Scandinavian Tobacco Group A/s · OMXCOP:STG
Scandinavian Tobacco Group A/s — Investor Day (November 2023)
102 slides from Scandinavian Tobacco Group A/s's investor day presentation, Nov 21, 2023
Slide 1: Capital Markets Day 2023
CAPITAL MARKETS DAY 2023 21 NOVEMBER 2023 SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023
Slide 2: Agenda
AGENDA 1200 WELCOME 1345 Q&A Torben Sand, IR & Communications Director 1400 BREAK 1210 SECTION 1: OUR UNIQUE COMPANY Niels Frederiksen, CEO Torben Sand, IR & Communications Director 1415 SECTION 3: THE VALUE PROPOSITION Yulia Lyusina, SVP Strategy, Transformation & Sustainability Jesper Madsen, CSCO
Slide 3: Dedicated and experienced management team
DEDICATED AND EXPERIENCED MANAGEMENT TEAM Niels Frederiksen Marianne Bock Régis Broersma Sarah Santos Chief Executive Officer Chief Financial Officer North America Branded & RoW North America Online & Retail Jurjan Klep Yulia Lyusina Jesper Madsen Europe Branded Strategy, Transformation Chief Supply
Slide 4: Ask away
USE SLIDO TO ASK ANY ASK AWAY QUESTIONS SCAN THIS QR CODE USING YOUR PHONE’S CAMERA SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023 4
Slide 5: Section: Our unique company
SECTION 1 OUR UNIQUE COMPANY PART 1: WHO WE ARE PART 2: OUR TRANSFORMATION PART 3: THE EQUITY STORY SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023 5
Slide 6: Part 1: Who we are
PART 1: WHO WE ARE CRAFT THE RITUALS THAT MAKE US MORE Speakers for the session: Niels Frederiksen Torben Sand Chief Executive Officer Director of Investor Relations & Communications SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023 6
Slide 7: Who we are
WHO WE ARE OUR VISION IS TO BE THE UNDISPUTED & SUSTAINABLE GLOBAL LEADER IN CIGARS Global Strategy Value Creation Consumer base within Rolling Towards 2025 Supported through market cigars & related niche (five-year strategy) consolidation, growth enablers & clear products capital allocation policy
Slide 8: Two operating models in core categories
TWO OPERATING MODELS IN CORE CATEGORIES HANDMADE CIGARS MASS MARKETS 1. Starts with a seed 2. We purchase raw tobacco 1. We purchase raw tobacco 2. Global production setup 3. Local production setup 5. Online/retail 3. We sell B2B in 100+ countries consumers in US 4. We sell in select countries, prim
Slide 9: Three commercial divisions
THREE COMMERCIAL DIVISIONS NORTH AMERICA NORTH AMERICA BRANDED EUROPE ONLINE & RETAIL & REST OF WORLD BRANDED 6 Online business units 10 retail stores SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023 9
Slide 10: Our portfolio of leading brands
OUR PORTFOLIO OF LEADING BRANDS HANDMADE MACHINE-ROLLED SMOKING NEXT GENERATION CIGARS CIGARS TOBACCO PRODUCTS SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023 10
Slide 11: Rolling Towards 2025
PURPOSE CRAFT THE RITUALS THAT MAKE US MORE VISION BE THE UNDISPUTED & SUSTAINABLE GLOBAL LEADER IN CIGARS ROLLING LARGER COMPANY GROWING EBITDA OUTSTANDING TOWARDS AMBITION MARGIN CASH GENERATION GROW DRIVE INTEGRATE SIMPLIFY EMBRACE LEAD 2025 MUST-WIN FUTURE PROFIT EVERYTHING A PERFORMANCE SUSTAIN
Slide 12: Strengthening our sustainability agenda
STRENGTHENING OUR SUSTAINABILITY AGENDA ASPIRATION We craft a better tomorrow – by elevating our communities and anchoring climate action in our culture ENVIRONMENT SOCIAL SUSTAINABILITY NET-ZERO ALONG THE SUSTAINABLE COMMUNITY PRIORITIES JOURNEY OF THE LEAF PIONEERS ADDRESS LAND USE AND ENVIRONMENT
Slide 13: Our strategic pillars
OUR STRATEGIC PILLARS CONTINUOUS TRANSFORMATION TO BE STRONGER & MORE PROFESSIONALISED CORE CIGAR BUSINESS MERGERS & ACQUISITIONS Creating shareholder value is fundamental to Scandinavian Tobacco Group. As the Company grows, we strive to transform in a way that compasses PROFESSIONALISATION digitali
Slide 14: Update on our 5-year strategy
UPDATE ON OUR 5-YEAR STRATEGY DELIVERING ON OUR MUST-WIN BATTLES Handmade Cigars M&A Simplification Two new boutique brands Successfully completed five Upgraded ERP system & continuous expansion acquisitions in four years. implementation, Autostore across international market Strong, proven M&A and
Slide 15: On track to deliver on our financial ambitions
ON TRACK TO DELIVER ON OUR FINANCIAL AMBITIONS WITH A FOCUS ON LONG-TERM GROWTH DKKm Net Sales DKKm Adjusted EBITDA 9,000 4,000 7,000 2,000 5,000 3,000 0 2018 2019 2020 2021 2022 Guidance 2018 2019 2020 2021 2022 % EBITDA Margin DKKm Free Cash Flow 40 2,000 20 1,000 0 0 2018 2019 2020 2021 2022 Guid
Slide 16: Part 2: Our transformation
PART 2: OUR TRANSFORMATION CUSTOMERS & CONSUMERS AS THE MAIN PRIORITY Speaker for the session: Yulia Lyusina Strategy, Transformation & Sustainability SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023 16
Slide 17: STG's transformation framework
STG’S TRANSFORMATION FRAMEWORK A MULTI-FACETED DISCIPLINE Consumer centricity Leverage insights, analytics, & at our core data-driven decision-making Performance culture & Business Digital execution-driven organization transformation Transformation Sustainability embedded in Build capabilities & our
Slide 18: STG is on a transformation journey
STG IS ON A TRANSFORMATION JOURNEY Pre-IPO: from… To… STG’s future state Continue to grow and become a sustainable Ambition Maintain and improve core business leader in cigars Business Product focused Consumers and customers as the main priority focus Organization Fragmented and locally organized A
Slide 19: Part 3: The equity story
PART 3: THE EQUITY STORY CREATING SHAREHOLDER VALUE Speaker for the session: Torben Sand Director of Investor Relations & Communications SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023 19
Slide 20: The STG equity story
THE STG EQUITY STORY Rolling Towards 2025 sets the scene for our Leading brand portfolio Leading cigar company long-term ambitions: • To become the undisputed and sustainable global leader in cigars through organic growth and driving industry consolidation through value Strong market positions Exper
Slide 21: Steady financial track record
STEADY FINANCIAL TRACK RECORD INCLUDING STRONG SHAREHOLDER VALUE AND RETURNS Adjusted EPS DKKm Capital Distribution % ROIC DKK Share 1,600 20 20 15 1,200 15 10 800 10 5 400 5 0 0 0 2016 2017 2018 2019 2020 2021 2022 2015 2016 2017 2018 2019 2020 2021 2022 2016 2017 2018 2019 2020 2021 2022 Dividends
Slide 22: Diversified revenue streams
DIVERSIFIED REVENUE STREAMS WITH CIGARS AT THE CORE Net sales Net Sales Net Sales (division) (category) (Core vs Growth Enablers) 13% 5% 32% 32% 14% 36% 36% 37% 95% Handmade Cigars Europe Branded Core Products Machine-rolled Cigars North America Branded & RoW Growth Enablers Smoking Tobacco North Am
Slide 23: Strong M&A history
STRONG M&A HISTORY WITH A PROVEN, REPEATABLE BLUEPRINT FOR FUTURE ACQUISITIONS • M&A and integration embedded into the STG DNA • Continuously searching for opportunities to grow and strengthen the brand portfolio & consolidate the market • Strategic screenings now encompass both cigars and NGPs (whi
Slide 24: Optimising shareholder value
OPTIMISING SHAREHOLDER VALUE DISTRIBUTING ALMOST HALF THE VALUE OF STG BACK TO SHAREHOLDERS IN 5 YEARS FIVE-YEAR ACHIEVEMENTS INCREASED CAPITAL EFFICIENCY Through value creating investments, ongoing efficiency improvements and strict 10.2% 1.2DKKbn RETURN ON FREE CASH capital discipline. INVESTED CA
Slide 25: Q&A session
Q&A SESSION SCAN THIS QR CODE USE SLIDO USING YOUR TO ASK ANY PHONE’S CAMERA QUESTIONS SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023
Slide 26: The consumer journey
SECTION 2 THE CONSUMER JOURNEY PART 1: OUR CORE VALUES PART 2: OUR CONSUMERS SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023
Slide 27: Part 1: Our core values
PART 1: OUR CORE VALUES AND HOW THEY ARE EMBEDDED INTO THE COMPANY Speaker for the session: Niels Frederiksen Chief Executive Officer SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023 2
Slide 28: The STG methodology
THE STG METHODOLOGY INTERSECTING CONSUMER TOUCH POINTS WITH OUR BRANDS CONSUMERS PASSION BRANDS & CRAFTSMANSHIP PRODUCTS SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023 3
Slide 29: SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023
SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023
Slide 30: Our core values are embedded into the business
OUR CORE VALUES ARE EMBEDDED INTO THE BUSINESS EMPOWER BLEND OUR CULTIVATE LIGHT THE WAY WITH PASSION STRENGTHS COURAGE FORWARD INSTILLING A COMBINED KNOWLEDGE SIMPLIFYING STEERING THE SENSE OF PRIDE IN THE & SKILLS TO INNOVATE COMPLEXITIES AND INDUSTRY TOWARDS EXPERIENCES WE ENABLE AND DELIVER A BE
Slide 31: Our responsibility towards the consumer
OUR RESPONSIBILITY TOWARDS THE CONSUMER PRIORITISING INTEGRITY AND REGULATORY COMPLIANCE REGULATORY UPDATES 1 US: Premium cigar litigation Long history of mature, adult consumers which will continue across current update and all future product developments 2 US: Flavoured tobacco products Decades of
Slide 32: Part 2: Our consumers
PART 2: OUR CONSUMERS EVOLVING WITH CONSUMER DEMANDS AND TRENDS Speakers for the session: Jurjan Klep Régis Broersma Sarah Santos Europe Branded North America Branded & RoW North America Online & Retail SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023 7
Slide 33: Eight mega-trends shaping the global consumer marketplace
EIGHT MEGA-TRENDS SHAPING THE GLOBAL CONSUMER MARKETPLACE Moderation & Avoidance Sensory & Indulgence Easy & Affordable Sustainability & Ethics Comfort & Uncertainty Evolving Landscapes (Demographics) Individualism & Expression Digitalization Source: GlobalData TrendSight SCANDINAVIAN TOBACCO GROUP
Slide 34: Mega-trends that define our relevance
3 MEGA-TRENDS THAT DEFINE OUR RELEVANCE SHAPING THE CIGAR CONSUMER AND CHANGING CONSUMER BEHAVIOUR AND PREFERENCE Moderation & Avoidance Sensory & Indulgence Adult consumers are proactively addressing their The driving force behind continually higher health in a more holistic and personalized manner
Slide 35: Cigar consumers seek brands that reflect their individuality
CIGAR CONSUMERS SEEK BRANDS THAT REFLECT THEIR INDIVIDUALITY & PRIORITISE TASTE & QUALITY INDIVIDUALISM & EXPRESSION SENSORY & INDULGENCE Consumers seek to emphasize individuality Consumers do not want to compromise on the taste and self-expression. They are increasingly of their comforting indulgen
Slide 36: Defining the enduring relevance of the category
DEFINING THE ENDURING RELEVANCE OF THE CATEGORY A PERSONALITY TRAIT: CONSUMERS LOOK FOR PRODUCTS TAILORED TO THEIR NEEDS CENTURIES OF TRADITION & UNIQUE SENSORY EXPERIENCE DIFFERENT OCCASIONS & RITUALS CONNOISSEURSHIP Evolving culture of cigar connoisseurship, Combines the delight of sensory Complem
Slide 37: Strong portfolio of leading brands
STRONG PORTFOLIO OF LEADING BRANDS PRESENCE IN ALL TASTE & PRICE SEGMENTS FOR DIFFERENT CONSUMER NEEDS SUPER PREMIUM PREMIUM MAINSTREAM VALUE FOR MONEY SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023 12
Slide 38: Innovation has been the driver of success
INNOVATION HAS BEEN THE DRIVER OF SUCCESS CAFÉ CRÈME / SIGNATURE IS A LEADING BRAND IN THE CATEGORY Launch of filtered cigarillos outperforming Latest innovation: The First market in France first Super Slim Small cigar Cigarillo 1980 1998 2018 1963 2017 2022 The first mini Cigarillo on the market Ca
Slide 39: Premiumization of brands led by craftsmanship
PREMIUMIZATION OF BRANDS LED BY CRAFTSMANSHIP, TRADITION AND CONNOISSEURSHIP TRUE AUTHENTIC GENUINE LUXURY ITALIAN CRAFTSMANSHIP Short Authentic Moments Super Premium, Handcrafted Moments Timeless Italian Excellence Natural, high-quality premium tobacco, Step into the legacy of the 'old master' of N
Slide 40: Adaptable futures: our response to external changes
ADAPTABLE FUTURES: OUR RESPONSE TO EXTERNAL CHANGES CRAFTING A POWERFUL FUTURE, NAVIGATING REGULATORY ADAPTING RESPONSIBLY, STREAMLINING BRAND PORTFOLIO CHANGES, SUSTAINED STRENGTH EMPOWERING SUSTAINABILITY SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023 15
Slide 41: Moderation & avoidance driving portfolio transformation
MODERATION & AVOIDANCE DRIVING PORFOLIO TRANSFORMATION MODERATION & AVOIDANCE Consumers do not want to compromise on the taste of their comforting indulgences but are looking for alternatives. Source: GlobalData TrendSight SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY
Slide 42: Tobacco & nicotine market
TOBACCO & NICOTINE MARKET REMAIN NICHE, YET SHOWING GROWTH SINCE 2019 +4% (CAGR) CAGR % Growth % RRP market size, USA & Europe Markets 424,320 2019-2022 2023-2027 USDm (RSP) Nicotine Pouches +101.4 +10.0 Smokeless +2.0 +1.7 tobacco 360,474 Heat Not Burn +46.6 +23.5 E-vapors -6.3 +5.6 Cigars & cigari
Slide 43: 2022 NGP market size & category split
2022 NGP MARKET SIZE & CATEGORY SPLIT Smokeless Tobacco market size Heated Tobacco market size USDm (RSP) USDm (RSP) USDm (RSP) +2% 26,416 +47% 23,492 (CAGR) (CAGR) Heated Tobacco Products 10,222 16,147 Vapour Products 25.7% Heated Tobacco Products 61.1% 2019 2020 2021 2022 Nicotine pouches market s
Slide 44: Initial steps to strengthen our portfolio
INITIAL STEPS TO STRENGTHEN OUR PORTFOLIO 1. Acquisition of the second fastest growing nicotine pouch 2. STG now has a portfolio of brands to meet evolving brand in Sweden consumer needs TOP 5 Brand in Sweden Launched Sep’22 Launched May’23 Acquired Jun’23 3. Continuous share growth in Sweden projec
Slide 45: Success of Break illustrates ability to compete with Big Tobacco
SUCCESS OF BREAK ILLUSTRATES ABILITY TO COMPETE WITH BIG TOBACCO 1. STG is 5th largest manufacturer in German volume tobacco 2. Break is the only growing brand in top 5, already having market overtaken JPS 4% 4% PRIVATE LABEL 6% 11.9t 25% #2 #3 8% IMPERIAL JTI #1 BAT PHILIP MORRIS 11% STG GERMANY To
Slide 46: STG evolves with global trends & consumer demands
STG EVOLVES WITH GLOBAL TRENDS & CONSUMER DEMANDS AND REMAINS AT THE FOREFRONT FOR PRODUCT AND PORTFOLIO INNOVATION STRENGTHENING BRANDS TO PORTFOLIO SIGNIFICANCE & LONGEVITY ALIGN WITH GLOBAL TRENDS DIVERSIFICATION OF RITUALS As trends develop, so does STG’s journey Development of NGPs to adapt wit
Slide 47: Connecting with our consumers: handmade cigars
CONNECTING WITH OUR CONSUMERS: HANDMADE CIGARS
Slide 48: Strong pricing execution delivers long-term profitability
STRONG PRICING EXECUTION DELIVERS LONG-TERM PROFITABILITY FOR HANDMADE CIGAR BRANDS Net Sales (DKK billion) GP% 47% 3.4 2.8 40% 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023 23
Slide 49: Consumer segmentation drives brand positioning and activation
CONSUMER SEGMENTATION DRIVES BRAND POSITIONING AND ACTIVATION OPTIMIZES AWARENESS AND TRIAL SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023 24
Slide 50: Brand portfolio accommodates fluctuation in discretionary income
BRAND PORTFOLIO ACCOMODATES FLUCTUATION IN DISCRETIONARY INCOME ALLOWS STG TO CAPTURE INCREASED CONSUMER WALLET SHARE Super Premium Premium Mainstream Value for Money SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023 25
Slide 51: Invigorating consumers through sales-stimulating touchpoints
INVIGORATING CONSUMERS THROUGH SALES-STIMULATING TOUCHPOINTS DELIVERS STRONG OUTCOMES FOR BRANDS Influencers Innovation Digital/Social 360° Collaborations Consumer Engagement Experimental Sponsorship SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023 26
Slide 52: Brand positioning grounded in insights
BRAND POSITIONING GROUNDED IN INSIGHTS COHIBA: EXPERIENCE LUXURY Brand Theme Cohiba aims to be the pinnacle of luxury within the US premium cigar category Strategy is to create the highest value and pricing power for Cohiba by leveraging the brand’s intangibles such as exclusivity, scarcity and desi
Slide 53: Premium innovation at the core of Cohiba positioning
PREMIUM INNOVATION AT THE CORE OF COHIBA POSITIONING UNIQUE AND DIFFERENTIATED OFFERINGS DELIVER HALO EFFECT ON THE BRAND SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023 28
Slide 54: Our commitment to cigar making inspires consumers
OUR COMMITMENT TO CIGAR MAKING INSPIRES CONSUMERS TO CONTINUALLY SEEK OUR BRANDS PEDIGREE OF LEAF CRAFTSMANSHIP ARTISANAL DEDICATION SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023 29
Slide 55: Collaborations tied to brand-adjacent lifestyles
COLLABORATIONS TIED TO BRAND-ADJACENT LIFESTYLES SUPPORT BRAND POSITIONING AND EXPAND AWARENESS SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023 30
Slide 56: Activating where the consumer experiences rituals
ACTIVATING WHERE THE CONSUMER EXPERIENCES RITUALS DEEPENS BRAND AFFINITY SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023 31
Slide 57: SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023
SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023
Slide 58: Digitalization increases market share across brand portfolio
DIGITALIZATION INCREASES MARKET SHARE ACROSS BRAND PORTFOLIO Drive awareness to promote Drive engagement and affinity Drive conversion through participation with our brands to keep our brands top of mind data capture & participation Web | Digital Social CRM 21.8MM 750K 642K 17.4% 19.9% 11.2K GROSS I
Slide 59: Consumer centricity and scalability
CONSUMER CENTRICITY AND SCALABILITY RESULTS IN LONG-TERM DOUBLE-DIGIT GROWTH OF THE COHIBA BRAND NET SALES: 5 YR CAGR +13% GROSS PROFIT: 5 YR CAGR +11% SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023 34
Slide 60: Core strength of scalability accelerates brand growth
CORE STRENGTH OF SCALABILITY ACCELERATES BRAND GROWTH BENEFITS EXISTING PORTFOLIO AND M&A OPPORTUNITIES Accelerated Brand Expansion New Brand Launches: 8 / USD 2.8m Limited Editions: 14 / USD 2.9m Increased Brand Presence +36,000 Points of New Distribution SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR P
Slide 61: International expansion continues with double-digit growth
INTERNATIONAL EXPANSION CONTINUES WITH DOUBLE-DIGIT GROWTH ILLUSTRATING OUR CORE STRENGTH OF SCALABILITY TOTAL VOLUME NET SALES GROSS PROFIT 5 YR CAGR 5 YR CAGR 5 YR CAGR +15% +16% +18% KUALA LUMPUR JAKARTA SURPRISE 2022 2023 2024 SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MAR
Slide 62: Q&A session
USE SLIDO TO ASK ANY Q&A SESSION QUESTIONS SCAN THIS QR CODE USING YOUR PHONE’S CAMERA SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023
Slide 63: Value proposition
SECTION 3 VALUE PROPOSITION PART 1: OPERATIONS PART 2: MERGERS & ACQUISITIONS PART 3: THE CORE CIGAR BUSINESS PART 4: NEW GROWTH OPPORTUNITIES PART 5: CREATING SHAREHOLDER VALUE SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023
Slide 64: Part 1: Operations
PART 1: OPERATIONS DISTINCT, EFFICIENT, INVENTIVE & SUSTAINABLE Speaker for the session: Jesper Madsen Chief Supply Chain Officer SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023 2
Slide 65: Global manufacturing network
GLOBAL MANUFACTURING NETWORK GLOBAL COVERAGE, CLOSE TO MAIN MARKETS & SUPPLIES Denmark (Holstebro) Handmade cigars Belgium (Westerlo) Denmark (Assens) Machine rolled cigars making, finishing and packing Italy (Orsago) Belgium (Lummen) Machine rolled wrappers and binders Dominican Republic Honduras (
Slide 66: Distinctive cigar manufacturing model
DISTINCTIVE CIGAR MANUFACTURING MODEL COMBINING MASS MARKET MACHINE ROLLED & CRAFTED PREMIUM HANDMADE Cutting Growing Curing Fermenting Sorting Threshing Blending Manufacturing Increased vertical STG handmade ~25% integration cigar model ~75% STG machine rolled cigar model ~40-50% Less vertical Big
Slide 67: Multiple roles across value chain
MULTIPLE ROLES ACROSS VALUE CHAIN EXPLOITING CAPABILITIES & ASSETS TO MAXIMISE COMMERCIAL VALUE Cutting Growing Curing Fermenting Sorting Threshing Blending Manufacturing Distribution Integrated Sourced Own brands Conversion Sourced Own brands 3rd party manufacturing Sourced Own brands Distributor S
Slide 68: Two operating models in core categories
TWO OPERATING MODELS IN CORE CATEGORIES BALANCING MASS PRODUCTION AND CRAFTSMANSHIP MACHINE ROLLED CIGARS HANDMADE CIGARS • Machine made & distinct premium experience • Craftsmanship & unique materials • High volume • Low volume, high complexity • Convenient & suitable for different occasions • Prem
Slide 69: SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023
SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023
Slide 70: Efficiency as essential factor for success
EFFICIENCY AS ESSENTIAL FACTOR FOR SUCCESS ACHIEVED THROUGH INTERNAL IMPROVEMENT AND M&A Due to.. ..we hunt for two types of …and realize them in two ways… …by reducing cost using different efficiency gains… levers Cost efficiency – same value Continuous improvement in • Network, sites, products, ma
Slide 71: Innovation in all that we do
INNOVATION IN ALL THAT WE DO BRINGING NEW IDEAS TO BEAR ACROSS OUR BUSINESS Tobacco Materials Products Technology & Process SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023 9
Slide 72: Sustainability as a core priority
SUSTAINABILITY AS A CORE PRIORITY TARGET TO BECOME A SUSTAINABLE GLOBAL LEADER IN CIGARS Climate change Water management Land use & responsible Reusable materials Social & community agriculture & packaging Renewable power & heat Water harvesting & treatment Biodiversity Waste reduction Health care E
Slide 73: Learnings from supply challenges
LEARNINGS FROM SUPPLY CHALLENGES OPPORTUNITIES FOR IMPROVEMENT Transparency Complexity Speed of decision making Data structure & quality Products Operating model Analytics & insight Supply network Feedback cycle Market intelligence Risk aversity Predictability Prioritization & execution Demand sensi
Slide 74: Operational risk
OPERATIONAL RISK MITIGATION STRATEGIES CONTINUALLY AT PLAY RISKS MITIGATION 18-24 months of leaf inventory, global sourcing model Shortage / Delays in raw materials & substitution to buffer against disruption Agile workforce able to easily scale up/down production Shortage of seasonal labour volume
Slide 75: Part 2: Mergers & acquisitions
PART 2: MERGERS & ACQUISITIONS THE PROVEN STG BLUEPRINT Speaker for the session: Yulia Lyusina Strategy, Transformation & Sustainability SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023 13
Slide 76: M&A is a significant source of value to STG
M&A IS A SIGNIFICANT SOURCE OF VALUE TO STG AND A KEY STRATEGIC PRIORITY WHAT CAN WE ACHIEVE WITH M&A? STG FOCUSES ON TWO TYPES OF M&A Expand our portfolios, TRANSFORMATIONAL within core categories and new opportunities Expand markets Acquire new: Strengthen Fewer and brand portfolio - Businesses pr
Slide 77: STG has generated significant growth
STG HAS GENERATED SIGNIFICANT GROWTH AND REALISED SYNERGIES FROM MULTIPLE ACQUISITIONS 2023 highlights - Growth Enablers and M&A • Completed the acquisition of Alec Bradley cigar business Bigger, more profitable, • Completed the acquisition of the XQS brand outstanding cashflow generation • Launched
Slide 78: Structured & highly successful acquisition approach
STRUCTURED & HIGHLY SUCCESSFUL ACQUISITION APPROACH DELIVERING CLEAR VALUE Strategic Screening Deal Execution Integration Proven track record of delivering value Category-specific Experienced transaction Thorough integration 8 transactions completed since priorities as a foundation team, enabled by
Slide 79: Part 3: The core cigar business
PART 3: THE CORE CIGAR BUSINESS MARKET LEADER AND GROWING Speaker for the session: Niels Frederiksen Chief Executive Officer SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023 17
Slide 80: Pricing & market shares critical for net sales performance
PRICING & MARKET SHARES CRITICAL FOR NET SALES PERFORMANCE DESPITE VOLUME TRENDS Drivers Direction Market Volumes Decreasing trend likely to continue STG Market share Recent market share decline temporary Pricing / Mix Pricing capability has improved Net Sales Organic Growth + M&A EBITDA Margin We a
Slide 81: Core categories in decline both in US & Europe
CORE CATEGORIES IN DECLINE BOTH IN US & EUROPE YET DRIVERS ARE VERY DIFFERENT US EUROPE 3-Year Historical data Current Trend 3-Year Historical Current Trend % CAGR % CAGR % CAGR % CAGR HANDMADE CIGARS 1) >10 ~-5 1 ~3 MACHINE-ROLLED CIGARS 2) -3 -3 SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES O
Slide 82: Handmade cigar consumption boosted by Covid
HANDMADE CIGAR CONSUMPTION BOOSTED BY COVID NOT CERTAIN WHERE HMC CONSUMPTION LEVELS WILL STABILIZE Large Premium Cigars +54% million sticks Q1–Q3 517,248 Q4 550,000 LTM 500,000 143,082 500,000 475,000 336,532 450,000 95,844 +48% 400,000 355,394 350,000 240,688 300,000 300,000 2010 2011 2012 2013 20
Slide 83: We should do better than the market trend
WE SHOULD DO BETTER THAN THE MARKET TREND CHANNEL MIX AND PORTFOLIO TO DRIVE GROWTH Online Store 26% 43% 37% 40% 42% 40% 53% 47% Online share ~60% of volumes 74% Drivers for delivering above market growth: 57% 63% 60% 58% 60% 47% 53% • Online channel expected to regain share of volumes 2008 2014 201
Slide 84: MRC has been challenging
MRC HAS BEEN CHALLENGING WITH DECLINING VOLUMES AND LOSS OF MARKET SHARE Total Volume 7 Key Markets accounting for 75% of volume in Europe (Europe Branded) STG Market Share 5,000 36% 4,681 4,678 4,538 4,463 34% 4,500 4,333 32% 4,000 30% 3,500 28% 26% 3,000 24% 2,500 22% STG Market Share 20% 2,000 Q1
Slide 85: MRC – our growth outlook
MRC – OUR GROWTH OUTLOOK REVERSING THE TREND BY TAKING SHARE & CONTINUE M&A Improving market share through: >50% • Strategic pricing >50% >85% <10% • Product innovation • Streamlining and consolidating brands <50% • Ongoing M&A >11% • Infrastructure and capabilities >25% Top 7 markets in Europe SCAN
Slide 86: Margin enhancement is a focus area
MARGIN ENHANCEMENT IS A FOCUS AREA DIFFERENT STRATEGIES IN PLACE TO INCREASE MARGINS Pricing Scale Benefits Investments in efficiency Premiumization Brand consolidation ERP system INCREASED MARGINS Strategic pricing E-commerce sites Warehouse automation Consumer insights Procurement Fueling the Grow
Slide 87: SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023
SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023
Slide 88: Aiming for core categories to deliver growth
AIMING FOR CORE CATEGORIES TO DELIVER GROWTH OFFSETTING VOLUME TRENDS BY PRICING AND EFFICIENCIES Net sales / % of Group Category Drivers Direction (FY 2022) ~35% Handmade cigars in US Volume by market share gains and pricing ~35% Machine-rolled cigars Offset volume decline by market share and prici
Slide 89: Part 4: New growth opportunities
PART 4: NEW GROWTH OPPORTUNITIES EVOLVING WITH OUR CONSUMERS Speaker for the session: Niels Frederiksen Chief Executive Officer SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023 27
Slide 90: Our growth enablers
OUR 3 GROWTH ENABLERS RETAIL EXPANSION, NEXT GENERATION PRODUCTS, INTERNATIONAL SALES Continuous Retail Development of NGPs International Growth Expansion in USA in key markets (handmade cigars) SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023 28
Slide 91: Continued retail expansion success
CONTINUED RETAIL EXPANSION SUCCESS GEOGRAPHIC GROWTH OF CIGAR SUPERSTORES ACROSS USA STRATEGY AND AMBITION • Geographic expansion to grow the size of the company and contribute to ongoing shareholder value • Delivering valuable contributions to the Group´s financial performance CURRENT STATUS • 9 Su
Slide 92: Development of NGPs across key markets
DEVELOPMENT OF NGPS ACROSS KEY MARKETS ADAPTING TO CONSUMER DEMANDS AND DIVERSIFYING OUR PORTFOLIO Nicotine Pouch Expected Growth 2,500 (Total Market Western Europe) STRATEGY AND AMBITION 2,000 • Grow size of company through portfolio diversification create shareholder 1,500 1,000 value through prof
Slide 93: International growth of handmade cigars
INTERNATIONAL GROWTH OF HANDMADE CIGARS STRENGTHENING OUR CONSUMER ORIENTATION ON A GLOBAL SCALE STRATEGY AND AMBITION • Grow net sales, increase market share • Increase category profitability by increasing sales of proprietary handmade brands and building brand equity for top brands CURRENT STATUS
Slide 94: Growth enablers important to net sales & EBITDA growth
GROWTH ENABLERS IMPORTANT TO NET SALES & EBITDA GROWTH OVER TIME STRONG NET SALES IMPACT, INVESTMENTS TO IMPACT MARGINS Net sales / % of Group Category Drivers Direction (FY 2022) 2-3% Retail Expansion Store openings 0-1% NGPs XQS growth a.o., market roll-out 2-3% International Sales of Rollout stra
Slide 95: Part 5: Financial ambitions
PART 5: FINANCIAL AMBITIONS GROWTH KEY TO DELIVER SHAREHOLDER RETURNS Speaker for the session: Torben Sand Director of Investor Relations & Communications SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023 33
Slide 96: Growth anchored in our financial ambitions
GROWTH ANCHORED IN OUR FINANCIAL AMBITIONS FOCUSING ON CREATING SHAREHOLDER VALUE EARNINGS FREE CASH FLOW RETURN ON INVESTED CAPITAL Aim to increase EBITDA margins over time To achieve average annual growth in free Improve ROIC over time (subject to changes in business mix as cash flow before acquis
Slide 97: Strong financial position with headroom
STRONG FINANCIAL POSITION WITH HEADROOM WITH WELL-BALANCED FUNDING STRUCTURE AND HEADROOM TO LEVERAGE TARGET OF 2.5X DKKm 7,000 6451 300 Overdraft 6,000 5,000 2.1 (YTD) 3375 RCF 4,000 1.5 1.5 1.8 3,000 1.8 1.8 2 2,000 2250 EUR Bond 1,000 526 Pension / Leasing 0 2017 2018 2019 2020 2021 2022 2023 Ava
Slide 98: Almost 5 billion returned in 5 years
ALMOST 5 BILLION RETURNED IN 5 YEARS LAUNCH OF NEW SHARE BUY-BACK PROGRAM OF 850 MILLION • Financial Policy based on a leverage target of 2.5 times DKKm CAPITAL DISTRIBUTION 1,600 • Shareholder Return Policy with ambition of annual growth in ordinary dividend payments and distributing excess capital
Slide 99: Year to date performance – 2023
YEAR TO DATE PERFORMANCE – 2023 NET SALES EBITDA MARGIN FREE CASH FLOW ADJUSTED EPS Reported Before special items Before acquisitions DKK 6.5 billion 24.6% DKK 602 million DKK 10.8 (-1.8%) (25.9%) (735 million) (11.6) First nine months of 2023 as per Interim Report, November 8th 2023 SCANDINAVIAN TO
Slide 100: Long term trend: EBITDA margins
LONG TERM TREND: EBITDA MARGINS (Q3 2018-Q3 2023) THE GROUP % % NAOR 40 30 30 20 20 10 10 0 0 Q3 18Q3 19Q3 20Q3 21Q3 22Q3 23 Q3 18 Q3 19 Q3 20 Q3 21 Q3 22 Q3 23 % NABROW % EUROPE BRANDED 60 40 30 40 20 20 10 0 0 Q3 18 Q3 19 Q3 20 Q3 21 Q3 22 Q3 23 Q3 18 Q3 19 Q3 20 Q3 21 Q3 22 Q3 23 SCANDINAVIAN TOB
Slide 101: 2023 outlook
2023 OUTLOOK* NET SALES EBITDA MARGIN FREE CASH FLOW ADJUSTED EPS Before special items Before acquisitions In the range of In the range of In the range of In the range of DKK 8.7–9.0 billion 23.5-24.5% DKK 1.1–1.3 billion DKK 14.0 – 16.0 Fourth Quarter 2023 • Net sales growth driven by online/retail
Slide 102: Q&A session
USE SLIDO TO ASK ANY QUESTIONS Q&A SESSION SCANDINAVIAN TOBACCO GROUP | FOR INVESTOR PURPOSES ONLY | CAPITAL MARKETS DAY 2023
Scandinavian Tobacco Group — Investor Day (November 2023) on 6ix