoring climate action in our corporate culture.

We have established two strategic pillars to address climate change and enhance our social commitment in the communities where we operate: Net Zero along the Journey of the Leaf and Sustainable Community Pioneers. Extreme weather in many regions underlines the urgency to tackle climate change now, and with more than 8,500 employees at our manufacturing facilities in Central America, Sri Lanka and Indonesia, we believe it is our responsibility to pioneer sustainable initiatives to empower our communities to build better, brighter futures in areas where it matters most. We are confident that our two strategic focus areas are the right fit for Scandinavian Tobacco Group to create tangible impact and lasting value for our planet, communities and business.

We will continue our focus and efforts within Diversity, Equity and Inclusion and Corporate Ethics.

With the launch of our enhanced sustainability strategy, we commit to SBTi reduction targets of 1.5 °C for Scope 1 and 2 this year and to deliver the required emission targets by 2030. Further, we want to achieve net-zero in our entire value chain including Scope 1, 2 and 3 by the year 2050. To engage in and elevate the communities where we operate, we focus on three areas: health and well-being, education and women's enablement, under which we will offer health screenings and educational oppor- tunities, engage in local partnerships and make impactful donations to schools and educational insti- tutions.

The total expected investment in 2022 is up to DKK 20 million, and we expect that annual expenses in relation to the ramp-up of our sustainability initiatives will increase as we mature and intensify the work.

Other updates

Retail expansion

The retail network currently comprises eight retail stores including the new superstore which marked opening on 20 April 2022 in San Antonio, Texas. The existing stores deliver valuable contributions to net sales and profits with net sales growth in the first quarter being at a double-digit percentage. We plan to open another 5-7 cigar superstores in the US in the coming 2-3 years. The retail stores account for about 7% of net sales in the division North America Online & Retail.

Update on financial key metrics

In the first quarter of 2022 the EBITDA margin decreased slightly to 27.4% (28.0%) as the first quarter of last year was exceptionally strong with sales and marketing expenses being lower than normal

5